QUARTERLY REPORT
FOR THE PERIOD ENDED
DECEMBER 31, 1995
FELLOW PARTNERS:
Revenues were relatively flat in the Fund's first fiscal quarter ended
December 31, 1995, compared with last year. Expenses, however, were up, so net
income declined from the prior-year period. The Montgomery office building in
Gaithersburg, Maryland, had the most significant negative effect, as expenses
associated with this property increased by $38,000 over last year and its
rental income was off by $72,000. Montgomery suffered due to a 17% decline in
average leased status as well as from new credit problems. Occupancy improved
toward quarter-end, as outlined in the Advisor's Report, so we hope operations
at the property will continue to improve, albeit slowly.
Royal Biltmore, the Phoenix office property, and The Business Park, an
office/service complex in Gwinnett County, Georgia, remained bright spots in
the portfolio. Rental income at the former property was up in this year's
quarter because of higher overall rental rates, and its expenses were slightly
lower despite an increase in its real estate tax assessment. As a result,
Royal Biltmore's contribution to net income was $35,000 above the 1995 first
quarter level. Operations at The Business Park improved by an identical
amount, fueled primarily by an 8% increase in average leased status compared
with 1995.
Newport Center, another office/service holding which is in Deerfield
Beach, Florida, showed improvement in rental rates, but the effect on the net
income comparison was offset by modestly higher real estate taxes and bad debt
expense.
The decline in the Fund's cash position compared with the first fiscal
quarter of 1995 was related to the significantly greater cash distributions
declared in the fourth fiscal quarter ended September 30 but paid in the
quarter ended December 31. Approximately $8.00 more per unit was distributed
from sales proceeds and $5.00 more from improved operations for the quarter
ended September 30, 1995, relative to the prior fiscal year. As we announced
in the annual report, we currently plan to distribute $4.75 per quarter for
the current fiscal year but will review this rate periodically to see if
operating conditions, dispositions, and/or cash needs warrant a change.
Sincerely,
James S. Riepe
Chairman
February 12, 1996
INVESTMENT ADVISOR'S REPORT
"Phoenix Gears Up For Full Recovery As Markets Tighten" was the headline of an
article in the November 16, 1995, issue of Commercial Property News. Although
growth is slowing from its brisk 1994 pace, the Phoenix economy remains one of
the fastest-growing in the nation, led by gains in tourism, high-tech
manufacturing, and back office services. Job growth continues to outpace the
national rate supported by strong in-migration, affordable housing, a skilled
labor force, and a high quality of life. As a result, Phoenix remains one of
the most active real estate markets in the U.S.
The strength of this economy has had a significant impact on the real
estate sectors, particularly office and industrial, in which the Fund has
investments. Because of the lack of construction and continued absorption of
existing space, the overall office vacancy rate has dropped below 13%, and
large blocks of contiguous space are difficult to find. In the Camelback
submarket where Royal Biltmore is located, vacancy rates have dropped from 30%
in 1990 to below 12%. As demand has grown, rental rates at this property have
increased from $12.75 per foot in 1992 to $17.00 today.
The industrial market is also booming, with an overall vacancy rate
below 7%. Unlike the office market, however, rental rates have increased to
such an extent that new construction is starting to take place. Van Buren has
benefited from the tightening of the market, with rental rates on new and
renewal leases up around 10% over the last two years.
In such an environment, we expect opportunistic investors who have been
prevalent in the office market will be replaced by institutional buyers who
are willing to pay more for longer- term, even though unproven, upside
potential.
Property Highlights
The leased status of the portfolio remained flat versus the prior quarter, as
the declines in occupancy at Airport Perimeter and Newport Center were offset
by gains at Montgomery and The Business Park.
Real Estate Investments
Gross % Leased
Leasable
Area Prior Current
Property (Sq. Ft.) Quarter Quarter
________ ________ _______ _______
Airport Perimeter 121,000 80% 72%
Montgomery 116,300 67 70
Royal Biltmore 71,300 98 98
Springdale 144,000 100 100
The Business Park 157,200 92 96
Van Buren 173,900 92 92
Newport Center 62,400 93 90
Spring Creek 51,400 100 100
________ ___ ___
Fund Total 897,500 89% 89%
At Montgomery, two new leases totaling 4,700 square feet were signed,
bringing occupancy to 70%. At The Business Park, 10,000 square feet of new
leases, including a 2,000 square-foot renewal, more than offset 3,500 square
feet of expirations to raise the leased status of this property to 96%. A
major tenant at Royal Biltmore has expressed interest in expanding into the
property's one remaining vacancy. The proposed rent for this space would
represent a new high at this property since the market began to recover,
indicating to us that the market is continuing to strengthen.
We have received several offers for the Spring Creek property and are
currently negotiating a sales contract with the purchaser whose offer we
consider most favorable. We will report on our progress next quarter.
Market Highlights
The Fund's two properties located in Phoenix, Arizona, continue to benefit
from the improvement of the local economy. The desire to locate a business's
offices near executive housing has also put considerable upward pressure on
rental rates and lowered vacancy levels in the Camelback Corridor where Royal
Biltmore is located.
Interest in Van Buren's vacant space remains high, as business
opportunities for small to medium-sized industrial space users abound in the
area. Rental rates for industrial properties have increased enough to justify
new construction, and there is plenty of land available to accommodate it.
This may affect rates and occupancy at Van Buren by the end of 1996.
Investor interest in both of these properties is high, and several
potential buyers have made unsolicited inquiries about their availability.
Hundreds of industrial and office properties in this market have been acquired
over the last several years, and values have appreciated. As a result, we are
reviewing the pros and cons of selling Royal Biltmore and Van Buren in 1996
and will let you know the results of our deliberations.
LaSalle Advisors
February 12, 1996
CONDENSED BALANCE SHEETS
Unaudited
(In thousands)
December 31,September 30,
1995 1995
__________ ___________
Assets
Real Estate Property Investments
Land. . . . . . . . . . . . . . . . .$ 11,014 $ 11,014
Buildings and Improvements. . . . . . 54,433 54,237
________ ________
65,447 65,251
Less: Accumulated Depreciation
and Amortization. . . . . . . . . . . (24,708) (24,092)
________ ________
40,739 41,159
Properties Held for Sale. . . . . . . 1,226 1,226
________ ________
41,965 42,385
Cash and Cash Equivalents. . . . . . . . 1,487 2,832
Accounts Receivable
(less allowances of $124 and $85). . . . 455 292
Other Assets . . . . . . . . . . . . . . 543 624
________ ________
$ 44,450 $ 46,133
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents. . .$ 363 $ 364
Accrued Real Estate Taxes. . . . . . . . 133 202
Accounts Payable and Other Accrued Expenses 286 281
________ ________
Total Liabilities. . . . . . . . . . . . 782 847
Partners' Capital. . . . . . . . . . . . 43,668 45,286
________ ________
$ 44,450 $ 46,133
________ ________
________ ________
The accompanying notes are an integral part of the condensed financial
statements.
CONDENSED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months Ended
December 31,
1995 1994
___________ __________
Revenues
Rental Income. . . . . . . . . . . . . .$ 1,480 $ 1,483
Interest Income. . . . . . . . . . . . . 22 23
________ ________
1,502 1,506
________ ________
Expenses
Property Operating Expenses. . . . . . . 451 447
Real Estate Taxes. . . . . . . . . . . . 174 155
Depreciation and Amortization. . . . . . 616 600
Partnership Management Expenses. . . . . 123 111
________ ________
1,364 1,313
________ ________
Net Income . . . . . . . . . . . . . . . 138 193
________ ________
________ ________
Activity per Limited Partnership Unit
Net Income . . . . . . . . . . . . . . .$ 1.37 $ 1.92
________ ________
________ ________
Cash Distributions Declared. . . . . . .$ 4.75 $ 4.00
________ ________
________ ________
Units Outstanding. . . . . . . . . . . . 90,622 90,622
________ ________
________ ________
The accompanying notes are an integral part of the condensed financial
statements.
CONDENSED STATEMENT OF PARTNERS' CAPITAL
Unaudited
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance, September 30, 1995. . $ (3,747) $ 49,033 $45,286
Net Income . . . . . . . . . . 14 124 138
Cash Distributions . . . . . . (125) (1,631) (1,756)
_______ _______ _______
Balance, December 31, 1995 . . $(3,858) $47,526 $43,668
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the condensed financial
statements.
CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Three Months Ended
December 31,
1995 1994
________ ________
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . . . .$ 138 $ 193
Adjustments to Reconcile Net Income
to Net Cash
Provided by Operating Activities
Depreciation and Amortization . . . . 616 600
Increase in Accounts Receivable,
Net of Allowances . . . . . . . . . . (163) (42)
Change in Other Assets. . . . . . . . 81 61
Decrease in Accrued
Real Estate Taxes . . . . . . . . . . (69) (155)
Other Changes in Assets
and Liabilities . . . . . . . . . . . 4 (51)
________ ________
Net Cash Provided by
Operating Activities . . . . . . . . . . 607 606
Cash Flows Used in Investing Activities
Investments in Real Estate . . . . . . . (196) (346)
Cash Flows Used in Financing Activities
Cash Distributions . . . . . . . . . . . (1,756) (497)
________ ________
Cash and Cash Equivalents
Net Decrease during Period . . . . . . . (1,345) (237)
At Beginning of Year . . . . . . . . . . 2,832 2,603
________ ________
At End of Period . . . . . . . . . . . .$ 1,487 $ 2,366
________ ________
________ ________
The accompanying notes are an integral part of the condensed financial
statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented. All such adjustments are of a
normal, recurring nature.
The unaudited interim financial information contained in the
accompanying condensed financial statements should be read in conjunction with
the financial statements contained in the fiscal 1995 Annual Report to
Partners.
NOTE 1 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
As compensation for services rendered in managing the affairs of the
Partnership, the General Partner receives 10% of cash available for
distribution from operations and a portion of the proceeds from property
dispositions. The General Partner's share of cash available for distribution
from operations totaled $48,000 for the first three months of fiscal 1996.
In accordance with the partnership agreement, certain operating expenses
are reimbursable to the General Partner. The General Partner's reimbursement
of such expenses totaled $37,000 for communications and administrative
services performed on behalf of the Partnership during the first three months
of fiscal 1996.
An affiliate of the General Partner earned a normal and customary fee of
$2,000 from the money market mutual funds in which the Partnership made its
interim cash investments during the first three months of fiscal 1996.
LaSalle Advisors Limited Partnership ("LaSalle") is the Partnership's
advisor and is compensated for its advisory services directly by the General
Partner. LaSalle is reimbursed by the Partnership for certain operating
expenses pursuant to its contract with the Partnership to provide real estate
advisory, accounting, and other related services to the Partnership. LaSalle's
reimbursement for such expenses during the first three months of fiscal 1996
totaled $38,000.
The partnership agreement includes provisions limiting the maximum
contribution the General Partner can be required to fund upon the dissolution
and termination of the Partnership if, at that time, the General Partner's
capital account has a negative balance. The maximum contribution is
approximately $913,000. If after making such a contribution, the General
Partner's capital account still has a negative balance, a reallocation of
income equal to the remaining negative balance will be made to the General
Partner from the Limited Partners.
NOTE 2 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $4.75 per unit to
Limited Partners of the Partnership as of the close of business on December
31, 1995. The distribution totals $478,000 and represents $4.75 per unit of
cash available for distribution from operations for the period October 1, 1995
through December 31, 1995. The Limited Partners will receive $430,000, and the
General Partner will receive $48,000.
