FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-14470
INVESTORS FIRST-STAGED EQUITY L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 36-3310965
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8700 West Bryn Mawr
Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (312) 399-8700
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
March 31, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 3,471
Restricted-tenant security deposits 406
Accounts receivable, net of allowance
for doubtful accounts of $202 200
Note receivable 150
Escrows for taxes and insurance 209
Restricted escrows 453
Other assets 260
Investment properties:
Land $ 9,088
Buildings and related improvements 41,866
50,954
Less accumulated depreciation (22,779) 28,175
$ 33,324
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 45
Accrued interest 2,822
Tenant security deposits 401
Accrued property taxes 23
Other liabilities 613
Advances from affiliates of the
General Partner 821
Mortgage notes payable, including
$22,405 in default 45,754
Partners' Deficit
General partners $ (353)
Limited partners (16,267 units
issued and outstanding) (16,802) (17,155)
$ 33,324
See Accompanying Notes to Consolidated Financial Statements
b) INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Revenues:
Rental income $ 1,829 $ 1,935
Other income 60 64
Total revenues 1,889 1,999
Expenses:
Operating 330 390
General and administrative 54 82
Property management fees 98 117
Maintenance 169 239
Depreciation 473 500
Interest 869 1,027
Property taxes 119 110
Total expenses 2,112 2,465
Loss on disposition of investment
property -- (78)
Net loss $ (223) $ (544)
Net loss allocated to general partners $ (2) $ (5)
Net loss allocated to limited partners (221) (539)
$ (223) $ (544)
Net loss per limited partnership unit $ (13.59) $ (33.12)
See Accompanying Notes to Consolidated Financial Statements
c) INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Partners' deficit at
December 31, 1995 16,267 $ (351) $ (16,581) $ (16,932)
Net loss for the three months
ended March 31, 1996 -- (2) (221) (223)
Partners' deficit at
March 31, 1996 16,267 $ (353) $ (16,802) $ (17,155)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (223) $ (544)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 473 500
Amortization of loan costs and leasing commissions 11 25
Loss on disposition of investment property -- 78
Change in accounts:
Restricted cash (68) (7)
Note receivable 10 8
Accounts receivable (41) (71)
Escrows for taxes and insurance 317 (26)
Other assets (82) (27)
Accounts payable (50) (20)
Accrued interest 497 343
Tenant security deposit liabilities (5) (6)
Accrued taxes 23 61
Other liabilities 5 71
Net cash provided by operating activities 867 385
Cash flows from investing activities:
Property improvements and replacements (22) (118)
Deposits to restricted escrows (13) (13)
Net cash used in investing activities (35) (131)
Cash flows from financing activities:
Payments on mortgage notes payable (168) (69)
Net cash used in financing activities (168) (69)
Net increase in cash and cash equivalents 664 185
Cash and cash equivalents at beginning of period 2,807 1,899
Cash and cash equivalents at end of period $ 3,471 $ 2,084
Supplemental disclosure of cash flow information:
Cash paid for interest $ 356 $ 676
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
e) INVESTORS FIRST-STAGED EQUITY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the General Partner, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the fiscal year ended
December 31, 1995.
Certain reclassifications have been made to the 1995 information to conform
to the 1996 presentation.
Note B - Going Concern
The consolidated financial statements have been prepared assuming that the
Partnership will continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
the uncertainties described below, however, such uncertainties raise substantial
doubt about the Partnership's ability to continue as a going concern.
The Partnership's properties historically experienced operating deficits
after debt service payments. As a means of funding the Partnership's deficits,
the Partnership previously drew upon working capital reserves which were
exhausted as of December 31, 1989, and had taken cash advances from affiliates
of the General Partner. The General Partner and affiliates are not obligated to
and do not intend to further fund any such cash flow deficits. In addition, the
partners deficit at March 31, 1996, was $17,155,000. Also, since December 31,
1989, the Partnership has typically deferred repayment of these advances and
other accrued expenses with the consent of the General Partner and its
affiliates. During 1994, the General Partner and its affiliates assigned a
portion of the advances to an affiliate of Insignia Financial Group,
Inc.("Insignia"). The willingness of the affiliates of the General Partner and
other related parties to continue to defer repayment of the advances could
adversely affect the Partnership's financial condition.
Note B - Going Concern - continued
In addition, the General Partner and its affiliates have incurred serious
financial difficulties that may affect the ability of the General Partner to
function in that capacity. The administration and management of the Partnership
is dependent on the General Partner and its affiliates. The pending replacement
of the General Partner as discussed in "Note D" will not necessarily have a
positive impact on the financial condition of the Partnership.
Due to cash flow deficiencies at Rivercrest Village Apartments and Richardson
Highlands Apartments, the Partnership stopped making the required monthly
payments on the second mortgage loans for these properties in October 1990 and
September 1991, respectively. The Registrant negotiated with the subordinate
debt holder for Rivercrest Village and Richardson Highlands and finalized a debt
restructure on June 22, 1994. The Partnership is in default of certain
provisions of these restructured subordinate loans due to the failure to make
the required debt service payments of surplus cash amounts as provided by The
Department of Housing and Urban Development ("HUD") Regulatory Agreement. Due
to the default, management could be forced to relinquish the related properties
to the debt holder in satisfaction of the obligations.
The Partnership, VMS Realty Management, Inc. and HUD are engaged in
discussions covering the appropriateness of certain Richardson Highlands and
Rivercrest Village disbursements totalling approximately $2,168,000 and
$1,608,000, respectively, made during the years 1987 through 1991. The parties
are attempting to resolve this issue, but the ultimate outcome cannot presently
be determined. The General Partner is vigorously defending its past actions and
does not believe the eventual outcome of these discussions will have a material
adverse effect on the operations of the Partnership. Given the General
Partner's beliefs and the uncertainty regarding the eventual resolution of the
amounts in question, the responsible parties and their ability to make repayment
if deemed necessary, no adjustment has been made to the Partnership's
consolidated financial statements concerning this matter.
The consolidated financial statements do not include any adjustments relating
to the recoverability of the recorded asset accounts or the amount of
liabilities that might be necessary should the Partnership be unable to continue
as a going concern.
Note C - Legal Proceedings
Certain affiliates of the Partnership, including the General Partner and
certain officers and directors of such affiliates are parties to certain pending
legal proceedings. The adverse outcome of any one or more legal proceedings
against these affiliates who provide financial support or services to the
Partnership could have a materially adverse effect on the present and future
operations of the Partnership. However, the inclusion of this discussion is not
intended as a representation by the Partnership that any particular proceeding
is material. There can be no assurance as to the outcome of any of these legal
proceedings.
Note D - Transactions with Affiliates and Related Parties
The Partnership has no employees and is dependent on the General Partner or
its affiliates for the management and administration of all partnership
activities. The General Partner or its affiliates may be reimbursed for direct
expenses relating to the Partnership's administration and other costs charged on
behalf of the Partnership. The General Partner or its affiliates received
approximately $1,000 in the first three months of 1996 as reimbursement of such
advances and out-of-pocket expenses. No reimbursements were made during the
first quarter of 1995.
Pursuant to an agreement dated July 14, 1994, a transaction is pending in
which the current General Partner would be replaced by MAERIL, Inc., an
affiliate of Insignia. The substitution of MAERIL, Inc. as the General Partner
is expected, but there is no assurance that the transaction will be consummated.
The Partnership has engaged affiliates of Insignia to provide day-to-day
management of the Partnership's properties. These affiliates received
approximately $98,000 and $117,000 of such fees for the three months ended March
31, 1996 and 1995, respectively. An affiliate of Insignia also provided
partnership administration and management services for the Partnership.
Reimbursements for direct expenses relating to these services totaled
approximately $36,000 for the three months ended March 31, 1996, and $60,000 for
the three months ended March 31, 1995. Of these reimbursements, approximately
$513,000 remains unpaid at March 31, 1996, and is included in other liabilities.
Note E - Sale of Property
On December 12, 1995, Serramonte Plaza, Ltd. sold a building at Serramonte
Plaza to an unaffiliated party for approximately $6,000,000. This building, the
Breuner building, had a net book value of approximately $2,592,000. The
Partnership received net proceeds of $5,670,000 after payment of closing costs.
Note E - Sale of Property (continued)
The gain on the sale was approximately $3,078,000 and was allocated to the
partners in accordance with the Restated Limited Partnership Agreement.
Approximately $3,861,000 of the proceeds were applied to the mortgage note
payable and $1,500,000 of the proceeds were used to repay General Partner
advances.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of two apartment complexes
and one commercial property. The following table sets forth the average
occupancy for these properties for the three months ended March 31, 1996 and
1995:
Average
Occupancy
1996 1995
Rivercrest Village Apartments
Sacramento, California 93% 96%
Richardson Highlands Apartments
Marin City, California 97% 94%
Serramonte Plaza
Daly City, California 90% 91%
The decrease in occupancy at Rivercrest Village Apartments was primarily due
to college students vacating the property during the semester break. The
occupancy increase at Richardson Highlands was due to overall improved market
conditions since March 1995.
The Partnership realized a net loss of $223,000 for the three months ended
March 31, 1996, compared to a net loss of $544,000 for the three months ended
March 31, 1995.
The decrease in total expenses for the three months ended March 31, 1996,
compared to the three months ended March 31, 1995, was primarily due to
decreases in operating, general and administrative, property management fees,
maintenance, and interest expense. Operating expenses decreased due to
decreases of approximately $15,000 at Richardson Highlands resulted from
decreased training and travel expenses and other various administrative and
marketing expenses. Rivercrest Village also experienced decreases in operating
expenses of approximately $11,000 primarily due to decreases in salary expense
as a result of the elimination of the maintenance supervisor position and
decreases in advertising and other marketing expenses. Additionally, Serramonte
Plaza experienced a reduction of approximately $18,000 in operating expenses as
a result of the sale of the Breuner building ("Note E" of the Notes to
Consolidated Financial Statements). General and administrative expenses
decreased for the three months ended March 31, 1996, primarily due to decreases
in expense reimbursements resulting from lower administrative costs. The
decrease in property management fees for the first quarter of 1996 was due to
the reduction in rental revenues of Serramonte Plaza resulting from the sale of
the Breuner building. Maintenance expenses decreased for the first quarter of
1996 compared to the first quarter of 1995 as a result of declines in
maintenance costs at both Serramonte Plaza and Richardson Highlands. The
reduction in maintenance expenses at Serramonte Plaza was directly related to
the sale of the Breuner building. The decrease in maintenance expenses at
Richardson Highlands was primarily due to a decrease in roof and pool repairs
for the quarter ended March 31, 1996. Interest expense decreased for the
quarter ended March 31, 1996, as a result of the payment of approximately
$3,860,000 towards the principal balance of the Serramonte Plaza mortgage note.
The payment was made from the sales proceeds from the sale of the Breuner
building.
The loss on disposal of property for the three months ended March 31, 1995,
related to roof replacements at Richardson Highlands.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
The Partnership held unrestricted cash of $3,471,000 at March 31, 1996,
compared to unrestricted cash of $2,084,000 at March 31, 1995. Net cash
provided by operating activities increased primarily due to an approximate
$320,000 reduction in mortgage interest payments during 1996, reduced operating
and maintenance expenses, and the receipt of tax and insurance escrows related
to the Breuner building sale in late 1995. Net cash used in investing
activities decreased due to reductions in property improvements and replacements
after the significant additions in the prior year. Net cash used in financing
activities increased due to increased payments on mortgage notes resulting from
the application of approximately $113,000 in funds held in a tax escrow at the
time of the Breuner building sale to mortgage principal.
The consolidated financial statements have been prepared assuming that the
Partnership will continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
the uncertainties described below, however, such uncertainties raise substantial
doubt about the Partnership's ability to continue as a going concern.
The Partnership's properties historically experienced operating deficits
after debt service payments. As a means of funding the Partnership's deficits,
the Partnership previously drew upon working capital reserves which were
exhausted as of December 31, 1989, and had taken cash advances from affiliates
of the General Partner. The General Partner and affiliates are not obligated to
and do not intend to fund any further such cash flow deficits. In addition, the
partners' deficit at March 31, 1996, was $17,155,000. Also, since December 31,
1989, the Partnership has typically deferred repayment of these advances and
other accrued expenses with the consent of the General Partner and its
affiliates. During 1994, the General Partner and its affiliates assigned a
portion of the advances to an affiliate of Insignia Financial Group, Inc.
("Insignia"). The willingness of the General Partner and its affiliates to
continue to defer repayment of these amounts could adversely affect the
Partnership's financial condition.
Due to cash flow deficiencies at Rivercrest Village Apartments and Richardson
Highlands Apartments, the Partnership stopped making the required monthly
payments on the second mortgage loans for these properties in October 1990 and
September 1991, respectively. The Registrant negotiated with the subordinate
debt holder for Rivercrest Village and Richardson Highlands and finalized a debt
restructure on June 22, 1994. The Partnership is in default of certain
provisions of these restructured subordinate loans. Due to the default, the
Partnership could be forced to relinquish the related properties to the debt
holder in satisfaction of the obligations.
The Partnership, VMS Realty Management, Inc. and The Department of Housing
and Urban Development ("HUD") are engaged in discussions covering the
appropriateness of certain Richardson Highlands and Rivercrest Village
disbursements totalling approximately $2,168,000 and $1,608,000, respectively,
made during the years 1987 through 1991. The parties are attempting to resolve
this issue, but the ultimate outcome cannot presently be determined. The
General Partner is vigorously defending its past actions and does not believe
the eventual outcome of these discussions will have a material adverse effect on
the operations of the Partnership. Given the General Partner's beliefs and the
uncertainty regarding the eventual resolution of the amounts in question, the
responsible parties and their ability to make repayment if deemed necessary, no
adjustment has been made to the Partnership's financial statements concerning
this matter.
Recent Developments - VMS Realty Partners and Affiliates
There have been no material developments or changes from Recent Developments
- - VMS Realty Partners and Affiliates disclosed in "Part I, Item 1" of the
Partnership's report on Form 10-KSB for the year ended December 31, 1995.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new material developments or changes from "Part I, Item 3" of
the Partnership's report on the Form 10-KSB for the year ended December 31,
1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Partnership did not submit any matter to a vote of its holders of Limited
Partnership Interests during the three months ended March 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INVESTORS FIRST-STAGED EQUITY L.P.
(Registrant)
By: VMS Realty Investment II,
General Partner
By: JAS Realty Corporation
Date: May 10, 1995 By: /s/ Joel A. Stone
Joel A. Stone
President
Date: May 10, 1995 By: /s/ Thomas A. Gatti
Thomas A. Gatti, Senior Vice-President
and Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Investors
First-Staged Equity L.P. 1996 First Quarter 10-Q and is qualified in its
entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000768834
<NAME> IINVESTORS FIRST-STAGED EQUITY L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,471
<SECURITIES> 0
<RECEIVABLES> 200
<ALLOWANCES> 202
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 50,954
<DEPRECIATION> (22,779)
<TOTAL-ASSETS> 33,324
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 45,754
0
0
<COMMON> 0
<OTHER-SE> (17,155)
<TOTAL-LIABILITY-AND-EQUITY> 33,324
<SALES> 0
<TOTAL-REVENUES> 1,889
<CGS> 0
<TOTAL-COSTS> 2,112
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 869
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (223)
<EPS-PRIMARY> (13.59)
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
