FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ to ____________
Commission File number: 0-14593
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
----------------------------------
(Exact name of Registrant as specified in its charter)
California 33-0104267
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402-1708
--------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(415) 343-9300
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
------- --------
Total number of units outstanding as of September 30, 1995:
35,000
Page 1 of 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
September 30, December 31,
1995 1994
-------- --------
Assets
-------
Real estate investments, at cost:
Land $ 7,885 $ 7,885
Buildings and improvements 14,049 13,991
-------- --------
21,934 21,876
Less accumulated depreciation and amortization (4,553) (4,198)
-------- --------
Net real estate investments 17,381 17,678
Real estate held pending foreclosure, net - 7,468
Investment in unconsolidated joint venture - 404
Cash and cash equivalents 1,920 2,297
Accounts receivable, net 162 147
Prepaid expenses and other assets, net 108 107
Notes receivable from unconsolidated joint venture 721 683
Deferred financing costs and other fees, net
of accumulated amortization of $429 and $786
for 1995 and 1994, respectively 173 203
-------- --------
$ 20,465 $ 28,987
======== ========
Liabilities and Partners' Equity (Deficit)
------------------------------------------
Notes payable $ 15,001 $ 25,205
Accounts payable 11 2
Accrued expenses 208 196
Deferred income and security deposits 70 59
-------- --------
Total liabilities 15,290 25,462
-------- --------
Partners' equity (deficit):
General Partner 29 (189)
Limited Partners, 35,000 limited
partnership units outstanding 5,146 3,714
-------- --------
Total partners' equity 5,175 3,525
-------- --------
$ 20,465 $ 28,987
======== ========
See accompanying notes to consolidated statements.
Page 2 of 13
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
Nine months ended Three months ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- -------- --------
Revenues:
Operating $ 2,371 $ 3,845 $ 588 $ 985
Interest and other 122 74 38 28
------- ------- ------- -------
Total revenues 2,493 3,919 626 1,013
Expenses:
Operating (including $141 and
$315 paid to affiliates in
the nine months ended
September 30, 1995 and 1994,
respectively) 793 1,394 202 339
Interest 1,267 1,666 366 482
Depreciation and amortization 624 1,021 148 287
General and administrative
(including $417 and $438
paid to affiliates in the
nine months ended September 30,
1995 and 1994, respectively) 499 531 148 192
------- ------- ------- -------
Total expenses 3,183 4,612 864 1,300
------- ------- ------- -------
Loss before equity in loss of
unconsolidated joint venture
and extraordinary gain (690) (693) (238) (287)
Equity in loss of unconsolidated
joint venture (340) (431) - (139)
------- ------- ------- -------
Loss before extraordinary gain (1,030) (1,124) (238) (426)
Extraordinary gain on debt
forgiveness 2,680 - (89) -
Extraordinary gain on sale of
property - 2,095 - -
------- ------- ------- -------
Net income (loss) $ 1,650 $ 971 $ (327) $ (426)
======= ======= ======= =======
Net income (loss) per limited
partnership "Current Unit" $116.45 $ 33.02 $(26.02) $(33.95)
======= ======= ======= =======
See accompanying notes to consolidated statements.
Page 3 of 13
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
(in thousands)
For the nine months ended September 30, 1995 and 1994
(Unaudited)
Limited Partners Total
General ------------- Limited Partners'
Partner Current Deferred Growth Partners Equity
-------- ------- -------- ------ -------- ------
Balance at
December 31, 1993 $ (557) $3,714 $ - $ - $3,714 $3,157
Net income 565 406 - - 406 971
------ ------ ------ ------ ------ ------
Balance at
September 30, 1994 $ 8 $4,120 $ - $ - $4,120 $4,128
====== ====== ====== ====== ====== ======
Balance at
December 31, 1994 $ (189) $3,714 $ - $ - $3,714 $3,525
Net income 218 1,432 - - 1,432 1,650
------ ------ ------ ------ ------ ------
Balance at
September 30, 1995 $ 29 $5,146 $ - $ - $5,146 $5,175
====== ====== ====== ====== ====== ======
See accompanying notes to consolidated statements.
Page 4 of 13
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
Nine months ended
September 30,
------------------
1995 1994
------ ------
Cash flows from operating activities:
Net income $ 1,650 $ 971
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary gain (2,680) (2,095)
Depreciation and amortization 624 1,021
Equity in loss of unconsolidated joint venture 340 431
Changes in assets and liabilities:
Accounts receivable (15) (89)
Prepaid expenses and other assets (4) (165)
Deferred financing and other fees (108) 72
Accounts payable 9 (22)
Accrued expenses 161 79
Deferred income and security deposits 11 (19)
------- -------
Net cash provided by (used in) operating activities (12) 184
------- -------
Cash flows from investing activities:
Additions to real estate investments (68) (13)
Proceeds from sale of property - 9,805
Payments received on notes receivable
from unconsolidated joint venture 140 187
Additions to notes receivable from
unconsolidated joint venture (178) (294)
------- -------
Net cash provided by (used in) investing activities (106) 9,685
------- -------
Cash flows from financing activities:
Notes payable principal payments (259) (7,390)
------- -------
Cash used in financing activities (259) (7,390)
------- -------
Net increase (decrease) in cash and cash equivalents (377) 2,479
Cash and cash equivalents at beginning of period 2,297 7
------- -------
Cash and cash equivalents at end of period $ 1,920 $ 2,486
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,246 $ 1,859
======= =======
- Continued -
Page 5 of 13
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
- continued -
Nine months ended
September 30,
------------------
1995 1994
Supplemental disclosure of non-cash transaction: ------ ------
Foreclosure on real estate:
Reduction of investment in real estate $ 7,344 $ -
======= =======
Reduction of notes payable $ (9,945) $ -
======= =======
Reduction of accrued expenses $ (149) $ -
======= =======
Reduction of deferred financing costs $ 67 $ -
======= =======
See accompanying notes to consolidated statements.
Page 6 of 13
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1995
(Unaudited)
Note 1. SIGNIFICANT ACCOUNTING POLICY
-------------------------------
In the opinion of Glenborough Realty Corporation, the managing
general partner, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal accruals) necessary to present fairly the financial
position of Outlook Income/Growth Fund VIII, A California Limited
Partnership (the "Partnership"), at September 30, 1995 and
December 31, 1994, and the related consolidated statements of
operations for the nine and three months ended September 30, 1995
and 1994, and the changes in partners' equity and cash flows for
the nine months ended September 30, 1995 and 1994.
The Partnership has suspended the recordation of its share of the
loss of its unconsolidated joint venture to the extent it creates
a negative investment in joint venture. The Partnership will
recognize these suspended losses to the extent of future income
allocated to the Partnership from the joint venture.
Note 2. REFERENCE TO 1994 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements
included in the 1994 audited financial statements.
Note 3. TRANSACTIONS WITH AFFILIATES
----------------------------
Glenborough Corporation ("Glenborough"), an affiliate of
Glenborough Realty Corporation, has been compensated for property
management services. The following amounts paid to Glenborough
are included in operating expenses for the nine months ended
September 30, 1995 and 1994:
1995 1994
------ ------
Management fees $ 110,000 $ 194,000
Property salaries (reimbursed) 31,000 121,000
The Partnership also reimbursed Glenborough for expenses incurred
for services provided to the Partnership such as accounting,
investor services, data processing, duplicating and office
supplies, legal and administrative services, and the actual costs
of goods and materials used for or by the Partnership.
Glenborough was reimbursed $417,000 and $438,000 by the
Partnership for such expenses during the nine months ended
September 30, 1995 and 1994, respectively. Such amounts are
included in general and administrative expenses.
Page 7 of 13
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1995
(Unaudited)
Note 4. NOTES RECEIVABLE FROM UNCONSOLIDATED JOINT VENTURE
--------------------------------------------------
Notes receivable from an unconsolidated joint venture consist of
several notes receivable from the Huntington Breakers Apartments,
Ltd., A California Limited Partnership ("Breakers Partnership")
and interest accrued monthly on such advances. During 1995,
Breakers was advanced $140,000 by the Partnership to supplement
its debt service obligations, but these advances were paid off
during the same period. The Partnership has accrued $38,000 in
interest on a portion of the outstanding note balances during the
nine months ended September 30, 1995.
Note 5. EXTRAORDINARY GAIN ON DEBT FORGIVENESS
--------------------------------------
As the 175 South West Temple debt was approaching its May 1, 1995
maturity, the Partnership sought to extend the maturity date.
Since the amount of the debt was in excess of the carrying and
market values of the property and the existing lender had shown
no willingness to extend the maturity date, or otherwise work
toward a realistic solution, the only prudent action was to
negotiate an amicable foreclosure.
On April 27, 1995, the deed of trust was foreclosed and the
lender obtained title to the property. The outstanding debt
(including previously deferred interest) was $9,945,000 while net
assets totaled $7,265,000, resulting in an extraordinary gain on
debt forgiveness of $2,680,000.
Note. 6. EXTRAORDINARY GAIN ON SALE OF PROPERTY
--------------------------------------
On June 10, 1994, the Partnership sold the Las Palomas
Apartments, a 272-unit apartment complex located at 4040 Boulder
Highway in Las Vegas, Nevada to the Las Palomas Associates, L.P.,
a Delaware limited partnership ("the buyer"). The buyer is not
affiliated with the Partnership or the Partnership's general
partners. The total consideration was $10,387,000 cash.
$7,078,000 of the sale proceeds were used to payoff the
Partnership's 1st and 2nd trust deed loans, which were formerly
secured by the sold property. After the loan payoffs, net
settlement and other prorations, including transaction fees of
$312,000 payable to the general partners, $2,657,000 of net
proceeds were added to the Partnership's reserves. The gain on
sale totaled $2,095,000.
Page 8 of 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
-------------------------------
Outlook Income/Growth Fund VIII was formed to invest in improved
real estate which would: (i) generate sufficient cash flow to pay
expenses and to provide funds for cash distributions; (ii)
increase equity through reduction of mortgages; and (iii) have
potential for appreciation.
The Partnership has three types of units: (i) Current Units
(12,297 units currently outstanding); (ii) Deferred Units (8,428
units currently outstanding); and (iii) Growth Units (14,275
units currently outstanding). Each type of unit was designed to
provide a different type of return to the investor. Although the
Partnership was structured as a highly leveraged investment, it
anticipated paying high current cash distributions (9%) on the
Current Units because they represented only 35% of the funds
raised and the Partnership would be able to allocate all current
cash flow to them. The Partnership paid distributions on the
Current Units at a 9% annualized rate from the quarter ended
September 30, 1986 through the quarter ended December 31, 1987,
and at a 6% rate from January 1, 1988, through the quarter ended
September 30, 1988, at which time distributions were suspended.
At this time distributions remain suspended and management is
unable to predict when distributions will resume.
On April 27, 1995, ownership of 175 South West Temple, a property
in a joint venture where the Partnership was the general partner,
was turned over to the lender in a negotiated foreclosure sale
prior to the debt's May 1, 1995 maturity. Since the amount of the
debt was in excess of the carrying and market values of the
property and the existing lender had shown no willingness to
extend the maturity date, or otherwise work toward a realistic
solution, the only prudent action was to negotiate an amicable
foreclosure. This negotiated foreclosure relieved the Partnership
of its guarantee for a portion of the outstanding debt.
Management's continuing overall goal is to preserve and protect
the Partnership's assets. The ongoing business plan for the
Partnership is to strive to improve its cash flow within the
limitations of local market conditions, reduce debt and build
reserves. The Partnership also continues to strive to maintain
stable operations and endure the challenges of the market by
keeping distributions suspended and offering experienced day to
day management of income and expenditures.
Results of Operations
---------------------
The June 1994 sale of an apartment complex and the April 1995
negotiated foreclosure on 175 South West Temple, discussed above,
account for the majority of the decrease in total rental revenue
from $3,845,000 during the nine months ended September 30, 1994
to $2,371,000 during the nine months ended September 30, 1995.
Additionally, while the Partnership has experienced relatively
Page 9 of 13
stable average occupancy at San Mar Plaza and Huntington Breakers
Apartments, there has been a decrease in average occupancy at
Silver Creek Plaza.
Interest and other revenue has increased during the nine months
ended September 30, 1995 over the same period in 1994 due to the
short-term investment of the June 1994 sale proceeds. The modest
increase in interest and other revenue during the three months
ended September 30, 1995 over the three months ended September
30, 1994 is a direct result of additional advances made to
Huntington Breakers, an unconsolidated joint venture during the
quarter ended September 30, 1994.
As would be expected as a result of two property dispositions
(discussed above) in 1994 and 1995, operating expenses, general
and administrative, interest expense and depreciation and
amortization decreased during the nine and three months ended
September 30, 1995 compared to the same periods in 1994.
175 South West Temple:
On March 6, 1995 a receiver was appointed to manage this property
as a precursor to the April 27, 1995 negotiated foreclosure,
discussed above. An extraordinary gain on debt forgiveness of
$2,680,000 was recognized upon the completion of this
transaction.
San Mar Plaza:
San Mar Plaza was 97% occupied at September 30, 1995, which was
one percent below the 98% occupancy level at September 30, 1994.
At September 30, 1995, the property had 2,650 square feet of
space vacant. Two tenants, occupying a total of 2,650 square
feet of space are currently on month to month holdover leases
while another tenant whose lease expired, has vacated its 1,050
square foot space. Management continues to market its vacant
spaces, primarily targeting national franchises and multi-unit
regional operators.
Silver Creek:
Silver Creek was 75% occupied at September 30, 1995, which was
seven percentage points less than the September 30, 1994
occupancy. The surrounding market is stable but potential tenants
are rate and tenant improvement sensitive. In the first nine
months of 1995, one tenant occupying 2,300 square feet renewed
its lease while another tenant vacated a 7,000 square foot space
upon its May 1995 lease expiration. Another tenant, which
occupied approximately 3,000 square feet of space is
approximately $29,000 delinquent in back rent and was evicted in
September 1995. At this time, management believes that there is
a strong possibility of collecting on this back rent. With these
spaces opening up, management has been negotiating with a
prospective tenant to lease 14,000 square feet of space in the
latter part of 1995, which encompasses the recently vacated 7,000
square foot vacancy previously discussed. Management believes
Page 10 of 13
that current marketing activity will result in new tenants in the
next six to twelve months. In addition, management continues to
actively market its vacant spaces and parcels.
Huntington Breakers Apartments:
The Huntington Breakers Apartments joint venture arrangement
included an income guaranty from the developer to the
Partnership. The developer defaulted on the income guaranty and
no amounts were ever paid. Following lengthy negotiations, the
developer agreed to pay the guaranteed amounts, but the
Partnership allowed the payments to be deferred and collected as
a priority claim against future cash flow. Under the joint
venture agreement, the Partnership has an annual cash flow
priority of $700,000. The property has never reached this cash
flow and no guaranty amounts have ever been received.
The property was 91% occupied at September 30, 1995 and September
30, 1994. Lower occupancies in competing complexes have led the
competition to offer heavy concessions and lower rental rates,
but management has been able to hold back from offering rent
concessions and major rate reductions of its own. If the
competition continues to cut their rental rates, management may
be driven to respond accordingly. Through all this, management
has continued an aggressive marketing campaign to attract new
tenants and maintain occupancy. Despite these efforts, the
property has operated at a breakeven cash flow so far during 1995
after reserving for semi-annual and quarterly debt service
payments.
Page 11 of 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is not a party to, nor any of its
assets the subject of, any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit #
---------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during
this reporting period.
Page 12 of 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
By: Glenborough Realty Corporation,
a California corporation
Managing General Partner
Date: November 8, 1995 By:
Andrew Batinovich
Executive Vice President,
Chief Financial Officer
and Director
Page 13 of 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
By: Glenborough Realty Corporation,
a California corporation
Managing General Partner
Date: November 8, 1995 By: /s/ Andrew Batinovich
Andrew Batinovich
Executive Vice President,
Chief Financial Officer
and Director
Page 13 of 13
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<NAME> OUTLOOK INCOME/GROWTH FUND VIII
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<PERIOD-END> SEP-30-1995
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<OTHER-SE> 5175
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