UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402-1708
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (415)
343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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
No market for the Limited Partnership Units exists and therefore
a market value for such Units cannot be determined.
Page 1 of 59
DOCUMENTS INCORPORATED BY REFERENCE: None
NO EXHIBIT INDEX REQUIRED
PART I
Item 1. Business
The Partnership, Outlook Income/Growth Fund VIII, A California
Limited Partnership, was formed on June 21, 1985, under the
California Revised Limited Partnership Act. The Partnership's
public offering commenced on January 24, 1986 and concluded on
January 23, 1987, having raised a total of $35,000,000 through
the sale of 35,000 limited partnership units. The Partnership's
operations began on March 10, 1986, when its impound requirements
were met. The former general partner of the Partnership was
Outlook Financial Partners, a California general partnership. On
May 8, 1992, Glenborough Realty Corporation, as Managing General
Partner, and Robert Batinovich, as co-General Partner,
(collectively "Glenborough" or "the Managing General Partner")
were substituted as the General Partners following the May 4,
1992 receipt of consents from limited partners owning a majority
in interest of the outstanding limited partner units. With
limited exceptions, Glenborough has exclusive control over the
business of the Partnership, including the right to manage the
Partnership's assets.
The Partnership's primary business is to invest in and operate
existing income-producing properties (or interests therein),
which are expected to generate cash from rentals in excess of
that required to meet the operating expenses of the respective
properties, as well as the expenses of the Partnership.
At December 31, 1995, the Partnership owned interests in three
properties (individually, a "Property" or collectively the
"Properties"), which are more fully described in Item 2. The
Properties are managed on behalf of the Partnership by
Glenborough Corporation, an affiliate of the Managing General
Partner.
Competition
The Managing General Partner believes that characteristics
influencing the competitiveness of a real estate project are the
geographic location of the property, the professionalism of the
property manager and the maintenance and appearance of the
property, in addition to external factors such as general
economic circumstances, trends, and the existence of new,
competing properties in the vicinity. Additional competitive
factors with respect to commercial and industrial properties are
the ease of access to the property, the adequacy of related
facilities, such as parking, and the ability to provide rent
concessions and additional tenant improvements commensurate with
local market conditions. Such competition may lead to rent
concessions that could adversely affect the Partnership's cash
flow. Although the Managing General Partner believes the
Partnership's Properties are competitive with comparable
properties as to those factors within the Partnership's control,
continued over-building and other external factors could
adversely affect the ability of the Partnership to attract and
retain tenants. The marketability of the Properties may also be
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affected (either positively or negatively) by these factors as
well as by changes in general or local economic conditions,
including prevailing interest rates. Depending on market and
economic conditions, the Partnership may be required to retain
ownership of its Properties for periods longer than anticipated
at acquisition, or may need to sell earlier than anticipated or
refinance a Property, at a time or under terms and conditions
that are less advantageous than would be the case if unfavorable
economic or market conditions did not exist.
Working Capital
The Partnership's practice is to maintain cash reserves for
normal repairs, replacements, working capital and other
contingencies. The Partnership knows of no statistical
information which allows comparison of its cash reserves to those
of its competitors.
Other Factors
Federal, state and local statutes, ordinances and regulations
which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the
protection of the environment do not presently have a material
effect on the operations of the Properties nor on the capital
expenditures, earnings or competitive position of the
Partnership.
The Partnership does not directly employ any individuals. All
regular employees rendering services on behalf of the Partnership
are employees of Glenborough or its affiliates.
The business of the Partnership to date has involved only one
industry segment. The Partnership has no foreign operations and
the business of the Partnership is not seasonal.
Item 2. Properties
At December 31, 1995, the Partnership had interests in the
following properties:
San Mar Plaza
On June 27, 1986, the Partnership purchased San Mar Plaza, a
shopping center in the City of San Marcos, Hays County, Texas.
Total consideration paid of $10,219,000 included cash of
$3,219,000 and assumption of a first deed of trust in the
original amount of $7,000,000 to which the property is subject.
The property is located at the intersection of Interstate 35 and
Texas State Highway 80 affording the property high visibility.
San Marcos is approximately halfway between the cities of Austin
and San Antonio. San Mar Plaza is a multi-tenant community
retail center of concrete tilt-wall construction. The center
consists of seven buildings and approximately 96,206 of rentable
square feet on 10.3 acres of land. It was constructed in 1982
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and expanded in early 1986. There is parking for approximately
446 cars.
San Marcos has experienced major economic growth and business
development during the last five years as a result of growth in
the high-tech, State government, academia, medical, development
and finance areas. This growth coupled with the property's
desirable location, high curb appeal, lack of increased
competition and aggressive marketing and negotiation by
management has benefitted San Mar Plaza through increased
occupancy in the early 1990's before leveling off at the 97%-98%
occupancy levels the past few years. In addition, the property's
average annual rent per square foot has gradually increased over
the last five years (see table below). With no new supply of
commercial retail space developed in 1995, direct competition
continues to come from the three existing properties in the area
which offered low rental rates ranging from approximately $8.00
to $12.00 per square foot compared to San Mar Plaza's average of
$9.81 per square foot in 1995. It is the opinion of management
that the competition offered lower rates to compensate for their
less than desirable locations and appearances.
At December 31, 1995, with 2,650 square feet of space vacant plus
an additional 6,650 square feet of projected lease expirations in
1996, management continues to negotiate renewals and market its
vacant spaces, primarily targeting national franchises and multi-
unit regional operators. The current vacancy of 2,650 square
feet has two active proposals currently pending. Additionally,
it is expected that Hastings Books, Music & Video will expand
into the vacant grocery store space currently leased by The
Kroger Company. The increased occupancy will significantly
improve the property's curbside appeal while leaving
approximately 11,000 square feet of prime retail space to be re-
leased. If the Kroger/Hastings sublease is completed, the
property should continue to enjoy its favorable economic
condition with lease rates slightly increasing in 1996. The
Partnership has budgeted $95,000 for tenant improvements and
leasing commissions to support the anticipated leasing activity.
The occupancy level at December 31, expressed as a percentage of
the total net rentable square feet, and the average annual
effective rent per square foot for the last five years were:
Occupancy Level Average Annual Effective
Year Percentage Rent Per Square Foot
1995 97% $9.81
1994 98% 9.64
1993 98% 9.55
1992 94% 8.87
1991 92% 8.87
At December 31, 1995, annual effective rental rates ranged from
$8.00 to $34.06 per square foot.
Page 4 of 59
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." The Company adopted SFAS 121 in the
fourth quarter of fiscal 1995. SFAS 121 requires that an
evaluation of an individual property for possible impairment must
be performed whenever events or changes in circumstances indicate
that an impairment may have occurred. There was no impact from
the initial adoption of SFAS 121.
In 1995, management computed an internal cash flow valuation
which indicated that the estimated fair value of the property was
less than its carrying value. The Partnership believes that it
will likely be unable to obtain a favorable refinancing of San
Mar Plaza. This resulted in the Partnership recognizing a loss
provision for impairment in investment in real estate of
$1,015,000 during the year ended December 31, 1995.
The following three tenants have leased ten percent or more of
the net rentable square footage of the property at December 31,
1995. The principal provisions of their leases and the nature of
their businesses are:
Hastings
The Kroger Lone Star Books, Music
Tenant Company Theaters & Video,
Inc.
Nature of Business Supermarket Cinema Retail
Lease Term 20 years 20 years 5 years
Expiration Date 10/31/02 4/30/03 5/31/97
Square Feet 34,019 13,800 10,962
(% of Total) 35.4% 14.3% 11.4%
Annual Rent $272,148 $151,800 $104,139
Rent Increases None 3% in None
May 1998
Percentage Rent 1% based on 7.5% based on 4% based on
gross sales gross sales gross sales
Renewal 3-5 year 1-10 year None
Options options option
In the opinion of management, the property is in good overall
condition and is adequately covered by insurance.
In 1995, the annual real estate tax rate was approximately 2.424%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $92,000.
The property is owned by the Partnership in fee, secured by a
note and first deed of trust and security agreement in the amount
Page 5 of 59
of $7,000,000. The note bears interest at an annual rate of
9.38% payable in monthly installments of principal and interest
of $60,600 until maturity on August 1, 1996, at which time all
principal and interest will be due and payable. At December 31,
1995, the outstanding principal balance of the note was
$6,617,000. Management is currently pursuing refinancing
possibilities.
Silver Creek Plaza
On October 31, 1986, the Partnership purchased an undivided
66.21% interest in a portion of a retail shopping center known as
Silver Creek Plaza located in San Jose, California. The
Partnership originally purchased its 66.21% interest as part of a
joint venture with August Income/Growth Fund VII, an affiliated
partnership with similar investment objectives. Total
consideration paid by the joint venture was $11,973,000,
including a cash investment of $4,433,000 and a $7,540,000 note
payable secured by a first deed of trust, to which the property
is subject.
GLENFED Service Corporation ("GLENFED"), an affiliate of the
former general partner, foreclosed on August Income/Growth Fund
VII's 33.79% minority interest in the Silver Creek Tenancy in
Common in August 1991. On October 30, 1991, the Partnership paid
$1,208,600 to purchase the same interest from GLENFED. Total
consideration paid included $188,600 in cash and a $1,020,000
secured note payable to GLENFED.
The property is well designed with excellent exposure to Capitol
Expressway (a major thoroughfare) and Silver Creek Road in a
residential neighborhood of San Jose known as Evergreen Valley.
The Partnership's portion of Silver Creek Plaza consists of
154,000 square feet of leasable space and benefits from strong
anchor tenants: (i) a 41,000 square foot Safeway supermarket;
(ii) a 65,000 square foot Orchard Supply Hardware store; and
(iii) a 16,000 square foot Walgreen's drugstore. Safeway and
Orchard Supply Hardware both own their respective facilities and
are not included in the property. Silver Creek Plaza also
consists of approximately 83,000 square feet of tenant's parcels
(under ground leases), therefore the Partnership's portion of the
leasable retail space is approximately 71,000 square feet.
According to research conducted by the Partnership's property
manager, the Evergreen Valley district is one of the few areas in
and around San Jose where the economy is stable with a promising
outlook. Evergreen Valley is composed of stable, middle class
residents, characterized by a highly diverse ethnic population.
At December 31, 1995, the actual percent leased in this center,
after taking into account Safeway and Orchard Supply Hardware who
own their respective spaces, is approximately 92%. In early 1996,
two leases totalling 5,000 square feet of space have expired.
Both tenants are currently on holdover while lease amendments are
being negotiated. Management is optimistic about leasing the
vacant spaces since a number of potential tenants have expressed
recent interest in the center. Management also believes that the
Page 6 of 59
market is strong enough that it can now in upgrade the tenant mix
to strengthen the center. The Partnership has budgeted $89,000
for tenant improvements and leasing commissions to support the
leasing activity in 1996.
Page 7 of 59
The occupancy level at December 31, excluding the tenants owning
their own space and the spaces under ground leases, expressed as
a percentage of the total net rentable square feet, and the
average effective annual rent per square foot for the last five
years were:
Occupancy Level Average Annual Effective
Year Percentage Rent Per Square Foot
1995 86% $15.84
1994 78% 18.36
1993 88% 18.89
1992 77% 19.64
1991 94% 17.55
At December 31, 1995, annual effective rental rates ranged from
$2.42 to $30.43 per square foot.
The following two tenants have leased ten percent or more of the
Partnership's net leasable square footage of the property (net of
ground leases). The principal provisions of the leases and the
nature of the tenants' businesses are:
Wherehouse
Tenant Walgreen's Entertainment
Nature of Business Retail/Pharmacy Retail
Lease Term 30 years 10 years
Expiration Date 7/31/12 7/27/97
Square Feet 16,000 8,400
(% of Total) 22.5% 11.8%
Annual rent $159,360 $151,200
Percentage rent 2% of sales 3% of sales
Future Rent Increases None None
Renewal Options Right to terminate 1-5 year option
in 2002 and 2007 (exercised by
2/28/97)
In the opinion of management, the property is adequately covered
by insurance.
In calendar year 1995, the annual real estate tax rate was
approximately 1.103% based upon 100% of the assessed market
value, resulting in annual taxes of approximately $171,000.
The property is owned by the Partnership subject to first and
second deeds of trust notes. The first deed of trust note in the
amount of $7,335,000 at December 31, 1995, bears interest at an
annual rate of 9.75% payable in monthly principal and interest
payments of $64,800 until maturity in January 1997, when a
balloon payment of approximately $7,275,100 will be due. The
second deed of trust note in the amount of $1,007,000 at December
31, 1995, bears interest at the Bank of America prime rate (8.5%
Page 8 of 59
at December 31, 1995) plus one percent (1%) until the modified
maturity date of December 31, 1996, at which time all remaining
principal and interest is due and payable. The original loan
agreement called for the loan to mature on November 1, 1994, but
was modified to December 31, 1995. It is and has been the
Partnership's intent to pursue a refinancing of this property,
which it believes it can achieve at reasonable terms. A second
loan modification agreement was signed, extending the maturity
date to December 31, 1996, but is currently awaiting approval of
the senior lienholder. Meanwhile, existing terms remain in force
while this modification is reviewed and ratified.
Huntington Breakers Apartments
On December 31, 1986, the Partnership purchased 49 general
partner units representing an undivided 49% interest in a
California limited partnership known as Huntington Breakers
Apartments, Limited, A California Limited Partnership ("Breakers
Partnership"). The 49% interest was acquired for a purchase
price of $6,900,000 and assumption of a share of the existing
debt. Concurrent with this purchase, the Partnership acquired
the right to obtain one additional general partner unit which it
acquired in January 1988 for a purchase price of $20,000,
increasing its interest in the Breakers Partnership to 50%.
The joint venture arrangement included an income guarantee from
the developer to the Partnership. The developer defaulted on the
income guarantee and no amounts were ever paid. Following
lengthy negotiations, the developer agreed to pay the guaranteed
amounts, but the Partnership allowed payments to be deferred and
collected as a priority claim against future cash flow. The
Partnership's annual cash flow priority is $700,000. To date,
the property has never reached this amount and no income
guarantee has ever been paid.
The Breakers Partnership owns a freshly painted 342-unit
apartment community located at 21270 Beach Boulevard, immediately
north of Pacific Coast Highway in Huntington Beach, Orange
County, California. The property is located less than a quarter
of a mile from the beach at Huntington State Park on a major
north-south thoroughfare, Beach Boulevard, also known as State
Highway 39.
The property is built in the Cape Cod design with well maintained
landscaping throughout the community. It was built over half
basements which provide covered parking for the residents, and
the entire property is protected by a gated entryway with card
key system access. The property was developed in two phases; the
first was completed in September 1985 and the second in March
1986.
Management continues to promote and market Huntington Breakers
with its close proximity to the ocean, fitness center, free cable
television hookup, planned activities, and gated access. The
only truly competitive property is approximately one mile inland
and offers larger rooms, more closet space, washer and dryers in
Page 9 of 59
apartments, balconies, and two assigned parking stalls per
apartment. In 1995, the competition began offering heavy
concessions, but management has been able to hold back from
offering rent concessions of its own. If the competition
continues to cut their rental rates, management may be driven to
respond accordingly.
The 1996 focus is to capitalize on the apartments' advantages
such as exciting activity programs, the addition of a putting
green, the top of the line fitness center and big screen TV in
the clubhouse, making it a more desirable place to live than in
the past. The goal is to reduce the number of short-term leases
and increase the retention of residents, by offering the above
described attractive amenities. $62,000 in capital improvements
have been proposed to
improve the appearance and condition of the recreational
facilities and other common areas in order to maintain the
property's appeal.
The occupancy level at December 31, expressed as a percentage of
the total apartments available for rent, and the average rental
rate range (from unfurnished to furnished 12 month leases) for
the apartments for the last five years were:
1995 1994 1993
Occupancy Rate 94% 85% 84%
Rental Rate Ranges:
Studio $695-895 $695-870 $695-870
1-Bedroom/
1-Bath Flat $745-945 $820-1,020 $820-1,020
1-Bath Townhouse $840-1,040 $820-1,020 $820-1,020
2-Bedroom/
2-Bath Flat $1,040-1,090 $1,020-1,270 $1,020-1,270
2-Bath Townhouse $1,040-1,290 $1,020-1,270 $1,020-1,270
1992 1991
Occupancy Rate 90% 89%
Rental Rate Ranges:
Studio $648-781 $640-775
1-Bedroom/
1-Bath Flat $779-935 $810-1,000
1-Bath Townhouse $787-913 $795-963
2-Bedroom
2-Bath Flat $1,007,1,110 $1,001-1,213
2-Bath Townhouse $972-1,159 $977-1,185
In the opinion of management, the property is adequately covered
by insurance.
In calendar year 1995, the annual real estate tax rate was
approximately 1.059% based upon 100% of the assessed market
value, resulting in annual taxes of approximately $207,000.
Page 10 of 59
The property secures first and second deed of trust notes in the
amounts of $16,000,000 and $4,500,000, respectively, at December
31, 1995. The first deed of trust note bears an annual interest
rate of 7.2% and is payable in semi-annual interest only
installments of $576,000 until maturity on July 1, 2014, at which
time all remaining principal and interest will be due and
payable. The second deed of trust note bears an annual interest
rate of 9.75% and monthly interest only installments of
approximately $36,600 are required through July 1, 1996, at which
time all remaining principal and interest will be due and
payable. The Partnership is pursuing a refinancing of this debt
which it believes it will achieve prior to the maturity date of
the first and second trust deeds.
The Breakers Partnership must comply with certain covenants
related to the aforementioned notes including maintenance of a
Net Operating Income/Debt Service Ratio, as defined, of not less
than 1.3 to 1.0 and the leasing, and the holding open for lease,
of at least 20% of the property's units to tenants qualifying as
"low income," as defined. It is management's opinion that the
Breakers Partnership is in compliance with all required terms of
the loan agreements. See Note 2 to financial statements of the
Breakers Partnership for further explanation.
Item 3. Legal Proceedings
On March 6, 1995, management of the 175 South West Temple
property was turned over to a receiver for the lender, Mutual
Life Insurance Company of New York, in advance of the debt's
maturity as part of an agreement which relieved the Partnership
(the general partner of 175 South West Temple Associates) of its
guarantee for a portion of the outstanding debt.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of fiscal year 1995, no matters were
submitted to a vote of security holders through the solicitation
of proxies or otherwise.
Page 11 of 59
PART II
Item 5. Market for Partnerships Common Equity and Related
Stockholders Matters
Market Information
The units of limited partnership interest in the Partnership (the
"Units") have limited transferability. There is no public market
for the Units and it is not expected that any will develop.
There are restrictions upon the transferability of Units,
including requirements as to the minimum number of Units which
may be transferred, and that the General Partners must consent to
any transferee becoming a substituted limited partner (which
consent may be granted or withheld at the sole discretion of the
General Partner). In addition, restrictions on transfer may be
imposed under certain state securities laws. Consequently,
holders of Units may not be able to liquidate their investments
and the Units may not be readily acceptable as collateral.
Holders
As of December 31, 1995, 863 holders of record held 12,297
Current Units (Current "A" Units); 973 holders of record held
8,428 Deferred Units (Deferred "A" Units); and 1,340 holders of
record held 14,275 Growth Units ("B" Units).
Cash Distributions
The Partnership paid distributions on the Current Units at an
annual rate of 9% from the quarter ended June 30, 1986 through
the quarter ended December 31, 1987, and at an annual rate of 6%
from January 1, 1988 through the quarter ended June 30, 1988, at
which time distributions were suspended.
At this time, distributions remain suspended and management is
unable to predict when distributions will resume. Funds are not
expected to become available for distribution to the owners of
the Deferred "A" and "B" Units until the properties acquired by
the Partnership are either refinanced or sold and all specified
priority entitlements have been satisfied.
At December 31, 1995, holders of Current "A" Units had an
original capital balance of $12,297,000 and accumulated priority
returns of approximately $8,493,100. Holders of Deferred "A"
Units had an original capital balance of $8,428,000 and
accumulated priority returns of approximately $12,727,500.
Holders of "B" Units had an original capital balance of
$14,275,000 and accumulated priority returns of approximately
$13,514,200.
The capital account balance amounts to holders of Current "A"
Units are continuing to accrue a priority return at the rate of
9% per annum. The capital account balance amounts to holders of
Deferred "A" Units are continuing to accrue a priority return at
the rate of 16% per annum. The capital account balance amounts
Page 12 of 59
to holders of "B" Units are continuing to accrue a priority
return at the rate of 10% per annum. These amounts, however, do
not represent obligations of the Partnership, but only represent
the amounts which must be paid to the holders of the Units before
additional payments will be made to other partners. Reference
should be made to the Partnership's partnership agreement for a
more complete description of the preferential payments to be
made.
Item 6. Selected Financial Data
The financial data should be read in conjunction with the
financial statements and related notes contained elsewhere in
this report. This financial data is not covered by the reports
of the independent public accountants.
SELECTED FINANCIAL DATA
(In thousands, except per Unit data)
For the year ended
December 31,
1995 1994 1993 1992 1991
Revenue $ 3,101 $ 6,928 $ 5,574 $ 6,297 $ 6,856
Net income
(loss) $ 61 $ 368 $ (1,711) $ (2,099) $ (4,219)
Net income
(loss) per:
"Growth" Unit --- --- --- --- ---
"Deferred" Unit --- --- --- --- $(342.87)
"Current" Unit $ --- --- $(136.37) $(194.33) $(101.29)
Total assets $ 18,804 $ 28,987 $ 36,165 $ 38,322 $ 48,110
Notes payable $ 14,959 $ 25,205 $ 32,690 $ 33,108 $ 40,690
Item 7. 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 will: (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
Page 13 of 59
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 management is unable to predict when distributions
will resume.
In June 1994, the Partnership sold the Las Palomas Apartment
complex located in Las Vegas, Nevada and paid off the related
debt. After net settlement and other prorations, including
transaction fees payable to the general partners, the Partnership
recognized a $2,088,000 gain and received $2,657,000 in net
proceeds from the sale. These funds were added to the
Partnership's cash reserves and are the primary source of the
cash held at December 31, 1995.
On April 28, 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 deed in lieu of
foreclosure 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 San Mar Plaza 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 and resulted in the recognition of $2,647,000 in
extraordinary gain on debt forgiveness.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." The Company adopted SFAS 121 in the
fourth quarter of fiscal 1995. SFAS 121 requires that an
evaluation of an individual property for possible impairment must
be performed whenever events or changes in circumstances indicate
that an impairment may have occurred. There was no impact from
the initial adoption of SFAS 121.
In 1995, management computed an internal cash flow valuation
which indicated that the estimated fair value of the property was
less than its carrying value. The Partnership believes that it
will likely be unable to obtain a favorable refinancing of this
property. This resulted in the Partnership recognizing a loss
provision for impairment in investment in real estate of
$1,015,000 during the year ended December 31, 1995.
As of December 31, 1995, the Partnership had $1,816,000 in cash
and cash equivalents with $15,154,000 in short-term liabilities,
consisting of accounts payable, accrued expenses and notes
payable due within twelve months. Management is currently
negotiating for an extension on one loan while negotiating for a
Page 14 of 59
note replacement on two other loans. The general partner
believes that the Partnership's cash reserves should be
sufficient to meet future operating requirements.
The Huntington Breakers joint venture has generated losses in
excess of the Partnership's original investment. Such excess
losses have been applied as a reduction in the advances to the
unconsolidated joint venture. Any future excess losses exceeding
the balance in advances to the unconsolidated joint venture will
be suspended.
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. Additionally, the general partner is actively pursuing
the restructuring of existing debt at lower interest rates to
help facilitate the overall plan. The Partnership also continues
to strive to maintain stable operations and endure the challenges
of the market by suspending distributions and offering
experienced day to day management of income and expenditures.
Results of Operations
1995 versus 1994
The June 1994 sale of an apartment complex and the April 1995
negotiated foreclosure of 175 South West Temple, discussed above,
account for the majority of the decrease in total rental revenue
from $4,718,000 in 1994 to $2,947,000 in 1995. Additionally,
while the Partnership has experienced a relatively stable to
positive average occupancy rate at all of its properties, the
average annual rent per square foot decreased from $18.36 in 1994
to $15.84 in 1995 at Silver Creek Plaza.
In 1995, management conducted an internal cash flow appraisal
which indicated that the estimated fair value of the San Mar
Plaza property was less than its carrying value. The Partnership
believes that it will likely be unable to obtain a favorable
refinancing of this property. This resulted in the Partnership
recognizing a loss provision for impairment in investment in real
estate of $1,015,000 during the year ended December 31, 1995.
Interest and other revenue has increased in 1995 over 1994 due to
the short-term investment of the June 1994 sale proceeds.
As would be expected, as a result of two property dispositions in
1994 and 1995, discussed above, operating expenses, interest
expense and depreciation and amortization decreased in 1995
compared to 1994.
1994 versus 1993
Despite relatively stable to rising average occupancy at
virtually all properties, total rental revenues decreased from
Page 15 of 59
$5,437,000 during 1993 to $4,718,000 during 1994 due to the June
1994 sale of the Las Palomas Apartments. Also as a result of the
Las Palomas sale, interest revenue increased in 1994 over 1993
due to the short-term investment of the sale proceeds. Offsetting
this increase in interest revenue was a decrease in other revenue
in 1994. This decrease was a result of income recognized in 1993
for a property tax refund on 175 South West Temple.
As would be expected, as a result of the property sale, operating
expenses, interest expense and depreciation and amortization
decreased in 1994 compared to 1993. The decrease in operating
expenses was partially offset by increases due to generally
higher insurance premiums of remaining buildings, property tax
appeal fees at 175 South West Temple, a higher janitorial
contract rate at 175 South West Temple, a larger bad debt reserve
for Silver Creek, and parking lot repairs at Silver Creek.
Page 16 of 59
Item 8. Financial Statements and Supplementary Data
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Financial Statements:
Report of Independent Public Accountants . . . . . . . 17
Consolidated Balance Sheets at December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993 . . . . . 19
Consolidated Statements of Partners' Equity
(Deficit) for the years ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 . . . . . 21
Notes to Consolidated Financial Statements . . . . . . 23
Schedule:
Schedule III - Consolidated Real Estate
Investments and Related Accumulated
Depreciation and Amortization at
December 31, 1995 . . . . . . . . . . . . . . . . . . 36
Financial Statement Exhibits:
Financial Statements of Significant Subsidiary . . . . 37
Financial statement schedules not included have been omitted
because of the absence of conditions under which they are
required or because the information is included elsewhere in this
report.
Page 17 of 59
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
OUTLOOK INCOME/GROWTH FUND VIII,
(A CALIFORNIA LIMITED PARTNERSHIP):
We have audited the accompanying consolidated balance sheets of
OUTLOOK INCOME/GROWTH FUND VIII, A CALIFORNIA LIMITED PARTNERSHIP
as of December 31, 1995 and 1994, and the related consolidated
statements of operations, partners' equity (deficit) and cash
flows for each of the three years in the period ended December
31, 1995. These consolidated financial statements and the
schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of OUTLOOK INCOME/GROWTH FUND VIII (A
CALIFORNIA LIMITED PARTNERSHIP) as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The
schedule listed in the index to consolidated financial statements
and schedule is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not a required
part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in
our audits of the basic consolidated financial statements and, in
our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
San Francisco, California,
February 22, 1996
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
December 31, 1995 and 1994
Assets 1995 1994
Real estate investments, at cost:
Land $ 7,885 $ 7,885
Building and improvements 13,036 13,991
20,921 21,876
Less: accumulated depreciation and
amortization (4,671) (4,198)
Net real estate investments 16,250 17,678
Real estate held pending foreclosure - net --- 7,468
Investment in and advances to unconsolidated
joint venture 481 1,087
Cash and cash equivalents 1,816 2,297
Accounts receivable, net 51 147
Prepaid expenses and other assets, net 55 107
Deferred financing costs and other fees
net of accumulated amortization of
$456 and $786 for 1995 and 1994,
respectively 151 203
$ 18,804 $ 28,987
Liabilities and Partners' Equity (Deficit)
Notes payable - secured $ 14,959 $ 25,205
Accounts payable and accrued expenses 195 198
Deferred income and security deposits 64 59
Total liabilities 15,218 25,462
Partners' equity (deficit):
General Partner (128) (189)
Limited Partners, 35,000 limited
partnership units outstanding 3,714 3,714
Total partners' equity 3,586 3,525
$ 18,804 $ 28,987
Page 19 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
The accompanying notes are an integral part of these consolidated statements.
Consolidated Statements of Operations
(in thousands, except per unit amounts)
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Revenues:
Rental $ 2,947 $ 4,718 $ 5,437
Interest and other 154 122 137
Gain on sale of property --- 2,088 ---
Total revenues 3,101 6,928 5,574
Expenses:
Operating (including $180, $383
and $460 paid to affiliates in the
years ended 1995, 1994 and 1993,
respectively) 985 1,778 2,214
Interest 1,634 2,157 2,375
Depreciation and amortization 808 1,300 1,473
Provision for impairment of investment
in real estate 1,015 --- ---
General and administrative (including
$552, $579 and $514 paid to
affiliates in the years ended 1995,
1994 and 1993, respectively) 652 655 629
Total expenses 5,094 5,890 6,691
Equity in loss of unconsolidated joint
venture (593) (670) (598)
Income (loss) before extraordinary gain (2,586) 368 (1,715)
Extraordinary gain on debt forgiveness 2,647 --- 4
Net income (loss) $ 61 $ 368 $ (1,711)
Loss before extraordinary gain per
limited partnership unit:
Current Unit $ --- $ --- $ (136.37)
Net income (loss) per limited
partnership unit:
Current Unit $ --- $ --- $ (136.37)
Page 20 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
The accompanying notes are an integral part of these consolidated statements.
Page 21 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
(in thousands)
For the years ended December 31, 1995, 1994, and 1993
Total
General Limited Partners Limited Partners'
Partner Current Deferred Growth Partners Equity
Balance at
December 31, 1992 (523) 5,391 --- --- 5,391 4,868
Net loss (34) (1,677) --- --- (1,677) (1,711)
Balance at
December 31, 1993 (557) 3,714 --- --- 3,714 3,157
Net income 368 --- --- --- --- 368
Balance at
December 31, 1994 (189) 3,714 --- --- 3,714 3,525
Net income 61 --- --- --- --- 61
Balance at
December 31, 1995 $ (128) $ 3,714 $ --- $ --- $ 3,714 $ 3,586
The accompanying notes are an integral part of these consolidated statements.
Page 22 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ 61 $ 368 $(1,711)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Gain on sale of property --- (2,088) ---
Extraordinary gain on debt forgiveness (2,647) --- (4)
Depreciation and amortization 808 1,300 1,473
Provision for impairment of investment
in real estate 1,015 --- ---
Equity in net loss of unconsolidated
joint venture 593 670 598
Changes in assets and liabilities:
Accounts receivable 58 70 77
Prepaid expenses and other assets 47 (35) 77
Deferred financing costs and other fees (112) (19) (102)
Accounts payable and accrued expenses 153 15 (240)
Deferred income and security deposits 4 2 5
Net cash provided by (used in) operating
activities (20) 283 173
Cash flows from investing activities:
Additions to real estate investments (70) (118) (4)
Payments received (additions) on notes
receivable from unconsolidated joint
venture (91) (125) 25
Proceeds from sale of property --- 2,657 ---
Net cash provided by (used in) investing
activities (161) 2,414 21
Cash flows from financing activities:
Principal payments on notes payable (300) (407) (312)
Principal paydown of unsecured note
payable --- --- (600)
Increase in notes payable --- --- 700
Net cash used in financing activities (300) (407) (212)
Net increase (decrease) in cash and cash
equivalents (481) 2,290 (18)
Cash and cash equivalents at beginning
of year 2,297 7 25
Cash and cash equivalents at end of year $ 1,816 $ 2,297 $ 7
(continued)
Page 23 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands) - continued -
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,474 $ 2,391 $ 2,587
Supplemental disclosure of non cash investing
and financing activities:
Foreclosure on real estate:
Reduction of investment in real estate $ 7,344 $ --- $ ---
Reduction of notes payable $(9,946)$ --- $ ---
Reduction of accounts payable and
accrued expense $ (155)$ --- $ ---
Reduction of prepaid expenses and
other assets $ 110 $ --- $ ---
The accompanying notes are an integral part of these consolidated statements.
Page 24 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization - Outlook Income/Growth Fund VIII, A California
Limited Partnership, (the "Partnership") was organized on June
21, 1985 in accordance with the provisions of the California
Revised Limited Partnership Act for the purpose of purchasing,
holding, operating, leasing and selling various properties. The
Partnership commenced operations on March 10, 1986. Through a
registered public offering, 35,000 units of limited partnership
interest (the "Units") at $1,000 per Unit, were authorized for
sale. The sale of Units was concluded on January 23, 1987, when
35,000 Units had been sold.
The former general partner of the Partnership was Outlook
Financial Partners, a California general partnership. On May 8,
1992, Glenborough Realty Corporation and Robert Batinovich were
substituted for Outlook Financial Partners, as the general
partners (collectively, the "General Partner"). The Partnership
Agreement provides that net income or net loss of the Partnership
for both financial statement and income tax reporting purposes
shall be allocated 99% to the Limited Partners and 1% to the
General Partner. These amounts may be adjusted subject to the
provisions of the Partnership Agreement. Unless terminated
earlier under the terms of the Limited Partnership Agreement, the
Partnership will be dissolved on December 31, 2035.
The Partnership Agreement provides for three types of limited
partnership interests: Current Units, Deferred Units and Growth
Units. The Partnership Agreement also provides for varying
allocations of net earnings or net loss and distributions to the
above limited partnership interests (see Note 10).
Consolidation and Joint Ventures - Joint ventures in which the
Partnership had an interest of greater than 50% have been
consolidated in the accompanying consolidated financial
statements. All intercompany transactions have been eliminated.
Investments in joint ventures in which the Partnership has an
interest of 50% or less are accounted for using the equity
method. Such investments are stated at cost plus advances and the
Partnership's proportionate share of earnings less losses and
cash distributions received from the joint ventures.
Pervasiveness of Estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
Page 25 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
the financial statements and the reported results of operations
during the reported period. Actual results could differ from
those estimates.
New Accounting Pronouncement - In March 1995, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The Company adopted SFAS 121 in the fourth quarter
of fiscal 1995. SFAS 121 requires that an evaluation of an
individual property for possible impairment must be performed
whenever events or changes in circumstances indicate that an
impairment may have occurred. There was no impact from the
initial adoption of SFAS 121.
Rental Property to be Held and Used - Rental properties are
stated at cost unless circumstances indicate that cost cannot be
recovered, in which case, the carrying value of the property is
reduced to estimated fair value. Estimated fair value: (i) is
based upon the Company's plans for continued operation of each
property; (ii) is computed using estimated sales price, as
determined by prevailing market values for comparable properties
and/or the use of capitalization rates multiplied by annualized
rental income based upon the age, construction and use of the
building, and (iii) does not purport, for a specific property, to
represent the current sales price that the Company could obtain
from third parties for such property. The fulfillment of the
Company's plans related to each of its properties is dependent
upon, among other things, the presence of economic conditions
which will enable the Company to continue to hold and operate the
properties prior to their eventual sale. Due to uncertainties
inherent in the valuation process and in the economy, it is
reasonably possible that the actual results of operating and
disposing of the Company's properties could be materially
different than current expectations.
Depreciation is proved using the straight line method over the
useful lives of the respective assets.
Cash Equivalents - The Partnership considers short-term
investments, including certificates of deposit with a maturity of
three months or less at the time of purchase to be cash
equivalents.
Deferred Financing and Other Fees - The fees paid to the General
Partner, its affiliates, the lenders and the sellers in
connection with the financing and leasing of the Partnership's
properties are amortized using the straight-line method over the
term of the related note payable or lease.
Page 26 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Revenues - All leases are classified as operating leases. Rental
income is recognized on the straight-line basis over the terms of
the leases.
No tenant represented more than ten percent of the Partnership's
total revenues in 1995.
Net Loss and Distributions Per Limited Partnership Unit - Net
loss and distributions per limited partnership unit are based on
14,275 weighted average number of Growth Units, 8,428 weighted
average number of Deferred Units and 12,297 weighted average
number of Current Units outstanding during all years presented.
Income Taxes - Federal and state income tax laws provide that the
income or loss of the Partnership is reportable by the partners
in their tax returns. Accordingly, no provisions for such taxes
have been made in the accompanying financial statements. The
Partnership reports certain transactions differently for tax and
financial reporting purposes.
Note 2. TRANSACTIONS WITH AFFILIATES
In accordance with the Limited Partnership Agreement, the
Partnership paid the General Partner and its affiliates
compensation for services provided to the Partnership.
Glenborough Corporation provided property management services and
was compensated as follows:
1995 1994 1993
Management fees $143,000 $242,000 $269,000
Property management salaries 37,000 141,000 191,000
The Partnership also reimbursed Glenborough Corporation 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 Corporation was reimbursed $552,000,
$579,000 and $514,000 for such expenses in 1995, 1994 and 1993,
respectively.
In 1994, the Partnership also paid Glenborough Corporation a one-
time transaction fee of $312,000 on the sale of the Las Palomas
Apartments, which was net against the gain on sale of property.
In 1993, the Partnership also paid Glenborough Corporation a one-
time financing fee of $6,900 for negotiating the refinancing of
$700,000 in order to facilitate the pay down of the note payable
to an affiliate of the former general partner.
Page 27 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
On June 15, 1993, the Partnership borrowed $700,000 from
Glenborough in order to facilitate the pay down of $600,000 of
the demand note payable to an affiliate of the former general
partner and additionally to subsidize the properties operations.
Glenborough simultaneously borrowed the $700,000 from an outside
lender with an 8% unsecured note payable. The Partnership was
paying the monthly interest only payments directly to the lender.
On November 22, 1993, the Partnership arranged for replacement
financing of $700,000 through a second deed of trust on Las
Palomas Apartments. The note payable due Glenborough was
simultaneously paid in full. This second deed of trust was
subsequently paid off at the time of the Las Palomas sale on June
10, 1994 (see Note 5).
Note 3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
On December 31, 1986, the Partnership purchased 49 existing
general partner units representing an undivided 49% interest in
the "Breakers Partnership". Concurrent with this purchase, the
Partnership acquired the right to obtain one additional general
partner unit. This right was exercised by the Partnership in
January 1988 for a purchase price of $20,000, which increased its
interest in the Breakers Partnership to 50%. The Breakers
Partnership owns a 342-unit apartment complex located in
Huntington Beach, California which was completed in March 1986.
The investments in and advances to unconsolidated joint venture
is comprised of the following (in thousands):
1995 1994
Equity interest $ (2,483) $
(1,890)
Acquisition fees 553 553
Legal, appraisal and other costs 2,575 2,575
Amortization of acquisition fee,
legal and appraisal expenses (938)
(834)
Advances to unconsolidated joint venture 481 683
Excess losses - reduction in advances
to Breakers 293 ---
Investments in and advances to
unconsolidated joint venture $ 481 $ 1,087
Page 28 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Summary condensed balance sheet information as of December 31,
1995 and 1994, and condensed statements of operations for the
three years in the period ended December 31, 1995, are as follows
(in thousands):
Huntington Breakers Apartments, Limited,
A California Limited Partnership
Balance Sheets as of December 31, 1995 and 1994
1995 1994
Net real estate investment $ 16,386 $ 16,895
Other assets 1,909 1,870
Total assets $ 18,295 $ 18,765
Notes payable $ 20,500 $ 20,500
Notes payable to Outlook Income
Growth Fund VIII 774 683
Other liabilities 1,121 1,083
Total liabilities 22,395 22,266
Partner's Equity (Deficit):
Outlook Income Growth Fund VIII (2,483)
(1,890)
Other Partners, net (1,617)
(1,611)
Total Partners' Deficit (4,100)
(3,501)
$ 18,295 $ 18,765
The Notes Payable by the Breakers Partnership either mature or
are subject to mandatory redemption in July, 1996. The
Partnership is currently negotiating a refinancing transaction
which it believes it should be able to complete prior to that
date.
Huntington Breakers Apartments, Limited,
A California Limited Partnership
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Revenues $ 3,399 $ 3,238 $ 3,203
Expenses 3,998 3,915 3,807
Net Loss $ (599) $ (677) $ (604)
Note 4. GAIN ON SALE OF PROPERTY
Page 29 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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 first and second trust deed loans, which were
secured by the property. After the loan payoffs, net settlement
and other prorations, including transaction fees payable to the
general partners, $2,657,000 of net proceeds were added to the
Partnership's reserves. The gain on sale totalled $2,088,000.
Note 5. REAL ESTATE INVESTMENTS
The cost and accumulated depreciation and amortization of real
estate investments as of December 31, 1995 and 1994 are as
follows (in thousands):
Buildings
and
1995: Land Improvements Total
San Mar Plaza $ 2,546 $ 6,556 9,102
Silver Creek Plaza 5,339 6,480 11,819
7,885 13,036 20,921
Less: Accumulated
depreciation and
amortization --- (4,671) (4,671)
$ 7,885 $ 8,365 $16,250
Buildings
and
1994: Land Improvements Total
San Mar Plaza $ 2,546 $ 7,563 $10,109
Silver Creek Plaza 5,339 6,428 11,767
7,885 13,991 21,876
Less Accumulated
depreciation and
amortization --- (4,198) (4,198)
$ 7,885 $ 9,793 $17,678
The above table excludes 175 South West Temple in the net amount
of $7,468,000 which was real estate held pending foreclosure.
175 South West Temple - On May 28, 1986, the Partnership acquired
an 80% interest in 175 South West Temple Associates, a California
limited partnership (the "Joint Venture")owning 175 South West
Temple, an office building located in Salt Lake City, Utah. The
Page 30 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
property was encumbered by a first deed of trust note in the
original amount of $9,550,000. On April 28, 1995, the deed of
trust was foreclosed and the lender obtained title to the
property, as discussed below. As a result, the joint venture was
dissolved in 1995.
Under the terms of the Joint Venture partnership agreement, the
Partnership was the general partner and the seller was the sole
limited partner. The principal purpose of the Joint Venture was
to own and operate 175 South West Temple. The net profits and
net losses from operations were allocated among the partners in
proportion to their initial capital contributions, provided,
however, that the Partnership, as General Partner, received a
6.75% per annum cumulative return on its capital contribution and
the limited partner received a 6.75% per annum noncumulative
return on its capital contribution prior to distributions being
made 80% to the Partnership and 20% to the limited partner.
From November 1988 through February 1990, payments under the
original terms of the note encumbering this property were
discontinued. In 1988, the carrying value of the property was
reduced by $3,850,000 to the then outstanding note balance. This
reduction in carrying value was recorded as an expense in 1988
and as a prorata reduction of the cost basis of the land and
buildings and improvements making up 175 South West Temple.
On March 6, 1995, management of 175 South West Temple, a 145,075
square foot office space in Salt Lake City, Utah, owned by 175
South West Temple Associates, was turned over as part of a
pending completion of a negotiated foreclosure, to a receiver for
the lender, in advance of 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 amiable foreclosure, which occurred on April 28,
1995. This was part of an agreement which relieved the
Partnership, as the general partner of the joint venture owning
the property, of its guarantee for a portion of the outstanding
debt. The outstanding debt (including previously deferred
interest) was $10,095,000 while net assets totaled $7,448,000,
resulting in an extraordinary gain on debt forgiveness of
$2,647,000.
San Mar Plaza - On June 27, 1986, the Partnership acquired San
Mar Plaza, a shopping center located in San Marcos, Texas. The
property was encumbered by a first deed of trust note in the
original amount of $7,000,000. At December 31, 1995 the balance
was $6,617,000 (see Note 8).
Page 31 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." The Company adopted SFAS 121 in the
fourth quarter of fiscal 1995. SFAS 121 requires that an
evaluation of an individual property for possible impairment must
be performed whenever events or changes in circumstances indicate
that an impairment may have occurred. There was no impact from
the initial adoption of SFAS 121.
In 1995, management computed an internal cash flow valuation
which indicated that the estimated fair value of the property was
less than its carrying value. The Partnership believes that it
will likely be unable to obtain a favorable refinancing of San
Mar Plaza. This resulted in the Partnership recognizing a loss
provision for impairment in investment in real estate of
$1,015,000 during the year ended December 31, 1995.
Silver Creek Plaza - On October 31, 1986, the Partnership
purchased an undivided 66.21% interest in a portion of a retail
shopping center known as Silver Creek Plaza ("Silver Creek")
located in San Jose, California. The Partnership purchased its
66.21% interest as a Tenant in Common with August Income/Growth
Fund VII, an affiliated partnership with similar investment
objectives. The property was originally encumbered by first and
second deeds of trust notes in the amounts of $7,540,000 and
$1,020,000, respectively. The balances at December 31, 1995 were
$7,335,000 and $1,007,000, respectively (see Note 6). The first
deed of trust matures in January 1997 while the second deed of
trust matures December 1996. It is and has been the
Partnership's intent to pursue refinancing of this property,
which it believes it can achieve at reasonable terms.
Under the terms of the Tenants in Common agreement, the
Partnership had a 66.21% undivided interest in the property,
profits and losses, cash distributions and gain or loss from the
sale of the property.
GLENFED Service Corporation ("GLENFED"), an affiliate of the
former general partner, foreclosed on August Income/Growth Fund
VII's 33.79% minority interest in the Silver Creek Tenancy in
Common in August 1991. On October 30, 1991, the Partnership paid
$1,208,600 to purchase the same interest from GLENFED. Total
consideration paid included $188,600 in cash and a $1,020,000
secured note payable to GLENFED, second deed of trust discussed
above.
Page 32 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
The Partnership leases its commercial property under
noncancellable operating lease agreements. Future minimum rents
to be received in each of the next five years and thereafter as
of December 31, 1995 are as follows (in thousands):
1996 $ 2,252
1997 1,643
1998 1,271
1999 1,206
2000 1,163
Thereafter 5,305
Total $12,840
Note 6. SECURED NOTES PAYABLE
A summary of secured notes payable are as follows (in thousands):
1995 1994
7.5% (reduced from 9.5% beginning
May 1, 1990) note payable related
to 175 South West Temple, secured
by a first deed of trust; interest
accrued and payment deferred until
maturity for the period November 1,
1989 through April 30, 1990;
payable in monthly principal and
interest installments of $59,700
commencing June 1, 1990 through May
1, 1995, at which time all
remaining principal and accrued
interest was to be due
and payable. On March 6, 1995, 175
South West Temple was turned over
to a receiver for the lender in a
negotiated foreclosure action which
was completed on April 28, 1995 $ --- $ 10,076
9.38% note payable related to San
Mar Plaza, secured by a first deed
of trust; payable in monthly
interest only installments of
$54,700 through August 1, 1991;
then payable in monthly principal
and interest installments of
$60,600 through August 1, 1996, at
which time all remaining principal
and
interest will be due and payable. 6,617 6,718
Page 33 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
1995 1994
9.75% note payable related to
Silver Creek Plaza, secured by a
first deed of trust; payable in
monthly principal and interest
installments of $64,800 through
January 1, 1997, at which time all
remaining principal and interest
will be due
and payable. 7,335 7,394
9.5% note payable related to Silver
Creek Plaza, secured by a second
deed of trust; payable in monthly
interest only installments,
adjusting to the Bank of America
reference rate (8.5% at December
31, 1995) plus one percent (1%)
until the modified maturity date of
December 31, 1996, at which time
all remaining principal and
interest is due and payable. The
original loan agreement called for
the loan to mature on November 1,
1994 but was modified to December
31, 1995. A second loan
modification agreement was signed
extending the maturity date to
December 31, 1996, but is currently
awaiting approval of the senior
lienholder. Meanwhile, existing
terms remain in force while this
modification is reviewed and
ratified. 1,007 1,017
Total $ 14,959 $ 25,205
Principal maturities of the notes payable are scheduled as
follows (in thousands):
Year Ending
December 31
1996 $ 7,684
1997 7,275
Total $ 14,959
Page 34 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Note 7. TAXABLE INCOME
The Partnership's tax returns, the qualification of the
Partnership as a partnership for Federal income tax purposes, and
the amount of income or loss are subject to examination by
Federal and state taxing authorities. If such examinations
result in changes to Partnership profits or losses, the tax
liability of the partners could be changed accordingly.
The following is a reconciliation for the years ended December
31, 1995, 1994 and 1993, of the net income for financial
reporting purposes to the taxable income determined in accordance
with accounting practices used in preparation of the
Partnership's Federal income tax return (in thousands).
1995 1994 1993
Net income (loss) per
financial statements $ 61 $ 368 $(1,711)
Provision for impairment
of investment in real
estate 1,015 --- ---
Gain on debt forgiveness (871) --- ---
Amortization and
depreciation 52 (98) (731)
Guaranteed and interest income 182 167 136
Bad debt expense/reserve (21) 50 (11)
Joint Venture adjustment (1,572) (1,057) (529)
Capital gain adjustment --- (124) ---
Miscellaneous (3) (78) ---
Net loss for Federal
income tax purposes $(1,157) $ (772) $(2,846)
The following is a reconciliation as of December 31, 1995 and
1994 of partners' capital for financial reporting purposes to
partners' equity for Federal income tax purposes (in thousands).
1995 1994
Partners' equity per
financial statement $ 3,586 $ 3,525
Provision for impairment of
investment in real estate 1,015 3,200
Amortization and depreciation (1,178) (1,230)
Guaranteed income 2,116 1,958
Bad debt expense/reserve 31 53
Syndication costs 4,544 4,544
Investment costs --- 116
Joint venture adjustment (8,578) (9,450)
Basis adjustment (474) (498)
Partners' equity for Federal
Page 35 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
income tax purposes $ 1,062 $ 2,218
Page 36 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Note 8. PARTNERSHIP ALLOCATIONS AND DISTRIBUTIONS
Cash available for distributions, to the extent deemed available
by the General Partner, is distributed 91% to the Limited
Partners and 9% to the General Partner. Distributions to the
Limited Partners are made first to the holders of Current Units
until they receive a 9% per annum cumulative return on their
adjusted capital investment. Further distributions, if
available, are made to holders of Growth Units until they receive
a cumulative return equal to 10% per annum on their adjusted
capital investment. Remaining distributions, if available, are
made to holders of Deferred Units until they receive a cumulative
return of 16% per annum on their adjusted capital investment.
Cash available for distributions is defined as cash funds
provided from operations less operating disbursements and amounts
set aside for restoration or creation of reserves.
At December 31, 1995, holders of Current "A" Units had an
original capital balance of $12,297,000 and accumulated priority
returns of approximately $8,493,100. Holders of Deferred "A"
Units had an original capital balance of $8,428,000 and
accumulated priority returns of approximately $12,727,500.
Holders of "B" Units had an original capital balance of
$14,275,000 and accumulated priority returns of approximately
$13,514,200.
Distributions from other sources shall be distributed 1% to the
General Partner and 99% to the Limited Partners in varying
allocations to the Limited Partners pursuant to the Partnership
Agreement. Thereafter, all further distributions shall be to the
General Partner until the General Partner has received a total of
15% of all distributions, and thereafter 15% to the General
Partner and 85% to the Limited Partners in varying allocations
pursuant to the Partnership Agreement.
Losses will generally be allocated 2% to the General Partner and
98% to the Limited Partners. All losses allocable to the Limited
Partners will first be received by the holders of Growth Units;
then by the holders of Deferred Units; and finally by the holders
of Current Units until their respective capital accounts have
been reduced to zero. Additional losses will be allocated to all
Limited Partners on a prorata basis.
Income will be allocated: (i) first, to those Partners who during
the fiscal year received, or within the first two and one-half
months of the following fiscal year are scheduled to receive,
distributions from the Partnership, to the extent of the amount
of such distributions or such Partners' negative equity,
whichever is less; (ii) then, to those Partners who have negative
Page 37 of 59
OUTLOOK INCOME/GROWTH FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
equity and who have received distributions from the Partnership
in prior years, to the extent of the amount of such distributions
or such Partners' negative equity, whichever is less; (iii) then,
to those Partners who have negative equity, to the extent of such
negative equity; and (iv) finally, in accordance with Partners'
right to future distributions from the Partnership.
Note 9. RESTATEMENT OF PREVIOUSLY REPORTED 1995 QUARTERLY
CONSOLIDATED RESULTS OF OPERATIONS
At September 30, 1995, the Partnership's net loss from the
Huntington Breakers joint venture was greater than the
Partnership's investment in the joint venture. At that time, the
Partnership suspended its share of the joint venture losses to
the extent it exceeded the Partnership's investment in joint
venture. It was determined that suspending the Partnership's
share of the joint venture losses would only be appropriate after
the Partnership's share of the losses also reduced the
Partnership's advances to the joint venture to zero. The effect
of this is to recognize the previously suspended losses on the
Partnership's September 30, 1995 Form 10-Q. The impact on net
income/(loss) in the consolidated statements of operations of the
Partnership, as previously reported on the Form 10-Q at September
30, 1995 are as follows (in thousands):
Nine Months Three Months
Ended Sept. 30, Ended Sept. 30,
1995 1995
Consolidated net income/(loss)
as reported $ 1,650 $ (327)
Net effect of adjustment (103) (103)
Consolidated net income/(loss)
as adjusted $ 1,547 $ (430)
Page 38 of 59
Schedule III insert
Page 39 of 59
EXHIBITS: Financial Statements of Significant Subsidiary
HUNTINGTON BREAKERS APARTMENTS, LIMITED
A CALIFORNIA LIMITED PARTNERSHIP
INDEX OF FINANCIAL STATEMENTS AND SCHEDULE
Page
Report of Independent Public Accountants . . . . . . . . . 38
Balance Sheets at December 31, 1995 and 1994 . . . . . . . 39
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . 40
Statements of Partners' Equity (Deficit) for the
years ended December 31, 1995, 1994 and 1993 . . . . . . 41
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . 42
Notes to Financial Statements . . . . . . . . . . . . . . . 43
Financial Statement Schedule:
Schedule III - Real Estate Investment and Related
Accumulated Depreciation and Amortization at
December 31, 1995 . . . . . . . . . . . . . . . . . . . 51
All other schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
related notes.
Page 40 of 59
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
HUNTINGTON BREAKERS APARTMENTS, LIMITED, A CALIFORNIA LIMITED
PARTNERSHIP:
We have audited the accompanying balance sheets of HUNTINGTON
BREAKERS APARTMENTS, LIMITED, A CALIFORNIA LIMITED PARTNERSHIP as
of December 31, 1995 and 1994, and the related statements of
operations, partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1995. These
financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of HUNTINGTON BREAKERS APARTMENTS, LIMITED, A CALIFORNIA LIMITED
PARTNERSHIP as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed
in the index to financial statements and schedules is presented
for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic
financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
San Francisco, California,
February 22, 1996
HUNTINGTON BREAKERS APARTMENTS, LIMITED
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1995 and 1994
(in thousands)
Assets
1995 1994
Real estate investments, at cost:
Land $ 3,450 $ 3,450
Building and improvements 19,122 18,986
Furniture, fixtures and
equipment 290 290
22,862 22,726
Less accumulated depreciation
and amortization (6,476) (5,831)
Net real estate investments 16,386 16,895
Cash 60 2
Restricted cash 986 937
Prepaid expenses and other assets 22 44
Deferred financing costs and other
fees, net of accumulated amortization
of $290 and $245 for 1995 and 1994,
respectively 841 887
$ 18,295 $ 18,765
Liabilities and Partners' Equity (Deficit)
Notes payable $ 20,500 $ 20,500
Note payable to Outlook Income/
Growth Fund VIII 774 683
Accrued interest payable 19 19
Accounts payable --- 24
Accrued expenses 93 40
Tenant security deposits 134 125
Due to Wilmore City Development, Inc. 875 875
Total liabilities 22,395 22,266
Partners' equity (deficit):
Outlook Income/Growth Fund VIII (2,483) (1,890)
Other Partners, net (1,617) (1,611)
Total partners' deficit (4,100) (3,501)
$ 18,295 $ 18,765
The accompanying notes are an integral part of these statements.
Page 42 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
(in thousands)
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Revenues:
Rents $ 3,119 $ 3,046 $ 3,046
Other rental related income 210 152 124
Interest and other
partnership income 70 40 33
Total revenues 3,399 3,238 3,203
Expenses:
Operating (including $352,
$337 and $369 paid to affiliates
in the years ended December 31,
1995, 1994 and 1993,
respectively) 1,438 1,389 1,289
Interest 1,800 1,779 1,776
Depreciation and amortization 691 689 684
General and administrative
(including $44, $41 and $41
paid to affiliates in the
years ended December 31,
1995, 1994 and 1993,
respectively) 69 58 58
Total expenses 3,998 3,915 3,807
Net loss $ (599) $ (677) $ (604)
The accompanying notes are an integral part of these statements.
Page 43 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
(in thousands)
For the years ended December 31, 1995, 1994 and 1993
Net due to/
Outlook Other from Other Total
Income/Growth Partners Partners Partners'
Fund VIII (Note 7) (Note 7) Deficit
Balance at December 31, 1992 $ (622) $ (1,451) $ (110)$(2,183)
Due from Other Partners --- --- (37) (37)
Net loss (598) (6) --- (604)
Balance at December 31, 1993 (1,220) (1,457) (147) (2,824)
Net loss (670) (7) --- (677)
Balance at December 31, 1994 (1,890) (1,464) (147) (3,501)
Net loss (593) (6) --- (599)
Balance at December 31, 1995 $ (2,483) $(1,470) $ (147)$(4,100)
The accompanying notes are an integral part of these statements.
Page 44 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Operating activities:
Net loss $ (599)$ (677)$ (604)
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Depreciation and amortization 691 689 684
Changes in assets and liabilities:
Restricted cash (49) (10) (46)
Accounts receivable --- --- 12
Due from/to Other Partners --- --- (37)
Prepaid expenses and other assets 22 (39) 23
Accrued interest payable --- (2) 1
Accounts payable and accrued expenses 29 (43) 44
Tenant security deposits 9 1 (5)
Net cash provided by (used for) operating
activities 103 (81) 72
Investing activities:
Additions to real estate investment (136) (89) ---
Financing activities:
Additions to borrowings from Outlook
Income/Growth Fund VIII 231 312 95
Payments on note payable to Outlook
Income Growth Fund VIII (140) (187) (120)
Net cash (used for) provided by financing
activities 91 125 (25)
Net increase (decrease) in cash 58 (45) 47
Cash at beginning of year 2 47 ---
Cash at end of year $ 60 $ 2 $ ---
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 1,749 $ 1,746 $ 1,729
The accompanying notes are an integral part of these statements.
Page 45 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, 1994 and 1993
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization - Huntington Breakers Apartments, Limited, A
California Limited Partnership (the "Partnership"), was
reorganized on December 31, 1986 in accordance with the
provisions of the California Revised Limited Partnership Act.
The Partnership is governed by the Second Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement"),
dated December 31, 1986. The Managing General Partner of the
Partnership is Outlook/Income Growth Fund VIII, A California
Limited Partnership ("Outlook"). Outlook was admitted to the
Partnership on December 31, 1986. The Other Partners are Wilmore
City Development, Inc., a California Corporation ("Wilmore"),
Joseph P. Mayer, III ("J. Mayer"), Rose Marie Semingson ("R.M.
Semingson"), Daniel H. Young ("Young"), Eleanor C. Mayer ("E.
Mayer"), and Huntington Breakers Managing Partnership, a
California general partnership comprised of Wilmore and J. Mayer
("Wilmore/Mayer Partnership"). The structure of the Partnership
Units and their respective ownership is as follows:
General Partner Limited Partner Total
Units Units Units
Outlook 50.00 - 50.00
Wilmore 3.00 - 3.00
J. Mayer 1.00 0.68 1.68
R.M. Semingson - 20.25 20.25
Young - 13.50 13.50
E. Mayer - 10.57 10.57
Wilmore/Mayer
Partnership 1.00 - 1.00
Total Units 55.00 45.00 100.00
The purpose of the Partnership is to own and operate a 342 unit
apartment complex located in the City of Huntington Beach, Orange
County, California (the "Property"). The Property is encumbered
by first and second trust deed promissory notes in the original
amounts of $16,000,000 and $4,500,000, respectively.
Pervasiveness of Estimates - The preparation of financial
statements in conformity with generally accepted accounting
Page 46 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, 1994 and 1993
principles require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the results of operations during the
reporting period. Actual results could differ from those
estimates.
New Accounting Pronouncement - In March 1995, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The Company adopted SFAS 121 in the fourth quarter
of fiscal 1995. SFAS 121 requires that an evaluation of an
individual property for possible impairment must be performed
whenever events or changes in circumstances indicate that an
impairment may have occurred. There was no impact from the
initial adoption of SFAS 121.
Rental Property to be Held and Used - Rental properties are
stated at cost unless circumstances indicate that cost cannot be
recovered, in which case, the carrying value of the property is
reduced to estimated fair value. Estimated fair value: (i) is
based upon the Company's plans for continued operation of each
property; (ii) is computed using estimated sales price, as
determined by prevailing market values for comparable properties
and/or the use of capitalization rates multiplied by annualized
rental income based upon the age, construction and use of the
building, and (iii) does not purport, for a specific property, to
represent the current sales price that the Company could obtain
from third parties for such property. The fulfillment of the
Company's plans related to each of its properties is dependent
upon, among other things, the presence of economic conditions
which will enable the Company to continue to hold and operate the
properties prior to their eventual sale. Due to uncertainties
inherent in the valuation process and in the economy, it is
reasonably possible that the actual results of operating and
disposing of the Company's properties could be materially
different than current expectations.
Depreciation is proved using the straight line method over the
useful lives of the respective assets.
Deferred Financing and Other Fees - The costs associated with
obtaining the promissory notes (see Note 2) which encumber the
Property are being amortized using the straight-line method over
the lives of the respective notes.
Income Taxes - Federal and state income tax laws provide that the
income or loss of the Partnership is reportable by the partners
Page 47 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, 1994 and 1993
in their tax returns. Accordingly, no provisions for such taxes
have been made in the accompanying financial statements. The
Partnership reports certain transactions differently for tax and
financial reporting purposes.
Note 2. NOTES PAYABLE
A summary of notes payable are as follows (in thousands):
1995 1994
7.2% note payable secured by a
first deed of trust and letter of
credit in the amount of
$16,640,000, payable in semi-annual
(interest only in the amount of
$576,000 installments until
maturity on July 1, 2014 at which
time all remaining principal and
interest will be due
and payable $ 16,000 $ 16,000
9.75% note payable secured by a
second trust deed, payable in
monthly interest only installments
of approximately $36,600 until July
1, 1996, at which time all
remaining principal and interest
will be due
and payable 4,500 4,500
$ 20,500 $ 20,500
The Partnership must comply with certain covenants relating to
the aforementioned notes including maintenance of a Net Operating
Income/Debt Service Ratio ("NOI/DSR"), as defined, of not less
than 1.3 to 1 and the leasing, and the holding open for lease, of
at least 20% of the property's units to tenants qualifying as
"low income", as defined. For the years ended December 31, 1995
and 1994, the Partnership achieved a NOI/DSR of 1.22 to 1 and
1.15 to 1, respectively.
The Partnership returned the following loan proceeds to cover the
debt coverage ratio deficiencies until such time as the specified
NOI/DSR is obtained by the Partnership:
Date Paid Deficiency Period Amount Paid
March 1991 Year ended December 31, 1990 $161,000
April 1993 Quarter ended March 31, 1993 46,000
April 1994 Quarter ended March 31, 1994 5,000
January 1995 Quarter ended December 31, 1994 33,000
Page 48 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, 1994 and 1993
April 1995 Quarter ended March 31, 1995 2,000
July 1995 Quarter ended June 30, 1995 19,000
These returned loan proceeds are classified as part of restricted
cash in the accompanying financial statements. Restricted cash
also includes the original $720,000 holdback by the lender plus
one month of accrued interest on the sum of the original holdback
and amounts paid for deficiencies. It is management's opinion
that the Partnership is in compliance with all required terms of
the note agreements.
The note payable in the amount of $16,000,000 was given by the
Partnership for the proceeds of City of Huntington Beach
Multifamily Mortgage Revenue Refunding Bonds, Issue of 1989 (the
"Bonds"). The Bonds bear the same interest rate and due date as
the 7.2% note payable and are limited obligations of the City of
Huntington Beach payable solely out of the proceeds from payments
on the 7.2% note payable from the Partnership and from drawings
on the related letter of credit.
The Bonds are subject to mandatory tender and redemption on the
interest payment date immediately preceding the expiration of the
above mentioned letter of credit on July 15, 1996. The
Partnership must obtain and is currently working on a firm
commitment to purchase the Bonds prior to this date, or drawings
will be made on the letter of credit for redemption of the Bonds
at par value. Management believes that reasonable financing will
be secured prior to the July 15, 1996 letter of credit
expiration. If the Partnership obtains an extension, or
substitute, to the letter of credit, then the date of mandatory
tender and redemption will be likewise extended.
The Bonds are subject to optional redemption beginning July 1,
1999 at a premium of 2% above par, decreasing to par on July 1,
2003.
Note 3. NOTES PAYABLE TO OUTLOOK INCOME/GROWTH FUND VIII
The notes payable to Outlook Income/Growth Fund VIII ("Outlook")
represent original advances to the Partnership to support
operations, and interest accrued on such advances. In 1992,
Outlook assumed the Partnership's notes payable to August
Financial Corporation and the balance due to August Management,
Inc. In 1995 and 1994, the Partnership was advanced an additional
$231,000 and $312,000, respectively and repaid $140,000 and
$187,000, respectively resulting in a net increase in notes
payable to Outlook/Income Growth Fund VIII of $91,000 and
$125,000 in 1995 and 1994, respectively. Interest accrues
monthly on the outstanding balance less the original advances due
Page 49 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, 1994 and 1993
August Management, Inc. of $204,000, at the rate of prime (8.5%
at December 31, 1995) plus 1 1/2% and is added to principal. The
advances are unsecured and payment is due upon demand.
Note 4. DUE TO WILMORE CITY DEVELOPMENT
The amount due to Wilmore City Development ("Wilmore") represents
unsecured advances made by Wilmore to the Partnership prior to
December 31, 1986. This liability has no fixed maturity and is
subordinate to all distributions to Outlook and will be repaid
solely in lieu of other distributions to which Wilmore would be
entitled.
Note 5. MANAGEMENT FEES
The General Partner of Outlook has contracted with Glenborough
Corporation ("Glenborough") for the provision of property
management services.
The Partnership paid management fees to Glenborough of 5% of
total rents collected for each of the years disclosed.
Note 6. TAXABLE INCOME
The Partnership's tax returns, the qualification of the
Partnership as a partnership for Federal income tax purposes, and
the amount of income or loss are subject to examination by
Federal and state taxing authorities. If such examinations
result in changes to Partnership profits or losses, the tax
liability of the partners could be changed accordingly.
Note 7. PARTNERS' EQUITY (DEFICIT)
Allocation of Net Income and Net Loss - Net losses from
operations of the Partnership are generally allocated ninety-nine
percent (99%) to Outlook and one percent (1%) to the Other
Partners in proportion to the number of units held by each of the
Other Partners. Net income from operations of the Partnership
will be allocated in the same amounts and in the same ratios as
any distributions made to the Partners, and then in the same
amounts and in the same ratios that previous allocations of net
losses from operations were made to the Partners. Thereafter,
allocations will be made to the Partners in proportion to the
number of units held by each Partner.
Allocations of income and loss from the sale or refinancing of
the Property will be made in accordance with priorities outlined
in the Partnership Agreement.
Page 50 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, 1994 and 1993
Distributions of Cash - Distributions of cash from operations
will be paid first to Outlook in an amount equal to the "Current
Year Operational Preference Account" (see discussion which
follows), then to the Partners in repayment of any unpaid
advances or loans, and interest accrued thereon, made by the
Partners to the Partnership, then to Outlook in an amount equal
to the "Accrued Operational Preference Account" (see discussion
which follows), and then 25% to Outlook and 75% to the Other
Partners pro rata in accordance with their units.
Distributions from the sale or refinancing of the Property will
be made in accordance with priorities outlined in the Partnership
Agreement.
Operational Preference Account - Beginning January 1, 1990,
Outlook was credited with a preference for distributions of
$850,000, and on the first day of each Partnership year beginning
January 1, 1990 the preference amount balance is increased by
$700,000 (aggregate preference of $5,750,000 at January 1, 1996).
(The balance is accounted for in memo form only and is not
included in the financial statements of the Partnership or
Outlook). Decreases in the preference balance will occur as
distributions are made to Outlook with reference to this
preference amount. The "Current Year Operational Preference
Account" is the operational preference amount applicable to the
then current calendar year. The "Accrued Operational Preference
Account" is the total balance in the Operational Preference
Account as of the immediately preceding December 31st.
Guaranteed Payment - The Partnership Agreement provides for
payment to Outlook of $375,000 in each of 1987 and 1988, and
$500,000 in 1989. As of December 31, 1989, these guaranteed
payments had not been made. At that time, the Partners agreed
that the unpaid amounts should accrue interest at the rate of 8%
per year, compounded annually, from the date the payment was due.
The Partners agreed that the total amount owed to Outlook as of
December 31, 1989 was $1,342,000 and that the amount should
continue to accrue interest at the rate of 8% per year,
compounded annually, commencing January 1, 1990 (aggregate
balance of $2,129,600 at December 31, 1995). (The balance is
accounted for in memo form only and is not included in the
financial statements of the Partnership or Outlook). If by
December 31, 1999, or the sale of all or substantially all of the
Property by the Partnership, Outlook has not received payment in
full of the entire Guaranteed Payment, together with accrued
interest, then the Other Partners will pay Outlook, outside the
Partnership, the unpaid amount of such Guaranteed Payment plus
interest.
Page 51 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, 1994 and 1993
Due to/from Other Partners - The net amount due to (from) Other
Partners included in Partners' Equity is comprised of the
following:
1. Amounts received by Other Partners
that should have been received by the
Partnership
Interest on funds held in escrow
for September 1989 refinancing $ (104,100)
Partial release of amount held
back (plus interest) from funding
of September 1989 refinancing (102,200)
Funds released from September
1989 refinancing (300)
2. Pre-December 31, 1986 liabilities of the
Other Partners paid by the Partnership
subsequent to December 31, 1986 (272,800)
3. Amounts received by the Partnership
that should have been received by the
Other Partners
Bond interest reserve applicable to
original financing, released to
September 1989 refinancing escrow 100,000
Balance of bond principal reserve
applicable to original financing,
as of December 31, 1986 197,000
4. Advance by Other Partners to September
1989 refinancing escrow 72,500
5. Amounts paid by the Partnership related
to the claims brought by C.W. Driver
against the Partnership which are
covered by the Partnership
indemnification agreement (37,400)
Net amount due from Other Partners $ (147,300)
The amounts noted above have not been accepted by the Other
Partners. Moreover, some of the Other Partners have alleged in
writing that the Partnership has wrongfully withheld payment of
distributions payable to the Other Partners. The Partnership has
denied these allegations in writing, but none of the
disagreements have been resolved. Management believes that no
additional liability will arise from these disputes.
Page 52 of 59
HUNTINGTON BREAKERS APARTMENTS, LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, 1994 and 1993
Other Equity Transactions - A summary of transactions which have
been included in the Other Partners' capital account at December
31, 1989 are as follows:
Capital balance (deficit) at December 31,
1986 $ (1,389,400)
Other Partners' share of cumulative loss
- January 1, 1987 to December 31, 1989 (35,300)
Liabilities incurred prior to
December 31, 1986 417,600
Funds held in original bond principal
reserve at December 31, 1986 (197,000)
Original bond interest reserve (228,300)
Balance at December 31, 1989 $ (1,432,400)
Page 53 of 59
Schedule III insert
Page 54 of 59
Item 9. Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Page 55 of 59
PART III
Item 10. Directors and Executive Officers of the Registrant.
General Partners
The Partnership has no directors or executive officers. The
general partners of the Partnership are Glenborough Corporation
("GC", the "Managing General Partner", formerly known as
Glenborough Realty Corporation) and Robert Batinovich.
Robert Batinovich was the President, Chief Executive Officer and
Chairman of Glenborough Corporation from its inception in 1987
until his resignation effective January 10, 1996. On August 31,
1994, Mr. Batinovich was elected Chairman, President and Chief
Executive Officer of Glenborough Realty Trust Incorporated
("GRT"), a newly created Real Estate Investment Trust, which
began trading on the New York Stock Exchange on January 31, 1996.
He was a member of the Public Utilities Commission from 1975 to
January 1979 and served as it President from January 1977 to
January 1979. He is a member of the Board of Directors of Farr
Company, a publicly held company that manufactures industrial
filters. He has extensive real estate investment experience.
Mr. Batinovich's business background includes managing and owning
manufacturing, vending and service companies and a national bank.
For informational purposes, the following are the names and a
brief description of the background and experience of each of the
controlling persons, directors and executive officers of the
Managing General Partner as of March 1, 1996:
Name Age Position
Andrew Batinovich 37 Chief Executive Officer and
Chairman of the Board
Robert E. Bailey 34 Secretary and Corporate Counsel
Sandra L. Boyle 47 President and
Chief Operating Officer
June Gardner 44 Director
Terri Garnick 35 Chief Financial Officer
Judy Henrich 50 Vice President
Wallace A. Krone Jr. 64 Director
Andrew Batinovich was elected Chairman of the Board and Chief
Executive Officer of GC on January 10, 1996. He has been
employed by GC since 1983, and had functioned since 1987 as Chief
Operating Officer and Chief Financial Officer. Mr. Batinovich
also serves as Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director of GRT. He holds a
Page 56 of 59
California real estate broker's license and is a Member of the
National Advisory Council of BOMA International. He received his
B.A. in International Finance from the American University of
Paris. Prior to joining Glenborough, Mr. Batinovich was a
lending officer with the International Banking Group and the
Corporate Real Estate Division of Security Pacific National Bank.
Robert E. Bailey joined GC in 1989 as Associate Counsel and was
elected Secretary of GC on May 15, 1995. He is responsible for
all landlord/tenant documentation, tenant litigation, corporate
and partnership matters and employment matters. In 1984, he
received his Bachelor of Arts degree from the University of
California at Santa Barbara and his Juris Doctor degree from
Vermont Law School in 1987. From 1987 to 1989, Mr. Bailey was an
associate with the law firm of Pedder, Stover, Hesseltine &
Walker, where he specialized in business litigation. He is a
member of the State Bar of California.
Sandra L. Boyle has been associated with GC or its associated
entities since 1984 and has served as President and Chief
Operating Officer of GC since January 10, 1996. She was
originally responsible for residential marketing, and her
responsibilities were gradually expanded to include residential
leasing and management in 1985, and commercial leasing and
management in 1987. She was elected Vice President in 1989, and
continues to supervise marketing, leasing, property management
operations and regional offices. Ms. Boyle also serves as a
Senior Vice President of GRT. Ms. Boyle holds a California real
estate broker's license and a CPM designation, and is a member of
the National Advisory Council and Finance Committee of BOMA
International; and Board of Directors of BOMA San Francisco and
BOMA California.
June Gardner was elected a director of GC on January 10, 1996.
She was associated with GC from 1984 through 1995, as Senior Vice
President, Corporate Controller with responsibilities in the
areas of corporate financial planning, reporting, accounting and
banking relationships. Before joining GC, Ms. Gardner was
Assistant Vice President of JMB Realty Corporation from 1977 to
1984, with responsibilities in the areas of financial management
and reporting.
Terri Garnick has served as Chief Financial Officer of GC since
January 10, 1996. She is also Senior Vice President, Chief
Accounting Officer and Treasurer of GRT. Ms. Garnick is
responsible for property management accounting, financial
statements, audits, Securities and Exchange Commission reporting,
and tax returns. Prior to joining GBC in 1989, Ms. Garnick was a
controller at August Financial Corporation from 1986 to 1989 and
was a Senior Accountant at Deloitte, Haskins and Sells from 1983
to 1986. She is a Certified Public Accountant and has a Bachelor
of Science degree from San Diego State University.
Judy Henrich is a Vice President of GC, effective January 10,
1996 and is responsible for the coordination of all due broker-
dealer and investor communications for partnerships managed by
Page 57 of 59
GC. Prior to joining GC, Ms. Henrich, was associated with Rancon
Financial Corporation from 1981 through early 1995, as Senior
Vice President since 1985, with responsibilities similar to those
at GC. Ms. Henrich also served as Executive Vice President of
Rancon Securities Corporation from 1988 to 1991, and thereafter
as its Chief Executive Officer. Prior to joining Rancon, Ms.
Henrich was manager of public relations and advertising for
Kaiser Development Company, a diversified real estate holding
company.
Wallace A. Krone has been an entrepreneur in the restaurant
business since 1965, and owns a number of Burger King restaurants
in the San Francisco area. Mr. Krone has been associated with GC
since 1982 as an investor in one or more partnerships, and has
been a member of the board of directors of GC since 1989.
Page 58 of 59
Item 11. Executive Compensation
Compensation and Fees
The Partnership has no executive officer. For information
relating to fees, compensation, reimbursements and distributions
paid to related parties, reference is made to Item 13 below.
Item 12. Security Ownership of Certain Owners and Management
To the best knowledge of the Partnership, no person owned of
record or beneficially more than 5% of the outstanding Units at
December 31, 1995.
The Partnership, as an entity, does not have any directors or
officers. At December 31, 1995, no Units were owned of record or
beneficially by any officers or directors of the General Partner.
Item 13. Certain Relationships and Related Transactions
(a) In 1990, AFC made a $400,000 loan to the Partnership to
fund working capital needs and in 1992, the Partnership assumed
$204,000 in non interest bearing amounts due to AFC by the
Huntington Breakers Apartments, Ltd. unconsolidated joint
venture. The net book balance at December 31, 1995 of the
original $400,000 was $238,000, which is net of excess losses
from the Huntington Breakers joint venture. To the extent the
Partnership's share of the loss in its unconsolidated joint
venture creates a negative investment in joint venture ("excess
losses"), the excess losses shall be applied as a reduction in
the advances to the unconsolidated joint venture. Any excess
losses exceeding the balance in advances to the unconsolidated
joint venture shall then be suspended Partnership losses. The
net balance bears interest at a rate of prime plus 1-1/2 % and is
due on demand.
(b)An affiliate of the General Partner earned compensation
for specific services provided to the Partnership. In accordance
with the Limited Partnership agreement, the Partnership paid the
General Partner and its affiliates compensation for services
provided to the Partnership. Glenborough Corporation provides
property management services and has been compensated as follows:
1995 1994 1993
Management fees $143,000 $242,000 $269,000
Property management salaries 37,000 141,000 191,000
The Partnership also reimbursed Glenborough Corporation 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 Corporation was reimbursed $552,000,
$579,000 and $514,000 for such expenses in 1995, 1994 and 1993,
respectively.
Page 59 of 59
(c) None of the members of the General Partner were indebted
to the Partnership during this fiscal year.
(d) Compensation received by the General Partner and
affiliates is disclosed under Item 11.
Page 60 of 59
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)(1) Financial Statements - See Index to Financial
Statements contained in Item 8.
(2) Financial Statement Schedules - See Item 14(d)
below.
(3) Exhibits - Exhibit #27 - Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K
were filed by the registrant in the fourth
quarter of 1995.
(c) Exhibits - See Exhibit Index.
(d) Financial Statement Schedules - The following
financial statement schedules of the Partnership
are included in Item 8:
Schedule III - Real Estate Investments and
Related Accumulated Depreciation and
Amortization.
All other schedules for which provision is made
in the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable, and therefore have been omitted.
Page 61 of 59
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the
Securities Exchange Act of l934, 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: By: Glenborough Corporation,
Robert Batinovich a California corporation,
General Partner (formerly knows as Glenborough
Realty Corporation,
a California Corporation)
Date: By:
Andrew Batinovich
Chief Executive Officer
and Chairman of the Board
Date:
By:
Terri Garnick
Chief Financial Officer
Date:
By:
June Gardner
Director
Date:
(A Majority of the Board of Directors of the General Partner)
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the
Securities Exchange Act of l934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Robert Batinovich By:Glenborough Corporation,
Robert Batinovich a California corporation,
General Partner (formerly knows as Glenborough
Realty Corporation,
a California Corporation)
Date: March 29, 1996 By: /s/ Andrew Batinovich
Andrew Batinovich
Chief Executive Officer
and Chairman of the Board
Date: March 29, 1996
By: /s/ Terri Garnick
Terri Garnick
Chief Financial Officer
Date: March 29, 1996
By: /s/ June Gardner
June Gardner
Director
Date: March 29, 1996
(A Majority of the Board of Directors of the General Partner)
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<CURRENT-ASSETS> 1867
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<OTHER-SE> 3586
<TOTAL-LIABILITY-AND-EQUITY> 18804
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