UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1996
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 0-21455
Decade Companies Income Properties - A Limited Partnership
(Exact name of registrant as specified in its charter)
State of Wisconsin 39-1518732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Patrick Blvd., Suite 140 Brookfield, Wisconsin 53045-5864
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: 414-792-9200
Former name, former address and former fiscal year, if changed
since last report: Not Applicable.
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each issuer's classes
of common stock, as of the latest practicable date.
Decade Companies Income Properties - A Limited Partnership
INDEX
September 30, 1996
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (unaudited as to
September 30, 1996 and the three month and
nine month periods then ended).
Condensed Balance Sheets at September 30, 1996,
and December 31, 1995. 3
Condensed Statements of Operations for the three
month and nine month periods ended September 30,
1996 and 1995. 4
Statements of Changes in Partners' Capital
for the nine months ended September 30, 1996 and
the year ended December 31, 1995. 5
Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995. 6
Notes to Financial Statements (Unaudited as to
information pertaining to the financial statements
as of and for the three month and nine month periods
ended September 30, 1996. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 14
SIGNATURES 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED BALANCE SHEETS
September 30 December 31
1996 1995
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,197,207 $ 56,316
Restricted cash 233,060 497,390
Escrow deposits 381,664 186,703
Prepaid expenses and other assets 27,851 94,405
Total Current Assets 4,839,782 834,814
INVESTMENT PROPERTIES, AT COST: 31,057,376 30,927,237
Less: accumulated depreciation (6,210,839) (5,393,539)
Net Investment Property 24,846,537 25,533,698
OTHER ASSETS:
Utility deposits 43,415 43,415
Debt issue costs, net of accumulated
amortization 239,911 46,440
Total Other Assets 283,326 89,855
Total Assets $29,969,645 $26,458,367
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued taxes $ 617,291 $ 350,722
Tenant security deposits 175,463 169,369
Distributions payable 4,824 221,154
Accrued interest payable 37,573 37,971
Payables to affiliates 3,533,836 3,409,338
Mortgage notes payable 23,253,615 19,228,533
Total Liabilities 27,622,602 23,417,087
PARTNERS' CAPITAL:
General Partner Capital (73,691) (69,185)
Limited Partners
(authorized--18,000 Interests;
outstanding--17,466.31 Interests) 2,420,734 3,110,465
Total Partners' Capital 2,347,043 3,041,280
Total Liabilities and
Partners' Capital $29,969,645 $26,458,367
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
Operating revenue:
Rental income $1,527,812 $1,421,601 $4,501,100 $4,205,644
Operating expenses (731,329) (667,897) (2,134,331) (1,989,261)
Real estate taxes (176,469) (181,127) (541,049) (549,806)
Total operating
expenses (907,798) (849,024) (2,675,380) (2,539,067)
Net operating income 620,014 572,577 1,825,720 1,666,577
Interest expense (441,611) (378,312) (1,218,600) (1,121,532)
Depreciation (275,000) (279,400) (817,300) (829,700)
Amortization (10,641) (4,091) (14,538) (12,273)
Net income (loss) from
investment property (107,238) (89,226) (224,718) (296,928)
Other income (expenses):
Interest income 63,821 4,776 110,216 40,061
Partnership management (32,227) (36,993) (136,125) (155,733)
31,594 (32,217) (25,909) (115,672)
NET (LOSS) $ (75,644) $ (121,443) $ (250,627) $ (412,600)
Net Income (loss)
attributable to
General Partner (1%) $ (756) $ (1,214) $ (2,506) $ (4,126)
Net Income (loss)
attributable to
Limited Partners (99%) (74,888) (120,229) $ (248,121) $ (408,474)
$ (75,644) $ (121,443) $ (250,627) $ (412,600)
Net (loss) per Limited
Partner Interest $ (4.29) $ (6.88) $ (14.21) $ (23.39)
See Notes to Financial Statements
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited as to the Nine Months Ended September 30, 1996)
General Limited
Partner Partners'
Capital Capital Total
BALANCES AT 12/31/94 $ (60,621) $ 4,448,786 $ 4,388,165
Distributions declared to Partners (3,867) (873,320) (877,187)
Net (loss) for the year (4,697) (465,001) (469,698)
BALANCES AT 12/31/95 $(69,185) $ 3,110,465 $ 3,041,280
Tender offer costs (4,950) (4,950)
Distributions declared to Partners (2,000) (436,660) (438,660)
Net (loss) for the period (2,506) (248,121) (250,627)
BALANCES AT 9/30/96 $(73,691) $ 2,420,734 $ 2,347,043
See Notes to Financial Statements.
STATEMENTS OF CASH FLOWS - (UNAUDITED)
For The Nine Months Ended September 30,
1996 1995
CASH PROVIDED FROM OPERATIONS $ 782,567 $ 589,320
INVESTING ACTIVITIES:
Proceeds from exchange escrow account 264,330 626,908
Additions to investment property (130,139) (127,704)
Net cash provided by investing
activities 134,191 499,204
FINANCING ACTIVITIES:
Proceeds from new mortgage loan 6,700,000 0
Principal payments on mortgage notes (2,674,918) (55,955)
Proceeds from line of credit note 0 120,000
Payment on line of credit note 0 (220,000)
Tender offer costs (4,950) 0
Payment of debt issue costs (141,009) 0
Distributions paid to limited partners (654,990) (656,033)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,224,133 (811,988)
INCREASE IN CASH & CASH
EQUIVALENTS 4,140,891 276,536
CASH & CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 56,316 16,415
CASH & CASH EQUIVALENTS
AT THE END OF PERIOD $4,197,207 $ 292,951
Supplementary disclosure of cash flow information:
Interest paid $1,197,458 $1,099,106
Income taxes paid 0 0
See Notes to Financial Statements
Note A--Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month and nine month period ended
September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For
further information, refer to the financial statements and
footnotes thereto included in the Partnership's annual report on
Form 10-K for the year ended December 31, 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Operating revenue from rental income was $1,527,800 in the
quarter ended September 30, 1996, compared to $1,421,600 for the
same period of 1995, an increase of 7.4%. For the nine month
period ended September 30, 1996 rental income was $4,501,100
compared to $4,205,600 for the same period in 1995, an increase
of 7.0%. The increase was primarily a result of increased
occupancy of the Partnership's properties.
Rental income was provided by the three sites per the following
for the three and nine month periods:
Amount Percent
For Three Months Ended Increase Increase
9/30/96 9/30/95 (Decrease) (Decrease)
Pelican Sound $ 656,900 $ 601,200 $ 55,700 9.3%
Meadows II 468,300 443,500 24,800 5.6%
Town Place 402,600 376,900 25,700 6.8%
Total $1,527,800 $1,421,600 $ 106,200 7.4%
Amount Percent
For Nine Months Ended Increase Increase
9/30/96 9/30/95 (Decrease) (Decrease)
Pelican Sound $1,885,300 $1,825,000 $ 60,300 3.3%
Meadows II 1,439,100 1,235,700 203,400 16.5%
Town Place 1,176,700 1,144,900 31,800 2.8%
Total $4,501,100 $4,205,600 $ 295,500 7.0%
The average monthly gross potential rent per unit at the
Apartments for the third quarter of 1996 and for the nine month
period of 1996, and the comparative periods in 1995 is set forth
below:
Number Three Months Ended Nine Months Ended
of Units 9/30/96 9/30/95 9/30/96 9/30/95
Pelican Sound 379 $572 $559 $567 $555
The Meadows II 316 $565 $567 $561 $569
Town Place 240 $576 $563 $573 $559
All Rental Units 935 $571 $563 $567 $561
"Gross potential rent" represents the asking rent established by
the Partnership for a vacant apartment plus the rent in effect
for occupied apartments.
The average occupancy level at the Apartments for the third
quarter ended September 30, 1996 and for the nine month period of
1996 and the comparable periods in 1995, is set forth below:
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
Pelican Sound 94.1% 92.8% 94.7% 93.9%
The Meadows II 87.7% 81.1% 89.8% 76.2%
Town Place 95.9% 92.3% 93.0% 93.7%
All Rental Units 92.4% 88.7% 92.6% 87.8%
The range of occupancy levels at the Apartments for the third
quarter period ended September, 1996 and for the nine month
period of 1996, and the comparable periods in 1995, is set forth
below:
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
Pelican Sound 91.5-94.2% 91.8-93.6% 91.5-99.0% 90.0-96.9%
The Meadows II 85.0-92.2% 71.4-87.8% 85.0-92.4% 69.8-87.8%
Town Place 94.9-96.5% 90.6-94.7% 91.2-96.5% 90.6-97.0%
All Rental Units 91.5-94.1% 84.5-91.9% 91.5-94.7% 83.4-94.1%
Total rental expenses before depreciation and debt service in the
three month period ended September 30, 1996 increased by $59,000,
from $849,000 to $908,000, compared to the same period of 1995.
The increase was comprised of increases from The Meadows II
($22,000), from Pelican Sound ($37,000) and with no increase at
Town Place.
For the nine month period total rental expense increased in the
1996 period by $136,000 from $2,539,000 to $2,675,000. This
increase was comprised of increases from The Meadows II of
$56,000, from Town Place of $17,000 and from Pelican Sound of
$63,000.
Net income from rental property operations before debt service
and depreciation was approximately $620,000 for the third quarter
of 1996, compared to $573,000 for the comparative 1995 period, an
increase of approximately $47,000. The increase was comprised of
increases from The Meadows II ($5,000), from Pelican Sound
($18,000), and from Town Place of $24,000.
For the nine month period net income from rental operations
before depreciation and debt service was approximately $1,826,000
for the 1996 period compared to $1,667,000 for the comparable
1995 period, an increase of $159,000. The increase was comprised
of an increase from The Meadows II of $147,000 and from Town
Place of $14,000, offset by a decrease at Pelican Sound of
$2,000. The big increase in The Meadows II was due to the
improved occupancy in 1996 as compared to the lower occupancy in
1995 due to competition from new apartment construction in that
area for all nine months of 1995.
As a result of the foregoing, net operating income before
depreciation and debt service was $620,000 for the quarter
compared to $572,000 for the comparative quarter. For the third
quarter, Pelican Sound contributed $272,000 (44%) of net
operating income before depreciation and debt service; The
Meadows contributed $177,000 (29%); and Town Place contributed
$171,000 (27%).
For the nine month period, the operating income was $1,826,000
for the current year compared to $1,667,000 for the prior year.
Pelican Sound contributed $746,000 (41%), The Meadows II
contributed $586,000 (32%) and Town Place contributed $494,000
(27%).
Interest expense for the third quarter of 1996 increased $63,000
from the comparative period and by $97,000 for the nine month
period. These increases are due to the increased mortgage loan
on Pelican Sound from the previous $2.5 to $6.7 million.
The net income before debt service from real estate activities is
partially sheltered by deductions for depreciation which do not
affect cash flow. Depreciation decreased $4,400 for the third
quarter of 1996 compared to 1995, and by $12,400 for the nine
month period.
The Partnership's net other expenses decreased in 1996 by
approximately $63,800 for the third quarter and by $90,000 for
the nine month period compared to the respective prior year
periods. Interest income increased $59,000 and partnership
management expenses decreased by $4,800 for the third quarter.
For the comparative nine month periods interest income increased
$70,000 and partnership management expenses decreased by $20,000
compared to the prior year periods The increase in interest
earned is primarily attributable to a larger investment portfolio
with the cash drawn on the new mortgage held in short-term
investments.
As a result of the foregoing, the Partnership's net loss for the
quarter ended September 30, 1996 was $75,000, compared to a loss
of $121,000 in the same period of 1995. For the nine month
period the net loss decreased from $412,000 to $250,000.
Exclusive of depreciation and amortization, the Partnership's net
income for the third quarters ended September 30, 1996 and 1995
was $210,000 and $134,000 and for the comparative nine month
periods $581,000 and $429,000.
Liquidity and Financial Condition
At September 30, 1996 there was $4,579,000 of cash and cash
equivalents and escrow deposits available to pay liabilities
compared to $243,000 available at December 31, 1995.
During the first nine months of 1996, escrow deposits increased
by $195,000 and cash and cash equivalents increased by
$4,141,000. During the period $783,000 was generated by
operating activities, $134,000 was from investing activities and
$3,224,000 from financing activities as shown herein on the
Statements of Cash Flows.
During the first nine months of 1996 cash flow from operations of
$783,000, plus $264,000 from the Ashley Pointe Exchange Escrow,
provided funds to make the cash distributions paid to the Limited
Partners of $655,000, to make capitalized improvements of
$130,000, and to increase cash reserves. Day-to-day operating
expenses are presently being funded from operations and do not
require the use of cash reserves.
On May 16, 1996 the partnership refinanced the $2.5 million
mortgage loan on Town Place with a new mortgage loan of $6.7
million. The loan is for seven years at an interest rate fixed
at 8.25% for the first five years and then subject to periodic
changes based on a "Treasury Rate". Monthly payments of
principal and interest are to be made in the amount of $52,286.
Debt issue costs of $218,009 are being amortized over the seven
year period of the loan. The additional funds were borrowed to
provide short-term liquidity and in the long-term to either
acquire an additional investment property or to repurchase
Limited Partner Interests.
The Agreement of Limited Partnership provides that the
Partnership will make distributions for each calendar quarter of
Cash Flow less amounts set aside for Reserves. In July the
Partnership paid to the Limited Partners the June declaration of
$218,330 ($12.50 per Interest). No distributions were declared
for the third quarter so that the Partnership could accumulate
cash to repurchase Interests pursuant to the Partnership's tender
offer (see discussion below).
The Partnership intends, but is not required, to continue to make
cash distributions to the Limited Partners each quarter, after
the tender offer. The amount and frequency of future
distributions will be affected by several factors, including cash
flow from Partnership properties, cash reserves of the
Partnership, number of Interests tendered and purchased pursuant
to the tender offer, and any financing required to fund the
tender offer.
During the first nine months of 1996 total liabilities increased
by $4,205,000. The increase in liabilities is primarily
attributable to a net increase in mortgage loans of $4,025,000.
Accounts payable and accrued taxes increased $266,000. Accrued
interest decreased $400. Distributions payable decreased
$216,000. Payables to affiliates increased $124,400. Tenant
security deposits increased $6,000.
The outstanding principal balance on mortgage notes was increased
by $4,025,000 during the nine month period. The Town Place
refinancing transaction increased the mortgage debt by $4.2
million. This was offset by mortgage payments of $175,000.
Scheduled mortgage debt principal reductions are approximately
$61,000 over the balance of the year.
Partners' Capital decreased by $694,000 during the nine months of
1996 due to the net loss for financial reporting purposes of
approximately $250,000, cash distributions declared payable to
the partners of $439,000 and tender offer costs of $5,000.
Restricted funds of $233,000 are held in the exchange escrow.
The funds were to be used to acquire a replacement property and
complete the like-kind exchange. However, they may also and have
been used to provide additional liquidity, if necessary.
The refinancing of the Town Place mortgage in April 1996 created
an opportunity for the Partnership to reassess its business
options and to re-evaluate its future course of action in order
to better meet its investment objectives.
The General Partner is aware of 27 "secondary market" sales of
Limited Partner Interests during the past 24 months at a weighted
average price of approximately $360 per Interest. Based upon
these transactions and based upon conversations with Limited
Partners from time to time, and their representatives, the
General Partner believes that there are certain Limited Partners
who desire to sell their Interests immediately for cash in order
to obtain liquidity and other Limited Partners who do not need or
desire the liquidity and would prefer the opportunity to retain
their Interests in order to benefit from any potential future
capital appreciation that may be realized from continued
operation and eventual sale of the Partnership's properties or
other properties to be acquired. The General Partner believes
that the Limited Partners should be entitled to make a choice
between immediate liquidity and continued ownership and, thus,
believes that an offer by the Partnership to repurchase its
Interests may accommodate the differing goals of both groups of
Limited Partners.
The General Partner considered the possibility of expanding
existing real estate operations by seeking the acquisition of
additional investment properties through leveraging the
Partnership. Although the General Partner strongly favors the
alternative of expanding real estate operations, it has
determined to use existing cash reserves in a tender offer to
provide Limited Partners a choice. The General Partner may in
the future reconsider the merits of expanding the Partnership's
real estate operation.
The General Partner also considered the advisability of a pro
rata distribution of cash reserves, inclusive of the refinancing
proceeds. The General Partner does not believe that such an
approach would be the best alternative. The General Partner
believes it is a more efficient use of the Partnership's capital
either to (i) continue to operate the Partnership's properties
and possibly acquire other real estate properties and leverage
the Partnership or (ii) sell the properties at the prevailing
market prices, wind up the affairs of the Partnership, liquidate
and distribute the net sale proceeds and other assets. Based
upon (i) its experience in real estate (ii) the long term
historical increase in real estate values in the Madison,
Wisconsin area and Clearwater, Florida and St. Petersburg,
Florida area and (iii) the General Partner's perception that
financial institutions are increasingly willing to lend to
developers and real estate investors, which should result in an
increase in selling prices for real estate properties, the
General Partner believes the current value of the Partnership
properties is more likely than not to increase in the future,
provided the Partnership holds the properties for a period of
time and, therefore, does not believe it is the optimal time to
sell the properties and liquidate the Partnership. There can be
no assurances, however, of any profit or a distribution if a
Limited Partner decides to hold their Interests.
The General Partner believes that continued ownership by the
Partnership of its properties is in the long-term best interests
of the Limited Partners. Accordingly, the General Partner
believes that the Partnership should continue to operate its
properties and acquire and operate additional residential
apartment complexes in order to achieve the principal investment
objectives of the Partnership. While there can be no assurance
that the Partnership's properties will appreciate in value from
their present level, the General Partner, based on its experience
in the real estate industry, believes that such appreciation will
occur over time and that continued ownership by the Partnership
of its properties is in the long-term best interests of the
Partners. There can, of course, be no assurance that such
appreciation will occur, or if it does occur, that it will result
in any specific level of return to the Partners.
In determining to make the Offer, the General Partner also
considered that the Partnership originally intended to sell the
properties within seven to nine years after the Partnership's
acquisition of its investment properties. The three properties
owned by the Partnership were acquired between January 1989 and
November 1993. The General Partner now believes the Partnership
may be required to retain the properties for a longer period in
order to maximize the potential profit on sale and possibly trade
for another property. The term of the partnership expires in
December 2005.
Consequently, on October 24, 1996 an offer to purchase Limited
Partnership Interests was made to permit the Limited Partners
either to sell their Interests for $402 per Interest, or to
continue holding their Interests subject to the potential of
future gain or loss. The properties owned by the Partnership
were independently appraised to estimate their current fair
market value upon which to base a price for the Partnership to
offer to repurchase Limited Partner Interests determined to be
fair by an independent third party. Limited Partners who tender
their shares pursuant to the Offer are, in effect, exchanging the
certainty and liquidity of a current sale for the potentially
higher return of continued ownership of their Interests, but the
continued ownership of Interests also entails the risk of loss of
all or a portion of the investment.
The tender offer expires on November 22, 1996 (unless otherwise
extended by the Partnership). The General Partner expects that
the Partnership will repurchase Interests tendered before year
end.
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The Company did not filed a report on Form 8-K during the three
months ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DECADE COMPANIES INCOME PROPERTIES
- - A LIMITED PARTNERSHIP
(Registrant)
By: DECADE COMPANIES
(General Partner)
Date: November 8, 1996 By:/s/ Jeffrey Keierleber
Jeffrey Keierleber
General Partner and Principal
Financial and Accounting Officer
of Registrant
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,811,931
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,839,782
<PP&E> 31,057,376
<DEPRECIATION> 6,210,839
<TOTAL-ASSETS> 29,969,645
<CURRENT-LIABILITIES> 4,368,987
<BONDS> 23,253,615
<COMMON> 0
0
0
<OTHER-SE> 2,347,043
<TOTAL-LIABILITY-AND-EQUITY> 29,969,645
<SALES> 1,527,812
<TOTAL-REVENUES> 1,591,633
<CGS> 0
<TOTAL-COSTS> 1,193,439
<OTHER-EXPENSES> 32,227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 441,611
<INCOME-PRETAX> (75,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,644)
<EPS-PRIMARY> (4.29)
<EPS-DILUTED> (4.29)
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