U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-21455.
Decade Companies Income Properties - A Limited Partnership
(Exact name of small business issuer as specified in its charter)
State of Wisconsin 39-1518732
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
250 Patrick Blvd., Suite 140 Brookfield, Wisconsin 53045-5864
(Address of principal executive offices)
(414) 792-9200
(Issuer's telephone number)
Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by court. Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Transitional Small Business Disclosure Format (check one):
Yes No X .
Decade Companies Income Properties - A Limited Partnership
Form 10-QSB
INDEX
June 30, 1998
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (unaudited as to
June 30, 1998 and the three months and six months
then ended).
Balance Sheet at June 30, 1998. 3
Statements of Operations for the three months
and six months ended June 30, 1998 and 1997 4
Statements of Partners' Capital
for the six months ended June 30, 1998
and the year ended December 31, 1997. 5
Statements of Cash Flows for the six months
ended June 30, 1998 and 1997. 6
Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K. 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEET
June 30, 1998
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 2,162,135
Escrow deposits 308,425
Prepaid expenses and other assets 75,995
Total Current Assets 2,546,555
INVESTMENT PROPERTIES, AT COST: 31,456,229
Less: accumulated depreciation (8,122,249)
Net Investment Property 23,333,980
OTHER ASSETS:
Utility deposits 43,415
Debt issue costs, net of accumulated
amortization 178,790
Total Other Assets 222,205
Total Assets 26,102,740
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued taxes 464,482
Tenant security deposits 142,777
Distributions payable 169,504
Accrued interest payable 36,862
Payables to affiliates 3,804,774
Mortgage notes payable 22,744,403
Total Liabilities 27,362,802
PARTNERS' CAPITAL:
General Partner Capital (86,005)
Limited Partners
(authorized--18,000 Interests;
outstanding--13,400.27 Interests) (1,174,057)
Total Partners' Capital (1,260,062)
Total Liabilities and
Partners' Capital 26,102,740
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
<S> <C> <C> <C> <C>
Operating revenue:
Rental income 1,625,567 1,529,291 3,268,082 3,064,826
Operating expenses (742,696) (707,115) (1,424,254) (1,445,608)
Real estate taxes (182,559) (176,941) (362,883) (356,036)
Total operating
expenses (925,255) (884,056) (1,787,137) (1,801,644)
Net operating income 700,312 645,235 1,480,945 1,263,182
Interest expense (438,662) (435,691) (874,196) (875,512)
Depreciation (262,400) (276,600) (520,400) (551,500)
Amortization (9,897) (8,734) (17,675) (17,469)
Net income (loss) from
investment property (10,647) (75,790) 68,674 (181,299)
Other income (expenses):
Interest income 28,126 33,799 49,751 67,975
Partnership management (52,947) (78,781) (112,020) (243,213)
(24,821) (44,982) (62,269) (175,238)
NET INCOME (LOSS) (35,468) (120,772) 6,405 (356,537)
Net income (loss)
attributable to
General Partner(1%) (355) (1,208) 64 (3,565)
Net income (loss)
attributable to
Limited Partners (99%) (35,113) (119,564) 6,341 (352,972)
(35,468) (120,772) 6,405 (356,537)
Net income (loss) per Limited
Partner Interest (2.62) (8.92) 0.47 (26.34)
See Notes to Financial Statements
</TABLE>
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL
(Unaudited as to the Six Months Ended June 30, 1998)
General Limited
Partner Partners'
Capital Capital Total
BALANCES AT 12/31/96 (74,801) 472,061 397,260
Tender offer costs (203) (203)
Distributions to Partners (2,730) (670,018) (672,748)
Net (loss) for the year (6,538) (647,230) (653,768)
BALANCES AT 12/31/97 (84,069) (845,390) (929,459)
Distributions to Partners (2,000) (335,008) (337,008)
Net income for the period 64 6,341 6,405
BALANCES AT 6/30/98 (86,005) (1,174,057) (1,260,062)
() denotes deficit or deduction.
See Notes to Financial Statements.
STATEMENTS OF CASH FLOWS - (UNAUDITED)
For The Six Months Ended June 30,
1998 1997
CASH PROVIDED BY (USED FOR) OPERATIONS 554,946 253,526
INVESTING ACTIVITIES:
Additions to investment property (74,821) (78,840)
FINANCING ACTIVITIES:
Principal payments on mortgage notes (154,484) (144,592)
Payment of tender offer costs 0 (58)
Distributions paid to limited partners (335,008) (335,008)
NET CASH (USED IN) FINANCING ACTIVITIES (489,492) (479,658)
INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS (9,367) (304,972)
CASH & CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 2,171,502 2,620,423
CASH & CASH EQUIVALENTS
AT THE END OF PERIOD 2,162,135 2,315,451
Supplementary disclosure of cash flow information:
Interest paid 860,257 868,530
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-QSB 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 and six month periods ended June
30, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998. For further
information, refer to the financial statements and footnotes
thereto included in the Partnership's annual report on Form
10-KSB for the year ended December 31, 1997.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Certain statements made in this report may constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-
looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors
include, among others, the following: general local economic and
market conditions, which will, among other things, affect
occupancy levels and market rents, availability and
creditworthiness of prospective tenants, the terms and
availability of financing; adverse changes in the real estate
markets including, among other things, competition with other
companies and technology; risks of real estate development and
acquisition; governmental actions and initiatives; and
environmental/safety requirements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Partnership undertakes no
obligation to publicly release any revisions to these forward-
looking statements, which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
Results of Operations
Operating revenue from rental income was $1,625,500 in the
quarter ended June 30, 1998, compared to $1,529,300 for the same
period of 1996, an increase of 6.3%. For the six month period
ended June 30, 1998 rental income was $3,268,000 compared to
$3,064,800 for the same period in 1997, an increase of 6.6%.
Rental income was provided by the three sites for the comparative
three and six month periods as set forth below:
Percent
Three Months Ended Increase Increase
6/30/98 6/30/97 (Decrease) (Decrease)
Pelican Sound 683,900 663,400 20,500 3.1%
Meadows II 516,700 449,900 66,800 14.8%
Town Place 424,900 416,000 8,900 2.1%
Total 1,625,500 1,529,300 96,200 6.3%
Percent
For Six Months Ended Increase Increase
6/30/98 6/30/97 (Decrease)(Decrease)
Pelican Sound 1,374,600 1,311,700 62,900 4.8%
Meadows II 1,030,900 933,800 97,100 10.4%
Town Place 862,500 819,300 43,200 5.3%
Total 3,268,000 3,064,800 203,200 6.6%
The increased revenues at all three sites are attributable to both rent
increases and higher occupancy.
The average monthly gross potential rent per unit at the Apartments for the
second quarter of 1998 and for the six month period of 1998, and the
comparative periods in 1997, is set forth below:
Number Three Months Ended Six Months Ended
of Units 6/30/98 6/30/97 6/30/98 6/30/97
Pelican Sound 379 $621 $583 $617 $581
The Meadows II 316 $593 $577 $591 $574
Town Place 240 $603 $589 $601 $585
All Rental Units 935 $607 $582 $604 $580
"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 second quarter ended
June 30, 1998 and for the six month period of 1998, and the comparable
periods in 1997, is set forth below:
Three Months Ended Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
Pelican Sound 94.2% 98.3% 95.2% 97.4%
The Meadows II 91.4% 83.3% 91.6% 86.0%
Town Place 94.9% 93.6% 96.0% 93.7%
All Rental Units 93.5% 92.1% 94.2% 92.7%
The range of occupancy levels at the Apartments for the second quarter
period ended June 30, 1998 and for the six month period of 1998, and the
comparable periods in 1997, is set forth below:
Three Months Ended Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
Pelican Sound 93.2-95.6% 97.9-98.5% 93.2-97.0% 96.0-98.5%
The Meadows II 88.3-94.7% 83.0-83.8% 88.3-94.7% 83.0-90.6%
Town Place 92.9-97.3% 92.8-94.2% 92.9-97.9% 92.7-94.7%
All Rental Units 92.5-94.7% 91.6-92.4% 92.5-95.2% 91.6-93.4%
Total rental expenses before depreciation and debt service in the three
month period ended June 30, 1998 increased by $41,000, from $884,000 to
$925,000, compared to the same period of 1997. The increase was comprised
of increases at Town Place $9,000 and Pelican Sound $27,000, and at Meadows
II of $5,000.
For the six month period total rental expense decreased in the 1998 period
by $15,000 from $1,802,000 to $1,787,000. The decreases were comprised of
decreases at The Meadows II of $8,000, and Town Place of $14,000, offset by
an increase at Pelican Sound of $7,000.
A summary of operating expenses before depreciation and debt service by
apartment site follows:
For the Three Months Ended
Increase Increase
(Decrease) (Decrease)
6/30/98 6/30/97 Amount Percent
Pelican Sound 411,000 384,000 27,000 7.0%
Meadows II 281,000 276,000 5,000 1.8%
Town Place 233,000 224,000 9,000 4.0%
Total 925,000 884,000 41,000 4.6%
For The Six Months Ended
Increase Increase
(Decrease) (Decrease)
6/30/98 6/30/97 Amount Percent
Pelican Sound 790,000 783,000 7,000 0.9%
Meadows II 542,000 550,000 (8,000) (1.5%)
Town Place 455,000 469,000 (14,000) (3.0%)
Total 1,787,000 1,802,000 (15,000) (0.8%)
Net income from rental property operations before debt service and
depreciation was approximately $700,000 for the second three months of 1998,
compared to $645,000 for the comparative period, an increase of
approximately $55,000. The increase was comprised of an increase at The
Meadows II of $61,000, offset by a decrease at Pelican Sound of $6,000, with
no change at Town Place.
For the six month period net income from rental operations before
depreciation and debt service was approximately $1,481,000 for the 1998
period compared to $1,263,000 for the comparable 1997 period, an increase of
$218,000. The increase was comprised of increases at Town Place of
$57,000, Pelican Sound of $55,000, and the Meadows II of $105,000.
As a result of the foregoing, net operating income before depreciation and
debt service, the following sets forth the contributions by site including
the percent of total for each site for the periods for the three months
ended:
Increase Increase
6/30/98 6/30/97 (Decrease) (Decrease)
Amount Percent Amount Percent Amount Percent
Pelican Sound 274,000 39% 280,000 43% (6,000) (2.1%)
Meadows II 235,000 34% 174,000 27% 61,000 35.1%
Town Place 191,000 27% 191,000 30% 0 0.0%
Total 700,000 100% 645,000 100% 55,000 8.5%
As a result of the foregoing, net operating income before depreciation and
debt service, the following sets forth the contributions by site for the
periods for the six months ended:
Increase Increase
6/30/98 6/30/97 (Decrease) (Decrease)
Amount Percent Amount Percent Amount Percent
Pelican Sound 585,000 40% 529,000 42% 55,000 10.4%
Meadows II 489,000 33% 384,000 30% 105,000 27.3%
Town Place 407,000 27% 350,000 28% 57,000 16.3%
Total 1,481,000 100% 1,263,000 100% 218,000 17.3%
Interest expense for the second quarter of 1998 increased $3,000 from
the comparative period and decreased $1,000 for the six month period.
The net income before debt service from real estate activities is
reduced by deductions for depreciation and amortization which do not
affect cash flow. Depreciation decreased $14,200 for the second
quarter of 1998 compared to 1997, and by $31,100 for the six month
period. Amortization increased for the second quarter of 1998 by
$1,163 and by $206 for the six month period.
The Partnership's net other expenses decreased during the six month
period in 1998 by approximately $113,000. Partnership management
expenses decreased $131,000, offset by a decrease in interest income of
$18,000. The decrease in partnership management expenses of $131,000
is primarily attributable to the nonrecurring litigation expenses
incurred in 1997 in the lawsuit against Arnold K. Leas, Wellington
Management Corporation, and WMC Realty, Inc. and for costs incurred for
the proxy solicitation to adopt an amendment to Section 8 of the
Limited Partnership Agreement encaptioned the "Fair Price Provision".
The decrease in interest earned is primarily attributable to income
from lower cash holdings in the current period.
As a result of the foregoing, the Partnership's net loss for the
quarter ended June 30, 1998 was $35,000, compared to a loss of $121,000
in the same period of 1997. For the six month periods the
Partnership's net income for 1998 was $6,000, compared to a loss of
$357,000 for 1997.
Exclusive of depreciation and amortization, the Partnership's net
income for the quarters ended June 30, 1998 and 1997 was $237,000 and
$165,000, and for the six month periods the net income exclusive of
depreciation and amortization was $544,000 of 1998 and $212,000 for
1997.
Liquidity and Financial Condition
At June 30, 1998 there was $2.5 million of cash and cash equivalents
and escrow deposits available to pay liabilities. Current liabilities
are approximately $4.6 million at June 30, 1998, of which approximately
$2.9 million is currently due and payable to the General Partner. The
actual timing of the payment of deferred fees and related interest will
take into account the amount of cash reserves to be set aside that the
General Partner deems necessary or appropriate for the operation and
protection of the Partnership.
During the first six months of 1998, cash and cash equivalents
decreased by $9,000. During the period $555,000 was provided by
operating activities, $75,000 was used in investing activities and
approximately $489,000 was used in financing activities as shown herein
on the Statements of Cash Flows.
Cash flows provided by operating activities of $555,000 was primarily
comprised of net income of $544,000 before depreciation and
amortization, increased by the net change in operating assets and
liabilities of $11,000.
Net cash used in investing activities of $75,000 was entirely comprised
of capitalized expenditures.
Net cash used by financing activities of $489,000 was comprised of cash
distributions paid to limited partners of $335,000, and mortgage
principal repayments of $154,000.
The Partnership expects to meet its short-term liquidity requirements,
including capital expenditures relating to maintaining its existing
Apartments, generally through its working capital and net cash provided
by operating activities. The Partnership considers its cash provided
by operating activities to be adequate to meet operating requirements
and payments of distributions. The Partnership also expects to meet
its long-term liquidity requirements, such as scheduled mortgage debt
maturities, and capital improvements through the use of its working
capital cash reserves and the issuance of replacement mortgage
financing.
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 April the Partnership paid to the Limited
Partners the March declaration of $167,500 ($12.50 per Interest) and
declared a similar amount payable for the second quarter of 1998 to be
paid in July 1998. The distribution payable to the General Partner of
$2,000 was accrued and payment will be made subsequently. The
Partnership intends, but is not required, to continue to make cash
distributions to the Limited Partners each quarter in the same amount.
The outstanding principal balance on mortgage notes was reduced by
$154,000 during the six month period. Scheduled regular monthly
mortgage debt principal reductions are approximately $94,000 over the
balance of the year. This excludes the note on Pelican Sound
Apartments which is due in December 1998 with a balloon payment of $9.7
million. The note provides that the term may be extended for another
five years if the loan is not refinanced.
The Partnership has applied for new mortgage financing on The Meadows
II Apartments to replace the two existing mortgage loans that total
approximately $6.5 million (including the outstanding loan from the
Department of Housing and Urban Development). It is anticipated that
replacement financing will be obtained prior to year end.
The Partnership is also exploring the possibility of refinancing the
outstanding mortgage loans on Pelican Sound Apartments and Town Place
Apartments if lower interest rates are available. The Town Place
mortgage bears interest at 8.25% per annum fixed until maturity in May
2003. The Pelican Sound mortgage bears interest at 7% per annum fixed
until maturity in December 1998 at which time the interest rate may be
increased at the lender's option to either a fixed rate not to exceed
9% per annum or a floating rate equal to 1% per annum in excess of the
prime rate.
The Partnership has conducted a review of its computer operating
systems and has identified those areas that could be affected by the
"Year 2000" issue and has developed a plan to resolve this issue. The
Partnership believes that by modifying certain existing hardware and
software and, in other cases, converting to new application systems,
the Year 2000 problem can be resolved without significant operational
difficulties. The Partnership has initiated formal communications with
all of its significant suppliers to determine the extent to which the
Partnership's interface systems are vulnerable to those third parties'
failure to remediate their own Year 2000 issues. While the Partnership
has not yet estimated the Year 2000 project cost, after reviewing and
considering the computer applications, the Partnership believes the
costs will be immaterial.
PART II.
OTHER INFORMATION
Item 1. Legal Proceeding.
There is no material pending litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The Partnership did not file any reports on Form 8-K during the three
months ended June 30, 1998.
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: August 13, 1998 By:/s/ Jeffrey Keierleber
Jeffrey Keierleber
General Partner and Principal
Financial and Accounting Officer
of Registrant
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,470,560
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 75,995
<PP&E> 31,456,229
<DEPRECIATION> 8,122,249
<TOTAL-ASSETS> 26,102,740
<CURRENT-LIABILITIES> 4,017,907
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0
0
<OTHER-SE> (1,260,062)
<TOTAL-LIABILITY-AND-EQUITY> 26,102,740
<SALES> 3,268,082
<TOTAL-REVENUES> 3,317,833
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,437,232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 874,196
<INCOME-PRETAX> 6,405
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,405
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