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 March 31, 1999.
[ ]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
March 31, 1999
PART I. FINANCIAL INFORMATION Page
Item 1.Financial Statements (unaudited as to
March 31, 1999 and the three months
then ended).
Balance Sheet at March 31, 1999. 3
Statements of Operations for the three months ended March 31, 1999 and
1998. 4
Statements of Partners' Capital
for the three months ended March 31, 1999
and the year ended December 31, 1998. 5
Statements of Cash Flows for the three months
ended March 31, 1999 and 1998. 6
Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis or Plan of
Operation 7 - 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K. 16
SIGNATURES 16
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Decade Companies Income Properties - A Limited Partnership
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEET
March 31, 1999
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,668,736
Escrow deposits 161,163
Prepaid expenses and other assets 82,589
Total Current Assets 1,912,488
INVESTMENT PROPERTIES, AT COST: 31,990,728
Less: accumulated depreciation (8,908,439)
Net Investment Property 23,082,289
OTHER ASSETS:
Utility deposits 43,415
Debt issue costs, net of accumulated
amortization 267,933
Total Other Assets 311,348
Total Assets $25,306,125
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued taxes $ 374,753
Tenant security deposits 119,781
Distributions payable 171,705
Accrued interest payable 20,811
Payables to affiliates 3,881,354
Mortgage notes payable 22,672,018
Total Liabilities 27,240,422
PARTNERS' CAPITAL:
General Partner (89,901)
Limited Partners
(authorized--18,000 Interests;
outstanding--13,400.27 Interests) (1,844,396)
Total Partners' Capital (1,934,297)
Total Liabilities and
Partners' Capital $25,306,125
See Notes to Financial Statements.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31
1999 1998
Operating revenue:
Rental income $1,556,930 $ 1,642,515
Operating expenses:
Operating 698,698 681,558
Real Estate Taxes 185,791 180,324
Total 884,489 861,882
Net income before
debt service and other
expenses 672,441 780,633
Interest expense (444,249) (435,534)
Depreciation (246,150) (258,000)
Amortization of debt issue costs (13,150) (7,778)
Net (loss) from investment property (31,108) 79,321
Other income (expenses):
Interest income 17,473 21,625
Partnership management (67,947) (59,073)
(50,474) (37,448)
NET INCOME (LOSS) $ (81,582) $ 41,873
Net income (loss) attributable to
General Partner (1%) $ (816) 419
Net income (loss) attributable to
Limited Partners (99%) (80,766) 41,454
$ (81,582) $ 41,873
Net income (loss) per Limited
Partner Interest $ (6.03) $ 3.09
See Notes to Financial Statements <PAGE>STATEMENTS OF PARTNERS' CAPITAL
(Unaudited as to the Three Months Ended March 31, 1999)
General Limited
Partner Partners'
Capital Capital Total
BALANCES AT 12/31/97 $(84,069) $ (845,390) $ (929,459)
Distributions to Partners (3,201) (670,016) (673,217)
Net (loss) for the period (815) (80,720) (81,535)
BALANCES AT 12/31/98 $(88,085) $ (1,596,126) $(1,684,211)
Distributions to Partners (1,000) (167,504) (168,504)
Net (loss) for the period (816) (80,766) (81,582)
BALANCE AT 3/31/99 $(89,901) $ (1,844,396) $(1,934,297)
() denotes deficit, loss, or deduction.
See Notes to Financial Statements. <PAGE>
STATEMENTS OF CASH FLOWS - (UNAUDITED)
For The Three Months Ended March 31,
1999 1998
CASH PROVIDED BY (USED FOR) OPERATIONS $ 125,708 $ 243,554
INVESTING ACTIVITIES:
Additions to investment property (75,058) (27,685)
FINANCING ACTIVITIES:
Principal payments on mortgage notes (82,224) (78,940)
Distributions paid to limited partners (167,504) (167,504)
NET CASH (USED IN) FINANCING ACTIVITIES (249,728) (246,444)
INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS (199,078) (30,575)
CASH & CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 1,867,814 2,171,502
CASH & CASH EQUIVALENTS
AT THE END OF PERIOD $1,668,736 $2,140,927
Supplementary disclosure of cash flow information:
Interest paid $ 437,222 $ 428,430
Income taxes paid 0 0
See Notes to Financial Statements
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Decade Companies Income Properties - A Limited Partnership
March 31, 1998
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Decade Companies Income Properties - A Limited Partnership
Form 10-QSB
March 31, 1999
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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 month period
ended March 31, 1999 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1999. 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,
1998.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward-Looking Information
Forward-looking statements in this report, including without limitation,
statements relating to Decade Companies Income Properties (the "Partnership")
plans, strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forwarded-looking statements involve risks and uncertainties including without
limitation the following: (i) the Partnership's plans, strategies, objectives,
expectations and intentions are subject to change at any time at the
discretion of the General Partner; (ii) the Partnership's plans and results of
operations will be affected by the Partnership's ability to manage its growth
(iii) other risks and uncertainties indicated from time to time in the
Partnership's filings with the Securities and Exchange Commission.
Information contained in this Quarterly Report on Form 10-QSB contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect, "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon
or comparable terminology. There are number of important factors with respect
to such forward looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those contemplated
in such forward-looking statements. Such factors, which could adversely
effect the Partnership's ability to obtain these results, include, among other
things, (i) the volume of transactions and prices for real estate in the real
estate markets generally, (ii) a general or regional economic downturn which
could create a recession in the real estate markets, (iii) the Partnership's
debt level and its ability to make interest and principal payments, (iv) an
increase in expenses related to new initiatives, investments in people and
technology, and service improvements, (v) the success of the new initiatives
and investments and (vi) other factors described elsewhere in this Quarterly
Report on Form 10-QSB including Year 2000 issues.
Results of Operations
Operating revenue from rental income was $1,557,000 in the quarter ended March
31, 1999, compared to $1,643,000 for the same period of 1998, a decrease of
5.2%. Rental income was provided by the three sites for the comparative three
month periods as follows:
Percent
Three Months Ended Increase Increase
3/31/99 3/31/98 (Decrease) (Decrease)
Pelican Sound $ 654,000 $ 691,000 $ (37,000) ( 5.4%)
Meadows II 519,000 514,000 5,000 1.0%
Town Place 384,000 438,000 (54,000) (12.3%)
Total $1,557,000 $1,643,000 $ (86,000) (5.2%)
The $86,000 decrease in rental income is attributed primarily to a 7% decrease
in occupancy (from 95% to 88%), offset by a 3% increase in gross potential
rent. The $54,000 decrease at Town Place is attributed to a 4% increase in
gross potential rent, offset by an 11% decrease in average occupancy (from 97%
to 86%). The $37,000 decrease at Pelican Sound is attributed to a 3% increase
in gross potential rent, offset by a 7% decrease in occupancy (from 96% to
89%). The $5,000 increase at The Meadows II is attributed to a 3% increase in
gross potential rent offset by a 4% decrease in average occupancy (from 92% to
88%). The decrease in occupancy is viewed as a direct response to the efforts
made to increase asking rents. Although occupancy decreased at all three
apartment sites, this is not considered to be the start of a trend to lower
occupancy and revenues.
The average monthly gross potential rent per unit at the Apartments for the
first quarter of 1999, and the comparative period in 1998 is set forth below:
Number
of Units 1999 1998
Pelican Sound 379 $634 $612
The Meadows II 316 $609 $589
Town Place 240 $622 $599
All Rental Units 935 $622 $601
"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 quarter ended March 31,
1999, and the comparable period in 1998, is set forth below:
Three Months Ended
3/31/99 3/31/98
Pelican Sound 89.4% 96.1%
The Meadows II 88.4% 91.9%
Town Place 86.1% 97.1%
All Rental Units 88.2% 95.0%
The range of occupancy levels at the Apartments for the three month period
ended March 31, 1999, and the comparable period in 1998, is set forth below:
Three Months Ended
3/31/99 3/31/98
Pelican Sound 88.5-90.5% 95.0-96.8%
The Meadows II 88.1-89.1% 91.4-92.6%
Town Place 85.6-86.8% 96.0-97.9%
All Rental Units 87.9-88.8% 94.8-95.1%
Total rental expenses before depreciation and debt service in the three month
period ended March 31, 1999 increased by $22,000, from $862,000 to $884,000.
The increase was comprised of increases from Pelican Sound ($16,000), and The
Meadows II ($10,000) offset by a decrease at Town Place ($4,000).
A summary of operating expenses before depreciation and debt service by
apartment site follows:
Increase Increase
(Decrease) (Decrease)
1999 1998 Amount Percent
Pelican Sound $395,000 $379,000 $ 16,000 4.2%
Meadows II 271,000 261,000 10,000 3.8%
Town Place 218,000 222,000 (4,000) (1.8%)
Total $884,000 $862,000 $ 22,000 2.6%
Net income from rental property operations before debt service and
depreciation was approximately $672,000 for the first three months of 1999,
compared to $781,000 for the comparative period, a decrease of approximately
$109,000. The decrease was comprised of decreases at Pelican Sound ($52,000),
Town Place ($51,000), and at
The Meadows II ($6,000).
A summary of operating income before depreciation and debt service by
apartment site follows:
Increase Increase
(Decrease) (Decrease)
1999 1998 Amount Percent
Pelican Sound $259,000 $311,000 $ (52,000) (16.7%)
Meadows II 248,000 254,000 (6,000) (2.4%)
Town Place 165,000 216,000 (51,000) (23.6%)
Total $672,000 $781,000 $(109,000) (13.9%)
Interest expense decreased $9,000 from the comparative period primarily as a
result of a lower amount of debt.
The net income before debt service from real estate activities is partially
sheltered by deductions for depreciation and amortization which do not affect
cash flow. Depreciation and amortization decreased $6,500 from 1998 to 1999
for the respective three month periods.
The Partnership's net other expenses increased in 1999 by approximately
$13,000. Partnership management expenses increased $9,000, offset by a
decrease in interest income of $4,000. The decrease in interest earned is
primarily attributable to income earned from a smaller investment portfolio to
generate such income.
As a result of the foregoing, the Partnership's net loss for the quarter ended
March 31, 1999 was $81,600, compared to an income of $42,000 in the same
period of 1998. Exclusive of depreciation and amortization, the Partnership's
net income for the quarters ended March 31, 1999 and 1998 was $178,000 and
$307,000, respectively.
Liquidity and Sources of Capital
At March 31, 1999 there was $1.8 million of cash and cash equivalents and
escrow deposits available to pay liabilities. The Partnership has a credit
line established of approximately $2.56 million from the undisbursed funds
from The Meadows II refinancing to provide additional liquidity. The
undisbursed funds do not bear interest until they are released by the mortgage
lender.
During the first three months of 1999, cash and cash equivalents decreased by
$199,000. During the period $126,000 was provided operating activities,
$75,000 was used in investing activities and approximately $250,000 was used
in financing activities that included payments on the mortgage notes and
distributions to partners as shown herein on the Statements of Cash Flows.
The General Partner believes that the Partnership has the ability to generate
adequate amounts of cash to meet the Partnership's current needs.
Short-term obligations total $4.0 million, consisting of $687,000 of current
liabilities, $312,000 of mortgage principal liabilities, and as described in
detail below, $3,002,000 payable to the General Partner and affiliates.
On a short-term basis, rental operations are expected to provide a stream of
cash flow to pay day-to-day operating expenses and to fund quarterly cash
distributions to the partners. Investment property operations generated a
profit in the first quarter of 1999 of $228,000 (before depreciation and
amortization of $259,000) compared to $345,000 for the same period in 1998.
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 January the Partnership paid to the Limited Partners the
December declaration of $167,500 ($12.50 per Interest) and declared a similar
amount payable for the first quarter of 1999 to be paid in April 1999. The
distribution payable to the General Partner of $1,000 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. This intention will require cash distributions to the
limited partners of approximately $670,000 in the next 12 months, which should
be met from operations and cash reserves.
The long-term mortgage obligations of the Partnership require principal
reductions (excluding balloon payments) of $1.8 million over the next five
years. These obligations should be satisfied by cash generated from
operations. In the year 2003 two of the mortgage notes require balloon
payments that will total $14.9 million ($8.9 million for Pelican Sound and
$6.0 million for Town Place). It is anticipated that both properties will be
sold or refinanced prior to the maturity dates in 2003.
Approximately $3.9 million of deferred fees and deferred interest related
thereto has been earned by the General Partner and affiliates, of which
approximately $3.0 million is a short term obligation of the Partnership
currently due and payable. To date the Partnership has not paid the $3.0
million of deferred fees and deferred interest in order to preserve the
ability of the Partnership to acquire additional properties, if deemed
advisable. 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. The General Partner currently intends to make
payment only after it is determined that the liquidity is not required to
purchase additional properties, either directly or by means of an exchange.
The mortgage notes on Pelican Sound and Town Place bear interest at 7.625% an
8.25% respectively. Both loans are due in four years in 2003. The
Partnership is exploring the possibility of refinancing both mortgage loans
during 1999 if lower interest rates are available. Additional proceeds from
the refinancings in excess of the existing mortgage debt would provide
additional liquidity.
Other than the payments described above, there are no long-term material
capital expenditures, obligations, or other demands or commitments that might
impair the liquidity of the Partnership.
Partners' Capital decreased by $250,000 during the first three months of 1999
due to cash distributions declared payable to the partners of $168,500, plus
by the net loss for the quarter of $81,500.
Impact of Year 2000 Compliance
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the computer
programs or hardware used by the General Partner and affiliates that have
date-sensitive software or embedded chips may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on past assessments, the General Partner determined that it will be
required to modify or replace significant portions of hardware and software so
that those systems will properly utilize dates beyond December 31, 1999. The
General Partner presently believes that with modifications and replacement of
existing hardware and software, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
The General Partner's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing, and implementation.
To date the General Partner has fully completed its assessment of all systems
that could be significantly affected by the Year 2000. The completed
assessment indicated that most of the General Partner's significant
information technology systems could be affected, particularly general ledger
and billing. The General Partner has gathered information about the Year 2000
compliance status of its significant suppliers and continues to monitor their
compliance.
For its information technology exposures, to date the General Partner is 90%
complete on the remediation phase and expects to complete software
reprogramming and replacement no later than July 1, 1999. Once software is
reprogrammed and replaced for a system, the General Partner begins testing and
implementation. These phases run concurrently for different systems. To
date, the General Partner has completed 70% of its testing and has implemented
50% of its remediated systems. Completion of the testing phase for all
significant systems is expected by August 31, 1999, with all remediated
systems fully tested and implemented by September 30, 1999.
The General Partner's account payable system does not interface directly with
third party vendors and does not anticipate problems with third party vendors.
The General Partner has queried its important suppliers that do not share
information systems with the General Partner (external agents). To date, the
General Partner is not aware of any external agent Year 2000 issue that would
materially impact the Partnership's results of operations, liquidity, or
capital resources. However, the General Partner has no means of ensuring that
external agents will be Year 2000 ready. The inability of external agents to
complete their Year 2000 resolution process in a timely fashion could
materially impact the Partnership. The effect of non-compliance by external
agents is not determinable.
The General Partner will utilize both internal and external resources to
reprogram, or replace, test, and implement the software and operating
equipment for Year 2000 modifications. The Partnership's share of the total
cost of the Year 2000 project is estimated at $60,000 and is being funded
through operating cash flows. To date, the Partnership has incurred and
expensed approximately $45,000, related to all phases of the Year 2000
project. The total remaining project costs of approximately $15,000 relates
to repair of hardware and software and will be expenses as incurred.
The plans to complete the Year 2000 modifications are based on the General
Partner's current estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
and other factors. Estimates on the status of completion and the expected
completion dates are based on costs incurred to date compared to total
expected costs. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially form those plans.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
The information above contains forward-looking statements including, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, and adequate resources that are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that forward-looking statements
about the Year 2000 should be read in conjunction with the Partnership's
disclosures under the heading: Forward-Looking Information.
PART II.
OTHER INFORMATION
Item 1. Legal Proceeding.
There is no material pending litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibit is included herein:
(27) Financial Data Schedule
Reports on Form 8-K filed in the first quarter of 1999:
Form 8-K dated March 26, 1999 was filed to report that on October 1, 1998, the
Partnership refinanced certain existing loans and entered into a new loan
agreement secured by a mortgage, security agreements, and agreement of leases
for The Meadows II. Related mortgage loan documents were filed as exhibits.
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Decade Companies Income Properties - A Limited Partnership
Form 10-QSB
March 31, 1999
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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: May 11, 1999 By:/s/ Jeffrey
Keierleber Jeffrey Keierleber
General Partner and
Principal Financial and Accounting
Officer of Registrant
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,829,899
<SECURITIES>
<RECEIVABLES>
<ALLOWANCES>
<INVENTORY>
<CURRENT-ASSETS> 82,589
<PP&E> 31,990,728
<DEPRECIATION> 8,908,439
<TOTAL-ASSETS> 25,306,125
<CURRENT-LIABILITIES> 4,000,907
<BONDS>
<COMMON>
<OTHER-SE> (1,934,297)
<TOTAL-LIABILITY-AND-EQUITY> 25,306,125
<SALES> 1,556,930
<TOTAL-REVENUES> 1,574,403
<CGS>
<TOTAL-COSTS>
<OTHER-EXPENSES> 1,211,736
<LOSS-PROVISION>
<INTEREST-EXPENSE> 444,249
<INCOME-PRETAX> (81,582)
<INCOME-CONTINUING> (81,582)
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<NET-INCOME> (81,582)
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<EPS-DILUTED> (6.03)
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