QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1996
FELLOW PARTNERS:
We have changed the format of our reports in an effort to improve the
information given to you and reduce the complexity of the message. A major
addition is the table below where you will find the period-end as well as the
average leased status and the contribution to net income from each property in
the portfolio. The leased status will probably fluctuate during any given
period, so we feel the average number will be a better performance indicator.
By showing the contribution to net income by property along with the total
square footage and average leased status, we also believe you will gain a
better perspective on the relationship among the holdings.
In the future, if any properties are earmarked for sale, they will be
broken out so that you will have an idea of the effect the absence of these
properties may have on future income. We are also showing the effect on net
income of properties sold in the periods under review.
Real Estate Investments (Dollars in thousands)
_______________________________________________________________________________
Average Contribution
Leased Status Leased Status to Net Income
________________________________________________
Gross Three Months Three Months
Property Leasable March 31, Ended March 31, Ended March 31,
Name Area (Sq. Ft.) 1996 1995 1996 1995 1996
________________ ____________ ______ _____ _____ _____ _____
Atlantic 187,800 92% 99% 92% $ 81 $ 63
Coronado 95,700 100 100 100 48 52
Oakbrook Corners 123,900 83 70 61 (21) (34)
Baseline 100,200 88 89 91 21 37
Business Plaza 66,300 71 89 72 116 17
AMCC 100,000 100 100 100 229 234
Bonnie Lane 119,600 89 77 89 96 49
Glenn Avenue 82,000 100 100 100 34 34
South Point Plaza 49,200 93 61 61 23 1
Tierrasanta 104,200 100 77 100 23 36
Fairchild 104,800 70 84 70 24 0
_________ ______ ______ ______ ______ ______
1,133,700 90 87 86 674 489
Properties Sold - - - - (94) 162
Fund Expenses Less
Interest Income - - - - (63) (42)
________ ______ ______ ______ ______ ______
Total 1,133,700 90% 87% 86% $517 $609
Results of Operations
In reviewing the 1996 first quarter compared to last year, property sales
stand out as the reason for the increase in net income. Sullyfield, sold in
June 1995, and Regal Row, sold in February of this year, accounted for
$256,000 of the improvement over last year. The recovery in the value of Regal
Row in connection with its sale this year, of course, favorably affected
results. In addition, the loss of rental income from both properties was more
than offset by the corresponding drop in their expenses, including the
write-down in value for Sullyfield last year.
As the table indicates, income from the remaining properties was down
from the prior-year period. Four properties were 100% leased, three had higher
average leased rates, but the lower average leased status at the other
properties, primarily at Business Plaza and Fairchild Corporate Center,
resulted in an overall revenue decline. Expenses were up at the property level
for those owned throughout the past 12 months, attributable mainly to
depreciation at South Point and the Business Plaza. Bad debt expense was
substantially lower in 1995 because of large past due rents collected,
primarily at Bonnie Lane. Also, in the past when a property was being held for
sale, its depreciation expense was offset by a recovery in value in order to
keep the property at its estimated realizable value. South Point and the
Business Plaza were being held for sale in 1995, but neither is currently a
candidate for sale. As a result, their depreciation this year was not offset
by a recovery in value.
The increase in the Fund's cash position during the first quarter is
related to receipt of the proceeds from the Regal Row sale. As will be
discussed later, this money will be distributed to partners this month.
Looking at first quarter activity in the portfolio, there were
noteworthy events at several properties. First, at Oakbrook Corners, we were
disappointed at the loss of two prospects we considered good tenant
candidates. However, we were very pleased to attract a financially strong
international company as a tenant for 22% of Oakbrook's space. With this
addition plus the fact that no leases are scheduled to expire over the
remainder of the year, we are optimistic about the potential improvement in
this property's operations. There was a similar experience at South Point
Plaza where a lease covering 35% of the property was signed with a retailer of
western wear. The March 31, 1996, leased status in the Real Estate Investments
table includes the new tenant, but rental revenues will not be reflected until
the lease becomes effective in August. Depreciation and amortization expense
resulting from tenant improvements and leasing commissions will also rise.
A number of leasing challenges are also on the horizon. Negotiations are
continuing with the tenant which occupies 46% of Atlantic's and 8% of the
total portfolio's space. If we are successful in retaining this tenant, we
will consider the possibility of targeting Atlantic for sale over the near
term.
We had to terminate the leases of two tenants at Business Plaza because
of credit problems, and another tenant did not renew when its lease expired,
so the leased status dropped by over 10 percentage points. Leases for another
10% of the space expire by year-end. At Glenn Avenue, 73% of the space is
covered by leases which expire over the remainder of the year. The market is
healthy, so we anticipate new and renewal leasing at this industrial property
will remain positive. We were unsuccessful in our effort to renew the tenant
who occupies 38% of Tierrasanta and 4% of the portfolio's total space and are
now actively marketing this space. This lease expires on August 31 of this
year.
We have been discussing renewal with the single tenant at AMCC for some
time now, and it is our current feeling that they will vacate when their lease
expires in 1997. Whether the tenant decides to stay or we find a new one,
rents would undoubtedly be lower than under the current lease. In addition, a
new or renewal lease would involve substantial costs for tenant improvements.
Based on the dearth of buildings in the market with more than 50,000 square
feet and increased build-to-suit construction, we have been evaluating whether
to try to sell or re-lease AMCC. This is an important issue since AMCC
currently accounts for more than a third of the Fund's net income. Our plan
will be reviewed with you in upcoming reports.
Interest in Fairchild and its submarket is positive, and we have just
recently had several unsolicited offers to buy the property. The terms are
under review now, and we will update you on our progress in the June report.
Cash Distributions
As we advised you in the annual report, the $6.50 per unit we plan to pay in
1996 is lower than the prior quarterly rate for several reasons. First, there
are two less properties contributing to operations this year. Second, the
outcome of the AMCC lease and what that property will contribute to operations
is still uncertain. Cash from operations in the first quarter was enough for
us to pay the planned $6.50 per unit and still set money aside for future
needs. As the year progresses, we will reevaluate the quarterly distribution
rate and report if any changes are appropriate.
In addition to that payment, 100% of the proceeds of the Regal Row sale
are being distributed to you. This industrial property in Dallas, Texas, was
sold for $3.8 million before closing costs of $180,000. The $42.95 per unit
representing each partner's share of this amount will be included with the
check for the distribution from operations which will be mailed to you on May
15.
Outlook
Most of the markets where your properties compete are improving, with the most
notable changes in California where new and expanding industries continue to
replace the downsizing in the defense area. Whenever a market is nearing its
peak in terms of rising occupancy and rental rates, particularly as evidenced
by new construction, property sales may be warranted. As mentioned earlier, we
are looking carefully at events involving Atlantic and its submarket and have
had offers on Fairchild. Several other industrial locations are being
monitored carefully, such as Oakbrook Corners in suburban Atlanta.
Sincerely,
James S. Riepe
Chairman
May 13, 1996
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)
March 31, December 31,
1996 1995
___________ ____________
Assets
Real Estate Property Investments
Land . . . . . . . . . . . . . . $ 14,544 $ 14,544
Buildings and Improvements . . . 45,348 45,170
________ ________
59,892 59,714
Less: Accumulated Depreciation
and Amortization. . . . . . . (18,519) (18,049)
________ ________
41,373 41,665
Properties Held for Sale . . . . - 3,500
________ ________
41,373 45,165
Cash and Cash Equivalents. . . . . 7,125 4,782
Accounts Receivable
(less allowances of $75 and $165) 181 172
Other Assets . . . . . . . . . . . 369 410
________ ________
$ 49,048 $ 50,529
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents $ 414 $ 493
Accrued Real Estate Taxes. . . . . 385 502
Accounts Payable and
Other Accrued Expenses. . . . . . 319 433
________ ________
Total Liabilities. . . . . . . . . 1,118 1,428
Partners' Capital. . . . . . . . . 47,930 49,101
________ ________
$ 49,048 $ 50,529
________ ________
________ ________
See the accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months Ended
March 31,
1996 1995
________ _________
Revenues
Rental Income. . . . . . . . . . . $ 1,545 $ 1,715
Interest Income. . . . . . . . . . 78 54
________ ________
1,623 1,769
________ ________
Expenses
Property Operating Expenses. . . . 267 174
Real Estate Taxes. . . . . . . . . 218 234
Depreciation and Amortization. . . 470 590
Decline (Recovery) of Property Values (112) 38
Management Fee to General Partner. 55 103
Partnership Management Expenses. . 116 113
________ ________
1,014 1,252
________ ________
Net Income . . . . . . . . . . . . 609 517
________ ________
________ ________
Activity per Limited Partnership Unit
Net Income . . . . . . . . . . . . $ 7.17 $ 6.09
________ ________
________ ________
Cash Distributions Declared
from Operations. . . . . . . . . $ 6.50 $ 8.75
from Sale Proceeds . . . . . . . 42.95 -
________ ________
Total Distributions Declared . . . $ 49.45 $ 8.75
________ ________
________ ________
Units Outstanding. . . . . . . . . 84,099 84,099
________ ________
________ ________
See the accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Unaudited
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance,
December 31, 1995 . . . . . . $ (275) $49,376 $49,101
Net Income . . . . . . . . . . 6 603 609
Cash Distributions . . . . . . (10) (1,770) (1,780)
________________ ________
Balance, March 31, 1996. . . . $ (279) $48,209 $47,930
________ ________ ________
________ ________ ________
See the accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Three Months Ended
March 31,
1996 1995
___________ ___________
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . $ 609 $ 517
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities
Depreciation and Amortization. . 470 590
Decline (Recovery) of
Property Values. . . . . . . . (112) 38
Other Changes in Assets
and Liabilities. . . . . . . . (278) (149)
________ ________
Net Cash Provided by
Operating Activities. . . . . . . 689 996
________ ________
Cash Flows from Investing Activities
Proceeds from Property Disposition 3,612 -
Investments in Real Estate . . . . (178) (136)
________ ________
Net Cash Provided by (Used in)
Investing Activities. . . . . . . 3,434 (136)
________ ________
Cash Flows Used in Financing Activities
Cash Distributions . . . . . . . . (1,780) (977)
________ ________
Cash and Cash Equivalents
Net Increase (Decrease) during Period 2,343 (117)
At Beginning of Year . . . . . . . 4,782 4,819
________ ________
At End of Period . . . . . . . . . $ 7,125 $ 4,702
________ ________
________ ________
See the accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. All such
adjustments are of a normal, recurring nature.
The unaudited interim financial information contained in the
accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements contained in the 1995
Annual Report to Partners.
NOTE 1 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
As compensation for services rendered in managing the affairs of the
Partnership, the General Partner earns a partnership management fee equal to
9% of net operating proceeds. The General Partner earned a partnership
management fee of $55,000 during the first three months of 1996. In addition,
the General Partner's share of cash available for distribution from operations
totaled $5,000 for the first three months of 1996.
In accordance with the partnership agreement, certain operating expenses
are reimbursable to the General Partner. The General Partner's reimbursement
of such expenses totaled $25,000 for communications and administrative
services performed on behalf of the Partnership during the first three months
of 1996.
An affiliate of the General Partner earned a normal and customary fee of
$4,000 from the money market mutual funds in which the Partnership made its
interim cash investments during the first three months of 1996.
LaSalle Advisors Limited Partnership ("LaSalle") is the Partnership's
advisor and is compensated for its advisory services directly by the General
Partner. LaSalle is reimbursed by the Partnership for certain operating
expenses pursuant to its contract with the Partnership to provide real estate
advisory, accounting and other related services to the Partnership. LaSalle's
reimbursement for such expenses during the first three months of 1996 totaled
$38,000.
An affiliate of LaSalle earned $29,000 in the first quarter of 1996 as
property manager for several of the Partnership's properties.
NOTE 2 - PROPERTY SALE
On February 14, 1996, the Partnership sold Regal Row and received net proceeds
of $3,612,000. The net book value of this property at the date of disposition
was also $3,612,000, after accumulated depreciation expense and previously
recorded property valuation allowances. Therefore, no gain or loss was
recognized on the property sale. The Partnership recognized a $112,000
valuation recovery in the first quarter of 1996 prior to the disposition of
this property.
NOTE 3 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $49.45 per unit to
Limited Partners of the Partnership as of the close of business on March 31,
1996. The distribution totals $4,164,000 and represents $6.50 per unit from
operations and $42.95 per unit from Regal Row sale proceeds. The Limited
Partners will receive $4,159,000, and the General Partner will receive $5,000.
