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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED).
For the fiscal year ended DECEMBER 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934(NO FEE REQUIRED).
For the transition period from _____________ to _______________
WHITEHALL INCOME FUND-86
(Exact name of registrant as specified in its charter)
33-3377 LA
(Commission File Number)
CALIFORNIA 86-053325
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6418 E. TANQUE VERDE, SUITE 105, TUCSON, AZ 85715
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (602)750-0500
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
LIMITED PARTNERSHIP INTERESTS
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[ ]
As of December 31, 1998 all units of registrant's Limited Partnership were
outstanding and held by non-affiliates (the officers, directors and general
partner of the registrant, and owners of over 10% of the registrant's units, are
considered affiliates for purposes of this calculation).
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WHITEHALL INCOME FUND - 86
FORM 10-K
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED SECURITY HOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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ITEM 1. BUSINESS
GENERAL
Whitehall Income Fund-86 Limited (the "Registrant" or the "Partnership") is a
limited partnership formed in 1985 under the Limited Partnership Act of the
State of California to acquire, improve, operate and hold for investment income
producing real property. The Partnership's purpose is to purchase Properties and
to own and operate the Properties for a period of five to ten years. Currently,
the Partnership employs approximately 7 individuals.
The Registrant has acquired two self storage facilities, a shopping center, a
restaurant building and one office building for a total cost of $5,876,388 as
further described in Item 2.
COMPETITION AND MARKET CONDITIONS
Occupancy rates and the Partnership's ability to maintain or increase rental
rates are affected by numerous factors. These include seasonal demand and
economic conditions. In seeking tenants, the Partnership relies on both internal
and external sources for its properties. Long-term leases with established
tenants for the Pan American Office Building and The Original Honey Baked Ham
Store and McRae Square Shopping Center have provided steady rental rates and
cash flow from operations. The Capitol Self Storage facility continues to
maintain occupancy levels exceeding 85%.
ITEM 2. PROPERTIES
During 1998, the Registrant owned four income producing real properties as
described below.
MCRAE SQUARE SHOPPING CENTER
On December 30, 1986, the Partnership purchased, from an unaffiliated third
party, the commercial income project known as McRae Square Shopping Center (the
"Shopping Center") located in the southeastern area of Georgia in McRae for a
total of $793,840. The building has a cost basis of $734,611 and the land was
allocated a cost of $59,229 based upon an independent appraisal dated March
1986. The Shopping Center is located directly across the street from the local
Winn Dixie Shopping Center on U.S. Highway 341-Oak Street, one of the primary
traffic arteries in the area. The Shopping Center is approximately two acres in
size and encompasses approximately 12,630 square feet of leasable area with room
for expansion. The Shopping Center was completed in December of 1985 and
commenced operation on December 31, 1985.
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The Shopping Center's current tenants include Rite Aid Drug, the drugstore chain
subsidiary of Rite Aid Corporation. Another major tenant is Family Dollar
Stores, Inc., a discount variety store. Family Dollar Store's initial lease term
expired during December 31, 1994, with six (6) five-year options; Rite Aid
Drug's initial lease term expired May 25, 1995, with four (4) five-year options.
Each tenant has exercised its first option for a period of five (5) years.
Family Dollar's annual base rent is $26,000; Rite Aid is $48,067.50, with no
change during the first option period.
The Partnership, under the terms of the Shopping Center leases and options, is
entitled to receive as additional rental, subject to certain offsets, percentage
rental participation of two percent (2%) to two and one-half percent (2.5%) of
annual gross sales, above certain sales levels.
The Shopping Center is directly across the highway from the Winn Dixie Shopping
Center that contains two department stores similar to the Family Dollar and Rite
Aid Drug. There are retail shopping areas in Helens, .5 miles to the west and in
McRae .3 miles east, which contain two drug stores. These retail establishments
compete with the establishments that are lessees of the McRae Square Shopping
Center.
Rental income for the Shopping Center was $79,841, $82,887 and $79,886 for 1998,
1997, and 1996, respectively. Operating expenses for the same years were
$39,461, $48,522 and $39,547, respectively.
As of December 31, 1998 the Shopping Center is 100% occupied.
The Partnership paid to, in prior years, an affiliate of the General Partner an
acquisition fee of $44,000 for its efforts in the negotiation, execution and
purchase of the Shopping Center.
The property was unencumbered as of December 31, 1998.
TANQUE VERDE SELF STORAGE
On March 31, 1987, the Partnership acquired the Tanque Verde/Kolb Self Storage
facility (the "Property") in Tucson, Arizona. The original purchase price of the
Property was $1,945,000 plus legal, title, and recording fees of $17,140. Of the
original purchase price, $194,031 was allocated to land and $1,768,109 to the
building, based upon an independent appraisal. The Property is located on a
parcel of land comprising approximately 60,209 square feet, which consists of
approximately 43,200 square feet of self-storage facilities, approximately 950
square feet of office/residence space, and approximately 16,059 square feet of
non-rentable space.
The Property was completed in December 1984, and commenced
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operations during that month. The Property was sold on August 15, 1997 for
$1,945,000 realizing a gain of $543,526.
Rental income from the Property was $301,756 and $366,560 for 1997 and 1996,
respectively. Operating expenses for the same years were $186,947 and $306,377,
respectively. Expenses in 1997 were lower due to appointment of new resident
managers at lower salaries.
The Partnership paid, in prior years, an affiliate of the General Partner an
acquisition fee of $144,900 for its efforts in negotiations and purchase of the
facility.
CAPITOL SELF STORAGE
On December 19, 1995, the Partnership exchanged Athens Self Storage for Capitol
Self Storage, a 43,890 square foot storage facility on 1.5 acres in Tucson,
Arizona. The purchase price was $1,925,000, which was accounted for in a
tax-free exchange whereby the land, building and improvements were recorded at
$1,725,108. The property consists of 471 storage units and 43 parking spaces.
The storage buildings are built of block with metal roofs, with perimeter
fencing and electronic gates with touch pads. The driveway areas are of both
asphalt and concrete. The managers are a husband and wife who reside at the
apartment on site.
The facility, built in 1984 has maintained occupancy of 85% to 95% over the past
three years, as have the four area facilities, which are in direct competition
with Capitol. Partnership rate ranges are similar to those of the competing
facilities. Located on a main east-west thoroughfare with a traffic count of
30,000 per day, the facility attracts customers from a heavy concentration of
apartments in the area, winter visitors and a military base.
Occupancy rates were over 85% and rental income from Capitol Self Storage was
$333,264, $305,996 and $269,112 for 1998, 1997 and 1996, respectively. Operating
expenses for the same years were $284,124, $279,424 and $259,841, respectively.
Revenue was increased in 1998 due to rental increases and strict collection
policies. Expenses were higher in 1998 due to computerization of on-site
records.
The exchange property, known as Capitol Self Storage, was acquired with a debt
of $1,250,000 payable in monthly installments of principle and interest of
$10,490 at nine percent (9%)annually, amortized over a twenty-five (25) year
period with a ten (10) year balloon payment.
The property is held as collateral for a $1,250,000 mortgage with an outstanding
balance of $1,204,115 as of December 31, 1998.
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PAN AMERICAN OFFICE BUILDING
The office building is 16,315 square feet on a 1.39 acre tract of land (the "Pan
Am Plaza") in Edinburgh, Texas. The Pan Am Plaza is fully occupied by the
Department of Human Resources of the State of Texas on a five year
noncancellable lease with annual increases. The lease was renewed in August of
1998 for a one-year period and also contains options for future renewal.
The original lease commenced on September 9, 1988.
The office building was built specifically for the State of Texas to meet all
its requirements and includes all systems as dictated by the State of Texas.
Rental revenue for the Pan Am Plaza was $107,293, $83,597 and $83,064 for 1998,
1997 and 1996, respectively. Operating expenses for the same years were $93,086,
$79,811 and $72,423, respectively. Operating expenses include a five percent
(5%) management fee and depreciation of approximately $14,000 annually.
Income increased in 1998 due to the rental rate being increased by $4.51 per
square foot, because the lease term was reduced. Expenses increase due to
renewal requests for complete interior painting of the facility.
The property was held as collateral for a mortgage of $322,667 outstanding as of
December 31, 1998, which the Partnership assumed in 1995. The Partnership holds
as collateral against said mortgage a collateral interest in a mortgage note
against a Krogers in Atlanta, Georgia.
THE RAX/HONEY BAKED HAM IN LOUISIANA
On December 29, 1988, the Partnership purchased land and a 3,500 square foot
building in Gretna, Louisiana for a purchase price of $600,000. The building's
cost basis is $455,072 (including improvements totaling $5,072 made subsequent
to acquisition) and the land cost is $150,000. During 1991, The Original Honey
Baked Ham Co. of Georgia signed a three year lease providing for monthly
payments of $3,000. On July 30, 1993, The Original Honey Baked Ham Co. of
Georgia signed a First Amendment to the Lease adding an additional option period
of two years commencing on January 1, 1994 and ending on December 31, 1995 for
$36,000 per year. The amendment also provided the lessee with three options to
extend the lease for additional five year terms, which the tenant did not
exercise for 1996. However, the tenant did extend the lease for a one-year
period at the same rate commencing January 1, 1996 and ending December 31, 1996.
The lessee extended its lease for two years commencing January 1, 1997 and
ending December 31, 1998, then exercised its first five-year option commencing
January 1, 1999 through December 31, 2004 at an annual rental rate of $37,800.
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Rental revenue for this property was $43,746, $40,606 and $36,000 for 1998, 1997
and 1996, respectively. Operating expenses for the same years were $25,294,
$23,198 and $18,628, respectively.
The property was not held as collateral for any mortgages outstanding as of
December 31, 1998.
ATHENS SELF STORAGE
On May 23, 1988, the Partnership purchased a self-storage facility ("Athens Self
Storage") in Athens, Georgia for a purchase price of $1,132,974. Of the original
purchase price, $862,974 was allocated to the building and $270,000 was
allocated to the land. The Athens Self Storage is comprised of a 3.4 acre parcel
of land and mini storage warehouse, which is a 31,630 square foot storage
facility. The property was purchased subject to a first mortgage for $643,872
and the mortgage was paid in full in 1989.
The Athens Self Storage was exchanged for a larger storage facility in Tucson,
Arizona on December 19, 1995 at a difference of $535,000.
ORACLE OFFICE PLAZA IN TUCSON, ARIZONA
On November 29, 1993 the Partnership acquired a 50% undivided preferential
interest in an office building ("Oracle") in Tucson, Arizona for $300,000.
The Partnership's investment was accounted for under the equity method. The
Partnership was entitled to an annual return of 10% of its original investment.
If the available net cash flow from the property was insufficient to pay the
preferred return, 5600 N. Oracle Group, LLC ("5600"), the holder of the
remaining undivided 50% interest, must contribute additional capital to pay the
remainder. In the event the net cash flow exceeded the preferred return, the
excess was to be distributed first to "5600" until they received distributions
equal to the Partnership's preferred return and thereafter in accordance with
the ownership percentages.
Operating deficits, if any, were to be funded by "5600" during the ownership of
the property. A preferred return of $44,715, which was collected in monthly
payments of $2,500, was received in 1995. A preferred return of $12,500, which
was collected in monthly payments of $2,500, was received for the months of
January through May of 1996.
The property incorporated three separate buildings, consisting of 6,800, 12,000
and 6,000 square feet, comprising approximately 2 acres located in the northwest
region of Tucson, Arizona.
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The Partnership sold its undivided 50% interest to the other 50% holder in
interest on June 15, 1996 for $246,473, realizing a gain of $75,756.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant did not solicit proxies and the Directors/Officers, as previously
reported to the Commission, was re-elected in its entirety.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There has not been a public market and it is not anticipated that a public
market for Limited Partnership Interests will develop.
As of December 31, 1998 the number of holders of record of Limited Partnership
Interests of the Registrant was 720.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected operations data with respect to the
Partnership for each of the five years in the period ended December 31, 1998:
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
For the Years Ending December 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL RENTAL REVENUES $564,144 $814,842 $834,622 $755,653 $793,294
- --------------------------------------------------------------------------------------------------------------------------------
RENTAL REVENUES LESS
RENTAL OPERATING EXPENSES 123,237 196,940 137,806 90,439 159,947
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME 31,652 42,644 46,501 44,629 3,741
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ADMINISTRATION EXPENSES 64,567 75,355 115,386 100,347 45,651
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (81,538) 357,132 (8,171) (237,018) (46,799)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME(LOSS)PER (6.77) 29.63 (.68) (19.06) (3.92)
LIMITED PARTNER
UNITS
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO 0 966,942 83,534 41,762 125,206
LIMITED PARTNERS
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
LIMITED PARTNERS
PER LIMITED
PARTNER UNIT 0 81.00 7.00 3.50 10.50
- --------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE
NUMBER OF LIMITED
PARTNER UNITS 11.932 11,932 11,932 11,932 11,932
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PROPERTIES 3,113,601 3,179,037 4,550,355 4,601,517 4,212,531
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,821,400 3,845,719 5,504,064 5,630,206 4,012,790
- --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
OBLIGATIONS 1,526,784 1,548,138 2,509,922 2,537,422 1,464,792
- --------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PROPERTIES
OWNED 4 4 5 6 6
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A real estate limited partnership passes through four phases during its
life cycle. These phases are:
1. Sale of limited partnership interests (equity-raising).
2. Acquisition of income producing property and property management.
3. Management of acquired property.
4. Sale of appreciated property.
The partnership is currently entering the sale of appreciated property
phase of its life cycle.
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RESULTS OF OPERATIONS
The Partnership commenced its operations January 1, 1987 with the acquisition of
McRae Shopping Center in McRae, Georgia. Since that time, the Partnership has
acquired five additional income producing properties. As of December 31, 1998,
the Partnership has distributed $2,978,943 to the Limited Partners and $9,763 to
the General Partner.
Revenues for the year ended December 31, 1998 decreased by $250,698 from the
year ended December 31, 1997. The decrease was due primarily to the sale of
Tanque Verde/Kolb Self Storage. This decrease would have been greater, but for
increases in revenue at three of the four remaining properties.
Revenues for the year ended December 31, 1997 decreased by $19,780 from the year
ended December 31, 1996. The decrease was due primarily to a decrease in rental
revenue from Tanque Verde Self Storage as a result of the sale of the property
and offset somewhat by an increase in other rental income.
Rental Operating Expenses for the year ended December 31, 1998 decrease by
$179,995 from the year ended December 31, 1997. The decrease was primarily due
to the elimination of two employees who were previously employed by Tanque
Verde/Kolb Self Storage and the elimination of operating expenses at the
property due to sale of the property.
Rental Operating Expenses for the year ended December 31, 1997 increased by
$59,134 over the year ended December 31, 1996. The increase was due primarily to
increased rental operating expenses that occurred at the all of the
partnership's properties.
Net income for the year ended December 31, 1998 declined by $438,670 from the
year ended December 31, 1997 primarily due to the sale of Tanque Verde/Kolb.
Net income for the year ended December 31, 1997 improved by $365,303 from the
year ended December 31, 1996 because of the decreased expenses discussed above
and the gain on the sale of Tanque Verde Self Storage.
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LIQUIDITY AND CAPITAL RESOURCES
The cash position of the Partnership and distributions to Limited Partners
should remain constant or decrease during 1999 depending on whether sales of
remaining real properties occur.
Net cash provided by operating activities was $91,873 for the year ended
December 31, 1998 compared to $75,899 for the year ended December 31, 1997. Net
cash provided by investing activities was $430 for the year ended December 31,
1998.
Net cash provided by operating activities was $75,899 for the year ended
December 31, 1997 compared to $35,699 for the year ended December 31, 1996. Net
cash provided by investing activities was $1,778,110 for the year ended December
31, 1997 and consisted of proceeds from the sale of the investment in the Tanque
Verde Self Storage and distributions from the investment offset by purchases of
property and equipment and deposits on rental property. Net cash used in
financing activities was $1,938,039 for the year ended December 31, 1997 and
consisted of distributions to partners and repayments of notes payable offset by
proceeds from notes payable.
The liquidity of the Partnership relies almost entirely on the financial market
fluctuation and availability of funds with regard to lending and investing in
commercial property. Funds appear to be more readily available and therefore may
provide greater liquidity to the Partnership in 1999 through the sale of the
Partnership assets.
The Partnership believes that it has adequate cash reserves to meet working
capital requirements as they arise.
Inflation has historically been a contributing factor to the increase in capital
appreciation of income producing real estate and may continue to be a
contributing factor in the future. The Partnership's intention is to own and
operate the properties for a period of five to ten years. At this time it is not
possible to anticipate what the real estate market and capital appreciation will
be in the future. Currently, the properties are generating sufficient cash flow
to cover their own cash operating expenses.
YEAR 2000 ISSUES
The company is in a state of readiness for Year 2000 Issues (Y2K) having
installed both new hardware and new software within the last six months. The
hardware is Dell, which is Y2K certified and the software, Adobe, Intuit and
Microsoft, are also Y2K certified. The cost to the company was not material.
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The Reports of Independent Auditors and the financial statements and schedules
as set forth on pages F-1 to F-19 are hereby incorporated herein.
The company's third-party payroll providers and banks are prepared for Year 2000
Issues. The bank, National Bank of Arizona, and payroll provider, Paychex, have
provided certification of their Y2K readiness. The company's tenants, Rite-Aid
Drug, Family Dollar, Honey Baked Ham and the State of Texas have not certified
their readiness. Capitol Self Storage's computer software and hardware are
certified ready.
There are no material relationships with suppliers or vendors that would
materially affect operations, with the exception of utility companies.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Partnership changed accountants to Hein + Associates LLP from BDO Seidman,
with no disagreement, on January 10, 1996. The form 8-K was filed with the
Securities and Exchange Commission on January 11, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a)Neither the Registrant nor W & C Income Company Ltd., its General Partner,
has a Board of Directors.
(b,c,d,&e)The General Partner of the Registrant is W&C Income Company, Ltd.,
a California Limited Partnership.
W & C INCOME COMPANY, LTD: a California Limited Partnership, does not have an
operations history; however, the resources from Whitehall Capital Investment
Group, Inc. have been utilized by the Partnership.
JACK C. WEST: MR. West, age 50, a Managing Member, has been a private investor
since 1988. From 1986 to 1988, Mr. West was President and Director of Whitehall
Capital Corporation. Before that time Mr. West was Senior Vice
President/National Marketing Director as well as director of the Whitehall
Capital Corporation's Irvine, California offices, in charge of the company's
marketing programs. Prior to joining Whitehall Capital Corporation in 1982, he
was active from 1977 until 1982 as a Senior Account Manager-portfolio management
with First National Corporation, an asset
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portfolio management corporation.
WHITEHALL CAPITAL INVESTMENT GROUP: The corporation has an interest in over $500
million of income producing real estate projects. Whitehall Capital Investment
Group's investment portfolio includes an interest in over 100 major credit
tenant commercial projects located primarily throughout the Sun Belt States.
(f)No Managing Members of the General Partner were involved with legal
proceedings.
(g)There were no transactions with promoters or control persons.
ITEM 11. EXECUTIVE COMPENSATION
(a,b,c, & d)The Registrant has not paid and does not propose to pay any
compensation or retirement benefits to members of the General Partner.
(e)There were no termination of employment or change of control arrangements
with members of the General Partner.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a)No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the Registrant:
(b)W & C Income Company, Ltd. and its members own as a group or individually,
1% of the Limited Partnership Interests of the Registrant.
(c)There were no changes in control or arrangements for changes in control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions is
incorporated herein by reference to and is set forth in Note 7 of Notes to the
Financial Statements on page F-15 of this Form 10-K.
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ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements:
(1) The index to the Financial Statements is included on F-1 of this
report.
(2) Financial Statement Schedules - F-15 through F-17.
(b) Reports on Form 8-K:
The Registrant did file a Form 8-K report during the fiscal year
ended December 31, 1997.
(c) Exhibits required by Item 601 of Regulation S-K: The Financial Data
Schedule
(d) Financial Statement Schedules required by Regulation S-X:
All required information is included in the financial statements or
schedules on pages F-12 through F-19.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Whitehall Income Fund - 86, A California Limited Partnership
(Registrant)
By W & C Income Company, Ltd.
General Partner of the Registrant
Date: 4-13-99 By: /s/ Jack C. West
---------------- ---------------------
Jack C. West
Managing Member
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WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT...................................................................... F-2
BALANCE SHEETS - December 31, 1998 and 1997....................................................... F-3
STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1998, 1997 and 1996................... F-4
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) - For the Years Ended December 31, 1998,
1997 and 1996............................................................................. F-5
STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1998, 1997 and 1996................... F-6
NOTES TO FINANCIAL STATEMENTS..................................................................... F-7
FINANCIAL STATEMENT SCHEDULES:
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION .......................................... F-17
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE....................................................... F-19
</TABLE>
F-1
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INDEPENDENT AUDITOR'S REPORT
The Partners
Whitehall Income Fund - 86
(A California Limited Partnership)
Tucson, Arizona
We have audited the accompanying balance sheets of Whitehall Income Fund - 86 (a
California limited partnership) as of December 31, 1998 and 1997, and the
related statements of operations, changes in partners' capital (deficit), and
cash flows for each of the years in the three year period ended December 31,
1998. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Whitehall Income Fund - 86 (a
California limited partnership) at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the years in the three year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
Our audits referred to above included audits of the financial statement
schedules listed under Item 14(a)(2) of Form 10-K. In our opinion, these
financial statement schedules present fairly, in all material respects, in
relation to the financial statements taken as a whole, the information required
to be stated therein.
\s\ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
February 18, 1999
F-2
<PAGE> 18
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Rental properties, net of accumulated depreciation $3,113,601 $3,179,037
Cash and cash equivalents 500,005 429,057
Accounts receivable 21,032 8,574
Note receivable 155,140 161,456
Organization and loan closing costs, net of accumulated
amortization of $14,530 and $9,615 31,622 36,537
Deposits and other assets -- 31,058
----------- -----------
TOTAL ASSETS $3,821,400 $3,845,719
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $1,526,782 $1,548,138
Accounts payable 5,515 6,082
Accrued property taxes 19,862 18,678
Due to general partner 10,607 10,607
Due to related party 107,045 26,828
Other liabilities 8,539 10,798
----------- -----------
Total liabilities 1,678,350 1,621,131
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8) -- --
PARTNERS' CAPITAL
Limited partners, 11,932 equity units authorized and
outstanding for 1998 and 1997 2,190,564 2,271,287
General partner, 1 equity unit authorized and outstanding for
1998 and 1997 (47,514) (46,699)
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $3,821,400 $3,845,719
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-3
<PAGE> 19
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
REVENUES:
Rental $564,144 $814,842 $834,622
Gain on sale of investment in office building -- -- 75,756
Gain on sale of rental property -- 543,526 --
Other income 32,773 54,127 51,212
--------- ---------- ---------
Total Revenues 596,917 1,412,495 961,590
--------- ---------- ---------
EXPENSES:
Rental operating:
Depreciation 95,006 135,676 153,141
Payroll and related taxes 31,889 49,636 64,373
Interest 135,656 198,138 229,664
Other rental operating expenses 76,241 95,857 110,915
Taxes other than payroll 69,860 100,442 106,455
Repairs and maintenance 21,325 25,729 12,932
Advertising 10,930 12,424 19,336
Operating Expenses:
General and administrative 64,567 75,355 115,386
Payroll and related taxes 130,260 126,360 94,678
Professional fees 36,748 35,778 31,830
Depreciation and amortization 5,973 15,156 10,387
Share of net loss of office building -- -- 20,664
Write down of note receivable to fair value -- 184,812 --
--------- ---------- ---------
Total expenses 678,455 1,055,363 969,761
--------- ---------- ---------
NET INCOME (LOSS) $(81,538) $357,132 $(8,171)
========= ========== =========
NET INCOME (LOSS) ATTRIBUTED TO:
Limited partners $(80,723) $353,561 $(8,089)
========= ========== =========
General partner $(815) $3,571 $(82)
========= ========== =========
NET INCOME (LOSS) PER LIMITED PARTNER UNIT $(6.77) $29.63 $(0.68)
========= ========== =========
DISTRIBUTIONS PER LIMITED PARTNER UNIT $-- $81.00 $7.00
========= ========== =========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNER UNITS 11,932 11,932 11,932
========= ========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
<PAGE> 20
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
BALANCE (DEFICIT), January 1, 1996 $(39,581) $2,975,831 $2,936,250
Net loss for 1996 (82) (8,089) (8,171)
Capital distributions (844) (83,524) (84,368)
-------- ----------- -----------
BALANCE (DEFICIT), December 31, 1996 (40,507) 2,884,218 2,843,711
Net income for 1997 3,571 353,561 357,132
Capital distributions (9,763) (966,492) (976,255)
-------- ----------- -----------
BALANCE (DEFICIT), December 31, 1997 (46,699) 2,271,287 2,224,588
Net loss for 1998 (815) (80,723) (81,538)
-------- ----------- -----------
BALANCE (DEFICIT), December 31, 1998 $(47,514) $2,190,564 $2,143,050
======== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE> 21
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
--------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(81,538) $357,132 $(8,171)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 100,979 150,832 163,528
Share of net (income) loss of office building -- -- 20,664
Gain on sale of investment in office building -- -- (75,756)
Gain on sale of rental property -- (543,526) --
Write down of note receivable to fair value -- 184,812 --
Changes in assets and liabilities:
Accounts receivable (12,458) 4,887 (1,209)
Note receivable 6,316 -- (49,130)
Accounts payable (568) (18,398) 8,126
Accrued property taxes 1,184 (34,395) (13,856)
Due to general partner -- 9,763 (31,087)
Due to related party 80,217 26,828
Other liabilities (2,259) (62,036) 22,590
--------- ----------- ---------
Net cash provided by operating activities 91,873 75,899 35,699
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of rental properties (29,570) (43,116) (21,979)
Deposit on rental property 30,000 -- (30,000)
Proceeds from sale of rental property -- 1,821,226
Proceeds from sale of investment in office building -- -- 235,723
Distribution from investment in office building -- -- 12,500
--------- ----------- ---------
Net cash provided by investing activities 430 1,778,110 196,244
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners -- (976,255) (84,368)
Proceeds from notes payable -- -- 113,413
Repayments of notes payable (21,355) (961,784) (140,069)
----------- ---------
Net cash used in financing activities (21,355) (1,938,039) (111,024)
--------- ----------- ---------
NET INCREASE (DECREASE) IN CASH 70,948 (84,030) 120,919
CASH AND CASH EQUIVALENTS, beginning of year 429,057 513,087 392,168
--------- ----------- ---------
CASH AND CASH EQUIVALENTS, end of year $500,005 $429,057 $513,087
========= =========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $135,656 $207,000 $230,000
========= =========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
<PAGE> 22
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICES:
Nature of Business - Whitehall Income Fund - 86 (the "Partnership") was
organized in the State of California on December 15, 1985 for the purpose
of investing in, holding, developing and managing income producing
properties.
Allocations and Distributions - Generally, net losses are allocated 1% to
W&C Income Company, Ltd. (the "General Partner") and 99% to the Limited
Partners. Net income is allocated in the same proportion as net losses
until all such losses have been recaptured, and then in proportion to
distributions of cash from operations until the partners' capital accounts
equal their original invested capital. Finally, the remaining net income is
allocated 15% to the General Partner and 85% to the Limited Partners.
Distributions of cash from operations, as defined, are divided 1% to the
General Partner and 99% to the Limited Partners until the Limited Partners
have received their priority return. The Limited Partners are entitled to a
non-cumulative non-compounded return on adjusted invested capital, as
defined in the Partnership Agreement, of 7% in 1986, 8% in 1987, and 9% in
1988, and 10% per annum thereafter. After this priority return is received,
distributions are divided 5% to the General Partner and 95% to the Limited
Partners. As of December 31, 1998 the Limited Partners had not received
their non-cumulative priority return.
Fees - The General Partner provides property management and leasing
services to the Partnership and is compensated at the rate of 5% of the
gross receipts from the properties (see Note 7). Such fee was paid and
recognized as an expense for the years ended December 31, 1998, 1997 and
1996. The General Partner is also entitled to a partnership management fee
of 5% of all distributions of cash from operations after the Limited
Partners have received their priority return. As of December 31, 1998, the
limited partners had not received their non-cumulative priority return (see
allocations and distributions above); therefore, the general partner is not
entitled to the partnership management fee.
The Partnership reimburses the General Partner for a portion of payroll
relating to an in-house legal counsel and a managing agent and certain
general and administrative expenses (see Note 7).
Impairment of Long-Lived Assets - In the event that facts and circumstances
indicate that the cost of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow is required.
Rental Properties - Rental properties and improvements are recorded at
cost. The Partnership capitalizes and depreciates all buildings used for
investment income over thirty-one to thirty-nine years, the estimated
useful lives of the properties, using an accelerated method for financial
reporting purposes. Depreciation of improvements is calculated using the
same accelerated method over the estimated useful lives (ranging from 5 to
10 years) of the respective assets. The cost of normal maintenance and
repairs is charged to operating expenses as incurred. Material expenditures
which increase the life of an asset are capitalized
F-7
<PAGE> 23
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
and depreciated over the estimated remaining useful life of the asset. The
cost of properties sold, or otherwise disposed of, and the related
accumulated depreciation or amortization are removed from the accounts, and
any gains or losses are reflected in current operations.
Investment in Office Building - Until June 15, 1996, the Partnership owned
a fifty percent undivided preferential interest in an office building in
Tucson, Arizona. The Partnership's investment was accounted for under the
equity method. The Partnership sold its interest in this investment as of
June 15, 1996. The Partnership's share of earnings or losses and its gain
on sale of its investment are included in the accompanying financial
statements.
Net Income (Loss) Per Limited Partner Unit - Net income (loss) per limited
partner unit has been computed for each fiscal year on the basis of the
weighted average number of limited partner units outstanding.
Amortization - Organization costs of the Partnership are capitalized and
amortized over five years using the straight line method. Loan closing
costs are amortized over the lives of the loans using the straight line
method.
Income Taxes and Other - The activity of the Partnership is included in the
respective tax returns of the partners and no income taxes are provided or
imposed at the Partnership level. These financial statements do not give
effect to any assets that the partners may have outside their interests in
the Partnership, nor to any obligations, including income taxes, of the
partners.
Use of Estimates - The preparation of the Partnership's financial
statements in conformity with generally accepted accounting principles
requires the Partnership's management to make estimates and assumptions
that affect the amounts reported in these financial statements and
accompanying notes. Actual results could differ from those estimates.
The Partnership's financial statements are based upon a number of
significant estimates, including the estimated useful lives selected for
property and equipment and intangible assets. Due to the uncertainties
inherent in the estimation process, it is at least reasonably possible that
these estimates will be further revised in the near term and such revisions
could be material.
Statement of Cash Flows - For purposes of the statement of cash flows, the
Partnership considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents
consist of certificates of deposit.
Reclassifications - Certain reclassifications were made to the 1997 and
1996 financial statements in order to conform to the 1998 presentation.
Such reclassifications had no effect on the net income (loss) previously
reported.
Impact of Recently Issued Standards - SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities," SFAS 132, "Employees' Disclosures
about Pensions and other Postretirement Benefits," and
F-8
<PAGE> 24
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SFAS 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitazation of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" were issued in 1998 and are not expected to impact the
Partnership regarding future financial statement disclosures, results of
operations and financial position.
2. RENTAL PROPERTIES AND OTHER SEGMENT INFORMATION:
Each rental property is an operating segment. The Partnership's management
evaluates the performance of each segment based on profit or loss from
operations before allocation of Partnership general and administrative
expenses, unusual and extraordinary items. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies.
The Partnership currently owns four rental properties. On August 14, 1997
the Partnership sold Tanque Verde Self Storage for $1,945,000, net of
related expenses. The gain on the sale of the property was $543,526.
During 1998, two tenants each accounted for approximately 16% of rental
revenue. During 1997 and 1996, two tenants each accounted for approximately
10% of the rental revenue.
F-9
<PAGE> 25
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Below is the segment information:
<TABLE>
<CAPTION>
1998
MCRAE PAN AMERICAN HONEY BAKED
PARTNERSHIP SHOPPING OFFICE HAM IN CAPITOL
TOTAL OVERHEAD CENTER BUILDING LOUISIANA SELF-STORAGE
----- -------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Buildings and improvements $3,333,835 $-- $750,731 $477,677 $468,614 $1,636,813
Accumulated depreciation (705,151) -- (278,457) (141,276) (148,943) (136,475)
Land 484,917 -- 59,229 162,850 150,000 112,838
----------- --------- --------- --------- --------- -----------
Net property $3,113,601 $-- $531,503 $499,251 $469,671 $1,613,176
=========== ========= ========= ========= ========= ===========
Rental revenue $564,144 $-- $79,841 $107,293 $43,746 $333,264
Gain on sale of property -- -- -- -- -- --
Other income 933 933 -- -- -- --
Interest income 31,840 17,874 188 13,778 -- --
----------- --------- --------- --------- --------- -----------
596,917 18,807 80,029 121,071 43,746 333,264
----------- --------- --------- --------- --------- -----------
Operating expenses 441,820 230,517 15,933 48,814 10,531 136,025
Interest expense 135,656 -- -- 29,527 -- 106,129
Depreciation and amortization 100,979 5,973 23,528 14,745 14,763 41,970
----------- --------- --------- --------- --------- -----------
678,455 236,490 39,461 93,086 25,294 284,124
----------- --------- --------- --------- --------- -----------
Net income (loss) $(81,538) $(217,683) $40,568 $27,985 $18,452 $49,140
=========== ========= ========= ========= ========= ===========
</TABLE>
F-10
<PAGE> 26
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997
PAN
MCRAE AMERICAN HONEY BAKED
PARTNERSHIP SHOPPING TANQUE VERDE OFFICE HAM IN CAPITOL
TOTAL OVERHEAD CENTER SELF-STORAGE BUILDING LOUISIANA SELF-STORAGE
----- -------- ------ ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Buildings and improvements $3,304,266 $ -- $734,611 $-- $464,228 $468,614 $1,636,813
Accumulated depreciation (610,146) -- (254,929) -- (126,531) (134,180) (94,506)
Land 484,917 -- 59,229 -- 162,850 150,000 112,838
----------- --------- --------- -------- --------- --------- -----------
Net property $3,179,037 $ -- $538,911 $-- $500,547 $484,434 $1,655,145
=========== ========= ========= ======== ========= ========= ===========
Rental revenue $814,842 $ -- $82,887 $301,756 $83,597 $40,606 $305,996
Gain on sale of property 543,526 -- -- 543,526 -- -- --
Other income 10,804 800 -- -- 10,004 -- --
Interest income 43,323 22,183 217 -- 20,923 -- --
----------- --------- --------- -------- --------- --------- -----------
1,412,495 22,983 83,104 845,282 114,524 40,606 $305,996
----------- --------- --------- -------- --------- --------- -----------
Operating expenses 521,581 237,493 25,201 94,959 33,939 8,171 121,818
Interest expense 198,138 -- -- 56,545 30,967 -- 110,626
Depreciation and amortization 150,832 15,156 23,321 35,443 14,905 15,027 46,980
Write down of note receivable 184,812 184,812 -- -- -- -- --
----------- --------- --------- -------- --------- --------- -----------
1,055,363 437,461 48,522 186,947 79,811 23,198 279,424
----------- --------- --------- -------- --------- --------- -----------
Net income loss $357,132 $(414,478) $34,582 $658,335 $34,713 $17,408 $26,572
=========== ========= ========= ======== ========= ========= ===========
</TABLE>
F-11
<PAGE> 27
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996
PAN
MCRAE AMERICAN HONEY BAKED
PARTNERSHIP SHOPPING TANQUE VERDE OFFICE HAM IN CAPITOL
TOTAL OVERHEAD CENTER SELF-STORAGE BUILDING LOUISIANA SELF-STORAGE
----- -------- ------ ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Buildings and improvements $ 5,182,390 $ -- $ 734,611 $ 1,921,240 $ 459,197 $ 455,072 $ 1,612,270
Accumulated depreciation (1,325,983) -- (231,608) (815,366) (111,626) (119,153) (48,230)
Land 693,948 -- 59,229 209,031 162,850 150,000 112,838
----------- --------- --------- ----------- --------- --------- -----------
Net property $ 4,550,355 $ -- $ 562,232 $ 1,314,905 $ 510,421 $ 485,919 $ 1,676,878
=========== ========= ========= =========== ========= ========= ===========
Rental revenue $ 834,622 $ -- $ 79,886 $ 366,560 $ 83,064 $ 36,000 $ 269,112
Gain on sale of property 75,756 75,756 -- -- -- -- --
Other income 12,403 12,403 -- -- -- -- --
Interest income 38,809 18,258 221 -- 20,330 -- --
----------- --------- --------- ----------- --------- --------- -----------
961,590 106,417 80,107 366,560 103,394 36,000 $ 269,112
----------- --------- --------- ----------- --------- --------- -----------
Operating expenses 555,905 241,894 16,226 155,729 28,477 4,019 109,560
Interest expense 229,664 -- -- 91,363 30,066 -- 108,235
Depreciation and amortization 163,528 10,387 23,321 59,285 13,880 14,609 42,046
Share of net loss on office
building 20,664 20,664 -- -- -- -- --
----------- --------- --------- ----------- --------- --------- -----------
969,761 272,945 39,547 306,377 72,423 18,628 259,841
----------- --------- --------- ----------- --------- --------- -----------
Net income (loss) $ (8,171) $(166,528) $ 40,560 $ 60,183 $ 30,971 $ 17,372 $ 9,271
=========== ========= ========= =========== ========= ========= ===========
</TABLE>
F-12
<PAGE> 28
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENT
3. INVESTMENT IN OFFICE BUILDING:
On November 29, 1993 the Partnership acquired a 50% undivided preferential
interest in an office building ("Oracle") in Tucson, Arizona for $300,000.
On June 15, 1996, the Partnership sold its investment in the office
building for $246,473, net of related expenses. The gain on the sale of the
investment was $75,756.
The condensed statement of operations of Oracle for the period ended June
15, 1996 is presented below:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Revenues $ 107,947
Expenses 149,275
---------
Net income (loss) $ (41,328)
=========
Partnership's share of net loss $ (20,664)
=========
</TABLE>
4. NOTE RECEIVABLE:
Prior to 1995, one of the properties of the Partnership was held as
collateral for a note payable of the original owner. During 1995, the
Partnership assumed this note payable in exchange for a note receivable
with collateral of a second trust deed on an operating property in Atlanta
from the original note holder. When the note receivable became due in June
1997, the original owner could not pay the balance due on the note. The
Partnership took the collateral and wrote down the note receivable to the
estimated fair value of the collateral.
The second trust deed has an interest rate of 9.5%. The principal and
interest is received in monthly installments of $14,074 through November 4,
2004. Since the second trust deed wraps the first trust deed on the Atlanta
property, the monthly installments of the second trust deed are reduced by
the monthly payments of $12,400 to the first trust deed through February
2004.
F-13
<PAGE> 29
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENT
5. NOTES PAYABLE:
Notes payable consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
$1,250,000 non-recourse note payable to bank with interest at 9% through
February 2006; principal and interest payable in monthly installments of
$10,490 through February 2006, at which time the remaining balance becomes
due; collateralized by Capitol real and personal property $1,204,115 $1,220,801
$337,035 note payable to life insurance company with interest at 9% through
August 2000; principal and interest due in monthly installments of $2,828
through August 2000, at which time the remaining balance becomes due;
collateralized by Pan American real
property 322,667 327,337
---------- ----------
$1,526,782 $1,548,138
========== ==========
</TABLE>
Future maturities of notes payable are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1999 $ 23,184
2000 337,409
2001 21,672
2002 23,705
2003 25,928
Thereafter 1,094,884
----------
$1,526,782
==========
</TABLE>
All interest incurred for years ending December 31, 1998, 1997 and 1996 was
charged to expense.
F-14
<PAGE> 30
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENT
6. LEASES:
The Partnership has long-term operating lease agreements with unaffliated
lessees to occupy space in its operating real estate properties.
Future minimum lease payments to be received on non-cancelable leases are
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1999 $214,621
2000 57,828
2001 37,800
2002 37,800
2003 37,800
--------
$385,849
========
</TABLE>
7. RELATED PARTY TRANSACTIONS:
At December 31, 1998 and 1997 the General Partner was owed $10,607 for
distributions of cash from operations, as defined in the partnership
agreement.
In 1998, 1997 and 1996 the Partnership was charged property management and
leasing fees of $26,744, $36,921 and $43,159 by an affiliate of the former
General Partner. In 1998, 1997 and 1996, the Partnership incurred payroll
expenses relating to certain of the former General Partner's employees and
other administrative expenses totaling $189,217, $195,728, and $267,213,
respectively. Certain amounts of the administrative expenses paid by a
former General Partner are allocated to the Partnership based upon the
former General Partner's estimates. At December 31, 1998 and 1997, the
affiliate of the former General Partners was owed $107,045 and $26,282,
respectively.
8. FINANCIAL INSTRUMENTS:
Concentrations of Credit Risk
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off balance sheet)
that arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly
effected by changes in economic or other conditions. In accordance with
FASB Statement No. 105, Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, the credit risk amounts shown do not take
into account the value of any collateral or security.
F-15
<PAGE> 31
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Financial instruments that subject the Partnership to credit risk consist
principally of a note and accounts receivable and cash on deposit.
At December 31, 1998, the Partnership maintained cash balances with a
commercial bank which were approximately $386,161 in excess of FDIC
insurance limits.
The Partnership's note receivable is described in Note 4.
The Partnership's properties are located in the states of Texas, Arizona,
Georgia and Louisiana. A downturn in the economies in any of these states
could have an adverse impact on the Partnership.
Fair Value of Financial Instruments - The estimated fair values of the
Partnership financial instruments were determined by management using
available market information and appropriate valuation methodologies. The
estimates are not necessarily indicative of the amount the Partnership
could realize in a current market exchange.
At December 31, 1998, cash, accounts receivable, accounts payable and notes
payable have fair values that approximate book values based on their short
term or demand maturity.
The fair value of the note receivable is based on estimated discounted cash
flows. The fair value of these instruments approximates book value at
December 31, 1998.
F-16
<PAGE> 32
FINANCIAL STATEMENT SCHEDULES
<PAGE> 33
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COSTS CAPITALIZED
INITIAL COST TO PARTNERSHIP SUBSEQUENT TO ACQUISITION
-------------------------------------------------- -------------------------------
BUILDING AND
DESCRIPTION INCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS CARRYING COSTS
----------- ------------ ---- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
McRae Shopping
Center $ -- $ 59,229 $ 734,611 $16,120 $ --
Pan American
Office Building 322,665 162,850 437,217 40,460 --
Honey Baked Ham
in Louisiana -- 150,000 450,000 18,614 --
Capitol Self
Storage 1,204,116 112,838 1,612,270 24,543 --
---------- ---------- ---------- ------- ---------
$1,526,781 $ 484,917 $3,234,098 $99,737 $ --
========== ========== ========== ======= ========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD DEPRECIATION
------------------------------------------------------------- IN LATEST INCOME
BUILDING AND ACCUMULATED DATE OF DATE STATEMENTS IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
----------- ---- ------------ ----- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
McRae Shopping
Center $ 59,229 $ 750,731 $ 809,960 $278,457 1985 1986 31.5 years
Pan American
Office Building 162,850 477,677 640,527 141,276 1984 1987 31.5 years
Honey Baked Ham
in Louisiana 150,000 468,614 618,614 148,943 1978 1988 31.5 years
Capitol Self
Storage 112,838 1,636,813 1,749,651 136,475 1984 1995 39.0 years
---------- ---------- ---------- -------- ---- ---- ----------
$ 484,917 $3,333,835 $3,818,752 $705,151
========== ========== ========== ========
</TABLE>
F-17
<PAGE> 34
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
The following shows the changes in the total amounts at which real estate was
carried during the periods:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 5,854,359
Purchases 21,979
-----------
Balance at December 31, 1996 5,876,338
Purchases 43,116
Cost of real estate sold (2,130,272)
-----------
Balance at December 31, 1997 3,789,182
Purchases 29,570
-----------
Balance at December 31, 1998 $ 3,818,752
===========
</TABLE>
The following shows changes in accumulated depreciation during the
periods:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 1,172,842
Depreciation during the period 153,141
-----------
Balance at December 31, 1996 1,325,983
Depreciation during the period 135,676
Deductions for real estate sold (851,514)
-----------
Balance at December 31, 1997 610,145
Depreciation during the period 95,006
-----------
Balance at December 31, 1998 $ 705,151
===========
</TABLE>
F-18
<PAGE> 35
WHITEHOUSE INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FINAL PERIODIC FACE CARRYING
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES
----------- ---- ---- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commercial loans:
Capital Self
Storage 9% 2006 $ 10,490 -- $ 1,250,000 $ 1,204,115
Pan American
Office Building 9% 2000 2,828 -- 337,035 322,667
</TABLE>
The following shows the changes in the carrying amounts of mortgage loans
during the periods:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 2,536,577
Proceeds from note payable 113,413
Payments of principle (140,069)
-----------
Balance at December 31, 1996 2,509,921
Payments of principal (961,784)
-----------
Balance at December 31, 1997 1,548,137
Payments of principal (21,355)
-----------
Balance at December 31, 1998 $ 1,526,782
===========
</TABLE>
F-19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 500,005
<SECURITIES> 0
<RECEIVABLES> 155,140
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,818,752
<DEPRECIATION> 705,151
<TOTAL-ASSETS> 3,821,400
<CURRENT-LIABILITIES> 0
<BONDS> 1,526,782
0
0
<COMMON> 0
<OTHER-SE> 2,143,050
<TOTAL-LIABILITY-AND-EQUITY> 3,821,400
<SALES> 0
<TOTAL-REVENUES> 596,917
<CGS> 0
<TOTAL-COSTS> 542,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,656
<INCOME-PRETAX> (81,538)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,538)
<EPS-PRIMARY> (6.77)
<EPS-DILUTED> (6.77)
</TABLE>
