UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________to_________
Commission file number: 0-15837
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0202964
--------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100 94402-1708
-------------------------------------- ----------------
San Mateo, California (Zip Code)
(Address of principal executive offices)
Partnership's telephone number, including area code: (415) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
----------------------------------------
(Title of class)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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
----- -----
No market for the Limited Partnership Units exists and therefore
a market value for such Units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE: None
Page 1 of 65
PART I
Item 1. Business
The Partnership, Outlook Income Fund 9, was formed on August 29,
1986 as a limited partnership under the California Revised
Limited Partnership Act. The Partnership's public offering
commenced on January 12, 1987 and concluded on January 11, 1988,
having raised a total of $40,971,400, of which $5,228,800 was
raised from the sale of Participating Notes. These totals
include the proceeds of the private sale of notes to the former
general partner in the amount of $543,500. The Partnership's
operations began on March 5, 1987, the date when impound
requirements were met. The former general partner of the
Partnership was Outlook Financial Partners, a California general
partnership. On May 8, 1992, Glenborough Realty Corporation, as
Managing General Partner, and Robert Batinovich, as co-General
Partner, (collectively "Glenborough" or the "General Partner")
were substituted as the general partners following the May 1,
1992 receipt of consents from limited partners owning a majority
in interest of the outstanding limited partner units. With
limited exceptions, Glenborough has exclusive control over the
business of the Partnership, including the right to manage the
Partnership's assets.
The Partnership's primary business is to invest in and operate
existing income-producing properties (or interests therein),
which are expected to generate cash from rentals in excess of
that required to meet the operating expenses of the respective
properties, as well as the expenses of the Partnership.
The Partnership sold units of limited partnership interest
("Equity Units") and Participating Notes with income deferred
("Notes"). The Notes are nonrecourse, unsecured obligations of
the Partnership. The Notes bear stated interest at the rate of
12% per annum, noncompounded, and all payments of interest will
be deferred until the date of maturity of the Notes (December 31,
1997, or a date not later than December 31, 1998 if the General
Partner extends the maturity date) or the sale or refinancing of
the Partnership's properties. The holders of the Notes are
entitled to receive contingent interest if, after the sale of all
of the Partnership's properties, the Partnership has met certain
earnings tests. In addition to the proceeds from the sale of the
Notes, the Partnership has borrowed funds from both affiliated
and unrelated lenders. The total indebtedness of the
Partnership, including the Notes and accrued interest to the
latest possible maturity date (excluding contingent interest) and
any third-party financing which is secured by liens on the
Partnership's properties, may not exceed 85% of the aggregate
purchase price of properties which have not been refinanced plus
85% of the aggregate fair market value as determined by the
lender as to all properties which have been refinanced, plus
certain reserves.
On June 15, 1993, the Partnership purchased the Participating
Notes ($545,300) and accrued interest thereon ($309,800), held by
Page 2 of 65
the former general partner, for $425,000. The difference between
the carrying value of the liabilities to the former general
partner and the purchase price has been recorded as an
extraordinary gain in the Partnership's 1993 consolidated
statement of operations. The Notes and accrued interest thereon
are being held in trust for the benefit of the Partnership.
In January 1994, the Partnership sent a "Conditional Offer to
Purchase 12% Participating Notes" ("the Offer") to all Note
investors. The Offer was made to Noteholders in an effort to
reduce the impact of the Notes' accrued interest on the value of
the Equity Units. The Offer is contingent upon selling one or
more properties or otherwise obtaining financing to raise the
cash needed to repurchase the Notes at a discount. The Offer
originally expired December 1, 1994, but was extended an
additional 60 days. If the properties are sold, noteholders who
accept the Offer will receive the principal amount of their
original Note without any of the deferred interest accrued to
date. Approximately 46% of the Noteholders have accepted the
offer. Buying back these notes will provide a significant
interest savings to the Partnership, which will benefit the
Equity Unit investors (whose returns are subordinated to the
Noteholders' receiving a return of principal plus 12% simple
deferred interest per annum). On January 31, 1995, subsequent to
the Partnership's year end, approximately $2,159,048 in principal
of the Participating Notes with accrued interest estimating
approximately $1,943,000 was repurchased at a significant
discount by the Partnership with the proceeds from a $2,000,000
short-term loan. The accrued interest on these Notes equates to
the discount, since the noteholders who accepted the offer
receive the principal amount of their original note without any
of the deferred interest accrued to date (see Note 9 of the Notes
to Financial Statements).
The General Partners have filed with the Securities and Exchange
Commission a Registration Statement proposing a consolidation by
merger of several entities, not including the Partnership.
However, the Registration Statement discloses that, if the merger
is completed, the merged entity intends to purchase from the
Partnership the Memphis and Tempe hotel properties for a purchase
price of $8.7 million, subject to the General Partners obtaining
the approval of a majority of the limited partner voting
interests in the Partnership.
Competition
-----------
The Managing General Partner believes that characteristics
influencing the competitiveness of a real estate project are the
geographic location of the property, the professionalism of the
property manager and the maintenance and appearance of the
property, in addition to external factors such as general
economic circumstances, trends, and the existence of new,
competing properties in the vicinity. Additional competitive
factors with respect to commercial and industrial properties are
the ease of access to the property, the adequacy of related
Page 3 of 65
facilities, such as parking, and the ability to provide rent
concessions and additional tenant improvements commensurate with
local market conditions. Such competition may lead to rent
concessions that could adversely affect the Partnership's cash
flow. Although the Managing General Partner believes the
Partnership Properties are competitive with comparable properties
as to those factors within the Partnership's control, continued
over-building and other external factors could adversely affect
the ability of the Partnership to attract and retain tenants.
The marketability of the Properties may also be affected (either
positively or negatively) by these factors as well as by changes
in general or local economic conditions, including prevailing
interest rates. Depending on market and economic conditions, the
Partnership may be required to retain ownership of its Properties
for periods longer than anticipated at acquisition, or may need
to sell earlier than anticipated or restructure a property, at a
time or under terms and conditions that are less advantageous
than would be the case if unfavorable economic or market
conditions did not exist.
Working Capital
---------------
The Partnership's practice is to maintain cash reserves for
normal repairs, replacements, working capital and other
contingencies. The Partnership knows of no statistical
information which allows comparison of its cash reserves to those
of its competitors.
Other Factors
Federal, state and local statutes, ordinances and regulations
which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the
protection of the environment do not presently have a material
effect on the operations of the Properties nor on the capital
expenditures, earnings or competitive position of the
Partnership. Although asbestos was found in the acoustical
ceiling spray in the offices at one of the Partnership's
commercial properties, the level was within complete compliance
with applicable law and management is in the process of removing
it.
The Partnership does not directly employ any individuals. All
regular employees rendering services on behalf of the Partnership
are employees of Glenborough or its affiliates.
The business of the Partnership to date has involved only one
industry segment. The Partnership has no foreign operations and
the business of the Partnership is not seasonal.
Item 2. Properties
At December 31, 1994, the Partnership had interests in the
following properties:
Page 4 of 65
Lake Mead Estates Apartments
----------------------------
On April 30, 1987, the Partnership acquired its first property,
Lake Mead Estates, a 160-unit apartment complex located at 2068
North Nellis Boulevard, Las Vegas, Clark County, Nevada. The
property is situated on one of Las Vegas's major north/south
arteries providing a direct route between the city center and
Nellis Air Force Base, southern Nevada's largest employer. Total
consideration of $5,912,400 was paid in cash.
The property was completed in October 1986 and consists of ten
wood frame and stucco two-story buildings. The property contains
40 one-bedroom, one-bath units of 633 square feet each, and 120
two-bedroom, two-bath units of 919 square feet. Each unit has a
balcony, air conditioning, frost-free refrigerator, and
washer/dryer. Common areas include: a swimming pool and spa,
exercise room, picnic/barbecue area, basketball and volleyball
courts, and a separate children's play area. Each unit is
assigned a carport for parking.
The Clark County economy experienced a slow-down during the early
90's due to the effects of the recession. Lower interest rates
attracted first time home buyers away from apartment renting and
the local defense department has been down-sizing due to cut-
backs. Despite these conditions, occupancy has been maintained
at or near mid-90% since 1991. Management has been able to
increase rental rates without jeopardizing occupancy. According
to telephone research conducted by the property manager for Lake
Mead Estates Apartments, during fiscal year 1994, the average
occupancy in Clark County was 96%, and the average occupancy for
the property's competitive area has been estimated at
approximately 97%. A 1995 forecast indicates a continuance of a
very strong market due to the opening of a new hospital on the
grounds of Nellis Air Force Base which will create an influx of
personnel to the base. In addition, due to many base closures
which resulted in the transfer of military personnel to Nellis
Air Force Base, the need for housing in close proximity should
continue to remain strong through 1995.
The occupancy level at December 31, expressed as a percentage of
the total apartments available for rent and the average rental
rates for the apartments for the last five years were:
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
Occupancy rate 98% 94% 96% 96% 90%
Rental rate:
One bedroom
/one bath units $482 $476 $462 $457 $455
Two bedroom
/two bath units $585 $564 $546 $546 $553
In the opinion of management, the property is adequately covered
by insurance.
Page 5 of 65
In 1994, the annual real estate tax rate was approximately 2.635%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $53,000.
On September 19, 1988, the Partnership obtained a loan from
American National Insurance Company in the original amount of
$4,000,000, secured by a note and first deed of trust secured by
the property. The note requires monthly principal and interest
payments of $34,000 at an annual interest rate of 9.625% and
matures on October 1, 2018. At December 31, 1994, the
outstanding balance of the note was $3,807,372.
Regency Residence Apartments
----------------------------
On September 30, 1987, the Partnership acquired Regency
Residence, an adult congregate living facility for retired
persons, located at 6711 Embassy Boulevard, in Port Richey, a
suburb of Tampa in Pasco County, Florida. The property is
situated one block east of Highway 19, a major north/south artery
to and from the Tampa/St. Petersburg metropolitan area. Total
consideration of $10,280,600 was paid in cash. The total
includes $2,343,000 paid for an income warranty which provided
for a specified minimum quarterly income from the property during
the warranty period which expired September 30, 1991. All
amounts were paid in full as of January 31, 1992. For the year
ended December 31, 1991 the Partnership recorded $873,900 under
the warranty. The cost basis of the property was reduced
accordingly.
The property was completed in April 1987, and consists of one
three-story wood frame, stucco exterior building, containing 136
separate living units and extensive common area facilities,
including a full-service restaurant, barber/beauty salon, chapel,
medical examination room, country store and a reading/music room.
Each apartment contains a full kitchen, wall-to-wall carpeting,
walk-in closet, and air conditioning. Amenities are geared
toward mature residents and include "grab bars" in the bathrooms,
medical alert systems, fire sprinklers and TV-monitored common
areas. The property contains 100 one-bedroom, one-bath units of
approximately 660 square feet each and 36 two-bedroom, two-bath
units of approximately 850 square feet each.
West Pasco County economic growth has been moderately active
since 1991. Management keeps the property's interior and
exterior grounds well maintained, fully equipped with modern
amenities, on-site dining, leisure and medical facilities and the
property is optimally located near the airport, shopping and two
hospitals. However, the success of the property has been only
partly affected by the immediate market conditions and mostly by
its strategic placement within the residential retirement market.
The pro forma tenant mix included a large base of financially
established senior residents in the 65 to 75 age category with a
minimum of needs for living assistance. These original plans had
been undermined by a larger mix of low income, full-care
residents who were mostly need based and in the 74 to 80+ age
category. Management has been repositioning itself within the
Page 6 of 65
market as an "independent living community" by targeting its
original tenant mix through advertisement, new activities and
renovation. In addition, management has been responding to the
needs of the current tenant mix.
During 1993, a total of $142,200 in capital improvements was
invested in renovation activities including interior and exterior
painting, carpet and flooring replacement, and replacement of
soft goods used throughout the facilities. Also, major repairs
were made to the building's roof as a result of 1992 storm
damage. During 1994, the renovation was completed.
The property was 79% occupied at year end 1994 which is below
average occupancies of 90% and 100% quoted by the two main
competitors in the area (according to telephone research
conducted by the Regency Residence property manager). The
property's rates are in line with market rates where competition
quoted rental ranges from $950 to $1,500 for one to two bedroom
units with housekeeping, utilities and one meal per day
(according to telephone research conducted by the property
manager).
Page 7 of 65
The occupancy level at December 31, expressed as a percentage of
the total apartments available for rent, and the average rental
rates for the various sized apartments for the last five years
were:
1994 1993 1992 1991 1990
----- ----- ----- ------ ------
Occupancy rate 79% 86% 82% 83% 75%
Average rental rates:
One bedroom
/one bath
units $1,145 $1,125 $900-1,125 $900-1,475 $1,290
Two bedroom
/two bath
units $1,395 $1,175 $1,000-1,525 $1,200-1,725 $1,540
In the opinion of management, the property is adequately covered
by insurance.
In 1994, the annual real estate tax rate was approximately 2.146%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $88,500. Personal property taxes of
$6,100 were also paid in 1994.
The property is owned by the Partnership in fee, subject to a
note and first deed of trust in the original amount of $2,470,000
payable to GLENFED Service Corporation. In July 1992, the
Partnership negotiated a restructure of the original note. The
new note bears interest at a fixed 9% rate, payable in monthly
principal and interest installments of $29,000 until maturity at
July 1, 1999, when all principal and interest will be due and
payable. The outstanding principal balance of the restructured
note at December 31, 1994, was $3,538,986. The scheduled monthly
payments on this loan have been suspended and replaced with net
cash flow payments in anticipation of the property being given
back to the lender as a deed-in-lieu of foreclosure (as discussed
in Note 3 of the Notes to Financial Statements). The last
scheduled monthly payment made on this note was in November 1994.
In addition, the Partnership recorded a write-down of $835,900 to
reduce the carrying value of the property to the balance of the
note payable and accrued interest at December 31, 1994.
Millwood Estates Apartments
---------------------------
On December 2, 1987, the Partnership acquired the Millwood
Estates Apartments, a 300-unit luxury apartment complex located
at 508 164th St. S. W., Lynnwood, Washington. Lynnwood is
located just north of Seattle in southern Snohomish County with
immediate freeway access to Interstate 5. Total consideration of
$11,591,100 was comprised of a cash investment of $3,591,100 and
an all-inclusive note and first deed of trust to the seller in
the original amount of $8,000,000.
Page 8 of 65
The property was completed in July 1987, and consists of fourteen
two-and-one-half story buildings of wood frame construction with
cedar siding and pitched composition roofs. The design and
layout of the buildings allows for separate adult and family
sections. Landscaped courtyards accommodate two swimming pools,
one indoor and one outdoor, with jacuzzi. Other amenities
include a basketball gymnasium, saunas, suntan beds, sport court
and a fully equipped exercise room.
The 300 units are divided into five different floor plans as
outlined below.
Average
Unit Type Square Footage No. of Units
---------- -------------- ------------
Studio 618 24
1 bedroom/1 bath 720 72
2 bedroom/1 bath 875 78
2 bedroom/2 bath 958 90
3 bedroom/2 bath 1,288 36
-----
300
All units feature patios or balconies and are individually
metered for electricity. Individual unit amenity packages
include outdoor storage, frost-free refrigerator, range with
continuous cleaning oven, dishwasher, garbage disposal, fireplace
and washer and dryer.
The Lynnwood and surrounding areas economies have experienced a
moderate decline during the early 90's with reduced construction
and development and the close of a local aircraft manufacturing
plant. Interest rates decreased which attracted first time home
buyers away from rental housing. Despite these conditions,
management was able to keep turnover to a minimum (experienced
mostly during mid-year) and average occupancy at year end 1993
was near the 1992 year end rate. Several new apartment complexes
were completed in the last three years which offer more
contemporary floor plans and more amenities. However, management
offered superior recreational facilities, community activities,
and an aggressive resident retention program to maintain
occupancy.
During 1993, a total of $53,500 was invested in major
landscaping, electrical re-work and common area walkway re-
coating. In 1994, the landscaping project was completed along
with gutter replacement and a seal coat of the parking lot for
the property. Management plans to maintain the property's
appearance and continue to offer on-site activities and resident
retention programs to maintain occupancy.
According to telephone research conducted by the Millwood Estates
property manager, local competition reported average occupancies
from 85% to 90% with average rental rates of $480 for studios,
$518 for 1 bedroom/1 bath, $596 for 2 bedroom/1 bath, $628 for 2
bedroom/2 bath, and $750 for 3 bedroom/2 bath. The property's
Page 9 of 65
average occupancy rate and rental range was well within the
market average and increased as the market allowed.
The occupancy level at December 31, expressed as a percentage of
the total apartments available for rent, and the average rental
rates for the various sized apartments for the last five years
were:
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
Occupancy rate 92% 92% 96% 93% 94%
Rental rates:
Studio $ 471 $ 466 $ 451 $ 434 $ 424
1 bedroom/1 bath 520 512 496 481 483
2 bedroom/1 bath 608 598 566 554 553
2 bedroom/2 bath 625 621 597 584 570
3 bedroom/2 bath 740-760 748 747 739 732
In the opinion of management, the property is adequately covered
by insurance.
In 1994, the annual real estate tax rate was approximately 1.268%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $182,000. Personal property taxes of
$3,400 were also paid in 1994.
In August 1993, management took advantage of an incentive offered
by the local public utility district to install energy conserving
lighting throughout the property valued at $37,300, discounted at
a cost of $11,800 in the form of an unsecured loan. The new
lighting has reduced the amount of energy required by the
property and, therefore, monthly utility expenses have been
reduced. The unsecured loan in the original amount of $11,800
included a 5% fee, bears an annual interest rate of 3.20% and
requires monthly principal and interest payments of $300 until
the balance is zero. The balance as of December 31, 1994, was
$6,500.
Upon purchase of the property, the Partnership obtained an
existing note and first deed of trust in the amount of
$8,000,000. In June of 1988, the note matured and was replaced
by a new loan in the original amount of $8,000,000, also secured
by a first deed of trust on the property. The replacement note
requires monthly principal and interest payments of $68,000 at a
rate of 9.625% through July 2018, at which time all remaining
principal and interest will be due and payable. The outstanding
principal balance of the note at December 31, 1994 was
$7,593,800.
On March 28, 1995, subsequent to the Partnership's year end, this
property was sold to an unaffiliated third party for a sales
price of $9,724,300 less closing costs in the approximate amount
of $30,000 with an estimated gain on sale of $450,000 (see Note 3
of the Notes to Financial Statements).
Page 10 of 65
Bryant Lake Business Center - Phases I & II
-------------------------------------------
On January 28, 1988, the Partnership acquired a ninety percent
(90%) general partner interest in Bryant Lake Associates, Phases
I and II, A California Limited Partnership (the "Joint Venture"),
in order to acquire Phases I and II of the Bryant Lake Business
Center, a business center located in Eden Prairie, Minnesota.
Total consideration paid by the Partnership, in cash, was
$4,890,000. On November 30, 1990, the Partnership purchased the
10% limited partnership interest for $180,000; $75,000 paid upon
closing and $50,000 and $55,000 paid on January 31, 1991 and
January 31, 1992, respectively. As a consequence of the
purchase, the Joint Venture was dissolved and the assets and
liabilities of the Joint Venture were transferred to the
Partnership.
The property consists of three single-story buildings totalling
80,011 square feet of office/showroom and office/warehouse space
located on approximately 6.375 acres on Valley View Road near the
intersection of Interstate Highway 494 and U.S. Highway 169-212
in Eden Prairie, Minnesota, a southeastern suburb of Minneapolis.
The property was completed in two phases. Phase I, consisting of
two buildings containing 60,757 rentable square feet, was
completed in 1984. Phase II, consisting of one building
containing 19,254 rentable square feet, was completed in 1985.
The buildings each have brick facades with decorative metal
accent features. All buildings have truck loading docks and are
equipped with a fire sprinkler system.
The Twin Cities area and its surrounding suburban economy has
been characterized by diversity, stability and long term growth
trends. Unemployment has been relatively low and industrial
expansion has continued with moderation through the early 90's.
Industrial and office market absorption had softened slightly
since 1990 but tightened in 1992 after a recent wave of build-to-
suit property construction.
The property was 100% leased at year end 1994 with the next lease
expiration occurring in March 1996. The property is in excellent
physical condition and no capital improvements are planned for
1995.
The occupancy level at December 31, expressed as a percentage of
the total net rentable square feet, and the average annual rent
per square foot for the last five years was:
Occupancy Level Average Annual
Year Percentage Rent Per Square Foot
---- -------------- --------------------
1994 100% $6.48
1993 96% 6.67
1992 100% 6.48
1991 95% 6.04
1990 91% 4.61
Page 11 of 65
At December 31, 1994, annual rental rates ranged from $4.40 to
$9.86 per square foot.
Three tenants occupy greater than ten percent of the leasable
space of the property. The principal provisions of their leases
and the nature of the tenants' businesses are:
Data
Collection
Zytec Vicom, Inc. Systems, Inc.
----- ---------- -------------
Nature of business Office/lab Office/ Office/
warehouse warehouse computer
systems
Lease term 13 years 7 years 7 years
Expiration date 9/30/97 12/31/96 3/31/01
Square feet 25,796 13,815 19,300
(% of total) 32% 17% 24%
Annual rent $161,999 $113,877 $91,675
Rent increases CPI Fixed Fixed
Increases Increases
Renewal options 1-3 year None 1-5 year
option option
In the opinion of management, the property is adequately covered
by insurance.
In 1994, the annual real estate tax rate was approximately 6.307%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $184,700.
As part of the 1990 workout of the Bryant Lake Phase III mortgage
(see further discussion which follows), the lender received as
additional security a first lien on the Bryant Lake Phases I and
II property, but at any time, the Partnership may furnish a
letter of credit to the lender, and upon the lender's acceptance
of the letter of credit, the lender will release its first lien
on the Bryant Lake Phases I and II property.
Bryant Lake Business Center - Phase III
---------------------------------------
On January 28, 1988, the Partnership acquired a fifty percent
(50%) general partnership interest in Bryant Lake Associates,
Phase III, a California limited partnership ( the "Joint
Venture"), in order to acquire Phase III of the Bryant Lake
Business Center. Total consideration paid by the Partnership of
$3,251,900 included $826,900 in cash and assumption of 50% of the
existing $4,850,000 commercial development revenue bonds secured
by a first deed of trust. On November 30, 1990, the Partnership
Page 12 of 65
purchased the remaining 50% limited partnership interest. As
consideration for the purchase, the sellers will be entitled to
25% of net cash flow, if any, from operations and ultimate
disposition of the property, as provided in the purchase
agreement. As a consequence of the purchase, the Joint Venture
was dissolved and the assets and liabilities of the Joint Venture
were transferred to the Partnership.
The property consists of three single-story buildings totalling
approximately 91,732 square feet of office/showroom and
office/warehouse space located on approximately 8.038 acres on
Valley View Road near the intersection of Interstate Highway 494
and U.S. Highway 169-212 in Eden Prairie, Minnesota, a
southeastern suburb of Minneapolis.
The buildings, completed in 1986, have brick facades and
decorative metal accent features. All buildings have truck
loading docks and are equipped with fire sprinkler systems.
The property was 96% leased at year end 1994. One tenant
occupying 7,501 square feet has a lease that expires March 1995.
Management is in negotiations to renew, however the space is also
being marketed for lease to eliminate vacant time. The next
lease expires in December 1995 and that tenant occupies 7,356
square feet.
The occupancy level at December 31, expressed as a percentage of
the total net rentable square feet, and the average annual rent
per square foot for the last five years was:
Occupancy Level Average Annual Rent
Year Percentage Per Square Foot
---- ------------- ------------------
1994 96% $6.68
1993 97% 6.35
1992 91% 5.16
1991 82% 6.30
1990 93% 4.84
At December 31, 1994, annual rental rates ranged from $4.00 to
$8.88 per square foot.
Page 13 of 65
Three tenants occupy ten percent or more of the leasable square
footage of the property. The principal provisions of their
leases and the nature of the tenants' businesses are:
Seasonal Keomed,
Specialties Inc. SalesForce
----------- ------- -----------
Nature of business Office Office/ Office/
warehouse warehouse
Lease term 5 years 6 years 6 years
Expiration date 12/31/97 5/31/97 3/31/97
Square feet 13,802 10,083 17,455
(% of total) 15% 11% 19%
Annual rent $64,036 $73,320 $155,040
Rent increases None None after None
June 1994
Renewal options None None None
In the opinion of management, the property is adequately covered
by insurance.
In 1994, the annual real estate tax rate was approximately 6.301%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $216,800.
The Partnership assumed the remaining 50% interest in a non-
recourse mortgage loan in the amount of $4,850,000 from UNUM Life
Insurance Company of America secured by a commercial development
revenue bond issued by the City of Eden Prairie, Minnesota on
October 30, 1985. Effective November 1, 1989, the Joint Venture
discontinued mortgage payments on the bonds payable, due to the
property's operating results not supporting the debt service.
Management negotiated with the lender for more favorable terms
and on August 15, 1990, a workout agreement was signed by the
lender. The original 9.875% interest rate of the loan was
changed to 7.75% per annum for the period October 1, 1989 through
October 31, 1990 and all interest for the same period was accrued
with payment deferred. The aggregate accrued interest amount
bears interest at 8% per annum and the total accrued amount and
interest thereon is due and payable November 1, 2000. Beginning
November 1, 1990, the interest rate increased to 8.652% per
annum, resulting in a monthly interest-only payment of $35,000
through November 1, 2000, at which time the interest rate will
adjust to the then current rate. The maturity date of the loan
remains October 1, 2015. The lender received as additional
security for the loan a first lien on the Bryant Lake Phases I
and II property, but at any time, the Partnership may furnish a
letter of credit to the lender, and upon the lender's acceptance
of the letter of credit, the lender will release its first lien
Page 14 of 65
on the Bryant Lake Phases I and II property. The workout was
fully consummated on November 30, 1990.
Country Suites By Carlson - Memphis
-----------------------------------
On August 1, 1988, the Partnership purchased the Country Suites
By Carlson - Memphis, a 121-suite hotel located at 4300 American
Way in Memphis, Tennessee. Total consideration paid of
$5,502,700 included a cash payment of $4,131,700 and a note in
the original amount of $1,371,000 to which the property is
subject. The Partnership was obligated to pay up to an
additional $1,105,000 for the purchase of the hotel contingent
upon the hotel achieving a specified net operating income for the
year ended December 31, 1991, as outlined in the purchase
agreement. The net operating income was not achieved and no
additional funds were due to the seller.
The seller, an affiliate of whom managed the hotel operations
until 1992, provided the Partnership with an income warranty
assuring a minimum monthly income for a period of three years.
The seller's obligations under the income warranty were satisfied
in full as of December 31, 1991.
Subsequent to acquisition, the Partnership paid the seller
$112,900 to amend the termination provisions of the Management
and Operating Agreement ("Management Agreement"). On January 1,
1992, the Partnership exercised its termination rights and
terminated the Management Agreement with the seller. Per the
terms of the Management Agreement, a contract termination fee was
paid by the Partnership to the seller during 1991. The property
became part of the Country Suites By Carlson franchise and
management of the hotel was assumed by Glenborough Hotel Group,
an affiliate of Glenborough Corporation.
The property is situated on the north side of American Way, west
of the intersection of American Way & Cherry Road, approximately
nine miles east of the Memphis Central Business District and 1-
1/2 miles northeast of Memphis International Airport. The
property was completed in February 1988 and consists of four
three-story buildings containing 121 hotel suites. Each suite is
furnished and features a complete kitchen facility, except the
mini suites, each of which contains a microwave and small
refrigerator. Amenities include a centrally located swimming
pool and spa, guest laundry facilities and conference rooms above
the lobby area. An atrium located at the rear of the
office/registration area, overlooks the courtyard area. An
elevator located adjacent to the courtyard area, services the
three-story hotel.
The Memphis economy has been stable and attracted a wide variety
of leisure markets. During 1993, the hotel underwent significant
improvements including internal and external painting,
landscaping and the installation of a new computer system at a
total cost of $156,300 in order to meet the Country Suites By
Carlson standards. By upgrading the hotel's physical and
Page 15 of 65
aesthetic appeal, management has not only met the Country Suites
By Carlson franchise standards but also improved the potential
average room rates which was apparent during 1994. Proposed
improvements for 1995 include new mattresses, televisions,
carpet, sleeper sofas, HVAC units and general room upgrades in
some of the rooms.
During 1994, the target market was small corporate business,
larger contract accounts and government/military business; each
of which provided a strong base of week-day revenues. In
addition, transient business and discounted leisure groups
provided on-going week-end revenues. Marketing efforts will
continue to focus on new account development within the business
and government sector to build a strong base of week-day clients.
With a strengthening of the local economy, demand for hotel rooms
have continued to outpace supply and, therefore, competing hotels
in the area were able to increase their rate structures during
1994. In addition, the franchise reservation system, which books
the highest rated room rates, has matured and aided the property
in earning a higher average daily room rate.
The 121 suites are summarized as follows:
Sq. Ft. Current Average Room RatesTotal
No. Description Per Ste. Jan-Apr May-Sept Oct-Dec Sq. Ft.
--- -------- -------- ------------------------ --------
59 1 BR 1 BA 400 $ 71.00 $ 81.00 $ 71.00 23,600
6 2 BR 1 BA 415 109.00 115.00 109.00 2,490
55 Studio 280 63.00 69.00 63.00 15,400
1 Exec. Suite 800 115.00 120.00 115.00 800
---- --------
121 42,290
Atrium Lounge and Office 2,240
Laundry and Storage 1,130
Accessory Building 200
Meeting Rooms 800
------
Total Enclosed Area 46,660
======
Note: The above rates are for 1-7 night stays and do not include
any extended stay, corporate or military discounts.
According to telephone research conducted by the Country Suites -
Memphis General Manager, competing hotels in the area quoted
average daily room rates from $55.00 for a weekday stay to
$149.00 for a weekend stay, double occupancy. Rates quoted do
not include extended or commercial stays or senior or military
discounts.
Page 16 of 65
The property's average occupancy level and average daily room
rate for the past five years were:
1994 1993 1992 1991 1990
----- ----- ----- ----- ----
Average occupancy
level 75% 75% 72% 69%
66%
Average daily
room rate $53.21 $49.40 $50.80 $51.75
$47.94
In the opinion of management, the property is adequately covered
by insurance.
In 1994, the annual real estate tax rate was approximately 3.180%
based upon 40% of the assessed market value, resulting in annual
taxes of approximately $101,700. Personal property taxes of
$12,750 were also paid in 1994.
The property is owned by the Partnership in fee, subject to a
note and first deed of trust in the original amount of $1,371,000
payable to GLENFED Service Corporation. In July 1992, the
Partnership negotiated a restructure of the original note. The
new note bears interest at a fixed 9% rate, payable in monthly
principal and interest installments of $29,000 until maturity,
when all principal and interest is due and payable. The
outstanding principal balance of the restructured note at
December 31, 1994, was $3,534,700.
Country Suites By Carlson - Tempe
-----------------------------------
On August 1, 1988, the Partnership acquired an undivided seventy-
five percent (75%) interest as Tenants in Common with Outlook
Income Fund 10, A California Limited Partnership ("OIF 10"), in a
138-suite hotel known as Country Suites By Carlson - Tempe,
located at 1660 East Elliot Road and Harl Avenue, in Tempe,
Arizona. OIF 10 was an affiliate of the Partnership with similar
investment objectives. Total consideration paid by the Tenancy
in Common for the property was $7,786,800, which included a cash
payment of $5,927,800 and a promissory note in the original
amount of $1,859,000, to which the property was subject. The
seller, an affiliate of whom managed the hotel operations until
late 1991, provided the Tenancy in Common with an income warranty
assuring a minimum monthly income. The seller's obligations
under the income warranty were satisfied in full as of December
31, 1990.
On November 4, 1993, the Partnership finalized the purchase of
the minority interest in the consolidated joint venture from OIF
10 and Country Suites By Carlson - Tempe is now 100% owned by the
Partnership. The total purchase price of $1,225,000 included a
cash payment of $950,000 plus the cancellation of the $275,000
note receivable from OIF 10 originally owed to an affiliate of
Page 17 of 65
the former general partner which was purchased by the Partnership
in June 1993.
Subsequent to the original acquisition, the former Tenancy in
Common paid the seller $152,900 to amend the termination
provisions of the Management and Operating Agreement ("Management
Agreement") to allow the former Tenants in Common the opportunity
for an early cancellation, if desired. On December 6, 1991, the
former Tenancy in Common exercised its termination rights and
terminated the Management Agreement with the seller. Per the
terms of the Management Agreement, a contract termination fee was
paid by the former Tenancy in Common to the seller during 1991.
The property became part of the Country Suites By Carlson
Franchise and management of the hotel was assumed by Glenborough
Hotel Group, an affiliate of Glenborough Corporation.
The property contains 2.532 acres of level, irregularly shaped
land, at the intersection of Elliot Road and Harl Road, with
468.94 feet of frontage along Harl Road and 175 feet of frontage
along Elliot Road. It is located one quarter mile east of
Interstate 10, south of Phoenix, in the I-10 Commerce Center.
The property was completed in May 1988 and consists of five
three-story buildings containing 138 hotel suites. Each suite is
furnished and features a complete kitchen facility, except the
studio units, each of which contains a microwave oven and
refrigerator. Amenities include a centrally located swimming
pool and spa; two guest laundry facilities; 1,000 square feet of
meeting rooms and two heated pools including a constant depth
child pool. An atrium located adjacent to the
office/registration area, overlooks the courtyard area.
The 138 suites are summarized as follows:
Sq. Ft. Current Average Room Rates Total
No. Description Per Ste. Jan-Apr May-Sept Oct-Dec Sq. Ft.
--- ------------ -------- ------- -------- ------- -------
57 1 BR 1 BA 400 $ 92.00 $55.00 $ 67.00 22,800
12 King 440 154.00 87.00 108.00 5,280
67 Studio 270 72.00 48.00 61.00 18,090
2 Handicap 400 92.00 49.00 69.00 800
---- -------
138 46,970
Office, Laundry & Storage, Elevator, Meeting Rooms
5,240
-------
Total Enclosed Area 52,210
=======
Note: The above rates are for 1-7 night stays and do not include
any extended stay, corporate or military discounts.
Accoring to telephone research conducted by the Country Suites -
Tempe General Manager, competing properties in the area quoted
average daily room rates from $55.00 for a weekday stay to
Page 18 of 65
$140.00 for a weekend stay, double occupancy. Rates quoted do
not include extended or commercial stays or senior or military
discounts.
The hotel is well located within the high tech, government and
business strip in the fourth largest and most progressive city in
the valley. Although the local economy is fairly strong, low
visibility from the freeway, the state government decision not to
recognize Martin Luther King Day and the effects of the recession
on travel had curbed the hotel's profitability. State government
reversed their decision and in 1993 recognized Martin Luther King
Day as a national holiday. However, the impact of the original
decision may reduce convention bookings in the area for at least
two more years. Furthermore, city government will not approve a
larger sign to improve visibility of the hotel, so management
considers other options to attract "walk-in" business. Despite
these local factors, management used aggressive marketing and a
strong reservations network and the hotel emerged with
significantly improved average occupancy (up 14 basis points)
during the course of the year with a slight increase in average
daily rental rates.
The 1993 targeted markets included tour groups which were pursued
for the first time and resulted in a good portion of revenues.
Management also continued to develop commercial accounts to
provide a base for non-tourist season. The discount segment
constituted the largest base of revenues (though overall average
rates decreased). In 1994, these groups continued to be
targeted. In addition, an account executive has been hired to
focus on direct sales calls to maximize new account development.
Furthermore, the franchise reservation system, which books the
highest rated room rates, has matured and aided the property in
earning a higher average daily room rate.
During 1993, a total of $81,700 was invested in capital
improvements to enhance the interior and exterior buildings
physical appearance and comply with A.D.A. requirements. In
addition, a new computer hardware and software package was
installed to accommodate the industry's most sophisticated
processing capabilities. A total of $111,600 in capital
improvements was paid in 1994 to replace dated soft goods in the
rooms as well as to complete major landscaping, replace
carpeting, flooring and furniture.
The property's average occupancy level and average daily room
rate for the last five years were:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Average occupancy
level 85% 70% 53% 54% 62%
Average daily room
rate $44.60 $43.70 $45.80 $47.63
$46.50
Page 19 of 65
In the opinion of management, the property is adequately covered
by insurance.
In 1994, the annual real estate tax rate was approximately
13.019% based upon 25% of the assessed market value, resulting in
annual taxes of approximately $109,900. Personal property taxes
of $16,000 were also paid in 1994.
The property was owned by the Tenancy in Common in fee, subject
to a note and first deed of trust payable to GLENFED Service
Corporation. The Partnership's share of the obligation of the
original principal amount under the terms of the Note was
$1,394,300 and OIF 10's share of the obligation of the original
principal amount was $464,700, in accordance with their
respective interests in the property. As of June 30, 1992, the
Partnership's aggregate outstanding principal and interest
balance was $2,079,500 and OIF 10's aggregate outstanding
minority share was $693,200.
In July 1992, the Partnership negotiated a restructure of the
original note. GLENFED forgave OIF 10's portion as part of the
restructure and, as a result, the restructured amount is wholly
the obligation of the Partnership, bears interest at a fixed 9%
rate, payable in monthly principal and interest installments of
$22,500 until maturity, when all principal and interest will be
due and payable. The outstanding principal balance of the
restructured note at December 31, 1994, was $2,750,700.
Item 3. Legal Proceedings
The response to this item is incorporated by reference to Note 5
of the Notes to Consolidated Statements contained in Part II,
Item 8.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of fiscal year 1994, no matters were
submitted to a vote of security holders through the solicitation
of proxies or otherwise.
PART II
Item 5. Market for Partnership's Common Equity and Related
Stockholders Matters
Market Information
------------------
The units of limited partnership interest in the Partnership (the
"Units") have limited transferability. There is no public market
for the Units and it is not expected that any will develop.
There are restrictions upon the transferability of Units,
including requirements as to the minimum number of Units which
may be transferred, and that the General Partners must consent to
any transferee becoming a substituted limited partner (which
Page 20 of 65
consent may be granted or withheld at the sole discretion of the
General Partner). In addition, restrictions on transfer may be
imposed under certain state securities laws. Consequently,
holders of Units may not be able to liquidate their investments
and the Units may not be readily acceptable as collateral.
Holders
-------
As of December 31, 1994, 2,172 holders of record held 35,742,572
Equity Units and 738 holders of record held 5,228,811 Notes,
including 543,478 Participating Notes purchased by the
Partnership in June 1993.
Cash Distributions
------------------
The Partnership paid distributions to the Equity Unit investors
at a 9% annualized rate from inception through the quarter ended
December 31, 1988 (except the quarter ended June 30, 1988, which
was 8%), a 6% rate from January 1, 1989 through the quarter ended
December 31, 1989 and a 3% rate for 1990. All such distributions
paid to partners have represented return of capital.
In order to rebuild reserves and provide cash for capital and
leasing expenses, distributions were suspended beginning with the
first quarter of 1991. Management is unable to predict when
distributions will be resumed.
Funds are not expected to become available for distribution to
the owners of the Notes until the properties acquired by the
Partnership are either refinanced or sold and all specified
priority entitlements have been satisfied under the terms of the
Notes. However, the Partnership may prepay principal and the
accrued 12% per annum non-compounded interest at any time. Any
partial prepayments must be made pro rata to Noteholders. At
maturity, December 31, 1997, all remaining principal and
interest, excluding contingent interest, must be paid in full,
unless at the sole discretion of the General Partner, the due
date is extended to a date no later than one year after stated
maturity.
At December 31, 1994, holders of Equity Units had an original
capital balance of $35,742,600 and cumulative priority returns of
approximately $15,991,300. Holders of the Notes had a principal
balance of $5,228,800 (including Participating Notes of $543,500
purchased by the Partnership and held in trust for the benefit of
the Partnership) and accrued interest of approximately $4,582,000
(including accrued interest of $413,000 relating to the
Participating Notes purchased by the Partnership). The capital
accounts of the Equity Unitholders continue to accrue priority
returns at a rate of 9% per annum. The cumulative priority
returns of the Equity Unitholders do not represent obligations of
the Partnership, but only represents amounts which must be paid
before any distributions can be paid to other partners. The
principal balance of the Notes continues to accrue interest at a
Page 21 of 65
rate of 12%. Reference should be made to the Partnership's
partnership agreement for a more complete description of
preferential distributions.
On June 1, 1993, the Partnership purchased a portion of the
original Participating Notes at a discounted rate for a total of
$425,000 which represents a gain of $428,000 (see the
accompanying consolidated statement of operations).
Item 6. Selected Financial Data
The financial data should be read in conjunction with the
financial statements and related notes contained elsewhere in
this report. This financial data is not covered by the reports
of the independent public accountants.
SELECTED FINANCIAL DATA
(In thousands, except per Unit data)
For the year ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Revenue $10,318 $ 9,913 $ 9,642 $ 9,384 $ 8,589
Net loss before
extraordinary
gain (1) $(2,893) $(3,949) $(2,646) $(2,708) $(2,185)
Net loss before
extraordinary
gain per Unit $ (0.08) $ (0.11) $ (0.07) $ (0.08) $ (0.06)
Net loss $(2,893) $(3,521) $(2,646) $(2,708) $(2,185)
Net loss per Unit $ (0.08) $ (0.10) $ (0.07) $ (0.08) $ (0.06)
Distributions per Unit:
From net income $ - $ - $ - $ - $ -
Representing
return of
capital $ - $ - $ - $ 0.01 $ 0.04
Total assets $38,279 $41,761 $45,910 $47,795 $49,695
Secured notes payable$26,078 $27,223 $26,451 $26,740 $26,048
Participating Notes $ 5,229 $ 5,229 $ 5,229 $ 5,229 $ 5,229
(1) Please see discussion regarding the 1993 impairment
writedown included in Note 3 of the Notes to Financial
Statements and discussion regarding the extraordinary gain
included in Note 9 of the Notes to Financial Statements.
Page 22 of 65
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
-------------------------------
Outlook Income Fund 9 was formed to invest in improved, income-
producing real estate with the following objectives: (i)
preserve and protect capital, (ii) provide substantially tax-
sheltered distributions to Equity Unitholders, and (iii) offer
the potential for appreciation in value.
The Partnership's original plan was to pay 9% current
distributions to the Equity Unit investors. The primary source
for these distributions was to be two-fold: First, income
warranties given by sellers to maintain property income at a high
level while the properties were in their start-up phase; and
second, deferred interest debt that allowed the Partnership to
use borrowed money without having to make current loan payments.
Most of the Partnership's debt, including the Notes, was of this
type. Thus, the income warranties subsidized the property
income, and the deferred interest debt allowed cash flow that
would normally have been required for debt service to be used for
distributions. By using these techniques, the Partnership was
able to pay distributions at a high level in the hope that the
actual property cash flow and value of the properties would
increase enough that, (i) when the income warranties and interest
deferrals expired, the property cash flow would be able to make
the new loan payments without reducing distributions, and (ii)
when the property was sold, the value would have increased enough
to absorb the higher mortgage balance without eroding the
original equity. It is now evident that a few properties have
fallen far short of expectations, so it is doubtful that the
original overall plan will be realized in the foreseeable future.
All distributions made by the Partnership to its investors have
represented return of capital.
The Partnership historically paid more in distributions than it
earned, and had depleted its reserves. Additionally, all income
warranties expired prior to December 31, 1991 and in 1992, the
deferred interest debt was restructured and loan payments
commenced (see Note 6 in notes to financial statements). During
1993, the Partnership paid approximately $768,700 in capital
improvements, leasing expenses and loan fees and in 1994,
$577,000 was paid for these costs. In light of these events and
management's intent to rebuild reserves to a level of at least
$2,000,000, the suspension of distributions was essential. At
this time, management is unable to predict when distributions
will resume.
For the year ended December 31, 1994, the Partnership realized
negative cash flow from operations after capital improvements,
leasing commissions and debt service. Regency Residence
contributed the most significant reduction in cash flow for the
Partnership (although the 1994 cash flow deficit was less than
the 1993 cash flow deficit due to less spending on capital
Page 23 of 65
improvements) primarily due to decreased occupancy associated
with increased competition in the area. However, the properties
on a whole performed better in 1994 with higher occupancies
compared to 1993. In addition, less cash was spent on capital
improvements in 1994 due to money spent for renovation in prior
years to upgrade the properties in an effort to reach a level
where only maintenance is necessary as opposed to complete
renovation. The Memphis, Tempe and Regency Residence properties'
renovation that was necessary in prior years is almost fully
complete, as shown by the $104,000 decrease from 1993 to 1994 in
capital improvement expenditures. However, in 1994, the
Partnership had to pay a $250,000 principal paydown on the note
secured by Branford and closing costs in the amount of $166,000
associated with the sale of Branford (as discussed in Note 7 of
the Notes to Financial Statements) which further impacted the
Partnership's 1994 cash flow.
For the year ended December 31, 1993, the Partnership also
realized negative cash flow from operations after capital
improvements, leasing commissions and debt service. Branford
Business Park exhibited the most significant reduction in cash
flow (compared to 1992) primarily due to decreased occupancy
brought on by five tenants experiencing business failure and
vacating during 1993. While the property's cash flow decreased
from 1992 to 1993, total cash flow was positive. Cash flow from
Country Suites By Carlson - Memphis represents another
significant decrease (compared to 1992) primarily as a result of
restructuring the deferred interest debt at a lower interest rate
to include current monthly payments. Also, a total of $156,300
in capital improvements was invested in this property to enhance
the interior, exterior, and grounds to the standards of the new
franchise and improve the image in the market. These
improvements should benefit long term occupancy and average
rental rates. In addition, despite stable occupancy and stable
average rental rates at Regency Residence since 1992, original
pro forma rents have not yet been realized and net income has
not supported the added costs of debt service and capital
improvements. Finally, Bryant Lake Phase III incurred unbudgeted
leasing commissions and tenant improvements totalling $130,300
associated with an unanticipated lease-up. While the operating
cash flows were reduced from 1992 to 1993, the Partnership has
also purchased a portion of the Participating Notes and accrued
interest at a substantial discount and purchased the minority
interest in Country Suites By Carlson - Tempe (see discussions
which follow).
On November 4, 1993, the Partnership finalized the purchase of
the minority interest in the consolidated joint venture from OIF
10 and Country Suites By Carlson - Tempe is now 100% owned by the
Partnership. The total purchase price of $1,225,000 included a
cash payment of $950,000 plus the cancellation of the $275,000
note receivable from OIF 10 originally owed to an affiliate of
the former general partner which was purchased by the Partnership
in June 1993.
Page 24 of 65
On October 29, 1993, the Partnership obtained a loan in the
amount of $950,000 through a note and first deed of trust secured
by Branford Business Park. The note bore interest at a rate of
8%; payable in monthly interest only installments of $6,500 until
maturity on May 5, 1994. The note included an option to extend
the loan term upon written agreement between the Partnership and
the lender, and on April 8, 1994, the Partnership made a
principal paydown in the amount of $250,000 as required by the
lender in order to extend the maturity date of the note to
November 7, 1994 to allow sufficient time to close the sale of
the property. The remaining balance of $700,000 was paid off
with the proceeds from the sale of the property on November 15,
1994 (see Note 7).
In August 1993, management took advantage of an incentive offered
by the local public utility district to install energy conserving
lighting throughout the Millwood Estates Apartments, valued at
$37,300, discounted at a cost of $11,800 in the form of an
unsecured loan. The unsecured loan in the original amount of
$11,800 includes a 5% fee, bears an annual interest rate of 3.20%
and requires monthly principal and interest payments of $300
until the balance is zero. The balance as of December 31, 1994,
was $6,500 represented as an unsecured note payable in the
consolidated balance sheet.
When the Partnership was originally formed, the former general
partner purchased a large block of the Participating Notes issued
by the Partnership. In 1993, the Partnership negotiated a
heavily discounted purchase of those Notes from the former
general partner. On June 15, 1993, the Partnership purchased the
Notes, representing a combined principal and accrued interest of
$853,300, for a price of $425,000. The difference of $428,300
represents an extraordinary gain from the Participating Notes
purchase in the 1993 statement of operations. These Notes
continue to accrue interest thereon and are being held in trust
for the benefit of the Partnership.
Also on June 15, 1993, the Partnership negotiated an agreement
with Glenfed Service Corporation ("Glenfed"), an affiliate of the
former general partner, to purchase the $275,000 unsecured non-
interest bearing note payable due Glenfed from Outlook Income
Fund 10 (the former minority interest in the Country Suites By
Carlson -Tempe joint venture). As discussed above, this note was
later cancelled as part of the Partnership's purchase of the
minority interest in the joint venture.
On May 6, 1993, Glenborough Corporation and certain of its
affiliates entered into a settlement of a lawsuit that had been
brought by the seller on November 13, 1991. The lawsuit alleged
that, in connection with the prior general partner's termination
of the seller as operator and franchisor of the Partnership's
hotels, Glenborough and its affiliates had defamed the seller and
interfered with its contractual relationship with the
Partnership. A majority of the amount paid to the seller under
the settlement was funded by Glenborough's insurance carriers,
but a portion of the settlement amount was funded by Glenborough.
Page 25 of 65
Pursuant to Glenborough's indemnity rights as manager of the
Partnership (and as general partner of other Outlook partnerships
that own hotels), Glenborough was entitled to reimbursement of
this portion of the settlement payment. The Partnership's share
of this reimbursement together with the legal fees associated
with this settlement was $64,900 representing litigation
settlement expenses in the statements of operations.
In December 1993, management determined that the carrying value
of Branford Business Park had been permanently impaired due to
conditions existing in the property's local market. As a result,
the Partnership recorded a write-down of $1,697,400 to reduce the
carrying value of the property. Subsequent to December 31, 1993,
the Partnership became involved in activities related to the sale
of the property. See Note 3 of the Notes to Financial Statements
for a complete discussion.
In January 1994, the Partnership sent a "Conditional Offer to
Purchase 12% Participating Notes" ("the Offer") to all Note
investors. The Offer is being made to Noteholders in an effort
to reduce the impact of the Notes' accrued interest on the value
of the Equity Units. The Offer is contingent upon selling one or
more properties or otherwise obtaining financing to raise the
cash needed to repurchase the Notes at a discount. The Offer
originally expired December 1, 1994 but was extended an
additional 60 days. If the properties are sold, noteholders who
accept the Offer will receive the principal amount of their
original Note without any of the deferred interest accrued to
date. Approximately 46% of the Noteholders have accepted the
offer. Buying back these notes will provide a significant
interest savings to the Partnership, which will benefit the
Equity Unit investors (whose returns are subordinated to the
Noteholders' receiving a return of principal plus 12% simple
deferred interest per annum). On January 31, 1995, subsequent to
the Partnership's year end, approximately $2,159,048 in principal
of the Participating Notes with accrued interest estimating
approximately $1,943,000 was repurchased at a significant
discount by the Partnership with the proceeds from a $2,000,000
short-term loan. The accrued interest on these Notes equates to
the discount, since the noteholders who accepted the offer
receive the principal amount of their original note without any
of the deferred interest accrued to date (see Note 9 of the Notes
to Financial Statements).
In anticipation of the Regency Residence property being given to
the bank by a deed-in-lieu of foreclosure in 1995 as discussed in
Note 11 of the Notes to Financial Statements, the Partnership
recorded a realizable value reserve in the amount of $835,900 at
December 31, 1994. This brought the net book value of the
property down to the amount outstanding (principal and accrued
interest) on the note secured by the property.
On November 15, 1994, the Branford property was sold and the
Partnership financed a $2,000,000 note at 8.5% interest only due
over the next five years until maturity in November, 1999. The
$700,000 note payable secured by this property was paid off using
Page 26 of 65
the cash proceeds from the sale. Prior to the sale, in April
1994, a principal paydown of $250,000 was required by the lender
to extend the maturity date of the note (see Note 7 of the Notes
to Financial Statements).
On March 28, 1995, subsequent to the Partnership's year end,
Millwood Estates Apartments was sold to an unaffiliated third
party (see Note 3 of the Notes to Financial Statements). The
property's book value, gross of accumulated depreciation, is
classified as property held for sale on the Partnership's balance
sheet at December 31, 1994.
The General Partners have filed with the Securities and Exchange
Commission a Registration Statement proposing a consolidation by
merger of several entities, not including the Partnership.
However, the Registration Statement discloses that, if the merger
is completed, the merged entity intends to purchase from the
Partnership the Memphis and Tempe hotel properties for a purchase
price of $8.7 million, subject to the General Partners obtaining
the approval of a majority of the limited partner voting
interests in the Partnership.
Management's ongoing business plan for the Partnership is to
preserve capital and rebuild reserves. As previously discussed,
management has restructured its deferred interest debt which has
lowered interest expense and stabilized payments. By attempting
to build reserves, suspending distributions, and prudent day to
day management of income and expenditures, management is striving
to maintain stable operations and endure the challenge of the
market.
Results of Operations
---------------------
1994 versus 1993
----------------
Rental revenues increased by $269,000, or 3%, in 1994 over 1993
primarily as a result of increased revenue at Country Suites by
Carlson - Tempe, Country Suites by Carlson - Memphis and Lake
Mead, partially offset by decreases in revenue at Branford
Business Park and Regency Residence. The increase in revenues at
the Tempe property was due to an increase in occupancy (85% in
1994 compared to 70% in 1993) and a slightly higher average daily
room rate in 1994 (which is attributable to the franchise
reservation system booking higher rated business). Although the
average occupancy at the Memphis property remained unchanged from
1993 to 1994 at 75%, the benefit of the franchise reservation
system was apparent, shown by the increase in the average daily
room rate from $49.40 in 1993 to $53.21 in 1994. This rate
increase was the reason for the increase in revenue in 1994 over
1993. Both increased occupancy and increased average rent
resulted in increased revenues at Lake Mead. Average occupancy
in the area continues to be high, mostly due to the shortage of
housing on the local Air Force base forcing personnel to seek
off-site housing. Branford Business Park revenues continued to
Page 27 of 65
decrease from 1993 to 1994, until the property was sold on
November 15, 1994, as a result of a 57% occupancy rate at the
time of the sale and rent concessions given in the current year
to attract tenants. Regency Residence revenues decreased in 1994
compared to 1993 as a result of a decrease in occupancy from 86%
in 1993 to 79% in 1994.
Interest and other revenues of $494,000 increased by $136,000 in
1994 over 1993 due primarily to the receipt of a non-refundable
deposit formerly held in escrow in the amount of $100,200
relating to the original plan for the sale of Branford in April
1994 that did not close.
While the 1994 rental revenues increased by 3% over 1993,
operating expenses in 1994 increased by $234,000, or 4%, over
1993, primarily as a result of an increase in variable costs at
the Country Suites by Carlson-Tempe property associated with the
increase in occupancy.
General and administrative expenses decreased by $68,000, or 11%
from $639,000 in 1993 to $571,000 in 1994. The 1993 expenses
included an additional billing by an affiliate for underbilled
1992 general and general and administrative expenses.
Depreciation and amortization decreased by $161,000 from
$2,042,000 in 1993 to $1,881,000 in 1994 as a result of
acquisition items that have been fully depreciated since 1993 at
the Memphis and Tempe properties and the December 1993 write-down
of the carrying value of Branford Business Park.
In anticipation of the Regency Residence property being given to
the bank by a deed-in-lieu of foreclosure in 1995 as discussed in
Note 11 of the Notes to Financial Statements, the Partnership
recorded a provision to reduce the carrying value of real estate
in the amount of $835,900 at December 31, 1994. This brought the
net book value of the property down to the amount outstanding
(principal and accrued interest) on the note secured by the
property.
1993 versus 1992
----------------
As of December 31, 1993, rental revenues increased by $467,400,
or 5%, from $9,087,500 in 1992 to $ 9,554,900 in 1993, primarily
as a result of increased occupancies at Country Suites By Carlson
- Tempe, Bryant Lake Phase III and Regency Residence. Also
contributing to the increased rental revenues are increased
rental rates at Millwood Estates Apartments and Lake Mead Estates
Apartments.
Interest and other revenues decreased by $195,800 from $554,100
as of December 31, 1992 to $358,300 as of December 31, 1993,
primarily as a result of significantly reduced demand for
catering and meeting room services at Country Suites By Carlson -
Memphis and Tempe. These decreased revenues were off-set by
corresponding decreased expenses to provide the services and the
Page 28 of 65
resulting net effect is marginal. The decrease can also be
attributed to lower amounts held in certificates of deposits,
when comparing 1992 to 1993. During 1993, in addition to
negative cash flow from operations after capital improvements,
leasing commissions and debt service, $425,000 in cash was
required to purchase a portion of the Participating Notes (as
previously discussed).
While the December 31, 1993, rental revenues increased by 5%,
operating expenses for the same period increased by a
corresponding 6%, primarily as a result of increased
occupancies.
Throughout 1992, acquisition phase fixed assets at several of the
Partnership's properties became fully depreciated explaining the
decrease in depreciation expense between 1992 and 1993.
Interest expense decreased by $119,600 or 4% from $3,188,400 as
of December 31, 1992, to $3,068,800 as of December 31, 1993,
primarily as a result of restructuring the deferred interest debt
in mid-1992 on the Country Suites By Carlson - Memphis, Country
Suites By Carlson - Tempe and Regency Residence loans. In prior
years, these loans accrued interest at a higher rate and as of
August 1992, the loans bear lower fixed rate interest.
General and administrative expenses decreased by $183,500, or
22%, from $822,300 as of December 31, 1992, to $638,800 as of
December 31, 1993. The 1992 expenses included $99,000 in fees
associated with the restructured debt on the Country Suites By
Carlson - Memphis, Country Suites By Carlson - Tempe and Regency
Residence loans. Also, the 1992 expenses included an additional
$16,500 in proxy costs in order to facilitate the change in the
General Partner. In addition, the 1992 expenses included $38,900
in general partner liability insurance premiums which are no
longer carried since the change in the general partner in 1992.
Finally, the 1992 expenses included a one-time tax preparation
accrual of approximately $15,000. Previously, these costs were
expensed when paid. In 1992, an expense accrual was made for the
1992 taxes to be paid in 1993 in addition to expensing the 1991
costs which were paid in 1992.
Page 29 of 65
Item 8. Financial Statements and Supplementary Data
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
------
Report of Independent Public Accountants . . . . . . . . 31
Financial Statements:
Consolidated Balance Sheets at December 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Operations for the
years ended December 31, 1994, 1993 and 1992 . . . . . 34
Consolidated Statements of Partners' Equity
for the years ended December 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Cash Flows for the
years ended December 31, 1994, 1993 and 1992 . . . . . 37
Notes to Consolidated Financial Statements . . . . . . 40
Financial Statement Schedules:
Schedule III - Consolidated Real Estate Investments and
Related Accumulated Depreciation and
amortization at December 31, 1994 . . . . . . . . . . 57
Financial statement schedules not included have been omitted
because of the absence of conditions under which they are
required or because the information is included elsewhere in this
report.
Page 30 of 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
OUTLOOK INCOME FUND 9, A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of
OUTLOOK INCOME FUND 9, A CALIFORNIA LIMITED PARTNERSHIP as of
December 31, 1994 and 1993, and the related consolidated
statements of operations, partners' equity (deficit) and cash
flows for each of the three years in the period ended December
31, 1994. These consolidated financial statements and the
schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of OUTLOOK INCOME FUND 9, A CALIFORNIA LIMITED
PARTNERSHIP as of December 31, 1994 and 1993, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The
schedule listed in the index to consolidated financial statements
and schedules is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the
basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data
required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
San Francisco, California,
March 28, 1995
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets (in thousands, except Unit amounts)
December 31, 1994 and 1993
Assets 1994 1993
----- -----
Real estate investments, at cost:
Land $ 4,192 $ 8,395
Building and improvements 25,510 42,922
-------- --------
29,702 51,317
Less accumulated depreciation (8,479) (12,456)
-------- --------
Net real estate investments 21,223 38,861
Property held for sale, net 9,282 -
Property held pending foreclosure, net 3,591 -
Cash and cash equivalents 801 1,375
Notes receivable 2,000 -
Accounts receivable, net 87 87
Prepaid expenses and other assets 280 245
Deferred financing costs and other
fees, (net of accumulated
amortization of $1,014
and $876 in 1994 and 1993,
respectively) 1,015 1,193
--------- ---------
Total assets $ 38,279 $ 41,761
========= =========
Liabilities and Partners' Equity (Deficit)
Notes payable - secured $ 26,076 $ 27,223
Participating notes:
Notes issued 5,229 5,229
Accrued interest, thereon 4,582 3,917
Less: Notes held in trust (544) (544)
Accrued interest, thereon (413) (348)
--------- ---------
Net due to outside holders 8,854 8,254
Note payable - unsecured 7 10
Accrued interest payable 785 750
Accounts payable 152 170
Accrued expenses 247 262
Deferred income and security
deposits 134 175
--------- ---------
Total liabilities $ 36,255 $ 36,844
-continued-
Page 32 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets (in thousands, except Unit amounts)
December 31, 1994 and 1993
Assets 1994 1993
----- -----
Partners' equity (deficit):
General Partner $ (407) $ (378)
Limited Partners, 35,742,572
Equity Units outstanding 2,431 5,295
--------- ---------
Total partners' equity 2,024 4,917
--------- ---------
Total liabilities and
partners' equity $ 38,279 $ 41,761
========= =========
The accompanying notes are an integral part of these consolidated
statements.
Page 33 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts)
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Revenues:
Rental $ 9,824 $ 9,555 $ 9,088
Interest and other 494 358 554
------- ------- -------
Total revenues 10,318 9,913 9,642
------- ------- -------
Expenses:
Operating (including $2,618, $2,525
and $2,240 paid to affiliates in
1994, 1993 and 1992, respectively) 6,585 6,351 5,983
General and administrative (including
$468, $497 and $514 paid to affiliates
in 1994 1993, and 1992, respectively) 571 639 822
Depreciation and amortization 1,881 2,042 2,369
Litigation settlement expense - 65 -
Interest (including $476 paid to an
affiliate of the former general
partner in 1992) 3,081 3,068 3,188
Provision to reduce carrying value of
real estate to estimated realizable
value 836 1,697 -
------- ------- -------
Total expenses 12,954 13,862 12,362
------- ------- -------
Other expenses:
Loss on sale (257) - -
------- ------- -------
Loss before minority interest and
extraordinary gain (2,893) (3,949) (2,720)
Minority interest in net earnings of
consolidated joint venture - - 74
Loss before extraordinary gain (2,893) (3,949) (2,646)
Extraordinary gain from Participating
Notes purchased - 428 -
Net loss $(2,893) $(3,521)$(2,646)
======= ======= =======
-continued-
Page 34 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts)
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Net loss before extraordinary gain per
Equity Unit $(0.08) $(0.11) $(0.07)
======= ======= =======
Net loss per Equity Unit $(0.08) $(0.10) $(0.07)
======= ======= =======
Distributions per Equity Unit:
From net income $ - $ - $ -
Representing return of capital - - -
------- ------- -------
Total Distributions per Equity Unit $ - $ - $ -
======= ======= =======
The accompanying notes are an integral part of these consolidated
statements.
Page 35 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
(in thousands)
For the Years Ended December 31, 1994, 1993 and 1992
Total
General Limited Partners'
Partner Partners Equity
Balance at December 31, 1991 $ (317) $ 11,401 $ 11,084
Net loss (26) (2,620) (2,646)
------- ------- -------
Balance at December 31, 1992 (343) 8,781 8,438
Net loss (35) (3,486) (3,521)
------- ------- -------
Balance at December 31, 1993 (378) 5,295 4,917
Net loss (29) (2,864) (2,893)
------- ------- -------
Balance at December 31, 1994 $ (407) $ 2,431 $ 2,024
======= ======= =======
The accompanying notes arean integral part of theseconsolidated statements.
Page 36 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
---- ---- ----
Operating activities:
Net loss $ (2,893) $ (3,521) $(2,646)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary gain from Participating Notes
purchased - (428) -
Provision to reduce carrying value of real
estate to estimated realizable value 836 1,697 -
Depreciation and amortization 1,881 2,042 2,369
Minority interest in net earnings of
consolidated joint venture - - (74)
Loss on sale of property 257 - -
Changes in certain assets and liabilities:
Accounts receivable - 94 519
Prepaid expenses and other assets (47) 83 (21)
Deferred financing and other fees (28) (74) (116)
Accounts payable and accrued expenses (33) 153 (135)
Accrued interest added to secured notes
payable to affiliate - - 423
Accrued interest payable 633 705 657
Deferred income and security deposits (70) (16) (59)
------- ------- ------
Net cash provided by operating activities 536 735 917
------- ------- ------
Cash flows used for investing activities:
Acquisitions of and additions to real estate (496) (661) (585)
Purchase of minority interest in consolidated
joint venture - (950) -
Closing costs on sale of Branford (166) - -
------- ------- ------
Net cash used for investing activities (662) (1,611) (585)
------- ------- ------
Cash flows provided by (used for) financing activities:
Borrowings on secured notes payable - 950 -
Payments on secured notes payable (448) (178) (119)
Borrowings on unsecured note payable - 10 -
Purchase of note receivable - (275) -
Purchase of Participating Note units - (425) -
Distributions to minority interest on
consolidated joint venture - (50) (30)
------- ------- ------
Net cash provided by (used for)
financing activities (448) 32 (149)
------- ------- ------
Page 37 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
---- ---- ----
Net increase (decrease) in cash and
cash equivalents (574) (844) 183
Cash and cash equivalents at beginning
of period 1,375 2,219 2,036
------- ------- ------
Cash and cash equivalents at end of period $ 801 $1,375 $2,219
======= ======= ======
Supplemental disclosure of cash flow information:
Cash paid for interest $2,247 $2,271 $2,108
======= ======= ======
Supplemental disclosure of non-cash transactions:
Restructure of notes payable to affiliates:
Reduction of unsecured notes payable to
affiliates with resulting increase in
secured notes payable to affiliates $ - $ - $2,090
======= ======= ======
Reduction of secured notes payable to
affiliate resulting from forgiveness
of Outlook Income Fund 10's portion
of principal and accrued interest with
corresponding increase in minority
interest $ - $ - $ 693
======= ======= =====
Addition to secured notes payable to
affiliates with resulting increase
in deferred financing fees $ - $ - $ 100
======= ======= =====
Purchase of Participating Notes:
Reduction of accrued interest payable
resulting from purchase of Participating
Notes at discount $ - $ 310 $ -
======= ======= ======
Reduction of Participating Notes
resulting from purchase of Participating
Notes at discount $ - $ 119 $ -
======= ======= ======
Purchase of minority interest in
consolidated joint venture:
Repayment of note receivable by reduction
of cash proceeds for purchase of
minority interest $ - $ 275 $ -
======= ======= ======
-continued-
Page 38 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
---- ---- ----
Reduction of real estate investments
resulting from purchase of minority
interest in joint venture $ - $ 123 $ -
======= ======= ======
Receipt of Notes receivable in sale
of property $ 2,000 $ - $ -
======= ======= ======
Proceeds from sale used to paydown
note payable $ 700 $ - $ -
======= ======= ======
The accompanying notes are an integral part of these consolidated statements.
Page 39 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
--------------------------------------------------
POLICIES
--------
Organization - Outlook Income Fund 9, A California Limited
Partnership, (the "Partnership") was organized on August 29, 1986
in accordance with the provisions of the California Revised
Limited Partnership Act for the purpose of purchasing, holding,
operating, leasing and selling various properties. The
Partnership commenced operations on March 5, 1987. Through a
registered public offering, 60,000,000 units of limited
partnership interest (the "Equity Units") at $1.00 per unit, were
authorized for sale. The sale of Equity Units was concluded on
January 11, 1988, when 35,742,572 Equity Units had been sold.
The Partnership also raised funds by selling $5,228,811 in non-
recourse Participating Notes (the "Notes") (see Note 9). The
former general partner of the Partnership was Outlook Financial
Partners, a California general partnership. On May 8, 1992,
Glenborough Realty Corporation and Robert Batinovich were
substituted for Outlook Financial Partners, as the general
partners (collectively, the "General Partner").
The Partnership Agreement provides for varying allocations of net
income or net loss and distributions (see Note 10).
Reclassifications - Certain items in the 1993 and 1992 financial
statements have been reclassified to conform to the 1994
financial statement presentation.
Consolidation and Joint Venture - A joint venture in which the
Partnership had an interest of greater than 50% has been
consolidated in the accompanying consolidated financial
statements. Transactions and balances between the Partnership
and this joint venture have been eliminated in consolidation.
Real Estate Investments - Real estate investments are stated at
cost, or estimated realizable value, if lower, including
acquisition fees. Estimated net realizable value for financial
reporting purposes is computed yearly by using estimated cash
flows of a property (including costs budgeted for capital
improvements and leasing commissions) and the ultimate disposal
value utilizing capitalization rates based upon the age,
construction and use of the building. The Partnership purchased
certain properties subject to income warranties. The amounts
received under income warranty agreements by the Partnership from
the sellers of the properties have been recorded as a basis
reduction of the properties purchased. Such amounts totaled
$5,826,200 through December 31, 1991.
Depreciation of buildings and their components is computed using
the straight-line method over useful lives ranging from five to
thirty years. Major replacements and improvements are
Page 40 of 65
capitalized, and repairs and maintenance are charged to
operations as incurred.
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
Cash Equivalents - The Partnership considers short-term
investments (including certificates of deposit) with a maturity
of three months or less at the time of purchase to be cash
equivalents.
Deferred Financing and Other Fees - Fees paid to the former
general partner, its affiliates and the brokers in connection
with the issuance of Notes have been capitalized and amortized
using the straight-line method over the term of the related
Notes. Wholesaling and underwriting commissions relating to
Equity Units are charged directly to partners' equity. Other
fees such as loan fees and leasing commissions are amortized
using the straight-line method over the term of the related notes
payable or leases.
Revenues - All leases are classified as operating leases. Rental
income is recognized on the straight-line basis over the terms of
the leases. At December 31, 1994, no tenant's revenues
represented greater than 10% of the Partnership's total revenues.
Net Loss and Distributions Per Equity Unit - Net loss and
distributions per limited partnership unit are based on
35,742,572 weighted average Equity Units outstanding during all
years presented.
Income Taxes - Federal and state income tax laws provide that
income or loss of the Partnership is reportable by the partners
in their tax returns. Accordingly, no provisions for such taxes
have been made in the accompanying consolidated financial
statements. The Partnership reports certain transactions
differently for tax and financial reporting purposes.
Page 41 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
Note 2. TRANSACTIONS WITH AFFILIATES
----------------------------
In accordance with the Limited Partnership Agreement, the
Partnership paid the General Partner and its affiliates
compensation for services provided to the Partnership.
Glenborough Corporation provides property management services and
has been compensated as follows:
1994 1993 1992
--------- --------- ---------
Management fees $ 505,400 $ 487,400 $ 453,400
Property management
salaries (reimbursed) 333,600 335,500 328,000
Hotel salaries
(reimbursed) 1,778,900 1,702,500 1,459,000
The Partnership reimbursed Glenborough Corporation for expenses
incurred for services provided to the Partnership such as
accounting, investor services, data processing, duplicating and
office supplies, legal and administrative services, and the
actual costs of goods and materials used for or by the
Partnership. Glenborough was reimbursed $467,600, $496,600 and
$514,400 for such expenses in 1994, 1993 and 1992, respectively.
As compensation for negotiating the modification of the notes
payable as discussed in Note 6, and in accordance with the
Partnership Agreement, Glenborough was paid a transaction fee of
$99,000 in 1992.
In accordance with the Partnership Agreement, the General Partner
or its affiliates is entitled to property disposition
compensation equal to 3% of the gross sales price of the
property. Glenborough Corporation was paid $80,250 in 1994
associated with the sale of Branford Business Park.
Page 42 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
Note 3. REAL ESTATE INVESTMENTS
-----------------------
The cost and accumulated depreciation and amortization of real
estate investments as of December 31, 1994 are as follows (in
thousands):
Building and
Land Improvements Total
---- ------------ ------
1994:
Lake Mead Estates Apartments $ 772 $ 5,230 $ 6,002
Bryant Lake Business
Center-Phases I & II 945 4,578 5,523
Bryant Lake Business
Center-Phase III 1,004 4,728 5,732
Country Suites By Carlson
- Memphis 542 4,907 5,449
Country Suites By Carlson
- Tempe 929 6,067 6,996
------ ------ ------
4,192 25,510 29,702
Less accumulated
depreciation and
amortization - (8,479) (8,479)
------ ------ ------
$ 4,192 $17,031 $21,223
====== ====== ======
Property held pending
foreclosure:
Regency Residence
Apartments, net 762 2,829 3,591
Property held for sale:
Millwood Estates
Apartments, net 1,859 7,423 9,282
Lake Mead Estates Apartments
----------------------------
On April 30, 1987, the Partnership acquired Lake Mead Estates, an
apartment complex located in Las Vegas, Nevada. The property is
encumbered by an all-inclusive trust deed note in the original
amount of $4,000,000 (see Note 6).
Branford Business Park
----------------------
On June 10, 1987, the Partnership acquired two industrial office
buildings collectively known as Branford Business Park, located
in Arleta, California. The property was encumbered by a first
deed of trust in the original amount of $950,000. On April 8,
1994, the Partnership made a principal payment in the amount of
$250,000 as required by the lender in order to extend the
Page 43 of 65
maturity date from
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
May 5, 1994 to November 7, 1994. The outstanding principal
balance of $700,000 at that time was paid off with the proceeds
from the sale of the property on November 15, 1994.
In March 1993, management listed Branford Business Park for sale
with an asking price approximately equal to the book value of the
property. Management wanted to test the market to determine if
the sale of the property would provide sufficient proceeds to aid
in the possible buyback of more Participating Notes (as discussed
in Note 9). No offers were received in 1993 at the original
asking price. In December 1993, based upon the deterioration of
the local market as seen in the steady decline of occupancy,
market rents and net operating income from 1991, and based on the
unsuccessful attempt at generating interest in the Branford
property at an asking price approximately equivalent to the book
value of the property, management determined that the carrying
value of Branford Business Park had been impaired. As a result,
the Partnership recorded a writedown of $1,697,400 to reduce the
carrying value of the property to its estimated net realizable
value.
On November 15, 1994, Branford Business Park was sold to an
unaffiliated third party for $2,675,000, of which $2,000,000 was
seller financed. The loss on the sale of the property was
$257,000 and is recorded in the Consolidated Statements of
Operations.
Regency Residence Apartments
----------------------------
On September 30, 1987, the Partnership acquired Regency
Residence, a retirement apartment complex located in Port Richey,
Florida. The property is encumbered by an all-inclusive trust
deed note to GLENFED Service Corporation in the original amount
of $2,470,000 which was restructured during 1992 (see Note 6).
The seller gave the Partnership an income warranty which covered
the four-year period following closing. Under the terms of the
income warranty agreement, the Partnership was guaranteed a
specified minimum quarterly income from the property during the
warranty period. The seller's obligations under the income
warranty were satisfied in full as of December 31, 1991. The
cost basis for the property was adjusted accordingly.
Based on the continued low occupancy due to market saturation,
and on the property's inability to meet debt service payments,
management is negotiating a deed-in-lieu of foreclosure with the
lender on the Regency Residence property. The principal balance
of the note secured by the property at December 31, 1994 was
$3,538,986, with a accrued interest in the amount of $53,067.
Page 44 of 65
Title to the property is due to pass to the lender in the first
half of 1995. Meanwhile, the Partnership is currently paying all
net cash flow (defined as all income collected less operating
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
expenses including reserves for real personal property taxes and
insurance) to the lender.
The Partnership recorded a write-down of $835,900 to reduce the
carrying value of the property to the balance of the note payable
and accrued interest at December 31, 1994.
Millwood Estates Apartments
---------------------------
On December 2, 1987, the Partnership acquired Millwood Estates
Apartments, an apartment complex located in Lynnwood, Washington.
The property is encumbered by an all-inclusive trust deed note to
the seller in the original amount of $8,000,000 (see Note 6).
On March 28, 1995, subsequent to the Partnership's year end, the
Partnership sold Millwood Estates Apartments to an unaffiliated
third party for $9,724,300, out of which $7,534,439 was used to
payoff the outstanding note secured by the property. In
addition, sale proceeds were used to payoff the $2,000,000 note
payable used to repurchase Participating Notes (as discussed in
Note 9). After closing costs and the payoff of the two notes,
the Partnership received cash proceeds in the amount of $152,300.
The gain on sale of Millwood is estimated to be $450,000.
Bryant Lake Business Center - Phases I & II
-------------------------------------------
On January 28, 1988, the Partnership purchased a 90% general
partnership interest in Bryant Lake Associates - Phases I & II,
an unaffiliated California Limited Partnership (the "Joint
Venture") which owned Bryant Lake Business Center - Phases I &
II, a business center located in Eden Prairie, Minnesota. Under
the terms of two of the agreements, the Partnership was
guaranteed a minimum monthly gross income from certain spaces for
a 12 and 24 month period from the date of purchase. Under the
terms of the third agreement, the seller guaranteed that all rent
and other amounts due under certain lease agreements would be
paid on a timely basis. The seller's obligations under the
income warranties were satisfied in full as of December 31, 1989.
On November 30, 1990, the Partnership purchased the 10% limited
partnership interest for $180,000; $75,000 paid upon closing and
$50,000 and $55,000 paid on January 31, 1991 and January 31,
1992, respectively. As a consequence of the purchase, the Joint
Venture was dissolved and the assets and liabilities of the Joint
Venture were transferred to the Partnership. Since the seller of
Page 45 of 65
the 10% limited partnership interest had a book value basis in
the Joint Venture which exceeded the consideration paid by the
Partnership, the cost basis of the related land and buildings and
improvements were reduced pro rata upon transfer to the
Partnership.
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
Bryant Lake Business Center - Phase III
---------------------------------------
On January 28, 1988, the Partnership purchased a 50% general
partnership interest in Bryant Lake Associates - Phase III, an
unaffiliated California Limited Partnership, (the "Joint
Venture") which owned Bryant Lake Business Center--Phase III, a
business center located in Eden Prairie, Minnesota, for a
purchase price of $3,225,000. Total consideration of $3,251,900
included a cash investment of $826,900 and the assumption of 50%
of existing $4,850,000 commercial development revenue bonds
secured by a first deed of trust and a security agreement.
On November 30, 1990, the Partnership purchased the remaining 50%
limited partnership interest. As consideration for the purchase,
the sellers will be entitled to 25% of net cash flow from the
operation and ultimate disposition of the property, if any, as
provided in the purchase agreement. As a consequence of the
purchase, the Joint Venture has been dissolved and the assets and
liabilities of the Joint Venture have been transferred to the
Partnership.
Country Suites By Carlson - Memphis
-----------------------------------
On August 1, 1988, the Partnership acquired a 121-unit hotel
known as Country Suites By Carlson - Memphis, located in Memphis,
Tennessee. A promissory note secured by a first deed of trust in
the original amount of $1,371,000, payable to GLENFED Service
Corporation encumbered the property. The original note was
restructured during 1992 (see Note 6).
The seller gave the Partnership an income warranty covering a
period of three years from the date of purchase. Under the terms
of the income warranty agreement, the Partnership was guaranteed
a specified minimum net operating income. The seller pledged
$400,000 of certificates of deposit as collateral for its
obligation under the income warranty. The seller's obligations
under the income warranty were satisfied in full as of December
31, 1991. The cost basis for the property has been adjusted
accordingly.
Country Suites By Carlson - Tempe
---------------------------------
On August 1, 1988, the Partnership purchased an undivided 75%
Page 46 of 65
Tenancy in Common interest in Country Suites By Carlson - Tempe,
a 138-unit hotel located in Tempe, Arizona. The Partnership
originally purchased its 75% interest as part of a joint venture
with Outlook Income Fund 10 ("OIF 10"), A California Limited
Partnership, an affiliated partnership with similar investment
objectives and the same General Partner as the Partnership. The
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
property was encumbered by a promissory note and first deed of
trust in the original amount of $1,859,000 secured by a deed of
trust and assignment of rents and payable to GLENFED Service
Corporation. The note payable was restructured during 1992 (see
Note 6).
On November 4, 1993, the Partnership finalized the purchase of
the minority interest in the consolidated joint venture from OIF
10 and Country Suites By Carlson - Tempe is now 100% owned by the
Partnership. The total purchase price of $1,225,000 included a
cash payment of $950,000 plus the cancellation of the $275,000
note receivable from OIF 10 originally owed to an affiliate of
the former general partner which was purchased by the Partnership
in June 1993.
The seller gave the former joint venture an income warranty which
covered the three-year period commencing August 1, 1988. Under
the terms of the income warranty, the former joint venture was
guaranteed a specified minimum monthly income during the warranty
period. The seller's maximum liability under the income warranty
agreement was satisfied in full as of September 30, 1990.
* * * * *
Page 47 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
The Partnership leases its commercial and industrial property
under noncancellable operating lease agreements. Future minimum
rents to be received under operating leases as of December 31,
1994 are as follows (in thousands):
Year Ending
December 31
-----------
1995 $ 1,097
1996 1,037
1997 620
1998 229
1999 122
Thereafter 287
------
Total $ 3,392
======
Note 4. MANAGEMENT CONTRACT AND TERMINATION FEE
---------------------------------------
In July 1988, the termination provisions of the Management and
Operating Agreement between the Partnership and the former seller
and management company, were renegotiated. The Partnership paid
management contract termination fees for Country Suites By
Carlson - Memphis and Country Suites By Carlson -Tempe of
$112,900 and $152,900, respectively, for early termination rights
under the agreement. Such amounts were capitalized and included
in deferred financing and other fees on the consolidated balance
sheets of the Partnership. On December 6, 1991 and January 1,
1992, the Partnership exercised its termination rights and
terminated the agreements for Country Suites By Carlson - Tempe
and Country Suites By Carlson - Memphis, respectively. As a
result, the unamortized portions of the capitalized amounts have
been written off and are included in depreciation and
amortization expense in the accompanying consolidated statements
of operations.
Additionally, contract termination fees were paid by the
Partnership to the former management company during 1991. The
amounts of the termination fees were determined in accordance
with the Management and Operating Agreement as amended on July
24, 1988 and June 23, 1989. The contract termination fees of
$71,700 and $66,900 for Country Suites By Carlson - Memphis and
Country Suites By Carlson - Tempe, respectively, were included in
contract termination fee expense in the accompanying 1991
consolidated statements of operations.
Note 5. LITIGATION SETTLEMENT EXPENSE
-----------------------------
Page 48 of 65
On May 6, 1993, Glenborough Corporation and certain of its
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
affiliates entered into a settlement of a lawsuit that had been
brought by the seller and former manager of the hotels on
November 13, 1991. The lawsuit alleged that, in connection with
the prior general partner's termination of the seller as operator
and franchisor of the Partnership's hotels, Glenborough and its
affiliates had defamed the seller and interfered with its
contractual relationship with the Partnership. A majority of the
amount paid to the seller under the settlement was funded by
Glenborough's insurance carriers, but a portion of the settlement
amount was funded by Glenborough. Pursuant to Glenborough's
indemnity rights as General Partner of the Partnership (and as
general partner of other Outlook partnerships that own hotels),
Glenborough is entitled to reimbursement of this portion of the
settlement payment. The Partnership's share of this
reimbursement together with the legal fees associated with this
settlement was $64,900.
Note 6. SECURED NOTES PAYABLE
---------------------
A summary of secured notes payable at December 31, 1994 and 1993
follows (in thousands):
1994 1993
---- ----
9.625% note payable related to Lake Mead
Estates Apartments, secured by a first deed
of trust; payable in monthly principal and
interest installments of $34,000 through
October 1, 2018, at which time all remaining
principal and interest will be due and
payable. $ 3,807 $ 3,847
8.0% note payable related to Branford
Business Park, secured by a first deed of
trust; payable in monthly interest only
installments of $6,500 initially through
May 5, 1994, extended to November 7, 1994
and paid off. - 950
9.0% note payable to GLENFED Service
Corporation, related to the Regency
Residence Apartments and secured by a
first deed of trust; payable in monthly
principal and interest installments of
$26,900 through July 1, 1999, at which
time all remaining principal and interest
will be due and payable. 3,539 3,564
Page 49 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
1994 1993
---- ----
9.625% note payable related to Millwood
Estates Apartments, secured by a first deed
of trust; payable in monthly principal and
interest installments of $68,000 through
July 1, 2018, at which time all remaining
principal and interest will be due and
payable. 7,594 7,675
8.652% bonds payable related to Bryant Lake
-Phase III, secured by first deeds of trust
on Bryant Lake-Phase III and Bryant Lake-
Phases I and II; payable in monthly
interest only installments of $35,000
through October 1, 2015, at which time all
remaining principal and interest will be due
and payable. The interest rate adjusts to
market at November 1, 2000. 4,850 4,850
9.0% note payable to GLENFED Service
Corporation, related to the Country Suites
by Carlson - Memphis and secured by a first
deed of trust; payable in monthly principal
and interest installments of $26,800 through
July 1, 1999, at which time all principal
will be due and payable. 3,535 3,563
9.0% note payable to GLENFED Service
Corporation, related to the Country Suites
By Carlson - Tempe and secured by a first
deed of trust; payable in monthly principal
and interest installments of $22,500 through
July 1, 1999, at which time all principal and
interest will be due and payable. 2,751 2,774
------- -------
Total secured notes payable. $ 26,076 $ 27,223
======= =======
Effective July 1, 1992, management negotiated a restructure of
the secured and unsecured notes payable to GLENFED Service
Corporation ("GLENFED"). The restructure forgave Outlook Income
Fund 10's ("OIF 10") portion of the note payable secured by
Country Suites By Carlson -Tempe and accrued interest payable,
all of which totalled $693,200. The Partnership's unsecured note
payable in the amount of $2,090,000, the outstanding balances of
the three secured notes payable (after forgiveness of the OIF10
Page 50 of 65
portion of the Tempe note), and a $99,800 loan fee were included
in the restructure and were allocated among the properties based
on loan to value pro rata
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
shares. The result was an increase in the notes payable secured
by deeds of trust on Country Suites By Carlson - Tempe and
Country Suites By Carlson - Memphis, a decrease in the note
payable secured by a first deed of trust on Regency Residence and
the elimination of the unsecured note payable. The interest on
the remaining debt was reduced from 10.25% to 9.0%. The note
payable related to Country Suites By Carlson - Tempe became
wholly an obligation of the Partnership.
On April 8, 1994, the Partnership made a principal payment in the
amount of $250,000 on the note secured by the Branford property
as required by the lender in order to extend the maturity date
from May 5, 1994 to November 7, 1994. On November 15, 1994,
using the proceeds from the sale of Branford, the remaining note
payable in the amount of $700,000 was paid off.
Principal maturities of these notes payable are as follows (in
thousands): 1995--$217; 1996--$238; 1997--$262; 1998-- $288;
1999--$9,626; thereafter--$15,445.
Note 7. PROPERTY SALE
-------------
In December 1993, based upon the deterioration of the local
market as seen in the steady decline of occupancy, market rents
and net operating income from 1991, and based on the unsuccessful
attempt at generating interest in the Branford property at an
asking price approximately equivalent to the book value of the
property, management determined that the carrying value of
Branford Business Park had been impaired. As a result, the
Partnership recorded a writedown of $1,697,400 to reduce the
carrying value of the property to its estimated net realizable
value.
On November 15, 1994, the Partnership sold Branford Business Park
to an unaffiliated third party for $2,675,000, out of which
$700,000 was used to payoff the outstanding note secured by the
property. The Partnership financed a $2,000,000 note at 8.5%
interest with interest-only payments due until maturity in
November 1999. Since the cash received from the transaction was
used to payoff the note payable, the Partnership was responsible
for paying $166,000 in closing costs. The Partnership incurred a
loss on the sale in the amount of $257,000.
Note 8. TAXABLE INCOME
--------------
Page 51 of 65
The Partnership's tax returns, the qualification of the
Partnership as a partnership for Federal income tax purposes, and
the amount of income or loss are subject to examination by
Federal and state taxing authorities. If such examinations
result in changes to
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
Partnership profits or losses, the tax liability of the partners
could be changed accordingly.
The following is a reconciliation for the years ended December
31, 1994, 1993 and 1992, of the net income for financial
reporting purposes to the taxable income determined in accordance
with accounting practices used in preparation of Federal income
tax returns (in thousands).
1994 1993 1992
---- ---- ----
Net loss per financial
statements $(2,893) $(3,521) $(2,646)
Amortization and depreciation (60) 77 35
Interest income 70 101 33
Guaranteed income - 950 -
Prepaid income - 35 6
Bad debt expense/reserve (4) 26 23
Property tax expense 5 8 8
Interest expense (133) 25 4
Management fee - 100 99
Partnership income adjustment - 75 4
Loss on sale of assets (1,870) - -
Valuation reserve 836 - -
------ ------ ------
Partner's Equity for
Federal income tax purposes $(4,049) $(2,124) $(2,434)
====== ====== ======
Page 52 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
The following is a reconciliation as of December 31, 1994 and
1993 of partners' capital for financial reporting purposes to
partners' equity for Federal income tax purposes (in thousands):
1994 1993
---- ----
Partner's Equity per
financial statements $ 2,024 $ 4,917
Amortization and depreciation (455) (240)
Provision for doubtful accounts 2 4
Interest accrued 509 572
Income from joint ventures - 6,577
Basis adjustments 6,144 1,332
Valuation allowance 836 -
Other 53 -
----- -----
Partner's Equity for
Federal income tax purposes $ 9,113 $13,162
====== ======
Note 9. PARTICIPATING NOTES
-------------------
The Partnership was authorized to offer up to $40,000,000 in
Equity Units and non-recourse unsecured Participating Notes (the
"Notes"). At December 31, 1994 and 1993, the Partnership had
sold $5,228,800 in Notes, of which $543,500 were acquired in 1988
by GLENFED Service Corporation ("Glenfed"). The Notes bear
stated interest at the rate of 12% per annum, non-compounded,
with payment of principal and stated interest deferred until the
earlier of the maturity date of the Notes or the sale or
refinancing of Partnership properties. At December 31, 1994 and
1993, $4,582,000 and $3,917,000 of interest was accrued on the
Notes. The Notes will also receive payments of contingent
interest if, following the sale of all of the Partnership
properties, the Partnership realizes net profits after the
payment of all Partnership obligations and the distribution of
certain base amounts to the Limited Partners. The amount of the
noteholders' contingent interest participation in net profits
varies between 0% and 24%, depending upon the relative amounts
invested in Notes and Equity Units and the total amount of
interest received by Noteholders as defined in the Partnership
Agreement. In no event, however, will the aggregate amount of
all interest, including contingent interest, paid on the Notes
exceed simple interest at the rate of 18% per annum on the
original principal balance of the Notes from date of issuance
until the date that all principal on the Notes is paid in full.
The Partnership may prepay principal and stated interest at any
time. Partial prepayments must be made pro rata to all
Page 53 of 65
noteholders. Upon the sale or refinancing of a Partnership
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
property, the Partnership will pay or prepay some or all of the
principal and interest allocated to that property under the terms
of the Notes. If not previously paid, the Notes mature and all
remaining principal and interest, excluding contingent interest,
must be paid in full on December 31, 1997, unless the General
Partner extends the due date of the Notes, in its sole
discretion, to a date which is not later than December 31, 1998.
The payment of all principal and stated interest does not
extinguish the right to contingent interest which may accrue or
become payable following the sale of all of the Partnership
properties.
On June 15, 1993, the Partnership purchased the Participating
Notes ($545,300) and accrued interest thereon ($309,800), held by
Glenfed, for $425,000. The difference between the carrying value
of the liabilities to Glenfed and the purchase price has been
recorded as an extraordinary gain in the accompanying
consolidated statement of operations. The Notes and accrued
interest thereon are being held in trust for the benefit of the
Partnership.
In January 1994, the Partnership sent a "Conditional Offer to
Purchase 12% Participating Notes" ("the Offer") to all Note
investors. The Offer is being made to Noteholders in an effort
to reduce the impact of the Notes' accrued interest on the value
of the Equity Units. The Offer is contingent upon selling one or
more properties or otherwise obtaining financing to raise the
cash needed to repurchase the Notes at a discount. The Offer
originally expired December 1, 1994 but was extended an
additional 60 days. If the properties are sold, noteholders who
accept the Offer will receive the principal amount of their
original Note without any of the deferred interest accrued to
date. Approximately 46% of the Noteholders have accepted the
offer. Buying back these notes will provide a significant
interest savings to the Partnership, which will benefit the
Equity Unit investors (whose returns are subordinated to the
Noteholders' receiving a return of principal plus 12% simple
deferred interest per annum). On January 31, 1995, subsequent to
the Partnership's year end, approximately $2,159,048 in principal
of the Participating Notes with accrued interest estimating
approximately $1,943,000 was repurchased at a significant
discount by the Partnership with the proceeds from a $2,000,000
short-term loan. The accrued interest on these Notes equates to
the discount, since the noteholders who accepted the offer
receive the principal amount of their original note without any
of the deferred interest accrued to date.
Page 54 of 65
On January 27, 1995, subsequent to the Partnership's year end,
the Partnership borrowed $2,000,000 from an unaffiliated lender
and repurchased the original principal amount of approximately
$2,159,048 in Participating Notes on February 15, 1995. Accrued
interest of approximately $1,943,000 was forgiven, since the
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
noteholders who accepted the offer agreed receive the principal
amount of their original note without any of the accrued deferred
interest. The foregiveness will be recognized as an
extraordinary gain in 1995. The Notes and accrued interest will
be held in trust for the benefit of the Partnership. Since the
Partnership was relying on the proceeds from the sale of a
property to fund the purchase of the Notes, which would not be
available until the sale of Millwood Estates, the Partnership
borrowed the money necessary to facilitate the purchase in order
to meet the deadline required by the offer. The loan requires
interest-only payments at a variable interest rate (currently
11%) and matures June 26, 1995.
Note 10. PARTNERSHIP ALLOCATIONS AND DISTRIBUTIONS
-----------------------------------------
The Partnership Agreement provides generally that losses are
allocated 1% to the General Partner and 99% to the Limited
Partners. Net income will be allocated among the Partners first
to restore negative capital accounts and then in accordance with
their rights to future cash distributions.
The source and amount of all Partnership distributions is
determined by the General Partner at its sole discretion.
Distributions may not be made if the cash reserves of the
Partnership have fallen below 3% of the capital raised from the
sale of Equity Units and Notes.
The Partnership Agreement provides that cash available for
distributions shall be distributed 97% to the Limited Partners
and 3% to the General Partner until the Limited Partners have
received aggregate distributions equal to a cumulative non-
compounded return of 9% on their adjusted capital investment.
Thereafter, distributions from operational cash flow shall be
distributed to the General Partner until the General Partner has
received the full amount of its deferred subordinated partnership
incentive fee as defined in the Partnership Agreement, and
thereafter 10% to the General Partner and 90% to the Limited
Partners.
Distributions of net cash from sources other than operational
cash flow shall be distributed 1% to the General Partner and 99%
to the Limited Partners until the amounts distributed to the
Limited Partners from all sources equal a complete return of
Page 55 of 65
their adjusted capital investment and a 9% per annum cumulative
non-compounded return on their capital investment. Thereafter,
distributions from sources other than operational cash flow shall
be distributed to the General Partner until the General Partner
has received the full amount of its deferred subordinated
partnership incentive fee as defined in the Partnership
Agreement, and thereafter 10% to the General Partner and 90% to a
net profits account. Distributions
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
from the net profits account will be made to the Limited Partners
and Noteholders (see Note 8) based on amounts invested in Equity
Units and Notes pursuant to the Partnership Agreement.
Page 56 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Real Estate Investments and Related Accummulated
Depreciation and Amortization (in thousands)
Schedule III
December 31, 1994
Initial Costs
-------------
Bldgs
Encum- and
Properties brances Land Imprv(1)
---------- -------- ---- ---------
Lake Mead Estates Apartments $ 3,807 775 5,190
Regency Residence Apartments 3,539 1,301 9,030
Millwood Estates Apartments 7,594 1,861 9,979
Bryant Lake Business Cntr-
Phases I & II(2) - 1,036 4,375
Bryant Lake Business Cntr-
Phase III 4,850 1,004 4,414
Country Suites by Carlson:
Memphis 3,535 590 4,913
Tempe 2,751 1,061 6,517
------- ----- -------
$26,076 7,628 44,418
======= ===== =======
Costs Capitalized (Reduced)
Subsequent to Acquisition
-----------------------------
Improvements (1) Carrying Costs
---------------- --------------
Lake Mead Estates Apartments 61 (24)
Regency Residence Apartments 450 (5,181)
Millwood Estates Apartments 137 (15)
Bryant Lake Business Cntr-
Phases I & II(2) 567 (455)
Bryant Lake Business Cntr-
Phase III 314 -
Country Suites by Carlson:
Memphis 396 (449)
Tempe 337 (919
------ ------
2,262 (7,043)
====== ======
Page 57 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Real Estate Investments and Related Accummulated
Depreciation and Amortization (in thousands)
Schedule III
December 31, 1994
Gross Amount at Which
Carried on Books Accumulated
---------------------- Depreciation
Bld & and Amort(1)
Land Imp(1) Total -------------
----- ----- -----
Lake Mead Estates
Apartments 772 5,230 6,002 1,784
Regency Residence
Apartments 762 4,838 5,600 2,009
Millwood Estates
Apartments 1,859 10,104 11,963 2,681
Bryant Lake
Business Cntr-
Phases I & II 945 4,578 5,523 1,593
Bryant Lake
Business Cntr-
Phase III 1,004 4,728 5,732 1,176
Country Suites by
Carlson:
Memphis 542 4,907 4,449 1,893
Tempe 929 6,067 6,996 2,033
------ ------ ------- -----
$ 6,813 40,452 47,265 13,169
====== ====== ======= =====
Page 58 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Real Estate Investments and Related Accummulated
Depreciation and Amortization (in thousands)
Schedule III
December 31, 1994
Date of
------- Depr.
Constn Acqtn Lives
------ ------ ------
Lake Mead Estates
Apartments - 4/87 5-30
Regency Residence
Apartments - 9/87 5-30
Millwood Estates
Apartments - 12/87 5-30
Bryant Lake
Business Cntr-
Phases I & II - 1/88 5-30
Bryant Lake
Business Cntr-
Phase III - 11/90 5-30
Country Suites by
Carlson:
Memphis - 8/88 5-30
Tempe - 8/88 5-30
Following is a summary of real estate investments for the years
ended December 31, 1994, 1993 and 1992:
1994 1993 1992
----------- ------ ------
$51,317 52,476 51,891
Improvements 496 661 585
Net reduction resulting
from minority interest
purchase - (123) -
Property dispositons (3,712) - -
Reduction from write-down (836) (1,697) -
--------- --------- ---------
Balance at end of period $ 47,265 51,317 52,476
========= ========= =========
Page 59 of 65
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Real Estate Investments and Related Accummulated
Depreciation and Amortization (in thousands)
Schedule III
December 31, 1994
Following is a summary of accumulated depreciation and
amortization of real estae investments for the years ended
December 31, 1994, 1993 and 1992:
1994 1993 1992
----------- ------ ------
Balance at beginning of
period $ 12,456 10,647 8,484
Additional charged to
expense 1,666 1,809 2,163
Property dispositions (953) - -
-------- -------- --------
$ 13,169 12,456 10,647
======== ======== ========
(1) Amounts include furniture and equipment.
(2) This lender also holds a lien on the Bryant Lake Phases I and
II property.
(3) Aggregate cost for federal income tax purposes is
$47,4660,000.
Page 60 of 65
Item 9. Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 10. Directors and Executive Officers
General Partners
The Partnership has no directors or executive officers. The
General Partners of the Partnership are Glenborough Realty
Corporation (the "Managing General Partner") and Robert
Batinovich. For informational purposes, the following are the
names and additional information relating to each of the
controlling persons, directors and executive officers of the
Managing General Partner as of March 15, 1995:
Name Age Position
---- --- --------
Robert Batinovich 58 President and Chairman of the
Board
Andrew Batinovich 36 Senior Vice President, Chief
Financial Officer and Director
Sandra L. Boyle 46 Vice President
Barbara L. Evans 54 Vice President, Secretary and
Corporate Counsel
Eugene F. Daly 51 Director
Wallace A. Krone Jr. 63 Director
Laurence N. Walker 62 Director
J. Sydney Whalen 60 Director
The following is a brief description of the background and
experience of Robert Batinovich and each of the officers and
directors of Glenborough Realty Corporation.
Robert Batinovich has been the President and a Director of
Glenborough Corporation since its inception in l978 and of
Glenborough Realty Corporation since its inception in l985. He
has been the Chief Financial Officer ("CFO") of Glenborough
Corporation since April l986 and the CFO of Glenborough Realty
Corporation from April l986 through April l988. He was a member
of the California Public Utilities Commission from l975 to
January l979 and served as its Chairman from January l977 to
January l979. He has extensive real estate investment
experience. Mr. Batinovich's business background includes
managing and owning manufacturing, vending and service companies
and a national bank.
Page 61 of 65
Andrew Batinovich has been Senior Vice President and Chief
Financial Officer of Glenborough Realty Corporation since April
l988. He was Vice President-Property Management of Glenborough
Realty Corporation from April l986 to April l988. He also is
Senior Vice President in charge of property management and
partnership accounting for Glenborough Corporation. Prior to
joining Glenborough Corporation in June l983, he was employed at
Security Pacific National Bank in its international and corporate
banking groups specializing in real estate lending. He is the
son of Robert Batinovich.
Sandra L. Boyle has been Vice President of Glenborough Realty
Corporation since February 1991. She first joined Glenborough
Corporation in 1984 and is responsible for property management,
including maintenance, capital and tenant improvements, rent
collection, budgeting and supervision of regional offices. Prior
to joining Glenborough Corporation, she was a residential real
estate marketing representative for Great Western Realtors.
Barbara L. Evans has been Secretary of Glenborough Realty
Corporation since April 1986 and Vice President since February
1991. She joined Glenborough Corporation in l985 and serves as
Counsel and Secretary. She was admitted as an attorney in the
State of California in l983. Prior to attending law school and
on a part-time basis during law school, Ms. Evans was a co-owner
of TES Associates, a property management and real estate
investment advisor.
Eugene F. Daly was elected a Director of Glenborough Realty
Corporation in August 1989. He is President of Daly
International Financial and Insurance Services. Mr. Daly is a
Registered Principal with the National Association of Securities
Dealers (NASD) and his firm Daly International Financial and
Insurance Services is a Registered Investment Advisor with the
Securities and Exchange Commission.
Wallace A. Krone, Jr. was elected a Director of Glenborough
Realty Corporation in August 1989. He has been associated with
Glenborough for approximately 15 years as an investor in
Glenborough sponsored partnerships. For the past twenty-seven
years, he has been self-employed owning various restaurants in
the San Francisco Bay Area. Currently Mr. Krone owns a number of
Burger King restaurants in the same area.
Laurence N. Walker was a Director of Glenborough Corporation from
October l984 to November l985 and served as Treasurer from
January l985 to November l985. He has been a Director of
Glenborough Realty Corporation since its inception in l985. He
is an attorney specializing in real estate law.
J. Sydney Whalen was elected a Director of Glenborough Realty
Corporation in April l988. He is a Canadian Chartered Accountant
and since l983 has been president of Whalen & Associates, a
management consulting firm specializing in executive management
and chief financial officer services to companies experiencing
operating or financial difficulties. In 1993, Mr. Whalen was a
Page 62 of 65
co-founder and became President of Round Hill Securities, Inc., a
securities broker/dealer. From l975 to l982, he was Vice
President-Finance and Administration of Raymond Kaiser Engineers,
Inc.
Item 11. Executive Compensation
The Partnership has no executive officers. For information
relating to fees, compensation, reimbursements and distributions
paid to related parties, reference is made to Item 13 below.
Item 12. Security Ownership of Certain Owners and Management
To the best knowledge of the Partnership, no person owned of
record or beneficially more than five percent (5%) of the
outstanding Units at December 31, 1994.
The Partnership, as an entity, does not have any directors or
officers. At December 31, 1994, no Units were owned of record or
beneficially by any officers or directors of the General Partner.
Item 13. Certain Relationships and Related Transactions
(a) AFC, an affiliate of the former general partner, had
made loans to the Partnership to fund working capital and
investment needs. Until July 1, 1992, the notes payable bore
interest at a rate of prime (6% at December 31, 1993) plus 1-1/2%
and were due on demand. The unpaid aggregate principal balance
of the notes was $2,090,000 at June 30, 1992. Effective July 1,
1992, the note was added to the principal balances of the
restructured notes as discussed below.
Additionally, the Partnership is indebted to GLENFED Service
Corporation, a California corporation and a wholly owned
subsidiary of Glendale Federal Savings and Loan Association and
parent-company of August Financial Corporation, for three
deferred interest loans secured by first deeds of trust on three
of the Partnership's properties as follows:
Original December 31, 1994
Principal Principal
Balance Balance
---------- ------------
Note payable related to the:
Regency Residence Apartments $ 2,470,000 $ 3,539,000
Country Suites By Carlson-Memphis 1,371,000 3,534,700
Country Suites By Carlson-Tempe 1,859,000 2,750,700
---------- ----------
$ 5,700,000 $ 9,824,400
========== ==========
The secured notes bear interest at 9% compounded monthly with
equal monthly payments of principal and interest commencing on
August 1, 1992 in an amount necessary to fully amortize the
Page 63 of 65
principal and accrued interest over a 30-year period, with the
entire unpaid principal and interest due and payable on July 1,
1999. In 1994, the Partnership paid $888,000 for interest on
these notes.
(b) An affiliate of the General Partner earned compensation
for specific services provided to the Partnership. The
Partnership reimbursed Glenborough Corporation for expenses
incurred for services provided to the Partnership such as
accounting, investor services, data processing, duplicating and
office supplies, legal and administrative services, and the
actual costs of goods and materials used for or by the
Partnership. Glenborough was reimbursed $467,600, $496,600 and
$514,400 for such expenses in 1994, 1993 and 1992, respectively.
In accordance with the Limited Partnership Agreement, the
Partnership paid the General Partner and its affiliates
compensation for services provided to the Partnership.
Glenborough Corporation provides property management services and
has been compensated as follows:
1994 1993 1992
-------- -------- --------
Management fees $ 505,400 $ 487,400 $ 453,400
Property management
salaries
(reimbursed) 333,600 335,500 328,000
Hotel salaries
(reimbursed) 1,778,900 1,702,500 1,459,000
As compensation for negotiating the modification of the notes
payable as discussed in Note 3, and in accordance with the
Partnership Agreement, Glenborough was paid a transaction fee of
$99,000 in 1992.
In accordance with the Partnership Agreement, Glenborough
Corporation was paid $80,250 in 1994 as a 3% property disposition
compensation associated with the sale of Branford Business Park
(as discussed in Note 7).
(c) None of the members of the General Partner were indebted
to the Partnership during this fiscal year.
(d) Compensation received by the General Partner and
affiliates is disclosed under Item 11.
Page 64 of 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Robert Batinovich By: Glenborough Realty Corporation,
-------------------------- a California corporation,
Robert Batinovich the Managing General Partner
General Partner
Date: September 19, 1995 By: /s/ Robert Batinovich
---------------------------
Robert Batinovich
President and
Chairman of the Board
Date: September 19, 1995
---------------------
By: /s/ Andrew Batinovich
----------------------------
Andrew Batinovich
Senior Vice President,
Chief Financial Officer
and Director
Date: September 19, 1995
---------------------
By: /s/ Eugene F. Daly
----------------------------
Eugene F. Daly
Director
Date: September 19, 1995
---------------------
By: /s/ J. Sydney Whalen
------------------------------
J. Sydney Whalen
Director
Date: September 19, 1995
----------------------
(A Majority of the Board of Directors of the General Partner)
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 1015
<PP&E> 47265
<DEPRECIATION> (13168)
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0
0
<OTHER-SE> 2024
<TOTAL-LIABILITY-AND-EQUITY> 38279
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