UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the year ended December 31, 1995
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 53
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 53
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 was 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. Buying back these notes provides a significant
interest savings to the Partnership, which benefits the Equity
Unit investors (whose returns are subordinated to the
Noteholders' receiving a return of principal plus 12% simple
deferred interest per annum).
Approximately 45% of the Noteholders accepted the offer and the
repurchase occurred in March 1995. The repurchase totalled
$2,102,000 in original Note principal. The related accrued
interest on these Notes was $1,915,000, which was not paid and
represented the discount the Partnership received in the buyback.
The Partnership used the proceeds from a $2,000,000 short-term
loan to fund the repurchase (further discussion follows). The
forgiveness was recognized as an extraordinary gain on the
Partnership's 1995 statement of operations. The Notes and accrued
interest will be held in trust for the benefit of the
Partnership.
On June 9, 1995, in accordance with the Participating Notes
Indenture and as a result of the sale of Millwood Estates, the
Partnership retired $637,000 in notes and $592,000 in related
accrued interest. Of this amount, the Partnership paid $609,000
($314,000 of Participating Notes principal and accrued interest
of $295,000) to outside Noteholders, the remainder represented a
retirement of notes held in trust for the Partnership.
In June 1995, the Partnership sent a second "Conditional Offer to
Purchase 12% Participating Notes" (the "second Offer") to the
remaining Noteholders. The second Offer is for the repurchase of
the Notes for a price equal to 135% of the Noteholders original
investment (i.e. the purchase price for each Note will be $1.35
compared to an approximate current Note and accrued interest
value of $1.95). The second Offer expired October 31, 1995, but
the Partnership extended the expiration to December 31, 1995. As
of February 1996, 177 Noteholders accepted the offer. The result
will be $1,104,000 in notes which will be bought at a purchase
price of $1,491,000 in 1996. Through March 27, 1996, the
partnership repurchased $863,000 in notes for a purchase price of
$1,166,000. The Partnership borrowed an additional $1,100,000 on
the $2,000,000 line of credit with an unaffiliated lender to fund
the repurchase.
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.
Page 3 of 53
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 interest
in the Partnership. At December 31, 1995, this process has been
delayed.
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
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
Page 4 of 53
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. There can be no assurance that such regulations will not
change or have some material effect on the partnerships in the
future.
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, 1995, the Partnership had interests in the
following properties:
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 was maintained at or
near mid-90% through 1994. In 1995, Nellis Air Force Base
completed renovation on its base housing. Occupancy began to
drop as military personnel returned to base housing or received
military orders to be stationed overseas. At December 31, 1995
the occupancy was 88%. According to research conducted by the
Partnership's property manager, during 1995, the average
apartment complex occupancy in Clark County was 94%, and the
average apartment complex occupancy for the property's
competitive area was estimated at approximately 95%. Subsequent
to the Partnership's year end, the occupancy has risen to 96%.
Page 5 of 53
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:
1995 1994 1993 1992 1991
Occupancy rate 88% 98% 94% 96% 96%
Rental rate:
One bedroom
/one bath units $503 $482 $476 $462 $457
Two bedroom
/two bath units $612 $585 $564 $546 $546
In the opinion of management, the property is adequately covered
by insurance.
In 1995, the annual real estate tax rate was approximately 2.60%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $54,000.
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, 1995, the
outstanding balance of the note was $3,764,000.
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
Page 6 of 53
accent features. All buildings have truck loading docks and are
equipped with a fire sprinkler system.
According to research conducted by the Partnership's property
manager, 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 1995 with a major tenant
lease expiration occurring in December 1996. Management is in
negotiations to renew, however the space will also be marketed
for lease if necessary. The property is in excellent physical
condition and no capital improvements are planned for 1996.
The occupancy level at December 31, expressed as a percentage of
the total net rentable square feet, and the average annual
effective rent per square foot for the last five years were:
Occupancy Level Average Annual Effective
Year Percentage Rent Per Square Foot
1995 100% $6.81
1994 100% 6.48
1993 96% 6.67
1992 100% 6.48
1991 95% 6.04
At December 31, 1995, annual effective rental rates ranged from
$4.40 to $11.33 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 effective rent $161,999 $113,877 $91,675
Rent increases CPI Fixed Fixed
Increases Increases
Page 7 of 53
Renewal options 1-3 year None 1-5 year
option option
In the opinion of management, the property is adequately covered
by insurance.
In 1995, the annual real estate tax rate was approximately 6.31%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $186,000.
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 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. Through December 31, 1995,
no net cash flow payments have been due or payable to the seller.
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 occupancy level at December 31, expressed as a percentage of
the total net rentable square feet, and the average annual
effective rent per square foot for the last five years were:
Occupancy Level Average Annual Effective Rent
Year Percentage Per Square Foot
Page 8 of 53
1995 100% $7.16
1994 96% 6.68
1993 97% 6.35
1992 91% 5.16
1991 82% 6.30
At December 31, 1995, annual effective rental rates ranged from
$5.20 to $8.88 per square foot.
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 8 years 6 years 6 years
Expiration date 12/31/00 5/31/97 3/31/97
Square feet 13,802 10,083 17,455
(% of total) 15% 11% 19%
Annual effective 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 1995, the annual real estate tax rate was approximately 6.35%
based upon 100% of the assessed market value, resulting in annual
taxes of approximately $218,000.
The Partnership obtained a loan in the original amount of
$4.850,000 secured by first deeds of trust on the Bryant Lake
Phase III and Bryant Lake Phases I and II properties. The note
requires monthly interest-only payment of $35,000 through
November 1, 2000.
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.
Page 9 of 53
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.
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 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. In 1995, improvements included
new mattresses, televisions, carpet, sleeper sofas, HVAC units
and general room upgrades in some of the rooms. Similar
improvements are proposed for 1996 in order to stay competitive
with new hotels in the area.
The target market is small corporate business, larger contract
accounts and government/military business; each of which provides
a strong base of week-day revenues. In addition, transient
business and discounted leisure groups provide 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. The franchise
reservation system, which books the highest rated room rates, has
matured and helps to aid the property in earning a higher average
daily room rate. With a strengthening of the local economy,
including the addition of nearby gaming hotels and boats, the
supply has now outpaced the demand for hotel rooms and occupancy
has begun to drop.
The 121 suites are summarized as follows:
Sq. Ft. Total
No. Description Per Ste. Sq. Ft.
17 Twins 367 6,239
42 1 Bedroom 367 15,414
6 Kings 367 2,202
56 Studio 248 13,888
121 37,743
Atrium lounge and office 2,429
Laundry and storage 1,515
Meeting rooms 1,300
Total enclosed area 42,987
Page 10 of 53
The property's average occupancy level and average daily room
rate for the past five years were:
1995 1994 1993 1992
1991
Average occupancy
level 72% 75% 75% 72% 69%
Average daily
room rate $52.68 $53.21 $49.40 $50.80
$51.75
The above rates are for 1-7 night stays and include any extended
stay, corporate or military discounts.
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, according to research conducted by Partnership's
General Manager. Rates quoted include extended or commercial
stays or senior or military discounts.
In the opinion of management, the property is adequately covered
by insurance.
In 1995, the annual real estate tax rate was approximately 3.16%
based upon 40% of the assessed market value, resulting in annual
taxes of approximately $175,000.
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 the note
matures in July 1999, when all principal and interest is due and
payable. The outstanding principal balance of the restructured
note at December 31, 1995, was $3,504,000.
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.
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 has since then been 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
Page 11 of 53
$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 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 hotel is well located within the high tech, government and
business strip in the fourth largest and most progressive city in
the valley (according to research conducted by the property's
General Manager). Although the local economy is fairly strong,
low visibility from the freeway and the effects of the recession
on travel had curbed the hotel's profitability. Furthermore,
city government will not approve a larger sign to improve
visibility of the hotel, so management is considering other
options to attract "walk-in" business. Despite these local
factors, management used aggressive marketing and a strong
reservations network which resulted in an improvement in average
occupancy and room rates during the course of the year.
The target markets included tour groups which resulted in a good
portion of revenues. Management also continued to develop
commercial accounts to provide a base for non-tourist season. 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 helps to aid the property in earning
a higher average daily room rate. The discount segment
constituted the largest base of revenues.
During 1993, a total of $81,700 was invested in capital
improvements to enhance the interior and exterior building's
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. In 1995, $155,000 was spent
on improvements necessary to upgrade some of the rooms and
$103,000 is budgeted for similar improvements in 1996.
The 139 suites are summarized as follows:
Page 12 of 53
Sq. Ft. Total
No. Description Per Ste. Sq. Ft.
29 Queens 361 10,469
24 1 Bedroom 361 8,664
13 Kings 418 5,434
71 Studio 196 13,916
2 Handicap 361 722
139 39,205
Office, laundry and storage,
Elevator, meeting rooms 5,240
Total enclosed area 44,445
The property's average occupancy level and average daily room
rate for the last five years were:
1995 1994 1993 1992 1991
Average occupancy
level 87% 85% 70% 53% 54%
Average daily room
rate $49.82 $44.60 $43.70 $45.80
$47.63
The above rates are for 1-7 night stays and include any extended
stay, corporate or military discounts.
Competing hotels in the area quoted average daily room rates from
$55.00 for a weekday stay to $140.00 for a weekend stay, double
occupancy, according to research conducted by the Partnership's
General Manager. Rates quoted include extended or commercial
stays or senior or military discounts.
In the opinion of management, the property is adequately covered
by insurance.
In 1995, the annual real estate tax rate was approximately 14.95%
based upon 25% of the assessed market value, resulting in annual
taxes of approximately $107,000.
The Partnership owns the property subject to a note and first
deed payable to GLENFED Service Corporation. The note bears
interest at a fixed 9% rate, payable in monthly principal and
interest installments of $22,500 until the note matures in July
1999, when all principal and interest will be due and payable.
The outstanding principal balance of the note at December 31,
1995, was $2,727,000.
Item 3. Legal Proceedings
The response to this item is incorporated by reference to Note 4
of the Notes to Consolidated Statements contained in Part II,
Item 8.
Item 4. Submission of Matters to a Vote of Security Holders
Page 13 of 53
During the fourth quarter of fiscal year 1995, no matters were
submitted to a vote of security holders through the solicitation
of proxies or otherwise.
Page 14 of 53
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
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, 1995, 2,573 holders of record held 35,742,572
Equity Units and 409 holders of record held 4,591,000 Notes,
including 2,329,000 Participating Notes purchased by the
Partnership.
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, 1995, holders of Equity Units had an original
capital balance of $35,742,600 and cumulative priority returns of
Page 15 of 53
approximately $19,208,100. Holders of the Notes had a principal
balance of $4,591,800 (including Participating Notes of
$2,329,000 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 $2,297,000 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 rate of 12%. Reference should be made to the
Partnership's partnership agreement for a more complete
description of preferential distributions.
In January, 1995 and June, 1993, the Partnership purchased a
portion of the original Participating Notes at a discounted rate
for a total of $2,109,000 and $425,000, respectively, which
resulted in a gain of $1,915,000 and $428,000, respectively (see
the accompanying consolidated statements of operations).
Item 6. Selected Financial Data
The following is selected data for the five years ended December
31, 1995 (in thousands, except per Unit 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.
1995 1994 1993 1992 1991
Revenue $8,202 $10,061 $ 9,913 $ 9,642 $ 9,384
Net loss before
extraordinary
gain (1) $(1,134)$(2,893) $(3,949)$(2,646)$
(2,708)
Net loss before
extraordinary
gain per Unit $(0.03) $ (0.08) $ (0.11)$ (0.07)$
(0.08)
Net income (loss) $ 969 $(2,893) $(3,521)$(2,646)$
(2,708)
Net income (loss)
per Unit $ 0.03 $ (0.08) $ (0.10)$ (0.07)$
(0.08)
Distributions per Unit:
From net income $ --- $ --- $ --- $ --- $ ---
Representing return
of capital $ --- $ --- $ --- $ --- $ 0.01
Page 16 of 53
Total assets $24,047 $38,279 $41,761 $45,910 $47,795
Secured notes
payable $15,345 $26,076 $27,223 $26,451 $26,740
Participating Notes $4,591 $ 5,229 $ 5,229 $ 5,229 $ 5,229
(1) Please see the 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 7 of the Notes to Financial
Statements.
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 the original overall
plan will not be realized. 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 5 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. The
Partnership's December 31, 1995 cash balance was $591,000. For
the year ended December 31, 1995, the Partnership realized
Page 17 of 53
positive cash flows from operations after capital improvements,
leasing commissions and debt service.
At this time, management is unable to predict when distributions
will resume.
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.
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.
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
represented 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.
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 3).
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.
Page 18 of 53
In January 1994, the Partnership sent a "Conditional Offer to
Purchase 12% Participating Notes" ("the Offer") to all Note
investors. The Offer was 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 was 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. Approximately 45% of the Noteholders
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).
In anticipation of the Regency Residence property being assigned
to the bank by a deed-in-lieu of foreclosure in 1995 as discussed
in Note 3 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 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 on
November 11, 1999. Since the cash received from the transaction
was used to payoff the outstanding note, 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.
On March 28, 1995, the Partnership sold Millwood Estates
Apartments to an unaffiliated third party for $10,400,000, out of
which $7,572,400 was used to payoff the outstanding note secured
by the property. In addition, sales proceeds were used to payoff
the $2,000,000 note payable used to repurchase Participating
Notes (as discussed in Note 9). The Partnership recognized a
gain on sale on its 1995 Statement of Operations in the amount of
$154,000. In anticipation of the sale of the property,
management reclassified the net book value of Millwood Estates
Apartments to "Property held for sale" on the Partnership's
December 31, 1994 balance sheet.
The General Partners 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 interest
in the Partnership. As of December 31, 1995, this process has
been delayed.
In the fourth quarter of 1995, the Partnership adopted Statement
of Financial Accounting Standards No. 121 (SFAS 121) "Accounting
Page 19 of 53
for Impairment of Long-Lived Assets and Long-Lived Asset to be
Disposed of". There was no impact on the financial position or
results of operations of the Partnership from the initial
adoption of SFAS 121.
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
1995 versus 1994
Rental revenues in 1995 decreased $2,214,000 or 23% compared to
1994 primarily as a result of the disposition of the Millwood and
Regency Residence properties which accounted for a decrease of
$1,369,000 and $911,000, respectively.
Interest and other revenues of $438,000 decreased by $56,000 in
1995 compared to 1994 due to lower prevailing interest rates and
average invested cash balances during 1995.
1995 operating expenses decreased by $1,402,000 or 21% compared
to 1994 primarily as a result of the disposition of the Millwood
and Regency Residence properties which accounted for a decrease
of $665,000 and $845,000, respectively.
The 1995 decrease in depreciation and amortization of $345,000 or
18% from 1994 is a result of the decrease in depreciable assets
resulting from the disposition of the Millwood and Regency
Residence properties.
The decrease in interest expense of $1,021,000 or 33% from 1995
to 1994 is a result of the disposition of the Millwood and
Regency Residence properties and their related notes payable
which accounted for a $554,000 and $214,000 decrease,
respectively. In addition, $170,000 of the decrease relates to
the combination of the repurchase and the paydown of the
Participating Notes by the Partnership.
As discussed in Note 3 of the Notes to Financial Statements, the
sale of Millwood Estates resulted in a gain of $154,000 and is
included on the Partnership's 1995 statement of operations.
As discussed in Note 3 of the Notes to Financial Statements, the
Regency Residence deed-in-lieu of foreclosure resulted in a gain
of $188,000 and is included on the Partnership's 1995 statement
of operations.
As discussed in Note 7 of the Notes to Financial Statements, the
repurchase of Participating Notes and the forgiveness of the
related accrued interest resulted in a gain of $1,915,000 and is
included on the Partnership's 1995 statement of operations.
Page 20 of 53
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
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.
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 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 assigned
to the bank by a deed-in-lieu of foreclosure in 1995 as discussed
in Note 3 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.
Page 21 of 53
Page 22 of 53
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 . . . . . . . . 24
Financial Statements:
Consolidated Balance Sheets at December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993 . . . . . 26
Consolidated Statements of Partners' Equity
for the years ended December 31, 1995, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 . . . . . 28
Notes to Consolidated Financial Statements . . . . . . 30
Financial Statement Schedules:
Schedule III - Consolidated Real Estate Investments and
Related Accumulated Depreciation and
amortization at December 31, 1995 . . . . . . . . . . 45
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 23 of 53
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1995, 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 schedule is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not a required
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 27, 1996
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets (in thousands, except Unit amounts)
December 31, 1995 and 1994
Assets 1995 1994
Real estate investments, at cost:
Land $ 4,192 $ 4,192
Building and improvements 25,903 25,510
30,095 29,702
Less accumulated depreciation (9,543) (8,479)
Net real estate investments 20,552 21,223
Property held for sale, net --- 9,282
Property held pending foreclosure, net --- 3,591
Cash and cash equivalents 591 801
Notes receivable 2,000 2,000
Accounts receivable, net 177 87
Prepaid expenses and other assets 159 280
Deferred financing costs and other
fees, (net of accumulated
amortization of $1,225 and $1,014
in 1995 and 1994, respectively) 568 1,015
Total assets $ 24,047 $ 38,279
Liabilities and Partners' Equity (Deficit)
Notes payable - secured $ 15,345 $ 26,076
Participating notes:
Notes issued 4,591 5,229
Accrued interest, thereon 4,582 4,582
Less: Notes held in trust (2,329) (544)
Accrued interest, thereon (2,297) (413)
Net due to outside holders 4,547 8,854
Note payable - unsecured --- 7
Accrued interest payable 719 785
Accounts payable --- 152
Accrued expenses 380 247
Deferred income and security deposits 63 134
Total liabilities 21,054 36,255
Partners' equity (deficit):
General Partner (397) (407)
Limited Partners, 35,742,572
Equity Units outstanding 3,390 2,431
Total partners' equity 2,993 2,024
Total liabilities and
partners' equity $ 24,047 $ 38,279
The accompanying notes are an integral part
of these consolidated financial statements.
Page 25 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts)
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Revenues:
Rental $ 7,610 $ 9,824 $ 9,555
Interest and other 438 494 358
Gain (loss) on sale of asset 154 (257) ---
Total revenues 8,202 10,061 9,913
Expenses:
Operating (including $1,798, $2,618
and $2,525 paid to affiliates for the
years ended December 31, 1995, 1994
and 1993, respectively) 5,183 6,585 6,351
General and administrative (including
$458, $468 and $497 paid to affiliates
in 1995, 1994, and 1993, respectively) 557 571 639
Depreciation and amortization 1,536 1,881 2,042
Interest 2,060 3,081 3,068
Litigation expense --- --- 65
Provision to reduce carrying value of
real estate to estimated realizable
value --- 836 1,697
Total expenses 9,336 12,954 13,862
Loss before extraordinary items (1,134) (2,893) (3,949)
Extraordinary items:
Gain on debt forgiveness 188 --- ---
Gain from Participating Notes purchased 1,915 --- 428
Total extraordinary items 2,103 --- 428
Net income (loss) $ 969 $(2,893)$(3,521)
Net income (loss) per Equity Unit $ 0.03 $ (0.08)$ (0.10)
Distributions per Equity Unit $ --- $ --- $ ---
The accompanying notes are an integral part
of these consolidated financial statements.
Page 26 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
(in thousands)
For the Years Ended December 31, 1995, 1994 and 1993
Total
General Limited Partners'
Partner Partners Equity
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
Net income 10 959 969
Balance at December 31, 1995 $ (397) $ 3,390 $ 2,993
The accompanying notes are an integral part
of these consolidated financial statements.
Page 27 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows provided by operating activities:
Net income (loss) $ 969 $ (2,893) $(3,521)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary gain from Participating Notes
purchased --- --- (428)
Provision for impairment 836 1,697
Depreciation and amortization 1,536 1,881 2,042
Loss on sale of property 257 ---
Gain on sale of asset (154) --- ---
Gain on debt forgiveness (188) --- ---
Gain from Participating Notes purchased (1,915) --- ---
Changes in certain assets and liabilities
Accounts receivable (90) --- 94
Prepaid expenses and other assets 89 (47) 83
Deferred financing and other fees (121) (28) (74)
Accounts payable (155) (33) 153
Accrued expenses 268 --- ---
Accrued interest payable 358 633 705
Deferred income and security deposits (11) (70) (16)
Net cash provided by (used for)
operating activities 586 536 735
Cash flows used for investing activities:
Acquisitions of and additions to real estate (439) (496) (661)
Proceeds for the sale of Millwood 9,557 --- ---
Purchase of minority interest in consolidated
joint venture (950)
Closing costs on sale of Branford --- (166) ---
Net cash used for investing activities 9,118 (662) (1,611)
Cash flows provided by (used for) financing activities:
Borrowings on secured notes payable --- --- 950
Notes payable principal payments (7,689) (448) (178)
Repayment of unsecured note payable (2,007) --- ---
Borrowings on unsecured notes payable 2,500 --- 10
Purchase of notes receivable --- --- (275)
Payment of Participating Notes and accrued
interest from Millwood sale (609) --- ---
Buy-back of Participating Note units-discounted (2,109) --- (425)
Distributions of minority interest on consolidated
joint venture --- --- (50)
Net cash used for financing activities (9,914) (448) 32
(Continued)
Page 28 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands) - continued
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Net decrease in cash and cash equivalents (210) (574) (844)
Cash and cash equivalents at beginning of period 801 1,375 2,219
Cash and cash equivalents at end of period $ 591 $ 801 $1,375
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,026 $2,247 $2,271
Supplemental disclosure of non-cash transactions:
Reduction of accrued interest payable resulting
from purchase of Participating Notes at
discount $ 1,915 $ --- $---
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
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 financial statements.
Page 29 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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 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.
Pervasiveness of Estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported results of operations
during the reporting period. Actual results could differ from
those estimates.
New Accounting Pronouncement - In March, 1995, the Financial
accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The Partnership adopted SFAS 121 in the fourth
quarter of fiscal 1995. SFAS 121 requires that an evaluation of
Page 30 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
an individual property for possible impairment must be performed
whenever events or changes in circumstances indicate that an
impairment may have occurred. There was no impact from the
initial adoption of SFAS 121.
Rental Property to be Held and Used - Rental properties are
stated at cost and include the related land unless events or
circumstances indicate that cost cannot be recovered in which
case carrying value is reduced to estimated fair value.
Estimated fair value: (i) is based upon the Partnership's plans
for the continued operation of each property; (ii) is computed
using estimated sales price, as determined by prevailing market
values for comparable properties and/or the use of capitalization
rates multiplied by annualized rental income based upon the age,
construction and use of the building, and (iii) does not purport,
for a specific property, to represent the current sales price
that the Partnership could obtain from third parties for such
property. The fulfillment of the Partnership's plans related to
each of its properties is dependent upon, among other things, the
presence of economic conditions which will enable the Partnership
to continue to hold and operate the properties prior to their
eventual sale. Due to uncertainties inherent in the valuation
process and in the economy, it is reasonably possible that the
actual results of operating and disposing of the Partnership's
properties could be materially different than current
expectations.
Depreciation is provided using the straight line method over the
useful lives of the respective assets (see Note 3).
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
capitalized, and repairs and maintenance are charged to
operations as incurred.
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
Page 31 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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, 1995, 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.
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:
1995 1994 1993
Property management fees $ 157,200 $ 235,900 $ 235,700
Property salaries
(reimbursed) 177,400 333,600 335,500
Hotel management fees 234,500 269,500 251,700
Hotel salaries
(reimbursed) 1,228,700 1,778,900 1,702,500
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 $458,400, $467,600 and
$496,600 for such expenses in 1995, 1994 and 1993, respectively.
In accordance with the Partnership Agreement, the General Partner
or its affiliates are entitled to property disposition
compensation equal to 3% of the gross sales price of the
property. Glenborough Corporation was paid $312,000 in 1995 and
$80,250 in 1994 associated with the sale of Millwood Estates and
Branford Business Park, respectively.
Page 32 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Page 33 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Note 3. REAL ESTATE INVESTMENTS
The cost and accumulated depreciation and amortization of real
estate investments as of December 31, 1995 and 1994 are as
follows (in thousands):
Building and
Land Improvements Total
1995:
Lake Mead Estates
Apartments $ 772 $ 5,230 $ 6,002
Bryant Lake Business
Center-Phases I & II 945 4,587 5,532
Bryant Lake Business
Center-Phase III 1,004 4,792 5,796
Country Suites By Carlson
- Memphis 542 5,071 5,613
Country Suites By Carlson
- Tempe 929 6,223 7,152
4,192 25,903 30,095
Less accumulated
depreciation and
amortization --- (9,543) (9,543)
$ 4,192 $16,360 $20,552
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
Page 34 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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 5).
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
maturity date from 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, 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 on
November 11, 1999. Since the cash received from the transaction
was used to payoff the outstanding note, 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.
Regency Residence Apartments
Page 35 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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 negotiated a deed-in-lieu of foreclosure with the
lender on the Regency Residence property. The partnership paid
all net cash flow (defined as all income collected less operating
expenses) to the lender from November 1994 until title to the
property passed on May 26, 1995. The principal balance of the
note secured by the property on May 26, 1995 was $3,538,986, with
a accrued interest in the amount of $98,700.
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.
The Partnership recognized a gain on deed-in-lieu of foreclosure
in the amount of $188,000 primarily due to the write-off of
accrued property taxes that the property was unable to pay. The
gain is included on the Partnership's 1995 statement of
operations.
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 5).
On March 28, 1995, the Partnership sold Millwood Estates
Apartments to an unaffiliated third party for $10,400,000, out of
which $7,572,400 was used to payoff the outstanding note secured
by the property. In addition, sales proceeds were used to payoff
the $2,000,000 note payable used to repurchase Participating
Notes (as discussed in Note 9). The Partnership recognized a
gain on sale on its 1995 Statement of Operations in the amount of
$154,000. In anticipation of the sale of the property,
management reclassified the net book value of Millwood Estates
Page 36 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Apartments to "Property held for sale" on the Partnership's
December 31, 1994 balance sheet.
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
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.
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. Through December 31, 1995,
Page 37 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
no net cash flow payments have been due or payable to the seller.
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.
Page 38 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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 5).
Country Suites By Carlson - Tempe
On August 1, 1988, the Partnership purchased an undivided 75%
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
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 5).
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 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,
1995 are as follows:
1996 $ 1,224,000
1997 817,000
1998 538,000
1999 305,000
2000 299,000
Thereafter 35,000
Total $ 3,218,000
Page 39 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Note 4. LITIGATION SETTLEMENT EXPENSE
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 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 5. NOTES PAYABLE
A summary of notes payable at December 31, 1995 and 1994 follows
(in thousands):
1995 1994
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. $ 3,764 $ 3,807
10.75% note payable, secured by the
assignment of a $2,000,000 note and
deed of trust on 12970-12990
Branford, payable in monthly
interest only installments of Prime
plus 2% through May 28, 1996, at
which time all remaining principal
and interest will be due and
payable. 500 ---
Page 40 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
1995 1994
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
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
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. 3,504 3,535
9.0% note payable to GLENFED
Service Corporation, related to the
Country Suites By Carlson - Tempe
Page 41 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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
1995 1994
all principal and interest will be
due and payable. 2,727 2,751
Total notes payable. $ 15,345 $ 26,076
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:
1996 $ 607,000
1997 118,000
1998 129,000
1999 6,099,000
2000 70,000
Thereafter 8,322,000
Total $15,345,000
Note 6. TAXABLE INCOME
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 Partnership profits or losses, the tax
liability of the partners could be changed accordingly.
Page 42 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
The following is a reconciliation for the years ended December
31, 1995, 1994 and 1993, 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).
1995 1994 1993
Net loss per financial
statements $ 969 $(2,893) $(3,521)
Amortization and depreciation 20 (60) 77
Interest income --- 70 101
Gain from note repurchase (241)
Guaranteed income --- --- 950
Prepaid income --- --- 35
Bad debt expense/reserve 3 (4) 26
Property tax expense 7 5 8
Interest expense (60) (133) 25
Management fee --- --- 100
Partnership income adjustment --- --- 75
Loss on sale of assets (3,837) (1,870) ---
Valuation reserve --- 836 ---
Net loss for Federal
income tax purposes $ (3,139) $ (4,049) $ (2,124)
The following is a reconciliation as of December 31, 1995 and
1994 of partners' capital for financial reporting purposes to
partners' equity for Federal income tax purposes (in thousands):
1995 1994
Partner's Equity per
financial statements $ 2,993 $ 2,024
Amortization and depreciation 887 (455)
Provision for doubtful accounts 5 2
Interest accrued 211 509
Income from joint ventures --- ---
Basis adjustments 1,801 6,144
Valuation allowance --- 836
Other 76 53
Partner's Equity for
Federal income tax purposes $ 5,973 $ 9,113
Note 7. PARTICIPATING NOTES
The Partnership was authorized to offer up to $40,000,000 in
Equity Units and non-recourse unsecured Participating Notes (the
"Notes"). 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
Page 43 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Notes or the sale or refinancing of Partnership properties. At
both December 31, 1995 and 1994, $4,582,000 of interest was
accrued on the Notes. The Noteholders 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
noteholders. Upon the sale or refinancing of a Partnership
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
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 was 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. Buying back these notes provides a significant
interest savings to the Partnership, which benefits the Equity
Unit investors (whose returns are subordinated to the
Noteholders' receiving a return of principal plus 12% simple
deferred interest per annum).
Page 44 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Approximately 45% of the Noteholders accepted the offer and the
repurchase occurred in March 1995. The repurchase totalled
$2,102,000 in original Note principal. The related accrued
interest on these Notes was $1,915,000, which was not paid and
represented the discount the Partnership received in the buyback.
The Partnership used the proceeds from a $2,000,000 short-term
loan to fund the repurchase (further discussion follows). The
forgiveness was recognized as an extraordinary gain on the
Partnership's 1995 statement of operations. The Notes and accrued
interest will be held in trust for the benefit of the
Partnership.
On January 27, 1995, the Partnership borrowed $2,000,000 from an
unaffiliated lender to facilitate the repurchase of Notes as
discussed above. 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 (11% at March 28, 1995) and matures June
26, 1995. However, the loan was paid off on March 28, 1995 with
a portion of the proceeds from the sale of Millwood Estates
Apartments (discussed in Note 4).
On June 9, 1995, in accordance with the Participating Notes
Indenture and as a result of the sale of Millwood Estates, the
Partnership retired $637,000 in notes and $592,000 in related
accrued interest. Of this amount, the Partnership paid $609,000
($314,000 of Participating Notes principal and accrued interest
of $295,000) to outside Noteholders, the remainder represented a
retirement of notes held in trust for the Partnership.
In June 1995, the Partnership sent a second "Conditional Offer to
Purchase 12% Participating Notes" (the "second Offer") to the
remaining Noteholders. The second Offer is for the repurchase of
the Notes for a price equal to 135% of the Noteholders original
investment (i.e. the purchase price for each Note will be $1.35
compared to an approximate current Note and accrued interest
value of $1.95). The second Offer expired October 31, 1995, but
the Partnership extended the expiration to December 31, 1995. As
of February 1996, 177 Noteholders accepted the offer. The result
will be $1,104,000 in notes which will be bought at a purchase
price of $1,491,000 in 1996. Through March 27, 1996, the
partnership repurchased $863,000 in notes for a purchase price of
$1,166,000. The Partnership borrowed an additional $1,100,000 on
the $2,000,000 line of credit with an unaffiliated lender to fund
the repurchase.
Page 45 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Note 8. 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
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 from the net profits account
will be made to the Limited Partners and Noteholders (see Note 6)
based on amounts invested in Equity Units and Notes pursuant to
the Partnership Agreement.
Page 46 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Schedule III insert
Page 47 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
Page 48 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
PART III
Item 10. Directors and Executive Officers of the Registrant.
General Partners
The Partnership has no directors or executive officers. The
general partners of the Partnership are Glenborough Corporation
("GC", the "Managing General Partner", formerly known as
Glenborough Realty Corporation) and Robert Batinovich.
Robert Batinovich was the President, Chief Executive Officer and
Chairman of Glenborough Corporation from its inception in 1987
until his resignation effective January 10, 1996. On August 31,
1994, Mr. Batinovich was elected Chairman, President and Chief
Executive Officer of Glenborough Realty Trust Incorporated
("GRT"), a newly created Real Estate Investment Trust, which
began trading on the New York Stock Exchange on January 31, 1996.
He was a member of the Public Utilities Commission from 1975 to
January 1979 and served as it President from January 1977 to
January 1979. He is a member of the Board of Directors of Farr
Company, a publicly held company that manufactures industrial
filters. 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.
For informational purposes, the following are the names and a
brief description of the background and experience of each of the
controlling persons, directors and executive officers of the
Managing General Partner as of March 1, 1996:
Name Age Position
Andrew Batinovich 37 Chief Executive Officer and
Chairman of the Board
Robert E. Bailey 34 Secretary and Corporate Counsel
Sandra L. Boyle 47 President and
Chief Operating Officer
June Gardner 44 Director
Terri Garnick 35 Chief Financial Officer
Judy Henrich 50 Vice President
Wallace A. Krone Jr. 64 Director
Page 49 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Andrew Batinovich was elected Chairman of the Board and Chief
Executive Officer of GC on January 10, 1996. He has been
employed by GC since 1983, and had functioned since 1987 as Chief
Operating Officer and Chief Financial Officer. Mr. Batinovich
also serves as Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director of GRT. He holds a
California real estate broker's license and is a Member of the
National Advisory Council of BOMA International. He received his
B.A. in International Finance from the American University of
Paris. Prior to joining Glenborough, Mr. Batinovich was a
lending officer with the International Banking Group and the
Corporate Real Estate Division of Security Pacific National Bank.
Robert E. Bailey joined GC in 1989 as Associate Counsel and was
elected Secretary of GC on May 15, 1995. He is responsible for
all landlord/tenant documentation, tenant litigation, corporate
and partnership matters and employment matters. In 1984, he
received his Bachelor of Arts degree from the University of
California at Santa Barbara and his Juris Doctor degree from
Vermont Law School in 1987. From 1987 to 1989, Mr. Bailey was an
associate with the law firm of Pedder, Stover, Hesseltine &
Walker, where he specialized in business litigation. He is a
member of the State Bar of California.
Sandra L. Boyle has been associated with GC or its associated
entities since 1984 and has served as President and Chief
Operating Officer of GC since January 10, 1996. She was
originally responsible for residential marketing, and her
responsibilities were gradually expanded to include residential
leasing and management in 1985, and commercial leasing and
management in 1987. She was elected Vice President in 1989, and
continues to supervise marketing, leasing, property management
operations and regional offices. Ms. Boyle also serves as a
Senior Vice President of GRT. Ms. Boyle holds a California real
estate broker's license and a CPM designation, and is a member of
the National Advisory Council and Finance Committee of BOMA
International; and Board of Directors of BOMA San Francisco and
BOMA California.
June Gardner was elected a director of GC on January 10, 1996.
She was associated with GC from 1984 through 1995, as Senior Vice
President, Corporate Controller with responsibilities in the
areas of corporate financial planning, reporting, accounting and
banking relationships. Before joining GC, Ms. Gardner was
Assistant Vice President of JMB Realty Corporation from 1977 to
1984, with responsibilities in the areas of financial management
and reporting.
Terri Garnick has served as Chief Financial Officer of GC since
Page 50 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
January 10, 1996. She is also Senior Vice President, Chief
Accounting Officer and Treasurer of GRT. Ms. Garnick is
responsible for property management accounting, financial
statements, audits, Securities and Exchange Commission reporting,
and tax returns. Prior to joining GBC in 1989, Ms. Garnick was a
controller at August Financial Corporation from 1986 to 1989 and
was a Senior Accountant at Deloitte, Haskins and Sells from 1983
to 1986. She is a Certified Public Accountant and has a Bachelor
of Science degree from San Diego State University.
Judy Henrich is a Vice President of GC, effective January 10,
1996 and is responsible for the coordination of all due broker-
dealer and investor communications for partnerships managed by
GC. Prior to joining GC, Ms. Henrich, was associated with Rancon
Financial Corporation from 1981 through early 1995, as Senior
Vice President since 1985, with responsibilities similar to those
at GC. Ms. Henrich also served as Executive Vice President of
Rancon Securities Corporation from 1988 to 1991, and thereafter
as its Chief Executive Officer. Prior to joining Rancon, Ms.
Henrich was manager of public relations and advertising for
Kaiser Development Company, a diversified real estate holding
company.
Wallace A. Krone has been an entrepreneur in the restaurant
business since 1965, and owns a number of Burger King restaurants
in the San Francisco area. Mr. Krone has been associated with GC
since 1982 as an investor in one or more partnerships, and has
been a member of the board of directors of GC since 1989.
Page 51 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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, 1995.
The Partnership, as an entity, does not have any directors or
officers. At December 31, 1995, 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, 1995
Principal Principal
Balance Balance
Note payable related to the:
Regency Resident Apartments $ 2,470,000 $ ---
Country Suites By Carlson-Memphis 1,371,000 3,504,000
Country Suites By Carlson-Tempe 1,859,000 2,727,000
$ 5,700,000 $ 6,231,000
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
principal and accrued interest over a 30-year period, with the
entire unpaid principal and interest due and payable on July 1,
1999. In 1995, the Partnership paid $625,000 for interest on
Page 52 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
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 $458,400, $467,600 and
$496,600 for such expenses in 1995, 1994 and 1993, 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:
1995 1994 1993
Management fees $ 391,700 $ 505,400 $ 487,400
Property management
salaries (reimbursed) 177,400 333,600 335,500
Hotel salaries (reimbursed) 1,228,700 1,778,900 1,702,500
In accordance with the Partnership Agreement, Glenborough
Corporation was paid $312,000 in 1995 and $80,250 in 1994 as a 3%
property disposition compensation associated with the sales of
Millwood Estates and Branford Business Park, respectively (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 53 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)(1) Financial Statements - See Index to Financial
Statements contained in Item 8.
(2) Financial Statement Schedules - See Item 14(d)
below.
(3) Exhibits - No exhibits necessary.
(b) Reports on Form 8-K - No reports on Form 8-K
were filed by the registrant in the fourth
quarter of 1995.
(c) Financial Statement Schedules - The following
financial statement schedules of the Partnership
are included in Item 8:
Schedule III - Real Estate Investments and
Related Accumulated Depreciation and
Amortization.
All other schedules for which provision is made
in the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable, and therefore have been omitted.
Page 54 of 53
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the
Securities Exchange Act of l934, 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: By: Glenborough Corporation,
Robert Batinovich a California corporation,
General Partner (formerly knows as Glenborough
Realty Corporation,
a California Corporation)
Date: By:
Andrew Batinovich
Chief Executive Officer
and Chairman of the Board
Date:
By:
Terri Garnick
Chief Financial Officer
Date:
By:
June Gardner
Director
Date:
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(A Majority of the Board of Directors of the General Partner)
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the
Securities Exchange Act of l934, 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 Corporation,
Robert Batinovich a California corporation,
General Partner (formerly knows as
Glenborough
Realty Corporation,
a California Corporation)
Date: By: /s/ Andrew Batinovich
Andrew Batinovich
Chief Executive Officer
and Chairman of the Board
Date:
By: /s/ Terri Garnick
Terri Garnick
Chief Financial Officer
Date:
By: /s/ June Gardner
June Gardner
Director
Date:
OUTLOOK INCOME FUND 9,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 591
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