QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1996
FELLOW PARTNERS:
We have changed the format of our reports in an effort to improve the
information given to you and reduce the complexity of the message. A major
addition is the table below where you will find the period-end as well as the
average leased status and the contribution to net income from each property in
the portfolio. The leased status will probably fluctuate during any given
period, so we feel the average number will be a better performance indicator.
By showing the contribution to net income by property along with the total
square footage and average leased status, we also believe you will gain a
better perspective on the relationship among the holdings.
Going forward, any properties earmarked for sale will be broken out so
that you have an idea of the effect the absence of these properties may have
on future income. In addition, we will show the effect on net income of
properties which have been sold in the periods under review.
Results of Operations
The change in River Run's status from a participating mortgage loan to
ownership in October 1995 had the most notable impact on the first quarter
comparisons. At that time, we began including the property's rental income and
expenses, rather than interest on the mortgage, in the Fund's results. During
the first three months of 1996, the property's income net of its expenses was
$66,000 less than the interest which would have been earned on the loan, so
River Run was a major reason overall net income declined relative to the first
quarter of last year.
Real Estate Investments (Dollars in thousands)
_______________________________________________________________________________
Average Contribution
Leased Status Leased Status to Net Income
________________________________________________
Gross Three Months Three Months
Property Leasable March 31, Ended March 31, Ended March 31,
Name Area (Sq. Ft.) 1996 1995 1996 1995 1996
________________ ____________ ______ _____ _____ _____ _____
Scripps Terrace 56,796 82% 81% 82% $ 19 $ 48
Winnetka 188,260 100 94 100 97 73
South Point Plaza 49,222 93 61 61 24 2
Tierrasanta 104,236 100 77 100 24 37
Wood Dale 89,718 89 100 90 29 53
Clark Avenue 40,000 72 100 72 50 18
Riverview 113,700 100 91 96 25 59
Westbrook Commons 121,558 93 98 94 121 87
Fairchild 104,823 70 84 70 57 (1)
River Run 92,787 94 - 93 203 138
_________ _______ _______ _______ _______ _______
961,100 92 89 90 649 514
Fund Expenses
Less Interest
Income - - - - (56) (44)
_______ _______ _______ _______ _______ _______
Total 961,100 92% 89% 90% $593 $470
While River Run was by far the biggest contributor to the increase in
rental income during the quarter, Scripps Terrace, Winnetka, Tierrasanta, and
Riverview were also positive factors because of their higher average leased
status and rental rates. Unfortunately, Fairchild and Clark Avenue experienced
declines in occupancy which together produced an $81,000 decrease relative to
last year.
Bad debt expense accounted for $110,000 of the $255,000 rise in overall
expenses relative to the first quarter of 1995. Tenant problems at Winnetka
and River Run were the primary cause. Other than the effect of including River
Run's expenses, there were no other significant changes in expenses at the
property level.
As a result of the greater distribution paid in this year's first
quarter - $6.37 per unit versus $3.18 in 1995 - the Fund's cash position was
reduced substantially. We decided in the fourth quarter of 1995 to distribute
cash which had previously been retained pending resolution of the River Run
situation.
Looking at first quarter activity in the portfolio, there were
noteworthy events at several properties. First, a lease covering 35% of the
space at South Point Plaza was signed with a retailer of western wear. The
March 31, 1996, leased status in the Real Estate Investments table includes
the new tenant, but rental revenues will not be reflected until the lease
takes effect in August. Depreciation and amortization expense resulting from
tenant improvements and leasing commissions will also rise.
We face a number of leasing challenges as a result of recent
terminations and expirations. We had to terminate the leases of several
financially troubled tenants at Westbrook Commons and River Run. Because of
the recent facelift at Westbrook and high occupancy in the submarket, we
expect this property to remain healthy in the immediate future. At River Run,
we are making a conscious effort to improve the creditworthiness and tenant
mix now that the Fund owns the retail center.
At Scripps Terrace, Tierrasanta, and Wood Dale, leases representing 46%,
38%, and 30%, respectively, expire over the remainder of the year.
Unfortunately, we were unsuccessful in renewing a tenant at Tierrasanta whose
lease for 38% of the property expires on August 31. Market conditions for all
three properties are improving, and we are actively working on renewals and
new prospects.
Interest in Fairchild and its submarket is positive, and we have just
recently had several unsolicited offers to buy the property. The terms are
under review now, and we will update you on our progress in the June report.
Cash Distribution
The $2.00 per-unit distribution from operations in the first quarter will be
paid to you on May 15. Assuming no unexpected developments, we expect to pay
the same amount for the second and third quarters as well. In the fourth
quarter, we may adjust the distribution based on the Fund's operations and
cash needs. Should we receive and close on an acceptable offer for Fairchild,
or dispose of any other holdings, there could be an additional distribution of
sale proceeds.
Outlook
Most of the markets where your properties compete are improving, with the most
notable changes in California, where new and expanding industries continue to
replace the downsizing in the defense area. Whenever a market is nearing its
peak in terms of rising occupancy and rental rates, particularly as evidenced
by new construction, property sales may be warranted. In this regard, we are
looking carefully at events involving Winnetka and Riverview and, as mentioned
earlier, have had offers on Fairchild. We will keep you up-to-date on
developments in future reports.
Sincerely,
James S. Riepe
Chairman
May 13, 1996
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)
March 31, December 31,
1996 1995
___________ ____________
Assets
Real Estate Property Investments
Land . . . . . . . . . . . . . . $ 12,181 $ 12,181
Buildings and Improvements . . . 33,329 33,139
________ ________
45,510 45,320
Less: Accumulated Depreciation
and Amortization. . . . . . . (8,179) (7,831)
________ ________
37,331 37,489
Cash and Cash Equivalents. . . . . 2,417 3,436
Accounts Receivable
(less allowances of $251 and $230) 407 529
Other Assets . . . . . . . . . . . 356 279
________ ________
$ 40,511 $ 41,733
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents $ 357 $ 391
Accrued Real Estate Taxes. . . . . 529 433
Accounts Payable and
Other Accrued Expenses. . . . . . 201 335
________ ________
Total Liabilities. . . . . . . . . 1,087 1,159
Partners' Capital. . . . . . . . . 39,424 40,574
________ ________
$ 40,511 $ 41,733
________ ________
________ ________
See the accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months Ended
March 31,
1996 1995
___________ ___________
Revenues
Rental Income. . . . . . . . . . . $ 1,584 $ 1,250
Interest Income from
Participating Mortgage Loan . . . - 214
Other Interest Income. . . . . . . 46 34
________ ________
1,630 1,498
________ ________
Expenses
Property Operating Expenses. . . . 420 255
Real Estate Taxes. . . . . . . . . 291 254
Depreciation and Amortization. . . 348 294
Recovery of Property Values. . . . - (27)
Management Fee to General Partner. 12 40
Partnership Management Expenses. . 89 89
________ ________
1,160 905
________ ________
Net Income . . . . . . . . . . . . 470 593
________ ________
________ ________
Activity per Limited Partnership Unit
Net Income . . . . . . . . . . . . $ 1.83 $ 2.31
________ ________
________ ________
Cash Distributions Declared. . . . $ 2.00 $ 1.58
________ ________
________ ________
Units Outstanding. . . . . . . . . 253,599 253,599
________ ________
________ ________
See the accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Unaudited
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance,
December 31, 1995 . . . . . . $ (188) $40,762 $40,574
Net Income . . . . . . . . . . 5 465 470
Cash Distributions . . . . . . (4) (1,616) (1,620)
_______ _______ _______
Balance, March 31, 1996. . . . $ (187) $39,611 $39,424
_______ _______ _______
_______ _______ _______
See the accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Three Months Ended
March 31,
1996 1995
___________ ___________
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . $ 470 $ 593
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities
Depreciation and Amortization. . 348 294
Recovery of Property Values. . . - (27)
Other Changes in Assets
and Liabilities . . . . . . . . (27) (1)
________ ________
Net Cash Provided by
Operating Activities. . . . . . . 791 793
________ ________
Cash Flows Used in Investing Activities
Investments in Real Estate . . . . (190) (125)
________ ________
Cash Flows Used in Financing Activities
Cash Distributions . . . . . . . . (1,620) (815)
Redemption of Units. . . . . . . . - (1)
________ ________
Net Cash Used in Financing Activities (1,620) (816)
________ ________
Cash and Cash Equivalents
Net Decrease during Period . . . . (1,019) (148)
At Beginning of Year . . . . . . . 3,436 3,663
________ ________
At End of Period . . . . . . . . . $ 2,417 $ 3,515
________ ________
________ ________
See the accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. All such
adjustments are of a normal, recurring nature.
The unaudited interim financial information contained in the
accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements contained in the 1995
Annual Report to Partners.
NOTE 1 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
As compensation for services rendered in managing the affairs of the
Partnership, the General Partner earns a partnership management fee equal to
9% of net operating proceeds. The General Partner earned a partnership
management fee of $12,000 during the first three months of 1996. In addition,
the General Partner's share of cash available for distribution from operations
totaled $5,000 for the first three months of 1996.
In accordance with the partnership agreement, certain operating expenses
are reimbursable to the General Partner. The General Partner's reimbursement
of such expenses totaled $20,000 for communications and administrative
services performed on behalf of the Partnership during the first three months
of 1996.
An affiliate of the General Partner earned a normal and customary fee of
$2,000 from the money market mutual funds in which the Partnership made its
interim cash investments during the first three months of 1996.
LaSalle Advisors Limited Partnership ("LaSalle") is the Partnership's
advisor and is compensated for its advisory services directly by the General
Partner. LaSalle is reimbursed by the Partnership for certain operating
expenses pursuant to its contract with the Partnership to provide real estate
advisory, accounting and other related services to the Partnership. LaSalle's
reimbursement for such expenses during the first three months of 1996 totaled
$30,000.
An affiliate of LaSalle earned $26,000 in the first quarter of 1996 as
property manager for several of the Partnership's properties.
NOTE 2 - PARTNERSHIP DISTRIBUTIONS
The February 1996 distribution to the Partnership unitholders included a $.75
per unit return of capital which originated from the public offering of the
partnership interests. The Partnership has now returned capital contributions
of $4.63 per unit which had been retained as part of the Fund's operating cash
balances. In addition, the Partnership has distributed sales proceeds of the
only property disposition in the amount of $3.92 per unit in 1994.
NOTE 3 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $2.00 per unit to
Limited Partners of the Partnership as of the close of business on March 31,
1996. The Limited Partners will receive $507,000, and the General Partner will
receive $5,000.
