UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-9921
SENIOR INCOME FUND L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3392077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 World Financial Center, 29th Floor, New York, NY 10285
(Address of principal executive offices) (Zip Code)
(212) 526-3237
(Registrant's telephone number, including area code)
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
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Assets 1994 1993
Real estate:
Land $ 4,824,699 $ 4,824,699
Buildings and improvements 37,837,559 38,308,877
---------- ----------
42,662,258 43,133,576
Less- accumulated depreciation (12,778,483) (11,875,602)
---------- ----------
29,883,775 31,257,974
Cash and cash equivalents 2,475,254 2,058,534
Prepaid expenses 84,602 148,958
---------- ----------
Total Assets $ 32,443,631 $ 33,465,466
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 183,794 $ 148,603
Deferred rent payable 1,077,681 1,054,983
Due to affiliates 207,535 206,699
Security deposits payable 147,775 144,775
Distributions payable 365,720 365,720
--------- ---------
Total Liabilities 1,982,505 1,920,780
Partners' Capital (Deficit):
General Partner (21,992) (14,678)
Limited Partners 30,483,118 31,559,364
---------- ----------
Total Partners' Capital 30,461,126 31,544,686
Total Liabilities and Partners' ---------- ----------
Capital $ 32,443,631 $ 33,465,466
========== ==========
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
Income
Rental $ 2,584,875 $ 2,337,912 $ 5,085,745 $ 4,630,497
Interest 13,621 8,353 29,318 15,663
--------- --------- --------- ---------
Total 2,598,496 2,346,265 5,115,063 4,646,160
Expenses
Payroll 757,331 664,932 1,458,039 1,331,496
Depreciation 451,837 450,302 902,881 900,919
Rent and utilities 405,380 373,836 815,578 778,599
General and administrative 317,225 264,281 661,428 547,615
Supplies 255,777 242,459 499,472 486,279
Repairs and maintenance 106,176 171,571 224,943 309,707
Real estate taxes 98,250 111,957 198,000 223,914
Travel and entertainment 7,341 6,786 12,635 15,540
Earthquake repairs 0 0 694,207 0
--------- --------- --------- ---------
Total Expenses 2,399,317 2,286,124 5,467,183 4,594,069
--------- --------- --------- ---------
Net Income (Loss) $ 199,179 $ 60,141 $ (352,120) $ 52,091
======= ====== ======= ======
Net Income (Loss)
Allocated:
To the General Partner $ 0 $ 3,658 $ 0 $ 7,315
To the Limited Partners 199,179 56,483 (352,120) 44,776
------- ------ ------- ------
$ 199,179 $ 60,141 $ (352,120) $ 52,091
======= ====== ======= ======
Per limited partnership
unit (4,827,500 outstanding) $.04 $.01 $(.07) $.01
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the six months ended June 30, 1994
General Limited Total
Partner's Partners' Partners'
Deficit Capital Capital
Balance at January 1, 1994 $ (14,678) $ 31,559,364 $ 31,544,686
Net loss 0 (352,120) (352,120)
Distributions (7,314) (724,126) (731,440)
------ ---------- ----------
Balance at June 30, 1994 $ (21,992) $ 30,483,118 $ 30,461,126
====== ========== ==========
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1994 and 1993
Cash Flows from Operating Activities: 1994 1993
Net income (loss) $ (352,120) $ 52,091
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 902,881 900,919
Provision for earthquake repairs 694,207 0
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Prepaid expenses 64,356 15,494
Accounts payable and accrued expenses 35,191 (18,504)
Deferred rent payable 22,698 22,698
Due to affiliates 836 (17,084)
Security deposits payable 3,000 5,050
--------- -------
Net cash provided by operating activities 1,371,049 960,664
--------- -------
Cash Flows from Investing Activities:
Buildings and improvements (222,889) (10,827)
------- ------
Net cash used for investing activities (222,889) (10,827)
------- ------
Cash Flows from Financing Activities:
Distributions paid to partners (731,440) (365,720)
------- -------
Net cash used for financing activities (731,440) (365,720)
------- -------
Net increase in cash and cash equivalents 416,720 584,117
Cash and cash equivalents at beginning of period 2,058,534 929,375
--------- ---------
Cash and cash equivalents at end of period $ 2,475,254 $ 1,513,492
========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1993 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of management, necessary to
present a fair statement of financial position as of June 30, 1994 and the
results of operations, changes in partners' capital, and cash flows for the six
months then ended. Results of operations for the period are not necessarily
indicative of the results to be expected for the full year.
The following significant events have occurred or material contingencies exist,
and require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5):
As reported on the 1993 Form 10-K, an earthquake struck the greater Los Angeles
area on January 17, 1994, causing damages at two of the Properties, Ocean House
and Prell Gardens. The Partnership has earthquake insurance with a deductible
equal to 5% of the replacement cost of the property, as determined by
independent appraisal. The General Partner has engaged an independent
appraiser to determine the replacement cost and is currently awaiting
completion of the appraisal, at which time, the exact amount of the deductibles
will be computed by the insurance company. Payment of the deductibles which
are estimated at $500,000 and $250,000 for Ocean House and Prell Gardens,
respectively, will be funded from Partnership cash reserves. The General
Partner has engaged a structural and seismic engineer to determine the cost to
repair the damages at both of the Properties and to provide reinforcement
against future earthquakes. Currently, the cost to repair Ocean House is
estimated to be $8 13,000 and the cost to repair Prell Gardens is estimated to
be $194,000, before application of available insurance deductibles, when
determined.
The building basis costs of Ocean House and Prell Gardens have been reduced by
$366,050 and $153,097, respectively, which represent repair costs not yet
expended, net of the estimated deductibles. As these costs are incurred, the
buildings will be brought back to their original basis.
Based on the recently completed engineering reports, costs to retrofit the
buildings for protection against future earthquakes is estimated to be
approximately $270,000 and $48,000 for Ocean House and Prell Gardens,
respectively. The General Partner is currently studying the reports and their
related costs, which, appropriately, are not included as a component of the
earthquake repair expenses, and will determine if such an upgrade of the
buildings is feasible.
Following the earthquake, both Properties experienced increases in tenant
occupancy due to the availability of vacant units which were rented to
displaced parties and therefore, rental income was not adversely affected.
Part I, item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- - -------------------------------
At June 30, 1994, the Partnership had cash and cash equivalents of $2,475,254
compared with $2,058,534 at December 31, 1993. The increase is primarily
attributable to net cash from operations exceeding capital improvement costs
and cash distributions.
As reported on the 1993 Form 10-K, an earthquake struck the greater Los Angeles
area on January 17, 1994, causing damages at two of the Properties, Ocean House
and Prell Gardens. The Partnership has earthquake insurance with a deductible
equal to 5% of the replacement cost of the property, as determined by
independent appraisal. The General Partner has engaged an independent
appraiser to determine the replacement cost and is currently awaiting
completion of the appraisal, at which time the exact amount of the deductibles
will be computed by the insurance company. Payment of the deductibles, which
are estimated at $500,000 and $250,000 for Ocean House and Prell Gardens,
respectively, will be funded from Partnership cash reserves. The General
Partner has engaged a structural and seismic engineer to determine the cost to
repair both of the Properties and to provide reinforcement against future
earthquakes. Currently, the cost to repair Ocean House is estimated to be
$813,000 and the cost to repair Prell Gardens is estimated to be $194,000,
before application of available insurance deductibles, when determined.
The building basis costs of Ocean House and Prell Gardens have been reduced by
$366,050 and $153,097, respectively, which represent repair costs not yet
expended, net of the estimated deductibles. As these costs are incurred, the
buildings will be brought back to their original basis.
Based on the recently completed engineering reports, costs to retrofit the
buildings for protection against future earthquakes are estimated to be
approximately $270,000 and $48,000 for Ocean House and Prell Gardens,
respectively. The General Partner is currently studying the reports and their
related costs, which, appropriately, are not included as a component of the
earthquake repair expenses, and will determine if such an upgrade of the
buildings is feasible.
The Partnership's earthquake insurance policy covering all four properties
expired August 5, 1994. The current insurance carrier renewed coverage on only
two properties: Nohl Ranch and Pacific Inn. After an extensive search, the
Partnership secured coverage for Ocean House and Prell Gardens from an
alternate insurance carrier. However, given the location of these properties
and the extent of the earthquake damage they recently sustained, the premium
for insuring both Ocean House and Prell Gardens increased from approximately
$17,000 per annum to approximately $180,000 per annum. Once these properties
have been repaired and reinforced against future earthquakes, there is a
possibility that the insurance premium will be adjusted accordingly.
The General Partner declared a cash distribution of $.075 per Unit for the
quarter ended June 30, 1994 which is expected to be paid to investors on or
about August 15, 1994. The General Partner anticipates that the Partnership's
net cash flow will be sufficient to maintain this distribution level throughout
1994, however, the amount and timing of distributions will be reviewed on a
quarterly basis.
Results of Operations
- - ---------------------
Partnership operations for the three and six months ended June 30, 1994
resulted in net income of $199,179 and a net loss of $352,120, respectively,
compared with net income of $60,141 and $52,091 for the corresponding periods
in 1993. In comparing the six month periods, the change from net income in
1993 to net loss in 1994 can be attributed primarily to the costs associated
with the earthquake, discussed above, offset partially by an increase in rental
income. The increase in net income for the three month period ended June 30,
1994 is primarily due to an increase in rental income.
Rental income for the three and six months ended June 30, 1994 was $2,584,875
and $5,085,745, compared to $2,337,912 and $4,630,497 for the corresponding
periods in 1993. The increase is a result of higher rental income at all four
properties due to improved average occupancy in 1994, and increased income from
the assisted living programs at Ocean House and Nohl Ranch. Interest income
for the three and six month periods ended June 30, 1994 was $13,621 and
$29,318, compared with $8,353 and $15,663 for the corresponding periods in
1993. The increase is due to higher average cash balances held in 1994.
Total expenses for the three and six months ended June 30, 1994 were $2,399,317
and $5,467,183, compared with $2,286,124 and $4,594,069 for the corresponding
periods in 1993. The increase for the six month period is primarily due to
earthquake repairs expense of $694,207 recorded in the first quarter of 1994.
The actual costs incurred through June 30, 1994 were $133,950 at Ocean House
and $41,110 at Prell Gardens. General and administrative expenses for the
three and six months ended June 30, 1994 were $317,225 and $661,428 compared
with $264,281 and $547,615 for the corresponding periods in 1993. The increase
is primarily a result of the payment of property manager performance incentive
fees at all four properties. Under the new management agreement, property
manager performance incentive fees are payable on a monthly basis, compared to
the prior management agreement where fees were payable in arrears on an annual
basis. Repairs and maintenance expense for the three and six mont hs ended
June 30, 1994 was $106,176 and $224,943, compared with $171,571 and $309,707
for the corresponding periods in 1993. The decrease is primarily attributable
to a lower equipment rental expense at Ocean House and a decrease in
expenditures for routine property upgrades.
Average occupancy levels at the Partnership's properties for the three and six
months ended June 30, 1994, and 1993, are presented below. Improvements in
average occupancies reflect the implementation of aggressive marketing
initiatives at the Ocean House and Prell Gardens properties, as well as the
renting of vacant units to individuals displaced by the January earthquake.
Three Months Ended June 30 Six Months Ended June 30
1994 1993 1994 1993
Ocean House 96% 91% 95% 90%
Pacific Inn 93% 90% 93% 92%
Prell Gardens 97% 92% 96% 98%
Nohl Ranch Inn 80% 73% 79% 76%
Average Occupancy 92% 87% 91% 89%
PART II OTHER INFORMATION
Items 1-4 Not Applicable
Item 5 Other information.
Effective May 20, 1994, American Express Company ("American
Express") distributed to holders of record of American Express,
shares of Lehman Brothers Holdings Inc. ("Lehman Brothers")
common stock. As a result of this transaction, the
Partnership's General Partner is no longer an affiliate of
American Express. This change is not expected to have any
impact on the Partnership.
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the three month period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SENIOR INCOME FUND L.P.
BY: SENIOR INCOME FUND INC.
General Partner
Date: August 12, 1994 BY: "/s/ Moshe Braver"
-------------------------
Name: Moshe Braver
Title:President, Director and
Chief Operating Officer
Date: August 12, 1994 BY: "/s/ Sean Donahue"
-------------------------
Name: Sean Donahue
Title:Vice President and
Chief Financial Officer
