UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 of the Securities and Exchange Act of
1934 (Fee Required) For the fiscal year ended December 31, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 (Fee Required) For the transition period from to .
Commission file number: 33-9921
SENIOR INCOME FUND L. P.
(Formerly Shearson Lehman Senior Income Fund Limited Partnership)
Exact name of registrant as specified in its charter
Delaware 13-3392077
State or other jurisdiction of incorporation I.R.S. Employer Identification No.
3 World Financial Center, 29th floor, New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
4,827,500 DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
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 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
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 the 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)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable.
Documents Incorporated by Reference: Portions of Parts I, II, III and IV are
incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1994.
PART I
ITEM 1. Business
(a) General Development of Business
Senior Income Fund L.P. (the "Partnership", formerly Shearson Lehman Senior
Income Fund Limited Partnership), a Delaware limited partnership, was formed
on October 14, 1986 pursuant to a Limited Partnership Agreement, as amended
and restated on March 17, 1987 pursuant to an Amended and Restated Limited
Partnership Agreement (the "Partnership Agreement"). The Partnership was
formed for the purpose of acquiring a general partnership interest in Shearson
August Property Partnership, a California general partnership (the "Property
Partnership"), with August Financial Partners II ("AFP-II") an affiliate of
August Financial Corporation ("August"). The Property Partnership was formed
to acquire, operate and ultimately sell four specified residential properties
for senior citizens (the "Properties"). The general partner of the
Partnership is Senior Income Fund Inc. (the "General Partner", formerly
Shearson Lehman Senior Income Fund, Inc.), a Delaware corporation, and wholly
owned subsidiary of Lehman Brothers Inc. (formerly Shearson Lehman Brothers
Inc.). The Partnership will continue until December 31, 2036 unless
terminated earlier pursuant to the provisions of the Partnership Agreement.
On March 25, 1987, the Property Partnership acquired four rental retirement
projects in the Los Angeles and Orange County regions of Southern California:
Pacific Inn, a 134-unit project in Torrance; Nohl Ranch Inn, a 133-unit project
in Anaheim; Ocean House, a 119-unit project in Santa Monica; and Prell Gardens,
a 102-unit project in Van Nuys. For a description of the Properties, see pages
3 and 4 of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1994 included in Item 14 of this report. The Property Partnership
acquired the fee interest in the land, building and improvements of Pacific
Inn, Nohl Ranch Inn and Prell Gardens and the leasehold interest in the land,
building and improvements in Ocean House from Senior Inns of America Venture, a
California general partnership (the "Seller") and an affiliate of August, for
an aggregate purchase price of $40,400,000. For a breakdown of the purchase
price of each of the Properties, see note 7, "Real Estate," to the Consolidated
Financial Statements on page 12 of the Partnership's Annual Report to
Unitholders for the year ended December 31, 1994 included in Item 14 of this
report.
As reported on the Annual Report on Form 10-K for the year ended December 31,
1993, an earthquake struck the greater Los Angeles area on January 17, 1994,
causing damages at two of the Properties, Ocean House and Prell Gardens.
Information regarding the impact on the properties is included below under Item
2. "Properties."
(b) Financial Information about Industry Segments
Substantially all of the Partnership's revenues, operating profit or loss and
assets relate solely to its interest as general partner of the Property
Partnership whose operating profit or loss and assets relate to its ownership
and operation of the Properties.
(c) Narrative Description of Business
The Partnership's principal objectives are:
(1) to provide quarterly cash distributions a portion of which
will be "tax sheltered;"
(2) to preserve and protect capital;
(3) to achieve long-term appreciation in the value of the
Properties for distributions upon sale of the Properties.
There is no assurance that these objectives will be achieved.
(d) Employees
The Partnership has no employees. The affairs of the Partnership are conducted
by the General Partner. See Item 13, "Certain Relationships and Related
Transactions," for further information.
(e) Competition
The Properties compete with a variety of retirement living complexes within
their primary geographic markets, including continuing care and lifecare
facilities, which offer higher levels of personal care, and often skilled
nursing, in addition to independent living units. However, continuing care and
lifecare facilities usually require up-front accommodation fees, and place
greater emphasis on health and well-being rather than on independent lifestyle
and community activities. In order to raise visibility of the Properties and
attract potential tenants, the operator, Leisure Care, Inc., (the "Operator")
emphasizes strong community-oriented programs to build a strong community
presence with hospital administrators, church groups and civic groups.
For a discussion of the competitive conditions in each of the markets in which
the Partnership's Properties are located, see pages 3 and 4 of the
Partnership's Annual Report to Unitholders for the year ended December 31, 1994
included in Item 14 of this report.
ITEM 2. Properties
For a general description of each of the Partnership's Properties, see pages 3
and 4 of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1994 included in Item 14 of this report.
1994 Earthquake
As a result of an earthquake that struck the greater Los Angeles area on
January 17, 1994, damages were sustained 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. Payment of the deductibles, which are estimated not to
exceed $500,000 and $250,000 for Ocean House and Prell Gardens, respectively,
will be funded from Partnership cash reserves. As such, a provision for
earthquake loss of $750,000, representing the estimated insurance deductibles
for the two properties, has been recorded. The Partnership has engaged an
independent structural and seismic engineer who has advised the General
Partner, and the City of Santa Monica as it relates to the Ocean House
Property, that the repairs to date, at both Ocean House and Prell Gardens, have
rendered the buildings safe for continued occupancy. The engineer is in the
process of deter mining the extent of additional work necessary at both
buildings to increase their ability to withstand future earthquakes. The cost
of such work will be determined after further engineering studies have been
completed. The General Partner intends to aggressively pursue reimbursement
from the insurance carrier for any additional costs, less the deductible under
the Partnership's insurance policy. If insurance is not available for any
reason, the General Partner believes there are adequate Partnership reserves to
cover any work that may be performed. Please see Item 7. "Management's
Discussion and Analysis of Financial Condition," and Note 11 to the
Consolidated Financial Statements.
Property Management
The Operator is among the leading retirement center management companies in
size, experience and profit history. The Operator supervises the day-to-day
management of the Properties, including employing the operating personnel on
behalf of the Partnership, according to a property management agreement (the
"Property Management Agreement") and acts as the non-exclusive leasing agent
for all four Properties. An extension to the Property Management Agreement,
which expired on December 31, 1993, was executed during the year and can be
terminated by either party upon sixty days notice. Certain terms of the
Property Management Agreement have been modified as set forth in the extension.
See Note 5 to the Consolidated Financial Statements for further discussion of
the Property Management Agreement.
Government Regulations
Two of the Properties, Ocean House and Nohl Ranch, maintain managed care
programs which require an assisted living license. Accordingly, both properties
are subject to the periodic licensing requirements and inspection procedures of
the California State Department of Social Services. California law prescribes
a list of services which must be provided in rental retirement facilities such
as (i) assistance with daily living activities in the combinations which meet
the needs of residents, (ii) helping residents gain access to appropriate
supportive services in the community, (iii) being aware of the residents'
general whereabouts, (iv) monitoring the activities of the residents while they
are under the supervision of the facility to ensure their general health,
safety, well being, and (v) encouraging the residents to maintain and develop
their maximum functional ability through participation in planned activities.
Both criminal and civil penalties may be imposed in the event of violati on of
any of these duties. Currently there are no restrictions on the level of
rents, nor on rent increases. The other Properties are currently not subject
to the foregoing requirements.
ITEM 3. Legal Proceedings
At December 31, 1994, the Partnership was not a party to, nor was the Property
the subject of, any material litigation.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the holders of Units ("Limited
Partners") at a meeting or otherwise during the fourth quarter of the
Partnership's past fiscal year.
PART II
ITEM 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
(a) Market Price Information
The Partnership has issued no common stock. There is no established trading
market for the units nor is there anticipated to be.
(b) Holders
As of December 31, 1994, there were 3,840 Limited Partners of record.
(c) Cash Distributions per Unit (1)
1994 1993
1st Quarter .075 .075
2nd Quarter .075 .075
3rd Quarter .075 .075
4th Quarter .075 .075
Total .30 .30
(1) The amount and timing of distribution payments is reviewed on a
quarterly basis. Distributions are paid approximately forty-five days
following the period for which they are declared.
ITEM 6. Selected Financial Data
(Dollars in thousands, except per Unit data)
1994 1993 1992 1991 1990
Rental Income $ 10,387 $ 9,526 $ 9,120 $ 9,230 $ 8,516
Interest Income $ 98 $ 36 $ 15 $ 51 $ 179
Total Income $ 10,485 $ 9,561 $ 9,135 $ 9,281 $ 8,695
Net Income
(Loss) $ 137 $ 518 $ (44) $ 425 $ 374
Net Income
(Loss) Per
Unit (1) $ .03 $ .11 $ (.01) $ .08 $ .07
Cash
Distributions
Per Unit $ .30 $ .30 $ .13 $ .5252 $ .45
Total Assets $ 32,459 $ 33,465 $ 34,033 $ 35,397 $ 36,937
(1) Total Units outstanding 4,827,500
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At December 31, 1994, the Partnership had cash and cash equivalents of
$3,305,871 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 a result of an earthquake that struck the greater Los Angeles area on
January 17, 1994, damages were sustained 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 engaged an independent appraiser to
determine the replacement cost, which is estimated not to exceed $500,000 and
$250,000 for Ocean House and Prell Gardens, respectively, and will be funded
from Partnership cash reserves. As such, a provision for earthquake loss of
$750,000, representing the estimated insurance deductibles for the two
properties, has been recorded. Please see Note 11 to the Consolidated
Financial Statements.
The Partnership has engaged an independent structural and seismic engineer who
has advised the General Partner, and the City of Santa Monica as it relates to
the Ocean House Property, that the repairs to date, at both Ocean House and
Prell Gardens, have rendered the buildings safe for continued occupancy. The
engineer is in the process of determining the extent of additional work
necessary at both buildings to increase their ability to withstand future
earthquakes. The cost of such work will be determined after further
engineering studies have been completed. The General Partner intends to
aggressively pursue reimbursement from the insurance carrier for any additional
costs, less the deductible under the Partnership's insurance policy. If
insurance is not available for any reason, the General Partner believes there
are adequate Partnership reserves to cover any work that may be performed.
The building basis costs of Ocean House and Prell Gardens have been reduced by
$340,237 and $208,890, respectively, which represent the Partnership's
estimated share of earthquake damage, net of improvements to date. As these
costs continue to be incurred, the buildings will be brought back to their
original basis. As of December 31, 1994, Ocean House and Prell Gardens
incurred earthquake repairs of $159,763 and $41,110, respectively.
Consequently, the net building basis reduction is $549,127 at December 31,
1994.
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.
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 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 December 31, 1994 which was paid to investors on February 15,
1995. The General Partner anticipates that the Partnership's net cash flow
will be sufficient to maintain this distribution level throughout 1995,
however, the amount and timing of distributions will be reviewed on a quarterly
basis.
Accounts payable increased from $148,603 at December 31, 1993 to $413,367 at
December 31, 1994 primarily as a result of a subsequent reduction of a real
estate tax refund received in 1994 which requires the Partnership to remit the
difference in April 1995.
Results of Operations
1994 versus 1993
Partnership operations for the year ended December 31, 1994 resulted in net
income of $137,035, compared with net income of $518,280 in 1993. The decrease
in net income can be attributed primarily to the provision for the earthquake
loss, discussed above, increases in payroll and general and administrative
expenses, partially offset by higher rental income in 1994.
Rental income for the year ended December 31, 1994 was $10,386,764, compared
with $9,525,552 in 1993. The increase can be attributed to higher average
occupancy at all of the properties, rental rate increases instituted over the
past year at Pacific Inn, Prell Gardens and Nohl Ranch, and increased income
from the assisted living programs at Ocean House and Nohl Ranch. Interest
income for the year ended December 31, 1994 was $97,928, compared with $35,836
in 1993. The increase is due to higher average cash balances maintained and
higher interest rates in 1994.
Total expenses for the year ended December 31, 1994 were $10,347,657, compared
with $9,043,108 in 1993. The increase is primarily due to the recognition of
earthquake loss of $750,000, higher payroll and general and administrative
expenses. Payroll expenses for the year ended December 31, 1994 were
$2,884,586, compared with $2,667,725 in 1993. The increase is primarily due to
higher payroll costs associated with the institution of the assisted living
program at Nohl Ranch in September 1993. General and administrative expenses
for the year ended December 31, 1994 were $1,427,356, compared with $1,129,202
in 1993. The increase is primarily a result of the payment of property manager
performance incentive fees at all four properties and higher earthquake
insurance at Ocean House and Prell Gardens, discussed above. In 1993, the
property manager did not earn any incentive fees, therefore, no expense was
recorded. Under the new management agreement, property manager performance
incentive fees are payable on a monthly basis, compared with the prior
management agreement where fees were payable in arrears on an annual basis.
Repairs and maintenance expense for year ended December 31, 1994 was $490,095,
compared with $538,058 in 1993. The decrease is primarily attributable to a
reduction in expenditures for routine property upgrades at Ocean House and
Prell Gardens, partially offset by an increase in routine property upgrades
including carpet replacement and purchased services at Pacific Inn.
1993 versus 1992
Partnership operations resulted in net income of $518,280 for the year ended
December 31, 1993, compared with net loss of $44,154 for the year ended
December 31, 1992. The improvement in 1993 can be attributed primarily to
increased rental income and lower real estate tax and general and
administrative expenses, partially offset by an increase in repairs and
maintenance expense.
Rental income for the year ended December 31, 1993 was $9,525,552, compared
with $9,120,187 for the year ended December 31, 1992. The increase is
attributable primarily to higher rental income at Ocean House, and, to a lesser
extent, increased income at Pacific Inn and Nohl Ranch due to higher average
occupancy in 1993, and increased income from the assisted living programs at
Ocean House and Nohl Ranch. For the year ended December 31, 1993, interest
income totalled $35,836, compared with $14,843 for the year ended December 31,
1992. The increase is due to higher average cash balances held in 1993.
Total expenses were $9,043,108 for the year ended December 31, 1993, compared
with $9,179,184 for the year ended December 31, 1992. Real estate tax expense
for the year ended December 31, 1993 was $309,855, compared with $469,122 for
the year ended December 31, 1992. The decrease is primarily attributable to
receipt of a real estate tax refund by the Nohl Ranch property in the amount of
$119,197, net of valuation and assessment fees of $10,500. The refund was
granted by Orange County, California following a lower assessment of the
property's value corresponding to the 1991-92 and 1992-93 tax years. General
and administrative expenses were $1,129,202 for the year ended December 31,
1993 compared with $1,200,923 for the year ended December 31, 1992. The
decrease is primarily attributable to lower marketing expenditures at Ocean
House and Nohl Ranch. In addition, all four of the properties incurred
incentive fees in 1992, representing payment of outstanding fees due to the
Operator for 1991. According to the terms of the Property Management
Agreement, these fees are recognized when paid and not accrued. The properties
did not reach the threshold for incentive fees, as defined in the Property
Management Agreement, for either 1993 or 1992, accordingly, no expense was
recorded. Repairs and maintenance expense for the year ended December 31, 1993
was $538,058, compared with $372,776 for the year ended December 31, 1992. The
increase is primarily attributable to expenditures for routine property
upgrades, including carpet replacement and landscaping.
For the years ended December 31, 1994, 1993 and 1992, the average occupancy
levels for the properties were as follows:
Property 1994 1993 1992
Ocean House 95% 91% 85%
Pacific Inn 94% 91% 91%
Prell Gardens 97% 95% 94%
Nohl Ranch 83% 77% 74%
Average
Occupancy 92% 89% 86%
ITEM 8. Financial Statements and Supplementary Data
Incorporated by reference to pages 5 - 18 of the Partnership's Annual Report to
Unitholders for the year ended December 31, 1994, which is filed as an exhibit
under Item 14.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Partnership
The Partnership has no directors or officers. The General Partner has general
responsibility for all aspects of the Partnership's operation. All of the
officers and directors of the General Partner are also officers and employees
of Lehman Brothers Inc.
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the Partnership or the Partnership's General Partners.
However, the assets acquired by Smith Barney included the name "Shearson."
Consequently, the General Partner changed its name to Senior Income Fund Inc.,
and the Partnership name was changed to Senior Income Fund L.P. to delete any
references to "Shearson."
Certain officers and directors of Senior Income Fund, Inc. are now serving (or
in the past have served) as officers and directors of entities which act as
general partners of a number of real estate Limited Partnerships which have
sought protection under the provisions of the Federal Bankruptcy Code. The
Partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which that
real estate is located and, consequently, the partnerships sought the
protection of the bankruptcy laws to protect the partnerships' assets from loss
through foreclosure.
The directors and principal officers of the General Partner are listed below.
Name Age Office
Moshe Braver 41 Director, President and Chief Operating
Officer
Sean F. Donahue 33 Chief Financial Officer and
Vice President
Joseph Donaldson 31 Vice President
Moshe Braver is currently a Managing Director of Lehman Brothers and has held
such position since October 1985. During this time, he has held positions with
the Business Analysis Group, International and Capital Markets Administration
and currently, with the Diversified Asset Group. Mr. Braver joined Shearson
Lehman Brothers in August 1983 as Senior Vice President. Prior to joining
Shearson, Mr. Braver was employed by the accounting firm of Coopers & Lybrand
from January 1975 through August 1983 as an Audit Manager. He received a
Bachelor of Business Administration degree from Bernard Baruch College in
January 1975 and is a Certified Public Accountant.
Sean F. Donahue is currently a Vice President of Lehman Brothers in the
Diversified Asset Group. Mr. Donahue joined Lehman in April 1986 as an
Assistant Vice President with the Realty Finance Group. Mr. Donahue has been
actively involved in real estate investment, management, marketing and
workouts. From December 1985 to April 1986, Mr. Donahue was Assistant
Treasurer of The Patrician Group and was actively involved with the company's
banking relationships and real estate acquisitions. Prior to that, Mr. Donahue
was employed by Peat Marwick Mitchell & Co. as a consultant in the firm's Real
Estate Practice Group. Mr. Donahue received a B.B.A. degree from Pace
University in 1983.
Joseph Donaldson serves as a Vice President of Lehman Brothers in its
Diversified Asset Group and has held such position since November 1990. From
October 1988 to October 1990, Mr. Donaldson held the position of Assistant
Manager with the Internal Audit Department of Citibank's Investment Bank.
Prior to that, Mr. Donaldson was employed with Price Waterhouse and Company.
Mr. Donaldson received a B.B.A. in accounting from the University of Georgia
and is a Certified Public Accountant.
ITEM 11. Executive Compensation
The Directors and Officers of the General Partner do not receive any salaries
or other compensation from the Partnership. See Item 13, "Certain Relationships
and Related Transactions," below with respect to a description of certain
transactions of the General Partner and its affiliates with the Partnership.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners.
At December 31, 1994, no investor held more than 5% of the outstanding Units.
(b) Security ownership of management.
Officers and Directors of the General Partner owned no units of the Partnership
as of December 31, 1994.
(c) Changes in control.
None.
ITEM 13. Certain Relationships and Related Transactions
The Shareholder Services Group provides partnership accounting and investor
relations services for the Partnership. Prior to May 1993, these services were
provided by an affiliate of the General Partner. The Partnership's transfer
agent and certain tax reporting services are provided by Service Data
Corporation, an unaffiliated company.
For fees paid and reimbursed to the General Partner or its affiliates during
1994, 1993 and 1992, see Note 6 to the Financial Statements in Item 8,
"Financial Statements and Supplementary Data," which is incorporated by
reference to the Partnership's Annual Report to Unitholders for the year ended
December 31, 1994, which is filed as an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a)(1) Financial Statements:
Consolidated Balance Sheets - At December 31, 1994 and 1993 (1)
Consolidated Statements of Partners' Capital (Deficit)
- For the years ended December 31, 1994, 1993 and 1992 (1)
Consolidated Statements of Operations - For the years ended
December 31, 1994, 1993 and 1992 (1)
Consolidated Statements of Cash Flows - For the years ended
December 31, 1994, 1993 and 1992 (1)
Notes to the Consolidated Financial Statements (1)
Report of Independent Accountants (1)
(a)(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation (1)
Report of Independent Accountants (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the Year ended December 31, 1994, filed as an
exhibit under Item 14.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1994:
No reports on Form 8-K were filed in the fourth quarter of 1994.
(c) Exhibits
3.1 The Partnership's Amended and Restated Agreement of Limited
Partnership, Dated March 17, 1987, is hereby incorporated by reference to
Exhibit A to the Prospectus contained in Registration Statement No. 33-9921,
which registration Statement (the "Registration Statement") was declared
effective by the Securities and Exchange Commission on January 30, 1987.
3.2 The Capital Contribution Agreement by and among the General Partner and
Shearson Group is hereby incorporated by reference to Exhibit 3.2 to the
Registration Statement.
10.1 Form of the Management Agreement dated as of April 5, 1988 between the
Partnership and the Operator is incorporated by reference to Exhibit 10.2 to
the Registration Statement.
10.2 The form of Property Partnership Agreement between the Partnership and
the Property Partner is hereby incorporated by reference to Exhibit 10.6 to the
Registration Statement.
10.3 The form of Purchase Agreement concerning the acquisition of the
Properties is hereby incorporated by reference to Exhibit No. 10.4 to the
Registration Statement.
10.4 Form of the Amended Management Agreement dated as of January 1, 1990
between the Partnership and the Operator hereby incorporated by reference to
Exhibit 10.5 to the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1989, as filed with the Securities and Exchange Commission on
March 30, 1990.
10.5 Form of the Settlement Agreement Dated December 18, 1989 between the
Partnership and class members hereby incorporated by reference to Exhibit 10.6
to the Partnership's Annual Report on Form 10-K for the year ended December 31,
1989, as filed with the Securities and Exchange Commission on March 30, 1990.
13.1 Annual Report to Unitholders for the year ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Partnership 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: March 30, 1995 BY: /s/ Moshe Braver
Name: Moshe Braver
Title: President, Director and
Chief Operating Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Partnership 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: March 30, 1995 BY: /s/ Moshe Braver
President, Director and
Chief Operating Officer
Date: March 30, 1995 BY: /s/ Sean Donahue
Vice President and
Chief Financial Officer
Date: March 30, 1995 BY: /s/ Joseph Donaldson
Vice President
Exhibit 13.1
Senior Income Fund L.P.
1994 Annual Report
Senior Income Fund L. P., formerly Shearson Lehman Senior Income Fund Limited
Partnership, (the "Partnership") raised $48,275,000 during its offering period
in 1987 and acquired four congregate care facilities in Southern California.
The Partnership has retained Leisure Care, Inc. to assist with the day-to-day
management of the facilities. Leisure Care is one of the leading retirement
center management companies in the country.
Average Rental Income
Occupancy (in thousands) %
Property 1994 1993 1994 1993 change
Ocean House 95% 91% $ 3,402 $ 3,041 11.9%
Prell Gardens 97% 95% 1,690 1,606 5.2%
Pacific Inn 94% 91% 3,440 3,236 6.3%
Nohl Ranch Inn 83% 77% 1,854 1,643 12.9%
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address changes/Transfers The Shareholder Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144 Attn: Financial Communications
(800) 223-3464 (800) 223-3464
Contents
1 Message to Investors
3 Property Profiles
4 Financial Highlights
5 Consolidated Financial Statements
8 Notes to Consolidated Financial Statements
13 Report of Independent Accountants
Message to Investors
We are pleased to present the 1994 Annual Report for Senior Income Fund L. P.
As discussed in this report, despite the earthquake damage sustained at two
properties, continuing depressed economic conditions in the region and
intensified competition, the Partnership's four congregate care facilities
reported strong operating results during 1994. This report includes an update
on each of the properties and updated financial statements for the year ended
December 31, 1994.
Cash Distributions
Cash distributions paid from operations for 1994 totalled $300 per $10,000
investment, including the 1994 fourth quarter distribution in the amount of $75
per $10,000 investment paid on February 15, 1995. Since inception, limited
partners have received cash distributions totalling $4,210 per $10,000
investment. The timing and level of future distributions will depend upon the
Partnership's cash flow and funding needs, including, as discussed below, the
final costs associated with the required earthquake repairs at Ocean House and
Prell Gardens. Accordingly, distributions will be reviewed on a quarterly
basis.
Market Update
Economic conditions in Southern California showed little sign of improvement in
1994, as recessionary pressures lingered over the region's economy. Several
negative trends: the outmigration of population, depressed real estate values,
and continued layoffs in many industries, continue to hamper the state's
recovery. The ripple effect of these trends has a direct impact on the
congregate care industry, as seniors relocate to other states or delay selling
their homes and moving into a congregate care facility until values begin to
rise. Since our properties, with the exception of Nohl Ranch, are at the high
end of the pricing scale, we must aggressively compete for the shrinking pool
of income-qualified senior citizens with other area providers. Accordingly,
each property has a focussed, aggressive marketing plan to increase visibility
among eligible seniors.
Earthquake Repairs
As previously reported, Ocean House and Prell Gardens sustained damage as a
result of a severe earthquake which struck the Los Angeles area in January
1994. While both properties are covered under the Partnership's earthquake
insurance policy, the deductible is equal to 5% of the replacement cost of the
properties. Results of an independent appraisal indicate that the deductibles
should meet our estimated loss provision of $500,000 for Ocean House and
$250,000 for Prell Gardens.
The Partnership has engaged an independent structural and seismic engineer who
has advised the General Partner, and the City of Santa Monica as it relates to
the Ocean House Property, that the repairs to date, at both Ocean House and
Prell Gardens, have rendered the buildings safe for continued occupancy. The
engineer is in the process of determining the extent of additional work
necessary at both buildings to increase their ability to withstand future
earthquakes. The cost of such work will be determined after further
engineering studies have been completed. The General Partner intends to
aggressively pursue reimbursement from the insurance carrier for any additional
costs, less the deductible, under the Partnership's insurance policy. If
insurance is not available for any reason, the General Partner believes there
are adequate Partnership reserves to cover any work that may be performed.
The Partnership's earthquake insurance policy covering all four properties
expired August 5, 1994 and the 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 another
insurance carrier. However, given the location of these properties and the
extent of earthquake damage they recently sustained, the total premium for
insuring both Ocean House and Prell Gardens increased from approximately
$17,000 per year to approximately $180,000 per year. Once these properties
have been repaired and reinforced against future earthquakes, the possibility
exists that the insurance premium will be reduced accordingly.
Operations Update
Despite depressed economic conditions, rental revenue increased at each of the
properties during the year. The improved results for 1994 can be attributed
primarily to increased rental income resulting from higher occupancy levels at
the properties. In spite of its location near the epicenter of the January
earthquake, Prell Gardens continued to operate at close to full capacity
immediately after the earthquake, which resulted in improved occupancy. At
Ocean House and Nohl Ranch, increased occupancy was the result of the
availability of assisted living programs, which has reduced the number of
move-outs resulting from residents who require greater levels of personal
assistance. Since assisted living units command higher rental rates, the
program has also contributed to the increase in rental income at the
properties. We are currently exploring the possibility of implementing an
assisted living program at Pacific Inn. Although this property has maintained
high occupancy levels in recent years, an assisted living program may provide
additional competitive advantages. We will keep you updated in future reports.
Summary
Earthquake repairs at the properties should begin during the second quarter of
1995. In addition, we will continue to focus on aggressively marketing the
properties to maintain or improve occupancy and operating results. While we
are optimistic that our success, as demonstrated by our 1994 annual operating
results, will continue, given the nature of the current fiscal crisis in
California, there is no consensus regarding the immediate future of the greater
Los Angeles real estate markets. We will keep you updated on our progress in
future reports.
Very truly yours,
Senior Income Fund, Inc.
The General Partner
s/Moshe Braver/
President
March 30, 1995
Property Profiles
Ocean House Santa Monica, California
Ocean House, a ten-story, 121-unit property adjacent to Santa Monica Beach,
features studio apartments with balconies and ocean views. Ocean House
provides residents with various amenities and an assisted living program. The
property faces competition from three other retirement facilities within its
market, an upscale area with an established senior population. Based on its
location and level of service the property competes at the higher end of the
price scale. The assisted living program, along with Ocean House's activity
programs and community involvement, has proven to be a significant, competitive
advantage.
Operations at Ocean House improved for the sixth consecutive year, generating
gross revenues of $3,402,426 and net cash flow of $311,508, compared with gross
revenues of $3,041,115 and net cash of flow of $224,620 in 1993. Net cash flow
is gross revenues less operating expenses, ground rent, and earthquake loss.
The building's balconies and foundation are currently under repair related to
the building's age and damage sustained during the earthquake in January 1994.
Prell Gardens Van Nuys, California
Prell Gardens, a two-story, 102-unit retirement facility constructed in 1961,
offers residents amenities such as a daily meal, maid service, a beauty salon
and transportation services. The property enjoys a strong reputation within
the San Fernando Valley, and competes with two facilities offering similar
services. Aggressive community relations and marketing efforts have allowed us
to improve and maintain occupancy in the "upper end" residence category in
which the property competes. Resident satisfaction continues to be high as
evidenced by the low number of move-outs and numerous resident referrals.
Despite the extent of the earthquake related damage, occupancy improved during
the year. In fact, the property's ability to withstand the earthquake is being
featured in our current marketing program. Property operations for the year
generated gross revenues of $1,689,732 and net cash flow of $356,548, compared
with gross revenues of $1,606,049 and net cash flow of $412,906 in 1993. The
decrease in net cash flow reflects the payment of management incentive fees,
increased insurance expenses, and earthquake loss.
Pacific Inn Torrance, California
Pacific Inn, located in an affluent section of Torrance, commenced operations
in 1986. The property has 134 units with private balconies and/or patios, and
features services and amenities including a visiting doctor, beauty salon,
dining services and daily maid service. Pacific Inn is the only
all-independent lifestyle retirement facility in its market, where it competes
with three older facilities. The facility's reputation has enabled the
property to charge premium rents and maintain strong profit margins. During
1994, Pacific Inn recorded gross revenues of $3,440,400 and net cash flow of
$1,779,208, compared with gross revenues of $3,235,630 and cash flow of
$1,679,484 in 1993.
Nohl Ranch Inn Anaheim, California
Nohl Ranch Inn is located in Anaheim Hills, an upscale community with few
elderly residents. Accordingly, Nohl Ranch is affordably priced for its
market and engages in an extensive community outreach program to enhance the
property's visibility and referral network. The property features 133 units in
a three-story facility with an interior courtyard and landscaped grounds.
Residents can avail themselves of many amenities, including a visiting doctor's
office, beauty salon, daily meal and maid service. The assisted living
program, which provides assistance for residents who require help with their
daily routines, was in effect throughout 1994, and has been very successful in
expanding and retaining the tenant base. Only one of the property's two
competitors, located across the street from Nohl Ranch, currently offer
assisted living programs. We are pleased to report that occupancy improved for
the sixth consecutive year.
Property operations generated gross revenues of $1,854,208 and net cash flow of
$276,278, compared with gross revenues of $1,642,761 and net cash flow of
$393,082 in 1993. The decline in net cash flow is primarily the result of a
real estate tax refund received in 1993.
BAR GRAPH: Average Occupancy 1991-1994; bar graph depicting occupancy at each
of the Partnership's four properties for the period specified.
FINANCIAL HIGHLIGHTS
(in thousands except per unit data)
1994 1993
Gross Revenues $10,485 $ 9,561
Total Expenses 10,348 9,043
Net Income 137 518
Cash Distributions
per Unit* .30 .30
* There are 4,827,500 units outstanding.
- - The increase in gross revenues in 1994 is primarily due to increased
rental income, resulting from increased occupancy levels at the Partnership's
properties, especially Ocean House and Nohl Ranch.
- - The increase in total expenses is largely due to the provision for
earthquake loss of $750,000, the increase in payroll as a result of the
implementation of the assisted living program at Nohl Ranch and the payment of
incentive management fees at each of the properties during the year.
- - Net income declined in 1994, largely due to the earthquake loss of
$750,000 recorded during the year. Without the earthquake loss, net income was
$887,035.
Consolidated Financial Statements
Consolidated Balance Sheets December 31, 1994 and 1993
Assets 1994 1993
Real estate:
Land $ 4,824,699 $ 4,824,699
Buildings and
improvements 37,839,781 38,308,877
42,664,480 43,133,576
Less- accumulated
depreciation (13,665,635) (11,875,602)
28,998,845 31,257,974
Cash and cash equivalents 3,305,871 2,058,534
Prepaid expenses 154,366 148,958
Total Assets $32,459,082 $33,465,466
Liabilities and Partners' Capital
Liabilities:
Accounts payable
and accrued expenses $ 413,367 $ 148,603
Deferred rent payable 1,100,379 1,054,983
Due to affiliates 215,000 206,699
Security deposits
payable 145,775 144,775
Distribution payable 365,720 365,720
Total Liabilities 2,240,241 1,920,780
Partners' Capital (Deficit):
General Partner (27,938) (14,678)
Limited Partners 30,246,779 31,559,364
Total Partners'
Capital 30,218,841 31,544,686
Total Liabilities
and Partners'
Capital $32,459,082 $33,465,466
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1994, 1993 and 1992
General Limited Total
Partner's Partners' Partners'
Balance at January 1, 1992 $ 1,169 $33,172,280 $33,173,449
Net loss - (44,154) (44,154)
Distributions (6,400) (633,609) (640,009)
Balance at December 31, 1992 (5,231) 32,494,517 32,489,286
Net income 5,183 513,097 518,280
Distributions (14,630) (1,448,250) (1,462,880)
Balance at December 31, 1993 (14,678) 31,559,364 31,544,686
Net income 1,370 135,665 137,035
Distributions (14,630) (1,448,250) (1,462,880)
Balance at December 31, 1994 $ (27,938) $30,246,779 $30,218,841
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Operations
For the years ended December 31, 1994, 1993 and 1992
Income 1994 1993 1992
Rental $10,386,764 $ 9,525,552 $ 9,120,187
Interest 97,928 35,836 14,843
Total Income 10,484,692 9,561,388 9,135,030
Expenses
Payroll 2,884,586 2,667,725 2,689,911
Depreciation 1,790,033 1,802,859 1,794,099
Rent and utilities 1,621,004 1,570,083 1,579,977
General and administrative 1,427,356 1,129,202 1,200,923
Supplies 1,020,782 992,895 993,063
Repairs and maintenance 490,095 538,058 372,776
Real estate taxes 323,412 309,855 469,122
Travel and entertainment 40,389 32,431 79,313
Earthquake loss 750,000 - -
Total Expenses 10,347,657 9,043,108 9,179,184
Net Income (Loss) $ 137,035 $ 518,280 $ (44,154)
Net Income (Loss) Allocated:
To the General Partner $ 1,370 $ 5,183 $ -
To the Limited Partners 135,665 513,097 (44,154)
$ 137,035 $ 518,280 $ (44,154)
Per limited partnership unit
(4,827,500 outstanding) $ .03 $ .11 $ (.01)
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 1994, 1993 and 1992
Cash Flows from Operating Activities:
1994 1993 1992
Net income (loss) $ 137,035 $ 518,280 $ (44,154)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation 1,790,033 1,802,859 1,794,099
Provision for earthquake
loss 750,000 - -
Increase (decrease) in
cash arising from changes
in operating assets and
liabilities:
Prepaid expenses (5,408) (73,204) 34,751
Accounts payable and
accrued expenses 216,935 (13,734) (35,702)
Deferred rent payable 45,396 45,396 225,395
Due to affiliates 8,301 (28,349) 19,962
Security deposits payable 1,000 7,950 1,325
Accrued real estate taxes - - (228,650)
Net cash provided by
operating activities 2,943,292 2,259,198 1,767,026
Cash Flows from
Investing Activities:
Additions to real estate (233,075) (32,879) (270,823)
Net cash used for investing
activities (233,075) (32,879) (270,823)
Cash Flows from
Financing Activities:
Distributions paid to partners (1,462,880) (1,097,160) (1,301,960)
Net cash used for
financing activities (1,462,880) (1,097,160) (1,301,960)
Net increase in cash
and cash equivalents 1,247,337 1,129,159 194,243
Cash and cash equivalents
at beginning of year 2,058,534 929,375 735,132
Cash and cash equivalents
at end of year $3,305,871 $2,058,534 $ 929,375
Supplemental Disclosure of
Noncash Investing Activities:
Capital expenditures funded
through accounts payable $ 47,829 $ - $ -
See accompanying notes to the consolidated financial statements.
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
1. Organization
Senior Income Fund L.P. (the "Partnership"), a Delaware limited partnership
(see below), was formed on October 14, 1986 for the purpose of acquiring a
general partnership interest in Shearson August Property Partnership (the
"Property Partnership"), a California general partnership. The Property
Partnership was formed to acquire and operate four specified senior residential
properties (the "Properties", see Note 7). The General Partner of the
Partnership is Senior Income Fund Inc., (the "General Partner"), a Delaware
corporation, and an affiliate of Lehman Brothers Inc. (see below). The sole
limited partner of the Property Partnership is August Financial Partners II
("AFP-II"), an affiliate of August Financial Corporation ("August"). The
Partnership will continue until December 31, 2036, unless terminated sooner in
accordance with the terms of the Partnership Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson changed
its name to Lehman Brothers Inc. ("Lehman Brothers"). The transaction did not
affect the ownership of the General Partner. However, the assets acquired by
Smith Barney included the name "Shearson." Consequently, effective October 29,
1993, the Shearson Lehman Senior Income Fund, Inc. General Partner changed its
name to Senior Income Fund Inc., and effective December 23, 1993, Shearson
Lehman Senior Income Fund Limited Partnership changed its name to Senior Income
Fund L.P.
The initial capital contributions to the Partnership totaled $110, representing
capital contributions of $100 by the General Partner and $10 by Shearson Lehman
Senior Depositary, Inc. (the Assignor Limited Partner).
The agreement of limited partnership authorized the issuance of 4,827,500
depositary units at $10 per unit, which represent assignments of economic and
certain other rights attributable to the partnership interests. The offering
period ended on March 17, 1987, at which time 4,827,500 depositary units had
been issued.
On March 25, 1987, the Property Partnership acquired the Properties from Senior
Inns of America Venture, an affiliate of August, for an aggregate purchase
price of $40,400,000, which was reduced by $1,491,664, the amount of purchase
price holdback used to cover the minimum yield guaranty (see Note 4). In
addition, an affiliate of the General Partner received $2,400,000 (see Note 7)
in connection with the acquisition of the Properties. In December 1986, August
had purchased a 100% interest in Senior Inns of America Venture for
$38,000,000.
2. Significant Accounting Policies
Financial Statements. The consolidated financial statements include the
accounts of the Partnership and the Property Partnership. The effect of
transactions between the Partnership and the Property Partnership have been
eliminated in consolidation.
Cash Equivalents. Cash equivalents consist of short-term highly liquid
investments, primarily commercial paper, which have maturities of three months
or less from the date of purchase. Certain cash reflected on the Partnership's
balance sheet at December 31, 1994 was on deposit with an affiliate of the
General Partner. Cash reflected on the Partnership's balance sheet at December
31, 1993 was on deposit with an unaffiliated party.
Concentration of Credit Risk. Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institutions' insurance limits.
The Partnership invests available cash with high credit quality financial
institutions.
Real Estate Investments. Real estate investments are stated at the lower of
cost or net realizable value and include the initial purchase price of the
property, legal fees, acquisition and closing costs.
Leases are accounted for under the operating method. Under this method,
revenue is recognized as rentals are earned and expenses (including
depreciation) are charged to operations when incurred. Leases are generally
for terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the properties. Maintenance and repairs are charged
to operations as incurred. Significant betterments and improvements are
capitalized and depreciated over their useful lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
In 1994, (see Note 11), the Partnership suffered earthquake damages and
consequently, a net building basis adjustment and corresponding reduction in
depreciation expense resulted.
Income Taxes. No provision for income taxes has been made in the financial
statements since income, losses and tax credits are passed through to the
individual partners.
3. Partnership Agreement
The Partnership Agreement provides for the allocation of Income, Losses,
Distributions of Net Cash Flow from Operations, Distributions of Net Proceeds
from Interim Capital Transactions and Distributions of Net Proceeds upon
Dissolution, as follows:
Income. Income is allocated 99% to the Limited Partners and 1% to the General
Partner until the Limited Partners have received their Preferred Return, as
defined. The balance is allocated 95% to the Limited Partners and 5% to the
General Partner.
Losses. Losses are allocated to the General Partner and Limited Partners in
proportion to, and to the extent of their positive capital account balances, as
defined. At such time as the partners' capital account balances are zero,
losses will be allocated in the same proportion as distributions.
Distributions of Net Cash Flow from Operations. Net Cash Flow from Operations
with respect to each fiscal year will generally be distributed 99% to the
Limited Partners and 1% to the General Partner, until such time as each Limited
Partner has received an amount equal to his Preferred Return, as defined. The
Partnership's share of any remaining Net Cash Flow from Operations will be
distributed 95% to the Limited Partners and 5% to the General Partner.
Distributions of Net Proceeds from Interim Capital Transactions. Net Proceeds
from Interim Capital Transactions, as defined, generally will be distributed
99% to the Limited Partners and 1% to the General Partner until each Limited
Partner has received an amount equal to his unpaid Cumulative Preferred Return
and Unrecovered Capital, as defined. The Partnership's share of any excess Net
Proceeds will be distributed 95% to the Limited Partners and 5% to the General
Partner.
Distributions of Net Proceeds upon Dissolution. Distributions in dissolution
will be made in proportion to partners' capital accounts. It is anticipated
that Net Proceeds from any final liquidation of the Partnership's assets
generally will be distributed 99% to the Limited Partners and 1% to the General
Partner until each Limited Partner has received an amount equal to any unpaid
Preferred Return and his Unrecovered Capital as defined. The Partnership's
share of any excess Net Proceeds generally will be distributed 95% to the
Limited Partners and 5% to the General Partner.
4. Minimum Yield Guaranty and Litigation Settlement
In connection with the acquisition of the Properties, AFP-II provided a minimum
yield guaranty which expired December 31, 1989 to the Partnership that the
Properties would generate sufficient revenues to fund all operating expenses
and pay the Partnership a minimum 9.09% yield on its Invested Capital, as
defined. To the extent net operating cash flows were not sufficient to provide
the minimum yield, additional amounts were to be funded by AFP-II. On February
15, 1989, the Partnership was informed by AFP-II and August that they were
financially unable to meet any continuing minimum yield obligations.
Subsequently, several class action lawsuits were commenced against the
Partnership. In October 1989, the Partnership entered into a Stipulation and
Agreement of Compromise and Settlement (the "Settlement"). Under the terms of
the Settlement, AFP-II was required to pay $2,500,000 which amount was deemed
to be additional invested capital and was fully offset by an expense
allocation. AFP-II has no further obligation to fund any amounts under the
minimum yield guaranty. Additional amounts owed to the partners under the
minimum yield guaranty for the default period amounted to $1,750,000 and were
paid directly by the Lehman Brothers Group, Inc. ("Group"), an affiliate of the
General Partner in February 1990. The Group's share of the minimum yield
guaranty has not been reflected in the accompanying financial statements, since
Group, while an affiliate of the General Partner, is not a partner.
Additional terms of the Settlement stipulate the following: (1) Group will
provide a minimum yield guaranty to the partners of 4.5% and 5.25% for the
years ended December 31, 1990 and 1991, respectively; (2) the Property
Partnership Agreement has been amended, reducing to 5% AFP-II's share of
potential distributions on dissolution and liquidation of the Property
Partnership (see Note 7); and (3) any amounts of unpaid Preferred Return (see
Note 3) which accrue after January 1, 1990 through the dissolution and
liquidation of the Partnership shall earn a 9% return, up to a maximum of
$10,000,000. Previously, the unpaid preferred return was non-interest bearing.
5. Property Management
As of April 6, 1988, the Partnership entered into a Property Management
Agreement with Leisure Care, Inc., (the "Operator"), which is not affiliated
with the General Partner or AFP-II. The Operator supervises the day-to-day
management of the Properties and acts as nonexclusive leasing agent for the
Properties.
On January 1, 1990 an amendment to the Property Management Agreement was
executed between the General Partner and the Operator and was effective through
December 31, 1993. Certain terms of the Property Management Agreement have
been modified as set forth in the amendment. Changes with respect to
compensation and/or fees are summarized herein: (i) for services rendered by
the Operator, a base monthly management fee will be paid for each property
equal to 4% of the operating revenue of each property; (ii) the marketing
incentive fee is deleted in its entirety from the Property Management Agreement
and (iii) the performance incentive fee will be deleted in its entirety and
replaced with the following terms: The Operator shall be entitled to payment
of a performance incentive fee in an amount equal to an additional 3% of the
operating revenue of the Properties. The performance incentive fee shall be
payable only for the years during which the Properties have produced pre-debt
profits in excess of the pre-debt profits threshold as defined, and, in no
event shall the performance incentive fee exceed the amount of the excess
pre-debt profits, as defined. The Operator is also entitled to a performance
bonus in an amount equal to 25% of any excess pre-debt profits. Each of the
parties may terminate the agreement at any time upon a default of the other
party. The Property Partnership shall have the right upon 30 days prior
written notice to the Operator to terminate the agreement under certain
circumstances, as defined. In addition, the Operator will also be reimbursed
for certain expenses incurred in connection with the Properties.
On December 31, 1993, the original Property Management Agreement expired and an
extension was executed between the General Partner and the Operator which is
effective through June 30, 1995. Certain terms of the original Property
Management Agreement have been modified as set forth in the extension. Changes
with respect to compensation and/or fees are summarized herein: (i) for
services rendered by the Operator, a base monthly management fee will be paid
for each property equal to 3% of the monthly collected gross income from each
property; (ii) for any remodel or addition to any of the properties costing in
excess of $10,000, the Owner shall pay Operator additional fees equal to 10% of
the total cost of the work managed by Operator. The fees shall be paid monthly
to Operator as costs are incurred; (iii) the performance incentive fee has been
replaced with the following terms: The Operator shall be entitled to payment
of three different types of performance incentive fees which shall be paid on
an estimated basis each month based on the year-to-date figures available for
that month. The Net Profit Incentive Fee, as defined in the Property
Management Agreement, equals 100% of the amount, if any, by which net profit
for all properties exceeds a yearly threshold amount. The Post-Replacement
Reserve Incentive Fee, as defined in the Property Management Agreement, equals
100% of the total excess net profit, if any, for all of the properties after
deducting an amount equal to 2% of the gross income. The Profit Sharing
Incentive Fee, as defined in the Property Management Agreement, equals 25% of
the final profit amount, if any, for all of the properties. However, each of
the three incentive fees will not exceed 1% of the total gross income for all
of the properties in any one year. Each of the parties may terminate the
agreement for any reason or no reason at all, upon 60 days prior written not
ice to the other party. In addition, the Operator will also be reimbursed for
certain expenses incurred in connection with the Properties.
Management fees for the years ended December 31, 1994, 1993 and 1992 amounted
to approximately $312,000, $381,000 and $365,000, respectively. The Operator
was owed approximately $55,000, $32,000 and $30,000 at December 31, 1994, 1993
and 1992, respectively.
For the year ended December 31, 1994, the Operator earned $264,953 in
performance incentive fees. Due to economic conditions for the years ended
1993 and 1992, the Operator did not earn a performance incentive fee nor a
performance bonus.
6. Related Party Transactions
The General Partner or its affiliates were reimbursed for administrative
expenses of approximately $61,000, $54,000 and $62,000 for the years ended
December 31, 1994, 1993 and 1992, respectively. The General Partner or its
affiliates were owed approximately $215,000, $207,000 and $235,000 at December
31, 1994, 1993 and 1992, respectively.
7. Real Estate
The following table sets forth the purchase price for each of the Properties,
which amounts do not include the amount of the purchase price holdback and
related acquisition expenses:
Initial
# of Acquisition
Property Name Units Location Cost
Pacific Inn 134 Torrance, California $13,927,368
Nohl Ranch Inn 133 Anaheim, California 12,864,211
Ocean House 119 Santa Monica, California 7,761,053
Prell Gardens 102 Van Nuys, California 5,847,368
$40,400,000
The acquisition fee of $2,400,000 paid to Lehman Brothers, and certain other
costs of $631,868 related to the acquisition of the Properties have been
allocated on a pro rata basis to the assets acquired.
The Property Partnership Agreement. With respect to the Property Partnership,
the Partnership had a 100% interest, during the guaranty period (through
December 31, 1989), in the income, losses and cash distributions of the
Property Partnership, other than expenses and deductions allocable to AFP-II to
the extent of its funding of the Minimum Yield Guaranty (see Note 4). After
the guaranty period, all income, losses and cash distributions will be
allocated 100% to the Partnership until it receives its Cumulative Preferred
Return, as defined, and thereafter 99.5% to the Partnership and .5% to AFP-II.
Distributions of Net Cash Flow from Operations, Net Proceeds from Interim
Capital Transactions and Net Proceeds upon Dissolution will generally be
distributed 95% to the Partnership and 5% to AFP-II.
8. Distributions Paid
Cash distributions, per the consolidated statements of partners' capital, are
recorded on the accrual basis, which recognize specific record dates for
payments within each calendar year. The consolidated statements of cash flows
recognize actual cash distributions paid during the calendar year. The
following table discloses the annual amounts as presented on the consolidated
financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31
1994 $ 365,720 $1,462,880 $1,462,880 $ 365,720
1993 - 1,462,880 1,097,160 365,720
1992 661,951 640,009 1,301,960 -
9. Commitments
The land on which Ocean House is located is leased to the Partnership under a
ground lease which expires in 2016. The lease carries renewal options for two
33-year periods. Under the ground lease, a sale of Ocean House by the
Partnership will require the consent of the lessor, which consent shall not be
unreasonably withheld. The Partnership is recording ground rent expense on a
straight-line basis, at an annual amount of $921,396, resulting in deferred
ground rent payable.
Future minimum rental payments to be paid under the ground lease at December
31, 1994 are as follows:
1995 $ 876,000
1996 876,000
1997 876,000
1998 876,000
1999 876,000
Thereafter 16,607,000
$ 20,987,000
10. Reconciliation of Net Income (Loss) to Taxable Income (Loss)
The following is a reconciliation of the net income (loss) for financial
statement purposes to net income (loss) for federal income tax purposes for the
years ended December 31, 1994, 1993 and 1992:
1994 1993 1992
Net income (loss) per
financial statements $ 137,035 $ 518,280 $ (44,154)
Depreciation deducted for tax
purposes in excess of
depreciation expense per
financial statements (69,673) (132,026) (132,024)
Tax basis Property Partnership
net income (loss) in excess
of GAAP basis Property
Partnership net income 1,003,399 (141,972) (431,914)
Other 514 536 272
Taxable net income (loss) $1,071,275 $ 244,818 $ (607,820)
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December
31, 1994, 1993 and 1992.
1994 1993 1992
Partners' capital per
financial statements $30,218,841 $31,544,686 $32,489,286
Adjustment for cumulative
difference between
tax basis net income (loss)
and net income (loss) per
financial statements (2,456,074) (3,389,800) (3,115,802)
Partners' capital per
tax return $27,762,767 $28,154,886 $29,373,484
11. Earthquake Loss
As a result of an earthquake that struck the greater Los Angeles area on
January 17, 1994, damages were sustained 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 engaged an independent appraiser to
determine the replacement costs which are estimated not to exceed $500,000 and
$250,000 for Ocean House and Prell Gardens, respectively, and will be funded
from Partnership cash reserves. The provision for earthquake loss is $750,000
which represents the estimated insurance deductibles for the two properties.
The building basis costs of Ocean House and Prell Gardens have been reduced by
the provision for earthquake loss. As repairs are incurred, the basis of the
buildings will be restored to their original levels. As of December 31, 1994,
Ocean House and Prell Gardens incurred earthquake repairs of $159,763 and
$41,110, respectively. Consequently, the net building basis reduction is
$549,127 at December 31, 1994.
The Partnership has engaged an independent structural and seismic engineer who
has advised the General Partner and the City of Santa Monica as it relates to
the Ocean House Property, that the repairs to date, at both Ocean House and
Prell Gardens, have rendered the buildings safe for continued occupancy. The
engineer is in the process of determining the extent of additional work
necessary at both buildings to increase their ability to withstand future
earthquakes. The cost of such work will be determined after further
engineering studies have been completed. The General Partner intends to
aggressively pursue reimbursement from the insurance carrier for any additional
costs, less the deductible under the Partnership's insurance policy. If
insurance is not available for any reason, the General Partner believes there
are adequate Partnership reserves to cover any work that may be performed.
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.
Report of Independent Accountants
To the Partners of
Senior Income Fund L.P.:
We have audited the consolidated balance sheets of Senior Income Fund Limited
Partnership, a Delaware limited partnership, and Consolidated Venture as of
December 31, 1994 and 1993, and the related statements of operations, partners'
capital (deficit) and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Senior Income Fund
Limited Partnership, a Delaware limited partnership, and Consolidated Venture
as of December 31, 1994 and 1993, and the consolidated results of their
operations and their cash flows for each of the years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 20, 1995
Report of Independent Accountants
Our report on the financial statements of Senior Income Fund Limited Partners,
a Delaware Limited Partnership, and Consolidated Venture has been incorporated
by reference in this Form 10-K from the Annual Report to unitholders of Senior
Income Fund Limited Partnership for the year ended December 31, 1994. In
connection with our audit of such financial statements, we have also audited
the related financial statement schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 20, 1995
SENIOR INCOME FUND L.P.
(a Delaware Limited Partnership)
and Consolidated Partnership
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1994
Initial Cost to Partnership
Buildings and
Description(1) Encumbrances (2) Land Improvements
Ocean House
Santa Monica, CA $ - $ - $ 7,496,394
Prell Gardens
Van Nuys, CA - 1,441,614 4,613,166
Pacific Inn
Torrance, CA - 2,402,690 11,436,807
Nohl Ranch Inn
Anaheim, CA - 816,915 12,157,614
$ - $ 4,661,219 $35,703,981
SENIOR INCOME FUND L.P.
(a Delaware Limited Partnership)
and Consolidated Partnership
Schedule III - Real Estate and Accumulated Depreciation (cont.)
December 31, 1994
Cost Capitalized Other Charges Add/(Deduct)
Subsequent to Acquisition During the Period (3)
Buildings and Buildings and
Description (1) Land Improvements Land Improvements
Ocean House
Santa Monica, CA $ - $1,073,819$ $ - $ (617,260)
Prell Gardens
Van Nuys, CA 103,834 974,115 (53,274) (379,366)
Pacific Inn
Torrance, CA 173,057 928,196 (88,789) (422,638)
Nohl Ranch Inn
Anaheim, CA 58,840 1,028,210 (30,188) (449,276)
$ 335,731 $4,004,340 $(172,251) $ (1,868,540)
SENIOR INCOME FUND L.P.
(a Delaware Limited Partnership)
and Consolidated Partnership
Schedule III - Real Estate and Accumulated Depreciation (cont.)
December 31, 1994
Gross Amount at Which Carried at Close of Period
------------------------------------------------
Buildings and Accumulated
Description Land Improvements Total Depreciation
Ocean House
Santa Monica, CA $ - $ 7,952,953 $ 7,952,953 $ 2,899,302
Prell Gardens
Van Nuys, CA 1,492,174 5,207,915 6,700,089 1,885,278
Pacific Inn
Torrance, CA 2,486,958 11,942,365 14,429,323 4,338,339
Nohl Ranch Inn
Anaheim, CA 845,567 12,736,548 13,582,115 4,542,716
$4,824,699 $37,839,781 $42,664,480 $13,665,635 (4)
SENIOR INCOME FUND L.P.
(a Delaware Limited Partnership)
and Consolidated Partnership
Schedule III - Real Estate and Accumulated Depreciation (cont.)
December 31, 1994
Life on which
Depreciation
in Latest
Income
Date Statements
Description Acquired is Computed
Ocean House
Santa Monica, CA 03/25/87 (5)
Prell Gardens
Van Nuys, CA 08/22/85 (5)
Pacific Inn
Torrance, CA 08/22/85 (5)
Nohl Ranch Inn
Anaheim, CA 05/30/86 (5)
(1) These properties are senior residential properties.
(2) The property partnership purchased the properties on an all cash basis.
(3) In 1990, the purchased price was reduced by the amount of the purchase
price holdback used to cover the minimum yield guaranty in the amount of
$1,491,664; In 1994, the building basis costs of Ocean House and Prell
Gardens were reduced by the provision for earthquake loss in the amount of
$750,000 and increased by earthquake repairs of $200,873, resulting in a
net building basis reduction of $549,127.
(4) The amount of accumulated depreciation for Federal income tax purposes is
$15,452,295.
(5) Buildings and improvements - 40 years; personal property - 10 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1994, 1993 and 1992:
Real Estate Investments: 1994 1993 1992
Beginning of year $43,133,576 $43,100,697 $42,829,874
Acquisitions 80,031 32,879 270,823
Write down for earthquake (549,127) - -
End of year $42,664,480 $43,133,576 $43,100,697
Accumulated Depreciation:
Beginning of year $11,875,602 $10,072,743 $ 8,278,644
Depreciation expense 1,790,033 1,802,859 1,794,099
End of year $13,665,635 $11,875,602 $10,072,743
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