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 September 30, 1996
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
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 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 At September 30, At December 31,
1996 1995
Assets
Real estate:
Land $ 4,824,699 $ 4,824,699
Buildings and improvements 19,191,599 18,767,614
24,016,298 23,592,313
Less accumulated depreciation (6,023,426) (4,896,442)
17,992,872 18,695,871
Cash and cash equivalents 4,380,609 4,143,727
Prepaid expenses 201,493 136,282
Total Assets $22,574,974 $22,975,880
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 302,701 $ 212,144
Deferred rent payable 1,179,820 1,145,774
Due to affiliates 228,468 228,104
Security deposits payable 149,750 145,475
Distribution payable 365,720 365,720
Total Liabilities 2,226,459 2,097,217
Partners' Capital (Deficit):
General Partner (47,870) (42,568)
Limited Partners (4,827,500 units outstanding) 20,396,385 20,921,231
Total Partners' Capital 20,348,515 20,878,663
Total Liabilities and Partners' Capital $22,574,974 $22,975,880
Consolidated Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1996
General Limited
Partner Partners Total
Balance at December 31, 1995 $(42,568) $20,921,231 $20,878,663
Net income 5,670 561,341 567,011
Cash distributions (10,972) (1,086,187) (1,097,159)
Balance at September 30, 1996 $(47,870) $20,396,385 $20,348,515
Consolidated Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
Income
Rental $2,734,962 $2,784,429 $8,030,709 $8,082,273
Interest 46,548 60,306 149,071 143,649
Total Income 2,781,510 2,844,735 8,179,780 8,225,922
Expenses
Payroll 777,818 726,267 2,320,907 2,241,869
General and administrative 432,264 421,877 1,207,253 1,207,518
Rent and utilities 401,329 414,317 1,204,279 1,238,914
Depreciation 379,870 450,410 1,126,984 1,347,656
Supplies 279,661 295,016 852,697 824,963
Repairs and maintenance 170,783 191,351 590,711 472,234
Real estate taxes 95,860 102,208 280,240 303,782
Travel and entertainment 8,650 8,385 29,698 25,460
Total Expenses 2,546,235 2,609,831 7,612,769 7,662,396
Net Income $ 235,275 $ 234,904 $ 567,011 $ 563,526
Net Income Allocated:
To the General Partner $ 2,353 $ 2,349 $ 5,670 $ 5,635
To the Limited Partners 232,922 232,555 561,341 557,891
$ 235,275 $ 234,904 $ 567,011 $ 563,526
Per limited partnership unit
(4,827,500 outstanding) $.05 $.05 $.12 $.12
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1996 1995
Cash Flows From Operating Activities:
Net income $ 567,01 $ 563,526
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,126,984 1,347,656
Loss on disposal of asset - 6,998
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Prepaid expenses (65,211) 13,136
Accounts payable and accrued expenses 57,557 (118,874)
Deferred rent payable 34,046 34,046
Due to affiliates 364 12,824
Security deposits payable 4,275 6,725
Net cash provided by operating activities 1,725,026 1,866,037
Cash Flows From Investing Activities:
Additions to real estate (390,985) (219,965)
Proceeds from disposal of asset - 10,000
Net cash used for investing activities (390,985) (209,965)
Cash Flows From Financing Activities:
Distributions paid to partners (1,097,159 (1,097,159)
Net cash used for financing activities (1,097,159)(1,097,159)
Net increase in cash and cash equivalents 236,882 558,913
Cash and cash equivalents, beginning of period 4,143,727 3,305,871
Cash and cash equivalents, end of period $4,380,609 $3,864,784
Supplemental Disclosure of Non-Cash Investing Activities:
Capital expenditures funded
through accounts payable in 1996 $ 33,000 $ -
Notes to the Consolidated Financial Statements
The unaudited consolidated financial statements should be read in conjunction
with the Partnership's annual 1995 audited consolidated financial statements
within Form 10-K.
The unaudited consolidated financial statements include all adjustments
which are, in the opinion of management, necessary to present a fair
statement of financial position as of September 30, 1996 and the results of
operations for the three and nine months ended September 30, 1996 and 1995,
cash flows for the nine months ended September 30, 1996 and 1995, and the
statement of partners' capital (deficit) for the nine months ended September
30, 1996. 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 subsequent to fiscal year 1995,
or the following material contingencies exist, which requires disclosure in
this interim report per Regulation SX, Rule 10-01, Paragraph (a)(5):
As a result of the Northridge 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 costs of the properties, as
determined by an independent appraisal. The General Partner engaged an
independent appraiser to determine the replacement costs, and the Partnership's
deductibles, 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 of $750,000, which was recorded in
1994, represents the estimated insurance deductibles for the two properties.
The Partnership engaged an independent structural and seismic engineer who
advised the General Partner, and the City of Santa Monica as it relates to
Ocean House, that the repairs to date, at both Ocean House and Prell Gardens,
have rendered both buildings safe for continued occupancy. However, the
engineer concluded that additional structural improvements would be needed to
make both buildings less vulnerable to future earthquakes, and to bring them
into compliance with building codes enacted subsequent to the construction of
the properties (the "Retrofit Work") and building codes that were enacted after
the January 1994 earthquake (the "Structural Enhancements"). The total cost to
complete the work at both buildings is estimated to be approximately $4.8
million. This total is inclusive of the cost of the initial work already
completed, the estimated cost of the Retrofit Work and Structural Enhancements
and the cost to complete other less immediate earthquake-related repair work.
The total approximate cost is based on the most recent contract as it relates
to Prell Gardens and engineering estimates as it relates to Ocean House. While
the General Partner feels it is important to complete this work, the repairs
are structural in nature, and are therefore, not expected to enhance the
overall value of the buildings.
With respect to Prell Gardens, the City of Los Angeles recently approved the
Partnership's plans and granted the Partnership the necessary permits to begin
work. Work at Prell Gardens is underway. The Partnership's contractor
estimates that the work will cost approximately $1.4 million and will require
10 to 15 months to complete.
The Retrofit Work and Structural Enhancements have not yet begun at the Ocean
House property. Plans pertaining to the repairs at Ocean House have been
prepared, however they have not been submitted to the City of Santa Monica,
where the property is located. In June 1994, the City of Santa Monica enacted
a new building ordinance as a result of the Northridge Earthquake. However, due
to pressure from numerous Santa Monica property owners, the City is currently
considering a revision of this new ordinance and to date no revision has been
made. The Partnership's construction plans, estimated to cost approximately
$3.4 million, have been prepared in accordance with the new ordinance. The
possible revision being considered by the City of Santa Monica could reduce the
scope and final cost of the work. At this time, it is uncertain when the City
of Santa Monica will make its final decision.
The General Partner has aggressively pursued reimbursement from the insurance
carrier for any additional repair costs, less the deductible, under the
Partnership's insurance policy. However, the insurance carrier has
preliminarily refused to cover the cost to bring the buildings into compliance
with building codes enacted after the Northridge Earthquake. The insurance
carrier also disputes the amount of damage the buildings sustained. As a
result, the General Partner initiated litigation against the insurance carrier
and insurance broker. A tentative settlement of that litigation has been
negotiated and, if completed, should be resolved by the end of 1996. This
tentative settlement, if completed, is expected to result in a substantial
payment to the Partnership relative to the anticipated cost of the work at
Ocean House and Prell Gardens. If the settlement is not consummated or if
insurance coverage is not available for any reason, the General Partner
believes there should be adequate Partnership reserves to fund the required
repairs, however any funding could adversely impact the Partnership's cash
position and its ability to pay future cash distributions.
During November 1995, the insurance carrier determined that the damage
sustained at the Prell Gardens property was in excess of the applicable
$250,000 deductible, leaving a net claim of $28,531 which was paid to the
Partnership and applied against building basis. The net claim of $28,531
represents the undisputed amount under this claim, notwithstanding the separate
claims relating to the structural improvements required at Prell Gardens. The
insurance carrier determined for the Ocean House property that the damage
sustained was less than the applicable deductible of $500,000.
The building basis costs of Ocean House and Prell Gardens were reduced by the
$750,000 provision for earthquake loss in 1994. As repairs are incurred, the
basis of the buildings will be restored to their original levels. At September
30, 1996, Ocean House and Prell Gardens have, cumulatively, incurred earthquake
repairs of $355,952 and $177,434, respectively.
Part 1, Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
At September 30, 1996, the Partnership had cash and cash equivalents of
$4,380,609 compared with $4,143,727 at December 31, 1995. The increase is
primarily attributable to net cash from operations exceeding additions to real
estate and cash distributions to the partners.
Prepaid expenses at September 30, 1996 were $201,493 compared to $136,282 at
December 31, 1995. The increase is due to the payment of the 1996/1997
insurance premium in June 1996, partially offset by the amortization of
insurance for the nine months ended September 30, 1996.
Accounts payable and accrued expenses were $302,701 at September 30, 1996,
compared to $212,144 at December 31, 1995. The increase is the result of the
timing of payments and required accruals.
As a result of the Northridge earthquake that struck the greater Los Angeles
area on January 17, 1994, damage was sustained at two of the Partnership's
properties, Ocean House and Prell Gardens. Shortly after the earthquake, the
Partnership hired an independent structural and seismic engineer to assess the
damage at both properties. The engineer informed the Partnership that repairs
completed immediately after the earthquake have rendered both buildings safe
for continued occupancy. However, the engineer concluded that additional
structural improvements would be needed to make both buildings less vulnerable
to future earthquakes, and to bring them into compliance with building codes
enacted subsequent to the construction of the properties (the "Retrofit Work")
and building codes that were enacted after the January 1994 earthquake (the
"Structural Enhancements"). The total cost to complete the work at both
buildings is estimated to be approximately $4.8 million. This total is
inclusive of the cost of the initial work already completed, the estimated cost
of the Retrofit Work and Structural Enhancements and the cost to complete other
less immediate earthquake-related repair work. The total approximate cost is
based on the most recent contract as it relates to Prell Gardens and
engineering estimates as it relates to Ocean House. While the General Partner
feels it is important to complete this work, the repairs are structural in
nature, and are therefore, not expected to enhance the overall value of the
buildings.
The General Partner has aggressively pursued reimbursement from the insurance
carrier for any additional repair costs, less the deductible, under the
Partnership's insurance policy. However, the insurance carrier has
preliminarily refused to cover the cost to bring the buildings into compliance
with building codes enacted after the Northridge Earthquake. The insurance
carrier also disputes the amount of damage the buildings sustained. The General
Partner believes that per the terms of the insurance policy, the insurance
carrier should cover these costs, and on September 15, 1995, litigation was
initiated in Los Angeles Superior Court against the insurance carrier and the
Partnership's insurance broker. A tentative settlement of that litigation has
been negotiated and, if completed, should be resolved by the end of 1996. This
tentative settlement, if completed, is expected to result in a substantial
payment to the Partnership relative to the anticipated cost of the work at
Ocean House and Prell Gardens. If the settlement is not consummated or if
insurance coverage is not available for any reason, the General Partner
believes there are adequate Partnership reserves to fund the required repairs,
however any funding could adversely impact the Partnership's cash position and
its ability to pay future cash distributions.
With respect to Prell Gardens, the City of Los Angeles has approved the
Partnership's plans and has granted the Partnership the necessary permits to
begin work, which is currently underway. The Partnership's contractor estimates
that the cost of the work will be approximately $1.4 million and will require
10 to 15 months to complete.
The Retrofit Work and Structural Enhancements have not yet begun at the Ocean
House property. Plans pertaining to the repairs at Ocean House have been
prepared, however they have not been submitted to the City of Santa Monica,
where the property is located. In June 1994, the City of Santa Monica enacted
a new building ordinance as a result of the Northridge Earthquake. However, due
to pressure from numerous Santa Monica property owners, the City is currently
considering a revision of this new ordinance and to date no revision has been
made. The Partnership's construction plans, estimated to cost approximately
$3.4 million, have been prepared in accordance with the new ordinance. The
possible revision being considered by the City of Santa Monica could reduce the
scope and final cost of the work. At this time, it is uncertain when the City
of Santa Monica will make its final decision.
While the work at Prell Gardens is completed during the remainder of 1996 and a
portion of 1997, the General Partner plans to reduce occupancy through natural
attrition and then relocate residents to unoccupied units within the building,
rather than to an off-site facility. Although the General Partner's plan is
expected to reduce the expense of moving residents, the process will interrupt
the normal course of the operations at the properties by reducing occupancy and
rental income. The tentative settlement of the insurance litigation, if
consummated, will include settlement of any potential loss of rent claims.
The building basis costs of Ocean House and Prell Gardens were reduced by the
$750,000 provision for earthquake loss in 1994. As repairs are incurred, the
basis of the buildings will be restored to their original levels. At September
30, 1996, Ocean House and Prell Gardens have, cumulatively, incurred earthquake
repairs of $355,952 and $177,434, respectively.
The General Partner declared a cash distribution of $.075 per Unit for the
quarter ended September 30, 1996 which will be paid to investors in November
1996. The level of future distributions will be determined on a quarterly
basis and will be based on cash flow from operations, tempered by the
Partnership's capital needs, including additional earthquake related repairs at
Prell Gardens and Ocean House. Accordingly, cash distributions could be
reduced or suspended at any time.
Results of Operations
Partnership operations resulted in net income of $235,275 and $567,011 for the
three and nine months ended September 30, 1996, largely unchanged from $234,904
and $563,526 for the three and nine months ended September 30, 1995, as a
decrease in depreciation expense was partially offset by increases in
operational expenses and a decrease in rental income.
Rental income for the three and nine months ended September 30, 1996 was
$2,734,962 and $8,030,709, compared with $2,784,429 and $8,082,273 for the
corresponding periods in 1995. The slight decrease can be primarily attributed
to a decline in rental income at Prell Gardens as a result of lower overall
occupancy associated with the earthquake related repair work. The decrease was
partially offset by an increase in rental income at the other three properties,
particularly Nohl Ranch, as a result of higher average occupancy in 1996.
Interest income was $46,548 and $149,071 for the three- and nine-month periods
ended September 30, 1996, compared to $60,306 and $143,649 for the same periods
in 1995.
Total expenses were $2,546,235 and $7,612,769 for the three and nine months
ended September 30, 1996, compared with $2,609,831 and $7,662,396 for the
corresponding periods in 1995. The decrease for the three-month period is
primarily due to lower depreciation, rent and utilities and supplies expenses
and was partially offset by higher payroll and general and administrative
expenses. The decrease in the nine-month period is primarily due to lower
depreciation and real-estate tax expenses and was partially offset by higher
repairs and maintenance, supplies, and payroll expenses. Repairs and
maintenance expense was $170,783 and $590,711 for the three and nine months
ended September 30, 1996, compared to $191,351 and $472,234 for the comparable
periods in 1995. The increase for the nine-month period is primarily
attributable to costs associated with termite extermination at Pacific Inn, and
improvements that were, for financial reporting purposes, deemed to be
non-capital expenditures at both Pacific Inn and Prell Gardens. Depreciation
was lower for both the three- and nine-month periods ended September 30, 1996,
due to the write down of three of the Partnership's properties to their fair
market values at year-end 1995, establishing a new basis in accordance with
FASB 121.
For the nine months ended September 30, 1996, and 1995, the
average occupancy levels for the properties were as follows:
Property Rental Units 1996 1995
Nohl Ranch 133 97% 94%
Ocean House 121 91% 92%
Pacific Inn 134 97% 97%
Prell Gardens 102 73% 95%
Part II Other Information
Items 1-4 Not applicable.
Item 5 Other Information.
On November 8, 1996, LAVRA, Inc. commenced a tender
offer to purchase up to 2,027,550 outstanding Units
at a net cash price of $5 per Unit. The tender
offer is scheduled to expire on December 9, 1996.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended September 30, 1996.
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: November 14, 1996 BY:/s/ Moshe Braver
President
Date: November 14, 1996 BY:/s/ Sean Donahue
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 4,380,609
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 201,493
<PP&E> 24,016,298
<DEPRECIATION> (6,023,426)
<TOTAL-ASSETS> 22,574,974
<CURRENT-LIABILITIES> 302,701
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 20,348,515
<TOTAL-LIABILITY-AND-EQUITY> 22,574,974
<SALES> 8,030,709
<TOTAL-REVENUES> 8,179,780
<CGS> 000
<TOTAL-COSTS> 5,278,532
<OTHER-EXPENSES> 2,334,237
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 567,011
<INCOME-TAX> 000
<INCOME-CONTINUING> 567,011
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 567,011
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
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