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 March 31, 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 I.R.S. Employer Identification No.
Incorporation or Organization
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 March 31, At December 31,
1996 1995
Assets
Real estate:
Land $ 4,824,699 $ 4,824,699
Buildings and improvements 18,845,820 18,767,614
23,670,519 23,592,313
Less accumulated depreciation (5,269,590) (4,896,442)
18,400,929 18,695,871
Cash and cash equivalents 4,299,417 4,143,727
Prepaid expenses 143,990 136,282
---------- ----------
Total Assets $22,844,336 $22,975,880
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 260,487 $ 212,144
Deferred rent payable 1,157,122 1,145,774
Due to affiliates 215,534 228,104
Security deposits payable 141,525 145,475
Distributions payable 365,720 365,720
Total Liabilities 2,140,388 2,097,217
Partners' Capital (Deficit):
General Partner (44,315) (42,568)
Limited Partners (4,827,500 units outstanding) 20,748,263 20,921,231
---------- ----------
Total Partners' Capital 20,703,948 20,878,663
---------- ----------
Total Liabilities and Partners' Capital $22,844,336 $22,975,880
========== ==========
Consolidated Statement of Partners' Capital (Deficit)
For the three months ended March 31, 1996
General Limited
Partner Partners Total
Balance at December 31, 1995 $(42,568) $20,921,231 $20,878,663
Net income 1,910 189,095 191,005
Cash distributions (3,657) (362,063) (365,720)
Balance at March 31, 1996 $(44,315) $20,748,263 $20,703,948
Consolidated Statements of Operations
For the three months ended March 31, 1996 1995
Income
Rental $2,676,191 $2,631,174
Interest 45,964 41,475
Total income 2,722,155 2,672,649
Expenses
Payroll 758,370 735,467
Depreciation 373,148 448,518
Rent and utilities 408,576 428,800
General and administrative 380,674 383,883
Supplies 288,546 256,926
Repairs and maintenance 217,473 125,999
Real estate taxes 92,190 98,042
Travel and entertainment 12,173 10,387
Total expenses 2,531,150 2,488,022
Net Income $ 191,005 $ 184,627
Net Income Allocated:
To the General Partner $ 1,910 $ 1,846
To the Limited Partners 189,095 182,781
$ 191,005 $ 184,627
Per limited partnership unit
(4,827,500 outstanding) $.04 $.04
Consolidated Statements of Cash Flows
For the three months ended March 31, 1996 1995
Cash Flows From Operating Activities
Net income $ 191,005 $ 184,627
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 373,148 448,518
Increase (decrease) in cash arising from changes in
operating assets and liabilities
Accounts receivable -- (679)
Prepaid expenses (7,708) 37,345
Accounts payable and accrued expenses 20,148 66,591
Deferred rent payable 11,348 11,348
Due to affiliates (12,570) (4,724)
Security deposits payable (3,950) 4,225
Net cash provided by operating activities 571,421 747,251
Cash Flows From Investing Activities
Additions to real estate (50,011) (69,190)
Net cash used for investing activities (50,011) (69,190)
Cash Flows From Financing Activities
Distributions paid to partners (365,720) (365,720)
Net cash used for investing activities (365,720) (365,720)
Net increase in cash and cash equivalents 155,690 312,341
Cash and cash equivalents, beginning of period 4,143,727 3,305,871
Cash and cash equivalents, end of period $4,299,417 $3,618,212
Supplemental Disclosure of Non-Cash Investing Activities
Capital expenditures funded through accounts payable $ 28,195 $ --
Notes to the Consolidated Financial Statements
The unaudited financial statements should be read in conjunction
with the Partnership's annual 1995 audited financial statements
within Form 10-K.
The unaudited financial statements include all adjustments which
are, in the opinion of management, necessary to present a fair
statement of financial position as of March 31, 1996 and the
results of operations and cash flows for the three months ended
March 31, 1996 and 1995 and the statement of changes in partners'
capital (deficit) for the three months ended March 31, 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 S-
X, 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
independent appraisal. The General Partner engaged an
independent appraiser to determine the replacement costs, the
Partnership's deductible portion, 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. 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 contractor bids as it relates to Prell
Gardens and engineer 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 began at Prell Gardens in
May 1996. 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 specific to damage caused by the 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 is aggressively pursuing reimbursement from
the insurance carrier for any additional repair costs, less the
deductible, under the Partnership's insurance policy. However,
the insurance carrier has preliminary refused to pay for the cost
of the additional earthquake repairs, and as a result, the
Partnership has initiated litigation against the insurance
carrier and insurance broker. Attorneys for all parties are
currently taking depositions.
The General Partner intends to proceed with the repair work
regardless of the resolution of the legal action. 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 the
property. 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 March 31, 1996, Ocean
House and Prell Gardens have, cumulatively, incurred earthquake
repairs of $290,459 and $69,687, respectively.
Reclassifications Certain balances in the 1995 financial
statements have been reclassified to conform to the 1996
presentation.
Part 1, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
At March 31, 1996, the Partnership had cash and cash equivalents of
$4,299,417 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
limited partners.
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 contractor bids as it
relates to Prell Gardens and engineer 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 is aggressively pursuing reimbursement from the
insurance carrier for any additional repair costs, less the
deductible, under the Partnership's insurance policy, however the
insurance carrier has preliminary indicated that it will not
reimburse the Partnership for the cost of these additional
improvements. 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. Attorneys for all parties are
currently taking depositions. 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 commenced in May 1996. 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
specific to damage caused by the 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 anticipates a temporary decline in occupancy in
1996 and possibly 1997 at the affected properties, as some
residents may need to be relocated while work is completed. 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 General Partner intends to present the insurance
carrier with a claim for loss of rents to recover these additional
earthquake related costs.
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 March 31, 1996, Ocean House and Prell Gardens
have, cumulatively, incurred earthquake repairs of $290,459 and
$69,687, respectively.
The General Partner declared a cash distribution of $.075 per Unit for
the quarter ended March 31, 1996 which will be paid to investors in
May 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 $191,005 for the
three months ended March 31, 1996, largely unchanged from $184,627
for the three months ended March 31, 1995, as an increase in rental
income was offset by higher total expenses.
Rental income for the three months ended March 31, 1996 was
$2,676,191, compared with $2,631,174 for the corresponding period
in 1995. The increase can be primarily attributed to improved
average occupancy at Nohl Ranch, and is partially offset by the
decline in rental income at Prell Gardens as a result of lower
overall occupancy associated with the earthquake related repair
work. Interest income for the quarter ended March 31, 1996 was
$45,964, compared with $41,475 for the quarter ended March 31,
1995. The increase reflects higher average cash balances
maintained in 1996.
Total expenses were $2,531,150 for the three months ended March 31,
1996, compared with $2,488,022 for the three months ended March 31,
1995. The increase is primarily due to higher repairs and
maintenance expense, partially offset by a decrease in depreciation
expense. Repairs and maintenance expense increased to $217,473 for
the three months ended March 31, 1996, compared to $125,999 for the
comparable period in 1995. The increase is primarily attributable
to costs associated with termite extermination at Pacific Inn, and
improvements that were deemed to be non-capital expenditures at
both Pacific Inn and Prell Gardens. Preliminary indications are
that the costs associated with the extermination will be covered by
insurance. Depreciation was lower for the three months ended March
31, 1996, due to the write down of three of the Partnership's
properties to their fair market values at year-end 1995.
For the three months ended March 31, 1996, and 1995, the average
occupancy levels for the properties were as follows:
Property Rental Units 1996 1995
Nohl Ranch 133 97% 91%
Ocean House 121 89% 91%
Pacific Inn 134 98% 98%
Prell Gardens 102 79% 92%
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On February 20, 1996, based upon, among other things,
the advice of Partnership counsel, Skadden, Arps,
Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a
Change of Control (as defined below) occurs, the
General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-
day operations. "Change of Control" means any
purchase or offer to purchase more than 10% of the
Units that is not approved in advance by the General
Partner. In determining the amount of the
distribution, the General Partner may take into
account all material factors. In addition, the
Partnership will not be obligated to make any
distribution to any partner and no partner will be
entitled to receive any distribution until the General
Partner has declared the distribution and established
a record date and distribution date for the
distribution. The Partnership filed a form 8-K
disclosing this resolution on February 23, 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: May 15, 1996 BY: /s/ Moshe Braver
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 4,299,417
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 143,990
<PP&E> 23,670,519
<DEPRECIATION> (5,269,590)
<TOTAL-ASSETS> 22,844,336
<CURRENT-LIABILITIES> 260,487
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 20,703,948
<TOTAL-LIABILITY-AND-EQUITY> 22,844,336
<SALES> 2,676,191
<TOTAL-REVENUES> 2,722,155
<CGS> 000
<TOTAL-COSTS> 1,777,328
<OTHER-EXPENSES> 753,822
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 191,005
<INCOME-TAX> 000
<INCOME-CONTINUING> 191,005
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 191,005
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
