UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to .
Commission file number: 33-12791
BEVERLY HILLS MEDICAL OFFICE PARTNERS, L.P.
Exact name of Registrant as specified in its charter
Delaware 95-4098476
State or other jurisdiction of
incorporation or organization I.R.S. Employer Identification No.
Attn.: Andre Anderson
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:
5,540,000 LIMITED PARTNERSHIP SECURITIES
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)
Aggregate market value of voting stock held by non-affiliates of the
registrant: Not applicable.
Documents Incorporated by Reference: Portions of Parts I, II and IV are
incorporated by reference to the Registrant's Annual Report to Unitholders for
the year ended December 31, 1995 filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business
Beverly Hills Medical Office Partners, L.P., a Delaware limited partnership
(the "Partnership," formerly Shearson Beverly Hills Medical Office Partners,
L.P., was formed on March 16, 1987. The Partnership will continue until
December 31, 2037 in accordance with the terms of its Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement"), unless
terminated earlier pursuant thereto. The affairs of the Partnership are
conducted by its general partner, Medical Office Properties Inc. (the "General
Partner," formerly Shearson Lehman Commercial Properties Inc., a Delaware
corporation. See Item 10 "Directors and Executive Officers of the
Registrant").
The Partnership was formed to acquire, upgrade, operate, and ultimately sell
the Beverly Sunset Medical Building located in the Cities of West Hollywood and
Los Angeles, Los Angeles County, California (the "Property"). The Partnership
acquired the fee interest in the land and improvements constituting the
Property on April 23, 1987 with funds from a $55,400,000 public offering (the
"Offering") of 5,540,000 Limited Partnership Securities ("Units").
(b) Financial Information About Industry Segments
The Partnership's sole business is the ownership and operation of the Property.
All of the Partnership's revenues, operating profits or losses and assets
relate solely to such industry segment.
(c) Narrative Description of Business
Objectives
The Partnership's principal objectives were to (i) provide quarterly cash
distributions, a portion of which were anticipated to be non-taxable due to
depreciation deductions, (ii) preserve and protect capital and (iii) achieve
long-term appreciation in the value of the Property for distribution upon sale.
However, due principally to changes in the health care industry which have
weakened the demand for medical office space and a general decline in
commercial real estate market conditions in the Los Angeles area, objective (i)
has not been achieved, and it is unlikely that objectives (ii) and (iii) can be
achieved.
Property Management
On November 1, 1992, the Partnership retained the Voit Management Company, L.P.
("Voit") as the new property manager and leasing agent for the Property. Voit
then retained Grubb and Ellis as exclusive leasing broker for the Property. On
April 24, 1994, the Partnership terminated the exclusive leasing agreement with
Grubb and Ellis and subsequently replaced them with Ramsey-Shilling Commercial
Real Estate Services, Inc., a specialized health care consulting and real
estate leasing firm.
Mortgage Financing
The Property is encumbered by a mortgage in the amount of $14,140,861 at
December 31, 1995. Information concerning the note's maturity date, interest
rate and repayment is incorporated by reference to Note 7 "Secured Note
Payable" of the Notes to the Financial Statements of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1995, filed as an exhibit
under Item 14.
Competition
The Property competes, to varying degrees, with approximately 22 buildings
comprising roughly 1.5 million square feet of space on the west side of Los
Angeles. According to a Ramsey-Shilling Commercial Real Estate Services, Inc.
survey, vacant space in the competitive market increased from approximately
215,845 (13.57%) at December 31, 1994 to approximately 247,311 square feet
(15.83%) as of December 31, 1995. Although there was no new construction of
competitive buildings in 1995, approximately 67,000 square feet of general
office space was converted to medical office space during 1995.
The distinction between "Class A" and "Class B" buildings in the Property's
competitive market stems primarily from location and physical appearance. The
Property's immediate market includes eight buildings located primarily in the
Beverly Hills central business and retail district, known as the "Golden
Triangle." The Property's location outside the "Golden Triangle" and distance
from area hospitals, such as Cedars Sinai, have constrained the rental rates
achievable at the Property relative to competitive Class A buildings in the
"Golden Triangle." Of the buildings which compete most directly with the
Property, 10 are considered to be Class A and contain approximately 811,000
square feet in aggregate. The other 12 buildings are considered Class B space
principally because of their location and parking facilities. These Class B
buildings total approximately 688,000 square feet of medical space.
Additional information regarding the Property and its competition is
incorporated by reference to the section entitled Message to Investors of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995, filed as an exhibit under Item 14.
Employees
The Partnership has no employees.
Item 2. Properties
A detailed description of the Property, leases considered material to the
Registrant's operations, and competition relevant to the specific market in
which the Property is located is incorporated by reference to the section
entitled Message to Investors of the Partnership's Annual Report to Unitholders
for the year ended December 31, 1995 and Note 4 "Property" of the Partnership's
Annual Report to Unitholders for the year ended December 31, 1995, filed as an
exhibit under Item 14.
Item 3. Legal Proceedings
The Registrant is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the Unitholders for a vote during the fourth
quarter of the year for which this report is filed.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
(a) Market Information
There is no established trading market for the Units nor is there anticipated
to be any in the future.
(b) Holders
As of December 31, 1995, there were 4,260 Unitholders.
(c) Distributions of Operating Cash Flow
The Partnership's initial policy was to distribute to Unitholders their
allocable portion of Net Cash Flow from Operations (as defined in the
Partnership Agreement incorporated herein by reference). Distributions of Net
Cash Flow from Operations, if any, were paid on a quarterly basis to registered
Unitholders on record dates established by the Partnership, which generally
were the last day of each quarter. Since inception, Unitholders have received
a total of $4.21 in cash distributions per original $10.00 Unit.
Beginning with the 1990 fourth quarter, cash distributions were suspended. The
General Partner determined that it was necessary to replenish the Partnership's
cash reserves to cover costs associated with, among other things, future
asbestos abatement, sprinklering and leasing of the individual tenant suites.
Further information is incorporated by reference to Note 4 "Property" of the
Partnership's Annual Report to Unitholders for the year ended December 31, 1995
filed as an exhibit under Item 14. It is currently intended that cash
distributions may resume, absent any restrictions by current or future lenders,
when the Property is generating sufficient cash flow to fund necessary expenses
and an adequate reserve for capital costs has been established.
Item 6. Selected Financial Data
The information set forth below should be read in conjunction with the
Partnership's financial statements and notes thereto and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations," also
included herein.
(dollars in thousands except per Unit data)
For the Years Ended December 31,
1995 1994 1993 1992 1991
Total Income 4,340 4,088 4,398 4,278 4,769
Property Operating Expenses (1,824) (1,923) (1,894) (2,000) (2,172)
Depreciation and Amortization (1,851) (1,778) (1,721) (1,657) (1,435)
General and Administrative Expenses* (229) (232) (279) (264) (250)
Net Loss (670) (976) (817) (1,147) (600)
Net Loss per Unit
(5,540,000 outstanding) (0.12) (0.18) (0.15) (0.21) (0.11)
Mortgage Note Payable 14,141 14,362 14,566 14,723 14,852
Total Assets 40,403 41,297 42,319 43,648 44,752
* including Asset Management Fees
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Liquidity and Capital Resources
At December 31, 1995, the Partnership had cash and cash equivalents of
$1,026,560, compared with $1,250,842 at December 31, 1994. The decrease is
attributable to net cash used for capital improvements and mortgage payments in
excess of net cash provided by operating activities for the year. The
Partnership also maintains a restricted cash balance, which is comprised of
security deposits and a real estate tax and insurance escrow. At December 31,
1995, the Partnership had restricted cash reserves of $468,992 compared with
$289,853 at December 31, 1994. The increase is primarily attributable to
higher monthly escrow contributions and a reduction in insurance premiums.
Accounts and other receivables increased from $40,580 at December 31, 1994 to
$363,192 at December 31, 1995. The increase is primarily due to real estate
tax refunds of approximately $315,000 earned during 1995 but received in 1996.
Prepaid expenses were $265,438 and $321,156, respectively, at December 31, 1995
and December 31, 1994. The decrease is primarily the result of lower prepaid
insurance due to a change in policy year from August to May effective in 1995
thus decreasing the amount of prepaid insurance at December 31, 1995 as
compared to December 31, 1994.
At December 31, 1995, other assets totalled $77,695 compared to $107,771 at
December 31, 1994. The decrease is due to the amortization of prepaid interest
and intangible assets.
In order to lease vacant space at the Property, the Partnership must pay
leasing commissions and tenant improvement costs associated with new leases.
The amount of such costs remains uncertain at this time and will depend upon
leasing activity and the extent of required tenant improvements. The General
Partner intends to fund such costs from net cash flow from operations and
Partnership cash reserves, to the extent possible. If necessary, the General
Partner would seek additional borrowings.
One of the retail tenants at the Property, the Hamburger Hamlet restaurant
occupying 10,351 square feet, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in November 1995. Pursuant to applicable bankruptcy law,
Hamburger Hamlet has until August 1996 to inform the Partnership whether the
restaurant will assume or reject its lease obligation. Hamburger Hamlet has
informally indicated that it intends to remain at the Property and continue
operating the restaurant, which is its flagship location.
On February 14, 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 29, 1996.
(b) Results of Operations
1995 Versus 1994
For the years ended December 31, 1995 and 1994, Partnership operations resulted
in net losses of $669,862 and $976,417, respectively. The decrease in net loss
is primarily attributable to an increase in other income and a decrease in
property operating expenses.
Rental income for the years ended December 31, 1995 and 1994 totalled
$3,922,449 and $3,913,869, respectively. The increase in rental income is
primarily attributable to increases in average occupancy during 1995 resulting
in increased base rents in 1995.
For the year ended December 31, 1995, other income totalled $322,632 compared
to $118,959 for the year ended December 31, 1994. The increase is attributable
to refunds of approximately $315,000 recognized in connection with the General
Partner's successful appeal of the Property's 1993-94 and 1994-95 real
estate tax assessments.
Interest income was $94,943 and $55,477, respectively, for the years ended
December 31, 1995 and 1994. The increase is due to higher rates of interest
earned on higher average cash balances in 1995 compared to 1994.
For the years ended December 31, 1995 and 1994, property operating expenses
totalled $1,824,269 and $1,923,409, respectively. The decrease is primarily
due to the successful abatement of 1995 real estate taxes related to the
successful real estate tax appeal.
1994 Versus 1993
For the years ended December 31, 1994 and 1993, Partnership operations resulted
in net losses of $976,417 and $816,874, respectively. The increase in net loss
is primarily attributable to an 8% decline in rental income combined with a 2%
increase in property operating expenses. This was partially offset by lower
interest expense and general and administrative expenses.
Rental income for the years ended December 31, 1994 and 1993 totalled
$3,913,869 and $4,230,772, respectively. The decrease in rental income is
primarily attributable to lower average occupancy in 1994, compared to 1993,
and lower rental rates on lease renewals. The General Partner was successful
in its appeal of the Property's 1991 and 1992 real estate tax assessments,
resulting in the refund of approximately $210,532 for the 1991 and 1992 tax
years. Of this amount, approximately $113,672 was recognized in 1993 and
$96,860 in 1994, as reported in other income.
For the years ended December 31, 1994 and 1993, property operating expenses
totalled $1,923,409 and $1,893,625, respectively. The slight increase is
primarily due to higher repair and maintenance expenses in 1994, reflecting a
number of preventive maintenance projects. Additionally, contract services and
insurance expense increased reflecting a union wage increase and an increase in
the cost of earthquake insurance, respectively. These increases were offset by
decreases in administrative, legal and advertising expenses and other
professional fees.
Interest expense totaled $1,121,714 for the year ended December 31, 1994
compared with $1,307,267 in 1993. The decrease is attributable to a decline in
the interest rate on the Partnership's note payable from 9.5% to 7.75%
effective October 1, 1993, and a lower outstanding balance.
General and administrative expenses for the year ended December 31, 1994
totalled $232,357, representing a decrease of $46,772, or approximately 17%
from $279,129 in 1993. The decrease is primarily the result of a decline in
legal, accounting salaries and other professional fees. Other professional
fees were higher in 1993 largely due to the property real estate tax appeal.
In addition, the General Partner waived the scheduled increase for its 1994
asset management fee, as described in Item 13.
Item 8. Financial Statements and Supplementary Data
See Item 14(a) for a listing of the Financial Statements and Supplementary data
filed in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no Directors or Executive Officers. The affairs of the
Partnership are conducted through the General Partner.
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. ("Lehman"). The transaction
did not affect the ownership of the Partnership or the Partnership's General
Partner. However, the assets acquired by Smith Barney included the name
"Shearson." Consequently, the general partner's name was changed to Medical
Office Properties Inc. and the Partnership's name was changed to Beverly Hills
Medical Office Partners, L.P. to delete any reference to "Shearson."
Certain officers and directors of the General Partner are now serving (or in
the past have served) as officers or directors of entities which act as general
partners of a number of limited partnerships which have sought protection under
the provisions of the federal Bankruptcy Code. The partnerships which have
filed bankruptcy petitions own assets which have been adversely affected by the
economic conditions in the markets in which that asset is located and,
consequently, the partnerships sought protection of the bankruptcy laws to
protect the partnerships' assets from loss through foreclosure.
The following is a list of the officers and directors of the General Partner at
December 31, 1995:
Name Office
Rocco F. Andriola Director, President and Chief Financial Officer
Michael T. Marron Vice President
Tim E. Needham Vice President
Rocco F. Andriola, 37, is a Senior Vice President of Lehman Brothers in its
Diversified Asset Group. Since joining Lehman Brothers in 1986, Mr. Andriola
has been involved in a wide range of restructuring and asset management
activities involving real estate and other direct investment transactions.
From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. degree from Fordham University, a J.D. degree from New York
University School of Law, and an LL.M degree in Corporate Law from New York
University's Graduate School of Law.
Michael T. Marron, 32, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively managed
and restructured a diverse portfolio of syndicated limited partnerships. Prior
to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick
Mitchell & Co. serving in both its audit and tax divisions from 1985 to 1989.
Mr. Marron received a B.S. degree in accounting from the State University of
New York at Albany in 1985 and is a Certified Public Accountant.
Timothy E. Needham, 27, is an Associate of Lehman Brothers and assists in the
management of commercial real estate in the Diversified Asset Group. Mr.
Needham joined Lehman Brothers in September 1995. Prior to joining Lehman
Brothers Mr. Needham was a consultant with KPMG Peat Marwick LLP in the Banking
and Investment Services Group from 1994-1995. Mr. Needham received his M.B.A.
from the American Graduate School of International Management in December 1993.
Previous to entering graduate school, Mr. Needham worked in Tokyo for
approximately one year doing market research for a Japanese firm. In addition,
Mr. Needham is a candidate for the designation of Chartered Financial Analyst,
Level II.
Item 11. Executive Compensation
All of the Directors and Executive Officers of the General Partner are
employees of Lehman. They do not receive any salaries or other compensation
from the Partnership. See Item 13 below with respect to a description of
certain transactions of the General Partner or its affiliates with the
Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
No person (including any "group" as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934) is known to the Partnership to be the
beneficial owner of more than 5% of the outstanding Units as of December 31,
1995.
(b) Security ownership of management
None of the Directors or Executive Officers of the General Partner owned any
units of the Partnership as of December 31, 1995.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions
The General Partner and certain affiliates may be reimbursed by the Partnership
for certain costs as described in the Partnership Agreement which is
incorporated herein by reference thereto. The General Partner is entitled to
an annual asset management fee in the amount of $50,000 per year. In light of
the Partnership's cash reserve requirements, the General Partner has deferred
payment of this fee. The resulting unpaid asset management fees as of December
31, 1995 and 1994 aggregated $285,500 and $235,500, respectively. As provided
in the Partnership Agreement, fees were scheduled to increase to $115,000 per
annum in 1991, however, the General Partner has waived the $65,000 increase in
each year since 1991.
First Data Investor Services Group, formerly The Shareholder Services Group,
provides partnership accounting and investor relations services for the
Registrant. Prior to May 1993, these services were provided by an affiliate of
the General Partner. The Registrant's transfer agent and certain tax reporting
services are provided by Service Data Corporation. Both First Data Investor
Services Group and Service Data Corporation are unaffiliated companies. For
additional information regarding fees paid and reimbursed to the General
Partner or its affiliates during 1995, 1994 and 1993, see Note 5, "Transactions
With Related Parties," to the Financial Statements which is incorporated by
reference to the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995, filed as an exhibit under Item 14.
PART III
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2)
Beverly Hills Medical Office Partners, L.P.
Index to the Financial Statements
Page
Number
Independent Auditors' Report: KPMG Peat Marwick LLP (1)
Balance Sheets - At December 31, 1995 and 1994 (1)
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 (1)
Statements of Partners' Capital (Deficit) for
the years ended December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 (1)
Notes to the Financial Statements (1)
Independent Auditors' Report on Schedule III F-1
Schedule III - Real Estate and Accumulated Depreciation F-2
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1995, which is filed as an
exhibit under Item 14.
(3) See Exhibit Index contained herein.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1995.
(c) Exhibits
Subject to Rule 12b-32 of the Securities Exchange Act of 1934 regarding
incorporation by reference, listed below are the exhibits which are filed as
part of this report. References to the Registration Statement are to the
Registrant's Registration Statement on Form S-11 which was declared effective
by the SEC on May 7, 1987.
3.0 Amended and Restated Agreement of Limited Partnership of the Registrant
is hereby incorporated by reference to Exhibit 3.0 to Form 10-K for the year
ended December 31, 1988.
4.1 Depository Receipt for Depository Units in the Registrant is hereby
incorporated by reference to Exhibit 4.1 to Form 10-K for the year ended
December 31, 1987.
10.1 Depository Agreement between the Registrant and Shearson Lehman
Commercial Properties Depository III Inc., as Assignor Limited Partner is
hereby incorporated by reference to Exhibit 10.3 to the Registration Statement.
10.2 Investor Services Agreement between Boston Safe Deposit and Trust
Company and the Registrant is hereby incorporated by reference to Exhibit 10.2
to Form 10-K for the year ended December 31, 1987.
10.3 Accounting Service Agreement between Boston Safe Deposit and Trust
Company and the Registrant is hereby incorporated by reference to Exhibit 10.2
to Form 10-K for the year ended December 31, 1987.
10.4 Note made by the Registrant in favor of American Savings Bank, FSB
dated August 19, 1988 is hereby incorporated by reference to Exhibit 10.5 to
Form 10-Q for the quarter ended September 30,1988.
10.5 Deed of Trust, Assignment of Rents and Security Agreement between the
Registrant and American Savings Bank, FSB dated August 19, 1988 is hereby
incorporated by reference to Exhibit 10.6 to Form 10-Q for the quarter ended
September 30,1988.
10.6 Indemnity Agreement between the Registrant and American Savings Bank,
FSB dated August 19, 1988 is hereby incorporated by reference to Exhibit 10.7
to Form 10-Q for the quarter ended September 30,1988.
10.7 Collateral Assignment of Lease and Rents between the Registrant and
American Savings Bank, FSB dated August 19, 1988 is hereby incorporated by
reference to Exhibit 10.8 to Form 10-Q for the quarter ended September 30,1988.
10.8 Financing Statements between the Registrant and American Savings Bank,
FSB dated August 19, 1988 is hereby incorporated by reference to Exhibit 10.9
to Form 10-Q for the quarter ended September 30,1988.
10.9 Management Agreement between the Registrant and Voit Management
Company, L.P. is hereby incorporated by reference to Exhibit 10.9 to Form 10-K
for the year ended December 31, 1992.
13.0 Annual Report to the Unitholders for the year ended December 31, 1995.
27.0 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BEVERLY HILLS MEDICAL OFFICE PARTNERS, L.P.
BY: Medical Office Properties Inc.
General Partner
Date: March 29, 1996 BY: /s/Rocco F. Andriola
Rocco F. Andriola
Director, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
MEDICAL OFFICE PROPERTIES INC.
General Partner
Date: March 29, 1996
BY: /s/Rocco F. Andriola
Rocco F. Andriola
Director, President and
Chief Financial Officer
Date: March 29, 1996
BY: /s/Michael T. Marron
Michael T. Marron
Vice President
Date: March 29, 1996
BY: /s/Timothy E. Needham
Timothy E. Needham
Vice President
Exhibit 13.0
Beverly Hills Medical Office Partners, L.P.
1995 Annual Report
Beverly Hills Medical Office Partners, L.P. was formed in 1987 for the purpose
of purchasing, operating, refurbishing, and ultimately selling the Beverly
Sunset Medical Building located at 9201 Sunset Boulevard in West Hollywood,
California (the "Property"). The Partnership is managed by Medical Office
Properties Inc. The Property, constructed in 1964, is a nine-story medical
office building located approximately one block east of the City of Beverly
Hills on the border between the Cities of Los Angeles and West Hollywood. The
Property contains 158,585 net rentable square feet of space which is leased
primarily to sole or small-group medical practitioners. Approximately 11% of
the Property's rentable square feet is ground floor retail space currently
occupied by a restaurant, pharmacy, real estate brokerage firm, and an
overnight package delivery service. The Property's parking facilities are
leased to AMPCO Parking through September 30, 1999.
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 (select option 1) 800-223-3464 (select option 2)
Presented for your review is the 1995 Annual Report for Beverly Hills Medical
Office Partners, L.P. (the "Partnership"). This report includes an overview of
industry and market conditions affecting the Beverly Sunset Medical Building as
well as an update of marketing initiatives, leasing progress and selected
financial highlights for the year.
Overview
During 1995, the Property's operating performance stabilized and modest leasing
progress was made despite highly competitive market conditions. The overall
demand for medical office space continues to decline due to a significant shift
away from fee-for-service ("private-pay") care to group health maintenance
organizations ("HMOs") and other managed care networks. This transition has
forced many sole practitioners to close or consolidate their practices or to
join alternative arrangements such as HMOs.
The market for medical office space on the Westside of Los Angeles continues to
be sluggish as evidenced by an increase in the vacancy rate from 14% in 1994 to
16% in 1995. This has heightened competition for new lease prospects and
renewals. To attract or retain tenants, building owners must often make
concessions in rental rates and fund significant tenant improvements. Although
a lack of new construction has left the supply of medical office space
relatively unchanged in recent years, the decreasing demand for such space has
contributed to the decline in rental rates. Competition is expected to remain
intense for the foreseeable future, and we are likely to encounter continued
difficulty in leasing the unoccupied space at the Property.
The Partnership has attempted to respond to these competitive pressures by
aggressively upgrading the Property and redirecting the strategy and focus of
our leasing efforts. We believe that these efforts are largely responsible for
the Property receiving the prestigious "Medical Office Building of the Year"
award from the Building Owners and Managers Association of Greater Los Angeles
("BOMA") in November 1995. We were also honored with the same award for the
Pacific Southwest Region covering California, Utah, Arizona and Hawaii. These
awards recognize the work completed over the past five years to improve and
maintain high standards in the areas of property appearance, mechanical and
energy management systems, tenant satisfaction and overall property
management. We hope that these awards will assist in the marketing of the
Property to prospective tenants.
Marketing Initiatives
Our marketing efforts during 1995 focused on two principal tenant profiles:
private-pay doctors similar to much of the existing tenant base and small- to
mid-sized managed care groups that have larger space needs. Although the
Property has continued to target managed care group prospects, private-pay
doctors constituted all but one of our signed leases during the past year. In
1996, we would like to increase the number of managed care groups relocating to
the Property.
During the third quarter, the General Partner sponsored two focus groups with
managed care providers in order to expose HMO professionals to the Property and
to better understand the factors which determine leasing decisions by these
groups. This provided us with the information necessary to develop two
distinct direct mail marketing campaigns. The first campaign selectively
targeted managed care groups, while the second was a mass-mail campaign aimed
at private-pay doctors. In both cases, we highlighted the Property's recent
Medical Office Building of the Year awards, prestigious location, impressive
views, superior amenities, and our understanding of the evolving space needs of
health care industry professionals and HMOs.
Leasing Progress
During the year, we executed three new leases totalling 3,810 square feet. One
of the new leases is with an optometrist who will be operating a retail outlet
on the Property's ground floor during the second quarter of 1996 after the
renovation of his space is complete. Another new lease is with a tenant whose
suite includes a state-of-the-art surgery center with two Medicare-certified,
state licensed operating rooms and a seven-bed recovery unit.
Of the 11,480 square feet that expired in 1995, approximately 83% (9,513 square
feet) was renewed or converted to month-to-month leases. These renewals were
partially offset by two tenants, representing 1,973 square feet, which left to
consolidate their practices after the expiration of their leases. As a result,
the Property's occupancy level rose slightly to 69.6% at year-end 1995 compared
with 68.4% at year-end 1994. Eight leases representing 13,642 square feet, or
approximately 8.6% of the Property's total rentable area, are scheduled to
expire in 1996. We are pleased to announce that two of these leases,
representing approximately 5,512 square feet, were already renewed in early
1996. Although we will attempt to renew the remaining leases, there can be no
assurance of success given the highly competitive market conditions.
One of the Property's retail tenants, the Hamburger Hamlet restaurant occupying
10,351 square feet, filed for protection under Chapter 11 bankruptcy in
November 1995 and has until August 1996 to either assume (i.e., remain at the
Property) or reject its lease obligation. On an informal basis, Hamburger
Hamlet has indicated that it intends to remain at the Property and continue
operating the restaurant which serves as its flagship location.
Capital Improvements
We have continued to make selective improvements to enhance the Property's
overall appearance and efficiency of operations. During 1995, we replaced the
aluminum mullions that border the glass panels on the Property's exterior. In
addition, we expanded the lobby to both facilitate access from the parking
garage and to meet the requirements of the Americans with Disabilities Act. As
part of our ongoing building maintenance program, we retrofitted the HVAC
system on two floors in 1995, leaving only two remaining floors to fully
complete the project in 1996. Additionally, we installed a new lighted sign
with the name of the building along the east wall of the Property facing Sunset
Boulevard in order to increase the visibility and awareness of the Property in
the community.
We also continue to install sprinklers and other fire/life safety hardware in
accordance with the safety codes of the City of West Hollywood. As previously
reported, the City of West Hollywood adopted an ordinance which requires the
installation of sprinklers and other fire/life safety equipment in all existing
high-rise buildings by February 3, 1997. In response, the General Partner
retained a building code consultant to analyze the fire/life safety
requirements applicable to the Property and to develop a plan to complete the
sprinkler retrofit. Our initial plan, which was approved by the City of West
Hollywood, involves performing the remaining retrofit during the remodeling of
tenant suites in connection with new leases and renewals. Under this plan,
approximately 32% of the tenant areas and 100% of all common areas have been
brought into compliance. We are currently requesting an extension of the
deadline to complete this work. If the extension is not granted, the pace of
the project will need to accelerate during 1996 as the deadline for compliance
approaches.
Financial Highlights
The following chart presents selected financial results of the Partnership for
the years ended December 31, 1995 and 1994:
1995 1994
Total Income $4,340,024 $4,088,305
Property Operating Expenses 1,824,269 1,923,409
Net Loss 669,862 976,417
Net Cash Flow from Operations 675,539 679,964
- - Total income increased 6% from 1994, largely due to refunds of approximately
$315,000 recognized in connection with the successful appeal of the Property's
1993-94 and 1994-95 real estate tax assessments. The Partnership also
successfully negotiated a substantial reduction of its assessment for the
1995-96 tax year. Rental income at the Property in 1995 was largely unchanged
from 1994.
- - Property operating expenses decreased 5% from 1994, primarily due to the
above property tax appeal, lower utility costs, and lower repair and
maintenance expenses.
- - The decrease in net loss for 1995 is largely the result of higher total
income and lower property operating expenses. Net cash flow remained largely
unchanged because the tax refunds discussed above were earned but not yet
received as of December 31, 1995.
Cash Reserves
Although the Property is generating positive cash flow from operations after
debt service and administrative costs, net cash flow is being retained to
replenish the Partnership's cash reserves. These reserves are necessary to
fund the Property's leasing and marketing initiatives and certain capital
improvements, including the HVAC, sprinkler and fire/life safety projects.
Should substantial additional leasing activity occur and/or we are unable to
obtain an extension of the sprinkler ordinance deadline, the Partnership will
need to approach the Property's lender to either restructure the existing loan
or attempt to borrow a sufficient amount to fund the associated costs involved.
Summary
Our efforts to reposition the Property to adapt to the changing health care
industry have thus far permitted the Partnership to stabilize operating
performance in a highly competitive environment and have earned the Property
the local and regional BOMA "Medical Office Building of the Year" awards. One
of our principal objectives in 1996 will be to capitalize on this recognition
by continuing our efforts to recruit managed care providers. We also intend to
remain attentive to the needs of our existing tenants and will aggressively
pursue the renewal of leases scheduled to expire during the year. All these
efforts, however, are likely to continue to be significantly impacted by the
highly competitive health care leasing environment in Los Angeles, and we
anticipate that leasing space will remain very challenging. We will keep you
apprised of our progress in future reports.
Very truly yours,
Medical Office Properties Inc.
The General Partner
/s/ Rocco F. Andriola
Rocco F. Andriola
President
March 29, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Property:
Land $8,379,434 $8,379,434
Building, building improvements and equipment 41,623,252 40,944,262
50,002,686 49,323,696
Less-accumulated depreciation (12,281,843) (10,527,620)
37,720,843 38,796,076
Restricted cash 468,992 289,853
Cash and cash equivalents 1,026,560 1,250,842
Accounts and other receivables 363,192 40,580
Leasing commissions and prepaid expenses,
net of accumulated amortization of
$206,634 in 1995 and $139,590 in 1994 265,438 321,156
Other assets, net of accumulated amortization of
$223,060 in 1995 and $192,984 in 1994 77,695 107,771
Deferred rent receivable 479,913 490,304
Total Assets $40,402,633 $41,296,582
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $204,852 $215,024
Due to affiliates 369,326 351,446
Security deposits payable 168,836 179,800
Secured note payable 14,140,861 14,361,692
Total Liabilities 14,883,875 15,107,962
Partners' Capital (Deficit):
General Partner (206,331) (206,331)
Limited Partners (5,540,000 units outstanding) 25,725,089 26,394,951
Total Partners' Capital 25,518,758 26,188,620
Total Liabilities and Partners' Capital $40,402,633 $41,296,582
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
General Limited
Partner Partners Total
Balance at December 31, 1992 $(206,331) $28,188,242 $27,981,911
Net loss - (816,874) (816,874)
Balance at December 31, 1993 (206,331) 27,371,368 27,165,037
Net loss - (976,417) (976,417)
Balance at December 31, 1994 (206,331) 26,394,951 26,188,620
Net loss - (669,862) (669,862)
Balance at December 31, 1995 $(206,331) $25,725,089 $25,518,758
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental $3,922,449 $3,913,869 $4,230,772
Other 322,632 118,959 122,769
Interest 94,943 55,477 44,228
Total Income 4,340,024 4,088,305 4,397,769
Expenses
Property operating 1,824,269 1,923,409 1,893,625
Depreciation and amortization 1,851,343 1,777,812 1,721,156
Interest 1,105,295 1,121,714 1,307,267
General and administrative 178,979 182,357 229,129
Asset management fees 50,000 50,000 50,000
Bad debt - 9,430 13,466
Total Expenses 5,009,886 5,064,722 5,214,643
Net Loss $(669,862) $(976,417) $(816,874)
Net Loss Allocated:
To the General Partner $ - $ - $ -
To the Limited Partners (669,862) (976,417) (816,874)
$(669,862) $(976,417) $(816,874)
Per limited partnership unit
(5,540,000 outstanding) $(0.12) $(0.18) $(0.15)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net loss $(669,862) $(976,417) $(816,874)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,851,343 1,777,812 1,721,156
Provision for loss on rent receivable - - 13,316
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (179,139) 2,996 60,981
Accounts receivable (322,612) (19,100) 27,982
Prepaid expenses (11,326) (101,056) (82,095)
Deferred rent receivable 10,391 (107,014) (160,895)
Accounts payable and accrued expenses (10,172) 9,051 (392,683)
Due to affiliates 17,880 84,193 50,168
Security deposits payable (10,964) 9,499 (12,689)
Net cash provided by operating activities 675,539 679,964 408,367
Cash Flows from Investing Activities:
Additions to real estate (645,980) (358,973) (772,877)
Accounts payable - real estate (33,010) 55,876 -
Restricted cash - reserves - - 1,390,372
Net cash provided by (used
for) investing activities (678,990) (303,097) 617,495
Cash Flows from Financing Activities:
Payments of principal on note payable (220,831) (204,415) (156,776)
Net cash used for financing activities (220,831) (204,415) (156,776)
Net increase (decrease) in cash
and cash equivalents (224,282) 172,452 869,086
Cash and cash equivalents at beginning of year1,250,842 1,078,390 209,304
Cash and cash equivalents at end of year $1,026,560 $1,250,842 $1,078,390
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $1,105,295 $1,121,714 $1,307,267
Supplemental Schedule of Non-Cash Investing Activity:
Write-off of fully depreciated
tenant improvements $- $393,073 $-
Notes to the Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
Beverly Hills Medical Office Partners, L.P., formerly Shearson Beverly Hills
Medical Office Partners, L.P., a limited partnership (the "Partnership"), was
organized on March 16, 1987 under the laws of the State of Delaware for the
purpose of acquiring, upgrading, operating and ultimately disposing of the
Beverly Sunset Medical Building (the "Property"). The Property was acquired
with funds obtained from a $55,400,000 public offering of 5,540,000 Limited
Partnership Securities ("Units"). The General Partner is Medical Office
Properties Inc. (the "General Partner"), formerly Shearson Lehman Commercial
Properties Inc., a Delaware corporation affiliated with Lehman Brothers Inc.
The General Partner manages the business affairs and operations of the
Partnership. The Partnership will terminate on December 31, 2037, or 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 Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. 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, Shearson Lehman Commercial Properties Inc. changed its name to Medical
Office Properties Inc. and effective December 31, 1993, the Partnership changed
its name to Beverly Hills Medical Office Partners, L.P. to delete any reference
to "Shearson."
On February 14, 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 29, 1996.
2. Significant Accounting Policies
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based upon estimated useful lives of thirty years for the
building and ten years for personal property. Tenant improvements are
depreciated over the respective lives of the leases using the straight-line
method.
Acquisition fees and expenses have been added to the basis of the Property and
are depreciated over the lives of the building and personal property.
Accounting for Impairment
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Partnership adopted FAS 121 during
the fourth fiscal quarter of 1995. Based on current circumstances, the
adoption of FAS 121 had no impact on the financial statements.
Loan Costs
Included in other assets are loan costs that are being amortized using the
straight-line method over the term of the note payable.
Leasing Commissions
Included in prepaid expenses are leasing commissions that are amortized using
the straight-line method over the terms of the respective leases.
Deferred Rent Receivable
Deferred rent receivable consists of rental income which is recognized on a
straight-line basis over the non-cancellable portion of the leases which will
not be received until later periods as a result of rental concessions and/or
general increases in rents.
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.
Cash Equivalents
Cash equivalents consist of short-term highly liquid investments which have
maturities of three months or less from the date of issuance. The carrying
value approximates fair value because of the short maturity of these
instruments.
Restricted Cash
Restricted cash includes security deposits, insurance and real estate tax
escrows.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires that the Partnership
disclose the estimated fair values of its financial instruments. Fair values
generally represent estimates of amounts at which a financial instrument could
be exchanged between willing parties in a current transaction other than in
forced liquidation. Fair value estimates are subjective and are dependent on a
number of significant assumptions based on management's judgement regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. In
addition, FAS 107 allows a wide range of valuation techniques, therefore,
comparisons between entities, however similar, may be difficult.
Reclassifications
Certain balances in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 presentation.
3. Partnership Allocations
Net income will generally be allocated based on the amounts of cash
distributions to each partner. Net losses will be allocated 99% to the
Unitholders and 1% to the General Partner. However, if either the Unitholders
or the General Partner have a capital deficit, the entire loss will be
allocated to the Partners with positive capital accounts.
Under the terms of the Partnership Agreement, Partnership Net Cash Flow from
Operations, as defined, will be distributed 99% to the Unitholders and 1% to
the General Partner until such time as the Unitholders receive a cumulative
preferred return of 12% per annum on their Unrecovered Capital, as defined.
Thereafter, Partnership Net Cash Flow from Operations, as defined, will be
distributed 85% to the Unitholders and 15% to the General Partner.
4. Property
The Beverly Sunset Medical Building, which contains approximately 158,585 net
rentable square feet of space, was acquired in 1987. The Property is located
at 9201 Sunset Boulevard in the city of West Hollywood, California. The
Property was approximately 69% and 68% leased at December 31, 1995 and 1994,
respectively.
In January 1989, the City of West Hollywood adopted Ordinance No. 214 (the
"Ordinance") which required the installation of sprinklers and other
life-safety equipment in all existing high-rise buildings by January 1992. On
April 20, 1992, the City of West Hollywood extended the deadline for completing
the sprinkler retrofit of tenant areas to February 3, 1997. In response, the
General Partner retained a building code consultant to analyze the fire/life
safety requirements applicable to the Property and to develop a plan to
complete the sprinkler retrofit. Our initial plan, which was approved by the
City of West Hollywood, involves performing the remaining retrofit during the
course of remodeling tenant suites in connection with new leasing and renewals.
Under this plan, approximately 32% of the tenant areas and 100% of all common
areas have been brought into compliance. We are currently requesting an
extension of the deadline. If the extension is not granted, the pace of the
project will need to accelerate during 1996 as the deadline for compliance
approaches.
The Property also contains asbestos-containing materials ("ACM") in certain
areas including the fireproofing material that covers the steel structure of
the building. Although the ACM has been determined to be non-hazardous in its
current condition, the Partnership is required to abate such ACM to the extent
that any ACM is at risk of being disturbed in the process of renovating the
public areas and installing sprinklers or in the remodeling of tenant suites.
The General Partner has retained an environmental consultant to provide project
management, air quality monitoring and project closeout documentation in
connection with the ACM abatement. The Partnership has no legal obligation to
implement a full abatement of the entire building at present. The presence of
ACM may or may not impact the future value of the Property.
All tenant improvements, asbestos abatements and sprinkler retrofit costs will
be funded from cash and cash equivalents and cash flow provided by operations.
Approximately $62,458 and $93,159 were spent on the sprinkler retrofit and
asbestos abatement in 1995 and 1994, respectively, which the Partnership
performed during the course of remodeling tenant suites in connection with new
leasing and renewals. In addition, $335,000 and $127,000 were expended for
tenant improvements during 1995 and 1994, respectively.
5. Transactions With Related Parties
Annual Asset Management Fee
The General Partner is entitled to an annual asset management fee in the amount
of $50,000 per year. In light of the Partnership's cash reserve requirements,
the General Partner has deferred payment of this fee. The resulting unpaid
asset management fees as of December 31, 1995 and 1994 aggregated $285,500 and
$235,500, respectively. As provided in the Partnership Agreement, fees were
scheduled to increase to $115,000 per annum in 1991, however, the General
Partner has waived the $65,000 increase in each year since 1991. An affiliate
of the General Partner paid for all travel expenses relating to the management
of the Partnership from 1991 until April 1, 1994 at which time the Partnership
began reimbursing the General Partner for its travel expenses.
General Partner Distribution
Cash distributions totalling $51,553, declared in prior years, remain payable
to the General Partner as of December 31, 1995.
Administrative Services
Under the terms of the Partnership Agreement, the Partnership reimburses the
General Partner, at cost, for the performance of certain administrative
services provided by a third party. For the years ended December 31, 1995,
1994, and 1993, costs of such services incurred were $57,281, $66,628 and
$84,718, respectively. At December 31, 1995 and 1994, $32,187 and $64,393
remained payable to the General Partner for reimbursement for the performance
of these services.
Certain cash and cash equivalents and restricted cash reflected on the
Partnership's balance sheets at December 31, 1995 and 1994 were on deposit with
an affiliate of the General Partner.
6. Tenant Leases
The Property's leases have terms from one to ten years and are leased primarily
to sole or small group medical practitioners. The parking facilities in the
Property are leased to AMPCO Parking through September 30, 1999. The lease with
AMPCO Parking requires annual minimum rent payments to the Property of $665,000
and additional rent payments contingent upon a percentage of excess gross cash
receipts. The Partnership accounts for all leases as operating leases.
The approximate annual rental payments from existing noncancellable operating
leases as of December 31, 1995 are as follows:
1996 $3,713,384
1997 3,117,396
1998 2,662,074
1999 1,846,777
2000 804,268
Thereafter 966,487
$13,110,386
7. Secured Note Payable
On August 13, 1988, the Partnership obtained a $15,000,000 ten-year loan (the
"Loan") from American Savings Bank (the "Bank"). The Loan is secured by the
Property and an assignment of the leases. The Loan had an interest rate of
9.5% per annum for the first five years with monthly payments of interest only
through September 1990. Monthly payments of $127,750 of principal and interest
were required through September 1993. Thereafter, the Loan was adjusted to a
new fixed rate equal to 250 basis points over the Federal Home Loan Bank's New
York District, Five Year Advance Rate and combined monthly payments of
principal and interest are based on a 25-year amortization schedule until
maturity on August 13, 1998. Effective October 1, 1993, the Loan interest rate
was reset to 7.75% per annum and monthly payments of principal and interest are
$110,511.
On June 12, 1992, the Bank was declared insolvent and placed in the hands of
the Federal Deposit Insurance Corporation ("FDIC") as receiver. In late 1993,
Colony NYRO Partners, L.P. ("Colony") purchased the Loan in an FDIC loan
auction sale. Subsequently, in December of 1994, Colony sold the Loan to
Fremont Investment & Loan. Although the Loan provides for maintenance of a
real estate tax escrow account with the lender, no amounts have been deposited
with the current lender. However, the Partnership has established its own
escrow account, and has remitted all real estate taxes for the period ended
December 31, 1995 directly to the taxing authority.
Future estimated minimum principal payments on the Loan are as follows:
1996 $ 238,568
1997 257,728
1998 13,644,565
$14,140,861
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar terms and average maturities, the fair value of
long-term debt approximates its carrying value.
8. Reconciliation of Financial Statement Net Loss to Federal Income Tax Net Loss
The Partnership's net loss reported in the financial statements for the year
ended December 31, 1995 exceeded the tax loss by $389,786. The net loss
reported in the financial statements exceeded the Federal Income tax loss for
the years ended December 31, 1994 and 1993 by $320,995 and $155,369,
respectively. These differences result primarily from the use of different
depreciation lives and methods for tax purposes than those used for financial
reporting purposes. In addition, rental income is recognized when received or
recorded as a receivable for tax purposes and on a straight-line basis for
financial statement purposes.
The partners' capital account balance on a federal income tax basis totalled
$27,277,710, $27,557,786 and $28,213,208 in 1995, 1994 and 1993,
respectively.
REPORT OF INDEPENDENT AUDITORS
The Partners
Beverly Hills Medical Office Partners, L.P.:
We have audited the accompanying balance sheets of Beverly Hills Medical Office
Partners, L.P. (a Delaware limited partnership) as of December 31, 1995 and
1994, and the related statements of operations, partners' capital (deficit),
and cash flows for each of the years in the three-year period ended December
31, 1995. These 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 provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Beverly Hills Medical Office
Partners, L.P. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
February 14, 1996
BEVERLY HILLS MEDICAL OFFICE PARTNERS, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Cost Capitalized
Subsequent
Initial Cost to Partnership To Acquisition
--------------------------- --------------
Building and Building and
Description Encumbrances Land Improvements Improvements
Commercial Property
Medical Office Building
Los Angeles, CA $14,140,861 $8,379,434 $32,803,390 $8,819,862
Gross Amount at Which Carried at Close of Period
----------------------------------------------
Building and Accumulated
Description Land Improvements Total(1) Depreciation
Commercial Property
Medical Office Building
Los Angeles, CA $8,379,434 $41,623,252 $50,002,686 $12,281,843
Life on which
Depreciation
in Latest
Date of Date Income Statements
Description Construction Acquired is Computed
Commercial Property
Medical Office Building
Los Angeles, CA 1964 04/23/87 3 - 30 years
(1) The aggregate cost for Federal Income tax purposes is approximately
$49,495,440.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993:
Real Estate investments: 1995 1994 1993
Beginning of year $40,944,262 $40,978,362 $40,205,485
Additions 678,990 358,973 772,877
Less Retirements 0 (393,073) 0
End of year $41,623,252 $40,944,262 $40,978,362
Accumulated Depreciation:
Beginning of year $10,527,620 $9,264,246 $7,636,829
Depreciation expense 1,754,223 1,656,447 1,627,417
Less Retirements 0 (393,073) 0
End of year $12,281,843 $10,527,620 $9,264,246
INDEPENDENT AUDITORS' REPORT
The Partners
Beverly Hills Medical Office Partners, L.P.:
Under date of February 14, 1996, we reported on the balance sheets of Beverly
Hills Medical Office Partners, L.P. (a Delaware limited partnership) as of
December 31, 1995 and 1994, and the related statements of operations, partners'
capital (deficit), and cash flows for each of the years in the three-year
period ended December 31, 1995, as contained in the 1995 annual report to unit
holders. These financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1995. In connection
with our audits of the aforementioned financial statements, we also have
audited the related financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Boston, Massachusetts
February 14, 1996
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<PERIOD-TYPE> 12-MOS
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<PERIOD-END> DEC-31-1995
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<RECEIVABLES> 363,192
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