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
For the fiscal year ended: December 31, 1996
[ ] 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: 33-12791
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, 1996 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," or the "Registrant") (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 Partnership."
The Partnership was formed to acquire, upgrade, operate, and
ultimately sell the Beverly Sunset Medical Building located in
the Hollywood, 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, objective (i) has
not been achieved, and it is unlikely that objectives (ii) and
(iii) can be achieved.
Property Management
Property management services are provided by Voit Management
Company, L.P. ("Voit") pursuant to a Management Agreement
executed on November 1, 1992. In May 1996, the Partnership
terminated its exclusive leasing agreement with Ramsey-Shilling
Commercial Real Estate Services, Inc. and engaged the services of
CB Commercial Real Estate Group, Inc. ("CB Commercial") in June
1996. CB Commercial is one of the largest real estate brokerage
firms in the nation and has significant experience in leasing
medical office space in the market where the Property is located.
Mortgage Financing
The Property is encumbered by a mortgage in the amount of
$13,902,293 at December 31, 1996. Information concerning the
note's maturity date, interest rate and repayment is incorporated
herein 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, 1996, filed as an
exhibit under Item 14.
Competition
The Property competes, to varying degrees, with approximately 22
buildings consisting of approximately 1.5 million square feet of
space in West Los Angeles. 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 of the
"Golden Triangle" and its distance from major hospitals has
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 representing an aggregate of
approximately 811,000 square feet. The other 12 buildings are
considered Class B space principally because of their location
and parking facilities. These Class B buildings represent a
total of approximately 688,000 square feet of medical space.
Additional information regarding the Property and its competition
is incorporated herein by reference to the section entitled
"Message to Investors" in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an
exhibit under Item 14.
Employees
The Partnership has no employees.
Item 2. Properties
A detailed description of the Property, leases which are
considered to be material to the Partnership's operations, and
competition with respect to the specific market in which the
Property is located are incorporated herein by reference to the
section entitled "Message to Investors" in the Partnership's
Annual Report to Unitholders for the year ended December 31, 1996
and Note 4 "Property" and Note 6 "Tenant Leases" of the Notes to
the Financial Statements in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, 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, and it is
not anticipated that such a market will develop in the future.
(b) Holders
As of December 31, 1996, there were 4,239 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 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 the Partnership's inception,
Unitholders have received a total of $4.21 in cash distributions
per original $10 Unit.
Beginning with the fourth quarter of 1990, 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 herein by reference
to Note 4 "Property" of the Notes to the Financial Statements in
the Partnership's Annual Report to Unitholders for the year ended
December 31, 1996 filed as an exhibit under Item 14.
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."
For the Years Ended December 31,
(dollars in thousands
except per Unit data) 1996 1995 1994 1993 1992
Total Income $ 4,096 $ 4,340 $ 4,088 $ 4,398 $ 4,278
Property Operating Expenses (1,775) (1,824) (1,923) (1,894) (2,000)
Depreciation and Amortization (1,897) (1,851) (1,778) (1,721) (1,657)
General and
Administrative Expenses(2) (237) (229) (232) (279) (264)
Net Loss (901) (670) (976) (817) (1,147)
Net Loss per Unit
(5,540,000 outstanding) (0.16) (0.12) (0.18) (0.15) (0.21)
Secured Note Payable 13,902 14,141 14,362 14,566 14,723
Total Assets 39,251 40,403 41,297 42,319 43,648
(2) 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, 1996, the Partnership had cash and cash
equivalents of $1,648,513, as compared with $1,026,560 at
December 31, 1995. The increase is attributable to net cash
provided by operating activities exceeding cash used for real
estate additions and mortgage principal payments.
Accounts and other receivables decreased from $363,192 at
December 31, 1995 to $105,552 at December 31, 1996. The decrease
is primarily due to the receipt of real estate tax abatements for
the 1992-93, 1993-94 and 1994-95 tax years in 1996.
At December 31, 1996, other assets totaled $47,620, as compared
to $77,695 at December 31, 1995. The decrease is due to the
amortization of prepaid interest and intangible assets.
Deferred rent receivable was $388,464 at December 31, 1996, as
compared with $479,913 at December 31, 1995. The decrease is
attributable to the straight-line amortization of base rent,
offset by lease renewals and expansions in 1996.
Accounts payable and accrued expenses were $213,517 at December
31, 1996, as compared to $237,039 at December 31, 1995. The
decrease is primarily due to the payment of accrued professional
fees and the payment of accrued expenses associated with tenant
expansions and improvements.
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 the extent of leasing
activity and tenant improvements. The General Partner intends to
fund such costs from net cash flow from operations and the
Partnership's cash reserves to the fullest 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.
Hamburger Hamlet has until April 1997 to inform the Partnership
whether the restaurant will assume or reject its lease
obligation. Hamburger Hamlet has informally indicated its
intention 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 legal counsel, 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.
(b) Results of Operations
1996 versus 1995
For the years ended December 31, 1996 and 1995, Partnership
operations resulted in net losses of $900,981 and $669,862,
respectively. The increase in net loss was primarily
attributable to a decrease in other income in 1996.
Rental income for the years ended December 31, 1996 and 1995
totaled $3,978,679 and $3,922,449 respectively. The increase in
rental income was primarily attributable to increases in average
occupancy in 1996.
Interest income was $100,343 and $94,943 for the years ended
December 31, 1996 and 1995, respectively. The increase was due to
higher average cash balances in 1996 compared to 1995.
Other income was $17,140 for the year ended December 31, 1996,
compared with $322,632 for the year ended December 31, 1995. The
decrease was attributable to refunds of approximately $315,000
recognized in 1995 in connection with the General Partner's
successful appeal of the Property's 1992-93, 1993-94 and 1994-95
real estate tax assessments.
For the years ended December 31, 1996 and 1995, property
operating expenses totaled $1,774,810 and $1,824,269,
respectively. The decrease was primarily due to a decrease in
insurance, advertising, utilities and real estate and other
taxes, and was partially offset by an increase in miscellaneous
expenses and professional fees.
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 was 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
totaled $3,922,449 and $3,913,869, respectively. The increase in
rental income was primarily attributable to increases in average
occupancy during 1995 which resulted in an increase in base rents
in 1995.
For the year ended December 31, 1995, other income totaled
$322,632 as compared to $118,959 for the year ended December 31,
1994. The increase was attributable to refunds of approximately
$315,000 recognized in 1995 in connection with the General
Partner's successful appeal of the Property's 1992-93, 1993-94
and 1994-95 real estate tax assessments.
Interest income was $94,943 and $55,477, for the years ended
December 31, 1995 and 1994, respectively. The increase was due
to higher rates of interest earned on higher average cash
balances in 1995 as compared to 1994.
For the years ended December 31, 1995 and 1994, property
operating expenses totaled $1,824,269 and $1,923,409,
respectively. The decrease was primarily due to the successful
reduction of 1995 real estate taxes as a result of the successful
real estate tax appeal.
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 Partnership
The Partnership has no Directors or Executive Officers. The
affairs of the Partnership are conducted through the General
Partner.
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, 1996:
Name Office
Rocco F. Andriola Director, President and Chief Financial Officer
John H. Ng Vice President
Tim E. Needham Vice President
Rocco F. Andriola, 38, is a Managing Director of Lehman Brothers
Inc. in its Diversified Asset Group and has held such position
since October 1996. Since joining Lehman 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 June 1991 through September 1996,
Mr. Andriola held the position of Senior Vice President in
Lehman's Diversified Asset Group. From June 1989 through May
1991, Mr. Andriola held the position of First Vice President in
Lehman's Capital Preservation and Restructuring Group. 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, Mr. Andriola practiced
corporate and securities law at Donovan Leisure Newton & Irvine
in New York. Mr. Andriola received a B.A. from Fordham
University, a J.D. from New York University School of Law, and an
LL.M in Corporate Law from New York University's Graduate School
of Law.
John H. Ng, 46, is a Vice President of Lehman Brothers Inc. and
has been employed by Lehman since November 1977. He is an asset
manager in the Diversified Asset Group of Lehman and has held
such position since 1985. From 1980 to 1985, Mr. Ng served as
Senior Financial Analyst in the Corporate Planning and
Development Department, and from 1977 to 1980, he was an analyst
in the Controller's Department. Prior to joining Lehman, he
served as a teaching assistant at the University of Minnesota.
Mr. Ng received an M.B.A. with a concentration in corporate
finance from the University of Minnesota in 1977 and a B.A. in
Economics from Moorhead State University in 1975.
Timothy E. Needham, 28, is an Associate of Lehman Brothers Inc.
and assists in the management of commercial real estate in the
Diversified Asset Group. Mr. Needham joined Lehman in September
1995. Prior to joining Lehman, Mr. Needham was a consultant with
KPMG Peat Marwick LLP in the Banking and Investment Services
Group from 1994-1995. Mr. Needham received his master's degree
in international management 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 (1991). In
addition, Mr. Needham is currently a candidate for the
designation of Chartered Financial Analyst, Level III.
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, 1996.
(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,
1996.
(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. Unpaid asset management fees as
of December 31, 1996 and 1995 aggregated $335,500 and $285,500,
respectively. As provided in the Partnership Agreement, the
annual asset management fee was scheduled to increase to $115,000
per annum in 1991. However, the General Partner has voluntarily
waived the $65,000 increase each year since 1991.
First Data Investor Services Group, formerly The Shareholder
Services Group, provides partnership accounting and investor
relations services for the Partnership. The Partnership'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 reimbursements
to the General Partner or its affiliates during 1996, 1995 and
1994, see Note 5, "Transactions With Related Parties" of the
Financial Statements which are incorporated herein by reference
to the Partnership's Annual Report to Unitholders for the year
ended December 31, 1996, 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, 1996 and 1995 (1)
Statements of Operations for the years ended December 31, 1996,
1995 and 1994 (1)
Statements of Partners' Capital (Deficit) for the years ended
December 31, 1996, 1995 and 1994 (1)
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994 (1)
Notes to the Financial Statements (1)
Schedule III - Real Estate and Accumulated Depreciation F-1
Independent Auditors' Report on Schedule III 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 herein by reference to the Partnership's Annual
Report to Unitholders for the year ended December 31, 1996, 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 1996.
(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 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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, 1996.
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 28, 1997 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 28, 1997 BY: /s/Rocco F. Andriola
Rocco F. Andriola
Director, President and Chief Financial Officer
Date: March 28, 1997 BY: /s/John H. Ng
John Ng
Vice President
Date: March 28, 1997 BY: /s/Timothy E. Needham
Timothy E. Needham
Vice President
Beverly Hills Medical Office Partners, L.P. (the "Partnership")
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 "General Partner"). 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, optometrist and an overnight package delivery
service. The Property's parking facilities are leased to AMPCO
Parking through September 30, 1999.
Contents
1 Message to Investors
4 Financial Statements
7 Notes to the Financial Statements
11 Independent Auditors' Report
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 800-223-3464
Message to Investors
Presented for your review is the 1996 Annual Report for Beverly
Hills Medical Office Partners, L.P. This report includes an
overview of the market conditions affecting the Beverly Sunset
Medical Building and provides an update on leasing progress and
capital improvements at the Property. Also included in this
report are the Partnership's 1996 audited financial statements.
Overview
Operations at the Property remained relatively stable during 1996,
although leasing efforts were significantly hindered by strong
competition in the medical office space market and the ongoing
consolidation and transformation of the health care industry.
Overall, the Property posted a modest 3.2% increase in occupancy
at year-end 1996 compared to the previous year, primarily as a
result of expansions by existing tenants.
California continues to remain on the forefront of the national
shift of the health care industry away from independent fee-for-
service doctors towards health maintenance organizations ("HMOs")
and managed care networks. It is estimated that approximately 85%
to 90% of Southern Californians with medical insurance are
enrolled in either an HMO or a managed care network. The
continued consolidation of the health care industry has placed
increasing pressures on sole practitioners, who comprise the
majority of the Property's tenant base, to control expenses and
minimize risk in this uncertain business environment. Therefore,
many sole practitioners have opted to reduce their office space
requirements by consolidating their practices with other doctors
or contracting with HMOs and managed care networks, thereby
reducing overall demand for medical office space.
As a result of such changes, the vacancy rate at year-end 1996 for
medical office space in West Los Angeles where the Property is
located was approximately 17%, as compared to 16% one year
earlier. Since managed care networks and HMOs prefer to be
located in close proximity to hospitals, it has become even more
difficult for the Property to attract tenants due to its location
on the periphery of the "Golden Triangle", the submarket
surrounding the Cedars-Sinai Medical Center. These factors have
further heightened competition which has depressed the Property's
rental rates and necessitated the use of rental concessions in
order to attract and retain tenants.
The Partnership has responded to these competitive pressures by
focusing on effectively managing the Property in order to retain
the existing tenant base and aggressively marketing the vacant
space. As previously reported, in an attempt to improve leasing
results, the General Partner retained CB Commercial Real Estate
Group, Inc. ("CB Commercial") as the Property's new leasing broker
in June 1996. CB Commercial, one of the largest commercial real
estate brokerage firms in the country, has significant experience
in leasing medical office space in West Los Angeles.
Leasing Progress
The Partnership successfully renewed eight leases totaling 12,771
square feet which were scheduled to expire in 1996. Furthermore,
one month-to-month tenant converted to a long-term lease in 1996.
Additionally, four tenants expanded their space by approximately
5,054 square feet. As a result, the Property's occupancy level
increased to 72.8% at year-end 1996, as compared with 69.6% at
year-end 1995. In 1997, 11 leases representing 21,107 square
feet, or approximately 13.3% of the Property's total rentable
area, are scheduled to expire. One of these leases, representing
approximately 2,466 square feet, was already renewed in early 1997
with the tenant expanding by 1,223 square feet. Although we will
attempt to renew the remaining 10 leases, there can be no
assurance of success in light of the extremely competitive market
conditions. In addition, CB Commercial will aggressively market
the Property's vacant space and has launched a direct mail
campaign highlighting the Property's designation as the "Medical
Office Building of the Year" by the Building Owners and Managers
Association in each of the Southern California, regional and
international competitions.
In November 1995, one of the Property's retail tenants occupying
10,351 square feet, the Hamburger Hamlet restaurant, filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The date
by which Hamburger Hamlet must either assume or reject its lease
obligation to the Property was extended by the bankruptcy court at
the request of Hamburger Hamlet to April 1997. The tenant, which
has remained current on its rental obligation since filing for
bankruptcy protection, has informally indicated its intention to
remain at the Property which is its flagship location.
Capital Improvements
During 1996, the General Partner continued to enhance the
Property's overall appearance and operating efficiency by making
selective capital improvements, including the installation of
security gates at the entrances to the parking garage and the
retrofit of the lighting in the common areas. Additionally, as
part of the ongoing building maintenance program, the heating and
ventilation systems ("HVAC") retrofit of the second and fifth
floors is scheduled for 1997, thereby completing the entire HVAC
retrofit of the Property.
We 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 originally required the installation of
sprinklers and other fire/life-safety hardware in all existing
high-rise buildings by January 1992. The deadline was
subsequently extended to February 3, 1997. Our initial plan, which
was approved by the City, involved performing the remaining
retrofit during the remodeling of tenant suites in connection with
new leases and renewals. Under this plan, approximately 36% of
the tenant areas and 100% of all common areas have been brought
into compliance. In late 1996, the Partnership received a further
extension of the sprinkler retrofit deadline to December 7, 1998.
It is currently anticipated that any remaining retrofit work which
is not completed in the course of executing lease renewals and new
leases will be commenced in the second quarter of 1998.
Financial Highlights
The following chart presents selected financial results of the
Partnership for the years ended December 31, 1996 and 1995:
1996 1995
Total Income $4,096,162 $4,340,024
Property Operating Expenses 1,774,810 1,824,269
Net Loss 900,981 669,862
Net Cash Flow from Operations 1,207,676 675,539
- - Total Income decreased in 1996 by $243,862 primarily due to the
recognition of real estate property tax refunds totaling
approximately $315,000 in the previous year in connection with
the Partnership's successful appeal of the Property's 1992-93,
1993-94 and 1994-95 real estate tax assessments.
- - Property Operating Expenses declined when compared to 1995
primarily due to a decrease in insurance, advertising, utilities
expenses and real estate and other taxes. Such decreases were
partially offset by an increase in miscellaneous expenses and
professional fees.
- - The increase in Net Loss for 1996 of $231,119 is primarily due to
the recognition of the real estate property tax refunds in 1995.
Similarly, Net Cash Flow from Operations was higher in 1996
primarily due to the receipt of the property tax refunds which
were accrued in 1995 and an adjustment in the monthly funding of
escrow amounts for real estate taxes.
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, among other
things, the Property's leasing costs and the installation of
sprinkler and fire/life-safety equipment.
General Information
As you may be aware, there have been many recent attempts by third
parties for their own benefit, to purchase units of limited
partnerships similar to your Partnership. Frequently, these third
parties use partial "tender offers" to purchase units at grossly
inadequate prices that do not reflect the underlying value of the
partnership's assets. According to published industry sources, in
the overwhelming majority of such offers, most unitholders have
rejected them due to their inadequacy and have not tendered their
units. Please be advised that if any tender offer is made for
your Units, we will endeavor to provide you with information
regarding our position with respect to such offer on a timely
basis.
Summary
As previously mentioned, the continued consolidation and
transformation of the health care industry has further intensified
the already competitive leasing conditions in the medical office
space market. In view of the significant impact of on-going
changes in the health care industry, the General Partner intends
to carefully examine the possibility of marketing the Property for
sale in 1997. In the interim, we intend to remain attentive to
the needs of our existing tenants and will attempt to renew the
leases scheduled to expire during the year. However, we currently
anticipate that the Partnership is likely to continue to encounter
difficulty in leasing additional space at the Property. We will
keep you apprised of developments affecting the Property in future
investor correspondence.
Very truly yours,
Medical Office Properties Inc.
The General Partner
/s/ Rocco F. Andriola
Rocco F. Andriola
President
March 28, 1997
Balance Sheets At December 31, At December 31,
1996 1995
Assets
Real estate, at cost:
Land $ 8,379,434 $ 8,379,434
Building, building improvements
and equipment 41,921,813 41,623,252
50,301,247 50,002,686
Less accumulated depreciation (14,031,118) (12,281,843)
36,270,129 37,720,843
Cash and cash equivalents 1,648,513 1,026,560
Restricted cash 498,257 468,992
Accounts and other receivables 105,552 363,192
Leasing commissions and prepaid expenses,
net of accumulated amortization of
$212,762 in 1996 and $206,634 in 1995 292,542 265,438
Other assets, net of accumulated amortization
of $253,135 in 1996 and $223,060 in 1995 47,620 77,695
Deferred rent receivable 388,464 479,913
Total Assets $39,251,077 $40,402,633
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 213,517 $ 237,039
Due to affiliates 337,765 337,139
Security deposits payable 179,725 168,836
Secured note payable 13,902,293 14,140,861
Total Liabilities 14,633,300 14,883,875
Partners' Capital (Deficit):
General Partner (206,331) (206,331)
Limited Partners (5,540,000 units outstanding) 24,824,108 25,725,089
Total Partners' Capital 24,617,777 25,518,758
Total Liabilities and Partners' Capital $39,251,077 $40,402,633
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
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
Net loss -- (900,981) (900,981)
Balance at December 31, 1996 $(206,331) $24,824,108 $24,617,777
Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental $3,978,679 $3,922,449 $3,913,869
Interest 100,343 94,943 55,477
Other 17,140 322,632 118,959
Total Income 4,096,162 4,340,024 4,088,305
Expenses
Depreciation and amortization 1,897,408 1,851,343 1,777,812
Property operating 1,774,810 1,824,269 1,923,409
Interest 1,087,561 1,105,295 1,121,714
General and administrative 187,364 178,979 182,357
Asset management fee 50,000 50,000 50,000
Bad debt -- -- 9,430
Total Expenses 4,997,143 5,009,886 5,064,722
Net Loss $ (900,981) $ (669,862) $(976,417)
Net Loss Allocated:
To the General Partner $ -- $ -- $ --
To the Limited Partners (900,981) (669,862) (976,417)
$(900,981) $ (669,862) $(976,417)
Per limited partnership unit
(5,540,000 outstanding) $(0.16) $(0.12) $(0.18)
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net loss $(900,981) $(669,862) $(976,417)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,897,408 1,851,343 1,777,812
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash (29,265) (179,139) 2,996
Accounts and other receivables 257,640 (322,612) (19,100)
Prepaid expenses (96,568) (11,326) (101,056)
Deferred rent receivable 91,449 10,391 (107,014)
Accounts payable and accrued expenses (23,522) (42,378) 43,244
Due to affiliates 626 50,086 50,000
Security deposits payable 10,889 (10,964) 9,499
Net cash provided by operating activities 1,207,676 675,539 679,964
Cash Flows From Investing Activities:
Additions to real estate (327,651) (645,980) (358,973)
Accounts payable - real estate (19,504) (33,010) 55,876
Net cash used for investing activities (347,155) (678,990) (303,097)
Cash Flows From Financing Activities:
Payments of principal on
secured note payable (238,568) (220,831) (204,415)
Net cash used for financing activities (238,568) (220,831) (204,415)
Net increase (decrease) in cash and
cash equivalents 621,953 (224,282) 172,452
Cash and cash equivalents,
beginning of year 1,026,560 1,250,842 1,078,390
Cash and cash equivalents,
end of year $1,648,513 $1,026,560 $1,250,842
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the year for interest $1,087,561 $1,105,295 $1,121,714
Supplemental Schedule of
Non-Cash Investing Activities:
Write-off of fully depreciated
tenant improvements $ 48,594 $ -- $ 393,073
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
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 legal 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.
2. Significant Accounting Policies
Building, Building Improvements and Equipment - Building, building
improvements and equipment are stated at cost less accumulated
depreciation. 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.
The Partnership completed a review of recoverability of the
carrying amount of the Property based upon an estimate of
undiscounted cash flows expected to result from the Property's
use and eventual disposition. Based on current estimates, the
adoption of FAS 121 had no impact on the financial statements.
However, if long-term financing cannot be arranged in August 1998
or the Property is marketed for sale, it is reasonably possible
that a change in the Partnership's assessment of recoverability
could occur.
Loan Costs - Included in other assets are loan costs that are
being amortized using the straight-line method over the term of
the secured note payable.
Leasing Commissions - Leasing commissions 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-cancelable term of the leases which will not be collected
until later periods as a result of rental concessions and/or
scheduled rent increases.
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 and Cash Equivalents - Cash and 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. Management's review of the recoverability of
the carrying amount of the Property and related accounts is one
such estimate.
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 judgment 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 prior year financial
statements have been reclassified to conform to the 1996
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. At December 31, 1996, the Unitholders have not yet
received their cumulative preferred return.
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 72.8%
and 69.6% occupied at December 31, 1996 and 1995, 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. The
General Partner's initial plan, which was approved by the City of
West Hollywood, involved performing the remaining retrofit during
the course of remodeling tenant suites in connection with new
leasing and renewals. Under this plan, approximately 36% of the
tenant areas and 100% of all common areas were brought into
compliance. The General Partner approached the City of West
Hollywood to request an extension of the deadline for completion
of the required sprinkler retrofit project. In November 1996, the
City of West Hollywood granted such extension and advised that
the Partnership has until December 7, 1998 to complete the
sprinkler retrofit of the Property.
The Property also contains asbestos-containing materials ("ACM")
in certain areas, including the fireproofing material that covers
the steel structure of the Property. 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 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 close-out
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
future cash flow from operations. Approximately $125,000 and
$62,000 were expended on the sprinkler retrofit and asbestos
abatement in 1996 and 1995, respectively, which the Partnership
performed during the course of remodeling tenant suites in
connection with new leasing and renewals. In addition,
approximately $182,000 and $335,000 were expended for tenant
improvements during 1996 and 1995, respectively.
5. Transactions With Related Parties
Annual Asset Management Fee - The General Partner is entitled to
an annual asset management fee equal to $50,000 per year. The
unpaid asset management fees as of December 31, 1996 and 1995
aggregated $335,500 and $285,500, respectively. As provided in
the Partnership Agreement, the annual asset management fee was
scheduled to increase to $115,000 per annum in 1991. However,
the General Partner has voluntarily waived the $65,000 increase
in each year since 1991.
General Partner Distribution - Cumulative cash distributions
totaling $51,553, declared in prior years, were paid to the
General Partner on October 15, 1996.
Administrative Services - Under the terms of the Partnership
Agreement, the Partnership reimburses the General Partner and its
affiliates for travel expenses relating to the management of the
Partnership. For the years ended December 31, 1996, 1995, and
1994, costs of such expenses incurred were $15,987, $16,024 and
$11,361, respectively. At December 31, 1996 and 1995, $2,265 and
$87 remained payable to the General Partner or its affiliates for
these expenses.
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.
Certain cash and cash equivalents were on deposit with an
affiliate of a General Partner during a portion of 1996 and all
of 1995. As of December 31, 1996, no cash and cash equivalents
were on deposit with an affiliate of the General Partner or the
Partnership.
6. Tenant Leases
The Property's leases have terms from one month to 10 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 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 minimum annual rental payments from existing
noncancellable operating leases as of December 31, 1996 are as
follows:
1997 $3,526,051
1998 3,045,720
1999 2,217,186
2000 1,297,169
2001 911,255
Thereafter 912,093
$11,909,474
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 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, 1996 directly to
the taxing authority.
Future minimum principal payments on the Loan are as follows:
1997 $ 257,728
1998 13,644,565
$13,902,293
Based on the borrowing rates currently available to the
Partnership for mortgage loans with similar terms and average
maturities, the estimated fair value of the Loan 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, 1996 exceeded the tax loss by
$622,596. The net loss reported in the financial statements
exceeded the Federal Income tax loss for the years ended December
31, 1995 and 1994 by $389,786 and $320,995, 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 when payment
is due for tax purposes and on a straight-line basis for
financial statement purposes.
The partners' capital account balance on a federal income tax
basis totaled $26,999,325, $27,277,710 and $27,557,786 in 1996,
1995 and 1994, respectively.
Independent Auditors' Report
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, 1996 and 1995, 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, 1996.
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,
1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
February 20, 1997
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Beverly Sunset
Office Building: Medical Building
Location West Hollywood, CA
Construction date 1964
Acquisition date 4-23-87
Life on which depreciation
in latest income statements
is computed (3)
Encumbrances $13,902,293
Initial cost to Partnership: (1)
Land 8,379,434
Buildings and
improvements 32,803,390
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements 9,118,423
Gross amount at which
carried at close of period:
Land $8,379,434
Buildings and
improvements 41,921,813
50,301,247
Accumulated depreciation(2) 14,031,118
(1) The aggregate cost for Federal Income tax purposes is approximately
$51,724,069.
(2) The amount of accumulated depreciation for Federal income tax purposes is
$12,646,084.
(3) Buildings and improvements - 3 - 30 years.
A reconciliation of the carrying amount of real estate and
accumulated depreciation for the years ended
December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $41,623,252 $40,944,262 $40,978,362
Additions 347,155 678,990 358,973
Retirements (48,594) -- (393,073)
End of year $41,921,813 $41,623,252 $40,944,262
Accumulated depreciation:
Beginning of year $12,281,843 $10,527,620 $ 9,264,246
Depreciation expense 1,797,869 1,754,223 1,656,447
Retirements (48,594) -- (393,073)
End of year $14,031,118 $12,281,843 $10,527,620
INDEPENDENT AUDITORS' REPORT
The Partners
Beverly Hills Medical Office Partners, L.P.:
Under date of February 20, 1997, we reported on the balance
sheets of Beverly Hills Medical Office Partners, L.P. (a Delaware
limited partnership) as of December 31, 1996 and 1995, 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, 1996, as contained in the 1996 annual report
to Unitholders. These financial statements and our report
thereon are incorporated by reference in the annual report on
Form 10-K for the year 1996. 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 20, 1997
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,648,513
<SECURITIES> 000
<RECEIVABLES> 105,552
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 50,301,247
<DEPRECIATION> (14,031,118)
<TOTAL-ASSETS> 39,251,077
<CURRENT-LIABILITIES> 150,148
<BONDS> 13,902,293
<COMMON> 000
000
000
<OTHER-SE> 000
<TOTAL-LIABILITY-AND-EQUITY> 24,617,777
<SALES> 3,978,679
<TOTAL-REVENUES> 4,096,162
<CGS> 000
<TOTAL-COSTS> 1,774,810
<OTHER-EXPENSES> 2,134,772
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 1,087,561
<INCOME-PRETAX> (900,981)
<INCOME-TAX> 000
<INCOME-CONTINUING> (900,981)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
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<NET-INCOME> (900,981)
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