Exhibit 99.1 111 Sutter Finanicals
Exhibit 99.1
CEP Investors XII LLC
(A Delaware limited liability company)
Financial Statements
December 4, 2012 (unaudited), December 31, 2011 and December 31, 2010
Report of Independent Auditors
To the Members of
CEP Investors XII LLC
In our opinion, the accompanying balance sheets and the related statements of operations, of members’ capital and of cash flows present fairly, in all material respects, the financial position of CEP Investors XII LLC (the “Company”) at December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
March 8, 2012
PricewaterhouseCoopers LLP, One North Wacker Drive Chicago, IL,60606
T: (312)298 2000, F: (312) 298 2001, www.pwc.com/us
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CEP INVESTORS XII LLC (A Delaware Limited Liability Company) BALANCE SHEETS AS OF DECEMBER 4, 2012 (UNAUDITED) AND DECEMBER 31, 2011
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| December 4, 2012 | | December 31, 2011 |
ASSETS | (Unaudited) | | |
Investments in real estate | | | |
Land | $ | 21,983,762 |
| | $ | 21,983,762 |
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Building and building improvements | 42,683,160 |
| | 42,489,533 |
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Tenant improvements | 2,333,647 |
| | 1,834,937 |
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Total investments in real estate | 67,000,569 |
| | 66,308,232 |
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Less: Accumulated depreciation | (9,319,127 | ) | | (7,890,214 | ) |
Net investments in real estate | 57,681,442 |
| | 58,418,018 |
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Cash and cash equivalents | 849,743 |
| | 1,257,415 |
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Restricted cash | 285,931 |
| | 360,761 |
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Tenant accounts receivable | 48,050 |
| | 40,379 |
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Deferred charges, net | 1,352,487 |
| | 1,180,733 |
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Acquired above-market leases, net | — |
| | 109,094 |
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Deferred rent receivable | 1,413,393 |
| | 1,331,300 |
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Prepaid expenses and other assets | 136,995 |
| | 92,898 |
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TOTAL ASSETS | $ | 61,768,041 |
| | $ | 62,790,598 |
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LIABILITIES AND MEMBERS' CAPITAL
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$ 54,869,150 |
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$ 55,633,493 |
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Mortgage note | $ | 54,130,121 |
| | $ | 54,869,150 |
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Accounts payable and other accrued expenses | 941,666 |
| | 462,064 |
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Security deposits | 540,469 |
| | 475,043 |
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Prepaid rents | 46,711 |
| | 330,839 |
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Acquired below-market leases, net | 155,591 |
| | 269,787 |
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Other liabilities | 91,339 |
| | 84,495 |
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TOTAL LIABILITIES | 55,905,897 |
| | 56,491,378 |
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Commitments and contingencies (Note 6) | — |
| | — |
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Members' capital | 5,862,144 |
| | 6,299,220 |
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TOTAL LIABILITIES AND MEMBERS' CAPITAL | $ | 61,768,041 |
| | $ | 62,790,598 |
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The accompanying notes are an integral part of these financial statements.
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CEP INVESTORS XII LLC (A Delaware Limited Liability Company) STATEMENTS OF OPERATIONS FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEARS ENDED DECEMBER 31, 2011 AND 2010 | | | | | |
| January 1, 2012 through December 4, 2012 | | Year ended December 31, 2011 | | Year ended December 31, 2010 |
| (Unaudited) | | | | |
Revenues | | | | | |
Rental | $ | 7,785,259 |
| | $ | 7,891,340 |
| | $ | 8,142,485 |
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Tenant reimbursements | 492,375 |
| | 378,497 |
| | 622,626 |
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Total revenues | 8,277,634 |
| | 8,269,837 |
| | 8,765,111 |
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Operating expenses | | | | | |
Real estate taxes | 881,404 |
| | 724,282 |
| | 939,540 |
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Property operating | 2,880,525 |
| | 2,941,631 |
| | 2,914,222 |
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General and administrative | 309,166 |
| | 349,630 |
| | 360,697 |
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Depreciation and amortization | 1,828,462 |
| | 2,735,600 |
| | 3,173,771 |
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Total operating expenses | 5,899,557 |
| | 6,751,143 |
| | 7,388,230 |
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Operating income | 2,378,077 |
| | 1,518,694 |
| | 1,376,881 |
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Other income (expenses) | | | | | |
Interest expense | (2,847,246 | ) | | (3,148,731 | ) | | (3,183,822 | ) |
Other income | 32,093 |
| | 26,883 |
| | 22,491 |
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Total other income (expenses) | (2,815,153 | ) | | (3,121,848 | ) | | (3,161,331 | ) |
Net loss | $ | (437,076 | ) | | $ | (1,603,154 | ) | | $ | (1,784,450 | ) |
The accompanying notes are an integral part of these financial statements.
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CEP INVESTORS XII LLC (A Delaware Limited Liability Company) STATEMENTS OF MEMBERS' CAPITAL FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEARS ENDED DECEMBER 31, 2011 AND 2010 | | | | | |
| ELPF/111 Sutter Holdings, LLC | | EPI Investor XII LLC | | Total |
Members' capital, at January 1, 2010 | $ | 9,582,196 |
| | $ | 104,628 |
| | $ | 9,686,824 |
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Net loss | (1,784,450 | ) | | — |
| | (1,784,450 | ) |
Members' capital, at December 31, 2010 | 7,797,746 |
| | 104,628 |
| | 7,902,374 |
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Net loss | (1,603,154 | ) | | — |
| | (1,603,154 | ) |
Members' capital, at December 31, 2011 | 6,194,592 |
| | 104,628 |
| | 6,299,220 |
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Net loss (unaudited) | (437,076 | ) | | — |
| | (437,076 | ) |
Members' capital, at December 4, 2012 (unaudited) | $ | 5,757,516 |
| | $ | 104,628 |
| | $ | 5,862,144 |
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The accompanying notes are an integral part of these financial statements.
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CEP INVESTORS XII LLC (A Delaware Limited Liability Company) STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEARS ENDED DECEMBER 31, 2011 AND 2010 | | | | | |
| January 1 through December 4, | | Year ended December 31, | | Year ended December 31, |
| 2012 | | 2011 | | 2010 |
| (Unaudited) | | | | |
Cash flows from operating activities | | | | | |
Net loss | $ | (437,076 | ) | | $ | (1,603,154 | ) | | $ | (1,784,450 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities | | | | | |
Depreciation | 1,428,913 |
| | 1,408,717 |
| | 1,270,962 |
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Amortization of leasing commissions | 399,548 |
| | 318,211 |
| | 173,655 |
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Amortization of acquired in-place leases | — |
| | 1,008,672 |
| | 1,729,154 |
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Amortization of above and below market leases | (5,102 | ) | | 473,842 |
| | 1,130,438 |
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Amortization of financing fees | 52,619 |
| | 57,403 |
| | 57,402 |
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Deferred rent receivable | (82,093 | ) | | 43,681 |
| | (67,474 | ) |
Accretion of asset retirement obligation | 6,844 |
| | 6,331 |
| | 5,857 |
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Net changes in assets and liabilities | | | | | |
Tenant accounts receivable | (7,671 | ) | | (7,246 | ) | | (10,310 | ) |
Prepaid expenses and other assets | (44,097 | ) | | 6,529 |
| | 34,580 |
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Accounts payable and other accrued expenses and security deposits | 351,483 |
| | 282,928 |
| | 229,350 |
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Prepaid rents | (284,128 | ) | | 133,714 |
| | (319,516 | ) |
Net cash provided by operating activities | 1,379,240 |
| | 2,129,628 |
| | 2,449,648 |
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Cash flows from investing activities | | | | | |
Additions to real estate investments | (498,792 | ) | | (517,727 | ) | | (756,488 | ) |
Restricted cash | 74,830 |
| | (360,761 | ) | | — |
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Leasing costs | (623,921 | ) | | (681,099 | ) | | (470,539 | ) |
Net cash used in investing activities | (1,047,883 | ) | | (1,559,587 | ) | | (1,227,027 | ) |
Cash flows from financing activities | | | | | |
Principal payment of mortgage note | (739,029 | ) | | (764,343 | ) | | (366,507 | ) |
Net cash used in financing activities | (739,029 | ) | | (764,343 | ) | | (366,507 | ) |
Net (decrease) increase in cash and cash equivalents | (407,672 | ) | | (194,302 | ) | | 856,114 |
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Cash and cash equivalents | | | | | |
Beginning of year | 1,257,415 |
| | 1,451,717 |
| | 595,603 |
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End of year | $ | 849,743 |
| | $ | 1,257,415 |
| | $ | 1,451,717 |
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Supplemental disclosure of cash flow information | | | | | |
Interest paid | $ | 2,786,932 |
| | $ | 3,084,997 |
| | $ | 3,120,563 |
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Supplemental disclosure of noncash investing activities | | | | | |
Additions to real estate investments included in accounts payable and other accrued expenses | $ | 223,733 |
| | $ | 30,188 |
| | $ | 160,486 |
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The accompanying notes are an integral part of these financial statements.
CEP INVESTORS XII LLC
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 4, 2012 (UNAUDITED), DECEMBER 31, 2011 AND 2010 AND FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEAR ENDING DECEMBER 31, 2011 AND 2010
1. Organization
CEP Investors XII LLC, a Delaware limited liability company (the “Company”) was formed on January 29, 1999, for the purpose of acquiring, managing, owning, leasing, and renovating a 22-story office building located at 111 Sutter Street, San Francisco, California (the “Property”). The members, EPI Investors XII LLC, a California limited liability company (“EPI”), and CFSC Capital Corp. LW, a Delaware corporation (“CFSC”), held 1.88% and 98.12% interests, respectively.
On March 29, 2005, EPI and ELPF/111 Sutter Holdings, LLC, a Delaware limited liability company which is owned by Jones Lang LaSalle Income Property Trust, Inc. (formerly known as Excelsior LaSalle Property Fund, Inc. and referred to as “JLLIPT”), entered into a purchase agreement with CFSC to acquire 100% of CFSC’s interest in the Company. JLLIPT and EPI paid $24,645,510 and $2,975,046, respectively, and the Company paid $4,083,174 to CFSC resulting in a 100% acquisition of CFSC’s interest.
Simultaneously, the limited liability company agreement was amended and restated with EPI and JLLIPT as the members of the Company with 20% and 80% membership interests, respectively. EPI remained as the managing member.
At the close of business on December 4, 2012, JLLIPT acquired EPI's 20% interest in the Company. The purchase price for the 20% interest was $22,000,000 (unaudited) plus the assumption of the mortgage note.
The Company will remain in existence until terminated by written approval of the member, the sale or disposition of all assets, or judicial dissolution.
Member contributions, profits, losses, and cash distributions are allocated among the members in accordance with the LLC agreement.
For the period from January 1, 2012 to December 4, 2012, and the period then ended, the Company did not meet the criteria of a significant subsidiary to JLLIPT and as a result, the financial statements for the period are unaudited.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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. Significant estimates include purchase price allocations, the realizability of accounts and deferred rent receivable, useful lives of property for purposes of determining depreciation expense, and assessments as to whether there is impairment in the value of long-lived assets. Actual results could differ from those estimates.
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 4, 2012 (UNAUDITED), DECEMBER 31, 2011 AND 2010 AND FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEAR ENDING DECEMBER 31, 2011 AND 2010
Initial Investment
The Company used estimates of future cash flows and other valuation techniques to allocate the purchase price of the acquired property among land, building, and other identifiable asset and liability intangibles. The Company recorded land and building values using an as-if-vacant methodology. The Company recorded above-market and below-market in-place lease values for the acquired property based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) the Company’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancelable term of the lease. The Company amortizes the capitalized above-market lease values as a reduction of minimum rents over the remaining noncancelable terms of the respective leases. The Company amortizes the capitalized below-market lease values as an increase to rental revenues over the term of the respective leases. Should a tenant terminate its lease prior to the contractual expiration, the unamortized portion of the above-market and below-market in-place lease value is immediately charged to rental revenues.
The Company measured the aggregate value of other intangible assets acquired based on the difference between (1) the property valued with existing in-place leases and (2) the property valued as if vacant. The Company’s estimates of value were made using methods similar to those used by independent appraisers, primarily discounted cash flow analysis. Factors considered by the Company in its analysis included an estimate of carrying costs during the hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases. The Company also considered information obtained about the property as a result of the pre-reorganization due diligence, marketing, and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, the Company included estimates of lost rentals during the expected lease-up periods depending on specific local market conditions and costs to execute similar leases including leasing commissions, legal, and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination as part of the transaction. The Company amortizes the value of in-place leases to expense over the remaining initial terms of the respective leases, which generally range from 3 to 15 years.
The Company allocated the purchase price to acquired intangible assets, which included in-place lease intangibles and acquired above-market in-place lease intangibles. In-place lease intangibles and above-market intangibles were fully amortized as of December 4, 2012. The acquired intangible liabilities represent acquired below-market in-place leases which are reported net of accumulated amortization of $1,424,958 and $1,310,762 at December 4, 2012 (unaudited) and December 31, 2011, respectively, in the accompanying balance sheets.
Future amortization related to intangible liabilities as of December 31, 2011 is as follows:
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| Acquired Above-Market Leases | | Acquired Below-Market Leases |
Year Ending December 31, | | | |
2012 | $ | 109,094 |
| | $ | (124,578 | ) |
2013 | — |
| | (116,693 | ) |
2014 | — |
| | (28,516 | ) |
Total | $ | 109,094 |
| | $ | (269,787 | ) |
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 4, 2012 (UNAUDITED), DECEMBER 31, 2011 AND 2010 AND FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEAR ENDING DECEMBER 31, 2011 AND 2010
Future amortization related to intangible liabilities as of December 4, 2012 (unaudited) is as follows:
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| Acquired Below-Market Leases |
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December 2012 | $ | (10,382 | ) |
Year ending December 31, 2013 | (116,693 | ) |
Year ending December 31, 2014 | (28,516 | ) |
Total | $ | (155,591 | ) |
Cash and Cash Equivalents
The Company maintains a portion of its cash in bank deposit accounts, which, at times, may exceed the federally insured limits. No losses have been experienced related to such accounts. The Company believes it places its cash with quality financial institutions and is not exposed to any significant concentration of credit risk. Cash equivalents include all cash and liquid investments with an initial maturity of three months or less.
Restricted Cash
Restricted cash consists of cash held to fund operating property insurance expenses and real estate taxes expenses, as required by the mortgage note agreement.
Investments in Real Estate
Investments in real estate are recorded at cost. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Significant renovations and improvements, which improve and/or extend the useful life of the asset, are capitalized at cost and depreciated over their estimated useful life.
Depreciation of the building and improvements is provided by the straight-line method over the useful life of 40 years. Tenant improvements are recorded at cost and depreciated by the straight- line method over the lesser of lives of the related leases, ranging from 1 to 7 years, or over the estimated useful life of the improvements.
The Company reviews the Property for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds its estimated undiscounted net cash flow, before interest, the Company would recognize an impairment loss equal to the difference between its carrying amount and its fair value. If an impairment was recognized, the reduced carrying amount of the asset would be accounted for as its new cost. For a depreciable asset, the new cost would be depreciated over the asset’s remaining useful life. Generally, fair values are estimated using a discounted cash flow, direct capitalization or market comparison analyses. The process of evaluating for impairment requires estimates as to future events and conditions, which are subject to varying market and economic factors. Therefore, it is reasonably possible that a change in estimate resulting from judgments as to future events could occur which would affect the recorded amounts of the Property. As of December 4, 2012 (unaudited), December 31, 2011 and December 31, 2010, the Company was not aware of any events or changes in circumstances that indicate the carrying amount of the Property may not be recoverable.
Deferred Charges, Net
Deferred charges include deferred leasing commissions and deferred loan costs. Deferred leasing commissions are recorded at cost and amortized over the lives of the related leases. Deferred loan costs are recorded at cost and amortized on a basis which approximates the effective interest method over the term of the note payable. Accumulated amortization of deferred leasing commissions and deferred loan costs was $1,130,541 and $432,681, respectively, at December 4, 2012 (unaudited) and $730,993 and $380,062, respectively, at December 31, 2011.
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 4, 2012 (UNAUDITED), DECEMBER 31, 2011 AND 2010 AND FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEAR ENDING DECEMBER 31, 2011 AND 2010
Revenue Recognition
Rental revenue is recognized using the straight-line method over the terms of the related lease agreements including free rent periods. Differences between rental revenue earned and the amount due under the respective lease agreements are credited or charged, as applicable, to deferred rent receivable. Rental payments received prior to their recognition as income are classified as prepaid rents. In addition, certain tenants are required to pay their pro rata share of the Property’s operating expenses and/or other expenses, and the Company recognizes such payments as tenant reimbursements revenue when earned. Tenants are billed for operating expenses in accordance with the related lease agreements.
Income Taxes
The Company is organized as a limited liability company and therefore is treated as a partnership for federal and state income tax purposes. The results of operations of the Company are included in the income tax returns of the members and, consequently, no provisions for income taxes have been made at the Company level.
Real Estate Taxes
The Company's real estate taxes are expensed as billed. In 2011, the taxing authority reduced the assessed value of the Property for 2009 and 2010 resulting in a combined real estate tax refund of $246,913. As a result of the change in real estate taxes, the Company performed a reconciliation of tenant reimbursements revenue for the affected periods which resulted in a refund due to tenants in the amount of $75,316. The tenant refund was recorded as a decrease to tenant reimbursements revenue during the year ended December 31, 2011.
Asset Retirement Obligation
Certain areas of the Property contain asbestos. Although the asbestos is appropriately contained in accordance with current environmental regulations, the Company’s practice is to remediate the asbestos upon the renovation or redevelopment of the Property. Accordingly, the Company has determined that the Property meets the criteria for recording a liability and has recorded an asset retirement obligation aggregating $91,339 (unaudited) and $84,495 as of December 4, 2012 and December 31, 2011, respectively, which is included in Other Liabilities in the accompanying balance sheets.
3. Mortgage Note
On June 17, 2005, the Company entered into a mortgage note agreement (“Mortgage Note”) for
$56,000,000. The Mortgage Note is collateralized by the Property and all of its assets and bears interest at a fixed rate of 5.58%. The Mortgage Note matures on July 1, 2015. The Company was in compliance with all debt covenants under the Mortgage Note as of December 4, 2012 (unaudited).
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 4, 2012 (UNAUDITED), DECEMBER 31, 2011 AND 2010 AND FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEAR ENDING DECEMBER 31, 2011 AND 2010
Future minimum principal payments to be paid under the Mortgage Note extending past December 31, 2011, are as follows:
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Year Ending December 31, | |
2012 | $ | 808,101 |
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2013 | 854,364 |
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2014 | 903,276 |
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2015 | 52,303,409 |
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Total | $ | 54,869,150 |
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Future minimum principal payments to be paid under the Mortgage Note extending past December 4, 2012, are as follows (unaudited):
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December 2012 | $ | 69,072 |
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Year ending December 31, 2013 | 854,364 |
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Year ending December 31, 2014 | 903,276 |
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Year ending December 31, 2015 | 52,303,409 |
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Total | $ | 54,130,121 |
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4. Future Minimum Lease Payments
Future minimum lease payments to be received under noncancelable operating leases extending past December 31, 2011, are as follows:
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Year Ending December 31, | |
2012 | $ | 8,053,389 |
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2013 | 6,774,563 |
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2014 | 5,064,248 |
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2015 | 3,571,082 |
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2016 | 1,840,343 |
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Thereafter | 3,678,370 |
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Total | $ | 28,981,995 |
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The Property was 90% (unaudited) leased and occupied by 24 tenants at December 31, 2011, six of whom accounted for approximately 49% of the total rental revenue. The Property was 88% (unaudited) leased and occupied by 21 tenants at December 31, 2010, four of whom accounted for approximately 54% of the total rental revenue.
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 4, 2012 (UNAUDITED), DECEMBER 31, 2011 AND 2010 AND FOR THE PERIOD FROM JANUARY 1, 2012 THROUGH DECEMBER 4, 2012 (UNAUDITED), AND YEAR ENDING DECEMBER 31, 2011 AND 2010
Future minimum lease payments to be received under noncancelable operating leases extending past December 4, 2012 (unaudited), are as follows:
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Year Ending December 31, | |
2013 | $ | 9,295,812 |
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2014 | 7,920,678 |
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2015 | 6,254,193 |
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2016 | 3,671,201 |
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2017 and thereafter | 5,881,338 |
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Total | $ | 33,023,222 |
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The Property was 95% (unaudited) leased and occupied by 23 tenants at December 4, 2012, six of whom accounted for approximately 56% of the total rental revenue.
5. Related-Party Transactions
Ellis Partners LLC (“EPL”), an affiliate of EPI, has been retained as the asset manager for the Company. The asset management fee is payable in two components, the first of which is paid in equal monthly installments and the second, a deferred component, is equal to $100,000 and is earned in equal monthly installments and payable after the members have earned a cumulative 9% preferred return. The monthly asset management fee is $24,151. Asset management fees of $265,664 (unaudited), $289,819 and $289,819 were earned during the period from January 1, 2012 through December 4, 2012, and the years ended December 31, 2011 and 2010, respectively, and are included in general and administrative expense in the accompanying statements of operations. The Company had asset management fees payable of $307,481 (unaudited) and $215,818 at December 4, 2012 and December 31, 2011, respectively.
Jones Lang LaSalle Americas, Inc. ("JLL"), an affiliate of ELPF/111 Sutter Holdings, LLC, provides lease brokerage services to the Company. As provided for in the listing agreement, the Company pays JLL commissions based on the square footage and duration of new leases, excluding lease renewals. Leasing commissions of $370,868 (unaudited) and $266,642 were paid to JLL for the period ended December 4, 2012 and year December 31, 2011, respectively, and were capitalized as deferred charges on the accompanying balance sheets. There were no accrued leasing commissions due to JLL as of December 4, 2012 and December 31, 2011.
6. Commitments and Contingencies
Litigation
In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of the Property. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the financial position, results of operations, or cash flows of the Company.
7. Subsequent Events (Unaudited)
The Company has evaluated subsequent events through August 26, 2013, which is also the date the financial statements were issued. On March 27, 2013, the Company entered into a modification agreement with the existing lender on the Mortgage Note. The modification extended the maturity date by eight years from July 2015 to April 2023, provides for interest-only payments for the first four years of the new term and reduces the fixed-rate interest from 5.58% to 4.50%.