-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KtWEJZ8et2wMsBJrKW03eXAe3dC39XLBqNU1K4mobfNLyDaWMxMCnQA1PjHvhxDY 486aNU9bmYpldfy6AclbZQ== 0000312903-97-000001.txt : 19970814 0000312903-97-000001.hdr.sgml : 19970814 ACCESSION NUMBER: 0000312903-97-000001 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREFERRED PROPERTIES FUND 80 CENTRAL INDEX KEY: 0000312903 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942599964 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-09508 FILM NUMBER: 97657805 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 4049169090 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 FORMER COMPANY: FORMER CONFORMED NAME: MONTGOMERY PROPERTIES FUND 80 DATE OF NAME CHANGE: 19791024 10QSB 1 FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.........to......... Commission file number 0-9508 PREFERRED PROPERTIES FUND 80 (Exact name of small business issuer as specified in its charter) California 94-2599964 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Insignia Financial Plaza Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) PREFERRED PROPERTIES FUND 80 CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1997 Assets Cash and cash equivalents $ 156 Receivables and deposits 158 Other assets 65 Investment property: Land $ 1,059 Buildings and related personal property 4,286 5,345 Less accumulated depreciation (1,937) 3,408 $ 3,787 Liabilities and Partners' Deficit Liabilities Accounts payable $ 4 Tenant security deposits payable 28 Other liabilities 281 Notes payable 5,319 Promissory notes: Principal 221 Deferred interest payable 161 Partners' Deficit General partner's $ (910) Limited partners' (19,997 units issued and outstanding) (1,317) (2,227) $ 3,787 See Accompanying Notes to Consolidated Financial Statements b) PREFERRED PROPERTIES FUND 80 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Revenues: Rental income $ 249 $ 201 $ 452 $ 414 Interest income 2 20 4 25 Total revenues 251 221 456 439 Expenses: Operating 34 32 73 61 Interest 159 137 294 274 Depreciation 40 27 80 55 General and administrative 191 117 219 168 Total expenses 424 313 666 558 Net loss $ (173) $ (92) $ (210) $ (119) Net loss allocated to general partner (5%) $ (9) $ (5) $ (11) $ (6) Net loss allocated to limited partners (95%) (164) (87) (199) (113) $ (173) $ (92) $ (210) $ (119) Net loss per limited partnership unit $(8.20) $(4.35) $(9.95) $(5.65) See Accompanying Notes to Consolidated Financial Statements
c) PREFERRED PROPERTIES FUND 80 CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner's Partners' Total Original capital contributions 19,997 $ 100 $ 19,997 $20,097 Partners' deficit at December 31, 1996 19,997 $ (899) $ (1,118) $(2,017) Net loss for the six months ended June 30, 1997 -- (11) (199) (210) Partners' deficit at June 30, 1997 19,997 $ (910) $ (1,317) $(2,227) See Accompanying Notes to Consolidated Financial Statements
d) PREFERRED PROPERTIES FUND 80 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 1997 1996 Cash flows from operating activities: Net loss $(210) $(119) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 80 55 Amortization of lease commissions and loan costs 8 9 Change in accounts: Receivables and deposits (36) (50) Other assets (17) (2) Accounts payable (57) 3 Other liabilities 220 63 Net cash used in operating activities (12) (41) Cash flows from investing activities: -- -- Cash flows from financing activities: Notes payable principal payments (33) (30) Retirement of promissory notes (17) (24) Net cash used in financing activities (50) (54) Net decrease in cash and cash equivalents (62) (95) Cash and cash equivalents at beginning of period 218 608 Cash and cash equivalents at end of period $ 156 $ 513 Supplemental disclosure of cash flow information: Cash paid for interest $ 302 $ 283 See Accompanying Notes to Consolidated Financial Statements
e) PREFERRED PROPERTIES FUND 80 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Preferred Properties Fund 80 (the "Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of NPI Equity Investments II, Inc. ("NPI Equity" or the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1997, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1996. Certain reclassifications have been made to the 1996 information to conform to the 1997 presentation. NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The general partner of the Partnership is Montgomery Realty Company - 80 ("MRC- 80"), a limited partnership. The general partner of MRC-80 is Fox Realty Investors ("FRI"). Pursuant to a series of transactions which closed during 1996, affiliates of Insignia Financial Group, Inc. ("Insignia") acquired control of NPI Equity, the managing general partner of FRI, and National Property Investors, Inc. ("NPI"). In connection with these transactions, affiliates of Insignia appointed new officers and directors of NPI Equity. The following transactions with affiliates of Insignia, NPI, and affiliates of NPI were incurred during the six month periods ended June 30, 1997 and 1996 (in thousands): For the Six Months Ended June 30, 1997 1996 Reimbursement for services of affiliates (included in general and administrative expenses) $19 $76 For the period from January 19, 1996 to June 30, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. NOTE C - LEGAL PROCEEDINGS - GOING CONCERN The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In August 1995, a former holder of the Partnership's Promissory Notes who tendered its Promissory Notes to Wheatley Ventures, Inc. ("Wheatley") pursuant to Wheatley's tender offer (see Part II, "Item 1. Legal Proceedings"), brought a purported class action lawsuit against, among others, the managing general partner of the Partnership. The ultimate outcome of this litigation and the Partnership's potential liability cannot be determined at this time. However, this raises substantial doubt about the Partnership's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Partnership has one investment property, Creekside Business Park, located in Milpitas, California. The property has been fully occupied throughout 1997 and 1996. The Partnership's investment property is under contract for sale. The sale, which is subject to the purchaser's due diligence and other customary conditions, is expected to close during the third quarter of 1997. The Partnership's net loss for the six months ended June 30, 1997, was approximately $210,000 versus a net loss of approximately $119,000 for the same period of 1996. For the three months ended June 30, 1997, the Partnership incurred a net loss of approximately $173,000 compared to a net loss of approximately $92,000 for the three months ended June 30, 1996. The increase in the net loss for the three and six month periods is primarily attributable to an increase in general and administrative and depreciation expenses and a decrease in interest income. The increase in general and administrative expense is primarily due to an increase in legal costs related to the legal proceedings as noted in "Item 1. Note C - Legal Proceedings-Going Concern". The increase in legal costs was partially offset by a decrease in expense reimbursements to the Managing General Partner. The decrease in expense reimbursements is directly attributable to costs associated with the transition and relocation of the administrative offices during the first quarter of 1996. Depreciation expense increased due to the capitalization and depreciation of the Partnership's basis in the buyout of the 40% minority interest in the joint venture which owned Creekside Business Park. Interest income decreased due to lower average cash balances being held by the Partnership during 1997. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. At June 30, 1997, the Partnership had unrestricted cash of $156,000 as compared to $513,000 at June 30, 1996. The Partnership's cash has been adversely affected by the lawsuit brought by former promissory note holders of the Partnership against, among others, the Partnership's general partner, MRC-80 (see discussion of Kaufman et al. v. Northern Trust Bank of California, N.A. et al. contained in "Part II - Other Information, Item 1. Legal Proceedings"). Net cash used in operating activities decreased due to an increase in accrued legal fees incurred in conjunction with the Partnership's litigation involving the former promissory note holders of the Partnership. This increase was partially offset by a decrease in accounts payable due to changes in timing of payments. Net cash used in financing activities decreased due to a decrease in the retirement of promissory notes payable. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The first mortgage indebtedness of approximately $4,019,000 which originally matured on April 1, 1997, was extended until September 30, 1997, through a forbearance agreement, at which time a balloon payment is due. The Partnership's investment property is under contract for sale. The sale, which is subject to the purchaser's due diligence and other customary conditions, is expected to close during the third quarter of 1997. If the Partnership's property is not sold and the first mortgage is not refinanced or modified, the Partnership could lose this property through foreclosure. Also included in the Partnership's notes payable is a $1,300,000 ground lease obligation. The ground lease is accounted for as a loan and calls for payments equal to 12 percent interest on the principal until April 1, 1998, when the lease terminates. The ground lease provides an option to purchase the land at a purchase price of $1,300,000. Future cash distributions will depend on the levels of net cash generated from operations, a property sale, the resolution of the Kaufman litigation, as well as the availability of cash reserves. No cash distributions were made during the six month periods ended June 30, 1997 and 1996. The Partnership's cash has been adversely affected by the lawsuit brought by former promissory note holders of the Partnership against, among others, the Partnership's general partner, MRC-80 (see discussion of Kaufman et al. v. Northern Trust Bank of California, N.A. et al. contained in "Part II - Other Information, Item 1. Legal Proceedings"). PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Dorothy M. Kaufman and Deanne R. Erickson, Trustees of the Kaufman Family 1981 Trust, dated October 21, 1981, on behalf of themselves and all others similarly situated v. Northern Trust Bank of California, N.A.; Montgomery Realty Company- 80, a California limited partnership; Fox Realty Investors, a California general partner, et. al., Superior Court of California, County of Santa Clara (Case No. CV 51777). The plaintiff in this action is a former holder of the Partnership's 10 percent non-recourse Promissory Notes due June 30, 1994, (the "Notes") who tendered its Notes to Wheatley Ventures Inc. ("Wheatley") pursuant to Wheatley's tender offer for the Notes in August 1993. The plaintiff purports to represent itself and all other tendering noteholders. The complaint was filed in August 1995 and alleges, among other things, that MRC-80 and FRI breached their fiduciary duty to the tendering noteholders and interfered with their prospective economic advantage if they continued to hold the Notes. In February and March 1997, the Partnership and NPI Equity were named as cross- defendants in this action on cross-complaints filed by several defendants. The indenture trustee, Northern Trust Bank of California, NA, sued both the Partnership and NPI Equity on the theories of express contractual indemnity, implied indemnity, fraud and negligent misrepresentation. Similarly, defendant Wheatley asserted a cross-complaint against the Partnership alleging implied indemnity and declaratory relief. Although the former owners of FRI who are also defendants in the action (the "Fox Defendants") have asserted demands for express indemnity against the Partnership, they have not, as yet, filed a cross- complaint. The Partnership moved to dismiss each of these cross-complaints on various grounds. The cross-complaint of the Indenture Trustee was dismissed in part with leave to replead, which the Indenture Trustee has now done. The cross-complaint of Wheatley withstood the motion to dismiss. The Partnership has now answered both of these cross-complaints. This litigation commenced in August 1995, and substantial discovery was conducted prior to and subsequent to service of the cross-complaints on the Partnership. The Court has scheduled a trial date in November 1997. Substantial additional discovery, particularly with respect to trial experts, remains to be completed. Given the potential extraordinary expense in defending this case as well as the potential exposure over and above the costs of defense, the Partnership has initiated and successfully facilitated a settlement in principle to resolve the case in its entirety, including all claims which have been asserted in the complaint, the various cross-complaints, and all claims for indemnity. Under the terms of the settlement in principle, the Indenture Trustee, Wheatley, and the Fox Defendants will collectively contribute $1.6 million to the settlement of the actions and the Partnership will contribute $1,575,000 to the settlement of the actions. This settlement is subject to the negotiation of definitive settlement agreements and is contingent upon the closing of the sale of Creekside Business Park as noted in "Part I - Item 2. Management's Discussion and Analysis or Plan of Operation". There can be no assurance that a definitive settlement agreement will be executed or that Creekside Business Park will be sold. The Partnership believes that this settlement will limit the Partnership's exposure both for costs of defense and on liability, and will allow it to make a substantial cash distribution to the limited partners subsequent to the sale. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended June 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PREFERRED PROPERTIES FUND 80 By: MONTGOMERY REALTY COMPANY - 80, Its General Partner By: FOX REALTY INVESTORS, Managing General Partner of the General Partner By: NPI EQUITY INVESTMENTS II, INC., Its Managing General Partner By: /s/William H. Jarrard, Jr. William H. Jarrard, Jr. President and Director By: /s/Ronald Uretta Ronald Uretta Vice President and Treasurer Date: August 13, 1997 EX-27 2
5 This schedule contains summary financial information extracted from Preferred Properties Fund 80 1997 Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000312903 PREFERRED PROPERTIES FUND 80 1,000 6-MOS DEC-31-1997 JUN-30-1997 156 0 0 0 0 0 5,345 (1,937) 3,787 0 5,319 0 0 0 (2,227) 3,787 0 456 0 0 666 0 294 (210) 0 (210) 0 0 0 (210) (9.95) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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