-----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, FQ1Kq7VolbxoBkHyqXDkg5zvajL2FA93v3noHNx56N/McdSXdX1KqksGldOQ2g1j stRuwgcD07lTk5BbA05xjg== 0000705752-97-000020.txt : 19971115 0000705752-97-000020.hdr.sgml : 19971115 ACCESSION NUMBER: 0000705752-97-000020 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 000-09508 FILM NUMBER: 97717152 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 OR TRANSITIONAL 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 September 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) September 30, 1997 Assets Cash and cash equivalents $ 2,207 Receivables and deposits (Note C) 2,406 $ 4,613 Liabilities and Partners' Capital Liabilities Accounts payable $ 2 Contingency for litigation settlement (Note C) 2,375 Other liabilities 518 Promissory notes: Principal 221 Deferred interest payable 161 Partners' Capital General partner's $ -- Limited partners' (19,997 units issued and outstanding) 1,336 1,336 $ 4,613 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 Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Revenues: Rental income $ 122 $ 204 $ 574 $ 618 Interest income 6 6 10 31 Gain on sale of property 5,411 -- 5,411 -- Total revenues 5,539 210 5,995 649 Expenses: Operating 57 44 130 105 Interest 110 136 404 410 Depreciation 31 28 111 83 General and administrative 203 118 422 286 Loss contingency for litigation settlement 2,375 -- 2,375 -- Total expenses 2,776 326 3,442 884 Net income (loss) $ 2,763 $ (116) $ 2,553 $ (235) Net income (loss) allocated to general partner $ 110 $ (6) $ 99 $ (12) Net income (loss) allocated to limited partners 2,653 (110) 2,454 (223) $ 2,763 $ (116) $ 2,553 $ (235) Net income (loss) per limited partnership unit $ 132.67 $ (5.50) $ 122.72 $ (11.15) See Accompanying Notes to Consolidated Financial Statements
c) PREFERRED PROPERTIES FUND 80 CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (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) Capital contributions -- 800 -- 800 Net income for the nine months ended September 30, 1997 -- 99 2,454 2,553 Partners' capital at September 30, 1997 19,997 $ -- $ 1,336 $ 1,336 See Accompanying Notes to Consolidated Financial Statements
d) PREFERRED PROPERTIES FUND 80 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 1997 1996 Cash flows from operating activities: Net income (loss) $ 2,553 $ (235) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 111 83 Amortization of lease commissions and loan costs 12 12 Gain on sale of property (5,411) -- Loss contingency for litigation settlement 2,375 -- Change in accounts: Receivables and deposits (2,284) (74) Other assets (16) (59) Accounts payable (59) -- Tenants' security deposits payable (28) -- Other liabilities 457 10 Net cash used in operating activities (2,290) (263) Cash flows from investing activities: Proceeds from sale of property 8,848 -- Net cash provided by investing activities 8,848 -- Cash flows from financing activities: Note payable principal payments (50) (46) Repayment of notes payable (5,302) -- Capital contributions 800 -- Retirement of promissory notes (17) (32) Net cash used in financing activities (4,569) (78) Net increase (decrease) in cash and cash equivalents 1,989 (341) Cash and cash equivalents at beginning of period 218 608 Cash and cash equivalents at end of period $ 2,207 $ 267 Supplemental disclosure of cash flow information: Cash paid for interest $ 457 $ 409 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. As a result of the sale of Partnership's investment property, operating results for the three and nine month periods ended September 30, 1997, are not 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"), the managing general partner of which is NPI Equity. Pursuant to a series of transactions which closed during 1996, affiliates of Insignia Financial Group, Inc. ("Insignia") acquired control of NPI Equity and National Property Investors, Inc. ("NPI"), the sole stockholder of NPI Equity. 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 nine month periods ended September 30, 1997 and 1996 (in thousands): For the Nine Months Ended September 30, 1997 1996 Reimbursement for services of affiliates (included in general and administrative expenses) $26 $101 For the period from January 19, 1996 to August 31, 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 master policy. The 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 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, the among others, the general partner of the Partnership. On September 12, 1997, the general partner and the Partnership entered into definitive settlement agreements resolving, subject to court approval, the claims asserted in the litigation and the related claims for indemnity. Total deposits of $2,375,000 have been made to escrow accounts to fund their portion of the anticipated settlement and legal expenses. These deposits are included in "receivables and deposits" on the consolidated balance sheet. Concurrent with the settlement, the Partnership has established a loss contingency in the amount of $2,375,000. NOTE D - SALE OF INVESTMENT PROPERTY On September 10, 1997, the Partnership sold Creekside Business Park to an unrelated third party for a contract amount of $9,200,000. After the payment of the note payable of approximately $4,002,000, the sale price of the ground- leased property of $1,300,000, and closing costs and related expenses totaling approximately $352,000, the Partnership received net proceeds of approximately $3,546,000. For financial statement purposes, the sale resulted in a gain of approximately $5,411,000. The following unaudited pro forma information reflects the operations of the Partnership for the nine months ended September 30, 1997 and 1996, as if Creekside Business Park had been sold January 1, 1996. Proforma Results of Operations for the Nine Months Ended September 30, 1997 1996 (in thousands) Revenues $ 9 $ 30 Net loss (416) (256) Net loss per limited partnership unit (19.76) (12.16) NOTE E - CAPITAL CONTRIBUTIONS Pursuant to the Partnership's partnership agreement, if prior to dissolution and termination of the Partnership the general partner has a deficiency in its capital account, the general partner shall contribute cash to the Partnership in an amount which is equal to the deficiency in its capital account. The Managing General Partner anticipates terminating the Partnership once the definitive settlement agreement (see Note C) is approved. During the third quarter of 1997, the general partner contributed capital of $800,000 to the Partnership. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Partnership sold its remaining investment property, Creekside Business Park, on September 10, 1997, for a contract price of $9,200,000. After the payment of encumbrances on the property of approximately $5,302,000 and closing costs and other related expenses of approximately $352,000, the Partnership received net proceeds of approximately $3,546,000. The Partnership's net income for the nine months ended September 30, 1997, was approximately $2,553,000 versus a net loss of approximately $235,000 for the same period of 1996. For the three months ended September 30, 1997, the Partnership's net income was approximately $2,763,000 compared to a net loss of approximately $116,000 for the three months ended September 30, 1996. Included in income for the nine months ended September 30, 1997, is a gain of approximately $5,411,000 on the sale of Creekside Business Park. The increase in net income due to the gain on property sale for the three and nine month periods is partially offset by a $2,375,000 loss contingency for the probable litigation settlement (see "Item 1. Note C - Legal Proceedings") and an increase in general and administrative and depreciation expenses. The increase in general and administrative expense is primarily due to an increase in legal costs related to the ongoing legal proceedings. The increase in legal costs was partially offset by a decrease in expense reimbursements to affiliates of 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 for the nine month period due to lower average cash balances being held by the Partnership during 1997. At September 30, 1997, the Partnership had unrestricted cash of approximately $2,207,000 as compared to approximately $267,000 at September 30, 1996. The Partnership's cash has increased as a result of net proceeds received from the sale of Creekside Business Park. A portion of these proceeds were used to fund escrow accounts, which were set up to pay the anticipated settlement and legal expenses resulting from 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 increased due to the funding of these escrow accounts. Net cash provided by investing activities increased due to proceeds from the sale of Creekside Business Park. Net cash used in financing activities increased as a result of the payoff of the note payable on Creekside and the payment of the sales price of the ground lease on the property, which was accounted for as an additional note payable for the property. Partially offsetting the payoff of the encumbrances on Creekside was a capital contribution by the general partner. Pursuant to the Partnership's partnership agreement, if prior to dissolution and termination of the Partnership the general partner has a deficiency in its capital account, the general partner shall contribute cash to the Partnership in an amount which is equal to the deficiency in its capital account. The Managing General Partner anticipates terminating the Partnership once the definitive settlement agreement (see "Item 1. Note C - Legal Proceedings") is approved. During the third quarter of 1997, the general partner contributed capital of $800,000 to the Partnership. The Managing General Partner expects to make a final distribution to the limited partners after court approval of the legal settlement (refer to "Part II, Item 1. Legal Proceedings"). No cash distributions were made during the nine month periods ended September 30, 1997 and 1996. 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") asserted demands for express indemnity against the Partnership, they have not 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 had scheduled a trial date in November 1997. Absent the settlement described below, substantial additional discovery, particularly with respect to trial experts, remained 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 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. On September 12, 1997, the Partnership entered into definitive settlement agreements resolving, subject to court approval, the claims asserted in the litigation and the related claims for indemnity. Under the terms of the settlement, the Indenture Trustee, Wheatley, the Fox Defendants, and the Partnership contributed $3,175,000 to the settlement of the actions. The court has scheduled a hearing for November 24, 1997, on the fairness and adequacy of the terms of the settlement. 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. 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: A Form 8-K dated September 10, 1997, was filed reporting the sale of Creekside Business Park. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant 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: November 13, 1997 EX-27 2
5 This schedule contains summary financial information extracted from Preferred Properties Fund 80 1997 Third Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000312903 PREFERRED PROPERTIES FUND 80 1,000 9-MOS DEC-31-1997 SEP-30-1997 2,207 0 0 0 0 0 0 0 4,613 0 221 0 0 0 1,336 4,613 0 5,995 0 0 3,442 0 404 0 0 0 0 0 0 2,553 122.72 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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