-----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, Rs6TXp89HR3iYoIcWkItttSKgCFckf/75B+pWDUrWXzGY58kg73ZuXdydH39jlc4 iAa69Pz+pv7Me0SfNZTeEQ== 0000892626-98-000106.txt : 19980323 0000892626-98-000106.hdr.sgml : 19980323 ACCESSION NUMBER: 0000892626-98-000106 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19980320 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JMB INCOME PROPERTIES LTD XI CENTRAL INDEX KEY: 0000744437 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363254043 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-15966 FILM NUMBER: 98569529 BUSINESS ADDRESS: STREET 1: C/O JMB REALTY CORP STREET 2: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3129151700 MAIL ADDRESS: STREET 1: C/O JMB REALTY CORP STREET 2: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 10-K405/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K405/A AMENDMENT NO. 1 Filed pursuant to Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 JMB INCOME PROPERTIES, LTD. - XI ----------------------------------------------------- (Exact name of registrant as specified in its charter) IRS Employer Identification Commission File No. 0-15966 No. 36-3254043 The undersigned registrant hereby amends the following sections of its Report for the year ended December 31, 1996 on Form 10-K405 as set forth in the pages attached hereto: PART II Item 6. Selected Financial Data. Pages 7-12. Item 8. Financial Statements and Supplementary Data. Pages 19 to 59. 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. JMB INCOME PROPERTIES, LTD. - XI By: JMB Realty Corporation Managing General Partner GAILEN J. HULL By: Gailen J. Hull Senior Vice President Dated: March 20, 1998 ITEM 6. SELECTED FINANCIAL DATA JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992 (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
1996 1995 1994 1993 1992 ------------ ----------- ----------- ----------- ----------- Total income, including gain on sale or disposition of investment property in 1994 . . . . . . . . . $ 13,403,472 12,915,285 14,496,486 14,496,486 15,185,097 ============ =========== =========== =========== =========== Earnings (loss) before extraordinary item. . . . $ 3,222,749 1,856,294 3,100,253 (2,584,139) (10,876,916) Extraordinary item. . . . . -- -- (2,206,791) -- -- ------------ ------------ ----------- ----------- ----------- Net earnings (loss) . . . . $ 3,222,749 1,856,294 893,462 (2,584,139) (10,876,916) ============ ============ =========== =========== =========== Net earnings (loss) per Interest (b): Earnings (loss) before sale or disposition of investment properties . . . . . . $ 10.02 10.28 14.60 (15.65) (62.90) Gain on sale or disposition of investment property. . 8.06 -- 2.56 -- -- Extraordinary item. . . -- -- (12.22) -- -- ------------ ------------ ----------- ----------- ----------- Net earnings (loss) . . . . $ 18.08 10.28 4.94 (15.65) (62.90) ============ ============ =========== =========== =========== 7 1996 1995 1994 1993 1992 ------------ ----------- ----------- ----------- ----------- Total assets. . . . . . . . $102,106,160 106,800,004 106,201,665 88,391,802 93,648,467 Long-term debt. . . . . . . $ 34,404,477 34,942,100 35,436,797 11,297,315 21,104,127 Cash distributions per Interest (c). . . . . $ 15.00 12.00 12.00 12.00 12.00 ============ ============ =========== =========== =========== - ------------- (a)The above selected financial data should be read in conjunction with the financial statements and the related notes appearing elsewhere in this annual report. (b)The net earnings (loss) per Interest is based upon the number of Interests outstanding at the end of the period (173,411). (c)Cash distributions from the Partnership are generally not equal to Partnership income (loss) for financial reporting or Federal income tax purposes. Each Partner's taxable income (or loss) from the Partnership in each year is equal to his allocable share of the taxable income (loss) of the Partnership, without regard to the cash generated or distributed by the Partnership. Accordingly, cash distributions to the Limited Partners since the inception of the Partnership have not resulted in taxable income to such Limited Partners and have therefore represented a return of capital.
8 SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1996
Property - -------- Riverside Square Mall a) The gross leasable area ("GLA") occupancy rate and average base rent per square foot as of December 31 for each of the last five years were as follows: GLA Avg. Base Rent Per December 31, Occupancy Rate Square Foot (1) ------------ -------------- ------------------ 1992 . . . . . 84% $26.90 1993 . . . . . 81% 31.26 1994 . . . . . 81% 18.10 (2) 1995 . . . . . 80% 18.69 1996 . . . . . 91% 17.15 (1) Average base rent per square foot is based on GLA occupied as of December 31 of each year. (2) Average base rent per square foot decreased in 1994 due to the Saks Fifth Avenue space (acquired in 1994) being included in the gross leasable area beginning in 1994.
Base Rent Scheduled Lease Lease b) Significant Tenants Square Feet Per Annum Expiration Date Renewal Option ------------------- ----------- --------- --------------- -------------- Saks Fifth Avenue 107,000 $90,000 6/2012 N/A
9
c) The following table sets forth certain information with respect to the expiration of leases for the next ten years at the Riverside Square Mall: Annualized Percent of Number of Approx. Total Base Rent Total 1996 Year Ending Expiring GLA of Expiring of Expiring Base Rent December 31, Leases Leases (1) Leases Expiring ------------ --------- --------------- ----------- ---------- 1997 3 7,400 $ 129,700 2.4% 1998 4 12,400 446,900 8.4% 1999 5 13,500 458,500 8.6% 2000 5 12,200 412,700 7.7% 2001 5 15,200 418,500 7.8% 2002 1 2,300 87,100 1.6% 2003 7 25,700 851,500 15.9% 2004 17 30,500 1,157,400 21.6% 2005 8 22,800 773,000 14.5% 2006 10 24,900 456,300 8.5% (1) Excludes leases that expire in 1997 for which renewal leases or leases with replacement tenants have been executed as of March 21, 1997.
10 SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1996
Property - -------- Royal Executive Park II Office Complex a) The net rentable area ("NRA") rate and average base rent per square foot as of December 31 for each of the last five years were as follows: NRA Avg. Base Rent Per December 31, Occupancy Rate Square Foot (1) ------------ -------------- ------------------ 1992 . . . . . 92% $17.35 1993 . . . . . 92% 20.73 1994 . . . . . 97% 19.92 1995 . . . . . 97% 19.28 1996 . . . . . 98% 20.82 (1) Average base rent per square foot is based on NRA occupied as of December 31 of each year.
Base Rent Scheduled Lease Lease b) Significant Tenants Square Feet Per Annum Expiration Date Renewal Option ------------------- ----------- --------- --------------- -------------- MCI 90,000 $2,416,500 1/2001 N/A
11
c) The following table sets forth certain information with respect to the expiration of leases for the next ten years at the Royal Executive Park II Office Complex: Annualized Percent of Number of Approx. Total Base Rent Total 1996 Year Ending Expiring NRA of Expiring of Expiring Base Rent December 31, Leases Leases (1) Leases Expiring ------------ --------- --------------- ----------- ---------- 1997 1 2,500 $ 56,300 1.0% 1998 4 26,500 468,100 8.4% 1999 5 39,000 875,200 15.8% 2000 3 22,800 507,700 9.1% 2001 1 90,000 2,416,500 43.5% 2002 3 77,100 1,172,200 21.1% 2003 -- -- -- -- 2004 1 8,700 156,900 2.8% 2005 -- -- -- -- 2006 -- -- -- -- (1) Excludes leases that expire in 1997 for which renewal leases or leases with replacement tenants have been executed as of March 21, 1997.
12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) INDEX Independent Auditors' Report Balance Sheets, December 31, 1996 and 1995 Statements of Operations, years ended December 31, 1996, 1995 and 1994 Statements of Partners' Capital Accounts (Deficit), years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows, years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements SCHEDULE -------- Real Estate and Accumulated Depreciation III SCHEDULES NOT FILED: All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) INDEX Independent Auditors' Report Balance Sheets, December 31, 1996 and 1995 Statements of Operations, years ended December 31, 1996, 1995 and 1994 Statements of Partners' Capital Accounts, years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows, years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements SCHEDULE -------- Real Estate and Accumulated Depreciation III SCHEDULES NOT FILED: All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) INDEX Independent Auditors' Report Balance Sheets, December 31, 1996 and 1995 Statements of Operations, years ended December 31, 1996, 1995 and 1994 Statements of Partners' Capital Accounts, years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows, years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements. SCHEDULE -------- Real Estate and Accumulated Depreciation III SCHEDULES NOT FILED: All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. 19 INDEPENDENT AUDITORS' REPORT The Partners JMB INCOME PROPERTIES, LTD. - XI: We have audited the financial statements of JMB Income Properties, Ltd. - XI (a limited partnership) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 the General Partners of the Partnership, 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 JMB Income Properties, Ltd. - XI at 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. Also in our opinion, the related 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. As discussed in the Notes to the financial statements, in 1996, the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121. KPMG PEAT MARWICK LLP Chicago, Illinois March 21, 1997 20 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS ------
1996 1995 ------------ ----------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 11,548,195 5,523,514 Rents and other receivables, net of allowance for doubtful accounts of $642,633 in 1996 and $511,404 in 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,010,246 2,319,003 Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,506 79,621 Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 786,706 10,105,790 ------------ ----------- Total current assets. . . . . . . . . . . . . . . . . . . . . . . 14,436,653 18,027,928 ------------ ----------- Investment property, at cost - Schedule III: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,796,561 3,796,561 Building and improvements . . . . . . . . . . . . . . . . . . . . . . . 75,476,781 70,665,239 ------------ ----------- 79,273,342 74,461,800 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . 17,321,842 14,927,070 ------------ ----------- Property held for investment, net of accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 61,951,500 59,534,730 Investment in unconsolidated ventures, at equity. . . . . . . . . . . . . 20,367,302 23,487,628 Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,350,705 5,749,718 ------------ ----------- $102,106,160 106,800,004 ============ =========== 21 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICIT) ---------------------------------------------------- 1996 1995 ------------ ----------- Current liabilities: Current portion of long-term debt . . . . . . . . . . . . . . . . . . . $ 537,623 494,697 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 774,790 501,970 Construction costs payable. . . . . . . . . . . . . . . . . . . . . . . -- 673,008 Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,139 246,581 ------------ ----------- Total current liabilities . . . . . . . . . . . . . . . . . . . . 1,555,552 1,916,256 Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . 101,539 84,131 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 4,434,509 Long-term debt, less current portion. . . . . . . . . . . . . . . . . . . 34,404,477 34,942,100 ------------ ----------- Commitments and contingencies Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 36,061,568 41,376,996 Partners' capital accounts (deficit): General partners: Capital contributions . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000 Cumulative net earnings . . . . . . . . . . . . . . . . . . . . . . 5,431,146 5,344,614 Cumulative cash distributions . . . . . . . . . . . . . . . . . . . (6,631,429) (6,631,429) ------------ ----------- (1,199,283) (1,285,815) ------------ ----------- Limited partners (173,411 interests): Capital contributions, net of offering costs. . . . . . . . . . . . 156,493,238 156,493,238 Cumulative net earnings . . . . . . . . . . . . . . . . . . . . . . 30,559,055 27,422,838 Cumulative cash distributions . . . . . . . . . . . . . . . . . . . (119,808,418) (117,207,253) ------------ ----------- 67,243,875 66,708,823 ------------ ----------- Total partners' capital accounts. . . . . . . . . . . . . . . . . 66,044,592 65,423,008 ------------ ----------- $102,106,160 106,800,004 ============ =========== See accompanying notes to financial statements.
22 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ------------ Income: Rental income . . . . . . . . . . . . . . . . . . . $12,711,885 11,822,997 13,022,234 Interest income . . . . . . . . . . . . . . . . . . 691,587 1,092,288 1,026,602 Gain on disposition of investment property. . . . . . . . . . . . . . . . . . . . . -- -- 447,650 ----------- ----------- ----------- 13,403,472 12,915,285 14,496,486 ----------- ----------- ----------- Expenses: Mortgage and other interest . . . . . . . . . . . . 2,936,882 2,976,655 2,803,351 Depreciation. . . . . . . . . . . . . . . . . . . . 2,394,772 1,975,902 1,726,612 Property operating expenses . . . . . . . . . . . . 8,835,327 8,110,731 8,778,556 Professional services . . . . . . . . . . . . . . . 262,322 277,837 343,023 Amortization of deferred expenses . . . . . . . . . 458,744 191,592 86,376 General and administrative. . . . . . . . . . . . . 308,471 399,979 275,525 ----------- ----------- ----------- 15,196,518 13,932,696 14,013,443 ----------- ----------- ----------- (1,793,046) (1,017,411) 35,393 Partnership's share of operations of unconsolidated ventures . . . . . . . . . . . . . . 3,603,185 2,873,705 2,617,210 Partnership's share of gain on sale of investment properties of unconsolidated venture. . . . . . . . 1,412,610 -- -- ----------- ----------- ----------- Earnings (loss) before extraordinary item . . 3,222,749 1,856,294 3,100,253 Extraordinary item. . . . . . . . . . . . . . . . . . -- -- (2,206,791) ----------- ----------- ----------- Net earnings (loss) . . . . . . . . . . . . . $ 3,222,749 1,856,294 893,462 =========== =========== =========== 23 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS - CONTINUED 1996 1995 1994 ------------ ------------ ------------ Net earnings (loss) per limited partnership interest: Earnings (loss) before sale or disposition of investment property and extraordinary item. . . . . . . . . . . . . . . . . . . $ 10.02 10.28 14.60 Gain on sale or disposition of investment property . . . . . . . . . . . 8.06 -- 2.56 Extraordinary item. . . . . . . . . . . . . -- -- (12.22) ----------- ----------- ----------- Net earnings (loss) . . . . . . . . . . . $ 18.08 10.28 4.94 =========== =========== =========== See accompanying notes to financial statements.
24 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICIT) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
GENERAL PARTNERS LIMITED PARTNERS --------------------------------------------------- -------------------------------------------------- CONTRI- BUTIONS NET NET OF NET CONTRI- EARNINGS CASH OFFERING EARNINGS CASH BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ---------- ------------- ----------- ----------- ---------- ------------- ----------- Balance (deficit) at Decem- ber 31, 1993 . . . . . $1,000 5,233,888 (6,631,429) (1,396,541) 156,493,238 24,783,808 (113,045,389) 68,231,657 Cash distri- butions ($12 per limited partnership interest). . . -- -- -- -- -- -- (2,080,932) (2,080,932) Net earnings (loss) . . . . -- 36,474 -- 36,474 -- 856,988 -- 856,988 ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- Balance (deficit) at Decem- ber 31, 1994 . . . . . 1,000 5,270,362 (6,631,429) (1,360,067) 156,493,238 25,640,796 (115,126,321) 67,007,713 Cash distri- butions ($12 per limited partnership interest). . . -- -- -- -- -- -- (2,080,932) (2,080,932) Net earnings (loss) . . . . -- 74,252 -- 74,252 -- 1,782,042 -- 1,782,042 ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- 25 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICIT) - CONTINUED GENERAL PARTNERS LIMITED PARTNERS --------------------------------------------------- -------------------------------------------------- CONTRI- BUTIONS NET NET OF NET CONTRI- EARNINGS CASH OFFERING EARNINGS CASH BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ---------- ------------- ----------- ----------- ---------- ------------- ----------- Balance (deficit) at Decem- ber 31, 1995 . . . . . 1,000 5,344,614 (6,631,429) (1,285,815) 156,493,238 27,422,838 (117,207,253) 66,708,823 Cash distri- butions ($15 per limited partnership interest). . . -- -- -- -- -- -- (2,601,165) (2,601,165) Net earnings (loss) . . . . -- 86,532 -- 86,532 -- 3,136,217 -- 3,136,217 ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- Balance (deficit) at Decem- ber 31, 1996 . . . . . $1,000 5,431,146 (6,631,429) (1,199,283) 156,493,238 30,559,055 (119,808,418) 67,243,875 ====== ========== ========== ========== =========== =========== ============ =========== See accompanying notes to financial statements.
26 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss) . . . . . . . . . . . . . . . . . $ 3,222,749 1,856,294 893,462 Items not requiring (providing) cash or cash equivalents: Depreciation. . . . . . . . . . . . . . . . . . . . 2,394,772 1,975,902 1,726,612 Amortization of deferred expenses . . . . . . . . . 458,744 191,592 86,376 Amortization of discounts on long-term debt . . . . -- -- 101,110 Partnership's share of operations of uncon- solidated ventures, net of distributions. . . . . 944,935 1,008,416 (827,598) Partnership's share of gain on sale of invest- ment properties of unconsolidated venture . . . . (1,412,610) -- -- Total gain on disposition of investment property. . . . . . . . . . . . . . . . . . . . . -- -- (1,128,591) Extraordinary item. . . . . . . . . . . . . . . . . -- -- 2,206,791 Changes in: Rents and other receivables . . . . . . . . . . . . 308,757 (334,608) (511,436) Prepaid expenses. . . . . . . . . . . . . . . . . . (11,885) -- 205,931 Escrow deposits . . . . . . . . . . . . . . . . . . (64,859) (820,114) (330,151) Accounts payable. . . . . . . . . . . . . . . . . . 272,820 16,506 229,990 Accrued interest payable. . . . . . . . . . . . . . (3,442) (3,167) 1,006,931 Tenant security deposits. . . . . . . . . . . . . . 17,408 4,249 18,578 ----------- ----------- ----------- Net cash provided by (used in) operating activities. . . . . . . . . . . . 6,127,389 3,895,070 3,678,005 ----------- ----------- ----------- Cash flows from investing activities: Net sales and maturities (purchases) of short-term investments. . . . . . . . . . . . . . . -- 7,530,660 16,150,680 Net escrow draws for construction related costs . . . . . . . . . . . . . . . . . . . 4,949,435 2,223,117 -- Additions to investment properties. . . . . . . . . . (5,484,550) (11,813,978) (19,596,334) Partnership's distributions from unconsolidated ventures . . . . . . . . . . . . . . 3,588,000 1,250,000 -- Partnership's contributions to unconsolidated ventures . . . . . . . . . . . . . . -- (1,233,436) (1,557,469) Payment of deferred expenses. . . . . . . . . . . . . (59,731) (577,118) (760,391) ----------- ----------- ----------- Net cash provided by (used in) investing activities. . . . . . . . . . . . 2,993,154 (2,620,755) (5,763,514) ----------- ----------- ----------- 27 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1996 1995 1994 ----------- ----------- ----------- Cash flows from financing activities: Cash proceeds from refinancing of long-term debt. . . . . . . . . . . . . . . . . . . -- -- 11,102,785 Bank overdraft. . . . . . . . . . . . . . . . . . . . -- (415,003) 415,003 Principal payments on long-term debt. . . . . . . . . (494,697) (455,199) (418,141) Distributions to limited partners . . . . . . . . . . (2,601,165) (2,080,932) (2,080,932) ----------- ----------- ----------- Net cash provided by (used in) financing activities. . . . . . . . . . . . (3,095,862) (2,951,134) 9,018,715 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . 6,024,681 (1,676,819) 6,933,206 Cash and cash equivalents, beginning of year . . . . . . . . . . . . . 5,523,514 7,200,333 267,127 ----------- ----------- ----------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . $11,548,195 5,523,514 7,200,333 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest. . . . . . $ 2,940,324 2,979,823 1,695,310 =========== =========== =========== Non-cash investing and financing activities: Disposition of investment property: Balance due on long-term debt cancelled. . . . . . $ -- -- 9,500,000 Accrued interest expense on accelerated long-term debt . . . . . . . . . . . . . . . . . -- -- 862,422 Reduction of investment property . . . . . . . . . -- -- (8,955,641) Reduction of deferred expenses . . . . . . . . . . -- -- (29,099) Reduction of other assets. . . . . . . . . . . . . -- -- (249,091) ----------- ----------- ---------- Non-cash gain recognized due to lender realizing upon security. . . . . . . $ -- -- 1,128,591 =========== =========== ========== Increase in deferred costs due to escrow of funds for payment of inducement . . . . . . . . $ -- 5,000,000 -- Net increase in other liabilities. . . . . . . . . -- (4,434,509) -- ----------- ----------- ---------- Payments of inducement from escrowed funds. . . . . . . . . . . . . . . $ -- 565,491 -- =========== =========== ========== 28 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1996 1995 1994 ----------- ----------- ----------- Refinancing of long-term debt: Proceeds of refinancing, net of refinancing costs . . . . . . . . . . . . . . . . $ -- -- 35,913,859 Retirement of debt, net of discount . . . . . . . . -- -- (12,983,269) Proceeds escrowed . . . . . . . . . . . . . . . . . -- -- (11,178,642) Prepayment penalty. . . . . . . . . . . . . . . . . -- -- (649,163) ----------- ----------- ----------- Cash proceeds from refinancing of long-term debt. . . . . . . . . . . . . . . $ -- -- 11,102,785 =========== =========== =========== See accompanying notes to financial statements.
29 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 OPERATIONS AND BASIS OF ACCOUNTING GENERAL The Partnership holds (either directly or through joint ventures) an equity investment portfolio of United States real estate. Business activities consist of rentals to a variety of commercial and retail companies, and the ultimate sale or disposition of such real estate. The Partnership currently expects to conduct an orderly liquidation of its remaining investment portfolio and wind up its affairs not later than December 31, 1999. The equity method of accounting has been applied in the accompanying financial statements with respect to the Partnership's interest in Royal Executive Park II ("Royal Executive") and JMB/San Jose Associates ("San Jose"). Accordingly, the accompanying financial statements do not include the accounts of Royal Executive and San Jose. The Partnership's records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying financial statements have been prepared from such records after making appropriate adjustments to present the Partnership's accounts in accordance with generally accepted accounting principles ("GAAP"). Such GAAP adjustments are not recorded on the records of the Partnership. The net effect of these items for the years ended December 31, 1996 and 1995 is summarized as follows: 30
1996 1995 ------------------------------ ------------------------------ TAX BASIS TAX BASIS GAAP BASIS (UNAUDITED) GAAP BASIS (UNAUDITED) ------------ ----------- ------------ ---------- Total assets. . . . . . . . . . . . . $102,106,160 122,747,292 106,800,004 129,176,609 Partners' capital accounts (deficit): General partners. . . . . . . . . (1,199,283) (1,451,001) (1,285,815) (1,478,591) Limited partners. . . . . . . . . 67,243,875 88,203,901 66,708,823 89,438,466 Net earnings (loss): General partners. . . . . . . . . 86,532 27,590 74,252 46,294 Limited partners. . . . . . . . . 3,136,217 1,366,601 1,782,042 1,111,065 Net earnings (loss) per limited partnership interest. . . . . . . . . . . . . . 18.08 7.88 10.28 6.41 =========== ============ =========== ===========
31 The net earnings (loss) per limited partnership interest is based upon the number of limited partnership interests outstanding at the end of the period (173,411). Deficit capital accounts will result, through the duration of the Partnership, in net gain for financial reporting and income tax purposes. The preparation of financial statements in accordance with GAAP requires the Partnership to make estimates and assumptions that affect the reported or disclosed amount of 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. Statement of Financial Accounting Standards No. 95 requires the Partnership to present a statement which classifies receipts and payments according to whether they stem from operating, investing or financing activities. The required information has been segregated and accumulated according to the classifications specified in the pronouncement. Partnership distributions from unconsolidated ventures are considered cash flow from operating activities only to the extent of the Partnership's cumulative share of net earnings. The Partnership records amounts held in U.S. Government obligations at cost, which approximates market. For the purposes of these statements, the Partnership's policy is to consider all such amounts held with original maturities of three months or less ($8,217,261 and $3,987,126 at December 31, 1996 and 1995, respectively) as cash equivalents, which includes investments in an institutional mutual fund which holds U.S. Government obligations, with any remaining amounts (generally with original maturities of one year or less) reflected as short-term investments being held to maturity. Deferred expenses consist primarily of loan fees and lease commissions and a tenant lease inducement which are amortized over the terms stipulated in the related agreements using the straight-line method. Although certain leases of the Partnership provide for tenant occupancy during periods for which no rent is due and/or increases in the minimum lease payments over the term of the lease, rental income is accrued for the full period of occupancy on a straight-line basis. Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments" (as amended), requires certain large public entities to disclose the SFAS 107 value of all financial assets and liabilities for which it is practicable to estimate. Value is defined in the Statement as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes the carrying amount of its financial instruments classified as current assets and liabilities (excluding current portion of long-term debt) approximates SFAS 107 value due to the relatively short maturity of these instruments. There is no quoted market value available for any of the Partnership's other instruments. The debt, with a carrying balance of $34,942,100, has been calculated to have an SFAS 107 value of $35,225,726 by discounting the scheduled loan payments to maturity. Due to restrictions on transferability and prepayment and the inability to obtain comparable financing due to current levels of debt, previously modified debt terms or other property specific competitive conditions, the Partnership would be unable to refinance these properties to obtain such calculated debt amounts reported. The Partnership has no other significant financial instruments. No provision for State or Federal income taxes has been made as the liability for such taxes is that of the Partners rather than the Partnership. However, in certain instances, the Partnership has been required under applicable law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners. 32 The Partnership has acquired, either directly or through joint ventures, two shopping centers and three office complexes. In June 1990, the Partnership sold its interest in the Genesee Valley Shopping Center. In November 1994, the lender realized upon its security interest and took title to the Bank of Delaware building via a deed in lieu of foreclosure. In March 1996, the San Jose venture sold its interest in the 190 San Fernando Building and one of the parking structures at the Park Center Financial Plaza investment property. All of the remaining properties were in operation at December 31, 1996. The cost of the investment properties represents the total cost to the Partnership plus miscellaneous acquisition costs. Depreciation on the properties has been provided over the estimated useful lives of the various components as follows: YEARS ----- Building and Improvements -- straight-line. . . . . 30 Personal property -- straight-line. . . . . . . . . 5 == The investment properties are pledged as security for the long-term debt, for which there is no recourse to the Partnership. Maintenance and repairs are generally charged to operations as incurred. Significant betterments and improvements are capitalized and depreciated over their estimated useful lives. Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" was issued in March 1995. The Partnership adopted SFAS 121 as required in the first quarter of 1996. SFAS 121 requires that the Partnership record an impairment loss on its properties to be held for investment whenever their carrying value cannot be fully recovered through estimated undiscounted future cash flows from their operations and sale. The amount of the impairment loss to be recognized would be the difference between the property's carrying value and the property's estimated fair value. The Partnership's policy is to consider a property to be held for sale or disposition when the Partnership has committed to a plan to sell or dispose of such property and active marketing activity has commenced or is expected to commence in the near term. In accordance with SFAS 121, any properties identified as "held for sale or disposition" are no longer depreciated. Adjustments for impairment loss for such properties (subsequent to the date of adoption of SFAS 121) are made in each period as necessary to report these properties at the lower of carrying value or fair value less costs to sell. The results of operations for the Bank of Delaware office building sold or disposed of during 1994 was a loss of $775,146 for the year ended December 31, 1994. In addition, the accompanying consolidated financial statements include $3,603,185, $2,873,705 and $2,607,188, respectively, of the Partnership's share of total property operations of $4,209,143, $3,435,566 and total loss of $22,339,724 of unconsolidated properties held for sale or disposition as of December 31, 1996 or sold or disposed of in the past three years. INVESTMENT PROPERTIES RIVERSIDE SQUARE MALL During October 1983, the Partnership acquired an existing enclosed regional shopping center in Hackensack, New Jersey. The Partnership's purchase price for the mall was $36,236,282. The Partnership made a cash down payment at closing of $20,000,000 with the balance of the purchase price represented by a first mortgage loan. During the third quarter of 1994, the Partnership finalized a refinancing of the first mortgage loan with a new loan in the amount of $36,000,000 which resulted in net proceeds 33 of approximately $22,300,000. The new loan has an interest rate of 8.35% per annum, requires monthly principal and interest payments of $286,252 beginning September 1, 1994, and matures December 1, 2006, when the unpaid principal and interest balance is due. Of such proceeds, approximately $11,200,000 was escrowed by the lender pursuant to the loan agreement and released as required, including interest, to fund certain costs of the renovation and restoration as discussed below. The full amount of the escrow has been released as of December 31, 1996. The remaining $11,100,000 of loan proceeds were used to replenish the Partnership's working capital reserve for amounts paid to or escrowed on behalf of Saks and Bloomingdale's for their store renovations as discussed below. Additionally, the Partnership recorded, in 1994, an extraordinary loss on refinancing of $2,206,791 representing the write-off of unamortized discount on the original mortgage loan of $1,557,628 and a $649,163 prepayment penalty. The Partnership completed its renovation of the Riverside Square Mall as well as its restoration of the parking deck (at final costs of approximately $13,500,000 and $7,000,000, respectively) and is continuing to remerchandise the center. In such regard, the Partnership has budgeted in 1997 approximately $5,386,000 for tenant improvements and capital expenditures. In connection with the renovation, the Partnership, in early 1994, signed 15-year operating covenant extensions with both Saks and Bloomingdale's, the latter of which owns its own store. In return for the additional 15-year commitment to the center, the Partnership reimbursed Saks for its store renovation in the amount of $6,100,000; and in August 1995, the Partnership escrowed $5,000,000, reflected as a deferred leasing cost, (the full amount of which has been released as of December 31, 1996) for Bloomingdale's store renovation, which is scheduled to be completed in 1997. The Partnership had accrued the unfunded amount payable to Bloomingdale's as of December 31, 1995 and recorded such amounts as a deferred expense in the accompanying balance sheet. Interest earned on the escrowed funds was remitted to the Partnership upon termination of the escrow account. In connection with the payment to Saks, the Partnership also acquired title to the Saks building which had previously been owned by Saks. An affiliate of the General Partners of the Partnership manages the shopping center for a fee equal to 4% of the fixed and percentage rents of the shopping center plus leasing and operating covenant commissions, subject to deferral if in excess of an aggregate annual maximum amount of 6% of the gross receipts of the property. BANK OF DELAWARE - OFFICE BUILDING In December 1984, the Partnership acquired an interest in an existing office building in Wilmington, Delaware. The Partnership's purchase price for the building was $20,900,000, of which approximately $5,945,000, was represented by an existing first mortgage loan. In February 1989, the Partnership refinanced the existing first mortgage loan and received net refinancing proceeds of approximately $4,696,000 which were utilized primarily to pay for the substantially completed renovation program and other capital improvements. The Partnership assigned title to the property in November 1994 to the mortgage lender as described below. Due to the competitive nature of this marketplace, the property had been operating at a cash deficit and as a result, the Partnership had commenced discussions with the building's first mortgage lender in order to seek a loan modification. In connection with these discussions, effective January 1994, the Partnership had suspended payment of debt service to the lender. Under the terms of a mortgage and security agreement, the Partnership, in its capacity as mortgagor of the building, agreed to indemnify the mortgage lender, under certain circumstances, against damages, claims, liabilities and expenses incurred by or asserted against the mortgage lender in relation to asbestos in the building. Asbestos had 34 been abated or encapsulated in approximately 62% of the building's space. The Partnership did not believe that any remaining asbestos in the building presented a hazard and did not believe that such asbestos would have been required to be removed. The Partnership estimated that the cost of asbestos abatement in a portion of the building that could be incurred under certain circumstances in the future would have been approximately $800,000. In November 1994, due to the Partnership's default in payment of debt service, the mortgage lender concluded proceedings to realize upon its mortgage security interest represented by the land, building, and related improvements of the property via a deed in lieu of foreclosure. As a result of the disposition of the property, the Partnership recognized a gain in 1994 for financial reporting purposes of $447,650 and a loss for Federal income tax purposes of $4,756,937 with no corresponding distributable proceeds. In conjunction with the transfer of title, the Partnership paid the mortgage lender a sum of approximately $681,000 which included the net cash flow of the property since the suspension of debt service and an indemnification release fee for which the mortgage lender released the Partnership from all liabilities respecting the property, including those related to asbestos. An affiliate of the General Partner of the Partnership managed the office building through the November 1994 date of property title assignment for a fee equal to 3% of the gross revenues of the building plus leasing commissions, subject to an aggregate annual maximum amount of 6% of the gross receipts of the property. VENTURE AGREEMENTS - GENERAL The Partnership at December 31, 1996 is a party to two operating venture agreements (San Jose and Royal Executive) and has made capital contributions to the respective ventures as discussed below. Under certain circumstances, either pursuant to the venture agreements or due to the Partnership's obligations as a general partner, the Partnership may be required to make additional cash contributions to the ventures. There are certain risks associated with the Partnership's investments made through joint ventures including the possibility that the Partnership's joint venture partners in an investment might become unable or unwilling to fulfill their financial or other obligations, or that such joint venture partners may have economic or business interests or goals that are inconsistent with those of the Partnership. SAN JOSE The Partnership acquired, through San Jose, an interest in an existing office building complex in San Jose, California (Park Center Financial Plaza) consisting of ten office buildings, a parking and retail building (185 Park Avenue) and two parking garage structures. In September 1986, San Jose obtained a mortgage loan in the amount of $25,000,000 secured by the 150 Almaden and 185 Park Avenue buildings and certain parking areas. Due to the scheduled maturity of the loan, San Jose, during the fourth quarter of 1994, finalized a loan extension and modification with the mortgage lender. The refinancing resulted in the 1994 partial paydown of the outstanding principal balance in the amount of $2,500,000. After reviewing and analyzing San Jose's potential options with regard to its investment in the 100-130 Park Center Plaza portion of the complex, San Jose determined that it was in the best interest of the venture to repay the mortgage obligations secured by this portion of the complex and did so in October 1995. The outstanding principal balances, at the time of repayment, were $2,418,722 of which the Partnership's share was $1,209,361. 35 The property was managed by an affiliate of the General Partners of the Partnership for a fee calculated as 3% of gross receipts until December 1994 when the affiliated property manager sold substantially all of its assets and assigned its interests in its management contracts to an unaffiliated third party. The partners of San Jose are the Partnership and JMB Income Properties, Ltd.-XII, another partnership sponsored by the Managing General Partner of the Partnership ("JMB-XII"). The terms of San Jose's partnership agreement generally provide that contributions, distributions, cash flow, sale or refinancing proceeds and profits and losses will be distributed or allocated to the Partnership and JMB-XII in their respective 50% ownership percentages. During August 1994, San Jose received notification from the Redevelopment Agency of the City of San Jose of its offer to purchase one of the parking garage structures in the office building complex, for an approved Agency project for $4,090,000. The price offered was deemed by the Agency to be just compensation in compliance with applicable laws concerning eminent domain. During 1995, the Agency filed a condemnation action in court to proceed to obtain the garage pursuant to such laws. In late 1995, San Jose and the Agency reached a mutually acceptable agreement on the transfer of the garage. In March 1996, the sale was consummated. Under the transfer agreement, San Jose received replacement parking spaces for its tenants in a nearby city-owned parking structure for a term of fifty-five years in addition to the aforementioned purchase price of $4,090,000. San Jose recognized a gain of approximately $2,036,000 and $1,857,000, respectively, for financial reporting and Federal income tax purposes in 1996, of which approximately $1,018,000 and $928,500, respectively, was allocated to the Partnership. In March 1996, San Jose sold the 190 San Fernando Building to an independent third party. The sale price of the building was $1,753,000 (before selling costs), and was paid in cash at closing. San Jose recognized a gain of approximately $789,000 and $21,000, respectively, for financial reporting and Federal income tax purposes in 1996, of which approximately $394,500 and $10,500, respectively, was allocable to the Partnership. At September 30, 1994, San Jose made provisions for value impairment on the 100-130 Park Center Plaza buildings and certain parking areas and the 170 Almaden building of $944,335 in the aggregate. Such provisions were recorded to reduce the net carrying values of these buildings to the then outstanding balances of the related non-recourse financing. As San Jose had committed to a plan to sell the properties, the 190 San Fernando Building and the parking structure were classified as held for sale or disposition as of January 1, 1996 and therefore were not subject to continued depreciation. The San Jose venture has subsequently committed to a plan to sell the balance of the complex, and has classified the remaining assets as held for sale as of December 31, 1996 and these assets will therefore no longer be subject to continued depreciation. ROYAL EXECUTIVE PARK II In December 1985, the Partnership entered into a commitment to fund a $27,000,000 convertible first mortgage note on a three building office park then under construction in Rye Brook, New York (Royal Executive Park II). The first mortgage note called for monthly installments of interest only at a rate of 10% through the period of equity conversion. 36 During February 1987, the Partnership exercised its option of converting the $27,000,000 mortgage into an ownership position. Upon the conversion of the mortgage note, the Partnership entered into a joint venture (Royal Executive) with the borrower (joint venture partners). Pursuant to the terms of the venture agreement, until certain rental achievement levels are attained, the Partnership is entitled to a cumulative preferred annual return equal to $2,430,000 per year. The next $2,439,732 of annual cash flow is distributable to the joint venture partners, on a non-cumulative basis, with any remaining cash flow distributable 49.9% to the Partnership and 50.1% to the joint venture partners. Therefore, the Partnership's receipt of cash distributions is subject to the actual operations of the property. The Partnership is entitled to any deficiency in its preferred annual return plus interest at 9% on a cumulative basis as an annual priority distribution from future available operating cash flow before any cash flow distributions are made to the venture partner. The cumulative deficiency in the preferred annual return is approximately $3,100,000 at December 31, 1996. The Royal Executive venture agreement further provides that the Partnership is entitled to priority level of distribution of sale and refinancing proceeds of $27,000,000 plus the cumulative deficiency in its preferred annual return. Net operating income (as defined) of the joint venture, in general, will be allocated in proportion to, and to the extent of, distributions and then based on relative ownership percentages. Operating losses, in general, will be first allocated to the joint venture partners to the extent of any additional contributions made to fund operations or the Partnership's guaranteed return. Remaining losses, if any, will be allocated based upon relative ownership interests. Depreciation and amortization will be allocated based upon the relative ownership interests. Due to uncertainty about the ability to recover the net carrying value of the property through future operations and sale, Royal Executive made a provision for value impairment of $25,378,894 at September 30, 1994 to reduce the net carrying value of the property to the then estimated fair value. The provision for value impairment has been allocated fully to the venture partner to reflect their subordination to the Partnership in distributions with regard to future operation and sale or financing proceeds as discussed above. Occupancy of this property increased slightly to 98% as of December 31, 1996. As there has been a commitment to sell this property, the Royal Executive Venture has classified this property as held for sale or disposition at December 31, 1996, and therefore, the property will no longer be subject to continued depreciation. During the latter part of 1996 and continuing through the date of this report, leasing activity in the market has increased dramatically. This improvement is due to a combination of no new office building developments, fewer major corporation layoffs and consolidations, and a generally improving business climate resulting in increased space needs for tenants within the market. Consequently, market net effective rental rates have also improved. Overall, however, net effective rental rates have not yet recovered to a level achieved prior to the real estate depression experienced in the late 1980's and early 1990's. The vacancy rate for the Eastern Westchester office market in which the property participates remains in the mid-teens. The Partnership received its preferred level of return for 1996 in addition to a partial recovery of its cumulative shortfall in this return since 1989. During the fourth quarter, Royal Executive became aware that fuel oil believed to be from the property's underground storage tanks has been discharged into the ground. Royal Executive believes that such discharge has been the result of normal operations of the property and not the actions of tenants or other third parties. Royal Executive is currently 37 performing tests to determine the nature and extent of the contamination. Royal Executive believes that no nearby underground water supplies were affected nor does it appear likely that any will be affected in the future. At this time, it is not possible to reasonably estimate what the cost of any required remediation will be. Royal Executive does not expect that the value of the property has been materially impaired; however, there can be no assurance that the contamination will not have a material impact on the Partnership's financial condition until more information becomes available. Effective July 1, 1994, management and leasing activities at the complex were transferred to an affiliate of the General Partners of the Partnership, who managed the property until December 1994 for a fee computed as a percentage of certain revenues. In December 1994, this affiliated property manager sold substantially all of its assets and assigned its interest in its Management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. The successor to the affiliated property is acting as the manager of the property on the same terms that existed prior to the assignment. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1996 and 1995: 1996 1995 ---------- ---------- 8.35% mortgage note, secured by Riverside Square Mall in Hackensack, New Jersey; payable in monthly installments of principal and interest of $286,252 through December 1, 2006, the scheduled maturity date at which time the unpaid principal and interest is due. . . . . . . . $34,942,100 35,436,797 Less current portion of long-term debt. . . . 537,623 494,697 ----------- ---------- Total long-term debt. . . . . . . . $34,404,477 34,942,100 =========== ========== Five year maturities of long-term debt are summarized as follows for the years ending: 1997. . . . . . . . . . . $537,623 1998. . . . . . . . . . . 584,273 1999. . . . . . . . . . . 634,971 2000. . . . . . . . . . . 690,068 2001. . . . . . . . . . . 749,945 ======== PARTNERSHIP AGREEMENT Pursuant to the terms of the Partnership Agreement, net profits or losses of the Partnership from operations are allocated 96% to the Limited Partners and 4% to the General Partners. Profits from the sale or refinancing of investment properties will be allocated to the General Partners: (i) to the greater of 1% of such profits or the amount of cash distributable to the General Partner from any such sale or refinancing (as described below); and (ii) in order to reduce deficits, if any, in the General Partners' capital accounts to a level consistent with the gain anticipated to be realized from the sale of properties. Losses from the sale or refinancing of investment properties will be allocated 1% to the General Partners. The remaining sale or refinancing profits and losses will be allocated to the Limited Partners. 38 The General Partners are not required to make any additional capital contributions except under certain limited circumstances upon termination of the Partnership. In general, distributions of cash from operations will be made 90% to the Limited Partners and 10% to the General Partners. However, a portion of such distributions to the General Partners is subordinated to the Limited Partners' receipt of a stipulated return on capital. The Partnership Agreement provides that the General Partners shall receive as a distribution from the sale of a real property by the Partnership amounts equal to the cumulative deferrals of any portion of their 10% cash distribution and 3% of the selling price, and that the remaining proceeds (net after expenses and retained working capital) be distributed 85% to the Limited Partners and 15% to the General Partners. However, notwithstanding such allocations, the Limited Partners shall receive 100% of such net sale proceeds until the Limited Partners (i) have received cash distributions of sale or refinancing proceeds in an amount equal to the Limited Partners' aggregate initial capital investment in the Partnership, (ii) have received cumulative cash distributions from the Partnership's operations which, when combined with sale or refinancing proceeds previously distributed, equal a 7% annual return on the Limited Partners' average capital investment for each year (their initial capital investment as reduced by sale or refinancing proceeds previously distributed) commencing with the first fiscal quarter of 1985 and (iii) have received cash distributions of sale and refinancing proceeds and of the Partnership operations, in an amount equal to the Limited Partners' initial capital investment in the Partnership plus a 10% annual return on the Limited Partners' average capital investment. As the above levels of return are not expected to be achieved, approximately $3,270,000 of sale proceeds from the sale of the Partnership's interest in the Genesee Valley Center has been deferred by the General Partners. LEASES At December 31, 1996, the Partnership's principal asset is one shopping center. The Partnership has determined that all leases relating to this property are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the property, excluding the cost of the land, is depreciated over the estimated useful life. Leases with tenants range in term from one to thirty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. In addition, substantially all of the leases with shopping center tenants provide for additional rent based upon percentages of tenants' sales volumes. A substantial portion of the ability of retail tenants to honor their leases is dependant upon the retail economic sector. Minimum lease payments, including amounts representing executory costs (e.g. taxes, maintenance, insurance) and any related profit, to be received in the future under the operating leases are as follows: 1997 . . . . . . . . . . . $ 5,750,070 1998 . . . . . . . . . . . 5,761,989 1999 . . . . . . . . . . . 5,457,849 2000 . . . . . . . . . . . 4,963,342 2001 . . . . . . . . . . . 4,731,268 Thereafter . . . . . . . . 18,010,428 ----------- Total. . . . . . . . . $44,674,946 =========== Contingent rent (based on sales by property tenants) included in rental income was as follows: 1994. . . . . . . . $274,431 1995. . . . . . . . 210,903 1996. . . . . . . . 312,727 ======== 39 TRANSACTIONS WITH AFFILIATES The Partnership, pursuant to the Partnership Agreement, is permitted to engage in various transactions involving the Managing General Partner and its affiliates including the reimbursement for salaries and salary- related expenses of its employees, certain of its officers, and other direct expenses relating to the administration of the Partnership and the operation of the Partnership's investments. Fees, commissions and other expenses required to be paid by the Partnership to the General Partners and their affiliates as of December 31, 1996, 1995 and 1994 are as follows: UNPAID AT DECEMBER 31, 1996 1995 1994 1996 -------- -------- -------- ------------ Property management and leasing fees . . . . . $229,333 236,845 608,703 33,000 Insurance commissions . . . 42,093 44,370 45,765 -- Reimbursement (at cost) for accounting services. . 9,825 99,195 74,653 988 Reimbursement (at cost) for portfolio manage- ment services. . . . . . . 23,498 19,685 30,506 6,167 Reimbursement (at cost) for legal services . . . . 4,691 4,942 33,071 1,158 Reimbursement (at cost) for administrative charges and other out-of-pocket expenses . . -- 124,906 6,002 -- -------- -------- -------- ------- $309,440 529,943 798,700 41,313 ======== ======== ======== ======= During 1994, certain officers and directors of the Managing General Partners acquired interests in a company which provides certain property management services to a property owned by the Partnership. The fees earned by such company from the Partnership for the years ended December 31, 1996 and 1995 were approximately $39,000 and $30,000, respectively, all of which has been paid at December 31, 1996. The General Partners have deferred receipt of certain of their distributions of net cash flow of the Partnership. The amount of such deferred distributions aggregated $1,844,000 as of December 31, 1996. The amount is being deferred in accordance with the subordination requirements of the Partnership Agreement as discussed above. The Partnership does not expect that the subordination requirements of the Partnership agreement will be satisfied to permit payment of the majority of these amounts. In addition, in 1994, an affiliate of the General Partner deferred $300,000 in leasing fees at Riverside Square Mall pursuant to the management agreement. Of this amount, $75,000 and $192,000 was paid during 1996 and 1995, respectively. The remaining deferred amount of $33,000 or other amounts deferred do not bear interest and may be paid in future periods. 40 INVESTMENT IN UNCONSOLIDATED VENTURES Summary of combined financial information for San Jose and Royal Executive as of and for the years ended December 31, 1996 and 1995 are as follows: 1996 1995 ------------ ----------- Current assets. . . . . . . . . . $ 5,535,189 6,893,093 Current liabilities . . . . . . . (625,146) (579,280) ------------ ----------- Working capital . . . . . . . 4,910,043 6,313,813 ------------ ----------- Investment property, net. . . . . 49,157,299 52,505,109 Other assets, net . . . . . . . . 1,287,622 1,287,438 Long-term debt. . . . . . . . . . (23,338,875) (23,431,863) Other liabilities . . . . . . . . (247,868) (216,518) Venture partners' equity. . . . . (11,400,919) (12,970,351) ------------ ----------- Partnership's capital . . . . $ 20,367,302 23,487,628 ============ =========== Represented by: Invested capital. . . . . . . . $ 77,738,617 77,738,617 Cumulative distributions. . . . (49,501,766) (41,365,645) Cumulative losses . . . . . . . (7,869,549) (12,885,344) ------------ ----------- $ 20,367,302 23,487,628 ============ =========== Total income. . . . . . . . . . . $ 16,333,533 15,525,621 ============ =========== Expenses. . . . . . . . . . . . . $ 12,124,390 12,090,055 ============ =========== Gain on sale or disposition of investment property. . . . . $ 2,825,220 -- ============ =========== Net earnings (loss) . . . . . . . $ 7,034,363 3,435,566 ============ =========== Reference is made to the notes regarding the provision for value impairment of $944,335 which was recorded in 1994 by San Jose and to notes regarding the provision for value impairment of $25,378,894 which was recorded in 1994 by Royal Executive. The total income, expenses related to loss before gain on sale or disposition of investment property and net loss for the above-mentioned ventures for the year ended December 31, 1994 were $15,799,775, $38,119,456 and $22,319,680, respectively. 41 SCHEDULE III JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
COSTS CAPITALIZED INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) ACQUISITION(B) AT CLOSE OF PERIOD ----------------------- -------------- ------------------------------- BUILDINGS BUILDINGS BUILDINGS AND AND AND ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL (C) ----------- ----------- ------------ -------------- ---------- ------------ ---------- SHOPPING CENTER: Hackensack, New Jersey. . . $34,942,100 3,796,561 30,880,649 44,596,132 3,796,561 75,476,781 79,273,342 =========== ========= ========== ========== ========= ========== ==========
42 SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF 1996 ACCUMULATED DATE OF DATE OPERATION REAL ESTATE DEPRECIATION(D) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ------------ ---------- --------------- ----------- SHOPPING CENTER: Hackensack, New Jersey. . . . . . . . . . . . . $17,321,842 1977 10-19-83 5-30 years 2,138,399 =========== ========= - ------------- Notes: (A) The initial cost to the Partnership represents the original purchase price of the properties (net of unamortized discount based upon an imputed interest rate), including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired. (B) The aggregate cost of real estate owned at December 31, 1996 for Federal income tax purposes was $82,313,453.
43 SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (C) Reconciliation of real estate owned:
1996 1995 1994 ------------ ------------ ------------ Balance at beginning of period. . . . . . . . . . . . $74,461,800 65,406,740 57,782,585 Additions during period . . . . . . . . . . . . . . . 4,811,542 9,055,060 23,028,260 Dispositions during period. . . . . . . . . . . . . . -- -- (15,404,105) ----------- ----------- ---------- Balance at end of period. . . . . . . . . . . . . . . $79,273,342 74,461,800 65,406,740 =========== =========== ========== (D) Reconciliation of accumulated depreciation: Balance at beginning of period. . . . . . . . . . . . $14,927,070 12,951,168 17,673,020 Depreciation expense. . . . . . . . . . . . . . . . . 2,394,772 1,975,902 1,726,612 Accumulated depreciation written-off at Bank of Delaware. . . . . . . . . . . . . . . . . . -- -- (6,448,464) ----------- ----------- ---------- Balance at end of period. . . . . . . . . . . . . . . $17,321,842 14,927,070 12,951,168 =========== =========== ==========
44 INDEPENDENT AUDITORS' REPORT The Partners Royal Executive Park II: We have audited the financial statements of Royal Executive Park II (a general partnership) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 the General Partners of the Partnership, 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 Royal Executive Park II at 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. Also in our opinion, the related 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. As discussed in the Notes to the financial statements, in 1996 the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121. KPMG PEAT MARWICK LLP Chicago, Illinois March 21, 1997 45 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS ------
1996 1995 ------------ ------------ Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 439,499 707,938 Rents and other receivables, net of allowance for doubtful accounts of $82,032 in 1996 and $59,660 in 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 557,570 1,018,348 Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 11,316 ----------- ----------- Total current assets. . . . . . . . . . . . . . . . . . . . . 997,069 1,737,602 ----------- ----------- Investment property, at cost - Schedule III: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,569,125 Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . -- 32,937,958 ----------- ----------- -- 35,507,083 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . -- 13,957,866 ----------- ----------- Total investment property, net of accumulated depreciation . . . . . . . . . . . . . . -- 21,549,217 Property held for sale or disposition . . . . . . . . . . . . . . . . 20,726,634 -- ----------- ----------- Total investment property . . . . . . . . . . . . . . . . . . 20,726,634 21,549,217 ----------- ----------- Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,630 413,431 ----------- ----------- $22,051,333 23,700,250 =========== =========== 46 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS ------------------------------------------ 1996 1995 ------------ ------------ Current liabilities: Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 168,640 256,235 ----------- ----------- Total current liabilities . . . . . . . . . . . . . . . . . . 168,640 256,235 Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . 168,269 167,648 ----------- ----------- Commitments and contingencies Total liabilities . . . . . . . . . . . . . . . . . . . . . . 336,909 423,883 Partners' capital accounts. . . . . . . . . . . . . . . . . . . . . . . 21,714,424 23,276,367 ----------- ----------- $22,051,333 23,700,250 =========== =========== See accompanying notes to financial statements.
47 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Income: Rental income . . . . . . . . . . . . . . . . . . . $ 7,044,108 6,281,703 6,517,638 Interest income . . . . . . . . . . . . . . . . . . 51,257 61,472 11,318 ----------- ----------- ----------- 7,095,365 6,343,175 6,528,956 ----------- ----------- ----------- Expenses: Depreciation. . . . . . . . . . . . . . . . . . . . 915,666 912,943 897,428 Property operating expenses . . . . . . . . . . . . 3,107,719 3,041,478 3,355,481 Amortization of deferred expenses . . . . . . . . . 85,802 371,516 100,234 Provision for value impairment. . . . . . . . . . . -- -- 25,378,894 ----------- ----------- ----------- 4,109,187 4,325,937 29,732,037 ----------- ----------- ----------- Net earnings (loss) . . . . . . . . . . . . $ 2,986,178 2,017,238 (23,203,081) =========== =========== =========== See accompanying notes to financial statements.
48 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
UNAFFILIATED VENTURE JMB-XI TOTAL ------------- ----------- ----------- Balance at December 31, 1993. . . . . . . . . . . . . . . . $31,320,181 18,049,764 49,369,945 Capital contributions . . . . . . . . . . . . . . . . . . . 459,138 -- 459,138 Cash distributions. . . . . . . . . . . . . . . . . . . . . -- (1,789,612) (1,789,612) Net earnings (loss) . . . . . . . . . . . . . . . . . . . . (25,378,591) 2,175,510 (23,203,081) ----------- ----------- ----------- Balance at December 31, 1994. . . . . . . . . . . . . . . . 6,400,728 18,435,662 24,836,390 Capital contributions . . . . . . . . . . . . . . . . . . . 304,860 -- 304,860 Cash distributions. . . . . . . . . . . . . . . . . . . . . -- (3,882,121) (3,882,121) Net earnings (loss) . . . . . . . . . . . . . . . . . . . . (147,303) 2,164,541 2,017,238 ----------- ----------- ----------- Balance at December 31, 1995. . . . . . . . . . . . . . . . 6,558,285 16,718,082 23,276,367 Cash distributions. . . . . . . . . . . . . . . . . . . . . -- (4,548,121) (4,548,121) Net earnings (loss) . . . . . . . . . . . . . . . . . . . . (5,524) 2,991,702 2,986,178 ----------- ----------- ----------- Balance at December 31, 1996. . . . . . . . . . . . . . . . $ 6,552,761 15,161,663 21,714,424 =========== =========== =========== See accompanying notes to financial statements.
49 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss) . . . . . . . . . . . . . . . . $ 2,986,178 2,017,238 (23,203,081) Items not requiring (providing) cash: Depreciation. . . . . . . . . . . . . . . . . . . 915,666 912,943 897,428 Amortization of deferred expenses . . . . . . . . 85,802 371,516 100,234 Provision for value impairment. . . . . . . . . . -- -- 25,378,894 Changes in: Rents and other receivables . . . . . . . . . . . 460,777 561,279 (607,899) Prepaid expenses. . . . . . . . . . . . . . . . . 11,316 4,370 (1,110) Accounts payable. . . . . . . . . . . . . . . . . (87,595) (156,596) (145,199) Tenant security deposits. . . . . . . . . . . . . 621 -- 47,111 ----------- ----------- ----------- Net cash provided by (used in) operating activities. . . . . . . . . . . . 4,372,765 3,710,750 2,466,378 Cash flows from investing activities: Net sales and maturities (purchases) of short-term investments . . . . . . . . . . . . -- 98,281 (98,281) Additions to investment property. . . . . . . . . . (93,083) (186,896) (525,677) Payment of deferred expenses. . . . . . . . . . . . -- (65,900) (231,425) ----------- ----------- ----------- Net cash provided by (used in) investing activities. . . . . . . . . . . . (93,083) (154,515) (855,383) ----------- ----------- ----------- 50 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1996 1995 1994 ----------- ----------- ----------- Cash flows from financing activities: Capital contributed to venture. . . . . . . . . . . -- 304,860 459,138 Distributions to partners . . . . . . . . . . . . . (4,548,121) (3,882,121) (1,789,612) ----------- ----------- ----------- Net cash provided by (used in) financing activities. . . . . . . . . . . . (4,548,121) (3,577,261) (1,330,474) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . (268,439) (21,026) 280,521 Cash and cash equivalents, at beginning of year. . . . . . . . . . . . 707,938 728,964 448,443 ----------- ----------- ----------- Cash and cash equivalents, at end of year. . . . . . . . . . . . . . . $ 439,499 707,938 728,964 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest . . . . . $ -- -- -- =========== =========== =========== Non-cash investing and financing activity . . . . . $ -- -- -- =========== =========== =========== See accompanying notes to financial statements.
51 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 OPERATIONS AND BASIS OF ACCOUNTING GENERAL The accompanying financial statements have been prepared for the purpose of complying with Rule 3.09 of Regulation S-X of the Securities and Exchange Commission. They include the accounts of the unconsolidated joint venture, Royal Executive Park II venture ("Royal Executive"), in which JMB Income Properties, Ltd.-XI ("JMB Income-XI") and an unaffiliated venture are the partners. Royal Executive holds an equity investment in commercial real estate property in the City of Rye Brook, New York. Business activities consist of rentals to a wide variety of commercial companies, and the ultimate sale or disposition of such real estate. As the Royal Executive venture has subsequently determined to sell the property, the property was classified as held for sale or disposition as of December 31, 1996, and therefore, will not be subject to continued depreciation. The results of operations of the property included in the accompanying financial statements were profits of $2,986,178, $2,017,238, and a loss of $23,203,081 for the years ended December 31, 1996, 1995 and 1994, respectively. 52 The preparation of financial statements in accordance with GAAP requires the Partnership to make estimates and assumptions that affect the reported or disclosed amount of 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. The accounting policies, of Royal Executive are the same as those of the Partnership. Accordingly, reference is made to the Notes to the Partnership's Consolidated Financial Statements filed with this annual report. Such notes are incorporated herein by reference. VENTURE AGREEMENT A description of the acquisition of the property and the venture agreement and the management agreement is contained in the Notes of the financial statements of JMB Income - XI. Such notes are incorporated herein by reference. MANAGEMENT AGREEMENT Effective July 1, 1994, management and leasing activities at the complex were transferred to an affiliate of the General Partners of the Partnership, who managed the property until December 1994. In December 1994, this affiliated property manager sold substantially all of its assets and assigned its interest in its Management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. LEASES At December 31, 1996, Royal Executive's principal asset is an office building complex. Royal Executive has determined that all leases relating to this property are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the property, excluding the cost of the land, was depreciated over the estimated useful life prior to being classified as held for sale as described above. Leases with tenants range in term from one to twenty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. Minimum lease payments, including amounts representing executory costs (e.g. taxes, maintenance, insurance) and any related profit, to be received in the future under the operating leases are as follows: 1997 . . . . . . . . . . . . . . $ 5,679,158 1998 . . . . . . . . . . . . . . 5,551,700 1999 . . . . . . . . . . . . . . 4,803,530 2000 . . . . . . . . . . . . . . 4,013,572 2001 . . . . . . . . . . . . . . 1,610,774 Thereafter . . . . . . . . . . . 1,101,082 ----------- $22,759,816 =========== TRANSACTIONS WITH AFFILIATES Fees, commissions and other expenses required to be paid by Royal Executive to the General Partners and their affiliates as of December 31, 1996 and for the years ended December 31, 1996, 1995 and 1994 were as follows: UNPAID AT DECEMBER 31, 1996 1995 1994 1996 -------- -------- -------- ------------ Property management and leasing fees . . . . . $ -- -- 14,268 -- ------- ------- ------- ----- $ -- -- 14,268 -- ======= ======= ======= ===== 53 SCHEDULE III ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
INITIAL COST TO GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) AT CLOSE OF PERIOD (B) ----------------------- COSTS ------------------------------------- BUILDINGS CAPITALIZED BUILDINGS AND SUBSEQUENT TO AND ENCUMBRANCE LAND IMPROVEMENTS ACQUISITION(C) LAND IMPROVEMENTS TOTAL (D) ----------- ----------- ------------ -------------- ---------- ------------ ---------- OFFICE BUILDING: Rye Brook, New York. . . . $ -- 5,568,277 50,554,899 (20,523,010) 2,569,125 33,031,041 35,600,166 =========== ========== ========== =========== ========== ========== ==========
54 SCHEDULE III - CONTINUED ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF 1996 ACCUMULATED DATE OF DATE OPERATIONS REAL ESTATE DEPRECIATION(E) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ------------ ---------- --------------- ----------- OFFICE BUILDING: Rye Brook, New York . . . . . . . . . . . . . $14,873,532 1986 2/12/87 5-30 years 779,119 =========== ======= - -------------- Notes: (A) The initial cost to Royal Executive represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired. (B) The aggregate cost of real estate owned at December 31, 1996 for Federal income tax purposes was $33,781,502. (C) In 1994, Royal Executive recorded a provision for value impairment totalling $25,378,894, as described more fully in the Notes.
55 SCHEDULE III - CONTINUED ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED (D) Reconciliation of real estate owned:
1996 1995 1994 ------------ ------------ ------------ Balance at beginning of period. . . . . . . . . . $35,507,083 35,320,187 59,642,842 Additions during period . . . . . . . . . . . . . 93,083 186,896 525,677 Provision for value impairment (C). . . . . . . . -- -- (24,848,332) ----------- ----------- ----------- Balance at end of period. . . . . . . . . . . . . $35,600,166 35,507,083 35,320,187 =========== =========== =========== (E) Reconciliation of accumulated depreciation: Balance at beginning of period. . . . . . . . . . $13,957,866 13,044,923 12,147,495 Depreciation expense. . . . . . . . . . . . . . . 915,666 912,943 897,428 ----------- ----------- ----------- Balance at end of period. . . . . . . . . . . . . $14,873,532 13,957,866 13,044,923 =========== =========== ===========
56 INDEPENDENT AUDITORS' REPORT The Partners JMB/SAN JOSE ASSOCIATES: We have audited the financial statements of JMB/San Jose Associates (a general partnership) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 the General Partners of the Partnership, 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 JMB/San Jose Associates at 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. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in the Notes to the financial statements, in 1996 the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121. KPMG PEAT MARWICK Chicago, Illinois March 21, 1997 57 JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS ------
1996 1995 ----------- ----------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 2,260,010 2,266,686 Rents and other receivables, net of allowance for doubtful accounts of $1,648,319 in 1996 and $1,058,859 in 1995. . . . . . . . . . . . . . . . . . . . . . . . . . 2,111,845 2,510,594 Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,041 71,409 Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,223 306,800 ----------- ----------- Total current assets. . . . . . . . . . . . . . . . . . . . . . 4,538,119 5,155,489 ----------- ----------- Investment property - Schedule III: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,848,918 Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . -- 42,681,189 ----------- ----------- -- 49,530,107 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . -- 18,574,214 ----------- ----------- Total property held for investment, net of accumulated depreciation . . . . . . . . . . . . . . . -- 30,955,893 ----------- ----------- Property held for sale or disposition . . . . . . . . . . . . . . . . . . 28,430,666 -- ----------- ----------- Total investment property . . . . . . . . . . . . . . . . . . . 28,430,666 30,955,893 Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 959,992 874,007 ----------- ----------- $33,928,777 36,985,389 =========== =========== 58 JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS ------------------------------------------ 1996 1995 ----------- ----------- Current liabilities: Current portion of long-term debt . . . . . . . . . . . . . . . . . . . $ 92,988 85,989 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,955 72,930 Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . 163,563 164,125 ----------- ----------- Total current liabilities . . . . . . . . . . . . . . . . . . . 456,506 323,044 Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . 79,599 48,870 Long-term debt, less current portion. . . . . . . . . . . . . . . . . . . 23,338,875 23,431,863 ----------- ----------- Commitments and contingencies Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 23,874,980 23,803,777 Partners' capital accounts. . . . . . . . . . . . . . . . . . . . . . . . 10,053,797 13,181,612 ----------- ----------- $33,928,777 36,985,389 =========== =========== See accompanying notes to financial statements.
59 JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Income: Rental income . . . . . . . . . . . . . . . . . . . $ 9,125,251 9,071,667 9,220,659 Interest income . . . . . . . . . . . . . . . . . . 112,917 110,779 50,160 Gain on sale of investment property . . . . . . . . 2,825,220 -- -- ----------- ----------- ----------- 12,063,388 9,182,446 9,270,819 ----------- ----------- ----------- Expenses: Mortgage and other interest . . . . . . . . . . . . 1,965,892 2,202,191 2,709,905 Depreciation. . . . . . . . . . . . . . . . . . . . 1,044,296 1,114,143 1,099,974 Property operating expenses . . . . . . . . . . . . 4,728,651 4,237,476 3,419,198 Amortization of deferred expenses . . . . . . . . . 276,364 210,308 214,006 Provision for value impairment. . . . . . . . . . . -- -- 944,335 ----------- ----------- ----------- 8,015,203 7,764,118 8,387,418 ----------- ----------- ----------- Net earnings. . . . . . . . . . . . . . . . $ 4,048,185 1,418,328 883,401 =========== =========== =========== See accompanying notes to financial statements.
59-a JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AFFILIATED JMB-XI PARTNER TOTAL ----------- ----------- ----------- Balance at December 31, 1993. . . . . $ 4,077,776 3,720,296 7,798,072 Capital contributions . . . . . . . . 1,557,468 1,557,469 3,114,937 Net earnings. . . . . . . . . . . . . 441,701 441,700 883,401 ----------- ----------- ----------- Balance at December 31, 1994. . . . . 6,076,945 5,719,465 11,796,410 Capital contributions . . . . . . . . 1,233,436 1,233,437 2,466,873 Cash distributions. . . . . . . . . . (1,250,000) (1,250,000) (2,500,000) Net earnings. . . . . . . . . . . . . 709,165 709,164 1,418,329 ----------- ----------- ----------- Balance at December 31, 1995. . . . . 6,769,546 6,412,066 13,181,612 Cash distributions. . . . . . . . . . (3,588,000) (3,588,000) (7,176,000) Net earnings. . . . . . . . . . . . . 2,024,093 2,024,092 4,048,185 ----------- ----------- ----------- Balance at December 31, 1996. . . . . $ 5,205,639 4,848,158 10,053,797 =========== =========== =========== See accompanying notes to financial statements.
59-b JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ------------ ----------- ----------- Cash flows from operating activities: Net earnings. . . . . . . . . . . . . . . . . . . . . $ 4,048,185 1,418,328 883,401 Items not requiring (providing) cash: Depreciation. . . . . . . . . . . . . . . . . . . . 1,044,296 1,114,143 1,099,974 Amortization of deferred expenses . . . . . . . . . 276,364 210,308 214,006 Provision for value impairment. . . . . . . . . . . -- -- 944,335 Gain on sale of investment property . . . . . . . . (2,825,220) -- -- Changes in: Rents and other receivables . . . . . . . . . . . . 398,749 (19,820) (17,750) Prepaid expenses. . . . . . . . . . . . . . . . . . (20,632) -- 4,561 Escrow deposits . . . . . . . . . . . . . . . . . . 232,577 (268,535) 18,703 Accounts payable. . . . . . . . . . . . . . . . . . 134,662 (323,557) 166,650 Accrued interest payable. . . . . . . . . . . . . . (562) (32,398) (42,928) Tenant security deposits. . . . . . . . . . . . . . 30,729 (23,223) 1,796 ----------- ----------- ----------- Net cash provided by (used in) operating activities. . . . . . . . . . . . . 3,319,148 2,075,246 3,272,748 Cash flows from investing activities: Additions to investment property. . . . . . . . . . . (1,485,395) (156,254) (739,275) Payment of deferred expenses. . . . . . . . . . . . . (402,481) (218,059) (259,242) Proceeds from sale of investment property . . . . . . 5,824,041 -- -- Notes receivable. . . . . . . . . . . . . . . . . . . -- -- 5,836 ----------- ----------- ----------- Net cash provided by (used in) investing activities. . . . . . . . . . . . . 3,936,165 (374,313) (992,681) ----------- ----------- ----------- 59-c JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1996 1995 1994 ----------- ----------- ----------- Cash flows from financing activities: Principal payments on long-term debt. . . . . . . . . (85,989) (374,973) (372,045) Paydowns on long-term debt. . . . . . . . . . . . . . -- (2,418,722) (2,500,000) Capital contributed to venture. . . . . . . . . . . . -- 2,466,873 3,114,938 Distributions to partners . . . . . . . . . . . . . . (7,176,000) (2,500,000) -- ----------- ----------- ----------- Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . (7,261,989) (2,799,822) 242,893 ----------- ----------- ----------- Net increase (decrease) increase in cash and cash equivalents. . . . . . . . . (6,676) (1,098,889) 2,522,960 ----------- ----------- ----------- Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . 2,266,686 3,365,575 842,615 ----------- ----------- ----------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . $ 2,260,010 2,266,686 3,365,575 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest . . . . . . $ 1,966,455 2,234,589 2,752,833 Non-cash investing and financing activities: Cash sale proceeds, net of selling expenses . . . . $ 5,824,041 -- -- Reduction in investment property, net . . . . . . . (2,966,325) -- -- Reduction in other assets and liabilities . . . . . (32,496) -- -- ----------- ----------- ----------- Gain recognized on sale of property . . . . . $ 2,825,220 -- -- =========== =========== =========== See accompanying notes to financial statements.
59-d JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 OPERATIONS AND BASIS OF ACCOUNTING The accompanying financial statements have been prepared for the purpose of complying with Rule 3.09 of Regulation S-X of the Securities and Exchange Commission. They include the accounts of the unconsolidated joint venture, JMB/San Jose Associates ("San Jose"), in which JMB Income Properties, Ltd.-XI ("JMB Income-XI" or "Partnership") and JMB Income Properties, Ltd.-XII ("JMB Income-XII" or "Affiliated Partner") are the partners. San Jose holds an equity investment in a commercial office complex in San Jose, California. Business activities consist of rentals to a wide variety of commercial companies and governmental entities, and the ultimate sale or disposition of such real estate. As San Jose has determined to sell the complex, all portions of the office complex have been classified as held for sale or disposition as of or during the period ended December 31, 1996. Therefore, the complex is not subject to continued depreciation. Certain portions of the office complex were sold during 1996. The results of operations of the complex included in the accompanying financial statements were earnings of $1,110,048, $1,307,549, and $833,241 for the years ended December 31, 1996, 1995 and 1994, respectively. As more fully described in the Notes to Consolidated Financial Statements of JMB Income - XI which description is incorporated herein by reference, San Jose recorded in 1994, as a matter of prudent accounting practice, a provision for value impairment of $944,335 on the 170 Almaden and on the 100-130 Park Center Plaza buildings and certain parking areas. The Partnership uses the allowance method of accounting for doubtful accounts. Provisions for uncollectible tenant receivables in the amounts of $588,052, $783,417 and $236,397 were recorded in 1996, 1995 and 1994, respectively. Bad debt expense is included in Property Operating Expenses. The preparation of financial statements in accordance with GAAP requires San Jose to make estimates and assumptions that affect the reported or disclosed amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. The accounting policies of San Jose are the same as those of the Partnership. Accordingly, reference is made to the Notes to the Partnership's consolidated financial statements filed with this annual report. Such notes are incorporated herein by reference. VENTURE AGREEMENT A description of the venture agreement and the management agreement is contained in the Notes to Consolidated Financial Statements of JMB Income - XI. Such note is incorporated herein by reference. 59-e MANAGEMENT AGREEMENT In December 1994, the property manager, an affiliate of the General Partners of the Partnership, sold substantially all of its assets and assigned its interest in the management contracts to an unaffiliated third party who continues to manage the complex. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1996 and 1995: 1996 1995 ---------- ---------- 7.85% mortgage note; secured by the 170 Almaden Building in San Jose, California; principal and interest payments of $13,537 are due monthly through September 2003 when the remaining principal of approximately $169,000 is due. . . . . . . . . . $ 931,863 1,017,852 8.4% mortgage note; secured by the 150 Almaden and 185 Park Avenue buildings, and certain related parking improvements in San Jose, California; interest only payments of $157,500 are due monthly through December 1997; principal and interests payments of $179,663 are due monthly through November 2001 when the entire principal of approx- imately $21,421,000 is due . . . . 22,500,000 22,500,000 ----------- ---------- Total debt. . . . . . . . . 23,431,863 23,517,852 Less current portion of long-term debt. . . . . 92,988 85,989 ----------- ---------- Total long-term debt. . . . $23,338,875 23,431,863 =========== ========== Five year maturities of long-term debt are as follows: 1997. . . . . . . . . . . $ 92,988 1998. . . . . . . . . . . 376,986 1999. . . . . . . . . . . 409,305 2000. . . . . . . . . . . 444,398 2001. . . . . . . . . . . 21,723,357 =========== LEASES At December 31, 1996, San Jose's principal asset is an office building complex. San Jose has determined that all leases relating to this property are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the property, excluding the cost of the land, was depreciated over the estimated useful lives of the properties prior to their being classified as held for sale or disposition as described above. Leases with tenants range in term from one to twenty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. 59-f Minimum lease payments, including amounts representing executory costs (e.g. taxes, maintenance, insurance) and any related profit, to be received in the future under the operating leases are as follows: 1997 . . . . . . . . . . . . . . $ 6,434,687 1998 . . . . . . . . . . . . . . 6,270,264 1999 . . . . . . . . . . . . . . 5,640,920 2000 . . . . . . . . . . . . . . 4,232,298 2001 . . . . . . . . . . . . . . 3,884,020 Thereafter . . . . . . . . . . . 12,589,967 ----------- $39,052,156 =========== TRANSACTIONS WITH AFFILIATES Fees, commissions and other expenses required to be paid by San Jose to the General Partners and their affiliates as of December 31, 1996 and for the years ended December 31, 1996, 1995 and 1994 were as follows: UNPAID AT DECEMBER 31, 1996 1995 1994 1996 -------- -------- -------- ------------ Property management and leasing fees. . . $77,870 60,000 281,748 -- Insurance commissions . 25,768 30,140 25,176 -- -------- ------- ------- ------ $103,638 90,140 306,924 -- ======== ======= ======= ====== 59-g SCHEDULE III JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
INITIAL COST TO GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) COSTS AT CLOSE OF PERIOD (B) ------------------------------ CAPITALIZED ------------------------------------------ BUILDINGS SUBSEQUENT TO BUILDINGS AND ACQUISITION AND ENCUMBRANCE LAND IMPROVEMENTS (C) (D) LAND IMPROVEMENTS TOTAL (D) ----------- ----------- ------------ -------------- ---------- ------------ ---------- OFFICE BLDS: San Jose, California . $23,431,863 21,078,745 62,309,815 (37,204,551) 5,867,750 40,316,259 46,184,009 =========== ========== ========== =========== ========== ========== ===========
59-h SCHEDULE III - CONTINUED JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF 1996 ACCUMULATED DATE OF DATE OPERATIONS REAL ESTATE DEPRECIATION(E) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ------------ ---------- --------------- ----------- OFFICE BUILDINGS: San Jose, 6/20/85 California . . . . . . . . $17,753,343 1970 and 5/2/86 5-30 years 553,747 =========== ======= - -------------- Notes: (A) The initial cost to San Jose represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired. (B) The aggregate cost of real estate owned at December 31, 1996 for Federal income tax purposes was approximately $41,350,548. (C) Through December 31, 1996, San Jose has recorded provisions for value impairment totaling $45,811,547. (D) During 1996, San Jose sold the 190 San Fernando Building and one of the parking garage structures in the complex in two separate transactions as described more fully in the Notes to Consolidated Financial Statements of the Partnership.
59-i SCHEDULE III - CONTINUED JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (D) Reconciliation of real estate owned:
1996 1995 1994 ------------ ------------ ------------ Balance at beginning of period. . . . . . . . . . . $49,530,107 49,373,853 49,578,913 Additions during period . . . . . . . . . . . . . . 1,485,395 156,254 739,275 Provision for value impairment (C). . . . . . . . . -- -- (944,335) Sales of investment property. . . . . . . . . . . . (4,831,493) -- -- ----------- ----------- ----------- Balance at end of period. . . . . . . . . . . . . . $46,184,009 49,530,107 49,373,853 =========== =========== =========== (E) Reconciliation of accumulated depreciation: Balance at beginning of period. . . . . . . . . . . $18,574,214 17,460,071 16,360,097 Sales of investment property. . . . . . . . . . . . (1,865,167) -- -- Depreciation expense. . . . . . . . . . . . . . . . 1,044,296 1,114,143 1,099,974 ----------- ----------- ----------- Balance at end of period. . . . . . . . . . . . . . $17,753,343 18,574,214 17,460,071 =========== =========== ===========
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