-----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, FTUf0bwgcU+h3luj7N466rD4/+64Jh6YjRDs6bPhqMqVU5eSfhXcPNZ5O0TUhIud AzYSX+0vByHqILV+lQsC+Q== 0000892626-99-000224.txt : 19990331 0000892626-99-000224.hdr.sgml : 19990331 ACCESSION NUMBER: 0000892626-99-000224 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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 SEC ACT: SEC FILE NUMBER: 000-15966 FILM NUMBER: 99577601 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 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 Commission file no. 0-15966 JMB INCOME PROPERTIES, LTD. - XI (Exact name of registrant as specified in its charter) Illinois 36-3254043 (State of organization) (I.R.S. Employer Identification No.) 900 N. Michigan Ave., Chicago, Illinois 60611 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312-915-1987 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - ------------------- ------------------------------ None None Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS AND ASSIGNEE INTERESTS THEREIN (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ] State the aggregate market value of the voting stock held by non-affiliates of the registrant. Not applicable. Documents incorporated by reference: None TABLE OF CONTENTS Page ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . 4 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . 6 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . 6 PART II Item 5. Market for the Partnership's Limited Partnership Interests and Related Security Holder Matters. . . . . . . . . 6 Item 6. Selected Financial Data. . . . . . . . . . . . . 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . 11 Item 7A. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . 15 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . 40 PART III Item 10. Directors and Executive Officers of the Partnership . . . . . . . . . . . . . . . 40 Item 11. Executive Compensation . . . . . . . . . . . . . 43 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . 44 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . 45 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . 45 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 48 i PART I ITEM 1. BUSINESS All references to "Notes" are to Notes to Financial Statements contained in this report. Capitalized terms used herein, but not defined, have the same meanings as used in the Notes. The registrant, JMB Income Properties, Ltd. - XI (the "Partnership"), is a limited partnership formed in 1983 and currently governed under the Revised Uniform Limited Partnership Act of the State of Illinois to invest in improved income-producing commercial and residential real property. The Partnership sold $173,406,000 in limited partnership interests (the "Interests") commencing on July 11, 1984, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933 (Registration No. 2-90503). A total of 173,406 Interests were sold to the public at $1,000 per Interest. The offering closed on November 30, 1984. No Investor has made any additional capital contribution after such date. The Investors in the Partnership share in the benefits of ownership of the Partnership's real property investments according to the number of Interests held. The Partnership is engaged solely in the business of the acquisition, operation and sale and disposition of equity real estate investments. Such equity investments are or have been held by fee title and/or through joint venture partnership interests. The Partnership's real estate investments have been located throughout the nation and it has no real estate investments located outside the United States. A presentation of information about industry segments, geographic regions, raw materials or seasonality is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. Pursuant to the Partnership agreement, the Partnership is required to terminate no later than October 31, 2034. The Partnership is self-liquidating in nature. At sale of a particular property, the net proceeds, if any, are generally distributed or reinvested in existing properties rather than invested in acquiring additional properties. As discussed further in Item 7, the Partnership currently expects to conduct an orderly liquidation of its remaining investment portfolio as quickly as practicable upon the sale of its remaining investment property, the Riverside Square Mall, and the subsequent expiration of any representations and warranties to a potential purchaser that may be required in connection with a sale of the property. Consequently, the Partnership expects to wind up its affairs in the 1999- 2000 time frame, barring any unforeseen economic developments. The Partnership has made the real property investments set forth in the following table:
SALE OR DISPOSITION DATE OR IF OWNED AT DECEMBER 31, 1998, NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED AND LOCATION (d) SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP - ---------------------- ---------- -------- ---------------------- --------------------- 1. Riverside Square Mall Hackensack, New Jersey . . . . . 341,000 10-19-83 15% fee ownership of land sq.ft. and improvements (b)(d)(e) g.l.a. 2. Bank of Delaware Office Building Wilmington, Delaware . . . . . . 314,000 12-14-84 11-15-94 fee ownership of land sq.ft. and improvements n.r.a. 3. Genesee Valley Center Flint, Michigan. . . 358,000 12-21-84 6-29-90 fee ownership of land sq.ft. and improvements g.l.a. 4. Park Center Financial Plaza San Jose, California . . . . . 408,000 06-20-85 2-24-98 fee ownership of land sq.ft. and improvements n.r.a. (through a joint venture partnership) (c)(g)(f) 5. Royal Executive Park-II Rye Brook, New York . . . . . . 270,000 02-12-87 12-19-97 fee ownership of land sq.ft. and improvements n.r.a. (through a joint venture partnership) (c)(f) - ----------------------- (a) The computation of this percentage for properties held at December 31, 1998 does not include amounts invested from sources other than the original net proceeds of the public offering as described above and in Item 7. (b) Reference is made to the Notes and Schedule III for the current outstanding principal balance and a description of the long-term mortgage indebtedness secured by the Partnership's real property investments. (c) Reference is made to the Notes for a description of the joint venture partnership through which the Partnership had made this real property investment. (d) Reference is made to Item 8 - Schedule III filed with this annual report for further information concerning real estate taxes and depreciation. (e) Reference is made to Item 6 - Selected Financial Data for additional operating and lease expiration data concerning this investment property. (f) Reference is made to the Notes for a description of the sale of this investment property. (g) In March 1996, the joint venture sold the 190 San Fernando building, one of the buildings in the Park Center Financial Plaza office complex comprising approximately 5% of the total occupied space, to an independent third party, and transferred title to one of the parking garages to the City of San Jose. The original invested capital percentage reflected for this property in the table has not been adjusted for such transactions. Reference is made to the Notes for a description of such transactions.
The Partnership's remaining real property investment is subject to competition from similar types of properties in the respective vicinity in which it is located. Such competition is generally for the retention of existing tenants. Reference is made to Item 7 below for a discussion of competitive conditions and future renovation and capital improvement plans of the Partnership and its investment property. Approximate occupancy levels for the properties owned in 1998 are set forth in the table in Item 2 below to which reference is hereby made. The Partnership maintains the suitability and competitiveness of its property in its market primarily on the basis of tenant mix, property aesthetics, effective rents, tenant allowances and service provided to tenants. In the opinion of the Managing General Partner of the Partnership, the remaining investment property held at December 31, 1998 is adequately insured. Although there is earthquake insurance coverage for a portion of the value of the Partnership's investment property, the Managing General Partner does not believe that such coverage for the entire replacement cost of the investment property is available on economic terms. Reference is made to the Notes for a schedule of minimum lease payments to be received in each of the next five years, and in the aggregate thereafter, under leases in effect at the Partnership's remaining property as of December 31, 1998. On February 24, 1998, the Partnership, through its joint venture, sold the remaining buildings in the Park Center Financial Plaza office complex located in San Jose, California. Reference is made to the Notes for a further description of such transaction. The Partnership has no employees. The terms of transactions between the Partnership, the General Partners and their affiliates of the Partnership are set forth in Item 11 below to which reference is hereby made for a description of such terms and transactions. ITEM 2. PROPERTIES The Partnership owns or owned directly or through joint venture partnerships the properties or interests in the properties referred to under Item 1 above to which reference is hereby made for a description of said properties. The following is a listing of principal businesses or occupations carried on in and approximate occupancy levels by quarter during fiscal years 1998 and 1997 for the Partnership's investment properties owned during 1998:
1997 1998 ------------------------- ------------------------- Principal At At At At At At At At Business 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 -------------- ---- ---- ---- ----- ---- ---- ----- ----- 1. Park Center Financial Plaza San Jose, California (1) . . . . . . . Accounting/ Telecommunications 86% 87% 87% 90% N/A N/A N/A N/A 2. Riverside Square Mall Hackensack, New Jersey . . . . . . . . . Retail 92% 92% 93% 93% 90% 90% 90% 90% - -------------- Reference is made to Item 6, Item 7 and to the Notes for further information regarding property occupancy, competitive conditions and tenant leases at the Partnership's investment property. An "N/A" indicates that the property was sold and was not owned by the Partnership at the end of the quarter. (1) Reference is made to the Notes for a description of the February 24, 1998 sale of this investment property.
ITEM 3. LEGAL PROCEEDINGS The Partnership is not subject to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during 1998 or 1997. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS As of December 31, 1998, there were 13,035 record holders of Interests of the Partnership. There is no public market for Interests and it is not anticipated that a public market for Interests will develop. Upon request, the Managing General Partner may provide information relating to a prospective transfer of Interests to an investor desiring to transfer his Interests. The price to be paid for the Interests, as well as any other economic aspects of the transaction, will be subject to negotiation by the investor. There are certain conditions and restrictions on the transfer of Interests, including, among other things, the requirement that the substitution of a transferee of Interests as a Limited Partner of the Partnership be subject to the written consent of the Managing General Partner, which, may be granted or withheld in its sole and absolute discretion. The rights of a transferee of Interests who does not become a substituted Limited Partner will be limited to the rights to receive his share of profits or losses and cash distributions from the Partnership, and such transferee will not be entitled to vote such Interests or have other rights of a Limited Partner. No transfer will be effective until the first day of the next succeeding calendar quarter after the requisite transfer form, satisfactory to the Managing General Partner, has been received by the Managing General Partner. The transferee, consequently, will not be entitled to receive any cash distributions or any allocable share of profits or losses for tax purposes until such succeeding calendar quarter. Profits or losses from operations of the Partnership for a calendar year in which a transfer occurs will be allocated between the transferor and the transferee based upon the number of quarterly periods in which each was recognized as the holder of Interests, without regard to the results of Partnership's operations during particular quarterly periods and without regard to whether cash distributions were made to the transferor or transferee. Profits or losses arising from the sale or other disposition of Partnership properties will be allocated to the recognized holder of the Interests as of the last day of the quarter in which the Partnership recognized such profits or losses. Cash distributions to a holder of Interests arising from the sale or other disposition of Partnership properties will be distributed to the recognized holder of the Interests as of the last day of the quarterly period with respect to which distribution is made. Reference is made to Item 6 below for a discussion of cash distribu- tions made to the Investors. Reference is made to Item 7 for a discussion of unsolicited tender offers received from unaffiliated third parties. ITEM 6. SELECTED FINANCIAL DATA JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994 (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
1998 1997 1996 1995 1994 ------------ ----------- ----------- ----------- ----------- Total income . . . . . . . . $ 13,652,013 14,218,708 13,403,472 12,915,285 14,048,836 ============ =========== =========== =========== =========== Earnings (loss) before gain on sale or disposition of invest- ment property . . . . . . $ 3,209,772 5,750,839 1,810,139 1,856,294 2,652,603 Partnership's share of gain on sale of invest- ment properties of unconsolidated ventures. . 20,648,190 13,349,139 1,412,610 -- -- Gain on disposition of investment property. . . . -- -- -- -- 447,650 ------------ ----------- ----------- ----------- ----------- Earnings (loss) before extraordinary item . . . . 23,857,962 19,099,978 3,222,749 1,856,294 3,100,253 Extraordinary items. . . . . (1,496,923) -- -- -- (2,206,791) ------------ ------------ ----------- ----------- ----------- Net earnings (loss). . . . . $ 22,361,039 19,099,978 3,222,749 1,856,294 893,462 ============ ============ =========== =========== =========== Net earnings (loss) per Interest (b): Earnings (loss) before gain on sale or disposition of investment property . . . . . . . $ 17.77 31.84 10.02 10.28 14.60 Partnership's share of gain on sale of investment properties of unconsolidated ventures . . . . . . . 117.88 76.21 8.06 -- -- Gain on disposition of investment property . . . . . . . -- -- -- -- 2.56 Extraordinary items. . . (8.50) -- -- -- (12.22) ------------ ------------ ----------- ----------- ----------- Net earnings (loss). . . . . $ 127.15 108.05 18.08 10.28 4.94 ============ ============ =========== =========== =========== 1998 1997 1996 1995 1994 ------------ ----------- ----------- ----------- ----------- Total assets . . . . . . . . $ 83,984,649 118,582,025 102,106,160 106,800,004 106,201,665 Long-term debt . . . . . . . $ -- 33,820,205 34,404,477 34,942,100 35,436,797 Cash distributions per Interest (c) . . . . . $ 324.00 12.00 15.00 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.
SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1998
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) ------------ -------------- ------------------ 1994. . . . . . . 81% 18.10 1995. . . . . . . 80% 18.69 1996. . . . . . . 91% 17.15 1997. . . . . . . 93% 19.35 1998. . . . . . . 93% 17.80 (1) Average base rent per square foot is based on GLA occupied as of December 31 of each year.
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
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 1998 Year Ending Expiring GLA of Expiring of Expiring Base Rent December 31, Leases Leases (1) Leases Expiring ------------ --------- --------------- ----------- ---------- 1999 9 32,200 1,099,600 19.4% 2000 5 12,200 412,700 7.3% 2001 4 15,200 405,600 7.1% 2002 1 2,300 87,100 1.5% 2003 6 23,200 735,800 13.0% 2004 15 21,700 960,200 16.9% 2005 7 20,600 683,000 12.0% 2006 8 23,800 745,700 13.1% 2007 -- -- -- 0.0% 2008 1 10,500 437,600 7.7% (1) Excludes leases that expire in 1999 for which renewal leases or leases with replacement tenants have been executed as of March 15, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES As a result of the public offering of interests as described in Item 1, the Partnership had approximately $156,493,000 after deducting selling expenses and other offering costs, with which to make investments in commercial real property, to pay legal fees and other costs (including acquisition fees) related to such investments and for working capital. A portion of such proceeds was utilized to acquire the properties described in Item 1 above. The board of directors of JMB Realty Corporation ("JMB"), the managing general partner of the Partnership, has established a special committee (the "Special Committee") consisting of certain directors of JMB to deal with all matters relating to tender offers for Interests in the Partnership, including any and all responses to such tender offers. The Special Committee has retained independent counsel to advise it in connection with any potential tender offers for Interests and has retained Lehman Brothers Inc. as financial advisor to assist the Special Committee in evaluating and responding to these and any additional potential tender offers for Interests. During 1996, 1997 and 1998, some of the Limited Partners in the Partnership received from unaffiliated third parties unsolicited tender offers to purchase up to 4.9% of the Interests in the Partnership at between $125 and $400 per Interest. The Partnership recommended against acceptance of these offers on the basis that, among other things, the offer prices were inadequate. All of such offers expired. As of the date of this report, the Partnership is aware that 7.43% of the Interests have been purchased by such unaffiliated third parties either pursuant to such tender offers or through negotiated purchases. It is possible that other offers for Interests may be made by unaffiliated third parties in the future, although there is no assurance that any other third party will commence an offer for Interests, the terms of any such offer or whether any such offer, if made, will be consummated, amended or withdrawn. The Partnership has one remaining investment property, the Riverside Square Mall Shopping Center, which it is actively marketing for sale. There can be no assurance that the Partnership will be able to complete a sale or liquidate the Partnership in the 1999-2000 time frame. At December 31, 1998, the Partnership had cash and cash equivalents of approximately $15,863,000. Such funds may be utilized for distributions to partners and for working capital requirements including operating deficits, costs of re-leasing vacant space, and certain capital improvements. Additionally, funds may be utilized to fund a potential theater expansion at the Riverside Square Mall investment property which would add approximately 20,000 square feet of space and would include new restaurants. The Partnership intends to fund the estimated cost of approximately $7.6 million for the expansion from its working capital reserves. However, the expansion, including the theater lease, is subject to many contingencies, including final documentation, and as such there can be no assurance that the expansion will be completed on these or any other terms. The Partnership's wholly-owned property has currently budgeted in 1999 approximately $4,274,000 for tenant improvements and other capital expenditures including the first phase of the theater expansion. Actual amounts expended in 1999 may vary depending on a number of factors including actual leasing activity, results of property operations, liquidity considerations, progression of the theater expansion and other market conditions, including the possible sale of the shopping center in 1999, over the course of the year. The source of capital for such items and for both short-term and long-term future liquidity and distributions is expected to be through net cash generated by the Riverside Square Mall and through its sale and/or refinancing. In such regard, reference is made to the Partnership's property specific discussions below and also to the Partnership's disclosure of certain property lease expirations in Item 6. In February 1998, the Partnership made a distribution of sale proceeds related to the sale of the Royal Executive Park II office complex of $28,439,404 ($164 per Interest) and paid a special operating distribution of $2,774,576 ($16 per Interest), to the Limited Partners. In addition, effective in 1998, the Partnership changed from a semi-annual distribution of cash flow from operations of $6 per Interest to an annual distribution of $4 per Interest as a result of (a) the Partnership's reduction in cash flow from operations after the sales of the Royal Executive Park II office complex in December 1997 and the Park Center Financial Plaza office complex in February 1998 and (b) the need to reserve funds necessary for the potential theater/restaurant expansion at the Riverside Square Mall. The 1998 annual operating distribution of $693,644 ($4 per Interest) was made in May 1998. In addition, the Partnership made a distribution of sale proceeds of $24,277,540 ($140 per Interest) in May 1998 related to the sale in 1998 of the remaining assets of the Park Center Financial Plaza investment property. The General Partners have been deferring receipt of their distributions in accordance with the subordination requirements of the Partnership Agreement as discussed in the Notes. The Partnership's mortgage obligation is a separate non-recourse loan secured individually by the investment property. The Partnership is not personally liable for the payment of the mortgage indebtedness. SAN JOSE On February 24, 1998, San Jose sold the remaining assets of the Park Center Financial Plaza office complex to an independent third party for $76,195,000 (before selling costs). San Jose received approximately $49,537,000 of net sale proceeds at closing (after the repayment by San Jose of the mortgage loans secured by the 170 Almaden, 150 Almaden and 185 Park Avenue buildings with a balance of approximately $23,281,000, loan prepayment premiums of approximately $2,422,000 and closing costs), of which the Partnership's share was approximately $24,768,500. Reference is made to the Notes for a further description of such sale. RIVERSIDE SQUARE MALL As previously disclosed, the Partnership has reached an agreement in principle with a theater operator to open a multiscreen theater complex at the mall. This expansion would add approximately 20,000 square feet of space and would include new restaurants. The Partnership intends to fund the estimated cost of approximately $7.6 million for the expansion from its working capital reserves. The Partnership received planning and zoning board approval from the City of Hackensack for such expansion in October 1998. However, this expansion, including the theater lease, is subject to many contingencies, including final documentation and the possible sale of the shopping center in 1999. As such there can be no assurance that this expansion will be completed on these or any other terms. The mortgage loan on the property in the original amount of $36,000,000 provided for rate adjustments every four years, beginning November 1, 1998. In addition, the loan allowed the Partnership to prepay the loan without penalty for a 60 day period every four years starting October 1, 1998. On May 1, 1998, in accordance with the loan documents, the lender notified the Partnership of the rate adjustment effective November 1, 1998. Given that the Partnership was actively marketing the property for sale and that the prepayment penalty would be substantial if the property were sold outside of the 60 day window provided in the loan documents, the Partnership elected not to accept the lender's rate adjustment. The election accelerated the maturity date of the loan to December 1, 1998, from December 1, 2006. On November 24, 1998, the Partnership finalized a new one-year mortgage loan in the amount of $34,000,000. The proceeds of the new loan were utilized to retire the previous mortgage loan with an outstanding balance of approximately $33,871,000. The net cost to the Partnership of refinancing, including costs and fees of approximately $255,000 was approximately $126,000. Reference is made to the Notes for a further description of such transaction. GENERAL The Partnership continues to conserve its working capital. All expenditures are carefully analyzed and certain capital projects are deferred when appropriate. In an effort to reduce partnership operating expenses, the Partnership elected to make annual rather than semi-annual distributions of available operating cash flow commencing with the 1998 distribution. By conserving working capital, the Partnership will be in a better position to meet the future needs of its remaining property since the availability of satisfactory outside sources of capital may be limited given current debt levels. The Partnership has held its remaining investment property longer than originally anticipated in an effort to maximize the return to the Limited Partners. However, after reviewing the remaining property and the marketplace in which it operates, the General Partners of the Partnership expect to be able to conduct an orderly liquidation of its remaining investment portfolio as quickly as practicable upon the sale of its remaining investment property, the Riverside Square Mall, and the subsequent expiration of any representations and warranties to a potential purchaser that may be required in connection with a sale of the property. Consequently, the affairs of the Partnership are expected to be wound up in the 1999-2000 time frame, barring unforeseen economic developments. RESULTS OF OPERATIONS The decrease in cash and cash equivalents at December 31, 1998 as compared to December 31, 1997 is primarily due to the distribution in 1998 of sales proceeds related to the sale in 1997 of the Royal Executive Park II office complex as more fully discussed in the Notes. The decrease in rents and other receivables as of December 31, 1998 as compared to December 31, 1997 is primarily due to the lower occupancy levels and the timing of payment of rentals at the Riverside Square Mall investment property. The decrease in escrow deposits at December 31, 1998 as compared to December 31, 1997 is primarily due to the termination of the escrow accounts in conjunction with the November 1998 refinancing of the mortgage loan at the Riverside Square Mall investment property. The decrease in investment in unconsolidated ventures, at equity at December 31, 1998 as compared to December 31, 1997 is primarily due to the sale in 1998 of the remaining assets of the Park Center Financial Plaza investment property. The increase in current portion of long-term debt and corresponding decrease in long-term debt, less current portion as of December 31, 1998 as compared to December 31, 1997 is primarily due to the November 1999 maturity of the new mortgage loan secured by the Riverside Square Mall investment property. The decrease in accounts payable and other current liabilities as of December 31, 1998 as compared to December 31, 1997 is primarily due to a decrease in unearned rents due to the timing of the collection of rental income at the Riverside Square Mall investment property. The decrease is also due to an overfunding of approximately $136,000 in sale proceeds in December 1997 related to the Royal Executive Park II joint venture, which was returned to London and Leeds in January of 1998. The decrease in accrued interest payable as of December 31, 1998 as compared to December 31, 1997 is due to the variable interest rate on the new mortgage loan at the Riverside Square Mall investment property which is currently lower than the previous loan's rate. The increase in rental income for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to an increase in base rentals as a result of an increase in tenant occupancies in 1997 at the Riverside Square Mall investment property. The increase in interest income for the twelve months ended December 31, 1998 as compared to the twelve months ended December 31, 1997 is primarily due to the temporary investment of proceeds related to the 1997 sale of the Royal Executive Park II office complex and the 1998 sale of the remaining assets of the Park Center Financial Plaza office complex, which proceeds were subsequently distributed to the limited partners in February and May 1998, respectively. The decrease in depreciation expense for the twelve months ended December 31, 1998 as compared to the twelve months ended December 31, 1997 and for the twelve months ended December 31, 1997 as compared to the twelve months ended December 31, 1996 is primarily due to the Riverside Square Mall investment property being identified as held for sale or disposition as of September 30, 1997, and therefore, no longer subject to depreciation beyond such date. The decrease in property operating expenses for the twelve months ended December 31, 1998 as compared to the twelve months ended December 31, 1997 is primarily due to a decrease in advertising expense due to the timing of promotional campaigns and also to a decrease in snow removal and certain maintenance and repair projects at the Riverside Square Mall investment property. The decrease is also due to a decrease in tenant occupancies during 1998 at the Riverside Square Mall investment property. The decrease in property operating expenses for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to the decrease in snow removal and other administrative expenses and certain maintenance and repair projects (partially recoverable from tenants) at the Riverside Square Mall investment property. However, the decrease is partially offset by an increase in certain other property operating expenses as a result of higher tenant occupancies in 1997 at the Riverside Square Mall investment property. The decrease in professional services for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to expenses incurred in 1996 in connection with tender offer matters as discussed above. The increase in general and administrative expenses for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to the timing of the incurrence of reimbursable costs to affiliates of the General Partners. The decrease in the Partnership's share of operations of unconsolidated ventures for the twelve months ended December 31, 1998 as compared to the twelve months ended December 31, 1997 is primarily due to the sales of the Royal Executive Park II office complex and the remaining assets of the Park Center Financial Plaza office complex in December 1997 and February 1998, respectively. The increase in the Partnership's share of operations of unconsolidated ventures for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to such unconsolidated ventures being identified as held for sale or disposition as of December 31, 1996, and therefore, no longer subject to depreciation beyond such date. The Partnership's share of gain on sale of investment properties of unconsolidated venture of $20,648,190 in 1998 is due to the gain recognized on the sale of the remaining assets of the Park Center Financial Plaza investment property in February 1998. The Partnership's share of gain on sale of investment properties of unconsolidated ventures of $13,349,139 in 1997 is due to the gain recognized on the sale of the Royal Executive Park II office complex. The Partnership's share of gain on sale of investment properties of unconsolidated ventures of $1,412,610 in 1996 is due to the gain recognized on the sale of the 190 San Fernando Building and one of the parking structures at the Park Center Financial Plaza investment property. The Partnership's extraordinary item from investment property is due to the write off of $237,805 of deferred mortgage expense in conjunction with the new mortgage loan put in place at the Riverside Square Mall investment property in November 1998. The Partnership's share of extraordinary loss from unconsolidated venture of $1,259,118 in 1998 comprises loan prepayment premiums of $1,211,062 and the write-off of the deferred mortgage balance of $48,056 resulting from the sale of the remaining assets of the Park Center Financial Plaza investment property in February 1998. INFLATION Due to the decrease in the level of inflation in recent years, inflation generally has not had a material effect on rental income or property operating expenses. Inflation is not expected to significantly impact future operations due to the expected liquidation of the Partnership in the 1999-2000 time frame. However, to the extent that inflation in future periods would have an adverse impact on property operating expenses, the effect would generally be offset by amounts recovered from tenants as many of the long-term leases at the Partnership's remaining commercial property have escalation clauses covering increases in the cost of operating and main- taining the property as well as real estate taxes. Therefore, there should be little effect from inflation on operating earnings if the property remains substantially occupied. In addition, substantially all of the leases at the Partnership's shopping center investment contain provisions which entitle the Partnership to participate in gross receipts of tenants above fixed minimum amounts. YEAR 2000 The Corporate General Partner has determined that it does not expect that the consequences of the Partnership's Year 2000 issues would have a material effect on the Partnership's business, results of operations or financial condition. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership has identified interest rate changes as a potential market risk. The Riverside Square Mall mortgage loan which matures on November 24, 1999 provides for interest only payments based on the 30 day LIBOR rate plus 1.3%. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) INDEX Independent Auditors' Report Balance Sheets, December 31, 1998 and 1997 Statements of Operations, years ended December 31, 1998, 1997 and 1996 Statements of Partners' Capital Accounts (Deficit), years ended December 31, 1998, 1997 and 1996 Statements of Cash Flows, years ended December 31, 1998, 1997 and 1996 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. 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, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, 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. KPMG LLP Chicago, Illinois March 24, 1999 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS ------
1998 1997 ------------ ----------- Current assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 15,863,283 42,298,264 Rents and other receivables, net of allowance for doubtful accounts of $293,856 in 1998 and $210,024 in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601,179 2,552,231 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,040 88,948 Escrow deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,171,271 ------------ ----------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . 17,561,502 46,110,714 ------------ ----------- Investment property held for sale or disposition . . . . . . . . . . . . . 62,040,706 60,929,336 ------------ ----------- Investment in unconsolidated ventures, at equity . . . . . . . . . . . . . -- 6,711,162 Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,382,441 4,830,813 ------------ ----------- $ 83,984,649 118,582,025 ============ =========== JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICIT) ---------------------------------------------------- 1998 1997 ------------ ----------- Current liabilities: Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . $ 34,000,000 584,273 Accounts payable and other current liabilities . . . . . . . . . . . . . 475,107 782,274 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,029 243,502 ------------ ----------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . 34,656,136 1,610,049 Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . 89,000 88,133 Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . -- 33,820,205 ------------ ----------- Commitments and contingencies Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 34,745,136 35,518,387 Partners' capital accounts (deficit): General partners: Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000 Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . . 6,107,441 5,794,671 Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . (6,631,429) (6,631,429) ------------ ----------- (522,988) (835,758) ------------ ----------- Limited partners (173,411 interests): Capital contributions, net of offering costs . . . . . . . . . . . . 156,493,238 156,493,238 Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . . 71,343,777 49,295,508 Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . (178,074,514) (121,889,350) ------------ ----------- 49,762,501 83,899,396 ------------ ----------- Total partners' capital accounts . . . . . . . . . . . . . . . . . 49,239,513 83,063,638 ------------ ----------- $ 83,984,649 118,582,025 ============ =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ------------ ------------ ------------ Income: Rental income. . . . . . . . . . . . . . . . . . . . . $12,718,155 13,500,646 12,711,885 Interest income. . . . . . . . . . . . . . . . . . . . 933,858 718,062 691,587 ----------- ----------- ----------- 13,652,013 14,218,708 13,403,472 ----------- ----------- ----------- Expenses: Mortgage and other interest. . . . . . . . . . . . . . 2,741,140 2,897,399 2,936,882 Depreciation . . . . . . . . . . . . . . . . . . . . . -- 1,892,003 2,394,772 Property operating expenses. . . . . . . . . . . . . . 7,189,436 7,851,075 8,835,327 Professional services. . . . . . . . . . . . . . . . . 214,735 190,646 262,322 Amortization of deferred expenses. . . . . . . . . . . 478,558 519,892 458,744 General and administrative . . . . . . . . . . . . . . 380,455 440,946 308,471 ----------- ----------- ----------- 11,004,324 13,791,961 15,196,518 ----------- ----------- ----------- 2,647,689 426,747 (1,793,046) Partnership's share of operations of unconsolidated ventures. . . . . . . . . . . . . . . . 562,083 5,324,092 3,603,185 ----------- ----------- ----------- Earnings (loss) before gain on sale or disposition of investment property . . . . . . 3,209,772 5,750,839 1,810,139 Partnership's share of gains on sale of investment properties of unconsolidated ventures. . . . . . . . . 20,648,190 13,349,139 1,412,610 ----------- ----------- ----------- Earnings (loss) before extraordinary items. . . . . . . . . . . . . . . . . . . . . 23,857,962 19,099,978 3,222,749 Extraordinary items: Deferred mortgage expense on retirement of long-term debt . . . . . . . . . . . . . . . . . . . (237,805) -- -- Partnership's share of deferred mortgage expense and prepayment premium of unconsolidated venture . . . . . . . . . . . . . . . (1,259,118) -- -- ----------- ----------- ----------- Net earnings (loss). . . . . . . . . . . . . . . $22,361,039 19,099,978 3,222,749 =========== =========== =========== JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS - CONTINUED 1998 1997 1996 ------------ ------------ ------------ Net earnings (loss) per limited partnership interest: Earnings (loss) before gain on sale or disposition of investment property . . . . . $ 17.77 31.84 10.02 Partnership's share of gains on sale of investment properties of unconsolidated ventures. . . . . . . . . . . 117.88 76.21 8.06 Extraordinary items. . . . . . . . . . . . . . (8.50) -- -- ----------- ----------- ----------- Net earnings (loss). . . . . . . . . . . . . $ 127.15 108.05 18.08 =========== =========== =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICIT) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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 Cash distri- butions ($12 per limited partnership interest) . . -- -- -- -- -- -- (2,080,932) (2,080,932) Net earnings (loss). . . . -- 363,525 -- 363,525 -- 18,736,453 -- 18,736,453 ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- 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, 1997. . . . . 1,000 5,794,671 (6,631,429) (835,758) 156,493,238 49,295,508 (121,889,350) 83,899,396 Cash distri- butions ($324 per limited partnership interest) . . -- -- -- -- -- -- (56,185,164)(56,185,164) Net earnings (loss). . . . -- 312,770 -- 312,770 -- 22,048,269 -- 22,048,269 ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- Balance (deficit) at Decem- ber 31, 1998. . . . . $1,000 6,107,441 (6,631,429) (522,988) 156,493,238 71,343,777 (178,074,514) 49,762,501 ====== ========== ========== ========== =========== =========== ============ =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss). . . . . . . . . . . . . . . . . . $22,361,039 19,099,978 3,222,749 Items not requiring (providing) cash or cash equivalents: Depreciation . . . . . . . . . . . . . . . . . . . . -- 1,892,003 2,394,772 Amortization of deferred expenses. . . . . . . . . . 478,558 519,892 458,744 Partnership's share of operations of uncon- solidated ventures, net of distributions . . . . . (562,083) (5,324,092) 944,935 Partnership's share of gain on sale of invest- ment properties of unconsolidated ventures . . . . (20,648,190) (13,349,139) (1,412,610) Extraordinary items. . . . . . . . . . . . . . . . . 1,496,923 -- -- Changes in: Rents and other receivables. . . . . . . . . . . . . 951,052 (541,985) 308,757 Prepaid expenses . . . . . . . . . . . . . . . . . . (8,092) 2,558 (11,885) Escrow deposits. . . . . . . . . . . . . . . . . . . 320,236 (384,565) (64,859) Accounts payable . . . . . . . . . . . . . . . . . . (307,167) 7,484 272,820 Accrued interest payable . . . . . . . . . . . . . . (62,473) 363 (3,442) Tenant security deposits . . . . . . . . . . . . . . 867 (13,406) 17,408 ----------- ----------- ----------- Net cash provided by (used in) operating activities . . . . . . . . . . . . 4,020,670 1,909,091 6,127,389 ----------- ----------- ----------- Cash flows from investing activities: Net escrow draws for construction related costs. . . . . . . . . . . . . . . . . . . . -- -- 4,949,435 Additions to investment properties . . . . . . . . . . (1,111,370) (869,839) (5,484,550) Partnership's distributions from unconsolidated ventures. . . . . . . . . . . . . . . 26,662,317 32,329,371 3,588,000 Payment of deferred expenses . . . . . . . . . . . . . (12,636) -- (59,731) ----------- ----------- ----------- Net cash provided by (used in) investing activities . . . . . . . . . . . . 25,538,311 31,459,532 2,993,154 ----------- ----------- ----------- JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1998 1997 1996 ----------- ----------- ----------- Cash flows from financing activities: Release of escrow for payoff of old debt . . . . . . . 851,035 -- -- Net cost of refinancing of new long-term debt. . . . . (126,127) -- -- Principal payments on long-term debt . . . . . . . . . (533,706) (537,622) (494,697) Distributions to limited partners. . . . . . . . . . . (56,185,164) (2,080,932) (2,601,165) ----------- ----------- ----------- Net cash provided by (used in) financing activities . . . . . . . . . . . . (55,993,962) (2,618,554) (3,095,862) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . (26,434,981) 30,750,069 6,024,681 Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . 42,298,264 11,548,195 5,523,514 ----------- ----------- ----------- Cash and cash equivalents, end of year. . . . . . . . . . . . . . . . . $15,863,283 42,298,264 11,548,195 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest . . . . . . $ 2,803,613 2,897,036 2,940,324 =========== =========== =========== Non-cash investing and financing activities: Refinancing of long-term debt: Proceeds of new debt. . . . . . . . . . . . . . . . $34,000,000 -- -- Retirement of old debt. . . . . . . . . . . . . . . (33,870,772) -- -- Deferred mortgage costs . . . . . . . . . . . . . . (255,355) -- -- ----------- ----------- ---------- Net cost of refinancing of long-term debt. . . $ (126,127) -- -- =========== =========== =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 OPERATIONS AND BASIS OF ACCOUNTING GENERAL The Partnership holds (either directly or through joint ventures) investments in 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 property and wind up its affairs not later than December 31, 1999, barring unforeseen economic developments. 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") (which investment was sold in December 1997) and JMB/San Jose Associates ("San Jose") (which investment was sold in February 1998). 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, 1998 and 1997 is summarized as follows:
1998 1997 ------------------------------ ------------------------------ TAX BASIS TAX BASIS GAAP BASIS (UNAUDITED) GAAP BASIS (UNAUDITED) ------------ ----------- ------------ ---------- Total assets . . . . . . . . . . . . . $ 83,984,649 83,828,667 118,582,025 130,569,209 Partners' capital accounts (deficit): General partners . . . . . . . . . (522,988) -- (835,758) (1,339,241) Limited partners . . . . . . . . . 49,762,501 49,443,874 83,899,396 96,831,579 Net earnings (loss): General partners . . . . . . . . . 312,770 1,339,240 363,525 111,760 Limited partners . . . . . . . . . 22,048,269 8,797,458 18,736,453 10,708,610 Net earnings (loss) per limited partnership interest . . . . . . . . . . . . . . 127.15 50.73 108.05 61.75 =========== ============ =========== ===========
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 ($16,123,277 and $42,703,440 at December 31, 1998 and 1997, 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 tenant allowances to tenants 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. 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 or may in the future be required under applicable law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners. 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. In December 1997, the Royal Executive venture sold the Royal Executive Park II office complex. In February 1998, the San Jose venture sold its remaining interest in the Park Center Financial Plaza office complex. The remaining property, the Riverside Square Mall investment property, was in operation at December 31, 1998. 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 property is 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 properties held for sale or disposition as of December 31, 1998 or sold or disposed of during the past three years were $2,172,556, $443,271 and ($1,551,773), respectively, for the years ended December 31, 1998, 1997 and 1996. In addition, the accompanying financial statements include $562,084, $5,324,092 and $3,603,185, respectively, of the Partnership's share of total property operations of $1,124,167, $6,901,490 and $4,209,143 of unconsolidated properties held for sale or disposition as of December 31, 1998 or sold or disposed of in the past three years. Certain 1996 amounts have been reclassed to conform to 1997 presentation. 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 of approximately $22,300,000. 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 had been released as of December 31, 1996. The remaining $11,100,000 of loan proceeds were used to replenish the Partnership's working capital for amounts paid to or escrowed on behalf of Saks and Bloomingdale's for their store renovations as discussed below. The mortgage loan on the property provided for rate adjustments every four years, beginning November 1, 1998. In addition, the loan allowed the Partnership to prepay the loan without penalty for a 60 day period every four years starting October 1, 1998. On May 1, 1998, in accordance with the loan documents, the lender notified the Partnership of the rate adjustment effective November 1, 1998. Given that the Partnership was actively marketing the property for sale and that the prepayment penalty would be substantial if the property were sold outside of the 60 day window provided in the loan documents, the Partnership elected not to accept the lender's rate adjustment. The election accelerated the maturity date of the loan to December 1, 1998, from December 1, 2006. The Partnership reached an agreement with another lender to obtain replacement financing, in the amount of $34,000,000, for a one-year term with no prepayment penalty, to replace the current loan. On November 24, 1998, the Partnership closed on the new mortgage loan. The new mortgage loan matures November 24, 1999, with an option for a six month extension, and provides for interest only payments based on the 30 day LIBOR rate (approximately 5.1% at December 31, 1998) plus 1.3%. The proceeds from the mortgage loan were used to pay the outstanding balance of the old loan of approximately $33,871,000. The net cost to the Partnership of the refinancing, including costs and fees of approximately $255,000, was approximately $126,000. 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 1999 approximately $4,274,000 for tenant improvements and capital expenditures, which includes a portion of the theater/restaurant expansion discussed below. 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 expense in the accompanying balance sheet, (the full amount of which was released as of December 31, 1996) for Bloomingdale's store renovation, which was fully completed in September 1997. 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. During 1998, the Partnership reached an agreement in principle with a theater operator to open a multiscreen theater complex at the mall. This expansion would add approximately 20,000 square feet of space and would include new restaurants. The Partnership intends to fund the estimated cost of approximately $7.6 million for the expansion from its working capital reserves. The Partnership received planning and zoning board approval from the City of Hackensack for such expansion in October 1998. However, this expansion, including the theater lease, is subject to many contingencies, including final documentation and the possible sale of the shopping center in 1999. As such there can be no assurance that this expansion will be completed on these or any other terms. As the Partnership had committed to a plan to sell the property, the property was classified as held for sale or disposition as of September 30, 1997, and therefore, has not been subject to continued depreciation beyond such date. 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. VENTURE AGREEMENTS - GENERAL The Partnership, at December 31, 1998, is no longer a party to any operating venture agreements. The Partnership had made capital contributions to the respective ventures as discussed below. 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. The property was managed by an unaffiliated third party for a fee calculated as 3% of gross receipts. The partners of San Jose were 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 provided that contributions, distributions, cash flow, sale or refinancing proceeds and profits and losses would 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 allocated to the Partnership. 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 subsequently committed to a plan to sell the balance of the complex, and classified the remaining assets as held for sale as of December 31, 1996 and these assets were no longer subject to continued depreciation beyond such date. On February 24, 1998, San Jose sold the land, buildings, related improvements and personal property of the remaining assets of the Park Center Financial Plaza office complex to an unaffiliated third party for a sale price of $76,195,000 (before selling costs and prorations). San Jose received approximately $49,537,000 of net sale proceeds at closing (of which the Partnership's share was approximately $24,768,500), after the repayment by San Jose of the mortgage loans secured by the 170 Almaden, 150 Almaden and 185 Park Avenue buildings with a balance of approximately $23,281,000, loan prepayment premiums of approximately $2,422,000 and closing costs. The sale resulted in a gain in 1998 of approximately $41,654,000 (before extraordinary items) and $22,500,000 for financial reporting and Federal income tax purposes, respectively, of which approximately $20,827,000 and $11,250,000 of gain was allocated to the Partnership, respectively. The gain for financial reporting purposes includes the effects of previously recorded provisions for value impairment for all buildings in the complex of approximately $24,600,000, of which the Partnership's share was approximately $12,300,000. In connection with the sale, San Jose recorded in 1998 an extraordinary loss for financial reporting purposes totaling approximately $2,518,000 as a result of loan prepayment premiums of approximately $2,422,000 and the write-off of the deferred mortgage balance of approximately $96,000, of which the Partnership's share is approximately $1,211,000 and $48,000, respectively. In addition, in connection with the sale of the property, as is customary in such transactions, San Jose agreed to certain representations, warranties and covenants with a stipulated survival period that expired November 15, 1998 with no liability to the partnership. In May and December of 1998, the San Jose venture made distributions of $50,000,000 and $3,324,635, of which the Partnership's share was $25,000,000 and $1,662,317, respectively. In May 1998, the Partnership made a distribution of sales proceeds relating to the sale of the remaining assets of the Park Center Financial Plaza office complex of $24,277,540 ($140 per Interest) to the Limited Partners. 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. 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 were attained, the Partnership was entitled to a cumulative preferred annual return equal to $2,430,000 per year. The next $2,439,732 of annual cash flow was 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 was subject to the actual operations of the property. The Partnership was 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 were made to the venture partner. The cumulative deficiency in the preferred annual return was approximately $1,498,000 at the December 19, 1997 sale date. In accordance with the Royal Executive venture agreement, the Partnership received its priority level of distribution of sale and refinancing proceeds of $27,000,000 plus the cumulative deficiency in its preferred annual return, in the amount of $1,498,000 upon sale of the property, as discussed below. Net operating income (as defined) of the joint venture, in general, was allocated in proportion to, and to the extent of, distributions and then based on relative ownership percentages. Operating losses, in general, were 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, were allocated based upon relative ownership interests. Depreciation and amortization were allocated based upon the relative ownership interests. As there had been a commitment to sell this property, the Royal Executive venture classified this property as held for sale or disposition at December 31, 1996, and therefore, the property was not subject to continued depreciation beyond such date. On December 19, 1997, the Royal Executive venture sold the land, buildings, related improvements and personal property of the Royal Executive Park office complex to an unaffiliated third party for a sale price of $36,000,000 (before selling expenses and prorations). The sale resulted in a gain in 1997 of $13,905,818 (due to the provision for value impairment recorded in 1994, as discussed above) and $18,927,388 for financial reporting and Federal income tax purposes, respectively, of which $13,349,139 and $10,701,810 of gain was allocated to the Partnership, respectively. In addition, in connection with the sale of the property, as is customary in such transactions, the joint venture agreed to certain representations, warranties and covenants with a stipulated survival period that expired November 15, 1998 with no liability to the Partnership. Concurrently with the sale of Royal Executive Park-II, two other office parks, Royal Executive Park I ("Royal I") and Royal Executive Park III ("Royal III") were sold. Royal I was owned by a joint venture between JMB Income Properties-X (a partnership sponsored by the Partnership's General Partner) and the Partnership's unaffiliated venture partner in Royal Executive Park-II. Royal III was owned entirely by the unaffiliated venture partner in Royal Executive Park-II and Royal I. The purchase price for each office park was separately negotiated with the buyer. During the fourth quarter of 1996, the joint venture had determined that one of the property's underground storage tanks had discharged an amount of fuel oil into the ground. The joint venture believed that such discharge had been the result of normal operations of the property and not the result of actions of tenants or other third parties. The joint venture had received a cost estimate of approximately $200,000 for remediation of the contaminated soil, of which approximately $121,000 was incurred through the date of sale. As part of the sale agreement discussed above, the purchaser is required to hold the joint venture harmless for any future clean-up costs or claims resulting from the contaminated soil. In February 1998, the Partnership made a distribution of sale proceeds related to the sale of the Royal Executive Park II office complex of $28,439,404 ($164 per Interest). LONG-TERM DEBT Long-term debt consists of the following at December 31, 1998 and 1997: 1998 1997 ---------- ---------- 8.35% mortgage note, secured by the 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 was to be due, refinanced in November 1998 by the Loan described below. . . . . . . . . . . . $ -- 34,404,478 30 day LIBOR Rate (approximately 5.1% at December 31, 1998) plus 1.3% mortgage note, secured by the Riverside Square Mall, payable in monthly installments of interest only until November 24, 1999 (with an option for a six month extension) when the outstanding principal and accrued and unpaid interest thereon is due . . . . . . . . . . . . . . . . 34,000,000 -- Less current portion of long-term debt . . . . . 34,000,000 584,273 ----------- ---------- Total long-term debt . . . . . . . . . $ -- 33,820,205 =========== ========== 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. 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, the General Partners have waived their right to receive any portion of the proceeds from the sales of property by the Partnership. LEASES At December 31, 1998, 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 until such time the property is considered held for sale or disposition at which time depreciation is no longer taken. 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 dependent 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: 1999. . . . . . . . . . . . $ 5,623,041 2000. . . . . . . . . . . . 5,098,435 2001. . . . . . . . . . . . 4,873,118 2002. . . . . . . . . . . . 4,709,667 2003. . . . . . . . . . . . 4,082,344 Thereafter. . . . . . . . . 12,813,631 ----------- Total . . . . . . . . . $37,200,236 =========== Contingent rent (based on sales by property tenants) included in rental income was as follows: 1996 . . . . . . . . $312,727 1997 . . . . . . . . 203,448 1998 . . . . . . . . 390,624 ======== 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, 1998 and for the years ended December 31, 1998, 1997 and 1996 are as follows: UNPAID AT DECEMBER 31, 1998 1997 1996 1998 -------- ------- ------- ------------ Property management and leasing fees. . . . . . $246,957 244,256 229,333 -- Insurance commissions. . . . 34,614 44,126 42,093 -- Reimbursement (at cost) for accounting services . . 15,306 22,452 9,825 15,306 Reimbursement (at cost) for portfolio manage- ment services . . . . . . . 56,590 35,743 23,498 16,265 Reimbursement (at cost) for legal services. . . . . 7,646 7,442 4,691 2,501 Reimbursement (at cost) for administrative charges and other out-of-pocket expenses. . . 7,035 208 -- -- -------- ------- ------- ------- $368,148 354,227 309,440 34,072 ======== ======= ======= ======= 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 that was owned by the Partnership. The fees earned by such company from the Partnership for the years ended December 31, 1998, 1997 and 1996 were approximately $5,400, $32,500 and $39,000, respectively, all of which has been paid at December 31, 1998. 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 $2,152,225 as of December 31, 1998. 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. An affiliate of the General Partners of the Partnership manages the Riverside Square Mall for a fee equal to 4% of the fixed and percentage rents of the shopping center plus leasing and operating covenant commissions. Such fees and commissions are subject to deferral to the extent they are in excess of an aggregate annual maximum amount of 6% of the gross receipts of the property. In this regard, an affiliate of the General Partner in 1994 deferred $300,000 of leasing fees at the Riverside Square Mall pursuant to the management agreement, of which the final $33,000 was paid in February 1997. INVESTMENT IN UNCONSOLIDATED VENTURES Summary combined financial information for San Jose as of and for the years ended December 31, 1998 and 1997 and Royal Executive for the year ended December 31, 1997 are as follows: 1998 1997 ------------ ----------- Current assets . . . . . . . . . . $ -- 5,677,624 Current liabilities. . . . . . . . -- (792,509) ------------ ----------- Working capital. . . . . . . . -- 4,885,115 ------------ ----------- Investment property, net . . . . . -- 30,803,149 Other assets, net. . . . . . . . . -- 1,204,478 Long-term debt . . . . . . . . . . -- (22,961,889) Other liabilities. . . . . . . . . -- (181,229) Venture partners' equity . . . . . -- (7,038,462) ------------ ----------- Partnership's capital. . . . . $ -- 6,711,162 ============ =========== Represented by: Invested capital . . . . . . . . $ 77,738,617 77,738,617 Cumulative distributions . . . . (108,493,454) (81,831,137) Cumulative losses. . . . . . . . 30,754,837 10,803,682 ------------ ----------- $ -- 6,711,162 ============ =========== Total income . . . . . . . . . . . $ 2,482,154 16,288,755 ============ =========== Expenses applicable to operating earnings . . . . . . . $ 1,357,987 9,387,265 ============ =========== Gain on disposition of investment property. . . . . . . $ 39,135,624 13,905,818 ============ =========== Net earnings (loss). . . . . . . . $ 40,259,791 20,807,308 ============ =========== The total income, expenses related to operating earnings, gain on disposition of investment property and net earnings for the above-mentioned ventures for the year ended December 31, 1996 were $16,333,533, $12,124,390, $2,825,220 and $7,034,363, respectively. SCHEDULE III JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
COSTS CAPITALIZED INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) ACQUISITION AT CLOSE OF PERIOD (B) ----------------------- -------------- ------------------------------------- BUILDINGS BUILDINGS BUILDINGS AND AND AND ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL (C) ----------- ----------- ------------ -------------- ---------- ------------ ---------- SHOPPING CENTER: Hackensack, New Jersey . . . $34,000,000 3,796,561 30,880,649 46,577,341 3,796,561 77,457,990 81,254,551 =========== ========= ========== ========== ========= ========== ==========
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 1998 ACCUMULATED DATE OF DATE OPERATION REAL ESTATE DEPRECIATION(D) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ------------ ---------- --------------- ----------- SHOPPING CENTER: Hackensack, New Jersey . . . . . . . . . . . . . $19,213,845 1977 10-19-83 5-30 years 2,339,661 =========== ========= - ------------- 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, 1998 for Federal income tax purposes was $84,294,663.
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (C) Reconciliation of real estate owned:
1998 1997 1996 ------------ ------------ ------------ Balance at beginning of period . . . . . . . . . . . . $80,143,181 79,273,342 74,461,800 Additions during period. . . . . . . . . . . . . . . . 1,111,370 869,839 4,811,542 Dispositions during period . . . . . . . . . . . . . . -- -- -- ----------- ----------- ---------- Balance at end of period . . . . . . . . . . . . . . . $81,254,551 80,143,181 79,273,342 =========== =========== ========== (D) Reconciliation of accumulated depreciation: Balance at beginning of period . . . . . . . . . . . . $19,213,845 17,321,842 14,927,070 Depreciation expense . . . . . . . . . . . . . . . . . -- 1,892,003 2,394,772 ----------- ----------- ---------- Balance at end of period . . . . . . . . . . . . . . . $19,213,845 19,213,845 17,321,842 =========== =========== ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes of or disagreements with accountants during 1997 and 1998. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Managing General Partner of the Partnership is JMB Realty Corporation ("JMB"), a Delaware corporation. Substantially all of the outstanding shares of JMB are owned, directly or indirectly, by certain of its officers, directors, members of their families and their affiliates. JMB, as the Managing General Partner, has responsibility for all aspects of the Partnership's operations. The Associate General Partner of the Partnership is Income Associates-XI, L.P., an Illinois limited partnership with JMB as its sole general partner. The limited partners of Income Associates-XI, L.P. are generally officers, directors and affiliates of JMB or its affiliates and an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Partnership is subject to certain conflicts of interest arising out of its relationships with the General Partners and their affiliates as well as the fact that the General Partners and their affiliates are engaged in a range of real estate activities. Certain services have been and may in the future be provided to the Partnership or its investment properties by affiliates of the General Partners, including property management services and insurance brokerage services. In general, such services are to be provided on terms no less favorable to the Partnership than could be obtained from independent third parties and are otherwise subject to conditions and restrictions contained in the Partnership Agreement. The Partnership Agreement permits the General Partners and their affiliates to provide services to, and otherwise deal and do business with, persons who may be engaged in transactions with the Partnership, and permits the Partnership to borrow from, purchase goods and services from, and otherwise to do business with, persons doing business with the General Partners or their affiliates. The General Partners and their affiliates may be in competition with the Partnership under certain circumstances, including, in certain geographical markets, for tenants and/or for the sale of property. Because the timing and amount of cash distributions and profits and losses of the Partnership may be affected by various determinations by the General Partners under the Partnership Agreement, including whether and when to sell a property, the establishment and maintenance of reasonable reserves and the determination of the sources (i.e., offering proceeds, cash generated from operations or sale proceeds) and uses of such reserves, the timing of expenditures and the allocation of certain tax items under the Partnership Agreement, the General Partners may have a conflict of interest with respect to such determinations. The names, positions held and length of service therein of each director and the executive and certain other officers of the Managing General Partner of the Partnership are as follows: SERVED IN NAME OFFICE OFFICE SINCE - ---- ------ ------------ Judd D. Malkin Chairman 5/03/71 Director 5/03/71 Chief Financial Officer 2/22/96 Neil G. Bluhm President 5/03/71 Director 5/03/71 Burton E. Glazov Director 7/01/71 Stuart C. Nathan Executive Vice President 5/08/79 Director 3/14/73 A. Lee Sacks Director 5/09/88 John G. Schreiber Director 3/14/73 H. Rigel Barber Executive Vice President 1/02/87 Chief Executive Officer 8/01/93 Glenn E. Emig Executive Vice President 1/01/93 Chief Operating Officer 1/01/95 Gary Nickele Executive Vice President 1/01/92 General Counsel 2/27/84 Gailen J. Hull Senior Vice President 6/01/88 Howard Kogen Senior Vice President 1/02/86 Treasurer 1/01/91 There is no family relationship among any of the foregoing directors or officers. The foregoing directors have been elected to serve a one-year term until the annual meeting of the Managing General Partner to be held on June 2, 1999. All of the foregoing officers have been elected to serve one-year terms until the first meeting of the Board of Directors held after the annual meeting of the Managing General Partner to be held on June 2, 1999. There are no arrangements or understandings between or among any of said directors or officers and any other person pursuant to which any director or officer was elected as such. JMB is the corporate general partner of Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"), Carlyle Real Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited Partnership-XV ("Carlyle-XV"), and Carlyle Income Plus, L.P.-II ("Carlyle Income Plus-II") and the managing general partner of JMB Income Properties, Ltd.-V ("JMB Income-V"), JMB Income Properties, Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-X ("JMB Income-X") and JMB Income Properties, Ltd.-XI ("JMB Income- XI"). JMB is also the sole general partner of the associate general partner of most of the foregoing partnerships. Most of the foregoing directors and officers are also officers and/or directors of various affiliated companies of JMB including Arvida/JMB Managers, Inc. (the general partner of Arvida/JMB Partners, L.P. Most of such directors and officers are also partners, directly or indirectly, of certain partnerships which are associate general partners in the following real estate limited partnerships: the Partnership, Carlyle-XI, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, JMB Income-VII, JMB Income-X and Carlyle Income Plus-II. The business experience during the past five years of each such director and officer of the Managing General Partner of the Partnership in addition to that described above is as follows: Judd D. Malkin (age 61) is an individual general partner of JMB Income - - V. Mr. Malkin has been associated with JMB since October, 1969. Mr. Malkin is also a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is also a director of Chisox Corporation, which is the general partner of a limited partnership that owns the Chicago White Sox Major League Baseball team, and CBLS, Inc., which is the general partner of the general partner of a limited partnership that owns the Chicago Bulls National Basketball Association Team. Neil G. Bluhm (age 61) is an individual general partner of JMB Income - - V. Mr. Bluhm has been associated with JMB since August, 1970. Mr. Bluhm is also a principal of Walton Street Capital, L.L.C., which sponsors real estate investment funds, and a director of Urban Shopping Centers, Inc. He is a member of the Bar of the State of Illinois and a Certified Public Accountant. Burton E. Glazov (age 60) has been associated with JMB since June, 1971 and served as an Executive Vice President of JMB until December of 1990. He is a member of the Bar of the State of Illinois. Mr. Glazov is currently retired. Stuart C. Nathan (age 57) has been associated with JMB since July, 1972. He is a member of the Bar of the State of Illinois. A. Lee Sacks (age 65) has been associated with JMB since December, 1972. He is also President and a director of JMB Insurance Agency, Inc. John G. Schreiber (age 52) has been associated with JMB since December, 1970 and served as an Executive Vice President for JMB until December, 1990. Mr. Schreiber is President of Schreiber Investments, Inc., which is engaged in the real estate investing business. He is also a senior advisor and partner of Blackstone Real Estate Advisors L.P., an affiliate of the Blackstone Group, L.P. Mr. Schreiber is also a director of Urban Shopping Centers, Inc., Host Marriott Corporation, the Brickman Group, Ltd., which is engaged in the landscape maintenance business, and a number of investment companies advised or managed by T. Rowe Price Associates, Inc. and its affiliates and a trustee of Amli Residential Property Trust. He holds a Masters degree in Business Administration from Harvard University Graduate School of Business. H. Rigel Barber (age 50) has been associated with JMB since March, 1982. He holds a J.D. degree from the Northwestern Law School and is a member of the Bar of the State of Illinois. Glenn E. Emig (age 51) has been associated with JMB since December, 1979. It is expected that Mr. Emig will leave his positions with JMB on or about May 31, 1999 and his responsibilities will be taken over by various other officers of JMB. Prior to becoming Executive Vice President of JMB in 1993, Mr. Emig was Executive Vice President and Treasurer of JMB Institutional Realty Corporation. He holds a Masters Degree in Business Administration from the Harvard University Graduate School of Business and is a Certified Public Accountant. Gary Nickele (age 46) has been associated with JMB since February, 1984. He holds a J.D. degree from the University of Michigan Law School and is a member of the Bar of the State of Illinois. Gailen J. Hull (age 50) has been associated with JMB since March, 1982. He holds a Masters degree in Business Administration from Northern Illinois University and is a Certified Public Accountant. Howard Kogen (age 63) has been associated with JMB since March, 1973. He is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no officers or directors. The General Partners of the Partnership are entitled to receive a share of cash distributions, when and as cash distributions are made to the Investors, and a share of profits or losses. Reference is also made to the Notes for a description of such transactions, distributions and allocations. In 1998, 1997 and 1996, no cash distributions were paid to the General Partners. Affiliates of the Managing General Partner provide property management services to the Partnership for the Riverside Square Mall in Hackensack, New Jersey at a fee not to exceed 4% of the fixed and percentage rent of property, plus leasing commissions. In 1998, such affiliates earned property management and leasing fees amounting to $246,957 which was paid as of December 31, 1998. As set forth in the Prospectus of the Partnership, the Managing General Partner must negotiate such agreements on terms no less favorable to the Partnership than those customarily charged for similar services in the relevant geographical area (but in no event at rates greater than 6% of the gross receipts from a property), and such agreements must be terminable by either party thereto, without penalty, upon 60 days' notice. JMB Insurance Agency, Inc., an affiliate of the Managing General Partner, earned and received insurance brokerage commissions in 1998 aggregating $32,436 in connection with the provision of insurance coverage for certain of the real property investments of the Partnership and its venture. Such commissions are at rates set by insurance companies for the classes of coverage provided. In addition, JMB Insurance Agency, Inc. earned and received insurance brokerage commissions in 1998 of $2,178 in connection with insurance coverage for professional liability for the Partnership. The General Partners of the Partnership may be reimbursed for their salaries, salary-related and direct expenses relating to the administration of the Partnership and the operation of the Partnership's real property investments. In 1998, an affiliate of the General Partners earned reimbursement for such expenses in the amount of $86,577, all of which was paid at December 31, 1998. The Partnership is permitted to engage in various transactions involving affiliates of the Managing General Partner of the Partnership. The relationship of the Managing General Partner (and its directors and officers) to its affiliates is set forth above in Item 10 above and Exhibit 21 hereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Interests of the Partnership. (b) The Managing General Partner, its officers and directors and the Associate General Partner beneficially own the following Interests of the Partnership: NAME OF AMOUNT AND NATURE BENEFICIAL OF BENEFICIAL PERCENT TITLE OF CLASS OWNER OWNERSHIP OF CLASS - -------------- ---------- ----------------- -------- Limited Partnership JMB Realty Corporation 5 Interests (1) Less than 1% Interests and Assignee indirectly Interests Therein Limited Partnership Managing General 5 Interests (1) Less than 1% Interests and Assignee Partner, its indirectly Interests Therein officers and directors and the Associate General Partner as a group - -------------- (1) Includes 5 Interests owned by the Initial Limited Partner of the Partnership for which JMB Realty Corporation, as its indirect majority shareholder, is deemed to have shared voting and investment power. No officer or director of the Managing General Partner of the Partnership possesses a right to acquire beneficial ownership of Interests of the Partnership. Reference is made to Item 10 for information concerning ownership of the Managing General Partner. (c) There exists no arrangement, known to the Partnership, the operation of which may at a subsequent date result in a change in control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There were no significant transactions or business relationships with the Managing General Partner, affiliates or their management other than those described in Items 10 and 11 above. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements (See Index to Financial Statements filed with this annual report). 2. Exhibits. 3-A. The Prospectus of the Partnership dated July 11, 1984 as supplemented July 24, 1984 and November 26, 1984, as filed with the Commission pursuant to Rules 424(b) and 424(c), is hereby incorporated herein by reference. Certain pages of the prospectus are hereby incorporated herein by reference to Exhibit 3-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993. 3-B. Amended and Restated Agreement of Limited Partnership set forth as Exhibit A to the Prospectus, which agreement is hereby incorporated herein by reference to Exhibit 3-B to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993. 4-A. Mortgage loan agreement, Mortgage and Security Agreement, Secured Promissory Note B, Secured Promissory Note A and Assignment of Leases and Rents relating to Riverside Square Mall between the Partnership and Principal Mutual Life Insurance Company dated August 30, 1994 are hereby incorporated herein by reference to the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0-15966) dated March 27, 1995. 4-B. Mortgage loan agreement between San Jose and Connecticut General Life Insurance Co. dated June 20, 1985 relating to Park Center Plaza are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 20, 1985. 4-C. Mortgage loan agreement, Amended and Restated Deed of Trust, Security Agreement with assignment of Rents and Fixture Filing and Real Estate tax escrow and Security Agreement between San Jose and Connecticut General Life Insurance Co. dated November 30, 1994 is hereby incorporated herein by reference to the Partnership's Report of Form 10-K for December 31, 1994 (File No. 0-15966) dated March 27, 1995. 4-D. Loan agreement and mortgage note between JMB Income Properties, Ltd. - XI and Dresdner Bank AG, New York Branch and Grand Cayman Branch relating to Riverside Square Mall dated November 24, 1998 are filed herewith. 10-A. Acquisition documents relating to the purchase by the Partnership of Riverside Square in Hackensack, New Jersey are hereby incorporated by reference to the Partnership's prospectus on Form S-11 (File No. 2-90503) dated July 11, 1984. 10-B. Acquisition documents including the venture agreement relating to the purchase by the Partnership of Park Center Plaza in San Jose, California are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 20, 1985. 10-C. Deed in Lieu of Foreclosure Agreement and Memorandum of Mutual Releases dated November 15, 1994 between Three Hundred Delaware Avenue Associates, L.P. and EML Associates are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated November 15, 1994. 10-D. Request for Full Reconveyance relating to the repayment of the mortgage indebtedness by San Jose to Connecticut General Life Insurance Company dated October 31, 1995 is hereby incorporated herein by reference to the Partnership's Report on Form 10-K (File No. 0-15966) dated March 25, 1996. 10-E. Purchase - Sale Agreement with exhibits dated December 5, 1997 relating to the sale by the Partnership, through its joint venture, of the Royal Executive Park office complex in Rye Brook, New York between Royal Executive Park I, Royal Executive Park II, Royal Executive III and Reckson Operating Partnership, L.P. are hereby incorporated herein by reference to the Partnership's Report on Form 10-K for December 31, 1997 (File No. 0-15966) dated March 25, 1998. 10-F. First Amendment to the Purchase - Sale Agreement dated February 10, 1998 relating to the sale by San Jose of the Park Center Financial Plaza office complex in San Jose, California between JMB/San Jose Associates and Divco West Properties, LLC are hereby incorporated herein by reference to the Partnership's Report on Form 10-K for December 31, 1997 (File No. 0-15966) dated March 25, 1998. 10-G. Purchase - Sale Agreement with exhibits dated December 3, 1997 relating to the sale by San Jose of the Park Center Financial Plaza office complex in San Jose, California between JMB/San Jose Associates and Divco West Properties, LLC are hereby incorporated herein by reference to the Partnership's Report on Form 10-K for December 31, 1997 (File No. 0-15966) dated March 25, 1998. 21. List of Subsidiaries 24. Powers of Attorney 27. Financial Data Schedule -------------- (b) No reports on Form 8-K have been filed during the last quarter of the period covered by this report. No annual report or proxy material for the year 1998 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Partnership 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 Date: March 22, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: JMB Realty Corporation Managing General Partner JUDD D. MALKIN* By: Judd D. Malkin, Chairman and Chief Financial Officer Date: March 22, 1999 NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 22, 1999 H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 22, 1999 GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 22, 1999 GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 22, 1999 A. LEE SACKS* By: A. Lee Sacks, Director Date: March 22, 1999 By: STUART C. NATHAN* Stuart C. Nathan, Executive Vice President and Director Date: March 22, 1999 *By: GAILEN J. HULL, Pursuant to a Power of Attorney GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 22, 1999 JMB INCOME PROPERTIES, LTD. - XI EXHIBIT INDEX DOCUMENT INCORPORATED BY REFERENCE Page ------------ ---- 3-A. Certain pages of the Prospectus dated July 11, 1984 Yes -- 3-B. Amended and Restated Agreement of Limited Partnership Yes -- 4-A. 1994 Mortgage loan agreement related to Riverside Square Yes -- 4-B. Mortgage loan agreement related to Park Center Financial Center Yes -- 4-C. Mortgage loan agreement related to Park Center Plaza Yes -- 4-D. 1998 Mortgage Loan agreement related to Riverside Square No 10-A. Acquisition documents related to Riverside Square Yes -- 10-B. Acquisition documents related to Park Center Plaza Yes -- 10-C. Disposition documents related to Bank of Delaware Yes -- 10-D. Request for Full Reconveyance related to San Jose Yes -- 10-E. Purchase and Sale Agreement related to the Royal Executive Park office complex Yes -- 10-F. First Amendment to the Purchase and Sale Agreement related to San Jose Yes -- 10-G. Purchase and Sale Agreement with exhibits related to San Jose Yes -- 21. List of Subsidiaries No 24. Powers of Attorney No 27. Financial Data Schedule No EX-4.D 2 EXHIBIT 4-D - ----------- LOAN AGREEMENT dated as of November 24, 1998 between JMB INCOME PROPERTIES, LTD. - XI and DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH LOAN AGREEMENT -------------- THIS LOAN AGREEMENT (this "Agreement") is dated as of the 24th day of November, 1998 by and between JMB INCOME PROPERTIES, LTD. - XI, an Illinois limited partnership ("Borrower"), and DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH and its permitted successors and assigns ("Lender"). R E C I T A L S: --------------- A. Borrower is the owner of certain Property (as hereinafter defined) located in Hackensack, New Jersey. B. Borrower has requested Lender to make a loan (the "Loan") to Borrower in the aggregate principal amount of Thirty Four Million Dollars ($34,000,000) in connection with a fully enclosed, regional shopping mall located on the Property and known as the Riverside Square Mall (the "Mall"). C. The Loan is evidenced by a certain Mortgage Note dated as of even date herewith in the aggregate principal amount of Thirty Four Million Dollars ($34,000,000) (the "Note"). D. The Note is secured by, among other things, (i) that certain Mortgage, Assignment of Leases and Security Agreement executed by Borrower) dated as of even date herewith in favor of Lender (the "Mortgage"); (ii) that certain Assignment of Leases and Rents executed by Borrower as of even date herewith in favor of Lender (the "Assignment of Leases"); (iii) that certain Environmental Indemnity Agreement executed by Borrower dated as of even date herewith in favor of Lender (the "Indemnity Agreement"); (iv) that certain Subordination of Management Agreement executed by the manager of the Property as of even date herewith in favor of Lender (the "Subordination of Management Agreement"); and (v) certain other loan documents. E. Subject to the terms and conditions of this Agreement, Lender has agreed to make the Loan to Borrower. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements herein contained, the sufficiency of which is hereby acknowledged, the parties hereto represent and agree as follows: ARTICLE 1 --------- INCORPORATION AND DEFINITIONS ----------------------------- 1.1 INCORPORATION AND DEFINITIONS: The foregoing recitals and all exhibits attached hereto are hereby made a part of this Agreement. The following terms shall have the following meanings in this Agreement: (a) BUSINESS DAY: Any day on which national banking associations are required to be open for business in Chicago, Illinois, New York City and London, England. (b) DEBT AMORTIZATION CHARGES: An amount reasonably determined by Lender to be the monthly payment which would be required to amortize the portion of the principal amount of the Loan outstanding during such month over a period of twenty-five (25) years using an interest rate equal to the ten (10) year United States Treasury note annual yield as of the date Lender determines Total Interest Expense based upon published quotes for Treasury notes having ten (10) years to maturity, as published in the Wall Street Journal, subject, however, to a minimum annual constant of 9.25%. (c) DEFAULT: As defined in Section 6.1 hereof. (d) ERISA: The Employee Retirement Income Security Act of 1974, as amended from time to time and any regulations promulgated thereunder. (e) GAAP: Generally accepted accounting principles, uniformly applied. (f) JMB: JMB Realty Corporation, a Delaware corporation, and the managing general partner of Borrower. (g) LAND: The real property subject to the lien of the Mortgage, legally described on Exhibit A of the Mortgage. (h) LEASE: Any lease, whether written or oral, now or hereafter entered into by or on behalf of Borrower with respect to any portion of the Property. (i) LOAN AMOUNT: Thirty Four Million Dollars ($34,000,000.00). (j) LOAN DOCUMENTS: This Agreement, the Note, the Mortgage, the Assignment of Leases, the Indemnity Agreement, the Subordination of Management Agreement and such other documents as may now or hereafter be executed by Borrower to Lender to evidence or secure the Note, together with all modifications, amendments, substitutions and renewals thereof. (k) MALL: As defined in Recital B of this Agreement. (l) MAJOR LEASE: Any Lease covering an aggregate square footage in excess of 5,000 square feet. (m) MATERIAL ADVERSE EFFECT: A material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of Borrower taken as a whole which would materially impair Borrower's ability to repay the Loan to the extent required by the Loan Documents or otherwise perform its obligations under this Agreement or any of the other Loan Documents or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of Lender thereunder or hereunder. (n) MORTGAGE: As defined in the Preamble. (o) NET OPERATING INCOME: With respect to any fiscal period of Borrower, the gross rental and other ordinary income from the operation of the Property, less all expenses incurred in connection with the operation of the Property during such fiscal period (including, without limitation, real estate taxes, management fees and bad debt expenses), but before payment of or provision for Total Interest Expense for such fiscal period, income taxes for such period, tenant allowances, lease commissions, capital additions and depreciation, amortization, and other non-cash expenses for such fiscal period, all as determined in accordance with GAAP. (p) NOTE: As defined in the Preamble. (q) PERSON: Any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, provincial, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). (r) PROPERTY: The Land which is legally described on Exhibit A attached hereto together with all improvements thereon and all rights appurtenant thereto. (s) TOTAL DEBT SERVICE: For any fiscal period of Borrower, the sum (without double-counting) of (i) Total Interest Expense for such period, plus (ii) Debt Amortization Charges of Borrower. (t) TOTAL INTEREST EXPENSE: For any fiscal period of Borrower, the aggregate amount of interest required in accordance with GAAP to be paid or accrued by Borrower during such period under the Note. (u) YEAR 2000 PROBLEM: Any significant risk that computer hardware, software or equipment containing embedded microchips essential to the business or operations of Borrower will not, in the case of dates or time periods occurring after December 31, 1999, function at least as reliably and effectively as in the case of time periods occurring before January 1, 2000, including the making of accurate Leap Year calculations. ARTICLE 2 --------- THE LOAN -------- 2.1 AGREEMENT TO BORROW AND LEND; NOTE. Borrower agrees to borrow from Lender, and Lender agrees to lend to Borrower, Thirty Four Million Dollars ($34,000,000) on the terms of and subject to the conditions of this Agreement and the other Loan Documents. 2.2 PRINCIPAL AND INTEREST; EXTENSION OPTION. Payments of principal and interest shall be due and payable to Lender as described in the Note. The entire principal balance of the Note and all accrued and unpaid interest thereon shall be due, if not sooner paid, on November 24, 1999 (the "Maturity Date"). Borrower shall have the option to extend the Maturity Date to May 24, 2000, provided that (i) Borrower shall notify Lender in writing (the "Extension Notice") of its election to extend the Maturity Date not less than thirty (30) days prior to the original Maturity Date; (ii) Borrower shall deliver to Lender, with the Extension Notice, a non-refundable extension fee in the amount of $34,000; (iii) on the date Borrower notifies Lender of its intent to extend the Maturity Date and on the original Maturity Date, there shall be no Default or any event or circumstance which, with the giving of notice or passage of time, would constitute a Default under the Loan Agreement or any other Loan Document; (iv) on the date Borrower notifies Lender of its intent to extend the Maturity Date and on the original Maturity Date, there shall have been no Material Adverse Effect; (v) on the date Borrower notifies Lender of its intent to extend the original Maturity Date, Borrower shall deliver to Lender annual projections for the following year prepared by Borrower of operating expenses, cash flows, capital expenditures, tenant improvements and other income expenses of Borrower relating to the Property in form and substance reasonably acceptable to Lender; and (vi) Borrower shall deliver a certification from an authorized officer of Borrower to Lender, simultaneously with the delivery of the Extension Notice, stating that the ratio of Net Operating Income (estimated by Borrower and approved by Lender in its reasonable discretion based upon all executed Leases at the Property) for the twelve-month period following the original Maturity Date to estimated Total Debt Service for the same period shall be 1.85 to 1.00 or greater (the "Income Ratio"), which certification shall include Borrower's calculation of estimated Net Operating Income and estimated Total Debt Service and a current copy of a certified rent roll for the Property. Notwithstanding the foregoing, in the event that the Property does not generate the foregoing Income Ratio at the time the extension is requested and at the original Maturity Date, then Borrower may pay down the outstanding principal balance of the Loan on or before the original Maturity Date in order to achieve such ratio and qualify for the extension of the Maturity Date. Borrower shall not be permitted to prepay all or any portion of the Note except as provided in the Note. 2.3 LOAN FEE. In consideration of Lender's agreement to make the Loan, as provided in paragraph 2.1 hereof, Borrower shall pay to Lender a non-refundable fee in the amount of $68,000 as a condition precedent to funding the proceeds of the Loan. 2.4 CONDITIONS PRECEDENT. The loan proceeds shall be disbursed by Lender to Borrower only upon satisfaction of the following conditions precedent, as determined by Lender in its sole discretion: (a) Delivery by Borrower to Lender of the original executed Note, as described in the Recitals. (b) Delivery to Lender of a fully executed copy of this Agreement and the other Loan Documents. (c) Delivery to Lender of the Mortgage. (d) Delivery to Lender of a pro-forma ALTA-1992 loan title insurance policy for the Property (the "Loan Policy"), which Loan Policy shall (i) insure that the Mortgage creates a valid perfected first lien against title to the Property to the extent of the stated amount of the Note, (ii) provide such endorsements as Lender may reasonably request and as are available in the jurisdiction where the Property is located, and (iii) raise only such exceptions to title on the Property as Lender may approve. (e) Delivery to Lender of a comprehensive phase I environmental report, in form and substance acceptable to Lender and prepared by Versar, Inc. (f) Delivery to Lender of an appraisal satisfactory to Lender prepared by an appraiser who is a member of the American Institute of Real Estate Appraisers and who is approved by Lender. The appraisal must show an appraised value of the Property, such that the ratio of the appraised value of the Property to the principal amount of the Loan shall be no more than fifty-five percent (55%) at stabilization. (g) Delivery to Lender of an ALTA Survey reasonably satisfactory to Lender prepared by BOSWELL Engineering. (h) Delivery to Lender of copies of all existing contracts providing for the management, operation or leasing of the Property or any improvements thereon, including, without limitation, that certain Property Management Agreement (the "Management Agreement") entered into between Borrower and Urban Retail Properties Co. ("Urban"), together with the Subordination of Management Agreement. (i) Delivery to Lender of tenant estoppel letters or operating agreement estoppel letters, as the case may be, and subordination, non-disturbance and attornment agreements ("SNDA"), in form and substance reasonably satisfactory to Lender, from Major Tenants at the Property occupying at least fifty percent (50%) in the aggregate of the gross leasable area of the Property; provided, however, that although no SNDA shall be delivered by Bloomingdale's Real Estate, Inc., as it is not a tenant under a Lease, the gross leasable area of the Bloomingdales store shall be included in determining whether or not the fifty percent (50%) threshold has been met. (j) Payment to Lender of (i) the loan fee described above, which fee shall be due and payable upon delivery of this Agreement by Borrower to Lender, and (ii) the expenses described in paragraph 9.2 hereof. (k) Receipt and approval by Lender of all opinion letters, authorization and other due diligence items previously requested by Lender with respect to the Property. (l) Receipt and approval by Lender of certificates of insurance on the Property, as required by the Mortgage. (m) Delivery to and approval by Lender of Borrower's annual projections for calendar years 1998 and 1999 prepared by Borrower of operating expenses, cash flows, capital expenditures, tenant improvements and other income expenses of Borrower relating to the Property. (n) Delivery to and approval by Lender of a certified rent roll for the Property. (o) Delivery to Lender of all Leases requested by Lender, which Leases shall be satisfactory to Lender in its reasonable discretion. (p) Delivery to and approval by Lender of such other papers and documents regarding Borrower or the Property as Lender may reasonably require. ARTICLE 3 --------- REPRESENTATIONS, WARRANTIES AND COVENANTS ----------------------------------------- 3.1 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender as of the date hereof: (a) Borrower has good and insurable fee simple title to the Land and is the owner of the Property, subject only to liens and encumbrances described in the Loan Policy, rights of existing tenants in possession and such other liens, encumbrances and exceptions as may be reasonably approved or permitted by Lender. (b) Borrower is duly organized and validly existing under the laws of the State of Illinois. Borrower has full power and authority to conduct its business as presently conducted, to enter into the Loan Documents and to perform all of its duties and obligations thereunder. Such execution and performance have been duly authorized by all necessary corporate, shareholder, member or partnership approval. The ownership and operation of the Property and the operation of Borrower's partnership in accordance with Borrower's partnership agreement, is the sole business of Borrower. (c) This Agreement, the Mortgage, the Note, the other Loan Documents and any other documents and instruments required to be executed and delivered by Borrower in connection with the Loan, when executed and delivered, will constitute the duly authorized, valid and legally binding obligations of the party required to execute the same and will be enforce- able strictly in accordance with their respective terms (except to the extent that enforceability may be affected or limited by equitable remedies, applicable bankruptcy, insolvency, fraudulent conveyance and other similar debtor relief laws affecting the enforcement of creditors' rights generally). No basis presently exists for any claim by Borrower against Lender under this Agreement, the Note, the Mortgage, the other Loan Documents or with respect to the Loan and to the actual knowledge of Borrower, enforcement of the Mortgage and the Loan Documents in accordance with their respective terms is subject to no defenses of any kind. (d) The execution, delivery and performance of this Agreement, the Mortgage, the Note, the other Loan Documents and any other documents or instruments to be executed and delivered by Borrower pursuant to or in connection with this Loan will not, in any material respect: (i) violate any provisions of law or any applicable regulation, order, writ, injunction or decree of any court or governmental authority, or (ii) conflict with, be inconsistent with, or result in any breach or default of any of the terms, covenants, conditions or provisions of any indenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind to which Borrower is a party or by which Borrower may be bound. To the actual knowledge of Borrower, Borrower is not in default (without regard to grace or cure periods) under any contract or agreement to which it is a party, the effect of which default would materially and adversely affect the performance by Borrower of its obligations pursuant to and as contemplated by the terms and provisions of the Mortgage and the other Loan Documents. (e) To the actual knowledge of Borrower, no agreement, document, instrument, restriction, litigation or proceeding (or, to Borrower's actual knowledge, threatened litigation or proceeding or basis therefor) exists which could adversely affect the validity or priority of the liens and security interests granted Lender hereunder or under the Loan Documents or which could materially and adversely affect the ability of Borrower to perform its obligations under the Loan Documents. (f) To the actual knowledge of Borrower, the Property does not violate or conflict with, in any material respects, any applicable law, statute, ordinance, rule, regulation or order of any kind, including, with- out limitation, environmental laws, zoning, building, land use, noise abatement, occupational health and safety or other laws, any building permit or any condition, grant, easement, covenant, condition or restriction, whether recorded or not, except to the extent that such violation would not constitute a Material Adverse Effect. (g) To the actual knowledge of Borrower, except as disclosed to Lender in that certain Environmental Site Assessment Report dated October 9, 1998, prepared by Versar, Inc. (the "Report") with respect to the Property delivered to Lender, there are no facilities on the Property which are subject to reporting under Section 312 of the Federal Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section 11022), and federal regulations promulgated thereunder and the Premises do not contain any underground storage tanks. (h) As of the respective dates of certification or preparation, all historical financial statements submitted by Borrower to Lender in connection with this Loan are true and correct in all material respects and fairly present the cash flows of the entities or property which are their subjects. (i) As of the respective dates of certification or preparation, all financial statements, budgets, schedules, opinions, certificates, statements, applications, rent rolls, affidavits, agreements, contracts, and other materials submitted to Lender in connection with or in furtherance of the Loan by Borrower or any of Borrower's agents or contractors fully and fairly, in all material respects, state the matters with which they purport to deal. (j) Borrower has timely filed all federal, state and other governmental tax and similar returns which it is required by law to file with respect to Borrower and/or the Property and the operation and business thereof, and all taxes and other sums which are shown to be payable under such returns have been fully paid or, if Borrower is contesting or disputing payment thereof, Borrower had timely filed all extensions, protests, objections and other documentation necessary to contest or dispute such taxes before penalties are assessed thereto. (k) To the actual knowledge of Borrower, Borrower now possesses and holds all necessary and material licenses, franchises, governmental permits, certificates, consents and other approvals required to conduct and operate the business of the Property as presently conducted thereon except to the extent such violation would not constitute a Material Adverse Effect. (l) Except as disclosed in writing to Lender, or as may hereafter be disclosed to Lender in the engineering reports, if any, to be delivered to Lender, any and all material improvements, fixtures, equipment and facilities on the Property are in good operating condition and repair and the Property is free from material structural defects and the parking areas have adequate drainage. (m) Borrower has not incurred any material accumulated funding deficiency within the meaning of ERISA or any material liability to the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto, in connection with any employee benefit plan established or maintained by Borrower; the execution and delivery by Borrower of this Agreement, the Note and the other Loan Documents will not involve any pro- hibited transaction within the meaning of ERISA or Section 4975 of the International Revenue Code of 1986, as amended. (n) Borrower has reviewed, or will expeditiously review, its operations with a view to assessing whether its business will be vulnerable to a Year 2000 Problem or will be vulnerable to the effects of a Year 2000 Problem suffered by any of Borrower's major commercial counter-parties. Borrower shall take all commercially reasonable actions necessary to assure that its computer-based and other systems are able to effectively process data, including dates before, on and after January 1, 2000, without experiencing any Year 2000 Problem that could cause a Material Adverse Effect. At the written request of Lender, Borrower will provide Lender with assurances and substantiations (including, but not limited to, the results of internal or external audit reports prepared in the ordinary course of business) reasonably acceptable to Lender as to the capability of Borrower to conduct its business and operations before, on and after January 1, 2000 without experiencing a Year 2000 Problem causing a Material Adverse Effect. Borrower represents and warrants that it has a reasonable basis to believe that no Year 2000 Problem will cause a Material Adverse Effect. (o) Borrower has removed, or has caused the removal of, that certain 55-gallon drum containing waste oil, previously located on the Property. Such removal was conducted in a commercially reasonable manner in compliance with all laws, ordinances and regulations and no leakage or spillage occurred on or about the Property. All representations and warranties contained in this Agreement or any of the other Loan Documents shall survive the execution and delivery of this Agreement for as long as any portion of the Loan remains outstanding. 3.2 COVENANTS. To induce Lender to make the Loan, Borrower hereby covenants to Lender, for as long as any portion of the Loan shall be outstanding, as follows: (a) From and after the date hereof, Borrower shall not engage in any business other than the ownership and operation of the Property, without the prior written consent of Lender. (b) All financial statements to be submitted by Borrower to Lender in connection with the Loan will, for the periods covered thereby, be true and correct in all material respects and fairly present the respective cash flows of the entities or property which are their subjects. (c) Borrower shall hereafter continue to timely file all federal, state and other governmental tax and similar returns which it is required by law to file with respect to Borrower and/or the Property and the operation and business thereof, and Borrower shall continue to pay all taxes and other sums which are shown to be due and payable by Borrower under such returns, if any; or, if Borrower elects to contest the payment or amount of any such taxes, Borrower shall comply with the provisions of Article 4.2 of the Mortgage. (d) During the term of the Loan, Borrower shall promptly furnish to Lender a written notice of any litigation in which Borrower is named a defendant or any litigation which, if adversely determined, would constitute a Material Adverse Effect. (e) Borrower shall pay Total Interest Expense when due and punctually perform and observe all of the requirements of (i) this Agreement; (ii) the Note; (iii) the Mortgage; (iv) the Assignment of Leases; (v) the Indemnity Agreement; (vi) the Subordination of Management Agreement; and (vii) the other Loan Documents. Borrower shall have the privilege of making prepayments on the principal amount of the Note (in addition to the required payments thereunder) in accordance with the terms and conditions set forth in the Note, but not otherwise. (f) Borrower shall cause the Property to be owned, operated and maintained in compliance, in all material respects, with applicable laws, statutes, ordinances, rules, regulations and orders, including, without limitation, environmental laws, zoning, building land use, noise abatement, occupational health and safety and other laws, building permits, grants, easements, covenants and restrictions. (g) From and after the date hereof, Borrower shall maintain a ratio of Net Operating Income to Total Debt Service of 1.75:1 or more, as determined by Borrower's accountant to the reasonable satisfaction of Lender, at the end of each fiscal quarter of Borrower. (h) Without the prior written consent of Lender, Borrower shall not incur any direct or contingent debts other than the Loan; provided, however, nothing contained herein shall prohibit Borrower from acquiring goods, supplies or merchandise for the Property on normal trade credit, including equipment leases and purchase money financing on equipment and personalty, and debts in existence on the date of this Agreement as disclosed to Lender in writing. (i) From and after the date hereof, Borrower shall not create, assume, allow or permit any lien, security interest or other encumbrance to attach to all or any portion of the Property nor grant, pledge, lien or assign any interest in Borrower nor merge the assets of Borrower with any other entity, except to the extent permitted under Section 7.2 hereof. (j) From and after the date hereof, JMB shall not create, assume, allow or permit any lien or security interest to attach to all or any portion of its partnership interest in Borrower. (k) From after the date hereof, Borrower shall not allow or permit any lien or security interest to attach to all or any portion of JMB's partnership interest in Borrower. (l) Borrower shall cause any and all management fees payable with respect to the Property to be fully subordinated to the rights of Lender under the Note and the other Loan Documents pursuant to the Subordination of Management Agreement. (m) Borrower shall not change the person or entity responsible for managing the Property without the prior written consent of Lender, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Lender acknowledges and consents to Urban as manager of the Property. (n) Borrower shall keep books of account and prepare financial statements and shall cause to be furnished to Lender the following financial information, all of which shall be kept and prepared in accordance with GAAP, consistently applied, unless Borrower's certified public accountants concur in any changes therein and such changes are disclosed to Lender in writing and reasonably acceptable to Lender: (i) Promptly after becoming available, but not later than forty-five (45) days after the end of each fiscal quarter of Borrower, commencing with the fiscal quarter ending December 31, 1998, unaudited balance sheets of Borrower as of the end of such quarter, and the related statements of income and statement of cash flow for that portion of the fiscal year of Borrower ending as of the end of such quarter, certified by Borrower's chief financial officer or accounting officer as prepared in accordance with GAAP, consistently applied, and fairly presenting the financial position and operations of Borrower for such period, subject, however, to ordinary and customary year-end adjustments and the absence of footnotes; (ii) Concurrently with the delivery of the financial statement described in Subsection (i) above, a statement in reasonable detail showing the calculations used in determining compliance with the financial covenants contained herein (which calculations shall be subject to Lender's review and approval), and a certificate of Borrower's chief financial officer or accounting officer certifying to Lender that there does not exist any Default or, if such officer is aware of a Default, the nature thereof; (iii) Within forty-five (45) days after the end of each fiscal quarter of Borrower during the term of the Loan, a certification from an authorized officer of Borrower stating Borrower's calculation of the ratio of Net Operating Income to Total Debt Service, together with the financial information and calculations used by Borrower to obtain its results; (iv) As soon as available but in any event not later than forty-five (45) days after the end of calendar year 1998, and subsequent years thereafter during the term of the Loan, annual projections for the following year prepared by Borrower of operating expenses, cash flows, capital expenditures, tenant improvements and other income expenses of Borrower relating to the Property; (v) Within forty-five (45) days after the end of each fiscal quarter of Borrower during the term of the Loan, a certified rent roll for the Property; and (vi) Such other data and information (financial and otherwise) as Lender may, from time to time, reasonably request, relating to the Property, Borrower's financial condition or the results of operations. (o) Borrower shall notify Lender as promptly as possible if Borrower has actual knowledge of (i) the occurrence of any Default, (ii) any litigation, claim or proceeding against or affecting Borrower seeking the payment of money by Borrower in excess of One Million Dollars ($1,000,000), whether in the form of damages, fines, penalties or costs, (iii) any action, claim, proceeding or dispute involving Borrower and any court, board, commission, agency or instrumentality of any federal, state or local government or any agency or subdivision thereof, which if adversely resolved could be reasonably expected to result in a Material Adverse Effect, or (iv) any Material Adverse Effect. (p) Except to the extent permitted under Section 7.2 hereof, Borrower shall not fail to maintain its organizational existence, or dissolve or liquidate all or substantially all of its assets, or merge or consolidate with any other corporation or entity or purchase any stock or assets of any other person, association, partnership, corporation or entity, other than assets used in the ordinary course of business of Borrower or enter into any pool, joint venture or syndicate with any other party. (q) Borrower shall permit Lender, its agents and representatives, to inspect the Property and inspect, audit and make extracts from Borrower's records, files, books of account, computer software and disks during normal business hours and upon not less than 48 hours prior notice at the place where such books and records are customarily kept. (r) Based upon the recommendations set forth in the Report, Borrower has requested and Saks Fifth Avenue ("Saks") has relocated the majority of certain chemicals, previously located in the mechanical room in the demised premises of Saks as described in the Report, to an area of the Saks premises without floor drains; to the actual knowledge of Borrower, such relocation was conducted in a commercially reasonable manner in compliance with all laws, ordinances and regulations without leakage or spillage occurring on or about the Property. As to the remainder of such chemicals which for practical reasons shall remain in the mechanical room, Borrower has requested that Saks utilize a form of secondary containment in order to safeguard against any potential leakage, spillage or discharge of such chemicals and to ensure storage in compliance with all applicable laws, ordinances and regulations. Borrower agrees to use commercially reasonable efforts to ensure compliance by Saks with such request. ARTICLE 4 --------- THEATER LEASE/LEASING COSTS --------------------------- Lender acknowledges that Borrower is currently engaged in, or hereafter may enter into negotiations for the construction and leasing of a theater to be located in the Mall (the "Theater"). Borrower agrees that it shall not enter into a lease for the Theater without the prior written consent of Lender; provided, however, that Lender hereby approves of the terms and conditions with respect to such lease as set forth on Exhibit A attached hereto and incorporated herein. Lender's consent shall not be required with respect to such lease provided that the material terms and conditions thereof are substantially similar to those set forth in Exhibit A as determined by Lender in its reasonable discretion. Lender shall be deemed to have approved any such lease after the 10th business day after the date Lender has received such lease if no changes or objections thereto are sent to Borrower within such time period. In the event that Borrower enters into a lease for the Theater, and if Borrower is responsible for the cost of tenant's build-out (not to exceed $4,600,000) or leasing commissions (not to exceed $80,000) in connection therewith (collectively referred to as the "Leasing Costs"), Borrower shall deposit, with a title insurance company reasonably acceptable to Lender, the amount necessary or required to fully satisfy the Leasing Costs (the "Construction Escrow"), together with such other documents and materials reasonably requested by Lender, including, without limitation, (i) a project budget for construction of the Theater and (ii) plans and specifications detailing the construction of the Theater. To secure payment of the Note and performance of Borrower's obligations under the Loan Documents, Borrower agrees to execute and deliver to Lender, such documents and agreements reasonably requested by Lender, in a form reasonably approved by Borrower, pledging and granting to Lender a continuing security interest in any amounts required to be deposited with the title company pursuant to this Section, including without limitation, a Deposit, Pledge and Security Agreement, in a form reasonably approved by Borrower, together with any other documents or instruments reasonably requested by Lender to perfect a continuing security interest in such monies. Amounts held in the Construction Escrow shall be disbursed pursuant to the terms, and subject to the conditions of, a construction escrow agreement in form and substance reasonably acceptable to Lender and Borrower. ARTICLE 5 --------- INTENTIONALLY DELETED --------------------- ARTICLE 6 --------- DEFAULTS; REMEDIES ------------------ 6.1 DEFAULTS. If one or more of the following events (herein called "Defaults") shall occur and be continuing: (a) If any default is made in the due and punctual payment of principal due on the Maturity Date (as such date may be extended pursuant the extension option set forth in Section 2.2) or if any default is made in the due and punctual payment of interest within five (5) business days after the date such payment is due under the Note; (b) Except as otherwise provided under this Paragraph 6.1, if a default shall exist and be continuing in the performance or observance of any other covenant or agreement of Borrower under the Note, the Mortgage, this Agreement or any other document or instrument regulating, evidencing or securing the Loan, including, but not limited to, any of the Loan Documents, which default continues for a period of fifteen (15) business days after written notice thereof is given to Borrower; provided that if Borrower shall commence to cure such default and thereafter diligently pursue such cure, and such default does not have a Material Adverse Effect, then Borrower shall have up to thirty (30) days to cure such default; (c) The occurrence of a Prohibited Transfer (as defined in the Mortgage); (d) If any representation or warranty contained herein or in any other Loan Document or if any of the information contained in any documentation provided to Lender by Borrower in conjunction with the Loan shall not be true and accurate in all material respects as of the date made; (e) If: (i) Borrower shall file a voluntary petition in bankruptcy or for relief under the federal Bankruptcy Act or any similar state or federal law; (ii) Borrower shall file a pleading in any proceeding admitting insolvency; (iii) Within ninety (90) days after the filing against Borrower of any involuntary proceeding under the federal Bankruptcy Act or similar state or federal law, such proceedings shall not have been vacated; (iv) All or substantially all of Borrower's assets are attached, seized, subjected to a writ or distress warrant, or are levied upon, unless such attachment, seizure, writ, warrant or levy is vacated within ninety (90) days; (v) Borrower shall make an assignment for the benefit of creditors or shall consent to the appointment of a receiver or trustee or liquidator of all or substantially all of its property, or the Property; or (vi) Any order appointing a receiver, trustee or liquidator of Borrower or all or substantially all of Borrower's property or the Property is not vacated within ninety (90) days following the entry thereof; (f) If a notice of lien, levy or assignment is filed or recorded with respect to the Property or with respect to all or any of the assets of Borrower by the United States government or any department, agency or instrumentality thereof or by any state, county, municipal or other governmental agency, or if any taxes or debts owing at any time or times hereafter to any one of them becomes a lien or encumbrance upon the Property or any other of Borrower's assets and any of the foregoing is not released, bonded or otherwise secured to Lender's reasonable satisfaction within thirty (30) days after the same becomes a lien or encumbrance; (g) The dissolution of Borrower; (h) Any Major Lease which exceeds 20,000 square feet, or Major Leases which in the aggregate exceed 20,000 square feet, shall terminate or be canceled due to the default or breach of obligations thereunder by the landlord; provided, however, that termination or cancellation due to rights of tenants set forth in their leases to terminate in the event that certain co-tenancy conditions have not been met shall not be deemed a Default hereunder; or (i) If Borrower shall enter into a lease for the Theater which has Leasing Costs, and Borrower shall fail to pay such Leasing Costs as and when required by the lease and such failure continues beyond any applicable periods of notice or cure under the lease; then Lender, at its option and without affecting the lien created by the Mortgage or any other Loan Document or the priority of said lien or any other right of Lender hereunder, may declare, without further notice, all indebtedness owing to Lender under the Loan Documents immediately due with interest thereon at the Default Rate, and Lender may immediately proceed to foreclose the Mortgage and to exercise any right provided by the Mortgage, the Note, the other Loan Documents or otherwise. ARTICLE 7 --------- ASSIGNMENTS ----------- 7.1 LENDER'S RIGHT TO ASSIGN. Lender shall have the right, at any time and from time to time during the term of the Loan, to sell, assign, transfer or convey all or any portion of its interest in the Loan, the Note, and the other Loan Documents and may sell participation interests in such rights and security therein to any bank, insurance company or other financial institution (a "Transferee") and Borrower agrees that it shall fully cooperate with Lender and such Transferee to facilitate such transfer, at Lender's sole cost and expense. In no event shall such sale increase Borrower's liability or obligations under the Loan Documents. Upon a sale of all or any portion of Lender's interest in the Loan and security therefor and assumption of such interest by a Transferee, Borrower agrees that Lender shall have no further liability with respect to the interest or interests so sold. If requested, Borrower agrees that it shall execute such documents, estoppels, confirmations and agreements, including, without limitation, a replacement note or notes in favor of Lender and any such Transferee(s), to evidence their respective rights in the Loan and the Loan Documents. 7.2 BORROWER'S RIGHT TO ASSIGN. Except as specifically permitted below, Borrower shall not have the right to sell, assign, convey or otherwise transfer all or any portion of its interests in the Loan or the Loan Documents without the prior written consent of Lender; provided, however, that the following transfers shall be permitted without Lender's consent: (i) the transfer of partnership interests in Borrower among the existing partners of Borrower, (ii) transfers of limited partnership interests in Borrower, in whole or in part, (iii) the transfer of JMB's existing general partnership interest in Borrower, in whole or in part, to any partnership, corporation or other entity that is directly or indirectly controlling, controlled by or under common control with JMB (each such entity a "JMB Affiliate"), (iv) the transfer or assignment (including, without limitation, the pledging or granting of a lien, mortgage, security interest or other encumbrance or alienation) of the ownership interests in the limited partners of Borrower, and (v) the transfer or assignment of the ownership interest in the general partnership interest in Borrower, provided that JMB or a JMB Affiliate has retained or will retain (A) the existing general partnership interest in Borrower and (B) the ability to control, directly or indirectly, the day-to-day operations and management of Borrower. In addition to the foregoing, Borrower shall be permitted a sale of the Property on one occasion to an unaffiliated bona- fide purchaser, provided that Lender, in its sole and absolute discretion, approves such bona-fide purchaser prior to such sale. ARTICLE 8 --------- INDEMNITY --------- 8.1 INDEMNITY. Borrower hereby indemnifies Lender, and its directors, officers, employees, affiliates, agents, successors and assigns (collectively, "Indemnified Persons") against, and agrees to hold each such Indemnified Person harmless from, any and all losses, claims, damages and liabilities, actually incurred (excluding speculative and consequential damages) including expenses relating to such claims, including reasonable counsel fees and expenses, incurred by such Indemnified Person arising out of any claim, litigation, investigation or proceeding (whether or not such Indemnified Person is a party thereto) relating to any transactions, services or matters that are the subject of this Agreement or the other Loan Documents; provided, however, that such indemnity shall not apply to any such losses, claims, damages, or liabilities or related expenses determined by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Indemnified Person. The agreements of Borrower in this Section 8.1 shall be in addition to any liability that Borrower may otherwise have. All amounts due under this Section 8.1 shall be payable as incurred upon written demand therefor. ARTICLE 9 --------- MISCELLANEOUS ------------- 9.1 NOTICES. Any notice, demand or other communication which any party hereto may desire or may be required to give to any other party under this Agreement or the other Loan Documents shall be in writing, and shall be deemed given (i) if and when personally delivered, (ii) upon receipt or refusal thereof if sent by Federal Express or any other nationally recognized overnight courier addressed to a party at its address set forth below, (iii) upon receipt or refusal thereof if deposited in United States registered or certified mail, postage prepaid, or (iv) upon receipt if sent by telecopy, addressed to a party at its address set forth below, or at such other place as such party may have designated to all other parties by notice in writing in accordance herewith: (a) If to Borrower: JMB Income Properties, Ltd. - XI c/o JMB Realty Corp. 900 North Michigan Avenue Suite 1900 Chicago, Illinois 60611-1582 Attention: Mr. Stephen A. Lovelette Telecopy No.: (312) 915-2310 with a copy to: Pircher Nichols & Meeks 900 North Michigan Avenue Chicago, Illinois 60611 Attention: Marc A. Benjamin, Esq. Telecopy No.: (312) 915-3348 (b) If to Lender: Dresdner Bank AG 190 South LaSalle Street Suite 2700 Chicago, Illinois 60603 Attention: James W. Blessing Telecopy No.: (312) 444-1301 with a copy to: Rudnick & Wolfe 203 North LaSalle Street Suite 1800 Chicago, Illinois 60601 Attn: John T. Cusack, Esq. Telecopy No.: (312) 236-7516 Except as otherwise specifically required herein, notice of the exercise of any right or option granted to Lender by this Agreement is not required to be given. Failure to deliver copies of notices shall not render the notice invalid. 9.2 EXPENSES. Borrower shall be liable for payment of all reasonable costs incurred by Lender in connection with making the Loan, the preparation, execution and delivery of this Agreement and the other Loan Documents, the enforcement of the Loan Documents and Lender's rights and remedies thereunder, including, without limitation, reasonable attorneys' fees and costs, consultants' fees and costs, recording fees, title insurance premiums, environmental assessment fees and appraisal fees. 9.3 APPRAISAL. Upon the occurrence and continuation of a Default, Lender may request a new or updated MAI appraisal for the Property and Borrower shall cooperate with Lender in obtaining such appraisal. Borrower shall be liable for the cost and expense of such appraisal during the term of the Loan. 9.4 ENTIRE AGREEMENT, AMENDMENTS AND WAIVERS. This Agreement and the other Loan Documents contain the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and the same may not be amended, modified or discharged, nor may any of their terms be waived, except by an instrument in writing signed by the party to be bound thereby. 9.5 FURTHER ASSURANCES. The parties hereto each agree to do, execute, acknowledge and deliver all such further acts, instruments and assurances and to take all such further action, in good faith and in a commercially reasonable manner as shall be necessary or desirable to fully carry out this Agreement and to fully consummate and effect the transaction contemplated hereby. Any consents or approvals required by or of the parties hereto shall not be unreasonably withheld or delayed. 9.6 NO THIRD PARTY BENEFITS. This Agreement is for the sole and exclusive benefit of the parties hereto and their respective permitted successors and assigns, and no third party is intended to or shall have any rights hereunder. 9.7 ASSIGNS. The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. 9.8 INTERPRETATION. (a) The headings and captions herein are inserted for convenient reference only and the same shall not limit or construe the paragraphs or sections to which they apply or otherwise affect the interpretation hereof. (b) The terms "hereby," hereof," "herein," "hereunder" and any similar terms shall refer to this Agreement, and the term "hereafter" shall mean after, and the term "heretofore" shall mean before, the date of this Agreement. (c) Words of the masculine, feminine or neuter gender shall mean and include the correlative words of other genders, and words importing the singular number shall mean and include the plural number and vice versa. (d) Words importing persons shall include firms, associations, partnerships (including limited partnerships), trusts, corporations and other legal entities, including public bodies, as well as natural persons. (e) The terms "include," "including" and similar terms shall be construed as if followed by the phrase "without being limited to." 9.9 COUNTERPARTS. This Agreement and any document or instrument executed pursuant thereto may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.10 COMPUTATION OF TIME. Whenever under the terms of this Agree- ment the time for performance of a covenant or condition falls upon a Saturday, Sunday or holiday, such time for performance shall be extended to the next Business Day. Otherwise all references herein to "days" shall mean calendar days. 9.11 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, in which the transactions contemplated herein were negotiated, the Note and other Loan Documents were executed and delivered, and where the principal offices of Lender are located. 9.12 TIME OF THE ESSENCE. Time is of the essence of this agreement. 9.13 SEVERABILITY. If any provision of this Agreement shall be judicially or administratively held invalid or unenforceable for any reason, such holding shall not be deemed to affect, alter, modify or impair in any way any other provision hereof. 9.14 SUBMISSION TO JURISDICTION; WAIVERS. Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of Illinois located in Chicago, Illinois, the courts of the United States of America for the Northern District of Illinois, and appellate courts from any thereof. (b) to the extent permitted by applicable law, consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same. (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in paragraph 9.1 hereof or at such other address of which Lender shall have been notified pursuant thereof. (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. 9.15 ACKNOWLEDGMENTS. Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) Lender has no fiduciary relationship with or fiduciary duty to Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Lender and Borrower in connection herewith or therewith is solely that of creditor and debtor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among Lender or Borrower. 9.16 WAIVERS OF JURY TRIAL. BORROWER AND LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 9.17 CONFLICTS. In the event of any conflict between the terms of this Agreement and the terms of the Mortgage, the terms of this Agreement shall control. 9.18 LIMITATION OF LIABILITY. No present or future partner of Borrower, and no advisor, trustee, director, officer, member, partner, employee, beneficiary, shareholder, participant or agent of any entity which now or hereafter holds a direct or indirect interest in a partner of Borrower, shall have any personal liability, directly or indirectly, under or in connection with this Agreement or any agreement made or entered into under or pursuant to or in connection with this Agreement, made at any time or times, heretofore or hereafter, and Lender, its successors and assigns, shall look solely to the collateral of Borrower given to Lender as security for the Loan for the payment of any claim against, or for any performance by, Borrower, and Lender hereby waives any and all such personal liability. The limitations of liability provided in this paragraph are in addition to, and not in limitation of, any limitation on liability applicable provided by law or by any other contract, agreement or instrument. [SIGNATURES FOLLOW] IN WITNESS WHEREOF, this Agreement is effective as of the day and year first above written. BORROWER: JMB INCOME PROPERTIES, LTD. - XI By: JMB Realty Corporation, Its Managing General Partner By: Name: Title: Vice President LENDER: DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By: Name: Title: By: Name: Title: JOINDER - ------- The undersigned hereby consents to, and joins in the terms and conditions of the foregoing Loan Agreement solely for the purposes of the covenants set forth in Section 3.2 (j) thereof, intending to be bound thereby as fully and with the same effect as if the undersigned had executed such instrument. JMB Realty Corporation, a Delaware corporation By: Name: Title: Vice President Dated as of November 24th 1998. EXHIBIT A --------- SUMMARY OF THEATER LEASE TERMS ------------------------------ See Attached MORTGAGE NOTE ------------- $34,000,000 Chicago, Illinois November 24, 1998 THIS MORTGAGE NOTE ("Note") is dated as of the 24th day of November, 1998, by JMB INCOME PROPERTIES, LTD. - XI, an Illinois limited partnership ("Borrower") to the order of DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, its successors and assigns ("Lender"). FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of Lender in the manner provided hereinafter, the principal sum of Thirty Four Million Dollars ($34,000,000) pursuant to the terms of this Note and that certain Loan Agreement of even date herewith (as amended or replaced from time to time, the "Loan Agreement"), between Borrower and Lender, and its respective successors and assigns with interest thereon, as follows: 1. CERTAIN DEFINITIONS. As used herein, the following terms shall have the indicated meanings: A. ADDITIONAL COST. Any Funding Cost or any other cost incurred by Lender after the date hereof as a result of (i) the introduction of, (ii) any change in, or (iii) any changed effect of, (iv) any change in the interpretation of any law, rule, regulation or other requirement imposed, interpreted, administered and/or enforced by any United States federal, state or other governmental or monetary authority which increases Lender's direct cost (such as a reserve requirement), which is, is deemed to be or is made applicable against any assets held by, or deposits or accounts in or with, or credits extended by Lender and which causes Lender to incur any cost in, or increases the effective cost to Lender of, lending to Borrower at the LIBOR Based Rate, or decreases the effective spread or yield of one and one-thirtieth of one percent (1.30%) per annum which would be made by Lender between LIBOR and the LIBOR Based Rate. B. BUSINESS DAY. Any day on which national banking associations are required to be open in Chicago, Illinois, New York City, and London, England. C. CONTRACT. Any contract for 30, 60, 90 or 180 days (as available), as elected by Borrower (or any other period expressly agreed to by Lender and Borrower), made by Lender, or available to be made by Lender, in the London, Cayman Islands or Nassau Interbank Markets to obtain the deposit with Lender of the sum required to fund a LIBOR Portion for the respective Contract Period. D. CONTRACT PAYMENT DATE. For each Contract, the date on which it matures, except that if the Contract matures on a day which is not a Business Day, with respect to a LIBOR Portion, the date shall be the next succeeding day which is a Business Day. E. CONTRACT PERIOD. The term of a Contract, which shall be 30, 60, 90 or 180 days (as available or any other available period expressly agreed to by Lender and Borrower) for which Borrower elects to be charged interest on a LIBOR Portion at the LIBOR Based Rate. No Contract Period shall extend beyond the Maturity Date. For any LIBOR Portion in respect of which Lender chooses not to accept a deposit, the Contract Period thereof shall mean the interest period for which Borrower has elected to be charged at the LIBOR Rate for a LIBOR Portion. F. CONVERSION DATE. For interest computation purposes, and as may be appropriate, the effective date on which: (i) a LIBOR Portion becomes a part or all of the Floating Rate Based Funds; or (ii) the whole or a portion of the principal balance from time to time outstanding of the Loan which is Floating Rate Based Funds becomes a part or all of a LIBOR Portion; or (iii) an expiring LIBOR Portion is converted into a part or all of another LIBOR Portion. G. DEBT AMORTIZATION CHARGES. As defined in the Loan Agreement. H. DEFAULT. As defined in Article 6 of the Loan Agreement. I. DEFAULT RATE. Four percent (4%) per annum plus the Prime Rate with respect to Floating Rate Based Funds and four percent (4%) per annum plus the LIBOR Based Rate with respect to any LIBOR Portion. J. FLOATING RATE BASED FUNDS. At any time, the portion of the outstanding principal balance of the Loan on which interest is being charged at the Floating Interest Rate. K. FLOATING INTEREST RATE. The Prime Rate from time to time in effect, each computed based on the actual number of days elapsed and a year of three hundred sixty (360) days. L. FUNDING COSTS. Any costs, expenses, penalties and/or charges incurred by Lender arising directly from or relating directly to, as the case may be, the early termination, breakage or other disposition of a Contract because of payment or prepayment of a LIBOR Portion prior to the Contract Payment Date or termination of such LIBOR Rate Portion, all as determined by Lender in good faith. M. INDEBTEDNESS. All of Borrower's liabilities, obligations and indebtedness to Lender of any kind and nature, including, without limitation, all principal, interest, fees, charges and other expenses due hereunder or under any of the other Loan Documents or any other agreement. N. INTERBANK MARKET. Any interbank market, whether located in London, England, or the Cayman Islands, or Nassau, the Bahamas, or in any other location satisfactory to Lender, where Lender, or any branch, subsidiary, parent or affiliate of Lender, may purchase or sell deposits of U.S. dollars to other banks for fixed periods. O. LIBOR. For each Contract, the interest rate quoted by Lender on such Contract, which shall be the rate of interest per annum (computed on basis of a three hundred sixty (360)-day year) at which a deposit in U.S. dollars in the sum equal to the corresponding LIBOR Portion is offered to Lender in the Interbank Market for the Contract Period at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of a Contract Period. The use of such offered interest rate to define the LIBOR Based Rate shall not obligate Lender to accept a deposit in order to charge interest on a LIBOR Portion at the LIBOR Based Rate once Borrower elects to be charged interest at such rate on a portion of the principal balance of the Loan (a LIBOR Portion) for a definite period (the Contract Period). P. LIBOR BASED RATE. For any given LIBOR Portion for its corresponding Contract Period, the sum of (1) the quotient of (a) LIBOR divided by (b) one minus the Reserve Requirement, if required by present or future regulations imposed by any United States federal, state or other governmental monetary authority (expressed as a decimal and rounded upward, if necessary, to the next higher 1/100 of 1%), plus (2) 1.30% per annum computed on the actual number of days elapsed and a year computed on the basis of a three hundred sixty (360)-day year. Q. LIBOR PORTION. Each portion (if there is more than one Contract in existence) of the principal balance from time to time outstanding on which, as a result of Borrower's election, Borrower is charged interest at the corresponding LIBOR Based Rate. No LIBOR Portion shall be less than One Million Dollars ($1,000,000). R. LOAN. A Thirty Four Million Dollar ($34,000,000) loan made by Lender to Borrower as evidenced, in part, by this Note and secured by the Loan Documents hereinafter described. S. LOAN DOCUMENTS. As defined in the Loan Agreement. T. MATURITY DATE. November 24, 1999, or such earlier date as the entire outstanding principal balance of this Note and accrued and unpaid interest thereon, and any other sums which are due and payable pursuant to the terms and provisions of this Note are due and payable by reason of the acceleration of the maturity of this Note; subject, however, to Borrower's right to extend the Maturity Date to May 24, 2000, as provided in the Loan Agreement. U. MORTGAGE. As defined in the Loan Agreement. V. PAYMENT DATE. The first day of December, 1998 and the first day of each month thereafter during the term hereof. W. PRIME RATE. The average of the prime rates or reference rates announced or published by Citibank and The Chase Manhattan Bank, N.A. The "Prime Rate" is a base reference rate of interest adopted by Lender as a general benchmark from which the Lender determines the floating interest rates chargeable on various loans to borrowers with varying degrees of creditworthiness and Borrower acknowledges and agrees that Lender has made no representations whatsoever that the "Prime Rate" is the interest rate actually offered by Lender to borrowers of any particular creditworthiness. X. REGULATION D. Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect, and any successor or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. Y. RESERVE REQUIREMENT. With respect to any Contract Period, the daily average during each such respective period of the maximum aggregate reserve requirement (including, but not limited to, all basic supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements during such period) which is imposed under Regulation D on nonpersonal time deposits of One Hundred Thousand Dollars ($100,000.00) or more with a maturity equal to the particular Contract Period. 2. PRINCIPAL AND INTEREST; ADDITIONAL COSTS. Principal and interest thereon shall be due and payable by Borrower as follows: A. INTEREST. Interest on each LIBOR Portion shall accrue at the LIBOR Based Rate and shall be computed and payable monthly in arrears on the first day of each calendar month during the term hereof. Interest on each Floating Rate Based Funds Portion shall accrue at the Floating Interest Rate and shall be computed and payable monthly in arrears on the first day of each calendar month during the term hereof. Notwithstanding anything in this Note or the Mortgage to the contrary, interest due on any LIBOR Portion on the date of any termination, breakage or other disposition of its covering Contract must and shall be paid to Lender and received by Lender in good, cleared funds, at the place designated by Lender, by 12:00 noon eastern time on the date such interest is due from Lender by reason of the termination, breakage or other disposition in accordance with the foregoing, time being of the essence. With respect to any portion of the Loan which is not bearing interest at the LIBOR Based Rate, interest shall accrue on the amount of the principal balance outstanding hereunder from time to time at the Floating Interest Rate. Any change in the Floating Interest Rate shall become effective on the date of each change in the Prime Rate. Such interest shall be paid monthly in arrears on the first day of each calendar month of the term hereof. Interest shall accrue on any LIBOR Portion of the Loan at the LIBOR Based Rate. Each determination of LIBOR by Lender shall be conclusive and binding for all purposes hereof in the absence of manifest error. From and after the occurrence of a Default or the Maturity Date of this Note, whether by acceleration or otherwise, interest shall accrue on the amount of the principal balance outstanding hereunder at the Default Rate and shall be payable upon demand. B. PRINCIPAL. The entire outstanding principal balance of this Note and any accrued and unpaid interest thereon shall be due and payable (if not sooner paid) on the Maturity Date, as such date may be extended pursuant to the terms and subject to the conditions set forth in the Loan Agreement (or on the first Business Day thereafter if such day is not a Business Day) unless due and payable earlier by reason of the acceleration of the maturity of this Note. C. ADDITIONAL COSTS. Borrower agrees to pay to Lender any Additional Costs incurred by Lender, from time to time and on demand and all such Additional Costs shall be considered additional interest on the principal sum outstanding under this Note. Any notice of Additional Costs to be paid shall include a statement, in reasonable detail, as to the basis upon which said sum(s) have been computed. Any such notices of Additional Cost to be paid and any computations of such costs given or submitted by Lender to Borrower shall be presumptively correct and presumptive evidence of Borrower's obligation to pay such costs. 3. FLOATING INTEREST RATE OPTIONS. Unless a LIBOR option is designated by Borrower on all or portions of the Loan as provided in Section 4 below, the entire outstanding principal balance of the Loan shall accrue interest at the Floating Interest Rate. 4. LIBOR OPTIONS. Provided that no Default has occurred and is continuing under this Note or any other Loan Document, Borrower shall have the option to cause the entire outstanding principal balance of the Loan or any portion thereof subject to the provisions of this Agreement, to be covered by one or more LIBOR Portions. Borrower shall make such election, subject to: (i) Lender's receiving written notice of the election not less than three (3) Business Days prior to the date requested by Borrower for commencement of the Contract Period of the Contract required to cover the LIBOR Portion; (ii) the availability to Lender of a Contract to cover such LIBOR Portion effective on the requested date of commencement for the Contract Period; and (iii) Borrower's paying any Additional Cost incurred by Lender from time to time which is attributable to such LIBOR Portion. If Borrower shall fail to elect a new Contract on or before any Contract Payment Date, then so long as no Default has occurred and is continuing, on the Contract Payment Date, Lender shall convert any expiring Contract to a new LIBOR Portion having the same Contract Period as the expiring Contract. However, no more than five (5) LIBOR Portions of the Loan may be outstanding at any one time. 5. PREPAYMENT. A. PREPAYMENTS. The portion of this Note comprised of Floating Rate Based Funds may be prepaid, either in whole or in part, at any time, upon three (3) Business Days' prior notice to Lender, provided, however, that each prepayment shall be accompanied by a payment of all interest accrued at the Floating Interest Rate as of that date on the principal balance outstanding hereunder and provided further that any such prepayment made within six (6) months after the effective date of this Note shall be accompanied by payment of a premium equal to .10% of the principal balance outstanding hereunder ("Prepayment Premium"). The portion of this Note comprised of a LIBOR Portion may be prepaid only on the Contract Payment Date applicable thereto, provided that if any such LIBOR portions are prepaid during the first six (6) months after the effective date of this Note, Borrower shall also remit to Lender an amount equal to the Prepayment Premium. After the sixth (6th) month anniversary of this Note, no Prepayment Premium shall be due or payable. If Borrower shall now or hereafter have a right to prepay such LIBOR Portion by operation of law or otherwise, or if Borrower shall elect to prepay a LIBOR Portion on a date other than a Contract Payment Date, such prepayment must be accompanied by a simultaneous payment of any Additional Cost, Funding Costs and accrued interest on any covering Contract which Lender may incur, attributable to any such LIBOR Portion which is being prepaid in whole or in part. For purposes hereof, upon acceleration of this Note, the portion of this Note comprised of a LIBOR Portion having a Contract Payment Date subsequent to the date of acceleration shall nevertheless be due and payable, payment therefor must be accompanied by payment of any such Additional Cost, Funding Costs and accrued interest on any covering Contract attributable to any such LIBOR Portion and any foreclosure decree entered with respect to the Loan shall include such Additional Cost, Funding Costs and accrued interest. B. APPLICATION OF PREPAYMENTS. Any prepayments of the Loan shall be applied first to any Additional Cost then due and owing to Lender by Borrower, second to any other expenses due Lender under the Loan Documents, third to interest accrued at the Floating Interest Rate, fourth, to interest accrued at the LIBOR Rate and last to a LIBOR Portion; provided, however, that mandatory prepayments shall not be applied by Lender to a LIBOR Portion until the Contract Payment Date. All payments shall be applied to this Note. All payments made on account of the indebtedness evidenced by this Note shall be made in currency and coin of the United States of America which shall be legal tender for public and private debts at the time of payment. Said payments and prepayments are to be made by wire transfer of Federal funds as follows: Wire transfer to Dresdner Bank AG, New York Branch and Grand Cayman Branch 75 Wall Street New York, New York 10005 ABA No.: 026-008-303 Credit Account No.: 112537 Reference: JMB Income Properties, Ltd. - XI (include type of payment) Attn: Mr. Gary Jermansky 6. DEFAULT. The payment of this Note is secured by, among other things, the Mortgage and the other Loan Documents, which are held by Lender. By this reference, the Loan Agreement is incorporated by reference as if fully set forth herein. It is agreed that upon occurrence and during the continuance of any Default, then, at any time thereafter, at the election of the holder or holders hereof and without additional notice to Borrower, the principal sum remaining unpaid hereon, together with accrued interest thereon, shall become at once due and payable at the place of payment as aforesaid, and Lender may proceed to foreclose the Mortgage, to exercise any other rights and remedies available to Lender under the Mortgage and the other Loan Documents, and to exercise any other rights and remedies against Borrower or with respect to this Note which Lender or the holder hereof may have at law, in equity or otherwise. 7. WAIVER. The remedies of Lender, as provided herein or in the Mortgage or any other Loan Document, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of Lender, and may be exercised as often as occasion therefor shall arise. Failure of Lender, for any period of time or on more than one occasion, to exercise the option to accelerate the Maturity Date of this Note shall not constitute a waiver of the right to exercise the same at any time thereafter or in the event of any subsequent Default unless such prior Default giving rise to such right to accelerate the Maturity Date of this Note has theretofore been cured. No act of omission or commission of Lender, including specifically any failure to exercise any right, remedy or recourse, shall be deemed to be a waiver or release of the same; any such waiver or release is to be effected only through a written document executed by Lender and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as a waiver or release of any subsequent event or as a bar to any subsequent exercise of Lender's rights or remedies hereunder. Except as otherwise specifically required herein, notice of the exercise of any right or remedy granted to Lender by this Note is not required to be given. 8. ENFORCEMENT COSTS. If (i) this Note or any Loan Document is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; (ii) an attorney is retained to represent Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors' rights and involving a claim under this Note or any of the Loan Documents; (iii) an attorney is retained to protect or enforce the lien of the Mortgage or any of the Loan Documents; or (iv) an attorney is retained after the occurrence of a Default to represent Lender in any other proceedings of the Borrower whatsoever in connection with this Note, the Mortgage, any of the Loan Documents or any property subject thereto, then Borrower shall pay to Lender all reasonable attorneys' fees, costs and expenses incurred in connection therewith, in addition to all other amounts due hereunder. From and after the occurrence and during the continuance of a Default, Lender is expressly authorized to apply payments made under this Note as Lender may elect against any or all amounts, or portions thereof, then due and payable hereunder or under the Mortgage or any other Loan Document, the outstanding principal balance due under this Note, the unpaid and accrued interest due under this Note, or any combination of the foregoing. 9. WAIVER. Borrower and any and all others who are now or may become liable for all or part of the obligations of Borrower, under this Note (all of the foregoing being referred to collectively herein as "Obligors") jointly and severally: (i) to the fullest extent allowed by law, waive and renounce any and all redemption and exemption rights and the benefit of all valuation and appraisement privileges against the indebtedness evidenced by this Note or by any extension or renewal hereof; (ii) to the fullest extent allowed by law, waive presentment and demand for payment, notices of nonpayment and of dishonor, protest of dishonor, and notice of protest; (iii) to the fullest extent allowed by law, waive all notices in connection with the delivery and acceptance hereof and all other notices in connection with the performance, default or enforcement of the payment hereof or hereunder (except as otherwise expressly provided herein or in the Loan Agreement); (iv) to the fullest extent allowed by law, waive any and all lack of diligence and delays in the enforcement of the payment hereof; (v) agree that the liability of each of the Obligors shall be without regard to the liability of any other person or entity for the payment hereof, and shall not be affected in any manner by any indulgence or forbearance granted or consented to by Lender to any of them with respect hereto; (vi) consent to any and all extensions of time, renewals, waivers or modifications that may be granted by Lender with respect to the payment or other provisions hereof, and to the release of any security at any time given for the payment hereof, or any part thereof, with or without substitution, and to the release of any person or entity liable for the payment hereof; and (vii) consent to the addition of any and all other makers, indorsers, guarantors and other Obligors for the payment hereof, and to the acceptance of any and all other security for the payment hereof, and agree that the addition of any such Obligors or security shall not affect the liability of any of the Obligors for the payment hereof. Time is of the essence hereof. 10. GOVERNING LAW AND OTHER AGREEMENTS. Borrower agrees that: (i) this instrument and the rights and obligations of all parties hereunder shall be governed by and construed under the substantive laws of the State of Illinois, without reference to the conflicts of laws principles of such state; (ii) the obligation evidenced by this Note is an exempted transaction under the Truth In Lending Act, 15 U.S.C. Section 1601 et seq.; and (iii) the proceeds of the indebtedness evidenced by this Note will not be used for the purchase of registered equity securities within the purview of Regulation "U" issued by the Board of Governors of the Federal Reserve System. 11. INTERPRETATION. The parties hereto intend and believe that each provision in this Note comports with all applicable law. However, if any provision in this Note is found by a court of law to be in violation of any applicable law, and if such court should declare such provision of this Note to be unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such provision shall be given full force and effect to the fullest possible extent that it is legal, valid and enforceable, that the remainder of this Note shall be construed as if such unlawful, void or unenforceable provision were not contained therein, and that the rights, obligations and interests of Borrower and the holder hereof under the remainder of this Note shall continue in full force and effect; provided, however, that if any provision of this Note which is found to be in violation of any applicable law concerns the imposition of interest hereunder, the rights, obligations and interests of Borrower and Lender with respect to the imposition of interest hereunder shall be governed and controlled by the provisions of the following paragraph. 12. EXCESS INTEREST. It being the intention of Lender and Borrower to comply with the laws of the State of Illinois with regard to the rate of interest charged hereunder, it is agreed that, notwithstanding any provision to the contrary in this Note, the Mortgage, or any of the other Loan Documents, no such provision, including, without limitation, any provision of this Note providing for the payment of interest or other charges and any provision of the Loan Documents providing for the payment of interest, fees, costs or other charges, shall require the payment or permit the collection of any amount ("Excess Interest") in excess of the maximum amount of interest permitted by law to be charged for the use or detention, or the forbearance in the collection, of all or any portion of the indebtedness evidenced by this Note. If any Excess Interest is provided for, or is adjudicated to be provided for, in this Note, the Mortgage, or any of the other Loan Documents, then in such event: (a) the provisions of this Section shall govern and control; (b) neither Borrower nor any of the other Obligors shall be obligated to pay any Excess Interest; (c) any Excess Interest that Lender may have received hereunder at the option of Lender, shall be (i) applied as a credit against the then outstanding principal balance due under this Note, accrued and unpaid interest thereon not to exceed the maximum amount permitted by law, or both, (ii) refunded to the payor thereof, or (iii) any combination of the foregoing; (d) the applicable interest rate or rates shall be automatically subject to reduction to the maximum lawful rate allowed to be contracted for in writing under the applicable usury laws of the aforesaid State, and this Note, the Mortgage, and the other Loan Documents shall be deemed to have been, and shall be, reformed and modified to reflect such reduction in such interest rate or rates; and (e) neither Borrower nor any of the other Obligors shall have any action or remedy against Lender for any damages whatsoever or any defense to enforcement of the Note, Mortgage or any other Loan Document arising out of the payment or collection of any Excess Interest. 13. SUCCESSORS AND ASSIGNS. Upon any endorsement, assignment or other transfer of this Note by Lender or by operation of law, the term "Lender," as used herein, shall mean such endorsee, assignee or other transferee or successor to Lender then becoming the holder of this Note. This Note shall inure to the benefit of Lender and its successors and assigns and shall be binding upon the undersigned and its successors and assigns. The terms "Borrower" and "Obligors," as used herein, shall include the respective successors, assigns, legal and personal representatives, executors, administrators, devisees, legatees and heirs of Borrower and any other Obligors. 14. NOTICES. Any notice, demand or other communication which any party hereto may desire or may be required to give to any other party hereto shall be given in the manner provided in the Loan Agreement. 15. LIMITATION OF LIABILITY. No present or future partner of Borrower, and no advisor, trustee, director, officer, member, partner, employee, beneficiary, shareholder, participant or agent of any entity which now or hereafter holds a direct or indirect interest in a partner of Borrower, shall have any personal liability, directly or indirectly, under or in connection with this Note, or any agreement made or entered into under or pursuant to or in connection with this Note, made at any time or times, heretofore or hereafter, and Lender, its successors and assigns, shall look solely to the collateral of Borrower given to Lender as security for the Loan for the payment of any claim against, or for any performance by, Borrower, and Lender hereby waives any and all such personal liability. The limitations of liability provided in this paragraph are in addition to, and not in limitation of, any limitation on liability applicable provided by law or by any other contract, agreement or instrument. IN WITNESS WHEREOF, Borrower has executed this Note as of the day and year first above written. BORROWER: JMB INCOME PROPERTIES, LTD. - XI By: JMB Realty Corporation, its Managing General Partner By: Name: Title: Vice President EX-21 3 EXHIBIT 21 LIST OF SUBSIDIARIES The Partnership was a general partner in JMB/San Jose Associates, an Illinois general partnership which held title to Park Center Financial Plaza prior to its sale in February 1998. The Partnership was a general partner in Royal Executive Park-II, a New York general partnership which held title to Royal Executive Park II prior to its sale in December 1997. Reference is made to the Notes to Financial Statements filed with this annual report for a summary description of the terms of such partnership agreements. The Partnership's interest in the foregoing joint venture partnerships, and the results of their operations are included in the financial statements of the Partnership filed with this annual report. EX-24 4 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers of JMB Realty Corporation, the managing general partner of JMB INCOME PROPERTIES, LTD. - XI, do hereby nominate, constitute and appoint GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and agents of the undersigned with full power of authority to sign in the name and on behalf of the undersigned officers a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1998, and any and all amendments thereto, hereby ratifying and confirming all that said attorneys and agents and any of them may do by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney the 29th day of January, 1999. H. RIGEL BARBER - ----------------------- H. Rigel Barber Chief Executive Officer GLENN E. EMIG - ----------------------- Glenn E. Emig Chief Operating Officer The undersigned hereby acknowledge and accept such power of authority to sign, in the name and on behalf of the above named officers, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1998, and any and all amendments thereto, the 29th day of January, 1999. GARY NICKELE ----------------------- Gary Nickele GAILEN J. HULL ----------------------- Gailen J. Hull DENNIS M. QUINN ----------------------- Dennis M. Quinn EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers of JMB Realty Corporation, the managing general partner of JMB INCOME PROPERTIES, LTD. - XI, do hereby nominate, constitute and appoint GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and agents of the undersigned with full power of authority to sign in the name and on behalf of the undersigned officers a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1998, and any and all amendments thereto, hereby ratifying and confirming all that said attorneys and agents and any of them may do by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney the 29th day of January, 1999. NEIL G. BLUHM - ----------------------- President and Director Neil G. Bluhm JUDD D. MALKIN - ----------------------- Chairman and Chief Financial Officer Judd D. Malkin A. LEE SACKS - ----------------------- Director of General Partner A. Lee Sacks STUART C. NATHAN - ----------------------- Executive Vice President Stuart C. Nathan Director of General Partner The undersigned hereby acknowledge and accept such power of authority to sign, in the name and on behalf of the above named officers, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1998, and any and all amendments thereto, the 29th day of January, 1999. GARY NICKELE ----------------------- Gary Nickele GAILEN J. HULL ----------------------- Gailen J. Hull DENNIS M. QUINN ----------------------- Dennis M. Quinn EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT. 12-MOS DEC-31-1998 DEC-31-1998 15,863,283 0 1,698,219 0 0 17,561,502 62,040,706 0 83,984,649 34,656,136 0 0 0 0 49,239,513 83,984,649 12,718,155 13,652,013 0 7,667,994 595,190 0 2,741,140 3,209,772 0 3,209,772 20,648,190 (1,496,923) 0 22,361,039 127.15 127.15
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