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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission file number 0-16820
FIRST DEARBORN INCOME PROPERTIES L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-3473943
(State of organization) (IRS Employer Identification No.)
154 West Hubbard Street, Suite 250, Chicago, IL 60610
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 464-0100
Securities registered pursuant to Section 12(b) of the Act:
Names of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
(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.
PART 1
Item 1. Business
The registrant, First Dearborn Income Properties L.P. (the
"Partnership"), is a limited partnership formed in October 1986 under
the Revised Uniform Limited Partnership Act of the State of Delaware to
invest in income producing commercial real estate consisting
principally of existing shopping centers and office buildings. On
February 25, 1987, the Partnership commenced an offering of $10,000,000
of its limited partnership interests (the "Units") (subject to increase
by an additional $5,000,000 of Units) pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933 (File No. 33-
10244). A total of 20,468.5 Units was sold to the public in the
offering at $500 per Unit. The holders of 10,991.5 Units were admitted
to the Partnership in 1987 and the holders of 9,477 Units were admitted
to the Partnership in 1988. The offering terminated on November 15,
1988 (extended from its originally scheduled termination date of
February 25, 1988). Since admission to the Partnership, no holder of
Units (hereinafter, a "Limited Partner") has made any additional
capital contributions. The Limited Partners of the Partnership share
in the benefits of ownership of the Partnership's real property
investments in proportion to the number of Units held.
Net of offering costs, Limited Partners have contributed a total
of $8,800,461 to the Partnership. The Partnership is engaged solely in
the business of real estate investment. It is the Partnership's
objective to realize cash flow from operations and appreciation in the
value of the real estate. The Partnership has entered into three joint
venture agreements with partnerships sponsored by affiliates of the
General Partners. Pursuant to such agreements, the Partnership has
made capital contributions aggregating $7,685,642 through December 31,
1996. The Partnership has acquired, through these ventures, interests
in two shopping centers and an office building. No investments have
been made since 1990 and no properties have been sold. As of December
31, 1996, the Partnership had made the real property investments set
forth in the following table:
Name, Type of Property Date of Type of
and Location Size Purchase Ownership
Indian River Plaza 147,111 S.F. 11/30/86 99.9% interest in a
Shopping Center partnership that has
Vero Beach, Florida fee ownership of land
and improvements(a)
Downers Grove Building 56,449 S.F. 02/01/88 66.7% interest in a
Office Building partnership that has
Downers Grove, Illinois fee ownership of land
and improvements(a)
Sycamore Mall 240,206 S.F. 10/26/90 25.2% interest in a
Shopping Center partnership that has
Iowa City, Iowa fee ownership of land
and improvements
(a) Reference is made to Note 3 of Notes to Consolidated
Financial Statements filed with this annual report for the current
outstanding principal balance and a description of the long-term
mortgage indebtedness secured by the Partnership's real property
investments.
Note: "S.F." represents the amount of rentable square feet area
in each of the properties.
Indian River Plaza represents the most significant investment made
by the Partnership. A total of $4,710,642 has been invested by the
Partnership which represents 61% of the Partnership's real estate
investments. Since acquiring the Indian River Plaza investment in
1986, the Partnership has received cash distributions of $1,446,028
from Indian River Plaza. The Downers Grove building represents an
investment of $1,900,000 or 25% of the Partnership's real estate
investments. Since acquiring the Downers Grove investment in 1988, the
Partnership has received distributions of $1,635,807. Sycamore Mall
accounts for $1,075,000 or 14% of the Partnership's real estate
investments. Since acquiring the Sycamore Mall investment in 1990, the
Partnership has received distributions of $672,577.
During the past five years, operations at the Partnership's three
properties have been stable with no large fluctuations in occupancy.
However, during 1996, Randall's, a tenant at Sycamore Mall, vacated its
leased premises of 19,800 square feet. As a result of the Randall's
vacancy, occupancy at Sycamore Mall fell to 86% - 87% during the
second, third and fourth quarters of 1996. However, Randall's has
continued to pay rent through December, 1996 so that there was no
adverse financial impact in 1996. Management is currently negotiating
with a potential replacement tenant, however there can be no assurance
that a new lease will be entered into. If this space is not released,
the ability of Sycamore Mall to meet its financial obligations could be
effected, as a result of the decreased revenues. The Downers Grove
Building is a single tenant building. The original tenant at Downers
Grove vacated in 1994, however, it was replaced immediately. Reference
is made to the section below which discusses the Downers Grove Building
more thoroughly. During the second quarter of 1996 Walgreens vacated
12,000 square feet at the Vero Beach Property. Walgreens is still
paying the base rental amounts due under their lease, which does not
expire until 2009. Management anticipates that base rental amounts
will continue to be paid through the expiration of the lease or until a
suitable replacement tenant can located. However, no percentage rent
is expected to be paid by Walgreen's. Rental rates for the three
properties have not risen appreciably over the past five years. The
real estate market in general has suffered from overbuilding in the
1980's which has increased the competition for the Partnership's
properties. This resulted in a decrease in rental rates from 1990 to
1994. Since 1994, the market rental rates have begun to increase. The
decrease in market rental rates has not significantly impacted the
Partnership's properties since they were primarily occupied under long
term leases which did not result in decreased rental income for most of
the space.
The Partnership's real property investments are subject to
competition from similar types of properties in the vicinities in which
they are located. Approximate occupancy levels for the Partnership's
properties are set forth on a quarterly basis in the table set forth in
Item 2 below to which reference is hereby made. The Partnership has no
real property investments located outside the United States.
Only two of the three Partnership's investments are consolidated
for financial reporting purposes. Industry segment information is
presented below in order to illustrate applicable information about
each of the three properties individually and does not relate to
financial information presented about the Partnership in Item 6 and
Item 8.
Indian River Plaza,
Vero Beach, Florida 1996 1995 1994
Total revenue 814,569 997,880 956,108
Operating profit (loss) (147,232) 36,203 (10,589)
Total assets 6,838,960 6,858,736 7,082,395
Mortgage indebtedness 4,513,640 4,586,796 4,653,680
Downers Grove Building
Downers Grove, Illinois 1996 1995 1994
Total revenue 536,212 565,417 2,531,122
Operating profit (loss) (109,574) (195,287) 1,842,549
Total assets 7,889,563 8,237,790 8,781,845
Mortgage indebtedness 4,376,151 4,586,044 4,790,042
Sycamore Mall,
Iowa City, Iowa 1996 1995 1994
Total revenue 1,947,827 1,957,849 1,784,232
Operating profit 380,405 267,781 205,065
Total assets 8,425,247 8,589,852 8,672,723
Mortgage indebtedness 4,728,868 4,870,823 4,951,845
The Partnership has no employees and is largely dependent on the
General Partners and their affiliates for services. A description of
the terms of transactions between the Partnership and affiliates of the
General Partners is set forth in Item 11 below to which reference is
hereby made.
Vero Beach Associates
On November 30, 1986, the Partnership purchased an interest in
Indian River Plaza, a 147,111 gross leaseable square foot shopping
center on U.S. Highway 1 in Vero Beach, Florida. The Partnership's
ownership of Indian River Plaza was effected through its 1% partnership
interest in Vero Beach Associates (the "Operating Partnership") which
holds fee title to the property. An affiliate of the Managing General
Partner purchased the remaining 99% interest in the Operating
Partnership. In May 1987, upon the sale of a sufficient number of
Units, the Partnership made an additional capital contribution to
increase its interest in the Operating Partnership. At December 31,
1996, the Partnership had made capital contributions aggregating
$4,710,642 to the Operating Partnership. The Partnership's interest in
the cash distributions and allocations for Federal income tax purposes
of all losses of the Operating Partnership and of profits of the
Operating Partnership from the sale or refinancing of the property is
99.9%, and its interest in the allocation of profits from operations of
the Operating Partnership for Federal income tax purposes is 98%. The
Partnership has consolidated the assets and operations of the Vero
Beach Associates as of and for the years ended December 31, 1996, 1995
and 1994.
Since the property was acquired, operations have been stable with
occupancy holding above 95%, through 1995. However, in the second
quarter of 1996 Walgreens vacated 12,000 square feet. Walgreens is
still paying the base rental amounts due under their lease, which does
not expire until 2009. Management anticipates that base rental amounts
will continue to be paid through the expiration of the lease or until a
suitable replacement tenant can located. However, no percentage rent
is expected to be paid by Walgreen's. The Partnership's original
objective of cash flow from property operations has been partially
achieved. However, rental rates in the market place have not increased
since 1986 as had been originally anticipated. The real estate market
in general and the Vero Beach market more specifically have experienced
an oversupply of retail shopping centers which have resulted in a soft
market for rental rate increases. Therefore, the amount of cash flow
generated from the property is less than originally anticipated. As a
result, the value of property has not appreciated as had originally
been anticipated.
The shopping center is located on U.S. Highway 1 in Vero Beach,
Florida. There is a large retail center adjacent to Indian River Plaza
and there are several other shopping centers in the immediate area.
Two new shopping centers have recently opened within four miles of
Indian River Plaza. The area is becoming a major retail location, but
at the same time, there is significant competition for tenants.
Management continues to work with prospective tenants for the
replacement of Walgreens. They vacated a 12,000 square foot space but
are continuing to pay the base rent due under the lease. In March
1997, management has entered into a new lease with Beall's Outlet
Store, Inc., for the Walgreens space. A five year gross lease has been
entered into with annual rent of $90,000. This compares to $47,340 per
year which is currently being paid by Walgreens.
Downers Grove Building Partnership
The Partnership has contributed a total of $1,900,000 to, and owns
a 66-2/3% interest in, Downers Grove Building Partnership (the
"Building Partnership"). The remaining 33-1/3% interest in the
Building Partnership is held by a non-affiliate of the General
Partners. The Building Partnership owns a 56,449 square foot two-story
office and laboratory building (the "Downers Grove Building"). The
Partnership has consolidated the assets and operations of the Building
Partnership as of and for the years ended December 31, 1996, 1995 and
1994.
The Downers Grove Building was originally leased to Reichhold
Chemicals, Inc. ("Reichhold"), on a 15 year triple net lease, which
provided for bi-annual escalations of 8%, and expiration on February 2,
2002. In November 1994, Reichhold vacated the Downers Grove Building.
In connection with the termination of its lease, two annuity contracts
were purchased by Reichhold in the amount of $2,500,000. The annuity
contracts were subsequently assigned to the Building Partnership to
collateralize payment of the lease termination fee. The annuity
contracts provide for payments beginning December 1, 1994, through
November 1, 2001. Costs of $843,031, reflecting previously deferred
rents receivable, were expensed as a result of the termination. The
net amount of $1,656,969 was recognized as income in 1994. The total
principal payments to be received from the annuities in 1997 aggregate
$188,090 and are included in rents and other receivables, $855,090 is
included in deferred rents receivable on the consolidated balance
sheet, and is expected to be received in the years 1998 through 2001.
During 1996 and 1995, the Building Partnership recognized $76,477 and
$107,031, respectively, of interest income relating to the annuity
contracts. The total amount of the two annuity contracts was
determined based on negotiations with Reichhold and the lender on the
property. Reichhold had been committed under a lease which lasted
through 2002, with a provision to terminate the lease early upon
payment of a lease termination penalty. Reichhold wanted to terminate
the lease and the parties had agreed to allow Reichhold to terminate
the lease in exchange for a total payment of $2,500,000. However, the
funds were utilized to purchase the annuity contracts. These annuities
would provide a steady stream of cash flow, adequate to service the
mortgage obligations.
A replacement tenant had been found for the property but due to a soft
real estate market the rental amounts the new tenant was willing to pay
were less than the lease commitments of Reichhold. The monthly
payments from the annuity, when combined with the rental of the new
replacement tenant, provides for a total revenue stream equal to or in
excess of the amounts that would be due under the original Reichhold
lease.
In years subsequent to 1994, income will be recognized from the
payment of rent by the new tenant, and interest earned on the balance
of the annuity which has not been paid out. Total payments from the
annuity in 1996 and 1995 totaled $740,927 and $840,000 respectively, of
which $76,477 and $107,031 represented interest income in the
respective years while the remainder was treated as payment of rents
receivable. Total payments in 1997 are expected to be $245,563 of
which $57,473 represents interest income. Annual payments in years
1998 through 2000 are expected to be $245,563 per year with interest
income of $45,872 in 1998, $33,566 in 1999 and $20,480 in 2000. The
total payments in 2001 are expected to aggregate $225,100 of which
$6,598 represents interest.
Scheduled monthly payments due under the new lease are as follows:
11/1/96 - 11/30/97 37,701
12/1/97 - 11/30/01 42,413
12/1/01 - 11/30/04 56,551
The Downers Grove Building is managed by an unaffiliated entity
under an agreement which will continue in effect from year to year,
unless and until terminated, for a management fee of $13,000 per year.
The Downers Grove Building is located in the western suburbs of
Chicago. The west suburban office market contains over 15 million
square feet of office space which competes with the property. The
market had experienced vacancy rates of over 20% for most of the late
1980's and early 1990's. The vacancy rate in the area is now close to
12%. Since the Downers Grove Building has been occupied under long
term leases, the falling market rental rates have not adversely
affected the lease income. Market rental rates have begun rising over
the last two years, as the overall vacancy rate for the area began to
decline.
Sycamore Mall Associates
On October 26, 1990, the Partnership contributed $1,075,000 to
acquire a 25.24% general partnership interest in Sycamore Mall
Associates, a general partnership formed to acquire the Sycamore Mall
Shopping Center in Iowa City, Iowa. The property, situated on an
approximate 21.2 acre site, includes a main building containing 213,206
square feet and an out parcel building containing 27,000 square feet.
A 14,000 square foot parcel which contains a 4,590 square foot
building is under a ground lease. Sycamore Mall Associates acquired
the property on October 26, 1990 for a purchase price of $9,400,000,
subject to a purchase money note of $5,140,000 bearing interest at 10%
payable interest only until maturity on October 26, 1995. On August 8,
1991, Sycamore Mall Associates obtained a first mortgage in the amount
of $5,140,000 which bore interest at a rate of 9.625% payable in
monthly installments of principal and interest of $45,355 commencing
October 1, 1991 for 60 months until September 30, 1996. The proceeds
of this first mortgage were used to repay the original purchase money
note. In October 1995, the first mortgage loan was modified. The
terms of the modification reduced the interest rate to 8.125%, reduced
the monthly payments of principal and interest to $44,375 and extended
the maturity to March 1, 2002.
First Dearborn Income Properties L.P. II, a public limited
partnership affiliated with the General Partners of the Partnership,
and First Dearborn Sycamore Associates Limited Partnership ("FDSALP"),
a privately offered limited partnership also affiliated with the
General Partners, are the joint venture partners in Sycamore Mall
Associates and contributed a total of $1,075,000 and $910,000 for
25.24% and 21.36% of the general partner interests, respectively. The
terms of the Sycamore Mall Associates partnership agreement provide
that cash flow, sale or refinancing proceeds and profit and loss will
be distributed or allocated in proportion to the partner's ownership
interests.
The property is managed by an affiliate of the General Partners
and an affiliate of the seller under a five year management agreement
that provides for a fee equal to 5% of the effective gross income, of
which 1% is paid to an affiliate of the General Partners. During 1996,
1995 and 1994 the property incurred management fees of $96,048, $97,270
and $88,306, respectively.
During 1996, Randall's vacated its leased premises of 19,800
square feet. Occupancy fell to 86%, however, Randall's has continued
to pay rent through December, 1996 so that there was no adverse
financial impact in 1996. Management is currently negotiating with a
potential replacement tenant, however there can be no assurance that a
new lease will be entered into. If this space is not released, the
ability of Sycamore Mall to meet its financial obligations could be
effected, as a result of decreased revenues. Further, there have been
newspaper reports that Sears will be vacating Sycamore Mall and moving
to a new mall which has recently begun construction. These reports are
unconfirmed and no official word has been received from Sears. The
Sears lease at Sycamore Mall expires in 2002. The Sears lease
comprises 82,605 square feet which is 34% of the leaseable area of the
shopping center. However, the annual rental income received from Sears
is approximately $109,000 or approximately 6% of total revenues.
Sycamore Mall is located in Iowa City, Iowa. A competitor has
begun construction on a new regional shopping center in the area. This
development will create additional competition for Sycamore Mall. As a
precautionary measure, Sycamore Mall Associates had reduced
distributions to its partners in 1995 and 1996 in order to maintain its
working capital reserves. It is believed that the additional working
capital might be necessary to help maintain existing tenants and
attract new tenants, due to the increased competition from the new
shopping center. However, during the fourth quarter of 1996, Sycamore
Mall Associates distributed the extra reserve to its partners. The
partners of Sycamore Mall Associates have agreed to maintain these
additional reserves and will contribute these amounts back to Sycamore
Mall Associates if it is considered appropriate by the partners. The
Partnership has no definite plans for improvements to the property at
this time. Distributions to the Partners in 1996 were $407,998 as
compared to $190,325 in 1995 and $245,974 in 1994.
Affiliated Transactions
A description of the terms of transactions between the Partnership
and affiliates of the General Partners is set forth in Item 11 below to
which reference is hereby made.
Item 2. Properties
The Partnership owns, through joint venture partnerships, the
properties referred to in Item 1. The three properties that the
Partnership has an interest in are described below:
Sycamore Mall Associates
The property is a retail shopping center located in Iowa City, Iowa,
and is situated on an approximate 21.2 acre site. It includes a main
building containing 213,206 square feet and an out parcel building
containing 27,000 square feet. A 14,000 square foot parcel which
contains a 4,590 square foot building is under a ground lease. The
property is owned fee simple by a partnership of which the Partnership
is a partner. It is subject to a first mortgage in the amount of
$4,728,865 which bears interest at a rate of 8.125% payable in monthly
installments of principal and interest of $44,375 until March 1, 2002,
when the balance comes due.
The major tenants are Sears and Von Maur which occupy approximately 34%
and 17%, respectively, of the net rentable area. Occupancy at Sycamore
Mall has remained in the 94% - 99% range through 1995. During 1996,
Randall's vacated its leased premises of 19,800 square feet. Occupancy
fell to 86%, however, Randall's has continued to pay rent through
December, 1996 so that there was no adverse financial impact in 1996
There have been newspaper reports that Sears will be vacating Sycamore
Mall and moving to a new mall which has recently begun construction.
These reports are unconfirmed and no official word has been received
from Sears. The Sears lease at Sycamore Mall expires in 2002. The
Sears lease comprises 82,605 square feet which is 34% of the leaseable
area of the shopping center. However, the annual rental income
received from Sears is approximately $109,000 or approximately 6% of
total revenues. The Von Maur lease expires in 2009 and the annual rent
is approximately $210,000. Average total rents received per square
foot at the property during the last three years are $8.15 in 1996,
$8.14 in 1995, and $7.42 in 1994.
There are currently no plans for any significant improvements to the
property. However, construction has begun on a new regional shopping
center in the area. The location of the new mall will create
additional competition for Sycamore Mall. Management is closely
monitoring the situation.
The following table illustrates the scheduled lease expirations for
Sycamore Mall, over the next ten years:
# of % of total
leases expiring square feet annual rent annual rent
1997 12 24,892 183,750 15.6%
1998 7 16,111 212,674 18.1%
1999 6 21,200 125,739 10.7%
2000 3 8,000 80,000 6.8%
2001 - - - -
2002 5 90,028 221,650 18.9%
2003 - - - -
2004 1 3,464 63,391 5.4%
2005 - - - -
2006 - - - -
Management believes that the Sycamore Mall property has adequate
insurance coverage.
Indian River Plaza
On November 30, 1986, the Partnership purchased an interest in Indian
River Plaza, a 147,111 gross leaseable square foot shopping center on
U.S. Highway 1 in Vero Beach, Florida. The Partnership's ownership of
Indian River Plaza was effected through its 1% partnership interest in
Vero Beach Associates (the "Operating Partnership") which holds fee
title to the property. An affiliate of the Managing General Partner
purchased the remaining 99% interest in the Operating Partnership. In
May 1987, upon the sale of a sufficient number of Units, the
Partnership made an additional capital contribution to increase its
interest in the Operating Partnership. The Partnership's interest in
the cash distributions and allocations for Federal income tax purposes
of all losses of the Operating Partnership and of profits of the
Operating Partnership from the sale or refinancing of the property is
99.9%, and its interest in the allocation of profits from operations of
the Operating Partnership for Federal income tax purposes is 98%. At
December 31, 1996, the Partnership had made capital contributions
aggregating $4,710,642 to the Operating Partnership.
Indian River Plaza is encumbered by a first mortgage with an original
amount of $5,000,000 ($4,513,476 outstanding on December 31, 1996),
bearing interest at 9%, amortized over 30 years payable in monthly
installments of principal and interest of $40,250 until maturity on
July 1, 1997 when the remaining principal balance of $4,474,527 is
payable; secured by the real and personal property of Indian River
Plaza. Negotiations are underway for an extension of the current loan
but there can be no assurance that such extension will be entered into.
The major tenants are K Mart and Publix which occupy approximately 56%
and 25%, respectively, of the property's net leaseable area. Occupancy
at Indian River Plaza has remained in the 96% - 100% through 1995.
Walgreens, which is a tenant in about 12,000 square feet, vacated the
property during the second quarter of 1996, and moved into a new free-
standing building. Walgreens is still paying the base rental amounts
due under their lease, which does not expire until 2009. No percentage
rent is expected to be paid by Walgreen's. In March 1997, management
entered into a new lease for the Walgreens space. A five year gross
lease has been entered into with Beall's Outlet Store, Inc. providing
for annual rent of $90,000. This compares to $47,340 per year which
was being paid by Walgreens. The K Mart lease expires in 2004 and the
annual rent is approximately $220,000. The Publix lease expires in
1999 and the annual rent is approximately $125,000. Average total rent
received per square foot at the property during the last three years
were $5.73 in 1996, $6.78 in 1995, and $6.50 in 1994.
The following table illustrates the scheduled lease expirations for
Indian River Plaza, over the next ten years:
# of % of total
leases expiring square feet annual rent annual rent
1997 - - - -
1998 3 4,800 52,800 9.5%
1999 1 36,464 127,623 23.0%
2000 2 4,840 39,656 7.2%
2001 - - - -
2002 - - - -
2003 - - - -
2004 2 82,922 229,044 41.3%
2005 - - - -
2006 - - - -
Management believes that the Indian River Plaza property has adequate
insurance coverage.
Downers Grove Building
The Partnership has contributed a total of $1,900,000 to, and owns a 66-
2/3% interest in, Downers Grove Building Partnership (the "Building
Partnership"). The remaining 33-1/3% interest in the Building
Partnership is held by a non affiliate of the General Partners. The
Building Partnership owns a 56,449 square foot two-story office and
laboratory building (the "Downers Grove Building"). The Downers Grove
Building was leased to Reichhold Chemicals, Inc. ("Reichhold"), on a 15
year triple net lease, which provided for bi-annual escalations of 8%,
and expiration on February 2, 2002. The Partnership has consolidated
the assets and operations of the Building Partnership as of and for the
years ended December 31, 1996, 1995 and 1994.
The property is owned fee simple by the Building Partnership. It is
subject to a first mortgage in the amount of $4,376,151, bearing
interest at 9.125%, payable in monthly installments of interest only of
$34,873 from August 1, 1995, through February 1, 1996; principal and
interest of $55,170 from March 1, 1996 through August 1, 1998; and
principal and interest of $58,405 from September 1, 1998 until August
1, 2005 when the remaining principal balance is due; secured by the
real and personal property of the Downers Grove Building.
The Downers Grove Building is a single tenant building. The property
has been 100% occupied for the last five years. The current tenant is
a subsidiary of Amoco Oil, and is obligated under the lease until 2004.
Management believes that the Downers Grove property has adequate
insurance coverage.
The following is a list of approximate occupancy levels by quarter
for the Partnership's investment properties:
1995 1996
at at at at at at at at
03/31 06/30 09/30 12/31 03/31 06/30 09/30 12/31
Indian River Plaza
Vero Beach,
Florida 99% 99% 99% 97% 98% 89% 89% 89%
Downers Grove Building
Downers Grove,
Illinois 100% 100% 100% 100% 100% 100% 100% 100%
Sycamore Mall
Iowa City,
Iowa 99% 98% 97% 97% 95% 86% 87% 87%
Item 3. Legal Proceedings
The Partnership is not aware of any material pending legal
proceedings to which it or its properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
As of December 31, 1996, there were 1,367 Limited Partners holding
20,468.5 Units. There is no public market for Units and it is not
anticipated that a public market for Units will develop. Pursuant to
the terms of the Limited Partnership Agreement of the Partnership (the
"Partnership Agreement"), there are restrictions on the ability of the
Limited Partners to transfer their Units. In all cases, the General
Partners must consent to the substitution of a Limited Partner.
Distributions to Limited Partners, through December 31, 1996, have
totaled $3,070,939 since the Partnership's formation. This is
approximately $150.03 of cash distributions per Unit. Each Unit
originally sold for $500 and the offering was closed on November 15,
1988. Reference is made to Item 6 herein for a summary of annual cash
distributions, per Unit, made to the Limited Partners.
Item 6. Selected Financial Data
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
December 31, 1996, 1995, 1994, 1993, and 1992
(not covered by Independent Auditors' Report)
1996 1995 1994 1993 1992
Total revenues 1,360,339 1,579,111 3,495,931 1,772,834 1,810,066
Operating income (loss) (382,721) (267,289) 1,721,130 (40,396) (27,324)
Partnership's share
of operations of
unconsolidated ventures 96,014 67,587 51,758 56,220 48,336
Venture partners' share
of consolidated
ventures' operations 34,611 65,054 (614,111) (62,400) (49,028)
Net income (loss) (252,096) (134,648) 1,158,777 (46,576) (28,016)
Net income (loss)
per Unit (a) (12.19) (6.51) 56.05 (2.25) (1.36)
Total assets 16,317,347 16,959,731 17,726,940 16,531,557 16,919,254
Long-term debt 4,101,986 8,889,627 4,586,785 4,653,667 9,714,771
Cash distributions
per Unit (a) 7.50 11.26 14.96 13.54 17.52
The above selected financial data should be read in
conjunction with the Consolidated Financial Statements and the related
notes appearing elsewhere in this annual report.
(a) The net income (loss) per Unit and cash distributions per
Unit are based on the number of Units outstanding at the end of each
period (20,468.5.)
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources:
On February 25, 1987 the Partnership commenced a public offering
of $10,000,000 of Units (subject to increase to $15,000,000 of Units)
pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, with the offering terminating November 15, 1988. A total
of 20,468.5 Units were issued to the public in the offering, resulting
in gross proceeds of $10,234,250 and net proceeds of $8,800,461 after
the deduction of offering costs. No additional Units are to be
offered.
At December 31, 1996, the Partnership had cash and cash
equivalents of $694,185 as compared to $394,223 as of December 31,
1995. The increase in cash and cash equivalents is primarily a result
of net cash provided by operations. Cash provided by operations
increased $288,035 from the prior year primarily due to the timing of
receipt of certain payments under the terms of the Reichhold
termination agreement. Distributions to limited partners decreased
$77,018 from the prior year. As a result of additional competition
for Sycamore Mall, distributions to Limited Partners in 1995 and 1996
were reduced in order to maintain working capital reserves. It is
believed that the additional working capital might be necessary to help
maintain existing tenants and attract new tenants.
In October 1995, the first mortgage loan at Sycamore Mall was
modified. The terms of the modification reduced the interest rate to
8.125% from 9.625%, reduced the monthly payments of principal and
interest to $44,375 from $45,355 and extended the maturity date from
September 30, 1996 to March 1, 2002. In August 1995, the first
mortgage at the Downers Grove property was modified, increasing the
interest rate to 9.125% from 8.5%, and extending the maturity date from
September 1, 1995 to August 1, 2005. The mortgage loan on the Vero
Beach property matures in July 1997. Negotiations are underway for an
extension of the current loan, but there can be no assurance that such
extension will be entered into.
In November 1994, Reichhold vacated the Downers Grove Building.
In connection with the termination of its lease, two annuity contracts
were purchased by Reichhold in the amount of $2,500,000. The annuity
contracts were subsequently assigned to the Building Partnership to
collateralize payment of the lease termination fee. The annuity
contracts provide for payments beginning December 1, 1994 through
November 1, 2001. Costs of $843,031, reflecting previously deferred
rents receivable, were expensed as a result of the termination. The
net amount of $1,656,969 was recognized as income in 1994. The total
principal payments to be received from the annuities in 1997 aggregate
$188,090 and are included in rents and other receivables, $855,090 is
included in deferred rents receivable on the consolidated balance
sheet, and is expected to be received in the years 1998 through 2001.
During 1996 and 1995, the Building Partnership recognized $76,477 and
$107,031, respectively, of interest income relating to the annuity
contracts.
As the Partnership intends to distribute all "net cash receipts"
and "sales proceeds" in accordance with the terms of the Partnership
Agreement, and does not intend to reinvest any such proceeds, the
Partnership is intended to be self-liquidating in nature. The
Partnership's future source of liquidity and distributable capital is
expected to come from cash generated by the Partnership's investment
properties and from the sale and refinancing of such properties. To
the extent a property does not generate adequate cash flow to meet
its working capital requirements, the Partnership may (i) withdraw
funds from the working capital reserve it maintains, (ii) fund such
shortfall from excess cash generated by other properties owned by it,
or (iii) pursue outside financing sources. However, the Partnership
may decide not to, or may not be able to, commit additional funds to
certain of its investment properties. Nonetheless, it is anticipated
that the current and future capital resources of the Partnership will
be adequate to fund currently anticipated short and long-term
requirements of its investment portfolio taken as a whole.
There are certain risks and uncertainties associated with the
Partnership's investments made through joint ventures including the
possibility that the Partnership's joint venture partners in an
investment might become unable or unwilling to fulfill their financial
or other obligations, or that such joint venture partners may have
economic or business interests or goals that are inconsistent with
those of the Partnership.
In response to the weakness of the U.S. economy in general and the
problems experienced by the real estate industry in particular, the
Partnership is taking steps to preserve its working capital during the
current economic slowdown. Therefore, the Partnership carefully
scrutinizes the appropriateness of any possible discretionary
expenditures, particularly as such expenditures relate to the amount of
working capital reserves the Partnership has available. By conserving
working capital, the Partnership expect to be in a better position to
meet future needs of its properties without having to rely on external
financing sources.
Results of Operations:
The results of operations for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994 reflect the consolidated
operations of the Partnership and its consolidated ventures, Vero Beach
Associates (the "Vero Partnership") and Downers Grove Building
Partnership (the "Building Partnership") and its equity investment in
Sycamore Mall Associates (the "Sycamore Partnership"). The results of
operations of the Vero Partnership reflect the operations of the Indian
River Plaza Shopping Center. The results of operations of the Building
Partnership reflect the operations of the Downers Grove Building. The
equity investment in the Sycamore Partnership reflects the
Partnership's share of the operations of the Sycamore Mall Shopping
Center.
Changes from 1995 to 1996:
In 1996, the Partnership had a net loss of $252,096 as compared to
a net loss of $134,648 in 1995. This increase in net loss is primarily
attributable to operating losses experienced at the Vero Beach
property. Walgreen's vacated the property and although they are
continuing to pay base rent, percentage rent at the property decreased
$190,674 from 1995. The $205,904 decrease in rental income primarily
resulted from the decrease in percentage rental income at the Vero
Beach property.
The Partnership's interest income decreased to $93,303 in 1996
from $125,351 in 1995. The decrease is primarily attributable to the
decrease in interest earned on the annuity contracts relating to the
Downers Grove property. As the annuity contracts have been paid down,
the interest income has been reduced on the reduced principal amounts
remaining.
Property operating expenses decreased $112,171 (28%) to $284,850
in 1996 from $397,021 in 1995, primarily as a result of additional
costs which were incurred at the Downers Grove property in 1995,
related to the replacement of the building's tenant.
The Partnership's share of operations of unconsolidated venture
increased $28,427 (42%) from $67,587 in 1995 to $96,014 in 1996. This
increase is attributable to improved operations at Sycamore Mall.
Changes from 1994 to 1995:
In 1994, the Partnership had net income of $1,158,777 as compared
to a net loss of $134,648 in 1995. This significant decrease in net
income is attributable to the termination of the lease with Reichhold
at the Downers Grove property, in 1994. As a result of the lease
termination, the Partnership recognized $1,656,969 in non-recurring
revenue. The venture partners' share of consolidated ventures'
operations decreased $679,165, primarily as a result of recognition of
the termination fee in income in 1994. The $1,293,425 overall decrease
in net income is primarily attributable to the net effect of the lease
termination transaction.
The $364,036 decrease in rental income primarily resulted from the
decrease in rental income at the Downers Grove property. The
Partnership's interest income increased to $125,351 in 1995 from
$21,557 in 1994. The increase is primarily attributable to interest
earned on the annuity contracts relating to the Downers Grove property.
Property operating expenses increased $101,282 (34%) from $295,739
in 1994 to $397,021 in 1995, primarily as a result of a additional
costs incurred at the Downers Grove property related to the replacement
of the building's tenant.
Interest expense decreased $35,576 (4%) from $857,152 in 1994 to
$821,576 in 1995. The decrease is a result of the reduction in
mortgage indebtedness in the amount of $270,882 which occurred
throughout the year.
The Partnership's share of operations of unconsolidated venture
increased $15,829 (31%) from $51,758 in 1994 to $67,587 in 1995. This
increase is attributable to improved operations at Sycamore Mall.
Inflation:
The Partnership has completed its ninth full year of operations.
During the last nine years the annual inflation rate has ranged from
3.01% to 5.40% with an average of 4.21%. The effect which inflation
has had on income from operations has been minimal.
Inflation in future periods may increase rental income levels
(from leases to new tenants or renewals of existing leases) in
accordance with normal market conditions. Such increases in rental
income should offset most of the adverse impact that inflation has on
property operating expenses with little effect on operating income.
Continued inflation may also tend to cause capital appreciation of the
Partnership's investment properties over a period of time as rental
rates and replacement costs of properties continue to increase.
Asset Impairment:
Under the Partnership's current impairment policy, provisions for
value impairment are recorded with respect to investment properties
pursuant to the basic principles of 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". The
Partnership's adoption of SFAS 121 on January 1, 1996, had no effect on
the consolidated financial statements.
Certain investment properties are pledged as security for the long-
term debt, for which there is no recourse to the Partnership, as
described in Note 3 of the Notes to Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
INDEX
Page (s)
Independent Auditors' Report 16
Consolidated Balance Sheets, December 31, 1996 and 1995 17 - 18
Consolidated Statements of Operations, Years
ended December 31, 1996, 1995 and 1994 19
Consolidated Statements of Partners'
Capital Accounts (Deficits), Years ended
December 31, 1996, 1995 and 1994 20
Consolidated Statements of Cash Flows,
Years ended December 31, 1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 22 - 28
Schedule
Consolidated Real Estate and Accumulated Depreciation III
Schedules not filed:
All schedules other than those indicated in the index have been omitted
as the required information is inapplicable or the information is
presented in the financial statements or the related notes.
Independent Auditors' Report
The Partners
First Dearborn Income Properties L.P.:
We have audited the consolidated financial statements of First Dearborn
Income Properties L.P. (a limited partnership) and consolidated
ventures as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index.
These consolidated financial statements and the financial statement
schedule are the responsibility of the General Partners of the
Partnership. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
First Dearborn Income Properties L.P. and consolidated ventures as of
December 31, 1996 and 1995 and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
March 7, 1997
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets
1996 1995
Current assets:
Cash and cash equivalents (note 1) 694,185 394,223
Rents and other receivables 1,167,408 939,304
Due from affiliates 2,215 2,014
Prepaid expenses 9,307 9,073
Total current assets 1,873,115 1,344,614
Investment properties, at cost (note 2):
Land 2,273,114 2,273,114
Buildings and improvements 15,629,211 15,594,670
17,902,325 17,867,784
Less accumulated depreciation (5,304,609) (4,809,502)
12,597,716 13,058,282
Investment in unconsolidated venture,
at equity (notes 2 and 7) 908,649 915,594
Deferred rents receivable 855,090 1,537,569
Deferred loan costs 82,777 103,672
Total assets 16,317,347 16,959,731
See accompanying notes to Consolidated Financial Statements.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Consolidated Balance Sheets - Continued
December 31, 1996 and 1995
Liabilities and Partners' Capital Accounts (Deficits)
1996 1995
Current liabilities:
Accounts payable and accrued expenses 215,158 209,208
Due to affiliates (note 6) 262,509 238,190
Accrued interest 67,128 69,274
Unearned revenue 60,538 -
Current portion
of long-term debt (note 3) 4,787,641 283,213
Total current liabilities 5,392,974 799,885
Long-term liabilities:
Long-term debt (note 3) 4,101,986 8,889,627
Venture partners' equity
in consolidated ventures (note 2) 1,276,196 1,301,012
Deposits 12,471 29,924
Total long-term liabilities 5,390,653 10,220,563
Total liabilities 10,783,627 11,020,448
Partners' capital accounts (deficits) (notes 1 and 4):
General partners
- cumulative net income (loss) (2,032) 489
Total general partner
capital (deficit) (2,032) 489
Limited partners:
Capital contributions 8,800,461 8,800,461
Cumulative net income (loss) (193,770) 55,805
Cumulative cash distributions (3,070,939) (2,917,472)
Total limited partner capital 5,535,752 5,938,794
Total partners' capital accounts 5,533,720 5,939,283
Commitments and contingencies (notes 2 and 6)
Total Liabilities and Partners' Capital 16,317,347 16,959,731
See accompanying notes to Consolidated Financial Statements.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Consolidated Statements of Operations
Years ended December 31, 1996, 1995, and 1994
1996 1995 1994
Revenues:
Rental income 1,157,013 1,362,917 1,726,953
Tenant charges 110,023 90,843 90,452
Termination fee,
net of related costs - - 1,656,969
Interest income 93,303 125,351 21,557
Total revenues 1,360,339 1,579,111 3,495,931
Expenses:
Property operating expenses 284,850 397,021 295,739
Interest 819,249 821,576 857,152
Depreciation 495,107 493,209 494,491
Amortization 22,141 21,908 20,893
General and administrative expenses 121,713 112,686 106,526
Total expenses 1,743,060 1,846,400 1,774,801
Operating income (loss) (382,721) (267,289) 1,721,130
Partnership's share of operations
of unconsolidated venture 96,014 67,587 51,758
Venture partners' share of consolidated
ventures' operations (note 1) 34,611 65,054 (614,111)
Net income (loss) (252,096) (134,648) 1,158,777
Net income (loss) per
limited partnership unit (note 1) (12.19) (6.51) 56.05
Cash distribution per
limited partnership unit 7.50 11.26 14.96
See accompanying notes to Consolidated Financial Statements.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Consolidated Statements of Partners' Capital Accounts (Deficits)
Years ended December 31, 1996, 1995 and 1994
General Partners Limited Partners (20,468.5 Units) .
Contributions, Cash
Net income net of Net income distrib-
(loss) Total offering costs (loss) utions Total
Balance (deficit)
at December 31, 1993 (9,753) (9,753) 8,800,461 (958,082) (2,380,771) 5,461,608
Net income 11,588 11,588 - 1,147,189 - 1,147,189
Cash distributions - - - - (306,216) (306,216)
Balance (deficit)
at December 31, 1994 1,835 1,835 8,800,461 189,107 (2,686,987) 6,302,581
Net loss (1,346) (1,346) - (133,302) - (133,302)
Cash distributions - - - - (230,485) (230,485)
Balance (deficit)
at December 31, 1995 489 489 8,800,461 55,805 (2,917,472) 5,938,794
Net loss (2,521) (2,521) - (249,575) - (249,575)
Cash distributions - - - - (153,467) (153,467)
Balance (deficit)
at December 31, 1996 (2,032) (2,032) 8,800,461 (193,770) (3,070,939) 5,535,752
See accompanying notes to Consolidated Financial Statements.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net income (loss) (252,096) (134,648) 1,158,777
Items not requiring cash
or cash equivalents:
Depreciation 495,107 493,209 494,491
Amortization 22,141 21,908 20,893
Partnership's share of operations of
unconsolidated venture,
net of distributions 6,945 22,354 64,504
Venture partners' share of consolidated
ventures' operations (34,611) (65,054) 614,111
Changes in:
Rents and other receivables (228,104) 1,406 (750,431)
Due from affiliates (201) 3,023 (1,785)
Prepaid expense (234) (66) 1,153
Deferred rents receivable 682,479 208,077 (948,166)
Accounts payable and accrued expenses 5,950 (4,530) (616)
Due to affiliates 24,319 17,501 15,945
Accrued interest (2,146) 442 (6,111)
Unearned revenues 60,538 - (71,245)
Deposits (17,453) (89,023) 106,770
Net cash provided by operating activities 762,634 474,599 698,290
Cash flows from investing activities-
additions to investment property (34,541) (9,375) (9,026)
Net cash used in investing activities (34,541) (9,375) (9,026)
Cash flows from financing activities:
Payment of deferred loan costs (1,246) (88,745) (10,138)
Venture partners' distributions
from consolidated ventures 9,795 9,470 (44,998)
Distributions to limited partners (153,467) (230,485) (306,216)
Principal payments on long-term debt (283,213) (270,882) (271,034)
Net cash used in financing activities (428,131) (580,642) (632,386)
Net increase (decrease) in cash
and cash equivalents 299,962 (115,418) 56,878
Cash and cash equivalents
at beginning of year 394,223 509,641 452,763
Cash and cash equivalents
at end of year 694,185 394,223 509,641
Supplemental disclosure of cash flow information-
cash paid for mortgage
and other interest 821,395 821,134 863,263
See accompanying notes to Consolidated Financial Statements.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Organization and Basis of Accounting
The Partnership was formed under the Delaware Revised Uniform
Limited Partnership Act by the recording of a Certificate of Limited
Partnership as of October 1, 1986. The Initial Limited Partner (an
affiliate of the Managing General Partner) contributed $1,000 and
withdrew as a Limited Partner upon the admission of the first
additional Limited Partners on May 21, 1987 when the initial closing of
the offering was consummated. The Agreement of Limited Partnership
authorized the issuance of up to 20,000 additional Units (subject to
increase by an additional 10,000 Units) at $500 per Unit. A total of
20,468.5 Units were subscribed for and issued between February 25, 1987
and November 15, 1988. The offering terminated on November 15, 1988.
For the years ended December 31, 1996, 1995 and 1994, the
accompanying Consolidated Financial Statements include the accounts of
the Partnership and its Consolidated Ventures - Vero Beach Associates
and Downers Grove Building Partnership, and its equity investment in
Sycamore Mall Associates. The effect of all transactions between the
Partnership and the Consolidated Ventures has been eliminated.
The Partnership records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying Consolidated Financial Statements have been prepared from
such records after making appropriate adjustments, where applicable, to
present the Partnership's accounts in accordance with generally
accepted accounting principles (GAAP). Such adjustments are not
recorded for the Partnership. The net effect of these is as follows:
(unaudited) (unaudited)
1996 1996 1995 1995
GAAP Tax GAAP Tax
Basis Basis Basis Basis
Total assets 16,317,347 5,211,295 16,959,731 5,460,474
Partners' capital accounts (deficits):
General partners (2,032) (25,043) 489 (22,697)
Limited partners 5,535,752 5,029,542 5,938,794 5,300,701
Net income (loss):
General partners (2,521) (2,346) (1,346) (1,241)
Limited partners (249,575) (117,692) (133,302) 18,709
Net income (loss) per limited
partnership unit (12.19) (5.75) (6.51) 0.91
The net income (loss) per limited partnership unit presented is
based on the limited partnership units outstanding at the end of each
period (20,468.5).
The Partnership's distributions from its unconsolidated venture
are considered cash flow from operating activities to the extent of the
Partnership's cumulative share of net operating earnings before
depreciation and non-cash items. In addition, the Partnership records
amounts held in U.S. Government obligations, commercial paper and
certificates of deposit at cost which approximates market. For the
purposes of these statements, the Partnership's policy is to consider
all such investments, with an original maturity of three months or less
($291,741 and $237,206 at December 31, 1996 and 1995, respectively), as
cash equivalents.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
Deferred offering costs were charged to the partners' capital
accounts upon consummation of the offering. Deferred loan costs are
amortized over the terms of the related agreements using the straight-
line method.
Depreciation on the investment properties acquired has been
provided over the estimated useful lives of 5 to 30 years using the
straight-line method.
No provision for Federal income taxes has been made as any
liability for such taxes would be that of the partners rather than the
Partnership.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the General Partners
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Under the Partnership's current impairment policy, provisions for
value impairment are recorded with respect to investment properties
pursuant to the basic principles of 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". The
Partnership's adoption of SFAS 121 on January 1, 1996, had no effect on
the consolidated financial statements.
(2) Venture Agreements
(a) General
The Partnership has entered into three joint venture agreements
with partnerships sponsored by affiliates of the General Partners.
Pursuant to such agreements, the Partnership has made capital
contributions aggregating $7,685,642 through December 31, 1996. The
Partnership has acquired, through these ventures, interests in two
shopping centers and an office building.
(b) Vero Beach Associates
On November 30, 1986, the Partnership purchased an interest in
Indian River Plaza, a 147,111 gross leaseable square foot shopping
center on U.S. Highway 1 in Vero Beach, Florida. The Partnership's
ownership of Indian River Plaza was effected through its 1% partnership
interest in Vero Beach Associates (the "Operating Partnership") which
holds fee title to the property. An affiliate of the Managing General
Partner purchased the remaining 99% interest in the Operating
Partnership. In May 1987, upon the sale of a sufficient number of
Units, the Partnership made an additional capital contribution to
increase its interest in the Operating Partnership. The Partnership's
interest in the cash distributions and allocations for Federal income
tax purposes of all losses of the Operating Partnership and of profits
of the Operating Partnership from the sale or refinancing of the
property is 99.9%, and its interest in the allocation of profits from
operations of the Operating Partnership for Federal income tax purposes
is 98%. At December 31, 1996, the Partnership had made capital
contributions aggregating $4,710,642 to the Operating Partnership.
The property is managed by an affiliate of the seller under a
management agreement that provides for a fee equal to 3% of operating
income, payable on a monthly basis. Management fees deferred pursuant
to a previous management agreement aggregate $105,952 at December 31,
1996 and 1995.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(c) Downers Grove Building Partnership
The Partnership has contributed a total of $1,900,000 to, and owns
a 66-2/3% interest in, Downers Grove Building Partnership (the
"Building Partnership"). The remaining 33-1/3% interest in the
Building Partnership is held by a non-affiliate of the General
Partners. The Building Partnership owns a 56,449 square foot two-story
office and laboratory building (the "Downers Grove Building"). The
Partnership has consolidated the assets and operations of the Building
Partnership as of and for the years ended December 31, 1996, 1995 and
1994.
The Downers Grove Building was originally leased to Reichhold
Chemicals, Inc. ("Reichhold"), on a 15 year triple net lease, which
provided for bi-annual escalations of 8%, and expiration on February 2,
2002. In November 1994, Reichhold vacated the Downers Grove Building.
In connection with the termination of their lease, two annuity
contracts were purchased by Reichhold in the amount of $2,500,000. The
annuity contracts were subsequently assigned to the Building
Partnership to collateralize payment of the lease termination fee. The
annuity contracts provide for payments beginning December 1, 1994,
through November 1, 2001. Costs of $843,031, reflecting previously
deferred rents receivable, were expensed as a result of the
termination. The net amount of $1,656,969 was recognized as income in
1994. The total principal payments to be received from the annuities
in 1997 aggregate $188,090 and are included in rents and other
receivables, $855,090 is included in deferred rents receivable on the
consolidated balance sheet, and is expected to be received in the years
1998 through 2001. During 1996 and 1995, the Building Partnership
recognized $76,477 and $107,031, respectively, of interest income
relating to the annuity contracts.
The Downers Grove Building is managed by an unaffiliated entity
under a management agreement will continue in effect from year to year,
unless and until terminated, for a management fee of $13,000 per year.
(d) Sycamore Mall Associates
On October 26, 1990, the Partnership contributed $1,075,000 to
acquire a 25.24% general partnership interest in Sycamore Mall
Associates, a general partnership formed to acquire the Sycamore Mall
Shopping Center in Iowa City, Iowa. The property, situated on an
approximate 21.2 acre site, includes a main building containing 213,206
square feet and an out parcel building containing 27,000 square feet.
A 14,000 square foot parcel which contains a 4,590 square foot
building is under a ground lease. Sycamore Mall Associates acquired
the property on October 26, 1990 for a purchase price of $9,400,000,
subject to a purchase money note of $5,140,000 bearing interest at 10%
payable interest only until maturity on October 26, 1995. On August 8,
1991, Sycamore Mall Associates obtained a first mortgage in the amount
of $5,140,000 which bore interest at a rate of 9.625% payable in
monthly installments of principal and interest of $45,355 commencing
October 1, 1991 for 60 months until September 30, 1996. The proceeds
of this first mortgage were used to repay the original purchase money
note. In October 1995, the first mortgage loan was modified. The
terms of the modification reduced the interest rate to 8.125%, reduced
the monthly payments of principal and interest to $44,375 and extended
the maturity to March 1, 2002.
First Dearborn Income Properties L.P. II, a public limited
partnership affiliated with the General Partners of the Partnership,
and First Dearborn Sycamore Associates Limited Partnership ("FDSALP"),
a privately offered limited partnership also affiliated with the
General Partners, are the joint venture partners in Sycamore Mall
Associates and contributed a total of $2,275,000 and $910,000 for
53.40% and 21.36% of the general partner interests, respectively.
The terms of the Sycamore Mall Associates partnership agreement
provide that cash flow, sale or refinancing proceeds and profit and
loss will be distributed or allocated in proportion to the partner's
ownership interests.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
The property is managed by an affiliate of the General Partners
and an affiliate of the seller under a five year management agreement
that provides for a fee equal to 5% of the effective gross income, of
which 1% is paid to an affiliate of the General Partners. During 1996,
1995 and 1994 the property incurred management fees of $96,048, $97,270
and $88,306, respectively.
(3) Long-Term Debt
Long-term debt consists of the following at December 31, 1996 and
1995:
1996 1995
$5,000,000 mortgage note, bearing interest
at 9%, amortized over 30 years payable
in monthly installments of principal and
interest of $40,250 until maturity on
July 1, 1997 when the remaining principal
balance of $4,474,527 is payable; secured
by the real and personal property of
Indian River Plaza. 4,513,476 4,586,796
$4,586,044 mortgage note, bearing interest
at 9.125%, payable in monthly installments
of interest only of $34,873 from August 1,
1995 through February 1, 1996; principal
and interest of $55,170 from March 1, 1996
through August 1, 1998; and principal and
interest of $58,405 from September 1, 1998
until August 1, 2005 when the remaining
principal balance is due; secured by the
real and personal property of the Downers
Grove Building. 4,376,151 4,586,044
Total debt 8,889,627 9,172,840
Less current portion of long-term debt 4,787,641 283,213
Total long-term debt 4,101,986 8,889,627
Five year maturities of long-term debt are as follows:
1997 4,787,641
1998 313,164
1999 370,362
2000 405,608
2001 444,208
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(4) Partnership Agreement
Pursuant to the terms of the Partnership Agreement, net profits or
losses of the Partnership for Federal income tax purposes from
operations generally will be allocated 99% to the Limited Partners and
1% to the General Partners. Net profits for Federal income tax
purposes from the sale or refinancing of properties will be allocated
as follows: (i) first, to the Partners who have a deficit capital
account balance in an amount equal to their deficit balance; (ii)
second, to the Limited Partners in an amount equal to their contributed
capital plus a stipulated return thereon; and (iii) thereafter, 85% to
the Limited Partners and 15% to the General Partners. Net losses from
the sale or refinancing of properties will be allocated as follows:
(i) first, to the Partners who have a positive capital account balance
in an amount equal to their positive balance; and (ii) thereafter, 99%
to the Limited Partners and 1% to the General Partners.
Operating Cash Flow, as defined in the Partnership Agreement,
prior to the date the public offering terminated, was distributed 100%
to the Limited Partners. Operating Cash Flow subsequent to termination
of the public offering will be distributed during the first five years,
99% to the Limited Partners and 1% to the General Partners and,
thereafter, 90% to the Limited Partners and 10% to the General Partners
subject to certain limitations. Sale or refinancing proceeds will be
distributed 100% to the Limited Partners until the Limited Partners
have received their contributed capital plus a stipulated return
thereon. Any remaining sale or refinancing proceeds will then be
distributed 85% to the Limited Partners and 15% to the General
Partners.
For financial reporting purposes, net profits or losses from
operations are allocated 99% to the Limited Partners and 1% to the
General Partners. The General Partners are not required to make any
capital contributions except under certain limited circumstances upon
dissolution and termination of the Partnership.
(5) Leases
At December 31, 1996, the Partnership and its Consolidated
Ventures' principal assets are a shopping center and an office
building. The Partnership has determined that all leases relating to
the properties 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 of the property. Leases with tenants range in term from
two to thirty years and provide for fixed minimum rent and partial to
full reimbursement of operating costs. In addition, substantially all
leases with shopping center tenants provide for additional rent based
upon percentages of tenants' sales volume.
Cost and accumulated depreciation of the leased assets are
summarized as follows at December 31, 1996:
Shopping center:
Cost 9,850,763
Accumulated depreciation (3,193,056)
6,657,707
Office building:
Cost 8,051,562
Accumulated depreciation (2,111,553)
5,940,009
Total 12,597,716
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
Minimum lease payments, including amounts representing executory
costs (e.g. taxes, maintenance, insurance) and any related profit, to
be received in the future under the operating leases are as follows:
1997 1,069,795
1998 1,094,509
1999 1,023,397
2000 889,217
2000 892,460
Thereafter 3,172,545
8,141,923
Percentage rents (based on tenants' sales volume) included in
rental income were $83,941, $274,615 and $227,875 for the years ended
December 31, 1996, 1995 and 1994, respectively. In addition, the
Partnership's Consolidated Ventures recognize income on a straight-line
basis over the life of the related leases. Included in Rents and Other
Receivables at December 31, 1996 and 1995 is $874,967 and $494,195,
respectively, which represents rental income due from tenants in future
periods.
(6) Transactions with Affiliates
In connection with the evaluation, investigation, negotiation,
selection and purchase of the Partnership's investment properties,
affiliates of the General Partners were entitled to receive acquisition
fees from the Partnership, equal to 4.85% of the gross proceeds from
the offering of Units. As of December 31, 1996, the aggregate amount
of acquisition fees earned by affiliates of the General Partners was
$496,361, all of which was paid.
Affiliates of the General Partners are entitled to an annual non-
accountable expense reimbursement, subordinated to the Limited
Partners' receipt of distributions of Operating Cash Flow equal to 6%
per annum, in connection with the management of the Partnership in an
amount equal to the greater of .25% of the gross proceeds of the
offering or $25,000.
The Managing General Partner and its affiliates are entitled to
reimbursement for salaries and direct expenses of officers and
employees of the Managing General Partner and its affiliates relating
to the administration of the Partnership.
Fees, commissions and other expenses required to be paid by the
Partnership to affiliates of the General Partners for the years ended
December 31, 1996, 1995 and 1994 are as follows:
Unpaid at
1996 1995 1994 Dec. 31, 1996
Non-accountable expense
reimbursement 25,588 25,588 25,588 254,112
Reimbursement (at cost)
for administrative services 18,163 17,233 17,236 8,397
43,751 42,821 42,824 262,509
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(7) Investment in Unconsolidated Venture
Summary financial information for Sycamore Mall Associates as of
December 31, 1996 and 1995 is as follows:
1996 1995
Current assets 596,602 476,386
Current liabilities (387,429) (382,479)
Working capital 209,173 93,907
Deferred expenses 59,273 68,472
Ventures partners' equity (2,400,305) (2,420,956)
Investment property, net 7,769,373 8,043,994
Long-term debt (4,728,865) (4,870,823)
Partnership's capital 908,649 915,594
Represented by:
Invested capital 1,150,913 1,150,913
Cumulative cash distributions (672,602) (569,643)
Cumulative income 430,338 334,324
908,649 915,594
Total revenues 1,947,827 1,957,849
Total expenses 1,567,422 1,690,073
Net income 380,405 267,776
The total revenues, expenses and net income for the above venture for
the year ended December 31, 1994 were $1,784,231, $1,579,166 and
$205,065, respectively.
(8) Subsequent Event
In March 1997, the Partnership paid cash distributions of $38,232
to the Limited Partners.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
December 31, 1996
Schedule III
Consolidated Real Estate and Accumulated Depreciation
(a) (b)
Initial Cost Additions Gross amount at period end
Building & Building & Building & Accumulated Date
Encumbrance Land Improvements Improvements Land Improvements Total Depreciation Constructed
Shopping Center
Vero Beach, FL 4,513,640 931,905 8,532,052 357,758 960,953 8,889,810 9,850,763 3,193,056 1979
Office Building 1983
Downers Grove, IL 4,376,151 1,312,161 6,728,640 10,761 1,312,161 6,739,401 8,051,562 2,111,553 1987
Total 8,889,791 2,244,066 15,260,692 344,625 2,273,114 15,629,211 17,902,325 5,304,609
(a) The initial cost represents the original purchase price of the properties.
(b) The aggregate cost of the above real estate at December 31, 1996 for
Federal income tax purposes is $16,558,459.
1996 1995 1994
(c) Reconciliation of real estate owned
Balance at beginning of period 17,867,784 17,858,409 17,849,383
Additions 34,541 9,375 9,026
Balance at end of period 17,902,325 17,867,784 17,858,409
(d) Reconciliation of accumulated depreciation
Balance at beginning of period 4,809,502 4,316,293 3,821,802
Depreciation expense 495,107 493,209 494,491
Balance at end of period 5,304,609 4,809,502 4,316,293
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Partnership are:
FDIP, Inc., an Illinois corporation, Managing General Partner; and
FDIP Associates, an Illinois general partnership, Associate General
Partner.
FDIP, Inc., the Managing General Partner, is a corporation formed
under the laws of the State of Illinois. Its issued and outstanding
shares are owned by Messrs. Bruce H. Block and Robert S. Ross. The
officers of the Managing General Partner are Robert S. Ross, President,
and Bruce H. Block, Vice President and Secretary. Messrs. Block and
Ross are its sole directors.
FDIP Associates, the Associate General Partner, was formed under
the laws of the State of Illinois and has a nominal net worth. Its
constituent partners are First Dearborn Partners, an Illinois general
partnership formed in January, 1984, whose constituent partners are
Messrs. Block and Ross, and Hampshire Syndications, Inc., a New
Hampshire corporation. Hampshire Syndications, Inc. is wholly owned by
Hampshire Funding, Inc., a New Hampshire corporation, which is a wholly-
owned subsidiary of Chubb Life Insurance Company of America. The
officers and directors of Hampshire Syndications, Inc. are Ronald R.
Angarella, President and Director, Charles C. Cornelio, Vice President,
Counsel, Secretary and Director, Frederick H. Condon, Vice President
and Director and John A. Weston, Treasurer.
Messrs. Block and Ross are not affiliated with Chubb Securities
Corporation, except that each is affiliated with the Associate General
Partner.
The persons listed below occupy key management position with the
General Partners:
Mr. Bruce H. Block, age 59, has been a principal in numerous real
estate ventures which own, have an interest in, or have owned various
types of property that have included apartment and office buildings,
shopping centers and vacant land. Mr. Block is an Illinois licensed
attorney, a certified public accountant and a licensed real estate
broker in the State of Illinois. Mr. Block practiced corporate and
real estate law in Chicago for over 20 years and is a shareholder in
the Chicago law firm of Ross & Block, P.C.
Mr. Robert S. Ross, age 59, has been a principal in many real
estate ventures which own, have an interest in, or have owned various
types of property including apartment and office buildings, shopping
centers and vacant land. Mr. Ross is an Illinois licensed attorney, a
licensed real estate broker in the State of Illinois and is an
affiliate member of Real Estate Securities and Syndication Institute.
He also practiced general and real estate law in the Chicago are for
over 22 years and is a shareholder in the Chicago law firm of Ross &
Block P.C.
Mr. Ronald R. Angarella, age 39, currently serves as President,
Chairman and Director of Chubb Securities Corporation and Hampshire
Funding, Inc. and President and Director of Hampshire Syndications,
Inc. Mr. Angarella is also President and Director of Chubb America
Fund, Inc., Senior Vice President and Director of Chubb Investment
Funds, Inc. and Senior Vice President, Sales of Chubb Life Insurance
Company of America. Mr. Angarella is a graduate of Providence College
and Brown University.
Mr. Charles C. Cornelio, age 37, is Vice President, General
Counsel and Secretary of Chubb Securities Corporation, Hampshire
Syndications, Inc. and Hampshire Funding, Inc. He is also Executive
Vice President and Chief Administrative Officer of Chubb Life Insurance
Company of America and Vice President and General Counsel of Chubb
America Fund, Inc. and Chubb Investment Funds, Inc.
Mr. Frederick H. Condon, age 62, is a Director of Hampshire
Funding, Inc. and Chubb Securities Corporation. Mr. Condon also serves
as Senior Vice President, General Counsel and Secretary of Chubb Life
Insurance Company of America, Chubb Colonial Life Insurance Company and
Chubb Sovereign Life Insurance Company.
John Weston, age 37, Treasurer of Hampshire Funding, Inc., Chubb
Securities Corporation, Hampshire Syndications, Inc., Chubb Investment
Funds, Inc., Chubb America Fund, Inc. and Chubb Investment Advisory
Corporation. Mr. Weston also serves as Assistant Vice President of
Chubb Life Insurance Company of America.
Item 11. Executive Compensation
The Partnership has no officers or directors and instead is
managed by FDIP, Inc., its Managing General Partner.
Officers and directors of the Managing General Partner receive no
direct remuneration in such capacities from the Partnership. In
addition, the Partnership is a registrant that qualifies as a small
business issuer as defined in Item 10(a)(1) of Regulation S-B.
Accordingly, certain of the disclosures typically required by Item 402
are not applicable to the Partnership and the information set forth
herein has been appropriately modified.
The Partnership is required to pay certain fees to the General
Partners or their affiliates and the General Partners are entitled to
receive a share of cash distributions, when and as cash distributions
are made to the Limited Partners, and a share of profits or losses as
described under the caption "Compensation Table" at pages 9-10 of the
Prospectus, a copy of which descriptions is filed herewith and is
hereby incorporated herein by reference. Reference is also made to
Note 4 of Notes to Consolidated Financial Statements filed with this
annual report for a description of such distributions and allocations.
Certain compensation has accrued to the General Partners and
their affiliates for services rendered on behalf of the Partnership. In
connection with the evaluation, investigation, negotiation, selection
and purchase of the Partnership's investment properties, affiliates of
the General Partners were entitled to receive acquisition fees from the
Partnership, equal to 4.85% of the gross proceeds from the offering of
Units. As of December 31, 1996, the aggregate amount of acquisition
fees earned by affiliates of the General Partners was $496,361, all of
which was paid.
Affiliates of the General Partners are entitled to an annual non-
accountable expense reimbursement, subordinated to the Limited
Partners' receipt of distributions of Operating Cash Flow equal to 6%
per annum, in connection with the management of the Partnership in an
amount equal to the greater of .25% of the gross proceeds of the
offering or $25,000.
The Managing General Partner and its affiliates are entitled to
reimbursement for salaries and direct expenses of officers and
employees of the Managing General Partner and its affiliates relating
to the administration of the Partnership.
Fees, commissions and other expenses required to be paid by the
Partnership to affiliates of the General Partners for the years ended
December 31, 1996, 1995 and 1994 are as follows:
Unpaid at
1996 1995 1994 Dec.31, 1996
Non-accountable expense reimbursement 25,588 25,588 25,588 254,112
Reimbursement (at cost)
for administrative services 18,163 17,233 17,236 8,397
43,751 42,821 42,824 262,509
There are no compensatory plans or arrangements regarding
termination of employment or change of control.
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 Units of the Partnership.
(b) The following table sets forth information regarding the
beneficial ownership of Units as of December 31, 1996 by directors
and/or general partners of the General Partners, and by all officers,
directors and for general partners of the General Partners as a group:
Amount and
Title Name and address of nature of Percent
Class Beneficial Owner Ownership of Class
Limited Robert S. Ross 0 Units 0%
Partnership 154 W. Hubbard
Units Chicago, Illinois
Limited Bruce H. Block 4 Units less than 1%
Partnership 154 W. Hubbard
Units Chicago, Illinois
Limited Chubb Securities 280 Units(1) 1.4%
Partnership Corporation
Units One Granite Place
Concord, NH
Limited All officers 299 Units (2) 1.4%
Partnership directors, and
Units general partners
as a group
(1) During 1993, Chubb Securities Corporation, an affiliate of
Hampshire Syndications, Inc., acquired 280 Units pursuant to an
agreement with the Partnership. Hampshire Syndications, Inc. is a
General Partner of the Partnership and because it is an affiliate of
Chubb Securities Corporation, could be deemed to have a beneficial
interest in such Units. Accordingly, such Units are included in this
table.
(2) Includes 15 units owned by the immediate family of one of the
officers of a general partner of the Associate General Partner.
Item 13. Certain Relationships and Related Transactions
There were no significant transactions or business relationships
with the Managing General Partner, affiliates, or other management
other than those described in Item 10 and 11 above, and Note 6 to the
Consolidated Financial Statements.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) (1)(2) See Index to Financial Statements and Financial
Statement Schedules on page 15.
(3) Exhibits
(3-A) The Prospectus of the Partnership dated February
25, 1987 as supplemented April 2, 1987, February 5, 1988, April 15,
1988 and May 6, 1988, filed pursuant to Rule 424(b) under the
Securities Act of 1933 as amended (File No. 33-10244), is hereby
incorporated herein by reference.
(3-B) Amended Agreement of Limited Partnership set
forth as Exhibit A to the Prospectus, pursuant to Rule 424(b) under the
Securities Act of 1933 as amended (File No. 33-10244), is hereby
incorporated herein by reference.
(b) No reports on Form 8-K were filed in the last quarter of
1996.
(c) An annual report for the fiscal year 1996 will be sent to the
Limited Partners subsequent to this filing and the Partnership will
furnish copies of such report to the Securities and Exchange Commission
at that time.
(d) Exhibits - See Item 14(a) - (3).
(e) Financial Statement Schedules. See Index to Financial
Statements and Financial Statement Schedules on page 13.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FIRST DEARBORN INCOME PROPERTIES
L.P.
(Registrant)
BY: FDIP, Inc.
(Managing General Partner)
Date: March 28, 1997 BY: _______ Robert S. Ross
Its: President
BY: FDIP Associates
(Associate General Partner)
BY: First Dearborn Partners, a Partner
Date: March 28, 1997 BY: ________ Robert S. Ross
a Partner
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.
Signatures Title Date
/s/ Robert S. Ross President and Director March 28, 1997
Robert S. Ross of FDIP, Inc. (Principal
Executive Officer)
/s/ Bruce H. Block Secretary and Director March 28, 1997
Bruce H. Block of FDIP, Inc. (Principal
Financial Officer)