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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, 1998
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, 1998. 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, 1998, 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.
During the past five years, operations at the Partnership's three properties
have provided sufficient cash flow to meet the obligations of the Partnership
and continue to make distributions to its partners. Each of the properties
has been able to sustain adequate cash flow, however, as of December 31, 1998,
the Sycamore Mall property is now over 50% vacant. If the Partnership is
unable to lease the vacant space at this property, the Partnership may be
unable to meet its obligations related to the property. Since 1994, the
market rental rates have generally continued to increase.
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 $1,757,143.
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 $853,007.
The major tenants at Indian River Plaza are K Mart and Publix, which occupy
approximately 56% and 25%, respectively, of the property's net leaseable area.
During the second quarter of 1996 Walgreens vacated 12,000 square feet at
Indian River Plaza. Walgreens continued to pay the base rental amounts due
under their lease until a replacement tenant was located. Occupancy dropped
from 98% to 89%, however, in 1997 the vacant space was leased to Beall's
Outlet. As of December 31, 1998, the property has regained an occupancy
level of 98%. The first mortgage debt was refinanced in 1997, and it is
anticipated that the Vero Beach property will be able to produce enough cash
flow to meet its obligations.
The Downers Grove Building is a single tenant building with a lease to a
subsidiary of Amoco Oil, which expires in 2004. The original tenant at
Downers Grove vacated in 1994, however, it was replaced immediately. It is
anticipated that the Downers Grove property will be able to produce enough
cash flow to meet its obligations. As of October 1, 1997, the Downers Grove
property was considered to be held for sale and depreciation was suspended.
As of October 1, 1998, the Partnership is no longer considering the property
held for sale and has recorded an adjustment to expense previously suspended
depreciation.
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 approximately 86% during the second
quarters of 1996. However, Randall's continued to pay rent through
December, 1996. Sears, Roebuck and Co. was a tenant under a lease which had
an original termination date of March 31, 1992. Prior to that termination, a
ten-year extension was agreed to which provided Sears an option to terminate
the lease at any time after March 31, 1997 by giving landlord a one year
written notice. Sears gave such notice on September 17, 1997 and terminated
its lease on September 1, 1998. The Partnership has, so far, been
unsuccessful in its efforts to find new tenants for the property, although
it continues its leasing efforts. Sycamore Mall is located in Iowa City,
Iowa. A new 1,000,000 square foot regional mall has opened in the area,
which created additional competition for Sycamore Mall. As of December 31,
1998, the property was 47% occupied, and has needed to provide concessions to
the remaining tenants in order to keep them from vacating. Management is
currently negotiating with potential replacement tenants, 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.
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. 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 1998 1997 1996
Total revenue 747,490 778,708 814,569
Operating profit (loss) (207,583) (584,228) (147,232)
Total assets 5,827,472 6,056,411 6,838,960
Mortgage indebtedness 4,458,494 4,547,364 4,513,640
Downers Grove Building
Downers Grove, Illinois 1998 1997 1996
Total revenue 504,827 519,643 536,212
Operating profit (loss) (157,330) (54,508) (109,574)
Total assets 6,943,722 7,445,731 7,889,563
Mortgage indebtedness 3,823,915 4,101,987 4,376,151
Sycamore Mall,
Iowa City, Iowa 1998 1997 1996
Total revenue 1,515,937 1,828,997 1,947,827
Operating profit (loss) (1,010,483) 222,766 380,405
Total assets 6,484,454 8,113,686 8,425,247
Mortgage indebtedness 4,408,025 4,574,933 4,728,868
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, 1998, 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, 1998, 1997 and 1996.
Since the property was acquired, occupancy held above 95%, until the
second quarter of 1996, when Walgreens vacated 12,000 square feet. During
1997, two new leases were signed. One was for 12,000 square feet to Beall's
Outlet store, which replaced Walgreen's. The Beall's lease expires in April,
2002. A lease was also entered into for 5,960 square feet to Sunshine
Furniture, which provides for a termination in May 2000. 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. 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.
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. However, the property has
continued to operate at levels which have allowed it to meet its financial
obligations.
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, 1998, 1997 and 1996.
The Downers Grove Building has been 100% occupied for more than the last
five years. The current tenant is a subsidiary of Amoco Oil, and is
obligated under the lease until 2004. 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.
The total principal payments to be received from the annuities in 1999
aggregate $212,008 and are included in rents and other receivables, $443,374
is included in deferred rents receivable on the consolidated balance sheet,
and is expected to be received in the years 2000 through 2001. During 1998
and 1997, the Building Partnership recognized $45,872 and $60,863,
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 provide a steady stream of cash flow to
supplement the rental income. Together, these amounts are adequate to
service the mortgage obligations.
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 1998 and 1997 totaled $245,563 and
$245,563 respectively, of which $45,872 and $60,863 represented interest
income in the respective years while the remainder was treated as payment of
rents receivable. Annual payments in years 1999 through 2000 are expected to
be $245,563 per year with interest income of $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 lease are $42,423 through
November 2001 and $56,551 from December 2001 through November 2004.
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.
Market rental rates have been rising over the last several years, as the
overall vacancy rate for the area continues to decline. The vacancy rate in
the area is now under 10%. Since the Downers Grove Building has been
occupied under long term leases, the impoving market has not affected the
current lease income.
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 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 1998, 1997 and 1996 the
property incurred management fees of $84,679, $93,053 and $96,048,
respectively.
During 1996, Randall's vacated its leased premises of 19,800 square feet.
Occupancy fell to 86%, however, Randall's continued to pay rent through
December, 1996 so that there was no adverse financial impact in 1996. Sears,
Roebuck and Co. was a tenant under a lease which had an original termination
date of March 31, 1992. Prior to that termination, a ten-year extension was
agreed to which provided Sears an option to terminate the lease at any time
after March 31, 1997 by giving landlord a one year written notice. Sears
gave such notice on September 17, 1997, and terminated its lease on September
1, 1998. The Sears lease comprised 82,605 square feet which is 34% of the
leaseable area of the shopping center. However, the annual rental income
received from Sears was approximately $109,000 or approximately 6% of total
revenues.
The Partnership has, so far, been unsuccessful in its efforts to find new
tenants for the property, although it continues its leasing efforts. Sycamore
Mall is located in Iowa City, Iowa. A new 1,000,000 square foot regional mall
has opened, which created additional competition for Sycamore Mall. As of
December 31, 1998, the property was 47% occupied, and it has needed to
provide concessions to the remaining tenants in order to keep them from
vacating. Management is currently negotiating with potential replacement
tenants, 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. In response to the uncertainty relative to Sycamore Mall Associates
ability to recover the net carrying value of Sycamore Mall through future
operations and sale, Sycamore Mall Associates, as a matter of prudent
accounting practices and for financial reporting purposes, recorded a
provision for value impairment in 1998 in the amount of $1,100,000, of which
the Partnership's share was $278,000.
As a precautionary measure, the partners of Sycamore Mall Associates have
maintained additional 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. 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 1998 were $420,000 as compared
to $295,000 in 1997 and $408,000 in 1996.
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:
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, 1998, the Partnership had made capital contributions aggregating
$4,710,642 to the Operating Partnership.
The first mortgage at Indian River Plaza was refinanced as of November 11,
1997. The property had been encumbered by a first mortgage which had a
principal balance of $4,513,476, as of December 31, 1996. The old loan was
being amortized over 30 years with monthly payments of principal and interest
of $40,250, bearing interest at the rate of 9%. Currently the property is
subject to a first mortgage with an original amount of $4,185,000, bearing
interest at 8.31%, amortized over 30 years payable in monthly installments of
principal and interest of $31,617, until maturity on November 11, 2027 when
the remaining principal balance is payable; secured by the real and personal
property of Indian River Plaza. In addition to the first mortgage, the
property is also encumbered by a second mortgage with an original principal
amount of $365,000, bearing interest at a floating rate which is 5% above the
LIBOR rate. This loan is payable in monthly installments of principal and
interest, until maturity on November 11, 2002.
The major tenants at Indian River Plaza are K Mart and Publix, which occupy
approximately 56% and 25%, respectively, of the property's net leaseable area.
Occupancy at Indian River Plaza had remained in the 96% - 100% range through
1995. Walgreens, which was 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. 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 was to expire in 1999 and the annual rent is approximately
$125,000. A 5 year extension of the lease has been entered into which
provides for a new termination date of September 30, 2004 at an annual rental
of approximately $127,624. Average total rent received per square foot at
the property during the last three years were $5.08 in 1998, $5.29 in 1997
and $5.73 in 1996.
K- Mart is disputing the calculation of amounts due for tenant charges, under
the lease. The total amount disputed from K-Mart is $104,349, as of December
31, 1998. The Partnership has begun legal proceedings to collect the amounts
due. As of December 31, 1998, the Partnership has reserved $83,519 of the
amount due from K-Mart. This amount has been charged to operating expenses.
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
1999 - - - -
2000 3 11,000 71,645 11%
2001 1 1,200 8,400 1%
2002 2 13,200 99,000 16%
2003 2 3,600 37,534 6%
2004 3 119,386 417,368 66%
2005 - - - -
2006 - - - -
2007 - - - -
2008 - - - -
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, 1998, 1997 and 1996.
The property is owned fee simple by the Building Partnership. It is subject
to a first mortgage in the amount of $3,823,915, bearing interest at 9.125%,
payable in monthly installments of principal and interest of $55,170 from
March 1, 1996 through August 1, 1998; and principal and interest of $49,731
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 over 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.
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 $4,408,024 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 remaining balance is due.
The major tenant is Von Maur which occupies approximately 17% of the net
rentable area. Occupancy at Sycamore Mall had 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 continued to
pay rent through December, 1996 so that there was no adverse financial impact
in 1996. Sears, Roebuck and Co. was a tenant under a lease which had an
original termination date of March 31, 1992. Prior to that termination, a
ten-year extension was agreed to which provided Sears an option to terminate
the lease at any time after March 31, 1997 by giving landlord a one year
written notice. Sears gave such notice on September 17, 1997 and terminated
its lease on September 1, 1998. Management is currently negotiating with
potential replacement tenants, however there can be no assurance that a new
lease will be entered into. As of December 31, 1998, the property was over
50% vacant. 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. The Sears lease comprised 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 $6.98 in 1998, $7.65 in 1997, and
$8.15 in 1996.
There are currently no plans for any significant improvements to the property.
Any improvements will be done in conjunction with any new tenants which are
located for the property.
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
1999 11 18,675 48,940 7%
2000 4 11,623 69,666 10%
2001 3 6,100 95,200 13%
2002 5 21,321 184,710 26%
2003 1 1,203 12,000 2%
2004 1 3,464 54,212 8%
2005 - - - -
2006 - - - -
2007 - - - -
2008 - - - -
Management believes that the Sycamore Mall property has adequate insurance
coverage.
The following is a list of approximate occupancy levels by quarter for
the Partnership's investment properties:
1997 1998
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 93% 93% 97% 97% 97% 97% 97% 98%
Downers Grove Building
Downers Grove,
Illinois 100% 100% 100% 100% 100% 100% 100% 100%
Sycamore Mall
Iowa City,
Iowa 88% 89% 89% 90% 85% 79% 84% 47%
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, 1998, there were 1,288 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, 1998, have
totaled $3,358,904 since the Partnership's formation. This is approximately
$164.10 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, 1998, 1997, 1996, 1995 and 1994
(not covered by Independent Auditors' Report)
1998 1997 1996 1995 1994
Total revenues 1,253,960 1,305,716 1,360,339 1,579,111 3,495,931
Operating income (loss) (473,079) (745,757) (382,721) (267,289) 1,721,130
Partnership's share of
operations of
unconsolidated venture (255,045) 56,226 96,014 67,587 51,758
Venture partners' share
of consolidated ventures'
operations 52,438 18,758 34,611 65,054 (614,111)
Net income (loss) (675,686) (670,773) (252,096) (134,648) 1,158,777
Net income (loss) per Unit (32.68) (32.44) (12.19) (6.51) 56.05
Total assets 13,960,459 15,169,140 16,317,347 16,959,731 17,726,940
Long-term debt 7,816,665 8,249,873 4,101,986 8,889,627 4,586,785
Cash distributions
per Unit 6.59 7.48 7.50 11.26 14.96
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, 1998, the Partnership had cash and cash equivalents of $298,500
as compared to $318,627 as of December 31, 1997. The decrease in cash and
cash equivalents is primarily a result of cash flow used by financing
activities and used by investment activities exceeding cash provided from
operations. Distributions to limited partners were reduced $18,071
($0.89 per Unit) from the prior year. Distributions to limited partners have
been suspended in 1999.
The first mortgage at Indian River Plaza was refinanced as of November 11,
1997. The property had been encumbered by a first mortgage which had a
principal balance of $4,513,476, as of December 31, 1996. The old loan was
being amortized over 30 years with monthly payments of principal and interest
of $40,250, bearing interest at the rate of 9%. Currently the property is
subject to a first mortgage with an original amount of $4,185,000, bearing
interest at 8.31%, amortized over 30 years payable in monthly installments of
principal and interest of $31,617, until maturity on February 11, 2027 when
the remaining principal balance is payable; secured by the real and personal
property of Indian River Plaza. In addition to the first mortgage, the
property is also encumbered by a second mortgage with an original principal
amount of $365,000, bearing interest at a floating rate which is 5% above the
LIBOR rate. This loan is payable in monthly installments of principal and
interest, until maturity on November 11, 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. The total
principal payments to be received from the annuities in 1999 aggregate
$212,008 and are included in rents and other receivables, $443,374 is
included in deferred rents receivable on the consolidated balance sheet,
and is expected to be received in the years 2000 and 2001. During 1998 and
1997, the Building Partnership recognized $45,872 and $60,863, 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.
As of October 1, 1997, the Downers Grove property was considered to be held
for sale and depreciation was suspended. As of October 1, 1998, the
Partnership is no longer considering the property held for sale and has
recorded an adjustment to expense previously suspended depreciation.
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
being experienced at the Sycamore Mall property in particular, the
Partnership is taking steps to preserve its working capital. 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 expects 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, 1998, December 31,
1997 and December 31, 1996 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 1997 to 1998:
In 1998, the Partnership had a net loss of $675,686 as compared to a net loss
of $670,773 in 1997. In 1997 the Partnership recognized an impairment loss
of $400,000 related to the Vero Beach property. In 1998 the Partnership
recognized approximately $250,000 in losses from the Sycamore Mall property
related to an impairment loss recorded at that property.
The Partnership's interest income decreased $20,568 (29%) from $71,680 in
1997 to $50,112 in 1998. 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 increased $38,217 (13%) to $336,626 in 1998 from
$298,409 in 1997, primarily as a result of a write down of accounts
receivable at the Vero Beach property. An allowance for doubtful accounts
was established in the amount of $83,519 for expense reimbursements from a
tenant. The tenant is disputing the calculation of amounts due to be
reimbursed under the lease. Management is currently reviewing possible
legal action against the tenant.
Interest expense decreased $48,041 (6%) from $790,313 in 1997 to $742,272
in 1998. The decrease is a result of the reduction in mortgage indebtedness
in the amount of $366,942 which occurred throughout the year.
Depreciation expense increased $94,926 (21%) from $448,396 in 1997 to
$543,322 in 1998. As of October 1, 1997, the Downers Grove property was
considered to be held for sale. As of October 1, 1998, the Partnership is
no longer considering the property held for sale and has recorded a
cummulative adjustment to recapture depreciation expense from October 1, 1997.
General and administrative expense increased $1,495 (2%) from $98,704 in 1997
to $100,199 in 1998. This increase resulted from an increase in accounting
and professional fees.
The Partnership's share of operations of unconsolidated venture resulted in
a loss of $255,045 in 1998 compared to income of $56,226 in 1997. This
decrease is attributable to increased vacancy at Sycamore Mall and the
Partnership's share ($278,000) of a provision for value impairment. Revenues
decreased $313,000 in 1998 as compared to 1997, as a result of the increase
in vacancy. Interest expense decreased by $13,000 in 1998 as compared to
1997 due to a reduction in the outstanding loan balance. Property operating
expenses decreased $99,000 in 1998 as compared to 1997 primarily due to a
decrease in property maintenance and landscaping costs. Property taxes
decreased $156,000 in 1998 as compared to 1997 primarily due to a reduction
in assessed value due to the increase in vacancy. Net loss at Sycamore Mall
was approximately $1,010,000 in 1998 as compared to net income of
approximately $223,000 in 1997.
Changes from 1996 to 1997:
In 1997, the Partnership had a net loss of $670,773 as compared to a net loss
of $252,096 in 1996. This significant increase in net loss is attributable
to the Partnership's recognition of an impairment loss of $400,000 related
to the Vero Beach property. In conjunction with the refinancing of the Vero
Beach property, an appraisal was obtained which indicated a valuation of
$6,000,000. The partnership adjusted the book valuation from $6,400,000 to
$6,000,000.
The $20,742 decrease in rental income and the $12,258 decrease in tenant
charges for the year ended December 31, 1997 as compared to the year ended
December 31, 1996 primarily resulted from the decrease in occupancy at the
Vero Beach property. The Vero Beach vacancies were released prior to the
end of 1997 and management anticipates an increase in rental income in 1998.
The Partnership's interest income decreased from $93,303 in 1996 to $71,680
in 1997. 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 increased $13,559 (5%) to $298,409 in 1997 from
$284,850 in 1996, primarily as a result of an increase in property
maintenance expenses at the Vero Beach property.
Interest expense decreased $28,936 (4%) from $819,249 in 1996 to $790,313 in
1997. The decrease is a result of the reduction in mortgage indebtedness in
the amount of $240,276 which occurred throughout the year.
Depreciation expense decreased from $495,107 in 1996 to $448,396 in 1997.
As of October 1, 1997, the Downers Grove property was considered to be held
for sale. In accordance with SFAS 121, no depreciation expense relative to
the property was recorded by the Partnership from October 1, 1997 through
December 31, 1997.
General and administrative expense decreased $23,009 (19%) from $121,713 in
1996 to $98,704 in 1997. This decrease resulted in a decrease in
administrative costs charged by an affiliate of the General Partner.
The Partnership's share of operations of unconsolidated venture decreased
$39,788 (41%) from $96,014 in 1996 to $56,226 in 1997. This decrease is
attributable to increased vacancy at Sycamore Mall. Revenues decreased
$119,000 in 1997 as compared to 1996, as a result of the increase in vacancy.
Interest expense decreased by $12,000 in 1997 as compared to 1996 due to a
reduction in the outstanding loan balance. Property operating expenses
increased $40,000 in 1997 as compared to 1996 primarily due to an increase
in property maintenance and landscaping costs. Net income at Sycamore Mall
decreased approximately $158,000 in 1997 as compared to 1996. First Dearborn
Income Properties L.P.'s share of the decrease is $39,788.
Inflation:
The Partnership has completed its eleventh full year of operations. During
the last ten years the annual inflation rate has ranged from 2.01% to 5.40%
with an average of 3.71%. 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.
Year 2000
The General Partner has determined that it does not expect that the
consequences of the Partnership's year 2000 issues will have a material
effect on the Partnership's business, results of operations or financial
condition.
Item 7a. Quantitative and Qualitative Disclosures about Market Rate
The Partnership has identified interest rate changes as a potential
market risk. However, as a majority of the Partnership`s long-term debt
bears interest at a fixed rate, the Partnership does not believe that it is
exposed to market risk relative to interest rate changes.
Item 8. Financial Statements and Supplementary Data
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
INDEX
Independent Auditors' Report 16
Consolidated Balance Sheets, December 31, 1998 and 1997 17 - 18
Consolidated Statements of Operations,
years ended December 31, 1998, 1997 and 1996 19
Consolidated Statements of Partners' Capital Accounts (Deficits),
years ended December 31, 1998, 1997 and 1996 20
Consolidated Statements of Cash Flows,
years ended December 31, 1998, 1997 and 1996 21
Notes to Consolidated Financial Statements 22 - 30
Schedule
Consolidated Real Estate and Accumulated Depreciation III
Sycamore Mall Associates
(a general partnership)
INDEX
Independent Auditors' Report 32
Balance Sheets, December 31, 1998 and 1997 33 - 34
Statements of Operations,
years ended December 31, 1998, 1997 and 1996 35
Statements of Partners' Capital Accounts (Deficits),
years ended December 31, 1998, 1997 and 1996 36
Statements of Cash Flows,
years ended December 31, 1998, 1997 and 1996 37
Notes to Financial Statements 38 - 40
Schedule
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,
1998 and 1997 and the results of their operations and their 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 consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Chicago, Illinois
April 14, 1999
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
1998 1997
Current assets:
Cash and cash equivalents (note 1) 298,500 318,627
Rents and other receivables 371,630 422,867
Due from affiliates 6,934 6,329
Prepaid expenses 8,767 14,202
Total current assets 685,831 762,025
Investment properties:
Land 2,233,114 920,953
Buildings and improvements 15,375,453 8,582,416
17,608,567 9,503,369
Less accumulated depreciation (6,296,327) (3,482,119)
Total properties held for investment
net of accumulated depreciation 11,312,240 6,021,250
Properties held for sale or disposition - 5,780,676
11,312,240 11,801,926
Investment in unconsolidated venture,
at equity (notes 2 and 7) 529,400 890,432
Deferred rents receivable 1,211,836 1,476,641
Deferred loan costs 221,152 238,116
Total assets 13,960,459 15,169,140
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, 1998 and 1997
Liabilities and Partners' Capital Accounts (Deficits)
1998 1997
Current liabilities:
Accounts payable and accrued expenses 228,452 215,149
Due to affiliates (note 6) 306,643 281,182
Accrued interest 49,216 54,375
Current portion of long-term debt (note 3) 353,857 399,478
Total current liabilities 938,168 950,184
Long-term liabilities:
Long-term debt (note 3) 7,928,552 8,249,873
Venture partners' equity
in consolidated ventures (note 2) 1,176,676 1,245,723
Deposits 17,767 13,431
Total long-term liabilities 9,122,995 9,509,027
Total liabilities 10,061,163 10,459,211
Partners' capital accounts (deficits)
General partners - cumulative net loss (15,497) (8,740)
Total general partner capital (deficit) (15,497) (8,740)
Limited partners (20,468.5 units):
Capital contributions 8,800,461 8,800,461
Cumulative net loss (1,526,764) (857,835)
Cumulative cash distributions (3,358,904) (3,223,957)
Total limited partner capital 3,914,793 4,718,669
Total partners' capital accounts 3,899,296 4,709,929
Commitments and contingencies (notes 2 and 6)
Total liabilities and partners' capital 13,960,459 15,169,140
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, 1998, 1997, and 1996
1998 1997 1996
Revenues:
Rental income 1,117,753 1,136,271 1,157,013
Tenant charges 86,095 97,765 110,023
Interest income 50,112 71,680 93,303
Total revenues 1,253,960 1,305,716 1,360,339
Expenses:
Property operating expenses 326,626 298,409 284,850
Interest 742,272 790,313 819,249
Depreciation 543,322 448,396 495,107
Amortization 14,621 15,651 22,141
Provision for value impairment - 400,000 -
General and administrative expense 100,199 98,704 121,713
Total expenses 1,727,039 2,051,473 1,743,060
Operating loss (473,079) (745,757) (382,721)
Partnership's share of operations
of unconsolidated venture (255,045) 56,226 96,014
Venture partners' share of consolidated
ventures' operations (note 1) 52,438 18,758 34,611
Net loss (675,686) (670,773) (252,096)
Net loss per
limited partnership unit (note 1) (32.68) (32.44) (12.19)
Cash distribution per
limited partnership unit 6.59 7.48 7.50
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, 1998, 1997 and 1996
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, 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
Net loss (6,708) (6,708) - (664,065) - (664,065)
Cash distributions - - - - (153,018) (153,018)
Balance (deficit)
at December 31, 1997 (8,740) (8,740) 8,800,461 (857,835) (3,223,957) 4,718,669
Net loss (6,757) (6,757) - (668,929) - (668,929)
Cash distributions - - - - (134,947) (134,947)
Balance (deficit)
at December 31, 1998 (15,497) (15,497) 8,800,461 (1,526,764) (3,358,904) 3,914,793
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, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net loss (675,686) (670,773) (252,096)
Items not requiring
cash or cash equivalents:
Depreciation 543,322 448,396 495,107
Amortization 14,621 15,651 22,141
Provision for value impairment - 400,000 -
Partnership's share of operations
of unconsolidated venture,
net of distributions 361,032 18,217 6,945
Venture partners' share of
consolidated ventures'
operations (52,438) (18,758) (34,611)
Changes in:
Rents and other receivables 51,237 (129,480) 645,917
Due from affiliates (605) (4,114) (201)
Prepaid expense 5,435 (4,895) (234)
Deferred rents receivable 264,805 252,470 (191,542)
Accounts payable
and accrued expenses 13,303 (9) 5,950
Due to affiliates 25,461 18,673 24,319
Accrued interest (5,159) (12,753) (2,146)
Unearned revenues - (60,538) 60,538
Deposits 4,336 960 (17,453)
Net cash provided
by operating activities 549,664 253,047 762,634
Cash flows from investing activities-
additions to investment properties (53,636) (52,606) (34,541)
Cash flows from financing activities:
Payment of deferred loan costs 2,343 (170,990) (1,246)
Venture partners' distributions
from consolidated ventures (16,609) (11,715) 9,795
Distributions to limited partners (134,947) (153,018) (153,467)
Proceeds from refinancing
of long-term debt - 4,550,000 -
Principal payments on long-term debt (366,942) (4,790,276) (283,213)
Net cash used in financing activities (516,155) (575,999) (428,131)
Net increase (decrease)
in cash and cash equivalents (20,127) (375,558) 299,962
Cash and cash equivalents
at beginning of year 318,627 694,185 394,223
Cash and cash equivalents
at end of year 298,500 318,627 694,185
Supplemental disclosure of
cash flow information-
cash paid for mortgage
and other interest 747,431 803,066 821,395
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, 1998, 1997 and 1996
(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, 1998, 1997 and 1996, 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
Partnerships policy is to consolidate the operations of ventures in which it
controls more than 50% of the equity interest. The equity method is used to
account for ventures in which it controls 50% or less of the equity interest.
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)
1998 1998 1997 1997
GAAP Tax GAAP Tax
Basis Basis Basis Basis
Total assets 13,960,459 4,482,586 15,169,140 4,761,970
Partners' capital accounts:
General partners (15,497) (32,385) (8,740) (29,335)
Limited partners 3,914,793 4,208,328 4,718,669 4,565,881
Net loss:
General partners (6,757) (1,699) (6,708) (4,292)
Limited partners (668,929) (168,290) (664,065) (310,688)
Net loss per
limited partnership unit (32.68) (8.22) (32.44) (15.18)
The net loss per limited partnership unit presented is based on the limited
partnership units outstanding at the end of each period (20,468.5). All
distributions to partners through December 31, 1998 have been considered to
be a return of capital.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
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 income. 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 ($18,810 and
$69,163 at December 31, 1998 and 1997, respectively), as cash equivalents.
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.
Although certain leases of the Partnership provide for tenant occupancy
during periods for which no rent was due and/or increases in minimum lease
payments over the term of the lease, the Partnership accrues rental income
for the full period of occupancy on a straight-line basis.
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.
The Partnership adopted 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", on January 1, 1996. SFAS 121 requires
that the Partnership record an impairment loss on its property held for
investment whenever the property's carrying value cannot be fully recovered
through estimated undiscounted cash flows from its 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. In addition, SFAS 121 provides that a property may not be depreciated
while being held for sale. As of October 1, 1997, the Downers Grove
property was considered to be held for sale, and depreciation was suspended.
As of October 1, 1998, the Partnership is no longer considering the property
held for sale and has recorded an adjustment to expense previously
unrecognized depreciation from October 1, 1997. At December 31, 1997, an
impairment loss of $400,000 was recognized as it relates to the Vero Beach
property. In response to the uncertainty relative to Sycamore Mall
Associates ability to recover the net carrying value of Sycamore Mall
through future operations and sale, Sycamore Mall Associates, as a matter of
prudent accounting practices and for financial reporting purposes, recorded
a provision for value impairment in 1998 in the amount of $1,100,000, of
which the Partnership's share was $278,000.
The Partnership has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Partnership defines each of its
property investments as an individual operating segment and has determined
such property investments exhibit substantially identical economic
characteristics and meet the other criteria specified by SFAS No. 131 which
permits the property investments to be aggregated into one reportable
segment. The Partnership assesses and measures operating results based on
net operating income (rental income less property operating expenses).
With the exception of interest expense, professional services and general
and administrative expenses, substantially all other components of net
earnings (loss) of the Partnership relate to property investments. With
the exception of cash and cash equivalents, substantially all other assets
of the Partnership relate to property investments.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(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, 1998. 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, 1998, the Partnership had made capital contributions aggregating
$4,710,642 to the Operating Partnership.
The first mortgage at Indian River Plaza was refinanced as of November 11,
1997. The property had been encumbered by a first mortgage which had a
principal balance of $4,513,476, as of December 31, 1996. The old loan was
being amortized over 30 years with monthly payments of principal and interest
of $40,250, bearing interest at the rate of 9%. Currently the property is
subject to a first mortgage with an original amount of $4,185,000, bearing
interest at 8.31%, amortized over 30 years payable in monthly installments of
principal and interest of $31,617, until maturity on November 11, 2027 when
the remaining principal balance is payable; secured by the real and personal
property of Indian River Plaza. In addition to the first mortgage, the
property is also encumbered by a second mortgage with an original principal
amount of $365,000, bearing interest at a floating rate which is 5% above
the LIBOR rate. This loan is payable in monthly installments of principal
and interest, until maturity on November 11, 2002.
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, 1998 and 1997.
(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").
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
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. The total principal payments
to be received from the annuities in 1999 aggregate $212,008 and are included
in rents and other receivables, $443,374 is included in deferred rents
receivable on the consolidated balance sheet, and is expected to be received
in the years 2000 through 2001. During 1998 and 1997, the Building
Partnership recognized $45,872 and $60,863, respectively, of interest income
relating to the annuity contracts.
The Downers Grove Building is managed by an unaffiliated entity under a
management agreement that 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 partners' 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 1998, 1997 and 1996 the
property incurred management fees of $84,679, $93,053 and $96,048,
respectively.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(3) Long-Term Debt
Long-term debt consists of the following at December 31, 1998 and 1997:
1998 1997
$4,185,000 mortgage note, bearing interest
at 8.31%, amortized over 30 years payable
in monthly installments of principal and
interest of $31,617 until February 11, 2007.
If the remaining principal balance is not
paid; the interest rate will increase to the
greater of 13.31% or the Treasury Rate, as
defined, for the remaining term of the loan,
until maturity on November 11, 2027. The
loan is secured by the real and personal
property of Indian River Plaza. 4,156,833 4,182,364
$365,000 floating rate note, bearing interest
at LIBOR plus 5%, payable in monthly
installments of principal and interest
until maturity on November 11, 2002.
The loan is secured by the real and personal
property of Indian River Plaza. 301,661 365,000
$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 $49,731 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. 3,823,915 4,101,987
Total debt 8,282,409 8,649,351
Less current portion of long-term debt 353,857 399,478
Total long-term debt 7,928,552 8,249,873
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
Five year maturities of long-term debt are as follows:
1999 353,857
2000 387,476
2001 426,444
2002 468,226
2003 411,618
(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, 1998, 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.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
Cost and accumulated depreciation of the leased assets are summarized as
follows at December 31, 1998:
Shopping center:
Cost 9,503,369
Accumulated depreciation (3,765,441)
5,737,928
Office building:
Cost 8,105,198
Accumulated depreciation (2,530,886)
5,574,312
Total 11,312,240
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 1,135,301
2000 1,091,388
2001 1,075,822
2002 1,170,105
2003 1,129,047
Thereafter 900,825
6,502,488
Percentage rents (based on tenants' sales volume) included in rental income
were $24,859, $108,000 and $83,941 for the years ended December 31, 1998,
1997 and 1996, respectively. In addition, the Partnership's Consolidated
Ventures recognize income on a straight-line basis over the life of the
related leases. Included in deferred rents receivable at December 31, 1998
and 1997 is $768,463 and $821,242, 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, 1998, 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.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
Fees, commissions and other expenses required to be paid by the Partnership
to affiliates of the General Partners for the years ended December 31,
1998, 1997 and 1996 are as follows:
Unpaid at
1998 1997 1996 Dec. 31, 1998
Non-accountable expense reimbursement 25,588 25,588 25,588 305,257
Reimbursement (at cost)
for administrative services 1,336 1,652 18,163 1,386
26,924 27,240 43,751 306,643
(7) Investment in Unconsolidated Venture
Summary financial information for Sycamore Mall Associates as of December 31,
1998 and 1997 is as follows:
1998 1997
Current assets 286,207 561,025
Current liabilities (445,759) (463,515)
Working capital 159,552 97,510
Deferred expenses 40,215 49,805
Venture partners' equity (1,350,441) (2,419,892)
Investment property, net 6,158,032 7,502,856
Long-term liabilities (4,232,462) (4,413,455)
Partnership's capital 455,792 816,824
Represented by:
Invested capital 1,075,000 1,075,000
Cumulative cash distributions (853,032) (747,045)
Cumulative income 233,824 488,869
455,792 816,824
Total revenues 1,515,937 1,828,997
Total expense 2,526,420 1,606,231
Net income (loss) (1,010,483) 222,766
The total revenues, expenses and net income for the above venture for the
year ended December 31, 1996 were $1,947,827, $1,567,422 and $380,405,
respectively.
The Partnership's investment in Sycamore Mall Associates differs from the
Partnership's capital primarily due to acquisition costs incurred by the
Partnership which were not reimbursed by Sycamore Mall Associates and are
being amortized over 30 years.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(8) Subsequent Event
In March 1999, the Partnership suspended cash distributions to the
Limited Partners.
FIRST DEARBORN INCOME PROPERTIES L.P.
(a limited partnership)
and Consolidated Ventures
December 31, 1998
Schedule III
Consolidated Real Estate and Accumulated Depreciation
Initial Cost to Partnership Additions Gross amount of asset at period end
Building & Building & Building & Accumulated
Encumbrance Land Improvements Improvements Land Improvements Total Depreciation
Shopping Center
Vero Beach, FL 4,458,494 891,905 8,172,052 410,364 920,953 8,582,416 9,503,369 3,765,441
Office Building
Downers Grove, IL 3,823,915 1,312,161 6,728,640 64,397 1,312,161 6,793,037 8,105,198 2,530,886
Total 8,282,409 2,204,066 14,900,692 474,761 2,233,114 15,375,453 17,608,567 6,296,327
(a) The initial cost represents the original purchase price of the properties reduced by any provision
for value impairment.
(b) The aggregate cost of the above real estate at December 31, 1998 for Federal income tax purposes
is $16,611,065.
(c) The Vero Beach property was constructed in 1979 and aquired by the Partnership in 1987.
Its components are depreciated over useful lives of between 5 and 30 years.
(d) The Downers Grove property was constructed in two phases in 1983 and 1987 and aquird
in 1988. It is depreciated over useful lives of between 5 and 30 years.
1998 1997 1996
(e) Reconciliation of real estate owned
Balance at beginning of period 17,554,931 17,902,325 17,867,784
Reserve for value impairment - (400,000) -
Additions 53,636 52,606 34,541
Balance at end of period 17,608,567 17,554,931 17,902,325
(f) Reconciliation of accumulated depreciation
Balance at beginning of period 5,753,005 5,304,609 4,809,502
Depreciation expense 543,322 448,396 495,107
Balance at end of period 6,296,327 5,753,005 5,304,609
Independent Auditors' Report
The Partners
Sycamore Mall Associates
We have audited the financial statements of Sycamore Mall Associates 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 the
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 Sycamore Mall Associates as of 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 herein.
KPMG LLP
Chicago, Illinois
April 14, 1999
SYCAMORE MALL ASSOCIATES
(a general partnership)
Balance Sheets
December 31, 1998 and 1997
Assets
1998 1997
Current assets:
Cash and cash equivalents 98,915 222,382
Rents and other receivables 161,492 315,012
Due from affiliates 4,509 4,509
Prepaid expenses 21,291 19,122
Total current assets 286,207 561,025
Investment properties:
Land 1,206,880 1,206,880
Buildings and improvements 7,246,641 8,301,053
8,453,521 9,507,933
Less accumulated depreciation (2,295,489) (2,005,077)
6,158,032 7,502,856
Deferred leasing and loan costs 39,910 49,500
Other assets 305 305
Total assets 6,484,454 8,113,686
See accompanying notes to Financial Statements.
SYCAMORE MALL ASSOCIATES
(a general partnership)
Balance Sheets - Continued
December 31, 1998 and 1997
Liabilities and Partners' Capital Accounts
1998 1997
Current liabilities:
Accounts payable and accrued expenses 234,920 180,631
Accrued interest 29,846 30,976
Current portion of long-term debt 180,993 166,908
Other current liabilities - 85,000
Total current liabilities 445,759 463,515
Long-term liabilities:
Long-term debt (note 2) 4,227,032 4,408,025
Deposits 5,430 5,430
Total long-term liabilities 4,232,462 4,413,455
Total liabilities 4,678,221 4,876,970
General Partners' capital accounts
Capital contributions 4,260,000 4,260,000
Cumulative net income 926,487 1,936,969
Cumulative cash distributions (3,380,254) (2,960,253)
Total general partner capital 1,806,233 3,236,716
Commitments and contingencies (notes 2 and 3)
Total liabilities and partners' capital 6,484,454 8,113,686
See accompanying notes to Financial Statements.
SYCAMORE MALL ASSOCIATES
(a general partnership)
Statements of Operations
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
Revenues:
Rental income 935,717 1,293,749 1,355,795
Tenant charges 563,197 514,760 559,330
Interest income 3,112 4,651 10,098
Miscellaneous income 13,911 15,837 22,604
Total revenues 1,515,937 1,828,997 1,947,827
Expenses:
Property operating expenses 682,200 882,636 841,721
Interest 364,462 377,530 389,584
Depreciation 290,412 288,146 288,158
Amortization 9,578 9,785 10,198
Provision for value impairment 1,100,000 - -
General and administrative expenses 79,768 48,134 37,761
Total expenses 2,526,420 1,606,231 1,567,422
Net income (loss) (1,010,483) 222,766 380,405
See accompanying notes to Financial Statements.
SYCAMORE MALL ASSOCIATES
(a general partnership)
Statements of Partners' Capital Accounts (Deficits)
Years ended December 31, 1998, 1997 and 1996
First First First
Dearborn Dearborn Dearborn
Sycamore Income Income
Associates Properties Properties
Limited Limited Limited
Partnership Partnership I Partnership II
(FDSALP) (FDIP LP I) (FDIP LP II) Total
Balance at December 31, 1995 712,735 842,006 1,781,804 3,336,545
Net income 81,255 96,014 203,136 380,405
Cash distributions (87,149) (102,979) (217,872) (408,000)
Balance at December 31, 1996 706,841 835,041 1,767,483 3,308,950
Net income 47,583 56,226 118,957 222,766
Cash distributions (63,015) (74,443) (157,542) (295,000)
Balance at December 31, 1997 691,409 816,824 1,728,483 3,236,716
Net income (loss) (215,841) (255,045) (539,597) (1,010,483)
Cash distributions (89,716) (105,987) (224,297) (420,000)
Balance at December 31, 1998 385,852 455,792 964,589 1,806,233
See accompanying notes to Financial Statements.
SYCAMORE MALL ASSOCIATES
(a general partnership)
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net income (1,010,483) 222,766 380,405
Items not requiring cash
or cash equivalents:
Depreciation and amortization 299,990 297,931 298,356
Provision for value impairment 1,100,000 - -
Changes in:
Rents and other receivables 153,520 (10,717) (13,170)
Prepaid expense (2,157) 12,380 (9,946)
Other assets - (305) -
Accounts payable and accrued expenses 54,289 (169,351) 6,813
Accrued interest (1,130) (1,042) (962)
Other liabilities (85,000) 85,000 -
Deposits - - (900)
Net cash provided by operating activities 509,029 436,662 660,596
Cash flows from investing activities-
additions to investment property (45,588) (21,643) (13,537)
Cash flows from financing activities:
Distributions to partners (420,000) (295,000) (408,000)
Principal payments on long-term debt (166,908) (153,932) (141,960)
Net cash used in financing activities (586,908) (448,932) (549,960)
Net increase (decrease)
in cash and cash equivalents (123,467) (33,913) 97,099
Cash and cash equivalents
at beginning of year 222,382 256,295 159,196
Cash and cash equivalents
at end of year 98,915 222,382 256,295
Supplemental disclosure of
cash flow information-
cash paid for mortgage
and other interest 365,592 378,572 390,546
See accompanying notes to Financial Statements.
SYCAMORE MALL ASSOCIATES
(a general partnership)
Notes to Financial Statements
Years ended December 31, 1998, 1997 and 1996
(1) Organization and Basis of Accounting
The accompanying financial statements have been prepared for the purpose of
complying with Rule 3.09 of Regulation S-X of the Securities and Exchange
Commission. They include the accounts of the unconsolidated general
partnership, Sycamore Mall Associates, (the "Partnership") in which First
Dearborn Income Properties L.P. II, First Dearborn Income Properties L.P. I,
and First Dearborn Sycamore Associates Limited Partnership are general
partners. The general partners contributed a total of $2,275,000 $1,075,000,
$910,000 respectively, for 53.40%, 25.24%, and 21.36% general partner
interest, respectively. The property, situated on an approximate 21.2 acre
site, includes a shopping center containing 213,206 square feet and an out
parcel building containing 27,000 square feet. Additionally, a 14,000
square foot parcel which contains a 4,590 square foot building is under a
ground lease. Occupancy at the mall has decreased substantially during 1998
to approximately 47% at 12/31/98. This is primarily due to Sears terminating
their lease on September 1, 1998. The Sears lease comprised 82,605 square
feet which is 34% of the leaseable area of the shopping center. However,
the annual rental income received form Sears was only approximately $109,000
or approximately 6% of revenues. The terms of the partnership agreement
provide that cash flow, sale or refinancing proceeds and profit and loss
will be distributed or allocated in proportion to the partners' 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 1998, 1997, and
1996 the property incurred management fees of $84,679, $93,053 and $96,048,
respectively.
SYCAMORE MALL ASSOCIATES
(a general partnership)
Notes to Financial Statements
Years ended December 31, 1998, 1997 and 1996
The Partnership 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, 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:
1998 1998 1997 1997
GAAP basis Tax basis GAAP basis Tax basis
(unaudited) (unaudited)
Total assets 6,484,454 7,918,377 8,113,686 8,369,528
General partners' capital accounts 1,806,233 3,066,505 3,236,716 3,492,555
General partners' net income (loss) (1,010,483) (6,050) 222,766 261,226
Deferred loan costs are amortized over the terms of the related agreements
using the straight-line method. Leasing commissions are amortized over the
terms of the related tenant leases using the straight-line method.
Depreciation on the buildings and improvements was provided over the
estimated useful lives of 5 to 30 years using the straight-line method.
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and were
depreciated over their estimated useful lives. 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.
SYCAMORE MALL ASSOCIATES
(a general partnership)
Notes to Financial Statements
Years ended December 31, 1998, 1997 and 1996
The Partnership adopted 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", on January 1, 1996. SFAS 121 requires
that the Partnership record an impairment loss on its property held for
investment whenever the property's carrying value cannot be fully recovered
through estimated undiscounted cash flows from its 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. In addition, SFAS 121 provides that a property may not be depreciated
while being held for sale. In response to the uncertainty relative to
Sycamore Mall Associates ability to recover the net carrying value of
Sycamore Mall through future operations and sale, Sycamore Mall Associates,
as a matter of prudent accounting practices and for financial reporting
purposes, recorded a provision for value impairment in 1998 in the amount
of $1,100,000.
(2) Long-Term Debt
The Partnership 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, the Partnership 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. The maturities of long-term debt are $180,993 in 1999, $179,290
in 2000, $211,382 in 2001 and $3,836,360 in 2002.
(3) Leases
At December 31, 1998, the Partnership's principal asset is an enclosed
shopping center. The Partnership has determined that all leases relating
to the 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 of the property. Leases with tenants range in term from one to thirty
years and provide for fixed minimum rent and partial to full reimbursement
of operating costs. In addition, many of the leases provide for additional
rent based upon percentages of tenants' sales volume. 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 714,231
2000 610,792
2001 531,875
2002 433,229
2003 321,895
Thereafter 1,316,463
3,928,485
Percentage rents (based on tenants' sales volume) included in rental
income were $204,819, $192,100, and $180,846 for the years ended December
31, 1998, 1997, and 1996, respectively.
SYCAMORE MALL ASSOCIATES
(a general partnership)
December 31, 1998
Schedule III
Consolidated Real Estate and Accumulated Depreciation
Initial Cost to Partnership Additions Gross amount of asset at period end
Building & Building & Building & Accumulated
Encumbrance Land Improvements Improvements Land Improvements Total Depreciation
Shopping Center
Iowa City, IA 4,408,025 1,206,880 7,910,902 462,498 1,206,880 7,246,641 8,453,521 2,295,477
(a) The initial cost represents the original purchase price of the properties, reduced by any provision for
value impairment.
(b) The aggregate cost of the above real estate at December 31, 1998 for Federal income tax purposes is $9,575,280.
(c) The property was consructed in 1972 and purchased in 1990. It is depreciated over useful lives ranging
from 5 to 30 years.
1998 1997 1996
(c) Reconciliation of real estate owned
Balance at beginning of period 9,507,933 9,486,290 9,472,753
Provision for value impairment (1,100,000) - -
Additions 45,588 21,643 13,537
Balance at end of period 8,453,521 9,507,933 9,486,290
(d) Reconciliation of accumulated depreciation
Balance at beginning of period 2,005,077 1,716,931 1,428,773
Depreciation expense 290,412 288,146 288,158
Balance at end of period 2,295,489 2,005,077 1,716,931
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 Jefferson-Pilot Investments, Inc., a
North Carolina corporation, which is a wholly-owned subsidiary of
Jefferson-Pilot Corporation. The officers and directors of Hampshire
Syndications, Inc. are Ronald Angarella, President and Director,
Charles C. Cornelio, Vice President and Director, Sheri J. Lease,
Secretary, Dennis R. Glass, Executive Vice President and Director,
E. J. Yelton, Executive Vice President and Director, John A. Weston,
Treasurer.
Messrs. Block and Ross are not affiliated with Jefferson Pilot 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 61, 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 61, 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 41, currently serves as President, Chairman and
Director of Jefferson Pilot Securities Corporation and Hampshire Funding,
Inc. and President and Director of Hampshire Syndications, Inc. Mr.
Angarella is also President and Director of Jefferson Pilot Variable Fund
and Senior Vice President and Chief Marketing Officer of Jefferson Pilot
Financial Insurance Company.
Mr. Charles C. Cornelio, age 39, is Vice President, General Counsel and
Secretary of Jefferson Pilot Securities Corporation and Vice President and
Director of Hampshire Syndications, Inc. He is also Executive Vice President
of Jefferson Pilot Financial Insurance Company and Vice President and General
Counsel of Jefferson Pilot Variable Fund.
Shari J. Lease, age 44, was elected Assistant Secretary of Hampshire
Syndications, Inc. in May, 1994 and Secretary in May 1997. She was also
elected Secretary of Hampshire Funding, Inc. and Assistant Secretary of
Jefferson Pilot Securities Corporation in December 1994. Her principal
occupation since February 1998 has been as Vice President and Counsel of
Jefferson Pilot Financial Insurance Company. Ms. Lease served as Assistant
Vice President and Counsel of Jefferson Pilot Financial Insurance Company
from April 1995 to February 1998. Ms. Lease was elected Secretary of
Jefferson Pilot Variable Fund in April 1992. She served as Associate
Counsel of Jefferson Pilot Financial Insurance Company from April 1994 to
April 1995, Assistant Counsel of Jefferson Pilot Financial Insurance
Company from October 1990 to April 1994 and Assistant Secretary of Jefferson
Pilot Variable Fund from July 1991 to April 1992.
John Weston, age 39, is Treasurer of Hampshire Funding, Inc., Jefferson
Pilot Securities Corporation, Hampshire Syndications, Inc., Jefferson Pilot
Variable Fund and Jefferson Pilot Advisory Corporation. His principal
occupation singe April 1995 has been as Assistant Vice President of
Jefferson Pilot Financial Insurance Company until his election as Vice
President of Jefferson Pilot Financial Insurance Company in February 1999.
Dennis R. Glass, age 49, was elected Executive Vice President and Director of
Hampshire Syndications, Inc. in May 1997. Mr. Glass is also a Director of
Hampshire Funding, Inc. Since October 1993 Mr. Glass has served as Executive
Vice President, Chief Financial Officer and Treasurer of Jefferson-Pilot
Corporation. From 1991 to October 1993, he was associated with Protective
Life Corporation, having last served as Executive Vice President and Chief
Financial Officer. From 1983 to 1991 he was associated with the Portman
Companies, having served as Executive Vice President and Chief Financial
Officer.
E.J. Yelton, age 59, was elected Executive Vice President and Director of
Hampshire Syndications, Inc. in May 1997. Mr. Yelton is also a Director of
Hampshire Funding, Inc. Since October 1993, Mr. Yelton has served as
Executive Vice President of Investments of Jefferson-Pilot Corporation and
for more than five years prior thereto was President of the Investment Centre.
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, 1997, 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, 1998,
1997 and 1996 are as follows:
Unpaid at
1998 1997 1996 Dec. 31, 1998
Non-accountable expense reimbursement 25,588 25,588 25,588 305,257
Reimbursement (at cost)
for administrative services 1,336 1,652 18,163 1,386
26,942 27,240 43,751 306,643
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, 1998 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 Jefferson Pilot 380 Units(1) 1.9%
Partnership Securities Corporation
Units One Granite Place
Concord, NH
Limited All officers 399 Units (2) 1.9%
Partnership directors, and
Units general partners
as a group
(1) During 1993, Jefferson Pilot Securities Corporation, an affiliate
of Hampshire Syndications, Inc., acquired 280 Units pursuant to an agreement
with the Partnership. During 1998, Jefferson Pilot Securities Corporation
acquired 100 additional units. Hampshire Syndications, Inc. is a partner of
the Associate General Partner of the Partnership and because it is an
affiliate of Jefferson Pilot 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 1998.
(c) An annual report for the fiscal year 1998 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 15.
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: April 14, 1999 BY: _______ Robert S. Ross
Its: President
BY: FDIP Associates
(Associate General Partner)
BY: First Dearborn Partners, a Partner
Date: April 14, 1999 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 April 14, 1999
Robert S. Ross of FDIP, Inc. (Principal
Executive Officer)
/s/ Bruce H. Block Secretary and Director April 14, 1999
Bruce H. Block of FDIP, Inc. (Principal
Financial Officer)