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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-18444
-----------------
Yager/Kuester Public Fund Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1560476
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12201 Steele Creek Road, P.O. Box 412080
Charlotte, North Carolina 28241
- ---------------------------------------------- ---------------------
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (704) 588-4074
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
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 No X
----- -----
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. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. Not
Applicable.
Documents Incorporated By Reference
Exhibits (4) and (10.1) of Part IV, required by Item 601 of Regulation
S-K, are incorporated by reference from the prospectus of the registrant, dated
December 1, 1987, Registration Number 33-07056-A (hereinafter "Prospectus").
This document contains 31 pages. The Exhibit Index is located on page
23.
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PART I
Item 1. Business. The registrant is a North Carolina limited
partnership formed in July 1986 (hereinafter referred to as the
"Partnership"). The Partnership engaged in a "blind pool offering," the
proceeds of which were used to purchase income-producing real property.
During the year ended December 31, 1988, the Partnership received the
minimum investment required to remove subscribers' funds from escrow. The
Partnership's offering terminated with a total subscription of $3,195,000
from investor limited partners. The net proceeds were used to purchase the
properties described in Item 2 below, to pay the expenses of the offering
and to fund the working capital account. The funds not required for those
purposes, totaling $84,273, were returned to investors.
The sole business of the Partnership is the operation of commercial
office buildings purchased with the proceeds of the public offering. (See
Item 2 below for a description of the properties.) During the year ended
December 31, 1996, the occupancy of the United Carolina Bank Building was
maintained at 96% and the EastPark Executive Center facilities were
maintained at 95% occupancy. The lease terms with the major tenants at such
properties are summarized below.
(i) EastPark Executive Center, Charlotte, NC - the General
Services Administrator ("GSA") has a lease term for a ten (10)
year period ending on October 31, 2004, at a rental rate of $14.15
per square foot. GSA may, at its election, terminate the lease
after eight (8) years. The GSA leased premises include
approximately 32,000 square feet. The Partnership incurred
leasehold improvements expense of approximately $1,092,000 for the
GSA space. Such improvements were completed in October 1996. The
GSA lease accounts for approximately 78% of the rental income
related to the EastPark Executive Center.
(ii) United Carolina Bank Building, Greenville, SC - Metropolitan
Life Insurance Company ("Metlife") is in the third year of a five
year lease renewal. The rental rate is $14.00 per square foot
during the first three years of the renewal term and escalates to
$14.25 per square foot during the last two years of the renewal
term. In lieu of granting an upfit allowance, Metlife was allowed
a rent concession of $6,250 per month for the first twelve (12)
months of the renewal term; the concession terminated July 31,
1995. Metlife and United Carolina Bank ("UCB"), account for 66%
and 26%, respectively, of the rental income related to the United
Carolina Bank Building. The UCB lease (which currently provides
for a $14.06 per square foot rental rate) will expire on July 31,
1999.
The General Partners entered into separate listing agreements for both
properties with a Charlotte-based commercial real estate broker at the
beginning of the third quarter of 1996. The Generals Partners believe the
focus of the partnership should be towards selling the two Partnership
properties separately now that the GSA upfit at the EastPark Executive
Center is complete. The EastPark Executive Center and UCB Building are
listed at $3,800,000 and $4,100,000 respectively.
The Partnership has no employees of its own; management of the
Partnership's property is performed by Kuester Properties, Inc., an
affiliate of FSK Limited Partnership. Administration of the Partnership is
performed by the General Partners. (See Items 10 and 13 below.)
Item 2. Properties. On June 23, 1989, the Partnership purchased the
EastPark Executive Center, an office complex comprised of two buildings
located in Charlotte, North Carolina with net leasable area of 45,300
square feet, for a purchase price of $3,155,138 of which $1,500,000 was
provided by a first mortgage loan bearing interest at 10.5% per annum and
having a term of 10 years. The lender, United of Omaha Life Insurance
Company ("United Omaha"), is not affiliated with the Partnership.
On November 30, 1989, the Partnership acquired the United Carolina Bank
Building, a three-story office building in Greenville, South Carolina with
net leasable area of 39,138 square feet, for a purchase price of $4,202,544
of which $3,110,000 was provided by a first mortgage loan from United
Omaha, bearing interest at 9.625% per annum and having a term of 7 years.
During the fourth quarter of 1996, this debt was refinanced with First
Union National Bank. (See item 7 below for a discussion of refinancing
matters.)
In connection with the office building purchases, $26,312 of
acquisition costs were capitalized.
No further purchases of real property are projected and no funds are
available for that purpose.
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3
Item 3. Legal Proceedings. The Partnership is not involved in any
legal proceedings and was not so involved during the year ended December
31, 1996.
Item 4. Submission of Matters to a Vote of Security Holders. Not
applicable.
PART II
Item 5. Market for the Partnership's Common Equity and Related
Stockholder Matters. There is no established public trading market for the
Partnership's securities. The Partnership has 535 limited partners. Cash
distributions made to the limited partners during the past years are set
out in the Statements of Cash Flow included in the Financial Statements
included in Part II, Item 8 of this Report.
Item 6. Selected Financial Data.
At or For
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ----------- -----------
Summary of Operations
Rental income 1,150,758 $1,172,935 $1,114,741 $ 1,067,859 $ 1,042,672
Net income (loss) 40,561 29,787 17,865 (15,330) (49,816)
Net income (loss)
per limited
partnership unit 6.30 4.63 2.77 (2.38) (7.74)
Summary of Financial
Position:
Total assets $7,864,107 $7,214,881 $6,951,442 $ 7,037,438 $ 7,107,578
Long-term debt, less
current maturities 4,059,909 1,288,754 4,220,469 4,330,390 4,363,603
Distribution per
limited partner-
ship unit -- -- -- -- --
Number of limited
partnership units 6,370 6,370 6,370 6,370 6,370
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
During the year ended December 31, 1996, the Partnership continued to
fund working capital requirements. The working capital deficiency decreased
from ($3,094,205) at December 31, 1995 to ($864,930) at December 31, 1996.
The increase in the working capital is primarily a result of the
refinancing of the loan on the United Carolina Bank, which is now shown as
a long-term liability. This loan was refinanced in the form of a line of
credit for $2,840,000 through First Union Bank of North Carolina. The line
of credit carries an interest rate at the 3-month LIBOR rate plus 1.75%
and is repayable in monthly payments of accrued interest only until
December 1, 1997 when all remaining principal and interest shall be due.
If the UCB building is not sold by this time, the loan can be renewed for
an additional year to expire on December 1, 1998.
3
4
Although there was an overall decrease in current liabilities, there
was an increase in the $1,000,000 line-of-credit note payable by the
Partnership to First Union Bank of North Carolina for the EastPark
Executive Center GSA upfit, of which $942,483 and $219,783 was
outstanding at December 31, 1996 and 1995 respectively. The line of
credit is unsecured and is payable on demand.
The cumulative unpaid priority return to the unit holders increased
from $1,681,265 at December 31, 1995 to $1,924,049 at December 31, 1996.
This increase resulted from no distributions being made to partners during
the year and the pro rata share due partners pursuant to the Limited
Partnership Agreement. Based on current and projected commercial real
estate market conditions, the General Partners believe that it is
reasonably unlikely that a sale of the Partnership properties would produce
net sale proceeds sufficient to pay the priority return. Furthermore, the
General Partners believe that it is reasonably unlikely that the
Partnership's operating income or any refinancing of Partnership debt would
generate sufficient funds to pay the priority return.
During the year ended December 31, 1996, the Partnership had net income
of $40,561 compared to the net income of $29,787 and $17,865 in 1995 and
1994, respectively. Rental income, operating expenses, and interest expense
for the years ended December 31, 1996 and 1995 resulted exclusively from
the operations of the Partnership's commercial real estate properties. The
EastPark Executive Center buildings, purchased June 23, 1989, were 95%
leased at December 31, 1995 and were 96% leased at December 31, 1996. The
United Carolina Bank Building, purchased November 30, 1989, was 100% leased
at December 31, 1995 and 96% in 1996. In March 1997, approximately 1,400
square feet was leased to United Health Care Incorporated. This lease will
expire on July 31, 1999. Occupancy at the United Carolina Bank Building is
now at 100%.
The Partnership entered into a Loan Extension and Modification
Agreement dated as of May 12, 1993 with Internet Services Corporation, a
North Carolina corporation (formerly International Network Services
Corporation) owned equally by three trusts, the beneficial interests of
which inure respectively to the benefit of the three children of Dexter
Yager, the sole General Partner of DRY Limited Partnership, which limited
partnership is one of the two general partners of the Partnership. Pursuant
to the Agreement, the Partnership agreed to pay Internet $91,275 over a
five-year period, with annual principal payments of $18,255 each, together
with interest at the rate equal to the prime rate of NationsBank of North
Carolina N.A., determined on an annual basis, plus two percent (2.0%).
See Item 13 (Certain Relationships and Related Transactions) for a
discussion regarding leasing commissions paid to Kuester Properties, Inc.,
a General Partner of the Partnership.
In the event that funds derived from operations are insufficient to
meet the Partnership's working capital needs, the General Partners have
agreed to fund the shortfall.
Results of Operations
Comparison of 1996 results with 1995.
Operating results increased slightly from an operating income of
$444,916 during the year ended December 31, 1995 to an operating income of
$449,277 for the comparable year 1996. Operating income expressed as a
percentage of rental income increased from 37.9% for the year ended
December 31, 1995 to 39.0% for the comparable year 1996. While the overall
occupancy rate for 1996 was comparable to 1995, rental income nevertheless
decreased by approximately $22,000. This decrease of rental income in 1996
can be attributed to the decrease in common area maintenance ("CAM")
reimbursements provided by the Metropolitan Life Insurance Company lease at
the UCB facility. Operating expenses were lower overall in 1996 by
approximately $26,000. Decreased professional fees accounted for a major
portion of such decrease. The remaining expense decrease can be attributed
to decreased contract labor and miscellaneous expenses. Nonoperating income
and expenses for the year ended December 31, 1996 decreased 1.5% from the
comparable year 1995.
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5
Comparison of 1995 results with 1994.
Operating results increased slightly from an operating income of
$438,454 during the year ended December 31, 1994 to an operating income of
$444,916 for the comparable year 1995. Operating income expressed as a
percentage of rental income decreased from 39.3% for the year ended
December 31, 1994 to 37.9% for the comparable year 1995. While the overall
occupancy rate for 1995 was comparable to 1994, rental income nevertheless
increased by approximately $58,000. This increase of rental income in 1995
can be attributed to having a full year of the increased rental rates that
were negotiated during the second half of 1994. Operating expenses were
higher overall in 1995 by approximately $51,000. Increased professional
fees, relating to the potential sale of the properties, comprised the
greatest increase in the expenses. The remaining expense increase can be
attributed to increased repairs, maintenance, depreciation and
amortization. Nonoperating income and expenses for the year ended December
31, 1995 decreased 1.3% from the comparable year 1994.
Item 8. Financial Statements and Supplementary Data. The financial
statements are attached hereto.
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[MCGLADREY & PULLEN LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Partners
Yager/Kuester Public Fund
Limited Partnership
Charlotte, North Carolina
We have audited the accompanying balance sheets of Yager/Kuester Public Fund
Limited Partnership as of December 31, 1996 and 1995, and the related statements
of operations, partners' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements 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
management, 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 Yager/Kuester Public Fund
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Charlotte, North Carolina
February 5, 1997
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
---------- ----------
Current Assets
Cash and cash equivalents (Note 2) $ 103,036 $ 139,930
Accounts receivable, tenants (Note 9) 91,224 37,565
Prepaid expenses 2,200 1,100
Securities available for sale (Notes 3 and 4) 190,380 135,050
---------- ----------
TOTAL CURRENT ASSETS 386,840 313,645
---------- ----------
Investments and Noncurrent Receivables
Properties on operating leases and properties held for lease, net
(Notes 5 and 6) 7,371,229 6,774,759
Accrued rent receivable 44,785 57,283
---------- ----------
7,416,014 6,832,042
---------- ----------
Other Assets
Deferred charges, net of accumulated amortization
1996 $11,282; 1995 $35,919 10,818 10,180
Deferred leasing commissions, net of accumulated amortization
1996 $31,476; 1995 $18,721 50,435 59,014
---------- ----------
61,253 69,194
---------- ----------
$7,864,107 $7,214,881
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities
Note payable, bank (Note 6) $ 942,483 $ 219,783
Current maturities of long-term debt (Note 6) 68,868 2,931,715
Accounts payable 109,107 128,472
Accrued expenses 131,312 127,880
---------- ----------
TOTAL CURRENT LIABILITIES 1,251,770 3,407,850
---------- ----------
Long-Term Debt, less current maturities (Note 6) 4,059,909 1,288,754
---------- ----------
Commitment and Contingency (Note 7)
Partners' Equity
General partners 2,199 1,795
Limited partners (Note 7) 2,545,393 2,505,236
Unrealized gain on investment securities (Note 4) 4,836 11,246
---------- ----------
2,552,428 2,518,277
---------- ----------
$7,864,107 $7,214,881
========== ==========
See Notes to Financial Statements.
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8
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
Rental income (Notes 5 and 9) $ 1,150,758 $ 1,172,935 $ 1,114,741
----------- ----------- -----------
Operating expenses:
Contract labor 18,028 40,307 33,690
Depreciation and amortization 204,261 179,987 173,606
Repairs and maintenance 146,900 133,822 125,585
Management fees (Note 8) 47,172 50,981 50,471
Utilities 147,098 149,027 154,259
Professional fees 30,954 57,331 22,696
Property taxes 88,857 88,046 92,677
Miscellaneous 18,211 28,518 23,303
----------- ----------- -----------
701,481 728,019 676,287
----------- ----------- -----------
OPERATING INCOME 449,277 444,916 438,454
----------- ----------- -----------
Nonoperating income (expense):
Interest income 651 724 4,360
Interest expense (425,669) (422,066) (432,683)
Other 16,302 6,213 7,734
----------- ----------- -----------
(408,716) (415,129) (420,589)
----------- ----------- -----------
NET INCOME 40,561 29,787 17,865
Deduct net income applicable to limited
partners (per limited partner unit) 1996 $6.30;
1995 $4.63; 1994 $2.77 40,157 29,489 17,685
----------- ----------- -----------
NET INCOME APPLICABLE TO
GENERAL PARTNERS (PER LIMITED
PARTNER UNIT) 1996 $.06; 1995
$.05; 1994 $.03 $ 404 $ 298 $ 180
=========== =========== ===========
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net unrealized
Gain (Loss) on
Securities
General Limited Available
Partners Partners For Sale Total
---------- ----------- ----------- ----------
Balance, December 31, 1993 $ 1,317 $ 2,458,062 $ --
2,459,379
Net income 180 17,685 -- 17,865
January 1, 1994 adoption of FASB
Statement No. 115 (Note 3) -- -- 1,811 1,811
Change in fair market value on
securities available for sale
(Note 4) -- -- (7,116) (7,116)
---------- ----------- ----------- ----------
Balance, December 31, 1994 1,497 2,475,747 (5,305) 2,471,939
Net income 298 29,489 -- 29,787
Change in fair market value on
securities available for sale
(Note 4) -- -- 16,551 16,551
---------- ----------- ----------- ----------
Balance, December 31, 1995 1,795 2,505,236 11,246 2,518,277
Net Income 404 40,157 -- 40,561
Change in fair market value on
securities available for sale
(Note 4) -- -- 6,410) (6,410)
---------- ----------- ----------- ----------
Balance, December 31, 1996 $ 2,199 $ 2,545,393 $ 4,836 $2,552,428
========== =========== =========== ==========
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
----------- --------- ---------
Cash Flows From Operating Activities
Net income $ 40,561 $ 29,787 $ 17,865
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 184,825 162,035 161,169
Amortization 19,436 17,952 12,437
Net realized (gains) losses on sale of securities
available for sale (3,118) 3,940 --
Changes in assets and liabilities:
Increase in accounts receivable, tenant
and accrued rent receivable (41,161) (23,206) (37,353)
Increase (decrease) in:
Accounts payable and accrued
expenses (15,933) 107,238 2,664
Other prepaids and accruals, net (1,100) (877) 1,691
----------- --------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 183,510 296,869 158,473
----------- --------- ---------
Cash Flows From Investing Activities
Purchase of securities available for sale (145,542) (193,803) (29,570)
Proceeds from sale of securities available for
sale 86,920 176,620 --
Purchase of investment property (781,295) (355,955) (34,989)
Disbursements for deferred leasing commissions (4,395) (1,569) (75,948)
Disbursements for deferred charges (7,100) -- --
----------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (851,412) (374,707) (140,507)
----------- --------- ---------
Cash Flows from Financing Activities
Proceeds from long-term borrowings 2,840,000 -- --
Principal payments on long-term borrowings (2,931,692) (109,921) (101,219)
Proceeds from note payable 722,700 219,783 --
----------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 631,008 109,862 (101,219)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (36,894) 32,024 (83,253)
Cash and cash equivalents:
Beginning 139,930 107,906 191,159
----------- --------- ---------
Ending $ 103,036 $ 139,930 $ 107,906
=========== ========= =========
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
--------- -------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash payment for interest, net of interest
capitalized $ 424,000 $423,197 $ 433,719
Supplemental Disclosures of Noncash Transactions:
Marketable equity securities transferred to
securities available for sale -- -- 80,990
Net unrealized gain (loss) on securities
available for sale (6,410) 16,551 (5,305)
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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NOTE 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES
Nature of business and organization: The Partnership is a North Carolina limited
partnership formed in July 1986. The purpose of the Partnership is to acquire,
operate, hold for investment and sell property. Properties currently held are
located in Charlotte, North Carolina and Greenville, South Carolina.
The general partners of the Partnership are DRY Limited Partnership, a North
Carolina limited partnership in which Dexter R. Yager, Sr. is the general
partner and FSK Limited Partnership, a North Carolina limited partnership in
which Faison S. Kuester, Jr. is the general partner.
Partnership agreement: Under the terms of the partnership agreement, all taxable
income, tax losses and cash distributions from operations are to be allocated
99% to the limited partners and 1% to the general partners until the limited
partners receive a return of their initial capital contributions and a "Priority
Return". The Priority Return is a sum equal to 8% per annum cumulative, but not
compounded, (prorated for any partial year) of the adjusted capital
contributions of the limited partners, calculated from the last day of the
calendar quarter in which each limited partner is admitted to the Partnership to
the date of payment. Thereafter, taxable income, tax losses and cash
distributions from operations will be allocated 75% to the limited partners and
25% to the general partners.
Upon the sale or refinancing of any future partnership properties, the
partnership agreement specifies certain allocations of net proceeds and taxable
gain or loss from the transaction.
A summary of the Partnership's significant accounting policies follows:
Use of management's estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management 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.
Cash and cash equivalents: For purposes of reporting the statements of cash
flows, the Partnership includes all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments
purchased with an original maturity of three months or less as cash and cash
equivalents on the accompanying balance sheets. At various times throughout the
year, the Partnership may have cash balances at financial institutions which
exceed federally-insured amounts.
Investments: Properties on operating leases and properties held for lease are
stated at the lower of cost less accumulated depreciation or fair market value.
Depreciation is computed by the straight-line method over 40 years for buildings
and over 15 years for building improvements.
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment in securities available for sale and accounting change: Statement No.
115 requires that management determine the appropriate classification of
securities at the date of adoption, and thereafter at the date individual
investment securities are acquired, and that the appropriateness of such
classification be reassessed at each balance sheet date. Since the Partnership
neither buys securities in anticipation of short-term fluctuations in market
prices or can commit to holding debt securities to their maturities, the
investment in debt and marketable equity securities have been classified as
available for sale in accordance with Statement No. 115. Available for sale
securities are stated at fair value, and unrealized holding gains and losses are
reported as a separate component of partners' equity. Realized gains and losses,
including losses from declines in value of specific securities determined by
management to be other-than-temporary, are included in income. Realized gains
and losses are determined on the basis of the specific securities sold.
Note 3 to the financial statements provides further information about the effect
of adopting Statement No. 115.
Deferred charges: Deferred charges are related to prepaid fees which are
amortized over the length of the related loans, 1 to 10 years, on a
straight-line basis.
Deferred leasing commissions: Deferred leasing commissions related to obtaining
specific leases are amortized using the straight-line method over the
noncancelable lease terms which range from three to seven years.
Revenue recognition: Rental revenue is recognized evenly over the term of the
lease. In connection with negotiating and obtaining leases, the Partnership's
management may at times grant concessions, such as free rent for a specific
number of months during the lease. These costs are amortized over the life of
the lease.
Disclosures about the fair value of financial instruments: Financial Accounting
Standards Board Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
At December 31, 1996 and 1995 the carrying values of the Partnership's financial
instruments, including accounts receivable which are due on demand and the
mortgage payable which bears interest at market rates, approximate their fair
values.
Income taxes: Under current income tax laws, income or loss of the Partnership
is included in the income tax returns of the partners. Accordingly, the
Partnership will make no provision for federal or state income taxes.
13
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. WORKING CAPITAL RESERVE
Per the Partnership Agreement, a minimum cash and cash equivalents reserve of
$94,500 must be maintained to fund any expenditures that the cash flow generated
from properties on operating leases is insufficient to meet. At December 31,
1996 and 1995, the Partnership exceeded the minimum requirement by $8,536 and
$45,430, respectively.
NOTE 3. ACCOUNTING CHANGE
As discussed in Note 1, the Partnership adopted FASB Statement No. 115 as of
January 1, 1994. There was no effect to net income in 1994 for adopting
Statement No. 115. The January 1, 1994 balance of partners' equity was increased
by $1,811 to recognize the net unrealized holding gain on securities at that
date.
NOTE 4. SECURITIES AVAILABLE FOR SALE
The following is a summary of the Partnership's securities available for sale as
of December 31, 1996 and 1995:
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------- --------- --------
1996
---------------------------------------------------
Securities available for sale:
Common stock $107,500 $ 4,775 $ -- $112,275
Corporate bonds and notes 57,615 261 (432) 57,444
Government securities 20,429 232 -- 20,661
-------- ------- --------- --------
$185,544 $ 5,268 $ (432) $190,380
======== ======= ========= ========
1995
---------------------------------------------------
Securities available for sale:
Common stock $108,800 $11,100 $ -- $119,900
Mutual fund 15,004 146 -- 15,150
-------- ------- --------- --------
$123,804 $11,246 $ -- $135,050
======== ======= ========= ========
As of December 31, 1996, the Partnership did not have trading or held to
maturity securities.
A summary of investment earnings included in nonoperating income (expense)
in the accompanying Statements of Operations for the years ended December 31,
1996, 1995 and 1994 is as follows:
1996 1995 1994
------- ------- ----
Realized gains on sale of securities available for sale $ 3,162 $ 1,805 $--
Realized losses on sale of securities available for sale (44) (5,745) --
------- ------- ----
$ 3,118 $(3,940) $--
======= ======= ====
14
15
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. SECURITIES AVAILABLE FOR SALE (CONTINUED)
The amortized cost and fair values of securities available for sale as of
December 31, 1996 by contractual maturity are shown below. The "other
securities" have no contractual maturity.
Amortized Fair
Cost Value
-------- --------
Due after one year through five years $ 18,404 $ 17,975
Due after five years through ten years 39,211 39,469
Other securities 127,929 132,936
-------- --------
$185,544 $190,380
======== ========
Proceeds from sales of securities available for sale during the years ended
December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
------- -------- ------
Proceeds from sales of securities available for sale $86,920 $176,620 $ --
======= ======== ======
Dividend income included in nonoperating income (expense) in the accompanying
Statements of Operations totaled $6,980, $7,778 and $4,821 for the years ended
December 31, 1996, 1995 and 1994, respectively.
The changes in the net unrealized gain (loss) on securities available for sale
during the years ended December 31, 1996 and 1995 were $(6,410) and $16,551,
respectively, which have been included in the separate component of partners'
equity.
NOTE 5. PROPERTIES ON OPERATING LEASES AND PROPERTIES HELD FOR LEASE
The Partnership leases office facilities under various lease agreements. The
following schedule provides an analysis of the Partnership's investment in
properties held for lease by major classes as of December 31, 1996 and 1995,
respectively.
1996 1995
---------- ----------
Land $1,168,953 $1,168,953
Building 6,188,729 6,188,729
Building improvements 1,257,567 476,272
---------- ----------
8,615,249 7,833,954
---------- ----------
Less accumulated depreciation 1,244,020 1,059,195
---------- ----------
$7,371,229 $6,774,759
========== ==========
15
16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. PROPERTIES ON OPERATING LEASES AND PROPERTIES HELD FOR LEASE (CONTINUED)
The following is a schedule by years of all minimum future rentals on
noncancelable operating leases as of December 31, 1996:
Year Ending
December 31, Amount
- ------------- -----------
1997 $ 1,116,075
1998 1,008,014
1999 779,710
2000 494,728
2001 461,766
Thereafter 375,695
-----------
$ 4,235,988
===========
The Partnership properties are currently contracted with a real estate broker.
It is the intention of the General Partners to market and sell the properties.
The new sales proceeds will be used to return partners' equity.
NOTE 6. NOTE PAYABLE, BANK, LONG-TERM DEBT AND PLEDGED ASSETS
The Partnership has a $1,000,000 line-of-credit with an outstanding balance of
$942,483 and $219,783 at December 31, 1996 and 1995, respectively. The
line-of-credit allows borrowings and repayments to be made on a daily basis.
Outstanding balances on the line-of-credit bear interest at a variable rate tied
to the bank's prime rate (prime rate was 8.25% at December 31, 1996). The
line-of-credit is unsecured and is payable on demand.
Long-term debt and pledged assets consists of the following at December 31,
1996:
Note payable to United of Omaha, due in monthly installments of $14,976,
including interest at 10.5%, through June 1999, with $1,115,064 due in
July 1999, collateralized by mortgage on land and building $ 1,252,267
Note payable to First Union National Bank of North Carolina, interest only at
the 3-month LIBOR plus 1.75% due monthly, through November 1998, balance due
December 1998, unsecured and guaranteed by a general partner (A) 2,840,000
Note payable to Internet Services Corporation, related through common ownership,
due in five annual principal installments of $18,255, plus interest at the prime
rate (8.25% at December 31, 1996) of NationsBank of North Carolina, N.A., plus
2%, unsecured, due January 1998 36,510
-----------
4,128,777
Less current maturities 68,868
-----------
$ 4,059,909
===========
(A) The note payable to First Union National Bank of North Carolina matures on
December 1, 1997. The Partnership has acquired a commitment letter which
allows the Partnership to extend the repayment of the note to December 1,
1998. Should the commitment letter be exercised, the Bank will require that
the note be secured by a deed of trust on the respective property. The debt
is accordingly classified as long-term debt for financial reporting
purposes.
16
17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. NOTE PAYABLE, BANK, LONG-TERM DEBT AND PLEDGED ASSETS (CONTINUED)
Future maturities of long-term debt are as follows:
Year Ending
December 31, Amount
- ------------ ----------
1997 $ 68,868
1998 2,914,445
1999 1,145,464
----------
$4,128,777
==========
Interest expense to Internet Services Corporation, for the years ended December
31, 1996, 1995 and 1994 was $3,834, $5,476, and $5,842, respectively.
NOTE 7. PRIORITY RETURN
The cumulative unpaid priority return to the limited partners is $1,924,049 and
$1,681,265 at December 31, 1996 and 1995, respectively. There were no cash
distributions to the limited partners for the priority return for the years
ended December 31, 1996, 1995 and 1994. Based on current and projected real
estate market conditions, the General Partners believe that it is reasonably
unlikely that a sale of the Partnership properties would produce sufficient net
sales proceeds to pay the priority return.
17
18
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 8. MANAGEMENT AND ADMINISTRATIVE EXPENSES
Management expenses paid to a General Partner and to Internet Services
Corporation in connection with day-to-day operations of the Partnership amounted
to $47,172, $50,981, and $50,471 for the years ended December 31, 1996, 1995 and
1994, respectively.
NOTE 9. MAJOR TENANTS
Rental income for the years ended December 31, 1996, 1995 and 1994,
respectively, included approximate rentals from the following major tenants each
of which accounted for 10% or more of the total rental income of the Partnership
for those years:
Approximate Amount of Rental Income
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------- ------- -------
Tenant A 455,000 $451,000 $347,000
Tenant B 353,000 306,000 310,000
Tenant C 117,000 138,000 132,000
Accounts receivable from each of the major tenants identified above were as
follows at December 31, 1996 and 1995, respectively:
December 31,
----------------------
1996 1995
------- -------
Tenant A $37,884 $37,565
Tenant B -- --
Tenant C -- --
18
19
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure. Not applicable.
PART III
Item 10. Directors and Executive Officers of the Partnership. The
Partnership has no executive officers and directors. The General Partners
of the partnership are DRY Limited Partnership, the sole General Partner of
which is Dexter R. Yager, Sr., and FSK Limited Partnership, the sole
General Partner of which is Faison S. Kuester, Jr.
Following is a brief discussion of the background and experience of
Messrs. Kuester and Yager.
Faison S. Kuester, Jr., 51, graduated from the University of North
Carolina at Chapel Hill with a Bachelor of Arts Degree in History in 1967.
He is a resident of Charlotte, North Carolina. After three years service in
the United States Army as a Lieutenant, Mr. Kuester joined Independence
Development Corporation in 1972 serving as a director of leasing and
management for a period of three years. In 1974, Mr. Kuester formed his own
company, Kuester Realty and Management, in order to lease and manage
commercial properties in Charlotte, North Carolina and surrounding
communities. In addition to leasing and managing various commercial
properties, Kuester Realty had developed two medical clinics in the
Charlotte area. In 1980, Kuester Properties, Inc. ("KPI") was formed to
specialize in on-site management of apartment communities in the
southeastern United States. The following year Cauble and Kuester Company,
Inc. was organized to lease and manage commercial properties in the
metropolitan Atlanta area. This partnership brought together Cauble and
Company, experienced mortgage lenders and leasing agents in the Atlanta
market, and Kuester Realty and Management. Finally, in 1983, Kuester
Development Corporation was formed to allow the Kuester companies to engage
in selective real estate development projects in the southeastern United
States.
Through Kuester Development Corporation, a wholly-owned subsidiary of
KPI, Mr. Kuester has been directly involved with the development of several
commercial real estate properties in North and South Carolina and Georgia.
These include the First United National Bank Building in Wilmington, North
Carolina, two retail office showroom projects, two medical office buildings
and residential condominiums in Charlotte, North Carolina, an office
building in Savannah, Georgia, and an office building in Greenville, South
Carolina. Kuester Development Corporation also has developed over 700
apartment units throughout Charlotte, North Carolina since 1983. KPI is
active in the management of these units as well as managing other clients'
multifamily developments.
In 1989, Mr. Kuester, Jr. established Kuester Hospitality Corporation
for the purpose of acquiring and managing health care facilities. In 1995,
he established Kuester HealthCare Services, Inc. ("KHCS") to offer various
health care services, including development and brokerage of health care
facilities.
KPI serves as property manager of the Partnership property.
Dexter R. Yager, Sr., 57, is the President and founder of D&B Yager
Enterprises, Inc., Mr. Yager's Amway distributorship business. Through D&B
Yager Enterprises, Inc., Mr. Yager has been an independent distributor for
Amway Corporation for over 30 years during which time he has achieved the
status of Crown Ambassador, which is the highest level attainable as an
Amway distributor. The Amway Corporation is one of the largest
manufacturers of home care products in the world. He is also a former
member and past president of the Amway Distributor Association Board of
Directors. Mr. Yager has many other family-owned businesses and is
responsible for the development of several businesses, including the
following: Yager Personal Development, Inc., which handles Mr. Yager's
services as a speaker at Amway events, Yager Construction Company, Inc.,
which is a general building contractor; and Dexter and Birdie Yager Family
Limited Partnership, which owns various real estate investments and manages
real estate for the Yager family.
Mr. Yager has significant experience in real estate investment for his
own account. Mr. Yager personally, and through partnerships in which he and
his wife own a majority interest, has made investments in raw land, office
buildings, a shopping center, and other commercial and residential real
estate having a market value in excess of $10,000,000. He has made
substantial additional real estate investments through partnerships in
which he does not own a majority interest.
Item 11. Executive Compensation. The Partnership does not employ any
executive officers or directors and no compensation is paid to any person
for performing services typically provided by such an officer or director.
Dexter R. Yager,
19
20
Sr. and Faison S. Kuester have policymaking functions with regard to
Partnership operations. See Item 10 for the relationship of such persons to
the Partnership. See Item 13 for a description of payments made to Kuester
Properties, Inc. for property management services and to Internet Services
Corporation, Inc. for bookkeeping and accounting services.
Item 12. Security Ownership of Certain Beneficial Owners and
Management. The General Partners initially contributed a total of $2,500 to
the capital of the Partnership, consisting of a $1,600 contribution from
DRY Limited Partnership and $900 from FSK Limited Partnership. The General
Partners own a 1% interest in all items of Partnership income, gain, loss,
deductions or credits including 1% of net cash from operations. The General
Partners also own a residual 25% interest in net cash from a sale or
refinancing of the Partnership Property, subordinated to the receipt by the
Limited Partners of the return of their capital contributions and their
priority return and to the payment of any subordinated real estate
commissions due to affiliates of the General Partners.
The General Partners do not own any Limited Partnership interest in
the Partnership.
Item 13. Certain Relationships and Related Transactions. During the
fiscal year ended December 31, 1996, Kuester Properties, Inc. received
management fees of $46,517 for management of the Partnership property.
Internet Services Corporation, Inc. received $7,327 for providing
accounting/bookkeeping services. See Item 7 for a description of a loan to
the Partnership by Internet Services Corporation, a corporation owned
equally by three trusts, the beneficial interests of which inure to the
benefit of three children of Dexter R. Yager, Sr., the sole General Partner
of DRY Limited Partnership, which limited partnership is one of the two
general partners of the Partnership. Janitorial services for the EastPark
Executive Center are provided by Marquis Cleaning Services, which is
operated and owned by Dexter R. Yager's nephew.
The General Partners believe that the terms for the above mentioned
services are as favorable as those the Partnership might have obtained from
unaffiliated parties.
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form
8-K.
(a)(1) The following financial statements of the Partnership are
included in Part II, Item 8 hereof.
(i) Independent Auditor's Report
(ii) Balance Sheets as of December 31, 1996 and 1995
(iii) Statements of Operations for years ended December 31,
1996, 1995 and 1994
(iv) Statements of Partners' Equity for years ended
December 31, 1996, 1995 and 1994
(v) Statements of Cash Flows for years ended December 31,
1996, 1995 and 1994
(vi) Notes to Financial Statements
(a)(2) All schedules have been omitted because they are inapplicable,
not required, or the information is included elsewhere in the
financial statements or notes thereto.
(a)(3) Exhibits:
(4) Instrument defining rights of securities holders - set forth
in the Limited Partnership Agreement which is contained in
the Prospectus incorporated herein by reference.
(10.1) Limited Partnership Agreement - contained in Prospectus
incorporated herein by reference.
(10.2) Exclusive Leasing and Management Agreement dated October
1, 1994 (EastPark Executive Center).
(10.3) Exclusive Leasing and Management Agreement dated October
1, 1994 (United Carolina Bank Building).
(10.4) Listing Agreement of Property for Sale - United Carolina
Bank Building.
20
21
(10.5) Listing Agreement of Property for Sale - EastPark
Executive Center.
(10.6) Promissory Note with First Union Bank of North Carolina
dated November 27, 1996 for the United Carolina Bank
Building.
(23) Consent of Independent Auditor
(27) Financial Data Schedule.
(b) Reports on Form 8-K: None.
(c) Exhibits: The exhibits listed in Item 14(a)(3) above and not
incorporated herein by reference are filed with this Form 10-K.
21
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
By: FSK Limited Partnership
March 27, 1997 By: /s/ Faison S. Kuester, Jr.
----------------------------
Faison S. Kuester, Jr.
General Partner
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 27, 1997 by the following persons on
behalf of the Partnership and in the capacities and on the dates indicated.
/s/ Jerry R. Haynes /s/ Faison S. Kuester
- -------------------------------------- -----------------------------------
(Principal Accounting Officer) Faison S. Kuester, Jr., General
Partner of FSK Limited Partnership,
General Partner of the Partnership
Date March 27, 1997 Date March 27, 1997
---------------------------------- ---------------
/s/ Dexter R. Yager, Sr.
-----------------------------------
Dexter R. Yager, Sr., General
Partner of DRY Limited Partnership,
General Partner of the Partnership
Date March 27, 1997
--------------
22
23
EXHIBIT INDEX
The following documents are included in this Form 10-K as an Exhibit:
Designation
Number Under
Exhibit Item 601 of Page
Number Regulation S-K Exhibit Description Number
- ------ -------------- ------------------- ------
1* (4) Limited Partnership Agreement
2* (10.1) Limited Partnership Agreement
3** (10.2) Exclusive Leasing and Management Agreement
dated October 1, 1994 - (EastPark Executive Center)
4** (10.3) Exclusive Leasing and Management Agreement
dated October 1, 1994 - (United Carolina Bank
building)
5*** (10.4) Listing Agreement of Property for Sale - United
Carolina Bank Building
6*** (10.5) Listing Agreement of Property for Sale - EastPark
Executive Center.
7 (10.6) Promissory Note with First Union Bank of North 24
Carolina dated November 27, 1996
8 (23) Consent of Independent Auditor 30
9 (27) Financial Data Schedule 31
- ----------
* Incorporated by reference to Exhibit A of the Partnership's Prospectus
dated December 1, 1987, Registration Number 33-07056-A.
** Incorporated by reference to Exhibit 3 and 4 of the Partnership's Form 10-K
for year ended December 31, 1995.
*** Incorporated by reference to Exhibit 3 and 4 of the Partnership's Form 10-Q
for the quarter ended June 30, 1996.
23