FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
(As last amended by 34-32231, eff. 6/3/93.)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 0-9508
PREFERRED PROPERTIES FUND 80
(Exact name of small business issuer as specified in its charter)
California 94-2599964
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
(864) 239-1000
Issuer's telephone number
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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) PREFERRED PROPERTIES FUND 80
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1997
Assets
Cash and cash equivalents $ 167
Receivables and deposits 138
Other assets 70
Investment property:
Land $ 1,059
Buildings and related personal property 4,286
5,345
Less accumulated depreciation (1,897) 3,448
$ 3,823
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 1
Tenants' security deposit 28
Other liabilities 113
Notes payable 5,336
Promissory notes:
Principal 231
Deferred interest payable 168
Partners' Deficit:
General partner's $ (901)
Limited partners' (19,997 units issued
and outstanding) (1,153) (2,054)
$ 3,823
<FN>
See Accompanying Notes to Consolidated Financial Statements
b) PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1997 1996
Revenues:
Rental income $ 180 $ 189
Other income 25 29
Total revenues 205 218
Expenses:
Operating 39 29
Interest 135 137
Depreciation 40 28
General and administrative 28 51
Total expenses 242 245
Net loss $ (37) $ (27)
Net loss allocated to general partner (5%) $ (2) $ (1)
Net loss allocated to limited partners (95%) (35) (26)
$ (37) $ (27)
Net loss per limited partnership unit $ (1.76) $ (1.30)
See Accompanying Notes to Consolidated Financial Statements
c) PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 19,997 $ 100 $ 19,997 $ 20,097
Partners' deficit
at December 31, 1996 19,997 $ (899) $ (1,118) $ (2,017)
Net loss for the three months
ended March 31, 1997 -- (2) (35) (37)
Partners' deficit
at March 31, 1997 19,997 $ (901) $ (1,153) $ (2,054)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</table
d) PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Net loss $ (37) $ (27)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 40 28
Amortization of lease commissions and loan costs 4 4
Change in accounts:
Receivables and deposits (16) (44)
Other assets (18) (2)
Accounts payable (60) --
Tenant's security deposits -- (28)
Other liabilities 52 80
Net cash (used in) provided by operating activities (35) 11
Cash flows from investing activities:
Net cash provided by investing activities -- --
Cash flows from financing activities:
Notes payable principal payments (16) (15)
Net cash used in financing activities (16) (15)
Net decrease in cash and cash equivalents (51) (4)
Cash and cash equivalents at beginning of period 218 608
Cash and cash equivalents at end of period $ 167 $ 604
Supplemental disclosure of cash flow information:
Cash paid for interest $ 135 $ 137
<FN>
See Accompanying Notes to Consolidated Financial Statements
e) PREFERRED PROPERTIES FUND 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Preferred Properties Fund 80
(the "Partnership") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of NPI Equity Investments II, Inc. ("NPI Equity" or the "Managing
General Partner"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1997, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1997. For further information, refer to the financial statements
and footnotes thereto included in the Partnership's annual report on Form 10-KSB
for the year ended December 31, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
The general partner of the Partnership is Montgomery Realty Company - 80 ("MRC-
80"), a limited partnership. The general partner of MRC-80 is Fox Realty
Investors ("FRI").
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired control of
NPI Equity, the managing general partner of FRI, and National Property
Investors, Inc. ("NPI"). In connection with these transactions, affiliates of
Insignia appointed new officers and directors of NPI Equity.
The following transactions with affiliates of Insignia, NPI and affiliates of
NPI were charged to expense during the three month periods ended March 31, 1997
and 1996 (dollar amounts in thousands):
For the Three Months Ended
March 31,
1997 1996
Reimbursement for services of affiliates (included
in general and administrative expenses) $ 15 $ 35
For the period from January 19, 1996, to March 31, 1997, the Partnership insured
its property under a master policy through an agency and insurer affiliated with
the Managing General Partner. An affiliate of the Managing General Partner
acquired, in the acquisition of a business, certain financial obligations from
an insurance agency which was later acquired by the agent who placed the current
year's master policy. The current agent assumed the financial obligations to
the affiliate of the Managing General Partner who received payments on these
obligations from the agent. The amount of the Partnership's insurance premiums
accruing to the benefit of the affiliate of the Managing General Partner by
virtue of the agent's obligations is not significant.
NOTE C - LEGAL PROCEEDINGS
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. In August 1995, a former holder
of the Partnership's Promissory Notes who tendered its Promissory Notes to
Wheatley Ventures, Inc. ("Wheatley") pursuant to Wheatley's tender offer (see
Part II, "Item 1. Legal Proceedings"), brought a purported class action lawsuit
against, among others, the managing general partner of the Partnership.
Pursuant to the terms of the partnership agreement, the Managing General Partner
is entitled to seek indemnification from the Partnership for any liability,
including its costs in defending this action.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership has one investment property, Creekside Business Park, located in
Milpitas, California. The property has been fully occupied throughout 1997 and
1996.
The Partnership's net loss for the three months ended March 31, 1997, was
approximately $37,000 versus a net loss of approximately $27,000 for the same
period of 1996. The increase in the net loss for the three month period is
primarily attributable to a decrease in rental income and increases in operating
and depreciation expenses. These changes are partially offset by a decrease in
general and administrative expenses. Rental income decreased as a result of a
tenant renewing its lease at Creekside Business Park in February 1996 at a lower
rental rate. This reduction was necessary in order to bring this tenant's rent
in line with the current market rental rates. Operating expenses increased due
to an increase in administrative costs such as printing and mailing charges.
Depreciation expense increased due to the capitalization and depreciation of the
buyout of a joint venture interest from an unrelated third party. General and
administrative expenses decreased due to an decrease in General Partner
reimbursements for services of affiliates.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
At March 31, 1997, the Partnership had unrestricted cash of $167,000 as compared
to $604,000 at March 31, 1996. Net cash used in operating activities increased
primarily as a result of the decrease in accounts payable and other liabilities
due to changes in timing of payments.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The first mortgage
indebtedness of $4,036,000 matured on April 1, 1997, at which time a balloon
payment was due. On March 15, 1997, the Partnership entered into a forbearance
agreement with the lender which extends the maturity date to July 1, 1997. The
Managing General Partner is currently marketing the property. If the
Partnership's first mortgage is not refinanced or modified, or the property not
sold, the Partnership could lose this property through foreclosure. Also
included in the Partnership's notes payable is a $1,300,000 ground lease
obligation. The ground lease is accounted for as a loan and calls for payments
equal to 12 percent interest on the principal until April 1, 1998, when the
lease terminates. The ground lease provides an option to purchase the land at a
purchase price of $1,300,000. Future cash distributions will depend on the
level of net cash generated from a property sale. No cash distributions were
made during the three month periods ended March 31, 1997 and 1996. In addition,
the Partnership's cash has been adversely affected by the lawsuit brought by
former promissory note holders of the Partnership against, among others, the
Partnership's general partner, MRC-80 (see discussion of Kaufman et al. v.
Northern Trust Bank of California, N.A. et al. contained in "Part II - Other
Information, Item 1. Legal Proceedings").
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Dorothy M. Kaufman and Deanne R. Erickson, Trustees of the Kaufman Family 1981
Trust, dated October 21, 1981, on behalf of themselves and all others similarly
situated v. Northern Trust Bank of California, N.A.; Montgomery Realty Company-
80, a California limited partnership; Fox Realty Investors, a California general
partner, et. al., Superior Court of California, County of Santa Clara (Case No.
CV 51777).
The plaintiff in this action is a former holder of the Partnership's 10 percent
non-recourse Promissory Notes due June 30, 1994, (the "Notes") who tendered its
Notes to Wheatley Ventures Inc. ("Wheatley") pursuant to Wheatley's tender offer
for the Notes in August 1993. The plaintiff purports to represent itself and
all other tendering noteholders. The complaint was filed in August 1995 and
alleges, among other things, that MRC-80 and FRI breached their fiduciary duty
to the tendering noteholders and interfered with their prospective economic
advantage if they continued to hold the Notes.
In February and March 1997, the Partnership and NPI Equity were named as cross-
defendants in this action on cross-complaints filed by several defendants. The
cross-complaints assert claims for expenses, implied indemnity and declamatory
relief. The Partnership was only recently served with the complaints and is
evaluating its position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K: None filed during the quarter ended March 31,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto, duly authorized.
PREFERRED PROPERTIES FUND 80
By: MONTGOMERY REALTY COMPANY - 80,
Its General Partner
By: FOX REALTY INVESTORS,
Managing General Partner of the
General Partner
By: NPI EQUITY INVESTMENTS II, INC.,
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Vice President and Treasurer
Date: May 15, 1997