FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-31905, eff 10/26/93.)
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 [No Fee Required]
For the fiscal year ended September 30, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period.........to.........
Commission file number 0-13104
MRI BUSINESS PROPERTY FUND, LTD.
(Exact name of the Registrant as specified in its charter)
California 94-2919856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Act:
None
Securities registered under 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 (' 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the 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] (Amended by Exch. Act Rel No. 28869,
eff. 5/1/91.)
State the aggregate market value of the voting partnership interests held by
non-affiliates of the Registrant. The aggregate market value shall be computed
by reference to the price at which the partnership interests were sold, or the
average bid and asked prices of such partnership interests, as of a specified
date within 60 days prior to the date of filing. Market value information for
the Registrant's partnership interests is not available.
MRI BUSINESS PROPERTY FUND, LTD.
PART I
Item 1. Business
MRI Business Property Fund, Ltd. (the "Partnership") was organized in 1983
as a California limited partnership under the California Uniform Limited
Partnership Act. The Managing General Partner of the Partnership is Montgomery
Realty Company- 83, a California limited partnership of which Fox Realty
Investors ("FRI"), a California general partnership, is the Managing General
Partner and Montgomery Realty Corporation, a California corporation, is the co-
general partner. The associate general partner of the Partnership is MRI
Associates, Ltd., a California limited partnership, of which FRI is the general
partner, and Two Broadway Associates II, an affiliate of Merrill Lynch, Pierce,
Fenner & Smith, Incorporated, is the limited partner.
The Partnership's Registration Statement, filed pursuant to the Securities
Act of 1933 (No. 2-84975), was declared effective by the Securities and Exchange
Commission on October 12, 1983. The Partnership marketed its securities
pursuant to its Prospectus dated October 12, 1983 which was thereafter
supplemented (hereinafter the "Prospectus"). This Prospectus was filed with the
Securities and Exchange Commission pursuant to Rule 424(b) of the Securities Act
of 1933, and such Prospectus as supplemented is incorporated by reference
herein.
The principal business of the Partnership is and has been to acquire
(either directly or through joint ventures), hold for investment, and ultimately
sell existing business oriented properties such as office and industrial
buildings, hotels and other commercial properties. The Partnership is a
"closed" limited partnership real estate syndicate of the unspecified asset
type.
Beginning in October 1983 through February 10, 1984, the Partnership
offered and sold $82,158,000 in Limited Partnership Units. The net proceeds of
this offering were used to purchase interests in eight income-producing
properties. The Partnership's original property portfolio was geographically
diversified with properties acquired in five states. The acquisition activities
of the Partnership were completed on January 1, 1985, and since that time the
principal activity of the Partnership has been managing its portfolio. Due to an
increased demand for commercial properties in the market in which the
Partnership's remaining properties are located and the economic return, the
Partnership has focused on the liquidation of its assets since the mid 1990s.
In November 1990, one property was placed in receivership by the lender and in
March 1991 it was acquired through foreclosure by the lender of the first note.
The Partnership sold one of its properties during fiscal 1994, one of its
properties during the first quarter of fiscal 1995 and three of its properties
during fiscal 1996 (see detailed discussion below). The Partnership is currently
marketing its remaining property for sale. The Partnership's investment
property, Resource Park West, was sold subsequent to the fiscal year-end on
October 22, 1996. However, there can be no assurance that the Partnership will
be able to sell its remaining property at a price acceptable to the Partnership.
See Item 2, "Property" for a description of the Partnership's property.
The Partnership is involved in only one industry segment, as described
above. The Partnership does not engage in any foreign operations or derive
revenues from foreign sources.
Both the income and expenses of operating the property owned by the
Partnership are subject to factors outside of the Partnership's control, such as
over-supply of similar properties resulting from over-building, increases in
unemployment or population shifts, or changes in patterns or needs of users.
Expenses, such as local real estate taxes and miscellaneous management
expenses, are subject to change and cannot always be reflected in rental rate
increases due to market conditions. The profitability and marketability of
developed real property may be adversely affected by changes in general and
local economic conditions and in prevailing interest rates, and favorable
changes in such factors will not necessarily enhance the profitability or
marketability of such property. Even under the most favorable market conditions
there is no guarantee that the property owned by the Partnership can be sold by
it or, if sold, that such sale can be made upon favorable terms.
There have been, and it is possible there may be other, Federal, state and
local legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the property
owned by the Partnership.
The Partnership monitors its property for evidence of pollutants, toxins
and other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed, which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
The Partnership maintains property and liability insurance on the property
and believes such coverage to be adequate.
The Partnership has no employees. The Partnership's property is managed by
an unaffiliated third party management company pursuant to a management
agreement with such third party.
The Partnership's affairs were managed by Metric Management Inc., ("MMI")
or a predecessor from March 1988 to December 1993. On December 16, 1993, the
services agreement with MMI was modified and, as a result thereof, the
Partnership's general partner assumed responsibility for cash management of the
Partnership as of December 23, 1993, and assumed responsibility for day-to-day
management of the Partnership's affairs, including portfolio management,
accounting and investor relations services as of April 1, 1994.
On December 6, 1993, NPI Equity Investment II, Inc. ("NPI Equity II" or the
"Managing General Partner") became the managing general partner of FRI. The
individuals who had served previously as partners of FRI contributed their
general partnership interests in FRI to a newly formed limited partnership,
Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited partnership
interests in PRA. In the foregoing capacity, such parties continue to hold
indirectly certain economic interests in the Partnership and such other
investment limited partnerships, but have ceased to be responsible for the
operation and management of the Partnership and such other partnerships.
On January 19, 1996, the stockholders of National Property Investors, Inc.
("NPI"), the sole shareholder of NPI Equity II, sold all of the issued and
outstanding shares of NPI to IFGP Corporation ("IFGP"), an affiliate of Insignia
Financial Group, Inc. ("Insignia"). Upon closing, the officers and directors of
NPI Equity II resigned and IFGP elected new officers and directors. In
connection with the sale of the NPI stock to IFGP, DeForest Ventures I L.P. sold
the 25,436 limited partnership units owned by it to MRI/CPF LLC, an entity
comprised of the former NPI shareholders and their affiliates. (See Item 12,
"Security Ownership of Certain Beneficial Owners and Management.")
Insignia, together with its subsidiaries and affiliates, is a fully
integrated real estate service company specializing in the ownership and
operation of securitized real estate assets. Insignia's principal offices are
located in Greenville, South Carolina and its stock is publicly traded on the
New York Stock Exchange under the symbol IFS. According to Commercial Property
News and the National Multi-Housing Council, Insignia is the largest property
manager in the United States, has been the largest manager of residential
property since 1992, and is among the largest managers of commercial property.
As a full service real estate management organization, Insignia performs
property management, asset management, investor services, partnership
administration, real estate investment banking, mortgage banking, and real
estate brokerage services for various types of property owners.
On September 3, 1996, the Partnership sold Priest Office Building for a
contract price of $1,675,000 to an unrelated third party. After the payment of
closing costs and related expenses of approximately $70,000, the Partnership
received proceeds of approximately $1,605,000. The sale resulted in a loss of
approximately $5,000.
On July 24, 1996, the Partnership sold its Mardot II property for an
aggregate selling price of $2,600,000 to an unrelated third party. After the
payment of closing costs and related expenses of approximately $212,000, the
Partnership received proceeds of approximately $2,388,000. The sale resulted in
a gain of approximately $436,000.
On June 28, 1996, the Partnership sold Norwood Tower Office Building for
$5,725,000. After the payment of closing costs and related expenses of
approximately $243,000, the Partnership received proceeds of approximately
$5,482,000. The sale resulted in a gain of approximately $15,000.
On October 22, 1996, the Partnership sold Resource Park West Office
Building to an unrelated third party for a contract amount of $4,025,000. After
the payment of the note payable, closing costs and related expenses of
approximately $136,000, the Partnership received proceeds of approximately
$3,889,000. The sale will result in a gain of approximately $859,000 in fiscal
year 1997.
The Partnership is affected by and subject to the general competitive
conditions of the commercial and industrial real estate. In addition, the
Partnership's property competes in an area which normally contains numerous
other properties which may be considered competitive. In fiscal year 1996,
markets in many areas began rebounding from the real estate depression which had
been caused in part by overbuilding. The over-supply of commercial and
industrial property, including those held by banks, savings institutions and the
Resolution Trust Corporation, affected the ability of the Partnership to sell
such property and their sales prices. The level of sales of existing property
and development of new property also had been affected by the limited
availability of financing in real estate markets. The Managing General Partner
believes, however, that the emergence of new institutional purchasers, including
real estate investment trusts and insurance companies, relatively low interest
rates and the improved economy, have created a more favorable market for the
Partnership's property.
Item 2. Property
The Partnership originally acquired eight properties of which five were
sold and one was foreclosed upon by the lender. As of September 30, 1996, the
Partnership owned one office building and one shopping center.
Name and Date of
Location Purchase Type Size
Resource Park West 1/84 Office 61,000
Office Building (1) (2) Building sq. ft.
710 Kipling
Street, Lakewood,
Colorado
Parkway Village 6/84 Shopping 116,000
Shopping Center (1) Center sq. ft.
Marietta Parkway
and Highway 20
Atlanta, Georgia
(1) Property is owned by the Partnership in fee.
(2) Property was sold in October 1996.
See Item 8, "Financial Statements and Supplementary Data", for information
regarding property carrying value and Federal tax basis and any encumbrances to
which the property of the Partnership is subject.
The following chart sets forth the average occupancy rate for the
Partnership's remaining property for the fiscal years ended September 30, 1996,
1995, 1994, 1993, and 1992:
Average
Occupancy Rate (%)
For the Fiscal Year Ended
September 30,
1996 1995 1994 1993 1992
Parkway Village Shopping
Center 66 58 71 92 86
(As Resource Park West Office Building was sold October, 1996, the related
information for this table is not relevant.)
The following chart sets forth those tenants at the Partnership's
remaining property who occupy 10% or more of the total rentable space at the
property at September 30, 1996.
Annualized
Square Nature of Expiration Based Per Renewal
Footage Business of Lease Year (1) Options
Parkway Village
Shopping Center
Kroger #221 (2) 47,664 Grocery 1996 $ 148,000 5-2 yr.
Store
(As Resource Park West Office Building was sold October, 1996, the related
information for this table is not relevant.)
(1) Represents annualized base rent excluding additional rent due as operating
expense reimbursements, percentage rents and future contractual
escalation's.
(2) Tenant's lease expired October 1996, and did not exercise its renewal
option. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for further discussion.
Item 3. Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is
not of a routine nature. The Managing General Partner of the Partnership
believes that all such pending or outstanding litigation will be resolved
without a material adverse effect upon the business, financial condition, or
operations of the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period
covered by this Report.
PART II
Item 5. Market for The Partnership's Common Equity and Related Stockholder
Matters.
The Limited Partnership Unit holders are entitled to certain distributions
as provided in the Partnership Agreement. No market for Limited Partnership
Units exists, nor is any expected to develop.
No special distributions or distributions from operations were made during
the years ended September 30, 1995, 1994, and 1993. In January 1996, the
Partnership distributed $3,315,000 ($40.35 per limited partnership unit) to the
limited partners and $68,000 to the general partners from working capital
reserves. In October 1996, the Partnership distributed $6,860,000 ($83.50 per
limited partnership unit) to the limited partners and $140,000 to the general
partners from proceeds from the disposition of the Norwood Tower Office Building
and Mardot II Building. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for information relating to the
Partnership's financial ability to make future distributions.
As of December 20, 1996, the approximate number of holders of Limited
Partnership Units was 4,672.
Item 6. Selected Financial Data
The following represents selected financial data for the Partnership for
the fiscal years ended September 30, 1996, 1995, 1994, 1993, and 1992. The data
should be read in conjunction with the consolidated financial statements
included elsewhere herein. This data is not covered by the independent auditors'
report.
Years Ended September 30,
1996 1995 1994 1993 1992
(In thousands, except per unit data)
Total revenues $ 3,494 $ 5,544 $ 8,954 $ 8,273 $ 7,475
Income (loss) before
extraordinary item $ 690 $ (457) $ (2,200) $ (2,172) $ (13,374)
Extraordinary item:
Gain on extinguishment
of debt -- 4,596 -- -- --
Net income (loss) $ 690 $ 4,139 $ (2,200) $ (2,172) $ (13,374)
Net income (loss) per
limited partnership
unit (1):
Income (loss) before
extraordinary item $ 7.25 $ (10.05) $ (26.24) $ (25.91) $ (159.53)
Extraordinary item -- 44.76 -- -- --
Net income (loss) $ 7.25 $ 34.71 $ (26.24) $ (25.91) $ (159.53)
Total assets $ 16,566 $ 19,697 $ 48,521 $ 50,042 $ 51,499
Long-term obligations:
Notes payable and
capital lease
obligations $ 1,063 $ 1,110 $ 28,211 $ 27,209 $ 27,145
(1) $1,000 original contribution per unit, based on weighted average units
outstanding during the year, after giving effect to the net income (loss)
allocated to the general partner.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
INTRODUCTION
The operations of the Partnership primarily include owning, operating and
ultimately disposing of income-producing real property for the benefit of its
partners. Therefore, the following discussion of operations, liquidity and
capital resources will focus on these activities and should be read in
conjunction with "Item 8 - Financial Statements and Supplementary Data" and the
notes related thereto included elsewhere in this report.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
The Partnership reported net income of approximately $690,000 for the
twelve months ended September 30, 1996, versus net income of approximately
$4,139,000 for the corresponding period of 1995. The decrease in net income can
be attributed mainly to property sales. In fiscal 1995, the Partnership sold
the Dallas Marriott Quorum Hotel. This sale resulted in a $2,097,000 gain on the
sale of the property and a $4,596,000 gain on the extinguishment of the debt
related to the property. However, also in fiscal 1995, a $2,400,000 impairment
of value was recognized on Norwood Tower Office Building which partially offset
the above mentioned gains related to the sale of the Dallas Marriott Quorum
Hotel. There was no impairment of value recognized in fiscal 1996. The
Partnership continued to sell properties throughout fiscal 1996. In late June
1996, the Partnership sold the Norwood Tower Office Building. The result of
this sale was a gain of $15,000. In July 1996, the Partnership sold the Mardot
II Building. This sale resulted in a gain of $436,000. Finally, in September
1996, the Partnership sold Priest Office Building. As of September 30, 1996,
this sale resulted in a loss of $5,000. Due to the above mentioned property
sales in fiscal 1995 and 1996, the Partnership saw a reduction in overall
operating revenues as well as operating expenses. The Partnership also saw a
significant decrease in depreciation expense due to the reduction of depreciable
assets related to the sales. Overall interest expense was also affected due to
the extinguishment of the mortgage on the Dallas Marriott Quorum Hotel in fiscal
year 1995.
The operating revenues and expenses at the remaining property were
relatively stable on an overall basis. The operating results for Resource Park
West increased due to increases in tenant reimbursements. The operating results
for Parkway Village decreased due to decreases in tenant reimbursement revenue
as well as an increase in real estate tax expense. The increase in real estate
tax expense is primarily due to the fiscal year 1995 taxes being under appeal.
In fiscal year 1996 this appeal was settled and the Partnership paid additional
taxes. This decrease was partially offset by increase in rental rates and
occupancy. Subsequent to fiscal year end, the occupancy rate decreased to 23%
due to the property's largest tenant not exercising its renewal option.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
The Partnership reported net income of $4,139,000 for the twelve months
ended September 30, 1995, as compared to a net loss of $2,200,000 for the
corresponding period in 1994. Operating results before extraordinary gain on
extinguishment of debt improved by $1,743,000 for the year ended September 30,
1995, as compared to 1994, as the decrease in expenses of $5,153,000 was only
partially offset by the decrease in revenues of $3,410,000. Operating results
improved due to the $2,097,000 gain on sale of the Partnership's Dallas Marriott
Quorum Hotel in October 1994 and improved operations primarily due to the sale
of One Empire Place in July 1994, which were partially offset by the $2,400,000
provision for impairment of value recorded on the Partnership's Norwood Tower
Office Building in June 1995. With respect to the remaining properties,
operating results declined by $1,009,000 for the year ended September 30, 1995,
as compared to 1994, due to the $2,400,000 provision for impairment of value on
the Partnership's Norwood Tower Office Building.
With respect to the remaining properties, revenue from commercial
operations increased by $227,000 for the year ended September 30, 1995, as
compared to 1994, due to increased occupancy and rental rates primarily at the
Partnership's Priest Office Building and increased rental rates at the
Partnership's Resource Park West Office building, which were partially offset by
a decrease in occupancy at the Partnership's Parkway Village Shopping Center.
Occupancy and rental rates remained relatively constant at the Partnership's
remaining property. In addition, interest income (excluding the Dallas Marriott
Quorum Hotel) increased by $44,000 due to an increase in average working capital
reserves available for investment, coupled with an increase in interest rates.
With respect to the remaining properties, expenses increased for the year
ended September 30, 1995, as compared to 1994, primarily due to the $2,400,000
provision for impairment in value recorded on the Partnership's Norwood Tower
Office Building, which was partially offset by the $1,200,000 provision for
impairment of value recorded on the Partnership's Parkway Village Shopping
Center in 1994. The Partnership experienced increases in commercial operations
expense of $114,000 and interest expense of $16,000 which was partially offset
by a decrease in depreciation expense of $53,000. Commercial operations expense
increased primarily due to increased repairs and maintenance expenses at the
Partnership's Norwood Tower Office Building. Interest expense increased due to
the non-recourse loan secured by the Partnership's Resource Park West Office
Building property, obtained in December 1993. Depreciation expense declined due
to the provisions for impairment of value recorded on The Partnership's Norwood
Tower Office Building and Parkway Village Shopping Center property, which was
only slightly offset by an increase in depreciation due to fixed asset
additions. General and administrative expenses remained relatively constant.
As part of the ongoing business plan of the Partnership, the Managing
General Partner monitors the rental market environment of its remaining
investment property to assess the feasibility of increasing rents, maintaining
or increasing occupancy levels and protecting the Partnership from the burden of
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.
Capital Resources and Liquidity
At September 30, 1996, the Partnership had unrestricted cash of
approximately $8,438,000 as compared to approximately $3,795,000 at September
30, 1995. Net cash used in operating activities increased due to changes in
receivables and other assets in connection with the requirement under Section
444 of the Internal Revenue Code to deposit funds of $2,105,000 with the
Internal Revenue Service due to its fiscal year end of September 30. The
deposit with the Internal Revenue Service will be refunded in fiscal year 1997.
This increase was partially offset by an increase in payments of interest
accruals in fiscal year 1995 as compared with fiscal year 1996. Net cash
provided by investing activities decreased primarily due to decreases in net
proceeds from sales of properties. Net cash used in financing activities
decreased primarily due to the satisfaction of notes payable in fiscal year
1995. In the second fiscal quarter of 1996, the Partnership distributed
approximately $3,315,000 to the limited partners and $68,000 to the general
partners.
The sale of Norwood Tower Office Building was consummated on June 28, 1996,
for a contract sales price of $5,725,000. The Partnership received proceeds of
approximately $5,482,000 related to this sale. The sale of Mardot II was
consummated on July 24, 1996, at a price of $2,600,000. The Partnership
received proceeds of approximately $2,388,000 related to this sale. The sale of
Priest Office Building was consummated on September 3, 1996, at a contract
amount of $1,675,000. The Partnership received proceeds of approximately
$1,605,000 related to this sale. Subsequent to the September 30, 1996, the
Partnership sold Resource Park West Office Building. This sale was completed on
October 22, 1996, at a contract price of $4,025,000. The Partnership received
proceeds of approximately $3,889,000 related to this sale. Currently, the
Partnership owns one investment property, Parkway Village Shopping Center. The
Partnership is marketing this property for sale but, as of December 1996, it was
not under contract.
The Partnership's remaining property consists of one shopping center
located in Georgia. The Partnership receives rental income from commercial
spaces and is responsible for operating expenses and administrative expenses.
The Partnership is marketing its remaining property for sale. Although the
space occupied by Kroger grocery store at the remaining property became vacant
in the first quarter of fiscal 1997, the Managing General Partner is still
marketing the property for sale as opposed to expending significant amounts
of cash flow in an effort to fully lease the property. Upon the sale of its
remaining property, it is anticipated that all cash of the Partnership will be
distributed, after establishing a sufficient reserve, and the Partnership will
be liquidated.
The Partnership uses working capital reserves from any undistributed cash
flow from operations, proceeds from mortgage financings and the sale of
properties as its primary source of liquidity. An affiliate of the Managing
General Partner has made available to the Partnership a credit line of up to
$150,000 per property owned by the Partnership. The Partnership has no
outstanding amounts due under this line of credit. Based on present plans,
management does not anticipate the need to borrow in the near future. Other
than cash and cash equivalents, the line of credit is the Partnership's only
unused source of liquidity.
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. In the second fiscal quarter of
1996, the Partnership distributed approximately $3,315,000 to the limited
partners and $68,000 to the general partners. Subsequent to September 30, 1996,
the Partnership distributed $6,860,000 ($83.50 per limited partnership unit) to
the limited partners and $140,000 to the general partners from proceeds from the
disposition of the Norwood Tower Office Building and Mardot II Building. Future
cash distributions will depend on the levels of net cash generated from
operations, property sale and the availability of cash reserves.
Item 8. Financial Statements and Supplementary Data
MRI BUSINESS PROPERTIES FUND, LTD.
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1996
INDEX
Page Number
Independent Auditor's Report 12
Financial Statements:
Consolidated Balance Sheets at September 30, 1996 and 1995 13
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995, and 1994 14
Consolidated Statements of Partners' Capital (Deficit) for the
Years Ended September 30, 1996, 1995, and 1994 15
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995, and 1994 16
Notes to Consolidated Financial Statements 17
Consolidated financial statements and financial schedules not included have been
omitted because of the absence of conditions under which they are required or
because the information is included elsewhere in this Report.
To the Partners
MRI Business Properties Fund, Ltd.
Greenville, South Carolina
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of MRI Business
Properties Fund, Ltd. (a limited partnership)(the "Partnership") and its
subsidiary as of September 30, 1996 and 1995, and the related consolidated
statements of operations, partners' equity and cash flows for each of the three
years in the period ended September 30, 1996. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 the Partnership and
its subsidiary as of September 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Imowitz Koenig & Co., LLP
Certified Public Accountants
New York, New York
November 22, 1996
MRI BUSINESS PROPERTIES FUND, LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
September 30,
1996 1995
ASSETS
Cash and cash equivalents $ 8,438 $ 3,795
Receivables and other assets 2,301 474
Real Estate:
Real estate 9,658 25,239
Accumulated depreciation (3,953) (10,225)
Real estate, net 5,705 15,014
Deferred costs, net 122 414
$ 16,566 $ 19,697
LIABILITIES AND PARTNERS' EQUITY
Note payable $ 1,063 $ 1,110
Accounts payable and accrued
liabilities 179 520
Accrued interest 8 8
Due to affiliate -- 50
1,250 1,688
Commitments and Contingencies
Partners' Equity:
General partners' deficit (1,023) (1,049)
Limited partners' equity (82,158
units outstanding at
September 30, 1996 and 1995) 16,339 19,058
15,316 18,009
$ 16,566 $ 19,697
See accompanying notes to consolidated financial statements
MRI BUSINESS PROPERTIES FUND, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended September 30,
1996 1995 1994
Revenues:
Commercial $ 2,887 $ 3,223 $ 3,069
Hotel Lease -- 85 5,733
Interest income 161 139 152
Gain on sale of properties 446 2,097 --
Total revenues 3,494 5,544 8,954
Expenses (including $116,000, $193,000
and $118,000 paid to joint venture
partners, general partners and
affiliates in 1996, 1995 and 1994):
Hotel operations -- 78 1,226
Commercial operations 1,711 1,957 1,980
Interest 99 333 3,553
Depreciation 550 762 2,571
General and administrative 444 471 468
Provision for impairment of value -- 2,400 1,200
Loss on sale of property -- -- 156
Total expenses 2,804 6,001 11,154
Income (loss) before extraordinary item 690 (457) (2,200)
Extraordinary item:
Gain on extinguishment of debt -- 4,596 --
Net income (loss) $ 690 $ 4,139 $ (2,200)
Net income (loss) allocated to general
partner $ 94 $ 1,287 $ (44)
Net income (loss) allocated to limited
partners 596 2,852 (2,156)
Net income (loss) $ 690 $ 4,139 $ (2,200)
Net income (loss) per limited
partnership unit:
Income (loss) before
extraordinary item $ 7.25 $ (10.05) $ (26.24)
Extraordinary item -- 44.76 --
Net income (loss) $ 7.25 $ 34.71 $ (26.24)
Distribution per limited partnership unit $ 40.35 $ -- $ --
See accompanying notes to consolidated financial statements
MRI BUSINESS PROPERTIES FUND, LTD.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
(in thousands, except unit data)
Limited General Limited Total
Partnership Partners' Partners' Partner
Units (Deficit) Equity Equity
Original capital contributions 82,158 $ 100 $ 82,158 $ 82,258
Partners' (deficit) capital at
September 30, 1993 82,158 $ (2,292) $ 18,362 $ 16,070
Net loss for the year ended
September 30, 1994 -- (44) (2,156) (2,200)
Partners' (deficit) capital at
September 30, 1994 82,158 (2,336) 16,206 13,870
Net income for the year ended
September 30, 1995 -- 1,287 2,852 4,139
Partners' (deficit) capital at
September 30, 1995 82,158 (1,049) 19,058 18,009
Distributions paid to partners (68) (3,315) (3,383)
Net income for the year
ended September 30, 1996 -- 94 596 690
Partners (deficit) capital at 82,158 $ (1,023) $ 16,339 $ 15,316
September 30, 1996
<FN>
See accompanying notes to consolidated financial statements
MRI BUSINESS PROPERTIES FUND, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended September 30,
1996 1995 1994
Cash flows from operating activities:
Net income (loss) $ 690 $ 4,139 $ (2,200)
Adjustments to reconcile net
income (loss) to net cash (used in)
provided by operating activities:
(Gain) loss on sale of properties (446) (2,097) 156
Extraordinary gain on extinguishment
of debt -- (4,596) --
Depreciation and amortization 684 897 2,755
Accrued interest added to principal -- 57 130
Provision for impairment of value -- 2,400 1,200
Provision for doubtful receivables 34 20 30
Changes in operating assets and
liabilities:
Receivables and other assets (1,927) (166) 382
Deferred costs paid (7) (84) (145)
Accounts payable and accrued
liabilities (341) (259) (306)
Due to affiliate (50) 50 --
Accrued interest -- (965) --
Net cash (used in) provided by
operating activities (1,363) (604) 2,002
Cash flows from investing activities:
Net proceeds from sale of property 9,474 27,681 420
Additions to real estate (38) (1,212) (1,217)
Proceeds from cash investments -- -- 887
Net cash provided by investing
activities 9,436 26,469 90
Cash flows from financing activities:
Satisfaction of notes payable -- (27,051) --
Notes payable proceeds -- -- 1,180
Notes payable principal payments (47) (50) (308)
Distribution to partners (3,383) -- --
Net cash (used in) provided by
financing activities (3,430) (27,101) 872
Increase (decrease) in cash and
cash equivalents 4,643 (1,236) 2,964
Cash and cash equivalents at beginning
of year 3,795 5,031 2,067
Cash and cash equivalents at end of
year $ 8,438 $ 3,795 $ 5,031
Supplemental disclosure of cash flow
information:
Interest paid in cash during the year $ 93 $ 1,232 $ 3,515
See accompanying notes to consolidated financial statements
MRI BUSINESS PROPERTIES FUND, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Summary of Significant Accounting Policies
Organization
MRI Business Properties Fund, Ltd. (the "Partnership") is a limited
partnership organized under the laws of the State of California to acquire, hold
for investment, and ultimately sell income-producing real estate. The
Partnership owns one shopping center located in Georgia. The Partnership's
Resource Park West property was sold on October 22, 1996. The Partnership is
marketing its remaining property for sale. The Managing General Partner is
Montgomery Realty Company-83 ("Montgomery"), a limited partnership, and the
associate general partner is MRI Associates, Ltd., a limited partnership. Fox
Realty Investors ("FRI") is a general partner of Montgomery and of MRI
Associates, Ltd. The Partnership was organized on June 20, 1983, but it did not
commence operations until October 1983. A capital contribution of $1,000 was
made in 1983 by the original limited partner. The remaining capital
contributions of $82,157,000 ($1,000 per unit) were made by the limited
partners. In addition, the general partners contributed $100,000.
On December 6, 1993, NPI Equity Investments II, Inc. ("NPI Equity II")
became the managing general partner of FRI and assumed operational control over
Fox Capital Management Corporation ("FCMC"), an affiliate of FRI. The
individuals who had served previously as partners of FRI and as officers and
directors of FCMC contributed their general partnership interests in FRI to a
newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in
exchange for limited partnership interests in PRA. In the foregoing capacity,
such partners continue to hold, indirectly, certain economic interests in the
Partnership and such other investment partnerships, but ceased to be responsible
for the operation and management of the Partnership and such other partnerships.
On January 19, 1996, the stockholders of National Property Investors, Inc.
("NPI"), the sole share holder of NPI Equity II, sold all of the issued and
outstanding shares of NPI to IFGP Corporation ("IFGP"), an affiliate of Insignia
Financial Group, Inc. ("Insignia"). Upon closing, the officers and directors of
NPI Equity II resigned and IFGP elected new officers and directors. In
connection with the sale of the NPI stock to IFGP, DeForest Ventures I L.P. sold
the 25,436 limited partnership units owned by it to MRI/CPF LLC, an entity
comprised of the former NPI shareholders and their affiliates. (See Item 12,
"Security Ownership of Certain Beneficial Owners and Management.")
The occupancy rate at the Partnership's remaining property decreased to 23%
due to the largest tenant not exercising its renewal option. The Managing
General Partner is still marketing the property for sale, as opposed to
expending significant amounts of cash flow in an effort to fully lease the
property.
Note A - Organization and Summary of Significant Accounting Policies - continued
Consolidation
The consolidated financial statements include the Partnership and its
wholly owned subsidiary, Resource Park West, L.P., which was formed in September
1993. All significant intercompany transactions and balances have been
eliminated.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, demand deposits and money market funds.
Concentration of Credit Risk
The Partnership maintains cash balances at institutions insured up to
$100,000 by the Federal Deposit Insurance Corporation ("FDIC"). Balances in
excess of $100,000 are usually invested in money market accounts. At times
during the year, cash balances exceeded insured levels. At September 30, 1996,
the Partnership had $8,070,000 invested in a money market account, which is
included in cash and cash equivalents.
Investment in Real Estate
Investment properties are generally stated at the lower of cost or
estimated fair value, which was determined using the net operating income of the
investment property capitalized at a rate deemed reasonable for the type of
property, adjusted for market conditions, physical condition of the property and
other factors to assess whether any permanent impairment in value has occurred.
During 1996, the Partnership adopted FASB Statement No. 121, ("FASB 121")
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The impairment loss is measured by comparing the
fair value of the asset to its carrying amount. The adoption of FASB 121 did
not have an effect on the Partnership's consolidated financial statements.
Depreciation
Buildings, improvements and furniture and fixtures are depreciated using
the straight line method over the estimated useful lives of the assets, ranging
from 5 to 39 years.
Deferred Loan Fees
Deferred loan fees are amortized using the straight-line method over the lives
of the related mortgage notes. Unamortized loan fees are included in deferred
costs. At September 30, 1996 and 1995, accumulated amortization of deferred
loan fees totaled $18,000 and $12,000, respectively.
Note A - Organization and Summary of Significant Accounting Policies - continued
Lease Commissions
Deferred lease commissions are amortized using the straight-line method
over the lives of the related leases. Such amortization is charged to operating
expenses. Unamortized lease commissions are included in deferred costs. At
September 30, 1996 and 1995, accumulated amortization of lease commissions
totaled $112,000 and $364,000, respectively.
Income Taxes
The Partnership is classified as a partnership for Federal income tax
purposes. Accordingly, no provision for income taxes is made in the consolidated
financial statements of the Partnership. Taxable income or loss of the
Partnership is reported in the income tax returns of its partners.
The tax basis of the Partnership's equity is approximately $ 23,623,000.
Fair Value
In 1995, the Partnership implemented "Statement of Financial Accounting
Standards No. 107, Disclosure about Fair Value of Financial Instruments," which
requires disclosures of fair value information about financial instruments for
which it is practicable to estimate that value. The carrying amount of the
Partnership's cash and cash equivalents approximates fair value due to their
short-term maturities. The Partnership estimates the fair value of its fixed
rate mortgage by discounted cash flow analysis based on estimated borrowing
rates currently available to the Partnership approximates the carrying value.
Net Income (Loss) Per Weighted Average limited partnership Unit
Net income (loss) per Limited Partnership Unit is computed by dividing net
income (loss) allocated to the limited partners by 82,158 units outstanding.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Note B - Related Party Transactions
The Partnership has no employees and is dependent on its general partners
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.
On January 1, 1993, Metric Management, Inc., ("MMI"), a company which is
not affiliated with the general partners, commenced providing certain property
and portfolio management services to the Partnership under a new services
agreement. As provided in the new services agreement, effective January 1,
1993, no reimbursements were made to the general partners and affiliates after
December 31, 1992. Subsequent to December 31, 1992, reimbursements were made to
MMI. On December 16, 1993, the services agreement with MMI was modified and, as
a result thereof, NPI Equity II began directly providing cash management and
other Partnership services on various dates commencing December 23, 1993.
The following transactions with affiliates of Insignia, NPI, and
affiliates of NPI were charged to expense in 1996, 1995, and 1994 (in
thousands):
Years ended September 30,
1996 1995 1994
Reimbursements for
services of affiliates $116 $193 $118
(included in general
and administrative
expenses)
For the period from January 19, 1996, to September 30, 1996, the
Partnership insured its properties under a master policy through an agency and
insurer unaffiliated 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.
In accordance with the Partnership Agreement, the general partners were
allocated their two percent continuing interest in the Partnership's net income
(loss) and taxable income (loss). Gain from disposition of Partnership property
and gain on extinguishment of debt were allocated 20% to the general partners
until such time as the general partners do not have deficit capital accounts. In
January, 1996, the Partnership distributed $3,315,000 ($40.35 per limited
partnership unit) to the limited partners and $68,000 to the general partners
from working capital reserves. In October 1996, the Partnership distributed
$6,860,000 ($83.50 per limited partnership unit) to the limited partners and
$140,000 to the general partners from proceeds from the disposition of the
Norwood Tower Office Building and Mardot II Building. There were no cash
distributions to the general partners for the years ended September 30, 1995,
and 1994. Upon termination of the Partnership, the general partners may be
required to contribute certain funds to the Partnership in accordance with the
terms of the Partnership Agreement.
Note C - Note Payable
(Dollar amounts in thousands)
Principal Principal
Balance At Stated Balance
September 30, Interest Period Maturity Due At
Property 1996 Rate Amortized Date Maturity
Resource Park $ 1,063 8.5% 15 years 12/98 $ 932
West Office
Building,
Lakewood,
Colorado
With the sale of Resource Park West on October 22, 1996, the above debt was paid
in full (see "Note J").
Note D - Investment Property and Accumulated Depreciation
(Dollar amounts in thousands)
Initial Cost
To Partnership
Cost
Buildings Capitalized
and Related (Removed)
Personal Subsequent to
Description Encumbrances Land Property Acquisition
Parkway Village
Shopping Center $ -- $ 563 $ 3,763 $ 148
Resource Park West
Office Building (1) 1,063 777 6,094 (1,687)
$ 1,063 $ 1,340 $ 9,857 $ (1,539)
Note D - Investment Property and Accumulated Depreciation (continued)
Gross Amount at Which Carried
At September 30, 1996
Buildings Accum- Depre-
And Related ulated Date ciable
Personal Depre- Acqui- Life-
Description Land Property Total ciation red Years
Parkway Village
Shopping Center $ 440 $ 4,034 $ 4,474 $ 1,732 6/84 5-39
Resource Park
West Office
Building (1) 453 4,731 5,184 2,221 1/84 5-39
$ 893 $ 8,765 $ 9,658 $ 3,953
(1) Property was sold October 1996 (See "Note J").
Reconciliation of Investment Property and Accumulated Depreciation:
Years Ended September 30,
Investment Properties 1996 (1) 1995 1994
Balance at beginning of year $ 25,239 $ 76,835 $ 78,416
Property Improvements 38 1,212 1,217
Property sales (15,619) (50,408) (1,598)
Provision for impairment -- (2,400) (1,200)
Balance at end of year $ 9,658 $ 25,239 $ 76,835
Years Ended September 30,
1996 (1) 1995 1994
Accumulated Depreciation
Balance at beginning of year $ 10,225 $ 34,287 $ 32,726
Property Improvements 550 762 2,571
Property sales (6,822) (24,824) (1,010)
Balance at end of year $ 3,953 $ 10,225 $ 34,287
(1) Resource Park West was sold October 1996 (see "Note J").
The aggregate cost of the real estate for Federal income tax purposes at
September 30, 1996 and 1995 is $13,272,000 and $39,421,000. The accumulated
depreciation taken for Federal income tax purposes at September 30, 1996 and
1995 is $8,309,000 and $20,425,000.
Note E - Provision for Impairment of Value
During fiscal year 1992 the Partnership determined that based upon current
economic conditions, projected future operational cash flows, continued low
absorption rates and high vacancy rates in comparable commercial property, the
decline in values of Norwood Tower Office Building, located in Austin, Texas,
Resource Park West Office Building located in Lakewood, Colorado, Priest Office
Building, located in Tempe, Arizona, and One Empire Place Office Building,
located in Dallas, Texas, were other than temporary and that recovery of their
carrying values was not likely. Accordingly, a provision for impairment of value
of $11,109,000 (consisting of $6,426,000 on Norwood Tower Office Building,
$1,640,000 on Resource Park West Office Building, $1,315,000 on Priest Office
Building and $1,728,000 on One Empire Place Office Building) was recognized in
fiscal year 1992. In fiscal year 1993, an additional provision for impairment
of value of $625,000 was recognized on One Empire Place Office Building to
further reduce the carrying value of the property due to continued deterioration
of the Dallas, Texas market. During fiscal year 1994, the Partnership determined
based on current economic conditions, projected future operational cash flows,
and high vacancy rates, the decline in Parkway Village Shopping Center's value
was other than temporary and that recovery of the carrying value is not likely.
A provision for impairment of value of $1,200,000 was recognized in fiscal year
1994 to reduce the carrying value of the property to its estimated fair value.
During fiscal year 1995, the Partnership determined that based on current
economic conditions, projected operational cash flows (including estimated sales
proceeds), and high vacancy rates in comparable commercial property, the value
of Norwood Tower Office Building declined further and is other than temporary
and recovery is not likely. Accordingly, an additional provision for impairment
of value of $2,400,000 was recognized to reduce the carrying value of the
property to its estimated fair value. Carrying value includes the cost of the
property less accumulated depreciation plus unamortized deferred costs. Refer
to "Notes H and J" for discussion of property sales.
Note F - Future Rental Revenues
Minimum future rental revenues from property under operating leases having
non-cancelable lease terms in excess of one year at September 30, 1996, are as
follows (dollar amounts in thousands):
1997 $ 139
1998 104
1999 44
2000 23
2001 --
Thereafter --
Total $ 310
Rental income from the Dallas Marriott Quorum Hotel leaseback agreement
was $85,000 and $5,733,000 in 1995 and 1994 respectively. The leaseback
agreement also provided that the Partnership was responsible for land lease
payments and property taxes (see "Notes G and H").
Note G - Rental Commitments and Contingencies
The land lease, which was due to expire in 2007, was terminated on October
24, 1994, in connection with the sale of the Partnership's Dallas Marriott
Quorum Hotel (see "Note H"). Rental expenses for all operating leases
(including the land lease) were $59,000 and $702,000 in 1995 and 1994
respectively.
Note H - Sale of Property and Extraordinary Gain on Extinguishment of Debt
On September 3, 1996, the Partnership sold Priest Office Building for a
contract price of $1,675,000 to an unrelated third party. After the payment of
closing costs and related expenses of approximately $70,000, the Partnership
received proceeds of approximately $1,605,000. The sale resulted in a loss of
approximately $5,000. Provision for impairment of value of $1,315,000 was
recorded in fiscal year 1992 (see "Note E").
On July 24, 1996, the Partnership sold its Mardot II property for an
aggregate selling price of $2,600,000 to an unrelated third party. After the
payment of closing costs and related expenses of approximately $212,000, the
Partnership received proceeds of approximately $2,388,000. The sale resulted in
a gain of approximately $436,000.
On June 28, 1996, the Partnership sold Norwood Tower Office Building for
$5,725,000. After the payment of closing costs and related expenses of
approximately $243,000, the Partnership received proceeds of approximately
$5,482,000. The sale resulted in a gain of approximately $15,000. Provisions
for impairment of value totaling $8,826,000 were recorded in fiscal years 1992
and 1995 (see "Note E").
On October 24, 1994, the Partnership sold its Dallas Marriott Quorum Hotel
for $29,815,000. After repayment of the first and second mortgage loan balances
of $22,221,000 (including $170,000 of accrued interest) and $5,000,000,
respectively, deferred interest of $750,000 and closing costs and adjustments of
$515,000, the cash received by the Partnership was $1,329,000. Under the terms
of the agreement, cash in the hotel's bank account of approximately $1,980,000,
was retained by the purchaser to be used as partial repayment of the second
loan. Accrued but unpaid interest of approximately $4,596,000 on the second
loan was forgiven by the lender. The sale resulted in a gain of $2,097,000 and
an extraordinary gain on extinguishment of debt of $4,596,000.
On July 7, 1994, the Partnership's One Empire Place Office Building
property was sold to an unaffiliated buyer for $457,000. After expenses of the
sale of approximately $37,000, the Partnership received $420,000 of proceeds.
The loss on the sale was $156,000. Provisions for impairment of value totaling
$2,353,000 were recorded in fiscal years 1992 and 1993.
Note I - Distributions
In January, 1996, the Partnership distributed $3,315,000 ($40.35 per
limited partnership unit) to the limited partners and $68,000 to the general
partners from working capital reserves. Refer to "Note J" for discussion of
distribution made subsequent to September 30, 1996.
Note J - Subsequent Events
On October 22, 1996, the Partnership sold Resource Park West Office
Building to an unrelated third party for a contract amount of $4,025,000. After
the payment of the note payable, closing costs and related expenses of
approximately $136,000, the Partnership received proceeds of approximately
$3,889,000. The sale will result in a gain of approximately $859,000 in fiscal
year 1997. Provision for impairment of value of $1,640,000 was recorded in
fiscal year 1992 (see "Note E").
In October 1996, the Partnership distributed $6,860,000 ($83.50 per limited
partnership unit) to the limited partners and $140,000 to the general partners
from proceeds from the disposition of the Norwood Tower Office Building and
Mardot II Building.
Note K - Reconciliation to Income Tax Method of Accounting
The differences between the method of accounting for income tax reporting
and the accrual method of accounting used in the financial statements are as
follows (in thousands, except unit data):
1996 1995 1994
Net income (loss)-financial statements $ 690 $ 4,139 $ (2,200)
Differences resulted from:
Depreciation (904) (1,256) (2,378)
Gain on sale of property (3,577) 15,355 --
Provision for impairment of value -- 2,400 1,200
Loss on property disposition -- -- (1,082)
Other (313) 100 120
Net (loss) income -income tax method $ (4,104) $ 20,738 $ (4,340)
Taxable (loss) income per limited
partnership unit after giving effect
to the allocation to the general
partner $ (51) $ 220 $ (52)
Partners' equity-financial statements $ 15,316 $ 18,009 $ 13,870
Differences resulted from:
Deferred sales commissions and
organization costs 9,079 9,079 9,079
Depreciation (4,481) (10,200) (24,419)
Provision for impairment of value 2,840 12,981 10,581
Payments credited to property and
improvements 616 675 713
Other 253 566 546
Partners' equity-income tax method $ 23,623 $ 31,110 $ 10,370
Note L - Pro Forma Financial Information
The following pro forma consolidated balance sheet as of September 30, 1996,
and the pro forma consolidated statement of operations for the twelve month
period ended September 30, 1996, give effect to the sale of Resource Park West
Office Building. The adjustments related to the pro forma consolidated balance
sheet assume the transaction was consummated at September 30, 1996, while the
adjustments to the pro forma consolidated income statements assume the
transaction was consummated at the beginning of the year presented. The sale
occurred on October 22, 1996.
The pro forma adjustments required are to eliminate the assets, liabilities
and operating activity of Resource Park West Office Building and to reflect
consideration received for the property.
These pro forma adjustments are not necessarily reflective of the results
that actually would have occurred if the sale had been in effect as of and for
the periods presented or that may be achieved in the future.
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1996
(in thousands)
Pro Forma
Historical Adjustments Pro Forma
Assets
Cash and cash equivalents $ 8,438 $ 2,698 $ 11,136
Deferred costs, net 122 (105) 17
Other assets 2,301 (75) 2,226
Investment property:
Real estate 9,658 (5,184) 4,474
Accumulated depreciation (3,953) 2,221 (1,732)
Real estate, net 5,705 (2,963) 2,742
$ 16,566 $ (445) $ 16,121
Liabilities and Partners' Equity
Liabilities
Accrued expenses and other liabilities $ 187 $ (70) $ 117
Mortgage notes payable 1,063 (1,063) --
1,250 (1,133) 117
Partners' Capital 15,316 688 16,004
$ 16,566 $ (445) $ 16,121
Note L - Pro Forma Financial Information (continued)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the twelve months ended September 30, 1996
(in thousands, except unit data)
Pro Forma
Historical Adjustments Pro Forma
Revenues:
Commercial operations $ 2,887 $ (775) $ 2,112
Interest income 161 (2) 159
Gain on sale of property 446 -- 446
Total revenues 3,494 (777) 2,717
Expenses:
Commercial operations 1,711 (395) 1,316
Interest 99 (99) --
Depreciation 550 (138) 412
General and administrative 444 -- 444
Total expenses 2,804 (632) 2,172
Net income (loss) $ 690 $ (145) $ 545
Net income (loss) per limited
partnership unit $ 7.25 $ (1.73) $ 5.52
The historical information above includes applicable operating results for
the properties sold during fiscal year 1996, while the pro forma adjustments
relate only to the subsequent sale of Resource Park West. Consequently, the pro
forma information is not reflective of the Partnership's remaining property,
Parkway Village.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
There were no disagreements with Imowitz Koenig & Co., LLP regarding the
1996, 1995, or 1994 audits of the Partnership's consolidated financial
statements.
PART III
Item 10. Directors and Executive Officers of The Partnership
Neither the Partnership, Montgomery Realty Company-83 ("MRC"), the
general partner of the Partnership nor FRI, the general partner of MRC, has any
officers or directors. NPI Equity II, the Managing General Partner of FRI,
manages substantially all of the Partnership's affairs and has general
responsibility in all matters afecting its business. NPI Equity II is a wholly
owned subsidiary of NPI. NPI Equity II and its affiliates also control, or act
as, the managing general partner of 28 other public limited partnerships. All of
these partnerships are engaged in the acquisition, leasing and disposition of
real estate. As of December 1, 1996, the names, ages and positions held by
executive officers and directors of NPI Equity II are as follows:
Name Age Position
William H. Jarrard, Jr. 50 President
Ronald Uretta 40 Vice President, Chief
Operating Officer and
Treasurer
John K. Lines 37 Vice President and
Secretary
Kelley M. Buechler 39 Assistant Secretary
William H. Jarrard has been President of the Managing General Partner
since January 1996 and Managing Director - Partnership Administration of
Insignia since January 1991. Mr. Jarrard served as Managing Director-Partnership
Administration and Asset Management from July 1994 to January 1996. During the
five years prior to joining Insignia in 1991, he served in similar capacities
for U.S. Shelter.
Ronald Uretta has been Insignia's Chief Operating Officer since August
1996 and Treasurer since January 1992. From January 1992 to August 1996, Mr.
Uretta was Insignia's Chief Financial Officer. Mr. Uretta was Insignia's
Secretary from January 1992 to June 1994. From May 1988 until September
1990, Mr. Uretta was a self-employed financial consultant. From January 1978
until January 1988, Mr. Uretta was employed by Veltri Raynor & Company,
independent certified public accountants.
John K. Lines, Esq. has been Vice President and Secretary of the
Managing General Partner since January 1996, Insignia's General Counsel since
June 1994, and General Counsel and Secretary since July 1994. From May 1993
until June 1994, Mr. Lines was the Assistant General Counsel and Vice
President of Ocwen Financial Corporation, West Palm Beach, Florida. From
October 1991 until May 1993, Mr. Lines was a Senior Attorney with BANC ONE
CORPORATION, Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was an
attorney with Squire Sanders & Dempsey, Columbus, Ohio.
Kelley M. Buechler is Assistant Secretary of the Managing General Partner.
Ms. Buechler has been Assistant Secretary of Insignia since 1991. During the
five years prior to joining Insignia in 1991, she served in similar capacities
for U.S. Shelter.
The Partnership believes, based on written representations received by it,
that for the fiscal year ended September 30, 1996, all filing requirements under
Section 16(a) of the Securities Exchange Act of 1934 applicable to beneficial
owners of the Partnership's Securities, the Partnership's general partners and
officers and directors of such general partners, were complied with.
Item 11. Executive Compensation.
The Partnership is not required to and did not pay any compensation to the
officers or directors of NPI Equity II. NPI Equity II does not presently pay
any compensation to any of its officers or directors. (See Item 13, "Certain
Relationships and Related Transactions").
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Partnership is a limited partnership and has no officers or directors.
The Managing General Partner has discretionary control over most of the
decisions made by or for the Partnership in accordance with the terms of the
Partnership Agreement.
The following table sets forth certain information regarding limited
partnership units of the Partnership owned by each person who is known by the
Partnership to own beneficially or exercise voting or dispositive control over
more than 5% of the Partnership's limited partnership units, by each of NPI
Equity II's directors and by all directors and executive officers of NPI Equity
II as a group as of September 30, 1996.
Name and address of Amount and nature of
Beneficial Owner Beneficial Owner % of Class
MRI/CPF, LLC 25,436 30.96
There are no arrangements known to the Partnership, the operation of which
may, at a subsequent date, result in a change in control of the Partnership,
other than as follows:
(a) In connection with the admission of NPI Equity II as the managing partner of
FRI, PRA reserved the right to remove NPI Equity II from its position as
managing partner of FRI if certain events occur, such as an event of bankruptcy
or the failure to maintain an adequate net worth. In such event, PRA may, but
is not required to, assume the position of managing partner of FRI.
(b) See Item 1, "Business" for information relating to the sale by the
stockholders of NPI of all of the issued and outstanding shares of stock of NPI
to an affiliate of Insignia.
Item 13. Certain Relationships and Related Transactions.
The Partnership Agreement provides that MRC will be reimbursed for actual
expenses incurred in providing services required by the Partnership. The
Managing General Partner assumed responsibility for cash management of the
Partnership as of December 23, 1993, and for day to day management of the
Partnership's affairs, including portfolio management, accounting, and investor
relations services as of April 1, 1994. Prior to that time, Metric Realty
Services, L.P. or its affiliate provided such services.
The following transactions with affiliates of Insignia, NPI, and
affiliates of NPI were charged to expense in 1996, 1995, and 1994 (in
thousands):
Years ended September 30,
1996 1995 1994
Reimbursements for
services of affiliates $116 $193 $118
(included in general
and administrative
expenses)
For the period from January 19, 1996, to September 30, 1996, the
Partnership insured its properties under a master policy through an agency and
insurer unaffiliated 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.
In accordance with the Partnership Agreement, the general partners were
allocated their two percent continuing interest in the Partnership's net income
(loss) and taxable income (loss). Gain from disposition of Partnership property
and gain on extinguishment of debt were allocated 20% to the general partners
until such time as the general partners do not have deficit capital accounts. In
January, 1996, the Partnership distributed $3,315,000 ($40.35 per limited
partnership unit) to the limited partners and $68,000 to the general partners
from working capital reserves. In October 1996, the Partnership distributed
$6,860,000 ($83.50 per limited partnership unit) to the limited partners and
$140,000 to the general partners from proceeds from the disposition of the
Norwood Tower Office Building and Mardot II Building. There were no cash
distributions to the general partners for the years ended September 30, 1995
and 1994. Upon termination of the Partnership, the general partners may be
required to contribute certain funds to the Partnership in accordance with
the Partnership Agreement.
The General Partner is entitled to receive an allocation of 10% of the net
income and net loss, taxable income and taxable loss, and cash available for
distribution distributed to partners in an effort to defray some of the expenses
related to non-reimbursed expenses and services provided by the General Partner
and not reimbursed by the Partnership. No distribution was made in fiscal year
ended September 30, 1996.
The Managing General Partner is also entitled to its continuing interest
of two percent of net income and net loss, taxable income and taxable loss and
distribution of cash available for distribution; provided, however, (i) that 20%
of realized gains from the sale or other disposition of property is allocated to
the general partner until such time as it does not have a deficit capital
account, and (ii) two percent of cash from sales or refinancing and working
capital reserve.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) (2) Financial Statements and Financial Statement Schedules:
See Item 8 of this Form 10-K for Consolidated Financial Statements of
the Partnership, Notes thereto, and Financial Statement Schedules. A
table of contents to Consolidated Financial Statements and Financial
Statement Schedules is included in Item 8 and incorporated herein by
reference.)
(a) (3) Exhibits:
2. NPI Stock Purchase Agreement dated as of August 17, 1995,
incorporated by reference to Exhibit 2 to the Partnership's
Current Report on Form 8-K dated August 17, 1995.
3,4. Partnership Agreement incorporated by reference to the
Partnership's Prospectus filed pursuant to Rule 424 (b) of the
Securities Act of 1933.
16. Letter dated April 27, 1994, from the Partnership's Former
Independent Auditors incorporated by reference to the
Partnership's Current Report on Form 8-K dated April 22, 1994.
(b) Reports on Form 8-K:
Form 8-K was filed by the Partnership during the last quarter of the
Partnership's fiscal year dated September 4, 1996, relating to the
sale of Priest Office Building.
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 on the 30th day of
December, 1996.
MRI BUSINESS PROPERTY FUND, LTD.
By: Montgomery Realty Company-83,
its Managing General Partner
By: Fox Realty Investors,
its Managing General Partner
By: NPI Equity Investments II, Inc.
its Managing Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Chief Operating Officer
Date: December 30, 1996
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 Partnership in
their capacities as directors and/or officers of NPI Equity Investments II,
Inc., on the dates indicated below.
Signature/Name Title Date
/s/William H. Jarrard, Jr.
William H. Jarrard, Jr. President and Director December 30, 1996
/s/Ronald Uretta
Ronald Uretta Chief Operating Officer December 30, 1996