FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
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 September 30, 1998
[ ] 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 2-76434
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES
(Exact name of small business issuer as specified in its charter)
New York 13-3153572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1998
Assets
Cash and cash equivalents $ 67
Receivables and deposits 39
Other assets 103
Investment property:
Land $ 227
Building and related personal property 2,994
3,221
Less accumulated depreciation (1,562) 1,659
$ 1,868
Liabilities and Partners' Capital (Deficit)
Liabilities:
Tenant security deposit liabilities $ 7
Accrued property taxes 27
Other liabilities 20
Mortgage note payable 1,199
Partners' Capital (Deficit):
General partner's $ (49)
Limited partners' (11,455 units issued and
outstanding) 664 615
1,868
See Accompanying Notes to Financial Statements
b)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Rental income $ 94 $ 96 $ 288 $ 271
Interest income -- 1 2 4
Total revenues 94 97 290 275
Expenses:
Operating 20 27 100 87
General and administrative 2 10 28 38
Depreciation 36 33 107 96
Interest 26 27 80 82
Property taxes 9 8 27 26
Total expenses 93 105 342 329
Net income (loss) $ 1 $ (8) $ (52) $ (54)
Net income (loss) allocated to
general partner (1%) $ -- $ -- $ (1) $ (1)
Net income (loss) allocated to
limited partners (99%) 1 (8) (51) (53)
$ 1 $ (8) $ (52) $ (54)
Net income (loss) per limited
partnership unit $ .09 $ (.70) $ (4.45) $(4.63)
See Accompanying Notes to Financial Statements
c)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 11,500 $ 1 $11,500 $ 11,501
Partners' (deficit) capital
at December 31, 1997 11,455 $ (48) $ 715 $ 667
Net loss for the nine months
ended September 30, 1998 -- (1) (51) (52)
Partners' (deficit) capital
at September 30, 1998 11,455 $ (49) $ 664 $ 615
See Accompanying Notes to Financial Statements
d)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss $ (52) $ (54)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 107 96
Amortization of lease commissions and loan costs 19 17
Rent abatement -- (22)
Changes in accounts:
Receivables and deposits (20) (22)
Other assets (35) (13)
Accounts payable (3) (51)
Tenant security deposit liabilities (1) (4)
Accrued property taxes 27 27
Other liabilities (13) (5)
Net cash provided by (used in) operating
activities 29 (31)
Cash flows used in investing activities:
Property improvements and replacements (63) (85)
Cash flows used in financing activities:
Payments of mortgage note payable (28) (27)
Net decrease in cash and cash equivalents (62) (143)
Cash and cash equivalents at beginning of period 129 255
Cash and cash equivalents at end of period $ 67 $ 112
Supplemental disclosure of cash flow information:
Cash paid for interest $ 73 $ 75
<FN>
See Accompanying Notes to Financial Statements
</FN>
e)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Drexel Burnham Lambert Real
Estate Associates (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 DBL Properties Corporation ("DBL" or the "General Partner"),
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three and
nine month periods ended September 30, 1998, are not necessarily indicative of
the results that may be expected for the fiscal year ending December 31, 1998.
For further information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-KSB for the fiscal year
ended December 31, 1997.
Certain reclassifications have been made to the 1997 balances to conform to the
1998 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for certain payments to affiliates for
services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
On June 24, 1997, IFGP Corporation acquired all of the issued and outstanding
stock of DBL. Upon the closing, the officers and directors of DBL resigned and
IFGP Corporation caused new officers and directors of this entity to be elected.
The following transactions with The Wynnewood Company (the former owner of DBL)
prior to June 24, 1997, and with affiliates of IFGP Corporation subsequent to
June 24, 1997, during the nine month period ended September 30, 1997, and with
affiliates of IFGP Corporation during the nine month period ended September 30,
1998, were incurred:
1998 1997
(in thousands)
Property management fees (included in operating
expense) $ 14 $ 8
Reimbursement for services of affiliates (included in
general and administrative expense) 22 4
Prior to June 24, 1997, affiliates of the General Partner provided property
management and partnership administrative services for the Partnership.
NOTE C - TRANSFER OF CONTROL - SUBSEQUENT EVENT
On October 1, 1998, Insignia Financial Group, Inc., the sole shareholder of IFGP
Corporation, completed its merger with and into Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust,
with AIMCO being the surviving corporation (the "Insignia Merger"). As a result
of the Insignia Merger, AIMCO acquired control of IFGP Corporation and, as a
result thereof, the General Partner. The General Partner does not believe that
this transaction will have a material effect on the affairs and operations of
the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment property, Wendover Business Park Phase I
("Wendover"), is a commercial business park of approximately 68,000 square feet
located in Greensboro, North Carolina. The average occupancy for the nine
months ended September 30, 1998 and 1997, was 88% and 87%, respectively.
The Partnership realized net losses of approximately $52,000 and $54,000 for the
nine month periods ended September 30, 1998 and 1997, respectively. The
decrease in net loss for the nine month period ended September 30, 1998, is
primarily attributable to an increase in rental revenue and a decrease in
general and administrative expenses. The increase in rental revenue is
attributable to increased rental rates and an increase in occupancy, as noted
above. General and administrative expenses decreased as a result of a decrease
in audit fees. Partially offsetting these improvements were increases in
operating and depreciation expenses. Operating expenses increased for the nine
month period ended September 30, 1998, due to an increase in parking lot repairs
and exterior painting projects as compared to the same period in 1997.
Depreciation expenses increased as a result of accelerated depreciation taken on
tenant improvements additions in 1997. For the three month periods ended
September 30, 1998 and 1997, the Partnership realized net income of
approximately $1,000 and a net loss of approximately $8,000, respectively. The
improvement in net income is attributable to the decrease in general and
administrative expenses, as mentioned above, and a decrease in operating
expenses due to parking lot repair expense in the three month period ended
September 30, 1997.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of the 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
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 General Partner will
be able to sustain such a plan.
At September 30, 1998 the Partnership held cash and cash equivalents of
approximately $67,000 as compared to approximately $112,000 at September 30,
1997. The decrease in cash and cash equivalents for the nine month periods
ended September 30, 1998 and 1997, was approximately $62,000 and $143,000,
respectively. Net cash provided by operating activities increased primarily due
to the timing of payments of accounts payable. Net cash used in investing
activities decreased due to a reduction in property improvements and
replacements. Net cash used in financing activities remained relatively
constant.
During 1997, management commenced with a major repair and maintenance project to
be completed over the next twelve months involving principally roof and parking
lot repairs. Total costs are estimated to be approximately $88,000 of which
$50,000 has been authorized for the current fiscal year. During the nine months
ended September 30, 1998, approximately $32,000 was spent on parking lot
repairs. During the nine months ended September 30, 1997, approximately $21,000
was spent on roof repairs and $12,000 was spent on parking lot repairs related
to the project. The project is expected to be completed by the end of the
current year.
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 and to comply with Federal, state
and local legal and regulatory requirements. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The General Partner
is currently assessing the need for additional capital improvements at the
Partnership's property. To the extent that additional capital improvements are
required, the Partnership's distributable cash flow, if any, may be adversely
affected, at least in the short term. The mortgage indebtedness of
approximately $1,199,000 requires monthly principal and interest payments and
requires a balloon payment on February 1, 2001. The General Partner will attempt
to refinance such remaining indebtedness or sell the property prior to such
maturity date. If the property cannot be refinanced or sold for a sufficient
amount, the Partnership will risk losing the property through foreclosure. No
cash distributions were paid during the first nine months of 1998 and 1997.
Future cash distributions will depend on the levels of net cash generated from
operations, refinancings, property sales and the availability of cash reserves.
The Partnership's distribution policy will be reviewed on a quarterly basis.
There can be no assurance, however, that the Partnership will generate
sufficient funds from operations to permit distributions to its partners in 1998
or subsequent periods.
Transfer of Control - Subsequent Event
On October 1, 1998, Insignia Financial Group, Inc., the sole shareholder of IFGP
Corporation, completed its merger with and into AIMCO, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of IFGP Corporation and, as a result thereof, the General Partner. The General
Partner does not believe that this transaction will have a material effect on
the affairs and operations of the Partnership.
Year 2000
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Partnership is
dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any computer programs or hardware
that have date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Managing Agent has determined that it will be required to modify or replace
significant portions of its software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. The Managing Agent
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.
Status of Progress in Becoming Year 2000 Compliant
The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. Assessments are continuing in regards to embedded systems in operating
equipment. The Managing Agent anticipates having all phases complete by June 1,
1999.
In addition to the areas the Partnership is relying on the Managing Agent to
verify compliance with, the Partnership has certain operating equipment,
primarily at the property sites, which needed to be evaluated for Year 2000
compliance. The focus of the General Partner was to the security systems,
elevators, heating-ventilation-air-conditioning systems, telephone systems and
switches, and sprinkler systems. The General Partner is currently engaged in the
identification of all non-compliant operational systems, and is in the process
of estimating the costs associated with any potential modifications or
replacements needed to such systems in order for them to be Year 2000 compliant.
It is not expected that such costs would have a material adverse affect upon
the operations of the Partnership.
Risk Associated with the Year 2000
The General Partner believes that the Managing Agent has an effective program in
place to resolve the Year 2000 issue in a timely manner and has appropriate
contingency plans in place for critical applications that could affect the
Partnership's operations. To date, the General Partner is not aware of any
external agent with a Year 2000 issue that would materially impact the
Partnership's results of operations, liquidity or capital resources. However,
the General Partner has no means of ensuring that external agents will be Year
2000 compliant. The General Partner does not believe that the inability of
external agents to complete their Year 2000 resolution process in a timely
manner will have a material impact on the financial position or results of
operations of the Partnership. However, the effect of non-compliance by
external agents is not readily determinable.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
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: A Form 8-K was filed by the Partnership, dated
September 30, 1998, relating to a change in accountants (Item 4).
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES
By: DBL Properties Corporation
Its General Partner
By: /s/Patrick Foye
Patrick Foye
Executive Vice President
By: /s/Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
(Duly Authorized Officer)
Date: November 12, 1998