United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ending June 30, 1998
Commission File Number 0-15256
Gran-Mark Income Properties Limited Partnership
(Exact Name of Registrant)
A Maryland Limited Partnership 52-1425166
(State of Organization) I.R.S. Employer ID
c/o Amherst Properties, Inc.; 7900 Sudley Road, Suite 900,
Manassas, Virginia 22110
Registrant's Telephone Number, including Area Code (703) 368-2415
Securities Registered Pursuant to Section 12(b) of the Act;
None
Securities Registered Pursuant to Section 12(g) of the Act;
Limited Partnership Interest (Filed on December 17, 1986)
(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 files such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements: Page
Balance Sheets 4 - 5
Statements of Income 6 - 7
Statements of Change in Partner's Equity 8
Statements of Cash Flow 9 - 10
Notes to Financial Statements 11
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Other Information 23
Gran-Mark Income Properties Limited Partnership
Balance Sheets
June 30, 1998 (Unaudited)
September 30, 1997 (Audited)
ASSETS
6/30/98 9/30/97
[S] [C] [C]
CURRENT ASSETS
Cash $ 447,025 $ 485,768
Certificate of Deposit 102,524 0
Tenant Rents Receivable 132,869 117,815
Prepaid Expenses and Other 5,168 7,888
Mortgage Escrow Accounts 26,381 38,198
----------- ----------
Total Current Assets 713,967 649,669
FIXED ASSETS
Land 418,598 418,598
Buildings 6,594,998 6,594,998
Building Improvements 808,839 776,846
Office Equipment 61,074 47,767
---------- ----------
Total 7,883,509 7,838,209
Less: Accumulated Depreciation 2,950,888 2,742,793
---------- ----------
Total Book Value of Fixed Assets 4,932,621 5,095,416
OTHER ASSETS:
Deferred Costs net of accumulated
amortization of $108,942 and
$135,745 as of September 30, 1997
and June 30, 1998, respectively 183,150 213,077
---------- ----------
Total Other Assets 183,150 213,077
---------- ----------
Total Assets $ 5,829,738 $ 5,958,162
Gran-Mark Income Properties Limited Partnership
Balance Sheet
June 30, 1998 (Unaudited)
September 30, 1997 (Audited)
LIABILITIES AND PARTNERS' EQUITY
6/30/98 9/30/97
[S] [C] [C]
Accounts Payable $ 67,929 $ 87,585
Accrued Interest 295 16,617
Accrued Expenses 37,176 86,926
Unearned Rental Income 10,201 9,112
Current Portion of Mortgage Payable 46,827 45,946
---------- ----------
Total Current Liabilities 162,428 246,186
LONG-TERM LIABILITIES:
Tenant Security Deposits Payable 50,084 53,828
Management Fees Payable to Amherst
Properties, Inc. 72,241 72,188
Mortgage Payable - Office Building 4,084,035 4,115,546
---------- ----------
Total Long-Term Liabilities 4,206,360 4,241,562
Total Liabilities 4,368,788 4,487,748
CONTINGENCIES AND COMMITMENTS (Notes 3 through 10)
PARTNERS' EQUITY
General Partner (20,698) (20,603)
Limited Partners (12,000 Units authorized;
6,505 issued and outstanding) 1,481,648 1,491,017
---------- ----------
Total Partners' Equity 1,460,950 1,470,414
Total Liabilities and Partners' Equity $ 5,829,738 $ 5,958,162
Gran-Mark Income Properties Limited Partnership
Statements of Income
(Unaudited)
For the Three Month Periods Ending
June 30, 1998 and June 30, 1997
6/30/98 6/30/97
[S] [C] [C]
REVENUE:
Rental $ 333,470 $ 308,705
Tenant Reimbursements 10,798 108,649
Interest 4,621 2,170
Other 97 5,508
---------- ----------
Total Revenue 348,986 425,032
EXPENSES:
Interest 100,707 101,635
Depreciation & Amortization 83,782 84,483
Utilities 44,319 45,485
Real Estate Taxes & Licenses 12,199 12,299
Property Maintenance & Repairs 35,798 46,144
Management Fees 19,995 20,503
General & Administration Expenses 67,026 41,673
---------- ----------
Total Expenses 363,826 352,222
Net Income or (Loss) $ (14,840) $ 72,810
Allocation of Net Income or (Loss):
General Partner $ (148) $ 728
Limited Partners (14,692) 72,082
Net Income or (Loss) per weighted
average Limited Partnership
unit (6,505 units) $ (2.26) $ 11.08
Gran-Mark Income Properties Limited Partnership
Statements of Income
(Unaudited)
For the Nine Month Periods Ending
June 30, 1998 and June 30, 1997
6/30/98 6/30/97
[S] [C] [C]
REVENUE:
Rental $ 1,027,317 $ 929,387
Tenant Reimbursements 30,482 106,725
Interest 12,457 7,217
Other 862 20,527
---------- ----------
Total Revenue 1,071,118 1,063,856
EXPENSES:
Interest 303,002 282,003
Depreciation & Amortization 248,124 235,491
Utilities 126,868 125,787
Real Estate Taxes & Licenses 36,744 36,855
Property Maintenance & Repairs 120,358 145,758
Management Fees 62,827 62,996
General & Administration Expenses 182,659 151,398
---------- ----------
Total Expenses 1,080,582 1,040,288
Net Income or (Loss) $ (9,464) $ 23,568
Allocation of Net Income or (Loss):
General Partner $ (95) $ 236
Limited Partners (9,369) 23,332
Net Income or (Loss) per weighted
average Limited Partnership
unit (6,505 units) $ (1.44) $ 3.59
Gran-Mark Income Properties Limited Partnership
Statements of Changes in Partners' Equity
For the Nine Month Period Ending June 30, 1998 (Unaudited)
and For the Years Ending September 30, 1997, 1996 and 1995 (Audited)
General Limited
Partner Partners Total
[S] [C] [C] [C]
Balance, September 30, 1994 $ (17,675) $ 1,780,871 $ 1,763,196
Net Loss Fiscal Year Ending 1995 (2,172) (215,075) (217,247)
Balance, September 30, 1995 $ (19,847) $ 1,565,796 $ 1,545,949
Net Loss Fiscal Year Ending 1996 (468) (46,362) (46,830)
Balance, September 30, 1996 $ (20,315) $ 1,519,434 $ 1,499,119
Net Loss Fiscal Year Ending 1997 (288) (28,417) (28,705)
Balance, September 30, 1997 $ (20,603) $ 1,491,017 $ 1,470,414
Net Income Period Ending Jun 30, 1998 (95) (9,369) (9,464)
Balance, June 30, 1998 $ (20,698) $ 1,481,648 $ 1,460,950
Gran-Mark Income Properties Limited Partnership
Statements of Cash Flows
(Unaudited)
For the Nine Month Periods Ending June 30, 1998, and 1997
6/30/98 6/30/97
[S] [C]
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income or (Loss) from Statements of Income $ (9,464) $ 23,568
to cash provided by (used in)
operating activities:
Depreciation & Amortization 248,124 235,491
(Increase) Decrease in:
Tenant Tents Receivable (15,054) (5,043)
Prepaid Expenses and Other 2,720 10,113
Mortgage Escrow Acounts 11,817 (12,884)
Increase (Decrease) in:
Accounts Payable (19,656) 32,138
Accrued Interest (16,322) 3,162
Accrued Expenses (49,750) (35,023)
Unearned Rental Income 1,089 (2,647)
Tenant Security Deposits Payable (3,744) 5,219
Management Fees payable to
Amherst Properties, Inc. 53 (2,123)
---------- ----------
Total Adjustments 159,277 228,403
---------- ----------
Net Cash Provided by Operating Activities 149,813 251,971
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Certificate of Deposit (102,524) 0
Additions to Office Equipment (13,307) (4,887)
Additions to Building Improvements (31,993) (106,466)
Additions to Deferred Costs (10,102) (166,688)
---------- ----------
Net Cash Provided by (Used in) Investing
Activities (157,926) (278,041)
Gran-Mark Income Properties Limited Partnership
Statements of Cash Flows
(Unaudited)
For the Nine Month Periods Ending June 30, 1998, and 1997
6/30/98 6/30/97
[S] [C] [C]
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Mortgage Payable $ (30,630) $ (461,206)
---------- ----------
Net Cash Used in Financing Activities (30,630) (461,206)
---------- ----------
Net Change in Cash $ (38,743) $ (487,276)
CASH AT BEGINNING OF SIX MONTH PERIOD 485,768 963,019
---------- ----------
CASH AT END OF YEAR $ 447,025 $ 475,743
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for Interest $ 319,324 $ 278,842
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Fully amortized leasing costs totaling $13,225 were disposed of during the
period ending June 30, 1998.
GRAN-MARK INCOME PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
Note 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
The Partnership owns and operates an office building in Manassas,
Virginia, and until September 12, 1996, owned and operated a
shopping center in Amherst, NY, which contains approximately 95,000
and 117,000 square feet, respectively.
Significant Accounting Policies
The following accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements. Certain prior year
amounts and disclosures have been reclassified to conform with the
current year's presentation. These reclassifications have no
effect on the net losses as previously reported.
Revenue Recognition
Rental income is reported as earned over the lives of the related
leases. Tenant reimbursements are accrued based on annual or
quarterly expenses and included pro-rata payments under certain
leases for increases in property taxes, insurance, depreciation and
direct operating expenses. Such amounts are calculated annually on
a calendar year basis or quarterly with pro-rata portions based
upon square footage leased during the year.
Rental Property and Depreciation
Buildings are stated at cost and depreciated over their estimated
thirty-year useful lives. Leasehold improvements, also stated at
cost, are depreciated over the lesser of the length of the related
leases or the estimated useful lives. The improvements generally
have a useful life from one to fifteen years. Depreciation is
computed on the straight-line method for financial reporting
purposes and for income tax purposes depreciation is computed on
both accelerated and straight-line methods. Improvements and major
renovations are capitalized, while expenditures for maintenance,
repairs and minor renovations are expensed when the cost in
incurred.
Deferred costs and amortization
Financing costs are amortized over the terms of the related loans
using the straight-line method.
Leasing costs are amortized over the terms of the lease using the
straight-line method.
Cash Equivalents
For balance sheet and cash flow purposes, the Partnership considers
all cash accounts, which are not subject to withdrawal restrictions
or penalties, and all highly liquid financial instruments
purchased with a maturity of three months or less are considered to
be cash equivalents. There are no cash equivalents as of September
30, 1997. On March 31, 1998, there are cash equivalents of
$251,913 composed of two Certificates of Deposit.
Net Loss Per Weighted Average Limited Partnership Unit
The computation of net income (loss) per weighted average limited
partnership units is based on the weighted average number of units
outstanding during the year. The weighted average number of units
for each period is 6,505.
Income Taxes
Partnerships are not subject to income taxes. The partners are
required to report their respective shares of partnership income or
loss on their individual income tax returns.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnership to
credit risk include cash on deposit with financial institutions
amounting to $961,771 and $285,768 at September 30, 1996 and 1997,
respectively, which was insured up to $200,000, by the Federal
Deposit Insurance Corporation.
Allowance for Doubtful Accounts
The Partnership considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is
required.
Financial Instruments
The Partnership used the following methods and assumptions to
estimate the fair values of financial instruments:
Cash and Cash Equivalents - the carrying amount approximates fair
value because of the short period to maturity of the instruments.
Receivables and Payables - the carrying amount approximates fair
value because of the short period to maturity of the instruments.
Short and Long-Term Debt - the carrying amount approximates fair
value based on discounting the projected cash flows using market
rates available for similar maturities.
None of the financial instruments are held for trading purposes.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2: RENTAL PROPERTY:
Land, buildings, improvements, and other capital expenditures, and
their related accumulated depreciation accounts are summarized as
follows:
Office
Building
Manassas, Office
Virginia Equipment Total
Date of Construction 1974
Date Acquired Aug. 1986 Various
Land $ 418,598 $ 0 $ 418,598
Buildings 6,594,998 0 6,594,998
Other 0 61,074 61,074
---------- ---------- ----------
Total Initial cost to partnership 7,013,596 61,074 7,074,670
Improvements capitalized
subsequent to acquisition 808,839 0 808,839
---------- ---------- ----------
Total accumulated cost 7,822,432 61,074 7,883,509
Accumulated depreciation 2,921,494 29,394 2,950,888
---------- ---------- ----------
Net Book Value $ 4,900,941 $ 31,680 $ 4,932,621
The following is a summary of activity for the land, buildings and
improvements, for the years ended September 30, 1995, 1996 and 1997;
and period ending June 30, 1998:
Rental Accumulated
Property Depreciation
Balance September 30, 1994 $12,257,710 $(2,928,769)
Oct 1, 1994 through Sep 30, 1995
Additions during the period:
Improvements capitalized 18,404
Depreciation expense (417,460)
Deletions during the period (2,897) 2,897
Balance September 30, 1995 12,273,217 (3,343,332)
Oct 1, 1995 through Sep 30, 1996
Additions during the period:
Improvements capitalized 158,014
Depreciation expense (405,850)
Deletions during the period (4,762,777) 1,302,389
Balance September 30, 1996 7,668,454 (2,446,793)
Oct 1, 1996 through Sep 30, 1997
Additions during the period:
Improvements capitalized 121,988
Depreciation expense (273,041)
Balance September 30, 1997 7,790,442 (2,719,834)
Oct 1, 1997 through June 30, 1998
Additions during the period:
Improvements capitalized 31,993
Depreciation expense (201,660)
Balance June 30, 1998 $ 7,822,435 $(2,921,494)
NOTE 3: PLAN OF REORGANIZATION UNDER CHAPTER 11:
By August 24, 1990, limited partners owning more than 60% of the
Partnership's units voted to remove Gran-Mark Properties, Inc. and
Fourth Coast Properties Ltd. as the general partners and replace
the former general partners with Amherst Properties, Inc., the
current general partner. The effective date of removal in
accordance with the Partnership Agreement was September 30, 1990.
On September 28, 1990, two days prior to the effective date of
removal, the former managing general partner filed a petition for
relief under Chapter 11 of the federal bankruptcy laws on behalf of
Gran-Mark Income Properties Limited Partnership (the "Debtor") in
the United States Bankruptcy Court for Eastern District of Virginia
- - Alexandria Division.
A Plan of Reorganization dated March 27, 1992, a First Amended Plan
of Reorganization dated April 13, 1992, and a Second Amended Plan
of Reorganization dated June 2, 1992 were filed with the Court for
approval.
On June 24, 1992, the U.S. Bankruptcy Court for the Eastern
District of Virginia, Alexandria Division, approved a Disclosure
Statement in connection with the Plan of Reorganization and the
Plan was confirmed. The Effective Date of the Plan was August 28,
1992.
When an entity emerges from a Chapter 11 reorganization, it must
determine if the reorganization value of its assets before the date
of confirmation is less than the total of all post-petition
liabilities and allowed claims, and if the holders of existing
voting shares immediately before confirmation receive less than
fifty percent (50%) of the voting shares of the emerging entity.
If these conditions exist, then the entity adopts fresh-start
reporting which adjusts the historical amounts of individual assets
and liabilities, reports forgiveness of debt, and creates a new
reporting entity.
These conditions did not exist and the partnership did not adopt
fresh-start reporting.
NOTE 4: CAPITAL CONTRIBUTIONS
Under the provisions of the Plan of Reorganization, the general
partner notified all limited partners of their right to make a
capital contribution and the consequences of any failure to make
the required capital contribution. The new capital raised under
the Plan was $480,400: $300,250 from the 5% contribution due July
19, 1992, (25 days after the date of approval of the Disclosure
Statement by the Bankruptcy Court) and $180,150 from the 3%
contribution due July 28, 1993 (the first anniversary of the date
of confirmation of the Plan of Reorganization).
The partnership received $480,400 related to the cash call and the
partnership issued 6,005 units.
Under the Plan, the Amended Partnership Agreement was further
modified to provide for future cash calls as deemed appropriate by
the General Partner. Such cash calls shall not cause a forfeiture
of Partnership interest for any Equity Security Holder who has made
the subscriptions required by the Plan, however, any future cash
call may result in a dilution in Partnership Interest.
Under the Plan of Reorganization, the general partner, Amherst
Properties, Inc. had the right to convert its approved claim of
$50,000 represented by a Note dated August 28, 1992, into a
partnership interest in the reorganized partnership at the
conversion price of $100.00 per partnership unit. On August 1,
1993, Amherst Properties, Inc. exercised that right and 500 units
were issued.
As of June 30, 1998, a total of 6,505 units had been issued.
NOTE 5: SECURED CLAIMS:
Secured claims as of September 30, 1996 and 1997, which are
collateralized by liens on the Partnership's rental property,
including their related leases and accounts receivable are
summarized below:
Lender Property Sept 30, 1996 Sept 30, 1997
Regency Savings
Bank Sudley Tower
(Office Bldg)
Manassas, VA $ 4,634,915 $ 4,161,492
Scheduled maturities of secured claims at September 30, 1997, are
as follows:
FYE 1998 $ 45,946
FYE 1999 50,506
FYE 2000 55,519
FYE 2001 61,029
FYE 2002 3,948,492
Total $4,161,492
Regency Savings Bank:
On February 18, 1997, Gran-Mark Income Properties Limited
Partnership and Regency Savings Bank entered into a Loan Extension
and Modification Agreement to extend the maturity date and to
modify the promissory note dated May 29, 1987. The maturity date
of the note was extended to February 18, 2002, at which time a
balloon payment of approximately $3,926,800 is due. As of February
18, 1997, the outstanding principal balance was $4,190,256. The
mortgage bears interest at the rate of 9.5%. Fixed monthly
payments of principal and interest of $36,610 are due through
February 2002. In addition to monthly payments of principal and
interest, a monthly escrow deposit for the real estate taxes is
required. Pursuant to the terms of the Modification Agreement and
Allonge Promissory Note dated June 30, 1992, the sum of $421,184
was required as payment of deferred interest and unpaid fees. In
addition, an extension fee of $41,903 was payable by February 18,
1998. Interest charged to operations during the year ending
September 30, 1997 was $247,851, and during the period ending June
30, 1998, was $298,861.
Old Stone Bank, FSB/Regency Savings Bank:
On June 30, 1992, Gran-Mark Income Properties Limited Partnership
and Old Stone Bank entered into a Modification Agreement and
Allonge Promissory Note to modify the promissory note dated May 29,
1987. The modification extended the maturity date to April 30,
1997. For the period from July 1, 1992 through April 30, 1994,
monthly payments of interest only at the rate of 7.53% (2,25% added
to the average two year U.S. Treasury Bill Rate for the last five
business days of May, 1992, and calculated upon the principal
outstanding), in the amount of $26,930.53 were due. For the period
from May 1, 1994 through April 30, 1996, monthly payments of
principal and interest are calculated based on an interest rate
calculated by adding 2.75% to the average two year U.S. Treasury
Bill Rate for the last five business days of April, 1994, and
calculated upon the principal outstanding, plus a thirty year
amortization of the principal balance of $4,291,717.51. For the
period from May 1, 1996 through April 30, 1997, monthly payments of
principal and interest will be calculated based on an interest rate
calculated by adding 3.0% to the average two year U.S. Treasury
Bill Rate for the last five business days of April, 1996, and
calculated upon the principal outstanding, plus a twenty eight year
amortization of the principal balance. On April 30, 1997, all
principal and accrued, unpaid interest is due plus a Deferred
Balance of interest (totaling $374,761.19) and unpaid fees in the
amount not to exceed $55,000. Interest charged to operations
during the years ending September 30, 1997, 1996, and 1995, was
$131,311, 352,456, and $359,156, respectively.
Seamen's Bank for Savings/Regency Savings Bank:
The mortgage bore interest at the rate of 10.31%; 2.5% over the
Federal Home Loan Bank Board Five Year Advance Rate. The loan was
to mature in January, 1997, at which time a balloon payment of
approximately $2,944,200 was due. Fixed monthly payments of
$27,708 through January 1992 were based upon a thirty year
amortization period. Commencing in February 1992, constant monthly
payments in the amount of $28,936 are based on a twenty-five year
amortization period.
The mortgage was only to be prepaid in the fifth, ninth or tenth
years subject to a penalty of 1% in years five and ten and 2% in
year nine, or if greater (in years nine and ten, only) 1% plus the
prepayment fee then charged by the Federal Home Loan Bank Board.
Interest Charged to operations during the years ending September
30, 1997, 1996 and 1995, was $0, $289,619, and $310,142;
respectively.
This mortgage was paid in full September 1996 upon the sale of the
New York shopping center. Payment was made from the gross
proceeds.
First Virginia Bank
On November 21, 1991, the Partnership acquired a 1991 Chevrolet
truck. The acquisition was financed solely with a loan in the
amount of $15,665, for which the vehicle is collateral. The loan
required forty eight (48) constant monthly payments of $398.95,
which commenced on January 5, 1992. The interest charged to
operations ending September 30, 1997, 1996, and 1995, was $0, $23
and $378, respectively. Both the truck and the loan were in
Amherst Properties, Inc's name, but the truck was paid for solely
by the Partnership.
UNSECURED CLAIMS:
Unsecured claims (accounts payable) as of September 30, 1997, are
summarized below:
Manassas Office Building
Utilities $ 15,274
Repairs & Maintenance 6,685
Rent Overpayment 325
Legal Fees to a Related Party 34,813
Construction Management to a Related Party 22,413
-------
Total $ 79,510
NOTE 6: RELATED PARTY TRANSACTIONS:
Management Agreements
The Partnership maintains a management agreement with Amherst
Properties, Inc. (the current general partner) which provides for a
monthly payment of management fees in the amount of six percent
(6%) of gross rents collected and reimbursement of out-of-pocket
expenses incurred in connection with the property
On September 30, 1996, the partnership executed an Amendment to
Management Agreement with Amherst Properties, Inc. extending the
expiration date to September 30, 2000. All other terms and
conditions remain the same.
Accordingly, aggregate management fees charged to operations for
the years ended September 30, 1997, 1996, and 1995, were $84,754;
$115,089; and $114,231, respectively, and for the period ending
June 30, 1998, $62,827.
As of September 30, 1997, $27,368 of these fees remain payable to
Amherst Properties, Inc.
Reimbursement of Partnership Operating Expenses
The Partnership agreement provides for reimbursing the general
partner and its affiliates for costs of providing administrative
services to the partnership. Reimbursements charged to operations
or capitalized for the years ended September 30, 1997, 1996, and
1995, were $21,557; $58,958; and $27,985, respectively, and for the
period ending June 30, 1998, $7,405.
During the period of October 1990 through December 1990, the
general partner paid $79,994 in various costs for the Partnership.
During prior periods, $35,174 of these costs have been reimbursed
to the general partner, leaving a balance of unreimbursed costs of
$44,820 as of September 30, 1997. These unreimbursed costs are
included in Management Fees Payable to Amherst Properties, Inc. In
December 1995, the Partnership agreed to pay interest at the rate
of 12% on these unreimbursed costs from December 31, 1990, until
paid. Interest charged to operations for the years ended September
30, 1997, 1996 and 1995, were $5,378; $5,556; and $0; respectively,
and for the period ending June 30, 1998, $4,141.
Certain administrative expenses, such as telephone charges, and
operating expenses incurred on the Partnership's behalf by Amherst
Properties, Inc. are billed to Amherst Properties, Inc. but are
paid directly by the Partnership.
During the fiscal year ending September 30, 1997, the Partnership
paid $6,421 for the monthly loan payment, and other expenses
related to a vehicle owned by Amherst Properties, Inc. Both the
vehicle and loan are in Amherst Properties, Inc.'s name. These
payments are included in the interest paid to Amherst Properties,
Inc.
During the period ending June 30, 1998, the Partnership paid
$24,113 for the monthly loan payment and other expenditures related
to vehicles owned by Amherst Properties, Inc. These payments are
included on the interest paid and offset other amounts due to
Amherst Properties, Inc.
NOTE 7: OPERATING LEASES
Minimum future rentals to be received under noncancellable
operating leases from tenants of both properties in effect at
September 30, 1997, are as follows:
Year ending September 30, Amount
1998 $ 1,197,778
1999 913,504
2000 614,750
2001 369,821
Subsequent to 2001 362,278
------------
Total minimum future rentals $ 3,458,131
============
General leasing arrangements include a remaining fixed rental term
with annual increases, pro rata share of increases in property
expenses, and various renewal options.
NOTE 8: INCOME TAXES
A basic requirement of federal tax law requires that a
partnership's general partners assume unlimited liability.
Requirements, among others, in determining whether a limited
partnership will be recognized as a partnership or if it will be
recognized as a corporation are as follows:
A. Limited partners may not own directly or indirectly more than
20 percent of the corporation or its affiliates.
B. The net worth of the corporation must at all times be a
minimum of 10 percent of total partnership contribution.
Affiliates of one of the Partnership's limited partners own a two-
thirds interest in Amherst Properties, Inc. and Amherst Properties'
net worth is less than the guidelines suggest. Accordingly, the
possibility exists that the Partnership could be classified as an
association and be subject to corporate tax laws, which could
result in the disallowance of previous deductions taken by limited
partners on their individual returns.
As previously noted in Securities and Exchange Commission filings,
the previous managing general partner has not met the net worth
requirements since 1987.
The Tax Reform Act of 1986 required the Partnership to change its
reporting period for income tax purposes to a calendar year. The
change became effective for the three month period ending December
31, 1988.
NOTE 9: PARTNERSHIP ALLOCATIONS:
Partnership income and net cash from operations are allocated 99%
to the limited partners and 1% to the general partner until the
limited partners have received their cumulative 7% priority return.
After this return has been achieved, the general partner will then
be allocated its annual incentive management fee so that total
distribution will aggregate 10% to the general partner and 90% to
the limited partners in accordance with the Partnership Agreement.
The general partner will then receive its deferred incentive
management fee, if any, and any remaining income. Net cash from
operations in allocated 90% to the limited partners and 10% to the
general partner. Losses are allocated 99% to the limited partners
and 1% to the general partner.
NOTE 10: MANAGEMENT PLANS:
At the time the new general partner, Amherst Properties, Inc.,
commenced managing the properties, there existed no operating funds
and a negative cash-flow. Significant legal bills and real estate
commissions were payable, numerous maintenance and heating and air-
conditioning problems at the office building existed, as well as a
serious default of the required loan payments to Old Stone Bank.
Amherst Properties, Inc. had deferred collection of most management
fees accrued for the period from October 1990 to September 1993 and
advanced funds, to pay operating expenses, legal fees and real
estate commissions.
At the present time current rental income covers the operating
expenditures.
The success for the Manassas office building is dependent upon four
major factors:
1. The ability to successfully compete with existing office
buildings in Prince William County;
2. The ability to attract new tenants from adjacent counties;
3. Achieving and maintaining a high rate of occupancy; and
4. Retention of existing tenants.
Over the past year the managing general partner has continued to
improve the situation with regard to these factors. The managing
general partner has modernized the office building and replaced
light fixtures with more energy efficient fixtures to successfully
compete with existing buildings. The office building has a
competitive advantage because of easy access to and from major
highways, efficient heating and air-conditioning, an effective
security system and high rise view of surrounding scenic areas.
Management's efforts over the past several years brought to
fruition an office building which averages more than 90% leased and
occupied. The management team overcame the loss of major tenants
leasing more than 20,000 square feet. Management sought and
obtained a signed lease with a major real estate broker and several
mortgage companies.
Present plans are to continue to develop a self sufficient
financial center for loans, banking, mortgage, home real estate
sales, with necessary support services. These tenants which have
stood the test of time not only survived the crunch of the early
1990s but have expanded and became more profitable. Marketing
plans also include development of a tenant base consisting of high
tech companies which are attracted to the Dominion Semi-Conductor
facility, an IBM/Toshiba joint venture located in Manassas.
Management is generating a capacity for the rooftop to accommodate
50 antennae. A rail system has been built to anchor the antennae
and electronics will continue to be managed by RFM. The number of
licensed antenna users has increased to 25.
More repairs, maintenance, and upgrading are needed at the office
building to continue to attract and retain tenants. They are as
follows:
1. Renovate bathrooms on floors 2, 3, 4, 6, 7, 8 and 9;
2. Renovate, carpeting, wallpaper, ceiling, and lighting in the
hallways of the upper floors;
3. Caulk the windows and window frames on the south side and
east side of the building;
4. Install energy efficient motors which power the heating and hot
water system;
5. Upgrade the elevator controllers;
6. Replace ceiling tiles in the hallways and thereafter throughout
the building; and
7. Exterior Lighting.
The work for upgrading the building and performing needed repairs
and maintenance began with the new management and continues.
In April and May 1993, the Partnership entered into contracts
totaling $131,750 for renovations of the lobby and for
modifications to the first and fifth floor bathrooms to comply with
the Americans Disabilities Act requirements. Construction began in
May 1993 and was completed in September 1993. The partnership
contracted for renovation and modifications to the bathrooms of the
fifth (5th) floor to comply with the American Disability Act
requirements. Construction was completed in March 1994. The cost
was $32,207. Payments for these renovations were made from the
Capital Improvement Reserve Fund.
As of March 1994, other completed improvements include walk-off
mats in the lobby, a glass enclosed entrance way, an additional
lobby directory, automatic door openers at the front and rear
entrances, resurfacing of the entire parking lot, and replacement
of 105 fifteen foot heating tubes in the boiler.
A new roof was installed and the sidewalk was resurfaced at the
entranceway in the front of the building. The building facade was
power washed at the front entrance. The parking lot has been
resurfaced.
During the fiscal year ending September 30, 1997, renovations,
upgrades and capital improvements were made as follows:
1. Increased amperage in the antenna room for additional
antenna;
2. Caulked two sides (north and west) of the building and
resurfaced four sides of the building;
3. Replaced main electrical switches which ensures continued
electrical power to the building;
4. Resurfaced and refinished exterior retaining wall;
5. Replaced isolation springs supporting air handler #1;
6. Installed antenna room air conditioning to reduce excess
buildup of heat;
7. Installed a modified economical outdoor sprinkler system for
the landscaping;
8. Torqued down the electrical service units, panels, disconnects
and transformers; and
9. Landscaped the building site front and rear.
For tenant retention and attracting new tenants, various tenant
incentives are offered according to the needs of each existing and
prospective tenant. These include special buildouts, facilities,
wiring for special equipment, plumbing for kitchens, assistance in
moving, providing furniture and furnishings when available, as well
as targeting a rental program to meet the business needs of the
tenant. These costs are reflected in Building Improvements.
Management is continuing to provide conscientious maintenance which
includes caulking windows, clean and polish marble in lobby area
and power wash the entire exterior of the building.
Future prospects for the building are brighter now than at any time
since 1990. We continue to enjoy a relatively high occupancy
although several large tenants moved out in July. Office location
in Manassas continues to be in high demand with the presence of
Dominion Semi-Conductor, a joint venture between IBM and Toshiba.
The facility is now producing chips and currently expanding with a
completion date of approximately six years away. High tech firms
moving into the area service or become sub-contractors of IBM and
Dominion Semi-Conductor. Existing roads in the area are being
widened and new roads are under construction with a Route 234 by-
pass completed from Route 28 to Interstate Route 66. Route 28, a
major north/south road, is also being widened. The widening of
Route 66 has been completed. Newcomers to the area include George
Mason University Bioinformatics Center and Advanced Biotechnology
Laboratory Center.
The Manassas area continues to be attractive for several reasons:
1. There is significant blue collar and clerical workforce
available.
2. Top management personnel of high-tech firms like the
country surroundings in Chantilly, Gainesville, Warrenton
and surrounding areas.
3. Roads are underutilized and there is no bottleneck which
exists during rush hour like Tysons Corner and along
Route 95 north.
4. The county actively seeks out and promotes new businesses
for development in the area.
Supplementary data has been omitted inasmuch as it is either
inapplicable, immaterial, or it is presented in the financial statements or
notes thereto.
Item 2 - Management Discussion and Analysis of Financial Condition and Results
of Operations:
General
During the nine month period ending June 30, 1998, the Partnership's cash
position changed from $485,768 to $447,025.
The occupancy of the Manassas office building was approximately 88% on June 30,
1998.
Partners' equity totaled $1,460,950 as of June 30, 1998, a decrease of $9,464
from September 30, 1997.
The Partnership's net loss for the quarter ending June 30, 1998, was $(14,840),
as compared to a net income of $72,810 for the quarter ending June 30, 1997.
Results of Operations
The office building was approximately 88% leased on June 30, 1998, a decrease
from 95% for the quarter ending June 30, 1997. The office building continues
to generate a positive cash flow.
During the three months ending June 30, 1998, Total Revenue has increased by
$76,046 or 17.9%; Total Expenses have increased by $11,604 or 3.3%, and the Net
Income has decreased by $87,650 as compared to the same period last fiscal
year.
During the nine months ending June 30, 1998, Total Revenue has increased
$7,262; Total Expenses have increased $40,294 or 3.9%; and the Net Income has
decreased by $33,032 as compared to the same period last fiscal year.
The decrease in Total Revenue is due primarily to the annual tenant
reimbursements not being assessed this quarter offset by the increased rental
rates in new leases and built-in increases in existing leases. The increase on
Total Expenses is due primarily to the increased interest rate on the mortgage,
the increase in depreciation and amortization of capitalized improvements and
leasing costs; the decrease in property maintenance and repairs; and the
increase in general and administrative expenses.
Current management expects that planned capital improvements will continue to
improve the appearance of the property, thus successfully competing with
existing office buildings and maintaining a high rate of occupancy.
For further information see Notes to Financial Statement - Note 10: Management
Plans.
Liquidity
At the present time current rental income covers the expenditures for the
property.
During the nine month period ending June 30, 1998, $149,813 of cash was
provided by operations. This reflects a decrease in cash flow from operations
of $102,158 over the previous nine month period ending June 30, 1997, due
primarily to the decrease in Accounts Payable, Accrued Interest, and Accrued
Expenses; the increase in Tenant Rents Receivable; and the decrease in Tenant
Security Deposits Payable.
Payments of $94,292 were made to the general partner during the nine month
period ending June 30, 1998, for current and past management fees of $62,774,
$11,055 in reimbursements and accounts payable, and $20,463 in interest.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Chapter 11 filing - See Note 3 to Financial Statements at Part I -
Item 1
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
On August 2, 1990, Amherst Properties, Inc. Sent voting materials
to limited partners of Gran-mark Income Properties Limited
Partnership and by August 24, 1990 has received written consents
from a 60% majority of the units on favor of the removal of the
former general partners and the substitution of Amherst Properties,
Inc. As the new general partner.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by undersigned, thereunto duly authorized.
Gran-Mark Income Properties Limited Partnership
By: Amherst Properties, Inc.
General Partner
By: Louis J. Marin August 14, 1998
Louis J. Marin Date
President