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 Quarter Ended June 30, 1999
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 11-20
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
PART II - OTHER INFORMATION
Other Information 23
Gran-Mark Income Properties Limited Partnership
Balance Sheets
June 30, 1999 (Unaudited)
September 30, 1998 (Audited)
ASSETS
6/30/99 9/30/98
CURRENT ASSETS
Cash $ 415,974 $ 576,670
Certificate of Deposit 107,780 0
Tenant Rents Receivable 200,003 87,067
Prepaid Expenses and Other 2,780 1,398
Mortgage Escrow Accounts 50,401 41,189
Total Current Assets 776,938 706,324
FIXED ASSETS
Land 418,598 418,598
Buildings 6,594,998 6,594,998
Building Improvements 964,510 817,882
Office Equipment 66,452 59,342
Total 8,044,558 7,890,820
Less Accumulated Depreciation 3,196,883 2,985,865
Total Book Value of Fixed Assets 4,847,675 4,904,955
OTHER ASSETS
Deferred Costs net of accumulated
amortization of $185,421 and
$149,371 as of June 30, 1999
and September 30, 1998, respectively 158,581 174,799
Total Other Assets 158,581 174,799
Total Assets $5,783,194 $5,786,078
<F/N>
See Notes to the Financial Statements
Gran-Mark Income Properties Limited Partnership
Balance Sheets
June 30, 1999 (Unaudited)
September 30, 1998 (Audited)
LIABILITIES AND PARTNERS' EQUITY
6/30/99 9/30/98
CURRENT LIABILITIES
Accounts Payable $ 56,380 $ 61,855
Accrued Interest 246 123
Accrued Expenses 62,399 79,865
Unearned Rental Income 0 16,961
Current Portion of Mortgage Payable 46,827 46,827
Total Current Liabilities 165,852 205,631
LONG-TERM LIABILITIES
Tenant Security Deposits Payable 53,149 48,549
Management Fees Payable to Amherst
Properties, Inc. 57,999 72,342
Mortgage Payable - Office Building 4,040,801 4,074,425
Total Long-Term Liabilities 4,151,949 4,195,316
Total Liabilities $4,317,801 $4,400,947
CONTINGENCIES AND COMMITMENTS (Notes 3 through 10)
PARTNERS' EQUITY
General Partner $ (20,653) $ (21,456)
Limited Partners (12,000 Units authorized;
6,505 issued and outstanding) 1,486,046 1,406,587
Total Partners' Equity 1,465,393 1,385,131
Total Liabilities and Partners' Equity $5,783,194 $5,786,078
<F/N>
See Notes to the Financial Statements
Gran-Mark Income Properties Limited Partnership
Statements of Income
(Unaudited)
For the Three Month Periods Ending
June 30, 1999 and June 30, 1998
6/30/99 6/30/98
REVENUE:
Rental $ 371,047 $ 333,470
Tenant Reimbursements 46,099 10,798
Interest 4,276 4,621
Other 0 97
Total Revenue 421,422 348,986
EXPENSES:
Interest 99,994 100,707
Depreciation & Amortization 83,810 83,782
Utilities 43,215 44,319
Real Estate Taxes & License 13,488 12,199
Property Maintenance & Repairs 43,811 35,798
Management Fees 21,050 19,995
General & Administration Expenses 64,150 67,026
Total Expenses 369,518 363,826
Net Income or (Loss) $ 51,904 $ (14,840)
Allocation of Net Income or (Loss):
General Partner $ 519 $ (148)
Limited Partners 51,385 (14,692)
Net Income or (Loss) per weighted
average Limited Partnership
unit (6,505 units) $ 7.90 $ (2.26)
<F/N>
See Notes to the Financial Statements
Gran-Mark Income Properties Limited Partnership
Statements of Income
(Unaudited)
For the Nine Month Periods Ending
June 30, 1999 and June 30, 1998
6/30/99 6/30/98
REVENUE:
Rental $1,074,961 $1,027,317
Tenant Reimbursements 65,718 30,482
Interest 12,871 12,457
Other 111 862
Total Revenue 1,153,661 1,071,118
EXPENSES:
Interest 299,890 303,002
Depreciation & Amortization 253,139 248,124
Utilities 120,055 126,868
Real Estate Taxes & Licenses 41,717 36,744
Property Maintenance & Repairs 129,890 120,358
Management Fees 60,822 62,827
General & Administration Expenses 167,885 182,659
Total Expenses 1,073,398 1,080,582
Net Income or (Loss) $ 80,263 $ (9,464)
Allocation of Net Income or (Loss):
General Partner $ 803 $ (95)
Limited Partners 79,460 (9,369)
Net Income or (Loss) per weighted
average Limited Partnership
unit (6,505 units) $ 12.22 $ (1.44)
<F/N>
See Notes to the Financial Statements
Gran-Mark Income Properties Limited Partnership
Statements of Changes in Partners' Equity
For the Nine Month Period Ending June 30, 1999 (Unaudited)
and For the Years Ending September 30, 1998, 1997 and 1996 (Audited)
General Limited
Partner Partners Total
Balance, September 30, 1995 $ (19,847) $1,565,798 $1,545,951
Net Loss Fiscal Year Ending 1996 (468) (46,365) (46,833)
Balance, September 30, 1996 $ (20,315) $1,519,433 $1,499,118
Net Loss Fiscal Year Ending 1997 (288) (28,417) (28,705)
Balance, September 30, 1997 $ (20,603) $1,491,016 $1,470,413
Net Loss Fiscal Year Ending 1998 (853) (84,430) (85,283)
Balance, September 30, 1998 $ (21,456) $1,406,586 $1,385,130
Net Income Period Ending 6/30/99 803 79,460 80,263
Balance, June 30, 1999 $ (20,653) $1,486,046 $1,465,393
<F/N>
See Notes to the Financial Statements
Gran-Mark Income Properties Limited Partnership
Statements of Cash Flows
(Unaudited)
For the Nine Month Periods Ending June 30, 1999, and 1998
6/30/99 6/30/98
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income or (Loss) from Statements of Income $ 80,263 $ (9,464)
Adjustments to reconcile net loss
to cash provided by (used in)
operating activities:
Depreciation & Amortization 253,139 248,124
(Increase) Decrease in:
Tenant Tents Receivable (112,936) (15,054)
Prepaid Expenses and Other (1,382) 2,720
Mortgage Escrow Accounts (9,212) 11,817
Increase (Decrease) in:
Accounts Payable (5,475) (19,656)
Accrued Interest 123 (16,322)
Accrued Expenses (17,466) (49,750)
Unearned Rental Income (16,961) 1,089
Tenant Security Deposits Payable 4,600 (3,744)
Management Fees payable to
Amherst Properties, Inc. (14,343) 53
Total Adjustments 80,087 159,277
Net Cash Provided by Operating Activities 160,350 149,813
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Certificate of Deposit (107,780) (102,524)
Additions to Office Equipment (7,110) (13,307)
Additions to Building Improvements (146,628) (31,993)
Additions to Deferred Costs (25,904) (10,102)
Net Cash Provided by (Used in) Investing Activities (287,422) (157,926)
<F/N>
See Notes to the Financial Statements
Gran-Mark Income Properties Limited Partnership
Statements of Cash Flows
(Unaudited)
For the Nine Month Periods Ending June 30, 1999, and 1998
6/30/99 6/30/98
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Mortgage Payable $ (33,624) $ (30,630)
Net Cash Used in Financing Activities (33,624) (30,630)
Net Change in Cash $ (160,696) $ (38,743)
CASH AT BEGINNING OF PERIOD 576,670 485,768
CASH AT END OF PERIOD $ 415,974 $ 447,025
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for Interest $ 299,767 $ 319,324
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.
Fully amortized leasing costs totaling $6,070 and $13,225 were disposed of
during the periods ending June 30, 1999 and 1998, respectively.
<F/N>
See Notes to the Financial Statements
GRAN-MARK INCOME PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1999
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 and 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 to be cash and cash equivalents.
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 $576,670 and $485,768 at September 30, 1998 and 1997,
respectively, which was insured up to $300,000 and $200,000,
respectively, 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 Bldg Office
Manassas, VA Equipment Total
Date of Construction 1974
Date Acquired August 1986 Various
Land $ 418,598 $ 0 $ 418,598
Buildings 6,594,998 0 6,594,998
Other 0 66,452 66,452
Total Initial cost to partnership 7,013,596 66,452 7,080,048
Improvements capitalized
subsequent to acquistion 964,510 0 964,510
Total accumulated cost 7,978,106 66,452 8,044,558
Accumulated depreciation 3,163,059 33,824 3,196,883
Net Book Value, June 30, 1999 $4,815,047 $ 32,628 $4,847,675
The following is a summary of activity for the land, buildings and
improvements, for the years ended September 30, 1996, 1997 and 1998:
Rental Accumulated
Property Depreciation
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)
Deletions during the period 0 0
Balance September 30, 1997 7,790,442 (2,719,834)
Oct 1, 1997 through Sep 30, 1998
Additions during the period:
Improvements capitalized 71,154
Depreciation expense (269,960)
Deletions during the period (30,118) 30,118
Balance September 30, 1998 $7,831,478 $(2,959,676)
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 September 30, 1998, a total of 6,505 units had been issued.
NOTE 5: SECURED CLAIMS:
Secured claims as of September 30, 1998 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, 1998 Sept 30, 1997
Regency Savings Sudley Tower
Bank Manassas, VA $ 4,121,251 $ 4,161,492
Scheduled maturities of secured claims at September 30, 1998, are as
follows:
FYE 1999 $ 45,595
FYE 2000 54,465
FYE 2001 59,871
FYE 2002 3,961,321
Total $4,121,252
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 years ending September 30,
1998, 1997 and 1996 was $399,082, $247,851, and $0, respectively.
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 were 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 was due plus a Deferred Balance of interest (totaling
$374,761.19) and unpaid fees in the amount not to exceed $55,000. The
principal balance was refinanced and the Deferred Balance and unpaid
fees were paid, as discussed above. Interest charged to operations
during the years ending September 30, 1998, 1997, and 1996, was $0,
$131,311, and 352,456, respectively; and during the period ending June
30, 1999, $295,868.
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, 1998, 1997, and 1996,
was $0, $0, and $289,619, 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, 1998, 1997, and 1996, was $0, $0, and $23, 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, 1998 and 1997,
are summarized below:
1998 1997
General and Administrative $ 1,490 $ 1,650
Commissions 867 0
Utilities 0 15,274
Repairs & Maintenance 1,615 6,685
Rent Overpayment 325 325
Legal Fees to a Related Party 35,145 41,238
Construction Management Fee to a Related Party 22,413 22,413
Total $61,855 $87,585
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, 1998, 1997, and 1996, were $85,247, $84,754,
and $115,089, respectively; and during the period ending June 30, 1999,
$60,822.
As of June 30, 1999, $13,179 of these fees remain payable to Amherst
Properties, Inc.
As of October 1, 1998, the Partnership also maintains an agreement with
Skyway Communications, LLC to provide for collection of antenna rents.
The agreement provides for the payment of commissions in the amount of
thirty percent (30%) of gross antenna rents collected. Skyway
Communications, LLC collects the antenna rents on a monthly basis and
makes a quarterly distribution to the Partnership of the rents
collected less the commission fee.
Commissions charged to operations during the period ending June 30,
1999, is $14,674.
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, 1998, 1997, and 1996, were $23,871,
$21,557, and $58,958, respectively; and during the period ending June
30, 1999, $23,340.
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, 1998. 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, 1998, 1997 and 1996,
were $5,496, $5,378, and $5,556, respectively; and during the period
ending June 30, 1999, $4,022.
Certain administrative and operating expenses, and certain capitalized
costs 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, 1998, the Partnership paid
$21,990 for the monthly loan payment, down 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.
NOTE 7: OPERATING LEASES
Minimum future rentals to be received under noncancellable operating
leases from tenants of both properties in effect at September 30, 1998,
are as follows:
Year ending September 30, Amount
1999 $1,201,148
2000 843,509
2001 563,595
2002 104,942
Subsequent to 2002 55,034
Total minimum future rentals $2,768,228
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:
During the past year Prince William County experienced business growth
and real estate development which impacted favorably on the Sudley
Tower. Our occupancy continues to remain high with increasing base
rental rates. We are also attracting larger companies with more
diversity such as insurance, temporary personnel staffing, and service
organizations. With high tech more in demand, we are offering a high
transmission data line for lease to existing and new tenants.
Although the real estate market slowed some during the third quarter of
1998 we are continuing to upgrade the building to position ourselves in
the real estate market and to become more attractive for new tenants.
Our capital improvement program continues to be implemented, as funds
become available. The scheduled improvements include the following: 1)
installation of a T-1 data transmission line; 2) renovation of
bathrooms on floors 2, 3, 4, 6, 7, 8 and 9; 3) modernization of the
elevators; 4) installation of energy efficient motors, which power the
heating and hot water systems; and 5) replacement of ceiling tiles
throughout the building.
Our efforts to sell the Sudley Tower during the early part of 1998 were
not successful in bringing any favorable results due to the conditions
caused by the uncertainty in the stock market and the money market
changes in Europe and Asia. These events dulled the enthusiasm of the
real estate investment trusts and other institutional investors to
acquire real estate. In addition, the Sudley Tower itself has little
appeal to institutions as a stand-alone property.
In view of this experience and the volatile market conditions we are
now seeking ways to enhance the value of the property. Methods under
consideration are development of a rooftop management program with
aggressive marketing on a web site as well as E-mail advertising and
distribution. In this regard we have engaged a technical analyst to
prepare a report and design for rooftop antenna.
Also under consideration is the installation of a T-1 line in the
conference room, Jackson Hall, for transient visitors and temporary
offices for people moving into the area or people doing business in the
area for several days. Additional avenues of property value
enhancement are also under consideration.
Item 2 - Management's discussion and analysis of financial condition and
results of operations
General
During the nine month period ending June 30, 1999, the Partnership's cash
position changed from $576,670 to $415,974.
The occupancy of the Manassas office building was approximately 98% on June 30,
1999, as compared to 88% on June 30, 1998.
Partners' equity totaled $1,413,489 as of June 30, 1999, an increase of $80,263
from September 30, 1998.
The Partnership's net income for the quarter ending June 30, 1999, was
$51,904, as compared $(14,840) for the quarter ending June 30, 1998.
Results of Operations
The office building was approximately 98% leased on June 30, 1999, an
increase from 88% for the quarter ending June 30, 1998. The office building
continues to generate a positive cash flow.
During the three months ending June 30, 1999, Total Revenue has increased by
$72,436 or 20.8%; Total Expenses have increased by $5,692 or 1.6%, and the Net
Income has increased by $66,744 as compared to the same period last fiscal year.
During the nine months ending June 30, 1999, Total Revenue has increased
$82,543 or 7.7%; Total Expenses have decreased $7,184 or .7%; and the Net
Income has increase by $89,727 as compared to the same period last fiscal
year.
The increase in Total Revenue is due primarily to increase rental rates in new
leases and built-in increases in existing leases, and the billing for Tenant
Reimbursements during the current quarter. The decrease on Total Expenses is
due primarily to the reduction in interest paid on the mortgage; the reduction
in utility costs due to the mild winter; the reduction in general and
administrative costs; and the reduction in management fees due to delays in
receiving antenna rents. These savings were offset by the increase in
depreciation and amortization of capitalized improvements and leasing costs;
and an increase in real estate taxes and property maintenance and repair costs.
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, 1999, $160,350 of cash was
provided by operations. This reflects an increase in cash flow from
operations of $10,537 over the previous nine month period ending June 30,
1998, due primarily to the increase in Net Income. The increase in Net
Income is offset by the increase in Tenant Rents Receivable, Prepaid Expenses
and Other, and the increase in the Mortgage Escrow Account.
Payments of $104,700 were made to the general partner during the nine month
period ending June 30, 1999, for current and past management fees of $65,812,
$34,988 in reimbursements and accounts payable, and $3,900 in interest.
Payments of $14,674 were made to Skyway Communications, LLC for commissions
on antenna rents.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Chapter 11 filing - See Note 3 to Financial Statements at Part I -
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
On May 17, 1999, Form 8-K/A was filed reporting a change in the
Registrant's Certifying Accountant. Form 8-K/A reported that on May 6,
1999, the client-auditor relationship between Gran-Mark Income
Properties Limited Partnership and Jennifer A. Jones, CPA, Ltd. ceased.
On May 11, 1999, the managing general partner of Gran-Mark Income
Properties Limited Partnership engaged the accounting firm of Simon,
Krowitz, Bolin and Associates, P.A. as independent auditor. Jennifer
A. Jones, CPA, Ltd. continues to perform accounting services for the
Partnership.
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 2, 1999
Louis J. Marin Date
President