U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000.
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-21455.
Decade Companies Income Properties - A Limited Partnership
(Exact name of small business issuer as specified in its charter)
State of Wisconsin 39-1518732
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
250 Patrick Blvd., Suite 140 Brookfield, Wisconsin 53045-5864
(Address of principal executive offices)
(262) 792-9200
(Issuer's telephone number)
Not Applicable
Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of
securities under a plan confirmed by court. Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: .
Transitional Small Business Disclosure Format (check one): Yes No X .
Decade Companies Income Properties - A Limited Partnership
Form 10-QSB
INDEX
September 30, 2000
PART I. FINANCIAL INFORMATION Page
Item 1.Financial Statements (unaudited as to
September 30, 2000 and the three months and
nine months then ended).
Balance Sheet at September 30, 2000. 3
Statements of Operations for the three
months and nine months ended September 30, 2000
and 1999 4
Statements of Partners' Capital
for the nine months ended September 30, 2000
and the year ended December 31, 1999. 5
Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999. 6
Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis or Plan
of Operations 7 - 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 16
SIGNATURES 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEET
September 30, 2000
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,773,661
Escrow deposits 16,343
Prepaid expenses and other assets 7,637
Total Current Assets 4,797,641
INVESTMENT PROPERTIES, AT COST: 32,701,063
Less: accumulated depreciation (10,430,899)
Net Investment Property 22,270,164
OTHER ASSETS:
Utility deposits 40,903
Debt issue costs, net of accumulated
amortization 553,278
Total Other Assets 594,181
Total Assets $27,661,986
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued taxes $ 609,957
Tenant security deposits 131,011
Distributions payable 170,504
Accrued interest payable 21,007
Payable to affiliates 3,966,337
Mortgage notes payable 25,579,358
Total Liabilities 30,478,174
PARTNERS' CAPITAL:
General Partner Capital (94,585)
Limited Partners
(authorized--18,000 Interests;
outstanding--13,400.27 Interests) (2,721,603)
Total Partners' Capital (2,816,188)
Total Liabilities and
Partners' Capital $27,661,986
See Notes to Unaudited Financial Statements.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
9/30/00 9/30/99 9/30/00 9/30/99
Operating revenue:
Rental income $ 1,723,994 $1,646,930 $5,092,559 $4,812,357
Operating expenses (700,824) (740,381) (2,187,672) (2,097,338)
Real estate taxes (183,900) (187,791) (551,700) (561,374)
Total operating
expenses (884,724) (928,172) (2,739,372) (2,658,712)
Net operating income 839,270 718,758 2,353,187 2,153,645
Interest expense (501,035) (448,424) (1,511,663) (1,340,406)
Depreciation (257,750) (251,300) (763,350) (747,650)
Amortization (28,327) (13,150) (84,980) (39,450)
Net income (loss) from
investment property 52,158 5,884 (6,806) 26,139
Other income (expenses):
Interest income 73,755 21,233 183,854 61,335
Partnership managmnt (37,963) (44,189) (156,328) (178,057)
35,792 (22,956) 27,526 (116,722)
NET INCOME (LOSS) $ 87,950 $ (17,072) $ 20,720 $ (90,583)
Net income (loss)
attributable to General
Partner(1%) $ 879 $ (171) $ 207 $ (906)
Net income (loss)
attributable to Limited
Partners (99%) 87,071 (16,901) 20,513 (89,677)
$ 87,950 $ (17,072) $ 20,720 $ (90,583)
Net income (loss) per Limited
Partner Interest $ 6.50 $ (1.26) $ 1.53 $ (6.69)
See Notes to Unaudited Financial Statements
STATEMENTS OF PARTNERS' CAPITAL
(Unaudited as to the Nine Months Ended September 30, 2000)
General Limited
Partner Partners'
Capital Capital Total
BALANCES AT 12/31/98 $(88,085) $(1,596,126) $ (1,684,211)
Distributions to Partners (3,975) (670,019) (673,994)
Net income for the year 268 26,541 26,809
BALANCES AT 12/31/99 $(91,792) $(2,239,604) $(2,331,396)
Distributions to Partners (3,000) (502,512) (505,512)
Net income for the period 207 20,513 20,720
BALANCES AT 9/30/00 $(94,585) (2,721,603) $(2,816,188)
() denotes deficit or deduction.
See Notes to Unaudited Financial Statements.
STATEMENTS OF CASH FLOWS
- - (UNAUDITED)
For The Nine Months Ended September 30,
2000 1999
CASH PROVIDED BY OPERATIONS $1,342,857 $ 931,420
INVESTING ACTIVITIES:
Additions to investment property (354,908) (315,012)
FINANCING ACTIVITIES:
Principal payments on mortgage notes (278,456) (219,650)
Payments of financing costs -- (65,000)
Distributions paid to limited partners (502,512) (502,512)
Distributions paid to general partner (3,975) (3,201)
NET CASH (USED IN) FINANCING ACTIVITIES (784,943) (790,363)
INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS 203,006 (173,955)
CASH & CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 4,570,655 1,867,814
CASH & CASH EQUIVALENTS
AT THE END OF PERIOD $4,773,661 $1,693,859
Supplementary disclosure of cash flow information:
Interest paid $1,493,326 $1,318,192
Income taxes paid 0 0
See Notes to Unaudited Financial Statements
Note A--Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. 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 management, 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, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. For
further information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-KSB for the year ended
December 31, 1999.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward-Looking Information
Forward-looking statements in this report, including without limitation,
statements relating to Decade Companies Income Properties (the "Partnership")
plans, strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forwarded-looking statements involve risks and uncertainties including
without
limitation the following: (i) the Partnership's plans, strategies,
objectives,
expectations and intentions are subject to change at any time at the
discretion of the General Partner; (ii) the Partnership's plans and results
of
operations will be affected by the Partnership's ability to manage its growth
(iii) other risks and uncertainties indicated from time to time in the
Partnership's filings with the Securities and Exchange Commission.
Information contained in this Quarterly Report on Form 10-QSB contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect, "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon
or comparable terminology. There are number of important factors with
respect
to such forward looking statements, including certain risks and
uncertainties,
that could cause actual results to differ materially from those contemplated
in such forward-looking statements. Such factors, which could adversely
effect
the Partnership's ability to obtain these results, include, among other
things, (i) the volume of transactions and prices for real estate in the real
estate markets generally, (ii) a general or regional economic downturn which
could create a recession in the real estate markets, (iii) the Partnership's
debt level and its ability to make interest and principal payments, (iv) an
increase in expenses related to new initiatives, investments in people and
technology, and service improvements, (v) the success of the new initiatives
and investments and (vi) other factors described elsewhere in this Quarterly
Report on Form 10-QSB.
Results of Operations
Operating revenue from rental income was $1,724,000 in the quarter ended
September 30, 2000, compared to $1,647,000 for the same period in 1999, an
increase of 4.7%. Rental income was provided by the three sites for the
comparative three month period as set forth below:
Percent
Three Months Ended Increase Increase
9/30/00 9/30/99 (Decrease) (Decrease)
Pelican Sound $ 761,000 $ 711,000 $ 50,000 7.0%
Meadows II 551,000 507,000 44,000 8.7%
Town Place 412,000 429,000 (17,000) (4.0%)
Total $1,724,000 $1,647,000 $ 77,000 4.7%
The $77,000 increase in rental income for the second quarter, compared to the
prior year's second quarter, is attributed primarily to both a 3% increase in
gross potential rent and a 2% increase in occupancy (from 90% to 92%). The
$77,000 increase consisted of increases at Pelican Sound of $50,000, and The
Meadows II of $44,000, offset by a decrease at Town Place of $17,000. The
$50,000 increase at Pelican Sound is attributed to a 3% increase in gross
potential rent, plus a 4% increase in average occupancy (from 93% to 97%).
The $44,000 increase at The Meadows II is attributed to a 2% increase in
gross
potential rent, plus a 6% increase in average occupancy (from 84% to 90%).
The $17,000 decrease at Town Place is attributed to a 4% increase in gross
potential rent, offset by a 7% decrease in occupancy from 94% to 87%.
Operating revenue from rental income for the nine month period ended
September
30, 2000 was $5,093,000, compared to $4,812,000 for the same period in 1999,
an increase of 5.8%. Rental income was provided by the three sites for the
comparative nine month periods as set forth below.
Percent
For Nine Months Ended Increase Increase
9/30/00 9/30/99 (Decrease) (Decrease)
Pelican Sound $2,161,000 $2,069,000 $ 92,000 4.4%
Meadows II 1,633,000 1,522,000 111,000 7.3%
Town Place 1,299,000 1,221,000 78,000 6.4%
Total $5,093,000 $4,812,000 $ 281,000 5.8%
The $281,000 increase in rental income for the nine month period, compared to
the prior year's same nine month period, is attributed to both a 2% increase
in gross potential rent and a 2% increase in occupancy (from 90% to 92%).
The
$281,000 increase consisted of increases at all three apartment sites:
Meadows
II ($111,000), Pelican Sound ($92,000) and Town Place ($78,000). The
$111,000
increase at The Meadows II is attributed to a 2% increase in gross potential
rent, plus a 5% increase in average occupancy (from 86% to 91%). The $92,000
increase at Pelican Sound is attributed to a 2% increase in gross potential
rent, plus a 2% increase in occupancy (from 92% to 94%). The $78,000
increase
at Town Place is attributed to a 3% increase in gross potential rent, plus a
1% increase in average occupancy (from 91% to 92%).
The average monthly gross potential rent per unit at the Apartments for the
third quarter of 2000 and for the nine month period of 2000, and the
comparative periods in 1999, is set forth below:
Number Three Months Ended Nine Months Ended
of Units 9/30/00 9/30/99 9/30/00 9/30/99
Pelican Sound 379 $656 $637 $650 $635
The Meadows II 316 $630 $616 $624 $612
Town Place 240 $650 $623 $641 $622
All Rental Units 935 $645 $626 $639 $624
"Gross potential rent" represents the asking rent established by the
Partnership for a vacant apartment plus the rent in effect for occupied
apartments.
The average occupancy level at the Apartments for the second quarter ended
September 30, 2000 and for the nine month period of 2000, and the comparable
periods in 1999, is set forth below:
Three Months Ended Nine Months Ended
9/30/00 9/30/99 9/30/00 9/30/99
Pelican Sound 97.4% 92.9% 94.0% 92.1%
The Meadows II 90.3% 84.3% 90.8% 85.6%
Town Place 86.8% 93.9% 91.7% 91.0%
All Rental Units 92.3% 90.3% 92.3% 89.6%
The range of occupancy levels at the Apartments for the third quarter period
ended September 30, 2000 and for the nine month period of 2000, and the
comparable periods in 1999, is set forth below:
Three Months Ended Nine Months Ended
9/30/00 9/30/99 9/30/00 9/30/99
Pelican Sound 96.5-98.4% 92.1-93.9% 87.8-98.4% 88.5-94.2%
The Meadows II 87.2-92.0% 79.4-88.9% 88.3-92.4% 79.0-89.1%
Town Place 85.4-89.1% 93.2-94.8% 85.4-96.7% 85.6-94.8%
All Rental Units 91.9-93.0% 88.3-92.5% 90.4-93.6% 87.9-92.5%
Total rental expenses before depreciation and debt service in the three month
period ended September 30, 2000 decreased by $43,000, from $928,000 to
$885,000, compared to the same period of 1999. The decrease was comprised of
decreases at Meadows II of $28,000 and Pelican Sound of $18,000, offset by an
increase at Town Place of $3,000.
For the nine month period total rental expenses increased by $80,000 from
$2,659,000 to $2,739,000. The increases were comprised of increases at
Pelican Sound of $44,000, and at Town Place of $36,000, and with no
differences at The Meadows II.
A summary of operating expenses before depreciation and debt service by
apartment site follows:
For the Three Months Ended
Increase Increase
(Decrease) (Decrease)
9/30/00 9/30/99 Amount Percent
Pelican Sound $360,000 $378,000 $(18,000) 4.8%
Meadows II 302,000 330,000 (28,000) (8.5%)
Town Place 223,000 220,000 3,000 14.0%
Total $885,000 $928,000 $(43,000) (4.6%)
For The Nine Months Ended
Increase Increase
(Decrease) (Decrease)
9/30/00 9/30/99 Amount Percent
Pelican Sound $1,154,000 $1,110,000 $ 44,000 4.0%
Meadows II 875,000 875,000 0 -
Town Place 710,000 674,000 36,000 5.3%
Total $2,739,000 $2,659,000 $ 80,000 3.0%
The operating expense increases at Pelican Sound are primarily attributable
to
the repair of balconies and exterior painting. The increases at Town Place
are also primarily attributable to exterior painting and other repair
expenses. At The Meadows II the expenses were basically the same in both
years to date.
As a result of the foregoing, net income from rental property operations
before debt service, depreciation and amortization, was approximately
$839,000 for the third quarter of 2000, compared to $719,000 for the
comparative period, an increase of approximately $120,000. The net increase
was comprised of a increases at The Meadows II of $72,000 and at Pelican
Sound
of $68,000, offset by decrease at Town Place of $20,000.
For the nine month period net income from rental operations before
depreciation, amortization, and debt service was approximately $2,353,000 for
the 2000 period compared to $2,153,000 for the comparable 1999 period, an
increase of $200,000. The increase was comprised of increases at The Meadows
II of $111,000, at Pelican Sound of $47,000, and at Town Place of $42,000.
A summary of net operating income before depreciation, amortization, and debt
service, by site including the percent of total for each site for three month
periods ended follows:
Increase Increase
9/30/00 9/30/99 (Decrease)(Decrease)
Amount Percent Amount Percent Amount Percent
Pelican Sound $401,000 48% $333,000 46% $ 68,000 20.4%
Meadows II 249,000 30% 177,000 25% 72,000 40.7%
Town Place 189,000 22% 209,000 29% (20,000) 9.6%
Total $839,000 100% $719,000 100% $120,000 16.7%
A summary of net operating income before depreciation, amortization, and debt
service, by site for the nine month periods ended follows:
Increase Increase
9/30/00 9/30/99 (Decrease) (Decrease)
Amount Percent Amount Percent Amount Percent
Pelican Sound$1,006,000 43% $ 959,000 45% $ 47,000 4.9%
Meadows II 758,000 32% 647,000 30% 111,000 17.2%
Town Place 589,000 25% 547,000 25% 42,000 7.7%
Total $2,353,000 100% $2,153,000 100% $200,000 9.3%
Interest expense for the third quarter of 2000 increased $53,000 from the
comparative period and increased $171,000 for the nine month period,
primarily
as a result of a higher amount of outstanding debt attributable to the
mortgage refinancing of Pelican Sound Apartments in October 1999. We expect
this increase to continue.
The net income before debt service from real estate activities is reduced by
deductions for depreciation and amortization which do not affect cash flow.
Depreciation and amortization increased $22,000 for the third quarter of 2000
compared to 1999, and by $61,000 for the nine month period.
The Partnership's net other expenses decreased during the nine month period
in
2000 by approximately $144,000. The $144,000 decrease consisted of an
increase in interest income of $122,000 and a decrease in partnership
management expenses of $22,000. The increased interest income is
attributable
to a larger investment portfolio available to generate such income.
As a result of the foregoing, the Partnership's net income for the quarter
ended September 30, 2000 was $88,000, compared to a loss of $17,000 in the
same period of 1999. For the nine month periods the Partnership's net income
for 2000 was $21,000, compared to net loss of $91,000 for 1999.
Exclusive of depreciation and amortization, the Partnership's net income for
the quarters ended September 30, 2000 and 1999 was $374,000 and $247,000, and
for the nine month periods the net income exclusive of depreciation and
amortization was $869,000 of 2000 and $697,000 for 1999.
Liquidity and Sources of Capital
At September 30, 2000 there was $4.79 million of cash and cash equivalents
and
escrow deposits available to pay liabilities. The Partnership has a credit
line established of approximately $2.56 million from the undisbursed funds
from The Meadows II refinancing to provide additional liquidity. The
undisbursed funds do not bear interest until they are released by the
mortgage
lender. The cash balance averaged approximately $4.15 million during the
nine
month period.
During the first nine months of 2000, cash and cash equivalents increased by
$203,000 as shown herein on the Statements of Cash Flows. Operating
activities
provided $1,343,000 during the period. The cash flow was used to make cash
distributions to the partners of $506,000 ($502,000 to the limited partners,
and $4,000 to the general partner). Approximately $184,000 (36.4% of the
cash
distributions) was considered to be portfolio income subject to income
taxes.
The balance of the cash flow provided by operations was used to make
principal
payments on the outstanding mortgage notes of $278,000, to purchase
capitalized additions to the investment properties of $355,000, and to
increase cash reserves.
The General Partner believes that the Partnership has the ability to generate
adequate amounts of cash to meet the Partnership's current needs for the
foreseeable future.
Short-term obligations total $4.4 million, consisting of $932,000 of current
liabilities, $406,000 of mortgage principal liabilities, and as described in
detail below, $3,099,000 payable to the General Partner and affiliates.
On a short-term basis, rental operations are expected to provide a stream of
cash flow to pay day-to-day operating expenses and to fund quarterly cash
distributions to partners. Investment property operations generated a profit
in the third quarter of 2000 of $338,000 (before depreciation and
amortization
of $286,000) compared to $270,000 for the same period in 1999.
For the nine month period net income from investment properties generated a
profit of $842,000 for year 2000 (before depreciation and amortization of
$848,000) compared to $813,000 for the same period in 1999.
The Agreement of Limited Partnership provides that the Partnership will make
distributions for each calendar quarter of cash flow less amounts set aside
for reserves. In July the Partnership paid to the Limited Partners the June
declaration of $167,500 ($12.50 per Interest) and declared for the sixteenth
consecutive quarter a similar amount payable for the third quarter of 2000 to
be paid in October 2000. The distribution payable to the General Partner of
$3,000 was accrued and payment will be made subsequently. The Partnership
intends, but is not required, to continue to make cash distributions to the
Limited Partners each quarter in the same amount of 5.0% per annum on the
original capital investment of $1,000 per Interest. This intention will
require cash distributions to the limited partners of approximately $670,000
in the next 12 months, which should be met from operations and cash
reserves.
Through September 30, 2000 the Partnership declared cash distributions of
approximately $13.7 million (76% of original capital) to the Limited Partners
since inception. Cumulative cash distributions range from $758 (76%) to $905
(90%) per $1,000 Interest of an original holder, depending upon the date of
purchasing the Interest.
The Town Place loan is due in three years in 2003 and will require a balloon
payment of approximately $6.0 million. The Meadows II loan is due in five
years in 2005 and will require a balloon payment of approximately $5.7
million. The Pelican Sound note is due in six years in 2006 and will require
a balloon payment of approximately $6.0 million. The long-term mortgage
obligations of the Partnership require principal reductions (excluding
balloon
payments) of approximately $2.0 million over the next five years. These
obligations will most likely be satisfied by cash generated from operations.
It is anticipated that all three properties will be sold or refinanced prior
to the maturity dates.
The mortgage notes on Pelican Sound, Town Place and Meadows II bear interest
at 7.50%, 8.25%, and 7.25% respectively. The Partnership is exploring the
possibility of refinancing the Town Place mortgage loan during 2000 if lower
interest rates are available. Additional proceeds from the refinancing in
excess of the existing mortgage debt would provide additional liquidity.
Approximately $3.9 million of deferred fees and deferred interest related
thereto has been earned by the General Partner and affiliates, of which
approximately $3.1 million is a short term obligation of the Partnership
currently due and payable. To date the Partnership has not paid the $3.1
million of deferred fees and deferred interest in order to preserve the
ability of the Partnership to acquire additional properties, if deemed
advisable. The actual timing of the payment of deferred fees and related
interest will take into account the amount of cash reserves to be set aside
that the General Partner deems necessary or appropriate for the operation and
protection of the Partnership. The General Partner currently intends to make
payment only after it is determined that the liquidity is not required to
purchase additional properties, either directly or by means of an exchange.
Other than the payments described above, there are no long-term material
capital expenditures, obligations, or other demands or commitments that might
impair the liquidity of the Partnership.
Partners' Capital decreased by $485,000 during the first nine months of 2000
due to cash distributions declared payable to the partners of $505,000, less
the net income for the third quarter of $20,000.
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibit is included herein:
(27) Financial Data Schedule
The Partnership did not file any reports on Form 8-K during the three months
ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DECADE COMPANIES INCOME PROPERTIES
- - A LIMITED
PARTNERSHIP
(Registrant)
By: DECADE COMPANIES
(General Partner)
Date: November 14, 2000 By: /s/ Jeffrey Keierleber
Jeffrey Keierleber
General Partner and Principal
Financial and Accounting
Officer of Registrant