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 March 31, 1997.
[ ] 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)
(414) 792-9200
(Issuer's telephone number)
Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X___ No ______.
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 _____.
_______________________
Decade Companies Income Properties - A Limited Partnership
Form 10-QSB
INDEX
March 31, 1997
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (unaudited as to
March 31, 1997 and the three months
then ended).
Balance Sheet at March 31, 1997. 3
Statements of Operations for the three months
ended March 31, 1997 and 1996. 4
Statements of Partners' Capital
for the three months ended March 31, 1997
and the year ended December 31, 1996. 5
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996. 6
Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security
Holders 11
Item 6. Exhibits and Reports on Form 8-K. 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEET
March 31, 1997
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,340,512
Escrow deposits 243,277
Prepaid expenses and other assets 137,507
Total Current Assets 2,721,296
INVESTMENT PROPERTIES, AT COST: 31,133,023
Less: accumulated depreciation (6,762,169)
Net Investment Property 24,370,854
OTHER ASSETS:
Utility deposits 43,415
Debt issue costs, net of accumulated
amortization 222,451
Total Other Assets 265,866
Total Assets $27,358,016
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and
accrued taxes $ 439,673
Tenant security deposits 169,121
Distributions payable 171,233
Accrued interest payable 37,448
Payables to affiliates 3,436,460
Mortgage notes payable 23,111,147
Total Liabilities 27,365,082
PARTNERS' CAPITAL:
General Partner Capital (78,159)
Limited Partners
(authorized--18,000 Interests;
outstanding--13,400.27 Interests) 71,093
Total Partners' Capital (7,066)
Total Liabilities and
Partners' Capital $27,358,016
See Notes to Financial Statements.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31
1997 1996
Operating revenue:
Rental income $1,535,535 $ 1,477,879
Operating expenses:
Operating 738,493 664,390
Real Estate Taxes 179,095 183,540
Total 917,588 847,930
Net income before
debt service and other
expenses 617,947 629,949
Interest expense (439,821) (403,160)
Depreciation (274,900) (269,800)
Amortization of debt issue costs (8,735) (949)
Net (loss) from investment property (105,509) (43,960)
Other income (expenses):
Interest income 34,176 6,027
Partnership management (164,432) (50,358)
(130,256) (44,331)
NET (LOSS) $ (235,765) $ (88,291)
Net (loss) attributable to
General Partner (1%) $ (2,358) (889)
Net (loss) attributable to
Limited Partners (99%) (233,407) (88,032)
$ (235,765) $ (88,921)
Net (loss) per Limited
Partner Interest $ (17.42) $ (5.04)
See Notes to Financial Statements
STATEMENTS OF PARTNERS' CAPITAL
(Unaudited as to the Three Months Ended March 31, 1997)
General Limited
Partner Partners'
Capital Capital Total
BALANCES AT 12/31/95 $(69,185) $ 3,110,465 $ 3,041,280
Repurchase of Limited Partner
Interests (1,634,546) (1,634,546)
Tender offer costs (113,960) (113,960)
Distributions to Partners (2,730) (604,163) (606,893)
Net (loss) for the year (2,886) (285,735) (288,621)
BALANCES AT 12/31/96 $(74,801) $ 472,061 $ 397,260
Tender offer costs (58) (58)
Distributions to Partners (1,000) (167,503) (168,503)
Net (loss) for the period (2,358) (233,407) (235,765)
BALANCES AT 3/31/97 $(78,159) $ 71,093 $ (7,066)
() denotes deficit or deduction.
See Notes to Financial Statements.
STATEMENTS OF CASH FLOWS - (UNAUDITED)
For The Three Months Ended March 31,
1997 1996
CASH PROVIDED BY (USED FOR) OPERATIONS $ (8,684) $ 215,262
INVESTING ACTIVITIES:
Proceeds from exchange escrow account --- 269,486
Additions to investment property (29,826) (32,488)
Net cash provided by (used in) investing
activities (29,826) 236,998
FINANCING ACTIVITIES:
Principal payments on mortgage notes (73,839) (54,565)
Payment of tender offer costs (58) 0
Distributions paid to limited partners (167,504) (218,330)
NET CASH (USED IN) FINANCING ACTIVITIES (241,401) (272,895)
INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS (279,911) 179,365
CASH & CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 2,620,423 56,316
CASH & CASH EQUIVALENTS
AT THE END OF PERIOD $2,340,512 $ 235,681
Supplementary disclosure of cash flow information:
Interest paid $ 432,724 $ 360,400
Income taxes paid 0 0
See Notes to 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 month period ended March 31,
1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further
information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-K for the year
ended December 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Operating revenue from rental income was $1,535,500 in the quarter
ended March 31, 1997, compared to $1,477,900 for the same period of
1996, an increase of 3.9%. Rental income was provided by the three
sites for the comparative three month periods as follows:
Percent
Three Months Ended Increase Increase
3/31/97 3/31/96 (Decrease) (Decrease)
Pelican Sound $ 648,300 $ 598,800 $ 49,500 8.3%
Meadows II 483,900 481,400 2,500 0.7%
Town Place 403,300 397,700 5,600 1.4%
Total $1,535,500 $1,477,900 $ 57,600 3.9%
The average monthly gross potential rent per unit at the Apartments
for the first quarter of 1997, and the comparative period in 1996 is
set forth below:
Number
of Units 1997 1996
Pelican Sound 379 $579 $564
The Meadows II 316 $572 $560
Town Place 240 $581 $570
All Rental Units 935 $577 $564
"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 quarter ended
March 31, 1997, and the comparable period in 1996, is set forth below:
Three Months Ended
3/31/97 3/31/96
Pelican Sound 96.6% 94.5%
The Meadows II 88.7% 91.2%
Town Place 93.9% 93.3%
All Rental Units 93.2% 93.1%
The range of occupancy levels at the Apartments for the three month
period ended March 31, 1997, and the comparable period in 1996, is set
forth below:
Three Months Ended
3/31/97 3/31/96
Pelican Sound 96.0-97.8% 91.5-99.0%
The Meadows II 85.8-90.6% 90.4-91.7%
Town Place 92.7-94.7% 93.3-93.7%
All Rental Units 93.0-93.4% 91.9-94.7%
Total rental expenses before depreciation and debt service in the
three month period ended March 31, 1997 increased by $70,000, from
$848,000 to $918,000, compared to the same period of 1996. The
increase was comprised of increases from The Meadows II ($26,000),
Town Place ($24,000), and Pelican Sound ($20,000).
Net income from rental property operations before debt service and
depreciation was approximately $618,000 for the first three months of
1997, compared to $630,000 for the comparative period, a decrease of
approximately $12,000. The decrease was comprised of decreases at The
Meadows II ($24,000), and Town Place ($18,000), offset by an increase
at Pelican Sound of $30,000.
As a result of the foregoing, net operating income before depreciation
and debt service was $618,000 for the quarter compared to $630,000 for
the comparative quarter. For the quarter, Pelican Sound contributed
$249,000 (40%) of net operating income before depreciation and debt
service; The Meadows contributed $210,000 (34%); and Town Place
contributed $159,000 (26%).
Interest expense increased $36,600 from the comparative period
primarily as a result of the additional debt service on the increased
loan amount on Town Place Apartments which was incurred in May 1996.
The net income before debt service from real estate activities is
partially sheltered by deductions for depreciation and amortization
which do not affect cash flow. Depreciation and amortization
increased $13,000 from 1996 to 1997 for the respective three month
periods.
The Partnership's net other expenses increased in 1997 by
approximately $86,000. Partnership management expenses increased
$114,000, offset by an increase in interest income of $28,000. The
increase in partnership management expenses of $114,000 is primarily
attributable to the litigation expenses incurred in the lawsuit
against Arnold K. Leas, Wellington Management Corporation, and WMC
Realty, Inc. and for costs incurred for the proxy solicitation to
adopt an amendment to Section 8 of the Limited Partnership Agreement
encaptioned the "Fair Price Provision". The increase in interest
earned is primarily attributable to income from a larger investment
portfolio arising from the refinancing in May 1996 of the Town Place
mortgage.
As a result of the foregoing, the Partnership's net loss for the
quarter ended March 31, 1997 was $236,000, compared to a loss of
$88,000 in the same period of 1996. Exclusive of depreciation and
amortization, the Partnership's net income for the quarters ended
March 31, 1997 and 1996 was $48,000 and $182,000.
Liquidity and Financial Condition
At March 31, 1997 there was $2.6 million of cash and cash equivalents
and escrow deposits available to pay liabilities. Current liabilities
are approximately $3.7 million at March 31, 1997, of which
approximately $2.6 million is payable to the General Partner and does
not bear interest. The General Partner more likely than not will be
paid the entire amount of deferred fees during 1997 (which would
eliminate all unrestricted cash reserves of the Partnership). 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.
During the first three months of 1997, cash and cash equivalents
decreased by $280,000. During the period $9,000 was used by operating
activities, $30,000 was used in investing activities and
approximately $241,000 was used in financing activities that included
payments on the mortgage notes and distributions to partners as shown
herein on the Statements of Cash Flows.
Cash reserves were used to fund the first quarter cash distributions
paid to the Limited Partners of $168,000. Usually day-to-day
operating expenses are funded from operations and do not require the
use of cash reserves. However, the litigation and proxy solicitation
during the first quarter required the need of operating cash and cash
reserves.
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 January the Partnership paid to
the Limited Partners the December declaration of $167,500 ($12.50 per
Interest) and declared a similar amount payable for the first quarter
of 1997 to be paid in April 1997. The distribution payable to the
General Partner of $1,000 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.
The outstanding principal balance on mortgage notes was reduced by
$74,000 during the quarter. Scheduled mortgage debt principal
reductions are approximately $202,000 over the balance of the year.
Partners' Capital decreased by $404,000 during the first three months
of 1997 due to the net loss for financial reporting purposes of
approximately $236,000 and cash distributions declared payable to the
partners of $168,000.
PART II.
OTHER INFORMATION
Item 1. Legal Proceeding.
In December 1996, the Partnership and Decade Companies, its General
Partner, brought an action in the U. S. District Court for the Eastern
District of Wisconsin against Arnold K. Leas, Wellington Management
Corporation, and WMC Realty, Inc. (collectively the "Defendants") for
injunctive and other relief based on asserted securities laws
violations and other claims arising from a proxy statement and other
filings by Mr. Leas and Wellington Management Corporation. The
Defendants counterclaimed against the Partnership and Decade Companies
for alleged securities laws violations. Mr. Leas and Wellington
Management Corporation ultimately undertook a proxy contest seeking,
among other things, to remove Decade Companies as the Partnership's
General Partner. Their solicitation failed to obtain approval by a
majority of the Interests outstanding.
The litigation between the Partnership and Decade Companies and the
Defendants was dismissed on March 20, 1997 pursuant to the stipulation
of the parties.
The lawsuit was dismissed pursuant to a settlement agreement dated
March 13, 1997, between the parties. Pursuant to the settlement
agreement, Jeffrey Keierleber agreed to purchase certain Interests for
a net price to the Limited Partner of $550 per Interest (plus
commissions ranging from $42.50 to $55.00 per Interest paid to an
affiliate of the Defendants) until May 5, 1997, provided that the
Limited Partnership Interests were acquired by isolated transactions
that did not give rise to general solicitation or a tender offer.
Pursuant to the settlement agreement, Mr. Keierleber and Mr. Leas (and
their affiliates) agreed that for a period of ten years from March 13,
1997, neither they nor any affiliate will: (a) acquire, offer to
acquire or agree to acquire, directly or indirectly, by purchase or
otherwise, any voting securities (including partnership interests) or
direct or indirect rights or options to acquire any securities of any
Decade or Wellington sponsored partnership or an affiliate of the
parties, as the case may be; (b) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" to vote
(as such terms are used in the proxy rules of the Securities and
Exchange Commission) or seek to advise or influence any person or
entity with respect to the voting of any voting securities of any
Decade or Wellington sponsored partnership or an affiliate; (c) form,
join or in any way participate in a "group" within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
with respect to any voting securities of any Decade or Wellington
sponsored partnership or an affiliate; or (d) otherwise act, alone or
in concert with others, to seek to control or influence the
management, the general partner or policies of any Decade or
Wellington sponsored partnership or an affiliate.
Item 4. Submission of Matters to Vote of Securities Holders.
On January 4, 1997 a proxy statement and consent was mailed by the
General Partner to all Limited Partners in connection with a proposed
amendment to the Limited Partnership Agreement to adopt a new Section
8.6 encaptioned the "Fair Price Provision". The proxy period expired
on February 4, 1997. The Fair Price Provision was adopted by a
majority of 7,253 Interests (approximately 54% of the outstanding
Interests) voting for the proposal, 2,807 Interests against the
proposal, 520 Interests abstaining, and 2,820 Interests not voting.
A proxy statement dated January 27, 1997 and consent was mailed by
Arnold K. Leas (a limited partner of the Partnership) to all Limited
Partners in connection with a proposal to remove Decade Companies as
the general partner of the Partnership and concurrently therewith
appoint Wellington Management Corporation (his affiliate) as the new
general partner. The proxy period expired on March 1, 1997. To the
best of the General Partner's knowledge, approximately 84% of the
limited partners did not vote for the Leas proposal. As a result, the
proposal was not adopted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
On March 26, 1997 the Partnership filed a report on Form 8-K to report
the dismissal on March 20, 1997 of the litigation against Arnold K.
Leas, Wellington Management Corporation, and WMC Realty, Inc. pursuant
to a Settlement Agreement dated March 13, 1997.
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: May 15, 1997 By: _________________________________
Jeffrey Keierleber
General Partner and Principal
Financial and Accounting Officer
of Registrant