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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-8444
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Yager/Kuester Public Fund Limited Partnership
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(Exact name of registrant as specified in its charter)
North Carolina 56-1560476
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12201 Steele Creek Road, P.O. Box 412080
Charlotte, North Carolina 28241
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (704) 588-4074
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
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(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 file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. Not
Applicable.
Documents Incorporated By Reference
Exhibits (4) and (10.1) of Part IV, required by Item 601 of Regulation
S-K, are incorporated by reference from the prospectus of the registrant, dated
December 1, 1987, Registration Number 33-07056-A (hereinafter "Prospectus").
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PART I
Item 1. Business. The registrant is a North Carolina limited partnership
formed in July 1986 (hereinafter referred to as the "Partnership"). The
Partnership engaged in a "blind pool offering," the proceeds of which were used
to purchase income-producing real property. During the year ended December 31,
1988, the Partnership received the minimum investment required to remove
subscribers' funds from escrow. The Partnership's offering terminated with a
total subscription of $3,195,000 from investor limited partners. The net
proceeds were used to purchase the properties described in Item 2 below, to pay
the expenses of the offering and to fund the working capital account. The funds
not required for those purposes, totaling $84,273, were returned to investors.
The sole business of the Partnership is the operation of commercial office
buildings purchased with the proceeds of the public offering. (See Item 2 below
for a description of the properties.) The lease terms with the major tenants at
such properties are summarized below.
(i) EastPark Executive Center, Charlotte, NC - the General Services
Administrator ("GSA") has a lease term for a ten (10) year period ending on
October 31, 2004, at a rental rate of $14.15 per square foot. GSA may, at
its election, terminate the lease after eight (8) years. The GSA leased
premises include approximately 32,000 square feet. The Partnership incurred
leasehold improvements expense of approximately $1,092,000 for the GSA
space. Such improvements were completed in October 1996. The GSA lease
accounts for approximately 75% of the rental income related to the EastPark
Executive Center. The remaining leasehold space is leased to three other
tenants.
(ii) BB&T Bank (formerly United Carolina Bank) Building, Greenville,
SC - Metropolitan Life Insurance Company ("Metlife") is in the fourth year
of a five year lease renewal. The rental rate is $14.00 per square foot
during the first three years of the renewal term and escalates to $14.25
per square foot during the last two years of the renewal term. In lieu of
granting an upfit allowance, Metlife was allowed a rent concession of
$6,250 per month for the first twelve (12) months of the renewal term; the
concession terminated July 31, 1995. Metlife and BB&T account for 66% and
26%, respectively, of the rental income related to the BB&T Bank Building.
During the first quarter of 1998, the General Partners were able to
negotiate an extension of the lease with BB&T. The BB&T lease is now
scheduled to expire on July 31, 2006 and calls for an increase in rate from
$14.06 per square foot to $15.50. The lease also provides for a 2%
escalation in rent per year.
The Partnership has no employees of its own; management of the
Partnership's property is performed by FSK Properties, LLC, an affiliate of FSK
Limited Partnership. Administration of the Partnership is performed by the
General Partners. (See Items 10 and 13 below.)
Item 2. Properties. On June 23, 1989, the Partnership purchased the
EastPark Executive Center, an office complex comprised of two buildings located
in Charlotte, North Carolina with net leasable area of 45,300 square feet, for a
purchase price of $3,155,138 of which $1,500,000 was provided by a first
mortgage loan bearing interest at 10.5% per annum and having a term of 10 years.
The lender, United of Omaha Life Insurance Company ("United Omaha"), is not
affiliated with the Partnership.
On November 30, 1989, the Partnership acquired the BB&T Bank Building, a
three-story office building in Greenville, South Carolina with net leasable area
of 39,138 square feet, for a purchase price of $4,202,544 of which $3,110,000
was provided by a first mortgage loan from United Omaha. The debt is currently
financed with First Union. (See Item 7, "Liquidity and Capital Resources" for
description of loan terms.)
In connection with the office building purchases, $26,312 of acquisition
costs were capitalized.
No further purchases of real property are projected and no funds are
available for that purpose. (See Item 7 below, "Status of Sales Efforts" for
recent developments regarding the properties.)
Item 3. Legal Proceedings. The Partnership is not involved in any legal
proceedings and was not so involved during the year ended December 31, 1997.
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Item 4. Submission of Matters to a Vote of Security Holders. Not
applicable.
PART II
Item 5. Market for the Partnership's Common Equity and Related Stockholder
Matters. There is no established public trading market for the Partnership's
securities. The Partnership has approximately 535 limited partners. Cash
distributions made to the limited partners during the past years are set out in
the Statements of Cash Flow included in the Financial Statements included in
Part II, Item 8 of this Report.
Item 6. Selected Financial Data.
At or For
Year Ended December 31,
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1997 1996 1995 1994 1993
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Summary of Operations
Rental income $ 1,158,468 $ 1,150,758 $ 1,172,935 $ 1,114,741 $ 1,067,859
Net income (loss) (51,497) 40,561 29,787 17,865 (15,330)
Net income (loss)
per limited
partnership unit (8.00) 6.30 4.63 2.77 (2.38)
Summary of Financial
Position:
Total assets $ 7,633,602 $ 7,864,107 $ 7,214,881 $ 6,951,442 $ 7,037,438
Long-term debt, less
current maturities 1,145,441 4,059,909 1,288,754 4,220,469 4,330,390
Distribution per
limited partner-
ship unit -- -- -- -- --
Number of limited
partnership units 6,370 6,370 6,370 6,370 6,370
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
During the year ended December 31, 1997, the Partnership continued to fund
working capital requirements. The working capital deficiency increased from
($864,930) at December 31, 1996 to ($3,581,543) at December 31, 1997. The
decrease in the working capital is primarily a result of the reclassification of
the loan on the BB&T Bank building to current liabilities from long-term debt
due to the balloon payment of approximately $2,722,700 that is due in December
1998. This loan was refinanced in the form of a line of credit for $2,840,000
through First Union Bank of North Carolina. The line of credit carries an
interest rate at the 3-month LIBOR rate plus 1.75% and is repayable in monthly
payments of accrued interest only until December 1, 1998 when all remaining
principal and interest shall be due. The General Partners anticipate selling the
BB&T Building before maturity.
An additional increase in current liabilities can be attributed to a
$1,000,000 line-of-credit note payable by the Partnership for the EastPark
Executive Center GSA upfit, of which $1,000,000 and $942,483 were outstanding at
December 31, 1997 and 1996 respectively. The line of credit is unsecured and is
payable on demand.
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The cumulative unpaid priority return to the unit holders increased from
$1,924,049 at December 31, 1996 to $2,166,833 at December 31, 1997. This
increase resulted from no distributions being made to partners during the year
and the pro rata share due partners pursuant to the Limited Partnership
Agreement. Based on current and projected commercial real estate market
conditions, the General Partners believe that it is reasonably unlikely that a
sale of the Partnership properties would produce net sale proceeds sufficient to
pay any of such priority return. Furthermore, the General Partners believe that
it is reasonably unlikely that the Partnership's operating income or any
refinancing of Partnership debt would generate sufficient funds to pay the
priority return.
During the year ended December 31, 1997, the Partnership had net (loss) of
($51,497) compared to the net income of $40,561 and $29,787 in 1996 and 1995,
respectively. Rental income, operating expenses, and interest expense for the
years ended December 31, 1997 and 1996 resulted exclusively from the operations
of the Partnership's commercial real estate properties. The EastPark Executive
Center buildings, purchased June 23, 1989, were 96 % leased at December 31, 1996
and were 99% leased at December 31, 1997. The BB&T Bank Building (formerly the
United Carolina Bank Building,), purchased November 30, 1989, was 96% leased at
December 31, 1996 and 100% in 1997. In March 1997, Metlife signed a sublease
with United Health Care for approximately 1,400 square feet expiring July 31,
1999.
The Partnership entered into a Loan Extension and Modification Agreement
dated as of May 12, 1993 with Internet Services Corporation, a North Carolina
corporation (formerly International Network Services Corporation) owned equally
by three trusts, the beneficial interests of which inure respectively to the
benefit of three children of Dexter Yager, the sole General Partner of DRY
Limited Partnership, which limited partnership is one of the two general
partners of the Partnership. Pursuant to the Agreement, the Partnership agreed
to pay Internet $91,275 over a five-year period, with annual principal payments
of $18,255 each, together with interest at the rate equal to the prime rate of
NationsBank of North Carolina N.A., determined on an annual basis, plus two
percent (2.0%). This loan was paid off one year early in January 1997, saving
the Partnership approximately $1,400 in interest expense.
See Item 13 (Certain Relationships and Related Transactions) for a
discussion regarding leasing commissions paid to FSK Properties, LLC, a General
Partner of the Partnership.
In the event that funds derived from operations are insufficient to meet
the Partnership's working capital needs, the General Partners have agreed to
fund the shortfall.
Results of Operations
Comparison of 1997 results with 1996.
Operating results decreased from an operating income of $449,277 during the
year ended December 31, 1996 to an operating income of $355,399 for the
comparable year 1997. Operating income expressed as a percentage of rental
income decreased from 39.0% for the year ended December 31, 1996 to 31.0% for
the comparable year 1997. While common area maintenance ("CAM") charges were
down $22,000 at the BB&T facility, rental escalations and increased occupancy at
both facilities compensated for this decrease. This resulted in rental income
increasing by approximately $8,000 from the prior year. Operating expenses were
higher overall in 1997 by approximately $102,000. Increased depreciation
relating to the IRS upfit comprised the greatest increase in the expenses. The
remaining expense increase can be attributed to increased repairs and
maintenance. Nonoperating expenses for the year ended December 31, 1997
decreased 0.4% from the comparable year 1996.
Comparison of 1996 results with 1995.
Operating results increased slightly from an operating income of $444,916
during the year ended December 31, 1995 to an operating income of $449,277 for
the comparable year 1996. Operating income expressed as a percentage of rental
income increased from 37.9% for the year ended December 31, 1995 to 39.0% for
the comparable year 1996. While the overall occupancy rate for 1996 was
comparable to 1995, rental income nevertheless decreased by approximately
$22,000. This decrease of rental income in 1996 can be attributed to the
decrease in Common Area Maintenance ("CAM") reimbursements provided by the
Metropolitan Life Insurance Company lease at the BB&T facility. Operating
expenses were lower overall in 1996 by approximately $26,000. Decreased
professional fees incurred in 1995 relating to the potential sale of the
properties, comprised the greatest decrease in the expenses. The remaining
expense decrease can be attributed to decreased contract labor
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and miscellaneous expenses. Nonoperating income and expenses for the year ended
December 31, 1996 decreased 1.5% from the comparable year 1995.
Status of Sales Efforts; Future Matters
The General Partners entered into separate listing agreements for both
properties with a Charlotte-based commercial real estate broker at the beginning
of the third quarter, 1996. The BB&T Bank Building is now under contract to be
sold to Highwoods/Forysth Limited Partnership, a North Carolina limited
partnership ("Highwoods"), for a sale price of $3,600,000. As a result of
Highwoods' due diligence investigation of the BB&T building, parties have
settled on a $90,000 price reduction. The General Partners anticipate the
closing on the sale to occur in April 1998. The General Partners also anticipate
selling the EastPark Executive center in 1998.
Item 8. Financial Statements and Supplementary Data. The financial
statements are attached hereto.
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INDEPENDENT AUDITOR'S REPORT
To the Partners
Yager/Kuester Public Fund
Limited Partnership
Charlotte, North Carolina
We have audited the accompanying balance sheets of Yager/Kuester Public Fund
Limited Partnership as of December 31, 1997 and 1996, and the related statements
of operations, partners' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Yager/Kuester Public Fund
Limited Partnership as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Charlotte, North Carolina
February 13, 1998, except for the
last paragraph in Note 4 as to which
the date is March 30, 1998
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
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Current Assets
Cash and cash equivalents (Note 2) $ 92,544 $ 103,036
Accounts receivable, tenants (Note 8) 38,196 91,224
Prepaid expenses 7,053 2,200
Securities available for sale (Note 3) 267,629 190,380
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TOTAL CURRENT ASSETS 405,422 386,840
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Investments and Noncurrent Receivables
Properties on operating leases and
leased properties held for sale,
net (Notes 4 and 5) 7,155,595 7,371,229
Accrued rent receivable 29,683 44,785
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7,185,278 7,416,014
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Other Assets
Deferred charges, net of
accumulated amortization
1997 $12,190; 1996 $11,282 2,810 10,818
Deferred leasing commissions, net of
accumulated amortization
1997 $45,826; 1996 $31,476 40,092 50,435
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42,902 61,253
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$7,633,602 $7,864,107
==============================
LIABILITIES AND PARTNERS' EQUITY
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Current Liabilities
Note payable, bank (Note 5) $1,000,000 $ 942,483
Current maturities of long-term debt (Note 5) 2,834,990 68,868
Accounts payable 14,423 109,107
Accrued expenses 137,552 131,312
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TOTAL CURRENT LIABILITIES 3,986,965 1,251,770
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Long-Term Debt, less current maturities (Note 5) 1,145,441 4,059,909
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Commitment and Contingency (Notes 4 and 6)
Partners' Equity
General partners 1,684 2,199
Limited partners (Note 6) 2,494,411 2,545,393
Unrealized gain on investment securities (Note 3) 5,101 4,836
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2,501,196 2,552,428
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$7,633,602 $7,864,107
==============================
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
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Rental income (Notes 4 and 8) $1,158,468 $1,150,758 $1,172,935
--------------------------------------------------
Operating expenses:
Contract labor 27,733 18,028 40,307
Depreciation and amortization 261,240 204,261 179,987
Repairs and maintenance 165,877 146,900 133,822
Management fees (Note 7) 60,796 53,845 50,981
Utilities 155,487 147,098 149,027
Professional fees 20,723 24,281 57,331
Property taxes 89,386 88,857 88,046
Miscellaneous 21,827 18,211 28,518
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803,069 701,481 728,019
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OPERATING INCOME 355,399 449,277 444,916
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Nonoperating income (expense):
Interest income 7,512 651 724
Interest expense (426,557) (425,669) (422,066)
Other 12,149 16,302 6,213
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(406,896) (408,716) (415,129)
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NET INCOME (LOSS) (51,497) 40,561 29,787
Deduct net income (loss) applicable to limited
partners (per limited partner unit)
1997 $(8.00); 1996 $6.30; 1995 $4.63 (50,982) 40,157 29,489
--------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO
GENERAL PARTNERS (PER GENERAL PARTNE
PARTNER UNIT) 1997 $(.08);
1996 $.06; 1995 $.05 $ (515) $ 404 $ 298
==================================================
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Net unrealized
Gain (Loss) on
Securities
General Limited Available
Partners Partners For Sale Total
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Balance, December 31, 1994 $1,497 $2,475,747 $ (5,305) $2,471,939
Net income 298 29,489 -- 29,787
Change in fair market value on
securities available for sale
(Note 3) -- -- 16,551 16,551
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Balance, December 31, 1995 1,795 2,505,236 11,246 2,518,277
Net income 404 40,157 -- 40,561
Change in fair market value on
securities available for sale
(Note 3) -- -- (6,410) (6,410)
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Balance, December 31, 1996 2,199 2,545,393 4,836 2,552,428
NET LOSS (515) (50,982) -- (51,497)
CHANGE IN FAIR MARKET VALUE ON
SECURITIES AVAILABLE FOR SALE
(NOTE 3) -- -- 265 265
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BALANCE, DECEMBER 31, 1997 $1,684 $2,494,411 $ 5,101 $2,501,196
=============================================================
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
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Cash Flows From Operating Activities
Net income (loss) $ (51,497) $ 40,561 $ 29,787
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 238,882 184,825 162,035
Amortization 22,358 19,436 17,952
Net realized (gains) losses on sale of securities
available for sale (2,304) (3,118) 3,940
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, tenant
and accrued rent receivable 68,130 (41,161) (23,206)
Increase (decrease) in:
Accounts payable and accrued
expenses (88,444) (15,933) 107,238
Other prepaids and accruals, net (4,853) (1,100) (877)
---------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 182,272 183,510 296,869
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Cash Flows From Investing Activities
Purchase of securities available for sale (293,255) (145,542) (193,803)
Proceeds from sale of securities available for sale 218,576 86,920 176,620
Purchase of investment property (23,248) (781,295) (355,955)
Disbursements for deferred leasing commissions (4,008) (4,395) (1,569)
Disbursements for deferred charges -- (7,100) --
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NET CASH USED IN INVESTING ACTIVITIES (101,935) (851,412) (374,707)
---------------------------------------------
Cash Flows from Financing Activities
Proceeds from long-term borrowings -- 2,840,000 --
Principal payments on long-term borrowings (148,346) (2,931,692) (109,921)
Proceeds from note payable, net 57,517 722,700 219,783
---------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (90,829) 631,008 109,862
---------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (10,492) (36,894) 32,024
Cash and cash equivalents:
Beginning 103,036 139,930 107,906
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Ending $ 92,544 $ 103,036 $ 139,930
==============================================
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
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Supplemental Disclosure of Cash Flow Information:
Cash payment for interest, net of interest
capitalized $432,193 $424,000 $423,197
Supplemental Disclosures of Noncash Transactions:
Net unrealized gain (loss) on securities available
for sale 265 (6,410) 16,551
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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Note 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES
Nature of business and organization: The Partnership is a North Carolina limited
partnership formed in July 1986. The purpose of the Partnership is to acquire,
operate, hold for investment and sell commercial rental property. Properties
currently held are located in Charlotte, North Carolina and Greenville, South
Carolina.
The general partners of the Partnership are DRY Limited Partnership, a North
Carolina limited partnership in which Dexter R. Yager, Sr. is the general
partner and FSK Limited Partnership, a North Carolina limited partnership in
which Faison S. Kuester, Jr. is the general partner.
Partnership agreement: Under the terms of the partnership agreement, all taxable
income, tax losses and cash distributions from operations are to be allocated
99% to the limited partners and 1% to the general partners until the limited
partners receive a return of their initial capital contributions and a "Priority
Return". The Priority Return is a sum equal to 8% per annum cumulative, but not
compounded, (prorated for any partial year) of the adjusted capital
contributions of the limited partners, calculated from the last day of the
calendar quarter in which each limited partner is admitted to the Partnership to
the date of payment. Thereafter, taxable income, tax losses and cash
distributions from operations will be allocated 75% to the limited partners and
25% to the general partners.
Upon the sale or refinancing of any future partnership properties, the
partnership agreement specifies certain allocations of net proceeds and taxable
gain or loss from the transaction.
A summary of the Partnership's significant accounting policies follows:
Use of management's estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: For purposes of reporting the statements of cash
flows, the Partnership includes all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments
purchased with an original maturity of three months or less as cash and cash
equivalents on the accompanying balance sheets. At various times throughout the
year, the Partnership may have cash balances at financial institutions which
exceed federally-insured amounts.
Investments: Properties on operating leases and leased properties held for sale
are stated at the lower of cost less accumulated depreciation or fair market
value. Depreciation is computed by the straight-line method over 40 years for
buildings and over 15 years for building improvements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment in securities available for sale and accounting change: Statement No.
115 requires that management determine the appropriate classification of
securities at the date individual investment securities are acquired, and that
the appropriateness of such classification be reassessed at each balance sheet
date. Since the Partnership neither buys securities in anticipation of
short-term fluctuations in market prices nor can commit to holding debt
securities to their maturities, the investment in debt and marketable equity
securities have been classified as available for sale in accordance with
Statement No. 115. Available for sale securities are stated at fair value, and
unrealized holding gains and losses are reported as a separate component of
partners' equity. Realized gains and losses, including losses from declines in
value of specific securities determined by management to be
other-than-temporary, are included in income. Realized gains and losses are
determined on the basis of the specific securities sold.
Deferred charges: Deferred charges are related to prepaid fees which are
amortized over the length of the related loans, 1 to 10 years, on a
straight-line basis.
Deferred leasing commissions: Deferred leasing commissions related to obtaining
specific leases are amortized using the straight-line method over the
noncancelable lease terms which range from three to seven years.
Revenue recognition: Rental revenue is recognized evenly over the term of the
lease. In connection with negotiating and obtaining leases, the Partnership's
management may at times grant concessions, such as free rent for a specific
number of months during the lease. These costs are amortized over the life of
the lease.
Disclosures about the fair value of financial instruments: Financial Accounting
Standards Board Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
At December 31, 1997 and 1996 the carrying values of the Partnership's financial
instruments, including accounts receivable which are due on demand and the
mortgage payable which bears interest at market rates, approximate their fair
values.
Partnership equity: Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. The Statement specifies the computation, presentation,
and disclosure requirements for earnings per share. Management believes that
statement No. 128 is not analogous to limited partnership units. Accordingly, no
additional disclosures for partnership units are presented in the accompanying
financial statements.
Income taxes: Under current income tax laws, income or loss of the Partnership
is included in the income tax returns of the partners. Accordingly, the
Partnership will make no provision for federal or state income taxes.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. WORKING CAPITAL RESERVE
Per the Partnership Agreement, a minimum cash and cash equivalents reserve of
$94,500 must be maintained to fund any expenditures that the cash flow generated
from properties on operating leases is insufficient to meet. The Partnership did
not meet the minimum requirement by $1,956 at December 31, 1997, and exceeded
the minimum requirement by $8,536 at December 31, 1996.
Securities available for sale may be sold in order to fund future operating cash
flow expenditures.
Note 3. SECURITIES AVAILABLE FOR SALE
The following is a summary of the Partnership's securities available for sale as
of December 31, 1997 and 1996:
Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
--------------------------------------------------------
1997
--------------------------------------------------------
Securities available for sale:
Preferred and common stock $121,536 $4,339 $(187) $125,688
Corporate bonds and notes 120,563 788 -- 121,351
Government securities 20,429 161 -- 20,590
--------------------------------------------------------
$262,528 $5,288 $(187) $267,629
========================================================
--------------------------------------------------------
1996
--------------------------------------------------------
Securities available for sale:
Preferred and common stock $107,500 $4,775 $ -- $112,275
Corporate bonds and notes 57,615 261 (432) 57,444
Government securities 20,429 232 -- 20,661
--------------------------------------------------------
$185,544 $5,268 $(432) $190,380
========================================================
At December 31, 1997, the Partnership did not have trading or held to maturity
securities.
A summary of investment earnings included in nonoperating income (expense) in
the accompanying Statements of Operations for the years ended December 31, 1997,
1996 and 1995 is as follows:
1997 1996 1995
----------------------------------------
Realized gains on sale of securities available for sale $2,396 $3,162 $ 1,805
Realized losses on sale of securities available for sale (92) (44) (5,745)
----------------------------------------
$2,304 $3,118 $(3,940)
========================================
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15
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. SECURITIES AVAILABLE FOR SALE (CONTINUED)
The amortized cost and fair values of securities available for sale as of
December 31, 1997 by contractual maturity are shown below. The "other
securities" consists of equity securities. Equity securities have no maturity
date.
Amortized Fair
Cost Value
--------------------------
Due after one year through five years $ -- $ --
Due after five years through ten years 35,432 35,739
Due thereafter 105,560 106,202
--------------------------
140,992 141,941
Other securities 121,536 125,688
--------------------------
$262,528 $267,629
==========================
Proceeds from sales of securities available for sale during the years ended
December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
-------------------------------
Proceeds from sales of securities available for sale $218,576 $86,920 $176,620
===============================
Dividend income included in nonoperating income (expense) in the accompanying
Statements of Operations totaled $5,132, $6,980 and $7,778 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The changes in the net unrealized gain (loss) on securities available for sale
during the years ended December 31, 1997 and 1996 were $265 and $(6,410),
respectively, which have been included in the separate component of partners'
equity.
Note 4. PROPERTIES ON OPERATING LEASES AND LEASED PROPERTIES HELD FOR SALE
The Partnership leases office facilities under various lease agreements. The
following schedule provides an analysis of the Partnership's investment in
properties held for lease by major classes as of December 31, 1997 and 1996,
respectively.
1997 1996
---------------------------
Land $1,168,953 $1,168,953
Building 6,188,729 6,188,729
Building improvements 1,280,815 1,257,567
----------------------------
8,638,497 8,615,249
Less accumulated depreciation 1,482,902 1,244,020
----------------------------
$7,155,595 $7,371,229
============================
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16
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. PROPERTIES ON OPERATING LEASES AND PROPERTIES HELD FOR LEASE
(CONTINUED)
The following is a schedule by years of all minimum future rentals on
noncancelable operating leases as of December 31, 1997:
Year Ending
December 31, Amount
------------------------------------------------------------------------------
1998 $1,035,141
1999 792,161
2000 494,728
2001 461,766
2002 375,649
Thereafter --
----------
$3,159,445
==========
The Partnership properties are currently contracted with a real estate broker.
It is the intention of the General Partners to market and sell the properties.
The sales proceeds will be used to return partners' equity.
The Partnership reached an agreement on March 26, 1998, for the sale of one of
its rental properties. The agreement calls for a purchase price of $3,510,000 in
cash. The Partnership anticipates a loss of approximately $120,500 when the sale
is completed in fiscal 1998. The net cash proceeds from the sale, after related
costs and debt payoff, are expected to approximate $530,500. The carrying value
of the building was approximately $3,425,000 at December 31, 1997.
Note 5. NOTE PAYABLE, BANK, LONG-TERM DEBT AND PLEDGED ASSETS
The Partnership has a $1,000,000 line-of-credit with an outstanding balance of
$1,000,000 and $942,483 at December 31, 1997 and 1996, respectively. The
line-of-credit allows borrowings and repayments to be made on a daily basis.
Outstanding balances on the line-of-credit bear interest at a variable rate tied
to the bank's prime rate (prime rate was 8.50% at December 31, 1997). The
line-of-credit is unsecured and is payable on demand.
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17
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. NOTE PAYABLE, BANK, LONG-TERM DEBT AND PLEDGED ASSETS (CONTINUED)
Long-term debt and pledged assets consists of the following at December 31, 1997
and 1996:
1997 1996
------------------------------
Note payable due in monthly installments of $14,976, including interest at
10.5%, through June 1999, with $1,115,064 due in July
1999, collateralized by mortgage on land and building $1,201,631 $1,252,267
Note payable, interest only at the 3-month LIBOR plus 1.75%
(7.52% at December 31, 1997), due monthly, through November 1998,
balance due December 1998, collateralized by mortgage on
land and building 2,778,800 2,840,000
Note payable to Internet Services Corporation, related through
common ownership, due in five annual principal installments of
$18,255, plus interest at the prime rate of NationsBank of
North Carolina, N.A., plus 2%, unsecured, due January 1998 -- 36,510
-----------------------------
3,980,431 4,128,777
Less current maturities 2,834,990 68,868
-----------------------------
$1,145,441 $4,059,909
=============================
Future maturities of long-term debt at December 31, 1997 and 1996 are as
follows:
Year Ending
December 31, 1997 1996
---------------------------------------------------------------------------------
1997 $ -- $ 68,868
1998 2,834,990 2,914,445
1999 1,145,441 1,145,464
---------------------------------
$3,980,431 $4,128,777
=================================
Interest expense to Internet Services Corporation, for the years ended December
31, 1997, 1996 and 1995 was $669, $3,834 and $5,476, respectively.
Note 6. PRIORITY RETURN
The cumulative unpaid priority return to the limited partners is $2,166,833 and
$1,924,049 at December 31, 1997 and 1996, respectively. There were no cash
distributions to the limited partners for the priority return for the years
ended December 31, 1997, 1996 and 1995. Based on the pending sale and current
and projected real estate market conditions, the General Partners believe that
it is reasonably unlikely that a sale of the Partnership properties would
produce sufficient net sales proceeds to pay the priority return.
Note 7. MANAGEMENT AND ADMINISTRATIVE EXPENSES
Management expenses paid to a General Partner and to Internet Services
Corporation in connection with day-to-day operations of the Partnership amounted
to $60,796, $53,845, and $50,981 for the years ended December 31, 1997, 1996 and
1995, respectively.
17
18
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. MAJOR TENANTS
Rental income for the years ended December 31, 1997, 1996 and 1995,
respectively, included approximate rentals from the following major tenants each
of which accounted for 10% or more of the total rental income of the Partnership
for those years:
Approximate Amount of Rental Income
Year Ended December 31,
----------------------------------------------
1997 1996 1995
----------------------------------------------
Tenant A $451,000 $455,000 $451,000
Tenant B 350,000 353,000 306,000
Tenant C 138,000 117,000 138,000
Accounts receivable from each of the major tenants identified above were as
follows at December 31, 1997 and 1996, respectively:
December 31,
----------------------
1997 1996
----------------------
Tenant A $38,196 $37,884
Tenant B -- --
Tenant C -- --
Note 9. FUTURE REPORTING REQUIREMENTS
The FASB has issued SFAS No. 130, Reporting Comprehensive Income, which the
Partnership has not been required to adopt as of December 31, 1997. The
Statement, which is effective for fiscal years beginning after December 15,
1997, establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. This statement requires that all items
that are recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Note 10. YEAR 2000
At the turn of the century, computer-based information systems will be faced
with the problems potentially affecting hardware, software, networks, processing
platforms, as well as customer and vendor interdependencies. The Partnership is
in the process of assessing the effect of Year 2000 on its operating plans and
systems. The Partnership is developing a plan for identifying, renovating,
testing and implementing its systems for Year 2000 processing and internal
control requirements. The cost for becoming Year 2000 compliant has not been
determined, however, management feels it will not be material to the
Partnership's financial statements.
18
19
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. Not applicable.
PART III
Item 10. Directors and Executive Officers of the Partnership. The
Partnership has no executive officers and directors. The General Partners of the
partnership are DRY Limited Partnership, the sole General Partner of which is
Dexter R. Yager, Sr., and FSK Limited Partnership, the sole General Partner of
which is Faison S. Kuester, Jr.
Following is a brief discussion of the background and experience of Messrs.
Kuester and Yager.
Faison S. Kuester, Jr., 52, graduated from the University of North Carolina
at Chapel Hill with a Bachelor of Arts Degree in History in 1967. He is a
resident of Charlotte, North Carolina. After three years service in the United
States Army as a Lieutenant, Mr. Kuester joined Independence Development
Corporation in 1972 serving as a director of leasing and management for a period
of three years. In 1974, Mr. Kuester formed his own company, Kuester Realty and
Management, in order to lease and manage commercial properties in Charlotte,
North Carolina and surrounding communities. In addition to leasing and managing
various commercial properties, Kuester Realty had developed two medical clinics
in the Charlotte area. In 1980, Kuester Properties, Inc. ("KPI") was formed to
specialize in on-site management of apartment communities in the southeastern
United States. The following year Cauble and Kuester Company, Inc. was organized
to lease and manage commercial properties in the metropolitan Atlanta area. This
partnership brought together Cauble and Company, experienced mortgage lenders
and leasing agents in the Atlanta market, and Kuester Realty and Management.
Finally, in 1983, Kuester Development Corporation was formed to allow the
Kuester companies to engage in selective real estate development projects in the
southeastern United States.
Through Kuester Development Corporation, a wholly-owned subsidiary of KPI,
Mr. Kuester has been directly involved with the development of several
commercial real estate properties in North and South Carolina and Georgia. These
include the First United National Bank Building in Wilmington, North Carolina,
two retail office showroom projects, two medical office buildings and
residential condominiums in Charlotte, North Carolina, an office building in
Savannah, Georgia, and an office building in Greenville, South Carolina. Kuester
Development Corporation also has developed over 700 apartment units throughout
Charlotte, North Carolina since 1983.
In October 1996, Mr. Kuester formed FSK Properties, LLC to provide
management, leasing and brokerage services to his clients. FSK Properties, LLC
serves as property manager of the Partnership property.
Dexter R. Yager, Sr., 58, is the President and founder of D&B Yager
Enterprises, Inc., Mr. Yager's Amway distributorship business. Through D&B Yager
Enterprises, Inc., Mr. Yager has been an independent distributor for Amway
Corporation for over 30 years during which time he has achieved the status of
Crown Ambassador, which is the highest level attainable as an Amway distributor.
The Amway Corporation is one of the largest manufacturers of home care products
in the world. He is also a former member and past president of the Amway
Distributor Association Board of Directors. Mr. Yager has many other
family-owned businesses and is responsible for the development of several
businesses, including the following: Yager Personal Development, Inc., which
handles Mr. Yager's services as a speaker at Amway events, Yager Construction
Company, Inc., which is a general building contractor; and Dexter and Birdie
Yager Family Limited Partnership, which owns various real estate investments and
manages real estate for the Yager family.
Mr. Yager has significant experience in real estate investment for his own
account. Mr. Yager personally, and through partnerships in which he and his wife
own a majority interest, has made investments in raw land, office buildings, a
shopping center, and other commercial and residential real estate having a
market value in excess of $10,000,000. He has made substantial additional real
estate investments through partnerships in which he does not own a majority
interest.
Item 11. Executive Compensation. The Partnership does not employ any
executive officers or directors and no compensation is paid to any person for
performing services typically provided by such an officer or director. Dexter R.
Yager, Sr. and Faison S. Kuester have policy making functions with regard to
Partnership operations. See Item 10 for the relationship of such persons to the
Partnership. See Item 13 for a description of payments made to FSK Properties,
LLC for property management services and to Internet Services Corporation, Inc.
for accounting and management services.
19
20
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The General Partners initially contributed a total of $2,500 to the capital of
the Partnership, consisting of a $1,600 contribution from DRY Limited
Partnership and $900 from FSK Limited Partnership. The General Partners own a 1%
interest in all items of Partnership income, gain, loss, deductions or credits
including 1% of net cash from operations. The General Partners also own a
residual 25% interest in net cash from a sale or refinancing of the Partnership
Property, subordinated to the receipt by the Limited Partners of the return of
their capital contributions and their priority return and to the payment of any
subordinated real estate commissions due to affiliates of the General Partners.
The General Partners do not own any Limited Partnership interest in the
Partnership.
Item 13. Certain Relationships and Related Transactions. During the
fiscal year ended December 31, 1997, FSK Properties, LLC received management
fees of $40,196 for management of the Partnership property. Internet Services
Corporation, Inc. received $20,600 for providing accounting/management services.
See Item 7 for a description of a loan to the Partnership by Internet Services
Corporation, a corporation owned equally by three trusts, the beneficial
interests of which inure to the benefit of three children of Dexter R. Yager,
Sr., the sole General Partner of DRY Limited Partnership, which limited
partnership is one of the two general partners of the Partnership. Janitorial
services for the EastPark Executive Center are provided by Marquis Cleaning
Services, which is operated and owned by Dexter R. Yager's nephew.
The General Partners believe that the terms for the above mentioned
services are as favorable as those the Partnership might have obtained from
unaffiliated parties.
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form
8-K.
(a)(1) The following financial statements of the Partnership are included
in Part II, Item 8 hereof.
(i) Independent Auditor's Report
(ii) Balance Sheets as of December 31, 1997 and 1996
(iii) Statements of Operations for years ended December 31, 1997,
1996 and 1995
(iv) Statements of Partners' Equity for years ended December 31,
1997, 1996 and 1995
(v) Statements of Cash Flows for years ended December 31, 1997,
1996 and 1995
(vi) Notes to Financial Statements
(a)(2) All schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the
financial statements or notes thereto.
(a)(3) Exhibits:
(4) Instrument defining rights of securities holders set forth
in the Limited Partnership Agreement which is contained in
the Prospectus incorporated herein by reference.
(10.1)* Limited Partnership Agreement
(10.2)**Exclusive Leasing and Management Agreement dated October
1, 1994 (EastPark Executive Center).
(10.3)**Exclusive Leasing and Management Agreement dated October
1, 1994 (BB&T Building).
(10.4) Contract of Sale and Purchase by and between the
Partnership and Highwoods/Forsyth Limited Partnership
dated January 23, 1998, as amended by Amendment to
Contract of Sale and Purchase dated March 9, 1998.
(10.5) First Amendment to Lease and Sublease by and between the
Partnership, BB&T, and BB&T Insurance Services dated March
18, 1998.
20
21
(23) Consent of Independent Auditor
(27) Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K: None.
(c) Exhibits: The exhibits listed in Item 14(a)(3) above
and not incorporated herein by reference are filed
with this Form 10-K.
(d) Financial Statement Schedules: There are no
financial statement schedules included in this Form
10-K report.
- --------------------------------------------------------------------------------
* Incorporated by reference to Exhibit A of the Partnership's Prospectus dated
December 1, 1987, Registration Number 33-07056-A.
** Incorporated by reference to Exhibit 3 and 4 of the Partnership's Form 10-K
for the year ended December 31, 1995.
21
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
By: FSK Limited Partnership
March 30, 1998 By: /s/ Faison S. Kuester, Jr.
--------------------------------
Faison S. Kuester, Jr.
General Partner
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 30, 1998 by the following persons on
behalf of the Partnership and in the capacities and on the dates indicated.
/s/ Jerry R. Haynes /s/ Faison S. Kuester
- ------------------------------ -----------------------------------
Faison S. Kuester, Jr., General
(Principal Accounting Officer) Partner of FSK Limited Partnership,
General Partner of the Partnership
Date March 30, 1998 Date March 30, 1998
------------------------- --------------------
/s/ Dexter R. Yager, Sr.
-----------------------------------
Dexter R. Yager, Sr., General
Partner of DRY Limited Partnership,
General Partner of the Partnership
Date March 30, 1998
--------------
22