1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 0-10430
DE ANZA PROPERTIES - XII, LTD.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3601367
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
9171 WILSHIRE BOULEVARD, SUITE 627
BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices, including zip code)
(310) 550-1111
(The registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
Pursuant to the Securities Exchange Act of 1934 Release 15502 and Rule
240.0-3(b) (17 CFR 240.0-3(b)), the pages of this document have been numbered
sequentially. The total number of pages contained herein is 28. An Exhibit
Index is located on page 18 herein.
2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets 3
Statements of Operations 5
Statements of Changes in Partners'
Capital (Deficit) 7
Statements of Cash Flows 8
Notes to Financial Statements 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 15
PART II. OTHER INFORMATION 18
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Balance Sheets
(Unaudited)
September 30, December 31,
1995 1994
------------ ------------
ASSETS
CASH - including restricted cash of $188,097 and
$230,097 at September 30, 1995 and December 31, 1994,
respectively - Note 1 $ 725,589 $ 912,914
ACCOUNTS RECEIVABLE 9,320 254,057
PREPAID EXPENSES 59,284 45,605
----------- -----------
794,193 1,212,576
----------- -----------
NOTES RECEIVABLE - Note 5 481,086 488,026
----------- -----------
PROPERTY AND EQUIPMENT - Notes 2, 5 and 6
Land 1,184,605 1,184,605
Land improvements 3,212,279 2,901,226
Buildings and improvements 9,933,168 9,933,168
Furniture and equipment 435,807 426,637
----------- -----------
14,765,859 14,445,636
Less accumulated depreciation 6,338,426 5,900,220
----------- -----------
8,427,433 8,545,416
----------- -----------
OTHER ASSETS
Loan costs - less accumulated amortization
of $11,897 and $7,030 at September 30, 1995
and December 31, 1994, respectively 85,437 90,304
Other 5,341 5,341
----------- -----------
90,778 95,645
----------- -----------
$ 9,793,490 $10,341,663
=========== ===========
See accompanying notes to financial statements.
3
4
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Balance Sheets (Continued)
(Unaudited)
September 30, December 31,
1995 1994
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
(including $15,066 and $27,938 due to
related parties at September 30, 1995
and December 31, 1994, respectively) $ 232,919 $ 439,431
DEPOSITS AND ADVANCE RENTALS 57,841 70,066
DEFERRED GAIN ON SALE - Note 6 188,097 230,097
MANAGEMENT AND CONDOMINIUM CONVERSION
FEES PAYABLE TO AFFILIATE - Note 3 767,358 682,583
SECURED NOTES PAYABLE - Note 2 4,265,117 4,278,706
----------- -----------
5,511,332 5,700,883
----------- -----------
PARTNERS' CAPITAL (DEFICIT)
General partners (1,652,414) (1,654,328)
Limited partners, 22,719 units issued
and outstanding 5,934,572 6,295,108
----------- -----------
4,282,158 4,640,780
----------- -----------
$ 9,793,490 $10,341,663
=========== ===========
See accompanying notes to financial statements.
4
5
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Statements of Operations
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
------------ ------------
INCOME
Rent $1,671,845 $2,218,871
Interest 47,423 57,205
Utilities - 45,833
Other 24,730 34,740
Gain on sale of property and equipment
- Notes 5 and 6 42,000 163,055
Less deferred gain on sale of property and
equipment - Note 6 - (230,097)
---------- ----------
1,785,998 2,289,607
---------- ----------
EXPENSES
Depreciation and amortization 443,073 630,872
Interest 236,497 342,778
Maintenance, repairs and supplies 190,323 219,293
Salaries (including $15,820 and $24,326
paid to related parties in 1995 and
1994, respectively) - Note 3 149,398 334,963
Utilities 137,390 232,561
Professional fees and services
(including $54,698 and $68,340 paid
to related parties in 1995 and 1994,
respectively) - Note 3 109,870 225,837
Real estate taxes 96,622 157,306
Management fees accrued to related
parties - Note 3 84,775 90,342
Other 68,916 189,851
Insurance 51,066 42,408
Payroll taxes and employee benefits 26,690 64,576
Uninsured loss from earthquake damage
- Note 7 - 156,496
---------- ----------
1,594,620 2,687,283
---------- ----------
NET INCOME (LOSS) 191,378 $ (397,676)
========== ==========
NET INCOME (LOSS)
GENERAL PARTNERS $1,914 $ (59,651)
====== ==========
LIMITED PARTNERS $189,464 $ (338,025)
======== ==========
INCOME (LOSS) PER 1% GENERAL
PARTNER INTEREST - Note 4 $19.14 $ (596.51)
====== ==========
INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT - Note 4 $8.34 $(14.88)
===== =======
See accompanying notes to financial statements.
5
6
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Statements of Operations
(Unaudited)
Three Months Three Months
Ended Ended
September 30, September 30,
1995 1994
------------ ------------
INCOME
Rent $561,844 $ 743,538
Interest 16,809 21,456
Utilities - 19,406
Other 15,638 9,031
Gain on sale of property and equipment
- Notes 5 and 6 - 94,344
Less deferred gain on sale of property and
equipment - Note 6 - (230,097)
-------- ---------
594,291 657,678
-------- ---------
EXPENSES
Depreciation and amortization 147,691 225,866
Interest 82,797 99,789
Maintenance, repairs and supplies 68,567 79,470
Salaries (including $5,384 and $9,192
paid to related parties in 1995 and
1994, respectively) - Note 3 52,288 117,635
Utilities 47,395 71,561
Professional fees and services
(including $16,421 and $29,095 paid
to related parties in 1995 and 1994,
respectively) - Note 3 25,167 110,784
Real estate taxes 38,874 44,303
Management fees accrued to related
parties - Note 3 28,389 22,206
Other 32,921 30,948
Insurance 16,953 15,163
Payroll taxes and employee benefits 8,833 18,555
Uninsured loss from earthquake damage
- Note 7 - -
-------- ----------
549,875 836,280
-------- ---------
NET INCOME (LOSS) $ 44,416 $(178,602)
======== =========
NET INCOME (LOSS)
GENERAL PARTNERS $ 444 $(26,790)
====== ========
LIMITED PARTNERS $43,972 $(151,812)
======= =========
INCOME (LOSS) PER 1% GENERAL
PARTNER INTEREST - Note 4 $4.44 $(267.90)
====== ========
INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT - Note 4 $1.94 $(6.68)
===== ======
See accompanying notes to financial statements.
6
7
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Statements of Changes in Partners' Capital (Deficit)
(Unaudited)
For the Nine Months Ended September 30, 1995 and
For the Year Ended December 31, 1994
General Limited
Total Partners Partners
---------- ------------ ------------
BALANCE - January 1, 1994 $ 6,618,974 $(1,580,649) $ 8,199,623
DISTRIBUTIONS TO PARTNERS (1,487,000) - (1,487,000)
NET LOSS - for the year
ended December 31, 1994
- Note 4 (491,194) (73,679) (417,515)
----------- ----------- -----------
BALANCE - December 31,
1994 4,640,780 (1,654,328) 6,295,108
DISTRIBUTIONS TO PARTNERS (550,000) - (550,000)
NET INCOME - for the nine
months ended September 30,
1995 - Note 4 191,378 1,914 189,464
----------- ----------- -----------
BALANCE - September 30, 1995 $ 4,282,158 $(1,652,414) $ 5,934,572
=========== =========== ===========
See accompanying notes to financial statements.
7
8
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Statements of Cash Flows
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Gross rents received from real estate
operations $1,930,645 $2,333,265
Cash paid to suppliers and employees
(including $75,665 and $92,666
paid to related parties in 1995
and 1994, respectively) (1,048,306) (1,482,551)
Interest paid (235,082) (322,975)
Interest income received 45,865 59,846
--------- ----------
Net cash provided by
operating activities 693,122 587,585
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (320,223) (201,109)
Payments received on notes receivable 6,940 99,735
Sales and closing costs (3,575) (184,468)
Proceeds from sale of property and
equipment - 5,665,451
--------- ----------
Net cash provided by (used in)
investing activities (316,858) 5,379,609
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (550,000) (1,187,000)
Principal payments on secured
notes payable (13,589) (4,069,227)
--------- ----------
Net cash used in
financing activities (563,589) (5,256,227)
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (187,325) 710,967
CASH AND CASH EQUIVALENTS:
BALANCE AT BEGINNING OF PERIOD 912,914 1,044,715
--------- ----------
BALANCE AT END OF PERIOD $ 725,589 $1,755,682
========= ==========
See accompanying notes to financial statements.
8
9
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Statements of Cash Flows (Continued)
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
------------ ------------
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 191,378 $(397,676)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization 443,073 630,872
Gain on sale of property
and equipment (42,000) 67,042
Changes in operating assets and
liabilities
(Increase)/decrease in accounts
receivable 244,737 (177,960)
Increase in prepaid expenses (13,679) (27,251)
Decrease in mobile homes held
for resale - 80,271
Increase (decrease) in accounts payable
and accrued expenses (202,937) 330,673
Decrease in deposits and
advance rentals (12,225) (8,721)
Increase in management and
condominium conversion fees
payable to affiliate 84,775 90,335
--------- ----------
Net cash provided by
operating activities $ 693,122 $ 587,585
========= ==========
SUPPLEMENTAL DISCLOSURE
During the nine months ended September 30, 1994, the lender deferred two months
of note payments on the Warner Oaks note. The accrued and unpaid interest of
$40,236 was added to the principal balance (see Notes 2 and 7).
During the nine months ended September 30, 1995, the MHC cash reserve of
$42,000 was released from restricted cash and the Partnership recognized a gain
on that portion of the 1994 sale proceeds.
See accompanying notes to financial statements.
9
10
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Notes to Financial Statements
(Unaudited)
September 30, 1995 and December 31, 1994 and
For the Nine and Three Months Ended September 30, 1995 and 1994
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to
Form 10-Q and 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) have
been included. Operating results during the nine and three
months ended September 30, 1995 are not necessarily indicative
of the results that may be expected for the year ending
December 31, 1995. 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, 1994.
Cash and Cash Equivalents
The Partnership invests its cash not needed for working
capital in highly liquid short-term investments primarily
consisting of money market funds and certificates of deposit
with original maturities ranging generally from one to three
months. The Partnership considers all such items to be cash
equivalents.
NOTE 2 - SECURED NOTES PAYABLE
Secured notes payable at September 30, 1995 and December 31,
1994 consisted of:
September 30, December 31,
1995 1994
------------ ------------
Note collateralized by a first trust deed,
payable in monthly installments of $26,476,
including interest until December 15, 1994.
Thereafter, the monthly payment changes
annually on each December 15th. Interest
accrued at 6.25% until February 15, 1994 and
thereafter floats at 2.5% over the FHLB's 11th
District Cost of Funds index, not to exceed
12.9%, adjusted monthly. Unpaid principal and
interest are due November 15, 2008. The
interest rate in effect at September 30, 1995
and December 31, 1994 was 7.644% and 6.69%,
respectively. $4,265,117 $4,278,706
========== ==========
10
11
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Notes to Financial Statements (Continued)
(Unaudited)
September 30, 1995 and December 31, 1994 and
For the Nine and Three Months Ended September 30, 1995 and 1994
NOTE 2 - SECURED NOTES PAYABLE (Continued)
Due to the Northridge earthquake on January 17, 1994, the
lender for the Warner Oaks note agreed to a deferment of two
months of note payments. The accrued and unpaid interest of
$40,236 was added to the principal balance (see Note 7).
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
Pursuant to a management agreement dated October 1, 1985, as
amended, De Anza Assets, Inc., a former affiliate of the
operating general partner (OGP), has accrued a management fee
in the amount of 5% of the annual gross receipts from the
operations of the Partnership's properties. The payment of
this fee is subordinated to the prior distribution to the
limited partners of 7% of their adjusted capital contributions
each year and is noncumulative, except in the case of a sale,
refinancing or other disposition of the Partnership's
properties. In that case, the difference between the
management fee actually paid and the management fee that would
have been paid if it were not subordinated is payable out of
proceeds of the sale, refinancing or other disposition after
payment of the limited partners' priority return and capital
contribution and the general partners' incentive interest.
However, management fees payable subsequent to a consummated
refinancing are not subordinated to the limited partners'
priority return to the extent the subordination would have
been caused by increased debt service charges. At September
30, 1995 and December 31, 1994, cumulative accrued fees of
$689,549 and $604,774, respectively, have been subordinated
and are included in management and condominium conversion fees
payable to affiliate as reflected in the balance sheets.
On August 18, 1994, subsequent to the sale of the Mark and the
property management business of De Anza Group, Inc. (DAG), as
discussed in Note 6, the property management of Warner Oaks
and the two remaining spaces at San Luis Bay was assumed by
Terra Vista Management, Inc. (Terra Vista) by assignment of
the management agreement from De Anza Assets, Inc. and was
subsequently replaced with an agreement directly between the
Partnership and Terra Vista. Terra Vista is wholly owned by
Michael D. Gelfand, president of the OGP and the son of
Herbert M. Gelfand. Herbert M. Gelfand, together with Beverly
Gelfand is the sole shareholder of the OGP and an individual
general partner. Management fees of $83,342 and $8,206 were
accrued during the nine and three months ended September 30,
1994, respectively, to De Anza Assets, Inc. Management fees of
$84,775 and $28,389 were accrued to Terra Vista during the
nine and three months ended September 30, 1995, respectively,
and $7,000 was accrued for the period August 18, 1994 through
September 30, 1994. All are subordinated as described above.
As of the sale to MHC, De Anza Assets, Inc. had acrued
deferred management fees in the amount of $565,022. The right
to receive those deferred management fees has been assigned to
the Gelfand Family Trust. The Gelfand
11
12
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Notes to Financial Statements (Continued)
(Unaudited)
September 30, 1995 and December 31, 1994 and
For the Nine and Three Months Ended September 30, 1995 and 1994
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES (Continued)
Family Trust has agreed with Terra Vista that in the event any
amounts are payable for deferred management fees, one-half
(50%) of such amounts shall be paid to Terra Vista until Terra
Vista has been paid in full for any and all deferred
management fees due Terra Vista. All other amounts paid by
the Partnership for deferred management fees shall be paid to
the Gelfand Family Trust. The Partnership has been instructed
accordingly and has consented to such instruction.
Pursuant to the Partnership Agreement, a condominium
conversion fee equal to 1% of the sales price of the San Luis
Bay homesites sold is due to an affiliate of the OGP (see Note
5). Payment of this fee has been deferred according to the
Partnership Agreement's requirement regarding subordination to
payment of the limited partners' priority return, the general
partners' incentive interest and deferred management fees. At
September 30, 1995 and December 31, 1994, cumulative accrued
conversion fees of $77,809 have been subordinated and included
in management and condominium conversion fees payable to
affiliate. Shortly before the sale to MHC, De Anza Assets,
Inc. assigned its rights to receive these fees to the Gelfand
Family Trust.
In addition, Terra Vista, the OGP or an affiliate of the OGP
was paid $75,665 and $24,813 during the nine and three months
ended September 30, 1995, respectively, for performing
bookkeeping, regional management, computer, legal and public
relations services necessary for the operation of the
Partnership and its properties. DAG or a wholly owned
subsidiary was paid $86,851 and $34,154 during the nine and
three months ended September 30, 1994, respectively, and Terra
Vista or an affiliate of the OGP was paid $5,318 for the
period August 18, 1994 through September 30, 1994, for
performing these services.
NOTE 4 - INCOME (LOSS) PER 1% GENERAL PARTNER INTEREST AND LIMITED
PARTNERSHIP UNIT
Income (loss) per limited partnership unit is computed based
on the limited partners' share of net income (loss) as shown
on the Statements of Operations and Changes in Partners'
Capital (Deficit) and the number of limited partnership units
outstanding (22,719 units). The general partners' share of
net income (loss) has not been included in this computation.
Income (loss) per 1% general partner interest is computed
based on the general partners' share of net income (loss) as
shown on the Statements of Operations and Changes in Partners'
Capital (Deficit).
NOTE 5 - SALE OF SAN LUIS BAY MOBILE ESTATES
On May 2, 1989, the Partnership entered into an agreement to
sell San Luis Bay Mobile Estates (the 162-space mobile home
community in Avila Beach, California) to the residents for an
aggregate sales price of $8,850,000, and, pursuant to
12
13
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Notes to Financial Statements (Continued)
(Unaudited)
September 30, 1995 and December 31, 1994 and
For the Nine and Three Months Ended September 30, 1995 and 1994
NOTE 5 - SALE OF SAN LUIS BAY MOBILE ESTATES (Continued)
that agreement, subdivided the property into condominium units
in 1991. The Partnership provided purchase money financing
for up to 80% of the individual homesite price, payable in
monthly payments, including interest at 10%, based on a loan
amortization schedule of 30 years, with a balloon payment of
unpaid principal and interest due at the end of seven years.
Those residents who purchased their homesites for cash
received a 10% discount off their purchase price.
The Partnership sold 158 homesites prior to 1994. In 1994,
two homesites were sold for $104,990 in cash. The remaining
two homesites are leased to tenants.
The Partnership released reserves from the San Luis Bay sale
and distributed $70,540 and $300,000 to the limited partners
on September 16, 1994, and on December 30, 1994, respectively.
These distributions represent a return of original capital.
NOTE 6 - SALE OF THE MARK
On August 18, 1994 the Partnership sold The Mark to MHC
Operating Limited Partnership, an affiliate of Manufactured
Home Communities, Inc. (MHC), a real estate investment trust,
as part of an overall transaction for the sale of the related
management business of DAG and other mobile home communities
affiliated with DAG.
The sales price for The Mark was $5,404,419. Additional
proceeds of $130,094, which were included in the sales price
for calculating the gain on sale of property and equipment,
were received from MHC to fund a General Reserve. Excess
proceeds of $1,116,460 were distributed to the partners as a
return of original capital on September 16, 1994, after
repayment of debt of $3,977,437, sales and closing costs of
$210,519, and establishment of various reserves totaling
$230,097.
The $230,097 was used to establish the following cash reserves:
MHC Reserve $ 42,000
General Reserve 130,094
Independent Committee Reserve 58,003
The MHC Reserve was required by MHC and released in May 1995.
The General Reserve and Independent Committee Reserve were
established to fund contingent liabilities that may arise out
of the MHC transaction.
Pursuant to the guidelines of Financial Accounting Standards
No. 66, "Accounting for Sales of Real Estate," the Partnership
continues to defer the recognition of gain on that portion of
the sales proceeds, represented by the
13
14
DE ANZA PROPERTIES - XII, LTD.
(A Limited Partnership)
Notes to Financial Statements (Continued)
(Unaudited)
September 30, 1995 and December 31, 1994 and
For the Nine and Three Months Ended September 30, 1995 and 1994
NOTE 6 - SALE OF THE MARK (Continued)
General Reserve and Independent Committee Reserve, totaling
$188,097. As mentioned above, the MHC Reserve has been
released and accordingly, gain on sale has been recognized and
is included in net income for the nine months ended September
30, 1995.
The Partnership has been charged with certain costs for the
transaction, some of which were based upon an allocation of
costs from the overall transaction with MHC. Such transaction
costs were capitalized to the property and deducted in the
determination of net gain on the sale of the Partnership's
property. Transaction and closing costs charged to the
Partnership totaled $210,519.
NOTE 7 - LOSS ON EARTHQUAKE DAMAGE
On January 17, 1994, the Warner Oaks Apartment complex
suffered property damage from an earthquake. The Partnership
estimates total costs of approximately $1,989,000 and has
received insurance proceeds of $1,414,000. As of September
30, 1995, approximately 96% of the repairs have been
completed. A portion of the costs has been capitalized and
the balance of $156,496, representing noncapitalized costs,
net of insurance proceeds, was expensed in 1994. Additional
insurance proceeds of approximately $308,000 received for loss
of income were included in rental income in 1994.
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
The Partnership's quick ratios were 1.8:1 and 1.7:1, including
unrestricted cash balances of $537,492 and $682,817 at September 30, 1995
and December 31, 1994, respectively. The increase in the quick ratio is
due mainly to the receipt of insurance proceeds receivable and
corresponding paydown of accounts payable and accrued expenses relating to
the earthquake repairs at Warner Oaks. The Partnership's cash balance is
its immediate source of liquidity.
On a long-term basis, the Partnership's liquidity is sustained primarily
from cash flows from operations, which during the nine months ended
September 30, 1995 were approximately $693,000. Cash flow from operations
has improved substantially following the sale of The Mark. See Note 6 to
the Financial Statements. The Partnership has reinstated regular
operating distributions to its partners though payment of the management
fees continues to be deferred in accordance with the Partnership
Agreement.
Subsequent to the sale of The Mark, the Partnership continues to operate
Warner Oaks, the remaining property, which is managed by Terra Vista. The
Partnership also owns two spaces at San Luis Bay Mobile Estates and
various notes receivables related to that sale (see Note 5 to the
Financial Statements).
As a result of the sale of The Mark, the Partnership's liquidity has
improved. The Mark's income fell short of its expenses, thus with the
property sold, the Partnership's income has improved which has improved
liquidity. However, should it become necessary to improve liquidity
further, the Partnership can reduce partner distributions, which totaled
$550,000 during the nine months ended June 30, 1995, arrange a short-term
line of credit or refinance Warner Oaks.
In November 1993, the Partnership refinanced Warner Oaks with a variable
interest rate loan. The interest rate for the initial three months was
6.25%, thereafter the loan will bear interest at 250 basis points over the
Eleventh District Cost of Funds with caps on the maximum annual payment
change of 7.5% of the current payment, and an interest rate cap of 12.9%
over the life of the loan. This loan is subject to negative amortization.
Future liquidity will be affected, unfavorably or favorably, to the extent
the payment rate fluctuates. At September 30, 1995, the interest rate in
effect was 7.644%.
Warner Oaks incurred moderate damage from the January 17, 1994 earthquake,
which epicenter was approximately ten miles from the property. The cost
to repair the property was approximately $1.99 million. The property was
covered by insurance, including business interruption insurance, with a
deductible of 5% of the building value on a per-building basis. The
unreimbursed loss is estimated to be approximately $575,000 and is
reflected in the Financial Statements. The Partnership funded the
unreimbursed loss out of reserves.
The Partnership has sold 160 of 162 spaces at San Luis Bay as of September
30, 1995 (see Note 5). Liquidity is expected to improve as the notes
receivable from the buyers of San Luis Bay spaces mature, as discussed in
Note 5. As of September 30, 1995, the amount of the notes receivable
outstanding was approximately $481,000. Liquidity also improves when the
notes receivable are prepaid and when additional spaces are sold.
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity (Continued)
Other than as described elsewhere, there are no known trends, demands,
commitments, events or uncertainties which are reasonably likely to
materially affect the Partnership's liquidity.
Capital Resources
The Partnership anticipates spending approximately $492,000 in 1995 for
physical improvements at its properties, approximately $172,000 of which
will be spent during the remainder of 1995. Funds for these improvements
will be provided by cash generated from operations. If necessary, the
Partnership can use funds from reserves from the sale proceeds of San Luis
Bay, and from cash reserved for capital improvement projects.
As a result of the sale of The Mark discussed in Note 6 and the
distribution subsequent to the sale of The Mark, the Partnership's capital
resources were reduced.
Other than as described above, there are no known material trends,
favorable or unfavorable, in the Partnership's capital resources. The
Partnership does not contemplate any other material changes in the mix of
its capital resources, other than as described above.
Results of Operations
Since The Mark was sold on August 18, 1994, a comparison of operations
for 1995 and 1994 would not be meaningful. However, excluding the
operations of The Mark, a comparison can be made.
Rental income, excluding The Mark, decreased 2.6% and 26.8% during the
nine and three months ended September 30, 1995, over the same periods
in 1994, primarily resulting from the recognition of insured lost
rental income relating to the 1994 earthquake which recognition
occurred in the third quarter of 1994.
Interest income decreased in 1995 due to reduced cash balances with
the payment of unreimbursed earthquake repairs in 1994. Additionally,
gains on the sale of two spaces at San Luis Bay in 1994 were not
repeated in 1995.
Expenses, excluding The Mark, decreased 1.3% and increased 6.0% during
the nine and three months ended September 30, 1995 over the same
periods in 1994. The decrease is mostly due to the 1994 provision to
write off the noncapitalized, unreimbursed cost relating to the
earthquake damage at Warner Oaks. Additionally, salaries and payroll
and related expenses decreased due to higher costs at Warner Oaks in
1994 attributable to earthquake damage repairs. Real estate taxes
decreased due to a refund and reassessment of Warner Oaks due to
earthquake damage. Offsetting these decreases was an increase in
interest expense due to rising interest rates on the
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Warner Oaks variable rate loan, as discussed more fully in Note 2 and
Liquidity. Maintenance, repairs and supplies increased because some
ongoing maintenance was unnecessary in 1994 while earthquake repairs
were underway. Insurance premiums at Warner Oaks increased because of
the earthquake. Management fees increased in 1995 because vacancies
were high in 1994 due to the earthquake and the Partnership did not
accrue management fees on the insurance reimbursement for lost rent.
Other expenses increased due to preparing a new Warner Oaks brochure
to further marketing efforts and emphasize the upgrades and repairs
done since the 1994 earthquake.
The damage resulting from the January 17, 1994 earthquake has almost
completely been repaired and occupancy has increased substantially.
Management anticipates stable occupancy at the recently established
higher levels at Warner Oaks for the foreseeable future.
Other than as described above, there are no known trends or
uncertainties which have had or can be reasonably expected to have a
material effect on continuing operations.
17
18
PART II. OTHER INFORMATION
ITEM NUMBER
-----------
1. LEGAL PROCEEDINGS
No new material legal proceedings were commenced during the
three months ended September 30, 1995 and there are none
pending.
2. CHANGES IN SECURITIES
None.
3. DEFAULTS UPON SENIOR SECURITIES
None.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
5. OTHER INFORMATION
None.
6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
Exhibit Number Page
-------------- ----
10.1 Warner Oaks/Terra Vista Management
Agreement dated August 18, 1994............20
(b) Reports on Form 8-K
None.
18
19
PART II. OTHER INFORMATION (Continued)
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.
DE ANZA PROPERTIES - XII, LTD.
(Registrant)
By DE ANZA CORPORATION
A California Corporation
Operating General Partner
Date: November 13, 1995 By /s/ Michael D. Gelfand
---------------------------
Michael D. Gelfand
President and
Chief Financial Officer
19