Item 1. Business
The registrant, First Dearborn Income Properties L.P. (the "Partnership"), is a limited partnership formed in October 1986 under the Revised Uniform Limited Partnership Act of the State of Delaware to invest in income producing commercial real estate consisting principally of existing shopping centers and office buildings. On February 25, 1987, the Partnership commenced an offering of $10,000,000 of its limited partnership interests (the "Units") (subject to increase by an additional $5,000,000 of Units) pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933 (File No. 33- 10244). A total of 20,468.5 Units was sold to the public in the offering at $500 per Unit. The holders of 10,991.5 Units were admitted to the Partnership in 1987 and the holders of 9,477 Units were admitted to the Partnership in 1988. The offering terminated on November 15, 1988 (extended from its originally scheduled termination date of February 25, 1988). Since admission to the Partnership, no holder of Units (hereinafter, a "Limited Partner") has made any additional capital contributions. The Limited Partners of the Partnership share in the benefits of ownership of the Partnership's real property investments in proportion to the number of Units held.
Net of offering costs, Limited Partners have contributed a total of $8,800,461 to the Partnership. The Partnership is engaged solely in the business of real estate investment. It is the Partnership's objective to realize cash flow from operations and appreciation in the value of the real estate. The Partnership has entered into three joint venture agreements with partnerships sponsored by affiliates of the General Partners. Pursuant to such agreements, the Partnership has made capital contributions aggregating $7,685,642 through December 31, 1996. The Partnership has acquired, through these ventures, interests in two shopping centers and an office building. No investments have been made since 1990 and no properties have been sold. As of December 31, 1996, the Partnership had made the real property investments set forth in the following table:
Indian River Plaza represents the most significant investment made by the Partnership. A total of $4,710,642 has been invested by the Partnership which represents 61% of the Partnership's real estate investments. Since acquiring the Indian River Plaza investment in 1986, the Partnership has received cash distributions of $1,446,028 from Indian River Plaza. The Downers Grove building represents an investment of $1,900,000 or 25% of the Partnership's real estate investments. Since acquiring the Downers Grove investment in 1988, the Partnership has received distributions of $1,635,807. Sycamore Mall accounts for $1,075,000 or 14% of the Partnership's real estate investments. Since acquiring the Sycamore Mall investment in 1990, the Partnership has received distributions of $672,577.
During the past five years, operations at the Partnership's three properties have been stable with no large fluctuations in occupancy. However, during 1996, Randall's, a tenant at Sycamore Mall, vacated its leased premises of 19,800 square feet. As a result of the Randall's vacancy, occupancy at Sycamore Mall fell to 86% - 87% during the second, third and fourth quarters of 1996. However, Randall's has continued to pay rent through December, 1996 so that there was no adverse financial impact in 1996. Management is currently negotiating with a potential replacement tenant, however there can be no assurance that a new lease will be entered into. If this space is not released, the ability of Sycamore Mall to meet its financial obligations could be effected, as a result of the decreased revenues. The Downers Grove Building is a single tenant building. The original tenant at Downers Grove vacated in 1994, however, it was replaced immediately. Reference is made to the section below which discusses the Downers Grove Building more thoroughly. During the second quarter of 1996 Walgreens vacated 12,000 square feet at the Vero Beach Property. Walgreens is still paying the base rental amounts due under their lease, which does not expire until 2009. Management anticipates that base rental amounts will continue to be paid through the expiration of the lease or until a suitable replacement tenant can located. However, no percentage rent is expected to be paid by Walgreen's. Rental rates for the three properties have not risen appreciably over the past five years. The real estate market in general has suffered from overbuilding in the 1980's which has increased the competition for the Partnership's properties. This resulted in a decrease in rental rates from 1990 to 1994. Since 1994, the market rental rates have begun to increase. The decrease in market rental rates has not significantly impacted the Partnership's properties since they were primarily occupied under long term leases which did not result in decreased rental income for most of the space.
The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located. Approximate occupancy levels for the Partnership's properties are set forth on a quarterly basis in the table set forth in Item 2
Item 2 below to which reference is hereby made. The Partnership has no real property investments located outside the United States.
Only two of the three Partnership's investments are consolidated for financial reporting purposes. Industry segment information is presented below in order to illustrate applicable information about each of the three properties individually and does not relate to financial information presented about the Partnership in Item 6
Item 8.
The Partnership has no employees and is largely dependent on the General Partners and their affiliates for services. A description of the terms of transactions between the Partnership and affiliates of the General Partners is set forth in Item 11 below to which reference is hereby made.
Vero Beach Associates On November 30, 1986, the Partnership purchased an interest in Indian River Plaza, a 147,111 gross leaseable square foot shopping center on U.S. Highway 1 in Vero Beach, Florida. The Partnership's ownership of Indian River Plaza was effected through its 1% partnership interest in Vero Beach Associates (the "Operating Partnership") which holds fee title to the property. An affiliate of the Managing General Partner purchased the remaining 99% interest in the Operating Partnership. In May 1987, upon the sale of a sufficient number of Units, the Partnership made an additional capital contribution to increase its interest in the Operating Partnership. At December 31, 1996, the Partnership had made capital contributions aggregating $4,710,642 to the Operating Partnership. The Partnership's interest in the cash distributions and allocations for Federal income tax purposes of all losses of the Operating Partnership and of profits of the Operating Partnership from the sale or refinancing of the property is 99.9%, and its interest in the allocation of profits from operations of the Operating Partnership for Federal income tax purposes is 98%. The Partnership has consolidated the assets and operations of the Vero Beach Associates as of and for the years ended December 31, 1996, 1995 and 1994.
Since the property was acquired, operations have been stable with occupancy holding above 95%, through 1995. However, in the second quarter of 1996 Walgreens vacated 12,000 square feet. Walgreens is still paying the base rental amounts due under their lease, which does not expire until 2009. Management anticipates that base rental amounts will continue to be paid through the expiration of the lease or until a suitable replacement tenant can located. However, no percentage rent is expected to be paid by Walgreen's. The Partnership's original objective of cash flow from property operations has been partially achieved. However, rental rates in the market place have not increased since 1986 as had been originally anticipated. The real estate market in general and the Vero Beach market more specifically have experienced an oversupply of retail shopping centers which have resulted in a soft market for rental rate increases. Therefore, the amount of cash flow generated from the property is less than originally anticipated. As a result, the value of property has not appreciated as had originally been anticipated.
The shopping center is located on U.S. Highway 1 in Vero Beach, Florida. There is a large retail center adjacent to Indian River Plaza and there are several other shopping centers in the immediate area. Two new shopping centers have recently opened within four miles of Indian River Plaza. The area is becoming a major retail location, but at the same time, there is significant competition for tenants. Management continues to work with prospective tenants for the replacement of Walgreens. They vacated a 12,000 square foot space but are continuing to pay the base rent due under the lease. In March 1997, management has entered into a new lease with Beall's Outlet Store, Inc., for the Walgreens space. A five year gross lease has been entered into with annual rent of $90,000. This compares to $47,340 per year which is currently being paid by Walgreens.
Downers Grove Building Partnership The Partnership has contributed a total of $1,900,000 to, and owns a 66-2/3% interest in, Downers Grove Building Partnership (the "Building Partnership"). The remaining 33-1/3% interest in the Building Partnership is held by a non-affiliate of the General Partners. The Building Partnership owns a 56,449 square foot two-story office and laboratory building (the "Downers Grove Building"). The Partnership has consolidated the assets and operations of the Building Partnership as of and for the years ended December 31, 1996, 1995 and 1994.
The Downers Grove Building was originally leased to Reichhold Chemicals, Inc. ("Reichhold"), on a 15 year triple net lease, which provided for bi-annual escalations of 8%, and expiration on February 2, 2002. In November 1994, Reichhold vacated the Downers Grove Building. In connection with the termination of its lease, two annuity contracts were purchased by Reichhold in the amount of $2,500,000. The annuity contracts were subsequently assigned to the Building Partnership to collateralize payment of the lease termination fee. The annuity contracts provide for payments beginning December 1, 1994, through November 1, 2001. Costs of $843,031, reflecting previously deferred rents receivable, were expensed as a result of the termination. The net amount of $1,656,969 was recognized as income in 1994. The total principal payments to be received from the annuities in 1997 aggregate $188,090 and are included in rents and other receivables, $855,090 is included in deferred rents receivable on the consolidated balance sheet, and is expected to be received in the years 1998 through 2001. During 1996 and 1995, the Building Partnership recognized $76,477 and $107,031, respectively, of interest income relating to the annuity contracts. The total amount of the two annuity contracts was determined based on negotiations with Reichhold and the lender on the property. Reichhold had been committed under a lease which lasted through 2002, with a provision to terminate the lease early upon payment of a lease termination penalty. Reichhold wanted to terminate the lease and the parties had agreed to allow Reichhold to terminate the lease in exchange for a total payment of $2,500,000. However, the funds were utilized to purchase the annuity contracts. These annuities would provide a steady stream of cash flow, adequate to service the mortgage obligations.
A replacement tenant had been found for the property but due to a soft real estate market the rental amounts the new tenant was willing to pay were less than the lease commitments of Reichhold. The monthly payments from the annuity, when combined with the rental of the new replacement tenant, provides for a total revenue stream equal to or in excess of the amounts that would be due under the original Reichhold lease.
In years subsequent to 1994, income will be recognized from the payment of rent by the new tenant, and interest earned on the balance of the annuity which has not been paid out. Total payments from the annuity in 1996 and 1995 totaled $740,927 and $840,000 respectively, of which $76,477 and $107,031 represented interest income in the respective years while the remainder was treated as payment of rents receivable. Total payments in 1997 are expected to be $245,563 of which $57,473 represents interest income. Annual payments in years 1998 through 2000 are expected to be $245,563 per year with interest income of $45,872 in 1998, $33,566 in 1999 and $20,480 in 2000. The total payments in 2001 are expected to aggregate $225,100 of which $6,598 represents interest.
Management believes that the Sycamore Mall property has adequate insurance coverage.
Indian River Plaza On November 30, 1986, the Partnership purchased an interest in Indian River Plaza, a 147,111 gross leaseable square foot shopping center on U.S. Highway 1 in Vero Beach, Florida. The Partnership's ownership of Indian River Plaza was effected through its 1% partnership interest in Vero Beach Associates (the "Operating Partnership") which holds fee title to the property. An affiliate of the Managing General Partner purchased the remaining 99% interest in the Operating Partnership. In May 1987, upon the sale of a sufficient number of Units, the Partnership made an additional capital contribution to increase its interest in the Operating Partnership. The Partnership's interest in the cash distributions and allocations for Federal income tax purposes of all losses of the Operating Partnership and of profits of the Operating Partnership from the sale or refinancing of the property is 99.9%, and its interest in the allocation of profits from operations of the Operating Partnership for Federal income tax purposes is 98%. At December 31, 1996, the Partnership had made capital contributions aggregating $4,710,642 to the Operating Partnership.
Indian River Plaza is encumbered by a first mortgage with an original amount of $5,000,000 ($4,513,476 outstanding on December 31, 1996), bearing interest at 9%, amortized over 30 years payable in monthly installments of principal and interest of $40,250 until maturity on July 1, 1997 when the remaining principal balance of $4,474,527 is payable; secured by the real and personal property of Indian River Plaza. Negotiations are underway for an extension of the current loan but there can be no assurance that such extension will be entered into.
The major tenants are K Mart and Publix which occupy approximately 56% and 25%, respectively, of the property's net leaseable area. Occupancy at Indian River Plaza has remained in the 96% - 100% through 1995. Walgreens, which is a tenant in about 12,000 square feet, vacated the property during the second quarter of 1996, and moved into a new free- standing building. Walgreens is still paying the base rental amounts due under their lease, which does not expire until 2009. No percentage rent is expected to be paid by Walgreen's. In March 1997, management entered into a new lease for the Walgreens space. A five year gross lease has been entered into with Beall's Outlet Store, Inc. providing for annual rent of $90,000. This compares to $47,340 per year which was being paid by Walgreens. The K Mart lease expires in 2004 and the annual rent is approximately $220,000. The Publix lease expires in 1999 and the annual rent is approximately $125,000. Average total rent received per square foot at the property during the last three years were $5.73 in 1996, $6.78 in 1995, and $6.50 in 1994.
The following table illustrates the scheduled lease expirations for Indian River Plaza, over the next ten years:
Management believes that the Indian River Plaza property has adequate insurance coverage.
Downers Grove Building The Partnership has contributed a total of $1,900,000 to, and owns a 66- 2/3% interest in, Downers Grove Building Partnership (the "Building Partnership"). The remaining 33-1/3% interest in the Building Partnership is held by a non affiliate of the General Partners. The Building Partnership owns a 56,449 square foot two-story office and laboratory building (the "Downers Grove Building"). The Downers Grove Building was leased to Reichhold Chemicals, Inc. ("Reichhold"), on a 15 year triple net lease, which provided for bi-annual escalations of 8%, and expiration on February 2, 2002. The Partnership has consolidated the assets and operations of the Building Partnership as of and for the years ended December 31, 1996, 1995 and 1994.
The property is owned fee simple by the Building Partnership. It is subject to a first mortgage in the amount of $4,376,151, bearing interest at 9.125%, payable in monthly installments of interest only of $34,873 from August 1, 1995, through February 1, 1996; principal and interest of $55,170 from March 1, 1996 through August 1, 1998; and principal and interest of $58,405 from September 1, 1998 until August 1, 2005 when the remaining principal balance is due; secured by the real and personal property of the Downers Grove Building.
The Downers Grove Building is a single tenant building. The property has been 100% occupied for the last five years. The current tenant is a subsidiary of Amoco Oil, and is obligated under the lease until 2004.
Management believes that the Downers Grove property has adequate insurance coverage.
Inflation:
The Partnership has completed its ninth full year of operations. During the last nine years the annual inflation rate has ranged from 3.01% to 5.40% with an average of 4.21%. The effect which inflation has had on income from operations has been minimal.
Inflation in future periods may increase rental income levels (from leases to new tenants or renewals of existing leases) in accordance with normal market conditions. Such increases in rental income should offset most of the adverse impact that inflation has on property operating expenses with little effect on operating income. Continued inflation may also tend to cause capital appreciation of the Partnership's investment properties over a period of time as rental rates and replacement costs of properties continue to increase.
Asset Impairment:
Under the Partnership's current impairment policy, provisions for value impairment are recorded with respect to investment properties pursuant to the basic principles of Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long- Lived Assets and for Long Lived Assets to be Disposed Of". The Partnership's adoption of SFAS 121 on January 1, 1996, had no effect on the consolidated financial statements.
Certain investment properties are pledged as security for the long- term debt, for which there is no recourse to the Partnership, as described in Note 3 of the Notes to Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data
FIRST DEARBORN INCOME PROPERTIES L.P. (a limited partnership) and Consolidated Ventures
INDEX
Page (s)
Independent Auditors' Report 16
Consolidated Balance Sheets, December 31, 1996 and 1995 17 - 18
Consolidated Statements of Operations, Years ended December 31, 1996, 1995 and 1994 19
Consolidated Statements of Partners' Capital Accounts (Deficits), Years ended December 31, 1996, 1995 and 1994 20
Consolidated Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 22 - 28
Schedule
Consolidated Real Estate and Accumulated Depreciation III
Schedules not filed:
All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or the related notes.
Independent Auditors' Report
The Partners First Dearborn Income Properties L.P.:
We have audited the consolidated financial statements of First Dearborn Income Properties L.P. (a limited partnership) and consolidated ventures as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 the General Partners of the Partnership, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Dearborn Income Properties L.P. and consolidated ventures as of December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP Chicago, Illinois March 7, 1997
FIRST DEARBORN INCOME PROPERTIES L.P. (a limited partnership) and Consolidated Ventures
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Organization and Basis of Accounting
The Partnership was formed under the Delaware Revised Uniform Limited Partnership Act by the recording of a Certificate of Limited Partnership as of October 1, 1986. The Initial Limited Partner (an affiliate of the Managing General Partner) contributed $1,000 and withdrew as a Limited Partner upon the admission of the first additional Limited Partners on May 21, 1987 when the initial closing of the offering was consummated. The Agreement of Limited Partnership authorized the issuance of up to 20,000 additional Units (subject to increase by an additional 10,000 Units) at $500 per Unit. A total of 20,468.5 Units were subscribed for and issued between February 25, 1987 and November 15, 1988. The offering terminated on November 15, 1988.
For the years ended December 31, 1996, 1995 and 1994, the accompanying Consolidated Financial Statements include the accounts of the Partnership and its Consolidated Ventures - Vero Beach Associates and Downers Grove Building Partnership, and its equity investment in Sycamore Mall Associates. The effect of all transactions between the Partnership and the Consolidated Ventures has been eliminated.
The Partnership records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying Consolidated Financial Statements have been prepared from such records after making appropriate adjustments, where applicable, to present the Partnership's accounts in accordance with generally accepted accounting principles (GAAP). Such adjustments are not recorded for the Partnership. The net effect of these is as follows:
The net income (loss) per limited partnership unit presented is based on the limited partnership units outstanding at the end of each period (20,468.5).
The Partnership's distributions from its unconsolidated venture are considered cash flow from operating activities to the extent of the Partnership's cumulative share of net operating earnings before depreciation and non-cash items. In addition, the Partnership records amounts held in U.S. Government obligations, commercial paper and certificates of deposit at cost which approximates market. For the purposes of these statements, the Partnership's policy is to consider all such investments, with an original maturity of three months or less ($291,741 and $237,206 at December 31, 1996 and 1995, respectively), as cash equivalents.
FIRST DEARBORN INCOME PROPERTIES L.P. (a limited partnership) and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
Deferred offering costs were charged to the partners' capital accounts upon consummation of the offering. Deferred loan costs are amortized over the terms of the related agreements using the straight- line method.
Depreciation on the investment properties acquired has been provided over the estimated useful lives of 5 to 30 years using the straight-line method.
No provision for Federal income taxes has been made as any liability for such taxes would be that of the partners rather than the Partnership.
The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partners 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.
Under the Partnership's current impairment policy, provisions for value impairment are recorded with respect to investment properties pursuant to the basic principles of Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long- Lived Assets and for Long Lived Assets to be Disposed Of". The Partnership's adoption of SFAS 121 on January 1, 1996, had no effect on the consolidated financial statements.
(2) Venture Agreements
(a) General
The Partnership has entered into three joint venture agreements with partnerships sponsored by affiliates of the General Partners. Pursuant to such agreements, the Partnership has made capital contributions aggregating $7,685,642 through December 31, 1996. The Partnership has acquired, through these ventures, interests in two shopping centers and an office building.
(b) Vero Beach Associates
On November 30, 1986, the Partnership purchased an interest in Indian River Plaza, a 147,111 gross leaseable square foot shopping center on U.S. Highway 1 in Vero Beach, Florida. The Partnership's ownership of Indian River Plaza was effected through its 1% partnership interest in Vero Beach Associates (the "Operating Partnership") which holds fee title to the property. An affiliate of the Managing General Partner purchased the remaining 99% interest in the Operating Partnership. In May 1987, upon the sale of a sufficient number of Units, the Partnership made an additional capital contribution to increase its interest in the Operating Partnership. The Partnership's interest in the cash distributions and allocations for Federal income tax purposes of all losses of the Operating Partnership and of profits of the Operating Partnership from the sale or refinancing of the property is 99.9%, and its interest in the allocation of profits from operations of the Operating Partnership for Federal income tax purposes is 98%. At December 31, 1996, the Partnership had made capital contributions aggregating $4,710,642 to the Operating Partnership.
The property is managed by an affiliate of the seller under a management agreement that provides for a fee equal to 3% of operating income, payable on a monthly basis. Management fees deferred pursuant to a previous management agreement aggregate $105,952 at December 31, 1996 and 1995.
FIRST DEARBORN INCOME PROPERTIES L.P. (a limited partnership) and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(c) Downers Grove Building Partnership
The Partnership has contributed a total of $1,900,000 to, and owns a 66-2/3% interest in, Downers Grove Building Partnership (the "Building Partnership"). The remaining 33-1/3% interest in the Building Partnership is held by a non-affiliate of the General Partners. The Building Partnership owns a 56,449 square foot two-story office and laboratory building (the "Downers Grove Building"). The Partnership has consolidated the assets and operations of the Building Partnership as of and for the years ended December 31, 1996, 1995 and 1994.
The Downers Grove Building was originally leased to Reichhold Chemicals, Inc. ("Reichhold"), on a 15 year triple net lease, which provided for bi-annual escalations of 8%, and expiration on February 2, 2002. In November 1994, Reichhold vacated the Downers Grove Building. In connection with the termination of their lease, two annuity contracts were purchased by Reichhold in the amount of $2,500,000. The annuity contracts were subsequently assigned to the Building Partnership to collateralize payment of the lease termination fee. The annuity contracts provide for payments beginning December 1, 1994, through November 1, 2001. Costs of $843,031, reflecting previously deferred rents receivable, were expensed as a result of the termination. The net amount of $1,656,969 was recognized as income in 1994. The total principal payments to be received from the annuities in 1997 aggregate $188,090 and are included in rents and other receivables, $855,090 is included in deferred rents receivable on the consolidated balance sheet, and is expected to be received in the years 1998 through 2001. During 1996 and 1995, the Building Partnership recognized $76,477 and $107,031, respectively, of interest income relating to the annuity contracts.
The Downers Grove Building is managed by an unaffiliated entity under a management agreement will continue in effect from year to year, unless and until terminated, for a management fee of $13,000 per year.
(d) Sycamore Mall Associates
On October 26, 1990, the Partnership contributed $1,075,000 to acquire a 25.24% general partnership interest in Sycamore Mall Associates, a general partnership formed to acquire the Sycamore Mall Shopping Center in Iowa City, Iowa. The property, situated on an approximate 21.2 acre site, includes a main building containing 213,206 square feet and an out parcel building containing 27,000 square feet. A 14,000 square foot parcel which contains a 4,590 square foot building is under a ground lease. Sycamore Mall Associates acquired the property on October 26, 1990 for a purchase price of $9,400,000, subject to a purchase money note of $5,140,000 bearing interest at 10% payable interest only until maturity on October 26, 1995. On August 8, 1991, Sycamore Mall Associates obtained a first mortgage in the amount of $5,140,000 which bore interest at a rate of 9.625% payable in monthly installments of principal and interest of $45,355 commencing October 1, 1991 for 60 months until September 30, 1996. The proceeds of this first mortgage were used to repay the original purchase money note. In October 1995, the first mortgage loan was modified. The terms of the modification reduced the interest rate to 8.125%, reduced the monthly payments of principal and interest to $44,375 and extended the maturity to March 1, 2002.
First Dearborn Income Properties L.P. II, a public limited partnership affiliated with the General Partners of the Partnership, and First Dearborn Sycamore Associates Limited Partnership ("FDSALP"), a privately offered limited partnership also affiliated with the General Partners, are the joint venture partners in Sycamore Mall Associates and contributed a total of $2,275,000 and $910,000 for 53.40% and 21.36% of the general partner interests, respectively.
The terms of the Sycamore Mall Associates partnership agreement provide that cash flow, sale or refinancing proceeds and profit and loss will be distributed or allocated in proportion to the partner's ownership interests.
FIRST DEARBORN INCOME PROPERTIES L.P. (a limited partnership) and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
The property is managed by an affiliate of the General Partners and an affiliate of the seller under a five year management agreement that provides for a fee equal to 5% of the effective gross income, of which 1% is paid to an affiliate of the General Partners. During 1996, 1995 and 1994 the property incurred management fees of $96,048, $97,270 and $88,306, respectively.
(3) Long-Term Debt
Long-term debt consists of the following at December 31, 1996 and 1995:
Five year maturities of long-term debt are as follows:
FIRST DEARBORN INCOME PROPERTIES L.P. (a limited partnership) and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(4) Partnership Agreement
Pursuant to the terms of the Partnership Agreement, net profits or losses of the Partnership for Federal income tax purposes from operations generally will be allocated 99% to the Limited Partners and 1% to the General Partners. Net profits for Federal income tax purposes from the sale or refinancing of properties will be allocated as follows: (i) first, to the Partners who have a deficit capital account balance in an amount equal to their deficit balance; (ii) second, to the Limited Partners in an amount equal to their contributed capital plus a stipulated return thereon; and (iii) thereafter, 85% to the Limited Partners and 15% to the General Partners. Net losses from the sale or refinancing of properties will be allocated as follows: (i) first, to the Partners who have a positive capital account balance in an amount equal to their positive balance; and (ii) thereafter, 99% to the Limited Partners and 1% to the General Partners.
Operating Cash Flow, as defined in the Partnership Agreement, prior to the date the public offering terminated, was distributed 100% to the Limited Partners. Operating Cash Flow subsequent to termination of the public offering will be distributed during the first five years, 99% to the Limited Partners and 1% to the General Partners and, thereafter, 90% to the Limited Partners and 10% to the General Partners subject to certain limitations. Sale or refinancing proceeds will be distributed 100% to the Limited Partners until the Limited Partners have received their contributed capital plus a stipulated return thereon. Any remaining sale or refinancing proceeds will then be distributed 85% to the Limited Partners and 15% to the General Partners.
For financial reporting purposes, net profits or losses from operations are allocated 99% to the Limited Partners and 1% to the General Partners. The General Partners are not required to make any capital contributions except under certain limited circumstances upon dissolution and termination of the Partnership.
(5) Leases
At December 31, 1996, the Partnership and its Consolidated Ventures' principal assets are a shopping center and an office building. The Partnership has determined that all leases relating to the properties are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the property, excluding the cost of the land, is depreciated over the estimated useful life of the property. Leases with tenants range in term from two to thirty years and provide for fixed minimum rent and partial to full reimbursement of operating costs. In addition, substantially all leases with shopping center tenants provide for additional rent based upon percentages of tenants' sales volume.
Cost and accumulated depreciation of the leased assets are summarized as follows at December 31, 1996:
FIRST DEARBORN INCOME PROPERTIES L.P. (a limited partnership) and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
Minimum lease payments, including amounts representing executory costs (e.g. taxes, maintenance, insurance) and any related profit, to be received in the future under the operating leases are as follows:
Percentage rents (based on tenants' sales volume) included in rental income were $83,941, $274,615 and $227,875 for the years ended December 31, 1996, 1995 and 1994, respectively. In addition, the Partnership's Consolidated Ventures recognize income on a straight-line basis over the life of the related leases. Included in Rents and Other Receivables at December 31, 1996 and 1995 is $874,967 and $494,195, respectively, which represents rental income due from tenants in future periods.
(6) Transactions with Affiliates
In connection with the evaluation, investigation, negotiation, selection and purchase of the Partnership's investment properties, affiliates of the General Partners were entitled to receive acquisition fees from the Partnership, equal to 4.85% of the gross proceeds from the offering of Units. As of December 31, 1996, the aggregate amount of acquisition fees earned by affiliates of the General Partners was $496,361, all of which was paid.
Affiliates of the General Partners are entitled to an annual non- accountable expense reimbursement, subordinated to the Limited Partners' receipt of distributions of Operating Cash Flow equal to 6% per annum, in connection with the management of the Partnership in an amount equal to the greater of .25% of the gross proceeds of the offering or $25,000.
The Managing General Partner and its affiliates are entitled to reimbursement for salaries and direct expenses of officers and employees of the Managing General Partner and its affiliates relating to the administration of the Partnership.
Fees, commissions and other expenses required to be paid by the Partnership to affiliates of the General Partners for the years ended December 31, 1996, 1995 and 1994 are as follows:
FIRST DEARBORN INCOME PROPERTIES L.P. (a limited partnership) and Consolidated Ventures
Notes to Consolidated Financial Statements - Continued
(7) Investment in Unconsolidated Venture
Summary financial information for Sycamore Mall Associates as of December 31, 1996 and 1995 is as follows:
The total revenues, expenses and net income for the above venture for the year ended December 31, 1994 were $1,784,231, $1,579,166 and $205,065, respectively.
(8) Subsequent Event
In March 1997, the Partnership paid cash distributions of $38,232 to the Limited Partners.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Partnership are:
FDIP, Inc., an Illinois corporation, Managing General Partner; and FDIP Associates, an Illinois general partnership, Associate General Partner.
FDIP, Inc., the Managing General Partner, is a corporation formed under the laws of the State of Illinois. Its issued and outstanding shares are owned by Messrs. Bruce H. Block and Robert S. Ross. The officers of the Managing General Partner are Robert S. Ross, President, and Bruce H. Block, Vice President and Secretary. Messrs. Block and Ross are its sole directors.
FDIP Associates, the Associate General Partner, was formed under the laws of the State of Illinois and has a nominal net worth. Its constituent partners are First Dearborn Partners, an Illinois general partnership formed in January, 1984, whose constituent partners are Messrs. Block and Ross, and Hampshire Syndications, Inc., a New Hampshire corporation. Hampshire Syndications, Inc. is wholly owned by Hampshire Funding, Inc., a New Hampshire corporation, which is a wholly- owned subsidiary of Chubb Life Insurance Company of America. The officers and directors of Hampshire Syndications, Inc. are Ronald R. Angarella, President and Director, Charles C. Cornelio, Vice President, Counsel, Secretary and Director, Frederick H. Condon, Vice President and Director and John A. Weston, Treasurer.
Messrs. Block and Ross are not affiliated with Chubb Securities Corporation, except that each is affiliated with the Associate General Partner.
The persons listed below occupy key management position with the General Partners:
Mr. Bruce H. Block, age 59, has been a principal in numerous real estate ventures which own, have an interest in, or have owned various types of property that have included apartment and office buildings, shopping centers and vacant land. Mr. Block is an Illinois licensed attorney, a certified public accountant and a licensed real estate broker in the State of Illinois. Mr. Block practiced corporate and real estate law in Chicago for over 20 years and is a shareholder in the Chicago law firm of Ross & Block, P.C.
Mr. Robert S. Ross, age 59, has been a principal in many real estate ventures which own, have an interest in, or have owned various types of property including apartment and office buildings, shopping centers and vacant land. Mr. Ross is an Illinois licensed attorney, a licensed real estate broker in the State of Illinois and is an affiliate member of Real Estate Securities and Syndication Institute. He also practiced general and real estate law in the Chicago are for over 22 years and is a shareholder in the Chicago law firm of Ross & Block P.C.
Mr. Ronald R. Angarella, age 39, currently serves as President, Chairman and Director of Chubb Securities Corporation and Hampshire Funding, Inc. and President and Director of Hampshire Syndications, Inc. Mr. Angarella is also President and Director of Chubb America Fund, Inc., Senior Vice President and Director of Chubb Investment Funds, Inc. and Senior Vice President, Sales of Chubb Life Insurance Company of America. Mr. Angarella is a graduate of Providence College and Brown University.
Mr. Charles C. Cornelio, age 37, is Vice President, General Counsel and Secretary of Chubb Securities Corporation, Hampshire Syndications, Inc. and Hampshire Funding, Inc. He is also Executive Vice President and Chief Administrative Officer of Chubb Life Insurance Company of America and Vice President and General Counsel of Chubb America Fund, Inc. and Chubb Investment Funds, Inc.
Mr. Frederick H. Condon, age 62, is a Director of Hampshire Funding, Inc. and Chubb Securities Corporation. Mr. Condon also serves as Senior Vice President, General Counsel and Secretary of Chubb Life Insurance Company of America, Chubb Colonial Life Insurance Company and Chubb Sovereign Life Insurance Company.
John Weston, age 37, Treasurer of Hampshire Funding, Inc., Chubb Securities Corporation, Hampshire Syndications, Inc., Chubb Investment Funds, Inc., Chubb America Fund, Inc. and Chubb Investment Advisory Corporation. Mr. Weston also serves as Assistant Vice President of Chubb Life Insurance Company of America.
Item 11.
Item 11. Executive Compensation
The Partnership has no officers or directors and instead is managed by FDIP, Inc., its Managing General Partner.
Officers and directors of the Managing General Partner receive no direct remuneration in such capacities from the Partnership. In addition, the Partnership is a registrant that qualifies as a small business issuer as defined in Item 10(a)(1) of Regulation S-B. Accordingly, certain of the disclosures typically required by Item 402 are not applicable to the Partnership and the information set forth herein has been appropriately modified.
The Partnership is required to pay certain fees to the General Partners or their affiliates and the General Partners are entitled to receive a share of cash distributions, when and as cash distributions are made to the Limited Partners, and a share of profits or losses as described under the caption "Compensation Table" at pages 9-10 of the Prospectus, a copy of which descriptions is filed herewith and is hereby incorporated herein by reference. Reference is also made to Note 4 of Notes to Consolidated Financial Statements filed with this annual report for a description of such distributions and allocations.
Certain compensation has accrued to the General Partners and their affiliates for services rendered on behalf of the Partnership. In connection with the evaluation, investigation, negotiation, selection and purchase of the Partnership's investment properties, affiliates of the General Partners were entitled to receive acquisition fees from the Partnership, equal to 4.85% of the gross proceeds from the offering of Units. As of December 31, 1996, the aggregate amount of acquisition fees earned by affiliates of the General Partners was $496,361, all of which was paid.
Affiliates of the General Partners are entitled to an annual non- accountable expense reimbursement, subordinated to the Limited Partners' receipt of distributions of Operating Cash Flow equal to 6% per annum, in connection with the management of the Partnership in an amount equal to the greater of .25% of the gross proceeds of the offering or $25,000.
The Managing General Partner and its affiliates are entitled to reimbursement for salaries and direct expenses of officers and employees of the Managing General Partner and its affiliates relating to the administration of the Partnership.
Fees, commissions and other expenses required to be paid by the Partnership to affiliates of the General Partners for the years ended December 31, 1996, 1995 and 1994 are as follows: