ITEM 1. BUSINESS
All references to "Notes" are to Notes to Financial Statements contained in this report. Capitalized terms used herein, but not defined, have the same meanings as used in the Notes.
The registrant, JMB Income Properties, Ltd. - XI (the "Partnership"), is a limited partnership formed in 1983 and currently governed under the Revised Uniform Limited Partnership Act of the State of Illinois to invest in improved income-producing commercial and residential real property. The Partnership sold $173,406,000 in limited partnership interests (the "Interests") commencing on July 11, 1984, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933 (Registration No. 2-90503). A total of 173,406 Interests were sold to the public at $1,000 per Interest. The offering closed on November 30, 1984. No Investor has made any additional capital contribution after such date. The Investors in the Partnership share in the benefits of ownership of the Partnership's real property investments according to the number of Interests held.
The Partnership is engaged solely in the business of the acquisition, operation and sale and disposition of equity real estate investments. Such equity investments are or have been held by fee title and/or through joint venture partnership interests. The Partnership's real estate investments are located throughout the nation and it has no real estate investments located outside the United States. A presentation of information about industry segments, geographic regions, raw materials or seasonality is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. Pursuant to the Partnership agreement, the Partnership is required to terminate no later than October 31, 2034. The Partnership is self-liquidating in nature. At sale of a particular property, the net proceeds, if any, are generally distributed or reinvested in existing properties rather than invested in acquiring additional properties. As discussed further in Item 7, the Partnership currently expects to conduct an orderly liquidation of its remaining investment portfolio as quickly as practicable and to wind up its affairs not later than December 31, 1999, barring any unforeseen economic developments.
The Partnership has made the real property investments set forth in the following table:
The Partnership's remaining real property investment is subject to competition from similar types of properties (including, in certain areas, properties owned by affiliates of the General Partners) in the respective vicinities in which it is located. Such competition is generally for the retention of existing tenants. Additionally, the Partnership is in competition for new tenants in its market where significant vacancies are present. Reference is made to Item 7 below for a discussion of competitive conditions and future renovation and capital improvement plans of the Partnership and its investment property. Approximate occupancy levels for the properties owned in 1997 are set forth in the table in Item 2
ITEM 2. PROPERTIES
The Partnership owns or owned directly or through joint venture partnerships the properties or interests in the properties referred to under Item 1 above to which reference is hereby made for a description of said properties.
The following is a listing of principal businesses or occupations carried on in and approximate occupancy levels by quarter during fiscal years 1997 and 1996 for the Partnership's investment properties owned during 1997:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not subject to any material pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1997 or 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1997, there were 13,428 record holders of Interests of the Partnership. There is no public market for Interests and it is not anticipated that a public market for Interests will develop. Upon request, the Managing General Partner may provide information relating to a prospective transfer of Interests to an investor desiring to transfer his Interests. The price to be paid for the Interests, as well as any other economic aspects of the transaction, will be subject to negotiation by the investor. There are certain conditions and restrictions on the transfer of Interests, including, among other things, the requirement that the substitution of a transferee of Interests as a Limited Partner of the Partnership be subject to the written consent of the Managing General Partner, which, may be granted or withheld in its sole and absolute discretion. The rights of a transferee of Interests who does not become a substituted Limited Partner will be limited to the rights to receive his share of profits or losses and cash distributions from the Partnership, and such transferee will not be entitled to vote such Interests or have other rights of a Limited Partner. No transfer will be effective until the first day of the next succeeding calendar quarter after the requisite transfer form, satisfactory to the Managing General Partner, has been received by the Managing General Partner. The transferee, consequently, will not be entitled to receive any cash distributions or any allocable share of profits or losses for tax purposes until such succeeding calendar quarter. Profits or losses from operations of the Partnership for a calendar year in which a transfer occurs will be allocated between the transferor and the transferee based upon the number of quarterly periods in which each was recognized as the holder of Interests, without regard to the results of Partnership's operations during particular quarterly periods and without regard to whether cash distributions were made to the transferor or transferee. Profits or losses arising from the sale or other disposition of Partnership properties will be allocated to the recognized holder of the Interests as of the last day of the quarter in which the Partnership recognized such profits or losses. Cash distributions to a holder of Interests arising from the sale or other disposition of Partnership properties will be distributed to the recognized holder of the Interests as of the last day of the quarterly period with respect to which distribution is made.
Reference is made to Item 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As a result of the public offering of interests as described in Item 1, the Partnership had approximately $156,493,000 after deducting selling expenses and other offering costs, with which to make investments in commercial real property, to pay legal fees and other costs (including acquisition fees) related to such investments and for working capital. A portion of such proceeds was utilized to acquire the properties described in Item 1 above.
During 1996, 1997 and early 1998, some of the Limited Partners in the Partnership received from unaffiliated third parties unsolicited tender offers to purchase up to 4.9% of the Interests in the Partnership at between $130 and $400 per Interest. The Partnership recommended against acceptance of these offers on the basis that, among other things, the offer prices were inadequate. All of such offers expired. As of the date of this report, the Partnership is aware that 5.46% of the Interests have been purchased by such unaffiliated third parties either pursuant to such tender offers or through negotiated purchases. In addition, it is possible that other offers for Interests may be made by unaffiliated third parties in the future, although there is no assurance that any other third party will commence an offer for Interests, the terms of any such offer or whether any such offer, if made, will be consummated, amended or withdrawn. The board of directors of JMB Realty Corporation ("JMB") the managing general partner of the Partnership, has established a special committee (the "Special Committee") consisting of certain directors of JMB to deal with all matters relating to tender offers for Interests in the Partnership, including any and all responses to such tender offers. The Special Committee has retained independent counsel to advise it in connection with any potential tender offers for Interests and has retained Lehman Brothers Inc. as financial advisor to assist the Special Committee in evaluating and responding to these and any additional potential tender offers for Interests.
At December 31, 1997, the Partnership had cash and cash equivalents of approximately $42,298,000. These funds include retained cash proceeds of approximately $1,800,000 from the sale in 1996 of the 190 San Fernando Building and one of the parking structures at San Jose, and temporarily retained cash proceeds of approximately $28,448,000 from the sale in 1997 of the Royal Executive Park II office complex. Such remaining funds may be utilized for distributions to partners, potential obligations related to representations and warranties given pursuant to the sale of the Royal Executive Park II office complex, and for working capital requirements including operating deficits, costs of re-leasing vacant space, and certain capital improvements. Additionally, funds may be utilized to fund a potential theatre expansion at the Riverside Square Mall investment property, which is in the preliminary stages of investigation. The Partnership's wholly-owned property has currently budgeted in 1998 approximately $2,155,000 for tenant improvements and other capital expenditures. Actual amounts expended in 1998 may vary depending on a number of factors including actual leasing activity, results of property operations, liquidity considerations and other market conditions over the course of the year. The source of capital for such items and for both short-term and long-term future liquidity and distributions is expected to be through net cash generated by the Riverside Square Mall and through its sale and/or refinancing. In such regard, reference is made to the Partnership's property specific discussions below and also to the Partnership's disclosure of certain property lease expirations in Item 6.
Commencing in 1996, the Partnership changed from a quarterly distribution of cash flow from operations to a semi-annual distribution in May and November of each year. In May 1997, the Partnership paid an operating distribution of $1,040,466 ($6 per Interest) for the first and second quarters of 1997 to the Limited Partners. In November 1997, the Partnership paid an operating distribution of $1,040,466 ($6 per Interest)
for the third and fourth quarters of 1997 to the Limited Partners. In February 1998, the Partnership made a distribution of sale proceeds related to the sale of the Royal Executive Park II office complex of $28,439,404 ($164 per Interest) and paid an operating distribution of $2,774,576 ($16 per Interest), to the Limited Partners. The General Partners have been deferring receipt of distributions in accordance with the subordination requirements of the Partnership Agreement as discussed in the Notes. The Partnership's and its ventures' mortgage obligations are separate non- recourse loans secured individually by the investment properties and are not obligations of other investments. The Partnership and its ventures are not personally liable for the payment of the mortgage indebtedness.
SAN JOSE
During August 1994, JMB/San Jose Associates ("San Jose") received notification from the Redevelopment Agency of the City of San Jose of its offer to purchase one of the parking garage structures in the office building complex, for an approved Agency project, for $4,090,000. The price offered was deemed by the Agency to be just compensation in compliance with applicable laws governing eminent domain. During 1995, the Agency filed a condemnation action in court to proceed to obtain the garage pursuant to such laws. In late 1995, San Jose and the Agency reached a mutually acceptable agreement on the transfer of the garage. In March 1996, the sale was consummated. Reference is made to the Notes for a description of such sale.
During March 1996, San Jose sold the 190 San Fernando Building and a parking garage structure to an independent third party. The sale price of the building was $1,753,000 (before selling costs), paid in cash at closing. Reference is made to the Notes for a description of such sale. The aggregate net sale proceeds to San Jose from both sales was approximately $5,800,000 after selling costs and prorations, of which the Partnership's share was approximately $2,900,000.
Due to the proposed sales, the San Jose venture had classified the parking garage structures and the 190 San Fernando Building as held for sale or disposition as of January 1, 1996. The remaining assets were classified as held for sale as of December 31, 1996, and have, therefore, not been subject to continued depreciation beyond such date.
As previously reported, in 1996 San Jose completed a voluntary seismic upgrade to the 130 Park Center Financial Plaza building and the parking garage below the 100-130 buildings. The cost of the structural upgrade was approximately $860,000 (of which the Partnership's share was approximately $430,000).
On February 24, 1998, San Jose sold the remaining assets of the Park Center Financial Plaza office complex to an independent third party for $76,195,000 (before selling costs). San Jose received approximately $49,400,000 of net sale proceeds at closing (after the repayment by San Jose of the mortgage loans secured by the 170 Almaden, 150 Almaden and 185 Park Avenue buildings with a balance of approximately $23,300,000, loan prepayment premiums of approximately $2,422,000 and closing costs), of which the Partnership's share was approximately $24,700,000. Reference is made to the Notes for a further description of such sale.
RIVERSIDE SQUARE MALL
As previously disclosed, the Partnership completed a renovation of the Riverside Square Mall and a restoration of the parking deck at a total cost of approximately $23,000,000 which was incurred in 1995 and 1996. In addition, the Partnership is continuing to add new tenants in order to remerchandise the center. In connection with the renovation, the Partnership, in early 1994, signed 15-year operating covenant extensions with both Saks and Bloomingdale's, the latter of which owns its own store. In return for the additional 15-year commitment to the center, the Partnership reimbursed Saks in 1994 for its store renovation in the amount of $6,100,000; and in August 1995, the Partnership escrowed $5,000,000 (all
of which had been released as of December 31, 1996) for Bloomingdale's store renovation, which was fully completed in September 1997. Interest earned on the escrowed funds was remitted to the Partnership in 1996 upon termination of the escrow account. In connection with the payment to Saks, the Partnership also acquired title to the Saks building which had previously been owned by Saks.
During the third quarter of 1994, the Partnership finalized a refinancing of the existing mortgage loan with a new loan in the amount of $36,000,000. The refinancing resulted in net proceeds of approximately $22,300,000 (after retirement of the previous mortgage loan with an outstanding balance of approximately $13,000,000, and payment of a prepayment penalty of approximately $650,000 as discussed in the Notes). Of such proceeds, approximately $11,200,000 was escrowed by the lender pursuant to the loan agreement to fund certain costs of the renovation, restoration and remerchandising as discussed above. The full amount, including interest earned, was released as of December 31, 1996. The remaining $11,100,000 of loan proceeds were used to replenish the Partnership's working capital reserve for amounts paid to or escrowed on behalf of Saks and Bloomingdale's for their store renovations as discussed above.
During the first quarter of 1996, the Partnership executed a new lease agreement with Pottery Barn for the space previously occupied by Conran's, a tenant occupying approximately 28,000 square feet or 12% of the building that had filed for bankruptcy in 1994. The Pottery Barn lease, with a term of 15 years, required expenditures in 1996 for tenant allowances of approximately $2,250,000, which was funded through the tenant improvement escrow described above.
ROYAL EXECUTIVE PARK II
On December 19, 1997, the Partnership, through its Royal Executive joint venture, sold the land and related improvements of the Royal Executive Park II office complex located in Rye Brook, New York for $36,000,000. The joint venture received approximately $35,446,000 of net sale proceeds at closing, of which the Partnership's share was approximately $28,448,000. Reference is made to the Notes for a further description of such transaction.
GENERAL
The Partnership continues to conserve its working capital. All expenditures are carefully analyzed and certain capital projects are deferred when appropriate. In an effort to reduce partnership operating expenses, the Partnership elected to make semi-annual rather than quarterly distributions of available operating cash flow commencing with the 1996 distributions. By conserving working capital, the Partnership will be in a better position to meet the future needs of its remaining property since the availability of satisfactory outside sources of capital may be limited given current debt levels. The Partnership has held its remaining investment property longer than originally anticipated in an effort to maximize the return to the Limited Partners. However, after reviewing the remaining property and the marketplace in which it operates, the General Partners of the Partnership expect to be able to conduct an orderly liquidation of its remaining investment property as quickly as practicable.
Therefore, the affairs of the Partnership are expected to be wound up no later than December 31, 1999 (sooner if the property is sold in the near- term), barring unforeseen economic developments.
RESULTS OF OPERATIONS
The increase in cash and cash equivalents and the related decrease in the Partnership's investment in unconsolidated ventures at December 31, 1997 as compared to December 31, 1996 is primarily due to the sale in 1997 of the Royal Executive Park II office complex as more fully discussed in the Notes.
The increase in rents and other receivables as of December 31, 1997 as compared to December 31, 1996 is primarily due to the timing of payment of rentals at the Riverside Square Mall investment property.
The increase in escrow deposits as of December 31, 1997 as compared to December 31, 1996 is primarily due to an overfunding of the real estate tax escrow based on the lender's funding requirements, at the Riverside Square Mall investment property. It is anticipated that such overfunded balance on the escrow will be reduced by future reduced monthly escrow contributions.
The increase in rental income for the year ended December 31, 1997 as compared to the year ended December 31, 1996 and December 31, 1996 as compared to December 31, 1995 is primarily due to an increase in base rentals as a result of an increase in tenant occupancies in 1997 and 1996 at the Riverside Square Mall investment property.
The decrease in interest income for the years ended December 31, 1997 and 1996 as compared to the year ended December 31, 1995 is primarily due to the utilization of escrowed cash, previously invested in interest bearing instruments, for the renovation and remerchandising at the Riverside Square Mall as discussed above.
The decrease in depreciation expense for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to the Riverside Square Mall investment property being identified as held for sale or disposition as of September 30, 1997, and therefore, no longer subject to depreciation beyond such date. The increase in depreciation expense for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the increases in fixed assets due to the renovation at the Riverside Square Mall as discussed above and in the Notes.
The decrease in property operating expenses for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to the decrease in snow removal and other administrative expenses and certain maintenance and repair projects (partially recoverable from tenants) at the Riverside Square Mall. However, the decrease is partially offset by an increase in certain other property operating expenses as a result of higher tenant occupancies in 1997 at the Riverside Square Mall. The increase in property operating expenses for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to an increase in real estate taxes (partially recoverable from tenants) of approximately $470,000 due to an increase in the assessed value of the Riverside Square Mall property as a result of the renovation as discussed above. The increase is also due to the increase in snow removal expenses (partially recoverable from tenants) of approximately $280,000 at the Riverside Square Mall.
The decrease in professional services for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to expenses incurred in 1996 in connection with tender offer matters as discussed above.
The increase in amortization of deferred expenses for the years ended December 31, 1997 and 1996 as compared to the year ended December 31, 1995 is primarily due to the commencement in the fourth quarter of 1995 of amortization of $5,000,000 of deferred leasing costs paid to Bloomingdales for its renovation at the Riverside Square Mall.
The increase in general and administrative expenses for the year ended December 31, 1997 as compared to the year ended December 31, 1996 and the decrease for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the timing of the incurrence of reimbursable costs to affiliates of the General Partners.
The increase in the Partnership's share of operations of unconsolidated ventures for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to such unconsolidated ventures being identified as held for sale or disposition as of December 31, 1996, and therefore, no longer subject to depreciation beyond such date. The increase in the Partnership's share of operations of unconsolidated ventures for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the receipt of a lease termination fee of approximately $210,000 in May 1996 at the Royal Executive Park II investment property, as well as a cessation of mortgage interest expense at the 100-130 Park Center Financial Plaza investment property, due to repayment of the mortgage loans in 1995.
The Partnership's share of gain on sale of investment properties of unconsolidated ventures of $13,349,139 in 1997 is due to the gain recognized on the sale of the Royal Executive Park II office complex. The Partnership's share of gain on sale of investment properties of unconsolidated ventures of $1,412,610 in 1996 is due to the gain recognized on the sale of the 190 San Fernando Building and one of the parking structures at the Park Center Financial Plaza investment property.
INFLATION
Due to the decrease in the level of inflation in recent years, inflation generally has not had a material effect on rental income or property operating expenses.
Inflation is not expected to significantly impact future operations due to the expected liquidation of the Partnership by 1999. However, to the extent that inflation in future periods would have an adverse impact on property operating expenses, the effect would generally be offset by amounts recovered from tenants as many of the long-term leases at the Partnership's remaining commercial property have escalation clauses covering increases in the cost of operating and maintaining the property as well as real estate taxes. Therefore, there should be little effect from inflation on operating earnings if the property remains substantially occupied. In addition, substantially all of the leases at the Partner- ship's shopping center investment contain provisions which entitle the Partnership to participate in gross receipts of tenants above fixed minimum amounts.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP)
INDEX
Independent Auditors' Report Balance Sheets, December 31, 1997 and 1996 Statements of Operations, years ended December 31, 1997, 1996 and 1995 Statements of Partners' Capital Accounts (Deficit), years ended December 31, 1997, 1996 and 1995 Statements of Cash Flows, years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements SCHEDULE -------- Real Estate and Accumulated Depreciation III
SCHEDULES NOT FILED:
All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP)
INDEX
Independent Auditors' Report Balance Sheets, December 31, 1997 and 1996 Statements of Operations, years ended December 31, 1997, 1996 and 1995 Statements of Partners' Capital Accounts, years ended December 31, 1997, 1996 and 1995 Statements of Cash Flows, years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements
SCHEDULES NOT FILED:
All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP)
INDEX
Independent Auditors' Report Balance Sheets, December 31, 1997 and 1996 Statements of Operations, years ended December 31, 1997, 1996 and 1995 Statements of Partners' Capital Accounts, years ended December 31, 1997, 1996 and 1995 Statements of Cash Flows, years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements SCHEDULE -------- Real Estate and Accumulated Depreciation III
SCHEDULES NOT FILED:
All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
INDEPENDENT AUDITORS' REPORT
The Partners JMB INCOME PROPERTIES, LTD. - XI:
We have audited the financial statements of JMB Income Properties, Ltd. - XI (a limited partnership) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of JMB Income Properties, Ltd. - XI at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in the Notes to the financial statements, in 1996, the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois March 25, 1998
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
OPERATIONS AND BASIS OF ACCOUNTING
GENERAL
The Partnership holds (either directly or through joint ventures) investments in United States real estate. Business activities consist of rentals to a variety of commercial and retail companies, and the ultimate sale or disposition of such real estate. The Partnership currently expects to conduct an orderly liquidation of its remaining investment portfolio and wind up its affairs not later than December 31, 1999, barring unforeseen economic developments.
The equity method of accounting has been applied in the accompanying financial statements with respect to the Partnership's interest in Royal Executive Park II ("Royal Executive") (which investment was sold in December 1997) and JMB/San Jose Associates ("San Jose"). Accordingly, the accompanying financial statements do not include the accounts of Royal Executive and San Jose.
The Partnership's records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying financial statements have been prepared from such records after making appropriate adjustments to present the Partnership's accounts in accordance with generally accepted accounting principles ("GAAP"). Such GAAP adjustments are not recorded on the records of the Partnership. The net effect of these items for the years ended December 31, 1997 and 1996 is summarized as follows:
The net earnings (loss) per limited partnership interest is based upon the number of limited partnership interests outstanding at the end of the period (173,411). Deficit capital accounts will result, through the duration of the Partnership, in net gain for financial reporting and income tax purposes.
The preparation of financial statements in accordance with GAAP requires the Partnership to make estimates and assumptions that affect the reported or disclosed amount of 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.
Statement of Financial Accounting Standards No. 95 requires the Partnership to present a statement which classifies receipts and payments according to whether they stem from operating, investing or financing activities. The required information has been segregated and accumulated according to the classifications specified in the pronouncement. Partnership distributions from unconsolidated ventures are considered cash flow from operating activities only to the extent of the Partnership's cumulative share of net earnings. The Partnership records amounts held in U.S. Government obligations at cost, which approximates market. For the purposes of these statements, the Partnership's policy is to consider all such amounts held with original maturities of three months or less ($42,703,440 and $8,217,261 at December 31, 1997 and 1996, respectively) as cash equivalents, which includes investments in an institutional mutual fund which holds U.S. Government obligations, with any remaining amounts (generally with original maturities of one year or less) reflected as short-term investments being held to maturity.
Deferred expenses consist primarily of loan fees and lease commissions and an inducement which are amortized over the terms stipulated in the related agreements using the straight-line method.
Although certain leases of the Partnership provide for tenant occupancy during periods for which no rent is due and/or increases in the minimum lease payments over the term of the lease, rental income is accrued for the full period of occupancy on a straight-line basis.
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments" (as amended), requires certain large public entities to disclose the SFAS 107 value of all financial assets and liabilities for which it is practicable to estimate. Value is defined in the Statement as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes the carrying amount of its financial instruments classified as current assets and liabilities (excluding current portion of long-term debt) approximates SFAS 107 value due to the relatively short maturity of these instruments. There is no quoted market value available for any of the Partnership's other instruments. The debt, with a carrying balance of $34,404,478, has been calculated to have an SFAS 107 value of $36,424,417 by discounting the scheduled loan payments to maturity. Due to restrictions on transferability and prepayment and the inability to obtain comparable financing due to current levels of debt, previously modified debt terms or other property specific competitive conditions, the Partnership would likely be unable to refinance these properties to obtain such calculated debt amounts reported. The Partnership has no other significant financial instruments.
No provision for State or Federal income taxes has been made as the liability for such taxes is that of the Partners rather than the Partnership. However, in certain instances, the Partnership has been required or may in the future be required under applicable law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners.
The Partnership has acquired, either directly or through joint ventures, two shopping centers and three office complexes. In June 1990, the Partnership sold its interest in the Genesee Valley Shopping Center. In November 1994, the lender realized upon its security interest and took title to the Bank of Delaware building via a deed in lieu of foreclosure. In March 1996, the San Jose venture sold its interest in the 190 San Fernando Building and one of the parking structures at the Park Center Financial Plaza investment property. In December 1997, the Royal Executive venture sold the Royal Executive Park II office complex. All of the remaining properties were in operation at December 31, 1997. The cost of the investment properties represents the total cost to the Partnership plus miscellaneous acquisition costs.
Depreciation on the properties has been provided over the estimated useful lives of the various components as follows: YEARS -----
Building and Improvements -- straight-line . . . 30 Personal property -- straight-line . . . . . . . 5 ==
The investment properties are pledged as security for the long-term debt, for which there is no recourse to the Partnership.
Maintenance and repairs are generally charged to operations as incurred. Significant betterments and improvements are capitalized and depreciated over their estimated useful lives.
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" was issued in March 1995. The Partnership adopted SFAS 121 as required in the first quarter of 1996. SFAS 121 requires that the Partnership record an impairment loss on its properties to be held for investment whenever their carrying value cannot be fully recovered through estimated undiscounted future cash flows from their operations and sale. The amount of the impairment loss to be recognized would be the difference between the property's carrying value and the property's estimated fair value. The Partnership's policy is to consider a property to be held for sale or disposition when the Partnership has committed to a plan to sell or dispose of such property and active marketing activity has commenced or is expected to commence in the near term. In accordance with SFAS 121, any properties identified as "held for sale or disposition" are no longer depreciated. Adjustments for impairment loss for such properties (subsequent to the date of adoption of SFAS 121) are made in each period as necessary to report these properties at the lower of carrying value or fair value less costs to sell.
The results of operations for properties held for sale or disposition as of December 31, 1997 or sold or disposed of during the past three years were $443,271, ($1,551,773) and ($975,671), respectively, for the years ended December 31, 1997, 1996 and 1995. In addition, the accompanying financial statements include $5,324,092, $3,603,185 and $2,873,705, respectively, of the Partnership's share of total property operations of $6,901,490, $4,209,143 and $3,435,566 of unconsolidated properties held for sale or disposition as of December 31, 1997 or sold or disposed of in the past three years.
During the second quarter of 1997, Statements of Financial Accounting Standards No. 128 ("Earnings per Share") and No. 129 ("Disclosure of Information about Capital Structure") were issued. These standards became effective for reporting periods after December 15, 1997. As the Partnership's capital structure only has general and limited partnership interests, the Partnership will not experience any significant impact on its financial statements.
Certain 1996 and 1995 amounts have been reclassed to conform to 1997 presentation.
INVESTMENT PROPERTIES
RIVERSIDE SQUARE MALL
During October 1983, the Partnership acquired an existing enclosed regional shopping center in Hackensack, New Jersey. The Partnership's purchase price for the mall was $36,236,282. The Partnership made a cash down payment at closing of $20,000,000 with the balance of the purchase price represented by a first mortgage loan. During the third quarter of 1994, the Partnership finalized a refinancing of the first mortgage loan with a new loan in the amount of $36,000,000 which resulted in net proceeds of approximately $22,300,000. Of such proceeds, approximately $11,200,000 was escrowed by the lender pursuant to the loan agreement and released as required, including interest, to fund certain costs of the renovation and restoration as discussed below. The full amount of the escrow had been released as of December 31, 1996. The remaining $11,100,000 of loan proceeds were used to replenish the Partnership's working capital for amounts paid to or escrowed on behalf of Saks and Bloomingdale's for their store renovations as discussed below.
The Partnership completed its renovation of the Riverside Square Mall as well as its restoration of the parking deck (at final costs of approximately $13,500,000 and $7,000,000, respectively) and is continuing to remerchandise the center. In such regard, the Partnership has budgeted in 1998 approximately $2,155,000 for tenant improvements and capital expenditures. In connection with the renovation, the Partnership, in early 1994, signed 15-year operating covenant extensions with both Saks and Bloomingdale's, the latter of which owns its own store. In return for the additional 15-year commitment to the center, the Partnership reimbursed Saks for its store renovation in the amount of $6,100,000; and in August 1995, the Partnership escrowed $5,000,000, reflected as a deferred expense in the accompanying balance sheet, (the full amount of which was released as of December 31, 1996) for Bloomingdale's store renovation, which was fully completed in September 1997. Interest earned on the escrowed funds was remitted to the Partnership upon termination of the escrow account. In connection with the payment to Saks, the Partnership also acquired title to the Saks building which had previously been owned by Saks.
As the Partnership had committed to a plan to sell the property, the property was classified as held for sale or disposition as of September 30, 1997, and therefore, has not been subject to continued depreciation beyond such date.
An affiliate of the General Partners of the Partnership manages the shopping center for a fee equal to 4% of the fixed and percentage rents of the shopping center plus leasing and operating covenant commissions, subject to deferral if in excess of an aggregate annual maximum amount of 6% of the gross receipts of the property.
VENTURE AGREEMENTS - GENERAL
The Partnership at December 31, 1997 is a party to one operating venture agreement (San Jose) and made capital contributions to the respective ventures as discussed below. Under certain circumstances, either pursuant to the venture agreements or due to the Partnership's obligations as a general partner, the Partnership may be required to make additional cash contributions to the ventures.
There are certain risks associated with the Partnership's investments made through joint ventures including the possibility that the Partnership's joint venture partners in an investment might become unable or unwilling to fulfill their financial or other obligations, or that such joint venture partners may have economic or business interests or goals that are inconsistent with those of the Partnership.
SAN JOSE
The Partnership acquired, through San Jose, an interest in an existing office building complex in San Jose, California (Park Center Financial Plaza) consisting of ten office buildings, a parking and retail building (185 Park Avenue) and two parking garage structures.
In September 1986, San Jose obtained a mortgage loan in the amount of $25,000,000 secured by the 150 Almaden and 185 Park Avenue buildings and certain parking areas. Due to the scheduled maturity of the loan, San Jose, during the fourth quarter of 1994, finalized a loan extension and modification with the mortgage lender. The refinancing resulted in the 1994 partial paydown of the outstanding principal balance in the amount of $2,500,000.
After reviewing and analyzing San Jose's potential options with regard to its investment in the 100-130 Park Center Plaza portion of the complex, San Jose determined that it was in the best interest of the venture to repay the mortgage obligations secured by this portion of the complex and did so in October 1995. The outstanding principal balances, at the time of repayment, were $2,418,722 of which the Partnership's share was $1,209,361.
The property is managed by an unaffiliated third party for a fee calculated as 3% of gross receipts.
The partners of San Jose are the Partnership and JMB Income Properties, Ltd.-XII, another partnership sponsored by the Managing General Partner of the Partnership ("JMB-XII"). The terms of San Jose's partnership agreement generally provide that contributions, distributions, cash flow, sale or refinancing proceeds and profits and losses will be distributed or allocated to the Partnership and JMB-XII in their respective 50% ownership percentages.
During August 1994, San Jose received notification from the Redevelopment Agency of the City of San Jose of its offer to purchase one of the parking garage structures in the office building complex, for an approved Agency project for $4,090,000. The price offered was deemed by the Agency to be just compensation in compliance with applicable laws concerning eminent domain. During 1995, the Agency filed a condemnation action in court to proceed to obtain the garage pursuant to such laws. In late 1995, San Jose and the Agency reached a mutually acceptable agreement on the transfer of the garage. In March 1996, the sale was consummated. Under the transfer agreement, San Jose received replacement parking spaces for its tenants in a nearby city-owned parking structure for a term of fifty-five years in addition to the aforementioned purchase price of $4,090,000. San Jose recognized a gain of approximately $2,036,000 and $1,857,000, respectively, for financial reporting and Federal income tax purposes in 1996, of which approximately $1,018,000 and $928,500, respectively, was allocated to the Partnership.
In March 1996, San Jose sold the 190 San Fernando Building to an independent third party. The sale price of the building was $1,753,000 (before selling costs), and was paid in cash at closing. San Jose recognized a gain of approximately $789,000 and $21,000, respectively, for financial reporting and Federal income tax purposes in 1996, of which approximately $394,500 and $10,500, respectively, was allocated to the Partnership.
At September 30, 1994, San Jose made provisions for value impairment on the 100-130 Park Center Plaza buildings and certain parking areas and the 170 Almaden building of $944,335 in the aggregate. Such provisions were recorded to reduce the net carrying values of these buildings to the then outstanding balances of the related non-recourse financing.
As San Jose had committed to a plan to sell the properties, the 190 San Fernando Building and the parking structure were classified as held for sale or disposition as of January 1, 1996 and therefore were not subject to continued depreciation. The San Jose venture subsequently committed to a plan to sell the balance of the complex, and classified the remaining assets as held for sale as of December 31, 1996 and these assets have therefore no longer been subject to continued depreciation beyond such date.
On February 24, 1998, San Jose sold the land, building, related improvements and personal property of the remaining assets of the Park Center Financial Plaza office complex to an unaffiliated third party for a sale price of $76,195,000 (before selling expenses and prorations). The sale will result in a gain in 1998 of approximately $41,000,000 (due to provisions for value impairment totaling $45,811,547 recorded between 1991 and 1994) and $23,000,000 for financial reporting and Federal income tax purposes, respectively, of which approximately $20,500,000 and $11,500,000 of gain will be allocated to the Partnership, respectively. In addition, in connection with the sale of the property, as is customary in such transactions, San Jose agreed to certain representations, warranties, and covenants with a stipulated survival period that expires November 15, 1998.
Although it is not expected, San Jose and the Partnership may ultimately have some liability under such representations, warranties and covenants.
ROYAL EXECUTIVE PARK II
In December 1985, the Partnership entered into a commitment to fund a $27,000,000 convertible first mortgage note on a three building office park then under construction in Rye Brook, New York (Royal Executive Park II). The first mortgage note called for monthly installments of interest only at a rate of 10% through the period of equity conversion.
During February 1987, the Partnership exercised its option of converting the $27,000,000 mortgage into an ownership position. Upon the conversion of the mortgage note, the Partnership entered into a joint venture (Royal Executive) with the borrower (joint venture partners). Pursuant to the terms of the venture agreement, until certain rental achievement levels were attained, the Partnership was entitled to a cumulative preferred annual return equal to $2,430,000 per year. The next $2,439,732 of annual cash flow was distributable to the joint venture partners, on a non-cumulative basis, with any remaining cash flow distributable 49.9% to the Partnership and 50.1% to the joint venture partners. Therefore, the Partnership's receipt of cash distributions was subject to the actual operations of the property. The Partnership was entitled to any deficiency in its preferred annual return plus interest at 9% on a cumulative basis as an annual priority distribution from future available operating cash flow before any cash flow distributions were made to the venture partner. The cumulative deficiency in the preferred annual return was approximately $1,498,000 at the December 19, 1997 sale date. In accordance with the Royal Executive venture agreement, the Partnership received its priority level of distribution of sale and refinancing proceeds of $27,000,000 plus the cumulative deficiency in its preferred annual return upon sale of the property, as discussed below.
Net operating income (as defined) of the joint venture, in general, was allocated in proportion to, and to the extent of, distributions and then based on relative ownership percentages. Operating losses, in general, were first allocated to the joint venture partners to the extent of any additional contributions made to fund operations or the Partnership's guaranteed return. Remaining losses, if any, were allocated based upon relative ownership interests. Depreciation and amortization was allocated based upon the relative ownership interests.
Due to uncertainty about the ability to recover the net carrying value of the property through future operations and sale, Royal Executive made a provision for value impairment of $25,378,894 at September 30, 1994 to reduce the net carrying value of the property to the then estimated fair value. The provision for value impairment has been allocated fully to the venture partner to reflect their subordination to the Partnership in distributions with regard to future operation and sale or financing proceeds as discussed above.
As there had been a commitment to sell this property, the Royal Executive Venture classified this property as held for sale or disposition at December 31, 1996, and therefore, the property was not subject to continued depreciation beyond such date.
On December 19, 1997, the Royal Executive venture sold the land, buildings, related improvements and personal property of the Royal Executive Park office complex to an unaffiliated third party for a sale price of $36,000,000 (before selling expenses and prorations). The sale resulted in a gain in 1997 of $13,905,818 (due to the provision for value impairment recorded in 1994, as discussed above) and $18,927,388 for financial reporting and Federal income tax purposes, respectively, of which $13,349,139 and $10,701,810 of gain was allocated to the Partnership, respectively. In addition, in connection with the sale of the property, as is customary in such transactions, the joint venture agreed to certain representations, warranties and covenants with a stipulated survival period that expires November 15, 1998. Although it is not expected, the joint venture and the Partnership may ultimately have some liability under such representations, warranties and covenants, but such liability has been limited in the sale agreement to actual damages in an amount not to exceed $2,000,000 in the aggregate.
Concurrently with the sale of Royal Executive Park-II, two other office parks, Royal Executive Park I ("Royal I") and Royal Executive Park III ("Royal III") were sold. Royal I was owned by a joint venture between JMB Income Properties-X (a partnership sponsored by the Partnership's General Partner) and the Partnership's unaffiliated venture partner in Royal Executive Park-II. Royal III was owned entirely by the unaffiliated venture partner in Royal Executive Park-II and Royal I. The purchase price for each office park was separately negotiated with the buyer.
The joint venture had determined that one of the property's underground storage tanks had discharged an amount of fuel oil into the ground. The joint venture believed that such discharge had been the result of normal operations of the property and not the result of actions of tenants or other third parties. The joint venture had received a cost estimate of approximately $200,000 for remediation of the contaminated soil, of which approximately $121,000 was incurred through the date of sale. As part of the sale agreement discussed above, the purchaser is required to hold the joint venture harmless for any future clean-up costs or claims resulting from the contaminated soil.
Effective July 1, 1994, management and leasing activities at the complex were transferred to an affiliate of the General Partners of the Partnership, who managed the property until December 1994 for a fee computed as a percentage of certain revenues. In December 1994, this affiliated property manager sold substantially all of its assets and assigned its interest in its management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. The successor to the affiliated property manager was acting as the manager of the property on the same terms that existed prior to the assignment.
In February 1998, the Partnership made a distribution of sale proceeds related to the sale of the Royal Executive Park II office complex of $28,439,404 ($164 per Interest) and paid an operating distribution of $2,774,576 ($16 per Interest), to the Limited Partners.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996: 1997 1996 ---------- ---------- 8.35% mortgage note, secured by the Riverside Square Mall in Hackensack, New Jersey; payable in monthly installments of principal and interest of $286,252 through December 1, 2006, the scheduled maturity date at which time the unpaid principal and interest is due. . . . . . . $34,404,478 34,942,100
Less current portion of long-term debt. . . 584,273 537,623 ----------- ---------- Total long-term debt. . . . . . . $33,820,205 34,404,477 =========== ==========
Five year maturities of long-term debt are summarized as follows for the years ending:
1998. . . . . . . . . . . $584,273 1999. . . . . . . . . . . 634,971 2000. . . . . . . . . . . 690,068 2001. . . . . . . . . . . 749,945 2002. . . . . . . . . . . 815,019 ========
PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits or losses of the Partnership from operations are allocated 96% to the Limited Partners and 4% to the General Partners. Profits from the sale or refinancing of investment properties will be allocated to the General Partners: (i) to the greater of 1% of such profits or the amount of cash distributable to the General Partner from any such sale or refinancing (as described below); and (ii) in order to reduce deficits, if any, in the General Partners' capital accounts to a level consistent with the gain anticipated to be realized from the sale of properties. Losses from the sale or refinancing of investment properties will be allocated 1% to the General Partners. The remaining sale or refinancing profits and losses will be allocated to the Limited Partners.
The General Partners are not required to make any additional capital contributions except under certain limited circumstances upon termination of the Partnership. In general, distributions of cash from operations will be made 90% to the Limited Partners and 10% to the General Partners. However, a portion of such distributions to the General Partners is subordinated to the Limited Partners' receipt of a stipulated return on capital.
The Partnership Agreement provides that the General Partners shall receive as a distribution from the sale of a real property by the Partnership amounts equal to the cumulative deferrals of any portion of their 10% cash distribution and 3% of the selling price, and that the remaining proceeds (net after expenses and retained working capital) be distributed 85% to the Limited Partners and 15% to the General Partners. However, notwithstanding such allocations, the Limited Partners shall receive 100% of such net sale proceeds until the Limited Partners (i) have received cash distributions of sale or refinancing proceeds in an amount equal to the Limited Partners' aggregate initial capital investment in the Partnership, (ii) have received cumulative cash distributions from the Partnership's operations which, when combined with sale or refinancing proceeds previously distributed, equal a 7% annual return on the Limited Partners' average capital investment for each year (their initial capital investment as reduced by sale or refinancing proceeds previously distributed) commencing with the first fiscal quarter of 1985 and (iii)
have received cash distributions of sale and refinancing proceeds and of the Partnership operations, in an amount equal to the Limited Partners' initial capital investment in the Partnership plus a 10% annual return on the Limited Partners' average capital investment. As the above levels of return are not expected to be achieved, the General Partners have waived their right to receive any portion of the proceeds from the sales of property by the Partnership.
LEASES
At December 31, 1997, the Partnership's principal asset is one shopping center. The Partnership has determined that all leases relating to this property 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. Leases with tenants range in term from one to thirty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. In addition, substantially all of the leases with shopping center tenants provide for additional rent based upon percentages of tenants' sales volumes. A substantial portion of the ability of retail tenants to honor their leases is dependant upon the retail economic sector.
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:
1998 . . . . . . . . . . . $ 5,695,086 1999 . . . . . . . . . . . 5,391,421 2000 . . . . . . . . . . . 4,952,935 2001 . . . . . . . . . . . 4,725,812 2002 . . . . . . . . . . . 4,542,212 Thereafter . . . . . . . . 14,663,482 ----------- Total. . . . . . . . . $39,970,948 ===========
Contingent rent (based on sales by property tenants) included in rental income was as follows:
1995. . . . . . . . $210,903 1996. . . . . . . . 312,727 1997. . . . . . . . 203,448 ========
TRANSACTIONS WITH AFFILIATES
The Partnership, pursuant to the Partnership Agreement, is permitted to engage in various transactions involving the Managing General Partner and its affiliates including the reimbursement for salaries and salary- related expenses of its employees, certain of its officers, and other direct expenses relating to the administration of the Partnership and the operation of the Partnership's investments. Fees, commissions and other expenses required to be paid by the Partnership to the General Partners and their affiliates as of December 31, 1997 and for the years ended December 31, 1997, 1996 and 1995 are as follows:
UNPAID AT DECEMBER 31, 1997 1996 1995 1997 -------- ------- ------- ------------ Property management and leasing fees . . . . $244,256 229,333 236,845 -- Insurance commissions . . 44,126 42,093 44,370 -- Reimbursement (at cost) for accounting services. 22,452 9,825 99,195 11,659 Reimbursement (at cost) for portfolio manage- ment services. . . . . . 35,743 23,498 19,685 10,138
UNPAID AT DECEMBER 31, 1997 1996 1995 1997 -------- ------- ------- ------------
Reimbursement (at cost) for legal services . . . 7,442 4,691 4,942 1,882 Reimbursement (at cost) for administrative charges and other out-of-pocket expenses . 208 -- 124,906 -- -------- ------- ------- ------- $354,227 309,440 529,943 23,679 ======== ======= ======= =======
During 1994, certain officers and directors of the Managing General Partners acquired interests in a company which provides certain property management services to a property owned by the Partnership. The fees earned by such company from the Partnership for the years ended December 31, 1997, 1996 and 1995 were approximately $32,500, $39,000 and $30,000 respectively, all of which has been paid at December 31, 1997.
The General Partners have deferred receipt of certain of their distributions of net cash flow of the Partnership. The amount of such deferred distributions aggregated $2,075,000 as of December 31, 1997. The amount is being deferred in accordance with the subordination requirements of the Partnership Agreement as discussed above. The Partnership does not expect that the subordination requirements of the Partnership agreement will be satisfied to permit payment of the majority of these amounts. In addition, in 1994, an affiliate of the General Partner deferred $300,000 in leasing fees at the Riverside Square Mall pursuant to the management agreement, of which the final $33,000 was paid in February 1997.
INVESTMENT IN UNCONSOLIDATED VENTURES
Summary combined financial information for San Jose and Royal Executive as of and for the years ended December 31, 1997 and 1996 are as follows: 1997 1996 ------------ -----------
Current assets. . . . . . . . . $ 5,677,624 5,535,189 Current liabilities . . . . . . (792,509) (625,146) ------------ ----------- Working capital . . . . . . 4,885,115 4,910,043 ------------ ----------- Investment property, net. . . . 30,803,149 49,157,299 Other assets, net . . . . . . . 1,204,478 1,287,622 Long-term debt. . . . . . . . . (22,961,889) (23,338,875) Other liabilities . . . . . . . (181,229) (247,868) Venture partners' equity. . . . (7,038,462) (11,400,919) ------------ ----------- Partnership's capital . . . $ 6,711,162 20,367,302 ============ =========== Represented by: Invested capital. . . . . . . $ 77,738,617 77,738,617 Cumulative distributions. . . (81,831,137) (49,501,766) Cumulative losses . . . . . . 10,803,682 (7,869,549) ------------ ----------- $ 6,711,162 20,367,302 ============ =========== Total income. . . . . . . . . . $ 16,288,755 16,333,533 ============ ===========
1997 1996 ------------ -----------
Expenses applicable to operating earnings. . . . . . $ 9,387,265 12,124,390 ============ =========== Gain on disposition of investment property . . . . . $ 13,905,818 2,825,220 ============ =========== Net earnings (loss) . . . . . . $ 20,807,308 7,034,363 ============ ===========
The total income, expenses related to operating earnings and net earnings for the above-mentioned ventures for the year ended December 31, 1995 were $15,525,621, $12,090,055 and $3,435,566, respectively.
INDEPENDENT AUDITORS' REPORT
The Partners Royal Executive Park II:
We have audited the financial statements of Royal Executive Park II (a general partnership) as listed in the accompanying index. These financial statements are the responsibility of the General Partners of the Partnership. 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 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 financial statements referred to above present fairly, in all material respects, the financial position of Royal Executive Park II at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in the Notes to the financial statements, in 1996 the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois March 25, 1998
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
OPERATIONS AND BASIS OF ACCOUNTING
GENERAL
The accompanying financial statements have been prepared for the purpose of complying with Rule 3.09 of Regulation S-X of the Securities and Exchange Commission. They include the accounts of the unconsolidated joint venture, Royal Executive Park II venture ("Venture"), in which JMB Income Properties, Ltd.-XI ("JMB Income-XI" or "Partnership") and an unaffiliated venture are the partners.
Royal Executive Park II held an equity investment in commercial real estate property in the City of Rye Brook, New York. Business activities consisted of rentals to a wide variety of commercial companies, and the ultimate sale or disposition of such real estate in December 1997.
As the Royal Executive venture had determined to sell the property, the property was classified as held for sale or disposition as of December 31, 1996, and therefore, had not been subject to continued depreciation. The results of operations of the property included in the accompanying financial statements were profits of $3,890,444, $2,986,178 and $2,017,238 for the years ended December 31, 1997, 1996 and 1995, respectively.
On December 19, 1997, the Royal Executive venture sold the land and related improvements of the Royal executive Park II office complex for $36,000,000. A description of the sale of the property is contained in the Notes of the financial statements of JMB Income - XI. Such notes are incorporated herein by reference.
The accounting policies of the Venture are the same as those of the Partnership. Accordingly, reference is made to the Notes to the Partnership's financial statements filed with this annual report. Such notes are incorporated herein by reference.
The preparation of financial statements in accordance with GAAP requires the Partnership to make estimates and assumptions that affect the reported or disclosed amount of 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.
VENTURE AGREEMENT
A description of the acquisition of the property and the venture agreement is contained in the Notes of the financial statements of JMB Income - XI. Such notes are incorporated herein by reference.
MANAGEMENT AGREEMENT
Effective July 1, 1994, management and leasing activities at the complex were transferred to an affiliate of the General Partners of the Partnership, who managed the property until December 1994. In December 1994, this affiliated property manager sold substantially all of its assets and assigned its interest in its Management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates.
TRANSACTIONS WITH AFFILIATES
There were no fees, commissions and other expenses required to be paid by the Venture to the General Partners and their affiliates as of December 31, 1997 or for the years ended December 31, 1997, 1996 and 1995.
INDEPENDENT AUDITORS' REPORT
The Partners JMB/SAN JOSE ASSOCIATES:
We have audited the financial statements of JMB/San Jose Associates (a general partnership) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of JMB/San Jose Associates at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in the Notes to the financial statements, in 1996 the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois March 25, 1998
JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
OPERATIONS AND BASIS OF ACCOUNTING
The accompanying financial statements have been prepared for the purpose of complying with Rule 3.09 of Regulation S-X of the Securities and Exchange Commission. They include the accounts of the unconsolidated joint venture, JMB/San Jose Associates ("San Jose"), in which JMB Income Properties, Ltd.-XI ("JMB Income-XI" or "Partnership") and JMB Income Properties, Ltd.-XII ("JMB Income-XII" or "Affiliated Partner") are the partners.
San Jose holds an equity investment in a commercial office complex in San Jose, California. Business activities consist of rentals to a wide variety of commercial companies and governmental entities, and the ultimate sale or disposition of such real estate.
As San Jose had determined to sell the complex, all portions of the office complex have been classified as held for sale or disposition as of or during the period ended December 31, 1996. Therefore, the complex is not subject to continued depreciation. Certain portions of the office complex were sold during 1996. The results of operations of the complex included in the accompanying financial statements were earnings of $2,855,479, $1,110,048 and $1,307,549 for the years ended December 31, 1997, 1996 and 1995, respectively.
On February 24, 1998, San Jose sold the land and related improvements of the remaining assets of the Park Center Financial Plaza office complex for $76,195,000. San Jose received approximately $49,400,000 of net sale proceeds at closing (after the repayment by San Jose of the mortgage loans secured by the 170 Almaden, 150 Almaden and 185 Park Avenue buildings with a balance of approximately $23,300,000, loan prepayment premiums of approximately $2,422,000 and closing costs), of which the Partnership's share was approximately $24,700,000. A description of the sale of the property is contained in the Notes of the financial statements of JMB Income - XI. Such notes are incorporated herein by reference.
The Partnership uses the allowance method of accounting for doubtful accounts. Provisions for uncollectible tenant receivables in the amounts of $0, $588,052 and $783,417 were recorded in 1997, 1996 and 1995, respectively. Bad debt expense is included in Property Operating Expenses.
The preparation of financial statements in accordance with GAAP requires San Jose to make estimates and assumptions that affect the reported or disclosed amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
The accounting policies of San Jose are the same as those of the Partnership. Accordingly, reference is made to the Notes to the Partnership's consolidated financial statements filed with this annual report. Such notes are incorporated herein by reference.
VENTURE AGREEMENT
A description of the venture agreement and the management agreement is contained in the Notes to Consolidated Financial Statements of JMB Income - XI. Such note is incorporated herein by reference.
MANAGEMENT AGREEMENT
In December 1994, the property manager, an affiliate of the General Partners of the Partnership, sold substantially all of its assets and assigned its interest in the management contracts to an unaffiliated third party who continues to manage the complex. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996: 1997 1996 ---------- ---------- 7.85% mortgage note; secured by the 170 Almaden Building in San Jose, California; principal and interest payments of $13,537 are due monthly through September 2003 when the remaining principal of approximately $169,000 is due. . . . . . . . . $ 838,875 931,863
8.4% mortgage note; secured by the 150 Almaden and 185 Park Avenue buildings, and certain related parking improvements in San Jose, California; interest only payments of $157,500 are due monthly through December 1997; principal and interests payments of $179,663 are due monthly through November 2001 when the entire principal of approx- imately $21,421,000 is due . . . 22,500,000 22,500,000 ----------- ---------- Total debt. . . . . . . . 23,338,875 23,431,863 Less current portion of long-term debt. . . . 376,986 92,988 ----------- ---------- Total long-term debt. . . $22,961,889 23,338,875 =========== ==========
Five year maturities of long-term debt are as follows:
1998. . . . . . . . . . $ 376,986 1999. . . . . . . . . . 409,305 2000. . . . . . . . . . 444,398 2001. . . . . . . . . . 21,723,357 2002. . . . . . . . . . 137,509 ===========
TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by San Jose to the General Partners and their affiliates as of December 31, 1997 and for the years ended December 31, 1997, 1996 and 1995 were as follows:
UNPAID AT DECEMBER 31, 1997 1996 1995 1997 -------- -------- -------- ------------ Property management and leasing fees. . $ 65,012 77,870 60,000 -- Insurance commissions 23,530 25,768 30,140 -- -------- ------- ------- ------ $ 88,542 103,638 90,140 -- ======== ======= ======= ======
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes of or disagreements with accountants during 1996 and 1997.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Managing General Partner of the Partnership is JMB Realty Corporation ("JMB"), a Delaware corporation. Substantially all of the outstanding shares of JMB are owned, directly or indirectly, by certain of its officers, directors, members of their families and their affiliates. JMB has responsibility for all aspects of the Partnership's operations. The Associate General Partner of the Partnership is Income Associates-XI, L.P., an Illinois limited partnership with JMB as its sole general partner.
The limited partners of Income Associates-XI, L.P. are generally officers, directors and affiliates of JMB or its affiliates. The Partnership is subject to certain conflicts of interest arising out of its relationships with the General Partners and their affiliates as well as the fact that the General Partners and their affiliates are engaged in a range of real estate activities. Certain services have been and may in the future be provided to the Partnership or its investment properties by affiliates of the General Partners, including property management services and insurance brokerage services. In general, such services are to be provided on terms no less favorable to the Partnership than could be obtained from independent third parties and are otherwise subject to conditions and restrictions contained in the Partnership Agreement. The Partnership Agreement permits the General Partners and their affiliates to provide services to, and otherwise deal and do business with, persons who may be engaged in transactions with the Partnership, and permits the Partnership to borrow from, purchase goods and services from, and otherwise to do business with, persons doing business with the General Partners or their affiliates. The General Partners and their affiliates may be in competition with the Partnership under certain circumstances, including, in certain geographical markets, for tenants and/or for the sale of property. Because the timing and amount of cash distributions and profits and losses of the Partnership may be affected by various determinations by the General Partners under the Partnership Agreement, including whether and when to sell a property, the establishment and maintenance of reasonable reserves, the timing of expenditures and the allocation of certain tax items under the Partnership Agreement, the General Partners may have a conflict of interest with respect to such determinations.
The names, positions held and length of service therein of each director and the executive and certain other officers of the Managing General Partner of the Partnership are as follows:
SERVED IN NAME OFFICE OFFICE SINCE - ---- ------ ------------ Judd D. Malkin Chairman 5/03/71 Director 5/03/71 Chief Financial Officer 2/22/96 Neil G. Bluhm President 5/03/71 Director 5/03/71 Burton E. Glazov Director 7/01/71 Stuart C. Nathan Executive Vice President 5/08/79 Director 3/14/73 A. Lee Sacks Director 5/09/88 John G. Schreiber Director 3/14/73 H. Rigel Barber Executive Vice President 1/02/87 Chief Executive Officer 8/01/93 Glenn E. Emig Executive Vice President 1/01/93 Chief Operating Officer 1/01/95 Gary Nickele Executive Vice President 1/01/92 General Counsel 2/27/84 Gailen J. Hull Senior Vice President 6/01/88 Howard Kogen Senior Vice President 1/02/86 Treasurer 1/01/91
There is no family relationship among any of the foregoing directors or officers. The foregoing directors have been elected to serve a one-year term until the annual meeting of the Managing General Partner to be held on June 3, 1998. All of the foregoing officers have been elected to serve one-year terms until the first meeting of the Board of Directors held after the annual meeting of the Managing General Partner to be held on June 3, 1998. There are no arrangements or understandings between or among any of said directors or officers and any other person pursuant to which any director or officer was elected as such.
JMB is the corporate general partner of Carlyle Real Estate Limited Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"), Carlyle Real Estate Limited Partnership-XII ("Carlyle-XII"), Carlyle Real Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited Partnership-XV ("Carlyle-XV"), Carlyle Real Estate Limited Partnership-XVI ("Carlyle-XVI"), Carlyle Real Estate Limited Partnership-XVII ("Carlyle-XVII"), JMB Mortgage Partners, Ltd.-III ("Mortgage Partners-III"), JMB Mortgage Partners, Ltd.-IV ("Mortgage Partners-IV"), Carlyle Income Plus, Ltd. ("Carlyle Income Plus") and Carlyle Income Plus, L.P.-II ("Carlyle Income Plus-II") and the managing general partner of JMB Income Properties, Ltd.-IV ("JMB Income-IV"), JMB Income Properties, Ltd.-V ("JMB Income-V"), JMB Income Properties, Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-X ("JMB Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"), JMB Income Properties, Ltd.-XII ("JMB Income-XII") and JMB Income Properties, Ltd.-XIII ("JMB Income-XIII"). JMB is also the sole general partner of the associate general partner of most of the foregoing partnerships. Most of the foregoing directors and officers are also officers and/or directors of various affiliated companies of JMB including Arvida/JMB Managers, Inc. (the general partner of Arvida/JMB Partners, L.P. ("Arvida")) and Income Growth Managers, Inc. (the corporate general partner of IDS/JMB Balanced Income Growth, Ltd. ("IDS/BIG")). Most of such directors and officers are also partners, directly or indirectly, of certain partnerships which are associate general partners in the following real estate limited partner- ships: the Partnership, Carlyle-VII, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle-XVI, Carlyle-XVII, JMB Income-VII, JMB Income-X, JMB Income-XII, JMB Income-XIII, Mortgage Partners-III, Mortgage Partners-IV, Carlyle Income Plus, Carlyle Income Plus-II and IDS/BIG.
The business experience during the past five years of each such director and officer of the Managing General Partner of the Partnership in addition to that described above is as follows:
Judd D. Malkin (age 60) is an individual general partner of JMB Income-IV and JMB Income-V. Mr. Malkin has been associated with JMB since October, 1969. Mr. Malkin is also a director of Urban Shopping Centers, Inc. ("USC, Inc."), an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a Certified Public Accountant.
Neil G. Bluhm (age 60) is an individual general partner of JMB Income-IV and JMB Income-V. Mr. Bluhm has been associated with JMB since August, 1970. Mr. Bluhm is a principal of Walton Street Real Estate Fund I, L.P. and a director of USC, Inc. He is a member of the Bar of the State of Illinois and a Certified Public Accountant.
Burton E. Glazov (age 59) has been associated with JMB since June, 1971 and served as an Executive Vice President of JMB until December 1990. He is a member of the Bar of the State of Illinois and a Certified Public Accountant.
Stuart C. Nathan (age 56) has been associated with JMB since July, 1972. He is a member of the Bar of the State of Illinois.
A. Lee Sacks (age 64) has been associated with JMB since December, 1972. He is also President and a director of JMB Insurance Agency, Inc.
John G. Schreiber (age 51) has been associated with JMB since December, 1970 and served as an Executive Vice President of JMB until December 1990. Mr. Schreiber is President of Schreiber Investments, Inc., a company which is engaged in the real estate investing business. He is also a senior advisor and partner of Blackstone Real Estate Advisors L.P., an affiliate of the Blackstone Group, L.P. Mr. Schreiber is also a director of USC, Inc., a trustee of Amli Residential Property Trust and a director of a number of investment companies advised or managed by T. Rowe Price Associates and its affiliates. He holds a Masters degree in Business Administration from Harvard University Graduate School of Business.
H. Rigel Barber (age 48) has been associated with JMB since March, 1982. He holds a J.D. degree from Northwestern Law School and is a member of the Bar of the State of Illinois.
Glenn E. Emig (age 50) has been associated with JMB since December, 1979. Prior to becoming Executive Vice President of JMB in 1993, Mr. Emig was Executive Vice President and Treasurer of JMB Institutional Realty Corporation. He holds a Masters Degree in Business Administration from the Harvard University Graduate School of Business and is a Certified Public Accountant.
Gary Nickele (age 45) has been associated with JMB since February, 1984. He holds a J.D. degree from the University of Michigan Law School and is a member of the Bar of the State of Illinois.
Gailen J. Hull (age 49) has been associated with JMB since March 1982.
He holds a Masters degree in Business Administration from Northern Illinois University and is a Certified Public Accountant.
Howard Kogen (age 62) has been associated with JMB since March, 1973. He is a Certified Public Accountant.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no officers or directors. The General Partners of the Partnership are entitled to receive a share of cash distributions, when and as cash distributions are made to the Investors, and a share of profits or losses. Reference is also made to the Notes for a description of such transactions, distributions and allocations. In 1997, 1996 and 1995, no cash distributions were paid to the General Partners.
Affiliates of the Managing General Partner provided property management services to the Partnership for 1996 for the Riverside Square Mall in Hackensack, New Jersey at a fee not to exceed 4% of the fixed and percentage rent of property, plus leasing commissions. In 1997, such affiliates earned property management and leasing fees amounting to $244,256 which was paid as of December 31, 1997. As set forth in the Prospectus of the Partnership, the Managing General Partner must negotiate such agreements on terms no less favorable to the Partnership than those customarily charged for similar services in the relevant geographical area (but in no event at rates greater than 6% of the gross receipts from a property), and such agreements must be terminable by either party thereto, without penalty, upon 60 days' notice.
JMB Insurance Agency, Inc., an affiliate of the Managing General Partner, earned and received insurance brokerage commissions in 1997 aggregating $44,126 in connection with the provision of insurance coverage for certain of the real property investments of the Partnership and its venture. Such commissions are at rates set by insurance companies for the classes of coverage provided.
The General Partners of the Partnership may be reimbursed for their salaries, salary-related and direct expenses relating to the administration of the Partnership and the operation of the Partnership's real property investments. In 1997, an affiliate of the General Partners earned reimbursement for such expenses in the amount of $65,845 of which $23,679 was unpaid at December 31, 1997.
The Partnership is permitted to engage in various transactions involving affiliates of the Managing General Partner of the Partnership. The relationship of the Managing General Partner (and its directors and officers) to its affiliates is set forth above in Item 10 above and Exhibit 21 hereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business relationships with the Managing General Partner, affiliates or their management other than those described in Items 10 and 11 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements (See Index to Financial Statements filed with this annual report).
2. Exhibits.
3-A. The Prospectus of the Partnership dated July 11, 1984 as supplemented July 24, 1984 and November 26, 1984, as filed with the Commission pursuant to Rules 424(b) and 424(c), is hereby incorporated herein by reference. Certain pages of the prospectus are hereby incorporated herein by reference to Exhibit 3-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993.
3-B. Amended and Restated Agreement of Limited Partnership set forth as Exhibit A to the Prospectus, which agreement is hereby incorporated herein by reference to Exhibit 3-B to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993.
4-A. Mortgage loan agreement, Mortgage and Security Agreement, Secured Promissory Note B, Secured Promissory Note A and Assignment of Leases and Rents relating to Riverside Square Mall between the Partnership and Principal Mutual Life Insurance Company dated August 30, 1994 are hereby incorporated herein by reference to the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0-15966) dated March 27, 1995.
4-B. Mortgage loan agreement between San Jose and Connecticut General Life Insurance Co. dated June 20, 1985 relating to Park Center Plaza are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 20, 1985.
4-C. Mortgage loan agreement, Amended and Restated Deed of Trust, Security Agreement with assignment of Rents and Fixture Filing and Real Estate tax escrow and Security Agreement between San Jose and Connecticut General Life Insurance Co. dated November 30, 1994 is hereby incorporated herein by reference to the Partnership's Report of Form 10-K for December 31, 1994 (File No. 0-15966) dated March 27, 1995.
10-A. Acquisition documents relating to the purchase by the Partnership of Riverside Square in Hackensack, New Jersey are hereby incorporated by reference to the Partnership's prospectus on Form S-11 (File No. 2-90503) dated July 11, 1984.
10-B. Acquisition documents including the venture agreement relating to the purchase by the Partnership of Park Center Plaza in San Jose, California are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 20, 1985.
10-C. Deed in Lieu of Foreclosure Agreement and Memorandum of Mutual Releases dated November 15, 1994 between Three Hundred Delaware Avenue Associates, L.P. and EML Associates are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated November 15, 1994.
10-D. Request for Full Reconveyance relating to the repayment of the mortgage indebtedness by San Jose to Connecticut General Life Insurance Company dated October 31, 1995 is hereby incorporated herein by reference to the Partnership's Report on Form 10-K (File No. 0-15966) dated March 25, 1996.
10-E. Purchase - Sale Agreement with exhibits dated December 5, 1997 relating to the sale by the Partnership, through its joint venture, of the Royal Executive Park office complex in Rye Brook, New York between Royal Executive Park I, Royal Executive Park II, Royal Executive III and Reckson Operating Partnership, L.P. are filed herewith.
10-F. First Amendment to the Purchase - Sale Agreement dated February 10, 1998 relating to the sale by San Jose of the Park Center Financial Plaza office complex in San Jose, California between JMB/San Jose Associates and Divco West Properties, LLC are filed herewith.
10-G. Purchase - Sale Agreement with exhibits dated December 3, 1997 relating to the sale by San Jose of the Park Center Financial Plaza office complex in San Jose, California between JMB/San Jose Associates and Divco West Properties, LLC are filed herewith.
21. List of Subsidiaries
24. Powers of Attorney
27. Financial Data Schedule
--------------
(b) No reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report.
No annual report or proxy material for the year 1997 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JMB INCOME PROPERTIES, LTD. - XI
By: JMB Realty Corporation Managing General Partner
GAILEN J. HULL By: Gailen J. Hull Senior Vice President Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: JMB Realty Corporation Managing General Partner
JUDD D. MALKIN* By: Judd D. Malkin, Chairman and Chief Financial Officer Date: March 25, 1998
NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 25, 1998
H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 25, 1998
GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 25, 1998
GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 25, 1998
A. LEE SACKS* By: A. Lee Sacks, Director Date: March 25, 1998
By: STUART C. NATHAN* Stuart C. Nathan, Executive Vice President and Director Date: March 25, 1998
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 25, 1998
JMB INCOME PROPERTIES, LTD. - XI
EXHIBIT INDEX
DOCUMENT INCORPORATED BY REFERENCE Page ------------ ----
3-A. Certain pages of the Prospectus dated July 11, 1984 Yes --
3-B. Amended and Restated Agreement of Limited Partnership Yes --
4-A. Mortgage loan agreement related to Riverside Square Yes --
4-B. Mortgage loan agreement related to Park Center Financial Center Yes --
4-C. Mortgage loan agreement related to Park Center Plaza Yes --
10-A. Acquisition documents related to Riverside Square Yes --
10-B. Acquisition documents related to Park Center Plaza Yes --
10-C. Disposition documents related to Bank of Delaware Yes --
10-D. Request for Full Reconveyance related to San Jose Yes --
10-E. Purchase and Sale Agreement related to the Royal Executive Park office complex No --
10-F. First Amendment to the Purchase and Sale Agreement related to San Jose No --
10-G. Purchase and Sale Agreement with exhibits related to San Jose No --
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business relationships with the Managing General Partner, affiliates or their management other than those described in Items 10 and 11 above.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements (See Index to Financial Statements filed with this annual report).
2. Exhibits.
3-A. The Prospectus of the Partnership dated July 11, 1984 as supplemented July 24, 1984 and November 26, 1984, as filed with the Commission pursuant to Rules 424(b) and 424(c), is hereby incorporated herein by reference. Certain pages of the prospectus are hereby incorporated herein by reference to Exhibit 3-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993.
3-B. Amended and Restated Agreement of Limited Partnership set forth as Exhibit A to the Prospectus, which agreement is hereby incorporated herein by reference to Exhibit 3-B to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993.
4-A. Mortgage loan agreement, Mortgage and Security Agreement, Secured Promissory Note B, Secured Promissory Note A and Assignment of Leases and Rents relating to Riverside Square Mall between the Partnership and Principal Mutual Life Insurance Company dated August 30, 1994 are hereby incorporated herein by reference to the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0-15966) dated March 27, 1995.
4-B. Mortgage loan agreement between San Jose and Connecticut General Life Insurance Co. dated June 20, 1985 relating to Park Center Plaza are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 20, 1985.
4-C. Mortgage loan agreement, Amended and Restated Deed of Trust, Security Agreement with assignment of Rents and Fixture Filing and Real Estate tax escrow and Security Agreement between San Jose and Connecticut General Life Insurance Co. dated November 30, 1994 is hereby incorporated herein by reference to the Partnership's Report of Form 10-K for December 31, 1994 (File No. 0-15966) dated March 27, 1995.
10-A. Acquisition documents relating to the purchase by the Partnership of Riverside Square in Hackensack, New Jersey are hereby incorporated by reference to the Partnership's prospectus on Form S-11 (File No. 2-90503) dated July 11, 1984.
10-B. Acquisition documents including the venture agreement relating to the purchase by the Partnership of Park Center Plaza in San Jose, California are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 20, 1985.
10-C. Deed in Lieu of Foreclosure Agreement and Memorandum of Mutual Releases dated November 15, 1994 between Three Hundred Delaware Avenue Associates, L.P. and EML Associates are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated November 15, 1994.
10-D. Request for Full Reconveyance relating to the repayment of the mortgage indebtedness by San Jose to Connecticut General Life Insurance Company dated October 31, 1995 is hereby incorporated herein by reference to the Partnership's Report on Form 10-K (File No. 0-15966) dated March 25, 1996.
10-E. Purchase - Sale Agreement with exhibits dated December 5, 1997 relating to the sale by the Partnership, through its joint venture, of the Royal Executive Park office complex in Rye Brook, New York between Royal Executive Park I, Royal Executive Park II, Royal Executive III and Reckson Operating Partnership, L.P. are filed herewith.
10-F. First Amendment to the Purchase - Sale Agreement dated February 10, 1998 relating to the sale by San Jose of the Park Center Financial Plaza office complex in San Jose, California between JMB/San Jose Associates and Divco West Properties, LLC are filed herewith.
10-G. Purchase - Sale Agreement with exhibits dated December 3, 1997 relating to the sale by San Jose of the Park Center Financial Plaza office complex in San Jose, California between JMB/San Jose Associates and Divco West Properties, LLC are filed herewith.
21. List of Subsidiaries
24. Powers of Attorney
27. Financial Data Schedule
--------------
(b) No reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report.
No annual report or proxy material for the year 1997 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JMB INCOME PROPERTIES, LTD. - XI
By: JMB Realty Corporation Managing General Partner
GAILEN J. HULL By: Gailen J. Hull Senior Vice President Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: JMB Realty Corporation Managing General Partner
JUDD D. MALKIN* By: Judd D. Malkin, Chairman and Chief Financial Officer Date: March 25, 1998
NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 25, 1998
H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 25, 1998
GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 25, 1998
GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 25, 1998
A. LEE SACKS* By: A. Lee Sacks, Director Date: March 25, 1998
By: STUART C. NATHAN* Stuart C. Nathan, Executive Vice President and Director Date: March 25, 1998
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 25, 1998
JMB INCOME PROPERTIES, LTD. - XI
EXHIBIT INDEX
DOCUMENT INCORPORATED BY REFERENCE Page ------------ ----
3-A. Certain pages of the Prospectus dated July 11, 1984 Yes --
3-B. Amended and Restated Agreement of Limited Partnership Yes --
4-A. Mortgage loan agreement related to Riverside Square Yes --
4-B. Mortgage loan agreement related to Park Center Financial Center Yes --
4-C. Mortgage loan agreement related to Park Center Plaza Yes --
10-A. Acquisition documents related to Riverside Square Yes --
10-B. Acquisition documents related to Park Center Plaza Yes --
10-C. Disposition documents related to Bank of Delaware Yes --
10-D. Request for Full Reconveyance related to San Jose Yes --
10-E. Purchase and Sale Agreement related to the Royal Executive Park office complex No --
10-F. First Amendment to the Purchase and Sale Agreement related to San Jose No --
10-G. Purchase and Sale Agreement with exhibits related to San Jose No --
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No