ITEM 1: BUSINESS
It should be noted that this 10-K contains forward-looking information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty, including trends in the real estate investment market, projected leasing and sales, and the future prospects for the Registrant. Actual results could differ materially from those contemplated by such statements.
Nooney Real Property Investors-Four, L.P. (the "Registrant") is a limited partnership formed under the Missouri Uniform Limited Partnership Law on February 9, 1982, to invest, on a leveraged basis, in income-producing real properties such as shopping centers, office buildings, apartment complexes, office/warehouses and other commercial properties. The Registrant originally invested in five real property investments. During fiscal 1990, one of the Registrant's properties, Yankee Square I Office Building in Eagan, Minnesota, was sold to an individual unaffiliated with the Registrant. During fiscal 1991, one of the Registrant's properties, Courtyard Office Building in Creve Coeur, Missouri, was conveyed by deed in lieu of foreclosure to Courtyard Office Building, Inc., the assignee of Courtyard Associates, in order to satisfy the default that existed under the mortgage note held by Courtyard Associates. On December 22, l983, the Registrant purchased the Quad I Office/Warehouse Building ("Quad I") located at 1680-1758 Westbelt Drive in Columbus, Ohio. During fiscal 1993, Quad I Warehouse was sold to a party unaffiliated with the Registrant.
The Registrant's primary investment objectives are to preserve and protect the Limited Partners' capital and obtain long-term appreciation in the value of its properties. The term of the Registrant is until December 31, 2082. It was originally anticipated that the Registrant would sell or refinance its properties within approximately five to ten years after their acquisition. The depression of real estate values experienced nationwide from 1988 to 1993 lengthened this time frame in order to achieve the goal of capital appreciation.
The real estate investment market began to improve in 1994 and has continued this improvement through 1997 and is expected to further continue improving over the next several years. Management believes this trend should increase the value of Woodhollow in the future. The sale value of Cobblestone Court will be dependent on the Registrant's ability to re-lease its vacant spaces as discussed later. The Registrant is intended to be self-liquidating and proceeds, if any, from the sale or refinancing of the Registrant's real property investments will not be invested in new properties but will be distributed to the Partners or, at the discretion of the General Partners, applied to capital improvements to, or the payment of indebtedness with respect to, existing properties, the payment of other expenses or the establishment of reserves. (See Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.)
The business in which the Registrant is engaged is highly competitive. The Registrant's investment properties are located in or near major urban areas and are subject to competition from other similar types of properties in such areas. The Registrant competes for tenants for its properties with numerous other real estate limited partnerships, as well as with individuals, corporations, real estate investment trusts and other entities engaged in real estate investment activities. Such competition is based on such factors as location, rent schedules and services and amenities provided.
The Registrant has no employees. Property management services for the Registrant's investment properties are provided by Nooney, Inc. an affiliate of the General Partners.
ITEM 2:
ITEM 2: PROPERTIES
On February 16, l982, the Registrant purchased the Cobblestone Court Shopping Center ("Cobblestone"), located at 14150 Nicollet Avenue South in Burnsville, Minnesota, a suburb of Minneapolis. Cobblestone, which contains approximately 98,000 net rentable square feet, was constructed in l980 of brick and concrete with a wood facade covering a portion of an enclosed pedestrian walkway. Cobblestone is located on an 11 acre site which provides paved parking for 605 cars. The purchase price of Cobblestone was $5,882,318. Cobblestone was 69% leased by 14 tenants at year end.
On July 28, l982, the Registrant purchased the Woodhollow Apartments ("Woodhollow"), a 402-unit garden apartment complex located on Dorsett Road in west St. Louis County, Missouri. The complex, which was constructed in phases in l971 and l972, consists of 17 buildings containing one, two and three bedroom apartments. The complex is located on a 26 acre site which provides paved parking for 707 cars. The purchase price of Woodhollow was $12,665,147. Woodhollow was 92% occupied at year end.
Reference is made to Note 3 to Notes to Financial Statements filed herewith as Exhibit 99.3 in response to Item 8 for a description of the mortgage indebtedness secured by the Registrant's real property investments.
The following table sets forth certain information as of November 30, 1997, relating to the properties owned by the Registrant.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
The Registrant is not a party 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 the fourth quarter of fiscal 1997.
PART II
ITEM 5:
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of February 1, 1998, there were 1,250 record holders of Interests in the Registrant. There is no public market for the Interests, and it is not anticipated that a public market will develop.
There were no cash distributions paid to the Limited Partners during fiscal 1996 or fiscal 1997.
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA
ITEM 7:
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash reserves as of November 30, 1997 are $327,910, an increase of $116,070 from the year ended November 30, 1996. The increase in cash from year to year is due to higher balances in the real estate tax escrow accounts. The real estate taxes for Woodhollow are due in December of each year. In 1996 the taxes were paid early due to resolution of a real estate tax appeal. Cobblestone's taxes are due in May and October each year. Cobblestone did not have adequate funds in its real estate tax escrow to pay the taxes due October 15, 1997, ($152,649). These taxes remain delinquent to date and penalties and interest continue to accrue. The real estate tax escrow account for Cobblestone had a balance of $105,227 as of November 30, 1997. The anticipated capital expenditures during 1998 are:
Leasing Operating Other Capital Capital Capital Total ------- ------- ------- ----- Woodhollow $ 0 $64,220 $44,369 $108,589 Cobblestone 0 0 0 0 ------------------------------------------------- $ 0 $64,220 $44,369 $108,589
At Woodhollow, operating capital will be spent for carpet and vinyl replacement, hot water heaters, refrigerators, and other appliances. In 1998, the Registrant anticipates spending $270,000 from the capital reserve escrow for Phase III of the renovation program. The other capital expenditures will be for new heating and air conditioning units and new signage on the property. No capital expenditures have been forecasted at Cobblestone as no new anchor has been identified for the East end of the Mall at this time.
During 1994, the Registrant negotiated with the first mortgage lender on Woodhollow an extension of the maturity of its note which matured August 1, 1994. Under the modification, the note was extended for an additional seven years reducing the interest rate from 10-3/8% to 9-1/8%. During the first three years, the payments were interest only. Commencing September 1, 1997, the Registrant pays principal based on a 15-year amortization schedule. The balance of the loan as of November 30, 1997, was $8,255,105.In connection with the refinancing, the Registrant was required to establish a capital reserve escrow account to fund certain deferred capital improvements including new siding, parking lot upgrades and common area renovations estimated to cost approximately $900,000. Since the capital renovation program was begun, the costs to complete the scope of work have increased due to faster deterioration of building exteriors not yet completed. The program will also take four, not three years to complete as funds can only be spent as they accumulate in the reserve account. In 1996, Phase I of the capital renovation program was completed and $283,000 of the capital reserve escrow was spent. In 1997, Phase II was completed and $387,000 of the capital reserve escrow was spent.
In December 1996 the Registrant entered into a new first mortgage on Cobblestone which called for interest only payments at a rate of LIBOR plus 2.75%. The note was originally due in May 1997 and had been extended several times by the lender. The note was due February 1, 1998. The balance of the loan as of November 30, 1997, was $2,602,432. The holder of the second mortgage on Cobblestone and a second mortgage on Woodhollow also extended these notes until October 31, 1998. The note secured by Cobblestone is at an interest rate of LIBOR plus 2.75% and requires interest only payments. At November 30, 1997, the balance of the second mortgage on Cobblestone was $1,689,571. The note secured by Woodhollow is at 1% over the bank's prime rate and also requires monthly principal payments of $1,000 per month. The balance of the second mortgage on Woodhollow was $199,601 at November 30, 1997. During 1997 the lender advanced additional funds on the Cobblestone second mortgage note to pay for the re-roofing of Cobblestone. This advance is secured by both properties and due October 31, 1998. At the time the roofing commenced, the new advance was changed to be at a rate of LIBOR plus 2.75%. The balance of this advance was $124,684.
The future liquidity of the Registrant is dependent on its ability to fund future capital expenditures and mortgage payments from operations and cash reserves, maintain occupancy and negotiate with lenders the refinancing of mortgage debt as it matures, and the sale of Cobblestone at a price sufficient to cover required obligations. As stated earlier, the Registrant is delinquent in the payment of real estate taxes due October 1997 for Cobblestone. At this time, the Registrant is unable to determine when it will have sufficient cash available to bring the taxes current. The Registrant believes the real estate taxes will not be paid until the center is sold and cash proceeds from the sale are available to pay all real estate taxes and penalties due. The Registrant will continue to manage the properties to achieve its investment objectives.
Results of Operations
The results of operations for the Registrant's properties for the year ended November 30, 1997, 1996 and 1995 are detailed in the schedule below. The information contained in the schedule are the results of operations for each property. Expenses of the Registrant are excluded.
Woodhollow Cobblestone ---------- ----------- ---- Revenues $ 2,375,142 $ 1,036,061 Expenses 2,446,486 1,156,046 -------------------------------
Net (Loss) $ (70,344) $ (119,985) ================================
---- Revenues $ 2,368,763 $ 1,125,543 Expenses 2,397,699 1,043,807 -------------------------------
Net Income (Loss) $ (28,936) $ 81,736 ===============================
---- Revenues $ 2,161,325 $ 1,230,146 Expenses 2,307,419 1,179,866 -------------------------------
Net Income (Loss) $ (146,094) $ 50,280 ===============================
1997 Property Comparisons
Cobblestone revenue declined $89,482 from 1996 to 1997, due to a decrease in base rental revenue ($41,148), real estate tax reimbursement ($30,589), percentage rent income ($5,503), and an increase in bad debt expense ($30,745). The revenues decreased due to the decrease in occupancy from 1997 to 1996. Expenses at Cobblestone increased $105,752 when comparing 1997 to 1996. Expenses increased primarily in the categories of cleaning ($19,175), snow removal ($19,028), real estate tax expense ($37,195), other professional services ($81,222), partially offset by a decrease in amortization expense ($55,269). The Registrant continues to work with a local brokerage firm to find an anchor tenant for the East end of the Mall. When the anchor tenant is located, the Mall will be put on the market for sale with the new lease in place. During 1997 the Registrant re-roofed the entire center to make it more saleable.
Operating results at Woodhollow were relatively steady. Revenue increased slightly when comparing 1997 to 1996. Operating expenses increased $47,787 when comparing the two years, mainly due to an increase in depreciation ($38,663) due to the numerous capital additions as part of the renovation program.
The occupancy levels at the Registrant's properties as of November 30 were:
Occupancy rates at November 30 1997 1996 1995 ------------------------------- Woodhollow 92% 95% 93% Cobblestone 69% 84% 92%
At Woodhollow, occupancy decreased during the fourth quarter of 1997 to 92%. The Registrant believes that the overall occupancy of the apartments will rebound once spring arrives and the demand for rental apartments improves.
Occupancy at Cobblestone decreased from 84% at the beginning of the year to 69% at the end of the year. During the year, one tenant renewed its space for 7,984 square feet and two tenants vacated who occupied 14,773 square feet. No new tenants were signed during the year. The main focus has been on finding a new anchor tenant for the East end of the Mall which was not accomplished during 1997. The brokerage firm is working several prospects and anticipate identifying a potential user during the first half of 1998. The center has one major tenant who occupies approximately 26% of the available space under a lease which expires in January 2001. A second major tenant occupies approximately 7-1/2% of the available space under a lease which expires April 2000.
Year 2000 issues
The Registrant believes that the impact of the year 2000 will not be of a major concern on any future results. The management company employed by the Registrant utilizes various computer software packages as tools in running its accounting operations. The Registrant's properties are maintained on software provided by a third party. The management company has received information from that company indicating that the main software program has all its core products already compatible with 2000 dates and that these have been proven in the field for over five years. A few of the add on products that are not critical to the management company's business are in process of being updated and the third party vendor anticipates compliance by the end of 1998.
1997 Comparisons
For the year ended November 30, 1997, the Registrant's consolidated revenues are $3,441,424 compared to $3,512,832 for the year ended November 30, 1996. This decrease in revenues is $71,408 or 2% and can be attributable to the decrease in revenues at Cobblestone due to the decrease in occupancy as previously discussed.
The Registrant's consolidated expenses for the year ended November 30, 1997 and 1996 were $3,635,172 and $3,531,565 respectively. The increase in expenses is $103,607 or 2.9% which can be mainly attributable to an increase in other operating expenses ($128,120), partially offset by a decrease in repairs and maintenance ($13,628) and a decrease in depreciation and amortization ($16,464).
The decrease in consolidated revenues combined with the increase in consolidated expenses produced the Registrant's net loss of $193,748 for the year ended November 30, 1997 versus net loss of $18,733 for the year ended November 30, 1996. The net loss per limited partnership unit dropped to $14.07 in 1997 compared to a loss of $1.36 in 1996. Cash flow provided by operating activities was $672,300 in 1997 compared to $443,959 in 1996. The increase is mainly attributable to the non-payment of real estate taxes on Cobblestone as discussed previously. Operating cash flow along with the capital reserve escrow for Woodhollow and additional borrowings of $376,216 enabled the Registrant to fund capital expenditures of $898,139.
1996 Comparisons
For the year ended November 30, 1996, the Registrant's consolidated revenues were $3,512,832 compared to $3,395,026 for the year-ended November 30, 1995. This increase in revenues was $117,806 or 3.5%. The increase in revenues is attributable to Woodhollow where increases were $207,438 versus a decrease in revenue at Cobblestone of $104,603. Woodhollow's revenues increased due to the strengthening market and the Registrant's ability to increase rental rates throughout the year.
The Registrant's consolidated expenses for the year-ended November 30, 1996 and 1995 were $3,531,565 and $3,546,861 respectively. The decrease in expenses from 1995 to 1996 was $15,296 or less than 1% and was attributable to a decrease in depreciation and amortization expense of $151,820 and offset by an increase in other operating expenses of $131,147. The decrease in depreciation expense is attributable to Cobblestone. Since the property has been held for sale during all of 1996, no depreciation was taken. Other operating expenses increased mainly at Woodhollow for expenses in cleaning, repairs and maintenance, administrative and corporate units. The increase in consolidated revenue combined with the relatively flat consolidated expenses produced the Registrant's net loss of $18,733 for the year-ended November 30, 1996 versus a net loss of $151,835 for the year-ended November 30, 1995. The net loss per limited partnership unit improved to $1.36 in 1996 compared to a loss of $11.03 in 1995. Cash flow provided by operating activities was $443,959 in 1996 compared to $158,363 in 1995. Operating cash flow, along with the capital reserve escrows for Woodhollow enabled the Registrant to fund capital expenditures of $408,706 and reduce the balances of notes payable by $99,236 during 1996.
Inflation
The effects of inflation did not have a material impact upon the Registrant's operation in fiscal l997 and are not expected to materially affect the Registrant's operation in l998.
Interest Rates
Interest rates on floating rate debt remained constant in 1996 and went down in 1997. Future increases in the prime interest rate can adversely affect the operations of the Registrant.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements of the Registrant are filed herewith as Exhibit 99.3 and are incorporated herein by reference (see Item 14(a)(1)). The supplementary financial information specified by Item 302 of Regulation S-K is provided in Item 7.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10:
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Registrant responsible for all aspects of the Registrant's operations are Gregory J. Nooney, Jr., age 67, and Nooney Capital Corp., a Missouri corporation. Gregory J. Nooney, Jr. is a senior officer of Nooney Company, the sponsor of the Registrant.
The background and experience of the General Partners are as follows:
Gregory J. Nooney, Jr. joined Nooney Company in 1954 and is currently Chairman of the Board and Chief Executive Officer.
John J. Nooney is a Special General Partner of the Partnership and as such, does not exercise control of the affairs of the Partnership.
John J. Nooney joined Nooney Company in 1958 and was President and Treasurer until he resigned in 1992.
Nooney Capital Corp. was formed in February 1982 for the purpose of being a general and/or limited partner in the Registrant and other limited partnerships. Gregory J. Nooney, Jr. and Patricia A. Nooney are directors of Nooney Capital Corp.
Gregory J. Nooney, Jr. and John J. Nooney are brothers. Gregory J. Nooney, Jr. and the estae of Faith L. Nooney (the deceased wife of John J. Nooney) are stockholders of Nooney Company, with Gregory J. Nooney, Jr. controlling all voting stock of Nooney Company.
PAN, Inc. became a General Partner during 1997 and is wholly-owned by Patricia A. Nooney, the daughter of Gregory J. Nooney, Jr.
The General Partners will continue to serve as General Partners until their withdrawal or their removal from office by the Limited Partners.
Certain of the General Partners act as general partners of limited partnerships and hold directorships of companies with a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of the Act. A list of such directorships, and the limited partnerships for which the General Partners serve as general partners, is filed herewith as Exhibit 99.1 and incorporated herein by reference.
During 1993 Lindbergh Boulevard Partners, L.P. filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. Gregory J. Nooney, Jr. is the general partner of Nooney Ltd. II, L.P, which in turn is the general partner of Nooney Development Partners, L.P., which in turn is the general partner of Nooney-Hazelwood Associates, L.P., which is the general partner of Lindbergh Boulevard Partners, L.P. Lindbergh Boulevard Partners, L.P. emerged from bankruptcy on May 17, 1994, when its Plan of Reorganization was confirmed.
On October 31, 1997, Nooney Company sold its wholly-owned subsidiary, Nooney Capital Corp., the corporate general partner of the Partnership to S-P Properties, Inc., a California corporation, which in turn is a wholly-owned subsidiary of CGS Real Estate Company, Inc., a Texas corporation. Simultaneously, Gregory J. Nooney, Jr., an individual general partner and PAN, Inc., a corporate general partner, sold their economic interests to S-P Properties, Inc. and resigned as general partners.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION
The General Partners are entitled to a share of distributions and a share of profits and losses as more fully described under the headings "Compensation to General Partners and Affiliates" on pages 9-11 and "Profits and Losses for Tax Purposes; Distributions; and Expenses of General Partners" on pages A-16 to A-19 of the Prospectus of the Registrant dated April 8, 1982, as supplemented and filed pursuant to Rule 424(c) of the Securities Act of 1933 (the "Prospectus"), which are incorporated herein by reference.
During fiscal l997 there were no cash distributions paid to the General Partners by the Registrant.
See Item 13 below for a discussion of transactions between the Registrant and certain affiliates of the General Partners.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
No person is known to the Registrant to be the beneficial owner of more than 5% of the outstanding Interests of the Registrant.
(b) Security Ownership of Management.
None of the General Partners is known to the Registrant to be the beneficial owner, either directly or indirectly, of any Interests in the Registrant.
(c) Changes in Control.
There are no arrangements known to the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others.
Certain affiliates of the General Partners are entitled to certain fees and other payments from the Registrant in connection with certain transactions of the Registrant as more fully described under the headings "Compensation to General Partners and Affiliates" on pages 9-11 and "Management" on pages 26-28 of the Prospectus, which are incorporated herein by reference.
Nooney Krombach Company, the manager of the Registrant's properties, is a wholly-owned subsidiary of Nooney Company. Nooney Krombach Company is entitled to receive monthly compensation from the Registrant for property management and leasing services, plus administrative expenses. During fiscal 1997 the Registrant paid property management fees of $166,624 to Nooney Krombach Company and $36,667 as reimbursement for indirect expenses incurred in connection with management of the Registrant. On October 31, 1997, CGS Real Estate Company purchased the real estate management business of Nooney Krombach Company and formed Nooney, Inc. to perform the management of the Registrant. The Registrant paid Nooney, Inc. $14,296 in property management fees in 1997 and $3,333 as reimbursement for indirect expenses incurred in connection with the management of the Registrant.
See Item 11 above for a discussion of cash distributions paid to the General Partners during fiscal l997.
(b) Certain Business Relationships.
The relationship of certain of the General Partners to certain of their affiliates is set forth in Item 13(a) above. Also see Item 13(a) above for a discussion of amounts paid by the Registrant to the General Partners or their affiliates during fiscal 1997.
(c) Indebtedness of Management.
Not Applicable.
(d) Transactions with promoters.
Not Applicable.
PART IV
ITEM 14:
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements (filed herewith as Exhibit 99.3):
Independent auditors' report Balance sheets Statements of operations Statements of partners' equity (deficiency in assets) Statements of cash flows Notes to financial statements
(2) Financial Statement Schedules (filed herewith as Exhibit 99.3):
Schedule - Reconciliation of partners' equity (deficiency in assets) Schedule III - Real estate and accumulated depreciation
All other schedules are omitted because they are inapplicable or not required under the instructions.
(3) Exhibits:
See Exhibit Index on Page 18.
(b) Reports on Form 8-K
On November 14, 1997, the Registrant filed a report on Form 8-K which reported an Item 1, Changes in Control of Registrant.
(c) Exhibits:
See Exhibit Index on Page 18.
(d) Not Applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) under the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NOONEY REAL PROPERTY INVESTORS-FOUR, L.P.
Date: February 27, 1998 /s/ Gregory J. Nooney, Jr. ----------------------------- -------------------------------- Gregory J. Nooney, Jr. General Partner
PAN, Inc. General Partner
Date: February 27, 1998 By: /s/ Patricia A. Nooney ----------------------------- -------------------------------- Patricia A. Nooney President and Secretary
Nooney Capital Corp. General Partner
Date: February 27, 1998 By: /s/ Gregory J. Nooney, Jr. ----------------------------- -------------------------------- Gregory J. Nooney, Jr. Chairman of the Board and Chief Executive Officer
By: /s/ Patricia A. Nooney -------------------------------- Patricia A. Nooney Senior Vice President and Secretary