Item 1. Business
The Registrant, Prudential-Bache/A.G. Spanos Realty Partners L.P., I (the "Partnership"), is a limited partnership formed on June 3, 1988 under Delaware law. The business of the Partnership is managed and controlled by its general partners (the "General Partners"), A.G. Spanos Realty Partners, L.P. (the "Spanos General Partner") and Prudential-Bache Properties, Inc. (the "Bache General Partner"). The primary purpose of the Partnership is to acquire from affiliates of the Spanos General Partner, invest in, hold, manage, sell, dispose of, and otherwise act with respect to eight properties on which multi-family residential developments have been constructed (the "Properties").
In June 1998, a majority in interest of the limited partners approved a proposal to sell the remaining Properties at a public auction and then distribute the sale proceeds in liquidation of the Partnership. The proposed auction and liquidation are part of an overall settlement of certain litigation which had been pending in the United States District Court for the Southern District of New York under the caption In re Prudential Securities Incorporated Limited Partnerships Litigation (MDL Docket 1005). In July 1998, the settlement, including the auction and liquidation, was approved by the court. In February and March 1999, the Partnership entered into contracts to sell the Properties to three different buyers. However, no assurance can be given that the sales will take place as provided in the contracts. See note F to the financial statements at Item 8.
The Properties are subject to competition from similar apartment properties located in close proximity, including properties owned by affiliates of the Spanos General Partner. The Properties compete for a variety of tenant groups, including young professionals, retail, service and trade employees, students and retirees. Competition for tenants is principally on the basis of location, physical condition, amenities, and rental rates. The location and condition of the Properties is considered to be good to above-average. The Properties feature fairly typical amenity packages, including swimming pools, tennis courts, fitness facilities, microwave ovens and guarded entrances, and are generally able to compete adequately with other projects in their respective markets.
Many areas, including Phoenix, Denver, Las Vegas, Sparks and Atlanta have seen construction of new apartment properties increase since 1992. This has led to the emergence of market segmentation between 1980's vintage properties (such as the Partnership's) and the newer generation of apartment properties completed recently. The newer properties have a competitive advantage not only because they are new, but because many are designed with larger unit sizes, have floor plans and finishes similar to those found in single family homes, and feature more extensive amenities than do the properties built in the 1980's. To date, these newer properties generally command higher rents and have competed with each other for tenants able to pay premium rents, leaving the 1980's vintage properties to compete with each other for the next tier of apartment renters. There is a risk, however, that if overbuilding in the upper segment of the market results in lower rents, the new properties with more extensive amenities could be highly competitive with the 1980's vintage apartment product.
Within the greater housing market, the apartment sector competes with single-family homes. Thus, apartment demand can be affected by the affordability of owner-occupied housing, which can increase and decrease with changes in mortgage interest rates.
The Partnership does not segregate revenues or assets by geographic regions. The Properties that accounted for more than 15% of revenue during any of the past three years are Rancho del Sol (16% to 17%), Harbor Pointe (18% to 19%), Regency Square (15%) and Bernardo Crest (16%). No single tenant accounted for 10% or more of the revenue for any of the three years ended December 31, 1998. The Partnership is engaged in only one reportable segment, which is real estate investment; therefore, presentation of industry segment information is not applicable. The General Partners believe the Properties are adequately insured. For more information regarding the Properties, see Item 2, Properties. For more information regarding the Partnership's operations, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Partnership has no employees. The officers and employees of the Spanos General Partner and the Bache General Partner, and their affiliates, perform services for the Partnership pursuant to the Partnership Agreement.
The Partnership resumed paying Distributions in 1996. Distributions had been suspended beginning with the third quarter of 1992. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of the factors affecting Distributions.
Item 2.
Item 2. Properties
Item 2. Properties (continued)
Item 3.
Item 3. Legal Proceedings
This information is incorporated by reference to Note E to the financial statements in Item 8, Financial Statements and Supplementary Data.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Unitholders during the fourth quarter of the fiscal year covered by this report through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Partnership's Depository Units of Limited Partnership Interest and Related Security Holder Matters
The Partnership had three limited partners as of March 4, 1999: AGS Depository Corp. (the "Assignor Limited Partner"), a wholly owned subsidiary of AGS Financial Corporation, and two affiliates of the Spanos General Partner which are holders of Subordinated Limited Partnership Interests ("Subordinated Interests"). The Assignor Limited Partner has transferred and assigned to the Unitholders all of the Assignor Limited Partner's rights and interest in and to the assigned Limited Partnership Interests, except for record ownership and the right to vote directly on matters submitted to the Limited Partners and Unitholders for a vote. There were 4,723 Unitholders as of March 4, 1999.
A significant secondary market for the Units has not developed, and it is not expected that one will develop in the future. There are also certain restrictions set forth in the Partnership Agreement limiting the ability of a Unitholder to transfer Units. Consequently, Unitholders may not be able to liquidate their investments in the event of an emergency or any other reason.
The Partnership resumed paying Distributions to the Unitholders in 1996. Distributions had been suspended beginning with the third quarter of 1992. Distributions were paid approximately 45 days after the end of the specified quarter as follows:
Quarter Ended Distribution
March 31, 1997 $1.22 June 30, 1997 $1.22 September 30, 1997 $1.22 December 31, 1997 $1.22 March 31, 1998 $1.22 June 30, 1998 $1.22 September 30, 1998 $1.22 December 31, 1998 $1.22
All of the distributions paid to Unitholders for 1997 and 1998 represents a return of capital on a generally accepted accounting principle ("GAAP") basis. The return of capital on a GAAP basis is calculated as Unitholder distributions less net income, if any, allocated to Unitholders.
There are no material legal restrictions on the Partnership's present or future ability to make distributions in accordance with the provisions of the Partnership Agreement. As a result of the Properties being under contracts for sale, future distributions will be dependent upon the timing of the closings of the sales and the ultimate liquidation of the Partnership.
Item 6.
Item 6. Selected Financial Data (a)
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Capital Resources and Liquidity
The Partnership had cash of $4,160,000 at December 31, 1998. There are no proposed programs for renovation, improvement or development of the Properties other than maintenance and repairs (including major repairs) in the ordinary course which will be paid from operations, and the Partnership's liquidity position is considered satisfactory.
In June 1998, a majority in interest of the limited partners approved a proposal to sell the Properties at a public auction and then distribute the sale proceeds in liquidation of the Partnership. The proposed auction and liquidation are part of an overall settlement of certain litigation which had been pending in the United States District Court for the Southern District of New York under the caption In re Prudential Securities Incorporated Limited Partnerships Litigation (MDL Docket 1005). In July 1998, the settlement, including the auction and liquidation, was approved by the court. In February and March 1999, the Partnership entered into contracts to sell the Properties to three separate buyers. Based on the contract sales price, the Partnership is expected to make liquidating distributions of approximately $100 per Unit in 1999, consisting of initial distributions of the majority of the proceeds as soon as practicable after the closings and the remainder by year end. However, no assurance can be given that the sales will take place as provided in the contracts.
The Partnership's operating activities provided cash of $2,811,000 in 1998, of which $1,234,000 was applied to scheduled principal amortization on the Partnership's mortgage debt and $1,578,000 was paid in cash distributions. Scheduled principal amortization increased in 1997 and 1998, reflecting the fact that the principal portion of the monthly mortgage payments increases over time.
The Partnership's long term debt, which consists of eight real estate mortgages with respect to the Properties, was $62,950,000 at December 31, 1998. This debt requires monthly installments of principal and interest of $519,000. The Properties are currently generating aggregate revenue to cover operating expenses and monthly debt service. Five of the mortgages are fully self-amortizing. The Sandpebble mortgage requires a balloon payment of approximately $5,474,000 on June 1, 1999. The other two require balloon payments of $5,030,000 in 2000 and $7,732,000 in 2001. The General Partners anticipate that the balloon payments will be satisfied from the proceeds of the pending sale. If not, the Partnership would be required to refinance them when the balloon payments become due subject to then existing conditions in the real estate and mortgage financing markets or to sell the properties
under terms which may not be the most favorable to the Partnership. If the Partnership were unable to complete sales or refinancings, then the lenders could institute foreclosure proceedings against the Properties.
Results of Operations
1998 Compared to 1997. Rental revenue was $16,161,000 in 1998, up 1% from 1997. Revenue increased at five properties (Silver Springs, Regency Square, Harbor Pointe, Bernardo Crest and Pointe West) reflecting increases in both occupancy and effective rental rates. Revenue was down 4.1% at Rancho del Sol, 5.6% at Sandpebble Village and 2.8% at Cameron Creek, principally because of lower occupancy. Overall, the weighted average occupancy of the Apartment Projects was 94% in 1998 compared to 94.2% in 1997.
Operating costs were generally stable from 1997 to 1998. Property operating expenses were $5,788,000 in 1998 compared to $5,736,000 for 1997. Major repairs (i.e., exterior painting, asphalt work and other expensive repairs that do not recur on an annual basis) declined to $243,000 in 1998 compared to $265,000 for 1997. Furnished unit expense was up $32,000 compared to 1997, reflecting more furnished unit rentals in 1998. Operating expenses excluding major repairs and furnished unit expense increased $71,000 or approximately 1.3% over 1997. Property taxes increased $32,000 or 2.9%. Interest expense declined $63,000, reflecting lower outstanding principal on the mortgage loans.
1997 Compared to 1996. Rental revenue was $15,995,000 in 1997, an increase of 1.2% from 1996. Revenue increased at four properties (Cameron Creek, Harbor Pointe, Bernardo Crest and Pointe West) reflecting increases in both occupancy and effective rental rates. Revenue was down 1.5% at Silver Springs and 2% at Regency Square, principally because of lower occupancy. Revenue at Rancho del Sol and Sandpebble was generally unchanged from 1996. Overall, the weighted average occupancy of the Apartment Projects was 94.2% in 1997 compared to 94.3% in 1996.
Property operating expenses were $5,736,000 in 1997 compared to $5,716,000 for 1996. Major repairs (i.e., exterior painting, asphalt work and other expensive repairs that do not recur on an annual basis) declined to $265,000 in 1997 compared to $541,000 for 1996. Furnished unit expense was down $45,000 compared to 1996, reflecting fewer furnished unit rentals in 1997. Operating expenses excluding major repairs and furnished unit expense increased $341,000 or approximately 6.8% over 1996. Expense categories showing the greatest increases were maintenance, up $128,000 or 7.8% reflecting the generally higher costs of operating an aging property portfolio; on-site salaries, up $78,000 or 6%, reflecting higher personnel costs; and advertising, up $75,000 or 22%. Property taxes increased $76,000 primarily because of an increase at Harbor Pointe which had a lower assessment in 1996. Property
management fees, which are 3% of property revenue, increased with the increase in revenue. Interest expense declined $95,000, reflecting lower outstanding principal on the mortgage loans. Depreciation expense declined $180,000 because certain personal property assets became fully depreciated in 1996.
Year 2000.
Given the pending property sale and liquidation, the General Partners have undertaken only a limited review of how the Partnership's operations may be affected by the Year 2000 problem. Assuming the liquidation begins in April or May 1999 as planned, the Partnership is not expected to incur any significant year 2000 compliance costs. If the sale does not occur, the Partnership would be faced with the possibility of continuing to operate after year end, and the General Partners would have to complete a more thorough year 2000 review.
The currently expected worst case scenarios involve malfunctions in computer systems and/or in mechanical operations, such as HVAC systems, elevators and electronic entry systems. The Partnership has converted the on-site resident management software at some of the Properties to a year 2000 compliant version, and could readily convert the others if the need arises. The Spanos General Partner believes that problems with mechanical systems could be temporarily corrected manually, and repaired permanently in a reasonable period of time.
Should the sale not occur, the General Partners would also have to develop contingency plans to deal with possible year 2000 disruptions. Such plans would likely include preparing hard copies of all significant reports at the end of 1999; developing manual procedures for any period of disruption of services or communication; and inventorying larger than usual supplies in case replacements are required as a result of any year 2000 casualty.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk disclosures are not being presented due to immateriality.
Item 8.
Item 8. Financial Statements and Supplementary Data Page
Independent Auditors' Report 15
Balance sheets at December 31, 1998 and 1997 16
Statements of operations for the years ended December 31, 1998, 1997 and 1996 17
Statements of changes in partners' equity (deficit) for the years ended December 31, 1998, 1997 and 1996 18
Statements of cash flows for the years ended December 31, 1998, 1997 and 1996 19
Notes to financial statements 20-27
Schedule to financial statements 42
INDEPENDENT AUDITORS' REPORT
General and Limited Partners Prudential-Bache/A.G. Spanos Realty Partners, L.P., I:
We have audited the accompanying balance sheets of Prudential-Bache/A.G. Spanos Realty Partners L.P., I (a limited partnership) (the "Partnership") as of December 31, 1998 and 1997, and the related statements of operations, changes in partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule of the Partnership listed at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Partnership's management. 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 management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Prudential-Bache/A.G. Spanos Realty Partners L.P., I as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such 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 Note F to the financial statements, in February and March 1999, the Partnership entered into agreements to sell all the Properties. No assurance can be given that the sales will take place as provided in the agreements.
/s/ Deloitte & Touche LLP San Francisco, California
March 12, 1999
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I (A Limited Partnership)
BALANCE SHEETS
See notes to financial statements.
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I (A Limited Partnership)
STATEMENTS OF OPERATIONS For the years ended December 31, 1998, 1997 and 1996
See notes to financial statements.
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I (A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT) For the years ended December 31, 1998, 1997 and 1996
See notes to financial statements.
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I (A Limited Partnership)
STATEMENTS OF CASH FLOWS For the years ended December 31, 1998, 1997 and 1996
See notes to financial statements.
PRUDENTIAL-BACHE/A. G. SPANOS REALTY PARTNERS L.P., I (A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997 and 1996
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Prudential-Bache/A.G. Spanos Realty Partners L.P., I (the "Partnership") is a Delaware limited partnership organized for the purpose of acquiring and operating eight specified apartment properties (the "Properties"). The General Partners of the Partnership are Prudential-Bache Properties, Inc. (the "Bache General Partner") and A.G. Spanos Realty Partners, L.P., (the "Spanos General Partner").
The Partnership sold 316,828 depository units of limited partnership interest ("Units") between October 1988 and December 1989 for aggregate capital contributions (net of certain volume selling commission discounts) of $79,194,827. The Partnership has also issued non-voting Subordinated Limited Partnership Interests ("Subordinated Interests") to affiliates of the Spanos General Partner in consideration for capital contributions and payments under a cash flow guaranty.
In June 1998, a majority in interest of the limited partners approved a proposal to sell the Properties at a public auction and then distribute the sale proceeds in liquidation of the Partnership. The proposed auction and liquidation are part of an overall settlement of the Multidistrict Litigation described in Note E below. In July 1998, the settlement, including the auction and liquidation, was approved by the court overseeing the litigation. In February and March 1999, the Partnership entered into contracts to sell the Properties to three buyers. See Note F below.
Financial Statement Preparation
The Partnership has a fiscal year ending December 31. The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles.
Accounting Estimates
In preparing the financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities (see Note E) at the date of the financial statements and the reported amounts of revenues and expenses from the reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of money market funds containing money market instruments with an original maturity date of 90 days or less whose cost approximates market value.
Property
Property, which includes land, buildings and equipment, is carried at the lower of depreciated cost or estimated fair value. Depreciated cost was reduced by certain payments received under the cash flow guaranty (see Note D). Depreciation on buildings and equipment is recorded on a straight-line basis over their estimated useful lives, which range from 7 to 27.5 years.
Income Taxes
No provision has been made for federal or state income taxes (or benefits) since such items are the responsibility of the partners. A reconciliation of the net loss in the financial statements to the net taxable income (loss) is set forth below:
1998 1997 1996
Net loss per financial statements $(224,275) $(53,509) $ (402,122) Financial statement depreciation in excess of tax depreciation 124,141 124,558 175,997 Unearned rent and non refundable deposits recognized as income for tax purposes when received (13,648) 6,145 148 Proxy costs capitalized for tax purposes 316,544 -0- -0- ---------- ---------- ---------- Net taxable income (loss) $202,762 $77,194 $ (225,977) ---------- ---------- ---------- ---------- ---------- ----------
The book and tax bases of partners' equity differ by the cumulative effect of the book to tax income adjustments.
Allocations and Distributions
Pursuant to the Partnership Agreement, operating income, losses and cash distributions are generally allocated 98% to the Unitholders and 2% to the General Partners. Taxable income and losses are allocated in the same manner. Cash distributions resulting from refinancings and non- terminating sales of the Properties are generally allocable as follows: First, 98% to the limited partners and 2% to the General Partners until
(i) the aggregate of all such distributions equals the limited partners' aggregate capital contributions and (ii) the aggregate of all other cash distributions (including operating cash distributions, but excluding distributions in repayment of capital contributions) equals the limited partners' 10% per annum cumulative noncompounded return on their adjusted capital contributions (the "First Level Sale or Refinance Distributions"). Thereafter, cash distributions resulting from a sale or refinancing are generally allocable 85% to the Unitholders and 15% to the General Partners (the "Second Level Sale or Refinance Distributions"). Income from non-terminating sales of the Properties is generally allocable in the same manner as cash distributions resulting from such sales, after taking into account the depreciation expense with respect to the Properties sold.
The sale of all the Properties as approved by the limited partners constitutes a terminating sale under the Partnership Agreement. The Partnership Agreement provides that net income from a terminating sale is allocated first to the general and limited partners to the extent of their negative capital account balances, then 98% to the limited partners and 2% to the General Partners until their capital account balances equal their Adjusted Contributions (i.e., their original capital contribution of $250 per unit less any prior distributions of cash from sale or refinancings or from working capital reserves), and then in varying percentages to the limited and general partners. The capital account balances of the Subordinated Limited Partners currently equal their Adjusted Contributions. There is not expected to be sufficient net income to restore the Unitholders' capital account balances to the level of their Adjusted Contributions. The Partnership Agreement provides that liquidating cash distributions are to be paid to the partners in accordance with their positive capital account balances after allocating the net income from the terminating transaction.
The Subordinated Interests entitle the holders to receive First Level Sale or Refinance Distributions and liquidating distributions in accordance with their positive capital account balances (with corresponding allocations of income on sales), but no allocations of operating income, losses or cash distributions and no allocations of Second Level Sale or Refinance Distributions.
Cash distributions to the partners are recorded in the periods to which they relate for financial reporting purposes. The Partnership paid fourth quarter cash distributions of $394,418 in February 1999 and 1998. These distributions were accrued at December 31, 1998 and 1997.
Revenue Recognition
Rental income is accrued as rents are due.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial instruments," requires the determination of fair value for certain of the Partnership's assets and liabilities. The following methods and assumptions were used to estimate the fair value of those financial instruments included in the following categories:
Cash and Cash Equivalents - The carrying amount approximates fair value based on the liquidity of the assets.
Mortgage Loans Payable (see Note C) - The carrying value approximates fair value based on interest rates available to the Partnership on debt instruments with similar terms.
Comprehensive Income The Partnership adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," during 1998. SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. During the three year period ended December 31, 1998, the Partnership had no items of other comprehensive loss except for net loss. Accordingly, comprehensive loss equals net loss for 1998, 1997 and 1996.
NOTE B - PROPERTY
Property is comprised of the following at December 31, 1998 and 1997:
1998 1997
Apartment buildings $ 83,030,825 $ 83,030,825 Equipment 4,369,974 4,369,974 Land 18,053,226 18,053,226 ----------- ----------- 105,454,025 105,454,025 Less: Accumulated depreciation (33,870,048) (30,845,208) ----------- ----------- $ 71,583,977 $ 74,608,817 ----------- ----------- ----------- -----------
The Partnership leases apartments under lease agreements with terms ranging from one to twelve months.
In February and March 1999, the Partnership entered into contracts to sell the Properties to three buyers. See Note F below.
NOTE C - MORTGAGE LOANS PAYABLE
The mortgage loans payable are collateralized by first deeds of trust on the respective Properties and security interests in the equipment contained therein. Detailed information regarding the mortgage loans is set forth below.
Interest paid in 1998, 1997 and 1996 was $5,010,728, $5,056,095 and $5,162,921, respectively.
Aggregate maturities of mortgage loans payable for each of the five years ending December 31, 2003 and thereafter are as follows:
1999 $ 6,541,576 2000 6,262,350 2001 8,807,983 2002 1,165,320 2003 1,261,599 Thereafter 38,910,902 ---------- $62,949,730 ---------- ----------
NOTE D - RELATED PARTY TRANSACTIONS
The Partnership acquired the Properties from affiliates of the Spanos General Partner (the "Sellers"). Under the terms of the acquisitions, the Sellers guaranteed that if the Properties as a group did not meet certain annual net cash flow levels between their acquisition dates and June 30, 1992, then the Sellers would make up any deficiency by periodic cash payments ("Support Payments") to the Partnership. The first $4,500,000 of Support Payments were non-refundable, and the Partnership accounted for them as a reduction of the purchase price of the Properties. The Partnership issued Subordinated Interests in exchange for Support Payments in excess of that amount; however, the Subordinated Interests were cancelable by the Partnership to the extent that the aggregate net cash flow from any of the Properties (treated individually and not collectively) was negative during the guaranty period. The cancellations were also accounted for as a reduction of the purchase price of the Properties.
Support Payments of $11,083,798 accrued to the Partnership based upon the operating results of the Properties from inception of the Partnership through the conclusion of the guaranty. The Partnership issued 26,335 Subordinated Interests (at $250 each) to a Seller in exchange for $6,583,798 of Support Payments in excess of the $4,500,000 non-refundable amount. The Silver Springs property had aggregate negative net cash flow of $537,220; accordingly, the Partnership canceled 2,149 Subordinated Interests.
An affiliate of the Spanos General Partner manages the Apartment Projects. Property management fees totaled $484,657, $479,863, and $474,158 in 1998, 1997 and 1996, respectively. Under the management agreements, the affiliate employs property managers and other on-site personnel, and the Partnership bears the expense for their compensation (including employment taxes and fringe benefits). That expense was approximately $1,422,000, $1,379,000 and $1,301,000 in 1998, 1997 and 1996, respectively. Accruals of $40,848 and $41,966 for property management fees and $137,544 and $121,813 for salary expense reimbursements were outstanding at December 31, 1998 and 1997, respectively.
Under the Partnership Agreement, the Spanos General Partner is entitled to a supervisory management fee and the Bache General Partner is entitled to a special distribution. The fee and distribution are each equal to two percent of the revenues from the Properties. The special distribution is reduced to the extent of reimbursements to the Bache General Partner for certain expenses incurred in the administration of the Partnership. Amounts accrued during the past three years were as follows.
1998 1997 1996
Supervisory management fee $323,216 $319,890 $316,225 Special distribution 267,688 264,362 260,697 Administrative expense reimbursements 55,528 55,528 55,528 ------- ------- ------- $646,432 $639,780 $632,450 ------- ------- ------- ------- ------- ------- Accruals of $163,760 and $161,964 for management fees payable to the General Partners were outstanding at December 31, 1998 and 1997, respectively.
The General Partners' capital account deficit for financial accounting purposes exceeds the amount the General Partners would be obligated to restore if the Partnership were to dissolve.
In May 1998, the Spanos General Partner initiated a consent solicitation for the limited partners to consider the proposal to auction the Properties and then distribute the sale proceeds in liquidation of the Partnership. The Spanos General Partner agreed to pay the costs of the consent solicitation subject to reimbursement by the Partnership if a majority in interest of the limited partners approved the proposal. In June 1998, the Partnership received consent from the requisite number of limited partners. In July 1998, the Partnership reimbursed the Spanos General Partner for $190,143 of solicitation costs. The settlement required an affiliate of the Spanos General Partner to open the auction with a minimum bid for the Properties of $22,440,000 in excess of the outstanding mortgage debt.
Prudential Securities Incorporated ("PSI"), an affiliate of the Bache General Partner, owned 4,663 Units at December 31, 1998.
NOTE E - CONTINGENCIES
In May 1997, the Spanos General Partner and certain of its affiliates entered into a Stipulation of Settlement with legal counsel representing the plaintiff class in a number of actions ("Multidistrict Litigation") pending before a single judge of the United States District Court for the Southern District of New York. The settlement contemplated, among other things, the sale of all of the Properties at public auction and the subsequent liquidation and dissolution of the Partnership. The settlement agreement was preliminarily approved by the Court in August 1997. In June 1998, a majority in interest of the Unitholders approved the auction sale and liquidation of the Partnership. In July 1998, the Court entered an order and final judgment approving the settlement, auction and liquidation. There can be no assurance that the conditions to implementation of the settlement will be satisfied.
In April 1994, a multiparty petition entitled Schreiber et al. v. Prudential Securities, Inc., et al. (Cause No. 94-17696) was filed in the 189th Judicial District Court of Harris County, Texas, purportedly on behalf of investors in the Partnership against the Partnership, the General Partners, PSI, The Prudential Insurance Company of America and a number of other defendants. The Petition alleged common law fraud, fraud in the inducement and negligent misrepresentation in connection with the offering of limited partnership interests and negligence, breach of fiduciary duty, civil conspiracy, and violations of the federal Securities Act of 1933 (sections 11 and 12) and of the Texas Securities and Deceptive Trade Practices statutes. The suit sought, among other things, compensatory and punitive damages, costs and attorney's fees. Most of the plaintiffs released their claims against the defendants in exchange for monetary payments by PSI at no cost to the Partnership. In February 1999, the court entered an order dismissing all remaining claims.
NOTE F - SUBSEQUENT EVENT
In February and March 1999, the Partnership entered into agreements to sell all the Properties to three separate buyers for an aggregate sales price of $110,943,921. The agreements provide for a closing as soon as practicable but in no event later than April 25, 1999, or such later date on or before June 1, 1999 as may be required by the Partnership in order to prepay the mortgage loans. No assurance can be given that the sales will take place as provided in the agreements.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Partnership does not have directors or executive officers. The Partnership is managed by the General Partners, which have formed, and may continue to form, other real estate investment entities with investment policies similar to those of the Partnership and which may compete with the Partnership for management services. The Spanos General Partner is a California limited partnership whose general partners are AGS Financial Corporation and A.G. Spanos Realty Capital, Inc. AGS Financial Corporation is the managing general partner of the Spanos General Partner. The directors and executive officers of AGS Financial Corporation and the Bache General Partner who perform services for the Partnership are listed below, together with a brief description of their experience. All have indefinite terms.
AGS Financial Corporation is owned by Dean A. Spanos, Barry L. Ruhl, Michael A. Spanos, Dea Spanos and a Spanos family trust. Dean A. Spanos, Michael A. Spanos and Dea Spanos are children of Alex G. Spanos, Chairman of the Board of AGS Financial Corporation. Barry L. Ruhl is a son-in-law of Alex G. Spanos. There are no other family relationships among the directors and executive officers of AGS Financial Corporation or the Bache General Partner.
The General Partners and their directors and executive officers, and any persons holding more than ten percent of the Partnership's Units are required to report their initial ownership of such units and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 and 5. Such executive officers, directors and greater than ten percent Unitholders are required by Securities and Exchange Commission regulations to furnish the Partnership with copies of all Forms 3, 4 and 5 they file. All of these filing requirements were satisfied on a timely basis. In making the disclosures, the Partnership has relied solely on written representations of the General Partners' directors and executive officers and greater than ten percent Unitholders or copies of the reports that they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year.
AGS FINANCIAL CORPORATION Name Position
Alex G. Spanos Chairman of the Board
Dean A. Spanos Vice Chairman and Director
Barry L. Ruhl Director
Michael A. Spanos Director
Arthur J. Cole President and Director
Jeremiah T. Murphy Executive Vice President and Chief Financial Officer
ALEX G. SPANOS, age 75, has been Chairman of the Board of AGS Financial Corporation since its founding in 1981. In addition, he serves as Chairman of the Board or President of each of the other Spanos companies and owns a controlling interest in the San Diego Chargers, a professional football team. Mr. Spanos founded the combined Spanos organizations in the early 1960's and has been the driving force behind the development of approximately 50,000 apartments and over 3 million square feet of office space. Mr. Spanos maintains close contact with the key executives of each of his companies and lends his judgment and experience to all major land acquisitions, development and property financing decisions, and the investment activities of AGS Financial Corporation. Mr. Spanos attended the University of the Pacific.
DEAN A. SPANOS, age 48, has been Vice Chairman and a Director of AGS Financial Corporation since its founding in 1981. He is the chief operating officer of the property development and management companies within the Spanos organization, responsible for land acquisitions, financing construction and property sales. Mr. Spanos holds a bachelor's degree in business administration from the University of the Pacific.
MICHAEL A. SPANOS, age 39, has served as a Director of AGS Financial Corporation since its founding in 1981. He is Executive Vice President of A.G. Spanos Construction, Inc. He holds a bachelor's degree from the University of the Pacific.
BARRY L. RUHL, age 47, has been a Director of AGS Financial Corporation since its founding in 1981. He is Executive Vice President of A.G. Spanos Construction, Inc. He holds a D.D.S. from the University of the Pacific Dental School.
ARTHUR J. COLE, age 44, has served as President of AGS Financial Corporation since August 1990 and as a director since 1986. He joined AGS Financial Corporation in 1983. He holds a bachelor's degree from Golden Gate University.
JEREMIAH T. MURPHY, age 54, has served as an Executive Vice President of AGS Financial Corporation and is the Chief Financial Officer for all the A.G. Spanos Companies. He has been employed by the Spanos companies since 1983. Prior to joining the Spanos companies he was a partner with the accounting firm, Bowman & Company, which he joined in 1970. Mr. Murphy is a Certified Public Accountant and a graduate of Bernard Baruch College.
PRUDENTIAL-BACHE PROPERTIES, INC.
Name Position
Brian J. Martin President, Chief Executive Officer, Director and Chairman of the Board of Directors
Barbara J. Brooks Vice President - Finance and Chief Financial Officer
Eugene D. Burak Vice President
Chester A. Piskorowski Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
BRIAN J. MARTIN, age 48, is the President, Chief Executive Officer, Chairman of the Board of Directors and a Director of the Bache General Partner. He is a Senior Vice President of Prudential Securities Incorporated ("PSI"), an affiliate of the Bache General Partner. Mr. Martin also serves in various capacities for other affiliated companies. Mr. Martin joined PSI in 1980. Mr. Martin is a member of the Pennsylvania Bar.
BARBARA J. BROOKS, age 50, is the Vice President-Finance and Chief Financial Officer of the Bache General Partner. She is a Senior Vice President of PSI. Ms. Brooks also serves in various capacities for other affiliated companies. She has held several positions within PSI since 1983. Ms. Brooks is a certified public accountant.
EUGENE D. BURAK, age 53, is a Vice President of the Bache General Partner. He is a Senior Vice President of PSI and serves in various capacities for other affiliated companies. Prior to joining PSI in September 1995, he was a management consultant for three years and was with Equitable Capital Management Corporation from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 55, is a Senior Vice President of the Bache General Partner. He is a Senior Vice President of PSI and is the Senior Manager of the Specialty Finance Asset Management area. Mr. Piskorowski has held several positions within PSI since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 56, is a Director of the Bache General Partner. He is a Senior Vice President of PSI. Mr. Giordano also serves in various capacities for other affiliated companies. He has been with PSI since July 1967.
NATHALIE P. MAIO, age 48, is a Director of the Bache General Partner. She is a Senior Vice President and Deputy General Counsel of PSI and supervises nonlitigation legal work for PSI. She joined PSI's Law Department in 1983; presently, she also serves in various capacities for other affiliated companies.
Item 11.
Item 11. Executive Compensation
The Partnership is not required to and did not pay remuneration to the officers and directors of the General Partners. Certain officers and directors of the General Partners receive compensation from the General Partners and/or their affiliates (but not from the Partnership) for services performed for various affiliated entities, which may include services performed for the Partnership; however, the General Partners believe that any compensation attributable to services performed for the Partnership is immaterial. See Item 13, "Certain Relationships and Related Transactions," for a discussion of compensation and fees to which the General Partners and their affiliates are entitled.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No Unitholder is known by the Partnership to own beneficially more than 5% of the outstanding Units. The percentage of outstanding Units held by all directors and officers of the General Partners is less than 1%.
The Partnership has issued 48,513 Subordinated Interests (of which 46,364 remain outstanding at March 1, 1999) to affiliates of the Spanos General Partner, all of which Subordinated Interests are beneficially owned by members of the Spanos family, certain of whom are directors and officers of the general partners of the Spanos General Partner.
As of March 1, 1999, the individual directors and the directors and officers, as a group, of AGS Financial Corporation and A.G. Spanos Realty Capital, Inc., the general partners of the Spanos General Partner, beneficially owned shares of the common stock of AGS Financial Corporation and A.G. Spanos Realty Capital, Inc. as follows:
AGS Financial A.G. Spanos Corporation Realty, Inc. Name Shares % of Class Shares % of Class
Alex G. Spanos -0- -0- 20 100% Dean A. Spanos 1,000 10% Barry L. Ruhl 1,000 10% Michael A. Spanos 1,000 10% All directors and officers as a group (8 persons) 9,000(1) 90% 20 100%
(1) These amounts include shares beneficially owned by virtue of certain beneficial interests in a Spanos family trust which owns 6,000 shares (60%) of the shares of AGS Financial Corporation.
Item 13.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates are permitted to engage in transactions with the Partnership as described in the Partnership Agreement.
The General Partners and certain affiliates thereof have, during the Partnership's year ended December 31, 1998, earned or received compensation or payments for services from the Partnership as follows:
Capacity in Form of Cash Recipient Which Served Compensation Compensation
Spanos General General Partner Supervisory $323,216 Partner Management Fee(1)
Bache General General Partner Special 267,688 Partner Distribution(2)
A.G. Spanos Property Manager Property 484,657 Management Inc. Management Fees(3)
General Partners General Partners Cash from Operations(4) 31,552
Bache General General Partner Expense 55,528 Partner Reimbursements
(1) Supervisory Property Management Fee for supervising the management of the Properties equal to 2% of gross receipts from the Properties.
(2) Special Distribution for services in managing and administering the Partnership equal to 2% of gross receipts from the Properties, reduced to the extent of reimbursements, if any, for certain expenses incurred in the administration of the Partnership.
(3) Property Management Fees for property management services equal to 3% of gross receipts from the Properties.
(4) Cash from Operations equal to 2% of Adjusted Cash from Operations remaining after payment of the Special Distribution.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
See Index to Financial Statements and Schedule on page 14.
(2)Financial Statement Schedule:
III. Real Estate and Accumulated Depreciation, page 42.
All other schedules have been omitted because they are inapplicable or not required, or the information is included in the financial statements or notes thereto.
Exhibits
4(a) Certificate of Limited Partnership of Registrant as filed with the Secretary of State of Delaware, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-11, File No. 33-22613, filed with the Securities and Exchange Commission on October 14, 1988.
4(b) Amendment to Certificate of Limited Partnership of Registrant as filed with the Secretary of State of Delaware, incorporated by reference to Exhibit 4(b) to Amendment No. 1 to Registration Statement on Form S-11, File No. 33-22613, filed with the Securities and Exchange Commission on October 14, 1988.
4(c) Amended and Restated Agreement of Limited Partnership of Registrant, incorporated by reference to Exhibit 4(c) to Amendment No. 1 to Registration Statement on Form S-11, File No. 33-22613, filed with the Securities and Exchange Commission on October 14, 1988.
4(d) Amendments No. 1 through 7 dated November 21, and December 30, 1988 and January 31, February 28, March 31, April 28, and May 31, 1989 to the Amended and Restated Agreement of Limited Partnership of Registrant, incorporated by reference to Exhibit 4(d) to Post-Effective Amendment No. 1 to Registration Statement on Form S-11, File No. 33-22613, filed with the Securities and Exchange Commission on June 30, 1989.
4(e) Amendments No. 8 through 14 dated June 30, August 11 and 31, September 29, October 31, and December 1 and 22, 1989 to the Amended and Restated Agreement of Limited Partnership of Registrant, incorporated by reference to Exhibit 4(e) to Annual Report on Form 10-K, File No. 0-17683, filed with the Securities and Exchange Commission on March 28, 1991.
4(f) Amendment No. 15 dated August 12, 1998, to the Amended and Restated Agreement of Limited Partnership of Registrant, incorporated by reference to Exhibit 4(f) of the Quarterly Report on Form 10-Q dated September 30, 1998, File No. 0-17683.
10(a) Agreement for Purchase and Sale of Real Property dated February 24, 1999 by and among the Partnership as Seller and General Services Corporation as Buyer (filed herewith).
10(b) Agreement for Purchase and Sale of Real Property dated March 3, 1999 by and among the Partnership as Seller and SGD Investments, Inc. as Buyer (filed herewith).
10(c) Agreement for Purchase and Sale of Real Property dated March 11, 1999 by and among the Partnership and A.G. Spanos Construction, Inc. as Sellers and WXI/SPN Real Estate Limited Partnership as Buyer (filed herewith).
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the last quarter of the period covered by this Report. On March 11 and 19, 1999, the Partnership filed reports on Form 8-K dated February 24 and March 11, 1999, to report that the Partnership had entered into contracts to sell the Properties.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I (Registrant)
By: Prudential-Bache Properties, Inc. A Delaware corporation, General Partner
By: /s/Brian J. Martin Date: March 29, 1999 --------------------------------------- Brian J. Martin Chairman of the Board of Directors and Director
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 in the capacities (with respect to the General Partners) and on the dates indicated.
By: Prudential-Bache Properties, Inc. A Delaware corporation, General Partner
By: /s/Brian J. Martin Date: March 29, 1999 --------------------------------------- Brian J. Martin Chairman of the Board of Directors and Director (Principal Executive Officer)
By: /s/Barbara J. Brooks Date: March 29, 1999 --------------------------------------- Barbara J. Brooks Vice President-Finance and Chief Financial Officer (Principal Financial Officer)
By: /s/Nathalie P. Maio Date: March 29, 1999 --------------------------------------- Nathalie P. Maio Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I (Registrant)
By: A.G. Spanos Realty Partners, L.P. General Partner
By: AGS Financial Corporation, a general partner
By: /s/Arthur J. Cole Date: March 29, 1999 ------------------------------- Arthur J. Cole President (Principal Accounting Officer)
By: A.G. Spanos Realty Capital, Inc., a general partner
By: /s/Arthur J. Cole Date: March 29, 1999 ------------------------------- Arthur J. Cole Vice President
AGS DEPOSITORY CORP. (Registrant as to the issuance of Depository Receipts with respect to the Assigned Limited Partnership Interests)
By: /s/Arthur J. Cole Date: March 29, 1999 ------------------------------- Arthur J. Cole Vice President
SIGNATURES
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 in the capacities (with respect to the General Partners) and on the dates indicated.
By: A.G. Spanos Realty Partners, L.P. General Partner
By: AGS Financial Corporation, a general partner
By: /s/Alex G. Spanos Date: March 29, 1999 ---------------------------------- Alex G. Spanos Chairman of the Board of Directors
By: /s/Dean A. Spanos Date: March 29, 1999 ---------------------------------- Dean A. Spanos Vice Chairman and Director
By: /s/Michael A. Spanos Date: March 29, 1999 ---------------------------------- Michael A. Spanos Director
By: /s/Barry L. Ruhl Date: March 29, 1999 ---------------------------------- Barry L. Ruhl Director
By: /s/Arthur J. Cole Date: March 29, 1999 ---------------------------------- Arthur J. Cole President and Director (Principal Executive Officer)
By: /s/Jeremiah T. Murphy Date: March 29, 1999 ---------------------------------- Jeremiah T. Murphy Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
SIGNATURES
By: A.G. Spanos Realty Capital, Inc., a general partner
By: /s/Alex G. Spanos Date: March 29, 1999 ---------------------------------- Alex G. Spanos President and Director (Principal Executive Officer)
By: /s/Dean A. Spanos Date: March 29, 1999 ---------------------------------- Dean A. Spanos Executive Vice President and Director
By: /s/Michael A. Spanos Date: March 29, 1999 ---------------------------------- Michael A. Spanos Executive Vice President and Director
By: /s/Barry L. Ruhl Date: March 29, 1999 ---------------------------------- Barry L. Ruhl Executive Vice President and Director
By: /s/Jeremiah T. Murphy Date: March 29, 1999 ---------------------------------- Jeremiah T. Murphy Vice President (Principal Financial and Accounting Officer)
AGS Depository Corp.
By: /s/Alex G. Spanos Date: March 29, 1999 ---------------------------------- Alex G. Spanos Director, President and Chief Financial Officer (Principal Executive, Financial and Accounting Officer)
By: /s/Dean A. Spanos Date: March 29, 1999 ---------------------------------- Dean A. Spanos Director
By: /s/Jeremiah T. Murphy Date: March 29, 1999 ---------------------------------- Jeremiah T. Murphy Director
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I (A LIMITED PARTNERSHIP)
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
See notes.
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I ( A Limited Partnership)
NOTES TO SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
Note 1 - See description of mortgage notes payable in note C of the Notes to Financial Statements. Depreciable property is depreciated over useful lives of 7 to 27.5 years.
Note 2 - The aggregate cost of real estate for federal income tax purposes is $105,454,025.
Note 3 - The Partnership acquired the Properties from affiliates of the Spanos General Partner. The amount of affiliate profit included in the amounts in column E is approximately $14,004,000.
Note 4 - Reconciliation of 1998 1997 1996 accumulated depreciation: $30,845,208 $27,820,368 $24,616,388 Balance at beginning of period Additions during period: 3,024,840 3,024,840 3,203,980 Depreciation ---------- ---------- ---------- $33,870,048 $30,845,208 $27,820,368 ---------- ---------- ---------- ---------- ---------- ----------