ITEM 2 - Properties
OFFICE BUILDING
The Partnership owns a nine-story, air-conditioned, multi-tenant office building with three self-service elevators located in Manassas, Virginia, on Sudley Road (State Route 234), a six lane median highway, just south of I-66, which provides direct access to Washington, D.C., and points in Northern Virginia. Completed in 1974, the office building has a gross area of approximately 95,000 square feet of which approximately 90,933 square feet are rentable. The office building is located on approximately 4.9 acres and has on-site parking for 337 cars, which exceeds the applicable zoning requirements.
As of September 30, 1996, the office building was approximately 96% leased with two tenants leasing in excess of 10% which together lease approximately 26.7% of the office building.
Because of the loan restructuring with Old Stone Bank in 1992, the debt service requirements have been reduced. This reduction is now reflected in the rental structure which has been lowered to be more competitive in the marketplace. The completed renovation of the lobby gives the building a more inviting look for the nineties.
The office building has been known as the First Virginia Building until First Virginia Bank terminated its lease in November 1990. The building name has been changed to The Sudley Tower.
SHOPPING CENTER
Sherdian Hills Plaza, a one-story shopping center completed in 1980, has approximately 117,000 square feet of rental space, 652 parking spaces, and is located on approximately 15 acres in Amherst, New York (a suburb of Buffalo, New York). As of September 30, 1995, 95% of the shopping center was leased with the primary tenants being Hills Department Store and Fay's Drug Company, Inc. (Fay's Drug Stores), which together lease nearly 86% of the shopping center. On September 12, 1996, the shopping center was sold for $3,625,000. The outstanding principal balance on the mortgage of $2,962,361 was paid from the gross proceeds, as well as $295,791 in selling expenses and other related disbursements. The proceeds to the Partnership were $366,888, less additional legal fees of $16,000, resulting in net proceeds of $350,888.
The managing general partner believes that the property is adequately covered by insurance.
Item 3
Item 3 - Legal Proceedings
Chapter 11 Filing - See Note 3 to Financial Statements at Item 8.
Law Suit Filing - See Note 10 to Financial Statements at Item 8.
Item 4
Item 4 - Submission of Matters to a vote of Security Holders
On August 2, 1990, Amherst Properties, Inc. sent voting materials to limited partners of Gran-Mark Income Properties Limited Partnership and by August 24, 1990, had received written consents from a 60% majority of the units in favor of the removal of the former general partners and the substitution of Amherst Properties, Inc. as the new general partner.
PART II
Item 5
Item 5 - Market for Registrant's Common Equity and related Stockholders Matters
There is no established public trading market for the class of limited Partnership units. The most recent price that the current general partner is aware of is $100 per $1,000 unit paid in early 1991 paid by an officer of the current general partner of the units owned by a third party.
Item 6
Item 6 - Selected Financial Data
For the Year ended September 30, 1996 1995 1994 1993
Total Revenue $ 2,002,248 1,870,121 1,735,895 1,605,755
Net Loss $ (46,830) (217,247) (270,949) (389,950) Net Loss per weighted average limited partnerhsip unit $ (7.13) (33.06) (41.24) (98.59)
Total assets $ 6,447,761 9,646,798 9,930,069 10,311,631
Mortgages payable $ 4,634,915 7,673,367 7,744,189 7,790,440
Item 7
Item 7 - Management's discussion and Analysis of financial condition and results of operation
General
During the fiscal year ending September 30, 1996, the Partnership's cash position changed from $542,360 to $963,019.
The occupancy of the Manassas office building was approximately 96% on September 30, 1996.
Partners' equity totaled $1,499,119 as of September 30, 1996, a decrease of $46,830 from the prior year.
The partnership's net loss for the fiscal year ending September 30, 1996, was $46,830; a decrease of $170,417 from a loss of $217,247 for the fiscal year ending September 30, 1995.
Results of Operations
The shopping center's occupancy rate was approximately 96% on September 12, 1996, about the same as for the year ended September 30, 1995, and a decrease from 100% for the year ended September 30, 1994. The shopping center generated a positive cash flow.
The office building's occupancy rate was approximately 96% on September 30, 1996. The office building was approximately 96% and 88% leased for the years ended September 30, 1995 and 1994, respectively. It is anticipated that most of the current tenants will remain at least through 1997. The office building generates a positive cash flow.
During fiscal year ending September 30, 1996, revenues have increased with a commensurate increase in management fees based on a percentage. Interest expenses were affected by the scheduled rate increase and an increase in interest rates for U.S. Treasury Bills on the office building mortgage and the sale of the New York property. Expenses for depreciation and amortization have slightly decreased. The expense for utilities decreased due to the installation of energy efficient light fixtures. Real estate taxes have increased due to an increase in assessed values and the imposition of a tax by Prince William County for storm water management. Expenses for property maintenance and repairs have increased due to completion of several maintenance and replacement projects. Preventive maintenance programs continue to protect and improve the buildings and grounds. General and Administration Expenses have decreased due to the sale of the New York Shopping Center. See Notes to Financial Statement - Note 10: Management Plans.
Trends & prospective information
See Item 6 - Selective Financial Data
Sale of the shopping center is a material event which results in the historical operations and financial condition not being indicative of future operations or financial condition.
Current management expects that the capital improvements will continue to improve the appearance of the Manassas property, that the building will continue to successfully compete with existing office buildings and shopping centers, and will maintain a high rate of occupancy. Since November 1993 the Office Building is nearing 100% occupancy.
For further information see Notes to Financial Statement - Note 10: Management Plans.
Liquidity
At the present time current rental income covers the expenses on the property.
Monthly partnership incoming cash flow has increased and monthly partnership outgoing cash flow has been reduced since the new managing general partner has taken control of the properties in October 1990.
During fiscal year ending September 30, 1996, $336,399 of cash was generated from operations. This reflects a decrease in cash flow from operations of $28,564 over the previous fiscal year due primarily to the increase in tenant rents receivable and the receipt of a full year's rent from a Sudley Tower tenant for this fiscal year but received in the prior year.
The managing general partner deferred payment of most of its management fees since October 1990 to allow the partnership to continue to improve its financial position. The cash flow during the current year was sufficient to pay the current year's fees plus $21,294 of prior years' fees.
Funds were also used to acquire additional office equipment of $18,676 and make building improvements of $158,014. The building improvements included $150,215 for energy efficient light fixtures.
Capital Resources
Current management estimates the current market value to be more than $6,000,000. An improvement in the commercial rental real estate market and an increase in the occupancy of the Manassas office building would have a major effect on the market values of the properties.
The Partnership received cash from the sale of the New York shopping center. The mortgage payable on the Manassas property, which is due April 30, 1997, is anticipated to be refinanced.
Item 8
Item 8 - Financial Statements and Supplementary Data
Independent Auditor's Report.........................7 Balance Sheets.......................................8-9 Statements of Income.................................10 Statements of Changes in Partners' Equity............11 Statements of Cash Flow..............................12-13 Notes to Financial Statements........................14-29
Accompanying schedules are omitted since they are included in the Notes.
Jennifer A. Jones, CPA, Ltd. 10615 Judicial Drive, Suite 701 Fairfax, VA 22030 703-352-1587
November 19, 1996
Independent Auditors Report
To the Partners of Gran-Mark Income Properties Limited Partnership 7200 Sudley Road, Suite 900 Manassas, VA 22070
I have audited the accompanying balance sheets of Gran-Mark Income Properties Limited Partnership as of September 30, 1996 and 1995, and the related statements of income, changes in partners equity, and cash flows for the years ending September 30, 1996, 1995 and 1994. These financial statements are the responsibility of the Partnerships management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards. These standards require that I 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.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gran-Mark Income Properties Limited Partnership as of September 30, 1996 and 1995, and the results of its operations and its cash flows for the years ending September 30, 1996, 1995 and 1994, in conformity with general accepted accounting principles.
Jennifer A. Jones, CPA, Ltd.
GRAN-MARK INCOME PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
Note 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
The Partnership owns and operates an office building in Manassas, Virginia, and owned and operated a shopping center in Amherst, NY, which contains approximately 95,000 and 117,000 square feet, respectively.
Significant Accounting Policies
The following accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Certain prior year amounts and disclosures have been reclassified to conform with the current year's presentation. These reclassifications have no effect on the net losses as previously reported.
Revenue Recognition
Rental income is reported as earned over the lives of the related leases. Tenant reimbursements are accrued based on annual or quarterly expenses and included pro-rata payments under certain leases for increases in property taxes, insurance, depreciation and direct operating expenses. Such amounts are calculated annually on a calendar year basis or quarterly with pro-rata portions based upon square footage leased during the year.
Rental Property and Depreciation
Buildings are stated at cost and depreciated over their estimated thirty-year useful lives. Leasehold improvements, also stated at cost, are depreciated over the lesser of the length of the related leases or the estimated useful lives. The improvements generally have a useful life from one to fifteen years. Depreciation is computed on the straight-line method for financial reporting purposes and for income tax purposes depreciation is computed on both accelerated and straight-line methods. Improvements and major renovations are capitalized, while expenditures for maintenance, repairs and minor renovations are expensed when the cost in incurred.
Deferred costs and amortization
Financing costs are amortized over the terms of the related loans using the straight-line method.
Leasing costs are amortized over the terms of the lease using the straight-line method.
Cash Equivalents
For balance sheet and cash flow purposes, the Partnership considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. There are no cash equivalents as of September 30, 1996.
Net Loss Per Weighted Average Limited Partnership Unit
The computation of net income (loss) per weighted average limited partnership units is based on the weighted average number of units outstanding during the year. The weighted average number of units for each period is 6,505.
Income Taxes
Partnerships are not subject to income taxes. The partners are required to report their respective shares of partnership income or loss on their individual income tax returns.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnership to credit risk include cash on deposit with financial institutions amounting to $458,973 and $961,771 at September 30, 1995 and 1996, respectively, which was insured up to $100,000 and $200,000, respectively, by the Federal Deposit Insurance Corporation.
Allowance for Doubtful Accounts
The Partnership considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required.
NOTE 2: RENTAL PROPERTY:
Land, buildings, improvements, and other capital expenditures, and their related accumulated depreciation accounts are summarized as follows:
Office Vehicle Building and Manassas, Office Virginia Equipment Total
Date of Construction 1974
Date Acquired Aug. 1986 Various
Land $ 418,598 $ 0 $ 418,598 Buildings 6,594,998 0 6,594,998 Other 0 41,064 41,064
Total initial cost to partnership 7,013,596 41,064 7,054,660
Improvements capitalized subsequent to acquisition 654,858 0 654,858
Total accumulated cost 7,668,454 $ 41,064 $ 7,709,518
Accumulated depreciation 2,446,793 15,270 2,462,063
Net book Value $ 5,221,661 $ 25,794 $ 5,247,455
The following is a summary of activity for the land, buildings and improvements, for the years ended September 30, 1994, 1995, and 1996:
Rental Accumulated Property Depreciation
Balance September 30, 1993 $12,374,579 $(2,838,491)
10/01/93 - 9/30/94 Additions during the period: Improvements capitalized 203,343 Depreciation expense (410,490) Deletions during the period: (320,212) 320,212
Balance September 30, 1994 $12,257,710 $(2,928,769)
10/01/94 - 9/30/95 Additions during the period: Improvements capitalized 18,404 Depreciation expense (417,460) Deletions during the period: (2,897) 2,897
Balance September 30, 1995 $12,273,217 $(3,343,332)
10/01/95 - 9/30/96 Additions during the period: Improvements capitalized 158,014 Depreciation expense (405,850) Deletions during the period (4,762,777) 1,302,389
Balance September 30, 1996 $ 7,668,454 $ 2,446,793
One of the primary tenants at the Shopping Center in Amherst, New York, was Hills Department Store ("Hills"). Hills, on February 5, 1991 filed a petition for Chapter 11 Reorganization, but continued to occupy its space and to pay rent post-petition on a current basis. On September 10, 1993, Debtor's First Amended Consolidated Plan of Reorganization was confirmed by the Court.
Hills completely renovated the interior of the store in the shopping center. The creditors of Hills consented to the renovation expense of approximately $525,000. The Partnership agreed to contribute an additional $125,000 for such renovation and repairs with the condition that the Lease Agreement be affirmed prior to any payments made by the Partnership. Assistant Corporate Counsel of Hills Department Stores confirmed in November 1993 that the Lease for the store in the shopping center had been assumed and had not been rejected nor was it the subject of a pending motion to reject.
The $125,000 offered by the Partnership was derived from the following sources:
Pre-petition rent of $7,622 was forgiven; $25,000 was paid out of the cash call fund in December 1993; 12,300 was paid August, 1993; $40,000 was paid on July 28, 1994; and commencing March 1994 twelve consecutive monthly installments of $3,341 were paid.
The tenant was paid $16,687 and $23,392 during the fiscal years ending September 30, 1994 and 1995, respectively, as partial payments of the rent offset identified as Incentive to Lessee.
NOTE 3: PLAN OF REORGANIZATION UNDER CHAPTER 11:
By August 24, 1990, limited partners owning more than 60% of the Partnership's units voted to remove Gran-Mark Properties, Inc. and Fourth Coast Properties Ltd. as the general partners and replace the former general partners with Amherst Properties, Inc., the current general partner. The effective date of removal in accordance with the Partnership Agreement was September 30, 1990. On September 28, 1990, two days prior to the effective date of removal, the former managing general partner filed a petition for relief under Chapter 11 of the federal bankruptcy laws on behalf of Gran-Mark Income Properties Limited Partnership (the "Debtor") in the United States Bankruptcy Court for Eastern District of Virginia - Alexandria Division.
A Plan of Reorganization dated March 27, 1992, a First Amended Plan of Reorganization dated April 13, 1992, and a Second Amended Plan of Reorganization dated June 2, 1992 were filed with the Court for approval.
On June 24, 1992, the U.S. Bankruptcy Court for the Eastern District of Virginia, Alexandria Division, approved a Disclosure Statement in connection with the Plan of Reorganization and the Plan was confirmed. The Effective Date of the Plan was August 28, 1992. Under the Plan, five classes of creditors were established:
The Class One Creditor group consisted of FDIC/Seaman's Bank for Savings, FSB, whose secured claim was not impaired under the Plan. The Plan required that as of the Effective Date of the Plan, all monthly payments under the FDIC/Seaman's Bank for Savings, FSB Note and Mortgage were to be paid in full, and to the extent that the escrow account maintained for the purpose of paying real estate taxes and insurance was insufficient was to be paid into the escrow account. In accordance with a Court Order dated January 25, 1993 the partnership made on September 21, 1993 a payment in the amount of $46,173 to increase the escrow account balance held by FDIC. The Class One Creditor was also allowed a secured claim for its attorney's fees, costs and expenses incurred and paid in the amount of $20,000. Of this claim, $10,000 was paid by the Effective Date of the Plan, and $10,000 was added to the principal balance of the loan and will be paid, without interest, on the maturity of the Note and Mortgage.
The Class Two Creditor group consisted of Old Stone Bank whose secured claim shall be paid in accordance with the provisions of the Plan and of the Modification Agreement and Allonge-Promissory Note dated June 30, 1992. The allowed amount was determined to be the loan balance as of March 1, 1992, of $4,291,717.51 plus Accrued Interest at 9% per annum for the period of June 1, 1991 through May 31, 1992 in the amount of $372,761.19, plus other fees recoverable by the Bank, referred to as the Deferred Balance, not to exceed $55,000. The Accrued Interest and Deferred Balance were added to the principal balance of the loan and will be paid without interest on the maturity date. The maturity date of the loan was extended to April 30, 1997. During the period from July 1, 1992 through April 30, 1994, interest only shall be paid on the principal sum of $4,291,717.51 based upon a rate calculated by adding 2.25% to the two year Treasury Note rate (computed on the average rate of the last five business days in the month of May 1992). This interest rate is 7.53%, resulting in a monthly interest payment of $26,930.53. During the period from May 1, 1994 through April 30, 1996, interest shall be paid on the principal sum of $4,291,717.51 based upon a rate calculated by adding 2,75% to the two year Treasury Note rate (computed on the average rate of the last five business days in the month of April 1994) and an additional monthly payment of principal shall be made based upon a thirty year amortization schedule. During the period from May 1, 1996 through April 30, 1997, interest shall be paid on the principal sum of $4,291,717.51 based upon a rate calculated by adding 3.00% to the two year Treasury Note rate (computed on the average rate of the last five business days in the month of April 1996) and an additional monthly payment of principal shall be made based upon a twenty eight year amortization schedule. On April 30, 1997, all principal, unpaid interest, and the Deferred Balance shall be due and payable.
Under the Plan, Old Stone Bank agreed to make available to the Partnership the balance in the cash reserve fund, approximately $162,800, together with $125,000 contributed by the Partnership, for capital improvements, renovations, and repairs specified in the Plan. These funds held in the Capital Improvement Reserve Fund are subject to signatures of a representative of Old Stone Bank and the Partnership.
As required by the Plan, the Partnership established a second escrow account at Old Stone Bank as a Note Payment Reserve in the amount of $40,000. This account shall only be used when the available monthly cash flow from the Manassas Property is less than the monthly debt service. On the first anniversary date of the Effective Date, an amount will be deposited by the Partnership to replenish the account. On the second anniversary of the Effective Date, the account balance will be returned to the Partnership.
The Class Three Creditor group consisted of Amherst Properties, Inc. The Plan requires that on the Effective Date, a promissory in the principal amount of $50,000 payable at the rate of $20,000 per year with interest of 6% per annum until paid shall be given by the Partnership to Amherst Properties, Inc. At the option of the Class Three Creditor, the note or any part of the note may be converted to partnership interests at a conversion price of $100 per partnership unit. On August 1, 1993, Amherst Properties, Inc. exercised such option and the partnership issued 500 units as payment against the $50,000 principal due. The remainder of the Class Three Creditor claim is subordinated to the claims of Class Two and Class Four Creditors and are to be paid from future cash flow only after the payments required under the Plan have been made to all other Classes of Creditors.
The Class Four Creditor group consisted of all unsecured creditors who are to be paid 50% of their claims upon the Effective Date of the Plan with the remainder being paid on the anniversary date on the confirmation.
The Class Five Creditors group consisted of all Equity Security Holders. At its option, each holder of a Class Five Equity Interest was entitled to retain its equity Security in the Partnership by making a capital contribution in an amount equal to a total of eight percent (8%) of the original capital investment. To the extent a Class Five Equity Security Holder failed to make a capital contribution, then that respective Holder's interest in the Partnership was deemed null and void. The original investment made to the Partnership equaled $6,005,000, and the new capital raised under the Plan was $480,400.
The capital contribution was payable in two installments, the first installment was due within 25 days of the approval of the Disclosure Statement (June 24, 1992) in the amount of five percent (5%) of the original investment, and the remainder of three percent (3%) was due on the first anniversary of the confirmation of the plan. Any partner failing to make the five percent (5%) contribution was deemed to be a declining partner. A second opportunity gave contributing partners the right to contribute for additional partnership shares determined by the increased percentage changed resulting from non contributing partners and the right to request additional interests. If a contributing partner made the initial five percent capital contribution but failed to make the additional three percent (3%) capital contribution, other contributing partners who have made both cash contributions were given the option to make the declining three percent (3%) capital contribution and receive the pro-rata interest in the Partnership represented by that capital contribution. The declining subscribing partner who made the five percent (5%) capital contribution, retained the interest represented by the five percent (5%) contribution. Only two opportunities were offered. Partnership shares dated August 28, 1992 were issued for the first installment contribution. Partnership shares dated August 1, 1993, were issued for the second installment contribution.
Under the Plan, the Amended Partnership Agreement was further modified to provide for future cash calls as deemed appropriate by the General Partner. Such cash calls shall not cause a forfeiture of Partnership interest for any Equity Security Holder who has made the subscriptions required by the Plan, however, any future cash call may result in a dilution in Partnership Interest.
When an entity emerges from a Chapter 11 reorganization, it must determine if the reorganization value of its assets before the date of confirmation is less than the total of all post-petition liabilities and allowed claims, and if the holders of existing voting shares immediately before confirmation receive less than fifty percent (50%) of the voting shares of the emerging entity. If these conditions exist, then the entity adopts fresh-start reporting which adjusts the historical amounts of individual assets and liabilities, reports forgiveness of debt, and creates a new reporting entity.
These conditions did not exist and the partnership did not adopt fresh-start reporting.
NOTE 4: CAPITAL CONTRIBUTIONS
Under the provisions of the Plan of Reorganization, the general partner notified all limited partners of their right to make a capital contribution and the consequences of any failure to make the required capital contribution. The new capital raised under the Plan was $480,400: $300,250 from the 5% contribution due July 19, 1992, (25 days after the date of approval of the Disclosure Statement by the Bankruptcy Court) and $180,150 from the 3% contribution due July 28, 1993 (the first anniversary of the date of confirmation of the Plan of Reorganization).
The partnership received $480,400 related to the cash call and the partnership issued 6,005 units.
Under the Plan of Reorganization, the general partner, Amherst Properties, Inc. had the right to convert its approved claim of $50,000 represented by a Note dated August 28, 1992, into a partnership interest in the reorganized partnership at the conversion price of $100.00 per partnership unit. On August 1, 1993, Amherst Properties, Inc. exercised that right and 500 units were issued.
As of September 30, 1996, a total of 6,505 units had been issued.
NOTE 5: SECURED CLAIMS:
Secured claims as of September 30, 1995 and September 30, 1996, which are collateralized by liens on the Partnership's rental property, including their related leases, accounts receivable, and vehicle, are summarized below:
Lender Property Sept 30, 1995 Sept 30, 1996
Old Stone Bank, FSB The Sudley Tower Now, Regency Savings (Office Bldg) Bank Manassas, VA $ 4,672,365 $ 4,634,915
Seamen's Bank for Sheridan Hills Savings, FSB Plaza Now, Regency Savings (Shopping Ctr) Bank Amherst, NY 3,001,002 0
First Virginia Bank Vehicle 1,197 0
Totals $ 7,674,564 $ 4,634,915
Scheduled maturities of secured claims at September 30, 1996, are as follows:
FYE 1997 $4,634,915 FYE 1998 and after 0 Total $4,634,915
Old Stone Bank, FSB/Regency Savings Bank:
On June 30, 1992, Gran-Mark Income Properties Limited Partnership and Old Stone Bank entered into a Modification Agreement and Allonge Promissory Note to modify the promissory note dated May 29, 1987. The modification extends the maturity date to April 30, 1997. For the period from July 1, 1992 through April 30, 1994, monthly payments of interest only at the rate of 7.53% (2,25% added to the average two year U.S. Treasury Bill Rate for the last five business days of May, 1992, and calculated upon the principal outstanding), in the amount of $26,930.53 were due. For the period from May 1, 1994 through April 30, 1996, monthly payments of principal and interest are calculated based on an interest rate calculated by adding 2.75% to the average two year U.S. Treasury Bill Rate for the last five business days of April, 1994, and calculated upon the principal outstanding, plus a thirty year amortization of the principal balance of $4,291,717.51. For the period from May 1, 1996 through April 30, 1997, monthly payments of principal and interest will be calculated based on an interest rate calculated by adding 3.0% to the average two year U.S. Treasury Bill Rate for the last five business days of April, 1996, and calculated upon the principal outstanding, plus a twenty eight year amortization of the principal balance. On April 30, 1997, all principal and accrued, unpaid interest is due plus a Deferred Balance of interest (totaling $374,761.19) and unpaid fees in the amount not to exceed $55,000. Interest charged to operations during the years ending September 30, 1996, 1995, and 1994, was $352,456, 359,156, and $338,996, respectively.
Seamen's Bank for Savings/Regency Savings Bank:
The mortgage bears interest at the rate of 10.31%; 2.5% over the Federal Home Loan Bank Board Five Year Advance Rate. The loan was to mature in January, 1997, at which time a balloon payment of approximately $2,944,200 was due. Fixed monthly payments of $27,708 through January 1992 were based upon a thirty year amortization period. Commencing in February 1992, constant monthly payments in the amount of $28,936 are based on a twenty- five year amortization period.
The mortgage was only to be prepaid in the fifth, ninth or tenth years subject to a penalty of 1% in years five and ten and 2% in year nine, or if greater (in years nine and ten, only) 1% plus the prepayment fee then charged by the Federal Home Loan Bank Board. Interest Charged to operations during the years ending September 30, 1996, 1995 and 1994, was $289,619, $310,142, and $313,761; respectively.
This mortgage was paid in full September 1996 upon the sale of the New York shopping center. Payment was made from the gross proceeds.
First Virginia Bank
On November 21, 1991, the Partnership acquired a 1991 Chevrolet truck. The acquisition was financed solely with a loan in the amount of $15,665, for which the vehicle is collateral. The loan required forty eight (48) constant monthly payments of $398.95, which commenced on January 5, 1992. The interest charged to operations ending September 30, 1996, 1995, and 1994, was $23, $378, and $804, respectively. Both the truck and the loan were in Amherst Properties, Inc's name, but the truck was paid for solely by the Partnership.
UNSECURED CLAIMS:
Unsecured claims (accounts payable) as of September 30, 1996, are summarized below:
Manassas Office Building Utilities $ 15,861 Repairs & Maintenance 1,219 Rent Overpayment 325 Office 497 Legal 382 Legal Fees to a Related Party 20,988 Building Improvements 6,910 Office Equipment 4,047 Construction Management to a Related Party 5,115
Total $ 55,344
NOTE 6: RELATED PARTY TRANSACTIONS:
Management Agreements
The Partnership maintains a management agreement with Amherst Properties, Inc. (the current general partner) for each of the two properties. The agreement provided for a monthly payment of management fees in the amount of six percent (6%) of gross rents collected and reimbursement of out-of-pocket expenses incurred in connection with each property. Amherst Properties, Inc. has subcontracted the day to day management and leasing responsibility for the Amherst shopping center to a non-affiliate, Center Associates, Realty Corp., for $1,000.00 per month. In accordance with the partnership and management agreements, Amherst Properties, Inc. is responsible for all third party management expenses.
On September 24, 1994, Amherst Properties, Inc. executed an agreement with Center Associates Realty Corp. to extend the management contract for the Amherst Shopping Center. Under this agreement the expiration date was extended to September 30, 1996. All other terms and conditions remain the same.
On September 30, 1992, the partnership executed and Amendment to Management agreement with Amherst Properties, Inc. for each of the two management agreements, extending the expiration date of each agreement to September 30, 1996. All other terms and conditions remain the same.
Accordingly, aggregate management fees charged to operations for the years ended September 30, 1996, 1995, and 1994, are as follows:
1996 1995 1994
Amherst Properties, Inc. $ 115,089 $ 114,231 $ 103,580 Total $ 115,089 $ 114,231 $ 103,580
As of September 30, 1996, $30,586 of these fees remain payable to Amherst Properties, Inc.
Reimbursement of Partnership Operating Expenses
The Partnership agreement provides for reimbursing the general partner and its affiliates for costs of providing administrative services to the partnership. Such reimbursements charged by and paid to the current general partner for operations are none for fiscal year ending September 30, 1994. Reimbursements charged by and included in the Accounts Payable as of September 30, 1995, were $27,985 and noted as related party items. Reimbursements of $58,958 were charged by the general partner, $5,410 was paid during the current fiscal year, and $53,548 are included an Accrued Expenses as of September 30, 1996.
During the period of October 1990 through December 1990, the general partner paid $79,994 in various costs for the Partnership. During prior periods, $20,174 of these costs have been reimbursed to the general partner, and during the current period an additional $15,000 was reimbursed, leaving a balance of unreimbursed costs of $44,820 as of September 30, 1996. These unreimbursed costs are included in Management Fees Payable to Amherst Properties, Inc. The Partnership has agreed to pay interest at the rate of 12% on these unreimbursed costs from December 31, 1990, until paid. Interest accrued for prior periods is $42,875, less payments of interest made during the prior fiscal year of $15,068 and $15,704 during the current period. A prior adjustment has been made to reflect the accrual of the additional interest due of $24,807 due to September 30, 1995. Interest charged to operations during the current fiscal year is $5,556.
Certain administrative expenses, such as telephone charges, and operating expenses incurred on the Partnership's behalf by Amherst Properties, Inc. are billed to Amherst Properties, Inc. but are paid directly by the Partnership.
During the current fiscal year, the Partnership paid $10,004 for the down payment, monthly loan payments, and other expenses related to a vehicle owned by Amherst Properties, Inc. Both the vehicle and loan are in Amherst Properties, Inc.'s name. These payments are included in the interest paid to Amherst Properties, Inc.
Promissory Note
As provided for in the approved Plan of Reorganization, the Class Three Creditor, Amherst Properties, Inc. was given a note of $20,000 per year with interest of 6% per annum until paid. At the option of Amherst Properties, Inc., the note or any part of the note was converted to a Partnership interest in the reorganized Partnership at a conversion price of $100.00 per Partnership unit. This option was exercised. The remainder of the Class Three Creditor's Claim was subordinated to the claims to the Class Two and Class Four Creditors and will be paid from future cash flow after the payments required under the Plan have been made.
NOTE 7: OPERATING LEASES
Minimum future rentals to be received under noncancellable operating leases from tenants of both properties in effect at September 30, 1996, are as follows:
Year ending September 30, Amount
1997 $ 822,012 1998 553,272 1999 381,219 2000 196,781 Subsequent to 1999 136,814
Total minimum future rentals $ 2,090,098
General leasing arrangements include a remaining fixed rental term with annual increases, pro rata share of increases in property expenses, and various renewal options.
NOTE 8: INCOME TAXES
A basic requirement of federal tax law requires that a partnership's general partners assume unlimited liability. Requirements, among others, in determining whether a limited partnership will be recognized as a partnership or if it will be recognized as a corporation are as follows:
A. Limited partners may not own directly or indirectly more than 20 percent of the corporation or its affiliates.
B. The net worth of the corporation must at all times be a minimum of 10 percent of total partnership contribution.
Affiliates of one of the Partnership's limited partners own a two- thirds interest in Amherst Properties, Inc. and Amherst Properties' net worth is less than the guidelines suggest. Accordingly, the possibility exists that the Partnership could be classified as an association and be subject to corporate tax laws, which could result in the disallowance of previous deductions taken by limited partners on their individual returns.
As previously noted in Securities and Exchange Commission filings, the previous managing general partner has not met the net worth requirements since 1987.
The Tax Reform Act of 1986 required the Partnership to change its reporting period for income tax purposes to a calendar year. The change became effective for the three month period ending December 31, 1988.
NOTE 9: PARTNERSHIP ALLOCATIONS:
Partnership income and net cash from operations are allocated 99% to the limited partners and 1% to the general partner until the limited partners have received their cumulative 7% priority return. After this return has been achieved, the general partner will then be allocated its annual incentive management fee so that total distribution will aggregate 10% to the general partner and 90% to the limited partners in accordance with the Partnership Agreement. The general partner will then receive its deferred incentive management fee, if any, and any remaining income. Net cash from operations in allocated 90% to the limited partners and 10% to the general partner. Losses are allocated 99% to the limited partners and 1% to the general partner.
NOTE 10: MANAGEMENT PLANS:
At the time the new general partner, Amherst Properties, Inc., commenced managing the properties, there existed no operating funds and a negative cash-flow. Significant legal bills and real estate commissions were payable, numerous maintenance and heating and air-conditioning problems at the office building existed, as well as a serious default of the required loan payments to Old Stone Bank.
Amherst Properties, Inc. had deferred collection of most management fees accrued for the period from October 1990 to September 1993 and advanced funds, to pay operating expenses, legal fees and real estate commissions.
At the present time current rental income covers the operating expenditures.
The success for the Manassas office building is dependent upon three major factors:
1. The ability to successfully compete with existing office buildings in Prince William County.
2. The ability to attract new tenants from adjacent counties.
3. Achieving and maintaining a high rate of occupancy.
Over the past year the managing general partner has continued to improve the situation with regard to these factors. The managing general partner has modernized the office building and replaced light fixtures with more energy efficient fixtures to successfully compete with existing buildings. The office building has a competitive advantage because of easy access to and from major highways, efficient heating and air-conditioning, an effective security system and high rise view of surrounding scenic areas.
Management's efforts over the past several years brought to fruition an office building which is more than 95% leased and occupied. The management team overcame the loss of major tenants leasing more than 20,000 square feet. Management sought and obtained a signed lease with a major real estate broker and several mortgage companies.
Present plans are to continue to develop a self sufficient financial center for loans, banking, mortgage, home real estate sales, with necessary support services. These tenants which have stood the test of time not only survived the crunch of the early 1990s but have expanded and became more profitable.
Management is generating a capacity for the roof top to accommodate 50 antennae. A rail system has been built to anchor the antennae and electronics will continue to be managed by RAM. The number of licensed antennae users has increased to 21.
More repairs, maintenance, and upgrading are needed at the office building to continue to attract and retain tenants. They are as follows:
1. Power clean the exterior facade of the building. 2. Renovate bathrooms. 3. Renovate the hallways of the upper floors, carpeting, wallpaper, ceiling, and lighting. 4. Caulking the windows and window frame. 5. Landscaping the building site front and rear. 6. Installation of energy efficient lighting and motors which power the heating and hot water system.
The work for upgrading the building and performing needed repairs and maintenance began with the new management and continues.
In April and May 1993, the Partnership entered into contracts totaling $131,750 for renovations of the lobby and for modifications to the first and fifth floor bathrooms to comply with the Americans Disabilities Act requirements. Construction began in May 1993 and was completed in September 1993. The partnership contracted for renovation and modifications to the bathrooms of the fifth (5th) floor to comply with the American Disability Act requirements. Construction was completed in March 1994. The cost was $32,207. Payments for these renovations were made from the Capital Improvement Reserve Fund.
As of March 1994, other completed improvements include walk-off mats in the lobby, a glass enclosed entrance way, an additional lobby directory, automatic door openers at the front and rear entrances, resurfacing of the entire parking lot, and replacement of 105 fifteen foot heating tubes in the boiler.
A new roof was installed and the sidewalk was resurfaced at the entranceway in the front of the building. The building facade was power washed at the front entrance. The parking lot has been resurfaced.
For tenant retention and attracting new tenants, various tenant incentives are offered according to the needs of each existing and prospective tenant. These include special buildouts, facilities, wiring for special equipment, plumbing for kitchens, assistance in moving, providing furniture and furnishings when available, as well as targeting a rental program to meet the business needs of the tenant. These costs are reflected in Building Improvements.
Management is continuing to provide conscientious maintenance which includes caulking windows, clean and polish marble in lobby area and power wash the entire exterior of the building.
The property in New York is a shopping center with an occupancy of 95%. This shopping center was built in 1980 and needed to be revitalized with the renovation of its exterior facing, landscaping, resurfacing the parking lot and renovation of the interior stores. It was sold in September 1996 after a long and arduous process which took longer than two years to complete. Management was faced with a loan on the shopping center which was about to mature on January 1, 1997. The major tenant (Hills Department Store) occupied about 80% of the center. Hills had emerged in 1993 from a chapter 11 reorganization in the bankruptcy court and initially showed promise but the recent entry of Wal-Mart and Target in the Buffalo/Niagara Falls area caused Hills to suffer a decline in sales and it posted losses for the last twelve months. Accordingly, its stock, listed on the N.Y.S.E. had a sharp decline. Because of the financial weakness of this major tenant it was extremely difficult, if at all possible, to refinance the loan at competitive rates. Potential purchasers likewise were not interested in the property because of the difficulty of obtaining financing among other things.
Management feels that the partnership was fortunate in selling the shopping center to a local developer who owns contiguous properties and a number of other shopping centers in the Niagara Falls-Buffalo area. The shopping center has virtually no frontage and very poor visibility from the street. The center is also in need of a costly face lift. The sale was only possible because the purchaser felt it complemented his existing contiguous holdings without which he would have no interest. He also had the financial strength to purchase the mortgage note with funds from his corporate holdings and thereby avoid refinancing. Management felt that under the circumstances the sale was the proper and prudent thing to do and consider, the Partnership fortunate to consummate same.
Supplementary data has been omitted in as much as it is either inapplicable, immaterial, or it is presented in the financial statements or notes thereto.
Item 9
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
In October 1991, Jennifer A. Jones, CPA, Ltd. was appointed as new certified public accountant for the partnership, replacing Charles M. Terry & Company. Charles M. Terry & Company had replaced Charles H. Schnepfe, Certified Public Accountant in 1990. Charles H. Schnepfe had replaced Roberts, Halt, and Company in 1989, and Roberts, Halts, and Company had replaced Price Waterhouse in 1988.
Part III
Item 10
Item 10 - Directors and Executive Officers of the Registrant
The partnership has no directors or officers under the Partnership Agreement and the General Partner is solely responsible for the operation of the Partnership and its properties. The Limited Partners have no right to participate in the control of the Partnership. The current General Partner is Amherst Properties, Inc., located at 7900 Sudley Road, Suite 900, Manassas, Virginia 22110 ([703] 368-2415).
For information concerning the former general partners, see previous SEC filings.
Louis J. Marin, age 61, is the President of Amherst Properties, Inc. He received his B.B.A. in Business from City College, New York (1957), his MBA from Cornell University (1959) and his law degree from George Washington University (1964). He worked in the regulatory field for the Securities & Exchange Commission and the Office of the Comptroller of the Currency for 6 years. For the last 26 years he has worked as a lawyer specializing in real estate. During this time he has been a developer, investor, and manager of real estate.
Dr. Lionel Felsen, age 60, is the Executive Vice President of Amherst Properties, Inc. He did his undergraduate at Brooklyn College and graduate work at Georgetown University Medical and Dental School, D.D.S. (1964). He has managed a professional office since 1964. He has been an active investor in commercial and residential real estate for 26 years and is the major investor in Sher-Man Real Estate Partnership.
ITEM 11
ITEM 11 - Executive Compensation
The Partnership has no directors or officers. The Partnership will pay the costs incurred by the General Partners or their affiliates in performing administrative services necessary to the prudent operation of the Partnership; provided, however, that the amounts charged to the Partnership for services performed shall not exceed the lessor of (a) the actual cost of the services, or (b) 90% of the competitive price which would be charged by non-affiliated persons rendering services in the same or a comparable geographic location. Costs of the services as used herein means the pro rata cost of personnel including an allocation of overhead directly attributable to such services. See Note 6 of the Notes to Financial Statements (Item 8) for Management fees and other payments to the Managing General Partner and its affiliates.
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management
As of September 30, 1996, Lou Marin, President of Amherst Properties, Inc., was a beneficial owner of 629.7438 units or 9.58% of the Partnership; Lionel Felsen, Executive Vice-President of Amherst Properties, Inc., was a beneficial owner of 1116.5596 units or 16.99% of the Partnership and Amherst Properties, Inc. was a beneficial owner of 500 units or 7.61% of the Partnership, in addition to its general partnership interest. To the knowledge of the Partnerships management there are no other beneficial owners of more than 5% of the Partnership.
Item 13
Item 13 - Certain Relationships and Related Transactions
See Note 7 of the Notes to Financial Statements at Item 8.
PART IV
(A) (1) Financial Statements - See Item 8
(B) Reports on Form 8-K: None
(C) Exhibits: None
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 undersigned, thereunto duly authorized.
(Registrant) Gran-Mark Income Properties Limited Partnership
By: Amherst Properties, Inc. General Partner
By: __________________________________ _______________ Louis J. Marin Date President
__________________________________ _______________ Lionel Felsen Date Vice-President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and it the capacities and on the dated indicated.
Gran-Mark Income Properties Limited Partnership
By: Amherst Properties, Inc. General Partner
By: __________________________________ _______________ Louis J. Marin Date President
__________________________________ _______________ Lionel Felsen Date Vice-President