Item 1. Business
(a) General Development of Business Burger King Limited Partnership III (the "Partnership") was formed as a limited partnership on November 22, 1983 under the partnership laws of the State of New York. The general partner of the Partnership is BK III Restaurants Inc. (formerly Shearson/BK Restaurants, Inc.), a New York corporation (the "General Partner") and an affiliate of Lehman Brothers Inc. ("Lehman"), formerly Shearson Lehman Brothers, Inc. ("Shearson") (see Item 10). The Partnership engages in the business of acquiring, constructing, improving, holding and maintaining Burger King restaurants (each referred to as a "Property", collectively, the "Properties"). The Properties are leased on a net basis to franchisees of Burger King Corporation ("BKC").
(b) Financial Information About Industry Segment The Partnership's sole business is leasing the Properties to franchisees of BKC. All of the Partnership's revenues, operating profit or losses and assets relate solely to such industry segment.
(c) Narrative Description of Business The Properties consist of the buildings, fixtures and improvements and, in some cases, the underlying land. The Properties are net leased to franchisees of BKC. For a Property located on land owned by the Partnership, the annual rent is the greater of (i) 14.5% of the Partnership's investment (which equals the cost of land acquisition plus construction costs, as estimated at the date the lease is executed, and capitalized interest) or (ii) 8.5% of the Property's annual gross sales. For a Property located on land leased by the Partnership, the annual rent is the greater of (i) 14.5% of the Partnership's investment plus the annual ground rent paid by the Partnership to BKC which, in turn, pays rent to the owner of the underlying land or (ii) 8.5% of the Property's annual gross sales. The Partnership's principal investment objectives are to:
(1) provide regular cash distributions, a portion of which will be "tax sheltered;" and
(2) provide realization of the long-term appreciation in the value of the Properties, consistent in all cases with the preservation of partners' capital.
BKC had the option to purchase any or all of the restaurants at fair market value from May 17, 1991 through May 16, 1994 at which time the option expired unexercised. After a careful evaluation of market conditions, the General Partner has decided to commence efforts to market the Partnership's remaining 23 Properties for a bulk sale during 1997. Until the Properties are sold, the Partnership will continue to operate, and it is intended that cash flow from operations will be distributed to the partners in accordance with the terms of the Agreement of Limited Partnership dated as of November 22, 1983 (the "Partnership Agreement"). While the General Partner is hopeful that a sale of the remaining Properties can be completed during 1997, there can be no assurance that such efforts will be successful. Prior to December 31, 1996, the Partnership sold or conveyed four Properties. Please refer to Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K, and Notes 4 and 5 in the Notes to the Financial Statements of the Partnership's Annual Report to Unitholders for the year ended December 31, 1996, which is filed as an exhibit under Item 14 and incorporated herein by reference, for additional information regarding Property sales or conveyances to third parties.
Employees The Partnership has no employees.
Competition Percentage rents received by the Partnership from the leases with the franchisees at the Properties are based on the food and beverage sales generated by the Properties. Competition in the fast food industry has generally become more intense as the number of chains competing for the consumer's business has increased. For most chains, in 1997, the primary source of revenue growth will continue to be the development of new restaurants or the acquisition of existing restaurants. As a result, intense price competition and aggressive marketing promotions have become essential ingredients in increasing sales from existing restaurants. Other factors which influence sales include, but are not limited to, product quality, customer service, and the diversity of menu offerings.
Item 2.
Item 2. Properties.
For the year ended December 31, 1996, no individual Property generated rental revenues of 10% or more of the Partnership's total rental revenues. Additionally, no individual Property represented 10% or more of the Partnership's total assets for the year ended December 31, 1996.
For additional information concerning the Partnership's Properties, reference is made to the section captioned "Partnership's Restaurants" on the Table of Contents page and Note 4 captioned "Real Estate" in the Notes to the Financial Statements of the Partnership's 1996 Annual Report to Unitholders, and Schedule III on pages through following the signature pages of this Form 10-K.
Item 3.
Item 3. Legal Proceedings.
None
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5.
Item 5. Market for the Partnership's Limited Partnership Units and Related Security Holder Matters.
(a) Market Information There is no established trading market for the limited partnership units (the "Units").
(b) Holders As of December 31, 1996, there were 2,540 holders of record (the "Unitholders") of the Units.
(c) Distributions The following table illustrates the per Unit quarterly cash distributions paid to Unitholders during the past two years:
Quarter Declared 1996 1995 First Quarter $ 28.20 $ 32.46 Second Quarter 26.02 24.02 Third Quarter 27.29 26.69 Fourth Quarter 59.53 (1) 25.59 Total Cash Distributions $141.04 $108.76
(1) Includes a distribution of $33.46 from the sale of one Property in November 1996.
Reference is also made to Note 3, captioned "Partnership Allocations" and Note 6 captioned "Distributions" of the Notes to Financial Statements in the Partnership's 1996 Annual Report to Unitholders for additional information concerning cash distributions paid by the Partnership.
Item 6.
Item 6. Selected Financial Data.
The information set forth below should be read in conjunction with the Partnership's financial statements and notes thereto and Item 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources At December 31, 1996, the Partnership had a cash and cash equivalents balance of $1,022,064, compared to $502,341 at December 31, 1995. The increase is primarily due to net proceeds in the amount of $507,000 which were received from the sale of the Partnership's leasehold interest in a Property located in Delhi Township, Ohio on November 15, 1996. The net proceeds from this sale were distributed to the partners of the Partnership on January 30, 1997. The remaining balance of the Partnership's cash and cash equivalents consisted primarily of the Partnership's working capital and cash flow from operations for the fourth quarter of 1996.
Rent receivable totaled $80,880 at December 31, 1996, compared to $50,447 at December 31, 1995. The increase is primarily attributable to the timing of receipt of rents paid to the Partnership.
Due from BKC decreased from $50,977 at December 31, 1995 to $0 at December 31, 1996. The decrease is attributable to a refund of a portion of BKC's management fees paid by the Partnership during 1995 which was received during the first quarter of 1996. In accordance with the terms of the property management agreement between BKC and the Partnership (the "Agreement"), BKC is required to refund all or a portion of the annual management fee paid by the Partnership if rents from the Properties do not provide an annual return of 15.5% on the Partnership's initial investment, as defined in the Agreement. For the year ended December 31, 1996, rents received by the Partnership from the Properties exceeded the annual return of 15.5% and, therefore, BKC was not required to refund any of its management fee to the Partnership.
Distributions payable, which totaled $918,562 at December 31, 1996, were paid on January 30, 1997. Such amount includes net proceeds of $507,000 from the aforementioned sale of the leasehold interest in the Delhi Property on November 15, 1996.
Unitholders received distributions of $141.04 per Unit for 1996, including the Partnership's fourth quarter distribution in the amount of $59.53 per Unit which was paid on January 30, 1997. This distribution included net proceeds of $33.46 per Unit from the sale of the leasehold interest in the Delhi Property.
Since the inception of the Partnership, cumulative cash distributions to the Unitholders have totaled $1,470.16 per original $1,000 Unit. This total includes distributions of net cash flow from operations in the amount of $1,350.24 per Unit and distributions of net proceeds from the sale of Properties in the amount of $119.92 per Unit. Distributions of net proceeds from the sales of Properties represent a return of capital, which has reduced each Unit from $1,000 to $880.08.
After a careful evaluation of market conditions, the General Partner has decided to commence efforts to market the Partnership's remaining 23 Properties for a bulk sale during 1997. Until all of the Properties are sold, the Partnership intends to continue operating the Properties and distributing cash flow from operations to the partners in accordance with the terms of the Partnership Agreement. As a result of the Partnership's intention to market the Properties for sale, the net amount of the land, building, and fixtures and equipment less the related accumulated depreciation has been reclassified on the Partnership's balance sheet as real estate held for sale.
On February 15, 1996, based upon, among other things, the advice of legal counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a resolution that states, among other things, if a Change of Control (as defined below) occurs, the General Partner may distribute the Partnership's cash balances not required for its ordinary course day-to-day operations. "Change of Control" means any purchase or offer to purchase more than 10% of the Units that is not approved in advance by the General Partner. In determining the amount of the distribution, the General Partner may take into account all material factors. In addition, the Partnership will not be obligated to make any distribution to any partner, and no partner will be entitled to receive any distribution, until the General Partner has declared the distribution and established a record date and distribution date for the distribution. The Partnership filed a Form 8-K disclosing this resolution on February 29, 1996.
Results of Operations
1996 vs. 1995 The Partnership generated net income for the year ended December 31, 1996 of $1,787,581, compared to $1,328,509 for the year ended December 31, 1995. The increase in net income is primarily due to a gain on the sale of the leasehold interest in the Delhi Property recognized by the Partnership during the fourth quarter of 1996 totaling $383,193. Excluding this gain, the Partnership generated income from operations totaling $1,404,388 for the year ended December 31, 1996, compared to $1,328,509 for the year ended December 31, 1995. The slight increase in income from operations from 1995 to 1996 is primarily attributable to an increase in rental income received from the Properties.
Rental income for the year ended December 31, 1996 was $2,257,335, compared to $2,159,733 for the corresponding period in 1995. The increase in rental income is primarily attributable to an increase in food and beverage sales at the Properties which resulted in an increase in percentage rental income and, to a lesser extent, scheduled escalations in ground lease rents at the leasehold Properties. Ground lease rent escalations which are included in the minimum base rent amounts charged to the franchisees also result in a corresponding increase in the ground lease rents paid by the Partnership to BKC. Management fees, which are based on the amount of rental income received by the Partnership, were higher for the year ended December 31, 1996 due to the increase in percentage rental income. As discussed above, BKC was not required to refund any management fees to the Partnership for the year ended December 31, 1996.
General and administrative expenses for the year ended December 31, 1996 totaled $82,159, compared to $90,545 for the corresponding period in 1995. The decrease is primarily attributable to a decrease in environmental consulting fees incurred by the Partnership during 1996.
1995 vs. 1994 The Partnership generated net income for the year ended December 31, 1995 of $1,328,509 compared to $1,418,073 for the year ended December 31, 1994. The decrease in net income was primarily attributable to an increase in management fees paid to BKC.
Rental income for the year ended December 31, 1995 was $2,159,733 compared to $2,044,028 for the year ended December 31, 1994. The increase was primarily a result of increased food and beverage sales at the Properties resulting in an increase in percentage rental income and, to a lesser extent, scheduled rent escalations in the Partnership's ground leases. Ground lease rent escalations are passed on to the franchisees in the form of higher minimum base rents.
Interest income for the year ended December 31, 1995 was $26,299 compared to $16,366 for the year ended December 31, 1994. The increase in interest income was primarily attributable to a rise in interest rates earned on the Partnership's cash balances during the 1995 period.
Total expenses for the year ended December 31, 1995 were $859,688 compared to $646,097 for the year ended December 31, 1994. The increase was primarily attributable to an increase in the management fee paid to BKC which is attributable to the increase in percentage rental income received by the Partnership as a result of an increase in sales at the Properties. Also contributing to the increase in expenses for the year ended December 31, 1995, was higher ground lease rent resulting from scheduled rent escalations on three of the Partnership's leased Properties.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference to the Partnership's 1996 Annual Report to Unitholders.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Partnership.
The General Partner is a New York corporation and an affiliate of Lehman.
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale, Shearson changed its name to Lehman Brothers Inc. The transaction did not affect the ownership of the Partnership or the General Partner. However, the assets acquired by Smith Barney included the name "Shearson." Consequently, effective January 24, 1994, the General Partner changed its name from Shearson/BK Restaurants, Inc. to BK III Restaurants Inc. to delete any reference to "Shearson."
The Partnership has no officers and directors. The General Partner manages and controls the affairs of the Partnership and has general responsibility and authority in all matters affecting its business. Certain officers and the director of the General Partner are now serving (or in the past have served) as officers or directors of entities which act as general partners of a number of real estate limited partnerships which have sought protection under the provisions of the Federal Bankruptcy Code. The partnerships which have filed bankruptcy petitions own real estate which has been adversely affected by the economic conditions in the markets in which that real estate is located and, consequently, the partnerships sought the protection of the bankruptcy laws to protect the partnerships' assets from loss through foreclosure.
The director and executive officers of the General Partner as of December 31, 1996 are set forth below. There are no family relationships between or among any officer and any other officer or director.
Name Age Office Rocco F. Andriola 38 Director, President and Chief Financial Officer Kenneth F. Boyle 33 Vice President Timothy E. Needham 28 Vice President
The foregoing director has been elected to serve as director until the annual meeting of the General Partner to be held in October 1997. The business experience of the director and each of the officers of the General Partner is as follows:
Rocco F. Andriola is a Managing Director of Lehman Brothers in its Diversified Asset Group and has held such position since October 1996. Since joining Lehman Brothers in 1986, Mr. Andriola has been involved in a wide range of restructuring and asset management activities involving real estate and other direct investment transactions. From June 1991 through September 1996, Mr. Andriola held the position of Senior Vice President in Lehman's Diversified Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of First Vice President in Lehman's Capital Preservation and Restructuring Group. From 1986-89, Mr. Andriola served as a Vice President in the Corporate Transactions Group of Shearson Lehman Brothers' office of the general counsel. Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from Fordham University, a J.D. from New York University School of Law, and an LL.M in Corporate Law from New York University's Graduate School of Law.
Kenneth F. Boyle is a Vice President of Lehman Brothers' Diversified Asset Group. Mr. Boyle joined Lehman Brothers in January 1991. Mr. Boyle is a Certified Public Accountant and was employed by the accounting firm of KPMG Peat Marwick LLP from 1985 to 1990. Mr. Boyle graduated from the State University of New York at Binghamton with a B.S. degree in Accounting.
Timothy E. Needham is an Associate of Lehman Brothers and assists in the management of commercial real estate in the Diversified Asset Group. Mr. Needham joined Lehman Brothers in September 1995. Prior to joining Lehman Brothers Mr. Needham was a consultant with KPMG Peat Marwick LLP in the Banking and Investment Services Group from 1994- 1995. Mr. Needham received his master's degree in international management from the American Graduate School of International Management in December of 1993. Previous to entering graduate school, Mr. Needham worked in Tokyo, for approximately one year doing market research for a Japanese firm (1991). In addition, Mr. Needham is currently a candidate for the designation of Chartered Financial Analyst, Level III.
Item 11.
Item 11. Executive Compensation.
Officers and the director of the General Partner are employees of Lehman and are not compensated by the Partnership or the General Partner for services rendered in connection with the Partnership.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners The Partnership knows of no person who beneficially owns more than 5% of the Units.
(b) Security ownership of management Under the terms of the Partnership Agreement, the Partnership's affairs are managed by the General Partner. The General Partner owns the equivalent of one Unit. No director or officers of the General Partner own any Units.
(c) Changes in control None.
Item 13.
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and Others Amounts reimbursed to the General Partner and its affiliates for out of pocket expenses during the years ended December 31, 1996, 1995 and 1994 were $2,341, $80 and $53, respectively.
(b) Certain Business Relationships There have been no business transactions between the director and officers of the General Partner and the Partnership.
(c) Indebtedness of Management No management person is indebted in any amount to the Partnership.
(d) Transactions with Promoters There have been no transactions with promoters.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following are filed as part of this report:
1. Financial Statements
BURGER KING LIMITED PARTNERSHIP III (a New York limited partnership)
Independent Auditors' Report (1)
Balance Sheets at December 31, 1996 and 1995 (1)
Statements of Partners' Capital (Deficit) for the years ended December 31, 1996, 1995 and 1994 (1)
Statements of Operations for the years ended December 31, 1996, 1995 and 1994 (1)
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 (1)
Notes to the Financial Statements (1)
(1) Incorporated by reference to the Partnership's 1996 Annual Report to Unitholders.
2. Financial Statement Schedule
Independent Auditors' Report on Schedule III (F-1)
Schedule III - Real Estate and Accumulated Depreciation (F-2)
3. Exhibits
(13) 1996 Annual Report to Unitholders
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year ended December 31, 1996.
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.
Dated: March 31, 1997 BURGER KING LIMITED PARTNERSHIP III
BY: BK III Restaurants Inc. General Partner
BY: /s/ Rocco F. Andriola Name: Rocco F. Andriola Title: Director, President and Chief Financial Officer
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 and on the dates indicated.
BK III RESTAURANTS INC. General Partner
Dated: March 31, 1997 BY: /s/ Rocco F. Andriola Rocco F. Andriola Director, President and Chief Financial Officer
Dated: March 31, 1997 BY: /s/ Kenneth F. Boyle Kenneth F. Boyle Vice President
Dated: March 31, 1997 BY: /s/ Timothy E. Needham Timothy E. Needham Vice President
INDEPENDENT AUDITORS' REPORT
The Partners Burger King Limited Partnership III:
Under date of January 31, 1997 we reported on the balance sheets of Burger King Limited Partnership III (a New York limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' capital (deficit) and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1996 Annual Report to Unitholders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion of the financial statement schedule based on our audits.
In our opinion, the 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.
KPMG PEAT MARWICK LLP
Boston, Massachusetts January 31, 1997
BURGER KING LIMITED PARTNERSHIP III (a New York limited partnership) Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Costs Capitalized Subsequent Initial Costs To Acquisition
Buildings and Buildings and Description (A) Encumbrances Land Improvements Improvements Largo, FL $ _ $210,000 $276,604 $ _ Mounds View, MN _ 120,000 330,988 _ Sulphur Springs, TX _ 112,000 309,767 _ Atlanta, GA _ 250,000 362,443 _ Albuquerque, NM _ (B) 286,252 _ Montgomery, AL _ (B) 288,273 _ Covina, CA _ 270,000 346,210 _ Federal Heights, CO _ (B) 231,001 _ Gallatin, TN _ 131,500 270,748 _ Edison, NJ _ 150,000 534,340 _ Cleburne, TX _ 129,588 336,846 _ Chattanooga, TN _ 180,000 309,706 _ Shelbyville, TN _ 139,000 359,891 _ Gary, IN _ 207,000 409,521 _ Wilson, NC _ 135,000 381,867 _ Memphis, TN _ 225,000 398,988 _ North Augusta, SC _ 160,000 329,445 _ Columbus, IN _ 175,000 360,545 _ Brooklyn Park, MD _ (B) 289,307 _ Fayetteville, NC _ (B) 371,762 _ San Bernadino, CA _ (B) 325,297 _ Frankfort, KY _ 175,000 400,684 _ Nashville, TN _ 212,000 399,849 _ ___________________________________________________ $ _ $2,981,088 $7,910,334 $ _
BURGER KING LIMITED PARTNERSHIP III (a New York limited partnership) Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Cost Basis at December 31, 1996
Buildings and Accumulated Description (A) Land Improvements Totals Depreciation Largo, FL $210,000 $276,604 $486,604 $206,985 Mounds View, MN 120,000 330,988 450,988 248,645 Sulphur Springs, TX 112,000 309,767 421,767 232,943 Atlanta, GA 250,000 362,443 612,443 268,830 Albuquerque, NM 286,252 286,252 212,140 Montgomery, AL 288,273 288,273 214,728 Covina, CA 270,000 346,210 616,210 254,465 Federal Heights, CO 231,001 231,001 171,532 Gallatin, TN 131,500 270,748 402,248 199,531 Edison, NJ 150,000 534,340 684,340 383,724 Cleburne, TX 129,588 336,846 466,434 246,383 Chattanooga, TN 180,000 309,706 489,706 224,623 Shelbyville, TN 139,000 359,891 498,891 260,746 Gary, IN 207,000 409,521 616,521 293,207 Wilson, NC 135,000 381,867 516,867 272,995 Memphis, TN 225,000 398,988 623,988 282,281 North Augusta, SC 160,000 329,445 489,445 233,139 Columbus, IN 175,000 360,545 535,545 255,823 Brooklyn Park, MD 289,307 289,307 214,067 Fayetteville, NC 371,762 371,762 262,808 San Bernadino, CA 325,297 325,297 226,912 Frankfort, KY 175,000 400,684 575,684 276,864 Nashville, TN 212,000 399,849 611,849 272,647 _______________________________________________________ $2,981,088 $7,910,334 $10,891,422 (D) $5,716,018 (C)
BURGER KING LIMITED PARTNERSHIP III (a New York limited partnership) Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Years of Dates Estimated Description (A) Construction Acquired Useful Lives Largo, FL 1984 04/03/84 7 - 20 years Mounds View, MN 1984 04/13/84 7 - 20 years Sulphur Springs, TX 1984 03/08/84 7 - 20 years Atlanta, GA 1984 06/15/84 7 - 20 years Albuquerque, NM 1984 07/10/84 7 - 20 years Montgomery, AL 1984 07/16/84 7 - 20 years Covina, CA 1984 05/31/84 7 - 20 years Federal Heights, CO 1984 08/31/84 7 - 20 years Gallatin, TN 1984 10/11/84 7 - 20 years Edison, NJ 1984 10/31/84 7 - 20 years Cleburne, TX 1984 10/18/84 7 - 20 years Chattanooga, TN 1985 01/18/85 7 - 20 years Shelbyville, TN 1985 02/07/85 7 - 20 years Gary, IN 1985 05/09/85 7 - 20 years Wilson, NC 1985 05/16/85 7 - 20 years Memphis, TN 1985 08/01/85 7 - 20 years North Augusta, SC 1985 08/02/85 7 - 20 years Columbus, IN 1985 07/23/85 7 - 20 years Brooklyn Park, MD 1985 02/20/85 7 - 20 years Fayetteville, NC 1985 08/26/85 7 - 20 years San Bernadino, CA 1985 12/11/85 7 - 20 years Frankfort, KY 1986 02/27/86 7 - 20 years Nashville, TN 1985 10/22/85 7 - 20 years
(A) Represents Burger King restaurants. (B) Properties operated under a ground lease. (C) Depreciation is computed under the straight-line method. (D) Federal income tax basis of the real estate is $10,845,640 at December 31, 1996.
BURGER KING LIMITED PARTNERSHIP III (a New York limited partnership) Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Real estate held for investment and corresponding accumulated depreciation for the three years ended December 31, 1996, 1995 and 1994 is as follows:
Real estate investments: 1996 1995 1994 Beginning of year $11,278,049 $11,278,049 $11,278,049 Deduct: real estate sold 386,627 0 0 End of year $10,891,422 $11,278,049 $11,278,049
Accumulated depreciation: Beginning of year $ 5,702,818 $ 5,425,179 $ 5,147,540 Add: depreciation expense 276,020 277,639 277,639 Deduct: real estate sold 262,820 0 0 End of year $ 5,716,018 $ 5,702,818 $ 5,425,179
As of December 31, 1996, the Partnership's real estate investments which had a carrying value of $5,175,404, were reclassified as real estate held for sale and depreciation will be suspended in accordance with FAS 121.