The Partnership owns the following properties as of December 31, 1997.
WAREHOUSE FACILITY IN POMONA, CALIFORNIA The Partnership owns six industrial buildings on approximately 28 acres in Pomona, California. The site is approximately 30 miles east of downtown Los Angeles. The buildings were constructed between 1982 and 1984 and contain approximately 531,000 square feet of leasable space. The property was 100% leased at December 31, 1997. The land, previously a ground lease, was purchased in 1997.
OFFICE FACILITY IN MORRISTOWN, NEW JERSEY This four-story suburban office building was constructed in 1981 and contains 83,000 rentable square feet. It is located on a 5.1 acre site, approximately 30 miles west of New York City. At December 31, 1997 it was 99% leased.
APARTMENT COMPLEX IN FARMINGTON HILLS, MICHIGAN Indian Creek Apartments consists of fifteen two-story buildings containing 156 two-bedroom and 40 one- bedroom units. It was constructed in 1988 and is located approximately 20 miles northwest of Detroit. At December 31, 1997, the property was 93% leased.
DISTRIBUTION CENTER IN AURORA, COLORADO This industrial complex consists of two separate buildings completed in 1997. It contains approximately 278,000 square feet of rentable space. The building is located on an approximate 16 acre land parcel in Aurora, Colorado. At December 31, 1997 the building was vacant.
OFFICE FACILITY IN BRENTWOOD, TENNESSEE This two story office facility was completed in 1987. It contains approximately 97,000 square feet of rentable space. The building is located on a 6.96 acre land parcel in Brentwood, Tennessee. At December 31, 1997 the building was 100% leased.
Information about contract unit values may be found in Note 4 to the Financial Statment on page.
As of December 31, 1997, the Partnership's liquid assets consisting of cash, cash equivalents and marketable securities (excluding the Partnership's shares in Meridian Industrial Trust REIT) were $26,851,981. This is a decrease of $18,312,867 from $45,164,848 at December 31, 1996. The decrease is due primarily to the acquisition of five real estate investments in 1997 totaling $37,417,479. This decrease was partially offset by: (1) the sale of the Partnership's interest in a portfolio of industrial properties located in Jacksonville, FL for net proceeds of $6,272,330, (2) operations of the Partnership's properties, and (3) interest income received from the Partnership's short term investments. Sources of liquidity include net cash flow from property operations, interest from short term investments, and dividends on REIT shares.
Prudential has committed to fund up to $100 million to enable the Partnership to acquire real estate investments. Contributions to the Partnership under this commitment are utilized for property acquisitions, and returned to Prudential on an ongoing basis from Contract owners' net contributions. The amount of the commitment is reduced by $10 million for every $100 million in current value net assets of the Partnership. The amount available for future investment is approximately $47 million as of December 31, 1997.
During 1997, the Partnership made $1,311,864 in capital expenditures for tenant alterations, leasing commissions, land improvements and building improvements. The most significant transaction was $378,959 for tenant alterations and leasing commissions at the office property located in Lisle, IL, which related to a new lease signed with Pitney Bowes. Other significant capital expenditures
The following is a brief comparison of the Partnership's results of operations for the years ended December 31, 1997, 1996 and 1995.
The majority of this decrease is attributable to properties held for a full year in 1996 and sold during 1997. Also contributing to the decrease was a decrease in rent collected at the Lisle, IL office property which became 100% vacant in the fourth quarter.
Dividend income from real estate investment trusts totaled $158,154. The 506,894 shares of Meridian Industrial REIT were acquired on September 24, 1997.
Administrative expenses on the Statement of Operations includes property operations and the administration of the Partnership. Property administrative expenses in 1997 were $2,009,449, an increase of $355,564 from $1,653,885 in 1996. This increase was primarily due to the acquisition of three new properties, plus a full year of administrative expenses for a property acquired at the end of 1996.
Property operating expenses for 1997 were $3,296,350, an increase of $391,730 from $2,904,620 in 1996. In 1997, this increase was primarily due to a full year ownership of the office property in Beaverton, OR and expenses incurred for new acquisitions, including the industrial buildings in Salt Lake City, UT and Aurora, CO. These three properties contributed $274,530 to the increased operating expenses. The acquisition of the office building in Brentwood, TN contributed $103,234.
Administrative expense related to the Partnership was $316,705 in 1997, an increase of $105,157 from $211,548 in 1996.
The investment management fee for 1997 was $2,640,470, an increase of $146,241 from the 1996 management fee of $2,494,229. This fee is computed at 1.25% of gross assets which were significantly higher in 1997 than 1996.
The following is a comparison of the Partnership's property results of operations and realized and unrealized gains or losses, by investment type, for the twelve months ended December 31, 1997 and December 31, 1996.
The Partnership acquired a second office property in Brentwood, TN. The 97,378 square foot suburban office building was acquired on September 15, 1997 for $9,488,755. This property was 100% occupied at the time of acquisition.
The three apartment communities owned by the Partnership experienced a net unrealized gain of $1,053,061 during 1997. The Atlanta, GA property was the largest contributor to the gain as it appreciated $1,392,186. This gain was attributable to increased rental rates and occupancy. The Farmington Hills, MI property also had a net unrealized gain of $80,839 due to increased rental rates. The Raleigh, NC community had a net unrealized loss of $328,481 due to the appraisal assumptions concerning above market rentals expiring and subsequently renewing at lower market rates.
Net investment income for the Partnership's retail properties decreased to $2,758,995 in 1997, from $3,129,390 in 1996. This decrease was primarily due to decreased occupancy at the shopping center earlier in the year. Revenues decreased by $299,474 and expenses increased by $70,920 from the prior year.
The industrial properties (including the recently purchased land) had $1,901,523 of net unrealized appreciation in 1997. The largest single gain of $1,740,917 was attributable to the purchase of the land under the Pomona, CA property. The Salt Lake City, UT and Aurora, CO properties experienced $38,133 and $140,585 negative net appreciation as a result of softer market conditions.
As of December 31, 1997, occupancy at the Partnership's Pomona, CA and Bolingbrook, IL, industrial properties remained unchanged from December 31, 1996 at 100%. As of December 31, 1997, both the Salt Lake City, UT and Aurora, CO properties were 100% vacant. As of December 31, 1997, all vacant spaces were being marketed.
The Partnership also acquired 506,894 shares of Meridian Industrial Trust for $10,000,005 on September 24, 1997. Meridian is a self administered and self-managed equity real estate investment trust engaged in owning, operating, and leasing high quality, modern industrial properties nationwide. As of December 31, 1997, these shares experienced a $2,523,800 net unrealized gain and generated $147,978 in net investment income. These shares were purchased in a private transaction at a favorable, below-market price.
These additional revenues were primarily offset by the sale of the Azusa industrial building which resulted in approximately $1,092,000 reduction in revenues from last year and the Roswell, GA shopping center which accounted for a decrease of approximately $214,000 due to lower percentage rents in 1996 and decreased occupancy.
Income from interest in properties relates to the Partnership's 50% co-investment in several warehouses (the Unit warehouses). Income from this source decreased approximately $31,624 (4.9%) from $638,183 in 1995 to $606,558 in 1996. The reduction is the result of GATX vacating a portion of its space in October and the space not being re-leased.
Property operating expenses for 1996 were $2,904,620 compared to $1,870,183 for 1995, an increase of $1,034,437 (55%). This increase was primarily due to a full year of operating expenses totaling approximately $943,000 related to the Raleigh, Oakbrook Terrace and Nashville properties, all of which were acquired in 1995. Increases were also due to the Morristown office property incurring window repairs of approximately $21,000, and an increase to its grounds contract for approximately $59,000 offset by lower repairs and maintenance expenses totaling $23,000. The Atlanta and the Farmington Hills apartments had increases totaling approximately $57,000 for 1996 apartment make-ready due to higher turnover as compared to 1995.
The following is a brief comparison of the Partnership's property results of operations and realized and unrealized gains or losses, by investment type, for the twelve months ended December 31, 1996 and December 31, 1995.
Occupancy at the Lisle, IL office building remained at 100% during 1996. R.R. Donnelley had given notice they will be vacating their space in 1997. The Oakbrook Terrace office building continued its 99% occupancy. The Nashville office building occupancy remained at 99%. During 1996, a total of 25,394 square feet was re-leased, leaving a vacant space of 1,350 square feet. During 1997, at the Nashville office building, 11,966 square feet expired. Occupancy at the Morristown office decreased from 98% to 93% as of December 31, 1996. There are four vacant suites totaling 9,583 square feet. During 1996, Mutual of Omaha renewed their lease of 5,479 square feet and Sprint Spectrum signed a two month temporary agreement for 4,010 square feet, while Chase Home Mortgage vacated their suite of 4,010 square feet. During 1997, at the Morristown office building, a total of 15,753 square feet was up for renewal. All vacant spaces are currently being marketed.
Occupancy at the Atlanta and the Farmington Hills apartments decreased from 97% and 98% at December 31, 1995 to 93% and 88%, in 1996. Occupancy at the Raleigh apartments increased from 95% at December 31, 1995 to 97% at the end of 1996. All vacant apartments were being marketed as of December 31, 1996.
The Bolingbrook warehouse had the largest unrealized loss of this property type, approximately $300,000 (4.1% of its year-end 1995 value). Gillette, a tenant of the entire property, indicated that they needed additional space and will relocate at the expiration of their lease in 2000. The Pomona property had an unrealized gain of approximately $175,000 (1.0% of its year-end 1995 value), as a result of signing leases that maintained the property occupancy at 100%. The market values of the four Unit warehouses, in which the Partnership owns a 50% interest at the end of 1996, had an unrealized gain of approximately $50,000 (0.9% of their December 31, 1995 value).