As of December 31, 2005, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $45.5 million, an increase of approximately $27.9 million from $17.6 million at December 31, 2004. The increase was primarily due to net sales proceeds of approximately $41.7 million, of which the Partnership received approximately $39.5 million in cash. Partially offsetting the increase were an initial preferred equity investment and additional funding of existing investments, as described below. Sources of liquidity include net cash flow from property operations, sales, financings and interest from short-term investments. The Partnership uses cash for its real estate investment activities and for distribution to its partners. As of December 31, 2005, 18.5% of the Partnership’s total assets consisted of cash and cash equivalents.
Dispositions for the year included the sale of an apartment complex located in Salem, Oregon, an office property located in Oakbrook Terrace, Illinois, an apartment complex located in Gresham, Oregon, and an apartment complex located in Jacksonville, Florida. In addition, the Partnership sold, prior to funding, a parcel of land located in Blue Springs, Missouri. The five investments sold for combined proceeds, prior to the repayment of debt and minority interest, of $55.1 million. A minority interest partner bought out the Partnership’s investment in the aforementioned 	Jacksonville, Florida consolidated real estate partnership resulting in net proceeds to the Partnership of $15.9 million. This transaction resulted in the assumption of a mortgage loan by the partner of approximately $10.0 million and a reduction of the partner’s minority interest of $3.7 million.
During 2005, the Partnership made an initial $7.1 million preferred equity investment in an existing private REIT, Capital Automotive, or “CARS”. CARS, owns approximately 364 properties, which are leased to sixty automobile dealership operators throughout the United States. This investment is structured with an annual preference rate of 7.5% for years one through five, 8.75% during years six and seven, and 12% for all subsequent years.
Also in 2005, the Partnership funded an additional $3.0 million to an existing Leasehold Mortgage Loan that was originated in January 2004 for the acquisition and redevelopment of a retail center in Westminster, Maryland. Since inception, approximately $4.3 million has been funded at an interest rate of 10% per annum.
The following is a comparison of the Partnership’s results of operations for the periods ended December 31, 2005 and 2004.
The Partnership recorded an aggregate net unrealized gain of $9.3 million for the year ended December 31, 2005, compared to an aggregate net unrealized gain of $1.6 million for the prior year period. The unrealized gain for 2005 was attributed to valuation gains in all property type sectors. Details of the components of these valuation gains and/or losses are discussed below by property type sector.
On November 28, 2005, the Partnership’s Blue Springs, Missouri land investment was sold, prior to funding, for $2.3 million, resulting in a realized gain of approximately $0.6 million.
On November 30, 2005, the Partnership sold its interest in a consolidated joint venture that owns one apartment complex in Jacksonville, Florida for net proceeds of $15.9 million and a realized gain of approximately $4.3 million.
office property located in Oakbrook Terrace, Illinois that was sold on June 8, 2005.
Net investment income for the Partnership’s office properties was approximately $3.1 million for the year ended December 31, 2005, an increase of $1.0 million from the prior year period. The increase was primarily due to stabilized occupancy and increased market rents at both of the Partnership’s office assets in Brentwood, Tennessee. Partially offsetting these increases were (a) the loss of rent at the Oakbrook Terrace, Illinois office property that was sold on June 8, 2005, (b) a decrease in occupancy at the office property in Lisle, Illinois, and (c) increased expenses at the office property in Beaverton, Oregon.
The office properties owned by the Partnership recorded an aggregate net realized and unrealized gain of approximately $4.5 million for the year ended December 31, 2005, compared to an aggregate net unrealized gain of $0.2 million for the prior year period. The 2005 gains were primarily due to (a) the sale of the office property in Oakbrook Terrace, Illinois and (b) strengthening market fundamentals and increases in occupancy at the office properties located in Brentwood, Tennessee and Beaverton, Oregon. Partially offsetting these gains for 2005 was a net unrealized loss of approximately $0.1 million related to the office property in Lisle, Illinois.
(1) Net investment income for the year ended December 31, 2005 reflects partial period results for the apartment properties in Salem, Oregon, Gresham, Oregon and Jacksonville, Florida that were sold on March 10, 2005, August 10, 2005 and November 30, 2005, respectively. Net investment income for the year ended December 31, 2004 reflects results for four apartment properties located in Salem and Gresham, Oregon, two of which were sold on December 14, 2004.
Net investment income for the Partnership’s apartment properties was approximately $2.0 million for the year ended December 31, 2005, a decrease of $0.2 million from the prior year period. The decrease was primarily due to (a) increased expenses, rental concessions and interest incurred for a mortgage loan placed in September 2004 for the apartment property in Atlanta, Georgia and (b) the loss of rent at the apartment property in Jacksonville, Florida that was sold on November 30, 2005. Partially offsetting the decrease was (a) an increase in net investment income for the apartment properties in Gresham/Salem, Oregon due to a diminution of mortgage interest expense resulting from the prepayment of debt on the properties and (b) reduced expenses at the apartment property in Raleigh, North Carolina.
(1) Classified as Other Real Estate Investment (mortgage paid in full September 13, 2004).
(1) The Bolingbrook, Illinois and Salt Lake City, Utah industrial properties were sold in September 2002 and January 2003,
Net investment income for the Partnership’s industrial property was $0.6 million for the year ended December 31, 2005, a decrease of $0.3 million from the prior year period. The decrease was primarily due to a decrease in occupancy as a result of a 2004 lease termination at the Partnership’s Aurora, Colorado industrial property.
Net investment income for the Partnership’s hotel property was $1.1 million for the year ended December 31, 2005, an increase of $0.5 million from the prior year period. The increase was primarily due to increased occupancy and higher average daily rates generated at the hotel during 2005, compared to the prior year period.
Real Estate Investments- Real estate investments are shown at estimated market value in accordance with the terms of the Partnership’s contracts. Properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and below market leases, in-place leases, and tenant relationships at the time of acquisition. Market value estimates are based upon property appraisal reports prepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter. The Chief Real Estate Appraiser of Prudential Investment Management (“PIM”) is responsible to assure that the valuation process provides independent and reasonable property market value estimates. American Appraisal Associates (the "Appraisal Management Firm"), an entity not affiliated with PIM, has been appointed by PIM to assist the Chief Real Estate Appraiser in maintaining and monitoring the independence and the accuracy of the appraisal process. Unless a property is currently held for sale, the market value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments.
Unconsolidated real estate partnerships are valued at the Partnership’s equity in net assets as reflected in the partnership’s financial statements with properties valued as described above. Under the equity method, the investment is initially recorded at the original investment amount, plus or minus additional amounts invested or distributed, and is subsequently adjusted for the Partnership’s share of undistributed earnings or losses (including unrealized appreciation and depreciation) from the underlying entity.
Land and redevelopment properties held for future development via a forward contract are carried at cost plus cost incurred to hold the land and redevelopment properties as stated in the take out provisions of the contract.
As described above, the estimated market value of real estate and real estate related assets is determined through an appraisal process. These estimated market values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller and could be material to the consolidated financial statements. Although the estimated market values represent subjective estimates, management believes these estimated market values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate is fairly presented as of December 31, 2005, and 2004.