WAREHOUSE FACILITY IN AZUSA, CALIFORNIA This facility consists of three one-story warehouse buildings in Azusa, California, approximately 20 miles east of downtown Los Angeles. The buildings were constructed in 1986. They contain approximately 432,000 rentable square feet which were 100% leased to five tenants at December 31, 1995.
Land under the leasehold estate was capitalized upon the assignment of a ground lease from the previous owner. The lease term extends until November 2078 with no renewal options. The annual ground lease payments are $250,000 through November 1994, and, for each ten year increment thereafter, are subject to increase by 50% of the increase in the Consumer Price Index during the previous period. For 1995, the annual ground lease payment increased by $126,450 to $376,450. The ground lease agreement contains a purchase option from November 1994 to November 1997 at a fixed price of $4,000,000.
OFFICE FACILITY IN MORRISTOWN, NEW JERSEY This four-story suburban office building was constructed in 1981 and contains 85,000 rentable square feet. It is located on a 5.1 acre site, approximately 30 miles west of New York City. At December 31, 1995 it was 95% leased to 12 tenants.
WAREHOUSE FACILITY IN BOLINGBROOK, ILLINOIS This single-story warehouse was completed in 1989. It contains 224,640 rentable square feet. It is located approximately 20 miles southwest of downtown Chicago. The entire facility is leased to the Gillette Company under a lease expiring in October, 2000.
WAREHOUSE FACILITIES IN JACKSONVILLE, FLORIDA The Partnership owns a 50% interest in four single-story warehouse/distribution buildings located in Jacksonville, Fl. The remaining 50% is owned by The Prudential and one of its subsidiaries. The buildings contain approximately 502,000 rentable square feet and were 100% occupied at December 31, 1995.
APARTMENT COMPLEX IN RALEIGH, NORTH CAROLINA Dunhill Trace consists of fourteen two and three story apartment buildings, containing a total of 250 units. It was acquired upon completion of construction in June, 1995. The property, located on a 16.2 acre site in northwest, downtown Raleigh, North Carolina, was 95% occupied at December 31,
At December 31, 1995, the Partnership's liquid assets consisting of cash and cash equivalents and marketable securities totaled $24,755,420. This is a decrease of $24,162,016 from liquid assets at December 31, 1994 of $48,917,436. The decrease is due primarily to the acquisition of an apartment complex at a total cost of $15,758,700 and two office centers at a total cost of $21,015,643 as discussed below. This was partially offset by cash received from operations of the Partnership's properties and interest income received from short-term investments.
The Partnership has established a $10 million annually renewable revolving line of credit with First Fidelity Bank National Association to be drawn upon as needed for potential liquidity needs. The line of credit had never been drawn upon. Management did not anticipate any future needs for this credit facility and decided to terminate the line of credit as of October 31, 1995. The 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 The 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 investments is approximately $52.2 million as of December 31, 1995.
The following is a brief discussion of a comparison of the results of operations for the three years ended December 31, 1995, 1994 and 1993.
Income from property operations, including income from interest in properties, was $15,081,290 for 1995. Income from interest in properties relates to the Partnership's 50% co-investment in several warehouses (the Unit warehouses). This is an increase of $1,058,039 (7.5%) from $14,023,251 for 1994. This was due primarily to increased rent from properties (approximately $3,482,785). The increase was offset by lower income from interest in properties due to the sale for the seven Unit warehouses in October, 1994 (approximately $1,717,000), higher real estate taxes (approximately $145,000), property administrative expenses (approximately $399,000), and property operating expenses (approximately $163,000).
Income from the Unit Warehouses decreased $1,717,021 (72.9%) from $2,355,204 for 1994 to $638,183 for 1995. The Partnership sold its investments in seven of these warehouses in 1994. Of the four remaining warehouses, income increased by approximately $83,000 due to higher occupancy at one of the warehouses.
significant tax savings as noted below. Advertising and promotional expenses were lower at several of the properties which offset the increased administrative expenses by about $40,000.
Real estate taxes for 1995 were $1,938,090, a net increase of $145,315 (8.1%) from $1,792,775 for 1994. Approximately $244,000 of the increases was due to the inclusion of the Flint office buildings, where $101,000 of 1994 taxes were reflected in 1995 activity. The acquisition of the Raleigh apartments and the Nashville office center also contributed to this increase. At the Roswell shopping center, real estate taxes had a net increase of $31,500. These increases were offset by approximately $153,000 in decreases achieved as the result of appealing the assessed values at the Azusa, Pomona, Morristown and Farmington Hills properties. Real estate taxes at the net lease properties in Bolingbrook and Lisle also increased nearly $22,000.
Administrative expenses related to the Partnership totaled $219,429 for 1995. This is a reduction of $17,895 (7.5%) from $237,324 for 1994. The decrease resulted primarily from lower professional fees for 1995.
The Partnership's luxury garden apartments in Raleigh had an unrealized gain of nearly $1,441,300. The property has benefited from very strong leasing demand (occupancy at December 31, 1995 was 95%) and is performing at a higher level than anticipated. The Farmington Hills and Atlanta apartments experienced unrealized gains of $626,143 (4.6% of its year-end 1994 value) and $634,165 (5.3% of its year-end 1994 value), respectively. These increases were primarily the result of higher rental rates, occupancy and tenant retention than previously projected for these properties.
The warehouses experienced an unrealized gain of about $421,000 during 1995. The Pomona property had the largest unrealized gain, $684,153 (4.2% of its year-end 1994 value). This was the result of two leases that were signed which brought the occupancy to 100%. The market values of the four Unit warehouses in which the Partnership owns a 50% interest at the end of 1995 increased $49,134 (.9% of their December 31, 1994 value).
The office buildings experienced an unrealized loss of approximately $1,933,000. The Flint property value decreased $1,314,060 (17.1% of its December 31, 1994 value). This was caused by reduced expectations of future rental rate increases and tenant renewals due to increased competition from new construction in the Flint market. The Lisle office building decreased in value by $400,000 (3.3% of the property's December 31, 1994 value) and the Morristown property also decreased in value by $473,993 (4.8% of its December 31, 1994 value). The Lisle property's decrease in value reflects the possibility that the current tenant, R.R. Donnelley, may not remain in the building when their current lease expires in 1997. This would result in downtime while a new tenant was found and necessitate incurring additional tenant improvements and leasing commissions. It is also likely that the rental rate on any new lease would be lower than that currently paid by Donnelley. The decline in the value of the Morristown property was the result of increases in the discount rates, reflecting the soft market conditions in the local areas and the expectations that potential buyers are requiring higher returns on such investments. The decreases in value at the office buildings were partially offset by an increase of $254,871 at the Nashville building. The increase represented 3% of its acquisition cost. The rise in value reflects the expectations of continued high occupancy and the potential for higher rental rates in the future.
The Partnership's sole retail property, King's Market Shopping Center in Roswell, GA, experienced an unrealized loss of $527,726 (1.6% of its December 31, 1994 value). This was due to increased competition in the local market due to the construction of a competing shopping center which is expected to exert downward pressure on rental rates.
The Unit warehouses were 100% occupied at December 31, 1995 compared to 92% at the end of December, 1994. The Biaggi Brothers signed a two year lease covering 90,000 square feet at one of the Unit warehouses (18% of the four buildings) effective February 1, 1995. This brought the occupancy at the four buildings to 100%. Associated Unit Companies renewed their lease for two years at a rental rate approximately 10% greater than that on the expiring lease. The lease covers 102,000 square feet (20% of the four Unit warehouses). The Unit warehouses have two leases expiring in 1996 covering 198,240 square feet. The Partnership is currently in negotiations with Angelo Brothers to exercise their option to renew the lease in their current space of 84,000 square feet (17% of the four warehouses). The Partnership expects this tenant to renew the lease prior to its expiration in April, 1996. GATX's lease expires in May, 1996. Presently, they occupy 114,240 square feet. The Partnership is discussing renewal terms with this tenant, but we do not believe they will renew. Management is marketing the space to others and does not expect a significant down time to re-lease the space.
The office building in Lisle continues to be fully leased to R.R. Donnelley under a lease expiring in September 1997. The lease contains two five-year renewal options. Discussions are being held with this tenant in an attempt to secure an early renewal. The tenant is also evaluating alternatives at other properties.
Income from property operations, including income from interest in properties, was $14,023,251 for 1994. This is an increase of $270,620 (2.0%) from $13,752,631 for 1993. This was due primarily to increased rent from properties (approximately $533,000) and lower real estate taxes (approximately $193,000) and property administrative expenses (approximately $157,000). These were partially offset by lower income from interest in properties (approximately $546,000) and increased property operating expenses (approximately $67,000).
Rent from properties for 1994 increased by $533,265 (3.4%) to $16,344,259 from $15,810,994 for 1993. Higher occupancy in 1994 at the Roswell shopping center and the Partnership's two apartment properties resulted in approximately $430,000 in additional rental income. Percentage rent at the shopping center also increased nearly $198,000 primarily as a result of the property now billing tenants for such rent throughout the current year rather than in arrears.
Rental income at the Morristown office building increased by approximately $139,000 in 1994 due to a retroactive rent adjustment for Midlantic Bank and scheduled rest step-ups and the ending of free rent periods for various tenants.
Income from interest in properties relates to the Partnership's 50% co-investment in several warehouses (the Unit warehouses). Income from this source decreased $546,273 (18.8%) from $2,901,477 for 1993 to $2,355,204 for 1994. The Partnership sold its investments in two of these warehouses in 1993 and seven warehouses in 1994. This resulted in a reduction of income of approximately $476,000 in 1994. Lower occupancy at one of the remaining warehouses also reduced income by approximately $75,000.
Administrative expenses related to the Partnership totalled $237,324 for 1994. This is a reduction of $38,202 (13.9%) from $275,526 for 1993. The decrease resulted primarily from lower professional fees for 1994.
The investment management fee for 1994 was $2,287,816. This is $18,610 (0.8%) higher than the fee for 1993 of $2,269,206. The fee is computed as 1.25% of gross assets. During 1994, gross assets were slightly higher than the prior year due to cash flow retained by the Partnership and increased market values of the real estate investments.
Interest expense relates to the obligation under capital lease. For 1994, interest expense was $327,000. This is $6,516 (2.0%) higher than interest expense for 1993 of $320,484.
The Partnership's sole retail property, King's Market Shopping Center in Roswell, GA, experienced an unrealized loss of $832,405 (2.5% of its December 31, 1993 value). This was due to capital expenditures at the property during 1994 which did not result in a corresponding increase in the shopping center's value and reduced expectations concerning future rental rates when current leases expire.
The market values of the four Unit warehouses in which the Partnership owns a 50% interest at the end of 1994 increased $214,364 (3.9% of their December 31, 1993 value). This resulted from leasing the vacant space at one of the warehouses effective February 1995 as well the improved potential for higher rental rates on new and renewal leases on these properties.