Investments in Real Property, Mortgage Loans and Land/Sale-Leasebacks The Account initially values real estate related investments at their cost (including acquisition or mortgage placement fees and other acquisition or placement expenses) unless circumstances otherwise indicate that a different value should be used. Subsequently, the value of these investments will be periodically determined by JMB Annuity Advisers (the Investment Adviser). Procedures utilized to determine the estimated value include the following: (i) at the time of purchase and once every two years thereafter, each real property investment and each real property underlying a participating mortgage loan or land sale-leaseback investment will be appraised by an independent appraiser or an existing appraisal will be updated, (ii) various assumptions including, but not limited to, occupancy and rental rates, expense levels, net operating income, average capital costs and capitalization rates upon sale will be used in determining the discounted present value of an investment's estimated cash flow and its estimated sale proceeds or its asset value under a direct capitalization methodology, and (iii) for fixed interest rate mortgage loans and fixed rental rate land sale-leaseback investments, estimated values will be determined by comparison to current interest rates on U.S. Treasury debt as adjusted for a risk differential of the Account's investments. The relative weight to be given to a particular methodology or other relevant factors in determining the estimated asset value of a particular real property will depend upon an assessment of the existing and anticipated market conditions and property specific factors relevant to such real property. There is no assurance that the assumptions, estimates and methodologies used in valuing the Account's real estate related investments will in fact prove accurate or that such values would in fact be realized. Such estimates involve subjective judgments as the actual price of real estate can only be determined between independent third parties in sales transactions. In addition, any expenses that may be borne by the Account in connection with the disposition of a real estate related investment are not deducted in determining its estimated value.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results of operations during the period. Actual results could differ from those estimates. 3. Fees and Expenses
The Account pays a mortality and expense risk fee to IDS Life which is accrued daily and is equal, on an annual basis, to 1.00 percent of the average daily asset value, as defined, of the Account. The mortality risk is IDS Life's guarantee to make retirement payments according to the terms of the Contract, no matter how long annuitants live. The expense risk portion of the fee is paid to IDS Life for its guarantee that the various fees paid by the Account to IDS Life will not be increased in the future. For the years ended December 31, 1995, 1994 and 1993, the Account paid IDS Life a mortality and expense risk fee of $482,896, $502,607 and $549,250, respectively.
IDS Life receives from the Account an acquisition and mortgage placement fee equal to 3.75 percent of the total cash to be paid or advanced by the Account (net of any borrowings in the case of real property investments) in connection with each real property investment, mortgage loan or land sale-leaseback investment made by the Account. A portion of this fee, equal to 3.50 percent, is paid to the Investment Adviser in consideration for its services in connection with the acquisition or placement of real estate related investments of the Account. No acquisition and mortgage placement fees were paid in 1995, 1994 or 1993.
The Account pays for all operational expenses incurred on its behalf. For the years ended December 31, 1995, 1994 and 1993, IDS Life was reimbursed $56,102, $51,223 and $83,122, respectively, for personnel-related expenses incurred in the administration of the Account.
IDS Life, on behalf of the Account, entered into a joint venture partnership called N/S Associates, which on April 4, 1988 acquired interests in two enclosed super regional shopping malls that are described below.
The Account, through N/S Associates, owns an interest in an existing enclosed super regional shopping center in Greendale, Wisconsin, known as Southridge Mall. The mall shops and five adjacent department stores comprising the shopping center contain approximately 1,297,000 square feet of gross leasable area, of which N/S Associates owns approximately 437,000 square feet, including the space leased to one of the department stores. The remaining 860,000 square feet of gross leasable area are occupied by four other department stores, three of which own their own stores and a portion of the parking area. The fourth department store leases its space from an unaffiliated third party.
N/S Associates acquired its interest in the shopping center for a purchase price of approximately $115,401,000, of which $96,865,000 was paid in cash at closing. In addition to the purchase price, a reserve of approximately $7,250,000 was established for capital improvements, all of which had been used to pay for certain capital improvements made at the shopping center. In February 1995, the mortgage loan secured by the property was repaid with a portion of the proceeds from a new mortgage loan in the principal amount of $35,000,000. The new mortgage loan has a term of seven years, bears interest at 8.35 percent per annum and requires monthly payments of interest only prior to maturity. Proceeds from the new mortgage loan were also used to repay the two mortgage loans secured by Northridge Mall. The remaining net proceeds from the new loan were used to pay approximately $2,900,000 of tenant improvement and other capital costs incurred for Northridge and Southridge Malls.
The terms of Monmouth Associates' partnership agreement provide that its annual net cash flows and net sales or refinancing proceeds generally will be distributed among all of the partners in accordance with their respective percentage interests in Monmouth Associates. The Account contributed approximately $10,000,000 to Monmouth Associates as its initial capital contribution. The Account has made additional capital contributions of approximately $685,000. The percentage interest of the Account in Monmouth Associates is 6.97 percent. In connection with the investment, the Account paid to IDS Life and the Investment Adviser their respective portions of the acquisition and mortgage placement fee amounting to approximately $375,000.
Monmouth Associates is obligated to make certain additional loans to the Borrower/Lessee under certain circumstances to finance the cost of 60 percent of tenant improvements or other ordinary capital expenditures. In addition, in May 1994, Monmouth Associates made a loan to finance the cost of a renovation of the shopping center, which commenced during the third quarter of 1994. The renovation consists of, among other things, the addition of a food court and cinema and the re-merchandising of approximately 300,000 square feet of gross leasable area. The renovation loan from Monmouth Associates bears interest at a fixed interest rate of 10.5 percent per annum. In addition, Monmouth Associates' participation in certain levels of sale or refinancing proceeds from the property will be increased until Monmouth Associates has received aggregate payments equal to an internal rate of return of 11 percent per annum on its investments in the land and/or the first leasehold mortgage loan. The maximum amount of the renovation loan is $29,100,000, and the cost of the renovation is currently estimated to be $28,500,000. As of December 31, 1995, Monmouth Associates had funded approximately $21,476,000, using its cash reserves, cash flow and additional capital contributions made pro rata based upon the respective interests of the joint venture partners in Monmouth Associates. The renovation loan requires monthly payments of interest only until maturity when the entire principal amount and any accrued and unpaid interest will be due. The renovation loan will mature contemporaneously with the first leasehold mortgage loan in October 2003, subject to acceleration or extension of the loan by Monmouth Associates under certain circumstances.
Pursuant to a lease currently in effect, an unaffiliated third party leases and operates the entire parking garage (subject to certain parking rights provided for tenants of the property) until November 1997. The lease provides for a fixed rent payment of $485,000 a year (which reflects an increase at the end of 1993 from $430,000 a year), provides that the lessee shall pay the operating expenses of the parking garage and does not provide such lessee with an option to extend the term of the lease. Unconsolidated Joint Ventures - Summary Information
Additional amounts aggregating approximately $2,040,000 (of which the Account's share was approximately $209,000) have been funded since the Initial Funding. The Borrower did not qualify for any additional fundings above the $28,040,000 which has been funded to date, and no additional fundings will be made by the Lenders.
The Account paid $15,222,278 for the apartment complex in cash at closing, excluding closing costs and prorations. In connection with the acquisition of the property, the Account paid a prepayment charge at closing of $92,221 to the lender that held the mortgage loan on the property. The Account also paid to IDS Life and the Investment Adviser their respective portions of the acquisition fee amounting to $274,834. At the time of the acquisition it was anticipated that an additional amount of approximately $1,450,000 would be used by the Account to pay the cost of upgrading kitchens and bathrooms and certain other upgrades and capital improvements at the complex. The renovation project was subsequently increased to include replacing certain carpets in units as they were renovated and to increase the number of units that received certain upgrades. The renovation project was completed during 1992 at an aggregate cost of approximately $1,900,000. To date the Account has paid IDS Life and the Investment Adviser their respective portions of the acquisition fee amounting to $18,000 in connection with the renovation project. In November 1989, the Account obtained a loan from an institutional lender in the principal amount of $8,000,000 secured by a first mortgage on the property. At December 31, 1995, the current balance of the mortgage loan encumbering the property was approximately $7,770,000. The loan has a term of seven years and bears interest at a rate of 9.50 percent per annum. The loan required monthly payments of interest only during the first three loan years and thereafter is amortizable over a 27-year schedule through monthly payments of principal and interest aggregating $824,400 per annum until November 1996, when the remaining principal balance and any accrued and unpaid interest of approximately $7,704,000 is due and payable.
No provision for State or Federal income taxes has been made for N/S Associates or Monmouth Associates as the liability for such taxes, if any, is expected to be that of the venture partners rather than the venture. 1225 Investment Corporation has elected and qualifies to be treated as a real estate investment trust for Federal income tax purposes. The Corporation had no Federal income tax liabilities for taxable years ended December 31, 1995, 1994 and 1993. IDS LIFE ACCOUNT RE OF IDS LIFE INSURANCE COMPANY N/S Associates, Monmouth Associates and 1225 Investment Corporation Unconsolidated Joint Ventures of IDS Life Account RE
(a) Mortgage notes payable consist of the following at December 31, 1995 and 1994:
In February 1996, the Investment Adviser authorized and paid a cash distribution to the partners aggregating $2,125,000. Each partner received its proportionate share based on its respective ownership percentage.
In February 1996, 1225 Investment Corporation paid a dividend of $1,250,000 ($22.67 per share) to the shareholders of record as of December 31, 1995. Schedule III
Liens on Shopping Center: Principal unpaid Amount of Interest due Monmouth Mall Carrying at close mortgage being & accrued at Interest Eatontown, New Jersey Amount (A) of period foreclosed end of period Income Earned
1995 $ 108,000,000 $ 158,373,000 $ -- $ 742,000 $ 6,994,000
1994 $ 119,154,000 $ 141,056,000 $ -- $ 3,960,000 $ 7,641,000
Changes during year: Additional fundings...................... 17,317,000 9,318,000 -- Unrealized depreciation.................. (28,471,000) (9,814,000) --
Balance at end of year..................... $ 108,000,000 $ 119,154,000 $ 119,650,000
Part 1 - Real Estate Owned at End of Year (C) Amount at Cost of Unrealized which carried Amount of improvements, Appreciation at close of encumbrances Initial Cost etc. (Depreciation) period (A)(B) Retail properties: Northridge Mall, Milwaukee, WI $ -- $108,107,000 $ 14,560,000 $(74,667,000) $ 48,000,000 Southridge Mall, Greendale, WI $ 35,000,000 $115,401,000 $ 15,375,000 $(25,776,000) $105,000,000 Office Building: 1225 Connecticut Ave., Washington, D.C. $ 7,000,000 $ 54,775,000 $ 7,566,000 $ (8,071,000) $ 54,270,000 Ground Lease: Monmouth Mall, Eatontown, NJ $ -- $ 13,000,000 $ -- $ -- $ 13,000,000 $ 42,000,000 $291,283,000 $ 37,501,000 $(108,514,000) $220,270,000
Rents due and accrued at end of period Retail Properties: Northridge Mall, Milwaukee, WI $ 93,000 Southridge Mall, Greendale, WI $ 264,000 Office Building: 1225 Connecticut Ave., Washington, D.C. $ 19,000 Ground Lease: Monmouth Mall, Eatontown, NJ $ -- $ 376,000
The Account has no directors or officers. The directors and principal executive officers of IDS Life Insurance Company are listed below.
Richard W. Kling, 55: Director, IDS Life, since February 1984; President, IDS Life, since March 1994; Executive Vice President, Marketing and Products, from January 1988 to March 1994. Senior Vice President, AEFC, since May 1994. Director of IDS Life Series Fund, Inc. and manager of IDS Life Variable Annuity Funds A & B.
Paul F. Kolkman, 49: Director, IDS Life, since May 1984; Executive Vice President, IDS Life, since March 1994; Vice President, Finance, IDS Life from May 1984 to March 1994; Vice President, AEFC, since January 1987.
Janis E. Miller, 44: Director and Executive Vice President, Variable Assets since March 1994; Vice President, AEFC, since June 1990; Director, Mutual Funds Product Development and Marketing, AEFC, from May 1987 to May 1990. Director of IDS Life Series Fund, Inc. and manager of IDS Life Variable Annuity Funds A and B.
Barry J. Murphy, 44: Director and Executive Vice President, Client Service since March 1994; Senior Vice President, Operations, Travel Related Services (TRS) a subsidiary of American Express Company, since July 1992; Vice President, TRS, from November 1989 to July 1992; Chief Operating Officer, TRS, from March 1988 to November 1989. Stuart A. Sedlacek, 38: Director and Executive Vice President, Assured Assets since March 1994; Vice President, AEFC, since September 1988.
Judd D. Malkin, 58, Chairman and Director of JMB, is a director of Urban Shopping Centers, Inc., an affiliate of JMB engaged in the business of owning, managing and developing shopping centers, an officer and/or director of various other JMB affiliates and a partner of the Associate Partnerships. Until December 1994, he was also a Trustee of JMB Group Trust I, JMB Group Trust II, JMB Group Trust III, JMB Group Trust IV and JMB Group Trust V, which until that time had been advised by an affiliate of the Investment Adviser. Mr. Malkin has been associated with JMB since October 1969. He is a Certified Public Accountant.
H. Rigel Barber, 47, Chief Executive Officer and Executive Vice President of JMB, is an officer of various JMB affiliates and a partner of various Associate Partnerships. Mr. Barber has been associated with JMB since March 1982. He holds a law degree from the Northwestern University Law School and is a member of the Bar of the State of Illinois.
Ira J. Schulman, 44, Executive Vice President of JMB, is an officer of various JMB affiliates and a partner of various Associate Partnerships. Mr. Schulman has been associated with JMB since February 1983. He holds a master's degree in business administration from the University of Pittsburgh.
Gary Nickele, 43, Executive Vice President and General Counsel of JMB, is an officer and/or director of various JMB affiliates and a partner of various Associate Partnerships. Mr. Nickele has been associated with JMB since February 1984. He holds a law degree from the University of Michigan Law School and is a member of the Bar of the State of Illinois.
IDS Life has purchased and expects to continue to purchase accumulation units in order to maintain the Account's liquidity. By purchasing accumulation units, IDS Life has an ownership interest in the Account and participates in the increase or decrease in value of the Account's investments just as other owners of accumulation units do. As of March 19, 1996, IDS Life owned 23,967,444 accumulation units.