SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - --- ACT OF 1934
For the fiscal year ended December 31, 1997
OR
- - --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13239
AEGIS REALTY, INC.
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(Exact name of Registrant as specified in its governing instrument)
Maryland 13-3916825
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- - -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 9, 1998 was $93,907,749, based on a
price of $11 7/8 per share, the closing sales price for the Registrant's Common
Stock on the American Stock Exchange on that date.
As of March 9, 1998, there were 8,050,727 outstanding shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Proxy Statement for Annual Meeting of Shareholders to be held on June
18, 1998.
Index to exhibits may be found on page 35
Page 1 of 63
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS
OR CIRCUMSTANCES OCCURING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURENCE OF
UNANTICIPATED EVENTS.
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<PAGE>
PART I
Item 1. Business.
General
- - -------
Aegis Realty, Inc. (the "Company") is a Maryland corporation that has qualified
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986 as amended (the "Code"). The Company was formed to acquire, own, operate
and renovate primarily supermarket-anchored neighborhood and community shopping
centers. The Company operates in a single business segment, investment in real
estate related assets. As of December 31, 1997, the Company owned a portfolio of
sixteen retail properties (the "Retail Properties") containing a total of
approximately 1.5 million square feet of gross leaseable area ("GLA"), and holds
partnership interests in two suburban garden apartment properties (the
"Multifamily Properties") and three FHA insured participating mortgages secured
by suburban garden apartment properties (the "FHA Mortgages"). The locations of
the assets in fourteen states provide the Company with a geographically diverse
portfolio. Moreover, the Company has a predictable and stable revenue stream
that, as of December 31, 1997, is derived approximately 55% from either base
rent from tenants or interest payments on the FHA Mortgages. No single asset
accounts for more than 10% of total revenues.
The Retail Properties are well located neighborhood shopping centers anchored by
nationally recognized credit tenants such as Kroger, Publix, Safeway, Food Lion,
A&P, Flemming Foods, Bi-Lo, Hy-Vee, Walgreens and C.V.S. Stores. Neighborhood
centers are typically open air centers ranging in size from 50,000 GLA to
approximately 150,000 GLA and anchored by supermarkets and/or drug stores. These
centers are usually leased to tenants that provide consumers with convenient
access to every day necessity items, such as food and pharmacy items. Therefore,
the Company believes that the economic performance of these centers is less
affected by downturns than other retail property types. The Retail Properties
range in size from approximately 67,000 GLA to 140,000 GLA, with an average of
approximately 100,000 square feet of gross GLA. As of December 31, 1997, the
Retail Properties had an average occupancy of 93.6%. Through 2005 no more than
7.6% of leased GLA is subject to expiration in any one year. The Multifamily
Properties total 236 units and had an average physical occupancy of 90% as of
December 31, 1997. The FHA mortgages have an aggregate principal balance of
approximately $27.6 million, and carry an average annual interest rate of 8.95%.
The underlying FHA properties had an average physical occupancy of 96.1% as of
December 31, 1997.
Organization
- - ------------
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of four publicly registered, non-traded limited
partnerships, Summit Insured Equity ("Insured I"), Summit Insured Equity L.P. II
("Insured II"), Summit Preferred Equity L.P. ("Summit Preferred") and Eagle
Insured, L.P. ("Eagle") (the "Partnerships", and each individually a
"Partnership"). The Partnerships were co-sponsored by an affiliate of Related
Capital Company ("Related"), a nationwide, fully integrated real estate
financial services firm. Unless otherwise indicated, the "Company", as
hereinafter used, refers to Aegis Realty, Inc. and subsidiaries and, prior to
October 1, 1997, Insured I. Pursuant to the Consolidation, the Company issued
shares of its common stock, par value $.01 per share (the "Common Stock") to all
partners in the Partnerships in exchange for their limited partnership interest
in each Partnership. The shares commenced trading on the American Stock Exchange
on October 10, 1997 under the symbol "AER". There are currently 8,050,727 shares
of Common Stock outstanding (an additional 46,836 shares are reserved for
issuance upon conversion of OP units, as defined below, held by affiliates of
Related).
The Company is governed by two independent directors and three directors who are
affiliated with Related. The Company has engaged Related Aegis LP, a Delaware
limited partnership (the "Advisor") and an affiliate of Related, to manage its
day to day affairs. In addition, RCC Property Advisors, Inc. (the "Property
Manager"), also an affiliate of Related, has been retained by the Company to
provide property management and leasing services to the Retail Properties.
The Property Manager is a full service retail management company which has
fifteen employees, employed in the areas of leasing, accounting, management and
redevelopment. The Company represents substantially all of the Property
Manager's property management revenue and therefore substantially all of its
staff is engaged, on a full-time basis, in providing management, leasing,
acquisition, due diligence, construction management and redevelopment services
to the Company. Through the Advisor, Related offers the Company a core group of
experienced staff and executive management, who provide the Company with
services on both a full and part-time basis. These services include, among other
things, acquisition, financial, accounting, capital markets, asset monitoring,
portfolio management, investor relations and advertising services. The Company
believes that it benefits significantly from its relationship with Related,
since Related provides the Company with resources that are not generally
available to a small capitalization self-managed REIT.
The Company owns all of its assets directly or indirectly through Aegis Realty
Operating Partnership, LP, a Delaware limited partnership (the "OP"), of which
the Company is the sole general partner and the holder of 99.42% of the units of
partnership interest (the "OP Units"). The balance of the OP Units are currently
held by affiliates of Related. As part of the Consolidation, Insured I and
Insured II remained as stand alone entities each owned by the OP, as the general
partner, and a subsidiary of the Company, as the limited partner. Insured I and
Insured II continue to be the record owners of their respective shopping
centers.
For financial accounting and reporting purposes, the Consolidation was accounted
for using the purchase method of accounting. Under this method, the Partnership
with the investor group receiving the largest ownership in the Company, in this
case Insured I, is deemed to be the acquirer. As the surviving entity for
accounting purposes, Insured I's assets and liabilities were recorded by the
Company at their historical cost, with the assets and liabilities of the other
Partnerships recorded at their estimated fair values for each Partnership as set
forth in the Solicitation Statement of the Company dated June 18, 1997 (the
"Solicitation Statement"). Results of operations and other operating financial
data for the Company for the years ended December 31, 1997, 1996 and 1995
include amounts for Insured I for the entire period and amounts for the other
Partnerships for the period October 1, 1997 to December 31, 1997. Insured I is a
Delaware limited partnership formed on December 12, 1985. Prior to the
Consolidation, the general
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<PAGE>
partners of Insured I were Related Insured Equity Associates, Inc., a Delaware
corporation and Prudential-Bache Properties, Inc., a Delaware corporation
("PBP"). The general partners of Insured I managed and controlled the affairs of
Insured I prior to the Consolidation.
Business Plan
- - -------------
The Company has initiated a focused business/strategic plan designed to increase
funds from operations ("FFO") and enhance the value of its stock. The plan
concentrates principally on three areas: i) external growth, ii) internal growth
and iii) the increase in the amount of stock owned in the Company by affiliates
of the Advisor and the Property Manager.
The Company's external growth will be accomplished through acquisitions, on an
individual or bulk basis, of shopping centers. The Company believes that there
are significant opportunities available to acquire under valued, under managed
and/or under utilized neighborhood and community shopping centers. Unlike most
small capitalization REITs, the Company has the ability to benefit from its
affiliation with a much larger company with a national presence. Aegis will use
its affiliation with Related to establish a national acquisition campaign. The
Company believes that by acquiring shopping centers on a national basis, rather
than targeting a few markets or a region, it will be able to grow at a
meaningful rate, without the need for it to compromise asset quality or current
return. In addition, a national acquisition plan will allow the Company to
maintain geographic diversity, which the Company believes reduces the risk
otherwise associated with focusing on one region. The Company will seek to
acquire primarily, but not exclusively, supermarket-anchored shopping centers,
which are well located in primary and secondary markets. Acquisitions will be
balanced between stabilized centers that the Company believes are undervalued
and centers that may be enhanced through intensive management, leasing,
redevelopment or expansion efforts. In all such cases, the Company will
generally seek to acquire only those centers that are expected to immediately
increase FFO.
Internal growth will occur from the re-deployment of proceeds from the sale or
other disposition of stabilized non-core assets currently in the portfolio and
through intensive management, leasing and redevelopment services provided to the
Company by the Property Manager and the Advisor. The Company considers non-core
assets to be those assets the Company has enhanced and no longer offer above
market rates of return or those assets which due to location, configuration or
tenant profile no longer offer the Company the prospects of better than market
rates of growth. The Company regularly reviews its portfolio to identify
non-core assets and to determine whether the time is appropriate to sell or
otherwise dispose of such assets whose characteristics are no longer suited to
the Company's overall growth strategy or operating goals.
Finally, the Company will encourage the Advisor, Property Manager, Related and
their respective affiliates to increase their ownership in the Company. The
Company believes that this is necessary in order to more closely align the
interest of the management with that of the Company and to demonstrate that the
Advisor and Property Manager have a long-term commitment to the success of the
Company.
Shopping Centers
- - ----------------
As of December 31, 1997, the Company owned sixteen neighborhood shopping
centers. See "Item 2. Properties" for a description of each property.
The following table lists each of the Company's investment properties whose
rental revenues accounted for 10% or more of the Company's total gross revenues
for any of the three years in the period ended December 31, 1997:
1997* 1996* 1995*
---- ---- ----
1. Pablo Plaza/Jacksonville, FL 7% 10% 10%
2. Westbird/Miami, FL 10% 11% 12%
3. Winery Square/Fairfield, CA 10% 14% 15%
4. Mountain View Village/Snellville, GA 10% 11% 10%
5. Forest Park Square/Cincinnati, OH 10% 12% 11%
*Information prior to October 1, 1997 (the date of the Consolidation) is only
with respect to Insured I. Information subsequent to September 30, 1997 is with
respect to the Company and its subsidiaries which include Insured I and the
other Partnerships pursuant to the Consolidation.
During the years ended December 31, 1997, 1996 and 1995, the Kroger Company,
which is a tenant at several shopping centers, accounted for approximately 28%
of the Company's total gross revenues in each year.
Garden Apartment Complexes
- - --------------------------
As of December 31, 1997, the Company owned, on an all-cash basis, equity
interests in two partnerships each of which owns a multi-family residential
garden apartment property. See "Item 2. Properties" for a description of each
property.
Mortgage Loans
- - --------------
All base interest and, the principal amount of the FHA Mortgages (the "Mortgage
Loans") are coinsured by the FHA (80%) and an affiliate of the Advisor (20%).
Equity loans made to the same developers are uninsured, but are secured by the
partnership interests which own the underlying properties (the "Developments").
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In addition to the stated interest rates, the Company is entitled to receive
additional interest on the Mortgage Loans from a percentage of the annual net
cash flow of the Developments and from a percentage of the residual proceeds
upon a sale or refinancing. The Company accepted lower base interest rates than
were otherwise available in the market at the time of their origination with
respect to the Mortgage Loans in exchange for the potential to receive
additional interest payments. The notes evidencing the Mortgage Loans for Cross
Creek and Woodgate Manor, two of the Developments, bear interest at 8.95% with
the potential to receive an additional 0.84% to 1.68% on the Mortgage Loans plus
30% of any remaining cash flow from the underlying Developments and 35% of
capital proceeds. The Mortgage Loan for Weatherly Walk is structured in the same
manner except that the Company is entitled to receive up to 50% of both any
remaining cash flow and of capital proceeds. Additional interest is due no later
than upon the prepayment or other satisfaction of the Mortgage Loans or the sale
of the Developments. The receipt of additional interest is dependent upon the
economic performance of the underlying Developments. Additional interest is not
insured by the FHA or an affiliate of the Advisor.
As of December 31, 1997, the Company held three Mortgage Loans. The following
table lists the original principal amounts of the outstanding Mortgage Loans in
which the Company has invested:
<TABLE>
<CAPTION>
Stated
Funding Original Original Interest Mortgage
Comple- Mortgage Equity Total Rate on Loan
Project Closing tion Loan Loan Loan Mortgage Maturity
- - ------- Date Date Amount Amount Amount Loan (2) Date (3)
-------- --------- ------ -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cross Creek Apartments 06/10/ 2/01/ $17,494,100 $1,783,900 $19,278,000 8.95% 1/1/
Charlotte, NC (1) 1988 1991 2030
Weatherly Walk Apartments 08/18/ 12/05/ 7,772,500 895,200 8,667,700 8.95% 11/1/
Fayetteville, GA 1988 1989 2029
Woodgate Manor 12/12/ 12/13/ 3,110,300 339,700 3,450,000 8.95% 1/1/
Gainesville, FL (1) 1988 1988 2024
</TABLE>
(1) The general partner interest in the entity holding title to this
Development is held by an affiliate of the Advisor.
(2) Includes a servicing fee of 0.07% paid by the developer to Related Mortgage
Corporation, an affiliate of the Advisor, and excludes additional interest which
may be payable under certain circumstances.
(3) The Company may call for prepayment of the entire outstanding principal
amount at any time after the tenth anniversary of the date the funding of the
Mortgage Loans was completed. The Company, in order to call for prepayment,
would be required to terminate the mortgage insurance contract with FHA and the
other co-insurer not later than the accelerated payment date. Since the exercise
of such option would be at the Company's discretion, it is intended to be
exercised only where the Company determines that the value of the underlying
Development has increased by an amount which would justify accelerating payment
in full and assuming the risks of foreclosure if the mortgagor failed to make
the accelerated payment.
As of December 31, 1997, the aggregate balance of the Mortgage Loans recorded on
the Company's financial statements was $30,980,995. For individual year-end
balances, see "Note 6 of Notes to Consolidated Financial Statements" included in
Item 8.
The Company made an additional loan of $3,060,000 (the "Cross Creek Loan") to
the present owner of the Cross Creek property, Walsh/Cross Creek Limited
Partnership ("Walsh/Cross Creek") which acquired title to the property upon the
default of the original developer. Such funds were used to pay for costs
incurred to complete construction and to fund operating deficits. Significant
interests in Walsh/Cross Creek are held by affiliates of the Advisor.
Walsh/Cross Creek continues to be liable to the Company for the outstanding
principal balance and interest pursuant to the Cross Creek Loan. Stephen M.
Ross, who holds a majority interest in the Advisor, has guaranteed repayment of
the principal and interest on the Cross Creek Loan. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Note 7 of Notes to Consolidated Financial Statements" included in Item 8.
Insurance Policy
- - ----------------
Insured I and Insured II are beneficiaries of two insurance policies (the
"Policies") from Continental Casualty Company ("CNA") which, in effect, will
insure that the cumulative amount of cash available for distribution, from all
sources, as determined in accordance with the Policies and related agreement
together with the appraised values of the real estate then owned by Insured I
and Insured II (currently fourteen of the sixteen shopping centers), will equal
at least 100% of the aggregate original capital contributions to Insured I and
Insured II allocated to investment in properties ("Original Contributions") on
the day on which the last property was acquired by Insured I and Insured II (the
"Final Acquisition Date"). The maximum liability of CNA under the Policies will
increase pursuant to a formula based upon the length of time properties are held
by Insured I and Insured II up to a maximum of 125% of Original Contributions on
the tenth anniversary of the Final Acquisition Date (the "Guaranty Payment
Date"). The Policies are intended to cover various economic risks of the
ownership of the properties, but do not apply to certain losses, costs,
penalties or expenses, including, among others, those arising out of any
physical loss, damage, loss of use or other physical deterioration of the
properties.
Payment of any amounts due under the Policies will be made to Insured I and/or
Insured II after the Guaranty Payment Date and the Policies are not a guaranty
that shareholders of the Company will receive a return equal to 125% of their
Original Contributions to either Insured I or Insured II, as applicable, or any
lesser amount insured under the Policy.
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Competition
- - -----------
The real estate business is highly competitive and substantially all of the
properties owned by the Company have active competition from similar properties
in their respective vicinities. See "Item 2. Properties." With respect to the
Mortgage Loans, the Company's business is affected by competition to the extent
that the Developments from which it derives interest and principal payments may
be subject to competition from neighboring properties. In particular, additional
interest payments which are not insured are dependent upon the economic
performance of the Developments and may be affected by competitive conditions.
In addition, various other entities have been or may, in the future, be formed
by affiliates of the Advisor to engage in businesses which may be competitive
with the Company or compete for the time and services of management of the
Advisor.
Regulations
- - -----------
Under various federal, state and local laws, a current or previous owner or
operator of real property may be legally liable for the costs of removal or
remediation of hazardous or toxic substances on, under or in such property. Such
liability may exist whether or not the owner or operator knew of, or was
responsible for, such hazardous or toxic substances. In addition, the presence
of hazardous or toxic substances may adversely affect the owner's ability to
borrow funds using such real property as collateral. Certain environmental laws
impose liability for release of asbestos-containing materials ("ACMs") into the
air and third parties may seek recovery from owners or operators of real
properties for personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company may be liable for removal or remediation costs, as well
as certain other potential costs which could relate to such hazardous or toxic
substances or ACMs (including governmental fines and injuries to persons and
property). To date, the Company has not incurred any costs of removal or
remediations of such hazardous or toxic substances. However, the presence, with
or without the Company's knowledge, of hazardous or toxic substances at any
property held or opreated by the Company could have an adverse effect on the
Company's business, operating results and financial condition.
Phase I Environmental Site Assessments were undertaken on all of the Company's
properties in conformance with requirements for closing the BankBoston facility
(see "Credit Facility"). In certain cases, additional Phase II site
investigations were also undertaken where deemed appropriate. Based on these
reports, no on-site hazardous chemicals or petroleum products were detected or
found to exist in the soil or in the groundwater at any of the Company's
properties which would result in action by state environmental agencies and
which would require additional investigation and/or remediation, with the
exception of the Mountain Park Plaza property. A Phase II investigation at this
property determined that there were detectable levels of certain hazardous
substances in the soil and groundwater which were above threshold levels
ascertained by the Georgia State Department of Natural Resources Environmental
Protection Division ("GAEPD"). Based on this report and notification to GAEPD,
additional investigation, monitoring and/or remediation may be required by
GAEPD. These hazardous materials were determined to derive from an on-site dry
cleaner and an adjacent service station with a pre-existing, documented
underground leaking storage tank. Property management and the Company have taken
preliminary steps in providing appropriate notification to GAEPD on these
matters together with notification and possible remedies against both the
on-site dry cleaner and adjacent service station. Dependent on a numerical score
"ranking" for the site which is dependent on several factors (the most important
being the potential for human exposure to occur) the GAEPD may require
additional investigation and/or remediation. Management is unable, at this time,
to predict further requirements, if any, or the associated costs of monitoring
or remediation.
Credit Facility
- - ---------------
Upon the consummation of the Consolidation, the Company entered into a $2
million loan (the "Interim Loan") with BankBoston, N.A. ("BankBoston"). Proceeds
of the loan were used to pay costs incurred in the Consolidation. The $2 million
loan was secured by a first mortgage on the Westbird Shopping Center. The
interest rate was fixed at 1.625% above BankBoston's 30 day Euro-contract rate
(7.5938% at December 31, 1997).
On December 30, 1997, the Company closed on a $40 million senior revolving
credit facility (the "Facility") from BankBoston. The Facility requires interest
only payments until maturity on December 30, 2000 and is secured by certain of
the Company's Retail Properties. Proceeds of the Facility will be used to
acquire additional assets (primarily retail properties) to add to the Company's
current portfolio. Upon closing of the Facility, $11,375,000 was drawn down to
purchase two shopping centers. The interest rate under the Facility can float
1/2% under BankBoston's base rate or can be fixed in 30, 60, 90 and 180 day
periods at 1.625% over the indicated Euro-contract rate at the option of the
Company. The rate at December 31, 1997 was 7.3438%. Pursuant to the Trust
Agreement, indebtedness under the Facility and other borrowings will not exceed
50% of the Company's total market value as of the date such debt is incurred.
On March 4, 1998 the $2 million Interim Loan was repaid with an additional draw
down from the Facility.
The Company also has a loan from New York Life Insurance Company with an
outstanding balance at December 31, 1997 of $5,169,242. It carries a 9.25%
interest rate and requires equal monthly payments of principal and interest in
the amount of $55,984 until June 10, 2000, at which time the balance of
principal, together with any unpaid interest, is due. The loan is collateralized
by first mortgages on Forest Park Shopping Center and Highland Fair Shopping
Center.
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Employees
- - ---------
The Company does not directly employ anyone. All services are performed for the
Company by the Advisor and its affiliates. The Advisor receives compensation in
connection with such activities as set forth in Items 8, 11 and 13. In addition,
the Company reimburses the Advisor and certain of its affiliates for expenses
incurred in connection with the performance by their employees of services for
the Company in accordance with the Advisory Agreement between the Company, the
OP and the Advisor dated October 1, 1997.
The sixteen shopping centers owned by the Company are managed by RCC Property
Advisors, Inc. (the "Property Manager"), an affiliate of the Advisor, for a fee
equal to 4.5% of the gross rental receipts from the properties, which is
competitive with such fees paid in the areas in which the properties are
located. The Property Manager also receives standard leasing commissions for
space leased to new tenants and for lease renewals. The Property Manager also is
reimbursed for certain expenses. Management fees earned by the Property Manager
for the years ended December 31, 1997, 1996 and 1995 totaled approximately
$512,000, $420,000 and $410,000, respectively.
Other Events - Settlement of Class Action Litigation
- - ----------------------------------------------------
On August 28, 1997, the United States District Court for the Southern District
of New York (the "Court") issued its final approval order with respect to the
settlement (the "Related Settlement") of a putative class action (the "Class
Action") brought against, among others, the general partners of the Partnerships
and certain of their affiliates under the original caption Kinnes et. Al. V.
Prudential Securities Group, Inc., et. al. The Related Settlement was applicable
only to the general partners of the Partnerships affiliated with Related and
certain of their affiliates, since the other defendants in the Class Action had
previously entered into their own settlement agreement.
The Related Settlement was subject to objections by the holders of beneficial
unit certificates ("BUCs") representing assignments of limited partnership
interests and the limited partners of the Partnerships (collectively, the
"BUC$holders"), and to final approval by the Court following a review of the
settlement proposal at a fairness hearing.
The Related Settlement included, among other matters, the Consolidation, the
acquisition by the Advisor of the general partner interests held by PBP in each
of the Partnerships (collectively, the "PBP Interest"), the transfer to the
BUC$holders of one-half of the PBP Interest prior to the Consolidation and the
reduction of fees which were then payable to the general partners of the
Partnerships by 25%.
As part of the Related Settlement and in the Court's sole discretion, counsel to
the BUC$holders may receive additional attorney's fees payable in the Company's
shares, based upon 25% of the increase in value of the Company's shares as of
October 1, 1998 (the "Anniversary Date"). The number of Company shares so issued
will be limited to a maximum of 3.95% of the total number of shares outstanding
on the Anniversary Date. The amount of shares to be issued under this provision
cannot presently be determined.
Forward-Looking Statements
- - --------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements.
Item 2. Properties.
As of December 31, 1997, the Company owned sixteen neighborhood shopping
centers. The following is a description of these shopping centers and locations:
<TABLE>
<CAPTION>
% Square Comparable
Feet Annualized Competition
Name, Type of Gross Leased at Base Rent at Main within a
Property and Purchase Date Leasable December December Anchor three-mile
Location Price Purchased Square Feet 31, 1997 31, 1997 Tenant radius
- - ------------- --------- --------- ----------- ---------- ------------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cactus Village Shopping Center $ 6,330,000 7/25/87 72,598 97% $508,000 Safeway** 11 shopping
Glendale, AZ centers
Hickory Plaza Shopping Center $ 4,902,000 4/23/87 67,336 96% $484,000 Kroger 8 shopping
Nashville, TN centers
Highland Fair Shopping Center $ 5,950,000 7/24/87 74,754 100% $555,000 Safeway 6 shopping
Gresham, OR centers
</TABLE>
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<TABLE>
<CAPTION>
% Square Comparable
Feet Annualized Competition
Name, Type of Gross Leased at Base Rent at Main within a
Property and Purchase Date Leasable December December Anchor three-mile
Location Price Purchased Square Feet 31, 1997 31, 1997 Tenant radius
- - ------------- --------- --------- ----------- ---------- ------------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Pablo Plaza Shopping Center $ 7,500,000 2/18/87 140,921 83% $565,000 Publix* 12 shopping
Jacksonville, FL centers
Southhaven Shopping Center $ 5,666,000 2/28/87 83,750 100% $598,000 Kroger 6 shopping
Southhaven, MS centers
Town West Shopping Center $ 4,932,000 5/11/87 88,200 100% $490,000 Kroger 5 shopping
Indianapolis, IN centers
Westbird Shopping Center $ 7,000,000 12/31/86 100,237 98% $706,000 Publix 7 shopping
Miami, FL centers
Winery Square Shopping Center $12,801,700 12/22/87 121,047 77% $905,000 Food 4 5 shopping
Fairfield, CA Less centers
Mountain View Village $10,350,000 7/25/88 99,908 96% $819,000 Kroger 4 shopping
Shopping Center centers
Snellville, GA
Forest Park Shopping Center $ 8,950,000 5/19/89 92,824 100% $841,000 Kroger 2 shopping
Cincinnati, OH centers
Kokomo Plaza Shopping Center $ 6,987,000 5/19/89 89,546 91% $512,000 Kroger 6 shopping
Kokomo, IN centers
Rolling Hills Square $6,100,000 08/18/88 98,887 93% $592,000 Fry's 6 shopping
Shopping Center Food centers
Tuscon, AZ & Drug
Mountain Park Plaza $6,650,000 12/14/89 77,686 97% $532,000 A&P ** 8 shopping
Shopping Center Future centers
Atlanta, GA store
Applewood Centre $7,700,000 11/08/90 101,130 95% $687,000 Hy-Vee 5 shopping
Shopping Center Food centers
Omaha, NE Store &
Walgreens
Birdneck Center $3,115,000 12/31/97 67,060 97% $407,000 C.V.S. 8 shopping
Virginia Beach, VA Stores & centers
Food Lion
The Market Place $5,400,000 12/31/97 125,095 77% $579,000 Bi-Lo & 7 shopping
Newton, NC Big Lots cemters
</TABLE>
*Tenant has vacated and has subleased the space to Office Depot. The tenant
continues to be liable for all amounts due under its lease. Payments due under
sublease were current as of December 31, 1997.
**Tenant has vacated but continues to be liable for all amounts due under its
lease. Lease payments are current as of December 31, 1997.
For further information regarding the Company's shopping centers, including
information regarding the mortgage indebtedness encumbering certain properties,
see "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K - Financial Statement Schedules - Schedule III".
As of December 31, 1997, the Company owns, investments in two partnerships, each
of which holds a multi-family residential garden apartment property. The
following is a description of these partnerships.
An investment was made by the Company in TCR-Pinehurst Limited Partnership
("Pinehurst") during 1987. This Operating Partnership operates the Pinehurst
apartment complex (the "Pinehurst Property") located in Kansas City, Missouri,
which contains 96 apartments. In 1989, the Company made an additional investment
in Pinehurst relating to Phase II, which contains 50 apartments. The Pinehurst
Property was approximately 95% occupied as of March 1, 1998.
The Company's percentage of ownership is 99.99%.
An investment was made by the Company in Dominion Totem Park Limited Partnership
("Dominion") during 1988. This Operating Partnership operates the Chateau Creste
apartment complex (the "Chateau Creste Property") located in Kirkland,
Washington. The Chateau Creste Property, which was completed during August 1988,
contains 90 apartments and was 92% occupied as of March 1, 1998. The Company's
percentage of ownership is 99%.
-8-
<PAGE>
On March 20, 1998, Dominion Chateau Creste Limited Partnership, the general
partner of Dominion, purchased the Company's limited partnership interest in
Dominion pursuant to its rights under the partnership agreement. The purchase
price was determined by independent appraisals and resulted in a cash payment to
the Company of approximately $4,727,000, which is approximately $732,000 in
excess of the carrying value of this investment at December 31, 1997.
Item 3. Legal Proceedings.
See "Item 1. Business - Other Events - Settlement of Class Action Litigation"
which information is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Shareholders.
See "Item 1. Business - Other Events - Settlement of Class Action Litigation"
which information is incorporated herein by reference.
PART II
Item 5. Market for the Company's Common Stock and Related Shareholder Matters
As of March 17, 1998, there were 2,119 registered shareholders of record owning
8,050,727 shares of Common Stock. The Company's shares have been listed on the
American Stock Exchange since October 10, 1997 under the symbol "AER". Prior to
October 10, 1997, there was no established public trading market for the
Company's shares.
The high and low prices for the quarterly period in which the shares of Common
Stock were traded is as follows:
Quarter Ended Low High
- - ------------- --- ----
December 31, 1997 10 5/8 11 3/4
Distribution Information
- - ------------------------
Aegis Realty, Inc. (After the Consolidation)
- - --------------------------------------------
Distributions Per Share
- - -----------------------
The cash distribution per share for the quarter ended December 31, 1997 was as
set forth in the following table:
Cash Distribution Total Amount
for Quarter Ended Date Paid Per Share Distributed
- - ----------------- --------- --------- -----------
December 31, 1997 1/22/98 $ .24 $1,932,174
===== ==========
There are no material legal restrictions upon the Company's present or future
ability to make distributions in accordance with the provisions of the Company's
Articles of Amendment and Restatement. Future dividends paid by the Company will
be at the discretion of the Directors and will depend on the actual cash flow of
the Company, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Trustees deem relevant.
Insured I (Prior to the Consolidation)
- - --------------------------------------
Distributions per BUC
Distributions per BUC of Insured I for the nine months ended September 30, 1997
and the year ended December 31, 1996 were as follows:
Cash Distribution Approximate Total Quarterly Total Amount
for Quarter Ended Date Paid Distribution Per BUC of Distribution
- - ----------------- --------- -------------------- ---------------
March 31, 1997 5/14/97 $ .2250 $ 900,002
June 30, 1997 8/14/97 $ .2250 900,001
September 30, 1997 11/12/97 $ .2250 900,001
------- ----------
Total for 1997 $ .6750 $2,700,004
======= ==========
March 31, 1996 5/15/96 $ .2250 $ 900,001
June 30, 1996 8/14/96 $ .2250 900,001
September 30, 1996 11/14/96 $ .2250 900,002
December 31, 1996 2/13/97 $ .2250 900,001
------- ----------
Total for 1996 $ .9000 $3,600,005
======= ==========
-9-
<PAGE>
Total Adjusted Cash from Operations remaining after payment of a special
distribution to the general partners of Insured I was distributed 99% to the
BUC$holders and 1% to the general partners of Insured I, see "Note 8 of Notes to
Consolidated Financial Statements" included in Item 8. Accordingly, in
connection with the distributions set forth in the table above, the general
partners received, in payment of their 1% interest and special distributions,
approximately $354,000 and $472,000 for the nine months ended September 30, 1997
and the year ended December 31, 1996, respectively.
Cash distributions paid in 1997 and 1996 were funded from current and previously
undistributed cash flow from operations. Approximately $1,925,000 of the
$2,700,000 and $1,629,000 of the $3,600,000 paid to BUC$holders in 1997 and
1996, respectively, represented a return of capital on a generally accepted
accounting principles ("GAAP") basis. The return of capital on a GAAP basis was
calculated as BUC$holder distributions less net income allocated to BUC$holders.
Total Adjusted Cash From Operations is defined as the excess of cash revenue
from operations of Insured I's properties over cash disbursements, without
deduction for depreciation and amortization but after a reasonable allowance for
cash reserves for repairs, replacements, contingencies and other expenses, as
determined by the general partners of Insured I.
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the Company.
Additional financial information is set forth in the audited financial
statements and footnotes thereto contained in Item 8 hereof.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------
OPERATIONS 1997* 1996* 1995* 1994* 1993*
- - ---------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental income $7,761,826 $7,097,398 $7,236,966 $7,145,175 $7,010,883
========= ========= ========= ========= =========
Interest income from Mortgage Loans $ 581,941
=========
Total revenues $10,755,797 $9,224,030 $9,081,226 $9,272,415 $8,907,984
Total expenses (7,309,038) (6,797,394) (6,790,935) (6,563,660) (6,457,832)
---------- ---------- ----------- ---------- ----------
Net income $3,438,496 $2,426,636 $2,290,291 $2,708,755 $2,450,152
========= ========= ========= ========= =========
For the three months ended December 31, 1997:
Net income applicable to common shareholders** $1,420,370
=========
Net income per share** $ .18
=========
Year ended December 31,
---------------------------------------------------------------------------------
FINANCIAL POSITION 1997* 1996* 1995* 1994* 1993*
- - ------------------ ------------ ----------- ----------- ----------- -----------
Loan receivable from affiliate $ 3,060,000
===========
Total assets $148,639,328 $75,842,337 $77,862,045 $79,552,661 $81,104,315
=========== ========== ========== ========== ==========
Notes payable $ 18,544,242 $ 5,565,841 $ 5,792,615 $ 5,959,212 $ 5,976,244
=========== ========== ========== ========== ==========
Total liabilities $ 22,866,886 $ 6,746,907 $ 7,121,610 $ 7,030,876 $ 7,219,644
=========== ========== ========== ========== ==========
Minority interest $ 727,431
==========
Total Shareholders' Equity/Partners' $125,045,011 $69,095,430 $70,740,435 $72,521,785 $73,884,671
Capital =========== ========== ========== ========== ==========
DISTRIBUTIONS
- - -------------
Total BUC$holder distributions $ 3,600,005 $ 3,600,005 $ 3,600,005 $ 3,600,003 $3,650,000
=========== ========== ========== ========== =========
Total shareholder dividend $ 1,932,174
===========
Dividend per share** (3) $ .24
===========
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
For the Quarter ended
---------------------
December 31,
------------
OTHER DATA 1997
- - ---------- ----
<S> <C>
EBIDA (1) $2,412,713
=========
Funds from operations (2)
Net income applicable to common shareholders $1,420,370
Depreciation and amortization of real property 617,567
Amortization of insurance contract (5) 150,145
Proportionate share of adjustments to equity 80,757
----------
in income from equity investments to arrive
at funds from operations
Funds from operations 2,268,839
Amortization of deferred financing costs 72,036
Principal payments received on mortgage loans 39,994
Straight-lining of property rentals for rent (66,331)
escalations
Improvements to real estate (36,283)
Principal repayments of notes payable (64,717)
Leasing commissions paid (42,467)
----------
Funds available for distribution (4) $2,171,071
=========
FFO per share (2) (3) $ .28
=========
FAD per share (3) (4) $ .27
=========
Weighted average shares outstanding $8,050,272
=========
</TABLE>
*Information prior to October 1, 1997 (the date of the Consolidation) is only
with respect to Insured I. Information subsequent to September 30, 1997 is with
respect to the Company and its subsidiaries which include Insured I and the
other Partnerships pursuant to the Consolidation.
**Net income and distribution per unit information for periods before October 1,
1997 is not presented because it is not indicative of the Company's continuing
capital structure.
(1) EBIDA is computed as income from operations before minority interests and
extraordinary items plus interest expense, depreciation, amortization and
unrealized loss provisions. The Company believes that in addition to cash flows
and net income, EBIDA is a useful financial performance measurement for
assessing the operating performance of a REIT because, together with net income
and cash flows, EBIDA provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. EBIDA does not represent net income or cash flows
from operating, financing and investing activities as defined by generally
accepted accounting principles and does not necessarily indicate that cash flows
will be sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or to cash flows as a measure of liquidity.
(2) Funds from operations ("FFO"), represents net income (computed in accordance
with generally accepted accounting principles) ("GAAP"), applicable to common
shares excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization and including funds from operations
for unconsolidated joint ventures calculated on the same basis. Net income
computed in accordance with GAAP includes straight-lining of property rentals
for rent escalations in the amount of $66,331. FFO is calculated in accordance
with the National Association of Real Estate Investment Trusts ("NAREIT")
definition published in March 1995. FFO does not represent cash generated from
operating activities in accordance with GAAP and is not necessarily indicative
of cash available to fund cash needs which is disclosed in the Consolidated
Statements of Cash Flows included in Item 8, for the applicable periods. There
are no material legal or functional restrictions on the use of funds from
operations. FFO should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flows as a measure of liquidity. Management considers funds from operations a
supplemental measure of operating performance and along with cash flow from
operating activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and service
debt, to make capital expenditures and to fund other cash needs.
(3) Dividends, funds from operations ("FFO") and funds available for
distribution ("FAD") per share equals dividends, FFO and FAD divided by the
Company's weighted average shares outstanding, assuming conversion of all
outstanding OP Units into shares of Common Stock of the Company. The Company's
interest in the OP entitles it to a cash distribution equal to that which it
would received if a conversion had taken place.
(4) FAD represents FFO plus recurring principal receipts from mortgage loans
less reserves for lease commissions, capital expenditures (excluding property
acquisitions) and debt principal amortization. FAD should not be considered an
alternative to net income as a measure of the Company's financial performance or
to cash flow from operating activities (computed in accordance with GAAP) as a
measure of the Company's liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Company's needs.
(5) See Item I. Business - Insurance Policy
-11-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
- - -------------------------------
Aegis Realty, Inc. (the "Company") is a Maryland corporation that has qualified
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986 as amended (the "Code"). The Company was formed to acquire, own, operate
and renovate primarily supermarket-anchored neighborhood and community shopping
centers. The Company operates in a single business segment, investment in real
estate related assets. As of December 31, 1997, the Company owned a portfolio of
sixteen retail properties (the "Retail Properties") containing a total of
approximately 1.5 million square feet of gross leaseable area ("GLA"), and holds
partnership interests in two suburban garden apartment properties (the
"Multifamily Properties") and three FHA insured participating mortgages secured
by suburban garden apartment properties (the "FHA Mortgages"). The locations of
the assets in fourteen states provide the Company with a geographically diverse
portfolio. Moreover, the Company has a predictable and stable revenue stream
that, as of December 31, 1997, is derived approximately 55% from either base
rent from tenants or interest payments on the FHA Mortgages. No single asset
accounts for more than 10% of total revenues.
The Retail Properties are well located neighborhood shopping centers anchored by
nationally recognized credit tenants such as Kroger, Publix, Safeway, Food Lion,
A&P, Flemming Foods, Bi-Lo, Hy-Vee, Walgreens and C.V.S. Stores. Neighborhood
centers are typically open air centers ranging in size from 50,000 GLA to
approximately 150,000 GLA and anchored by supermarkets and/or drug stores. These
centers are usually leased to tenants that provide consumers with convenient
access to every day necessity items, such as food and pharmacy items. Therefore,
the Company believes that the economic performance of these centers is less
affected by downturns than other retail property types. The Retail Properties
range in size from approximately 67,000 GLA to 140,000 GLA, with an average of
approximately 100,000 square feet of gross GLA. As of December 31, 1997, the
Retail Properties had an average occupancy of 93.6%. Through 2005 no more than
7.6% of leased GLA is subject to expiration in any one year. The Multifamily
Properties total 236 units and had an average physical occupancy of 90% as of
December 31, 1997. The FHA mortgages have an aggregate principal balance of
approximately $27.6 million, and carry an average annual interest rate of 8.95%.
The underlying FHA properties had an average physical occupancy of 96.1% as of
December 31, 1997.
The Company has initiated a focused business/strategic plan designed to increase
funds from operations ("FFO") and enhance the value of its stock. The plan
concentrates principally on three areas: i) external growth, ii) internal growth
and iii) the increase in the amount of stock owned in the Company by affiliates
of the Advisor and the Property Manager.
The Company's external growth will be accomplished through acquisitions, on an
individual or bulk basis, of shopping centers. The Company believes that there
are significant opportunities available to acquire under valued, under managed
and/or under utilized neighborhood and community shopping centers. Unlike most
small capitalization REITs, the Company has the ability to benefit from its
affiliation with a much larger company with a national presence. Aegis will use
its affiliation with Related to establish a national acquisition campaign. The
Company believes that by acquiring shopping centers on a national basis, rather
than targeting a few markets or a region, it will be able to grow at a
meaningful rate, without the need for it to compromise asset quality or current
return. In addition, a national acquisition plan will allow the Company to
maintain geographic diversity, which the Company believes reduces the risk
otherwise associated with focusing on one region. The Company will seek to
acquire primarily, but not exclusively, supermarket-anchored shopping centers,
which are well located in primary and secondary markets. Acquisitions will be
balanced between stabilized centers that the Company believes are undervalued
and centers that may be enhanced through intensive management, leasing,
redevelopment or expansion efforts. In all such cases, the Company will
generally seek to acquire only those centers that are expected to immediately
increase FFO.
Internal growth will occur from the re-deployment of proceeds from the sale or
other disposition of stabilized non-core assets currently in the portfolio and
through intensive management, leasing and redevelopment services provided to the
Company by the Property Manager and the Advisor. The Company considers non-core
assets to be those assets the Company has enhanced and no longer offer above
market rates of return or those assets which due to location, configuration or
tenant profile no longer offer the Company the prospects of better than market
rates of growth. The Company regularly reviews its portfolio to identify
non-core assets and to determine whether the time is appropriate to sell or
otherwise dispose of such assets whose characteristics are no longer suited to
the Company's overall growth strategy or operating goals.
Finally, the Company will encourage the Advisor, Property Manager, Related and
their respective affiliates to increase their ownership in the Company. The
Company believes that this is necessary in order to more closely align the
interest of the management with that of the Company and to demonstrate that the
Advisor and Property Manager have a long-term commitment to the success of the
Company.
On December 31, 1997, the company purchased two shopping centers, Birdneck
Center and The Market Place, for an aggregate purchase price of $8,515,000, not
including acquisition fees and expenses of approximately $398,000.
On March 31, 1998 the Company purchased Barclay Place Shopping Center in
Lakeland, Florida. The purchase price was $3,800,000 with $2,587,000 of debt
assumed with Heller Financial, Inc. The center has 81,459 gross rentable square
feet with Food Lion as anchor tenant. It is 85% occupied.
During the year ended December 31, 1997, cash and cash equivalents of the
Company and its consolidated subsidiaries increased approximately $4,330,000.
This increase was primarily due to cash provided by operating activities
($6,533,000), net proceeds from notes payable ($11,654,000), and the cash effect
of the Consolidation and issuance of shares ($2,510,000) which exceeded
acquisitions of and improvements to real estate ($8,946,000), leasing
commissions paid ($192,000), distributions paid ($5,099,000), Consolidation
costs ($1,243,000) and an increase in deferred loan costs ($919,000). Included
in the adjustments to reconcile the net income to cash provided by operating
activities is depreciation and amortization in the amount of approximately
$2,702,000.
-12-
<PAGE>
The Company's investment in its shopping centers is subject to the risks arising
from management and ownership of commercial properties. The Company invests in
shopping centers with substantial anchor tenants. Anchor tenants usually provide
stability to a shopping center and a steady source of rental payments. A
shopping center's revenues from all of its tenants can be adversely affected by
the loss of its anchor tenant. If the rental income from shopping centers
decreases, it could adversely affect distributions to shareholders and could
affect the price the Company is able to receive upon sale of the properties.
All sixteen shopping centers have tenants with leases that require payment of
percentage rent. Percentage rent is an amount paid by the tenant which
represents a portion of sales proceeds over a specified threshold amount as
called for in the lease.
Safeway, the anchor tenant of Cactus Village Shopping Center closed its facility
in December 1991 due to poor sales. However, the tenant continues to fully abide
by all aspects of its lease which will expire in September 2006. There have been
several proposals received for leasing this space, but as of March 1, 1998, this
space has not been re-leased.
In November 1995, Publix, the anchor tenant of Pablo Plaza Shopping Center in
Jacksonville, Florida, moved out of its space to a newer, larger space
approximately one mile away. Their lease expires in November 2003, and Publix
continues to abide by the terms of its lease, including rental payments.
Effective November 12, 1997, Office Depot signed a sublease agreement with
Publix. The sublease will result in an increased common area maintenance payment
commitment from the tenant and subtenant and will result in other property
enhancements in the future. Office Depot opened for business on December 15,
1997.
In July 1994, A&P closed its store in the Mountain Park Plaza Shopping Center
due to reduced sales and increased competition. The Company continues to receive
rental payments from the vacated tenant pursuant to the terms of the lease which
will expire in June 2007 and both the tenant and the Company are actively
pursuing potential sub-tenants or replacement tenants. As of March 1, 1998, this
space has not been re-leased.
Distributions from the Company's investment in the Pinehurst Partnership totaled
$93,300 for the three months ended December 31, 1997. The cumulative, unrecorded
and undistributed preferred equity returns to the Company totaled $1,457,326 at
December 31, 1997. These preferred equity returns do not bear interest and are
payable from excess cash flow or proceeds from a sale or refinancing of
Pinehurst's rental property.
Distributions from the Company's investment in Dominion totaled $99,860 for the
three months ended December 31, 1997. As of December 31, 1997 the Company has
received all of the preferred equity returns due from Dominion. On March 20,
1998, Dominion Chateau Creste Limited Partnership, the general partner of
Dominion, purchased the Company's limited partnership interest in Dominion
pursuant to its rights under the partnership agreement. The purchase price was
determined by independent appraisals and resulted in a cash payment to the
Company of approximately $4,727,000, which is approximately $732,000 in excess
of the carrying value of this investment at December 31, 1997.
All base interest and the principal amount of the FHA Mortgages are coinsured by
the FHA (80%) and an affiliate of the Advisor (20%). Equity loans made to the
same developers are uninsured, but are secured by the partnership interests in
the entities which own the underlying properties.
The Company is entitled to receive additional interest on each FHA Mortgage from
the annual net cash flow of the underlying property and from a percentage of the
residual value upon the sale or refinancing of the property. The receipt of
additional interest is dependent upon the economic performance of the underlying
property. During the three months ended December 31, 1997, no additional
interest payments were received by the Company.
In prior years, the Company made the Cross Creek Loan to Walsh/Cross Creek to
enable it to complete construction and to fund operating deficits. Stephen M.
Ross, who holds a majority interest in the Advisor, has guaranteed repayment of
the principal and interest on the Cross Creek Loan (as amended, the "Guarantee
Agreement"). Mr. Ross remains in compliance with his obligations under the
Guarantee Agreement. However, significant portions of his assets are in the form
of partnership interests and corporate stock which are pledged or are otherwise
illiquid. Furthermore, a significant portion of the cash flow which Mr. Ross
would otherwise be expected to receive from his business operations is presently
pledged to meet other obligations. Mr. Ross also has contingent liabilities
that, if simultaneously called upon, could result in Mr. Ross having
insufficient liquid assets to meet all of his current liabilities. There can be
no assurance that Mr. Ross will have the liquidity necessary to continue to
comply with his obligations under the Guarantee Agreement.
FAI, Ltd. Weatherly Walk Apartments ("Weatherly Walk") and Walsh/Cross Creek
have in the past experienced recurring operating losses, working capital
deficiencies and negative cash flows which raised concerns of a potential
default on the related Mortgage Loans and Equity Loans. With respect to
Weatherly Walk, the Fayetteville, Georgia market has improved and the
partnership which owns the property is no longer experiencing operating
deficits, working capital deficiencies or negative cash flows and it is
currently meeting its operating obligations including required Mortgage Loan
payments. With respect to Cross Creek, which continues to experience recurring
operating losses, as indicated above, Stephen M. Ross has guaranteed the
performance of all obligations for the payment of interest (at 8.95%) and
principal of the Mortgage Loan together with the Equity Loan and has contributed
$356,012 during 1997 ($3,538,546 cumulatively) to cover operating losses and
working capital deficiencies, allowing this property to meet all required
Mortgage Loan payments.
Future liquidity is expected to result from cash generated from the operations
of the Retail Properties, interest and principal received on the FHA Mortgages
distributions from the Company's investment in partnerships and interest earned
on the funds invested in short-term money market instruments. The Company
anticipates that cash generated from operations will provide sufficient
liquidity to fund in future years the Company's operating expenditures, debt
service, future tenant and capital improvements and distributions.
-13-
<PAGE>
In January 1998, a distribution of $1,932,174 (.24 per share) which was declared
in December 1997 was paid to the shareholders from cash flow from operations for
the quarter ended December 31, 1997. In March 1998, a dividend in the amount of
$.24 per share was declared for the quarter ended March 31, 1998.
For a discussion of the settlement of the Class Action relating to the
Partnerships which resulted in the formation of the Company, see "Item 1. -
Other Events - Settlement of Class Action Litigation".
In order to carry out its business plan of acquiring primarily retail
properties, the Company intends to raise additional investment capital by
incurring additional debt. Pursuant to the Trust Agreement, company indebtedness
is not permitted to exceed 50% of the Company's total market value as of the
date such debt is incurred.
Upon the consummation of the Consolidation, the Company entered into a $2
million loan (the "Interim Loan") with BankBoston, N.A. ("BankBoston"). Proceeds
of the loan were used to pay costs incurred in the Consolidation. The $2 million
loan was secured by a first mortgage on the Westbird Shopping Center. The
interest rate was fixed at 1.625% above BankBoston's 30 day Euro-contract rate
(7.5938% at December 31, 1997).
On December 30, 1997, the Company closed on a $40 million senior revolving
credit facility (the "Facility") from BankBoston. The Facility requires interest
only payments until maturity on December 30, 2000 and is secured by certain of
the Company's Retail Properties. Proceeds of the Facility will be used to
acquire primarily retail properties to add to the Company's current portfolio.
Upon closing of the Facility, $11,375,000 was drawn down to purchase two
shopping centers. The interest rate under the Facility can float 1/2% under
BankBoston's base rate or can be fixed in 30, 60, 90 and 180 day periods at
1.625% over the indicated Euro-contract rate at the option of the Company. The
rate at December 31, 1997 was 7.3438%.
On March 4, 1998 the $2 million Interim Loan was repaid with an additional draw
from the Facility.
The Company had a loan in the amount of $1,400,000 from Principal Mutual Life
Insurance Company ("Principal Mutual") at a fixed interest rate of 7.03% per
annum payable in equal monthly installments of $13,405 based on a 13.5 year
amortization schedule until January 1, 2010 at which time the unpaid principal
balance was due. On December 31, 1997 the Principal Mutual loan was repaid with
proceeds from the Facility.
For a discussion of environmental issues affecting one of the Company's Retail
Properties see Item 1. Business - Regulations.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way. The Company's investments in properties are
geographically diversified so that if one area of the country is experiencing
downturns in the economy, the remaining properties may be experiencing upswings.
However, the geographic diversification of the portfolio may not protect against
a general downturn in the national economy.
Results of Operations
- - ---------------------
Results of the Company's operations for the year ended December 31, 1997 consist
primarily of the results of the operations of the sixteen neighborhood shopping
centers, two garden apartment complexes and three participating FHA co-insured
Mortgage Loans in which the Company has invested.
1997 vs. 1996
- - -------------
During the year ended December 31, 1997, total revenues, total expenses and net
income increased and the results of operations are not comparable due to the
Consolidation of Insured I with three other Partnerships on October 1, 1997,
which resulted in the formation of the Company. The Company's results of
operations for the year ended December 31, 1997 consisted primarily of the
results of the Company's investment in eleven shopping centers for the nine
months ended September 30, 1997 and the results of the Company's investment in
fourteen shopping centers, two garden apartment complexes and three
participating FHA co-insured Mortgage Loans for the three months ended December
31, 1997. The Company's results of operations for the year ended December 31,
1996 consisted primarily of the results of the Company's investment in eleven
shopping centers funded by a senior revolving credit facility.
1996 vs. 1995
- - -------------
Rental income decreased approximately $140,000 or 2% from 1995 to 1996 primarily
due to decreases at Highland Fair Shopping Center ("Highland Fair") and Winery
Square due to the loss of several tenants at both locations, partially offset by
an increase in occupancy at Southhaven Shopping Center and Forest Park Shopping
Center ("Forest Park").
Recovery of common area maintenance charges increased approximately $88,000 for
the year ended December 31, 1996 as compared to the year ended December 31,
1995. This increase was primarily due to repairs in 1996 for relamping of
parking lots at Hickory Plaza Shopping Center ("Hickory Plaza") and Winery
Square, roof repairs at Hickory Plaza as well as an underaccrual of such charges
at Cactus Village in 1995.
Real estate tax reimbursements increased approximately $172,000 for the year
ended December 31, 1996 as compared to the year ended December 31, 1995. This
increase was primarily due to an increase in real estate taxes at Forest Park in
1995 due to an unsuccessful valuation protest which was billed in 1996 and an
underaccrual of reimbursements at Mountain View Shopping Center ("Mountain
View") in 1995.
-14-
<PAGE>
Interest income decreased approximately $17,000 for the year ended December 31,
1996 as compared to the year ended December 31, 1995. This decrease was
primarily due to interest income earned on an escrow account for several years
at one of the Company's properties, which was recognized in the third quarter of
1995.
Other income increased approximately $40,000 for the year ended December 31,
1996 as compared to the year ended December 31, 1995, primarily due to an
increase in insurance reimbursements from tenants at Winery Square resulting
from increases in premiums for earthquake insurance.
General and administrative expense decreased approximately $104,000 for the year
ended December 31, 1996 as compared to the year ended December 31, 1995. This
decrease was primarily due to a settlement of a lawsuit with the seller of
Winery Square in connection with monies placed in escrow at closing to ensure
construction completion in 1995 as well as the cost of appraisals of the
Company's eleven properties in 1995.
Repairs and maintenance expense increased approximately $119,000 for the year
ended December 31, 1996 as compared to the year ended December 31, 1995. This
increase was primarily due to roof repairs at Westbird Shopping Center
("Westbird") and Hickory Plaza, relamping of parking lots at Hickory Plaza and
Winery Square and structural repairs to the building at Westbird.
Other expense decreased approximately $200,000 for the year ended December 31,
1996 as compared to the year ended December 31, 1995. This decrease was
primarily due to a decrease in bad debt expense resulting from a decrease in
reserves at Townwest, Cactus Village, Highland Fair and Winery Square.
Depreciation and amortization increased approximately $266,000 for the year
ended December 31, 1996 as compared to the year ended December 31, 1995,
primarily due to the write off of leasehold improvements and leasing commissions
relating to a tenant at Winery Square which ceased operations and rental
payments in March 1996.
Funds from Operations
- - ---------------------
Funds from operations ("FFO"), represents net income (computed in accordance
with generally accepted accounting principles) ("GAAP"), applicable to common
shares excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization and including funds from operations
for unconsolidated joint ventures calculated on the same basis. Net income
computed in accordance with GAAP includes straight-lining of property rentals
for rent escalations in the amount of $66,331. FFO is calculated in accordance
with the National Association of Real Estate Investment Trusts ("NAREIT")
definition published in March 1995. FFO does not represent cash generated from
operating activities in accordance with GAAP and is not necessarily indicative
of cash available to fund cash needs which is disclosed in the Consolidated
Statements of Cash Flows included in Item 8, for the applicable periods. There
are no material legal or functional restrictions on the use of funds from
operations. FFO should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flows as a measure of liquidity. Management considers funds from operations a
supplemental measure of operating performance and along with cash flow from
operating activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and service
debt, to make capital expenditures and to fund other cash needs.
FFO for the quarter ended December 31, 1997, as calculated in accordance with
the NAREIT definition is summarized in the following table.
Net income applicable to common shareholders $1,420,370
Depreciation and amortization of real property 617,567
Amortization of insurance contract* 150,145
Proportionate share of adjustments to equity in
income from equity investments to arrive at
funds from operations 80,757
----------
Funds from operations $2,268,839
==========
*See Item 1. Business - Insurance Policy
Recently Issued Accounting Standards
- - ------------------------------------
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual and interim financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
SFAS No. 130 and No. 131 are effective for fiscal years beginning after December
15, 1997. Both SFAS No. 130 and 131 are disclosure related only and therefore
will have no impact on the Company's financial position, results of operations
or cash flows.
Statement No. 132, "Employers' Disclosures about Pensions and other
Post-retirement Benefits" will not affect the Company, because it has no
employees.
Year 2000 Compliance
- - --------------------
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. The Advisor is in the process of working with the Company's service
providers to prepare for
-15-
<PAGE>
the year 2000. Based on information currently available, the Company does not
expect that it will incur significant operating expenses or be required to incur
material costs to be year 2000 compliant.
Inflation
- - ---------
Inflation did not have a material effect on the Company's results for the
periods presented.
-16-
<PAGE>
<TABLE>
<CAPTION>
Item 8. Financial Statements and Supplementary Data.
Page
<S> <C> <C>
(a) 1. Financial Statements
Independent Auditors' Report 18
Consolidated Balance Sheets as of December 31, 1997 and 1996 19
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995 20
Consolidated Statements of Changes in Shareholders' Equity/Partners'
Capital (Deficit) for the years ended December 31, 1997, 1996 and 1995 21
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995 22
Notes to Consolidated Financial Statements 24
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors of
Aegis Realty, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Aegis Realty,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity/partners'
capital (deficit) and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedules
listed in Item 14(a)2. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Aegis Realty, Inc. and subsidiaries
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
March 31, 1998
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
------------- -----------
<S> <C> <C>
ASSETS
Real estate, net $ 94,638,187 $70,670,980
Investment in partnerships 9,296,088 0
Mortgage loans receivable 30,980,995 0
Loan receivable from affiliate 3,060,000 0
Cash and cash equivalents 6,728,050 2,398,013
Accounts receivable-tenants, net of allowance for doubtful
accounts of $304,000 and $303,000, respectively 1,169,526 803,219
Deferred costs, net 2,179,373 1,887,608
Other assets 587,109 82,517
------------ ------------
Total Assets $148,639,328 $75,842,337
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Notes payable $ 18,544,242 $ 5,565,841
Accounts payable and other liabilities 1,871,394 1,039,874
Due to Advisor, general partners and affiliates 507,835 141,192
Distributions payable 1,943,415 0
------------ ------------
Total Liabilities 22,866,886 6,746,907
---------- ------------
Minority interest of unitholders in the OP 727,431
------------
Commitment and Contingencies
Shareholders' equity:
Common stock; $.01 par value;
50,000,000 shares authorized;
8,050,727 shares issued and outstanding 80,507
Additional paid in capital 125,476,308
Distributions in excess of net income (511,804)
------------
Total Shareholders' Equity 125,045,011
------------
Total Liabilities and Shareholders' Equity $148,639,328
===========
Partners' Capital (Deficit):
Limited partners (4,000,000 BUC$ issued and outstanding) 69,352,193
General Partners (256,763)
------------
Total Partners' Capital 69,095,430
------------
Total Liabilities and Partners' Capital $75,842,337
============
</TABLE>
See accompanying notes to financial statements
-19-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Revenues:
Rental income $7,761,826 $7,097,398 $7,236,966
Recovery of common area maintenance charges 855,843 828,478 740,722
Real estate tax reimbursements 1,047,025 1,040,827 868,645
Income from equity investments 193,511 0 0
Interest income 751,142 39,845 57,219
Other 146,450 217,482 177,674
---------- --------- ---------
Total revenues 10,755,797 9,224,030 9,081,226
---------- --------- ---------
Expenses:
Repairs and maintenance 931,588 892,434 773,174
Real estate taxes 1,190,345 1,075,573 1,184,399
Interest 558,994 531,504 552,456
General and administrative 1,593,612 1,061,319 1,110,343
Depreciation and amortization 2,655,049 2,758,415 2,491,954
Other 379,450 478,149 678,609
---------- --------- ---------
Total expenses 7,309,038 6,797,394 6,790,935
---------- --------- ---------
Income before minority interest 3,446,759 2,426,636 2,290,291
Minority interest in income of the OP (8,263) 0 0
---------- --------- ---------
Net income $3,438,496 $2,426,636 $2,290,291
========== ========= =========
</TABLE>
-20-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY/PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Limited General Common Stock
Partners Partners Shares Amount
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 72,744,284 $(222,499) 0 0
Net income 1,836,469 453,822 0 0
Distributions (3,600,005) (471,636) 0 0
------------ --------- --------- ----------
Balance at December 31, 1995 70,980,748 (240,313) 0 0
Net income 1,971,450 455,186 0 0
Distributions (3,600,005) (471,636) 0 0
------------ --------- --------- ----------
Balance at December 31, 1996 69,352,193 (256,763) 0 0
Net income - January 1, 1997 to
September 30, 1997 1,674,755 343,371 0 0
Distributions - January 1, 1997 to
September 30, 1997 (3,600,005) (362,818) 0 0
Consolidation and issuance of shares (67,426,943) 276,210 8,050,727 $ 80,507
Dividends - October 1, 1997 to
December 31, 1997 0 0 0 0
Net income - October 1, 1997 to
December 31, 1997 0 0 0 0
------------ --------- --------- ----------
Balance at December 31, 1997 $ 0 $ 0 8,050,727 $ 80,507
============ ========= ========= ==========
<CAPTION>
Additional Distributions
Paid-in in Excess of
Capital Net Income Total
-------------- ----------- -----
<S> <C> <C> <C>
Balance at January 1, 1995 0 0 $ 72,521,785
Net income 0 0 2,290,291
Distributions 0 0 (4,071,641)
------------ ------------ ------------
Balance at December 31, 1995 0 0 70,740,435
Net income 0 0 2,426,636
Distributions 0 0 (4,071,641)
------------ ------------ ------------
Balance at December 31, 1996 0 0 69,095,430
Net income - January 1, 1997 to
September 30, 1997 0 0 2,018,126
Distributions - January 1, 1997 to
September 30, 1997 0 0 (3,962,823)
Consolidation and issuance of shares $125,476,308 0 58,406,082
Dividends - October 1, 1997 to
December 31, 1997 0 $ (1,932,174) (1,932,174)
Net income - October 1, 1997 to
December 31, 1997 0 1,420,370 1,420,370
------------ ------------ ------------
Balance at December 31, 1997 $125,476,308 $ (511,804) $125,045,011
============ ============ ============
</TABLE>
See accompanying notes to financial statements
-21-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $3,438,496 $2,426,636 $2,290,291
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,702,274 2,758,415 2,491,954
Minority interest in income of OP 8,263 0 0
Income from equity investments
in excess of distributions (19,448) 0 0
Changes in assets and liabilities:
Decrease (increase) in accounts receivable-tenants 15,090 281,873 (138,725)
(Decrease) increase in allowance for
doubtful accounts (907) (206,391) 197,000
Increase in other assets (261,361) (4,535) (40,851)
Increase (decrease) in due to Advisor,
general partners and affiliates 159,251 (8,588) 27,750
Increase (decrease) in accounts payable and
other liabilities 491,380 (139,341) 229,581
---------- ---------- ----------
Total adjustments 3,094,542 2,681,433 2,766,709
---------- ---------- ----------
Net cash provided by operating activities 6,533,038 5,108,069 5,057,000
---------- ---------- ----------
Cash flows used in investing activities:
Improvements to real estate (33,486) (119,325) (110,637)
Acquisitions of real estate (8,912,945)
Leasing commissions paid (191,730) (349,450) (73,292)
Increase in sellers' rental guarantees 0 0 15,000
Principal payments received on mortgage loans 39,994 0 0
---------- ---------- ----------
Net cash used in investing activities (9,098,167) (468,775) (168,929)
---------- ---------- ----------
Cash flows provided by (used in) financing activities:
Repayments of notes payable (1,720,907) (226,774) (166,597)
Proceeds from notes payable 13,375,000 0 0
Distributions paid (5,099,300) (4,071,641) (4,071,641)
Increase in deferred loan costs (919,302) 0 (26,398)
Decrease in minority interest (18,474) 0 0
Cash effect of Consolidation and issuance
of shares 2,510,103 0 0
Consolidation costs (1,243,195) 0 0
Increase in distributions payable to
minority interest 11,241 0 0
---------- ---------- ----------
Net cash provided by (used in)
financing activities 6,895,166 (4,298,415) (4,264,636)
---------- ---------- ----------
Net increase in cash and cash equivalents 4,330,037 340,879 623,435
Cash and cash equivalents at beginning of year 2,398,013 2,057,134 1,433,699
---------- ---------- ----------
Cash and cash equivalents at end of year $6,728,050 $2,398,013 $2,057,134
========== ========== ==========
</TABLE>
(continued)
-22-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental information:
Interest paid $ 562,240 $ 532,799 $ 553,061
=========== =========== ===========
Supplemental disclosure of noncash investing activities:
Consolidation and issuance of shares:
Increase in real estate (16,856,558)
Increase in investment in partnerships (9,295,706)
Increase in mortgage loans receivable (31,049,146)
Increase in loan receivable from affiliate (3,060,000)
Increase in accounts receivable-tenants (380,490)
Increase in other assets (243,231)
Increase in notes payable 1,324,308
Increase in accounts payable and other liabilities 340,138
Increase in due to Advisor, general partners and
affiliates 207,392
Increase in distributions payable 1,136,477
Decrease in limited partners' capital (67,426,943)
Increase in general partners' capital 276,210
Increase in minority interest 737,642
Issuance of shares of common stock 124,289,907
-----------
$ 0
===========
Supplemental disclosure of noncash financing activities:
Distributions declared $(5,894,997)
Increase in distributions payable
to shareholders 795,697
-----------
Distributions paid $(5,099,300)
===========
</TABLE>
-23-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General
Aegis Realty, Inc. (the "Company") is a Maryland corporation that has qualified
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986 as amended (the "Code"). The Company was formed to acquire, own, operate
and renovate primarily supermarket-anchored neighborhood and community shopping
centers. The Company operates in a single business segment, investment in real
estate related assets. As of December 31, 1997, the Company owned a portfolio of
sixteen retail properties (the "Retail Properties") containing a total of
approximately 1.5 million gross leaseable square feet ("GLA"), and holds
partnership interests in two suburban garden apartment properties (the
"Multifamily Properties") and three FHA insured participating mortgages secured
by suburban garden apartment properties (the "FHA Mortgages").
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of four publicly registered, non-traded limited
partnerships, Summit Insured Equity ("Insured I"), Summit Insured Equity L.P. II
("Insured II"), Summit Preferred Equity L.P. ("Summit Preferred") and Eagle
Insured, L.P. ("Eagle") (the "Partnerships", and each individually a
"Partnership"). The Partnerships were co-sponsored by an affiliate of Related
Capital Company ("Related"). Unless otherwise indicated, the "Company", as
hereinafter used, refers to Aegis Realty, Inc. and subsidiaries and, prior to
October 1, 1997, Insured I. Pursuant to the Consolidation, the Company issued
shares of its common stock, par value $.01 per share (the "Common Stock") to all
partners in the Partnerships in exchange for their limited partnership interest
in each Partnership. There are currently 8,050,727 shares of Common Stock
outstanding (an additional 46,836 shares are reserved for issuance upon
conversation of OP units, as defined below, held by affiliates of Related).
The Company has engaged Related Aegis LP, a Delaware limited partnership an
affiliate of Related (the "Advisor"), to manage its day to day affairs.
The Company owns all of its assets directly or indirectly through Aegis Realty
Operating Partnership, LP, a Delaware limited partnership (the "OP"), of which
the Company is the sole general partner and holder of 99.42% of the units of
partnership interest (the "OP Units"). The balance of the units are currently
held by affiliates of Related.
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Accounting
The books and records of the Company are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles ("GAAP").
For financial accounting and reporting purposes, the Consolidation was accounted
for using the purchase method of accounting. Under this method, the Partnership
with the investor group receiving the largest ownership in the Company, in this
case Insured I, is deemed to be the acquirer. As the surviving entity for
accounting purposes, Insured I's assets and liabilities were recorded by the
Company at their historical cost, with the assets and liabilities of the other
Partnerships recorded at their estimated fair values for each Partnership (an
aggregate of approximately $60,387,000) as set forth in the Solicitation
Statement of the Company dated June 18, 1997 (the "Solicitation Statement"). No
goodwill was recorded in the Consolidation. As part of the Consolidation,
Insured I and Insured II remained as stand alone entities each owned by the OP,
as the general partner, and a subsidiary of the Company, as the limited partner.
Insured I and Insured II continue to be the record owners of their respective
shopping centers. Results of operations and other operating financial data for
the Company for the years ended December 31, 1997, 1996 and 1995 include
information for the entire periods presented with respect to Insured I, but only
include information for the period October 1, 1997 to December 31, 1997 with
respect to the other Partnerships. See pro forma information in Note 13. Prior
to the Consolidation Insured I was a Delaware limited partnership formed on
December 12, 1985.
b) Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary partnerships. All intercompany accounts and transactions with the
subsidiary partnerships have been eliminated in consolidation.
c) Property and Equipment
The carrying amount of property and equipment includes the purchase price,
acquisition fees and expenses, and any other costs incurred in acquiring the
properties less amounts received from sellers' rental guarantees. Buildings are
depreciated on the straight line basis over their estimated useful lives,
generally 40 years. Maintenance and repairs are charged to expense as incurred.
Renewals and betterments that significantly extend the useful life of a property
are capitalized.
d) Investments in Partnerships
The Company accounts for its investment as a limited partner in two
partnerships, which own the Multifamily Properties, using the equity method of
accounting. The Company is allocated substantially all of the income of the
Operating Partnerships until its preferred return is achieved.
e) Mortgage Loans Receivable
Amounts received or receivable for interest payments on loans are reflected as
interest income.
-24-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
f) Impairment
The Company reviews each of its property investments, including those held by
the partnerships which own the Multifamily Properties, for possible impairment
at least annually, and more frequently if circumstances warrant. Impairment of
properties to be held and used is determined to exist when estimated amounts
recoverable through future operations on an undiscounted basis are below the
properties' carrying value. If a property is determined to be impaired, it is
written down to its estimated fair value.
At least annually, and more frequently if circumstances warrant, the Company
evaluates the collectibility of both interest and principal of each of its loans
to determine whether it is impaired. A loan is considered to be impaired when,
based on current information and events, it is probable the Company will be
unable to collect all amounts due according to the existing contractual terms.
When a loan is considered to be impaired, the amount of the loss accrual is
determined by discounting the expected future cash flows at the loan's effective
interest rate or, for practical purposes, from the estimated fair value of the
collateral.
The determination of impairment is based, not only upon future cash flows, which
rely upon estimates and assumptions including expense growth, occupancy and
rental rates, but also upon market capitalization and discount rates as well as
other market indicators. The Advisor believes that the estimates and assumptions
used are appropriate in evaluating the carrying amount of the Company's
properties and loans. However, changes in market conditions and circumstances
may occur in the near term which would cause these estimates and assumptions to
change, which, in turn, could cause the amounts ultimately realized upon the
sale or other disposition of the investments to differ materially from their
estimated fair value. Such changes may also require write-downs in future years.
No write-downs for impairment have been recorded during the years ended December
31, 1997, 1996 and 1995.
g) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks, money market funds and
investments in short-term instruments with an original maturity of three months
or less, whose cost approximates market value.
h) Deferred Insurance Costs
Costs related to the Policy are being amortized over a 10 year period (the life
of the Policy) which commenced on May 19, 1989.
i) Deferred Loan Costs
Costs incurred in connection with the Company's debt have been capitalized and
are being amortized over the life of the respective debt using the effective
yield method.
j) Deferred Leasing Commissions
Costs incurred in connection with the lease-up of vacant space and lease
renewals have been capitalized and are being amortized over the term of the
underlying leases.
Amortization related to the deferred costs described above is included in
depreciation and amortization expense.
k) Consolidation Costs
Costs incurred in the Consolidation including legal, accounting and registration
fees, amounting to $1,243,195 were charged directly to shareholders' equity.
l) Rental Income
Rental income includes amounts received and accrued from operating leases as
well as amounts related to the reimbursement of common area maintenance charges,
real estate taxes and insurance. The straight-line basis is used to recognize
base rents under leases which provide for varying rents over the lease terms.
m) Income Taxes
The Company has qualified as a REIT under the Code. A REIT is generally not
subject to federal income tax on that portion of its real estate investment
trust taxable income ("Taxable Income") which is distributed to its shareholders
provided that at least 95% of Taxable Income is distributed and provided that
such income meets certain other conditions. Accordingly, no provision for
federal income taxes is required. The Company may be subject to state taxes in
certain jurisdictions. At December 31, 1997, the net book basis of the Company's
assets and liabilities exceeded the net tax basis by approximately $1,005,893.
During 1997, the Company declared a dividend of $.24 per share, payable to
record owners of the shares on December 31, 1996. For Federal income tax
purposes, $.19 per share was reported to shareholders as ordinary income for
1997. The remaining $.05 per share will be reported to shareholders in 1998.
n) Use of Estimates
The preparation of financial statements in conformity with GAAP requires the
Advisor to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial
-25-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
o) New Pronouncements
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings per Share" establishes
standards for computing and presenting earnings per share. Statement No. 129,
"Disclosure of Information about Capital Structure" establishes standards for
disclosing information about an entity's capital structure. The adoption of
these standards in 1997 has not materially affected the Company's reported
operating results, per share amounts, financial position or cash flow.
p) Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform to the 1997 presentation.
NOTE 3 - Real Estate
The components of real estate are as follows:
December 31,
--------------------------------
1997* 1996*
------------ -----------
Land $ 27,622,941 $20,356,681
Buildings and improvements 83,419,863 65,155,543
------------ -----------
111,042,804 85,512,224
Less: Accumulated depreciation (16,404,617) (14,841,244)
------------ -----------
$ 94,638,187 $70,670,980
============ ===========
*Information for 1996 (Prior to the Consolidation) is only with respect to
Insured I (the Acquirer). Information for 1997 is with respect to the Company
and its subsidiaries which includes Insured I and the Partnerships pursuant to
the Consolidation.
On December 31, 1997, the company purchased two shopping centers, Birdneck
Center and The Market Place, for an aggregate purchase price of $8,515,000, not
including acquisition fees and expenses of approximately $398,000.
Amounts estimated to be recoverable from future operations and ultimate sales
were greater than the carrying value of each property owned at December 31, 1997
and 1996. However, the carrying value of certain properties may be in excess of
their fair values as of such dates.
The following table lists each of the Company's investment properties whose
rental revenues accounted for 10% or more of the Company's total gross revenues
for any of the three years in the period ended December 31, 1997.
1997* 1996* 1995*
---- ---- ----
1. Pablo Plaza/Jacksonville, FL 7% 10% 10%
2. Westbird/Miami, FL 10% 11% 12%
3. Winery Square/Fairfield, CA 10% 14% 15%
4. Mountain View Village/Snellville, GA 10% 11% 10%
5. Forest Park Square/Cincinnati, OH 10% 12% 11%
*Information prior to October 1, 1997 (the date of the Consolidation) is only
with respect to Insured I. Information subsequent to September 30, 1997 is with
respect to the Company and its subsidiaries which include Insured I and the
other Partnerships pursuant to the Consolidation.
During the years ended December 31, 1997, 1996 and 1995, the Kroger Company,
which is a tenant at several shopping centers, accounted for approximately 28%
of the Company's total gross revenues in each year.
Insured I and Insured II are beneficiaries of an insurance policy (the "Policy")
from Continental Casualty Company ("CNA") which, in effect, will insure that the
cumulative amount of cash available for distribution, from all sources, as
determined in accordance with the Policy and related agreement, together with
the appraised values of the real estate then owned by Insured I and Insured II,
will equal at least 100% of the aggregate original capital contributions to
Insured I and Insured II allocated to investment in properties ("Original
Contributions") on the day on which the last property was acquired by Insured I
and Insured II (the "Final Acquisition Date"). The maximum liability of CNA
under the Policy will increase pursuant to a formula based upon the length of
time properties are held by Insured I and Insured II up to a maximum of 125% of
Original Contributions on the tenth anniversary of the Final Acquisition Date
(the "Guaranty Payment Date"). The Policy is intended to cover various economic
risks of the ownership of the properties, but do not apply to certain losses,
costs, penalties or expenses, including, among others, those arising out of any
physical loss, damage, loss of use or other physical deterioration of the
properties.
-26-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Deferred Costs
The components of deferred costs are as follows:
December 31,
------------------------------
1997* 1996*
---------- ----------
Deferred insurance costs $6,005,804 $6,005,804
Deferred loan costs 945,700 133,642
Deferred leasing commissions 809,941 731,957
---------- ----------
7,761,445 6,871,403
Less: Accumulated amortization (5,582,072) (4,983,795)
---------- ----------
$2,179,373 $1,887,608
========== ==========
*Information for 1996 (prior to the Consolidation) is only with respect to
Insured I (the Acquirer). Information for 1997 is with respect to the Company
and its subsidiaries which includes Insured I and the Partnerships pursuant to
the Consolidation.
NOTE 5 - Investments in Partnerships
The Company owns a limited partnership interest in the TCR-Pinehurst Limited
Partnership ("Pinehurst"), which acquired and operates the Pinehurst apartment
complex in Kansas City, Missouri. Under the original terms of this investment,
the Company is entitled to a preferred equity return of 8.8% per annum on its
initial investment of $3,799,620. On May 8, 1989 the Company invested an
additional $1,949,805 in Pinehurst. The Company is entitled to a preferred
equity return of 9.85% per annum on this investment. These preferred equity
returns are cumulative and non interest-bearing. The cumulative, unrecorded and
undistributed preferred equity returns to the Company totaled $1,457,326 at
December 31, 1997. These preferred equity returns are payable from excess cash
flow from operations or proceeds from a sale or refinancing of Pinehurst's
rental property. The Company's percentage of ownership in Pinehurst is 99.99%.
The Company owns a limited partnership investment in the Dominion Totem Park
Limited Partnership ("Dominion"), which acquired and operates the Chateau Creste
apartment complex in Kirkland, Washington. Under the terms of this investment,
the Company is entitled to receive a preferred equity return of 9.625% per annum
on its initial cash contribution of $4,149,585. As of December 31, 1997, the
Company has received all of the preferred equity returns due from Dominion. The
Company's percentage of ownership in Dominion is 99%.
On March 20, 1998, Dominion Chateau Creste Limited Partnership, the general
partner of Dominion, purchased the Company's limited partnership interest in
Dominion pursuant to its rights under the partnership agreement. The purchase
price was determined by independent appraisals and resulted in a cash payment to
the Company of approximately $4,727,000, which is approximately $732,000 in
excess of the carrying value of this investment at December 31, 1997.
Amounts estimated to be recoverable from future operations and ultimate sales
were greater than the carrying value of the Company's investments in
partnerships at December 31, 1997.
NOTE 6 - Mortgage Loans Receivable
All base interest and the principal amount of each of the FHA Mortgages are
coinsured by the FHA (80%) and an affiliate of the Advisor (20%). The FHA
Mortgages require monthly payment of principal and interest over the life of the
loan. The FHA Mortgages, which closed during the period June 1988 to December
1988, bear interest at 8.95% and mature during the period January 2024 to
January 2030. The interest rate of 8.95% includes a servicing fee of 0.07% paid
by the developer to Related Mortgage Corporation, an affiliate of the Advisor,
and excludes additional interest which may be payable under certain
circumstances.
The Company also has equity loans made to the same developers as were made to
the FHA Mortgages. These equity loans, in the aggregate original amount of
$3,018,800, represented noninterest-bearing advances made to the developers for
such items as initial operating deficit escrow requirements and Housing and
Urban Development ("HUD") related contingencies such as working capital escrow
and cash requirements. Such amounts are due on demand upon six months notice at
any time after the tenth anniversary of the initial endorsement of the loan by
HUD. These loans are uninsured, but are secured by the partnership interests of
the entities which own the underlying properties.
The carrying values of the Mortgage Loans (the FHA Mortgages and equity loans)
secured by Cross Creek Apartments, Weatherly Walk Apartments and Woodgate Manor
at December 31, 1997 were $19,195,048, $8,474,829 and $3,311,118, respectively;
the FHA Mortgage loan balances were $17,018,624, $7,513,929 and $2,935,935,
respectively. The difference between the carrying values and the FHA Mortgage
loan balances are due to the purchase accounting premiums recorded pursuant to
the Consolidation.
The Company may call for prepayment of the entire outstanding principal amount
at any time after the tenth anniversary of the date the funding of the
respective Mortgage Loans were completed. The Company, in order to call for
prepayment, would be required to terminate the mortgage insurance contract with
FHA (and/or the co-insurer) not later than the accelerated payment date. Since
the exercise of such option would be at the Company's discretion, it is intended
to be exercised only where the Company
-27-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
determines that the value of the underlying property has increased by an amount
which would justify accelerating payment in full and assuming the risks of
foreclosure if the mortgagor failed to make the accelerated payment. The
borrowers may elect to prepay at any time, but prepayment penalties are in
effect for the first ten years.
The general partner interests in the entities holding title to Cross Creek
Apartments and Woodgate Manor are held by an affiliate of the Advisor.
The present owner of the Cross Creek property, Walsh/Cross Creek Limited
Partnership ("Walsh/Cross Creek"), acquired title to the property upon the
default of the original developer. Significant interests in Walsh/Cross Creek
are held by affiliates of the Advisor. In 1988, the Company made a loan of
$3,060,000 to Walsh/Cross Creek (the "Cross Creek Loan") to pay for costs
incurred to complete construction and to fund operating deficits. The Cross
Creek Loan bears interest at the prime rate plus 1% (9.5% at December 31, 1997)
and is due on January 1, 2030 or on the occurrence of certain events. The amount
loaned to Walsh/Cross Creek is classified as a loan receivable from affiliate
and is anticipated to be repaid from cash flows from the Cross Creek property.
Stephen M. Ross holds a majority interest in the Advisor and has guaranteed the
repayment of the principal and interest on the Cross Creek Loan (as amended, the
"Guarantee Agreement") to the Company, subject to certain conditions.
In accordance with the Guarantee Agreement and except as otherwise required by
HUD, available cash flow or capital proceeds from the Cross Creek property will
be applied first to all expenses of operating and maintaining the property, debt
service and/or satisfaction of the mortgage loan, equity loan and Cross Creek
Loan, then to reimburse Stephen M. Ross for operating deficit payments which he
has made (amounting to $356,012 for the year ended December 31, 1997 and
$3,538,546, cumulatively), then to additional interest, default rate and
guaranteed rate payments as set forth in the Subordinated Note and the
Additional Interest Guarantee.
At December 31, 1997, the estimated fair value of the Company's Mortgage Loans
Receivable and the Cross Creek Loan approximated their carrying values.
NOTE 7 - Related Party Transactions
Aegis Realty, Inc. (After the Consolidation)
- - --------------------------------------------
Pursuant to the Advisory Agreement, the Advisor will receive (i) acquisition
fees equal to 3.75% of the acquisition prices of properties acquired; (ii)
mortgage selection fees based on the principal amount of Mortgage Loans funded;
(iii) asset management fees equal to .375% of the total invested assets of the
Company; (iv) a liquidation fee based on the gross sales price of the assets
sold by the Company in connection with a liquidation of the Company's assets;
and (v) reimbursement of certain administrative costs incurred by the Advisor on
behalf of the Company.
The original term of the Advisory Agreement will terminate on October 1, 2001.
Thereafter, the Advisory Agreement will be renewed annually by the Company and
the OP, subject to the majority approval of the Company's Board of Directors and
the OP. The Advisory Agreement cannot be terminated by the Company prior to
October 1, 2001, other than for gross negligence or willful misconduct of the
Advisor and by a majority vote of the Company's independent directors. The
Advisory Agreement may be terminated without cause by a majority vote of the
Company's independent directors following October 1, 2001 or by the Advisor at
any time.
The Advisor is entitled to an acquisition fee equal to 3.75% of the acquisition
price of each property acquired by the Company. During 1997, $322,606 of such
fees were incurred and capitalized as real estate related to the Company's
acquisition of Birdneck Center and The Market Place.
The Company's sixteen properties are being managed by RCC Property Advisors,
Inc. (the "Property Manager"), an affiliate of the Advisor.
The costs incurred to related parties for the three months ended December 31,
1997 (after the Consolidation) were as follows:
Acquisition fees $322,606
Expense reimbursement 28,000
Property management fees 159,958
Asset management fee 142,105
-------
$652,669
========
Insured I (Prior to the Consolidation)
- - --------------------------------------
Prior to the Consolidation, the general partners of Insured I were Related
Insured Equity Associates, Inc., a Delaware corporation and Prudential-Bache
Properties, Inc., a Delaware corporation ("PBP"). The general partners of
Insured I managed and controlled the affairs of Insured I prior to the
Consolidation.
The General Partners and their affiliates performed services for Insured I which
included: accounting and financial management; registrar; transfer and
assignment functions; asset management; investor communications; printing and
other administrative services. The amount of reimbursement from Insured I was
limited by the provisions of Insured I's Partnership Agreement. Insured I's
eleven properties were being managed by the Property Manager.
-28-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The expenses incurred to related parties for the nine months ended September 30,
1997 and the years ended December 31, 1996 and 1995 were as follows:
1997 1996 1995
-------- -------- --------
Expense reimbursement $ 79,935 $178,600 $128,586
Property management fees 352,397 420,157 410,177
-------- -------- --------
$432,332 $598,757 $538,763
======== ======== ========
The distributions earned by the general partners of Insured I for the nine
months ended September 30, 1997 and the years ended December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
General Partners
----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Special Distributions $ 326,454 $ 435,272 $ 435,272
Regular Distributions of Adjusted Cash
from Operations 27,273 36,364 36,364
--------- --------- ---------
$ 353,727 $ 471,636 $ 471,636
========= ========= =========
</TABLE>
NOTE 8 - Profit and Loss Allocation/Distribution
Aegis Realty, Inc. (After the Consolidation)
- - --------------------------------------------
Basic income per share is computed based on the net income for the three months
ended December 31, 1997 ($1,420,370), divided by the weighted average number of
shares outstanding for the period (8,050,727). Net income per unit information
for prior periods is not presented because it is not indicative of the Company's
continuing capital structure.
Diluted net income per share, which would reflect conversion of the minority
interests' OP units into an additional 46,836 shares of common stock, is the
same as basic income per share because the earnings of an OP unit are equivalent
to the earnings of a share of common stock.
Insured I (Prior to the Consolidation)
- - --------------------------------------
For financial reporting purposes, net profits or losses, after the Special
Distributions to the general partners, were allocated 99% to the holders of
beneficial unit certificates ("BUCs") representing assignments of limited
partnership interests (the "BUC$holders") and limited partners and 1% to the
general partners.
The general partners were paid a Special Distribution of adjusted cash from
operations equal to 0.5% of invested assets per annum, as defined in the
Partnership Agreement of Insured I, for managing the affairs of Insured I.
Distributions of cash based on adjusted cash from operations after payment of
Special Distributions as defined in the Partnership Agreement of Insured I, were
allocated 99% to the limited partners and BUC$holders and 1% to the general
partners.
NOTE 9 - Leases
Future minimum base rentals due from tenants under non-cancelable operating
leases as of December 31, 1997 were as follows:
Year Ending December 31 Amount
- - ----------------------- -----------
1998 $ 9,626,000
1999 8,787,000
2000 7,834,000
2001 7,128,000
2002 6,212,000
Thereafter 34,846,000
-----------
Total $74,433,000
===========
Certain leases require the lessees to reimburse the Company for real estate
taxes, insurance costs and certain other reimbursable expenses.
All sixteen shopping centers have tenants with leases that require payment of
percentage rent. Percentage rent is an amount paid by the tenant which
represents a portion of sales proceeds over a specified threshold amount as
called for in the lease.
NOTE 10 - Notes Payable
Upon the consummation of the Consolidation, the Company entered into a $2
million loan (the "Interim Loan") with BankBoston, N.A. ("BankBoston"). Proceeds
of the loan were used to pay costs incurred in the Consolidation. The $2 million
loan was secured
-29-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
by a first mortgage on the Westbird Shopping Center. The interest rate was fixed
at 1.625% above BankBoston's 30 day Euro-contract rate (7.5938% at December 31,
1997).
On December 30, 1997, the Company closed on a $40 million senior revolving
credit facility (the "Facility") from BankBoston. The Facility requires interest
only payments until maturity on December 30, 2000 and is secured by certain of
the Company's Retail Properties. Proceeds of the Facility will be used to
acquire primarily retail properties to add to the Company's current portfolio.
Upon closing of the Facility, $11,375,000 was drawn down to purchase two
shopping centers. The interest rate under the Facility can float 1/2% under
BankBoston's base rate or can be fixed in 30, 60, 90 and 180 day periods at
1.625% over the indicated Euro-contract rate at the option of the Company. The
rate at December 31, 1997 was 7.3438%. Pursuant to the Trust Agreement,
indebtedness under the Facility and other borrowings will not exceed 50% of the
Company's total market value as of the date such debt is incurred.
On March 4, 1998 the $2 million Interim Loan was repaid with an additional draw
down from the Facility.
The Company has a loan from New York Life Insurance Company with an outstanding
balance at December 31, 1997 of $5,169,242. It carries a 9.25% interest rate and
requires equal monthly payments of principal and interest in the amount of
$55,984 until June 10, 2000, at which time the balance of principal, together
with any unpaid interest, is due. The loan is collateralized by first mortgages
on Forest Park Shopping Center and Highland Fair Shopping Center.
The Company had a loan in the amount of $1,400,000 from Principal Mutual Life
Insurance Company ("Principal Mutual") at a fixed interest rate of 7.03% per
annum payable in equal monthly installments of $13,405 based on a 13.5 year
amortization schedule until January 1, 2010, at which time the unpaid principal
balance was due. On December 31, 1997, the Principal Mutual loan was repaid with
proceeds from the Facility.
Annual principal payment requirements as of December 31, 1997 for each of the
next five fiscal years and thereafter are as follows:
Year Ending Amount
- - ----------- -----------
1998 $ 2,202,078
1999 221,583
2000 11,617,971
2001 266,424
2002 292,140
Thereafter 3,944,046
-----------
$18,544,242
===========
The Company has determined that the carrying value of the notes payable
approximates their fair value at December 31, 1997 and 1996.
NOTE 11 - Stock Option Plan
The Board of Directors have adopted an incentive stock option plan (the
"Incentive Stock Option Plan"), the purpose of which is to (i) attract and
retain qualified persons as directors and officers and (ii) to incentivize and
more closely align the financial interests of the Advisor and its employees and
officers with the interests of the stockholders by providing the Advisor with
substantial financial interest in the Company's success. The Compensation
Committee shall be authorized and directed to administer the Incentive Stock
Option Plan. Pursuant to the Incentive Stock Option Plan, if the Company's
distributions per share of common stock in the immediately preceding calendar
year exceed $0.9869 per share, the Compensation Committee will have the
authority to issue options to purchase, in the aggregate, that number of shares
of common stock which is equal to three percent of the shares outstanding as of
December 31 of the immediately preceding calendar year (or, in the initial year,
as of October 1, 1997, provided, that the Compensation Committee may only issue,
in the aggregate, options to purchase a maximum number of shares of common stock
over the life of the Incentive Stock Option Plan equal to 10% of the shares
outstanding on October 1, 1997).
Subject to the limitations described in the preceding paragraph, if the
Compensation Committee does not grant the maximum number of options in any year,
then the excess of the number of authorized options over the number of options
granted in such year will be added to the number of authorized options in the
next succeeding year and will be available for grant to Potential Optionees by
the Compensation Committee in such succeeding year.
Pursuant to the Incentive Stock Option Plan, the Compensation Committee is not
authorized to grant any options until six months after the common stock has been
listed on the American Stock Exchange, so no options have been granted as of
December 31, 1997. All options granted will have an exercise price equal to or
greater than the fair market value of the shares of common stock on the date of
the grant. The maximum option term is ten years from the date of grant. All
stock options granted pursuant to the Incentive Stock Option Plan will vest
immediately upon issuance.
-30-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - Selected Quarterly Financial Data (unaudited)
Quarter ended
December 31, 1997
-----------------
Revenues:
Rental income $2,335,242
Recovery of common area maintenance charges 267,480
Real estate tax reimbursements 285,506
Income from equity investments 193,511
Interest income 710,738
Other 28,553
----------
Total revenues 3,821,030
----------
Expenses:
Repairs and maintenance 196,700
Real estate taxes 325,258
Interest 191,557
General and administrative 732,101
Depreciation and amortization 792,523
Other 154,258
----------
Total expenses 2,392,397
----------
Income before minority interest 1,428,633
Minority interest in income of the OP (8,263)
----------
Net income $1,420,370
==========
Net income per common share (basic and diluted) $ 0.18
==========
NOTE 13 - Pro Forma Information (unaudited)
The unaudited pro forma information set forth below presents the condensed
consolidated statements of income for the Company for the years ended December
31, 1997 and 1996 as if the acquisition had occurred on January 1, 1996. This
pro forma financial data does not purport to represent what the Company's
results of operations would actually have been had the Consolidation in fact
occurred on such date or is such data necessarily indicative of the Company's
results of operations for any future date or period.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
Year Ended
December 31,
---------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues $ 15,183,000 $ 14,903,000
============= =============
Net income $ 6,011,000 $ 5,704,000
============= =============
Net income per common share (basic and diluted) $ 0.75 $ 0.71
============= =============
</TABLE>
NOTE 14 - Settlement of Class Action Litigation
On August 28, 1997, the United States District Court for the Southern District
of New York (the "Court") issued its final approval order with respect to the
settlement (the "Related Settlement") of a putative class action (the "Class
Action") brought against, among others, the general partners of the Partnerships
and certain of their affiliates under the original caption Kinnes et. Al. V.
Prudential Securities Group, Inc., et. al. The Related Settlement was applicable
only to the general partners of the Partnerships affiliated with Related and
certain of their affiliates, since the other defendants in the Class Action had
previously entered into their own settlement agreement.
The Related Settlement was subject to objections by the BUC$holders, and to
final approval by the Court following a review of the settlement proposal at a
fairness hearing.
The Related Settlement included, among other matters, the Consolidation, the
acquisition by the Advisor of the general partner interests held by PBP in each
of the Partnerships (collectively, the "PBP Interest"), the transfer to the
BUC$holders of one-half of the
-31-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PBP Interest prior to the Consolidation and the reduction of fees which were
then payable to the general partners of the Partnerships by 25%.
As part of the Related Settlement and in the Court's sole discretion, counsel to
the BUC$holders ("Class Counsel") may receive additional attorney's fees payable
in the Company's shares, based upon 25% of the increase in value of the
Company's shares as of October 10, 1998 (the "Anniversary Date"). The number of
Company shares so issued shall be limited to a maximum of 3.95% of the total
number of shares outstanding on the Anniversary Date. The amount of shares to be
issued under this provision cannot presently be determined.
NOTE 15 - Commitments and Contingencies
The Company is subject to routine litigation and administrative proceedings
arising in the ordinary course of business. Management does not believe that
such matters will have a material adverse impact on the Company's financial
position, results of operations or cash flows.
A current or previous owner or operator of real property may be legally liable
for the costs of removal or remediation of hazardous or toxic substances on,
under or in such property. Such liability may exist whether or not the owner or
operator knew of, or was responsible for, such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances may adversely affect the
owner's ability to borrow funds using such real property as collateral. Certain
environmental laws impose liability for release of asbestos-containing materials
("ACMs") into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with ACMs. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be liable for removal or
remediation costs, as well as certain other potential costs which could relate
to such hazardous or toxic substances or ACMs (including governmental fines and
injuries to persons and property). To date, the Company has not incurred any
costs of removal or remediations of such hazardous or toxic substances. However,
the presence, with or without the Company's knowledge, of hazardous or toxic
substances at any property held or operated by the Company could have an adverse
effect on the Company's business, operating results and financial condition.
Phase I Environmental Site Assessments were undertaken on all of the Company's
properties in conformance with requirements for closing the BankBoston facility
(see Note 11). In certain cases, additional Phase II site investigations were
also undertaken where deemed appropriate. Based on these reports, no on-site
hazardous chemicals or petroleum products were detected or found to exist in the
soil or in the groundwater at any of the Company's properties which would result
in action by state environmental agencies and which would require additional
investigation and/or remediation, with the exception of the Mountain Park Plaza
property. A Phase II investigation at this property determined that there were
detectable levels of certain hazardous materials above threshold levels
ascertained by the Georgia State Department of Natural Resources Environmental
Protection Division ("GAEPD"). Based on this report and notification to GAEPD,
additional investigation, monitoring and/or remediation may be required by
GAEPD. These hazardous materials were determined to derive from an on-site dry
cleaner and an adjacent service station with a pre-existing, documented
underground leaking storage tank. Property management and the Company have taken
preliminary steps in providing appropriate notification to GAEPD on these
matters together with notification and possible remedies against both the
on-site dry cleaner and adjacent service station. Dependent on a numerical score
"ranking" for the site which is dependent on several factors (the most important
being the potential for human exposure to occur) the GAEPD may require
additional investigation and/or remediation. Management is unable, at this time,
to predict further requirements, if any, or the associated costs of monitoring
or remediation.
NOTE 16 - Subsequent Events
On March 31, 1998 the Company purchased Barclay Place Shopping Center in
Lakeland, Florida. The purchase price was $3,800,000 with $2,587,000 of debt
assumed with Heller Financial, Inc. The center has 81,459 gross rentable square
feet with Food Lion as anchor tenant. It is currently 85% occupied.
-32-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Incorporated by reference to the Registrant's definitive proxy statement to be
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Item 11. Executive Compensation.
Incorporated by reference to the Registrant's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Registrant's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Registrant's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
-33-
<PAGE>
PART IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
Page
----------
<S> <C> <C>
(a) 1. Financial Statements
--------------------
Independent Auditors' Report 18
Consolidated Balance Sheets as of December 31, 1997 and 1996 19
Consolidated Statements of Income - Years ended December 31, 1997, 1996 and 1995 20
Consolidated Statements of Changes in Shareholders' Equity/Partners'
Capital (Deficit) - Years ended December 31, 1997, 1996 and 1995 21
Consolidated Statements of Cash Flows - Years ended December 31,
1997, 1996 and 1995 22
Notes to Consolidated Financial Statements 24
(a) 2. Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts three years ended
December 31, 1997 44
Schedule III - Real Estate and Accumulated Depreciation and Notes to
Schedule - December 31, 1997 45
Schedule IV - Mortgage Loans of Real Estate at December 31, 1997 47
All other schedules have been omitted because they are not required
or because the required information is contained in the financial
statements or notes hereto.
(a) 3. Exhibits
--------
(3.1A) Articles of Incorporation dated as of August 13, 1996 (incorporated
by reference to the Company's Registration Statement on Form 10,
File No. 001-13239
(3.1B) Amended Articles of Incorporation dated as of September 26, 1996
(incorporated by reference to the Company's Registration Statement
on Form 10, File No. 001-13239)
(3.1C) Articles of Amendment and Restatement of Articles of Incorporation
dated as of October 1, 1997
(3.1D) Certificate of Correction dated as of October 22, 1997 (incorporated
by reference to the Company's Current Report on Form 8-K, filed with
the Commission on March 19, 1998)
(3.2) Bylaws (incorporated by reference to the Company's Current Report on
Form 8-K, filed with the Commission on March 19, 1998)
(4.1) Specimen Copy of Stock Certificate for shares of the Company's
Common Stock (incorporated by reference to the Company's Amendment
No. 1 on Form 10/A to the Company's Registration Statement on Form
10, File No. 001-13239)
(10A) Continental Casualty Company Insurance Policy issued to the Company,
incorporated by reference to Exhibit 10(C) to the Company's
Registration Statement on Form S-11, File No. 33-8755, as amended
(10B) Indemnity Agreement among Continental Casualty Company, the Company
and the General Partners, incorporated by reference to Exhibit 10(D)
to the Company's Registration Statement on Form S-11, File No.
33-8755, as amended
-34-
<PAGE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued).
Sequential
Page
----------
<S> <C> <C>
(10C) Management Agreement between RCC Property Advisors and the Company,
dated May 1, 1991, incorporated by reference to Exhibit 10(C) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991
(10D) Management Agreement between RCC Property Advisors and the Insured
II, dated May 1992. Incorporated by reference to Exhibit 10E to the
Insured II's Annual Report on Form 10-K for the year ended December
31, 1992
(10E) Secured Promissory Note between Principal Mutual Life Insurance
Company and Insured II dated December 11, 1992. Incorporated by
reference to Exhibit 10F to Insured II's Annual Report on Form 10-K
for the year ended December 31, 1992
(10F) Form of Purchase and Sale Agreement pertaining to Summit Preferred's
acquisition of Preferred Equity Investments, incorporated herein by
reference to exhibit 10C to Summit Preferred's S-11 Registration
Statement
(10G) Form of Amended and Restated Agreement of Limited Partnership of
Operating Partnerships, incorporated herein by reference to Exhibit
10B to Summit Preferred's S-11 Registration Statement
(10H) Mortgage Note, dated June 10, 1988, with respect to Cross Creek
Apartments in Charlotte, North Carolina, in the principal amount of
$17,494,100 (incorporated by reference to Exhibit 10(b) in Eagle's
Current Report on Form 8-K dated June 15, 1988)
(10I) Equity Loan Note, dated June 10, 1988, with respect to Cross Creek
Apartments in Charlotte, North Carolina, in the principal amount of
$1,783,900 (incorporated by reference to Exhibit 10(c) in Eagle's
Current Report on Form 8-K dated June 15, 1988)
(10J) Subordinated Loan Note, dated June 10, 1988, with respect to Cross
Creek Apartments in Charlotte, North Carolina (incorporated by
reference to Exhibit 10(d) in Eagle's Current Report on Form 8-K
dated June 15, 1988)
(10K) Mortgage Note, dated August 18, 1988, with respect to Weatherly Walk
Apartments in Fayetteville, Georgia, in the principal amount of
$7,772,500 (incorporated by reference to Exhibit 10(e) in Eagle's
Current Report on Form 8-K dated August 19, 1988)
(10L) Equity Loan Note, dated August 18, 1988, with respect to Weatherly
Walk Apartments in Fayetteville, Georgia, in the principal amount of
$895,200 (incorporated by reference to Exhibit 10(f) in Eagle's
Current Report on Form 8-K dated August 19, 1988)
-35-
<PAGE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued).
Sequential
Page
----------
<S> <C> <C>
(10M) Subordinated Loan Note, dated August 18, 1988, with respect to
Weatherly Walk Apartments in Fayetteville, Georgia (incorporated by
reference to Exhibit 10(g) in Eagle's Current Report on Form 8-K
dated August 19, 1988)
(10N) Mortgage Note, dated December 12, 1988, with respect to Woodgate
Manor in Gainesville, Florida, in the principal amount of $3,110,300
(incorporated by reference to Exhibit 10(h) in Eagle's Current
Report on Form 8-K dated December 12, 1988)
(10O) Equity Loan Note, dated December 12, 1988, with respect to Woodgate
Manor in Gainesville, Florida, in the principal amount of $339,700
(incorporated by reference to Exhibit 10(i) in Eagle's Current
Report on Form 8-K dated December 12, 1988)
(10P) Subordinated Promissory Note, dated December 12, 1988, with respect
to Woodgate Manor in Gainesville, Florida (incorporated by reference
to Exhibit 10(j) in Eagle's Current Report on Form 8-K dated
December 12, 1988)
(10Q) Loan Agreement with Walsh/Cross Creek Limited Partnership and Cross
Creek of Columbia, Inc. dated August 15, 1990 (incorporated by
reference to Exhibit 10(o) in Eagle's Annual Report on Form 10-K for
the period ended December 31, 1990)
(10R) Guarantee of Cross Creek Apartments by Stephen M. Ross (incorporated
by reference to Exhibit 10(p) in Eagle's Annual Report on Form 10-K
for the period ended December 31, 1991)
(10S) Guarantee Agreement, dated November 13, 1992, by and between the
Company and Stephen M. Ross (incorporated by reference to Exhibit
10(q) in Eagle's Annual Report on Form 10-K for the period ended
December 31, 1993)
(10T) Amendment to the Guarantee Agreement, dated October 20, 1993, by and
between the Company and Stephen M. Ross (incorporated by reference
to Exhibit 10(r) in Eagle's Annual Report on Form 10-K for the
period ended December 31, 1993)
(10U) Advisory Agreement dated as of October 1, 1997, between the Company,
Aegis Realty Operating Partnership, LP (the "OP") and Related Aegis
LP (the "Advisor") (incorporated by reference to the Company's
Current Report on Form 8-K, filed with the Commission on March 19,
1998)
-36-
<PAGE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued).
Sequential
Page
----------
<S> <C> <C>
(10V) Agreement and Plan of Consolidation dated as of October 1, 1997, by
and among the Company, the OP, Aegis Realty Holding Partnership, LP
("Aegis Holding"), AOP Merger Sub I, Inc. ("AOP Sub I"), AOP Merger
Sub II, Inc. ("AOP Sub II"), Summit Insured Equity L.P. ("Insured
I"), Summit Insured Equity II L.P. ("Insured II"), Summit Preferred
Equity L.P. ("Summit Preferred"), Eagle Insured L.P. ("Eagle"), the
Advisor, Related Insured Equity Associates, Inc. ("Related GP I"),
RIDC II, L.P. ("Related GP II"), Related Equity Funding, Inc.
("Related GP III"), Partnership Monitoring Corporation ("PMC"),
Related Federal Insured, L.P. ("Related GP IV"), Related Insured
BUC$ Associates, Inc., as assignor limited partner of Insured I and
Insured II ("Assignor LP I/II"), Related BUC$ Associates, Inc.
("Assignor LP III") and Related FI BUC$, Inc. ("Assignor LP IV")
(incorporated by reference to the Company's Current Report on Form
8-K, filed with the Commission on March 19, 1998)
(10W) Incentive Share Option Plan (incorporated by reference to the
Company's Current Report on Form 8-K, filed with the Commission on
March 19, 1998)
(10X) Omnibus Assignment Agreement dated as of October 1, 1997, by and
among the Company, the OP, Aegis Holding, AOP Sub I, AOP Sub II,
Insured I, Insured II, Summit Preferred, Eagle, the Advisor, Related
GP I, Related GP II, Related GP III, PMC, Assignor LP I/II, Assignor
LP III and Assignor LP IV (incorporated by reference to the
Company's Current Report on Form 8-K, filed with the Commission on
March 19, 1998)
(10Y) Revolving Credit Agreement dated as of December 29, 1997 by and
between the OP, as borrower and BankBoston, N.A. for itself and as
Agent (incorporated by reference to the Company's Current Reports on
Form 8-K, filed with the Commission on January 9, 1998.
(10Z) Management Agreement between the Company, Insured I, Insured II, the
OP and the Property Manager dated October 1, 1997 (filed herewith) 48
21 List of Subsidiaries (incorporated by reference to the Company's
Current Report on Form 8-K, filed with the Commission on March 19,
1998)
27 Financial Data Schedule (filed herewith) 63
(99A) Settlement Agreement between Mountain Park Plaza Limited Partnership
and Insured II dated October 16, 1992. Incorporated by reference to
Insured II's Annual Report on Form 10-K for the year ended December
31, 1992
(99B) Settlement Agreement between Rolling Hills Devco and Insured II
dated August 6, 1992. Incorporated by reference to Insured II's
Annual Report on Form 10-K for the year ended December 31, 1992
-37-
<PAGE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued).
Sequential
Page
----------
<S> <C> <C>
(b) Reports on Form 8-K
-------------------
Current report on Form 8-K relating to the settlement of class
action litigation which resulted in the formation of the Company,
dated October 1, 1997 and filed on October 14, 1997.
Current report on Form 8-K relating to the approval of a $40 million
senior revolving credit facility from BankBoston, N.A., dated and
filed on November 14, 1997.
Current report on Form 8-K relating to the closing of the $40
million senior revolving credit facility with BankBoston, N.A. and
the purchase of The Market Place and Birdneck Center, dated December
30, 1997 and filed on January 9, 1998.
</TABLE>
-38-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AEGIS REALTY, INC.
(Company)
Date: By: ______________________________
J. Michael Fried
Director, Chairman of the Board
and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
- - ------------------- Director, Chairman of the
J. Michael Fried Board and Chief Executive Officer
- - -------------------
Peter T. Allen Director
- - -------------------
Arthur P. Fisch Director
- - ------------------- Director, President and
Stuart J. Boesky Chief Operating Officer
Director, Senior Vice President,
- - ------------------- Chief Financial Officer and
Alan P. Hirmes Assistant Secretary
- - ------------------- Vice President, Treasurer, Controller
Richard A. Palermo and Chief Accounting Officer
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AEGIS REALTY, INC.
(Company)
Date: March 30, 1998 By: /s/ J. Michael Fried
--------------------
J. Michael Fried
Director, Chairman of the Board
and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Michael Fried Director, Chairman of the
- - ---------------------- Board and Chief Executive Officer March 30, 1998
J. Michael Fried
/s/ Peter T. Allen
- - ----------------------
Peter T. Allen Director March 30, 1998
/s/ Arthur P. Fisch
- - ----------------------
Arthur P. Fisch Director March 30, 1998
/s/ Stuart J. Boesky Director, President and
- - ---------------------- Chief Operating Officer March 30, 1998
Stuart J. Boesky
/s/ Alan P. Hirmes Director, Senior Vice President,
- - ---------------------- Chief Financial Officer and
Alan P. Hirmes Assistant Secretary March 30, 1998
/s/ Richard A. Palermo Vice President, Treasurer, Controller
- - ---------------------- and Chief Accounting Officer March 30, 1998
Richard A. Palermo
</TABLE>
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions
Year Ended Beginning During Deduction- Balance at
December 31 Name of Period* Year* Write-offs* End of Period
- - ----------- ------------------------------- ---------- ----- ----------- -------------
<S> <C> <C> <C> <C> <C>
1997 Allowance for Doubtful Accounts $303,000 $ 700,000 $ (69,000) $304,000
1996 Allowance for Doubtful Accounts $509,000 $ 58,000 $(264,000) $303,000
1995 Allowance for Doubtful Accounts $312,000 $ 248,000 $ (51,000) $509,000
</TABLE>
*Information prior to October 1, 1997 (the date of the Consolidation) is only
with respect to Insured I. Information subsequent to September 30, 1997 is with
respect to the Company and its subsidiaries which include Insured I and the
other Partnerships pursuant to the Consolidation.
<PAGE>
AEGIS REALTY, INC.
ITEM 14, SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to
Initial Cost to Partnership (F) Acquisition Purchase Price Adjustments (E)
-------------------------------- ------------ --------------------------------
Buildings and Buildings and
Land Improvements Improvements Land Improvements
----------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Shopping Centers:
Cactus Village $ 2,093,532 $ 4,631,948 $ 33,642 $ (42,583) $ (93,903)
Glendale, AZ
Hickory Plaza 1,288,328 3,931,633 11,604 (3,750) (11,250)
Nashville, TN
Highland Fair 1,288,328 5,059,079 96,736 (21,891) (60,437)
Gresham, OR
Pablo Plaza 2,147,213 5,922,120 27,845 (7,866) (21,693)
Jacksonville, FL
Southhaven 1,288,328 4,793,938 31,050 0 0
Southhaven, MS
Town West 1,932,491 3,303,752 20,814 0 0
Indianapolis, IN
Westbird 1,566,070 5,475,510 606,879 2,474 9,242
Miami, FL
Winery Square 4,320,555 8,916,731 109,429 (227,319) (477,165)
Fairfield, CA
Mountain View 2,675,960 8,661,498 85,972 (143,357) (475,472)
Village
Shellville, GA
Forest Park Square 1,532,064 7,822,819 10,000 (19,024) (99,866)
Cincinnati, OH
Kokomo Plaza 695,912 6,643,748 29,057 (8,784) (78,640)
Kokomo, IN
Rolling Hills Square 2,624,639 2,504,045 0 0 0
Tucson, AZ
Mountain Park Plaza 1,566,015 3,791,633 0 0 0
Atlanta, GA
Applewood Centre 1,795,469 4,574,757 0 0 0
Omaha, NE
Birdneck Center
Virginia Beach, VA 469,227 2,807,457 0 0 0
The Market Place
Newton, NC 810,910 4,825,351 0 0 0
----------- ----------- ---------- --------- -----------
$28,095,041 $83,666,019 $1,063,028 $(472,100) $(1,309,184)
=========== =========== ========== ========= ===========
<CAPTION>
Gross Amount at which
Carried At Close of Period (D)
------------------------------
Buildings and Accumulated
Land Improvements Total Depreciation
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shopping Centers:
Cactus Village $ 2,050,949 $ 4,571,687 $ 6,622,636 $ 1,216,400
Glendale, AZ
Hickory Plaza 1,284,578 3,931,987 5,216,565 1,048,306
Nashville, TN
Highland Fair 1,266,437 5,095,378 6,361,815 1,324,427
Gresham, OR
Pablo Plaza 2,139,347 5,928,272 8,067,619 1,599,373
Jacksonville, FL
Southhaven 1,288,328 4,824,988 6,113,316 1,300,588
Southhaven, MS
Town West 1,932,491 3,324,566 5,257,057 907,382
Indianapolis, IN
Westbird 1,568,544 6,091,631 7,660,175 1,624,048
Miami, FL
Winery Square 4,093,236 8,548,995 12,642,231 2,208,071
Fairfield, CA
Mountain View 2,532,603 8,271,998 10,804,601 1,936,312
Village
Shellville, GA
Forest Park Square 1,513,040 7,732,953 9,245,993 1,703,823
Cincinnati, OH
Kokomo Plaza 687,128 6,594,165 7,281,293 1,438,013
Kokomo, IN
Rolling Hills Square 2,624,639 2,504,045 5,128,684 31,725
Tucson, AZ
Mountain Park Plaza 1,566,015 3,791,633 5,357,648 30,505
Atlanta, GA
Applewood Centre 1,795,469 4,574,757 6,370,226 35,644
Omaha, NE
Birdneck Center
Virginia Beach, VA 469,227 2,807,457 3,276,684 0
The Market Place
Newton, NC 810,910 4,825,351 5,636,261 0
----------- ----------- ------------ -----------
$27,622,941 $83,419,863 $111,042,804 $16,404,617
=========== =========== ============ ===========
<CAPTION>
Life on which
Depreciation in
Latest Income
Year of Date Statement is
Construction Acquired Computed
------------ -------- ------------
<S> <C> <C> <C>
Shopping Centers:
Cactus Village 1986 July 1987 40 years
Glendale, AZ
Hickory Plaza 1974 (A) Apr. 1987 40 years
Nashville, TN
Highland Fair 1986 July 1987 40 years
Gresham, OR
Pablo Plaza 1972 (B) Feb. 1987 40 years
Jacksonville, FL
Southhaven 1984 (C) Feb. 1987 40 years
Southhaven, MS
Town West 1985 May 1987 40 years
Indianapolis, IN
Westbird 1977 Dec. 1986 40 years
Miami, FL
Winery Square 1987 Dec. 1987 40 years
Fairfield, CA
Mountain View 1987 July 1988 40 years
Village
Shellville, GA
Forest Park Square 1988 May 1989 40 years
Cincinnati, OH
Kokomo Plaza 1988 May 1989 40 years
Kokomo, IN
Rolling Hills Square 1980 Oct. 1997 30.5 years
Tucson, AZ
Mountain Park Plaza 1988 Oct. 1997 31.2 years
Atlanta, GA
Applewood Centre 1989 Oct. 1997 33.1 years
Omaha, NE
Birdneck Center
Virginia Beach, VA 1987 (G) Dec. 1997 40 years
The Market Place
Newton, NC 1989 Dec. 1997 40 years
</TABLE>
<PAGE>
AEGIS REALTY, INC.
ITEM 14, SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(A) Renovated and expanded in 1985.
(B) Expanded and remodeled from 1983 through 1985.
(C) Expanded in 1986.
(D) Aggregate cost for federal income tax purposes is $117,621,110.
(E) Amounts received and accrued from sellers' rental guarantees from the
sellers of the properties purchased by the Company.
(F) Included in buildings and improvements are acquisition fees.
(G) Expanded in 1997.
<TABLE>
<CAPTION>
Reconciliation of Real Estate Owned:
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period: $ 85,512,224 $85,800,450 $85,746,259
Acquisitions 25,769,503 0 0
Improvements 36,282 119,325 110,637
Write-off of improvements (275,205) (407,551) (41,446)
Purchase price adjustments 0 0 (15,000)
------------ ----------- -----------
Balance at close of period: $111,042,804 $85,512,224 $85,800,450
============ =========== ===========
<CAPTION>
Reconciliation of Accumulated Depreciation:
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period: $14,841,244 $13,262,215 $11,514,796
Depreciation Expense 1,835,782 1,986,580 1,788,865
Write-off of accumulated depreciation
of improvements (272,409) (407,551) (41,446)
----------- ------------- ------------
Balance at close of period: $16,404,617 $14,841,244 $13,262,215
=========== =========== ===========
</TABLE>
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
Schedule IV - Mortgage Loans on Real Estate
December 31, 1997
<TABLE>
<CAPTION>
Periodic Carrying
Final Payment Face Amount Amount
Interest Closing Maturity Terms Prior of Mortgage of Mortgage
Description (1) Rate (2) Date Date (3) (4)(5) Liens Loans Loans(6)(7)(8)
- - --------------- -------- ------- -------- ------ ----- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Loans:
Cross Creek
Apartments (9) 8.95% 6/10/88 1/1/30 Monthly None $17,494,100 $19,195,048
Weatherly Walk
Apartments 8.95% 8/18/88 11/1/29 Monthly None 7,772,500 8,474,829
Woodgate Manor (9) 8.95% 12/12/88 1/1/24 Monthly None 3,110,300 3,311,118
----------- -----------
$28,376,900 $30,980,995
=========== ===========
</TABLE>
(1) All properties are multifamily residential apartment complexes.
(2) Includes a servicing fee of 0.07% paid by the mortgagor to Related
Mortgage Corporation (an affiliate of the Advisor).
(3) The Company may call for prepayment of the total loan at any time after
the tenth anniversary of the date the mortgage loan was funded.
(4) Monthly payments include principal and interest and are made at a level
amount over the life of the mortgage loan until maturity. See discussion
regarding additional interest in Item 1, "Business-Mortgage Loans."
(5) Beginning in the sixth year after each Mortgage Loan's closing date, any
prepayment during one calendar year in an amount in excess of 15% of the
original principal amount of the mortgage loan will be subject to a
prepayment penalty. The prepayment penalty is 5% in the sixth year and
decreases 1% per year thereafter.
(6) Carrying amount of mortgage loans for the year ended December 31:
1997
-----------
Balance at October 1, 1997 $31,049,146
Amortization of purchase accounting premiums (28,157)
Collections of principal (39,994)
-----------
Ending Balance $30,980,995
===========
(7) The aggregate cost of the mortgage loans for Federal income tax purposes
at December 31, 1997 is $27,468,488. The difference in aggregate cost is
due to the purchase accounting premiums recorded for financial statement
purposes.
(8) All mortgage loans are current with respect to principal and interest.
(9) The General Partnership interest of the mortgagor is held by an
affiliate of the Advisor.
MANAGEMENT AGREEMENT
THIS AGREEMENT, dated the 1st day of October, 1997, is made by and between AEGIS
REALTY, INC. SUMMIT INSURED EQUITY L.P., SUMMIT INSURED EQUITY II L.P. AND AEGIS
REALTY OPERATING PARTNERSHIP, L.P. as ("OWNER") and RCC PROPERTY ADVISORS,
("RCC"), A Florida General Partnership, by its General Partner PRR Realty
Associates, Inc.
P R E A M B L E
---------------
OWNER owns certain properties located as indicated in Exhibit "A". The
properties, together with the improvements constructed thereon, are operated as
shopping centers under the names indicated in Exhibit "A", and hereinafter known
as the "PROJECTS".
OWNER desires to retain the services of RCC as its exclusive managing agent and
as its exclusive leasing and brokerage agent, in accordance with the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. AGENCY. OWNER hereby appoints RCC as its exclusive managing agent, on an
independent contractor basis and not as an employee of OWNER, and RCC hereby
accepts the appointment, subject to the terms and conditions of this Agreement.
2. DUTIES OF MANAGER. RCC shall, on behalf of and as agent for and at the
expense of OWNER, perform all services reasonably required in connection with
the prudent day-to-day management and operation of the PROJECTS. RCC agrees to
provide and perform the services and duties required of it in a prudent manner,
and shall diligently and faithfully manage and operate the PROJECTS in
accordance with standards reasonably applicable to projects of similar size and
character and, subject to the terms hereof, in compliance with all mortgages,
leases, budgets, cash and financial constraints and other Agreements it knows of
and or is made or becomes aware of pertaining to or governing the operation of
the PROJECTS, in compliance with the requirements of all controlling
governmental authorities, and in compliance with reasonable directions made by
OWNER from time to time.
2.01 After the execution of this Agreement, prior to the commencement date
of each calendar year thereafter (if this Agreement is still in full force and
effect), to submit to OWNER for OWNER's approval, proposed operating budgets for
the PROJECTS, setting forth the estimated receipts and expenses relating to the
PROJECTS for the ensuing calendar year. From time to time during the calendar
year as and when revisions in the APPROVED BUDGET become necessary both the
OWNER and RCC shall review and agree on same. If OWNER does not approve of any
budget submitted by RCC, OWNER shall give RCC written notice of such disapproval
within ten (10) days after the budget is submitted to OWNER, which notice shall
specify the line items or amounts that are not approved by OWNER and shall set
forth reasonable alternative line items and/or amounts
<PAGE>
satisfactory to OWNER. If such written notice of disapproval is not received by
RCC within ten (10) days, then the budget shall be deemed approved by the OWNER,
subject to above noted revisions. If RCC agrees to OWNER's changes in any
budget, RCC shall so notify OWNER in writing within ten (10) days after receipt
of OWNER's notice, and if not then the parties shall meet or discuss in good
faith and resolve any differences within thirty (30) days after RCC's receipt of
OWNER's revised budget. The operating budget, as approved by the OWNER is
hereinafter referred to as the "APPROVED BUDGET". RCC shall in good faith use
its best efforts as economically reasonable and typical to implement the
APPROVED BUDGET and shall be authorized, without the need for further approval
of OWNER, to make the expenditures and incur the obligations provided for in the
APPROVED BUDGET. In the event that a submitted budget is rejected by OWNER, RCC
shall operate under the last APPROVED BUDGET on an item-by-item basis until a
revised budget is approved in writing by OWNER.
2.02 To use its best efforts to lease space now or hereafter becoming
vacant, including but not limited to the subcontracting to local agents, a
portion of same.
2.03 OWNER shall from time to time establish and notify RCC in writing of
reasonable guidelines for the basic rents, terms and provisions to be contained
in tenant leases, and RCC may execute leases as OWNER's agent and on behalf of
OWNER on terms not less favorable to OWNER than those set forth in such
guidelines, or on such other terms as are approved by OWNER in writing. OWNER
has set out an approved lease form and shall have the right to direct RCC as to
reasonable lease terms to be utilized in the leasing of space within the
PROJECTS and, in that event, RCC shall be authorized to execute leases for the
PROJECTS on such form(s); provided, however, no such lease shall contain any
changes which are material and adverse to OWNER, without OWNER's prior consent.
In addition to RCC'S authority granted herein to execute leases as OWNER's
agent, at the request of RCC, and upon OWNER's approval, OWNER will execute a
lease or give RCC specific authority to execute a lease otherwise found
acceptable to OWNER.
2.04 To perform all OWNER's obligations to the tenants of the PROJECTS
pursuant to the various tenant leases, and to respond to all tenant requests and
complaints.
2.05 To collect all rents and other monies of any kind whatsoever due OWNER
from tenants and to take any and all action which is reasonably necessary to
enforce such collection of rents due OWNER from the various tenants of the
PROJECTS or enforce their respective lease obligations, include filing of suit;
to sign and serve in the name of OWNER such notices as are deemed necessary by
RCC in enforcement of the tenant leases; to institute and prosecute legal
actions or proceedings for the collection of rent and other monies due OWNER,
the enforcement of the PROJECTS' leases and/or the dispossession of the various
tenants of the PROJECTS, and in connection therewith to engage legal counsel,
and where expedient, to settle, compromise and release such actions or
proceedings or reinstate such tenancies.
2.06 To advise the OWNER promptly, with confirmation in writing, of the
service upon or delivery to RCC of any summons, subpoena, or other legal
document including, without limitation, notices, letters or other communications
setting out or claiming an actual or alleged potential liability of OWNER or any
violation of any statute, ordinance, law or other governmental rule or
regulation.
<PAGE>
2.07 To promptly notify OWNER of any actual or threatened condemnation
which RCC has actual notice of and which may effect the PROJECTS or the area in
the general vicinity thereof.
2.08 To obtain and renew such permits and licenses as shall be necessary in
connection with the management and operation of the PROJECTS and comply where
reasonably possible with all statutes, ordinances, laws or other governmental
rules or regulations.
2.09 To contract for, purchase and pay for all utilities, repairs,
maintenance, services, alterations, equipment, personal property, supplies and
materials as may be deemed necessary or appropriate from time to time in
connection with the prudent management and operation of the PROJECTS, and to do
all things necessary to maintain the PROJECTS in a clean, safe and orderly
condition, subject to the limitations set forth in Section 3.
2.10 To administer and supervise all contracts on Owner's behalf, and the
obligations of the contracting parties, for all services, labor and materials to
be supplied to or for the PROJECTS.
2.11 To promptly and timely pay all debts and other obligations of OWNER
with respect to the PROJECTS, including amounts due pursuant to mortgage loans
encumbering the PROJECTS, and all sales and use taxes, and real estate taxes,
assessments, and like charges, unless otherwise directed by OWNER, providing
cash is available to do so.
2.12 To establish and maintain, as are now provided, accurate and complete
books of account with proper entries of all receipts, income and disbursements
pertaining to the PROJECTS, which books of account shall be and remain the
property of OWNER and shall be available to OWNER and its representative for
inspection at any time during regular business hours, and to prepare and furnish
reasonable financial reports and statements of the PROJECTS activities in
accordance with provisions of Section 6 of this Agreement.
2.13 To review all bills and statements received for services, work,
supplies and other expenditures incurred by or on behalf of OWNER in connection
with the maintenance, operation and property level ownership of the PROJECTS and
to pay or cause to be paid in a timely fashion all such expenses, unless
otherwise directed by OWNER.
2.14 To review and make comment on, at the request of OWNER, all hazard,
liability and other insurance carried for or by OWNER in connection with the
PROJECTS. All insurance liability policies shall name RCC, its agents and
employees as an additional insured, and shall provide that the policy may not be
canceled or the coverage reduced without at least thirty (30) days written
notice to RCC. RCC shall have the power and authority to settle and compromise
claims against insurance companies, provided however that in the event any
settlement would be insufficient to cover any loss incurred by, or claim against
OWNER for which the insurance proceeds are payable (exclusive of any deductible)
RCC shall not settle or compromise such claim without the written consent of
OWNER.
2.15 To perform any and all other acts, and to take any and all other
action, reasonably necessary or appropriate in the prudent management and
operation of the PROJECTS.
<PAGE>
3. LIMITATIONS ON AUTHORITY. Notwithstanding anything contained herein to the
contrary, without the prior consent of OWNER, RCC shall not:
3.01 Execute any contract, purchase or pay for any item or thing; or incur
any indebtedness on behalf of OWNER, exceeding in any instance the sum of $2,500
except where the expense incurred is specifically provided for in the APPROVED
BUDGET. In addition, emergency repairs, including, but not limited to, those
immediately necessary for the preservation and safety of the PROJECTS or the
tenants or other persons, or required to avoid the suspension of any necessary
service to the PROJECTS or to comply with any applicable, laws, order or
regulation may be made by RCC, if RCC is unable to communicate promptly with
OWNER, provided RCC notifies OWNER.
4. ACCOUNTS. All monies received by RCC for or on behalf of OWNER shall be
deposited in an account(s) in the name of the OWNER, in a financial
institution(s) to be approved by OWNER. All funds deposited in OWNER's account
and not applied to the payment of OWNER's expenses as herein provided, shall be
retained in OWNER's account(s) until such time as OWNER deems that there are
excess funds to be distributed to the OWNER.
5. EXPENSES. Except as otherwise provided in this Agreement, all expenses of any
kind or nature which are incurred or to be incurred in connection with the
operation, leasing, ownership, maintenance, repair, or improvement of the
PROJECTS, shall be the responsibility and obligation of OWNER, and OWNER agrees
to indemnify and hold RCC and its agents and employees, harmless from claims
action, liability, loss, damage, or a suit arising from such above referenced
events or services or actions. Such expenses shall include RCC's cost for
postage, long distance phones, overnight delivery service (Federal Express, UPS
or other) and travel ( a minimum of two visits per calendar year) related to the
PROJECTS. To the extent available, all such expenses shall be paid out of the
income from the PROJECTS, and to the extent sufficient funds are not available
OWNER shall pay or advance funds for the payment of such expenses which have
been or are to be incurred out of its own funds upon written demand by RCC. In
the event OWNER fails to pay an expense in connection with the PROJECTS, RCC
shall have the right (but not the obligation) to (i) pay for such expense and in
that event RCC shall have the option to deduct the amount paid by RCC from
future income of the PROJECTS and retain same as reimbursement for such payment;
and/or (ii) send written notice to OWNER demanding a reimbursement for such
payment in which event OWNER shall reimburse RCC in full within ten (10) days of
such demand. In any event, failure by OWNER to pay any expense incurred or to be
incurred in connection with the PROJECTS shall constitute a default of this
Agreement.
6. FINANCIAL AND INCOME TAX REPORTS. RCC shall prepare and distribute to OWNER,
or parties specified by OWNER, the following financial and income tax reports
and information:
6.01 Within fifteen (15) days after the end of each calendar month, except
the months which end a calendar quarter, a statement of assets, liabilities and
OWNER's equity/deficit, a statement of income and expenses and such other
statements as may be reasonably requested by OWNER.
6.02 Within thirty (30) days after the end of OWNER's tax year, if
requested in writing by
<PAGE>
the OWNER, the necessary supporting schedules from the books of account for
submission to the accountants designated by OWNER for the preparation of Federal
Income Tax, State Income Tax, Personal Property and Intangible Tax returns and
any filings required by the SEC, or caused by the nature of the REIT structure
of the OWNER.
7. EMPLOYEES. RCC shall have the right to utilize its own employees in
connection with the performance of maintenance and other services for the
PROJECTS, and in that event OWNER shall reimburse for the reasonable cost of
such services while being performed for OWNER, including, but not limited to,
salary, fringe benefits, payroll taxes and other employee costs. Notwithstanding
the foregoing, OWNER shall not be required to reimburse RCC for costs associated
with its executive or administrative personnel, unless special services are
required and requested. Additional management charges to OWNER, requires OWNER'S
written consent.
8. SECURITY DEPOSITS. Unless OWNER directs otherwise, all security deposits
collected by RCC pursuant to the various tenant leases shall be remitted to
OWNER unless required to be held in escrow. OWNER shall be responsible for the
payment of all or any portion of any security deposit to be returned to any
tenant, if sufficient funds are otherwise unavailable to RCC from the operations
of the project.
9. TERM
9.01 This Agreement shall commence on the 1st day of October 1997 , and
shall continue in full force and effect for an INITIAL TERM of one (1) year from
such commencement date, and thereafter, shall be automatically extended for
successive terms of one (1) year, unless either party elects not to extend the
term by delivering written notice to the other party at least ninety (90) days
prior to the expiration of the then existing term, or unless this Agreement is
otherwise terminated as hereinafter provided.
9.02 After not less than thirty (30) days notice, or upon the transfer of
title to the PROJECTS by OWNER to a person or entity that is independent of
OWNER, either party may terminate this Agreement, provided, however, that in the
event OWNER executes a contract for sale or option to sell the PROJECTS, OWNER
shall forthwith notify RCC in writing that said contract has been executed and
as to the approximate closing date.
9.03 In the event of default by either party which is not cured as soon as
reasonably practical after a written notice specifying the default is delivered
to the defaulting party and in any event within ten (10) days as to a monetary
default, and thirty (30) days as to a non-monetary default, except that if such
non-monetary default is not capable of being cured within such thirty (30) days
then this period of time will be extended for a reasonable amount of time so
long as to the defaulting party is diligently proceeding to cure such default,
then the non-monetary defaulting party may terminate this Agreement immediately
upon written notice to the defaulting party.
9.04 In the event either party is adjudicated as bankrupt, or institutes
legal proceedings seeking relief for protection from its creditors, or in the
event a receiver or trustee is appointed to take possession of all or a
substantial portion of the assets of such party, then either party may
<PAGE>
immediately upon written notice by the other party, terminate this Agreement.
9.05 If RCC fraudulently misuses any funds held by it on behalf of OWNER or
engages in any other fraudulent conduct, OWNER may terminate this Agreement
immediately upon written notice to RCC, provided however that if such misconduct
is engaged in by an employee other than a principal of RCC, OWNER shall not have
the right to terminate this Agreement if RCC immediately compensates OWNER for
any and all losses, costs and expenses incurred by OWNER as a result thereof,
and RCC evidences to OWNER's reasonable satisfaction that it has terminated the
employment of such employee and it has taken appropriate steps reasonably
satisfactory to OWNER to provide safeguards to ensure that such misconduct will
not occur in the future by any other employees.
9.06 Upon termination of this Agreement for any reason, and payment of any
fees due RCC, RCC shall delivery to OWNER all leases, accounting records and
files relating to the PROJECTS, and all funds of OWNER then remaining in RCC's
possession, together with such authorizations and letters of direction addressed
to tenants, occupants, suppliers, employees, bankers and other parties as OWNER
may reasonably require; and RCC shall cooperate with OWNER in the transferring
of management responsibilities to OWNER or its designee.
10. INDEMNIFICATION. OWNER agrees to indemnify and hold RCC harmless, from
and against any and all claims, costs, damages, liabilities, and expenses of any
kind or nature whatsoever, including attorney's fees and court costs, arising
out of the management or operation of the PROJECTS, or from damages or injuries
to persons or property resulting from any cause whatsoever in, on or about the
PROJECTS and, at OWNER's cost and expense, to defend any action or proceeding
against RCC arising therefrom. Notwithstanding the foregoing, OWNER shall not be
required to indemnify RCC against claims or damages suffered as a result of the
gross negligence or willful misconduct of RCC, or any willful violation by RCC
of any applicable statute, ordinance, law or governmental rule or regulation, or
any act outside of the authority granted RCC pursuant to this Agreement on the
part of RCC, and RCC agrees to indemnify and hold OWNER harmless from and
against all claims and damages arising out of the foregoing, including OWNER's
reasonable attorney's fees and court costs.
11. NOTICES. All written notices to be given pursuant to this Agreement
shall be given in writing at the following addresses unless either party
notifies the other party in writing of a change of address:
11.01 OWNER: AEGIS REALTY, INC., SUMMIT INSURED EQUITY L.P., SUMMIT
INSURED EQUITY II L.P. AND AEGIS REALTY OPERATING
PARTNERSHIP, L.P.
c/o Bruce Brown
The Related Companies
625 Madison Avenue
Suite 900
New York, NY 10022
<PAGE>
11.02 RCC: RCC Property Advisors, A Florida General Partnership
By: PRR Realty Associates, Inc. a
Florida corporation, General Partner
15127 Jog Road, Suite 210
Delray Beach, Florida 33446
Notice by certified mail, return receipt requested, shall be effective the day
after mailing, and notice any other means shall only be effective upon receipt
by the party being notified.
12. DAMAGE, CONDEMNATION AND FORCE MAJEURE.
12.01 Damage and Repair. Intentionally Omitted
12.02 Condemnation. In the event all or substantially all of the
PROJECTS are taken in any eminent domain, condemnation, or similar proceeding by
any governmental or quasi-governmental authority, this Agreement shall terminate
as of the date such taking is final, and OWNER and RCC shall each have the right
to initiate such proceedings as they deem advisable to recover any damages to
which they may be entitled due to such taking.
12.03 Force Majeure. If acts of war, civil disturbance, governmental
action, including the revocation of any license or permit necessary for the
operation of the PROJECTS where such revocation is not due to RCC's fault, or
any other cause beyond the control of RCC, shall in RCC's reasonable opinion
have a significant adverse effect upon the operations of the PROJECTS, then RCC
shall be entitled to terminate this Agreement upon thirty (30) days written
notice to OWNER.
13. EXTRAORDINARY SERVICES. The parties acknowledge that the services to be
performed by RCC hereunder only include the normal and customary activities,
associated with the day-to-day management and operation of the PROJECTS, and do
not include extraordinary services such as activities associated with the repair
or reconstruction of the PROJECTS or any portion thereof after damage or
destruction by casualty; activities associated with substantial renovation and
remodeling, or compliance with new governmental requirements that may impose
extraordinary burdens upon RCC. However, RCC may agree to perform such services
on behalf of OWNER by written agreement of the parties, for an additional fee to
be agreed upon, as set forth in Exhibit B.
14. ADDITIONAL MANAGEMENT SERVICES. Notwithstanding anything contained
herein to the contrary, the OWNER acknowledges that RCC, at OWNER's request,
will perform certain additional management services for or on behalf of OWNER.
These additional management services shall include the preparation and filing of
governmental required reports; coordination of the preparation and filing of
Federal and State Income tax returns; administration of partnership, loan,
mortgage and similar agreements for compliance with specific terms and
conditions contained therein; coordination of legal and other professional
services; preparation of various reports beneficial to the OWNER; and certain
other additional management services that may be reasonably requested by
<PAGE>
OWNER. RCC further agrees to perform these additional management services for
the management fee set forth in Exhibit B.
Further both OWNER and RCC agree that by the attached letter (Exhibit "C"),
additional PROJECTS may be added to the Contract at the same rate, cost and
expense ,under the same terms and conditions as provided for herein.
15. SALE OR FINANCING OF THE PROJECT. Intentionally Omitted
16. ASSIGNMENT. Neither party shall have the right to assign the Agreement,
or any rights or obligations herein, without the prior written consent of the
other party.
17. BINDING EFFECT. This Agreement is binding upon the successors and
assigns of the parties hereto.
18. COMPLETE AGREEMENT. This Agreement constitutes the complete agreement
of the parties, and no prior written or oral agreements or understandings shall
be of any force or effect.
19. ATTORNEY'S FEES. In the event either party commences litigation in
order to enforce its rights hereunder, the prevailing party in such litigation
shall be entitled to recover its costs and reasonable attorney's fees from the
other party.
20. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Florida.
21. AMENDMENTS. All amendments or modifications to this Agreement shall be
in writing and signed by the parties, and no oral amendments or modifications
shall be enforceable.
22. CAPTIONS. Captions utilized in this Agreement are for reference
purposes only and shall be used to interpret, limit and define the terms and
provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated below:
OWNER: AEGIS REALTY, INC.
/s/ Linda Garcia By: [ILLEGIBLE]
---------------------------- ----------------------------------
Name:
---------------------------- ----------------------------------
WITNESSES: Date:
----------------------------------
OWNER: SUMMIT INSURED EQUITY L.P.
a Delaware Limited Partnership,
By: AEGIS Realty Operating
Partnership, L.P.,
Its General Partner
By: AEGIS Realty, Inc.,
Its General Partner
/s/ Linda Garcia By: [ILLEGIBLE]
---------------------------- ----------------------------------
Name:
---------------------------- ----------------------------------
WITNESSES: Date:
----------------------------------
OWNER: SUMMIT INSURED EQUITY II L.P.
a Delaware Limited Partnership,
By: AEGIS Realty Operating
Partnership, L.P.,
Its General Partner
By: AEGIS Realty, Inc.,
Its General Partner
/s/ Linda Garcia By: [ILLEGIBLE]
---------------------------- ----------------------------------
Name:
---------------------------- ----------------------------------
WITNESSES: Date:
----------------------------------
OWNER: AEGIS REALTY OPERATING
PARTNERSHIP, L.P.
By: AEGIS Realty, Inc.
Its General Partner
/s/ Linda Garcia By: [ILLEGIBLE]
---------------------------- ----------------------------------
Name:
---------------------------- ----------------------------------
WITNESSES: Date:
----------------------------------
MANAGER:
RCC PROPERTY ADVISORS
a Florida Partnership
By: PRR REALTY ASSOCIATES, INC.
a Florida Corporation,
General Partner
/s/ Linda Garcia By: /s/ Paul R. Rutledge
---------------------------- ----------------------------------
Paul R. Rutledge
---------------------------- As President for the Corporation
WITNESSES:
<PAGE>
Exhibit A
Schedule of Projects
Name Address City Size
1. Westbird 11423-11499
S.W. 40th Street Miami, FL 100,087
2. Pablo 1822-2280
South Third Street Jacksonville Bch, FL 140,922
3. Hickory 5753-5771
Nolensville Rd. Nashville, TN 67,336
4. Southaven 453-521
Stateline Rd. Southaven, MS 83,750
5. Townwest 5615-5633
W. 38th Street Indianapolis, IN 88,200
6. Cactus 4312-4414
West Cactus Rd. Phoenix, AZ 72,598
7. Highland 901 S.W. Highland Drive Gresham, OR 74,764
8. Winery 1955 W. Texas Street Fairfield, CA 121,950
9. Mt. View 4002 U.S. Highway 78 Snellville, GA 99,908
10. Rolling Hills 7012-7076
E. Golf Links Rd. and
513-631 S. Kolb Rd. Tucson, AZ 101,864
11. Kokomo S. Reed Rd. Kokomo, IN 89,546
12. Forest Park 1212-1250
W. Kemper Rd. Cincinnati, OH 92,824
13. Mt. Park 4750 Alabama Rd. Roswell, GA 77,686
14. Applewood 96th & "Q" Streets Omaha, NE 101,130
<PAGE>
EXHIBIT "B"
COMPENSATION. In consideration for the performance of its duties hereunder, RCC
shall be entitled to receive and OWNER shall pay the RCC the following
compensation:
MANAGEMENT FEE. Each month OWNER shall pay to RCC a management fee equal to four
and one half (4.5%) percent of the gross receipts, collections, or revenues as
hereinafter defined, actually collected by RCC for OWNER's account after the
date hereof until the termination of this Agreement, whichever is greater. Said
fee shall be payable monthly no later than ten (10) days after the end of each
calendar month, based upon the gross receipts, collections or revenues collected
during said calendar month. Gross receipts, collections or revenues shall mean
all amounts collected from tenants, subtenants and occupants of the PROJECTS,
including but not limited to minimum rent, percentage rent, payments collected
in excess of fixed rents on account of real estate taxes, common area
maintenance, utility charges or similar costs. The management fee shall be
prorated on a per diem basis for any portion of the first and last month for
which this Agreement shall be in effect.
RCC is hereby authorized and instructed to disburse compensation established in
this section from any funds held on or for the account of OWNER. If such funds
held on or for OWNER's account are insufficient to satisfy compensation due RCC
hereunder, RCC shall invoice OWNER for such unsatisfied portion and OWNER shall
pay to RCC all such amounts within ten (10) days.
LEASING FEE. OWNER hereby engages the services of RCC, as its exclusive leasing
agent. As to each tenant lease for the PROJECTS entered into by OWNER while this
Agreement is in effect, OWNER shall pay RCC, a leasing fee equal to the sum of
the amounts derived by multiplying the various percentages included in the
following schedule by the minimum rental and all charges to be paid during the
applicable lease year(s) of the INITIAL TERM of the lease, including fixed
minimum rent increases specified or minimum percentage increases or increases
otherwise determinable.
Percentage Lease Year
-----------------------
5% 1 through 5 of INITIAL TERM
3% 6 through end of INITIAL TERM
An additional leasing fee equal to one-half (1/2) of the amount computed to
the above-mentioned shall be paid on the renewal, extension, or expansion of any
tenant lease which is in occupancy or under lease, but by its terms does not
provide a right or option to renew or extend at an agreed upon and specified
rental rate, or if the rent for a renewal, extension, or expansion period is
renegotiated, to add to the existing term.
One-half of the leasing fee shall be paid to RCC upon the execution of the
lease by OWNER and the tenant, and the balance of the leasing fee shall be paid
to RCC on the commencement date of the lease.
<PAGE>
As the exclusive leasing agent for the PROJECTS, RCC, shall co-operate with
its sub-contracted agents and/or any independent licensed real estate brokers or
agents and, in the event that any such broker or agent procures a tenant lease
then RCC's fee shall be increased by one half for each year of the INITIAL TERM
as defined under LEASING FEE above and shall be shared between RCC and such
independent broker or agent as they agree.
The foregoing fees shall be net of any and all costs and expenses incurred
by RCC in connection with and pursuant to this Agreement, provided; however,
that RCC shall bear the cost of their own overhead for the home office of RCC
and the salaries of their own officers and employees, except as elsewhere
provided.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Exhibit on the dates
indicated below:
/s/ Linda Garcia By: [ILLEGIBLE]
---------------------------- ----------------------------------
Name:
---------------------------- ----------------------------------
WITNESSES: Date:
----------------------------------
OWNER: SUMMIT INSURED EQUITY L.P.
a Delaware Limited Partnership,
By: AEGIS Realty Operating
Partnership, L.P.,
Its General Partner
By: AEGIS Realty, Inc.,
Its General Partner
/s/ Linda Garcia By: [ILLEGIBLE]
---------------------------- ----------------------------------
Name:
---------------------------- ----------------------------------
WITNESSES: Date:
----------------------------------
OWNER: SUMMIT INSURED EQUITY II L.P.
a Delaware Limited Partnership,
By: AEGIS Realty Operating
Partnership, L.P.,
Its General Partner
By: AEGIS Realty, Inc.,
Its General Partner
/s/ Linda Garcia By: [ILLEGIBLE]
---------------------------- ----------------------------------
Name:
---------------------------- ----------------------------------
WITNESSES: Date:
----------------------------------
OWNER: AEGIS REALTY OPERATING
PARTNERSHIP, L.P.
By: AEGIS Realty, Inc.
Its General Partner
/s/ Linda Garcia By: [ILLEGIBLE]
---------------------------- ----------------------------------
Name:
---------------------------- ----------------------------------
WITNESSES: Date:
----------------------------------
MANAGER:
RCC PROPERTY ADVISORS
a Florida Partnership
By: PRR REALTY ASSOCIATES, INC.
a Florida Corporation,
General Partner
/s/ Linda Garcia By: /s/ Paul R. Rutledge
---------------------------- ----------------------------------
Paul R. Rutledge
---------------------------- As President for the Corporation
WITNESSES:
<PAGE>
EXHIBIT "C"
VIA FAX & REGULAR MAIL
- - -----------------------------
- - -----------------------------
625 Madison Avenue, Suite 900
New York, NY 10022
Attn:_________________________
Dear Owner:
By this Agreement, Aegis Realty, Inc., Summit Insured Equity, L.P. and Summit
Insured Equity II L.P. Aegis Realty Operating Partnership, L.P.,(collectively
referred to as "Owner") acknowledge and agree that RCC Property Advisors ("RCC")
shall be the managing agent of the following PROJECT:
Center: _____________________________________
Address: _____________________________________
Closing Date:____________ Price:____________
Local Managing Company
Name: _____________________________________
Address: _____________________________________
Phone #: _____________________________________
Contact: _____________________________________
Acquisition Contact: _________________________
<PAGE>
Page 2
Owner and RCC acknowledge and agree that all terms and obligations provided in
the Management Agreement effective October 1, 1997 between Owner and RCC shall
be applicable to the Project. Kindly acknowledge receipt of this letter and your
agreement with the foregoing by signing and returning the enclosed copy of this
letter within seven (7) days of receipt. Should you have any questions, please
do not hesitate to contact me.
Very truly yours,
RCC PROPERTY ADVISORS, a
Florida General Partnership
By: PRR Realty Associates, Inc., a
Florida Corporation and General Partner
______________________________________________________
By: Paul R. Rutledge, as President for the corporation
OWNER:________________________________________________
______________________________________________________
By:___________________________________________________
___________________________________________________
PRR/tlr
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
financial statements of Aegis Realty, Inc. and is qualified in its entirety
by reference to such financial statements
</LEGEND>
<CIK> 0001043324
<NAME> Aegis Realty
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,728,050
<SECURITIES> 0
<RECEIVABLES> 35,514,521
<ALLOWANCES> 304,000
<INVENTORY> 0
<CURRENT-ASSETS> 587,109
<PP&E> 111,042,804
<DEPRECIATION> 16,404,617
<TOTAL-ASSETS> 148,639,328
<CURRENT-LIABILITIES> 4,322,644
<BONDS> 18,544,242
0
0
<COMMON> 0
<OTHER-SE> 125,045,011
<TOTAL-LIABILITY-AND-EQUITY> 148,639,328
<SALES> 0
<TOTAL-REVENUES> 10,755,797
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,750,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 558,994
<INCOME-PRETAX> 3,438,496
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,438,496
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
