<PAGE>
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, 1999
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.
------------------
(Exact name of Registrant as specified in its Charter)
Maryland 13-3916825
- ------------------------------- -------------------
(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:
Title of each class
--------------------------------------
Common Stock, par value $.01 per share
Name of each exchange on which registered:
------------------------------------------
American Stock Exchange
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 and non-voting common
equity held by non-affiliates of the Registrant as of March 9, 2000 was
$66,550,376, based on a price of $8 7/16 per share, the closing sales price for
the Registrant's Common Stock on the American Stock Exchange on that date.
As of March 9, 2000, there were 8,049,179 outstanding shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Those portions of the Registrant's Proxy Statement for Annual Meeting
of Shareholders to be held on June 14, 2000, which are incorporated into Items
10, 11, 12 and 13.
Index to exhibits may be found on page 43
Page 1 of 53
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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.
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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, renovate, own
and operate primarily supermarket-anchored neighborhood and community shopping
centers. As of December 31, 1999, the Company owned a portfolio of 28 retail
properties (the "Retail Properties") containing a total of approximately 3.0
million gross leaseable square feet ("GLA"), held partnership interests in two
suburban garden apartment properties (the "Multifamily Properties") and held one
FHA insured participating mortgage secured by a suburban garden apartment
property (the "FHA Mortgage"). The locations of the assets in 14 states provide
the Company with a geographically diverse portfolio. Moreover, the Company has a
predictable and stable revenue stream that, for the year ended December 31,
1999, was derived approximately 47% from either base rent from anchor tenants or
from interest payments on the FHA Mortgages. No single asset accounted for more
than 8% of total revenues for the year ended December 31, 1999.
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 CVS Stores. The neighborhood
centers are typically open air centers ranging in size from 55,000 GLA to
approximately 214,000 GLA, with an average of approximately 107,000 GLA, and are
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. As of December 31, 1999, the Retail Properties had an
average physical occupancy of 92.4%. Through 2006 no more than 9.6% of leased
GLA is subject to expiration in any one year. The Multifamily Properties total
290 units and had an average physical occupancy of 94.2% as of December 31,
1999. The FHA mortgage has a principal balance of approximately $2.9 million and
carries an annual interest rate of 8.95%. The underlying FHA property had an
average physical occupancy of 86.4% as of December 31, 1999.
ORGANIZATION
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of four publicly registered, non-listed limited
partnerships, Summit Insured Equity L.P. ("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"). One of the general partners of the Partnerships was 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 its consolidated subsidiaries
and, for references prior to October 1, 1997, refers to 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 interests in the Partnerships based upon each partner's proportionate
interest in the Common Stock issued to their Partnership in the Consolidation.
The Common Stock commenced trading on the American Stock Exchange on October 10,
1997 under the symbol "AER". As of December 31, 1999, there were 8,046,859
shares of Common Stock outstanding (an additional 777,213 shares were reserved
for issuance upon conversion of OP Units, as defined below).
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, was 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"). No goodwill was recorded in the Consolidation.
Results of operations and other operating financial data for the Company 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 consolidated subsidiaries which include Insured I and the other
Partnerships pursuant to the Consolidation. Insured I is a Delaware limited
partnership formed on December 12, 1985 which, subsequent to the Consolidation,
became an indirectly wholly-owned subsidiary of the Company. 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 managed and controlled the
affairs of Insured I prior to the Consolidation.
The Company is governed by a board of directors comprised of two independent
directors and three directors who are affiliated with Related. The Company has
engaged Related Aegis LP (the "Advisor"), a Delaware limited partnership and an
affiliate of Related, to manage its day to day affairs. 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 public relations 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 small capitalized,
self-managed REITs.
In addition, RCC Property Advisors (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 29 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,
providing services to the Company.
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The Company owns all of its assets directly or indirectly through Aegis Realty
Operating Partnership, LP, a Delaware limited partnership (the "Operating
Partnership" or "OP"), of which the Company is the sole general partner and
holder of 91.19% of the units of partnership interest (the "OP Units") at
December 31, 1999. Also, at December 31, 1999, 5.68% and 3.13% of the OP Units
are held by the sellers of three of the Retail Properties and by affiliates of
Related, respectively.
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 external growth and internal growth.
The Company's external growth will be accomplished through continued
acquisitions of Retail Properties either directly or in joint venture on an
individual or bulk basis. The Company believes that there are significant
opportunities available to acquire undervalued, undermanaged and/or
underutilized neighborhood and community shopping centers. Unlike most small
capitalized REITs, the Company has the ability to benefit from its affiliation
with a much larger company, Related, with a national presence. The Company is
using its affiliation with Related to acquire properties on a national basis.
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 program allows the Company to
maintain geographic diversity, which the Company believes reduces the risk
otherwise associated with focusing on one region. The Company seeks 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 generally seeks to acquire
only those centers that are expected to immediately increase FFO. In addition,
the Company will consider strategic combinations in the form of portfolio
acquisitions, joint ventures or mergers in order to maximize shareholder value.
The Company's growth will be financed through proceeds of an expandable $70
million senior revolving credit facility shared among BankBoston (28.57%),
KeyBank National Association (28.57%), Citizens Bank of Rhode Island (28.57%)
and Sovereign Bank (14.29%) (the "Credit Facility"), the issuance of shares of
the Company's Common Stock or OP Units in exchange for real estate, funds
generated from operations in excess of dividend payments and through placements
of equity. Although the Credit Facility may be increased, the Company's Charter
dictates leverage of no more than 50% of the Company's Total Market Value
defined as the greater of (i) the sum of (a) the aggregate market value of the
Company's outstanding shares of Common Stock and (b) the total debt of the
Company or (ii) the aggregate value of the Company's assets as determined by the
Advisor based upon third-party or management appraisals and other criteria as
the Board of Directors shall determine in its sole discretion. During the period
October 1, 1997 through December 31, 1999, the Company acquired 14 Retail
Properties and an out-parcel of developable land contiguous to one Retail
Property (see "Item 2. Properties").
Internal growth will occur from the re-deployment of proceeds from the sale or
other disposition of 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. During the period October 1, 1997 through
December 31, 1999, the Company disposed of three non-core assets (see "Mortgage
Loans" below and "Item 2. Properties").
RETAIL PROPERTIES
As of December 31, 1999, the Company owned 28 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, 1999:
<TABLE>
<CAPTION>
1999 1998 1997*
---- ---- ----
<S> <C> <C> <C>
1. Westbird/Miami, FL 4% 6% 10%
2. Winery Square/Fairfield, CA 5% 7% 10%
3. Mountain View Village/Snellville, GA 4% 6% 10%
4. Forest Park Square/Cincinnati, OH 4% 6% 10%
</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 consolidated subsidiaries which include Insured I
and the other Partnerships pursuant to the Consolidation.
During the years ended December 31, 1999, 1998 and 1997, the Kroger Company,
which is a tenant at six shopping centers, accounted for approximately 12%, 17%
and 28%, respectively, of the Company's total gross revenues.
Based on the carrying value at December 31, 1999 and 1998, approximately 15% of
the Company's investment properties are located in Ohio, 11% are located in
Florida, 11% are located in North Carolina and 10% are located in Virginia. No
other states comprise more than 10% of the total carrying value.
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INVESTMENTS IN PARTNERSHIPS
As of December 31, 1999, the Company owned 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
As of January 1, 1998, the Company held three FHA Mortgages and three equity
loans (the FHA Mortgages and the equity loans together, the "Mortgage Loans");
two of the Mortgage Loans were repaid in 1998. All base interest and the
principal amount of the FHA Mortgages were coinsured by the FHA (80%) and an
affiliate of the Advisor (20%). The equity loans were made to the same
developers as 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 were 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 were uninsured, but were secured by the
partnership interests of the entities which own the underlying properties (the
"Developments").
In addition to the stated interest rates, the Company was entitled to receive
additional interest on the FHA Mortgages 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 the origination with
respect to the FHA Mortgages in exchange for the potential to receive additional
interest payments. The notes evidencing the FHA Mortgages relating to Cross
Creek and Woodgate Manor, two of the Developments, bore interest at 8.95% with
the potential to receive an additional 0.84% to 1.68% on the FHA Mortgages plus
30% of any remaining cash flow from the underlying Developments and 35% of
capital proceeds. The FHA Mortgage for Weatherly Walk, a third Development, was
structured in the same manner except that the Company was entitled to receive up
to 50% of both any remaining cash flow and of capital proceeds. Additional
interest was due no later than upon the prepayment or other satisfaction of the
FHA Mortgages or the sale of the Developments. The receipt of additional
interest was dependent upon the economic performance of the underlying
Developments. Additional interest was not insured by the FHA or an affiliate of
the Advisor.
In addition to the Mortgage Loans, the Company held a loan of $3,060,000 (the
"Cross Creek Loan") to Walsh/Cross Creek Limited Partnership (the "Cross Creek
Obligor"), one of the FHA Mortgagors, which was used to pay for costs incurred
to complete construction and to fund operating deficits. The Cross Creek Loan
bore interest at the prime rate plus 1% and was due on January 1, 2030 or on the
occurrence of certain events. The amount loaned to the Cross Creek Obligor was
classified as a loan receivable from affiliate and was anticipated to be repaid
from cash flows from the Cross Creek property. Stephen M. Ross holds a majority
interest in the Advisor and had 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.
On June 24, 1998, the Cross Creek Obligor, the owner of Cross Creek Apartments
("Cross Creek") and an affiliate of the Advisor, sold Cross Creek to a third
party for $23.4 million. The Cross Creek Obligor then fully repaid its
outstanding debt due to the Company totaling $22,199,045 including a $16,971,528
FHA Mortgage, a $1,783,900 equity loan, the $3,060,000 Cross Creek Loan, a
$286,948 prepayment penalty due the Company on the FHA Mortgage and accrued
interest through the closing date of $96,669 resulting in a loss on the
repayment (including the prepayment penalty) in the amount of $92,504 (due to
purchase accounting premiums recorded pursuant to the Consolidation) which is
included in other expenses.
On August 26, 1998, FAI, Ltd. ("FAI"), the limited partnership which owns
Weatherly Walk Apartments and one of the FHA Mortgagors, repaid in full (after
completing a refinancing with an unaffiliated third party) the outstanding
balance of its Mortgage Loan in the amount of $8,380,752 plus accrued interest
of $48,189 resulting in a loss on the repayment in the amount of $45,934 (due to
purchase accounting premiums recorded pursuant to the Consolidation) which is
included in other expenses. Simultaneously, the Company invested $895,200 for a
40% interest as a limited partner in FAI (see "Item 2. Properties").
As of December 31, 1999 and 1998, the Company held one Mortgage Loan. Further
information regarding the Mortgage Loan is as follows:
<TABLE>
<CAPTION>
Original Stated
Funding Original Original Total Interest FHA
Comple- FHA Equity Mortgage Rate on Mortgage
Project Closing tion Mortgage Loan Loan Mortgage Maturity
- ------- Date Date Amount Amount Amount Loan (2) Date (3)
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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) As of December 13, 1998, the Company may call for prepayment of the entire
outstanding principal amount at any time. 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 in-
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creased 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 13, 1998, the Borrower may elect to prepay
at any time without incurring prepayment penalties.
As of December 31, 1999, the balance of the Mortgage Loan recorded on the
Company's financial statements was $3,220,191.
INSURANCE POLICIES
Insured I and Insured II, which are indirectly wholly-owned subsidiaries of the
Company, are the record owners of 14 of the Retail Properties. Insured I and II
are each the beneficiary of an insurance policy (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 Retail Properties 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 such Retail 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 such Retail 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 such Retail
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 such 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 the
Original Contributions to either Insured I or Insured II, as applicable, or any
lesser amount insured under the Policy. In November 1999, the insurance policy
issued in connection with Summit Insured I expired pursuant to its terms. The
insurance policy issued in connection with Summit Insured II will expire in May
2001. No payments were received on the Summit Insured I policy and none are
expected on the Summit Insured II policy.
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 the table in "Item 2. Properties" for
additional competitive information. With respect to the Mortgage Loan, the
Company's business is affected by competition to the extent that the Development
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 Development 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
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 have been undertaken on all of the
Company's properties. In certain cases, additional Phase II site investigations
have also been 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 those 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, in February 1998,
determined that there were detectable levels of certain hazardous materials
above threshold levels which are 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. On May
28, 1999 management received notification form GAEPD that the site is now listed
on the GAEPD Hazardous Site Inventory ("HSI") due, in part, to the presence of
detectable levels of certain hazardous materials at slightly higher than maximum
allowable levels. Management has recently undertaken a re-sampling to determine
if such levels continue to exist in order to potentially qualify for a
de-listing from the HSI. The re-sampling indicated that no hazardous materials
remain detectable above the threshold levels which are ascertained
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by GAEPD to require remediation and a formal report has been submitted to GAEPD
to indicate such and to qualify the property for de-listing. Management has
installed wells on the site to monitor ongoing levels of hazardous materials in
the ground water pursuant to GAEPD policy. Management, at this time, is unable
to predict further requirements.
NOTES PAYABLE
For information regarding the Company's notes payable, see Note 7 of Notes to
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data".
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 28 Retail Properties owned by the Company are managed by the Property
Manager, an affiliate of the Advisor, for a fee equal to 4.5% of the gross
rental receipts from the Retail 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 and is reimbursed for certain expenses. Management fees earned by
the Property Manager for the years ended December 31, 1999, 1998 and 1997
totaled approximately $1,037,000, $735,000 and $445,000, respectively.
Item 2. Properties.
RETAIL PROPERTIES
As of December 31, 1999, the Company owned 28 neighborhood shopping centers. The
following is a description of these shopping centers:
<TABLE>
<CAPTION>
% Square Comparable
Feet Annualized Competition
Gross Leased at Base Rent at Main within a
Purchase Date Leasable December December Anchor three-mile
Name and Location Price Purchased Square Feet 31, 1999 31, 1999 Tenant radius
- ----------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cactus Village $ 6,330,000 7/25/87 72,598 95% $460,000 Safeway(g) 11 shopping
Glendale, AZ & Walgreens centers
Hickory Plaza 4,902,000 4/23/87 67,336 100 501,000 Kroger & 8 shopping
Nashville, TN CVS centers
Highland Fair 5,950,000 7/24/87 74,764 100 548,000 Safeway 7 shopping
Gresham, OR centers
Pablo Plaza 7,500,000 2/18/87 141,565 83 691,000 Publix(a) 11 shopping
Jacksonville, FL & Eckerds centers
Southhaven 5,666,000 2/28/87 83,750 96 474,000 Kroger 1 shopping
Southhaven, MS center
Town West 4,932,000 5/11/87 88,200 95 445,000 Kroger & 5 shopping
Indianapolis, IN Office Max centers
Westbird 7,000,000 12/31/86 100,087 88 619,000 Publix & 7 shopping
Miami, FL Eckerds centers
Winery Square 12,801,700 12/22/87 121,950 89 962,000 Food 4 5 shopping
Fairfield, CA Less & centers
Walgreens
Mountain View Village 10,350,000 7/25/88 99,908 89 709,000 Kroger 4 shopping
Snellville, GA centers
Forest Park Square 8,950,000 5/19/89 92,824 100 792,000 Kroger 2 shopping
Cincinnati, OH centers
Kokomo Plaza 6,987,000 5/19/89 89,546 93 538,000 Kroger 6 shopping
Kokomo, IN centers
Rolling Hills Square 6,100,000(f)08/18/88 101,864 96 693,000 Fry's 6 shopping
Tuscon, AZ Food centers
& Drug
-7-
<PAGE>
<CAPTION>
% Square Comparable
Feet Annualized Competition
Gross Leased at Base Rent at Main within a
Purchase Date Leasable December December Anchor three-mile
Name and Location Price Purchased Square Feet 31, 1999 31, 1998 Tenant radius
- ----------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mountain Park Plaza 6,650,000 12/14/89 77,686 89 479,000 A&P(b), 9 shopping
Atlanta, GA Future centers
Store &
Eckerds
Applewood Centre 7,700,000 11/08/90 101,130 97 705,000 Hy-Vee 5 shopping
Omaha, NE Food centers
Store
Birdneck Center 3,115,000 12/31/97 67,060 96 457,000 Eckerds & 8 shopping
Virginia Beach, VA Food Lion centers
The Market Place 5,400,000 12/31/97 125,095 69 522,000 Bi-Lo & 3 shopping
Newton, NC Big Lots centers
Barclay Place 3,800,000 3/31/98 81,459 85 427,000 Food Lion 13 shopping
Lakeland, FL centers
The Village At Waterford 6,250,000 4/22/98 79,162 97 569,000 Winn-Dixie 1 shopping
Midlothian, VA center
Governor's Square 8,200,000 5/28/98 183,339 73 725,000 Odd Lots 5 shopping
Montgomery, AL centers
Marion City Square 5,100,000 6/25/98 163,970 84 628,000 Roses, Bi-Lo 1 shopping
Marion, NC & CVS center
Dunlop Village 5,000,000 9/1/98 77,315 88 469,000 Food Lion 6 shopping
Colonial Heights, VA & CVS centers
Centre Stage 6,990,000 9/2/98 146,549 100 767,000 K-Mart & 2 shopping
Springfield, TN Food Lion centers
White Oaks Plaza 8,125,000 9/9/98 186,758 99 720,000 Winn-Dixie & 2 shopping
Spindale, NC Wal-Mart centers
Cape Henry 3,900,000 9/29/98 55,075 96 438,000 Food Lion & 8 shopping
Virginia Beach, VA Rite-Aid centers
Emporia West 2,900,000 11/17/98 76,705 96 311,000 Dillon Food 6 shopping
Emporia, KS Store centers
Oxford Mall 8,650,000 11/24/98 166,880 92 952,000 Goody's, 2 shopping
Oxford, MS JC Penney, centers
Stage &
Wal-Mart(d)
Southgate 15,100,000 12/9/98 214,321 98 1,504,000 Big Bear 4 shopping
Heath, OH Stores(e), centers
Dunham's
Sporting,
Odd-Lots &
Rite-Aid
Crossroads East 4,800,000 12/9/98 71,925 74 477,000 (c) 3 shopping
Columbus, OH centers
</TABLE>
(a) 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, 1999.
(b) Tenant has vacated but continues to be liable for all amounts due under its
lease. Lease payments are current as of December 31, 1999.
(c) The current configuration of the shopping center does not include an anchor
tenant.
(d) The portion of the property occupied by Wal-Mart is not owned by the
Company.
(e) The tenant's parent corporation, Penn Traffic Co. filed for Chapter 11
bankruptcy on March 1, 1999. Lease payments are current as of December 31, 1999.
(f) The purchase price does not include the acquisition, on September 8, 1999,
of an out-parcel of developable land contiguous to the shopping center for a
purchase price of $325,000.
(g) Tenant has vacated but continues to be liable for all amounts due under its
lease. The tenant is currently in arrears as it relates to a contractual
increase in minimum rent of $.10 per square foot per year (approximately $4,200
per year). The aggregate arrears as of December 31, 1999 is $19,237. The arrears
is due to different interpretations of the lease which is expected to be
resolved in 2000. With the exception of this amount, lease payments are current
as of December 31, 1999.
-8-
<PAGE>
On December 9, 1998, in connection with the acquisition of two Retail
Properties, the Company made loans (the "OP Unit Loans") totaling $2,081,015 to
Standard Investment Company ("SIC"), a partner in the partnerships which owned
the properties; SIC is not affiliated with the Advisor or its affiliates but
affiliates of the Advisor were also partners in such partnerships. The loans are
secured by the 163,517 OP Units which were issued to SIC in exchange for its
partnership interests in the partnerships which owned the properties and also by
guarantees from the principals of SIC for 25% of the total loan amounts. The OP
Unit Loans bear interest at 7.613% and mature on December 9, 2015 or earlier if
the underlying shopping centers are sold. Interest and principal on the OP Unit
Loans are payable only to the extent of distributions with respect to the OP
Units. Such distributions will be retained by the Company until all accrued
interest and the outstanding balances of the loans are repaid. As of December
31, 1999 and 1998, the balances of these OP Unit Loans totaled $2,077,886 and
$2,081,015, respectively, and are shown as loans receivable from affiliates on
the consolidated balance sheets.
For further information regarding the Company's Retail Properties, including
information regarding the mortgage indebtedness encumbering certain properties,
see "Item 8. Financial Statements and Supplementary Data" and "Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K - Financial
Statement Schedules - Schedule III".
INVESTMENTS IN PARTNERSHIPS
As of December 31, 1999 and 1998, the Company owned partnership interests in two
partnerships, each of which holds a multi-family residential garden apartment
property.
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 an
initial investment of $3,799,620, and 9.85% on a subsequent investment of
$1,949,805. These preferred equity returns are cumulative and non
interest-bearing. The cumulative, unrecorded and undistributed preferred equity
returns to the Company totaled $1,763,772 and $1,610,549 at December 31, 1999
and 1998, respectively. 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 Pinehurst apartment complex contains 96 apartment units and
was approximately 91.0% occupied as of March 1, 2000. The Company's percentage
of ownership in Pinehurst is 98.99%.
The Company owned a limited partnership investment in the Dominion Totem Park
Limited Partnership ("Dominion"), which acquired and operated the Chateau Creste
apartment complex in Kirkland, Washington. Under the terms of this investment,
the Company was entitled to receive a preferred equity return of 9.625% per
annum on an initial cash contribution of $4,149,585. 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
$4,727,500, which was $779,893 in excess of the carrying value of this
investment at the date of sale. The Chateau Crest apartment complex contained 90
apartment units and the Company's percentage of ownership in Dominion was 99%.
On August 26, 1998, the Company invested $895,200 for a 40% interest as a
limited partner in FAI, Ltd. ("FAI"), the limited partnership which owns
Weatherly Walk Apartments (see Item 1. Business.-Mortgage Loans). This equity
interest earns an annual preferred return of 10.5% on $895,200, paid monthly,
plus 40% of excess cash flow and sale or refinancing proceeds. As of December
31, 1999, the Company had received all of the preferred returns due from FAI.
Weatherly Walk Apartments contains 194 apartment units and was approximately
97.4% occupied as of March 1, 2000.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Shareholders.
None.
PART II
Item 5. Market for the Company's Common Stock and Related Shareholder Matters
As of March 9, 2000, there were 1,598 registered shareholders of record owning
8,049,179 shares of Common Stock. The Company's Common Stock has 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 Common Stock.
-9-
<PAGE>
The high and low prices for each quarterly period of the last two years for
which the shares of Common Stock were traded were as follows:
<TABLE>
<CAPTION>
1999 1999 1998 1998
Quarter Ended Low High Low High
- ------------- --- ---- --- ----
<S> <C> <C> <C> <C>
March 31 9 5/16 10 3/8 11 3/4 12 1/2
June 30 9 3/8 10 5/16 10 3/16 12 1/4
September 30 9 10 1/4 9 9/16 10 3/4
December 31 8 5/8 9 5/16 8 5/8 10 1/8
</TABLE>
The last reported sale price of Common Stock on the American Stock Exchange on
March 9, 2000 was $8 7/16.
INCENTIVE STOCK OPTION PLAN
The Company has 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 affiliates and their respective
employees and officers with the interests of the stockholders by providing the
Advisor and its affiliates with substantial financial interest in the Company's
success. The Compensation Committee administers 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 has 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 (805,073 shares).
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 by the Compensation
Committee in such succeeding year.
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 may vest immediately upon
issuance or in accordance with the determination of the Compensation Committee.
The Company's distributions per share of Common Stock for the years ended
December 31, 1999 and 1997 did not exceed $.9869 per share. In 1998, the Company
distributed $1.035 per share of Common Stock ($0.96 from continuing operations
and a $0.075 special capital gains distribution), thus enabling the Compensation
Committee, at their discretion, to issue options. Three percent of the shares
outstanding as of December 31, 1998 are equal to 241,346 shares.
On August 6, 1999, options to purchase 30,000 shares of Common Stock were
granted to an officer of the Company and certain employees of an affiliate of
the Advisor, who are not employees of the Company. The exercise price of these
options is $9.50 per share. The term of each option is ten years. The options
will vest in equal installments on August 6, 2000, 2001 and 2002. None of the
options granted during 1999 were exercised or expired.
STOCK REPURCHASE PLAN
On October 9, 1998, the Board of Directors authorized the implementation of a
stock repurchase plan, enabling the Company to repurchase, from time to time, up
to 500,000 shares of its Common Stock. The repurchases will be made in the open
market and the timing will be dependent on the availability of shares and other
market conditions. As of both December 31, 1999 and 1998, the Company had
acquired 6,300 shares of its Common Stock for an aggregate purchase price of
$58,579 (including commissions and service charges). Repurchased shares are
accounted for as treasury stock.
SHAREHOLDER RIGHTS PLAN
On January 29, 1999, the Company adopted a shareholder rights plan (the
"Shareholder Rights Plan"), the purpose of which is to better protect
shareholders and assure that they receive the full value of their investment in
the event of any proposed takeover of the Company. The Company noted that the
adoption of the Shareholder Rights Plan was not in response to any specific
attempt to acquire control of the Company and that the Company had no knowledge
of any such interest on the part of any person or entity.
The Shareholder Rights Plan, which is similar to plans adopted by many other
U.S. companies, strengthens the ability of the Board of Directors to assure that
the Company's shareholders receive fair and equal treatment and protects the
interests of the Company's shareholders in the event of an unsolicited offer to
acquire control of the Company. Importantly, it is intended to encourage any
potential acquirer to negotiate the manner and terms of any proposed acquisition
with the Board of Directors.
Terms of the Shareholder Rights Plan provide for a distribution to common
shareholders of record at the close of business on February 16, 1999 of one
Right for each outstanding share of Common Stock of the Company. Subject to
limited exceptions, the Rights will be exercisable if a person or group acquires
15% or more of the Company's Common Stock or announces a tender offer for 15% or
more of the Common Stock. Depending on the circumstances, the effect of the
exercise of the Rights will be to permit each holder of a Right to either
purchase stock in the Company or stock of the buyer, at a substantial discount,
and, in so doing, materially dilute the level of ownership of the buyer in the
Company. The Company will be entitled to redeem the Rights at $.01 per
-10-
<PAGE>
Right at any time before a person has acquired 15% or more of the outstanding
Common Stock. The Shareholder Rights Plan will expire on February 16, 2009.
OTHER
Through calendar year 1999, each independent director was entitled to receive
annual compensation for serving as a director in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or shares of Common Stock
valued based on the fair market value at the date of issuance. Beginning in
calendar year 2000, the annual compensation for each independent director was
increased from $15,000 to $17,500 and the maximum payable in cash was increased
from $5,000 to $7,500. As of December 31, 1999 and 1998, 1,216 and 216 shares,
respectively, having an aggregate value of $12,500 and $2,500, respectively,
have been issued to each of the Company's two independent directors as
compensation for their services.
The Company was created as part of the settlement in 1997 of class action
litigation against, among others, the sponsors of the Partnerships which were
consolidated to form the Company. As part of that settlement, counsel ("Class
Counsel") for the partners of the Partnerships had the right to petition the
United States District Court for the Southern District of New York (the "Court")
for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be
determined in the Court's sole discretion. The Counsel's Fee Shares would have
been based upon a percentage of the increase in value of the Company, ("the
Added Value") if any, as of October 10, 1998 based upon the difference between
(i) the trading prices of the Company's shares of Common Stock during the six
month period ended October 10, 1998 and (ii) the trading prices of the limited
partnership units and the asset values of the Partnerships prior to 10/1/97. As
of October 10, 1998, there was no Added Value and therefore, Class Counsel did
not file a petition for Counsel's Fee Shares.
DISTRIBUTION INFORMATION
DISTRIBUTIONS PER SHARE
Quarterly cash distributions per share for the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
Cash Distribution Total Amount
for Quarter Ended Date Paid Per Share Distributed
- ----------------- --------- --------- ------------
<S> <C> <C> <C>
March 31, 1999 5/14/99 $ .240 $1,931,246
June 30, 1999 8/15/99 .240 1,931,246
September 30, 1999 11/14/99 .240 1,931,246
December 31, 1999 2/14/00 .240 1,931,247
----- ---------
Total for 1999 $ .960 $7,724,985
===== =========
March 31, 1998 5/15/98 $ .240 $1,932,174
June 30, 1998 8/14/98 .240 1,932,278
September 30, 1998 11/14/98 .240 1,932,278
December 31, 1998 1/29/99 .315 (1) 2,534,135
----- ---------
Total for 1998 $1.035 $8,330,865
===== =========
</TABLE>
(1) Includes a capital gain distribution of $603,369 ($.075 per share) relating
to the sale of three non-core assets (see "Item 1. Business.-Mortgage Loans" and
"Item 2. Properties").
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 distributions 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 Directors deem relevant.
-11-
<PAGE>
RECENT SALES/ISSUANCE OF UNREGISTERED EQUITY SECURITIES
(i) Securities Issued
The following table sets forth the date of issuance, title and amount of
unregistered securities issued by the Company's subsidiary, the Operating
Partnership, since December 31, 1997:
<TABLE>
<CAPTION>
Date of Sale/issuance Title Number
- --------------------- ----- ------
<S> <C> <C>
05/28/98 OP Units 94,726
12/09/98 OP Units 208,914
12/09/98 OP Units 167,149
05/28/99 OP Units 28,187
12/09/99 OP Units 92,439
12/09/99 OP Units 73,957
12/09/99 OP Units 15,030
12/09/99 OP Units 23,716
12/09/99 OP Units 26,259
</TABLE>
The acquisitions of Governor's Square, Southgate and Crossroad East, three
Retail Properties with purchase prices of $8,200,000, $15,100,000 and
$4,800,000, respectively, were partially financed through the issuance of
94,726, 208,914 and 167,149 OP Units (subject to adjustment) valued at
$1,231,438, $2,715,882 and $2,172,937. These 470,789 OP Units were convertible
to shares of Common Stock on a one-to-one basis, subject to adjustment, on the
one year anniversary of their respective closing dates. The OP Units were issued
at an agreed upon value of $13 per OP Unit. If as of the last trading day prior
to the first anniversary of the closing date (the "Post-Closing Adjustment
Date"), the "Average Price Per Share" (as defined below) was less than $13, the
Company was obligated to issue additional OP Units to the respective sellers in
the amount of the difference between (i) the quotient obtained by dividing the
OP Unit value at $13 per OP Unit by the Average Price Per Share as of the
Post-Closing Adjustment Date and (ii) the number of OP Units issued on the
closing date. The Average Price Per Share means, with respect to any given date,
the average final closing price per share of Common Stock during the twenty
trading day period ending on such date. An additional 28,187 OP Units were
issued to the seller of Governor's Square on the Post-Closing Adjustment Date
(May 28, 1999) based on an Average Price Per Share of $10.01875. An additional
92,439 and 73,957 OP Units were issued to the sellers of Southgate and
Crossroads East, respectively, on the Post-Closing Adjustment Date (December 9,
1999) based on an Average Price Per Share of $9.0125.
In addition, a note payable to the sellers of Southgate and the two notes
payable to the sellers of Crossroads East in the amounts of $200,000, $230,000
and $275,000, respectively, were partially repaid in the amounts of $135,400,
$213,708 and $236,646 through the issuance of 15,030, 23,716 and 26,259 OP Units
on December 9, 1999 based on an Average Price Per Share of $9.0125.
(ii) Underwriters and Other Purchasers
Underwriters were not retained in connection with the issuance of these
securities.
(iii) Consideration
See (i) above.
(iv) Exemption from Registration Claimed
The OP Units were issued to "accredited investors" in transactions which were
exempt from registration under Section 4 (2) of the Securities Act of 1933.
-12-
<PAGE>
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 notes thereto contained in "Item 8. Financial Statements and
Supplementary Data".
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------------------
OPERATIONS 1999 1998 1997* 1996* 1995*
- ---------- ----------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues $25,354,501 $19,504,803 $10,755,797 $9,224,030 $9,081,226
Total expenses (19,133,837) (13,544,516) (7,309,038) (6,797,394) (6,790,935)
----------- ----------- ----------- ----------- ----------
Income before gain on sale of 6,220,664 5,960,287 3,446,759 2,426,636 2,290,291
investment
Gain on sale of investment in
partnership***** 0 779,893 0 0 0
----------- ----------- ----------- ----------- ----------
Income before minority interest 6,220,664 6,740,180 3,446,759 0 0
Minority interest in income of the (397,583) (93,547) (8,263) 0 0
Operating Partnership ----------- ----------- ----------- ----------- ----------
Net income $ 5,823,081 $ 6,646,633 $3,438,496 $2,426,636 $2,290,291
========== ========== ========= ========= =========
Net income applicable to common $ 5,823,081 $ 6,646,633 $1,420,370***
shareholders ========== ========== =========
Net income per share (1)
Basic** $ .72 $ .83 $ .18***
========== ========== =========
Diluted** $ .72 $ .82 $ .18***
========== ========== =========
Weighted average shares
outstanding:
Basic** 8,046,574 8,049,987 8,050,727***
========= ========= =========
Diluted** 8,046,574 8,075,390 8,050,727***
========= ========= =========
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------------------
FINANCIAL POSITION 1999 1998 1997* 1996* 1995*
- ------------------- ----------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Total assets $193,392,424 $195,389,970 $148,639,328 $75,842,337 $77,862,045
=========== =========== =========== ========== ==========
Notes payable $ 59,239,944 $ 58,864,099 $ 18,544,242 $ 5,565,841 $ 5,792,615
=========== =========== =========== ========== ==========
Total liabilities $ 64,830,450 $ 65,402,567 $ 22,866,886 $ 6,746,907 $ 7,121,610
=========== =========== =========== ========== ==========
Minority interest $ 7,260,370 $ 6,803,895 $ 727,431
=========== =========== ===========
Total shareholders' $121,301,604 $123,183,508 $125,045,011 $69,095,430 $70,740,435
=========== =========== =========== ========== ==========
equity/partners'
capital
DISTRIBUTIONS
Total BUC$holder distributions N/A N/A $ 2,700,004**** $3,600,005 $ 3,600,005
=========== ========= ==========
Total shareholder distributions $ 7,724,985 $ 8,330,865 $ 1,932,174***
=========== ============ ===========
Distributions per share** $ .96 $ 1.04 $ .24***
=========== ============ ===========
</TABLE>
-13-
<PAGE>
OTHER DATA
<TABLE>
<CAPTION>
Year Year Three Months
Ended Ended Ended
December 31, December 31, December 31,
1999 1998 1997
- ----------- ------------ ------------- ------------
<S> <C> <C> <C>
Funds From Operations ("FFO") (2) $ 10,646,024 $ 9,974,863 $ 2,268,839
============ ============= ==========
Funds Available for Distribution ("FAD") (2) $ 8,254,454 $ 8,969,572 $ 2,171,071
============ ============= ==========
FFO payout ratio 72.6% 83.5% 85.2%
============ ============= ==========
Cash flows from:
Operating activities $ 9,567,923 $ 9,584,324 $ 2,308,465
============ ============= ==========
Investing activities $ (1,970,601) $(20,087,699) $(8,829,861)
============ ============= ==========
Financing activities $ (8,374,501) $ 6,778,799 $10,297,819
============ ============= ==========
</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 consolidated subsidiaries which include Insured I
and the other Partnerships pursuant to the Consolidation.
**Net income and distribution per share information for periods before October
1, 1997 is not presented because it is not indicative of the Company's
continuing capital structure.
***Represents amount for the three months ended December 31, 1997.
****Represents amount for the nine months ended September 30, 1997.
*****The 1998 results of operations reflect a gain of $779,893 recognized upon
the sale of the Company's limited partnership interest in Dominion Totem Park
Limited Partnership.
(1) Net income per share equals net income divided by the weighted average
shares outstanding for the period.
(2) See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a definition and calculation of Funds From Operations
and Funds Available for Distribution.
-14-
<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. As of December 31, 1999, the Company owned a portfolio of 28 retail
properties (the "Retail Properties") containing a total of approximately 3.0
million gross leaseable square feet ("GLA"), held partnership interests in two
suburban garden apartment properties (the "Multifamily Properties"), held one
FHA insured participating mortgage secured by a suburban garden apartment
property (the "FHA Mortgage") and had net assets of approximately $121,302,000.
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of four publicly registered, non-listed limited
partnerships, Summit Insured Equity L.P. ("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"). One of the general partners
of the Partnerships was an affiliate of Related Capital Company ("Related") a
nationwide, fully integrated real estate financial services firm. As of December
31, 1999, there were 8,046,859 shares of Common Stock outstanding (an additional
777,213 shares were reserved for issuance upon conversion of OP Units).
The Company has initiated a focused business/strategic plan designed to increase
funds from operations ("FFO") and to enhance the value of its stock. The plan
concentrates principally on external growth and internal growth.
The Company's external growth will be accomplished through continued
acquisitions of Retail Properties either directly or in joint venture on an
individual or bulk basis. The Company believes that there are significant
opportunities available to acquire undervalued, undermanaged and/or
underutilized neighborhood and community shopping centers. Unlike most small
capitalized REITs, the Company has the ability to benefit from its affiliation
with a much larger company, Related, with a national presence. The Company is
using its affiliation with Related to acquire properties on a national basis.
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 program allows the Company to
maintain geographic diversity, which the Company believes reduces the risk
otherwise associated with focusing on one region. The Company seeks 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 generally seeks to acquire
only those centers that are expected to immediately increase FFO. In addition,
the Company will consider strategic combinations in the form of portfolio
acquisitions, joint ventures or mergers in order to maximize shareholder value.
On September 8, 1999, the Company acquired an out-parcel of developable land
contiguous to the Rolling Hills Square Retail Property for a purchase price of
$325,000, not including acquisition fees and expenses of approximately $16,000.
Internal growth will occur from the re-deployment of proceeds from the sale or
other disposition of 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.
The Company requires long-term financing in order to invest in and hold its
portfolio of Retail Properties and other investments. To date, this long-term
liquidity has come from proceeds from the Credit Facility, notes payable assumed
upon the purchase of certain properties and the issuance of shares of the
Company's Common Stock or OP Units in exchange for real estate. Although the
Credit Facility may be increased, the Company's Charter dictates leverage of no
more than 50% of the Company's Total Market Value. On a short-term basis, the
Company requires funds to pay its operating expenses and those of the Retail
Properties, to make improvements to the Retail Properties, pay its debt service
and make distributions to its shareholders. The primary source of the Company's
short-term liquidity needs are the cash flow received from the Retail Properties
and interest income.
On August 6, 1999, options to purchase 30,000 shares of Common Stock were
granted to an officer of the Company and certain employees of an affiliate of
the Advisor, who are not employees of the Company. Vesting of the options is
contingent upon the recipient continuing to provide services to the Company to
the vesting date. The exercise price of these options is $9.50 per share. The
term of each option is ten years. The options will vest in equal installments on
August 6, 2000, 2001 and 2002.
On December 1, 1998, the Company entered into an interest rate swap agreement
with a notional amount of $10,000,000, intended to reduce the impact of changes
in interest rates on the Credit Facility. This agreement effectively changes the
Company's interest rate on $10,000,000 of the Credit Facility debt to a fixed
rate of 5.44% and matures on December 1, 2000. The Company accounts for the net
cash settlements under this swap agreement as adjustments to the interest
expense on the Credit Facility. The Company is exposed to credit loss in the
event of nonperformance by the other party to the interest rate swap agreement;
however, the Company does not anticipate nonperformance by the counter party.
As a REIT, the Company is required to distribute at least 95% of its taxable
income to maintain REIT status. Funds generated from operations are expected to
be sufficient to allow the Company to meet this requirement.
-15-
<PAGE>
The Advisor believes that the stability of the Company's operations and its
ability to maintain liquidity are enhanced by:
(i) Geographic diversity of its portfolio of real estate and its mortgage note.
(ii) 47% of total revenues for the year ended December 31, 1999 were earned from
shopping center anchor tenants which are national credit tenants and from
interest on an FHA Mortgage.
(iii) No single asset accounts for more than 8% of total revenues for the year
ended December 31, 1999.
(iv) Leases that provide for recovery of actual common area maintenance charges
and real estate taxes, thereby minimizing any effects from inflation.
(v) Leases that provide for increases in rents based on a percentage of tenants'
sales.
(vi) A mortgage note which is substantially guaranteed by FHA and a co-insurer
and that provides for participation in increases in operating results and market
value of the underlying collateral.
During the year ended December 31, 1999, cash and cash equivalents of the
Company and its consolidated subsidiaries decreased approximately $777,000. This
decrease was primarily due to improvements to real estate ($1,308,000),
acquisitions of real estate including acquisition expenses ($714,000),
distributions paid to shareholders ($8,328,000), an increase in deferred loan
costs ($553,000) and distributions paid to minority interest ($455,000) which
exceeded net cash provided by operating activities ($9,568,000) and net proceeds
from notes payable ($962,000). Included in the adjustments to reconcile the net
income to cash provided by operating activities is depreciation and amortization
in the amount of $4,955,000.
The Company anticipates that cash generated from operations will provide for all
major repairs, replacements and tenant improvements on its real estate and will
provide sufficient liquidity to fund, in future years, the Company's operating
expenditures, debt service and distributions.
The Company has the following problem assets which may adversely affect future
operations and liquidity:
(i) Safeway, the anchor tenant of Cactus Village Shopping Center closed its
facility in December 1991 due to poor sales. The tenant is currently in arrears
as it relates to a contractual increase in minimum rent of $.10 per square foot
per year (approximately $4,200 per year). The aggregate arrears as of December
31, 1999 is $19,237. The arrears is due to different interpretations of the
lease which is expected to be resolved in 2000. With the exception of this
amount, the tenant continues to fully abide by all aspects of its lease which
will expire in September 2006. There have been proposals received for leasing
this space, but as of March 1, 2000, this space has not been re-leased.
(ii) 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,
2000, this space has not been re-leased.
(iii) On March 1, 1999, Penn Traffic Co., parent of Big Bear Stores, an anchor
tenant in the Southgate Shopping Center, filed for Chapter 11 bankruptcy. As of
March 17, 2000 (a) the lease was not formally rejected, (b) Penn Traffic's
reorganization plan was approved by the court on May 27, 1999 and has been
implemented, except for the completion of final creditor negotiations with
rejected lease holders, (c) Penn Traffic's stock has been relisted on the NASDAQ
National Market System and (d) the rent for the period March 2, 1999 through
March 31, 2000 has been paid. Counsel to the Company has advised the Company
that, (i) failure of Penn Traffic to reject the lease combined with (ii) item b
above, constitutes affirmation of the lease pursuant to the Bankruptcy Court and
the Company can consider this matter closed.
For a discussion of environmental issues affecting one of the Company's Retail
Properties see "Item 1. Business - Regulations".
In February 2000, a distribution of $1,931,246 ($.24 per share), which was
declared in December 1999, was paid to the shareholders from cash flow from
operations for the quarter ended December 31, 1999.
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.
RESULTS OF OPERATIONS
The following is a summary of the results of operations of the Company for the
years ended December 31, 1999, 1998 and 1997. The net income for the years ended
December 31, 1999, 1998 and 1997 was $5,823,081, $6,646,633 and $3,438,496,
respectively.
1999 VS. 1998
For the year ended December 31, 1999 as compared to 1998, total revenues and
total expenses increased due to the acquisition of 12 Retail Properties during
1998. The Company's results of operations for the year ended December 31, 1999
consisted primarily of the results of the Company's investment in 28 Retail
Properties, two partnership interests in Multifamily Properties and one FHA
Mortgage. The Company's results of operations for the year ended December 31,
1998 consisted primarily of the results of the
-16-
<PAGE>
Company's investment in 28 Retail Properties, three partnership interests in
Multifamily Properties, three FHA Mortgages, a gain on the sale of a partnership
interest in one Multifamily Property and a loss on the repayment of two FHA
Mortgages.
Rental income increased approximately $6,277,000 for the year ended December 31,
1999 as compared to 1998. An increase of $6,322,000 was due to the acquisition
of 12 Retail Properties during 1998 (the "1998 Acquisitions"). Excluding these
acquisitions, rental income decreased less than 1% for the year ended December
31, 1999 as compared to 1998.
Tenant reimbursements increased approximately $767,000 for the year ended
December 31, 1999 as compared to 1998. An increase of $1,576,000 was due to the
1998 Acquisitions. Excluding these acquisitions, tenant reimbursements decreased
approximately $809,000 for the year ended December 31, 1999 as compared to 1998
primarily due to additional billings to tenants and increases in estimates for
recoverable amounts in 1998.
Income from equity investments decreased approximately $133,000 for the year
ended December 31, 1999 as compared to 1998 primarily due to the sale of the
Company's limited partnership interest in Dominion on March 20, 1998 and a
decrease in income from Pinehurst in 1999.
Interest income decreased approximately $1,167,000 for the year ended December
31, 1999 as compared to 1998 primarily due to the repayment of the Cross Creek
FHA Mortgage and the Cross Creek Loan in June 1998 and the repayment of the
Weatherly Walk FHA Mortgage in August 1998.
Other income increased approximately $104,000 for the year ended December 31,
1999 as compared to 1998. An increase of $95,000 was due to the 1998
Acquisitions. Excluding these acquisitions, other income increased approximately
$9,000 for the year ended December 31, 1999 as compared to 1998.
Repairs and maintenance increased approximately $406,000 for the year ended
December 31, 1999 as compared to 1998. An increase of $656,000 was due to the
1998 Acquisitions. Excluding these acquisitions, repairs and maintenance
decreased approximately $250,000 for the year ended December 31, 1999 as
compared to 1998 primarily due to a decrease in parking lot light repairs at
Westbird and Birdneck Center, a decrease in roofing repairs at Pablo Plaza,
Winery Square and Rolling Hills Square and a decrease in painting expenses at
Townwest, Kokomo Plaza and Mountain Park Plaza.
Operating expenses increased approximately $864,000 for the year ended December
31, 1999 as compared to 1998. An increase of $849,000 was due to the 1998
Acquisitions. Excluding these acquisitions, operating expenses increased
approximately 1% for the year ended December 31, 1999 as compared to 1998.
Real estate taxes increased approximately $712,000 for the year ended December
31, 1999 as compared to 1998. An increase of $673,000 was due to the 1998
Acquisitions. Excluding these acquisitions, real estate taxes increased
approximately 3% for the year ended December 31, 1999 as compared to 1998.
Interest expense increased approximately $2,558,000 for the year ended December
31, 1999 as compared to 1998 primarily due to a higher outstanding balance of
the Credit Facility during the year ended December 31, 1999 and the assumption
of existing debt with respect to four of the 1998 Acquisitions.
General and administrative expenses increased approximately $178,000 for the
year ended December 31, 1999 as compared to 1998 primarily due to an increase in
audit/tax fees and an increase in asset management fees incurred to the Advisor
and its affiliates due to the 1998 Acquisitions.
Depreciation and amortization increased approximately $1,049,000 for the year
ended December 31, 1999 as compared to 1998. An increase of $1,173,000 was due
to the 1998 Acquisitions, an increase of $149,000 was due to an increase in
amortization of deferred loan costs relating to the Credit Facility and a
decrease of $404,000 was due to deferred insurance costs becoming fully
amortized during the second quarter of 1999. Excluding these increases and
decreases, depreciation and amortization increased approximately 4% for the year
ended December 31, 1999 as compared to 1998.
Other expenses decreased approximately $178,000 for the year ended December 31,
1999 as compared to 1998. An increase of $184,000 was due to the 1998
Acquisitions. Excluding these acquisitions, other expenses decreased
approximately $362,000 for the year ended December 31, 1999 as compared to 1998
primarily due to a decrease in bad debt expense resulting from a decrease in
reserves at Westbird, Pablo Plaza, Winery Square and Forest Park Square and
losses on the repayment of the Cross Creek and Weatherly Walk Mortgage Loans
during the second and third quarter of 1998, respectively.
A gain on sale of investment in partnership in the amount of approximately
$780,000 was recorded for the year ended December 31, 1998 relating to the sale
of the Company's limited partnership interest in Dominion in the first quarter
of 1998.
Minority interest in the income of the Operating Partnership increased
approximately $304,000 for the year ended December 31, 1999 as compared to 1998
primarily due to the issuance of OP Units with respect to three of the 1998
Acquisitions.
1998 VS. 1997
For the year ended December 31, 1998 as compared to 1997, total revenues, total
expenses and net income increased and the results of operations are not
comparable due to (i) the Consolidation of Insured I with three other
Partnerships on October 1, 1997 which resulted in the formation of the Company
and (ii) the purchase of 14 shopping centers after the Consolidation. The
Company's results of operations for the year ended December 31, 1998 consisted
primarily of the results of the Company's investment in 28 Retail Properties,
three partnership interests in Multifamily Properties, three FHA Mortgages, a
gain on the sale of a partnership
-17-
<PAGE>
interest in one Multifamily Property and a loss on the repayment of two FHA
Mortgages. The Company's results of operations for the year ended December 31,
1997 consisted primarily of the results of the Company's investment in 11 Retail
Properties for the nine months ended September 30, 1997 and the results of the
Company's investment in fourteen Retail Properties, two partnership interests in
Multifamily Properties and three FHA Mortgages for the three months ended
December 31, 1997. In addition, the results of operations are not reflective of
future operations due to the anticipated continued acquisition of shopping
centers.
Rental income increased approximately $5,641,000 for the year ended December 31,
1998 as compared to 1997. An increase of $1,437,000 was due to the three
shopping centers acquired from Insured II in the Consolidation (the "Insured II
Acquisitions") and an increase of $4,003,000 was due to the acquisition of 14
shopping centers after the Consolidation (the "New Acquisitions"). Excluding
these acquisitions, rental income increased approximately $201,000 for the year
ended December 31, 1998 as compared to 1997 primarily due to an increase in
rental rates at Pablo Plaza and Winery Square and an increase in percentage
rents received at Mountain Park Plaza.
Tenant reimbursements increased approximately $1,961,000 for the year ended
December 31, 1998 as compared to 1997. Increases of $451,000 and $697,000 were
due to the Insured II Acquisitions and the New Acquisitions, respectively.
Excluding these acquisitions, tenant reimbursements increased approximately
$813,000 for the year ended December 31, 1998 as compared to 1997 primarily due
to additional billings to tenants and increases in estimates for recoverable
amounts in 1998.
Income from equity investments increased approximately $230,000 for the year
ended December 31, 1998 as compared to 1997 primarily due to the two equity
interests in Multifamily Properties acquired from Summit Preferred in the
Consolidation and the purchase of another equity interest in a Multifamily
Property on August 26, 1998.
Interest income increased approximately $898,000 for the year ended December 31,
1998 as compared to 1997. An increase of $843,000 was due to interest income
relating to the three FHA Mortgages and the Cross Creek Loan acquired from
Eagle. Excluding such income, interest income increased approximately $55,000
for the year ended December 31, 1998 as compared to 1997 primarily due to higher
invested cash balances in 1998.
Other income increased approximately $19,000 for the year ended December 31,
1998 as compared to 1997. Increases of $23,000 and $15,000 were due to the
Insured II Acquisitions and the New Acquisitions, respectively. Excluding these
acquisitions, other income decreased approximately $19,000 for the year ended
December 31, 1998 as compared to 1997 primarily due to decreases in late charges
at Westbird, Pablo Plaza and Highland Fair and a decrease in lease settlement
income at Mountain Park Plaza in 1998.
Repairs and maintenance increased approximately $572,000 for the year ended
December 31, 1998 as compared to 1997. Increases of $214,000 and $304,000 were
due to the Insured II Acquisitions and the New Acquisitions, respectively.
Excluding these acquisitions, repairs and maintenance increased approximately 6%
for the year ended December 31, 1998 as compared to 1997.
Operating expenses increased approximately $860,000 for the year ended December
31, 1998 as compared to 1997. Increases of $168,000 and $476,000 were due to the
Insured II Acquisitions and the New Acquisitions, respectively. Excluding these
acquisitions, operating expenses increased approximately $216,000 for the year
ended December 31, 1998 as compared to 1997 primarily due to an increase in
security expenses at Winery Square and Westbird, an increase in water and sewer
expenses at Highland Fair, Mountain View Village, Winery Square and Forest Park
Square and an increase in property management fees at Pablo Plaza, Winery Square
and Mountain View Village.
Real estate taxes increased approximately $534,000 for the year ended December
31, 1998 as compared to 1997. Increases of $207,000 and $325,000 were due to the
Insured II Acquisitions and the New Acquisitions, respectively. Excluding these
acquisitions, real estate taxes increased less than 1% for the year ended
December 31, 1998 as compared to 1997.
Interest expense increased approximately $1,373,000 for the year ended December
31, 1998 as compared to 1997 primarily due to interest expense relating to the
Credit Facility and the assumption of existing debt with respect to four of the
New Acquisitions.
General and administrative expenses increased approximately $987,000 for the
year ended December 31, 1998 as compared to 1997 primarily due to fees relating
to the unused portion of the Credit Facility, state income taxes resulting from
qualification as a REIT, asset management fees incurred to the Advisor, an
increase in printing and investor service expenses resulting from an increase in
investors, an increase in audit/tax fees and expense reimbursements to the
Advisor and its affiliates due to the Insured II Acquisitions and the New
Acquisitions and fees to the independent directors relating to their services
for 1998.
Depreciation and amortization increased approximately $1,194,000 for the year
ended December 31, 1998 as compared to 1997. An increase of $295,000 was due to
the Insured II Acquisitions, an increase of $777,000 was due to the New
Acquisitions and an increase of $144,000 was due to an increase in amortization
of deferred loan costs relating to the Credit Facility. Excluding these
increases, depreciation and amortization decreased approximately 1% for the year
ended December 31, 1998 as compared to 1997.
Minority interest in the income of the Operating Partnership increased
approximately $85,000 for the year ended December 31, 1998 as compared to 1997
primarily due to the issuance of OP Units with respect to three of the New
Acquisitions.
Other expenses increased approximately $715,000 for the year ended December 31,
1998 as compared to 1997. Increases of $116,000 and $149,000 were due to the
Insured II Acquisitions and the New Acquisitions, respectively. Excluding these
acquisitions, other expenses increased approximately $450,000 for the year ended
December 31, 1998 as compared to 1997 primarily due to losses on the repayment
of the Cross Creek and Weatherly Walk Mortgage Loans and an increase in bad debt
expense resulting from an increase in reserves at Westbird, Pablo Plaza, Winery
Square and Forest Park Square.
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<PAGE>
A gain on sale of investment in partnership in the amount of approximately
$780,000 was recorded for the year ended December 31, 1998 relating to the sale
of the Company's limited partnership interest in Dominion.
Westbird, Pablo Plaza, Highland Fair, Town West, Mountain Park Plaza, Winery
Square, Cactus Village, Kokomo Plaza, Forest Park Square, Hickory Plaza, and
Southhaven were the shopping centers which were owned by the Company during all
of 1998 and 1997.
FUNDS FROM OPERATIONS AND FUNDS AVAILABLE FOR DISTRIBUTION
Funds from operations ("FFO"), represents net income (computed in accordance
with generally accepted accounting principles) ("GAAP"), excluding gains (or
losses) from debt restructuring or repayments 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 amounts of $367,078, $191,057 and $66,331 for the years ended
December 31, 1999 and 1998 and the three months ended December 31, 1997,
respectively. FFO is calculated in accordance with the National Association of
Real Estate Investment Trusts ("NAREIT") definition. 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 the financial
statements, for the applicable periods. There are no material legal or
functional restrictions on the use of FFO. 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 FFO 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.
Funds available for distribution ("FAD") represents FFO plus recurring principal
receipts from mortgage loans less reserves for lease commissions, recurring
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.
FFO, as calculated in accordance with the NAREIT definition, and FAD for the
years ended December 31, 1999 and 1998 and the three months ended December 31,
1997 are summarized in the following table:
<TABLE>
<CAPTION>
Year Year Three Months
Ended Ended Ended
December 31, December 31, December 31,
1999 1998 1997
- ----------- ------------ ------------- ------------
<S> <C> <C> <C>
Net income $ 5,823,081 $ 6,646,633 $ 1,420,370
Gain on sale of investment in partnership 0 (779,893) 0
Loss on repayment of Cross Creek receivable 0 92,504 0
Loss on repayment of Weatherly Walk receivable 0 45,934 0
Depreciation and amortization of real property 4,377,099 3,143,873 617,567
Amortization of insurance contract 200,195 600,580 150,145
Proportionate share of adjustments to equity in income
from equity investments to arrive at funds from operations 245,649 225,232 80,757
------------ ------------ -----------
Funds From Operations ("FFO") 10,646,024 9,974,863 2,268,839
Amortization of deferred financing costs 377,665 222,538 72,036
Principal payments received on mortgage loans 32,416 105,124 39,994
Straight-lining of property rentals for rent escalations (367,078) (191,057) (66,331)
Improvements to real estate (1,308,093) (695,177) (36,283)
Principal repayments on notes payable (538,401) (280,463) (64,717)
Leasing commissions (588,079) (166,256) (42,467)
----------- ------------ -----------
Funds Available for Distribution ("FAD") $ 8,254,454 $ 8,969,572 $ 2,171,071
============ ============ ==========
Distributions to shareholders $ 7,724,985 $ 8,330,865 $ 1,932,174
============ ============ ==========
FFO payout ratio 72.6% 83.5% 85.2%
============ ============ ==========
Cash flows from:
Operating activities $ 9,567,923 $ 9,584,324 $ 2,308,465
============ ============ ==========
Investing activities $ (1,970,601) $(20,087,699) $ (8,829,861)
============ ============ ==========
Financing activities $ (8,374,501) $ 6,778,799 $ 10,297,819
============ ============ ==========
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting standards for
derivative in-
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<PAGE>
struments, including certain derivative instruments embedded in other contracts,
and for hedging activities. As amended, it is effective for the Company
beginning with the first quarter of 2001. Currently, the only derivative
instrument owned by the Company is an interest rate swap agreement. SFAS No. 133
will require the Company to carry such swap agreement at its fair value at the
balance sheet date, which was approximately $75,000 at December 31, 1999.
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.
INFLATION
Inflation did not have a material effect on the Company's results for the
periods presented.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The debt financing used to raise capital for the acquisition of the Company's
investments expose the Company to fluctuations in market interest rates. Market
interest rates are highly sensitive to many factors, including governmental
policies, domestic and International political considerations and other factors
beyond the control of the Company.
Cash flows from the Company's investments do not fluctuate with changes in
market interest rates. In addition, as of December 31, 1999, approximately 48%
of the Company's total notes payable outstanding are either fixed rate or
non-interest bearing, and so the payments on these instruments do not fluctuate
with changes in market interest rates. In contrast, payments required under the
Credit Facility vary based on market interest rates, primarily the 30 day
Euro-contract rate. Thus, an increase in market interest rates would result in
increased payments under the Credit Facility, without a corresponding increase
in cash flows from the Company's investments in the same amounts. For example,
based on the $30,818,000 outstanding under the Credit Facility at December 31,
1999, and taking into account the interest rate swap agreement in place
throughout 1999 as described, the Company estimates that an increase of 1% in
the 30 day Euro-contract rate would decrease the Company's annual net income by
approximately $208,000; a 2% increase in the 30 day Euro-contract rate would
decrease annual net income by approximately $416,000. These estimates include
the impact of the interest rate swap agreement discussed below. For the same
reasons, a decrease in market interest rates would generally benefit the
Company, as a result of decreased payments under the Credit Facility without
corresponding decreases in cash flows from the Company's investments. Various
financial vehicles exist which would allow Company management to mitigate the
impact of interest rate fluctuations on the Company's cash flows and earnings.
On December 1, 1998, the Company entered into an interest rate swap agreement
with a notional amount of $10,000,000 to reduce the impact of changes in
interest rates on the Credit Facility floating rate debt. Management may engage
in additional hedging strategies in the future, depending on management's
analysis of the interest rate environment and the costs and risks of such
strategies.
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<PAGE>
Item 8. Financial Statements and Supplementary Data.
PAGE
(a) 1. FINANCIAL STATEMENTS
Independent Auditors' Report 22
Consolidated Balance Sheets as of December 31, 1999 and
1998 23
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 24
Consolidated Statements of Changes in Shareholders'
Equity/Partners' Capital (Deficit) for the years ended
December 31, 1999, 1998 and 1997 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 26
Notes to Consolidated Financial Statements 28
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<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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 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 20, 2000
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<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- ------------
ASSETS
<S> <C> <C>
Real estate, net $172,784,964 $174,876,580
Investment in partnerships 5,923,199 6,095,543
Mortgage loan receivable 3,220,191 3,267,037
Loans receivable from affiliates 2,077,886 2,081,015
Cash and cash equivalents 2,226,295 3,003,474
Accounts receivable-tenants, net of allowance for
doubtful accounts of $343,000 and $383,000,
respectively 2,958,033 2,442,896
Deferred costs, net 2,800,537 2,387,683
Other assets 1,401,319 1,235,742
----------- -----------
Total Assets $193,392,424 $195,389,970
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 59,239,944 $ 58,864,099
Accounts payable and other liabilities 3,169,953 3,575,499
Due to Advisor and affiliates 344,428 355,915
Distributions payable 2,076,125 2,607,054
------------ ------------
Total Liabilities 64,830,450 65,402,567
------------ ------------
Minority interest of unitholders in the Operating
Partnership 7,260,370 6,803,895
------------ ------------
Commitments and Contingencies
Shareholders' equity:
Common stock; $.01 par value; 50,000,000 shares
authorized; 8,053,159 issued and 8,046,859
outstanding and 8,051,159 issued and 8,044,859
outstanding in 1999 and 1998, respectively 80,531 80,511
Treasury stock; $.01 par value; 6,300 shares (63) (63)
Additional paid in capital 125,319,076 125,299,096
Distributions in excess of net income (4,097,940) (2,196,036)
----------- -----------
Total Shareholders' Equity 121,301,604 123,183,508
----------- -----------
Total Liabilities and Shareholders' Equity $193,392,424 $195,389,970
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-23-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $19,680,116 $13,402,982 $7,761,826
Tenant reimbursements 4,682,075 3,914,656 1,953,948
Income from equity investments 291,082 423,624 193,511
Interest income 482,442 1,649,071 751,142
Other 218,786 114,470 95,370
---------- ---------- ----------
Total revenues 25,354,501 19,504,803 10,755,797
---------- ---------- ----------
Expenses:
Repairs and maintenance 1,910,194 1,503,746 931,588
Operating 2,650,579 1,786,619 926,426
Real estate taxes 2,436,047 1,724,424 1,190,345
Interest 4,489,556 1,931,874 558,994
General and administrative 1,998,052 1,819,556 832,290
Depreciation and amortization 4,897,811 3,849,190 2,655,049
Other 751,598 929,107 214,346
---------- ---------- ----------
Total expenses 19,133,837 13,544,516 7,309,038
---------- ---------- ----------
Income before gain on sale of investment 6,220,664 5,960,287 3,446,759
Gain on sale of investment in partnership 0 779,893 0
---------- ---------- ----------
Income before minority interest 6,220,664 6,740,180 3,446,759
Minority interest in income of the
Operating Partnership (397,583) (93,547) (8,263)
---------- ---------- ----------
Net income $ 5,823,081 $ 6,646,633 $3,438,496
========== ========== ==========
Net income per share:
Basic $ .72 $ .83 $ .18*
========== ========== ==========
Diluted $ .72 $ .82 $ .18*
========== ========== ==========
Weighted average shares outstanding:
Basic 8,046,574 8,049,987 8,050,727*
========== ========== ==========
Diluted 8,046,574 8,075,390 8,050,727*
========== ========== ==========
</TABLE>
*Represents amount for the three months ended December 31, 1997. Net income per
unit information for the period before October 1, 1997 is not presented because
it is not indicative of the Company's continuing capital structure.
See accompanying notes to consolidated financial statements
-24-
<PAGE>
<TABLE>
<CAPTION>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
Common Stock Treasury Stock
Limited General ------------------ -------------------
Partners Partners Shares Amount Shares Amount
-------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $69,352,193 $(256,763) 0 0 0 0
Net income - January 1, 1997 to
September 30, 1997 1,674,755 343,371 0 0 0 0
Distributions - January 1, 1997 to
September 30, 1997 (3,600,005) (362,818) 0 0 0 0
Consolidation and issuance of shares (67,426,943) 276,210 8,050,727 $80,507 0 0
Consolidation costs 0 0 0 0 0 0
Net income - October 1, 1997 to
December 31, 1997 0 0 0 0 0 0
Distributions - October 1, 1997 to
December 31, 1997 0 0 0 0 0 0
----------- ------------ ---------- ---------- ---------- --------
Balance at December 31, 1997 0 0 8,050,727 80,507 0 0
Net income 0 0 0 0 0 0
Issuance of shares of common stock 0 0 432 4 0 0
Purchase of treasury shares 0 0 0 0 (6,300) $ (63)
Consolidation costs 0 0 0 0 0 0
Distributions 0 0 0 0 0 0
----------- ------------ ---------- ---------- ---------- ---------
Balance at December 31, 1998 0 0 8,051,159 80,511 (6,300) (63)
Net income 0 0 0 0 0 0
Issuance of shares of common stock 0 0 2,000 20 0 0
Distributions 0 0 0 0 0 0
----------- ------------ ---------- ---------- ---------- --------
Balance at December 31, 1999 $ 0 $ 0 8,053,159 $80,531 (6,300) $ (63)
=========== ============ ========= ====== ====== ======
<CAPTION>
Additional Distributions
Paid-in in Excess of
Capital Net Income TOTAL
------------- ------------- ------------
<S> <C> <C> <C>
Balance at January 1, 1997 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 $126,719,503 0 59,649,277
Consolidation costs (1,243,195) 0 (1,243,195)
Net income - October 1, 1997 to
December 31, 1997 0 $ 1,420,370 1,420,370
Distributions - October 1, 1997 to
December 31, 1997 0 (1,932,174) (1,932,174)
------------- ---------- ------------
Balance at December 31, 1997 125,476,308 (511,804) 125,045,011
Net income 0 6,646,633 6,646,633
Issuance of shares of common stock 4,996 0 5,000
Purchase of treasury shares (58,516) 0 (58,579)
Consolidation costs (123,692) 0 (123,692)
Distributions 0 (8,330,865) (8,330,865)
------------- ---------- ------------
Balance at December 31, 1998 125,299,096 (2,196,036) 123,183,508
Net income 0 5,823,081 5,823,081
Issuance of shares of common stock 19,980 0 20,000
Distributions 0 (7,724,985) (7,724,985)
------------- ----------- -----------
Balance at December 31, 1999 $125,319,076 $(4,097,940) $121,301,604
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-25-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $5,823,081 $6,646,633 $3,438,496
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investment in partnership 0 (779,893) 0
Loss on repayments of mortgage loans receivable 0 138,438 0
Depreciation and amortization 4,954,959 3,966,178 2,702,274
Minority interest in income of the Operating
Partnership 397,583 93,547 8,263
Distributions from equity investments
in excess of (exceeded by) income 129,626 97,954 (19,448)
Changes in operating assets and liabilities:
Accounts receivable-tenants (474,991) (1,353,348) 15,090
Allowance for doubtful accounts (40,146) 79,978 (907)
Other assets (165,577) (696,092) (213,902)
Due to Advisor, general partners and affiliates 8,513 (146,920) 159,251
Accounts payable and other liabilities (405,546) 1,704,105 491,380
Leasing commissions and costs (659,579) (166,256) (191,730)
---------- ---------- ----------
Total adjustments 3,744,842 2,937,691 2,950,271
---------- ---------- ----------
Net cash provided by operating activities 9,567,923 9,584,324 6,388,767
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of investment in partnership 0 4,727,500 0
Improvements to real estate (1,308,093) (695,177) (33,486)
Acquisitions of real estate including
acquisition expenses (653,015) (51,598,294) (8,912,945)
Increase in deferred acquisition expenses (45,038) (114,229) (47,459)
Repayments of loans receivable from affiliates 3,129 3,060,000 0
Loans made to affiliate 0 (2,081,015) 0
Principal payments received on mortgage loans 32,416 27,528,253 39,994
Closing costs relating to the repayment of
mortgage loan receivable 0 (19,537) 0
Investment in partnership 0 (895,200) 0
---------- ---------- ----------
Net cash used in investing activities (1,970,601) (20,087,699) (8,953,896)
---------- ---------- ----------
Cash flows from financing activities:
Repayments of notes payable (538,401) (28,905,463) (1,720,907)
Proceeds from notes payable 1,500,000 44,568,000 13,375,000
Distributions paid to shareholders (8,327,874) (7,728,904) (5,099,300)
Increase in deferred loan costs (553,324) (896,901) (919,302)
Distributions paid to minority interest (454,902) (74,942) 0
Cash effect of Consolidation and issuance
of shares 0 0 2,510,103
Purchase of treasury shares 0 (58,579) 0
Consolidation costs 0 (123,692) (1,243,195)
Consolidation costs allocated to
minority interest 0 (720) (7,233)
---------- ---------- ----------
Net cash (used in) provided by
financing activities (8,374,501) 6,778,799 6,895,166
---------- ---------- ----------
</TABLE>
(continued)
-26-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents (777,179) (3,724,576) 4,330,037
Cash and cash equivalents at the beginning of
the year 3,003,474 6,728,050 2,398,013
--------- --------- ---------
Cash and cash equivalents at the end of the year $2,226,295 $3,003,474 $6,728,050
========== ========== ===========
Supplemental information:
Interest paid $4,841,223 $1,626,784 $ 562,240
========== ========== ===========
Supplemental disclosure of noncash activities:
Notes payable assumed in acquisition of real
estate $ 0 $23,952,320 $ 0
========== ========== ===========
Real estate acquired for units
in the Operating Partnership $ 0 $ 6,120,257 $ 0
========== ========== ===========
Payable to directors liquidated
through the issuance of shares
of common stock $ 20,000 $ 5,000 $ 0
========== ========== ===========
Reclassification of deferred acquisition expenses
to real estate upon purchase $ 61,278 $ 47,459 $ 0
========== ========== ===========
Real estate acquired through issuance of
purchase money notes to sellers $ 0 $ 705,000 $ 0
========== ========== ===========
Repayment of purchase money notes
to sellers through the issuance
of units in the Operating Partnership $ 585,754 $ 0 $ 0
========== ========== ===========
Consolidation and issuance of shares:
Increase in real estate $ 0 $ 0 $(16,856,558)
Increase in investment in partnerships 0 0 (9,295,706)
Increase in mortgage loans receivable 0 0 (31,049,146)
Increase in loan receivable from affiliate 0 0 (3,060,000)
Increase in accounts receivable-tenants 0 0 (380,490)
Increase in other assets 0 0 (243,231)
Increase in notes payable 0 0 1,324,308
Increase in accounts payable and other liabilities 0 0 340,138
Increase in due to Advisor, general partners and
affiliates 0 0 207,392
Increase in distributions payable 0 0 1,136,477
Decrease in limited partners' capital 0 0 (67,426,943)
Increase in general partners' capital 0 0 276,210
Increase in minority interest 0 0 737,642
Issuance of shares of common stock 0 0 124,289,907
--------- --------- -----------
$ 0 $ 0 $ 0
========== ========== ===========
Distributions to shareholders declared $(7,724,985) $(8,330,865) $(5,894,997)
Increase (decrease) in distributions payable
to shareholders/partners (602,889) 601,961 795,697
--------- --------- ---------
Distributions paid to shareholders $(8,327,874) $(7,728,904) $(5,099,300)
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-27-
<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. As of December 31, 1999, the Company owned a portfolio of 28 retail
properties (the "Retail Properties") containing a total of approximately 3.0
million gross leaseable square feet, held partnership interests in two suburban
garden apartment properties (the "Multifamily Properties") and held one FHA
insured participating mortgage secured by a suburban garden apartment property
(the "FHA Mortgage").
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of four publicly registered, non-listed limited
partnerships, Summit Insured Equity L.P. ("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"). One of the general partners of the Partnerships was 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 its consolidated subsidiaries
and, for references prior to October 1, 1997, refers to 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 interests in the Partnership based upon each partner's proportionate
interest in the Common Stock issued to their Partnership in the Consolidation.
The Common Stock commenced trading on the American Stock Exchange on October 10,
1997 under the symbol "AER". As of December 31, 1999, there were 8,046,859
shares of Common Stock outstanding (an additional 777,213 shares were reserved
for issuance upon conversion of OP Units, as defined below).
The Company is governed by a board of directors comprised of two independent
directors and three directors who are affiliated with Related. The Company has
engaged Related Aegis LP (the "Advisor"), a Delaware limited partnership and an
affiliate of Related, 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 "Operating
Partnership" or "OP"), of which the Company is the sole general partner and
holder of 91.19% of the units of partnership interest (the "OP Units") at
December 31, 1999. Also, at December 31, 1999, 5.68% and 3.13% of the OP Units
are held by the sellers of three of the Retail Properties and by affiliates of
Related, respectively.
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, was 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. Results of operations and other
operating financial data for the Company 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.
Insured I is a Delaware limited partnership formed on December 12, 1985 which,
subsequent to the Consolidation, became an indirectly wholly-owned subsidiary of
the Company.
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) Real Estate
The carrying amount of real estate 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 a
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) Investment in Partnerships
The Company accounts for its investment as a limited partner in partnerships,
which own the Multifamily Properties, using the equity method of accounting
because it exercises significant influence over, but does not control, these
limited partnerships.
-28-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e) Mortgage Loans Receivable
Amounts received or receivable for interest payments on loans are reflected as
interest income.
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 its mortgage loan
receivable 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 loan. 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, 1999, 1998 and 1997.
g) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and money market funds, for
which cost approximates market value.
h) Deferred Insurance Costs
Costs related to an insurance policy from Continental Casualty Company for the
benefit of Insured I (see Note 3) were being amortized over a 10 year period
which expired in April 1999.
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 in (h), (i) and (j) above
is included in depreciation and amortization expense.
k) Deferred Acquisition Expenses
Direct costs incurred in connection with the proposed purchase of Retail
Properties are deferred. Upon acquisition of Retail Properties, the associated
costs are capitalized as real estate. Direct costs incurred in connection with
Retail Properties which are not acquired, and all indirect acquisition costs,
are charged to operations.
l) Consolidation Costs
Costs incurred in the Consolidation including legal, accounting and registration
fees, amounting to $1,366,887 and $7,953, were charged to shareholders' equity
and minority interest of unitholders in the OP, respectively.
m) 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.
-29-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
n) 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 REIT 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.
During 1999, the Company declared distributions of $.96 per share. For federal
income tax purposes, $.26 per share of ordinary income was carried over from
1998, $.66 and $.32 per share of ordinary income and return of capital,
respectively, was reported to shareholders for 1999 and $.24 per share of
ordinary income was carried over to 2000.
o) Comprehensive Income
Because the Company has no items of other comprehensive income, the Company's
net income and comprehensive income are the same for all periods presented.
p) 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 statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
q) Segment Information
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires enterprises to report certain financial and descriptive
information about their reportable operating segments, and certain
enterprise-wide disclosures regarding products and services, geographic areas
and major customers. The Company is an investor in real estate related assets
and operates in only one reportable segment. The Company does not have or rely
upon any major customers. All of the Company's investments are, or are secured
by, real estate properties located in the United States; accordingly, all of its
revenues were derived from U.S. operations.
r) New Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As amended, it is
effective for the Company beginning with the first quarter of 2001. Currently,
the only derivative instrument owned by the Company is an interest rate swap
agreement (see Note 7). SFAS No. 133 will require the Company to carry such swap
agreement at its fair value at the balance sheet date, which was approximately
$75,000 at December 31, 1999.
s) Reclassifications
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform to the 1999 presentation.
NOTE 3 - Real Estate
The components of real estate are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Land $ 39,798,459 $ 39,467,426
Buildings and improvements 156,239,538 154,677,484
----------- -----------
196,037,997 194,144,910
Less: Accumulated depreciation (23,253,033) (19,268,330)
------------ -----------
$172,784,964 $174,876,580
============ ===========
</TABLE>
On September 8, 1999, the Company acquired an out-parcel of developable land
contiguous to the Rolling Hills Square Retail Property for a purchase price of
$325,000, not including acquisition fees and expenses of approximately $16,000.
The acquisitions of Governor's Square, Southgate and Crossroad East, three
Retail Properties with purchase prices of $8,200,000, $15,100,000 and
$4,800,000, respectively, were partially financed through the issuance of
94,726, 208,914 and 167,149 OP Units (subject to adjustment) valued at
$1,231,438, $2,715,882 and $2,172,937. These 470,789 OP Units were convertible
to shares of Common Stock on a one-to-one basis, subject to adjustment,
beginning on the one year anniversary of their respective closing dates. The OP
Units were issued at an agreed upon value of $13 per OP Unit. If, as of the last
trading day prior to the first anni-
-30-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
versary of the closing date (the "Post-Closing Adjustment Date"), the "Average
Price Per Share" (as defined) was less than $13, the Company was obligated to
issue additional OP Units to the respective sellers in the amount of the
difference between (i) the quotient obtained by dividing the OP Unit value at
$13 per OP Unit by the Average Price Per Share as of the Post-Closing Adjustment
Date and (ii) the number of OP Units issued on the closing date. An additional
28,187 OP Units were issued to the seller of Governor's Square on the
Post-Closing Adjustment Date (May 28, 1999) based on an Average Price Per Share
of $10.01875. An additional 92,439 and 73,957 OP Units were issued to the
sellers of Southgate and Crossroads East, respectively, on the Post-Closing
Adjustment Date (December 9, 1999) based on an Average Price Per Share of
$9.0125.
Amounts estimated to be recoverable from future operations and ultimate sales
are greater than the carrying value of each property owned at December 31, 1999
and 1998. 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, 1999.
<TABLE>
<CAPTION>
1999 1998 1997*
---- ---- ----
<S> <C> <C> <C>
1. Westbird/Miami, FL 4% 6% 10%
2. Winery Square/Fairfield, CA 5% 7% 10%
3. Mountain View Village/Snellville, GA 4% 6% 10%
4. Forest Park Square/Cincinnati, OH 4% 6% 10%
</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 consolidated subsidiaries which include Insured I
and the other Partnerships pursuant to the Consolidation.
During the years ended December 31, 1999, 1998 and 1997, the Kroger Company,
which is a tenant at six shopping centers, accounted for approximately 12%, 17%
and 28%, respectively, of the Company's total gross revenues.
Based on the carrying value at December 31, 1999 and 1998, approximately 15% of
the Company's investment properties are located in Ohio, 11% are located in
Florida, 11% are located in North Carolina and 10% are located in Virginia. No
other states comprise more than 10% of the total carrying value.
Insured I and Insured II, which are indirectly wholly-owned subsidiaries of the
Company, are the record owners of fourteen of the Retail Properties. Insured I
and II are each the beneficiary of an insurance policy (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 Retail Properties 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 such Retail 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 such Retail 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 such Retail
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 such 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 the
Original Contributions to either Insured I or Insured II, as applicable, or any
lesser amount insured under the Policy. In November 1999, the insurance policy
issued in connection with Summit Insured I expired pursuant to its terms. The
insurance policy issued in connection with Summit Insured II will expire in May
2001. No payments were received on the Summit Insured I policy and none are
expected on the Summit Insured II policy.
-31-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Deferred Costs
<TABLE>
<CAPTION>
The components of deferred costs are as follows:
December 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Deferred insurance costs $ 0 $6,005,804
Deferred loan costs 2,395,925 1,842,601
Deferred leasing commissions and costs 1,426,098 928,148
Deferred acquisition expenses 97,989 114,229
---------- ----------
3,920,012 8,890,782
Less: Accumulated amortization (1,119,475) (6,503,099)
---------- ----------
$2,800,537 $2,387,683
========= =========
</TABLE>
During the year ended December 31, 1999, fully amortized deferred insurance
costs in the amount of $6,005,804 were written off.
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, and 9.85% on a subsequent investment of
$1,949,805. These preferred equity returns are cumulative and non
interest-bearing. The cumulative, unrecorded and undistributed preferred equity
returns to the Company totaled $1,763,772 and $1,610,549 at December 31, 1999
and 1998, respectively. 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 98.99%.
The Company owned a limited partnership investment in the Dominion Totem Park
Limited Partnership ("Dominion"), which acquired and operated the Chateau Creste
apartment complex in Kirkland, Washington. Under the terms of this investment,
the Company was entitled to receive a preferred equity return of 9.625% per
annum on an initial cash contribution of $4,149,585. 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
$4,727,500, which was $779,893 in excess of the carrying value of this
investment at the date of sale.
On August 26, 1998, the Company invested $895,200 for a 40% interest as a
limited partner in FAI Ltd. ("FAI"), the limited partnership which owns
Weatherly Walk Apartments (see Note 6). This equity interest earns an annual
preferred return of 10.5% on $895,200, paid monthly, plus 40% of excess cash
flow and sale or refinancing proceeds. As of December 31, 1999, the Company had
received all of the preferred returns due from FAI.
Amounts estimated to be recoverable from future operations and ultimate sales
are greater than the carrying value of the Company's investments in partnerships
at December 31, 1999.
NOTE 6 - Mortgage Loans Receivable
As of January 1, 1998, the Company held three FHA Mortgages and three equity
loans (the FHA Mortgages and the equity loans together, the "Mortgage Loans");
two of the Mortgage Loans were repaid in 1998. All base interest and the
principal amount of each of the FHA Mortgages were coinsured by the FHA (80%)
and an affiliate of the Advisor (20%). The FHA Mortgages required monthly
payments of principal and interest over the life of the loans. The FHA Mortgages
bore interest at 8.95% and were scheduled to mature during the period January
2024 to January 2030. The interest rate of 8.95% included a servicing fee of
0.07% paid by the developer to Related Mortgage Corporation, an affiliate of the
Advisor, and excluded additional interest which may have been payable under
certain circumstances.
The equity loans were made to the same developers as 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 were 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 were
uninsured, but were secured by the partnership interests of the entities which
own the underlying properties.
In addition to the Mortgage Loans, the Company held a loan of $3,060,000 (the
"Cross Creek Loan") to Walsh/Cross Creek Limited Partnership (the "Cross Creek
Obligor"), one of the FHA Mortgagors, which was used to pay for costs incurred
to complete construction and to fund operating deficits. The Cross Creek Loan
bore interest at the prime rate plus 1% and was due on January 1, 2030 or on the
occurrence of certain events. The amount loaned to the Cross Creek Obligor was
classified as a loan receivable from affiliate and was anticipated to be repaid
from cash flows from the Cross Creek property. Stephen M. Ross holds a majority
inter-
-32-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
est in the Advisor and had 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.
On June 24, 1998, the Cross Creek Obligor, the owner of Cross Creek Apartments
("Cross Creek") and an affiliate of the Advisor, sold Cross Creek to a third
party for $23.4 million. The Cross Creek Obligor then fully repaid its
outstanding debt due to the Company totaling $22,199,045, including a
$16,971,528 FHA Mortgage, a $1,783,900 equity loan, the $3,060,000 Cross Creek
Loan, a $286,948 prepayment penalty due the Company on the FHA Mortgage and
accrued interest through the closing date of $96,669 resulting in a loss on the
repayment (including the prepayment penalty) in the amount of $92,504 (due to
purchase accounting premiums recorded pursuant to the Consolidation) which is
included in other expenses.
On August 26, 1998, FAI, Ltd. ("FAI"), the limited partnership which owns
Weatherly Walk Apartments and one of the FHA Mortgagors, repaid in full (after
completing a refinancing with an unaffiliated third party) the outstanding
balance of its Mortgage Loan in the amount of $8,380,752 plus accrued interest
of $48,189 resulting in a loss on the repayment in the amount of $45,934 (due to
purchase accounting premiums recorded pursuant to the Consolidation) which is
included in other expenses. Simultaneously, the Company invested $895,200 for a
40% interest as a limited partner in FAI (see Note 5).
As of December 31, 1999 and 1998, the Company held one Mortgage Loan (Woodgate
Manor). As of December 13, 1998, the Company may call for prepayment of the
entire outstanding principal amount at any time. 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 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. As of December 13, 1998, the borrower may elect to
prepay at any time without incurring prepayment penalties.
The general partner interest in the obligor of the Company's remaining Mortgage
Loan is held by an affiliate of the Advisor.
The carrying value of the Mortgage Loan (the FHA Mortgage and equity loan)
secured by Woodgate Manor was $3,220,191 and $3,267,037 at December 31, 1999 and
1998, respectively; the FHA Mortgage loan balance was $2,873,868 and $2,906,284,
respectively. The difference between the carrying value and the FHA Mortgage
loan balance is due to the purchase accounting premiums recorded pursuant to the
Consolidation.
At December 31, 1999 and 1998, the estimated fair value of the Company's
Mortgage Loan receivable approximated its carrying value.
-33-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - Notes Payable
As of December 31, 1999 and 1998, the Company had notes payable with outstanding
balances totaling $59,239,944 and $58,864,099, respectively. Further information
regarding the notes is as follows:
<TABLE>
<CAPTION>
Collateral/
Date of Monthly Carrying
Note/ Payment Outstanding Outstanding Value at
Maturity Interest of Principal Balance Balance December
Noteholder Date Rate and Interest At 12/31/99 At 12/31/98 31, 1999
- ---------- ---------- --------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
New York Life 7/11/95 9.25% $55,984 $ 4,726,178 $ 4,967,164 Forest Park &
Insurance 6/10/00 Highland Fair/
Company $11,987,229
(a) 12/30/97 (b) Interest 30,818,000 29,318,000 (c) (i)
12/30/00 (j) only
Heller 6/24/97 (d) 8.50% $19,992 2,547,557 2,571,651 Barclay Place/
Financial, Inc. 7/1/17 $4,015,163
Nomura 10/28/97 (e) 7.54% $33,130 3,902,472 4,004,897 Village At
Asset Capital 11/11/22 Waterford/
Corporation $6,323,560
Chase Bank 12/16/96 (f) 8.875% $51,717 6,350,323 6,409,003 Oxford Mall/
1/1/07 $8,808,020
Merrill Lynch 9/18/97 (g) 7.73% $79,509 10,776,168 10,888,384 Southgate/
Credit 10/1/07 $15,319,576
Corporation
Sellers of 12/10/98 (h) $0 64,600 (k) 200,000 None
Southgate 12/10/99
Sellers of 12/10/98 (h) $0 16,292 (k) 230,000 None
Crossroads East 12/10/99
Sellers of 12/10/98 (h) $0 38,354 (k) 275,000 None
Crossroads East 12/9/99 ------------ -----------
$59,239,944 $58,864,099
============ ===========
</TABLE>
(a) The Credit Facility is shared among BankBoston, N.A. (28.57%), KeyBank
National Association (28.57%), Citizens Bank of Rhode Island (28.57%) and
Sovereign Bank (14.29%).
(b) The interest rate under the Credit 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
Company has currently elected the 30 day rate which was 5.81% at December 31,
1999.
(c) Outstanding balance of a $70 million senior revolving credit facility
("Credit Facility").
(d) Note was assumed upon purchase of the property by the Company on March 31,
1998.
(e) Note was assumed upon purchase of the property by the Company on April 22,
1998.
(f) Note was assumed upon purchase of the property by the Company on November
24, 1998.
(g) Note was assumed upon purchase of the property by the Company on December 9,
1998.
(h) Note is non-interest bearing.
(i) The Credit Facility was collateralized at December 31, 1999 by thirteen
Retail Properties, one investment in a partnership and one Mortgage Loan with
carrying values of $76,700,206, $5,207,982 and $3,220,191, respectively. In
addition, the obligation under the Credit Facility is guaranteed by the Company,
Insured I, Insured II and TCR-Pinehurst Limited Partnership.
(j) The Company has an option to extend the maturity date to 12/30/03 upon
payment of certain fees.
-34-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(k) The note payable to the sellers of Southgate and the two notes payable to
the sellers of Crossroads East in the amounts of $200,000, $230,000 and
$275,000, respectively, were partially repaid in the amounts of $135,400,
$213,708 and $236,646 through the issuance of 15,030, 23,716 and 26,259 OP Units
on December 9, 1999 based on an Average Price Per Share (see Note 3) of $9.0125.
The balances due of $64,600, $16,292 and $38,354, respectively, were repaid in
cash on January 4, 2000.
On December 1, 1998, the Company entered into an interest rate swap agreement
with a notional amount of $10,000,000, intended to reduce the impact of changes
in interest rates on the Credit Facility. This agreement effectively changes the
Company's interest rate on $10,000,000 of the Credit Facility debt to a fixed
rate of 5.44% and matures on December 1, 2000. The Company accounts for the net
cash settlements under this swap agreement as adjustments to the interest
expense on the Credit Facility. The Company is exposed to credit loss in the
event of nonperformance by the other party to the interest rate swap agreement;
however, the Company does not anticipate nonperformance by the counter party.
The Company estimates that if it decided to terminate this swap agreement at
December 31, 1999, the counter party would be required to pay the Company
approximately $75,000; however, the Company currently has no intention of
terminating this agreement.
Annual principal payment requirements as of December 31, 1999 for each of the
next five fiscal years and thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending Amount
- ----------- -----------
<S> <C>
2000 $ 35,936,221*
2001 322,817
2002 349,726
2003 378,907
2004 407,394
Thereafter 21,844,879
----------
$59,239,944
==========
</TABLE>
*Includes the maturity of the Credit Facility (see note (j) to the table above),
the New York Life Insurance Company note and the notes to the sellers of
Southgate and Crossroads East.
The Company has determined that the carrying value of the notes payable
approximates their fair value at December 31, 1999 and 1998, either because the
interest rate on such notes fluctuates according to a market index, or because
the fixed rate notes bear interest at rates comparable to market rates for
similar instruments.
NOTE 8 - Related Party Transactions
AEGIS REALTY, INC. (AFTER THE CONSOLIDATION)
Pursuant to the Advisory Agreement, the Advisor receives (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 Company's Retail Properties are managed by RCC Property Advisors (the
"Property Manager"), an affiliate of the Advisor, for a fee equal to 4.5% of the
gross rental receipts from the Retail 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 and is reimbursed for certain expenses.
-35-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The costs incurred to related parties for the years ended December 31, 1999 and
1998 and the three months ended December 31, 1997 (after the Consolidation) were
as follows:
<TABLE>
<CAPTION>
Year Year Three Months
Ended Ended Ended
December 31, December 31, December 31,
1999 1998 1997
- ------------ -------------- ------------ --------------
<S> <C> <C> <C>
Acquisition fees $ 23,805 $2,707,157 $ 322,606
Expense reimbursement 271,972 290,639 28,000
Property management fees 1,037,014 735,338 135,759
Leasing commissions and costs 471,888 178,509 38,774
Asset management fee 779,561 630,661 142,105
--------- ---------- ----------
$2,584,240 $4,542,304 $ 667,244
========= ========= ==========
</TABLE>
On December 9, 1998, in connection with the acquisition of two Retail
Properties, the Company made loans (the "OP Unit Loans") totaling $2,081,015 to
Standard Investment Company ("SIC"), a partner in the partnerships which owned
the properties; SIC is not affiliated with the Advisor or its affiliates but
affiliates of the Advisor were also partners in such partnerships. The loans are
secured by the 163,517 OP Units which were issued to SIC in exchange for its
partnership interests in the partnerships which owned the properties and also by
guarantees from the principals of SIC for 25% of the total loan amounts. The OP
Unit Loans bear interest at 7.613% and mature on December 9, 2015 or earlier if
the underlying shopping centers are sold. Interest and principal on the OP Unit
Loans are payable only to the extent of distributions with respect to the OP
Units. Such distributions will be retained by the Company until all accrued
interest and the outstanding balances of the loans are repaid. As of December
31, 1999 and 1998, the balances of these OP Unit Loans totaled $2,077,886 and
$2,081,015, respectively, and are shown as loans receivable from affiliates on
the consolidated balance sheets.
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 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.
The expenses incurred by Insured I to related parties for the nine months ended
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1997
-------------
<S> <C>
Expense reimbursement $ 79,935
Property management fees 309,632
Leasing commissions and costs 99,042
--------
$488,609
========
</TABLE>
The distributions earned by the general partners of Insured I for the nine
months ended September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1997
-------------
<S> <C>
Special Distributions $326,454
Regular Distributions of Adjusted Cash
from Operations 27,273
--------
$353,727
========
</TABLE>
NOTE 9 - Earnings Per Share, Profit and Loss Allocations and Distributions
AEGIS REALTY, INC. (AFTER THE CONSOLIDATION)
Basic net income per share in the amount of $.72, $.83 and $.18 for the years
ended December 31, 1999 and 1998 and the three months ended December 31, 1997,
respectively, equals net income for the periods ($5,823,081, $6,646,633 and
$1,420,370, respec-
-36-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
tively), divided by the weighted average number of shares outstanding for the
periods (8,046,574, 8,049,987 and 8,050,727, respectively).
Diluted net income per share in the amount of $.72, $.82 and $.18 for the years
ended December 31, 1999 and 1998 and the three months ended December 31, 1997,
respectively, equals net income for the periods, divided by the weighted average
number of diluted shares outstanding for the periods (8,046,574, 8,075,390 and
8,050,727, respectively). The weighted average number of diluted shares
outstanding for the year ended December 31, 1998 reflects the weighted average
impact of an additional 148,984 OP Units which would have to be issued to the
sellers of three Retail Properties on the Post-Closing Adjustment Date based on
the closing price per share on December 31, 1998 (see Note 3). For purposes of
this calculation, the additional OP Units were assumed to be immediately
converted to shares of Common Stock.
The stock options issued during 1999 (see Note 11) did not have a dilutive
effect under the treasury stock method, because the average market price of the
Company's Common Stock during the period from issuance to December 31, 1999 did
not exceed the exercise price of the options.
There is no difference between basic and diluted net income per share with
respect to the conversion of the minority interests' OP Units outstanding at
December 31, 1999, 1998 and 1997 into an additional 777,213, 517,625 and 46,836
shares, respectively, of Common Stock because the earnings of an OP Unit are
equivalent to the earnings of a share of Common Stock.
Net income per unit information for the period before the Consolidation is not
presented because it is not indicative of the Company's continuing capital
structure.
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 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 1% to the general partners.
NOTE 10 - Leases
Future minimum base rentals due from tenants under non-cancelable operating
leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31 Amount
- ----------------------- ----------
<S> <C>
2000 $ 17,582,000
2001 16,079,000
2002 13,908,000
2003 12,103,000
2004 10,642,000
Thereafter 40,957,000
------------
Total $111,271,000
============
</TABLE>
Certain leases require the lessees to reimburse the Company for real estate
taxes, insurance costs and certain other reimbursable expenses.
All 28 Retail Properties have tenants with leases that require payment of
percentage rent. Percentage rent is an amount paid by the tenant which
represents a portion of its sales over a specified threshold amount as called
for in the lease. Percentage rent received during the years ended December 31,
1999, 1998 and 1997 was approximately $183,000, $132,000 and $121,000,
respectively.
NOTE 11 - Common Stock
The Company has 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 affiliates and their respective
employees and officers with the interests of the stockholders by providing the
Advisor and its affiliates with substantial financial interest in the Company's
success. The Compensation Committee administers 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 has 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 (805,073 shares).
-37-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 by the Compensation
Committee in such succeeding year.
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 may vest immediately upon
issuance or in accordance with the determination of the Compensation Committee.
The Company's distributions per share of Common Stock for the years ended
December 31, 1999 and 1997 did not exceed $.9869 per share. In 1998, the Company
distributed $1.035 per share of Common Stock ($0.96 from continuing operations
and a $0.075 special capital gains distribution), thus enabling the Compensation
Committee, at their discretion, to issue options. Three percent of the shares
outstanding as of December 31, 1998 are equal to 241,346 shares.
On August 6, 1999, options to purchase 30,000 shares of Common Stock were
granted to an officer of the Company and certain employees of an affiliate of
the Advisor, who are not employees of the Company. The exercise price of these
options is $9.50 per share. The term of each option is ten years. The options
will vest in equal installments on August 6, 2000, 2001 and 2002. The Company
has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" for its stock options issued to non-employees. Accordingly,
compensation cost is accrued based on the estimated fair value of the options
issued, and amortized over the vesting period. Because vesting of the options is
contingent upon the recipient continuing to provide services to the Company
until the vesting date, the Company estimates the fair value of the non-employee
options at each period end up to the vesting date, and adjusts expensed amounts
accordingly. The compensation cost will be amortized over the vesting period of
the options. The 30,000 options granted on August 6, 1999 had an estimated fair
value at that date of $0.59 per option grant, or a total of $17,607. The fair
value of each option grant is estimated using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants in 1999:
dividend yield of 8%, expected volatility of 18%, risk-free interest rate of 6%
and expected lives of ten years. None of the options granted during 1999 were
exercised or expired.
Through calendar year 1999, each independent director was entitled to receive
annual compensation for serving as a director in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or shares of Common Stock
valued based on the fair market value at the date of issuance. Beginning in
calendar year 2000, the annual compensation for each independent director was
increased from $15,000 to $17,500 and the maximum payable in cash was increased
from $5,000 to $7,500. As of December 31, 1999 and 1998, 1,216 and 216 shares,
respectively, having an aggregate value of $12,500 and $2,500, respectively,
have been issued to each of the Company's two independent directors as
compensation for their services.
On October 9, 1998, the Board of Directors authorized the implementation of a
stock repurchase plan, enabling the Company to repurchase, from time to time, up
to 500,000 shares of its Common Stock. The repurchases will be made in the open
market and the timing will be dependent on the availability of shares and other
market conditions. As of both December 31, 1999 and 1998, the Company had
acquired 6,300 shares of its Common Stock for an aggregate purchase price of
$58,579 (including commissions and service charges). Repurchased shares are
accounted for as treasury stock.
On January 29, 1999, the Company adopted a shareholder rights plan (the
"Shareholder Rights Plan"). Terms of the Shareholder Rights Plan provide for a
distribution to common shareholders of record at the close of business on
February 16, 1999 of one Right for each outstanding share of Common Stock of the
Company. Subject to limited exceptions, the Rights will be exercisable if a
person or group acquires 15% or more of the Company's Common Stock or announces
a tender offer for 15% or more of the Common Stock. Depending on the
circumstances, the effect of the exercise of the Rights will be to permit each
holder of a Right to either purchase stock in the Company or stock of the buyer,
at a substantial discount, and, in so doing, materially dilute the level of
ownership of the buyer in the Company. The Company will be entitled to redeem
the Rights at $.01 per Right at any time before a person has acquired 15% or
more of the outstanding Common Stock. The Shareholder Rights Plan will expire on
February 16, 2009.
The Company was created as part of the settlement in 1997 of class action
litigation against, among others, the sponsors of the Partnerships which were
consolidated to form the Company. As part of that settlement, counsel ("Class
Counsel") for the partners of the Partnerships had the right to petition the
United States District Court for the Southern District of New York (the "Court")
for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be
determined in the Court's sole discretion. The Counsel's Fee Shares would have
been based upon a percentage of the increase in value of the Company, ("the
Added Value") if any, as of October 10, 1998 based upon the difference between
(i) the trading prices of the Company's shares of Common Stock during the six
month period ended October 10, 1998 and (ii) the trading prices of the limited
partnership units and the asset values of the Partnerships prior to 10/1/97. As
of October 10, 1998, there was no Added Value and therefore, Class Counsel did
not file a petition for Counsel's Fee Shares.
-38-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
1999 Quarter Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $5,018,188 $4,916,201 $4,998,061 $4,747,666
Tenant reimbursements 1,178,675 1,178,670 1,091,893 1,232,837
Income from equity investments 85,501 85,937 68,014 51,630
Interest income 115,177 124,878 126,412 115,975
Other 32,882 25,519 35,970 124,415
----------- ----------- ----------- ----------
Total revenues 6,430,423 6,331,205 6,320,350 6,272,523
----------- ----------- ----------- ----------
Expenses:
Repairs and maintenance 411,241 365,487 560,325 573,141
Operating 660,629 699,159 639,373 651,418
Real estate taxes 624,396 667,561 581,209 562,881
Interest 1,105,280 1,107,410 1,127,521 1,149,345
General and administrative 455,794 531,163 510,424 500,671
Depreciation and amortization 1,289,742 1,204,899 1,191,916 1,211,254
Other 369,319 198,187 160,981 23,111
----------- ----------- ----------- ----------
Total expenses 4,916,401 4,773,866 4,771,749 4,671,821
----------- ----------- ----------- ----------
Income before minority interest 1,514,022 1,557,339 1,548,601 1,600,702
Minority interest in income of the
Operating Partnership (91,522) (95,915) (98,454) (111,692)
----------- ----------- ----------- ----------
Net income $1,422,500 $1,461,424 $1,450,147 $1,489,010
========= ========= ========= =========
Net income per share:
Basic $ .18 $ .18 $ .18 $ .19
========= ========= ========= =========
Diluted $ .17 $ .18 $ .18 $ .19
========= ========= ========= =========
</TABLE>
-39-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 Quarter Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $2,723,985 $2,933,050 $3,520,886 $4,225,061
Tenant reimbursements 534,178 1,027,607 1,003,172 1,349,699
Income from equity investments 142,121 81,467 84,249 115,787
Interest income 704,121 663,096 189,795 92,059
Other 32,702 15,765 24,318 41,685
--------- --------- --------- ---------
Total revenues 4,137,107 4,720,985 4,822,420 5,824,291
--------- --------- --------- ---------
Expenses:
Repairs and maintenance 273,858 236,934 499,963 492,991
Operating 323,735 439,746 414,070 609,068
Real estate taxes 371,607 414,866 449,469 488,482
Interest 365,560 470,691 366,521 729,102
General and administrative 345,498 487,780 483,247 503,031
Depreciation and amortization 759,772 892,386 997,784 1,199,248
Other 188,398 240,778 103,846 396,085
--------- --------- --------- ---------
Total expenses 2,628,428 3,183,181 3,314,900 4,418,007
--------- --------- --------- ---------
Income before gain on sale of investment 1,508,679 1,537,804 1,507,520 1,406,284
Gain on sale of investment in partnership 779,893 0 0 0
--------- --------- --------- ---------
Income before minority interest 2,288,572 1,537,804 1,507,520 1,406,284
Minority interest in income of the
Operating Partnership (13,130) (14,877) (26,049) (39,491)
--------- --------- --------- ---------
Net income $2,275,442 $1,522,927 $1,481,471 $1,366,793
========= ========= ========= =========
Net income per share (basic and diluted) $ 0.28 $ 0.19 $ 0.18 $ 0.17
========= ========= ========= =========
</TABLE>
The results for the quarter ended March 31, 1998 reflect the gain of $779,893
recognized upon the sale of the Dominion investment (see Note 5).
NOTE 13 - 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 have been undertaken on all of the
Company's properties. In certain cases, additional Phase II site investigations
have also been 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 those 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, in February 1998,
determined that there were detectable levels of certain hazardous materials
above threshold levels which are 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.
-40-
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. On May 28, 1999 management received notification form GAEPD that
the site is now listed on the GAEPD Hazardous Site Inventory ("HSI") due, in
part, to the presence of detectable levels of certain hazardous materials at
slightly higher than maximum allowable levels. Management has recently
undertaken a re-sampling to determine if such levels continue to exist in order
to potentially qualify for a de-listing from the HSI. The re-sampling indicated
that no hazardous materials remain detectable above the threshold levels which
are ascertained by GAEPD to require remediation and a formal report has been
submitted to GAEPD to indicate such and to qualify the property for de-listing.
Management has installed wells on the site to monitor ongoing levels of
hazardous materials in the ground water pursuant to GAEPD policy. Management, at
this time, is unable to predict further requirements.
NOTE 14 - Subsequent Events
On February 15, 2000, 1,160 shares of Common Stock, having an aggregate value of
$10,000 based on the closing price per share on February 14, 2000, were issued
to each independent director as compensation for their services for the year
ended December 31, 1999.
-41-
<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.
-42-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C>
(a) 1. FINANCIAL STATEMENTS
Independent Auditors' Report 22
Consolidated Balance Sheets as of December 31, 1999 and 1998 23
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 24
Consolidated Statements of Changes in Shareholders'
Equity/Partners' Capital (Deficit) for the years ended
December 31, 1999, 1998 and 1997 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 26
Notes to Consolidated Financial Statements 28
(a) 2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts for the three
years ended December 31, 1999 48
Schedule III - Real Estate and Accumulated Depreciation and
Notes to Schedule at December 31, 1999 49
Schedule IV - Mortgage Loans on Real Estate at
December 31, 1999 51
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 (incorporated by reference to the Company's
Registration Statement on Form 10, File No. 001-13239)
(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 Ex-
-43-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
<CAPTION>
Sequential
Page
----------
<S> <C>
hibit 10(D) to the Company's Registration Statement on Form S-11, File
No. 33-8755, as amended)
(10C) 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)
(10D) 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)
(10E) 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)
(10F) 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)
(10G) 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)
(10H) 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)
(10I) 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)
(10J) 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)
(10K) 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)
(10L) 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)
(10M) Equity Loan Note, dated December 12, 1988, with respect to Woodgate
Manor in Gainesville, Florida, in the principal amount of $339,700
(incorporated by reference to Exhibit 10(i) in Eagle's Current Report
on Form 8-K dated December 12, 1988)
(10N) Subordinated Promissory Note, dated December 12, 1988, with respect to
Woodgate Manor in Gainesville, Florida (incorporated by reference to
Exhibit 10(j) in Eagle's Current Report on Form 8-K dated December 12,
1988)
(10O) Advisory Agreement dated as of October 1, 1997, between the Company,
Aegis Realty Operating Partnership, LP (the "OP") and Related Aegis LP
(the "Advisor") (incorporated by reference to the Company's
-44-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
<CAPTION>
Sequential
Page
----------
<S> <C>
Current Report on Form 8-K, filed with the Commission on March 19,
1998)
(10P) Agreement and Plan of Consolidation dated as of October 1, 1997, by and
among the Company, the OP, Aegis Realty Holding Partnership, LP ("Aegis
Holding"), AOP Merger Sub I, Inc. ("AOP Sub I"), AOP Merger Sub II,
Inc. ("AOP Sub II"), Summit Insured Equity L.P. ("Insured I"), Summit
Insured Equity II L.P. ("Insured II"), Summit Preferred Equity L.P.
("Summit Preferred"), Eagle Insured L.P. ("Eagle"), the Advisor,
Related Insured Equity Associates, Inc. ("Related GP I"), RIDC II, L.P.
("Related GP II"), Related Equity Funding, Inc. ("Related GP III"),
Partnership Monitoring Corporation ("PMC"), Related Federal Insured,
L.P. ("Related GP IV"), Related Insured BUC$ 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)
(10Q) 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)
(10R) 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)
(10S) 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)
(10T) Management Agreement between the Company, Insured I, Insured II, the OP
and the Property Manager dated October 1, 1997 (incorporated by
reference to Exhibit 10Z in the Company's Annual Report on Form 10-K
for the period ended December 31, 1997)
21 List of Subsidiaries (filed herewith) 52
27 Financial Data Schedule (filed herewith) 53
(b) REPORTS ON FORM 8-K
Current report on Form 8-K relating to the resignation of J. Michael
Fried as Chairman of the Board of Directors and Chief Executive Officer
and Stuart J. Boesky as Chief Operating Officer and the unanimous
appointment of Stuart J. Boesky as Chairman of the Board of Directors
and Chief Executive Officer and Michael J. Brenner as a Director was
dated December 16, 1999 and was filed on January 5, 2000.
</TABLE>
-45-
<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 29, 2000 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Director, Chairman of the Board,
President 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/ Stuart J. Boesky Director, Chairman of the Board,
- -------------------- President and Chief Executive Officer March 29, 2000
Stuart J. Boesky
/s/ Michael J. Brenner
- ----------------------
Michael J. Brenner Director March 29, 2000
/s/ Alan P. Hirmes
- ------------------
Alan P. Hirmes Director and Senior Vice President March 29, 2000
/s/Peter T. Allen
- -----------------
Peter T. Allen Director March 29, 2000
/s/ Arthur P. Fisch
- -------------------
Arthur P. Fisch Director March 29, 2000
/s/ John B. Roche Senior Vice President and
- ----------------- Chief Financial Officer March 29, 2000
John B. Roche
/s/ Richard A. Palermo Vice President, Treasurer, Controller
- ---------------------- and Chief Accounting Officer March 29, 2000
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>
1999 Allowance for Doubtful Accounts $383,000 $384,000 $(424,000) $343,000
1998 Allowance for Doubtful Accounts $304,000 $428,000 $(349,000) $383,000
1997 Allowance for Doubtful Accounts $303,000 $ 70,000 $ (69,000) $304,000
</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 consolidated 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, 1999
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to
Initial Cost to Partnership (F) Acquisition Purchase Price Adjustments (E)
------------------------------- ------------- ---------------------------------
Encum- Buildings and Buildings and
brances Land Improvements Improvements Land Improvements
--------- ---------------- ------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers:
Cactus Village $ 0 $ 2,093,532 $ 4,631,948 $ 33,517 $ (42,583) $ (94,681)
Glendale, AZ
Hickory Plaza 0 1,288,328 3,931,633 18,291 (3,750) 69,166
Nashville, TN
Highland Fair (I) 1,288,328 5,059,079 138,661 (21,891) (76,137)
Gresham, OR
Pablo Plaza (H) 2,147,213 5,922,120 508,141 (7,866) 219,775
Jacksonville, FL
Southhaven 0 1,288,328 4,793,938 31,050 0 7,965
Southhaven, MS
Town West (H) 1,932,491 3,303,752 20,814 0 8,104
Indianapolis, IN
Westbird (H) 1,566,070 5,475,510 660,577 2,474 176,774
Miami, FL
Winery Square (H) 4,320,555 8,916,731 157,429 (227,319) (442,051)
Fairfield, CA
Mountain View 0 2,675,960 8,661,498 88,972 (143,357) (500,582)
Village
Shellville, GA
Forest Park Square (I) 1,532,064 7,822,819 10,000 (19,024) (81,321)
Cincinnati, OH
Kokomo Plaza (H) 695,912 6,643,748 31,557 (8,784) (75,074)
Kokomo, IN
Rolling Hills Square (H) 2,624,639 2,516,365 (7) 331,033 46,877
Tucson, AZ
Mountain Park Plaza 0 1,566,015 3,791,633 0 0 0
Atlanta, GA
Applewood Centre (H) 1,795,469 4,574,757 0 0 0
Omaha, NE
Birdneck Center 0 469,227 2,837,048 0 0 25,284
Virginia Beach, VA
The Market Place 0 810,910 4,875,966 0 0 2,800
Newton, NC
Barclay Place 2,547,557 573,079 3,452,804 28,402 0 125,206
Lakeland, FL
The Village At 3,902,472 940,193 5,629,239 0 0 0
Waterford
Midlothian, VA
Governor's Square (H) 1,220,408 7,296,172 14,401 0 42,698
Montgomery, AL
Marion City 0 765,950 4,619,926 0 0 7,000
Square
Marion, NC
Dunlop Village (H) 751,518 4,505,067 0 0 11,500
Colonial Heights,
VA
<CAPTION>
Life on
which
Gross Amount at which Depreciation
Carried At Close of Period (D) in Latest
----------------------------------------- Income
Buildings and Accumulated Year of Date Statement
Land Improvements Total Depreciation Construction Acquired is Computed
----------- -------------- ----------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers:
Cactus Village $ 2,050,949 $ 4,570,784 $ 6,621,733 $ 1,451,986 1986 July 1987 40 years
Glendale, AZ
Hickory Plaza 1,284,578 4,019,090 5,303,668 1,254,869 1974 (A) Apr. 1987 40 years
Nashville, TN
Highland Fair 1,266,437 5,121,603 6,388,040 1,566,173 1986 July 1987 40 years
Gresham, OR
Pablo Plaza 2,139,347 6,650,036 8,789,383 1,931,358 1972 (B) Feb. 1987 40 years
Jacksonville, FL
Southhaven 1,288,328 4,832,953 6,121,281 1,524,509 1984 (C) Feb. 1987 40 years
Southhaven, MS
Town West 1,932,491 3,332,670 5,265,161 1,070,615 1985 May 1987 40 years
Indianapolis, IN
Westbird 1,568,544 6,312,861 7,881,405 1,942,457 1977 Dec. 1986 40 years
Miami, FL
Winery Square 4,093,236 8,632,109 12,725,345 2,655,886 1987 Dec. 1987 40 years
Fairfield, CA
Mountain View 2,532,603 8,249,888 10,782,491 2,327,305 1987 July 1988 40 years
Village
Shellville, GA
Forest Park Square 1,513,040 7,751,498 9,264,538 2,099,176 1988 May 1989 40 years
Cincinnati, OH
Kokomo Plaza 687,128 6,600,231 7,287,359 1,779,070 1988 May 1989 40 years
Kokomo, IN
Rolling Hills Square 2,955,672 2,563,235 5,518,907 260,524 1980 Oct. 1997 30.5 years
Tucson, AZ
Mountain Park Plaza 1,566,015 3,791,633 5,357,648 273,400 1988 Oct. 1997 31.2 years
Atlanta, GA
Applewood Centre 1,795,469 4,574,757 6,370,226 324,396 1989 Oct. 1997 33.1 years
Omaha, NE
Birdneck Center 469,227 2,862,332 3,331,559 191,568 1987 (G) Dec. 1997 40 years
Virginia Beach, VA
The Market Place 810,910 4,878,766 5,689,676 196,093 1989 Dec. 1997 40 years
Newton, NC
Barclay Place 573,079 3,606,412 4,179,491 164,328 1974 (J) Mar. 1998 40 years
Lakeland, FL
The Village At 940,193 5,629,239 6,569,432 245,872 1991 Apr. 1998 40 years
Waterford
Midlothian, VA
Governor's Square 1,220,408 7,353,271 8,573,679 294,159 1960 (K) May 1998 40 years
Montgomery, AL
Marion City 765,950 4,626,926 5,392,876 182,666 1988 June 1998 40 years
Square
Marion, NC
Dunlop Village 751,518 4,516,567 5,268,085 151,571 1986 Sep. 1998 40 years
Colonial Heights,
VA
<PAGE>
<CAPTION>
Cost Capitalized
Subsequent to
Initial Cost to Partnership (F) Acquisition Purchase Price Adjustments (E)
---------------------------------- ------------ ---------------------------------
Encum- Buildings and Buildings and
brances Land Improvements Improvements Land Improvements
--------- ---------------- ---------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers:
Centre Stage (H) 1,052,698 6,305,930 0 0 336,999
Springfield, TN
White Oaks Plaza 0 1,237,309 7,443,249 0 0 0
Spindale, NC
Cape Henry (H) 587,486 3,548,028 0 0 26,223
Virginia Beach,
VA
Emporia West (H) 435,001 2,670,717 0 0 0
Emporia, KS
Oxford Mall 6,350,323 1,289,377 7,740,512 0 0 3,448
Oxford, MS
Southgate 10,776,168 2,269,668 13,384,681 0 0 29,638
Heath, OH
Crossroads East (H) 721,798 4,273,252 0 0 0
Columbus, OH
--------- --------- --------- -------- ------- ---------
$59,120,698 $39,939,526 $154,628,122 $1,741,805 $(141,067) $(130,389)
========== ========== =========== ========= ======== ========
<CAPTION>
Life on
which
Gross Amount at which Depreciation
Carried At Close of Period (D) in Latest
----------------------------------------- Income
Buildings and Accumulated Year of Date Statement
Land Improvements Total Depreciation Construction Acquired is Computed
----------- ------------ ------------ ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers:
Centre Stage 1,052,698 6,642,929 7,695,627 216,013 1989 Sep. 1998 40 years
Springfield, TN
White Oaks Plaza 1,237,309 7,443,249 8,680,558 247,881 1988 Sep. 1998 40 years
Spindale, NC
Cape Henry 587,486 3,574,251 4,161,737 117,853 1986 Sep. 1998 40 years
Virginia Beach,
VA
Emporia West 435,001 2,670,717 3,105,718 77,936 1980 Nov. 1998 40 years
Emporia, KS
Oxford Mall 1,289,377 7,743,960 9,033,337 225,317 1982 Nov. 1998 40 years
Oxford, MS
Southgate 2,269,668 13,414,319 15,683,987 364,411 1962 (L) Dec. 1998 40 years
Heath, OH
Crossroads East 721,798 4,273,252 4,995,050 115,641 1984 (M) Dec. 1998 40 years
Columbus, OH
--------- ---------- ---------- ---------
$39,798,459 $156,239,538 $196,037,997 $23,253,033
========== =========== =========== ==========
</TABLE>
(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 $175,633,959.
(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.
(H) This shopping center is part of a pool of assets collateralizing the Credit
Facility which has an outstanding balance of $30,818,000 at December 31,
1999.
(I) Highland Fair and Forest Park Square collateralize a loan with an
outstanding balance of $4,726,178 at December 31, 1999.
(J) Renovated and expanded in 1988.
(K) Developed and renovated in four phases from 1960 through 1990.
(L) Renovated in 1984 and from 1996 through 1997.
(M) Renovated from 1996 through 1997.
Reconciliation of Real Estate Owned:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period: $194,144,910 $111,042,804 $ 85,512,224
Acquisitions 714,293 82,423,329 25,769,503
Improvements 1,753,345 703,687 36,282
Write-off of improvements (574,551) (24,910) (275,205)
------------ ------------ ------------
Balance at close of period: $196,037,997 $194,144,910 $111,042,804
=========== =========== ===========
Reconciliation of Accumulated Depreciation:
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period: $ 19,268,330 $ 16,404,617 $ 14,841,244
Depreciation Expense 4,114,002 2,880,114 1,835,782
Write-off of accumulated depreciation
on improvements (129,299) (16,401) (272,409)
------------ ------------ ------------
Balance at close of period: $ 23,253,033 $ 19,268,330 $ 16,404,617
=========== =========== ===========
</TABLE>
<PAGE>
AEGIS REALTY, INC. AND SUBSIDIARIES
Schedule IV - Mortgage Loans on Real Estate
December 31, 1999
<TABLE>
<CAPTION>
Original Carrying
Final Periodic Face Amount Amount
Interest Closing Maturity Payment Prior of Mortgage of Mortgage
Description (1) Rate (2) Date Date (3)(5) Terms (4) Liens Loan Loan (6)(7)(8)
- --------------- -------- -------- ----------- --------- ----- ------------- --------------
First Mortgage Loan:
<S> <C> <C> <C> <C> <C> <C> <C>
Woodgate Manor (9) 8.95% 12/12/88 1/1/24 Monthly None $3,110,300 $3,220,191
</TABLE>
(1) The property is a multifamily residential apartment complex.
(2) Includes a servicing fee of 0.07% paid by the mortgagor to Related Mortgage
Corporation (an affiliate of the Advisor).
(3) As of December 13, 1998, the Company may call for prepayment of the entire
outstanding principal amount at any time, subject to the loss of the
co-insurance feature.
(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) As of December 13, 1998, the Borrower may elect to prepay at any time
without incurring prepayment penalties.
(6) Carrying amount of mortgage loans:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Beginning balance $ 3,267,037 $30,980,995
Amortization of purchase accounting premiums (14,430) (66,805)
Collections of principal (32,416) (105,124)
Repayment of the Cross Creek Mortgage Loan (10) 0 (19,042,376)
Carrying amount of the Cross Creek Mortgage Loan
in excess of the repayment (10) 0 (72,967)
Repayment of the Weatherly Walk Mortgage Loan (11) 0 (8,380,752)
Carrying amount of the Weatherly Walk Mortgage Loan
in excess of the repayment (11) 0 (45,934)
---------- ----------
Ending Balance $ 3,220,191 $ 3,267,037
========== ==========
</TABLE>
(7) The aggregate cost of the mortgage loan for Federal income tax purposes at
December 31, 1999 is $2,873,868. The difference in aggregate cost is due to
the purchase accounting premium recorded for financial statement purposes.
(8) The mortgage loan is current with respect to principal and interest.
(9) The general partnership interest of the mortgagor is held by an affiliate
of the Advisor.
(10) On June 24, 1998, Cross Creek Apartments was sold and the related Mortgage
Loan was repaid in full (see Note 6 to the financial statements in "Item 8.
Financial Statements and Supplementary Data")
(11) On August 26, 1998, FAI, Ltd., the limited partnership which owns Weatherly
Walk Apartments, completed a refinancing with an unaffiliated third party
and the related Mortgage Loan was repaid (see Note 6 to the financial
statements in "Item 8. Financial Statements and Supplementary Data")
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES OF THE COMPANY
1. Aegis Realty Operating Partnership, L.P., a Delaware limited partnership
2. Barclay/Aegis Inc., a Delaware corporation
LIST OF SUBSIDIARIES OF AEGIS REALTY OPERATING PARTNERSHIP, L.P.
1. Summit Insured Equity L.P., a Delaware limited partnership
2. Summit Insured Equity L.P. II, a Delaware limited partnership
3. Barclay/Aegis Limited Partnership, a Delaware limited partnership
4. Aegis Waterford, L.L.C. , a Delaware limited liability company
5. Aegis Oxford, L.L.C., a Mississippi limited liability company
6. Southgate Partners Limited Partnership, a Delaware limited partnership
7. Southgate/Aegis L.L.C., , a Delaware limited liability company
8. Crossroads East Shopping Center, Ltd., an Ohio limited liability company
9. Aegis Realty Holding Partnership, L.P. , a Delaware limited partnership
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS 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, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,226,295
<SECURITIES> 0
<RECEIVABLES> 8,599,110
<ALLOWANCES> 343,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,401,319
<PP&E> 196,037,997
<DEPRECIATION> 23,253,033
<TOTAL-ASSETS> 193,392,424
<CURRENT-LIABILITIES> 5,590,506
<BONDS> 59,239,944
0
0
<COMMON> 0
<OTHER-SE> 121,301,604
<TOTAL-LIABILITY-AND-EQUITY> 193,392,424
<SALES> 0
<TOTAL-REVENUES> 25,354,501
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,041,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,489,556
<INCOME-PRETAX> 5,832,081
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,832,081
<EPS-BASIC> .72
<EPS-DILUTED> .72
</TABLE>
