<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-8815
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EQK REALTY INVESTORS I
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(Exact name of Registrant as specified in its Charter)
Massachusetts 23-2320360
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, GA 30342
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(Address of principal executive offices) (Zip code)
(404) 303-6100
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(Registrant's telephone number, including area code)
Indicate by checkmark 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
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APPLICABLE TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING
FIVE YEARS:
Indicate by checkmark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: 9,264,344 Shares as of November
11, 1994.
<PAGE> 2
EQK REALTY INVESTORS I
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1994
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Balance Sheets as of September 30, 1994 3
and December 31, 1993
Statements of Operations for the three 4
and nine months ended September 30, 1994 and
September 30, 1993
Statements of Cash Flows for the nine 5
months ended September 30, 1994 and
September 30, 1993
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results
of Operations
PART II - OTHER INFORMATION
Items 1 through 6. 12
SIGNATURES 13
2
<PAGE> 3
EQK REALTY INVESTORS I
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
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(UNAUDITED)
<S> <C> <C>
ASSETS
Investments in real estate, at cost:
Castleton Commercial Park, net of
valuation allowance of $19,565 $ 61,147 $ 60,313
Harrisburg East Mall 47,646 46,769
--------- ---------
108,793 107,082
Less accumulated depreciation 30,875 28,118
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77,918 78,964
Restricted cash 3,525 4,308
Cash and short-term investments 1,324 1,408
Other assets 8,613 8,483
--------- ---------
TOTAL ASSETS $ 91,380 $ 93,163
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage note payable, net of debt
discounts of $404 and $651,
respectively $ 76,909 $ 75,874
Term loan payable to bank 2,848 2,853
Accounts payable and other liabilities 5,616 6,260
--------- ---------
85,373 84,987
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Shareholders' equity:
Shares of beneficial interest, without
par value: 10,055,555 shares
authorized, 9,264,344 shares
issued and outstanding 135,779 135,779
Accumulated deficit (129,772) (127,603)
--------- ---------
6,007 8,176
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 91,380 $ 93,163
========= =========
</TABLE>
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See accompanying Notes to Financial Statements.
3
<PAGE> 4
EQK REALTY INVESTORS I
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues from rental operations $4,132 $4,599 $12,319 $13,708
Operating expenses, net of tenant
reimbursements 1,401 1,799 4,309 4,698
Depreciation and amortization 1,145 1,150 3,480 3,536
------ ------ ------- -------
Income from rental operations 1,586 1,650 4,530 5,474
Interest expense 2,035 2,202 6,077 6,609
Other expenses, net of
interest income 171 161 622 616
------ ------ ------- -------
Net loss $ (620) $ (713) $(2,169) $(1,751)
====== ====== ======= =======
Net loss per share $(0.06) $(0.08) $ (0.23) $ (0.19)
====== ====== ======= =======
</TABLE>
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See accompanying Notes to Financial Statements.
4
<PAGE> 5
EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,169) $(1,751)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 3,480 3,536
Amortization of discount on
mortgage note payable 247 98
Imputed and deferred interest 973 973
Changes in assets and liabilities:
Increase (decrease) in accounts payable
and other liabilities (124) 410
(Increase) decrease in other assets (803) 272
------- -------
Net cash provided by operating activities 1,604 3,538
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (2,250) (3,343)
Payment of real estate disposition fee (216) --
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Net cash used in investing activities (2,466) (3,343)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage principal payments (5) (628)
------- -------
DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (867) (433)
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF PERIOD 5,716 6,565
------- -------
CASH AND SHORT-TERM INVESTMENTS,
END OF PERIOD $ 4,849 $ 6,132
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 5,026 $ 5,704
======= =======
</TABLE>
- ---------------
See accompanying Notes to Financial Statements.
5
<PAGE> 6
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
EQK Realty Investors I, (the "Company"), a Massachusetts business
trust, was formed pursuant to a Declaration of Trust dated October 8,
1984 to acquire certain income-producing real estate investments.
Commencing with the period beginning April 1, 1985, the Company
qualified and elected real estate investment trust status under the
provisions of the Internal Revenue Code, and adopted December 31 as
its year end, as required for real estate investment trusts.
The Company's portfolio consists of two real estate investments (the
"Properties"): Castleton Commercial Park ("Castleton"), an office
park located in Indianapolis, Indiana; and Harrisburg East Mall
("Harrisburg" or the "Mall"), a regional shopping center located in
Harrisburg, Pennsylvania. In December 1993, the Company sold its two
remaining office buildings within its office complex in Atlanta,
Georgia, formerly known as Peachtree-Dunwoody Pavilion ("Peachtree").
NOTE 2. BASIS OF PRESENTATION
The financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. The financial statements should be read in
conjunction with the audited financial statements and related notes
thereto included in the Annual Report on Form 10-K for the year ended
December 31, 1993.
In the opinion of the Company, all adjustments, which include only
normal recurring adjustments necessary to present fairly its financial
position as of September 30, 1994, its results of operations for the
three and nine months ended September 30, 1994 and 1993 and its cash
flows for the nine months ended September 30, 1994 and 1993, have been
included in the accompanying unaudited financial statements.
Net loss per share for the three and nine months ended September 30,
1994 and 1993 has been computed on the basis of the 9,264,344 shares
outstanding during the periods. Stock warrants issued in December
1992 and 1993 to the Company's mortgage lender are considered common
stock equivalents for purposes of the calculation of net loss per
share. However, the warrants have not been included in the
calculation of net loss per share for the periods presented since the
effect of such calculation would be antidilutive.
6
<PAGE> 7
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. CASH MANAGEMENT AGREEMENT
In connection with the Company's mortgage agreement, the Company has
entered into a Cash Management Agreement with the mortgage lender and
has assigned all lease and rent receipts to the lender as additional
collateral. Pursuant to this agreement, a third-party escrow agent
has been appointed to receive all rental payments from tenants and to
fund monthly operating expenses in accordance with a budget approved
by the lender. As of September 30, 1994, a balance of $611,000 was
held by the third-party escrow agent in accordance with the Cash
Management Agreement. The agreement also provides for a capital
reserve account, which is maintained by the escrow agent.
Disbursements from this account, which is funded each month with any
excess operating cash flow, are limited to capital expenditures
approved by the lender. As of September 30, 1994, the balance of the
capital reserve account was $2,598,000.
NOTE 4. ADVISORY AND MANAGEMENT AGREEMENTS
The Company has entered into an agreement with Equitable Realty
Portfolio Management, Inc., a wholly owned subsidiary of Equitable
Real Estate Investment Management, Inc. ("Equitable Real Estate"), to
act as its "Advisor". The Advisor makes recommendations to the
Company concerning investments, administration, and day-to-day
operations.
Under the terms of the advisory agreement, as amended in December
1989, the Advisor receives a management fee that is based upon the
average daily per share price of the Company's shares plus the average
daily balance of outstanding mortgage indebtedness. Such fee is
calculated using a factor of 42.5 basis points (0.425%) and is payable
monthly without subordination. For the nine months ended September
30, 1994 and 1993, portfolio management fees were $324,000 and
$359,000, respectively.
As part of the 1989 amendment to the advisory agreement, the Advisor
forgave one-half, or $2,720,000, of the total amount of fees
previously deferred pursuant to subordination provisions of the
original advisory agreement. The remaining deferred fees are to be
paid upon the disposition of the Company's properties. For financial
reporting purposes, the deferred balance is being discounted by 13%
per year from December 1, 1996. As of September 30, 1994, the
discounted liability for deferred management fees was $2,078,000.
7
<PAGE> 8
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. ADVISORY AND MANAGEMENT AGREEMENTS (CONTINUED)
The Company has also entered into agreements for the on-site
management of each of its properties. Harrisburg East Mall is managed
by Compass Retail, a subsidiary of Equitable Real Estate. Peachtree
was managed under an agreement with a subsidiary of Equitable Real
Estate that specializes in office management and leasing. Castleton
Commercial Park is managed by an unaffiliated third-party management
company.
Management fees paid to each of the Equitable Real Estate management
subsidiaries are generally based upon a percentage of rents and
certain other charges. For Peachtree, the Company also paid leasing
commissions based upon a percentage of total minimum future rents.
Such fees and commissions are comparable to those charged by
unaffiliated third-party management companies providing comparable
services. For the nine months ended September 30, 1994 and 1993,
management and leasing fee expense attributable to services rendered
by subsidiaries of Equitable Real Estate were $234,000 and $377,000,
respectively.
NOTE 5. PROPERTY SALES MATTERS
On November 1, 1994, the Company announced that discussions concerning
the potential sale of Harrisburg to the Simon Property Group, Inc.
(NYSE symbol SPG) had been terminated. Harrisburg was to be part of a
portfolio of regional shopping malls that were to be sold to Simon in
late 1994. Despite the fact that the various parties to this
contemplated transaction could not reach agreement on final terms, the
Company's management remains committed to pursuing the orderly
liquidation of its real estate holdings.
8
<PAGE> 9
EQK REALTY INVESTORS I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Capital Resources
The Company's portfolio at September 30, 1994 consists of two real estate
investments (the "Properties"): Castleton Commercial Park ("Castleton"), an
office park located in Indianapolis, Indiana; and Harrisburg East Mall
("Harrisburg" or the "Mall), a regional shopping center located in Harrisburg,
Pennsylvania. During 1993, the Company sold its two remaining office buildings
within its office complex in Atlanta, Georgia, formerly known as
Peachtree-Dunwoody Pavilion or "Peachtree."
As discussed in Note 5 to the Financial Statements presented in Item 2, the
Company continues to pursue the orderly liquidation of its real estate
portfolio. During this process, the Company will make certain capital
expenditures required to enhance or maintain the value of the properties,
including tenant allowances associated with leasing activity. The Company
anticipates making fourth quarter 1994 capital expenditures of approximately
$970,000. One of the conditions of the mortgage restructuring completed in
1992 was the establishment of a capital reserve account, which is maintained by
a third-party escrow agent and from which expenditures must be approved by the
lender. The balance of this account at September 30, 1994 was $2,598,000.
On August 1, 1994, Hess's Department Stores, Inc. ("Hess's") announced its
intention to sell certain of its stores, including its store at Harrisburg, to
The May Department Stores Company ("May"). The Company has entered into a
non-binding letter agreement with May concerning its plans to operate a Hecht's
department store (a division of May) at Harrisburg and its desire to expand and
remodel this store. Such expansion would involve the relocation of Toys'R'Us,
which is presently situated in the basement area previously occupied by Hess's,
to Harrisburg's outparcel building, and the related relocation or lease buyout
of outparcel tenants with lease terms extending beyond 1994.
The Company anticipates incurring costs of approximately $2,500,000 to renovate
the outparcel building in preparation of the Toys'R'Us relocation and to buy
out the leases of certain existing tenants. Such costs will be funded by
existing cash reserves, and to the extent necessary, operating cash flows. The
substitution of Hecht's for Hess's is contingent upon the Company's ability to
execute a lease agreement with Hecht's and requires the consent of the
Company's mortgage lender. No assurances can be given, however, that such
lease agreement ultimately will be executed and that the mortgage lender will
consent to the anchor tenant substitution.
9
<PAGE> 10
Liquidity
The December 1993 sale of the Peachtree buildings and the resulting retirement
of the Harrisburg mortgage notes affects the comparability of the Statements of
Cash Flows for the nine months ended September 30, 1994 and 1993. The
buildings at Peachtree had generated approximately $700,000 of operating cash
flows during the nine months ended September 30, 1993 as measured by net income
before depreciation and amortization expense. However, this decline in
operating cash flows was entirely offset by the positive impact on cash flows
from debt retirement, as the Harrisburg mortgage notes had consumed $1,275,000
of cash flows through principal and interest payments during the nine months
ended September 30, 1993.
During the first nine months of 1994, the Company generated $1,604,000 of cash
flows from operating activities, compared to cash flows generated from
operating activities of $3,538,000 during the corresponding 1993 period. The
1994 results, and the related decline from 1993, were primarily attributable to
the timing of payment of recurring operational expenses at the Properties, an
unusually high level of collections in 1993 of Harrisburg tenant receivables
originating in the prior year, a decline in Castleton's operating cash flows
due to increases in certain operating costs as described below, and the
aforementioned sale of the remaining two buildings at Peachtree, partially
offset by a decrease in interest paid resulting from the retirement of the
Harrisburg mortgage notes.
Cash flows used in investing activities were $2,466,000 and $3,343,000 for the
nine months ended September 30, 1994 and 1993, respectively. The decrease in
1994 investing activities was attributable to lower building and tenant
improvement costs at Harrisburg, partially offset by a $216,000 disposition fee
paid to the Advisor in connection with the sale of the buildings at Peachtree.
The decline in cash flows used in financing activities during the first nine
months of 1994 compared to 1993 was attributable to the repayment of the
Harrisburg mortgage notes in December 1993. In addition to the capital
expenditure requirements described above, liquidity requirements for the
remainder of 1994 will also include principal and interest payments of
approximately $1,677,000 pursuant to existing loan agreements.
In connection with the anchor tenant substitution of Hecht's for Hess's at
Harrisburg as discussed above, the Company expects an approximate $400,000
decrease in minimum rents in 1995, including an approximate $100,000 decrease
in base rent to be received from Hecht's as compared to Hess's base rent. Such
decrease in minimum rents is likely to continue during the initial years of the
Hecht's lease, although such decrease may be offset in whole or in part by
increases in percentage rental and other revenues as a result of expected
increases in Mall customer traffic associated with the inclusion of Hecht's as
an anchor tenant.
The Company's cash management agreement stipulates that all rental payments
from tenants are to be made directly to a third-party escrow agent who also
funds monthly operating expenses in accordance with a budget approved by the
lender. The Company believes that its cash flow for the remainder of 1994 will
be sufficient to fund its various operating requirements, including principal
and interest payments, although its discretion with respect to cash flow
management will be limited by the terms of the cash management agreement.
10
<PAGE> 11
Results of Operations
For the nine month period ended September 30, 1994, the Company reported a net
loss of $2,169,000, or $0.23 per share, compared with a net loss of $1,751,000,
or $0.19 per share, for the comparable period in 1993. For the third quarter
of 1994, a net loss of $620,000, or $0.06 per share, was reported compared to a
net loss of $713,000, or $0.08 per share, in the third quarter of 1993.
The Company's revenues declined during the three and nine month periods ended
September 30, 1994 from the comparable prior year periods, reflecting the
impact of the December 1993 sale of the Company's remaining two buildings at
Peachtree. Revenues at Peachtree for the three and nine month periods in 1993
were $624,000 and $1,780,000, respectively. Revenues at Harrisburg were
$1,741,000 and $5,259,000 during the three and nine months ended September 30,
1994, respectively, reflecting increases of $148,000 and $403,000 over the
related 1993 periods, respectively. Such increases were attributable to
certain insurance recoveries in 1994 and higher income from temporary tenant
leasing. At Castleton, revenues for the three and nine months ended September
30, 1994, $2,391,000 and $7,060,000, respectively, were comparable to amounts
recognized in the related 1993 periods.
Operating expenses declined during the three and nine months ended September
30, 1994 due to the aforementioned sale of the Peachtree buildings. Operating
expenses at Peachtree for the three and nine month periods in 1993 were
$446,000 and $1,086,000, respectively. Operating expenses at Harrisburg for
the three and nine months ended September 30, 1994, $181,000 and $698,000,
respectively, increased over prior year amounts by $8,000 and $261,000,
respectively. The increase in the year-to-date amount is due to an increase in
maintenance expense for snow removal during the first quarter of 1994, and to
increases in costs associated with temporary tenant leasing and in bad debt
expense attributable to the absence of certain recoveries that were realized in
1993. Castleton's operating expenses for the nine months ended September 30,
1994 and 1993 were $3,611,000 and $3,172,000, respectively. The 1994
year-to-date increase is attributable to higher common area expenses such as
utilities and maintenance coupled with a decline in tenant reimbursements for
such operating cost escalations, and to one-time repairs to neighborhood street
lighting. Operating expenses at Castleton for the three months ended September
30, 1994, $1,220,000 were comparable to amounts recognized in the related 1993
period.
Interest expense decreased by $167,000 and $532,000 during the three and nine
months ended September 30, 1994, respectively, over the comparable prior year
periods. This decrease was due to the December 1993 retirement of the
Harrisburg mortgage notes, which accounted for approximately $290,000 of
quarterly interest expense, partially offset by an increase in interest expense
attributable to (i) an increase in the balance of the mortgage note resulting
from the addition to principal of accrued but not currently payable interest
and (ii) the amortization of non-cash expense arising from the issuance of
warrants.
Other expenses for the three and nine months ended September 30, 1994, $171,000
and $622,000, respectively, were comparable to amounts recognized in the
related 1993 periods.
11
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EQK REALTY INVESTORS I
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2. None
4. None
10. None
11. See Note 2 to the Financial Statements.
15. Not Applicable
18. Not Applicable
19. None
22. None
23. Not Applicable
24. None
27. Included in EDGAR transmission only. Financial Data
Schedule (for SEC purposes only)
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter ended September 30, 1994.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1994 EQK REALTY INVESTORS I
By: /s/Gregory R. Greenfield
--------------------------------------
Gregory R. Greenfield
Executive Vice President and Treasurer
(Principal Financial Officer)
By: /s/William G. Brown, Jr.
--------------------------------------
William G. Brown, Jr.
Vice President and Controller
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQK REALTY INVESTORS I FOR THE PERIOD ENDED SEPTEMBER
30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 4,849
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,380
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 135,779
0
0
<OTHER-SE> (129,772)
<TOTAL-LIABILITY-AND-EQUITY> 91,380
<SALES> 0
<TOTAL-REVENUES> 12,319
<CGS> 0
<TOTAL-COSTS> 4,309
<OTHER-EXPENSES> 4,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,077
<INCOME-PRETAX> (2,169)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,169)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,169)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
