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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-8815
EQK REALTY INVESTORS I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Massachusetts 23-2320360
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, GA 30342
(Address of principal executive offices) (Zip Code)
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(404) 303-6100
(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 ____________
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 ____________
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 May 6, 1994.
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EQK REALTY INVESTORS I
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1994
INDEX
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Balance Sheets as of March 31, 1994 3
and December 31, 1993
Statements of Operations for the three 4
months ended March 31, 1994 and
March 31, 1993
Statements of Cash Flows for the three 5
months ended March 31, 1994 and
March 31, 1993
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
PART II - OTHER INFORMATION
Items 1 through 6. 12
SIGNATURES 13
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EQK REALTY INVESTORS I
BALANCE SHEETS
(In thousands, except share data)
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March 31, December 31,
1994 1993
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(Unaudited)
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ASSETS
Investments in real estate, at cost:
Castleton Commercial Park, net of
valuation allowance of $19,565 $ 60,633 $ 60,313
Harrisburg East Mall 46,818 46,769
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107,451 107,082
Less accumulated depreciation 29,069 28,118
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78,382 78,964
Restricted cash 4,494 4,308
Cash and short-term investments 229 1,408
Other assets 8,764 8,483
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TOTAL ASSETS $ 91,869 $ 93,163
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage note payable, net of debt
discounts of $568 and $651,
respectively $ 76,207 $ 75,874
Term loan payable to bank 2,851 2,853
Accounts payable and other liabilities 5,563 6,260
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84,621 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 (128,531) (127,603)
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7,248 8,176
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 91,869 $ 93,163
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See accompanying Notes to Financial Statements.
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EQK REALTY INVESTORS I
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three months ended
March 31,
1994 1993
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Revenues from rental operations $ 4,018 $ 4,486
Operating expenses, net of tenant
reimbursements 1,487 1,568
Depreciation and amortization 1,185 1,179
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Income from rental operations 1,346 1,739
Interest expense 2,014 2,205
Other expenses, net of
interest income 260 232
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Net loss $ (928) $ (698)
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Net loss per share $ (0.10) $ (0.08)
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See accompanying Notes to Financial Statements.
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EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three months ended
March 31,
1994 1993
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Cash flows from operating activities:
Net loss $ (928) $ (698)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,185 1,179
Amortization of discount on
mortgage note payable 83 33
Imputed and deferred interest 312 319
Changes in assets and liabilities:
Increase (decrease) in accounts payable
and other liabilities (54) 465
(Increase) decrease in other assets (515) 282
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Net cash provided by operating activities 83 1,580
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Cash flows from investing activities:
Additions to real estate investments (858) (347)
Payment of real estate disposition fee (216) --
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Net cash used in investing activities (1,074) (347)
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Cash flows from financing activities:
Mortgage principal payments (2) (198)
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Increase (decrease) in cash and
short-term investments (993) 1,035
Cash and short-term investments,
beginning of period 5,716 6,565
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Cash and short-term investments,
end of period $ 4,723 $ 7,600
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Supplemental disclosure of cash
flow information:
Interest paid $ 1,675 $ 1,787
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See accompanying Notes to Financial Statements.
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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:
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 March 31, 1994, its results of operations
for the three months ended March 31, 1994 and 1993 and its cash flows
for the three months ended March 31, 1994 and 1993, have been
included in the accompanying unaudited financial statements.
Net loss per share for the three months ended March 31, 1994 and 1993
have been computed on the basis of the 9,264,344 shares outstanding
during the periods. Stock warrants issued in December 1993 and 1992
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.
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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 March 31, 1994, a balance of $596,000 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 March 31, 1994, the balance of the
capital reserve account was $3,587,000.
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 three months ended
March 31, 1994 and 1993, portfolio management fees were approximately
$108,000 and $122,000, 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. If the
properties are sold before December 1, 1994, the $2,720,000 will be
discounted by 13% per year from December 1, 1994 to the date on which
the last property is sold. For financial reporting purposes, the
deferred balance is discounted from December 1, 1996. As of March
31, 1994, the discounted liability for deferred management fees was
$1,955,000.
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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 three months ended March 31, 1994 and 1993,
management and leasing fee expense attributable to services rendered
by subsidiaries of Equitable Real Estate were $75,000 and $130,000,
respectively.
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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 March 31, 1994 consists of two real estate
investments: 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."
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. For 1994,
the Company's capital budget is $2,500,000, of which approximately $370,000
was spent during the first quarter. 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 March 31, 1994 was approximately $3,600,000.
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 three months ended March 31, 1994 and
1993. As described below, the sale of the remaining buildings at Peachtree
contributed to a decline in the Company's cash flows from operating
activities. However, the negative impact of this property disposition on
cash flows was more than offset by the positive impact of the retirement of
debt on cash flows from operating and financing activities attributable to
the elimination of the related interest and principal payments.
During the first quarter of 1994, the Company generated $83,000 of cash
flows from operating activities, compared to cash flows generated from
operating activities of $1,580,000 in the first quarter of 1993. The 1994
results, and the related decline from 1993, are primarily attributable to
the timing of payments of certain recurring operational expenses, including
certain prepaid expenses, such as real estate taxes; an increase in
Harrisburg's accounts receivables due to the timing of collection of a
reimbursement from a contractor; and the sale of the remaining two
buildings at Peachtree, which contributed approximately $300,000 in net
income before depreciation expense during the first quarter of 1993;
partially offset by a decrease in interest expense resulting from the
retirement of the Harrisburg mortgage notes.
Cash flows used in investing activities increased to $1,074,000 during the
three months ended March 31, 1994 from $347,000 during the three months
ended March 31, 1993. This increase is due to first quarter 1994 payments
related to the Harrisburg Mall renovation project completed in November 1993
and a disposition fee due the Advisor in connection with the sale of the
Company's remaining two buildings at Peachtree in the amounts of $489,000 and
$216,000, respectively.
The decline in cash flows used in financing activities during the first
quarter of 1994 compared to the first quarter of 1993 is 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 $5,000,000 pursuant to existing loan
agreements.
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.
Results of Operations
For the three months ended March 31, 1994, the Company reported a net loss
of $928,000, or $.10 per share, compared with a net loss of $698,000, or
$.08 per share, for the comparable period in 1993.
The December 1993 sale of the remaining two buildings at Peachtree affects
the comparability of results of operations for the three months ended March
31, 1994 and 1993. For the three months ended March 31, 1994, the absence
of the operating results for these two buildings created decreases to
revenues from rental operations of approximately $643,000 and operating
expenses, net of tenant reimbursements of approximately $347,000 as
compared to the three months ended March 31, 1993.
Excluding the results of the Peachtree buildings, revenues from rental
operations for the three months ended March 31, 1994 were $175,000 higher
than the comparable period in 1993. Revenues at Castleton increased by $79,000
primarily due to higher occupancy levels. At Harrisburg, revenues increased
by $96,000 primarily due to increases in percentage rental revenue.
Excluding the results of the Peachtree buildings, net operating expenses
increased by approximately $266,000 for the first three months of 1994 from
the comparable period in 1993. Such increase, which consists of individual
increases of $109,000 and $157,000 at Harrisburg and Castleton,
respectively, is primarily due to higher net common area expenses at both
properties attributable to factors such as higher utility and snow removal
costs.
Interest expense decreased by $191,000 during the first quarter of 1994
from the comparable period in 1993 due to the retirement of the Harrisburg
mortgage notes, which accounted for $296,000 of interest expense during the
first quarter of 1993, partially offset by an increase in interest expense
attributable to increases in both the balance of the mortgage note payable
and the related debt discount.
There was no significant variation in other expenses, which consist of
portfolio management fees and other costs related to the operation of the
Company.
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EQK REALTY INVESTORS I
PART II - OTHER INFORMATION
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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
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter ended March 31, 1994.
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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: May 13, 1994 EQK REALTY INVESTORS I
By: /s/ Gregory R. Greenfield
Gregory R. Greenfield
Vice President and Treasurer
(Principal Financial Officer)
By: /s/ William G. Brown, Jr.
William G. Brown, Jr.
Vice President and Controller
(Principal Accounting Officer)
