<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File No. 1-8815
EQK REALTY INVESTORS I
----------------------
(Exact name of Registrant as specified in its Charter)
Massachusetts 23-2320360
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S.Employer Identification No.)
of incorporation or organization)
5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, GA 30342
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (404) 303-6100
--------------
Securities registered pursuant to Section 12(b)of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------- ------------------------------------------
Shares of Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark 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 the 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 ]
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
--- ---
The aggregate market value of Shares of Beneficial Interest held by
non-affiliates of the Registrant, based on the closing price of the Shares on
March 7, 1997 on the New York Stock Exchange of $1.50 per Share, is $11,359,560.
As of March 7, 1997, 9,264,344 Shares of Beneficial Interest were outstanding.
Officers and Trustees of the Trust (and certain of their family members) and
Equitable Realty Portfolio Management, Inc., Advisor to the Trust, are treated
as affiliates for the purposes of this computation, with no admission being made
that such people or entities are actually affiliates.
DOCUMENTS INCORPORATED BY REFERENCE.
The Trust's Proxy Statement relating to its 1997 Annual Meeting of
Shareholders is incorporated in Part III, Items 10, 11, 12 and 13.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I PAGE
<S> <C> <C>
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 26
</TABLE>
1
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PART I
ITEM 1. BUSINESS.
General Development of Business
EQK Realty Investors I, a Massachusetts business trust (the
"Trust"), was formed pursuant to a Declaration of Trust dated October 8, 1984
(the "Declaration of Trust"). Equitable Realty Portfolio Management, Inc.
("ERPM," successor in interest to EQK Partners), acts as the "Advisor" to the
Trust. ERPM is a wholly owned subsidiary of Equitable Real Estate Investment
Management, Inc. ("Equitable Real Estate"), itself an indirect wholly owned
subsidiary of The Equitable Life Assurance Society of the United States
("Equitable"). The principal executive offices of the Trust and of the Advisor
are located at 5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia,
30342, and their telephone number is (404) 303-6100.
The Trust has adopted a fiscal and taxable year ending
December 31. The Trust has transacted its affairs so as to qualify as, and has
elected to be treated as, a real estate investment trust under applicable
provisions of the Internal Revenue Code. Under the Internal Revenue Code, a real
estate investment trust that meets applicable requirements is not subject to
Federal income tax on that portion of its taxable income that is distributed to
its shareholders.
The Trust consummated the public offering of its Shares of
Beneficial Interest (the "Shares") on March 12, 1985. The net proceeds to the
Trust from such offering, net of underwriting discount, amounted to $170,856,000
before deducting offering expenses of $1,062,000. Certain of those proceeds
aggregating $167,032,000 were expended to acquire certain properties on March
13, 1985 (which were comprised of Harrisburg East Mall as described below under
"Narrative Description of Business," as well as two properties subsequently
sold: Castleton Park or "Castleton," an office park in Indianapolis, Indiana,
which was sold in 1995, and Peachtree Dunwoody Pavilion, or "Peachtree," an
office complex in Atlanta, Georgia, which was sold during the period 1992-1993).
The Declaration of Trust currently provides that actual
disposition of the remaining property, Harrisburg East Mall, may occur at any
time prior to March 1999. The precise timing of this disposition or an
alternative strategic transaction will be at the discretion of the Trustees,
depending on both the prevailing conditions in the relevant real estate market
and the ability of the Trust to extend or refinance its debt maturing in June
1998 (see Note 2 to the financial statements).
Since December 15, 1992, the Trust has had in place a
"Mortgage Note" with the Prudential Insurance Company of America, which had an
initial balance of $75,689,000, and an original maturity date of December 15,
1995. The interest rates on the Mortgage Note averaged 9.79% over its initial
three year term. However, the Mortgage Note agreement required monthly payments
of interest only at the rate of 8.54% per annum.
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The additional interest charges were accrued and added to
principal over this initial term of the loan. Absent any prepayments of debt
arising from property dispositions, the amount of principal due on the original
maturity date of December 15, 1995 would have been $78,928,000. Under the terms
of the Mortgage Note agreement, the lender received warrants to purchase 367,868
shares of beneficial interest of the Trust for $.0001 per share, none of which
has been exercised.
The Trust also has had a "Term Loan" in place since December
15, 1992 bearing interest at 8.33% per annum and requiring payments at the same
annual rate of 8.54% as was required under the Mortgage Note agreement. The
payments made in excess of the interest rate were applied to the principal
balance of the loan such that the original principal balance of $2,859,000 would
have been reduced over its three year term to $2,839,000, absent any prepayments
arising from property dispositions.
On December 8, 1995, the Trust completed the sale of Castleton
Park ("Castleton"), its 44 building office park located in Indianapolis,
Indiana. The Trust used net proceeds of $35,990,000 (reduced by customary
prorations of $2,517,000) to retire $34,738,000 of the Mortgage Note and
$1,252,000 of the Term Loan. At the original expiration of the Mortgage Note and
Term Loan on December 15, 1995, the remaining balances of $44,125,000 and
$1,587,000, respectively, were extended for one year to December 15, 1996 under
terms substantially comparable to those previously in effect.
The principal balances outstanding under the Mortgage Note and
the Term Loan at December 15, 1996, $43,794,000 and $1,585,000, respectively,
were extended for 18 months through June 15, 1998. The Mortgage Note remains
collateralized by a first mortgage lien on Harrisburg East Mall, an assignment
of leases and rents, and certain cash balances. The Term Loan is collateralized
by a subordinate lien on Harrisburg East Mall. The Mortgage Note requires
payments of interest only at the rate of 8.88% per annum. The Term Loan reflects
the same pay rate of 8.88% that is applicable to the Mortgage Note, but also
bears interest at an accrual rate that re-sets periodically and is computed at
the Trust's discretion at either 2 5/8% above the Euro-Rate (as defined) or 1
1/8% above the Prime Rate (as defined). The accrual rate in effect through May
18, 1997 averaged 8.12%. The difference between the accrual rate and the pay
rate will be subtracted from the principal balance due at maturity.
In consideration for the fixed annual interest accrual rate on
the Mortgage Note, the Trust paid an up-front application fee of $165,000 and
agreed to pay a back end fee of $272,900, plus interest thereon at the contract
rate of 8.88%, at the maturity date of June 15, 1998, or the date at which all
or any part of the original principal amount is prepaid.
In connection with the December 15, 1992 debt financings, the
Trust issued 1,675,000 previously repurchased shares of its stock to its Advisor
for consideration of $6,700,000, or $4.00 per share. The Trust may, at its
discretion, reissue the remaining 791,211 Shares previously repurchased. Any
issuance of Shares in excess of the Shares previously repurchased would require
shareholder approval.
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Apart from its initial investments in the Properties, and
subject to certain restrictions, the Trust is permitted to make additional real
estate investments involving the expansion of existing properties. The Trust has
no intentions of acquiring additional real estate interests, but will make
certain capital expenditures required to maintain or enhance the value of
Harrisburg, including tenant allowances associated with leasing activity.
The Trust may make secured or unsecured borrowings to make
distributions to its shareholders and for normal working capital needs,
including tenant alterations and/or allowances and the repair and maintenance of
properties in which it has invested. The Declaration of Trust prohibits the
Trust's aggregate borrowings from exceeding 75% of its total asset value, as
defined.
The Trust will not engage in any business not related to its
real estate investments and, in that connection, the Declaration of Trust
imposes certain prohibitions and investment restrictions on various investment
practices or activities of the Trust.
Narrative Description of Business
As stated above, the Trust has completed the disposition of
two of its three real estate investments. The office buildings comprising
Peachtree were sold in three separate transactions during the period 1992 to
1993. Two of the office buildings at Castleton were sold in 1991. The remaining
office buildings at Castleton were sold in 1995. The Trust's remaining real
estate investment is its regional mall located in Harrisburg, Pennsylvania. The
Trust intends to sell Harrisburg East Mall as conditions in the relevant real
estate market permit or enter into an alternative strategic transaction. Holding
Harrisburg East Mall is subject to the Trust's ability to extend or refinance
its mortgage debt that matures in June 1998, and to compliance with the
Declaration of Trust which currently requires disposition of all properties by
March 1999. The Trust anticipates making certain capital expenditures in order
to maintain or enhance the value of the property. The Trust anticipates making
1997 capital expenditures of $1,200,000, which include budgeted tenant
allowances of $670,000. Certain of these expenditures are discretionary in
nature and therefore may be deferred into future periods.
Harrisburg East Mall
Location and Area Overview. The Mall is located in Dauphin
County, Pennsylvania, near the intersection of Paxton Street (U.S. Route 322)
and Interstate 83. The property is adjacent to Pennsylvania Route 441,
approximately five miles from the Pennsylvania Turnpike and three miles from the
central business district of Harrisburg. Access to the site from Interstate 83,
the major north-south traffic corridor serving Harrisburg, is provided by the
Paxton Street interchange. Access from the Pennsylvania Turnpike, the major
east-west traffic corridor serving Harrisburg, is provided by the Interstate 283
interchange.
Tenants. At December 31, 1996, Harrisburg had 79 mall and
outparcel tenants (excluding anchor store tenants) occupying approximately
279,000 square feet of
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gross leasable area, representing an occupancy rate of 84%. Other than the
anchor store spaces, which are occupied by JC Penney, Hecht's and Lord & Taylor,
only Toys 'R' Us, which occupies approximately 45,950 square feet of space as
the sole tenant in Harrisburg East Mall's outparcel building, occupies more than
five percent of the gross leasable area of the Mall.
Anchor Department Stores. Harrisburg East Mall has three
department stores, two of which are currently occupied by J.C. Penney and
Hecht's, a division of May Department Stores Co.("May Company"), which replaced
Hess' in November 1995. The third department store space was formerly occupied
by John Wanamaker, which closed in October 1995 following Woodward & Lothrop's
(the owner of John Wanamaker) sale of certain department stores in this retail
chain to May Company pursuant to an August 1995 bankruptcy court auction. Given
its existing presence at Harrisburg East Mall through its recently-opened
Hecht's department store, May Company initially pursued an assignment of this
leasehold interest to other retail operators before deciding in May 1996 to
instead open a Lord & Taylor (a division of May Company) department store in
this location. The execution of such lease agreement has resulted in, among
other things, the termination of the legal proceedings initiated by the Trust
against May Company in March 1996 following May Company's failure to open or
cause another retail operator to open for business once the John Wanamaker store
closed, which was a violation of a continuous operating covenant contained in
its lease agreement.
Lord & Taylor opened its newly renovated store on March 10,
1997. Initially, Lord & Taylor had projected an opening prior to the 1996
Holiday shopping season. However, issues affecting construction scheduling
delayed the opening date. This matter is discussed further under Item 7-
Management's Discussion and Analysis.
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Competition. The following table provides selected information
with respect to Harrisburg East Mall's primary existing competitors. Each
property is located within eight miles of the Mall.
<TABLE>
<CAPTION>
Gross Leasable Anchor
Shopping Center Type of Center Area (Sq. Ft.) Stores
- --------------- -------------- -------------- ------
<S> <C> <C> <C>
Colonial Park Plaza Enclosed one- 762,000 Sears
level regional mall The Bon Ton
Boscov's
Capital City Mall Enclosed one- 722,000 Sears
level regional mall Hecht's
JCPenney
Camp Hill Shopping Enclosed one- 505,000 Boscov's
Center level mall Montgomery Ward
Union Square Power Center 289,000 Dunham Sports
Office Max
Gabriel Bros.
Weis
Colonial Commons Power Center 429,000 Giant, RX Place
Service Merchandise
Montgomery Ward
TJ Maxx
Point Shopping Center Strip Center 300,000 US Factory Outlet
Burlington Coat
</TABLE>
Competition Analysis. The boundaries of the trade area for
Harrisburg East Mall are influenced by the existence of natural boundaries,
competing developments, and demographic characteristics. The Susquehanna River
splits the Harrisburg market in two, creating the East and West shores.
Harrisburg East Mall is located in Dauphin County in the East shore area. The
Mall's primary trade area consists of all of Dauphin County, while the secondary
trade area includes sections of Lebanon and Lancaster counties on the East shore
and sections of Perry and Cumberland counties on the West shore.
Primary competition for Harrisburg East Mall consists of
three regional centers located in the Harrisburg trade area: Colonial Park
Plaza, Capital City Mall, and Camp Hill Shopping Center.
Colonial Park Plaza, which opened in 1960, is located
approximately five miles north of Harrisburg East Mall in the primary trade
area, and contains 762,000 square
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feet of gross leasable area. It is anchored by The Bon-Ton, Sears, and Boscov's,
contains 90 in-line specialty retailers and has an occupancy percentage of 90%.
In 1990, this one- level center was renovated and expanded to include a food
court and additional specialty shops. Colonial Center continues to be Harrisburg
East's primary competitor due to the strength of Boscov's and its tenant mix,
which is very similar to that found at Harrisburg.
Capital City Mall, a one-level center which opened in 1974, is
located eight miles west of Harrisburg East Mall in the secondary trade area.
The center contains approximately 722,000 square feet of gross leasable area and
is anchored by Hecht's, JC Penney, and Sears. It is currently 97.7% occupied,
with a strong concentration of boutique style retailers, and with the addition
of Hecht's and JC Penney in 1995, offers the same anchor appeal as Harrisburg
East Mall.
Camp Hill Shopping Center, a former community center
originally constructed in 1959, was completely enclosed and renovated in 1987.
Camp Hill is located approximately eight miles west of Harrisburg East Mall in
the secondary trade area, and contains approximately 505,700 square feet. The
center is anchored by Boscov's and Montgomery Ward, and also contains a 42,000
square foot Pathmark Superstore. The tenant mix is mostly comprised of local
retailers and occupancy is currently at 95.0%.
ITEM 2. PROPERTIES.
Harrisburg East Mall
General. Harrisburg East Mall is a two-level enclosed regional
shopping mall located approximately three miles from the central business
district of Harrisburg, Pennsylvania, the state capitol. The Mall contains
approximately 869,000 gross leasable square feet and is currently anchored by
three major department stores: JCPenney, Hecht's, and Lord & Taylor which opened
March 10, 1997 in the space formerly occupied by John Wanamaker which vacated in
October 1995. The Mall is located on a site of approximately 64 acres with paved
surface parking for approximately 4,763 automobiles (5.5 spaces per 1,000 gross
leasable square feet).
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The total building area of the Mall is allocated as shown in
the table below.
<TABLE>
<CAPTION>
Gross % of
Number of Leasable Total
Store Spaces Area Building Occupancy %
3/15/97 (Sq.Ft.) Area at 3/15/97
----------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Gross leasable area
Anchor Stores (1) 3 534,013 52.6% 100.0 %
Mall Stores 104 283,532 27.9 82.1
Free-standing building 3 51,381 5.1 89.4
--- ------- ---- -----
Total gross leasable area 110 868,926 85.6 92.9 %
--- ------- ---- =====
Common area 146,371 14.4
------- ----
Total building area 1,015,297 100.0 %
========= =====
</TABLE>
- ----------------------
(1) On March 10, 1997, Lord & Taylor opened for business in the space
formerly occupied by John Wanamaker.
Capital Requirements
The Trust will make certain capital expenditures to maintain
or enhance the value of Harrisburg East Mall, including tenant allowances
associated with leasing activity. The Trust anticipates making 1997 capital
expenditures of $1,200,000, which include budgeted tenant allowances of
$670,000. Certain of these expenditures are discretionary in nature and
therefore may be deferred into future periods.
One of the conditions of the Mortgage Note 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 December 31, 1996 was $1,886,000. Management believes
the current cash balance in this account will be sufficient to fund Harrisburg
East Mall's capital expenditures requirements.
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Occupancy Data and Average Effective Annual Rent. Information
regarding occupancy rates and average effective annual rent for the property,
including anchor and outparcel tenants, is set forth below:
<TABLE>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Occupancy Rate (a) 93.7% 73.6% 94.3% 96.9% 97.5%
==== ==== ==== ==== ====
Total Annual Minimum
Rent (b) $4,902,122 $5,110,162 $5,973,828 $5,943,748 $5,591,915
Total Percentage
Rent 225,419 269,558 294,591 154,039 262,870
---------- ---------- ---------- ---------- ----------
Total Annual Effective
Rent $5,127,541 $5,379,720 $6,268,419 $6,097,787 $5,854,785
========== ========== ========== ========== ==========
Average Annual Rent
Per Square Foot: (c)
Mall Anchor Tenants $ 1.37 $ 1.32(d) $1.67 $1.71 $1.71
Outparcel Stores $7.44 $6.91 $5.69 $6.30 $6.27
Mall Tenants $17.08 $16.46 $16.55 $15.48 $14.76
All Tenants $6.26 $6.44(d) $7.49 $7.16 $6.88
</TABLE>
- -------------------------------------
(a) Occupancy rate at December 31, 1995 reflects vacancy of the former John
Wanamaker anchor space. Excluding the effect of the vacancy, the occupancy rate
on a pro forma basis at December 31, 1995 was 95.8%. On May 13, 1996, the Trust
and May Company executed a lease agreement that provides for the opening of a
Lord & Taylor department store. The December 31, 1996 occupancy rate includes
the occupancy of Lord & Taylor, which opened for business on March 10, 1997.
(b) Total minimum annual rent and percentage rent represents actual tenant
rental income for each calendar year, and does not include adjustments for
stipulated rent increases in accordance with Generally Accepted Accounting
Principles.
(c) Anchor and outparcel rent per square foot data is based on actual leased
square footage during each calendar year presented. Mall tenant rent per square
foot data is based on leased square footage at December 31 of each year
presented.
(d) The decrease in mall anchor tenant rent per square foot in 1995 and rent per
square foot for all tenants is due to the replacement of the Hess department
store with Hecht's in November 1994, and Hecht's expansion into an adjacent
basement space. Hecht's now occupies 187,280 square feet at $1.07 per square
foot, whereas Hess formerly occupied
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139,656 square feet at $2.18 per square foot.
Lease Expirations. The lease expiration schedule for mall and
outparcel stores as of December 31, 1996 is shown below:
<TABLE>
<CAPTION>
% of
1996 1996
Gross Minimum Minimum
# of leases Leased Annual Annual
expiring(1) Area (Sq./Ft.) Rent Rent
----------- -------------- -------- -------
<S> <C> <C> <C> <C>
month to
month 4 6,587 172,414 4.1%
1997 7 12,752 213,509 5.0%
1998 14 14,788 405,506 9.6%
1999 4 5,637 148,558 3.5%
2000 10 36,166 490,863 11.6%
2001 8 17,034 399,846 9.4%
2002 5 17,926 180,432 4.3%
2003 8 23,109 176,141 4.2%
2004 5 8,794 218,416 5.2%
2005 7 59,271 393,554 9.3%
2006 and
thereafter 7 77,791 672,684 15.9%
------ ---------- ---------- -------
TOTAL 79 279,855 3,471,923 81.9%
======== ======= ========= =========
</TABLE>
- ----------------
(1) Assumes no renewal options will be exercised in order to present the
earliest point of termination of the leases.
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Anchor Tenants. The following chart presents tenants that
occupy more than 10% of the property's rentable square footage, along with
certain provisions contained in their leases:
<TABLE>
<CAPTION>
Leased Area Rent Lease
Tenant (Sq. Ft.) per Annum Expiration Date Renewal Options
- ------ ------------ --------- --------------- ----------------
<S> <C> <C> <C> <C>
Hecht's 187,280 $200,000 1/31/2007 3-10 Year Options
JCPenney 153,770 $300,000 3/31/2001 6-5 Year Options
Lord & Taylor(1) 192,963 $150,000 10/31/2005 3-10 Year Options
</TABLE>
- ---------------------------
(1) During 1996, May Company paid rent of $201,080 in accordance with the terms
of the John Wanamaker lease and the terms of the new Lord & Taylor lease
executed on May 13, 1996. Due to certain rent offsets that John Wanamaker would
have otherwise been entitled to, the revenue stream of the Lord & Taylor lease
is anticipated to be more favorable to the Trust than the old John Wanamaker
lease beginning in the fourth lease year. In connection with the execution of
this lease agreement, the Trust received approval from May Company, on behalf of
its Hecht's and Lord & Taylor stores, to certain modifications to the Mall's
site plan which will give the Trust flexibility in future development planning.
Debt. As discussed under Item 1-Business, the Trust completed
an 18 month extension of its existing mortgage debt aggregating $45,379,000
effective December 1996 (maturity date of June 15, 1998). The following table
sets forth certain information regarding the outstanding debt. Both the
Prudential Insurance Company of America Mortgage Loan and the PNC Bank Term Loan
may be prepaid in full without penalty.
<TABLE>
<CAPTION>
Principal Principal
Balance Balance
as of Annual Debt at
Annual 1996 Service Maturity Maturity
Lender Rate (000's) (000's) Date (000's)
- ------ -------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Prudential 8.88%(1) $43,794 $3,888 6/15/98 $43,794
PNC 8.88%(2) 1,585 132 6/15/98 1,585(2)
</TABLE>
- ---------------------------
(1) The extended Mortgage Note agreement with Prudential Insurance Company of
America requires monthly interest only payments of $324,000, at 8.88%. In
consideration for the fixed annual interest accrual rate, the Trust paid an
up-front application fee of
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$165,000 and agreed to pay a back end fee of $272,900, plus interest thereon at
the contract rate of 8.88%, at the maturity date of June 15, 1998, or the date
at which all or any part of the original principal amount is prepaid.
(2)The extended Term Loan agreement with PNC Bank provides for the accrual
interest rate to be re-set periodically, and is computed at the Trust's
discretion at either 2 5/8% above the Euro-Rate (as defined) or 1 1/8% above the
Prime Rate (as defined). The accrual rate in effect through May 18, 1997
averages 8.12%. The differential between the accrual rate and the pay rate of
8.88% will be added or subtracted to the principal balance due at maturity.
Depreciation. As of December 31, 1996, for Federal income tax
purposes, the Trust depreciates its assets under the Accelerated Cost Recovery
System (ACRS) and the Modified Accelerated Cost Recovery System (MACRS) as
follows:
<TABLE>
<S> <C>
Buildings:
Gross Federal Income Tax Basis $49,953,000
Accumulated Depreciation $14,151,000
Depreciation Method Straight Line
Depreciable Life 40 Years
Land Improvements:
Gross Federal Income Tax Basis $ 2,363,000
Accumulated Depreciation $ 187,000
Depreciation Method Straight Line
Depreciable Life 40 Years
Personal Property:
Gross Federal Income Tax Basis $ 185,000
Accumulated Depreciation $ 102,000
Depreciation Method Straight Line*
Depreciable Life 10 Years*
</TABLE>
*Except for automobiles which are depreciated over a range of 3 to 7
years using the double declining balance method.
Real Estate Taxes. Real estate taxes are levied for county and
township, and school tax purposes. County and township taxes are payable March 1
and school taxes are payable on September 1. Harrisburg paid $914,000 in real
estate taxes in 1996. The 1996 millage rate was 26.886. The county lowered the
assessed value of Harrisburg East in 1997. However, the decrease in tax expense
associated with the lower assessed value will be substantially offset by a rate
increase announced by the county of approximately 2 millage points. Real estate
taxes are substantially reimbursed by the
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tenants through real estate tax recovery billings.
Physical Improvements. Since acquiring the Mall in 1985, the
Trust has undertaken several physical improvement programs. In 1987, the Trust
converted approximately 51,400 square feet of space in the basement of the
former Hess's department store space into mall tenant space, at which time it
was leased to Toys'R'Us. During 1988, a new food court with approximately
13,000 square feet of gross leasable area was added. In 1991, the Trust
completed the conversion of 47,960 square feet of space previously occupied by
JCPenney into approximately 31,500 square feet of new leasable area leased at
substantially higher rates.
In conjunction with the JCPenney conversion, the remaining
area of the JCPenney store was remodeled. In addition, the terms of the amended
JCPenney lease required the Trust to renovate the common areas and the exterior
facade of the Mall. This renovation was completed in 1993 for a cost of
approximately $4,000,000. The project included a complete refurbishment of the
property's interior common area, with new floors, finishes, and lighting
throughout.
Upon the expansion of Hecht's into the basement space
previously occupied by Toys'R'Us (approximately 51,400 square feet), the Trust
renovated Harrisburg East Mall's outparcel building (approximately 51,000 square
feet) to accommodate the relocation of Toys'R'Us for a cost of approximately
$3,440,000. In addition to the expansion of the anchor tenant space, Hecht's
performed an interior renovation of its new department store space.
In anticipation of the opening of Lord & Taylor in the former
John Wanamaker anchor space, May Company (Lord & Taylor's parent company)
completed a major renovation of this anchor store location. Management believes
that May Company has spent approximately $10,000,000 on renovations and
improvements.
ITEM 3. LEGAL PROCEEDINGS.
On March 22, 1996, the Trust filed complaints of ejectment
(eviction) and monetary damages in the local jurisdiction against May Department
Stores Company ("May Company") to gain control of the department store space
formerly occupied by John Wanamaker. May Company had earlier acquired the
leasehold interest in the John Wanamaker store at Harrisburg East Mall from John
Wanamaker's owner, Woodward & Lothrop, in an August 1995 bankruptcy court
auction. Following this transaction, the John Wanamaker store at Harrisburg East
Mall closed in October 1995. May Company's failure to cause the store to reopen
(with either one of its department store divisions or with another retail
operator) represented a violation of a continuous operating covenant contained
in the lease agreement.
On May 13, 1996, the Trust and May Company executed a lease
agreement that provides for the opening of a Lord & Taylor department store (a
division of May Company ) in this vacant anchor department store space. The
execution of such lease agreement with May Company resulted in the termination
of these legal proceedings.
13
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and positions of the
executive officers of the Trust. The term of office of each officer expires at
the annual meeting of the Board of Directors or when the respective successor is
elected and qualifies.
<TABLE>
<CAPTION>
Name Position
<S> <C>
Phillip E. Stephens President
Gregory R. Greenfield Executive Vice President and Treasurer
William G. Brown, Jr. Vice President and Controller
Scott M. Boggio Vice President
Gary Werkheiser Vice President
Don Henry Vice President
Linda K. Schear Secretary
</TABLE>
Phillip E. Stephens, age 49, has been Chairman and Chief
Executive Officer of Compass Retail, Inc., a subsidiary of Equitable Real
Estate, since February 1996, and was President and Chief Executive Officer from
January 1992 to January 1996. Mr. Stephens was Executive Vice President of the
Compass Retail division of Equitable Real Estate from January 1990 to December
1991. He has also served as President of ERPM since December 1989. Prior to that
date and since October 1987, he was President of EQK Partners, the predecessor
in interest to ERPM. Prior to that date and since its inception in September
1983, he was Senior Vice President of EQK Partners. Mr. Stephens is also a
managing trustee of Arbor Property Trust, successor in interest to EQK Green
Acres, L.P.
Gregory R. Greenfield, age 40, has been President and Chief
Operating Officer of Compass Retail, Inc. since February 1996, and was Executive
Vice President and Chief Operating Officer from January 1992 to January 1996.
Mr. Greenfield was Senior Vice President of the Compass Retail division of
Equitable Real Estate from January 1990 to December 1991. He has also served as
Vice President and Treasurer of ERPM since December 1989. Prior to that date and
since November 1988, he was Senior Vice President, General Counsel and Secretary
of EQK Partners. Mr. Greenfield joined EQK Partners in June 1984. From 1981 to
1984, he was associated with the law firm of Wolf, Block, Schorr and
Solis-Cohen.
William G. Brown, Jr., age 41, has been Executive Vice
President and Chief Financial Officer of Compass Retail, Inc. since February
1996, and was Senior Vice President and Chief Financial Officer from January
1992 through January 1996. Mr. Brown
14
<PAGE> 16
was Vice President of the Compass Retail division of Equitable Real Estate from
March 1990 to December 1991. He has also served as a Vice President of ERPM
since March 1990. Prior to that date and since November 1988, he was Vice
President and Chief Financial Officer of Envirosafe Services, Inc., a hazardous
waste management company. Mr. Brown joined Envirosafe in July 1987. From 1981 to
1987, he held financial management positions with IU International Corporation,
and from 1978 to 1981, he was associated with the accounting firm of Coopers &
Lybrand.
Scott M. Boggio, age 37, has been Senior Vice President of
Compass Retail, Inc. since February 1996, and was Vice President from February
1992 through January 1996. Mr. Boggio was Director of Construction and
Development of the Compass Retail division of Equitable Real Estate from January
1990 to January 1992. He has also served as Assistant Vice President of ERPM
since December 1989. Prior to that date and since February 1989, he was Vice
President of Construction and Planning of EQK Partners. From 1986 until 1988, he
was employed by VMS Realty Management, Inc. as its Northeast Regional Manager.
From 1985 to 1986, he was employed by the Linpro Company in acquisitions and
site selection.
Gary L. Werkheiser, age 37, has been Vice President of Asset
Management and Acquisitions of Compass Retail, Inc. since February 1992 and was
Director of Asset Management of Equitable Real Estate from May 1990 to January
1992. Prior to that date and since August of 1986, he was a real estate analyst
for EQK Partners.
Don Henry, age 36, has been Vice President of Portfolio
Management with Compass Retail, Inc since January 1996, and was Director of
Financial Reporting from September 1993 to December 1995. Prior to that date,
and since June 1983, he was associated with the accounting firm of Deloitte &
Touche LLP.
Linda K. Schear, age 44, has been Senior Vice President and
General Counsel to Compass Retail, Inc. since February 1995, and was Vice
President and General Counsel from February 1992 to January 1995. Ms. Shear was
General Counsel to the Compass Retail division of Equitable Real Estate from
April 1990 to February 1992. She has also served as Counsel to ERPM and Vice
President of Equitable since April 1990. Prior to that date, she was first an
associate and then a partner with the Atlanta law firm of Merritt & Tenney,
specializing in commercial real estate.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Trust's shares of beneficial interest are traded on the
New York Stock Exchange (symbol EKR). The Trust is listed in the stock tables as
"EQK Rt." As of February 28, 1997, the record number of shareholders of the
Trust was 271. Although the Trust does not know the exact number of beneficial
holders of its shares, it believes the number exceeds 1,500.
The following table presents the high and low prices of the
Trust's shares based on the New York Stock Exchange daily composite
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1996:
First Quarter $ 1.500 $ 1.125
Second Quarter 1.750 1.250
Third Quarter 1.750 1.375
Fourth Quarter 1.500 1.250
Year ended December 31, 1995:
First Quarter $ 2.250 $ 1.625
Second Quarter 2.250 1.500
Third Quarter 2.125 1.375
Fourth Quarter 2.000 1.375
</TABLE>
There were no distributions to shareholders during 1995 and 1996. It is the
Trust's current policy to reinvest all of its excess cash flow into its
remaining property to fund capital expenditures and leasing costs. The Trust
does not anticipate a change in this policy.
16
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues from rental operations $ 6,174 $ 15,761 $ 16,512 $ 18,458 $20,900
Write down of investments in
real estate (a) -- (3,200) -- -- (4,001)
Loss before gain on sales of
real estate and extraordinary loss (1,488) (6,575) (3,459) (2,351) (9,993)
Gain on sales of real estate (b) -- 229 -- 282 1,143
Loss before extraordinary loss (1,488) (6,346) (3,459) (2,069) (8,850)
Extraordinary loss from early
retirement of debt -- -- -- (1,711) --
Net loss (1,488) (6,346) (3,459) (3,780) (8,850)
Total assets 46,603 48,209 90,258 93,163 103,690
Long-term obligations:
Mortgage notes payable, net of
imputed interest and discount 45,379 45,712 80,032 78,727 86,713
Shareholders' equity (deficit) (3,021) (1,533) 4,813 8,176 11,559
Per share data (c):
Loss per share:
Loss before gain on sales of
real estate and extraordinary
loss $ (0.16) $ (0.71) $ (0.37) $ (0.25) $ (1.31)
Loss before extraordinary loss (0.16) (0.68) (0.37) (0.22) (1.16)
Net loss (0.16) (0.68) (0.37) (0.41) (1.16)
Dividends declared -- -- -- -- --
- --------------------------------------------------
</TABLE>
(a) To the extent that the net cost investment in any property exceeds its
current market value, an allowance is recorded to adjust the net
investment to management's estimate of net realizable value. The
write-downs in 1992 and 1995 related to the Trust's investment in
Castleton Park.
(b) In 1995, the Trust sold Castleton Park and recognized a gain on the
sale of $229,000. In 1993, the Trust sold its remaining two buildings
at Peachtree Dunwoody Pavilion and recognized a gain on the sale of
$282,000. In 1992, the Trust sold five buildings at Peachtree Dunwoody
Pavilion and recognized a gain on the sale of $1,143,000.
(c) Calculation is based on 9,264,344 weighted average shares outstanding
during all periods presented except 1992, during which 7,653,415
weighted average shares were outstanding.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This discussion should be read in conjunction with the
financial statements and notes that appear immediately following the Signatures
page.
17
<PAGE> 19
FINANCIAL CONDITION
CAPITAL RESOURCES
Background
The Trust was formed pursuant to a Declaration of Trust dated
October 8, 1984 to acquire certain income-producing real estate investments. On
March 13, 1985, the Trust acquired Harrisburg East Mall ("Harrisburg" or the
"Mall"), a regional shopping mall located in Harrisburg, Pennsylvania; Castleton
Park ("Castleton"), an office park located in Indianapolis, Indiana; and
Peachtree Dunwoody Pavilion ("Peachtree"), an office park located in Atlanta,
Georgia.
As of December 31, 1996, the Trust has completed the
disposition of two of its three real estate investments. The office buildings
comprising Peachtree were sold in three separate transactions during 1992 and
1993. Two of the office buildings at Castleton were sold in 1991. The remaining
44 office buildings at Castleton were sold in December 1995.
The Declaration of Trust currently provides that actual
disposition of the remaining property, Harrisburg, may occur at any time prior
to March 1999. The precise timing of this disposition or an alternative
strategic transaction will be at the discretion of the Trustees, depending on
both the prevailing conditions in the relevant real estate market and the
ability of the Trust to extend or refinance its debt maturing in June 1998 (see
Note 2 to the financial statements).
Over the past several years, the retail industry has
experienced a large number of retail store mergers and bankruptcies.
Consolidations within the retail industry and the financial difficulties
experienced by individual retailers have, in turn, led to a high level of
unanticipated store closings and requests for rent relief within regional
shopping malls.
At Harrisburg, the current state of the retail industry has
impacted both its department stores and its smaller specialty stores. Two of
the department stores operating in 1994 have since closed, Hess's (November
1994) and John Wanamaker (October 1995). These department store spaces remained
"dark" for substantial periods of time pending the opening of their
replacements, Hecht's (October 1995) and Lord & Taylor (March 1997).
The temporary closure of these department stores permitted
certain tenants to exercise co-tenancy provisions pursuant to their leases,
which allowed them to pay a lower amount of rent based on a percentage of sales
volumes in lieu of fixed minimum rents. Additionally, certain other tenants
experienced financial difficulties which led to requests for rent relief and
unanticipated store closings. As a result of these matters, the aggregate
decline in rental revenues from amounts otherwise provided for under the related
lease agreements amounted to approximately $600,000, in total, for 1995 and
1996.
18
<PAGE> 20
These factors, as well as competitive pressures within the
retail industry, have adversely affected the value and marketability of regional
shopping malls in general and of Harrisburg in particular, and there is no
assurance that such adverse effects will not continue or increase in the
future.
Mortgage Debt Extensions
On December 15, 1996 the Trust extended the maturity dates on
its Mortgage Note (remaining balance, $43,794,000) and its Term Loan (remaining
balance, $1,585,000) for a period of 18 months (extended maturity date, June 15,
1998). The terms of such debt facilities pursuant to the extensions are
substantially comparable to the terms in effect since the original issuance
date, December 15, 1992, except as described below. The Mortgage Note and Term
Loan were previously extended from their original maturity date on December 15,
1995 to December 15, 1996. The Mortgage Note remains collateralized by a first
mortgage lien on Harrisburg, an assignment of leases and rents, and certain cash
balances. The Term Loan is collateralized by a subordinate lien on Harrisburg.
The Mortgage Note agreement has been amended to provide for
monthly payments of interest only accruing at the rate of 8.88% per annum
($324,000 per month). This interest rate reflects an increase from the 8.54%
interest rate in effect during the previous extension period (December 16, 1995
to December 15, 1996). The average rate in effect during the initial three year
term of the debt was 9.79% per annum.
In consideration for the fixed annual interest accrual rate on
the Mortgage Note agreement, the Trust paid an up-front application fee of
$165,000 and agreed to pay a back end fee of $272,900, plus interest thereon at
the contract rate of 8.88%, at the maturity date of June 15, 1998, or the date
at which all or any part of the original principal amount is prepaid.
The Term Loan reflects the same pay rate of 8.88% that is
applicable to the Mortgage Note, but accrues interest at a rate that re-sets
periodically. The accrual rate is computed at the Trust's discretion at either 2
5/8% above the Euro-Rate (as defined) or 1 1/8% above the Prime Rate (as
defined). The accrual rate in effect through May 18, 1997 averaged 8.12%. The
difference between the accrual rate and the pay rate will be reflected in the
principal balance due at maturity.
In the event that the Trust does not sell Harrisburg before
the Mortgage Note and Term Loan mature on June 15, 1998, Management will explore
its external financing alternatives, including the refinancing of its debt with
the existing lenders. However, if the Trust is unable to refinance or replace
the existing debt at commercially reasonable terms or at all, Management's plans
with respect to liquidating Harrisburg will be accelerated to satisfy its debt
obligations.
19
<PAGE> 21
Harrisburg East Mall
As discussed in Note 8 to the financial statements, on May 13,
1996, the Trust and May Department Stores Company ("May Company") executed a
lease agreement that provides for the opening of a Lord & Taylor department
store (a division of May Company) in the anchor space previously occupied by
John Wanamaker. The John Wanamaker location at Harrisburg has been closed since
October 1995 following Woodward & Lothrop's (the owner of John Wanamaker) sale
of certain department stores in this retail chain to May Company pursuant to an
August 1995 bankruptcy court auction. Given its existing presence at Harrisburg
through its recently opened Hecht's department store, May Company initially
pursued an assignment of this leasehold interest to other retail operators
before deciding instead to open a Lord & Taylor department store in this
location. The execution of such lease agreement has resulted in, among other
things, the termination of the legal proceedings initiated by the Trust against
May Company in March 1996 following May Company's failure to open or cause
another retail operator to open for business once the John Wanamaker store
closed, which was a violation of a continuous operating covenant contained in
its lease agreement.
The new lease agreement with May Company has an initial term
of nine years (October 31, 2005), with three renewal options of ten years each.
The new lease agreement has a longer committed lease term than the John
Wanamaker lease agreement, which stipulated an initial lease term expiration
date of October 31, 1999. The financial terms are comparable to those contained
in the John Wanamaker lease, although minimum rent payments during the first
three years of the lease are anticipated to be approximately $75,000 less per
annum. Due to certain rent offsets that John Wanamaker would have otherwise been
entitled to, the revenue stream after the third lease year is anticipated to be
more favorable to the Trust. In connection with the execution of this lease
agreement, the Trust received approval from May Company, on behalf of its
Hecht's and Lord & Taylor stores, to certain modifications to the Mall's site
plan which will give the Trust flexibility in future development planning. The
opening of a Lord & Taylor store is expected to have a positive impact on the
Trust's ability to lease space to new tenants and to renew leases with existing
tenants.
Lord & Taylor opened its newly renovated store on March 10,
1997. Initially, Lord & Taylor had projected an opening prior to the 1996
Holiday shopping season. However, issues affecting construction scheduling
delayed the opening date. Prior to the opening of the Lord & Taylor store,
certain tenants were permitted to pay, pursuant to co-tenancy provisions in
their leases, percentage rent in lieu of fixed minimum rentals. With the opening
of the Lord & Taylor store, it is anticipated that most tenants will revert to
payment of fixed minimum rent (see further discussion in Results of Operations).
One of the conditions of the Mortgage Note 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
cash balance of the Trust's capital reserve account at December 31, 1996 was
$1,886,000. Management believes the current cash balance in this account will be
sufficient to fund Harrisburg's capital expenditure requirements discussed
below.
20
<PAGE> 22
LIQUIDITY
The comparability of the Statements of Cash Flows during 1994
to 1996 is affected by the property dispositions and debt repayments that
occurred during this time period.
During 1996, the Trust generated cash flows from operating
activities of $1,217,000, an increase of $94,000 from the prior year's operating
cash flows of $1,123,000. This increase in operating cash flows was primarily
attributable to a decline in cash paid for interest following the December 1995
partial repayment of mortgage debt ($2,816,000), an increase in Harrisburg's
cash flows from operations related to the receipt of lease termination fees
($451,000) and to accelerated collections of real estate tax recoveries
($150,000), and the receipt of a $268,000 refund of previously paid real estate
taxes related to reductions in the 1991 and 1992 assessed values of Peachtree
(see Note 9). These increases were partially offset by the loss of Castleton's
operating cash flow following the sale in December 1995 (which amounted to
$3,656,000 in 1995).
During 1995, the cash flow provided by operating activities
declined by $1,061,000 compared to 1994. The decline was primarily attributable
to the accelerated payment of $1,425,000 for Castleton's real estate taxes in
connection with sale of the property in December, and a $619,000 decrease in
rental revenues for Harrisburg as described below. This decline was partially
offset by a $400,000 real estate tax refund and a reduction in operating
expenses of $433,000 for Castleton and Harrisburg which are also described
below.
Cash flows used in investing and financing activities during
1996 were for routine capital expenditures ($195,000) and scheduled repayments
of debt ($333,000).
With respect to 1995, cash flows generated from investing
activities and cash flows used in financing activities were largely a function
of the sale of Castleton and the resulting repayment of mortgage debt in
December 1995. Net cash provided by investing activities in 1995, $33,145,000,
was due to the receipt of proceeds from the sale of Castleton, $38,507,000,
partially offset by additional investments in real estate, including $3,440,000
related to the redevelopment of the Harrisburg outparcel building. Net cash used
in financing activities in 1995, $35,997,000 primarily related to the
application of sales proceeds of $35,990,000 (net of customary prorations) to
retire a portion of the trust's mortgage indebtedness.
During 1994, the Trust used $3,192,000 in investing activities
and $7,000 in financing activities. Cash used in investing activities in 1994
primarily related to routine capital additions at the Properties, while cash
used in financing activities was for scheduled principal payments on the Trust's
term loan.
The Trust will make certain capital expenditures to maintain
or enhance the value of the property, including tenant allowances associated
with leasing activity. The Trust anticipates making 1997 capital expenditures of
up to $1,200,000, which include budgeted tenant allowances of $670,000. Certain
of these expenditures are discretionary
21
<PAGE> 23
in nature and therefore may be deferred into future periods.
In addition to capital expenditure requirements described
above, liquidity requirements for 1997 will also include principal and interest
payments of $4,020,000 pursuant to existing loan agreements. These loan
agreements mature on June 15, 1998; the principal balance at maturity will be
approximately $45,379,000.
The Trust's cash management agreement stipulates that all
rental payments from tenants are to be made directly to a third party escrow
agent that also funds monthly operating expenses in accordance with a budget
approved by the lender. The Trust believes that its cash flow for 1997 will be
sufficient to fund its various operating requirements, including budgeted
capital expenditures and monthly principal and interest payments, although its
discretion with respect to cash flow management will be limited by the terms of
the cash management agreement. Management believes that the Trust's current cash
reserves, coupled with additional cash flow projected to be generated from
operations, will permit the Trust to meet its operating, capital and debt
service requirements.
As discussed above and in Note 1 to the financial statements,
the Trust records its investments in real estate in accordance with the
historical cost accounting convention. Accordingly, the Trust has not written up
the cost basis of its investment in Harrisburg to its substantially higher net
realizable value. Therefore, Management does not believe that its deficit in
shareholders' equity of $3,021,000 at December 31, 1996 is indicative of its
current liquidity or the net distribution that its shareholders will receive
upon liquidation.
RESULTS OF OPERATIONS
For the year ended December 31, 1996, the Trust reported a net
loss of $1,488,000 ($.16 per share) compared to net losses of $6,346,000 ($.68
per share) and $3,459,000 ($.37 per share) for the years ended December 31, 1995
and 1994, respectively. The year ended December 31, 1995 includes a write-down
of the investment in Castleton of $3,200,000 ($.35 per share) and the gain on
the sale of Castleton of $229,000 ($0.03 per share). The 1994 period was
impacted by a write-off of $429,000 of capitalized pre-development costs.
The Trust's revenues for the year ended December 31, 1996 were
$6,174,000, which represented a $9,587,000 decrease from the 1995 amount of
$15,761,000. This decline was primarily due to the sale of Castleton, which
accounted for revenues of $9,554,000 for the year ended December 31, 1995. At
Harrisburg, rental revenues declined from amounts recognized in 1995 due to the
effects of tenant bankruptcies and short-term rent relief agreements ($216,000),
lower percentage rent due to decreases in certain tenants' sales volumes
($90,000) and a non-cash adjustment to the calculation of minimum rents
recognized on a straight-line basis over the terms of tenant leases ($300,000).
However, such decreases were substantially offset by collections of lease
termination fees of $450,000 and an increase of $135,000 in
22
<PAGE> 24
temporary tenant rental revenues.
Given the opening of Lord & Taylor on March 10, 1997, it is
anticipated that revenues will increase by approximately $350,000 over 1996.
Such increase is expected to result from increased rent payments from certain
tenants whose payment obligations had been reduced pursuant to the exercise of
contenancy provisions and short-term rent relief agreements associated with
anchor store vacancies. With the opening of Lord & Taylor, such provisions and
agreements will expire and these tenants will revert to paying fixed minimum
rent.
Revenue from rental operations of $15,761,000 during 1995
declined from $16,512,000 during 1994, primarily due to a decrease in rental
revenue of $584,000 from Harrisburg. This decline is primarily the result of
rental reductions pursuant to cotenancy provisions of certain tenant leases
which first became applicable upon the closure of Hess's Department Store in
November 1994 until its replacement, Hecht's, re-opened in October 1995. These
cotenancy provisions continued to be operable upon the October 1995 closure of
John Wanamaker. The decrease in Harrisburg rental revenues is also attributable
to the partial year vacancy of the outparcel building during its 1995
renovation, and to lower net utility income due to increased maintenance
expenses.
Operating expenses for the year ended December 31, 1996 were
$887,000, which declined from the related 1995 amounts of $5,403,000. The
decline is primarily due to the sale of Castleton, which accounted for expenses
of $4,600,000 for the year ended December 31, 1995. This decline in annual
expenses was offset by a net increase in Harrisburg operating expenses of
$77,000. The annual increase was due to an increase in bad debt expenses of
$151,000 due to tenant bankruptcies in 1996 and an increase in administrative
expenses of $50,000. These increases were offset by decreases in advertising
expenses of $94,000 and sales tax expenses of $53,000 attributable to
non-recurring items in 1995.
Operating expenses for the year ended December 31, 1995 were
$5,403,000, which declined from the related 1994 amounts of $5,836,000. The
annual declines were attributable to lower operating expenses for both
Harrisburg and Castleton. At Castleton, operating expenses decreased due to a
reduction in repairs and maintenance expenses and a reduction in real estate tax
expense resulting from both a valuation reassessment and the expense proration
effective with the 1995 sale. These declines were partially offset by an
increase in security costs. Harrisburg's operating expenses decreased in 1995
due to unexpected recoveries of previously recognized bad debts and reductions
in legal and consulting costs.
Interest expense for the years ended December 31, 1996, 1995,
and 1994 was $3,896,000, $8,302,000 and $8,132,000, respectively. The decrease
in interest expense in 1996 as compared to 1995 is primarily attributable to the
lower average debt balances outstanding in 1996 following the mortgage debt
repayment in December 1995, as well as decreases in the interest accrual rates
for both the Mortgage Note and Term Loan. The increase in interest expense in
1995 as compared to 1994 is due to an increase in the Mortgage Note principal
balance from accrued but not currently payable interest and the amortization of
non-cash expense arising from the issuance of warrants to the lender.
23
<PAGE> 25
Other expenses consist of portfolio management fees, other
costs related to the operation of the Trust, and interest income earned on cash
balances. Other expenses decreased $227,000 in 1996 from 1995 balances. The
decrease is primarily attributable to a decrease in portfolio management and
other professional fees. There was no significant fluctuation in other expenses
between 1995 and 1994.
As discussed in the liquidity section above, Management
believes that its existing cash reserves and its anticipated cash flow generated
from operations will be sufficient to meet its capital and debt service
requirements. However, due to the effects of non-cash accounting adjustments
(principally depreciation and amortization), Management anticipates that the
Trust will continue to incur net losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's financial statements and supplementary data
listed in Item 14(a) appear immediately following the signatures page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING DISCLOSURE.
None.
24
<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1997 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1997 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1997 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1997 Annual Meeting of Shareholders.
25
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8K.
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
(a) The following documents are filed as part of this
report:
1. Financial Statements
Balance Sheets at December 31, 1996 and 1995
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Statements of Shareholders' Equity
for the years ended December 31, 1996,
1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to financial statements, including
supplementary data
2. Financial Statement Schedule
Schedule III: Real Estate and Accumulated
Depreciation
Independent Auditors' Report All other schedules are omitted
as the required information is inapplicable or the information
is presented in the financial statements, or the related notes
thereto.
3. Exhibits
(2) None.
(3) (a) Form of Amended and Restated
Declaration of Trust, as amended.(2)
(b) Trustees' Regulations, as amended.(2)
(4) Form of certificate for Shares of
Beneficial Interest.(1)
(9) None.
(10) (a) Form of Advisory Agreement between
the Registrant and EQK Partners.(1)
(e) Property management agreement
between Salomon Brothers Peachtree
Properties Inc. and Equitable Real
Estate Investment Management, Inc.
with respect to Peachtree-Dunwoody
Pavilion.(1)
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
(f) Form of property management
agreement between the Registrant
and Castleway Management Corp.
with respect to Castleton
Commercial Park.(1)
(k) Mortgage encumbering Harrisburg
East Mall in favor of Continental
Assurance Company and related
documents.(1)
(m) Mortgage encumbering Harrisburg East Mall in
favor of The Philadelphia Savings Fund
Society and related documents.(1)
(n) Amended and Restated Zero Coupon
Mortgage Note due December 1992 in
the principal amount of $45,000,000.(1)
(o) Mortgage encumbering Harrisburg East
Mall in favor of Salomon Brothers
Realty Corp.(2)
(p) Mortgages encumbering Peachtree-Dunwoody
Pavilion in favor of Salomon Brothers Realty Corp.(2)
(q) Mortgages encumbering Castleton
Commercial Park in favor of Salomon
Brothers Realty Corp.(2)
(r) Zero Coupon Mortgage Note due
December 1992 in the principal
amount of $5,000,000.(3)
(s) Form of Amendments dated February 4,
1988 to Exhibits 10(o), 10(p) and 10(q).(3)
(t) Form of Mortgages securing 10(r).(3)
(u) First Amendment to Advisory Agreement
dated as of December 31, 1989.(4)
(v) Form of property management
agreement between Registrant and
Compass Retail, a division of
Equitable Real Estate Investment
Management, Inc.(5)
(w) Agreement of sale dated June 25, 1991
between McCready and Keene, Inc.
and the Registrant.(6)
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
(x) Agreement for release of collateral between
The Prudential Insurance Company of America
and the Registrant dated August 30, 1991.(6)
(y) Agreement of sale dated September 23, 1991
between the Wesleyan Church Corporation
and the Registrant.(6)
(z) Agreement of sale dated June 24, 1992
between Computer Generation Incorporated
and the Registrant.(7)
(aa) Purchase and Sale Agreement dated
October 21, 1992 between Minneapolis
Investment Associates L.P. and the Registrant(7)
(bb) Second Amended and Restated Note dated as of
December 16, 1992 from the Registrant to The
Prudential Insurance Company of America(7)
(cc) Cash Management and Security Agreement dated
as of December 15, 1992, among the
Registrant, The Prudential Insurance Company
of America and First Union National Bank of
Georgia(7)
(dd) Amended and Restated Deed to Secure Debt and
Security Agreement (Peachtree) dated as of
December 16, 1992 by Successor Trustees of
the Registrant as Debtor in favor of The
Prudential Insurance Company of America as
Secured Party(7)
(ee) Amended and Restated Open-End Mortgage and
Security Agreement (Harrisburg) dated as of
December 15, 1992 by Successor Trustees of
the Registrant as Debtor in favor of The
Prudential Insurance Company of America as
Secured Party(7)
(ff) Amended and Restated Mortgage and Security
Agreement (Castleton) dated as of December
15, 1992 by the Registrant as Debtor in
favor of The Prudential Insurance Company of
America as Secured Party(7)
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
(gg) Absolute Assignment of Leases and Rents
and Rental Collection Agreement
(Peachtree) dated as of December 16,
1992 among Successor Trustees of the
Registrant as Assignor, The Prudential
Insurance Company of America as
Assignee and First Union National Bank
of Georgia as Rental Collection Agent(7)
(hh) Absolute Assignment of Leases and Rents
and Rental Collection Agreement
(Harrisburg) dated as of December 16,
1992 among Successor Trustees of the
Registrant as Assignor, The Prudential
Insurance Company of America as
Assignee and First Union National Bank
of Georgia as Rental Collection Agent(7)
(ii) Absolute Assignment of Leases and Rents and
Rental Collection Agreement (Castleton)
dated as of December 15, 1992 among the
Registrant as Assignor, The Prudential
Insurance Company of America as Assignee and
First Union National Bank of Georgia as
Rental Collection Agent(7)
(jj) Warrant Agreement dated as of December 18,
1992 between the Registrant and The
Prudential Insurance Company of America(7)
(kk) Subordination and Intercreditor Agreement
dated as of December 16, 1992 among
Provident National Bank, The Prudential
Insurance Company of America and the
Registrant(7)
(ll) Second Amended and Restated Loan Agreement
dated as of December 16, 1992 from the
Registrant to Provident National Bank(7)
(mm) Amended and Restated Note dated as of
December 16, 1992 from the Registrant to
Provident National Bank(7)
(nn) Mortgage and Security Agreement (Castleton)
dated as of December 16, 1992 between the
Registrant and Provident National Bank(7)
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
(oo) Deed to Secure Debt and Security
Agreement (Peachtree) dated as of December
16, 1992 between the Registrant and
Provident National Bank(7)
(pp) Open-End Mortgage and Security
Agreement (Harrisburg) dated as of December
16, 1992 between the Registrant and
Provident National Bank(7)
(qq) Assignment of Lessor's Interest in Leases
(Castleton) dated as of December 16, 1992
between the Registrant and Provident
National Bank(7)
(rr) Assignment of Lessor's Interest in Leases
(Peachtree) dated as of December 16, 1992
between the Registrant and Provident
National Bank(7)
(ss) Assignment of Lessor's Interest in Leases
(Harrisburg) dated as of December 16, 1992
between the Registrant and Provident
National Bank(7)
(tt) Assignment of Cash Collateral Account and
Security Agreement dated as of December 16,
1992 between the Registrant and Provident
National Bank(7)
(uu) Purchase and Sale Agreement dated
July 6, 1993 between Lawrence E.
Cooper and the Registrant(8)
(vv) Amendment dated October 1, 1993
to Exhibit 10(cc)(8)
(ww) Amendment dated December 3, 1993
to Exhibits 10(ll) and 10(mm)(8)
(xx) Purchase Agreement for Real Property and
Escrow Instructions (9)
(yy) Note, Mortgage, and Modification agreement
dated December 15, 1995 between the
Registrant and The Prudential
Insurance Company of America(10)
(zz) Mutual Estoppel and Modification Agreement
dated December 15, 1995 between the
Registrant and The Prudential Insurance
Company of America(10)
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
(aaa) Amended Mutual Estoppel and Modification
Agreement dated December 15, 1995 between
the Registrant, PNC Bank, National Association,
and The Prudential Insurance Company of America(10)
(bbb) Extension and Partial Paydown of loan from
PNC Bank National Association, dated
December 15, 1995 to EQK Investors I(10)
(ccc) Second Amendment to Second Amended and Restated Loan
Agreement from PNC Bank National Association dated
December 15, 1996
(ddd) Third Amended and Restated Note from PNC Bank National
Association dated December 15, 1996
(eee) First Amended Note, Mortgage and Note Modification
Agreement from the Prudential Insurance Company of America
dated December 15, 1996
(fff) Mutual Estoppel and Modification Agreement dated December
15, 1996 between the Registrant and the Prudential Insurance
Company of America and PNC Bank National Association
27 Financial Data Schedule (for SEC use only)
</TABLE>
<TABLE>
<S> <C>
(11) See Note 1 to the Financial Statements.
(12) Inapplicable.
(13) Inapplicable.
(16) None.
(18) None.
(21) None.
(22) None.
(23) None.
(24) None.
(27) Included in EDGAR transmission only.
(28) None.
</TABLE>
(b) Reports on Form 8-K
None
(c) See paragraph (a) 3. above
(d) See paragraph (a) 2. above
(1) Incorporated herein by reference to exhibit filed with
Registrant's Registration Statement on Form S-11, File No.
2-93936.
31
<PAGE> 33
(2) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K dated for fiscal year ended December
31, 1985.
(3) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K dated for fiscal year ended December
31, 1987.
(4) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1989.
(5) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1990.
(6) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1991.
(7) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1992.
(8) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1993.
(9) Incorporated herein by reference to exhibit filed with
Registrant's Form 8-K dated November 22, 1995.
(10) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1995.
32
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 31st day of
March, 1997.
EQK Realty Investors I
By: /s/Phillip E. Stephens
--------------------------
Phillip E. Stephens
President and Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 31, 1997 by the following persons on behalf
of the Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signatures Title
- ---------- -----
<S> <C>
/s/Phillip E. Stephens President (Principal Executive
- ---------------------------------- Officer) and Trustee
Phillip E. Stephens
/s/Gregory R. Greenfield Executive Vice President and Treasurer
- ---------------------------------- (Principal Financial Officer)
Gregory R. Greenfield
/s/William G. Brown, Jr. Vice President and Controller
- ----------------------------------
William G. Brown, Jr.
/s/Sylvan M. Cohen Trustee
- ----------------------------------
Sylvan M. Cohen
/s/Alton G. Marshall Trustee
- ----------------------------------
Alton G. Marshall
/s/George R. Peacock Trustee
- ----------------------------------
George R. Peacock
/s/Robert C. Robb, Jr. Trustee
- ----------------------------------
Robert C. Robb, Jr.
</TABLE>
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
Board of Trustees and Shareholders
EQK Realty Investors I:
We have audited the accompanying balance sheets of EQK Realty Investors I (a
Massachusetts business trust) as of December 31, 1996 and 1995 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14. These
financial statements and the financial statement schedule are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule 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 financial statements present fairly, in all material
respects, the financial position of EQK Realty Investors I as of December 31,
1996 and 1995 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements, presents fairly, in all material respects, the information set
forth therein.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 14, 1997
<PAGE> 36
EQK REALTY INVESTORS I
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Investment in Harrisburg East Mall, at cost $ 52,228 $ 52,033
Less accumulated depreciation 15,338 13,446
--------- ---------
36,890 38,587
Cash and cash equivalents:
Cash Management Agreement 2,667 2,360
Other 994 612
Deferred leasing costs (net of accumulated amortization of 4,041 4,331
$1,629 and $1,361, respectively)
Accounts receivable and other assets 2,011 2,319
--------- ---------
TOTAL ASSETS $ 46,603 $ 48,209
========= =========
LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY
Liabilities:
Mortgage Note payable $ 43,794 $ 44,125
Term Loan payable to bank 1,585 1,587
Accounts payable and other liabilities (including amounts due
affiliates of $2,940 and $2,765, respectively) 4,245 4,030
--------- ---------
49,624 49,742
Deficit in Shareholders' Equity:
Shares of beneficial interest, without par value: 10,055,555 shares
authorized, 9,264,344 shares issued and outstanding 135,875 135,875
Accumulated deficit (138,896) (137,408)
--------- ---------
(3,021) (1,533)
--------- ---------
TOTAL LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY $ 46,603 $ 48,209
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 37
EQK REALTY INVESTORS I
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
- ------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from rental operations $ 6,174 $ 15,761 $ 16,512
Operating expenses, net of tenant
reimbursements (including property
management fees earned by an affiliate
of $297, $291 and $314, respectively) 887 5,403 5,836
Depreciation and amortization 2,391 4,848 4,612
Other income (268) (400) --
Write-off of capitalized predevelopment costs -- -- 429
Write-down of investment in real estate -- 3,200 --
- -----------------------------------------------------------------------------------
Income from rental operations 3,164 2,710 5,635
Interest expense 3,896 8,302 8,132
Other expenses, net of interest income
(including portfolio management fees
earned by an affiliate of $250, $403 and $430,
respectively) 756 983 962
- -----------------------------------------------------------------------------------
Loss before gain on sale of real estate (1,488) (6,575) (3,459)
Gain on sale of real estate -- 229 --
- -----------------------------------------------------------------------------------
Net loss ($ 1,488) ($ 6,346) ($ 3,459)
===================================================================================
Loss per share:
Loss before gain on sale of real estate ($ 0.16) ($ 0.71) ($ 0.37)
Gain on sale of real estate -- $ 0.03 --
- -----------------------------------------------------------------------------------
Net loss ($ 0.16) ($ 0.68) ($ 0.37)
===================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 38
EQK REALTY INVESTORS I
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Shares of
Beneficial Accumulated
Interest Deficit Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1993 $ 135,779 ($127,603) $ 8,176
Net loss -- (3,459) (3,459)
Issuance of 51,226 warrants in
connection with financing 96 -- 96
- ------------------------------------------------------------------------------------
Balance, December 31, 1994 135,875 (131,062) 4,813
- ------------------------------------------------------------------------------------
Net loss -- (6,346) (6,346)
Balance, December 31, 1995 135,875 (137,408) (1,533)
- ------------------------------------------------------------------------------------
Net loss -- (1,488) (1,488)
BALANCE, DECEMBER 31, 1996 $ 135,875 ($138,896) ($ 3,021)
====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 39
EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Years ended December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 1,488) ($ 6,346) ($ 3,459)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Write-down of investment in real estate -- 3,200 --
Depreciation and amortization 2,391 4,848 4,612
Amortization of debt discount -- 460 334
Imputed and deferred interest 302 1,494 1,320
Gain on sale of real estate -- (229) --
Changes in assets and liabilities:
Decrease in accounts
payable and other liabilities (87) (1,661) (388)
(Increase) decrease in accounts receivable
and other assets 99 (643) (235)
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 1,217 1,123 2,184
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of real estate -- 38,507 --
Additions to real estate investments (195) (5,362) (2,976)
Payment of real estate disposition fee -- -- (216)
- -----------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (195) 33,145 (3,192)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Scheduled repayments of debt (333) (7) (7)
Repayments of debt due to sale of property -- (35,990) --
- -----------------------------------------------------------------------------------------
Net cash used in financing activities (333) (35,997) (7)
- -----------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 689 (1,729) (1,015)
Cash and cash equivalents
beginning of year 2,972 4,701 5,716
- -----------------------------------------------------------------------------------------
Cash and cash equivalents
end of year $ 3,661 $ 2,972 $ 4,701
=========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 40
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS:
EQK Realty Investors I, a Massachusetts business trust (the "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 Trust qualified for and elected real estate
investment trust ("REIT") status under the provisions of the Internal Revenue
Code.
At December 31, 1996, the Trust's remaining real estate investment is
Harrisburg East Mall ("Harrisburg" or the "Mall"), a regional shopping center in
Harrisburg, Pennsylvania. On December 8, 1995, the Trust sold its interest in
Castleton Park ("Castleton"), an office park in Indianapolis, Indiana (see Note
3). During 1993, the Trust sold its two remaining office buildings within its
office complex located in Atlanta, Georgia, formerly known as Peachtree-
Dunwoody Pavilion or "Peachtree" (see Note 3). Prior to 1993, the Trust
completed the sale of two office buildings at Castleton (1991) and five office
buildings at Peachtree (1992).
The Declaration of Trust currently provides that actual
disposition of the remaining property, Harrisburg, may occur at any time prior
to March 1999. The precise timing of this disposition or an alternative
strategic transaction will be at the discretion of the Trustees, depending on
both the prevailing conditions in the relevant real estate market and the
ability of the Trust to extend or refinance its debt maturing in June 1998 (see
Note 2 to the financial statements).
CAPITALIZATION, DEPRECIATION AND AMORTIZATION:
Property additions are recorded at cost. Costs directly associated with
major renovations and improvements, including interest on funds borrowed to
finance construction, are capitalized to the point of substantial completion.
Depreciation of real estate investments is provided on a straight-line
basis over the estimated useful lives of the related assets, ranging generally
from 5 to 40 years. Tenant improvements are amortized over their estimated
useful lives, which do not exceed the terms of the respective tenant leases.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives.
VALUATION OF REAL ESTATE:
In accordance with SFAS 121, the Company reviews for impairment, on a quarterly
basis, real estate investments whenever events or changes in circumstances
indicate that the carrying amount may not be reasonable based on estimates of
future undiscounted cash flows without interest expense. In the event of an
impairment, the real estate investment is written down to its fair market
value. Real estate investments to be disposed of are recorded at the lower of
net book value or fair market value less cost to sell at the date management
commits to a plan of disposal.
DEFERRED LEASING COSTS:
Costs incurred in connection with the execution of a new lease including
leasing commissions, costs associated with the acquisition or buyout of existing
leases, and legal fees are deferred and amortized over the
<PAGE> 41
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
term of the new lease. Included in deferred leasing costs is the unamortized
portion of a 1990 payment of $5,500,000 made to an anchor tenant at Harrisburg
in exchange for the tenant relinquishing space that was subsequently converted
into leasable area for mall shops.
REVENUE RECOGNITION:
Minimum rents are recognized on a straight-line basis over the term of
the related leases. Percentage rents are recognized on an accrual basis.
NET LOSS PER SHARE:
The net loss per share calculation is based on the weighted average
number of shares outstanding during the year, which was 9,264,344 for all years
presented.
Share warrants issued in connection with the Trust's 1992 debt
restructuring (see Note 2) are considered common share equivalents. However, the
warrants have not been included in the net loss per share calculation since the
effect on such calculation would be anti-dilutive.
INCOME TAXES:
The Trust has complied with all applicable provisions established by
the Internal Revenue Code for maintaining its REIT status. Accordingly, no
income tax provision or benefit has been recognized in the accompanying
financial statements.
STATEMENTS OF CASH FLOWS:
Cash equivalents include short-term investments with an original
maturity of three months or less. Included in the statements of cash flows are
cash payments for interest of $3,886,000, $6,703,000, and $6,746,000 in 1996,
1995 and 1994, respectively. Such amounts are net of interest costs of $69,000
capitalized in 1995.
As of December 31, 1993, the Trust accrued additions to investments in
real estate and a real estate disposition fee payable to the Advisor in the
amounts of $489,000 and $216,000, respectively. Such amounts were paid in 1994.
As a condition of the Trust's debt restructuring (see Note 2), the
Trust issued a total of 367,868 share warrants to its primary mortgage lender
during 1992 to 1994. The value of the warrants at the time of issuance was
recorded as a debt discount and an increase in Shareholders' Equity.
<PAGE> 42
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
FAS 107:
The Trust values its financial instruments as required by FAS No. 107,
"Disclosures about Fair Values of Financial Instruments". Based on rates
currently available to the Trust for comparable financial instruments, the Trust
believes, the carrying amounts of cash and cash equivalents, the Mortgage Note,
and the Term Loan approximate fair value.
RECLASSIFICATIONS:
Certain amounts in the prior year have been reclassified from
previously issued financial statements to conform with the 1996 presentation.
MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2: MORTGAGE DEBT AND RESTRUCTURING ACTIVITIES
On December 15, 1992, the Trust completed a restructuring of its
existing mortgage debt through the issuance of a "Mortgage Note" and a "Term
Loan", both due December 15, 1995, with original principal balances of
$75,689,000 and $2,859,000, respectively. The Mortgage Note bore interest at an
average rate of 9.79% per annum during its three year term, although interest
was payable at 8.54% per annum. The Term Loan bore interest at 8.33% and was
subject to the same pay rate of 8.54%. The differences between the accrual and
pay rates of interest under both debt instruments were reflected in the
principal balances due at maturity. Absent prepayments due to property
dispositions, the scheduled amount of principal due under the Mortgage Note and
the Term Loan on the original maturities date would have been $78,928,000 and
$2,839,000, respectively. However, on December 8, 1995, the Trust completed the
sale of Castleton Park (see Note 3) and used the net proceeds of $35,990,000
<PAGE> 43
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
(reflecting reductions of $2,517,000 for customary prorations) to prepay such
debt obligations in the amounts of $34,738,000 and $1,252,000, respectively.
These debt instruments were subsequently extended for a period of one year to
December 15, 1996, and again for a period of eighteen months to June 15, 1998 as
described below.
Pursuant to its Mortgage Note agreement, the Trust issued the lender
warrants to purchase 367,868 of its shares of beneficial interest at $.0001 per
share. As of December 31, 1996, all such warrants remain outstanding and
exercisable.
As part of the 1992 restructuring, the Trust entered into a Cash
Management Agreement with the mortgage lender and 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 December 31, 1996, a balance of $781,000 was held
by the third-party escrow agent in accordance with the Cash Management
Agreement. The agreement also provides for the establishment of 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 December 31,
1996 the balance of the capital reserve account was $1,886,000.
EXTENSIONS OF DEBT
The remaining principal balances outstanding under the Mortgage Note
and the Term Loan at December 15, 1996, $43,794,000 and $1,585,000,
respectively, were extended for eighteen months through June 15, 1998, under
terms substantially comparable from those previously in effect, except as
described below. Previously, principal balances of $44,125,000 and $1,587,000,
respectively, were extended from their original maturity date of December 15,
1995 to December 15, 1996. The Mortgage Note remains collateralized by a first
mortgage lien on Harrisburg, an assignment of leases and rents, and certain cash
balances. The Term Loan remains collateralized by a subordinate lien on
Harrisburg.
The Mortgage Note agreement has been amended to provide for monthly
payments of interest only accruing at the rate of 8.88% per annum ($324,000 per
month). Previously, in connection with the December 15, 1995 extension, the
Mortgage Note agreement was amended to provide for monthly payments of principal
(assuming a 30 year amortization) and interest (at an accrual rate equal to the
former pay rate of 8.54%) in the aggregate amount of $341,000. The Term Loan
agreement was amended to provide for an accrual rate that resets periodically
and is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate
(as defined) or 1 1/8% above the Prime Rate (as defined). The accrual rate in
effect through May 18, 1997 averages 8.12%.
<PAGE> 44
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
In consideration for the fixed annual interest accrual rate on the
Mortgage Note agreement, the Trust paid an upfront application fee of $165,000
and agreed to pay a back end fee of $272,900, plus interest thereon at the
contract rate of 8.88%, at the maturity date of June 15, 1998, or the date at
which all or any part of the original principal amount is prepaid. At December
31, 1996, the $272,900 application fee is included in accounts payable and other
liabilities on the balance sheet.
NOTE 3: SALES OF REAL ESTATE
During 1995, Management recorded a write-down of its investment in
Castleton of $3,200,000 in order to reflect its then current estimate of net
realizable value. In December 1995, the Trust completed the sale of its
remaining forty-four buildings at Castleton. The Trust received net sales
proceeds of $38,507,000 before reduction for customary prorations of $2,517,000,
and recognized a gain on sale of $229,000. The net proceeds were used to repay a
portion of outstanding mortgage indebtedness (see Note 2).
NOTE 4: LEASING ARRANGEMENTS
The Trust leases shopping center space generally under noncancelable
operating leases, some of which contain renewal options. The shopping center
leases generally provide for minimum rentals, plus percentage rentals based upon
the retail stores' sales volume. Percentage rentals amounted to $179,000,
$270,000 and $295,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. In addition, the tenants pay certain utility charges to the Trust
and, in most leases, reimburse their proportionate share of real estate taxes
and common area expenses. Recoveries of common area and real estate tax expenses
amounted to $2,313,000, $2,355,00 and $2,311,000 for the years ended December
31, 1996, 1995, and 1994, respectively.
<PAGE> 45
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
Future minimum rentals under existing, non-cancelable leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years ending December 31, Amount
------------------------ ------
<S> <C>
1997 $ 4,485,000
1998 4,536,000
1999 4,234,000
2000 4,023,000
2001 3,306,000
Thereafter 12,842,000
-------------
$ 33,426,000
=============
</TABLE>
Due to a department store vacancy discussed in Note 8, certain tenants
at Harrisburg have exercised the right, as provided for under cotenancy
provisions set forth in their respective leases, to pay percentage rent in lieu
of fixed minimum rents which amounted to $663,000, $702,000, and $209,000 for
the years ended December 31, 1996, 1995, and 1994, respectively. Future minimum
rentals for these tenants have been included in the above schedule beginning in
March 1997, the month in which the rental payment obligations of these tenants
reverts to fixed minimum rent due to the March 10, 1997 opening of Lord & Taylor
in the vacant department store location.
NOTE 5: INVESTMENTS IN REAL ESTATE
The Trust's investments in real estate at December 31, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- -----------
<S> <C> <C>
Land $ 4,700,000 $ 4,700,000
Buildings and improvements 45,033,000 44,975,000
Tenant improvements 2,332,000 2,195,000
Personal property 163,000 163,000
---------- ----------
$52,228,000 $52,033,000
========== ==========
</TABLE>
During 1995, the Trust renovated Harrisburg's outparcel building to
accommodate the relocation of Toys'R'Us. The final cost of the renovation
project was approximately $3,440,000. Additional real estate investments in 1996
consisted of minor building and tenant
<PAGE> 46
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
improvements to Harrisburg.
NOTE 6: ADVISORY AND MANAGEMENT AGREEMENTS
ADVISORY AGREEMENT
The Trust has entered into an agreement with Equitable Realty Portfolio
Management, Inc. (successor in interest to EQK Partners), 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
Trust 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 Trust'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 generally has been payable monthly without subordination.
Commencing with the December 1995 extension of debt and continuing with the
December 1996 debt extension (see Note 2), the Mortgage Note lender has
requested, and the Advisor has agreed to, a partial deferral of payment of its
fee. Whereas the fee continues to be computed as described above, payments to
the Advisor are limited to $37,500 per quarter. Accrued but unpaid amounts will
be eligible for payment upon the repayment of the Mortgage Note. For the years
ended December 31, 1996, 1995 and 1994, portfolio management fees were $250,000,
$403,000, and $430,000, respectively. The balance of accrued but unpaid advisory
fees at December 31, 1996 was $125,000.
As of December 31, 1989, portfolio management fees of $5,440,000
payable to the Advisor were deferred in accordance with subordination provisions
contained in the original advisory agreement. Pursuant to the amended advisory
agreement, the Advisor forgave one-half, or $2,720,000, of the deferred balance.
The remaining deferred fees are to be paid upon the disposition of the Trust's
properties. As of December 31, 1996, the liability for deferred management fees
was $2,720,000.
Upon the sale of all or any portion of any real estate investment of
the Trust, the Advisor will receive a disposition fee equal to 2% of the gross
sale price (including outstanding indebtedness taken subject to or assumed by
the buyer and any purchase money indebtedness taken back by the Trust). The
disposition fee will be reduced by the amount of any brokerage commissions and
legal expenses incurred by the Trust in connection with such sales. During 1995,
disposition fees earned by the Advisor were $788,000.
In connection with the December 15, 1996 extension of debt (see Note
2), the Advisor will receive a refinancing fee of $50,000, which will be paid
upon the retirement of the debt.
<PAGE> 47
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
PROPERTY MANAGEMENT AGREEMENTS
The Trust has also entered into agreements for the on-site management of
each of its properties. Harrisburg East Mall is managed by Compass Retail, Inc.
("Compass"), an affiliate of Equitable Real Estate. Castleton Park was managed
by an unaffiliated third-party management company up until the time of its sale.
Management fees paid to Compass are generally based upon a percentage of
rents and certain other charges. The Trust believes that such fees are
comparable to those charged by unaffiliated third-party management companies
providing comparable services. For the years ended December 31, 1996, 1995 and
1994, management fees to Compass were $297,000, $291,000, and $314,000,
respectively.
In connection with the redevelopment of Harrisburg's outparcel building as
described in Note 5, Compass received a $150,000 development fee in 1995.
SHARE OWNERSHIP
In connection with a debt restructuring in December 1992, the Trust issued
1,675,000 previously repurchased shares to its Advisor for $6,700,000, or $4.00
per share. In total, the Advisor owns 1,685,556 shares, or 18.2% of the total
shares outstanding. The Advisor earned a $500,000 fee in connection with this
refinancing, which was paid in 1993-1994.
NOTE 7: RELATED PARTY TRANSACTIONS
As a condition of the Term Loan issuance in December 1992 (Note 2), an
escrow deposit of $300,000 was required as additional collateral. The Trust
borrowed this amount from its Advisor. In connection with the December 15, 1995
extension of this debt, the escrow deposit was released and the Advisor was
repaid in 1996.
NOTE 8: COMMITMENTS AND CONTINGENCIES
ANCHOR DEPARTMENT STORE VACANCY
On March 10, 1997, May Department Stores Company ("May Company") opened
a Lord & Taylor department store at Harrisburg, pursuant to a lease agreement
with the Trust dated May 16, 1996. The new Lord & Taylor store is located in the
anchor space previously occupied by John Wanamaker. The John Wanamaker location
at Harrisburg had been closed since October 1995 following Woodward & Lothrop's
(the owner of John Wanamaker) sale of certain department stores in this retail
chain to May Company pursuant to an August 1995 bankruptcy court auction. Given
its existing presence at Harrisburg through its recently-opened Hecht's
department store, May Company initially pursued an assignment of this
<PAGE> 48
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
leasehold interest to other retail operators before deciding instead to open a
Lord & Taylor department store in this location. The execution of such lease
agreement has resulted in, among other things, the termination of the legal
proceedings initiated by the Trust against May Company in March 1996 following
May Company's failure to open or cause another retail operator to open for
business once the John Wanamaker store closed, which was a violation of a
continuous operating covenant contained in its lease agreement.
The new lease agreement with May Company has an initial term of nine
years (October 31, 2005), with three renewal options of ten years each. The new
lease agreement has a longer committed lease term than the John Wanamaker lease
agreement, which stipulated an initial lease term expiration date of October 31,
1999. The financial terms are comparable to those contained in the John
Wanamaker lease, although minimum rent payments during the first three years of
the lease are anticipated to be approximately $75,000 less per annum. Due to
certain rent offsets that John Wanamaker would have otherwise been entitled to,
the revenue stream after the third lease year is anticipated to be more
favorable to the Trust. In connection with the execution of this lease
agreement, the Trust received approval from May Company, on behalf of its
Hecht's and Lord & Taylor stores, of certain modifications to the Mall's site
plan which will give the Trust flexibility in future development planning. The
opening of a Lord & Taylor store is expected to have a positive impact on the
Trust's ability to lease space to new tenants and to renew leases with existing
tenants.
NOTE 9: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Quarter Ended
----------------------------------------------------------------
1996 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Revenues from rental operations $ 1,714 $ 1,412 $ 1,576 $ 1,472
Income from rental operations 968 695 868 633
Net loss (193) (475) (261) (559)
Net loss per share (.02) (.05) (.03) (.06)
</TABLE>
<PAGE> 49
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Quarter Ended
---------------------------------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Revenues from rental operations $ 3,966 $ 4,113 $ 3,990 $ 3,692
Write down of investment in real estate -- -- (3,200) --
Income (loss) from rental operations 1,286 1,487 (1,388) 1,325
Loss before gain on sale of real estate (1,128) (890) (3,802) (755)
Gain on sale of real estate -- -- -- 229
Net loss (1,128) (890) (3,802) (526)
Net loss per share before write down
of investment in real estate (.12) (.10) (.06) (.08)
Net loss per share before gain on sale
of real estate (.12) (.10) (.06) (.08)
Net loss per share (.12) (.10) (.41) (.06)
</TABLE>
During the first and second quarters of 1996, the Trust was notified by
the Fulton County (Georgia) Tax Commissioner's office of a reduction in the
assessed value of the real estate underlying Peachtree Dunwoody Pavilion for tax
years prior to the Trust's sale of this property. Such reduction in assessed
value resulted in a refund of previously paid real estate taxes in the amount of
$268,000, which the Trust recognized as other income.
During the third quarter of 1995, as a result of a successful valuation
appeal, the Trust received and recognized a $400,000 refund of Castleton real
estate taxes relating to years 1989 to 1994. Also in the third quarter of 1995,
in contemplation of completing the sale of Castleton, Management wrote down its
investment in Castleton by $3,200,000 to its estimate of net realizable value.
In the fourth quarter of 1995, the Trust completed the sale of Castleton and
recognized a gain on the sale of $229,000 (see Note 3). The sum of the net loss
per share for the four quarters in 1995 does not equal net loss per share due to
rounding differences.
<PAGE> 50
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
December 31, 1996
(in thousands)
- -------------------------------------------------------------------------------------------------------------------
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------
Cost Capitalized
Initial Cost Subsequent to
Acquisition
--------------- ---------------
Bldg &
Description Encumbrance Land Improve. Improvements
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harrisburg East Mall...$45,379(1) $4,700(2) $31,287(2) $16,241
Harrisburg, PA
Totals $45,379 $4,700 $31,287 $16,241
- ------------------------------------------------------------------
<CAPTION>
Gross Amount
at which Carried
at Close of Period (3)
-------------------------
Life on which
Depreciation
in Latest
Bldg & Accum Date of Date Income Stmt.
Description Land Improve. Total Depr Construction Acquired is Computed
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Harrisburg East Mall. $4,700(2) $47,528(2) $52,228 $15,338 1969(4) 3/13/85 30 yrs.
Harrisburg, PA
Totals $4,700 $47,528 $52,228 $15,338
- -----------------------------------------------------------------------------------------------------
(1) Encumbrance is a mortgage note payable constituting first lien on the Harrisburg real estate and a term loan payable to a
bank constituting subordinated lien on the property.
(2) Initial cost is net of imputed interest of $5,280 at date of acquisition.
(3) The aggregate tax basis of the Trust's property is $53 million as of December 31, 1996.
(4) Renovation of Harrisburg was completed in 1993.
RECONCILIATION OF GROSS CARRYING AMOUNT OF REAL ESTATE: RECONCILATION OF ACCUMULATED DEPRECIATION:
Balance, December 31, 1993 $ 107,082
Balance, December 31, 1993 $28,118
Improvements and Additions 2,487 Depreciation expense 3,719
Deductions -- Reversal of net book value of Deductions -- Reversal of net book value
fully depreciated assets (44) of fully depreciated assets (44)
------------ -------
Balance, December 31, 1994 109,525 Balance, December 31, 1994 31,793
Improvements and Additions 2,823 Depreciation Expense 4,016
Deductions--Sale of Castleton Commercial Par (60,315) Deductions--Sale of Castelton Commercial Park (22,363)
--------- --------
Balance, December 31, 1995 52,033 Balance, December 31, 1995 13,446
Improvements and Additions 19 Depreciation Expense 1,892
-------- ---------
Balance, December 31, 1996 $ 52,228 Balance, December 31, 1996 $15,338
======== =========
</TABLE>
<PAGE> 1
EXHIBIT 3.10.CCC
SECOND AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN
AGREEMENT (this "Amendment") is made as of this 15th day of December, 1996, by
and between EQK REALTY INVESTORS I, a Massachusetts business trust (the
"Borrower"), and PNC BANK, NATIONAL ASSOCIATION, a national banking
association, (successor by merger to Provident National Bank) (the "Bank").
BACKGROUND
A. Reference is made to the Second Amended and Restated Loan
Agreement dated as of December 16, 1992, by and between the Borrower and the
Bank pursuant to which the Bank extended to Borrower a term loan in the amount
of $3,525,000 (the "Loan"), which loan agreement was amended by a First
Amendment to Second Amended and Restated Loan Agreement dated as of December
15, 1995 (the "First Amendment") (collectively the "Original Loan Agreement").
B. The Loan was evidenced by Borrower's Amended and Restated Note
dated December 16, 1992 in the principal amount of $3,525,000, as amended by a
Note Modification Agreement dated May 17, 1993 and by a certain Second Amended
and Restated Note dated as of December 15, 1995 (the "Second Amended and
Restated Note") (collectively, the "Original Note"). The Original Note was
secured by, among other things, the New Provident Mortgage, the New Provident
Security Interest and the New Provident Lease Assignment (all as defined in the
Original Loan Agreement).
<PAGE> 2
C. This Amendment, the Original Loan Agreement, the Note (as
hereinafter defined in Section 2 hereof), the New Provident Mortgage, the New
Provident Lease Assignment, the Intercreditor Agreement (all as defined in the
Original Loan Agreement) and all other documents and instruments evidencing
and/or securing the Loan are sometimes hereinafter collectively referred to as
the "Loan Documents."
D. The Borrower has paid down the principal balance of the Loan
from $1,587,430 to $1,585,010 and has requested that the Bank extend the
Maturity Date (as defined in the Original Note) to June 15, 1998, and to make
certain other amendments to the Loan Documents.
E. The Bank has agreed to extend the Maturity Date and to make
such other subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Capitalized terms not otherwise defined herein shall
have the meaning given to such terms in the Original Loan Agreement.
2. The Original Loan Agreement is hereby amended by
deleting in its entirety Section 3(b) of the First Amendment and substituting
the following:
"3(b) Terms of Payment: Maturity: Subject to the terms of
the Intercreditor Agreement, the Loan shall be payable in accordance
with the Original Note as amended by the Third Amended and Restated Note dated
the date hereof (collectively, the "Note")."
3. From and after the date hereof, all references to the
"Loan Agreement" or the "Note" contained herein or in any of the other Loan
Documents shall be to the
2
<PAGE> 3
Original Loan Agreement or the Original Note, as the case may be, as amended by
this Modification and the Third Amended and Restated Note, respectively.
4. Execution of this Modification shall be conditioned on the
Bank's receipt of the following, all in form satisfactory to the Bank:
(a) the execution and delivery by Borrower of the (i)
Third Amended and Restated Note in the form of
Exhibit A attached hereto and (ii) the Disclosure For
Confession of Judgment in the form of Exhibit B
attached hereto;
(b) certified copy of the authorizing resolutions of
Borrower;
(c) certificate from Borrower as to the incumbency of its
officers and that the Declaration of Trust, By-Laws
and other organizational documents have not been
amended since December 15, 1992 and remain in full
force and effect;
(d) endorsement to Commonwealth Land Title Mortgage
Insurance Policy No. D-049935-CP reducing the insured
amount to $1,585,010 and insuring that the Harrisburg
Mortgage (as defined in the Note) creates a second
mortgage lien against the property described therein
subject only the matters shown on the existing title
policy, but not to any other liens or mortgages
except the lien in the amount of $43,794,149.14 in
favor of The Prudential Insurance Company of America
("Prudential");
(e) legal opinion of counsel for Borrower as to
authorization, execution and delivery of the
documents; and
(f) Mutual Estoppel and Modification Agreement with
respect to Subordination and Intercreditor Agreement
among the Bank, Prudential and Borrower (the
"Intercreditor Agreement").
5. On the date hereof, Borrower shall pay or reimburse Bank for
the fees and disbursements of Bank's counsel, Ballard Spahr Andrews &
Ingersoll. Borrower hereby agrees to pay to the Bank an extension fee in the
amount of Twenty-three Thousand Seven
3
<PAGE> 4
Hundred Seventy Five Dollars ($23,775,00), which shall be payable as follows:
(a) $15,850 within five business days of the Bank's billing therefor; and (b)
$7,925 in monthly payments until paid in full in an amount equal to the
positive difference, if any, between the Cap Amount (as defined in the
Intercreditor Agreement) and the amount of interest payable monthly under the
Note at the Interest Rate.
6. The Borrower hereby certifies that, as of the date hereof:
(a) each of the representations and warranties contained
in the Loan Agreement and the other Loan Documents,
as modified by this Modification, are true and
correct;
(b) the Borrower is in compliance with all of the terms,
covenants and conditions contained in the Loan
Agreement and the other Loan Documents, as modified
by this Modification, including, without limitation,
all of the financial covenants; and
(c) there exists no Default or Event of Default under the
Loan Agreement or any of the other Loan Documents.
7. All of the terms, conditions, provisions and covenants in the
Original Loan Agreement, the Original Note or any of the other Loan Documents
executed in connection with any of the foregoing shall remain unaltered and in
full force and effect except as modified by this Modification and the Third
Amended and Restated Note.
8. This Modification shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
9. Each and every one of the terms and provisions of this
Modification shall be binding upon and shall inure to the benefit of the
Borrower, the Bank and their respective successors and assigns.
4
<PAGE> 5
10. This Modification may be executed in one or more counterparts,
each of which shall be deemed to be an original as against any party whose
signature appears thereon, and all of which shall constitute but one and the
same instrument.
11. Borrower agrees that it has no defenses or set-offs against
Bank, its officers, directors, employees, agents or attorneys with respect to
the Note, the Loan Agreement, the New Provident Mortgage or any of the other
Loan Documents, and that the Note, the Loan Agreement, the New Provident
Mortgage, and the other Loan Documents are in full force and effect and shall
remain in full force and effect unless and until modified or amended in writing
in accordance with their respective terms. Borrower hereby ratifies and
confirms its obligations under the Note, the Loan Agreement, the New Provident
Mortgage, and the other Loan Documents, and the execution and delivery of this
Modification does not in any way diminish or invalidate any of Borrower's
obligations under the Note, the Loan Agreement and the other Loan Documents.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BORROWER RATIFIES AND
CONFIRMS THE WARRANT OF ATTORNEY GIVEN IN THE NOTE.
12. This Modification does not and shall not be deemed to
constitute a waiver by Bank of any Event of Default, or of any event which
with the passage of time or the giving of notice or both would constitute an
Event of Default, under the Note, the Loan Agreement, the New Provident
Mortgage or any of the other Loan Documents, nor does it obligate Bank to agree
to any further modifications of the terms of the Note, the Loan Agreement or
any of the other Loan Documents, or constitute a waiver of any of Bank's other
rights or remedies, which may be effected only (if at all) by an instrument in
writing.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Modification
to be duly executed by their respective authorized officers as of the day and
year first above written.
EQK REALTY INVESTORS I, a
Massachusetts business trust
By: /s/ Don Henry
--------------------------
Name: Don Henry
------------------------
Title: VP
-----------------------
PNC BANK, NATIONAL
ASSOCIATION
By: /s/ Andrew Coler
--------------------------
Name: Andrew Coler
------------------------
Title: Vice President
-----------------------
6
<PAGE> 7
EXHIBIT A
<PAGE> 1
EXHIBIT 3.10.DDD
THIRD-AMENDED AND RESTATED NOTE
Dated as of: December 15, 1996
Philadelphia, PA
For value received and intending to be legally bound, EQK REALTY
INVESTORS I ("Maker"), a Massachusetts business trust whose address is 5775
Peachtree-Dunwoody Road, Suite 200-D, Atlanta, Georgia 30342, promises to pay to
the order of PNC BANK, NATIONAL ASSOCIATION (successor by merger to Provident
National Bank), a national banking association organized and existing under the
laws of the United States of America (hereinafter called "Payee"), at Real
Estate Finance Division, P.O. Box 7648, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19101 or such other place as Payee may designate in
writing, the principal sum of ONE MILLION FIVE HUNDRED EIGHTY-FIVE THOUSAND TEN
DOLLARS ($1,585,010.00) lawful money of the United States of America, or so
much thereof as shall have been advanced, together with interest on the
outstanding principal balance thereof at a rate or rates per annum (the
"Interest Rate") as provided in the Second Amended and Restated Loan Agreement
dated December 16, 1992 between Maker and Payee, as amended by a First
Amendment to Second Amended and Restated Loan Agreement dated as of December
15, 1995 and a Second Amendment to Second Amended and Restated Loan Agreement
(the "Second Amendment") dated the date hereof (collectively, the "Loan
Agreement"). All interest shall be calculated in accordance with the Loan
Agreement.
The Note shall be payable as follows:
<PAGE> 2
(a) Interest from and including December 1, 1996
through December 15, 1996 on the outstanding principal balance of the Prior
Note at the interest rate set forth in the Prior Note shall be paid by Maker to
Payee on January 1, 1997.
(b) Interest from and including December 16, 1996
(the "Effective Date") through December 31, 1996 on the outstanding principal
balance hereof shall be paid by Maker to Payee at the Interest Rate on January
1, 1997.
(c) Interest on the outstanding principal balance
shall be paid by Maker to Payee at the Interest Rate (the "Provident Monthly
Interest Payment") commencing on the first day of February, 1997 and on the
first day of each month thereafter until June 15, 1998 (the "Maturity Date").
On the Maturity Date, the entire amount of principal outstanding
shall be due and payable in full together with all unpaid accrued interest.
If Maker pays all or any portion of the outstanding principal
balance prior to the Maturity Date (whether a voluntary payment or acceleration
or otherwise), Maker shall pay to Payee the amounts as set forth in Section 3
of the Loan Agreement.
If the Maker fails to make any payment of principal, interest or
other amount coming due pursuant to the provisions of this Note within ten (10)
calendar days of the date due and payable, the Maker shall also pay to the
Payee a late charge equal to five percent (5%) of the amount of such payment.
Such ten (10) day period shall not be construed in any way to extend the due
date of any such payment. The late charge is imposed for the purpose of
defraying the Payee's expenses incident to the handling of delinquent payments
and is in addition to, and not in lieu of, the exercise of the Payee of any
rights and remedies
2
<PAGE> 3
hereunder, under the Loan Agreement or any other documents in connection
therewith or under applicable laws, and any fees and expenses of any agents or
attorneys which the Payee may employ.
This Note was issued by Maker to Payee pursuant to the Loan
Agreement, all of the terms of which are incorporated herein by reference.
This Note continues to be secured by and entitled to all the
benefits of (i) a Mortgage and Security Agreement dated December 16, 1992 from
Maker for the benefit of Payee, secured upon certain land and improvements
thereon in Dauphin County, Pennsylvania (the "Harrisburg Mall") and recorded in
the office for the recording of deeds in and for said County (the "Harrisburg
Mortgage"); (ii) an Assignment of Lessor's Interest in Leases for the
Harrisburg Mall (the "Lease Assignment") dated December 16,1992 between Maker
and Payee; and (iii) security interests (the "Security Interests") granted to
Payee under the Loan Agreement (the Mortgage, the Lease Assignment and the
Security Interests are hereinafter collectively called the "Collateral").
Reference to the Loan Agreement and the Collateral is made for a description of
the properties mortgaged, secured and pledged as security for this Note, the
nature and extent thereof, the rights of the holder of this Note and the Maker
in respect of such security and otherwise, and the terms upon which this Note
is issued.
If any event of default as defined in the Loan Agreement or the
Collateral (an "Event of Default") should occur, the entire unpaid balance of
said principal sum with interest accrued thereon at the rate hereinbefore
specified to the date of said default and thereafter at the lower of (i) five
percent (5%) above the rate then extant hereunder or (ii) the
3
<PAGE> 4
highest aggregate rate of interest permitted by law, and all other sums due by
Maker hereunder or under the provisions of the Collateral or the Loan
Agreement, shall at the option of Payee and without notice to Maker become due
and payable immediately, anything herein or in the Collateral or the Loan
Agreement to the contrary notwithstanding; and payment of the same may be
enforced and recovered in whole or in part at any time by one or more of the
remedies provided to Payee in this Note or in the Collateral or in the Loan
Agreement; and in such case Payee may also recover all costs of suit and other
expenses in connection therewith, including a reasonable attorney's fee for
collection.
MAKER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ATTORNEYS
OR THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF
PENNSYLVANIA, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, TO APPEAR FOR MAKER
IN ANY SUCH COURT, WITH OR WITHOUT DECLARATION FILED, AS OF ANY TERM OR TIME
THERE OR ELSEWHERE TO BE HELD AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST
MAKER IN FAVOR OF PAYEE FOR ALL SUMS DUE OR TO BECOME DUE BY MAKER TO PAYEE
UNDER THIS NOTE, WITH COSTS OF SUIT AND RELEASE OF ERRORS AND WITH THE GREATER
OF FIVE PERCENT (5%) OF SUCH SUMS OR $5,000 ADDED AS A REASONABLE ATTORNEY'S
FEE AND FOR DOING SO THIS NOTE OR A COPY VERIFIED BY AFFIDAVIT SHALL BE
SUFFICIENT WARRANT. SUCH AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY
EXERCISE THEREOF, AND
4
<PAGE> 5
JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS
OCCASION THEREFOR.
MAKER ACKNOWLEDGES THAT THE PROVISIONS FOR CONFESSION OF JUDGMENT
CONTAINED IN THE ABOVE PARAGRAPH WAIVE ANY RIGHT TO A HEARING THAT WOULD
OTHERWISE BE A CONDITION TO THE PAYEE'S OBTAINING THE JUDGMENT AUTHORIZED BY
SUCH PARAGRAPH, AND THAT THE JUDGMENT SO OBTAINED WILL CONSTITUTE A LIEN ON THE
PROPERTY OF MAKER IN THE COUNTY WHERE THE JUDGMENT IS ENTERED.
The remedies of Payee as provided herein, in the Collateral or in the
Loan Agreement shall be cumulative and concurrent, and may be pursued singly,
successively or together against Maker and/or the property covered by the
Collateral and/or any other property mortgaged, pledged or assigned to Payee as
security for this Note, at the sole discretion of Payee, and such remedies
shall not be exhausted by any exercise thereof but may be exercised as often as
occasion therefor shall occur; provided, however, the exercise of any such
remedies shall be subject to the terms of the Intercreditor Agreement between
Maker, Payee and Prudential dated December 16,1992.
Maker hereby waives and releases all errors, defects and imperfections
in any proceedings instituted by Payee under the terms of this Note or of the
Loan Agreement or the Collateral, as well as all benefit that might accrue to
Maker by virtue of any present or future laws exempting any of the property
covered by the Collateral or any other property, real or personal, or any part
of the proceeds arising from any sale of such property, from
5
<PAGE> 6
attachment, levy or sale under execution or providing for any stay of
execution, exemption from civil process or extension of time for payment, as
well as the right of inquisition on any real estate that may be levied upon
under a judgment obtained by virtue hereof, and Maker hereby voluntarily
condemns the same and authorizes the entry of such voluntary condemnation on
any writ of execution issued thereon, and agrees that such real estate may be
sold upon any such writ in whole or in part in any order desired by Payee.
Maker and all endorsers, sureties and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice
of protest and protest of this Note, and all other notices in connection with
the delivery, acceptance, performance, default or enforcement of the payment of
this Note except such notices as are specifically required by this Note or by
the Loan Agreement, and they agree that the liability of each of them shall be
unconditional without regard to the liability of any other party and shall not
be in any manner affected by any indulgence, extension of time, renewal, waiver
or modification granted or consented to by Payee; and Maker and all indorsers,
sureties and guarantors hereof consent to any and all extensions of time,
renewals, waivers or modifications that may be granted by Payee with respect to
the payment or other provisions of this Note, and to the release of the
Collateral, or any part thereof, or any property now or hereafter securing this
Note with or without substitution, and agree that additional makers, indorsers,
guarantors or sureties may become parties hereto without notice to them or
affecting their liability hereunder.
Payee shall not by any act of omission or commission be deemed to have
waived any of its rights or remedies hereunder unless such waiver be in writing
and signed
6
<PAGE> 7
by Payee, and then only to the extent specifically set forth therein; a waiver
on one event shall not be construed as continuing or as a bar to or waiver of
such right or remedy on a subsequent event.
Maker shall pay the cost of any revenue, tax or other stamps now or
hereafter required by law at any time to be affixed to this Note or the
Collateral; and if any taxes be imposed with respect to debts secured by
mortgages or deeds of trust, or with respect to notes evidencing debts so
secured, Maker agrees to pay to the holder hereof upon demand the amount of
such taxes, and hereby waives any contrary provisions of any laws or rules of
court now or hereafter in effect.
Notwithstanding any provision contained herein, the total liability of
Maker for payment of interest pursuant hereto, shall not exceed the maximum
amount of such interest permitted by law to be charged, collected or received
from Maker, and if any payments by Maker include interest in excess of such a
maximum amount, Payee shall apply such excess to the reduction of the unpaid
principal amount due pursuant hereto, or if none is due, such excess shall be
refunded to Maker. Any such application or refund shall not cure or waive any
Event of Default. In determining whether or not any interest payable under
this Note or the Loan Agreement or the Collateral exceeds the highest rate
permitted by law, any non-principal payment (except payments specifically
stated in this Note to be "interest"), including without limitation prepayment
premiums and late charges, shall be deemed, to the extent permitted by
applicable law, to be an expense, fee, premium or penalty rather than interest.
7
<PAGE> 8
If any provision hereof is found by a court of competent jurisdiction
to be prohibited or unenforceable, it shall be ineffective only to the extent
of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or unenforceable, nor invalidate the other
provisions hereof, all of which shall be liberally construed in favor of Payee
in order to effect the provisions of the Note.
The words "Payee" and "Maker" whenever occurring herein shall be
deemed and construed to include the respective successors and assigns of Payee
and Maker. This instrument shall be construed according to and governed by the
substantive laws of the Commonwealth of Pennsylvania.
MAKER ACKNOWLEDGES THAT THIS NOTE CONTAINS CONFESSION OF JUDGMENT
LANGUAGE AND MAKER HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND
EXECUTION OF THIS NOTE. MAKER FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT
OF THE CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO MAKER BY SUCH
COUNSEL.
The Amended and Restated Declaration of Trust establishing Maker dated
February 27, 1985, as amended (the "Declaration"), provides and Payee agrees
that neither the Shareholders nor the Trustees (as such terms are defined in
the Declaration) nor officers, employees or agents of the Trust shall, in their
respective capacities as such, be personally liable, jointly or severally, for
payment of the principal of or interest hereunder or any other amount due under
the Loan Agreement, and all persons shall look solely to the Trust Estate
8
<PAGE> 9
(as defined in the Declaration), for the payment of any claim hereunder or
under the Loan Agreement or the performance hereof or thereof.
This Note is intended to amend and restate that certain Amended and
Restated Note from Maker in favor of Payee dated December 16, 1992 in the face
amount of $3,525,000 as amended and restated by a certain Second Amended and
Restated Note from Maker in favor of Payee dated as of December 15, 1995 in the
amount of $1,587,430 (collectively, the "Prior Note") in its entirety as set
forth herein with respect to the unpaid principal balance of the Prior Note as
of the date hereof. This Note evidences the same indebtedness evidenced by the
Prior Note, reduced by the amount of principal payments made by Maker from the
date of the Prior Note through the date hereof and is entitled to all of the
security and rights afforded the Prior Note. This Note does not constitute,
nor is it intended to be, a novation of the Prior Note.
9
<PAGE> 10
IN WITNESS WHEREOF, Maker has duly executed this Note the day and year
first above mentioned.
EQK REALTY INVESTORS I, a
Massachusetts business trust
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
10
<PAGE> 11
EXHIBIT B
<PAGE> 12
Disclosure for Confession of Judgment [PNCBANK LOGO]
Undersigned: EQK REALTY INVESTORS I
------------------------------
------------------------------
------------------------------
Lender: PNC Bank, NATIONAL ASSOCIATION
--------------------
------------------------------
------------------------------
The undersigned has executed, and/or is executing, on or about December
15, 1996, the following document(s) under which the undersigned is obligated to
repay monies to Leader:
I. Third Amended and Restated Note
2. Second Amendment to Second Amended and Restated Loan Agreement
A. THE UNDERSIGNED ACKNOWLEDGES AND AGREES THAT THE ABOVE
DOCUMENTS CONTAIN PROVISIONS UNDER WHICH LENDER MAY ENTER JUDGMENT BY
CONFESSION AGAINST THE UNDERSIGNED. BEING FULLY AWARE OF ITS RIGHTS TO PRIOR
NOTICE AND A HEARING ON THE VALIDITY OF ANY JUDGMENT OR OTHER CLAIMS THAT MAY BE
ASSERTED AGAINST IT BY LENDER THEREUNDER BEFORE JUDGMENT IS ENTERED, THE
UNDERSIGNED HEREBY FREELY, KNOWINGLY AND INTELLIGENTLY WAIVES THESE RIGHTS AND
EXPRESSLY AGREES AND CONSENTS TO LENDER'S ENTERING JUDGMENT AGAINST IT BY
CONFESSION PURSUANT TO THE TERMS THEREOF.
B. THE UNDERSIGNED ALSO ACKNOWLEDGES AND AGREES THAT THE ABOVE
DOCUMENTS CONTAIN PROVISIONS UNDER WHICH LENDER MAY, AFTER ENTRY OF JUDGMENT
AND WITHOUT EITHER NOTICE OR A HEARING, FORECLOSE UPON, ATTACK, LEVY, TAKE
POSSESSION OF OR OTHERWISE SEIZE PROPERTY OF THE UNDERSIGNED IN FULL OR PARTIAL
PAYMENT OF THE JUDGMENT. BEING FULLY AWARE OF ITS RIGHTS AFTER JUDGMENT IS
ENTERED (INCLUDING THE RIGHT TO MOVE TO OPEN OR STRIKE THE JUDGMENT), THE
UNDERSIGNED HEREBY FREELY, KNOWINGLY AND INTELLIGENTLY WAIVES ITS RIGHTS TO
NOTICE AND A HEARING AND EXPRESSLY AGREES AND CONSENTS TO LENDER'S TAKING SUCH
ACTIONS AS MAY BE PERMITTED UNDER APPLICABLE STATE AND FEDERAL LAW WITHOUT
PRIOR NOTICE TO THE UNDERSIGNED.
C. The undersigned certifies that a representative of Lender
specifically called the confession of judgment provisions in the above
documents to the attention of the undersigned, and/or that the undersigned was
represented by legal counsel in connection with the above documents.
D. The undersigned hereby certifies: that its annual income
exceeds $10,000; that all references to "the undersigned" above refer to all
persons and entities signing below; and that the undersigned received a copy
hereof at the time of signing.
EQK REALTY INVESTORS I
- ------------------------------------------ -----------------------------------
(Corporation, Partnership or other Entity) (Individual) (SEAL)
Print Name:
------------------------
By:
---------------------------------------
(SEAL)
Print Name:
------------------------------- -----------------------------------
(Individual) (SEAL)
Title: Print Name:
------------------------------------ ------------------------
<PAGE> 1
EXHIBIT 3.10.EEE
FIRST AMENDED NOTE, MORTGAGE AND LOAN MODIFICATION AGREEMENT
First Amended Note, Mortgage and Loan Modification Agreement (this
"Agreement") dated as of December 15, 1996, by and between SYLVAN M. COHEN,
GEORGE R. PEACOCK, PHILIP E. STEPHENS, ALTON G. MARSHALL and ROBERT C. ROBB,
JR., as Successor Trustees of EQK REALTY INVESTORS I, a Massachusetts business
trust ("EQK") having its principal office and place of business at 5775
Peachtree-Dunwoody Road, Suite 200-D, Atlanta, Georgia 30342, and THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation
("Prudential"), having an office at 1200 "K" Street, N.W., Suite 1000,
Washington, D.C. 20005.
BACKGROUND
On December 18, 1985, EQK executed and delivered to Solomon Brothers
Realty Corp. ("Solomon") a certain Zero Coupon Mortgage Note due December 18,
1992 in the face amount of $94,719,904 (the "Zero Coupon Note"). The Zero
Coupon note was amended and restated in its entirety by an Amended and Restated
Note Agreement dated as of February 4, 1988 by and between EQK and Solomon (the
"First Amended Note"). Immediately following EQK's execution and delivery of
the First Amended Note, the First Amended Note was endorsed to, and all of the
security therefor was assigned to, Prudential, in accordance with a certain
Note and Mortgage Purchase and Sale Agreement between Solomon and Prudential.
On or about December 16, 1992, the First Amended Note was partially
paid and was amended and restated in its entirety pursuant to a Second Amended
and Restated Note dated December 16, 1992 in the principal amount of
$75,688,720 (the "Second Amended Note") which, inter alia, extended the
Maturity Date of the Second Amended Note to December 15, 1995. On December 8,
1995, the Second Amended Note was partially prepaid and all collateral relating
to the Castleton Property was released by Prudential. Prior to the date
hereof, Prudential has also released all collateral relating to the Peachtree
Property.
As of December 15, 1995, the Second Amended Note was secured by:
1. An Amended and Restated Open-End Mortgage and Security
Agreement (Harrisburg Mall) dated as of December 15, 1992 from EQK to
Prudential (the "Amended Harrisburg Mortgage") encumbering certain property
located in Dauphin County, Pennsylvania (the "Harrisburg Property"); the
Amended Harrisburg Mortgage was recorded on December 22, 1992 in the Recorder's
Office of Dauphin County, Pennsylvania (the "Dauphin Recorder") in Book 1886,
page 298, et seq.;
<PAGE> 2
2. An Absolute Assignment of Leases and Rents and a Rental
Collection Agreement dates as of December 15, 1992 by and between EQK,
Prudential and First Union National Bank of Georgia, as Rental Collection Agent
(the "Rental Collection Agent") with respect to the Harrisburg Property (the
"Harrisburg Assignment"); the Harrisburg Assignment was recorded on December
22, 1992 by the Dauphin Recorder in Book 1886, page 373, et. seq.;
3. A Cash Management and Security Agreement, dated as of December
15, 1992, by and between EQK, Prudential and First Union National Bank of
Georgia, as Escrow Agent; and
4. A Hazardous Substances Covenant and Indemnity Agreement dated
as of December 16, 1992 from EQK to and for the benefit of Prudential (the
"Environmental Indemnity Agreement").
The Second Amended Note, the Amended Harrisburg Mortgage, the
Harrisburg Assignment, the Cash Management Agreement, the Environmental
Indemnity Agreement, and all financing statements and other instruments
securing the Second Amended Note, are herein collectively referred to as the
"Loan Documents".
Concurrently with the execution of the Loan Documents, the parties
executed:
A Warrant Agreement ("Warrant Agreement") dated December 18,
1992 by and between EQK and Prudential pursuant to which a Warrant was
granted to Prudential to purchase Shares of Beneficial Interest in EQK;
and
A Subordination and Intercreditor Agreement ("Intercreditor
Agreement") dated as of December 16, 1992 by and among Prudential, EQK
and PNC Bank, National Association, formerly known as Provident
National Bank ("PNC") pursuant to which Prudential, inter alia,
consented to the creation of subordinate mortgages to secure sums owed
by EQK to PNC, and PNC agreed that all sums owed to PNC would remain
subordinate to the Loan Documents. The Intercreditor Agreement was
recorded on December 22, 1992 by the Dauphin Recorder in Book 1886,
page 459, et seq.
On or about December 15, 1995, EQK and Prudential executed a
Note, Mortgage and Loan Modification Agreement (the "Modification
Agreement") which partially amended and otherwise ratified and confirmed the
Loan Documents, including, inter alia, the Second Amended Note, which, as
amended by the Modification Agreement, was in the principal amount of
$44,125,054.68 and matures on December 15, 1996 (the "Maturity Date"). The
Modification Agreement was recorded on February 26, 1996 by the Dauphin
Recorder in Book 2565, page 415, et seq.
-2-
<PAGE> 3
The Loan Documents, as amended by the Modification Agreement, are
herein collectively referred to as the "Modified Loan Documents".
Pursuant to a letter application dated November 15, 1996 (the "1996
Application"), EQK has asked Prudential to extend the maturity of the Second
Amended Note and to modify certain provisions of the Modified Loan Documents.
The 1996 Application was countersigned by Prudential and, as so countersigned,
constitutes the "1996 Commitment". This Agreement is intended to amend and
modify certain provisions of the Modified Loan Documents in accordance with the
1996 Commitment.
Capitalized terms used herein and not defined shall be defined in the
Modified Loan Documents, the Warrant Agreement and the Intercreditor Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. INCORPORATION BY REFERENCE.
Section 1.1. Incorporation by Reference. The recitals set
forth in the Background section of this Agreement, the Modified Loan
Documents, the Warrant Agreement and the Intercreditor Agreement are hereby
incorporated herein by reference as though set forth in full in the text of
this Agreement.
2. SECOND AMENDED NOTE.
Section 2.1. Principal Balance. EQK and Prudential confirm and
agree that the principal balance of the Second Amended Note, including all
accrued and unpaid interest through and including December 14, 1995, is
$43,822,812.79. On December 15, 1996, EQK will make a regular monthly payment
on the Second Amended Note in the amount of $340,536.00. EQK and Prudential
confirm and agree that the principal amount of the Second Amended Note on
December 15, 1996 after the payment set forth above shall be $43,794,149.14.
Section 2.2 Contract Interest rate. Section 2(a) of the
Second Amended Note is amended by adding thereto a new subsection (v) which
reads as follows:
(v) From and including December 15, 1996 to and including June 14,
1998, the principal sum outstanding from time to time under this Note shall
bear interest at the rate of eight and eighty-eight one-hundredths percent
(8.88%) per annum.
-3-
<PAGE> 4
Section 2.3. Payment. Effective as of December 15, 1996, Section
3(a) of the Second Amended Note shall be deleted in its entirety and
the following shall be substituted in lieu thereof:
(a) Commencing January 15, 1997 and on the fifteenth (15th)
day of each month thereafter (the "Monthly Payment Date") to and
including June 15, 1998, Maker shall pay to Payee installments of
interest only in the amount of $324,076.70 each (the "Monthly Payment
Amount") which installments shall be applied to accrued and unpaid
interest on this Note.
Section 2.4. Maturity Date. The Maturity Date set forth in
Section 3(d) of the Second Amended Note is hereby amended to read "June 15,
1998."
Section 2.5. Confession of Judgment. EQK, KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, AND WITH THE ADVICE OF SEPARATE COUNSEL, HEREBY
RATIFIES AND CONFIRMS THE CONFESSIONS OF JUDGMENT AND WARRANTS OF ATTORNEY TO
CONFESS JUDGMENT SET FORTH IN SECTION 10 OF THE SECOND AMENDED NOTE.
Section 2.6. Application Fee. The Second Amended Note is hereby
amended by adding the following Section 26:
"26. Pursuant to Paragraph 6 of the 1996 Commitment, Maker owed
an application fee of $437,900 to Payee as of November 15, 1996.
$165,000 of that amount has been paid by Maker to Payee, leaving a
balance of $272,900 owed by Maker to Payee (the "Application Fee
Balance"), which Application Fee Balance, plus interest thereon at the
Contract Rate from and including December 15, 1996 to the date of
payment, shall be payable by EQK on the earlier of (a) June 15, 1998, or
(b) the date on which all or any part of the Original Principal Amount
(as defined in the 1996 Commitment) is prepaid."
Section 2.7. Second Amended Note Ratified and Confirmed. The
Second Amended Note is hereby ratified and confirmed, subject only to the
terms of this Agreement.
3. AMENDMENTS TO AMENDED HARRISBURG MORTGAGE
Section 3.1. Confession of Judgment. EQK, KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, AND WITH THE ADVICE OF SEPARATE COUNSEL, HEREBY
RATIFIES AND CONFIRMS THE CONFESSIONS OF JUDGMENT AND WARRANTS OF ATTORNEY TO
CONFESS JUDGMENT SET FORTH IN SECTION 6.2 OF THE AMENDED HARRISBURG MORTGAGE.
-4-
<PAGE> 5
Section 3.2. Harrisburg Mortgage Ratified and Confirmed. The
Amended Harrisburg Mortgage is hereby ratified and confirmed.
4. ASSIGNMENT
Section 4.1. Harrisburg Assignment Ratified and Confirmed. The
Harrisburg Assignment is hereby ratified and confirmed.
5. CASH MANAGEMENT AGREEMENT
Section 5.1. Section 6.6(d) of the Cash Management Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
"(d) Except for (i) the prepayment of the principal by
EQK on December 8, 1995, and (ii) a prepayment of the Second
Amended Note in full prior to the occurrence of an event of
default hereunder, upon a principal payment to Prudential prior to
the Maturity Date, EQK shall pay to Prudential a prepayment
premium calculated in accordance with the Yield Maintenance
Formula attached hereto as Exhibit "L."
Section 5.2. Cash Management Agreement Ratified and Confirmed.
The Cash Management Agreement is hereby ratified and confirmed, subject only to
the provisions of this Agreement.
6. WARRANT AGREEMENT
Section 6.1. Representation, Warranty and Confirmation. EQK
hereby represents, warrants and confirms to Prudential that the Warrant
Agreement remains in full force and effect, the number of Shares of EQK issuable
to Prudential upon exercise of the Warrant are 367,868 Shares; EQK currently
holds in its treasury duly authorized and previously issued Shares in such
number and such Shares are reserved for issuance to Prudential upon exercise of
the Warrant; and the Exercise Period remains open and can only be terminated in
accordance with the express provisions of the Warrant Agreement.
Section 6.2. Warrant Agreement Ratified and Confirmed. The
Warrant Agreement is hereby ratified and confirmed.
7. OTHER AGREEMENTS
Section 7.1. Other Agreements Ratified and Confirmed. The
provisions of the Environmental Indemnity Agreement and the Intercreditor
Agreement are hereby ratified and confirmed.
-5-
<PAGE> 6
8. NO DEFAULTS
Section 8.1. No Default. To induce Prudential to enter into this
Agreement and extend the Maturity Date of the Second Amended Note, EQK
represents and warrants to Prudential that;
(a) No Event of Default, as defined in any of the
Modified Loan Documents, presently exists under any of the Modified Loan
Documents, the Warrant Agreement of the Intercreditor Agreement;
(b) No event has occurred which, with the passage of
time or the giving of notice or both, would constitute an Event of Default under
any Modified Loan Documents, the Warrant Agreement or the Intercreditor
Agreement;
(c) EQK has no defenses, counterclaims or set-offs
against the Prudential Debt, as defined in the Cash Management Agreement; and
(d) EQK hereby ratifies and confirms its obligation
to repay the Prudential Debt on the terms and conditions set forth in the
Modified Loan Documents, as amended hereby.
9. RELEASE AND COVENANT NOT TO SUE
Section 9.1. Release and Covenant Not to Sue. To induce
Prudential to enter into this Agreement and extend the Maturity Date of the
Second Amended Note, EQK does hereby:
(a) remise, release, acquit, satisfy and forever
discharge Prudential and all of its past, present and future officers,
directors, employees, agents, attorneys, representatives, heirs, successors and
assigns, from any and all actions, claims, demands and causes of action of any
nature whatsoever, whether at law or in equity, either now accrued or hereafter
maturing, which EQK now has or hereafter can, shall or may have by reason of any
matter, cause or thing from the beginning of the world to and including the date
of this agreement with respect to any matters, transactions, occurrences,
agreements, actions and/or events arising out of, in connection with or relating
to, the loan by Prudential to EQK represented by the Second Amended Note
pursuant to the provisions of the 1996 Commitment and this Agreement, the
calculation and payment of interest under the Second Amended Note, the issuance
of the Warrant and the calculation of the Shares issuable thereunder and all
matters relating to the administration of the loan and/or the collateral held
for the benefit of Prudential thereunder; and
(b) covenant and agree never to institute or cause to be
instituted or continue prosecution of any suit or other form
-6-
<PAGE> 7
of action or proceeding of any kind or nature whatsoever against Prudential, or
any of its past, present or future officers, directors, employees, agents,
attorneys, representatives, heirs, successors or assigns, by reason of or in
connection with any of the foregoing matters, claims or causes of action.
This release and covenant not to sue is intended to be legally
binding upon EQK and shall cover all actions of Prudential in its consideration
of the Application and this Agreements and/or the enforcement of Prudential's
rights under the Modified Loan Documents, as amended hereby.
10. MISCELLANEOUS
Section 10.1 Modified Loan Documents Remain Effective. Except as
expressly amended hereby, the Modified Loan Documents shall remain in
full force and effect and are enforceable against EQK in accordance with their
respective terms. Without limiting the generality of the foregoing, all rights
and remedies available to Prudential under the Modified Loan Documents shall
survive the making of this Agreement and shall continue in full force and
effect. EQK shall have no right to further extend the Maturity Date of the
Second Amended Note.
Section 10.2 Integration Clause. This Agreement embodies the
complete understanding and agreement among the parties hereto with respect to
the subject matter hereof and supersedes any and all prior or contemporaneous
understandings with respect thereto, whether oral or written.
Section 10.3 Binding Effect. This Agreement shall not be modified or
amended except by a writing signed by the party against whom enforcement is
sought. This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors and assigns.
Section 10.4 Notices. The notice address for Prudential in the
Modified Loan Documents shall be amended as follows:
Mr. Randall M. Hall, Vice President
The Prudential Capital Group
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
with a copy to:
Jack MacDonald
Associate Regional Counsel
The Prudential Capital Group
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
-7-
<PAGE> 8
with a copy to:
Clifford H. Swain, Esquire
Drinker Biddle & Reath
1345 Chesnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
Section 10.5 Counterpart Copies. This Agreement may be executed in
any number of counterparts which, taken together, shall constitute one and the
same instrument.
Section 10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
Section 10.7 Time of the Essence. When time is mentioned herein,
time shall be the essence of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, on and as of the date first above written.
EQK REALTY INVESTORS I
By /s/ Gregory R. Greenfield
--------------------------------------
Name: Gregory R. Greenfield
Title: Executive Vice President
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By
--------------------------------------
Name: Christian T. Miles
Title: Vice President
-8-
<PAGE> 9
with a copy to:
Clifford H. Swain, Esquire
Drinker Biddle & Reath
1345 Chesnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
Section 10.5 Counterpart Copies. This Agreement may be executed in
any number of counterparts which, taken together, shall constitute one and the
same instrument.
Section 10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
Section 10.7 Time of the Essence. When time is mentioned herein,
time shall be the essence of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, on and as of the date first above written.
EQK REALTY INVESTORS I
By
---------------------------------
Name:
Title:
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By /s/ Christian T. Miles
---------------------------------
Name: Christian T. Miles
Title: Vice President
-8-
<PAGE> 10
STATE OF NEW YORK :
: SS.
COUNTY OF NEW YORK :
On this, the 19th day of December, 1996, before me, the undersigned
officer, personally appeared GREGORY R. GREENFIELD, who acknowledged himself
to be the Executive Vice President of EQK REALTY INVESTORS I, a Massachusetts
business trust, and that he as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the business trust by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[NOTARIAL SEAL]
/s/ Pamela S. Chatterpoon
------------------------------------
Notary Public
My Commission Expires: July 17, 1997
PAMELA S. CHATTERPOON
Notary Public, State of New York
No. 01CH504640
Qualified in Queens County
Commission Expires July 1, 1997
STATE OF :
: SS.
COUNTY OF :
On this, the _____ day of December, 1996, before me, the undersigned
officer, personally appeared CHRISTIAN T. MILES, who acknowledged himself to be
a Vice President of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a corporation,
and that he as such officer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[NOTARIAL SEAL]
-----------------------------------
Notary Public
My Commission Expires:
<PAGE> 11
STATE OF :
: SS.
COUNTY OF :
On this, the ____ day of December, 1996, before me, the undersigned
officer, personally appeared LINDA K. SCHEAR, who acknowledged herself
to be the Secretary of EQK REALTY INVESTORS I, a Massachusetts
business trust, and that she as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained by signing
the name of the business trust by herself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[NOTARIAL SEAL]
------------------------------------
Notary Public
My Commission Expires
STATE OF GEORGIA :
: SS.
COUNTY OF DEKALB :
On this, the 19th day of December, 1996, before me, the undersigned
officer, personally appeared CHRISTIAN T. MILES, who acknowledged himself to be
a Vice President of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a corporation,
and that he as such officer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[NOTARIAL SEAL]
/s/ Vicki W. Ishee
---------------------------------------
Notary Public
My Commission Expires:
Notary Public, Fulton County, Georgia
My Commission Expires January 15, 1999
<PAGE> 1
EXHIBIT 3.10.FFF
MUTUAL ESTOPPEL AND MODIFICATION AGREEMENT
THIS MUTUAL ESTOPPEL AGREEMENT is made as of this 15th day of
December, 1996 by and among PNC BANK, NATIONAL ASSOCIATION (successor by merger
to Provident National Bank) (the "Bank"), THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA ("Prudential") and EQK REALTY INVESTORS I ("EQK").
RECITALS
WHEREAS, the Bank, Prudential and EQK entered into a certain
Subordination and Intercreditor Agreement dated as of December 16, 1992 (the
"Intercreditor Agreement"); and
WHEREAS, the parties wish to make certain statements and agreements
regarding the Intercreditor Agreement and the loans governed thereunder;
NOW, THEREFORE,- for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. All capitalized terms not defined herein shall have the
meanings given such terms in the Intercreditor Agreement.
2. The Bank hereby certifies as follows:
(a) The outstanding principal amount of the New Provident
Note, as amended and restated by the Third Amended and Restated Note (the "PNC
Restated Note") dated as of December 15, 1996 (collectively, the "PNC Note") is
$1,585,010;
<PAGE> 2
(b) The rate of interest under the PNC Note is either
2-5/8% above the Euro-Rate (as such term is defined in the First Amendment to
Second Amended and Restated Loan Agreement dated as of December 15, 1995 (the
"PNC First Amendment") between EQK and the Bank) or 1-1/8% above the Prime
Rate (as such term is defined in the PNC First Amendment);
(c) There are no scheduled monthly payments of principal
required under the PNC Note; and
(d) To the best of PNC's Knowledge, there exist no
defaults under the PNC Note and the Subordinate Loan Documents, nor do any
circumstances exist with which the passage of time, or the giving of notice, or
both, would constitute a default under the PNC Note or the other Subordinate
Loan Documents.
3. Prudential hereby certifies as follows:
(a) The outstanding principal amount under the New
Prudential Note, as amended by the Note, Mortgage and Loan Modification
Agreement dated as of December 15, 1995 and further amended by a First Amended
Note, Mortgage and Loan Modification Agreement dated as of December 15, 1996
(the "Prudential Modification Agreement") between Prudential and EQK
(collectively, the "Prudential Note") is $43,794,149.14;
(b) The rate of interest under the Prudential Note is
8.88% per annum;
2
<PAGE> 3
(c) The monthly payment of interest required to be paid
under the Prudential Note is $324,076.70; and
(d) To the best of Prudential's knowledge, there exist no
defaults under the Prudential Note and the other Senior Loan Documents, nor do
any circumstances exist which with the passage of time, or the giving of
notice, or both, would constitute a default under the Prudential Note or the
other Senior Loan Documents.
4. Borrower hereby certifies that the statements made by the Bank
and Prudential in paragraphs 2 and 3 above, respectively are true and correct
and that there exist no defaults under any of the Subordinate Loan Documents or
Senior Loan Documents nor do any circumstances exist which with the passage of
time, or the giving of notice, or both, would constitute a default under any of
the Subordinate Loan Documents or the Senior Loan Documents.
5. Bank confirms to and agrees with Prudential and Borrower as
follows: (a) that the Subordinate Loan Documents, including the amendments
and modifications hereinabove and that certain Second Amendment to Second
Amended and Restated Loan Agreement dated as of December 15, 1996 (the "PNC
Second Amendment"), remain subordinate to the Senior Loan Documents, including
the amendments and modifications thereto referred to hereinabove; (b)
calculation of the Contract Amount referred to in Section 4(b)(i)(A) of the
Intercreditor Agreement shall be based on the interest rate set forth in the
PNC Note; (c) the Prudential Pay Rate referred to in Section 4(b)(i)(B) of the
Intercreditor Agreement shall be the interest rate set forth in the Prudential
Note (e.g. 8.88% per annum); and (d) notwithstanding the fact that the
Contract Amount may be less than the Cap Amount, EQK is permitted and EQK
hereby agrees to make debt service payments to the Bank in an amount equal to,
but not exceeding, the Cap Amount.
3
<PAGE> 4
6. The parties hereby agree and confirm (a) that all references
to any or all of the Senior Loan Documents or Subordinate Loan Documents
contained in the Intercreditor Agreement shall mean the Senior Loan Documents
as amended by the Prudential Modification Agreement and the Subordinate Loan
Documents as amended by the PNC Second Amendment and the PNC Restated Note; (b)
all of the terms and conditions of the Intercreditor Agreement shall be
extended until all sums under the Senior Loan Documents have been paid in full;
and (c) that all of the terms and conditions of the Intercreditor Agreement
remain in full force and effect and binding upon the parties hereto and their
respective successors and assigns.
7. This Agreement may be executed in any number of counterparts
which, taken together, shall constitute one and the same instrument.
8. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have executed this Mutual Estoppel
Agreement as of this 15th day of December, 1996.
PNC BANK, NATIONAL
ASSOCIATION
By: /s/ Andrew Coler
-----------------------------------
Title: Vice President
--------------------------------
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Christine Miles
-----------------------------------
Title: Vice President
--------------------------------
4
<PAGE> 5
EQK REALTY INVESTORS I
By: /s/ Gregory Greenfield
-------------------------------------
Title: Executive Vice President
----------------------------------
5
<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 DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,661
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,603
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 135,875
<OTHER-SE> (138,896)
<TOTAL-LIABILITY-AND-EQUITY> 46,603
<SALES> 0
<TOTAL-REVENUES> 6,174
<CGS> 0
<TOTAL-COSTS> 887
<OTHER-EXPENSES> 2,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,896
<INCOME-PRETAX> (1,488)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,488)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
