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
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number: 0-16024
EASTPOINT MALL LIMITED PARTNERSHIP
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Exact name of Registrant as specified in its charter
Delaware 13-3314601
---------------- --------------------
State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization
Attn: Andre Anderson
3 World Financial Center,
New York, New York 29th Floor 10285-2900
- ------------------------------ ----------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
------------------------
Title of Class
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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)
Aggregate market value of voting stock held by non-affiliates of the
Registrant: Not applicable
Documents Incorporated by Reference: See Exhibit Index in Part IV to this Form
10-K.
PART I
Item 1. Business
(a) General Development of Business
Eastpoint Mall Limited Partnership (the "Partnership"), a Delaware limited
partnership, was formed on June 26, 1985. The affairs of the Partnership are
conducted by Eastern Avenue Inc. (the "General Partner," formerly Shearson
Lehman Eastern Avenue Inc.), a Delaware corporation and affiliate of Lehman
Brothers Inc. ("Lehman"). The Partnership was formed to acquire a general
partnership interest in Bellwether Properties, L.P., a New York limited
partnership, from Corporate Property Investors, the sole asset of which was
Eastpoint Mall (the "Mall") located in Baltimore County, Maryland. Concurrent
with the acquisition, Bellwether Properties, L.P. was reconstituted under the
name of Eastpoint Partners L.P. (the "Owner Partnership"), and the Partnership
became the managing general partner of the Owner Partnership. The Owner
Partnership consisted of the Partnership, which held a 90.9% interest in the
Owner Partnership, the General Partner, which held a .1% interest, and SFN
Limited Partnership ("SFN"), a Maryland limited partnership and an affiliate of
The Shopco Company which held a 9% interest(collectively, the "Owner
Partners"). Shopco Management Corp., an affiliate of the Shopco Company, was
retained by the Owner Partnership as managing and leasing agent for the Mall.
On November 22, 1985, the Partnership commenced investment operations with the
acceptance of subscriptions of 4,575 limited partnership units, the maximum
authorized by the limited partnership agreement ("Limited Partnership
Agreement"). Upon the admittance of the additional limited partners (the
"Limited Partners"), the initial limited partner withdrew from the Partnership.
On November 29, 1985, the Owner Partnership acquired the Mall by purchasing all
of the general partnership interests in Bellwether Properties, L.P., for a
purchase price of $28,634,598.
In December 1989, the Partnership obtained first mortgage financing (the "First
Mortgage Note") in the maximum amount of $50,000,000 secured by the Mall to:
(i) repay the existing indebtedness of the Owner Partnership, (ii) make certain
capital improvements to the Mall, including the construction of a Sears
department store and the acquisition of the underlying real estate, the
creation of additional Mall shops in the area previously occupied by Hutzler's,
a former anchor tenant, and an overall renovation of the Mall, and (iii) make a
cash distribution to each limited partner on February 1, 1990 of $2,500 for
each $5,000 interest owned. The renovation of the Mall and construction of the
Sears store were completed during 1991.
The First Mortgage Note was scheduled to mature on December 28, 1994. In
December 1993, the Partnership obtained new first mortgage financing in the
amount of $51,000,000 from CBA Associates, Inc., an entity which placed the new
mortgage into a pool of mortgages to be held by a Real Estate Mortgage
Investment Conduit (the "REMIC Lender"). For the terms of the financing, see
Note 5 to the Notes to the Consolidated Financial Statements.
On December 9, 1997, the Partnership sold its 90.9% general partnership
interest in the Owner Partnership to Shopco 048 LLC and Eastpoint 048 LLC, the
assignees of Shopco Advisory Corp. (the "Assignees"), both affiliates of Shopco
Management Corp. See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, for a discussion of the sale. The General
Partner is currently in the process of winding up the affairs of the
Partnership and it is anticipated that the Partnership will dissolve during the
second quarter of 1998.
(b) Financial Information About Industry Segments
All of the Partnership's revenues, operating profit or loss and assets relate
solely to its interest as the general partner of the Owner Partnership. All of
the Owner Partnership's revenues, operating profit or losses and assets related
solely to its ownership interest in and operation of the Mall.
(c) Narrative Description of Business
The Partnership's sole business is acting as the managing general partner of
the Owner Partnership. The Owner Partnership's sole business was the ownership
and operation of the Mall.
Employees
- ---------
The Partnership has no employees. The affairs of the Partnership are conducted
by the General Partner. See Item 10 and Item 13 for a discussion of the
management of the Partnership.
Item 2. Properties
The Partnership completed a sale of its interest in the Mall on December 9,
1997. Accordingly, the Partnership had no properties as of December 31, 1997.
Item 3. Legal Proceedings
The Registrant is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
On October 29, 1997, the Partnership issued a proxy statement to the Limited
Partners of the Partnership soliciting approval of a proposal to sell the
Partnership's interest in the Mall. In conjunction with the solicitation, a
special meeting of Limited Partners of the Partnership was held on November 28,
1997. At this special meeting, the Limited Partners holding a majority of the
units of limited partnership interest in the Partnership voted on the approval
of the sale by the Partnership of its 90.9% general partnership interest in the
Owner Partnership, constituting all of the Partnership's ownership interest in
Eastpoint Mall, to Shopco Advisory Corporation or its Assignees, and the
subsequent liquidation and dissolution of the Partnership. Of the votes cast,
there were 2,965,037 for the sale, 37 against, and 37 abstained. Reference is
made to the discussion "Sale of the Mall" contained in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
(a) Market Price Information
There is no established trading market for the Units of the Partnership. The
Partnership had 4,575 Units outstanding at December 31, 1997.
(b) Holders
There were 1,648 Limited Partners as of December 31, 1997.
(c) Distributions of Cash
Since inception, Limited Partners have received cumulative distributions of
$13,092.02 per Unit.
For the year ended December 31, 1996 and the nine months ended September 30,
1997, the Partnership paid quarterly cash distributions of $62.50 per Unit per
quarter. In addition, the Partnership paid a special cash distribution of
$546.25 per Unit on April 4, 1996, representing excess cash reserves, and a
special distribution of $6,750.00 on December 29, 1997, representing net
proceeds from the sale of the Mall and excess cash reserves. The General
Partner is in the process of winding-up the affairs of the Partnership and
expects to dissolve the Partnership during 1998. Any cash remaining after
payment of the Partnership's remaining liabilities and expenses will be
distributed in accordance with the Partnership Agreement upon dissolution of
the Partnership.
Quarterly Cash Distributions Per Limited Partnership Unit
1997 (a) 1996 (a)
-------- ------
First Quarter $ 62.50 $ 62.50
Second Quarter 62.50 608.75(b)
Third Quarter 62.50 62.50
Fourth Quarter 6,750.00 (c) 62.50
-------- ------
TOTAL $6,937.50 $796.25
======== ======
(a) Distribution amounts are reflected in the period for which
they are declared. The record date is the last day of each
month of the respective quarter and the actual cash
distributions are paid approximately 45 days after the record
date.
(b) Includes the $546.25 per Unit special cash distribution paid
on April 4, 1996.
(c) Represents a special cash distribution of the net proceeds
from the sale of the Mall and a portion of Partnership cash
reserves.
Item 6. Selected Financial Data
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes
appearing elsewhere in this Form 10-K.
(in thousands except per Unit data)
As of and for the years ended December 31,
1997 1996 1995 1994 1993
Total Rental and Percentage ------ ------ ------ ------ ------
Rent Income $ 7,591 $ 8,327 $ 8,104 $ 7,907 $ 7,404
Escalation Income 3,360 3,706 3,585 3,143 3,049
Interest Income 443 341 406 265 80
Miscellaneous Income 505 170 113 150 210
------ ------ ------ ------ ------
Total Income 11,900 12,543 12,209 11,465 10,743
Income From Operations 2,828 2,140 2,134 1,022 (663)
Gain on Sale of Property 30,966 - - - -
Net Income (Loss) 32,253 1,944 1,934 915 (658)
Income From Operations
per Unit(a) 561.33 420.62 418.44 198.00 (142.30)
Net Income (Loss) per Unit(a) 6,979.88 420.62 418.44 198.00 (142.30)
Cash Distributions
per Unit(a)(b) 6,937.50(e)796.25(c) 468.50(d)187.50 -
Total Assets 2,156 53,306 55,367 55,625 56,458
Long-term Obligations - 51,000 51,000 51,000 51,000
(a) There are 4,575 Units outstanding.
(b) Distribution amounts are reflected in the period for which they are
declared. Actual cash distributions are paid subsequent to such periods.
(c) Includes a $546.25 per Unit special distribution paid on April 4, 1996.
(d) Includes a $218.50 per Unit special distribution paid on June 7, 1995.
(e) Includes a special cash distribution of $6,750 per Unit, representing the
net proceeds from the sale of the Mall and a portion of Partnership cash
reserves.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
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Sale of the Mall
- ----------------
An Agreement of Purchase and Sale (the "Agreement") dated as of July 31, 1997,
and an amendment thereto dated as of October 28, 1997, was entered into among
Shopco Advisory Corp., a New York corporation (the "Buyer"), and the
Partnership and the General Partner (the Partnership and the General Partner
collectively referred to as the "Sellers"). The Buyer is an affiliate of
Shopco Management Corp., the managing and leasing agent for the Mall, and SFN
Limited Partnership, the limited partner of the Owner Partnership. The sale
was subject to the approval of a majority in interest of the Partnership' s
Limited Partners, which approval was received at a special meeting of limited
Partners on November 28, 1997, pursuant to a proxy solicitation issued October
29, 1997. On December 9, 1997, the sale was completed.
The purchase price was based, in part, on the fair market value of the Mall,
which was $81,000,000 as determined by an independent appraiser, and an
arm's-length negotiation between Shopco Advisory Corp. and the General Partner
of the Partnership, on behalf of the Partnership. The Assignees assumed the
$51,000,000 principal amount of the Owner Partnership's mortgage indebtedness
on the Mall and paid the Partnership $25,489,064 in cash for its 90.9% general
partnership interest in the Owner Partnership. At the closing, the
Partnership's net proceeds from the sale, after closing adjustments and
expenses relating to the sale, was $23,886,277. The Partnership also received
approximately $1,500,000 in return of certain reserves and escrowed funds under
the mortgage indebtedness on the Mall. In addition, the General Partner sold
its .1% general partnership interest in the Owner Partnership for a purchase
price of $1,362,761.
As a result of the sale of the Partnership's interest in the Mall, the
following categories decreased to zero on the Partnership's consolidated
balance sheet at December 31, 1997: real estate, restricted cash, cash held in
escrow, accrued interest receivable, deferred rent receivable, deferred
charges, prepaid expenses, mortgage loan payable, security deposits payable and
deferred income. The Partnership had cash and cash equivalents of $1,815,888
at December 31, 1997, compared with $6,362,256, at December 31, 1996. The
decrease was primarily due to the payment of a special cash distribution on
December 29, 1997, which included Partnership cash reserves. Accounts
receivable, net of allowance, totaled $81,301 at December 31, 1997, compared
with $ 836,705 at December 31, 1996. The decrease primarily reflects lower
percentage rents. Due from buyer totaled $258,883 at December 31, 1997,
compared with $0 a year earlier. The 1997 balance represents amounts due to
the Partnership from the buyer and primarily consists of percentage rents, an
insurance refund and an additional settlement payment related to the Ames
Bankruptcy (discussed below). Accounts payable and accrued expenses totaled
$123,029 at December 31, 1997, compared with $417,511 a year earlier. The
decrease is primarily due to the payment to Consolidated Fidelity Insurance
Company ("Consolidated") related to the Ames Bankruptcy (discussed below) and
the payment of operating expenses related to the Mall. Due to affiliates
totaled $52,000 at December 31, 1997 compared with $0 at December 31, 1996. The
1997 amount represents amounts owed to the General Partner and its affiliates
for providing administrative and accounting services to the Partnership.
Ames Parcel and Consolidated Release Agreement
- ----------------------------------------------
On April 26, 1990, Ames Department Stores, Inc. ("Ames") filed for bankruptcy
protection under Chapter 11 of the Federal Bankruptcy Code. On December 18,
1992, the Bankruptcy Court confirmed the Plan pursuant to which Ames assumed
its lease at the Mall. Land leased to Ames by the Owner Partnership, together
with the building constructed thereon by Ames, secured a deed of trust held by
Consolidated, as successor to Southwestern Life Insurance Company. By filing
its bankruptcy petition, Ames was in default under the Consolidated deed of
trust.
On July 14, 1994, the Partnership executed a Release Agreement (the "Release
Agreement") with Consolidated. Pursuant to the terms of the Release Agreement,
the Partnership paid Consolidated $2 million (of which $812,500 was expensed
and $1,187,500 was recorded as a note receivable) in return for the assignment
of the Deed of Trust and related Ames promissory note, as well as
Consolidated's allowable claim in the Ames bankruptcy case relating to such
promissory note. Consolidated's total allowable claims were approximately
$2,050,000, consisting of the balances due on the Ames promissory note of
approximately $1,530,000 and another promissory note. Pursuant to the Release
Agreement, the Partnership was entitled to any recovery based on the Ames
promissory note; Consolidated would receive any recovery on the other note. The
carrying value of the note receivable was reduced to $738,000 at December 31,
1995. In 1996, the Partnership received $1,009,458. In 1997, the Partnership
received an additional $476,010 and paid $324,602 to Consolidated. An
additional $82,700 was received in 1998 of which $18,194 is payable to
Consolidated. The Partnership recognized miscellaneous income of $438,000 in
1997 and $49,000 in 1996 for amounts received in excess of amounts paid to
Consolidated and settlement costs previously expensed. It is uncertain,
although unlikely, that there will be any additional payments to the Owner
Partnership.
Results of Operations
- ---------------------
1997 versus 1996
- ----------------
For the years ended December 31, 1997 and 1996, net cash flow from operating
activities totaled $4,048,441 and $3,596,613, respectively. The increase is
primarily a result of the sale of the Partnership's interest in the Mall and
the release of escrows for real estate taxes and insurance. Net income totaled
$32,253,468 for the year ended December 31, 1997, compared with $1,943,774 in
1996. Net income for 1997 includes a $30,966,477 gain on the sale of the
Partnership's interest in the Mall. Excluding this amount and the minority
interest, the Partnership realized income from operations of $2,828,382
compared with $2,140,797 in 1996. The increase is primarily attributable to a
decrease in depreciation expense as a result of reclassifying the Mall as
property held for disposition on April 1, 1997.
Rental income totaled $7,006,129 for the year ended December 31, 1997, compared
with $7,306,819 in 1996. Percentage rent totaled $585,175 for the year ended
December 31, 1997 compared with $1,019,783 in 1996. Escalation income totaled
$3,360,312 for the year ended December 31, 1997, compared with $3,706,381 in
1996 The decreases in all three categories are primarily due to the sale of
the Partnership's interest in the Mall on December 9, 1997.
Interest income totaled $443,258 for the year ended December 31, 1997, compared
with $340,504 in 1996. The increase is primarily due to the Partnership's
higher average cash balance in 1997, particularly during December following the
receipt of sale proceeds from the sale of the Partnership's interest in the
Mall. Miscellaneous income totaled $505,005 for the year ended December 31,
1997, compared with $169,512 in 1996. The increase reflects additional amounts
received by the Partnership pursuant to the Release Agreement.
Interest expense decreased from $4,059,600 for the year ended December 31, 1996
to $3,827,293 for the year ended December 31, 1997, primarily due to the sale
of the Partnership's interest in the Mall. Property operating expenses totaled
$3,621,289 for the year ended December 31, 1997 compared with $3,502,731 in
1996. The increase is primarily due to an accrual in 1997 for the payment of
personal property taxes and adjustments to certain tenant billings.
Depreciation and amortization totaled $616,597 for the year ended December 31,
1997 compared with $2,032,858 in 1996. In accordance with the Partnership's
efforts to market and sell its interest in the Mall, the Partnership suspended
depreciation and amortization on March 31, 1997 in accordance with the
provisions of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of."
Real estate taxes totaled $657,716 for the year ended December 31, 1997
compared with $596,769 for the year ended December 31, 1996. The increase is
primarily due to an increase in the tax rate. General and administrative
expenses for the year ended December 31, 1997 were $348,602, compared to
$210,244 for the 1996 period. During 1997, certain expenses incurred by the
General Partner, its affiliates, and an unaffiliated third party service
provider in servicing the Partnership, which were voluntarily absorbed by
affiliates of the General Partner in prior periods, were reimbursed to the
General Partner and its affiliates. The increase in general and administrative
expenses also reflects increased legal expenses related to the Partnership's
efforts to sell the Mall and its interest in the Owner Partnership.
Total Mall tenant sales (exclusive of anchor tenants) were $77,041,000 for the
year ended December 31, 1997, compared with $75,419,000 for the year ended
December 31, 1996. As of December 31, 1997, the Mall was 87.0% occupied,
excluding anchor tenants and office space, compared to 92.6% at December 31,
1996.
1996 versus 1995
- ----------------
Net cash flow from operating activities totaled $3,596,613 in 1996, relatively
unchanged in comparison to $3,732,467 in 1995. For the year ended December 31,
1996, the Partnership recognized net income of $1,943,774, also relatively
unchanged in comparison to $1,933,722 for the year ended December 31, 1995.
Rental income increased from $6,894,097 for the year ended December 31, 1995 to
$7,306,819 for the year ended December 31, 1996 primarily due to higher base
rent billings resulting from a lease amendment with anchor tenant Value City,
whereby Value City's base rent payments are increased and percentage rent
payments are decreased, and the addition of new tenants during 1996.
Percentage rental income decreased from $1,209,752 for the year ended December
31, 1995 to $1,019,783 for the year ended December 31, 1996 primarily due to
the lease amendment with anchor tenant Value City mentioned above.
Interest income decreased from $406,292 for the year ended December 31, 1995 to
$340,504 for the year ended December 31, 1996 primarily due to a decrease in
cash balances maintained by the Partnership as well as lower interest rates.
Property operating expenses increased from $3,160,271 at December 31, 1995 to
$3,502,731 at December 31, 1996 primarily due to higher costs for snow removal
and roof repairs and to increased bad debt expense related to the tenants that
have filed for bankruptcy protection.
Total Mall tenant sales (exclusive of anchor tenants) were $75,419,000 for the
year ended December 31, 1996, compared with $70,794,000 for the year ended
December 31, 1995. Sales for tenants (exclusive of anchor tenants) which
operated at the Mall for each of the last two years were $66,048,000 and
$66,171,000 for the years ended December 31, 1996 and 1995, respectively. As
of December 31, 1996, the Mall was 92.6% occupied, excluding anchor tenants and
office space, compared to 94.1% at December 31, 1995.
Item 8. Financial Statements and Supplementary Data
See Item 14(a) for a listing of the Consolidated Financial Statements and
Supplementary data in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partner is an affiliate of Lehman and has offices at the same
location as the Partnership at 3 World Financial Center, 29th Floor, New York,
NY, 10285-2900. All of the executive officers and directors of the General
Partner are also officers and employees of Lehman.
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the Partnership or the Partnership's General Partner.
However, the assets acquired by Smith Barney included the name "Shearson."
Consequently, the General Partner changed its name to "Eastern Avenue Inc." to
delete any references to "Shearson."
Certain executive officers and directors of the General Partner are now serving
(or in the past have served) as executive officers or directors of entities
which act as general partners of a number of real estate limited partnerships
which have sought protection under the provisions of the Federal Bankruptcy
Code. The partnerships which have filed bankruptcy petitions own real estate
which has been adversely affected by the economic conditions in the markets in
which the real estate is located and, consequently, the partnerships sought the
protection of the bankruptcy laws to protect the partnerships' assets from loss
through foreclosure.
The executive officers and directors of the General Partner as of December 31,
1997 are as follows:
Name Office
----------------- ---------------
Rocco F. Andriola Director
Robert J. Hellman President and Director
Joan B. Berkowitz Vice President & Chief Financial Officer
Robert J. Sternlieb Vice President
Rocco F. Andriola, 39, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position
of First Vice President in Lehman's Capital Preservation and Restructuring
Group. From 1986 to 1989, Mr. Andriola served as a Vice President in the
Corporate Transactions Group of Shearson Lehman Brothers' office of the general
counsel. Prior to joining Lehman, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. from Fordham University, a J.D. from New York University School
of Law, and an LLM in Corporate Law from New York University's Graduate School
of Law.
Robert J. Hellman, 43, is a Senior Vice President of Lehman Brothers and is
responsible for investment management of retail, commercial and residential
real estate. Since joining Lehman Brothers in 1983, Mr. Hellman has been
involved in a wide range of activities involving real estate and direct
investments including origination of new investment products, restructurings,
asset management and the sale of commercial, retail and residential properties.
Prior to joining Lehman Brothers, Mr. Hellman worked in strategic planning for
Mobil Oil Corporation and was an associate with an international consulting
firm. Mr. Hellman received a bachelor's degree from Cornell University, a
master's degree from Columbia University, and a law degree from Fordham
University.
Joan B. Berkowitz, 38, is a Vice President of Lehman Brothers, responsible for
investment management of retail, commercial and residential real estate within
the Diversified Asset Group. Ms. Berkowitz joined Lehman Brothers in May 1986
as an accountant in the Realty Investment Group. From October 1984 to May
1986, she was an Assistant Controller to the Patrician Group. From November
1983 to October 1984, she was employed by Diversified Holdings Corporation.
From September 1981 to November 1983, she was employed by Deloitte Haskins &
Sells. Ms. Berkowitz, a Certified Public Accountant, received a B.S. degree
from Syracuse University in 1981.
Robert J. Sternlieb, 33, is an Assistant Vice President of Lehman Brothers and
is responsible for asset management within the Diversified Asset Group. Mr.
Sternlieb joined Lehman Brothers in April 1989 as an asset manager. From May
1986 to April 1989, he was a systems analyst at Drexel Burnham Lambert. Mr.
Sternlieb received a B.S. degree in Finance from Lehigh University in 1986.
Item 11. Executive Compensation
The directors and executive officers of the General Partner do not receive any
salaries or other compensation from the Partnership. See Item 13 with respect
to a description of certain transactions between the General Partner or its
affiliates and the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
The Partnership knows of no person who beneficially owns more than 5% of its
Units.
(b) Security ownership of management
As of December 31, 1997, neither the General Partner, nor any executive officer
or director thereof, was the beneficial owner of any Units.
(c) Changes in control
There were no changes in control during the year ended December 31, 1997.
Item 13. Certain Relationships and Related Transactions
The Partnership has no directors or executive officers. Its affairs are
managed by the General Partner, which receives 1% of the distributions of
income, profits, cash distributions and losses of the 90.9% received by the
Partnership from the Owner Partnership each year.
The Limited Partnership Agreement specifies the allocation of operating income,
profits, losses and cash distributions. For a description of such terms,
please refer to Note 4 to the Notes to the Consolidated Financial Statements of
this report.
Affiliates of the General Partner have been responsible for certain
administrative functions of the Partnership. Effective as of January 1, 1997,
the Partnership began reimbursing certain expenses incurred by Eastern Avenue
Inc. and its affiliates in servicing the Partnership to the extent permitted by
the Limited Partnership Agreement. In prior years, affiliates of Eastern
Avenue Inc. had voluntarily absorbed these expenses. For amounts paid to such
affiliates, see Note 6 of the Notes to the Consolidated Financial Statements.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(i) Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1997 and 1996 F-2
Consolidated Statements of Partners' Capital (Deficit)
for the years ended December 31, 1997, 1996 and 1995 F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-4
Notes to the Consolidated Financial Statements F-5
(a)(ii) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts F-10
Schedule III - Real Estate and Accumulated Depreciation F-10
(a)(iii) Exhibits
Subject to Rule 12b-32 under the Securities Exchange Act of 1934 on
incorporation by reference, listed below are the exhibits that are filed as
part of this report:
No. Title
3.1 Restated Agreement and Certificate of Limited Partnership of the
Partnership dated as of June 25, 1985 is hereby incorporated by
reference to Exhibit B to the Prospectus (the "Prospectus")
contained in Registration Statement No. 2-98786, as amended (the
"Registration Statement"), which Registration Statement was declared
effective on August 19, 1985.
3.2 Form of Restated Agreement and Certificate of the Partnership is
hereby incorporated reference to Exhibit B to the Prospectus.
3.3 Certificate of Limited Partnership of Bellwether Properties, L.P.
("Bellwether"), as amended, is hereby incorporated by reference to
the Registration Statement.
3.4 Form of Amendment to Certificate of Limited Partnership of Bellwether
is hereby incorporated by reference to the Registration Statement.
3.5 Form of Amended and Restated Agreement of Limited Partnership of the
Owner Partnership is hereby incorporated by reference to Exhibit C to the
Prospectus.
4.1 Form of certificate representing a limited partnership interest in
the Partnership is hereby incorporated by reference to the
Registration Statement.
10.1 Subscription Agreement and Signature Page is hereby incorporated by
reference to Exhibit D to the Prospectus.
10.2 Escrow Agreement between the Partnership, Shearson Lehman Brothers
Inc. ("Shearson") and Manufacturers Hanover Trust Company, dated as
of August 12, 1985, is hereby incorporated by reference to the
Registration Statement.
10.3 Form of Property Management and Leasing Agreement dated as of
November 29, 1985, between the Owner Partnership and Shopco
Management Corporation is hereby incorporated by reference to the
Registration Statement.
10.4 Capital Contribution Agreement dated as of August 7, 1985, between
Shearson Lehman Brothers Group Inc. and the General Partner is hereby
incorporated by reference to the Registration Statement.
10.5 Letter Agreement, dated as of June 6, 1985, amending the Contract of
Sale is hereby incorporated by reference to the Registration
Statement.
10.6 Indemnification Agreement between Shearson, Shearson Holdings and the
officers and directors of the General Partner is hereby incorporated
by reference to the Registration Statement.
10.7 Amended and Restated Deed of Trust and Security Agreement between
Eastpoint Partners, L.P. and CBA Associates, Inc. dated December 1,
1993, is hereby incorporated by reference to Exhibit 10.14 to the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1993.
10.8 Compromise and Mutual Release Agreement dated as of July 14, 1994 by
and between Eastpoint Partners, L.P. and Southwestern Life Insurance
Company is hereby incorporated by reference to Exhibit 10.1 to the
Partnership's report on Form 10-Q for the period ended June 30, 1994.
10.9 Agreement of Purchase and Sale of Partnership Interests in Eastpoint
Partners, L.P., dated July 31, 1997, among Shopco Advisory Corp.,
Eastpoint Mall Limited Partnership and Eastern Avenue Inc. is hereby
incorporated by reference to Exhibit 10.1 to the Partnership's report on
Form 10-Q for the period ended September 30, 1997.
10.10Amendment to Agreement of Purchase and Sale of Partnership Interests in
Eastpoint Partners, L.P. dated October 28, 1997 among Shopco Advisory
Corp., Eastpoint Mall Limited Partnership and Eastern Avenue Inc. and
Eastern Avenue Inc. is hereby incorporated by reference to Exhibit 10.2 to
the Partnership's report on Form 10-Q for the period ended September 30,
1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On November 28, 1997, the Partnership filed a Current Report on Form 8-K
reporting the approval at a Special Meeting of Limited Partners by a majority
in interest of the Limited Partners of the sale of the Mall and subsequent
liquidation and termination of the Partnership.
On December 9, 1997, the Partnership filed a Current Report on Form 8-K
reporting the consummation of the sale of its 90.9% general partnership
interest in Eastpoint Partners, L.P., consisting of all of the Partnership's
ownership interest in Eastpoint Mall.
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.
Dated: March 30, 1998
EASTPOINT MALL LIMITED PARTNERSHIP
BY: Eastern Avenue Inc.
General Partner
BY: /s/Robert J. Hellman
Name: Robert J. Hellman
Title: President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
BY: Eastern Avenue Inc.
General Partner
Date: March 30, 1998
BY: /s/ Rocco F. Andriola
Rocco F. Andriola
Director
Date: March 30, 1998
BY: /s/ Robert J. Hellman
Robert J. Hellman
President and Director
Date: March 30, 1998
BY: /s/ Joan Berkowitz
Joan Berkowitz
Vice President & Chief Financial Officer
Date: March 30, 1998
BY: /s/ Robert J. Sternlieb
Robert J. Sternlieb
Vice President
Independent Auditors' Report
The Partners
Eastpoint Mall Limited Partnership:
We have audited the consolidated financial statements of Eastpoint Mall Limited
Partnership (a Delaware limited partnership) and consolidated partnership as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedules as listed in the accompanying index. These consolidated financial
statements and financial statement schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eastpoint Mall
Limited Partnership and consolidated partnership as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the
Partnership's investment in the Owner Partnership was sold in 1997. It is the
intent of the General Partner to liquidate the Partnership in 1998.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 18, 1998
Consolidated Balance Sheets At December 31, At December 31,
1997 1996
- ------------------------------------------------------------------------------
Assets
Real estate, at cost (notes 2, 3 and 5):
Land $ - $ 4,409,980
Building - 43,972,310
Improvements - 7,286,406
-----------------------------
- 55,668,696
Less accumulated depreciation and amortization - (13,529,644)
-----------------------------
- 42,139,052
Cash and cash equivalents 1,815,888 6,362,256
Restricted cash (note 5) - 1,000,000
Cash-held in escrow (note 5) - 535,313
Accounts receivable, net of allowance
of $296,268 in 1997 and $125,805 in 1996 81,301 836,705
Accrued interest receivable (note 5) - 346,091
Deferred rent receivable - 343,990
Deferred charges, net of accumulated
amortization of $622,906 in 1996 - 1,353,384
Prepaid expenses - 389,559
Due from buyer 258,883 -
- ------------------------------------------------------------------------------
Total Assets $ 2,156,072 $ 53,306,350
==============================================================================
Liabilities, Minority Interest and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 123,029 $ 417,511
Mortgage loan payable (note 5) - 51,000,000
Due to affiliates (note 6) 52,000 -
Security deposits payable - 46,819
Deferred income - 424,580
Distributions payable - 288,826
-----------------------------
Total Liabilities 175,029 52,177,736
-----------------------------
Minority interest - (541,161)
-----------------------------
Partners' Capital (Deficit) (note 4):
General Partner 19,810 (97,569)
Limited Partners (4,575 limited partnership units
authorized, issued and outstanding) 1,961,233 1,767,344
-----------------------------
Total Partners' Capital 1,981,043 1,669,775
- ------------------------------------------------------------------------------
Total Liabilities, Minority Interest
and Partners' Capital $ 2,156,072 $ 53,306,350
==============================================================================
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partner Partners Total
- ------------------------------------------------------------------------------
Balance at December 31, 1994 $ (77,899) $ 3,714,858 $ 3,636,959
Net income 19,337 1,914,385 1,933,722
Distributions (21,649) (2,143,390) (2,165,039)
- ------------------------------------------------------------------------------
Balance at December 31, 1995 (80,211) 3,485,853 3,405,642
Net income 19,438 1,924,336 1,943,774
Distributions (36,796) (3,642,845) (3,679,641)
- ------------------------------------------------------------------------------
Balance at December 31, 1996 (97,569) 1,767,344 1,669,775
Net Income 320,515 31,932,953 32,253,468
Distributions (203,136) (31,739,064) (31,942,200)
- ------------------------------------------------------------------------------
Balance at December 31, 1997 $ 19,810 $ 1,961,233 $ 1,981,043
==============================================================================
Consolidated Statements of Operations
For the years ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
Income
Rental income (note 3) $ 7,006,129 $ 7,306,819 $ 6,894,097
Percentage rental income 585,175 1,019,783 1,209,752
Escalation income (note 3) 3,360,312 3,706,381 3,585,193
Interest income 443,258 340,504 406,292
Miscellaneous income (note 3) 505,005 169,512 113,374
----------------------------------
Total Income 11,899,879 12,542,999 12,208,708
- ------------------------------------------------------------------------------
Expenses
Interest expense 3,827,293 4,059,600 4,071,472
Property operating expenses 3,621,289 3,502,731 3,160,271
Settlement costs (note 3) - - 78,000
Depreciation and amortization 616,597 2,032,858 2,001,526
Real estate taxes 657,716 596,769 576,674
General and administrative 348,602 210,244 186,504
---------- ---------- ----------
Total Expenses 9,071,497 10,402,202 10,074,447
- ------------------------------------------------------------------------------
Income from operations 2,828,382 2,140,797 2,134,261
Gain on sale of property 30,966,477 - -
- ------------------------------------------------------------------------------
Income before minority interest 33,794,859 2,140,797 2,134,261
Minority interest (1,541,391) (197,023) (200,539)
- ------------------------------------------------------------------------------
Net Income (Loss) $32,253,468 $ 1,943,774 $ 1,933,722
==============================================================================
Net Income Allocated:
To the General Partner $ 320,515 $ 19,438 $ 19,337
To the Limited Partners 31,932,953 1,924,336 1,914,385
- ------------------------------------------------------------------------------
$32,253,468 $ 1,943,774 $ 1,933,722
==============================================================================
Per limited partnership unit
(4,575 outstanding) $6,979.88 $420.62 $418.44
==============================================================================
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $32,253,468 $ 1,943,774 $ 1,933,722
Adjustments to reconcile net income
to net cash provided by
operating activities:
Minority interest 1,541,391 197,023 200,539
Depreciation and amortization 616,597 2,032,858 2,001,526
Settlement costs - - 78,000
Gain on sale of property (30,966,477) - -
Increase (decrease) in cash arising
from changes in operating
assets and liabilities:
Cash-held in escrow 535,313 (91,502) (72,818)
Accounts receivable 755,404 (198,269) (88,894)
Accrued interest receivable (60,335) (121,524) (134,370)
Deferred rent receivable 626 12,666 (98,755)
Deferred charges (45,807) (41,712) (38,256)
Prepaid expenses 389,559 (8,281) (37,762)
Due from buyer (292,806) - -
Accounts payable and accrued expenses (294,482) 204,732 3,245
Accrued interest payable - (340,425) -
Due to affiliates 52,000 (2,226) 2,035
Security deposits payable (11,430) - (12,837)
Deferred income (424,580) 9,499 (2,908)
---------------------------------
Net cash provided by operating activities 4,048,441 3,596,613 3,732,467
- ------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from sale of property 23,886,277 - -
Additions to real estate (291,800) (1,253,819) (757,229)
Proceeds from note receivable - 738,000 -
----------------------------------
Net cash used for investing activities 23,594,477 (515,819) (757,229)
- ------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Release of restricted cash 1,008,047 1,100,000 -
Distributions paid (32,231,026) (3,679,641) (2,165,039)
Distributions paid-minority interest (966,307) (393,398) (216,745)
----------------------------------
Net cash used for financing activities (32,189,286) (2,973,039) (2,381,784)
- ------------------------------------------------------------------------------
Net increase (decrease)
in cash and cash equivalents (4,546,368) 107,755 593,454
Cash and cash equivalents,
beginning of period 6,362,256 6,254,501 5,661,047
- ------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 1,815,888 $ 6,362,256 $ 6,254,501
==============================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $3,827,293 $ 4,400,025 $ 4,071,472
- ------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Operating Activities:
In connection with the sale of the Partnership's interest in the Mall, deferred
rent receivable and prepaid leasing commissions in the amounts of $343,364 and
$227,838, respectively were netted against the gain on sale of property.
- ------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Financing Activities:
In connection with the sale of the Partnership's interest in the Mall, the
$51,000,000 mortgage obligation was assumed by the buyer. Included in due from
buyer is $33,923 which represents the final settlement of the amounts due to
the minority interest.
- ------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Organization
Eastpoint Mall Limited Partnership (the "Partnership") was formed as a limited
partnership on June 26, 1985 under the laws of the State of Delaware. The
Partnership is the managing general partner of Eastpoint Partners L.P. (the
"Owner Partnership"), a New York limited partnership, which owns Eastpoint Mall
(the "Mall"). The Owner Partnership consists of the Partnership which held a
90.9% interest in the Owner Partnership, the General Partner which held a .1%
interest and SFN Limited Partnership ("SFN"), a Maryland limited partnership
which is an affiliate of The Shopco Company which held a 9% interest in the
Mall (collectively the "Owner Partners"). Shopco Management Corp., an
affiliate of the Shopco Company, was retained by the Owner Partnership as
managing and leasing agent for the Mall.
The general partner of the Partnership is Eastern Avenue Inc., (the "General
Partner"), formerly Shearson Lehman Eastern Avenue Inc. (see below), an
affiliate of Lehman Brothers Inc., formerly Shearson Lehman Brothers, Inc.
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale,
Shearson changed its name to Lehman Brothers, Inc. ("Lehman Brothers"). The
transaction did not affect the ownership of the General Partner. However, the
assets acquired by Smith Barney included the name "Shearson." Consequently,
effective January 13, 1994, Shearson Lehman Eastern Avenue Inc., the General
Partner, changed its name to Eastern Avenue Inc.
The Partnership commenced investment operations on November 22, 1985, with the
acceptance of subscriptions for 4,575 limited partnership units, the maximum
authorized by the limited partnership agreement ("Limited Partnership
Agreement"). Upon the admittance of the additional limited partners (the
"Limited Partners"), the initial limited partner withdrew from the Partnership.
On December 9, 1997, the Partnership sold its 90.9% general partnership
interest in the Owner Partnership to affiliates of Shopco Management Corp.,
constituting all of the Partnership's ownership interest in the Mall. The
Partnership's net proceeds from the sale, after buyer's assumption of the
$51,000,000 mortgage loan obligation, closing adjustments and expenses relating
to the sale, were $23,886,277 and assumed debt. As a result of the sale, it is
the intent of the General Partner to dissolve the Partnership in 1998. In
addition, the General Partner sold its .1% general partnership interest in the
Owner Partnership for a purchase price of $1,362,761.
2. Summary of Significant Accounting Policies
Basis of Accounting - The consolidated financial statements of the Partnership
have been prepared on the accrual basis of accounting and include the accounts
of the Partnership and the Owner Partnership through December 9, 1997. All
significant intercompany accounts and transactions have been eliminated.
Real Estate - Real estate investments, which consist of land, building and
improvements, are recorded at cost less accumulated depreciation and
amortization. Cost includes the initial purchase price of the property plus
closing costs, acquisition and legal fees and capital improvements, including
capitalized interest. Depreciation of the building is computed using the
straight-line method based on an estimated useful life of 40 years.
Depreciation of improvements is computed using the straight-line method over
estimated useful lives of 7 to 12 years.
Impairment of Long-Lived Assets - Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("FAS 121"), requires the Partnership to assess its
real estate investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real estate may not be
recoverable. Recoverability of real estate to be held and used is measured by
a comparison of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the real
estate exceeds the fair value of the real estate. No adjustments for
impairment were recognized by the Partnership under this accounting standard.
FAS 121 also requires long-lived assets to be disposed of to be recorded at the
lower of cost or fair value less cost to sell. Additionally, long-lived assets
to be disposed of should not be depreciated. On April 1, 1997, the Partnership
ceased depreciation of the real estate in accordance with FAS 121. Fair Value
of Financial Instruments Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("FAS 107"), requires
that the Partnership disclose the estimated fair values of its financial
instruments. Fair values generally represent estimates of amounts at which a
financial instrument could be exchanged between willing parties in a current
transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Deferred Charges - Deferred charges are amortized using the straight-line
method over the following periods:
Period
----------------------------------------------
Deferred leasing costs 7 years
Financing fees 10 years
----------------------------------------------
Offering Costs - Offering costs are non-amortizable and have been deducted from
partners' capital.
Transfer of Units and Distributions - Net income or loss from operations is
allocated to registered holders ("Unit Holder"). Upon the transfer of a unit,
net income (loss) from operations attributable to such unit generally is
allocated between the transferor and the transferee based on the number of days
during the year of transfer that each is deemed to have owned the unit. The
Unit Holder of record on the first day of the calendar month is deemed to have
transferred their interest on the first day of such month.
Distributions of operating cash flow, as defined in the Partnership Agreement,
is payable on a quarterly basis to registered Unit Holders on record dates
established by the Partnership, which generally fall 45 days after quarter end.
Income Taxes - No provision is made for income taxes since such liability is
the liability of the individual partners.
Net Income Per Limited Partnership Unit - Net income per limited partnership
unit is calculated based upon the number of limited partnership units
outstanding during the year.
Rental Income and Deferred Rent - The Partnership rents its property to tenants
under operating leases with various terms. Deferred rent receivable consists of
rental income which is recognized on the straight-line basis over the lease
terms, but will not be received until later periods as a result of scheduled
rent increases.
Cash and Cash Equivalents - Cash and cash equivalents consist of money market
investment accounts which invest in short-term highly liquid investments with
maturities of three months or less from the date of issuance. The carrying
amount approximates fair value because of the short maturity of those
investments.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institutions' insurance limits.
The Partnership invests available cash with high credit quality financial
institutions.
Use of 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
3. Real Estate
On December 9, 1997, the Partnership sold its 90.9% general partnership
interest in the Owner Partnership to affiliates of Shopco Management Corp.,
constituting all of the Partnership's ownership interest in the Mall, to the
Assignees. The purchase price was based on, in part, the fair market value of
the Mall of $81,000,000, as determined by an independent appraiser, and an
arms-length negotiation between Shopco and the General Partner, on behalf of
the Partnership. The buyer assumed the Owner Partnership's existing mortgage
indebtedness on the Mall and paid the Partnership $25,489,064 in cash for its
general partnership interest. The Partnership's net proceeds from the sale,
after closing adjustments and expenses relating to the sale, was $23,886,277
resulting in the recognition of a gain of $30,966,477 in 1997.
The Mall was purchased on November 29, 1985 and consisted of a central enclosed
mall plus five free standing buildings located on approximately 67.1 acres in
Baltimore County, Maryland. The Mall consists of a central enclosed mall
anchored by four major department stores - J.C. Penney, Inc. ("J.C. Penney"),
Schottenstein Stores Corporation, doing business as Value City ("Value City"),
Sears, Roebuck, and Co. ("Sears") and Ames Department Stores, Inc. (two of
which are subject to ground leases), improvements and land. The retail space
in the Mall is contained on one level; J.C. Penney and Value City are multi-
level. Office and storage areas are contained in the basement level and on the
second floor levels of the Mall. Parking space is provided for over 4,500
cars.
The Mall currently has gross leasable space totaling 864,993 square feet. Of
this leasable space, 637,582 is owned by the Owner Partnership and 227,411
square feet of the gross leasable space is owned by the tenants who have leased
portions of land pursuant to ground leases with the Owner Partnership. Upon
expiration of such ground leases, ownership of the buildings thereon will
revert to the Owner Partnership. On November 8, 1996, the Owner Partnership
purchased for $975,000 the leasehold interest in a vacant, free-standing
building and the underlying land located adjacent to the J.C. Penney anchor
tenant store at the Mall from J.C. Penney Company, Inc.
In addition to the minimum lease amounts, the leases provide for percentage
rents, and escalation charges to tenants for common area maintenance and real
estate taxes. For the years ended December 31, 1997, 1996 and 1995, temporary
tenant income amounted to $237,139, $397,921 and $302,815, respectively, and
are included in rental income.
For the year ended December 31, 1995, one tenant accounted for approximately
10% of the Partnership's rental and percentage rental income. No single tenant
accounted for 10% or more of such income for the years ended December 31, 1997
and 1996.
On April 26, 1990, Ames Department Stores, Inc. ("Ames") filed for bankruptcy
protection under Chapter 11 of the Federal Bankruptcy Code. On December 18,
1992, the Bankruptcy Court confirmed the Plan pursuant to which Ames assumed
its lease at the Mall. Land leased to Ames by the Owner Partnership, together
with the building constructed thereon by Ames, secured a deed of trust held by
Consolidated, as successor to Southwestern Life Insurance Company. By filing
its bankruptcy petition, Ames was in default under the Consolidated deed of
trust.
On July 14, 1994, the Partnership executed a Release Agreement (the "Release
Agreement") with Consolidated Fidelity Insurance Company ("Consolidated").
Pursuant to the terms of the Release Agreement , the Partnership paid
Consolidated $2 million (of which $812,500 was expensed and $1,187,500 was
recorded as a note receivable) in return for the assignment of the deed of
trust and related Ames promissory note, as well as Consolidated's allowable
claim in the Ames bankruptcy case relating to such promissory note.
Consolidated's total allowable claims were approximately $2,050,000, consisting
of the balances due on the Ames promissory note of approximately $1,530,000 and
another promissory note. Pursuant to the Release Agreement, the Partnership was
entitled to any recovery based on the Ames promissory note; Consolidated would
receive any recovery on the other note. The carrying value of the note
receivable was reduced to $738,000 at December 31, 1995. In 1996, the
Partnership received $1,009,458 and recognized income of $49,000. In 1997, the
Partnership received an additional $476,010 and paid $324,602 to Consolidated.
An additional $82,700 was received in 1998 of which $18,194 is payable to
Consolidated. The Partnership recognized miscellaneous income (settlement
expense) of $438,000, $49,000 and ($78,000) for the years ended December 31,
1997, 1996 and 1995, respectively, from the Ames Settlement. It is uncertain,
although unlikely, that there will be any additional settlement payments to the
Owner Partnership.
4. Partnership Agreement
The Partnership had a 90.9% interest in the operating income, profits and cash
distributions, and a 99% interest in the operating losses, of the Owner
Partnership. The General Partner had a .1% interest and SFN had a 9% interest
in the income, profits, and cash distributions of the Ownership Partnership.
Losses from operations were allocated .1% to the General Partner, and .9% to
SFN. The Limited Partnership Agreement provides that all operating income,
losses, profits, and cash distributions are to be allocated 1% to the General
Partner and 99% to the Limited Partners. The proceeds of sale and interim
capital transactions are to be distributed 100% to the Partnership (100% to the
Limited Partners) until the Limited Partners have received distributions equal
to a return of their original capital contribution plus a 10% cumulative return
on capital ("Preferred Return"). Thereafter, any remaining proceeds are to be
allocated 86% to the Partnership (1% to the General Partner and 99% to the
Limited Partners), 5% to the General Partner and 9% to SFN. In December 1997,
the Partnership distributed proceeds from the sale of the Partnership's
interest in the Owner Partnership and cash reserves totaling approximately $31
million, of which the first $11.6 million was distributed 100% to the Limited
Partners to reach their Preferred Return and the remainder was allocated 99% to
the Limited Partners and 1% to the General Partner.
5. Mortgage Loan Payable
In December 1993, the Partnership obtained new first mortgage financing from
CBA Conduit, Inc., an entity which placed the new mortgage into a pool of other
mortgages to be held by a real estate mortgage investment conduit (the "REMIC
Lender"). The total amount of the new first mortgage was $51,000,000 which
required monthly interest payments at a rate of 8.01% per annum for the first
five years and, thereafter, at a rate equal to 2.8% above the current yield on
five-year Treasury Notes. The mortgage loan was scheduled to mature on
December 22, 2003, at which time the entire outstanding principal balance would
have been due.
Upon the sale of its 90.9% general partnership interest in the Owner
Partnership, constituting all of the Partnership's ownership interest in the
Mall, the buyers assumed the $51,000,000 mortgage loan obligation. The
Partnership received approximately $1,500,000 in return of certain reserves and
escrowed funds from the REMIC Lender.
6. Transactions with Related Parties
Effective January 1, 1997, the Partnership began reimbursing certain expenses
incurred by the General Partner and its affiliates in servicing the Partnership
to the extent permitted by the Limited Partnership Agreement. For the year
ended December 31, 1997, these expenses were $96,341 of which $52,000 remains
unpaid at December 31, 1997. In prior years, affiliates of the General Partner
had voluntarily absorbed these expenses.
Under the terms of the Partnership Agreement, the General Partner and its
affiliates are entitled to be reimbursed for out-of- pocket expenses. For the
years ended December 31, 1997, 1996 and 1995, out-of-pocket expenses were
$4,574, $5,048 and $5,064, respectively. At December 31, 1997 and 1996, $192
and $0, respectively, remained unpaid.
Cash and Cash Equivalents - Certain cash and cash equivalents were on deposit
with an affiliate of the General Partner during a portion of 1996 and all of
1995. As of December 31, 1996 and throughout 1997, no cash and cash
equivalents were on deposit with an affiliate of the General Partner or the
Partnership.
7. Management Agreement
On November 29, 1985, the Partnership entered into an agreement with Shopco
Management Corporation, an affiliate of SFN, for the management of the Mall.
The agreement, which expired on December 31, 1990, provided for an annual fee
equal to 3.0% of the gross rents collected from the Mall, as defined, payable
monthly. The Partnership and Shopco Management Corporation agreed to the terms
of the new management agreement effective January 1, 1991 through December 31,
1993, which included an increase in the annual fee to 4.5% of gross rents
collected from the Mall. The new management agreement which expired on
December 31, 1993 is automatically renewed for successive periods of one year.
The management agreement remained in effect through December 9, 1997, the date
of sale of the Partnership's ownership interest in the Mall. For the years
ended December 31, 1997, 1996 and 1995, management fee expense amounted to
$381,996, $368,435 and $349,166, respectively.
8. Distributions to Limited Partners
In 1997, 1996 and 1995, distributions to Limited Partners totaled $31,739,064
($6,937.50 per limited partnership unit), $3,642,845, ($796.25 per limited
partnership unit), and $2,143,390, ($468.50 per limited partnership unit),
respectively.
9. Reconciliation of Consolidated Financial Statement Basis Net Income and
Partners' Capital to Federal Income Tax Basis Net Income and Partners'
Capital (Deficit)
Reconciliations of consolidated financial statement basis net income and
partners' capital to federal income tax basis net income and partners' capital
(deficit) at December 31, follow:
1997 1996 1995
- -------------------------------------------------------------------------------
Consolidated financial statement
basis net income $32,253,468 $1,943,774 $1,933,722
Tax basis recognition of deferred charges
over financial statement
recognition of deferred charges (138,876) (37,875) (37,875)
Tax basis recognition of deferred income
over (under) financial statement
recognition of deferred income 229,136 2,821 (115,321)
Tax basis depreciation over financial
statement depreciation (1,704,135) (472,137) (456,095)
Financial statement basis recognition
of Ames Settlement cost over
(under) tax basis (1,102,275) (44,883) 70,902
Tax basis gain on sale of property
over financial statement gain on
sale of property 7,865,833 - -
- -------------------------------------------------------------------------------
Federal income tax basis net income $37,403,151 $1,391,700 $1,395,333
===============================================================================
1997 1996 1995
- -------------------------------------------------------------------------------
Financial statement basis
partners' capital $1,981,043 $1,669,775 $3,405,642
Current year financial statement
net income under (over) federal
income tax basis net income 5,149,683 (552,074) (538,389)
Cumulative federal income tax basis net
income (loss) over cumulative financial
statement net income (loss) (5,148,096) (4,596,022) (4,057,633)
- -------------------------------------------------------------------------------
Federal income tax basis
partners' capital (deficit) $1,982,630 $(3,478,321) $(1,190,380)
===============================================================================
Because many types of transactions are susceptible to varying interpretations
under Federal and State income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
respective taxing authorities.
Schedule II Valuation and Qualifying Accounts
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
- ------------------------------------------------------------------------------
Allowance for doubtful accounts:
Year ended December 31, 1995: $294,059 $ 19,852 $233,506 $ 80,405
Year ended December 31, 1996: $ 80,405 $146,652 $101,252 $125,805
Year ended December 31, 1997: $125,805 $174,893 $ 4,430 $296,268
- ------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
Eastpoint
Description: Mall
- ---------------------------------------------------------
Location Baltimore County, MD
Construction date 1956-1981
Acquisition date 11-29-85
Life on which depreciation
in latest income statements
is computed Building - 40 years
Improvements - 7-12 years
Encumbrances $ -
Initial cost to Partnership: (A)
Land $ 3,497,465
Building and
improvements $26,254,002
Costs capitalized
subsequent to acquisition:
Land, building
and improvements $26,209,029
Gross amount at which
carried at close of period: (B)
Land $ -
Building and
improvements -
- ---------------------------------------------------------
$ -
- ---------------------------------------------------------
Accumulated depreciation $ -
- ---------------------------------------------------------
(A) The initial cost of the Partnership represents the original
purchase price of the property.
(B) For Federal income tax purposes, the cost basis for the land,
building and improvements at December 31, 1997 is $0.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1997, 1996, and 1995 follows:
1997 1996 1995
- -------------------------------------------------------------------------
Real estate investments:
Beginning of year $55,668,696 $54,457,377 $53,761,925
Additions 291,800 1,253,819 757,229
Dispositions (55,960,496) (42,500) (61,777)
- -------------------------------------------------------------------------
End of year $ - $55,668,696 $54,457,377
=========================================================================
Accumulated depreciation:
Beginning of year $13,529,644 $11,738,595 $ 9,997,420
Depreciation expense 460,643 1,833,549 1,802,952
Dispositions (13,990,287) (42,500) (61,777)
- -------------------------------------------------------------------------
End of year $ - $13,529,644 $11,738,595
=========================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 1,815,888
<SECURITIES> 000
<RECEIVABLES> 377,569
<ALLOWANCES> 296,268
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 2,156,072
<CURRENT-LIABILITIES> 175,029
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 1,981,043
<TOTAL-LIABILITY-AND-EQUITY> 2,156,072
<SALES> 000
<TOTAL-REVENUES> 11,899,879
<CGS> 000
<TOTAL-COSTS> 4,279,005
<OTHER-EXPENSES> 965,199
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 3,827,293
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 2,828,382
<DISCONTINUED> 000
<EXTRAORDINARY> 30,966,477
<CHANGES> 000
<NET-INCOME> 32,253,468
<EPS-PRIMARY> 6,979.88
<EPS-DILUTED> 6,979.88
</TABLE>
