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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required, Effective October 7, 1996]
for the fiscal year ended December 31, 1996
-----------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period
from to
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Commission file number 33-1889
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MARKETPLACE INCOME PROPERTIES,
A NORTH CAROLINA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
North Carolina 56-1493986
(State of organization) (I.R.S. Employer Identification No.)
121 W. Trade St.
Charlotte, North Carolina 28202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 379-9164
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: (Title of Class)
Units of Limited Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 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 No X
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing. (See definition of affiliate in Rule 405)
Indicate the number of shares outstanding of each of the issuers' classes of
common stock as of the latest practicable date
3,000 Limited Partnership units outstanding as of March 10, 1997
Documents Incorporated by Reference: See Item 14
Page 1 of 16 sequentially numbered pages
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PART I
ITEM 1 - BUSINESS
Marketplace Income Properties (the "Registrant" or the "Partnership")
is a North Carolina limited partnership organized in 1985. Until September 16,
1992, the general partners of the Partnership were ISC Realty Corporation
("ISCR" or the "General Partners"), a North Carolina corporation and a
wholly-owned subsidiary of Interstate/Johnson Lane, Inc., and Benton Investment
Company ("Benton"), a North Carolina corporation. On September 16, 1992, Benton
was removed as a general partner after ISCR solicited proxies from the Limited
Partners to vote for Benton's removal and Benton's request for a preliminary
injunction to prohibit its removal was denied by the United States District
Court for the Middle District of North Carolina. As a result, ISCR became the
managing general partner of the Partnership. On January 11, 1993, ISCR and
Benton closed a purchase agreement whereby ISCR purchased Benton's entire
general partner interest in the Partnership effective January 1, 1993. Pursuant
to this purchase transaction, ISCR succeeded to all of Benton's rights and
interests under the Partnership Agreement, including Benton's interest in
management fees, rights to reimbursement of administrative expenses and its 0.5%
interest in Partnership distributions. None of the costs associated with these
events and transactions, including the cost of purchasing Benton's interest in
the Partnership, were charged to the Partnership.
The Registrant's principal investment objectives are to own, hold,
operate, lease, sell, and otherwise deal in commercial real estate properties
(the "Properties") which offer the potential for (1) preservation and protection
of capital invested in the Registrant, (2) cash distributions from operations of
the Properties, (3) long term appreciation in value of the Properties, and (4)
protection for investors against inflation. The Registrant currently owns the
Marketplace Mall & Theaters in Winston-Salem, North Carolina (the "Mall"), Mt.
Pilot Shopping Center in Pilot Mountain, North Carolina ("Mt. Pilot"), and
Amelia Plaza Shopping Center in Fernandina Beach, Florida ("Amelia"). Town &
Country Convalescent Center in Tampa, Florida (the "Tampa Project") was sold in
July of 1996 and Country Forest Manor in Siler City, North Carolina (the "Siler
City Project") was sold in June of 1994. See Item 2 for further discussion.
It is intended that the Registrant be self-liquidating and accordingly,
the net proceeds of any sale of any Property will be distributed to the
Investors.
The real estate business is highly competitive, and the Partnership
competes with numerous established companies, real estate investment trusts and
other limited partnerships, some of which have greater assets than the
Partnership, and broader experience than the General Partner. Some of the
competitive factors which the Partnership may encounter from time to time
include rising levels of vacancies due to changes in supply or demand of
competing properties in an area, such as excess supply resulting from
competitive overbuilding.
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ISCR or its affiliates currently serve as a general partner in 19
public and private partnerships which currently own various types of real
property. None of the prior partnerships sponsored by ISCR now contemplate the
acquisition of any additional properties due to all public funds being fully
invested. However, it is likely that the General Partner or its affiliates will
sponsor additional public or private partnerships in the future. In addition,
the General Partner and their affiliates are and will continue to be engaged in
the business of real estate investment, development and management apart from
their involvement in the Registrant.
ISCR intends to devote only such time to the business of the Registrant
as in its judgment is reasonably required. ISCR is engaged in other similar
activities which also require the time and attention of its management and
staff.
As of March 10, 1997, the Registrant did not directly employ any
persons in a full-time position. Certain employees of ISCR performed services
for the Registrant during 1996.
ITEM 2 - PROPERTIES
(a) The Marketplace Mall & Theaters
The Marketplace Mall & Theaters complex is a 177,600 square foot
enclosed shopping mall with a separate 20,576 square foot theater building on
approximately 23 acres of land in Winston-Salem, (Forsyth County) North
Carolina. The Mall is currently predominantly occupied by many small tenants
between the range of 1,000 and 7,500 square feet in addition to the Hamricks
space which is approximately 48,000 square feet. The separate theater building
is occupied by Carmike Cinemas under a long-term lease.
As of March 10, 1997, the Mall was 91% occupied. On December 6, 1994,
the Registrant entered into a agreement with Hamricks to occupy approximately
48,355 square feet at the Mall. The lease term is for ten years and four months
with rent commencing January 15, 1996. The initial annual rent is $181,331. The
tenant has two five-year options.
On July 5, 1995 the Partnership paid off the State Mutual Life mortgage
on the Mall at the discounted amount of $6,300,000 as agreed in the December
1994 modification. The Partnership funded the payoff with a new $5,500,000
mortgage on the Mall from First Union National Bank and from cash reserves. The
First Union loan provides for maximum borrowings of $5,800,000 and accrues
interest at LIBOR plus 2.15%. The Partnership entered into a swap agreement with
First Union to fix the interest rate at 8.35% on $4,750,000 of the loan. The
loan shall be repaid with interest only payments for the first three months.
Beginning November 1, 1995, the loan was repaid in fixed monthly principal
payments of $17,521 plus interest on the outstanding balance. As noted above, an
additional $300,000 may be borrowed subject to certain leasing requirements. In
October 1995, an additional $200,000 of the $300,000 maximum additional
borrowings was borrowed on the note. The note has a maturity date of June 30,
1998. The balance of the mortgage at December 31, 1996, totaled $5,454,706.
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(b) Amelia Plaza Shopping Center
Amelia Plaza ("Amelia") is a 91,952 square foot neighborhood strip
shopping center located in Fernandina Beach, Florida. Fernandina Beach is the
largest of three municipalities within Nassau County. Leasing negotiations
remain competitive within the local market.
The principal tenants at Amelia are a Winn Dixie food store (45,965
square feet) and Eckerd Drugs (10,080 square feet). The high sales volume of
these tenants and the presence of Wal-Mart adjacent to the property but not
owned by the Registrant enhances the customer traffic to the center. As of March
10, 1997, the Center was 95% leased and occupied.
The Amelia Plaza mortgage is held by Connecticut Mutual Life Insurance
Company and had a balance of $3,542,281 at December 31, 1996. The note bears
interest at a 9.625% rate and matures on October 1, 1998. Connecticut Mutual
Life Insurance Company also has a staged equity participation in sales proceeds
over $4,175,000.
(c) Mt. Pilot Shopping Center
Mt. Pilot is a 38,650 square foot neighborhood strip shopping center in
Pilot Mountain, North Carolina. Because of the small size of this market, no
formal statistics exist relative to retail space or overall vacancy. The General
Partner believes that this market is relatively stable. The primary tenants are
Lowe's Food Stores occupying 21,000 square feet, Revco Drugs occupying 8,450
square feet, and Family Dollar occupying 6,000 square feet. Mt. Pilot is
currently 100% leased and occupied. Currently, this property is unencumbered by
a mortgage.
(d) Town & Country Convalescent Center
On August 23, 1995, the Partnership executed a contract with
HealthPrime, Inc. ("HealthPrime"), an unaffiliated party, to sell Town & Country
Convalescent Center at a price of $3,935,000. Advocare of Florida ("Advocare"),
the lessee of the facility at the time, exercised its right of first refusal to
purchase the home upon the same terms and conditions. HealthPrime challenged the
validity of Advocare's right of first refusal and, in late 1995, initiated a
lawsuit against the Registrant and Advocare. To avoid significant legal costs as
well as an undesirable delay in the sale of the facility, the Partnership
settled the claim. In exchange for the discharge of all legal actions, the
Partnership paid $75,000 to HealthPrime and $25,000 to Advocare. The Registrant
completed the sale of the facility to Advocare on July 9, 1996.
From the purchase proceeds, $2,877,383 was used to pay off the first
mortgage on the property. Closing and other costs incurred at settlement totaled
$97,161 leaving net cash proceeds to the partnership of $960,456. A net gain of
$98,351 resulted from the transaction. In August 1996, $975,000 was distributed
to the limited partners representing $325 per unit.
(e) Country Forest Manor
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On June 30, 1994, the Partnership entered into a purchase agreement
with an unaffiliated buyer for the sale of Meadowbrook Manor of Siler City
("Siler City") for an approximate price of $4,522,051. The purchase agreement
provided for the sale of Siler City as well as four other nursing facilities
from partnerships for which ISC Realty Corporation is the managing General
Partner ("Affiliated Partnerships"). The sale was contingent upon the majority
approval by the limited partners of one of the Affiliated Partnerships
("HCPII"). Approval by a majority of the limited partners of HCPII was received
and sales proceeds were released from escrow on August 24, 1994.
From the purchase proceeds, $1,511,585 was used to pay off the first
mortgage on the property. Closing costs incurred at settlement totaled $25,353
leaving net cash proceeds to the partnership of $2,985,113. A net gain of
$1,794,382 resulted from the transaction. In December 1994, $750,000 of the net
proceeds were distributed to the limited partners representing $250 per unit.
ITEM 3 - LEGAL PROCEEDINGS
See discussion at Item 2 (d) Properties for detail of legal proceeding
related to Town & Country.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR REGISTRANT'S SECURITIES AND OTHER RELATED
SECURITIES HOLDER MATTERS
Transfer of the Registrant's Limited Partnership Units (the "Units") is
subject to certain restrictions contained in the Registrant's Limited
Partnership Agreement. There is no established market for the Units and it is
not anticipated that any will occur in the future. The Registrant is aware of no
significant resales of Units. As of March 10, 1997, 780 investors were recorded
owners of 3,000 units. During the year ended December 31, 1994, the Registrant
made a distribution of $250 per unit to the Limited Partners. During the year
ended December 31, 1995, the Registrant paid $37,095 to the North Carolina
Department of Revenue on behalf of nonresidents of North Carolina for income
taxes resulting from the sale of Siler City in 1994. This amount appears as a
distribution on the Statement of Partners Equity in the Financial Statements
attached. During the year ended December 31, 1996, the Registrant made a
distribution of $325 per unit to the Limited Partners.
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ITEM 6 - SELECTED FINANCIAL DATA (AUDITED)
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Dec 31 Dec 31 Dec 31 Dec 31 Dec 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Revenues $2,226,544 $2,304,536 $2,691,315 $2,910,684 $3,004,061
Net Income (Loss) (2,632,500) 2,131,222 1,842,760 (64,670) (3,278,775)
Cash Dist's to LPs 975,000 37,095* 750,000 0 0
Cash Dist's / Unit 325 N/A 250 0 0
Total Assets 14,081,326 21,218,733 22,443,152 23,347,975 23,917,291
Long-Term Debt 8,996,987 12,310,526 15,705,327 17,704,926 18,243,204
Partners' Equity 4,901,902 8,519,251 6,425,124 5,332,364 5,397,034
</TABLE>
* See Item 5 for discussion regarding the 1995 distribution.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Registrant generated $562,042 of cash flow from operations during
the year ended December 31, 1996. Cash payments during the year ended December
31, 1996, for improvements to rental properties amounted to $272,184, primarily
for the construction of the food court space at the Mall. In addition,
$3,255,008 of principal payments were made on loans, including $2,877,383 of
debt retired in association with the sale of Town & Country.
As of December 31, 1996, the Registrant held cash and cash equivalents
of $267,027. The Registrant feels that these funds should be used as a reserve
for the cost of operating and maintaining the properties. It is anticipated that
the Registrant's revenues from the operation of properties will be sufficient to
meet both the Registrant's operating and capital expenditures through 1997. In
addition, $67,662 was held in restricted cash accounts related to tenant
deposits, and property tax escrows.
Results of Operations
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COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1996, TO FISCAL YEAR ENDED
DECEMBER 31, 1995
For the year ended December 31, 1996, the Registrant reported net
income in the amount of $(2,632,500) as compared to $2,131,222 for the year
ended December 31, 1995. The most significant causes of this decrease were the
$3,414,000 write-down of rental property taken in 1996, and the $2,413,950
extraordinary gain recorded in 1995 as the result of the forgiveness of debt on
the Mall mortgage. (See Notes 2 and 3 of the financial statements).
Rental income decreased from $2,225,534 for the year ended December 31,
1995, to $2,166,913 for the year ended December 31, 1996, a decline of
approximately $59,000. The primary reason for the decline was the loss of
approximately $167,000 in rental income from Town & Country due to the mid-year
sale of the property. Rental income at Amelia Plaza and Mt. Pilot Shopping
Center was basically flat from 1995 to 1996, however, rental income at the Mall
increased approximately $108,000 from 1995 to 1996, primarily due to Hamrick's
paying a full year's rent in 1996.
Interest and other income decreased approximately $19,000 during the
year ended December 31, 1996, as compared to 1995 due to less interest earned on
a lesser amount of cash reserves held during the year.
Interest expense decreased from $1,112,734 for the year ended December
31, 1995, to $952,311 for the year ended December 31, 1996, a change of
approximately $160,000. Approximately $150,000 of this change was due to the
sale of Town & Country in July of 1996 and the resulting retirement of the debt
on the property. The balance of the difference was due to lower interest paid on
the gradually reducing principal balances on the Amelia Plaza and Marketplace
Mall debt.
Depreciation decreased from $697,737 for the year ended December 31,
1995, to $0 for the year ended December 31, 1996. This decrease was due to the
Partnership's adopting Statement of Financial Accounting Standards No. 121 in
1996. This statement, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, requires the Partnership to record a
provision to write-down Partnership properties to fair market value and to cease
recording depreciation expense at the time the properties began to be marketed
for sale. As the properties began to be marketed for sale as of January 1, 1996,
the depreciation expense for 1996 under Standard 121 was $0.
Provision for doubtful accounts decreased approximately $11,000 during
1996 at the Mall due to a decrease in the write off of delinquent tenant
receivables.
Operations and maintenance decreased approximately $185,000 during the
year ended December 31, 1996, as compared to the year ended December 31, 1995.
This decrease is primarily due to several reasons, all of which are related to
the Mall. Due to a successful appeal
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of the 1993 property tax value of the Mall, property tax expense decreased by
approximately $51,000 from 1995 to 1996. Also from 1995 to 1996, marketing
expenses decreased approximately $36,000, common area maintenance decreased
approximately $40,000, and leasing commissions decreased approximately $60,000.
The decreases in marketing expenses, common area maintenance, and leasing
commissions from 1995 to 1996 all are due to extraordinary expenses associated
with the Hamrick's opening in 1995.
Administrative expense increased from $118,726 for the year ended
December 31, 1995, to $201,013 for the year ended December 31, 1996, due to
increased legal fees associated with the settlement of the Town & Country sale
dispute as well as the property tax appeal at the Mall.
Write-down of rental property increased from $0 for the year ended
December 31, 1995, to $3,414,000 for the year ended December 31, 1996. This
write-down was due to the current marketing of the Partnership's properties for
sale and the General Partner's opinion that the net sale prices for Marketplace
Mall, Amelia Plaza Shopping Center, and Mt. Pilot Shopping Center will be less
than their respective net book values. Under Statement of Financial Accounting
Standards No. 121, this adjustment is shown as an operating expense.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1995 TO FISCAL YEAR ENDED
DECEMBER 31, 1994
For the year ended December 31, 1995, the Registrant reported net
income in the amount of $2,131,222 as compared to $1,842,760 for the year ended
December 31, 1994. The most significant cause of the increase is the $2,413,950
extraordinary gain recorded as the result of the forgiveness of debt on the Mall
mortgage. (See Note 3 of the financial statements).
Rental income decreased from $2,576,216 for the year ended December 31,
1994 to $2,225,534 for the year ended December 31, 1995. The primary reason was
a decrease in rental income from the new lease on Town & Country of
approximately $154,365 and the lack of rental income provided by Siler City
Nursing Home due to the sale in 1994 which amounted to approximately $209,000 in
1994. These decreases were offset by a increase in base rent and percentage rent
at Mt. Pilot of approximately $12,000.
Interest and other income decreased approximately $36,000 during the
year ended December 31, 1995 as compared to 1994 due to less interest earned on
a lesser amount of cash reserves held during the year.
Interest expense decreased from $1,445,255 for the year ended December
31, 1994 to $1,112,734 for the year ended December 31, 1995. Due to the sale of
Siler City in 1994, interest expense decreased $81,000 in 1995 and as a result
of the refinancing of the Mall mortgage, interest expense decreased $277,660 in
1995 for the Mall. These decreases were offset by an increase at Town & Country
of $29,000 due to an increase in the interest rate from 10% to 11.5%.
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Provision for doubtful accounts decreased approximately $21,000 during
1995 at the Mall due to a decrease in the write off of delinquent tenant
receivables.
Operations and maintenance increased $312,687 during the year ended
December 31, 1995 as compared to the year ended December 31, 1994. The increase
is the result of the following: Common area maintenance expense increased
approximately $161,000, of which $146,000 was at the Mall and $14,000 was at
Amelia Plaza. Leasing commissions increased approximately $65,000 in 1995 as
compared to 1994. Of that increase, $55,000 was related to leasing activity at
the Mall and the remaining $10,000 was the result of the amortization of
deferred lease commissions at Amelia. In addition, marketing expense increased
approximately $21,000 at the Mall as a result of the increased marketing and
advertising efforts related to the Mall.
Administrative expense decreased from $139,219 for the year ended
December 31, 1994 to $118,726 for the year ended December 31, 1995 due to a
decrease in legal fees incurred at the Mall in 1995 as compared to 1994.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of 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 Registrant has no directors or executive officers. Information as
to the directors and executive officers of ISCR are as follows:
Name Information about Directors and Executive Officers
---- --------------------------------------------------
J. Christopher Boone Director and President of ISCR. He is 38 years old.
Michael A. Paschall Vice President of ISCR. He is 32 years old.
Parks H. Dalton Director of ISCR. He is 67 years old.
Michael D. Hearn Director of ISCR. He is 44 years old
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Edward C. Ruff Director of ISCR. He is 57 years old.
Robert B. McGuire Treasurer of ISCR. He is 49 years old.
J. Christopher Boone, President of ISCR, was formerly a Vice President
of ISCR and is a Managing Director of Interstate/Johnson Lane Corporation
("I/JL"). Prior to joining I/JL in 1984, Mr. Boone was a tax specialist for
Coopers & Lybrand, Certified Public Accountants. He received a Bachelor's Degree
in Business Administration with an emphasis in accounting from the University of
North Carolina at Chapel Hill.
Michael A. Paschall, Vice President of ISCR and Vice President of I/JL
since 1996. Prior to joining ISCR in 1996, Mr. Paschall was Assistant Vice
President and Investment Officer of First Union National Bank. Mr. Paschall
received a B.A. in English and Economics from the University of North Carolina
at Chapel Hill and a Juris Doctor from Wake Forest University.
Parks H. Dalton was a director of Interstate/Johnson Lane, Inc. (the
"Company") from 1985 until his retirement in 1988. He also served as Chief
Executive Officer of I/JL from 1968 to 1988, President from 1968 to 1983, and
Chairman from 1983 to 1988. In November 1990, he was re-elected Chairman and
Chief Executive Officer of I/JL. He was re-elected as a director of the Company
in July 1990 and as Chairman and Chief Executive Officer of the Company in
September 1990. In 1994, he transferred the duties of Chief Executive Officer to
the current President of I/JL and remains Chairman. He is a director of ISCR.
Edward C. Ruff is a Senior Managing Director and the Chief Financial
Officer of I/JL and also serves on its Board of Directors. Mr. Ruff has been
employed by I/JL since 1976. He is a graduate of the University of San
Francisco, with a bachelor's degree in accounting. He is a director of ISCR.
Robert B. McGuire is Treasurer of ISCR. In addition, he is Senior Vice
President and Treasurer for I/JL. Mr. McGuire received a B.A. in Business
Administration from Furman University and a Masters in Business Administration
from Emory University.
Michael D. Hearn has served as Secretary and General Counsel of I/JL
since 1985. He is a Senior Managing Director and a member of the Board of
Directors of I/JL. In May of 1992 he was elected a Director of ISCR. Mr. Hearn
received a Bachelor of Science degree in Business Administration and a Juris
Doctor from the University of North Carolina at Chapel Hill. He is secretary of
ISCR.
ITEM 11 - EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1996, the Registrant paid no
compensation to the executive officers, directors or partners, of ISCR. See Item
13 "Certain Relationships and
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Related Transactions" for a discussion of amounts paid or which may be paid to
ISCR for the year ending December 31, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of March 10, 1997, ISCR, the sole general partner, owns a 1%
interest in net profits and net losses and distributions of distributable cash
from operations and sale or refinancing proceeds of the Partnership as set forth
in the Partnership Agreement. As of March 10, 1997, the following officer of
ISCR owned the following number of LP units of the Registrant:
NUMBER OF UNITS PERCENT
NAME SUBSCRIBED FOR OF UNITS
---- -------------- --------
J. Christopher Boone 4 Less than 1%
ISCR is not aware of any beneficial owners of greater than five percent
(5%) of the Limited Partners' Units.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Compensation
ISCR is entitled to compensation, fees and distributions in connection
with the acquisition, operations and liquidation stages of the Partnership, all
as set forth in the Partnership Agreement. No payments in excess of $78,700 were
made to related parties during 1996. See Note 5 of the financial statements
attached for detailed disclosure of fees paid to ISCR during the year.
As the sole general partner of the Partnership, ISCR is entitled to the
following pursuant to the Partnership Agreement:
(1) A one percent (1%) interest in net profit and net loss of the
Partnership and a one percent (1%) interest in distributable cash flow
from operations of the Partnership after certain prior distributions to
Limited Partners.
(2) A Partnership Management Fee of 10% of the net cash flow for its
services in managing the partnership. ISCR has had the right to defer
any portion of this fee. Any amount deferred will bear interest at a
rate not to exceed 120% of the then applicable Federal Rate as
determined under Internal Revenue Code Section 1274 and regulations
promulgated thereunder.
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(3) Initially a one percent (1%) interest in net cash proceeds resulting
from a sale or refinancing until such time as the investors have
received a return equal to the amount of their adjusted capital
contribution plus a 10% cumulative, annual, non-compounded return
thereon, less all prior distributions not a return of capital, then
after such return ISCR will be entitled to 15%. After certain
adjustments to capital accounts, net profit from a sale is allocated to
the partners in the same proportion as the distribution of net cash
proceeds from such sale and net loss is allocated 99% to the Limited
Partners and one percent (1%) to ISCR.
(4) A Property and Lease Management Fee computed annually not to exceed 5%
of annual operating income of the Partnership for services in
monitoring each lessee's operation of each lease project. This fee
applied only to Town & Country Convalescent Center and Meadowbrook
Manor of Siler City. These properties were sold in July 1996, and June
1994, respectively.
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) 1. and 2. The response to this portion of Item 14 is submitted
as a separate section of this report.
3. Exhibits.
27. Financial Data Schedule (for SEC use only)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARKETPLACE INCOME PROPERTIES
A NORTH CAROLINA LIMITED PARTNERSHIP
BY: ISC REALTY CORPORATION
GENERAL PARTNER
BY: /S/ J. CHRISTOPHER BOONE
-------------------------------
J. CHRISTOPHER BOONE
PRESIDENT
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated:
Signature Title Date
/S/ J. Christopher Boone Director and _____________
- ----------------------------- President of
J. Christopher Boone ISC Realty
Corporation
/S/ Edward C. Ruff Director of _____________
- ----------------------------- ISC Realty
Edward C. Ruff Corporation
/S/ Parks H. Dalton Director of _____________
- ----------------------------- ISC Realty
Parks H. Dalton Corporation
/S/ Michael D. Hearn Director of ______________
- ----------------------------- ISC Realty
Michael D. Hearn Corporation
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Exhibit F
MARKETPLACE INCOME PROPERTIES
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
[Item 14(a) 1 and 2]
Pages
Report of Independent Public Accountants F-1
Financial Statements:
Balance sheets at December 31,
1996 and 1995 F-2
Statements of operations for the years ended
December 31, 1996, 1995, and 1994 F-3
Statements of partners' capital for the
years ended December 31, 1996, 1995, and 1994 F-4
Statements of cash flows for the years
ended December 31, 1996, 1995, and 1994 F-5
Notes to financial statements F-6-F-12
Financial Statement Schedules:
Schedule III - Real estate and accumulated depreciation
for the year ended December 31, 1996 F-13
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the consolidated financial
statements and notes thereto.
<PAGE> 17
Marketplace Income Properties
ANNUAL REPORT ON FORM 10(K)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995 AND 1994
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Marketplace Income Properties:
We have audited the accompanying consolidated balance sheets of Marketplace
Income Properties (a North Carolina Limited Partnership) as of December 31, 1996
and 1995, and the related consolidated statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 1996. These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and 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.
During 1996, the general partner began efforts to sell the rental properties
comprising the partnership (Note 7).
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Marketplace Income
Properties 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.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statements and financial statement schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. The schedule has been subjected
to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
January 31, 1997.
F-1
<PAGE> 19
MARKETPLACE INCOME PROPERTIES
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
RENTAL PROPERTIES, at cost (Note 2):
Land and land improvements $ 3,003,993 $ 3,873,911
Buildings and building improvements 15,273,412 22,016,181
Furniture and equipment 301,868 410,143
------------ ------------
18,579,273 26,300,235
Accumulated depreciation (5,146,021) (6,101,961)
------------ ------------
Rental properties, net 13,433,252 20,198,274
CASH AND CASH EQUIVALENTS 267,027 522,598
RESTRICTED CASH 67,662 80,482
RENTS RECEIVABLE 38,776 104,794
DEFERRED ASSETS, net of accumulated amortization of $130,344 in 1996 and
$114,265 in 1995 184,446 225,017
------------ ------------
OTHER ASSETS 90,163 87,568
------------ ------------
$ 14,081,326 $ 21,218,733
============ ============
LIABILITIES AND PARTNERS' CAPITAL
MORTGAGE NOTES PAYABLE (Note 3) $ 8,996,987 $ 12,310,526
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 138,154 263,908
PAYABLES TO GENERAL PARTNER AND AFFILIATES 26,287 60,391
OTHER LIABILITIES 17,996 38,156
------------ ------------
Total liabilities 9,179,424 12,672,981
------------ ------------
MINORITY INTEREST 0 26,501
------------ ------------
PARTNERS' CAPITAL:
General partner 71,967 108,141
Limited partners 4,829,935 8,411,110
------------ ------------
Total partners' capital 4,901,902 8,519,251
------------ ------------
$ 14,081,326 $ 21,218,733
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-2
<PAGE> 20
MARKETPLACE INCOME PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Rental income $ 2,166,913 $ 2,225,534 $ 2,576,216
Interest and other income 59,631 79,002 115,099
----------- ----------- -----------
Total revenue 2,226,544 2,304,536 2,691,315
----------- ----------- -----------
OPERATING EXPENSES:
Interest 952,311 1,112,734 1,445,255
Depreciation (Note 1) 0 697,737 693,984
Amortization 40,690 55,413 51,738
Provision for doubtful accounts 628 11,727 32,454
Operations and maintenance 407,284 592,101 279,414
Administrative 201,013 118,726 139,219
Write-down of rental property (Note 2) 3,414,000 0 0
----------- ----------- -----------
Total operating expenses 5,015,926 2,588,438 2,642,064
----------- ----------- -----------
OPERATING INCOME (LOSS) (2,789,382) (283,902) 49,251
MINORITY INTEREST 0 1,174 (873)
GAIN ON SALE OF RENTAL PROPERTY (Note 2) 98,351 0 1,794,382
----------- ----------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF LONG-TERM DEBT (2,691,031) (282,728) 1,842,760
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF LONG-TERM DEBT
(Note 3) 58,531 2,413,950 0
----------- ----------- -----------
NET INCOME (LOSS) $(2,632,500) $ 2,131,222 $ 1,842,760
=========== =========== ===========
NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNER $ (26,325) $ 21,312 $ 18,428
=========== =========== ===========
NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS $(2,606,175) $ 2,109,910 $ 1,824,332
=========== =========== ===========
NET INCOME (LOSS) PER LIMITED PARTNER UNIT (Note 1) $ (868.73) $ 703.30 $ 608.11
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
<PAGE> 21
MARKETPLACE INCOME PROPERTIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
--------- ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1993 $ 68,401 $ 5,263,963 $ 5,332,364
Net income 18,428 1,824,332 1,842,760
Cash distributions 0 (750,000) (750,000)
--------- ----------- -----------
BALANCE, December 31, 1994 86,829 6,338,295 6,425,124
Net income 21,312 2,109,910 2,131,222
Cash distributions 0 (37,095) (37,095)
--------- ----------- -----------
BALANCE, December 31, 1995 108,141 8,411,110 8,519,251
Net loss (26,325) (2,606,175) (2,632,500)
Cash distributions (9,849) (975,000) (984,849)
--------- ----------- -----------
BALANCE, December 31, 1996 $ 71,967 $ 4,829,935 $ 4,901,902
========= =========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
F-4
<PAGE> 22
MARKETPLACE INCOME PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,632,500) $ 2,131,222 $ 1,842,760
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Extraordinary gain on extinguishment of long-
term debt (58,531) (2,413,950) 0
Write-down of rental property 3,414,000 0 0
Gain on sale of rental property (98,351) 0 (1,794,382)
Depreciation and amortization 40,690 753,150 745,722
Provision for doubtful accounts 628 11,727 32,454
Minority interest 0 (1,174) 873
(Increase) decrease in rent receivable 65,390 1,515 (23,184)
Other, net (169,284) 43,627 (1,993)
----------- ----------- -----------
Net cash provided by operating activities 562,042 526,117 802,250
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to rental properties, net (272,184) (1,559,794) (5,249)
Cash proceeds from sale of rental property, net 3,694,428 0 4,340,167
----------- ----------- -----------
Net cash provided by (used in) investing
activities 3,422,244 (1,559,794) 4,334,918
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (3,255,008) (915,174) (1,999,599)
Decrease (increase) in cash on deposit with lender 0 1,401,571 (1,401,571)
Payment of loan closing costs 0 (151,144) 0
Cash distributions paid to partners (984,849) (37,095) (750,000)
----------- ----------- -----------
Net cash provided by (used in) financing
activities (4,239,857) 298,158 (4,151,170)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (255,571) (735,519) 985,998
CASH AND CASH EQUIVALENTS, beginning of year 522,598 1,258,117 272,119
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 267,027 $ 522,598 $ 1,258,117
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
F-5
<PAGE> 23
MARKETPLACE INCOME PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Marketplace Income Properties (a North Carolina Limited Partnership) (the
Partnership) was formed on November 27, 1985, under the North Carolina Uniform
Limited Partnership Act. The Partnership was formed for the purpose of
acquiring, owning, leasing and operating real property and improvements existing
thereon. ISC Realty Corporation (ISC) and Benton Investment Company (Benton)
were the general partners. Effective January 1, 1993, ISC purchased the general
partner interest of Benton. The Partnership will be terminated upon the
occurrence of certain events as defined in the limited partnership agreement
but, in any event, no later than December 31, 2016.
Limited partner units were sold at $5,000 per unit ($2,500 per one-half unit)
(3,000 units) for a total of $15,000,000.
Under the terms of the partnership agreement, net income (loss) of the
Partnership is allocated 99% to the limited partners and 1% to the general
partner. Distributions are to be made (99% to limited partners and 1% to the
general partner) semiannually, or more frequently in the discretion of the
general partner provided, however, that the Partnership generates distributable
cash flow as defined by the limited partnership agreement.
Upon the sale, refinance or disposition of the partnership property, the
partnership agreement specifies certain allocations of net proceeds and taxable
gain or loss from the transaction.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Marketplace Income
Properties and its subsidiary, Marketplace Income Properties of Florida,
collectively referred to as the "Partnership." All significant intercompany
transactions have been eliminated in consolidation.
The Partnership's ownership interest in Marketplace Income Properties of Florida
was sold during 1996 (Note 2).
RENTAL PROPERTIES
The Partnership owns shopping centers and nursing home properties which are
recorded at cost. Depreciation is provided on a straight-line basis over the
estimated economic useful lives of the assets as follows:
Land improvements 10 years
Buildings and building improvements 35 to 40 years
Furniture and equipment 5 to 10 years
F-6
<PAGE> 24
DEFERRED ASSETS
Deferred assets consist of deferred loan costs and deferred acquisition costs
incurred in connection with the purchase of rental properties. Deferred loan
costs are being amortized over the terms of the respective loans. Deferred
acquisition costs are being amortized on a straight-line basis over a period of
40 years.
SYNDICATION COSTS
Certain fees and expenses relating to the sale of limited partnership units paid
to affiliates of the general partner were charged against partners' equity.
INCOME TAXES
Under current income tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, no provision has been made for
federal or state income taxes in the accompanying financial statements.
The tax returns of the Partnership are subject to examination by federal and
state taxing authorities. If such examinations occur and result in changes with
respect to the Partnership's qualification or in changes to partnership income
or loss, the tax liability of the partners would be changed accordingly.
NET INCOME PER LIMITED PARTNER UNIT
Net income per limited partner unit is calculated based on the weighted average
number of units outstanding during the period (3,000 in 1996, 1995 and 1994).
RESTRICTED CASH
Restricted cash consists of tenant security deposits and certain escrowed funds
at December 31, 1996 and 1995.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-7
<PAGE> 25
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate the
value.
Cash, Cash Equivalents, Rents Receivable, Accounts Payable and Accrued
Expenses - The carrying amount approximates fair value because of the
short maturity of these instruments.
Long-term Debt - The fair value of the Partnership's long-term debt
approximates its carrying value.
NEW ACCOUNTING PRONOUNCEMENT
During 1996, the Partnership adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." As required under this statement, the Partnership
recorded a provision to write-down the partnership properties to fair market
value (Note 2) and to cease recording depreciation expense at the time the
properties began to be marketed for sale (Note 7).
2. RENTAL PROPERTIES:
Marketplace Mall was acquired effective January 30, 1986. The property consists
of a 177,600 square foot enclosed shopping mall with an adjacent 20,576 square
foot cinema complex located in Winston-Salem, North Carolina. The purchase price
of $14,100,000, excluding closing costs, was partially funded by a $9,500,000
mortgage note payable.
Mount Pilot Shopping Center was acquired effective October 1, 1986. The property
consists of a 38,650 square foot shopping center located in Pilot Mountain,
North Carolina. The purchase price of $1,600,000, excluding closing costs, was
funded entirely from partners' capital.
Amelia Plaza Shopping Center was acquired effective November 30, 1987. The
property consists of a 91,952 square foot shopping center located in Fernandina
Beach, Florida. The purchase price of $5,550,000, excluding closing costs, was
partially funded by a $4,175,000 mortgage note payable.
On August 1, 1987, the Partnership acquired a 99% interest in Marketplace Income
Properties of Florida (d/b/a Town and Country Convalescent Center). The property
is a 120-bed skilled and intermediate care nursing home located in Tampa,
Florida. The facility is operated by an unrelated third party under a triple net
lease. The purchase price of $4,930,000, excluding closing costs, was partially
funded by a $3,300,000 mortgage note payable. Effective July 9, 1996, the
Partnership sold its 99% interest in Marketplace Income Properties of Florida to
an unrelated third party for a purchase price of $3,935,000, less certain
closing costs. The sale resulted in a gain to the Partnership of $98,351 which
has been included in the accompanying consolidated statements of operations.
Town and Country Convalescent Center's total revenue was approximately $228,000,
$360,000 and $536,000, while total operating expenses were approximately
$269,000, $477,000 and $449,000, during 1996, 1995 and 1994, respectively.
Included in the closing costs for the sale of Town and Country Convalescent
Center is $100,000 paid in settlement of a dispute to a potential purchaser of
the facility.
F-8
<PAGE> 26
Country Forest Manor was acquired effective October 20, 1987. The property is a
160-bed skilled and intermediate care nursing home located in Siler City, North
Carolina. The facility is operated by an unrelated third party under a triple
net lease. The purchase price of $2,989,280, excluding closing costs, was
partially funded by a $1,650,000 mortgage note payable. Effective June 30, 1994,
the Partnership sold Country Forest Manor to an unrelated third party for a
purchase price of $4,522,051, less certain closing costs. The sale resulted in a
gain to the Partnership of $1,794,382 which has been included in the
accompanying consolidated statements of operations. Country Forest Manor was one
of five nursing homes acquired for a lump-sum purchase price. ISC served as
general partner for the partnerships which owned the five properties prior to
sale. ISC allocated the lump-sum purchase price to the individual nursing homes
based on estimated fair market value at the time of sale.
WRITEDOWN OF RENTAL PROPERTY
As discussed in Note 7, the partnership assets are being marketed for sale. It
is the opinion of the general partner that the net sales price of each of the
properties will be less than their respective current net book values.
Accordingly, the partnership recorded a provision in 1996 to write-down the
properties by $3,414,000, to their fair market values as estimated by the
general partner.
3. MORTGAGE NOTES PAYABLE:
The Partnership's debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Mortgage note payable, bearing interest at 8.35%, due June 30, 1998. The note is
payable in monthly installments of $17,521, plus accrued interest. The note is
secured by a deed of trust on Marketplace Mall and by the assignment of leases
and rents $ 5,454,706 $ 5,664,958
Mortgage note payable, bearing interest at 8.25%, due October 1, 1998
Additional interest may result from a staged equity participation with the
lender. The note is payable in monthly payments of principal and interest of
$39,000 based on a 15-year amortization. This note is secured by a deed of trust
on Amelia Plaza Shopping Center 3,542,281 3,705,643
Mortgage note payable, bearing interest at 11.5%, which was repaid pursuant to
the sale of Town and Country Convalescent Center (Note 2) 0 $ 2,939,925
----------- -----------
$ 8,996,987 $12,310,526
=========== ===========
</TABLE>
The Partnership paid interest of $977,902, $1,151,956 and $1,422,096 for the
years ended December 31, 1996, 1995 and 1994, respectively.
F-9
<PAGE> 27
A portion of the note secured by Marketplace Mall is guaranteed by an affiliate
of the general partner. The partnership compensates the guarantor .7% of the
average annual outstanding balance of the note. This fee amounted to $38,858 and
$20,073 during 1996 and 1995, respectively.
Future maturities of mortgage notes payable are as follows:
<TABLE>
<S> <C>
1997 $ 388,712
1998 8,608,275
----------
$8,996,987
==========
</TABLE>
During July 1995, two mortgage notes secured by deeds of trust on Marketplace
Mall were refinanced through another lender. The Partnership was allowed by the
lender to pay a discounted amount of $6,300,000 to satisfy both obligations;
$5,500,000 of which was funded through a new mortgage note and the remaining
$800,000 paid for with cash on hand. Later in 1995, an additional $200,000 was
drawn on this note to be used by the Partnership to fund certain capital
improvements. An additional $100,000 may be borrowed subject to certain leasing
requirements specified by the lender. The discounted prepayment resulted in a
gain, net of related deferred loan costs, to the Partnership of $2,413,950,
which is presented as an extraordinary item in the accompanying consolidated
statements of operations.
Pursuant to the sale of Town and Country Convalescent Center in 1996 (Note 2),
the lender agreed to accept a discounted amount in settlement of the related
mortgage note. The discounted payment resulted in a gain to the Partnership of
$58,531, which is presented as an extraordinary item in the accompanying
consolidated statements of operations.
4. LEASES:
The Partnership leases its rental properties under operating leases with initial
terms that expire from 1997 through 2007. The leases are primarily net leases
which require the lessee to pay substantially all operating, maintenance and
repairs, and insurance and taxes on the leased property. Related expenses have
been recorded net of such tenant reimbursements. The Partnership may receive
additional rental income if tenant sales are in excess of stipulated amounts.
Overage rents were $11,266, $31,834 and $17,841 for the years ended December 31,
1996, 1995 and 1994, respectively.
F-10
<PAGE> 28
Future minimum lease payments under noncancelable operating leases as of
December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $1,713,237
1998 1,591,173
1999 1,145,693
2000 886,488
2001 805,320
Thereafter 2,880,695
----------
$9,022,606
==========
</TABLE>
Approximately 19% of the rental property is leased to one tenant under a lease
that expires in 2005. Approximately 19% of the rental property is leased to
another tenant under a lease that expires in 2007.
5. RELATED-PARTY TRANSACTIONS:
The Partnership incurs certain costs and expenses related to services provided
by its general partner and their affiliates. These costs and expenses were as
follows for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Sales commission - ISC $78,700 $ 0 $113,051
Lease management fees - ISC 10,100 18,000 35,928
Overhead reimbursement charge - ISC 50,000 50,000 50,000
Loan guarantee fees - ISC (Note 3) 38,858 20,073 0
Lease commission - ISC 0 45,000 0
======= ======= ========
</TABLE>
F-11
<PAGE> 29
6. RECONCILIATION OF FINANCIAL STATEMENT INCOME (LOSS) TO TAXABLE INCOME:
A reconciliation of financial statement and taxable income (loss) allocated to
the limited partners follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement net income (loss) $(2,632,500) $ 2,131,222 $ 1,842,760
Add (deduct)-
Depreciation and amortization deducted for income tax
purposes (827,991) (219,916) (271,936)
Write-down of rental property 3,414,000 0 0
Minority interest in subsidiary 182,918 (127,230) 107,697
Tax gain in excess of book gain on sale of assets 337,300 0 203,427
Write-off of goodwill for tax, not book (370,668) 0 0
Unearned rent income (21,031) (10,180) 30,815
Bad-debt expense 36,275 0 (23,416)
Property taxes accrued (4,136) (14,790) 18,928
Write-off of deferred loan costs for book not tax 0 65,677 0
----------- ----------- -----------
Taxable income $ 114,167 $ 1,824,783 $ 1,908,275
=========== =========== ===========
Weighted average number of units outstanding 3,000 3,000 3,000
=========== =========== ===========
</TABLE>
7. SALE OF PARTNERSHIP ASSETS:
Effective January 1, 1996, the general partner began efforts to sell the rental
properties comprising the partnership. In the opinion of the general partner,
the proceeds from the sale of the rental properties will exceed the net carrying
value of such properties as of December 31, 1996, subsequent to the writedown of
rental property (Note 2).
F-12
<PAGE> 30
MARKETPLACE INCOME PROPERTIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cost Capitalized
Initial Cost to Subsequent to
Company Acquisition
--------------------------- ---------------------------
Land and Buildings and Carrying
Description Encumbrances Improvements Improvements Improvements Costs
- ----------------------------------- --------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Shopping mall and theater,
Winston-Salem, North Carolina $ 5,454,706 $2,483,199 $12,081,900 $2,437,713 $(5,804,379)
Shopping center,
Pilot Mountain, North Carolina 0 102,211 1,558,719 0 (40,000)
Shopping Center,
Amelia Island, Florida 3,542,281 1,292,400 4,536,021 106,489 (175,000)
----------- ---------- ----------- ---------- -----------
$ 8,996,987 $3,877,810 $18,176,640 $2,544,202 $(6,019,379)
=========== ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Life on Which
Which Carried at Close of Period Depreciation
--------------------------------------- in Latest
Land and Buildings and Accumulated Date of Date Income Statement
Description Improvements Improvements Total Depreciation Construction Acquired is Computed
- ----------------------------------- ------------ ------------ ----------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping mall and theater,
Winston-Salem, North Carolina $1,639,540 $ 9,558,893 $11,198,433 $3,535,524 N/A 01/30/86 5 and 40 years
Shopping center,
Pilot Mountain, North Carolina 100,211 1,520,719 1,620,930 360,464 N/A 10/01/86 40 years
Shopping Center,
Amelia Island, Florida 1,264,242 4,495,668 5,759,910 1,250,033 N/A 11/30/87 10 and 40 years
---------- ----------- ----------- ----------
$3,003,993 $15,575,280 $18,579,273 $5,146,021
========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of activity from December 31, 1993, through December 31, 1996:
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $3,950,081 $23,907,406 $27,857,487 $5,293,494
Additions (19,811) 25,060 5,249 0
Depreciation 0 0 0 693,984
Sale of rental property (56,359) (3,065,936) (3,122,295) (583,254)
---------- ----------- ----------- ----------
Balance, December 31, 1994 3,873,911 20,866,530 24,740,441 5,404,224
Additions 0 1,559,794 1,559,794 0
Depreciation 0 0 0 697,737
---------- ----------- ----------- ----------
Balance, December 31, 1995 3,873,911 22,426,324 26,300,235 6,101,961
Additions 0 272,184 272,184 0
Depreciation 0 0 0 0
Sale of rental property (360,918) (4,218,228) (4,579,146) (955,940)
Write-down of rental property (509,000) (2,905,000) (3,414,000) 0
---------- ----------- ----------- ----------
Balance, December 31, 1996 $3,003,993 $15,575,280 $18,579,273 $5,146,021
========== =========== =========== ==========
</TABLE>
Note: Aggregate cost for federal income tax purposes is $23,715,543 at
December 31, 1996.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MARKETPLACE INCOME PROPERTIES FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 267,027
<SECURITIES> 0
<RECEIVABLES> 38,776
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 373,465
<PP&E> 18,579,273
<DEPRECIATION> (5,146,021)
<TOTAL-ASSETS> 14,081,326
<CURRENT-LIABILITIES> 182,437
<BONDS> 8,996,987
0
0
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</TABLE>
