<PAGE> 1
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] for the fiscal year ended December 31, 1998
-----------------
[ ] 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_________________
Commission file number 33-1889
-------
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.)
201 N. Tryon 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 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 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 29, 1999
Documents Incorporated by Reference: See Item 14
Page 1 of 13 sequentially numbered pages
<PAGE> 2
PART I
ITEM 1 - BUSINESS
Marketplace Income Properties, A North Carolina Limited Partnership
(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") was sold
in September 1997 and Amelia Plaza Shopping Center in Fernandina Beach, Florida
("Amelia") was sold in November 1997. 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.
ISCR or its affiliates currently serve as a general partner in 10
public and private partnerships which currently own various types of real
property. None of the prior partnerships
2
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sponsored by ISCR now contemplate the acquisition of any additional properties
due to all public funds being fully invested. 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 29, 1999, the Registrant did not directly employ any
persons in a full-time position. Certain employees of ISCR performed services
for the Registrant during 1998.
ITEM 2 - PROPERTIES
(a) The Marketplace Mall & Theaters
The Mall 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 February 19, 1999, the Mall was 95% occupied.
In April 1997, the Registrant satisfied the mortgage secured by the
Mall with a loan obtained through the CMBS group at First Union National Bank.
The new loan proceeds totaled $5.4 million at an interest rate of 8.875%. At
December 31, 1998, the outstanding principal balance of the loan was $5,307,196.
(b) Amelia Plaza Shopping Center
Amelia was sold to Edens & Avant Limited Partnership in October 1997
for approximately $4.6 million. The net proceeds were used to retire the
mortgage loan and for distribution to the limited partners.
(c) Mt. Pilot Shopping Center
Mt. Pilot was sold to Glenwood Mount Pilot LLC in September 1997 for
approximately $1.3 million. Net proceeds were used to repay the mortgage loan.
(d) Town & Country Convalescent Center
Town & Country Convalescent Center in Tampa, Florida (the "Tampa
Project") was sold in July of 1996.
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ITEM 3 - LEGAL PROCEEDINGS
None.
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 February 19, 1999, 781 investors were
recorded owners of 3,000 units. In 1997, the Registrant distributed $750 per
unit to the Limited Partners. There were no distributions to the Limited
Partners during 1998.
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
1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues $1,243,837 $1,821,333 $2,226,544 $2,304,536 $2,691,315
Net Income (Loss) (1,514,933) 382,685 (2,632,500) 2,131,222 1,842,760
Cash Dist's to LPs 0 2,250,000 975,000 37,095 750,000
Cash Dist's / Unit 0 750 325 N/A 250
Total Assets 6,955,223 8,674,668 14,081,326 21,218,733 22,443,152
</TABLE>
4
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<TABLE>
<S> <C> <C> <C> <C> <C>
Long-Term Debt 5,307,196 5,359,624 8,996,987 12,310,526 15,705,327
Partners' Equity 1,496,927 3,011,860 4,901,902 8,519,251 6,425,124
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Capital Resources
The Registrant generated $445,736 of cash flow from operations during
the year ended December 31, 1998. Cash payments during the year ended December
31, 1998, for improvements to rental properties were $54,676.
As of December 31, 1998, the Registrant held cash and cash equivalents
of $728,381. 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 1999. In
addition, $103,292 was held in restricted cash accounts related to tenant
deposits, and property tax escrows.
In addition, the Registrant recorded a $1,765,000 write-down on the
Mall property. The Registrant believes that the book value more accurately
reflects the fair market value as a result of the write-down.
Results of Operations
Comparison of fiscal year ended December 31, 1998, to fiscal year ended December
31, 1997
For the year ended December 31, 1998, the Registrant reported a net
loss of $1,514,933 compared to a net income of $382,685 for the year ended
December 31, 1997. The 1998 write-down of rental property in the amount of
$1,765,000 accounts for most of this difference.
Rental income decreased from $1,779,079 to $1,167,814 for the year
ended December 31, 1998. This decrease is a result of lower rental income from
Marketplace Mall and lower tenant sales that reduced receipts of percentage
rent. Interest and other income increased $33,769 due to higher cash reserves
being held for capital improvements, repairs and maintenance.
Interest expense decreased from $820,909 for the 1997 year to $478,361
in 1998. Debt service on only one remaining mortgage explains this decrease.
Operations and maintenance expense increased slightly from $285,604 in
1997 to $298,792 in 1998. This increase is attributed to repairs made to the
parking lot and HVAC
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system. Administrative expense increased by $13,456 for 1998. This increase is
primarily due to additional professional fees incurred in connection with the
writing-down of the properties that were sold in 1997. Amortization expense
decreased from $94,710 in 1997 to $86,500 for the year ended December 31, 1998
due to a reduction in mortgage loans outstanding.
Comparison of fiscal year ended December 31, 1997, to fiscal year ended December
31, 1996
For the year ended December 31, 1997, the Registrant reported net
income of $382,685 compared to a net loss of $2,632,500 for the year ended
December 31, 1996. The 1996 write-down of rental property in the amount of
$3,414,000 explains the difference.
Rental income decreased from $2,166,913 to $1,779,079 for the year
ended December 31, 1997. The $375,000 decrease resulted from the sale of Amelia
Plaza and Mt. Pilot. Interest and other income decreased approximately $17,000,
or 29%, for the same reason.
Interest expense decreased from $952,311 in 1996 to $820,909 for the
1997 year. The repayment of the Amelia Plaza mortgage loan in 1997 contributed
to the decrease as well as the repayment of the Town & Country mortgage loan in
1996. However, the higher interest rate on the Mall mortgage offset some of this
decrease.
Operations and maintenance expense decreased from $407,912 in 1996 to
$285,604 in 1997. This decrease resulted largely from the property sales
occurring in 1996 and 1997. Administrative expense was $116,661 for the year
ended 1997, an $84,352 decrease compared to 1996.
Amortization expense increased to $94,710 in 1997 compared to $40,690
for the year ended December 31, 1996. The write-off of unamortized loan costs in
connection with the refinancing of the Mall mortgage caused the increase in this
expense.
The Year 2000 Issue
The Registrant determined that the potential consequences of year 2000
will not have a material effect on business, results of operations, or financial
condition. This conclusion was reached after researching computer programs and
third party vendors that are currently used to manage this limited partnership.
The Registrant is not solely reliant upon outside systems or vendors for record
keeping. Information is on file in our offices which states that existing
computer software is Y2K compliant and that the third party vendor currently
utilized will be Y2K compliant by June 30, 1999. The computer hardware and
peripherals located in the Registrant's offices are also Y2K ready.
If necessary, the Registrant can revert to manual methods for
bookkeeping, check writing, preparation of financial statements and investor
correspondence. Hard copies of essential information are available and will
continue to be available well into the year 2000.
6
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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 40 years old.
Edward C. Ruff Director of ISCR. He is 59 years old.
Robert B. McGuire Treasurer of ISCR. He is 51 years old.
Michael D. Hearn Director and Secretary of ISCR. He is 46 years old.
Lewis F. Semones, Jr. Director of ISCR. He is 40 years old.
J. Christopher Boone, President of ISCR and 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.
Edward C. Ruff is an Executive Managing Director and the Chief
Operating 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.
7
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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 and a Director of ISCR.
Lewis F. Semones, Jr. is Senior Managing Director and Chief Financial
Officer of I/JL. He is also a director of I/JL. Mr. Semones is a graduate of
Lenoir Rhyne College, a Certified Public Accountant and a graduate of the
Securities Industry Institute at The Wharton School of The University of
Pennsylvania. He was elected as Director of ISCR in September, 1997.
Effective April 1, 1999, Interstate/Johnson Lane will merge into
Wachovia Corporation and will officially change its name to Wachovia Securities,
Inc. The Registrant will be an affiliate of Wachovia Securities, Inc., but not
be part of Wachovia Corporation's banking subsidiary. Personnel and offices will
continue to operate as usual.
ITEM 11 - EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1998, the Registrant paid no
compensation to the executive officers, directors or partners, of ISCR. See Item
13 "Certain Relationships and Related Transactions" for a discussion of amounts
paid or which may be paid to ISCR for the year ending December 31, 1998.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 19, 1998, 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 19, 1998, 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.
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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. Payments totaling $34,900 were made
to related parties during 1998. 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.
(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.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
9
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(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)
10
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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 March 29, 1999
- ----------------------------- --------------
J. Christopher Boone Director and
President of
ISC Realty
Corporation
/S/ Edward C. Ruff March 29, 1999
- ----------------------------- --------------
Edward C. Ruff Director of
ISC Realty
Corporation
/S/ Michael D. Hearn March 29, 1999
- ----------------------------- --------------
Michael D. Hearn Director and
Secretary of
ISC Realty
Corporation
/S/ Lewis F. Semones, Jr. March 29, 1999
- ----------------------------- --------------
Lewis F. Semones, Jr. Director of
ISC Realty
Corporation
12
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Exhibit F
MARKETPLACE INCOME PROPERTIES
A NORTH CAROLINA 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,
1998 and 1997 F-2
Statements of operations for the years ended
December 31, 1998, 1997, and 1996 F-3
Statements of partners' capital for the
years ended December 31, 1998, 1997, and 1996 F-4
Statements of cash flows for the years
ended December 31, 1998, 1997, and 1996 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, 1998 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.
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MARKETPLACE INCOME PROPERTIES
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---------- ----------
<S> <C> <C>
RENTAL PROPERTIES HELD FOR SALE (Notes 1 and 2) $5,998,123 $7,708,447
CASH AND CASH EQUIVALENTS 728,381 560,286
RESTRICTED CASH 103,292 77,620
RENTS RECEIVABLE 32,129 5,651
DEFERRED ASSETS, net (Note 1) 87,048 173,019
OTHER ASSETS 6,250 149,645
---------- ----------
$6,955,223 $8,674,668
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
MORTGAGE NOTE PAYABLE (Note 3) $5,307,196 $5,359,624
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 151,100 127,890
PAYABLES TO GENERAL PARTNER AND AFFILIATES (Note 5) -- 170,537
OTHER LIABILITIES -- 4,757
---------- ----------
Total liabilities 5,458,296 5,662,808
---------- ----------
PARTNERS' CAPITAL:
General partner 37,918 53,067
Limited partners 1,459,009 2,958,793
---------- ----------
Total partners' capital 1,496,927 3,011,860
---------- ----------
$6,955,223 $8,674,668
========== ==========
</TABLE>
F-2
<PAGE> 15
MARKETPLACE INCOME PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
REVENUE:
Rental income $ 1,167,814 $1,779,079 $ 2,166,913
Interest and other income 76,023 42,254 59,631
----------- ---------- -----------
Total revenue 1,243,837 1,821,333 2,226,544
----------- ---------- -----------
OPERATING EXPENSES:
Interest 478,361 820,909 952,311
Amortization 86,500 94,710 40,690
Operations and maintenance 298,792 285,604 407,912
Administrative 130,117 116,661 201,013
Write-down of rental property (Notes 1 and 2) 1,765,000 120,764 3,414,000
----------- ---------- -----------
Total operating expenses 2,758,770 1,438,648 5,015,926
----------- ---------- -----------
OPERATING INCOME (LOSS) (1,514,933) 382,685 (2,789,382)
GAIN ON SALE OF RENTAL PROPERTIES (Note 2) -- -- 98,351
----------- ---------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY GAIN ON EXTINGUISHMENT OF
LONG-TERM DEBT (1,514,933) 382,685 (2,691,031)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF LONG-TERM DEBT (Note 3)
-- -- 58,531
----------- ---------- -----------
NET INCOME (LOSS) $(1,514,933) $ 382,685 $(2,632,500)
=========== ========== ===========
NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNER $ (15,149) $ 3,827 $ (26,325)
=========== ========== ===========
NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS $(1,499,784) $ 378,858 $(2,606,175)
=========== ========== ===========
BASIC NET INCOME (LOSS) PER LIMITED PARTNER
UNIT (Note 1) $ (499.93) $ 126.29 $ (868.70)
=========== ========== ===========
</TABLE>
F-3
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MARKETPLACE INCOME PROPERTIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
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
Net income 3,827 378,858 382,685
Cash distributions (22,727) (2,250,000) (2,272,727)
--------- ----------- -----------
BALANCE, December 31, 1997 53,067 2,958,793 3,011,860
Net loss (15,149) (1,499,784) (1,514,933)
--------- ----------- -----------
BALANCE, December 31, 1998 $ 37,918 $ 1,459,009 $ 1,496,927
========= =========== ===========
</TABLE>
F-4
<PAGE> 17
MARKETPLACE INCOME PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,514,933) $ 382,685 $(2,632,500)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Extraordinary gain on extinguishment of
long-term debt -- -- (58,531)
Write-down of rental properties 1,765,000 120,764 3,414,000
Gain on sale of rental property -- -- (98,351)
Amortization 86,500 94,710 40,690
Change in-
Rents receivable (26,478) 33,125 66,018
Other, net 135,647 65,419 (169,284)
----------- ----------- -----------
Net cash provided by operating activities 445,736 696,703 562,042
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to rental properties (54,676) (77,433) (272,184)
Cash proceeds from sale of rental properties, net -- 5,737,133 3,694,428
----------- ----------- -----------
Net cash (used in) provided by investing
activities (54,676) 5,659,700 3,422,244
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage note payable (52,428) (9,037,363) (3,255,008)
Proceeds from mortgage note -- 5,400,000 --
Principal payments on notes payable to general
partners (170,537) (153,054) --
Cash distributions paid to partners -- (2,272,727) (984,849)
----------- ----------- -----------
Net cash used in financing activities (222,965) (6,063,144) (4,239,857)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 168,095 293,259 (255,571)
CASH AND CASH EQUIVALENTS, beginning of year 560,286 267,027 522,598
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 728,381 $ 560,286 $ 267,027
=========== =========== ===========
</TABLE>
F-5
<PAGE> 18
MARKETPLACE INCOME PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 at the discretion of the
general partner provided, however, that the Partnership generates distributable
cash flow as defined by the limited partnership agreement.
During 1996, the general partner began efforts to sell the rental properties
comprising the Partnership. The Partnership consummated the sale of two rental
properties in 1997 and one property in 1996. These sales and the related impact
on the accompanying financial statements are discussed in Note 2.
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
Prior to July 9, 1996, the consolidated financial statements of the Partnership
included the accounts of Marketplace Income Properties and its subsidiary,
Marketplace Income Properties of Florida, collectively referred to as the
Partnership. All significant intercompany transactions were eliminated in
consolidation. As discussed in Note 2, the Partnership sold its ownership
interest in Marketplace Income Properties of Florida effective July 9, 1996.
F-6
<PAGE> 19
RENTAL PROPERTIES
The Partnership historically has owned and operated several shopping centers and
nursing home properties. As discussed in Note 2, the Partnership sold its
ownership interest in its sole remaining nursing home property during 1996, and
in 1997 the Partnership consummated the sale of two of its remaining three
shopping centers.
During 1996, the Partnership adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS No. 121 requires long-lived assets
and certain identifiable intangibles to be held and used or disposed of by an
entity to be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of SFAS No. 121 did not have an impact on the Company's financial
position or results of operations with respect to long-lived assets held and
used. Long-lived assets held for sale continue to be recorded at the lower of
carrying amount or fair value less estimated cost to sell.
The partnership recorded a write-down of the carrying amount of the properties
held for sale in 1998 and 1996 of $1,765,000 and $3,414,000, respectively, to
reflect the general partner's estimate of the properties' fair value less
estimated costs to sell. In management's opinion, the recorded property amounts
reflected on the accompanying consolidated balance sheet as of December 31, 1998
and 1997, approximates fair value less estimated costs to sell.
Effective January 1, 1996, depreciation on rental properties was discontinued in
connection with the Partnership's efforts to actively pursue a sale of all
rental properties.
DEFERRED ASSETS
Deferred assets consist of deferred loan costs and deferred acquisition costs
incurred in connection with the purchase of rental properties. The Partnership
wrote off $143,780 of unamortized deferred costs in 1997 in connection with the
sale of two of its rental properties and the repayment of certain debt.
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.
F-7
<PAGE> 20
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 1998, 1997 and 1996).
RESTRICTED CASH
Restricted cash consists of tenant security deposits and certain escrowed funds
at December 31, 1998 and 1997.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
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-term nature of these instruments.
Long-term Debt - In the general partner's opinion, the fair value of
the Partnership's long-term debt approximates its carrying value.
NEW ACCOUNTING PRONOUNCEMENT
During 1997 the Partnership adopted SFAS No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share. The
adoption of the pronouncement did not have any impact on the Partnership's
computation of per unit data in the accompanying financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements. These
estimates also affect reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the current
year presentation.
F-8
<PAGE> 21
2. RENTAL PROPERTIES SOLD AND HELD FOR SALE:
DESCRIPTION OF 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.
SALE OF RENTAL PROPERTIES
In September 1997, the Partnership consummated the sale of Mount Pilot Shopping
Center for an adjusted sales price of approximately $1,284,000, less certain
closing costs and commissions of $41,000. In October 1997, the Partnership
consummated the sale of Amelia Plaza Shopping Center for an adjusted sales price
of approximately $4,629,000, less certain closing costs and commissions of
$135,509. As discussed in Note 3, net proceeds from the sale of the Amelia Plaza
Shopping Center were used to repay the related mortgage loan outstanding at the
date of sale.
In connection with the sale of the two properties in 1997, the Partnership
recorded adjustments to the carrying amounts of the respective properties to
reflect revised estimates of fair value less cost to sell. These adjustments
resulted in an additional write-down of $120,764 in 1997 and, accordingly, no
gain or loss was recognized on the sale of these properties.
Total combined revenues for the Mount Pilot and Amelia Plaza properties in 1997
and 1996 were $609,326 and $780,309, respectively.
F-9
<PAGE> 22
Effective July 9, 1996, the Partnership sold its 99% interest in Marketplace
Income Properties of Florida to an unrelated third party for a sales 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 while total operating expenses were approximately
$269,000 during 1996. 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.
3. MORTGAGE NOTE PAYABLE:
Mortgage note payable consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Mortgage note payable, bearing interest at 8.875%, remaining principal
balance and any accrued interest due April 1, 2007. The note is
payable in monthly installments of $44,855, plus accrued interest.
The note is secured by a deed of trust on Marketplace Mall and by
the assignment of leases and rents $5,307,196 $5,359,624
========== ==========
</TABLE>
During 1997, the mortgage loan secured by Marketplace Mall was refinanced with
the proceeds of a $5,400,000 mortgage loan obtained from a new lender. As part
of the refinancing, the Partnership wrote off unamortized deferred loan costs of
$69,188 related to the previous mortgage note and has capitalized an additional
$153,054 of new loan costs incurred in connection with the refinancing.
The mortgage loan secured by Amelia Plaza Shopping center was repaid in 1997 in
connection with the sale of the property discussed in Note 2. In accordance with
the terms of the mortgage agreement, participation interest of approximately
$96,330 was paid to the lender as part of the mortgage repayment, which amount
is included in interest expense in the accompanying statement of operations for
the year ended December 31, 1997.
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 prepayment resulted in a gain to the Partnership
of $58,531, which is presented as an extraordinary item in the accompanying
consolidated statement of operations for the year ended December 31, 1996.
F-10
<PAGE> 23
Future maturities of the Partnership's remaining mortgage note payable are as
follows:
1999 $ 71,235
2000 77,821
2001 85,015
2002 92,875
2003 101,456
Thereafter 4,878,794
==========
$5,307,196
Cash paid for interest totaled $470,055, $848,308, and $977,902 for the years
ended December 31, 1998, 1997 and 1996, respectively.
4. LEASES:
The Partnership leases its rental property under operating leases with initial
terms expiring 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 $20,431, $33,425 and $11,266 for the years ended December 31,
1998, 1997 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998, are as follows:
1999 $ 946,631
2000 931,407
2001 634,116
2002 245,228
2003 240,000
Thereafter 751,376
==========
$3,748,758
Approximately 20% of the rental property is leased to one tenant under a lease
that expires in 2004. Approximately 16% of the rental property is leased to
another tenant under a lease that expires in 2005.
F-11
<PAGE> 24
5. RELATED-PARTY TRANSACTIONS:
The Partnership incurs certain costs and expenses related to services provided
by its general partner and its affiliates. These costs and expenses were as
follows for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996
-------- -------- --------
Sales commission $ -- $ 86,200 $ 78,700
Overhead reimbursement charge 26,167 50,000 50,000
Lease commission 8,733 15,080 8,970
Loan guarantee fees -- 8,875 38,858
Lease management fees -- -- 10,100
-------- -------- --------
$ 34,900 $160,155 $186,628
======== ======== ========
Sales commissions represent fees paid to an affiliate in connection with the
sale of the Partnership's rental properties in 1997 and 1996 (see Note 2). Loan
guarantee fees represent compensation paid to an affiliate of the general
partner related to its guaranty of a portion of the Partnership's mortgage loan
secured by Marketplace Mall. This guaranty was terminated in 1997 in connection
with the refinancing of the Marketplace Mall mortgage loan discussed in Note 3.
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>
1998 1997 1996
----------- --------- -----------
<S> <C> <C> <C>
Financial statement net income (loss) $(1,514,933) $ 382,685 $(2,632,500)
Add (deduct)-
Depreciation and amortization deducted for income tax
purposes (410,555) (624,110) (827,991)
Write-down of rental property 1,765,000 -- 3,414,000
Minority interest in subsidiary -- -- 182,918
Tax gain in excess of book gain on sale of assets -- 591,521 337,300
Write-off of goodwill for tax, not book -- -- (370,668)
Unearned rent income -- (6,266) (21,031)
Bad-debt expense (33,155) 17,380 36,275
Property taxes accrued -- -- (4,136)
Timing differences in recording loss on refinancing and
sale of property -- (101,516) --
----------- --------- -----------
Taxable income $ (193,643) $ 259,694 $ 114,167
=========== ========= ===========
</TABLE>
F-12
<PAGE> 25
SCHEDULE III
MARKETPLACE INCOME PROPERTIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COSTS CAPITALIZED GROSS AMOUNT AT
SUBSEQUENT TO WHICH CARRIED AT
INITIAL COST TO COMPANY ACQUISITION CLOSE OF PERIOD
--------------------------- ----------------------- ---------------------------------------
LAND AND BUILDINGS AND IMPROVEMENTS, CARRYING LAND AND BUILDINGS AND
DESCRIPTION ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS NET COSTS IMPROVEMENTS IMPROVEMENTS TOTAL
- ------------------------- ------------ ------------ ------------- ------------- -------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping mall and
theater, Winston-
Salem, North Carolina $5,307,196 $2,483,199 $12,081,900 $(5,033,292) $ - $1,639,540 $ 7,894,267 $ 9,533,807
========== ========== =========== ============ ====== ========== =========== ===========
Reconciliation of activity from December 31, 1995, through December 31, 1998:
Balance, December 31, 1995 $3,873,911 $22,426,324 $26,300,235
Additions - 272,184 272,184
Write-down of rental properties (509,000) (2,905,000) (3,414,000)
---------- ----------- ------------
Balance, December 31, 1996 3,003,993 15,575,280 18,579,273
Additions - 77,433 77,433
Write-down of rental properties - (120,764) (120,764)
---------- ----------- ------------
Sale of rental properties (1,364,453) (5,927,358) (7,291,811)
---------- ----------- ------------
Balance, December 31, 1997 1,639,540 9,604,591 11,244,131
Additions - 54,676 54,676
Write-down of rental property - (1,765,000) (1,765,000)
---------- ----------- ------------
Balance, December 31, 1998 $1,639,540 $ 7,894,267 $ 9,533,807
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
ACCUMULATED DATE OF DATE INCOME STATEMENTS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ------------------------- ------------ ------------ -------- -----------------
<S> <C> <C> <C> <C>
Shopping mall and
theater, Winston-
Salem, North Carolina $3,535,684 N/A 1/30/86 N/A
Reconciliation of activity from December
31, 1995, through December 31, 1998:
Balance, December 31, 1995 $6,101,961
Additions -
Write-down of rental properties -
----------
Balance, December 31, 1996 5,146,021
Additions -
Write-down of rental properties -
----------
Sale of rental properties (1,610,337)
----------
Balance, December 31, 1997 3,535,684
Additions -
Write-down of rental property -
----------
Balance, December 31, 1998 $3,535,684
==========
</TABLE>
Note: Aggregate cost for federal income tax purposes is $16,537,290 at
December 31, 1998.
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 YEAR ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 728,381
<SECURITIES> 0
<RECEIVABLES> 32,129
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 728,381
<PP&E> 5,998,123
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,955,223
<CURRENT-LIABILITIES> 151,100
<BONDS> 5,307,196
0
0
<COMMON> 0
<OTHER-SE> 1,496,927
<TOTAL-LIABILITY-AND-EQUITY> 6,955,223
<SALES> 0
<TOTAL-REVENUES> 1,243,837
<CGS> 0
<TOTAL-COSTS> 298,792
<OTHER-EXPENSES> 1,895,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 564,861
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,514,933
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
