<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 [Fee Required] for the fiscal year ended December 31, 1999
[ ] 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 22, 2000
Documents Incorporated by Reference: See Item 14
Page 1 of 13 sequentially numbered pages
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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
approximately 10 public and private partnerships which currently own various
types of real property. None of the prior
2
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partnerships 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 22, 2000, the Registrant did not directly employ any
persons in a full-time position. Certain employees of ISCR performed services
for the Registrant during 1999.
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 that is approximately 48,000
square feet. The separate theater building is occupied by Carmike Cinemas under
a long-term lease. As of January 31, 2000, the Mall was 90% 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, 1999, the outstanding principal balance of the loan was $5,243,891.
(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. The 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.
3
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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 15, 2000, 788 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. In 1999, the Registrant distributed $150 per unit to the
Limited Partners.
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
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 1,136,418 $ 1,243,837 $1,821,333 $ 2,226,544 $ 2,304,536
Net Income (Loss) (234,504) (1,514,933) 382,685 (2,632,500) 2,131,222
Cash Dist's to LPs 450,000 0 2,250,000 975,000 37,095
Cash Dist's / Unit 150 0 750 325 N/A
Total Assets 6,178,911 6,955,223 8,674,668 14,081,326 21,218,733
Long-Term Debt 5,243,891 5,307,196 5,359,624 8,996,987 12,310,526
Partners' Equity 812,423 1,496,927 3,011,860 4,901,902 8,519,251
</TABLE>
4
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Registrant generated cash flow of $264,882 from operations during
the year ended December 31, 1999. Cash payments during the year ended December
31, 1999, for improvements to rental properties were $71,727.
As of December 31, 1999, the Registrant held cash and cash equivalents
of $408,231. The Registrant feels that these funds should be used as a reserve
for the cost of operating and maintaining the property. It is anticipated that
the Registrant's revenues from the operation of property will be sufficient to
meet both the Registrant's operating and capital expenditures through 2000. In
addition, $92,126 was held in restricted cash accounts related to tenant
deposits, and property tax escrows.
The Registrant recorded a $419,850 write-down on the Mall property. The
Registrant believes that thia write-down of the book value more accurately
reflects the fair market value.
Results of Operations
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1999, TO FISCAL YEAR ENDED DECEMBER
31, 1998
For the year ended December 31, 1999, the Registrant reported a net
loss of $234,504 compared to a net loss of $1,514,933 for the year ended
December 31, 1997. The 1999 write-down of rental property in the amount of
$419,850 and the 1998 write-down of rental property in the amount of $1,765,000
account for the large portion of these losses.
Rental income decreased from $1,167,814 in 1998 to $1,114,754 for the
year ended December 31, 1999. This decrease is from lower rental income received
from Marketplace Mall which resulted from lower tenant sales that reduced
receipts of percentage rent. Interest and other income decreased $54,359 due to
lower cash reserves being held for capital improvements, repairs and
maintenance.
Interest expense decreased from $478,361 in 1998 to $474,958 in 1999
reflecting amortization on the outstanding mortgage balance.
Operations and maintenance expense decreased slightly from $298,792 in
1998 to 294,497 in 1999. Administrative expense decreased by $34,759 for 1999.
This decrease is primarily due to lower professional and leasing fees incurred
in connection with leasing the one remaining property. Amortization expense
decreased from $86,500 in 1998 to $86,259 for the year ended December 31, 1999.
5
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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 from lower rental income from
Marketplace Mall which resulted from 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 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.
The Year 2000 Issue
The Registrant determined that the potential consequences of year 2000
would 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 used was 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 41 years old.
Robert B. McGuire Treasurer of ISCR. He is 52 years old.
Michael D. Hearn Director and Secretary of ISCR. He is 47 years old.
Lewis F. Semones, Jr. Director of ISCR. He is 41 years old.
J. Christopher Boone, President of ISCR and a Managing Director of
Wachovia Securities Inc. ("WSI). Prior to joining WSI 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.
Robert B. McGuire is Treasurer of ISCR. In addition, he is Senior Vice
President and Treasurer for WSI. 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 WSI
since 1985. He is a Senior Managing Director of WSI. 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 WSI.
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He is also a director of WSI. 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, ISC Realty Corporation's parent,
Interstate/Johnson Lane, Inc., merged into Wachovia. Personnel and offices will
continue to operate as usual.
ITEM 11 - EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1999, 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, 1999.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 22, 1999, 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 22, 1999, 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 holding 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 $24,000 were made
to related parties during 1999. 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
On December 9, 1999, Form 8-K Changes in Registrant's Certifying
Accountant, was filed.
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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)
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
11
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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 22, 2000
- ------------------------------------ --------------
J. Christopher Boone Director and
President of
ISC Realty
Corporation
/S/ Michael D. Hearn March 22, 2000
- ------------------------------------ --------------
Michael D. Hearn Director and
Secretary of
ISC Realty
Corporation
/S/ Lewis F. Semones, Jr. March 22, 2000
- ------------------------------------ --------------
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,
1999 and 1998 F-2
Statements of operations for the years ended
December 31, 1999, 1998, and 1997 F-3
Statements of partners' capital for the
years ended December 31, 1999, 1998, and 1997 F-4
Statements of cash flows for the years
ended December 31, 1999, 1998, and 1997 F-5
Notes to financial statements F-6 - F-11
Financial Statement Schedules:
Schedule III - Real estate and accumulated depreciation
for the year ended December 31, 1999 F-12
All other schedules are omitted since the required information is not present,
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.
13
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MARKETPLACE INCOME PROPERTIES,
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
<PAGE> 15
MARKETPLACE INCOME PROPERTIES,
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.............................1
BALANCE SHEETS.................................................................2
STATEMENTS OF OPERATIONS.......................................................3
STATEMENTS OF PARTNERS' CAPITAL................................................4
STATEMENTS OF CASH FLOWS.......................................................5
NOTES TO FINANCIAL STATEMENTS..................................................6
- i -
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Marketplace Income Properties, Limited Partnership
Charlotte, North Carolina
We have audited the accompanying balance sheet of Marketplace
Income Properties (a North Carolina limited partnership) as of December 31, 1999
and the related statements of operations, partners' capital and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The balance sheet of Marketplace Income
Properties (a North Carolina limited partnership) as of December 31, 1998 and
the related statements of operations, partners' capital and cash flows for the
years ending December 31, 1998 and 1997, were audited by other auditors whose
report dated February 8, 1999, expresses an unqualified opinion on those
financial statements.
We conducted our audit 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 the managing general partner, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed in Notes 1 and 2, the general partner began efforts
in 1996 to sell the rental properties comprising the Partnership. The
Partnership consummated the sales for two of the rental properties in 1997 and
one property in 1996. During the fourth quarter of 1999, the Partnership
recorded a non-cash charge related to the write-down of its rental property held
for sale to its estimated realizable value.
In our opinion, the 1999 financial statements referred to above
present fairly, in all material respects, the financial position of Marketplace
Income Properties as of December 31, 1999 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
February 11, 2000
Charlotte, North Carolina
F-1
<PAGE> 17
MARKETPLACE INCOME PROPERTIES,
LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
---------- ----------
ASSETS
Rental property held for sale $5,650,000 $5,998,123
Cash and cash equivalents 408,231 728,381
Restricted cash 92,126 103,292
Rents receivable 26,398 32,129
Deferred assets, net -- 87,048
Other assets 2,156 6,250
---------- ----------
$6,178,911 $6,955,223
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage note payable $5,243,891 $5,307,196
Accounts payable and accrued expenses 122,597 151,100
---------- ----------
5,366,488 5,458,296
---------- ----------
PARTNERS' CAPITAL
General partner 35,573 37,918
Limited partners 776,850 1,459,009
---------- ----------
812,423 1,496,927
---------- ----------
$6,178,911 $6,955,223
========== ==========
See Notes to Financial Statements.
F-2
<PAGE> 18
MARKETPLACE INCOME PROPERTIES,
LIMITED PARTNERSHIP
STATEMENTS OF OPERATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
INCOME
Rental income $1,114,754 $ 1,167,814 $1,779,079
Interest and other income 21,664 76,023 42,254
---------- ----------- ----------
1,136,418 1,243,837 1,821,333
---------- ----------- ----------
OPERATING EXPENSES
Interest 474,958 478,361 820,909
Amortization 86,259 86,500 94,710
Operations and maintenance 294,497 298,792 285,604
Administrative 95,358 130,117 116,661
Write-down of rental property 419,850 1,765,000 120,764
---------- ----------- ----------
1,370,922 2,758,770 1,438,648
---------- ----------- ----------
Net income (loss) $ (234,504) $(1,514,933) $ 382,685
========== =========== ==========
Net income (loss) allocated to general partner $ (2,345) $ (15,149) $ 3,827
========== =========== ==========
Net income (loss) allocated to limited partners $ (232,159) $(1,499,784) $ 378,858
========== =========== ==========
Net income (loss) allocated per limited
partner unit $ (77.39) $ (499.93) $ 126.29
========== =========== ==========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 19
MARKETPLACE INCOME PROPERTIES,
LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
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
Net income (2,345) (232,159) (234,504)
Cash distributions -- (450,000) (450,000)
-------- ----------- -----------
Balance, December 31, 1999 $ 35,573 $ 776,850 $ 812,423
======== =========== ===========
See Notes to Financial Statements.
F-4
<PAGE> 20
MARKETPLACE INCOME PROPERTIES,
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(234,504) $(1,514,933) $ 382,685
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Write-down of rental property 419,850 1,765,000 120,764
Amortization 86,259 86,500 94,710
Change in
Rent receivable 5,731 (26,478) 33,125
Other, net (12,454) 135,647 65,419
--------- ----------- -----------
Net cash provided by operating
activities 264,882 445,736 696,703
--------- ----------- -----------
Cash flows from investing activities:
Improvements to rental properties (71,727) (54,676) (77,433)
Cash proceeds from sale of rental properties, net -- -- 5,737,133
--------- ----------- -----------
Net cash provided by (used for) investing
activities (71,727) (54,676) 5,659,700
--------- ----------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes payable (63,305) (52,428) (9,037,363)
Proceeds from mortgage note -- -- 5,400,000
Principal payment on notes payable to general partner -- (170,537) (153,054)
Cash distributions paid to partners (450,000) -- (2,272,727)
--------- ----------- -----------
Net cash used for financing activities (513,305) (222,965) (6,063,144)
--------- ----------- -----------
Net increase (decrease) in cash (320,150) 168,095 293,259
Cash and cash equivalents, beginning of year 728,381 560,286 267,027
--------- ----------- -----------
Cash and cash equivalents, end of year $ 408,231 $ 728,381 $ 560,286
========= =========== ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 21
MARKETPLACE INCOME PROPERTIES,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 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.
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.
Long-lived assets and certain identifiable intangible assets are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable.
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
property held for sale in 1998 of $1,765,000. During the fourth quarter
of 1999, an additional write-down of approximately $420,000 was
recorded. In management's opinion, the recorded property amounts
reflected on the accompanying balance sheet for the year ended December
31, 1999 and 1998 approximate estimated realizable value.
Effective January 1, 1996, depreciation on rental properties was
discontinued in connection with the Partnership's efforts to actively
pursue a sale of the properties.
F-6
<PAGE> 22
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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/refinancing of certain debt. The remaining balance of the
deferred assets was written off in 1999 as amortization was accelerated
due to the write-down of the carrying amount of the related rental
property held for sale (see Note 2).
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 1999,
1998 and 1997).
RESTRICTED CASH
Restricted cash consists of tenant security deposits and certain
escrowed funds at December 31, 1999 and 1998.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISKS
Financial instruments which potentially expose the Partnership to
concentrations of credit risk, as defined by Statement of Financial
Standards No. 105, consist primarily of rents receivable and cash.
The Partnership's cash consists of funds in money market account and
time deposit. Concentration of credit risk with respect to cash is
limited due to the fact that the Partnership restricts investing cash
to only highly rated financial institutions.
F-7
<PAGE> 23
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
CONCENTRATIONS OF CREDIT RISKS, CONTINUED
The Partnership leases retail property to businesses located in
Winston-Salem, North Carolina. The terms of leases require rent
payments at the beginning of each month. Credit risk associated with
the lease agreements is limited to the amounts of rents receivable from
tenants.
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.
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 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.
NOTE 2 - RENTAL PROPERTIES SOLD AND HELD FOR SALE
DESCRIPTION OF PROPERTIES
The Partnership's sole remaining rental property, 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.
Partnership management evaluates the recoverability of its original
investment in rental property. Concurrent with its annual budgeting and
planning process, management determined a write-down of its rental
property was necessary in 1998. Primarily due to increased competition,
a decline in future expected operating income resulted in anticipated
future cash flows below the carrying value of the property.
Accordingly, during 1998 the Partnership adjusted the carrying value of
the property to its estimated realizable value resulting in a non-cash
impairment loss of $1,765,000. During 1999, the Partnership's
management determined an additional write-down of its remaining rental
property was necessary to adjust the carrying value of the property to
its estimated realizable value. Accordingly, the Partnership recorded a
write-down of approximately $420,000 in the fourth quarter of 1999.
Mount Pilot Shopping Center was acquired effective October 1, 1986. The
property consisted of a 38,650 square foot shopping center located in
Pilot Mountain, North Carolina. The purchase price of
F-8
<PAGE> 24
NOTE 2 - RENTAL PROPERTIES SOLD AND HELD FOR SALE, CONTINUED
DESCRIPTION OF PROPERTIES, CONTINUED
$1,600,000, excluding closing costs, was funding entirely from
partners' capital. This property was sold in 1997.
Amelia Plaza Shopping Center was acquired effective November 30, 1987.
The property consisted of 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. This property was sold in 1997.
SALE OF RENTAL PROPERTIES
In September 1997, the Partnership consummated the sale of Mount Pilot
Shopping Center for an adjusted purchase price of approximately
$1,284,000, less certain closings costs and commissions of $41,000. In
October 1997, the Partnership consummated the sale of Amelia Plaza
Shopping Center for an adjusted purchase price of $4,629,000, less
certain closing costs and commissions of $135,509. Net proceeds from
the sale of the Amelia Plaza Shopping Center were used to repay the
related mortgage loan outstanding at the date of the 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 net
write-down of $120,764 in 1997 and, accordingly, no gain or loss was
recognized on the sale of these properties.
NOTE 3 - MORTGAGE NOTE PAYABLE
Mortgage note payable consists of the following at December 31:
1999 1998
---------- ----------
Mortgage note payable, bearing interest at
8.875%, due April 1, 2007. The note is
payable in monthly installments of $44,855,
including interest. The note is secured by
a deed of trust on Marketplace Mall and
by the assignment of leases and rents. $5,243,891 $5,307,196
========== ==========
Future maturities of the Partnership's remaining mortgage note payable
are as follows:
2000 $ 75,906
2001 82,924
2002 90,590
2003 98,965
2004 108,115
Thereafter 4,787,391
----------
$5,243,891
==========
F-9
<PAGE> 25
NOTE 3 - MORTGAGE NOTE PAYABLE, CONTINUED
Cash paid for interest totaled $474,958, $470,055 and $848,308 for the
years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 4 - LEASES
The Partnership leases rental properties under operating leases with
initial terms that expire from 1999 through 2005. The leases are primarily
net leases that require the lessee to pay substantially all operating
expenses, 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 $15,910, $20,431 and
$33,425 for the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum lease payments under noncancelable operating leases as
of December 31, 1999 are as follows:
2000 $ 921,234
2001 771,819
2002 699,103
2003 633,856
2004 465,523
Thereafter 183,914
----------
$3,675,449
==========
Approximately 24% of the rental property is leased to one tenant under a
lease that expires in 2004. Approximately 10% of the rental property is
leased to another tenant that expires in 2005.
NOTE 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, 1999, 1998 and
1997:
1999 1998 1997
------- -------- --------
Sales commissions $ -- $ -- $ 86,200
Overhead reimbursement charge 24,000 26,167 50,000
Lease commission -- 8,733 15,080
Loan guarantee fees -- -- 8,875
------- ------- --------
$24,000 $34,900 $160,155
======= ======= ========
F-10
<PAGE> 26
NOTE 5 - RELATED-PARTY TRANSACTIONS, CONTINUED
Sales commissions represent fees paid to an affiliate in connection with
the sale of the Partnership's rental properties in 1997 (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.
NOTE 6 - RECONCILIATION OF FINANCIAL STATEMENT INCOME (LOSS) TO TAXABLE INCOME
(LOSS)
A reconciliation of financial statement and taxable income (loss) allocated
to the limited partners is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
Financial statement net income (loss) $(234,504) $(1,514,933) $ 382,685
Plus:
Depreciation and amortization deducted
for income tax purposes (410,932) (410,555) (624,110)
Write-down of rental property 419,850 1,765,000 --
Tax gain in excess of book gain on sale
of assets -- -- 591,521
Unearned rent income -- -- (6,266)
Bad-debt expense (20,500) (33,155) 17,380
Timing difference in recording loss
on refinancing and sale of property -- -- (101,516)
Lease commissions expense deducted
for book purposes in excess of tax 23,566 -- --
Guaranteed payment deducted for book
purposes 24,000 -- --
--------- ----------- ---------
Taxable income (loss) $(198,520) $ (193,643) $ 259,694
========= =========== =========
</TABLE>
F-11
<PAGE> 27
<TABLE>
<CAPTION>
COSTS CAPITALIZED GROSS AMOUNT AT
SUBSEQUENT TO WHICH CARRIED AT
INITIAL COST TO COMPANY ACQUISITION CLOSE OF PERIOD
------------------------- ------------------------- ---------------------------------------
LAND AND BUILDING AND IMPROVEMENTS, CARRYING LAND AND BUILDING AND
DESCRIPTION ENCUMBRANCE IMPROVEMENTS IMPROVEMENTS NET COSTS IMPROVEMENTS IMPROVEMENTS TOTAL
- ----------------- ----------- ------------ ------------ ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping mall and
theater, Winston-
Salem, North Carolina $5,243,891 $2,463,199 $12,081,900 ($5,359,415) $0 $ 1,639,540 $ 7,546,144 $ 9,185,684
========== ========== =========== ========== ========== =========== =========== ===========
Reconciliation of activity from December 31, 1996, through December 31, 1999
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
Additions -- 71,727 71,727
Write-down of rental property -- (419,850) (419,850)
----------- ----------- -----------
Balance, December 31, 1999 $ 1,639,540 $ 7,546,144 $ 9,185,684
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
DEPRECIATION IN
LATEST INCOME
ACCUMULATED DATE OF DATE STATEMENT IS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED 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, 1996, through December 31, 1999
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
Additions --
Write-down of rental property --
-----------
Balance, December 31, 1999 $ 3,535,684
===========
</TABLE>
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MARKETPLACE INCOME PROPERTIES L.P. FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 408,231
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,650,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,178,911
<CURRENT-LIABILITIES> 122,597
<BONDS> 5,243,891
0
0
<COMMON> 0
<OTHER-SE> 812,423
<TOTAL-LIABILITY-AND-EQUITY> 6,178,911
<SALES> 0
<TOTAL-REVENUES> 1,136,418
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 419,850
<INTEREST-EXPENSE> 474,958
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (234,504)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
