UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-9331
EQUITABLE REAL ESTATE SHOPPING CENTERS L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3384643
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) identification No.)
3 World Financial Center, 29th Floor, New York, NY 10285
(Address of principal executive offices) (Zip code)
(212) 526-3237
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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
Balance Sheets
September 30, December 31,
1994 1993
Assets
Property held for disposition $ 43,565,091 $ 100,264,096
Cash 8,471,986 10,668,441
Accounts receivable, net of allowance
of $97,152 in 1994 and $1,251,805 in 1993 658,949 514,505
Due from affiliates 141,345 141,345
Deferred charges, net of accumulated
amortization of $460,024 in 1994 and
$1,573,469 in 1993 99,976 199,954
Prepaid assets 0 1,676,333
---------- -----------
Total Assets $ 52,937,347 $ 113,464,674
========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 2,053,209 $ 2,170,236
Deferred income 0 1,250,000
Mortgage notes payable 32,835,813 82,011,121
Due to affiliates 547,005 17,000
Distribution payable 756,565 1,351,010
---------- ----------
Total Liabilities 36,192,592 86,799,367
Partners' Capital (Deficit):
General Partner 35,179 (719,854)
Limited Partners
(10,700,000 securities outstanding) 16,709,576 27,385,161
---------- ----------
Total Partners' Capital 16,744,755 26,665,307
---------- -----------
Total Liabilities and Partners' Capital $52,937,347 $ 113,464,674
========== ===========
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1994 1993 1994 1993
Income
Rental income $ 1,145,451 $ 3,134,078 $ 3,701,786 $ 9,422,483
Escalation income 1,618,633 4,673,383 4,809,822 12,843,660
Interest income 63,924 64,756 173,804 212,196
Miscellaneous income 10,038 17,680 1,473,681 93,922
--------- --------- --------- ----------
Total Income 2,838,046 7,889,897 10,159,093 22,572,261
--------- --------- ---------- ----------
Expenses
Property operating expenses 852,382 3,499,825 1,943,299 9,464,820
Interest expense 1,146,839 1,989,804 5,329,405 5,867,780
Real estate taxes 933,837 1,427,949 2,766,721 4,281,949
Depreciation and amortization 496,823 966,006 2,236,336 2,878,671
General and administrative 138,788 321,405 250,360 980,685
Management fee 54,924 142,012 171,741 415,942
Professional fees (198,697) 36,675 143,852 121,752
--------- --------- --------- ----------
Total Expenses 3,424,896 8,383,676 12,841,714 24,011,599
--------- --------- ---------- ----------
Loss from operations (586,850) (493,779) (2,682,621) (1,439,338)
Gain on sale of property 4,380,756 0 4,380,756 0
--------- -------- --------- ---------
Net Income (Loss) $ 3,793,906 $ (493,779) $ 1,698,135 $ (1,439,338)
========= ======== ========= =========
Net Income (Loss) Allocated:
To the General Partner $ 892,178 $ (4,938) $ 871,220 $ (14,393)
To the Limited Partners 2,901,728 (488,841) 826,915 (1,424,945)
--------- -------- -------- ---------
$ 3,793,906 $ (493,779) $ 1,698,135 $ (1,439,338)
========= ======= ========= =========
Per limited partnership
security (10,700,000
outstanding) $.27 $(.04) $.08 $(.13)
Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1994
Limited General Total
Partners' Partner's Partners'
Capital Deficit Capital
Balance at December 31, 1993 $ 27,385,161 $ (719,854) $ 26,665,307
Net income 826,915 871,220 1,698,135
Distributions (11,502,500) (116,187) (11,618,687)
---------- ------- ----------
Balance at September 30, 1994 $ 16,709,576 $ 35,179 $ 16,744,755
========== ======= ==========
Statements of Cash Flows
For the nine months ended September 30, 1994 and 1993
1994 1993
Cash Flows from Operating Activities:
Net income (loss) $ 1,698,135 $ (1,439,338)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Gain on sale of property (4,380,756) 0
Depreciation and amortization 2,236,336 2,878,671
Increase in interest on mortgage notes payable 5,329,405 5,776,300
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts receivable (144,444) 905,186
Prepaid assets 1,676,333 (891,064)
Accounts payable and accrued expenses (941,323) 460,134
Deferred income (1,250,000) 0
Due to affiliates 21,231 (20,225)
--------- ---------
Net cash provided by operating activities 4,244,917 7,669,664
--------- ---------
Cash Flows from Investing Activities:
Additions to Real Estate (586,818) (1,444,290)
Construction escrow 0 570,705
Proceeds from sale of property, net 60,863,291 0
---------- ---------
Net cash provided by (used for)
investing activities 60,276,473 (873,585)
---------- ---------
Cash Flows from Financing Activities:
Payment of note payable 0 (3,000,000)
Cash distributions (12,213,132) (4,066,540)
Payment of mortgage payable (54,504,713) 0
---------- ---------
Net cash used for financing activities (66,717,845) (7,066,540)
---------- ---------
Net decrease in cash (2,196,455) (270,461)
Cash at beginning of period 10,668,441 8,135,601
---------- ---------
Cash at end of period $ 8,471,986 $ 7,865,140
========== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 0 $ 91,480
Supplemental Disclosure of Non-Cash Investing and Financing Activites:
Closing costs in the amout of $1,333,070 were funded through accounts
payable and due to affiliates.
Notes to the Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1993 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of management, necessary to
present a fair statement of financial position as of September 30, 1994 and the
results of operations, changes in partners' capital (deficit), and cash flows
for the nine months then ended. Results of operations for the period are not
necessarily indicative of the results to be expected for the full year.
Certain amounts in the 1993 financial statements have been reclassified to
conform to the 1994 presentation.
The following significant events have occurred subsequent to fiscal year 1993,
which require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
Note 1:
On March 28, 1994, the Partnership executed a contract with Equitable Life
Assurance Society of the United States ("Equitable") for the sale of Northland
Center ("Northland") for the price of $6,600,000 in excess of the balance of
the first mortgage loan, subject to agreement by the parties to certain
additional documentation. The price was determined as if the sale closed on
December 31, 1993 and any positive cash flow generated by Northland Center from
January 1, 1994 to the closing belonged to Equitable.
On July 22, 1994, the Partnership closed the sale of Northland. The
Partnership received proceeds of $60,863,291. The transaction resulted in a
gain on sale of $4,380,756.
Part l, Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- - -------------------------------
At September 30, 1994, the Partnership had cash totalling $8,471,986 compared
to $10,668,441 at December 31, 1993. The $2,196,455 decrease is primarily the
result of the August 31, 1994 cash distribution (discussed below), a portion of
which was funded from the Partnership's cash reserve.
The General Partner is currently attempting to dispose of the Partnership's
assets and dissolve the Partnership in an orderly manner. The Partnership has
engaged Lehman Brothers, an affiliate of the General Partner, to advise and
assist the Partnership in the possible sale of both Northland and Brookdale
Centers. As a result of these efforts, the Partnership executed a contract
with Equitable Life Assurance Society of the United States ("Equitable") for
the sale of Northland Center for the price of $6,600,000 in excess of the
balance of the first mortgage loan. The price was determined as if the sale
were to close on December 31, 1993 and any positive cash flow that was
generated by Northland Center from January 1, 1994 to the closing on July 22,
1994 belonged to Equitable. In addition, the contract provided for the
release of the Partnership's obligations under the first mortgage on Northland
and the modification of the terms of the first mortgage on Brookdale. The
first mortgage on Brookdale has been modified to permit prepayment in full,
with a modified defeasance fee based on the sales price as of the date
Brookdale is sold to an unaffiliated third party. On July 22, 1994, the sale
and proposed modification of the Partnership Agreement (see Part 2, Item 4 of
this report) was approved by a majority in interest of the Partnership's
limited partners, and the sale of Northland was consummated. The
Partnership's net proceeds from the Northland Center sale, after closing
adjustments and expenses related to the sale, was $60,863,291. The
transaction resulted in a gain on sale of $4,380,756. On August 31, 1994, a
special cash distribution of $.865 per unit was paid for unitholders of record
on August 12, 1994. The special distribution, which exceeds the net proceeds
from the Northland Center sale, includes a disbursement of $4,484,000 from the
Partnership's cash reserves. Additionally, the Asset Management Agreement
with Equitable Real Estate Investment Manag ement, Inc. ("EREIM") for
Northland Center and Brookdale Center was terminated effective December 31,
1993, thereby releasing the Partnership from its obligation to pay EREIM an
asset management fee of $1,060,000 per year.
A portion of the Partnership's cash flow is currently being reserved to fund
leasing costs, necessary capital improvements and potential costs associated
with an anticipated sale of Brookdale. Cash distributions are determined on a
quarterly basis, and were reduced to $.07 per unit beginning with the first
quarter 1994 distribution in recognition of the likelihood of the Northland
sale. In view of an anticipated sale of Brookdale, to the extent possible,
capital expenditures, other than leasing-related expenditures, will be kept to
a minimum with only those items addressed which require immediate attention due
to code requirements, safety concerns or lease and other contractual
obligations.
Accounts receivable, net of allowance, increased from $514,505 at December 31,
1993 to $658,949 at September 30, 1994 primarily due to a reduction in the
allowance as a result of the collection of past due Carson's receivables.
These were partially offset by the writeoff of Northland's accounts receivable
balance at sale.
Prepaid assets decreased from $1,676,333 at December 31, 1993 to $0 at
September 30, 1994 due to the reimbursement of first and second quarter
insurance and real estate tax expenses which had been prepaid as of December
31, 1993, pursuant to the terms of the Northland Center sale contract.
Deferred income decreased from $1,250,000 at December 31, 1993 to $0 at
September 30, 1994. Such amount was associated with the Carson's lease
termination at Brookdale and was recognized as income upon termination of the
lease in May 1994.
Mortgage notes payable decreased from $82,011,121 at December 31, 1993 to
$32,835,813 at September 30, 1994 due to the sale of Northland Center which
resulted in the payoff of the $54,504,713 mortgage secured by that property.
Due to affiliates increased from $17,000 at December 31, 1993 to $547,005 at
September 30, 1994, primarily due to the sales commission on the Northland sale
payable to Lehman Brothers.
Results of Operations
- - ---------------------
Cash provided by operating activities totalled $4,244,917 for the nine months
ended September 30, 1994, compared with $7,669,664 for the nine months ended
September 30, 1993. The reduced cash flow is primarily due to the assignment
of positive cash flow from Northland to Equitable, pursuant to the terms of the
sale contract which provided for all operating income of Northland commencing
January 1, 1994 to be paid to Equitable upon closing of the sale while the
Partnership continued to recognize depreciation and interest expense on
Northland. The Partnership recognized net income of $3,793,906 and $1,698,135
for the three and nine months ended September 30, 1994, respectively, compared
to net losses of $493,779 and $1,439,338 for the corresponding periods in 1993.
The change from net loss to net income is primarily due to the sale of
Northland which resulted in a gain of $4,380,756.
For the three and nine months ended September 30, 1994, rental income totalled
$1,145,451 and $3,701,786, respectively, compared to $3,134,078 and $9,422,483
for the three and nine months ended September 30, 1993. The decreases reflect
the absence of Northland activity as well as lower average occupancy at
Brookdale in 1994. Escalation income for the three and nine months ended
September 30, 1994, totalled $1,618,633 and $4,809,822, respectively, compared
to $4,673,383 and $12,843,660 for the corresponding periods in 1993.
Escalation income represents billings to tenants for their proportionate share
of CAM, HVAC, insurance and real estate tax expenses. The decrease in
escalation income is primarily due to the absence of Northland activity offset
by an increase in real estate tax reimbursements by Brookdale tenants.
Miscellaneous income increased $1,379,759 from the first nine months of 1993,
primarily due to the recognition of a $1,250,000 termination and restructuring
fee paid by Carson's in connection with its lease settlement and the receipt
of $200,000 in connection with the Herman's lease buyout at Brookdale.
Total expenses for the three and nine months ended September 30, 1994 were
$3,424,896 and $12,841,714, respectively, compared to $8,383,676 and
$24,011,599 for the corresponding periods in 1993. The decrease in operating
expenses is primarily due to the absence of Northland activity, and a decrease
in bad debt expense at Brookdale Center resulting from the collection of past
due Carson's receivables. Interest expense totaled $1,146,839 and $5,329,405
for the three and nine months ended September 30, 1994, compared with
$1,989,804 and $5,867,780 in the corresponding periods in 1993. The decrease
is due to the payment of the Northland zero coupon note upon closing of the
Northland sale on July 22, 1994. General and administrative expense decreased
for both the three and nine-month period of 1994 primarily due to the
termination of the EREIM asset management agreement as of December 31, 1993
(see Liquidity and Capital Resources above).
For the eight months ended August 31, 1994, mature mall tenant sales at
Brookdale Center (exclusive of anchor tenants) were $17,381,000, approximately
6% behind sales of $18,391,000 for the eight months ended August 31, 1993.
Mature tenant sales are defined as sales generated by tenants who have
operated at the Mall for each of the last two years. The General Partner
attributes the decrease in sales at Brookdale to a decrease in occupancy at the
center as well as increased competition from recently renovated centers and the
Mall of America. As of September 30, 1994, Brookdale was 77% occupied
(exclusive of anchor and outparcel stores) as compared to 81% on September 30,
1993. The decline in occupancy is largely attributable to the reconfiguration
of approximately 40,000 square feet of previously leased space, which is
currently undergoing a renovation. These renovations were completed in
November and tenants will begin to take occupancy of a portion of the space in
November.
PART II OTHER INFORMATION
Items 1-3 Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
On June 7, 1994, the Partnership solicited the consents of the
Limited Partners to (i) the sale of Northland Center, and (ii)
an amendment of the Agreement of Limited Partnership of the
Partnership to eliminate the requirement to obtain Unitholder
consent to the contemplated future sale of Brookdale Center.
Such solicitation was originally scheduled to expire on June 5,
1994, but was extended to June 30, 1994, and subsequently to
July 21, 1994.
On July 22, 1994, the Partnership announced the approval of
both proposals by a majority of the Limited Partner's interest.
As of that date, proxies representing 6,731,374 units or 62.9%
of the outstanding units were received. Of this amount,
proxies representing 6,108,908 units, or 57.1% of outstanding
units approved the proposals, 384,960 or 3.6% withheld consent
and 237,506 or 2.2% abstained.
Item 5 Not applicable
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(b) Forms 8-K
On August 2, 1994, a Form 8-K was filed reporting (i) a further
extension of the solicitation period to July 21, 1994; and (ii)
extension of the closing deadline of the sale to July 22, 1994;
and (iii) the consummation of the sale of Northland Center.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EQUITABLE REAL ESTATE SHOPPING CENTERS L.P.
BY: MIDWEST CENTERS INC.
General Partner
Date: November 11, 1994 BY: /S/ Paul L. Abbott
Director, Chairman of the Board,
and President
Date: November 11, 1994 BY: /S/ Robert J. Hellman
Director, Vice President, and
Chief Financial Officer
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<RECEIVABLES> 756,101
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