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 March 31, 1995
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
MIDWEST REAL ESTATE SHOPPING CENTER 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 10285-2900
(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
March 31, December 31,
Assets 1995 1994
Property held for disposition $ 34,790,116 $ 35,072,000
Cash 7,755,793 6,693,502
Accounts receivable, net of allowance
of $117,501 in 1995 and $95,229 in 1994 268,163 272,327
Due from affiliates, net 119,345 88,278
Deferred charges, net of accumulated
amortization of $263,339 in 1995 and
$246,676 in 1994 16,661 33,324
Prepaid assets 91,463 142,679
Total Assets $ 43,041,541 $ 42,302,110
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 1,603,734 $ 1,170,453
Mortgage note payable 34,510,439 33,652,305
Distribution payable 756,565 756,565
Total Liabilities 36,870,738 35,579,323
Partners' Capital:
General Partner 13,546 19,065
Limited Partners
(10,700,000 securities outstanding) 6,157,257 6,703,722
Total Partners' Capital 6,170,803 6,722,787
Total Liabilities and
Partners' Capital $ 43,041,541 $ 42,302,110
Statement of Partners' Capital
For the three months ended March 31, 1995
Limited General
Partners Partner Total
Balance at December 31, 1994 $ 6,703,722 $ 19,065 $ 6,722,787
Net income 202,535 2,046 204,581
Distributions (749,000) (7,565) (756,565)
Balance at March 31, 1995 $ 6,157,257 $ 13,546 $ 6,170,803
Statements of Operations
For the three months ended March 31, 1995 and 1994
Income 1995 1994
Rental income $ 1,154,032 $ 3,148,705
Escalation income 1,397,889 4,489,436
Interest income 98,389 52,772
Miscellaneous income 318,527 225,323
Total Income 2,968,837 7,916,236
Expenses
Property operating expenses 682,099 2,918,993
Interest expense 858,134 2,091,283
Real estate taxes 772,358 1,522,882
Depreciation and amortization 295,177 868,168
General and administrative 77,331 48,973
Management fee 51,918 156,882
Professional fees 27,239 24,038
Total Expenses 2,764,256 7,631,219
Income from operations 204,581 285,017
Operating income payable to buyer 0 (1,741,363)
Net Income (Loss) $ 204,581 $ (1,456,346)
Net Income (Loss) Allocated:
To the General Partner $ 2,046 $ (14,563)
To the Limited Partners 202,535 (1,441,783)
$ 204,581 $ (1,456,346)
Per limited partnership security
(10,700,000 outstanding) $ .02 $ (.13)
Statements of Cash Flows
For the three months ended March 31, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
Net income (loss) $ 204,581 $ (1,456,346)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 295,177 868,168
Increase in interest on mortgage
notes payable 858,134 2,091,283
Operating income payable to buyer 0 1,741,363
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Accounts receivable 4,164 (267,201)
Due from affiliates, net (31,067) (1,500)
Prepaid assets 51,216 899,047
Accounts payable and accrued expenses 855,958 (91,665)
Due to Buyer, net 0 (88,333)
Net cash provided by operating activities 2,238,163 3,694,816
Cash Flows from Investing Activities:
Additions to real estate, net (419,307) (93,703)
Net cash used for investing activities (419,307) (93,703)
Cash Flows from Financing Activities:
Cash distributions (756,565) (1,351,010)
Net cash used for financing activities (756,565) (1,351,010)
Net increase in cash 1,062,291 2,250,103
Cash at beginning of period 6,693,502 10,668,441
Cash at end of period $ 7,755,793 $ 12,918,544
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 0 $ 0
Supplemental Disclosure of Noncash Investing Activities:
Capital expenditures of $422,677 were funded through accounts payable in
1994.
Notes to the Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1994 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of March 31, 1995 and the results of operations and cash flows for
the three months ended March 31, 1995 and 1994 and the statement of partners'
capital for the three months ended March 31, 1995. Results of operations for
the periods are not necessarily indicative of the results to be expected for
the full year.
The following significant events have occurred subsequent to fiscal year 1994,
which require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
On May 12, 1995, the Partnership announced that an action was recently filed in
the Superior Court for Los Angeles County and removed to the Federal District
Court for the Central District of California, on behalf of all persons who
purchased Limited Partnership Units of the Partnership during the period from
December 26, 1986 to the present. The action is brought against the General
Partner (Midwest Centers Inc.) and other defendants with respect to the offer
and sale of Limited Partnership Units, the operation of the Partnership and the
partial liquidation of the Partnership's assets. The General Partner believes
that Plaintiff's allegations are without merit, and will defend the lawsuit
vigorously. The complaint alleges, among other things, that the sponsor
secured investments in the Partnership through fraudulent means and that the
solicitation statement used by the Partnership to solicit limited partner
consents to the July 1994 sale of Northland Center Shopping Center ("Northl
and") contained material misrepresentations and omissions and that the General
Partner, assisted by the other defendants, breached its fiduciary duties to the
plaintiffs in connection with the offer and sale of Limited Partnership Units,
the operation of the Partnership and the Northland sale. Plaintiffs seek,
among other things, compensatory damages and to have their action certified as
a class action under the Federal Rules of Civil Procedure.
The Partnership also announced on May 12, 1995 that three other actions were
recently filed - one in the Federal District Court for the Central District of
California, and two in the Federal District Court for the Southern District of
New York - against the General Partner and other defendants. The New York
actions are brought on behalf of all persons who owned Limited Partnership
Units on June 7, 1994. The California action is brought on behalf of all
persons who owned Limited Partnership Units during the period June 7, 1994 to
the present. All three complaints allege that the solicitation statement
contained material misrepresentations and omissions in violation of Section
14(a) of the Securities and Exchange Act of 1934 and Rule 14a-9 promulgated
thereunder. The complaints in the New York actions also allege claims for
breach of fiduciary duty, negligent misrepresentation and breach of the limited
partnership agreement relating to the partial liquidation of the Partnership's
ass ets. Plaintiffs in all actions seek, among other things, compensatory
damages and to have their action certified as a class action under the Federal
Rules of Civil Procedure. The General Partner believes that plaintiffs'
allegations in all three actions are without merit and will defend these
lawsuits vigorously.
On May 10, 1995, the Partnership received a notice from Equitable requesting
that the Partnership deposit eligible collateral having a present value of
$3,312,199 by June 3, 1995.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At March 31, 1995, the Partnership had cash totalling $7,755,793 compared to
$6,693,502 at December 31, 1994. The $1,062,291 increase is primarily the
result of net cash flow from operations exceeding partner distributions.
The General Partner is currently attempting to dispose of the Partnership's
remaining property and dissolve the Partnership in an orderly manner. In 1994,
the Partnership engaged Lehman Brothers, an affiliate of the General Partner,
to advise and assist the Partnership in the possible sale of Brookdale Center.
The Partnership executed a contract with 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 effective date of the sale of Northland was January 1, 1994
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 equal to 75% of the
amount by which the sales price of Brookdale exceeds $45,000,000. In
connection with the sale, the Partnership retained an independent advisor to
render an opinion as to the fairness of the Northland transaction. The advisor
concluded that the sale was fair, from a financial point of view, to the
limited partners. On July 22, 1994, the sale and proposed modification of the
Partnership Agreement 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, expenses related to the sale, and the satisfaction of the
mortgage, were $5,625,304. The transaction resulted in a gain on sale of
$4,610,550. 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 exceeded the net proceeds from the Northland Center sale,
included a disburse ment of $4,484,000 from the Partnership's cash reserves.
Additionally, the Asset Management Agreement with 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.
There is no guarantee that the Partnership will be able to sell Brookdale prior
to the June 1995 maturity of the mortgage loan. If the sale of Brookdale
appears unlikely at or prior to this date, the Partnership will attempt to
extend the maturity of the mortgage loan, or secure replacement financing from
the current lender. The Partnership's ability to refinance its mortgage in
whole or in part or, as an alternative, to find a purchaser for the Mall, may
be adversely impacted by economic and competitive conditions pertaining to the
Mall, the limited availability of financing for real estate projects, and
adverse real estate market conditions in general.
Under the terms of the first mortgage encumbering Brookdale, each year the
Partnership is required to demonstrate compliance with the mortgage's
loan-to-value covenant: that the accrued value of the equitable mortgage does
not exceed 90% of the property's appraised value. The accrued value of the
mortgage on December 31, 1994 exceeded 90% of the $35.1 million property value
indicated by the appraisal. Failure by the Partnership to satisfy the
loan-to-value covenant (eg., by posting the eligible substitute collateral)
could, following receipt of appropriate notice of default from Equitable and
the Partnership's failure to cure, result in Equitable seeking to accelerate
the amounts due under its mortgage. On May 10, 1995, the Partnership received
a notice from Equitable requesting that the Partnership deposit eligible
collateral having a present value of $3,312,199 by June 3, 1995.
A portion of the Partnership's cash flow is currently being reserved to fund
leasing costs, necessary capital improvements and potential costs associated
with a potential 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 a disposition 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.
Prepaid assets decreased from $142,679 at December 31, 1994 to $91,463 at March
31, 1995 due to the recognition of prepaid insurance as current expenses for
Brookdale. At March 31, 1995, accounts payable and accrued expenses totalled
$1,603,734, an increase of $433,281 from December 31, 1994, primarily due to an
increase in the accrual for Brookdale's real estate taxes.
Mortgage notes payable increased from $33,652,305 at December 31, 1994 to
$34,510,439 at March 31, 1995 due to the accretion of interest on Brookdale's
zero coupon note.
Results of Operations
Cash provided by operating activities totalled $2,238,163 for the three months
ended March 31, 1995, compared with $3,694,816 for the three months ended March
31, 1994. The reduced cash flow is primarily due to the absence of cash flow
from Northland. The Partnership recognized net income of $204,581 for the
three months ended March 31, 1995 compared to a net loss of $1,456,346 for the
three months ended March 31, 1994. The recognition of net income versus a net
loss for the prior comparable period is due to the decrease in interest and
depreciation and amortization expense, primarily the result of the sale of
Northland. Also contributing to the decrease in depreciation and amortization
is the reduction of the carrying value of Brookdale. The carrying value of
Brookdale was reduced during the fourth quarter of 1994 based upon management's
assessment of the estimated fair market value of the property. The
determination of the estimated fair market value of the property was based u
pon the most recent appraisal of the property, which is conducted annually, and
the impending maturity of the first mortgage note.
Rental income totalled $1,154,032 for the three months ended March 31, 1995, as
compared to $3,148,705 for the same period in 1994. The decrease reflects the
absence of Northland activity as well as lower average occupancy at Brookdale
in 1995. Escalation income decreased $3,091,547 from $4,489,436 for the three
months ended March 31, 1994 to $1,397,889 for the three months ended March 31,
1995. Escalation income represents billings to tenants for their proportionate
share of common area maintenance, insurance and real estate tax expenses, HVAC
and other miscellaneous expenses. The decrease in escalation income is
primarily due to the absence of Northland activity as well as a decrease in
real estate tax income at Brookdale. Miscellaneous income increased $93,204
from $225,323 for the three months ended March 31, 1994 to $318,527 for the
three months ended March 31, 1995, primarily due to the receipt of buyout
settlements from Lechter's and Trade Secret.
Total expenses decreased $4,866,963 from $7,631,219 for the three months ended
March 31, 1994 to $2,764,256 for the same period in 1995 primarily due to the
absence of Northland activity resulting from the sale of Northland in 1994.
Property operating expenses decreased due primarily to the absence of Northland
activity, offset by an increase in bad debt expense at Brookdale Center
resulting from the collection of past due Carson's receivables in 1994, which
had been reserved in 1993. Real estate tax expense decreased due to the
absence of Northland activity and a decrease at Brookdale due to a decreased
assessed value of the Mall. Interest expense totaled $858,134 for the three
months ended March 31, 1995 compared with $2,091,283 for the same period in
1994. The decrease is due to the satisfaction of the Northland zero coupon
note upon closing of the Northland sale on July 22, 1994. General and
administrative expense increased from $48,973 for the three months ended March
31, 199 4 to $77,331 for the 1995 period. The increase is primarily due to the
payment of 1995 exchange listing fees earlier in the year than in 1994.
Sales for tenants (exclusive of anchor tenants) who operated at the Brookdale
Mall for each of the last two years were approximately $4,575,500 and
$4,805,000 for the two months ended February 28, 1995 and 1994, respectively.
As of March 31, 1995, Brookdale was 78% occupied (exclusive of anchor and
outparcel stores) as compared to 82% on March 31, 1994. The decline in
occupancy is largely attributable to the reconfiguration of approximately
40,000 square feet of previously leased space, which was recently renovated.
These renovations were completed in November 1994 and a portion of the space
has been re-leased.
PART II OTHER INFORMATION
Item 1 Legal Proceedings.
On May 12, 1995, the Partnership announced that an action was recently filed in
the Superior Court for Los Angeles County and removed to the Federal District
Court for the Central District of California, on behalf of all persons who
purchased Limited Partnership Units of the Partnership during the period from
December 26, 1986 to the present. The action is brought against the General
Partner (Midwest Centers Inc.) and other defendants with respect to the offer
and sale of Limited Partnership Units, the operation of the Partnership and the
partial liquidation of the Partnership's assets. The General Partner believes
that Plaintiff's allegations are without merit, and will defend the lawsuit
vigorously. The complaint alleges, among other things, that the sponsor
secured investments in the Partnership through fraudulent means and that the
solicitation statement used by the Partnership to solicit limited partner
consents to the July 1994 sale of Northland Center Shopping Center land")
contained material misrepresentations and omissions and that the General
Partner, assisted by the other defendants, breached its fiduciary duties to the
plaintiffs in connection with the offer and sale of Limited Partnership Units,
the operation of the Partnership and the Northland sale. Plaintiffs seek,
among other things, compensatory damages and to have their action certified as
a class action under the Federal Rules of Civil Procedure.
The Partnership also announced on May 12, 1995 that three other actions were
recently filed - one in the Federal District Court for the Central District of
California, and two in the Federal District Court for the Southern District of
New York - against the General Partner and other defendants. The New York
actions are brought on behalf of all persons who owned Limited Partnership
Units on June 7, 1994. The California action is brought on behalf of all
persons who owned Limited Partnership Units during the period June 7, 1994 to
the present. All three complaints allege that the solicitation statement
contained material misrepresentations and omissions in violation of Section
14(a) of the Securities and Exchange Act of 1934 and Rule 14a-9 promulgated
thereunder. The complaints in the New York actions also allege claims for
breach of fiduciary duty, negligent misrepresentation and breach of the limited
partnership agreement relating to the partial liquidation of the Partnersh
sets. Plaintiffs in all actions seek, among other things, compensatory damages
and to have their action certified as a class action under the Federal Rules of
Civil Procedure. The General Partner believes that plaintiffs' allegations in
all three actions are without merit and will defend these lawsuits vigorously.
Items 2-4 Not applicable.
Item 5 Other Information.
On May 10, 1995, the Partnership received a notice from Equitable requesting
that the Partnership deposit eligible collateral having a present value of
$3,312,199 by June 3, 1995.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIDWEST REAL ESTATE SHOPPING CENTER, L.P.
BY: MIDWEST CENTERS INC.
General Partner
Date: May 12, 1995 BY: /s/ Paul L. Abbott
Name: Paul L. Abbott
Title: Director, Chairman of the
Board and President
Date: May 12, 1995 BY: /s/ Robert J. Hellman
Name: Robert J. Hellman
Title: Director, Vice President and
Chief Financial Officer
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