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 June 30, 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.)
Attention: Andre Anderson
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
June 30, December 31,
Assets 1995 1994
Property held for disposition $34,536,656 $35,072,000
Cash 6,589,384 6,693,502
Accounts receivable, net of allowance of
$118,150 in 1995 and $95,229 in 1994 701,913 272,327
Due from affiliates, net 95,316 88,278
Deferred charges, net of accumulated amortization
of $280,000 in 1995 and $246,676 in 1994 -- 33,324
Prepaid assets 29,555 142,679
Total Assets $41,952,824 $42,302,110
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 345,741 $ 1,170,453
Mortgage note payable 35,368,573 33,652,305
Distribution payable 756,565 756,565
Total Liabilities 36,470,879 35,579,323
Partners' Capital:
General Partner 6,658 19,065
Limited Partners (10,700,000 securities
outstanding) 5,475,287 6,703,722
Total Partners' Capital 5,481,945 6,722,787
Total Liabilities and Partners' Capital $41,952,824 $42,302,110
Statement of Partners' Capital
For the six months ended June 30, 1995
Limited General
Partners Partner Total
Balance at December 31, 1994 $6,703,722 $19,065 $6,722,787
Net income 269,565 2,723 272,288
Distributions (1,498,000) (15,130) (1,513,130)
Balance at June 30, 1995 $5,475,287 $ 6,658 $5,481,945
Statements of Operations
Three months ended Six months ended
June 30, June 30,
Income 1995 1994 1995 1994
Rental income $1,138,679 $3,072,546 $2,292,711 $ 6,221,251
Escalation income 1,568,248 4,748,014 2,966,137 9,237,450
Interest income 106,349 107,345 204,738 160,117
Miscellaneous income 128,408 1,303,253 446,935 1,528,576
Total Income 2,941,684 9,231,158 5,910,521 17,147,394
Expenses
Property operating expenses 688,066 3,342,460 1,370,165 6,261,453
Interest expense 858,134 2,091,283 1,716,268 4,182,566
Real estate taxes 836,439 1,520,044 1,608,797 3,042,926
Depreciation and amortization 319,330 871,345 614,507 1,739,513
General and administrative 46,139 62,599 123,470 111,572
Management fee 46,585 133,376 98,503 290,258
Professional fees 79,284 318,511 106,523 342,549
Total Expenses 2,873,977 8,339,618 5,638,233 15,970,837
Income from operations 67,707 891,540 272,288 1,176,557
Operating income payable to buyer -- (1,530,965) -- (3,272,328)
Net Income (Loss) $ 67,707 $ (639,425) $ 272,288 $(2,095,771)
Net Income (Loss) Allocated:
To the General Partner $677 $(6,395) $2,723 $(20,958)
To the Limited Partners 67,030 (633,030) 269,565 (2,074,813)
$67,707 $(639,425) $272,288 $(2,095,771)
Per limited partnership security
(10,700,000 securities
outstanding) $.01 $(.06) $.03 $(.19)
Statements of Cash Flows
For the six months ended June 30, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
Net income (loss) $ 272,288 $(2,095,771)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 614,507 1,739,513
Increase in interest on mortgage notes payable 1,716,268 4,182,566
Operating income payable to buyer -- 3,272,328
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Accounts receivable, net (429,586) (637,903)
Due from affiliates, net (7,038) 23,336
Prepaid assets 113,124 1,506,930
Accounts payable and accrued expenses (402,035) (523,238)
Deferred Income -- (1,250,000)
Due to buyer, net -- (88,333)
Net cash provided by operating activities 1,877,528 6,129,428
Cash Flows from Investing Activities:
Additions to real estate, net (468,516) (314,876)
Net cash used for investing activities (468,516) (314,876)
Cash Flows from Financing Activities:
Cash distributions (1,513,130) (2,107,577)
Net cash used for financing activities (1,513,130) (2,107,577)
Net increase (decrease) in cash (104,118) 3,706,975
Cash at beginning of period 6,693,502 10,668,441
Cash at end of period $6,589,384 $14,375,416
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ -- $ --
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 June 30, 1995 and the results of operations and cash flow for
the six months ended June 30, 1995 and 1994 and the statement of partners'
capital for the six months ended June 30, 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
("Northland") 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
assets. 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 The Equitable Life
Assurance Society of the United States ("Equitable") requesting that the
Partnership deposit eligible collateral having a present value of $3,312,199 by
June 3, 1995. The Partnership did not deposit the eligible collateral.
On July 5, 1995, the Partnership received notice from Equitable that the
Partnership failed to pay all principal and accrued interest due under the
first mortgage (the "Mortgage") secured by Brookdale Center ("Brookdale"), on
June 30, 1995, the maturity date of the Mortgage. The notice stated that in
the event such amount is not paid within ten days after receipt of the notice,
an Event of Default under the Mortgage will exist and Equitable will pursue all
remedies available to it, including without limitation, foreclosure of the lien
of the Mortgage by power of sale or judicial foreclosure and the appointment of
the receiver.
Further to its July 5, 1995 notice of default to the Partnership, Equitable,
which holds the mortgage on Brookdale, commenced advertising Brookdale for a
public nonjudicial foreclosure sale to be held on September 12, 1995. On
August 2, 1995, at the request of Equitable, the District Court for the Fourth
Judicial District of Minnesota appointed General Growth Management, Inc.
("General Growth") as the receiver of Brookdale. In such capacity, General
Growth will collect the rent proceeds from Brookdale's tenants and apply the
proceeds to payment of, among other things, Brookdale's operating expenses,
maintenance costs, real estate taxes, tenant improvements and leasing
commissions, with any remaining funds to be paid to Equitable on account of its
mortgage on Brookdale. Funding shortfalls, if any, may be advanced by
Equitable and added to the principal amount of the Mortgage. General Growth
will be paid a receiver's fee equal to 4.45% of all fixed minimum rents and
percentage or overage rents collected. General Growth had previously been the
Partnership's property manager for Brookdale. The Partnership continues to
hold negotiations with Equitable concerning the mortgage in default. In
addition to such negotiations, the Partnership is considering the alternatives
available to it with respect to such potential foreclosure sale.
J.C. Penney leases its building and the land on which its building is
constructed from a third party which leases the land from the Partnership until
July 27, 2015; however, it has the option to terminate the lease on either July
27, 1995 or July 27, 2005. J.C. Penney has not informed the Partnership of any
intention to leave the Mall.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At June 30, 1995, the Partnership had cash totalling $6,589,384 compared to
$6,693,502 at December 31, 1994. The $104,118 decrease is primarily due to
cash distributions to the partners and cash used for real estate additions
exceeding cash flow from operations.
The General Partner has attempted to dispose of the Partnership's remaining
property, Brookdale Center (the "Property" or "Brookdale"), and pay off its
first mortgage loan (the "Mortgage"), which is held by The Equitable Life
Assurance Society of the United States ("Equitable") and secured by the
Property. The General Partner was unable to consummate a sale of the Property
and repay the Mortgage prior to June 30, 1995, the maturity date of the
Mortgage. As a result, Equitable notified the Partnership on July 5, 1995,
that the Partnership failed to pay all principal and accrued interest due under
the Mortgage. The notice stated that in the event such amount was not paid
within ten (10) days after receipt of the notice, an Event of Default under the
Mortgage would exist and Equitable would pursue all remedies available to it,
including, without limitation, foreclosure of the lien of the Mortgage by power
of sale or judicial foreclosure and the appointment of the receiver.
Further to its July 5, 1995 notice of default to the Partnership, Equitable
commenced advertising Brookdale for a public nonjudicial foreclosure sale to be
held on September 12, 1995. On August 2, 1995, at the request of Equitable,
the District Court for the Fourth Judicial District of Minnesota appointed
General Growth Management, Inc. ("General Growth") as the receiver of
Brookdale. In such capacity, General Growth will collect the rent proceeds
from Brookdale's tenants and apply the proceeds to payments of, among other
things, Brookdale's operating expenses, maintenance costs, real estate taxes,
tenant improvements and leasing commissions, with any of the remaining funds to
be paid to Equitable on account of the Mortgage. Funding shortfalls, if any,
may be advanced by Equitable and added to the principal amount of the Mortgage.
General Growth will be paid a receiver's fee equal to 4.45% of all fixed
minimum rents and percentage or overage rents collected. General Growth had
previously been the Partnership's property manager for Brookdale. The
Partnership continues to hold negotiations with Equitable concerning the
mortgage in default. In addition to such negotiations, the Partnership is
considering the alternatives available to it with respect to such potential
foreclosure sale.
The Partnership will pay its 1995 second quarter cash distribution in the
amount of $.07 per Unit to Limited Partners on August 15, 1995. At present, it
is uncertain that the Partnership will be able to maintain regular cash
distributions to the partners due to the Partnership's current debt status.
Deferred charges decreased from $33,324 at December 31, 1994 to $0 at June 30,
1995 reflecting the complete amortization of Brookdale mortgage costs.
Prepaid assets decreased from $142,679 at December 31, 1994 to $29,555 at June
30, 1995 due to the recognition of prepaid insurance as current expenses for
Brookdale. At June 30, 1995, accounts payable and accrued expenses totalled
$345,741, a decrease of $824,712 from December 31, 1994. The decrease is
primarily due to payments made for capital expenditures related to renovation
work performed at Brookdale, recognition of rent deferred at December 31, 1994
and the payment of the 1994 Michigan business tax associated with the sale of
Northland Center in August 1994.
Mortgage notes payable increased from $33,652,305 at December 31, 1994 to
$35,368,573 at June 30, 1995 due to the accretion of interest on Brookdale's
zero coupon note which matured on June 30, 1995.
J.C. Penney leases its building and the land on which its building is
constructed from a third party which leases the land from the Partnership until
July 27, 2015; however, it has the option to terminate the lease on either July
27, 1995 or July 27, 2005. J.C. Penney has not informed the Partnership of any
intention to leave the Mall.
Results of Operations
Cash provided by operating activities totalled $1,877,528 for the six months
ended June 30, 1995, compared with $6,129,428 for the six months ended June 30,
1994. The reduced cash flow is primarily due to the absence of cash flow from
Northland. The Partnership recognized net income of $67,707 and $272,288 for
the three and six months ended June 30, 1995 compared to a net loss of $639,425
and $2,095,771 for the three and six months ended June 30, 1994. The
recognition of net income versus a net loss for the prior comparable period is
due to decreases in property operating expense, real estate taxes, interest and
depreciation and amortization expense, primarily resulting from 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 upon
the most recent appraisal of the property, which is conducted annually.
Rental income totalled $1,138,679 and $2,292,711 for the three and six months
ended June 30, 1995, as compared to $3,072,546 and $6,221,251 for the same
period in 1994. The decrease reflects the absence of Northland activity.
Escalation income for the three and six months ended June 30, 1995, totalled
$1,568,248 and $2,966,137, respectively, compared to $4,748,014 and $9,237,450
for the corresponding periods in 1994. 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
reflecting a reduction in Brookdale's real estate tax expense. Miscellaneous
income for the three and six months ended June 30, 1995 decreased $1,174,845
and $1,081,641, respectively, from the same periods in 1994. Miscellaneous
income in 1995 primarily consisted of lease buyout settlements for two
Brookdale tenants totaling $314,000 and a $105,728 adjustment for an
overaccrual of the Michigan Single Business Tax related to the sale of
Northland Center, whereas the balance for the 1994 periods primarily consisted
of lease settlements for one former Brookdale in-line tenant and Carson's, a
Brookdale anchor store, totaling $1,450,000.
Total expenses for the three and six months ended June 30, 1995 were $2,873,977
and $5,638,233, respectively, compared to $8,339,618 and $15,970,837 for the
corresponding periods in 1994. The decrease is due primarily to a reduction in
expenses associated with the operation of Northland resulting from the sale of
Northland in 1994. Property operating expenses decreased primarily due to the
sale of Northland, offset by an increase in bad debt expense at Brookdale
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 and
$1,716,268, respectively, for the three and six months ended June 30, 1995
compared with $2,091,283 and $4,182,566, respectively, for the same periods in
1994. The decreases are due to the satisfaction of the Northland zero coupon
note upon closing of the Northland sale on July 22, 1994.
Sales for tenants (exclusive of anchor tenants) who operated at the Brookdale
Mall for each of the last two years were approximately $12,500,000 and
$12,350,000 for the five months ended May 31, 1995 and 1994, respectively. As
of June 30, 1995, Brookdale was 76% occupied (exclusive of anchor and outparcel
stores), unchanged in comparison to the same period in 1994.
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 ("Northland") contained material
misrepresentations and omissions and that the General Partner, assisted
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 assets. 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 August 2, 1995, at the request of Equitable, the District Court for
the Fourth Judicial District of Minnesota appointed General Growth
Management, Inc. ("General Growth") as the receiver of Brookdale. In
such capacity, General Growth will collect the rent proceeds from
Brookdale's tenants and apply the proceeds to payment of, among other
things, Brookdale's operating expenses, maintenance costs, real estate
taxes, tenant improvements and leasing commissions, with any remaining
funds to be paid to Equitable on account of its mortgage on Brookdale.
Funding shortfalls, if any, may be advanced by Equitable and added to
the principal amount of the Mortgage. General Growth will be paid a
receiver's fee equal to 4.45% of all fixed minimum rents and percentage
or overage rents collected. General Growth had previously been the
Partnership's property manager for Brookdale.
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. The Partnership did not
deposit the eligible collateral.
On July 5, 1995, the Partnership received notice from Equitable that
the Partnership failed to pay all principal and accrued interest due
under the Mortgage secured by Brookdale, on June 30, 1995, the maturity
date of the Mortgage. The notice stated that in the event such amount
is not paid within ten days after receipt of the notice, an Event of
Default under the Mortgage will exist and Equitable will pursue all
remedies available to it, including without limitation, foreclosure of
the lien of the Mortgage by power of sale or judicial foreclosure and
the appointment of the receiver.
Further to its July 5, 1995 notice of default to the Partnership,
Equitable, which holds the mortgage on Brookdale, commenced advertising
Brookdale for a public nonjudicial foreclosure sale to be held on
September 12, 1995. The Partnership continues to hold negotiations
with Equitable concerning the mortgage in default. In addition to such
negotiations, the Partnership is considering the alternatives available
to it with respect to such potential foreclosure sale.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(b) Form 8-K
On July 13, 1995, a Form 8-K was filed reporting the Partnership's
receipt of a default notice on July 5, 1995, from Equitable in relation
to its first mortgage, which matured on June 30, 1995.
On July 28, 1995, a Form 8-K was filed reporting that Equitable
commenced advertising Brookdale for a public nonjudicial foreclosure
sale to be held on September 12, 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: August 11, 1995 BY: /s/ Paul L. Abbott
Name: Paul L. Abbott
Title: Director, Chairman of the Board,
and President
Date: August 11, 1995 BY: /s/ Robert J. Hellman
Name: Robert J. Hellman
Title: Director, Vice President and
Chief Financial Officer
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