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, 1997
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
State or Other Jurisdiction of 13-3384643
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 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 At September 30, At December 31,
1997 1996
Assets:
Cash $ 5,196,360 $ 5,812,917
Due from affiliates, net 141,345 141,284
Total Assets $ 5,337,705 $ 5,954,201
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 327,848 $ 644,151
Total Liabilities 327,848 644,151
Partners' Capital:
General Partner 50,099 53,101
Limited Partners
(10,700,000 securities outstanding) 4,959,758 5,256,949
Total Partners' Capital 5,009,857 5,310,050
Total Liabilities and Partners' Capital $ 5,337,705 $ 5,954,201
Statement of Partners' Capital
For the nine months ended September 30, 1997
Limited General
Partners Partner Total
Balance at December 31, 1996 $ 5,256,949 $ 53,101 $ 5,310,050
Net loss (297,191) (3,002) (300,193)
Balance at September 30, 1997 $ 4,959,758 $ 50,099 $ 5,009,857
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Income
Rental income $ _ $ 1,027,618 $ _ $ 3,258,874
Escalation income _ 1,048,908 _ 3,601,080
Interest income 36,000 58,840 109,926 253,184
Miscellaneous income _ 10,396 _ 113,185
Total Income 36,000 2,145,762 109,926 7,226,323
Expenses
Property operating expenses 2,500 540,438 8,960 2,113,728
Interest expense _ 1,884,148 _ 5,496,864
Real estate taxes _ 620,213 _ 1,865,158
General and administrative 17,632 43,091 126,601 147,814
Management fee _ 45,711 _ 147,267
Professional fees 38,049 221,125 274,558 479,966
Total Expenses 58,181 3,354,726 410,119 10,250,797
Net Loss $ (22,181) $(1,208,964) $ (300,193) $(3,024,474)
Net Loss Allocated:
To the General Partner $ (222) $ (12,090) $ (3,002) $ (30,245)
To the Limited Partners (21,959) (1,196,874) (297,191) (2,994,229)
$ (22,181) $(1,208,964) $ (300,193) $(3,024,474)
Per limited partnership unit
(10,700,000 securities
outstanding) $(.00) $(.11) $(.03) $(.28)
Statements of Cash Flows
For the nine months ended September 30, 1997 1996
Cash Flows From Operating Activities:
Net loss $ (300,193) $ (3,024,474)
Adjustments to reconcile net loss to net cash
used for operating activities:
Increase in interest on zero coupon mortgage
note payable _ 1,065,367
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash _ 375,238
Accounts receivable, net _ 350,477
Deferred rent receivable _ 71,900
Due from affiliates, net (61) (2,568)
Prepaid assets _ (62,212)
Accounts payable and accrued expenses (316,303) 924,706
Net cash used for operating activities (616,557) (301,566)
Net decrease in cash and cash equivalents (616,557) (301,566)
Cash and cash equivalents, beginning of period 5,812,917 5,971,023
Cash and cash equivalents, end of period $ 5,196,360 $ 5,669,457
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ _ $ 4,431,497
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction
with the Partnership's annual 1996 audited financial statements
within Form 10-K.
The unaudited interim 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, 1997 and the
results of operations for the three and nine months ended
September 30, 1997 and 1996, cash flows for the nine months ended
September 30, 1997 and 1996 and the statement of partner's
capital for the nine months ended September 30, 1997. Results of
operations for the periods are not necessarily indicative of the
results to be expected for the full year.
Certain prior year amounts have been reclassified in order to
conform to the current year's presentation.
The following significant event has occurred subsequent to fiscal
year 1996 which requires disclosure in this interim report per
Regulation S-X, Rule 10-01, Paragraph (a)(5).
In early October, the Partnership entered into a stipulation and
agreement of settlement (the "Settlement") of the class action
litigation originally brought against it and other parties in
1994. Pursuant to the Settlement, which resolves all matters
among the parties, the Partnership will contribute $500,000
toward a fund for the payment of all plaintiffs' claims. The
General Partner decided to settle the actions solely to avoid
further expense, inconvenience and the burden of continued
litigation, and continues to deny the allegations asserted
against it in the complaint. Execution of the Settlement is
subject to approval of the Bankruptcy Court.
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The General Partner was unable to consummate a sale of its
property, Brookdale Center ("Brookdale") and repay the mortgage
(the "Brookdale Note") held by The Equitable Life Assurance
Society of the United States ("Equitable") prior to
June 30, 1995, the maturity date of the Brookdale Note. As a
result, on July 5, 1995, Equitable issued a notice of default to
the Partnership and commenced advertising Brookdale for a public
nonjudicial foreclosure sale to be held on September 12, 1995.
Such date was subsequently postponed on several occasions.
On April 12, 1996, the Partnership and Equitable executed a
letter of intent that outlined the principal terms, as described
below, of a plan of reorganization (the "Plan") for the
Partnership under Chapter 11 of the Bankruptcy Code that would be
supported by Equitable. On June 21, 1996, the Partnership filed
for bankruptcy protection under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Southern District
of New York in order to prevent the foreclosure sale of
Brookdale, which was scheduled for June 21, 1996. The
Partnership undertook the bankruptcy filing after extended
negotiations with Equitable. As a result of the bankruptcy
filing, among other reasons, trading of the Partnership's Units
on the New York Stock Exchange was suspended as of June 24, 1996.
Under the Plan, which was filed on October 16, 1996 and
subsequently approved by the holders of Limited Partnership Units
(the "Unitholders"), its creditors and the bankruptcy court, the
Brookdale Note remained in default and the Partnership was to
market Brookdale to a third-party buyer. In the event no
acceptable third-party offer was received by November 15, 1996,
or a third party failed to close the acquisition by
December 1, 1996, both the Partnership and Equitable had the
right to transfer ownership of Brookdale to Equitable and
Equitable's participant, EML Associates ("EML"), for a $500,000
cash purchase price. Equitable and EML were also granted certain
limited rights of first refusal to acquire Brookdale. Pending a
sale of Brookdale, all available cash flow from Brookdale (after
payment of property expenses and administrative costs associated
with the bankruptcy) was paid to Equitable. Equitable was
required to fund necessary capital and leasing costs pursuant to
a super-priority, non-recourse, debtor-in-possession loan by
Equitable payable upon the disposition of Brookdale.
All parties holding claims on or interests in the Partnership
were sent on October 18, 1996 a copy of the Plan and Disclosure
Statement, together with a ballot which was due on
November 15, 1996. The Plan was subsequently approved by the
Unitholders and the Partnership's creditors. A confirmation
hearing to approve the Plan took place on November 25, 1996 and
the Plan was confirmed by the bankruptcy court.
Despite intensive marketing efforts, the Partnership was unable
to secure an acceptable third-party buyer for Brookdale by
November 15, 1996. Consequently, on December 16, 1996, the
Partnership transferred ownership of Brookdale, in accordance
with the terms of the Plan, to Equitable and EML for the
aforementioned purchase price of $500,000. In accordance with
the disposition of Brookdale, the Partnership was relieved of its
mortgage obligation on Brookdale. Once all of the conditions of
the Plan are met, which is expected to occur in late 1997 or
early 1998, the General Partner intends to move towards the
dissolution of the Partnership.
The Partnership is also pursuing a property tax assessment appeal
on Brookdale for a portion of the period that the Partnership
owned it. The amount of any recovery and the amount which would
need to be refunded to tenants is subject to future
determinations.
The Unitholder Actions
Pursuant to the terms of the Plan, Unitholders who had commenced
certain actions including class actions against the Partnership
(the actions are referred to as the "Unitholder Actions") prior
to June 21, 1996, when the Partnership filed for bankruptcy
protection, were permitted to continue the Unitholder Actions
after confirmation of the Plan. In the Unitholder Actions, all
now pending in the federal district court for the Southern
District of New York, the Unitholders asserted a number of claims
in the various actions including causes of action for breach of
fiduciary duties owed to Unitholders, negligent
misrepresentation, breach of the Partnership Agreement and
violations of certain securities laws and regulations in
connection with the solicitation of (i) consent to the sale of
Northland Center in Southfield, Michigan and (ii) certain
amendments to the Partnership Agreement concerning the sale of
Brookdale. In addition, the Unitholders asserted causes of
action for breach of fiduciary duty in connection with the
operation of the Partnership and sale of Limited Partnership
Units. The defendants including the Partnership answered the
several complaints filed by the Unitholders and engaged in
discovery and pre-trial motion practice with the plaintiffs.
In January 1997, the Partnership, the General Partner and the
other defendants in the Unitholder Actions engaged with the
plaintiffs in mediation proceedings supervised by a former U.S.
magistrate judge. In early October 1997, the Partnership entered
into a stipulation and agreement of settlement (the "Settlement")
of the Unitholder Actions. Pursuant to the Settlement, which
resolves all matters among the parties, the Partnership will
contribute $500,000 toward a fund for the payment of all
plaintiffs' claims. The General Partner decided to settle the
actions solely to avoid further expense, inconvenience and the
burden of continued litigation, and continues to deny the
allegations asserted against it in the complaint.
Execution of the Settlement is subject to approval of the
Bankruptcy Court. Upon execution of the Settlement and
resolution of the Brookdale tax appeal, which is hoped to occur
in late 1997 or early 1998, the General Partner will proceed with
the dissolution of the Partnership, pursuant to the Plan.
At September 30, 1997, the Partnership had cash and cash
equivalents totaling $5,196,360 compared to $5,812,917 at
December 31, 1996. The decrease is due to expenditures for
Partnership operations and professional fees.
Accounts payable and accrued expenses decreased from $644,151 at
December 31, 1996 to $327,848 at September 30, 1997 reflecting
the payment of legal fees associated with the Partnership's
bankruptcy proceeding and the disposition of Brookdale.
Results of Operations
Net cash used for operating activities totaled $616,557 for the
nine months ended September 30, 1997 compared to $301,566 for the
same period in 1996. The reduced cash flow is primarily due to
the payment of general and administrative expenses and to
professional fees associated with the disposition of Brookdale.
As a result of the disposition of Brookdale as discussed above,
the following categories decreased from their respective balances
for the three and nine months ended September 30, 1996 to $0 for
the three and nine months ended September 30, 1997: rental
income; escalation income; miscellaneous income; interest
expense; real estate taxes; and management fees.
Interest income decreased from $58,840 and $253,184 for the three
and nine months ended September 30, 1996 to $36,000 and $109,929
for the corresponding periods in 1997, reflecting lower average
cash balances and a slight reduction in interest rates in 1997
compared to 1996.
Property operating expenses decreased from $540,438, and
$2,113,728 for the three and nine months ended September 30, 1996
to $2,500 and $8,960 for the three and nine months ended
September 30, 1997. The decreases reflects the disposition of
Brookdale explained above. The 1997 amounts primarily reflect a
$5,000 payment for the 1996 annual Minnesota Department of
Revenue and other municipal taxes and an estimated 1997 payment
of $1,460.
Part II Other Information.
Item 1 In late October 1997, the Partnership entered into a
stipulation and agreement of settlement of the following
civil actions pending in the United States District Court
for the Southern District of New York (the "District Court"):
(i) Donato J. Carone et al. v. Midwest Centers, Inc. et
al., 94 Civ. 9293;
(ii) Barry Tannenbaum v. Midwest Centers, Inc. et al.,
95 Civ. 3123;
(iii)Vernon Lindbloom v. Midwest Centers, Inc. et al.,
95 Civ. 3051;
(iv) Norman D. Rom v. Paul L. Abbott et al., 95 Civ.
5202; and
(v) Norman D. Rom v. Paul L. Abbott et al., 95 Civ.
8006.
Pursuant to the settlement agreement, which resolves
all matters among the parties, Midwest will contribute
$500,000 toward a fund for the payment of all
plaintiff's claims. Midwest has decided to settle the
actions solely to avoid further expense, inconvenience
and the burden of continued litigation, and continues
to deny all the allegations asserted against it in the
Complaint.
The settlement agreement has been submitted for
approval to the District Court and the United States
Bankruptcy Court for the Southern District of New York,
which has continuing jurisdiction over the resolution
of the lawsuits pursuant to the Midwest Plan of
Reorganization, confirmed by order of the Bankruptcy
Court on November 25, 1996.
Items 2-4 Not applicable.
Item 5 Other Information.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the quarter ended September
30, 1997.
On October 16, 1997, a Current Report on Form
8-K was filed reporting that the Partnership
entered into a stipulation and agreement of
settlement of the Unitholder Actions
previously brought against it and other
parties (see Part II, Item 1 above).
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: November 14, 1997 BY:/s/ Robert J. Hellman
Robert J. Hellman
Director, Chairman and President
Date: November 14, 1997 BY:/s/ Joan Berkowitz
Joan Berkowitz
Vice President and Chief Financial Officer
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