<PAGE> 1
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, 1996
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 0-16285
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
---------------------------------------------------------
(Exact name of registrant as specified in its partnership
agreement)
MARYLAND 52-1490861
- ---------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of the organization) Identification No.)
111 South Calvert Street - Baltimore, MD 21203-1476
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 539-0000
- ---------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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
------ ------
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Investment in real estate held for lease, at cost:
Land $ 8,876,112 $ 9,124,457
Buildings and improvements 42,682,337 43,934,858
----------- -----------
51,558,449 53,059,315
Less accumulated depreciation (13,475,665) (13,271,409)
----------- -----------
38,082,784 39,787,906
Cash and cash equivalents 2,661,574 1,664,994
Tenant accounts receivable, net of allowance
for doubtful accounts ($297,258 in 1996 and
$326,673 in 1995) 690,417 791,031
Prepaid expenses, mortgage escrows and other assets 1,099,494 1,098,187
Intangible assets, net of accumulated amortization
($981,869 in 1996 and $935,235 in 1995) 190,740 222,427
----------- -----------
Total assets $42,725,009 $43,564,545
=========== ===========
LIABILITIES AND PARTNERS' EQUITY:
Long-term debt, including current maturities $28,464,142 $29,130,611
Accounts payable and accrued expenses 253,398 211,208
Cash flow protector loans 789,203 789,203
Interest payable 889,227 683,682
Prepaid rents and security deposits 172,216 203,141
Due to related parties 93,119 90,903
----------- -----------
Total liabilities 30,661,305 31,108,748
----------- -----------
General partners and assignor limited partner 497,678 501,599
Assignee limited partners (1,200,000 units
authorized, issued and outstanding) 11,566,026 11,954,198
----------- -----------
Total partners' equity 12,063,704 12,455,797
----------- -----------
Total liabilities and partners' equity $42,725,009 $43,564,545
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
- 2 -
<PAGE> 3
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the quarters ended For the six months ended
June 30, June 30,
---------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Rental income $1,348,397 $1,601,547 $2,654,863 $3,204,083
Tenant reimbursement income 279,835 255,836 539,568 568,647
---------- --------- ---------- ----------
Total income 1,628,232 1,857,383 3,194,431 3,772,730
---------- --------- ---------- ----------
Operating expenses:
Interest expense 698,126 802,980 1,411,597 1,605,438
Depreciation 347,709 407,222 701,545 814,106
Repairs and maintenance 198,987 201,547 450,736 431,274
Taxes and insurance 185,910 207,287 376,826 417,819
Management and leasing to
related parties 88,400 110,817 177,500 219,847
Provision for doubtful accounts 39,743 12,960 23,405 85,629
Amortization 32,137 20,332 57,985 40,665
Other expenses 179,206 210,846 350,576 439,533
--------- --------- ---------- ----------
Total operating expenses 1,770,218 1,973,991 3,550,170 4,054,311
--------- --------- ---------- ----------
Loss from rental operations (141,986) (116,608) (355,739) (281,581)
Other income:
Loss on sale of shopping center (78,687) - (78,687) -
Interest income 23,775 2,052 42,333 6,213
--------- --------- ---------- ----------
Net loss $(196,898) $(114,556) $(392,093) $(275,368)
========= ========= ========== ==========
Net loss allocated to
general partners $ (1,969) $ (1,146) $ (3,921) $ (2,754)
========= ========= ========== ==========
Net loss allocated to
assignee limited partners $(194,929) $(113,410) $(388,172) $(272,614)
========= ========= ========== ==========
Net loss allocated to
assignee limited partners
per unit (1,200,000 units
issued and outstanding) $ (0.16) $ (0.09) $ (0.32) $ (0.23)
========= ========= ========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
- 3 -
<PAGE> 4
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (392,093) $ (275,368)
---------- ----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 759,530 854,771
Loss on sale of shopping center 78,687 -
Changes in operating assets and liabilities:
Decrease in tenant accounts receivable, net 100,614 424,138
Increase in prepaid expenses and other assets (124,316) (76,056)
Increase in accounts payable and accrued
expenses 11,265 185,982
Increase in accrued interest payable 205,545 61,399
Increase (decrease) in due to related parties 2,216 (25,150)
---------- ----------
Total adjustments 1,033,541 1,425,084
---------- ----------
Net cash provided by operating activities 641,448 1,149,716
---------- ----------
Cash flows from investing activities:
Proceeds from sale of real estate 1,093,203 -
Improvements of real estate (47,106) (131,968)
---------- ----------
Net cash provided by (used in) investing
activities 1,046,097 (131,968)
---------- ----------
Cash flows from financing activities:
Retirement of long-term debt (347,751) -
Principal payments on long-term debt (318,718) (429,027)
Financing fees (24,496) -
---------- ----------
Net cash used in financing activities (690,965) (429,027)
---------- ----------
Net increase in cash and cash equivalents 996,580 588,721
Cash and cash equivalents at beginning of period 1,664,994 384,181
---------- ----------
Cash and cash equivalents at end of period $2,661,574 $ 972,902
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $1,206,052 $1,544,039
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE> 5
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1996
-------------
NOTE A - BASIS OF PRESENTATION POLICIES:
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial reporting and the instructions to Form 10-Q.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included.
All adjustments made in the interim period were of a normal
recurring nature. Operating results of any interim period are not
necessarily indicative of the results that may be expected for a
full year.
RENTAL INCOME. Certain leases provide for either abatement of
rents or scheduled rent increases over the life of the leases.
Rental income is recorded on a straight-line basis of equal monthly
payments over the respective terms of the leases. The receivables
related to the recording of rental income on a straight-line basis
totalled $302,406 and $313,259 at June 30, 1996 and December 31,
1995, respectively.
STATEMENTS OF CASH FLOWS. For purposes of the statements of cash
flows, the Partnership considers cash in banks, commercial paper
and repurchase agreements with maturities of less than three months
to be cash and cash equivalents.
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 disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
NOTE B - RELATED PARTY TRANSACTIONS:
During the quarter ended June 30, 1996, the Partnership paid First
Washington Management, Inc., an affiliate of FW Realty Limited
Partnership, one of the general partners, $78,876 and Legg Mason
Realty Capital, Inc., an affiliate of Realty Capital IV Limited
Partnership, the other general partner, $35,662 for management fees
and reimbursement of operating expenses. At June 30, 1996, $19,688
was payable to Legg Mason Realty Capital, Inc. for reimbursement
of operating expenses.
- 5 -
<PAGE> 6
NOTE B - RELATED PARTY TRANSACTIONS, continued
The general partners agreed to lend to the Partnership, without
interest, up to 50% of the acquisition fees actually paid to them
at the time the loan was made in the event the annual cumulative
non-compounded return to assignee limited partners fell below 7%
of the allocable invested capital for the period from February 1,
1989 through January 31, 1992. In 1990, the general partners
fulfilled their obligation under these cash flow protector loan
provisions. As of June 30, 1996, cash flow protector loans
totalling $789,203 were outstanding ($599,794 to FW Realty Limited
Partnership and $189,409 to Realty Capital IV Limited Partnership).
The loans are non-interest bearing and are required to be repaid from
distributable cash flow or sale or refinancing proceeds after the
payment of a preferred return to assignee limited partners equal
to a 10% annual cumulative non-compounded return on invested
capital.
In addition, acquisition fees totalling $73,431 were payable as of
June 30, 1996 to FW Realty Limited Partnership in the amount of
$55,808 and to Realty Capital IV Limited Partnership in the amount
of $17,623.
NOTE C - PARTNERSHIP ALLOCATIONS AND DISTRIBUTIONS:
Distributable cash flow is payable quarterly as follows:
1. 99% to the assignee limited partners and 1% to the general
partners until each assignee limited partner has received an
annual cumulative return equal to 10% of invested capital;
and
2. the balance is distributable 98% to the assignee limited
partners and 2% to the general partners.
Income and loss from operations for each fiscal year is allocated
as follows:
1. If there has been a distribution of distributable cash flow
during such fiscal year, net income from operations shall be
allocated to the assignee limited partners and general
partners in proportion to such distribution of
distributable cash flow.
2. If there has been no distribution of distributable cash flow
during such fiscal year, net income from operations shall be
allocated 99% to the assignee limited partners and 1% to the
general partners.
3. Net loss from operations for each fiscal year shall be
allocated 99% to the assignee limited partners and 1% to the
general partners.
Sale or refinancing proceeds are distributed first to meet debts
and obligations of the Partnership and to fund reserves for
contingent liabilities to the extent deemed reasonable by the
- 6 -
<PAGE> 7
NOTE C - PARTNERSHIP ALLOCATIONS AND DISTRIBUTIONS, continued:
general partners and then to the assignee limited partners and
general partners in the order described in Section 4.4 of the
Partnership Agreement.
Any gain from a sale or refinancing is allocated as follows:
1. To the assignee limited partners and general partners having
negative balances in their capital accounts, prior to
distribution of sale or refinancing proceeds, an amount of
such gain sufficient to increase their negative balances to
zero;
2. To each assignee limited partner and general partner who has
received or will receive a distribution out of the sale or
refinancing proceeds, the amount of and in proportion to the
excess of such distribution over the positive balance in his
capital account, determined after any allocation of gain
from a sale or refinancing pursuant to (1) above, and
3. The balance, 75% to the assignee limited partners and 25% to
the general partners.
Any loss from a sale or refinancing shall be allocated 99% to the
assignee limited partners and 1% to the general partners.
- 7 -
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership's financial statements are prepared based on the
accrual method of accounting. The Partnership's rental income from
its shopping center properties consists of base rents from tenants
occupying space in each shopping center. In addition, certain
leases provide for additional rent computed on the basis of a
percentage of gross sales in excess of specified levels. In some
cases, leases provide for rent abatements and scheduled rent
increases over the life of the lease. To the extent a lease
provides for rent abatements or adjustments, the Partnership, in
accordance with generally accepted accounting principles,
recognizes rental income on a straight-line basis of equal monthly
payments over the term of such lease. Market conditions have
dictated offering a wide variety of concessions to prospective
tenants, which most frequently include a combination of free rent
and reduced rental rate.
As of June 30, 1996, tenant rent receivables prior to the allowance
for doubtful accounts totaled $987,675 of which amount $302,406
represented receivables required to be accrued in accordance with
applicable accounting principles to reflect scheduled rent
increases over the terms of the applicable leases and $685,269
represented the balance. As of December 31, 1995 and June 30,
1995, such rent receivables totaled $1,117,704 and $1,256,562,
respectively, of which amounts $313,259 and $655,534, respectively,
represented receivables required to be accrued and $804,445 and
$601,028, respectively, represented the balances. The Partnership
wrote off tenant rent receivables and charged the allowance for
doubtful accounts in the quarters ended June 30, 1996 and 1995 for
$32,886 and $25,490, respectively.
CASH FLOW
The Partnership recorded a $996,580 net increase in cash and cash
equivalents in the six months ended June 30, 1996, with $641,448
in net cash provided by operating activities and $1,046,097
provided by investing activities, partially offset by $690,965 used
in financing activities. The sale of Holiday on May 3, 1996
contributed approximately $858,000 to the increase in cash and cash
equivalents after payment of mortgage debt and transaction expenses
related to the sale. The principal differences between net loss
from operations of $392,093 and net cash provided by operating
activities of $641,448 were the noncash charge of $759,530 for
depreciation and amortization and an increase in interest payable
of $205,545. In addition to $47,106 expended for improvements of
real estate, the Partnership expended $121,207 from the capital
improvement escrow related to Edgewood Plaza during 1996. The
capital improvement escrow is included in prepaid expenses,
- 8 -
<PAGE> 9
mortgage escrows and other assets in the Partnership's financial
statements. Net cash used in financing activities of $690,965
primarily resulted from the retirement of debt related to Holiday
of $232,726, the payment of $115,025 to reduce the principal
balance of the Quality Center mortgage for a loan extension and
monthly principal payments on long-term debt totalling $318,718.
The monthly principal payments included $114,000 with respect to
the Tarrytown Mall first trust loan.
LIQUIDITY AND CAPITAL RESOURCES
The cash and cash equivalents position of the Partnership at June
30, 1996 increased $996,580 from that at December 31, 1995. The
Partnership's cash and cash equivalents position fluctuates from
quarter to quarter as follows: (i) decreasing with the funding of
lease-up costs and tenant improvements; (ii) decreasing with the
funding of renovation and expansion costs of the shopping centers;
(iii) increasing as borrowing and sales proceeds, net rental income
and interest income are received; (iv) decreasing as expenses
(including debt service requirements) are paid; and (v) decreasing
by any payment of Partnership distributions.
It has been the policy of the Partnership to apply any increase in
cash to increase Partnership working capital reserves, to provide
for shopping center improvements if and when necessary, and to
repay and refinance debt as required. The General Partners believe
that maintenance of cash reserves is prudent in view of the current
real estate and general economic environments and is consistent
with the Partnership's objective to maintain and increase the value
of its shopping centers. Consequently, there is no assurance as
to the availability of cash flow to make distributions to partners.
The General Partners intend to re-examine the Partnership's
liquidity position at the end of 1996 and currently anticipate that
the Partnership would make a distribution to Unitholders at that
time.
On May 3, 1996, the Partnership sold Holiday to an unrelated third
party for a price of $1,200,000. For financial reporting purposes,
a loss, after transaction expenses, of approximately $79,000 was
recorded in May 1996. The net proceeds from the sale, after payoff
of the related mortgage debt and transaction expenses, were
approximately $858,000, which exceeded the $817,000 in appraised
net equity of Holiday included in the appraised value of the
Partnership's portfolio at the end of 1995.
The Quality Center mortgage, which had an outstanding principal
balance of $3,709,392 at June 30, 1996, was scheduled to mature on
February 1, 1996. The lender extended the term of this loan for
one year to February 1, 1997 on the same terms and conditions
previously existing under the loan. To obtain this extension, the
Partnership paid the lender a fee of approximately $10,000 in
January 1996, paid $115,025 to reduce the principal balance of this
- 9 -
<PAGE> 10
loan in April 1996, and incurred approximately $11,000 in legal
fees.
The Lynnwood Place mortgage, which had an outstanding principal
balance of $6,271,476 at June 30, 1996, was scheduled to mature on
July 10, 1996. The lender has extended the term of this loan to
December 31, 1996 on the same terms and conditions previously
existing under the loan. To obtain this extension, the Partnership
paid the lender a fee of $10,000 in July 1996. The Partnership has
applied for a three year extension with the lender of the Lynnwood
Place mortgage. The Woodlawn Village mortgage, which had an
outstanding principal balance of $1,821,947 at June 30, 1996,
matures December 1, 1996. The Partnership currently anticipates
that it will refinance the Woodlawn Village mortgage at maturity.
In the fourth quarter of 1995, the Partnership recorded a charge
of $2,606,156 to reflect the Partnership's estimate of net
realizable value of Tarrytown Mall based on the decline in the
appraisal value to an amount below the outstanding balance of the
mortgage debt and accrued interest on the property. The $2,606,156
charge represented the amount required to reduce the Partnership's
net equity in the property for financial reporting purposes to
zero. In the first six months of 1996, depreciation charges with
respect to Tarrytown Mall were $168,036 and accruals of unpaid
interest arising under the mortgage and described below were
$193,691.
At June 30, 1996, Tarrytown Mall was subject to $7,194,938 in
mortgage indebtedness, of which $1,809,940 is represented by a
first trust mortgage and $5,384,998 is represented by a second
trust mortgage. In addition, at June 30, 1996, $16,100 in interest
was accrued with respect to the first mortgage and $693,232 in
interest was accrued with respect to the second mortgage. Both the
first and second mortgages (principal and interest) are nonrecourse
to the Partnership. The first trust mortgage required principal
payments of $19,000 per month until June 30, 1996 when required
principal payments were scheduled to increase to $44,000 per month.
The first trust lender agreed to reduce the required payment
schedule of principal payments to $22,500 per month until June 30,
1997 or such earlier date as a replacement tenant is found for the
Wholesale Depot space. All other loan terms remain unchanged.
Monthly principal payments are scheduled to increase to $49,000 on
July 1, 1997 and to $54,000 on February 1, 1998. Net cash flow
from operations at Tarrytown Mall currently would be insufficient
to meet the July 1997 scheduled increase in the monthly principal
payments under the first trust mortgage.
The second trust mortgage requires that after payment of first
trust debt service and capital improvements made with respect to
Tarrytown Mall, net cash flow from operations from that center be
applied to second trust mortgage interest and principal
curtailments. To the extent that net cash flow is insufficient to
make second trust debt service payments, unpaid interest on the
- 10 -
<PAGE> 11
second trust loan is accrued rather than paid. The Partnership
accrued $193,691 in unpaid interest in the first six months of
1996. Accrued and unpaid interest bears interest at 8% per annum
and is due at the maturity of the loan or earlier to the extent net
cash flow is available. Certain deferred interest payment
obligations to the holder of the second trust were recourse to the
Partnership and were paid in full in April 1996, after payment of
$25,000 and $16,000 in January and April, respectively.
In the second quarter of 1996, the Partnership negotiated a
contract to sell a pad site of approximately 1.15 acres of land at
Tarrytown Mall to an unrelated third party for a price of $330,000.
The pad site was formerly occupied by an automotive center which
vacated the space May 31, 1996. The contract purchaser intends to
build a restaurant franchised by a national restaurant chain. If
the sale is consummated, the net proceeds of the sale would be
placed in escrow with the first trust lender to be used for one of
the following three purposes: (1) to fund tenant improvement work
if a replacement tenant is found for the Wholesale Depot space, (2)
to acquire an adjoining parcel of land to enhance visibility and
provide additional customer parking at Tarrytown Mall or (3) to
reduce the principal amount of the first trust loan. The sale
transaction is expected to close in August 1996.
The Partnership continues to solicit potential replacement tenants
for the Tarrytown Mall anchor space. Given competitive conditions
in the marketplace, there is no assurance that a replacement tenant
will be found.
In September 1995, the Partnership obtained a loan secured by
Edgewood Plaza. From loan proceeds of $1,400,000, $452,485 was
placed in escrow for a capital improvement plan at Edgewood Plaza.
In 1995 and the first six months of 1996, the Partnership expended
$162,868 and $121,207, respectively, from the capital improvement
escrow. The Partnership anticipates that the capital improvement
plan will be completed by the end of August 1996. The improvements
to Edgewood Plaza include a new facade, roof and parking lot
resurfacing. The Partnership executed a lease modification with
Santoni's Market, an anchor tenant at Edgewood Plaza, requiring an
annual rent increase of approximately $25,000, which commenced July
1, 1996 when the improvements were substantially completed. Other
tenants agreed to annual rent increases totaling approximately
$7,000 which were also effective at that time.
From the Edgewood Plaza loan proceeds, $130,000 was also placed in
escrow for environmental remediation work at the property. That
escrow is included in prepaid expenses, mortgage escrows and other
assets in the Partnership's financial statements at June 30, 1996.
A former tenant at Edgewood Plaza has paid substantially all of the
costs incurred with respect to the environmental remediation. In
July 1996, the $130,000 escrow was released to the Partnership.
The remediation work is scheduled to be fully completed in August
- 11 -
<PAGE> 12
1996.
The Partnership is currently negotiating the sale of a pad site at
Edgewood Plaza to an unrelated third party for a price of $220,000.
The pad site is not secured by the Edgewood Plaza mortgage and net
sales proceeds would therefore be paid to the Partnership.
At Edgewood Plaza, Rite-Aid, an anchor tenant leasing 6,400 square
feet, has acquired property and is constructing a free-standing
retail store directly across Route 755 from the shopping center.
The free-standing Rite-Aid is scheduled to open in August 1996.
Rite-Aid's lease with the Partnership expires July 31, 1999. The
Partnership anticipates Rite-Aid will close its store at Edgewood
Plaza and a termination agreement will be negotiated regarding its
lease obligation with the Partnership.
Subsequent to June 30, 1996, the Partnership is obligated to expend
approximately $42,000 for tenant fit-up costs in connection with
tenant leases which have been signed and other committed capital
expenditures. This amount does not include tenant improvement
expenditures for prospective or future tenants.
The Partnership executed a lease modification with Food Lion at
Woodlawn Village for an expansion of its store from 25,000 to
32,744 square feet. Upon completion, the expansion would add 4,444
square feet to the center and convert 3,300 square feet of in-line
space to Food Lion use. The Partnership has obtained the necessary
zoning and land use approvals. Food Lion is currently seeking the
required building permits, which it expects to obtain by the end
of August 1996. As part of the lease modification, Food Lion is
funding substantially all of the expansion costs. The expansion
is estimated to be completed in the first quarter of 1997 and is
intended to add to the stability of the center.
In connection with the sale of Orchard Square, the Partnership
retained responsibility for certain environmental issues. In
February 1996, the Partnership's environmental consultants
completed their assessment to determine the extent of any
environmental liability and concluded that no remediation was
required. Their report was submitted to the applicable state
regulatory agency which is empowered to make its own independent
finding. That agency has required the Partnership to conduct
certain soil remediation work. The Partnership expects the
required soil remediation work to be completed in August 1996 and
anticipates final clearance from the state agency thereafter. The
Partnership has accrued a liability of approximately $28,000 to
cover costs related to the remediation procedures.
The Partnership is seeking opportunities to sell Partnership
properties in markets where the General Partners believe a sale
would be appropriate. Pursuant to that course of action, the
Partnership sold Orchard Square in December 1995 and Holiday in May
- 12 -
<PAGE> 13
1996. In addition, the Partnership has entered into brokerage
agreements to explore the sale of Highlandtown Village, Cloister
and Berkeley Square and expects to enter into brokerage agreements
to sell Lynnwood Place and Jackson Heights.
During late 1993 and into 1994, affiliates of Realty Capital IV
Limited Partnership discussed the possible sale of the
Partnership's shopping centers to a limited partnership, of which
a real estate investment trust ("FWREIT") formed by affiliates of
FW Realty Limited Partnership serves as the sole general partner.
These discussions were discontinued without reaching agreement as
the stock market valuations of real estate investment trusts owning
strip and neighborhood shopping centers fell and the Partnership's
portfolio faced significant issues potentially affecting values at
Tarrytown Mall, Quality Center and Orchard Square.
In the fourth quarter of 1995, discussions between Realty Capital
IV Limited Partnership on behalf of the Partnership and FWREIT were
reopened regarding the possible sale for cash of the Partnership's
shopping centers to an affiliate of FWREIT. It has been
determined to defer these discussions pending the outcome of the
initiatives currently underway to sell five of the Partnership's
shopping centers through third party brokers.
The Partnership's operations, as well as the financial condition
of many of its tenants, have been adversely affected by economic
and competitive conditions. If the Partnership is not able to fund
its cash requirements from operations and cash reserves, the
Partnership may be required to seek additional financing. The
Partnership could be adversely affected by the increased standards
employed by lenders to determine the amount, terms and underwriting
requirements for such financing, all of which have affected the
amount and cost of borrowing. If additional borrowing or
refinancing is not available, the Partnership may be required to
sell one or more of its shopping center properties. There is no
assurance that loans would be available, or that the Partnership
would be able to sell a particular shopping center, or that the
terms of such loans or any sales would be advantageous to the
Partnership. Furthermore, if alternative sources of cash were
needed and not found, the Partnership could default on its
obligations, including obligations to pay debt service and mortgage
interest, which could result in the foreclosure by its mortgage
lenders of one or more shopping centers.
- 13 -
<PAGE> 14
RESULTS OF OPERATIONS
The results of operations for the quarter and six months ended June
30, 1996 reflect the operations of ten shopping centers through May
2, 1996 and nine shopping centers thereafter. The results of
operations for the comparable quarter and six months in 1995
reflect the operations of eleven shopping centers. The Partnership
sold Orchard Square Shopping Center on December 29, 1995 and
Holiday Shopping Center on May 3, 1996. The net income (loss) for
each shopping center is as follows:
<TABLE>
<CAPTION>
Net income (loss) for Net income (loss) for
the quarters ended the six months ended
--------------------- ---------------------
Shopping Centers / Location 6/30/96 6/30/95 6/30/96 6/30/95
---------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
WOODLAWN VILLAGE
Fredericksburg, VA........ $ (9,232) $(19,867) $(20,838) $(30,574)
LYNNWOOD PLACE
Jackson, TN............... (52,409) (79,717) (72,765) (122,485)
HIGHLANDTOWN VILLAGE
Baltimore, MD............. 9,212 3,256 13,662 (5,235)
JACKSON HEIGHTS PLAZA
Murfreesboro, TN.......... 49,191 30,002 101,248 43,676
HOLIDAY
Collinsville, VA.......... 9,400 6,603 9,471 15,425
CLOISTER
Ephrata, PA............... 9,675 29,172 13,905 42,749
ORCHARD SQUARE
Cobb County, GA........... - 39,653 - 76,183
EDGEWOOD PLAZA
Harford County, MD........ 15,827 45,896 31,325 79,727
TARRYTOWN MALL
Rocky Mount, NC........... (108,478) (28,869) (268,883) (83,399)
BERKELEY SQUARE
Goose Creek, SC........... 24,395 (6,779) 43,610 (44,837)
QUALITY CENTER
Lancaster, PA............. (20,353) (91,363) (92,185) (164,316)
--------- --------- --------- ---------
Shopping center totals (72,772) (72,013) (241,450) (193,086)
Loss on sale of center (78,687) - (78,687) -
Other expenses (45,439) (42,543) (71,956) (82,282)
--------- --------- --------- ---------
Total $(196,898) $(114,556) $(392,093) $(275,368)
========= ========= ========= =========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996:
Net loss increased $82,342 to net loss of $196,898 for the second
quarter of 1996 from net loss of $114,556 for the comparable
quarter of 1995. The significant factors contributing to the
increased net loss in the second quarter of 1996 were a decline in
- 14 -
<PAGE> 15
rental income, a loss on the sale of Holiday Shopping Center, and
a higher provision for doubtful accounts. These changes were
partially offset by increases in tenant reimbursement and interest
income and decreases in interest, depreciation, management and
leasing, and taxes and insurance expenses. A substantial portion
of these variances in income and expense can be attributed to the
sale of Orchard Square in December 1995, the increase in losses at
Tarrytown Mall and the sale of Holiday on May 3, 1996.
The Partnership's total income decreased $229,151 to $1,628,232 in
the quarter ended June 30, 1996 from $1,857,383 in the comparable
quarter of 1995. The decrease in total income consisted of a
decline in rental income of $253,150 to $1,348,397 for the second
quarter of 1996 from $1,601,547 for the second quarter of 1995,
partially offset by an increase in tenant reimbursement income of
$23,999 to $279,835 for the 1996 quarter from $255,836 for the 1995
quarter.
Rental income declined primarily due to the sale of Orchard Square
in December 1995 which had rental income of $199,644 in the second
quarter of 1995. Three of the Partnership's ten shopping centers
had decreases in rental income, including significant decreases at
Tarrytown Mall of $79,792 and Holiday of $19,392. The decline in
rental income at Tarrytown Mall was primarily the result of the
loss of income recorded with respect to the Wholesale Depot lease
obligations and a 4% decrease in Tarrytown Mall's leased
percentage. Wholesale Depot terminated its lease at Tarrytown Mall
on October 7, 1994. Rental income for the quarter ended June 30,
1995 included approximately $108,700 of rental income with respect
to the Wholesale Depot lease. Tarrytown Mall was approximately 61%
leased at June 30, 1996, a decrease from 65% at June 30, 1995. The
decline in rental income at Holiday was primarily due to the sale
of that center on May 3, 1996. Five of the shopping centers had
decreases in tenant reimbursement income. Tenant reimbursement
income at Orchard Square was $27,054 in the second quarter of 1995.
Decreases in rental income and tenant reimbursement income were
partially offset by increases in rental income at seven shopping
centers and increases in tenant reimbursement income at five
shopping centers, including increases in tenant reimbursement
income at Lynnwood Place of $31,237 and Quality Center of $17,498.
The increase at Lynnwood Place was primarily due to adjustments
made in 1995 for a reduction in estimated real estate tax tenant
reimbursements and for prior year accruals. Lynnwood Place was
100% leased at June 30, 1996 and 1995. The increase at Quality
Center was primarily due to the addition of three new tenants in
the fourth quarter of 1995. Quality Center was 75% leased at June
30, 1996, which represented a net leasing gain of 17% from June 30,
1995.
The following changes in leased percentages also contributed to
changes in rental income and tenant reimbursement income. Berkeley
- 15 -
<PAGE> 16
Square experienced a net leasing gain from June 30, 1995 to June
30, 1996. Berkeley Square was approximately 95% leased at June 30,
1996, which represented an increase from approximately 86% leased
at June 30, 1995. The leased percentages for four of the
Partnership's remaining shopping centers, Highlandtown Village,
Edgewood Plaza, Woodlawn Village and Jackson Heights, remained
unchanged from June 30, 1995. Highlandtown Village and Edgewood
Plaza remained 100% leased from 1995. Woodlawn Village and Jackson
Heights were approximately 93% and 99% leased, respectively, at
June 30, 1996 and 1995. Cloister experienced a net leasing decline
to approximately 95% leased at June 30, 1996 from 100% leased at
June 30, 1995. The Partnership's aggregate portfolio was
approximately 84% leased at June 30, 1996 and 1995. The
Partnership's shopping center portfolio at June 30, 1996
represented nine centers with approximately 951,000 leasable square
feet. The portfolio at June 30, 1995 represented 11 shopping
centers with approximately 1,120,000 square feet.
Total operating expenses decreased $203,773 to $1,770,218 in the
1996 period from $1,973,991 in the 1995 period. Approximately
$162,000 of the decrease was due to the sale of Orchard Square in
December 1995. Interest expense decreased $104,854 to $698,126
for the second quarter of 1996 from $802,980 for the first quarter
of 1995. The net decrease in interest expense is primarily
attributable to the sale of Orchard Square which had interest
expense totaling $87,074 in the second quarter of 1995 and a
decline in interest expense at Berkeley Square of $21,763 as a
result of the reduction in long-term debt related to that shopping
center in the fourth quarter of 1995. These declines in interest
expense were partially offset by interest expense of $30,012 at
Edgewood Plaza in the second quarter of 1996 as a result of the
Partnership obtaining a loan of $1,400,000 in September 1995
secured by this shopping center which was previously unencumbered.
Depreciation expense decreased $59,513 to $347,709 for the quarter
ended June 30, 1996 from $407,222 for the comparable quarter of
1995 primarily due to the sale of Orchard Square. Depreciation
expense at Orchard Square was $53,351 in the second quarter of
1995.
Taxes and insurance expense decreased $21,377 to $185,910 for the
quarter ended June 30, 1996 from $207,287 for the comparable
quarter of 1995. This net decrease was primarily attributable to
the sale of Orchard Square. Taxes and insurance expense at Orchard
Square was $17,857 in the second quarter of 1995. Management and
leasing to related parties decreased $22,417 to $88,400 for the
1996 quarter from $110,817 for the 1995 quarter. The aggregate
provision for doubtful accounts was $39,743 for the quarter ended
June 30, 1996 as compared to $12,960 for the quarter ended June 30,
1995.
Other expenses decreased $31,640 to $179,206 for the quarter ended
- 16 -
<PAGE> 17
June 30, 1996 from $210,846 for the comparable quarter in 1995.
The decrease can primarily be attributed to a decrease in
administrative expense at Quality Center of $48,006, which was
partially offset by a charge of approximately $17,000 during the
second quarter of 1996 related to the reserve for environmental
remediation at Orchard Square. The decrease in administrative
expense at Quality Center was due to an adjustment in 1995 in the
marketing fund as a result of a decline in tenant contributions for
this period and prior periods based on occupancy at the property.
Interest income increased $21,723 to $23,775 for the quarter ended
June 30, 1996 from $2,052 for the comparable quarter of 1995. The
increase in interest income was primarily the result of increasing
cash balances predominantly due to proceeds from the sales of
Orchard Square in December 1995 and Holiday in May 1996.
SIX MONTHS ENDED JUNE 30, 1996:
Net loss increased $116,725 to net loss of $392,093 for the six
months ended June 30, 1996 from net loss of $275,368 for the
comparable six months of 1995. The significant factors
contributing to the increased net loss in the six months of 1996
were declines in rental income and tenant reimbursement income and
a loss on the sale of Holiday Shopping Center. These changes were
partially offset by decreases in interest, depreciation, legal,
management and leasing, taxes and insurance and utilities expenses
and a lower provision for doubtful accounts. A substantial portion
of these variances in income and expense can be attributed to the
sale of Orchard Square in December 1995, the increase in losses at
Tarrytown Mall and the sale of Holiday on May 3, 1996.
The Partnership's total income decreased $578,299 to $3,194,431 for
the first six months in 1996 from $3,772,730 for the first six
months in 1995. The change in total income consisted of a decrease
in rental income of $549,220 to $2,654,863 for the 1996 period from
$3,204,083 for the 1995 period and a decrease in tenant
reimbursement income of $29,079 to $539,568 for the 1996 period
from $568,647 for 1995 period.
Rental income declined primarily due to the sale of Orchard Square
in December 1995 which had rental income of $408,057 for the six
months ended June 30, 1995. Four of the Partnership's ten shopping
centers had decreases in rental income, including significant
decreases at Tarrytown Mall of $188,322, Holiday of $29,322 and
Cloister of $23,335. Five of the shopping centers had decreases
in tenant reimbursement income, including a significant decrease
at Tarrytown Mall of $38,966. Tenant reimbursement income at
Orchard Square was $56,964 for the first six months of 1995. The
declines in rental income and tenant reimbursement income at
Tarrytown Mall were primarily the result of the loss of income
recorded with respect to the Wholesale Depot lease obligations and
a 4% decrease in Tarrytown Mall's leased percentage. Wholesale
Depot terminated
- 17 -
<PAGE> 18
its lease at Tarrytown Mall on October 7, 1994. Total income for
the six months ended June 30, 1995 included approximately $217,400
of rental income and $63,200 of tenant reimbursement income with
respect to the Wholesale Depot lease. Tarrytown Mall was
approximately 61% leased at June 30, 1996, a decrease from 65% at
June 30, 1995. The decline in rental income at Holiday was
primarily due to the sale of that center on May 3, 1996. The
decline in rental income at Cloister was primarily due to a decline
in the shopping center's leased percentage. Cloister was
approximately 95% leased at June 30, 1996, which represented a net
leasing decline of 5% from June 30, 1995.
Decreases in rental income and tenant reimbursement income were
partially offset by increases in rental income at six shopping
centers and increases in tenant reimbursement income at five
shopping centers, including significant increases in tenant
reimbursement income at Lynnwood Place of $32,603 and Quality
Center of $22,529. The increase at Lynnwood Place was primarily
due to adjustments made in 1995 for a reduction in estimated real
estate tax tenant reimbursements and for prior year accruals.
Lynnwood Place was 100% leased at June 30, 1996 and 1995. The
increase at Quality Center was primarily due to the addition of
three new tenants in the fourth quarter of 1995. Quality Center
was 75% leased at June 30, 1996, which represented a net leasing
gain of 17% from June 30, 1995.
The following changes in leased percentages also contributed to
changes in rental income and tenant reimbursement income. Berkeley
Square experienced a net leasing gain from June 30, 1995 to June
30, 1996. Berkeley Square was approximately 95% leased at June 30,
1996, which represented an increase from approximately 86% leased
at June 30, 1995. The leased percentages for four of the
Partnership's remaining shopping centers, Highlandtown Village,
Edgewood Plaza, Woodlawn Village and Jackson Heights remained
unchanged from June 30, 1995. Highlandtown Village and Edgewood
Plaza remained 100% leased from 1995. Woodlawn Village and Jackson
Heights were approximately 93% and 99% leased, respectively, at
June 30, 1996 and 1995. The Partnership's aggregate portfolio was
approximately 84% leased at June 30, 1996 and 1995. The
Partnership's shopping center portfolio at June 30, 1996
represented nine centers with approximately 951,000 leasable square
feet. The portfolio at June 30, 1995 represented 11 shopping
centers with approximately 1,120,000 square feet.
Total operating expenses decreased $504,141 to $3,550,170 in the
1996 period from $4,054,311 in the 1995 period. Approximately
$358,199 of the decrease was due to the sale of Orchard Square in
December 1995. Interest expense decreased $193,841 to $1,411,597
for the first six months of 1996 from $1,605,438 for the comparable
six months of 1995. The net decrease in interest expense is
primarily attributable to the sale of Orchard Square which had
interest expense of $174,458 in the six months ended June 30, 1995
- 18 -
<PAGE> 19
and a decline in interest expense at Berkeley Square of $40,268 as
a result of the reduction in long-term debt related to that
shopping center in the fourth quarter of 1995. These declines in
interest expense were partially offset by interest expense of
$60,113 at Edgewood Plaza in the 1996 period as a result of the
Partnership obtaining a loan of $1,400,000 in September 1995
secured by this shopping center which was previously unencumbered.
Depreciation expense decreased $112,561 to $701,545 for the six
months in 1996 from $814,106 for the comparable six months of 1995
primarily due to the sale of Orchard Square. Depreciation expense
at Orchard Square was $106,701 in the six months of 1995.
Repairs and maintenance expense increased $19,462 to $450,736 for
the 1996 period from $431,274 for the 1995 period. Significant
changes in repairs and maintenance expense included a decrease at
Jackson Heights of $27,342. Repairs and maintenance expense at
Orchard Square was $24,669 in the six months ended June 30, 1995.
Taxes and insurance expense decreased $40,993 to $376,826 for the
six months ended June 30, 1996 from $417,819 for the comparable six
months of 1995. This net decrease was primarily attributable to
the sale of Orchard Square. Taxes and insurance expense at Orchard
Square was $38,960 in the 1995 period. Management and leasing to
related parties decreased $42,347 to $177,500 for the 1996 period
from $219,847 for the 1995 period. Management and leasing to
related parties at Orchard Square was $25,325 in the 1995 period.
The aggregate provision for doubtful accounts was $23,405 for the
six months ended June 30, 1996 as compared to $85,629 for the six
months ended June 30, 1995. The provisions related to nine of the
Partnership's shopping centers were lower in 1996 as compared to
1995.
Other expenses decreased $88,957 to $350,576 for the six months
ended June 30, 1996 from $439,533 for the comparable six months in
1995. The decrease can primarily be attributed to decreases in
legal expense at Tarrytown Mall and Quality Center of $30,582 and
$19,051, respectively, and a decrease in administrative expense at
Quality Center of $37,800. The decrease in legal expense at
Tarrytown Mall was due to expenses incurred in 1995 related to the
bankruptcy of Wholesale Depot and lease negotiations with a
potential tenant for the Wholesale Depot space. The decrease in
legal expense at Quality Center was due to expenses incurred in
1995 related to unsuccessful negotiations with a potential buyer
for that shopping center. The decrease in administrative expense
at Quality Center was due to an adjustment in 1995 in the marketing
fund as a result of a decline in tenant contributions for this
period and prior periods based on occupancy at the property. The
declines in these expenses were partially offset by charges of
$27,500 in 1996 for the reserve for environmental remediation at
Orchard Square.
- 19 -
<PAGE> 20
Interest income increased $36,120 to $42,333 for the quarter ended
June 30, 1996 from $6,213 for the comparable quarter of 1995. The
increase in interest income was primarily the result of increasing
cash balances predominantly due to proceeds from the sales of
Orchard Square in December 1995 and Holiday in May 1996.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule for the six months ended
June 30, 1996.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Partnership during
the quarter ended June 30, 1996.
- 20 -
<PAGE> 21
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.
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
By: Realty Capital IV Limited Partnership
General Partner
By: LMRC IV, Inc., General Partner
Date: July 26, 1996 By: /s/ Richard J. Himelfarb
------------------ -----------------------------------
Richard J. Himelfarb, President
By: FW Realty Limited Partnership,
General Partner
By: FW Corporation, General Partner
Date: July 26, 1996 By: /s/ William J. Wolfe
------------------ ---------------------------------
William J. Wolfe, President
- 21 -
EXHIBIT INDEX
Exhibit
Number
27.1 Financial Data Schedule for the six months
ended June 30, 1996.
