<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 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 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>
September 30, December 31,
1997 1996
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Investment in real estate held for lease, at cost:
Land $ 6,763,681 $ 8,724,880
Buildings and improvements 31,276,530 42,599,014
----------- -----------
38,040,211 51,323,894
Less accumulated depreciation (14,639,344) (16,939,873)
----------- -----------
23,400,867 34,384,021
Cash and cash equivalents 6,297,170 3,051,221
Tenant accounts receivable, net of allowance
for doubtful accounts ($249,824 in 1997 and
$228,991 in 1996) 642,228 767,223
Escrows 621,724 882,333
Prepaid expenses and other assets 291,852 360,030
Intangible assets, net of accumulated amortization
($843,308 in 1997 and $1,035,330 in 1996) 218,356 222,287
----------- -----------
Total assets $31,472,197 $39,667,115
=========== ===========
LIABILITIES AND PARTNERS' EQUITY:
Long-term debt, including current maturities $22,639,010 $28,104,113
Interest payable 1,341,736 1,098,751
Cash flow protector loans 789,203 789,203
Accounts payable and accrued expenses 199,520 124,800
Prepaid rents and security deposits 115,788 193,139
Due to related parties 139,547 126,780
----------- -----------
Total liabilities 25,224,804 30,436,786
----------- -----------
General partners and assignor limited partner 597,414 529,870
Assignee limited partners (1,200,000 units
authorized, issued and outstanding) 5,649,979 8,700,459
----------- -----------
Total partners' equity 6,247,393 9,230,329
----------- -----------
Total liabilities and partners' equity $31,472,197 $39,667,115
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 3
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the quarters For the nine months
ended ended
September 30, September 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income $1,046,315 $1,337,022 $3,661,785 $3,991,885
Tenant reimbursement income 235,020 278,894 766,953 818,462
---------- ---------- ---------- ----------
Total income 1,281,335 1,615,916 4,428,738 4,810,347
---------- ---------- ---------- ----------
Operating expenses:
Interest expense 564,318 678,455 1,862,250 2,090,052
Depreciation 274,669 341,794 947,689 1,043,339
Repairs and maintenance 185,332 227,582 606,599 678,318
Write-down of assets - - 550,000 -
Taxes and insurance 144,718 189,814 522,548 566,640
Management and leasing to
related parties 74,700 102,970 258,145 280,470
Amortization 40,482 26,539 106,556 84,524
Provision for doubtful accounts 20,262 29,396 54,013 52,801
Other expenses 135,671 192,715 545,271 543,291
---------- ---------- ---------- ----------
Total operating expenses 1,440,152 1,789,265 5,453,071 5,339,435
---------- ---------- ---------- ----------
Loss from rental operations (158,817) (173,349) (1,024,333) (529,088)
Other income:
Gain (loss) on sale of
shopping centers 175,726 - 304,323 (78,687)
Interest income 69,975 33,502 137,074 75,835
Gain on sale of pad sites - 229,982 - 229,982
---------- ---------- ---------- ----------
Net income (loss) $ 86,884 $ 90,135 $ (582,936) $ (301,958)
========== ========== ========== ==========
Net income allocated
to general partners $ 43,379 $ 56,098 $ 67,544 $ 52,177
========== ========== ========== ==========
Net income (loss) allocated
to assignee limited partners $ 43,505 $ 34,037 $ (650,480) $ (354,135)
========== ========== ========== ==========
Net income (loss) allocated
to assignee limited partners
per unit (1,200,000 units
issued and outstanding) $ 0.04 $ 0.03 $ (0.54) $ (0.30)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
For the nine months ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Assignee Assignor Total
General Limited Limited Partners'
Partners Partners Partners Equity
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Partners' equity,
December 31, 1996 $ 529,793 $8,700,459 $ 77 $9,230,329
Distributions ($2 per
assignee limited
partnership unit) - (2,400,000) - (2,400,000)
Net loss (8,873) (878,386) - (887,259)
Net gain on sale of
shopping centers 76,417 227,906 - 304,323
--------- ---------- --------- ----------
Partners' equity,
September 30, 1997 $ 597,337 $5,649,979 $ 77 $6,247,393
========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (582,936) $ (301,958)
---------- ----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,054,245 1,127,863
Write-down of assets 550,000 -
(Gain) loss on sale of shopping centers (304,323) 78,687
(Gain) on sale of pad sites - (229,982)
Changes in operating assets and liabilities:
Decrease in tenant accounts receivable, net 124,995 52,885
Decrease (increase) in prepaid expenses
and other assets 128,787 (117,487)
(Decrease) increase in accounts payable and
accrued expenses and other liabilities (2,631) 27,459
Increase in accrued interest payable 242,985 311,735
Increase in due to related parties 12,767 16,230
---------- ----------
Total adjustments 1,806,825 1,267,390
---------- ----------
Net cash provided by operating activities 1,223,889 965,432
---------- ----------
Cash flows from investing activities:
Proceeds from sale of real estate 9,928,513 1,615,934
Improvements of real estate (138,725) (70,202)
---------- ----------
Net cash provided by investing activities 9,789,788 1,545,732
---------- ----------
Cash flows from financing activities:
Retirement of long-term debt (5,027,880) (347,751)
Distributions to partners (2,400,000) -
Principal payments on long-term debt (437,223) (479,493)
Financing fees (102,625) (34,553)
Mortgage escrow deposits, net 200,000 (194,394)
---------- ----------
Net cash used in financing activities (7,767,728) (1,056,191)
---------- ----------
Net increase in cash and cash equivalents 3,245,949 1,454,973
Cash and cash equivalents at beginning of period 3,051,221 1,664,994
---------- ----------
Cash and cash equivalents at end of period $6,297,170 $3,119,967
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for: Interest $1,619,265 $1,778,317
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE> 6
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1997
------------------
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 rent 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 totaled $219,872
and $317,688 at September 30, 1997 and December 31, 1996,
respectively.
Certain leases provide for additional rent computed on the basis of a
percentage of gross sales in excess of specified levels. Rental
income for the quarters ended September 30, 1997 and 1996 included
income with respect to these percentage rents of $63,224 and $82,847,
respectively. Rental income for the nine months ended September 30,
1997 and 1996 included percentage rent income of $188,811 and
$199,509, 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.
FINANCIAL INSTRUMENTS. The carrying values of the Partnership's cash
and cash equivalents, tenant accounts receivable, accounts payable,
due to related parties and long-term debt approximate the fair values
of these items. Because the cash flow protector loans payable by the
Partnership are non-interest bearing and will only be paid after
certain returns to assignee limited partners, the fair value of the
cash flow protector loans are not readily determinable. See the
discussion of the cash flow protector loans in Note B - Related Party
Transactions.
<PAGE> 7
LONG-LIVED ASSETS. Effective January 1, 1996, the Partnership adopted
Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such an
asset may not be recoverable. Management reviews the Partnership's
assets for impairment on a property by property basis when annual
year-end third party appraisals have been received and whenever
circumstances occur which indicate that the carrying amount of the
assets may be impaired.
The Partnership considers its properties to be long-lived assets to be
held and used. The Partnership's policy is to classify its assets as
held for sale when the Partnership has formally adopted a plan to
dispose of the properties by sale or, if suitable offers are not
received, by abandonment.
Certain properties are listed for sale with brokers with the intent
that if acceptable offers are received, the Partnership would sell the
property or properties. In the meantime, the Partnership will
continue to operate the properties. The net proceeds from the sale of
certain properties may be below their carrying values.
NEW ACCOUNTING PRONOUNCEMENT. In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, "Earnings Per Share",
which is required to be adopted for periods ending after December 15,
1997. The standard was issued to change the current method used by
public companies to compute earnings per share. The Partnership does
not anticipate that SFAS No. 128 will have any effect on the
Partnership's computation of earnings per share.
NOTE B - RELATED PARTY TRANSACTIONS:
During the quarter ended September 30, 1997, the Partnership paid
First Washington Management, Inc., an affiliate of FW Realty Limited
Partnership, one of the general partners, $66,206 and Legg Mason
Realty Capital, Inc., an affiliate of Realty Capital IV Limited
Partnership, the other general partner, $32,797 for management fees
and reimbursement of operating expenses. At September 30, 1997,
$38,002 was payable to First Washington Management, Inc. and $28,114
was payable to Legg Mason Realty Capital, Inc. for management fees and
reimbursement of operating expenses.
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
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 September 30, 1997, cash flow protector loans totaling $789,203
were outstanding ($599,794 to FW Realty Limited Partnership and
$189,409 to Realty Capital IV Limited Partnership). The loans are
<PAGE> 8
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. It is not
anticipated that these cash flow protector loans will be repaid.
In addition, acquisition fees totaling $73,431 were payable as of
September 30, 1997 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 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.
<PAGE> 9
Any loss from a sale or refinancing shall be allocated 99% to the
assignee limited partners and 1% to the general partners.
In June 1997, the Partnership made a cash distribution totaling
$2,400,000 or $2 per Assignee Limited Partnership Unit ("Unit") to
Unitholders of record as of May 31, 1997. This distribution
represented proceeds from the sale of shopping centers.
NOTE D - SALE AND WRITE-DOWN OF ASSETS:
On May 28, 1997, the Partnership sold Cloister Shopping Center to an
unrelated third party for a contract price of $2,650,000. For
financial reporting purposes, the Partnership recorded a gain, after
transaction expenses, of $128,597 in May 1997.
On July 16, 1997, the Partnership sold Jackson Heights Shopping Center
to an unrelated third party for a contract price of $4,800,000. For
financial reporting purposes, the Partnership recorded a gain, after
transaction expenses, of $177,127 in July 1997.
On September 10, 1997, the Partnership sold Berkeley Square Shopping
Center to an unrelated third party for a contract price of $2,975,000.
For financial reporting purposes, the Partnership recorded a loss,
after transaction expenses, of $1,401 in September 1997. In the
second quarter of 1997, at the time the Partnership entered into the
contract to sell this center, the Partnership recorded an impairment
charge of $550,000 to write-down the carrying value of Berkeley Square
to its revised fair value.
NOTE E - SUBSEQUENT EVENT
In November 1997, the Partnership will make a cash distribution
totaling $2,400,000 or $2 per Assignee Limited Partnership Unit
("Unit") to Unitholders of record as of November 1, 1997. This
distribution will represent proceeds from the sale of shopping
centers.
<PAGE> 10
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 rents.
As of September 30, 1997, tenant rent receivables (prior to the
allowance for doubtful accounts of $249,824) totaled $892,052 of which
amount $219,872 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 $672,180
represented the balance. As of December 31, 1996, such rent
receivables (prior to the allowance for doubtful accounts of $228,991)
totaled $996,214 of which $317,688 represented receivables required to
be accrued and $678,526 represented the balance.
CASH FLOW
The Partnership recorded a $3,245,949 net increase in cash and cash
equivalents in the nine months ended September 30, 1997, with
$1,223,889 in net cash provided by operating activities and $9,789,788
provided by investing activities, offset by $7,767,728 in net cash
used in financing activities. The increase in cash and cash
equivalents is primarily attributable to net proceeds from the sales
of Cloister Shopping Center, Jackson Heights Shopping Center and
Berkeley Square Shopping Center which were offset in part by the
payment of distributions to limited partners totaling $2,400,000 in
June 1997. The sale of Cloister on May 28, 1997, Jackson Heights on
July 16, 1997 and Berkeley Square on September 10, 1997 contributed
approximately $1,119,000, $2,577,000 and $1,540,000, respectively, to
cash and cash equivalents after payment of mortgage debt and
transaction expenses related to the sale.
The principal differences between net loss for the nine months ended
September 30, 1997 of $582,936 and net cash provided by operating
activities of $1,223,889 were the noncash charge of $1,054,245 for
depreciation and amortization, a write-down of assets of $550,000 and
an increase in accrued interest payable of $242,985. See the
discussions of the sales of Cloister, Jackson Heights and Berkeley
Square and the write-down of assets related to Berkeley Square in
Liquidity and Capital Resources herein. Net cash used in financing
activities of $7,767,728 consisted primarily of retirement of debt
<PAGE> 11
totaling $5,027,880 related to Cloister, Jackson Heights and Berkeley
Square, distributions to limited partners of $2,400,000 and monthly
principal payments on long-term debt totaling $437,223. Principal
payments on long-term debt included $202,500 with respect to the
Tarrytown Mall first trust loan.
LIQUIDITY AND CAPITAL RESOURCES
The cash and cash equivalents position of the Partnership at September
30, 1997 increased $3,245,949 from that at December 31, 1996. 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.
On May 28, 1997, the Partnership sold Cloister Shopping Center to an
unrelated third party for a contract price of $2,650,000. For
financial reporting purposes, the Partnership recorded a gain, after
transaction expenses, of $128,597 in May 1997. The net proceeds from
the sale, after payoff of the related mortgage debt and transaction
expenses, were approximately $1,119,000 or $0.93 per Assignee Limited
Partnership Unit ("Unit"). The appraised net equity of Cloister
included in the appraised value of the Partnership's portfolio at the
end of 1996 was approximately $1,106,000 or $0.92 per Unit of the
total estimated 1996 year-end net asset value of $10.19 per Unit.
On July 16, 1997, the Partnership sold Jackson Heights Shopping Center
to an unrelated third party for a contract price of $4,800,000. For
financial reporting purposes, the Partnership recorded a gain, after
transaction expenses, of $177,127 in July 1997. The net proceeds from
the sale, after payoff of the related mortgage debt and transaction
expenses, were approximately $2,577,000 or $2.15 per Unit. The
appraised net equity of Jackson Heights included in the appraised
value of the Partnership's portfolio at the end of 1996 was
approximately $2,670,000 or $2.22 per Unit of the total estimated 1996
year-end net asset value of $10.19 per Unit.
On September 10, 1997, the Partnership sold Berkeley Square Shopping
Center to an unrelated third party for a contract price of $2,975,000.
For financial reporting purposes, the Partnership recorded a loss,
after transaction expenses, of $1,401 in September 1997. The net
proceeds from the sale, after payoff of the related mortgage debt and
transaction expenses, were approximately $1,540,000 or $1.28 per Unit.
The appraised net equity of Berkeley Square included in the appraised
value of the Partnership's portfolio at the end of 1996 was
approximately $1,615,000 or $1.35 per Unit of the total estimated 1996
year-end net asset value of $10.19 per Unit.
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. That policy reflects the General
<PAGE> 12
Partners' belief that maintenance of adequate cash reserves is
consistent with the Partnership's objectives. As a result of receipt
of the net proceeds from the sale of Cloister and the cash reserves
established from the sales of Orchard Square Shopping Center on
December 29, 1995 and Holiday Shopping Center on May 3, 1996, the
Partnership made a cash distribution totaling $2,400,000 or $2 per
Unit to Unitholders of record as of May 31, 1997. This distribution
represented proceeds from these sales and reduced the net asset value
of the Partnership. As of September 30, 1997, cumulative cash
distributions of $9,047,888 and $62,391 had been made to limited
partners and general partners, respectively.
Presently, and in light of the consummation of the sales of Jackson
Heights and Berkeley Square, the General Partners have determined that
the Partnership will make an additional cash distribution totaling
$2,400,000 or $2 per Unit to Unitholders of record as of November 1,
1997. This distribution will represent proceeds from these sales and
will reduce the net asset value of the Partnership. The General
Partners have determined not to distribute all of the net proceeds
from sales of shopping centers at this time because of the uncertainty
regarding the extensions of the Highlandtown Village mortgage which
matures December 21, 1997 and the Quality Center mortgage which
matures February 1, 1998. See the discussion of these mortgages
below. The Partnership will consider making an additional distribution
of sale proceeds to Unitholders in the first quarter of 1998. The
amount and timing of the distribution is dependent upon resolution of
the mortgage extensions and whether the Partnership consummates the
sale of additional shopping centers in the interim.
In the second quarter of 1997, the Partnership entered into an
agreement to sell Berkeley Square for a contract price of $2,975,000.
At that time, the Partnership recorded an impairment charge of
$550,000 to write-down the carrying value of Berkeley Square to its
revised fair value.
In July 1997, the Partnership entered into an agreement to sell
Highlandtown Village to an unrelated third party. The contract was
terminated in October 1997 when the proposed purchaser obtained an
environmental site assessment of the property that revealed low levels
of environmental contaminants in the soil and groundwater beneath the
center. The Partnership forwarded the reports of contamination to the
Oil Control Program at the Maryland Department of the Environment. In
a letter dated October 31, 1997, the Oil Control Program responded
that it does not require remedial action at the site. As a result, the
Partnership recently reopened sale discussions with the former
contract purchaser.
The General Partners have offered the Partnership's remaining
properties for sale as follows: (i) four properties, Lynnwood Place,
Woodlawn Village, Edgewood Plaza and Quality Center have been listed
for sale and (ii) the disposition of Tarrytown Mall will be resolved
following discussions with that center's mortgage lenders. The General
Partners have not adopted a formal plan to dispose of any properties
if satisfactory offers are not received. In the meantime, the
Partnership will continue to operate all of its properties.
<PAGE> 13
The Partnership considers its properties to be long-lived assets to be
held and used. The Partnership's policy is to classify its assets as
held for sale when the Partnership has formally adopted a plan to
dispose of the properties by sale or, if suitable offers are not
received, by abandonment.
Two of the Partnership's mortgages are scheduled to mature during the
next two quarters, Highlandtown Village and Quality Center. The
Highlandtown Village mortgage, which had an outstanding principal
balance of $3,102,945 at September 30, 1997, matures on December 21,
1997. The Partnership is currently negotiating with the lender of
Highlandtown Village to extend that mortgage at maturity. The Quality
Center mortgage, which had an outstanding principal balance of
$3,665,260 at September 30, 1997, matures on February 1, 1998. The
Partnership intends to seek an extension of the maturity date of this
mortgage from the lender.
At September 30, 1997, Tarrytown Mall was subject to $6,857,438 in
mortgage indebtedness, of which $1,472,440 is a first trust mortgage
and $5,384,998 is a second trust mortgage. In addition, at September
30, 1997, $16,100 in interest was accrued with respect to the first
mortgage and $1,194,232 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 requires principal payments of $22,500 per month until June
30, 1998 when required principal payments are scheduled to increase to
$54,000 per month. The Partnership is unable to predict whether cash
flow from operations at Tarrytown Mall will be sufficient to meet the
July 1998 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 second trust loan is accrued
rather than paid. The Partnership accrued approximately $285,600 in
unpaid interest in the first nine months of 1997. 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.
In September 1997, Tarrytown Mall's first trust mortgage lender
released two mortgage escrow deposits totaling $200,000 plus interest
on the escrow funds of $14,574 to the Partnership. In connection with
the release of the mortgage escrow deposits, the Partnership paid
$37,500 toward accrued interest on the second trust in order to obtain
the required approval of that mortgage lender for the escrow release.
These funds, net of the $37,500 paid to the holder of the second
mortgage, were released without restriction. The first trust lender
also agreed to release up to $100,000 from a third mortgage escrow
deposit totaling approximately $324,000. That $100,000 is to be used
for certain parking lot improvements at the property. After the
improvements have been completed, the remaining balance of the escrow
of approximately $224,000 will be applied to the principal balance of
the first trust mortgage.
<PAGE> 14
The Partnership has initiated discussions with Tarrytown Mall's second
trust mortgage lender regarding disposition of that center. No
definitive plan of disposition has been adopted. Payment obligations
with respect to Tarrytown Mall indebtedness are currently limited to
funds generated by current operations at that property.
In the fourth quarter of 1996, the Partnership recorded an impairment
charge of $2,895,000 to write-down the carrying value of Tarrytown
Mall to its fair value of $4,500,000 based upon an appraisal as of
December 1, 1996. In accordance with SFAS No. 121, the assets, which
include the land, building and improvements and intangibles related to
Tarrytown Mall, were determined to be impaired because downward
revisions in estimates indicated future net cash flows would be
insufficient to fully recover the carrying value of this property.
In the nine months ended September 30, 1997, depreciation charges with
respect to Tarrytown Mall were approximately $247,441. Escrows and
prepaid expenses and other assets in the Partnership's financial
statements include approximately $412,686 with respect to Tarrytown
Mall which is pledged to secure mortgage debt related to that
property.
No value was ascribed to Tarrytown Mall (or the related escrow or
other asset accounts) in the estimated net asset value of the
Partnership's portfolio at the end of 1996 of $10.19 per Unit.
At Tarrytown Mall, in the second quarter of 1997, the Partnership
entered into a lease agreement with a private school for 79,066 square
feet in the former Wholesale Depot space. The school, which will
initially enroll students in kindergarten through fifth grade,
receives funding under a contractual arrangement between the school
and the State of North Carolina. Under the lease agreement, the tenant
is responsible for all of the tenant fit-up costs, with the exception
of certain parking lot improvements. The parking lot work will be
funded from the escrow funds held by the lender as described above.
To secure this lease with no cash expenditure obligation for the
Partnership, the lease agreement provides for an abatement of minimum
rent through May 1998. Pursuant to the lease, the tenant will
reimburse the Partnership for its share of common area maintenance
expenses beginning in October 1997 when the school commenced
operations.
In July 1997, Montgomery Ward, which leases 74,069 square feet at
Tarrytown Mall filed for protection under Chapter XI of the U. S.
Bankruptcy Code. The Partnership is unable to predict the effect of
this action on Montgomery Ward's tenancy (or the center) at this time.
Subsequent to September 30, 1997, the Partnership is obligated to
expend approximately $260,000 for tenant fit-up costs in connection
with tenant leases which have been signed and other committed capital
expenditures relating to its remaining properties. This amount
includes an estimated $250,000 for tenant fit-up and tenant leasing
commission with respect to a new lease at Quality Center for 13,887
square feet. The committed expenditures do not include tenant
improvement expenditures for prospective or future tenants.
<PAGE> 15
The Partnership's operations, as well as the financial condition of
certain of its tenants, have been affected by competitive economic
conditions. If the Partnership is not able to fund its cash
requirements from operations, the Partnership may be required to seek
additional financing. The Partnership could be 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 its
obligations to pay debt service and mortgage interest, which could
result in the foreclosure by its mortgage lenders of one or more
shopping centers.
RESULTS OF OPERATIONS
The results of operations for the quarter and nine months ended
September 30, 1997 reflect the operations of nine shopping centers
through May 27, 1997, eight shopping centers from May 28, 1997 through
July 15, 1997, seven shopping centers from July 16, 1997 through
September 9, 1997 and six shopping centers thereafter. The results of
operations for the comparable quarter and nine months in 1996 reflect
the operations of ten shopping centers through May 2, 1996 and nine
shopping centers thereafter. The Partnership sold Orchard Square
Shopping Center on December 29, 1995, Holiday Shopping Center on May
3, 1996, Cloister Shopping Center on May 28, 1997, Jackson Heights
Shopping Center on July 16, 1997 and Berkeley Square Shopping Center
on September 10, 1997. The net income (loss) for each shopping center
is as follows:
<PAGE> 16
<TABLE>
<CAPTION>
Net income (loss) Net income (loss)
for the quarters for the nine months
ended ended
---------------------- --------------------
Shopping Centers / Location 9/30/97 9/30/96 9/30/97 9/30/96
--------------------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
WOODLAWN VILLAGE
Fredericksburg, VA........ $ 7,324 $(18,346) $ 33,174 $ (39,184)
LYNNWOOD PLACE
Jackson, TN............... (70,687) (15,611) (167,297) (88,376)
HIGHLANDTOWN VILLAGE
Baltimore, MD............. 15,221 8,880 44,609 22,542
JACKSON HEIGHTS PLAZA
Murfreesboro, TN.......... 34,897 30,702 134,533 131,953
HOLIDAY
Collinsville, VA.......... - - - 9,471
CLOISTER
Ephrata, PA............... 18,544 6,360 39,733 20,265
EDGEWOOD PLAZA
Harford County, MD........ 22,593 23,812 55,955 55,137
TARRYTOWN MALL
Rocky Mount, NC........... (135,887) (134,996) (413,715) (403,879)
BERKELEY SQUARE
Goose Creek, SC........... 29,789 20,720 52,333 64,330
QUALITY CENTER
Lancaster, PA............. (21,321) (34,099) (99,674) (126,285)
--------- --------- --------- ---------
Shopping center totals (99,527) (112,578) (320,349) (354,026)
Write-down of assets - - (550,000) -
Gain (loss) on sale of
shopping centers 175,726 - 304,323 (78,687)
Gain on sale of pad sites - 229,982 - 229,982
Other income, net of other
expenses 10,685 (27,269) (16,910) (99,227)
--------- --------- --------- ---------
Total $ 86,884 $ 90,135 $(582,936) $(301,958)
========= ========= ========= =========
</TABLE
<PAGE> 17
THREE MONTHS ENDED SEPTEMBER 30, 1997:
Net income decreased $3,251 to $86,884 for the third quarter of 1997
from $90,135 for the comparable quarter of 1996. The significant
factors contributing to the decrease in net income in the third quarter
of 1997 were a decline in total income of $334,581 and a lower net gain
on sale of shopping centers or pad sites of $175,726 in 1997 in
comparison to $229,982 in 1996. These factors were partially offset by
declines in operating expenses and an increase in interest income. A
substantial portion of the changes in income and operating expenses is
attributable to the sales of Cloister on May 28, 1997, Jackson Heights
on July 16, 1997 and Berkeley Square on September 10, 1997.
The Partnership's total income decreased $334,581 to $1,281,335 in the
quarter ended September 30, 1997 from $1,615,916 in the comparable
quarter of 1996. Total income decreased as a result of a decrease in
rental income of $290,707 to $1,046,315 for the third quarter of 1997
from $1,337,022 for the third quarter of 1996 and a decrease in tenant
reimbursement income of $43,874 to $235,020 for the 1997 quarter from
$278,894 for the 1996 quarter. Tenant reimbursement income declined
primarily due to the sale of Cloister.
Three of the Partnership's six remaining shopping centers had decreases
in rental income, including significant decreases at Tarrytown Mall and
Lynnwood Place of $27,092 and $19,058, respectively. The decrease in
rental income at Tarrytown Mall was primarily due to the loss of
several tenants at that center in the second half of 1996. However,
Tarrytown Mall's leased percentage increased 22% to 84% leased at
September 30, 1997 from 62% at September 30, 1996. The increase of 22%
in 1997 primarily resulted from the addition of one tenant leasing
79,066 square feet whose base rent commences during the second quarter
of 1998. The decrease in rental income at Lynnwood Place was primarily
due to the loss of five tenants since September 30, 1996 that leased an
aggregate of approximately 10,600 square feet. Lynnwood Place was 89%
leased at September 30, 1997, which represented a net leasing decline
of 11% from September 30, 1996. The sales of Cloister, Jackson Heights
and Berkeley Square also contributed to the decline in rental income.
Cloister had rental income of $101,001 in the third quarter of 1996.
Rental income from Jackson Heights and Berkeley Square decreased
$106,494 and $22,148, respectively, due to the sale of these centers
during the current quarter.
The following changes in leased percentages also contributed to changes
in rental income and tenant reimbursement income. Woodlawn Village,
Highlandtown Village and Quality Center experienced net leasing gains
from September 30, 1996 to September 30, 1997 of 8%, 2% and 9%,
respectively. Woodlawn was 98% leased, Highlandtown Village was 100%
leased and Quality Center was 86% leased at September 30, 1997. The
increase of 9% at Quality Center primarily resulted from leasing
activity which resulted in a net leasing gain of approximately 5,300
square feet since September 30, 1996. The leased percentage for
Edgewood Plaza remained unchanged at September 30, 1997 from September
30, 1996 at 100% leased. The Partnership's aggregate portfolio was
approximately 89% leased at September 30, 1997, an increase from 84%
leased at September 30, 1996. The Partnership's shopping center
portfolio at September 30, 1997 represented six centers with
approximately 638,000 leasable square feet. The portfolio at September
<PAGE> 18
30, 1996 represented nine shopping centers with approximately 945,000
square feet.
Interest, depreciation and taxes and insurance expenses decreased for
the quarter ended September 30, 1997 in comparison to the quarter ended
September 30, 1996 primarily due to the sales of Cloister in May 1997
and Jackson Heights in July 1997. Interest expense decreased $114,137
to $564,318 for the third quarter of 1997 from $678,455 for the third
quarter of 1996. Interest expense declined at all of the Partnership's
six remaining properties. Depreciation expense decreased $67,125 to
$274,669 for the quarter ended September 30, 1997 from $341,794 for the
comparable quarter of 1996. Taxes and insurance expense decreased
$45,096 to $144,718 for the 1997 quarter from $189,814 for the 1996
quarter. Repairs and maintenance expense decreased $42,250 to $185,332
for the 1997 quarter from $227,582 for the 1996 quarter.
Management and leasing to related parties decreased $28,270 to $74,700
for the quarter ended September 30, 1997 from $102,970 for the
comparable quarter of 1996. The decrease included a decrease at
Jackson Heights of $20,770 due to the sale of the center in July 1997.
The aggregate provision for doubtful accounts decreased $9,134 for the
1997 quarter in comparison to the 1996 quarter. The provision for
doubtful accounts related to Quality Center decreased $19,121 in 1997
as compared to 1996. This decline was offset in part by a higher
provision at Lynnwood Place of $15,100.
Other expenses decreased $57,044 to $135,671 for the quarter ended
September 30, 1997 from $192,715 for the comparable quarter in 1996.
The decrease can primarily be attributed to decreases in utilities
expense at Cloister of $25,228 and administrative expense at Jackson
Heights of $15,104 due to the sale of these centers and an adjustment
subsequent to quarter end of approximately $25,000 relating to partial
collection of an account receivable which the Partnership fully
reserved in a prior year.
Interest income increased $36,473 to $69,975 for the 1997 quarter from
$33,502 for the 1996 quarter. The increase in interest income was
primarily the result of increasing cash balances predominantly due to
proceeds from the sales of shopping centers.
NINE MONTHS ENDED SEPTEMBER 30, 1997:
Net loss increased $280,978 to net loss of $582,936 for the nine months
ended September 30, 1997 from net loss of $301,958 for the comparable
nine months of 1996. The significant factors contributing to the
increase in net loss in 1997 were the write-down of assets of $550,000
in the second quarter of 1997 and a decline in total income of
$381,609. These factors were partially offset by a higher net gain on
sale of shopping centers or pad sites of $304,323 in 1997 in comparison
to $151,295 in 1996, an increase in interest income and significant
decreases in interest, depreciation, repairs and maintenance and taxes
and insurance expenses. A substantial portion of the changes in income
and the foregoing expenses can be attributed to the sales of Holiday on
May 3, 1996, Cloister on May 28, 1997, Jackson Heights on July 16, 1997
and Berkeley Square on September 10, 1997.
<PAGE> 19
The Partnership's total income decreased $381,609 to $4,428,738 in the
nine months ended September 30, 1997 from $4,810,347 in the comparable
nine months of 1996. The decrease in total income consisted of a
decrease in rental income of $330,100 to $3,661,785 for the nine months
ended September 30, 1997 from $3,991,885 for the same period in 1996
and a decrease in tenant reimbursement income of $51,509 to $766,953
for 1997 from $818,462 for 1996. Tenant reimbursement income declined
primarily due to the sale of Cloister which had a decrease in tenant
reimbursement income of $46,195.
Two of the Partnership's six remaining shopping centers, Lynnwood Place
and Tarrytown Mall, had decreases in rental income. The decrease in
rental income at Tarrytown Mall of $45,370 was primarily due to the
loss of several tenants at that center in the second half of 1996.
However, Tarrytown Mall's leased percentage increased 22% to 84% leased
at September 30, 1997 from 62% at September 30, 1996. The increase of
22% in 1997 primarily resulted from the addition of one tenant leasing
79,066 square feet whose base rent commences during the second quarter
of 1998. The decrease in rental income at Lynnwood Place of $24,732
was primarily due to the loss of five tenants which leased an aggregate
of approximately 10,600 square feet since September 30, 1996. Lynnwood
Place was 89% leased at September 30, 1997, which represented a net
leasing decline of 11% from September 30, 1996. The sales of Holiday,
Cloister, Jackson Heights and Berkeley Square also contributed to the
decline in rental income. Rental income at Holiday, Cloister, Jackson
Heights and Berkeley Square decreased $67,550, $109,306, $83,749 and
$33,907, respectively, in 1997 in comparison to 1996. The declines in
rental income were offset in part by increases at four of the
Partnership's six shopping centers.
The following changes in leased percentages also contributed to changes
in rental income and tenant reimbursement income. Woodlawn Village,
Highlandtown Village and Quality Center experienced net leasing gains
from September 30, 1996 to September 30, 1997 of 8%, 2% and 9%,
respectively. Woodlawn was 98% leased, Highlandtown Village was 100%
leased and Quality Center was 86% leased at September 30, 1997. The
increase of 9% at Quality Center primarily resulted from leasing
activity which resulted in a net leasing gain of approximately 5,300
square feet since September 30, 1996. The leased percentage for
Edgewood Plaza remained unchanged at September 30, 1997 from September
30, 1996 at 100% leased. The Partnership's aggregate portfolio was
approximately 89% leased at September 30, 1997, an increase from 84%
leased at September 30, 1996. The Partnership's shopping center
portfolio at September 30, 1997 represented six centers with
approximately 638,000 leasable square feet. The portfolio at September
30, 1996 represented nine shopping centers with approximately 945,000
square feet.
Interest, depreciation and taxes and insurance expenses decreased for
the nine months ended September 30, 1997 in comparison to the nine
months ended September 30, 1996 primarily due to the sale of Holiday in
May 1996, Cloister in May 1997 and Jackson Heights in July 1997.
Interest expense decreased $227,802 to $1,862,250 in 1997 from
$2,090,052 in 1996. The net decrease in interest expense is primarily
attributable to the sales of Cloister and Jackson Heights and to
declines in interest expense at Tarrytown Mall of $38,616 and Woodlawn
Village of $42,990. The decrease at Tarrytown Mall primarily resulted
<PAGE> 20
from the payment of $25,000 in January 1996 and $16,000 in April 1996
for certain deferred interest obligations to the holder of the second
trust of Tarrytown Mall. These deferred interest payment obligations
were paid in full by April 1996. Woodlawn's interest expense decreased
due to the decline in the interest rate effective with the loan
extension. Depreciation expense decreased $95,650 to $947,689 for the
nine months in 1997 from $1,043,339 for the nine months in 1996. Taxes
and insurance expense decreased $44,092 to $522,548 for the nine months
ended September 30, 1997 from $566,640 for the comparable nine months
of 1996. Repairs and maintenance expense decreased $71,719 to $606,599
for the 1997 period from $678,318 for the 1996 period.
In the second quarter of 1997, the Partnership recorded an impairment
charge of $550,000. There was no comparable transaction in the nine
months ended September 30, 1996. The charge of $550,000 represented
the amount required to write-down the carrying value of Berkeley Square
to its revised fair value.
Interest income increased $61,239 to $137,074 for the nine months in
1997 from $75,835 for the comparable nine months in 1996. The increase
in interest income was primarily the result of increasing cash balances
predominantly due to proceeds from the sales of shopping centers.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule for the nine months ended
September 30, 1997.
(b) REPORTS ON FORM 8-K
The Partnership filed a report on Form 8-K in July 1997 to report the
sale of Jackson Heights Shopping Center on July 16, 1997 and in
September 1997 to report the sale of Berkeley Square Shopping Center
on September 10, 1997.
<PAGE> 21
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.
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
By: Realty Capital IV Limited Partnership
General Partner
By: LMRC IV, Inc., General Partner
Date: November 14, 1997 By: /s/ Richard J. Himelfarb
------------------ -----------------------------------
Richard J. Himelfarb, President
By: FW Realty Limited Partnership,
General Partner
By: FW Corporation, General Partner
Date: November 14, 1997 By: /s/ William J. Wolfe
------------------ ---------------------------------
William J. Wolfe, President
EXHIBIT INDEX
Exhibit
Number
27.1 Financial Data Schedule for the nine months
ended September 30, 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> $6,297,170
<SECURITIES> $0
<RECEIVABLES> $892,052
<ALLOWANCES> $249,824
<INVENTORY> $0
<CURRENT-ASSETS> $0
<PP&E> $38,040,211
<DEPRECIATION> $14,639,344
<TOTAL-ASSETS> $31,472,197
<CURRENT-LIABILITIES> $0
<BONDS> $22,639,010
$0
$0
<COMMON> $0
<OTHER-SE> $6,247,393
<TOTAL-LIABILITY-AND-EQUITY> $31,472,197
<SALES> $0
<TOTAL-REVENUES> $4,428,738
<CGS> $0
<TOTAL-COSTS> $3,536,808
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $54,013
<INTEREST-EXPENSE> $1,862,250
<INCOME-PRETAX> ($582,936)
<INCOME-TAX> $0
<INCOME-CONTINUING> ($582,936)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> ($582,936)
<EPS-PRIMARY> ($0.54)
<EPS-DILUTED> ($0.54)
</TABLE>
