<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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16285
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
---------------------------------------------------------
(Exact name of registrant as specified in its partnership
agreement)
MARYLAND 52-1490861
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(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
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(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
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Investment in real estate held for lease, at cost:
Land $ 8,456,804 $ 8,724,880
Buildings and improvements 39,211,365 42,599,014
----------- -----------
47,668,169 51,323,894
Less accumulated depreciation (16,767,291) (16,939,873)
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30,900,878 34,384,021
Cash and cash equivalents 1,923,578 3,051,221
Tenant accounts receivable, net of allowance
for doubtful accounts ($253,915 in 1997 and
$228,991 in 1996) 666,209 767,223
Escrows 1,022,175 882,333
Prepaid expenses and other assets 105,142 360,030
Intangible assets, net of accumulated amortization
($1,032,080 in 1997 and $1,035,330 in 1996) 258,519 222,287
----------- -----------
Total assets $34,876,501 $39,667,115
=========== ===========
LIABILITIES AND PARTNERS' EQUITY:
Long-term debt, including current maturities $26,081,375 $28,104,113
Interest payable 1,301,951 1,098,751
Cash flow protector loans 789,203 789,203
Accounts payable and accrued expenses 208,167 124,800
Prepaid rents and security deposits 196,303 193,139
Due to related parties 138,993 126,780
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Total liabilities 28,715,992 30,436,786
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General partners and assignor limited partner 554,035 529,870
Assignee limited partners (1,200,000 units
authorized, issued and outstanding) 5,606,474 8,700,459
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Total partners' equity 6,160,509 9,230,329
----------- -----------
Total liabilities and partners' equity $34,876,501 $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 ended For the six months ended
June 30, June 30,
---------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income $1,277,048 $1,348,397 $2,615,470 $2,654,863
Tenant reimbursement income 267,816 279,835 531,933 539,568
---------- ---------- ---------- ----------
Total income 1,544,864 1,628,232 3,147,403 3,194,431
---------- ---------- ---------- ----------
Operating expenses:
Interest expense 635,888 698,126 1,297,932 1,411,597
Write-down of assets 550,000 - 550,000 -
Depreciation 332,359 347,709 673,020 701,545
Repairs and maintenance 190,326 198,987 421,267 450,736
Taxes and insurance 190,475 185,910 377,830 376,826
Management and leasing to
related parties 96,445 88,400 183,445 177,500
Provision for doubtful accounts 19,079 39,743 33,751 23,405
Amortization 33,565 32,137 66,074 57,985
Other expenses 185,580 179,206 409,600 350,576
---------- ---------- ---------- ----------
Total operating expenses 2,233,717 1,770,218 4,012,919 3,550,170
---------- ---------- ---------- ----------
Loss from rental operations (688,853) (141,986) (865,516) (355,739)
Other income:
Gain (loss) on sale of
shopping center 128,597 (78,687) 128,597 (78,687)
Interest income 32,194 23,775 67,099 42,333
---------- ---------- ---------- ----------
Net loss $ (528,062) $ (196,898) $ (669,820) $ (392,093)
========== ========== ========== ==========
Net income (loss) allocated
to general partners $ 25,583 $ (1,969) $ 24,165 $ (3,921)
========== ========== ========== ==========
Net loss allocated to
assignee limited partners $ (553,645) $ (194,929) $ (693,985) $ (388,172)
========== ========== ========== ==========
Net loss allocated to
assignee limited partners
per unit (1,200,000 units
issued and outstanding) $ (0.46) $ (0.16) $ (0.58) $ (0.32)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
For the six months ended June 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 (7,984) (790,433) - (798,417)
Gain on sale of
shopping center 32,149 96,448 - 128,597
---------- ---------- ---------- ----------
Partners' equity,
June 30, 1997 $ 553,958 $5,606,474 $ 77 $6,160,509
========== ========== ========== ==========
</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 six months ended
June 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (669,820) $ (392,093)
---------- ----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 739,094 759,530
Write-down of assets 550,000 -
(Gain) loss on sale of shopping center (128,597) 78,687
Changes in operating assets and liabilities:
Decrease in tenant accounts receivable, net 101,014 100,614
Decrease (increase) in prepaid expenses
and other assets 115,046 (124,316)
Increase in accounts payable and
accrued expenses and other liabilities 86,531 11,265
Increase in accrued interest payable 203,200 205,545
Increase in due to related parties 12,213 2,216
---------- ----------
Total adjustments 1,678,501 1,033,541
---------- ----------
Net cash provided by operating activities 1,008,681 641,448
---------- ----------
Cash flows from investing activities:
Proceeds from sale of real estate 2,503,957 1,093,203
Improvements of real estate (115,237) (47,106)
---------- ----------
Net cash provided by investing activities 2,388,720 1,046,097
---------- ----------
Cash flows from financing activities:
Distributions to partners (2,400,000) -
Retirement of long-term debt (1,723,147) (347,751)
Principal payments on long-term debt (299,591) (318,718)
Financing fees (102,306) (24,496)
---------- ----------
Net cash used in financing activities (4,525,044) (690,965)
---------- ----------
Net (decrease) increase in cash and cash
equivalents (1,127,643) 996,580
Cash and cash equivalents at beginning of period 3,051,221 1,664,994
---------- ----------
Cash and cash equivalents at end of period $1,923,578 $2,661,574
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for: Interest $1,094,732 $1,206,052
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
Notes to Financial Statements
June 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
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 $282,105 and $317,688 at June 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 June 30, 1997 and 1996
included income with respect to these percentage rentals of
$62,192 and $61,676, respectively. Rental income for the six
months ended June 30, 1997 and 1996 included percentage rent
income of $125,587 and $116,662, 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
<PAGE> 7
the fair values. As the cash flow protector loans 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.
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 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 consider selling 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 the 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 June 30, 1997, the Partnership paid
First Washington Management, Inc., an affiliate of FW Realty
Limited Partnership, one of the general partners, $80,064 and
Legg Mason Realty Capital, Inc., an affiliate of Realty Capital
IV Limited Partnership, the other general partner, $35,007 for
management fees and reimbursement of operating expenses. At June
30, 1997, $38,002 was payable to First Washington Management,
Inc. and $27,560 was payable to Legg Mason Realty Capital, Inc.
for management fees and reimbursement of operating expenses.
<PAGE> 8
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 June 30, 1997, 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. It is not anticipated
that these cash flow protector loans will be repaid.
In addition, acquisition fees totalling $73,431 were payable as
of June 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
<PAGE> 9
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.
In June 1997, the Partnership made a cash distribution totalling
$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.
In July 1997, the Partnership entered into an agreement to sell
Berkeley Square Shopping Center to an unrelated third party for a
contract price of $2,975,000. As a result, in the second quarter
of 1997, 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
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 approximately
$180,000 in July 1997.
<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 June 30, 1997, tenant rent receivables (prior to the
allowance for doubtful accounts of $253,915) totaled $920,124 of
which amount $282,105 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 $638,019 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 $1,127,643 net decrease in cash and cash
equivalents in the six months ended June 30, 1997, with $1,008,681
in net cash provided by operating activities and $2,388,720
provided by investing activities, offset by $4,525,044 in net cash
used in financing activities. The decrease in cash and cash
equivalents is primarily attributable to the payment of
distributions to limited partners totalling $2,400,000 in June
1997, which was offset in part by net proceeds from the sale of
Cloister Shopping Center. The sale of Cloister on May 28, 1997
contributed approximately $1,119,000 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 six months ended
June 30, 1997 of $669,820 and net cash provided by operating
activities of $1,008,681 were the noncash charge of $739,094 for
depreciation and amortization, a write-down of assets of $550,000
and an increase in accrued interest payable of $203,200. See the
<PAGE> 11
discussions of the sale of Cloister and the write-down of assets
related to Berkeley Square incorporated by reference from Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources herein.
Net cash used in financing activities of $4,525,044 consisted of
distributions to limited partners of $2,400,000, retirement of debt
of $1,423,147 related to Cloister, payment of $300,000 to reduce
the principal balance of the Lynnwood Place mortgage in connection
with a loan extension, monthly principal payments on long-term debt
totalling $299,591 and payment of financing fees of $102,306
related to the Lynnwood Place, Woodlawn Village, and Quality Center
loan extensions. Principal payments on long-term debt included
$135,000 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, 1997 decreased $1,127,643 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.
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 totalling $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 June 30, 1997, cumulative cash distributions of
$9,047,888 and $62,391 had been made to limited partners and
general partners, respectively.
On July 16, 1997, subsequent to the end of the quarter, the
Partnership sold Jackson Heights Shopping Center to an unrelated
<PAGE> 12
third party for a contract price of $4,800,000. For financial
reporting purposes, a gain, after transaction expenses, of
approximately $180,000 was recorded in July 1997. The net proceeds
from the sale, after payoff of the related mortgage debt and
transaction expenses, were approximately $2,579,000 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.
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 Partners' belief that maintenance of adequate cash reserves
is required consistent with the Partnership's objectives.
Presently, and in light of the consummation of the sale of Jackson
Heights, the General Partners anticipate that the Partnership will
make an additional cash distribution of sale proceeds to
Unitholders in November 1997 at the time the third quarter report
is mailed. The amount of the distribution depends upon the sale of
additional shopping centers in the interim.
In July 1997, the Partnership entered into an agreement to sell
Berkeley Square Shopping Center to an unrelated third party for a
contract price of $2,975,000. As a result, in the second quarter
of 1997, the Partnership recorded an impairment charge of $550,000
to write-down the carrying value of Berkeley Square to its revised
fair value. Closing of the Berkeley Square agreement is subject to
various contingencies and therefore there can be no assurance a
sale transaction will occur.
In July 1997, the Partnership entered into an agreement to sell
Highlandtown Village to an unrelated third party for a contract
price of $4,700,000. Closing under that contract is similarly
subject to various contingencies and therefore there can be no
assurance a sale transaction will occur.
The General Partners currently intend to offer the Partnership's
remaining properties for sale as follows: (i) three properties,
Lynnwood Place, Woodlawn Village and Edgewood Plaza, have been
listed for sale; (ii) the listing of Quality Center will occur in
the third quarter of 1997; and (iii) the disposition of Tarrytown
Mall will be resolved following discussions with that center's
mortgage lenders. Due to the increased level of leasing activity
at Quality Center, the General Partners have determined to list
that property for sale at this time. The General Partners have not
committed to 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.
The Partnership considers its properties to be long-lived assets to
<PAGE> 13
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 fourth quarter of 1997, Highlandtown Village and Berkeley
Square. The Highlandtown Village mortgage, which had an
outstanding principal balance of $3,114,356 at June 30, 1997,
matures on December 21, 1997. The Partnership has received an
application from the lender of Highlandtown Village to extend that
mortgage at maturity if the center is not sold in the interim. The
Berkeley Square mortgage, which had an outstanding principal
balance of $1,366,414 at June 30, 1997, matures on December 31,
1997. The Partnership currently anticipates that it will exercise
its option to extend the Berkeley Square mortgage to December 1998
if the center is not sold by the current maturity date.
At June 30, 1997, Tarrytown Mall was subject to $6,924,938 in
mortgage indebtedness, of which $1,539,940 is a first trust
mortgage and $5,384,998 is a second trust mortgage. In addition,
at June 30, 1997, $16,100 in interest was accrued with respect to
the first mortgage and $1,124,032 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 $22,500 per month until June 30, 1997 when required principal
payments were scheduled to increase to $49,000 per month. The
first trust lender has agreed to maintain the current payment
schedule of monthly principal payments of $22,500 plus interest
until June 30, 1998. All other loan terms remain unchanged.
Monthly principal payments are scheduled to increase to $54,000 on
July 1, 1998. 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 $215,000 in unpaid interest in the first six
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.
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
<PAGE> 14
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 six months ended June 30, 1997, depreciation charges with
respect to Tarrytown Mall were approximately $165,000. Escrows and
prepaid expenses and other assets in the Partnership's financial
statements include approximately $593,000 with respect to Tarrytown
Mall which is pledged to secure mortgage debt related to that
property.
No value was ascribed to Tarrytown Mall 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 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. The tenant will
reimburse the Partnership for its share of common area
maintenance expenses commencing no later than October 15, 1997.
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.
At Edgewood Plaza, Rite-Aid, which leases 6,400 square feet, has
subleased its space to a variety store, Dollar General. Rite-Aid
opened a free-standing retail store directly across Route 755 from
the shopping center in October 1996 and Rite-Aid closed its 6,400
square foot store at Edgewood Plaza at that time. Rite-Aid's lease
with the Partnership (and the Dollar General sublease) expire in
<PAGE> 15
July 1999.
Subsequent to June 30, 1997, the Partnership is obligated to expend
approximately $250,000 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 committed
expenditures include an estimated $225,000 for tenant fit-up and
tenant leasing commission with respect to a new tenant lease at
Quality Center for 13,887 square feet.
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.
<PAGE> 16
RESULTS OF OPERATIONS
The results of operations for the quarter and six months ended June
30, 1997 reflect the operations of nine shopping centers through
May 27, 1997 and eight shopping centers thereafter. The results of
operations for the comparable quarter and six 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 and Cloister Shopping Center on May 28, 1997.
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 6/30/97 6/30/96 6/30/97 6/30/96
--------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
WOODLAWN VILLAGE
Fredericksburg, VA........ $ 12,215 $ (9,232) $ 25,850 $ (20,838)
LYNNWOOD PLACE
Jackson, TN............... (52,877) (52,409) (96,611) (72,765)
HIGHLANDTOWN VILLAGE
Baltimore, MD............. 27,028 9,212 29,388 13,662
JACKSON HEIGHTS PLAZA
Murfreesboro, TN.......... 50,450 49,191 99,635 101,248
HOLIDAY
Collinsville, VA.......... - 9,400 - 9,471
CLOISTER
Ephrata, PA............... 1,637 9,675 21,188 13,905
EDGEWOOD PLAZA
Harford County, MD........ 30,127 15,827 33,362 31,325
TARRYTOWN MALL
Rocky Mount, NC........... (118,189) (108,478) (277,828) (268,883)
BERKELEY SQUARE
Goose Creek, SC........... (5,221) 24,395 22,545 43,610
QUALITY CENTER
Lancaster, PA............. (42,061) (20,353) (78,355) (92,185)
--------- --------- ---------- ---------
Shopping center totals (96,891) (72,772) (220,826) (241,450)
Write-down of assets (550,000) - (550,000) -
Gain (loss) on sale of center 128,597 (78,687) 128,597 (78,687)
Other expenses, net of other
income (9,768) (45,439) (27,591) (71,956)
--------- --------- ---------- ---------
Total $(528,062) $(196,898) $ (669,820) $(392,093)
========= ========= ========== =========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997:
Net loss increased $331,164 to net loss of $528,062 for the second
quarter of 1997 from net loss of $196,898 for the comparable
quarter of 1996. The significant factors contributing to the
<PAGE> 17
increase in net loss in the second quarter of 1997 were the write-
down of assets of $550,000 in the second quarter of 1997 and a
decline in total income. These factors were partially offset by
decreases in interest and depreciation expenses, a lower provision
for doubtful accounts and a gain on sale of shopping center of $128,597
in 1997 in comparison to a loss on sale of center of $78,687 in 1996.
The Partnership's total income decreased $83,368 to $1,544,864 in
the quarter ended June 30, 1997 from $1,628,232 in the comparable
quarter of 1996. The decrease in total income consisted of a
decrease in rental income of $71,349 to $1,277,048 for the second
quarter of 1997 from $1,348,397 for the second quarter of 1996 and
a decrease in tenant reimbursement income of $12,019 to $267,816
for the 1997 quarter from $279,835 for the 1996 quarter.
Four of the Partnership's eight shopping centers had decreases in
rental income, including a significant decrease at Tarrytown Mall
of $29,358. The decrease in rental income at Tarrytown Mall was
primarily due the loss of several tenants at that center in the
second half of 1996. However, Tarrytown Mall's leased percentage
increased 24% to 85% leased at June 30, 1997 from 61% at June 30,
1996. The increase of 24% in the second quarter of 1997 primarily
resulted from the addition of one tenant leasing 79,066 square
feet. The sale of Holiday on May 3, 1996 and Cloister on May 28,
1997 also contributed to the decline in rental income. Holiday had
rental income of $26,794 in the second quarter of 1996 and rental
income at Cloister was $27,652 lower in the 1997 quarter in
comparison to the 1996 quarter.
The following changes in leased percentages also contributed to
changes in rental income and tenant reimbursement income. Woodlawn
Village, Berkeley Square, Jackson Heights and Quality Center
experienced net leasing gains from June 30, 1996 to June 30, 1997.
Woodlawn was 98% leased at June 30, 1997, which represented an
increase from approximately 93% leased at June 30, 1996. Berkeley
Square was approximately 99% leased, which represented a net
leasing gain of approximately 4% from June 30, 1996. Jackson
Heights and Quality Center were 100% and 76% leased, respectively,
at June 30, 1997, which represented increases of approximately 1%
at both centers. The leased percentages for Highlandtown Village
and Edgewood Plaza remained unchanged at June 30, 1997 from June
30, 1996 at 100% leased. Lynnwood Place was 92% leased, which
represented a decline of 8%. The Partnership's aggregate portfolio
was approximately 92% leased at June 30, 1997, an increase from 84%
leased at June 30, 1996, which is primarily attributable to a new
lease at Tarrytown Mall for 79,066 square feet. The Partnership's
shopping center portfolio at June 30, 1997 represented eight
centers with approximately 896,000 leasable square feet. The
portfolio at June 30, 1996 represented nine shopping centers with
approximately 951,000 square feet.
Interest expense decreased $62,238 to $635,888 for the second
<PAGE> 18
quarter of 1997 from $698,126 for the second quarter of 1996.
Interest expense declined at seven of the Partnership's eight
shopping centers and due to the sale of Cloister in May 1997.
Interest expense at Cloister decreased $22,904 for the quarter
ended June 30, 1997 in comparison to the quarter ended June 30,
1996.
In the second quarter of 1997, the Partnership recorded an
impairment charge of $550,000. There was no comparable transaction
in the second quarter of 1996. The charge of $550,000 represented
the amount required to write-down the carrying value of Berkeley
Square to its revised fair value.
Depreciation expense decreased $15,350 to $332,359 for the quarter
ended June 30, 1997 from $347,709 for the comparable quarter of
1996. The aggregate provision for doubtful accounts was $19,079
for the 1997 quarter and $39,743 for the 1996 quarter. The
provision for doubtful accounts related to Orchard Square, which
was sold December 29, 1995, was lower in 1997 by $18,627 as
compared to 1996.
SIX MONTHS ENDED JUNE 30, 1997:
Net loss increased $277,727 to net loss of $669,820 for the six
months ended June 30, 1997 from net loss of $392,093 for the
comparable six 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. These factors were partially offset by
decreases in interest, depreciation and repairs and maintenance
expenses, a gain on sale of center of $128,597 in 1997 in
comparison to a loss on sale of center of $78,687 in 1996 and an
increase in interest income.
The Partnership's total income decreased $47,028 to $3,147,403 in
the six months ended June 30, 1997 from $3,194,431 in the
comparable six months of 1996. The decrease in total income
consisted of a decrease in rental income of $39,393 to $2,615,470
for the 1997 period from $2,654,863 for the 1996 period and a
decrease in tenant reimbursement income of $7,635 to $531,933 for
1997 from $539,568 for 1996.
Three of the Partnership's eight shopping centers had decreases in
rental income. The sale of Holiday on May 3, 1996 and Cloister on
May 28, 1997 also contributed to the decline in rental income.
Holiday had rental income of $69,303 in the first six months of
1996 and rental income at Cloister was $13,049 lower in the 1997
six month period in comparison to the 1996 six month period. The
declines in rental income were offset in part by increases at five
of the Partnership's eight shopping centers, including a
significant increase of $22,745 at Jackson Heights. The increase
in rental income at Jackson Heights was primarily due to leasing
<PAGE> 19
activity at that center. Jackson Heights was 100% leased at June
30, 1997, which represented an increase of approximately 1% from
June 30, 1996.
The following changes in leased percentages also contributed to
changes in rental income and tenant reimbursement income.
Tarrytown Mall, Woodlawn Village, Berkeley Square, and Quality
Center experienced net leasing gains from June 30, 1996 to June 30,
1997. Tarrytown Mall's leased percentage increased 24% to 85%
leased at June 30, 1997 from 61% at June 30, 1996. The increase of
24% in the second quarter of 1997 primarily resulted from the
addition of one tenant leasing 79,066 square feet. Woodlawn was
98% leased at June 30, 1997, which represented an increase from
approximately 93% leased at June 30, 1996. Berkeley Square was
approximately 99% leased, which represented a net leasing gain of
approximately 4%. Quality Center was 76% leased at June 30, 1997,
which represented an increase of approximately 1% at that center.
The leased percentages for Highlandtown Village and Edgewood Plaza
remained unchanged at June 30, 1997 from June 30, 1996 at 100%
leased. Lynnwood Place was 92% leased, which represented a decline
of 8% from June 30, 1996. The Partnership's aggregate portfolio
was approximately 92% leased at June 30, 1997, an increase from 84%
leased at June 30, 1996 which is primarily attributable to a new
lease at Tarrytown Mall for 79,066 square feet. The Partnership's
shopping center portfolio at June 30, 1997 represented eight
centers with approximately 896,000 leasable square feet. The
portfolio at June 30, 1996 represented nine shopping centers with
approximately 951,000 square feet.
Interest expense decreased $113,665 to $1,297,932 for the six
months ended June 30, 1997 from $1,411,597 for the comparable six
months of 1996. The net decrease in interest expense is partially
attributable to declines in interest expense at Tarrytown Mall of
$32,879 and Woodlawn Village of $28,499. The decrease at Tarrytown
Mall primarily resulted 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.
In the second quarter of 1997, the Partnership recorded an
impairment charge of $550,000. There was no comparable transaction
in the six months ended June 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.
Depreciation expense decreased $28,525 to $673,020 for the six
months in 1997 from $701,545 for the six months in 1996. The net
decrease in depreciation expense is primarily attributable to the
sale of Holiday in May 1996. Depreciation expense at Holiday was
$21,187 in the 1996 period. Repairs and maintenance expense
<PAGE> 20
decreased $29,469 to $421,267 for the 1997 period from $450,736 for
the 1996 period.
The decreases in interest, depreciation and repairs and maintenance
expense were partially offset by an increase in other expenses of
$59,024 to $409,600 for the six months ended June 30, 1997 from
$350,576 for the comparable period in 1996. The increase was
primarily due to increases in utilities expense of $20,575, legal
expense of $20,498 and administrative expense of $14,480.
Interest income increased $24,766 to $67,099 for the six months in
1997 from $42,333 for the comparable six months in 1996. 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, Holiday in May 1996 and Cloister
in May 1997.
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, 1997.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Partnership during
the quarter ended June 30, 1997. 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.
<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: August 14, 1997 By: /s/ Richard J. Himelfarb
------------------ -----------------------------------
Richard J. Himelfarb, President
By: FW Realty Limited Partnership,
General Partner
By: FW Corporation, General Partner
Date: August 14, 1997 By: /s/ William J. Wolfe
------------------ ---------------------------------
William J. Wolfe, President
<PAGE> 22
EXHIBIT INDEX
Exhibit
Number
27.1 Financial Data Schedule for the six months
ended June 30, 1997.
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $1,923,578
<SECURITIES> $0
<RECEIVABLES> $920,124
<ALLOWANCES> $253,915
<INVENTORY> $0
<CURRENT-ASSETS> $0
<PP&E> $47,668,169
<DEPRECIATION> $16,767,291
<TOTAL-ASSETS> $34,876,501
<CURRENT-LIABILITIES> $0
<BONDS> $26,081,375
$0
$0
<COMMON> $0
<OTHER-SE> $6,160,509
<TOTAL-LIABILITY-AND-EQUITY> $34,876,501
<SALES> $0
<TOTAL-REVENUES> $3,147,403
<CGS> $0
<TOTAL-COSTS> $2,681,236
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $33,751
<INTEREST-EXPENSE> $1,297,932
<INCOME-PRETAX> ($669,820)
<INCOME-TAX> $0
<INCOME-CONTINUING> ($669,820)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> ($669,820)
<EPS-PRIMARY> ($0.58)
<EPS-DILUTED> ($0.58)
</TABLE>
