<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the
- ---- Securities Exchange Act of 1934
For the fiscal year ended: December 31, 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 no.: 0-16285
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
----------------------------------------------------------
(Exact name of registrant as specified in its Partnership
Agreement)
MARYLAND 52-1490861
(State of Organization) (IRS Employer Identification Number)
100 Light Street, Baltimore, Maryland 21202
(Address of principal executive offices) (Zip code)
Registrant's phone number, including area code: (410) 539-0000
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
Units of Assignee Limited Partnership Interests
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[X]
Portions of the Registrant's Prospectus dated March 25, 1987 (included
in Registration Statement No. 33-11086) are incorporated by reference
into Parts II and III
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Mid-Atlantic Centers Limited Partnership (the "Partnership") was
organized as a limited partnership under the Maryland Revised Uniform
Limited Partnership Act on December 16, 1986. The Partnership was
formed to acquire, hold, lease and ultimately sell a portfolio of
community and neighborhood shopping center properties. The General
Partners of the Partnership are FW Realty Limited Partnership, a
limited partnership organized under the Uniform Limited Partnership
Act of the District of Columbia, and Realty Capital IV Limited
Partnership, a limited partnership organized under the Maryland
Revised Uniform Limited Partnership Act (collectively, the "General
Partners").
As of December 31, 1997, the Partnership owned a real estate portfolio
of five shopping center properties in five states. 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, Berkeley Square
Shopping Center on September 10, 1997 and Highlandtown Village Shopping
Center on December 19, 1997. Subsequent to year-end, the Partnership
sold Lynnwood Place Shopping Center on January 29, 1998 and Edgewood
Plaza Shopping Center on March 2, 1998. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," of this report for a discussion of the sales of these
properties. The three remaining shopping centers aggregate
approximately 438,000 leasable square feet. All of the shopping
centers owned by the Partnership were purchased from unaffiliated
sellers. See Item 2, "Properties," of this report for a description of
the Partnership's properties. Such descriptions are incorporated
herein by reference.
Effective December 31, 1997, the General Partners adopted a formal plan
for liquidation of the Partnership. This plan contemplates the sale or
other disposition of the Partnership's remaining shopping centers,
liquidation of all assets remaining after the sale of the shopping
centers, and distribution of the net proceeds to the assignee limited
partners in 1998. The General Partners formally approved of this plan
of liquidation on March 30, 1998. Two of the Partnership's three
remaining centers are subject to contracts of sale and the third center
has an estimated net realizable value of zero. See Item 2,
"Properties," and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," for a discussion of the
Partnership's year-end net asset value and the Partnership's intention
to liquidate. There can be no assurance that the Partnership will
consummate the sale or dissolution of its remaining properties pursuant
to existing contracts or that the Partnership will liquidate in 1998 as
intended, although the General Partners intend to make every effort to
do so.
<PAGE> 3
The Partnership's investments in its remaining shopping center
properties are subject to such risks as (i) adverse changes in general
economic conditions and local conditions such as competitive over-
building or decreases in employment or population, (ii) the uncertainty
of lease renewals and possible inability to attract tenants to
available space, (iii) tenant nonperformance of lease obligations, (iv)
uncertainty of cash flow from operations, (v) adverse changes in the
investment climate for real estate, including adverse changes in the
availability of mortgage loans, (vi) adverse changes in zoning, tax
or other local or federal governmental rules or regulations and (vii)
other factors over which the Partnership may have little or no
control and which cannot be predicted.
The Partnership's shopping center properties compete for tenants and
consumer traffic with neighborhood and community shopping centers,
individual retail establishments and shopping malls. The Partnership's
properties face substantial competition for tenants among shopping
center developers, owners and operators as well as other retail
establishments. Tenants consider many factors when evaluating
potential retail space, including location, competition, rental rates,
tenant fit-up allowances, lease terms, access, pedestrian and vehicular
traffic, parking, quality of construction, tenant mix within the center
and management of the centers. The Partnership faces the risk that
tenants may vacate space prior to lease expirations or that the
Partnership may not be successful in obtaining renewals of expiring
leases or new tenants for available space. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," of this report for a discussion of the operations of the
shopping centers.
The Partnership does not have any employees. The General Partners or
their affiliates provide, or contract with third parties to provide,
services required for Partnership operation and administration. A
description of the services provided to the Partnership by the General
Partners or their affiliates is incorporated by reference from Item 13,
"Certain Relationships and Related Transactions," of this report.
ITEM 2. PROPERTIES
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,
Berkeley Square Shopping Center on September 10, 1997 and Highlandtown
Village Shopping Center on December 19, 1997. Subsequent to year-end,
the Partnership sold Lynnwood Place Shopping Center on January 29, 1998
and Edgewood Plaza Shopping Center on March 2, 1998. The General
Partners intend to sell or dispose of Quality Center Shopping Center,
Woodlawn Village Shopping Center and Tarrytown Mall Shopping Center
(the "Remaining Properties") in 1998. In this regard, in March 1998,
the Partnership has entered into agreements to sell Quality Center and
Woodlawn Village. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," herein regarding the
Partnership's activities in this regard.
<PAGE> 4
In order to provide certain information required by retirement account
investors, the General Partners valued the assets of the Partnership,
including the five shopping centers owned by the Partnership, as of
December 31, 1997. Given the fact that two properties, Edgewood Plaza
and Lynnwood Place, were sold by the Partnership subsequent to year-
end, the net realizable values of these properties included in the
Partnership's 1997 year-end net asset value reflect the actual sale
transactions and estimated operating revenues and expenses expected to
be recorded in 1998 related to those properties. In light of the
Partnership's decision to liquidate, the Partnership's 1997 net asset
value reflects the net realizable values for the Remaining Properties
after giving effect to valuation of Quality Center, Woodlawn Village
and Tarrytown Mall in the manner described below and the following
principles: (i) estimated closing costs upon sale or disposal of the
properties; (ii) estimated operating revenues and expenses expected to
be recorded from January 1, 1998 until the anticipated sale of each
property; and (iii) anticipated liabilities associated with each
property. In addition, a contingent liability was recorded for
estimates of costs to be incurred in carrying out the dissolution and
liquidation of the Partnership. These costs include estimated legal
fees, accounting fees, tax return preparation and partnership
administration. Actual costs could vary significantly from these
estimated costs due to uncertainty related to the length of time
required to complete the liquidation and dissolution of the Partnership
and unanticipated events which may arise in disposing of the
Partnership's remaining assets.
The estimated net realizable value of Quality Center is based on the
anticipated sale transaction pursuant to the contract of sale dated
March 27, 1998. Adjustments were made for estimated operating revenues
and expenses expected to be recorded in 1998 and payment of the
outstanding balance of the mortgage debt and accrued interest related
to this property. Although the contract purchaser's deposit of
$150,000 is subject to risk of forfeiture, subject to limited
conditions, there can be no assurance that the Quality Center
transaction will close.
The Partnership relied on appraisals which were prepared as of December
1, 1997 by an independent MAI appraiser for the values of the
Partnership's two remaining shopping centers, Woodlawn Village and
Tarrytown Mall. The appraised value of Tarrytown Mall as of December 1,
1997 is less than the outstanding mortgage debt on the property. As a
result, the Partnership's net equity in assets related to Tarrytown
Mall is zero. The carrying value of this property has been adjusted to
the outstanding balance of the mortgage debt and accrued interest as of
December 31, 1997.
The Partnership based the estimated net realizable value of Woodlawn
Village on the appraiser's valuation as of December 1, 1997 as material
contingencies associated with the March 19, 1998 contract of sale for
this property remain. The Woodlawn Village appraised value has been
adjusted for estimated closing costs, estimated operating revenues and
expenses expected to be recorded in 1998 and payment of the outstanding
balance of the mortgage debt and accrued interest related to this
property.
<PAGE> 5
The aggregate value of the Partnership's assets as of December 31,
1997, less the Partnership's liabilities at estimated payable amounts
and accruals for contingent liabilities, resulted in a valuation of the
Partnership's net assets of approximately $7,566,000. Based on
1,200,000 Assignee Limited Partnership Units (the "Units") outstanding,
this equates to approximately $6.31 per Unit. Subsequent to December
31, 1997, the Partnership made a cash distribution of $3,600,000 or $3
per Unit payable to limited partners of record as of February 1, 1998.
This distribution represented proceeds from the sale of shopping
centers and directly reduces the net asset value of $6.31 as of
December 31, 1997 to $3.31 per Unit currently.
The aggregate appraised value of the Partnership's shopping centers
as of December 1, 1996, less the Partnership's mortgages and other
adjustments resulted in a valuation of the Partnership's net assets
at approximately $12,223,000 or $10.19 per Unit. Consistent with the
1997 year-end net asset value, the Partnership's net equity in assets
related to Tarrytown Mall was treated as zero at the end of 1996. The
net asset value of the Partnership as of December 1, 1996 was not
adjusted for selling expenses. Subsequent to that date, $7 per Unit in
sales proceeds have been distributed to Unitholders, $4 per Unit having
been distributed in 1997 and, as described in the preceding paragraph,
$3 in February 1998.
The independent appraisals of Woodlawn Village and Tarrytown Mall
estimate the current market value "as is" of the leased fee estate of
the property. The December 1, 1997 appraised values of the shopping
centers described in the Limited Summary Report filed as an exhibit to
this report are based upon the income capitalization approach to
valuation. The Limited Summary Report is the result of a limited
appraisal process and is subject to the limiting conditions and
assumptions stated therein.
An appraisal is only an estimate of current value and should not be
relied upon as a reflection of realizable value. The value of real
estate is typically driven by rent, occupancy, expense and yield
expectations, measured in the form of capitalization rates.
Capitalization rates depend on anticipated growth or decline in
income and the degree of risk perceived. The income capitalization
approach is a procedure which converts anticipated income to be
derived from the shopping center into a value estimate. In estimating
the appraised value of the shopping centers under the income approach,
projections of a stabilized level of net operating income (earnings
before depreciation, interest and income taxes) were developed by the
appraiser. The projected net operating income was then capitalized
into an estimate of fair value utilizing overall rates of return
selected by the appraiser. The appraiser also utilized a discounted
cash flow analysis whereby the anticipated cash flows were discounted
at a yield rate selected by the appraiser to determine estimated
present value. The overall rates of return and yield rates used in
such calculations are determined by the appraiser based on rates
derived from selected current sales of comparable properties as well as
investor surveys, and are therefore deemed by the appraiser to be
reflective of current investor expectations. The appraised value of
the Partnership's shopping centers should not be relied upon as an
<PAGE> 6
indication of realizable value at the present time or at any time in
the future. The appraisals reflect value to the owner, and therefore
do not make allowance for expenses that would be incurred in selling
the properties. Furthermore, the methods and assumptions used by the
appraiser in preparing the appraisal report are those that the
appraiser, in its professional judgment, concluded were appropriate.
There is no assurance that such assumptions will materialize or that
other or different methods or assumptions that would result in lower
values might be appropriate.
Prior to the adoption of liquidation accounting, depreciation of the
shopping centers was computed using the straight-line method based on
the estimated useful lives of the respective assets. The General
Partners believe the shopping centers are adequately insured.
The Partnership's shopping center portfolio, representing five
centers with approximately 582,000 leasable square feet, was
approximately 87% leased as of December 31, 1997. Two properties,
Lynnwood Place, a 96,666 leasable square foot shopping center, and
Edgewood Plaza, a 47,112 leasable square foot shopping center, were
sold subsequent to December 31, 1997. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," of this report for information regarding the sale of eight
Partnership shopping centers. The Partnership's Remaining Properties
are described below.
WOODLAWN VILLAGE SHOPPING CENTER
In December 1986, the Partnership purchased Woodlawn Village Shopping
Center ("Woodlawn Village"), a 54,144 leasable square-foot shopping
center anchored by a Food Lion grocery store and a CVS drugstore.
Woodlawn Village is located in Fredericksburg, Virginia. Woodlawn
Village was approximately 98% leased as of December 31, 1997, an
increase from approximately 93% leased as of December 31, 1996.
TARRYTOWN MALL SHOPPING CENTER
In September 1988, the Partnership purchased Tarrytown Mall Shopping
Center ("Tarrytown Mall"), a 322,081 leasable square-foot enclosed
mall anchored by Montgomery Ward and Goody's Family Clothing. Tarrytown
Mall is located in Rocky Mount, North Carolina. As of December 31,
1997, Tarrytown Mall was approximately 84% leased, an increase from
approximately 61% as of December 31, 1996. The increase of 23% in 1997
can primarily be attributed to the addition of one tenant, a private
school, leasing 79,066 square feet. A discussion of this lease is
incorporated by reference from Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," herein.
QUALITY CENTER SHOPPING CENTER
In January 1989, the Partnership purchased Quality Center Shopping
Center ("Quality Center"), a 62,234 leasable square-foot shopping
center. The largest tenant at Quality Center is Factory Card Outlet of
America, Ltd. Quality Center is located in Lancaster, Pennsylvania.
Quality Center was approximately 79% leased as of December 31, 1997, an
increase from approximately 73% as of December 31, 1996.
<PAGE> 7
The following tables include information related to the Remaining
Properties.
TABLE I. AVERAGE ANNUAL NET RENTS AND RANGE OF NET RENTAL RATES
PER SQUARE FOOT
AVERAGE ANNUAL RANGE OF
NET RENT (1) NET RENTAL RATES(2)
CENTER (PER SQUARE FOOT) (PER SQUARE FOOT)
------ ----------------- -------------------
Woodlawn Village $ 5.99 $5.17 to $10.50
Tarrytown Mall $ 4.08 $1.96 to $23.01
Quality Center $12.25 $9.45 to $19.14
(1) Average annual net rent is calculated based on the shopping
center's aggregate annual net rent (prior to assessments
for pass-throughs) for leases in place as of December 31,
1997 divided by the total leased square feet for the
shopping center as of that date.
(2) For purposes of this table net rental rates do not include
net rental rates for kiosks.
TABLE II. SCHEDULE OF LEASES EXPIRING IN 1998 BY SHOPPING CENTER
<TABLE>
<CAPTION>
NUMBER OF SQUARE FEET ANNUAL RENT
TOTAL SQUARE TENANTS WITH OF LEASES 1997 TOTAL OF LEASES
FOOTAGE LEASES EXPIRING AS A RENT OF EXPIRING AS A
CENTER OF CENTER EXPIRING(1) % OF TOTAL(1) CENTER(2) % OF TOTAL(1)
------ ----------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Woodlawn 54,144 3 9.2% $315,626 12.4%
Tarrytown Mall 322,081 21 17.6% $829,168 38.2%
Quality Center 62,234 1 1.1% $509,338 2.2%
</TABLE>
(1) This table has been adjusted for lease renewals which were
executed in the first quarter of 1998.
(2) Total rent for purposes of this table does not include
tenant reimbursement income or rental income accrued for
rent adjustments related to rent abatements and scheduled
rent increases.
<PAGE> 8
TABLE III. SCHEDULE OF TENANTS LEASING 10% OR MORE OF THE SPACE
IN EACH SHOPPING CENTER AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
% OF TOTAL ANNUAL
LEASABLE RENT PER LEASE LEASE
SQUARE SPACE AS OF SQUARE EXPIRATION RENEWAL
FEET 12/31/97 FOOT DATE OPTIONS
------ ----------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
WOODLAWN VILLAGE
Food Lion-grocery store 32,744 60% $5.17 June 2006 4 5-year (1)
CVS-pharmacy/drugstore 9,100 17% 6.75 June 2001 4 5-year (2)
TARRYTOWN MALL
Charter School-private school 79,066 25% 3.25 June 2012 4 5-year (1)
Montgomery Ward-department
store 74,069 23% 1.96 October 2003 3 5-year (2)
QUALITY CENTER
Factory Card Outlet of
America, Ltd - card outlet 13,887 22% 11.00 February 2008 2 5-year (1)
</TABLE>
(1) Renewal options with rent at escalating rates per square foot.
(2) Renewal options with rent at identical rate per square foot as
original lease.
TABLE IV. SCHEDULE OF ESTIMATED REAL ESTATE TAXES PAYABLE IN 1998
Woodlawn Village $ 31,300
Tarrytown Mall 74,000
Quality Center 90,000
--------
$195,300
========
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not party to any material pending legal proceedings.
The Partnership is party to ordinary routine litigation incidental to
the Partnership's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of investors (the "Limited
Partners") holding Units during 1997.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S UNITS OF ASSIGNEE LIMITED
PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS
The Partnership completed its public offering of Units on November 11,
1987. The Partnership accepted subscriptions for 1,200,000 Units,
representing capital contributions from Limited Partners of
approximately $29,997,000. The capital contributions from Limited
Partners were fully invested by the Partnership.
<PAGE> 9
There is no trading market for the Units and there is no present
expectation that one will develop. Consequently, Limited Partners may
not be able to liquidate their investment. Further, the transfer of
Units is subject to certain limitations. See Page 66 of the
Partnership's Prospectus dated March 25, 1987 incorporated by reference
herein, for a discussion of the restrictions on transfer of the Units.
See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," herein regarding the General
Partners' intention to sell the Partnership's remaining assets.
As of December 31, 1997, there were approximately 2,700 holders of
1,200,000 Units of the Partnership.
In 1997, the Partnership made cash distributions to limited partners
aggregating $4,800,000 or $4 per Unit which represented proceeds from
the sales of shopping centers. Prior to these distributions, no cash
distributions had been made to Limited Partners since 1990. A
discussion of cash flow is incorporated by reference from Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," herein. See Pages 59 through 62 of the
Partnership's Prospectus dated March 25, 1987 incorporated by reference
herein, for a discussion of the manner in which distributions of cash
flow, sale, or refinancing proceeds and allocations of the net income
or net loss from operations and gain or loss from a sale or refinancing
are to be made by the Partnership.
Subsequent to December 31, 1997, the Partnership made a cash
distribution of $3,600,000 or $3 per Unit payable to limited partners
of record as of February 1, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The General Partners approved a plan of liquidation effective December
31, 1997. As a result, the liquidation basis of accounting has been
adopted effective December 31, 1997. Prior to that date, the
Partnership recorded results of operations using the accrual basis of
accounting. The following table sets forth selected financial
information relating to the Partnership's financial position and
operating results. For comparative purposes, the financial information
for 1997 presented in the following table reflects the Partnership's
operating results and financial position immediately prior to the
adoption of liquidation accounting. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the "Financial Statements and
Supplementary Data" which are included in Items 7 and 8, respectively,
herein.
<PAGE> 10
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Results: (1)
Total income $5,471,208 $6,476,674 $7,426,069 $7,907,735 $7,013,668
Loss from rental operations (1,347,928) (3,500,781) (3,313,097) (1,727,918) (724,098)
Gain (loss) from sales 647,002 (78,687) (2,271,249) - -
Extraordinary gain related
to forgiveness of debt - - 1,602,902 - -
Net loss (479,417) (3,225,468) (3,778,465) (1,717,157) (691,862)
Financial Position, End of
Year: (1)
Investment in real estate
held for lease, net (2) 19,428,332 34,384,021 39,787,906 50,532,803 53,530,821
Total assets (2) 25,995,109 39,667,115 43,564,545 53,218,234 55,764,988
Long-term debt, including
current maturities 19,429,050 28,104,113 29,130,611 35,285,891 34,528,736
Per Assignee Limited
Partnership Unit:
Net loss (1) (0.52) (2.71) (3.57) (1.42) (0.57)
Cash distributions (3) 4.00 - - - -
(1) - The 1997, 1996, 1995 and 1994 operating results and the financial position as of
December 31, 1997, 1996, 1995 and 1994 reflect the effect of write-downs of assets
totaling $550,000 in 1997 related to Berkeley Square, $2,895,000 in 1996 and
$2,606,156 in 1995 related to Tarrytown Mall and $1,587,746 in 1994 related to
Tarrytown Mall and Holiday. Subsequent to December 31, 1997, the Partnership sold
Lynnwood Place Shopping Center on January 29, 1998 and Edgewood Plaza Shopping
Center on March 2, 1998. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," herein for a discussion of the
write-downs and sales of assets.
(2) - The 1997 investment in real estate held for lease, net and total assets reflect the
Partnership's financial position immediately prior to the adoption of liquidation
accounting.
(3) - Subsequent to December 31, 1997, the Partnerhip made a cash distribution totaling
$3,600,000 or $3 per Unit to Unitholders of record as of February 1, 1998.
</TABLE>
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The matters discussed in this Form 10-K include forward-looking statements
as contemplated by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements which relate to future operations,
strategies, financial results, or other developments. Forward-looking
statements are necessarily based upon estimates and assumptions that are
inherently subject to significant business, economic and competitive risks,
uncertainties and contingencies, many of which are beyond the Partnership's
control and many of which, with respect to future business decisions, are
subject to change. These risks, uncertainties and contingencies can affect
actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by the Partnership.
The General Partners approved a plan of liquidation effective December 31,
1997. The plan provides that the Partnership sell or otherwise dispose of
the Partnership's remaining shopping centers, liquidate all assets remaining
after sale of the shopping centers and distribute net proceeds to the
assignee limited partners in 1998. The Partnership adopted the liquidation
basis of accounting effective December 31, 1997. Prior to that date, the
Partnership recorded results of operations using the accrual basis of
accounting.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded. In connection
with the planned liquidation, the Partnership has recorded a reserve for
additional expenses to reflect the Partnership's best estimate of the costs
associated with the liquidation.
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 based on 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. Prior to the adoption of liquidation basis of
accounting, to the extent a lease provided for rent abatements or
adjustments, the Partnership, in accordance with generally accepted
accounting principles, recognized rental income on the basis of equal
monthly payments over the term of such lease. The balance of the
receivables related to the recording of rental income on a straight-line
basis were written off upon adoption of liquidation accounting. Market
conditions have dictated offering a wide variety of concessions to
prospective tenants, which most frequently include a combination of free
rent and reduced rental rate.
As of December 31, 1997, tenant rent receivables prior to the allowance for
doubtful accounts totaled $592,133 of which $121,909 represented receivables
<PAGE> 12
required to be accrued in accordance with applicable accounting principles
to reflect scheduled rent increases over the terms of the applicable leases
and $470,224 represented the balance. As discussed above, the receivables
required to be accrued of $121,909 were written off upon adoption of
liquidation accounting. As of December 31, 1996, comparative tenant rent
receivables totaled $996,214 of which $317,688 represented receivables
required to be accrued and $678,526 represented the balance. The decline in
tenant rent receivables from December 31, 1996 to December 31, 1997 can
primarily be attributed to the sale of shopping centers.
The Partnership wrote off tenant rent receivables and charged the
allowance for doubtful accounts in 1995, 1996 and 1997 in the amounts of
$198,993, $171,281 and $207,850, respectively. During the year ended
December 31, 1996, the Partnership decreased its year-end allowance for
doubtful accounts by $97,682 to $228,991. During the year ended December
31, 1997, the Partnership decreased its year-end allowance for doubtful
accounts by $126,160 to $102,831. The allowance for doubtful accounts
represents an allowance for tenant rent receivables that may become
uncollectible in the future. The Partnership makes adjustments quarterly to
the allowance for doubtful accounts based on its analysis of tenant rent
receivables.
Tenant reimbursement income includes payments made by tenants under leases
representing payment of a tenant's agreed share of real estate taxes,
insurance, utility charges and common area maintenance expenses. In most
cases, tenant reimbursement payments are payable monthly, although in some
cases such payments are to be made annually.
Other expenses include the balance of utility expenses, leasing expenses
(other than commissions) and miscellaneous expenses such as legal and
accounting fees and administrative expenses.
The Partnership's shopping centers are held subject to mortgages with
principal balances as of December 31, 1995, 1996 and 1997 as described in
the following chart:
<PAGE> 13
MORTGAGE LOANS SECURED BY SHOPPING CENTERS
<TABLE>
<CAPTION>
FACE
SHOPPING CENTER INTEREST MATURITY AMOUNT OF BALANCE BALANCE BALANCE
MORTGAGES RATE DATE MORTGAGES 12/31/95 12/31/96 12/31/97
- -------------------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Woodlawn Village 8.5% 12/1/06 $1,950,000 $1,832,675 $1,810,780 $1,774,747
Lynnwood Place (3) 9.5% 2/10/00 6,600,000 6,320,814 6,220,016 5,846,495
Tarrytown Mall - 10% at
first trust 12/31/97(1) 1/1/99 2,640,940 1,923,940 1,674,940 1,404,940
Tarrytown Mall -
second trust 8.0% 1/1/99 6,500,000 5,384,997 5,384,997 5,384,997
Edgewood Plaza (3) 8.625% 9/1/00 1,400,000 1,397,333 1,380,501 1,362,160
Quality Center 10.625% 8/1/98(2) 4,150,000 3,835,833 3,692,436 3,655,711
Highlandtown Village - - 3,275,000 3,177,097 3,136,332 -
Jackson Heights - - 2,450,000 2,051,068 1,974,849 -
Cloister - - 1,750,000 1,494,717 1,444,197 -
Berkeley Square - - 1,975,000 1,454,215 1,385,065 -
Holiday - - 900,000 257,922 - -
----------- ----------- ----------- -----------
Totals $33,590,940 $29,130,611 $28,104,113 $19,429,050
=========== =========== =========== ===========
(1) - Interest rate at the prime rate plus 1.50%, with a floor of 7.5%.
(2) - The Quality Center loan was scheduled to mature on February 1, 1998. The
lender has agreed to extend the term of the loan for six months.
(3) - Subsequent to December 31, 1997, the Partnership sold Lynnwood Place and Edgewood
Plaza. See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," herein for a discussion of the sale of these centers.
</TABLE>
The mortgage loans are generally without recourse to the assets of the
Partnership other than the particular property (and related receivables,
leases, personal property and certain escrows) securing such mortgage loans.
The mortgages are not cross-collaterized.
The Quality Center mortgage, which had an outstanding principal balance of
$3,655,711 at December 31, 1997, was scheduled to mature on February 1,
1998. The lender has agreed to extend the term of this loan for six months
to August 1, 1998 on the same terms and conditions as currently exist. The
Partnership anticipates that the Partnership will close the sale of this
property prior to the maturity date of August 1, 1998. If the Partnership
is unable to sell this property, extend this loan or refinance on acceptable
terms, the Partnership may be required to seek additional borrowing or
default on its obligation.
At December 31, 1997, Tarrytown Mall was subject to $6,789,937 in mortgage
indebtedness, of which $1,404,940 is represented by a first trust mortgage
and $5,384,997 is represented by a second trust mortgage. In addition, at
December 31, 1997, approximately $12,000 of interest was accrued with
respect to the first mortgage and approximately $1,302,000 of interest was
accrued with respect to the second mortgage. Both the first and second
mortgages (principal and interest) are nonrecourse to the Partnership.
<PAGE> 14
Tarrytown Mall's 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 agreed to maintain the required payment schedule of principal
payments to $22,500 per month effective July 1, 1997 until June 30,
1998 when required principal payments are scheduled to increase to
$54,000 per month. All other loan terms remain unchanged. 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 $393,000 in
unpaid interest in 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.
CASH FLOW
The Partnership recorded a $2,194,086 net increase in cash and cash
equivalents in 1997, with $1,661,496 in net cash provided by operating
activities and $13,928,578 provided by investing activities, partially
offset by $13,395,988 used in financing activities. The increase in
cash and cash equivalents is primarily attributable to receipt of net
proceeds aggregating approximately $6,632,000 from the sale of four
shopping centers in 1997. This increase in cash and cash equivalents
was offset in part by the payment of distributions to limited partners
totaling $4,800,000 in 1997. The sale of Cloister Shopping Center on
May 28, 1997, Jackson Heights Shopping Center on July 16, 1997,
Berkeley Square Shopping Center on September 10, 1997 and Highlandtown
Village Shopping Center on December 19, 1997 contributed approximately
$1,119,000, $2,577,000, $1,540,000 and $1,396,000, respectively, to
cash and cash equivalents after payment of mortgage debt and
transaction expenses related to the sales.
The principal differences between the net loss of $479,417 and net cash
provided by operating activities of $1,661,496 were the non-cash charge
of $1,328,459 for depreciation and amortization, a write-down of assets
of $550,000, decreases in tenant accounts receivable of $277,921 and
prepaid expenses and other assets of $349,061 and an increase in
accrued interest payable of $318,544. See the discussions of the
sales of Cloister, Jackson Heights, Berkeley Square and Highlandtown
Village and the write-down of assets related to Berkeley Square
incorporated by reference from Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources," herein.
In connection with investing activities, in addition to $364,264
expended for improvements of real estate, the Partnership expended
<PAGE> 15
$69,335 from a capital improvement escrow related to Tarrytown Mall
during 1997. Net cash used in financing activities of $13,395,988
primarily resulted from retirement of debt related to the shopping
centers sold totaling $7,819,123, distributions to limited partners
totaling $4,800,000, monthly principal payments on long-term debt
totaling $555,940, and the payment of $300,000 to reduce the principal
balance of the Lynnwood Place mortgage in connection with a loan
extension. Principal payments on long-term debt included $270,000 with
respect to the Tarrytown Mall first trust loan.
LIQUIDITY AND CAPITAL RESOURCES
The cash and cash equivalents position of the Partnership at December
31, 1997 increased approximately $2,194,000 from December 31, 1996,
with approximately $6,632,000 of that increase resulting from aggregate
net proceeds from the sale of shopping centers, offset in part by
distributions to limited partners of $4,800,000. 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 proceeds, sale 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.
As of December 31, 1997, cumulative cash distributions of $11,447,888
and $62,391 had been made to Limited Partners and General Partners,
respectively. During 1997, the Partnership made cash distributions
aggregating $4,800,000 or $4 per Unit to Limited Partners which
represented proceeds from the sales of shopping centers and directly
reduced the net asset value of the Partnership. Prior to 1997,
cumulative cash distributions of $6,647,888 and $62,391 had been made
to Limited Partners and General Partners, respectively.
Subsequent to December 31, 1997, the Partnership made a cash
distribution of $3,600,000 or $3 per Unit payable to Limited Partners
of record as of February 1, 1998. This distribution represented
proceeds from the sale of shopping centers and directly reduced the net
asset value of the Partnership.
Under the Cash Flow Protector, the General Partners agreed to loan to
the Partnership, without interest, up to a maximum amount equal 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
Limited Partners fell below 7% of the allocable invested capital for
the period from February 1, 1989 through January 31, 1992. In 1990,
the General Partners fulfilled their obligation under the Cash Flow
Protector provisions. Cash Flow Protector loans totalling $789,203
were payable to FW Realty Limited Partnership in the amount of $599,794
and to Realty Capital IV Limited Partnership in the amount of $189,409
from 1990 to the date of adoption of liquidation accounting. Effective
December 31, 1997, the cash flow protector loans were reduced to zero
to reflect the loans at their estimated payable amounts. The loans
were non-interest bearing and were to be repaid from distributable cash
<PAGE> 16
flow or sale or refinancing proceeds after payment of a preferred
return equal to a 10% annual cumulative non-compounded return on
invested capital to Limited Partners.
In addition, upon adoption of liquidation accounting, acquisition fees
totaling $73,431, which were payable to FW Realty Limited Partnership
in the amount of $55,808 and to Realty Capital IV Limited Partnership
in the amount of $17,623, were written off to reflect the determination
of the General Partners not to make such payments.
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 consistent with
the Partnership's objectives. As a result of receipt of net proceeds
from the sale of shopping centers, the Partnership made two cash
distributions each in the amount of $2,400,000 or $2 per Unit to
Unitholders of record as of May 31, 1997 and November 1, 1997,
respectivley. Subsequent to December 31, 1997, the Partnership made a
cash distribution of $3,600,000 or $3 per Unit payable to Unitholders
of record as of February 1, 1998. These distributions represented sale
proceeds and reduced the net asset value of the Partnership. It is the
intention of the General Partners to make one additional distribution
to Limited Partners subsequent to the liquidation of all partnership
assets and satisfaction of all partnership liabilities. The net amount
ultimately available for distribution depends on several factors,
particularly amounts realized on the sale of the remaining assets,
carrying costs of the assets prior to sale, collection of receivables,
settlement of claims and commitments and the amount of revenues and
expenses of the Partnership until completely liquidated. The
Partnership's Statements of Cash Flows is incorporated by reference
from Item 8, "Financial Statements and Supplementary Data," herein.
During 1997, the Partnership sold Cloister Shopping Center, Jackson
Heights Shopping Center, Berkeley Square Shopping Center and
Highlandtown Village Shopping Center. During 1996, the Partnership
sold Holiday Shopping Center and two pad sites and two parcels of
excess land at various shopping centers. During 1995, the Partnership
sold Orchard Square Shopping Center and a pad site at Berkeley Square.
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 and adjustments for mortgage escrow balances, were
approximately $1,119,000 or $0.93 per 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.
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
<PAGE> 17
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.
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 gain,
after transaction expenses, of $4,797 in September 1997. The net
proceeds from the sale, after payoff of the related mortgage debt and
transaction expenses and adjustments for mortgage escrow balances, 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. In the second quarter of 1997, at the time the Partnership
entered into the contract to sell Berkeley Square, the Partnership
recorded an impairment charge of $550,000 to write-down the carrying
value of that property to its revised fair value.
On December 19, 1997, the Partnership sold Highlandtown Village
Shopping Center to an unrelated third party for a contract price of
$4,675,000. For financial reporting purposes, the Partnership recorded
a gain, after transaction expenses, of $336,481 in December 1997. The
net proceeds from the sale, after payoff of the related mortgage debt
and transaction expenses and adjustments for mortgage escrow balances,
were approximately $1,464,000 or $1.22 per Unit. The appraised net
equity of Highlandtown Village included in the appraised value of the
Partnership's portfolio at the end of 1996 was approximately $1,414,000
or $1.18 per Unit.
On May 3, 1996, the Partnership sold Holiday Shopping Center to an
unrelated third party for a price of $1,200,000. For financial
reporting purposes, a loss, after transaction expenses, of
approximately $79,000 was recorded in May 1996. For federal income tax
purposes, the Partnership recorded a loss, after transaction expenses,
of approximately $728,000. The net proceeds from the sale, after
payoff of the related mortgage debt and transaction expenses, were
approximately $858,000, which exceeded the $817,000 in appraised net
equity of Holiday included in the appraised value of the Partnership's
portfolio at the end of 1995.
During 1996, the Partnership sold a pad site at Edgewood Plaza and at
Tarrytown Mall and a parcel of excess land at Edgewood Plaza and at
Jackson Heights. The net proceeds from these sales totaled
approximately $597,000, of which approximately $324,000 were placed in
escrow with the first trust lender of Tarrytown Mall and approximately
$35,000 were applied to reduce the mortgage on Jackson Heights. The
remaining net proceeds were added to Partnership cash reserves. For
financial reporting purposes, a net gain aggregating approximately
$241,000 was recorded in 1996 in connection with these sales. For
federal income tax purposes, a net gain aggregating approximately
$198,000 was recorded.
<PAGE> 18
On December 29, 1995, the Partnership sold Orchard Square Shopping
Center to an unrelated third party for a contract price of $5,250,000.
For financial reporting purposes, the Partnership recorded a loss,
after transaction expenses, of $2,271,249 in December 1995. For federal
income tax purposes, the Partnership recorded a loss, after transaction
expenses, of approximately $2,404,000 in 1995. At the time of sale,
the holder of the Orchard Square mortgage accepted $3,900,000 in
satisfaction of its mortgage, the principal balance and accrued
interest of which were approximately $5,748,000 and $30,000,
respectively. The mortgage on Orchard Square was due and payable on
demand. The Partnership recorded the forgiveness of debt, net of
transaction expenses, as an extraordinary gain of approximately
$1,603,000 in December 1995. The lender agreed to forgive a portion of
the debt on Orchard Square in conjunction with a lease modification
agreement between the Partnership and A & P, an anchor tenant at that
center. The net effect of the Orchard Square transactions was a loss
of approximately $668,000 for financial reporting purposes.
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, of which
approximately $69,000 was expended in 1997, is to be used for certain
parking lot improvements at the property. After the improvements have
been completed, the remaining balance of the escrow will be applied to
the principal balance of the first trust mortgage.
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 as of December 1, 1996. In accordance
with 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", the assets, which include the land,
buildings, 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. The revisions in estimates were
received in the fourth quarter of 1996, were not known before the
fourth quarter, and resulted in a lower valuation for Tarrytown Mall in
comparison to the prior year's valuation. Fair value was determined by
an independent appraisal based on an income capitalization approach.
In the fourth quarter of 1995, the Partnership recorded a charge of
$2,606,156 to reflect the Partnership's revised estimate of net
realizable value of Tarrytown Mall at that time based on the decline in
the appraisal value to a level below the outstanding balance of the
mortgage debt on the property. The $2,606,156 represented the sum of
the difference of $2,542,295 between the net book value of Tarrytown
Mall's land, building and improvements and the balance of the mortgage
<PAGE> 19
debt and accrued interest as of December 31, 1995, plus the write-off
of $63,861 in tenant rent receivables related to the recording of
rental income on a straight-line basis. The Partnership's net equity
in the property for financial reporting purposes was effectively
treated as zero. This action was required due to unsuccessful efforts
to lease the vacant space.
In 1997, depreciation charges with respect to Tarrytown Mall were
approximately $330,000 and accruals of unpaid interest arising under
the mortgage were approximately $393,000. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - General," for a discussion of the Partnership's payment
obligations related to the Tarrytown Mall first and second trust
mortgages.
Upon adoption of liquidation accounting, the Partnership adjusted the
carrying value of Tarrytown Mall to the sum of the outstanding balance
of the mortgage debt on the property and accrued interest as of
December 31, 1997. In addition, escrow balances and other assets
related to Tarrytown Mall totaling approximately $327,000 were written
off to reflect the assets at their estimated realizable values.
Interest payable in the Partnership's financial statements includes
approximately $1,314,036 with respect to Tarrytown Mall, which is
payable out of cash flow from operations and sale or refinancing
proceeds from that property and is not reflective of the fact that the
principal and interest related to the Tarrytown Mall mortgages are
nonrecourse to the Partnership.
The Partnership has initiated discussions with Tarrytown Mall's second
trust mortgage lender regarding disposition of that center. Payment
obligations with respect to Tarrytown Mall indebtedness are currently
limited to funds generated by current operations at that property.
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 currently
enrolls students in kindergarten through fifth grade, receives funding
under its contractual arrangement with 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 is being funded from escrow funds
held by the first trust mortgage lender. 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 began reimbursing the Partnership for its share
of common area maintenance expenses 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.
In 1995, 1996 and 1997, approximately $505,000, $108,000 and $364,000,
respectively, was expended for tenant fit-up and other shopping center
<PAGE> 20
improvements. In addition, the Partnership expended approximately
$163,000 and $279,000 in 1995 and 1996, respectively, from a capital
improvement escrow related to Edgewood Plaza and approximately $69,000
in 1997 from a capital improvement escrow related to Tarrytown Mall.
The Partnership is currently obligated to expend approximately $146,000
in 1998, of which approximately $102,000 is accrued in accounts payable
as of December 31, 1997, for tenant fit-up costs in connection with
tenant leases and other committed capital expenditures. This amount,
which primarily includes tenant fit-up and tenant leasing commission
with respect to a new lease at Quality Center for 13,887 square feet,
is expected to be funded from Partnership cash reserves. The committed
expenditures do not include tenant improvement expenditures for
prospective or future tenants.
The General Partners currently intend to sell or otherwise dispose of
the Partnership's remaining assets and distribute the net proceeds to
Unitholders during 1998.
On January 29, 1998, the Partnership sold Lynnwood Place Shopping
Center to an unrelated third party for a contract price of $6,365,000.
The net proceeds from the sale, after payoff of the related mortgage
debt and transaction expenses and adjustments for mortgage escrow
balances, were approximately $249,000 or $0.21 per Unit. At December
31, 1997, the carrying value of this property has been adjusted to
reflect the actual sale transaction and estimated operating revenues
and expenses expected to be recorded in 1998 for the period prior to
the sale. The appraised net equity of Lynnwood Place included in the
appraised value of the Partnership's portfolio at the end of 1996 was
approximately $530,000 or $0.44 per Unit.
On March 2, 1998, the Partnership sold Edgewood Plaza Shopping Center
to an unrelated third party for a contract price of $2,220,000. The
net proceeds from the sale, after payoff of the related mortgage debt
and transaction expenses and adjustments for mortgage escrow balances,
were approximately $912,000 or $0.76 per Unit. At December 31, 1997,
the carrying value of this property has been adjusted to reflect the
actual sale transaction and estimated operating revenues and expenses
expected to be recorded in 1998 for the period prior to the sale. The
appraised net equity of Edgewood Plaza included in the appraised value
of the Partnership's portfolio at the end of 1996 was approximately
$770,000 or $0.64 per Unit.
On March 27, 1998, the Partnership entered into an agreement to sell
Quality Center Shopping Center to an unrelated third party for a
contract price of $4,480,000. The transaction is scheduled to close on
May 15, 1998. Although the contract purchaser's deposit of $150,000 is
subject to risk of forfeiture, subject only to limited conditions,
there can be no assurance that the transaction will close. At December
31, 1997, the carrying value of this property has been adjusted to
reflect this proposed sale transaction and estimated operating revenues
and expenses expected to be recorded in 1998 prior to closing. The
appraised net equity of Quality Center included in the appraised value
of the Partnership's portfolio at the end of 1996 was approximately
$258,000 or $0.21 per Unit.
<PAGE> 21
On March 19, 1998, the Partnership entered into an agreement to sell
Woodlawn Village Shopping Center to an unrelated third party for a
contract price of $2,375,000. The contract which is scheduled to close
on April 30, 1998, is subject to material contingencies and there can
be no assurance a sale transaction will occur. In light of these
material contingencies, the carrying value of this property has been
adjusted at December 31, 1997 to its net estimated realizable value
based on an independent appraisal value of $2,300,000 as of December 1,
1997. The net estimated realizable value includes adjustments for
estimated closing costs and estimated operating revenues and expenses
expected to be recorded in 1998 prior to closing the sale of this
property. The appraised net equity of Woodlawn Village included in the
appraised value of the Partnership's portfolio at the end of 1996 was
approximately $564,000 or $0.47 per Unit.
The disposition of Tarrytown Mall is expected to be resolved following
discussions with that center's mortgage lenders. The appraised value
of this property as of December 1, 1997 is below the level of the
outstanding mortgage debt on the property. As discussed above, the
carrying value of this property has been adjusted at December 31, 1997
to the outstanding balance of the mortgage debt on the property and
accrued interest as of December 31, 1997. The Partnership's net equity
in Tarrytown Mall was effectively treated as zero. At the end of 1996,
the appraised net equity in this center included in the appraised value
of the Partnership's portfolio was also zero.
A description of the net asset value calculation is incorporated by
reference from Item 2, "Properties," herein.
The Partnership's operations, as well as the financial condition of
certain of its tenants, have been adversely 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 adversely affected by
the increased standards employed by lenders to determine the amount,
terms and underwriting requirements for such financing, all of which
have affected the amount and cost of borrowing. If 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.
INFLATION, RECESSION AND OTHER FACTORS
In view of the intention of the Partnership to liquidate during 1998,
inflation and other general economic factors are not expected to have a
material effect on the Partnership in that period.
<PAGE> 22
RESULTS OF OPERATIONS
The net income (loss) for each shopping center (prior to the adoption
of liquidation accounting) for the three years ended December 31, 1997,
1996, and 1995 was as follows:
<TABLE>
<CAPTION>
NET INCOME (LOSS)
-------------------------------------
SHOPPING CENTER 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Woodlawn Village $ 19,931 $ (49,889) $ (51,281)
Lynnwood Place (262,393) (130,643) (201,574)
Highlandtown Village 67,072 38,214 34,102
Jackson Heights 98,983 164,376 113,131
Holiday - 8,838 27,249
Orchard Square - - 48,467
Cloister 35,741 61,129 68,375
Edgewood Plaza 84,078 81,333 105,306
Tarrytown Mall (528,782) (3,406,679) (2,940,495)
Berkeley Square (500,995) 62,237 (62,125)
Quality Center (144,962) (90,017) (282,291)
----------- ----------- -----------
Subtotal (1,131,327) (3,261,101) (3,141,136)
Other net income (expenses) 4,908 (126,970) (140,859)
Gain (loss) on sale of
shopping centers 647,002 (78,687) (2,271,249)
Gain on sale of pad sites - 241,290 171,877
Gain - forgiveness of debt - - 1,602,902
----------- ----------- -----------
$ (479,417) $(3,225,468) $(3,778,465)
=========== =========== ===========
</TABLE>
Results of Operations for the Three Years Ended December 31, 1997
General
During 1997, the Partnership owned and operated nine shopping centers
until May 28, 1997 when Cloister was sold; eight shopping centers from
May 28, 1997 until July 16, 1997 when Jackson Heights was sold; seven
shopping centers from July 16, 1997 until September 10, 1997 when
Berkeley Square was sold; six shopping centers from September 10, 1997
until December 19, 1997 when Highlandtown Village was sold; and five
shopping centers thereafter. During 1996, the Partnership owned and
operated ten shopping centers until May 3, 1996 when Holiday was sold.
During 1995, the Partnership owned and operated eleven shopping centers
until December 29, 1995 when Orchard Square was sold. A comparison of
the results of operations is not meaningful with respect to the
properties that have been sold.
1997 Compared to 1996
For the year ended December 31, 1997, the Partnership reported a
decrease in net loss of $2,746,051 from a net loss of $3,225,468 in
1996 to a net loss of $479,417. The significant factors contributing
to the decreased net loss in 1997 were a write-down of assets in 1997
of $550,000 in comparison to a write-down in 1996 of $2,895,000; a net
gain on the sale of shopping centers of $647,002 in 1997 in comparison
to a net loss of $78,687 in 1996; an increase in interest income; and
<PAGE> 23
declines in interest, depreciation, taxes and insurance, management and
leasing, and repairs and maintenance expenses. These factors were
partially offset by declines in rental income and tenant reimbursement
income; and a gain on sale of pad sites of $241,290 in 1996 with no
comparable transaction in 1997. A substantial portion of these
variances in income and expense can be attributed to the sales of
Holiday, Cloister, Jackson Heights and Berkeley Square.
The Partnership's total income decreased $1,005,466 from $6,476,674 in
1996 to $5,471,208 in 1997. The change in total income consisted of a
decrease in rental income of $882,390 from $5,404,431 in 1996 to
$4,522,041 in 1997 and a decrease in tenant reimbursement income of
$123,076 from $1,072,243 in 1996 to $949,167 in 1997.
Rental income declined primarily due to the sales of Holiday, Cloister,
Jackson Heights and Berkeley Square and declines in rental income at
Quality Center of $83,019 and Lynnwood Place of $43,403. Holiday
generated rental income of $68,221 in 1996. Rental income with respect
to Cloister, Jackson Heights and Berkeley Square decreased $218,322,
$256,482 and $154,944, respectively in 1997 as compared to 1996 as a
result of the sales of these centers. Six of the shopping centers had
decreases in tenant reimbursement income including a decrease at
Cloister of $77,525 as a result of sale of that center. The decline in
rental income at Quality Center was primarily the result of changes in
occupancy throughout 1996 and 1997. However, Quality Center was 79%
leased at December 31, 1997, an increase from 73% leased at December
31, 1996, which primarily resulted from the execution of a lease for
13,887 square feet. The decline in rental income at Lynnwood Place was
primarily due to changes in occupancy. Lynnwood Place was 91% leased
at December 31, 1997, a decrease from 95% leased at December 31, 1996.
The following changes in leased percentages also contributed to changes
in rental income and tenant reimbursement income during the year.
Woodlawn Village was 98% leased at December 31, 1997, an increase from
93% leased at December 31, 1996. Tarrytown Mall was 84% leased at
December 31, 1997, an increase from 61% leased at December 31, 1996.
The increase of 23% at Tarrytown Mall in 1997 primarily resulted from
the addition of one tenant leasing 79,066 square feet whose base rent
is scheduled to commence during the second quarter of 1998. Edgewood
Plaza was 100% leased at December 31, 1997 and 1996. Highlandtown
Village which was sold December 19, 1997 was 100% leased at December
31, 1996.
Total operating expenses decreased $3,158,319 from $9,977,455 in 1996
to $6,819,136 in 1997. The decrease in total operating expenses can
primarily be attributed to a write-down of assets of $550,000 in 1997
in comparison to a write-down of $2,895,000 in 1996; the sales of
Holiday, Cloister, Jackson Heights and Berkeley Square; and a decline
in total operating expenses at Quality Center of $50,069. Total
operating expenses at Cloister and Jackson Heights declined $270,349
and 244,949, respectively, from 1996 to 1997. Total operating expenses
at Holiday were $59,983 in 1996. Total operating expenses at Berkeley
Square, excluding the write-down of assets of $550,000 in 1997,
declined $142,181. These decreases in total operating expenses were
<PAGE> 24
partially offset by an increase in total operating expenses at Lynnwood
Place of $86,410.
In 1997, the Partnership recorded an impairment charge of $550,000 in
comparison to the charge of $2,895,000 in 1996. In the second quarter
of 1997, the charge of $550,000 represented the amount required to
write-down the carrying value of Berkeley Square to its revised fair
value. In the fourth quarter of 1996, the charge of $2,895,000
represented the amount required to write-down the carrying value of
Tarrytown Mall to its fair value.
Interest expense decreased $377,503 from $2,759,025 in 1996 to
$2,381,522 in 1997 primarily due to the sales of Cloister, Jackson
Heights and Berkeley Square and declines in interest expense at
Woodlawn Village of $52,955 and Tarrytown Mall of $48,257. Interest
expense at Cloister, Jackson Heights and Berkeley Square declined
$88,169, $103,322 and $46,409, respectively. Woodlawn's interest
expense decreased due to the decline in the interest rate effective
January 1, 1997 with a loan extension. The decrease at Tarrytown Mall
primarily resulted from payments totaling $41,000 in 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 in April 1996.
Depreciation expense decreased $189,823 from $1,383,271 in 1996 to
$1,193,448 in 1997 primarily due to the sales of Cloister, Jackson
Heights and Berkeley Square. Depreciation expense at these centers
declined $55,309, $69,781 and $39,212, respectively, from 1996 to 1997.
Repairs and maintenance expense decreased $145,259 from $920,829 in
1996 to $775,570 in 1997. Real estate tax expense decreased $94,889
from $612,334 in 1996 to $517,445 in 1997. Management and leasing to
related parties decreased $57,906 from $386,327 in 1996 to $328,421 in
1997.
Interest income increased $108,799 from $112,710 in 1996 to $221,509 in
1997. The increase in interest income was primarily the result of
increasing cash balances predominantly due to proceeds from the sales
of shopping centers.
1996 Compared to 1995
The Partnership reported a decrease in net loss of $552,997 from a net
loss of $3,778,465 in 1995 to a net loss of $3,225,468 in 1996. The
significant factors contributing to the decreased net loss in 1996 were
the net loss on the sale of a shopping center of $78,687 in 1996 in
comparison to $2,271,249 in 1995; gains on the sales of pad sites in
1996 totaling $241,290 in comparison to $171,877 in 1995; an increase
in interest income; declines in interest, depreciation, taxes and
insurance, management and leasing, and other expenses; and a lower
provision for doubtful accounts. These factors were partially offset
by declines in rental income and tenant reimbursement income; and an
extraordinary gain related to forgiveness of debt in 1995 of
$1,602,902 with no comparable transaction in 1996. A substantial
<PAGE> 25
portion of these variances in income and expense can be attributed to
the sale of Orchard Square on December 29, 1995, the increase in losses
at Tarrytown Mall and the sale of Holiday on May 3, 1996.
The Partnership's total income decreased $949,395 from $7,426,069 in
1995 to $6,476,674 in 1996. The change in total income consisted of a
decrease in rental income of $884,177 from $6,288,608 in 1995 to
$5,404,431 in 1996 and a decrease in tenant reimbursement income of
$65,218 from $1,137,461 in 1995 to $1,072,243 in 1996.
Rental income declined primarily due to the sale of Orchard Square in
December 1995, the sale of Holiday in May 1996 and a decline in rental
income at Tarrytown Mall of $223,720. Orchard Square had rental income
of $809,395 in 1995. Rental income with respect to Holiday decreased
$118,942 in 1996 as compared to 1995 as a result of the sale of that
center. Five of the shopping centers had decreases in tenant
reimbursement income including a significant decrease at Tarrytown Mall
of $50,884. Tenant reimbursement income at Orchard Square was $141,466
in 1995. The declines in rental income and tenant reimbursement income
at Tarrytown Mall were primarily the result of the loss of income
recorded with respect to the Wholesale Depot lease obligations, as well
as a 3% decrease in Tarrytown Mall's leased percentage. Tarrytown Mall
was 61% and 64% leased at December 31, 1996 and 1995, respectively.
These declines in rental income were partially offset by increases in
rental income at seven shopping centers, including significant
increases at Quality of $130,994, Berkeley Square of $31,312, Jackson
Heights of $33,316, and Edgewood Plaza of $26,714. The increases in
rental income at Quality Center, Berkeley Square and Jackson Heights
can be attributed to leasing activity at those shopping centers.
Quality Center, Berkeley Square and Jackson Heights were 73%, 97% and
100% leased, respectively, at December 31, 1996. This represented
increases of 3% at Quality Center, 2% at Berkeley Square and 1% at
Jackson Heights from the leased percentages at December 31, 1995. The
increase in rental income at Edgewood Plaza was primarily due to
increased rental rates commencing July 1, 1996 when the capital
improvement plan at that center was substantially complete as well as
other tenant rollovers. Edgewood Plaza was 100% leased at December 31,
1996 and 1995.
The following changes in leased percentages also contributed to changes
in rental income and tenant reimbursement income during the year.
Cloister was 95% leased at December 31, 1996, which represented an
increase of 5% compared to December 31, 1995. Highlandtown Village and
Woodlawn remained unchanged at December 31, 1996 at 100% and 93%
leased, respectively. Lynnwood Place was 95% leased at December 31,
1996, a decrease of 3% from December 31, 1995.
Total operating expenses decreased $761,711 from $10,739,166 in 1995 to
$9,977,455 in 1996. The decrease in total operating expenses can
primarily be attributed to the sale of Orchard Square and Holiday.
Total operating expenses at Orchard Square were $902,394 in 1995. Total
operating expenses at Holiday declined $101,552 from 1995 to 1996.
Interest expense decreased $429,408 from $3,188,433 in 1995 to
$2,759,025 in 1996 primarily due to the sale of Orchard Square which
<PAGE> 26
had interest expense of $347,658 in 1995, and declines in interest
expense at Berkeley Square of $72,644 and Lynnwood Place of $22,080.
Interest expense at Berkeley Square declined due to the paydown of
long-term debt for that shopping center in the fourth quarter of 1995.
These declines in interest expense were partially offset by an increase
of $86,017 at Edgewood Plaza in 1996 as a result of the Partnership
obtaining a loan of $1,400,000 in September 1995 secured by this
shopping center which was previously unencumbered.
Depreciation expense decreased $215,426 from $1,598,697 in 1995 to
$1,383,271 in 1996 primarily due to the sale of Orchard Square and
Holiday. Depreciation expense at Orchard Square was $185,077 in 1995.
Depreciation expense at Holiday declined $40,440 from 1995 to 1996.
Repairs and maintenance expense increased $40,557 from $880,272 in 1995
to $920,829 in 1996. Repairs and maintenance expense at Orchard Square
was $69,395 in 1995.
In the fourth quarter of 1996, the Partnership recorded an impairment
charge of $2,895,000 in comparison to the charge of $2,606,156 in 1995.
In 1996, the charge of $2,895,000 represented the amount required to
write-down the carrying value of Tarrytown Mall to its fair value of
$4,500,000 as of December 1, 1996. In 1995, the charge of $2,606,156
reflected the Partnership's revised estimate of the net realizable
value of Tarrytown Mall at that time based on the decline in the
appraisal value to a level below the outstanding balance of the
mortgage debt on the property.
Real estate tax expense decreased $69,536 from $681,870 in 1995 to
$612,334 in 1996. This net decrease was primarily attributable to the
sale of Orchard Square which had real estate tax expense of $68,135 in
1995. Management and leasing to related parties decreased $42,429 from
$428,756 in 1995 to $386,327 in 1996. Management and leasing at
Orchard Square was $55,325 in 1995.
The aggregate provision for doubtful accounts was $172,159 in 1995 and
$73,599 in 1996. The provisions related to ten of the Partnership's
shopping centers were lower in 1996 as compared to 1995.
Other expenses decreased $241,999 from $933,930 in 1995 to $691,931 in
1996. The decrease can be attributed to the following changes: (i) a
decline of $87,951 in total other expenses at Orchard Square; (ii)
decreases in administrative expense at Quality Center of $24,667 and
Edgewood Plaza of $21,797; (iii) decreases in legal expenses at
Tarrytown Mall and Quality Center of $45,410 and $18,732, respectively,
and (iv) the reversal in 1996 of a reserve of $30,000 recorded in 1995
for estimated environmental remediation costs required at Edgewood as
a former tenant paid these expenses.
Interest income increased $81,608 from $31,102 in 1995 to $112,710 in
1996. The increase in interest income was primarily the result of
increasing cash balances predominantly due to proceeds from the sale of
Orchard Square in December 1995 and Holiday in May 1996.
<PAGE> 27
Shopping Center by Shopping Center Analysis of Material Changes in the
Results of Operations for the Three Years Ended December 31, 1997
The following discussion reflects changes in the specific elements of
income or expense with respect to the Partnership's five shopping
centers owned as of December 31, 1997. A comparison of the results of
operations is not meaningful with respect to the properties that have
been sold. For purposes of the following analysis, rental income
consists of rents paid by tenants occupying space in each shopping
center and rental income accrued for adjustments for rent abatements
and scheduled rent increases.
Woodlawn Village: This center reported net income of $19,931 in 1997,
net loss of $49,889 in 1996 and net loss of $51,281 in 1995.
Significant changes contributing to the improved net income in 1997 was
a decline in interest expense of $52,955 due to a lower interest rate
effective January 1, 1997 with a loan extension and an increase in
rental income of $32,517. Changes in individual elements of income and
expenses during 1996 were not significant to the Partnership considered
as a whole.
Rental income increased approximately 11% to $317,516 in 1997 from
$284,999 in 1996. Rental income was $283,557 in 1995. Rental income
increased in 1997 primarily due to the increase in Food Lion's rent
effective in January 1997. As of December 31, 1997, 1996 and 1995,
Woodlawn Village was approximately 98%, 93% and 93% leased,
respectively.
Lynnwood Place: Net loss increased to $262,393 in 1997 from $130,643
in 1996. Net loss was $201,574 in 1995. The increase in net loss in
1997 can primarily be attributed to a decline in rental income of
$43,403 and increases in amortization expense and the provision for
doubtful accounts of $34,919 and $34,810, respectively. The decrease
in net loss in 1996 was primarily the result of increases in rental and
tenant reimbursement income totaling $52,978 and a decline in interest
expense of $22,080. Rental and tenant reimbursement income increased
in 1996 due to changes in occupancy and due to nonrecurring adjustments
made in 1995. Interest expense decreased in 1996 as a result of a
decrease in the interest rate in July 1995.
Rental income decreased approximately 5% to $763,852 in 1997 from
$807,255 in 1996. Rental income was $789,924 in 1995. The decrease in
rental income in 1997 was primarily due to changes in occupancy. As of
December 31, 1997, Lynnwood Place was approximately 91% leased, a
decrease from 95% as of December 31, 1996. Lynnwood was 98% leased as
of December 31, 1995. The increase in rental income in 1996 was
primarily attributable to changes in occupancy. Lynnwood Place was
100% leased throughout most of 1996.
Edgewood: Net income increased to $84,078 in 1997 from $81,333 in
1996. Net income was $105,306 in 1995. Changes in individual elements
of income and expense during 1997 were not significant to the
Partnership considered as a whole. The decrease in net income in 1996
was primarily the result of an increase in interest expense of $86,017
in 1996 which was partially offset by an increase in total income of
<PAGE> 28
$37,003. The Partnership obtained a loan of $1,400,000 in September
1995 secured by this shopping center which was previously unencumbered.
Rental income increased approximately 4% to $332,580 in 1997 from
$318,378 in 1996. Rental income was $291,664 in 1995. As of December
31, 1997, 1996, and 1995, Edgewood was 100% leased. The changes in
rental income in 1997 and 1996 are primarily attributable to changes in
rental rates. The increases in rental income in 1997 and 1996 are
predominantly due to increased rental rates commencing July 1, 1996
when the capital improvement plan at Edgewood Plaza was substantially
complete as well as other tenant rollovers.
Tarrytown Mall: Net loss decreased to $528,782 in 1997 from $3,406,679
in 1996. Net loss was $2,940,495 in 1995. The decrease in net loss in
1997 resulted from the write-down of assets of $2,895,000 in 1996 in
comparison to no write-down in 1997. The increase in net loss in 1996
can primarily be attributed to an increase in the write-down of assets
and a decline in rental and tenant reimbursement income. In 1996, the
Partnership recorded a write-down of assets of $2,895,000 in comparison
to $2,606,156 in 1995. Rental and tenant reimbursement income
decreased $274,604 to $1,041,757 in 1996 from $1,316,361 in 1995. The
decline was primarily the result of the loss of income recorded with
respect to the Wholesale Depot lease obligations. Wholesale Depot
terminated its lease at Tarrytown Mall on October 7, 1994 in connection
with its bankruptcy. Total income for 1995 included approximately
$249,400 of rental income and $63,200 of tenant reimbursement income
with respect to the Wholesale Depot lease.
Rental income decreased approximately 5% to $829,168 in 1997 from
$877,052 in 1996. Rental income was $1,100,772 in 1995. As of
December 31, 1997, Tarrytown was approximately 84% leased, an increase
from approximately 61% leased as of December 31, 1996. Tarrytown was
64% leased as of December 31, 1995. The decline in rental income in
1997 was primarily attributable to changes in occupancy.
Quality Center: Net loss increased to $144,962 in 1997 from $90,017 in
1996. Net loss was $282,291 in 1995. The increase in net loss in 1997
can primarily be attributed to a decline in rental and tenant
reimbursement income of $104,793, which was partially offset by a
decline in total expenses of $50,069. The decrease in net loss in 1996
can be attributed to an increase in rental and tenant reimbursement
income.
Rental income decreased approximately 14% to $503,938 in 1997 from
$586,957 in 1996. Rental income was $455,963 in 1995. As of December
31, 1997, Quality Center was approximately 79% leased, an increase from
approximately 73% leased as of December 31, 1996. Quality Center was
70% leased at December 31, 1995. The changes in rental income in 1997
and 1996 were primarily attributable to changes in occupancy.
<PAGE> 29
ITEM 8. FINANCIAL STATMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Financial Statement Schedules
Page
Report of Independent Public Accountants........................30
Financial Statements:
Statement of Net Assets in Liquidation........................31
Balance Sheet.................................................32
Statements of Operations......................................33
Statement of Adjustments to Net Assets in Liquidation.........34
Statements of Partners' Equity................................35
Statements of Cash Flows......................................36
Notes to Financial Statements.................................37
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Account..............47
Schedule III - Real Estate and Accumulated Depreciation
and Notes to Schedule.........................47
Schedule IV - Mortgage Loans on Real Estate and Notes to
Schedule......................................50
All other schedules are omitted since they are not required, are
not applicable, or the financial information required is included
in the financial statements or the notes thereto.
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Mid-Atlantic Centers Limited Partnership:
We have audited the accompanying balance sheet of MID-ATLANTIC CENTERS
LIMITED PARTNERSHIP (a Maryland limited partnership in liquidation) as of
December 31, 1996, and the related statements of operations, partners'
equity and cash flows for each of the three years in the period ended
December 31, 1997. In addition, we have audited the statement of net
assets in liquidation as of December 31, 1997 and the related statement
of adjustments to net assets in liquidation as of December 31, 1997.
These financial statements and the schedules referred to below are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
As described in Note A to the financial statements, the general partners of
Mid-Atlantic Centers Limited Partnership approved a plan of liquidation
effective December 31, 1997 and the Partnership commenced liquidation shortly
thereafter. As a result, the Partnership has changed its basis of
accounting as of and for periods subsequent to December 31, 1997, from the
accrual basis of accounting to the liquidation basis. Accordingly, the
carrying value of the remaining assets as of December 31, 1997, are
presented at estimated realizable values and all liabilities are presented
at estimated settlement amounts.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mid-Atlantic Centers Limited
Partnership as of December 31, 1996, the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1997, its net assets in liquidation as of December 31, 1997 and the
adjustments to its net assets in liquidation as of December 31, 1997,
in conformity with generally accepted accounting principles applied on the
bases described in the preceding paragraph.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
March 30, 1998
<PAGE> 31
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
December 31, 1997
<TABLE>
<CAPTION>
ASSETS (Liquidation Basis):
<S> <C>
Investment in real estate $22,796,248
Cash and cash equivalents 5,245,307
Tenant accounts receivable 367,393
Escrows 178,757
Other assets 160,059
-----------
Total assets 28,747,764
-----------
LIABILITIES (Liquidation Basis):
Long-term debt 19,429,050
Interest payable 1,417,295
Accounts payable and accrued expenses 161,607
Security deposits 103,175
Due to related parties 70,436
-----------
Total liabilities 21,181,563
-----------
Net assets in liquidation $ 7,566,201
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 32
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in real estate held for lease, at cost:
Land $ 8,724,880
Buildings and improvements 42,599,014
-----------
51,323,894
Less - accumulated depreciation (16,939,873)
-----------
34,384,021
Cash and cash equivalents 3,051,221
Tenant accounts receivable, net of allowance for
doubtful accounts of $228,991 767,223
Escrows 882,333
Prepaid expenses and other assets 360,030
Intangible assets, net of accumulated amortization
of $1,035,330 222,287
-----------
Total assets $39,667,115
===========
LIABILITIES AND PARTNERS' EQUITY
Long-term debt, including current maturities $28,104,113
Interest payable 1,098,751
Cash flow protector loans 789,203
Accounts payable and accrued expenses 124,800
Prepaid rents and security deposits 193,139
Due to related parties 126,780
-----------
Total liabilities 30,436,786
-----------
General partners and assignor limited partner 529,870
Assignee limited partners (1,200,000 units
authorized, issued and outstanding) 8,700,459
-----------
Total partners' equity 9,230,329
-----------
Total liabilities and partners' equity $39,667,115
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 33
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Rental income $4,522,041 $5,404,431 $6,288,608
Tenant reimbursement income 949,167 1,072,243 1,137,461
----------- ----------- -----------
Total income 5,471,208 6,476,674 7,426,069
----------- ----------- -----------
Operating expenses:
Interest expense 2,381,522 2,759,025 3,188,433
Depreciation 1,193,448 1,383,271 1,598,697
Repairs and maintenance 775,570 920,829 880,272
Write-down of assets 550,000 2,895,000 2,606,156
Real estate taxes 517,445 612,334 681,870
Management and leasing to related parties 328,421 386,327 428,756
Amortization 135,011 111,445 92,110
Insurance 119,125 143,694 156,783
Provision for doubtful accounts 81,690 73,599 172,159
Other expenses 736,904 691,931 933,930
----------- ----------- -----------
Total operating expenses 6,819,136 9,977,455 10,739,166
----------- ----------- -----------
Loss from rental operations (1,347,928) (3,500,781) (3,313,097)
Other income (loss):
Gain (loss) on sale of shopping centers 647,002 (78,687) (2,271,249)
Interest income 221,509 112,710 31,102
Gain on sale of pad sites - 241,290 171,877
----------- ----------- -----------
Net loss before extraordinary item (479,417) (3,225,468) (5,381,367)
Extraordinary gain related to
forgiveness of debt - - 1,602,902
----------- ----------- -----------
Net loss $ (479,417) $(3,225,468) $(3,778,465)
=========== =========== ===========
Net income allocated to general partners $ 150,486 $ 28,271 $ 510,675
=========== =========== ===========
Net loss allocated to assignee
limited partners $ (629,903) $(3,253,739) $(4,289,140)
=========== =========== ===========
Net loss allocated to assignee limited
partners per unit: (1,200,000 units
issued and outstanding)
Net loss before extraordinary item $ (0.52) $ (2.71) $ (4.57)
Extraordinary gain - - 1.00
------- ------- -------
Net loss $ (0.52) $ (2.71) $ (3.57)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE> 34
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENT OF ADJUSTMENTS TO NET ASSETS IN LIQUIDATION
As of December 31, 1997
<TABLE>
<S> <C>
Net assets at December 31, 1997 prior to the adoption of
liquidation basis of accounting $ 3,950,912
Adjustment of carrying values of investment in real estate,
tenant accounts receivable and other assets to estimated
net realizable values at December 31, 1997, upon adoption
of liquidation basis of accounting 2,960,855
Adjustment of carrying values of certain related party loans
and payables to estimated settlement amounts at December
31, 1997, upon adoption of liquidation basis of accounting 862,634
Write-off of certain deferred costs at December 31, 1997,
upon adoption of liquidation basis of accounting (208,200)
-----------
Net assets in liquidation at December 31, 1997 $ 7,566,201
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 35
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Assignee Assignor Total
General Limited Limited Partners'
Partners Partners Partner Equity
--------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Partners' equity, December 31, 1994 $ (9,153) $16,243,338 $ 77 $16,234,262
Net loss 510,675 (4,289,140) - (3,778,465)
--------- ----------- ------- -----------
Partners' equity, December 31, 1995 501,522 11,954,198 77 12,455,797
Net loss 28,271 (3,253,739) - (3,225,468)
--------- ----------- ------- -----------
Partners' equity, December 31, 1996 529,793 8,700,459 77 9,230,329
Distributions ($4 per assignee
limited partnership unit) - (4,800,000) - (4,800,000)
Net loss 150,486 (629,903) - (479,417)
--------- ----------- ------- -----------
Partners' equity, December 31, 1997,
prior to the adoption of
liquidation basis of accounting $ 680,279 $ 3,270,556 $ 77 $ 3,950,912
========= =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 36
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (479,417) $(3,225,468) $(3,778,465)
Adjustments to reconcile net loss to net ----------- ----------- -----------
cash provided by operating activities:
Depreciation and amortization 1,328,459 1,494,716 1,690,807
Write-down of assets 550,000 2,895,000 2,606,156
(Gain) loss on sale of shopping centers (647,002) 78,687 2,271,249
Gain on sale of pad sites - (241,290) (171,877)
Forgiveness of debt - - (1,602,902)
Changes in operating assets and liabilities:
Decrease in tenant accounts receivable, net 277,921 23,808 240,256
Decrease (increase) in prepaid expenses
and other assets 349,061 (230,554) 14,004
(Decrease) increase in accounts payable
and accrued expenses (53,157) (96,410) 112,368
Increase in interest payable, net of noncash
transactions of $29,558 in 1995 318,544 415,069 224,506
Increase (decrease) in due to related
parties 17,087 35,877 (27,260)
----------- ----------- -----------
Total adjustments 2,140,913 4,374,903 5,357,307
----------- ----------- -----------
Net cash provided by operating activities 1,661,496 1,149,435 1,578,842
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate 14,292,842 1,675,636 5,294,826
Improvements of real estate (364,264) (108,447) (504,523)
Establishment of capital improvement escrow - - (289,617)
Assigned certificate of deposit for improvements - - (11,550)
----------- ----------- -----------
Net cash provided by investing activities 13,928,578 1,567,189 4,489,136
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt (8,119,123) (382,510) (4,937,500)
Distributions to partners (4,800,000) - -
Principal payments on long-term debt (555,940) (643,988) (769,436)
Financing fees (120,925) (109,505) (350,229)
Mortgage escrow deposits, net 200,000 (194,394) (130,000)
Proceeds from long-term debt - - 1,400,000
----------- ----------- -----------
Net cash used in financing activities (13,395,988) (1,330,397) (4,787,165)
----------- ----------- -----------
Net increase in cash and cash equivalents 2,194,086 1,386,227 1,280,813
Cash and cash equivalents at beginning
of year 3,051,221 1,664,994 384,181
----------- ----------- -----------
Cash and cash equivalents at end of year $ 5,245,307 $ 3,051,221 $ 1,664,994
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 37
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997, 1996 and 1995
NOTE A - ORGANIZATION AND PLAN OF LIQUIDATION:
Organization
Mid-Atlantic Centers Limited Partnership (the "Partnership") was organized
under the laws of the State of Maryland on December 16, 1986. The
Partnership was formed to acquire, hold, lease and ultimately sell income-
producing community and neighborhood shopping centers.
Plan of Liquidation and Sale of Certain Shopping Centers
Effective December 31, 1997, the general partners decided to liquidate the
partnership and adopt a plan of liquidation. This plan consists of selling,
or otherwise disposing of the Partnership's remaining shopping centers,
liquidating all assets remaining after the sale of the shopping centers, and
distributing the net proceeds to the assignee limited partners. The general
partners formally approved this plan of liquidation on March 30, 1998.
Pursuant to the plan of liquidation, on January 29, 1998, the Partnership
sold Lynnwood Place Shopping Center to an unrelated third party for a
contract price of $6,365,000. The carrying value of this property has been
adjusted at December 31, 1997 to reflect the actual sale transaction and
estimated operating revenues and expenses expected to be recorded in 1998
for the period prior to the sale.
On March 2, 1998, the Partnership sold Edgewood Plaza Shopping Center to an
unrelated third party for a contract price of $2,220,000. The carrying
value of this property has been adjusted at December 31, 1997 to reflect the
actual sale transaction and estimated operating revenues and expenses
expected to be recorded in 1998 for the period prior to the sale.
On March 27, 1998, the Partnership entered into an agreement to sell Quality
Center Shopping Center to an unrelated third party for a contract price of
$4,480,000. The transaction is scheduled to close on May 15, 1998.
Although the contract purchaser's deposit of $150,000 is subject to risk of
Forfeiture, subject only to limited conditions, there can be no assurance
that the transaction will close. The carrying value of this property has
been adjusted at December 31, 1997 to reflect this proposed sale transaction
and estimated operating revenues and expenses expected to be recorded in
1998 prior to closing.
On March 19, 1998, the Partnership entered into an agreement to sell
Woodlawn Village Shopping Center to an unrelated third party for a contract
price of $2,375,000. The contract, which is scheduled to close on April 30,
1998, is subject to material contingencies and there can be no assurance a
sale transaction will occur. In light of the material contingencies, the
carrying value of this property has been adjusted at December 31, 1997 to
its net estimated realizable value based on an independent appraisal value
of $2,300,000 as of December 1, 1997. The net estimated realizable value
includes adjustments for estimated closing costs and estimated operating
<PAGE> 38
revenues and expenses expected to be recorded in 1998 prior to closing the
sale of this property.
The disposition of Tarrytown Mall is expected to be resolved following
discussions with that center's mortgage lenders. The appraisal value of
this property as of December 1, 1997 is below the level of the outstanding
mortgage debt on the property. As a result, the carrying value of this
property has been adjusted at December 31, 1997 to the outstanding balance
of the mortgage debt on the property and accrued interest as of December 31,
1997. The Partnership's net equity in Tarrytown Mall is effectively zero.
Subsequent to December 31, 1997, the Partnership made a $3,600,000
distribution to the limited partners and it is the plan of the general
partners to make one additional distribution to the limited partners
subsequent to the liquidation of all partnership assets and satisfaction of
all partnership liabilities.
The net amount ultimately available for distribution from the liquidated
partnership depends on many unpredictable factors, such as the amounts
realized on the sale of the remaining assets, carrying costs of the assets
prior to sale, collection of receivables, settlement of claims and
commitments, the amount of revenue and expenses of the Partnership until
completely liquidated and other uncertainties.
It is the general partners' intent not to receive any fee or participate in
any distributions resulting from the transactions involved in liquidation of
the Partnership.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accompanying statement of net assets in liquidation as of December 31,
1997, reflects the transactions of the Partnership utilizing liquidation
accounting concepts as required by generally accepted accounting principles.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated payable amounts. The valuation of assets and liabilities
necessarily requires estimates and assumptions, and there are uncertainties
in carrying out the dissolution of the Partnership. The actual values upon
dissolution and costs associated therewith could be higher or lower than the
amounts recorded. The Partnership adopted the liquidation basis of
accounting effective December 31, 1997. Prior to that date, the Partnership
recorded results of operations using the accrual basis of accounting.
The accompanying statement of operations for the year ended December 31,
1997 reflects the operations of the Partnership prior to the adoption of
liquidation basis of accounting and prior to the adjustments required to
adopt the liquidation basis of accounting as of December 31, 1997.
Investment in Real Estate
Investment in real estate at December 31, 1997 consists of land, buildings
and improvements which are stated at estimated liquidation value. Prior to
the adoption of liquidation accounting, the cost of land and buildings and
<PAGE> 39
improvements were capitalized, while expenditures for maintenance and
repairs were charged to operations as incurred. Depreciation was computed,
through the effective date of the adoption of the plan of liquidation, using
the straight-line method based on the estimated useful lives of the
respective assets.
Amortization
Deferred costs were written off upon adoption of liquidation accounting.
Prior to the adoption of liquidation accounting, deferred financing costs
were amortized over the term of the respective mortgage loans and deferred
leasing commissions were amortized over the term of the respective tenant
leases using the straight-line method.
Income Taxes
No provision for or benefit from income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
Rental Income
Certain leases provide for either abatement of rents or scheduled rent
increases over the life of the lease. Prior to the date of the adoption of
the plan of liquidation, rental income was recorded on a straight-line basis
of equal monthly payments over the respective terms of such leases. The
receivables related to the recording of rental income on a straight-line
basis totaled $317,688 at December 31, 1996. The balance of these
receivables were written off upon adoption of liquidation accounting.
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 years ended December 31, 1997, 1996 and 1995 included income with
respect to these percentage rentals of $240,917, $292,698 and $272,895,
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 original
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.
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
<PAGE> 40
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 has determined that SFAS No. 128 does not have any effect on the
Partnership's computation of earnings per share.
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. Prior to the adoption of
liquidation accounting, management reviewed the Partnership's assets for
impairment on a property by property basis when annual year-end third party
appraisals had been received and whenever circumstances occurred which
indicated that the carrying amount of the assets may have been impaired.
NOTE C - PARTNERS' CAPITAL CONTRIBUTIONS:
The Partnership has two general partners, Realty Capital IV Limited
Partnership and FW Realty Limited Partnership, and one assignor limited
partner, LM Unit Trust, Inc. Each general partner and the assignor limited
partner have made capital contributions of $500 and $100, respectively.
Under the terms of the Partnership Agreement, the general partners have no
obligation to make additional capital contributions to the Partnership,
except under certain circumstances upon liquidation. As of December 31,
1997, the general partners do not anticipate that completion of the
dissolution will require additional capital contributions.
The assignor limited partner has assigned all of its rights in its limited
partnership interests to the assignee limited partners. Total assignee
limited partners' contributions in accordance with the Partnership Agreement
were $29,997,125 (which excludes volume purchase discounts of $2,875).
Offering costs of $2,802,312 were funded from such contributions.
<PAGE> 41
NOTE D - LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1997 and 1996:
1997 1996
---------- ----------
Mortgage loan due December 1, 2006
Interest at 8.5% $1,774,747 $1,810,780
Mortgage loan due February 10, 2000
Interest at 9.5% 5,846,495 6,220,016
Mortgage loan due September 1, 2000
Interest at 8.625% 1,362,160 1,380,501
Mortgage loan due January 1, 1999
Interest at 8% 5,384,997 5,384,997
Mortgage loan due January 1, 1999
Interest at prime rate plus 1.5%,
with a floor of 7.5%
(10% at December 31, 1997) 1,404,940 1,674,940
Mortgage loan due August 1, 1998 (1)
Interest at 10.625% 3,655,711 3,692,436
Mortgage loan due December 21, 1997
Interest at 10.125% - 3,136,332
Mortgage loan due June 1, 1998
Interest at prime rate plus 1.25% - 1,444,197
Mortgage loan due September 12, 1998
Interest at 10.5% - 1,974,849
Mortgage loan due December 31, 1997
Interest at 10.13% - 1,385,065
----------- -----------
$19,429,050 $28,104,113
=========== ===========
(1) - This loan was scheduled to mature on February 1, 1998. The
lender agreed to extend the term of this loan for six months.
The mortgage loans are non-recourse obligations secured by deeds of trust on
the related real estate held for lease and by assignments of rents.
Interest expense related to these mortgages was $2,381,522, $2,759,025 and
$3,188,433 for the years ended December 31, 1997, 1996 and 1995,
respectively. Interest paid on these mortgages was $2,062,978, $2,343,956
and $2,993,485 for the years ended December 31, 1997, 1996 and 1995,
respectively.
NOTE E - RELATED PARTY TRANSACTIONS:
Management Fees
In accordance with the Partnership Agreement, management fees (at
the rate of 6% of gross leasing receipts) of $328,421, $386,327 and $428,756
in 1997, 1996 and 1995, respectively, were expensed for amounts due to First
Washington Management, Inc., an affiliate of FW Realty Limited Partnership,
for services rendered in connection with the leasing and operation of the
shopping centers. A portion of these fees were paid by First Washington
Management, Inc. to Legg Mason Realty Capital, Inc., an affiliate of Realty
Capital IV Limited Partnership, in consideration of its performance of
certain administrative services.
<PAGE> 42
Amounts Due to Related Parties
At December 31, 1997, $42,208 and $28,228 were payable to First Washington
Management, Inc. and Legg Mason Realty Capital, Inc., respectively, for
management fees and reimbursement of operating expenses. At December 31,
1996, $28,297 and $25,052 were payable to First Washington Management, Inc.
and Legg Mason Realty Capital, Inc., respectively, for the aforementioned
expenses.
The General Partners agreed to lend the Partnership, without interest, up to
50% of the acquisition fees actually paid to them at the time the loan was
made in the event the annual cumulative non-compounded return to assignee
limited partners fell below 7% of the allocable invested capital for the
period from February 1, 1989 through January 31, 1992. In 1990, the General
Partners fulfilled their obligation under the cash flow protector
provisions. Cash flow protector loans totaling $789,203 were payable to FW
Realty Limited Partnership in the amount of $599,794 and to Realty Capital
IV Limited Partnership in the amount of $189,409 from 1990 to the date of
the adoption of liquidation accounting. Effective December 31, 1997, the
cash flow protector loans were reduced to zero to reflect the loans at their
estimated payable amounts. The loans were non-interest bearing and were to
be repaid from distributable cash flow or sale or refinancing proceeds after
the payment of a preferred return equal to a 10% annual cumulative non-
compounded return on invested capital to assignee limited partners.
In addition, acquisition fees totaling $73,431, which were payable to FW
Realty Limited Partnership in the amount of $55,808 and to Realty Capital IV
Limited Partnership in the amount of $17,623, were written off upon adoption
of liquidation accounting to reflect the determination of the general
partners not to make such payments.
Other
In 1997, 1996 and 1995, the Partnership paid or accrued approximately
$31,000, $38,000 and $25,000, respectively, to First Washington Management,
Inc. for legal, marketing and architectural services related to the
renovation, leasing, rent collections and other matters of the shopping
centers. The Partnership paid or accrued approximately $85,000, $75,000 and
$71,000, in 1997, 1996 and 1995, respectively, to Legg Mason Realty Capital,
Inc. for reimbursement of operating expenses.
NOTE F - PARTNERSHIP PROFITS, LOSSES AND DISTRIBUTIONS:
All profits and losses prior to the first date on which assignee limited
partners were admitted to the Partnership were allocated 99.9% to the
general partners and .1% to the assignor limited partner. Upon admission of
the assignee limited partners, the interest of the general partners was
reduced to 1% and the interest of the assignor limited partner was reduced
to zero.
Distributable cash flow is defined in the Partnership Agreement as the sum
of all cash receipts from operations and the principal amount of loans from
the general partners less disbursements for operating cash expenses. Cash
receipts under the master leaseback agreements are treated as operating
receipts in determining distributable cash flow.
<PAGE>43
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 the 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.
Any loss from a sale or refinancing shall be allocated 99% to the assignee
limited partners and 1% to the general partners.
In 1997, the Partnership made cash distributions totaling $4,800,000 or $4
per assignee limited partnership unit ("Unit"). These distributions
represented proceeds from the sale of shopping centers.
NOTE G - SALES 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. For federal income tax purposes, the
Partnership recorded a gain, after transaction expenses, of approximately
$77,000.
<PAGE> 44
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. For federal income tax purposes, the
Partnership recorded a gain, after transaction expenses, of approximately
$154,000.
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 gain, after
transaction expenses, of $4,797 in September 1997. For federal income tax
purposes, the Partnership recorded a loss, after transaction expenses, of
approximately $476,000.
On December 19, 1997, the Partnership sold Highlandtown Village Shopping
Center to an unrelated third party for a contract price of $4,675,000. For
financial reporting purposes, the Partnership recorded a gain, after
transaction expenses, of $336,481 in December 1997. For federal income tax
purposes, the Partnership recorded a gain, after transaction expenses, of
approximately $262,000.
On May 3, 1996, the Partnership sold Holiday Shopping Center to an unrelated
third party for a price of $1,200,000. For financial reporting purposes,
the Partnership recorded a loss, after transaction expenses, of $78,687 in
May 1996. For federal income tax purposes, the Partnership recorded a loss,
after transaction expenses, of approximately $728,000.
On August 6, 1996, the Partnership sold a pad site of approximately 1.15
acres of land at Tarrytown Mall to an unrelated third party for a price of
$330,000. For financial reporting purposes, the Partnership recorded a
gain, after transaction expenses, of $154,079 in August 1996. For federal
income tax purposes, the Partnership recorded a gain, after transaction
expenses, of approximately $105,000. The net proceeds from the sale, after
payment of transaction expenses, of approximately $324,000 were placed in
escrow with the first trust lender to be used for one of the following three
purposes: (i) to fund tenant improvement work if a replacement tenant is
found for the Wholesale Depot space (and thereafter for other capital
improvements), (ii) to acquire an adjoining parcel of land to enhance
visibility and provide additional customer parking at Tarrytown Mall or
(iii) to reduce the principal amount of the first trust loan.
On September 25, 1996, the Partnership sold a pad site at Edgewood Plaza
Shopping Center to an unrelated third party for a price of approximately
$220,000. For financial reporting purposes, the Partnership recorded a
gain, after transaction expenses, of $75,903 in September 1996. For federal
income tax purposes, the Partnership recorded a gain, after transaction
expenses, of approximately $82,000. The pad site was not secured by the
Edgewood Plaza mortgage.
On October 7, 1996, the Partnership sold a parcel of excess land at Jackson
Heights Shopping Center to an unrelated third party for $40,000. For
financial reporting and federal income tax purposes, the Partnership
recorded a gain, after transaction expenses, of $22,208 in 1996. The net
proceeds of approximately $35,000 were applied to reduce the mortgage on
Jackson Heights.
<PAGE> 45
On December 5, 1996, the Partnership sold a parcel of excess land at
Edgewood Plaza to an unrelated third party for a price of $29,900. For
financial reporting and federal income tax purposes, the Partnership
recorded a loss, after transaction expenses, of $10,900 in 1996. The parcel
of land was not secured by the Edgewood Plaza mortgage.
On December 29, 1995, the Partnership sold Orchard Square shopping center to
an unrelated third party for a contract price of $5,250,000. At the time of
sale, the holder of the Orchard Square mortgage accepted $3,900,000 in
satisfaction of its mortgage, the principal balance and accrued interest of
which were $5,748,344 and $29,558, respectively. The mortgage on Orchard
Square was due and payable on demand. The Partnership recorded the
forgiveness of debt, net of transaction expenses, as an extraordinary gain
of $1,602,902 in the fourth quarter of 1995. For financial reporting
purposes, the Partnership recorded a loss, after transaction expenses, of
$2,271,249 in the fourth quarter of 1995 in connection with the sale of the
Orchard Square property. For federal income tax purposes, the Partnership
recorded a loss, after transaction expenses, of approximately $2,404,000 in
1995.
On November 17, 1995, the Partnership completed the sale of a pad site at
its Berkeley Square property to an existing tenant. The contract price was
$217,000, of which $192,000 was applied to pay down the principal balance of
the mortgage debt on Berkeley Square. A gain for financial reporting and
federal income tax purposes of $171,877 was recorded in the fourth quarter
of 1995 in connection with this sale.
NOTE H - WRITE-DOWNS OF ASSETS PRIOR TO LIQUIDATION ACCOUNTING
In the second quarter of 1997, at the time the Partnership entered into a
contract to sell Berkeley Square, the Partnership recorded an impairment
charge of $550,000 to write-down the carrying value of that property to its
revised fair value.
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 as of December 1, 1996. In accordance with SFAS No.
121, the assets, which include the land, buildings 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.
The revisions in estimates were received in the fourth quarter of 1996, were
not known before the fourth quarter, and resulted in a lower valuation for
Tarrytown Mall in comparison to the prior year's valuation. Fair value was
determined by an independent appraisal based on an income capitalization
approach.
In the fourth quarter of 1995, the Partnership recorded a charge of
$2,606,156 to reflect the Partnership's revised estimate of net realizable
value of Tarrytown Mall based on the decline in the appraisal value at
that time to $6,100,000 which was below the outstanding balance of the
mortgage debt and accrued interest on the property. The $2,606,156
represented the sum of the difference of $2,542,295 between the net book
value of Tarrytown Mall's land, building and improvements and the balance of
the mortgage debt and accrued interest as of December 31, 1995, plus the
<PAGE> 46
write-off of $63,861 in tenant rent receivables related to the recording of
rental income on a straight-line basis.
The treatment of these write-downs of assets does not affect cash
flow or taxable income (loss) of the Partnership.
NOTE I - FEDERAL TAXABLE NET LOSS:
A reconciliation of the financial statement net loss to the federal
taxable net income (loss) for the years ended December 31, 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Financial statement net loss $ (479,417) $(3,225,468) $(3,778,465)
Adjustments:
-Write-down of assets for financial statements 550,000 2,895,000 2,606,156
-Adjustment for certain loans and payables 862,634 - -
-Loss on sale of assets (623,628) (692,288) (132,709)
-Costs depreciated over a life longer for income
tax purposes than financial reporting purposes (40,003) 1,632 7,376
-Rent abatements and scheduled rent increases 4,705 (4,429) 19,507
-Effects of rents collected in advance (14,052) (14,008) (14,335)
-Provision for doubtful accounts, net of
write-offs (126,160) (97,685) (26,835)
-Other adjustments 483 51,665 (63,023)
---------- ----------- -----------
Federal taxable net income (loss) $ 134,562 $(1,085,581) $(1,382,328)
========== =========== ===========
</TABLE>
Because many types of transactions are susceptible to varying
interpretations under federal and state income tax laws and regulations, the
amounts reported above may be subject to change at a later date upon final
determination by the taxing authorities.
NOTE J - SUBSEQUENT EVENTS
In February 1998, the Partnerhip made a cash distribution totaling
$3,600,000 or $3 per Unit to limited partners of record as of February 1,
1998 as discussed in Note A. This distribution represented proceeds from
the sale of shopping centers.
On January 29, 1998, the Partnership sold Lynnwood Place Shopping Center to
an unrelated third party for a contract price of $6,365,000. On March 2,
1998, the Partnership sold Edgewood Plaza Shopping Center to an unrelated
third party for a contract price of $2,220,000. The sale of these two
centers resulted in a net gain which has been reflected in the net
realizable value of the investment in real estate on the accompanying
statement of net assets in liquidation as of December 31, 1997.
In March 1998, the Partnership entered into agreements to sell Quality
Center Shopping Center and Woodlawn Village Shopping Center as discussed in
Note A.
<PAGE> 47
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
-------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful tenant
accounts receivable:
Balance at beginning of year $228,991 $326,673 $353,507
Reserve charges to costs and expenses 81,690 73,599 172,159
Write-offs during the year (207,850) (171,281) (198,993)
-------- -------- --------
Balance at end of year, prior to
the adoption of liquidation basis
of accounting $102,831 $228,991 $326,673
======== ======== ========
</TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (1)
-------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ------------------ ------------- ----------------------------- ---------------------------
Costs capitalized subsequent
Initial cost to Partnership to acquisition
Shopping Center/ Building & Carrying
Location Encumbrances Land Improvements Improvements Costs(2)
- ------------------ ------------- ------------ ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Woodlawn Village
Fredericksburg, VA $1,774,747 $396,805 $2,298,000 $128,757 $ (129,537)
Lynnwood Place
Jackson, TN 5,846,495 1,271,305 7,809,446 239,592 (269,476)
Edgewood Plaza
Harford County, MD 1,362,160 525,755 1,133,771 650,097 (188,478)
Tarrytown Mall
Rocky Mount, NC 6,789,937 2,360,955 6,476,200 5,365,205 (1,735,967)
Quality Center
Lancaster, PA 3,655,711 1,662,556 4,899,369 318,605 (329,538)
----------- ----------- ----------- ----------- ------------
TOTALS $19,429,050 $6,217,376 $22,616,786 $6,702,256 $(2,652,996)
=========== =========== =========== =========== ============
</TABLE>
NOTE 1. ACCOUNTING BASIS
Schedule III reflects the carrying values of the shopping centers immediately
prior to the adoption of liquidation basis of accounting.
<PAGE> 48
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (1) - (Continued)
----------------------------
<TABLE>
<CAPTION>
Column A Column E Column F Column G Column H Col. I
- ------------------ ----------------------------------- -------- -------- -------- --------
Gross amount at which carried Accum- Depre-
at December 31, 1997 (1) (3) ulated Date of ciable
Shopping Center/ Building & Depreci- Construc- Date Life
Location Land Improvements Totals(5) ation(4) tion Acquired (in yrs)
- ------------------ -------- --------------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Woodlawn Village
Fredericksburg, VA $407,558 $2,286,467 $2,694,025 $785,909 1986 12/31/86 31.5
Lynnwood Place
Jackson, TN 1,055,305 7,995,562 9,050,867 2,641,654 1986 07/16/87 31.5
Edgewood Plaza
Harford County, MD 462,369 1,658,776 2,121,145 380,370 1962 04/14/88 31.5
Tarrytown Mall
Rocky Mount, NC 2,269,844 10,196,549 12,466,393 8,292,849 1963 09/01/88 31.5
Quality Center
Lancaster, PA 1,519,716 5,031,276 6,550,992 1,354,309 1987-88 01/31/89 31.5
----------- ----------- ----------- -----------
TOTALS $ 5,714,792 $27,168,630 $32,883,422 $13,455,091
=========== =========== =========== ===========
</TABLE>
NOTE 2. CARRYING COSTS ADJUSTMENTS:
For financial reporting purposes, payments received pursuant to master
leaseback agreements are treated as an adjustment to the carrying value of
the property. Column D - Carrying Costs also includes adjustments to
investments in real estate for sales of property or portions thereof and
write-downs of assets.
NOTE 3. RECONCILIATION OF REAL ESTATE:
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $51,323,894 $53,059,315 $61,191,581
Improvements 433,599 387,419 504,523
Sale of shopping centers (18,874,071) (1,669,179) (8,596,056)
Sale of pad sites and land - (453,661) (40,733)
----------- ----------- -----------
Balance at end of year, prior to
the adoption of liquidation basis
of accounting $32,883,422 $51,323,894 $53,059,315
=========== =========== ===========
</TABLE>
<PAGE> 49
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -
(Continued)
NOTE 4. RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $16,939,873 $13,271,409 $10,658,778
Depreciation expense for the year 1,193,448 1,383,271 1,598,697
Write-down of assets 550,000 2,895,000 2,542,295
Sale of shopping centers (5,228,230) (609,807) (1,528,361)
----------- ----------- -----------
Balance at end of year, prior to
the adoption of liquidation basis
of accounting $13,455,091 $16,939,873 $13,271,409
=========== =========== ===========
</TABLE>
In the second quarter of 1997, at the time the Partnership entered into
a contract to sell Berkeley Square Shopping Center, the Partnership
recorded an impairment charge of $550,000 to write-down the carrying
value of Berkeley Square to its revised fair value.
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 as of December 1, 1996.
In the fourth quarter of 1995, the Partnership recorded a charge of
$2,542,295 to reflect the Partnership's revised estimate of net
realizable value of Tarrytown Mall based on the decline in the
appraisal value. The $2,542,295 represented the sum of the difference
between the net book value of Tarrytown Mall's land, building and
improvements and the balance of the mortgage debt and accrued interest
as of December 31, 1995.
NOTE 5. FEDERAL INCOME TAX COST OF INVESTMENT IN REAL ESTATE:
The aggregate cost of land and buildings and improvements for federal
income tax purposes is $5,714,792 and $28,993,240, respectively, for a
total cost of $34,708,032 at December 31, 1997.
<PAGE> 50
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
-------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ------------------------ ------------ ------------ -----------------------------------
Description of Final Periodic
Shopping Center Interest Maturity Payment
Mortgages/Location Rate Date Terms
- ------------------------ ------------ ------------ -----------------------------------
<S> <C> <C> <C>
First mortgage Level monthly payments of principal
on Woodlawn Village and interest with entire the
Fredericksburg, VA 8.5% 12/1/06 principal due at maturity (2)
First mortgage Level monthly payments of principal
on Lynnwood Place and interest, with entire principal
Jackson, TN 9.5% 2/10/00 due at maturity
First trust mortgage Prime rate plus 1.5%, Monthly payments of principal
on Tarrytown Mall with a floor of 7.5%, and interest with entire
Rocky Mount, NC 10% at 12/31/97 1/1/99 principal due at maturity
Monthly payments of net cash flow from
Second trust mortgage the property after payment of first
on Tarrytown Mall trust debt service, with principal and
Rocky Mount, NC 8.0% 1/1/99 accrued interest due at maturity
First mortgage
on Edgewood Plaza Level monthly payments of principal
Harford County, MD 8.625% 9/1/00 and interest
First mortgage
on Quality Center Level monthly payments of principal
Lancaster, PA 10.625% 8/1/98 (3) and interest
</TABLE>
See notes attached.
<PAGE> 51
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE - (Continued)
-------------------------
<TABLE>
<CAPTION>
Column A Column E Column F Column G Column H
- ------------------------ ---------- ------------ ------------ --------------------
Principal amount of
Description of Face Carrying loans subject to
Shopping Center Prior amount of amount of delinquent principal
Mortgages/Location Liens mortgages mortgages(1) or interest
- ------------------------ ---------- ------------ ------------ --------------------
<S> <C> <C> <C> <C>
First mortgage
on Woodlawn Village
Fredericksburg, VA None $1,950,000 $1,774,747 None
First mortgage
on Lynnwood Place
Jackson, TN None 6,600,000 5,846,495 None
First trust mortgage
on Tarrytown Mall
Rocky Mount, NC None 2,640,940 1,404,940 None
Second trust mortgage
on Tarrytown Mall
Rocky Mount, NC None 6,500,000 5,384,997 None
First mortgage
on Edgewood Plaza
Harford County, MD None 1,400,000 1,362,160 None
First mortgage
on Quality Center
Lancaster, PA None 4,150,000 3,655,711 None
----------- -----------
Totals $23,240,940 $19,429,050
=========== ===========
</TABLE>
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
(1) See Note 1 attached.
(2) Prepayment penalty based on a yield maintenance formula.
(3) The Quality Center loan was scheduled to mature on February 1, 1998.
The lender agreed to extend the term of this loan for six months.
<PAGE> 52
MID-ATLANTIC CENTERS LIMITED PARTNERSHIP
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE - (Continued)
NOTE 1. RECONCILIATION OF MORTGAGE LOANS:
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $28,104,113 $29,130,611 $35,285,891
----------- ----------- -----------
Additions during the year:
Proceeds from long-term debt - - 1,400,000
----------- ----------- -----------
Deductions during the year:
Retirement of long-term debt 8,119,123 382,510 4,937,500
Principal payments on long-term debt 555,940 643,988 769,436
Forgiveness of debt, before
transaction and other costs
of $245,442 - - 1,848,344
----------- ----------- -----------
8,675,063 1,026,498 7,555,280
----------- ----------- -----------
Balance at end of year (a) $19,429,050 $28,104,113 $29,130,611
=========== =========== ===========
</TABLE>
(a) The carrying amount of mortgages for federal income
tax purposes was $19,429,050 at December 31, 1997.
<PAGE> 53
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Identification of Directors and Executive Officers
The Partnership does not have officers or directors. The General
Partners of the Partnership are FW Realty Limited Partnership and
Realty Capital IV Limited Partnership. The following tables set
forth the names, ages and positions held by the directors and
executive officers of FW Corporation and LMRC IV, Inc., the
respective general partners of the General Partners.
<TABLE>
<CAPTION>
Relationship to
Positions Held With FW Realty Limited
Name FW Corporation Age Partnership
---- ------------------- --- -----------------
<S> <C> <C> <C>
William J. Wolfe President and Director 45 Limited Partner
Marvin Fabrikant Vice President and Director 53 Limited Partner
Stuart D. Halpert Vice President, Secretary
and Director 55 Limited Partner
Lester Zimmerman Treasurer and Director 48 Limited Partner
Jack E. Spector Director 48 Limited Partner
</TABLE>
<TABLE>
<CAPTION>
Relationship to
Positions Held With Realty Capital IV
Name LMRC IV, Inc. Age Limited Partnership
---- ------------------- --- -------------------
<S> <C> <C> <C>
Richard J. Himelfarb President and Director 56 none
Gerard F. Petrik, Jr. Vice President and
Director 39 none
L. Kay Strohecker Treasurer 42 none
C. Gregory Kallmyer Secretary 47 none
Robert Kleinpaste Director 51 none
</TABLE>
All of the FW Corporation individuals have served in the capacities indicated
above since 1987 (with the exception of Mr. Wolfe who served as Vice
President until March 31, 1995 when at that time he became President and Mr.
Halpert who became a Vice President March 31, 1995). The LMRC IV, Inc.
individuals have served in the capacities indicated above since 1990 (with
the exception of Gerard F. Petrik, Jr. and L. Kay Strohecker who were elected
to their respective positions in June 1995). All of the directors and
executive officers will continue to serve in their current capacities until
their successors are elected and qualified.
The following discussion provides certain information regarding the principal
employment and business experience of the executive officers and directors of
the General Partners.
<PAGE> 54
Officers and Directors of FW Corporation
William J. Wolfe is President of FW Corporation, having assumed that office
on March 31, 1995. He has served as a director of FW Corporation since 1987
and was a Vice President of that company from 1987 until becoming its
President. Mr. Wolfe is President, Chief Executive Officer and a director of
First Washington Realty Trust, Inc., a publicly held real estate investment
trust formed in 1994. He is also President, Chief Executive Officer and a
director of First Washington Management, Inc. Mr. Wolfe is responsible for
the day to day operations of the companies and the leasing of First
Washington Realty Trust, Inc. and First Washington Management, Inc.
properties. He has concentrated on the leasing of newly constructed shopping
centers as well as renovations and expansions. Mr. Wolfe was President
of JNC Enterprises, a diversified real estate development company, from 1979
until December 1983 when he co-founded First Washington Development Group,
Inc. Mr. Wolfe is a member of the International Council of Shopping Centers.
Marvin Fabrikant is Vice President and a director of FW Corporation. Mr.
Fabrikant retired from active participation in the operations of FW
Corporation in 1991. Prior to joining First Washington Development Group,
Inc. in June 1984, Mr. Fabrikant was engaged from 1979 to 1984 in commercial
real estate acquisition and development with Fabrikant and Kain, a real
estate development firm.
Stuart D. Halpert is Vice President, Secretary and a director of FW
Corporation and Chairman of First Washington Management, Inc. He is Chairman
of First Washington Realty Trust, Inc., a publicly held real estate
investment trust formed in 1994. Mr. Halpert is involved in the day to day
operations of the companies and in project analysis, selection and financing.
From 1982 until joining First Washington in June 1984, Mr. Halpert was a
practicing attorney with a major Washington, D.C. law firm. Prior to
entering the private practice of law, Mr. Halpert served as Counsel to the
House Committee on Banking and Currency, United States Congress. Mr. Halpert
is a member of the International Council of Shopping Centers.
Lester Zimmerman is Treasurer and a director of FW Corporation and Vice
President of First Washington Management, Inc. He is Executive Vice
President and a director of First Washington Realty Trust, Inc., a publicly
held real estate investment trust formed in 1994. Mr. Zimmerman specializes
in market analysis, project selection and sales. He is a licensed real
estate broker and has had experience in commercial brokerage, specializing in
the sale of major office and apartment projects. Mr. Zimmerman also serves
as President and a director of First Capital Realty, Inc., an affiliated
entity. Mr. Zimmerman was a real estate broker with Carey Winston, a
commercial real estate brokerage company, from 1978 to 1981, and from 1981
until joining First Washington in 1984 was employed as an independent real
estate broker.
Jack E. Spector is a director of FW Corporation, having served as a director
since 1987. From 1987 to March 31, 1995, he was the President of FW
Corporation. Mr. Spector was Executive Vice President of First Washington
Management, Inc. from 1984 until March 31, 1995 when he resigned to become a
business and real estate consultant. He was Executive Vice President of
First Washington Realty Trust, Inc., a publicly held real estate investment
<PAGE> 55
trust formed in 1994 until March 1995. Mr. Spector is a Certified Public
Accountant and prior to joining First Washington Management, Inc., he was
associated with Grant Thornton, a national accounting firm. Mr. Spector is a
member of the American Institute of Certified Public Accountants.
Officers and Directors of LMRC IV, Inc. and LM Unit Trust, Inc.
Richard J. Himelfarb is President and a director of LMRC IV, Inc. and Legg
Mason Realty Capital, Inc. He is a Senior Executive Vice President and a
director of Legg Mason, Inc. and Legg Mason Wood Walker, Inc. Mr. Himelfarb
has senior management responsibility for the Corporate Finance, Real Estate
Finance and Direct Investments Departments of Legg Mason Wood Walker, Inc.
From 1972 until he joined Legg Mason, Inc. in 1983, Mr. Himelfarb was a
partner in a major Baltimore law firm, where he served as senior outside
counsel for Legg Mason, Inc. He is a graduate of the Johns Hopkins
University and the Yale Law School.
Gerard F. Petrik, Jr. is Vice President and a director of LMRC IV, Inc. and
Legg Mason Realty Capital, Inc. He is a Vice President of Legg Mason Wood
Walker, Inc. Mr. Petrik joined Legg Mason in April 1987. He is a member of
the firm's Equity Research Department and also serves as manager of the
Direct Investments Department. Prior to his employment at Legg Mason, Mr.
Petrik was a senior associate at Paine Webber Properties, Inc. Mr. Petrik
received his undergraduate and graduate degrees from Loyola College.
L. Kay Strohecker is Treasurer of LMRC IV, Inc. She is Assistant Vice
President of Legg Mason Wood Walker, Inc. Ms. Strohecker joined Legg Mason
in 1988 and serves as assistant controller of Legg Mason Wood Walker, Inc.
Prior to joining Legg Mason, Ms. Strohecker was controller for a private
corporation in Baltimore. Ms. Strohecker is a graduate of the University of
Baltimore and is a Certified Public
Accountant.
C. Gregory Kallmyer is Secretary of LMRC IV, Inc. He is Vice President of
Legg Mason Wood Walker, Inc. Mr. Kallmyer joined Legg Mason in October 1985
and serves as the assistant to the Director of Compliance. Prior to his
employment at Legg Mason, Mr. Kallmyer was Vice President, Secretary and
Director of Legal Affairs at Union Trust Bancorp. Mr. Kallmyer is a graduate
of Mt. St. Mary's College and the University of Baltimore School of Law.
Robert Kleinpaste is a director of LMRC IV, Inc. He is President of
Chesapeake Capital Partners, a real estate investment firm located in Owings
Mills, Maryland. From 1994 until 1997, he served as President of Regency
Homes Corporation, a Maryland based home builder. From 1990 until 1994, he
was President of Legg Mason Realty Group, Inc., which was the real estate
consulting and appraisal subsidiary of Legg Mason, Inc. Prior to joining
Legg Mason Realty Group, Inc. as a Vice President in 1986, he was President
and founder of Real Property Research Group, Inc. That firm was acquired by
Legg Mason, Inc. in December 1986. Before founding Real Property Research
Group, Inc. in 1978, Mr. Kleinpaste was Vice President of Marketing for
Chesapeake Homes, Inc. He is a graduate of the University of Maryland.
<PAGE> 56
ITEM 11. EXECUTIVE COMPENSATION
The Partnership is a limited partnership and therefore has no directors or
executive officers.
The General Partners and their affiliates are entitled to receive various
fees, distributions of distributable cash flow and sale or refinancing
proceeds and allocations of net income and net loss from operations and gain
or loss from a sale or refinancing from the Partnership. Pages 10-14 of the
Prospectus under the caption MANAGEMENT COMPENSATION describe the manner in
which fees are to be paid, and pages 59-62 of the Prospectus under the
caption PARTNERSHIP DISTRIBUTIONS AND ALLOCATIONS describe the manner in
which cash distributions are to be made to the General Partners and their
Affiliates. These sections of the Prospectus are incorporated by reference
herein.
A description of the amounts, and sources of payment of, the fees and other
compensation paid or accrued by the Partnership to the General Partners and
their affiliates for the fiscal year ended December 31, 1997 is included in
Note E of the Notes to Financial Statements incorporated by reference from
Item 8, "Financial Statements and Supplementary Data," herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1998,
with respect to the beneficial ownership of the Units by individuals who are
officers and/or directors of the corporate general partners of the General
Partners:
Number of Percent of
Name Units Class
---- --------- ----------
Richard J. Himelfarb 80 (1)
Legg Mason Tower
100 Light Street
Baltimore, Maryland 21202
Jack E. Spector 200 (2) (1)
c/o First Washington Management, Inc.
4350 East-West Highway
Bethesda, Maryland 20814
--- ---
All executive officers and
directors as a group 280 (1)
=== ===
(1) Indicates less than 1%.
(2) Mr. Spector disclaims direct beneficial ownership of these Units
owned by his wife as custodian for their minor child.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions With Management and Others
The Partnership is a limited partnership and therefore has no directors or
officers. The Partnership has engaged in no transactions with individual
<PAGE> 57
officers or directors of FW Corporation or LMRC IV, Inc., the corporate
general partners of the General Partners of the Partnership. Those officers
and directors may have indirect interests in amounts paid to the General
Partners and their affiliates for services rendered by them to the
Partnership. A description of the amounts of and sources of payment of the
fees and other compensation paid or accrued by the Partnership to the General
Partners and their affiliates for the fiscal year ended December 31, 1997 is
incorporated by reference from Item 11, "Executive Compensation," herein.
(b) Certain Business Relationships
The Partnership has entered into certain arrangements with the General
Partners and their affiliates whereby they will receive fees, commissions,
compensation and other income from transactions that have not and will not be
determined on the basis of arms-length negotiations. The Partnership
Agreement generally requires the terms of such transactions to be no less
favorable to the Partnership than the terms obtainable from nonaffiliated
entities rendering similar services on an ongoing basis in the same
geographic region. The types of business transactions and the amounts
payable in connection therewith are described on pages 10-14 of the
Prospectus under the caption Management Compensation, pages 14-17 of the
Prospectus under the caption Conflicts of Interest, pages 24-26 of the
Prospectus under the caption Management, and pages 37-39 of the Prospectus
under the caption Investment Objectives and Policies. These sections of the
Prospectus are incorporated by reference herein. A description of the amounts
paid to the General Partners or their affiliates during the fiscal year ended
December 31, 1997 are set forth in Note E of the Notes to Financial
Statements incorporated by reference from Item 8, "Financial Statements and
Supplementary Data," herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
(1) See Index to Financial Statements and Financial Statement
Schedules on Page 29.
<TABLE>
(2)Exhibits
<S> <C>
3.1 Third Amended and Restated Agreement and Certificate of Limited
Partnership. (1)
3.2 Third Certificate of Amendment to Third Amended and Restated
Agreement and Certificate of Limited Partnership. (3)
3.3 Second Certificate of Amendment to Third Amended and Restated Agreement
and Certificate of Limited Partnership. (3)
3.4 First Certificate of Amendment to Third Amended and Restated Agreement
and Certificate of Limited Partnership. (3)
4.1 Third Amended and Restated Agreement and Certificate of Limited
Partnership. (1)
4 The Partnership hereby agrees, pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K, to furnish to the Commission upon request a copy of
<PAGE> 58
each instrument with respect to the rights of holders of the Edgewood
Plaza long-term debt of the Partnership. (10)
10.1 Form of Shopping Center Management and Leasing Agreement. (2)
10.2 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Food Lion, Inc. (3)
10.3 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Revco Drug Centers of Virginia Inc. (3)
10.4 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
The Kroger Company. (3)
10.5 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Santoni's Markets Incorporated. (3)
10.6 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Rite-Aid of Maryland, Inc. (3)
10.7 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Family Dollar Stores of Martinsville, Virginia, Inc. (3)
10.8 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Southeastern Outdoorsman, Inc. (3)
10.9 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Noland Company, Inc. (3)
10.10 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
The Grand Union Company. (3)
10.11 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
The Reed Company. (3)
10.12 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Family Dollar Stores of Pennsylvania, Inc. (3)
10.13 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
R.H. Properties Co. D/B/A New Ephrata Farmer's Market. (3)
10.14 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Santoni's, Inc. (3)
10.15 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
People's Service Drug Stores, Inc. (3)
10.16 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Montgomery Ward Co., Inc. (3)
10.17 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
S.E. Nichols, Inc. (3)
10.18 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Robert E. Lawlar. (3)
10.19 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Ottis T. Cato D/B/A Bingo Time. (3)
10.20 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Housewares Merchandisers, Inc. (3)
10.21 First Addendum to that certain contract between First Washington
Development Group, Inc. and BPT Lynnwood Place Associates, LTD. dated
March 11, 1987. (3)
10.22 Escrow Agreement between BPT Lynnwood Place Associates, Ltd. and Mid-
Atlantic Centers Limited Partnership (pursuant to First Addendum to
the Contract) dated July 16, 1987. (3)
10.23 Lease Guarantee Agreement between Mid-Atlantic Centers Limited
Partnership and The Mitchell Company dated December 30, 1987. (3)
10.24 Escrow Agreement between The Mitchell Company, Mid-Atlantic Center
Limited Partnership and Mid-South Title Insurance Corporation dated
December 30, 1987. (3)
10.25 First Amendment of Real Estate Purchase Contract between First
Washington Development Group, Inc. and Five Shopping Center Co. dated
<PAGE> 59
December 7, 1987. (3)
10.26 First Addendum to Real Estate Purchase Contract between Quality
Centers/Lancaster Limited Partnership and First Washington Development
Group, Inc. dated September 13, 1988. (3)
10.27 Escrow Agreement between Fidelity Title & Guaranty Company, Quality
Centers/Lancaster Limited Partnership and Mid-Atlantic Centers Limited
Partnership dated January 31, 1989. (3)
10.28 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Southeastern Health Spa, Inc. (4)
10.29 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Frensleys, Inc. (4)
10.30 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Nike Retail Services, Inc. (4)
10.31 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Wanda Fay Toney and T.A. Coats, Jr. (5)
10.32 Lease Agreement between Mid-Atlantic Centers Limited Partnership and
Video Vibes.(6)
10.33 Modification of Promissory Note and Statement of Loan Status between
Mid-Atlantic Centers Limited Partnership and The Mitchell Company. (7)
10.34 Supplemental agreement by and between Mid-Atlantic Centers Limited
Partnership and Montgomery Ward & Co., Incorporated amending lease
agreement included as Exhibit 10.16 of Form 10-K for the year ended
December 31, 1988. (7)
10.35 Lease agreement by and between Mid-Atlantic Centers Limited
Partnership and Wholesale Depot Holding Company, Inc. (7)
10.36 Amended and Restated Nonrecourse Purchase Money Promissory Note dated
January 13, 1994. (8)
10.37 Amendment to Note, Deed of Trust and Other Loan Documents dated
January 13, 1994. (8)
10.38 Promissory Note ($196,710.00) dated January 13, 1994. (8)
10.39 Loan Agreement between Mid-Atlantic Centers and FirstTrust Bank dated
January 13, 1994. (8)
10.40 Promissory Note between Mid-Atlantic Centers and FirstTrust Bank dated
January 13, 1994. (8)
10.41 Lease agreement by and between Mid-Atlantic Centers Limited
Partnership and W.S. Badcock Corporation dated November 10, 1993. (8)
10.42 Purchase and Sale Agreement between Mid-Atlantic Centers Limited
Partnership, RRC Acquisitions, Inc. and Ulmer, Murchison, Ashby and
Taylor dated December 29, 1995. (10)
27.1 Financial Data Schedule.
28.1 Letter of Valuation for 11 Shopping Center Properties as of January 1,
1993. (6)
28.2 Pages 10-14 of the Registrant's Prospectus dated March 25, 1987. (1)
28.3 Pages 14-17 of the Registrant's Prospectus dated March 25, 1987. (1)
28.4 Pages 24-26 of the Registrant's Prospectus dated March 25, 1987. (1)
28.5 Pages 37-39 of the Registrant's Prospectus dated March 25, 1987. (1)
28.6 Pages 59-62 of the Registrant's Prospectus dated March 25, 1987. (1)
28.7 Page 66 of the Registrant's Prospectus dated March 25, 1987. (1)
28.8 Letter of Valuation for 11 Shopping Center Properties as of January 1,
1994. (8)
28.9 Letter of Valuation for 11 Shopping Center Properties as of November
30, 1994. (9)
28.10 Letter of Valuation for Ten Shopping Center Properties as of January
1, 1996. (10)
<PAGE> 60
28.11 Letter of Valuation for Nine Shopping Center Properties as of December
1, 1996. (11)
28.12 Limited Summary Report for Two (2) Shopping Centers as of December 1,
1997.
</TABLE>
- ------------------
<TABLE>
<S> <C>
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-11 under the Securities Act of 1933 (File
No. 33-11086).
(2) Incorporated by reference to Amendment No. 3 to the Registrant's
Registration Statement on Form S-11 under the Securities Act of 1933
(File No. 33-11086).
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988 pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (File No. 0-16285).
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (File No. 0-16285).
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990 pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (File No. 0-16285).
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (File No. 0-16285).
(7) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1993 pursuant to Section 13
or 15 (d) of the Securities Exchange Act of 1934 (File No. 0-16285).
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (File No. 0-16285).
(9) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (File No. 0-16285).
(10)Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (File No. 0-16285).
(11)Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (File No. 0-16285).
</TABLE>
(b) Reports on Form 8-K
The Partnership filed reports on Form 8-K in July 1997 to report the sale of
Jackson Heights Shopping Center, in September 1997 to report the sale of
Berkeley Square Shopping Center, in December 1997 to report the sale of
Highlandtown Village Shopping Center and in February 1998 to report the sales
of Lynnwood Place Shopping Center and Edgewood Plaza Shopping Center.
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Richard J. Himelfarb
Richard J. Himelfarb, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Title
Signature (Position held with LMRC IV, Inc.) Date
President and Director
/s/ Richard J. Himelfarb (Principal Executive Officer) March 31, 1998
Richard J. Himelfarb
Vice President and
/s/ Gerard F. Petrik, Jr. Director March 31, 1998
Gerard F. Petrik, Jr.
Treasurer (Principal Financial
/s/ L. Kay Strohecker and Accounting Officer) March 31, 1998
L. Kay Strohecker
/s/ Robert T. Kleinpaste Director March 31, 1998
Robert T. Kleinpaste
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: FW Realty Limited Partnership,
General Partner
By: FW Corporation, General Partner
/s/ William J. Wolfe
William J. Wolfe, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Title
Signature (Position held with FW Corporation) Date
President and Director
/s/ William J. Wolfe (Principal Executive Officer) March 31, 1998
William J. Wolfe
/s/ Marvin Fabrikant Vice President and Director March 31, 1998
Marvin Fabrikant
Vice President, Secretary
/s/ Stuart D. Halpert and Director March 31, 1998
Stuart D. Halpert
/s/ Lester Zimmerman Treasurer and Director March 31, 1998
Lester Zimmerman
/s/ Jack E. Spector Director March 31, 1998
Jack E. Spector
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> $5,245,307
<SECURITIES> $0
<RECEIVABLES> $367,393
<ALLOWANCES> $0
<INVENTORY> $0
<CURRENT-ASSETS> $0
<PP&E> $22,796,248
<DEPRECIATION> $0
<TOTAL-ASSETS> $28,747,764
<CURRENT-LIABILITIES> $0
<BONDS> $19,429,050
$0
$0
<COMMON> $0
<OTHER-SE> $7,566,201
<TOTAL-LIABILITY-AND-EQUITY> $28,747,764
<SALES> $0
<TOTAL-REVENUES> $5,471,208
<CGS> $0
<TOTAL-COSTS> $4,220,913
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $81,690
<INTEREST-EXPENSE> $2,381,522
<INCOME-PRETAX> ($479,417)
<INCOME-TAX> $0
<INCOME-CONTINUING> ($479,417)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> ($479,417)
<EPS-PRIMARY> ($0.52)
<EPS-DILUTED> ($0.52)
</TABLE>
LIMITED SUMMARY REPORT
Two (2) Shopping Centers
Mid Atlantic Centers Limited Partnership
As of December 1, 1997
Prepared For:
Mid-Atlantic Centers Limited Partnership
c/o Realty Capital IV Limited Partnership
111 South Calvert Street, 17th Floor
Baltimore, Maryland 21203-1476
Mid-Atlantic Centers Limited Partnership
c/o FW Realty Limited Partnership
4350 East-West Highway
Suite 400
Bethesda, Maryland 20814
Submitted by:
Sapperstein & Associates, LLC
6917 Arlington Road Suite 300
Bethesda, Maryland 20814
File No. 980202DG
<PAGE> 1
February 2, 1998
Mid-Atlantic Centers Limited Partnership
c/o Realty Capital IV Limited Partnership
111 South Calvert Street, 17th Floor
Baltimore, Maryland 21203-1476
Mid-Atlantic Centers Limited Partnership
c/o FW Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Subject: Limited Summary Report for Two (2) Shopping Centers
To: Mid-Atlantic Centers Limited Partnership
Realty Capital IV Limited Partnership
FW Realty Limited Partnership
Pursuant to your request and our letter of engagement, please be advised that
we have prepared a "limited summary" appraisal document as described below.
This is a Summary Appraisal Report which is intended to comply with the
reporting requirements set forth under Standards Rule 2-2(b) of the Uniform
Standards of Professional Appraisal Practice for a Summary Appraisal Report.
As such, it presents only summary discussions of the data, reasoning, and
analyses that were used in the appraisal process to develop the appraiser's
opinion of value. Supporting documentation concerning the data, reasoning,
and analyses is retained in the appraiser's file. The depth of discussion
contained in this report is specific to the needs of the client and for the
intended use stated below. The appraiser is not responsible for
unauthorized use of this report.
Furthermore, in accordance with prior agreement between the Client and the
appraiser, this report is the result of a limited appraisal process in that
certain allowable departures from specific guidelines of the Uniform Standards
of Professional Appraisal Practice were involved. The intended user of this
report is warned that the reliability of the value conclusion provided may be
impacted to the degree there is departure from specific guidelines of USPAP.
Specifically, the Sales Comparison and Cost Approaches were not employed. Only
the Income Approach to valuation was employed in this appraisal. In addition,
the properties were not inspected.
<PAGE> 2
The subject of this appraisal consists of two (2) neighborhood and community
shopping centers located in North Carolina, and Virginia.
Purpose and Function of the Appraisal
The purpose of this appraisal is to estimate the current Market Value "as is"
of the Leased Fee Estate of each individual property as of December 1, 1997,
based on the projected net operating incomes for the properties. This
estimate of value recognizes binding lease commitments presently in effect
with the properties' various tenants. The market value estimates reflect
the most probable price in terms of financial arrangements equivalent to
cash (i.e., market rate, conventional financing).
The function of this assignment is to provide the Client with an estimate of
market value for internal purposes and to provide certain information required
by retirement account investors of the Client. This appraisal document should
only be used by the Client in ascertaining the value of the subject properties
as it relates to the Client's portfolio management. This document is not
suitable nor should it be used for mortgage lending, tax appeal, or litigation
purposes. The appraisers' knowledge of the function of this assignment is not
and should not be construed as bias with regard to the opinion(s) of value
rendered herein.
Per the Client's request and to the best of our knowledge, this report conforms
with the Uniform Standards of Professional Appraisal Practice of the Appraisal
Foundation; and, the Code of Professional Ethics and Standards of Professional
Practice of the Appraisal Institute.
Definition of Market Value
Market Value is defined as:
"The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer
and seller each acting prudently and knowledgeably, and assuming the price
is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title
from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated.
2. Both parties are well informed or well advised, and acting in what they
<PAGE> 3
consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in United States dollars or in terms
of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Definition of Leased Fee Estate
Leased Fee Estate is defined as:
"an ownership interest held by a landlord with the right of use and occupancy
conveyed by lease to others; the rights of lessor or the leased fee owner and
leased fee are specified by contract terms contained within the lease.
Scope/Extent of the Investigation Process
In completing the appraisal, we have performed the following investigations
and analyses. The valuation of the properties were limited to an income
capitalization approach to value, as this is the most appropriate method of
valuation for shopping center properties. The investigation and analyses
performed are summarized below.
- -The Client has provided income and expense operating histories and current
rent rolls for each property. Operating histories were provided for the
period from 1989 to 1996. In addition, the current year's operating histories
were provided for January through September and budgeted amounts for the
remainder of the year. Rent Rolls for each property were provided, dated
September 1, 1997. The information obtained from the Rent Rolls was updated
with conversations with the property manager.
<PAGE> 4
-The following data has not been provided: architectural plans and
specifications, environmental/soil/structural building studies, plats, and
surveys. Furthermore, the subject properties have not been personally
inspected. The appraisers have relied upon representations of the Client
regarding the condition of each property. The appraiser reserves the right
to modify its value conclusions if the condition of the properties is
different from that represented by the Client.
- -For each property, we analyzed the rent roll in order to make projections
for gross revenues and vacancy. The income and expenses were estimated based
on an evaluation of the operating histories for each property. As each of
these centers has an operating history and recent leasing activity, there was
adequate information available for each property to make assumptions
regarding the projected income streams. We also compared the income and
expense projections with regional averages provided in the Urban Land
Institute's Dollars and Cents of Shopping Centers (1995 Edition).
Furthermore, brokers and other appraisers were contacted regarding current
conditions in the subject markets and appropriate capitalization yield rates.
The appraisal process for each of the properties involved the following:
Analysis of the operating history and rent roll for a determination of current
rent levels, existing vacancy, potential future vacancy, and future operating
expenses.
Prospective cash flows were developed to estimate the first-year net operating
income as well as a net present value summary of the discounted cash flow (DCF)
analysis. The ARGUS Version 7 software program was employed in this analysis.
Estimate appropriate capitalization rates and yield rates for each property.
Discussions were held with appraisers and/or brokers in the respective markets
of the subject properties to ascertain appropriate capitalization rates and
discount rates. Furthermore, discussions were held with these individuals to
discuss the subjects' respective positioning within the market, and market
rents.
Estimate the market value of each property utilizing the direct capitalization
and discounted cash flow (DCF) methodologies.
<PAGE> 4
Valuation Methodology
The sole approach employed in the valuation of the subject properties is the
Income Approach. In this approach, the property's potential net operating
income stream is estimated and capitalized into a value estimate. The
estimate of stabilized net income is based upon projections of the subjects'
historical income and expense. An estimate of market value is than obtained
by taking the income as projected, and applying a capitalization rate. This
method is referred to as Direct Capitalization.
Another method of valuation within this approach forecasts the potential gross
income, vacancy, expenses, and the resulting net income over a typical
holding/analysis period. The property is assumed to be sold at the end of the
term and the net proceeds from the sale (reversion) are combined with the last
year's net income to become part of that year's cash flow. In this case, cash
flow is net income available before paying debt service. The cash flows are
converted to a present value using a market derived that is developed for the
holding period is commonly referred to as the Discounted Cash Flow model, or
DCF. We have used the computer program ARGUS to develop the Discounted Cash
Flow.
The income approach is utilized by many institutional investors when
considering the purchase of an income-producing property. The selection of
appropriate capitalization and yield rates are based on the subject properties'
income generating characteristics, and market derived investment criteria
for similar properties.
Income and Expense Analysis
The estimates of income and associated expenses are based upon current
negotiated lease terms and conditions at the subject. As each of these centers
has an operating history and recent leasing activity, there was adequate
information available within each subject property to make assumptions
regarding the projected income streams. In addition, we also compared the
income and expense projections with regional averages provided in the Urban
Land Institute's Dollars and Cents of Shopping Centers.
<PAGE> 6
Effective Gross Income
Effective gross income is the sum of potential gross revenue less vacancy.
Potential gross revenue is the total income attributable to a property at 100%
occupancy. In addition, potential gross income includes the income derived
from the reimbursement of expenses by tenants as specified in the leases.
The subject properties are anticipated to generate income primarily from
contract rent, and expense pass-throughs.
Rental Revenue: The rental revenue is the stated contract rent for the
contract tenants and the estimated market rent for the vacant space.
Additional income from percentage rent and miscellaneous income was employed
consistent with each properties' operating history.
Reimbursement Revenue: The recoveries represent the tenant reimbursements for
operating expenses that are passed through to the tenants. These
reimbursements are based on the individual lease agreements for each tenant
within each of the shopping centers.
General Vacancy: An allowance for reductions in potential income
attributable to vacancies, tenant turnover, and non-payment of rent. This
item depends upon current vacancy at each center, the properties' occupancy
history, and expectation for the future.
Operating Expenses
Reimbursable expenses are those expenses which are reimbursed by the tenants
on a pro-rata basis and generally include real estate taxes, insurance,
common area utilities, and repairs and maintenance of the common area.
Non-reimbursable expenses are those expenses which are not reimbursed by the
tenants and generally include professional fees, promotion and advertising,
and miscellaneous administrative expenses. Management may be treated as a
reimbursable or non-reimbursable expense. The determination of whether an
expense is reimbursable is based on the lease terms of the individual leases.
Real Estate Taxes were based on actual real estate taxes for the current
fiscal year.
Insurance: These expenses were projected based upon an increase of 3% over
the expense for the prior year.
<PAGE> 7
CAM/Utilities: This expense category includes such items as the maintenance
and repair of the subject's exterior improvements, elevations/facade, parking
lot and pedestrian walkway areas, grounds/landscaping, snow and trash removal,
general repairs, maintenance, and cleaning and utility usage in the common
areas. In addition, this expense includes utility usage in the tenants'
spaces if they are not individually metered and billed by the respective
utility companies. We have projected this expense to be 3% higher than the
prior year's expense, or in the cases where this expense has fluctuated
significantly over the last three years, we have averaged the expense history.
Management: A management fee of 6.0% was deducted from the income stream as
the management expense. This amount is based on the amount currently charged
by management to manage the subject properties. Typical management agreements
are based on a range of 4.0% to 6.0% of the effective gross income.
Miscellaneous: This category includes legal, accounting, professional fees,
promotional expenses, and miscellaneous sundry expenditures. The
miscellaneous expense was projected based upon an average of the prior year's
expenses for this category. In estimating the averages, we have excluded
those years where the amounts represented an aberration from the normal, and
thus averaged the prior years' totals.
Discount Cash Flow Analysis
The following assumptions have been used in projecting the cash flows and
determining the values of the individual properties.
The DCF analysis is based on an all-cash purchase, a ten-year holding period
and resale with no seller financing.
Market rent and expenses are projected to increase throughout the analysis
at a rate of 3.0%. This is consistent with parameters of investors as
identified in the Korpacz Real Estate Investor Survey, our expectation of
C.P.I. growth and consistent with the lease escalation provisions of many of
the subject leases. During the lease terms, base rent will increase based upon
negotiated contractual lease terms.
Tenant Fit-Up is typically the responsibility of the tenant. Upon lease
rollover, a rate of $2.00 per square foot has been allocated. A 50% to 65%
renewal rate was assumed for existing tenants.
<PAGE> 8
A cost of sale at the end of the analysis period is estimated to be 4.0%
and is deducted from the capitalized value at the end of the 10 year holding
period. These costs include broker's commission and seller's share of the
closing and recording costs.
Capitalization rates used range from 10.5% to 12.0%. The applicable rate for
each property is dependent on age, condition, tenancy, location, vacancy,
upcoming lease expirations, and general investor expectations for the
individual markets. We have also relied upon the Client's representation as
to the market appeal of each property, and conducted interviews with
appraisers and/or brokers active in the properties' respective markets.
Discount rates used ranged from 12.5% to 14.0% and are applicable to each
property based on the conditions as reported above.
A reversionary (terminal) capitalization rate was applied to the 11th year's
net operating income. The terminal capitalization rate was based on a 0.25%
to 1.0% increase over the going-in capitalization rate, depending on the age
of the property and economic prospects for the marketplace. This increase in
capitalization rates from the going-in rate also accounts for capital
improvements that may be required at the time of future re-sale as the
property will have aged 10 years. It also considers the subject's market
appeal at the end of the holding period.
Valuation
The market value conclusions for the two (2) shopping center properties are
provided on the following pages.
<PAGE> 9
SUBJECT PROPERTY
Shopping Center: Tarrytown Mall
Location: Rocky Mount, North Carolina
Size: 321,094 square feet
Current Vacancy
Leasable: 35,353 square feet (11.0%)
Non-Leasable: 15,543 (4.8%)
------
Total Vacancy: 50,896 square feet (15.9%)
Capitalization Rate: 11.0%
Value - Direct Capitalization: $5,940,000
Discounted Cash Flow
Discount (Yield) Rate: 13.0%
Value - Discounted Cash Flow: $5,850,000
Value Conclusion: $5,900,000
Comments: This is a large community center/mall constructed in 1964 and
remodeled in 1989. The center includes five kiosks and three pad sites. The
pad occupied by Tarrytown Automotive was reportedly sold in August 1996 for
development of a fast food restaurant. The center is anchored by Montgomery
Ward (74,069 square feet), Goody's Family Clothing (24,000 square feet),
and K&W (12,240 square feet). The other anchor, Wholesale Depot, declared
bankruptcy and vacated 79,066 square feet in 1994. The space was released
in the last year to Charter School, a private education facility.
NOTE: An operating history schedule is provided for this property. The
schedule includes a five year comparison (1992-1996) of income less
vacancies and abatements, expenses (real estate taxes, insurance, common
area maintenance, miscellaneous and management fees), and net operating
income. In addition, an owner's projected for 1997 and appraiser's first
year projection of the income and expense amounts are provided. The source
of the schedule was First Washington Management, Inc.
<PAGE> 10
SUBJECT PROPERTY
Shopping Center: Woodlawn Village Shopping Center
Location: Fredericksburg, Virginia
Size: 49,800 square feet
Current Vacancy
Leasable: 1,200 square feet (2.4%)
Non-Leasable: 0 (0%)
Total Vacancy: 1,200 square feet (2.4%)
Capitalization Rate: 11.0%
Value - Direct Capitalization: $2,360,000
Discount (Yield) Rate: 12.5%
Value - Discounted Cash Flow: $2,290,000
Value Conclusion: $2,300,000
Comments: This is a neighborhood shopping center located in Fredericksburg,
Virginia along Route 607 at Cleremont Drive. The property is located
northeast of the downtown area. The center is anchored by Food Lion and
Revco.
The Food Lion's expansion was completed 1997. According to reports by
management, CVS/Revco has reported that they will be vacating at the end of
their current term (June 2001), and are seeking a free standing site in the
neighborhood.
We have been advised by management that purchase offers have been received on
the property ranging from $2,075,000 to $2,450,000.
NOTE: An operating history schedule is provided for this property. The
schedule includes a five year comparison (1992-1996) of income less
vacancies and abatements, expenses (real estate taxes, insurance, common
area maintenance, miscellaneous and management fees), and net operating
income. In addition, an owner's projected for 1997 and appraiser's first
year projection of the income and expense amounts are provided. The source
of the schedule was First Washington Management, Inc.
<PAGE> 11
Capitalization Rate and Yield Rate Discussion
The capitalization of an income stream by direct capitalization is a
method used to convert a single year's estimate of income into a market
value indication. Alternatively, yield capitalization is often used to
convert future benefits to present value by applying an appropriate yield
rate. Both methods are consistent with the premises on which income
producing properties are purchased. The typical investor is purchasing
future benefits which are anticipated from the income stream that a
property is capable of producing over the holding period. Inherent in
the capitalization and yield rates are the factors for the
return on and of capital, and for the risk attributed to the uncertainty of
realizing projected future benefits. Essentially, the rates consider the
quality, quantity, and durability of the income stream which the property is
capable of producing. There are several factors which must be considered in
determining an appropriate rates for any given property. These factors
include the following:
Location
Physical characteristics of the property
Stability of leasing
Strength and credibility of tenancy
Market conditions
The rates selected for each property were based on the characteristics
specific to each property, and the perceived risk of receiving the
projected net income. In order to assess the risk associated with the
properties' individual locational characteristics, we contacted appraisers
and/or real estate brokers active in each of the respective markets and had
discussions with First Washington Management and Legg Mason. This
information provided us with some understanding of the state of each of the
markets, and the subjects' relative position within the markets. Where
available, information was obtained regarding sales of comparable centers in
the subjects' markets that were used to develop appropriate rates.
Information regarding the subject properties' income stream patterns,
vacancy and turnover was obtained by examining the subjects'
occupancy and operating histories.
<PAGE> 12
In the evaluation of each of the centers, rates were selected based on the
perceived risk associate with receiving the projected net income. Investment
criteria provided by the Korpacz Real Estate Investor Survey, for the Fourth
Quarter 1997, is shown below.
NATIONAL RETAIL MARKET INDICES
KEY INDICATORS CURRENT QUARTER LAST YEAR
Free and Clear Equity Returns (IRR or Yield Rates)
Range 10.00% - 14.00% 10.00% - 14.00%
Average 11.54% 11.63%
Overall Capitalization Rate
Range 8.00% - 13.0% 8.25% - 13.00%
Average 9.89% 9.78%
Residual Capitalization
In choosing the appropriate capitalization rates and yield rates for the
subject properties, we have reviewed the locational and income
characteristics of each property, and selected rates that take into account
the existing tenancy, condition of the property, and current investor
trends. Furthermore, conversations were conducted with local market
participants to include brokers, and other appraisers regarding investment
rates in the individual markets. The selected rates are felt to be
reflective of present investor requirements and current financial market
conditions. We have factored in the variables of risk to include location,
anticipated rent levels, existing tenancy and mix, structure of the leases,
i.e., terms, age and condition of the improvements, the investment
alternatives, and the class of real estate in which the subject
falls.
Mid-Atlantic Centers Limited Partnership
Valuation Summary - December 1, 1997
Name Tarrytown Mall Woodlawn Village
Location Rocky Mount, NC Fredericksburg, VA Total
Size 321,094 49,800 370,894
Vacancy
Leasable (Sq.Ft.) 35,353 1,200
% 11.0% 2.4%
Non-Leasable 15,543 0
% 4.8% 0.0%
Total Vacancy 50,896 1,200
% 15.9% 2.4%
Projected Income
Effective Gross Income $1,477,674 $381,834 $1,859,508
Expenses 823,912 122,400 946,312
Net Operating Income $653,762 $259,434 $913,196
Capitalization Rate 11.0% 11.0%
Value by Direct
Capitalization $5,940,000 $2,360,000
Discount Rate 13.0% 12.5%
Value by Disc Cash Flow $5,850,000 $2,290,000
Reconciled Value $5,900,000 $2,300,000 $8,200,000
Plus:Value of Excess
Ground $0
Less:Capital
Improvements 0 0 $0
Value Conclusion $5,900,000 $2,300,000 $8,200,000
<PAGE> 13
CONCLUSION
On the facing page is a summary of the conclusions contained within this
report. As noted, the total value of the subject properties is estimated
to be $8,200,000.
Thus, as a result of our study and by virtue of our experience, we are of
the opinion that the properties described herein have a collective market
value as of December 1, 1997, as follows:
MARKET VALUE, "AS IS"
EIGHT MILLION TWO HUNDRED THOUSAND DOLLARS
($8,200,000)
The above estimated value is subject to and predicated upon the general
assumptions and limiting conditions set forth earlier in the report. Neither
this appraisal assignment nor the prospect of future employment has been
conditioned upon this appraisal producing a specific value. Should you have
any questions concerning this appraisal or the value conclusions developed in
this report, please contact this office.
Respectfully submitted,
SAPPERSTEIN & ASSOCIATES, LLC
/s/ Dean G. Gutridge
Dean G. Gutridge, Senior Associate
Reviewed and Approved by:
/s/ Gary L. Sapperstein
Gary L. Sapperstein, MAI, SRPA
CERTIFICATION
Except as otherwise noted in this appraisal report, we hereby certify that:
1. To the best of our knowledge and belief the statements of fact contained
in this report are true and correct.
2. Physical inspections of the properties, that are the subject of this
report, were not made by the appraisers.
3. We have no present or contemplated future interest in the real estate that
is the subject of this appraisal report.
4. We have no personal interest or bias with respect to the subject matter of
this appraisal report or the parties involved.
5. The reported analyses, opinions and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
6. This appraisal report sets forth all of the special and limiting
conditions (imposed by the terms of the assignment or by the undersigned)
affecting the analyses, opinions and conclusions contained in this report.
7. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
8. This appraisal report has been made in conformity with and is subject
to the requirements of the Code of Ethics and Standards of Professional
Practice and Conduct of the Appraisal Institute, the Appraisal Foundation,
and the duly authorized legislative authority for the states of Maryland,
Virginia and the District of Columbia.
9. No one other than the undersigned prepared the analyses, conclusions and
opinions concerning real estate that are set forth in this appraisal report
(unless otherwise specified).
10.The Appraisal Institute conducts a mandatory program of continuing
education for its designated members. MAIs and RM who meet the minimum
standards of this program are awarded periodic educational
certification. Gary Lee Sapperstein has been certified under this
program. Mr. Sapperstein is a Certified/General Real Estate Appraiser in
the Commonwealth of Virginia, the State of Maryland, and the District of
Columbia. As of the date of this report, Gary Lee Sapperstein, has
completed the requirements under the continuing education program of the
Appraisal Institute.
11. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event.
12. We hereby certify that this appraisal was not based upon a requested
minimum valuation, a specific valuation, or the approval of a loan.
13. The undersigned member(s) has (have) appraised properties similar to the
subject, and is (are) therefore in compliance with the competency
provision of the Uniform Standards of Professional Appraisal Practice.
/s/ Dean G. Gutridge
Dean G. Gutridge, Senior Associate
/s/ Gary Lee Sapperstein
Gary Lee Sapperstein, MAI-SRPA, President
LIMITING CONDITIONS
1. The appraiser will not be required to give testimony or appear in court
because of having made this appraisal, with reference to the property in
question, unless arrangements have been previously made.
2. Possession of this report, or a copy thereof, does not carry with it the
right of publication. It may not be used for any purpose by any person
other than the party to whom it is addressed without the written consent
of the appraiser and, in any event, only with proper qualification and
only in its entirety.
3. The distribution of the total valuation in this report between land and
improvement applies only under the reported highest and best use of the
property. The allocations of value for land and improvements must not be
used in conjunction with any other appraisal and are invalid if so used.
4. One (or more) of the signatories of this appraisal report is a Member (or
Candidate) of the Appraisal Institute. The Bylaws and Regulations of the
Institute require each Member and Candidate to control the use and
distribution of each appraisal report signed by such Member or Candidate.
Therefore, except as hereinafter provided, the party for whom this
appraisal was prepared may distribute copies of this appraisal report, in
its entirety, to such third parties as may be selected by the party for
whom this appraisal report was prepared; however, selected portions of
this appraisal report shall not be given to third parties without the
prior written consent of the signatories of this appraisal report.
Further, neither all nor any part of this appraisal report shall be
disseminated to the general public by use of advertising media, public
relations media, news media, sales media or other media for public
communication without prior written consent of the signatories of this
appraisal report.
5. In the event that this appraisal contains a valuation of an estate in land
that is less than the entire fee simple estate, it is noted that (I) the
value reported for such estate relates to a fractional interest only in the
real estate involved; and (ii) the value of this fractional interest, plus
the value of all other fractional interests, may or may not equal the value
of the entire fee simple estate considered as a whole.
SPECIAL LIMITING CONDITIONS
1. As agreed upon with the client prior to the preparation of this appraisal,
this is a Limited Appraisal because it invokes the Departure Provision of
the Uniform Standards of Professional Appraisal Practice. As such,
information pertinent to the valuation has not been considered and/or the
full valuation process has not been applied. Depending on the type and
degree of limitations, the reliability of the value conclusion provided
herein may be reduced.
The report does not include discussions of the data, reasoning, and analyses
that were used in the appraisal process to develop the appraiser's opinion
of value. The information contained in this report is specific to the
needs of the client and for the intended use stated in this report. The
appraiser is not responsible for unauthorized use of this report.
3. The appraiser has relied upon the rent rolls and financial statements
provided by the Client for valuing the subject properties. An audit of
this data was not conducted by the appraiser or by a disinterested third
party to ascertain its integrity. The appraiser reserves the right to
modify its value conclusions if the data provided is not factually correct.
4. Physical inspections of the properties were not conducted by the
signatories of this report. The appraiser reserves the right to modify
its value conclusions if the condition of the properties is different from
that represented by the Client.
5. The appraiser has relied upon certain representations made by the client
with respect to the properties. The appraiser reserves the right to
modify its value conclusions if the data provided is not factually correct.
GENERAL ASSUMPTIONS
1. The legal description used in this report is assumed to be correct.
2. No survey of the property has been made by the appraiser and no
responsibility is assumed in connection with such matters. Sketches in
this report are included only to assist the reader in visualizing the
property.
3. No responsibility is assumed for matters of a legal nature affecting
title to the property nor is an opinion of title rendered. The title is
assumed to be good and merchantable.
4. Information furnished by others is assumed to be true, correct, and
reliable. A reasonable effort has been made to verify such information;
however, no responsibility for its accuracy is assumed by the appraiser.
5. All mortgages, liens, encumbrances, leases, and servitudes have been
disregarded unless so specified within the report. The property is
appraised as though under responsible ownership and competent management.
6. It is assumed that there are no hidden or unapparent conditions of the
property, subsoil, or structures which would render it more or less
valuable. No responsibility is assumed for such conditions or for
engineering which may be required to discover such factors. Further,
it is assumed that no toxic or radioactive materials are located upon or
buried within the subject property. If such materials are found on the
properties under appraisal, the appraisers reserve to the right to modify
the value conclusion found on the appraisal report.
7. It is assumed that there is full compliance with all applicable federal,
state and local environment regulations and laws of the date of the
appraisal unless noncompliance is stated, defined, and considered in the
appraisal report.
8. It is assumed that all applicable zoning and use regulations and
restrictions have been complied with, unless a non-conformity has been
stated, defined, and considered in the appraisal report.
9. It is assumed that all required licenses, consents, or other legislative
or administrative authority from any local, state, or national
governmental or private entity or organization have been made or can be
obtained or renewed for any use on which the value estimate contained in
this report is based.
10.It is assumed that the utilization of the land (and improvements) is within
the boundaries or property lines of the property described and that there
is no encroachment or trespass unless noted within the report.
11.It is assumed that the property does not contain within its confines any
unmarked burial grounds which would preclude or hamper the development
process.
12.This document should not be used as a basis to determine the structural
adequacy/inadequacy of the property described herein, but rather for
valuation purposes only.
13.It is assumed that the subject structure meets the applicable building
codes for it's respective jurisdiction. We assume no responsibility/
liability for the inclusion/exclusion of any structural component item
which may have an impact on value.
GENERAL ASSUMPTIONS (Continued)
14.It is assumed that the subject property will meet all code requirements as
they relate to proper soil compaction, grading, and drainage. We further
reserve the right to alter value should a material change in the status of
subject be discovered.
15.Building plans, surveys and gross building area calculations as supplied to
the appraisers by the client, are assumed to be reasonably accurate. In
any event, the appraiser assumes no responsibility or liability for the
accuracy of such information/data provided. In this particular instance,
we were not afforded with building plans, specifications, site plan or
survey of the property. This information was provided to your appraisers
by the lender via a descriptive narrative from an unknown source, and we
have relied upon same.
16.Our investigation makes it reasonable to assume, for appraisal purposes,
that no insulation or other product banned by the Consumer Products Safety
Commission has been introduced into the appraised premises.
17.Fundamental to the valuation analysis is the assumption that no change in
zoning is either proposed or eminent. Should a change in zoning status
occur from the property's present classification, the appraisers reserve
the right to alter or amend value accordingly.
18.Unless stated otherwise in this report, the existence of hazardous
materials, which may or may not be present on the property, was not
observed by the appraiser(s). The appraiser has no knowledge of the
existence of such materials on or in the property. The appraiser is not
qualified to detect such substances. The presence of substances such as
asbestos, urea-formaldehyde foam insulation, or other potentially
hazardous materials, may affect the value of the property. The value
estimate in this appraisal report is predicated on the assumption that
there is no such material on or in the property that would cause a loss
in value. No responsibility is assumed for any such conditions, or for
any expertise or engineering knowledge required to discover them. If
desired, the client is urged to retain an expert in this field.
19.The Americans with Disabilities Act (ADA) became effective on January 26,
1992. We have not made a specific compliance survey and analysis of the
property to determine if it is in conformance with the various detailed
requirements of the ADA. It is possible that a compliance survey of the
property along with a detailed analysis of the requirements of the ADA
could reveal that the property is not in compliance with one or more of
the requirements of the Act. If so, this could have a negative effect
upon the value of the property. Since we do not have direct evidence
relating to this issue, we did not consider possible non-compliance with
the requirements of the ADA in estimating the value of the property.
The letter of valuation report has a section titled "ARGUS Analysis". This
section consists of the following schedules:
(a)Tarrytown Mall Shopping Center:
1. Schedule of Prospective Cash Flow In Inflated Dollars for
the Fiscal Year beginning 12/1/1997
2. Prospective Present Value, Cash Flow Before Debt Service
plus Property Resale Discounted Annually (End-point on
Cash Flow & Resale) over a 10-Year Period
3. Presentation Rent Roll & Current Term Tenant Summary as of
December 31, 1997 for 321,904 Square Feet
(b)Woodlawn Village Shopping Center:
1. Schedule of Prospective Cash Flow In Inflated Dollars for
the Fiscal Year beginning 12/1/1997
2. Prospective Present Value, Cash Flow Before Debt Service
plus Property Resale Discounted Annually (End-point on
Cash Flow & Resale) over a 10-Year Period
3. Presentation Rent Roll & Current Term Tenant Summary as of
December 31, 1997 for 54,144 Square Feet
NOTE: The schedule of Prospective Cash Flow for each shopping center presents
for 11 years an account by account analysis in the following categories:
potential gross revenue, revenue adjustments, operating expenses, and leasing
and capital costs. The resulting total is cash flow before debt service and
income tax.
NOTE: The schedule of prospective present value for each shopping center
presents for 10 analysis periods the present value of cash flow at 10.00%,
10.50%, 11.00%, 11.50%, 12.00%, 12.50%, 13.00%, 13.50%, and 14.00% based on
the annual cash flow amounts reached for years one through ten from the
respective schedule of prospective cash flow. The present value of cash
flow at each rate for years one through ten are totaled and a total property
present value per square foot is presented. A percentage value distribution
table is also presented which consists of assured income, prospective
income, and prospective property resale.
QUALIFICATIONS
GARY LEE SAPPERSTEIN, MAI-SRPA
6917 Arlington Road, Suite 300
Bethesda, Maryland 20814
EDUCATION Maryland University - B.S. Degree (Business)
American University - Appraisal I-A, I-B, II, Residential
Valuation, Litigation Valuation and Course 202 - Applied
Income Property Valuation, Standards of Professional Practice
Yearly Seminars Sponsored by AIREA, SREA, MBA and Other
Organizations
MEMBERSHIPS The Appraisal Institute:
MAI - Member Appraisal Institute
SRPA - Senior Real Property Appraiser
1993 - Chapter Board of Directors
Realtor, Washington Board of Realtors
Advisory Board Director, Allegiance Bank N.A.
EMPLOYMENT Sapperstein & Associates, September 1982 to Present
Former, V.P., Associate Appraiser - Philip R. Lamb & Co.,
October 1978 to August 1982
LICENSED Real Estate Broker in State of Maryland
Real Estate Broker in District of Columbia
CERTIFICATION Certified General Real Estate Appraiser in Maryland (#04-
10002), Virginia (#4001-000176), and the District of Columbia
(10042)
QUALIFIED EXPERT
WITNESS Federal Tax Court, Maryland Tax Court, Expert Witness
Consultant - D.C. Board of Appeals
TYPES OF
APPRAISALS Residential dwellings, condominiums, shopping centers,
apartments, assisted living facilities, office buildings,
hotels, commercial, industrial and special purpose buildings,
school sites, parking lots, farms and acreage, subdivision,
golf and country clubs, dam sites and parks, partial takings
for highway and utility right-of-ways, urban renewal
projects, special benefits, fair annual rental studies, re-
use appraisals and feasibility studies.
OTHER SERVICES Professional consultation services and limited brokerage
services are provided, upon request.
APPRAISAL ASSIGNMENTS COMPLETED FOR THE FOLLOWING CLIENTS:
Government Agencies: Federal Government (U.S. Post Office Department),
Montgomery County Government, Prince George's County, Department of
Transportation, Maryland National Park and Planning Commission, State Highway
Administration, Montgomery County Board of Realtors, City of Rockville,
City of College Park, Government of the District of Columbia, The Housing
Opportunities Commission, Department of Housing and Community Development,
Pennsylvania Avenue Development Corporation (P.A.D.C.).
Commercial and Industrial Firms: Legg Mason, Reality Advisory Services Group,
Merrill Lynch, The Traveler's Insurance, J.P. Morgan Financial, Paine Webber,
Transamerica Relation Service, Inc. Cities Service Oil Company, Kodak, GMAC,
Equitable Relocation Service, TRW Systems, C&P Telephone Company, Kenneth
Michaels Company, CNA Insurance Company, Magna Group, Inc., Techtronics, Inc.,
Employee Transfer Corporation, Realty Investment Corporation, H.B.W. Group,
Weaver Brothers, Carey Winston Company, K.T. Wade Associates, Foulger Pratt
Construction Company, Lloyd Moore Development Company, Marriott Corporation,
C.I. Mitchell & Best, Washington National Realty, GEICO, Gordon Builders,
Aldre, Newlife Group, Potomac Investment Associates, Abrams & Associates,
Anastasi-Stephens Group, Howard Hughes Medical Institute, The GLM
Corporation, The Ward Corporation, Sigal-Zuckerman, Greenhill Capital
Corporation, Landstar Development Company, Design-Tech, NV Land, Cross
Builders, Goodman Homes, Royco, and Standard Properties among others.
SERVING THE BALTIMORE/WASHINGTON/RICHMOND METROPOLITAN AREA
Phone - (301) 654-0214 Fax - (301) 654-0272
DEAN G. GUTRIDGE
POSITION Senior Associate, Sapperstein & Associates
Bethesda, Maryland - 1991 to Present
CERTIFICATION Certified General Appraiser - Maryland - #4-20093
Certified General Appraiser - Virginia - #4001-003572
EDUCATION B.S., University of Maryland, College Park, MD
Appraisal Institute:
510 Advanced Income Capitalization
530 Advanced Sales Comparison and Cost Approaches
I-A, Basic Principles
I-B, Capitalization Theory and Techniques
II, Urban Properties
VIII, S.F.D. Residential Valuation
Standards of Professional Practice, A & B
Seminars and Professional Instruction:
Office Park Development - Urban Land Institute
Shopping Center Development - Urban Land Institute
Office/Retail Lease Negotiation - Northwest University
Urban Land Use Planning - American University
Housing Markets - American University
PROFESSIONAL
HISTORY Miller Properties, Vice President - Development
1987 to 1991
Westmark Mortgage Corp, Senior Vice President -
Operations 1984 to 1987
Lipman, Frizzell & Mitchell, Appraisal Associate
1983 to 1984
Adolph C. Rohland & Associates, Appraisal Associate
1978 to 1982
QUALIFIED EXPERT
WITNESS Prince George's County Board of Appeals
U.S. Bankruptcy Court
APPRAISAL
ASSIGNMENTS Shopping centers, office, industrial/warehouse, retail,
multi-family, hotels, special purpose, commercial and
residential land, fair annual rental studies,
feasibility studies.
ADDITIONAL
INFORMATION Real Estate Broker in the State of Maryland
(Source: Uniform Standards of Professional Appraisal Practice - 1997 Edition,
The Appraisal Foundation.) Appraisal Institute, The Dictionary of Real
Estate Appraisal, Third Edition (Chicago: Appraisal Institute, 1993).
