UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number: 1-9419
SHOPCO LAUREL CENTRE, L.P.
Exact name of Registrant as specified in its charter
Shopco Laurel Centre, L.P.
is a Delaware limited partnership 13-3392074
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
Attn: Andre Anderson
3 World Financial Center, 29th Floor, New York, NY 10285-2900
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
4,660,000 UNITS REPRESENTING ASSIGNMENTS OF 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 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 the 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)
Aggregate market value of voting stock held by non-affiliates of the
registrant: Not applicable.
Documents Incorporated by Reference:
Amended and Restated Agreement of Limited Partnership, dated April 16,
1987, incorporated by reference to Exhibit B to the prospectus contained in
the Registration Statement No. 33-11994
PART I
Item 1. Business
(a) General Development of Business
Shopco Laurel Centre, L.P., a Delaware limited partnership ("SLC", the
"Partnership"), was formed on December 22, 1986. The affairs of SLC are
conducted by its general partner, Laurel Centre Inc. (the "General
Partner", formerly Shearson Laurel Inc.), a Delaware corporation. On April
16, 1987 the Partnership commenced investment operations with the
acceptance of subscriptions of 4,660,000 depositary units of limited
partnership units, the maximum authorized by the limited partnership
agreement ("Limited Partnership Agreement"). Upon the admittance of the
additional limited partners, the Assignor Limited Partner withdrew from the
Partnership. Registered holders ("Unitholders") received an assignment of
the economic, voting and other rights attributable to the limited
partnership units held by the Assignor Limited Partner. SLC is the sole
general partner of Laurel Owner Partners Limited Partnership (the "Owner
Partnership"), a Maryland limited partnership that owned an enclosed
regional shopping mall located in Laurel, Maryland ("Laurel Centre" or the
"Mall").
The sole limited partner of the Owner Partnership is NAT Limited
Partnership ("NAT"), a Delaware limited partnership and an affiliate of The
Shopco Group. NAT is not an affiliate of either SLC or the General
Partner. (SLC and NAT are collectively referred to as the "Owner
Partners").
On December 31, 1986, the Owner Partners acquired the Mall by purchasing
all of the partnership interests in the Laurel Company Limited Partnership
(the "Seller"), the owner of the Mall at such time, for a purchase price of
$59,150,000.
On April 16, 1987, the Partnership commenced investment operations with the
acceptance of subscriptions of 4,660,000 depositary units of limited
partnership units, the maximum authorized by the limited partnership
agreement ("Limited Partnership Agreement"). Upon the admittance of the
additional limited partners, the Assignor Limited Partner withdrew from the
Partnership. Registered holders ("Unitholders") received an assignment of
the economic, voting and other rights attributable to the limited
partnership units held by the Assignor Limited Partner.
On December 10, 1996, Laurel Centre was purchased in a foreclosure sale, as
contemplated by an agreement (the "Settlement Agreement") reached on October 9,
1996 between the Owner Partnership and the lenders holding the non-recourse
mortgage debt of the Owner Partnership. As a result of the foreclosure sale,
the Partnership is currently in the process of liquidation in accordance with
the terms of the Limited Partnership Agreement. Please see Item 3 "Legal
Proceedings", Item 7 "Management's Discussion and Analysis of Financial
Condition" and Note 1 to the Consolidated Financial Statements included herein
for discussions regarding the Settlement Agreement and the disposition of
Laurel Centre.
(b) Financial Information About Industry Segments
All of SLC's revenues, operating profit or loss and assets related solely
to its interest as the general partner of the Owner Partnership. All of
the Owner Partnership's revenues, operating profit or loss and assets
related solely to its ownership and operation of the Mall.
(c) Narrative Description of Business
SLC's sole business is acting as the general partner of the Owner
Partnership. The Owner Partnership's sole business was the ownership and
operation of the Mall. See Item 2 for a description of the Mall and a
discussion of its disposition.
The Mall was managed on a day-to-day basis until October 16, 1996 by Shopco
Management Corp. (the "Property Manager"), a New York corporation and an
affiliate of NAT. The Property Manager was responsible for rent
collection, leasing and day-to-day on-site management of the Mall. See
Note 8 to the Consolidated Financial Statements for the terms of the
management agreement between the Owner Partnership and the Property
Manager.
In accordance with the mortgage loan documents and as contemplated by the
terms of the Settlement Agreement, Capital Growth Mortgage Investors, L.P.,
one of the mortgage lenders, docketed a foreclosure action with the Circuit
Court for Prince George's County, Maryland (the "Court") on October 16,
1996, and pursuant to a Court order (the "Consent Order"), had a receiver
appointed for the Property (the "Receiver"). Pursuant to the Consent
Order, the Receiver took possession of the Property and was authorized,
among other things: to manage the Mall; to collect all rent proceeds from
Mall tenants paid on or after October 16, 1996; and to apply such proceeds
to the payment of, among other things, the Mall's management and operating
expenses, capital improvements and leasing expenses, with any remaining
funds to be paid to the mortgage lenders; in each case, in accordance with
the terms of the Settlement Agreement.
Employees
The Partnership has no employees. The affairs of the Partnership are
conducted by the General Partner. See Items 10 and 13 for further
information.
Item 2. Properties
Reference is made to Note 3 of the Notes to the Consolidated Financial
Statements for a description of the Mall.
Item 3. Legal Proceedings
On September 20, 1996, The State Street Bank and Trust Company ("State
Street"), one of the mortgage lenders to the Owner Partnership of which the
Partnership is the sole general partner and which owns an interest in the
Mall, obtained a temporary restraining order (the "TRO") from the Court,
enjoining the payment of a cash distribution of $1.35 per Unit declared by
the Partnership on September 20, 1996, and scheduled to be paid on October
10, 1996, to Unitholders of record as of September 30, 1996. The TRO also
enjoined the Owner Partnership, the Partnership and the General Partner,
from taking any act to disseminate, distribute or convey cash and cash
equivalents except, subject to State Street's approval, to pay normal
operating expenses incurred in the operation of the Mall. The TRO was
issued pursuant to a lawsuit commenced against the Owner Partnership, the
Partnership and the General Partner by State Street alleging, among other
things, that the distribution declared on September 20, 1996, would
constitute a fraudulent conveyance and a conversion of the lenders'
interest in the rents from the Mall and that there had been a waste of
State Street's collateral. The Owner Partnership filed a memorandum of law
with the Court taking the position that no waste had occurred, State
Street's remedy was solely to the Mall because of the non-recourse nature
of the mortgage loan, and that the TRO should be vacated.
On October 9, 1996, the Owner Partnership entered into the Settlement
Agreement with the lenders who hold the mortgage debt of the Owner
Partnership. The terms of the non-recourse mortgage loans, which were
secured by the Property and had a maturity date of October 15, 1996 (the
accreted amount of which was approximately $59.9 million on such date),
permitted the lenders to exercise certain remedies upon a default in the
payment of principal or interest on the loans, including foreclosure of the
mortgages on the Property and the appointment of a receiver. The Owner
Partnership did not pay the mortgage loans when due at maturity. In
accordance with the terms of the Settlement Agreement and the mortgage loan
documents, Capital Growth Mortgage Investors, L.P., one of the mortgage
lenders, docketed a foreclosure action with the Court on October 16, 1996,
and pursuant to the Consent Order, had the Receiver appointed for the Mall.
Pursuant to the Consent Order, the Receiver took possession of the Mall and
was authorized, among other things: to manage the Mall; to collect all rent
proceeds from Mall tenants paid on or after October 16, 1996; and to apply
such proceeds to the payment of, among other things, the Mall's management
and operating expenses, capital improvements and leasing expenses, with any
remaining funds to be paid to the mortgage lenders; in each case, in
accordance with the terms of the Settlement Agreement. The Partnership and
the Owner Partnership therefore no longer received cash flow from, or
managed, the Mall from and after October 16, 1996.
In the Settlement Agreement, the lenders agreed, among other things, after
satisfaction of the conditions set forth in the Settlement Agreement, to
release the Partnership, the Owner Partnership and the General Partner and
their respective unitholders, partners, stockholders and directors on the
Release Date (as defined below) from any claims the lenders may have
against such parties with respect to the Settlement Agreement, the mortgage
loans, the Mall, and the cash held by the Partnership, the Owner
Partnership and the General Partner for periods prior to October 16, 1996
(other than $260,000, which was used for October expenses of the Mall),
including the cash needed for the payment of the Partnership's previously
declared distribution. Similarly, the Partnership, the Owner Partnership
and the General Partner agreed to release the mortgage lenders on the
Release Date from any claims they may have with respect to the Settlement
Agreement, the mortgage loans, and the Mall.
Pursuant to the Settlement Agreement, the parties also agreed to a
standstill of the present litigation and not to commence any new litigation
in connection with this matter, provided that the Partnership, the Owner
Partnership and the General Partner do not violate the TRO, as modified by
the Settlement Agreement, and do not, among other things, object to or
delay the foreclosure, file a petition for voluntary bankruptcy, or violate
the exclusive right of the Receiver to collect rent proceeds from the Mall
and manage the Mall pursuant to the Consent Order.
The Settlement Agreement provided for the continued effectiveness of the
TRO pending the completion of the foreclosure process. State Street
consented in advance to the Partnership's use of cash during this period
for the payment of certain ordinary expenses, including accounting and
financial reporting expenses and legal fees, up to certain dollar
thresholds. Additionally, the Owner Partnership was required pursuant to
the Settlement Agreement to pay all of its payables that were due and
payable as of October 15, 1996, or before. All other expenses of the Mall
were to be paid by the Receiver.
The TRO, as modified by the Settlement Agreement, was expected to terminate
on the earlier of the date upon which the lenders complete the foreclosure
of the Property or March 15, 1997 (the "Outside Date") (such earlier date
being the "Release Date").
On December 10, 1996, the Mall was purchased by the Lenders pursuant to a
foreclosure sale in accordance with terms of the Settlement Agreement. The
foreclosure sale was subsequently ratified by the Court and the Lenders
obtained title to the Mall on January 24, 1997. Pursuant to the terms of
the Settlement Agreement, the Partnership had the TRO vacated by the Court
on March 3, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the UnitHolders at a meeting or
otherwise during the three months ended December 31, 1996.
PART II
Item 5. Market for the Registrant's Limited Partnership Units and Related
Security Holder Matters
(a) Market Information
The Units were listed on the American Stock Exchange and traded under the
symbol "LSC". Effective November 21, 1996, the American Stock Exchange
(the "Exchange") removed The Partnership's Units from listing and
registration following its determination that the Partnership no longer met
the guidelines and procedures for continued listing eligibility established
by the Exchange.
The high and low sales price of the Units on the American Stock Exchange as
reported on the consolidated transaction reporting system, during the seven
quarters prior to the fourth quarter of 1996, were as follows:
High Low
1995
First Quarter $ 3.13 $ 2.38
Second Quarter 3.00 2.31
Third Quarter 2.81 2.44
Fourth Quarter 2.63 1.69
1996
First Quarter $ 2.69 $ 2.25
Second Quarter 3.06 2
Third Quarter 3.18 1.25
Fourth Quarter* 1.38 1.25
* On November 21, 1996, the Exchange removed the Partnership's
Units from listing and registration.
(b) Holders
As of December 31, 1996, to the knowledge of the Partnership, there were 2,729
UnitHolders.
(c) Distribution of Net Cash Flow
Pursuant to the Consent Order, the Receiver took possession of the Mall and
was authorized, among other things: to manage the Mall; to collect all rent
proceeds from Mall tenants paid on or after October 16, 1996; and to apply
such proceeds to the payment of, among other things, the Mall's management
and operating expenses, capital improvements and leasing expenses, with any
remaining funds to be paid to the mortgage lenders; in each case, in
accordance with the terms of the Settlement Agreement. Therefore, the
Partnership and the Owner Partnership no longer received cash flow from, or
managed, the Mall from and after October 16, 1996.
SLC's policy is to distribute to the UnitHolders their allocable portion
of Net Cash Flow (as defined in the Partnership Agreement) in respect of
each fiscal year in quarterly installments based on estimated Net Cash Flow
for the current year. Distribution levels are also determined based on the
Partnership's need for reserves and estimates of future expenditures which
can impact distribution levels over time. Distributions of Net Cash Flow
were paid on a quarterly basis to registered UnitHolders on record dates
established by SLC, which generally were the last day of each quarter. If
a UnitHolder transfers a Unit prior to a record date for a quarterly
distribution of Net Cash Flow, the transferor UnitHolder may be subject to
tax on part or all of the net income from operations, if any, for such
quarter (since net income from operations is allocated on a monthly basis,
rather than quarterly), but will not be entitled to receive any portion of
the Net Cash Flow to be distributed with respect to such quarter.
Pursuant to the Owner Partnership's Amended and Restated Limited
Partnership Agreement (the "Owner Partnership Agreement"), Net Cash Flow
(as defined) of the Owner Partnership from the operation of the Mall is
generally distributed 98% to SLC and 2% to NAT.
In determining the amount of Net Cash Flow of the Owner Partnership and SLC
to be distributed, the General Partner, in its discretion, takes into
account the cash requirements of each, including operating expenses,
contingencies and such additional funding requirements for the Partnership
and the Owner Partnership.
It is the Partnership's intent to wind up its affairs and make a
liquidating distribution, if any, at the earliest practical date.
Quarterly Cash Distributions Per Limited Partnership Unit
Distribution amounts are reflected in the period for which they are
declared. The record date for regular cash distributions is the last day
of the respective quarter and the actual cash distributions are paid
approximately 45 days after the record date.
1996 (1) 1995 (1)
First Quarter $ .125 $ .125
Second Quarter 1.75 (2) .125
Third Quarter 1.35 (3) .125
Fourth Quarter - .125
TOTAL $ 3.225 $ .50
(1) All cash distributions in 1995 and 1996 constitute returns of
capital.
(2) Includes a special cash distribution of $1.625 paid on August
15, 1996 to Unitholders of record as of June 30, 1996.
(3) Paid on March 17, 1997 to Unitholders of record as of
September 30, 1996 and includes a special cash distribution in
the amount of $1.225.
Related Security Holder Matters
Any Tax-Exempt Entity acquiring Units after December 17, 1987 (including
any acquired pursuant to a reinvestment plan) realizes unrelated business
income ("UBI"), with respect to such Units for periods during which the
Partnership is a "publicly traded partnership", and such UBI may cause the
Tax-Exempt Entity to incur a federal income tax liability. It should be
noted that the prospectus pursuant to which the Units were initially
offered stated that "An investment in the Units is not suitable for
Tax-Exempt Entities, including Individual Retirement Accounts ("IRA's") and
Keogh and other retirement plans, because such investment would give rise
to unrelated business taxable income".
Item 6. Selected Financial Data
As of and for the years ended December 31,
1996 1995 1994 1993 1992
Total Income $10,176,690 $11,949,820 $11,122,199 $10,597,213 $9,845,067
Loss from
discontinued
operations $(1,177,531) $ -- $ -- $ -- $ --
Net Loss $ 1,940,738 $ 315,269 $ 457,345 $ 244,452 $ 486,291
Net Loss per
Limited
Partnership
Unit* $ .41 $ .07 $ .10 $ .05 $ .10
Real Estate,
net of
accumulated
depreciation $ -- $55,933,856 $56,344,774 $57,760,189 $59,113,389
Property held
for
disposition $55,973,759 $ -- $ -- $ -- $ --
Notes Payable
and Accrued
Interest $60,654,731 $55,544,670 $50,476,031 $45,887,373 $41,733,243
Total Assets $63,880,094 $70,772,712 $68,287,685 $66,688,829 $65,112,312
Cash
Distributions
per Limited
Partnership
Unit* $ 3.225 (1) $ .50 $ .50 $ .50 $ .50
* 4,660,000 Units outstanding
(1)Includes special cash distributions of $1.625 per Unit paid on
August 15, 1996 to Unitholders of record as of June 30, 1996 and $1.225
per Unit paid on March 17, 1997 to Unitholders of record as of
September 30, 1996.
The above selected financial data should be read in conjunction with the
Consolidated Financial Statements and notes thereto in Item 8.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Settlement Agreement and Disposition of Laurel Centre
The Owner Partnership's two non-recourse mortgage loans secured by the
Owner Partnership's interest in the Mall, matured on October 15, 1996. The
accreted value of the mortgages as of the maturity date totaled
approximately $59.9 million. In anticipation of the maturity of the loans,
the Partnership pursued both a sale of the Mall and a refinancing or
extension of the mortgage debt. Such efforts did not result in any sales
or refinancing proposals which would have sufficiently allowed the Owner
Partnership to meet its debt obligations, and, although the Partnership
pursued possible extensions of the existing loans, the mortgage lenders did
not grant an extension of the loans. As a result, the Owner Partnership
did not pay the mortgage loans when due at maturity.
On September 20, 1996, State Street, one of the mortgage lenders to the
Owner Partnership of which the Partnership is the sole general partner and
which owns an interest in the Mall, obtained the TRO in the Court,
enjoining the payment of a cash distribution of $1.35 per Unit declared by
the Partnership on September 20, 1996, and scheduled to be paid on October
10, 1996, to Unitholders of record as of September 30, 1996. The TRO also
enjoined the Owner Partnership, the Partnership and the General Partner,
from taking any act to disseminate, distribute or convey cash and cash
equivalents except, subject to State Street's approval, to pay normal
operating expenses incurred in the operation of the Mall. The TRO was
issued pursuant to a lawsuit commenced against the Owner Partnership, the
Partnership and the General Partner by State Street alleging, among other
things, that the distribution declared on September 20, 1996, would
constitute a fraudulent conveyance and a conversion of the lenders'
interest in the rents from the Property and that there had been a waste of
State Street's collateral. The Owner Partnership filed a memorandum of law
with the Court taking the position that no waste had occurred, State
Street's remedy was solely to the Property because of the non-recourse
nature of the mortgage loan, and that the TRO should be vacated.
On October 9, 1996, the Owner Partnership entered into the Settlement
Agreement with the lenders who hold the mortgage debt of the Owner
Partnership. The terms of the non-recourse mortgage loans, which were
secured by the Property and had a maturity date of October 15, 1996 (the
accreted amount of which was approximately $59.9 million on such date),
permitted the lenders to exercise certain remedies upon a default in the
payment of principal or interest on the loans, including foreclosure of the
mortgages on the Property and the appointment of a receiver. The Owner
Partnership did not pay the mortgage loans when due at maturity. In
accordance with the terms of the Settlement Agreement and the mortgage loan
documents, Capital Growth Mortgage Investors, L.P., one of the mortgage
lenders, docketed a foreclosure action with the Court on October 16, 1996,
and pursuant to the Consent Order, had the Receiver appointed for the Mall
(See Note 1 & Note 5 of the Notes to the Consolidated Financial
Statements). Pursuant to the Consent Order, the Receiver took possession
of the Mall and was authorized, among other things: to manage the Mall; to
collect all rent proceeds from Mall tenants paid on or after October 16,
1996; and to apply such proceeds to the payment of, among other things, the
Mall's management and operating expenses, capital improvements and leasing
expenses, with any remaining funds to be paid to the mortgage lenders; in
each case, in accordance with the terms of the Settlement Agreement. The
Partnership and the Owner Partnership therefore no longer received cash
flow from, or managed, the Mall from and after October 16, 1996.
In the Settlement Agreement, the lenders agreed, among other things, after
satisfaction of the conditions set forth in the Settlement Agreement, to
release the Partnership, the Owner Partnership and the General Partner and
their respective unitholders, partners, stockholders and directors on the
Release Date from any claims the lenders may have against such parties with
respect to the Settlement Agreement, the mortgage loans, the Mall, and the
cash held by the Partnership, the Owner Partnership and the General Partner
for periods prior to October 16, 1996 (other than $260,000, which was used
for October expenses of the Mall), including the cash needed for the
payment of the Partnership's previously declared distribution. Similarly,
the Partnership, the Owner Partnership and the General Partner agreed to
release the mortgage lenders on the Release Date from any claims they may
have with respect to the Settlement Agreement, the mortgage loans, and the
Mall.
The Settlement Agreement provided for the continued effectiveness of the
TRO pending the completion of the foreclosure process. State Street
consented in advance to the Partnership's use of cash during this period
for the payment of certain ordinary expenses, including accounting and
financial reporting expenses and legal fees, up to certain dollar
thresholds. Additionally, the Owner Partnership is required pursuant to
the Settlement Agreement to pay all of its payables that were due and
payable as of October 15, 1996, or before. All other expenses of the Mall
are to be paid by the Receiver.
On December 10, 1996, the Mall was purchased by the Lenders pursuant to a
foreclosure sale as contemplated by the terms of the Settlement Agreement.
The foreclosure sale was subsequently ratified by the Court and the Lenders
obtained title to the Mall on January 24, 1997.
The General Partner caused the TRO to be vacated, pursuant to the terms of
the Settlement Agreement, on March 3, 1997 subsequent to the withdrawal of
the lawsuit previously commenced by State Street. On March 17, 1997, the
Partnership paid its previously declared distribution of $1.35 per Unit to
Unitholders of record as of September 30, 1996. The Partnership is in the
process of winding up its activities and dissolving pursuant to the terms
of its partnership agreement. Any remaining cash available for
distribution, after provision for expenses, will be distributed to the
partners at such time.
At December 31, 1996, the Partnership had cash and cash equivalents
totaling $7,906,335, compared with $13,427,085 at December 31, 1995. The
decrease is primarily due to cash distributions and additions to real
estate exceeding cash provided by operating activities. The Partnership
declared cash distributions of $3.225 per unit for 1996, including a
special cash distribution of $1.625, representing a disbursement from the
Partnership's cash reserve, which was paid on August 15, 1996 to
Unitholders of record as of June 30, 1996, and an additional special cash
distribution, also representing a disbursement from the Partnership's cash
reserve, of $1.225 paid on March 17, 1997 to Unitholders of record as of
September 30, 1996.
As a result of the Settlement Agreement, real estate, less accumulated
depreciation and amortization was reclassified at December 31, 1996 as
property held for disposition in the amount of $55,973,759.
Primarily as a result of the execution of the Settlement Agreement detailed
above, the following classifications decreased from their respective
balances at December 31, 1995 to $0 at December 31, 1996: accounts
receivable; deferred rent receivable; deferred charges; prepaid expenses;
security deposits payable; and deferred income.
Accounts payable and accrued expenses increased from $286,860 at
December 31, 1995 to $657,759 at December 31, 1996 primarily due to
increased legal fees associated with the negotiation of the Settlement
Agreement.
The zero coupon first mortgage note payable increased $5,055,061 from
December 31, 1995 to $58,580,564 at December 31, 1996, due to the accrual
of interest on the zero coupon first mortgage note, including default
interest accrued subsequent to the October 15, 1996 maturity date of the
non-recourse mortgage loans, partially offset by cash flow generated by the
Mall from October 16, 1996 to December 31, 1996.
Distribution payable increased from $588,384 at December 31, 1995,
representing the Partnership's 1995 fourth quarter distribution, to
$6,354,545 at December 31, 1996, which represents the Partnership's
previously declared distribution of $1.35 per Unit, which was paid on
March 17, 1997 to Unitholders of record as of September 30, 1996.
Results of Operations
1996 versus 1995
For the year ended December 31, 1996, the Partnership reported a net loss
of $1,940,738 compared to a net loss of $315,269 during 1995. The larger
net loss in 1996 is primarily due to decreases in rental and escalation
income and an increase in general and administrative expense, partially offset
by a decrease in depreciation and amortization expense. Net cash flow
provided by operating activities totaled $4,574,265 for the year ended
December 31, 1996 compared to $6,921,415 during 1995. The decrease
reflects an increased net loss and a decrease in accounts payable and
accrued expenses.
Due to the default on the mortgage loans on October 15, 1996 and transfer
of control of the Mall to the Receiver, all revenue and expenses generated
by the Mall subsequent to October 15, 1996 are shown on the Statement of
Operations as "Loss from discontinued operations". Primarily as a result
of this classification, the following income and expense categories
decreased from 1995 to 1996: rental income; escalation income; property
operating expenses; interest expense; depreciation and amortization; and
real estate taxes.
General and administrative expenses increased from $223,623 for the year
ended December 31, 1995 to $425,485 during 1996 reflecting increases in
legal and other professional fees related to the execution of the
Settlement Agreement and required disclosure.
1995 versus 1994
The results of operations are primarily attributable to the Mall's
operations and to a lesser extent the interest earned on cash reserves held
by the Partnership. Net cash flow from operating activities totaled
$6,921,415 for the year ended December 31, 1995, compared with $5,564,906
for the year ended December 31, 1994. The increase was primarily
attributable to a reduced net loss in 1995 and the increase in accounts
payable and accrued expenses.
For the year ended December 31, 1995, the Partnership reported a net loss
of $315,269 compared with a net loss of $457,345 for the year ended
December 31, 1994. The lower net loss in 1995 was primarily the result of
an increase in rental and interest income in 1995 offset by increases in
interest expense and depreciation and amortization expense.
Rental income totaled $5,835,838 for the year ended December 31, 1995
compared with $5,526,093 in 1994. The increase was primarily attributable
to higher lease rates for new tenants, lease renewals at higher rates and
an increase in temporary tenant income. Escalation income totaled
$5,092,316 in 1995 compared with $5,004,831 in 1994. Escalation income
represents billings to tenants for their proportional share of common area
maintenance, operating and real estate tax expenses. The increase in
escalation income was primarily due to higher recoverable property
operating expenses in 1995.
Interest income totaled $567,284 for the year ended December 31, 1995
compared with $274,960 in 1994. The increase was due to the Partnership's
increased cash balance and higher interest rates earned in 1995.
Miscellaneous income totaled $454,382 for the year ended December 31, 1995
compared with $316,315 in 1994, up due to increased promotional expense
billed back to tenants.
Total expenses for 1995 were $12,267,900 compared with $11,582,091 in 1994.
The increase was primarily due to higher interest expense and property
operating expense. Interest expense for 1995 increased from 1994,
reflecting the compounding of interest on the Zero Coupon Loan. Property
operating expenses also increased from 1994 due primarily to higher bad
debt expense, an increase in insurance premiums and management fees. Bad
debt expense in 1995, totaling $145,721 during 1995 as compared to $81,610
during 1994, relates primarily to reserves established for tenants at the
Mall, or their parent companies, which have filed for bankruptcy.
Mall tenant sales (exclusive of anchor tenants) for the twelve months ended
December 31, 1995 and 1994 were $57,327,000 and $61,261,000, respectively.
Mature tenant sales for the twelve months ended December 31, 1995 and 1994
were $45,011,000 and $49,224,000, respectively. A mature tenant is defined
as a tenant that has operated at the Mall for each of the last two years.
The declines in tenant sales reflect lower occupancy at the property as
well as continued weakness in apparel sales and strong competition from
nearby discount stores. At December 31, 1995 and 1994, the Mall was 88.1%
and 93.4% occupied, respectively, exclusive of anchor tenants.
Item 8. Financial Statements and Supplementary Data
See Item 14a for a listing of the Consolidated Financial Statements and
Supplementary data filed in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no Directors or Executive Officers. The affairs of the
Partnership are conducted through the General Partner.
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain
of its domestic retail brokerage and asset management businesses to Smith
Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to
this sale, Shearson changed its name to Lehman Brothers Inc. The
transaction did not affect the ownership of the Partnership or the General
Partner. However, the assets acquired by Smith Barney included the name
"Shearson." Consequently, the General Partner changed its name to Laurel
Centre Inc. to delete any references to "Shearson."
Certain executive officers and directors of the General Partner are now
serving (or in the past have served) as executive officers or directors of
entities which act as general partners of a number of real estate limited
partnerships which have sought protection under the provisions of the U.S.
Bankruptcy Code. The partnerships which have filed bankruptcy petitions
own real estate which has been adversely affected by the economic
conditions in the markets in which the real estate is located and,
consequently, the partnerships sought the protection of the bankruptcy laws
to protect the partnerships' assets from loss through foreclosure.
Set forth below are the names, positions, offices held, and brief accounts
of the business experience of each Director and Executive Officer of the
General Partner, each such person holding similar positions in the General
Partner and the Assignor Limited Partner. The following is a list of the
officers and directors of Laurel Centre Inc. as of December 31, 1996.
Name Office
Paul L. Abbott Director & Chief Executive Officer
Robert J. Hellman Director & President
Elizabeth L. Jarvis Director
Raymond C. Mikulich Director
Richard A. Morton Director
Joan B. Berkowitz Director, Chief Financial Officer
& Vice President
Elizabeth Rubin Vice President
Robert J. Sternlieb Vice President
Paul L. Abbott, 51, is a Managing Director of Lehman Brothers. Mr. Abbott
joined Lehman Brothers in August 1988, and is responsible for investment
management of residential, commercial and retail real estate. Prior to
joining Lehman Brothers, Mr. Abbott was a real estate consultant and a
senior officer of a privately held company specializing in the syndication
of private real estate limited partnerships. From 1974 through 1983, Mr.
Abbott was an officer of two life insurance companies and a director of an
insurance agency subsidiary. Mr. Abbott received his formal education in
the undergraduate and graduate schools of Washington University in St.
Louis.
Robert J. Hellman, 42, is a Senior Vice President of Lehman Brothers and is
responsible for investment management of retail, commercial and residential
real estate. Since joining Lehman Brothers in 1983, Mr. Hellman has been
involved in a wide range of activities involving real estate and direct
investments including origination of new investment products,
restructurings, asset management and the sale of commercial, retail and
residential properties. Prior to joining Lehman Brothers, Mr. Hellman
worked in strategic planning for Mobil Oil Corporation and was an associate
with an international consulting firm. Mr. Hellman received a bachelor's
degree from Cornell University, a master's degree from Columbia University,
and a law degree from Fordham University.
Elizabeth L. Jarvis, 61, has been a director of SLC since April 1987. Ms.
Jarvis is currently President and principal owner of Jarvis & Associates,
specializing in the development, merchandising, leasing and management of
shopping centers. From 1978 through 1983, prior to establishing Jarvis &
Associates, she was Senior Vice President of the Taubman Company,
responsible for the financial performance of nineteen shopping centers.
Raymond C. Mikulich, 44, is a Managing Director of Lehman, and since
January 1988, has been head of the Real Estate Investment Banking Group.
Prior to joining Lehman Brothers Kuhn Loeb in 1982, Mr. Mikulich was a Vice
President with LaSalle National Bank, Chicago, in the Real Estate Advisory
Group, where he was responsible for the acquisition of equity interests in
commercial real estate. Over his 23 years in the real estate business, Mr.
Mikulich has orchestrated acquisitions and dispositions on behalf of
individuals and institutional investors alike. Mr. Mikulich holds a BA
degree from Knox College and a JD degree from Kent College of Law.
Richard A. Morton, 44, is a principal in entities that own and manage eight
million square feet of real estate. Mr. Morton is principal of Ashley
Capital which is in the business of owning and operating real estate. Mr.
Morton worked with Rosenberg Real Estate Equity Fund as the East Coast
Director of Properties from February 1982 to July 1983. From 1977 to 1982,
Mr. Morton was employed by the Prudential Insurance Company and from 1980
to 1982 as the General Manager of the New York City Real Estate Investment
Office.
Joan B. Berkowitz, 37, is a Vice President of Lehman Brothers, responsible
for investment management of retail, commercial and residential real estate
within the Diversified Asset Group. Ms. Berkowitz joined Lehman Brothers
in May 1986 as an accountant in the Realty Investment Group. From October
1984 to May 1986, she was an Assistant Controller to the Patrician Group.
From November 1983 to October 1984, she was employed by Diversified
Holdings Corporation. From September 1981 to November 1983, she was
employed by Deloitte Haskins & Sells. Ms. Berkowitz, a Certified Public
Accountant, received a B.S. degree from Syracuse University in 1981.
Elizabeth Rubin, 30, is a Vice President of Lehman Brothers in the
Diversified Asset Group. Ms. Rubin joined Lehman Brothers in April 1992.
Prior to joining Lehman Brothers, she was employed from September 1988 to
April 1992 by the accounting firm of Kenneth Leventhal and Co. Ms. Rubin
is a Certified Public Accountant and received a B.S. degree from the State
University of New York at Binghamton in 1988.
Robert Sternlieb, 32, is an Assistant Vice President of Lehman Brothers and
is responsible for asset management within the Diversified Asset Group.
Mr. Sternlieb joined Lehman Brothers in April 1989 as an asset manager.
From May 1986 to April 1989, he was a systems analyst at Drexel Burnham
Lambert. Mr. Sternlieb received a B.S. degree in Finance from Lehigh
University in 1986.
Item 11. Executive Compensation
The Directors and Officers of the General Partner do not receive any
salaries or other compensation from the Partnership, except that Elizabeth
Jarvis, Richard Morton and Kathleen Carey each receive $12,000 per year for
serving as independent Directors of the General Partner and $2,400 for
attendance in person at any meeting of the Board of Directors of the
General Partner. During 1996, Ms. Carey, Ms. Jarvis and Mr. Morton each
received $21,600.
The General Partner is entitled to receive 1% of Net Cash Flow distributed
in any fiscal year and to varying percentages of the Net Proceeds of
capital transactions. See page 3 of the Partnership Agreement for a
description of such arrangements which description is incorporated by
reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is a chart indicating the name and the amount and nature of
beneficial ownership of more than 5 percent of the Units as of December 31,
1996.
Title of Name & address of Amount and nature of Percent of Class
Class beneficial owner beneficial ownership
4,660,000 units Ross S. Weiner 333,200 7.2%
representing & Jeffery B. Citrin
assignments of c/o Robert G. Minion, Esq.
limited Lowenstein, Sandler, Kohl
partnership Fisher & Boylan, P.A.
interest 65 Livingston Avenue
Roseland, NJ 07068
Set forth below is a chart indicating as of December 31, 1996 the name and
the amount and nature of beneficial ownership of Units held by the General
Partner and Officers and Directors thereof. Only the General Partner and
those officers and directors thereof which beneficially own any units are
listed. No General Partner or any officer or directors thereof, or the
officers and directors of the General Partners as a group (9 persons),
beneficially owns in excess of 1% of the total Units outstanding.
Beneficial Ownership of Units Number of Units Owned
General Partner 0
Raymond Mikulich 500
___
(The General Partner and
all Officers and Directors
thereof as a group, 9 persons) 500
Item 13. Certain Relationships and Related Transactions
Certain Officers and Directors of the General Partner are employees of
Lehman. The General Partner is entitled to receive 1% of SLC's Net Cash
Flow from operations and varying percentages of SLC's Net Proceeds from
capital transactions. See pages 3 and 7 of the Partnership Agreement for a
description of distribution agreements.
Capital Growth Mortgage Investors Fund, L.P. a Delaware limited
partnership, the general partner of which is an affiliate of Lehman,
acquired a 24% interest in the Zero Coupon Loan. Laurel Capital Growth
Investors Corp., a Subchapter S corporation whose officers, directors and
shareholders are current or former employees of Shearson, acquired a 76%
interest in the equity kicker interest payment in the Zero Coupon Loan.
Certain affiliates of SLC may be reimbursed by SLC for the actual costs of
goods, services and materials used for or by SLC or the Owner Partnership
including, but not limited to audit, appraisal, legal and tax preparation
fees as well as costs of data processing. Services are provided by the
General Partner and two unaffiliated companies. First Data Investor
Services Group, formerly The Shareholder Services Group, provides
partnership accounting and investor relations services for the Registrant.
Prior to May 1993, these services were provided by an affiliate of a
general partner. The Registrant's transfer agent and certain tax reporting
services are provided by Service Data Corporation.
As of December 31, 1996, and 1995, $2,143, and $1,401, respectively, was
due to affiliates for expenditures paid on behalf of the Partnership. For
the years ended December 31, 1996, 1995 and 1994, $101,255, $82,889 and
$61,123, respectively, was reimbursed to affiliates.
On December 1, 1986, the Partnership entered into an agreement with Shopco
Management Corporation, an affiliate of NAT Limited Partnership, for the
management of the Mall. The agreement, which expired on December 31, 1992
provided for an annual fee equal to 3% of the gross rents collected from
the Mall, as defined, payable monthly. On September 1, 1993, the
Partnership and Shopco Management Corporation executed a new management
agreement which provides for an annual fee equal to 4.5% of the fixed
minimum and percentage rents effective January 1, 1993. The new agreement
initially expired on December 31, 1995, but allowed for automatic renewal
at one year intervals thereafter. The new management agreement was renewed
for 1996. Shopco Management Corporation managed the Mall until
October 15, 1996. The receiver assumed management of the Mall on
October 16, 1996. For the years ended December 31, 1996, 1995, and 1994,
management fee expense amounted to $254,798, $311,601 and $276,795,
respectively.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2).
Index to Consolidated Financial Statements and Schedules
Page
Number
Independent Auditors' Report F-1
Consolidated Balance Sheets
At December 31, 1996 and 1995 F-2
Consolidated Statements of Operations
For the years ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994 F-4
Notes to the Consolidated Financial Statements F-5
Schedule II - Valuation and Qualifying Accounts F-12
Schedule III - Real Estate and Accumulated Depreciation F-13
(b) Exhibits.
Subject to Rule 12b-32 of the Securities Act of 1934 regarding
incorporation by reference, listed below are the exhibits which are filed
as part of this report:
3.* SLC's Amended and Restated Agreement of Limited Partnership, dated as
of April 16, 1987, is hereby incorporated by reference to Exhibit B to
the Prospectus contained in Registration Statement No. 33-11994, which
Registration Statement (the "Registration Statement") was declared
effective by the SEC on April 9, 1987.
4.* The form of Unit Certificate is hereby incorporated by reference to
Exhibit 4.1 to the Registration Statement.
10.1* Investor Services Agreement between SLC and The Boston Company is hereby
incorporated by reference to Exhibit No. 10.1 to the Registration
Statement.
10.2* The Property Management Agreement between the Owner Partnership and the
Manager relating to the operation and leasing of the Mall is hereby
incorporated by reference to Exhibit No. 10.2 to the Registration
Statement.
10.3* Closing Agreement among JMB Income Properties, Ltd. - VI, JMB Income
Properties Ltd. - VIII, SLC and NAT Limited Partnership is hereby
incorporated by reference to Exhibit No. 10.3 to the Registration
Statement.
10.4* Demand Promissory Note from Shearson Group to the General Partner is
hereby incorporated by reference to Exhibit No. 10.4 to the Registration
Statement.
10.5* Documents relating to the Pre-Existing Mortgage held by Equitable Life
Assurance Society of the United States is hereby incorporated by
reference to Exhibit No. 10.5 to the registration Statement.
10.6* Letter from Equitable Life Assurance Society of the United States
consenting to the prepayment of the Pre-existing Mortgage is hereby
incorporated by reference to Exhibit No. 10.6 to the Registration
Statement.
10.8* Documents relating to the Zero Coupon Loan are hereby incorporated by
reference to Exhibit No. 10.7 to the Registration Statement.
10.9* Indemnity Agreement between Shearson and Cushman & Wakefield, Inc. is
hereby incorporated by reference to Exhibit No. 10.9 to the Registration
Statement.
10.10* Reciprocal Operation and Easement Agreement is hereby incorporated by
reference to Exhibit No. 10.10 to the Registration Statement.
10.11* Easement Agreement is hereby incorporated by reference to Exhibit No.
10.11 to the Registration Statement.
10.13* The Second Mortgage Loan Agreement from Kemper to the Owner Partnership
dated December 28, 1990 which is hereby incorporated by reference to
exhibit 10.13 of the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1991.
10.14* Real Estate Management Agreement by and Between Laurel Owner Partners
Limited Partnership, As Owner, and Shopco Management Corp., As Agent, is
hereby incorporated by reference to exhibit 10.14 of the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.15* Settlement Agreement dated October 9, 1996, by and between Laurel Owner
Partners Limited Partnership and certain lenders thereto is hereby
incorporated by reference to exhibit 10(a) of the Partnership's
Quarterly Report on Form 10-Q for the period ended September 30, 1996.
27 Financial Data Schedule (filed herewith)
*Previously filed
(c) Reports on Form 8-K in the fourth quarter of fiscal 1996:
No reports on Form 8-K were filed during the three months ended
December 31, 1996.
On January 24, 1997, A Current Report on Form 8-K was filed reporting
the ratification of the foreclosure sale of the Mall and the purchase
of the Mall by the Lenders.
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.
Dated: March 27, 1997
SHOPCO LAUREL CENTRE, L.P.
BY: Laurel Centre Inc.
General Partner
BY: /s/ Paul L. Abbott
Name: Paul L. Abbott
Title: Director, President and
Chief Executive Officer
BY: /s/ Robert J. Hellman
Name: Robert J. Hellman
Title: Director, Vice President
and Chief Financial Officer
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 in the capacities and on the dates indicated.
LAUREL CENTRE INC.
General Partner
Date: March 27, 1997
BY: /s/ Paul L. Abbott
Paul L. Abbott
Director, President and
Chief Executive Officer
Date: March 27, 1997
BY: /s/ Elizabeth Jarvis
Elizabeth Jarvis
Director
Date: March 27, 1997
BY: /s/ Richard A. Morton
Richard A. Morton
Director
Date: March 27, 1997
BY: /s/ Robert J. Hellman
Robert J. Hellman
Director, Vice President
and Chief Financial Officer
Date: March 27, 1997
BY: /s/ Raymond Mikulich
Raymond Mikulich
Director
Date: March 27, 1997
BY: /s/ Joan Berkowitz
Joan Berkowitz
Vice President
Date: March 27, 1997
BY: /s/ Elizabeth Rubin
Elizabeth Rubin
Vice President
Independent Auditors' Report
The Partners
Shopco Laurel Centre, L.P.:
We have audited the consolidated financial statements of Shopco
Laurel Centre, L.P. (a Delaware limited partnership) and
consolidated partnership as listed in the accompanying index. In
connection with our audits of the consolidated financial
statements, we also have audited the financial statement
schedules as listed in the accompanying index. These
consolidated financial statements and financial statement
schedules are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these consolidated
financial statements and financial statement 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.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Shopco Laurel Centre, L.P. and consolidated
partnership as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion,
the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements,
the Partnership's property was transferred to the mortgage
lenders on January 24, 1997 pursuant to a foreclosure sale. The
General Partner intends to wind up the Partnership's activities
and distribute the remaining cash, after provision for
liabilities and expenses, in accordance with the Limited
Partnership Agreement.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 17, 1997
Consolidated Balance Sheets At December 31, At December 31,
1996 1995
Assets
Property held for disposition $ 55,973,759 $ _
Real estate, at cost
(notes 3, 5, and 6):
Land -- 5,304,011
Building -- 61,062,234
Improvements -- 3,668,110
-- 70,034,355
Less accumulated
depreciation and amortization -- (14,100,499)
-- 55,933,856
Cash and cash equivalents 7,906,335 13,427,085
Accounts receivable, net of allowance
of $254,927 in 1995 -- 242,818
Deferred rent receivable -- 482,624
Deferred charges, net of
accumulated amortization of $273,442
in 1995 -- 133,295
Prepaid expenses -- 553,034
Total Assets $ 63,880,094 $ 70,772,712
Liabilities, Minority Interest
and Partners' Capital (Deficit)
Liabilities:
Accounts payable and
accrued expenses $ 657,759 $ 286,860
Zero coupon first mortgage
note payable (note 5) 58,580,564 53,525,503
Second mortgage note payable (note 6) 2,000,000 2,000,000
Second mortgage note accrued
interest payable (note 6) 74,167 19,167
Due to affiliates (note 7) 7,768 7,026
Security deposits payable -- 14,633
Deferred income -- 804,171
Distribution payable (note 9) 6,354,545 588,384
Total Liabilities 67,674,803 57,245,744
Minority interest (783,875) (583,239)
Partners' Capital (Deficit)
(notes 1, 4 and 10):
General Partner 746,545 917,755
Limited Partners (4,660,000 limited
partnership units authorized,
issued and outstanding) (3,757,379) 13,192,452
Total Partners' Capital (Deficit) (3,010,834) 14,110,207
Total Liabilities, Minority
Interest and Partners'
Capital (Deficit) $ 63,880,094 $ 70,772,712
Consolidated Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental income (note 3) $ 5,000,201 $ 5,835,838 $ 5,526,093
Escalation income (note 3) 3,992,192 5,092,316 5,004,831
Miscellaneous income 599,178 454,382 316,315
Interest income 585,119 567,284 274,960
Total Income 10,176,690 11,949,820 11,122,199
Expenses
Interest expense 4,550,655 5,298,639 4,822,735
Property operating expenses 3,521,767 3,737,361 3,642,418
Depreciation and amortization 1,650,643 1,984,980 1,873,237
Real estate taxes 811,866 1,023,297 1,034,656
General and administrative 425,485 223,623 209,045
Total Expenses 10,960,416 12,267,900 11,582,091
Loss before discontinued
operations and
minority interest (783,726) (318,080) (459,892)
Loss from discontinued
operations (note 2) (1,177,531) -- --
Loss before minority interest (1,961,257) (318,080) (459,892)
Minority interest 20,519 2,811 2,547
Net Loss $ (1,940,738) $ (315,269) $ (457,345)
Net Loss Allocated:
To the General Partner $ (19,407) $ (3,153) $ (4,573)
To the Limited Partners (1,921,331) (312,116) (452,772)
$ (1,940,738) $ (315,269) $ (457,345)
Per limited partnership unit
(4,660,000 outstanding):
Loss before discontinued
operations and minority
interest $ (.16) $ (.07) $ (.10)
Loss from discontinued operations (.25) -- --
$ (.41) $ (.07) $ (.10)
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
Balance at December 31, 1993 $ 972,553 $ 18,617,340 $ 19,589,893
Net loss (4,573) (452,772) (457,345)
Distributions (note 9) (23,536) (2,330,000) (2,353,536)
Balance at December 31, 1994 944,444 15,834,568 16,779,012
Net loss (3,153) (312,116) (315,269)
Distributions (note 9) (23,536) (2,330,000) (2,353,536)
Balance at December 31, 1995 917,755 13,192,452 14,110,207
Net loss (19,407) (1,921,331) (1,940,738)
Distributions (note 9) (151,803) (15,028,500) (15,180,303)
Balance at December 31, 1996 $ 746,545 $ (3,757,379) $ (3,010,834)
Consolidated Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net loss $ (1,940,738) $ (315,269) $ (457,345)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Minority interest (20,519) (2,811) (2,547)
Depreciation and amortization 1,650,643 1,984,980 1,873,237
Increase in interest on zero
coupon first mortgage note
payable 5,006,854 5,068,639 4,588,658
Increase (decrease) in cash
arising from changes in
operating assets and
liabilities
(through October 15, 1996):
Accounts receivable 28,411 286,027 (64,367)
Deferred rent receivable (68,463) (173,146) (193,549)
Deferred charges (17,408) (46,062) (53,417)
Prepaid expenses (550) (22,588) (2,524)
Accounts payable and
accrued expenses (117,101) 103,459 (104,360)
Second mortgage note accrued
interest payable 55,000 -- --
Due to affiliates 742 742 659
Security deposits payable (7,985) -- 2,500
Deferred income 5,379 37,444 (22,039)
Net cash provided by
operating activities 4,574,265 6,921,415 5,564,906
Cash Flows From Investing Activities:
Additions to real estate (500,756) (1,518,973) (411,426)
Net cash used for investing activities (500,756) (1,518,973) (411,426)
Cash Flows From Financing Activities:
Cash distributions to partners (9,414,142) (2,353,536) (2,353,536)
Cash distributions-minority interest (180,117) (53,641) (53,134)
Net cash used for
financing activities (9,594,259) (2,407,177) (2,406,670)
Net increase (decrease) in cash
and cash equivalents (5,520,750) 2,995,265 2,746,810
Cash and cash equivalents,
beginning of period 13,427,085 10,431,820 7,685,010
Cash and cash equivalents,
end of period $ 7,906,335 $ 13,427,085 $ 10,431,820
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the
period for interest $ 1,845,025 $ 230,000 $ 234,077
Supplemental Disclosure of
Non-Cash Operating Activities:
In connection with the debt maturity on October 15, 1996 and appointment of a
receiver, the Owner Partnership transferred $48,207 of net operating
liabilities to the mortgage lenders.
Supplemental Disclosure of Non-Cash Financing Activities:
Deferred charges of $488,000 were funded through accounts payable and accrued
expenses in 1996.
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Shopco Laurel Centre, L.P. ("SLC" or the "Partnership") was
formed as a limited partnership on December 22, 1986 under the
laws of the State of Delaware. The Partnership is the general
partner of Laurel Owner Partners Limited Partnership (the "Owner
Partnership"), a Maryland limited partnership, which owns Laurel
Centre (the "Mall" or the "Property").
The general partner of SLC is Laurel Centre Inc. (the "General
Partner") formerly Shearson Laurel Inc., an affiliate of Lehman
Brothers Inc., formerly Shearson Lehman Brothers Inc. (see
below).
On April 16, 1987, the Partnership commenced investment
operations with the acceptance of subscriptions of 4,660,000
depositary units of limited partnership units, the maximum
authorized by the limited partnership agreement ("Limited
Partnership Agreement"). Upon the admittance of the additional
limited partners, the Assignor Limited Partner withdrew from the
Partnership. Registered holders ("UnitHolders") received an
assignment of the economic, voting and other rights attributable
to the limited partnership units held by the Assignor Limited
Partner.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of
its domestic retail brokerage and asset management businesses to
Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney").
Subsequent to the sale, Shearson Lehman Brothers Inc. changed its
name to Lehman Brothers Inc. The transaction did not affect the
ownership of the General Partner. However, the assets acquired
by Smith Barney included the name "Shearson". Consequently,
effective November 12, 1993, the General Partner changed its name
to Laurel Centre Inc. to delete any references to "Shearson".
On October 15, 1996, the Partnership defaulted on its mortgage
obligations when it failed to pay the outstanding balances when
due at maturity. The Mall was subsequently transferred to the
mortgage lenders on January 24, 1997 pursuant to a foreclosure
sale (see notes 5 and 6). After payment of the cash distribution
to UnitHolders of record on September 30, 1996 as further
discussed in note 5, the General Partner intends to wind up the
Partnership's activities and distribute any remaining cash, after
provision for liabilities and expenses, in accordance with the
Limited Partnership Agreement.
2. Summary of Significant Accounting Policies
Basis of Accounting
The consolidated financial statements of SLC have been prepared on the accrual
basis of accounting and include the accounts of SLC and the Owner Partnership.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Accounting for Impairment
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long- lived assets
that are expected to be disposed of. Property held for disposition is recorded
at the lower of carrying value or fair market value less costs to sell. The
Partnership adopted FAS 121 in the fourth quarter of 1995.
Property Held for Disposition
Prior to October 15, 1996, real estate, which consisted of land, building and
improvements, was recorded at cost less accumulated depreciation and
amortization. Cost included the initial purchase price of the property plus
closing costs, acquisition and legal fees and capital improvements. Effective
October 15, 1996, the date the Property was transferred to a receiver, the
Partnership reclassified its real estate to "Property held for disposition" and
therefore, the Partnership suspended depreciation in accordance with FAS 121.
Depreciation was computed using the straight-line method based on an estimated
useful life of 40 years. Depreciation of improvements was computed using the
straight-line method over estimated useful lives of 7 to 12 years.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires that the Partnership
disclose the estimated fair values of its financial instruments. Fair values
generally represent estimates of amounts at which a financial instrument could
be exchanged between willing parties in a current transaction other than in
forced liquidation.
Fair value estimates are subjective and are dependent on a number
of significant assumptions based on management's judgment
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. In addition, FAS 107 allows a
wide range of valuation techniques, therefore, comparisons
between entities, however similar, may be difficult.
Deferred Charges
Leasing commissions were amortized using the straight-line method over the
lease term. Effective October 15, 1996, the Partnership suspended amortization
of leasing commissions as a result of the transfer of the property to a
receiver.
Offering Costs
Offering costs are non-amortizable and are deducted from limited partners'
capital.
Transfer of Units and Distributions
Net income or net loss from operations is allocated to the Unit Holders. Upon
the transfer of a unit, net income or net loss from operations attributable to
such unit generally is allocated between the transferor and the transferee
based on the number of days during the year of transfer that each is deemed to
have owned the unit. The UnitHolder of record on the first day of a calendar
month is deemed to have transferred their interest on the first day of such
month.
Distributions of operating cash flow, as defined in the Partnership Agreement,
are paid on a quarterly basis to UnitHolders on record dates established by
the Partnership, which generally fall on the last day of each quarter.
Income Taxes
No provision is made for income taxes since such liability is the liability of
the individual partners.
Net Income (Loss) Per Limited Partnership Unit
Net income (loss) per limited partnership unit is calculated based upon the
number of limited partnership units outstanding during the year.
Rental Income and Deferred Rent
The Partnership had rented the Mall to tenants under operating leases with
various terms. Deferred rent receivable consisted of rental income which was
recognized on the straight-line basis over the lease terms, but will not be
received until later periods as a result of scheduled rent increases. Effective
October 15, 1996, the Partnership suspended the recognition of rental income as
a result of the transfer of the property to a receiver.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid short-term investments with
maturities of three months or less from the date of issuance. The carrying
amount approximates fair value because of the short maturity of these
instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to a
concentration of credit risk principally consist of cash and cash equivalents
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
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.
Reclassifications
Certain prior year amounts have been reclassified in order to conform to the
current year's presentation.
3. Real Estate
SLC's real estate, which was purchased on December 1, 1986, consists of an
enclosed regional shopping mall with three attached anchor stores, J.C. Penney,
Inc. ("J.C. Penney"), Montgomery Ward and Hecht's located on approximately
12.28 acres of land known as Laurel Centre, located in Laurel, Maryland. The
retail tenant portion of the Mall is contained on two levels, and parking is
provided at Laurel Centre for approximately 3,400 cars.
J.C. Penney leases 136,864 square feet of the gross leasable building area
located at the northern end of the Mall. The lease with J.C. Penney contains
an operating covenant pursuant to which J.C. Penney was obligated to operate a
department store until October 10, 1994, under the name "J.C. Penney", or
"Penney", or such other name as is used at a majority of its stores in the
Baltimore/Washington area.
Montgomery Ward leases its store, the land on which the store is constructed
and an adjacent parking area totaling approximately twelve acres, from an
independent third party with which the Owner Partnership is neither affiliated
nor related. The lease with Montgomery Ward contains an operating covenant
pursuant to which Montgomery Ward was obligated to operate a department store
until October 10, 1994, at the Mall under the name of Montgomery Ward or such
other name as is used by Montgomery Ward by the majority of its department
stores in the eastern part of the United States.
Hecht's leases a parcel of land pursuant to a ground lease on which it has
constructed a store. Hecht's was obligated to operate a department store at
the Mall until May 6, 1996 under the name of "Hecht's" or "The Hecht Co." or
such other name as is used by Hecht's in the Baltimore/Washington area.
The leases provide for percentage rents and escalation charges to tenants for
common area maintenance and real estate taxes. For the years ended December
31, 1996, 1995 and 1994, percentage rents amounted to $77,460, $80,906 and
$343,061, respectively, and are included in rental income. For the years ended
December 31, 1996, 1995 and 1994, temporary tenant income amounted to $316,961,
$338,147 and $307,035, respectively and are included in rental income.
4. Partnership Agreement
The SLC Partnership Agreement provides that, all income, profits, losses and
cash distributions from operations are allocated 1% to the General Partner and
99% to the UnitHolders. Proceeds of sale will be allocated 99.5% to the
UnitHolders until the Unit Holders receive their Unrecovered Capital and their
Preferred Return Arrearage, as defined. Thereafter, net proceeds will
generally be distributed 89% to the UnitHolders and 11% to the General Partner.
As of December 31, 1996, the UnitHolders have not received their Unrecovered
Capital and their Preferred Return Arrearage.
With respect to the Owner Partnership, SLC has a 98% interest and NAT Limited
Partnership has a 2% interest in the income, profits and cash distributions of
the Mall. Losses will be allocated 99% to SLC and 1% to NAT Limited
Partnership. Upon sale, SLC will receive 99.5% and NAT Limited Partnership
will receive .5% of the net proceeds thereof until SLC receives an amount equal
to its Unrecovered Capital and Preferred Return Arrearage, as defined.
Thereafter, any remaining proceeds will be allocated 90% to SLC (11% to the
General Partner and 89% to the UnitHolders) and 10% to NAT Limited
Partnership. As of December 31, 1996, SLC has not received its Unrecovered
Capital and its Preferred Return Arrearage.
5. Zero Coupon First Mortgage Note Payable
Financing for the purchase of the Mall was provided by a Zero Coupon Loan from
Lending, Inc., formerly Shearson California Commercial Lending Inc., an
affiliate of the General Partner (together with its successors and assignees,
the "Zero Coupon Lender"), in the total amount of $22,500,000.
The nonrecourse Zero Coupon Loan accrued interest at an annual implicit rate of
10.2% per annum, compounded semi-annually. The Zero Coupon Loan did not
require the payment of any principal or interest currently and matured on
October 15, 1996. It was secured by a first deed of trust on the Mall and an
assignment of leases. The accreted amount of the Zero Coupon Loan at maturity
was $57,894,075.
During 1987, the Zero Coupon Lender sold a 76% participation interest in its
right under the Zero Coupon Loan to Kemper Investors Life Insurance Company
("Kemper") in the amount of $17,100,000. Subsequently, in 1993, Kemper sold
its participation interest to CBA Associates, Inc. ("CBA Associates"), a
conduit entity which placed the loan into a pool of mortgages to be held by a
Real Estate Mortgage Investment Conduit (the "REMIC Lender"). The
participation interest sold did not include the additional supplemental
interest obligation of the note of which 76% was subsequently acquired by
Laurel Capital Growth Investors Corp.
Additionally in 1987, the Zero Coupon Lender sold its remaining 24%
participation interest in its right under the Zero Coupon Loan to Capital
Growth Mortgage Investors, L.P. ("Capital Growth"), an affiliate of the General
Partner, in the amount of $5,400,000. The 24% participation sold to Capital
Growth included the additional supplemental interest obligation of the note.
The mortgage agreement specifically provided for an annual covenant with which
the Owner Partnership must comply. The covenant provided that the accrued
value of the zero coupon loan at the end of each year shall not exceed 70% of
the most recent appraised value of the Mall. Based upon the appraised value of
the Property on January 1, 1996 of $77,000,000, this covenant was met at
December 31, 1995.
On September 20, 1996, State Street Bank and Trust Company ("State Street"),
obtained a temporary restraining order (the "TRO") in the Circuit Court for
Prince Georges' County, Maryland, enjoining the payment of a cash distribution
of $1.35 per Unit declared by the Partnership on September 20, 1996, and
scheduled to be paid on October 10, 1996, to UnitHolders of record as of
September 30, 1996. The TRO also enjoined the Owner Partnership, the
Partnership and the General Partner, from taking any act to disseminate,
distribute or convey cash and cash equivalents except, subject to State
Street's approval, to pay normal operating expenses incurred in the operation
of the Mall. The TRO was issued pursuant to a lawsuit commenced against the
Owner Partnership, the Partnership and the General Partner by State Street
alleging, among other things, that the distribution declared on September 20,
1996, would constitute a fraudulent conveyance and a conversion of the lenders'
interest in the rents from the Property and that there had been a waste of
State Street's collateral.
On October 9, 1996, the Owner Partnership entered into an agreement (the
"Settlement Agreement") with Capital Growth, CBA Associates and State Street
(collectively the "Lenders"). The terms of the non-recourse mortgage loans
permitted the Lenders to exercise certain remedies upon a default in the
payment of principal or interest on the loans, including foreclosure of the
mortgages on the Property and the appointment of a receiver. The Owner
Partnership defaulted on its mortgage obligations when the mortgage loans were
not paid at maturity on October 15, 1996. In accordance with the terms of the
Settlement Agreement and the mortgage loan documents, Capital Growth docketed a
foreclosure action in the Circuit Court for Prince Georges' County, Maryland on
October 16, 1996, and pursuant to a Court order (the "Consent Order"),
appointed Zamias Services, Inc. (the "Receiver" or "Zamias") as the receiver
for the Mall. Pursuant to the Consent Order, the Receiver took possession of
the Property and was authorized, among other things: to manage the Mall; to
collect all rent proceeds from Mall tenants paid on or after October 16, 1996;
and to apply such proceeds to the payment of, among other things, the Mall's
management and operating expenses, capital improvements and leasing expenses,
with any remaining funds to be paid to the mortgage lenders; in each case, in
accordance with the terms of the Settlement Agreement. The Partnership and the
Owner Partnership therefore no longer received cash flow from, or managed, the
Mall from and after October 16, 1996.
Pursuant to the Settlement Agreement, the Lenders agreed, among other things,
after satisfaction of the conditions set forth in the Settlement Agreement, to
release the Partnership, the Owner Partnership and the General Partner and
their respective UnitHolders, partners, stockholders and directors, on the
earlier of the expiration of the 30 day ratification appeal period if no appeal
is taken (i.e., on or about February 24, 1997), or on March 15, 1997, if an
appeal it taken and absent certain circumstances set out in the Settlement
Agreement (the "Release Date"), from any claims the Lenders may have against
such parties with respect to the Settlement Agreement, the mortgage loans, the
Mall, and the cash held by the Partnership, the Owner Partnership and the
General Partner for periods prior to October 16, 1996 (other than $260,000,
which was used for October expenses of the Mall), including the cash needed for
the payment of the Partnership's previously declared distribution. Similarly,
the Partnership, the Owner Partnership and the General Partner agreed to
release the mortgage lenders on the Release Date from any claims they may have
with respect to the Settlement Agreement, the mortgage loans, and the Mall.
Additionally, the Owner Partnership was required pursuant to the Settlement
Agreement to pay all of its payables that were due and payable as of, or before
October 15, 1996. All other expenses of the Mall were to be paid by the
Receiver.
On December 10, 1996, the Mall was purchased by the Lenders pursuant to a
foreclosure sale, which was ratified by the Circuit Court for Prince Georges'
County, Maryland on January 24, 1997. Net cash flow generated by the Property
from October 16, 1996 through December 31, 1996, totaled $1,653,359, and was
applied to accrued interest in accordance with the terms of the Settlement
Agreement. The accreted value of the mortgage loan at maturity was
$57,894,075. Effective October 15, 1996, default interest totaling $2,291,641,
was calculated at 19% in accordance with the mortgage agreement.
6. Second Mortgage Note Payable
On December 12, 1990, the Partnership obtained a $2,000,000 note from Kemper.
The note bore interest at 11.5% and was secured by a second mortgage lien on
the real estate. Monthly payments of interest only were required until
maturity on October 15, 1996, at which time the principal balance was due.
During 1993, Kemper sold its note to CBA Associates which placed the loan into
a pool of mortgages to be held by the REMIC Lender.
On October 15, 1996, the Partnership defaulted on its second mortgage note
obligation when it failed to pay the mortgage loan when due. Subsequently, the
Lenders purchased the Mall pursuant to a foreclosure sale (see note 5). The
value of the mortgage loan, including accrued interest and default interest
calculated at 15.5%, totaled $2,074,167 at December 31, 1996.
7. Transactions with Related Parties
The General Partner or its affiliates earned fees and compensation during 1986
in connection with the acquisition, management, organization and administrative
services rendered to SLC of $2,491,000, representing $400,000 in organization
fees, $300,000 in a property management negotiations and supervision fee,
$500,000 in prepaid asset management fees and $1,291,000 in acquisition fees,
of which $5,625 was unpaid at December 31, 1996 and 1995.
As of December 31, 1996 and 1995, $2,143 and $1,401,
respectively, is due to affiliates for expenditures paid on
behalf of the Partnership. For the years ended December 31,
1996, 1995, and 1994, $101,255, $82,889, and $61,123,
respectively, was reimbursed to the affiliates.
Cash and Cash Equivalents
Certain cash and cash equivalents were on deposit with an affiliate of the
General Partner during a portion of 1996 and all of 1995. As of December 31,
1996, no cash and cash equivalents were on deposit with an affiliate of the
General Partner or the Partnership.
8. Management Agreement
On December 1, 1986, the Partnership entered into an agreement with Shopco
Management Corporation, an affiliate of NAT Limited Partnership, for the
management of the Mall. The agreement, which expired on December 31, 1992,
provided for an annual fee equal to 3% of the gross rents collected from the
Mall, as defined, payable monthly. On September 1, 1993, the Partnership and
Shopco Management Corporation executed a new management agreement which
provides for an annual fee equal to 4.5% of the fixed minimum and percentage
rents effective January 1, 1993. The new management agreement initially expired
on December 31, 1995, but allows for automatic renewal at one year intervals
thereafter. The management agreement was renewed for 1996. Shopco Management
Corporation managed the Mall until October 15, 1996. The Receiver assumed
management of the Mall on October 16, 1996. For the years ended December 31,
1996, 1995 and 1994, management fee expense amounted to $254,798, $311,601 and
$276,795, respectively.
9. Distributions to Limited Partners
Distributions to limited partners for the years ended December 31, 1996, 1995
and 1994 were $15,028,500 ($3.225 per limited partnership unit), $2,330,000
($.50 per limited partnership unit) and $2,330,000 ($.50 per limited
partnership unit), respectively. Cash distributions declared payable to limited
partners at December 31, 1996 and 1995 were $6,291,000 ($1.35 per limited
partnership unit) and $582,500 ($.125 per limited partnership unit),
respectively.
10. Reconciliation of Consolidated Financial Statement Net Loss
and Partners' Capital (Deficit) to Federal Income Tax Basis Net
Loss and Partners' Capital (Deficit)
Reconciliations of consolidated financial statement net loss and partners'
capital (deficit) to federal income tax basis net loss and partners' capital
(deficit) at December 31, follow:
1996 1995 1994
Consolidated financial
statement net loss $ (1,940,738) $ (315,269) $ (457,345)
Tax basis depreciation over
financial statement
depreciation (470,139) (156,364) (272,504)
Tax basis rental income under
financial statement
rental income (62,453) (134,345) (213,434)
Tax basis minority interest
under financial statement
minority interest (9,156) (9,190) (9,296)
Other (3,838) 1,636 10,612
Federal income tax basis
net loss $ (2,486,324) $ (613,532) $ (941,967)
1996 1995 1994
Financial statement basis
partners' capital (deficit) $ (3,010,834) $ 14,110,207 $ 16,779,012
Current year financial
statement net loss over
federal income tax
basis net loss (545,586) (298,263) (484,622)
Cumulative financial statement
net income over cumulative
federal income tax basis
net loss (5,452,270) (5,154,007) (4,669,385)
Federal income tax basis
partners' capital (deficit) $ (9,008,690) $ 8,657,937 $ 11,625,005
Because many types of transactions are susceptible to varying interpretations
under Federal and State income tax laws and regulations, the amounts determined
above may be subject to change at a later date upon final determination by the
respective taxing authorities.
11. Subsequent Events
On January 24, 1997, the foreclosure sale of the Mall was ratified by the
Circuit Court for Prince George's County, Maryland, and the Mall was acquired
by the Lenders. The non- recourse mortgage notes payable of the Owner
Partnership, with accrued interest thereon, totaled approximately $61,030,000.
The transaction resulted in an extraordinary gain on foreclosure of
approximately $5,000,000, which will be reflected in the consolidated
statements of operations for the three month period ended March 31, 1997.
On March 3, 1997, the TRO was vacated subsequent to the dismissal of the
lawsuit filed by State Street. Accordingly, on March 17, 1997, the Partnership
paid the previously declared distribution of $6,291,000 ($1.35 per Unit) to
Unitholders.
Schedule II Valuation and Qualifying Accounts
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
Allowance for
doubtful accounts:
Year ended
December 31, 1994: $ 121,721 $ 81,610 $ 71,572 $ 131,759
Year ended
December 31, 1995: 131,759 147,608 24,440 254,927
Year ended
December 31, 1996: $ 254,927 $ 437,649 $ 692,576 $ --
Schedule III _ Real Estate and Accumulated Depreciation
December 31, 1996
Shopping Center: Laurel Centre Total
Location Laurel, MD na
Construction date 1979 na
Acquisition date 12/86 na
Life on which depreciation
in latest income statements
is computed (1) na
Encumbrances $ 60,654,731 $ 60,654,731
Initial cost to Partnership (2):
Land $ 5,058,967 $ 5,058,967
Building and
improvements $ 56,039,671 $ 56,039,671
Costs capitalized
subsequent to acquisition:
Land $ 245,044 $ 245,044
Building and
Improvements $ 9,191,429 $ 9,191,429
Write-off $ 50,000 $ 50,000
Gross amount at which
carried at close of period (3):
Land $ 5,304,011 $ 5,304,011
Building and
improvements 65,181,100 65,181,100
$ 70,485,111 $ 70,485,111
Accumulated depreciation $ 15,656,426 $ 15,656,426
(1) Building - 40 years; Improvements - 7 to 12 years.
(2) The initial cost to the Partnership represents the original purchase price
of the property.
(3) For Federal income tax purposes, the cost basis of land, building and
improvements at December 31, 1996 is $70,327,363.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $ 70,034,355 $ 68,515,382 $ 68,106,262
Additions 500,756 1,518,973 409,120
Dispositions (50,000) -- --
End of year $ 70,485,111 (4) $ 70,034,355 $ 68,515,382
Accumulated depreciation:
Beginning of year $ 14,100,499 $ 12,170,608 $ 10,346,073
Depreciation expense 1,605,927 1,929,891 1,824,535
Dispositions (50,000) -- --
End of year $ 15,656,426 (4) $ 14,100,499 $ 12,170,608
(4) Effective October 15, 1996, the carrying value of the Property and related
accounts was reclassified to held for disposition from held for investment.
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