UNITED STATES 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 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-16717
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OUTLET CENTRE PARTNERS
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(Exact name of registrant as specified in its charter)
Illinois 36-3498737
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(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
<PAGE>
PART I
Item 1. Business
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Outlet Centre Partners (the "Registrant") is a limited partnership formed in
1987 under the laws of the State of Illinois, which raised $30,000,000 from
sales of Limited Partnership Interests. The Registrant owns (through
subsidiaries) the Factory Outlet Centre (the "Centre") located in Bristol,
Wisconsin as described under "Item 2. Property". The Partnership Agreement
provides that the proceeds from any sale or refinancing of the Centre will not
be reinvested in new acquisitions. The Registrant's operations consist
exclusively of investment in and operation of income producing real property,
and all financial information included in this report relates to this industry
segment.
The Centre is subject to certain competitive conditions in the market in which
the property is located. See Item 7. Liquidity and Capital Resources for
additional information.
The Centre faces various levels of competition for retention of its tenants
from similar types of properties in the vicinity in which it is located. The
Registrant has no plans to change the current use of or to renovate the Centre.
Real estate values, especially for good quality, well located property,
increased significantly during 1996 due to a combination of readily available
capital, low interest rates, and decreased vacancy rates resulting from steady
demand and an acceptable level of new construction. While 1996 proved to be an
excellent year to sell real estate, projected yields by buyers on new
acquisitions have declined significantly due to competition and rising prices.
Although there will be variances by asset class and geographic area, the
investment climate is expected to remain strong for 1997. However, values
could begin to level off as they approach replacement cost triggering new
construction and an increase in capitalization rates.
The outlook for the retail sector of the investment real estate industry is
uncertain for 1997. The retail industry is being simultaneously impacted by a
number of factors which are likely to affect values for quite some time. As
retailers battle to gain market dominance, tenant bankruptcies have grown.
Consolidation among retailers has and is expected to continue to occur. Unlike
other asset classes, new construction of power centers went unabated in the
early 1990's, creating an oversupply of space including "big box" anchor tenant
space. Regional malls, which are not the dominant center in the market, face
continued out-migration of retailers to the power centers. Finally shopping
patterns continue to shift due to the aging baby boomers, high consumer debt,
alternative distribution channels, and the greater emphasis on entertainment.
As a result, the capital requirements necessary to maintain a shopping center's
competitiveness are all significant, but with uncertain returns. The
Registrant believes there is significant risk to holding retail assets for
future upside potential.
<PAGE>
Activity for the purchase of limited partnership interests ("tender offers")
has increased in real estate limited partnerships generally. Many of these
tender offers have been made by investors seeking to make a profit from the
purchase of the interests. In the event a tender offer is made for interests in
the Registrant, the General Partner will issue a response to limited partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs will be incurred to respond to a tender offer. The General
Partner cannot predict with any certainty what impact a tender offer will have
on the operations or management of the Registrant.
The General Partner is currently marketing the Centre for sale. If the Centre
is sold, the timing of the termination of the Registrant and final distribution
of cash will depend upon the nature and extent of liabilities and contingencies
which exist or may arise. Such contingencies may include legal and other fees
stemming from litigation involving the Registrant including, but not limited
to, the lawsuit discussed in "Item 3. Legal Proceedings." In the absence of any
contingency, the reserves will be paid within twelve months of the property
being sold. In the event of a contingency, reserves may be held by the
Registrant for a longer period of time.
The Registrant, by virtue of its ownership of real estate, is subject to
federal and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental issues and to conduct tests for
environmental contamination as appropriate. The General Partner is not aware of
any potential liability due to environmental issues or conditions that would be
material to the Registrant.
The officers and employees of Balcor Partners-XXII, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Property
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The Registrant owns, in fee simple, the Factory Outlet Centre, a regional
enclosed mall containing approximately 310,000 square feet located on
approximately 33 acres in Bristol, Wisconsin.
The average occupancy rate and the effective average rent per square foot for
each of the last five years for the property owned by the Registrant at
December 31, 1996, is described below. No tenant occupies 10% or more of the
leasable square feet of the property.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Factory Outlet Centre
Occupancy rate 83% 86% 91% 90% 90%
Effective rent $11.44 $10.83 $10.61 $9.69 $10.61
The Centre is held subject to a mortgage loan, as described in more detail in
Note 5 of Notes to Financial Statements.
Real estate taxes incurred in 1996 for the above property totaled $567,357.
<PAGE>
The Federal tax basis of the Registrant's property totaled $30,570,335 as of
December 31, 1996. For Federal income tax purposes, the acquisition costs of
the property is depreciated over a useful life ranging from 19 to 40 years,
using the straight-line method. Other minor assets are depreciated over their
applicable recovery periods.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for the Centre.
See Notes to Financial Statements for other information regarding the property
investment.
Item 3. Legal Proceedings
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Proposed class action
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On August 30, 1996, a proposed class action complaint was filed, Lenore Klein
vs. Lehman Brothers, Inc., et al., Superior Court of New Jersey, Law Division,
Union County, Docket No. Unn-L-5162-96). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company (together with the
Partnership, the "Affiliated Partnerships"), American Express Company, Lehman
Brothers, Inc., additional limited partnerships sponsored by the predecessor of
Lehman Brothers, Inc. (together with the Registrant and the Affiliated
Partnerships, the "Defendant Partnerships") and Smith Barney Holdings, Inc. are
the named defendants in the action. The complaint was amended on October 18,
1996 to add additional plaintiffs. The amended complaint alleges, among other
things, common law fraud and deceit, negligent misrepresentation, breach of
contract, breach of fiduciary duty and violation of certain New Jersey statutes
relating to the disclosure of information in the offering of limited
partnership interests in the Defendant Partnerships. The amended complaint
seeks judgment for compensatory damages equal to the amount invested in the
Defendant Partnerships by the proposed class plus interest; general damages for
injuries arising from the defendants' alleged actions; equitable relief,
including rescission, on certain counts; punitive damages; treble damages on
certain counts; recovery from the defendants of all profits received by them as
a result of their alleged actions relating to the Defendant Partnerships;
attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1996.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources.
As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 2,007.
Item 6. Selected Financial Data
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Year ended December 31,
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1996 1995 1994 1993 1992
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Total income $5,186,143 $5,411,464 $5,500,853 $5,066,152 $5,654,459
Net loss (744,997) (203,933) (118,837) (446,805) (217,234)
Net loss per
Limited
Partnership
Interest (24.58) (6.73) (3.92) (14.74) (7.17)
Total assets 22,039,698 23,620,607 24,143,296 23,433,874 24,772,417
Mortgage note
payable 12,431,154 12,568,420 12,692,502 11,543,885 11,664,937
Distributions per
Limited Partnership
Interest (A) 22.108 5.527 None 27.625 44.20
(A) No distributions of original capital were made in any of the last five
years.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Property operations decreased at the Centre during 1996 as compared to 1995 and
during 1995 as compared to 1994. This resulted in an increase in the
Partnership's net loss during 1996 as compared to 1995 and during 1995 as
compared to 1994. Further discussion of the operations of Outlet Centre
Partners (the "Partnership") is summarized below.
<PAGE>
1996 Compared to 1995
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The Partnership bills tenants on a monthly basis for common area maintenance,
real estate taxes and other operating expenses of the Centre based on
estimates. Adjustments are periodically made to these billings once the
Partnership has determined the actual amounts due. The periodic adjustment of
billings for real estate taxes resulted in decreased reimbursements from
tenants due to a prior year's reduction in the assessed value of the Centre
levied by the local taxing authority and was the primary reason service income
decreased during 1996 when compared to 1995.
As a result of higher average cash balances due to interest earned on capital
improvement escrows, interest income on short-term investments increased during
1996 when compared to 1995.
Increased marketing costs were incurred in order to maintain occupancy. This,
along with air conditioning and ventilation repairs and upgrades and insurance
deductibles paid in relation to an April 1996 storm, resulted in an increase in
property operating expense during 1996 when compared to 1995.
Decreased service income, as mentioned above, resulted in a decrease in
property management fees during 1996 when compared to 1995.
As a result of lower accounting, portfolio management, and legal fees incurred
by the Partnership, administrative expenses decreased during 1996 when compared
to 1995.
1995 Compared to 1994
- ---------------------
The Partnership bills tenants on a monthly basis for common area maintenance,
real estate taxes and other operating expenses of the Centre based on
estimates. Adjustments are periodically made to these billings once the
Partnership has determined the actual amounts due. The periodic adjustment of
billings during 1994, combined with slightly lower occupancy at the Centre
during 1995, have resulted in a decrease in service income during 1995 when
compared to 1994.
As a result of higher interest rates and higher average cash balances, interest
income on short-term investments increased during 1995 when compared to 1994.
As a result of legal, portfolio management and other professional fees incurred
during 1994 in connection with the June 1994 refinancing, administrative
expenses decreased during 1995 when compared to 1994.
<PAGE>
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $295,000 as of
December 31, 1996 when compared to December 31, 1995. The Partnership generated
cash flow of approximately $313,000 from its operating activities. The
operating activities reflect the operations of the Centre, interest income
earned on short-term investments, and the payment of administrative expenses
and expenditures related to the damage caused by a storm during 1996. The
Partnership expects to be reimbursed by its insurance carrier for costs of the
damage, less deductibles. The Partnership used cash to fund its financing
activities of approximately $609,000 which consisted of the payment of
distributions totaling approximately $663,000 to Limited Partners and the
payment of principal on the mortgage note payable of approximately $137,000,
plus the receipt of approximately $192,000 from the Partnership's capital
improvement escrow.
As of December 31, 1996, the occupancy rate at the Centre was 83%, and during
each of 1996 and 1995, the Centre generated positive cash flow, which is
defined as an amount equal to the property's revenue receipts less property
related expenses, which include debt service payments. The Partnership is
currently marketing the Centre for sale. If the property is sold, the timing of
the termination of the Partnership and final distribution of cash will depend
upon the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees stemming from
litigation involving the Partnership including, but not limited to, the lawsuit
discussed in "Item 3. Legal Proceedings." In the absence of any contingency,
the reserves will be paid within twelve months of the property being sold. In
the event of a contingency, reserves may be held by the Partnership for a
longer period of time. In light of results to date and current market
conditions, the General Partner does not anticipate that investors will recover
all of their original investment.
The Centre experienced a high rate of lease expirations during 1996. However,
through successful leasing strategies and efforts, many tenant leases were
renewed and several significant new tenants were added to the tenant mix. These
leasing strategies and efforts are continuing as additional tenant leases
expire. The Centre also has continued its media and marketing campaign. In
addition, continued repairs and upgrades are required in order for the Centre
to remain attractive to tenants and shoppers. The success of this media
campaign and the leasing and repair programs will impact the level of future
cash flow which may be generated by the Centre, as well as the future sale
price which may be obtained by the Partnership. Lakeside Marketplace, an outlet
strip center located three miles south of the Centre, has announced
construction of their third phase which they anticipate to have completed by
the first quarter of 1997. This 120,000 square foot expansion may impact the
ability to lease the Centre as well as tenant sales.
<PAGE>
The Partnership made distributions totaling $22.11 and $5.53 per Interest in
1996 and 1995, respectively. See Statement of Partners Capital for additional
information. All of these distributions were comprised of Net Cash Receipts. In
January 1994, quarterly distributions to Limited Partners were suspended in
order to provide the working capital necessary to complete the refinancing of
the Centre's mortgage note payable. With the completion of the refinancing in
June 1994 and the subsequent replenishing of cash reserves from operations, the
Partnership resumed quarterly distributions in October 1995. In January 1997,
the Partnership paid $165,810 ($5.527 per Interest) to the holders of Limited
Partnership Interests for the fourth quarter of 1996. Including the January
1997 distribution, Limited Partners have received distributions of Net Cash
Receipts of $299.48 and Net Cash Proceeds of $263.08, totaling $562.56 per
$1,000 Interest. The Partnership expects to continue making quarterly
distributions from cash flow from property operations. The General Partner
believes it has retained, on behalf of the Partnership, an appropriate amount
of working capital to meet cash or liquidity requirements which may occur.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
Comparison of Actual Operations and the Financial Forecast
- ----------------------------------------------------------
The Financial Forecast and Supplemental Projections included in the
Partnership's Prospectus forecasted the operations of the Partnership for a ten
year period beginning January 1, 1988 and ending December 31, 1997. The
Partnership incurred a net loss of $744,997 during the year ended December 31,
1996, whereas net income of approximately $1,569,000 was originally forecasted
for this period. The difference was primarily a result of lower than forecasted
rental income and higher expenditures related to the ongoing media and
marketing campaign and various improvements at the Centre. The General Partner
anticipates that the actual operations for 1997 will also be significantly
lower than the forecasted operations for 1997 in the Prospectus due primarily
to lower than originally forecasted rental collections.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
<PAGE>
December 31, 1996 December 31, 1995
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $22,039,698 $22,394,544 $23,620,607 $27,809,423
Partners' capital
(deficit):
General Partner (1,162,557) (529,352) (1,155,107) (522,372)
Limited Partners 9,988,382 13,801,344 11,389,169 15,000,191
Net (loss) income:
General Partner (7,450) (6,980) (2,039) 1,119
Limited Partners (737,547) (535,607) (201,894) 110,800
Per Limited Partner-
ship Interest (24.58) (17.85) (6.73) 3.69
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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Effective October 18, 1995, the Registrant has terminated its audit agreement
with Arthur Andersen LLP to act as the Registrant's independent accounting firm
and has engaged Coopers & Lybrand L.L.P. as its new independent accounting
firm. The report of Arthur Andersen LLP on the financial statements of the
Registrant for the year ended December 31, 1994 did not contain any adverse
opinion or any disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles. There existed no
disagreements relating to any matter of accounting principles or practices,
financial statement disclosures, auditing scope and procedures or compliance
with applicable rules which resulted in the termination of Arthur Andersen LLP
as the Registrant's independent accounting firm. The decision to change
accounting firms was approved by the General Partner of the Registrant.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Partners-XXII, its General Partner, has a
Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President James E. Mendelson
Senior Vice President John K. Powell, Jr.
Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 49) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company. He
is also Senior Vice President of American Express Company and is responsible
for its real estate operations worldwide. Prior to joining Balcor, Mr.
Meador was employed at the Harris Trust and Savings Bank in the commercial
real estate division where he was involved in various lending activities.
Mr. Meador received his M.B.A. degree from the Indiana University Graduate
School of Business.
Alexander J. Darragh (age 42) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility
for Balcor's environmental matters. Mr. Darragh received masters' degrees in
Urban Geography from Queen's University and in Urban Planning from
Northwestern University.
James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible
for Balcor's property sales activities. He also has supervisory
responsibility for Balcor's accounting, financial, treasury, investor
services and investment administration functions. From 1989 to 1995, Mr.
Mendelson was Vice President - Transaction Management and Vice President -
Senior Transaction Manager and had responsibility for various asset
management matters relating to real estate investments made by Balcor,
including negotiations for the restructuring of mortgage loan investments.
Mr. Mendelson received his M.B.A. degree from the University of Chicago.
<PAGE>
John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's
risk management function. He received a Master of Planning degree from the
University of Virginia. Mr. Powell has been designated a Certified Real
Estate Financier by the National Society for Real Estate Finance and is a
full member of the Urban Land Institute.
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and
private partnerships. She is also Treasurer and a Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1996.
Item 11. Executive Compensation
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The Registrant paid $990 in 1996 with respect to one of the executive officers
and directors of the General Partner. The Registrant has not paid and does not
propose to pay any remuneration to the remaining executive officers and
directors of the General Partner. Certain of these remaining officers receive
compensation from The Balcor Company (but not from the Registrant) for services
performed for various affiliated entities, which may include services performed
for the Registrant. However, the General Partner believes that any such
compensation attributable to services performed for the Registrant is
immaterial to the Registrant. See Note 8 of Notes to Financial Statements for
the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the Limited Partnership Interests of the Registrant.
(b) Neither Balcor Partners-XXII nor its partners and officers own any Limited
Partnership Interests of the Registrant.
Relatives and affiliates of the partners and officers of the General Partner do
not own any interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
<PAGE>
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 8 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
See Note 4 of Notes to Financial Statements for information relating to the
Partnership Agreement and the allocation of distributions and profits and
losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits and Reports on Form 8-K
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(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
previously filed as Exhibit 3 to Amendment No. 1 to Registrant's Registration
Statement on Form S-11 dated April 2, 1987 (Registration No. 33-13097), is
incorporated herein by reference.
(4) Form of Subscription Agreement previously filed as Exhibit No. 4.1 to
Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated
April 2, 1987 (Registration No. 33-13097) and Form of Confirmation regarding
Interests in the Partnership set forth as Exhibit 4.2 to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1992 (Commission File
No. 0-16717) are incorporated herein by reference.
(16) Letter from Arthur Anderson LLP dated October 18, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Current Report on 8-K dated October 18,1995 (Commission
File No. 0-16717) is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter
ended December 31, 1996.
(c) Exhibits: See Item 14(a)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OUTLET CENTRE PARTNERS
By: /s/ Jayne A. Kosik
-------------------------
Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Partners-XXII, the
General Partner
Date: March 26, 1997
--------------
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.
Signature Title Date
- ---------------------- ------------------------------- ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Partners-XXII,
/s/Thomas E. Meador the General Partner March 26, 1997
- -------------------- --------------
Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Partners-XXII,
/s/Jayne A. Kosik the General Partner March 26, 1997
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital, for the years ended December 31, 1996, 1995
and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedules:
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Partners of
Outlet Centre Partners:
We have audited the accompanying balance sheets of Outlet Centre Partners (an
Illinois Limited Partnership) as of December 31, 1996 and 1995 and the related
statements of partners' capital, income and expenses, and cash flows for each
of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of Outlet Centre Partners as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As described in Note 2 to the financial statements, the Partnership
Agreement provides for the dissolution of the Partnership upon the disposition
of all interests in real estate. The Partnership is presently marketing for
sale its sole real estate asset. Upon disposition of its sole real
estate asset and resolution of the litigation described in Note 11 to the
financial statements, the Partnership intends to cease operations and dissolve.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 18, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Partners of
Outlet Centre Partners:
We have audited the statements of partners' capital, income and expenses, and
cash flows of OUTLET CENTER PARTNERS (an Illinois Limited Partnership) for the
year ended December 31, 1994. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of OUTLET
CENTRE PARTNERS for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
/s/Arthur Anderson LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 10, 1995
<PAGE>
OUTLET CENTRE PARTNERS
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
-------------- -------------
Cash and cash equivalents $ 2,110,693 $ 2,406,064
Accounts and accrued interest receivable 329,346 40,445
Escrow deposits 786,741 961,250
Prepaid expenses 37,666 33,798
Deferred expenses, net of accumulated
amortization of $207,813 in 1996 and
$124,688 in 1995 207,812 290,937
-------------- -------------
3,472,258 3,732,494
-------------- -------------
Investment in real estate:
Land 2,871,183 2,871,183
Buildings and improvements 27,565,202 27,565,202
-------------- -------------
30,436,385 30,436,385
Less accumulated depreciation 11,868,945 10,548,272
-------------- -------------
Investment in real estate, net of
accumulated depreciation 18,567,440 19,888,113
-------------- -------------
$ 22,039,698 $ 23,620,607
============== =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 133,424 $ 137,181
Due to affiliates 34,615 13,933
Accrued liabilities - principally
real estate taxes 567,357 618,892
Security deposits 47,323 48,119
Mortgage note payable 12,431,154 12,568,420
-------------- -------------
Total liabilities 13,213,873 13,386,545
-------------- -------------
Contingencies and Commitments
Limited Partners' capital (30,000
Interests issued and outstanding) 9,988,382 11,389,169
General Partner's deficit (1,162,557) (1,155,107)
-------------- -------------
Total partners' capital 8,825,825 10,234,062
-------------- -------------
$ 22,039,698 $ 23,620,607
============== =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
OUTLET CENTRE PARTNERS
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995, and 1994
Partners' Capital (Deficit) Accounts
------------------------------------------
General Limited
Total Partner Partners
-------------- ------------- -------------
Balance at December 31, 1993 $ 10,722,642 $ (1,151,880) $ 11,874,522
Net loss for the year
ended December 31, 1994 (118,837) (1,188) (117,649)
-------------- ------------- -------------
Balance at December 31, 1994 10,603,805 (1,153,068) 11,756,873
Cash distributions to
Limited Partners (A) (165,810) (165,810)
Net loss for the year
ended December 31, 1995 (203,933) (2,039) (201,894)
-------------- ------------- -------------
Balance at December 31, 1995 10,234,062 (1,155,107) 11,389,169
Cash distributions to
Limited Partners (A) (663,240) (663,240)
Net loss for the year
ended December 31, 1996 (744,997) (7,450) (737,547)
-------------- ------------- -------------
Balance at December 31, 1996 $ 8,825,825 $ (1,162,557) $ 9,988,382
============== ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1996 1995 1994
-------------- ------------- -------------
First Quarter $ 5.527 None None
Second Quarter 5.527 None None
Third Quarter 5.527 None None
Fourth Quarter 5.527 $ 5.527 None
The accompanying notes are an integral part of the financial statements.
<PAGE>
OUTLET CENTRE PARTNERS
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
-------------- ------------- -------------
Income:
Rental $ 3,158,015 $ 3,131,371 $ 3,136,357
Service 1,883,814 2,166,699 2,319,857
Interest on short-term
investments 144,314 113,394 44,639
-------------- ------------- -------------
Total income 5,186,143 5,411,464 5,500,853
-------------- ------------- -------------
Expenses:
Interest on mortgage
note payable 1,268,175 1,281,358 1,223,270
Depreciation 1,320,673 1,323,007 1,280,011
Amortization 83,125 83,125 84,895
Property operating 2,251,600 1,841,214 1,896,235
Real estate taxes 567,357 563,950 545,840
Property management fees 231,329 257,806 244,587
Administrative 208,881 264,937 344,852
-------------- ------------- -------------
Total expenses 5,931,140 5,615,397 5,619,690
-------------- ------------- -------------
Net loss $ (744,997) $ (203,933) $ (118,837)
============== ============= =============
Net loss allocated to General
Partner $ (7,450) $ (2,039) $ (1,188)
============== ============= =============
Net loss allocated to Limited
Partners $ (737,547) $ (201,894) $ (117,649)
============== ============= =============
Net loss per Limited
Partnership Interest (30,000
issued and outstanding) $ (24.58) $ (6.73) $ (3.92)
============== ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
OUTLET CENTRE PARTNERS
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
-------------- ------------- -------------
Operating activities:
Net loss $ (744,997) $ (203,933) $ (118,837)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation of property 1,320,673 1,323,007 1,280,011
Amortization of deferred
expenses 83,125 83,125 84,895
Net change in:
Accounts and accrued
interest receivable (288,901) 34,536 43,129
Escrow deposits (17,091) (31,576) (14,949)
Prepaid expenses (3,868) (33,798)
Accounts payable (3,757) (66,973) (143,509)
Due to affiliates 20,682 (33,760) 12,438
Accrued liabilities (51,535) 73,052 (173,262)
Security deposits (796) (1,183) (16,025)
-------------- ------------- -------------
Net cash provided by
operating activities 313,535 1,142,497 953,891
-------------- ------------- -------------
Investing activity:
Improvements to property (265,835) (261,676)
------------- -------------
Net cash used in investing
activity (265,835) (261,676)
------------- -------------
Financing activities:
Distributions to Limited
Partners (663,240) (165,810)
Proceeds from refinancing of
mortgage note payable 12,750,000
Repayment of mortgage note
payable (11,468,631)
Principal payments on
mortgage note payable (137,266) (124,082) (132,752)
Funding of capital
improvement escrows (914,725)
Payment of deferred expenses (415,625)
Release of capital improvement
escrow 191,600
-------------- ------------- -------------
Net cash used in finanacing
activities (608,906) (289,892) (181,733)
-------------- ------------- -------------
Net change in cash and cash
equivalents (295,371) 586,770 510,482
Cash and cash equivalents at
beginning of year 2,406,064 1,819,294 1,308,812
<PAGE>
-------------- ------------- -------------
Cash and cash equivalents at
end of year $ 2,110,693 $ 2,406,064 $ 1,819,294
============== ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Outlet Centre Partners (the "Partnership") is engaged exclusively in the
operation of retail real estate located in Bristol, Wisconsin.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership is currently marketing the Centre for sale. If the
property is sold, the timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees stemming from litigation involving the Partnership including,
but not limited to, the lawsuit discussed in Note 11 of Notes to the Financial
Statements. In the absence of any contingency, the reserves will be paid within
twelve months of the property being sold. In the event of a contingency,
reserves may be held by the Partnership for a longer period of time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner 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 vary from those estimates.
(b) Depreciation expense is computed using the straight-line method. Rates used
in the determination of depreciation are based upon the following estimated
useful lives:
Years
-----
Buildings and improvements 18 - 25
Furniture and fixtures 5
Depreciation expense for capitalized tenant improvements is computed using a
straight-line method over the term of the lease.
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.
<PAGE>
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), ("Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of"). Under SFAS 121,
the Partnership records its investment in real estate at the lower of cost or
fair value, and periodically assesses, but not less than on an annual basis,
possible impairment to the value of its property. The General Partner estimates
the fair value of its property based on the current estimated sales price less
closing costs. In the event the General Partner determines an impairment in
value has occurred, and the carrying amount of the real estate asset will not
be recovered, a provision is recorded to reduce the carrying basis of the
property to its estimated fair value. The General Partner considers the method
referred to above to result in a reasonable measurement of a property's fair
value, unless other factors affecting the property's value indicate otherwise.
(d) Deferred expenses consist of financing fees which are amortized over the
term of the loan agreement. Upon sale, any remaining balance is recognized as
debt extinguishment expense and classified as an extraordinary item.
(e) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the respective lease term. Service income includes reimbursements
from operating costs such as real estate taxes, maintenance and insurance and
is recognized as revenue in the period the applicable costs are incurred.
(f) The Financial Accounting Standard Board's Statement No. 107, _Disclosures
About Fair Value of Financial Instruments_, requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, may not
be realized in immediate settlement of the instrument. Statement No. 107 does
not apply to all balance sheet items and excludes certain financial instruments
and all non-financial instruments such as real estate from its disclosure
requirements.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash and cash
equivalents are held or invested primarily in one financial institution.
(h) The Partnership is not liable for Federal income taxes as each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(i) A reclassification has been made to the previously reported 1994 statements
in order to conform with the classification used in 1995 and 1996. This
reclassification has not changed the 1994 results.
<PAGE>
4. Partnership Agreement:
The Partnership was organized on March 13, 1987. The Partnership Agreement
provides for Balcor Partners-XXII to be the General Partner and for the
admission of Limited Partners through the sale of up to 30,000 Limited
Partnership Interests at $1,000 per Interest. The Partnership commenced the
offering of Limited Partnership Interests to the public on July 2, 1987 and
completed its minimum offering on August 13, 1987. The offering was terminated
on March 9, 1988, after the sale of 30,000 Limited Partnership Interests.
The Partnership through its subsidiaries owns the Factory Outlet Centre (the
"Centre") located in Bristol, Wisconsin. The Partnership Agreement provides
that profits and losses will be allocated 1% to the General Partner and 99% to
the Limited Partners.
Net Cash Receipts of the Partnership available for distribution will be
distributed 90% to Limited Partners and 10% to the General Partner provided,
however, that 100% of the General Partner's share of Net Cash Receipts will be
subordinated to the prior receipt by Limited Partners of a Preferential
Distribution of 7% for each of the first five 12-month periods following the
termination of the offering and 8% for each 12-month period thereafter. For
each period during which the Preferential Distribution is not attained, the
General Partner's share of Net Cash Receipts will be deferred to the extent of
any such deficiency and such deferred portion will be paid to the General
Partner from future distributed Net Cash Receipts or from Net Cash Proceeds
after required subordination levels are attained. A deficiency in the
Preferential Distribution for a particular year will not by itself cause the
subordination of the General Partner's share of Net Cash Receipts in later
years. Net Cash Receipts will be computed after the deduction of the
Partnership expenses. Nothing has been paid to date to the General Partner
under this provision.
Net Cash Proceeds of the Partnership which are available for distribution will
be distributed to Limited Partners until they have received an amount equal to
their Original Capital plus a Cumulative Distribution of 12% per annum.
Thereafter, Net Cash Proceeds will be distributed to pay the General Partner an
amount equal to its subordinated and unpaid share of Net Cash Receipts, and
then 85% to the Limited Partners and 15% to the General Partner. Upon the
dissolution and liquidation of the Partnership, Net Cash Proceeds will be
distributed in accordance with the Partners' respective ending capital account
balances.
5. Mortgage Note Payable:
In June 1994, the Centre's mortgage loan was refinanced. The interest rate
increased from 9.75% to 10.14%, the maturity date was extended from August 1994
to July 1999 and the monthly payments of principal and interest increased from
$104,400 to $117,120. A portion of the proceeds from the new $12,750,000
mortgage loan were used to repay the existing mortgage loan of $11,468,631. The
mortgage loan balances at December 31, 1996 and 1995 are $12,431,154 and
$12,568,420, respectively. The Centre, with a carrying value of $18,567,440 at
December 31, 1996, is pledged as collateral for repayment of the mortgage loan.
<PAGE>
Future maturities of the above note are approximately as follows:
1997 $152,000
1998 168,000
1999 12,112,000
During the years ended December 31, 1996, 1995 and 1994, the Partnership
incurred and paid interest expense on the mortgage note payable of $1,268,175,
$1,281,358 and $1,223,270, respectively.
6. Management Agreement:
As of December 31, 1996, the Centre is under a management agreement with a
third-party management company. This management agreement provides for a fee of
5% of all rental and certain service receipts collected.
7. Tax Accounting:
The Partnership maintains its books in accordance with the Internal Revenue
Code, rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net loss for 1996 in the financial statements is $202,410 greater than the
tax loss for the same period.
The aggregate cost of land for federal income tax purposes is $2,871,183 and
the aggregate cost of buildings and improvements for Federal income tax
purposes is $27,699,152. The total cost of these is $30,570,335.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
--------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------- -------- ------ ------- ------ -------
Property management fees None None None None $225,117 None
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $8,122 $6,869 $26,881 $3,057 $44,324 $16,613
Data processing 1,996 710 7,362 845 14,181 3,089
Investor communica-
tions None None 4,458 None 18,104 6,960
Legal 2,000 1,634 14,193 537 16,205 4,073
Portfolio management 30,226 25,262 56,781 9,476 35,774 13,117
Other 47 138 10,715 18 17,421 3,841
Allegiance Realty Group, Inc. an affiliate of the General Partner, managed the
Centre until the affiliate was sold to a third party in November 1994.
<PAGE>
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $6,087, $23,974 and $27,307 for 1996, 1995 and 1994, respectively.
9. Rentals under Operating Leases:
The Partnership receives rental income from the leasing of retail shopping
center space under operating leases. The minimum future rentals (excluding
amounts representing executory costs such as taxes, maintenance and insurance)
based on operating leases held at December 31, 1996 are approximately as
follows:
1997 $2,387,000
1998 2,164,000
1999 1,684,000
2000 1,149,000
2001 699,000
Thereafter 509,000
Minimum future rentals do not include amounts which may be received from
certain tenants based upon a percentage of their gross sales in excess of
stipulated minimums. Percentage rentals totaled approximately $274,000 for
1996, $224,000 for 1995 and $221,000 for 1994.
The Partnership is subject to the usual business risks regarding the collection
of rental income.
10. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable, accounts and accrued interest payable approximates fair value.
Mortgage note payable: Based on borrowing rates available to the Partnership at
the end of 1996 for mortgage loans with similar terms and maturities, the fair
value of the mortgage note payable approximates the carrying value.
11. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership and
certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
disclosures of information concerning, as well as the marketing efforts related
to, the offering of the Limited Partnership Interests of the Partnership. The
defendants continue to vigorously contest this action. A plaintiff class has
not yet been certified, and no determination of the merits have been made. It
is not determinable at this time whether or not an unfavorable decision in this
action would have a material adverse impact on the financial position,
operations and liquidity of the Partnership. The Partnership believes it has
meritorious defenses to contest the claims.
<PAGE>
12. Subsequent Event:
In January 1997, the Partnership paid $165,810 to Limited Partners representing
the regular quarterly distribution of available Net Cash Receipts of $5.527 per
Interest for the fourth quarter of 1996.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2111
<SECURITIES> 0
<RECEIVABLES> 329
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3264
<PP&E> 30436
<DEPRECIATION> 11869
<TOTAL-ASSETS> 22040
<CURRENT-LIABILITIES> 783
<BONDS> 12431
0
0
<COMMON> 0
<OTHER-SE> 8826
<TOTAL-LIABILITY-AND-EQUITY> 22040
<SALES> 0
<TOTAL-REVENUES> 5186
<CGS> 0
<TOTAL-COSTS> 3050
<OTHER-EXPENSES> 1613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1268
<INCOME-PRETAX> (745)
<INCOME-TAX> 0
<INCOME-CONTINUING> (745)
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<CHANGES> 0
<NET-INCOME> (745)
<EPS-PRIMARY> (24.58)
<EPS-DILUTED> (24.58)
</TABLE>
