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, 1997
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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 owned (through
subsidiaries) the Factory Outlet Centre (the "Centre") located in Bristol,
Wisconsin until its sale in January 1998. 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 currently consist
of interest earned on short-term investments and the payment of administrative
expenses.
Pursuant to the Partnership Agreement, when all interests in real estate are
sold or otherwise disposed of and the General Partner is not aware of any
remaining contingencies, the Registrant will be dissolved. The Centre was sold
in January 1998. The Registrant has been dismissed as a defendant in the
proposed class action lawsuit described in "Item 3. Legal Proceedings".
However, there continues to be certain litigation with a former tenant at the
property. If this litigation can be resolved and no new contingencies arise,
the General Partner expects to terminate the Registrant during 1998.
During January 1998, the Registrant sold the Centre in an all cash sale. See
"Item 7. Liquidity and Capital Resources" for additional information.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting the real
estate formerly owned by 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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As of January 1998, the Registrant no longer owns any physical property.
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for its former real estate property investment.
See Notes to Financial Statements for other information regarding the former
real estate property investment.
Item 3. Legal Proceedings
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Klein, et al. vs. Lehman Brothers, Inc., et al
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On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
<PAGE>
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997, and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company, American Express Company, Lehman Brothers, Inc., Smith Barney, Inc.
and various other entities were originally the named defendants in the action.
The December 5, 1997 and January 15, 1998 Amended Complaints, among other
changes, no longer name the Registrant as a defendant and all claims relating
to the Registrant have been eliminated from the Amended Complaint. As a result,
this case will be deleted from all future reports of 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 1997.
<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, 1997 the number of record holders of Limited Partnership
Interests of the Registrant was 1,966.
Item 6. Selected Financial Data
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Year ended December 31,
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1997 1996 1995 1994 1993
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Total income $ 5,210,432 $5,186,143 $5,411,464 $5,500,853 $5,066,152
Provision for
investment prop-
erty writedown 3,548,157 None None None None
Net loss (4,583,555) (744,997) (203,933) (118,837) (446,805)
Net loss per
Limited
Partnership
Interest-Basic
and Diluted (185.61) (24.58) (6.73) (3.92) (14.74)
Total assets 16,935,014 22,039,698 23,620,607 24,143,296 23,433,874
Mortgage note
payable 12,279,304 12,431,154 12,568,420 12,692,502 11,543,885
Distributions per
Limited Partnership
Interest (A) 22.120 22.108 5.527 None 27.625
(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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<PAGE>
Property operations decreased at the Centre during 1997 as compared to 1996 and
during 1996 as compared to 1995 primarily due to higher property operating
expenses. This contributed to the increase in the net loss of Outlet Centre
Partners (the "Partnership") during 1997 as compared to 1996 and during 1996 as
compared to 1995. The Partnership recognized a provision for investment
property writedown during 1997, which resulted in a higher net loss during 1997
as compared to 1996. The Centre was sold in January 1998. Further discussion of
the operations of the Centre is summarized below.
1997 Compared to 1996
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The Partnership bills tenants on a monthly basis for common area maintenance,
real estate taxes and other expenses of the Centre based on estimates.
Adjustments are periodically made to these billings once the Partnership has
determined the actual amounts due. During 1997, the Partnership recognized
higher reimbursements than during 1996 related to common area maintenance. In
1996, the 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. As a result, service
income increased during 1997 when compared to 1996.
The Partnership recognized other income during 1997 in connection with refunds
of prior years' insurance premiums relating to the Centre.
Higher tenant related expenditures were incurred in 1997 resulting from
increased costs related to tenant improvements. Additionally, roof, parking lot
and sidewalk repairs were completed in 1997. As a result, property operating
expense increased during 1997 when compared to 1996.
Real estate tax expense decreased during 1997 when compared to 1996 due to a
decrease in the assessed value of the Centre levied by the local taxing
authority.
Primarily as a result of higher tenant-related legal fees and legal fees
related to the sale of the property, administrative expenses increased during
1997 when compared to 1996.
A provision is charged to income when the General Partner believes an
impairment has occurred to the value of the Centre. Determinations of fair
value were made based on the current sales price less closing costs and current
market conditions. During 1997, the Partnership recognized a provision for
investment property writedown of $3,548,157 to provide for changes in the
estimate of the fair value of the Centre.
1996 Compared to 1995
- ---------------------
The 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. This was the primary
reason service income decreased during 1996 when compared to 1995.
<PAGE>
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 at the
Centre. 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.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased approximately $125,000 as of
December 31, 1997 when compared to December 31, 1996, as a result of earnest
money received from the purchaser of the Centre prior to its sale, which was
partially offset by cash reserves used to fund a portion of the quarterly
distributions to Limited Partners. The Partnership generated cash flow of
approximately $689,000 from its operating activities. The operating activities
reflect the operations of the Centre, the receipt of certain insurance claim
receivables and interest income earned on short-term investments, offset by the
payment of administrative expenses. The Partnership's investing activity
consisted of the receipt of approximately $251,000 of earnest money received
from the purchaser of the Centre. The Partnership used cash of approximately
$815,000 to fund its financing activities 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 $152,000.
In January 1998, the Partnership sold the Centre in an all cash sale for
$15,000,000, less a credit of $935,000 related to tenant improvements and
renovations for a net sales price of $14,065,000. From the proceeds of the
sale, the Partnership paid $12,279,304 to the third party mortgage holder in
full satisfaction of the first mortgage loan. A mortgage escrow of $815,045 was
released to the Partnership in February 1998 upon the repayment of the first
mortgage loan. The Partnership paid $376,955 in selling costs and a prepayment
penalty of $122,793. Of the sale proceeds, $400,000 will be retained by the
Partnership until July 1998. This amount is reserved to provide for the maximum
potential liability of the Partnership pursuant to the sale contract. The
remaining available proceeds from the sale were distributed to Limited Partners
in March 1998. See Note 12 of Notes to Financial Statements for additional
information.
As of December 31, 1997, the occupancy rate at the Centre was 87%. During 1997
and 1996, 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.
Pursuant to the Partnership Agreement, when all interests in real estate are
<PAGE>
sold or otherwise disposed of and the General Partner is not aware of any
remaining contingencies, the Partnership will be dissolved. The Centre was
sold in January 1998. The Partnership has been dismissed as a defendant in the
proposed class action lawsuit described in "Item 3. Legal Proceedings".
However, there continues to be certain litigation with a former tenant at the
property. If this litigation can be resolved and no new contingencies arise,
the General Partner expects to terminate the Partnership during 1998.
The Partnership made distributions totaling $22.12, $22.11 and $5.53 per
Interest in 1997, 1996 and 1995, respectively. See Statement of Partners
Capital for additional information. All of these distributions were comprised
of Net Cash Receipts.
In January 1998, the Partnership paid $165,900 ($5.53 per Interest) to Limited
Partners representing the regular quarterly distribution of available Net Cash
Receipts for the fourth quarter of 1997. In March 1998, the Partnership paid
$1,740,000 ($58.00 per Interest) to Limited Partners representing a
distribution of available Net Cash Proceeds from the sale of the Centre and Net
Cash Proceeds reserves. Including the January and March 1998 distributions,
Limited Partners have received distributions of Net Cash Receipts of $321.60
and Net Cash Proceeds of $321.08, totaling $642.68 per $1,000 Interest. No
further distributions are anticipated to be made prior to the termination of
the Partnership. However, after paying final partnership expenses, any
remaining cash reserves will be distributed. In light of results to date,
Limited Partners will not recover a substantial portion of their original
investment.
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 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.
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include projections of revenues, income or losses, capital
expenditures, plans for future operations, financing plans or requirements, and
plans relating to properties of the Partnership, as well as assumptions
relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ materially
from any future results, performance or achievements expressed or implied by
the forward-looking statements.
Comparison of Actual Operations and the Financial Forecast
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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
<PAGE>
Partnership incurred a net loss (excluding the provision for investment
property writedown) of $1,035,398 during the year ended December 31, 1997,
whereas net income of approximately $1,884,000 was originally forecasted for
this period. The difference was primarily a result of lower than forecasted
rental income due to lower occupancy and rental rates, higher tenant turnover
and tenant bankruptcies. Higher expenditures related to tenant improvements and
other improvements at the Centre were also incurred.
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:
December 31, 1997 December 31, 1996
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Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $16,935,014 $24,685,760 $22,039,698 $22,394,544
Partners' capital
(deficit):
General Partner (177,706) (15,126) (1,162,557) (529,352)
Limited Partners 3,756,376 11,344,537 9,988,382 13,801,344
Net income (loss):
General Partner 984,851 514,226 (7,450) (6,980)
Limited Partners (5,568,406) (1,793,207) (737,547) (535,607)
Per Limited Partner-
ship Interest (185.61)(A) (59.77) (24.58)(A) (17.85)
(A) Amount represents basic and diluted net loss per Limited Partnership
Interest.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
- --------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<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 John K. Powell, Jr.
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 50) 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 member of the board of directors 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 43) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
John K. Powell Jr. (age 47) 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 is a member of the board of directors of The Balcor Company. 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 40) 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 Senior 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.
<PAGE>
(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 1997.
Item 11. Executive Compensation
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The Registrant paid $1,979 in 1997 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. These other 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
- -----------------------------------------------------------------------
(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 of the officers and affiliates of the partners 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.
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.
(10) Material Contracts:
(a) Agreement of Sale relating to the sale of the Factory Outlet Centre,
Bristol, Wisconsin, previously filed as Exhibit (2)(i) to the Registrant's
Current Report on Form 8-K dated August 29, 1997 is incorporated herein by
reference.
(b) Letter Agreement dated August 25, 1997 relating to the sale of the Factory
Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit (2)(ii) to the
Registrant's Current Report on Form 8-K dated August 29, 1997 is incorporated
herein by reference.
(c) Letter Agreement dated September 8, 1997 relating to the sale of the
Factory Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit (10)(c)
to the Registrant's Report on Form 10-Q dated September 30, 1997 is
incorporated herein by reference.
(d) Letter Agreement dated October 7, 1997 relating to the sale of the Factory
Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit (10)(d) to the
Registrant's Report on Form 10-Q dated September 30, 1997 is incorporated
herein by reference.
(e) Letter Agreement relating to the sale of the Factory Outlet Centre,
Bristol, Wisconsin, previously filed as Exhibit (10)(e) to the Registrant's
Report on Form 10-Q dated September 30, 1997 is incorporated herein by
reference.
(f) Letter Agreement dated November 4, 1997 relating to the sale of the Factory
Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit (10)(f) to the
Registrant's Report on Form 10-Q dated September 30, 1997 is incorporated
herein by reference.
<PAGE>
(g) Letter Agreement dated November 7, 1997 relating to the sale of the Factory
Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit (10)(g) to the
Registrant's Report on Form 10-Q dated September 30, 1997 is incorporated
herein by reference.
(h) Letter Agreement dated November 19, 1997 relating to the sale of Factory
Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit 99 (i) to the
Registrant's Current Report on Form 8-K dated January 8, 1998, is incorporated
herein by reference.
(i) Letter Agreement dated December 2, 1997 relating to the sale of Factory
Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit (99)(ii) to the
Registrant's Current Report on Form 8-K dated January 8, 1998, is incorporated
herein by reference.
(j) Letter Agreement dated December 10, 1997 relating to the sale of Factory
Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit (99)(iii) to the
Registrant's Current Report on Form 8-K dated January 8, 1998, is incorporated
herein by reference.
(k) Letter Agreement dated December 23, 1997 relating to the sale of Factory
Outlet Centre, Bristol, Wisconsin, previously filed as Exhibit (99)(iv) to the
Registrant's Current Report on Form 8-K dated January 8, 1998, is incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for 1997 is attached hereto.
(b) Reports on Form 8-K:
(i) A Current Report on Form 8-K dated January 8, 1998 was filed reporting the
closing of the sale of the Factory Outlet Centre, Bristol, Wisconsin.
(ii) A Current Report on Form 8-K dated January 15, 1998 was filed reporting
the status of proposed class action litigation to which the Registrant was a
party.
(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
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Partners-XXII, the
General Partner
Date: March 27,1998
--------------
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,
the General Partner
/s/Thomas E. Meador March 27,1998
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Partners-XXII,
the General Partner
/s/Jayne A. Kosik March 27,1998
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1997 and 1996
Statements of Partners' Capital, for the years ended December 31, 1997, 1996
and 1995
Statements of Income and Expenses, for the years ended December 31, 1997, 1996
and 1995
Statements of Cash Flows, for the years ended December 31, 1997, 1996 and 1995
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 financial statements of Outlet Centre Partners (an Illinois
Limited Partnership) as listed in the Index of this Form 10-K. 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 at
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, 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 its
interest in real estate. The Partnership sold its real estate asset in January
1998. The Partnership intends to cease operations and dissolve upon settlement
of certain litigation with a former tenant at the property.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 25, 1998
<PAGE>
OUTLET CENTRE PARTNERS
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
-------------- -------------
Cash and cash equivalents $ 2,235,787 $ 2,110,693
Accounts and accrued interest receivable 43,259 329,346
Escrow deposits 815,045 786,741
Prepaid expenses 37,666
Deferred expenses, net of accumulated
amortization of $290,938 in 1997 and
$207,813 in 1996 124,687 207,812
-------------- -------------
3,218,778 3,472,258
-------------- -------------
Investment in real estate:
Land 2,303,478 2,871,183
Buildings and improvements 24,584,750 27,565,202
-------------- -------------
26,888,228 30,436,385
Less accumulated depreciation 13,171,992 11,868,945
-------------- -------------
Investment in real estate, net of
accumulated depreciation 13,716,236 18,567,440
-------------- -------------
$ 16,935,014 $ 22,039,698
============== =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 356,100 $ 133,424
Due to affiliates 23,918 34,615
Accrued liabilities - principally
real estate taxes 403,763 567,357
Security deposits 41,810 47,323
Escrow liability - earnest money deposit 251,449
Mortgage note payable 12,279,304 12,431,154
-------------- -------------
Total liabilities 13,356,344 13,213,873
-------------- -------------
Commitments and contingencies
Limited Partners' capital (30,000
Interests issued and outstanding) 3,756,376 9,988,382
General Partner's deficit (177,706) (1,162,557)
-------------- -------------
Total partners' capital 3,578,670 8,825,825
-------------- -------------
$ 16,935,014 $ 22,039,698
============== =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
OUTLET CENTRE PARTNERS
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the years ended December 31, 1997, 1996, and 1995
Partners' Capital (Deficit) Accounts
------------------------------------------
General Limited
Total Partner Partners
-------------- ------------- -------------
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
Cash distributions to
Limited Partners (A) (663,600) (663,600)
Net loss for the year
ended December 31, 1997 (4,583,555) 984,851 (5,568,406)
-------------- ------------- -------------
Balance at December 31, 1997 $ 3,578,670 $ (177,706) $ 3,756,376
============== ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1997 1996 1995
-------------- ------------- -------------
First Quarter $ 5.53 $ 5.527 None
Second Quarter 5.53 5.527 None
Third Quarter 5.53 5.527 None
Fourth Quarter 5.53 5.527 $ 5.527
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, 1997, 1996, and 1995
1997 1996 1995
-------------- ------------- -------------
Income:
Rental $ 3,025,675 $ 3,158,015 $ 3,131,371
Service 2,049,424 1,883,814 2,166,699
Interest on short-term
investments 133,612 144,314 113,394
Other income 1,721
-------------- ------------- -------------
Total income 5,210,432 5,186,143 5,411,464
-------------- ------------- -------------
Expenses:
Interest on mortgage
note payable 1,253,590 1,268,175 1,281,358
Depreciation 1,303,047 1,320,673 1,323,007
Amortization 83,125 83,125 83,125
Property operating 2,670,750 2,251,600 1,841,214
Real estate taxes 404,667 567,357 563,950
Property management fees 222,020 231,329 257,806
Administrative 308,631 208,881 264,937
Provision for investment
property writedown 3,548,157
-------------- ------------- -------------
Total expenses 9,793,987 5,931,140 5,615,397
-------------- ------------- -------------
Net loss $ (4,583,555) $ (744,997) $ (203,933)
============== ============= =============
Net income (loss) allocated to
General Partner $ 984,851 $ (7,450) $ (2,039)
============== ============= =============
Net loss allocated to Limited
Partners $ (5,568,406) $ (737,547) $ (201,894)
============== ============= =============
Net loss per Limited
Partnership Interest (30,000
issued and outstanding) -
Basic and Diluted $ (185.61) $ (24.58) $ (6.73)
============== ============= =============
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, 1997, 1996, and 1995
1997 1996 1995
-------------- ------------- -------------
Operating activities:
Net loss $ (4,583,555) $ (744,997) $ (203,933)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation of property 1,303,047 1,320,673 1,323,007
Amortization of deferred
expenses 83,125 83,125 83,125
Provision for investment
property writedown 3,548,157
Net change in:
Accounts and accrued
interest receivable 286,087 (288,901) 34,536
Escrow deposits (28,304) (17,091) (31,576)
Prepaid expenses 37,666 (3,868) (33,798)
Accounts payable 222,676 (3,757) (66,973)
Due to affiliates (10,697) 20,682 (33,760)
Accrued liabilities (163,594) (51,535) 73,052
Security deposits (5,513) (796) (1,183)
-------------- ------------- -------------
Net cash provided by
operating activities 689,095 313,535 1,142,497
-------------- ------------- -------------
Investing activity:
Improvements to property (265,835)
Earnest money deposit 251,449
-------------- -------------
Net cash provided by (used in)
investing activity 251,449 (265,835)
-------------- -------------
Financing activities:
Distributions to Limited
Partners (663,600) (663,240) (165,810)
Principal payments on
mortgage note payable (151,850) (137,266) (124,082)
Release of capital improvement
escrow 191,600
-------------- ------------- -------------
Net cash used in finanacing
activities (815,450) (608,906) (289,892)
-------------- ------------- -------------
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, 1997, 1996, and 1995
(Continued)
1997 1996 1995
-------------- ------------- -------------
Net change in cash and cash
equivalents 125,094 (295,371) 586,770
Cash and cash equivalents at
beginning of year 2,110,693 2,406,064 1,819,294
-------------- ------------- -------------
Cash and cash equivalents at
end of year $ 2,235,787 $ 2,110,693 $ 2,406,064
============== ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
OUTLET CENTRE PARTNERS
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Outlet Centre Partners (the "Partnership") was engaged exclusively in the
operation of retail real estate located in Bristol, Wisconsin. The
Partnership's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
2. Partnership Termination:
Pursuant to the Partnership Agreement, when all interests in real estate are
sold or otherwise disposed of and the General Partner is not aware of any
remaining contingencies, the Partnership will be dissolved. The Centre was
sold in January 1998. The Partnership has been dismissed as a defendant in a
proposed class action lawsuit. However, there continues to be certain
litigation with a former tenant at the property. If this litigation can be
resolved and no new contingencies arise, the General Partner expects to
terminate the Partnership during 1998.
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.
(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
<PAGE>
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
for 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) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the provisions in the Partnership Agreement.
In order for the capital accounts of the General Partner and Limited Partners
to appropriately reflect their remaining economic interests as provided for in
the Partnership Agreement, income (loss) allocations between the partners have
been adjusted for financial statement purposes in 1997.
(h) 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.
(i) 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.
(j) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership for the year-ended December 31, 1997 and has
been applied to all prior earnings periods presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net loss per Limited Partnership Interest.
<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 owned the Factory Outlet Centre (the
"Centre") located in Bristol, Wisconsin. The Partnership Agreement provides
that the General Partner will be allocated 1% of the profits and losses and the
Limited Partners will be allocated 99% of the profits and losses. For financial
statement purposes, in previous years partners were allocated income and loss
in accordance with the provisions in the Partnership Agreement. In order for
the capital accounts of the General Partner and Limited Partners to
appropriately reflect their remaining economic interests as provided for in the
Partnership Agreement, income (loss) allocations between the partners have been
adjusted for financial statement purposes in 1997.
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. The General Partner will not receive any distributions of
Net Cash Receipts in accordance with these provisions.
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. The General
Partner will not receive any distributions of Net Cash Proceeds in accordance
with these provisions.
5. Mortgage Note Payable:
The mortgage loan balances at December 31, 1997 and 1996 were $12,279,304 and
$12,431,154, respectively. The loan bore interest at a rate of 10.14% with
monthly payments of principal and interest of $117,120 due until maturity in
July 1999. The Centre, with a carrying value of $13,716,236 at December 31,
1997, was pledged as collateral for repayment of the mortgage loan. The Centre
<PAGE>
was sold in January 1998 and the mortgage loan of $12,279,304 was subsequently
paid in full. A mortgage escrow of $815,045 was released to the Partnership
upon the repayment of the mortgage loan in February 1998. See Note 12 of Notes
to Financial Statements for additional information.
During the years ended December 31, 1997, 1996 and 1995, the Partnership
incurred and paid interest expense on the mortgage note payable of $1,253,590,
$1,268,175 and $1,281,358, respectively.
6. Management Agreement:
As of December 31, 1997, the Centre was under a management agreement with a
third-party management company. This management agreement provided for a fees
of either 3% of all rental and certain service receipts collected plus leasing
commissions on new leases of up to 3% of lease revenues.
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 1997 in the financial statements is $3,304,574 greater than
the tax loss for the same period due principally to the provision for
investment property writedown recognized in the 1997 financial statements.
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 $27,976,436. The total cost of these is $30,847,619.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/95
--------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------- -------- ------ ------- ------ -------
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $12,996 $3,416 $8,122 $6,869 $26,881 $3,057
Data processing 7,004 1,841 1,996 710 7,362 845
Investor communica-
tions None None None None 4,458 None
Legal 21,066 5,536 2,000 1,634 14,193 537
Portfolio management 43,050 11,314 30,226 25,262 56,781 9,476
Other 6,890 1,811 47 138 10,715 18
The Partnership participated in an insurance deductible program with other
affiliated partnerships in which the program paid claims up to the amount of
the deductible under the master insurance policies for its properties. The
<PAGE>
program was administered by an affiliate of the General Partner which received
no fee for administering the program; however, the General Partner was
reimbursed for program expenses. The Partnership paid premiums to the
deductible insurance program of $6,087 and $23,974 for 1996 and 1995,
respectively.
9. Investment Property Writedown:
During 1997, the Partnership determined that an impairment had occurred to the
asset value of the Centre due to continued competition in the market which has
resulted in a decline in the value of the property. As a result, the property
was written down to the sales price less closing costs and the Partnership
recognized a $3,548,157 provision for investment property writedown during
1997. In January 1998, the Partnership sold the Centre. See Note 11 of Notes to
Financial Statements for additional information.
10. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1997 and 1996 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 1997 and 1996 for mortgage loans with similar terms and maturities,
the fair value of the mortgage note payable approximated the carrying value.
11. Contingency:
In the normal course of business, the Partnership is involved in legal actions
arising from the operation of its property. The Partnership is currently
involved in certain litigation with a former tenant at the property. In
management's opinion, the liabilities, if any, that may ultimately result
from such legal actions are not expected to have a materially adverse effect
on the financial position, operations or liquidity of the Partnership.
12. Subsequent Events:
(a) In January 1998, the Partnership paid $165,900 ($5.53 per Interest) to
Limited Partners representing the regular quarterly distribution of available
Net Cash Receipts for the fourth quarter of 1997. In March 1998, the
Partnership paid $1,740,000 ($58.00 per Interest) to Limited Partners
representing a distribution of available Net Cash Proceeds from the sale of the
Centre and Net Cash Proceeds reserves.
(b) In January 1998, the Partnership sold the Centre in an all cash sale for
$15,000,000, less a credit of $935,000 related to tenant improvements and
renovations for a net sales price of $14,065,000. From the proceeds of the
sale, the Partnership paid $12,279,304 to the third party mortgage holder in
full satisfaction of the first mortgage loan, and paid $376,955 in selling
costs and a prepayment penalty of $122,793. The basis of the property at the
date of sale was $13,688,045, net of accumulated depreciation of $13,200,183.
For financial statement purposes, the Partnership recognized a $3,548,157
provision for investment property writedown during 1997. The Partnership will
not recognize any gain or loss from the sale of the Centre during 1998.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2236
<SECURITIES> 0
<RECEIVABLES> 43
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3094
<PP&E> 26888
<DEPRECIATION> (13172)
<TOTAL-ASSETS> 16935
<CURRENT-LIABILITIES> 1077
<BONDS> 12279
0
0
<COMMON> 0
<OTHER-SE> 3579
<TOTAL-LIABILITY-AND-EQUITY> 16935
<SALES> 0
<TOTAL-REVENUES> 5210
<CGS> 0
<TOTAL-COSTS> 3297
<OTHER-EXPENSES> 1695
<LOSS-PROVISION> 3548
<INTEREST-EXPENSE> 1254
<INCOME-PRETAX> (4584)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4584)
<EPS-PRIMARY> (185.61)
<EPS-DILUTED> (185.61)
</TABLE>
