UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition period from ______ to ______
Commission File Number: 33-20614
SHOPCO REGIONAL MALLS, L.P.
Exact Name of Registrant as Specified in its Charter
Delaware 13-3217028
State or Other Jurisdiction I.R.S. Employer Identification No.
of Incorporation or Organization
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3183
Registrant's Telephone Number, Including Area Code
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 ____
<PAGE>
2
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At September 30, At December 31,
1998 1997
(unaudited) (audited)
--------------- --------------
<S> <C> <C>
Assets
Real estate, at cost:
Land $ -- $ 5,401,132
Building -- 33,101,956
Improvements -- 771,912
----------- -----------
-- 39,275,000
Less accumulated depreciation and amortization -- --
----------- -----------
-- 39,275,000
Real estate assets held for disposition 39,419,531 --
Cash and cash equivalents 10,683,497 9,600,824
Construction escrows 468,746 455,246
Accounts receivable, net of allowance of
$169,442 in 1998 and $366,868 in 1997 540,426 345,148
Deferred rent receivable -- 468,188
Deferred charges, net of accumulated
amortization of $3,975 in 1998 and
$79,527 in 1997 995 258,212
Prepaid expenses 633,823 410,908
----------- -----------
Total Assets $51,747,018 $50,813,526
=========== ===========
Liabilities, Minority Interest
and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 96,334 $ 104,995
Mortgage payable 31,025,000 31,025,000
Distributions payable 5,408,155 --
Due to affiliates 35,500 33,748
Security deposits payable 7,271 4,771
Deferred income 491,697 507,574
Other liabilities 20,577 111,042
----------- -----------
Total Liabilities 37,084,534 31,787,130
----------- -----------
Minority Interest (72,710) 15,731
----------- -----------
Partners' Capital:
General Partner (34,107) 8,648
Limited Partners (70,250 limited
partnership units authorized,
issued and outstanding) 14,769,301 19,002,017
----------- -----------
Total Partners' Capital 14,735,194 19,010,665
----------- -----------
Total Liabilities, Minority Interest
and Partners' Capital $51,747,018 $50,813,526
=========== ===========
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (UNAUDITED)
For the nine months ended September 30, 1998
<CAPTION>
General Limited
Partner Partners Total
-------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1997 $ 8,648 $19,002,017 $19,010,665
Net Income 10,245 1,014,276 1,024,521
Distributions (53,000) (5,246,992) (5,299,992)
-------- ----------- -----------
Balance at September 30, 1998 $(34,107) $14,769,301 $14,735,194
======== =========== ===========
</TABLE>
<PAGE>
3
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income
Rental income $ 938,040 $1,158,829 $3,303,648 $3,581,209
Escalation income 620,141 683,867 1,993,530 2,026,527
Interest income 153,629 132,335 442,307 365,320
Miscellaneous income 6,588 42,008 43,110 72,079
---------- ---------- ---------- ----------
Total Income 1,718,398 2,017,039 5,782,595 6,045,135
---------- ---------- ---------- ----------
Expenses
Interest expense 562,328 562,328 1,686,984 1,686,984
Property operating
expenses 638,930 710,911 1,542,387 2,005,580
Depreciation and
amortization -- 386,646 687,466 1,160,234
Real estate taxes 189,908 186,569 563,046 545,449
General and
administrative 78,630 128,094 258,469 358,158
Environmental
remediation and
settlement costs -- -- -- 900,000
---------- ---------- ---------- ----------
Total Expenses 1,469,796 1,974,548 4,738,352 6,656,405
---------- ---------- ---------- ----------
Income (loss) before
minority interest 248,602 42,491 1,044,243 (611,270)
Minority interest (4,393) (1,605) (19,722) (7,662)
---------- ---------- ---------- ----------
Net Income (Loss) $ 244,209 $ 40,886 $1,024,521 $ (618,932)
========== ========== ========== ==========
Net Income (Loss)
Allocated:
To the General Partner $ 2,442 $ 409 $ 10,245 $ (6,189)
To the Limited Partners 241,767 40,477 1,014,276 (612,743)
---------- ---------- ---------- ----------
$ 244,209 $ 40,886 $1,024,521 $ (618,932)
========== ========== ========== ==========
Per limited partnership
unit (70,250 outstanding) $ 3.44 $ .58 $ 14.44 $ (8.72)
------ ----- ------- -------
</TABLE>
<PAGE>
4
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended September 30,
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 1,024,521 $ (618,932)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest 19,722 7,662
Depreciation and amortization 687,466 1,160,234
Increase (decrease) in cash arising
from changes in operating assets and
liabilities:
Accounts receivable (195,278) (41,302)
Deferred rent receivable (76,644) (104,379)
Prepaid expenses (222,915) (240,772)
Accounts payable and accrued expenses (8,661) 46,812
Other liabilities (90,465) 340,621
Due to affiliates 1,752 (209)
Deferred income (15,877) (62,309)
Security deposit 2,500 --
----------- ----------
Net cash provided by operating activities 1,126,121 487,426
----------- ----------
Cash Flows From Investing Activities:
Construction escrows (13,500) (15,000)
Additions to real estate assets (29,948) --
----------- ----------
Net cash used for investing activities (43,448) (15,000)
----------- ----------
Net increase in cash and cash equivalents 1,082,673 472,426
Cash and cash equivalents, beginning of period 9,600,824 8,318,465
----------- ----------
Cash and cash equivalents, end of period $10,683,497 $8,790,891
=========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 1,686,984 $1,686,984
----------- ----------
</TABLE>
Supplemental Disclosure of Non-Cash Operating Activities:
In connection with the General Partner's intent to sell the property, real
estate held for investment, deferred rent receivable and deferred leasing
commissions in the amounts of $38,603,961, $544,832 and $240,790, respectively,
were reclassified to "Real estate assets held for disposition" in 1998.
<PAGE>
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1997 audited consolidated financial
statements within Form 10-K.
The unaudited interim consolidated financial statements include all normal and
recurring adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of September 30, 1998 and the
results of operations for the three and nine months ended September 30, 1998 and
1997, cash flows for the nine months ended September 30, 1998 and 1997 and the
consolidated statement of partners' capital for the nine months ended September
30, 1998. Results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
The Partnership's real estate assets, deferred rent receivable and prepaid
leasing costs were reclassified on the consolidated balance sheets at June 30,
1998 to "Real estate assets held for disposition." Accordingly, the Partnership
has suspended depreciation and amortization in accordance with the Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" on July 1, 1998.
No significant events have occurred subsequent to fiscal year 1997, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
6
Part 1, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
On September 18, 1995, Caldor, an anchor tenant at Cranberry Mall, filed for
protection under the U.S. Bankruptcy Code. In February 1998, Caldor announced
that it would close its store at Cranberry, and did so on May 10, 1998. In July
1998, Caldor rejected its lease with bankruptcy court approval and the
Partnership's claims for unpaid rent and rejection damages under Caldor's lease
in the amount of $833,920.83 was filed shortly thereafter. It is not known at
this time the extent to which these claims will be paid. Although the General
Partner continues working to secure a new anchor tenant for Caldor's space,
attracting a replacement anchor is likely to take time and require substantial
capital outlays by the Partnership to fund alterations necessary to accommodate
another tenant. Given the fact that the Mall is actively being marketed for
sale, it is likely that a replacement for Caldor will not be found prior to a
sale of the Mall.
On July 7, 1997, Montgomery Ward, an anchor tenant at Cranberry Mall filed for
protection under Chapter 11 of the Bankruptcy Code. On October 10, 1997, as part
of its bankruptcy reorganization process, Montgomery Ward announced the closing
of 48 stores. Although the Cranberry Mall store was not among those scheduled to
be closed, Montgomery Ward may in the future, with court approval, choose to
reject or accept the terms of its lease.
During 1998, the Partnership engaged a broker to market Cranberry Mall for sale.
In view of the anticipated sale of the Mall, the Partnership's real estate has
been recorded on the Partnership's September 30, 1998 balance sheet as "Real
estate assets held for disposition." Real estate assets held for disposition at
September 30, 1998 totaled $39,419,531. Efforts to sell the Mall, however, are
likely to be impacted by the uncertain status of Caldor's space and Montgomery
Ward's store, and the recent upheaval in the capital markets which has impacted
the availability of financing for real estate. While it is expected that a
contract for a sale of the Mall will be executed soon, it is anticipated that
such a sale would not close before the first quarter of 1999. The General
Partner believes that the Mall can be sold for an amount in excess of the
current carrying value; however, there can be no assurance that such a sale
price can be achieved.
At September 30, 1998, the Partnership had cash and cash equivalents totaling
$10,683,497, compared with $9,600,824 at December 31, 1997. The increase is
primarily due to net cash provided by operating activities exceeding net cash
used for investing activities.
At September 30, 1998, the Partnership's accounts receivable, net of allowance
for doubtful accounts, increased to $540,426 from $345,148 at December 31, 1997,
primarily due to a reduction in the allowance for doubtful accounts.
Deferred rent receivable decreased from $468,188 at December 31, 1997 to $-0- at
September 30, 1998, due to the reclassification of the Partnership's assets as
"Real estate assets held for disposition."
Deferred charges, net of accumulated amortization, decreased from $258,212 at
December 31, 1997 to $995 at September 30, 1998, primarily due to deferred
charges relating to leasing costs in the amount of $240,790 being reclassified
as "Real estate assets held for disposition."
Prepaid expenses increased to $633,823 at September 30, 1998 from $410,908 at
December 31, 1997, primarily due to the timing of real estate tax payments.
Accounts payable and accrued expenses decreased to $96,334 at September 30, 1998
from $104,995 at December 31, 1997, primarily due to the absence of appraisal
fees for 1998.
Deferred income decreased from $507,574 at December 31, 1997 to $491,697 at
September 30, 1998, primarily due to differences in the timing of billing
tenants for their share of real estate taxes.
<PAGE>
7
Other liabilities decreased to $20,577 at September 30, 1998 from $111,042 at
December 31, 1997, primarily due to the payment of environmental damage expenses
during the 1998 period which were recorded in 1997.
At September 30, 1998, the Partnership had a distribution payable of $5,408,155,
or approximately $74.69 per Limited Partnership Unit. Such amount reflects a
special distribution which was funded from previous years' cash flow from
operations. This distribution was paid on October 19, 1998 and $108,163 of this
distribution was paid to the minority interest holder.
Results of Operations
For the three and nine months ended September 30, 1998, the Partnership
generated net income of $244,209 and $1,024,521, respectively, compared to net
income (loss) of $40,886 and $(618,392), respectively, for the corresponding
periods in 1997. The change from net loss to net income primarily reflects the
recognition in the 1997 period of costs associated with the Settlement Agreement
reached with Aetna in August 1997 and environmental remediation, which together
totaled approximately $900,000, and the suspension of depreciation as of July
1998.
For the three and nine months ended September 30, 1998, the Partnership's rental
income totaled $938,039 and $3,303,647, respectively, compared to rental income
of $1,158,829 and $3,581,209, respectively, for the corresponding periods in
1997. The decrease in rental income is primarily due to Caldor's rejection of
its lease in July 1998.
Escalation income represents the income received from Mall tenants for their
proportionate share of common area maintenance and real estate tax expenses.
Escalation income totaled $620,141 and $1,993,530 for the three and nine months
ended September 30, 1998, respectively, largely unchanged from $683,867 and
$2,026,527, respectively, for the corresponding periods in 1997.
Interest income totaled $153,629 and $442,307 for the three and nine months
ended September 30, 1998, respectively, compared with $132,335 and $365,320,
respectively, for the same periods in 1997. The increases are due to the
Partnership maintaining higher average cash balances during the 1998 periods.
Property operating expenses totaled $638,930 and $1,542,387 for the three and
nine months ended September 30, 1998, respectively, compared with $710,911 and
$2,005,580, respectively, for the corresponding periods in 1997. The decreases
are primarily due to lower general operating expenses including payroll expenses
and common area charges.
Depreciation and amortization expense totaled $-0- and $687,466 for the three
and nine months ended September 30, 1998, respectively, compared with $386,646
and $1,160,234, respectively, for the corresponding periods in 1997. The
Partnership suspended depreciation and amortization on July 1, 1998, in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
General and administrative expenses for the three and nine months ended
September 30, 1998 were $78,630 and $258,469, respectively, compared with
$128,094 and $358,158, respectively, for the same periods in 1997. The decrease
reflects lower legal expenses and a decrease in certain expenses incurred by the
General Partner, its affiliates, and an unaffiliated third party service
provider in servicing the Partnership.
Environmental remediation and settlement costs totaled $-0- and $900,000 for the
nine months ended September 30, 1998 and 1997. The 1997 amount represents costs
related to the Settlement Agreement with Aetna relating to real estate taxes and
environmental costs at Assembly Square.
<PAGE>
8
Mall tenant sales at Cranberry for the eight months ended August 31, 1998 were
$20,401,000, compared with sales of $20,870,000 for the eight months ended
August 31, 1997. Mature tenant sales for the eight months ended August 31, 1998
were $18,093,000, compared with sales of $18,074,000 for the eight months ended
August 31, 1997. As of September 30, 1998 and 1997, Cranberry was 81% and 86%
occupied, respectively (exclusive of anchor and outparcel tenants).
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
<PAGE>
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SHOPCO REGIONAL MALLS, L.P.
BY: REGIONAL MALLS INC.
General Partner
Date: November 16, 1998 BY: /s/Robert J. Hellman
Robert J. Hellman
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 10,683,497
<SECURITIES> 000
<RECEIVABLES> 540,426
<ALLOWANCES> 169,442
<INVENTORY> 000
<CURRENT-ASSETS> 12,326,492
<PP&E> 39,419,531
<DEPRECIATION> 000
<TOTAL-ASSETS> 51,747,018
<CURRENT-LIABILITIES> 6,059,534
<BONDS> 31,025,000
000
000
<COMMON> 000
<OTHER-SE> 14,735,194
<TOTAL-LIABILITY-AND-EQUITY> 51,747,018
<SALES> 5,297,178
<TOTAL-REVENUES> 5,782,595
<CGS> 000
<TOTAL-COSTS> 1,542,387
<OTHER-EXPENSES> 1,508,981
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 1,686,984
<INCOME-PRETAX> 1,024,521
<INCOME-TAX> 000
<INCOME-CONTINUING> 1,024,521
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 1,024,521
<EPS-PRIMARY> 14.44
<EPS-DILUTED> 14.44
</TABLE>
