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
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For the Quarterly Period Ended September 30, 1999
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or
Transition Report Pursuant to Section 13 or 15(d) of
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For the Transition period from to
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Commission File Number: 33-20614
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SHOPCO REGIONAL MALLS, L.P.
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Exact Name of Registrant as Specified in its Charter
Delaware 13-3217028
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State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
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Address of Principal Executive Offices Zip code
(212) 526-3183
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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
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<PAGE>
2
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
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CONSOLIDATED BALANCE SHEETS
At September 30, At December 31,
1999 1998
(unaudited) (audited)
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<S> <C> <C>
Assets
Real estate assets held for disposition $33,150,000 $35,280,000
Cash and cash equivalents 7,081,982 5,952,659
Construction escrows 486,745 473,246
Accounts receivable, net of allowance of
$141,334 in 1999 and $131,910 in 1998 235,625 390,768
Other receivable 3,254 300,000
Deferred charges, net of accumulated amortization
of $3,975 in 1998 -- 995
Prepaid expenses 493,493 419,878
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Total Assets $41,451,099 $42,817,546
==================================================================================================
Liabilities, Minority Interest and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 189,291 $ 202,161
Other liabilities 168,960 20,577
Mortgage payable 31,025,000 31,025,000
Due to affiliates 86,561 25,549
Security deposits payable 8,021 10,271
Deferred income 481,294 525,051
-----------------------------
Total Liabilities 31,959,127 31,808,609
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Minority Interest (105,585) (118,121)
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Partners' Capital (Deficit):
General Partner (85,483) (70,188)
Limited Partners (70,250 limited partnership
units authorized, issued and outstanding) 9,683,040 11,197,246
-----------------------------
Total Partners' Capital 9,597,557 11,127,058
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Total Liabilities, Minority Interest and Partners' Capital $41,451,099 $42,817,546
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the nine months ended September 30, 1999
General Limited
Partner Partners Total
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<S> <C> <C> <C>
Balance at December 31, 1998 $(70,188) $11,197,246 $11,127,058
Net Loss (15,295) (1,514,206) (1,529,501)
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Balance at September 30, 1999 $(85,483) $ 9,683,040 $ 9,597,557
==================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
3
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended September 30, For the nine months ended September 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Income
Rental income $ 817,502 $ 938,040 $ 2,791,578 $3,303,648
Escalation income 560,439 620,141 1,633,407 1,993,530
Interest income 96,047 153,629 269,335 442,307
Miscellaneous income 14,986 6,588 53,407 43,110
------------------------------------------------------------------
Total Income 1,488,974 1,718,398 4,747,727 5,782,595
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Expenses
Interest expense 562,328 562,328 1,686,984 1,686,984
Property operating expenses 525,389 638,930 1,493,990 1,542,387
Loss on write-down of
real estate 350,000 -- 2,180,000 --
Depreciation and amortization -- -- -- 687,466
Real estate taxes 158,403 189,908 538,217 563,046
General and administrative 139,058 78,630 365,501 258,469
------------------------------------------------------------------
Total Expenses 1,735,178 1,469,796 (6,264,692) 4,738,352
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Income (loss) before minority
interest (246,204) 248,602 (1,516,965) 1,044,243
Minority interest (34,728) (4,393) (12,536) (19,722)
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Net Income (Loss) $ (280,932) $ 244,209 $(1,529,501) $1,024,521
==================================================================================================
Net Income (Loss) Allocated:
To the General Partner $ (2,809) $ 2,442 $ (15,295) $ 10,245
To the Limited Partners (278,123) 241,767 (1,514,206) 1,014,276
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$ (280,932) $ 244,209 $(1,529,501) $1,024,521
==================================================================================================
Per limited partnership unit
(70,250 outstanding) $ (3.96) $ 3.44 $ (21.55) $ 14.44
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</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
4
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended September 30,
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(1,529,501) $ 1,024,521
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest 12,536 19,722
Depreciation and amortization -- 687,466
Loss on write-down of real estate 2,180,000 --
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Accounts receivable 155,143 (195,278)
Other receivable 296,746 --
Deferred rent receivable -- (76,644)
Prepaid expenses and deferred charges (72,620) (222,915)
Accounts payable and accrued expenses (12,870) (8,661)
Other liabilities 148,383 (90,465)
Due to affiliates 61,012 1,752
Deferred income (43,757) (15,877)
Security deposit (2,250) 2,500
--------------------------
Net cash provided by operating activities 1,192,822 1,126,121
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Cash Flows From Investing Activities:
Additions to real estate assets held for disposition (50,000) --
Construction escrows (13,499) (13,500)
Additions to real estate assets -- (29,948)
--------------------------
Net cash used for investing activities (63,499) (43,448)
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Net increase in cash and cash equivalents 1,129,323 1,082,673
Cash and cash equivalents, beginning of period 5,952,659 9,600,824
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Cash and cash equivalents, end of period $ 7,081,982 $10,683,497
==================================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 1,686,984 $ 1,686,984
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</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
5
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1998 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, 1999 and the
results of operations for the three and nine months ended September 30, 1999 and
1998, cash flows for the nine months ended September 30, 1999 and 1998 and the
consolidated statement of partners' capital (deficit) for the nine months ended
September 30, 1999. Results of operations for the period are not necessarily
indicative of the results to be expected for the full year.
On September 11, 1999, the Partnership entered into a contract to sell the mall
to a third-party buyer. Any sale of the Partnership's interest in the Mall is
subject to, among other things, the satisfactory completion of the buyer's due
diligence and the approval of a majority-in-interest of the Limited Partners.
Subject to the buyer's satisfactory completion of its due diligence process,
approval by the Limited Partners will subsequently be solicited by a proxy
solicitation that will be mailed to investors.
No other significant events have occurred subsequent to fiscal year 1998, 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
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Part 1, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
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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 balance sheet as "Real estate assets held for
disposition." Real estate assets held for disposition at September 30, 1999
totaled $33,150,000.
On September 11, 1999, the Partnership entered into a contract to sell the mall
to a third-party buyer. Any sale of the Partnership's interest in the Mall is
subject to, among other things, the satisfactory completion of the buyer's due
diligence and the approval of a majority-in-interest of the Limited Partners.
Subject to the buyer's satisfactory completion of its due diligence process,
approval by the Limited Partners will subsequently be solicited by a proxy
solicitation that will be mailed to investors.
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 $833,921 were filed shortly thereafter. It is not known at this
time the extent to which these claims will be paid. During 1999, the General
Partner signed a letter of intent with two prospective tenants to replace Caldor
as the anchor tenant. The anticipated date of occupancy for these tenants is
Spring of 2000.
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. Montgomery Ward confirmed its plan of reorganization in July 1999,
with an effective date of August 2, 1999, and successfully emerged from
bankruptcy. In conjunction with the confirmation of its Chapter 11 plan,
Montgomery Ward has assumed its store lease at Cranberry Mall and will remain in
possession of the store.
The first and second mortgage notes secured by Cranberry Mall, which totaled
$31,025,000 at September 30, 1999 and December 31, 1998, were scheduled to
mature on April 1, 1999. The General Partner and the mortgage lender,
Metropolitan Life Insurance Company, agreed to allow the Partnership to defer
the payment of the principal balance of the loan to April 1, 2000, provided that
the Partnership continues to pay interest at the same rate and times set forth
in the mortgage notes.
At September 30, 1999, the Partnership had cash and cash equivalents totaling
$7,081,982, compared with $5,952,659 at December 31, 1998. The increase is
primarily due to net cash provided by operating activities, including the
collection of other receivables as discussed below.
At September 30, 1999, the Partnership's accounts receivable, net of allowance
for doubtful accounts, decreased to $235,625 from $390,768 at December 31, 1998,
primarily due to timing of rental payments.
Other receivable totaling $300,000 at December 31, 1998, represented amounts due
pursuant to a settlement agreement with a prior owner of Assembly Square
regarding costs associated with environmental remediation at Assembly Square.
This receivable was collected in the first quarter of 1999.
Prepaid expenses increased to $493,493 at September 30, 1999 from $419,878 at
December 31, 1998, primarily due to the timing of real estate tax payments.
Accounts payable and accrued expenses decreased to $189,291 at September 30,
1999 from $202,161 at December 31, 1998, primarily due to the timing of
payments.
<PAGE>
7
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Other liabilities increased from $20,577 at December 31, 1998 to $168,960 at
September 30, 1999 as a result of amounts due to tenants for their share of a
real estate tax refund for 1997 and 1998.
Deferred income decreased from $525,051 at December 31, 1998 to $481,294 at
September 30, 1999, primarily due to differences in the timing of billing
tenants for their share of real estate taxes.
Year 2000 Initiatives
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The Year 2000 compliance issue concerns the ability of computerized information
systems to accurately calculate, store or use a date after 1999. This could
result in computer system failures or miscalculations causing disruption of
operations.
Potential Year 2000 issues relate to the outside vendors which provide the
Partnership's administrative services (including accounting, tax preparation and
transfer agent services) and vendors which provide accounting and property
management services to Cranberry Mall. Another potential issue relates to the
property management systems at the mall. It is anticipated that the cost of
vendor compliance with Year 2000 problems will be borne primarily by the
vendors. Although it is not possible at present to give an estimate of the cost
of this work to the Partnership, the General Partner does not expect such costs
to have a material adverse impact on the Partnership's business, operations or
financial condition.
The General Partner has been informed by its vendors and the mall's property
manager that the necessary steps have been taken to ensure Year 2000 compliance,
including the development and implementation of a contingency plan. However,
there is no certainty such plans would fully mitigate any Year 2000 problems.
Results of Operations
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For the three and nine months ended September 30, 1999, the Partnership's
operations resulted in net loss of $280,932 and $1,529,501, respectively,
compared to net income of $244,209 and $1,024,521, respectively, for the
corresponding periods in 1998. The net loss for the three and nine months ended
September 30, 1999 was primarily due to the $350,000 and $2,180,000,
respectively, write-down of Cranberry Mall to its estimated fair market value in
1999.
For the three and nine months ended September 30, 1999, the Partnership's rental
income totaled $817,502 and $2,791,578, respectively, compared to rental income
of $938,040 and $3,303,648, respectively, for the corresponding periods in 1998.
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 $560,439 and $1,633,407, respectively, for the three
and nine months ended September 30, 1999, compared to $620,141 and $1,993,530,
respectively, for the corresponding periods in 1998. The decrease is primarily
due to Caldor's rejection of its lease in July 1998.
Interest income totaled $96,047 and $269,335, respectively, for the three and
nine months ended September 30, 1999, compared with $153,629 and $442,307,
respectively, for the same periods in 1998. The decrease is attributed to a
lower average cash balance due to a special cash distribution paid to the
limited partners in the fourth quarter of 1998.
Property operating expenses totaled $525,389 and $1,493,990, respectively, for
the three and nine months ended September 30, 1999, compared with $638,930 and
$1,542,387, respectively, for the corresponding periods in 1998. The decrease is
primarily due to lower maintenance costs.
<PAGE>
8
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Depreciation and amortization expense totaled $-0- for the three and nine months
ended September 30, 1999, compared with $-0- and $687,466, respectively, for the
corresponding periods in 1998. The Partnership suspended depreciation and
amortization on July 1, 1998, in accordance with FASB No. 121.
General and administrative expenses for the three and nine months ended
September 30, 1999 were $139,058 and $365,501, respectively, compared with
$78,630 and $258,469, respectively, for the same periods in 1998. The increase
for the 1999 periods reflects higher legal and partnership administrative
expenses.
Mall tenant sales at Cranberry for the eight months ended August 31, 1999 were
$19,179,000, compared with sales of $20,401,000 for the eight months ended
August 31, 1998. Mature tenant sales for the eight months ended August 31, 1999
were $17,695,000, compared with sales of $18,093,000 for the eight months ended
August 31, 1998. As of September 30, 1999 and 1998, Cranberry was 75% and 81%
occupied, respectively (exclusive of anchor and outparcel tenants).
Part II Other Information
Item 1 On or about June 9, 1999, a purported class action, Rice, et al.
v. Regional Malls, Inc., et al., was commenced on behalf of all
Unitholders in the Court of Chancery for New Castle County,
Delaware, against the General Partner of the Partnership, the
Partnership, and Lehman Brothers Inc. (the "Defendants"). The
complaint alleges, among other things, that the General Partner
failed to protect the Partnership's assets and the interests of
the Unitholders in connection with the default on the mortgage
encumbering Assembly Square Mall, the foreclosure sale of
Assembly Square Mall and the efforts to sell Cranberry Mall. The
complaint purports to assert claims for breach of fiduciary duty
and breach of contract and seeks an accounting. The Defendants
have filed a motion to dismiss the complaint and intend to defend
the action vigorously.
Items 2-5 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, 1999.
<PAGE>
9
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
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 15, 1999 BY: /s/Michael T. Marron
-------------------------------------
Name: Michael T. Marron
Title: President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 7,081,982
<SECURITIES> 000
<RECEIVABLES> 376,959
<ALLOWANCES> 141,334
<INVENTORY> 000
<CURRENT-ASSETS> 7,814,354
<PP&E> 33,150,000
<DEPRECIATION> 000
<TOTAL-ASSETS> 41,451,099
<CURRENT-LIABILITIES> 358,251
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 9,597,557
<TOTAL-LIABILITY-AND-EQUITY> 41,451,099
<SALES> 2,791,578
<TOTAL-REVENUES> 4,747,727
<CGS> 000
<TOTAL-COSTS> 4,212,207
<OTHER-EXPENSES> 365,501
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 1,686,984
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> (1,529,501)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (1,529,501)
<EPS-BASIC> (21.55)
<EPS-DILUTED> (21.55)
</TABLE>
