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 June 30, 1999
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or
Transition Report Pursuant to Section 13 or 15(d) of
- - - - - - - - - - - - - - - - - - ---------- the Securities Exchange Act of 1934
For the Transition period from to
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Commission File Number: 33-20614
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SHOPCO REGIONAL MALLS, L.P.
---------------------------
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 June 30, At December 31,
1999 1998
(unaudited) (audited)
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<S> <C> <C>
Assets
Real estate assets held for disposition $33,500,000 $35,280,000
Cash and cash equivalents 7,164,849 5,952,659
Construction escrows 482,246 473,246
Accounts receivable, net of allowance of
$131,910 in 1999 and 1998 280,782 390,768
Other receivable 3,399 300,000
Deferred charges, net of accumulated
amortization of $3,975 in 1998 -- 995
Prepaid expenses 44,217 419,878
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Total Assets $41,475,493 $42,817,546
===============================================================================
Liabilities, Minority Interest and Partners'
Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 215,868 $ 202,161
Other liabilities -- 20,577
Mortgage payable 31,025,000 31,025,000
Due to affiliates 33,400 25,549
Security deposits payable 7,021 10,271
Deferred income 456,028 525,051
-----------------------------
Total Liabilities 31,737,317 31,808,609
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Minority Interest (140,313) (118,121)
-----------------------------
Partners' Capital (Deficit):
General Partner (82,674) (70,188)
Limited Partners (70,250 limited partnership
units authorized, issued and outstanding) 9,961,163 11,197,246
-----------------------------
Total Partners' Capital 9,878,489 11,127,058
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Total Liabilities, Minority Interest
and Partners' Capital $41,475,493 $42,817,546
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the six months ended June 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 Income (Loss) (12,486) (1,236,083) (1,248,569)
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Balance at June 30, 1999 $(82,674) $ 9,961,163 $ 9,878,489
===============================================================================
</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 June 30, For the six months ended June 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Income
Rental income $ 1,049,177 $1,174,148 $ 1,974,076 $2,365,608
Escalation income 440,519 671,728 1,072,968 1,373,389
Interest income 89,915 153,361 173,288 288,678
Miscellaneous income 12,103 17,228 38,421 36,522
-------------------------------------------------------------
Total Income 1,591,714 2,016,465 3,258,753 4,064,197
- - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Expenses
Interest expense 562,328 562,328 1,124,656 1,124,656
Property operating expenses 521,839 470,245 968,601 903,457
Loss on write-down of real estate 1,830,000 -- 1,830,000 --
Depreciation and amortization -- 343,704 -- 687,466
Real estate taxes 189,907 186,569 379,814 373,138
General and administrative 101,583 103,680 226,443 179,839
-------------------------------------------------------------
Total Expenses 3,205,657 1,666,526 4,529,514 3,268,556
- - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Income (loss) before
minority interest (1,613,943) 349,939 (1,270,761) 795,641
Minority interest 30,956 (6,959) 22,192 (15,329)
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Net Income (Loss) $(1,582,987) $ 342,980 $(1,248,569) $ 780,312
================================================================================================
Net Income Allocated:
To the General Partner $ (15,830) $ 3,430 $ (12,486) $ 7,803
To the Limited Partners (1,567,157) 339,550 (1,236,083) 772,509
- - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
$(1,582,987) $ 342,980 $(1,248,569) $ 780,312
================================================================================================
Per limited partnership unit
(70,250 outstanding) $ (22.31) $ 4.83 $ (17.60) $ 11.00
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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 six months ended June 30,
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(1,248,569) $ 780,312
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest (22,192) 15,329
Depreciation and amortization -- 687,466
Loss on write-down of real estate 1,830,000 --
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts receivable 109,986 (84,874)
Other receivable 296,601 --
Deferred rent receivable -- (76,644)
Prepaid expenses and deferred charges 376,656 322,768
Accounts payable and accrued expenses 13,707 23,864
Other liabilities (20,577) (30,143)
Due to affiliates 7,851 752
Deferred income (69,023) (179,742)
Security deposit (3,250) --
--------------------------
Net cash provided by operating activities 1,271,190 1,459,088
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Cash Flows From Investing Activities:
Additions to real estate assets held for disposition (50,000) --
Construction escrows (9,000) (9,000)
--------------------------
Net cash used for investing activities (59,000) (9,000)
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Net increase in cash and cash equivalents 1,212,190 1,450,088
Cash and cash equivalents, beginning of period 5,952,659 9,600,824
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Cash and cash equivalents, end of period $7,164,849 $11,050,912
==========================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $1,124,656 $ 1,124,656
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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 June 30, 1999 and the
results of operations for the six months ended June 30, 1999 and 1998, cash
flows for the six months ended June 30, 1999 and 1998 and the consolidated
statement of partners' capital (deficit) for the six months ended June 30, 1999.
Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
On July 1, 1999, the Partnership executed a letter of intent to sell the mall to
a third-party buyer and is currently negotiating a contract for sale. While it
is expected that the mall will be sold in 1999, there can be no assurance that
the mall will be sold within this time frame or that a sale will result in a
particular price.
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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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 were 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 balance sheet as "Real estate assets held for
disposition." Real estate assets held for disposition at June 30, 1999 totaled
$33,500,000. Efforts to sell the mall, however, are likely to be impacted by the
uncertain status of Caldor's space and Montgomery Ward's store. On July 1, 1999,
the Partnership executed a letter of intent to sell the mall to a third-party
buyer and is currently negotiating a contract for sale. While it is expected
that the mall will be sold in 1999, there can be no assurance that the mall will
be sold within this time frame or that a sale will result in a particular price.
The first and second mortgage notes secured by Cranberry Mall, which totaled
$31,025,000 at June 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 June 30, 1999, the Partnership had cash and cash equivalents totaling
$7,164,849, 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 the other receivable as discussed below.
At June 30, 1999, the Partnership's accounts receivable, net of allowance for
doubtful accounts, decreased to $280,782 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 decreased to $44,217 at June 30, 1999 from $419,878 at December
31, 1998, primarily due to the timing of real estate tax payments.
Accounts payable and accrued expenses increased to $215,868 at June 30, 1999
from $202,161 at December 31, 1998, primarily due to an accrual for co-tenancy
provisions for rental income.
<PAGE>
7
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Deferred income decreased from $525,051 at December 31, 1998 to $456,028 at June
30, 1999, primarily due to differences in the timing of billing tenants for
their share of real estate taxes.
Results of Operations
- - - - - - - - - - - - - - - - - - ---------------------
For the three and six months ended June 30, 1999, the Partnership's operations
resulted in a net loss of $1,582,987 and $1,248,569, respectively, compared to
net income of $342,980 and $780,312, respectively, for the corresponding periods
in 1998. The net loss for the periods ended June 30, 1999 was primarily due to
the $1,830,000 write-down of Cranberry Mall to its estimated fair market value
in 1999.
For the three and six months ended June 30, 1999, the Partnership's rental
income totaled $1,049,177 and $1,974,076, respectively, compared to rental
income of $1,174,148 and $2,365,608, 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 $440,519 and $1,072,968, respectively, for the three
and six months ended June 30, 1999, compared to $671,728 and $1,373,389,
respectively, for the corresponding periods in 1998. The decrease in escalation
income is primarily due to Caldor's rejection of its lease in July 1998.
Interest income totaled $89,915 and $173,288, respectively, for the three and
six months ended June 30, 1999, compared with $153,361 and $288,678,
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 partners
in the fourth quarter of 1998.
Property operating expenses totaled $521,839 and $968,601, respectively, for the
three and six months ended June 30, 1999, compared with $470,245 and $903,457,
respectively, for the corresponding periods in 1998. The increase is primarily
due to higher maintenance costs.
Depreciation and amortization expense totaled $-0- for the three and six months
ended June 30, 1999, compared with $343,704 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 six months ended June 30,
1999 were $101,583 and $226,443, respectively, compared with $103,680 and
$179,839, respectively, for the same periods in 1998. The increase for the six
months reflects higher legal and partnership administrative expenses.
Mall tenant sales at Cranberry for the five months ended May 31, 1999 were
$12,193,000, compared with sales of $12,658,000 for the five months ended May
31, 1998. Mature tenant sales for the five months ended May 31, 1999 were
$11,314,000, compared with sales of $11,258,000 for the five months ended May
31, 1998. As of June 30, 1999 and 1998, Cranberry was 76% and 81% occupied,
respectively (exclusive of anchor and outparcel tenants).
<PAGE>
8
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
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 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
June 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: August 16, 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> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 7,164,849
<SECURITIES> 000
<RECEIVABLES> 416,091
<ALLOWANCES> 131,910
<INVENTORY> 000
<CURRENT-ASSETS> 7,975,493
<PP&E> 33,500,000
<DEPRECIATION> 000
<TOTAL-ASSETS> 41,475,493
<CURRENT-LIABILITIES> 572,004
<BONDS> 31,025,000
000
000
<COMMON> 000
<OTHER-SE> 9,878,489
<TOTAL-LIABILITY-AND-EQUITY> 41,475,493
<SALES> 1,974,076
<TOTAL-REVENUES> 3,258,753
<CGS> 000
<TOTAL-COSTS> 968,601
<OTHER-EXPENSES> 606,257
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 1,124,656
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 1,830,000
<CHANGES> 000
<NET-INCOME> (1,248,569)
<EPS-BASIC> (17.60)
<EPS-DILUTED> (17.60)
</TABLE>
