UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1999
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
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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.
Attn.: Andre Anderson
3 World Financial Center, 29th Floor, New York, NY 10285-2900
- -------------------------------------------------- ----------
Address of principal executive offices Zip code
Registrant's telephone number, including area code: (212) 526-3183
Securities registered pursuant to Section 12(b) of the Act: None
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 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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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 the 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
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable.
Documents incorporated by reference: See Exhibit Index at Item 14.
1
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
-------------------------------
Shopco Regional Malls, L.P., a Delaware limited partnership (the "Partnership")
was formed on March 11, 1988. The affairs of the Partnership are conducted by
its general partner, Regional Malls Inc. (the "General Partner," formerly
Shearson Regional Malls, Inc.), a Delaware corporation and an affiliate of
Lehman Brothers Inc. ("Lehman"). The Partnership is the general partner of
Shopco Malls L.P. (the "Owner Partnership," formerly Shearson Shopco Malls
L.P.), a Delaware limited partnership that originally owned two enclosed
regional malls, The Mall at Assembly Square ("Assembly Square") located in
Somerville, Massachusetts and Cranberry Mall ("Cranberry") located in
Westminster, Maryland (both Assembly Square and Cranberry are referred to herein
as the "Malls"). On December 20, 1996, the Owner Partnership transferred title
of Assembly Square to the holder of the mortgage secured by Assembly Square
pursuant to a foreclosure proceeding. See Note 3 of the Notes to the
Consolidated Financial Statements for a discussion regarding the foreclosure of
Assembly Square. As of December 31, 1999, the Owner Partnership owned only
Cranberry Mall which was subsequently sold on April 3, 2000. The General Partner
is currently in the process of terminating the Partnership, which is expected to
occur in fiscal 2000. See Item 7 and Note 12 to the Consolidated Financial
Statements for a discussion of the sale. The sole limited partner of the Owner
Partnership is Shopco Limited Partnership ("Shopco L.P."), a Delaware limited
partnership and an affiliate of The Shopco Group. (The Partnership and Shopco
L.P. are referred to collectively as the "Owner Partners.")
On June 14, 1988 the Partnership commenced an offering of 110,000 depositary
units ("Units") at $1,000 per Unit to be sold by the underwriter, Lehman,
(formerly Shearson Lehman Brothers Inc.) on a "best efforts" basis (the
"Offering"), of which the Partnership accepted subscriptions of 70,250 Units,
the maximum closing amount authorized by the Amended and Restated Agreement of
Limited Partnership of Shopco Regional Malls, L.P. (the "Agreement of Limited
Partnership"). Concurrent with the consummation of the Offering, the Assignor
Limited Partner assigned its rights as a limited partner to the holders of Units
("Unitholders") who then became limited partners.
The Partnership was formed to acquire the fee interest and improvements in the
Malls. The Malls were purchased using the proceeds of the Offering, the issuance
of two Promissory Notes and a loan from Lehman Brothers Holdings Inc. ("Lehman
Holdings", formerly Shearson Lehman Brothers Holdings Inc.), an affiliate of the
General Partner, (the "Gap Loan") in October 1988. The aggregate purchase price
of the Malls was $96,205,500. Assembly Square was acquired from Somerville S.C.
Associates L.P., a Massachusetts limited partnership for a purchase price of
$42,358,000 on October 11, 1988. Cranberry was acquired from Cranberry L.P., a
Maryland limited partnership and an affiliate of The Shopco Group for a purchase
price of $53,847,500 on October 5, 1988.
Two mortgage loans were issued in October 1988. The first was from the Aetna
Life Insurance Company ("Aetna") in the initial principal amount of $28,000,000
(the "Assembly Note"), and the second in the original principal amount of
$27,250,000 (the "Original Cranberry Note") from the Mutual Life Insurance
Company of New York ("MONY"). In December 1996, Aetna acquired Assembly Square
pursuant to a foreclosure proceeding, and the Owner Partnership was absolved of
its mortgage obligation under the Assembly Note. Aetna subsequently pursued
claims arising out of its mortgage and security agreement, and a settlement
agreement was reached between the Partnership and Aetna in September 1997. See
Item 3 for a discussion of the settlement. In September 1990, MONY issued an
additional mortgage loan in the original principal amount of $3,775,000 (the
"Additional Cranberry Note") and at such time, the Original Cranberry Note and
the Additional Cranberry Note were consolidated. The MONY loan was subsequently
purchased by Metropolitan Life Insurance Company. The Cranberry Note matured on
November 1, 1993, was extended to May 1994, and was subsequently modified and
extended until April 1, 1999. In March 1999, 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 continued to pay
interest at the same rate and times set forth in the Cranberry Note. The
Cranberry Note was paid in full from the Cranberry sales proceeds. See Item 7
and Note 12 to the Consolidated Financial Statements for a discussion of the
sale of Cranberry Mall and Note 6 to the Consolidated Financial Statements for a
description of the terms of the Cranberry Note.
2
<PAGE>
The Owner Partnership's business, as an owner of a mall property, is somewhat
seasonal since a portion of its revenue is derived from a percentage of the
retail sales of certain tenants. Generally, such sales are higher in November
and December during the holiday season.
(b) Financial Information about Industry Segments
---------------------------------------------
Substantially all of the Partnership's revenues, operating profit or loss and
assets relate to its interest as general partner of the Owner Partnership whose
operating profit or loss and assets relate to its ownership and operation of
Cranberry.
(c) Narrative Description of Business
---------------------------------
The Partnership's primary business is acting as general partner for the Owner
Partnership. As of December 31, 1999, the Owner Partnership's sole business was
the ownership and operation of Cranberry Mall (See Item 2 for a description of
Cranberry Mall and its operations).
On September 11, 1999, the Partnership entered into a contract to sell the Mall
to a third-party buyer. The proposed sale, and subsequent liquidation of the
Partnership, was approved by a majority in interest of the Limited Partners at a
Special Meeting of the Limited Partners on February 29, 2000. The General
Partner completed the sale on April 3, 2000 and will terminate the Partnership
during fiscal 2000. See Item 7 and Note 12 to the Consolidated Financial
Statements for a discussion of the sale.
Competition
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See Item 2 for a discussion of competitive conditions at Cranberry Mall.
Employees
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The Partnership has no employees. The business of the Partnership is managed by
the General Partner. Cranberry Mall is managed on a day-to-day basis by Insignia
Retail Group, (the "Property Manager"). See Note 8 to the Consolidated Financial
Statements for the terms of the Management Agreement and amounts paid
thereunder.
Item 2. Properties
The Owner Partnership's remaining mall property as of December 31, 1999 was
Cranberry Mall, a single level enclosed regional shopping center located in
Westminster, Maryland, approximately 30 miles northwest of Baltimore. Cranberry,
which opened in March 1987, consists of approximately 530,000 square feet of
gross leasable area including space for approximately 90 retail tenants, a
nine-theater cinema complex and four anchor stores; Sears, Belk (formerly
Leggett), Montgomery Ward and a vacated Caldor store. Caldor rejected its lease
and vacated its space in 1998 pursuant to its Chapter 11 bankruptcy filing. See
Item 7 for a discussion of Caldor's bankruptcy filing and its effect on the
Partnership. Cranberry is located on 55.61 acres and provides parking for 2,597
automobiles.
The total gross leasable building area of Cranberry Mall is allocated as shown
in the table below.
<TABLE>
<CAPTION>
Square Feet Percentage of
Leasable to Gross Leasable
Tenants Tenants Area
------------------------------------------------------------
<S> <C> <C>
Anchor Stores:
Vacant(a) 81,200 15%
Belk 65,282 12%
Montgomery Ward 80,260 15%
Sears 70,000 13%
Enclosed Mall Tenants 224,377 43%
Outparcel Store(b) 9,000 2%
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Total 530,119 100%
======= ===
3
<PAGE>
<FN>
(a) Caldor rejected its lease and vacated its space in 1998 pursuant to its
Chapter 11 bankruptcy filing. See Item 7 for a discussion of Caldor's
bankruptcy filing and its effect on the Partnership.
(b) Outparcel Store is an auto service center leased to Montgomery Ward.
</FN>
</TABLE>
On May 1, 1997, Insignia Retail Group ("Insignia") was installed as the new
property manager for Cranberry Mall. Insignia replaced Shopco Management
Corporation, an affiliate of the Owner Partnership as property manager. Insignia
receives an annual fee equal to 4% of the gross rents collected from Cranberry
Mall. The management agreement with Insignia was scheduled to expire on April
30, 2000 and was terminated automatically upon the sale of Cranberry Mall.
Mall Tenants - As of December 31, 1999, Cranberry Mall had approximately 62 mall
tenants (excluding anchor tenants) occupying gross leasable area of
approximately 171,000 square feet. As of December 31, 1999, Cranberry Mall had
26 vacant mall stores containing approximately 53,000 gross leasable square
feet.
Anchor Tenants - Sears leases approximately 70,000 square feet of gross leasable
building area. The Sears store opened in October 1987 and the initial term of
the lease expires in 2002, with Sears having two successive five-year renewal
options. Sears pays an annual fixed rent of $195,800 and an annual percentage
rent equal to 2.25% of net sales in excess of $10,000,000 up to $15,000,000 and
2% of net sales in excess of $15,000,000. Beginning in 1993, Sears commenced
paying its pro rata share of increases in real estate taxes, but such tax
payments may be deducted from percentage rent due on an annual non-cumulative
basis. Also commencing in 1993, Sears became responsible for contributing to
exterior common area maintenance on a flat rate basis. Sears currently pays all
utilities directly and is not required to carry its own fire insurance. Sears is
required to use the premises as a Sears retail store until the year 2002 or
under such other trade name as the majority of Sears retail stores are then
operating. Thereafter, Sears may assign or sublet the premises with the
landlord's consent, not to be unreasonably withheld.
On November 1, 1996, Belk acquired 100% in the stock of Leggett of Virginia Inc.
and its affiliated Leggett stores, which includes the Leggett store at Cranberry
Mall. Belk currently leases 65,282 square feet of gross leasable building area.
The initial term of the lease expires in 2007 and the lease provides four
successive, five-year renewal options at the same rent. Belk is obligated to pay
an annual fixed rent of $228,487 and an annual percentage rent equal to 2% of
sales above $10,608,325. Belk is responsible for its pro rata share of increases
in real estate taxes after the third year of full assessment but it may deduct
one-half of these tax payments on a cumulative basis from percentage rent due.
Utility charges are paid directly to the public utility and Belk is not required
to carry its own fire insurance or to pay for common area maintenance. During
the first 15 years of the lease, ending March 4, 2002, the tenant is required to
use the premises as a Belk retail department store or under such other trade
name as Belk is then operating substantially all of its department stores. The
tenant cannot assign or sublet the premises during the first 15 years of the
lease term without the landlord's consent to anyone other than another Belk
mercantile company of comparable net worth as the tenant.
Montgomery Ward leases approximately 80,000 square feet of gross leasable
building area and 9,000 square feet for an automotive center. The Montgomery
Ward store opened for business on November 4, 1990 and the initial term of the
lease expires in 2010 with four successive five-year renewal options. Montgomery
Ward pays an annual fixed rent of $348,114 and an annual percentage rent equal
to 2.5% of the net retail sales in excess of $13,924,560. Montgomery Ward is
required to reimburse the landlord for its pro rata share of insurance and
utility costs and real estate taxes based on its gross leasable area of the
building. Montgomery Ward will be required to reimburse the landlord for a
portion of the common area and maintenance charges as set forth under the lease
agreement. During the first 15 years of the lease term, the tenant is required
to use the premises as a retail store under the trade name Montgomery Ward or
under such other name as the tenant is doing business in the majority of its
retail department stores in the State of Maryland. Montgomery Ward has the right
to sublease the premises at any time during its lease term with the landlord's
written consent, however, they will not be relieved of their obligations under
the terms of the lease.
On July 7, 1997, Montgomery Ward 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.
4
<PAGE>
Historical Occupancy - The following table sets forth the historical occupancy
rates for Cranberry Mall at December 31 for the years indicated.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Including Anchor Stores 76% 77% 92% 93% 93%
Excluding Anchor Stores 78% 79% 82% 84% 83%
</TABLE>
Competition - The General Partner believes that the primary trade area for
Cranberry (i.e., the primary geographical area from which Cranberry derives its
repeat sales and regular customers) is the area within a radius of approximately
15 miles from Cranberry. The General Partner believes the secondary trade area
is within a radius of 15 to 20 miles from Cranberry.
There are no competitive shopping malls in the primary trade area of Cranberry,
although there is considerable retail activity in strip centers and on local
roads near Cranberry. Also, a 116,000 square foot free-standing WalMart opened
in November of 1992 near Cranberry in the Englar Business Park. In addition, in
1996, a Target store opened approximately one mile southeast of Cranberry and in
1999 this store closed. In the secondary trade area there are three competitive
shopping malls; Hunt Valley Mall, Carrolltowne Mall and Owings Mill Mall. Hunt
Valley Mall is a bi-level enclosed shopping mall located approximately 19 miles
east of Cranberry and is anchored by Macy's and Sears. Carrolltowne Mall is
located 25 miles from Cranberry and was expanded and enclosed during 1989.
Carrolltowne Mall is oriented to the discount shopper. Owings Mill Mall is
located approximately 25 miles from Cranberry and is anchored by Macy's, Hechts,
Sears and J.C. Penney. Owings Mill Mall caters to the upscale market. Cranberry
also competes with the North Hanover Mall in Hanover, Pennsylvania, located 26
miles north of Cranberry. North Hanover Mall is a 450,000 square foot regional
mall anchored by Bon Ton, J.C. Penney, Kmart and Sears. Retail stores at malls
also compete with local shops, stores and power centers. Generally, competition
among retailers for customers is intense, with retailers competing on the basis
of quality, price, service and location.
Item 3. Legal Proceedings
Following the foreclosure on the mortgage of Assembly Square by Aetna in
December 1996, Aetna advised the Partnership it would pursue environmental
remediation claims for land contamination. On September 3, 1997, the Partnership
and Aetna entered into a Settlement Agreement whereby the Partnership paid
$400,000 to Aetna for a complete release from environmental claims. The release
excludes environmental claims already made by Aetna regarding existing
environmental conditions and environmental claims which could arise in the
future because of existing conditions. The Partnership separately funded
approximately $500,000 to pay for work performed to address environmental
conditions at Assembly Square. Accordingly, the Partnership accrued
environmental remediation and settlement costs of $900,000, as reflected in the
1997 consolidated statements of operations. At December 31, 1998, $879,423 of
this amount had been paid by the Partnership.
The Partnership collected in 1999 a $300,000 contribution from a prior owner of
the Assembly Square property for the amounts the Partnership expended in
connection with the environmental site remediation. The Partnership also
collected in 1999 a $25,000 contribution from another former owner for costs
associated with the environmental remediation at the property. The Commonwealth
of Massachusetts performed a statutorily-required audit on the remediation
performed at Assembly Square; it is uncertain whether that audit will require
additional remediation to be performed. The Partnership has negotiated an
agreement with the current owner of Assembly Square Mall, under which that owner
assumed responsibility for responding to the audit and indemnified the
Partnership from any liability arising from that audit or environmental
conditions on the property.
In July 1998, Caldor, a former anchor tenant at Cranberry Mall, 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 was
filed shortly thereafter. Caldor did not submit a plan of reorganization and on
January 22, 1999 was ordered to wind-down its business operations and affairs
under Chapter 11 of the Bankruptcy Code. See Item 7 for a discussion of Caldor's
bankruptcy filing and its effect on the Partnership.
5
<PAGE>
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.
Item 4. Submissions of Matters to a Vote of Security Holders
A special meeting of the limited partners of Shopco Regional Malls, L.P., a
Delaware limited partnership, was held at the offices of the Partnership, 3
World Financial Center, 17th Floor, New York, New York 10285-2900 on February
29, 2000 for the following purposes:
1. To approve the sale of Cranberry Mall, in Westminster, Maryland, and
the subsequent liquidation and termination of the Partnership.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
At this special meeting the Partnership received the required approval from the
limited partner units entitled to vote. The result of the voting was as follows:
For 58.19%
Against 2.25%
As a result of this vote, the General Partner sold Cranberry Mall on April 3,
2000 and will terminate the Partnership in 2000 (see Note 12 of the Consolidated
Financial Statements).
PART II
Item 5. Market for Registrant's Limited Partnership
Units and Related Security Holder Matters
(a) Market Price Information
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There is no established trading market for the Units nor is there anticipated to
be any in the future.
(b) Holders
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As of December 31, 1999, there were 4,718 Unitholders.
(c) Distribution of Net Cash Flow
-----------------------------
The Partnership's policy was to distribute to the Unitholders their allocable
portion of Net Cash Flow (as defined in the prospectus) with respect to each
fiscal year in quarterly installments. Distributions of Net Cash Flow, if any,
were paid on a quarterly basis to registered Unitholders on record dates
established by the Partnership, which generally were the last day of each
quarter.
The General Partner suspended quarterly cash distributions beginning with the
1996 first quarter. Quarterly distributions were not reinstated due to the
foreclosure of Assembly Square, reduced Partnership cash flow and issues
concerning certain anchor tenants at Cranberry Mall. On October 19, 1998, the
Partnership paid a special cash distribution of $74.69 per Limited Partnership
Unit, representing approximately one half of the Partnership's cash reserves.
The distribution was paid in consideration of the General Partner's decision to
market the Cranberry Mall for sale, and to reduce the level of cash held in
reserve for leasing and capital expenditures. See Item 7.
6
<PAGE>
The General Partner expects to make a distribution of the net cash proceeds from
the sale of Cranberry Mall (after paying, or providing for payment of,
transaction costs) of approximately $20 per Unit, and additional cash reserves
of the Owner Partnership and the Partnership (after paying, or providing for
payment of, outstanding and anticipated liabilities), which is estimated to be
approximately $102 per Unit. See Item 7 and Note 12 of the Consolidated
Financial Statements for a discussion of the sale.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(dollars in thousands except per Unit data)
- ---------------------------------------------------------------------------------------
As of and for the years ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total income $ 6,444 $ 7,516 $ 8,172 $13,022 $13,806
Loss on write down of real estate (2,890) (4,146) (7,573) (7,910) --
Gain on foreclosure of
property (a) -- -- -- 9,337 --
Net income (loss) (1,801) (2,584) (7,594) 1,008 (17,536)
Net income (loss) per Unit (25.39) (36.41) (107.02) 9.88 (247.13)
Cash distributions per Unit -- 74.69 -- -- 15.00
Real estate, net of
accumulated depreciation (b) 32,440 35,280(b) 39,275 48,197 73,162
Mortgages payable 31,025 31,025 31,025 31,025 55,323
Total assets 40,977 42,818 50,814 58,266 81,655
- ---------------------------------------------------------------------------------------
<FN>
(a) On December 20, 1996, Aetna obtained title to Assembly Square at the
foreclosure sale. As a result, the Partnership recorded an extraordinary
gain on foreclosure of $9,336,544 due to the release of the Aetna mortgage
debt on the property.
(b) 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 is recorded on the Partnership's December 31, 1999 and 1998
consolidated balance sheet as "Real estate assets held for disposition."
</FN>
</TABLE>
The above selected financial data should be read in conjunction with Item 7 and
the Consolidated Financial Statements and notes thereto in Item 8.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
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 December 31, 1999
totaled $32,440,000.
On September 11, 1999, the Partnership entered into a contract to sell Cranberry
Mall to a third-party buyer. The buyer satisfactorily completed its due
diligence process. The sale and subsequent dissolution of the Partnership was
approved by a majority in interest of the Unitholders, at a Special Meeting of
the Limited Partners held on February 29, 2000.
The General Partner completed the sale on April 3, 2000 (see Note 12 to the
Consolidated Financial Statements) and will liquidate the Partnership during
fiscal 2000. The General Partner expects to make a distribution of the net cash
proceeds from the sale (after paying, or providing for payment of, transaction
costs) of approximately $20 per Unit, and additional cash reserves of the Owner
Partnership and the Partnership (after paying, or providing for payment of,
outstanding and anticipated liabilities), which is estimated to be approximately
$102 per Unit.
7
<PAGE>
On September 18, 1995, Caldor, a former 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 claim for unpaid rent and rejection damages under Caldor's
lease was filed shortly thereafter. Caldor did not submit a plan for
reorganization and on January 22, 1999 was ordered to wind down its business
operations and affairs under Chapter 11 of the Bankruptcy Code. Claims for
unpaid rent and rejection damages will not be paid.
On July 7, 1997, Montgomery Ward, an anchor tenant at Cranberry Mall filed for
protection under Chapter 11 of the Bankruptcy Code. Montgomery Ward confirmed
its plan of reorganization in July 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 December 31, 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 until the property was sold on April 3, 2000. The loan was
repaid from the Cranberry sale proceeds.
At December 31, 1999, the Partnership had cash and cash equivalents totaling
$7,605,884, compared with $5,952,659 at December 31, 1998. The increase is
primarily due to cash provided by operations and no distributions to partners
made in 1999.
At December 31, 1999, the Partnership's accounts receivable, net of allowance
for doubtful accounts, decreased to $116,555 from $390,768 at December 31, 1998,
primarily due to increase in timely collections of accounts.
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 $317,801 at December 31, 1999 from $419,878 at
December 31, 1998, primarily due to lower prepaid real estate taxes due to
abatement in 1999.
Accounts payable and accrued expenses increased to $232,431 at December 31, 1999
from $202,161 at December 31, 1998.
Other liabilities increased from $20,577 at December 31, 1998 to $168,960 at
December 31, 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 $302,466 at
December 31, 1999, primarily due to a reduction in income from real estate tax
escalations due to abatement in 1999.
Year 2000 Compliance
- --------------------
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 disruptions of
operations. The Year 2000 issue affects almost all companies and organizations.
Prior to December 31, 1999, the Partnership conducted an assessment of outside
vendors which provide the Partnership's administrative services (including
accounting, tax preparation and transfer agent services), property management
services to the Cranberry Mall, as well as Year 2000 issues related to property
management systems at the property. The Partnership determined that those
systems were substantially Year 2000 compliant. As of this date, the Year 2000
issue has not had an adverse effect on the Partnership's business.
8
<PAGE>
Results of Operations
- ---------------------
1999 versus 1998
- ----------------
For the year ended December 31, 1999, the Partnership's operations resulted in
net loss of $1,801,326 compared to net loss of $2,583,615 in fiscal 1998. The
reduction in the net loss was primarily due to the suspension of depreciation on
the property which is now held for disposition and a decrease in loss on
write-down of real estate from 1998 to 1999.
For the year ended December 31, 1999, the Partnership's rental income totaled
$3,773,266, compared to rental income of $4,378,803 in fiscal 1998. The decrease
in rental income is primarily due to Caldor's rejection of its lease in July
1998 and the resulting vacancy of that space in 1999.
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 $2,234,194 for the year ended December 31, 1999,
compared to $2,492,584 in fiscal 1998. The decrease is primarily due to a real
estate tax abatement received in 1999 and increase in vacancy from 1998 to 1999.
Interest income totaled $377,636 for the year ended December 31, 1999, compared
with $534,033 in fiscal 1998. The decrease is attributed to lower average cash
balances maintained in 1999 compared to 1998.
Property operating expenses totaled $1,972,422 for the year ended December 31,
1999, compared with $2,156,802 in fiscal 1998. The decrease is primarily due to
lower provisions for bad debts of delinquent tenants.
Depreciation and amortization expense totaled $687,466 for the year ended
December 31, 1998. 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 " ("FAS 121").
General and administrative expenses for the year ended December 31, 1999 were
$476,595, compared with $459,423 in fiscal 1998. The increase in 1999 reflects
additional expenses relating to Partnership administrative expenses and
professional fees in connection with the preparation and mailing of the proxy
solicitation to obtain approval of the property sale by the Unitholders.
Mall tenant sales at Cranberry for the year ended December 31, 1999 were
$32,825,000, compared with sales of $34,082,000 in fiscal 1998. Mature tenant
sales for the year ended December 31, 1999 were $30,511,000, compared with sales
of $29,703,000 in fiscal 1998. As of December 31, 1999 and 1998, Cranberry was
78% and 79% occupied, respectively (exclusive of anchor and outparcel tenants).
1998 versus 1997
- ----------------
For the year ended December 31, 1998, the Partnership's operations resulted in a
net loss of $2,583,615, compared to a net loss of $7,594,087 in 1997. The
reduction in the net loss was primarily due to the write down of Cranberry Mall
to its estimated fair market value in the amount of $4,145,677 in 1998, compared
to $7,572,838 in 1997.
For the year ended December 31, 1998, the Partnership's rental income totaled
$4,378,803 compared with $4,886,656 in 1997. The decrease in rental income is
primarily due to Caldor's rejection of its lease in July 1998, when the
Partnership ceased recognition of rental income from Caldor. 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 $2,492,584 for the year ended December 31, 1998 compared with $2,639,481
for the year ended December 31, 1997. The decrease in escalation income from
1997 to 1998 is primarily due to lower property operating expenses in 1998
compared to 1997.
Interest income totaled $534,033 for the year ended December 31, 1998, compared
with $480,283 in 1997. The increase is due to the Partnership maintaining higher
average cash balances during 1998.
9
<PAGE>
Property operating expenses totaled $2,156,802 for the year ended December 31,
1998, compared with $2,448,079 in 1997. The decrease is primarily due to lower
general operating expenses including payroll expenses and common area charges.
Depreciation and amortization expense totaled $687,466 for the year ended
December 31, 1998, compared with $1,559,102 for the year ended December 31,
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," as a result of the General Partner's decision to sell
Cranberry.
Environmental remediation and settlement costs totaled $(300,000) and $900,000
for the years ended December 31, 1998 and 1997, respectively. The 1998 amount
reflects a settlement with the prior owner of Assembly Square Mall relating to
reimbursement of remediation costs associated with environmental remediation at
the property. The 1997 amount represents costs related to the Settlement
Agreement with Aetna relating to environmental costs at Assembly Square. See
Item 3 for a discussion of the Aetna settlement.
General and administrative expenses totaled $459,423 for the year ended December
31, 1998, compared with $372,181 for the year ended December 31, 1997. The
increase is primarily due to higher partnership service cost in 1998 and costs
associated with the marketing effort of the Cranberry Mall.
Mall tenant sales for the year ended December 31, 1998 were $34,082,000 compared
with sales of $35,732,000 for year ended December 31, 1997. Mature tenant sales
for the year ended December 31, 1998 were $29,703,000 compared with sales of
$29,040,000 for the year ended December 31, 1997. As of December 31, 1998 and
1997, Cranberry was 79% and 82% occupied, respectively (exclusive of anchor and
outparcel tenants). For the year ended December 31, 1998, Cranberry generated
net operating income of $4,099,000 on income of $6,982,000 and property
operating expenses and real estate taxes totaling $2,883,000.
Item 8. Financial Statements and Supplementary Data
See Item 14(a) for a listing of the Consolidated Financial Statements and
Supplementary data filed in this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain officers or directors of Regional Malls Inc. are now serving (or in the
past have served) as officers and directors of entities which act as general
partners of a number of real estate limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. The partnerships
which have filed bankruptcy petitions own real estate which has been adversely
affected by the economic conditions in the markets in which that real estate is
located and, consequently, the partnerships sought the protection of the
bankruptcy laws to protect the partnerships' assets from loss through
foreclosure.
The following is a list of the officers and directors of Regional Malls Inc.
at December 31, 1999:
Name Office
---- ------
Michael T. Marron President, Director & Chief Financial Officer
Rocco F. Andriola Director, Vice President
Michael T. Marron, 36, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively
managed and restructured a diverse portfolio of syndicated limited
partnerships. Prior to joining Lehman Brothers, Mr. Marron was associated
with Peat Marwick Mitchell & Co. serving in both its audit and tax divisions
from 1985 to 1989. Mr. Marron received a B.S. degree from the State
University of New York at Albany and an M.B.A. degree from Columbia
University and is a Certified Public Accountant.
10
<PAGE>
Rocco F. Andriola, 41, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996. Mr.
Andriola also serves as the Director of Global Corporate Services for
Lehman. Since joining Lehman in 1986, Mr. Andriola has been involved in a
wide range of restructuring and asset management activities involving real
estate and other direct investment transactions. From June 1991 through
September 1996, Mr. Andriola held the position of Senior Vice President in
Lehman's Diversified Asset Group. From June 1989 through May 1991, Mr.
Andriola held the position of First Vice President in Lehman's Capital
Preservation and Restructuring Group. From 1986 to 1989, Mr. Andriola served
as a Vice President in the Corporate Transactions Group of Shearson Lehman
Brothers' office of the general counsel. Prior to joining Lehman, Mr.
Andriola practiced corporate and securities law at Donovan Leisure Newton &
Irvine in New York. Mr. Andriola received a B.A. from Fordham University, a
J.D. from New York University School of Law, and an LL.M in Corporate Law
from New York University's Graduate School of Law.
Item 11. Executive Compensation
The Officers and Directors of the General Partner do not receive any salaries or
other compensation from the Partnership. See Item 13 below with respect to a
description of certain transactions of the General Partner and its affiliates
with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
-----------------------------------------------
At December 31, 1999, to the Partnership's knowledge, no investor held more than
5% of the outstanding Units.
(b) Security ownership of management
--------------------------------
Various employees of Lehman Brothers that perform services on behalf of the
General Partner own no units of the Partnership as of December 31, 1999.
(c) Changes in control
------------------
None.
Item 13. Certain Relationships and Related Transactions
Affiliates of the General Partner have been responsible for certain
administrative functions of the Partnership. Commencing January 1, 1997, the
Partnership began reimbursing certain expenses incurred by the General Partner
and its affiliates in servicing the Partnership to the extent permitted by the
partnership agreement. In prior years, affiliates of the General Partner had
voluntarily absorbed these expenses. Disclosure relating to amounts paid to the
General Partner or its affiliates during the past three years is incorporated
herein by reference to Note 7 of the Notes to the Consolidated Financial
Statements.
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith
Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this
sale, Shearson changed its name to Lehman Brothers Inc. The transaction did
not affect the ownership of the Partnership or the Partnership's General
Partner. However, the assets acquired by Smith Barney included the name
"Shearson." Consequently, the general partner changed its name to Regional
Malls Inc., the Assignor Limited Partner changed its name to Regional Malls
Depositary Corp. and the Owner Partnership changed its name to Shopco Malls
L.P. to delete any references to "Shearson."
11
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) and (2).
- ---------------
Index to Consolidated Financial Statements and Schedules
Page
Number
------
Consolidated Balance Sheets
At December 31, 1999 and 1998 ................................. F-2
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1999, 1998 and 1997........... F-2
Consolidated Statements of Operations
For the years ended December 31, 1999, 1998 and 1997........... F-3
Consolidated Statements of Cash Flows
For the years ended December 31, 1999, 1998 and 1997........... F-4
Notes to the Consolidated Financial Statements ................ F-5
Independent Auditors' Report .................................. F-13
Schedule II - Valuation and Qualifying Accounts ............... F-14
Schedule III - Real Estate and Accumulated Depreciation ....... F-14
(b) Exhibits
--------
Subject to Rule 12b-32 of the Securities Exchange Act of 1934
regarding incorporation by reference, listed below are the exhibits
which are filed as part of this report.
3. Partnership's Amended and Restated Agreement of Limited Partnership,
dated October 6, 1988, is hereby incorporated by reference to Exhibit
A to the Prospectus contained in Registration Statement No. 33-20614,
which Registration Statement (the "Registration Statement") was
declared effective by the SEC on May 20, 1988.
4.1 The form of Unit Certificate is hereby incorporated by reference to
Exhibit 7 to the Form 8-A dated April 10, 1989.
10.1 The form of Subscription Agreement is hereby incorporated by reference
to Exhibit C to the Registration Statement.
10.2 Escrow Agreement between Partnership and United States Trust Company
of New York, is hereby incorporated by reference to Exhibit 10.2 to
the Registration Statement.
10.3 The form of Depository Agreement between Partnership and Shearson
Regional Malls Depository Corp., as Assignor Limited Partner is hereby
incorporated by reference to Exhibit 10.3 to the Registration
Statement.
10.4 The form of Sale Contract concerning the acquisition of Assembly
Square is hereby incorporated by reference to Exhibit 10.4 to the
Registration Statement.
12
<PAGE>
10.5 Letter of Intent to Purchase Cranberry is hereby incorporated by
reference to Exhibit 10.5 to the Registration Statement.
10.6 The form of Master Rental Income Guaranty is hereby incorporated by
reference to Exhibit 10.6 to the Registration Statement.
10.7 The form of Management and Leasing Agreement is hereby incorporated by
reference to Exhibit 10.7 to the registration Statement.
10.8 Amendment of Mortgage Loan Modification between Shearson Shopco Malls,
L.P. and Aetna Life Insurance Company is hereby incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992.
10.9 Note Modification Agreement between Shopco Malls, L.P. and
Metropolitan Life Insurance Company for Cranberry Mall as of May 31,
1994, is hereby incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994.
10.10 Forbearance letter dated March 19, 1999 from Metropolitan Life
Insurance Company regarding the maturity date of the Cranberry Note,
incorporated by reference to Exhibit 10.10 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.
22.1 Notice of Special Meeting of The Limited Partners of Shopco Regional
Malls, L.P., filed with the Commission on February 1, 2000.
27 Financial Data Schedule
(c) Reports on Form 8-K filed during the fourth quarter of 1999:
-----------------------------------------------------------
No reports on Form 8-K were filed during the three months ended December
31, 1999.
On March 8, 2000, the Partnership filed a Current Report on Form 8-K
reporting the proxy solicitation to approve the Sale of Cranberry Mall and
subsequent dissolution of the Partnership.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 14, 2000 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: President, Director and Chief Financial Officer
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 in
the capacities and on the dates indicated.
REGIONAL MALLS, INC.
General Partner
Date: April 14, 2000 BY: /s/Michael T. Marron
--------------------
Name: Michael T Marron
Title: President, Director and Chief Financial Officer
Date: April 14, 2000 BY: /s/Rocco F. Andriola
--------------------
Name: Rocco F. Andriola
Title: Director, Vice President
14
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
At December 31, At December 31,
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate assets held for disposition $32,440,000 $35,280,000
Cash and cash equivalents 7,605,884 5,952,659
Construction escrow (note 5) 491,246 473,246
Accounts receivable, net of allowance of $13,390 in 1999
and $131,910 in 1998 116,555 390,768
Other receivables (note 3) 5,444 300,000
Prepaid expenses 317,801 420,873
- --------------------------------------------------------------------------------------------------
Total Assets $40,976,930 $42,817,546
==================================================================================================
Liabilities, Minority Interest and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 232,431 $ 202,161
Other liabilities 168,960 20,577
Mortgages payable (note 6) 31,025,000 31,025,000
Due to affiliates (note 7) 45,500 25,549
Security deposits payable 10,021 10,271
Deferred income 302,466 525,051
-----------------------------
Total Liabilities 31,784,378 31,808,609
-----------------------------
Minority interest (133,180) (118,121)
-----------------------------
Partners' Capital (note 4):
General Partner (88,201) (70,188)
Limited Partners (70,250 limited partnership units authorized
issued and outstanding) 9,413,933 11,197,246
-----------------------------
Total Partners' Capital 9,325,732 11,127,058
- --------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest and Partners' Capital $40,976,930 $42,817,546
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1999, 1998 and 1997
General Limited
Partner Partners Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 84,589 $26,520,163 $26,604,752
Net loss (75,941) (7,518,146) (7,594,087)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1997 8,648 19,002,017 19,010,665
Net loss (25,836) (2,557,779) (2,583,615)
Distributions (note 9) (53,000) (5,246,992) (5,299,992)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1998 (70,188) 11,197,246 11,127,058
Net loss (18,013) (1,783,313) (1,801,326)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $(88,201) $ 9,413,933 $ 9,325,732
==================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements. F-2
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental income (note 3) $ 3,773,266 $ 4,378,803 $ 4,886,656
Escalation income (note 3) 2,234,194 2,492,584 2,639,481
Interest income 377,636 534,033 480,283
Miscellaneous income 58,469 110,183 165,569
------------------------------------------------
Total Income 6,443,565 7,515,603 8,171,989
- --------------------------------------------------------------------------------------------------
Expenses
Interest expense 2,249,312 2,249,312 2,249,312
Property operating expenses 1,972,422 2,156,802 2,448,079
Loss on write-down of real estate 2,890,000 4,145,677 7,572,838
Depreciation and amortization -- 687,466 1,559,102
Real estate taxes 696,621 726,227 732,018
General and administrative 476,595 459,423 372,181
Environmental remediation and
settlement costs (note 3) (25,000) (300,000) 900,000
------------------------------------------------
Total Expenses 8,259,950 10,124,907 15,833,530
- --------------------------------------------------------------------------------------------------
Loss before minority interest (1,816,385) (2,609,304) (7,661,541)
Minority interest 15,059 25,689 67,454
- --------------------------------------------------------------------------------------------------
Net Loss $ (1,801,326) $ (2,583,615) $ (7,594,087)
==================================================================================================
Net Loss Allocated:
To the General Partner $ (18,013) $ (25,836) $ (75,941)
To the Limited Partners (1,783,313) (2,557,779) (7,518,146)
- --------------------------------------------------------------------------------------------------
$ (1,801,326) $ (2,583,615) $ (7,594,087)
==================================================================================================
Per limited partnership unit
(70,250 units outstanding):
- --------------------------------------------------------------------------------------------------
Net Income (Loss) $ (25.39) $ (36.41) $ (107.02)
==================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements. F-3
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(1,801,326) $(2,583,615) $(7,594,087)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority interest (15,059) (25,689) (67,454)
Depreciation and amortization -- 687,466 1,559,102
Loss on write-down of real estate 2,890,000 4,145,677 7,572,838
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Accounts receivable 274,213 (45,620) (38,796)
Other receivables 294,556 (300,000) --
Deferred rent receivable -- (76,644) (145,389)
Prepaid expenses and other assets 103,072 (8,970) (19,407)
Accounts payable and accrued expenses 30,270 97,166 107,827
Other liabilities 148,383 (90,465) --
Due to affiliates 19,951 (8,199) 33,217
Security deposits payable (250) 5,500 --
Deferred income (222,585) 17,477 68,408
-----------------------------------------------
Net cash provided by operating activities 1,721,225 1,814,084 1,476,259
- --------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to real estate (50,000) (36,094) (176,000)
Construction escrows (18,000) (18,000) (17,900)
-----------------------------------------------
Net cash used for investing activities (68,000) (54,094) (193,900)
- --------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Distributions paid - minority interest -- (108,163) --
Distributions paid - general partner -- (53,000) --
Distributions paid - limited partners -- (5,246,992) --
-----------------------------------------------
Net cash used for financing activities -- (5,408,155) --
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 1,653,225 (3,648,165) 1,282,359
Cash and cash equivalents, beginning of period 5,952,659 9,600,824 8,318,465
-----------------------------------------------
Cash and cash equivalents, end of period $ 7,605,884 $ 5,952,659 $ 9,600,824
==================================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 2,249,312 $ 2,249,312 $ 2,249,312
- --------------------------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Activities:
In connection with the General Partner's decision to market the Mall for sale, real estate held
for investment, deferred rent receivable and deferred leasing costs in the amounts of $38,603,961,
$544,832 and $240,790, respectively, were reclassified to "Real estate assets held for
disposition" in 1998.
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements. F-4
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. Organization
Shopco Regional Malls, L.P. (the "Partnership") was formed as a limited
partnership on March 11, 1988 under the laws of the State of Delaware. The
Partnership is the general partner of Shopco Malls L.P. (the "Owner
Partnership"), a Delaware limited partnership, which in October 1988 purchased
The Mall at Assembly Square ("Assembly Square") and Cranberry Mall
("Cranberry"). The Partnership sold Assembly Square at a foreclosure sale during
1996. As discussed in Note 12, Cranberry Mall was sold on April 3, 2000. The
General Partner intends to wind up the Partnership's affairs and terminate the
Partnership during the year 2000.
The general partner of the Partnership is Regional Malls Inc. (the "General
Partner") formerly Shearson Regional Malls, Inc., an affiliate of Lehman
Brothers Inc., formerly Shearson Lehman Brothers Inc. (see below).
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris
Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson
Lehman Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman
Brothers"). The transaction did not affect the ownership of the general
partner. However, the assets acquired by Smith Barney included the name
"Shearson." Consequently, effective October 29, 1993, the General Partner
changed its name to Regional Malls Inc. to delete any reference to
"Shearson."
The first investor closing occurred in October 1988 and the offering was
completed in April 1989 when 70,250 total authorized limited partnership units
("Unitholders") were accepted.
2. Summary of Significant Accounting Policies
Basis of Accounting The consolidated financial statements of the Partnership
have been prepared on the accrual basis of accounting and include the accounts
of the Partnership and the Owner Partnership. All significant intercompany
accounts and transactions have been eliminated.
Long-Lived Assets Held for Sale Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of " ("FAS 121"), requires the Partnership to record real
estate held for sale at the lower of carrying amount or fair value less cost to
sell.
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
assets, deferred rent receivable and deferred leasing costs were reclassified as
Real Estate Assets Held for Disposition. Pursuant to FAS 121, during the third
quarter of 1998, the Partnership suspended depreciation of the Cranberry Mall.
At December 31, 1999 and 1998, the Partnership completed a review of the
recoverability of the carrying value of Cranberry Mall based upon information
obtained during the marketing of this property for sale. Based upon the market
information obtained during the sales process, the Partnership revised the
estimate of the carrying value of Cranberry to an amount equal to Cranberry's
estimated fair value less costs to sell at December 31, 1999 and 1998 in
accordance with FAS 121.
Real Estate Held for Investment At December 31, 1997, real estate held for
investment, which consists of buildings, land and improvements at Cranberry, was
recorded at cost less accumulated depreciation and amortization and adjustment
for impairment. Cost includes the initial purchase price of each property plus
closing costs, acquisition and legal fees and capital improvements. Depreciation
is computed using the straight-line method based on an estimated useful life of
40 years. Depreciation of improvements is computed using the straight-line
method over estimated useful lives of 7 to 12 years.
F-5
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
At December 31, 1997, the Partnership completed a review of recoverability of
the carrying amount of Cranberry and related accounts based upon estimates of
undiscounted future cash flows expected to result from Cranberry's use and
eventual disposition. Based upon the review completed at December 31, 1997, and
a change in the estimated holding period for Cranberry, the Partnership wrote
down the carrying value of Cranberry and related assets to $39,275,000 which
resulted in a loss on writedown of real estate in accordance with FAS 121 in
1997.
Fair Value of Financial Instruments Statement of Financial Accounting Standards
No. 107 "Disclosures about Fair Value of Financial Instruments" ("FAS 107"),
requires the Partnership to disclose the estimated fair values of its financial
instruments. Fair values generally represent estimates of amounts at which a
financial instrument could be exchanged between willing parties in a current
transaction other than in forced liquidation. The carrying amount of receivables
and payables approximates fair value.
Fair value estimates are subjective and are dependent on a number of significant
assumptions based on management's judgment regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. In addition, FAS 107 allows a wide
range of valuation techniques, therefore, comparisons between entities, however
similar may be difficult.
Deferred Charges Mortgage commitment and placement fees, and extension fees
were amortized over the term of the mortgage notes payable. Leasing commissions
were amortized using the straight-line method over 7 years, which approximates
the average life of the leases.
Offering Costs Offering costs are non-amortizable and are deducted from limited
partners' capital.
Transfer of Units and Distributions Net income or loss from operations is
allocated to registered Unitholders. Upon the transfer of a limited partnership
unit, net income (loss) from operations attributable to such unit generally is
allocated between the transferor and the transferee based on the number of days
during the year of transfer that each is deemed to have owned the unit. The
Unitholder of record on the first day of the calendar month is deemed to have
transferred their interest on the first day of such month.
Distributions of operating cash flow, as defined in the Partnership Agreement,
are paid on a quarterly basis to registered Unitholders on record dates
established by the Partnership. Distributions, when paid, are generally paid 45
days after quarter end.
Income Taxes No provision is made for income taxes in the consolidated
financial statements since such liability is the liability of the individual
partners.
Net Income (Loss) Per Limited Partnership Unit Net income (loss) per limited
partnership unit is calculated based upon the number of limited partnership
units outstanding during the period.
Rental Income and Deferred Rent The Partnership leases its property to tenants
under operating leases with various terms. Deferred rent receivable consisted of
rental income which was recognized on the straight-line basis over the lease
terms, but will not be received until later periods as a result of scheduled
rent increases.
Cash and Cash Equivalents Cash and cash equivalents consist of short-term,
highly liquid investments which have maturities of three months or less from the
date of issuance. The carrying amount approximates fair value because of the
short maturity of these investments.
Concentration of Credit Risk Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institutions' insurance limits.
F-6
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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 income and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications Certain prior year amounts have been reclassified to conform
to the current year's presentation.
3. Real Estate Assets Held for Disposition
As of December 31, 1999 and 1998, the Partnership's real estate consisted of
Cranberry Mall, an enclosed regional mall located in Westminster, Maryland.
Formerly, the Partnership owned another regional mall, The Mall at Assembly
Square in Somerville, Massachusetts, which was sold through foreclosure on
December 20, 1996.
Cranberry Mall
- --------------
Cranberry Mall, which includes approximately 55.61 acres of land, was purchased
on October 5, 1988 for $53,847,500. Cranberry contains approximately 530,000
square feet of gross leasable area including four anchor spaces: Sears, Belk
(formerly Leggett), Montgomery Ward and a vacated Caldor store.
Sears leases approximately 70,000 square feet of gross leasable building area.
Sears is required to use the premises as a Sears retail store until the year
2002 or under such other trade name as the majority of Sears retail stores are
then operating.
Caldor leased approximately 81,200 square feet of gross leasable building area.
On September 18, 1995, Caldor 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
and vacated the property with bankruptcy court approval, and the Partnership's
claims for unpaid rent and rejection damages under Caldor's lease was filed
shortly thereafter. Caldor did not submit a plan for reorganization and on
January 22, 1999 was ordered to wind down its business operations and affairs
under Chapter 11 of the Bankruptcy Code. The Partnership's claim for unpaid rent
and reduction damages will not be paid. Caldor represented approximately 4.8%
and 10% of Cranberry's rental income for the years ended December 31, 1998 and
1997, respectively.
Belk (formerly "Leggett") currently leases 65,282 square feet of gross leasable
building area. During the first 15 years of the lease, ending March 4, 2002, the
tenant is required to use the premises as a Belk retail department store or
under such other trade name as Belk is then operating substantially all of its
department stores.
Montgomery Ward leases approximately 80,000 square feet of gross leasable
building area and 9,000 square feet for an automotive center. During the first
15 years of the lease term, the tenant is required to use the premises as a
retail store under the trade name Montgomery Ward or under such other name as
the tenant is doing business in the majority of its retail department stores in
the State of Maryland.
On July 7, 1997, Montgomery Ward filed for protection under Chapter 11 of the
Bankruptcy Code. Montgomery Ward confirmed its plan of reorganization in July
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.
F-7
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
The following is a schedule of the remaining minimum lease payments as called
for under the lease agreements:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
--------------------------------------
<S> <C>
2000 $ 2,758,892
2001 2,523,438
2002 2,332,884
2003 1,935,376
2004 1,792,034
Thereafter 6,156,056
--------------------------------------
$17,498,680
===========
</TABLE>
In addition to the minimum lease amounts, the leases provide for percentage
rents and escalation charges to tenants for common area maintenance and real
estate taxes. For the years ended December 31, 1999, 1998 and 1997,
respectively, percentage rents amounted to $398,742, $285,910 and $240,961 for
Cranberry. These amounts are included in rental income. For the years ended
December 31, 1999, 1998 and 1997, respectively, temporary tenant income amounted
to $179,360, $268,694 and $291,706 for Cranberry. These amounts are included in
rental income.
During 1998, the Partnership engaged a broker to market Cranberry for sale. In
view of the anticipated sale of the mall, the Partnership's real estate assets
were recorded on the Partnership's December 31, 1998 consolidated balance sheet
as "Real estate assets held for disposition." On September 11, 1999, the
Partnership entered into a contract to sell Cranberry Mall to a third-party
buyer. Any sale of the Partnership's interest in the Mall is subject to the
approval of a majority-in-interest of the Limited Partners. The proposed sale
and subsequent dissolution of the Partnership was approved by a
majority-in-interest of the Unitholders at a Special Meeting of the Limited
Partners held on February 29, 2000.
On April 3, 2000, the General Partner sold Cranberry (see Note 12).
Assembly Square
- ---------------
The Mall at Assembly Square in Somerville, Massachusetts was purchased on
October 11, 1988 for $42,358,000. Assembly Square contained approximately
322,000 square feet of gross leasable area.
On October 15, 1996, the Owner Partnership received notice of default from its
lender, Aetna Life Insurance Company ("Aetna"), due to the Owner Partnership's
failure to escrow real estate taxes with Aetna as required under the Mortgage
and Security Agreement (the "Mortgage") secured by Assembly Square. On account
of such default, and pursuant to its rights and remedies under the Mortgage,
Aetna declared the entire outstanding mortgage loan balance immediately due and
payable. On November 26, 1996, Aetna commenced advertising for a public
nonjudicial foreclosure sale to be held on December 20, 1996. On December 20,
1996, Aetna acquired Assembly Square at the foreclosure sale.
Subsequent to the foreclosure date, Aetna advised the Partnership that it would
pursue environmental remediation claims for land contamination under the terms
of the Mortgage. On September 3, 1997, the Partnership and Aetna entered into a
Settlement Agreement whereby the Partnership paid $400,000 to Aetna for a
complete release from the Mortgage's loan covenants. The release excludes
environmental claims already made by Aetna regarding existing environmental
conditions and environmental claims which could arise in the future because of
existing conditions. The Partnership separately funded approximately $500,000 to
pay for work performed to address environmental conditions at Assembly Square.
Accordingly, the Partnership recognized a provision of $900,000 for
environmental remediation and settlement costs in the accompanying consolidated
statements of operations for the year ended December 31, 1997.
F-8
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
The Partnership agreed to in 1998, and collected in 1999, a $300,000
contribution from a prior owner of the Assembly Square property for the amounts
the Partnership expended during 1998 in connection with the environmental site
remediation. The Partnership also collected in 1999 a $25,000 contribution from
another former owner for costs associated with the environmental remediation at
the property. The Commonwealth of Massachusetts performed a statutorily-required
audit on the remediation performed at Assembly Square; it is uncertain whether
that audit will require additional remediation to be performed. The Partnership
has negotiated an agreement with the current owner of Assembly Square Mall,
under which that owner assumed responsibility for responding to the audit and
indemnified the Partnership from any liability arising from that audit or
environmental conditions on the property.
4. Partnership Agreement
The Partnership has a 98% interest in the operating income, profits and cash
distributions, and a 99% interest in the operating losses, of the Owner
Partnership. The Limited Partnership Agreement provides that all operating
income, operating losses and cash distributions are generally allocated 1% to
the General Partner and 99% to the Unitholders.
5. Construction Escrow
In 1990, the Partnership borrowed $3,775,000 to fund the expansion of Montgomery
Ward at Cranberry. During 1991, $3,425,000 of the funds were released. The
remaining proceeds of $491,246 and $473,246, inclusive of interest income,
remain in a construction escrow account as of December 31, 1999 and 1998,
respectively.
6. Mortgages Payable
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Secured by Cranberry. Interest only, at 7.25%,
payable monthly, and repaid in full on April 3, 2000 $27,250,000 $27,250,000
Secured by Cranberry. Interest only, at 7.25%,
payable monthly, and repaid in full on April 3, 2000 3,775,000 3,775,000
- --------------------------------------------------------------------------------------
$31,025,000 $31,025,000
=========== ===========
</TABLE>
The original notes secured by Cranberry matured on November 1, 1993. The lender,
Metropolitan Life Insurance Company, agreed to extend the maturity date of the
notes to May 1, 1994. During the extension period, the General Partner and
Metropolitan Life Insurance Company agreed to modify and extend the notes on
mutually acceptable terms. Under the terms of the agreement, the amended notes,
effective April 1, 1994, require payments of interest only at an interest rate
of 7.25% per annum until their maturity on April 1, 1999. In March 1999,
Metropolitan Life Insurance Company agreed to allow the Partnership to defer the
payment of the notes to April 1, 2000, provided that the Partnership continued
to pay interest at the same rate and times set forth in the notes. The maturity
date of the notes was further extended to the date the Mall was sold. The notes
were repaid from the Cranberry sale proceeds. Interest expense for each of the
years ended December 31, 1999, 1998 and 1997 was $2,249,312.
Based on the borrowing rates currently available to the Partnership for mortgage
loans with similar terms, the fair value of the Cranberry notes approximates its
carrying value as of the balance sheet date.
7. Transactions With Related Parties
Under the terms of the Partnership Agreement, the Partnership reimburses the
General Partner and affiliates, at cost, for certain administrative expenses.
For the years ended December 31, 1999, 1998 and 1997, such costs incurred were
$271, $3,702 and $3,495, respectively.
Commencing January 1, 1997, the Partnership began reimbursing certain expenses
incurred by the General Partner and its affiliates in servicing the Partnership
to the extent permitted by the partnership agreement. For the years ended
December 31, 1999 and 1998, costs were $111,561 and $54,771 of which $45,500 and
$25,549 were unpaid at December 31, 1999 and 1998, respectively. In prior years,
affiliates of the General Partner had voluntarily absorbed these expenses.
F-9
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
8. Management Agreement
On May 1, 1997 the Partnership withdrew from its former management agreement
with Shopco Management Corporation, an affiliate of the Owner Partnership, and
entered into an agreement with Insignia Retail Group, Inc. ("Insignia").
Insignia receives an annual fee equal to 4% of the gross rents collected from
Cranberry Mall. The agreement was terminated on the date the Mall was sold. For
the year ended December 31, 1997, management fees earned by Shopco Management
Corporation were $69,849. The management fee earned by Insignia during 1999 and
1998 was $156,540 and $160,364, respectively.
9. Distributions to Limited Partners
Distributions to the limited partners for 1998 were $5,246,992 ($74.69 per
limited partnership unit).
10. Reconciliation of Consolidated Financial Statement Basis Net Income (Loss)
and Partners' Capital To Federal Income Tax Basis Net Income (Loss) and
Partners' Capital
Reconciliations of consolidated financial statement basis net income (loss) and
partners' capital to federal income tax basis net income (loss) and partners'
capital follow:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated financial statement basis net loss $(1,801,326) $(2,583,615) $(7,594,087)
Tax basis depreciation over financial statement
depreciation (1,706,709) (1,038,377) (211,566)
Tax basis recognition of deferred income over (under)
financial statement recognition of deferred income (170,859) 17,128 18,224
Tax basis recognition of real estate taxes under (over)
financial statement recognition of real estate taxes 62,377 (6,542) (14,115)
Tax basis recognition of rental income over (under)
financial statement recognition of rental income -- (75,111) (143,936)
Financial statement loss on write-down of properties 2,890,000 4,145,677 7,497,111
Other 72,470 (53,420) --
-----------------------------------------
Federal income tax basis net income (loss) $ (654,047) $ 405,740 $ (448,369)
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial statement basis partners' capital $ 9,325,732 $11,127,058 $19,010,665
Current year financial statement net income (loss)
over federal income tax basis
net income (loss) 1,147,279 2,989,355 7,145,718
Cumulative federal income tax basis net loss over
(under) cumulative financial statement net loss 10,931,039 7,941,684 795,966
-----------------------------------------
Federal income tax basis partners' capital $21,404,050 $22,058,097 $26,952,349
- -------------------------------------------------------------------------------------------------
</TABLE>
Because many types of transactions are susceptible to varying interpretations
under Federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
respective taxing authorities.
11. Litigation
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, the
foreclosure sale of Assembly Square and the efforts to sell Cranberry. 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.
F-10
<PAGE>
SHOPCO REGIONAL MALLS, L.P.
AND CONSOLIDATED PARTNERSHIP
12. Subsequent Event
On April 3, 2000, Cranberry Mall was sold to an unaffiliated entity for a gross
sale price of $33,500,000. The sale proceeds were used to pay off the
Partnership's mortgage notes and accrued interest payable, which totaled
$31,231,187. The General Partner intends to distribute the remaining proceeds
from the sale and the Partnership's additional cash reserves (after payment of a
provision for the Partnership's liabilities and expenses, and establishment of
reserves for contingencies, if any), and terminate the Partnership in 2000.
F-11
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Partners
Shopco Regional Malls, L.P.:
We have audited the consolidated financial statements of Shopco Regional Malls,
L.P. (a Delaware limited partnership) and consolidated partnership as listed in
the accompanying index. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules as
listed in the accompanying index. These consolidated financial statements and
financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Shopco Regional
Malls, L.P. and consolidated partnership as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG LLP
Boston, Massachusetts
March 3, 2000
except for the matters discussed in Note 12
which is as of April 3, 2000
F-12
<PAGE>
<TABLE>
<CAPTION>
Schedule II - Valuation and Qualifying Accounts
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997: $ 160,393 $ 207,803 $ 1,328 $ 366,868
Year ended December 31, 1998: $ 366,868 $ 130,876 $ 365,834 $ 131,910
Year ended December 31, 1999: $ 131,910 $ (36,899) $ 81,621 $ 13,390
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Schedule III - Real Estate Assets and Accumulated Depreciation
December 31, 1999
Cranberry Mall
Shopping Center
- ------------------------------------------------------------------------------------
<S> <C>
Location Westminster, MD
Construction date 1980
Acquisition date 10-88
Life on which depreciation in latest income statements is computed (3)
Encumbrances $ 31,025,000
------------
Initial cost to Partnership(1):
Land $ 6,610,235
Buildings and improvements 47,649,669
Costs capitalized subsequent to acquisition:
Land, buildings and improvements 5,712,175
Deferred rent 544,832
Net leasing costs 240,790
Write-off of accumulated depreciation (13,709,186)
Writedown of real estate (14,608,515)
------------
$ 32,440,000
============
Gross amount at which carried at close of period(2):
Land $ 5,401,132
Buildings and improvements 27,038,868
------------
$ 32,440,000
============
- ------------------------------------------------------------------------------------
<FN>
(1) The initial cost to the Partnership represents the original purchase price of the property.
(2) For Federal income tax purposes, the costs basis of the land, building and improvements at
December 31, 1999 is $62,331,945.
(3) Buildings - 40 years; personal property - 12 years; tenant improvements - 7 years.
</FN>
</TABLE>
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Beginning of year $ 35,280,000 $ 39,275,000 $ 59,709,985
Additions 50,000 36,094 176,000
Deferred rent -- 544,832 --
Net leasing commissions -- 240,790 --
Writedown of real estate (2,890,000) (4,816,716) (20,610,985)
------------------------------------------------
End of year $ 32,440,000 $ 35,280,000 $ 39,275,000
------------------------------------------------
Accumulated depreciation:
Beginning of year $ -- $ -- $ 11,512,517
Depreciation expense -- 671,039 1,525,630
Writedown of real estate -- (671,039) (13,038,147)
------------------------------------------------
End of year $ -- $ -- $ --
- --------------------------------------------------------------------------------------------------
</TABLE>
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 7,605,884
<SECURITIES> 000
<RECEIVABLES> 129,945
<ALLOWANCES> 13,390
<INVENTORY> 000
<CURRENT-ASSETS> 8,045,684
<PP&E> 32,440,000
<DEPRECIATION> 000
<TOTAL-ASSETS> 40,976,930
<CURRENT-LIABILITIES> 401,391
<BONDS> 31,025,000
000
000
<COMMON> 000
<OTHER-SE> 9,325,732
<TOTAL-LIABILITY-AND-EQUITY> 40,976,930
<SALES> 3,773,266
<TOTAL-REVENUES> 6,443,565
<CGS> 000
<TOTAL-COSTS> 5,534,043
<OTHER-EXPENSES> 476,595
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 2,249,312
<INCOME-PRETAX> (1,801,326)
<INCOME-TAX> 000
<INCOME-CONTINUING> (1,801,326)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (1,801,326)
<EPS-BASIC> (25.39)
<EPS-DILUTED> (25.39)
</TABLE>
