<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required, Effective October 7, 1996]
For the fiscal year ended December 31, 1996
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[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-18382
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ATLANTIC INCOME PROPERTIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
North Carolina 56-1623861
(State of organization) (I.R.S. Employer Identification No.)
121 W. Trade St.
Charlotte, North Carolina 28202
(Address of principal executive offices) (Zip Code)
Not Applicable
(Former name, former address and fiscal year ended,
if changed since last report)
Registrant's telephone number, including area code: (704) 379-9164
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405) Not applicable as all securities are
non-voting.
Indicate the number of each of the issuer's classes of common stock as of the
latest practicable date 508,594 Beneficial Unit Certificates outstanding as of
March 10, 1997
Documents Incorporated by Reference: See Item 14
Page 1 of 16 sequentially numbered pages
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PART I
ITEM 1 - BUSINESS
Atlantic Income Properties (the "Registrant" or the "Partnership") is a
North Carolina limited partnership organized as of March 30, 1988. The General
Partners of the Registrant are ISC Realty Corporation ("ISCR"), a North Carolina
corporation and a wholly-owned subsidiary of Interstate/Johnson Lane, Inc., and
Chadsford Associates II ("Chadsford"), a North Carolina general partnership
whose partners are Lat W. Purser, III and Lat Purser & Associates, Inc. ("LPA").
ISCR and Chadsford shall hereinafter be collectively referred to as the "General
Partners". The Initial Limited Partner of the Registrant is Atlantic Income,
Inc., a North Carolina corporation.
The Registrant's principal investment objectives are to own, hold,
operate, lease, sell, and otherwise deal in commercial real estate properties
(the "Properties") which offer the potential for (1) preservation and protection
of capital invested in the Registrant, (2) cash distributions from operations of
the Properties, (3) long term appreciation in value of the Properties, and (4)
protection for investors against inflation. As of December 31, 1996, the
offering proceeds and cash flow from operations have been used to: (i) acquire
and maintain Southwest Plaza in Roanoke, Virginia; Lincoln Center in Lincolnton,
North Carolina; Sangaree Plaza in Berkeley County, South Carolina; Rosewood
Shopping Center in Columbia, South Carolina; and West Ridge Plaza in Bristol,
Tennessee; (ii) make distributions to investors; and (iii) invest in short-term
investments.
It is intended that the Registrant be self-liquidating and accordingly,
the net proceeds of any sale of any Property will be distributed to the
Investors.
The Registrant terminated its Offering of beneficial unit certificates
effective on February 7, 1990, with the total number of BUCs subscribed being
508,594. Total gross proceeds from the offering were $10,174,012 and total net
proceeds to the Registrant equaled $8,880,362 after deducting organization and
offering expenses of $1,293,650.
The real estate business is highly competitive, and the Partnership
competes with numerous established companies, real estate investment trusts and
other limited partnerships, some of which have greater assets than the
Partnership, and broader experience than the General Partners. Some of the
competitive factors which the Partnership may encounter from time to time
include a rising level of vacancies due to changes in supply or demand of
competing properties in an area, such as excess supply resulting from
competitive overbuilding and a decrease in rental rates due to an economic
slowdown.
The General Partners or their affiliates currently serve as a general
partner in 19 public and private partnerships which currently own various types
of real property. None of the prior partnerships sponsored by the General
Partners now contemplate the acquisition of any additional properties due to all
public funds being fully invested. However, it is likely that the General
Partners or their affiliates will sponsor additional public or private
partnerships in the future. In addition, the General Partners and their
affiliates are and will continue to be engaged in the
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business of real estate investment, development and management apart from their
involvement in the Registrant.
The General Partners intend to devote only such time to the business of
the Registrant as in their judgment is reasonably required. The General Partners
are engaged in other similar activities which also require their time and
attention.
As of December 31, 1996, the Registrant did not directly employ any
persons in a full-time position. Certain employees of the General Partners
performed services for the Registrant during such time.
ITEM 2 - PROPERTIES
(a) Southwest Plaza
Southwest Plaza Shopping Center is an 87,834 square-foot shopping
center situated on approximately 7.58 acres of land in Roanoke, Virginia.
Southwest Plaza is anchored by a 30,450 square-foot Harris-Teeter Supermarket
and a 7,000 square-foot Revco drug store. In addition, a 3,250 square-foot
Firestone Tire Center and Car Maintenance Shop is located on a 0.487 acre tract
of land separate from the Southwest Plaza Shopping Center but also owned by the
Registrant. As of March 10, 1997, the center was 95% occupied. Five leases
totaling 8,790 square feet will expire by December 31, 1997.
The original $3,700,000 loan from Prudential Insurance Company of
America, secured by the center, had a five year-term, an interest rate of 9.75%.
and expired on September 15, 1993. An extension of the Southwest Loan was then
granted by the lender for a period of 36 months from April 15, 1994. As of March
10, 1997, the Registrant was negotiating an extension of this loan. Terms
include monthly principal and interest payments of $36,200 based upon an
approximately 14 year amortization and an interest rate of 8.4%. The balance of
the mortgage at December 31, 1996 was $3,206,993. At the closing, the
Partnership executed and delivered to the lender an agreement
cross-collateralizing and cross-defaulting the Southwest Plaza and Lincoln
Center loans.
(b) Lincoln Center
Lincoln Center, located in Lincolnton, North Carolina, is a 255,468
square-foot shopping center completed in March of 1989. The center includes a
44,454 square-foot Belk Department Store and a 132,200 square-foot Wal-Mart
Discount Store, neither of which are owned by the Registrant. Wal-Mart
originally occupied 65,390 square feet and expanded to 132,200 square feet in
the second half of 1995. The remaining 78,770 square feet owned by the
Registrant is anchored by a 33,302 square-foot Bi-Lo Supermarket, an 8,450
square-foot Revco Drug Store, and a 6,000 square-foot Cato clothing store. As of
March 10, 1997, occupancy at the Registrant's portion of the center was 98%.
There are no leases scheduled to terminate before December 31, 1997.
The $3,000,000 loan from the Prudential Insurance Company of America,
secured by the center, expired April 15, 1994. The Registrant was granted a 36
month extension of the loan until April 15, 1997. As of March 10, 1997, the
Registrant was negotiating an extension of this loan.
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Monthly principal and interest payments increased to $29,800 based on an
approximately 14 year amortization with an interest rate of 8.4%. At the
closing, the Partnership executed and delivered to the lender an agreement
cross-collateralizing and cross-defaulting the Lincoln Center and Southwest
Plaza Shopping Center loans. The balance of the mortgage at December 31, 1996,
was $2,610,589.
(c) Sangaree Plaza
Sangaree Plaza, a 58,948 square-foot shopping center located in
Berkeley County, South Carolina, is anchored by a 37,369 square-foot Bi-Lo
Supermarket and an 8,450 square-foot Revco Drug Store. The remaining spaces are
leased to local and regional tenants. The property was 97% leased as of March
10, 1997. There is one lease of 2,000 square feet expiring prior to December 31,
1997.
Sangaree Plaza was acquired subject to a permanent mortgage loan from
Southern Farm Bureau Life Insurance Company with an original principal balance
of $1,750,000. A new loan which added $1,200,000 to the loan balance was granted
in conjunction with the Bi-Lo expansion and closed May 11, 1993. Loan terms are
a 9 1/8% interest rate, 25 year amortization and a five year term. The balance
of the mortgage at December 31, 1996, was $2,727,352.
(d) Rosewood Shopping Center
Rosewood Shopping Center, a 55,087 square-foot shopping center located
in Columbia, South Carolina, is anchored by three major tenants: Rite Aid,
Advance Auto, and First Citizen's Bank and Trust Company. The anchor tenants
occupy a total of 14,600 square feet, or 25% of the net leasable area. Rite Aid
vacated its space in 1996 and moved to a free-standing location, however, they
have remained current on their lease payments and are obligated to do so until
November 10, 2000. As of March 10, 1997, the center was 97% occupied. Three
leases representing 4,600 square feet will expire by December 31, 1997.
Rosewood is owned subject to a $1,500,000 permanent mortgage loan from
the Independent Life and Accident Insurance Company. The loan bears interest at
an annual rate of 9 7/8% and has a term of 27 years. The note is being repaid in
equal monthly payments of principal and interest of $13,499 amortized over the
remaining term of the loan ending October, 2016. The balance of the mortgage at
December 31, 1996, was $1,404,354.
(e) West Ridge Plaza
West Ridge, a 140,985 square-foot shopping center situated on 14.372
acres of land in Bristol, Tennessee, is anchored by Wal-Mart, Food Lion, and
Revco, which occupy 79,900 square feet, 27,885 square feet, and 10,500 square
feet, respectively. In the aggregate, these tenants occupy 118,285 square feet
or 83.9% of the center's net leasable space. As of March 10, 1997, the center
was 98% leased and occupied. No leases are scheduled to expire prior to December
31, 1997.
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West Ridge Plaza was purchased subject to revenue bonds and was
refinanced in 1990. On January 5, 1990, the Registrant combined the net proceeds
of a $4,500,000 loan received from Provident National Assurance Company
("Provident") with Offering proceeds and deposited $5,750,650 in cash and
government securities with the Trustee of the Bonds, thereby causing the Bonds
to be deemed paid. Provident received a first lien Deed of Trust encumbering
West Ridge Plaza in consideration of making said loan. The Provident loan bears
interest at 9.6% per annum and had a term of five years which expired January 1,
1995. The lender granted two forbearance periods for a period of one year each,
the latest of which expired January 1, 1997. The lender has continued to accept
the normal monthly payment of principal and interest in the amount of $38,658.
The General Partners are optimistic that the lender will extend the maturity of
the note. The balance of the mortgage at December 31, 1996, was $4,301,417.
ITEM 3 - LEGAL PROCEEDINGS
In February, 1997, the Partnership filed a Complaint in the Court of
Common Pleas, State of South Carolina, County of Greenville, against Moovies of
the Carolinas, Inc. and John L. Taylor. The Partnership seeks a judgment in
excess of $20,000 for Breach of Lease Agreement, Conversion, Trespass, and
Breach of Guarantee. Additionally, the Partnership seeks an award of punitive
damages for Moovies' intentional conversion of the Partnership's personal
property and intentional trespass and damage to the Partnership's real property.
Additionally, the Partnership seeks trebled damages for Unfair and Deceptive
Trade Practices. Finally, the Partnership seeks that the costs of this action,
including the Partnership's attorney fees, be taxed to Moovies and Mr. Taylor.
The lawsuit is in the preliminary discovery stage. Neither Moovies nor Mr.
Taylor have asserted any claims against the Partnership and the Partnership
believes that its claims against Moovies and Mr. Taylor have merit.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In December 1995, the limited partners were asked to approve the sale
of the properties at a minimum sales price of $22.5 million and to select a real
estate brokerage firm to be responsible for marketing the portfolio. The sale of
the portfolio at the minimum sales price was approved by the limited partners
and Lat Purser & Associates, Inc. was selected as the real estate broker
responsible for marketing the properties. The exclusive brokerage arrangement
with Lat Purser & Associates expired on September 30, 1996.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S SECURITIES AND OTHER RELATED
SECURITIES HOLDER MATTERS
Transfer of the Registrant's Beneficial Unit Certificates ("BUCs") is
subject to certain restrictions contained in the Registrant's Limited
Partnership Agreement. There is no established market for the BUCs and it is not
anticipated that any will occur in the future. The Registrant is aware of no
significant resales of BUCs since the effective date of the Offering. As of
March 10, 1997, 638 investors were record owners of 508,594 BUCs.
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During the year ended December 31, 1996, the Registrant made four
distributions totaling $259,702 to investors, representing a portion of net cash
flow generated from operations during the fiscal year ended December 31, 1996.
For the year ended December 31, 1995, the Registrant made four
distributions totaling $228,976 to investors, representing a portion of net cash
flow generated from operations during the fiscal year ended December 31, 1995.
During the year ended December 31, 1994, the Registrant made
distributions totaling $203,537 to investors, representing a portion of net cash
flow generated from operations during the fiscal year ended December 31, 1994.
ITEM 6 - SELECTED FINANCIAL DATA (AUDITED)
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Dec 31 Dec 31 Dec 31 Dec 31 Dec 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Revenues $3,149,348 $3,192,868 $2,995,059 $2,845,961 $2,641,290
Net Income (Loss) 134,508 306,231 25,986 (260,715) (441,791)
Net Inc (Loss)/BUC 0.25 0.57 0.05 (0.51) (0.86)
Total Assets 20,573,937 20,969,999 21,203,555 21,752,837 20,898,713
Long-Term Debt 14,250,705 14,649,738 15,016,682 15,333,111 14,225,656
Partners' Equity 5,527,135 5,652,329 5,575,074 5,752,625 6,216,876
Distributions per BUC $0.51 $0.45 $0.40 $0.40 $0.30
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Registrant generated $1,091,165 of cash flow from operations during
the year ended December 31, 1996. Cash payments during the year ended December
31, 1996, for interest on the Registrant's outstanding long-term debt amounted
to $1,346,749. In addition, $399,033 of principal payments were made on loans.
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As of December 31, 1996, the Registrant held cash and cash equivalents
of $266,603. In addition, $94,699 was held in restricted cash accounts related
to tenant deposits and property tax escrows.
It is the intent of the general partners to continue to market the
properties for sale in 1997. Correspondence soliciting the vote of the limited
partners for approval of a sale at a minimum price was sent in November 1995
(See Item 4 for further discussion). If the real estate brokers selected to
market the properties are successful in their attempts, the General Partners
anticipate the Partnership will be liquidated by the end of 1997.
Results of Operations.
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1996, TO THE FISCAL YEAR ENDED
DECEMBER 31, 1995
The Partnership reported net income of $134,508 for the year ended
December 31, 1996, as compared with net income of $306,231 for the year ended
December 31, 1995.
Rental and reimbursement income for the year ended December 31, 1996,
decreased $47,869 from $3,147,608 for the year ended December 31, 1995, to
$3,099,739 for the year ended December 31, 1996. Base rental income and expense
recoveries generally were flat to slightly up at all five properties in 1996.
This was due to continued strong occupancy and normal rent and expense recovery
escalations at the properties. The main factor behind the decrease in total
revenue was a $66,000 decline in percentage rent received from Wal-Mart at West
Ridge Plaza. The reason for this decline was the loss of sales due to the
opening of a new Wal-Mart store approximately nine miles from the West Ridge
Plaza store. The long-term impact of the new Wal-Mart location on the existing
West Ridge Plaza store is uncertain. Wal-Mart's lease at West Ridge Plaza
expires November 12, 2004.
Interest and other income increased from $45,260 for the year ended
December 31, 1995, to $49,609 for the year ended December 31, 1996. This
increase was due primarily to an increase in miscellaneous fees and charges
received at the properties.
Interest expense decreased slightly from $1,348,940 for the year ended
December 31, 1995, to $1,344,491 for the year ended December 31, 1996. This
decrease was due to a greater amount of principal being amortized with each
monthly payment on all five mortgage notes.
Depreciation and amortization decreased from $712,442 for the year
ended December 31, 1995, to $28,606 for the year ended December 31, 1996. This
decrease was due to the Partnership's adopting Statement of Financial Accounting
Standards No. 121 in 1996. This statement, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, requires the
Partnership to record a provision to write-down Partnership properties
to fair market value and to cease recording depreciation expense at the time the
properties began to be marketed for sale. As the properties began to be marketed
for sale as of January 1, 1996, the depreciation expense for 1996 under Standard
121 was $0. The $28,606 represents amortization
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expense for 1996, primarily due to various capital improvements at the
properties and tenant upfitting costs.
Other operating expenses increased $43,488 from $825,255 for the year
ended December 31, 1995, to $868,743 for the year ended December 31, 1996. This
increase was due largely to a $39,000 increase in lease commissions which was
primarily due to new and/or expanded tenants at Southwest Plaza and West Ridge
Plaza. In addition, maintenance and groundskeeping expenses were approximately
$15,000 higher, primarily due to unusually high snow removal costs at the
Southwest Plaza and West Ridge Plaza locations. Aside from these two categories,
other operating expenses of the Partnership for 1996 were generally in line with
or lower than the 1995 figures.
Write-down of rental property increased from $0 for the year ended
December 31, 1995, to $773,000 for the year ended December 31, 1996. This
write-down was due to the current marketing of the Partnership's properties for
sale and the General Partner's opinion that the net sale prices for Rosewood
Shopping Center and West Ridge Plaza will be less than their respective net book
values. Under Statement of Financial Accounting Standards No. 121, this
adjustment is shown as an operating expense.
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1995 TO THE FISCAL YEAR ENDED
DECEMBER 31, 1994
The Partnership reported net income of $306,231 for the year ended
December 31, 1995 as compared with $25,986 for the year ended December 31, 1994.
Rental and reimbursement income for the year ended December 31, 1995
increased $172,868 from $2,974,740 for the year ended December 31, 1994 to
$3,147,608 in 1995. The increase is the result of the following fluctuations:
Percentage rent earned in 1995 increased approximately $21,000 as compared to
1994. Rental income increased approximately $28,000 at Southwest, $26,000 at
Lincoln, $18,000 at Sangaree Plaza, and $33,000 at Rosewood. All of these
increases in rental income were offset by a decrease in rental income at
Westridge of approximately $45,000. Common area maintenance ("CAM") expense
reimbursement increased a total of $77,515 during 1995 as compared to 1994. The
primary increase in CAM reimbursement was at Lincoln Center for $32,000 and at
Westridge in the amount of $29,000. In addition, the insurance reimbursement
income increased approximately $13,000 which was comprised of an increase of
$7,000 at Southwest, $3,000 at Lincoln Center, $7,000 at Sangaree, and $1,000 at
Rosewood; all were offset by a decrease of $4,000 at Westridge.
Interest and other income increased from $20,319 for the year ended
December 31, 1994 to $45,260 for the year ended December 31, 1995. The
Partnership earned approximately $15,000 more in interest earned on cash
reserves held during 1995. The remaining $9,900 increase is an increase in
miscellaneous fees and charges received at the properties.
Interest expense decreased from $1,410,109 for the year ended December
31, 1994 to $1,348,940 for the year ended December 31, 1995 due to a greater
amount of principal being amortized with each monthly payment on all five
mortgage notes.
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Depreciation and amortization increased approximately $54,000 in 1995
as compared to 1994 primarily due to a full year of amortization expense taken
in 1995 associated with the loan closing costs for Southwest and Lincoln Center
incurred in 1994.
Other operating expenses decreased from $901,041 for the year ended
December 31, 1994 to $825,255 for the year ended December 31, 1995. The overall
decrease in operating expense was the result of a decrease in leasing
commissions of approximately $26,000, of which $18,000 was at Southwest Plaza
and $12,000 at Lincoln Center; these decreases were offset by an increase of
approximately $4,000 at Sangaree. Miscellaneous operating expense decreased
approximately $20,000 during 1995, of which $14,000 was the result of a decrease
at Westridge. In addition, repairs and maintenance and common area maintenance
expense decreased approximately $29,000 in 1995 as compared to 1994. Repairs and
maintenance expense decreased approximately $8,000 at Southwest and $11,000 at
Lincoln Center and common area maintenance expense decreased approximately
$10,000 at Westridge during 1995.
Inflation
The Registrant's business is impacted by inflation in several ways.
Inflation permits possible increases in rental rates generally to reflect the
impact of higher operating and replacement costs. Continued inflation should
increase the value of the Registrant's real property over a period of time as
rental revenues and replacement costs continue to increase. The various debt
instruments used in the acquisition of certain of the Registrant's properties
are fixed-rate, with maturities ranging from less than 1 to 20 years. Therefore,
inflation will not affect the Registrant's financing activities until such time
as a refinancing may be desired or is required.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the year ended December 31, 1996, the Registrant made no changes
in accountants and had no disagreements with accountants on accounting and
financial disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no directors or executive officers. Information as
to the directors and executive officers of ISCR and as to the general partners
of Chadsford is as follows:
Name Information about Directors and Executive Officers
---- --------------------------------------------------
J. Christopher Boone Director and President of ISCR. He is 38 years old.
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Michael A. Paschall Vice President of ISCR. He is 32 years old.
Michael D. Hearn Director of ISCR. He is 44 years old.
Parks H. Dalton Director of ISCR. He is 67 years old.
Edward C. Ruff Director of ISCR. He is 57 years old.
Robert B. McGuire Treasurer of ISCR. He is 49 years old.
Lat W. Purser, III General Partner of Chadsford. He is 45 years old.
J. Christopher Boone is a Managing Director of Interstate/Johnson Lane
Corporation ("I/JL"), an affiliate of ISCR and President of ISCR. Prior to
joining I/JL in 1984, Mr. Boone was a tax specialist for Coopers & Lybrand. He
received a bachelor's degree in business administration with an emphasis in
accounting from the University of North Carolina at Chapel Hill.
Parks H. Dalton was a director of Interstate/Johnson Lane, Inc. (the
"Company") from 1985 until his retirement in 1988. He also served as Chief
Executive Officer of I/JL from 1968 to 1988, President from 1968 to 1983, and
Chairman from 1983 to 1988. In November 1990, he was re-elected Chairman and
Chief Executive Officer of I/JL. He was re-elected as a director of the Company
in July 1990 and as Chairman and Chief Executive Officer of the Company in
September 1990. In 1994, he transferred the duties of Chief Executive Officer to
the current President of I/JL and currently remains Chairman. He is a director
of ISCR.
Edward C. Ruff is Senior Managing Director and Chief Financial Officer
of I/JL. He also serves as a member of the Board of Directors and Management
Committee of I/JL. Mr. Ruff has been with I/JL since 1976. He is a graduate of
the University of San Francisco, with a bachelor's degree in accounting. He is a
director of ISCR.
Robert B. McGuire is Treasurer of ISC Realty Corporation. In addition,
he is Senior Vice President and Treasurer of I/JL. Mr. McGuire received a B.A.
in Business Administration from Furman University and a Masters in Business
Administration from Emory University.
Michael D. Hearn has served as Secretary and General Counsel of I/JL
since 1985. He is a Senior Managing Director and a member of the Board of
Directors of I/JL. In May of 1992 he was elected a Director of ISCR. Mr. Hearn
received a Bachelor of Science degree in Business Administration and a Juris
Doctor from the University of North Carolina at Chapel Hill. He is secretary of
ISCR.
Michael A. Paschall, Vice President of ISCR and of I/JL since 1996.
Prior to joining ISCR in 1996, Mr. Paschall was Assistant Vice President and
Investment Officer of First Union National
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Bank. Mr. Paschall received a Bachelor of Arts degree in English and Economics
from the University of North Carolina at Chapel Hill and a Juris Doctor from
Wake Forest University.
Lat W. Purser, III has been associated with LPA for 15 years. He is
currently President and a member of the Board of Directors of LPA.
The General Partners are responsible for evaluating and selecting
Properties to be acquired by the Partnership. The actual analyses and decisions
as to Properties acquired for the Partnership were made by J. Christopher Boone
for ISCR and by Lat W. Purser, III for Chadsford.
ITEM 11 - EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1996, the Registrant paid no
compensation to the executive officers, directors or partners, respectively, of
the General Partners. See Item 13 "Certain Relationships and Related
Transactions" for a discussion of amounts paid or which may be paid to the
General Partners and certain affiliates of the General Partners for the year
ending December 31, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of March 10, 1997, no person known to the Registrant has beneficial
ownership of more than five percent of the BUCs.
The following individual directors and officers of ISCR and the
partners of Chadsford owned, on March 10, 1997, the following number of BUCs of
the Registrant.
<TABLE>
<CAPTION>
Number of BUCs Percent of
and Nature of Units
Name Beneficial Ownership(1) Subscribed for
- ---- ----------------------- --------------
<S> <C> <C>
J. Christopher Boone 100 Less than 1%
Michael A. Paschall 0 0%
Edward C. Ruff 0 0%
Mike Hearn 0 0%
Robert B. McGuire 0 0%
</TABLE>
- --------
(1) All BUCs owned directly with sole voting control unless otherwise
indicated.
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<TABLE>
<S> <C> <C>
All Directors and
Executive Officers of
ISCR as a Group 100 Less than 1%
Lat W. Purser, III 0 0%
</TABLE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the operational stage, ISCR will be entitled to receive a
partnership monitoring fee in an amount equal to 3% of the annual Gross Revenues
from the Properties, as defined in the Limited Partnership Agreement, for
monitoring the operations of the Registrant and the Property Manager, on behalf
of the Investors and for serving as liaison between the Registrant and the
Investors. The partnership monitoring fee shall be payable in quarterly
installments; provided, however, up to 50% of said fee may be subordinated on a
non cumulative basis to the Annual Priority Return to the Investors, as defined
in the Limited Partnership Agreement. Any portion of said fee which is
subordinated will bear interest at the Prime Rate plus 1% per annum until paid.
During the year ended December 31, 1996, ISCR earned partnership monitoring fees
of $91,450.
During the operational stage, LPA will be entitled to a property
management fee in an amount equal to 4% of the monthly Gross Revenues, as
defined in the Limited Partnership Agreement, for supervising the continued
management and operation of the Properties. LPA received $127,762 during 1996 as
payment of such fees relating to services performed at Southwest Plaza, Lincoln
Center, Sangaree Plaza, Rosewood Shopping Center, and West Ridge Plaza. In
addition, LPA, or its affiliate, will receive a leasing commission of 4% (or 2%
on renewals) of the gross lease value of each lease signed at Southwest Plaza,
Lincoln Center, Sangaree Plaza, Rosewood Shopping Center, and West Ridge Plaza.
Leasing commissions of $74,661 were paid to LPA during the year ended December
31, 1996, for leases signed or renewed during the same period at Southwest
Plaza, Sangaree Plaza, Westridge Plaza, Lincoln Center and Rosewood Shopping
Center.
12
<PAGE> 13
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. and 2. The response to this portion of Item 14 is submitted
as a separate section of this report.
3. Exhibits.
27. Financial Data Schedule (for SEC use only)
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC INCOME PROPERTIES
A NORTH CAROLINA LIMITED PARTNERSHIP
BY: ISC REALTY CORPORATION
GENERAL PARTNER
BY: /S/ J. CHRISTOPHER BOONE
--------------------------
J. CHRISTOPHER BOONE
PRESIDENT
14
<PAGE> 15
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/S/ J. Christopher Boone Director and
- -------------------------------- President of
J. Christopher Boone ISC Realty
Corporation
/S/ Edward C. Ruff Director of
- -------------------------------- ISC Realty
Edward C. Ruff Corporation
/S/ Parks H. Dalton Director of
- -------------------------------- ISC Realty
Parks H. Dalton Corporation
/S/ Michael D. Hearn Director of
- -------------------------------- ISC Realty
Michael D. Hearn Corporation
15
<PAGE> 16
ATLANTIC INCOME PROPERTIES
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
[Item 14(a) 1 and 2]
Pages
Report of Independent Public Accountants F-1
Financial Statements:
Balance sheets at December 31,
1996 and 1995 F-2
Statements of operations for the years ended
December 31, 1996, 1995, and 1994 F-3
Statements of partners' equity (deficit) for the
years ended December 31, 1996, 1995, and 1994 F-4
Statements of cash flows for the years
ended December 31, 1996, 1995, and 1994 F-5
Notes to financial statements F-6-F-11
Financial Statement Schedules:
Schedule III - Real estate and accumulated depreciation
for the year ended December 31, 1996 F-12
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the consolidated financial
statements and notes thereto.
16
<PAGE> 17
Atlantic Income Properties Limited Partnership
ANNUAL REPORT ON FORM 10(K)
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996, 1995 AND 1994
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlantic Income Properties Limited Partnership:
We have audited the accompanying balance sheets of Atlantic Income Properties
Limited Partnership (a North Carolina Limited Partnership) as of December 31,
1996 and 1995, and the related statements of operations, partners' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements and the schedule referred to below
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atlantic Income Properties
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
During 1995, the general and limited partners voted to sell the rental
properties comprising the partnership (Note 7). In addition, the Partnership is
in default on the mortgage note secured by West Ridge Plaza, and the mortgage
notes secured by Southwest Plaza Shopping Center and Lincoln Center mature in
April 1997 (Note 3).
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statements and financial statement schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. The schedule has been subjected
to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
January 31, 1997.
F-1
<PAGE> 19
ATLANTIC INCOME PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Rental properties (Notes 2 and 3):
Land $ 4,567,041 $ 4,759,041
Buildings and building improvements 19,262,045 19,212,524
------------ ------------
23,829,086 23,971,565
Accumulated depreciation (3,944,932) (3,964,123)
------------ ------------
Rental properties, net 19,884,154 20,007,442
Cash and cash equivalents 266,603 483,885
Restricted cash 94,699 134,232
Rents receivable 309,164 296,517
Deferred loan costs, net of accumulated amortization of $206,849 in
1996 and $178,243 in 1995 19,317 47,923
------------ ------------
$ 20,573,937 $ 20,969,999
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgage notes payable (Note 3) $ 14,250,705 $ 14,649,738
Accounts payable and accrued expenses 247,436 161,064
Due to general partner (Note 6) 493,576 446,114
Tenants' security deposits 55,085 60,754
------------ ------------
Total liabilities 15,046,802 15,317,670
------------ ------------
Partners' equity:
General partners 12,069 5,344
Limited partners 5,515,066 5,646,985
------------ ------------
Total partners' equity 5,527,135 5,652,329
------------ ------------
$ 20,573,937 $ 20,969,999
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-2
<PAGE> 20
ATLANTIC INCOME PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Rental income and tenant reimbursements $3,099,739 $3,147,608 $2,974,740
Interest and other income 49,609 45,260 20,319
---------- ---------- ----------
Total revenue 3,149,348 3,192,868 2,995,059
---------- ---------- ----------
Expenses:
Interest 1,344,491 1,348,940 1,410,109
Depreciation and amortization 28,606 712,442 657,923
Other operating expenses 868,743 825,255 901,041
Write-down of rental property (Note 2) 773,000 0 0
---------- ---------- ----------
Total expenses 3,014,840 2,886,637 2,969,073
---------- ---------- ----------
Net income $ 134,508 $ 306,231 $ 25,986
========== ========== ==========
Net income allocated to general partners $ 6,725 $ 15,312 $ 1,299
========== ========== ==========
Net income allocated to limited partners $ 127,783 $ 290,919 $ 24,687
========== ========== ==========
Net income per beneficial unit certificate (Note 1) $ .25 $ .57 $ .05
========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-3
<PAGE> 21
ATLANTIC INCOME PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1993 $(11,267) $ 5,763,892 $ 5,752,625
Net income 1,299 24,687 25,986
Distributions 0 (203,537) (203,537)
-------- ----------- -----------
Balance, December 31, 1994 (9,968) 5,585,042 5,575,074
Net income 15,312 290,919 306,231
Distributions 0 (228,976) (228,976)
-------- ----------- -----------
Balance, December 31, 1995 5,344 5,646,985 5,652,329
Net income 6,725 127,783 134,508
Distributions 0 (259,702) (259,702)
-------- ----------- -----------
Balance, December 31, 1996 $ 12,069 $ 5,515,066 $ 5,527,135
======== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-4
<PAGE> 22
ATLANTIC INCOME PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 134,508 $ 306,231 $ 25,986
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation 0 692,831 613,530
Amortization 28,606 19,611 44,393
Write-down of rental property 773,000 0 0
Changes in operating assets and liabilities:
Increase in rents receivable (12,647) (132,263) (46,326)
(Increase) decrease in restricted cash 39,533 (36,457) 86,922
Increase in amount due to general partner 47,462 46,457 71,892
Increase (decrease) in accounts payable, accrued
expenses and tenants' security deposits 80,703 22,389 (127,194)
----------- --------- ---------
Net cash provided by operating activities 1,091,165 918,799 669,203
----------- --------- ---------
Cash flows used in investing activities - Building improvements (649,712) (142,732) (57,941)
----------- --------- ---------
Cash flows from financing activities:
Increase in deferred loan costs 0 0 (57,047)
Distributions to limited partners (259,702) (228,976) (203,537)
Repayment of mortgage notes payable (399,033) (366,944) (316,429)
----------- --------- ---------
Net cash used in financing activities (658,735) (595,920) (577,013)
----------- --------- ---------
Increase (decrease) in cash and cash equivalents (217,282) 180,147 34,249
Cash and cash equivalents, beginning of year 483,885 303,738 269,489
----------- --------- ---------
Cash and cash equivalents, end of year $ 266,603 $ 483,885 $ 303,738
=========== ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-5
<PAGE> 23
ATLANTIC INCOME PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Atlantic Income Properties Limited Partnership (a North Carolina Limited
Partnership) (the Partnership) was formed on March 30, 1988, for the purpose of
developing, leasing and investing in commercial real estate properties located
primarily in the southeastern United States. ISC Realty Corporation and
Chadsford II Associates are the general partners. The Partnership will be
terminated upon the occurrence of certain events as defined in the limited
partnership agreement but, in any event, no later than December 31, 2028.
Beneficial Unit Certificates (BUCs) have been sold at $20 per BUC (508,594
units). The initial admission of investors to the Partnership occurred on August
1, 1988.
Under the terms of the partnership agreement, net loss of the Partnership is
allocated 99% to the limited partners and 1% to the general partners. Net income
of the Partnership is allocated 95% to the limited partners and 5% to the
general partners provided, however, that allocations and distributions to the
general partners are subordinated to a portion of a property management fee
payable to a general partner and to allocations and distributions to the limited
partners until the limited partners have received allocations and distributions
equal to a 9% cumulative noncompounded return on each limited partner's capital.
Accordingly, no distributions were made to the general partners during 1996,
1995 or 1994.
Upon the sale, refinance or disposition of the partnership property, the
partnership agreement specifies certain allocations of net proceeds and taxable
gain or loss from the transaction.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash represents tenants' security deposits and funds restricted by
the general partner in the amount of $39,614 in 1996 and $73,478 in 1995 for
future property tax assessments and insurance.
RENTAL PROPERTIES
Rental properties are recorded at cost, including all related acquisition costs.
Depreciation on buildings and building improvements is computed for financial
statement purposes using the straight-line method over the estimated useful life
of 31.5 years.
F-6
<PAGE> 24
DEFERRED LOAN COSTS
Deferred loan costs were incurred in connection with obtaining the mortgage
loans and are being amortized over the term of the loans.
SYNDICATION AND OFFERING COSTS
Fees and expenses relating to the sale of limited partnership units paid to
affiliates of the general partners were charged against partners' equity. These
fees included various legal and accounting services, sales commissions and
supervisory fees equal to 12% of the gross proceeds from the offering.
INCOME TAXES
Under current income tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, no provision has been made for
federal or state income taxes in the accompanying financial statements.
The tax returns of the Partnership are subject to examination by federal and
state taxing authorities. If such examinations occur and result in changes with
respect to the Partnership's qualification or in changes to partnership income
or loss, the tax liability of the partners would be changed accordingly.
NET INCOME PER BENEFICIAL UNIT CERTIFICATE
Net income per BUC is calculated based on the weighted average number of units
outstanding during the period (508,594 in 1996, 1995 and 1994).
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
During 1996, the Partnership adopted 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 required by this statement, the Partnership
recorded a provision to write-down certain properties to estimated fair market
value (Note 2), and ceased recording depreciation expense on the properties
beginning at the time the partners voted to sell such properties (Note 7).
F-7
<PAGE> 25
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate the
value:
Cash and Cash Equivalents, Rents Receivable and Accounts Payable - The
carrying amount approximates fair value because of the short maturity
of these instruments.
Long-term Debt - The fair value of the Partnership's long-term debt
approximates its carrying value.
2. RENTAL PROPERTIES:
The Partnership acquired Southwest Plaza Shopping Center from an affiliate of
Chadsford II Associates effective August 1, 1988. The property is an 86,601
square foot shopping center located in Roanoke, Virginia. The property was
acquired for a purchase price of $5,380,000, excluding closing costs, which was
partially funded by a $3,700,000 mortgage note payable.
During 1989, the Partnership acquired four properties: (a) Lincoln Center,
Lincolnton, North Carolina, (b) Sangaree Plaza, Berkley County, South Carolina,
(c) Rosewood Shopping Center, Columbia, South Carolina, and (d) West Ridge
Plaza, Bristol, Tennessee.
Lincoln Center was acquired from an affiliate of Chadsford II Associates
effective April 6, 1989. The total facility consists of a 255,468 square foot
shopping center located in Lincolnton, North Carolina, of which approximately
110,000 square feet is owned by the Partnership. The purchase price of
$5,053,000, excluding closing costs, was partially funded by a $3,000,000
mortgage note payable.
Sangaree Plaza was acquired effective May 31, 1989. The property is a 58,948
square foot shopping center located in Berkley County, South Carolina, near
Charleston. The initial purchase price of $2,380,000, excluding closing costs,
was partially funded by the assumption of a $1,715,102 mortgage note payable.
During 1993, construction was completed to expand Sangaree Plaza by
approximately 11,368 square feet. Total cost of the expansion was approximately
$1,200,000.
Rosewood Shopping Center was acquired effective June 5, 1989. The property is a
55,087 square foot shopping center located in Columbia, South Carolina. The
purchase price of $2,250,000, excluding closing costs, was funded entirely from
partners' capital.
West Ridge Plaza was acquired effective September 14, 1989. The property is a
140,985 square foot shopping center located in Bristol, Tennessee. The purchase
price of $6,567,000, excluding closing costs, was partially funded by the
assumption of $5,120,000 of Industrial Revenue Development Bonds. Remaining
funds for the acquisition were obtained from a mortgage note payable of
$1,500,000, which was secured by Rosewood Shopping Center.
F-8
<PAGE> 26
WRITE-DOWN OF RENTAL PROPERTY
As discussed in Note 7, the Partnership assets are being marketed for sale. It
is the opinion of the general partner that the net sales prices for Rosewood
Shopping Center and West Ridge Plaza will be less than their respective net book
values. Accordingly, the partnership recorded a provision in 1996 to write-down
rental property by $773,000, to the properties' fair market value, as estimated
by the general partner.
3. MORTGAGE NOTES PAYABLE:
The Partnership's debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Mortgage note payable, bearing interest at 8.4%, due in 1997. The note is
payable in monthly payments of principal and interest of $36,200 based on a
14-year amortization. The note is secured by a deed of trust on Southwest
Plaza Shopping Center and by an agreement cross-collateralizing and
cross-defaulting the Southwest Plaza Shopping Center and Lincoln Center
loans $ 3,206,993 $ 3,364,737
Mortgage note payable, bearing interest at 8.4%, due in 1997. The note is
payable in monthly payments of principal and interest of $29,800 based on a
14-year amortization. The note is secured by a deed of trust on Lincoln
Center and by an agreement cross-collateralizing and cross-defaulting the
Lincoln Center and Southwest Plaza Shopping Center loans $ 2,610,589 $ 2,742,807
Mortgage note payable, bearing interest at 9.125%, with a term of five years,
due in June 1998. The note is payable in monthly payments of principal and
interest of $24,162 based on a 25-year amortization. The note is secured by
a deed of trust on Sangaree Plaza and by the assignment of leases and rents 2,727,352 2,766,460
Mortgage note payable, bearing interest at 9.875%, due in 2016. The loan is
payable in monthly payments of principal and interest of $13,499. This note
is secured by a deed of trust on Rosewood Shopping Center and by the
assignment of leases and rents 1,404,354 1,426,457
Mortgage note payable, bearing interest at 9.6%, which matured in
1995. The Partnership continues to fund the note in monthly
payments of principal and interest of $38,658. The note is
secured by a deed of trust on West Ridge Plaza and by the
assignment of leases and rents 4,301,417 4,349,277
----------- -----------
$14,250,705 $14,649,738
=========== ===========
</TABLE>
F-9
<PAGE> 27
Maturities of mortgage notes payable are as follows:
<TABLE>
<S> <C> <C>
1997 $10,185,934
1998 2,711,121
1999 29,346
2000 32,379
2001 35,725
Thereafter 1,256,200
-----------
$14,250,705
===========
</TABLE>
Cash payments for interest in 1996, 1995 and 1994 amounted to $1,346,749,
$1,343,190 and $1,393,808, respectively.
The Partnership is in default on the mortgage note secured by West Ridge Plaza,
however, the lender has not demanded payment or commenced foreclosure
procedures, and continues to accept the normal monthly payment of principal and
interest. Additionally, the mortgage notes secured by deeds of trust on
Southwest Plaza Shopping Center and Lincoln Center mature in April 1997. The
general partner's intentions are to refinance these obligations. In the opinion
of the general partner, refinancing of all three mortgage notes will occur as
the properties loan to book value and debt service coverage ratios make it
likely that a successful refinancing will occur. Additionally, in the opinion of
the general partner, the fact that the properties are for sale (Note 7) should
encourage the current lenders to extend the maturities of the mortgage notes
until the properties can be sold. If financing cannot be obtained, the
Partnership may be unable to fund the matured obligations. This may result in
the lenders taking custody of any or all of the forementioned properties through
foreclosure proceedings. The accompanying financial statements, prepared on the
basis of accounting principles applicable to a going concern, do not include any
adjustments that might result from the outcome of this uncertainty.
4. LEASES:
The Partnership's rental properties are leased to tenants for terms ranging from
month-to-month to 17 years. The leases are accounted for as operating leases.
Approximately 13% of the rental properties is leased to one tenant under a lease
that expires in 2004. Approximately 12% of the rental properties is leased to
another tenant under leases that expire in 2009 and 2013. Minimum future rentals
on the noncancelable leases are as follows:
<TABLE>
<S> <C>
1997 $ 2,657,980
1998 2,408,604
1999 2,033,896
2000 1,700,864
2001 1,511,510
Thereafter 9,858,861
-----------
$20,171,715
===========
</TABLE>
F-10
<PAGE> 28
5. RECONCILIATION OF FINANCIAL STATEMENT INCOME TO TAXABLE INCOME (LOSS):
A reconciliation of financial statement net income and taxable income (loss)
allocated to the limited partners follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Financial statement net income $ 134,508 $306,231 $ 25,986
Add (deduct)-
Write-down of rental property 773,000 0 0
Depreciation and amortization
deducted for income tax
purposes (653,822) 24,680 12,585
Accrued property taxes (10,155) 10,155 (74,126)
Bad debts not deducted for tax 5,752 0 0
--------- -------- --------
Taxable income (loss) $ 249,283 $341,066 $(35,555)
========= ======== ========
</TABLE>
6. RELATED-PARTY TRANSACTIONS:
The Partnership incurs certain costs and expenses related to services provided
by its general partners and their affiliates. These costs and expenses were as
follows for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Property management fees $127,762 $128,672 $118,519
Partnership monitoring fees 91,450 89,886 87,802
Leasing commissions 74,661 35,127 53,387
======== ======== ========
</TABLE>
As specified in the partnership agreement, a general partner earns a partnership
management fee equal to 3% of the annual gross revenue of the Partnership.
Payment of 50% of this fee to the general partner is subordinate to certain
limited partner distributions. Any earned but unpaid partnership management fees
accrue interest at the rate of prime plus 1% and will be paid to the general
partner upon satisfaction of certain conditions contained in the partnership
agreement. At December 31, 1996 and 1995, the Partnership had accrued $493,576
and $446,114, respectively, in earned but unpaid partnership management fees and
interest. These amounts are presented as due to general partner on the
accompanying balance sheets.
7. SALE OF PARTNERSHIP ASSETS:
In December 1995, the general and limited partners voted to sell the rental
properties comprising the partnership. In the opinion of the general partner,
the proceeds from the sale of the rental properties will exceed the net carrying
value of such properties as of December 31, 1996, subsequent to the write-down
of rental property (Note 2).
F-11
<PAGE> 29
SCHEDULE III
ATLANTIC INCOME PROPERTIES LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ----------------------------------- --------------- --------------------------- ---------------------------
Cost Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
--------------------------- ---------------------------
Buildings and Carrying
Description Encumbrances Land Improvements Improvements Costs
- ----------------------------------- --------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Southwest Plaza Shopping Center,
Roanoke, Virginia $ 3,206,993 $1,533,000 $ 4,020,881 $ 546,510 $ 0
Lincoln Center,
Lincolnton, North Carolina 2,610,589 467,870 4,726,612 87,381 0
Sangaree Plaza,
Berkley County, South Carolina 2,727,352 398,171 1,979,690 1,382,249 0
Rosewood Shopping Center,
Columbia, South Carolina 1,404,354 675,000 1,576,814 291,524 (220,000)
West Ridge Plaza,
Bristol, Tennessee 4,301,417 1,685,000 4,934,575 296,809 (553,000)
----------- ---------- ----------- ---------- ----------
$14,250,705 $4,759,041 $17,238,572 $2,604,473 $ (773,000)
=========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Column A Column E Column F Column G Column H Column I
- ----------------------------------- --------------------------------------- ------------ ------------ -------- ----------------
Gross Amount at Life on Which
Which Carried at Close of Period Depreciation
--------------------------------------- in Latest
Buildings and Accumulated Date of Date Income Statement
Description Land Improvements Total Depreciation Construction Acquired is Computed
- ----------------------------------- ------------ ------------ ----------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Southwest Plaza Shopping Center,
Roanoke, Virginia $1,533,000 $ 4,567,391 $ 6,100,391 $ 993,383 1990/1988 1988 31.5 years
Lincoln Center,
Lincolnton, North Carolina 467,870 4,813,993 5,281,863 1,020,187 1989 1989 31.5 years
Sangaree Plaza,
Berkley County, South Carolina 398,171 3,361,939 3,760,110 542,131 1981 1989 31.5 years
Rosewood Shopping Center,
Columbia, South Carolina 616,000 1,707,338 2,323,338 383,469 1954 1989 31.5 years
West Ridge Plaza,
Bristol, Tennessee 1,552,000 4,811,384 6,363,384 1,005,762 1984 1989 31.5 years
---------- ----------- ----------- ----------
$4,567,041 $19,262,045 $23,829,086 $3,944,932
========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of activity from December 31, 1993, through December 31, 1996:
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $4,759,041 $19,011,851 $23,770,892 $2,657,762
Acquisitions 0 57,941 57,941 0
Depreciation 0 0 0 613,530
---------- ----------- ----------- ----------
Balance, December 31, 1994 4,759,041 19,069,792 23,828,833 3,271,292
Acquisitions 0 142,732 142,732 0
Depreciation 0 0 0 692,831
---------- ----------- ----------- ----------
Balance, December 31, 1995 4,759,041 19,212,524 23,971,565 3,964,123
Acquisitions 0 649,712 649,712 0
Depreciation 0 0 0 0
Disposals 0 (19,191) (19,191) (19,191)
Write-down of rental property (192,000) (581,000) (773,000) 0
---------- ----------- ----------- ----------
Balance, December 31, 1996 $4,567,041 $19,262,045 $23,829,086 $3,944,932
========== =========== =========== ==========
</TABLE>
Aggregate cost for federal income tax purposes is $24,602,086 at
December 31, 1996.
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ATLANTIC INCOME PROPERTIES FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 266,603
<SECURITIES> 0
<RECEIVABLES> 309,164
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 670,466
<PP&E> 23,829,086
<DEPRECIATION> (3,944,932)
<TOTAL-ASSETS> 20,573,937
<CURRENT-LIABILITIES> 796,097
<BONDS> 14,250,705
0
0
<COMMON> 0
<OTHER-SE> 5,527,135
<TOTAL-LIABILITY-AND-EQUITY> 20,573,937
<SALES> 0
<TOTAL-REVENUES> 3,149,348
<CGS> 0
<TOTAL-COSTS> 1,670,349
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,344,491
<INCOME-PRETAX> 134,508
<INCOME-TAX> 0
<INCOME-CONTINUING> 134,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,508
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
