<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File Number 1-12278
ended December 31, 1996
URBAN SHOPPING CENTERS, INC.
(Exact name of registrant as specified in its charter)
Maryland 36-3886885
(State of incorporation) (I.R.S. Employer
Identification No.)
900 North Michigan Avenue, Suite 1500
Chicago, Illinois 60611
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 915-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $.01 Par Value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
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
-----
As of March 21, 1997, the aggregate market value of the
registrant's Common Stock held by non-affiliates of the
registrant was approximately $508,459,000, based upon the closing
price ($33.25) on the New York Stock Exchange composite tape on
such date.
As of March 21, 1997, there were outstanding 16,963,862 shares of
the registrant's Common Stock and 340,511 shares of the
registrant's Unit Voting Common Stock.
Portions of the registrant's 1996 annual report to shareholders
are incorporated by reference into Parts I and II. Portions of
the proxy statement for the registrant's annual shareholders
meeting to be held in 1997 are incorporated by reference into
Part III.
<PAGE> 2
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and
Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 17
SIGNATURES 22
<PAGE> 3
PART I
ITEM 1. BUSINESS
THE COMPANY
The Company was incorporated under the General Corporation Laws of
Maryland on May 12, 1993 and commenced operations effective with the
completion of its initial public stock offering (the "Offering") on
October 14, 1993, whereby the Company sold 11,870,000 shares of its
common stock, $.01 par value per share ("Common Stock"), at $23.50 per
share. The Company was formed to continue the regional mall business
of JMB Realty Corporation and certain of its affiliates ("JMB Partners")
in owning, managing, leasing, acquiring, developing and redeveloping a
portfolio of super-regional and regional malls located throughout the
United States. Substantially all of the Company's assets and interests
in investment properties (the "Properties") are held by, and substantially
all of its operations are conducted through, Urban Shopping Centers, L.P.
(the "Operating Partnership").
JMB Partners and certain other parties (together referred to as the
"Contributor Group") contributed to the Company and the Operating
Partnership certain assets and interests in the Properties in exchange for
shares of Common Stock and unit voting common stock, $.01 par value per share
("Unit Voting Stock"), of the Company, and limited partnership interests
("Units") in the Operating Partnership. Each share of Unit Voting Stock may
be exchanged, together with 24 Units, for 25 shares of Common Stock subject
to certain restrictions.
In November and December 1996, the Company completed a public offering
of 3,225,000 shares of Common Stock at $25.50 per share, raising net
proceeds of $80,625,000. Subsequent to the public offering and the 1996
issuance of Unit Voting Stock and preferred units in the Operating
Partnership, as of December 31, 1996, the Company, which is the sole
general partner of the Operating Partnership, owns an approximate 69.9%
interest therein; members of the Contributor Group hold limited
partnership interests in the Operating Partnership and own an approximate
30.1% minority interest therein. In general, for financial reporting
purposes, net profits and losses of the Operating Partnership are allocated
to the general and limited partners in accordance with their percentage
ownership. The Company operates as a real estate investment trust
("REIT") for Federal income tax purposes.
Urban Retail Properties Co. (the "Management Company") was
incorporated on May 12, 1993. Generally, the Company's preferred stock
investment in the Management Company entitles it to 95% of the
distributions, profits and losses from the Management Company's management,
leasing and development business and 5% of the net distributions, profits
and losses from certain land parcels owned by the Management Company.
THE REGIONAL MALL BUSINESS
There are several types of retail shopping centers, varying primarily
by size and marketing strategy. Retail shopping centers range from
neighborhood centers of generally less than 100,000 square feet of GLA
("community centers") to regional and super-regional shopping centers.
Retail shopping centers in excess of 400,000 square feet of GLA are
generally referred to as "regional" shopping centers, while those centers
having in excess of 800,000 square feet of GLA are generally referred to
as "super-regional" shopping centers. In this report, the term "regional
malls" refers to both regional and super-regional shopping centers and the
term "Regional Malls" refers to the Company's nine operating regional malls
at December 31, 1996. The term "Community Centers" refers to the Company's
three operating community centers and the term "Properties" refers to the
Regional Malls and the Community Centers. The term "GLA" refers to gross
retail space, including anchors and mall tenant areas, and the term "Mall
GLA" refers to gross retail space, excluding anchors. The term "anchor"
<PAGE> 4
refers to a department store or other large retail store. The term "mall
tenants" refers to stores (other than anchors) that are typically
specialty retailers and lease space in shopping centers.
BUSINESS OF THE COMPANY
A discussion of the business of the Company is hereby
incorporated by reference to the discussion appearing on pages 1
through 11 of the Company's 1996 annual report to shareholders
(the "Annual Report") under the captions "Shareholders,"
"Performance," "Development," "Acquisition" and "Retail Mix."
THE MANAGEMENT COMPANY BUSINESS
A discussion of the Management Company business is hereby
incorporated by reference to the discussion appearing on pages 12
and 13 of the Annual Report under the caption "Management."
ANCHORS
Regional malls (and many smaller centers) usually contain one
or more anchors. Anchors, which include traditional department
stores, general merchandise stores, large fashion specialty
stores, value oriented specialty stores and discount stores,
usually inventory a broad range of products that appeal to many
shoppers. Anchors are one of the most important factors in
differentiating among regional malls.
Anchors either own their own stores and parking areas or lease
their stores from the owner of the mall. Although the rent and
other charges paid by anchors is usually much less (on a per
square foot basis) than the rent paid by tenants occupying Mall
GLA, their presence typically attracts many shoppers and enhances
the value of a shopping center.
Anchors in the Regional Malls occupy approximately 6.4 million
square feet of GLA (approximately 62% of total GLA of the
Regional Malls) and accounted for approximately 11% of total
shopping center revenues of the Regional Malls in 1996. The table
on the following page summarizes the square footage owned and
leased by anchors in the Regional Malls at December 31, 1996:
<PAGE> 5
<TABLE>
<CAPTION>
ANCHOR ANCHOR
NUMBER GLA GLA PERCENT
OF OWNED OWNED TOTAL OF
ANCHOR BY BY ANCHOR TOTAL
PARENT/ANCHOR STORES ANCHOR COMPANY GLA GLA
- -------------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
SEARS, ROEBUCK AND CO.
Sears 5 641,684 246,877 888,561 8.7%
DAYTON HUDSON
CORPORATION
Marshall Field's 3 820,012 288,802 1,108,814 10.9%
Mervyn's 2 200,000 -- 200,000 1.9%
-------- --------- --------- --------- --------
Total 5 1,020,012 288,802 1,308,814 12.8%
FEDERATED DEPARTMENT
STORES, INC.
Burdines 5 491,128 140,000 631,128 6.2%
Macy's 1 225,000 -- 225,000 2.2%
Bloomingdale's 1 200,000 -- 200,000 1.9%
-------- --------- --------- --------- --------
Total 7 916,128 140,000 1,056,128 10.3%
THE MAY DEPARTMENT
STORES COMPANY
Foley's 1 160,000 -- 160,000 1.6%
Lord & Taylor 3 -- 340,867 340,867 3.3%
Robinsons-May 3 -- 425,498 425,498 4.2%
-------- --------- --------- --------- --------
Total 7 160,000 766,365 926,365 9.1%
J.C. PENNEY COMPANY,
INC.
JCPenney 5 415,456 266,960 682,416 6.7%
DILLARD DEPARTMENT
STORES, INC.
Dillard's 2 210,531 240,925 451,456 4.4%
NORDSTROM, INC.
Nordstrom 3 200,000 370,536 570,536 5.6%
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
ANCHOR ANCHOR
NUMBER GLA GLA PERCENT
OF OWNED OWNED TOTAL OF
ANCHOR BY BY ANCHOR TOTAL
PARENT/ANCHOR STORES ANCHOR COMPANY GLA GLA
- -------------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
MONTGOMERY WARD & CO.
Montgomery Ward 1 -- 163,893 163,893 1.6%
THE NEIMAN MARCUS GROUP,
INC.
Neiman Marcus 1 -- 112,099 112,099 1.1%
SAKS HOLDINGS, INC.
Saks Fifth Avenue 2 -- 196,103 196,103 1.9%
-------- --------- --------- --------- --------
Totals 38 3,563,811 2,792,560 6,356,371 62.2%
======== ========= ========= ========= ========
<FN>
</TABLE>
<PAGE> 7
MAJOR TENANTS
Non-anchor tenants owned by major national retail chains lease
a considerable amount of space in the Regional Malls. In
addition to enhancing a regional mall's popularity with shoppers,
tenants affiliated with national chains help regional malls lease
space by attracting many local and regional tenants.
Ten major national retail chains which had stores open and
operating at December 31, 1996 accounted for 28.4% of the Mall
GLA in the Regional Malls at December 31, 1996 and 22.2% of 1996
minimum rent of the Regional Malls. The largest of these chains,
in terms of square footage and rent received, is The Limited,
Inc., which, through all of its subsidiaries, accounted for 11.4%
of Mall GLA in the Regional Malls at December 31, 1996 and 8.7%
of 1996 minimum rent of the Regional Malls. No other of these
chains accounted for more than 3.1% of the Mall GLA in the
Regional Malls at December 31, 1996 or 3.4% of 1996 minimum rent
of the Regional Malls.
The following table summarizes the square feet leased by the
ten major national retail chains in the Regional Malls (including
Old Orchard Center acquired on December 18, 1996) at December 31,
1996:
<PAGE> 8
<TABLE>
<CAPTION>
COMPANY'S
TOTAL PRO RATA SHARE
------------------------------- --------------------
PERCENT PERCENT
NUMBER OF OF
OF STORE MALL STORE MALL
PARENT/STORE STORES GLA GLA GLA GLA
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
THE LIMITED, INC.
Express 9 148,805 3.9% 124,095 4.0%
Lane Bryant 7 49,944 1.3% 37,735 1.2%
Lerner New York 7 72,375 1.9% 53,612 1.7%
Limited 9 114,843 3.0% 94,070 3.0%
Limited Too 4 16,257 .4% 14,453 .4%
Structure 6 37,661 1.0% 22,614 .7%
-------- -------- -------- -------- --------
Total 42 439,885 11.4% 346,579 11.1%
GAP, INC.
Banana Republic 5 34,475 .9% 33,425 1.1%
Gap 6 36,162 .9% 25,202 .8%
Gap & GapKids 2 25,355 .7% 25,355 .8%
GapKids & Baby Gap 2 11,169 .3% 9,580 .3%
GapKids 3 10,786 .3% 7,356 .2%
-------- -------- -------- -------- --------
Total 18 117,947 3.1% 100,918 3.2%
SPIEGEL, INC.
Eddie Bauer 7 80,453 2.1% 71,610 2.3%
WOOLWORTH CORPORATION
Afterthoughts 1 1,139 0% 1,139 0%
Athletic X-Press 1 2,500 .1% 1,000 0%
Carimar 1 800 0% 0 0%
Champs Sports 5 24,826 .6% 14,504 .5%
Foot Locker 8 22,856 .6% 16,233 .5%
Going to the Game! 1 1,650 0% 0 0%
Kids Foot Locker 3 4,595 .1% 2,960 .1%
Kinney 1 2,500 .1% 0 .3%
Lady Foot Locker 7 11,528 .3% 7,988 .3%
The San Francisco
Music Box Company 3 3,367 .1% 2,297 .1%
-------- --------- -------- -------- --------
Total 31 75,761 2.0% 46,121 1.5%
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
COMPANY'S
TOTAL PRO RATA SHARE
-------------------------------- --------------------
PERCENT PERCENT
NUMBER OF OF
OF STORE MALL STORE MALL
PARENT/STORE STORES GLA GLA GLA GLA
- ------------ -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INTIMATE BRANDS, INC.
Bath & Body Works 2 5,215 .1% 4,075 .2%
Cacique 1 4,030 .1% 4,030 .1%
Victoria's Secret 9 64,287 1.7% 46,720 1.5%
-------- --------- -------- -------- --------
Total 12 73,532 1.9% 54,825 1.8%
BARNES & NOBLE, INC.
B. Dalton Bookseller 3 14,068 .4% 8,808 .3%
Barnes & Noble 2 57,942 1.5% 57,942 1.9%
Software Etc. 1 1,247 0% 1,247 0%
-------- --------- -------- -------- --------
Total 6 73,257 1.9% 67,997 2.2%
LUXOTTICA GROUP, INC.
August Max Woman 2 5,836 .1% 3,055 .1%
Casual Corner 7 29,354 .8% 18,641 .6%
LensCrafters 5 15,045 .4% 8,888 .3%
Petite Sophisticate 7 18,485 .5% 13,881 .5%
-------- --------- -------- -------- --------
Total 21 68,720 1.8% 44,465 1.4%
CRATE & BARREL, INC.
Crate & Barrel 3 66,643 1.7% 66,643 2.1%
ABERCROMBIE & FITCH,
INC.
Abercrombie & Fitch 5 57,231 1.5% 51,206 1.6%
BRINKER INTERNATIONAL,
INC.
Maggiano's 2 43,648 1.1% 43,648 1.4%
-------- --------- -------- -------- --------
Totals 147 1,097,077 28.4% 894,012 28.7%
======== ========= ======== ======== ========
<FN>
</TABLE>
<PAGE> 10
ENVIRONMENTAL MATTERS
The Properties have been subjected to varying degrees of
environmental assessment. Where formal environmental studies
have been performed, the purpose of such studies has been to
identify existing or potential environmental hazards and to seek
cost effective remedies. All of the Properties have been the
subject of Phase I environmental assessments, each of which
either was conducted or updated since 1989. None of the
environmental assessments has revealed, nor is the Company aware
of, any environmental liability (including asbestos-related
liability) that the Company believes would have a material
adverse affect on the Company's business, assets or results of
operations. However, no assurances can be given that environmental
liabilities will not arise in the future that could have a material
adverse impact on the financial condition or operations of the Company.
There can be no assurance that there are no existing conditions on the
Properties which have not been identified by the limited environmental
assessments which have been conducted to date.
EMPLOYEES
At December 31, 1996, the Company, the Operating Partnership
and the Management Company employed a total of 2,208 persons. The
Management Company employs substantially all of the professional
employees that are currently engaged in the management, leasing
and development businesses, and certain of the professionals
engaged in asset management and administration.
COMPETITION
All of the Properties are located in developed retail and
commercial areas. There may be other neighborhood and community
shopping centers within a five-mile radius of each of the
Community Centers. In addition, with respect to most of the
Regional Malls, there are one or more regional malls within a
fifteen-mile radius. Certain of the Regional Malls are located
near, and may compete with, certain regional malls owned by third
parties managed by the Management Company or owned by the
Contributor Group or their affiliates; in addition, certain
retailers are contractually restricted from operating at
competing malls.
INFLATION
Inflation has remained relatively low during the past three
years and has not had a significant impact on the Company.
Substantially all of the tenants' leases contain provisions
designed to protect the Company from the impact of inflation.
Such provisions include clauses enabling the Company to receive
percentage rentals based on tenants' gross sales, which generally
increase as prices rise, and/or escalation clauses, which
generally increase rental rates periodically during the terms of
the leases. In addition, certain of the leases are for terms of
less than 10 years which may enable the Company to replace
existing leases with new leases at higher base and/or percentage
rentals if rents of the existing leases are below then-existing
market rate. Substantially all of the leases require the tenants
to pay their share of operating expenses, including common area
maintenance, real estate taxes and insurance, thereby reducing
the Company's exposure to increases in costs and operating
expenses resulting from inflation. However, inflation may have a
negative impact on some of the Company's other operating
expenses. Interest and general and administrative expenses may
be adversely affected by inflation as these specified costs could
increase at a rate higher than rents. Also, for tenant leases
with stated periodic rent increases, inflation may have a
negative effect as the stated rent increases in these leases
could be lower than the increase in inflation at any given time.
<PAGE> 11
Item 2. Properties
The following table sets forth certain information
relating to the Company's investment properties at December 31, 1996.
<TABLE>
<CAPTION>
OWNERSHIP
BY THE
COMPANY
AND
YEAR OPERATING FEE OR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- GROUND
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- --------------- ---------------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
REGIONAL MALLS:
OAKBROOK CENTER Lord & Taylor 2,014,962/ 1962/ 100.0% Ground
Oak Brook, IL Marshall Field's 832,384 1973, Lease(4)
(Chicago Neiman Marcus 1981,
metropolitan Nordstrom 1987,
area) Saks Fifth 1991
Avenue
Sears
OLD ORCHARD Bloomingdale's 1,711,821/ 1956/ 100.0% Fee
CENTER (5) Lord & Taylor 648,104 1994
Skokie, IL Marshall Field's
(Chicago Nordstrom
metropolitan Saks Fifth Avenue
area)
CITRUS PARK Burdines 1,150,000/ Scheduled
TOWN CENTER(6) Dillard's 460,000 1999 100.0% Fee
Tampa, FL JCPenney
Sears
MAINPLACE Macy's 1,116,385/ 1987/ 100.0% Fee
Santa Ana, CA Nordstrom 455,885 1991
(Los Angeles/ Robinsons-May
Orange County (2 stores)
metropolitan
area)
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
OWNERSHIP
BY THE
COMPANY
AND
YEAR OPERATING FEE OR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- GROUND
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- --------------- ---------------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
REGIONAL MALLS:
(cont'd.)
WOLFCHASE Dillard's 1,085,764/ 1997 100.0% Fee
GALLERIA (7) Goldsmith's 389,079
Memphis, TN JCPenney
Sears
PENN SQUARE Dillard's 1,074,816/ 1960/ 100.0% Ground
MALL Foley's 384,998 1981, Lease(8)
Oklahoma City, JCPenney 1988,
OK Montgomery Ward 1995
BRANDON Burdines 980,431/ 1995 100.0% Fee
TOWNCENTER Dillard's 360,716
Brandon, FL JCPenney
(Tampa Sears
metropolitan
area)
MIAMI Burdines 973,280/ 1982/ 40.0% Fee
INTERNATIONAL (2 stores) 289,972 1992 (9)
MALL JCPenney
Miami, FL Mervyn's
Sears
CORAL SQUARE Burdines 941,473/ 1984/ 50.0% Fee
MALL (2 stores) 293,329 1989
Coral Springs, JCPenney
FL Mervyn's
(Miami/Fort Sears
Lauderdale
metropolitan
area)
WATER TOWER Lord & Taylor 727,497/ 1976/ 55.0% Fee
PLACE Marshall Field's 311,325 1983
Chicago, IL 1991
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
OWNERSHIP
BY THE
COMPANY
AND
YEAR OPERATING FEE OR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- GROUND
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- --------------- ---------------- ------------ -------- --------- --------
REGIONAL MALLS:
(cont'd.)
<S> <C> <C> <C> <C> <C>
VALENCIA JCPenney 675,405/ 1992 25.0% Ground
TOWN CENTER Robinsons-May 282,486 (10) Lease(11)
Valencia, CA Sears
(Los Angeles
metropolitan
area)
COMMUNITY
CENTERS:
CITRUS PARK 450,000 Scheduled 100.0% Fee
PLAZA (12) 1998
Tampa, FL
THE PLAZA AT Service 243,035/ 1994 100.0% Fee
BRANDON Merchandise 89,185
TOWNCENTER Target
Brandon, FL
(Tampa
metropolitan
area)
SERVICE Service 133,987/ 1988 100.0% Fee
MERCHANDISE Merchandise 69,968
PLAZA
Columbus, OH
NEW YORK Kohl's 115,685/ 1989 100.0% Fee
SQUARE OfficeMax 16,760
Aurora, IL
(Chicago
metropolitan
area)
<FN>
</TABLE>
<PAGE> 14
- -----------------------
(1) In those cases where a property's location is identified with
a larger metropolitan area, the metropolitan area is
identified in parentheses.
(2) Reference is made to Notes 4 and 6 of Notes to Consolidated
Financial Statements and to "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included in the Annual Report which is hereby incorporated by
reference and to the Schedule III filed with this report for
the current outstanding principal balance and a description
of the long-term mortgage indebtedness secured by the
Company's investment properties.
(3) Excludes office components of Water Tower Place (93,796
square feet), Oakbrook Center (239,719 square feet) and Old
Orchard Center (60,000 square feet).
(4) The Oakbrook Center ground lease expires in December 2040 and
provides for renewal options for an additional 49 years as
more fully discussed below.
(5) Old Orchard Center was acquired on December 18, 1996. See
Note 3 of Notes to Consolidated Financial Statements in the
Annual Report which is hereby incorporated by reference.
(6) Construction is scheduled to begin in 1997 on Citrus Park
Town Center which is scheduled to open in the spring of 1999.
(7) Wolfchase Galleria opened on February 26, 1997.
(8) A substantial portion of Penn Square Mall is on land subject
to a ground lease expiring in 2060. See Note 7 of Notes to
Consolidated Financial Statements in the Annual Report which
is hereby incorporated by reference.
(9) An additional approximate 18% interest in Miami International
Mall was purchased on April 1, 1996. See Note 4 of Notes to
Consolidated Financial statements in the Annual Report which
is hereby incorporated by reference.
(10) Subordinated to unaffiliated venture partner's return of
capital plus a return thereon.
(11) The Valencia Town Center ground lease expires in December
2022. The partnership (in which the Operating Partnership is
a limited partner) has an option to purchase the fee interest
at any time at a predetermined price.
(12) Construction is scheduled to begin in 1997 on Citrus Park
Plaza which is scheduled to open in the fall of 1998.
The following two tables set forth certain rental information
with respect to the Properties (including the Company's unconsolidated
investment properties):
CONTRACTUAL STEPS
In certain cases, tenant leases contain provisions for periodic
increases in the minimum rental rate. These increases do not
necessarily result in increased funds available for distribution of a
corresponding amount. The amount of the increase is mitigated by
possible changes in a tenant's percentage rent breakpoint or amount,
lease expirations and terminations and the Company's ownership
interest in a property. The table below shows contractual rent steps
for the years 1997 through 2001:
<PAGE> 15
<TABLE>
<CAPTION> COMPANY'S
CONTRACTUAL STEPS (in thousands of dollars)(1) TOTAL PRO RATA SHARE
- ---------------------------------------------- ----------- --------------
<S> <C> <C>
1997 $ 1,111 $ 890
1998 1,781 1,483
1999 1,360 1,148
2000 1,209 985
2001 1,041 758
</TABLE>
(1) Excludes Wolfchase Galleria, which opened on February 26, 1997.
LEASE EXPIRATIONS
The table below shows the square footage of lease expirations
and the average rent per square foot of the expirations for the
Company's retail tenants (excluding anchors, movie theaters and
temporary tenants) for the years 1997 through 2001 for the Properties
in total and for the Company's pro rata share of the Properties
(based on the Company's percentage ownership in each Property):
<TABLE>
<CAPTION>
TOTAL COMPANY'S PRO RATA SHARE
-------------------------- ---------------------------
EXPIRATIONS AVERAGE EXPIRATIONS AVERAGE
YEAR (S.F.) RENT/S.F. (S.F.) RENT/S.F.
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997 217,231 $ 29.59 174,445 $ 30.43
1998 155,338 27.00 135,428 27.06
1999 157,991 26.94 133,496 24.60
2000 166,835 30.45 127,802 29.39
2001 187,322 36.67 163,986 35.57
</TABLE>
OAKBROOK CENTER GROUND LEASE
The following is a description of the Oakbrook Center ground lease.
On December 31, 1990, Oak Brook Urban Venture (a consolidated
venture) sold the land underlying Oakbrook Center for $75,000,000
("ground sale-leaseback proceeds" or "Lessor Base Amount") and
leased it back for a period of 50 years with options to renew for
an additional 49 years. For financial reporting purposes, the ground
sale-leaseback proceeds were accounted for as a financing transaction.
Minimum annual rent to the ground lessor accrues at 5% of the Lessor
Base Amount, a portion of which may be deferred based on available cash
flow (as defined) from Oakbrook Center. Deferred amounts accrue interest
at 5% per annum. In each of the years 1996, 1995 and 1994, Oak Brook
Urban Venture reported rent expense of $3,750,000 of which payment of
$2,350,000 has been deferred in 1996 and $2,550,000 has been deferred
in 1995 and 1994. Interest has been accrued and deferred of
approximately $823,000, $668,000 and $515,000 for 1996, 1995 and 1994,
respectively, on the deferred balance. The total deferred interest and
ground lease rent included in the accompanying consolidated balance
sheet at December 31, 1996 is approximately $18,359,000.
The Oakbrook Ground Lease was amended, effective upon closing
of the Offering, to escalate the minimum annual payment from
$1,200,000 to $1,800,000 for the period 1994 to 2000. Payment of the
portion of the annual rent of $3,750,000 in excess of the minimum
annual payment is deferred to the extent that the rental income is
inadequate to (i) pay all expenses (including debt service),
(ii) provide an amount equal to the excess of 5.5% of gross revenues
over property management fees actually paid to the property manager
(currently 2.5% of gross revenues) and (iii) allow the lessee to
recover a 10% yield on its investment (as defined) in Oakbrook Center
(cumulative from the date of the amendment, subject to certain
limitations). So long as the lessee has recouped such 10% yield,
the rental income in excess of expenses (including debt service and
minimum annual rental) is used to pay the deferred annual
<PAGE> 16
rental plus yield thereon of 5%. Excess rental income remaining
after payment of the deferred annual rental plus the 5% yield will
be used as follows: (i) the lessee is entitled to retain $1,250,000
per annum cumulative plus a yield thereon of 5% per annum and (ii) 50%
of any remaining amount of rental income will be paid to the lessor
as participating rent and 50% will be retained by the lessee.
No participating rent is owing upon the sale of the lessee's
interest in the Oakbrook Ground Lease, unless the lessee elects to
cause the ground lessor to join in the sale. If the lessee desires
to sell its leasehold interest, the ground lessor has a right of first
refusal and (if it does not elect to exercise the right of first
refusal and purchase the lessee's interest) a right to approve (in
its reasonable discretion) the transferee. If the lessee elects to
cause the ground lessor to join in the sale, the combined net proceeds
(after payment of the debt) would be divided between the ground lessor
and lessee as follows: (i) the lessee would first be entitled to recoup
its investment (as defined) in the project, plus any shortfalls in the
10% yield thereon (subject to certain limitations); (ii) next, the
ground lessor would be entitled to any deferred annual rental plus a
yield thereon of 5% per annum; (iii) next, the ground lessor would be
entitled to $75,000,000; (iv) next, the lessee would be entitled to
$25,000,000 plus any shortfalls in its 5% yield thereon (although the
amount described in this sentence may instead have to be paid over to
the ground lessor, to the extent that the ground lessor has not otherwise
received from all rent and its share of sale proceeds $75,000,000 plus a
10% internal rate of return thereon from the commencement of the term of
the ground lease, subject to a limitation based on what would be owing on
the 10% internal rate of return if calculated as of the 50th anniversary
of the lease); and (v) the balance is split 50% to the ground lessor and
50% to the lessee.
Pursuant to the Oakbrook Ground Lease, the lessor has the option,
commencing seventeen years (fourteen years under certain
circumstances) after the amendment of the Oakbrook Ground Lease, to put
the property to the lessee for cash or, at the option of the Company,
Units or shares of Common Stock, at a price based, in general, upon the
ground rent for the twelve calendar month period preceding the
exercise of the put. In calculating the price of the ground lease,
the ground rent, as adjusted, is capitalized at a rate not lower than
50 basis points (.5%) over the dividend rate of the Company for twelve
calendar months preceding the exercise of the option (using the average
price per share during the twelve-month period). Several adjustments
are made in calculating the application of the cash flow to ground
rent for purposes of the put, including the following: (i) the ground
lessor will be limited, as to rent deferred from prior years, to 5% of
the balance thereof, (ii) the lessee will be limited to 10% of its
investment and 10% of the cumulatively deferred yield (instead of
the full deferred amount), subject to various limitations, (iii) as
to the $1,250,000 per annum described above, the lessee will be
limited to $1,250,000 for the current year plus 5% of the balance
owing for previous years and (iv) capital expenditures and principal
amortization are excluded from the expenses used in calculating the
cash flow for purposes of determining the ground rent to capitalize.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not subject to any pending
material legal proceedings. The Company and its subsidiaries are
parties to a variety of legal proceedings arising in the ordinary
course of their business. It is management's opinion that the ultimate
resolution of these matters will not have a material adverse impact on
the financial condition, results of operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's shareholders
during the fourth quarter of 1996.
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is hereby incorporated
by reference to the material appearing on pages 35 and 36 of the
Annual Report under the captions "Quarterly Financial Summary"
and "Shareholder Information."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is hereby incorporated
by reference to the data appearing on page 35 of the Annual
Report under the caption "Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is hereby incorporated
by reference to the material appearing on pages 16 through 21 of
the Annual Report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is hereby incorporated
by reference to the "Consolidated Balance Sheets," "Consolidated
Statements of Operations," "Consolidated Statements of
Stockholders' Equity," "Consolidated Statements of Cash Flows,"
"Notes to Consolidated Financial Statements," "Independent
Auditors' Report" and "Quarterly Financial Summary" appearing in
the Annual Report on pages 22 through 35.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated
by reference to the material appearing on pages 2 through 5 of
the Company's proxy statement for the annual meeting of
shareholders to be held in 1997 (the "Proxy Statement"), under
the captions "Election of Directors" and "Management - Directors
and Executive Officers" and on page 19 of the Proxy Statement
under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated
by reference to the material appearing on pages 6 through 11 of
the Proxy Statement under the captions "Executive Compensation -
Summary Compensation Table," " - Option Grants in 1996,"
" - Aggregated Option Exercises in 1996 and Year-End Option Values,"
" - Option Plan," " - Long-Term Incentive Plans-Awards in 1996,"
" - Incentive Compensation," " - 401(k) Plan," " - Cash Balance
Plan," " - Core Retirement Award Program," " - Compensation of Directors,"
" - Employment Contracts, Termination of Employment and Change-in-Control
Arrangements" and " - Compensation Committee Interlocks and Insider
Participation" and on pages 13 through 15 of the Proxy Statement under the
caption "Proposal 2 - Approval of Incentive Unit Program."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is hereby incorporated
by reference to the material appearing on pages 17 and 18 of the
Proxy Statement under the caption "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated
by reference to the material appearing on pages 15 and 16 of the
Proxy Statement under the caption "Certain Relationships and
Related Transactions."
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The consolidated balance sheets as of December
31, 1996 and 1995 and the consolidated statements of
operations, stockholders' equity and cash flows for
each of the years ended December 31, 1996, 1995 and
1994 together with related notes and the independent
auditors' report dated January 24, 1997, except as to
note 11 which is as of February 10, 1997, appearing
on pages 22 through 34 of the 1996 annual report to
shareholders, which is filed as Exhibit 13.1 to this
report.
(2) Financial Statement Schedule and Independent Auditors'
Report
Title Schedule
--------- --------
Consolidated Real Estate and Accumulated
Depreciation III
The independent auditors' report with respect to
the financial statement schedule is on page 19.
(3) Exhibits
See Exhibit Index, which is hereby incorporated
herein by reference.
(b) The following report on Form 8-K was filed during the
fourth quarter of 1996.
(i) The Registrant's report on Form 8-K
(describing the acquisition of Old Orchard Center)
was filed on November 25, 1996 as an Item 5. Other
Events filing and included the following financial
statements and pro forma financial information:
a. Financial Statements.
Statements of Operations for Old
Orchard Shopping Center for the nine months
ended September 30, 1996 (unaudited) and the
years ended December 31, 1995, 1994 and 1993,
with Independent Auditors' Report thereon
b. Pro Forma Financial Information.
Pro Forma Condensed Consolidated
Balance Sheet as of September 30, 1996
(unaudited)
Pro Forma Condensed Consolidated
Statement of Operations for the nine months
ended September 30, 1996 (unaudited)
Pro Forma Condensed Consolidated
Statement of Operations for the year ended
December 31, 1995 (unaudited)
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Urban Shopping Centers, Inc.:
Under date of January 24, 1997, except as to note 11 which is as
of February 10, 1997, we reported on the consolidated balance
sheets of Urban Shopping Centers, Inc. and consolidated
partnerships (the Company) as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, as contained in the 1996 annual
report to shareholders. These consolidated financial statements
and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1996. In connection with
our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement
schedule as listed in Part IV, Item 14(a)(2). This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 24, 1997
<PAGE> 21
SCHEDULE III
URBAN SHOPPING CENTERS, INC.
Consolidated Real Estate and Accumulated Depreciation
December 31, 1996
($000's omitted)
<TABLE>
<CAPTION>
COSTS
SUBSEQUENT
INITIAL COST TO TO
THE COMPANY ACQUISITION
--------------------------- ------------
LAND AND
LAND AND BUILDINGS BUILDINGS
LEASEHOLD AND AND
DESCRIPTION ENCUMBRANCE IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS
- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
RETAIL CENTERS:
Oak Brook, IL (A)(C) $ 140,000 49,324 232,063 5,288
Oklahoma City, OK(A)(C) -- 1,931 77,797 6,031
Santa Ana, CA (A) 80,000 11,461 77,893 6,279
Brandon, FL (A)(D) 28,100 3,741 40,805 74,100
Columbus, OH (A)(D) -- 2,418 9,617 102
Aurora, IL (A)(D) -- 398 2,282 450
Memphis, TN (E) 31,982 9,228 62,043 --
Skokie, IL (F) 159,804 24,000 236,931 --
------------ ------------ ------------ ------------
Total $ 439,886 102,501 739,431 92,250
============ ============ ============ ============
</TABLE>
<PAGE> 22
Consolidated Real Estate and Accumulated Depreciation -
Continued
December 31, 1996
($000's omitted)
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD (B)
--------------------------------------------------------
LAND AND BUILDINGS
LEASEHOLD AND ACCUMULATED
DESCRIPTION IMPROVEMENTS IMPROVEMENTS TOTAL(G) DEPRECIATION(H)
- ----------- ------------ ------------ --------- --------------
<S> <C> <C> <C> <C>
RETAIL CENTERS:
(cont'd.)
Oak Brook, IL (C) $ 49,324 237,351 286,675 (36,214)
Oklahoma City, OK (C) 1,931 83,828 85,759 (25,098)
Santa Ana, CA 11,761 83,872 95,633 (23,628)
Brandon, FL (D) 3,499 115,147 118,646 (9,295)
Columbus, OH (D) 2,418 9,719 12,137 (2,491)
Aurora, IL (D) 398 2,732 3,130 (579)
Memphis, TN (E) 9,228 62,043 71,271 (28)
Skokie, IL (F) 24,000 236,931 260,931 (225)
------------ ------------ --------- --------------
Total $ 102,559 831,623 934,182 (97,558)
============ ============ ========= ==============
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
DATE OF DATE OPERATIONS IS
DESCRIPTION CONSTRUCTION ACQUIRED COMPUTED
- ----------- -------------- -------------- --------------
RETAIL CENTERS:
(cont'd.)
Oak Brook, IL (C) 1962 1962 5-30
Oklahoma City, OK (C) 1960 1985 5-30
Santa Ana, CA 1987 1984 5-30
Brandon, FL (D) 1995 1995 5-30
Columbus, OH (D) 1988 1988 2.5-30
Aurora, IL (D) 1989 1989 30
Memphis, TN (E) 1997 -- --
Skokie, IL (F) 1956 1996 7-30
<FN>
</TABLE>
<PAGE> 23
Consolidated Real Estate and Accumulated Depreciation - Concluded
December 31, 1996
($000's omitted)
- ------------
(A) The initial cost to the Company approximates historical cost
at October 14, 1993.
(B) The aggregate cost of real estate owned and the related
accumulated depreciation at December 31, 1996, for Federal
income tax purposes was approximately $827,000 and $86,000,
respectively.
(C) Properties operated under ground leases; see Item 2 -
Properties and Note 7 of Notes to Consolidated Financial
Statements in the Annual Report which is hereby incorporated
by reference.
(D) On July 26, 1995, the Company signed an agreement with a
group of lenders for the establishment of a $90,000 secured,
revolving line of credit, secured by the Company's retail
centers located in Brandon, FL, Columbus, OH and Aurora, IL.
See Note 6 of Notes to Consolidated Financial Statements in
the Annual Report which is hereby incorporated by reference.
(E) Wolfchase Galleria opened on February 26, 1997.
(F) On December 18, 1996, the Company acquired a 100% interest in
Old Orchard Center.
(G) Reconciliation of real estate owned:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period $ 625,818 570,796 517,480
Additions during period (a) 309,747 57,769 55,888
Other (b) (1,383) (2,747) (2,572)
--------- --------- ---------
Balance at end of period $ 934,182 625,818 570,796
========= ========= =========
</TABLE>
(H) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period $ (79,544) (62,699) (49,881)
Depreciation expense (18,514) (17,024) (12,601)
Other (b) 500 179 (217)
--------- --------- ---------
Balance at end of period $ (97,558) (79,544) (62,699)
========= ========= =========
</TABLE>
(a) Additions during the year ended December 31, 1996,
include the $260,931 acquisition of Old Orchard Center.
Additions during the year ended December 31, 1995,
include $2,839 of additions acquired through the
issuance of 134,000 Units.
(b) Other includes write-off and sale of assets and
reclassifications to deferred expenses.
<PAGE> 24
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.
URBAN SHOPPING CENTERS, INC.
By: MATTHEW S. DOMINSKI
President, Chief Executive Officer and
Director
Date: March 25, 1997
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 and in the capacities and on the
dates indicated.
By: MATTHEW S. DOMINSKI
President, Chief Executive Officer and
Director
Date: March 25, 1997
By: ADAM S. METZ
Executive Vice President, Chief Financial
Officer, Treasurer, Director of
Acquisitions and
Chief Accounting Officer
Date: March 25, 1997
By: NEIL G. BLUHM
Director
Date: March 25, 1997
By: JUDD D. MALKIN
Director
Date: March 25, 1997
By: JAMES B. DIGNEY
Director
Date: March 25, 1997
By: SUSAN GETZENDANNER
Director
Date: March 25, 1997
By: JOHN E. NEAL
Director
Date: March 25, 1997
By: PHILLIP B. ROONEY
Director
Date: March 25, 1997
By: JOHN G. SCHREIBER
Director
Date: March 25, 1997
By: HENRY T. SEGERSTROM
Director
Date: March 25, 1997
<PAGE> 25
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX
3.1 Fourth Amended and Restated Articles of Incorporation of the
Registrant is hereby incorporated by reference to Exhibit 3.1
to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
3.2 Second Amended and Restated By-Laws of the Registrant is hereby
incorporated by reference to Exhibit 3.2 to the Registrant's
Form 10-K (File No. 1-12278) filed on March 27, 1995
4.1 Stock Certificate is hereby incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-Q (File No. 1-12278)
filed on November 19, 1993
4.2 Indenture by and between USC Oakbrook, Inc. and Bankers Trust
Company is hereby incorporated by reference to Exhibit 4.2 to
the Registrant's Form 10-K (File No. 1-12278) filed on
March 25, 1994
4.3 Mortgage Note by and between Oakbrook Urban Venture, L.P. and
USC Oakbrook, Inc. is hereby incorporated by reference to
Exhibit 4.3 to the Registrant's Form 10-K (File No. 1-12278)
filed on March 25, 1994
4.4 Indenture by and between Water Tower Finance, Inc., Water
Tower Joint Venture and First National Bank of Chicago is
hereby incorporated by reference to Exhibit 4.7 to the
Registrant's Form 10-K (File No. 1-12278) filed on March 25, 1994
4.5 Credit Agreement among Urban Shopping Centers, L.P., Union
Bank of Switzerland (New York Branch), Morgan Guaranty Trust
Company of New York and the several Lenders is hereby
incorporated by reference to Exhibit 4.11 to the Registrant's
Form 10-Q (File No. 1-2278) filed on November 9, 1995
4.6 First Amendment to Indenture by and between USC Oakbrook, Inc.
and Bankers Trust Company is hereby incorporated by reference
to Exhibit 4.11 to the Registrant's Form 10-K (File No. 1-12278)
filed on March 25, 1996
4.7 Fourth Amendment to Loan Agreement by and among ZML-Old Orchard
Limited Partnership, American National Bank and Trust Company of
Chicago, The Prudential Insurance Company of America and Mellon
Bank, N.A. is hereby filed herewith
10.1 Second Amended and Restated Agreement of Limited Partnership
of Urban Shopping Centers, L.P. is hereby incorporated by
reference to Exhibit 10.1 to the Registrant's Form 10-Q
(File No. 1-12278) filed on November 19, 1993
10.2 Corporate Services Agreement among the Registrant, Urban
Shopping Centers, L.P. and JMB Retail Properties Co. (now
Urban Retail Properties Co.) is hereby incorporated by
reference to Exhibit 10.3 to the Registrant's Form 10-Q
(File No. 1-12278) filed on November 19, 1993
10.3 JMB Realty Corporation Employee Savings Plan is hereby
incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-11 (No. 33-
64488)
10.4 Retirement Plan for Employees of Amfac, Inc. and Subsidiaries
is hereby incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-11 (No. 33-64488)
<PAGE> 26
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX (Continued)
10.5 Urban Shopping Centers 1993 Option Plan is hereby incorporated
by reference to Exhibit 10.6 to the Registrant's Form 10-Q
(File No. 1-12278) filed on November 19, 1993
10.6 Non-Competition Agreement between JMB Realty Corporation and
the Registrant is hereby incorporated by reference to Exhibit
10.7 to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
10.7 Non-Competition Agreement between JMB Institutional Realty
Corporation and the Registrant is hereby incorporated by
reference to Exhibit 10.8 to the Registrant's Form 10-Q
(File No. 1-12278) filed on November 19, 1993
10.8 Non-Competition Agreement between Neil G. Bluhm and the Registrant
is hereby incorporated by reference to Exhibit 10.9 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.9 Non-Competition Agreement between Judd D. Malkin and the
Registrant is hereby incorporated by reference to Exhibit 10.10
to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
10.10 Omnibus Agreement among Urban Shopping Centers, L.P., JMB
Properties Company, JMB Retail Properties Co. (now Urban
Retail Properties Co.) and the Registrant is hereby incorporated
by reference to Exhibit 10.12 to the Registrant's Form 10-Q
(File No. 1-12278) filed on November 19, 1993
10.11 Indemnification Agreement between the Registrant and its
Directors and Officers is hereby incorporated by reference to
Exhibit 10.13 to the Registrant's Form 10-Q (File No. 1-12278)
filed on November 19, 1993
10.12 Registration Rights and Lock-Up Agreement between the
Registrant and certain Investors is hereby incorporated by
reference to Exhibit 10.14 to the Registrant's Form 10-Q
(File No. 1-12278) filed on November 19, 1993
10.13 Stockholders Agreement between Center Partners, Ltd.,
Urban Investment & Development Co., Urban-Water Tower
Associates, JMB/Miami Investors, L.P., Island Holidays, Ltd.,
Celtic Funding Corporation and the Registrant is hereby
incorporated by reference to Exhibit 10.15 to the Registrant's
Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.14 Lease Agreement, dated December 31, 1990, by and between
Teachers' Retirement System of the State of Illinois and LaSalle
National Trust, N.A., as Trustee for Oak Brook Urban Venture, as
amended by the First Amendment to Lease Agreement and to Restated
and Amended Memorandum of Lease is hereby incorporated by reference
to Exhibit 10.16 to the Registrant's Registration Statement on
Form S-11 (No. 33-64488)
10.15 Second Amendment to Lease Agreement by and between Teachers'
Retirement System of the State of Illinois and LaSalle National
Trust, N.A., as Trustee for Oak Brook Urban Venture, L.P. is
hereby incorporated by reference to Exhibit 10.17 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.16 Net Ground Rental Lease Agreement with respect to Penn Square
Mall, as amended by Amendment of Net Ground Rental Lease and as
further amended by Second Amendment of Net Ground Rental Lease
is hereby incorporated by reference to Exhibit 10.18 to the
Registrant's Registration Statement on Form S-11 (No. 33-64488)
<PAGE> 27
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX (Concluded)
10.17 Ground Lease by and between The Newhall Land and
Farming Company and Valencia Town Center Associates is
hereby incorporated by reference to Exhibit 10.19 to the
Registrant's Registration Statement on Form S-11 (No. 33-
64488)
10.18 Restated Employment Agreement between Matthew S.
Dominski and the Registrant is hereby incorporated by
reference to Exhibit 10.19 to the Registrant's Form 10-K
(File No. 1-12278) filed on March 25, 1994
10.19 Third Amendment to Lease Agreement by and between
Teachers' Retirement System of the State of Illinois and
LaSalle National Trust, N.A., as Trustee for Oak Brook Urban
Venture, L.P. is hereby incorporated by reference to Exhibit
10.20 to the Registrant's Form 10-K (File No. 1-12278) filed
on March 25, 1994
10.20 First Amendment to Second Amended and Restated
Agreement of Limited Partnership of Urban Shopping Centers,
L.P. is hereby incorporated by reference to Exhibit 10.21 to
the Registrant's Form 10-Q (File No. 1-12278) filed on
August 9, 1995
10.21 First and Second Amendments to Urban Shopping Centers
1993 Option Plan are hereby incorporated by reference to
Exhibit 10.22 to the Registrants Form 10-Q (File No. 1-
12278) filed on August 9, 1995
10.22 Urban Shopping Centers 1996 Incentive Unit Program is
hereby incorporated by reference to Exhibit 10.1 to the
Registrant's Form 8-K filed on November 25, 1996
10.23 Second Amendment to Second Amended and Restated
Agreement of Limited Partnership of Urban Shopping Centers,
L.P. is hereby filed herewith
10.24 Agreement for Purchase and Sale of Partnership Interest
by and between ZML-00 Associates Limited Partnership, Urban
Shopping Centers, L.P., USC Old Orchard, Inc., and H. Rigel
Barber, Gary A. Nickele and Jeffery A. Gluskin, as owner
trustees of the Old Orchard Trust, is hereby filed herewith
10.25 Amended and Restated Agreement of Limited Partnership
of Old Orchard Urban Limited Partnership by and between USC
Old Orchard, Inc. and Urban Shopping Centers, L.P. is hereby
filed herewith
13.1 1996 annual report to shareholders
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
- ---------------
Although certain additional long-term debt instruments of
the Registrant have been excluded from Exhibit 4 above, pursuant
to Rule 601(b)(4)(iii), the Registrant commits to provide copies
of such agreements to the Securities and Exchange Commission upon
request.
<PAGE> 1
Exhibit 4.7
FOURTH AMENDMENT TO LOAN AGREEMENT
----------------------------------
THIS FOURTH AMENDMENT TO LOAN AGREEMENT ("Fourth Amendment")
is entered into as of the 13th day of December, 1996, by and among
ZML-OLD ORCHARD LIMITED PARTNERSHIP, an Illinois limited partnership
("Beneficiary"), AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO,
a national banking association, not individually but as Trustee under
Trust Agreement dated June 1, 1993, and known as Trust No. 116914-09
("Trustee") (Trustee and Beneficiary are sometimes collectively referred
to herein as "Borrower"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
a New Jersey corporation ("Prudential"), and MELLON BANK, N.A., as Trustee
for First Plaza Group Trust, a New York Trust ("FPGT") (Prudential and
FPGT sometimes being collectively referred to herein as "Lender").
RECITALS
--------
A. Borrower and Lender entered into that certain
Construction Loan Agreement dated as of September 16, 1994 by and
among Borrower and Lender (the "Original Loan Agreement"), pursuant
to which Lender agreed to make a loan to Borrower in the maximum aggregate
principal amount of One Hundred Five Million Dollars ($105,000,000)
(the "Original "Loan"). The Original Loan is being funded on a several
basis in the amount of Fifty-Two Million Five Hundred Thousand Dollars
($52,500,000) by each of Prudential and FPGT and is evidenced by two
promissory notes in that amount executed by Borrower and delivered to
FPGT and Prudential, respectively (collectively the "Original Notes"). In
connection with the Original Loan, certain other documents were executed
and delivered to Lender, including but not limited to that certain Guaranty
dated September 16, 1994, executed by Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership II, an Illinois limited partnership
("Guarantor") to and for the benefit of Lender (the "Original Guaranty").
B. Subsequent to the date of the Original Loan Agreement, Borrower
and Lender entered into that certain First Amendment to Loan Agreement,
Mortgage, and Other Loan Documents dated May 8, 1995, and recorded
May 10, 1995, as Document No. 95-307616 in the office of the Recorder
(the "First Amendment").
C. Borrower subsequently requested an additional loan in the aggregate
principal amount of Fifty-Five Million Dollars ($55,000,000.00), to be funded
by each of Prudential and FPGT, severally and in equal proportions (herein
called the "Supplemental Loan"), for construction of a Bloomingdale's store,
a parking garage, and additional mall tenant space and related improvements
at the north end of the Shopping Center, which request was approved by
Lender. Accordingly, (i) Borrower and Lender entered into that certain
Second Amendment to Loan Agreement dated June 15, 1995 (the "Second
Amendment"), (ii) Borrower executed and delivered two promissory notes,
each in the maximum aggregate principal amount of Twenty-Seven Million Five
Hundred Thousand Dollars ($27,500,000), to FPGT and Prudential,
respectively (collectively the "Supplemental Notes"), and (iii) Lender
received certain other amendments and/or supplements to other Loan
Documents, as more particularly described in the Second Amendment,
including a certain First Amendment to Guaranty and Other Loan Documents
dated June 15, 1995 (the "First Guaranty Amendment").
D. Borrower subsequently requested that Lender (i) disburse all
of the remaining, undisbursed portion of the Original Loan and (ii) disburse
a portion of the remaining, undisbursed portion of the Supplemental Loan,
notwithstanding that certain requirements for such disbursements had not
then been satisfied, which request was approved by Lender. Accordingly,
(a) Borrower and Lender entered into that certain Third Amendment to Loan
Agreement, dated as of December 18, 1995 (the "Third Amendment"), and
(b) Lender received that certain Second Amendment to Guaranty dated
December 18, 1995 (the "Second Guaranty Amendment"). The Original Loan
Agreement, as amended by the First Amendment, Second Amendment, and
Third Amendment, is collectively referred to herein as the "Existing Loan
<PAGE> 2
Agreement". Terms appearing as defined terms in this Fourth
Amendment and not otherwise expressly defined herein shall have
the respective meanings given them in the Existing Loan Agreement.
E. The latest date permitted under the Existing Loan
Agreement for (i) satisfaction by Borrower of all conditions for
the disbursement of the remaining, undisbursed portion of the
Supplemental Loan and (ii) conversion of the Original Loan and
Supplemental Loan to the Permanent Phase was October 1, 1996. In
addition, under the provisions of the Third Amendment, Borrower
agreed that certain specified conditions that were not satisfied
with respect to the disbursements made pursuant to the Third
Amendment would be satisfied no later than October 1, 1996.
Borrower requested that Lender allow Borrower additional time
beyond October 1, 1996, in which to satisfy the foregoing
conditions and requirements, to which Lender has agreed, subject
to Borrower commencing amortization payments on the Original Loan
and Supplemental Loan on November 1, 1996, as if the conversion
of the Loan had occurred by the required date (but without
waiving the conditions and requirements of the Existing Loan
Agreement referred to above).
F. Borrower has requested that Lender disburse the
remaining, undisbursed portion of the Supplemental Loan to
Borrower and allow the Original Loan and Supplemental Loan to
convert to the Permanent Phase, notwithstanding that certain
conditions and requirements for such disbursement and conversion
have not been satisfied at the present time, and Lender has
agreed to do so on the terms and conditions set forth in this
Fourth Amendment. The parties hereto desire to amend the
Existing Loan Agreement to set forth with particularity the
terms, covenants, and conditions on which Lender is making such
disbursement and converting the Original Loan and Supplemental
Loan to the Permanent Phase.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
INCORPORATION PROVISIONS AND
CONDITIONS PRECEDENT
1.1 Incorporation of Recitals, Exhibits
-----------------------------------
The foregoing Recitals and the Exhibits attached to this
Fourth Amendment are incorporated herein and expressly made a
part hereof.
1.2 Conditions Precedent to Lenders' Obligations
--------------------------------------------
This Fourth Amendment shall be effective only if Borrower
satisfies the following conditions on or before the date hereof
(it being agreed that Lender's execution and delivery of this
Fourth Amendment shall constitute Lender's acknowledgement that
such conditions have been satisfied, except as may otherwise be
expressly agreed in writing between Borrower and Lender):
(a) THIRD GUARANTY AMENDMENT. Borrower shall have
caused Guarantor to execute and deliver to Lender a Third
Amendment to Guaranty satisfactory to Lender (the "Third
Guaranty Amendment");
<PAGE> 3
(b) AUTHORITY. Borrower shall have furnished to
Lender evidence of the authority of Borrower and Guarantor
to enter into this Fourth Amendment and the Third Guaranty
Amendment and of the validity and enforceability of this
Amendment and the Third Guaranty Amendment against Borrower
and Guarantor, respectively, which shall be satisfactory to
Lender.
(c) FEES AND EXPENSES. Borrower shall have paid to
Lender all of the fees and costs of Lender required to be
paid by Borrower under Article 5 of the Loan Agreement,
including those in connection with the documentation of this
Fourth Amendment, to the extent incurred by Lender through
the date of execution of this Fourth Amendment; and
(d) NO DEFAULT. No Event of Default, nor any event
which, with the giving of notice or the passage time (or
both) would constitute an Event of Default, under any of the
Loan Documents (as redefined in ARTICLE 2 hereof) shall have
occurred.
ARTICLE 2
DEFINITIONS
2.1 Defined Terms
-------------
The following terms shall have the following respective
meanings whenever used in this Fourth Amendment. Such
definitions are hereby incorporated into and made a part of
SECTION 2.1 of the Original Loan Agreement, as amended by the
First Amendment, Second Amendment and Third Amendment, and where
a term defined in the Original Loan Agreement, First Amendment,
Second Amendment or Third Amendment is redefined in this Section,
such definition shall supersede the definition contained in the
Original Loan Agreement, First Amendment, Second Amendment and/or
Third Amendment (as the case may be).
BORROWER'S CERTIFICATION: That certain Borrower's
Certification of even date herewith being executed and
delivered by Beneficiary to Lender.
LOAN AGREEMENT: The Existing Loan Agreement, as the
same has been amended by this Fourth Amendment, together
with any further amendments, modifications, renewals, or
extensions thereof. References in the Original Loan
Agreement, as previously amended, to "this Agreement" shall
be deemed to mean and refer to the "Loan Agreement" as
hereinabove defined.
LOAN DOCUMENTS: The Loan Agreement, the Borrower's
Certification, and each of the other Loan Documents as
defined in the Second Amendment, together with the Original
Guaranty, as amended by the First Guaranty Amendment, Second
Guaranty Amendment and Third Guaranty Amendment, and any
further amendments, modifications, renewals, or extensions
of any of the foregoing.
FOURTH AMENDMENT: This Fourth Amendment to Loan
Agreement.
2.2 Other Definitions
-----------------
All references in the Loan Agreement or other Loan Documents
to this Fourth Amendment or any of the specific Loan Documents
shall be deemed to include any amendments to such Loan Documents
contained or referred to in this Fourth Amendment.
<PAGE> 4
ARTICLE 3
LOAN PAYMENTS AND DISBURSEMENTS
3.1 Final Disbursement of Supplemental Loan
---------------------------------------
On or about the date of this Fourth Amendment, Lender will
be making a disbursement in the aggregate amount of $9,431,024.25
under the Supplemental Notes, representing all funds remaining to
be disbursed under the Supplemental Loan. A portion of such
disbursement, together with a portion of the funds previously
disbursed by Lender, in the aggregate amount of $1,154,771,
represents unpaid Tenant Costs for those Leases identified on
EXHIBIT A hereto. Upon Lender making such disbursement, the
aggregate principal amount outstanding under the Supplemental
Notes shall be $54,917,287.37 (which is equal to the $55,000,000
principal amount of the Supplemental Loan less the amortization
payments made prior to the date hereof as described in Section
3.4 hereof), and Borrower shall be entitled to no further
disbursements of funds under the Supplemental Loan. The parties
further acknowledge and agree that the aggregate, outstanding
principal balance under the Original Notes as of the date hereof
is $104,886,999.28 (which is equal to the $105,000,000 principal
amount of the Original Loan less the amortization payments made
prior to the date hereof as described in Section 3.4 hereof).
3.2 No Waiver of Conditions
-----------------------
The parties acknowledge that the foregoing disbursement is
being made notwithstanding that certain conditions and
requirements for disbursement under Sections 8.6, 9.5 and 9.6 of
the Loan Agreement, as more particularly described in the Third
Guaranty Amendment, have not been satisfied as of the date
hereof. In consideration of Lender's agreement to make such
disbursement, Borrower is causing Guarantor to execute and
deliver to Lender the Third Guaranty Amendment. Except as
expressly provided immediately below, Lender is not hereby
waiving satisfaction of such conditions and requirements, and
Lender's agreement to make the above disbursement shall not be
deemed or construed as such a waiver. Lender shall not be
obligated to release the additional guaranties being given under
the terms of the Third Guaranty Amendment unless and until the
conditions and requirements under Section 3(b) of the Guaranty
are satisfied. Lender hereby agrees that, with respect to the
disbursements being made by Lender as described in SECTION 3.1
hereof, those conditions and requirements in Sections 8.6, 9.5
and 9.6 other than those described in PARAGRAPH 3(b) of the
Guaranty either (A) have been satisfied as of the date hereof, or
(B) do not need to be satisfied by Borrower and are hereby waived.
3.3 Extension of Time; Conversion
-----------------------------
Lender hereby confirms that the date for satisfaction of the
conditions and requirements for the final disbursement of the
Supplemental Loan and conversion of the Original Loan and
Supplemental Loan to the Permanent Phase has been extended
through and including the date of this Fourth Amendment. On the
basis of Lender's receipt of the Borrower's Certification,
certain certificates of architects and contractors listed on
EXHIBIT B attached hereto, and certain title endorsements,
surveys, and other documentation and information pursuant to the
terms of the Existing Loan Agreement, Borrower and Lender agree
that (i) the "Conversion Date" (as used in the Loan Agreement and
the Notes) has occurred and the Loan is now in the Permanent Phase,
and (ii) the principal amounts under each of the Original Notes and
Supplemental Notes have been fully disbursed, and Borrower is entitled
to no further disbursements of funds under the Loan.
<PAGE> 5
3.4 Amortization and Payments
-------------------------
Notwitstanding that the conversion of the Original Loan and
Supplemental Loan is occurring on the date of this Fourth
Amendment, the "Amortization Period" (as defined in the Original
Notes and Supplemental Notes) shall be deemed to have commenced
immediately following October 1, 1996 (and consequently
Borrower's first payment of principal and interest during the
Amortization Period occurred on November 1, 1996). Because the
Original Loan was in fact fully disbursed as of October 1, 1996,
Borrower commenced making fixed payments of principal and
interest in the amount set forth below on November 1, 1996.
However, the Supplemental Loan was not fully disbursed as of
October 1, 1996, and on November 1, 1996 and December 1, 1996,
Borrower made payments equal to the sum of (i) accrued interest
for the prior month based on the actual principal amounts
outstanding under the Supplemental Loan during such month plus
(ii) principal payments determined as if the Supplemental Loan
had been fully disbursed as of October 1, 1996. The amounts of
such payments are set forth on EXHIBIT C attached hereto. The
payments due on January 1, 1997 will be determined in a similar
manner, and the computation thereof (assuming a final
disbursement on December 16, 1996) is set forth on EXHIBIT D
attached hereto. On February 1, 1997 and continuing on the first
day of each month thereafter to the Maturity Date, Borrower shall
be obligated to make the following monthly payments of principal
and interest:
Under the Original Notes (total): $851,662.17
Under the Supplemental Notes (total): $382,686.67
ARTICLE 4
EXPENSES FOR FOURTH AMENDMENT
The provisions of Sections 4.1, 4.3, and 4.4 of the Original
Loan Agreement are hereby expressly made applicable to this
Fourth Amendment. Without in any manner limiting the foregoing,
Borrower shall pay all reasonable fees and expenses of Lender
incurred in connection with this Fourth Amendment, including
updated title coverages and Lenders' reasonable legal fees and
expenses, all of which shall, as and when advanced or incurred by
Lender, constitute additional indebtedness evidenced by the Notes
and secured by the Mortgage and other Loan Documents.
ARTICLE 5
MISCELLANEOUS
5.1 Captions
--------
The captions and headings of various Articles and Sections
of this Fourth Amendment and the Exhibits pertaining hereto are
for convenience only and are not to be considered as defining or
limiting in any way, the scope or intent of the provisions
hereof.
5.2 Amendment Controlling
---------------------
This Fourth Amendment, together with the Original Loan
Agreement as amended by the First Amendment, Second Amendment and
Third Amendment, shall be read together as a single agreement
governing the Original Loan and Supplemental Loan as an integrated
loan facility. In the event of a conflict between the provisions of
the Original Loan Agreement (as amended by the First Amendment, Second
Amendment and Third Amendment) and the provisions of this Fourth
Amendment, the provisions of this Fourth Amendment shall govern. This
Fourth Amendment and the other Loan Documents are intended to be
interpreted in a manner which renders their respective terms and
provisions consistent with one another;
<PAGE> 6
however, in the event of an inconsistency between this Fourth
Amendment and the other Loan Documents which cannot reasonably be
reconciled, this Fourth Amendment is intended to control. The
provisions of the Loan Documents are in full force and effect
except as amended herein and by the Third Guaranty Amendment, and
the Loan Documents as so amended are ratified and confirmed
hereby by Borrower.
5.3 Successors and Assigns
----------------------
This Fourth Amendment shall be binding upon the respective
successors and assigns of the parties hereto, and shall inure to
the benefit of the respective successors and assigns permitted
under Article 11 of the Loan Agreement.
5.4 Counterparts
------------
This Fourth Amendment may be executed in two or more
counterparts, each of which may be executed by one or more of the
parties hereto, but all of which, when taken together, shall
constitute but one agreement.
5.5 WAIVER OF JURY TRIAL
--------------------
LENDER AND BORROWER, BY THEIR EXECUTION HEREOF, EACH HEREBY
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHT UNDER THIS FOURTH AMENDMENT OR ANY
OTHER LOAN DOCUMENTS RELATING THERETO OR ARISING FROM THE LENDING
RELATIONSHIP WHICH IS THE SUBJECT OF THIS AMENDMENT AND AGREE
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT
AND NOT BEFORE A JURY.
5.6 Continuation of Liens
---------------------
Nothing contained in this Fourth Amendment or any of the
various amendments and other documents being executed
concurrently herewith shall be construed to disturb, discharge,
cancel, impair or extinguish the indebtedness and obligations
evidenced by the Notes and secured by the Mortgage or other Loan
Documents or waive, release, impair, or affect the liens or
security interests created by the Mortgage or other Loan
Documents or the validity or priority thereof.
5.7 As-Built Plans
--------------
The parties acknowledge that, due to the volume thereof,
Borrower has not delivered to Lender a full set of as-built Plans
and Specifications for the Project, but has instead permitted
Lender and Lender's Architect to inspect the same at the Project.
Borrower hereby agrees to retain at all times a full set of the
as-built Plans and Specifications for the Project at the
management office or other suitable location at the Project, to
permit Lender access thereto at all reasonable times as Lender
may request, and upon the occurrence of any Event of Default, to
deliver the same to Lender upon demand.
5.7 Recourse Provisions
-------------------
The provisions of SECTION 14.20 of the Original Loan
Agreement (as amended by the First Amendment and Second
Amendment) limiting Lender's recourse are applicable to this
Fourth Amendment, and the same are hereby incorporated herein by
this reference.
<PAGE> 7
5.8 Trustee Exculpation
-------------------
This Fourth Amendment is executed by American National Bank
and Trust Company of Chicago, not personally but solely as
Trustee as aforesaid, in the exercise of the power and authority
conferred upon and vested in it as such Trustee (and American
National Bank and Trust Company of Chicago hereby represents and
warrants that it possesses full power and authority to execute
this instrument). All the terms, provisions, stipulations,
covenants and conditions to be performed hereunder (whether or
not the same are expressed in terms of covenants, promises or
agreements), are undertaken by it solely as Trustee, as
aforesaid, and not individually, and no personal liability shall
be asserted to be enforceable against Trustee by reason of any of
the terms, provisions, stipulations, covenants and conditions
contained herein.
Signatures contained on following page
<PAGE> 8
IN WITNESS WHEREOF, Beneficiary, Trustee and Lender have
executed this Fourth Amendment as of the day and year first set
forth above.
BENEFICIARY: ZML-OLD ORCHARD
LIMITED PARTNERSHIP, an Illinois
limited partnership
By: ZML-OO Associates Limited
Partnership, a Delaware
limited partnership, its
General Partner
By: ZML-Old Orchard,
Inc., an Illinois
corporation, its General
Partner
By: -------------------------
Its ---------------------
TRUSTEE: AMERICAN
NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, not personally but as
Trustee aforesaid
By: -------------------------------------
Its ---------------------------------
LENDER: THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a New
Jersey corporation
By: -------------------------------------
Its ---------------------------------
Vice President
MELLON
BANK, N.A., as Trustee for First
Plaza Group Trust, a New York
Trust, as directed by General
Motors Investment Management
Corporation
By: -------------------------------------
Its ---------------------------------------
<PAGE> 1
Exhibit 10.23
SECOND AMENDMENT
TO
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
URBAN SHOPPING CENTERS, L.P.
This Second Amendment (this "Amendment") to the Second
Amended and Restated Agreement of Limited Partnership, dated as
of October 14, 1993 (as amended through the date hereof, the
"Partnership Agreement"), of Urban Shopping Centers, L.P., an
Illinois limited partnership (the "Partnership"), is entered into
as of the 18th day of December, 1996 between Urban Shopping
Centers, Inc., a Maryland corporation, as general partner (the
"General Partner"), with the consent of the Persons whose names
are set forth on Exhibit A to the Partnership Agreement, as limited
partners (the "Limited Partners"), and the undersigned Limited Partner
which is being admitted to the Partnership on the date hereof.
WHEREAS, the General Partner and the Limited Partners desire
to amend the Partnership Agreement to create a class of 7%
Cumulative Convertible Redeemable Preferred Partnership Units
(the "Preferred Units") and a new class of common Partnership
Units (the "Class B Units") and to set forth the rights, powers,
duties and preferences of the Preferred Units and the Class B Units;
NOW, THEREFORE, pursuant to Section 14.1.3 of the Partnership
Agreement, the General Partner and the Limited Partners hereby amend the
Partnership Agreement as follows:
1. The definitions of "Net Income" and "Net Loss" in
Article I of the Partnership Agreement are hereby amended by
adding "and Section 6.4" after the words "Sections 6.2 and 6.3"
in such definitions.
2. The definition of "Partnership Unit" or "Unit" in
Article I of the Partnership Agreement is hereby amended by
adding the following language at the end of the first sentence
thereof: ", and, except where the context indicates otherwise,
includes Preferred Units and Class B Units".
3. The definition of "Percentage Interest" in Article I of
the Partnership Agreement is hereby amended by adding the following
sentence as the second sentence thereof: "For purposes of determining
Percentage Interests, Class B Units shall be considered Partnership Units,
but Preferred Units shall not be considered Partnership Units."
4. Section 4.2 of the Partnership Agreement is hereby
amended by adding the following new subsection 4.2.6 at the end
of such Section:
"4.2.6 Issuance of Preferred Units and Class B Units.
---------------------------------------------
4.2.6.1 The General Partner shall have authority to
cause the Partnership to issue up to 1,018,182 7% Cumulative
Convertible Redeemable Preferred Partnership Units (the "Preferred
Units") in connection with the acquisition by the Partnership of
the Old Orchard shopping mall. The Preferred Units shall have the
rights, powers, duties and preferences set forth below. The General
Partner shall have authority to cause the Partnership to issue up to
1,018,182 Class B Partnership Units (the "Class B Units") upon
conversion of the Preferred Units. The Class B Units shall have
the same rights, powers, duties and preferences as ordinary
Partnership Units, except as set forth below. Upon execution of
an agreement to be bound by all of the terms and conditions of the
Partnership Agreement, the purchaser of the Preferred Units shall
be admitted as a Limited Partner of the Partnership.
<PAGE> 2
4.2.6.2 The holders of Preferred Units shall be
entitled to receive, when, as and if declared by the General
Partner's Board of Directors out of funds legally available
therefor, cumulative preferential distributions payable in
cash in an amount per Preferred Unit equal to $1.925 per annum.
Such distributions shall begin to accrue and shall be fully
cumulative from the date of issuance of the Preferred Units (the
"Issue Date"), whether or not in any period or periods there shall
be funds legally available therefor, and shall be payable quarterly
in arrears on the last day of March, June, September and December
of each year (each, a "Distribution Payment Date"), commencing on
the first Distribution Payment Date after the Issue Date, when, as
and if declared by the General Partner's Board of Directors, to the
holders of record of Preferred Units as they appear on the records
of the Partnership at the close of business on each Distribution
Payment Date. The distributions payable for each full period for
the Preferred Units shall be computed by dividing the annual
distribution rate by four. The distributions payable for the
initial period and for any other period shorter than a full period
shall be computed based on the number of days the Preferred Units
were outstanding during the period versus the number of days in
the full period. The distributions on the Preferred Units shall
be payable as a preference to any other distributions by the
Partnership solely out of Available Cash which is derived from
or attributable to the Old Orchard shopping mall unless and
until such time, if any, as the Partnership sells all or any
substantial part of the Old Orchard shopping mall and will
be payable as a preference to any other distributions by the
Partnership from the Partnership's entire Available Cash from
and after such time. To the extent any distributions on the
Preferred Units are not made, whether or not because of insufficient
funds, the unpaid amount will be cumulative without interest and will
be payable prior to any future distributions on the Preferred Units.
Accrued and unpaid distributions for any past periods may be declared
and paid at any time and for such interim periods, without reference
to any regular Distribution Payment Date, to the holders of Preferred
Units entitled thereto. Any distribution payment made on the Preferred
Units shall first be credited against the earliest accrued but unpaid
distribution due with respect to the Preferred Units which remains
payable. No interest, or sum of money in lieu of interest, shall be
payable in respect of any distributions on the Preferred Units which
may be in arrears. Holders of Preferred Units shall not be entitled
to any distributions, whether payable in cash, property or stock, in
excess of cumulative distributions, as herein provided, on the
Preferred Units.
4.2.6.3 So long as any Preferred Units are outstanding,
no distributions (other than distributions paid solely in, or
options, warrants or rights to subscribe for or purchase, securities
which are junior to the Preferred Units in both the payment of
distributions and the distribution of assets upon liquidation,
dissolution or winding up ("Fully Junior Securities")) shall be
declared or paid or set apart for payment on Fully Junior
Securities or on securities which are junior to the Preferred
Units in either the payment of distributions or the distribution
of assets upon liquidation, dissolution or winding up ("Junior
Securities"), nor shall any Junior Securities or Fully Junior
Securities be redeemed, purchased or otherwise acquired (other than
a redemption, purchase or other acquisition of Common Stock or
Partnership Units made pursuant to any plan providing for the
acquisition, whether directly or pursuant to options or other
securities, of Common Stock or Partnership Units by Directors,
officers or employees of the General Partner or of any entity
in which the General Partner, either directly or indirectly, owns
more than a 50% economic interest) for any consideration (or any
moneys be paid to or made available for a sinking fund for the
redemption of any Junior Securities or Fully Junior Securities)
by the General Partner or the Partnership, directly or indirectly
(except by conversion into or exchange for Fully Junior Securities),
<PAGE> 3
unless in each case (i) the full cumulative distributions on all
outstanding Preferred Units shall have been paid or declared and
set apart for payment for all past periods with respect to the
Preferred Units and (ii) sufficient funds shall have been set apart
for payment of the distribution for the current period with respect
to the Preferred Units.
4.2.6.4 Upon the occurrence of an Event of Dissolution,
before any payment or distribution of the assets of the Partnership
shall be made to or set apart for the holders of Junior Securities
or Fully Junior Securities, the holders of the Preferred Units shall
be entitled to receive $27.50 per Preferred Unit plus an amount equal
to all distributions (whether or not earned or declared) accrued
and unpaid thereon to the date of final distribution to such
holders (the "Liquidation Preference"); but such holders shall not
be entitled to any further payment. The Liquidation Preference
shall be payable only to the extent of the Capital Account balance
of each such holder of Preferred Units, after giving effect to all
contributions, distributions and allocations for all periods, and
solely out of proceeds which are derived from or attributable to
the liquidation of the Old Orchard shopping mall upon an Event of
Dissolution unless the Partnership shall have sold all or any
substantial part of the Old Orchard shopping mall prior to such
Event of Dissolution, in which case the Liquidation Preference
shall be payable out of the general liquidation proceeds of the
Partnership. If, upon the occurrence of an Event of Dissolution,
the assets of the Partnership, or proceeds thereof, distributable
among the holders of the Preferred Units shall be insufficient to pay
in full the Liquidation Preference, then such assets, or the proceeds
thereof, shall be distributed among the holders of the Preferred
Units pro rata in accordance with the respective amounts that would
be payable to each holder if all amounts payable were paid in full.
Subject to the rights of the holders of any other class of
securities, upon an Event of Dissolution, after payment shall have
been made in full to the holders of the Preferred Units as provided
above, any other class or classes of Junior Securities or Fully Junior
Securities shall, subject to the respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets of
the Partnership remaining to be paid or distributed, and the holders
of the Preferred Units shall not be entitled to share therein.
4.2.6.5 The Preferred Units shall be convertible, in
whole or in part, at the option of each holder on not less
than 90 days' notice by such holder to the Partnership at
any time after the seventh anniversary of the Issue Date,
unless previously redeemed, into Class B Units at a
conversion rate of one Class B Unit for each Preferred Unit.
Holders of Preferred Units may give notice of conversion of
Preferred Units after notice of redemption of such Preferred
Units is given by the Partnership pursuant to Section
4.2.6.7 so long as such conversion may and does occur prior
to the redemption date set by the Partnership. Upon the
date of any such conversion for which the converting holder
gave notice of conversion after the Partnership gave notice
of redemption pursuant to Section 4.2.6.7 (but not
otherwise), the Partnership shall pay the converting holder
an amount equal to all distributions (whether or not earned
or declared) accrued and unpaid on the Preferred Units being
converted to such conversion date on the Preferred Units
which were called for redemption and are being converted.
Holders of Preferred Units shall not be entitled to a pro
rata distribution on the Preferred Units for the period
during which any Preferred Units are converted into Class B
Units if such holders do not hold such Preferred Units on
the Distribution Payment Date for such period, but such
holders shall be entitled to distributions on the Class B
Units as provided in Section 4.2.6.6.
<PAGE> 4
4.2.6.6 The Class B Units shall have the same rights,
powers, duties and preferences as ordinary Partnership
Units, except as provided in Section 4.2.6.8 and Section
6.4, and shall be convertible into Common Stock pursuant to
Section 4.2.5 in the same manner and on the same basis as
are ordinary Partnership Units.
4.2.6.7 The Preferred Units shall not be redeemable
by the Partnership prior to the seventh anniversary of the
Issue Date. On and after the seventh anniversary of the
Issue Date, the Preferred Units shall be redeemable on not
less than 100 days' notice by the Partnership to the holders
thereof for cash, in whole or in part, at the option of the
Partnership, for $27.50 per Preferred Unit, plus accrued and
unpaid distributions, if any, thereon to the date of redemption,
including a pro rata distribution for the period from the
immediately preceding Distribution Payment Date to the redemption
date. If fewer than all the outstanding Preferred Units are to
be redeemed, the redemption shall be pro rata among all holders
of Preferred Units.
4.2.6.8 The holders of the Preferred Units shall not have
any right to vote or consent to Partnership matters or amendments
to the Partnership Agreement or to receive notice of Partnership
action, except as set forth in Section 14.1.3 and except as follows:
(a) No amendment to this Section 4.2.6 shall be made
without the consent of the holders of at least two-thirds of the
Preferred Units then outstanding;
(b) No amendment to Section 6.4 shall be made without
the consent of the holders of at least two-thirds of the
Preferred Units and the Class B Units then outstanding, voting
together as a single class;
(c) The holders of the Preferred Units and
the Class B Units shall receive at least six months' prior
written notice of sales of the Old Orchard shopping mall and
at least three months' prior written notice of any refinancing
of the debt which is secured by the Old Orchard shopping mall
which significantly changes the maturity of such debt or converts
the note evidencing such debt into a term note."
5. Article VI of the Partnership Agreement is hereby amended
by adding the following new Section 6.4 at the end of such Article:
"Section 6.4 Special Allocations With Respect to Preferred Units,
----------------------------------------------------
Class B Units and Old Orchard Shopping Mall.
-------------------------------------------
Notwithstanding the provisions of Section 6.1 (but
subject to the other provisions of this Article VI and this
Agreement), the profits and losses of the Partnership shall
be allocated as follows to reflect the investment and terms
of the Preferred Units and Class B Units. Such allocations
shall be made for purposes of maintaining the Capital Accounts
and in determining the rights of the Partners among themselves.
The Partnership's items of income, gain, loss and deduction computed
in accordance with Section 4.4 shall be allocated among the Partners
for each taxable year (or portion thereof) ending on or after the
date of this amendment as provided below with respect to Old Orchard
and other assets acquired in connection therewith.
Section 6.4.1 NET INCOME. After giving effect to the
special allocations set forth in Sections 6.2 and 6.3 and
excepting all items of depreciation of, and gain or loss
from the sale or disposition of, Old Orchard, Net Income
with respect to Old Orchard shall be allocated:
<PAGE> 5
(a) first, to the General Partner to the
extent that, on a cumulative basis, Net Losses
previously allocated to the General Partner
pursuant to clause (c) of the first sentence
of Section 6.4.2 exceed Net Income
previously allocated to the General Partner
pursuant to this clause (a) of the first sentence
of Section 6.4.1;
(b) second, to the holders of Preferred
Units to the extent of the excess of the sum of
(i) the cumulative amount of all preferred
distributions which theretofore have been paid, or
which have been accrued under Section 4.2.6.2 but
not paid, and (ii) all previous allocations of Net
Loss under Section 6.4.2 to the holders of
Preferred Units, over the previous allocations
under this clause (b); and
(c) third, to the Partners other than
the holders of Preferred Units in accordance with
their respective Percentage Interests.
After giving effect to the special allocations set
forth in Sections 6.2 and 6.3, any gain from the sale or
disposition of Old Orchard shall be allocated 1% to the
General Partner and the remaining 99% as follows:
(a) first, to the holders of Preferred
Units to the extent equal to the sum of (i) the
excess, if any, of the Liquidation Preference for
such Units over the Adjusted Capital Account for
such Units and (ii) the excess of the cumulative
amount of all preferred distributions which
theretofore have been paid, or which have been
accrued under Section 4.2.6.2 but not paid, over
the previous net positive allocations under the
first sentence of each of Sections 6.4.1 and
6.4.2, provided that to the extent such a holder
converts his Preferred Units for Class B Units,
such holder shall be treated as continuing to be a
holder of Preferred Units under this clause (a) to
the extent necessary to permit allocations of gain
to restore parity between such holder's adjusted
Capital Account existing at such conversion and
such holder's Liquidation Preference; and
(b) second, to the Partners other than
the holders of Preferred Units in accordance with
their respective Percentage Interests.
Section 6.4.2 NET LOSSES AND LOSSES ATTRIBUTABLE TO
DEPRECIATION. After giving effect to the special
allocations set forth in Sections 6.2 and 6.3 and excepting
all items of depreciation of Old Orchard and gains or losses
from any sale or disposition of Old Orchard, Net Losses with
respect to Old Orchard shall be allocated:
(a) first, to the Partners other than
the holders of Preferred Units in accordance with
their respective Percentage Interests, provided
that Net Losses shall not be allocated to any
Limited Partner pursuant to this Section 6.4.2 to
the extent that such allocation would cause such
Limited Partner to have an Adjusted Capital
Account Deficit at the end of such taxable year
(or increase any existing Adjusted Capital Account
Deficit) with Adjusted Capital Accounts and
Adjusted Capital Account Deficits being determined
solely for this purpose as if Old Orchard were the
sole asset in the Partnership and the Partner's
capital contribution made with respect to the
Partnership's acquisition of Old Orchard were the
only contribution and the allocations under
Section 6.4 were exclusive of any allocations made
under Section 6.1 (hereafter referred to as the
"Old Orchard Segregation Basis");
<PAGE> 6
(b) second, to the holders of Preferred
Units (to the extent of such interests) provided
that Net Losses shall not be allocated to any such
holder pursuant to this Section 6.4.2 to the
extent that such allocation would cause such
holder to have an Adjusted Capital Account Deficit
at the end of such taxable year (or increase any
existing Adjusted Capital Account Deficit), as
computed using the Old Orchard Segregation Basis,
and
(c) to the General Partner to the extent
in excess of all limitations set forth in
clauses (a) and (b) immediately above.
All items of depreciation with respect to Old
Orchard for any taxable year and any loss from the sale
or disposition of Old Orchard shall be allocated 1% to
the General Partner and the remaining 99% as follows:
(a) first, to the Partners other than
the holders of Preferred Units in accordance with
their Percentage Interests until the cumulative
amount of such depreciation or loss so allocated
shall equal the capital contribution of such
Partner made in connection with the Partnership's
acquisition of Old Orchard;
(b) second, to the holders of Preferred
Units until the cumulative amount of such
depreciation or loss so allocated shall equal the
capital contribution of such Limited Partner made
in connection with the Partnership's acquisition
of Old Orchard; and
(c) thereafter to the holders of
Preferred Units.
Notwithstanding any other provision herein,
it is the intent of the Partners that no items of
depreciation will be allocated to any Limited Partner
other than a holder of Preferred Units or Class B
Units.
Section 6.4.3 NONRECOURSE LIABILITIES. For purposes
of Regulations under Section 1.752-3(a), the Partners agree
that with respect to Nonrecourse Liabilities of the
Partnership secured by a mortgage on Old Orchard in excess
of the sum of (a) the amount of Partnership Minimum Gain
(computed under the Old Orchard Segregation Basis) and
(b) the total amount of Nonrecourse Built-in Gain (computed
under the Old Orchard Segregation Basis), such Nonrecourse
Liabilities shall be allocated 1% to the General Partner and
99% to the holders of Preferred Units and Class B Units, if
any.
Section 6.4.4 GAINS. Any gain allocated to the
Partners upon the sale or other taxable disposition of any
Partnership asset shall to the extent possible, after taking
into account other required allocations of gain pursuant to
Section 6.2, be characterized as Recapture Income in the
same proportions and to the same extent as such Partners
have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture
Income.
Section 6.4.5 ALLOCATIONS FOLLOWING A SALE OR
DISPOSITION OF OLD ORCHARD. Following any sale or
disposition of Old Orchard (other than a sale or disposition
occurring in connection with or following an Event of
Dissolution), if the Preferred Units of any Partner are not
redeemed by the Partnership and remain outstanding, the
General Partner shall make such allocations of Net Income or
Net Losses with respect to all assets of the Partnership to
cause the Adjusted Capital Accounts of such holders to equal
the Liquidation Preference and to permit the distributions
contemplated by Section 4.2.6.2.
<PAGE> 7
Section 6.4.6 CAPITAL ACCOUNTS. The Capital Accounts
of the General Partner and the holder of the Preferred Units
shall each be increased by the amount of the Capital
Contribution contributed by such Partner with respect to Old
Orchard. The Capital Accounts of all other Limited Partners
shall not be affected by such Capital Contributions."
6. As herein amended, the Partnership Agreement shall
remain in full force and effect and is hereby ratified and
confirmed in all respects.
7. This Amendment shall be governed by the internal laws
of the State of Illinois.
8. Capitalized terms used and not defined herein shall
have the respective meanings assigned to such terms in the
Partnership Agreement.
<PAGE> 8
IN WITNESS WHEREOF, the undersigned, the General Partner of
the Partnership, has executed this Amendment to the Partnership
Agreement as of the date written above.
URBAN SHOPPING CENTERS, INC.
By: /s/ Michael Hilborn
------------------------------------------
Name: Michael Hilborn
Title: Senior Vice President
IN WITNESS WHEREOF, the undersigned, which is hereby being
admitted as a Limited Partner of the Partnership, agrees to be bound
by all of the terms and conditions of the Partnership Agreement as of
the date written above.
H. RIGEL
BARBER, GARY A. NICKELE AND JEFFREY A.
GLUSKIN, NOT PERSONALLY BUT AS OWNER
TRUSTEES UNDER THE TRUST AGREEMENT DATED
AS OF NOVEMBER 22, 1996 AND KNOWN AS THE
OLD ORCHARD TRUST
By: /s/ H. Rigel Barber
---------------------------------------
H. Rigel Barber
Owner Trustee
By: /s/ Gary A. Nickele
----------------------------------------
Gary A. Nickele
Owner Trustee
By: /s/ Jeffrey A. Gluskin
----------------------------------------
Jeffrey A. Gluskin
Owner Trustee
<PAGE> 1
Exhibit 10.24
ZML-OLD ORCHARD LIMITED PARTNERSHIP
AGREEMENT FOR PURCHASE AND SALE OF PARTNERSHIP INTEREST
-------------------------------------------------------
THIS AGREEMENT FOR PURCHASE AND SALE OF PARTNERSHIP INTEREST
(this "Agreement") is made and entered into as of the 18th day of
December, 1996, by and between ZML-OO ASSOCIATES LIMITED
PARTNERSHIP ("ZML"), a Delaware limited partnership having an
office c/o Equity Properties and Development Limited Partnership,
Suite 1000, Two North Riverside Plaza, Chicago, Illinois 60606,
and URBAN SHOPPING CENTERS, L.P. (the "Operating Partnership"),
an Illinois limited partnership, USC OLD ORCHARD, INC. (the
"QRS"), a Delaware corporation, and H. RIGEL BARBER, GARY A.
NICKELE AND JEFFREY A. GLUSKIN, NOT PERSONALLY BUT SOLELY AS
OWNER TRUSTEES OF THE OLD ORCHARD TRUST, UNDER TRUST AGREEMENT
DATED AS OF NOVEMBER 22, 1996 ("Orchard Trust"), an Illinois
trust, each having an office at Suite 1500, 900 North Michigan
Avenue, Chicago, Illinois 60611. The QRS, the Operating
Partnership and Orchard Trust are collectively referred to in
this Agreement as "Urban".
RECITALS
--------
A. ZML-Old Orchard Limited Partnership (the "Partnership")
is an Illinois limited partnership that is engaged in the
business of operating a shopping center (the "Business") located
in Skokie, Illinois and known as "Old Orchard", being the parcel
of land bounded on the north by Old Orchard Road, on the east by
Skokie Boulevard, on the south by Golf Road and on the west
generally by Lawler and vacated LaVergne, in the Village of
Skokie, County of Cook, State of Illinois. Such parcel of land,
together with (i) certain land and improvements owned by Marshall
Field & Co. ("Field"), (ii) certain land and improvements owned
by the Village of Skokie and leased by the ANB Trust (hereinafter
defined) and the Partnership and on which is located the
Nordstrom Parking Deck, and (iii) those improvements owned by May
Department Stores Company doing business as Lord and Taylor
("Lord and Taylor"), Nordstrom, Inc. ("Nordstrom") and Federated
Department Stores, Inc. doing business as Bloomingdale's
("Bloomingdale's"), in each case subject to a landlord's
reversionary interest, (collectively, and including Saks & Co.
["Saks"] and Field, the "Anchors", and individually each an
"Anchor"), constitute the retail shopping center and professional
office building known as "Old Orchard" and herein referred to as
the "Shopping Center".
B. American National Bank and Trust Company of Chicago,
not personally but solely as Trustee under Trust Agreement dated
June 1, 1993, and known as Trust No. 116914-09 (the "ANB Trust")
is the record owner of fee simple title to the Premises
(hereinafter defined) that is a part of Old Orchard. Subject to
the rights of the Existing Lender (hereinafter defined) in
connection with the Prudential Loan (hereinafter defined), the
Partnership has the sole power of direction over the ANB Trust
and the Partnership is the owner of one hundred percent (100%) of
the beneficial interest in the ANB Trust, as well as the Other
Property (hereinafter defined). ZML is the general partner of
the Partnership.
C. The Partnership acquired the Shopping Center in
September, 1993 from Old Orchard-Urban Venture ("OOUV"), an
Illinois general partnership, and completed a phased renovation
and expansion of the Shopping Center (the "Redevelopment
Project") that had been begun by OOUV. The Development Manager
for the Redevelopment Project, both before and after September,
1993, was JMB Properties Company and then Urban Retail Properties
Co. ("Urban Retail"), each an affiliate of Urban. Prior to and
since September, 1993, the Shopping Center has also been managed
and leased by JMB Properties Company and then Urban Retail.
<PAGE> 2
D. The Partnership was created and exists in accordance
with the terms of that certain Agreement of Limited Partnership
dated August 30, 1993 (the "Partnership Agreement") by and
between ZML, as general partner, and OOUV, as limited partner.
Prior to Closing, OOUV intends to distribute its interest in the
Partnership to its partners, and to have such interest further
transferred through a series of transactions such that OOUV,
Inc., a Delaware corporation, has a .00052% limited partnership
interest in the Partnership and the Orchard Trust has a 10.41618%
limited partnership interest in the Partnership, and OOUV would
no longer be a partner of the Partnership.
E. As provided for in and subject to the terms of this
Agreement, Urban has agreed to purchase from ZML, and ZML has
agreed to sell to Urban, the interest of ZML in the Partnership.
THEREFORE, in consideration of and in reliance upon the
above Recitals, the terms, covenants and conditions contained in
this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, ZML and
Urban agree as follows:
1. PROPERTY AND PARTNERSHIP INTEREST.
----------------------------------
A. PROPERTY. As used in this Agreement, the term
"Property" means the following described property (all of which
is hereinafter collectively referred to as the "Property"):
(i) that certain tract of real estate in the Village
of Skokie, County of Cook, State of Illinois, which real
estate is legally described in attached EXHIBIT A, together
with all and singular easements, covenants, agreements,
rights, privileges, tenements, hereditaments and
appurtenances thereunto now or hereafter belonging or
appertaining (collectively, the "Land"); and
(ii) all right, title and interest of the ANB Trust
and/or the Partnership, if any, in and to any land lying in
the bed of any street, alley, road or avenue (whether open,
closed or proposed) within, in front of, behind or otherwise
adjoining the Land or any of it, and all right, title and
interest of the ANB Trust and/or the Partnership, if any, in
and to any award made or to be made as a result or in lieu
of any condemnation occurring on or after the date of this
Agreement, and in and to any award for damage to the
Property or any part thereof by reason of any casualty
occurring on or after the date of this Agreement, if and to
the extent the resultant damage has not been repaired as of
Closing at the expense of the Partnership (all of the
foregoing being included within the term "Land"); and
(iii) all of the buildings, structures, fixtures,
facilities, installations and other improvements of every
kind and description now or hereafter in, on, over and under
the Land, including, without limitation, any and all
plumbing, air conditioning, heating, ventilating,
mechanical, electrical and other utility systems, parking
lots, landscaping, roadways, sidewalks, security devices,
signs and light fixtures (collectively, the "Improvements")
(the Land and Improvements being collectively referred to as
the "Premises") excluding, however, any of the Improvements
owned by tenants of the Premises pursuant to and as provided
for in their respective Leases (hereinafter defined); and
(iv) all furniture, furnishings, fixtures, equipment,
machinery, maintenance vehicles and equipment, tools, parts,
computer hardware and other items of tangible personalty of
every kind and description situated in, on, over and under
the Premises, which is not owned by tenants under the Leases
or by contractors under the Service Contracts (hereinafter
<PAGE> 3
defined), together with all replacements and substitutions
therefor (collectively, the "Tangible Personal Property"),
an itemization of which has been prepared by the Partnership
and is attached to this Agreement as EXHIBIT B; and
(v) all existing surveys, blue prints, drawings, plans
and specifications (including, without limitation,
structural, HVAC, mechanical and plumbing plans and
specifications) and other documentation for or with respect
to the Property or any part thereof, including, without
limitation, all materials, plans, specifications, drawings,
renderings, models, permits, applications, bid
solicitations, budgets, market or income and expense
projections, feasibility or other studies and analyses,
books and records and all other material and data generated
or produced with respect to the Redevelopment Project; and
all available tenant lists and data, correspondence with
present and prospective tenants, vendors, suppliers, utility
companies and other third parties, booklets, manuals and
promotional and advertising materials concerning the
Business or Property or any part thereof; equipment
maintenance records, warranty information, sales and
advertising materials and accounting information from
mainframe computer (but not including software respecting
same); and such other existing books, records and documents
(including, without limitation, those relating to ad valorem
taxes and leases) used in connection with the Business and
the operation of the Property or any part thereof; all to
the extent any of the foregoing are owned by the Partnership
or the ANB Trust or in which either of them has an interest
(in which case to the extent of such interest)
(collectively, "Books and Records"); and
(vi) all right, title and interest of the ANB Trust
and/or the Partnership in and to all leases and other
agreements for the use or occupancy of space in the Property
(the "Leases"); and
(vii) all government permits, approvals,
authorizations, licenses and franchises listed on attached
EXHIBIT C, and all other currently effective government
permits, approvals, authorizations, licenses and franchises
that have been issued or granted to the Partnership and/or
the ANB Trust to the extent they relate to the operation of
the Business, the ownership, use or occupancy of the
Property (whether before or after Closing) as herein
provided (the "Licenses"); and
(viii) all right, title and interest of the
Partnership under (xx) that certain Redevelopment Agreement
dated May 8, 1995 by and between the Village of Skokie and
the Partnership and its related documents, including the
Developer Note referred to therein (the "Skokie Economic
Assistance Package"), and (yy) that certain Old
Orchard/Nordstrom Parking Garage Lease dated May 8, 1995 by
and between the Village of Skokie, as lessor, and the ANB
Trust and the Partnership, as lessee; and
(ix) all right, title and interest of the ANB Trust
and/or the Partnership in and to all prepaid real estate
taxes, prepaid advertising expenses, prepaid utility charges
and deposits and other prepaid items relating to the
Business or the Property (the "Prepaid Expenses"), and all
trade names, assumed names, trademarks, copyrights, service
marks and applications listed on EXHIBIT N, and all goodwill
associated therewith (the "Trademarks"), and all other
intangible personal property used exclusively in connection
with or arising from the Property or the Business (the
"Intangible Personal Property"), including, without
limitation, contract rights and telephone exchange numbers.
<PAGE> 4
As used in this Agreement, the term "Other Property" means all of
the Partnership's right, title and interest in and to the
Tangible Personal Property, the Books and Records, the Leases,
the Licenses, the Intangible Personal Property, the Prepaid
Expenses, the Skokie Economic Assistance Package and the
Trademarks. A list of all Leases (the "Rent Roll"), that
includes for each Lease the tenant's name, a description of the
space leased, the amount of rent due (including rent steps and
their effective dates, if any), any obligations to pay common
area charges, real estate taxes, marketing fund contributions and
other items, if any, and the term, has been prepared by Urban
Retail, reviewed by ZML, and is attached to this Agreement as
EXHIBIT D. A list of all employment, union, purchase, service
and maintenance agreements, equipment leases and any other
agreements and contracts that are or are to be binding against
the Partnership and/or the Property or any part thereof other
than the Leases, documents referred to in the Title Commitment or
Survey hereinafter provided for, the Field Operating Agreement
(hereinafter defined), and the Skokie Economic Assistance Package
(collectively, after the foregoing exclusions, the "Service
Contracts") has been prepared by Urban Retail, reviewed by ZML,
and is attached to this Agreement as EXHIBIT E.
B. PARTNERSHIP INTEREST. As used in this Agreement,
the term "Partnership Interest" means the entire right, title and
interest of ZML in the Partnership, which constitutes the entire
right, title and interest in the Partnership other than the
portion thereof held by OOUV prior to the transfers referred to
in Recital D above. Prior to the Closing, the interest of ZML in
the Partnership shall be bifurcated into a 1% general partnership
interest and an 88.5833% limited partnership interest; and
concurrently with the Closing, the transfers of OOUV's interest
in the Partnership referred to in Recital D above shall be made;
in each case with all rights, privileges, preferences and other
provisions of the Partnership Agreement remaining unchanged to
the extent applicable to the period prior to the Closing.
2. PURCHASE PRICE. The purchase price to be paid by Urban
to ZML for the Partnership Interest is the sum (the "Purchase
Price") that is equal to the product arrived at by multiplying
(i) the difference obtained by subtracting the outstanding
principal balance as of Closing of the Prudential Loan from Two
Hundred Sixty-Six Million One Hundred Thousand Dollars
($266,100,000.00) by (ii) 89.5833%. The Purchase Price shall be
paid as follows:
A. INTENTIONALLY OMITTED.
B. CASH AT CLOSING. At Closing, Urban shall pay to
ZML, by wire transferred current federal funds, an amount equal
to the Purchase Price, plus or minus (as the case may be) the
prorations and adjustments provided for by this Agreement.
C. ALLOCATION. At Closing, the QRS, a wholly owned
subsidiary of Urban Shopping Centers, Inc., the general partner
of the Operating Partnership, shall acquire the 1% partnership
interest of ZML in the Partnership as the general partner thereof
for 1.1163% of the Purchase Price (plus or minus prorations and
adjustments as aforesaid). In addition, at Closing, the 88.5833%
partnership interest of ZML as a limited partner thereof shall be
acquired by the Operating Partnership and Orchard Trust for
98.8837% of the Purchase Price (plus or minus prorations and
adjustments as aforesaid) in a proportion to be determined by
Urban.
D. EXISTING MORTGAGE FINANCING. At Closing, the
Property and Business shall be subject to the existing mortgage
loan (as more particularly herein described, the "Prudential
Loan") in favor of The Prudential Insurance Company of America
("Prudential") and Mellon Bank, N.A., as Trustee for First Plaza
Group Trust ("First Plaza", with First Plaza and Prudential being
collectively referred to as the "Existing Lender"). The
Prudential Loan is evidenced by, among other things, a
Construction Loan Agreement, Promissory
<PAGE> 5
Notes, and a Mortgage, Security Agreement and Fixture Filing,
each dated September 16, 1994, as amended (together with all
other documents evidencing or securing the Prudential Loan, the
"Prudential Loan Documents"). The outstanding principal balance
of the Prudential Loan at Closing is expected to be approximately
$160,000,000.00.
3. INSPECTION PERIOD. Subject to the provisions of this
Section 3, Urban has had from October 1, 1996 through the date of
this Agreement (the "Inspection Period") within which to inspect
the Property. Urban's inspection of the Property pursuant to
this Section 3 or otherwise in connection herewith has been and
shall be subject to the rights of tenants under the Leases and
other occupants and users of the Property. No inspection shall
have involved, or shall involve, the taking of samples or other
physically invasive procedures without the prior written consent
of ZML. Urban is and shall be responsible for restoring the
Property or any portion thereof to the condition in which it was
prior to Urban's inspection. Notwithstanding anything to the
contrary contained in this Agreement, Urban shall indemnify and
hold the ANB Trust, the Partnership and ZML, and their respective
officers, partners (direct and indirect), directors, employees
and agents, and each of them, harmless from and against any and
all loss or injury to person and damage to property (including,
without limitation, attorneys' fees incurred in connection
therewith) arising out of or resulting from Urban's inspections
of the Property; and this indemnity shall survive the Closing or
any termination of this Agreement without limitation as to time.
4. EVIDENCE OF TITLE TO PROPERTY AND PARTNERSHIP INTEREST.
A. PRELIMINARY EVIDENCE OF TITLE. ZML has heretofore
delivered to Urban (i) a commitment for an ALTA Owner's Title
Insurance Policy (the "Title Commitment"), dated October 25,
1996, in the amount of $266,100,000.00 issued by Chicago Title
Insurance Company (the "Title Insurer"); (ii) available copies of
all title exception documents referred to in the Title
Commitment; and (iii) written results of searches ("UCC
Searches") conducted by Lexis Document Service of the records of
the County Recorder of Cook County, Illinois, and the Secretary
of State for the State of Illinois, for Uniform Commercial Code
financing statements and tax and judgment liens in the name of
the ANB Trust, the Partnership, ZML or the Property. ZML has
also heretofore delivered to Urban a survey of the Premises (the
"Survey"). As of Closing, the Survey shall be in a form
sufficient to enable the Title Insurer to delete the so-called
"survey exception" from the title policy to be issued pursuant to
the Title Commitment, shall be in accordance with the Minimum
Standard Detail Requirements for Land Title Surveys as adopted by
the American Title Association and American Congress on Surveying
and Mapping, certified to Urban and the Title Insurer, and shall
otherwise be reasonably acceptable to Urban and its counsel.
B. TITLE CLEARANCE. Title to the Partnership
Interest shall be transferred to Urban at Closing free and clear
of all liens and encumbrances, and at Closing title to the
Property shall be insurable as hereinafter provided subject only
to those matters listed in attached Exhibit F (the "Permitted
Exceptions").
C. TITLE POLICY. At Closing, ZML shall cause the
Title Insurer to deliver to Urban an ALTA Owner's policy of title
insurance (the "Title Policy") in the form formerly known as ALTA
Form B (1970), or equivalent form acceptable to Urban, in the
face amount of the $266,100,000.00 and dated as of the Closing
Date, showing title to the Premises to be vested of record in the
ANB Trust, subject only to the Permitted Exceptions, and
containing an extended coverage endorsement over the so-called
general or standard exception items 1, 2, 3, 4 and 5 which are a
part of the printed form of the policy. It shall be a condition
precedent to Urban's obligations under this Agreement that it
receive at Closing the Title Policy with the Title Endorsements.
<PAGE> 6
5. CLOSING AND POST-CLOSING MATTERS.
A. CLOSING DATE. The "Closing" of the transaction
contemplated by this Agreement (that is, the payment of the
Purchase Price, the transfer of title to the Partnership
Interest, and the satisfaction of all other terms and conditions
of this Agreement then to be satisfied (if not waived) as herein
provided) shall occur at 10:00 a.m. on December 18, 1996, at the
office of counsel for ZML in Chicago, Illinois. The "Closing
Date" shall be the date of Closing. Urban and ZML shall "pre-
close" the transaction provided for in this Agreement on December
16-17, 1996.
B. CLOSING DELIVERIES.
(i) ZML. At Closing, ZML shall execute (as
appropriate) and deliver or cause to be delivered to Urban the
following:
(a) assignments of the Partnership Interest
as provided for in Section 2(C) above, in the form attached
to this Agreement as EXHIBIT J;
(b) letters advising tenants under the
Leases, and Field and the Village of Skokie, of the change
in control of the Partnership, directing such individuals
and entities as appropriate to pay rent and other sums that
are a part of the Property to Urban or as Urban may direct,
such letter to be in a form prepared by Urban and reasonably
acceptable to ZML;
(c) a duplicate original of all of the
Leases, the Field Operating Agreement and all written
Service Contracts, if available (and if not available,
complete and legible copies thereof so certified by ZML),
and any and all building plans, surveys, site plans,
engineering plans and studies, utility plans, landscaping
plans, development plans, specifications, drawings, and
other Books and Records in ZML's possession or control,
provided that ZML need not deliver to Urban physical
possession of the foregoing at Closing to the extent in the
possession of Urban Retail and Urban Retail may retain
possession of all such Books and Records;
(d) any bonds, warranties or guaranties in
possession or control of ZML which are for the benefit of
the Business and/or the Property or any part thereof,
without any representation or warranty by ZML concerning the
transferability or enforceability thereof, to be surrendered
at the Property upon Closing;
(e) copies of all documents evidencing and
governing the Skokie Economic Assistance Package, certified
by ZML as such;
(f) counterparts of the Closing Statement
(hereinafter defined);
(g) an affidavit stating, under penalty of
perjury, ZML's U.S. taxpayer identification number and that
ZML is not a foreign person within the meaning of Section
1445 of the Internal Revenue Code;
(h) such evidence of the authority of ZML to
consummate the transactions provided for in this Agreement
as may be reasonably requested by Urban (including an
opinion of counsel as to power, authority and due
execution);
(i) an executed guaranty from Zell/Merrill
Lynch Real Estate Opportunity Partners Limited Partnership
II (the "ZML II Fund"), in form reasonably acceptable to
Urban, guarantying the obligations of ZML under this
Agreement;
<PAGE> 7
(j) certificates of insurance for property
and casualty coverages insuring the ANB Trust and the
Partnership with respect to the Property for the period
September 3, 1993 through the day immediately preceding the
Closing Date, such certificates to be reasonably acceptable
to Urban;
(k) counterparts of a Termination Agreement
for the Development Services Agreement and the Property
Management Agreement pursuant to which Urban Retail has
acted as the "Development Manager" and the "Property
Manager" for the Shopping Center;
(l) a copy of the trust agreement for the
ANB Trust, certified by the trustee thereunder and showing
the Partnership as the beneficiary thereof; and
(m) counterparts of the Anticipation
Agreement.
(ii) URBAN. At Closing, Urban shall execute (as
appropriate) and deliver or cause to be delivered to ZML the
following:
(a) counterparts of assumptions of the
Partnership Interest in the form(s) of EXHIBIT J attached to
this Agreement;
(b) counterparts of the Closing Statement;
(c) by wire transfer to an account
designated by ZML, the cash amounts required pursuant to
Sections 2(B) and 2(C) above;
(d) a proration credit indemnity pursuant to
which Urban agrees to indemnify, defend and hold ZML
harmless from the failure of Urban, the ANB Trust and/or the
Partnership to pay liabilities for which Urban receives a
credit at Closing pursuant to Section 5(C) below;
(e) such evidence of the authority of the
QRS, the Operating Partnership (including its general
partner) and Orchard Trust to consummate the transactions
provided for in this Agreement as may be reasonably
requested by ZML (including an opinion of counsel as to
power, authority and due execution);
(f) an agreement, in form reasonably
satisfactory to ZML and Urban, in which Urban agrees (xx) to
rename, as of and after Closing, the Partnership to "Old
Orchard Urban Limited Partnership" (and including evidence
that it has done so) and (yy) not to use the names "Zell",
"Merrill Lynch" or "ZML", or any combination, abbreviation
or other derivative thereof, in connection with the
Partnership, the Business or the Property;
(g) counterparts of the Anticipation
Agreement duly executed by OOUV;
(h) counterparts of the Termination
Agreements provided for in Section 5(B)(i)(k) above, duly
executed by Urban Retail; and
(i) an instrument duly executed by the
Partnership whereby the Partnership acknowledges that it is
bound by the terms of this Agreement to the extent expressly
applicable to it from and after Closing, in form reasonably
acceptable to ZML.
<PAGE> 8
(iii) PAYMENT OF REIMBURSABLE PREDEVELOPMENT
COSTS. Immediately prior to Closing, and provided the Closing is
to occur, ZML shall cause the Partnership to pay to OOUV and its
successors as provided for in Recital D above, amounts equal to
$2,200,000.00 in the aggregate, in such proportions as are set
forth in that certain Agreement In Anticipation of Sale of
Partnership Interest of even date herewith by and between OOUV
and ZML (the "Anticipation Agreement").
C. CLOSING AND POST-CLOSING PRORATIONS AND
ADJUSTMENTS.
(i) GENERAL. In connection with the sale of the
Partnership Interest to Urban, a statement of prorations and
adjustments (the "Closing Statement") shall be prepared in
conformity with the provisions of this Agreement. ZML shall be
deemed the owner of the Partnership Interest through the day
preceding the Closing Date and Urban shall be deemed the owner of
the Partnership Interest as of the Closing Date. The Closing
Statement shall be subject to the review and approval by ZML and
Urban, such approval not to be unreasonably withheld by any party
hereto. It is the expectation of the parties that, immediately
prior to Closing, all priorities and preferences as to
distributions of cash within the Partnership shall have been
satisfied so that, at that time, ZML shall be entitled to
89.5833%, and OOUV shall be entitled to 10.4167%, of all such
distributions that would then be made. In addition, OOUV (or its
permitted successor(s) and assign(s)) will remain as limited
partner(s) of the Partnership after Closing as to its (or their)
then 10.4167% interest in the Partnership. Accordingly, unless
and to the extent otherwise expressly provided for in this
Agreement, ZML shall have the benefit and bear the burden of
89.5833% of all prorations and adjustments, and the Partnership
shall, in turn, have the benefit and bear the burden of the
remaining 10.4167%, as to items to the extent attributable to the
period prior to the Closing Date. Consistent with the foregoing,
and in addition to prorations and adjustments that may otherwise
be provided for in this Agreement, the following items are to be
prorated as of the Closing Date, as between ZML and the
Partnership as aforesaid, except as otherwise set forth below:
(a) the "minimum" or "base" rent paid by
tenants for the current period under the Leases; provided
that rent and all other sums which are due and payable by
any tenant for the period prior to the Closing Date but
uncollected as of Closing, whether or not past-due
("Retained Rents") shall not be prorated, and Urban shall
cause the Partnership to remit to ZML 89.5833% of any
Retained Rents received by or for the account of the
Partnership or Urban if, as and when collected, but only to
the extent a deficiency in the then current rent and other
charges for any such tenant is not thereby created (assuming
consistent application of the remaining 10.4167% thereof)
unless otherwise specifically designated in writing by the
tenant to be applied against Retained Rents. At Closing,
ZML shall deliver to Urban a schedule of all Retained Rents
then known to ZML, and Urban shall cause the Partnership to
bill for same for six (6) months after Closing. Except as
to parties in bankruptcy, ZML shall not seek to collect any
Retained Rents for a period of six (6) months after Closing,
and thereafter may cause the Partnership (at ZML's cost and
expense) to do so but shall seek only monetary damages in
any lawsuit and shall not seek to dispossess any tenant
under the Leases. ZML shall be free to pursue at any time
Retained Rents from parties in bankruptcy and upon receipt
thereof, and after deducting therefrom the reasonable costs
of collection, shall pay to the Partnership 10.4167%
thereof. All other percentage rent and reimbursement of
real estate taxes, common area maintenance, mall
maintenance, utility charges, water and sewer charges,
insurance and merchant's association dues and assessments
and all other charges to or contributions by tenants under
the Leases shall be prorated as follows:
<PAGE> 9
(xx) with respect to percentage
rent due for each percentage rent period under a Lease
which ends prior to or includes the Closing Date, upon
receipt by Urban or the Partnership of any such
percentage rent, ZML shall be entitled to receive
89.5833% of a portion thereof, such portion being the
product arrived at by multiplying the amount of the
percentage rent received from each such tenant for such
period by a fraction, the denominator of which is the
number of days in the period for which percentage rent
is being paid and the numerator of which is the number
of days in such period prior to the Closing Date; and
(yy) with respect to all other
charges to or contributions by tenants under the Leases
for the periods under such Leases which end prior to or
include the Closing Date (other than as to real estate
taxes), ZML shall be entitled to receive 89.5833% of a
portion thereof, such portion being the product arrived
at by multiplying the amount of such charges and
contributions received from each such tenant for such
periods by a fraction, the denominator of which is the
number of days in the period and the numerator of which
is the number of days in such period prior to the
Closing Date; provided, however, that after Closing,
such proration shall be recalculated and determined on
the basis of the ratio which the expenses actually paid
by the Partnership prior to Closing for such period
bear to the total of all expenses with respect to such
period for which such payment was made by the tenant.
If the Partnership has prior to Closing collected from any
tenant estimated amounts or prepayments, 89.5833% of these
amounts shall be credited against ZML's prorata share as
aforesaid, and if 89.5833% of such amounts is in excess of
ZML's prorata share as provided for in this clause (a), then
ZML shall pay 100% of such excess to the Partnership within
ten (10) days after receipt of demand therefor; in no event
shall ZML be entitled to receive payments in excess of its
89.5833% share of the payments to which the Partnership is
entitled as of Closing under the Leases as then in effect.
Urban shall (or shall cause the Partnership to) account for
the prorations provided for in this clause (a) and pay (or
cause the Partnership to pay) any amounts owed ZML from time
to time within thirty (30) days after receipt by Urban or
the Partnership from time to time of percentage rent and all
other such charges or contributions;
(b) water, electric, telephone and all other
utility and fuel charges, fuel on hand (at cost plus sales
tax), and any deposits with utility companies (to the extent
possible, utility prorations will be handled by meter
readings on or before the Closing Date);
(c) amounts due and prepayments under the
Service Contracts;
(d) accrued but unpaid interest under the
Prudential Loan;
(e) assignable license and permit fees;
(f) other expenses of operation and
proratable items (including, without limitation, Prepaid
Expenses, amounts paid or payable under the Field Operating
Agreement (except as to the matter referred to at item 14 on
attached EXHIBIT W) and amounts, if any, payable under the
Collective Bargaining Agreement listed as item 9 on attached
EXHIBIT W); and
<PAGE> 10
(g) subject to the provisions of the
Termination Agreement provided for in Section 5(B)(i)(k)
above, amounts due Urban Retail under the Property
Management Agreement with respect to the period prior to
Closing Date.
Notwithstanding the foregoing: (aa) real estate taxes and
assessments shall not be prorated, but shall be adjusted and
paid as provided for in Section 5(C)(ii) below; and (bb) payments
due from the Village of Skokie under the Skokie Economic
Assistance Package shall be prorated as funds are actually
received from time to time pursuant thereto based on sales taxes
generated before and after Closing (it being understood and
agreed that "interest" accruing on the "Developer Note" that is a
part of the Skokie Economic Assistance Package is not to be
prorated as it is merely a means of determining the maximum
amount payable thereunder). Any proration which must be
estimated at Closing shall be reprorated and finally adjusted as
promptly as possible after the Closing Date.
(ii) REAL ESTATE TAXES. To the extent real estate
taxes and assessments applicable to the Premises (referred to in
this subsection (ii) as "taxes") are to be paid by tenants other
than the Anchors, over the course of a calendar year (for
example, 1996) estimated payments are made monthly for the taxes
then accruing, which taxes are payable in March and September of
the following calendar year (that is, for example, 1997), with
such estimated payments adjusted during the first few months of
the next calendar year (in the example, 1998) to account for
actual amounts paid for taxes for the calendar year in which the
estimated monthly payments were actually made (in the example,
1996). The Anchors pay the taxes applicable to that portion of
the Premises each occupies directly to the County Collector; in
addition, Bloomingdale's, Saks and Lord and Taylor contribute
towards taxes applicable to common areas. Accordingly, upon
issuance of tax bills for the Premises (other than tax bills
payable by Anchors) that will occur in 1997 for taxes applicable
to 1996: (aa) Urban shall cause the Partnership to pay the first
installments of such 1996 taxes; and (bb) with respect to the
second installments, ZML shall pay to Urban, not less than two
(2) business days prior to the last date the second installments
for such 1996 taxes are due prior to delinquency, for payment to
the County Collector, 89.5833% of the amount equal to difference
obtained by subtracting $300,000.00 from the amount collected by
the Partnership prior to Closing from tenants in payment of their
share of such 1996 taxes (presently estimated to be, for example,
$3,921,031 - 300,000 = $3,621,031 x 89.5833% = $3,243,839.00).
Urban shall thereupon cause the Partnership to pay all bills for
the second installment of such taxes and bill tenants of the
Shopping Center for any additional amounts owed by them for such
1996 taxes. If and to the extent the full amount of such 1996
taxes is not paid by tenants of the Shopping Center (whether
before or after Closing) as aforesaid, then 89.5833% of the first
$150,000.00 of any shortfall shall be borne by ZML and the
remainder shall be borne by the Partnership as existing after Closing.
(iii) SECURITY DEPOSITS. At Closing, 89.5833%
of the amount of security deposits paid under the Leases (the
"Security Deposits"), together with interest thereon (if required
by law or the applicable Leases), in the aggregate amount shown
on attached EXHIBIT I, shall be paid by ZML to the Partnership,
to be held by the Partnership (together with the other 10.4167%
of such amount) and the Partnership shall continue to be responsible
for all of such amount and hold same pending application or refund in
the ordinary course of business.
(iv) LEASING COMMISSIONS AND TENANT ALLOWANCES;
RENT ABATEMENT. Urban shall receive at Closing a credit in an
amount equal to 89.5833% of the leasing commissions and tenant
allowances owed in respect of the Leases as identified on attached
EXHIBIT H, and after the Closing the Partnership shall be responsible
for and pay when due all such commissions and allowances, including the
other 10.4176% thereof. In addition, Urban shall receive at Closing a
credit in an amount equal to 89.5833% of $40,086.57 and $42,950.84 due
<PAGE> 11
to Z Gallerie and Great Train Store, respectively, on account of
rent abatements or rent reductions as to the Leases for such
tenants. After Closing, and with respect to the tenant prospects
identified on attached EXHIBIT X, if within 180 days after the
Closing Date, any such prospect enters into a lease for space in
the Shopping Center, then, as to each such prospect, Urban shall
cause the Partnership to pay to or at the direction of ZML a
leasing commission in an amount equal to 50% of the commission
that would have been earned as to such lease by Urban Retail
pursuant to the Property Management Agreement referred to in
Section 5(B)(i)(k) above.
(v) EMPLOYEES. Neither ZML nor the Partnership
has any employees. All employees at the Premises are employees
of Urban Retail and shall continue to be so employed in the
ordinary course of business notwithstanding the transaction
provided for in this Agreement.
(vi) PARTNERSHIP CASH AND POST-CLOSING
COLLECTIONS. At Closing, after payment is made by the Partnership
as provided for in Sections 5(B)(iii) and 5(C)(iii) above, and
subject to a reserve of $1,000,000.00 to be held by ZML for the
payment of pre-Closing expenses not prorated or adjusted as
herein provided, 89.5833% of all cash and cash equivalents of the
Partnership shall be paid to and/or retained by ZML, to be held
by ZML for its own account, and at Closing ZML shall cause the
Partnership to distribute the remaining 10.4167% to OOUV. After
Closing, Urban shall cause the Partnership to bill and collect in
the ordinary course of business all amounts owed from tenants
and other parties under the Leases and other documents affecting
the Business or the Property or any part thereof, and upon
receipt of funds from time to time promptly remit to ZML its
share thereof in accordance with the provisions of this
Agreement. It is understood and agreed that, except as otherwise
expressly provided for in this Agreement and notwithstanding the
transfer of the Partnership Interest as herein provided, ZML is
retaining all of its right, title and interest in and to 89.5833%
of all funds received and to be received by the Partnership in
respect of the period prior to the Closing Date (such funds being
referred to herein as the "Retained Funds"). To the extent that
ZML's receipt of Retained Funds results in an obligation to pay
an amount to a tenant of the Property or to Field (whether as
reimbursement of sums previously paid by for taxes or otherwise),
ZML shall promptly pay such amount to the Partnership, for
payment to the tenant or Field, as the case may be, within twenty
(20) days after receipt from the Partnership of demand therefor.
The Retained Funds include, without limitation: (a) 89.5833% of
amounts owed from Anchors for 1995 real estate taxes paid by the
Partnership in 1996 (estimated to be approximately $550,000.00)
[but it is expected that the Partnership shall be obligated to
refund to other tenants excess amounts (estimated to be
approximately $350,000.00) paid by such tenants for such taxes,
and the Partnership shall be entitled to offset the later against
the former, providing ZML with reasonably detailed information
with respect thereto]; and (b) a $200,000.00 lease termination
payment to be received from Rush Presybterian St. Luke's Medical
Center (as successor to Anchor Organization for Health Maintenance),
as to which ZML shall receive 89.5833% thereof. This Section 5(C)(vi)
shall survive the Closing without limitation as to time.
(vii) ADA COMPLIANCE. Urban shall receive at
Closing a credit in an amount equal to 89.5833% of $63,421.00 on
account of the need to satisfy requirements of the Americans with
Disabilities Act with respect to washroom facilities in the
office building that is part of Old Orchard.
(viii) FIELD CAM DISPUTE. The schedule of
Retained Rents to be delivered to Urban at Closing as above provided
for shall contain an account receivable due from Field (presently
estimated to be $381,208.28, of which ZML would be entitled to 89.5833%,
or $341,498.96). After Closing, Urban, either directly or through the
Partnership, shall negotiate a settlement of such account receivable
and shall promptly pay to ZML 89.5833% of all funds received from the
settlement. Any amount not paid by Field shall
<PAGE> 12
be billed by the Partnership to tenants of the Shopping Center to
the extent permitted by their leases and Urban shall cause ZML to
receive 89.5833% of all amounts collected from such billings. If
and to the extent ZML does not receive from the foregoing sources
100% of its 89.5833% interest in the Field receivable that is the
subject of this Section 5(C)(viii), then Urban shall pay (or
cause the Partnership to pay) to ZML 50% of the shortfall.
(ix) MARKETING FUND. The Closing Statement is to
provide Urban with a credit of $169,223.27, representing 89.5833%
of the difference obtained by subtracting from $200,000.00 the
aggregate amount ($11,099.53) of two accounts receivable (the "MF
Receivables") owed to the Marketing Fund maintained by the
Partnership for the Shopping Center. ZML shall retain all funds
being held by the Partnership as of Closing for the Marketing
Fund, such funds to be distributed by the Partnership immediately
prior to Closing as provided for in the Anticipation Agreement.
The Partnership shall, after Closing, continue to be responsible
for and pay all expenses of the Marketing Fund, whether incurred
before or after Closing, all such expenses, to the extent heretofore
incurred, having been incurred through Urban Retail. In addition, the
Partnership shall retain the MF Receivables and the MF Receivables
shall not be a part of the Retained Rents or the Retained Funds.
D. CLOSING COSTS. ZML's Portion of the premium for
the Title Policy (other than charges for the Title Endorsements
[hereinafter defined]) and the cost of the Survey shall be paid
by ZML, and Urban's Portion thereof shall be paid by Urban, where
ZML's Portion is 89.5833% and Urban's Portion is 10.4167%. ZML
shall be responsible for 44.8% of all escrow fees in connection
with the transactions provided for in this Agreement and 44.8% of
the cost of the Title Endorsements, and Urban shall pay the
balance thereof. Urban and ZML shall be responsible for the fees
of their respective attorneys, agents, consultants and representatives
in connection with the preparation and performance of this Agreement
and the Closing contemplated hereunder. ZML shall pay from pre-Closing
Partnership funds the $250,000.00 transfer fee payable under the
Prudential Loan Documents in connection with the transactions provided
for in this Agreement; ZML shall pay 89.5833% of the legal fees and
expenses incurred by the Existing Lender in connection with the final
advance under the Prudential Loan and Urban shall pay (or cause the
payment of) the other 10.4167%; and the legal fees and expenses incurred
by the Existing Lender in connection with the transactions provided for
in this Agreement shall be paid 44.8% by ZML and 55.2% by Urban.
E. POSSESSION OF PREMISES. As of Closing, the
Partnership and/or Urban Retail (as the case may be) shall
continue to retain full and complete possession and use of the
Premises and Books and Records, subject only to the Permitted
Exceptions and such other matters as are expressly permitted by
or pursuant to the Agreement.
F. 1996 TAX RETURNS. The 1996 Federal and State
income tax returns for the Partnership shall be prepared by Ernst
& Young/Kenneth Leventhal and the cost thereof shall be split
between ZML and Urban proportionately based upon their respective
periods of ownership of the Partnership Interest during 1996, and
ZML shall only be obligated to pay 89.5833% of the cost thereof
for the pre-Closing period. Items of profit, loss and gain
shall be allocated to the partners of the Partnership based on
their respective periods of ownership of their interests therein.
In connection therewith, the Partnership's returns shall reflect
an election under Section 754 of the Internal Revenue Code with
respect to the transaction provided for in this Agreement. Urban
(for itself and on behalf of the Partnership) and ZML shall, and
shall cause its and their respective officers, employees, agents,
auditors and representatives to, cooperate in preparing and
filing all returns, reports and forms relating to such taxes
(whether for 1996 or for other tax years), including maintaining
and making available to each other all records necessary in
connection with such taxes and in resolving all disputes and
audits with respect to all taxable periods relating such taxes.
This Section 5(F) shall survive the Closing for three (3) years.
<PAGE> 13
G. MECHANICS LIENS. The Title Policy is to contain
17 exceptions to title pertaining to mechanics lien claims: (i)
seven (7) of these exceptions (items BH, BK, BL, BS, BT, CF and
CH) have been insured over by the Title Company on the basis of
undertakings provided by either a tenant or contractor involved
in the work; (ii) seven (7) of these exceptions (items BX, BY,
BZ, CA, CC, CI and CQ) involve Eyewear Gallery, Inc.; and (iii)
the remaining three (3) exceptions (items CD, CE and CG) involve
other tenants. ZML shall have no responsibility for the seven
(7) claims that are the subject of the exceptions referred to in
clause (i) above. The Title Endorsements shall provide for
insurance over, and after Closing, ZML shall settle and pay, the
other mechanics lien claims (that is, those that are the subject
of the exceptions referred to in clauses (ii) and (iii) above),
and in connection therewith shall have the right to cause the
Partnership (at ZML's cost and expense) to enforce any and all
rights and remedies that may be available with respect thereto
(including, without limitation, the institution and prosecution
of eviction and/or other legal proceedings). Urban shall cause
the Partnership to pay upon demand 10.4167% of the settlement
amounts required to be paid by ZML as aforesaid, together with
10.4167% of the reasonable costs incurred by ZML in obtaining the
settlements. ZML and Urban shall each reasonably cooperate with
the other in the resolution of all such mechanics lien claims in
accordance with the provisions of this Section 5(G).
H. REAL ESTATE TAX PROTESTS. ZML reserves the right
to protest real estate taxes applicable to the Premises for the
year 1996 and all prior years and to retain any refunds resulting
therefrom net of expenses and amounts (if any) that may be
refundable to tenants or due tenants as a credit or otherwise
reduce the amount of taxes to be passed through to tenants, with
any such savings for 1996 to be prorated between ZML and the
Partnership based upon their respective periods of ownership that
year. With respect to any such savings attributable to the pre-
Closing period, ZML shall retain 89.5833% thereof and remit the
balance to or at the direction of the Partnership.
6. INTENTIONALLY OMITTED.
7. INTENTIONALLY OMITTED.
8. URBAN REPRESENTATIONS; SURVIVAL. The Operating
Partnership, the QRS and Orchard Trust each represents to ZML
that the following are true and correct:
(i) It is duly organized, validly existing
and qualified and empowered to conduct its
business and has full power and authority to
enter into and fully perform and comply with
the terms of this Agreement. Neither its
execution and delivery of this Agreement nor
its performance hereunder will conflict with
or result in the breach of any contract or
agreement to which it is a party or by which
it is bound. To its knowledge, neither its
execution and delivery of this Agreement nor
its performance hereunder will conflict with
any ordinances, laws, rules or regulations to
which it is subject.
(ii) The signatories to this Agreement on its
behalf have full right, power and authority
to enter into this Agreement and to
consummate the transactions contemplated
herein. This Agreement is valid and
enforceable against it in accordance with its
terms and each instrument to be executed by
it pursuant to this Agreement or in
connection herewith will, when executed and
delivered, be valid and enforceable against
it in accordance with its terms, subject to
bankruptcy laws
<PAGE> 14
and other similar laws affecting the
rights of creditors generally and to the
exercise of judicial discretion in the
granting of equitable relief.
(iii) There is no lawsuit or arbitration
proceeding pending or, to its knowledge,
threatened, against it which seeks to
restrain or prohibit or to obtain damages in
respect of this Agreement or the consummation
of the transactions contemplated by this
Agreement.
As used in this Agreement, the term "to Urban's knowledge" or the
knowledge of Urban Retail or any entity comprising Urban, and
words of similar import, shall mean the actual knowledge of
Matthew Dominski, Michael Hilborn, Michael Laing, Bruce Becker,
Peter Erie, Martha Spatz, Douglas Kiehn, Ross Glickman, Wendy
Peczkowski, Judy Jacobs, Ken Marshal and Charles Porter, without
independent investigation or inquiry. Urban represents that such
persons, collectively, have primary knowledge as to all matters
relating to the matters in respect of which references to such
"knowledge" are made. All representations of each entity
comprising Urban contained in this Agreement (and any covenants
and agreements which by their terms may require performance after
Closing, to the extent thereof) shall survive the Closing;
provided, however, that the representations of each such entity
(other than the representation in the immediately preceding
sentence) set forth in this Section 8 shall terminate at 11:59
p.m. on March 31, 1998, and no claim shall be made and the
entities comprising Urban shall have no liability for breach
thereof unless and to the extent prior thereto ZML has notified
Urban of such claimed breach(es).
9. ZML REPRESENTATIONS AND COVENANTS; SURVIVAL;
INDEMNIFICATION; DISCLOSURE AND WAIVER.
A. REPRESENTATIONS. ZML represents to Urban that the
following are true and correct:
(i) The Partnership constitutes the sole
beneficiary of and, except for the interest
of the Existing Lender, has the absolute
power of direction over the ANB Trust.
Neither the ANB Trust nor the Partnership has
entered into any agreement to lease, sell,
mortgage or otherwise encumber or dispose of
the Property, or any part thereof or its
interest therein, except for this Agreement,
the Prudential Loan Documents, the Leases,
the Skokie Economic Assistance Package, the
Field Operating Agreement and the other
Permitted Exceptions. ZML owns the
Partnership Interest free and clear of all
liens and encumbrances.
(ii) The schedule of insurance policies
attached to this Agreement as EXHIBIT K
contains a list and description of all
insurance policies owned by or on behalf of
the Partnership and/or the ANB Trust with
respect to the Business or Property or any
part thereof. Such policies are in full
force and effect. All premium payments due
thereunder have been paid and, to ZML's
knowledge, all policy conditions precedent
thereto which can be satisfied to date have
been satisfied. No written notice has been
received by either the ANB Trust or the
Partnership from any insurer with respect to
any defects or inadequacies of all or any
part of the Property or the use or operation
thereof that have not heretofore been
corrected.
<PAGE> 15
(iii) Except as set forth in EXHIBIT L
attached to this Agreement, neither the ANB
Trust nor the Partnership has received
written notice from any governmental
authority of any violation of any zoning,
building, fire or health code or any other
statute, ordinance, rule or regulation
applicable (or alleged to be applicable) to
the Business or Property, or any part
thereof, that will not have been corrected
prior to Closing solely at the Partnership's
expense, and, except as set forth in attached
EXHIBIT L, ZML has no knowledge of any such
violation which has or could have a material
adverse effect on the Business or Property.
(iv) Except for contracts, agreements and
commitments entered into by Urban Retail or
its predecessors as either Development
Manager for the Redevelopment Project or the
management and/or leasing agent for the
Shopping Center ("Urban Contracts"), the
Service Contracts identified in attached
EXHIBIT E comprise every contract, agreement
and commitment, oral or written (other than
the Leases, the Skokie Economic Assistance
Package, the Field Operating Agreement, the
Prudential Loan Documents, the Licenses and
the other Permitted Exceptions), which is
binding against the Property and which will
extend beyond the Closing, or which are to be
binding upon the Partnership after Closing,
including without limitation, all agreements
relating to employment and collective
bargaining, the purchase of materials,
supplies, equipment, machinery parts,
products, or services, pension, profit-
sharing, deferred compensation, bonuses, or
incentives, and the lease of any property,
real or personal. Neither the ANB Trust, the
Partnership nor, to the knowledge of ZML, any
other party, is in material default under the
terms of any Service Contract, and neither
the ANB Trust nor the Partnership has given
or received written notice of any default
thereunder. Except as otherwise noted on
attached EXHIBIT M, each Service Contract is
cancellable without payment of any premium or
penalty upon not more than thirty (30) days
notice.
(v) Except as set forth in attached EXHIBIT
N, there is no claim pending or, to ZML's
knowledge, threatened, against either the ANB
Trust or the Partnership with respect to any
alleged infringement by a Trademark of the
rights of any other person or entity.
(vi) ZML and the Partnership are each duly
organized, validly existing and qualified and
empowered to conduct its business, and,
subject to the consent of the Existing
Lender, ZML has full power and authority to
enter into and fully perform and comply with
the terms of this Agreement. Subject to the
consent of the Existing Lender, neither the
execution and delivery of this Agreement nor
its performance by ZML will conflict with or
result in the breach of any contract or
agreement to which it, the Partnership or the
ANB Trust is a party or by which it, the
Partnership or the ANB Trust is bound. To the
knowledge of ZML, neither the execution and
delivery of this Agreement nor its performance by ZML
<PAGE> 16
will conflict with any ordinances, laws,
rules or regulations to which either the
Partnership, the ANB Trust or ZML is subject.
(vii) Without limiting any other warranty
or representation of ZML, to ZML's knowledge,
there is no plan, study or effort by any
governmental authority or agency which in any
way affects or would affect in any material
respect the present use or zoning of the
Premises; to ZML's knowledge, there is no
existing, proposed or contemplated plan to
widen, modify or realign any street or
highway or any existing, proposed or
contemplated eminent domain proceedings that
would affect the Property; and neither the
ANB Trust nor the Partnership has received
written notice concerning any of the foregoing;
(viii) Except as set forth on attached
EXHIBIT O, to ZML's knowledge, neither the
ANB Trust nor the Partnership is in default
(or alleged to be in default) in respect of
any of its material obligations or liabilities
pertaining to the Business or Property, and
none has received written notice claiming its
default in respect of any obligations or
liabilities pertaining to the Property or Business.
(ix) The Rent Roll (EXHIBIT D) describes all
existing Leases. Except as set forth on the Rent
Roll, each tenant under the Leases is a bona fide
tenant in possession or has a right to possession
of the premises demised thereunder. Each of the
Leases is in effect, and, except as permitted by
a Lease, is not subject to any sublease and has not
been assigned, modified, amended or rescinded
(except as described in EXHIBIT D), and the rights
of each lessee thereunder are as tenants only: none
has any ownership interest or option or right of
first refusal to acquire any ownership interest in the
Property or any part thereof, and none has any right
or option to renew or extend the lease term or to lease
additional space within the Property, except as provided
in its Lease or as described in EXHIBIT D. To ZML's
knowledge, no commissions to any broker or leasing
agent are due or will become due on account of any of
the Leases or upon extension or renewal of the original
term thereof, whether or not pursuant to an option
contained in such Lease, except as set forth in
EXHIBIT D. To ZML's knowledge, and except as set
forth on attached EXHIBIT D, no tenant is in material
default under any of the Leases. Neither the ANB
Trust nor the Partnership has given or received any
written notice of default under any of the Leases
which has not been resolved to the satisfaction of
the complaining party except as set forth on the
Rent Roll. To ZML's knowledge, no written claim
of a right of set-off against rent has been asserted
by any tenant under the Leases, except as described
in the Rent Roll. To the knowledge of ZML: attached
EXHIBIT I discloses all security and other deposits
made by each of the tenants under the Leases, and
no tenant is entitled to any rebate or concession
which is not disclosed on the Rent Roll or EXHIBIT I.
The Partnership has not received any payment of rent
for more than 30 days in advance on account of any of
the Leases, except as shown in the Rent Roll.
There are no written or oral leases or tenancies
affecting the Property other than those listed in
the Rent Roll or those approved by Urban.
<PAGE> 17
(x) With respect to the Property, or any
part thereof, to ZML's knowledge, there are
no unpaid taxes or assessments of any kind or
nature whatsoever that are presently due and
payable.
(xi) The signatories to this Agreement on
behalf of ZML have full right, power and
authority to enter into this Agreement and to
consummate the transactions contemplated
herein. This Agreement is valid and
enforceable against ZML in accordance with
its terms and each instrument to be executed
by ZML pursuant to this Agreement or in
connection herewith will, when executed and
delivered, be valid and enforceable against
such entity in accordance with its terms,
subject to bankruptcy laws and other similar
laws affecting the rights of creditors
generally and to the exercise of judicial
discretion in the granting of equitable
relief.
(xii) To ZML's knowledge, except as set
forth in attached EXHIBIT P ("ZML's
Environmental Disclosures"), there are no
gasoline, petroleum products, explosives,
radioactive materials, hazardous materials,
hazardous wastes, hazardous or toxic
substances, polychlorinated biphenyls or
related or similar materials, asbestos or any
material containing asbestos, or any other
substances or materials (collectively,
"Hazardous Materials") as have been defined
or designated as a hazardous or toxic
substance by any environmental law,
ordinance, rule, or regulation of any
governmental authority ("Environmental
Laws"), including, without limitation, the
Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601, et seq.),
the Hazardous Materials Transportation Act,
as amended (49 U.S.C. Section 1801 et seq.),
the Resource Conservation and Recovery Act,
as amended (42 U.S.C. Section 6901 et seq.),
the Federal Water Pollution Control Act (33
U.S.C. Section 1251 et seq.), the Clean Air
Act (42 U.S.C. Section 7401 et seq.) and in
the regulations adopted and publications
promulgated pursuant thereto, at the Property
in any amounts which could give rise to an
Environmental Claim (hereinafter defined), or
an Environmental Compliance Cost (hereinafter
defined), or which are in violation of any
Environmental Law, that in any such case did
not exist on September 3, 1993 (and, except
for matters referred to in the May 5, 1993
Phase I and II Environmental Report prepared
by Delta Environmental Consultants, Inc. (the
"Delta Report") the May, 1993 Asbestos-
Containing Materials Resurvey prepared by
Versar, Inc. (the "Versar Report"), and the
March 28, 1994 Report of Building Survey For
Asbestos-Containing Materials prepared by Law
Engineering and Environmental Services (the
"Law Report"), copies of which have
heretofore been delivered to Urban, ZML has
no knowledge of any such condition existing
as of September 3, 1993), and, except for
ZML's Environmental Disclosures, to ZML's
knowledge, since September 3, 1993, the
Property
<PAGE> 18
has never been used to generate,
manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce, process
or in any manner deal with Hazardous
Materials in any amounts which could give
rise to an Environmental Claim or an
Environmental Compliance Cost, or which are
in violation of any Environmental Law;
provided, however, that the term "Hazardous
Materials" shall not include materials which
are stored, used, sold, or held in inventory
in the ordinary course of business conducted
at the Property, if such materials are
stored, used, held or disposed of in
compliance with all applicable laws,
regulations or ordinances. As used herein,
"Environmental Claim" means any third-party
claim for personal injury, death and/or
property damage arising as the result of any
Hazardous Materials which were present or
released in, on or under the Premises (or any
part thereof) prior to the date hereof,
together with court costs, attorneys' fees
and litigation expenses resulting therefrom.
The term "Environmental Compliance Cost"
means any out-of-pocket cost, fee or expense
(including, but not limited to, court costs,
attorneys' fees and litigation expenses)
incurred to satisfy any requirement imposed
by any governmental agency authorized to
regulate Hazardous Materials to bring the
Premises into compliance with applicable
federal, state and local laws and regulations
governing the existence on the Premises of
any such Hazardous Material which was present
or released in, on, or under the Premises
prior to the date of this Agreement.
(xiii) Except as set forth in EXHIBIT Q
attached, there is no lawsuit or arbitration
proceeding pending or, to ZML's knowledge,
threatened, against the ANB Trust, the
Partnership or the Property, before any
court, or before any governmental department,
commission, board, agency, or
instrumentality, or which seeks to restrain
or prohibit or to obtain damages in respect
of this Agreement or the consummation of the
transactions contemplated by this Agreement.
(xiv) To ZML's knowledge, the Licenses
constitute all such items necessary for the
operation of the Property and the lawful
conduct of the Business to the extent
required to date and are in full force and
effect and neither the ANB Trust nor the
Partnership has received any written notice
that there exists any violation of any such
Licenses that has not been cured or that
there is a governmental permit or license
which it should have but does not.
(xv) Attached as EXHIBIT R is a list of the
agreements, and any amendments thereto, with
Field relating to, among other things, the
operation and maintenance of the common area
of the Premises and the operation by Field of
a department store on the property adjoining
the Land (as shown in the Survey) (collectively,
the "Field Operating Agreement"). The Field Operating
Agreement is in good standing and in full force and
effect in accordance with the terms thereof,
and has not been modified or amended except
as shown in said Exhibit R.
<PAGE> 19
Except for item 14 on attached EXHIBIT W, all
of the obligations to be paid and performed to
the date hereof under the Field Operating
Agreement by the Partnership and, to the knowledge
of ZML, Field, have been duly performed. A true
and complete copy of the Field Operating Agreement
has been separately identified by ZML and delivered
to Urban. Except for item 14 on attached EXHIBIT W,
there is no pending claim of default under the Field
Operating Agreement on the part of any party thereto.
The charges currently being paid by Field under the
Field Operating Agreement are set forth in said EXHIBIT R.
(xvi) All of the Prudential Loan Documents
are identified on EXHIBIT S attached to this Agreement.
ZML has separately identified and delivered to Urban
true, correct and complete copies of the Prudential
Loan Documents. To the knowledge of ZML, there is
no default under the Prudential Loan Documents.
(xvii) ZML has separately identified and
delivered to Urban true, correct and complete
copies of all documents evidencing and
governing the Skokie Economic Assistance
Package, which documents are identified on
EXHIBIT T attached to this Agreement.
Neither the Partnership, nor, to the
knowledge of ZML, the Village of Skokie, is
in default under the Skokie Economic
Assistance Package. The only payment
heretofore made by the Village of Skokie
under the Developer Note that is a part of
the Skokie Economic Assistance Package was
made in October, 1995 (based on 1994 sales
taxes for October-December) in the amount of
$285,923.10. No payment was owed on the
Developer Note for 1995 sales taxes.
(xviii) Except as described in EXHIBIT V
attached to this Agreement, the Partnership
has made no promise in connection with the
Property to make any charitable contributions
or to host or otherwise engage in any
bookfare or other charitable event.
As used in this Agreement, the term "to ZML's knowledge", and
words of similar import, shall mean the actual knowledge of David
Contis, Sandra Mahon, Sharon Polonia, Bo Berlin, Bob Tanaka, Jim
Hackett (as to Section 9(A)(xii) only) and George Touras, without
independent investigation or inquiry. ZML represents that such
persons, collectively, have primary knowledge as to all matters
relating to the representations and warranties set forth in this
Section 9(A). Except for the representations and warranties
expressly set forth in this Section 9(A) and in Section 10 below,
or except as expressly otherwise provided for in this Agreement
or in documents being executed and delivered simultaneously
herewith as expressly herein provided, Urban acknowledges and
agrees that ZML has not made any representations, warranties or
guaranties to Urban, either express or implied, with respect to
the ANB Trust, the Partnership, ZML, or the Business (including,
without limitation, the Redevelopment Project) or Property and
that the Partnership Interest is being acquired by Urban with the
Partnership, the Business and the Property being "AS-IS" and
"WITH ALL FAULTS". Urban further acknowledges and agrees that
(xx) it has made such legal, factual and other inquiries and
investigations as Urban deems necessary or desirable with respect
to the Partnership, the Partnership Interest, the Business and
the Property, including without limitation, the physical components
of the Property (including the subsurface of the Premises), and that
Urban has received and reviewed the Delta Report, the Versar Report,
and the Law Report, as well as that certain report dated January 29, 1992
prepared by Code Consultants, Incorporated, with
respect to the Americans with Disabilities Act, and (yy) its
affiliate, Urban Retail, is the managing and leasing agent for
<PAGE> 20
the Property and was the Development Manager for the
Redevelopment Project, so that to the extent that Urban or Urban
Retail have actual knowledge (without independent investigation
or inquiry) of any matter inconsistent with any of the
representations made by ZML herein or in any document executed in
connection herewith, Urban shall have no claim against ZML to the
extent of such inconsistency; provided, however, that the
foregoing clause (yy) shall not absolve ZML from liability for
breach of a representation if and to the extent of ZML's
knowledge of such breach, if any. Without limiting the
generality of the foregoing, and in addition to other matters
provided for in this Agreement, it is expressly understood and
agreed that Urban is acquiring the Partnership Interest with the
Partnership, the ANB Trust, the Property and/or the Business (as
the case may be) subject to the matters identified in EXHIBIT W
attached to this Agreement and that neither the Partnership,
OOUV, Urban nor the ANB Trust shall at any time have any rights
or remedies against ZML, the ZML II Fund or any of their
affiliates with respect thereto; provided, however, that with
respect to items 3 and 4 on attached EXHIBIT W, if within two (2)
years after the Closing Date either Field (as to item 3) or Plitt
Theatres, Inc. (as to item 4) makes a claim against the
Partnership by reason thereof, then ZML shall be responsible for
89.5833% of such claim or claims (as the case may be) provided
the Partnership has not, directly or indirectly, intentionally
encouraged such claim and further provided ZML is allowed a
reasonable opportunity to settle and resolve same (including
reasonable use of the estoppels received by Urban from Field and
Plitt Theatres, Inc. in connection with the Closing).
B. COVENANTS. Prior to Closing, ZML shall cause the
Partnership to make available to Urban or Urban's designated
representative all financial books and records for the Property
for the period from September 3, 1993, through the Closing Date,
and to provide such assistance as may be reasonably requested by
Urban (but at no cost or expense to ZML unless Urban pays for
same) so as to permit preparation of audited or unaudited
financial statements required to be prepared by the Rules and
Regulations of the Securities and Exchange Commission relating to
the purchase of the Partnership Interest by Urban; and ZML shall
continue to do so after Closing to the extent of relevant
documents remaining in its possession (but at no cost or expense
to ZML unless Urban or the Partnership pays for same).
C. SURVIVAL. All representations of ZML contained in
this Agreement (and any covenants and agreements which by their
terms may require performance after Closing, to the extent
thereof) shall survive the Closing; provided, however, that the
representations of ZML set forth in Section 9(A) above shall
terminate at 11:59 p.m. on March 31, 1998, unless and to the
extent prior thereto Urban has notified ZML of a claimed breach
and then only to the extent of any such claimed breach(es).
Notwithstanding the provisions of Section 9(A)(ix) above, if
Urban receives an estoppel certificate from a tenant (including,
without limitation, the Anchors), and whether or not delivered
prior to Closing (but delivered in any event within six {6}
months after Closing), then ZML shall be released from its
representations under Section 9(A)(ix) above with respect to such
tenant to the extent the information therein confirms said
representations. In addition, except for fraud or intentional
misrepresentation: (i) Urban (either directly or indirectly or
through the Partnership) shall not commence any action or
proceeding against ZML (or any partner thereof) and ZML (or any
partner thereof) shall not have any liability for breach of or
inaccuracy in the representations of ZML contained in this
Agreement (or as to the representations, warranties, covenants
and agreements in the documents provided for in Section 5(B)
above, but only if and to the extent expressly set forth therein)
unless and until the aggregate of all loss, cost and/or damage
(excluding attorneys' fees which are related to enforcing Urban's
rights under this Agreement) sustained by Urban as a result of
such breaches and/or inaccuracies exceeds $50,000.00, and (ii)
the liability of ZML for damages for the breach of any one or
more representations or warranties contained in this
<PAGE> 21
Agreement (or as to the representations, warranties, covenants
and agreements in the documents provided for in Section 5(B)
above, but only if and to the extent expressly set forth therein)
shall not exceed in the aggregate $3,000,000.00. The limitations
set forth in this Section 9(C) shall not, however, apply to any
claim by Urban for a breach of the representation set forth in
Section 10 below. Except as provided for in this Section 9(C) or
as otherwise expressly provided for in this Agreement, the
obligations of the parties under this Agreement shall not survive
any termination of this Agreement, and if the Closing occurs,
shall survive the Closing only for two (2) years and not
otherwise.
D. ZML INDEMNIFICATION.
(i) Subject to and in accordance with the further
provisions of this Section 9(D), after Closing, ZML shall
indemnify and defend the Partnership from and against 89.5833% of
any and all "Unknown Pre-Closing Liabilities". As used in this
Section 9(D), "Unknown Pre-Closing Liabilities" means unsatisfied
liabilities and obligations of the Partnership to third parties
existing immediately prior to Closing, whether contingent or
otherwise, that are not within the actual knowledge (without
independent investigation or inquiry) of Urban or Urban Retail,
other than (and Unknown Pre-Closing Liabilities shall not
include) any liabilities and obligations (aa) under the Leases
listed on the Rent Roll, the Service Contracts listed on or
referred to in attached EXHIBIT E, the Field Operating Agreement,
the documents comprising the Skokie Economic Assistance Package
as described on attached EXHIBIT T, the Prudential Loan
Documents, and any other Permitted Exceptions, (bb) pertaining to
environmental matters (including, without limitation, Hazardous
Materials and Environmental Laws), (cc) within the scope of
coverage provided by the Title Policy or any endorsements
thereto, (dd) under the agreements between the Partnership and
Urban Retail pursuant to which Urban Retail and its predecessor,
JMB Properties Company, acted as Development Manager for the
Redevelopment Project and the managing and leasing agent for the
Shopping Center, (ee) that are within the scope of the
representations set forth in Sections 9(A) (vi), (x), (xii) and
(xiv) above, even if recovery is not available with respect
thereto by virtue of the limitations applicable thereto, (ff)
liabilities and obligations that individually are not more than
$1,000.00 and that were incurred in the ordinary course of
business, provided, however, that this clause (ff) shall not
apply to such liabilities and obligations to the extent that the
liabilities and obligations excluded under this clause (ff)
exceed $25,000.00 in the aggregate, (gg) within the scope of the
matters identified on attached EXHIBIT W, (hh) by virtue of any
or all of the Property being in violation of (or alleged to be in
violation of) any zoning, building, fire or health code or any
other statute, ordinance or governmental rule or regulation, (ii)
liabilities and obligations of the Partnership to OOUV and its
constituent partners, and (kk) liabilities and obligations that
are otherwise expressly provided for in this Agreement (such as
real estate taxes), it being understood and agreed that ZML shall
have no responsibility for the remaining 10.4167% of any and all
Unknown Pre-Closing Liabilities. Notwithstanding the foregoing,
the matters set forth on attached EXHIBITS Q and U shall be
deemed Unknown Pre-Closing Liabilities, and the fact that a
matter is referred to on attached EXHIBIT O and is thus within
the knowledge of Urban or Urban Retail shall not preclude such
matter from being an Unknown Pre-Closing Liability. A matter
within the scope of the foregoing indemnity is referred to herein
as "Claim".
(ii) The indemnity provided for above in this
Section 9(D) shall be subject to the following:
(a) The Partnership shall promptly notify
ZML of any Claim of which it becomes aware (but in any event
within 30 days after it has knowledge thereof) providing
reasonable details with respect thereto to the extent
available, but failure to so notify ZML shall not prejudice
<PAGE> 22
the rights of the Partnership under this Section 9(D) unless
and to the extent ZML is prejudiced by such failure. Urban
shall cause the Partnership to, and the Partnership shall,
reasonably cooperate with ZML in the defense and
resolution of each Claim. If ZML shall fail
to discharge or otherwise resolve a tendered Claim, or
undertake to defend the Partnership against same, then the
Partnership may settle the Claim and the liability of ZML
with respect thereto shall thereupon be deemed to have been
conclusively established by such settlement, the amount of
such liability to include both the settlement amount and the
reasonable costs and expenses, including reasonable
attorneys' fees, incurred by the Partnership in effecting
such settlement.
(b) Except if and to the extent Claims
involve actual fraud on the part of ZML, ZML shall not be
liable under this Section 9(D): (xx) for more than
$25,000,000.00 in the aggregate, and (yy) for Claims notice
of which is not received by ZML by December 31, 2001;
provided, however, that the foregoing limitation in clauses
(xx) and (yy) above shall not apply if and to the extent a
Claim is based on an indebtedness for borrowed money
incurred in writing by the Partnership, and provided further
that payments by the Partnership's insurance carriers
(whether title insurance, liability insurance or otherwise)
shall not apply against the $25,000,000 limitation set forth
in clause (xx).
(c) The Partnership shall be responsible
for, and shall not require ZML to pay, the 10.4167% of the
Unknown Pre-Closing Liabilities that ZML is not responsible
for as aforesaid.
(d) If and to the extent that a Claim is
with respect to a matter as to which a claim for breach of
representation or covenant under Section 9(A) or 9(B) above
could then be made, then any monies paid in satisfaction of
such Claim shall be applied against and reduce the
$3,000,000.00 limitation on recovery provided for in Section
9(C) above if and to the extent such limitation has not
previously been exhausted prior to being applied against and
reducing the $25,000,00.00 limitation on recovery provided
for in clause (xx) of Section 9(D)(ii)(b) above.
(iii) To the extent that any Claim gives the
Partnership a right of indemnity, contribution or other recovery
against another person or entity, including insurers of insurance
in effect prior to the Closing Date, the Partnership shall (and
Urban shall cause the Partnership to), upon request by ZML
identifying such right of indemnity, contribution or other
recovery, either assign the same to ZML if such right is fully,
separately and freely assignable, or, if not fully, separately
and freely assignable, then pursue such right at the direction
and for the benefit of ZML, at ZML's sole cost and expense. This
Section 9(D)(iii) shall survive the Closing without limitation as to time.
(iv) ZML represents to Urban that, to the
knowledge of ZML, and except for the matters set forth on
attached EXHIBIT U, there are no Unknown Pre-Closing Liabilities.
The foregoing representation shall survive the Closing through
December 31, 2001 (and not beyond) and there shall be no dollar
limitation on any recovery or recoveries thereunder; provided,
however, that ZML shall have no liability under this Section
9(D)(iv) unless and to the extent that it has knowledge of
Unknown Pre-Closing Liabilities not on attached EXHIBIT Y that,
alone or in the aggregate, are in excess of $5,000,000.
E. DISCLOSURE. ZML and Urban acknowledge that an
environmental disclosure document is not required to be delivered
by ZML to Urban under the Illinois Responsible Property Transfer
Act. ZML and Urban further acknowledge that, as Urban Retail is
presently and has been managing the Shopping Center and was the
Development Manager for the Redevelopment Project, Urban is in
possession of all existing documentation and other information
pertaining to the presence, location, condition, management,
maintenance or abatement of asbestos containing materials (ACM)
in the Shopping Center.
<PAGE> 23
F. ENVIRONMENTAL WAIVER. Urban, on behalf of itself
and its successors and assigns, hereby forever waives, releases
and discharges any demand, claim, cost recovery action or lawsuit
(including, without limitation, contribution or indemnity claims)
against the ANB Trust, the Partnership and ZML (and each of its
partners) which Urban or any such successor or assign may have
against the ANB Trust, Partnership or ZML (or any of its
partners) under any Environmental Law or common law for "Known
Environmental Conditions", but not otherwise. In addition, after
Closing, the Partnership, for itself, the ANB Trust and, to the
fullest extent (and only to the fullest extent) permitted by law,
their respective successors and assigns, shall be deemed to have
forever waived, released and discharged any demand, claim, cost
recovery action or lawsuit (including, without limitation,
contribution or indemnity claims) against ZML (and each of its
partners) which the Partnership, the ANB Trust or any of their
respective successors and assigns may have against ZML (or any of
its partners) under any Environmental Law for "Known
Environmental Conditions", but not otherwise. As used in this
Section 9(F), "Known Environmental Conditions" shall mean (a)
ZML's Environmental Disclosures, and (b) subject to Urban's
rights in respect of Section 9(A)(xii) if and to the extent
applicable, any conditions existing as of September 3, 1993,
which conditions include, but are not limited to, those matters
referred to in the Delta Report, the Versar Report, and the Law
Report. This Section 9(F) shall survive the Closing without
limitation as to time.
G. PARTNERSHIP INDEMNIFICATION.
(i) Subject to and in accordance with the further
provisions of this Section 9(G), after Closing, the Partnership
shall indemnify and defend ZML from and against any and all
obligations arising under or with respect to the Leases listed on
the Rent Roll, the Services Contracts listed on attached EXHIBIT
E, the documents comprising the Skokie Economic Assistance
Package as described on attached EXHIBIT T, and any other
Permitted Exceptions (other than the Prudential Loan Documents),
but only to the extent that such obligations are applicable to
the period from and after (and including) the Closing Date.
(ii) In the event that any third party makes a
claim against ZML or any of its partners (the "ZML Affiliates")
by reason of any failure by the Partnership to satisfy any of the
obligations referred to in Section 9(G)(i) above, ZML shall
promptly notify the Partnership, whereupon the Partnership shall
defend the ZML Affiliates against each such claim at the
Partnership's expense and, in the event that any of the ZML
Affiliates is found liable with respect thereto, the Partnership
shall pay or otherwise satisfy such liability promptly. If the
ZML Affiliates incur any attorneys' fees or expenses by reason of
either the Partnership's failure to defend it against any such
claim or the need the enforce the obligations of the Partnership
under this Section 9(G), then, in such event, the Partnership
shall pay such fees and expenses as are reasonably incurred. The
obligations of the Partnership to defend the ZML Affiliates runs
to the ZML Affiliates as a group and not individually, and in no
event shall the Partnership be obligated to provide defense to
any one or more members of the ZML Affiliates separate or apart
from the defense provided to the ZML Affiliates as a group;
provided, however, that if less than all of the ZML Affiliates
are named in any action or in any count of any action, the
Partnership shall defend, as a group, such ZML Affiliates and all
such counts.
(iii) This Section 9(G) shall survive the
Closing without limitation as to time.
<PAGE> 24
H. ADDITIONAL WAIVER. Urban, for itself and its
successors and assigns, hereby forever waives, releases and
discharges any demand, claim or other action it may have against
ZML (or any partner thereof) under the Partnership Agreement.
This Section 9(H) shall survive the Closing without limitation as
to time.
10. BROKERAGE. ZML hereby represents to Urban, and Urban
hereby represents to ZML, that, except for a transaction fee that
may be owed to an affiliate of ZML and a commission payable to
Morgan Stanley & Co. Incorporated (which transaction fee and
commission ZML and OOUV shall pay in the manner provided for in
the Anticipation Agreement), it has not engaged the services of
or otherwise become obligated to any real estate brokers, agents,
finders or the like with respect to the transactions provided for
in this Agreement. Each of ZML and Urban hereby agree to
indemnify and defend the other from all claims (including,
without limitation, reasonable attorneys' fees and costs)
relating to any breach of the foregoing representation. This
Section 10 shall survive the Closing or any termination of this
Agreement, without limitation as to time.
11. DEFAULTS AND REMEDIES. Urban and ZML shall, subject to
the provisions of this Agreement, each have such rights and
remedies with respect hereto as are available at law or in
equity, except that no party shall be entitled to seek or collect
consequential damages.
12. MISCELLANEOUS.
A. Neither this Agreement nor any interest hereunder
shall be assigned or transferred by Urban or ZML without the
prior written consent of the other, except that Orchard Trust
may, subsequent to Closing, transfer its rights hereunder
(directly or through one or more intermediate transfers) to the
Operating Partnership or the QRS. Subject to the foregoing, this
Agreement shall inure to the benefit of and shall be binding upon
Urban and ZML and their respective successors and assigns.
B. This Agreement constitutes the entire agreement
between Urban and ZML with respect to the subject matter hereof
and shall not be modified or amended except in a written document
signed by Urban and ZML. Any prior agreement or understanding
between Urban and ZML concerning the Partnership Interest, the
Business or the Property is hereby rendered null and void. Each
entity comprising Urban, for itself and its successors and
assigns, acknowledges and agrees that it shall have no rights,
claims, remedies or causes of action against ZML under the
Partnership Agreement as in effect prior to Closing, whether with
respect to the period prior to Closing or otherwise.
C. Time is of the essence of this Agreement.
D. All notices, requests, demands or other
communications required or permitted under this Agreement shall
be in writing and delivered personally or by certified mail,
return receipt requested, postage prepaid, or by facsimile
transmission, addressed as follows:
1. If to Urban:
Suite 1500
900 North Michigan Avenue
Chicago, Illinois 60611
Attention: Matthew S. Dominski
Facsimile No.: 312-915-2001
<PAGE> 25
With a copy to:
Pircher, Nichols & Meeks
Suite 2600
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Real Estate Notices (PGN)
Facsimile No.: 310-201-8922
2. If to ZML:
c/o Equity Properties and Development
Limited Partnership
Suite 1000
Two North Riverside Plaza
Chicago, Illinois 60606
Attention: David J. Contis
Facsimile No.: 312-454-1107
With a copy to:
Rosenberg & Liebentritt, P.C.
Suite 1601
Two North Riverside Plaza
Chicago, Illinois 60606
Attention: Donald J. Liebentritt
Facsimile No.: 312-454-0335
All notices given in accordance with the terms hereof shall be
deemed received forty-eight (48) hours after posting, or when
delivered personally or sent and received by facsimile
transmission. Either party hereto may change the address for
receiving notices, requests, demands or other communication by
notice sent in accordance with the terms of this Section 12(D).
E. This Agreement shall be governed and interpreted
in accordance with the laws of the State of Illinois.
F. Neither Urban nor ZML (or any affiliated entity of
either) shall issue any press release regarding the execution of
this Agreement or the transactions contemplated hereby without
the prior written consent of the other. Notwithstanding the
foregoing, either party may issue, upon prior consultation with
the other party, such press releases as the issuing party's legal
counsel deems required by law or by the Securities Exchange Act
of 1934, other state or federal securities laws or by the rules
of any exchange upon which the issuing party's securities may be
listed.
G. All Exhibits attached to this Agreement are by
this reference incorporated herein and made a part hereof.
H. This Agreement is for the sole and exclusive
benefit of the parties hereto, and no third party is intended to
or shall have any rights hereunder; provided, however, that the
indemnities provided in this Agreement are intended to be for the
benefit of, and shall be enforceable by, those who are
indemnified thereby.
<PAGE> 26
I. In the event of litigation with regard to this
Agreement, the prevailing party(ies) in such litigation shall be
awarded its/their reasonable attorneys' fees and court costs
incurred therein from the respective nonprevailing party(ies)
jointly and severally. "Prevailing party(ies)" and
"nonprevailing party(ies)" for the purposes of this Agreement
shall be as determined by the court. The unenforceability,
illegality or other impairment of the provisions of this Section
12(I) shall in no manner affect the effectiveness or
enforceability of other provisions of this Agreement.
J. Each party agrees that none of the other parties'
direct or indirect partners, nor any of their respective
officers, directors, shareholders, trustees, beneficiaries,
employees, agents, representatives, heirs, successors or assigns,
shall be personally liable for any of the obligations of the
other hereunder and that such party must look solely to the
assets of the other party as an entity for the enforcement of any
claims arising hereunder. For purposes of this Agreement, the
obligations of direct or indirect partners of a party to make
capital contributions to that party and any deficit capital
accounts shall not constitute assets of the party (or its
respective direct or indirect partners) against which recourse
may be sought. This Section 12(J) shall not, however, preclude
enforcement of the guaranty provided for in Section 5(B)(i)(i)
above in accordance with its terms.
K. INTENTIONALLY OMITTED.
L. Upon the reasonable request of either party
hereto, the other party will, at or within one (1) year after
Closing, execute and deliver to the requesting party such other
documents, releases, assignments, assumptions and other
instruments as may be required to effectuate the transaction
provided for in this Agreement.
M. The obligations of the entities comprising Urban
(other than Orchard Trust) shall be joint and several. The
trustees of Orchard Trust are executing this Agreement solely as
such trustees, and in no event shall any trustee of Orchard Trust
have any liability hereunder of any kind or nature, and the
parties hereto do hereby waive all such liability. Orchard Trust
shall not have joint and several liability with any other entity
hereunder. As to any obligation of Urban, Orchard Trust's
liability as to such obligation shall be and be limited to 18.94%
thereof.
N. The provisions of this Section 12 shall survive
the Closing without limitation as to time.
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement on the day and year first above written.
ZML
---
ZML-OO ASSOCIATES LIMITED PARTNERSHIP,
a Delaware limited partnership,
by its general partner:
ZML-Old Orchard, Inc.,
an Illinois corporation
By: -------------------------------
Title:
URBAN
-----
URBAN SHOPPING CENTERS, L.P.,
a Delaware limited partnership,
by its general partner
Urban Shopping Centers, Inc.,
a Maryland corporation
By: ------------------------------
Title:
ORCHARD TRUST, an Illinois trust
By: -----------------------------------
Trustee
USC OLD ORCHARD, INC., a Delaware corporation
By: -----------------------------------
Title:
<PAGE> 1
Exhibit 10.25
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
--------------------------------------------------------
OLD ORCHARD URBAN LIMITED PARTNERSHIP
-------------------------------------
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
is made this _____ day of December, 1996 by and between USC Old
Orchard, Inc., a Delaware corporation (the "General Partner") and
Urban Shopping Centers, L.P., an Illinois limited partnership
(the "Limited Partnership," the General Partner and the Limited
Partner being collectively the "Partners").
WITNESSETH:
-----------
WHEREAS, the Partners are the sole partners of ZML-Old
Orchard Limited Partnership, an Illinois limited partnership,
formed pursuant to that certain Agreement of Limited Partnership
dated as of August 30, 1993 (the "Partnership Agreement") having
succeeded to the interests of all of the former partners thereof,
and;
WHEREAS, the Partners desire to amend and restate the
Partnership Agreement in its entirety;
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein made and intending to be legally bound thereby,
the Partners hereto hereby agree as follows:
ARTICLE 1
---------
NAME OF PARTNERSHIP
-------------------
The name of the partnership shall be "Old Orchard Urban
Limited Partnership" (hereinafter called the "Partnership").
ARTICLE 2
---------
CHARACTER OF BUSINESS
---------------------
The purpose of the Partnership is to hold, maintain,
operate, improve, develop, lease and otherwise use for profit
that certain real property, commonly known as the Old Orchard
Shopping Center, located at Skokie Boulevard, Old Orchard Road
and Golf Road in the Village of Skokie, Illinois, and more
particularly described on Exhibit "A" attached hereto and made a
part hereof (the "Property"). In connection with the foregoing,
the Partnership may engage in such other activities as the
General Partner may from time to time determine to be necessary
or appropriate to such purposes. The Partnership shall not engage
in any business unrelated to its interest in the Property and
shall not own any assets other than those related to its interest
in the Property.
ARTICLE 3
----------
PRINCIPAL PLACE OF BUSINESS
---------------------------
The principal place of business of the Partnership shall be
at 900 North Michigan Avenue, Suite 1500, Chicago, Illinois
60611, or at such other place as the General Partner may
hereafter determine from time to time.
<PAGE> 2
ARTICLE 4
---------
TERM OF PARTNERSHIP
-------------------
The term of the Partnership shall continue until December
31, 2045, unless terminated earlier in accordance with the terms
of this Agreement.
ARTICLE 5
---------
PERCENTAGE INTERESTS; CAPITAL CONTRIBUTIONS;
--------------------------------------------
STATUS OF LIMITED PARTNERS
--------------------------
5.1 The General Partner shall have a one percent (1%)
interest, and the Limited Partner shall have a ninety nine
percent (99%) interest, in the Partnership's profits, losses,
capital and distributions. The foregoing interests are
hereinafter referred to as the "Partnership Interests".
5.2 The Partners have heretofore made various contributions
to the capital of the Partnership which have been reflected in
their respective capital accounts. No capital call for any
additional contributions of capital may be made without the prior
written approval of the Limited Partner, which it may withhold in
its sole and absolute discretion.
5.3 Status of Limited Partner.
--------------------------
(a) The Limited Partner shall not participate in the
management or control of the Partnership's business, nor transact
any business for the Partnership, nor have the power to act for
or bind the Partnership.
(b) The Limited Partner shall not have any personal
liability whatsoever to the Partnership or to any other Partner
or to the creditors of the Partnership for the debts of the
Partnership or any of its losses.
(c) The death or legal incapacity or dissolution of
the Limited Partner shall not cause a dissolution of the
Partnership, but the rights of the Limited Partner to share in
the profits and losses of the Partnership and to receive
distributions of Partnership funds shall, on the happening of
such an event with respect to the Limited Partner, devolve upon
its successor, subject to the terms and conditions of this
Agreement, and the Partnership shall continue as a limited
partnership.
ARTICLE 6
---------
CAPITAL ACCOUNTS
----------------
The General Partner shall establish and maintain a capital
account for each Partner. The capital accounts of all Partners
shall be determined and maintained throughout the full term of
the Partnership in accordance with Section 704(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). The term "capital
account", when used herein, shall mean, with respect to any
Partner, the entire "Capital Contribution" which has been made by
such Partner as herein provided (i) reduced by (a) any Loss
allocated to such Partner, (b) any distributions of cash or other
property to such Partner, and (c) any expenditures of the
Partnership described, or treated under Section 704(b) of the
Code as described, in Section 705(a)(2)(B) of the Code, and (ii)
increased by any Profit allocated to such Partner. In addition
to the specific increases and decreases to a capital account
which are provided to be made under this Agreement, any item
which is required to be reflected in a capital account under the
second sentence of this Article 6 shall be so reflected.
<PAGE> 3
The capital account of any Partner shall reflect all prior
adjustments to the capital account of any predecessor holder of
such Partner's interest in the Partnership. "Capital
Contribution", when used herein, shall mean the amount of cash
and the fair market value of other property contributed by a
Partner to the Partnership (net of liabilities assumed or taken
subject to in connection with such contribution).
ARTICLE 7
---------
ALLOCATIONS OF PROFIT AND LOSS
------------------------------
7.1 "Profit" and "Loss" for purposes of this Agreement
shall be defined as net profit and net loss (and where
appropriate hereunder, each item of Partnership income, gain,
loss, deduction or credit) determined in accordance with the
accounting method followed by the Partnership for federal income
tax purposes and otherwise in accordance with tax accounting
principles and procedures applied in a consistent manner. The
calculation of Profit and Loss shall take into account
partnership income exempt from federal income tax and Partnership
expenses and costs, not deductible or properly chargeable to
capital, for federal income tax purposes.
7.2 Profit and Loss of the Partnership, as the case may be,
shall be allocated between the Partners for each fiscal year of
the Partnership in the ratio of their respective Partnership
Interests. Notwithstanding anything to the contrary in this
Agreement, the interest of the General Partner in each item of
Partnership income, gain, loss, deduction and credit will be
equal to at least 1% of each such item at all times during the
existence of the Partnership. In determining the General
Partner's interest in such items, any Partnership interest owned
by the General Partner as a Limited Partner shall not be taken
into account.
7.3 In the case of any property contributed to the
Partnership or any other property to which Section 704(c) of the
Code (or the principles of Section 704(c) of the Code) applies,
Partnership allocations of income, gain, loss and deduction shall
be made (solely for Federal income tax purposes and in a manner
which does not duplicate prior capital account adjustments) in
accordance with Section 704(c) of the Code so as to take account
of the variation between the tax basis of the property for
Federal income tax purposes and its fair market value at the time
of contribution.
ARTICLE 8
---------
DISTRIBUTIONS
-------------
8.1 The term "Cash Available for Distribution" of the
Partnership means all cash determined by the General Partner to
be available for distribution. Distributions of Cash Available
for Distribution shall be made at such intervals as may be
determined by the General Partner.
8.2 Any Cash Available for Distribution shall be
distributed to the Partners pari passu in the ratio of their
respective Partnership Interests.
ARTICLE 9
---------
BOOKS, RECORDS, ACCOUNTING AND REPORTS
--------------------------------------
9.1 The General Partner shall maintain the books and
records of the Partnership, which will be separate from the books
and records of each Partner. The Partnership's books and records
together with all of the documents and papers pertaining to the
business of the Partnership shall be kept and maintained at the
principal place of business of the Partnership, and
<PAGE> 4
at all reasonable times shall be open to the inspection of and
may be copied and excerpts taken therefrom by the Limited Partner
or its duly authorized representative. The fiscal year of the
Partnership shall be the calendar year and the books and records
of the Partnership shall be kept on a calendar year basis in
accordance with generally accepted accounting principles
applicable to an accrual basis taxpayer, except as otherwise
determined by the General Partner.
9.2 As soon as reasonably practicable after the end of each
fiscal year of the Partnership, the General Partner shall prepare
a balance sheet of the Partnership, a statement of the capital
accounts of the Partners as of the last day of such fiscal year
and a statement of income or loss of the Partnership for such
year. In addition, the General Partner shall cause income tax
returns for the Partnership to be prepared and filed with the
appropriate authorities and shall prepare copies of all such
returns and a report indicating the Partners' respective shares
of the Partnership's Profit and/or Loss for such year for federal
and state income tax purposes. Any transfer, contribution,
liquidation, or redemption with respect to a Partnership interest
shall be accounted for by using an interim closing of the books
on the accrual method.
ARTICLE 10
----------
MANAGEMENT AND CONTROL
----------------------
10.1 Except as set forth in Section 10.3 below, the
management and control of the Partnership and its affairs and
business shall rest exclusively with the General Partner, which
shall have all of the rights that may be possessed by a partner
pursuant to the Act, together with such other rights and powers
as are otherwise conferred by law or are necessary, advisable or
convenient for the management of the business and affairs of the
Partnership. Without limiting the generality of the foregoing,
the General Partner shall have the following rights and powers:
10.1.1 To spend the capital and income of the
Partnership in the exercise of any rights or powers possessed by
the General Partner hereunder.
10.1.2 To sell, exchange, purchase, hold, lease,
operate and manage any and all Partnership property and to enter
into and perform agreements with others with respect to any such
activities, which agreements may contain such terms, provisions
and conditions as the General Partner shall approve.
10.1.3 To purchase and sell personal property
incidental to the operation of the Partnership's property and to
borrow money to finance the purchase of such personal property.
10.1.4 To purchase from others, at the expense of
the Partnership, contracts of liability, casualty and other
insurance which the General Partner deems advisable, appropriate
or convenient for the protection of the properties or affairs of
the Partnership or for any other purpose convenient or beneficial
to the Partnership.
10.1.5 To invest Partnership funds in commercial
paper, government securities, certificates of deposit, banker's
acceptances or similar investments.
10.1.6 To borrow money from others and to secure
the repayment of such borrowing by executing mortgages or deeds
of trust, pledging or otherwise encumbering or subjecting to
security interests all or any part of the property of the
Partnership and to refund, refinance, increase, modify,
<PAGE> 5
consolidate and extend the maturity of any indebtedness created
by such borrowing, or any such mortgage, deed of trust, pledge,
encumbrance or other security device.
10.1.7 To employ, engage, retain or deal with such
persons to act as leasing and managing agents, brokers,
accountants, lawyers or in such other capacity as the General
Partner shall deem advisable for the proper operation of the
business of the Partnership. The fact that a Partner is employed
by or is directly or indirectly connected with any such person
shall not prohibit the General Partner from employing or
otherwise dealing with such person.
10.1.8 To make any and all decisions regarding
taxes, including the making or revocation of all Partnership tax
elections.
10.1.9 To make, execute, acknowledge and deliver,
in the name and on behalf of the Partnership, all written
Partnership documents and instruments, including without
limitation, any deeds, mortgages, leases, easement and license
agreements, contracts, bonds, notes, instruments of pledge or
assignment, and any other documents, including, without
limitation, any confession of judgment or warrant of attorney in
such documents, and upon dissolution of the Partnership, the
certificate of dissolution, and to ask, demand, recover, assume,
and receipt for all sums of money or other consideration which
shall become due and owing to the Partnership by reason of the
sale, lease, mortgage or assignment of any Partnership assets,
and to take all lawful ways and means for the recovery thereof
and to compromise and agree for the same, and to execute and
deliver good and sufficient discharges and acquittances therefor.
10.2 Each Partner may, notwithstanding the existence of this
Agreement, engage in whatever other activities it chooses,
whether the same be competitive with the Partnership or
otherwise, without having or incurring any obligation to offer
any interest in such other activities to the Partnership or the
other Partner. Neither this Agreement nor any activity
undertaken pursuant hereto shall prevent either Partner from
engaging in such other activities, or require either Partner to
permit the Partnership or the other Partner to participate in any
such other activities and, as a material part of the
consideration for the execution hereof by the Partners, each of
the Partners hereby waives, relinquishes and renounces any such
right or claim of participation.
10.3 Without the prior written consent of the Limited
Partner (which consent may be withheld in the sole and absolute
discretion of the Limited Partner), (i) the General Partner shall
have no right or authority to cause the Partnership to file or
otherwise commence any proceedings in bankruptcy, and (ii) the
General Partner shall not make any calls for additional capital
contributions by the Partners.
ARTICLE 11
----------
BANK ACCOUNTS
-------------
All funds of the Partnership shall be deposited in the name
of the Partnership in such bank account or accounts as shall be
determined by the General Partner. The funds of the Partnership
shall not be commingled (prior to the distribution thereof to the
Partners) with the funds of the Partners.
<PAGE> 6
ARTICLE 12
-----------
TRANSFER OF INTERESTS IN THE PARTNERSHIP
----------------------------------------
No Partner may agree or purport voluntarily or by operation
of law to sell, assign, transfer, hypothecate, pledge or
otherwise dispose of (collectively "Transfer") all or any part of
its Partnership Interest without the prior consent of the other
Partner. Any transfer of all or any part of a Partnership
Interest shall be void ab initio and a breach of this Agreement.
ARTICLE 13
----------
DISSOLUTION OF THE PARTNERSHIP
------------------------------
13.1 Subject to the provisions of Section 13.2 hereof, the
Partnership shall be dissolved and terminated upon the first to
occur of the following events:
(a) The end of the term or the termination of the
Partnership as provided in Article 4 hereof;
(b) The sale of all or substantially all of the
Partnership's property;
(c) An order for relief against the General Partner is
entered under Chapter 7 of the Federal bankruptcy law, or the
General Partner: (i) makes a general assignment for the benefit
of creditors, (ii) files a voluntary petition under bankruptcy
law, (iii) is adjudicated as bankrupt or insolvent; (iv) files a
petition or answer seeking for that Partner any reorganization,
arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law, or regulation, (v)
files an answer or other pleading admitting or failing to contest
the material allegations of a petition filed against the General
Partner in any proceeding of this nature, or (vi) seeks, consents
to, or acquiesces in the appointment of a trustee, receiver, or
liquidator of the General Partner or of all or any substantial
part of the General Partner's properties.
(d) 120 days after the commencement of any proceeding
against the General Partner seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any statute, law, or regulation, the proceeding has
not been dismissed, or if within 90 days after the appointment
without the General Partner's consent or acquiescence of a
trustee, receiver, or liquidator of the General Partner or of all
or any substantial part of its properties, the appointment is not
vacated or stayed, or within 90 days after the expiration of any
such stay, the appointment is not vacated.
13.2 Anything herein to the contrary notwithstanding, but
subject to Section 13.3, in the event of the dissolution of the
Partnership for any reason other than the matters set forth in
subsections (a) and (b) of Section 13.1., the Limited Partner can
elect (in its sole discretion after satisfying Section 13.3) to
cause the Partnership to be reconstituted and to have the
Partnership continue, such election to be made within 90 days
after such event of dissolution. In the event of such election,
the existing General Partner shall withdraw from the Partnership
in consideration for the sum equal to the value of the General
Partner's partnership interest; and the Partnership shall have as
its replacement general partner an entity designated by the
Limited Partner.
<PAGE> 7
13.3 The Limited Partner shall not elect to cause the
Partnership to be reconstituted and to have the Partnership
continue unless it has first satisfied the condition of
Section 7.3.2 of the partnership agreement of the Limited Partner
by obtaining the consent of limited partners of the Limited
Partner holding a majority of the percentage interests of the
limited partners of the Limited Partner.
13.4 Upon dissolution of the Partnership upon the occurrence
of any of the above-described events or by operation of law, the
Partnership shall be terminated (except as provided in Sections
13.2 and 13.3 above), the General Partner shall take a full
account of the Partnership assets and liabilities, and the
receivables of the Partnership shall be collected and its assets
liquidated as promptly as is consistent with obtaining the fair
value thereof. Upon such dissolution, the Partnership shall
engage in no further business thereafter other than necessary to
cause the Partnership to be operated on an interim basis, to
collect its receivables and liquidate its assets.
13.5 The proceeds of the sale of the property and assets of
the Partnership shall be applied and distributed in the following
order of priority:
(a) To payments of debts and liabilities of the
Partnership and the expenses of liquidation;
(b) To the establishment of any reserves which the
General Partner may deem reasonably necessary for any contingent
or unforeseen liabilities or obligations of the Partnership; and
(c) To the Partners in accordance with the provisions
of Section 13.6 hereof.
13.6 Notwithstanding anything to the contrary in this Agreement,
(i) upon Liquidation of the Partnership the proceeds of such
Liquidation shall be distributed in accordance with the positive
capital account balances of the Partners, and upon Liquidation of
any Partner's interest in the Partnership the proceeds of such
Liquidation shall be distributed in accordance with the positive
capital account balance of such Partner, in each case as
determined after taking into account all capital account
adjustments for the Partnership taxable year during which such
Liquidation occurs (other than those adjustments made pursuant to
this clause (i)) and after adjusting capital accounts for actual
or anticipated Profit or Loss allocable among the Partners in
accordance with, or as if there had been, an actual disposition
of the Partnership properties at their fair market value, by the
end of such taxable year (or, if later, within 90 days after the
date of such Liquidation); and (ii) if the General Partner has a
deficit balance in its capital account following the Liquidation
of its interest in the Partnership, as determined after taking
into account all capital account adjustments for the Partnership
taxable year during which such Liquidation occurs (other than any
adjustment for any capital contribution of the General Partner
made pursuant to this clause (ii)) and after adjusting capital
accounts for actual or anticipated Profit or Loss allocable among
the Partners in accordance with, or as if there had been, an
actual disposition of the Partnership properties at their fair
market value, the General Partner will make a capital
contribution to the Partnership in an amount equal to such
deficit balance. In the case of any Liquidation of the
Partnership which results solely from the termination of the
Partnership for Federal income tax purposes under Section
708(b)(1)(B) of the Code, deemed (but not actual) liquidating
distributions shall be constructively made to the Partners, and
the Partnership shall be reformed for Federal income tax
purposes, and deemed (but not actual) contributions shall be
constructively made thereto, in accordance with Sections 704 and
708 of the Code. The term "Liquidation", when used herein, shall
mean (i) when used with reference to the Partnership, the earlier
of (a) the date upon which the Partnership is terminated under
Section 708(b)(1) of the Code or (b) the date upon which the
Partnership ceases to be a going concern, and (ii) when used
<PAGE> 8
with reference to any Partner, the earlier of (a) the date upon
which there is a Liquidation of the Partnership or (b) the date
upon which such Partner's entire interest in the Partnership is
terminated other than by transfer, assignment or other
disposition to a person other than the Partnership.
13.7 Upon the Liquidation of the Partnership or any
Partner's interest in the Partnership, the capital accounts of
the Partners first shall be adjusted to reflect the manner in
which the unrealized income, gain, loss and deduction inherent in
all Partnership assets (that have not been reflected in the
capital accounts previously) would be allocated among the
Partners (in accordance with the allocations under Section 7.2)
if there were a taxable disposition of such assets for the fair
market value of such assets on such date and if the proceeds of
such disposition were distributed or deemed distributed in
accordance with Article 8 and not Article 13.
ARTICLE 14
----------
NO PARTITION; DISTRIBUTION IN KIND
----------------------------------
No Partner shall have the right to partition any of the
Partnership's property, nor shall a Partner make application to
any court or authority having jurisdiction in the matter or
commence or prosecute any action or proceeding for a partition
and the sale thereof and upon any breach of the provisions of
this Article 14 by either Partner, the other Partner (in addition
to all rights and remedies of law or in equity it may have) shall
be entitled to decree or order restraining or enjoining such
application, action or procedure. No Partner shall have the
right to demand to receive property, other than cash, in return
for its capital contribution.
ARTICLE 15
----------
NOTICES
-------
All notices, demands and communications of any kind which
either Partner may be required or desires to serve upon the other
Partner under the terms of this Agreement shall be in writing and
shall be served upon such other Partner by personal service upon
such other Partner, or by mailing a copy thereof by certified or
registered mail, postage prepaid, with return receipt requested,
addressed to such other Partner as follows:
If to the General Partner: 900 North Michigan Avenue
Suite 1500
Chicago, Illinois 60611
Attention: General Counsel
If to the Limited Partner: 900 North Michigan Avenue
Suite 1500
Chicago, Illinois 60611
Attention: General Counsel
In case of service by mail, it shall be deemed complete on
the day of actual delivery as shown by the addressee's registered
or certified mail receipt or at the expiration of the third
business day after the date of mailing, whichever is earlier in
time. The address to which notices, demands and other
communications shall be delivered or sent may be changed from
time to time by notice serviced as hereinabove provided.
<PAGE> 9
ARTICLE 16
----------
GENERAL PROVISIONS
------------------
16.1 This Agreement is the entire agreement between the
parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements between them with
respect hereto. This Agreement may not be altered or amended
except by the written agreement duly executed by both Partners of
the Partnership.
16.2 The provisions of this Agreement shall, subject to the
terms and conditions of Article 12 hereof, be binding upon and
inure to the benefit of the successors and assigns of each of the
Partners.
16.3 In the event of any litigation between the parties
hereto to enforce any provision of this Agreement or any right of
any party hereto, the non-prevailing party to such litigation
shall pay to the prevailing party all costs and expenses,
including reasonable attorneys' fees, incurred therein by the
prevailing party. "Prevailing party" means the party, which
through final judgment or settlement or compromise, obtains
substantially the relief sought. If any party hereto without
fault is made a party to any litigation instituted by or against
the other party, such other party shall indemnify the party who
without fault is made a party to such litigation against and save
it harmless from all costs and expenses, including reasonable
attorneys' fees incurred by such party in connection therewith.
16.4 Either party hereto shall, in addition to all other
rights, be entitled to the remedies of specific performance and
injunction to enforce its rights hereunder. Headings of the
Articles of this Agreement are inserted solely for convenience of
reference and are not a part of and are not intended to govern,
limit or aid in the construction of any term or provision hereof.
Where the context so requires, the use of the neuter gender shall
include the masculine and the neuter genders and the singular
shall include the plural and vice versa.
16.5 This Agreement and the Partnership shall be governed by
and construed in accordance with the internal laws of the State
of Delaware.
16.6 This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and said counterparts
shall together constitute one and the same agreement, binding all
parties hereto, notwithstanding all of the parties are not
signatory to the original or the same counterpart.
16.7 Each party to this Agreement hereby warrants and
represents that its execution of this Agreement is binding upon
it.
<PAGE> 10
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day first written above.
General Partner: USC OLD ORCHARD, INC.,
a Delaware corporation
By:
------------------------------------------
Its:
------------------------------------------
Limited Partner: URBAN SHOPPING CENTERS, L.P.,
an Illinois limited partnership
By: URBAN SHOPPING CENTERS, INC.
a Maryland corporation, General Partner
By:
------------------------------------
Its:
------------------------------------
<PAGE> 1
EXHIBIT 13.1
Urban Shopping Centers, Inc.
900 North Michigan Avenue
Suite 1500
Chicago, Illinois 60611
Urban Shopping Centers, Inc.
Annual Report 1996
Urban Shopping Centers, Inc. is a self-administered real estate
investment trust (REIT) in the business of owning, acquiring, managing,
leasing, developing and redeveloping super-regional and regional malls
throughout the United States. It commenced operations in October 1993 and is
listed on The New York Stock Exchange and The Chicago Stock Exchange (Symbol:
URB).
Urban Shopping Centers currently owns a portfolio consisting of thirteen
retail properties comprised of more than eleven million square feet of space.
The company also has a 1.2 million square foot regional mall and a 450,000
square foot community center under development. The company opened the highly
successful Brandon TownCenter in Tampa, Florida in 1995 and Wolfchase Galleria
in Memphis, Tennessee on February 26, 1997. The company's portfolio produced
sales per square foot of $351 in 1996, which ranks among the highest in the
industry.
Urban Shopping Centers owns interests in some of the premier shopping
centers in the United States including Oakbrook Center (Oak Brook, Illinois),
Water Tower Place (Chicago, Illinois) and Old Orchard Center (Skokie, Illinois)
as well as in Urban Retail Properties Co., its property management, leasing and
development affiliate. Urban Retail Properties Co. is one of the nation's
largest retail property managers, managing more than 55 million square feet of
regional malls and community centers in 23 states and the District of Columbia.
<TABLE>
<S> <C>
Table of Contents
Letter to Shareholders 1
Performance 4
Development 6
Acquisition 8
Retail Mix 10
Management 12
Property Locations 14
Financial Highlights 15
Management's Discussion 16
Financial Statements 22
Notes to Financial Statements 26
Independent Auditors' Report 34
Selected Financial Data 35
Quarterly Financial Summary 35
Board of Directors/Officers 36
Shareholder Information 36
</TABLE>
On the Cover
Old Orchard Center in Skokie, Illinois which was acquired by Urban Shopping
Centers in December of 1996. The property was redeveloped by Urban Retail
Properties Co. during 1994 and 1995.
Members of the redevelopment team seen on the cover are as follows:
On the front cover, from left to right:
Judith J. Jacobs, Vice President-Leasing
Michael T. Laing, Vice President-Development
Michael S. Levin, Executive Vice President-Development
On the back cover, from left to right:
Charles C. Porter, Senior Vice President-Development
Robert W. Lenke, Senior Vice President-Development
Wendy J. Peczkowski, Vice President-Leasing
<PAGE> 2
STRATEGY, EXECUTION, RESULTS
These three words have been our focus since Urban Shopping Centers, Inc. became
a public company in 1993. Because of that focus, we have established Urban
Shopping Centers as one of the country's premier owners, developers and
property managers in the regional mall industry.
Our ongoing strategy has been to create dominant, destination shopping
malls with broad demographic appeal. We believe our properties will continue to
outperform the retail marketplace during most economic conditions and therefore
continue to provide strong and consistent long-term returns to shareholders.
To execute that strategy, we assembled a management team with
industry-leading credentials -- unquestioned expertise in developing/
redeveloping mall properties, acquisitions, property management, leasing and
market research. A major highlight for us in 1996 was the acquisition of Old
Orchard Center outside of Chicago. We utilized all our management and
development expertise, originally managing, renovating and expanding the mall
for its third party owner, enhancing the tenant mix and eventually acquiring it
for our own property portfolio. The addition of Old Orchard has solidified our
position as the dominant regional mall operator in the greater Chicago market.
In the following pages of this year's annual report, we have outlined in
more detail the elements of our strategy and execution which help us meet the
challenge of creating long-term company growth and increased shareholder
value.
Funds Available
for Distribution
($in millions)
94 95 96
[INSERT PLOT POINTS]
Mall Tenant Sales
($in millions)
94 95 96
[INSERT PLOT POINTS]
Debt to Total Market
Capitalization (in percent)
[INSERT PLOT POINTS]
94 95 96
<PAGE> 3
Shareholders
1996 Financial Overview
Most importantly, we are pleased to report to you that the continuing execution
of our strategy resulted in record results for the company in 1996. We not only
exceeded industry analysts' expectations, but also surpassed management's own
internal projections. The end result was a 45% total return to our shareholders
in 1996.
Funds available for distribution per share increased 10.8%. We continued
our strategy of increasing our dividend annually, but at a rate that is lower
than the increase in earnings. In addition to the acquisition of Old Orchard,
we increased our ownership in the Miami International Mall to 40%. To help fund
these activities and maintain a flexible balance sheet, we completed a 3.2
million common share offering in December 1996.
Mall tenant sales for the year increased 3.3% to $945 million compared to
$915 million in 1995. Sales per square foot, which we now calculate in
accordance with the official ICSC definition, were $351 in 1996, up 4.8% from
$335 in 1995. These figures are not comparable to full-year sales per square
foot previously reported that did not include Brandon TownCenter. The total
mall gross leasable area occupied was 91.2% at December 31, 1996, still among
the highest in the industry. At year-end, our regional mall portfolio was 92.9%
leased.
Dividend and Payout Ratio
The Board of Directors increased the dividend in 1996 to 49.5 cents per share.
As this annual report was going to press, your Directors were pleased to
announce another increase in the dividend to 50.75 cents per share per quarter
or $2.03 per share annually. One of our primary and continuing financial goals
is to increase the company's dividend annually while lowering our payout ratio.
Because of the positive acquisition environment combined with our development
pipeline, we believe our best strategy is to lower our payout ratio, retaining
ample operating funds to give us the increased financial flexibility to take
advantage of these growth opportunities. With 1996 funds available for
distribution of $34.6 million, our total dividend of $27.2 million paid in 1996
represented a payout ratio of 79%, a significant decrease from 87% in 1995.
Capital Structure Remains Strong
We remain committed to maintaining a strong financial position. Our goal is to
minimize our cost of capital and maintain financial flexibility. We were
pleased with the reception our public offering received from the market. The
net proceeds from the offering of $80.6 million were used to fund a portion of
our acquisition of Old Orchard and to reduce amounts outstanding under our
revolving line of credit. Thus at year-end 1996, our debt to total market
capitalization was approximately 46%, and our interest expense coverage ratio
for 1996 was 2.7 to 1.
[PHOTO]
Above left to right:
Matthew S. Dominski, President and Chief Executive Officer; Urban Shopping
Centers, Inc.
Adam S. Metz, Executive Vice President and Chief Financial Officer; Urban
Shopping Centers, Inc.
Joseph M. Shrader, Senior Executive Vice President-Management; Urban Retail
Properties Co.
James L. Czech, Executive Vice President; Urban Shopping Centers, Inc. and
President-Development; Urban Retail Properties Co.
Ross B. Glickman, Executive Vice President-Leasing; Urban Retail Properties
Co.
<PAGE> 4
What's In Store for 1997
In the current year, expect us to stay focused on implementing our proven
strategy for success. Urban Shopping Centers should have
considerable operating momentum as 1997 unfolds because of the addition of Old
Orchard Center to our owned property portfolio and the opening of our newest
regional mall, Wolfchase Galleria in Memphis, Tennessee, in February. Our
development team completed Wolfchase Galleria on schedule, opening at
approximately 94% leased, with all the elements necessary to become the
dominant destination mall in its region: major retailers, unique specialty
shops, entertainment and restaurants in a two-level, 1.1 million square foot
project.
With Wolfchase complete, we will concentrate on
a series of projects already in our development pipeline. Our next scheduled
development project will be the 1.2 million square foot Citrus Park Town
Center, our second development in the fast-growing Tampa, Florida region. The
anchor line-up has already been finalized for Citrus Park Town Center, which is
slated to open in March of 1999. We also plan to open a 450,000 square foot
community center, Citrus Park Plaza, opposite the regional mall in the fall of
1998. We have identified a site in California as our first development project
for the 21st century.
Our property management affiliate, Urban Retail Properties Co., maintained
its position as one of the nation's largest property management companies.
During 1996, Urban Retail Properties Co. added several new regional mall and
community center management contracts to its portfolio and will continue to
pursue additional property management opportunities where its expertise can add
value for third party owners.
While design and development of our own properties continues to offer the
highest risk-adjusted returns for our company, there is also a current window
of opportunity in property acquisitions that we are analyzing. We think there
are a number of properties available on the market today that have the upside
redevelopment potential which our management team saw in Old Orchard several
years ago.We also believe that today's market offers the opportunity to buy
existing properties that are consistent with our current portfolio at
attractive prices.
Today's property pricing might make it possible to produce alternative
risk-adjusted investment yields on acquisitions and redevelopment approaching
what we normally achieve from a new development project. We will continue to
evaluate and pursue acquisition opportunities that will enhance long-term
shareholder value.
In closing, let us recognize the efforts of our employees and offer some
thanks to you, our shareholders. Our performance in 1996 once again highlights
the commitment of our employees to producing long-term growth and
industry-leading returns for our shareholders. We realize our employees are a
great, competitive advantage Urban Shopping Centers has in the regional mall
industry.
Speaking for all of them, we would like to thank our shareholders for your
continued support and confidence and we want to assure you that we remain
focused on enhancing the value of your investment in Urban Shopping Centers,
Inc.
Sincerely,
/S/ Matthew S. Dominski
President and Chief Executive Officer
/S/ Adam S. Metz
Executive Vice President and Chief Financial Officer
<PAGE> 5
Performance
"As a company, Williams Sonoma, Inc. is concerned about providing
a quality shopping experience to customers inside our stores," said Arthur
Tropp, Vice President of Real Estate, who oversees the leasing of retail space
nationwide for both Williams Sonoma and Pottery Barn stores. Tropp has leased
space in a number of Urban Shopping Centers' properties, including Old Orchard,
Oakbrook and Pottery Barn's first Tennessee store in Urban's recently-opened
Wolfchase Galleria in Memphis. "We find Urban is just as concerned about
providing a quality shopping experience outside our stores."
<PAGE> 6
Each month senior management of Urban Shopping Centers meets to review the
performance and future of each owned property on a tenant by tenant basis. This
approach allows management to focus on the productivity of each property and
ensures that the overall tenant mix at each center continues to be appropriate.
There are two measurements of a mall's productivity which indicate to
management that quality emphasis is the right strategic focus. The first is
that mall tenant sales increased 3.3% to $945 million in 1996, continuing a
pattern of sales increases since the company went public in 1993. The second is
sales per square foot which increased 4.8% in 1996 to $351. Both of these
figures compare favorably to other publicly-traded regional mall REITs.
Another indication of the attractiveness of Urban Shopping Centers'
properties is the growing list of major national retailers which have a
multi-store presence in the company's nationwide portfolio of owned or managed
properties, including Pottery Barn, Gap, Banana Republic, Ann Taylor, Warner
Bros. Studio Store, The Disney Store, Crate & Barrel and Eddie Bauer. These
companies want to be part of Urban Shopping Centers' dominant, upscale shopping
venues which attract a premier customer base.
A prime tenet of the Urban Shopping Centers strategy is to own, develop
and acquire quality regional malls. That quality guideline is achieved through
a series of managed factors: locations selected with strong regional
demographics; a safe, well-maintained environment that is visually appealing
and easy to access; and a combination of strong anchor stores, nationally
recognized major retailers, unique specialty shops, entertainment outlets and
the latest in restaurant concepts.
The recently opened Wolfchase Galleria in Memphis, Tennessee is a striking
example of the combination of factors which will make Urban Shopping Centers'
newest regional mall the dominant shopping destination in its marketplace. It
is located at the junction of three major highways in one of the most affluent
and fastest growing areas of Memphis. The mall opened on February 26, 1997 and
was approximately 94% leased.
The 1.1 million square foot regional mall has four major anchor
retailers -- Dillard's, Goldsmith's, JCPenney and Sears -- approximately 120
specialty shops and restaurants, a food court and multi-screen theater.
Retailers opening stores in the mall include: the first Pottery Barn store in
Tennessee, a 22,000 square foot Finish Line athletic wear store, Harold's,
Laura Ashley, Eddie Bauer, Gap, Banana Republic, Brookstone, Ann Taylor, Brooks
Brothers, Talbot's, Abercrombie & Fitch, Nine West, Warner Bros. Studio Store,
The Disney Store and Johnny Rockets.
<PAGE> 7
Development
"We have had private/public economic development partnerships before,
but nothing approaching the quality of every step taken by Urban Shopping
Centers," said Jim Norman, Hillsborough County Commissioner.
"We were in dire need of a major shopping mall in the Brandon area,"
said Dottie Berger, Hillsborough County Commissioner. "Since Urban built
Brandon TownCenter, we not only have that major shopping mall, we also have job
growth, an increased tax base and residential growth in that area of the county
has taken off!"
<PAGE> 8
Since becoming a public company in 1993, one of Urban Shopping Centers' stated
goals has been to create a property development pipeline that would create new
regional malls, similar in quality, demographics and retail dominance to those
properties already in the portfolio, approximately every two years through the
turn of the century.
To accomplish this goal, the company utilizes a development team with
specific expertise in areas critical to successful regional mall development.
The development group includes members with skills in market research,
architecture, engineering and permitting. In addition to handling new
development and redevelopment projects for Urban Shopping Centers' own
portfolio, the development group also manages redevelopment projects for
various third parties.
Urban Shopping Centers' predecessor company had a track record of more
than twenty years of successfully developing and redeveloping retail
properties. Since the company went public in 1993, the development group has
twice proven its ability to select a site, design and build on budget and on
schedule, new regional malls which are valuable additions to the Urban Shopping
Centers' property portfolio. The one million square foot Brandon TownCenter in
Tampa, Florida opened in early 1995 over 90% occupied and has become the
dominant regional mall that was originally envisioned. The newest completed
project -- Wolfchase Galleria in Memphis, Tennessee -- opened as planned in
February of 1997. From the day it opened, the 1.1 million square foot Wolfchase
Galleria was close to fully leased and its unique combination of national
retailers and four strong anchor stores have made it a shopping destination for
people throughout the region.
Intensive market research is the crucial first element in any successful
development/redevelopment project. The company's research arm analyzes the
competitive regional retailing market, as well as the local demographics for
population growth, per capita income, age, education, etc., to ensure that the
project's statistical characteristics are comparable with Urban Shopping
Centers' existing portfolio. These demographic characteristics are a major
contributor to a mall's success.
Urban Shopping Centers' next project in the development pipeline will be
the Citrus Park Town Center and Citrus Park Plaza, also in the Tampa area,
scheduled to open in March of 1999 and the fall of 1998 respectively. The
company also has identified a site in California as its first regional mall
development project for the 21st century.
<PAGE> 9
Acquisition
"Since Urban Shopping Centers took over Penn Square Mall, they have
turned it into the shopping destination in downtown Oklahoma City," said David
Ooley, whose men's specialty clothing store has seen a significant increase in
business since relocating to Penn Square. "We sell finer quality Italian and
handmade Oxford men's clothing. Our opening price range is about $950 per suit
and we found that our customers were here. Penn Square is centrally located,
has tourist appeal with proximity to the better downtown hotels, and has become
a focal point of our downtown area."
The management team of Urban Shopping Centers is constantly evaluating
acquisition opportunities. The market profile of each acquisition candidate is
compared to the current performance profile of the company's owned and managed
properties. If ongoing market research identifies a mall property with
significant redevelopment potential, Urban Shopping Centers has successfully
demonstrated that it has the expertise to transform that potential into
enhanced returns to shareholders.
For example, after acquiring Penn Square Mall in Oklahoma City during the
late 1980s, Urban Shopping Centers' development group implemented two separate
expansions in which it added a second level, two new anchor stores, several
unique merchandising concepts and more than 575,000 square feet of retail space
to the property. As a result, Penn Square has become the dominant regional mall
in the Oklahoma City market. All this improvement has contributed to the growth
of Urban Shopping Centers' funds available for distribution and, subsequently,
its dividend to shareholders.
Urban Shopping Centers also seeks acquisitions of mature, highly
productive malls. The recent purchase of Old Orchard Center in Skokie, Illinois
is an example of this type of acquisition. Old Orchard was originally owned by
the predecessor to Urban Shopping Centers and later was sold to a third party.
The mall was redeveloped during 1994 and 1995 by Urban Retail Properties Co.
for the third party which utilized all of the company's design, development,
market research, leasing and property management skills.
The redevelopment of Old Orchard increased overall retail space at the
center to more than 1.7 million square feet and included the expansion and
renovation of three existing anchor stores (Lord & Taylor, Marshall Field's and
Saks Fifth Avenue), the addition of two new anchors (Bloomingdale's and
Nordstrom), construction of two new parking structures, the addition of a seven
screen movie theater and a food court, and the expansion and retenanting of the
mall's specialty shops. The redeveloped Old Orchard also includes approximately
60,000 square feet of office space.
Now a shopping and entertainment destination for Chicago's affluent North
Shore suburbs, Old Orchard complements Urban Shopping Centers' other portfolio
properties and solidifies the company's position as the dominant regional mall
operator in the Chicago area.
<PAGE> 10
Retail Mix
Nordstrom and Urban Shopping Centers are very much in agreement on our
retailing concepts," noted Michele Love, store manager of Nordstrom at Oakbrook
Center. "That's why it made sense for us to locate our flagship store in the
Midwest here. We believe shopping is a form of entertainment. That's why we
have piano music, brewing coffee and restaurants in our store, complementing
our high quality merchandise. Urban Shopping Centers has done the same with the
retail atmosphere it has created at Oakbrook which serves to attract our
customers."
<PAGE> 11
Urban Shopping Centers and Urban Retail Properties Co. have established a
reputation as industry leaders at identifying retail trends and assembling the
right retail mix to attract shoppers in almost any economic environment. The
company's leasing and management efforts focus on linking the retail options
consumers want with entertainment concepts, restaurants, music and books. When
these elements are in place, its malls become a destination, not just a
shopping choice.
To maintain that "destination" appeal for its malls, Urban Shopping
Centers implements a three-year strategic leasing plan for each owned or
managed property which evaluates each property's performance space by space. A
major tool in that evaluation process is Urban Shopping Centers' proprietary
performance database which is constantly updated with operating information
from tenants at the company's owned and managed regional malls. This data
allows management to evaluate the performance of each tenant to ensure a high
level of productivity at each property.
The company also commits significant resources on an ongoing basis to
understand trends in the general retail market and at its individual properties
through focus groups, exit surveys and regional consumer surveys.
Sales and volume numbers drive the evaluation process with non-performing
stores being replaced in each mall's retail mix. Increasingly strong sales
performance and identified consumer shopping trends are major considerations
for lease renewals and retail space expansions at each property. The ultimate
leasing goal is to stay ahead of consumer trends and constantly enhance the
retail mix, and draw shoppers with high disposable incomes to the mall.
One of the most successful regional malls in the country, Oakbrook Center
in suburban Chicago, is a standout example of ongoing retail mix enhancement.
Current consumer demand for lifestyle products is creating both movement and
expansion of several of the approximately 190 retailers at the two million
square foot mall. Pottery Barn is expanding its leased space to more than 8,000
square feet and Williams Sonoma is also moving into a larger space. Polo will
also open a new store at the mall to take advantage of consumers' increasing
interest in adult sportswear and items for the home. In addition, two new
Lettuce Entertain You Enterprises restaurant concepts are scheduled to open at
Oakbrook: Papagus, serving Greek fare, and Wild Fire, a restaurant featuring a
barbecue-style menu.
<PAGE> 12
Management
"At our foodlife venue here in Chicago's Water Tower Place, as well as
at all our restaurants, we are committed to several key concepts," said Jeffrey
Winograd, area supervisor for Lettuce Entertain You Restaurants. "We believe
that high quality food, served in a high quality environment, will make a great
guest experience for our customers. Urban Shopping Centers has shown its
commitment to those same concepts here at Water Tower Place, creating a great
shopping experience for customers with its mix of high quality retailers in a
well- managed mall."
<PAGE> 13
The properties owned by Urban Shopping Centers, as well as the nearly
100 third party regional malls and community centers under management
nationwide benefit from the industry-leading property management
expertise of Urban Retail Properties Co. The company manages more than 55
million square feet of retail space in 23 states and the District of Columbia
and has set national property management standards for the management of retail
properties.
The management staff of Urban Retail Properties Co. is involved in
every aspect of property operations, from obtaining favorable pricing for goods
and services used by the properties to establishing five-year maintenance and
capital improvement budgets at every managed property. The company also
coordinates highly visible marketing campaigns and other national
promotions for its managed regional malls.
Urban Retail Properties Co. has established operating standards for
landscaping, security, crisis training and maintenance for all properties,
managed and owned. Urban Retail Properties Co. offers tenants and third party
owners the cost efficiency advantages of centralized purchasing and advertising
at all properties. In addition, the property management staff is constantly
evaluating the expense structures in areas such as utilities and waste removal
to help reduce shared tenant costs.
Urban Retail Properties Co. has some very special competitive
advantages in managing all types of retail properties. The company maintains
and regularly uses a proprietary database of mall operating statistics. This
database, which is constantly updated with data from all owned and managed
properties, enables the company to create a list of best practices for such
things as reconfiguring common space, retail build-out for existing tenants and
in-mall advertising. Urban Retail Properties Co. has also developed a unique
expertise in managing mixed-use, vertical, downtown retail malls. By managing
Water Tower Place in Chicago and Copley Place in Boston, the company has gained
a unique understanding of leasing, management, traffic, security and
maintenance issues involved with operating multi-story properties that may also
contain residential, office or hotel space.
<PAGE> 14
<TABLE>
<CAPTION>
Property Locations
[US MAP]
Property Location Anchors Total Sq. Ft. Ownership
<S> <C> <C> <C> <C> <C> <C>
1 Oakbrook Center Oak Brook, Illinois Lord & Taylor, Marshall Field's, 2,015,000 100%
Neiman Marcus, Nordstrom,
Saks Fifth Avenue, Sears
- -------------------------------------------------------------------------------------------------------------
2 Old Orchard Center Skokie, Illinois Bloomingdale's, Lord & Taylor, 1,796,000 100%
Marshall Field's, Nordstrom,
Saks Fifth Avenue
- -------------------------------------------------------------------------------------------------------------
3 Citrus Park Tampa, Florida Burdines, Dillard's, 1,600,000 100%
Town Center (1) and JCPenney, Sears
Citrus Park Plaza (1)
- -------------------------------------------------------------------------------------------------------------
4 MainPlace Santa Ana, Macy's, Nordstrom, 1,116,000 100%
California Robinsons-May (2 stores)
- -------------------------------------------------------------------------------------------------------------
5 Wolfchase Galleria Memphis, Tennessee Dillard's, Goldsmith's, 1,086,000 100%
- -------------------------------------------------------------------------------------------------------------
6 Penn Square Mall Oklahoma City, Dillard's, Foley's, JCPenney, 1,075,000 100%
Oklahoma Montgomery Ward
- -------------------------------------------------------------------------------------------------------------
7 Brandon Tampa, Florida Burdines, Dillard's, 980,000 100%
TownCenter JCPenney, Sears
- -------------------------------------------------------------------------------------------------------------
8 Miami Miami, Florida Burdines (2 stores), 973,000 40%
International Mall JCPenney, Mervyn's, Sears
- -------------------------------------------------------------------------------------------------------------
9 Coral Square Mall Coral Springs, Burdines (2 stores), JCPenney, 941,000 50%
Florida Mervyn's, Sears
- -------------------------------------------------------------------------------------------------------------
10 Water Tower Place Chicago, Illinois Lord & Taylor, Marshall Field's 821,000 55%
- -------------------------------------------------------------------------------------------------------------
11 Valencia Valencia, California JCPenney, Robinsons-May, Sears 675,000 25%
Town Center
- -------------------------------------------------------------------------------------------------------------
12 The Plaza at Tampa, Florida Service Merchandise, Target 243,000 100%
Brandon TownCenter
- -------------------------------------------------------------------------------------------------------------
13 Service Merchandise Columbus, Ohio Service Merchandise 134,000 100%
Plaza
- -------------------------------------------------------------------------------------------------------------
14 New York Square Aurora, Illinois Kohl's, OfficeMax 116,000 100%
</TABLE>
(1) Under development
Indicates this state contains properties owned by Urban Shopping Centers,
Inc.
Indicates this state contains properties managed by Urban Retail
Properties Co.
<PAGE> 15
Financial Highlights
<TABLE>
<CAPTION>
($000's omitted, except share amounts) Years ended December 31
- -----------------------------------------------------------------------------------------------------------------------
1996 1995(1) 1994(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total tenant sales (2) $ 1,323,126 $ 1,278,097 $ 1,171,889
Mall tenant sales (2)(3) 944,965 914,501 819,666
Property revenues (4) 130,774 121,890 106,339
Interest expense coverage ratio (5) 2.67 2.60 2.67
Income before extraordinary items 19,969 18,644 17,978
Funds from operations (FFO) (6) 35,419 32,827 29,208
Funds available for distribution (FAD) 34,582 30,485 27,691
Average number of shares outstanding 14,066,243 13,742,259 13,742,259
Shares outstanding at end of period 17,081,336 13,742,259 13,742,259
Debt to total market capitalization (7) 46.3% 49.3% 50.1%
Occupancy (8) 91.2% 92.6% 93.3%
========================================================================================================================
</TABLE>
The chart below shows the calculation of funds from operations for the years
1994 through 1996:
<TABLE>
<CAPTION>
1996 1995(1) 1994(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before extraordinary items and minority interest $ 30,702 $ 28,595 $ 27,339
Plus depreciation and amortization 19,232 17,695 13,313
Plus Company's share of depreciation and amortization from
unconsolidated partnerships and Urban Retail Properties Co. 4,129 3,995 3,941
Less preferred unit distribution (75) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total funds from operations $ 53,988 $ 50,285 $ 44,593
- ---------------------------------------------------------------------------------------------------------------------
Company's share of funds from operations (9) $ 35,419 $ 32,827 $ 29,208
======================================================================================================================
</TABLE>
The chart below shows the calculation of funds available for distribution for
the years 1994 through 1996:
<TABLE>
<CAPTION>
1996 1995(1) 1994(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total funds from operations $ 53,988 $ 50,285 $ 44,593
Plus non-cash effect of Oakbrook Center straight-lined
ground rent and related interest 3,173 3,218 3,065
Less adjustment to reflect actual cash received from
Urban Retail Properties Co. (619) (1,737) (737)
Plus write-off of assets (10) 308 787 467
Less straight-line rent adjustment (11) (767) (1,360) (1,851)
- ---------------------------------------------------------------------------------------------------------------------------
Total funds available for distribution including other gain $ 56,083 $ 51,193 $ 45,537
- ---------------------------------------------------------------------------------------------------------------------------
Company's share of funds available for distribution
including other gains (9) $ 36,794 $ 33,420 $ 29,825
===========================================================================================================================
Total funds available for distribution excluding other gain $ 52,711 $ 46,697 $ 42,276
- ---------------------------------------------------------------------------------------------------------------------------
Company's share of funds available for distribution
excluding other gains (9) $ 34,582 $ 30,485 $ 27,691
===========================================================================================================================
</TABLE>
(1) Restated to present funds from operations and funds available for
distribution based upon the new National Association of Real Estate Investment
Trusts ("NAREIT") definition of funds from operations, which excludes the add
back of non-real estate depreciation and amortization.
(2) Only for those tenants who report sales. 1996 excludes Old Orchard, which
was acquired on December 18, 1996.
(3) Excludes anchors and movie theaters.
(4) Represents the Company's consolidated revenues and its share of revenues
from unconsolidated partnerships.
(5) Represents the ratio of total funds available for distribution before
interest expense (including the Company's share of unconsolidated entities) to
interest expense (including capitalized interest and excluding deferred
interest). 1995 and 1994 have been restated to present the interest expense
coverage ratio based upon the restated funds available for distribution.
(6) Funds from operations should not be considered as an alternative to net
income or any other GAAP measurement of performance as an indicator of
operating performance or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity.
(7) Based upon a closing price of $29, $21 3/8 and $19 7/8 per share as of
December 31, 1996, 1995 and 1994, respectively.
(8) Occupancy of the regional malls as of December 31 of each year. 1996
excludes Old Orchard, which was acquired on December 18, 1996. 1994 excludes
Brandon TownCenter, which opened in February 1995.
(9) Based upon a weighted average of 21,440,480, 21,050,426 and 20,981,460
shares and units outstanding for 1996, 1995 and 1994, respectively.
(10) Includes the Company's share of unconsolidated partnerships and Urban
Retail Properties Co.
(11) Includes the Company's share of unconsolidated partnerships.
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Annual
Report. Historical and percentage relationships set forth in the Consolidated
Financial Statements and Notes should not be taken as indicative of future
operations of the Company.
REVIEW OF OPERATIONS
Urban Shopping Centers, Inc. is in the business of owning, managing, leasing,
acquiring, developing and redeveloping retail shopping centers. Strong
performance across all segments of the Company's portfolio produced a 13.4%
increase in 1996 funds available for distribution to $34.6 million from 1995
funds available for distribution of $30.5 million. The 1995 funds available for
distribution increased 10.1% from 1994 funds available for distribution of
$27.7 million. Presented below is a discussion of sales, occupancy and rents at
the properties. This information is presented for all regional malls on a
combined basis, excluding Old Orchard Center ("Old Orchard") which was acquired
on December 18, 1996.
SALES
Management closely follows the level of retail sales at its properties. Such
sales affect profitability because they determine the amount the tenant can
afford to pay the landlord for total charges. Some of the specific sales
figures the Company follows are discussed and shown in the graph below.
TOTAL TENANT SALES AND MALL TENANT SALES
Management generally considers increasing total tenant sales to be an
indication that a property is attracting more customers and providing a greater
benefit to its tenants. Mall tenant sales indicate the amount of sales
generated by the mall tenants. During 1996, mall tenants contributed
approximately 87% of the Company's total regional mall shopping center
revenues. The following graph illustrates total tenant sales and mall tenant
sales at the Company's regional malls for 1992 through 1996.
[CHART]
Aggregate annual sales volume at the regional malls for those mall shops
and anchors that report sales has increased from $1.03 billion in 1992 to $1.32
billion in 1996, an annual rate of 6.4%. Mall tenant sales (excluding anchors
and movie theaters) have grown at an annual rate of 7.5% during the same
period. It should be noted that a portion of the sales increase can be
attributed to the mall GLA and anchor square footage added to certain centers
during the last few years as a result of (i) expansions at certain of the
centers and (ii) the addition of Valencia Town Center in September 1992 and
Brandon TownCenter in February 1995.
SALES PER SQUARE FOOT
Sales per square foot is reported for the first time in 1996 based upon the
International Council of Shopping Centers definition and represents total
non-anchor reported sales divided by the total square feet occupied by the
tenants reporting those sales. Sales per square foot at the regional malls
increased 4.8% to $351 in 1996 as compared to $335 in 1995. These figures are
not comparable to full-year sales per square foot previously reported that did
not include Brandon TownCenter. We believe our sales per square foot continue
to be among the highest in the industry. Our sales level reflects the quality
and viability of our centers.
TENANT OCCUPANCY
Tenant occupancy is one measure which reflects the demand for space at our
properties. The following chart shows the mall GLA occupancy rate at the
regional malls for 1992 through 1996. The 3.5% increase in occupancy from 1992
to 1993 is primarily attributable to occupancy increases at Penn Square Mall
and Water Tower Place. The slight decrease in occupancy over the past two years
is primarily attributable to the renovation and re-merchandising of certain
centers. The mall GLA was 92.9% leased at December 31, 1996.
16
<PAGE> 17
[CHART]
IN PLACE RENTS
The average in place rents for the Company's regional malls increased 2.5% to
$29.55 per square foot at December 31, 1996 from $28.83 per square foot at
December 31, 1995. Excluding Brandon TownCenter which opened in February 1995,
the average in place rents increased 3.4% to $29.08 per square foot at December
31, 1995 from $28.13 per square foot at December 31, 1994.
OCCUPANCY COSTS
In order to maximize funds available for distribution over the long term,
management believes tenants in the properties must be able to operate
profitably. A major factor contributing to a tenant's profitability is such
tenant's occupancy costs. Occupancy costs generally consist of (i) minimum rent
(the contractual amount a tenant must pay), (ii) percentage rent (the
percentage of sales revenue a tenant must pay as additional rent) and (iii)
expense recoveries (the amount a tenant must pay to reimburse the landlord for
the costs of operating the mall), including real estate taxes. Typically, when
occupancy costs for any specific tenant exceed a certain percentage of such
tenant's annual sales, the tenant may not be profitable. Generally, tenants in
more productive regional malls are able to afford higher occupancy costs. The
following table sets forth the Company's regional mall occupancy costs (as a
percentage of sales) for the last five years. While the Company believes that
its relatively low occupancy cost ratio reflects an opportunity for the Company
to achieve higher rents in the future, it also notes that the ratio has
generally risen over the period as a result of the Company's leasing efforts
and increased emphasis on expense recoveries and cost control.
<TABLE>
<CAPTION>
Years ended December 31
- -------------------------------------------------------------------------------
1996 1995 1994 1993 1992(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mall Tenant Sales (2) $944,965 $914,501 $819,666 $783,971 $689,465
Percent of Sales
Minimum Rents 8.3% 8.2% 8.1% 8.1% 8.0%
Percentage Rents .4% .4% .5% .5% .5%
Expense Recoveries (3) 3.0% 2.8% 3.1% 2.9% 2.7%
- -------------------------------------------------------------------------------
In-Line Tenant
Occupancy Costs (4) 11.7% 11.4% 11.7% 11.5% 11.2%
- -------------------------------------------------------------------------------
</TABLE>
(1) 1992 excludes Valencia Town Center, which opened in September 1992.
(2) In thousands of dollars. Excludes sales from anchor tenants and movie
theaters.
(3) Represents real estate tax and common area maintenance charges.
(4) Total mall tenant occupancy costs divided by total mall tenant sales
(excluding anchor tenants and movie theaters).
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Shopping center revenues increased $6.2 million, or 6.9%, to $95.2 million in
1996 from $89.0 million in 1995. This increase was primarily attributable to
increases in shopping center revenues at Brandon TownCenter, Old Orchard and
Penn Square Mall. Minimum rents and recoveries from tenants increased at
Brandon TownCenter primarily due to its having been open for a full year in
1996 as compared to a partial year in 1995. Minimum rents and recoveries from
tenants increased as a result of the acquisition of Old Orchard on December 18,
1996. Minimum rents and recoveries from tenants increased at Penn Square Mall
primarily due to its completed expansion of various new mall shops and a
125,000 square foot JCPenney store on October 30, 1995. Percentage rents at
certain centers increased in the fourth quarter of 1996.
Interest income decreased $.7 million to $1.9 million in 1996 from $2.6
million in 1995. This decrease was primarily attributable to a decrease in the
average outstanding investment balance in 1996. The Company's strategy is to
utilize cash to reduce borrowings on the Company's line of credit.
Shopping center expenses, including depreciation and amortization,
increased $1.9 million to $52.2 million in 1996 from $50.3 million in 1995.
This increase was primarily attributable to (i) an increase in shopping center
expenses, including depreciation and amortization, at Brandon TownCenter as a
result of its having been open for a full year in 1996 as compared to a partial
year in 1995, (ii) an increase in shopping center expenses, including
depreciation and amortization, as a result of the acquisition of Old Orchard on
December 18, 1996 and (iii) an increase in depreciation and amortization at
Penn Square Mall as a result of its completed expansion in October 1995.
17
<PAGE> 18
These increases were partially offset by a decrease in management fees as a
result of the termination of management contracts with the Management Company
for six of the Company's consolidated investment properties during 1995. New
management contracts were entered into with the Operating Partnership and those
fees are eliminated in consolidation.
Income from unconsolidated partnerships increased $1.7 million to $3.0
million in 1996 from $1.3 million in 1995. This increase was primarily
attributable to the purchase of an additional approximate 18% interest in Miami
International Mall on April 1, 1996 and an increase in operations at Water
Tower Place.
Income from the Management Company decreased $2.0 million to $1.1 million
in 1996 from $3.1 million in 1995. This decrease was primarily attributable to
(i) a decrease in management fees as a result of the termination of management
contracts for six of the Company's consolidated investment properties during
1995, (ii) an increase in operating expenses and (iii) an increase in mortgage
interest as a result of interest on the JMB Realty Corporation affiliated debt
beginning in May 1996. These decreases were partially offset by increases in
development recoveries and lease commissions.
Other gains of $3.4 million in 1996 represent the gain on sale of four
outparcels at Wolfchase Galleria. Other gains of $4.5 million in 1995 represent
the gain on sale of two Company purchase options.
The extraordinary item, net of minority interest, of $1.0 million in 1995
represents the write-off of unamortized financing costs relating to the
repayment of the construction loan at Brandon TownCenter.
1995 COMPARED TO 1994
Shopping center revenues increased $15.6 million, or 21.4%, to $89.0 million in
1995 from $73.4 million in 1994. This increase was primarily attributable to
increases in shopping center revenues at Brandon TownCenter, The Plaza at
Brandon TownCenter and Penn Square Mall. Minimum rents, recoveries from tenants
and other shopping center revenues increased at The Plaza at Brandon TownCenter
and Brandon TownCenter (collectively, the "Brandon Project") due to their
openings in August 1994 and February 1995, respectively. Minimum rents and
recoveries from tenants increased at Penn Square Mall primarily due to an
increase in average occupancy and rents in 1995. On October 30, 1995, Penn
Square Mall completed its expansion of various new mall shops and a 125,000
square foot JCPenney store.
Shopping center expenses, including depreciation and amortization,
increased $10.1 million to $50.3 million in 1995 from $40.2 million in 1994.
This increase was primarily attributable to an increase in shopping center
expenses, including depreciation and amortization, at The Plaza at Brandon
TownCenter and Brandon TownCenter as a result of their respective openings in
August 1994 and February 1995.
Mortgage and other interest increased $6.4 million to $14.5 million in
1995 from $8.1 million in 1994. This increase was primarily attributable to (i)
the sale of the Company's $30.0 million temporary investment in the Oakbrook
Center mortgage notes in September 1994, (ii) an increase in the LIBOR rate,
(iii) a decrease in capitalized interest and a related increase in interest
expense as a result of the opening of the Brandon Project and (iv) interest on
fundings from the Company's line of credit.
Income from the Management Company increased $.3 million to $3.1 million
in 1995 from $2.8 million in 1994. This increase was primarily attributable to
additional management contracts secured by the Management Company.
Other gains of $4.5 million in 1995 represent the gain on sale of two
Company purchase options. Other gains of $3.0 million in 1994 represent the
gain on sale of outparcels at the Brandon Project.
The extraordinary item, net of minority interest, of $1.0 million in 1995
represents the write-off of unamortized financing costs relating to the
repayment of the construction loan at Brandon TownCenter.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION
Net cash flows from operating activities increased $5.9 million in 1996 from
1995. This increase resulted primarily from an increase in rental operations as
discussed above and receipt of prepaid rents (included in accounts payable and
other liabilities in the accompanying consolidated balance sheets). Net cash
flows from operating activities increased $10.1 million in 1995 from 1994. This
increase resulted primarily from (i) an increase in rental operations as
discussed above, (ii) construction costs reimbursed by JCPenney relative to the
expansion at Penn Square Mall and (iii) receipt of prepaid rents.
18
<PAGE> 19
Net cash flows used in investing activities increased $91.4 million in
1996 from 1995. This increase was primarily attributable to (i) the purchase of
Old Orchard in December 1996, (ii) the purchase of an additional approximate
18% interest in Miami International Mall in April 1996, (iii) the continuing
construction costs incurred at Wolfchase Galleria in 1996 and (iv) a decrease
in the net sales and maturities of short-term investments. These increases were
partially offset by the acquisition of development parcels at Wolfchase
Galleria in 1995 and a decrease in additions to investment properties as a
result of the completion and opening of Brandon TownCenter in 1995. Net cash
flows used in investing activities decreased $11.1 million in 1995 from 1994.
This decrease was primarily attributable to an increase in the net sales and
maturities of short-term investments and a decrease in restricted cash. These
decreases were partially offset by an increase in additions to investment
properties due to the remaining construction at the Brandon Project and the
acquisition of development parcels and continuing development at Wolfchase
Galleria.
Net cash flows from financing activities increased $92.8 million in 1996
from 1995. This increase was primarily attributable to additional fundings in
1996 from (i) the Company's line of credit, (ii) the construction loan at
Wolfchase Galleria and (iii) the issuance of Common Stock, preferred units in
the Operating Partnership and Unit Voting Stock in 1996. These increases were
partially offset by the net fundings from the construction loan at Brandon
TownCenter in 1995. Net cash flows used in financing activities increased $22.9
million in 1995 from 1994. This increase was primarily attributable to
repayments on the Brandon TownCenter construction loan in 1995; partially
offset by fundings from the Brandon TownCenter construction loan and the
Company's line of credit.
At December 31, 1996, the Company and its consolidated ventures had cash,
cash equivalents and short-term investments of $5.3 million. Such funds are
available for working capital requirements, recurring
capital expenditures, dividends and distributions to shareholders and limited
partners of the Operating Partnership, respectively, and future acquisitions,
expansions, renovations and developments.
Beginning with the dividend declared and paid in the first quarter of
1997, the Company increased its quarterly dividend to $.5075 per share, up 2.5%
from $.4950 per share previously.
CAPITALIZATION
At December 31, 1996, the Company's debt (including the Company's share of debt
of unconsolidated partnerships and the Management Company) totaled $636.0
million of which $605.9 million is fixed rate debt and $30.1 million is
floating rate debt. On December 18, 1996, the Company acquired Old Orchard
subject to $159.8 million in property debt. On November 6, 1996, the Company
entered into an agreement with a lender for a one year $5.0 million unsecured
revolving line of credit. As of December 31, 1996, no amounts were outstanding
on this line of credit. On May 29, 1996, the Company executed a construction
loan commitment with a lender in the amount of $65.0 million to finance the
remaining construction costs at Wolfchase Galleria. The loan was initially
funded in May 1996 and matures on May 29, 1998; however, it may be extended for
three one-year periods. As of December 31, 1996, $32.0 million had been funded.
These transactions were the primary reason for the increase in mortgage notes
payable to $439.9 million at December 31, 1996 as compared to $251.0 million at
December 31, 1995. On July 26, 1995, the Company signed an agreement with a
group of lenders for the establishment of a $90.0 million secured, revolving
line of credit ("Line"). The Line is secured by Brandon TownCenter, The Plaza
at Brandon TownCenter, Bed Bath and Beyond outparcel at Brandon TownCenter, New
York Square and Service Merchandise Plaza (formerly The Plaza at Sawmill
Place). The Line is an obligation of the Operating Partnership and is
guaranteed by the Company. The Line has an initial three year term and, subject
to lenders' approval, may be extended for an additional one or two year period.
As of December 31, 1996, $28.1 million was outstanding. In connection with the
initial funding on the Line, the Company repaid the $12.0 million then
outstanding balance on the construction loan at Brandon TownCenter. On February
10, 1997, the Company refinanced the Water Tower Place $170.0 million of
indebtedness. The new loan matures on February 1, 1999; however, it may be
extended for two one-year periods. Of the total $170.0 million, $160.0 million
bears interest at LIBOR + 1.125% and $10.0 million bears interest at LIBOR +
1.500%.
Although there can be no assurances, the Company believes that operating
cash flows will be sufficient to service all Company debt and anticipates
repayment or refinancing when such amounts are due in the ordinary course of
its business. As a result of the Company's increased funds available for
distribution and relatively flat interest expense, the Company's interest
expense coverage
<PAGE> 20
ratio (including the Company's share of unconsolidated entities interest
expense and including capitalized interest and excluding deferred interest)
increased to 2.67 at December 31, 1996 as compared to 2.60 at December 31,
1995. At December 31, 1996, the Company's ratio of Company debt to total
market capitalization (which includes the market value of issued and
outstanding shares of capital stock of the Company and of partnership
interests in the Operating Partnership not held by the Company, plus Company
debt) was approximately 46% as illustrated by the table on the following page.
On November 25, 1996, the Company completed an offering of 3,000,000
shares of Common Stock under a shelf registration declared effective by the
Securities and Exchange Commission on April 22, 1996 (for up to $200.0
million). On December 12, 1996, an overallotment option was exercised for an
additional 225,000 shares of Common Stock. Net proceeds from the sale of these
shares, after underwriter's discount, was $80.6 million. The net proceeds after
deducting transaction costs were used to fund a portion of the December 18,
1996 acquisition of Old Orchard and to reduce outstanding borrowings under the
Company's Line. The remaining balance outstanding on the shelf registration is
$119.4 million.
The Company believes that its cash generated from property operations will
provide the necessary funds on a short-term and long-term basis for its
operating expenses, interest expenses on outstanding indebtedness and recurring
capital expenditures and all dividends to the shareholders necessary to satisfy
the REIT requirements. Sources of capital for future acquisitions, development
and non-recurring capital expenditures, such as major building renovations and
expansions, as well as for scheduled principal payments, including balloon
payments, on the outstanding indebtedness are expected to be obtained from the
following sources: (i) excess funds available for distribution, (ii) working
capital reserves, (iii) additional Company or property financing, (iv) proceeds
from the sale of assets, including outparcels and (v) additional equity raised
in the public or private markets (including the issuance of additional Units
and/or Unit Voting Stock). Accordingly, the Company expects that it may incur
additional indebtedness. In light of current economic conditions, relative
costs of debt and equity capital, market values of properties, growth and
acquisition opportunities and other factors, the Company may consider an
increase or decrease in its ratio of Company debt to total market
capitalization accordingly.
CAPITAL INVESTMENTS
Brandon TownCenter, the approximately one million square foot super-regional
mall anchored by Burdines, Dillard's, JCPenney and Sears, and including
approximately 360,000 square feet of mall GLA, opened on February 15, 1995. The
Plaza at Brandon TownCenter, the adjacent 243,000 square foot community center
anchored by Service Merchandise and Target, opened in August 1994. In addition,
there are approximately 25 acres of outparcel land at Brandon TownCenter which
may be used for future sale or development. The addition of a 125,000 square
foot JCPenney store and various new mall shops at Penn Square Mall was
completed on October 30, 1995. The Company owns approximately 8 acres of land
adjacent to Service Merchandise Plaza
(formerly The Plaza at Sawmill Place) which may be used for future sale or
development.
On December 18, 1996, the Company acquired Old Orchard for $78.6 million
in cash prior to prorations and the issuance of $28.0 million in preferred
units in the Operating Partnership, subject to $159.8 million of existing
indebtedness. In connection with the issuance of the preferred units, the
Company issued $1.1 million in Unit Voting Stock. Old Orchard is an open air
regional shopping center located in Skokie, Illinois. Old Orchard contains 1.7
million square feet of retail space and is anchored by Bloomingdale's, Lord &
Taylor, Marshall Field's, Nordstrom and Saks Fifth Avenue. In addition, Old
Orchard contains approximately 120 other stores, theaters and restaurants. Old
Orchard includes approximately 675,000 square feet of mall GLA and contains
parking for over 7,500 vehicles and approximately 60,000 square feet of office
space.
The Company's newest super-regional mall, Wolfchase Galleria, in Memphis,
opened on February 26, 1997. The anchor tenants are Dillard's, Goldsmith's
(a division of Federated Department Stores, Inc.), JCPenney and Sears.
Wolfchase Galleria also contains approximately 120 retailers, restaurants, a
food court, a major entertainment complex and approximately 5,450 parking
spaces. Wolfchase Galleria was approximately 94% leased at opening. The Company
has also sold four outparcels at Wolfchase Galleria that add to the mall's
overall appeal to shoppers in the Memphis retail market. As of December 31,
1996, net proceeds from the sale of these outparcels totaled $4.7 million. The
Company also signed an agreement with Bed Bath and Beyond to lease a building
that the Company constructed under a build to suit lease on an outparcel and
which opened on
20
<PAGE> 21
September 3, 1996. There are approximately 29 acres of outparcel land remaining
at Wolfchase Galleria for future sale or development. In connection with this
project, the Company acquired, on May 25, 1995, a 137 acre parcel from an
affiliate of JMB Realty Corporation, a 50% interest in a 30 acre parcel from
Urban Retail Properties Co. and the remaining 50% interest in the 30 acre parcel
from a third party. The aggregate acquisition value of such land parcels of
$11.4 million was paid in cash and Units, of which $10.0 million is included in
land and $1.4 million is included in construction in progress in the
accompanying consolidated balance sheets at December 31, 1996 and 1995.
Additional costs of $60.7 million have been incurred as of December 31, 1996,
for development of these lands parcels. The Company's next planned development
project after Wolfchase Galleria will be the 1.2 million square foot Citrus Park
Town Center ("Citrus Park") in Tampa, Florida. Burdines, Dillard's, JCPenney and
Sears have agreed to be anchor stores for the project. Citrus Park is scheduled
to open in March of 1999. In addition, a 450,000 square foot community center
opposite the regional mall, Citrus Park Plaza, is scheduled to open in the fall
of 1998. Currently, the Company owns a 50% interest in the 163 acre development
parcel. The Management Company owns the remaining 50% interest, subject to a
purchase option in favor of the Company. The Company also has a purchase option
from an affiliate of JMB Realty Corporation on 68 acres of land across the
street from the regional mall which will be used for development of the
community center. In addition, a bond offering of $26.7 million to fund the
roadwork surrounding the property was completed by the Citrus Park Community
Development District (the "CDD") during the fourth quarter of 1996. The Company
assisted the CDD in obtaining the financing for the roadwork by guaranteeing the
irrevocable letter of credit which supports the bonds.
<TABLE>
<CAPTION>
100% Balance Pro Rata Share
Annual of Mortgage Ownership of Mortgage
($000's omitted, except share amounts) Maturity Date Interest Rate Notes Payable Interest Notes Payable
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Entities:
Old Orchard Sept. 2000 8.5260%(1) $159,804 100.0% $ 159,804
Oakbrook Center Oct. 2000 6.0751%(2) 140,000 100.0% 140,000
MainPlace Oct. 1998 5.4066%(3) 80,000 100.0% 80,000
Operating Partnership July 1998 (4) 28,100 100.0% 28,100
Wolfchase Galleria May 1998 (5) 31,982 100.0% 31,982
- ----------------------------------------------------------------------------------------------------------------------------------
439,886 439,886
Unconsolidated Entities: (6)
Water Tower Place April 1997 8.2540%(7) 170,000 55.0% 93,500
Coral Square Mall Dec. 2000 7.4000% 53,300 50.0% 26,650
Miami International Mall Dec. 2003 6.9100% 47,500 40.0% 19,000
Management Company Aug. 2001 7.5400% 51,000 95.0% 48,450
Management Company Sept. 2001 7.0000% 9,000 95.0% 8,550
- ----------------------------------------------------------------------------------------------------------------------------------
330,800 196,150
- ----------------------------------------------------------------------------------------------------------------------------------
Company debt $ 636,036
==================================================================================================================================
Convertible preferred units $ 28,000
==================================================================================================================================
Market value of equity interests
as of December 31, 1996, based upon
24,454,937 shares/Units at $29 per share $ 709,193
==================================================================================================================================
Total market capitalization $1,373,229
==================================================================================================================================
Company debt to total market capitalization 46%
==================================================================================================================================
</TABLE>
(1) Mortgage consists of two notes, one with a balance of $104.9 million which
bears interest at 9.09% and a second with a balance of $54.9 million which
bears interest at 7.45%. Interest rate shown is a weighted average.
(2) Of the $140.0 million of total debt, $58.0 million is subject to a fixed
rate of 5.856% and $82.0 million is subject to a fixed rate of 6.23%. Interest
rate shown is a weighted average. In November 1995, the Company sold its
interest rate protection agreements on the $82.0 million of floating rate
indebtedness and simultaneously entered into an interest rate swap agreement
thereby fixing the rate as noted.
(3) In December 1995, the interest rate on the loan was reduced by .34% from a
spread of .89% over LIBOR to .55% over LIBOR. Accordingly, the interest rate
was reduced from 5.7466% to 5.4066%.
(4) The line of credit, subject to lenders' approval, may be extended for an
additional one or two year period and is subject to a floating rate of 1.42%
over LIBOR.
(5) The construction loan may be extended for three one-year periods and is
subject to a floating rate of 1.375% over LIBOR.
(6) Excludes Valencia Town Center as the Company is currently not entitled to
any cash distributions until the outside partner has received a return on and
of its contributions to the partnership.
(7) Mortgage consists of two notes, one with a balance of $160.0 million which
bears interest at 8.22% and a second with a balance of $10.0 million which
bears interest at 8.80%. Interest rate shown is a weighted average. On February
10, 1997, the Water Tower Place indebtedness was refinanced. The new loan
matures on February 1, 1999; however, it may be extended for two one-year
periods. Of the total $170.0 million, $160.0 million bears interest at LIBOR +
1.125% and $10.0 million bears interest at LIBOR + 1.500%.
21
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
($000's omitted, except share amounts) December 31
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment properties:
Land, including peripheral land parcels $ 102,559 $ 79,331
Buildings and improvements 766,847 525,704
Equipment, furniture and fixtures 2,560 1,871
Construction in progress 62,216 18,912
- -------------------------------------------------------------------------------
934,182 625,818
Accumulated depreciation (97,558) (79,544)
- -------------------------------------------------------------------------------
Investment properties, net of accumulated
depreciation 836,624 546,274
Investments in unconsolidated partnerships 15,233 3,703
Investment in the Management Company 15,557 15,673
Cash, cash equivalents and short-term investments 5,276 8,152
Receivables:
Tenant, net of allowance for doubtful accounts
of $2,141 and $2,351 in 1996 and 1995,
respectively 11,619 10,691
Other 8,307 704
Deferred expenses and other assets 11,460 13,310
- -------------------------------------------------------------------------------
$ 904,076 $ 598,507
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 439,886 $ 251,000
Land sale-leaseback proceeds 75,000 75,000
Deferred lease accrual 16,252 13,911
Accounts payable and other liabilities 30,512 18,663
Investments in unconsolidated partnerships 36,030 33,563
Commitments and contingencies
- -------------------------------------------------------------------------------
Total liabilities 597,680 392,137
Minority interest 111,733 71,861
Stockholders' equity:
Common stock, $.01 par value, authorized 140,000,000
shares, issued and outstanding 16,737,279 shares
in 1996 and 13,440,626 shares in 1995 167 134
Unit voting stock, $.01 par value, authorized
5,000,000 shares, issued and outstanding 344,057
shares in 1996 and 301,633 shares in 1995 4 3
Additional paid-in capital 326,495 259,120
Retained earnings (deficit) (132,003) (124,748)
- -------------------------------------------------------------------------------
Total stockholders' equity 194,663 134,509
- -------------------------------------------------------------------------------
$ 904,076 $ 598,507
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
($000's omitted, except share amounts) Years ended December 31
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Shopping center revenues:
Minimum rents $ 60,944 $ 57,683 $ 46,083
Percentage rents 4,056 3,414 3,819
Recoveries from tenants 27,659 24,972 20,944
Other 2,521 2,971 2,504
- -------------------------------------------------------------------------------
95,180 89,040 73,350
Interest income 1,864 2,587 2,433
- -------------------------------------------------------------------------------
97,044 91,627 75,783
- -------------------------------------------------------------------------------
Expenses:
Shopping center expenses 30,924 30,655 25,535
Mortgage and other interest 14,246 14,501 8,139
Ground rent 4,420 4,404 4,427
Depreciation and amortization 21,236 19,683 14,672
General and administrative 2,650 2,428 2,270
Write-off of assets 308 232 467
- -------------------------------------------------------------------------------
73,784 71,903 55,510
- -------------------------------------------------------------------------------
Operating income 23,260 19,724 20,273
Income from unconsolidated partnerships 3,000 1,297 1,258
Income from the Management Company 1,070 3,078 2,819
- -------------------------------------------------------------------------------
Income before other gains,
minority interest and
extraordinary items 27,330 24,099 24,350
Other gains 3,372 4,496 2,989
Minority interest (10,733) (9,951) (9,361)
- -------------------------------------------------------------------------------
Income before extraordinary items 19,969 18,644 17,978
Extraordinary items (net of
minority interest) -- (1,014) --
- -------------------------------------------------------------------------------
Net income $ 19,969 $ 17,630 $ 17,978
===============================================================================
Income per common and unit voting
common share:
Before extraordinary items $ 1.42 $ 1.35 $ 1.31
Extraordinary items -- (.07) --
- -------------------------------------------------------------------------------
Net income $ 1.42 $ 1.28 $ 1.31
===============================================================================
Dividends declared and paid $ 1.98 $ 1.94 $ 1.82
===============================================================================
Weighted average common and unit voting
common shares outstanding 14,066,243 13,742,259 13,742,259
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock and
Unit Voting Stock Additional Retained
------------------ Paid-In Earnings
($000's omitted, except share amounts) Shares Amount Capital (Deficit) Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 13,742,259 $ 137 $ 258,139 $ (108,685) $ 149,591
Net income -- -- -- 17,978 17,978
Dividends declared and paid -- -- -- (25,011) (25,011)
- ----------------------------------------------------------------------------------------------
Balances at December 31, 1994 13,742,259 137 258,139 (115,718) 142,558
Net income -- -- -- 17,630 17,630
Dividends declared and paid -- -- -- (26,660) (26,660)
Reallocation of minority interest -- -- 981 -- 981
- ----------------------------------------------------------------------------------------------
Balances at December 31, 1995 13,742,259 137 259,120 (124,748) 134,509
Shares issued in connection with:
Public offering 3,225,000 32 80,405 -- 80,437
Issuance of Unit Voting Stock 42,424 1 1,134 -- 1,135
Stock option plan 71,653 1 1,656 -- 1,657
Net income -- -- -- 19,969 19,969
Dividends declared and paid -- -- -- (27,224) (27,224)
Reallocation of minority interest -- -- (15,820) -- (15,820)
- ----------------------------------------------------------------------------------------------
Balances at December 31, 1996 17,081,336 $ 171 $ 326,495 $ (132,003) $ 194,663
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
($000's omitted, except share amount Years ended December 31
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,969 $ 17,630 $ 17,978
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 21,236 19,683 14,672
Write-off of assets 308 232 467
Provision (recovery) for losses on
accounts receivable (225) 195 276
Income from unconsolidated partnerships (3,000) (1,297) (1,258)
Income from the Management Company,
net of distributions -- (1,083) (1,713)
Minority interest 10,733 9,951 9,361
Other gains (3,372) (4,496) (2,989)
Extraordinary items -- 1,014 --
Changes in other assets and
liabilities 7,091 5,038 (22)
- -------------------------------------------------------------------------------
Net cash provided by
operating activities 52,740 46,867 36,772
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment properties, net of
change in related payables (48,011) (49,946) (48,590)
Acquisition of investment property (76,639) -- --
Acquisition of partnership interest (9,431) -- --
Acquisition of development parcels -- (8,604) --
Proceeds from sale of options, land
parcels or interest in
unconsolidated partnership 4,679 4,496 4,924
Cash contributions to unconsolidated
partnerships and the
Management Company (2,253) (329) (99)
Cash distributions from unconsolidated
partnerships and the
Management Company 5,563 2,615 6,711
Net sales and maturities (purchases) of
short-term investments 161 15,160 (5,798)
Decrease (increase) in restricted cash (26) 2,097 (2,871)
Decrease in notes receivable 21 12 87
- -------------------------------------------------------------------------------
Net cash used in
investing activities (125,936) (34,499) (45,636)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt, net
of issuance costs 87,982 53,195 39,525
Proceeds from issuance of Common Stock and
Unit Voting Stock 83,229 -- --
Repayment of debt (58,900) (34,717) --
Cash distributions to partners (14,606) (14,162) (13,175)
Dividends paid (27,224) (26,660) (25,011)
Other, net -- -- (746)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 70,481 (22,344) 593
- -------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (2,715) (9,976) (8,271)
Cash and cash equivalents at beginning
of year 7,866 17,842 26,113
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,151 $ 7,866 $17,842
===============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other
interest, net of
amounts capitalized $ 13,586 $13,519 $ 8,575
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's omitted, except share amounts)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Company was incorporated under the General Corporation Laws of Maryland on
May 12, 1993 and commenced operations effective with the completion of its
initial public offering (the "Offering") on October 14, 1993, whereby the
Company sold 11,870,000 shares at $23.50 per share. The Company was formed to
continue the regional mall business of JMB Realty Corporation ("JMB Realty")
and certain of its affiliates ("JMB Partners") in owning, managing, leasing,
acquiring, developing and redeveloping a portfolio of super-regional and
regional malls located throughout the United States. Substantially all of the
Company's assets and interests in investment properties (the "Properties") are
held by, and substantially all of its operations are conducted through Urban
Shopping Centers, L.P. (the "Operating Partnership"). On November 25, 1996, the
Company completed a public offering of 3,000,000 shares at $25.50 per share. On
December 12, 1996, an overallotment option was exercised for an additional
225,000 shares at $25.50 per share. Net proceeds from the sale of these shares,
after underwriter's discount, was $80,625. Subsequent to the public offering
and the 1996 issuance of Unit Voting Stock and preferred units in the Operating
Partnership, the Company which is the sole general partner of the Operating
Partnership, owns an approximate 69.9% interest; JMB Partners and certain other
parties (together referred to as the "Contributor Group") hold limited
partnership interests ("Units") in the Operating Partnership and own an
approximate 30.1% minority interest. Each Unit may be exchanged for one share
of Common Stock. In general, for financial reporting purposes, the net profits
and losses of the Operating Partnership are allocated to the general and
limited partners in accordance with their percentage ownership. The Company
operates as a real estate investment trust ("REIT") for Federal income tax
purposes.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company, the Operating Partnership and all controlled affiliates. The effect of
all significant intercompany balances and transactions have been eliminated in
the consolidated presentation.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Company's interests in
Water Tower Joint Venture ("Water Tower Place"), Coral-CS/LTD Associates
("Coral Square Mall"), West Dade County Associates ("Miami International
Mall"), Valencia Town Center Associates, L.P. ("Valencia Town Center"), Citrus
Park Venture ("Citrus Park") and Urban Retail Properties Co. (the "Management
Company").
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT PROPERTIES
Investment properties are stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method, based on estimated
useful lives of 3-40 years.
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated over
their estimated useful lives.
Development costs, including interest and real estate taxes incurred in
connection with construction or expansion of certain investment properties, are
capitalized as a cost of the investment property and depreciated over the
estimated useful life of the related asset. During 1996, 1995 and 1994, the
Company incurred interest of $17,643, $15,720 and $11,717, respectively, and
capitalized interest of $3,397, $1,219 and $3,578, respectively.
The Company adopted the provisions of SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
on January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company evaluates its investment properties periodically to
assess whether any impairment indications are present, including recurring
operating deficits and significant adverse changes in legal factors or business
climate that affect the recovery of recorded asset value. If any investment
property is considered impaired, a loss is provided to reduce the carrying
value of the property to its estimated fair value. Adoption of this statement
did not have an impact on the Company's financial position, results of
operations, or liquidity.
26
<PAGE> 27
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents (which aggregated $5,151 and $7,866 at December 31,
1996 and 1995, respectively) include a treasury money market fund which invests
principally in U.S. Treasury notes and bills ($2,928 and $6,301 at December 31,
1996 and 1995, respectively). Other short-term investments (generally with
original maturities of one year or less) are generally held to maturity and
aggregated $125 and $286 at December 31, 1996 and 1995, respectively. Cash
equivalents and other short-term investments are held at cost which
approximates market.
DEFERRED EXPENSES
Deferred mortgage loan fees and expenses (including the cost of interest rate
protection agreements related to specific mortgage loans) are amortized on a
straight-line basis over the terms of the related mortgage notes. Deferred
leasing commissions and concessions are amortized over the terms of the related
leases. Organization costs are amortized over 60 months.
REVENUE RECOGNITION
Although certain leases of the Company provide for tenant occupancy during
periods for which no rent is due and/or increases exist in minimum lease
payments over the term of the lease, the Company generally accrues rental
income for the full period of occupancy on a straight-line basis. Accrued rents
receivable relating to such leases of $8,791 and $8,266 have been included in
tenant receivables in the accompanying consolidated balance sheets at December
31, 1996 and 1995, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES
Certain general and administrative expenses are allocated among the Company,
the Operating Partnership and the Management Company pursuant to a corporate
services agreement among the three parties.
DERIVATIVES
The Company uses interest rate protection and swap agreements to hedge exposure
to interest rates on floating rate indebtedness and not for trading purposes.
Interest rate protection agreements (the original cost of which was $2,305)
were purchased in October 1993 on $82,000 of Oakbrook Center's floating rate
indebtedness. In addition, the Company entered into interest rate swap
agreements in October 1993 on $58,000 of Oakbrook Center's and $80,000 of
MainPlace's floating rate indebtedness. Premiums paid for the interest rate
protection agreements are amortized over the terms of the agreements and
unrealized gains or losses are recognized as yield adjustments over the life of
the related debt.
In November 1995, the Company sold its interest rate protection agreements
related to the Oakbrook Center $82,000 floating rate indebtedness and
simultaneously entered into an interest rate swap agreement until maturity. In
December 1995, the Company entered into an unsecured five year interest rate
swap agreement for $20,000 of its current outstanding indebtedness. In
addition, in November 1996, the Company entered into an unsecured seven year
interest rate swap agreement for an additional $10,000 of its current
outstanding indebtedness. Unamortized premiums are included in deferred
expenses and other assets in the accompanying consolidated balance sheets. The
carrying value of the Company's interest rate swap agreements is $1,253 and
$1,582 as of December 31, 1996 and 1995, respectively. The fair value of the
Company's interest rate swap agreements is estimated at approximately $5,698
and $1,856 as of December 31, 1996 and 1995, respectively. The fair value is
estimated based upon management's good faith estimate.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," requires
disclosure about the fair values of financial instruments, whether or not
recognized in the consolidated balance sheets. Management believes that the
carrying amount of mortgage notes payable at December 31, 1996 and 1995,
approximates the SFAS 107 value. Management believes its guarantees on certain
indebtedness will not require payments. Other financial instruments are
described under "Derivatives" above, or are either carried at amounts which
approximate the SFAS 107 value or are not considered significant.
INCOME TAXES
No provision has been made for Federal income taxes for the Company in the
accompanying consolidated financial statements because the Company has operated
as a REIT. Under the applicable provisions of the Internal Revenue Code (the
"Code"), a REIT will generally not be subject to Federal income tax on that
portion of its REIT taxable income it currently distributes to its shareholders
so long as it distributes at least 95% of its taxable income to its
shareholders and complies with certain other requirements.
27
<PAGE> 28
<TABLE>
<CAPTION>
PER SHARE DATA
The table below presents the dividend allocation for
tax purposes.
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends declared and paid per share $1.98 $1.94 $1.82
Ordinary income 78% 64% 60%
Return of capital 11% 10% 40%
Long-term capital gain 11% 26% --
</TABLE>
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.
3. OLD ORCHARD ACQUISITION
On December 18, 1996, the Company acquired Old Orchard for $78,577 in cash
prior to prorations and the issuance of $28,000 in preferred units in the
Operating Partnership, subject to $159,804 of existing indebtedness. In
connection with the issuance of the preferred units, the Company issued $1,135
in Unit Voting Stock. Old Orchard was owned 90% by an unaffiliated third party
and 10% by an affiliate of JMB Partners. In connection with the transaction,
the affiliate of JMB Partners first increased its interest in Old Orchard by
16% through a purchase from the unaffiliated third party so that immediately
preceding the closing, Old Orchard was owned 74% by the unaffiliated third
party and 26% by the affiliate of JMB Partners. The cash portion of the
acquisition price was funded from the proceeds of the Company's public offering
completed in December 1996. The preferred units have a distribution rate of 7%,
a redemption price of $27.50 per unit and a conversion price of $27.50 per unit
to common units which in turn are convertible to Common Stock. The preferred
units have a perpetual term with a seven year lock-out period. After seven
years the preferred units may be redeemed at the option of the Company for cash
or may be converted at the option of the holder into common units. The
operating results of Old Orchard have been consolidated in the Company's
financial statements from the acquisition date. The acquisition had an
immaterial effect on net income in 1996.
The following summarized pro forma (unau-dited) financial information
assumes the acquisition of Old Orchard occurred on January 1, 1996 and January
1, 1995, respectively. This information does not purport to be indicative of
the results which would actually have been obtained had the acquisition been
completed on January 1, 1996 or January 1, 1995, or which may be obtained in
the future.
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 127,254 $ 115,138
Income before extraordinary items $ 17,494 $ 16,864
Income before extraordinary items per
common and unit voting common share $ 1.03 $ 0.99
Weighted average common and unit
voting common shares outstanding 17,016,586 17,009,684
</TABLE>
4. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
The accompanying consolidated financial statements include investments in
certain partnerships in which the Company does not own a controlling interest.
These investments are reported using the equity method. To the extent the
Company's investment basis differs from its share of the capital of an
unconsolidated partnership, such difference is amortized over the depreciable
lives of the unconsolidated partnership's investment assets. Investments in
unconsolidated partnerships consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Property Ownership Interest
- ---------------------------------------------------------
Water Tower Water Tower Place,
Joint Venture Chicago, IL 55% (a)
- ---------------------------------------------------------
Coral-CS/LTD Coral Square Mall,
Associates Coral Springs, FL 50%
- ---------------------------------------------------------
West Dade County Miami International
Associates Mall, Miami, FL 40% (b)
- ---------------------------------------------------------
Valencia Valencia
Town Center Town Center,
Associates, L.P. Valencia, CA 25% (c)
- ---------------------------------------------------------
Citrus Park
Venture Tampa, FL 50% (d)
=========================================================
</TABLE>
(a) The Company owns a 55% interest in a retail property (Water Tower Place)
through its investment in Water Tower Joint Venture ("WTJV"). All major
decisions concerning the retail property require the approval of both partners
of WTJV and thus the Company does not control the partnership.
(b) Effective April 1, 1996, JMB/Miami International Associates ( an
unconsolidated partnership) distributed its interest in West Dade County
Associates ("West Dade") to its partners (the Operating Partnership and two
affiliates of JMB Realty). Effective April 1, 1996, the Operating Partnership
purchased an approximate 18% interest in West Dade from one of the JMB Realty
affiliates for $9,431 in cash and the assumption of the seller's pro rata share
of all liabilities of West Dade. The remaining interests owned by the JMB
Realty affiliates were sold to the outside partner in West Dade for $5,375 in
cash and the assumption of the sellers' pro rata share of all liabilities of
West Dade. Subsequent to these transactions, the Operating Partnership owns a
40% interest in West Dade and the outside partner owns the remaining 60%
interest.
(c) The outside partner has a right to all cash distributions until it has
received a return on and of its contributions to the partnership (as set forth
in the partnership agreement).
(d) On June 23, 1995, the Company acquired a 50% interest in Citrus Park
Venture (a development parcel). The Management Company currently owns the
remaining 50% interest in Citrus Park Venture, subject to a purchase option in
favor of the Company. In addition, a bond offering of $26,700 to fund the
roadwork surrounding the property was completed by the Citrus Park Community
Development District (the "CDD") during the fourth quarter of 1996. The Company
assisted the CDD in obtaining the financing for the roadwork by guaranteeing
the irrevocable letter of credit which supports the bonds.
28
<PAGE> 29
Summarized financial information for the unconsolidated partnerships is
presented below.
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Assets:
Investment properties, net $ 292,829 $ 292,452
Other assets 29,190 28,817
- --------------------------------------------------------------------
322,019 321,269
Less liabilities:
Mortgage notes payable 310,800 310,800
Other liabilities 16,484 16,624
- --------------------------------------------------------------------
Total deficit (5,265) (6,155)
Less outside partners' capital 15,532 23,705
- --------------------------------------------------------------------
Total investments in
unconsolidated partnerships $ (20,797) $ (29,860)
====================================================================
Total investments in unconsolidated partnerships are presented in the
accompanying consolidated balance sheets as follows:
Assets -- Investments in
unconsolidated partnerships $ 15,233 $ 3,703
Liabilities -- Investments in
unconsolidated partnerships 36,030 33,563
- --------------------------------------------------------------------
$ (20,797) $ (29,860)
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
- --------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Shopping centers $ 79,361 $ 75,866 $ 76,160
Interest income 385 501 328
Expenses:
Shopping centers (35,839) (33,799) (36,332)
Mortgage and other
interest and ground rent (25,375) (25,595) (25,127)
Depreciation and
amortization (11,107) (11,468) (11,840)
Write-off of assets -- (138) --
Gain on sale of land -- -- 1,211
- --------------------------------------------------------------------
Net income $ 7,425 $ 5,367 $ 4,400
====================================================================
Company's share of:
Mortgage and other
interest and ground rent $(10,810) $(10,400) $ (10,427)
Depreciation and
amortization (4,519) (4,381) (4,333)
Write-off of assets -- (76) --
Gain on sale of land -- -- 272
Net income 3,000 1,297 1,258
====================================================================
</TABLE>
5. INVESTMENT IN THE MANAGEMENT COMPANY
The Management Company was incorporated on May 12, 1993. Generally, the
Company's preferred stock investment in the Management Company entitles it to
95% of the distributions, profits and losses from the management, leasing and
development business (as defined) and 5% of the net distributions, profits and
losses from the land parcels (as defined). The Company's consolidated financial
statements present its investment in the Management Company under the equity
method of accounting.
Summarized financial information for the Management Company is presented
below.
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments in land parcels (a) $ 38,391 $ 36,795
Cash, cash equivalents
and short-term investments 5,443 3,251
Receivables and deferred expenses 11,346 11,274
- --------------------------------------------------------------------
$ 55,180 $ 51,320
====================================================================
Liabilities:
Notes payable (b) $ 70,000 $ 70,000
Accounts payable and other liabilities 5,095 3,589
- --------------------------------------------------------------------
75,095 73,589
Owners' deficit (19,915) (22,269)
- --------------------------------------------------------------------
$ 55,180 $ 51,320
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
- --------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 38,501 $ 38,139 $ 33,526
Expenses:
Management, leasing
and development services 30,346 28,929 25,730
Mortgage and
other interest 5,457 5,045 5,049
Land parcels 427 214 215
Depreciation and
amortization 433 410 298
Write-down of assets (c) -- 9,580 --
- --------------------------------------------------------------------
36,663 44,178 31,292
- --------------------------------------------------------------------
Operating income (loss) 1,838 (6,039) 2,234
Income tax benefit (provision) (840) 252 599
Gain (loss) on sale of land -- 1,074 (498)
- --------------------------------------------------------------------
Net income (loss) $ 998 $ (4,713) $ 2,335
====================================================================
</TABLE>
(a) Includes 50% of the outstanding mortgage loan of an affiliated joint
venture. The mortgage loan, with a 50% face value of $25,750, was acquired for
$19,312 resulting in a discount of $6,438. The loan bears interest at a
variable rate based on market interest rates (as defined) and is secured by the
affiliated joint venture's interest in a land parcel located in Chicago, IL.
Interest is recorded for financial reporting purposes when received.
Accordingly, accretion of the discount has also not been recorded.
(b) Includes $51,000 of indebtedness secured by the Management Company's
interest in certain management contracts and a guarantee by Penn Square Mall
Limited Partnership (a consolidated venture) which is secured by Penn Square
Mall. The $51,000 bears interest at 7.54% per annum and matures on August 1,
2001. Also includes $9,000 of indebtedness owed to affiliates of JMB Realty
which bore no interest through the original maturity of May 20, 1996, at which
time it was extended to September 1, 2001, at an interest rate of 7.0%. The
effective interest rate on the aggregate $60,000 of indebtedness is 7.46%
through September 1, 2001. The Management Company also is indebted under a
$10,000 note payable to the Company. Such note bears interest at 12% per annum
and matures on September 1, 2001.
(c) Write-downs represent reduction of the carrying values in two retail
development land parcels due to the uncertainty of realizing the carrying
values upon future sale or development.
29
<PAGE> 30
The Management Company provides management, leasing and development
services to the Company's consolidated and unconsolidated investment
properties, to affiliated entities and to third parties. During 1995,
management contracts for six of the Company's consolidated investment
properties were terminated and new management contracts were entered into with
the Operating Partnership. In connection therewith, the Operating Partnership
entered into a service agreement with the Management Company to provide
supervisory services by Management Company personnel at 105% of the Management
Company's cost thereof. During the year ended December 31, 1996, the Management
Company received such reimbursements from the Operating Partnership of $603. In
1996 and 1995, management, leasing and development revenues of $9,787 and
$10,571, respectively, resulted from services provided to affiliated entities.
In 1994, management, leasing and development revenues of $16,743 resulted from
services provided to affiliated entities, of which approximately one-half
related to sources that are no longer affiliated, but that continue to receive
and pay for such services from the Management Company. In addition, the
Management Company received reimbursements (at cost) of payroll and other
operating expenses from affiliated entities for activities performed on their
behalf. Such reimbursements were $14,527, $2,525 and $556 during 1996, 1995 and
1994, respectively. Commencing January 1, 1996, the Management Company began
employing its own personnel to provide services to its affiliated entities and
third parties.
The Management Company entered into an administrative services agreement
with JMB Service Bureau Co. ("Service Co."), an affiliate of JMB Partners, to
provide accounting, marketing, data processing and computer, human resources
and other support services. The compensation for such services was calculated
as the lesser of actual cost or $4,000 per annum during the initial term. This
agreement was for an initial term through December 31, 1994 and was renewed
with the same pricing structure for a one-year term for 1995. The agreement was
not renewed at December 31, 1995. Com-mencing January 1, 1996, the Management
Company began employing its own personnel to perform the services previously
provided under the administrative service agreement. Additionally, rent
expense, including building expenses, paid by the Management Company to
affiliates of JMB Realty in 1996, 1995 and 1994 was $822, $812 and $947,
respectively.
The Company has options to purchase certain development parcels from the
Management Company at the lower of fair market value or 110% of allocable costs
(all terms as defined) until October 2000. In addition, the sale or development
of any development parcels by the Management Company is subject to a right of
first offer in favor of the Company on the same conditions as described above.
On May 25, 1995, the Company exercised its option to acquire the Management
Company's 50% interest in a 30 acre development parcel in Memphis as further
discussed in Note 8 of Notes to Consolidated Financial Statements. On August
17, 1995, the Company sold its option to purchase Woodbury (a development
parcel) in Minneapolis from the Management Company to an unaffiliated third
party. The unaffiliated third party exercised its option and purchased Woodbury
from the Management Company as further discussed in Note 8 of Notes to
Consolidated Financial Statements.
6. MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Non-recourse mortgage loans payable,
secured by Old Orchard; $104,887
bearing interest at 9.09% and $54,917
bearing interest at 7.45%; payable in
principal and interest through
September 16, 2000 (maturity) $ 159,804 $--
- ------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Oakbrook Center (a); $58,000
bearing interest at 5.856% and $82,000
bearing interest at 6.230% (through
interest rate swap agreements);
payable interest only through
October 1, 2000 (maturity) 140,000 140,000
- ------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by MainPlace (b); bearing
interest at 5.4066% (through an interest
rate swap agreement); payable interest
only through October 19, 1998
(maturity) 80,000 80,000
- ------------------------------------------------------------------------------
Line of credit, secured by Brandon
TownCenter, The Plaza at Brandon
TownCenter, Bed Bath and Beyond
outparcel at Brandon TownCenter,
New York Square and Service Merchandise
Plaza (formerly The Plaza at Sawmill
Place) (c); bearing interest at 1.42%
over LIBOR; payable interest only through
July 26, 1998 (maturity) 28,100 31,000
- ------------------------------------------------------------------------------
Construction loan payable, secured by
Wolfchase Galleria (d); bearing interest
at 1.375% over LIBOR; payable interest
only through May 29, 1998 (maturity) 31,982 --
- ------------------------------------------------------------------------------
$ 439,886 $ 251,000
==============================================================================
</TABLE>
30
<PAGE> 31
(a) In November 1995, the interest rate protection agreements on the $82,000
were sold and simultaneously an interest rate swap agreement was entered into
which fixed the interest rate at 6.230% through maturity.
(b) In December 1995, the floating rate of interest on the loan was reduced by
.34% from a spread of .89% over LIBOR to .55% over LIBOR. Accordingly, the
effective fixed rate of interest was reduced from 5.7466% to 5.4066%.
(c) On July 26, 1995, the Company signed an agreement with a group of lenders
for the establishment of a $90,000 secured, revolving line of credit ("Line").
The Line is an obligation of the Operating Partnership and is guaranteed by the
Company. The Line has an initial three year term and, subject to lenders'
approval, may be extended for an additional one or two year period. In July
1995, the Company repaid, with the initial proceeds from the Line, the $12,000
then outstanding balance on the Brandon TownCenter construction loan. As a
result of this repayment, the Company wrote-off the unamortized balance of
deferred financing costs related to the construction loan of $1,014, net of
minority interest, reflected as an extraordinary item in the accompanying
consolidated statement of operations for the year ended December 31, 1995.
(d) On May 29, 1996, the Company executed a loan agreement with a lender to
finance $65,000 of the remaining construction costs at Wolfchase Galleria. The
loan matures on May 29, 1998; however, it may be extended for three one-year
periods.
Five year maturities of long-term debt for the years 1997 through 2001 are
$1,233, $141,423, $1,458, $295,772 and none, respectively.
In December 1995, the Company entered into an unsecured five year interest
rate swap agreement for $20,000 of its current outstanding indebtedness.
In addition, in November 1996, the Company entered into an unsecured seven year
interest rate swap agreement for an additional $10,000 of its current
outstanding indebtedness.
On November 6, 1996, the Company entered into an agreement with a lender
for a one year, $5,000 unsecured revolving line of credit. No amounts were
outstanding as of December 31, 1996.
The Company is exposed to credit loss in the event of non-performance by
the third parties to the interest rate swap agreements (which $220,000 are AAA
and $30,000 are AA rated).
The Company has established certain escrow accounts, totaling $1,326 at
December 31, 1996, in connection with certain mortgage notes payable described
above. These escrows are included in deferred expenses and other assets in the
accompanying consolidated balance sheets.
7. LEASES
AS PROPERTY LESSOR
At December 31, 1996, the Company's principal consolidated assets are eight
operating shopping center properties and one shopping center property,
Wolfchase Galleria, under construction. Management has determined that all
leases relating to these properties are properly classified as operating
leases; therefore, rental income is reported when earned. Leases with tenants
range in term from one to 39 years and generally provide for fixed minimum
rents and reimbursement of operating costs. In addition, leases with shopping
center tenants provide for additional rent based upon percentages of tenant
sales volumes.
Minimum lease payments to be received in the years 1997 to 2001, and
thereafter, under the above lease agreements are $86,244, $83,770, $81,946,
$79,984, $75,753 and $377,027, respectively.
AS PROPERTY LESSEE
On December 31, 1990, Oak Brook Urban Venture (a consolidated venture) sold the
land underlying Oakbrook Center for $75,000 ("ground sale-leaseback proceeds"
or "Lessor Base Amounts") and leased it back for a period of 50 years with
options to renew for an additional 49 years. For financial reporting purposes,
the ground sale-leaseback proceeds were accounted for as a financing
transaction. Minimum annual rent to the ground lessor accrues at 5% of the
Lessor Base Amount, a portion of which may be deferred based on available cash
flow (as defined) from Oakbrook Center. Deferred amounts accrue interest at 5%
per annum. In each of the years 1996, 1995 and 1994, Oak Brook Urban Venture
reported rent expense of $3,750 of which payment of $2,350 has been deferred in
1996 and $2,550 has been deferred in 1995 and 1994. Interest has been accrued
and deferred of $823, $668 and $515 for 1996, 1995 and 1994, respectively, on
the deferred balance. The total deferred interest and ground lease rent
included in the accompanying consolidated balance sheet at December 31, 1996 is
$18,359.
The Oakbrook Ground Lease was amended, effective upon closing of the
Offering, to escalate the minimum annual payment from $1,200 to $1,800 for the
period 1994 to 2000. Payment of the portion of the annual rent of $3,750 in
excess of the minimum annual payment is deferred to the extent that the rental
income is inadequate to (i) pay all expenses (including debt service), (ii)
provide an amount equal to the excess of 5.5% of gross revenues over property
management fees actually paid to the property manager (currently 2.5% of gross
revenues) and (iii) allow the lessee to recover a 10% yield on its investment
(as defined) in Oakbrook Center (cumulative from the date of the amendment,
subject to certain limitations). So long as the lessee has recouped such 10%
yield, the rental income in excess of expenses (including debt service and
minimum annual rental) is used to pay the deferred annual rental plus a yield
thereon of 5%. Excess rental income remaining after payment of the deferred
annual rental plus the 5% yield will be used as follows: (i) the lessee is
entitled to retain $1,250 per annum cumulative plus a yield thereon of 5% per
annum and (ii) 50% of any remaining amount of rental income
31
<PAGE> 32
will be paid to the lessor as participating rent and 50% will be retained by
the lessee. Net proceeds from sale or refinancing are allocated between
lessor and lessee pursuant to the terms of the ground lease.
A substantial portion of Penn Square Mall is on land subject to a ground
lease expiring in 2060. The lease currently provides for minimum rent equal to
the greater of: (a) annual rents of $607, subject to adjustment based on the
Consumer Price Index every fifth lease year with the next adjustment in 2001,
or (b) 3/8% of the gross annual retail sales, plus 4 5/8% of the gross annual
rents from non-retail tenants of Penn Square Mall. In 1996, 1995 and 1994, Penn
Square Mall recorded rent expense of $670, $654 and $677, respectively.
8. TRANSACTIONS WITH AFFILIATES
(not disclosed elsewhere)
Costs and expenses for services provided by the Manage-ment Company and the
Operating Partnership to the Company's investment properties, including the
Company's share of unconsolidated investment properties, were as follows:
<TABLE>
<CAPTION>
Years ended December 31
- -----------------------------------------------------
1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
Property management and
leasing services $ 2,780 $ 2,549 $ 2,051
Development services 1,212 1,074 523
- -----------------------------------------------------
$ 3,992 $ 3,623 $ 2,574
=====================================================
</TABLE>
(a) In 1995, the management agreements for the following properties were
terminated by their owners: New York Square (July 1995), Brandon TownCenter,
The Plaza at Brandon TownCenter, MainPlace and Penn Square Mall (all October
1995), and Service Merchandise Plaza (formerly The Plaza at Sawmill Place)
(November 1995). New management agreements were put in place with the Operating
Partnership on substantially the same terms. Management services of $1,415 and
$278 for the years ended December 31, 1996 and 1995, respectively, provided by
the Operating Partnership to these consolidated investment properties and
included above, have been eliminated in consolidation.
The Company has purchase options, until October 2000, with respect to
interests in certain improved retail properties in which JMB Partners has an
interest. In addition, these interests may not be sold by JMB Partners without
first offering such interests to the Company at the lower of the option price
or the then fair market value of such property. The Company also has options to
purchase certain retail development land parcels from JMB Partners at the lower
of fair market value or 110% of allocable costs (all terms as defined) until
October 2000. In addition, the sale or development of any development parcels
by JMB Partners is subject to a right of first offer in favor of the Company on
the same conditions as described above.
On May 25, 1995, the Company exercised its options to acquire interests in
167 acres of land in Memphis for the development of Wolfchase Galleria. The
aggregate acquisition value of such parcels was $11,443. A 137 acre parcel from
JMB Partners and a 50% interest in a 30 acre parcel from the Management Company
were acquired. The Company acquired the remaining 50% interest in the 30 acre
parcel from an unaffiliated third party. The aggregate consideration was paid
in cash of $8,604 and through the issuance of 134,400 Units.
On June 23, 1995, the Company sold, to an unaffiliated third party, its
option to purchase from JMB Partners a 25% interest in Northpoint Mall in
Atlanta in exchange for $664 and a 50% interest in Citrus Park Venture (a 163
acre development parcel). For financial reporting purposes, the $664 is
reflected as other gains in the accompanying consolidated statement of
operations for the year ended December 31, 1995.
On August 17, 1995, the Company sold, to an unaffiliated third party, its
option to purchase Woodbury (a development parcel) in Minneapolis from the
Management Company for $3,874. For financial reporting purposes, the $3,874,
net of selling expenses of $42, is reflected as other gains in the accompanying
consolidated statement of operations for the year ended December 31, 1995. The
unaffiliated third party exercised its option and purchased Woodbury from the
Management Company for $1,853 net of selling expenses.
9. EMPLOYEE BENEFIT PLANS
OPTION PLAN
In 1993, the Company adopted a stock option plan (the "Option Plan") which
provides for the granting of options to officers and key employees of the
Company and the Management Company to purchase a specified number of shares of
Common Stock or Units ("Options"). Under the Option Plan, the total number of
shares of Common Stock available to be issued upon exchange of Units issued
under the Option plan is equal to 1,500,000. The Options are granted at the
market value on the day of the grant.
32
<PAGE> 33
At December 31, 1996, there were 296,334 additional shares available for
grant under the Option Plan. The per share weighted-average fair value of
Options granted during 1996 and 1995 was $0.85 and $1.35, respectively, on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1996-expected dividend yield of 9.00%, risk-free
interest rate of 5.31%, expected life of 6 years and expected volatility rate
of 16.6%; 1995-expected dividend yield of 8.50%, risk-free interest rate of
7.56%, expected life of 6 years and expected volatility rate of 15.3%. The
Options granted in 1996 and 1995 have a contractual term of ten years.
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and net
income per share disclosures for employee option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 in accounting for its Option Plan and, accordingly, no
compensation cost has been recognized for its Options in the consolidated
financial statements. Disclosure of pro forma effects are required only for
options granted in 1996 and 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected because
compensation cost is reflected over the Options vesting period of three years
and compensation cost for Options granted prior to January 1, 1995 is not
considered. Had the Company determined compensation cost based upon the fair
value at the grant date for these Options under SFASNo. 123, the effects on the
Company's net income and net income per share would not have been material.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number Number Exercise
of Shares of Units Price
- --------------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1993 30,675 760,325 $ 23.5000
Granted -- -- --
Exercised -- -- --
Canceled -- (13,333) 23.5000
Expired -- -- --
- --------------------------------------------------------------
Balances at December 31, 1994 30,675 746,992 23.5000
Granted 6,700 297,800 20.7500
Exercised -- -- --
Canceled -- (52,667) 23.2389
Expired -- -- --
- --------------------------------------------------------------
Balances at December 31, 1995 37,375 992,125 22.7000
Granted 4,760 161,240 20.3125
Exercised -- (71,653) 23.1303
Canceled -- (18,834) 21.9181
Expired -- -- --
- --------------------------------------------------------------
Balances at December 31, 1996 42,135 1,062,878 $ 22.3267
==============================================================
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding Options was $20.3125-$23.5000 and
7.53 years, respectively.
At December 31, 1996 and 1995, the number of Options exercisable was
769,178 and 498,666 respectively, and the weighted-average exercise price of
these Options was $23.1493 and $23.4895, respectively.
1996 INCENTIVE UNIT PROGRAM
In 1996, the Company adopted, subject to shareholder approval, an Incentive
Unit Program (the "Program") which provides for the award of up to 525,000
Incentive Units to officers and key employees of the Company and the Management
Company. Incentive Units may be earned 25% in each of calendar years 1996
through 1999 subject to the Company achieving annual and cumulative performance
targets in its funds available for distribution for each year. The
determination of whether the performance target for any year has been achieved
is to be made not later than March 31 of the following year (the "Determination
Date"). Awards are subject to vesting over a three-year period following the
Determination Date. Awards for 525,000 Incentive Units were granted in 1996.
The Program had no effect on 1996 results of operations.
33
<PAGE> 34
SAVINGS AND RETIREMENT PLAN
The Company and the Management Company participate in the JMB Realty
Corporation Employee Savings Plan which permits the employees to defer a
portion of their compensation in accordance with the provisions of Section
401(k) of the Code. The Company and the Management Company make a matching
contribution of 10% of deferrals. The Company and the Management Company also
participate in the Core Retirement Award Program, (a defined contribution plan)
in which an eligible employee (as defined) is credited with an annual
contribution equal to 3% of such employee's total compensation. The Core
Retirement Award Program was adopted on January 1, 1995, to replace the Cash
Balance Plan which was terminated as of December 31, 1994. In 1996, 1995 and
1994, the Company and the Management Company contributed in aggregate $107, $88
and $79, respectively, to the JMB Realty Corporation Employee Savings Plan, and
$515, $380 and $403, respectively, to the Core Retirement Award Program.
10. CONTINGENCIES
LITIGATION
The Company and its unconsolidated partnership investments and the Management
Company are parties to a variety of legal proceedings arising in the ordinary
course of their business. It is management's opinion that the ultimate
resolution of these matters will not have a material adverse impact on the
financial condition, results of operations or liquidity of the Company.
11. SUBSEQUENT EVENT
On February 10, 1997, the Company refinanced the Water Tower Place $170,000 of
indebtedness. The new loan matures on February 1, 1999; however, it may be
extended for two one-year periods. Of the total $170,000, $160,000 bears
interest at LIBOR + 1.125% and $10,000 bears interest at LIBOR + 1.500%.
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
URBAN SHOPPING CENTERS, INC.:
We have audited the accompanying consolidated balance sheets of Urban Shopping
Centers, Inc. and consolidated partnerships (the Company) as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements 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 the Company
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
January 24, 1997, except as to note 11,
which is as of February 10, 1997
Chicago, Illinois
34
<PAGE> 35
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
($000's omitted, except share amounts) Years ended December 31
- -------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating data: (1)
Total revenues $ 97,044 $ 91,627 $ 75,783 $ 96,881 $ 102,707
Income (loss) before other
gains (losses), minority
interest and
extraordinary items 27,330 24,099 24,350 4,077 (9,261)
Income (loss) before
extraordinary items 19,969 18,644 17,978 2,751 (5,835)
- -------------------------------------------------------------------------------
Income per common and
unit voting common share
before extraordinary items 1.42 1.35 1.31 0.18 --
- -------------------------------------------------------------------------------
<CAPTION>
($000's omitted, except share amounts) December 31
===============================================================================
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance sheet data: (1)
Total assets $ 904,076 $ 598,507 $ 586,638 $ 543,153 $ 611,218
Mortgage notes payable
and land sale-leaseback
proceeds 514,886 326,000 305,745 265,000 524,383
Stockholders' equity 194,663 134,509 142,558 149,591 36,635
===============================================================================
</TABLE>
(1) This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
table above presents selected operating and balance sheet data for the periods
presented on the historical basis and includes investment properties which were
distributed to JMB Partners prior to the closing of the Offering. Included in
income (loss) before extraordinary items, are (i) a $3,372 gain on sale of four
outparcels at Wolfchase Galleria in 1996, (ii) a $4,496 gain on sale of two
Company purchase options in 1995, (iii) a $2,989 gain on sale of outparcels at
the Brandon Project in 1994 and (iv) a $3,447 gain on settlement in 1992
related to a 1991 bankruptcy settlement with FDS.
QUARTERLY FINANCIAL SUMMARY
<TABLE>
<CAPTION>
($000's omitted, except share amounts) 1996 Quarters 1995 Quarters
- -----------------------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $23,183 $22,899 $24,482 $26,480 $20,936 $23,993 $22,727 $23,971
Income before
extraordinary items 3,127 4,468(1) 4,636(2) 7,738(3) 3,502 3,884(4) 5,266(5) 5,992(7)
Net income 3,127 4,468(1) 4,636(2) 7,738(3) 3,502 3,884(4) 4,259(5)(6) 5,985(7)
=================================================================================================================
Income per share 0.23 0.33 0.34 0.51 0.25 0.28 0.31 0.44
=================================================================================================================
Dividends declared
and paid 0.495 0.495 0.495 0.495 0.485 0.485 0.485 0.485
=================================================================================================================
Stock price:
High $22-3/8 $24-1/4 $25-3/8 $29 $20-7/8 $22-1/8 $22-3/8 $22-1/2
Low 20-1/8 22-1/8 22-7/8 24-1/4 19-3/4 19-7/8 20-1/4 20-1/8
=================================================================================================================
</TABLE>
(1) Includes the Company's share of gain on sale of an outparcel at Wolfchase
Galleria, net of minority interest, of $471.
(2) Includes the Company's share of gain on sale of an outparcel at Wolfchase
Galleria, net of minority interest, of $398.
(3) Includes the Company's share of gain on sale of two outparcels at Wolfchase
Galleria, net of minority interest, of $1,823.
(4) Includes the Company's share of gain on sale of option to purchase
Northpoint Mall in Atlanta, net of minority interest, of $434.
(5) Includes the Company's share of gain on sale of option to purchase Woodbury
(a development parcel) in Minneapolis, net of minority interest, of $451.
(6) Includes the Company's share of extraordinary item, net of minority
interest, of $1,014 relative to the write-off of unamortized construction loan
costs at Brandon TownCenter.
(7) Includes the Company's share of gain on sale of option to purchase Woodbury
(a development parcel) in Minneapolis, net of minority interest, of $2,050.>>
35
<PAGE> 36
URBAN SHOPPING CENTERS, INC.
BOARD OF DIRECTORS
Neil G. Bluhm 3
Co-Chairman of the Board of Directors
Judd D. Malkin 2
Co-Chairman of the Board of Directors
James B. Digney 1
Senior Vice President
Metropolitan Life Insurance Company
Matthew S. Dominski 3
President and Chief Executive Officer
Urban Shopping Centers, Inc.
Susan Getzendanner 2
Partner - Skadden, Arps, Slate,
Meagher & Flom (Illinois)
John E. Neal 2
President - Kemper Funds
Phillip B. Rooney 3
Chairman
F.N.B.C. of LaGrange, Inc.
John G. Schreiber 1
President - Schreiber Investments and
Partner - Blackstone Real Estate Advisors
Henry T. Segerstrom 1,2
Managing Partner - C.J. Segerstrom & Sons
1 Audit Committee Member
2 Executive Compensation Committee Member
3 Nominating Committee Member
OFFICERS
Matthew S. Dominski
President and Chief Executive Officer
Adam S. Metz
Executive Vice President, Chief Financial Officer,
Treasurer and Director of Acquisitions
James L. Czech
Executive Vice President and
President-Development,
Urban Retail Properties Co.
Michael G. Hilborn
Senior Vice President,
General Counsel and Secretary
Dennis M. Zaslavsky
Senior Vice President and Assistant Secretary
Michael A. Goldberg
Vice President
SHAREHOLDER INFORMATION
ANNUAL MEETING
The 1997 Annual Meeting of Share-holders will be held at 10:00 a.m.
local time on Tuesday, May 6, 1997 at
American National Bank
1 North LaSalle Street
Chicago, Illinois.
SHARE INFORMATION
In 1996, Urban Shopping Centers' shares traded at a high of $29 and a low of
$20 1/8. The stock closed at $31 1/8 on February 20, 1997.
Urban Shopping Centers is listed on The New York Stock Exchange and The
Chicago Stock Exchange (Symbol: URB). As of February 20, 1997, there were
17,268,073 shares outstanding held by 470 shareholders of record.
DIVIDEND
Urban Shopping Centers most recently declared a quarterly cash dividend of
50.75 cents per share on February 24, 1997. The dividend equates to an annual
dividend of $2.03. The dividend was paid on March 14, 1997 to shareholders of
record on March 6, 1997.
Of the total dividends paid in 1996, 77.54% was ordinary income, 11.04%
was long-term capital gain and 11.42% was return of capital for tax purposes.
TRANSFER AGENT
First Chicago Trust Company
of New York
P. O. Box 2500
Jersey City, New Jersey 07303
Phone: (800) 446-2617
DIVIDEND REINVESTMENT PLAN
Registered shareholders are eligible to reinvest their dividends through the
company's authorized DirectSERVICEa Program with all applicable brokerage
commissions and transaction fees paid by Urban Shopping Centers. The Direct-
SERVICEa Program also allows both existing and new shareholders to purchase
shares through voluntary cash payments. For information on this program, please
contact
First Chicago Trust Company
at 1-800-446-2617 (for registered shareholders) or 1-800-992-4566
(for non-registered shareholders).
FOR ADDITIONAL INFORMATION
Urban Shopping Centers, Inc.
c/o Investor Relations
900 North Michigan Avenue
Suite 1500
Chicago, Illinois 60611
Phone: (312) 915-2000
Facsimile: (312) 915-2001
36
<PAGE> 1
Exhibit 21.1
Name of Subsidiary Jurisdiction
- ------------------ ------------
Urban Shopping Centers, L.P. Illinois
A. Brandon Convenience Center Partners, Ltd. Florida
B. Brandon Land Partners, Ltd. Florida
C. Brandon Shopping Center Partners, Ltd. Florida
D. CS Partners, Ltd. Florida
1. Coral-CS/LTD Associates Florida
E. West Dade County Associates Florida
F. NWRM Limited Partnership Delaware
1. Citrus Park Venture Illinois
G. Oak Brook Urban Venture , L.P. Illinois
H. Penn Square Mall Limited Partnership Illinois
I. Santa Ana Venture California
J. Sawmill Place Plaza Limited Partnership Ohio
1. Sawmill Place Plaza Associates Ohio
K. Valencia Town Center Associates, L.P. California
L. Water Tower Joint Venture Illinois
M. Wolfchase Galleria Limited Partnership Tennessee
N. Old Orchard Urban Venture, L.P. Illinois
CS Partners, Ltd. Florida
A. Coral-CS/LTD Associates Florida
Sawmill Place Plaza Limited Partnership Ohio
A. Sawmill Place Plaza Associates Ohio
Urban Retail Properties Co. Delaware
A. Citrus Park Limited Partnership Delaware
B. Urban Retail Properties Co. of Illinois Delaware
1. Citrus Park Limited Partnership Delaware
C. Urban Retail Properties Co. of Iowa, Inc. Delaware
D. Urban Retail Properties Co. of Ohio, Inc. Delaware
E. Urban Retail International LLC Delaware
USC Citrus, Inc. Illinois
A. Citrus Park Venture Delaware
B. NWRM Limited Partnership Delaware
USC Brandon, Inc. Delaware
A. Brandon Convenience Center Partners, Ltd. Florida
B. Brandon Land Partners, Ltd. Florida
USC MainPlace, Inc. Delaware
A. Santa Ana Venture California
USC Penn Square, Inc. Delaware
A. Penn Square Mall Limited Partnership Illinois
USC Memphis, Inc. Delaware
A. Wolfchase Galleria Limited Partnership Delaware
USC Oakbrook, Inc. Delaware
A. Oak Brook Urban Venture, L.P. Illinois
USC Richmond, Inc. Delaware
USC Subsidiary, Inc. Delaware
A. Brandon Shopping Center Partners, Ltd. Florida
USC Old Orchard, Inc. Delaware
A. Old Orchard Urban Venture, L.P. Illinois
<PAGE> 1
Exhibit 23.1
Accountants' Consent
---------------------
The Board of Directors and Shareholders
Urban Shopping Centers, Inc.:
We consent to incorporation by reference in the registration
statements No. 33-86778 (Form S-8), No. 33-96388 (Form S-8) and
No. 333-334 (Form S-3) of Urban Shopping Centers, Inc. and
consolidated partnerships of our report dated January 24, 1997,
except as to note 11 which is as of February 10, 1997, relating
to the consolidated balance sheets of Urban Shopping Centers,
Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended
December 31, 1996, and the related schedule, which report is
incorporated by reference in the December 31, 1996 annual report
on Form 10-K of Urban Shopping Centers, Inc.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS INCLUDED IN ITS REPORT ON FORM 10-K FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<CIK> 0000907077
<NAME> URBAN SHOPPING CENTERS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,276
<SECURITIES> 0
<RECEIVABLES> 19,926
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,202
<PP&E> 934,182
<DEPRECIATION> 97,558
<TOTAL-ASSETS> 904,076
<CURRENT-LIABILITIES> 30,512
<BONDS> 439,886
0
0
<COMMON> 167
<OTHER-SE> 194,496
<TOTAL-LIABILITY-AND-EQUITY> 904,076
<SALES> 95,180
<TOTAL-REVENUES> 97,044
<CGS> 0
<TOTAL-COSTS> 52,160
<OTHER-EXPENSES> 7,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,246
<INCOME-PRETAX> 23,260
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,597
<DISCONTINUED> 3,372
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,969
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
