<PAGE>
U.S. Securities and Exchange Commission
Operations Center, Stop 0-7
6432 General Green Way
Alexandria, Virginia 22312
Re: Urban Shopping Centers, Inc.
Commission File No. 1-12278
Form 10-K
Gentlemen:
Transmitted, for the above-captioned registrant is the electronically filed
executed copy of registrant's current report on Form 10-K for the year ended
December 31, 1997.
The $250.00 filing fee was paid by wire transfer on March 23, 1998.
Very truly yours,
URBAN SHOPPING CENTERS, INC.
By: ADAM S. METZ
Executive Vice President, Chief Financial
Officer, Director of Acquisitions and
Chief Accounting Officer
ASM/go
Enclosures
<PAGE>
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, 1997
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 24, 1998, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $503,078,000,
based upon the closing price ($32 3/8) on the New York Stock Exchange
composite tape on such date.
As of March 24, 1998, there were outstanding 17,335,494 shares of the
registrant's Common Stock and 407,935 shares of the registrant's Unit Voting
Common Stock.
Portions of the registrant's 1997 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 1998
are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
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 7A. Quantitative and Qualitative Disclosures about
Market Rate 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 18
SIGNATURES 24
i
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Urban Shopping Centers, Inc. (the "Company") is in the
business of owning, acquiring, managing, leasing, developing and
redeveloping 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 13, 1997, in connection with the Company's
acquisitions of Fox Valley Center and Hawthorn Center, the
Company issued $100,000,000 in cumulative convertible redeemable
preferred stock ("Preferred Stock") with a liquidation preference
of $33.34 per share. Quarterly dividends on the Preferred Stock
are equal to the greater of (i) $0.50 per share or (ii) the
quarterly dividend then payable on the shares of common stock
into which the Preferred Stock is convertible. The Preferred
Stock is convertible into common stock, at the option of the
holder, at a conversion price of $33.34 per share (subject to
antidilution adjustments) at anytime after August 1998. After
six years the Preferred Stock may be redeemed, at the option of
the Company, for cash at a redemption price of $33.34 per share.
In December 1996, the Company completed a public offering of
3,225,000 common shares at $25.50 per share. Net proceeds from
the sale of these shares, after underwriter's discount, was
$80,625,000. These proceeds were used in part for the Old
Orchard acquisition of Old Orchard Center. In addition, in
connection with the acquisition, the Company issued $28,000,000
of preferred units in the Operating Partnership with a
liquidation preference of $27.50 per unit. 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. 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.
As of December 31, 1997, the Company, which is the sole
general partner of the Operating Partnership, owns approximately
66.8% of the common units ("Units") in the Operating Partnership;
JMB Realty Corporation ("JMB Realty") and certain of its
affiliates ("JMB Partners") and certain other parties own limited
partnership interests in the Operating Partnership representing
approximately 33.2% of the Units and also own $28,000,000 of
preferred units which are convertible to Units. 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.
<PAGE>
The Company has a preferred stock investment in Urban Retail
Properties Co.(the "Management Company") and is generally
entitled 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
fourteen operating regional malls at December 31, 1997. 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" 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 7, 9 and 11 of the Company's 1997 annual report to
shareholders (the "Annual Report") under the captions "To Our
Shareholders," "Recognizing Opportunity," "Expanding our Vision
of Excellence," "Improving Our Existing Portfolio," "Creating New
Concepts," "Realizing Success" and "Planning for the Future."
THE MANAGEMENT COMPANY BUSINESS
A discussion of the Management Company business is hereby
incorporated by reference to the discussion appearing on pages 1,
8 and 10 of the Annual Report under the captions "To Our
Shareholders - Third party business," "Pursuing New Business" and
"Broadening Our Horizons."
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.
<PAGE>
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 9.1 million
square feet of GLA (approximately 61.1% of total GLA of the
Regional Malls) and accounted for approximately 9.4% of total
shopping center revenues of the Regional Malls in 1997. The table
on the following page summarizes the square footage owned and
leased by anchors in the Regional Malls at December 31, 1997:
<PAGE>
<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 8 1,348,202 246,877 1,595,079 10.8%
DAYTON HUDSON
CORPORATION
Marshall Field's 5 1,277,002 288,802 1,565,804 10.6%
FEDERATED DEPARTMENT
STORES, INC.
Burdines 5 631,128 -- 631,128 4.2%
Macy's 1 225,000 -- 225,000 1.5%
Bloomingdale's 1 -- 200,000 200,000 1.4%
Goldsmith's 1 180,000 -- 180,000 1.2%
-------- --------- --------- -------- ---------
Total 8 1,036,128 200,000 1,236,128 8.3%
J.C. PENNEY CO., INC.
JCPenney 8 937,547 266,960 1,204,507 8.1%
THE MAY DEPARTMENT
STORES COMPANY
Foley's 1 160,000 -- 160,000 1.1%
Lord & Taylor 3 -- 340,867 340,867 2.3%
Robinsons-May 3 -- 425,498 425,498 2.8%
-------- --------- --------- -------- ---------
Total 7 160,000 766,365 926,365 6.2%
DILLARD DEPARTMENT
STORES, INC.
Dillard's 6 621,131 240,925 862,056 5.8%
NORDSTROM, INC.
Nordstrom 4 312,000 570,536 882,536 5.9%
MONTGOMERY WARD & CO.
Montgomery Ward 1 -- 163,893 163,893 1.1%
THE NEIMAN MARCUS GROUP
Neiman Marcus 2 -- 216,431 216,431 1.5%
SAKS HOLDINGS, INC.
Saks Fifth Avenue 2 -- 196,103 196,103 1.3%
<PAGE>
ANCHOR ANCHOR
NUMBER GLA GLA PERCENT
OF OWNED OWNED TOTAL OF
ANCHOR BY BY ANCHOR TOTAL
PARENT/ANCHOR STORES ANCHOR COMPANY GLA GLA
- -------------- -------- --------- --------- --------- ---------
CARSON PIRIE SCOTT
& CO.
Carson Pirie Scott 2 219,003 -- 219,003 1.5%
-------- --------- --------- --------- ---------
Totals 53 5,911,013 3,156,892 9,067,905 61.1%
======== ========= ========= ========= =========
<FN>
</TABLE>
<PAGE>
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, 1997 accounted for 28.2% of the Mall
GLA in the Regional Malls at December 31, 1997 and 22.7% of 1997
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 10.5%
of the Mall GLA in the Regional Malls at December 31, 1997 and
7.8% of 1997 minimum rent of the Regional Malls. No other of
these chains accounted for more than 3.2% of the Mall GLA in the
Regional Malls at December 31, 1997 or 3.7% of 1997 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 at
December 31, 1997:
<PAGE>
<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 13 183,584 3.2% 154,884 3.3%
Lane Bryant 10 70,683 1.2% 58,474 1.2%
Lerner New York 10 103,288 1.8% 84,525 1.8%
Limited 13 162,510 2.8% 137,939 2.9%
Limited Too 7 27,006 .5% 23,602 .5%
Structure 9 59,936 1.0% 44,889 .9%
-------- --------- --------- -------- ---------
Total 62 607,007 10.5% 504,313 10.6%
THE GAP, INC.
Banana Republic 7 49,958 .9% 43,052 .9%
Gap 10 63,487 1.1% 43,119 .9%
Gap & GapKids 3 35,081 .6% 35,081 .8%
Baby Gap 2 4,020 .1% 3,246 .1%
GapKids 8 32,887 .5% 25,827 .5%
-------- --------- --------- -------- ---------
Total 30 185,433 3.2% 150,325 3.2%
WOOLWORTH CORPORATION
Afterthoughts 3 3,113 .1% 2,612 .1%
Athletic X-Press 1 2,500 .1% 1,000 0%
Carimar 1 800 0% 0 0%
Champs Sports 7 35,845 .6% 25,523 .6%
Foot Locker 11 58,844 1.0% 49,218 1.1%
Going to the Game! 2 3,250 .1% 800 0%
Kids Foot Locker 4 7,509 .1% 5,874 .1%
Kinney 4 13,089 .2% 10,589 .2%
Lady Foot Locker 9 15,439 .3% 11,118 .2%
Randy River 1 2,361 0% 2,361 0%
The San Francisco
Music Box Company 7 7,229 .1% 5,609 .1%
-------- --------- --------- -------- ---------
Total 50 149,979 2.6% 114,704 2.4%
INTIMATE BRANDS, INC.
Bath & Body Works 5 15,239 .3% 13,010 .3%
Cacique 2 8,097 .1% 8,097 .2%
Victoria's Secret 14 97,409 1.7% 73,628 1.5%
-------- --------- --------- -------- ---------
Total 21 120,745 2.1% 94,735 2.0%
SPIEGEL, INC.
Eddie Bauer 10 120,547 2.1% 111,704 2.4%
<PAGE>
COMPANY'S
TOTAL PRO RATA SHARE
-------------------------------- -------------------
PERCENT PERCENT
NUMBER OF OF
OF STORE MALL STORE MALL
PARENT/STORE STORES GLA GLA GLA GLA
- ------------ -------- --------- --------- --------- ---------
ABERCROMBIE & FITCH,
INC.
Abercrombie & Fitch 9 108,834 1.9% 93,695 2.0%
BARNES & NOBLE, INC.
B. Dalton Bookseller 3 14,068 .2% 8,808 .2%
Barnes & Noble 3 85,341 1.5% 85,341 1.8%
Software Etc. 1 1,247 0% 1,247 0%
-------- --------- --------- --------- ---------
Total 7 100,656 1.7% 95,396 2.0%
CRATE & BARREL, INC.
Crate & Barrel 5 86,067 1.5% 80,058 1.7%
WILLIAMS-SONOMA, INC.
Pottery Barn 3 47,905 .9% 47,905 1.0%
Williams Sonoma 5 25,290 .4% 18,298 .4%
-------- --------- --------- --------- ---------
Total 8 73,195 1.3% 66,203 1.4%
CASUAL CORNER GROUP,
INC.
August Max Woman 1 2,693 .1% 1,482 .0%
Casual Corner 10 51,834 .9% 43,115 .9%
Petite Sophisticate 6 16,852 .3% 14,352 .3%
-------- --------- --------- --------- ---------
Total 17 71,379 1.3% 58,949 1.2%
-------- --------- --------- --------- ---------
Totals 219 1,623,842 28.2% 1,370,082 28.9%
======== ========= ========= ========= ========
<FN>
</TABLE>
<PAGE>
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, 1997, the Company, the Operating Partnership
and the Management Company employed a total of 1,964 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 JMB
Partners and certain other parties 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 rates. Substantially all of the leases require the
<PAGE>
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>
<TABLE>
Item 2. Properties
The following table sets forth certain information relating to
the Properties at December 31, 1997.
<CAPTION>
OWNERSHIP
BY THE
COMPANY FEE,
AND GROUND
YEAR OPERATING OR AIR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- RIGHTS
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 Lord & Taylor 648,104 1994
Skokie, IL Marshall Field's
(Chicago Nordstrom
metropolitan Saks Fifth Avenue
area)
FOX VALLEY Carson Pirie 1,432,392/ 1975/ 100.0% Fee
CENTER (5) Scott 563,907 1988,
Aurora, IL JCPenney 1996
(Chicago Marshall Field's
metropolitan Sears
area)
HAWTHORN Carson Pirie 1,233,761/ 1972/ 100.0% Fee
CENTER (6) Scott 504,380 1989,
Vernon Hills, IL JCPenney 1994,
(Chicago Marshall Field's 1997
metropolitan Sears
area)
CITRUS PARK Burdines 1,100,000/ Scheduled
TOWN CENTER(7) Dillard's 460,000 March 100.0% Fee
Tampa, FL JCPenney 1999
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)
<PAGE>
OWNERSHIP
BY THE
COMPANY FEE,
AND GROUND
YEAR OPERATING OR AIR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- RIGHTS
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- --------------- ----------------- ------------- -------- -------- -------
REGIONAL MALLS:
(cont'd.)
WOLFCHASE Dillard's 1,086,622/ 1997 100.0% Fee
GALLERIA (8) Goldsmith's 389,286
Memphis, TN JCPenney
Sears
PENN SQUARE Dillard's 1,074,816/ 1960/ 100.0% Ground
MALL (2 stores) 384,998 1981, Lease(9)
Oklahoma City, Foley's 1988,
OK JCPenney 1995
Montgomery Ward
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
MALL Dillard's
Miami, FL JCPenney
Sears
CORAL SQUARE Burdines 941,473/ 1984/ 50.0% Fee
MALL (2 stores) 293,329 1989
Coral Springs, Dillard's
FL JCPenney
(Miami/Fort Sears
Lauderdale
metropolitan
area)
WATER TOWER Lord & Taylor 727,497/ 1976/ 55.0% Fee
PLACE Marshall Field's 311,825 1983,
Chicago, IL 1991
VALENCIA JCPenney 675,405/ 1992 25.0% Ground
TOWN CENTER Robinsons-May 282,486 (10) Lease(11)
Valencia, CA Sears
(Los Angeles
metropolitan
area)
SAN FRANCISCO Nordstrom 495,280/ 1988 50.0% Ground
SHOPPING 183,280 Lease(13)
CENTRE (12)
San Francisco, CA
<PAGE>
OWNERSHIP
BY THE
COMPANY FEE,
AND GROUND
YEAR OPERATING OR AIR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- RIGHTS
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- --------------- ----------------- ------------- -------- -------- -------
REGIONAL MALLS:
(cont'd.)
COPLEY PLACE Neiman Marcus 368,681/ 1984 33.33% Air
Boston, MA (14) 264,349 Rights
Lease(15)
------------
TOTAL REGIONAL MALLS 15 15,932,806/
6,224,901
------------
COMMUNITY
CENTERS:
CITRUS PARK 350,000 Scheduled 100.0% Fee
PLAZA (16) March
Tampa, FL 1999
THE PLAZA AT Service 243,035/ 1994 100.0% Fee
BRANDON Merchandise 89,185
TOWNCENTER Target
Brandon, FL
(Tampa
metropolitan
area)
SERVICE Circuit City 164,932/ 1988/ 100.0% Fee
MERCHANDISE Service 76,761 1997
PLAZA Merchandise
Columbus, OH
NEW YORK Kohl's 115,685/ 1989 100.0% Fee
SQUARE OfficeMax 16,760
Aurora, IL
(Chicago
metropolitan
area)
-------------
TOTAL COMMUNITY CENTERS 4 837,652/
182,706
-------------
-------------
TOTAL PROPERTIES 19 16,806,458/
6,407,607
=============
<FN>
</TABLE>
<PAGE>
- -----------------------
(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 are 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), Old
Orchard Center (59,401 square feet) and Copley Place
(845,323).
(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) Fox Valley Center was acquired on November 14, 1997. See
Note 3 of Notes to Consolidated Financial Statements in the
Annual Report which is hereby incorporated by reference.
(6) Hawthorn Center was acquired on November 14, 1997. See Note
3 to Notes to Consolidated Financial Statements in the Annual
Report which is hereby incorporated by reference.
(7) Citrus Park Town Center is currently under construction and
scheduled to open in March 1999.
(8) Wolfchase Galleria opened on February 26, 1997.
(9) 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.
(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) On June 17, 1997, the Company made an investment in a
partnership resulting in a 50% preferred interest in San
Francisco Shopping Centre. See Note 3 of Notes to
Consolidated Financial Statements in the Annual Report which
is hereby incorporated by reference.
(13) The San Francisco Shopping Centre ground lease expires in
June 2043 and provides for one 15-year renewal option.
<PAGE>
(14) A one-third equity interest in Copley Place was purchased
on August 1, 1997. See Note 3 of Notes to Consolidated
Financial Statements in the Annual Report which is hereby
incorporated by reference.
(15) Copley Place is subject to an air rights lease expiring in
December 2077.
(16) Citrus Park Plaza is currently under construction and
scheduled to open in March 1999.
The following two tables set forth certain rental information
with respect to the Company's operating 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 1998
through 2002 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):
COMPANY'S
CONTRACTUAL STEPS (in thousands of dollars) TOTAL PRO RATA SHARE
- ------------------------------------------- ------------- ---------------
1998 $ 2,432 $ 1,855
1999 1,869 1,615
2000 2,144 1,490
2001 1,260 1,025
2002 1,954 1,568
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 1998 through 2002 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):
TOTAL COMPANY'S PRO RATA SHARE
-------------------------- ---------------------------
EXPIRATIONS AVERAGE EXPIRATIONS AVERAGE
YEAR (S.F.) RENT/S.F. (S.F.) RENT/S.F.
- ---- ----------- ----------- ----------- -----------
1998 207,554 $ 28.24 174,118 $ 28.06
1999 245,004 26.33 198,582 24.52
2000 266,180 28.22 213,056 26.16
2001 254,369 34.82 217,964 33.32
2002 354,779 30.48 242,703 28.49
<PAGE>
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 1997 and 1996 and $2,550,000 has been deferred in
1995. Interest has been accrued and deferred of approximately
$982,000, $823,000 and $668,000 for 1997, 1996 and 1995,
respectively, on the deferred balance. The total deferred
interest and ground lease rent included in the accompanying consolidated
balance sheet at December 31, 1997 is approximately $21,691,000.
The Oakbrook Ground Lease was amended, effective upon closing
of the Company's initial public 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 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
<PAGE>
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 1997.
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 33 and 34 of the Annual Report under the
captions "Quarterly Financial Summary" and "Shareholder Information."
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is hereby incorporated
by reference to the data appearing on page 33 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 14 through 19 of
the Annual Report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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 20 through 33.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
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 1998 (the "Proxy Statement"), under the captions "Election of
Directors" and "Management - Directors and Executive Officers" and on
page 18 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," " - Aggregated Option Exercises in
1997 and Year-End Option Values, " " - Option Plan," " -
Incentive Unit Program, " " - Incentive Compensation," " - 401
(k) 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.
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 16 through 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 14 and 15 of the
Proxy Statement under the caption "Certain Relationships and
Related Transactions."
<PAGE>
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, 1997 and 1996 and the consolidated statements of
operations, stockholders' equity and cash flows for
each of the years ended December 31, 1997, 1996 and
1995 together with related notes and the independent
auditors' report dated February 6, 1998, appearing on
pages 20 through 32 of the 1997 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 18.
(3) Exhibits
See Exhibit Index, which is hereby incorporated
herein by reference.
(b) The following reports on Form 8-K and Form 8-K/A were
filed during the fourth quarter of 1997.
(i) The Registrant's report on Form 8-K
(describing the acquisition of Fox Valley Center and
Hawthorn Center) was filed on November 18, 1997 as an
Item 2. Acquisition of Assets filing. The
Registrant's report on Form 8-K/A was filed on
December 22, 1997 and included the following
financial statements and pro forma financial information:
a. Financial Statements.
Combined Statements of Operations
for Fox Valley Center and Hawthorn Center for
the nine months ended September 30, 1997
(unaudited) and the year ended December 31,
1996, with Independent Auditors' Report thereon
b. Pro Forma Financial Information.
Pro Forma Condensed Consolidated
Balance Sheet as of September 30, 1997 (unaudited)
<PAGE>
Pro Forma Condensed Consolidated
Statement of Operations for the nine months
ended September 30, 1997 (unaudited)
Pro Forma Condensed Consolidated
Statement of Operations for the year ended
December 31, 1996 (unaudited)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Urban Shopping Centers, Inc.:
Under date of February 6, 1998, we reported on the consolidated
balance sheets of Urban Shopping Centers, Inc. and consolidated
partnerships (the Company) as of December 31, 1997 and 1996, 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, 1997, as contained in the 1997 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 1997. 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
February 6, 1998
<PAGE>
<TABLE>
SCHEDULE III
URBAN SHOPPING CENTERS, INC.
Consolidated Real Estate and Accumulated Depreciation
December 31, 1997
($000's omitted)
<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 10,714
Oklahoma City, OK(A)(C) -- 1,931 77,797 6,610
Santa Ana, CA (A) 80,000 11,461 77,893 6,580
Brandon, FL (A)(D) 35,800 3,362 27,158 70,737
Columbus, OH (A)(D) -- 2,418 9,617 2,492
Aurora, IL (A)(D) -- 398 2,282 478
Memphis, TN (D) (E) 79,716 8,938 79,659 6,465
Skokie, IL 168,000 24,000 236,931 6,878
Aurora, IL (F) 85,528 20,124 114,036 197
Vernon Hills, IL (F) 77,864 19,626 111,216 130
Roseville, CA (G) -- 3,388 1,067 --
Tampa, FL (H) -- 7,884 967 87
------------ ------------ ------------ ------------
Total $ 666,908 152,854 970,686 111,368
============ ============ ============ ============
<PAGE>
Consolidated Real Estate and Accumulated Depreciation - Continued
December 31, 1997
($000's omitted)
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD (B)
------------------------------------------------------
LAND AND BUILDINGS ACCUMULATED
LEASEHOLD AND DEPRECIATION
DESCRIPTION IMPROVEMENTS IMPROVEMENTS TOTAL (G) (H)
- ----------- ------------ ------------ ------------ ------------
RETAIL CENTERS:
(cont'd.)
Oak Brook, IL (C) $ 49,324 242,777 292,101 (42,870)
Oklahoma City, OK (C) 1,931 84,407 86,338 (28,299)
Santa Ana, CA 11,761 84,173 95,934 (26,929)
Brandon, FL (D) 3,120 98,137 101,257 (11,663)
Columbus, OH (D) 2,418 12,109 14,527 (2,820)
Aurora, IL (D) 398 2,760 3,158 (668)
Memphis, TN (D) (E) 8,938 86,124 95,062 (2,960)
Skokie, IL (F) 24,000 243,809 267,809 (8,380)
Aurora, IL (F) 20,124 114,233 134,357 (500)
Vernon Hills, IL (F) 19,626 111,346 130,972 (488)
Roseville, CA (G) 3,388 1,067 4,455 --
Tampa, FL (H) 7,884 1,054 8,938 (17)
------------ ------------ ------------ ------------
Total $ 152,912 1,081,996 1,234,908 (125,594)
============ ============ ============ ============
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 (D) (E) 1997 1997 5-30
Skokie, IL (F) 1956 1996 7-30
Aurora, IL (F) 1975 1997 5-30
Vernon Hills, IL (F) 1972 1997 5-30
Roseville, CA (G) Expected 2000 -- --
Tampa, FL (H) Expected 1999 -- --
<FN>
</TABLE>
<PAGE>
Consolidated Real Estate and Accumulated Depreciation - Continued
December 31, 1997
($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, 1997, for Federal
income tax purposes was approximately $1,138,000 and
$107,000, 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 certain of the Company's
retail centers located in Brandon, FL, Columbus, OH, Memphis,
TN 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 November 14, 1997, the Company acquired a 100% interest in
Fox Valley Center and Hawthorn Center.
(G) The Company acquired land in Roseville, California on June
24, 1997. This land is intended to be the site of the
Company's next planned regional mall development.
(H) These amounts represent costs paid by the Company related to
land to be used for future development.
(I) Reconciliation of real estate owned:
1997 1996 1995
---------- ---------- ----------
Balance at beginning of period $ 934,182 625,818 570,796
Additions during period (a) 315,945 309,747 57,769
Other (b) (15,219) (1,383) (2,747)
---------- ---------- ----------
Balance at end of period $1,234,908 934,182 625,818
========== ========== ==========
(J) Reconciliation of accumulated depreciation:
Balance at beginning of period $ (97,558) (79,544) (62,699)
Depreciation expense (30,800) (18,514) (17,024)
Other (b) 2,764 500 179
---------- ---------- ----------
Balance at end of period $ (125,594) (97,558) (79,544)
========== ========== ==========
<PAGE>
Consolidated Real Estate and Accumulated Depreciation - Concluded
December 31, 1997
($000's omitted)
(a) Additions during the year ended December 31, 1997,
include the $134,160 and the $130,842 acquisition of Fox
Valley Center and Hawthorn Center, respectively.
Additions during the year ended December 31, 1996,
include the $260,931 acquisition of Old Orchard Center.
(b) Other includes write-off and sale of assets and
reclassifications to and from other accounts.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
URBAN SHOPPING CENTERS, INC.
By: MATTHEW S. DOMINSKI
President, Chief Executive Officer and Director
Date: March 25, 1998
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, 1998
By: ADAM S. METZ
Executive Vice President, Chief Financial
Officer, Treasurer, Director of Acquisitions and
Chief Accounting Officer
Date: March 25, 1998
By: NEIL G. BLUHM
Director
Date: March 25, 1998
By: JUDD D. MALKIN
Director
Date: March 25, 1998
By: JAMES B. DIGNEY
Director
Date: March 25, 1998
By: SUSAN GETZENDANNER
Director
Date: March 25, 1998
By: JOHN E. NEAL
Director
Date: March 25, 1998
By: PHILLIP B. ROONEY
Director
Date: March 25, 1998
By: JOHN G. SCHREIBER
Director
Date: March 25, 1998
By: HENRY T. SEGERSTROM
Director
Date: March 25, 1998
<PAGE>
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
3.3 Articles Supplementary relating to the Registrant's Series A
Cumulative Convertible Redeemable Preferred Stock is hereby
incorporated by reference to Exhibit 10.6 to the
Registrant's Form 8-K/A filed on December 22, 1997
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 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
4.3 Mortgage, Security Agreement, Assignment of Leases and Rents
and Fixture Filing dated as of February 10, 1997 made by
LaSalle National Trust, N.A. and Water Tower Joint Venture
to and with Lehman Brothers Holdings Inc. is hereby
incorporated by reference to Exhibit 4.8 to the Registrant's
Form 10-Q (File No. 1-12278) filed on May 13, 1997
4.4 Promissory Note A dated as of February 10, 1997 by and
between Water Tower Joint Venture and Lehman Brothers
Holdings Inc. is hereby incorporated by reference to Exhibit
4.9 to the Registrant's Form 10-Q (File No. 1-12278) filed
on May 13, 1997
4.5 Promissory Note B dated as of February 10, 1997 by and
between Water Tower Joint Venture and Lehman Brothers
Holdings Inc. is hereby incorporated by reference to Exhibit
4.10 to the Registrant's Form 10-Q (File No. 1-12278) filed
on May 13, 1997
4.6 Mortgage, Security Agreement and Assignment of Rents dated
as of November 3, 1997 made by LaSalle National Bank and Oak
Brook Urban Venture, L.P. to and with USC Oakbrook, Inc.,
Goldman Sachs Mitsui Marine Derivative Products, L.P. and
Teachers' Retirement System of the State of Illinois is
hereby filed herewith
4.7 Fifth Amendment to Loan Agreement dated December 11, 1997 by
and among The Prudential Insurance Company of America, Old
Orchard Urban Limited Partnership and American National Bank
and Trust Company of Chicago is hereby filed herewith
<PAGE>
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX (Continued)
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)
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
<PAGE>
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX (Continued)
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)
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
<PAGE>
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX (Continued)
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 incorporated by reference to Exhibit 10.23 to
the Registrant's Form 10-K (File No. 1-12278) filed on March
31, 1997
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. Nikele and Jeffery A. Gluskin, as owner
trustees of the Old Orchard Trust, is hereby incorporated by
reference to Exhibit 10.24 to the Registrant's Form 10-K
(File No. 1-12278) filed on March 31, 1997
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
incorporated by reference to Exhibit 10.25 to the
Registrant's Form 10-K (File No. 1-12278) filed on March 31, 1997
10.26 Third Amendment to Urban Shopping Centers 1993 Option
Plan is hereby incorporated by reference to Exhibit 10.26 to
the Registrant's Form 10-Q (File No. 1-12278) filed on May 13, 1997
10.27 Hawthorn, L.P. Agreement of Purchase and Sale of Partnership
Interest dated November 14, 1997 is hereby incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K/A filed on December 22, 1997
10.28 Fox Valley Mall LLC Agreement of Purchase and Sale of
Membership Interest dated November 14, 1997 is hereby
incorporated by reference to Exhibit 10.2 to the
Registrant's Form 8-K/A filed on December 22, 1997
10.29 Registration Rights Agreement between the Company and
Security Capital Preferred Growth Incorporated dated
November 13, 1997 is hereby incorporated by reference to
Exhibit 10.5 to the Registrant's form 8-K/A filed on December 22, 1997
<PAGE>
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX (Concluded)
10.30 Third Amendment to Second Amended and Restated
Agreement of Limited Partnership of Urban Shopping Centers,
L.P. is hereby incorporated by reference to Exhibit 10.7 to
the Registrant's Form 8-K/A filed on December 22, 1997
13.1 1997 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>
MORTGAGE, SECURITY AGREEMENT
AND ASSIGNMENT OF RENTS
from
LASALLE NATIONAL BANK,
not personally but as successor trustee under that certain
Trust Agreement, dated November 20, 1975, and known as Trust No.
49475,
and
OAK BROOK URBAN VENTURE, L.P.,
Beneficiary of the above-named land trust
MORTGAGOR
to
USC OAKBROOK, INC.,
MORTGAGEE
and
GOLDMAN SACHS MITSUI MARINE DERIVATIVE PRODUCTS, L.P.,
as a secured party
joined in by
TEACHERS' RETIREMENT SYSTEM OF THE STATE OF ILLINOIS,
FEE OWNER
Dated as of November 3, 1997
Prepared by and after recording, please return to:
Weil, Gotshal & Manges, LLP
767 Fifth Avenue
New York, New York 10153
Attention: Elliot L. Hurwitz, Esq. (RH)
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Definitions 8
2. Warranty of Title 31
3. Payment and Performance of Obligations Secured 32
4. No Default 33
5. Negative Covenants 33
6. Insurance 35
7. Condemnation and Insurance Proceeds 39
8. Impositions, Liens and Other Items; Contests Generally 45
9. Funds for Taxes and Insurance 47
10. Assignment of Leases and Rents 49
11. Security Agreement 50
12. Transfers, Indebtedness and Subordinate Liens 51
13. Maintenance of Mortgage Property; Alterations; Inspection;
Utilities 57
14. Legal Compliance 61
15. Books and Records, Financial Statements, Reports and Other
Information 61
16. Compliance with Leases and Agreements 63
17. Mortgagee's Right to Perform 66
18. Mortgagor's Existence; Organization and Authority 66
19. Protection of Security; Costs and Expenses 67
20. Management of the Mortgaged Property 68
21. No Endorsement 69
22. Remedies 69
23. Application of Proceeds 72
24. Notice of Certain Occurrences 73
25. Waiver of Trial by Jury 74
<PAGE>
26. Trust Funds 74
27. Changes in Method of Taxation; No Credit for Payment of Taxes 74
28. Notices 74
29. Modification 76
30. Partial Invalidity 77
31. Mortgagor's Waiver of Rights 77
32. Remedies Not Exclusive 77
33. Successors and Assigns 78
34. Applicable Law 79
35. Additional Representations, Warranties and Covenants 79
36. No Waiver 85
37. Non-Recourse Obligations 85
38. Further Assurances 86
39. Estoppel Certificates 86
40. Additional Security 86
41. Indemnification by Mortgagor 86
42. Release 88
43. Usury 89
44. Creation of Additional Mortgage Notes 89
45. The Ground Lease 92
46. Exculpation of Land Trustee 92
47. Environmental Matters 92
48. Joinder by Ground Lessor 94
<PAGE>
EXHIBITS
- --------
EXHIBIT A Legal Description of Premises
EXHIBIT B Permitted Exceptions
EXHIBIT C Subordination, Nondisturbance and Attornment Agreement
EXHIBIT D Form of Class A Note
<PAGE>
MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS,
dated as of the 3rd day of November, 1997 (the "Mortgage"), made
by LASALLE NATIONAL BANK, not personally but as successor trustee
under that certain Trust Agreement, dated November 20, 1975, and
known as Trust No. 49475 ("Mortgagor"), having an address at 135
South LaSalle Street, Chicago, Illinois 60603, and GOLDMAN SACHS
MITSUI MARINE DERIVATIVE PRODUCTS, L.P., a Delaware limited
partnership ("Rate Swap Counterparty"), having an address at 85
Broad Street, New York, New York 10004, and USC OAKBROOK, INC., a
Delaware corporation ("Mortgagee"; and sometimes hereinafter
referred to as "Depositor"), having an address at 900 North
Michigan Avenue, Chicago, Illinois 60611-1582.
W I T N E S S E T H :
WHEREAS, Mortgagor is the lessee under a Ground Lease,
dated December 31, 1990, between Teachers' Retirement System of
the State of Illinois, as lessor (the "Ground Lessor"), and
Mortgagor, as lessee, as amended by amendments dated December 8,
1992, October 14, 1993 and October 21, 1993 (such Ground Lease,
as so amended, the "Ground Lease"), affecting certain land
located in the Village of Oak Brook, County of DuPage, State of
Illinois, and commonly known as "Oakbrook Center", as more
particularly described in Exhibit "A" attached hereto and made a
part hereof (the "Premises"), and all buildings and improvements
located thereon;
WHEREAS, simultaneously with the execution and delivery
of this Mortgage, Mortgagee desires to establish a trust that, on
the date hereof, will issue ONE HUNDRED FORTY MILLION AND 00/100
DOLLARS ($140,000,000) aggregate principal amount of Floating
Rate Certificates, which will be comprised of one class of
certificates designated as Class A (the "Class A Certificates")
under that certain Trust and Servicing Agreement (the "Trust
Agreement") dated of even date herewith by and between Mortgagee,
as Depositor, Bankers Trust Company, a New York banking
corporation, as Trustee (together with its co-trustees,
successors and assigns in accordance with the terms of the Trust
Agreement, the "Trustee"), and AMRESCO Services, L.P., as
Servicer (together with its successors and assigns in accordance
with the terms of the Trust Agreement, the "Servicer"), and to
lend the proceeds of issuance of the Class A Certificates to
Mortgagor, said loan (together with any loan evidenced by
Additional Notes, collectively, the "Loan"), in the amount, on
the date hereof, of $140,000,000, to be evidenced by that certain
Class A Mortgage Note made by Mortgagor to Mortgagee, the form of
which is attached hereto as Exhibit "D" and hereby made a part
hereof (the "Class A Note"), it being expressly understood that
all or any portion of the amounts due under the Class A Note may
from time to time be repaid, subject in each case to the terms of
the Class A Note and the terms and condition of this Mortgage and
the other Loan Documents executed by the Mortgagor as security
for the borrowing by Mortgagor evidenced by the Class A Note;
WHEREAS, simultaneously with the making and delivery of
the Class A Note and the execution and delivery of this Mortgage,
Mortgagee shall execute and deliver to the Trustee the Assignment
(as defined in the Trust Agreement), thereby assigning to the
<PAGE>
Trustee the Class A Note, this Mortgage and all the other Loan
Documents securing the payment of the Class A Note; and
WHEREAS, simultaneously with the making and delivery of
the Class A Note and the execution and delivery of this Mortgage,
Mortgagor acquired that certain Rate Swap Agreement (hereinafter
defined) with the Rate Swap Counterparty.
NOW, THEREFORE, in consideration of the Loan to the
Mortgagor evidenced by the Class A Note and any Additional Notes
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor hereby
agrees as follows:
TO SECURE:
(i) payment and performance of all
covenants, conditions, liabilities and obligations of
Mortgagor contained in, and payment of the indebtedness
evidenced by, the Class A Note and any Additional Notes
(hereinafter defined) (the Class A Note and any Additional
Notes hereinafter sometimes collectively referred to as the
"Mortgage Notes") plus all interest and other amounts
payable thereunder; and
(ii) payment and performance of all cove
nants, conditions, liabilities and obligations of Mortgagor
contained in this Mortgage and any extensions, renewals or
modifications hereof; and
(iii) payment and performance of all cove
nants, conditions, liabilities and obligations of Mortgagor
contained in the Assignment of Leases and Rents, dated as of
the date hereof (the "Assignment of Leases"), between
Mortgagor, as assignor, and Mortgagee, as assignee, and any
extensions, renewals or modifications thereof; and
(iv) payment and performance of all cove
nants, conditions, liabilities and obligations of Mortgagor
contained in the Rate Swap Agreement and each of the other
Loan Documents (as hereinafter defined); and
(v) without limiting the generality of the
foregoing, payment of all indebtedness, liabilities, and
amounts from time to time evidenced by the Mortgage Notes,
and all other indebtedness and liabilities, direct or
indirect, of Mortgagor to Mortgagee, due or to become due
hereunder, under the Assignment of Leases or under any other
Loan Document (including, without limitation, any future
advances, disbursements, payments and reimbursements made,
and charges, expenses and costs incurred by Mortgagee
pursuant to the Mortgage Notes, this Mortgage or such other
Loan Documents) payable in respect of the Mortgage Notes,
even if the aggregate amount of indebtedness outstanding at
any one time exceeds the respective face amounts of the
Mortgage Notes (all of the foregoing indebtedness, monetary
liabilities and obligations set forth in clauses (i)-(iv)
above and this clause (v), collectively, the "Indebtedness";
and payment of the Indebtedness together with the
<PAGE>
performance of all covenants, conditions and obligations set
forth in clauses (i)-(iv) above and this clause (v),
collectively, the "Obligations").
GRANTING CLAUSES
Mortgagor hereby creates a Lien (as hereinafter defined) on and
security interest in and mortgages, grants, assigns, transfers
and sets over to Mortgagee and the Rate Swap Counterparty the
following (collectively, the "Mortgaged Property"):
(A) all of Mortgagor's right, title and
interest in and to the leasehold estate in the Premises
created pursuant to the Ground Lease, and all of Mortgagor's
rights, privileges and benefits as lessee thereunder; and all
of Mortgagor's right, title and interest in and to any right
pursuant to Section 365(h) of the Federal Bankruptcy Code, or
any successor to such section, (i) to possession or any
statutory term of years derived from or incident to the Ground
Lease, or (ii) to treat the Ground Lease as terminated;
(B) all of Mortgagor's right, title and
interest in and to all buildings, foundations, structures,
improvements and fixtures now or hereafter located or
erected on the Premises (the "Improvements");
(C) all of Mortgagor's right, title and
interest in and to (i) all streets, avenues, roads, alleys,
passages, places, sidewalks, strips and gores of land and
ways, existing or proposed, public or private, adjacent to
the Premises, and all reversionary rights with respect to
the vacation of said streets, avenues, roads, alleys,
passages, places, sidewalks and ways in the land lying
thereunder, (ii) all air, lateral support, drainage, oil,
gas and mineral rights, options to purchase or lease,
waters, water courses and riparian rights now or hereafter
pertaining to or used in connection with the Premises and/or
Improvements, (iii) all and singular, the tenements,
hereditaments, rights of way, easements, appendages and
appurtenances and property now or hereafter belonging or in
any way appertaining to the Premises, and (iv) all estate,
right, title, claim or demand whatsoever, either at law or
in equity, in possession or expectancy, of, in and to the
Premises (collectively, the "Appurtenances"; and together
with the Premises and the Improvements, collectively, the
"Real Estate");
(D) all of Mortgagor's right, title and
interest in and to all of the machinery, appliances,
apparatus, equipment, fittings, fixtures, materials,
articles of personal property and goods of every kind and
nature whatsoever, and all additions to and renewals and
replacements thereof, and all substitutions therefor, now or
hereafter affixed to, attached to, placed upon or located
upon or in the Real Estate, or any part thereof, and used in
connection with the complete and comfortable use, ownership,
management, maintenance, enjoyment or operation of the Real
Estate in any present or future occupancy or use thereof and
<PAGE>
now owned or leased or hereafter owned or leased by
Mortgagor including, but without limiting the generality of
the foregoing, all heating, lighting, laundry, cooking,
incinerating, loading, unloading and power equipment,
boilers, dynamos, stokers, engines, pipes, pumps, tanks,
motors, conduits, switchboards, plumbing, lifting, cleaning,
fire prevention, fire extinguishing, refrigerating,
ventilating, and communications apparatus, air cooling and
air conditioning apparatus, building materials and
equipment, elevators, escalators, carpeting, shades,
draperies, awnings, screens, doors and windows, blinds,
stoves, ranges, refrigerators, dishwashers, cabinets, office
equipment, furniture and furnishings, partitions, ducts and
compressors (other than equipment and personal property of
tenants of the Premises or the Improvements, or any part
thereof) (hereinafter collectively called "Building
Equipment"),and Mortgagor agrees to execute and deliver,
from time to time, such further instruments (including,
without limitation, any financing statements under the
Uniform Commercial Code of the State of Illinois (the
"UCC")) as may be reasonably requested by Mortgagee to
confirm the lien of this Mortgage on any Building Equipment;
(E) all of Mortgagor's right, title and
interest as lessor, sublessor or licensor, or otherwise, as
the case may be, in, to and under all leases, subleases,
underlettings, concession agreements and licenses of the
Real Estate and Building Equipment, or any part thereof now
existing or hereafter entered into by Mortgagor including,
without limitation, any cash and securities deposited
thereunder (collectively, the "Leases"), and the right to
receive and collect the revenues, income, rents, issues,
profits, royalties and other benefits payable under any of
the Leases or otherwise arising from the use or enjoyment of
all or any portion of the Real Estate and Building Equipment
(collectively, the "Rents");
(F) all of Mortgagor's right, title and
interest in and to all proceeds, judgments, claims,
compensation, awards or payments heretofore and hereafter
made to Mortgagor for the taking, whether permanent or
temporary, by condemnation, eminent domain, or for any
conveyance made in lieu of such taking, of the whole or any
part of the Real Estate, including, without limitation, all
proceeds, judgments, claims, compensation awards or payments
for changes of grade of streets or any other injury to or
decrease in the value of the Real Estate, whether direct or
consequential, which said awards and payments are hereby
assigned to Mortgagee, who is hereby authorized to collect
and receive the proceeds thereof and to give proper receipts
and acquittances therefor, and to apply the same toward the
payment of the Indebtedness in such order as Mortgagee may
determine, without regard to the adequacy of Mortgagee's
security hereunder and notwithstanding the fact that the
amount thereof may not then be due and payable, and toward
the counsel fees, costs and disbursements authorized
hereunder to be incurred by Mortgagee in connection with the
collection of such awards or payments; and Mortgagor hereby
agrees, upon request, to make, execute and deliver any and
<PAGE>
all further assignments and other instruments sufficient for
the purpose of confirming this assignment of said proceeds,
judgments, claims, compensation awards or payments to
Mortgagee, free, clear and discharged of any encumbrances of
any kind or nature whatsoever other than the interest of
Mortgagor therein or the claims of Mortgagor thereto;
(G) all of Mortgagor's right, title and
interest in and to all unearned premiums paid under
insurance policies now or hereafter obtained by Mortgagor
insuring the Real Estate and the Building Equipment and any
other insurance policies maintained by or on behalf of
Mortgagor pursuant to Section 6 hereof, including, without
limitation, liability insurance policies and Mortgagor's
interest in and to all proceeds of the conversion and the
interest payable thereon, voluntary or involuntary, of the
Mortgaged Property, or any part thereof, into cash or
liquidated claims, including, without limitation, proceeds
of casualty insurance, liability insurance, title insurance
or any other insurance maintained on or with respect to the
Real Estate and Building Equipment;
(H) all right, title and interest of
Mortgagor in and to all extensions, improvements,
betterments, renewals, substitutes and replacements of, and
all additions and appurtenances to, the Real Estate and the
Building Equipment, hereafter acquired by or released to
Mortgagor or constructed, assembled or placed by Mortgagor
on the Real Estate, and all conversions of the security
constituted thereby; immediately upon such acquisition,
release, construction, assembling, placement or conversion,
as the case may be, and in each such case, without any
further mortgage, conveyance, assignment or other act by
Mortgagor, any of such extensions, improvements,
betterments, renewals, substitutes and replacements shall
become subject to the lien of this Mortgage as fully and com
pletely, and with the same effect, as though now owned by
Mortgagor and specifically described herein;
(I) all of Mortgagor's right, title and
interest in, to and under, to the extent the same may be
encumbered or assigned by Mortgagor pursuant to the terms
thereof, (i) the Operating Agreements (as hereinafter
defined) and all contracts and agreements relating to the
Real Estate, and other documents, books and records related
to the ownership and operation of the Real Estate; (ii) all
consents, licenses, warranties, guaranties, building permits
and government approvals relating to or required for the
construction, completion, occupancy and operation of the
Real Estate; (iii) all plans and specifications for the
construction of the Improvements, including, without
limitation, installations of curbs, sidewalks, gutters,
landscaping, utility connections and all fixtures and
equipment necessary for the construction, operation and
occupancy of the Improvements; and (iv) all such other
contracts and agreements from time to time executed by
Mortgagor relating to the ownership, leasing, construction,
maintenance, operation, occupancy, sale or financing of the
<PAGE>
Real Estate, together with all rights of Mortgagor to compel
performance of the terms of such contracts and agreements;
(J) to the extent the same may be encumbered
or assigned by Mortgagor pursuant to the terms thereof, all
of Mortgagor's right, title and interest in, to and under
escrows, documents, instruments and general intangibles, as
the foregoing terms are defined in the UCC, and all contract
rights, franchises, books, records, plans, specifications,
permits, licenses, approvals, actions and causes of action
which now or hereafter relate to, are derived from or used
in connection with the Real Estate or Building Equipment or
the use, operation, maintenance, occupancy or enjoyment
thereof or the conduct of any business or activities thereon
(collectively, the "Intangibles");
(K) all of Mortgagor's right, title and
interest in all proceeds, both cash and noncash, of the
foregoing which may be sold or otherwise be disposed of
pursuant to the terms hereof; and
(L) all right, title and interest of
Mortgagor in and to (i) any Rate Swap Agreement, and (ii)
all payments due or to become due in respect of or arising
out of any such Rate Swap Agreement, whether as contractual
obligations, damages or otherwise, and (iii) all claims,
rights, powers, privileges, authority, options, security
interests, liens and remedies, if any, under or arising out
of any such Rate Swap Agreement, in each case including all
accessions and additions to, substitutions for and
replacements, products and proceeds of any of the foregoing.
TO HAVE AND TO HOLD the Mortgaged Property unto the
Mortgagee and the Rate Swap Counterparty, its successors and
assigns forever, upon the terms and conditions set forth herein.
Concurrently with its execution and delivery to Mortgagee, this
Mortgage is being assigned, pursuant to the Assignment, to the
Trustee, as trustee for the benefit of the Holders of the
Certificates issued under the Trust Agreement. The address of
the Trustee is as shown on the first page of the Assignment.
Upon such assignment, the Trustee (and/or its designee) shall for
all purposes be the sole Mortgagee hereunder (and all references
herein to Mortgagee shall be deemed to refer to the Trustee while
such assignment is in effect) and shall (i) have the sole and
exclusive benefit of and the right and power to exercise, or to direct the
exercise of, all the rights and remedies of Mortgagee hereunder,
including the right to inspect the Premises, to receive notices
and financial information, to grant or withhold consents or
approvals, to benefit from indemnities, to receive, hold and
apply Proceeds and any Cash and Cash Collateral or Letter of
Credit or any other amount or property provided by Mortgagor
hereunder, and, upon the occurrence and during the continuance of
an Event of Default, to take any action required or permitted of
Mortgagee, all in the Trustee's own name, and to exercise all
other rights and remedies of Mortgagee hereunder, (ii) be bound
by all the terms hereof which apply to Mortgagee, and (iii)
except to the extent otherwise specified herein or in the Trust
Agreement, act in a commercially reasonable manner in making any
determination called for of it (without requiring thereby that
<PAGE>
any Holder is obligated to act in a commercially reasonable
manner) under this Mortgage or in granting or withholding any
approval or consent called for under or requested pursuant to
this Mortgage. Mortgagor hereby acknowledges the foregoing and
agrees to be bound to the Trustee, upon such assignment,
recognizing the Trustee as Mortgagee hereunder as if the Trustee
were named in this Mortgage as Mortgagee. Upon such assignment,
Mortgagor's obligations to Mortgagee specified in this Mortgage
shall be satisfied by Mortgagor's tendering full and timely
payment or performance thereof to the Trustee. With respect to
delivery by Mortgagee of documents and other written materials,
Mortgagee shall have only the obligations expressly set forth
herein or in the other Loan Documents or in the Trust Agreement.
All rights and remedies of the Trustee as Mortgagee hereunder,
including all indemnities running to Mortgagee, shall also
operate for the benefit of the Holders (as defined in the Trust
Agreement) as provided in the Trust Agreement and for the benefit
of the Rate Swap Counterparty, and shall be exercised by the
Trustee in accordance with and subject to the terms and
conditions set forth in the Trust Agreement. It is expressly
understood that all or any portion of the amounts due under the
Mortgage Note may from time to time be repaid on the terms
provided therein, subject in each case to the terms of the Trust
Agreement.
1. DEFINITIONS. The words "herein," "hereof" and
"hereunder" and other words of like import refer to this Mortgage
as a whole and not to any particular Section, subsection or other
subdivision. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Trust Agreement.
In addition, wherever used in this Mortgage, the following terms,
and the singular and plural thereof, shall have the following
meanings:
ADDITIONAL AMOUNTS: Amounts distributable to Holders
(hereinafter defined) who are United States Aliens (hereinafter
defined) that are necessary in order that every net payment of
the principal of and interest on the Certificates, after
deduction or withholding for or on account of any present or
future tax, assessment or governmental charge imposed upon or as
a result of such payment by the United States or any political
subdivision or taxing authority thereof or therein, will not be
less than the amount otherwise distributable to such Holders,
provided that (i) Additional Amounts will cease to accrue upon
the foreclosure of this Mortgage, and (ii) the obligation to pay
Additional Amounts will not apply to any one or more of the
following:
(1) any tax, assessment or other governmental charge
which would not have been so imposed but for (i) the existence of
any present or former connection between a Holder (or between a
fiduciary, settlor, beneficiary or member of such Holder, if such
Holder is an estate, a trust or a partnership) and the United
States, including, without limitation, such Holder (or such
fiduciary, settlor, beneficiary or member) being or having been a
citizen or resident or treated as a resident thereof, or being or
having been engaged in trade or business or present therein, or
having or having had a permanent establishment therein, or (ii)
such Holder's present or former status as a personal holding
<PAGE>
company, a foreign personal holding company, or a controlled
foreign corporation for United States tax purposes or a corporation
which accumulates earnings to avoid United States federal income tax;
(2) any tax, assessment or other governmental charge
imposed on interest received by reason of such Holder's past or
present status as the actual or constructive owner of 10% or more
of the capital or profits interest in the Mortgagor;
(3) any tax, assessment or other governmental charge
which would not have been imposed but for the failure to comply
with any certification, identification or other reporting
requirements concerning the nationality, residence, identity or
connection with the United States of the Holder or Beneficial
Owner (hereinafter defined) of such Certificate, if compliance is
required by statute or by regulation of the United States
Treasury Department as a precondition to exemption from such tax,
assessment or other governmental charge;
(4) any estate, inheritance, gift, sales, transfer,
personal property or any similar tax, assessment or other
governmental charge;
(5) any tax, assessment or other governmental charge
which is payable otherwise than by deduction or withholding from
payments of principal of or interest on such Certificate; or
(6) any tax, assessment or other governmental charge
which would not have been so imposed but for the presentation by
the Holder of such Certificate, for payment on a date more than
15 days after the date on which such payment became due and
payable or the date on which payment thereof is duly provided
for, whichever occurs later;
nor will Additional Amounts be paid with respect to any payment
of principal of or interest on any such Certificate to any United
States Alien who is a fiduciary or partnership or other than the
sole Beneficial Owner of any such payment to the extent that a
beneficiary or settlor with respect to such fiduciary, a member
of such a partnership or the Beneficial Owner would not have been
entitled to the Additional Amounts had such beneficiary, settlor,
member or Beneficial Owner been the Holder of such Certificate.
The term "UNITED STATES ALIEN" means any person who,
for United States federal income tax purposes, is a foreign
corporation, a nonresident alien individual, a nonresident alien
fiduciary of a foreign estate or trust, or a foreign partnership
one or more of the members of which is, for United States federal
income tax purposes, a foreign corporation, a nonresident alien
individual or a nonresident alien fiduciary of a foreign estate
or trust.
ADDITIONAL CERTIFICATES: As defined in the Trust Agreement.
ADDITIONAL COUNTERPARTY: As defined in Section 44 hereof.
ADDITIONAL NOTES: As defined in Section 44 hereof.
ADDITIONAL RATE AGREEMENT: As defined in Section 44 hereof.
<PAGE>
AFFILIATE: With respect to any specified Person means
any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified
Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities or other beneficial interest, by
contract or otherwise; and the terms "controlling" and
"controlled" have the meanings correlative to the foregoing.
ALTERATION: As defined in Section 12(c) hereof.
APPROVED BANKS: Banks which have (i) (a) a minimum net
worth of $500,000,000, or (b) total assets of $5,000,000,000 and
(ii) a long-term unsecured debt rating of at least AA by S&P and
Aa2 by Moody's.
ASSIGNMENT: means the Assignment of Mortgage, Mortgage
Notes and Security Documents, dated as of the date hereof, from
Mortgagee, as assignor, to the Trustee, as assignee, together
with any amendment thereto pursuant to the provisions thereof.
APPURTENANCES: As defined in granting clause (C) hereof.
ASSIGNMENT OF LEASES: As defined in the recitals hereof.
BENEFICIAL OWNER: As defined in the Trust Agreement.
BENEFICIARY: Oak Brook Urban Venture, L.P., an
Illinois limited partnership, and its permitted successors and
assigns from time to time of its beneficial interest under that
certain trust agreement referred to in the caption of this
Mortgage.
BUILDING EQUIPMENT: As defined in granting clause (D) hereof.
BUSINESS DAY: Except in cases where the context
indicates otherwise, any day (except Saturday and Sunday) on
which commercial banking institutions and foreign exchange markets
are open for business in London, England and New York, New York.
CASH: Coin or currency of the government of the United
States of America.
CASH AND CASH EQUIVALENTS: Any or a combination of the
following: (i) Cash, (ii) U.S. Government Obligations and (iii)
Debt Securities.
CERTIFICATES: means, collectively, the Class A
Certificates and any Additional Certificates.
CLASS A CERTIFICATES: As defined in the recitals hereof.
CLASS A NOTE: As defined in the recitals hereof.
CLOSING DATE: The date of this Mortgage.
DEBT SECURITIES: Debt obligations, other than U.S.
Government Securities, of any Person, whether evidenced by bonds,
<PAGE>
notes, debentures, certificates, book entry deposits,
certificates of deposit, commercial paper, bankers acceptances,
reinvestment letters, investment contracts, funding agreements or
other instruments, which (x) shall not be subject to prepayment
or redemption prior to maturity and (y) shall be rated not less
than the then current rating of the Certificates by each of the
Rating Agencies, or, if maturing within one year or less, having
a short-term rating by the Rating Agencies not less than A-1+/P-1
(or the then equivalent ratings); and bonds or other obligations
rated not less than the then current rating of the Notes by each of
the Rating Agencies, issued by or by authority of any state of the
United States, any territory or possession of the United States,
including the Commonwealth of Puerto Rico and agencies thereof, or
any political subdivision of any of the foregoing; or any combination
of the foregoing.
DEFAULT: The occurrence or existence of any event or
condition which with or without the giving of notice or the passage
of time, or both, would constitute an Event of Default hereunder.
DIRECT BENEFICIAL OWNER: Such Persons who presently or
may in the future own any direct ownership interest in Mortgagor
or any successor of Mortgagor, in accordance with and pursuant to
the terms hereof.
ENVIRONMENTAL LAWS: All present or future federal,
state and local laws, statutes, rules, ordinances and regulations
adopted by any governmental agency or instrumentality having the
power to adopt same relating to pollution or protection of human
health or the environment (including, without limitation, ambient
air, surface water, ground water, land surface or subsurface
strata) from Hazardous Substances, including, without limitation
laws, statutes, rules, ordinances and regulations relating to
emissions, discharges, releases of Hazardous Substances, or
otherwise relating to the manufacture, processing, discharge,
distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances including, without limitation,
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. 9601 et seq.; the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. 6901 et seq.;
the Toxic Substance Control Act, 15 U.S.C. 2601 et seq.; the
Water Pollution Control Act (also known as the Clean Water Act),
33 U.S.C. 1251 et seq.; the Clean Air Act, 42 U.S.C. 7401 et
seq.; and the Hazardous Materials Transportation Act, 49 U.S.C.
1801 et seq., as the same may be hereafter amended or modified.
ERISA: The Employee Retirement Income Security Act of
1974, as amended from time to time.
EVENTS OF DEFAULT: Any of the following:
(a) (i) Failure to make any payment of interest on any
Mortgage Note when due; (ii) failure to pay the principal amount
of any Mortgage Note on the maturity date thereof; (iii) failure
to pay when due any Additional Amounts; or (iv) failure to pay
when due any amounts owed to the Rate Swap Counterparty under the
Rate Swap Agreement; or
<PAGE>
(b) Any insurance required to be maintained with
respect to the Mortgaged Property pursuant to Section 6 shall not
be in effect or shall otherwise be cancelled or terminated or
shall expire (and replacement insurance or a binder for such
replacement insurance complying with the provisions of Section 6
has not been effected prior to such event); or
(c) Any violation of the terms of Section 8(a)
requiring the payment of all Impositions (subject to the terms of
Section 8(c)), and any violation of the terms of Section 8(b)
requiring the discharge of all Liens within forty five (45)
Business Days after receipt of written notice of the filing
thereof (subject to the terms of Section 8(c)) or the incurrence
of any indebtedness in violation of Section 12(c) of this
Mortgage or the occurrence of any Transfer in violation of
Sections 12(a)-(b) of this Mortgage; or
(d) Any other default in the performance or payment,
or breach, of any material covenant, representation or agreement of
Mortgagor contained herein or in any other Loan Document (other than
a covenant, representation or agreement, a default in the performance or
payment of or the breach of which is specifically dealt with
elsewhere in this definition), which default is not cured within
thirty (30) Business Days after written notice to Mortgagor from
Mortgagee or, in the case of performance of an Obligation other
than payment of Indebtedness of Mortgagor, if such default is not
susceptible of being cured with diligence within said thirty (30)
Business Day period, such additional period of time as may be
reasonably necessary to cure same, provided that Mortgagor
commences such cure within said thirty (30) Business Day period
and diligently prosecutes same, subject to Excusable Delays,
until its completion, but in no event shall such extended period
exceed one hundred eighty (180) days, subject to Excusable
Delays, unless, only in the case of cures that require
construction or remedial work, such cure cannot with diligence be
completed within such 180-day period, in which case such period
shall be extended for an additional sixty (60) days, subject to
Excusable Delays; or
(e) The entry by a court of (A) a decree or order for
relief in respect of Mortgagor in an involuntary case or
proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law or (B) a decree
or order adjudging Mortgagor a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of
Mortgagor under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of Mortgagor or of any substantial part
of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in effect
for a period of ninety (90) consecutive days; or
(f) The commencement by Mortgagor of a voluntary case
or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or
<PAGE>
the consent by it to the entry of a decree or order for relief in
respect of it in an involuntary case or proceeding under any
applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the
filing by Mortgagor of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law, or
the consent by Mortgagor to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official
of Mortgagor or of any substantial part of any of its property,
or the making by Mortgagor of an assignment for the benefit of
creditors, or the admission by Mortgagor in writing of its
inability to pay its debts generally as they become due, or the
taking of official trust action of Mortgagor (or if, at any time,
Mortgagor shall no longer be a trust, corporate or partnership
action, as the case may be) in furtherance of any such action.
Notwithstanding the foregoing, any default under (e) or (f) of
the foregoing definition which relates to a trustee of an
Illinois land trust (or other form of grantor trust) which is the
Mortgagor may be cured by the beneficiary of such trust
substituting another trustee for the trustee creating the
default, within ninety (90) days after such default arises.
EXCUSABLE DELAY: A delay due to acts of God,
governmental restrictions, enemy actions, civil commotion, fire,
casualty, strikes, shortages of supplies or labor, work stoppages
or other causes beyond the reasonable control of Mortgagor, but
lack of funds shall not be deemed a cause beyond the reasonable
control of Mortgagor.
EXPANSION: As defined in Section 13(f).
GAAP: As defined in Section 15(a) hereof.
GOVERNMENTAL AUTHORITY: Any federal, state or local
government or any other political subdivision thereof exercising
executive, legislative, judicial, regulatory or administrative
functions.
GROUND LEASE: As defined in the recitals hereof.
GROUND LESSOR: As defined in the recitals hereof.
HAZARDOUS SUBSTANCE: Any material waste or substance which is:
(i) included within the definition of
"hazardous substances," "hazardous materials," "toxic
substances," or "solid waste" in or pursuant to any
Environmental Law, or subject to regulation under any
Environmental Law;
(ii) listed in the United States Depart
ment of Transportation Optional Hazardous Materials Table,
49 C.F.R. 172.101 enacted as of the date hereof or hereafter
amended, or in the United States Environmental Protection
Agency List of Hazardous Substances and Reportable
<PAGE>
Quantities, 40 C.F.R. Part 302, as enacted as of the date
hereof or as hereafter amended; or
(iii) explosive, radioactive, asbestos,
a polychlorinated biphenyl, oil or a petroleum product.
The term "Hazardous Substance" will not be deemed to
include materials which are stored, used, sold or held in
inventory in the ordinary course of the operation of the
businesses on the Mortgaged Property, in compliance with all
Environmental Laws, provided, however, such materials shall be
deemed to be included for purposes of Section 41 hereof.
HOLDER: As defined in the Trust Agreement.
IMPOSITIONS: All taxes (including, without limitation
all ad valorem, sales (including those imposed on lease rentals),
use, single business, gross receipts, value added, intangible
transaction, privilege or license or similar taxes), assessments
(including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed
prior to the date hereof and whether or not commenced or
completed within the term of this Mortgage), water, sewer or
other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization
and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of the
Mortgaged Property and/or any Rents (including all interest and
penalties thereon), which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in
respect of or be a Lien upon (a) Mortgagor (including, without
limitation, all income, franchise, single business or other taxes
imposed on Mortgagor for the privilege of doing business in the
Jurisdiction in which the Mortgaged Property is located), (b) the
Mortgaged Property, or any other collateral delivered or pledged
to Mortgagee in connection with the Loan, or any part thereof, or
any Rents therefrom or any estate, right, title or interest
therein, or (c) any occupancy, operation, use or possession of,
or sales from, or activity conducted on, or in connection with
the Mortgaged Property or the leasing or use of all or any part
thereof. Nothing contained in this Mortgage shall be construed to
create any obligation on the part of Mortgagor in favor of any
tenant occupying any portion of the Premises to pay any tax,
assessment, levy or charge imposed on any such tenant.
IMPROVEMENTS: As defined in granting clause (B)
hereof, except that it is understood that the term "Improvements"
shall not include buildings, structures and other improvements
situated on portions of the Real Estate leased to Tenants but
owned by such Tenants under ground leases or other customary
arrangements, except at such time, if any, and only for such
time, as Mortgagor's shall become entitled to possession of such
improvements by reason of the termination of such ground lease or
other arrangement.
INDEBTEDNESS: As defined in the recitals hereof.
INDEMNIFIED PARTIES: As defined in Section 41 hereof.
<PAGE>
INDEPENDENT ACCOUNTANT: KPMG Peat Marwick, or another
national firm of independent certified public accountants
selected by Mortgagor.
INDEPENDENT ARCHITECT: With respect to a particular
project, an independent architect or engineer, as appropriate for
such project, selected by Mortgagor, licensed or registered to
practice in the state where the Premises is located and having at
least five (5) years' experience in respect of the subject matter
of such project.
INSURANCE REQUIREMENTS: All terms of any insurance
policy required hereunder covering or applicable to the Real
Estate or Building Equipment or any part thereof, all
requirements of the issuer of any such policy, and all orders,
rules, regulations and other requirements of the national board
of fire underwriters (or any other body exercising similar
functions) applicable to or affecting the Real Estate or Building
Equipment or any part thereof or any use of the Real Estate or
Building Equipment or any part thereof.
INTANGIBLES: As defined in granting clause (J) hereof.
INTEREST PAYMENT DATE: As defined in the Class A Note.
INTEREST PERIOD: As defined in the Class A Note.
INVESTMENT GRADE: A long term unsecured debt rating
not lower than BBB by S&P and Baa2 by Moody's (or when used with
respect to providers of insurance under Section 6 hereof, a
claims-paying-ability rating not lower than BBB by S&P and Baa3
by Moody's).
LEASED PERSONALTY: Any Building Equipment acquired by
Mortgagor pursuant to any conditional sale contract or other
title retention agreement or any financing lease; provided that
the aggregated value of all leased or financed Building Equipment
does not exceed $500,000.
LEASES: As defined in granting clause (E) hereof.
LEASING COSTS: As defined in Section 21(a) hereof.
LEGAL REQUIREMENTS: As defined in Section 14.
LETTER OF CREDIT: A clean, irrevocable, unconditional
transferable letter of credit in favor of the Mortgagee (which
will be the Trustee upon execution and delivery of the
Assignment) and entitling the Mortgagee to draw thereon in New
York, New York or in such other city as the Corporate Trust
Office of the Mortgagee may from time to time be located, issued
by a domestic bank or the U.S. agency or branch of a foreign
bank, the investment rating of which at the time such letter of
credit is delivered is not less than the Required Rating
applicable thereto, or if there are no domestic banks or U.S.
agencies or branches of a foreign bank having such investment
rating then issuing letters of credit, then such letter of credit
may be issued by a domestic bank, the long term unsecured debt
<PAGE>
rating of which is the highest such rating then given to a
domestic commercial bank.
LIEN: Any mortgage, deed of trust, lien, pledge,
hypothecation, assignment, security interest, or any other
encumbrance of, on or affecting the Mortgaged Property or any
portion thereof or any interest therein, including, without
limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same
economic effect as any of the foregoing, the filing of any
financing statement, and mechanic's, materialmen's and other
similar liens and encumbrances.
LOAN: As defined in the recitals hereof.
LOAN DOCUMENTS: This Mortgage, the Assignment of
Leases, the Rate Swap Agreement, the Mortgage Notes, the Trust
Agreement, the Assignment and any and all other agreements,
instruments or documents evidencing, securing or delivered in
connection with the Loan and the transactions contemplated
hereby.
LTV RATIO: means an amount, expressed as a percentage,
derived from dividing (a) the aggregate principal amount of the
Loan outstanding as of the date of such computation by (b) the
Appraised Value (as defined in the Trust Agreement) of the
Mortgaged Property.
MAJORITY AFFILIATE: A Person or Persons directly or
indirectly, through one or more intermediaries, controlling,
controlled by or under common control with the Person or Persons
in question. The term "control", as used in the immediately
preceding sentence, shall mean, with respect to a Person that is
a corporation or a trust, the right to exercise, directly or
indirectly, more than 50% of the voting rights attributable to
the shares of the controlled corporation or trust and, with
respect to a Person that is not a corporation or a trust, the
possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the
controlled Person.
MANAGEMENT AGREEMENT: Each management agreement which
is from time to time effective respecting the management or
leasing of the Mortgaged Property between Mortgagor and Manager.
MANAGER: Urban Retail Properties Co., any Affiliate
thereof, or another Qualifying Manager.
MATERIAL ALTERATION: As defined in Section 13(d).
MATERIAL LEASE: As defined in Section 16(a).
MATURITY DATE: October 29, 2004.
MAXIMUM FORESEEABLE CASUALTY LOSS: As defined in Section 6(c).
MINIMUM DEPOSIT AMOUNT: As defined in Section 7(b) hereof.
MOODY'S: Moody's Investors Service, Inc. or any successor thereto.
<PAGE>
MORTGAGE: This Mortgage, Security Agreement and Assign
ment of Rents, as it may be amended, modified, extended or
supplemented from time to time.
MORTGAGEE: The Person identified as Mortgagee in the
caption to this Mortgage, subject to the terms of the paragraph
immediately preceding Section 1 hereof.
MORTGAGE ESCROW AMOUNTS: As defined in Section 9(a).
MORTGAGE ESCROW SECURITY: As defined in Section 9(b).
MORTGAGE NOTES: As defined in the recitals hereof.
MORTGAGED PROPERTY: As defined in the granting clauses hereof.
MORTGAGOR: The Person identified as Mortgagor in the
caption to this Mortgage for the period during which the same
shall own the Mortgaged Property, and following any conveyance of
any of the Mortgaged Property permitted by this Mortgage, shall
mean the transferee for the period during which each transferee
shall own the Mortgaged Property, subject in all cases to Section
37 of this Mortgage; provided, however, unless the context shall
otherwise require, the term "Mortgagor" shall also include
Beneficiary.
MULTIEMPLOYER PLAN: A "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which Mortgagor is making or
has an obligation to make contributions.
NET OPERATING INCOME: With respect to any period, the
excess of Operating Income over Operating Expenses for such period.
NON-CONSOLIDATION OPINION: means an opinion of
counsel, which counsel and opinion shall be acceptable to the
Rating Agencies, to the effect that, after giving effect to a
Transfer, a court in the United States would likely not order the
substantive consolidation of Mortgagor, Depositor (as defined
under the Trust Agreement) and the appropriate persons in the
event of bankruptcy or insolvency of such appropriate persons.
NONDISTURBANCE AGREEMENT: As defined in Section 16(d).
OBLIGATIONS: As defined in the recitals hereof.
OFFICER'S CERTIFICATE: A certificate delivered to
Mortgagee and signed by the President or a Vice President of
Mortgagor (or if, at any time, Mortgagor shall be a partnership,
by an officer of a general partner of Mortgagor), or signed by
the president or a vice president of the investment advisor to
Mortgagor and/or its shareholders (or if, at any time, the
investment advisor shall be a partnership, by an officer of a
general partner of the investment advisor).
OPERATING AGREEMENTS: The Ground Lease, the Management
Agreement, and any other reciprocal easement agreements,
operating agreements and similar agreements affecting the
ownership, use and operation of the Real Estate included in the
<PAGE>
Permitted Exceptions, as such agreements have been or may
hereafter be amended, modified or supplemented.
OPERATING EXPENSES: With respect to a specified
period, without duplication, all expenses paid or to be paid (as
applicable) by Mortgagor (or by the Manager for the account of
Mortgagor) during such period in connection with the ownership,
maintenance and operation of the Mortgaged Property (determined
as described in the final paragraph of this definition),
including, without limitation:
(i) costs and expenses related to tenant
improvements and leasing commissions, any other expenditures
on behalf of Tenants, any Building Equipment and any capital
expenditures; but in each such case only to the extent not
recovered from Tenants, from insurance proceeds or
condemnation proceeds, from the proceeds of sales of
Equipment pursuant to Section 12 or from any other Persons
(unless, in each case corresponding amounts recovered have
been included in Operating Income) and in each such case
only to the extent that the same are a generally recurring
type of expense; provided, however, that if the Mortgagor
finances all or part of the cost of any such items, the
amount paid or payable by the Mortgagor to any creditor on
account of any period in respect of such financing
(including principal, interest and any other payments) shall
be included as an Operating Expense for such period, and the
portion of the aggregate cost of such item which is so
financed shall not be deemed to be an Operating Expense
during the period in which it is incurred except to the
extent that payments are actually made during such period,
(ii) all payments required to be made
pursuant to the Operating Agreements, excluding for these
purposes any amounts payable to Ground Lessor under the
Ground Lease, other than the "Minimum Annual Rental" (as
defined in the Ground Lease);
(iii) legal, accounting, appraisal and other
professional fees and disbursements, including, without
limitation, fees and expenses required to be paid to the
Trustee and the Servicer and other amounts payable to the
Trustee and the Servicer in accordance with the Trust
Agreement (other than the Servicing Fee and the Trustee Fee,
as defined under the Trust Agreement), and to S&P and
Moody's in connection with the Mortgage Notes and/or the
Certificates;
(iv) fees and expenses of the Mortgagee paid
by the Mortgagor hereunder;
(v) expenses in connection with cleaning,
repair, maintenance, management, leasing, decoration or
painting thereof, or the provision of services to any
Tenant, net of any insurance proceeds or condemnation
proceeds in respect of any of the foregoing;
<PAGE>
(vi) wages, benefits, payroll taxes,
uniforms, insurance costs and all other related expenses for
on-site building personnel, up to and including the level of
the on-site property manager, engaged in cleaning, repair,
maintenance, management, leasing, decoration or painting
thereof or the provision of services to any Tenant;
(vii) reasonable allocations of wages,
benefits, payroll taxes, insurance costs and all other
related expenses for bookkeeping, accounting and other
building management functions and home office expenses and
computer usage, but only if the amount of such allocations
in the aggregate exceeds the reasonable and customary
compensation described in clause (viii) for the same or
similar services;
(viii) the compensation being paid for
bookkeeping, accounting and building management services for
the Mortgaged Property, and all other items of compensation
and reimbursement payable by the Mortgagor to the Manager;
(ix) the cost of all electricity, oil, gas,
water, steam, heat, ventilation, air conditioning and any
other energy, telecommunications, utility or similar items,
including overtime usage, and the cost of building and
cleaning supplies;
(x) Impositions;
(xi) premiums for liability, casualty,
fidelity, business interruption, loss of "rental value" and
other insurance (which, in the case of any policy covering
multiple properties, shall be equitably allocated to the
Mortgaged Property pro rata in proportion to the replacement
value of each of the properties covered by such policy for
casualty insurance, the respective size and experience
rating of each of the properties covered by such policy for
liability insurance, and the insured value of each of the
properties covered by such policy for the other coverages);
(xii) amounts paid in consideration of any
modification, amendment, supplement, waiver, renewal, or
termination of any Lease; and
(xiii) all amounts paid or expenses incurred
under any Lease of an anchor department store or a
peripheral site at the Premises.
Notwithstanding the foregoing, Operating Expenses shall not
include (1) depreciation or amortization, (2) the principal of
and interest and premium, if any, on the Mortgage Notes or any
additional indebtedness of the Mortgagor (except as otherwise
provided in clause (i) above), (3) income taxes or other
Impositions in the nature of income taxes, (4) any expenses
(including legal, accounting and other professional fees,
expenses and disbursements) incurred in connection with the
issuance of the Mortgage Notes or the sale, exchange, transfer,
financing or refinancing of all or any portion of the Mortgaged
Property (other than Leased Personalty) or in connection with the
<PAGE>
recovery of insurance or condemnation proceeds which are applied
to prepay the Mortgage Notes, (5) any expenses which in
accordance with GAAP should be capitalized (other than any such
expenses included in the preceding sentence), (6) any item of
expense which would otherwise be considered within Operating
Expenses pursuant to the provisions above but is paid directly by
any Tenant, and (7) any amounts deposited into a reserve or
escrow account (until expended or paid).
OPERATING INCOME: With respect to a specified period,
without duplication, all income paid or to be paid (as
applicable) to the Mortgagor (or to the Manager for the account
of the Mortgagor) by any Person during such period in connection
with the operation of the Mortgaged Property (determined as
described in the final paragraph of this definition), including,
without limitation, the following:
(i) all amounts payable as rent (including
percentage rent), charges for electricity, oil, gas, water,
steam, heat, ventilation, air conditioning and any other
energy, telecommunications, telephone, utility or similar
items, including overtime usage, HVAC equipment charges,
sprinkler charges, escalation charges, license fees,
maintenance fees, charges for improvements, Impositions and
other amounts payable to the Mortgagor (or to the Manager
for the account of the Mortgagor) under any Lease or other
agreement relating to the Mortgaged Property pursuant to
which space (including storage space rentals and rentals for
community hall usage), utilities, facilities, equipment,
parking facilities or other services are furnished by the
Mortgagor, and including late charges, default interest and
temporary investment income but excluding any security
deposits received;
(ii) condemnation proceeds under a temporary
Taking to the extent that such proceeds are compensation for
lost rent;
(iii) business interruption and loss of
"rental value" insurance proceeds;
(iv) proceeds of any sale of Building
Equipment pursuant to Section 12 hereof but only to the
extent that the same are of a generally recurring type; and
(v) all amounts payable under any Lease of
an anchor department store or a peripheral site at the
Premises reasonably expected by the Mortgagor to recur in
the ordinary course of business;
provided, however, that the items of income described in
subparagraph (i) shall be reduced (x) by the average bad
debts expense for the first two calendar years preceding the
year in which the calculation of Net Operating Income is
made, as established annually by the Mortgagor in accordance
with its bad debts policy and generally acceptable
accounting procedures, and (y) to the extent such average
exceeds the amount described in (x), the amount of any
receivables for Tenants at the Premises which are more than
<PAGE>
ninety days old and which have been created during the last
calendar year in which such calculation of Net Operating
Income is made.
Notwithstanding the foregoing clauses (i)-(v), Operating Income
shall not include (A) any condemnation or insurance proceeds
(other than of the types described in clauses (ii) and (iii)
above), (B) any proceeds resulting from the sale, exchange,
transfer, financing or refinancing of all or any part of the
Mortgaged Property (other than of the types described in clauses
(ii) and (iv) above), (C) any rent accrued by the Mortgagor but
not received because of any free rent provisions or other rental
concessions in any Lease, (D) any repayments received from
Tenants of principal loaned or advanced to Tenants by the
Mortgagor pursuant to the terms hereof, or (E) any type of income
which would otherwise be considered Operating Income pursuant to
the provisions above but is paid directly by any Tenant to a
Person other than the Mortgagor (or the Manager on account of the
Mortgagor).
OPINION OF COUNSEL: means a written opinion of counsel
reasonably approved by Mortgagee at the expense of Mortgagor.
PERMITTED EXCEPTIONS: Those matters set forth on
Exhibit B annexed hereto and made a part hereof.
PERMITTED INVESTMENTS:
(a) (i) U.S. Government Securities and (ii) mutual
funds that invest in U.S. Government Securities, U.S.
Governmental Agency Securities, or commercial paper having a
rating of not less than A-1 by S&P or P-1 by Moody's;
(b) certificates of deposit or other interest-bearing
obligations of the Trustee or another bank or trust company that
is a member in good standing of the Federal Reserve System having
a combined capital, surplus and undivided profits of not less
than $100,000,000, provided that the Trustee or such other bank
or trust company has (i) short-term unsecured debt rating of not
less than A-1+ by S&P or a long-term unsecured debt rating of not
less than AA by S&P, and (ii) a short-term unsecured debt rating
of not less than P-1 by Moody's or a long-term unsecured debt
rating of not less than Aa2 by Moody's (or in each case, if no
bank or trust company is so rated, the highest comparable rating
then given to any bank or trust company, but in such case only
for funds invested overnight or over a weekend) and the
investments shall mature or be redeemable upon the option of the
holders thereof on or prior to the earlier of (x) one month from
the date of their purchase or (y) the Business Day preceding the
date such amounts are required to be applied under this Mortgage;
(c) bonds or other debt obligations having (i) a short-
term unsecured debt rating of not less than A-1+ by S&P or a long-
term unsecured debt rating of not less than AA- by S&P, and (ii)
a short-term unsecured debt rating of not less than P-1 by
Moody's or a long-term unsecured debt rating of not less than Aa2
by Moody's issued by or by authority of any state of the United
States, any territory or possession of the United States,
<PAGE>
including the Commonwealth of Puerto Rico and agencies thereof,
or any political subdivision of any of the foregoing;
(d) repurchase agreements issued by a bank having a
short term debt rating of not less than A-1+ by S&P, and not less
than P-1 by Moody's which are secured by U.S. Government
Securities maturing on or prior to the earlier of (x) one month
after the date the repurchase agreement is entered into or (y)
the Business Day preceding the such amounts are required to be
applied under this Mortgage;
(e) commercial paper rated not less than A-1+ by S&P
and not less than P-1 by Moody's maturing or to be redeemable
upon the option of the holders thereof on or prior to the earlier
of (x) one month from the date of their purchase or (y) the
Business Day preceding the date such amounts are required to be
applied under this Mortgage; which investment, so long as no
Event of Default has occurred and is continuing hereunder, shall
be upon the written direction of the Mortgagor; and
(f) any other investment, as confirmed by the Rating
Agencies, that would not result in a downgrading or withdrawal of
the ratings then assigned to the Certificates by the Rating Agencies.
With respect to items (b) through (e) above, each such
instrument shall have a maturity of not more than 365 days, shall
not have an "r" highlighter affixed to its rating, and by its
terms should have a predetermined fixed dollar amount of
principal due at maturity that cannot vary or change, and
interest shall be tied to a fixed rate or a single interest rate
index plus a single fixed spread (if any), and move
proportionately with that index.
Unless otherwise directed by Mortgagor, Mortgagee shall
invest any amounts held pending their application to the purposes
herein provided in obligations of a mutual fund that invests
exclusively in U.S. Government Securities. Mortgagee shall not
be responsible for its inability to invest funds received after
11:00 a.m. New York City time.
After application to the purposes for which any amounts
invested are held and so long as no Event of Default has occurred
and is continuing hereunder, any investment income earned from
such investments shall be paid to Mortgagor.
PERMITTED OWNER: means (i) one or more Principals and
(ii) a partnership or a limited liability company in which any
one or a combination of Principals is a general partner or
managing member, as the case may be, that owns and controls, or
otherwise directly or indirectly owns and controls, at least a
25% interest.
"Control" means, for purposes of this definition, primary
responsibility to make or veto all material decisions with
respect to the operation, management, financing and disposition
of the specified interest, rather than a beneficial ownership
requirement, and without being compromised by the fact that
responsibility for such day-to-day operating and management
functions as are ordinarily handled by a property manager has
<PAGE>
been delegated by such controlling Person pursuant to an
agreement in writing.
PERSON: Any individual, corporation, partnership,
joint venture, limited liability company, estate, trust, unincor
porated association, any federal, state, county or municipal
government or any political subdivision thereof.
PREFERRED EQUITY: As defined in Section 12(c).
PREMISES: As defined in the recitals hereto.
PRINCIPAL: Urban REIT, REIT Operating Partnership, or
any Urban Affiliate; any corporation that is directly or
indirectly majority-owned by or controlled by or under common
control with Urban REIT, the REIT Operating Partnership, or an
Urban Affiliate; any general partnership having Urban REIT, the
REIT Operating Partnership, or an Urban Affiliate as the general
partner(s) with at least equal power with all other general
partners to direct and control the general partnership; any
limited partnership having Urban REIT, the REIT Operating
Partnership, or an Urban Affiliate as the general partner(s) with
at least equal power with all other general partners to direct
and control the limited partnership; any limited liability
company having Urban REIT, the REIT Operating Partnership or an
Urban Affiliate as the managing member(s) with at least equal
power with all other managing members to direct and control the
limited liability company; or any real estate investment trust,
multi-investor trust, foundation, common fund or investor account
for which Urban REIT, the REIT Operating Partnership, or an Urban
Affiliate acts as the investment manager or advisor.
PROCEEDS: As defined in Section 7(b).
QUALIFIED FIRE PROTECTION ENGINEER: One of the
following: (a) an engineer duly licensed in the state where the
Real Estate is located who shall either (x) have five (5) years'
experience evaluating fire and life safety systems and estimating
casualty insurance claims or (y) be certified as a qualified fire
protection engineer (or equivalent) by a professional, trade or
other, similar association of recognized standing, (b) a
reputable insurance broker having an in-house engineering and
loss control group capable of estimating casualty insurance
claims, or (c) an insurer meeting the criteria set forth in
Section 6(b) hereof or a qualified employee thereof, in each case
selected by the Mortgagor and to which Mortgagee shall not object
within five (5) Business Days after notice by Mortgagor of the
identity of the proposed Qualified Fire Protection Engineer.
QUALIFIED TRANSFEREE: means (i) a pension fund,
pension trust or pension account, (ii) an insurance company which
is subject to supervision by the insurance commissioner, or a
similar official or agency, of a state of territory of the United
States (including the District of Columbia), (iii) a corporation
organized under the banking laws of the United States or any
state or territory of the United States (including the District
of Columbia) with a combined capital and surplus of at least
$100,000,000, (iv) any Person with a long-term, unsecured debt
rating from the Rating Agencies of at least investment grade, or
<PAGE>
(v) a Person who owns or operates at least twelve (12) regional
or super-regional malls totalling at least 6,000,000 square feet;
provided, that such entity is,
(a) a Person (x) (1) with a net worth, as of date no more
that 6 months prior to the date of such transfer, of at least
$500 million, and (2) who, immediately prior to such transfer,
controls real estate equity assets of at least $1 billion, or (y)
if such Person is a pension fund advisor, only the condition set
forth in (x) (2) above must be satisfied, or
(b) a pension fund, pension trust or pension account that
has total assets of at least $500 million, managed by a Person
who controls at least $1 billion of real estate equity assets.
QUALIFYING MANAGER: As defined in Section 20.
RATE SWAP AGREEMENT: Any interest rate swap
transactions pursuant to the Master Agreement, dated as of the
date hereof, between Rate Swap Counterparty and Mortgagor, as it
may be amended, modified, extended or supplemented from time to
time, and any similar interest rate swap or collar agreement
subsequently entered into by Mortgagor with respect to the Loan
or any portion thereof.
RATE SWAP COUNTERPARTY: As defined in the recitals hereof.
RATE SWAP BREAKAGE COSTS: means the payment owed, if
any, under Section 6(e) of the Rate Swap Agreement by the Mortgagor.
RATE SWAP NET AMOUNT: means the net payment, if any,
owed under the Rate Swap Agreement by the Mortgagor, as the fixed
rate payer, to the Rate Swap Counterparty, as the floating rate
payer (excluding any Rate Swap Breakage Costs).
RATING AGENCIES: S&P and Moody's.
REAL ESTATE: As defined in granting clause (C) hereof.
REIT OPERATING PARTNERSHIP: Urban Shopping Centers,
L.P., an Illinois limited partnership.
RENEWAL LEASE: As defined in Section 16(b) hereof.
RENTS: As defined in granting clause (E) hereof.
REQUIRED RATING: A long-term unsecured debt rating not
lower than Investment Grade in all cases except in the case of a
Letter of Credit delivered in accordance with Section 7.2(d) or
Section 13(d) hereof, and in such excepted cases shall mean a
short-term debt rating not lower than A-1+ by S&P and P-1 by
Moody's, if the expiration date of the Letter of Credit does not
exceed three months, or a long-term debt rating not lower than AA
by S&P and Aa2 by Moody's, if the expiration date of the Letter
of Credit exceeds three months.
SINGLE PURPOSE ENTITY: A Person, other than an
individual, which is formed or organized solely for the purpose
of holding, directly, an ownership interest in one (1) property,
<PAGE>
does not engage in any business unrelated to such property and
the financing thereof, does not have any assets other than those
related to its interest in the property or the financing thereof
or any indebtedness other than as permitted by this Mortgage or
the other Loan Documents, has its own separate books and records
and its own accounts, in each case which are separate and apart
from the books and records and accounts of any other Person, and
holds itself out as being a Person, separate and apart from any
other Person.
S&P: Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, or any successor thereto.
TAKING: A temporary or permanent taking by any
Governmental Authority as the result or in lieu or in
anticipation of the exercise of the right of condemnation or
eminent domain, of all or any part of the Mortgaged Property, or
any interest therein or right accruing thereto, including any
right of access thereto or any change of grade affecting the
Premises or any part thereof.
TEACHERS: Teachers' Retirement System of the State of Illinois.
TEACHERS' AFFILIATE: Any corporation, partnership,
limited liability company, trust or other entity that (i) is a
primary, secondary or tertiary majority-owned subsidiary of
Teachers or (ii) any corporation that is directly or indirectly
majority-owned or controlled by Teachers.
TENANT: Any Person leasing any portion of the Premises
and obligated to pay rent pursuant to a Lease.
THRESHOLD AMOUNT: Seven Million Dollars ($7,000,000).
TRANSFER: As defined in Section 12(a) hereof.
TRUSTEE: As defined in the recitals hereof.
TRUST AGREEMENT: As defined in the recitals hereof.
UCC: As defined in granting clause (D) hereof.
URBAN AFFILIATE: Any corporation, partnership, limited
liability company, trust or other entity that (i) is a primary,
secondary or tertiary majority-owned subsidiary of Urban REIT or
the REIT Operating Partnership, or (ii) is controlled by Persons
who are senior level officers or majority shareholders or
majority owners of Urban REIT or the REIT Operating Partnership.
URBAN REIT: Urban Shopping Centers, Inc., a Maryland corporation.
UNITED STATES OR U.S.: each mean the United States of
America; and any territory or possession of the United States or
any action to be taken within the United States, unless otherwise
explicitly provided shall include the District of Columbia,
Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake
Island and the Northern Mariana Islands.
<PAGE>
U.S. GOVERNMENT SECURITIES AND U.S. GOVERNMENTAL AGENCY
SECURITIES: means securities that are (x) direct obligations of
the United States for the full and timely payment of which its
full faith and credit is pledged or (y) obligations of a Person
controlled or supervised by and acting as an agency or
instrumentality and guaranteed as a full faith and credit
obligation which shall be fully and timely paid by the United
States, which in either case are not callable or redeemable at
the option of the issuer thereof (including a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the United
States Securities Act of 1933, as amended) as custodian with
respect to any such U.S. Government Securities or a specific
payment of principal of or interest on any such U.S. Government
Securities held by such custodian for the account of the holder
of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the securities
or the specific payment of principal of or interest on the
securities evidenced by such depository receipt).
WORK: As defined in Section 7(b) hereof.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Mortgagor represents and warrants to and covenants and agrees
with Mortgagee as follows:
2. WARRANTY OF TITLE. This Mortgage is and will
remain a valid, enforceable and perfected first Lien on and secu
rity interest in the Mortgaged Property subject only to the
Permitted Exceptions. Mortgagor represents and warrants that it
owns good, marketable and insurable leasehold title to the
Premises under the Ground Lease and good, marketable and
insurable title to the Improvements, subject only in each case to
the Permitted Exceptions. Mortgagor will preserve such title and
will forever warrant and defend same and the validity and
priority of the lien hereof from and against any and all claims
whatsoever other than with respect to the Permitted Exceptions.
Mortgagor warrants that the Permitted Exceptions affecting title
to the Mortgaged Property as of the date hereof shall not
materially and adversely affect the use, operation or value of
the Mortgaged Property or the ability of Mortgagor to timely pay
principal and interest due under the Mortgage Notes.
3. PAYMENT AND PERFORMANCE OF OBLIGATIONS SECURED.
a) Mortgagor shall promptly pay when due the principal of and
interest on the Indebtedness, any prepayments, late charges and
fees provided for in the Mortgage Notes, and all other payment
Obligations secured by this Mortgage, all in lawful money of the
United States of America, and shall further perform fully and in
a timely manner all Obligations of Mortgagor. All sums payable
by Mortgagor hereunder shall be paid without demand,
counterclaim, offset, deduction (except as required by law) or
defense. As of the date hereof, Mortgagor waives all rights now
or hereafter conferred by statute or otherwise to any such
demand, counterclaim, setoff, deduction or defense.
<PAGE>
b) At or prior to the maturity of the Class A Note or
any Additional Notes (whether at the stated maturity date or due
to prepayment thereof, but not due to acceleration), payments
made by Mortgagor under the Mortgage Notes, the Rate Swap
Agreement and this Mortgage shall be applied in the following
order of priority:
(i) First, to the payment of accrued and unpaid
interest (excluding Additional Amounts and Default Interest,
if any) due and payable on the Class A Note until all such
accrued and unpaid interest then due and payable on the
Class A Note has been paid in full;
(ii) Second, to the payment of any Rate Swap Net Amount
due and owing the Rate Swap Counterparty;
(iii) Third, to the payment of accrued and unpaid
interest (excluding Additional Amounts and Default Interest,
if any) due and payable on each class of Additional Notes
until all such accrued and unpaid interest then due and
payable has been paid in full;
(iv) Fourth, to any net payments (other than breakage
costs) due any Additional Counterparty in connection with
any Additional Rate Agreement;
(v) Fifth, to the payment of all principal then due
and payable on the Class A Note until all unpaid principal
then due and payable on the Class A Note has been paid in
full;
(vi) Sixth, to the payment of all principal then due
and payable on each class of Additional Notes until all
unpaid principal on each such class of Additional Notes has
been paid in full;
(vii) Seventh, to the payment of Default Interest then
due and payable on the Class A Note until all accrued and
unpaid Default Interest then due and payable on the Class A
Note has been paid in full;
(viii) Eighth, to the payment of Default Interest then
due and payable on each class of Additional Notes until all
accrued and unpaid Default Interest then due and payable on
each class of Additional Notes has been paid in full;
(ix) Ninth, to the payment of any Additional Amounts
due and payable on the Class A Note until all such
Additional Amounts on the Class A Note have been paid in
full;
(x) Tenth, to the payment of any Additional Amounts
due and payable on each class of Additional Notes until all
such Additional Amounts on each class of Additional Notes
have been paid in full;
(xi) Eleventh, to the payment of Rate Swap Breakage
Costs due and owing the Rate Swap Counterparty; and
<PAGE>
(xii) Twelfth, to the payment of any breakage costs
due and owing any Additional Counterparty.
4. NO DEFAULT. To the actual knowledge of Mortgagor,
Mortgagor is not in material default under the terms, conditions
or provisions of any Material Lease or Operating Agreement.
5. NEGATIVE COVENANTS. Mortgagor covenants and
agrees that it shall not:
(a) incur, create or assume any indebtedness or
Transfer or lease the Mortgaged Property or any interest therein,
except as permitted under Sections 12 and 16 hereof;
(b) engage, directly or indirectly, in any business
other than that arising out of or entering into this Mortgage and
the other Loan Documents to which Mortgagor is a party and the
ownership, management, leasing, construction, development,
operation, maintenance and expansion of the Mortgaged Property;
(c) commingle its assets with the assets of any other Person;
(d) guarantee any obligations of any Person or make
advances or loans to any Persons or entities or Affiliates of
Mortgagor (other than of the proceeds of the Certificates
offering under the Trust Agreement and other than loans to
Tenants for tenant improvements or similar purposes) except as
expressly permitted under this Mortgage;
(e) partition the Real Estate or the ground leasehold
therein under the Ground Lease or portion thereof; or
(f) voluntarily file or consent to the filing of a
petition for bankruptcy, reorganization, assignment for the
benefit of creditors or similar proceeding under any Federal or
state bankruptcy, insolvency, reorganization or other similar
law, without the unanimous consent of its trustees or partners,
as the case may be (or if Mortgagor shall hereafter be a limited
liability company or corporation, its members or shareholders, as
the case may be).
Mortgagor represents and warrants that on the Closing
Date it does not have any indebtedness or obligations which would
cause it to be in violation of the foregoing covenants.
Further, Mortgagor covenants that it will do or cause
to be done all things necessary to preserve and keep in full
force and effect its existence and will maintain adequate
capitalization (taking into account, among other things, the
market value of its assets) for its business purposes; will not
modify its partnership agreement (or other organizational
document) in any manner that would have a material adverse effect
on the interests of the Mortgagee hereunder; will pay all
expenses of the Mortgaged Property from property of the
Mortgagor; will maintain books and records and bank accounts
separate from those of its Affiliates and will maintain a
separate business office (which may be a management office at the
Premises); will at all times hold itself out to the public as a
<PAGE>
legal entity separate and distinct from any of its Affiliates
(including in its leasing activities, in entering into any
contract, in preparing its financial statements, and in its stationery),
and will cause its Affiliates to conduct business with it on an arm's-
length basis (or, as to management and leasing, on a basis
comparable to the management and leasing arrangements at
properties similar to the Premises owned by any Affiliate of the
Mortgagor and managed by the Manager); will file its own tax
returns or, if part of a consolidated group, will join in the
consolidated tax return of such group as a separate member
thereof; and will cause its management to meet regularly to carry
on its business.
6. INSURANCE.
(a) Insurance Coverage Requirements. Mortgagor shall,
at its sole cost and expense, keep in full force and effect
insurance coverage of the types and minimum limits as follows
during the term of this Mortgage:
(i) Property Insurance. Insurance with respect to
the Improvements and the Building Equipment against any peril
included within the classification "All Risks of Physical Loss"
in amounts at all times sufficient to prevent the Mortgagor from
becoming co-insurer within the terms of the applicable policies,
but in any event such insurance shall be maintained in an amount
equal to the full insurable value of the Improvements and the
Building Equipment, the term "full insurable value" to mean the
actual replacement cost of the Improvements and the Building
Equipment (without taking into account any depreciation, and
exclusive of excavations, footings and foundations, landscaping
and paving, but inclusive of demolition and debris removal)
determined annually by an insurer, a recognized independent
insurance broker or an appraiser selected and paid by the
Mortgagor and in no event less than the coverage required
pursuant to the terms of any Lease; provided, however, if the
terms of the applicable insurance policies expressly provide for
insurance to be provided in the amount of the actual replacement
cost of the Improvements and the Building Equipment or such
policies contain a replacement cost endorsement, no such annual
determination will be necessary;
(ii) Liability Insurance. Commercial general
liability insurance, including bodily injury, death and property
damage liability, and excess liability insurance against any and
all claims, including all legal liability to the extent insurable
imposed upon the Mortgagee and all court costs and attorneys'
fees and expenses, arising out of or connected with the
possession, use, leasing, operation, maintenance or condition of
the Real Estate for a combined single limit of not less than
$15,000,000;
(iii) Workers' Compensation Insurance. Statutory
workers' compensation insurance (to the extent the risks to be
covered thereby are not already covered by other policies of
insurance maintained by the Mortgagor), with respect to any work
on or about the Real Estate;
<PAGE>
(iv) Business Interruption. Business interruption
and/or loss of "rental value" insurance in an amount sufficient
to avoid any co-insurance penalty and to provide Proceeds which
will cover rental value for a period of not less than twenty-four
(24) months following the date of casualty or loss, the term
"rental value" to mean the sum of (A) the total Rents payable
under the Leases and (B) the total amount of all other amounts to
be received by the Mortgagor from third parties which are the
legal obligation of the Tenants, reduced to the extent such
amounts would not be received because of Operating Expenses not
incurred during a period of non-occupancy of that portion of the
Real Estate then not being occupied;
(v) Boiler and Machinery Insurance. Broad form boiler
and machinery insurance (without exclusion for explosion)
covering all boilers or other pressure vessels, machinery and
equipment located in, on or about the Real Estate and insurance
against loss of occupancy or use arising from any such breakdown
in such amounts as are generally available at commercially
reasonable premiums and are generally required by institutional
lenders for properties comparable to the Real Estate;
(vi) Flood Insurance. If all or any portion of the
Real Estate is located within a federally designated flood hazard
zone, flood insurance if available, in such amount as generally
required by institutional lenders for similar properties
provided, however, if flood insurance shall be unavailable from
private carriers, such flood insurance may be provided by the
federal government, if available; and
(vii) Other Insurance. Such other insurance requested
by Mortgagee with respect to the Mortgaged Property against loss
or damage of the kinds from time to time customarily insured
against and in such amounts as are generally available at
commercially reasonable premiums and are generally required by
institutional lenders for properties comparable to the Real
Estate.
(b) Ratings of Insurers.
(i) Property and Business Interruption Insurance.
The Mortgagor will maintain the insurance coverage described
in Section 6(a)(i) above, and the insurance coverage
described in Section 6(a)(iv) above, with either (x) the
insurers who insure the Improvements and Building Equipment
on the date of this Mortgage or (y) one or more other
primary insurers having (or a syndicate of insurers through
which at least 75% of the coverage (if there are 4 or fewer
members of the syndicate) or at least 60% of the coverage
(if there are 5 or more members of the syndicate) is with
carriers having), a claims-paying-ability rating by S&P not
lower than one category below the then highest rating of the
Certificates by S&P, but in either case of (x) or (y) above,
such insurers' rating shall in no event be less than
Investment Grade by S&P and Moody's.
<PAGE>
(ii) Liability and Boiler and Machinery
Insurance. The Mortgagor will maintain a portion of the
insurance coverage described in Sections 6(a)(ii) and
6(a)(v) with either (x) the insurers who insure the
Mortgaged Property on the date of this Mortgage or (y) one
or more other domestic primary insurers having (or a
syndicate of insurers through which at least 75% of the
coverage (if there are 4 or fewer members of the syndicate)
or at least 60% of the coverage (if there are 5 or more
members of the syndicate) is with carriers having), a claims-
paying-ability rating by S&P not lower than one category
below the then highest rating of the Certificates by S&P,
but in either case of (x) or (y) above, such insurers'
rating shall in no event be less than Investment Grade by
S&P and Moody's.
(iii) Other Insurance. The Mortgagor will
maintain a portion of the insurance coverage described in
Section 6(a)(iii) above with either an insurer having a
claims-paying-ability rating of not less than Investment
Grade or the applicable state workers' compensation fund.
In each case as to a syndicate or an individual insurer, however,
if no domestic providers of such insurance are so rated, the
requirement for such rating shall be the highest rating then
given to primary insurers by S&P; provided that in the case of an
individual insurer or a syndicate failing to satisfy the
foregoing test, supplementary qualifying coverage shall be
required within ninety (90) days after the date the Mortgagor
learns of such failure (in the case of a syndicate, only to the
extent the syndicate fails to satisfy the test); and provided
further that in the event of any loss, claims in respect of such
portion of such insurance maintained in accordance with Section
6(a)(i) above shall be payable prior to claims in respect of the
remaining portion(s) of the insurance required by such
provisions.
Notwithstanding anything to the contrary set forth herein, all
insurance required coverage shall be provided by one or more
primary insurers having an Alfred M. Best Company, Inc. rating of
"A" or better and financial size category of not less than VIII,
except to the extent that insurance in force on the date of this
Mortgage does not satisfy such criteria or if otherwise approved
by the Mortgagee. Any insurance in force on the date of this
Mortgage which is accepted or approved by Mortgagee and which is
provided by a group or syndicate of insurers shall be
satisfactory so long as a sufficient number of members of the
syndicate providing the coverage satisfy the foregoing criteria
for claims-paying ability even if one or more of the insurers
comprising the group or syndicate no longer participates in the
group or syndicate. All insurers providing insurance required by
this Mortgage shall be authorized to issue insurance in the state
where the Mortgaged Property is located.
(c) Blanket Coverage. The insurance coverage required
under Section 6(a) may be effected under a blanket policy or
policies covering the Mortgaged Property and other property and
assets not constituting a part of the Mortgaged Property; provided
that the certificate of insurance evidencing the coverage
<PAGE>
under any such blanket policy shall specify, except in the case
of general liability insurance, the portion of the total coverage
of such policy that is allocated exclusively to the Mortgaged
Property, and any sublimits in such blanket policy applicable to
the Mortgaged Property, which amounts shall not be less than the
amounts required pursuant to Section 6(a) and which shall in any
case comply in all other respects with the requirements of this
Section 6.
(d) Form of Insurance Policies; Endorsements. All
insurance policies shall be in such form and with such
endorsements as are comparable to the forms of and endorsements
to Mortgagor's insurance policies in effect on the date hereof or
otherwise in accordance with commercially reasonable standards
applied by prudent owners of first class regional shopping
centers (taking into account the office uses also being made of
the Mortgaged Property) in the general vicinity of the Mortgaged
Property. Certificates of insurance with respect to all of the
insurance policies required hereunder have been delivered to
Mortgagee (or will be so delivered promptly after the date
hereof), and originals or certified copies of all such policies
shall be delivered to Mortgagee when the same are available and
shall be held by Mortgagee. All such policies shall name
Mortgagee as an additional insured, shall provide that all
Proceeds be payable to Mortgagee as set forth in Section 7
hereof, and shall contain: (i) a standard "non-contributory
mortgagee" endorsement or its equivalent relating, inter alia, to
recovery by Mortgagee notwithstanding the negligent or willful
acts or omissions of Mortgagor; (ii) to the extent available at
commercially reasonable rates a waiver of subrogation endorsement
in favor of Mortgagee; (iii) an endorsement providing that no
policy shall be impaired or invalidated by virtue of any act,
failure to act, negligence of, or violation of declarations,
warranties or conditions contained in such policy by Mortgagor,
Mortgagee or any other named insured, additional insured or loss
payee, except for the willful misconduct of Mortgagee knowingly in
violation of the conditions of such policy; (iv) an endorsement
providing for a deductible per loss of an amount not more than that
which is customarily maintained by prudent owners of first class regional
shopping centers (taking into account the office uses also being
made of the Mortgaged Property) in the general vicinity of the
Mortgaged Property, but in no event in excess of $50,000; (v) a
provision that such policies shall not be cancelled or
terminated, except in the case of nonpayment, without at least
thirty (30) days prior written notice to Mortgagee in each
instance; and (vi) a provision that such policies shall not be
terminated or cancelled for nonpayment of premium without at
least ten (10) days prior written notice to Mortgagee.
Certificates of insurance with respect to all renewal and
replacement policies shall be delivered to Mortgagee not less
than ten (10) days prior to the expiration date of any of the
insurance policies required to be maintained hereunder which
certificates shall bear notations evidencing payment of
applicable premiums. Originals or certified copies of such
replacement insurance policies shall be delivered to Mortgagee
promptly after Mortgagor's receipt thereof but in any case within
sixty (60) days after the effective date thereof. If Mortgagor
fails to maintain insurance required by this Mortgage, Mortgagee
<PAGE>
may, in accordance with the provisions of Section 9 hereof,
procure such insurance.
(e) Compliance with Insurance Requirements. Mortgagor
shall comply with all Insurance Requirements and shall not bring
or keep or permit to be brought or kept any article upon any of
the Real Estate or cause or permit any condition to exist thereon
which would be prohibited by any Insurance Requirement, or would
invalidate insurance coverage required hereunder to be maintained
by Mortgagor on or with respect to any part of the Real Estate
pursuant to this Section 6.
(f) Separate Insurance. The Mortgagor will not take
out separate insurance contributing in the event of loss with
that required to be maintained pursuant to this Section 6 unless
such insurance complies with Section 6(d).
7. CONDEMNATION AND INSURANCE PROCEEDS.
(a) Mortgagor will promptly notify Mortgagee in
writing upon obtaining knowledge of (i) the institution of any
proceedings relating to any Taking or (ii) the occurrence of any
casualty, damage or injury to the Real Estate or Building
Equipment or any portion thereof, the restoration of which is
estimated by Mortgagor in good faith to cost more than Two
Million Dollars ($2,000,000). In addition, notice of any
casualty damage or loss, the restoration of which is estimated by
Mortgagor in good faith to cost more than Two Million Dollars
($2,000,000), shall set forth such good faith estimate of the
cost of repairing or restoring such damage or destruction in
reasonable detail if the same is then available and, if not, as
soon thereafter as it can reasonably be provided.
(b) In the event of any Taking of or casualty or other
damage or injury to the Mortgaged Property, Mortgagor's right,
title and interest in and to all compensation, awards, proceeds,
damages, claims, insurance recoveries, causes and rights of
action (whether accrued prior to or after the date hereof) and
payments which Mortgagor may receive or to which Mortgagor may
become entitled with respect to the Mortgaged Property or any
part thereof (collectively, "Proceeds"), in connection with any
such Taking (subject to the terms of the Operating Agreements and
the Leases), casualty or other damage or injury to the Mortgaged
Property, or any part thereof, are hereby assigned to and shall
be paid to Mortgagee. Notwithstanding anything to the contrary
set forth in this Mortgage, to the extent the Proceeds are not in
excess of Seven Million Dollars ($7,000,000) (the "Minimum
Deposit Amount") (excluding, solely for purposes of such
calculation, Proceeds paid in respect of the insurance described
in Section 6(a)(iv)) then, provided that no Event of Default
shall have occurred and be continuing, Mortgagee hereby consents
to and agrees that such Proceeds shall be paid directly to
Mortgagor to be applied to restoration of the Mortgaged Property
in accordance with the terms hereof (provided, however, unless an
Event of Default shall have occurred and be continuing, Proceeds
paid in respect of the insurance described in Section 6(a)(iv)
shall be paid directly to Mortgagor). Subject to the provisions
of this Section 7(b) and Section 7(c) hereof, promptly after the
occurrence of any damage or destruction to all or any portion of
<PAGE>
the Mortgaged Property or a Taking of a portion of the Mortgaged
Property, Mortgagor shall commence and diligently prosecute to
completion, subject to Excusable Delays, the repair, restoration
and rebuilding of the Mortgaged Property (in the case of a
Taking, to the extent it is capable of being restored) (such
repair, restoration and rebuilding are sometimes hereinafter
collectively referred to as the "Work") so damaged, destroyed or
remaining after such Taking, in full compliance with all Legal
Requirements and free and clear of any and all Liens except the
Permitted Exceptions. Mortgagor will, in good faith and in a
commercially reasonable manner, file and prosecute the
adjustment, compromise or settlement of any claim for Proceeds
and, subject to Mortgagor's right to receive the direct payment
of any Proceeds up to the Minimum Deposit Amount and, with
respect to Proceeds from a Taking, subject to the applicable
terms of the Operating Agreements and the Leases and the
provisions below, will cause the same to be collected and paid
over to Mortgagee, to be held and applied in accordance with the
provisions of this Mortgage. Mortgagor hereby irrevocably
authorizes Mortgagee to file and prosecute such claim and to
collect and to make receipt for any such payment in the event
Mortgagor fails so to act or if an Event of Default shall have
occurred and be continuing, and in such case Mortgagee shall be
authorized to file such claim and prosecute it with counsel
satisfactory to it at the expense of Mortgagor. Mortgagee shall
have the right to approve, such approval not to be unreasonably
withheld, any settlement which might result in any Proceeds in
excess of the Minimum Deposit Amount, and Mortgagor will deliver
or cause to be delivered to Mortgagee all instruments reasonably
requested by Mortgagee to permit such approval. Mortgagor will
pay all costs, fees and expenses reasonably incurred by Mortgagee
(including all reasonable attorneys' fees and expenses, the fees
of insurance experts and adjusters and reasonable costs incurred
in any litigation or arbitration) in connection with the
settlement of any claim for insurance in excess of the Minimum
Deposit Amount or Proceeds in excess of the Minimum Deposit
Amount and seeking and obtaining of any payment on account
thereof in accordance with the foregoing provisions and for any
of the foregoing expenses, regardless of whether or not the
Proceeds exceed the Minimum Deposit Amount, if an Event of
Default shall have occurred and be continuing. If any Proceeds
are received by Mortgagor, such Proceeds shall, until the
completion of the related Work, be held in trust and segregated
from other funds of the Mortgagor to be used to pay for the cost
of the Work in accordance with the terms hereof, and in the event
such Proceeds are in excess of the Minimum Deposit Amount such
Proceeds shall, subject to the provisions of the Operating
Agreements and the Leases, be forthwith paid to the Trustee to be
held by the Trustee in a segregated account in trust for
Mortgagor, in each case to be applied or disbursed in accordance
with the provisions thereof.
(c) In the event that any Proceeds (other than
Proceeds paid with respect to the insurance described in Section
6(a)(iv)) are in excess of the Minimum Deposit Amount, then all
Proceeds (other than Proceeds paid with respect to the insurance
described in Section 6(a)(iv) and except that Proceeds in respect
of a Taking shall be subject to the terms and conditions of the
Operating Agreements and the Leases) shall be paid over to Mortgagee
<PAGE>
and shall be applied as follows: first, toward reimbursement of Mortgagee's
reasonable costs and expenses in connection with recovery of the
Proceeds and disbursement of the Proceeds (as further described below),
including, without limitation, reasonable administrative costs and
inspection fees, and then, to the prepayment of the Indebtedness
secured hereby (which prepayment shall be made on the next Interest
Payment Date occurring at least ten (10) Business Days following notice to
Mortgagee of an elected or required prepayment hereunder, which
notice Mortgagor shall promptly give), without prepayment premium
or penalty, only if:
(i) Mortgagor is not required to restore the
Mortgaged Property pursuant to any Operating Agreement or Lease, and
(A) the Taking or casualty
adversely affects leased areas of the Mortgaged
Property, and the restoration of the Mortgaged
Property cannot reasonably be completed before the
date of expiration of any insurance maintained
pursuant to Section 6(a)(iv) hereof, or
(B) the Taking or casualty occurs
during the last six (6) months of the term of the
Loan, or
(C) the Taking or casualty effects
all of the Mortgaged Property; or
(ii) If such Proceeds were the result of a Taking,
then after restoration is completed, the Proceeds that are
not required to effect such restoration shall be applied,
without premium or penalty, to the prepayment of principal
and accrued interest of the Mortgage Notes.
(d) If Proceeds are not required to be applied towards
payment of the Indebtedness pursuant to Section 7(c) above, then
after payment of the expenses described in clause first of
Section 7(c), Mortgagee shall make the Proceeds (except Proceeds
paid with respect to the insurance described in Section 6(a)(iv))
which it is holding pursuant to the terms hereof available to
Mortgagor for payment of or reimbursement of Mortgagor's expenses
incurred with respect to the Work, upon the terms and subject to
the conditions set forth below and in Section 7(e):
(i) there shall be no continuing Event of
Default hereunder;
(ii) to the extent, if any, that the
estimated cost of the Work (as estimated by an Independent
Architect) shall exceed the Proceeds available, Mortgagor
shall (within a reasonable period of time after receipt of
such estimate, and in any event prior to any further
disbursement by Mortgagee) deposit with or deliver to
Mortgagee Cash and Cash Equivalents and/or a Letter of
Credit in the amount of such excess; and
(iii) Mortgagee shall, within a reasonable
period of time prior to Mortgagor's request for initial
disbursement, be furnished with an estimate of the cost of
<PAGE>
the Work accompanied by an Independent Architect's
certification as to such costs and appropriate plans and
specifications for the Work to the extent that the same are
required by law or are prepared by the Mortgagor. The plans
and specifications shall require that the Work be done in a
first-class workmanlike manner substantially equivalent to
the quality and character of the original work in the
Improvements, so that upon completion thereof (taking into
account a commercially reasonable time to relet the affected
portion of the Mortgaged Property), the Mortgaged Property shall
be at least substantially equal in value and general utility to
the Mortgaged Property prior to the damage or destruction
(or, in the case of a partial Taking, to the state to which
it is capable of being restored). Mortgagor shall restore
all Improvements such that when they are fully restored
and/or repaired that such Improvements and their contem
plated use fully comply with all applicable Legal Requirements,
including, without limitation, zoning, environmental and
building laws, codes, ordinances and regulations.
(e) Disbursement of Proceeds shall be made from time
to time (but not more frequently than once in any month) by
Mortgagee as the Work progresses upon receipt by Mortgagee of (i)
an Officer's Certificate dated not more than thirty (30) days
prior to the application for such payment, requesting such
payment or reimbursement and setting forth the Work performed
which is the subject of such request, the parties which performed
such Work and the actual cost thereof, and also certifying that
such Work and materials are free and clear of Liens other than
Permitted Exceptions and (ii) an Independent Architect's
certificate certifying performance of the Work together with an
estimate of the cost to complete the Work. No payment made prior
to the final completion of the Work shall exceed ninety-five
percent (95%) of the value of the Work performed or materials
furnished and incorporated into the Improvements from time to
time (except in the case of contractors' or subcontractors' work
as to which final completion has been attained), and at all times
the undisbursed balance of said Proceeds, together with all
amounts for which Cash or Cash Equivalents or a Letter of Credit
deposited or delivered pursuant to clause (ii) above, shall be at
least sufficient to pay for the cost of completion of the Work,
free and clear of Liens other than Permitted Exceptions; final
payment of all Proceeds remaining with Mortgagee shall be made
upon receipt by Mortgagee of a certification by an Independent
Architect as to the completion of the Work substantially in
accordance with the submitted plans and specifications, and the
filing of a notice of completion (if such filing is required by
applicable law). If the Proceeds shall be more than the
Threshold Amount, Mortgagee shall require (i) evidence of
mechanic's lien waivers, and (ii) an endorsement to its title
insurance policy insuring the continued priority of the Lien of
this Mortgage (subject to Permitted Exceptions and any Liens
associated with the Leased Personalty) as to all sums advanced
hereunder, such endorsement to be paid for by Mortgagor. From
time to time as the Work progresses, the amount of any Cash or
Cash Equivalents so furnished may be withdrawn by Mortgagor and
paid or otherwise applied by or returned to Mortgagor in an
amount equal to the amount Mortgagor would be entitled to so
withdraw if the same were Proceeds, and any Letter of Credit so
<PAGE>
furnished may be reduced by Mortgagor in an amount equal to the
amount Mortgagor would be entitled to reduce if the same were
Proceeds. At any time after substantial completion of any Work
in respect whereof Cash and Cash Equivalents and/or a Letter of
Credit was deposited pursuant hereto, the whole balance of any
Cash so deposited with Mortgagee and then remaining on deposit
may be withdrawn by Mortgagor and shall be paid by Mortgagee to
Mortgagor and any Cash and Cash Equivalents and/or Letter of
Credit so deposited or delivered shall, to the extent it has not
been called upon, reduced or theretofore released, be released by
Mortgagee to Mortgagor, within ten (10) days after receipt by
Mortgagee of an application for such withdrawal and/or release
together with an Officer's Certificate, and signed also (as to
the following clause (1)) by the Independent Architect, setting
forth in substance as follows:
(1) that the Work in respect of which such Cash and
Cash Equivalents and/or a Letter of Credit was deposited has been
substantially completed in all material respects in accordance
with any plans and specifications therefor previously filed with
Mortgagee under Section 7(d) hereof; and
(2) that to the knowledge of the certifying Person all
amounts which Mortgagor is or may become liable to pay in respect
of such Work through the date of the certification have been paid
in full or adequately provided for or are being contested in
accordance with Section 8(c) hereof and, to the extent that such
are customary and reasonably obtainable by prudent managers in
the metropolitan area where the Premises are located and
Mortgagor is not contesting payment in accordance with Section
8(c) hereof, that lien waivers have been obtained from the
general contractor and major subcontractors performing such Work.
8. IMPOSITIONS, LIENS AND OTHER ITEMS; CONTESTS GENERALLY.
(a) Mortgagor has filed and will file all federal,
state and local tax returns required to be filed prior to their
respective due dates (taking into account extensions thereto) and
has paid or will pay or provide for the payment of all taxes
shown or required to be shown thereon, including all required
contributions to Mortgagor's employee benefit plans (as defined
in Section 3(3) of ERISA). Subject to its right of contest set
forth in Section 8(c), Mortgagor shall pay all Impositions prior
to the date such Impositions shall become delinquent or late
charges may be imposed thereon, directly to the applicable
Governmental Authority with respect thereto, unless and to the
extent such Impositions shall be paid from any Mortgage Escrow
Amounts or any Mortgage Escrow Security pursuant to Section 9 hereof.
(b) Subject to its right of contest set forth in
Section 8(c) and its rights set forth in Sections 12(c) and (d),
Mortgagor shall at all times keep the Mortgaged Property free
from all Liens (other than the Lien hereof, the Permitted
Exceptions and the Lien upon any Leased Personalty) and shall pay
when due and payable all claims and demands of mechanics,
materialmen, laborers and others which, if unpaid, might result
in or permit the creation of a Lien on the Mortgaged Property or
any portion thereof, whether ranked senior, pari passu or junior
to the priority of the Lien created hereby, and shall in any
<PAGE>
event cause the prompt, full and unconditional discharge of, or
otherwise secure against collection out of the Mortgaged
Property, all Liens imposed on or against the Mortgaged Property
or any portion thereof within forty-five (45) Business Days after
receiving written notice of the filing (whether from Mortgagee,
the lienholder or any other Person) thereof. Mortgagor shall do
or cause to be done, at the sole cost of Mortgagor, everything
reasonably necessary to fully preserve the first priority of the
Lien of this Mortgage against the Mortgaged Property subject to
the Permitted Exceptions. Upon the occurrence of an Event of
Default with respect to its Obligations as set forth in this
Section 8, Mortgagee may (but shall not be obligated to) make
such payment or discharge such Lien, and Mortgagor shall
reimburse Mortgagee on demand for all such advances pursuant to
Section 17 hereof.
(c) Nothing contained herein shall be deemed to
require Mortgagor to pay, or cause to be paid, any Imposition, to
satisfy any Lien, or to comply with any Legal Requirement or
Insurance Requirement, so long as Mortgagor is in good faith, and
by proper legal proceedings, diligently contesting the validity,
amount or application thereof, provided that in each case, at the
time of the commencement of any such action or proceeding, and during
the pendency of such action or proceeding (i) no Event of Default shall
exist and be continuing hereunder, (ii) adequate reserves with
respect thereto are maintained on Mortgagor's books in accordance
with GAAP (as determined by the Independent Accountant), (iii)
such contest operates to suspend collection or enforcement as the
case may be, of the contested Imposition or Lien and such contest
is maintained and prosecuted continuously and with diligence,
(iv) in the case of any Insurance Requirement, the failure of the
Mortgagor to comply therewith shall not impair the validity of
any insurance required to be maintained by Mortgagor under
Section 6 or the right to full payment of any claims thereunder,
(v) in the case of Impositions and Liens in amounts greater than
$100,000, during such contest, Mortgagor shall be required to
deliver to the Mortgagee Cash or Cash Equivalents or a Letter of
Credit in an amount equal to 125% of Mortgagor's obligations
being contested and any additional interest, charge, or penalty
arising from such contest, (vi) neither the Mortgaged Property
nor any part thereof or interest therein would be in any danger
of being sold, forfeited or lost if Mortgagor pays the amount or
satisfies the condition being contested, and Mortgagor would have
the opportunity to so pay such amount or satisfy such condition
if Mortgagor ultimately fails to prevail in the contest, and
(vii) in the case of any utility services required for the normal
operation of the Mortgaged Property, any contest or failure to
pay will not result in a discontinuance of any such service.
Notwithstanding the foregoing, including the delivery of any such
Cash or Cash Equivalents or Letter of Credit, Mortgagor promptly
shall comply with any contested Legal Requirement or Insurance
Requirement or shall pay any contested Imposition or Lien, and
compliance therewith or payment thereof shall not be deferred, if
Mortgagee may be subject to civil or criminal damages as a result
thereof. If such action or proceeding is terminated or
discontinued adversely to Mortgagor, Mortgagor, upon written
demand, shall deliver to Mortgagee reasonable evidence of
Mortgagor's compliance with such contested Imposition, Lien,
Legal Requirements or Insurance Requirements, as the case may be.
<PAGE>
Mortgagor shall notify Mortgagee of the commencement of any
contest or similar proceeding hereunder.
(d) Mortgagor has no knowledge of any material
liability incurred by Mortgagor which remains unsatisfied for any
taxes or penalties with respect to any employee benefit plan (as
defined in Section 8(a)) or any Multiemployer Plan, or of any
lien which has been imposed on the assets of the Mortgagor
pursuant to Section 412 of the Internal Revenue Code of 1986, as
amended, or Sections 302 or 4068 of ERISA.
9. FUNDS FOR TAXES AND INSURANCE.
(a) From and after the occurrence of any Event of
Default by Mortgagor hereunder, Mortgagee may at its sole elec
tion upon one (1) Business Day's written notice to Mortgagor,
establish a segregated, interest-bearing escrow account, in which
Mortgagee shall hold additional amounts sufficient to discharge
the obligations of Mortgagor under Sections 6 and 8(a) hereof as
and when they become due (such amounts, the "Mortgage Escrow
Amounts"). Upon Mortgagee's election to retain Mortgage Escrow
Amounts in accordance with the foregoing, Mortgagee may initially
retain in such account a sum which bears the same relation to the
annual insurance premiums for all insurance required by the terms
hereof and Impositions assessed against the Real Estate for the
insurance period or tax year then in effect, as the case may be,
as (i) the number of months elapsed as of the date of such
election since the last preceding installment of said premiums or
Impositions shall have become due and payable bears to (ii)
twelve (12). For the purpose of this computation, the month in
which such last preceding installment of premiums or Impositions
became due and payable and the month in which Mortgagee makes
such election shall be included and deemed to have elapsed.
During each month thereafter, until the Mortgagee shall elect
that the provisions of this Section 9 shall no longer be applicable,
the Mortgagee may retain with respect to the Mortgage Escrow Amounts
a sum equal to one-twelfth of such insurance premiums and such
Impositions for the then-current insurance period and tax year, so
that as each installment of such premiums and Impositions shall
become due and payable, Mortgagee shall have retained a sum sufficient
to pay the same. If the amount of such premiums and Impositions has
not been definitely ascertained at the time when any such monthly
deposits are to be retained, the Mortgagee may retain Mortgage Escrow
Amounts based upon the amount of such premiums and Impositions
for the preceding year, subject to adjustment as and when the
amount of such premiums and Impositions are ascertained.
(b) At any time after Mortgagee's election to retain
Mortgage Escrow Amounts pursuant to Section 9(a) above, subject
to the conditions of the next succeeding sentence, Mortgagor may
elect to replace any Mortgage Escrow Amounts then being retained
by Mortgagee and satisfy its obligations under this Section 9 by
the delivery or posting of Cash or Cash Equivalents or a Letter
of Credit (any such security, "Mortgage Escrow Security") in an
amount which, when added to any Mortgage Escrow Amounts on
deposit, equals six (6) months of insurance premiums and six (6)
months of Impositions, to be determined on the basis of the
premiums and Impositions next coming due (and for so long as
<PAGE>
Mortgagor elects to post such security, the same shall be in lieu
of Mortgagee's retention of such Mortgage Escrow Amounts).
(c) The Mortgage Escrow Amounts (or any Mortgage
Escrow Security posted in lieu thereof pursuant to Section 9(b))
shall be held by the Mortgagee and shall be applied to the
payment of the obligations in respect of which such Mortgage
Escrow Amounts were retained. In the absence of an acceleration
of the Mortgage Note, any Mortgage Escrow Amounts retained by (or
Mortgage Escrow Security posted with) the Mortgagee in excess of
the actual obligations for which they were retained, shall be
held and applied to the obligations for the ensuing year.
Nothing herein contained shall be deemed to affect any right or
remedy of the Mortgagee under this Mortgage or otherwise at law
or in equity, to pay any such amount and to add the amount so
paid to the Indebtedness hereby secured.
(d) If Mortgagee elects to retain Mortgage Escrow
Amounts from funds deposited with it by Mortgagor pursuant to
this Section 9, Mortgagor shall deliver to Mortgagee all tax
bills, bond and assessment statements, statements of insurance
premiums, and statements for any other obligations referred to
above as soon as the same are received by Mortgagor, and
Mortgagee shall cause the same to be paid when due to the extent
of Mortgage Escrow Amounts available therefor; provided, however,
that if Mortgagor has theretofore provided Mortgage Escrow
Security, Mortgagor shall be entitled to continue paying such
bills and statements. If Mortgagor fails to pay such bills and
statements on or before their respective due dates, Mortgagee
shall be entitled to pay same provided that Mortgagee has first
given Mortgagor three (3) Business Days' notice before applying
any Mortgage Escrow Security. It is expressly acknowledged and
agreed that Mortgagee shall have no obligation whatsoever to
advance any amounts in payment of all or any portion of such
obligations to the extent that Mortgage Escrow Amounts retained
(or Mortgage Escrow Security delivered) are insufficient to pay
any such obligations as and when the same become due.
10. ASSIGNMENT OF LEASES AND RENTS.
(a) The Leases and all of the Rents, whether now due,
past due, or to become due, and including all prepaid rents and
security deposits, are hereby absolutely, presently and uncondi
tionally assigned, transferred, conveyed and set over by
Mortgagor to Mortgagee, such Rents (other than any
Tenant security deposits which Mortgagor has not applied against
amounts owing under the applicable Lease) to be applied by
Mortgagee following the occurrence of an Event of Default in
accordance with Section 23 hereof. Mortgagor shall not otherwise
assign, transfer or encumber in any manner the Leases or the
Rents relating to the Mortgaged Property or any portion thereof
except as may be otherwise provided herein or in the Assignment
of Leases. Mortgagor shall have a license to exercise any and
all rights under the Leases and to collect and receive all Rents,
which license shall be terminable at the sole option of
Mortgagee, without regard to the adequacy of its security
hereunder, upon the occurrence and continuance of any Event of
Default without further notice to, or demand upon, Mortgagor.
The assignment in this Section 10 shall constitute an absolute
<PAGE>
and present assignment of the Leases and Rents, and not an
assignment for security, and the existence or exercise of
Mortgagor's conditional license as provided in the immediately
foregoing sentence shall not operate to subordinate this
assignment to any subsequent assignment. It is understood and
agreed that neither the foregoing assignment of Leases and Rents
to Mortgagee nor the exercise by Mortgagee of any of its rights
or remedies hereunder including, without limitation, the
appointment of a receiver for the Mortgaged Property by any court
at the request of Mortgagee or by agreement with Mortgagor, or
the entering into possession of the Mortgaged Property or any
part thereof by such receiver shall be deemed to make Mortgagee a
"mortgagee-in-possession" or otherwise responsible or liable in
any manner with respect to the Mortgaged Property or the use,
occupancy, enjoyment or operation of all or any portion thereof,
unless and until Mortgagee, in person or by agent, assumes actual
possession thereof.
(b) If the license granted in Section 10(a) hereof
shall have been terminated by Mortgagee, Mortgagee or an agent
appointed by Mortgagee may, to the fullest extent permitted by
the Leases, do any or all of the following:
(i) exercise any of Mortgagor's rights
under the Leases, including notifying Tenants to pay
rent to an account or location selected by Mortgagee in
accordance with the terms of this Mortgage;
(ii) enforce the Leases;
(iii) demand, collect, sue for, attach,
levy, recover, receive, compromise and adjust, and
make, execute and deliver receipts and releases for all
rents or other payments that may then be or may
thereafter become due, owing or payable with respect to
the Leases;
(iv) demand that any sums held by
Mortgagor with respect to any Lease (including, but not
limited to, any security deposits, other deposits or
prepayments) be immediately remitted to Mortgagee; and
(v) generally, do, execute and perform
any other act, deed, matter or thing whatsoever that
ought to be done, executed and performed in and about
or with respect to the Leases, as fully as allowed or
authorized by this Section 10.
(c) Neither the execution and delivery of this
Mortgage nor any action or inaction on the part of the Mortgagee
shall release (i) any Tenant from its Lease, (ii) any guarantor
of any Lease or (iii) Mortgagor from any of its obligations under
the Leases or constitute an assumption of any such obligation
under the Leases or constitute an assumption of any such
obligation on the part of Mortgagee. No action or failure to act
on the part of Mortgagee shall adversely affect or limit the rights
of Mortgagee under this Mortgage or the Assignment of Leases or,
through this Mortgage or the Assignment of Leases, under any Lease.
<PAGE>
11. SECURITY AGREEMENT. This Mortgage is intended to
be a security agreement and fixture filing pursuant to the UCC.
Mortgagor hereby grants a security interest in favor of Mortgagee
in and to (i) other than Leased Personalty, any and all personal
property owned by Mortgagor and described in the Granting Clauses
hereof which, under applicable law, may be subject to a security
interest pursuant to the UCC and which is not herein effectively
made part of the Real Estate, and (ii) any and all of the
Mortgaged Property which are fixtures under applicable law and
may be subject to a security interest under the UCC, to the
fullest extent that a security interest may be granted therein
under the UCC or applicable law, and in all additions to,
substitutions for and proceeds of any of the foregoing, other
than Leased Personalty, for the purpose of securing all
Indebtedness and the Obligations of Mortgagor now or hereafter
secured by this Mortgage. Mortgagor agrees to execute and
deliver financing and continuation statements covering the
property described in clauses (i) and (ii) above from time to
time and in such form as is required by applicable law to perfect
and continue the perfection of Mortgagee's lien or security
interest with respect to such property and, in the event that
Mortgagor shall fail to execute and deliver any such financing or
continuation statement promptly after demand therefor by
Mortgagee, Mortgagor hereby irrevocably authorizes Mortgagee to
file such financing and continuation statements on behalf of
Mortgagor. Mortgagor shall pay all reasonable and customary
costs of filing such statements and renewals and releases thereof
and shall pay all reasonable costs and expenses of any record
searches for financing statements Mortgagee may reasonably
require. Mortgagee shall have the rights and remedies of a
secured party under the UCC, as well as all other rights and
remedies available under this Mortgage, the other Loan Documents
or otherwise at law or in equity with respect to such property.
12. TRANSFERS, INDEBTEDNESS AND SUBORDINATE LIENS.
Unless such action is permitted by the provisions of this Section
12 or Section 16 hereof, Mortgagor will not (i) sell, assign,
convey, transfer or otherwise dispose of legal or beneficial
interests in all or any part of the Mortgaged Property, (ii)
permit any owner, directly or indirectly, of a beneficial
ownership interest in the Mortgaged Property, to transfer such
interest, whether by transfer of stock or other beneficial
interest in any entity, or otherwise, (iii) incur indebtedness,
(iv) mortgage, hypothecate or otherwise encumber or grant a
security interest in all or any part of the Mortgaged Property,
(v) sell, assign, convey, transfer, mortgage, encumber, grant a
security interest in, or otherwise dispose of any legal or
beneficial ownership interest in Mortgagor, or permit any owner
of a legal or beneficial interest in Mortgagor to do the same, or
(vi) file a declaration of condominium with respect to the Real
Estate (any of the foregoing transactions, a "Transfer").
(a) Sale of the Mortgaged Property.
(i) Mortgagor shall not sell, assign,
convey, transfer or otherwise dispose of legal or equitable
title to or any interest in all or any part of the Mortgaged
Property unless:
<PAGE>
(A) the Rating Agencies shall
have confirmed in writing that such transfer shall
not result in a downgrading, withdrawal or
qualification of the then-ratings of the
Certificates, or
(B) after giving effect to the
proposed transaction:
(1) the Mortgaged Property shall be
beneficially owned by either (x) a Qualified
Transferee, PROVIDED, HOWEVER, that no such Transfer
shall be permitted without Mortgagee's receipt of a Non-
Consolidation Opinion, or (y) a Teachers' Affiliate,
PROVIDED that such Teachers' Affiliate qualifies as a
Single Purpose Entity, and
(2) no Event of Default shall have
occurred and be continuing;
provided further that any permitted transferee of the
Mortgaged Property shall execute an assumption, subject to
the provisions of Article 37 hereof, of the obligations of
the Mortgagor under this Mortgage.
(ii) Mortgagor also may transfer or dispose
of Building Equipment which is being replaced or which is no
longer necessary in connection with the operation of the
Premises free from the interest of Mortgagee under this
Mortgage provided that such transfer or disposal will not
materially adversely affect the value of the Mortgaged
Property taken as a whole, will not materially impair the
utility of the Premises, and will not result in a reduction
or abatement of, or right of offset against, the Rents
payable under any Lease, in either case as a result thereof,
and provided that any new Building Equipment acquired by
Mortgagor (and not so disposed of) shall be subject to the
interest of Mortgagee under this Mortgage unless the same
constitutes Leased Personalty. Mortgagee shall, from time
to time, upon receipt of an Officer's Certificate requesting
the same and confirming satisfaction of the conditions set
forth above, execute a written instrument in form reasonably
satisfactory to it to confirm that such Building Equipment
which is to be, or has been, sold or disposed of is free
from the interest of Mortgagee under this Mortgage.
(b) Transfer or Encumbrance of Interests of Mortgagor.
A sale, assignment, conveyance, transfer, or other disposition or
hypothecation or other encumbrance of a direct or indirect
beneficial ownership interest in Mortgagor shall be permitted if
(i) Mortgagee shall have consented thereto and the Rating
Agencies shall have confirmed that such transfer shall not result
in a downgrading, withdrawal or qualification of the then-ratings
of the Certificates, or (ii) after giving effect to the proposed
transaction, a Permitted Owner or a Qualified Transferee shall,
individually or acting in concert, be the managing or co-managing
general partner of, or control, Mortgagor ("control" meaning, for
purposes of this Section 12(b), primary responsibility to make or
veto all material decisions with respect to the operation,
<PAGE>
management, financing and disposition of the Mortgaged Property,
rather than a beneficial ownership requirement, and without being
compromised by the fact that responsibility for such day to day
operating and management functions as are ordinarily handled by a
property manager or for leasing activities has been delegated by
such controlling Person pursuant to an agreement in writing).
Notwithstanding the foregoing, prior to any Transfer of (A) a
limited partnership interest of Mortgagor that results in a
Person owning more than a 49% limited partnership interest of
Mortgagor if such Person did not own more than a 49% limited
partnership interest in Mortgagor as of the date hereof, or (B)
the shares of any general partner of Mortgagor that results in a
Person owning more than 49% of the outstanding shares of such
general partner if such Person did not own more than 49% of the
outstanding shares of such general partner as of the date hereof,
Mortgagee shall be in receipt of (1) written confirmation from the
Rating Agencies that any such transfer will not result in the
downgrading, qualification or withdrawal of the then current
rating on the Class A Certificates (or, if the Class A
Certificates are not then outstanding, the rating of the highest
rated outstanding class of Certificates), or (2) a Non-
Consolidation Opinion.
(c) Indebtedness. Mortgagor shall not incur, create
or assume any indebtedness or incur any liabilities without the
consent of Mortgagee and written confirmation from the Rating
Agencies that the incurrence of any such indebtedness or
liability shall not in itself result in a downgrading, withdrawal
or qualification of the then current ratings of any of the
Certificates; provided, however, so long as no Event of Default
shall have occurred and be continuing, Mortgagor may, without the
consent of Mortgagee, incur, create or assume the following
indebtedness:
(i) the Mortgage Notes and the other
obligations, indebtedness and liabilities secured by this
Mortgage or set forth in any other Loan Document;
(ii) (x) accrued rental and similar accruing
obligations under the Ground Lease and (y) amounts, not
secured by the Mortgaged Property, payable by or on behalf
of Mortgagor for or in respect of the operation of the
Mortgaged Property in the ordinary course of operating
Mortgagor's business and is not more than sixty (60) days
past due, including amounts payable by or on behalf of
Mortgagor to suppliers, contractors, mechanics, vendors,
materialmen or other persons providing property or services
to Mortgagor or to the Mortgaged Property and capitalized
personal property leasing expense, or in connection with the
ownership, management, operation, leasing, cleaning,
maintenance, repair, replacement, financing, improvement,
alteration or restoration thereof incurred in the ordinary
course of operating Mortgagor's business (provided, however,
that notwithstanding the foregoing, in no event shall Mort
gagor be permitted under this provision to enter into a note
for borrowed money);
(iii) amounts, not secured by the Mortgaged
Property, payable or reimbursable to any Tenant on account
<PAGE>
of work performed at the Mortgaged Property by such Tenant
or for costs incurred by such Tenant in connection with its
occupancy of space in the Mortgaged Property, including for
tenant improvements (provided, however, that notwithstanding
the foregoing, in no event shall Mortgagor be permitted
under this provision to enter into a note for borrowed money);
(iv) indebtedness of Mortgagor, on an
unsecured basis, that might be owed to the counterparty to a
Rate Swap Agreement, by reason of a default thereunder on
the part of Mortgagor.
Capital which may be required by Mortgagor from its
partners from time to time may be contributed to Mortgagor as a
capital contribution with such preferred returns thereon as
Mortgagor may determine, as long as such capital contributions
are clearly denominated as equity ("Preferred Equity"); PROVIDED,
HOWEVER, that
(i) the aggregate amount of Preferred Equity
together with the outstanding principal amount of
indebtedness of the Note may not exceed 85% of the Appraised
Value (as defined in the Trust Agreement) of the Mortgaged
Property at the applicable time, which Appraised Value shall
be acceptable to the Rating Agencies, as confirmed in
writing by the Rating Agencies;
(ii) if the holder of the Preferred Equity is
not a partner of Mortgagor on the date hereof, then the
Rating Agencies shall have confirmed in writing that such
party's holding such Preferred Equity will not result in a
downgrading, withdrawal or qualification of the then current
ratings of the Certificates;
(iii) the terms of which shall require
that the holder of the Preferred Equity will not receive any
distributions on account thereof until (A) all current
payments under this Mortgage and the Mortgage Notes have
been paid, (B) all Operating Expenses then due and payable
have been paid, (C) the cost of all leasehold or tenant
improvements or contributions on account thereof required
under Leases have been paid and (D) adequate reserves (as
determined by an Independent Architect to insure that
sufficient amounts are available for the performance of
capital expenditures and improvements at the time such
performance will be required) have been funded for capital
expenditures and improvements, whether or not presently
contemplated or expected and whether ordinary or
extraordinary;
(iv) the holder of the Preferred Equity may
not pledge, assign, transfer or convey its Preferred Equity
unless such holder has obtained written confirmation from
the Rating Agencies that such pledge, assignment, transfer
or conveyance will not result in the downgrade,
qualification or withdrawal of the then current ratings of
the Certificates; and
<PAGE>
(v) the Rating Agencies confirm in writing
that any consent, approval or control rights which the
holder of the Preferred Equity has incident to such
Preferred Entity with respect to the actions of Mortgagor
will not result in a downgrading, withdrawal or
qualification of the then current ratings of the Certificates.
(d) Additional Permitted Transfers. Notwithstanding
the above provisions of this Section 12, and so long as no Event
of Default shall have occurred and be continuing, Mortgagor
without the consent of Mortgagee may (i) make transfers of
immaterial portions of the Real Estate to Governmental
Authorities in connection with Takings of such portions of the
Real Estate for dedication or public use (subject to the
provisions of Section 7 hereof) or non revenue-generating (as of
the date hereof) portions of the Real Estate to third parties,
including, without limitation, owners of outparcels, department
store pads or other properties for the purpose of erecting and
operating additional structures whose use is integrated with the
use of the Mortgaged Property, provided same shall not cause a
reduction in the Mortgaged Property cash-flow, and (ii) grant
easements, restrictions, covenants, reservations and rights of
way in the ordinary course of business for water and sewer lines,
telephone and telegraph lines, electric lines or other utilities
or for other similar purposes, provided that no transfer,
conveyance or encumbrance set forth in the foregoing clauses (i)
and (ii) shall (A) materially impair the utility and operation of
the Real Estate, or (B) materially adversely affect the value of
the Real Estate. If Mortgagor shall receive any consideration in
connection with any such transfer or other conveyance, Mortgagor
shall have the right to use any such proceeds in connection with
any Alterations performed in connection with, or required as a
result of, such conveyance. Any net proceeds received by
Mortgagor in excess of the cost of such Alterations shall be paid
to Mortgagee in repayment of the Mortgage Notes on the next
Interest Payment Date occurring at least ten (10) Business Days
following notice to Mortgagee of such repayment, which notice
Mortgagor shall promptly give, provided, however, that with
respect to such transfers or other conveyances of nonrevenue-
generating portions of the Real Estate, Mortgagor
may retain the first Five Hundred Thousand Dollars ($500,000) of
net proceeds on a cumulative basis (subject, however, to the same
being used to pay the costs of any such Alterations). In
connection with any transfer, conveyance or encumbrance permitted
pursuant to clauses (i) and (ii) above, the Mortgagee shall
execute and deliver any instrument reasonably necessary or
appropriate to evidence its consent to said action and/or, in the
case of the transfers referred to in clause (i) above, to release
the portion of the Real Estate affected by such Taking or such
transfer from the Lien of this Mortgage or, in the case of clause
(ii) above, to subordinate the Lien of this Mortgage to such
easements, restrictions, covenants, reservations and rights of
way or other similar grants upon receipt by the Mortgagee of:
(A) a copy of the instrument of transfer; and
(B) an Officer's Certificate stating
(x) with respect to any Taking, the consideration, if
any, being paid for the transfer and (y) with respect
<PAGE>
to any transfer pursuant to clause (i) or (ii) above,
that such Transfer does not materially impair the
utility and operation of the Real Estate or materially
reduce its value.
All Taking Proceeds shall be applied in accordance with the
provisions of Section 7 hereof.
(e) Not less than five (5) Business Days prior to the
closing of any transaction subject to the provisions of this
Article 12 (other than subsection (d) hereof), Mortgagor shall
deliver to Mortgagee and the Rating Agencies an Officer's
Certificate describing the proposed transaction and stating that
such transaction is permitted by this Article 12, together with
any appraisal or other documents upon which such Officer's
Certificate is based. In addition, Mortgagor shall provide the
Mortgagee and the Rating Agencies with copies of executed deeds,
assignments of Direct Beneficial Owner interests in the
Mortgagor, mortgages or other similar closing documents within
ten (10) days after such closing.
(f) Notwithstanding any provision in this Section 12
to the contrary, this Mortgage shall not restrict the right of
(i) any shareholder in the Urban REIT from transferring its
shares in the Urban REIT or to cause or permit its interest in
the Urban REIT to be redeemed or (ii) any limited partner of REIT
Operating Partnership from transferring its limited partnership
interests in REIT Operating Partnership.
13. MAINTENANCE OF MORTGAGED PROPERTY; ALTERATIONS;
INSPECTION; UTILITIES.
(a) Mortgagor shall keep and maintain the Mortgaged
Property and every part thereof in good, clean order, condition
and repair, subject to ordinary wear and tear, and, subject to
Excusable Delays and the provisions of this Mortgage with respect
to damage or destruction caused by casualty events or Takings,
shall not permit or commit any waste, impairment, or
deterioration of the Mortgaged Property in any material respect.
Mortgagor further covenants to do all other acts which, in light
of the character or use of the Mortgaged Property, may be
reasonably necessary to protect the security hereof, the specific
enumerations herein not excluding the general. Mortgagor shall
not remove or demolish any Improvement on the Premises except as
the same may be necessary in connection with an Alteration or a
restoration in connection with a Taking or casualty in accordance
with the terms and conditions hereof.
(b) Except as may be necessary in connection with an
Alteration permitted by Sections 13(c) or 13(f), Mortgagor shall
not make any changes or allow any material changes to be made in
the nature of the use of the Real Estate or any part thereof, or
initiate or take any trust action or furtherance of any change in
any zoning or other land use classification affecting all or any
portion of the Real Estate now or hereafter in effect and
affecting all or any portion of the Real Estate.
<PAGE>
(c) Provided that no Event of Default shall have
occurred and be continuing hereunder, Mortgagor shall have the
right, without Mortgagee's consent, to undertake any Expansion or
any alteration, improvement, demolition or removal of the
Mortgaged Property or any portion thereof (any Expansion and any
such alteration, improvement, demolition or removal performed by
Mortgagor, an "Alteration") so long as such Alteration is
undertaken in accordance with the applicable provisions of this
Mortgage and the other Loan Documents, is not prohibited by the
Operating Agreements and the Leases and shall not involve an
estimated cost of more than the Threshold Amount. Any Alteration
which involves an estimated cost of more than the Threshold
Amount shall be subject to (i) the approval of Mortgagee (such
approval not to be unreasonably withheld or delayed), and (ii)
receipt by Mortgagee of written confirmation from the Rating
Agencies that the Alteration shall not result in a downgrading,
withdrawal or qualification of the then-ratings of the
Certificates, and shall be conducted under the supervision of an
Independent Architect. No such Alteration shall be undertaken
until five (5) Business Days after there shall have been filed
with the Mortgagee, for information purposes only and not for
approval by the Mortgagee, detailed plans and specifications and
cost estimates therefor, prepared and approved in writing by such
Independent Architect. Such plans and specifications may be
revised at any time and from time to time provided that material
revisions of such plans and specifications are filed with the
Mortgagee, for information purposes only, together with the
written approval thereof by such Independent Architect. All work
done in connection with any Alteration shall be performed with
due diligence in a good and workmanlike manner, all materials
used in connection with any Alteration shall not be less than the
standard of quality of the materials currently used at the
Premises and all work performed and all materials used shall be
in accordance with all applicable Legal Requirements and
Insurance Requirements.
(d) Notwithstanding anything to the contrary contained
in Section 13(c) hereof, no Alteration contracted for by
Mortgagor shall be performed by or on behalf of Mortgagor if the
cost thereof, individually or in the aggregate with all other
related Alterations, as reasonably estimated by an Independent
Architect, that are due and payable and unpaid exceed the
Threshold Amount (adjusted as described below) (any such
Alteration, a "Material Alteration"), unless Mortgagor shall have
delivered to Mortgagee security in an amount not less than the
difference between such due and payable and unpaid costs and the
Threshold Amount. The Threshold Amount shall be reduced on any
given date by the Independent Architect's estimate of the cost,
if work on the Alterations were to be terminated on such date, to
restore the Premises to the extent necessary so that, as
restored, there would be no material adverse effect on the value
of the Premises as a whole. Costs which are subject to retainage
shall be treated as due and payable and unpaid from the date they
would be due and payable but for their characterization as
subject to retainage. In the event that any Alteration shall be
made in conjunction with any Restoration with respect to which
Mortgagor shall be entitled to withdraw Proceeds pursuant to
Section 7(d) and (e) hereof, the amount of the Cash and Cash
Equivalents and/or Letter of Credit to be furnished pursuant
<PAGE>
hereto need not exceed the aggregate cost of such Restoration and
such Alteration (as estimated by the Independent Architect),
less the sum of the amount of any Proceeds which Mortgagor may be
entitled to withdraw pursuant to Section 7(d) and (e) hereof and
the Threshold Amount (adjusted as described above). The
Independent Architect shall deliver to Mortgagee a schedule
setting forth the projected stages of completion of the
Alteration and the corresponding amounts equal to such
completion. Any Cash which Mortgagor shall deliver pursuant
hereto (or the proceeds of any Cash and Cash Equivalents and/or
Letter of Credit) shall be invested by Mortgagee in a Permitted
Investment consistent with the projected completion of the
Alteration. From time to time as the Alteration progresses, the
amount of any Cash or Cash Equivalents so furnished may be
withdrawn by Mortgagor and paid or otherwise applied by or
returned to Mortgagor in an amount equal to the amount Mortgagor
would be entitled to so withdraw if Section 7(d) and (e) hereof
were applicable, and any Letter of Credit so furnished may be
reduced by Mortgagor in an amount equal to the amount Mortgagor
would be entitled to so reduce if Section 7(d) and (e) hereof
were applicable. At any time after substantial completion of any
Alteration in respect whereof Cash and Cash Equivalents and/or a
Letter of Credit was deposited pursuant hereto, the whole balance
of any Cash so deposited with Mortgagee and then remaining on
deposit may be withdrawn by Mortgagor and shall be paid by
Mortgagee to Mortgagor, and any Cash and Cash Equivalents and/or
a Letter of Credit so deposited or delivered shall, to the extent
it has not been called upon, reduced or theretofore released, be
released by Mortgagee to Mortgagor, within ten (10) days after
receipt by Mortgagee of an application for such withdrawal and/or
release together with an Officer's Certificate, and signed also
(as to the following clause (1)) by the Independent Architect,
setting forth in substance as follows:
(1) that the Alteration in respect of which
such Cash and Cash Equivalents and/or a Letter of
Credit was deposited has been substantially completed
in all material respects in accordance with any plans
and specifications therefor previously filed with
Mortgagee under Section 13(c) hereof; and
(2) that to the knowledge of the certifying
Person all amounts which Mortgagor is or may become
liable to pay in respect of such Alteration through the
date of the certification have been paid in full or
adequately provided for or are being contested in
accordance with Section 8(c) hereof and, to the extent
that such are customary and reasonably obtainable by
prudent managers in the metropolitan area where the
Premises are located and Mortgagor is not contesting
payment in accord ance with Section 8(c) hereof, that
lien waivers have been obtained from the general
contractor and major subcontractors performing such
Alterations.
(e) Mortgagee and any Persons authorized by Mortgagee
may at all reasonable times and upon reasonable notice enter and
examine the Real Estate and may inspect all work done, labor
performed and materials furnished in and about the Real Estate
<PAGE>
subject in all instances to the rights of Tenants under Leases.
Mortgagee shall not have any duty to make any such inspection and
shall not have any liability or obligation for making (except for
its gross negligence or willful misconduct) or not making any
such inspection.
(f) Provided that no Event of Default shall have
occurred and be continuing hereunder, Mortgagor shall have the
right, without Mortgagee's consent, to expand or reduce the size
of the Mortgaged Property through the addition of one or more
anchor stores and/or the addition of one or more mall or
peripheral stores from time to time (either retail or non-retail
facilities) including, without limitation, by the conversion of
an existing department store to additional mall stores, the
transfer, free and clear of the lien of this Mortgage, of a portion
of the Mortgaged Property to a department store for the construction
of its store, or the construction of a decked parking facility (an
"Expansion"), so long as:
(i) such Expansion (A) shall not materially
adversely affect the value of the Premises, including any
anchor parcel to be conveyed to a department store, taken as
a whole, or materially adversely effect the Operating
Income, (B) shall not result in any violation of the terms
of any Operating Agreement or Lease at the Mortgaged
Property, and (C) shall be conducted in accordance with
Sections 12(d) and 13(c) hereof.
(ii) Mortgagor delivers an Officer's Certificate
stating that (A) such transactions and the particular plans
developed for the Expansion (x) shall not violate any
existing Material Lease or Operating Agreement, and shall
not affect the utility or operation of the Premises in any
material adverse respect, (B) any connection to, or
contemplated shared use of, the common area in order to
provide utilities services and access to the Expansion shall
not affect the availability or provision of utility services
to the Premises in any material adverse respect, and (C) any
such transaction shall not materially reduce the rentable
square footage of the Improvements,
(iii) Mortgagee receives written confirmation from
the Rating Agencies that the Expansion would not result in a
downgrading, withdrawal or qualification of the then-ratings
of the Certificates,
(iv) Mortgagor obtains an agreement from any
third party developer conducting such Expansion which
provides that in the event such third party developer does
not complete construction of the improvements on the
expansion parcel, Mortgagor will have the right, at either
Mortgagor's or the developer's expense as Mortgagor shall
elect, to enter the Expansion parcel and either complete the
improvements or demolish the uncompleted improvements with
no liability to the third party developer, and
(v) Mortgagor shall have provided to Mortgagee
such title insurance endorsements as Mortgagee may
reasonably require.
<PAGE>
Mortgagee shall execute and deliver to Mortgagor such instruments
and agreements as are reasonably requested of it by Mortgagor, at
Mortgagor's expense, in order to consummate any Expansion
permitted hereby.
14. LEGAL COMPLIANCE. To Mortgagor's actual
knowledge, Mortgagor and the Mortgaged Property and the use
thereof materially comply with all Legal Requirements. Subject
to Mortgagor's right of contest pursuant to Section 8(c),
Mortgagor shall comply in all material respects with all present
and future laws, statutes, codes, ordinances, orders, judgments,
decrees, injunctions, rules, regulations and requirements of
every Governmental Authority, including, without limitation,
Environmental Laws, and all covenants, restrictions and
conditions now or hereafter of record which may be applicable to
it or to any of the Mortgaged Property, or to the use, manner of
use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of any of the Mortgaged Property,
including, without limitation, building and zoning codes and
ordinances (collectively, "Legal Requirements"); provided,
however, with respect to any matters of noncompliance that are
the responsibility of a Tenant under its Lease and that do not
materially adversely affect the value or utility of the Mortgaged
Property, Mortgagor's obligations under the preceding provisions
of this Section 14 shall be limited to Mortgagor's exercise of
diligent efforts to have such Tenant fulfill such obligations.
15. BOOKS AND RECORDS, FINANCIAL STATEMENTS, REPORTS
AND OTHER INFORMATION.
(a) Books and Records. Mortgagor will keep and
maintain on a fiscal year basis proper books and client records,
in which accurate and complete entries shall be made of all
dealings or transactions of or in relation to the Mortgage Notes
and the Mortgaged Property and the business and affairs of
Mortgagor relating to the Mortgaged Property, in accordance with
U.S. generally accepted accounting principles consistently
applied ("GAAP"). Mortgagee and its authorized representatives
shall have the right at reasonable times and upon reasonable
notice to examine the books and records of Mortgagor relating to
the operation of the Mortgaged Property and to make such copies
or extracts thereof as Mortgagee may reasonably require.
(b) Financial Statements.
(i) Not later than sixty (60) days following
the end of each fiscal quarter (other than the fourth
(4th) quarter of any fiscal year) of Mortgagor's
operations, Mortgagor will deliver to Mortgagee
unaudited financial statements prepared by an
Independent Accountant (or internally prepared), which
shall be prepared in accordance with GAAP, including a
balance sheet as of the end of such quarter and a
statement of revenues and expenses for such quarter.
Such statements for each quarter shall be accompanied
by an Officer's Certificate certifying that to the
signer's actual knowledge, (A) such statements fairly
represent the financial condition and results of opera
tions of Mortgagor in accordance with GAAP and (B) as
<PAGE>
of the date of such Officer's Certificate, no Default
exists under this Mortgage, the Mortgage Notes or any
other Loan Document or, if so, specifying each such
Default and the nature and status thereof and the
action then being taken by Mortgagor or proposed to be
taken to remedy such Default.
(ii) Not later than ninety (90) days after
the end of each fiscal year of Mortgagor's operations,
Mortgagor will deliver to Mortgagee audited financial
statements certified by an Independent Accountant in
accordance with GAAP, including a balance sheet as of
the end of such year and a statement of revenues and
expenses for such year, and stating in comparative form
the figures for the previous fiscal year. Such annual
financial statements shall also be accompanied by an
Officer's Certificate in the form required pursuant to
Section 15(b)(i) hereof.
(c) Leasing Reports. Not later than ninety (90) days
after the end of each fiscal quarter of Mortgagor's operations,
Mortgagor will deliver to Mortgagee a true and complete rent roll
for the Mortgaged Property, dated as of the last date of such
fiscal quarter, (i) containing a list of all Tenants under
Leases, (ii) the net rentable square feet or gross leasable
square feet leased by each Tenant, (iii) the annual fixed rent
and additional rent currently payable by each Tenant and, to the
extent available, sales per gross leasable foot by each Tenant,
and (iv) the expiration date of each of the Leases, and such rent
roll shall be accompanied by an Officer's Certificate certifying
that such rent roll is true, correct and complete in all material
respects and stating whether Mortgagor, within the past three (3)
months, has issued a notice of default with respect to any Lease
which has not been cured, and the nature of such default. In
each quarterly period Mortgagor will deliver to Mortgagee, upon
request by Mortgagee, a certified copy of any Lease entered into
during the previous fiscal quarter, together with a certificate
which shall include a statement that each such Lease complies
with the provisions of Section 16 hereof.
(d) Other Information. Mortgagor will, within a
reasonable time after written request by Mortgagee or any of the
Rating Agencies, furnish or cause to be furnished to Mortgagee or
such Rating Agency, as applicable, in such manner and in such
detail as may be reasonably requested, such reasonable additional
information as may be requested by such Person with respect to
the Mortgaged Property.
16. COMPLIANCE WITH LEASES AND AGREEMENTS.
(a) Mortgagor represents that it has heretofore
delivered to Mortgagee true and complete copies of the Material
Leases and the Operating Agreements and any and all amendments or
modifications thereof. Except as previously disclosed to the
Mortgagee and the Rating Agencies, (i) the Leases and the
Operating Agreements are in full force and effect, and (ii)
Mortgagor has not given any notice of default to, and has not
received any notice of default from, any Tenant under any of the
Material Leases (or under any other Leases which individually or
<PAGE>
in the aggregate if in default would materially adversely affect
the value of the Premises taken as a whole) or any party to any
of the Operating Agreements which remains uncured. Mortgagor has
complied with and performed all of its material construction,
improvement and alteration obligations with respect to the
Premises or the Real Estate required as of the date hereof under
the Material Leases and the Operating Agreements. Mortgagor will
promptly after receipt thereof deliver to Mortgagee a copy of any
notice received with respect to any of the Operating Agreements
or from any Tenant under any Lease covering five percent (5%) or
more of the gross leasable area of the Real Estate (any such
Lease, a "Material Lease"), claiming that Mortgagor is in default
in the performance or observance of any of the material terms,
covenants or conditions of any of the Operating Agreements or
such Material Lease.
(b) Mortgagor may, at all times, lease the portions of
the Mortgaged Property currently used as retail premises in its
discretion reasonably exercised in a first-class manner
consistent with other first-class regional shopping malls located
in the greater Chicago, Illinois, metropolitan area and then
current market conditions existing therein, and otherwise in
accordance with this Mortgage. Each Lease entered into after the
date hereof, including the renewal or extension on or after the
date hereof of any Lease entered into prior to the date hereof if
the rent payable during such renewal or extension, or a formula
or other method to compute such rent, is not provided for in such
Lease (such a renewal or extension a "Renewal Lease"), either (A)
shall provide for payment of rent and all other material amounts
payable on market terms and conditions (taking into account the
type and quality of the tenant, the length of tenancy and the
location and configuration of the space so rented), as of the
date such Lease is executed by Mortgagor, of the space covered by
such Lease or Renewal Lease for the term thereof, including any
renewal options, (B) shall not materially adversely affect the
value of the Real Estate taken as a whole, or (C) shall be
consented to by the Mortgagee. Mortgagor may, without the
consent of Mortgagee, amend, modify or waive the provisions of
any Lease or terminate, reduce rents under or shorten the term of
any Lease provided that such action (taking into account, in the
case of a termination, reduction in rent or shortening of term,
the planned alternative use of the affected space) does
not materially adversely affect the value of the Real Estate
taken as a whole, and provided further that such Lease, as
amended, modified or waived, is otherwise in compliance with the
requirements of this Mortgage. Mortgagor shall deliver to
Mortgagee a certified copy of any such amendment, modification or
waiver which relates to a Material Lease which has previously
been delivered to Mortgagee. Mortgagor shall manage the portion
of the Mortgaged Property currently used as office premises in
accordance with sound management practices for similar properties.
(c) Mortgagor shall (i) promptly perform and observe
all of the material terms, covenants and conditions required to
be performed and observed by Mortgagor under the Ground Lease,
and promptly perform and observe all of the material terms,
covenants and conditions required to be performed and observed by
Mortgagor under the Leases and Operating Agreements (other than
the Ground Lease) if the failure to perform or observe the same
<PAGE>
would materially and adversely affect the value of the Premises
taken as a whole; (ii) exercise, within fifteen (15) Business
Days after a written request by Mortgagee, any right to request
from the Tenant under any Lease or the party to any Operating
Agreement a certificate with respect to the status thereof; and
(iii) not collect any of the Rents under the Leases more than one
(1) month in advance (except that Mortgagor may collect such
security deposits as are permitted by Legal Requirements and are
commercially reasonable in the prevailing market and collect
escalations, percentage rent and other charges in accordance with
the terms of each Lease).
(d) All Leases entered into by Mortgagor after the
date hereof shall be subject and subordinate to this Mortgage
(through either subordination provisions in the Leases or
separate Nondisturbance Agreements), and shall provide that the
Tenant thereunder shall attorn to Mortgagee, or any other Person
succeeding to the interest of Mortgagee, on the terms set forth
in Section 16(e); provided that Mortgagee, at the request of
Mortgagor, shall enter into a subordination, attornment and
nondisturbance agreement, in form and substance substantially
similar to the form attached hereto as Exhibit C (a
"Nondisturbance Agreement") with any existing Tenant or any
Tenant entering into a Lease after the date hereof (other than a
Lease to an Affiliate of the Mortgagor), provided further that,
with respect to any Lease entered into after the date hereof,
such request is accompanied by an Officer's Certificate stating
that such Lease complies in all respects with this Section 16.
All actual, out-of-pocket costs and expenses of Mortgagee in
connection with the negotiation, preparation, execution and
delivery of any Nondisturbance Agreement including, without
limitation, reasonable attorneys' fees and disbursements, shall
be paid by Mortgagor.
(e) Each Lease entered into from and after the date
hereof shall provide as follows: In the event of the enforcement
by Mortgagee of any remedy under this Mortgage, the Tenant under
such Lease shall, at the option of Mortgagee or of any other
Person succeeding to the interest of Mortgagee as a result of
such enforcement, subject to Mortgagee's and such Tenant's
delivery of a Nondisturbance Agreement if such Nondisturbance
Agreement is required pursuant to the provisions of Section 16(d)
above, attorn to Mortgagee or to such Person and shall recognize
Mortgagee or such successor in interest as lessor under the such
Lease without change in the provisions thereof; provided,
however, Mortgagee or such successor in interest shall not be
liable for or bound by (i) any payment of an installment of rent
or additional rent which may have been made more than thirty (30)
days before the due date of such installment, (ii) any amendment
or modification to or termination of any such Lease not in
conformity with Section 16(b), (iii) any act or omission of or
default by Mortgagor under any such Lease or (iv) any credits,
claims, setoffs or defenses which any Tenant may have against
Mortgagor. Each such Tenant, upon reasonable request by Mortgagee
or such successor in interest, shall execute and deliver an
instrument or instruments confirming such attornment subject to
Mortgagee's delivery of a Nondisturbance Agreement to such Tenant
if such Nondisturbance Agreement is required pursuant to the
provisions of Section 16(d) above.
<PAGE>
17. MORTGAGEE'S RIGHT TO PERFORM. Upon the occurrence
of an Event of Default with respect to the performance of any of
the Obligations contained herein, Mortgagee, without waiving or
releasing Mortgagor from any Obligation or Default under this
Mortgage, may (but shall not be obligated to), at any time
perform the same, and the cost thereof, with interest at a rate
equal to the weighted average of the interest rates provided for
in the Mortgage Notes from the date of payment by Mortgagee to
the date such amount is paid by Mortgagor, shall immediately be
due from Mortgagor to Mortgagee, and the same shall be secured by
this Mortgage and shall be a Lien on the Mortgaged Property prior
to any right, title to, interest in or claim upon the Mortgaged
Property attaching subsequent to the Lien of this Mortgage
(subject to the provisions of Section 12(d)). No payment or
advance of money by Mortgagee under this Section 17 shall be
deemed or construed to cure Mortgagor's Default or waive any
right or remedy of Mortgagee hereunder.
18. MORTGAGOR'S EXISTENCE; ORGANIZATION AND AUTHORITY.
Mortgagor shall do all things necessary to preserve and keep in
full force and effect its existence, franchises, rights and
privileges under the laws of the State of Illinois and such other
jurisdictions as may be required so as to have and retain the
right to own property or transact business in the state and other
jurisdictions in which the Mortgaged Property is located and to
which the Mortgaged Property and the Mortgagor are subject.
Mortgagor hereby represents and warrants that Mortgagor (a) is a
duly organized and validly existing limited partnership in good
standing under the laws of the State of Illinois, (b) has the
power and authority to own its properties and to carry on its
business as now being conducted and as proposed to be conducted
in the State of Illinois and (c) has the power to execute and
deliver and perform its obligations under this Mortgage, the
Mortgage Notes and all of the other Loan Documents. The
execution and delivery by Mortgagor of this Mortgage, the
Mortgage Notes and each of the other Loan Documents, Mortgagor's
performance of its respective obligations hereunder and
thereunder and the creation of the security interest and Liens
provided for herein and therein have been duly authorized by all
requisite action on the part of Mortgagor, including the consent
of its Direct Beneficial Owners where required, and will not
violate any Legal Requirement, any order of any court or other
Governmental Authority, the trust agreement of Mortgagor or any
material indenture, agreement or other instrument to which
Mortgagor is a party, or by which Mortgagor is bound, or be in
conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any of the
foregoing, or result in the creation or imposition of any Lien,
of any nature whatsoever, upon any of the property or assets of
Mortgagor except the Liens created hereunder and under the other
Loan Documents. Mortgagor further represents that the Mortgage
Notes, this Mortgage and the other Loan Documents constitute the
legal, valid and binding obligations of Mortgagor, enforceable
against Mortgagor in accordance with their respective terms,
except as may be limited by (i) bankruptcy, insolvency or other
similar Legal Requirements affecting the rights of creditors
generally, and (ii) general principles of equity regardless of
whether considered in a proceeding in equity or at law. Except
for filings that may be required to be made with the Securities
<PAGE>
and Exchange Commission and any state agencies having
jurisdiction over the offering and sale of securities, Mortgagor
is not required to obtain any consent, approval or authorization
from or to file any declaration or statement with, any Governmental
Authority in connection with or as a condition to the execution,
delivery or performance of this Mortgage, the Mortgage Notes or
the other Loan Documents by Mortgagor. Representations
comparable to the representations set forth above shall be deemed
to have been made by the transferee of any part of the Mortgaged
Property pursuant to Section 12(a). Mortgagor further represents
and warrants that it is and, so long as any portion of the
Indebtedness shall remain outstanding, shall do all things
necessary to continue to be a Single-Purpose Entity.
19. PROTECTION OF SECURITY; COSTS AND EXPENSES.
Mortgagor shall appear in and defend any action or proceeding
purporting to affect the security hereof or the rights or powers
of Mortgagee hereunder and shall pay all actual, out-of-pocket
costs and expenses, including, without limitation, cost of
evidence of title and reasonable attorneys' fees and
disbursements, in any such action or proceeding in which
Mortgagee may appear, and in any suit brought by Mortgagee to
foreclose this Mortgage or to enforce or establish any other
rights or remedies of Mortgagee hereunder. If an Event of
Default occurs under this Mortgage, or if any action or
proceeding is commenced in which it becomes necessary to defend
or uphold the Lien or priority of this Mortgage or which
adversely affects Mortgagee's interest in the Mortgaged Property
or any part thereof, including, but not limited to, eminent
domain, enforcement of, or proceedings of any nature whatsoever
under any Legal Requirement affecting the Mortgaged Property or
involving Mortgagor's bankruptcy, insolvency, arrangement,
reorganization or other form of debtor relief, or to a decedent,
then Mortgagee, upon reasonable notice to Mortgagor, may, but
without obligation to do so and without releasing Mortgagor from
any obligation hereunder, make such appearances, disburse such
sums and take such action as Mortgagee deems reasonably necessary
or appropriate to protect Mortgagee's interest in the Mortgaged
Property, including, but not limited to, disbursement of
reasonable attorneys' fees, entry upon the Mortgaged Property to
make repairs or take other action to protect the security hereof,
and payment, purchase, contest or compromise of any encumbrance,
charge or lien which in the judgment of Mortgagee appears to be
prior or superior hereto. All of the costs, expenses and amounts
set forth in this Section 19 shall be payable by Mortgagor, on
demand and, together with interest thereon at a rate equal to the
weighted average of the rates then in effect with respect to the
Mortgage Notes, from the date of any such payment by Mortgagee
until the date of repayment by Mortgagor, shall be deemed to be
Indebtedness hereunder and shall be a Lien on the Mortgaged
Property prior to any right, title, interest or claim upon the
Mortgaged Property (subject to the provisions of Section 12(d)).
Nothing contained in this Section 12 shall be construed to
require Mortgagee to incur any expense, make any appearance, or
take any other action.
20. MANAGEMENT OF THE MORTGAGED PROPERTY. Mortgagor
covenants and agrees with Mortgagee that the Mortgaged Property
will be operated at all times in a first-class manner by the
<PAGE>
Manager pursuant to the Management Agreement. The Manager shall
be a Qualifying Manager. For purposes hereof a "Qualifying
Manager" shall mean (i) Urban Retail Properties Co., (ii) an
Urban Affiliate, (iii) the Urban REIT or the REIT Operating
Partnership, provided that such entity, together with its
Affiliates, manages, at the time of its engagement, at least
twelve (12) other regional or super-regional shopping centers,
comprising an aggregate of at least six million square feet of
gross leasable area in the United States (including anchor
tenants), (iv) a prominent professional management corporation or
business entity which manages, at the time of its engagement, at
least twelve (12) other regional or super-regional shopping
centers, comprising an aggregate of at least six million square
feet of gross leasable area in the United States (including
anchor tenants), or (v) another Person designated by Mortgagor
(provided that Mortgagor shall obtain written confirmation from
the Rating Agencies that retention of such other Person as
Manager shall not result in a downgrading, withdrawal or
qualification of the then-ratings of the Certificates). If the
Manager shall be an entity specified in clauses (i), (ii) or (iii)
above, the Management Agreement shall at the time of execution be
on market terms and otherwise on terms not more favorable to the
Manager than would be agreed with an unaffiliated third party
(including that the same shall be terminable for cause and upon a
foreclosure of the lien of this Mortgage). To the extent required
by the terms of the Ground Lease, the Management Agreement shall
have been approved by the Ground Lessor under the Ground Lease.
Mortgagor shall provide written notice to the Rating Agencies if
there is a new Manager.
21. NO ENDORSEMENT. Mortgagee shall not become or be
considered to be an endorser, co-maker or co-obligor on the
Mortgage Notes or on any obligation of Mortgagor secured by this Mortgage.
22. REMEDIES. Upon the occurrence of and during the
continuation of an Event of Default, Mortgagee may take such
actions against Mortgagor and/or against the Mortgaged Property
or any portion thereof as Mortgagee determines is necessary to
protect and enforce its rights hereunder, without notice or
demand except as set forth below. Any such actions taken by
Mortgagee shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at
such time and in such order as Mortgagee may determine in its
sole discretion, to the fullest extent permitted by law, without
impairing or otherwise affecting the other rights and remedies of
Mortgagee permitted by law, equity or contract or as set forth
herein or in the other Loan Documents. Such actions may include,
without limitation, the following:
(a) Acceleration. Subject to any applicable
provisions of the Mortgage Notes and the other Loan Documents,
Mortgagee may declare all or any portion of the unpaid principal
balance under the Mortgage Notes, together with all accrued and
unpaid interest thereon, and all other unpaid Indebtedness, to be
immediately due and payable.
<PAGE>
(b) Entry. Mortgagee may enter into or upon the
Mortgaged Property, personally or by its agents, nominees or
attorneys, and may dispossess Mortgagor and its agents and
servants therefrom, and thereupon Mortgagee in its sole
discretion may: (i) use, operate, manage, control, insure,
maintain, repair, restore and otherwise deal with all and every
portion of the Mortgaged Property and conduct business thereon,
in any case either in the name of Mortgagee or in such other name
as Mortgagee shall deem advisable; (ii) complete any construction
with respect to the Mortgaged Property in such manner and form as
Mortgagee deems advisable; (iii) make alterations, additions,
renewals, replacements and improvements to or on the Mortgaged
Property, (iv) exercise all rights and powers of Mortgagor with
respect to the Mortgaged Property whether in the name of
Mortgagor or otherwise, including the right to enter into,
cancel, enforce or modify Leases, obtain and evict tenants and
demand, sue for, collect and receive all Rents with respect to
the Mortgaged Property; and (v) apply the receipts of all such
Rents (other than Tenant security deposits) with respect to the
Mortgaged Property to the payment of the Indebtedness, after
deducting therefrom all costs and expenses (including reasonable
attorneys' fees and disbursements) incurred in connection with
the aforesaid operations.
(c) Foreclosure. Mortgagee, in its sole and absolute
discretion, may institute proceedings for the complete or partial
foreclosure of this Mortgage against all or any portion or the
Mortgaged Property, in which case the Mortgaged Property or any
portion thereof may be sold for cash or upon credit, as an
entirety or in parcels or portions.
(d) Specific Performance. Mortgagee, in its sole and
absolute discretion, may institute an action, suit or proceeding
at law or in equity for the specific performance of any covenant,
condition or agreement contained herein or in the Mortgage Notes
or any other Loan Document, or in aid of the execution of any
power granted hereunder or for the enforcement of any other
appropriate legal or equitably remedy.
(e) Enforcement of Mortgage Notes. Mortgagee may
recover judgment on the Mortgage Notes (or any portion of the
Indebtedness evidenced thereby), either before, during or after
any proceedings for the foreclosure (or partial foreclosure) or
enforcement of this Mortgage.
(f) Appointment of Receiver. Mortgagee as a matter of
right may appoint or secure the appointment of a receiver,
trustee, liquidator or similar official of the Mortgaged Property
or any portion thereof, and Mortgagor hereby irrevocably consents
and agrees to such appointment, without notice to Mortgagor and
without regard to the value of the Mortgaged Property or adequacy
of the security for the Indebtedness and without regard to the
solvency of Mortgagor or any other Person liable for the payment
of the Indebtedness, and such receiver or other official shall
have all rights and powers permitted by applicable law and such
other rights and powers as the court making such appointment may
confer (including the right to use, operate, manage, control,
insure, maintain, repair, restore and otherwise deal with all and
every portion of the Mortgaged Property and conduct business
<PAGE>
thereon, demand, sue for, collect and receive all Rents with
respect to the Mortgaged Property and apply the receipts of all
such Rents (other than Tenant security deposits) with respect to
the Mortgaged Property to the payment of the Indebtedness after
deducting therefrom all costs and expenses (including reasonable
attorneys' fees and disbursements) incurred in connection with
the aforesaid operations), but the appointment of such receiver
or other official shall not impair or in any manner prejudice the
rights of Mortgagee to receive the Rents with respect to any of
the Mortgaged Property pursuant to this Mortgage or the
Assignment of Leases.
(g) UCC Remedies. Mortgagee may exercise any or all
of the remedies available to a secured party under the UCC.
(h) Other Rights. Mortgagee may pursue against
Mortgagor any other rights and remedies of Mortgagee permitted by
law, equity or contract or as set forth herein or in the other
Loan Documents.
(i) Acceleration upon Sale. Upon any sale of the
Mortgaged Property or any part thereof by Mortgagee under or by
virtue of this Mortgage, whether pursuant to foreclosure or power
of sale or otherwise in accordance with the provisions of this
Mortgage, the entire unpaid principal amount of the Mortgage
Notes at the time outstanding shall, if not previously declared
due and payable, immediately become due and payable, together
with the interest accrued thereon and any applicable premium
which would then be payable, and any other indebtedness which
this Mortgage by its terms secures.
Mortgagee, any Holder individually, or any nominee of
any of them may be a purchaser of the Mortgaged Property or a
portion thereof or of any interest therein at any sale thereof,
and may apply to the purchase price all or any part of the
indebtedness secured hereby in lieu of payment in cash of the
amount of such indebtedness applied. Any such purchaser shall,
upon any such purchase, acquire good title to the properties so
purchased, free of the lien of this Mortgage and free of all
rights of redemption in Mortgagor.
Upon any sale of the Mortgaged Property after the
Mortgage Notes becomes due and payable, whether at maturity, by
declaration of acceleration or by automatic acceleration after an
Event of Default or otherwise, the receipt of Mortgagee or the
receipt of the officer making the sale under judicial proceedings
shall, to the full extent legally permitted, be sufficient
discharge to the purchaser for the purchase money, and such
purchaser shall not be obligated to see to the application
thereof.
(j) Phase I Report. Prior to the commencement of any
proceeding to foreclose the lien of this Mortgage, Mortgagee
shall obtain, at Mortgagor's expense, a new Phase I environmental
report with respect to the Mortgaged Property, and such
additional environmental studies as may be recommended by such
Phase I report.
<PAGE>
(k) Rate Swap Counterparty Rights. Notwithstanding
anything herein or in the Trust Agreement or any other Loan
Document to the contrary, upon the occurrence of an Event of
Default described herein, the Rate Swap Counterparty shall have
the right to issue and to direct Mortgagee to issue to Mortgagor
a notice calling for an Early Termination Date (as defined in the
Rate Swap Agreement), and in such event Mortgagee shall issue
such notice and provide a copy thereof to the Rate Swap
Counterparty. Notwithstanding anything herein to the contrary,
in the case of an Event of Default described herein, the Rate
Swap Counterparty shall have the right to direct Mortgagee to
take all reasonable steps necessary to foreclose the lien of this
Mortgage. Mortgagee shall be under no obligation to take any
action at the direction of the Rate Swap Counterparty unless the
Rate Swap Counterparty shall have offered to Mortgagee reasonable
security or indemnity against the cost, expenses and liabilities
which may be incurred by Mortgagee in connection with such action.
23. APPLICATION OF PROCEEDS. If the Class A Note or
any class of Additional Notes are not paid by the applicable
stated maturity date or are accelerated, available amounts shall
be applied in the following order of priority:
(i) First, to the payment of all sums advanced and
costs and expenses incurred by Mortgagee in connection with
the Loan or any part thereof, including any renewal,
extension, or change of or substitution for the Loan or any
part thereof, or the acquisition or perfection of the
security therefor, whether made or incurred at the request
of Mortgagor or Servicer, together with any interest thereon
at the Advance Rate, and all amounts owed to the Trust,
Trustee or Servicer in respect of Trustee's or Servicer's
costs and expenses, together with interest thereon at the
Advance Rate;
(ii) Second, to the payment of accrued and unpaid
interest (excluding Default Interest and Additional Amounts,
if any) due and payable on the Class A Note until all such
accrued and unpaid interest then due and payable on the
Class A Note has been paid in full;
(iii) Third, to the payment of all outstanding
principal of the Class A Note until all unpaid principal of
the Class A Note has been paid in full;
(iv) Fourth, to the payment of accrued and unpaid
interest (excluding Default Interest and Additional Amounts,
if any) due and payable on each class of Additional Notes
until all such accrued and unpaid interest then due and
payable on each class of Additional Notes has been paid in full;
(v) Fifth, to the payment of all outstanding principal
of each class of Additional Notes until all outstanding
principal of each class of Additional Notes has been paid in full;
(vi) Sixth, to the payment of Default Interest due and
payable on the Class A Note until all accrued and unpaid
Default Interest on the Class A Note has been paid in full;
<PAGE>
(vii) Seventh, to the payment of Default Interest
due and payable on each class of Additional Notes until all
accrued and unpaid Default Interest on each class of
Additional Notes has been paid in full;
(viii) Eighth, to the payment of any Additional
Amounts due and payable on the Class A Note until all
accrued and unpaid Additional Amounts on the Class A Note
have been paid in full;
(ix) Ninth, to the payment of any Additional Amounts
due and payable on each class of Additional Notes until all
accrued and unpaid Additional Amounts on each class of
Additional Notes have been paid in full;
(x) Tenth, to the payment of Rate Swap Breakage Costs
due and owing the Rate Swap Counterparty; and
(xi) Eleventh, to the payment of any breakage costs due
and owing any Additional Counterparty.
Notwithstanding the foregoing, for amounts received
after an Event of Default that are not in respect of the
liquidation of the Mortgaged Property, the priorities set forth
in clauses third and fourth above shall be reversed and interest
on Additional Notes (excluding Additional Amounts and Default
Interest) shall be paid prior to principal of the Class A Note.
24. NOTICE OF CERTAIN OCCURRENCES. Mortgagor shall
give notice to Mortgagee and the Rating Agencies promptly upon
Mortgagor becoming aware of the occurrence of: (a) any Default;
(b) any litigation or proceeding affecting Mortgagor or the
Mortgaged Property or any part thereof in which the amount
involved is One Million Dollars ($1,000,000) or more and not
covered by insurance or in which injunctive or similar relief is
sought; and (c) a material adverse change in the business,
operations, property or financial condition of Mortgagor or the
Mortgaged Property.
25. WAIVER OF TRIAL BY JURY. Mortgagor hereby waives
and shall waive trial by jury in any action or proceeding brought
by, or counterclaim asserted by Mortgagee which action,
proceeding or counterclaim arises out of or is connected with
this Mortgage, the Mortgage Notes or any other Loan Documents.
26. TRUST FUNDS. Within ten (10) days after written
request by Mortgagee, Mortgagor shall furnish Mortgagee with a
statement of all security deposits by tenants under the Leases
which statement shall be certified by Mortgagor.
27. CHANGES IN METHOD OF TAXATION; NO CREDIT FOR
PAYMENT OF TAXES.
(a) In the event of the passage after the date hereof
of any law of the United States or of the state or municipality
where the Mortgaged Property is located (i) changing in any way
the laws for the taxation of mortgages or debts secured thereby
for federal, state or local purposes, or the manner of collection
of any such taxes, and (ii) imposing a tax, either directly or
<PAGE>
indirectly, on mortgages or debts secured thereby (other than a
tax that may arise in connection with ownership or transfer of
the Mortgage Notes or that is imposed upon the income of the
Mortgagee), the Mortgagor shall either pay such taxes or prepay
the Mortgage Notes (without premium or penalty); provided, however,
the Mortgagor shall make any payment of any tax so imposed when due
until full prepayment of the Mortgage Notes.
(b) Mortgagor shall not be entitled to any credit
against the principal of or interest or premium, if any, payable
on the Mortgage Notes, and Mortgagor shall not be entitled to any
credit against any other amounts which may become payable under
the terms thereof or hereof, by reason of the payment of any tax
on the Mortgaged Property or any part thereof or by reason of the
payment of any other Imposition or other amount required to be
paid hereunder. No deduction shall be made or claimed from the
taxable value of the Mortgaged Property or any part thereof by
reason of this Mortgage.
28. NOTICES. Any notice, election, request or demand
which by any provision of this Mortgage is required or permitted
to be given or served hereunder shall be in writing and shall be
given or served by hand delivery against receipt, by any
nationally recognized overnight courier service providing
evidence of the date of delivery or by certified mail return
receipt requested, postage prepaid, by hand or by nationally
recognized overnight delivery service, addressed to Mortgagor at
the address provided on the first page of this Mortgage,
Attention: Chief Financial Officer.
with a copy to:
Urban Shopping Centers, L.P.
900 North Michigan Avenue
Chicago, Illinois 60611-1582
Attention: General Counsel
and to Mortgagee at the following address:
Bankers Trust Company
3 Park Plaza, 16th Floor
Irvine, CA 92614
Attention: USC Oakbrook 1997-1
with a copy to:
AMRESCO Services, L.P.
235 Peachtree Street, N.E.
Suite 900
Atlanta, GA 30303
Attention: Charles C. Hays, III
and to the Rate Swap Counterparty at the following address:
Goldman Sachs Mitsui Marine Derivative Products, L.P.
85 Broad Street
New York, New York 10004
Attention:
---------------------------
<PAGE>
or at such other address as shall be designated from time to time
by Mortgagor or Mortgagee by notice given in accordance with the
provisions of this Section 28. Any such notice or demand given
hereunder shall be effective upon delivery or three (3) days after
mailing as aforesaid. All notices, elections, requests and demands
required or permitted under this Mortgage shall be in the English
language.
29. MODIFICATION. This Mortgage may not be altered,
amended, modified, changed or terminated orally but only by a
written agreement signed by the party against which enforcement
is sought. Except as otherwise provided herein, modifications of
and amendments to this Mortgage may be made by Mortgagee and
Mortgagor only with the consent of the Holders of more than fifty
percent (50%) in the aggregate principal amount of the
Certificates outstanding; provided, however, that no such
modification or amendment may, without the consent of the Holder
of each Certificate affected thereby, (a) change the stated
maturity of, or any installment of principal of, or interest on,
the related Mortgage Note, (b) reduce the stated principal amount
of, or the rate of interest on, the related Mortgage Note, (c)
change any obligation of Mortgagor to pay Additional Amounts in
respect of the related Mortgage Note except as contemplated by
this Mortgage and the Trust Agreement, (d) change the coin or
currency in which the related Mortgage Note or any interest
thereon is payable, (e) impair the right to institute suit for
the enforcement of any payment on or with respect to the related
Mortgage Note after its maturity or, in case of prepayment, on or
after the prepayment date, (f) reduce the percentage in principal
amount of outstanding Certificates, the consent of whose Holders
is required for any such modification or amendment of this
Mortgage or for the waiver of compliance with certain provisions
of this Mortgage or for the waiver of certain defaults, (g)
modify any of the provisions governing the rights of Mortgagee
and Mortgagor to amend this Mortgage or the Mortgage Notes, or
(h) deprive Mortgagee of the benefit of a first priority security
interest in the Mortgaged Property or permit the creation of any
lien ranking prior to or on a parity with the lien of this
Mortgage with respect to the Mortgaged Property or terminate the
lien of this Mortgage at any time.
Mortgagor and Mortgagee may agree, without the consent
of the Holders, to any modification of this Mortgage or the
Mortgage Notes, (a) to facilitate the issuance of Additional
Notes (without limiting the conditions set forth in Section 44
hereof), (b) to add to the covenants for the benefit of Mortgagee
or surrender any right or power of Mortgagor, provided that such
surrender shall not adversely affect the interests of the
Holders, (c) to add any Events of Default provided such action
shall not adversely affect the interests of any Holder, (d) to
evidence and provide for the appointment and acceptance of any
successor Trustee or Servicer, or (e) to cure any ambiguity or
cure or correct any defective or inconsistent provision in this
Mortgage or any Mortgage Note provided such action shall not
adversely affect the interests of the Holders. Notwithstanding
the foregoing, the Servicer shall have the right to consent to
any modification which adversely affects its rights under this Mortgage.
<PAGE>
Mortgagee shall not consent to any amendment or
modification of this Mortgage which would adversely affect the
Trust's (as defined in the Trust Agreement) status as a grantor
trust for federal income tax purposes.
In determining whether any change adversely affects the
interests of Holders, Mortgagee may rely upon written
confirmation of the Rating Agencies that such change will not
result in the downgrading, withdrawal or qualification of the
then current rating on the Certificates then outstanding and
affected thereby.
30. PARTIAL INVALIDITY. In the event any one or more
of the provisions contained in this Mortgage shall for any reason
be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect
any other provision hereof, but each shall be construed as if
such invalid, illegal or unenforceable provision had never been
included hereunder.
31. MORTGAGOR'S WAIVER OF RIGHTS. To the fullest
extent permitted by law, Mortgagor waives the benefit of all laws
now or hereafter in existence (i) providing for any appraisement
before sale of any portion of the Mortgaged Property, and (ii) in
any way extending the time for the enforcement of the collection
of the Mortgage Notes or the Indebtedness evidenced thereby and
by the other Loan Documents or creating or extending a period of
redemption from any sale made in collecting said Indebtedness.
To the fullest extent permitted by law, Mortgagor agrees that
Mortgagor will not at any time insist upon, plead, claim or take
the benefit or advantage of any law now or hereafter in force
providing for any appraisement, valuation, stay, extension or
redemption, and Mortgagor, for Mortgagor and its successors and
assigns, and for any and all persons ever claiming any interest
in the Mortgaged Property, to the fullest extent permitted by
law, hereby waives and releases all rights of redemption,
valuation, appraisement, stay of execution, notice of election to
mature or declare due the whole of the secured Indebtedness and
marshalling of assets in the event of foreclosure of the Liens
hereby created. Mortgagor hereby also waives any right to bring
or utilize any defense, counterclaim or setoff in or to any
foreclosure action by Mortgagee or with respect to the exercise
of any remedies hereunder by Mortgagee.
32. REMEDIES NOT EXCLUSIVE. Mortgagee shall be
entitled to enforce payment and performance of any Indebtedness
or obligations secured hereby and to exercise all rights and
remedies under this Mortgage, the Mortgage Notes or the other
Loan Documents or otherwise at law or in equity, notwithstanding
that some or all of the Indebtedness and obligations secured
hereby may now or hereafter be otherwise secured, whether by
mortgage, security agreement, pledge, lien, assignment or
otherwise. Neither the acceptance of this Mortgage nor its
enforcement, shall prejudice or in any manner affect Mortgagee's
right to realize upon or enforce any other security now or
hereafter held by Mortgagee, it being agreed that Mortgagee shall
be entitled to enforce this Mortgage and any other security now
or hereafter held by Mortgagee hereunder, under any of the other
Loan Documents or otherwise in such order and manner as Mortgagee
<PAGE>
may determine in its absolute discretion. No remedy herein
conferred upon or reserved to Mortgagee is intended to be
exclusive of any other remedy available hereunder, under any of
the other Loan Documents or otherwise available at law or in
equity, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing
at law or in equity. Every right or remedy given by the Mortgage
Notes, the other Loan Documents or this Mortgage to Mortgagee or
to which either of them may otherwise be entitled, may be
exercised, concurrently or independently, from time to time and
as often as may be deemed expedient by Mortgagee.
33. SUCCESSORS AND ASSIGNS. All covenants of
Mortgagor contained in this Mortgage are imposed solely and exclu
sively for the benefit of Mortgagee and its successors and
assigns, and no other Person shall have standing to require
compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all
of which may be freely waived in whole or in part by Mortgagee at
any time if in its sole discretion it deems it advisable to do
so. All such covenants of Mortgagor shall run with the land and
bind Mortgagor, the successors and assigns of Mortgagor (and each
of them) and all subsequent owners, encumbrances and
Tenants of the Mortgaged Property, and shall inure to the benefit
of Mortgagee, its successors and assigns. The word "Mortgagor"
shall be construed to mean the permitted successors and assigns
of the originally named Mortgagor and as if it read "Mortgagors"
whenever the sense of this Mortgage so requires. The word
"Mortgagee" shall be construed to mean Mortgagee named herein and
Trustee after the execution and delivery of the Assignment.
34. APPLICABLE LAW.
(a) All rights, powers and remedies provided herein may
be exercised only to the extent that the exercise thereof,
including those which do not require the giving of notice, does
not violate any applicable law, and are intended to be limited to
the extent necessary so that they will not render this Mortgage
invalid, unenforceable or not entitled to be recorded, registered
or filed under any applicable law. All waivers, consents,
confessions and releases provided for in this Mortgage are
effective only to the extent permitted by applicable law.
(b) This Mortgage shall be governed by and construed
according to the laws of the State of Illinois, without regard to
the conflicts of law principles of such State.
35. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Recording Fees, Taxes, Etc. Mortgagor hereby
agrees to take all such further reasonable actions, and to pay
all Impositions, recording fees, charges, costs and other
expenses including, without limitation, reasonable attorneys' and
professional fees and disbursements which are currently or in the
future shall be imposed, and which may be required or necessary
to establish, preserve, protect or enforce the Lien of this
Mortgage and any United States documentary stamp taxes which may
be imposed on this Mortgage or any instrument relating thereto.
<PAGE>
(b) No Offsets. Mortgagor warrants and represents to
Mortgagee that as of the date hereof there exists no cause of
action at law or in equity that would constitute any offset,
counterclaim or deduction against the Indebtedness or its
Obligations under this Mortgage.
(c) Full and Accurate Disclosure. No statement of
fact made by or on behalf of Mortgagor in this Mortgage or in any
of the other Loan Documents contains any untrue statement of a
material fact or omits to state any material fact necessary to
make statements contained herein or therein not misleading.
(d) No Litigation. Except as has been disclosed in
writing to Mortgagee, Mortgagor has received no notice that
litigation is pending and, to Mortgagor's knowledge, no
litigation has been threatened in writing against Mortgagor
which, if determined adversely to Mortgagor, would have a
material adverse affect on the Mortgaged Property, and no Taking
has been commenced or, to Mortgagor's actual knowledge, is
contemplated with respect to all or any portion of the Mortgaged
Property or for the relocation of roadways providing access to
the Mortgaged Property.
(e) Solvency. The fair saleable value of the
Mortgagor's assets exceeds and will, immediately following the
issuance of the Mortgage Notes and the consummation of the other
transactions contemplated to take place simultaneously therewith,
exceed Mortgagor's liabilities, including, without limitation,
contingent liabilities. Mortgagor's assets do not and, immediately
following the issuance of the Mortgage Notes and the consummation
of the other transactions contemplated to take place simulta
neously therewith will not, constitute unreasonably small capital
to carry out its business as conducted or as proposed to be
conducted. Mortgagor does not intend to, and does not believe
that it will, incur debts and liabilities (including, without
limitation, contingent liabilities) beyond its ability to pay
such debts as they mature.
(f) Single Purpose Entity. Mortgagor covenants and
agrees with Mortgagee that it has not and shall not:
(i) engage in any business or activity other than the
ownership, operation and maintenance of the Mortgaged Property,
and activities incidental thereto;
(ii) acquire or own any material assets other than
(A) the Mortgaged Property, and (B) such incidental personal
property as may be necessary for the operation of the Mortgaged
Property;
(iii) merge into or consolidate with any person or
entity or dissolve, terminate or liquidate in whole or in part,
transfer or otherwise dispose of all or substantially all of its
assets or change its legal structure, without in each case
Mortgagee's consent, except in accordance with the terms of this Mortgage;
(iv) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable)
under the laws of the jurisdiction of its organization or
<PAGE>
formation, or, without confirmation by the Rating Agencies that
same shall not result in a downgrading, withdrawal or
qualification of the then-ratings of the Certificates, and except
as expressly provided herein, amend, modify, terminate or fail to
comply with the provisions of Mortgagor's partnership agreement,
articles or certificate of incorporation, operating agreement or
similar organizational documents, as the case may be, as same may
be further amended or supplemented, if such amendment,
modification, termination or failure to comply would adversely
affect the ability of Mortgagor to perform its obligations
hereunder, under the Mortgage Notes or under any Loan Documents;
(v) own any subsidiary or make any investment in, any
Person or entity without the consent of Mortgagee;
(vi) commingle its assets with the assets of any of its
general partners, members, shareholders, affiliates, principals
or of any other person or entity;
(vii) incur any debt, secured or unsecured, direct
or contingent (including guaranteeing any obligation), other than
the indebtedness secured hereby and other indebtedness permitted
hereunder;
(viii) fail to maintain its records, books of
account and bank accounts separate and apart from those of the
general partners, members, shareholders, principals and
affiliates of Mortgagor, the affiliates of a general partner or
member, or shareholder of Mortgagor and any other person or
entity;
(ix) enter into any contract or agreement with any
general partner, member, shareholder, principal or affiliate of
Mortgagor, any guarantor or indemnitor, or any general partner,
member, principal or affiliate thereof, except upon terms and
conditions that are intrinsically fair and substantially similar
to those that would be available on an arms-length basis with
third parties other than any general partner, member, shareholder,
principal or affiliate of Mortgagor, or any such guarantor or
indemnitor, or any general partner, member, principal or affiliate thereof;
(x) seek the dissolution or winding up in whole, or in
part, of Mortgagor;
(xi) hold itself out to be responsible for the
debts of another person;
(xii) make any loans or advances to any third
party, including any general partner, member, shareholder,
principal or affiliate of Mortgagor, or any general partner,
principal or affiliate thereof;
(xiii) fail to file its own tax returns;
(xiv) fail either to hold itself out to the public
as a legal entity separate and distinct from any other entity or
person or to conduct its business solely in its own name in order
not (A) to mislead others as to the identity with which such
other party is transacting business, or (B) to suggest that
<PAGE>
Mortgagor is responsible for the debts of any third party
(including any general partner, principal or affiliate of
Mortgagor, or any general partner, principal or affiliate thereof);
(xv) fail to maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations; or
(xvi) file or consent to the filing of any
petition, either voluntary or involuntary, to take advantage of
any applicable insolvency, bankruptcy, liquidation or
reorganization statute, or make an assignment for the benefit of
creditors, without the consent of any general partner of
Mortgagor (including the vote of the Independent Director).
Mortgagor covenants and agrees with Mortgagee that it
has and shall:
(i) maintain separate financial statements;
(ii) pay the salaries of its own employees if any, and
maintain a sufficient number of employees in light of its
contemplated business operations;
(iii) allocate fairly and reasonably any overhead
for shared office space;
(iv) use separate stationery, invoices, and checks; and
(v) correct any known misunderstanding regarding its
separate entity.
(g) General Partner. If Mortgagor is a limited
partnership or a limited liability company, each general partner
or at least one member (the "SPE Member") of Mortgagor, as
applicable, is a corporation whose sole asset is its interest in
Mortgagor and each general partner or the SPE Member of
Mortgagor, as applicable, will at all times comply, and will
cause Mortgagor to comply, with each of the covenants, terms and
provisions contained in Section 35(f) as if such representation,
warranty or covenant was made directly by such general partner or
SPE Member. Only the SPE Member may be designated as a manager
under the law where Mortgagor is organized.
(h) Independent Director. Mortgagor shall at all
times cause there to be at least one duly appointed member of the
board of directors (an "Independent Director") of each general
partner of Mortgagor (or of the SPE Member of Mortgagor)
reasonably satisfactory to Mortgagee who shall not have been at
the time of such individual's initial appointment, and may not
have been at any time during the preceding five years, and shall
not be at any time while serving as a director of the general
partner (or SPE Member) either (i) a shareholder of, or an
officer, director, partner or employee of, Mortgagor or any of
its shareholders, partners, members, subsidiaries or affiliates,
(ii) a customer of, or supplier to, Mortgagor or any of its
shareholders, partners, members, subsidiaries or affiliates, who
draws more than ten percent (10%) of its revenue from Mortgagor,
(iii) a person or other entity controlling or under common
<PAGE>
control with any such shareholder, officer, director, partner,
member, employee, supplier or customer, or (iv) a member of the
immediate family of any such shareholder, officer, director,
partner, member, employee, supplier or customer. As used in this
Section 35(h), the term "control": means the possession, directly
or indirectly, of the power to direct or cause the direction of
the management and policy of a person or entity, whether through
ownership of voting securities, by contract or otherwise.
(i) ERISA. Mortgagor has made and shall continue to
make all required contributions to all employee benefit plans, if
any, and Mortgagor has no knowledge of any material liability
which has been incurred by Mortgagor which remains unsatisfied
for any taxes or penalties with respect to any employee benefit
plan or any multi-employer plan, and each such plan has been
administered in compliance with its terms and the applicable
provisions of ERISA and any other federal or state law.
(j) Contingent Liabilities. Mortgagor has no known
material contingent liabilities other than those disclosed in the
financial statements of Mortgagor delivered to Mortgagee.
(k) No Other Obligations. Mortgagor has no material
financial obligation under any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which
Mortgagor is a party or by which Mortgagor or the Mortgaged
Property is otherwise bound, other than obligations incurred in
the ordinary course of the operation of the Mortgaged Property
and other than obligations under this Mortgage and the other Loan
Documents.
(l) Fraudulent Conveyance. Mortgagor (1) has not
entered into the Loan or any Loan Document with the actual intent
to hinder, delay, or defraud any creditor and (2) received
reasonably equivalent value in exchange for its obligations under
the Loan Documents. Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of
Mortgagor's assets exceeds and will, immediately following the
execution and delivery of the Loan Documents, exceed Mortgagor's
total liabilities, including, without limitation, subordinated,
unliquidated, disputed or contingent liabilities. The fair
saleable value of Mortgagor's assets is and will, immediately
following the execution and delivery of the Loan Documents, be
greater than Mortgagor's probable liabilities, including the
maximum amount of its contingent liabilities or its debts as such
debts become absolute and matured. Mortgagor's assets do not
and, immediately following the execution and delivery of the Loan
Documents will not, constitute unreasonably small capital to
carry out its business as conducted or as proposed to be
conducted. Mortgagor does not intend to, and does not believe
that it will, incur debts and liabilities (including, without limitation,
contingent liabilities and other commitments) beyond its ability to pay
such debts as they mature (taking into account the timing and amounts
to be payable on or in respect of obligations of Mortgagor).
(m) Access/Utilities. The Mortgaged Property has
adequate rights of access to public ways and is served by
adequate water, sewer, sanitary sewer and storm drain facilities.
All public utilities necessary to the continued use and enjoyment
<PAGE>
of the Mortgaged Property as presently used and enjoyed are
located in the public right-of-way abutting the Mortgaged
Property, and all such utilities are connected so as to serve the
Mortgaged Property without passing over other property. All
roads necessary for the full utilization of the Mortgaged
Property for its current purpose have been completed and
dedicated to public use and accepted by all governmental
authorities or are the subject of access easements for the
benefit of the Mortgaged Property.
(n) Special Assessments. Except as disclosed in that
certain commitment for title insurance issued by Ticor Title
Insurance Company, dated as of June 26, 1997, Commitment No.
D738525-N24-24660-14, there are no pending or, to the knowledge
of Mortgagor, proposed special or other assessments for public
improvements or otherwise affecting the Mortgaged Property, nor,
to the knowledge of Mortgagor, are there any contemplated
improvements to the Mortgaged Property that may result in such
special or other assessments.
(o) Flood Zone. The Mortgaged Property is not located
in a flood hazard area as defined by the Federal Insurance Administration.
36. NO WAIVER. No failure by Mortgagee to insist upon
the strict performance of any term hereof or to exercise any
right, power or remedy consequent upon a breach thereof shall
constitute a waiver of any such term or right, power or remedy or
of any such breach. No waiver of any breach shall affect or
alter this Mortgage, which shall continue in full force and
effect, or shall affect or alter the rights of Mortgagee with
respect to any other then existing or subsequent breach.
37. NON-RECOURSE OBLIGATIONS. Anything contained in
this Mortgage or the other Loan Documents to the contrary
notwithstanding (except as provided below), Mortgagee's recourse
for the satisfaction of the Indebtedness and for the payment and
performance of all of the Obligations of the Mortgagor under this
Mortgage, the Mortgage Notes or the other Loan Documents shall be
limited solely to the Mortgagor's interest in the Mortgaged
Property, and none of (i) Mortgagor or any Affiliate thereof,
(ii) any Direct Beneficial Owner or any Affiliate thereof, (iii)
any Person owning, directly or indirectly, any legal or
beneficial interest in Mortgagor or any Direct Beneficial Owner
or any Affiliate thereof, or (iv) any partner, principal,
officer, controlling person, beneficiary, trustee, advisor,
shareholder, employee, agent, Affiliate or director of any Person
described in clauses (i) through (iii) above shall be personally
liable for the performance of any Obligation or the payment of
any Indebtedness, provided, however, that the foregoing
limitation on the personal liability of the Persons described in
clauses (i) through (iv) above shall not impair the validity of
the Lien of this Mortgage, any other Loan Documents, or the right
of Mortgagee to foreclose and/or enforce any of its rights or
remedies in and to the Mortgaged Property upon the occurrence of
an Event of Default as provided in this Mortgage or the other
Loan Documents. Nothing herein shall be deemed to be a waiver of
any right which Mortgagee may have under Section 506(a), 506(b),
1111(b) or any other provision of the Bankruptcy Reform Act of
1978 or any successor thereto or similar provisions under applicable
<PAGE>
state law to file a claim for the full amount of the Indebtedness
owing to Mortgagee by Mortgagor or to require that all the Mortgaged
Property shall continue to secure all of the Indebtedness owing to
Mortgagee in accordance with this Mortgage, the Mortgage Notes and the
other Loan Documents.
38. FURTHER ASSURANCES. Mortgagor, at its own
expense, will execute, acknowledge and deliver all such
reasonable further acts, documents or instruments including,
without limitation, security agreements on any personalty
included or to be included in the Mortgaged Property and a
separate assignment of each Lease and take all such actions as
Mortgagee from time to time may reasonably request to better
assure, transfer and confirm unto Mortgagee the rights now or
hereafter intended to be granted to Mortgagee under this Mortgage
or the other Loan Documents.
39. ESTOPPEL CERTIFICATES. Mortgagor and Mortgagee
each will, from time to time, upon twenty (20) days' prior
written request by the other party, execute, acknowledge and
deliver to the requesting party, in the case of a request to
Mortgagee, a certificate signed by an authorized officer or
officers and in the case of a request to Mortgagor, an Officer's
Certificate, stating that this Mortgage is unmodified and in full
force and effect (or, if there have been modifications, that this
Mortgage is in full force and effect as modified and setting
forth such modifications) and stating the amount of accrued and
unpaid interest and the outstanding principal amount of each of
the Mortgage Notes. The estoppel certificate from Mortgagee
shall also state either that, to the best knowledge of the signer
of such certificate and based on no independent investigation, no
Default exists hereunder or, if any Event of Default shall exist
hereunder, specify any Event of Default of which Mortgagee has
actual knowledge.
40. ADDITIONAL SECURITY. Without notice to or consent
of Mortgagor and without impairment of the Lien and rights
created by this Mortgage, Mortgagee may accept (but Mortgagor
shall not be obligated to furnish) from Mortgagor additional
security for the Mortgage Notes. Neither the giving of this
Mortgage nor the acceptance of any such additional security shall
prevent Mortgagee from resorting, first, to such additional
security, and, second, to the security created by this Mortgage
without affecting Mortgagee's Lien and rights under this Mortgage.
41. INDEMNIFICATION BY MORTGAGOR. Subject to the
provisions of Section 37 hereof, Mortgagor will protect,
indemnify and save harmless Mortgagee and its directors,
officers, shareholders, employees and agents (collectively, the
"Indemnified Parties") from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs
and expenses (including all reasonable attorneys' fees and
expenses) imposed upon or incurred by or asserted against the
Indemnified Parties or the Mortgaged Property or any part of its
interest therein, by reason of the occurrence or existence of any
of the following prior to the payment in full of the Mortgage
Notes or foreclosure of the lien of this Mortgage or delivery of
a deed in lieu thereof, unless caused solely by the actual
willful misconduct or gross negligence of the Indemnified Parties
<PAGE>
(other than such willful misconduct or gross negligence imputed
to the Indemnified Parties because of their interest in the
Mortgaged Property): (a) ownership of Mortgagor's interest in
the Mortgaged Property, or any interest therein, or receipt of
any Rents or other sum therefrom, (b) any accident, injury to or
death of any persons or loss of or damage to property occurring
on or about the Mortgaged Property or any Appurtenances thereto,
(c) any design, construction, operation, repair, maintenance,
use, non-use or condition of the Mortgaged Property or
Appurtenances thereto, including claims or penalties arising from
violation of any Legal Requirement or Insurance Requirement, as
well as any claim based on any patent or latent defect, whether or
not discoverable by the Mortgagee, any claim the insurance as to
which is inadequate, and any claim in respect of any adverse
environmental impact or effect, (d) any Default under this Mortgage
or any of the other Loan Documents or any failure on the part of
Mortgagor to perform or comply with any of the material terms of
any Lease or Operating Agreement within the applicable notice or grace
periods, (e) any performance of any labor or services or the
furnishing of any materials or other property in respect of the
Mortgaged Property or any part thereof, (f) any negligence or
tortious act or omission on the part of Mortgagor or any of its
agents, contractors, servants, employees, sublessees, licenses or
invitees, (g) any contest referred to in Section 8(c) hereof, (h)
any obligation or undertaking relating to the performance or
discharge of any of the terms, covenants and conditions of the
landlord contained in the Leases or of lessee in the Ground Lease
or (i) the presence in, at or under the Premises or the
Improvements any Hazardous Substance in violation of any Legal
Requirement or alleged by a Governmental Authority or a third
party to be in violation of any Legal Requirement. Any amounts
payable to the Indemnified Parties under this Section 41 which
are not paid within ten (10) Business Days after written demand
therefor by Mortgagee, setting forth in reasonable detail the
amount of such demand and the basis therefor, shall bear interest
from the date of demand at a rate equal to the weighted average
of the rates set forth in the Mortgage Notes, and shall be part
of the Indebtedness and secured by this Mortgage. In case any
action, suit or proceeding is brought against the Indemnified
Parties by reason of any such occurrence, Mortgagor shall at
Mortgagor's expense resist and defend such action, suit or
proceeding or will cause the same to be resisted and defended by
counsel for the insurer of the liability or by counsel designated
by Mortgagor (unless reasonably disapproved by Mortgagee promptly
after Mortgagee has been notified of such counsel); provided,
however, that nothing herein shall compromise the right of
Mortgagee to appoint its own counsel for its defense with respect
to any action which in its reasonable opinion presents a conflict
or potential conflict between Mortgagee and Mortgagor that would
make such separate representation advisable. So long as
Mortgagor is resisting and defending such action, suit or proceed
ing as provided above in a prudent and commercially reasonable
manner, Mortgagee shall not be entitled to settle such action,
suit or proceeding and claim the benefit of this Section 41 with
respect to such action, suit or proceeding and Mortgagee agrees
that it will not settle any such action, suit or proceeding
without the consent of Mortgagor; provided, however, that if
Mortgagor is not diligently defending such action, suit or
proceeding in a prudent and commercially reasonable manner as
<PAGE>
provided above, Mortgagee may settle such action, suit or
proceeding subject only to the consent of Mortgagor, which
consent shall not be unreasonably withheld or delayed, and claim
the benefit of this Section with respect to settlement of such
action, suit or proceeding. Any Indemnified Party will give
Mortgagor prompt notice after such Indemnified Party obtains
actual knowledge of any potential claim by such Indemnified Party
for indemnification hereunder.
42. RELEASE. If the Mortgagor shall pay or cause to
be paid, the principal of and interest on the Mortgage Notes in
full at maturity or as permitted in accordance with the terms
thereof and all other Indebtedness and Obligations payable to
Mortgagee hereunder by the Mortgagor or secured hereby or by the
other Loan Documents, then this Mortgage and all the other Loan
Documents shall be discharged and satisfied or assigned (to the
Mortgagor or to any other Person at the Mortgagor's direction and
without recourse to Mortgagee), at the Mortgagor's option,
without warranty, at the expense of the Mortgagor upon its
written request. Concurrently with such release and satisfaction
or assignment of this Mortgage and all the other Loan Documents,
the Mortgagee will return to the Mortgagor all insurance policies
relating to the Mortgaged Property which may be held by Mortgagee
and any part of the Mortgaged Property or other collateral that may
be in its possession and, on the written request and at the expense
of the Mortgagor, will execute and deliver such proper instruments of
conveyance, assignment and release (including appropriate UCC-3
termination statements) as may reasonably be requested by
Mortgagor to evidence such release and satisfaction, assignment
of this Mortgage and the other Loan Documents and the conveyance
or assignment to or at the direction of Mortgagor of any such
Mortgaged Property or other collateral, and any such instrument,
when duly executed by the Mortgagee and, if appropriate, duly
recorded in the places where this Mortgage is recorded, shall
conclusively evidence the release and satisfaction or assignment
of this Mortgage and the other Loan Documents and the conveyance
or assignment of such Mortgaged Property or other collateral.
43. USURY. Mortgagor and Mortgagee intend to conform
strictly to applicable laws regarding usury. Mortgagor and
Mortgagee hereby stipulate and agree that none of the terms and
provisions contained in the Mortgage Notes or this Mortgage shall
ever be construed to create a contract to pay for the use,
forbearance, or detention of money an amount in excess of the
maximum nonusurious amount allowed by applicable law. If the
Mortgage Notes or this Mortgage or the transactions contemplated
by any of them would be otherwise usurious under applicable law,
then notwithstanding anything to the contrary in any or all of
the Mortgage Notes or this Mortgage, Mortgagor and Mortgagee
hereby agree as follows: (i) for any applicable period of time
specified by any applicable law, interest under the Loan
Documents shall never exceed the maximum nonusurious amount
allowed by such law; and (ii) if the Mortgage Notes shall be
accelerated in whole or in part for any reason, or if any
required or permitted prepayment occurs hereunder, then for any
applicable period of time specified by any applicable law,
interest shall never include more than the maximum nonusurious
amount allowed by each such law, and in either such case any
excess interest (if any) otherwise provided for under any or all
<PAGE>
of the Security Documents shall automatically be applied by the
Mortgagee in the following order: (1) to interest properly
charged under the Mortgage Notes and this Mortgage; (2) to
principal properly charged under the Mortgage Notes and this
Mortgage (without premium); (3) if all sums due under (1) and (2)
have been or would thereby be paid in full, all other interest on
the Mortgage Notes shall be cancelled automatically as of and
through the date of such acceleration or prepayment; and (4) if
any such excess interest has been received by the Mortgagee, it
shall be refunded by Mortgagee to Mortgagor. Mortgagor shall
never be required to pay unearned interest under the Mortgage
Notes and this Mortgage, or to pay interest under any or all of
the Loan Documents, in each case in an amount in excess of the
maximum nonusurious amount allowed by applicable law, and the
provisions of this Section 43 shall control over all other provisions
of any Loan Document which may be in apparent conflict herewith.
44. CREATION OF ADDITIONAL MORTGAGE NOTES.
(a) Additional Notes shall be created by a supplement
to this Mortgage authorized by Mortgagor, as evidenced by an
Officer's Certificate, establishing the terms and provisions of
such Additional Notes and the form thereof. Each class of
Additional Notes may differ from the Class A Note and as between
classes in any respect not in conflict with the provisions of
this Mortgage and the Trust Agreement or as may be prescribed in
the supplement creating such Additional Notes.
(b) Mortgagor may, so long as no Event of Default has
occurred and is continuing, incur one or more classes of
Additional Notes in an aggregate principal amount and having such
terms and provisions (including, without limitation, interest rate,
amortization schedule, maturity date and redemption provisions) as
Mortgagor shall deem appropriate, provided that each such class of
Additional Notes:
(i) shall be denominated and payable in United States Dollars;
(ii) shall not rank senior in any respect to the Class A Note;
(iii) shall have a maturity date that is the same
date as the Maturity Date of the Class A Note; and
(iv) may bear interest at fixed or floating rates as
shall be determined by Mortgagee at the time of incurrence of
each class of Additional Notes;
and provided further that:
(v) Mortgagee shall have received written evidence
from the Rating Agencies to the effect that the incurrence of
such Additional Notes will not result in a qualification,
downgrading or withdrawal of the then current ratings of the
Class A Certificates then outstanding;
(vi) in connection with the issuance of such Additional
Notes, Mortgagor and Mortgagee shall enter into a supplement to
this Mortgage, in form and substance reasonably satisfactory to
each of them, subjecting the Mortgaged Property to the Lien of
<PAGE>
this Mortgage for the benefit of the holders of any Additional
Notes on a subordinate basis;
(vii) Mortgagee shall have received a favorable
Opinion of Counsel that the incurrence of such Additional Notes
will not result in any adverse tax consequences to the Holders of
the Class A Certificates then outstanding;
(viii) Mortgagee shall have received an Officer's
Certificate from Mortgagor that after the incurrence of any
Additional Notes, the LTV Ratio will be no greater than 55%;
(ix) Mortgagee shall have received a favorable Opinion
of Counsel as to the validity and perfection of the supplement to
this Mortgage and Mortgagee's security interest in the Mortgaged
Property;
(x) an Officer's Certificate from Mortgagor shall be
delivered stating that all conditions precedent herein provided
for relating to the incurrence of the Additional Notes have been
complied with and that the Mortgagee may lawfully execute and
deliver the Mortgage supplement pertaining thereto;
(xi) a new title insurance policy (or an endorsement to
Mortgagee's current title insurance policy) shall be issued and
delivered, insuring the priority of the lien of this Mortgage in
favor of the Mortgagee in respect of the indebtedness evidenced
by the Class A Note and the Additional Notes;
(xii) an Officer's Certificate shall be delivered
stating that all provisions of the Trust Agreement with respect
to the issuance of additional Certificates have been complied with;
(xiii) Mortgagee shall have received the written
consent of the Ground Lessor to the incurrence of such Additional
Notes; and
(xiv) any Additional Counterparty (hereinafter
defined) shall have agreed in writing to the priorities of
payment to the Holders, the Rate Swap Counterparty and any such
Additional Counterparty set forth herein.
Each class of Additional Notes may be issued
simultaneously with the execution and delivery by Mortgagor of an
interest rate swap, cap, floor or other agreement ("Additional
Rate Agreement") with a counterparty ("Additional Counterparty"),
which Additional Rate Agreement may be pledged to Mortgagee as
additional collateral for the Loan; PROVIDED, HOWEVER, that
Mortgagee receives written confirmation from the Rating Agencies
that no such Additional Rate Agreement shall result in a
downgrading, withdrawal or qualification of the then current
ratings of the Certificates.
Mortgagor shall not terminate any Rate Swap Agreement
unless (i) Mortgagor provides a replacement Rate Swap Agreement,
and (ii) Mortgagee receives written confirmation from the Rating
Agencies that the termination of the Rate Swap Agreement AND the
<PAGE>
replacement Rate Swap Agreement shall not result in a
downgrading, withdrawal or qualification of the then current
ratings of the Certificates.
45. THE GROUND LEASE. Promptly after Mortgagor's
receipt of any notice of any motion, application or effort to
reject the Ground Lease by the Ground Lessor or any bankruptcy
trustee arising from or in connection with any case, proceeding
or other action commenced or pending by or against the Ground
Lessor under the Federal Bankruptcy Code or any successor
statutes, Mortgagor shall give notice thereof to Mortgagee.
Mortgagor hereby (i) assigns to Mortgagee any and all of the
Mortgagor's rights as lessee under Section 365(h) of the
Bankruptcy Code or any successor statute, (ii) covenants that it
shall not elect to treat the Ground Lease as terminated pursuant
to Section 365(h) of the Federal Bankruptcy Code or any such
successor statute without the prior written consent of Mortgagee,
and (iii) agrees that any such election by the Mortgagor without
such consent shall be null and void. Mortgagor hereby
irrevocably appoints Mortgagee as its true and lawful attorney-in-
fact, which power of attorney shall be coupled with an interest,
for the purpose of exercising its rights pursuant to Section
365(h) of the Federal Bankruptcy Code or any successor to such
Section (A) to obtain for the benefit of Mortgagor a right to
possession or statutory term of years derived from or incident to
the Ground Lease, or (B) to treat the Ground Lease as terminated
(it being understood, however, that prior to the foreclosure of
the Lien hereof in no event shall Mortgagee acting pursuant to
such power of attorney elect to treat the Ground Lease as
terminated without the prior written consent of Mortgagor).
46. EXCULPATION OF LAND TRUSTEE. This Mortgage, as
well as certain other Loan Documents, is executed by LaSalle
National Bank not individually or personally, but solely as
trustee as aforesaid in the exercise of the power and authority
conferred upon and vested it as such trustee, and it is expressly
understood and agreed that nothing herein or therein contained
shall be construed as creating any liability on such trustee
personally to perform any covenant, undertaking, representation
or agreement, either express or implied, contained herein, all
such personal liability of such trustee, if any, being expressly
waived by each and every person now or hereafter claiming any
right or security under this Mortgage. LaSalle National Bank
hereby represents that it possesses full power and authority to
execute and deliver this instrument.
47. ENVIRONMENTAL MATTERS. (a) Mortgagor hereby
represents and warrants that (i) except as set forth in the
"Phase I" environmental site assessment of the Premises, dated
August 15, 1997, prepared by Versar, Inc. ("Versar"), the
"Environmental Report"), to its actual knowledge, Mortgagor
(x) is in compliance in all material respects with all
applicable Environmental Laws, (y) has received no written
communication, from a Governmental Authority or any other Person,
alleging that Mortgagor is not in full compliance with all
Environmental Laws, and there are no events or circumstances that
may prevent or interfere with such full compliance in the future,
(ii) there is no claim pending or threatened against Mortgagor
with respect to Environmental Laws, and (iii) to Mortgagor's
<PAGE>
knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents including, without
limitation, the release, emission, discharge of disposal or any
Hazardous Substance, that could form the basis of any claim
against Mortgagor based on Environmental Laws.
(b) Mortgagor covenants and agrees with Mortgagee that
it shall comply with all Environmental Laws, except for such
instances of non-compliance which, singly, or in the aggregate,
are not reasonably likely to have a material adverse effect on
the financial condition of Mortgagor. Except as to items
disclosed in the Environmental Reports, if at any time during the
continuance of the Lien of this Mortgage, Hazardous Substances
are discovered in, around, on, or under the Premises, in such
concentrations as a Governmental Authority having jurisdiction
over the Mortgaged Property would require remedial action to
correct (an "Environmental Event"), Mortgagor shall deliver
prompt notice of the occurrence of such Environmental Event to
Mortgagee. Within thirty (30) days after the occurrence of an
Environmental Event, Mortgagor shall deliver to Mortgagee an
Officers' Certificate (an "Environmental Certificate") explaining
the Environmental Event in reasonable detail, setting forth the
estimated cost as determined at such time of remedying such
Environmental Event and the proposed method of remediation and
time to complete such remedy. Mortgagor shall complete such
remedy or cause such remediation with due diligence in the
ordinary course of business. If an Environmental Event occurs,
Mortgagor shall diligently remedy or (to the extent Mortgagor has
legal standing to do so) use diligent efforts to cause the
appropriate third party to remedy all conditions giving rise to
such Environmental Event in material accordance with all
Environmental Laws.
48. JOINDER BY GROUND LESSOR. Ground Lessor is
joining in the execution of this Mortgage to evidence the
subordination of its entire right, title and interest in and to
the Mortgaged Property to the lien of this Mortgage (and without
limitation of the foregoing, Ground Lessor agrees that to the
extent the rights of the parties to receive payment of insurance
proceeds or condemnation awards pursuant to the terms of the
Ground Lease conflict with the rights of the Mortgagee to receive
payments in insurance proceeds or condemnation awards under
Section 7 of this Mortgage, the latter shall control); provided
that, by accepting delivery of this Mortgage, Mortgagee, on
behalf of itself and its successors, and assigns and on behalf of
all other parties who, pursuant to the terms of this Mortgage,
shall be entitled to the benefit thereof, shall be deemed to have
agreed that (i) Ground Lessor's execution of the joinder of this
Mortgage shall not give rise to any personal liability under any
of the Loan Documents, on the part of the Ground Lessor, its
successors and assigns or any present or future officer,
director, employee, trustee, member, agent or advisor of any of
the foregoing and (ii) Ground Lessor and its successors and
assigns shall be entitled to the benefit of Article 25 of the
Ground Lease. Without limiting the generality of the foregoing,
all notices of Default hereunder and under the other Loan
Documents to the Mortgagor shall also be given to the Ground
Lessor, and the Ground Lessor shall have the right to cure any
such Default in accordance with Section 25 of the Ground Lease.
<PAGE>
Mortgagee shall accept any such cure provided by the Ground
Lessor, and any acceleration previously declared in respect of
such Default shall be rescinded upon such cure.
IN WITNESS WHEREOF, this Mortgage has been duly
executed by Mortgagor, and joined in by Ground Lessor, on the
date first hereinabove written.
LASALLE NATIONAL BANK, not
personally but as successor trustee
under that certain Trust Agreement,
dated November 20, 1975, and known
as Trust No. 49475
By:______________________________________
Name:____________________________________
Its:________________________________
OAK BROOK URBAN VENTURE, L.P.,
Beneficiary of the above-named land trust
By: USC Oakbrook, Inc.,
its general partner
By:_________________________________
Name:_______________________________
Its:___________________________
<PAGE>
Prudential Loan No. 6-102-354
(f/k/a Prudential Loan Nos. 6-100-506/676
6-100-896/897
FIFTH AMENDMENT TO LOAN AGREEMENT
---------------------------------
THIS FIFTH AMENDMENT TO LOAN AGREEMENT ("Amendment") is made as of this
_______ day of December, 1997, by and among (i) THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Prudential"), and (ii) OLD
ORCHARD URBAN LIMITED PARTNERSHIP, an Illinois limited partnership
("Beneficiary"), and AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, not
personally but as Trustee under Trust Agreement dated June 1, 1993, and known
as Trust No. 116914-09 ("Trustee") (Trustee and Beneficiary being collectively
referred to herein as "Borrower").
Recitals
--------
A. Prudential, together with Mellon Bank, N.A., as Trustee for First
Plaza Group Trust, a New York Trust ("FPGT"), as equal co-lenders
(collectively, "Original Lender"), made two certain loans to ZML-Old Orchard
Limited Partnership, an Illinois limited partnership ("Original Beneficiary")
and Trustee (Original Beneficiary and Trustee being collectively the "Original
Borrower"), one of which loans was in the maximum aggregate principal amount
of One Hundred Five Million Dollars ($105,000,000), and the other of which was
in the maximum aggregate principal amount of Fifty-Five Million Dollars
($55,000,000) (collectively, the "Original Loan"), pursuant to the terms and
provisions of that certain Construction Loan Agreement dated September 16,
1994, by and between Original Borrower, Prudential and FPGT, as amended by
that certain First Amendment (as defined below), that certain Second Amendment
to Loan Agreement dated June 15, 1995, that certain Third Amendment to Loan
Agreement dated December 18, 1995, and that certain Fourth Amendment to Loan
Agreement dated December 13, 1996 (said Construction Loan Agreement, as so
amended, being collectively referred to herein as the "Existing Loan
Agreement"). Terms appearing herein as defined terms and not expressly
defined herein shall have the respective meanings given them in the Existing
Loan Agreement.
B. The Original Loan has heretofore been evidenced by four (4)
certain promissory notes, two of which notes are in the principal amount of
Fifty-Two Million Five Hundred Thousand Dollars ($52,500,000), one payable to
the order of Prudential and the other payable to the order of FPGT
(collectively, the "Original Notes"), and the other two of which notes are in
the principal amount of Twenty-Seven Million Five Hundred Thousand Dollars
($27,500,000), one payable to the order of Prudential and the other payable to
the order of FPGT (the "Supplemental Notes") (the Original Notes and
Supplemental Notes being collectively the "Existing Notes").
C. On December 19, 1996, there occurred certain transfers of
partnership interests in Original Beneficiary, followed by a change in the
name of Original Beneficiary, so that Original Beneficiary as now constituted
has become the Beneficiary named herein, all as more particularly described in
that certain Transfer Agreement and Amendment to Loan Documents dated December
19, 1996, by and among Original Lender, Original Borrower, Urban Shopping
Centers, L.P., an Illinois limited partnership ("Urban LP") and USC Old
Orchard, Inc., a Delaware corporation ("USC-OO") (the "Transfer Agreement"),
which Transfer Agreement also further amended the Existing Loan Agreement and
the "Loan Documents" referred to therein to reflect such transaction.
<PAGE>
D. In connection with and to further evidence and secure the Original
Loan and the indebtedness evidenced by the Original Notes, Original Borrower
has executed and delivered to Original Lender various agreements, instruments,
documents, and certificates (collectively with the Loan Agreement and Notes,
the "Original Loan Documents"), including without limitation the following:
(a) that certain Mortgage, Security Agreement, and Fixture
Filing dated September 16, 1994, executed by Original Borrower to and for
the benefit of Original Lender (the "Original Mortgage"), and recorded
September 16, 1994, as Document No. 94811370 in the office of the Recorder
of Deeds of Cook County, Illinois ("Recorder"), as amended by that certain
First Amendment to Mortgage and Other Loan Documents dated May 8, 1995,
and recorded May 10, 1995, as Document No. 95307616 in the office of the
Recorder (the "First Amendment"), and as further amended by that certain
Second Amendment to Loan Agreement, Mortgage, and Other Loan Documents
dated June 15, 1995, and recorded June 16, 1995, as Document No.
95390733 in the office of the Recorder (the "Second Amendment"), and as
further amended by the Transfer Agreement (collectively, the "Existing
Mortgage"), which encumbers certain property legally described on EXHIBIT
A attached thereto, all improvements thereon, and certain other real and
personal property described in said Existing Mortgage (collectively, the
"Property");
(b) that certain Assignment of Leases and Rents dated September
16, 1994, executed by Original Borrower to and for the benefit of Original
Lender, and recorded September 16, 1994, as Document No. 94811371 in the
office of the Recorder, as amended by the First Amendment, Second
Amendment, and Transfer Agreement (the "Existing Lease Assignment");
(c) that certain Guaranty dated September 16, 1994, executed by
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership
II, an Illinois limited partnership ("Original Guarantor") to and for the
benefit of Original Lender, as amended by that certain First Amendment to
Guaranty and Other Documents dated June 15, 1995, as further amended by
that certain Second Amendment to Guaranty dated December 18, 1995, and
as further amended by that certain Third Amendment to Guaranty dated
December 13, 1996, and as assumed in part by Urban LP pursuant to that
certain Assumption of Guaranty and Hazardous Materials Agreement dated
December 19, 1996 (the "Assumption Agreement"), executed by Urban LP for
the benefit of Original Lender (collectively, the "Existing Guaranty");
(d) that certain Hazardous Substances Remediation and
Indemnification Agreement dated September 16, 1994, as amended by that
certain First Amendment to Guaranty and Other Documents dated June 15,
1995, to and for the benefit of Original Lender, and as assumed in part
by Urban LP pursuant to the Assumption Agreement (collectively, the
"Existing Hazardous Materials Agreement");
(e) that certain ERISA Certificate and Indemnification Agreement
dated September 16, 1994, as supplemented by that certain Supplemental
ERISA Certificate and Indemnification Agreement dated December 19, 1996,
executed by Beneficiary and Urban LP for the benefit of Original Lender
(collectively, the "Existing ERISA Certificate");
(f) that certain Certificate of Representations and Warranties
dated September 16, 1994, as supplemented by that certain Supplemental
Certificate of Representations and Warranties dated June 15, 1995, and
further supplemented by that certain Borrower's Certification dated
December 13, 1996, executed by Beneficiary to and for the benefit of
<PAGE>
Original Lender, and further supplemented by that certain Second
Supplemental Certificate of Representations and Warranties dated December
19, 1996, executed by Beneficiary and Urban LP for the benefit of Original
Lender (collectively, the "Existing Certificate"); and
(g) that certain Pledge and Security Agreement dated May 8, 1995,
by Original Beneficiary to and for the benefit of Original Lender, as
amended by the Transfer Agreement (the "Existing Pledge Agreement").
E. Borrower has submitted to Prudential a certain application letter
dated October 28, 1997, by which Borrower has requested that the Original Loan
be modified in various respects (the Original Loan, as modified as described
in this Amendment, being referred to as the "Loan"), which modifications
include (without limitation) the following:
(a) Prudential would (i) advance a sufficient amount of funds to
repay the portion of the Original Loan payable to FPGT, so that Prudential
would become the sole "Lender" under the Loan and (ii) advance additional
funds such that the aggregate principal amount outstanding under the Loan
would be increased to $168,000,000;
(b) the Existing Notes would be consolidated into a single note
and the Interest Rate and payments required thereunder would be reset for
the entire Loan; and
(c) the term of the Loan would be extended to December 11, 2009.
F. Prudential has accepted such application letter, and the parties
are entering into this Amendment and the "Loan Document Amendments" referred
to herein in fulfillment of their obligations under said application letter.
AGREEMENTS
----------
NOW, THEREFORE, intending to be legally bound and in consideration of the
recitals set forth above and incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Prudential agree as follows:
1. RECITALS; DEFINED TERMS. The foregoing Recitals and the definitions
contained therein are hereby incorporated into this Amendment, and this
Amendment, when executed by the parties hereto, shall be incorporated into and
constitute a part of the Existing Loan Agreement. The terms used in this
Amendment shall have the same definitions as set forth in the Existing Loan
Agreement, to the extent that such terms are defined therein and are not
otherwise defined in this Amendment.
2. CONDITIONS PRECEDENT TO PRUDENTIAL'S OBLIGATIONS. The agreements
of Prudential contained herein shall be effective only if the following
conditions are satisfied on or before the date hereof:
(a) AMENDED, RESTATED AND CONSOLIDATED NOTE. Borrower shall
have executed and delivered to Prudential an Amended, Restated and
Consolidated Note, executed by Borrower and payable to the order of
Prudential, and otherwise in a form satisfactory to Prudential, that
amends, restates and consolidates the Existing Notes so as to evidence
the Loan (as modified pursuant hereto) in a single instrument (the
"Amended Note");
<PAGE>
(b) AMENDMENT TO MORTGAGE AND OTHER LOAN DOCUMENTS. Borrower
shall have delivered to Prudential an amendment to the Existing Mortgage,
Existing Lease Assignment, Existing Pledge Agreement, and other Existing
Loan Documents, executed by Beneficiary and (where applicable) Trustee,
in a form satisfactory to Prudential (the "Mortgage Amendment");
(c) REAFFIRMATION AND AMENDMENT OF GUARANTY AND HAZARDOUS
MATERIALS AGREEMENT. Borrower shall have delivered to Prudential an
agreement satisfactory to Prudential, executed by Urban LP, with a
joinder thereto by Urban Shopping Centers, Inc. ("Urban REIT") for
purposes consistent with the joinder attached to the Assumption Agreement
(Urban LP and, upon succeeding to the obligations of Urban LP, Urban REIT,
being collectively, the "Guarantor"), by which the Guarantor (i) agrees to
amendments to the Existing Guaranty and Existing Hazardous Materials
Agreement that reflect the transactions described in this Amendment and
(ii) reaffirms the obligations under the Existing Guaranty and Existing
Hazardous Materials Agreement assumed by Guarantor pursuant to the
Assumption Agreement (the "Guaranty Amendment");
(d) REAFFIRMATION AND AMENDMENT OF ERISA AGREEMENT. Borrower
shall have delivered to Prudential a Reaffirmation and Amendment to ERISA
Certificate and Indemnification Agreement in a form acceptable to
Prudential, based on the completion of the transactions described in this
Amendment, executed by Beneficiary and Guarantor (the "ERISA Amendment").
(e) THIRD SUPPLEMENTAL CERTIFICATE OF REPRESENTATIONS AND
WARRANTIES. Borrower shall have executed and delivered to Prudential a
Third Supplemental Certificate of Representations and Warranties in a form
acceptable to Prudential, fully executed by Beneficiary and Guarantor (the
"Third Supplemental Certificate").
(f) SNDA AMENDMENTS. Borrower shall have delivered amendments,
executed and acknowledged on behalf of each of the Anchor Tenants, to the
Subordination, Non-Disturbance and Attornment Agreements previously
executed by such Anchor Tenants, that reflect the transactions described
in this Amendment and that reaffirm the provisions of such agreements as
applied to the Existing Mortgage and Original Loan, as amended and
modified pursuant to this Agreement, which amendments shall also be
executed and acknowledged on behalf of Borrower where applicable;
(g) LESSOR'S CERTIFICATIONS. Borrower shall have delivered to
Prudential (i) a current rent roll for the Property certified as true,
correct and complete under a written certification executed by Borrower
in a form acceptable to Prudential, and (ii) a certification with respect
to all Leases addressing matters that estoppel certificates under such
Leases would have addressed had the same been obtained by Borrower (other
than those for which estoppel certificates have been furnished pursuant
to paragraph (k) of this Section);
(h) UCC AMENDMENTS. Borrower shall have delivered such
amendments to the existing UCC Financing Statements as Prudential may
require to reflect the change in the secured party resulting from the
transactions described herein and to maintain perfection of its security
interests;
(i) TITLE ENDORSEMENT. Borrower shall have furnished to
Prudential an endorsement to the Title Insurance Policy
heretofore issued in favor of Prudential, which shall (i) insure
as of the date hereof that the Existing Mortgage (as amended
<PAGE>
pursuant to this Amendment) is and remains a valid, first priority
mortgage upon the Property, subject only to the exceptions reflected in
the Title Insurance Policy as endorsed at the time of execution of the
Transfer Agreement and such other exceptions and Prudential may have
approved in its sole discretion, (ii) amend the effective date of all
endorsements previously issued to make the same effective as of the date
hereof, and (iii) increase the amount of coverage thereunder to
$168,000,000, and Borrower shall have furnished to Prudential such
policies and/or endorsements to policies of reinsurance with respect to
the Title Insurance Policy (as endorsed as described immediately above) in
amounts and from reinsurers acceptable to Prudential.
(j) UCC SEARCHES. Borrower shall have furnished to the
Prudential current searches, dated no earlier than five (5) business days
prior to the date of this Amendment, of all Uniform Commercial Code
financing statements filed with (i) the Secretary of State of Illinois,
and (ii) all other states (if any) in which Beneficiary and any of its
constituent general partners is organized and/or has its principal place
of business, against Beneficiary, Trustee, and USC-OO, showing that, with
respect to the Project and/or Borrower, no Uniform Commercial Code
financing statements are filed against any of such entities (other than
in connection with the Loan) in which the collateral is described as (i)
personal property or fixtures within the Project or used in connection
with the Project, or (ii) any interests of such parties in the Project,
the Beneficiary, or any constituent general partner of Beneficiary.
(k) ESTOPPEL CERTIFICATES. Borrower shall have provided to
Prudential estoppel certificates, in a form satisfactory to Prudential,
from (i) each of the Anchor Tenants (with respect to its Lease), (ii) the
Anchor Operator (with respect to the REA), (iii) each Tenant occupying
more than 25,000 square feet (with respect to its Lease), and (iv) the
Village of Skokie (with respect to the Village Lease and related
documents), executed by such parties for the benefit of Prudential;
(l) OPINIONS. Borrower shall have furnished to Prudential the
following opinions in form and content satisfactory to Prudential:
(i) an opinion of counsel acceptable to the Prudential, in
form and content acceptable to the Prudential, opining among other
things that (w) Beneficiary is duly formed and validly existing
under the laws of its state of organization, (x) Beneficiary and
each general partner of Beneficiary has taken all necessary
partnership or corporate action (as the case may be) to authorize
the execution and delivery of each of this Amendment and the other
Loan Document Amendments requiring Beneficiary's execution, (y)
each of the Loan Document Amendments requiring Borrower's or
Beneficiary's execution has been duly executed by Borrower or
Beneficiary (as the case may be) and constitutes the valid and
binding obligations of Borrower or Beneficiary (as applicable)
enforceable against Borrower or Beneficiary (as applicable) in
accordance with its respective terms (subject to customary
exceptions), and (z) the Loan Documents, as amended by the Loan
Document Amendments, are the valid and binding obligations of
Borrower enforceable against Borrower in accordance with their
respective terms (subject to customary exceptions); and
<PAGE>
(ii) an opinion of counsel acceptable to Prudential, in
form and content acceptable to Prudential, opining among other
things that: (1) Urban LP is a duly formed and validly existing
limited partnership under the laws of the State of Illinois; (2)
each of Urban REIT and USC-OO is a duly formed and validly
existing corporation under the laws of the respective states of
their formation; (3) Guarantor has taken all necessary partnership
and corporate action (as the case may be) to authorize the execution
and delivery of the Guaranty Amendment, ERISA Amendment, and Third
Supplemental Certificate; and (4) the Guaranty Amendment, ERISA
Amendment and Third Supplemental Certificate have been duly and
validly executed by Guarantor and are binding upon and enforceable
against the Guarantor in accordance with their terms as of the date
of this Amendment (subject to customary exceptions);
(m) EVIDENCE OF AUTHORITY. Borrower and Guarantor shall have
furnished evidence satisfactory to Prudential, including certified
resolutions of the Beneficiary's general partner and of Urban REIT, that
the individuals executing this Amendment and the documents identified in
paragraphs (a) through (h) of this Section (this Amendment and such other
documents being collectively referred to herein as the "Loan Document
Amendments") on behalf of the each of such executing parties has been duly
authorized by all appropriate action to so execute and deliver this
Amendment and the other Loan Document Amendments.
(n) ORGANIZATIONAL DOCUMENTS. Borrower and Urban LP shall have
provided to Prudential:
(i) a certification, dated as of the date hereof, that there
have been no amendments to any of (A) the amended and restated
limited partnership agreement of Beneficiary, (B) the limited
partnership agreement of Urban LP, or (C) the articles of
incorporation or by-laws of USC-OO and Urban REIT (other than as
provided under subparagraph (ii) immediately below);
(ii) copies, certified as true, correct and complete as of
the date hereof, of (A) authorizing resolutions of USC-OO and Urban
REIT with respect to the Loan Document Amendments and the
transaction described in this Amendment and (B) any amendments to
the documents described in subparagraph (i) immediately above; and
(iii) such other documents as Prudential may require to
establish the identity and power and authority of any person or
persons who may be executing any of the Loan Document Amendments;
(o) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in the Third Supplemental Certificate shall be true
and correct in all material respects as of the date of this Amendment;
(p) FINANCIAL STATEMENTS. Borrower shall have provided current
financial statements for the Project, Beneficiary, and Urban LP, showing
no material adverse change in their financial condition, and no such
material adverse change shall have occurred as of the date hereof.
(q) PAYMENT OF FEES, COSTS. Borrower shall have paid (i) any
prepayment premium due on account of the repayment of the portion of the
Original Loan payable to FPGT (calculated in the manner provided for in
the Application Letter) and (ii) all fees and expenses of Prudential
incurred as of the date hereof in connection with the modification of the
<PAGE>
Loan Documents and/or the transaction described herein, including title
endorsement charges and Prudential's reasonable legal fees and expenses.
3. AMENDMENTS TO DEFINITIONS. From and after the date of this
Amendment, the following terms used in the Existing Loan Agreement (and as
used in the sections of this Amendment which follow this Section 3) shall have
the following meanings:
(a) "Certificate of Representations and Warranties" shall mean
and refer to the Existing Certificate as amended and supplemented
by the Third Supplemental Certificate, together with any
subsequent amendments, modifications, renewals, or extensions
thereof.
(b) "ERISA Agreement" shall mean and refer to the Existing ERISA
Certificate, as amended by the ERISA Amendment, together with any
subsequent amendments, modifications, renewals, or extensions
thereof.
(c) "Guaranty" shall mean the Existing Guaranty as amended by
the Guaranty Amendment, together with any subsequent amendments,
modifications, renewals, or extensions thereof.
(d) "Hazardous Materials Agreement" shall mean the Existing
Hazardous Materials Agreement, as amended by the Guaranty
Amendment, together with any subsequent amendments, modifications,
renewals, or extensions thereof.
(e) "Lender" shall mean and refer solely to Prudential and its
successors and assigns.
(f) "Loan" shall mean the Original Loan as modified as
described in this Amendment.
(g) "Loan Amount" shall mean $168,000,000.
(h) "Loan Documents" or any individual "Loan Document" (however
described) shall mean such document or documents as amended by this
Amendment and/or the applicable Loan Document Amendment, as the case
may be, together with any subsequent amendments, modifications,
renewals, or extensions thereof.
(i) "Maturity Date" shall mean December 11, 2009.
(j) "Minimum Leasing Requirements" shall mean the requirements
set forth on EXHIBIT E attached to this Amendment (which exhibit
hereby replaces and supercedes "Exhibit E" to the Existing Loan
Agreement.
(k) "Mortgage" shall mean and refer to the Existing Mortgage, as
amended by the Mortgage Amendment, together with any subsequent
amendments, modifications, renewals, or extensions thereof.
(l) "Note" or "Notes" shall mean and refer singularly to the
Amended Note referred to in paragraph 2(a) of this Amendment,
together with any subsequent amendments, modifications, renewals,
or extensions thereof.
<PAGE>
(m) "Title Policy" shall mean that certain mortgagee's policy
of title insurance issued to Prudential by Chicago Title Insurance
Company under Policy No. 1401 007506169 D1-A, with all endorsements
and supplements thereto heretofore issued or issued pursuant to
this Amendment, and together with all policies of reinsurance
issued prior to the date hereof (as heretofore endorsed or endorsed
pursuant to this Amendment) and any and all additional reinsurance
policies issued pursuant to this Amendment.
(n) Internal references to "this Agreement" or similar phrases
shall mean the Existing Loan Agreement as amended by this
Amendment.
(o) All references to FPGT (including those in the notice
provisions of the Existing Loan Agreement) shall no longer be
applicable, and the Existing Loan Agreement (as amended hereby)
shall be construed and applied as if such references did not
appear in the document.
In addition, the following definitions are hereby added to Section 2.1 of the
Existing Loan Agreement:
"BUILDING EQUIPMENT: All machinery, appliances, apparatus,
fittings, fixtures, and articles of personal property now or hereafter
affixed to, attached to, placed upon, or located upon the Real Estate or
any part thereof (including all additions, replacements and substitutions
therefor from time to time) and used in connection with the use,
ownership, management, maintenance, or operation of the Real Estate and
now or hereafter owned or leased by Borrower, including all heating,
lighting, loading, unloading and power equipment; all boilers, dynamos,
engines, pipes, tanks, motors, conduits, and switchboards; all plumbing,
lifting, cleaning, fire prevention, fire extinguishing, refrigerating,
ventilating, and communications apparatus; all air cooling and air
conditioning apparatus; and all elevators, escalators, carpeting, shades,
draperies, awnings, doors and windows, blinds, cabinets, office equipment,
furniture and furnishings, partitions, ducts, and compressors (but
excluding equipment and personal property of tenants of the Real Estate).
"SINGLE PURPOSE ENTITY: A Person, other than an individual, which
(i) is formed or organized solely for the purpose of holding, directly
or indirectly, an ownership interest in the Project, (ii) does not engage
in any business unrelated to the Project and the financing thereof, (iii)
does not have any assets other than those related to its interest in the
Project or the financing thereof or any indebtedness other than as
permitted by this Agreement and the other Loan Documents, (iv) has its own
separate books and records and its own accounts, in each case which are
separate and apart from the books, records and accounts of any other
Person, (v) holds itself out as being a Person that is separate and
distinct from any other Person, and (vi) has provisions in its
organizational documents limiting its powers and purposes in accordance
with the foregoing.
4. LEASES AND LEASE REPORTS. The provisions of Section 10.12 of the
Existing Loan Agreement are hereby amended by restating the same in their
entirety, as follows:
<PAGE>
"10.12 LEASES AND LEASE REPORTS.
"A. The provisions of this Paragraph A shall apply to (i) all
Leases other than Non-Major Leases and Renewal Leases (as such terms are
defined in subparagraph B. (a) below) and (ii) all Leases in any case in
which the Debt Service Coverage Ratio (calculated on the basis of the
Loan Amount as redefined herein and an Applicable Period of the most
recent 12 months) does not exceed 1.10:
"(a) Borrower shall not, without the prior written consent
of Lender, lease any part of the Project or renew or extend the
Leases of any Tenant, except for any Leases which (A) are on a
standard form of lease approved by Lender, or based on such
standard form and contain non-material changes to such form, (B)
provide a term, rental rate and Tenant Allowance which, in Lender's
reasonable judgment, represent a reasonable market term and amounts
for such Lease, (C) otherwise meet the Minimum Leasing
Requirements), and (D) are to Tenants whose businesses are
reasonably compatible with the Project and whose creditworthiness is
reasonably satisfactory to Lender.
"(b) Borrower shall not, without the prior written consent
of Lender, terminate, amend, modify or alter in any material respect
any Lease (except for modifications or amendments the result of
which is that the Lease as so modified or amended still meets the
requirements of subparagraph (a) immediately above), or waive,
excuse, condone, discount, set off, compromise, or in any manner
release or discharge any Tenant from any material obligations,
covenants, conditions and agreements by such Tenant to be kept, or
accept or consent to any surrender of any Lease (except that
Borrower shall be entitled to take such enforcement actions as
Borrower deems necessary or appropriate, including terminating
Leases, with respect to Leases other than Leases to Anchor Tenants
under which the Tenant is materially in default); provided, that
Borrower shall be entitled to amend, modify, terminate, or accept
the surrender of Leases without Lender's consent if (A) each such
Lease covers less than 10,000 square feet of GLA, (B) Borrower
believes in the exercise of its prudent business judgment that such
actions will benefit the Project, and (C) the aggregate square
footage covered by the affected Leases does not exceed 20,000 square
feet of GLA in any twelve month period.
"(c) Borrower shall not, without the prior written consent
of Lender, agree or consent to any modification of the express
purposes for which the Tenant is entitled to use its premises, or
consent to any subletting of the space under any Lease or any part
thereof, or to assignment of any Lease by the Tenant thereunder or
to any assignment or further subletting by any sublessees; provided,
that Borrower shall be entitled to consent to any such modification,
sublease or assignment of any Lease without Lender's consent if (A)
each such Lease covers less than 10,000 square feet of GLA, (B)
Borrower believes in the exercise of its prudent business judgment
that such actions will benefit the Project, and (C) the aggregate
square footage covered by the affected Leases does not exceed 40,000
square feet of GLA in any twelve month period.
<PAGE>
"B. The provisions of this Paragraph B shall apply, in lieu of the
provisions of Paragraph A immediately above, to all Non-Major Leases and
Renewal Leases in any case in which the Debt Service Coverage Ratio
(calculated on the same basis as described in Paragraph A above) exceeds
1.10:
"(a) Borrower may, at all times, lease the portions of the
Project currently used for retail or office purposes in its
discretion reasonably exercised in a first-class manner consistent
with the other first-class regional shopping malls located in the
greater Chicago, Illinois, metropolitan area and then current market
conditions existing therein, and otherwise in accordance with this
Agreement, under leases in which the premises thereunder covers less
than 25,000 square feet of GLA (in the case of retail leases) or
25,000 of rentable square feet (determined in the manner generally
applied to leases in the office building within the Project) (herein
collectively, "Non-Major Leases"). Each Non-Major Lease entered
into after the date hereof, including the renewal or extension on
or after the date hereof of any Non-Major Lease entered into prior
to the date hereof if the Rent payable during such renewal or
extension, or a formula or other method to compute such Rent, is not
provided for in such Lease (such a renewal or extension a "Renewal
Lease"), either (A) shall provided for payment of Rent and all other
material amounts payable on market terms and conditions (taking into
account the type and quality of the tenant, the length of tenancy
and the location and configuration of the space so rented), as of
the date such Non-Major Lease or Renewal Lease is executed by
Borrower, of the space covered by such Non-Major Lease or Renewal
Lease for the term therefore, including any renewal options, (B)
shall not materially adversely affect the value of the Project
taken as a whole, or (C) shall be consented to by the Lender.
Borrower may, without the consent of Lender, amend, modify or waive
the provisions of any Non-Major Lease or terminate, reduce Rents
under or shorten the term of any Non-Major Lease provided that such
action (taking into account, in the case of a termination, reduction
in Rent or shortening of term, the planned alternative use of the
affected space) does not materially adversely affect the value of
the Project take as a whole, and provided further that such Non-
Major Lease, as amended, modified or waived, is otherwise in
compliance with the requirements of this Agreement.
"(b) Each Lease entered into pursuant to this Paragraph B
must provide substantially as follows: In the event of the
enforcement by Lender of any remedy under the Mortgage or other
Loan Documents, the Tenant under such Lease shall, at the option of
Lender or of any other Person succeeding to the interest of Lender
as a result of such enforcement, subject to Lender's and such
Tenant's delivery of a Nondisturbance Agreement if such
Nondisturbance Agreement is required pursuant to the provisions of
subparagraph C.(c) of this Section, attorn to Lender or to such
Person and shall recognize Lender or such successor in interest as
lessor under the such Lease without change in the provisions,
thereof; provided, however, Lender or such successor in interest
shall not be liable for or bound by (i) any payment of an
installment of Rent which may have been made more than thirty (30)
days before the due date of such installment, (ii) any amendment or
modification to or termination of any such Lease not in conformity
with paragraph (a) of this Section, (iii) any act or omission of or
default by Borrower under any such Lease or (iv) any credits,
<PAGE>
claims, setoffs or defenses which any Tenant may have against
Borrower. In addition, each such Lease must (A) require that the
Tenant, upon reasonable request by Lender or such successor in
interest, shall execute and deliver an instrument or instruments
confirming such attornment, subject to Lender's delivery of a
Nondisturbance Agreement to such Tenant if such Nondisturbance
Agreement is required pursuant to the provisions of subparagraph
C.(c) below, and (B) require that the Tenant shall deliver from
time to time, within a reasonable time (which shall not exceed
thirty (30) days) after the request of the landlord thereunder, an
estoppel certificate substantially the form of EXHIBIT J attached
hereto, and (C) generally conform with Borrower's standard form of
lease (as approved by Lender), other than such variations as shall
not (in Borrower's prudent business judgment) materially adversely
affect the value of the Project taken as a whole (but subject to the
provisions of subparagraphs C.(b) and C.(c) of this Section). The
form of each Lease entered into pursuant to this Paragraph B shall
reflect all changes to Borrower's standard form by marking out
deleted language and interlineating new language in the margins or
on one or more attachments or addenda to such Lease.
"(c) No later than ten (10) business days after Borrower
executes any Lease pursuant to the provisions of this Paragraph B,
Borrower shall deliver to Lender (i) a complete copy of such Lease
certified as true, correct and complete by an officer of Borrower
or its Manager, and (ii) a summary of the principal terms of such
Lease, including (1) the term, (2) renewal or extension options,
(3) any cancellation or termination options (other than those
customarily provided for casualty and condemnation), (4) the base
rent, percentage rent, and additional rent, (5) any "free" rent or
rent abatement provisions, (6) the amount and terms of payment of
any Tenant Allowances, (7) the scope of the Tenant's permitted uses,
(8) any exclusive use restrictions, (9) any expansion options or
rights of first offer or first refusal on any other space in the
Project, (10) any Co-Tenancy Provision (as such term is defined in
EXHIBIT E hereto), and (11) any other provision that (x) departs
from Borrower's normal leasing practices and (y) creates material
obligations or liabilities on the part of the landlord.
"C. The provisions of this Paragraph C shall apply to all Leases
and all renewals, extensions, amendments, modifications, or alterations of
Leases:
"(a) Each request by Borrower for approval of any Lease, or
any modification or amendment of any Lease, for which Lender's
approval is required under this Section shall be made by written
notice to Lender and shall include (i) a copy of the applicable
Leases or Lease amendment and all related documents such as (but
not limited to) work letters and lease guaranties, (ii) a marked
copy of the Lease or Lease amendment highlighting all changes from
the Minimum Leasing Requirements and the standard form lease, and
(iii) such other information regarding the Tenant thereunder and
its operations as Lender shall reasonably require (such notice and
all such documentation with respect to any proposed Lease or
Lease amendment being referred to collectively as a "Lease Approval
Request"). Failure of Lender to have either approved or disapproved
any proposed Lease, or any proposed modification or amendment of any
Lease, within seven (7) business days after Lender shall have
received the applicable Lease Approval Request therefor shall, if
<PAGE>
such failure continues for three (3) business days after further
written notice to Lender of Lender's having failed to act on such
Lease Approval Request, be deemed an approval by Lender of such
Lease or Lease amendment; provided, that the provisions of this
sentence shall be inapplicable to any Lease Approval Requests
pending at any one time if the number of such Lease Approval
Requests submitted to Lender shall exceed five (5) during any ten
(10) business day period. If Lender shall disapprove any Lease or
any proposed amendment, modification, or termination of any Lease
for which its approval is required hereunder, Lender shall give
written notice of such disapproval, setting forth in such notice the
reasons for such disapproval.
"(b) Unless otherwise approved in writing by Lender in each
instance, no Lease shall contain (i) an option to purchase or right
of first refusal to purchase, or any other right to purchase or
acquire all or any part of or any interest in the Real Estate (other
than any option in Borrower to purchase the Garage Parcel), (ii)
any representations, warranties or indemnifications by the landlord
with respect to hazardous substances or asbestos which would be
binding upon Lender or any subsequent grantees or assignees upon
acquisition of the Project through foreclosure or conveyance in
lieu of such foreclosure, or (iii) any obligations (financial or
otherwise) upon the landlord to construct or provide land for
construction of any physical improvements which would be binding
upon Lender or any subsequent grantees or assignees upon
acquisition of the Project through foreclosure or conveyance in lieu
of such foreclosure, or which, if not performed, would result in any
offsets against Rent which would be binding upon Lender or any
subsequent grantees or assignees upon acquisition of the Project
through foreclosure or conveyance in lieu of such foreclosure.
"(c) All Leases entered into by Borrower after the date
hereof shall be subject and subordinate to the Mortgage (through
subordination provisions in the Leases or, where the Tenant has
requested that Lender enter into a Nondisturbance Agreement [as
defined below], a separate Nondisturbance Agreement) and shall
provide that the Tenant thereunder shall attorn to Lender, or any
other Person succeeding to the interest of Lender, on the terms set
forth in subparagraph B.(b) of this Section; provided, that at the
request of Borrower (pursuant to the request of the
applicable Tenant), Lender shall enter into subordination,
attornment and nondisturbance agreement, in form and substance
substantially similar to the form attached hereto as EXHIBIT L (a
"Nondisturbance Agreement") with any existing Tenant or any Tenant
entering into a Lease after the date hereof (other than a Lease to
an Affiliate of the Borrower); and provided further, that with
respect to any Lease entered into after the date hereof, such
request is accompanied by a certificate of a principal officer of
Beneficiary's general partner (who shall also be an officer of
Guarantor or its general partner) stating that such Lease complies
in all respects with this SECTION 10.12. All actual, out-of-pocket
costs and expenses of Lender in connection with the negotiation,
preparation, execution and delivery of any Nondisturbance Agreement
including, without limitation, reasonable attorneys' fees and
disbursements, shall be paid by Borrower.
"(d) Borrower shall promptly perform and observe all of the
material terms, covenants and conditions required to be performed
<PAGE>
and observed by Borrower under the Leases, and Borrower shall
exercise, within fifteen (15) Business Days after a written request
by Lender (which requests may not be made with unreasonable
frequency), any right to request from the Tenant under any Lease a
certificate with respect to the status thereof. Borrower shall not
(i) receive or collect any Rents or other sums payable under any
Lease (collectively, "Rents") for a period of more than one month in
advance (whether in cash or by promissory note) or (ii) further
assign any Lease or pledge, transfer, mortgage or otherwise encumber
or assign future payments of Rents."
5. TRANSFER PROVISIONS. The provisions of Section 11.3 of the Existing
Loan Agreement are hereby amended by restating the same in their entirety, as
follows:
"11.3 DUE ON SALE OR ENCUMBRANCE
"A. In the event that Trustee or Beneficiary, without the prior
written consent of Lender (which consent may be withheld for any reason
or for no reason or given conditionally, in Lender's discretion), shall
sell, convey, assign, transfer or shall otherwise dispose of or be
divested of its title to, or shall mortgage, convey security title to,
or otherwise encumber or cause to be encumbered (collectively,
"Transfer"), the Real Estate or any part thereof or any interest therein
in any manner or way (whether direct or indirect, voluntary or
involuntary), or in the event of:
"(a) any merger, consolidation, or dissolution involving,
or the Transfer of all or substantially all of the assets of,
Beneficiary or Urban LP, any general partner of Beneficiary or
Urban LP, or USC-OO or any other direct or indirect general partner
of Beneficiary, except as otherwise expressly provided in this
Section;
"(b) the Transfer (at one time or over any period of time)
of 10% or more of:
"(i) the voting stock of
"(A) a corporate Beneficiary,
"(B) USC-OO or other direct or indirect corporate
general partner of Beneficiary, or
"(ii) the beneficial interest in Trustee, or the
interest in any owner of 50% or more of the beneficial
interest in Trustee;
"(c) the Transfer of any general partnership interest in
Beneficiary or Urban LP; or
"(d) the conversion of the general partnership interest in
Beneficiary of USC-OO (or other successor general partner of
Beneficiary permitted hereunder, or any direct or indirect general
partnership interest in any such successor general partner) to a
limited partnership interest; the conversion of Urban REIT's general
partnership interest in Urban LP to a limited partnership interest;
the conversion of any limited partnership interest in Beneficiary or
Urban LP, or in any partnership which is a direct or indirect
<PAGE>
general partner of Beneficiary or Urban LP, to a general partnership
interest; or the admission of any new general partner in Beneficiary
or Urban LP, or in any partnership which is a direct or indirect
general partner of Beneficiary or Urban LP;"
"then the entire balance of the secured indebtedness, plus the Prepayment
Premium, shall become immediately due and payable at the option of Lender.
This provision shall not apply to transfers of title or interest under any
will or testament or applicable law of descent.
"B. Notwithstanding the foregoing, Lender agrees that the
following Transfers shall not be deemed to violate the foregoing
restrictions so long as no Default has occurred and is continuing (but
shall be subject to the limitations in the ERISA Agreement): (1) any
Transfer of limited partnership interests in Beneficiary held by Urban
LP to Urban REIT; (2) any Transfer of the general partnership interest in
Beneficiary by USC-OO to Urban LP, Urban REIT, or any other wholly-owned
subsidiary of either of them, or any transfer of the stock of USC-OO to
Urban LP or any other wholly-owned subsidiary of Urban LP or Urban REIT;
(3) any transfer of limited partnership interests in Urban LP or any
conversion of limited partnership interests in Urban LP to stock of Urban
REIT; (4) any sale, exchange, encumbrance, pledge, or other transfer of
the stock of Urban REIT, other than as described in subparagraph (a) of
this Section; and (5) when all limited partnership interests in Urban LP
have been exchanged for stock of Urban REIT, the dissolution of Urban LP
as contemplated by the partnership agreement of Urban LP, provided Urban
REIT succeeds to all of the assets, and assumes all of the liabilities of,
Urban LP."
"C. In addition, notwithstanding the foregoing, if no Default
has occurred and is continuing, Lender agrees that, upon the written
request of Borrower, Lender shall consent to one (and only one) Transfer,
exclusively in the form of (x) a conveyance of the entire Project, (y) an
absolute assignment of the entire beneficial interest in the land trust of
which Trustee is the trustee, or (z) an absolute assignment of all or
substantially all of the partnership interests in Beneficiary (expressly
including all general partnership interests), if (and only if):
"(a) the Project shall have achieved a Debt Service Coverage
Ratio of at least 1.35;
"(b) at the time of the Transfer, the Loan-to-Value Ratio (as
hereinafter defined) does not exceed 70%;
"(c) after such Transfer, legal and beneficial title to the
Project shall be held in either (i) a Single Purpose Entity or (ii)
one or more pension funds, real estate investment trusts, or
institutional investment accounts (or an investment vehicle
established by such an entity or entities), and such Single Purpose
Entity or other such entity or entities, together with the
person(s) assuming the obligations under the Guaranty and Hazardous
Materials Agreement (who shall be an Affiliate of the holder of the
legal or beneficial title to the Project) shall have, exclusive of
the Project, an aggregate current net worth of at least $250 million
and aggregate total assets of at least $500 million; provided, that
in the case of a pension fund or institutional investment account,
the total asset requirement shall be deemed satisfied if the manager
<PAGE>
or advisor for such fund or account manages or acts as advisor for
funds or accounts having aggregate total assets of at least $500
million (exclusive of the Project);
"(d) the proposed transferee is a person which, in the
reasonable judgment of Lender, (i) has a good reputation in the
business community and (ii) has established experience in the
ownership, operation and management of similar properties, or if
such transferee lacks such experience, the transferee engages a
reputable and experienced professional management company that
possesses such experience (it being agreed that an owner or manager
which, together with its Affiliates, has under ownership or
management, at the time of the proposed transfer, at least six
regional or super-regional shopping centers, comprising an aggregate
of at least five million square feet of gross leasable area
[inclusive of anchor space, but exclusive of the Project] shall be
deemed to have established experience meeting the requirements of
this paragraph);
"(e) Lender has received thirty (30) days' prior written
notice from Borrower of the proposed transfer and all information
reasonably required by Lender to determine whether the proposed
transferee meets the criteria set forth in SUBSECTIONS (a) and (b)
immediately above;
"(f) as consideration for the review of such transfer,
Borrower has paid Lender a reasonable servicing fee (not less than
$10,000), which shall be deemed earned by Lender even if such
proposed Transfer is not approved, and if such Transfer is
approved, an additional fee equal to 0.25% of the outstanding
principal amount of the Loan at the time of such Transfer; provided,
that with respect to any Transfer made in connection with any
merger, sale, or other transaction involving all or substantially
all of the assets of Urban LP or Urban REIT, such additional fee
would not exceed Fifty Thousand Dollars ($50,000).
"(g) at Lender's option, Lender has received an endorsement
to the Title Policy at Borrower's expense, which endorsement states
that the Mortgage remains a first and prior lien against the Real
Estate;
"(h) the transferee expressly assumes the indebtedness under
the Note and all other obligations under the Loan Documents (or such
obligations thereunder as a transferee of partnership interests may
have pursuant to the Loan Documents) pursuant to an assumption
document satisfactory to Lender; provided, that such assumption
document shall not (i) increase the financial obligations of, or
personal recourse to, the transferee relative to the obligations of
Borrower and Guarantor under the Loan Documents, or (ii) otherwise
materially modify the provisions of the Loan Documents, other than
(x) the inclusion of representations and warranties relating to the
requirements of this Section and covering customary matters relating
to the transferee such as due organization, existence, good
standing, and authority and the validity and enforceability of the
assumption document and the Loan Documents as against the
transferee, and (y) provisions which Lender shall determine are
necessary to reflect within the Loan Documents changes in the
entities involved in the Loan;
<PAGE>
"(i) the transferee executes such documents as may be
required by Lender to perfect or maintain perfection of a first
priority security interest in the personal property in which
Lender has a security interest pursuant to the terms of the Loan
Documents;
"(j) Lender receives copies of all documents evidencing such
Transfer and approves (in its reasonable judgment) the form and
content of all such documents, and Lender is furnished with a
certified copy of each recorded transfer document (it being agreed
that the scope of Lender's approval shall be limited to determining
that such documents and the applicable transaction conform to the
provisions of the Loan Documents);
"(k) such transfer is permitted under the provisions of the
ERISA Agreement;
"(l) if the Expansion Project (as defined in the Fifth
Amendment to Loan Agreement) has been commenced, the same has been
completed and the requirements set forth in Section 6 thereof have
been satisfied; and
"(m) Borrower pays all reasonable costs and expenses incurred
by Lender in connection with such transfer, including all legal,
accounting, title insurance and appraisal fees, whether or not such
transfer is actually consummated.
"The term "Loan-to-Value Ratio" shall mean the ratio of (x) the aggregate
principal balance of the Loan as of the date of the Transfer to (y) the
purchase price for the Project (based on an arms-length, third party
transaction); provided, that in any case in which the Transfer involves
less than 100% of legal title to the Project or 100% of the beneficial or
equity interests in Trustee or Beneficiary, the purchase price for the
Project shall be derived by Lender (in its reasonable judgment) from the
amounts to be paid in such transaction and the nature and extent of the
interests acquired.
"D. Notwithstanding the preceding provisions of this Section,
Borrower may transfer or dispose of Building Equipment (as hereinafter
defined) which is being replaced or which is no longer necessary in
connection with the operation of the Project free from the interest of
Lender under the Loan Documents, provided that such transfer or disposal
will not materially adversely affect the value of the Project taken as a
whole, will not materially impair the utility of the Project, and will
not result in a reduction or abatement of, or right of offset against,
the rents payable under any Lease, in either case as a result thereof,
and provided that any new Building Equipment acquired by Borrower (and
not so disposed of) shall be subject to the interest of Lender under this
Agreement (unless the same is leased as permitted under the provisions of
the Loan Documents). Lender shall, from time to time, upon receipt of a
written request therefor and a certification from a principal officer of
Borrower's general partner that a transfer or disposition of Building
Equipment meets the conditions of this paragraph D, execute a written
instrument in form reasonably satisfactory to it to confirm that such
Building Equipment which is to be, or has been sold or disposed of is
free from the interest of Lender under this Agreement."
6. ADDITIONAL IMPROVEMENTS. Lender acknowledges that Borrower intends
to construct (at Borrower's sole expense and from its own funds) certain
<PAGE>
additional improvements within the Property, consisting of an additional
movie theater, additional retail space, and an additional parking deck (the
"Expansion Project"), as described in the preliminary plans attached hereto
as EXHIBIT 1 and made a part hereof (the "Preliminary Plans"). Lender has
reviewed the Preliminary Plans and has no objection thereto at this time.
However, at such time as Borrower has prepared detailed plans and
specifications for the Expansion Project and is otherwise prepared to
commence the same, Borrower shall submit to Lender the following items:
(i) such plans and specifications;
(ii) a certificate or certificates of the responsible
architect(s) and engineer(s) with respect to such plans and
specifications, in a form acceptable to Prudential (it being agreed that
such certificates will be acceptable if they are substantially similar in
content to the certificates previously received by Original Lender with
respect to the Project);
(iii) a construction schedule in reasonable detail, showing
commencement and completion dates for all material phases of the Expansion
Project;
(iv) a description in reasonable detail of the effects that such
construction will have on existing parking capacity and other common areas
and facilities;
(v) a list of the primary contractor(s) that Borrower intends to
engage;
(vi) Borrower's leasing projections with respect to new retail
space and copies of any leases or letters of intent that shall have been
executed with respect to such space;
(vii) a description of Borrower's source of funds for the Expansion
Project;
(viii) a certification executed by Borrower and Guarantor, in a form
satisfactory to Prudential, that neither the construction nor the
operation of the Expansion Project will violate the REA, any of the Leases
with the Anchor Tenants, or any other existing Leases (or to the extent
that such a violation would arise, the written consent(s) of the party or
parties affected);
(ix) any other information reasonably required by Prudential to
assess the impact of the Expansion Project on the Borrower and the
Property; and
(x) a guaranty of completion for the benefit of Prudential, in a
form satisfactory to Prudential, executed by Guarantor, together with
evidence of authorization and enforceability of such guaranty similar to
that provided in paragraphs (l), (m), and (n) of Section 2 of this
Amendment.
On the basis of the foregoing, Prudential shall determine whether to approve
the Expansion Project; provided, however, Borrower will be entitled to proceed
with the Expansion Project if (A) such project as reflected in the final plans
and specifications is consistent with the Preliminary Plans, (B)
the construction and operation of the Expansion Project will comply with
applicable Laws, and (C) Lender determines, in its reasonable judgment, that
<PAGE>
the construction and operation of the Expansion Project will not adversely
impact the value of the Property (it being agreed by Lender that on the basis
of the Preliminary Plans, proposed tenant mix, and other information provided
by Borrower up to the date of this Amendment, Lender does not now believe that
the Expansion Project will adversely impact the value of the Project). Upon
approval of the Expansion Project and the commencement thereof, Borrower shall
diligently pursue the same to completion substantially in accordance with the
final plans and specifications and construction schedule submitted to
Prudential as provided above and all applicable Laws. Upon completion thereof,
Borrower shall furnish to Prudential (a) a certificate or certificates of the
responsible architect(s) and engineer(s) with respect to the Expansion Project
as constructed, in a form acceptable to Prudential (it being agreed that such
certificates will be acceptable if they are substantially similar in content
to the certificates previously received by Original Lender with respect to the
Project), (b) copies of as-built plans and specifications for the Expansion
Project, (c) an as-built survey of the portions of the Property affected by
the Expansion Project, (d) an endorsement to the Title Policy (x) insuring
against any mechanics' liens arising from the Expansion Project and (y)
insuring the accuracy of such survey and the absence of any encroachments as
a result of the Expansion Project, and (e) as tenants of the spaces in the
Expansion Project take possession of their respective spaces, estoppel
certificates executed by such tenants.
7. NOTICES. Section 14.4 of the Existing Loan Agreement is hereby
amended to provide that notices to the Lender under the Loan Agreement shall
hereafter be addressed as follows:
The Prudential Insurance Company
of America
c/o Prudential Capital Group
Two Prudential Plaza
180 North Stetson Street
Suite 5600
Chicago, Illinois 60601
Attention: Managing Director
Re: Old Orchard Shopping Center
Prudential Loan No. 6-102-354
with a copy to:
The Prudential Insurance Company
of America
One Prudential Plaza
Suite 1300
Chicago, Illinois 60601
Attention: Regional General Counsel
Re: Old Orchard Shopping Center
Prudential Loan No. 6-102-354
8. INCORPORATION OF RECITALS AND EXHIBITS. The Recitals to this
Amendment and all Exhibits attached hereto are hereby incorporated into and
shall constitute a part of this Amendment.
9. NO WAIVER OR MODIFICATION. Nothing contained herein shall be
construed to disturb, discharge, cancel, impair or extinguish the indebtedness
and obligations evidenced by the Existing Note or constitute a novation of
such indebtedness (other than as provided in the Amended Note), or waive,
release or impair the lien and validity of the Mortgage or the other Loan
Documents. Borrower covenants and agrees that the indebtedness under the
<PAGE>
Note continues to be secured by the Mortgage and the other collateral and
security heretofore or hereafter given the Prudential to secure such
indebtedness, whether by the undersigned or otherwise, and that all of the
terms, covenants, provisions and obligations of the Existing Mortgage and the
other Existing Loan Documents remain in full force and effect in accordance
with their terms, except as expressly amended by this Amendment and the other
Loan Document Amendments.
10. AGREEMENT BINDING. This Amendment, the other Loan Document
Amendments, and the other Loan Documents set forth the entire understanding
between Borrower and Prudential relative to the Loan, and the same shall not
be amended except by a written instrument duly executed by each of Borrower
and Prudential. The provisions hereof shall be binding upon Borrower and
Prudential and the representatives, successors and assigns of each of
Borrower and Prudential, including successors in interest of Borrower in and
to all or any part of the Project or any direct or indirect interest in
Beneficiary, and shall inure to the benefit of Prudential and its successors
and assigns.
11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be in an original, but all of which
counterparts shall together constitute one and the same instrument.
12. PARTIAL INVALIDITY; INCONSISTENCIES. In the event that any one or
more of the provisions contained in this Amendment shall be held to be
invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein shall not, in any
way, be affected or impaired. In the event of a conflict or inconsistency
between the provisions of the Loan Documents and the provisions of the Loan
Document Amendments, the provisions of the Loan Document Amendments shall
govern. The Loan Document Amendments and the Loan Documents are intended to
be interpreted in a manner which renders their respective terms and provisions
consistent with one another; however, in the event of an inconsistency between
any of the Loan Document Amendments and the other Loan Documents which cannot
reasonably be reconciled, the Loan Document Amendments are intended to
control.
13. INTERPRETATION. Each party and its counsel has reviewed and
revised the Loan Document Amendments and agrees that the normal rule of
construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of such
document. The use in the Loan Document Amendments of the words "including",
"such as", or words of similar import when following any general term,
statement or matter shall not be construed to limit such statement, term or
matter to the specific items or matters, whether or not language of
non-limitation such as "without limitation" or "but not limited to", or words
of similar import are used with reference thereto, but rather shall be deemed
to refer to all other items or matters that could reasonably fall within the
broadest possible scope of such statement, term or matter.
14. PAYMENT OF COSTS. Borrower shall pay all fees and expenses of
Prudential incurred in connection with the modification of the Loan Documents
and/or the transaction described herein, including without limitation updated
title endorsement charges and Prudential's reasonable legal fees and expenses.
15. GOVERNING LAW. This Amendment shall be governed by, and construed
in accordance with, the internal laws of the State of Illinois.
<PAGE>
16. WAIVER OF JURY TRIAL. THE PARTIES TO THIS AMENDMENT HEREBY WAIVE,
TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTER-CLAIM FILED BY EITHER PARTY, WHETHER IN
CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THIS
AMENDMENT, ANY OF THE OTHER LOAN DOCUMENT AMENDMENTS, OR ANY ACTS OR OMISSIONS
OF PRUDENTIAL IN CONNECTION THEREWITH.
17. LIABILITY LIMITATIONS. This Amendment, and the liabilities of each
of Borrower, USC-OO, and all other Exculpated Parties under the provisions of
this Amendment, are subject to the limitations on liability set forth in
Section 14.20 of the Loan Agreement (as amended by Sections 17 and 18 of the
Transfer Agreement). The parties acknowledge that the provisions contained in
Section 14.20 of the Loan Agreement (which are also set forth in the Note)
have been amended in certain respects as reflected in the Note; accordingly,
in the event of any conflict between Section 8 of the Note and Section 14.20
of the Loan Agreement, Section 8 of the Note shall control.
18. TRUSTEE EXCULPATION. This 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>
IN WITNESS WHEREOF, Borrower and Prudential have executed this Amendment
as of the date first written above.
BENEFICIARY: OLD ORCHARD URBAN LIMITED PARTNERSHIP, an
Illinois limited partnership
By: USC Old Orchard, Inc., a Delaware
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
EX. 13
URBAN SHOPPING CENTERS, INC. ANNUAL REPORT 1997
[ PHOTO ]
SHOP
[ PHOTO ]
EAT
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PLAY
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Letter to Shareholders.................................................... 1
Business Concepts......................................................... 4
Property Locations........................................................ 12
Financial Highlights...................................................... 13
Management's Discussion................................................... 14
Financial Statements...................................................... 20
Notes to Financial Statements............................................. 24
Independent Auditors'Report............................................... 32
Selected Financial Data................................................... 33
Quarterly Financial Summary............................................... 33
Board of Directors/Officers............................................... 34
Shareholder Information................................................... 34
</TABLE>
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. Urban Shopping Centers 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 interests
in seventeen retail properties comprised of more than 15 million square feet
of space and also has an approximate 1.1 million square foot regional mall and
an approximate 350,000 square foot community center under development. The
company opened Brandon TownCenter in Tampa, Florida in 1995 and Wolfchase
Galleria in Memphis, Tennessee on February 26, 1997. The company's portfolio,
excluding recent acquisitions and development, produced sales per square
foot of $364 in 1997, which ranks among the highest in the industry.
Urban Shopping Centers owns interests in several of the premier shopping
centers in the United States, including Oakbrook Center (Oak Brook, Illinois),
Water Tower Place (Chicago, Illinois), Copley Place (Boston, Massachusetts),
San Francisco Shopping Centre (San Francisco, California) 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 50 million square feet of regional malls and community
centers in 21 states and the District of Columbia.
<TABLE>
<CAPTION>
[Chart - Plot Points to Come]
Funds Available for Distribution (in millions)
- ----------------------------------------------
<S> <C> <C>
95 96 97
Sales Per Square Foot
- ----------------------------------------------
95 96 97
Dividend Payout Ratio
- ----------------------------------------------
95 96 97
</TABLE>
URBAN SHOPPING CENTERS, INC.
ANNUAL REPORT 1997
TO OUR SHAREHOLDERS: 1997 was another active and successful year for Urban
Shopping Centers, Inc. We remained focused on all aspects of our business and
took several steps to continue to grow our company in a prudent manner.
HIGHLIGHTS Some of 1997's highlights include:
ACQUISITIONS During 1997, we completed four acquisitions, described below,
which increased the size of our owned retail portfolio by 3,531,000 square feet
or approximately 30%.
In June, we invested in the partnership which owns San Francisco Shopping
Centre. San Francisco Shopping Centre is a vertical shopping mall located
on Market Street in downtown San Francisco. The center contains 495,000 square
feet of retail space on six levels and is anchored by a 312,000 square foot
Nordstrom store. This property, which is a mainstay of downtown San Francisco,
contains many of the same exciting and successful retailers that are already
in other centers in our portfolio.
In August, we acquired an interest in Copley Place in Boston. Copley Place
is a mixed-use property and a well-known Boston landmark. Anchored by Neiman
Marcus, Copley Place contains 369,000 square feet of retail space and 842,000
square feet of office space. We managed Copley Place prior to the acquisition
and are very pleased to be able to include it in our owned portfolio.
In November, we acquired Hawthorn Center located in north suburban
Chicago. Hawthorn Center is a 1,234,000 square foot regional mall anchored by
Carson Pirie Scott, Marshall Field's, Sears and a new JCPenney. We felt that
Hawthorn Center was an excellent complement to our portfolio, especially since
we already own Old Orchard Center, a dominant property approximately 17 miles
away. Because Hawthorn Center and Old Orchard both have distinct trade areas,
we feel we will be able to work with certain tenants who will be interested in
having a presence in both centers.
Also in November, we acquired Fox Valley Center in Aurora, Illinois. This
1,433,000 square foot center, anchored by Carson Pirie Scott, JCPenney,
Marshall Field's and Sears, is located in a growing area approximately 32
miles west of Chicago. We are currently undertaking a renovation to further
attract the expanding population surrounding the center.
We believe that the additions of Fox Valley Center and Hawthorn Center are
good strategic acquisitions because they give us a presence in two of the
fastest growing areas of Chicago and solidify our position as the dominant
owner/operator of regional malls in this major city.
DEVELOPMENT In February, we opened Wolfchase Galleria in Memphis, Tennessee.
This 1,086,000 square foot center is currently 99% leased, and has introduced
many new tenants to the Memphis market. It has quickly become the dominant mall
in Memphis and continues to attract shoppers from neighboring states.
Development remains an important component of our growth story. As is
further described below, we have additional regional mall developments
scheduled for 1999 and beyond.
EXISTING PORTFOLIO We continue to be very focused on maximizing the value of
our existing properties. Despite the increasing size of our portfolio, our
management team remains committed to the hands-on, detailed asset management
approach that has served us so well in the past. Overall, our portfolio
continues to perform quite well, and remains one of the best leased and most
productive in our industry.
THIRD-PARTY BUSINESS Our property management, leasing and development
affiliate, Urban Retail Properties Co., is one of the country's largest retail
property managers. This company, in addition to managing a portion of Urban
Shopping Centers' own portfolio, continues to provide management, leasing,
development and consulting services to various institutional and
entrepreneurial owners who want to benefit from Urban Retail Properties Co.'s
retail relationships and expertise. We also continue to expand our presence
overseas. Urban Retail Properties Co.'s international affiliate, Urban Retail
International LLC, is currently working on assignments in Taiwan and Saudi
Arabia, and is also considering various other projects with foreign owners who
are attempting to develop retail projects around the world.
1
[ PHOTO ]
LETTER TO OUR SHAREHOLDERS
CAPITAL STRUCTURE We remain committed to maintaining a strong financial
position as we grow our company. During 1997, we executed various debt
and equity transactions, further described below, which enhanced our balance
sheet and financial ratios.
1997 FINANCIAL OVERVIEW Our successes in acquisition and development are
matched by our record 1997 financial results. Funds Available for Distribution
(FAD) per common share grew 11.2% and our Board of Directors raised the
dividend for the fourth consecutive year. The stock market reacted
well to our year of success and the share price increased 20.3% during
1997. The end result was that Urban Shopping Centers' 27.3% total return to our
stockholders for 1997 was among the highest reported by regional mall REITs for
the third consecutive year. Over the last three years, the average total return
to our stockholders equaled 30.5% per year.
PROPERTY RESULTS Mall tenant sales for the year, excluding 1996 and 1997
acquisitions and new development, increased 4.7% to $1.39 billion compared to
$1.32 billion in 1996. Excluding our recent acquisitions and development, sales
per square foot were $364. The total mall gross leasable area occupied was
91.6% and 92.8% leased as of December 31, 1997.
DIVIDENDS, PAYOUT RATIO AND FINANCIAL STRATEGY Urban Shopping Centers' Board of
Directors increased the quarterly dividend in February 1997 to 50.75 cents per
share. At the Board's meeting in February 1998, the Directors approved another
dividend increase to 52.50 cents per share per quarter or $2.10 per share
annually.
As long as we continue to find attractive ways to reinvest our capital,
one of our continuing goals is to annually increase the company's dividend --
thus increasing our yield for each shareholder -- while lowering our payout
ratio. We foresee continuing this trend in 1998. We believe our best strategy
is to continue to retain sufficient operating funds, which will increase our
overall financial flexibility, enabling us to take advantage of growth
opportunities when they arise. With 1997 Funds Available for Distribution of
$47.7 million, our total dividend of $35.5 million paid in 1997 represented a
payout ratio of 74%, compared to 79% in 1996.
CAPITAL STRUCTURE Since becoming a public company, Urban Shopping Centers has
been singularly committed to maintaining a strong financial position.
Towards this end, our management team took advantage of the positive interest
rate environment during 1997 which enabled us to obtain favorable pricing and
lengthen the maturity dates on more than $875 million of debt secured by
several of our properties. Some of the financing transactions were as follows:
- - In February, we completed a $170 million debt refinancing on Water Tower
Place. We reduced the all-in interest rate by more than a full percentage
point.
- - In April, we successfully engineered a significant reduction in the
pricing and a longer maturity for our $90 million secured revolving line
of credit.
- - In June, we completed the arrangement of $80 million in fixed rate
financing for Wolfchase Galleria, replacing a variable rate construction
loan.
- - Also in June, we completed a $73.6 million financing for San Francisco
Shopping Centre at a favorable rate.
- - In November, we completed a refinancing of $140 million of floating rate
collateralized notes at Oakbrook Center which lengthened the maturity of
the previous financing at a minimal cost and resulted in an upgrade in the
rating of the securities to AAA/Aaa from Standard & Poor's Ratings Group
and Moody's Investors Service.
- - Also in November, we were able to finance a portion of our acquisitions
of Fox Valley Center and Hawthorn Center with debt, having a nine and
eleven year maturity, respectively, at attractive fixed interest rates.
- - Finally, in December, we refinanced the debt at Old Orchard Center which
extended the maturity date from 2000 to 2009 and, at the same time,
reduced the interest rate by approximately one and one half percentage
point.
2
[ A PHOTO ]
From left to right:
Dennis M. Zaslavsky, Executive Vice President and Chief Operating Officer,
Urban Shopping Centers, Inc.
Joseph M. Shrader, President - Management, Urban Retail Properties Co.
Ross B. Glickman, President - Leasing, Urban Retail Properties Co.
James L. Czech, Executive Vice President, Urban Shopping Centers, Inc;
President - Development, Urban Retail Properties Co.; and President, Urban
Retail International LLC
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.
All of this financing activity enabled us to extend the weighted average
maturity of our debt to approximately eight years and lower our weighted
average interest rate to 6.84%.
On the equity side, we completed a $100 million private placement of
cumulative convertible preferred stock to Security Capital Preferred Growth
Incorporated, an affiliate of Security Capital Group Incorporated. Security
Capital Preferred Growth invests in private and public real estate operating
companies with strong intermediate-term prospects for growth. We are pleased
to welcome Security Capital as an investor.
At December 31, 1997, our debt to total market capitalization was
approximately 48% and our interest expense coverage ratio was 2.30 to 1.
WHAT TO LOOK FOR IN 1998 Our development pipeline will be a primary focus for
Urban Shopping Centers in 1998 as we continue to implement our strategy
for success. The next development scheduled for completion is our approximate
1.1 million square foot Citrus Park Town Center and the adjacent approximate
350,000 square foot Citrus Park Plaza in the fast-growing northwest Tampa,
Florida region. The initial work on these developments began last March and all
four anchor tenants for the mall have been secured. Each development is
proceeding on schedule with both projects slated to open in March 1999.
Roseville, California, which is located within the Sacramento metropolitan
area, has been selected as the next development site. Current plans for
Roseville to open in the Fall of 2000 are progressing on schedule. Sears,
Roebuck and Co. has already committed to be one of the anchor stores for the
approximate one million square foot mall. Negotiations are underway with three
other prominent anchor candidates.
With respect to our existing portfolio, we will continue to monitor each
tenant in our proprietary database to ensure that each mall stays ahead of
current retail trends. We will remain committed to ensure that each mall that
we own or manage benefits from the economies of scale from our national
operations.
From an acquisition standpoint, we will continue our discipline of not
purchasing properties simply to get bigger. With our large third-party
management company, we benefit from many economies of scale while maintaining
the agility of a much smaller enterprise. We will pursue properties that offer
a strategic fit with our overall portfolio and are priced at a level which
provides attractive long-term returns.
As we strive to accomplish our goals in the future, we will continue to
rely on the many professionals at Urban Shopping Centers. It is truly our
people who, through their continuing efforts and expertise, have made Urban
Shopping Centers a leader in the ownership, development, leasing and management
of regional malls. We recognize our staff as one of our greatest competitive
advantages in the regional mall industry. We speak for all of them when we
thank you, our shareholders, for your continued support.
Sincerely,
/s/ Matthew S. Dominski
- -------------------------------------
Matthew S. Dominski
President and Chief Executive Officer
/s/ Adam S. Metz
- -------------------------------------
Adam S. Metz
Executive Vice President and Chief Financial Officer
3
[ PHOTO ]
RECOGNIZING OPPORTUNITY "We make a continuous effort to understand our mall
markets, our evolving customer profile, the local retail competition and our
existing tenant mix at each property. We benchmark the performance of each
property and each customer against a proprietary database that includes
information from all the properties we own or manage nationwide. That's why
we suggested to Eddie Bauer that the company expand its already successful
presence at Old Orchard Center in suburban Chicago. Our research indicated a
growing demand for "lifestyle" products at that mall. Eddie Bauer relocated to
a larger space and added its Eddie Bauer Home products line, resulting in a
strong jump in sales." Steve Warsaw, Senior Vice President - Leasing, Urban
Retail Properties Co.
[ PHOTO ]
"Old Orchard was actually one of the first malls where our company located a
store. We like the superior way Urban Shopping Centers designs and manages
their properties. The customer there is the right customer for us. It made
sense for us to showcase all three of our retailing concepts at Old Orchard -
Sportswear, Home Store and AKA Eddie Bauer." Carla Armfield, General Manager,
Eddie Bauer, Old Orchard Center
4
[ PHOTO ]
EXPANDING OUR VISION OF EXCELLENCE "When Urban Shopping Centers took on the
ownership/management of San Francisco Shopping Centre, we did the same
exhaustive review of its strengths and weaknesses that we do with any new
property added to the portfolio. In the case of San Francisco Shopping Centre,
the property is located in one of the best retail locations in the world -
similar to Fifth Avenue in New York, Rodeo Drive in Beverly Hills and Michigan
Avenue in Chicago. The property has huge upside potential but was lacking
strong strategic direction in its leasing activities and tenant mix. We are
progressing well through a four-stage process of changing the retail mix at the
property which will eventually help it reach its true potential." R. Webber
Hudson, Senior Vice President - Leasing, Urban Retail Properties Co., with
Cheryl Halota, Senior Leasing Representative, Urban Retail Properties Co.
[ PHOTO ]
"We entered into partnership with Urban Shopping Centers to own and operate
San Francisco Shopping Centre because no one else has their expertise in
managing vertical mall properties. Urban Shopping Centers has the know how to
best manage lease renewals and changes in retail mix that could make this
property even more productive than in the past." H. Patrick Hackett, Jr., HM
Centre Investors, L.P.
5
[ PHOTO ]
IMPROVING OUR EXISTING PORTFOLIO "We firmly believe that Oakbrook Center is one
of the finest malls in the country. Urban Shopping Centers has gone to great
lengths to make Oakbrook a true destination mall: quality anchor stores, unique
specialty shops, new restaurant concepts and entertainment. While others are
copying what we have done there, we are constantly searching for ways to be
ahead of trends and keep the mall an interesting destination for regional
shoppers. Clubhouse International, a golf-themed restaurant, is exactly
the kind of new trend we look for to help improve our whole retail and
entertainment mix."Daniel J. Pollard, Vice President - Leasing, Urban
Retail Properties Co., with Chuck Fleming, General Manager, Oakbrook Center
[ PHOTO ]
"We wanted a world-class venue for our clubhouse and that is Oakbrook Center,
no doubt. With its expert mix of retail and entertainment, Urban Shopping
Centers has created an environment which will attract the customers we want."
Doug Zeif, Chief Operating Officer, Restaurant Operations,
Clubhouse International
6
[ PHOTO ]
CREATING NEW CONCEPTS "The Finish Line's new 22,000 square foot store at our
Wolfchase Galleria property is an innovative new concept that looks
sensational. Other retailers have also brought their new stores to our
properties because of our track record of helping such new retailing ideas
succeed. Urban Shopping Centers consistently delivers a superior mix of retail
tenants in an entertaining shopping environment. This makes our properties
dominant, destination malls that attract the customer base retailers want." Max
S. Reiswerg, Senior Vice President - Leasing, Urban Retail Properties Co.
[ PHOTO ]
"The Memphis retail market had been fragmented for many years. We saw all the
major department stores in the region getting under one roof at Wolfchase
Galleria and we knew we wanted to be there with our larger concept store. We
have numerous leasing agreements with Urban Shopping Centers nationwide. They
do a very professional job with their tenant mix, helping each store reach it's
optimum potential." George Sanders, Senior Vice President, Store Development,
Finish Line, Inc.
7
[ PHOTO ]
PURSUING NEW BUSINESS "Urban Shopping Centers continues to work hard to expand
our third-party management business. In the past year, we have added
approximately 15 new regional mall and community center contracts with various
institutional and entrepreneurial owners. Our clients recognize the benefits
associated with our large portfolio. We use our national relationships to
introduce new tenants to a property, and to operate properties more effectively
because of our economies of scale when negotiating for goods and services."
Andrea Weisberg, Vice President, Urban Retail Properties Co.
[ PHOTO ]
"We have been involved with Urban Shopping Centers and its predecessor company
since the early 1980s. Met Life has been both a partner and lender to them and
they have been a partner or property manager for us. By utilizing Urban Retail
Properties Co. as our manager for a whole portfolio of properties, we are
trying to leverage their unparalleled expertise." Donald Devine, Vice
President, Metropolitan Life Insurance Co.
8
[ PHOTO ]
REALIZING SUCCESS "As the portfolio we own or manage expands, Urban Shopping
Centers' continued success can be dependent upon how well we apply the
expertise previously gained to the challenges a new property poses. At Copley
Place in Boston, for example, we have to carry our expertise in managing
conventional mall properties to another level. The challenge at Copley is to
successfully manage the symbiosis of a mixed-use property which contains
hotels, corporate offices and a retail mall. By efficiently applying many of
the joint operating and marketing strategies developed earlier for Water Tower
Place, we were able to make Copley Place greater than the sum of its individual
parts." Robert W. Powell, Jr., Executive Vice President - Management, with
Cynthia S. Bohde, Senior Vice President - Marketing, both of Urban Retail
Properties Co.
[ PHOTO ]
"We decided to partner with Urban Shopping Centers at Copley Place because of
their demonstrated experience at successfully operating mixed-use properties.
We are already pleased with their ability to achieve the operating goals we
jointly planned for at the outset of our relationship. We have every
expectation that Urban Shopping Centers will continue to meet or exceed our
goals." Michael Molletta, Vice President - Control, Overseas Partners Capital
Corp.
9
[ PHOTO ]
BROADENING OUR HORIZONS "Shopping centers are a purely American concept. With
more than 50 million square feet of shopping center space under our management
in the U.S., Urban Shopping Centers is becoming known internationally as the
company with the expertise to help other countries develop and run high quality
malls. When the Core Pacific project decision makers saw our management
expertise at work in vertical properties like Water Tower Place and 900 North
Michigan Avenue in Chicago, they felt confident we were the right company to
help make Core Pacific a success. We are also working with mall developers in
places like Saudi Arabia, Egypt, Turkey and India, all of whom would like to
utilize our expertise in developing, leasing and managing successful malls."
Mark A. Flom, Senior Vice President - Development, Urban Retail Properties Co.
and Urban Retail International LLC
[ PHOTO ]
"We were interested in working with Urban International because their mall
development, planning and management expertise will provide our Core Pacific
project with a base for success. The company was both familiar with the Asia
market and offered us unmatched vertical mall management expertise. We were
impressed with their efficiency in forming a development team for the Core
Pacific project and its willingness to establish a long-term business
relationship with us." Lucy Liu, Vice Chairman, Core Pacific City Co. Ltd.
10
[ PHOTO ]
PLANNING FOR THE FUTURE "We had to use the broad spectrum of our expertise in
developing the more than 1.5 million square feet that will eventually become
the Citrus Park Town Center and its adjacent power center. Our research
capabilities led us to these 230 acres that are at the epicenter of the fastest
growing part of the Tampa region. The area has the type of income and
population demographics that we want. We leveraged our permitting and
construction expertise to get ground broken in 1997. Now we will utilize our
leasing and management abilities to get the right mix of anchor stores,
specialty shops, restaurants and entertainment so that when this project opens
in 1999, it will become the destination mall for shoppers in northwest Tampa."
W. Wayne Litzau, Senior Vice President - Development, Urban Retail Properties
Co.
[ PHOTO ]
"Urban Shopping Centers' whole development team gets good grades from me. This
is their second mall development in the Tampa area and both have worked well
because of the strong public/private partnership they have built with local
government. In building their Citrus Park Town Center, they helped create a
local infrastructure to service the property. That infrastructure has been a
catalyst to general growth in the area." Jim Norman, County Commissioner,
Hillsborough County, Florida
11
PROPERTY LOCATIONS
[ MAP ]
XXX Indicates this state contains properties owned by Urban Shopping Centers,
Inc.
... Indicates this state contains properties managed by Urban Retail
Properties Co.
<TABLE>
<CAPTION>
PROPERTY LOCATION TOTAL SQ. FT. OWNERSHIP
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Oakbrook Center Oak Brook, Illinois 2,015,000 100%
- ------------------------------------------------------------------------------
2 Old Orchard Center Skokie, Illinois 1,796,000 100%
- ------------------------------------------------------------------------------
3 Fox Valley Center Aurora, Illinois 1,433,000 100%
- ------------------------------------------------------------------------------
4 Hawthorn Center Vernon Hills, Illinois 1,234,000 100%
- ------------------------------------------------------------------------------
5 MainPlace Santa Ana, California 1,116,000 100%
- ------------------------------------------------------------------------------
6 Citrus Park Town Center* Tampa, Florida 1,100,000 100%
- ------------------------------------------------------------------------------
7 Wolfchase Galleria Memphis, Tennessee 1,086,000 100%
- ------------------------------------------------------------------------------
8 Penn Square Mall Oklahoma City, Oklahoma 1,075,000 100%
- ------------------------------------------------------------------------------
9 Brandon TownCenter Tampa, Florida 980,000 100%
- ------------------------------------------------------------------------------
10 Miami International Mall Miami, Florida 973,000 40%
- ------------------------------------------------------------------------------
11 Coral Square Mall Coral Springs, Florida 941,000 50%
- ------------------------------------------------------------------------------
12 Water Tower Place Chicago, Illinois 728,000 55%
- ------------------------------------------------------------------------------
13 Valencia Town Center Valencia, California 675,000 25%
- ------------------------------------------------------------------------------
14 San Francisco Shopping
Centre San Francisco, California 495,000 50%
- ------------------------------------------------------------------------------
15 Copley Place Boston, Massachusetts 369,000 33%
- ------------------------------------------------------------------------------
16 Citrus Park Plaza * Tampa, Florida 350,000 100%
- ------------------------------------------------------------------------------
17 The Plaza at Brandon
TownCenter Tampa, Florida 243,000 100%
- ------------------------------------------------------------------------------
18 Service Merchandise
Plaza Columbus, Ohio 165,000 100%
- ------------------------------------------------------------------------------
19 New York Square Aurora, Illinois 116,000 100%
- ------------------------------------------------------------------------------
</TABLE>
* Under construction
12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
($000's omitted, except share, per square foot and ratio amounts)
Years ended December 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total tenant sales (1)(2) $ 1,926,202 $ 1,323,126 $ 1,278,097
Mall tenant sales (1)(2)(3) $ 1,435,921 $ 944,965 $ 914,501
Sales per square foot (1)(3)(4)(5) $ 361 $ 351 $ 335
Property revenues (6) $ 205,027 $ 130,774 $ 121,890
Interest expense coverage ratio (7) 2.30 2.67 2.60
Income before extraordinary items $ 22,093 $ 19,969 $ 18,644
Funds from operations (FFO) (8) $ 48,559 $ 35,419 $ 32,827
Funds available for distribution
(FAD) (8) $ 47,689 $ 34,582 $ 30,485
Average number of common and unit
voting common shares outstanding 17,440,454 14,066,243 13,742,259
Common and unit voting common shares
outstanding at end of period 17,667,343 17,081,336 13,742,259
Debt to total market capitalization (9) 47.6% 46.3% 49.3%
Occupancy (10) 91.6% 91.2% 92.6%
==============================================================================
The chart below shows the calculation of funds from operations for the years
1995 through 1997:
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before extraordinary items
and minority interest $ 35,464 $ 30,702 $ 28,595
Plus depreciation and amortization 31,435 19,232 17,695
Plus Company's share of depreciation
and amortization from unconsolidated
partnerships and Urban Retail
Properties Co. 6,502 4,129 3,995
Less preferred unit distributions and
preferred stock dividends (2,771) (75) --
- ------------------------------------------------------------------------------
Total funds from operations $ 70,630 $ 53,988 $ 50,285
- ------------------------------------------------------------------------------
Company's share of funds from
operations (11) $ 48,559 $ 35,419 $ 32,827
==============================================================================
</TABLE>
The chart below shows the calculation of funds available for distribution for
the years 1995 through 1997:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total funds from operations $ 70,630 $ 53,988 $ 50,285
Plus non-cash effect of Oakbrook
Center straight-lined ground rent
and related interest 3,332 3,173 3,218
Less adjustment to reflect actual cash
received from Urban Retail
Properties Co. (105) (619) (1,737)
Plus write-off of assets (12) 581 308 787
Less straight-line rent adjustments (13) (1,401) (767) (1,360)
- ------------------------------------------------------------------------------
Total funds available for distribution
including other gains $ 73,037 $ 56,083 $ 51,193
- ------------------------------------------------------------------------------
Company's share of funds available
for distribution including other
gains (11) $ 50,214 $ 36,794 $ 33,420
==============================================================================
Total funds available for distribution
excluding other gains $ 69,364 $ 52,711 $ 46,697
- ------------------------------------------------------------------------------
Company's share of funds available
for distribution excluding other
gains (11) $ 47,689 $ 34,582 $ 30,485
==============================================================================
</TABLE>
(1) Only for those tenants who report sales.
(2) 1997 includes all regional malls. 1996 excludes Old Orchard Center, which
was acquired on December 18, 1996.
(3) Excludes anchors and movie theaters.
(4) Represents rolling twelve month sales per square foot as defined by the
International Council of Shopping Centers.
(5) 1997 includes all regional malls, except Wolfchase Galleria, which opened
on February 26, 1997. 1996 excludes Old Orchard Center, which was acquired on
December 18, 1996.
(6) Represents the Company's consolidated revenues and its share of revenues
from unconsolidated partnerships.
(7) 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).
(8) FFO and FAD 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.
(9) Based upon a closing price of $34 7/8, $29 and $21 3/8 per share as of
December 31, 1997, 1996 and 1995, respectively.
(10) Occupancy of the regional malls as of December 31 of each year. 1996
excludes Old Orchard Center, which was acquired on December 18, 1996.
(11) Based upon a weighted average of 25,367,282, 21,440,480 and 21,050,426
common shares and units outstanding for 1997, 1996 and 1995, respectively.
(12) Includes the Company's share of unconsolidated partnerships and of Urban
Retail Properties Co.
(13) Includes the Company's share of unconsolidated partnerships.
13
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,
acquiring, managing, leasing, developing and redeveloping retail shopping
centers. Strong performance of the Company's portfolio and property
acquisitions and new development produced a 37.9% increase in 1997 funds
available for distribution to $47.7 million from 1996 funds available for
distribution of $34.6 million. The 1996 funds available for distribution
increased 13.4% from 1995 funds available for distribution of $30.5 million.
Presented below is a discussion of sales, occupancy and rents at the
properties. Except as noted, this information is presented for all regional
malls on a combined basis.
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 1997,
mall tenants contributed approximately 89% 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 1993 through 1997.
Excluding 1996 and 1997 acquisitions and new development, aggregate annual
sales volume at the regional malls for those mall shops and anchors that report
sales has increased 4.7% to $1.39 billion in 1997 from $1.32 billion in 1996.
Mall tenant sales (excluding anchors and movie theaters) increased 4.4% for the
same period.
Total Tenant Sales and Mall Tenant Sales Total
Tenant Sales (in millions) Mall Tenant Sales (excludes anchors and movie
theaters) (in millions)
[Chart Plot Points to come]
SALES PER SQUARE FOOT Sales per square foot is reported 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. Excluding 1996 and 1997 acquisitions and new
development, sales per square foot at the regional malls increased 3.8% to $364
in 1997 as compared to $351 in 1996. 1996 sales per square foot increased 4.8%
from 1995 sales per square foot of $335. 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 chart below shows the mall GLA occupancy rate at
the regional malls for 1993 through 1997. The slight decrease in occupancy in
1995 and 1996 is primarily attributable to temporary closures for the
renovation and re-merchandising of certain centers. Excluding 1996 and 1997
acquisitions and new development, occupancy was 92.6% at December 31, 1997. The
mall GLA was 92.8% leased at December 31, 1997.
Occupancy Rate at December 31
Occupancy, excluding anchors
[Chart Plot Points to come]
14
IN PLACE RENTS The average in place rents for the Company's regional malls
increased 3.3% to $30.52 per square foot at December 31, 1997 including 1997
acquisitions and new development, from $29.55 per square foot at December 31,
1996 excluding Old Orchard Center, which was acquired on December 18, 1996. The
December 31, 1996 average in place rents increased 2.5% from $28.83 per square
foot at December 31, 1995.
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.
<TABLE>
<CAPTION>
Years ended December 31 1997(1) 1996 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mall Tenant Sales (2) $1,253 $945 $915 $820 $784
Percent of Sales
Minimum Rents 8.6% 8.3% 8.2% 8.1% 8.1%
Percentage Rents .4% .4% .4% .5% .5%
Expense Recoveries (3) 3.4% 3.0% 2.8% 3.1% 2.9%
- ---------------------------------------------------------------------
In-Line Tenant
Occupancy Costs (4) 12.4% 11.7% 11.4% 11.7% 11.5%
=====================================================================
</TABLE>
(1) 1997 excludes San Francisco Shopping Centre, Copley Place, Fox Valley
Center and Hawthorn Center, all acquired in 1997.
(2) In millions. Excludes sales from anchor tenants and movie theaters.
(3) Represents principally 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 1997 COMPARED TO 1996 Shopping center revenues increased
$57.2 million to $152.4 million in 1997 from $95.2 million in 1996. Minimum
rents and recoveries from tenants increased as a result of (i) the acquisitions
of Fox Valley Center and Hawthorn Center on November 14, 1997, (ii) the
acquisition of Old Orchard Center on December 18, 1996 and (iii) the opening of
Wolfchase Galleria on February 26, 1997. Minimum rents, percentage rents and
recoveries from tenants increased at Penn Square Mall, MainPlace and Oakbrook
Center as a result of increases in average occupancy, rents and sales in 1997
as compared to 1996.
Shopping center expenses, including depreciation and amortization,
increased $33.8 million to $86.0 million in 1997 from $52.2 million in 1996.
This increase was primarily attributable to (i) the acquisitions of Fox Valley
Center and Hawthorn Center on November 14, 1997, (ii) the acquisition of Old
Orchard Center on December 18, 1996 and (iii) the opening of Wolfchase Galleria
on February 26, 1997.
Mortgage and other interest expense increased $19.7 million to $33.9
million in 1997 from $14.2 in 1996. This increase was primarily attributable
to (i) the acquisitions of Fox Valley Center and Hawthorn Center on November
14, 1997, (ii) the acquisition of Old Orchard Center on December 18, 1996 and
(iii) the opening of Wolfchase Galleria on February 26, 1997.
General and administrative expense increased $0.6 million to $3.3 million
in 1997 from $2.7 million in 1996 primarily as a result of the Company's 1996
Incentive Unit Program.
Income from unconsolidated partnerships increased $3.2 million to $6.2
million in 1997 from $3.0 million in 1996. This increase was primarily
attributable to (i) a decrease in interest expense at Water Tower Place as a
result of the February 10, 1997 refinancing, (ii) the purchase of an additional
approximate 18% interest in Miami International Mall on April 1, 1996, (iii)
the investment in a partnership resulting in a preferred 50% ownership interest
in San Francisco Shopping Centre on June 17, 1997 and (iv) the purchase of a
one-third equity interest in Copley Place on August 1, 1997.
Income from the Management Company decreased $1.5 million to a $0.4
million loss in 1997 from $1.1 million in income in 1996. This decrease was
primarily attributable to (i) a decrease in management fees and lease
commissions as a result of a net decrease in management and leasing contracts,
including Old Orchard Center, which subsequent to the Company's acquisition on
December 18, 1996, is being managed by the Operating Partnership (such amounts
are eliminated in consolidation), (ii) an increase in mortgage interest as a
result of interest payable on the JMB Realty Corporation ("JMB Realty")
affiliated debt beginning in May 1996 and (iii) a write-down of an outstanding
mortgage loan receivable of an affiliated joint venture, recognized in the
fourth quarter of 1997. These decreases were partially offset by a decrease in
income taxes as a result of a decrease in operating income.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Other gains of $3.7 million in 1997 represent (i) the $1.8 million gain on
sale of an outparcel of land at Wolfchase Galleria during the second quarter of
1997 and (ii) the $1.9 million gain on sale of the Burdines store at Brandon
TownCenter during the third quarter of 1997. Other gains of $3.4 million in
1996 represent the gains on sale of four outparcels at Wolfchase Galleria.
The extraordinary items, net of minority interest, of $5.7 million in 1997
represent prepayment penalties and the write-off of unamortized financing costs
related to the refinancing of indebtedness at Old Orchard Center, Oakbrook
Center, Wolfchase Galleria and Water Tower Place.
1996 COMPARED TO 1995 Shopping center revenues increased $6.2 million to $95.2
million in 1996 from $89.0 million in 1995. 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 Center 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 $0.7 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) Brandon TownCenter having been
open for a full year in 1996 as compared to a partial year in 1995, (ii) the
acquisition of Old Orchard Center on December 18, 1996 and (iii) the completed
expansion of Penn Square Mall in October 1995. 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 payable on the JMB Realty 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 gains on sale of four
outparcels at Wolfchase Galleria. Other gains of $4.5 million in 1995 represent
the gains 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.
LIQUIDITY AND CAPITAL RESOURCES FINANCIAL CONDITION Net cash flows from
operating activities increased $13.9 million in 1997 from 1996. This increase
was primarily attributable to an increase in rental operations as discussed
above. Net cash flows from operating activities increased $5.9 million in 1996
from 1995. This increase was primarily attributable to 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 used in investing activities increased $50.5 million in
1997 from 1996. This increase was primarily attributable to (i) the
acquisitions of Fox Valley Center and Hawthorn Center in November 1997, (ii)
the investment in a partnership resulting in a 50% preferred ownership interest
in San Francisco Shopping Centre in June 1997, (iii) the acquisition of land in
Roseville, California in June 1997 and (iv) cash contributions to San Francisco
Shopping Centre, Citrus Park and Miami International Mall. These increases were
partially offset by proceeds from the sale of the Burdines store at Brandon
TownCenter in September 1997 and a decrease in additions to investment
properties as a result of the completion and opening of Wolfchase Galleria in
16
February 1997. 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 Center 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 from financing activities increased $35.2 million in 1997
from 1996. This increase was primarily attributable to the proceeds from a
permanent loan at Wolfchase Galleria and the issuance of common stock, unit
voting common stock and preferred stock in 1997. These increases were partially
offset by the repayment of the construction loan at Wolfchase Galleria and the
increased cash distributions to limited partners of the Operating Partnership
and dividends paid to shareholders. 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
common stock in 1996. These increases were partially offset by the net fundings
from the construction loan at Brandon TownCenter in 1995.
At December 31, 1997, the Company and its consolidated ventures had cash,
cash equivalents and short-term investments of $1.3 million.
Beginning with the dividend declared and paid in the first quarter of
1998, the Company increased its quarterly dividend to $0.5250 per share, up
3.4% from $0.5075 per share previously.
CAPITALIZATION At December 31, 1997, the Company's debt (including the
Company's share of debt of unconsolidated partnerships and the Management
Company) totaled $954.4 million of which $918.6 million is fixed rate debt and
$35.8 million is floating rate debt. On December 11, 1997, the Company
refinanced the Old Orchard Center $158.6 million of indebtedness. In connection
with the refinancing, the Company paid $7.8 million in prepayment penalties.
The new loan of $168.0 million bears interest at 6.98% and matures on December
11, 2009. On November 14, 1997, the Company acquired Fox Valley Center and
Hawthorn Center. A portion of the acquisitions was financed by two
non-recourse, fixed rate loans. At Fox Valley Center, a nine-year $85.5 million
loan was secured while at Hawthorn Center, an eleven-year $77.9 million loan
was secured. Both loans bear interest at 6.75%. On November 3, 1997, the
Company refinanced the Oakbrook Center $140.0 million of indebtedness. The new
loan bears interest at a fixed rate of 6.14% through an interest rate swap
agreement and matures on October 29, 2004. On August 1, 1997, the Company
acquired a one-third equity interest in Copley Place Associates, LLC (the
"LLC"). Concurrent with the acquisition, the LLC secured financing for $195.0
million which bears interest at a fixed rate of 7.44% and matures on August 1,
2007. On June 17, 1997, the Company made an investment in a partnership
resulting in a preferred 50% ownership interest in San Francisco Shopping
Centre. Concurrent with the investment, a new loan of $73.6 million was
secured, of which $61.4 million was initially funded. On October 2, 1997, $7.8
million was paid down on the outstanding balance. The loan bears interest at a
fixed rate of 6.90% through an interest rate swap agreement and matures on July
1, 2002; however, it may be extended for three one-year periods. On June 30,
1997, the Company secured $80.0 million of indebtedness at Wolfchase Galleria.
The loan bears interest at 7.80% and matures on June 30, 2007. In connection
with the funding on the new loan, the Company repaid the $41.8 million then
outstanding balance on the construction loan at Wolfchase Galleria. 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%. 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 currently subject to a floating interest rate of
0.85% over LIBOR (6.8305% at December 31, 1997). As of December 31, 1997, $35.8
million was outstanding. 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, which subsequently has been amended to increase the line to $7.5
million and extend the maturity to January 29, 1999. This line of credit bears
interest at the Reference Rate minus 1.50%. As of December 31, 1997, no amounts
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
were outstanding on this line of credit. As of December 31, 1997, the Company
entered into six separate unsecured interest swap agreements for an aggregate
amount of $93.5 million in order to hedge exposure on a portion of its floating
rate indebtedness.
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. The Company's interest expense coverage ratio (including the
Company's share of unconsolidated entities interest expense and including
capitalized interest and excluding deferred interest) decreased to 2.30 at
December 31, 1997 as compared to 2.67 at December 31, 1996. At December 31,
1997, the Company's 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 48% as illustrated by the table
on the following page.
On November 13, 1997, the Company issued $100.0 million in cumulative
convertible redeemable preferred stock ("Preferred Stock") with a liquidation
preference of $33.34 per share. Quarterly dividends on the Preferred Stock are
equal to the greater of (i) $0.50 per share or (ii) the quarterly dividend then
payable on the shares of common stock into which the Preferred Stock is
convertible. The Preferred Stock is convertible into common stock, at the
option of the holder, at a conversion price of $33.34 per share (subject to
antidilution adjustments) at anytime after August 1998. After six years the
Preferred Stock may be redeemed, at the option of the Company, for cash at a
redemption price of $33.34 per share. The net proceeds of the issue, after
deducting transaction costs, were used to fund a portion of the November 14,
1997 acquisitions of Fox Valley Center and Hawthorn Center. As of December 31,
1997, the Company has amounts available of $367.8 million under two shelf
registrations for preferred stock, depository shares, common stock, stock
warrants and rights.
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 common 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 debt to total market capitalization
accordingly.
CAPITAL INVESTMENTS On November 14, 1997, the Company acquired Fox Valley
Center and Hawthorn Center. The Company plans to renovate Fox Valley Center at
a cost of $10.0 - $12.0 million. Work has begun on the renovation and is
expected to be completed by early 1999. In addition, the Company entered into
a put option agreement with an unaffiliated third party for the purchase of a
regional mall. The unaffiliated third party may exercise the put option from
October 1, 1998 through December 31, 1998 for a purchase price to the Company
of $115.0 million plus any capital expenditures incurred by the third party.
The Company's current development project is the approximate 1.1 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 1999. In addition, an
approximate 350,000 square foot community center opposite the regional mall,
Citrus Park Plaza, is also scheduled to open in March 1999. 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.
The Company's next planned development project is scheduled to be in
Roseville, California, which is near Sacramento. Current plans for Roseville to
open in the Fall of 2000 are progressing on schedule. Sears has already
committed to be one of the anchor stores for the approximate one million
square foot mall. Negotiations are underway with three other prominent anchor
candidates.
18
Certain statements set forth herein contain forward-looking statements,
including, without limitation, statements relating to the timing and
anticipated capital expenditures of the Company's development program and
acquisitions. Although the Company believes that the expectations reflected in
such forward-looking statements are based on reasonable assumptions, the actual
results may differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such differences include general
economic conditions, local real estate conditions, construction delays due to
the unavailability of construction materials, weather conditions or other
delays beyond the control of the Company. Consequently, such forward-looking
statements should be regarded solely as reflections of the Company's current
operating and development and acquisition plans and estimates. These plans and
estimates are subject to revision from time to time as additional information
becomes available, and actual results may differ from those indicated in the
referenced statements.
DEBT TO TOTAL MARKET CAPITALIZATION
<TABLE>
<CAPTION>
100% Pro Rata
Balance Share
of of
($000's omitted, Annual Mortgage Mortgage
except share and Maturity Interest Notes Ownership Notes
per share amounts) Date Rate Payable Interest Payable
- ------------------------------------------------------------------------------
Consolidated Entities:
<S> <C> <C> <C> <C> <C>
Old Orchard Center Dec. 2009 6.9800% $ 168,000 100.0% $ 168,000
Oakbrook Center Oct. 2004 6.1375% 140,000 100.0% 140,000
MainPlace Oct. 1998 5.4066% 80,000 100.0% 80,000
Wolfchase Galleria June 2007 7.8000% 79,716 100.0% 79,716
Fox Valley Center Nov. 2006 6.7500% 85,528 100.0% 85,528
Hawthorn Center Nov. 2008 6.7500% 77,864 100.0% 77,864
Operating Partnership April 2000(1) (1) 35,800 100.0% 35,800
- ------------------------------------------------------------------------------
666,908 666,908
Unconsolidated Entities:(2)
Water Tower Place Feb. 1999(3) (3) 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% 47,050 40.0% 18,820
San Francisco Shopping
Centre July 2002(4) 6.9045% 53,531 50.0% 26,766
Copley Place Aug. 2007 7.4400% 194,409 33.3% 64,803
Management Company Aug. 2001 7.5400% 51,000 95.0% 48,450
Management Company Sept. 2001 7.0000% 9,000 95.0% 8,550
- ------------------------------------------------------------------------------
578,290 287,539
- ------------------------------------------------------------------------------
Company debt $ 954,447
==============================================================================
Convertible preferred units (convertible into 1,018,182
common units) $ 28,000
Convertible preferred stock (convertible into 2,999,400 shares of
common stock) $ 100,000
Market value of equity interests
as of December 31, 1997, based upon
26,439,629 common shares/units at
$34 7/8 per share $ 922,082
==============================================================================
Total market capitalization $2,004,529
==============================================================================
Company debt to total market capitalization 48%
==============================================================================
</TABLE>
(1) The line of credit, subject to lenders' approval, may be extended for an
additional one or two year period and is currently subject to a floating rate
of 0.85% over LIBOR (6.8305% at December 31, 1997). The total available under
the line of credit is $90.0 million.
(2) 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.
(3) The 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% (7.090% and
7.465%, respectively, at December 31, 1997).
(4) The loan matures on July 1, 2002; however, it may be extended for three
one-year periods.
19
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
($000's omitted, except share and per share amounts) December 31
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment properties:
Land, including peripheral land parcels $ 152,913 $ 102,559
Buildings and improvements 1,072,673 766,847
Equipment, furniture and fixtures 3,297 2,560
Construction in progress 6,025 62,216
- ------------------------------------------------------------------------------
1,234,908 934,182
Accumulated depreciation (125,594) (97,558)
- ------------------------------------------------------------------------------
Investment properties, net of accumulated
depreciation 1,109,314 836,624
Investments in unconsolidated partnerships 118,800 15,233
Investment in the Management Company 15,058 15,557
Cash, cash equivalents and short-term investments 1,268 5,276
Receivables:
Tenant, net of allowance for doubtful accounts of
$3,092 and $2,141 in 1997 and 1996, respectively 14,031 11,619
Other 7,065 8,307
Deferred expenses and other assets 15,440 11,460
- ------------------------------------------------------------------------------
$1,280,976 $ 904,076
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 666,908 $ 439,886
Land sale-leaseback proceeds 75,000 75,000
Deferred lease accrual 18,593 16,252
Accounts payable and other liabilities 38,538 30,512
Investments in unconsolidated partnerships 39,665 36,030
Commitments and contingencies
- ------------------------------------------------------------------------------
Total liabilities 838,704 597,680
Minority interest 132,616 111,733
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, issued and outstanding 2,999,400 shares
in 1997 (liquidation preference of $100,000) 30 --
Common stock, $.01 par value, authorized 140,000,000
shares, issued and outstanding 17,259,408 shares in
1997 and 16,737,279 shares in 1996 173 167
Unit voting common stock, $.01 par value, authorized
5,000,000 shares, issued and outstanding 407,935
shares in 1997 and 344,047 shares in 1996 4 4
Additional paid-in capital 459,738 326,495
Retained earnings (deficit) (150,289) (132,003)
- ------------------------------------------------------------------------------
Total stockholders' equity 309,656 194,663
- ------------------------------------------------------------------------------
$1,280,976 $ 904,076
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
($000's omitted, except share and per share amounts) Years ended December 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Shopping center revenues:
Minimum rents $ 94,812 $ 60,944 $ 57,683
Percentage rents 5,575 4,056 3,414
Recoveries from tenants 47,493 27,659 24,972
Other 4,480 2,521 2,971
- ------------------------------------------------------------------------------
152,360 95,180 89,040
Interest income 1,620 1,864 2,587
- ------------------------------------------------------------------------------
153,980 97,044 91,627
- ------------------------------------------------------------------------------
Expenses:
Shopping center expenses 52,138 30,924 30,655
Mortgage and other interest 33,876 14,246 14,501
Ground rent 4,689 4,420 4,404
Depreciation and amortization 33,866 21,236 19,683
General and administrative 3,269 2,650 2,428
Write-off of assets 140 308 232
- ------------------------------------------------------------------------------
127,978 73,784 71,903
- ------------------------------------------------------------------------------
Operating income 26,002 23,260 19,724
Income from unconsolidated partnerships 6,227 3,000 1,297
Income (loss) from the Management
Company (438) 1,070 3,078
- ------------------------------------------------------------------------------
Income before other gains,
minority interest and
extraordinary items 31,791 27,330 24,099
Other gains 3,673 3,372 4,496
Minority interest (12,560) (10,733) (9,951)
- ------------------------------------------------------------------------------
Income before extraordinary items 22,904 19,969 18,644
Extraordinary items (net of minority
interest) (5,719) -- (1,014)
- ------------------------------------------------------------------------------
Net income 17,185 19,969 17,630
Dividends on preferred stock (811) -- --
- ------------------------------------------------------------------------------
Income applicable to common and
unit voting common stock $ 16,374 $ 19,969 $ 17,630
==============================================================================
Basic income per common and unit
voting common share:
Before extraordinary items $ 1.27 $ 1.42 $ 1.35
Extraordinary items (.33) -- (.07)
- ------------------------------------------------------------------------------
Net income $ 0.94 $ 1.42 $ 1.28
==============================================================================
Diluted income per common and
unit voting common share:
Before extraordinary items $ 1.27 $ 1.42 $ 1.35
Extraordinary items (.33) -- (.07)
- ------------------------------------------------------------------------------
Net income $ 0.94 $ 1.42 $ 1.28
==============================================================================
Dividends declared and paid per
common and unit voting common
share $ 2.03 $ 1.98 $ 1.94
==============================================================================
Weighted average common and unit
voting common shares outstanding 17,440,454 14,066,243 13,742,259
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock and Unit
Preferred Stock Voting Common Stock Additional Retained
($000's omitted, --------------- --------------------- Paid-In Earnings
except share amounts) Shares Amount Shares Amount Capital (Deficit) Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
common 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
Shares issued in
connection with:
Private placement 2,999,400 $30 -- -- 98,929 -- 98,959
Issuance of common stock 177,316 2 5,739 -- 5,741
Issuance of unit voting
common stock 69,197 1 2,265 -- 2,266
Conversion of units 127,656 1 1,433 -- 1,434
Stock option plan 211,838 2 4,852 -- 4,854
Net Income -- -- -- 17,185 17,185
Dividends declared and paid -- -- -- (35,471) (35,471)
Reallocation of minority interest -- -- 20,025 -- 20,025
- ---------------------------------------------------------------------------------------------------------
Balances at
December 31, 1997 2,999,400 $30 17,667,343 $ 177 $459,738 $ (150,289) $309,656
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
($000's omitted) Years ended December 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,185 $ 19,969 $17,630
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 33,866 21,236 19,683
Write-off of assets 140 308 232
Provision (recovery) for losses on accounts
receivable 972 (225) 195
Income from unconsolidated partnerships (6,227) (3,000) (1,297)
Loss (income) from the Management Company,
net of distributions 438 -- (1,083)
Minority interest 12,560 10,733 9,951
Other gains (3,673) (3,372) (4,496)
Extraordinary items 5,719 -- 1,014
Changes in other assets and liabilities 5,693 7,091 5,038
- ------------------------------------------------------------------------------
Net cash provided by operating activities 66,673 52,740 46,867
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment properties, net of
change in related payables (43,794) (48,011) (49,946)
Acquisition of investment properties (97,994) (76,639) --
Acquisition of partnership interests (31,400) (9,431) --
Acquisition of development parcels (3,388) -- (8,604)
Proceeds from sale of investment property,
net of selling costs 16,933 -- --
Proceeds from sale of options and land parcels,
net of selling costs 2,296 4,679 4,496
Cash contributions to unconsolidated
partnerships and the Management Company (28,022) (2,253) (329)
Cash distributions from unconsolidated
partnerships and the Management Company 9,071 5,563 2,615
Net sales and maturities of short-term
investments -- 161 15,160
Decrease (increase) in restricted cash 303 (26) 2,097
Decrease (increase) in notes receivable (412) 21 12
- ------------------------------------------------------------------------------
Net cash used in investing activities (176,407) (125,936) (34,499)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt, net of
related costs 487,601 87,982 53,195
Proceeds from issuance of common stock,
unit voting common stock and preferred stock 105,751 83,229 --
Repayment of debt (433,864) (58,900) (34,717)
Cash distributions to partners (18,291) (14,606) (14,162)
Dividends paid (35,471) (27,224) (26,660)
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 105,726 70,481 (22,344)
- ------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (4,008) (2,715) (9,976)
Cash and cash equivalents at beginning of year 5,151 7,866 17,842
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,143 $ 5,151 $ 7,866
==============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest,
net of amounts capitalized $ 32,798 $ 13,586 $13,519
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's omitted, except share and per share amounts)
1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION The Company is in the
business of owning, acquiring, managing, leasing, developing and redeveloping
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 13, 1997, in connection with the Company's
acquisitions of Fox Valley Center and Hawthorn Center, the Company issued
$100,000 in cumulative convertible redeemable preferred stock ("Preferred
Stock") with a liquidation preference of $33.34 per share. Quarterly dividends
on the Preferred Stock are equal to the greater of (i) $0.50 per share or (ii)
the quarterly dividend then payable on the shares of common stock into which
the Preferred Stock is convertible. The Preferred Stock is convertible into
common stock, at the option of the holder, at a conversion price of $33.34 per
share (subject to antidilution adjustments) at anytime after August 1998. After
six years the Preferred Stock may be redeemed, at the option of the Company,
for cash at a redemption price of $33.34 per share. In December 1996, the
Company completed a public offering of 3,225,000 common shares at $25.50 per
share. Net proceeds from the sale of these shares, after underwriter's
discount, was $80,625. These proceeds were used in part for the acquisition of
Old Orchard Center. In addition, in connection with the acquisition, the
Company issued $28,000 of preferred units in the Operating Partnership with a
liquidation preference of $27.50 per unit. 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. 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.
As of December 31, 1997, the Company, which is the sole general partner of
the Operating Partnership, owns approximately 66.8% of the common units
("Units") in the Operating Partnership; JMB Realty Corporation ("JMB Realty")
and certain of its affiliates ("JMB Partners") and certain other parties own
limited partnership interests in the Operating Partnership representing
approximately 33.2% of the Units and also own $28,000 of preferred units. 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.
Upon the issuance of common stock, unit voting common stock, or Units in
the Operating Partnership, the excess book value is reallocated proportionately
between minority interest and stockholders' equity.
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"), S.F. Shopping Centre Associates, L.P. ("San Francisco Shopping
Centre"), Copley Place Associates, LLC ("Copley Place"), Valencia Town Center
Associates, L.P. ("Valencia Town Center"), Citrus Park Venture ("Citrus Park")
and Urban Retail Properties Co. (the "Management Company").
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 1997, 1996 and 1995, the
Company incurred interest of $35,640, $17,643, and $15,720, respectively, and
capitalized interest of $1,764, $3,397, and $1,219, 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
24
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.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash and cash equivalents
(which aggregated $1,143 and $5,151 at December 31, 1997 and 1996,
respectively) include a treasury money market fund which invests principally in
U.S. Treasury notes and bills ($207 and $2,928 at December 31, 1997 and 1996,
respectively). Other short-term investments (generally with original maturities
of one year or less) are generally held to maturity and aggregated $125 at
December 31, 1997 and 1996. Cash equivalents and other short-term investments
are recorded at cost which approximates market.
DEFERRED EXPENSES Deferred mortgage loan fees and expenses (including the cost
of interest rate swap agreements related to specific mortgage loans) are
amortized on a straight-line basis over the terms of the related mortgage notes
or the terms of the interest rate swap agreements. 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 $9,960 and $8,791
have been included in tenant receivables in the accompanying consolidated
balance sheets at December 31, 1997 and 1996, 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 swap agreements as part of its
interest rate risk management strategy. These off-balance sheet derivatives
are classified as synthetic alterations. The criteria that must be satisfied by
synthetic alteration accounting are as follows: (i) the liability to be
converted has exposure to interest rate risk and (ii) the derivative is
designated and effective as a synthetic alteration of the liability.
Accrual accounting is applied for these derivatives treated as synthetic
alterations, and income and expense are recorded as adjustments of interest
expense. Fees, if any, related to these off-balance sheet investment products
are amortized on the interest method over the life of the derivative. If the
balance of the liability falls below that of the derivative, the excess portion
of the derivative is marked to market and the resulting gain or loss included
in income, as applicable. If a derivative is terminated independent of the
underlying debt, the gain or loss is deferred and amortized over the remaining
life of the derivative.
Derivatives that do not satisfy the criteria above would be carried at
market value with changes in market value to be recognized as current income or
expense.
The carrying value of the Company's interest rate swap agreements
(included in deferred expenses and other assets in the accompanying
consolidated balance sheets) is $2,378 and $1,253 as of December 31, 1997 and
1996, respectively. The fair value of the Company's interest rate swap
agreements is estimated at approximately $256 and $5,698 as of December 31,
1997 and 1996, 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, 1997 and 1996, 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.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except share and per share amounts)
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.
PER SHARE DATA The table below presents the dividend allocation for tax
purposes.
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends declared and paid per share $2.03 $1.98 $1.94
Ordinary income 68% 78% 64%
Return of capital 25% 11% 10%
Long-term capital gain 5% 11% 26%
Unrecaptured section 1250 gain 2% -- --
</TABLE>
For each year, 1995 through 1997, the Units, preferred units, Preferred
Stock, stock options and incentive units are either antidilutive or do not have
a significant effect on the computation of earnings per share.
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. ACQUISITIONS FOX VALLEY CENTER AND HAWTHORN CENTER On November 14, 1997, the
Company acquired all of the ownership interests in partnerships owning Fox
Valley Center, Hawthorn Center and four peripheral outlet properties. The
aggregate purchase price for all six properties was approximately $260,000. A
portion of the acquisitions was financed by two non-recourse, fixed rate
secured loans aggregating approximately $163,000. The balance of the
acquisitions was funded through the Company's issuance on November 13, 1997 of
$100,000 of Preferred Stock.
COPLEY PLACE On August 1, 1997, the Company acquired a one-third equity
interest in Copley Place from JMB Realty in a transaction valued at $42,333
paid through the issuance of 1,282,828 Units in the Operating Partnership. In
connection with the transaction, JMB Realty also purchased 53,451 shares of
unit voting common stock from the Company for $1,764 in cash. The remaining
interest in Copley Place is owned by an unaffiliated third party. Concurrent
with this transaction, Copley Place secured financing in the amount of $195,000
which bears interest at a fixed rate of 7.44% and matures on August 1, 2007.
CITRUS PARK VENTURE Prior to August 1, 1997, the Company and the Management
Company each owned a 50% economic interest in Citrus Park Venture, which owns a
163 acre land parcel which is the site of the Company's current regional mall
development project, Citrus Park Town Center, in Tampa, Florida. On August 1,
1997, the Company acquired rights to the remaining 50% economic interest in
Citrus Park Venture from an affiliate of JMB Realty in exchange for 243,513
Units in the Operating Partnership and 10,146 shares of unit voting common
stock, valued at $8,212 in aggregate. Such affiliate of JMB Realty owns 100% of
the common stock of the Management Company which entitles it to 95% of the land
sale proceeds. Also on August 1, 1997, the Company exercised its option and
purchased 68 acres of land adjacent to the site for the regional mall from an
affiliate of JMB Realty in exchange for 177,316 shares of common stock valued
at $5,741. This land was transferred, through sale and contribution, to Citrus
Park Venture. This land will be used for the development of a community center,
Citrus Park Plaza, and for other commercial uses.
ROSEVILLE, CALIFORNIA On June 24, 1997, the Company acquired approximately 95
acres of land in Roseville, California for $2,500 in cash plus the assumption
of outstanding obligations of $888.
SAN FRANCISCO SHOPPING CENTRE On June 17, 1997, the Company made an investment
in a partnership of approximately $31,400 in cash resulting in a preferred 50%
ownership interest in San Francisco Shopping Centre. The transaction is
structured so that the Company has the option, after approximately eight years,
to make an additional investment in the partnership resulting in the Company
owning substantially all of the interests in San Francisco Shopping Centre.
26
Concurrent with the investment, a new loan of $73,600 was secured, of which
$61,350 was funded at closing with the balance of $12,250 to be funded in
January 2000. The loan bears effective interest including fees at LIBOR + .62%
and matures on July 1, 2002; however, it may be extended for three one-year
periods. On July 14, 1997, the partnership entered into an eight year interest
rate swap agreement thereby fixing the interest rate at an all-in rate of
6.90%. In October 1997, $7,819 was paid down on the outstanding balance of
$61,350.
OLD ORCHARD CENTER On December 18, 1996, the Company acquired Old Orchard
Center 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 common stock. The cash portion of the
acquisition price was funded from the proceeds of the Company's public offering
completed in December 1996.
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>
Ownership
Name Property Interest
- ------------------------------------------------------------------------------
<S> <C> <C>
Water Tower Joint Venture Water Tower Place, Chicago, IL 55% (a)
- ------------------------------------------------------------------------------
Coral-CS/LTD Associates Coral Square Mall, Coral Springs, FL 50%
- ------------------------------------------------------------------------------
West Dade County Assoc. Miami International Mall, Miami, FL 40% (b)
- ------------------------------------------------------------------------------
S.F. Shopping Centre San Francisco Shopping Centre,
Associates, L.P. San Francisco, CA 50% (c)
- ------------------------------------------------------------------------------
Copley Place Assoc., LLC Copley Place, Boston, MA 33% (d)
- ------------------------------------------------------------------------------
Valencia Town Center Valencia Town Center,
Associates, L.P. Valencia, CA 25% (e)
- ------------------------------------------------------------------------------
Citrus Park Venture Tampa, FL 50% (f)
==============================================================================
</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) On June 17, 1997, the Company made an investment in S.F. Shopping Centre
Associates, L.P. for approximately $31,400 in cash resulting in a preferred 50%
ownership interest in the partnership.
(d) On August 1, 1997, the Company acquired a one-third equity interest in
Copley Place Associates, LLC from JMB Realty in a transaction valued at
$42,333.
(e) 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).
(f) On June 23, 1995, the Company acquired a 50% interest in Citrus Park
Venture (a development parcel). Prior to August 1, 1997, the Company and the
Management Company each owned a 50% economic interest in Citrus Park Venture.
On August 1, 1997, the Company acquired the rights to the remaining 50%
economic interest in Citrus Park Venture from an affiliate of JMB Realty in a
transaction valued at $8,212. 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.
Summarized financial information for the unconsolidated partnerships is
presented below.
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investment properties, net $ 738,757 $ 292,829
Other assets 43,381 29,190
- ------------------------------------------------------------------------------
782,138 322,019
Less liabilities:
Mortgage notes payable 562,251 310,800
Other liabilities 29,617 16,484
- ------------------------------------------------------------------------------
Total capital (deficit) 190,270 (5,265)
Less outside partners' capital 111,135 15,532
- ------------------------------------------------------------------------------
Total investments in
unconsolidated partnerships $ 79,135 $ (20,797)
==============================================================================
</TABLE>
Total investments in unconsolidated partnerships are presented in the
accompanying consolidated balance sheets as follows:
<TABLE>
<S> <C> <C>
Assets - Investments in
unconsolidated partnerships $ 118,800 $ 15,233
Liabilities - Investments in
unconsolidated partnerships 39,665 36,030
- ------------------------------------------------------------------------------
$ 79,135 $ (20,797)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Shopping centers $115,583 $ 79,361 $ 75,866
Interest income 609 385 501
Expenses:
Shopping centers (52,831) (35,839) (33,799)
Mortgage and other
interest and ground rent (32,673) (25,375) (25,595)
Depreciation and
amortization (16,331) (11,107) (11,468)
Write-off of assets -- -- (138)
- ------------------------------------------------------------------------------
Income before extraordinary item 14,357 7,425 5,367
Extraordinary item (228) -- --
- ------------------------------------------------------------------------------
Net income $ 14,129 $ 7,425 $ 5,367
==============================================================================
Company's share of:
Mortgage and other
interest and ground rent $(15,280) $(10,810) $(10,400)
Depreciation and
amortization (6,957) (4,519) (4,381)
Write-off of assets -- -- (76)
Income before extraordinary item 6,227 3,000 1,297
==============================================================================
</TABLE>
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except share and per share amounts)
5. INVESTMENT IN THE MANAGEMENT COMPANY 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
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments in land parcels (a) $ 27,451 $ 38,391
Cash, cash equivalents
and short-term investments 1,805 5,443
Receivables and deferred expenses 16,097 11,346
- ------------------------------------------------------------------------------
$ 45,353 $ 55,180
==============================================================================
Liabilities:
Notes payable (b) $ 70,000 $ 70,000
Accounts payable and other liabilities 5,652 5,095
- ------------------------------------------------------------------------------
75,652 75,095
Owners' deficit (30,299) (19,915)
- ------------------------------------------------------------------------------
$ 45,353 $ 55,180
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 36,891 $ 38,501 $ 38,139
Expenses:
Management, leasing
and development services 31,134 30,346 28,929
Mortgage and
other interest 5,692 5,457 5,045
Land parcels 396 427 214
Depreciation and
amortization 559 433 410
Write-down of assets (c) 8,812 -- 9,580
- ------------------------------------------------------------------------------
46,593 36,663 44,178
- ------------------------------------------------------------------------------
Operating income (loss) (9,702) 1,838 (6,039)
Income tax benefit (provision) 561 (840) 252
Gain on sale of land -- -- 1,074
- ------------------------------------------------------------------------------
Net income (loss) $ (9,141) $ 998 $ (4,713)
==============================================================================
</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 in 1997 and 1995, represent reduction of the carrying values in
an outstanding mortgage loan and two retail development land parcels due to the
uncertainty of realizing the carrying values upon repayment and future sale or
development, respectively.
The Management Company provides management, leasing and development
services to certain of the Company's consolidated and unconsolidated investment
properties, to affiliated entities and to third parties. In 1997 and 1996,
management, leasing and development revenues of $7,116 and $9,787,
respectively, resulted from services provided to affiliated entities. 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 $16,499, $14,527 and $2,525 during
1997, 1996 and 1995, respectively.
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. The agreement was not renewed
at December 31, 1995. Commencing 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 1997, 1996 and 1995 was $762, $822 and $812, 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.
28
6. MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Non-recourse mortgage loans payable,
secured by Old Orchard Center (a);
bearing interest at 6.98%; payable
in principal and interest through
December 11, 2009 (maturity) $ 168,000 $ 159,804
- ------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Oakbrook Center (b); bearing
interest at 6.1375% (through an interest
rate swap agreement); payable interest
only through October 29, 2004 (maturity) 140,000 140,000
- ------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by MainPlace; 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,
Service Merchandise Plaza and Bed Bath and
Beyond outparcel at Wolfchase Galleria (c);
currently bearing interest at 0.85% over LIBOR
(6.8305% at December 31, 1997); payable
interest only through April 30, 2000 (maturity) 35,800 28,100
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Wolfchase Galleria (d); bearing
interest at 7.80%; payable in principal and
interest through June 30, 2007 (maturity) 79,716 --
- ------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Fox Valley Center; bearing interest
at 6.75%; payable interest only through
November 10, 2006 (maturity) 85,528 --
- ------------------------------------------------------------------------------
Non-recourse mortgage loan payable,
secured by Hawthorn Center; bearing interest
at 6.75%; payable interest only through
November 10, 2008 (maturity) 77,864 --
- ------------------------------------------------------------------------------
$ 666,908 $ 439,886
==============================================================================
</TABLE>
(a) On December 11, 1997, the Company refinanced its outstanding indebtedness
secured by Old Orchard Center. In connection with the refinancing, the Company
incurred prepayment penalties of $5,404, net of minority interest, which is
reflected as an extraordinary item in the accompanying consolidated statement
of operations for the year ended December 31, 1997.
(b) On November 3, 1997, the Company refinanced its outstanding indebtedness
secured by Oakbrook Center. In connection with the refinancing, the Company
sold its interest rate swap agreements and wrote-off the unamortized balance of
deferred financing costs for a net loss of $26, net of minority interest, which
is reflected as an extraordinary item in the accompanying consolidated
statement of operations for the year ended December 31, 1997.
(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, which is 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. On
June 30, 1997, the Company refinanced its outstanding indebtedness secured by
Wolfchase Galleria. In connection with the funding on the new loan, the Company
repaid the $41,824 then outstanding balance on the construction loan. In
addition, the Company wrote-off the unamortized balance of deferred financing
costs of $203, net of minority interest, which is reflected as an extraordinary
item in the accompanying consolidated statement of operations for the year
ended December 31, 1997.
Maturities of long-term debt for the five years 1998 through 2002 are
$82,431, $2,613, $38,608, $3,018 and $3,243, respectively.
On November 6, 1996, the Company entered into an agreement with a lender
for a one year, $5,000 unsecured revolving line of credit. On January 30,
1998, this revolving line of credit was increased to $7,500 and the maturity
date was extended to January 29, 1999. No amounts were outstanding as of
December 31, 1997.
As of December 31, 1997, interest rate swap agreements in the aggregate
amount of $313,500 are in place to hedge exposure to interest rates on the
Company's floating rate indebtedness. These interest rate swap agreements have
fixed interest rates ranging from 4.86% to 6.29% and have maturities ranging
from October 19, 1998 to October 29, 2004. The Company is exposed to credit
loss in the event of non-performance by the third parties to the interest rate
swap agreements (which $240,000 are AAA, $15,000 are AA+, $20,000 are AA,
$10,000 are AA- and $28,500 are A rated by Standard and Poor's Ratings Group).
7. LEASES AS PROPERTY LESSOR At December 31, 1997, the Company's principal
consolidated assets are eleven operating shopping center properties. 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 47 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 1998 to 2002, and
thereafter, under the above lease agreements are $112,124, $108,481, $105,054,
$99,794, $94,272 and $374,041, respectively.
AS PROPERTY LESSEE Oak Brook Urban Venture (a consolidated venture) is subject
to a ground lease that expires in December 2040 but may be extended through
December 2089. The Oakbrook ground lease produced land sale-leaseback proceeds
of $75,000. Ground rent on the Oakbrook ground lease is 5% annually ($3,750),
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except share and per share amounts)
although to the extent net cash flow is not sufficient to service the annual
ground rent, such amount is deferred subject to a minimum annual payment of
$1,400, escalating to $1,800 in the year 2000. In each of the years 1997, 1996
and 1995, Oak Brook Urban Venture reported rent expense of $3,750 of which
payment of $2,350 was deferred in 1997 and 1996 and $2,550 was deferred in
1995. Interest has been accrued and deferred of $982, $823, and $668 for 1997,
1996 and 1995, respectively, on the deferred balance. The total deferred
interest and ground lease rent obligation included in the accompanying
consolidated balance sheet at December 31, 1997 is $21,691. Payments of
amounts in excess of the minimum annual payment is contingent upon availability
of defined cash flow in future periods. The Oakbrook ground lease is
subordinate in right of payment to all existing mortgage loans and partnership
advances (including advances owed to the Company), except for the minimum
annual payment, which is senior to the partnership advances. Upon sale of the
property, the ground lessor is entitled to a 10% cumulative return on its
invested capital to the extent sale proceeds are available to satisfy such
return. The ground lessor has the option, commencing in year 2010 (2007 under
certain circumstances) to put the property to the Company for cash or, at the
Company's option, Units or shares of common stock, at a price based, in
general, upon rent for the twelve calendar month period preceding the exercise
of the put.
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 1997, 1996 and 1995, Penn
Square Mall recorded rent expense of $939, $670 and $654, respectively.
8. TRANSACTIONS WITH AFFILIATES (NOT DISCLOSED ELSEWHERE) Costs and expenses
for services provided by the Management 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
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and
leasing services (a) $4,579 $2,780 $2,549
Development services 1,365 1,212 1,074
- ------------------------------------------------------------------------------
$5,944 $3,992 $3,623
==============================================================================
</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 $1,656 and
$1,415 for the years ended December 31, 1997 and 1996, respectively, provided
by the Operating Partnership to these consolidated investment properties and
included above (including Old Orchard Center and Wolfchase Galleria), have been
eliminated in consolidation. Subsequent to December 31, 1997, certain of these
contracts were transferred to the Management Company.
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,
until October 2000, to purchase certain retail development land parcels from
JMB Partners at the lower of fair market value or 110% of allocable cost (all
terms as defined). 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 at the same option price.
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.
30
9. OPTIONS AND 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 directors, 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.
At December 31, 1997, there were 288,901 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. No
significant options were granted in 1997.
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 1995 and thereafter. 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, 1994 42,675 746,992 $23.4934
Granted 14,200 297,800 20.7590
Exercised -- -- --
Canceled -- (52,667) 23.2389
Expired -- -- --
- ------------------------------------------------------------------------------
Balances at December 31, 1995 56,875 992,125 22.6929
Granted 12,260 161,240 20.4071
Exercised -- (71,653) 23.1303
Canceled -- (18,834) 21.9181
Expired -- -- --
- ------------------------------------------------------------------------------
Balances at December 31, 1996 69,135 1,062,878 22.3277
Granted 7,500 -- 30.1250
Exercised -- (211,838) 22.9130
Canceled -- (67) 20.7500
Expired -- -- --
- ------------------------------------------------------------------------------
Balances at December 31, 1997 76,635 850,973 $22.2572
==============================================================================
</TABLE>
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding Options was $20.3125-$30.1250 and
6.64 years, respectively.
At December 31, 1997 and 1996, the number of Options exercisable was
714,772 and 769,178 respectively, and the weighted-average exercise price of
these Options was $22.6754 and $23.1493, respectively.
1996 INCENTIVE UNIT PROGRAM On May 6, 1997, the Shareholders approved the
Company's 1996 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 the 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
commencing on the first day of the calendar year subsequent to the year in
which the Incentive Units were earned, provided that the participant remains in
the employ of the Company or its affiliates on each such vesting date. Awards
for 525,000 Incentive Units were granted in 1996. In each of years 1997 and
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except share and per share amounts)
1996, participants under the Program earned awards of 131,250 Incentive Units.
The Company recognizes deferred compensation expense for earned awards as of
each year's Determination Date. Such amounts are amortized to expense over the
related vesting periods. Compensation expense to this plan for 1997 was
$1,260, which is inclusive of the Company's share of the Management Company.
SAVINGS AND RETIREMENT PLAN The Company and the Management Company participate
in the JMB Realty Corporation Employee Savings Plan and the Core Retirement
Award Program. In 1997, 1996 and 1995, the Company and the Management Company
contributed in aggregate $96, $107 and $88, respectively, to the JMB Realty
Corporation Employee Savings Plan, and $511, $515 and $380, 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.
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,
1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- -------------------------
February 6, 1998
Chicago, Illinois
32
SELECTED FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
($000's omitted, except per share amounts) Years ended December 31
- ----------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA: (1)
Total revenues $ 153,980 $ 97,044 $ 91,627 $ 75,783 $ 96,881
Income before other
gains (losses),
minority interest and
extraordinary items 31,791 27,330 24,099 24,350 4,077
Income before extraordinary
items 22,904 19,969 18,644 17,978 2,751
============================================================================
Basic income per common and
unit voting common share
before extraordinary items 1.27 1.42 1.35 1.31 0.18(2)
Diluted income per common and
unit voting common share
before extraordinary items 1.27 1.42 1.35 1.30 0.18(2)
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
($000's omitted) December 31
- ------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA: (1)
Total assets $1,280,976 $ 904,076 $ 598,507 $ 586,638 $ 543,153
Mortgage notes
payable and land
sale-leaseback
proceeds 741,908 514,886 326,000 305,745 265,000
Stockholders' equity 309,656 194,663 134,509 142,558 149,591
==============================================================================
</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 data for 1993 on the historical basis
and includes investment properties which were distributed to JMB Partners prior
to the closing of the Company's initial public offering. Included in income
before extraordinary items, are (i) a $1,821 gain on sale of an outparcel at
Wolfchase Galleria in 1997, (ii) a $1,852 gain on sale of the Burdines store at
Brandon TownCenter in 1997, (iii) a $3,372 gain on sale of four outparcels at
Wolfchase Galleria in 1996, (iv) a $4,496 gain on sale of two Company purchase
options in 1995 and (v) a $2,989 gain on sale of outparcels at the Brandon
project in 1994.
(2) Represents income per common and unit voting common share for the period
commencing with the Company's initial public offering on October 14, 1993
through December 31, 1993.
QUARTERLY FINANCIAL SUMMARY
(Unaudited)
<TABLE>
<CAPTION>
($000's omitted, except per share amounts)
1997 Quarters
- ----------------------------------------------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $33,718 $37,356 $37,864 $45,042
Income before
extraordinary
items 3,822 6,722(2) 5,390(4) 6,971
Net income 3,734(1) 6,515(2)(3) 5,393(4) 1,544(5)
============================================================================
Basic income per common and
unit voting common share 0.22 0.38 0.31 0.04
Diluted income per common and
unit voting common share 0.22 0.37 0.31 0.04
============================================================================
Dividends declared and paid 0.5075 0.5075 0.5075 0.5075
============================================================================
Common stock price:
High $34 1/2 $31 15/16 $32 1/4 $35 1/8
Low 28 1/2 27 7/8 30 1/16 30 1/8
============================================================================
($000's omitted, except per share amounts)
1996 Quarters
- ----------------------------------------------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $23,183 $22,899 $24,482 $26,480
Income before
extraordinary
items 3,127 4,468(6) 4,636(7) 7,738(8)
Net income 3,127 4,468(6) 4,636(7) 7,738(8)
============================================================================
Basic income per common and
unit voting common share 0.23 0.33 0.34 0.51
Diluted income per common and
unit voting common share 0.23 0.33 0.34 0.51
============================================================================
Dividends declared and paid 0.4950 0.4950 0.4950 0.4950
============================================================================
Common stock price:
High $22 3/8 $24 1/4 $25 3/8 $29
Low 20 1/8 22 1/8 22 7/8 24 1/4
============================================================================
</TABLE>
(1) Includes the Company's share of extraordinary item, net of minority
interest, of $88 relative to the write-off of unamortized loan costs at Water
Tower Place.
(2) Includes the Company's share of gain on sale of an outparcel at Wolfchase
Galleria, net of minority interest, of $1,287.
(3) Includes the Company's share of extraordinary item, net of minority
interest, of $207 relative to the write-off of unamortized construction loan
costs at Wolfchase Galleria.
(4) Includes the Company's share of gain on sale of the Burdines store at
Brandon TownCenter, net of minority interest, of $1,264.
(5) Includes the Company's share of extraordinary items, net of minority
interest, of $5,254 and $25, respectively, related to the prepayment penalties
incurred in connection with the refinancing of the Old Orchard Center
indebtedness and the net loss relative to the write-off of unamortized loan
costs, partially offset by the gain on sale of interest rate swaps as a result
of the Oakbrook Center refinancing.
(6) Includes the Company's share of gain on sale of an outparcel at Wolfchase
Galleria, net of minority interest, of $471.
(7) Includes the Company's share of gain on sale of an outparcel at Wolfchase
Galleria, net of minority interest, of $398.
(8) Includes the Company's share of gains on sale of two outparcels at
Wolfchase Galleria, net of minority interest, of $1,823.
33
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
SUSAN GETZENDANNER (2)
Partner - Skadden, Arps, Slate,
Meagher & Flom (Illinois)
JOHN E. NEAL (2)
Former President of
Kemper Funds
PHILLIP B. ROONEY (3)
Vice Chairman
The ServiceMaster Company
JOHN G. SCHREIBER (1)
President - Schreiber Investments and
Partner - Blackstone Real Estate Advisors
HENRY T. SEGERSTROM (1,2)
Managing Partner - C.J. Segerstrom & Sons
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;
President-Development, Urban Retail
Properties Co.; and President, Urban
Retail International LLC
DENNIS M. ZASLAVSKY
Executive Vice President
and Chief Operating Officer
MICHAEL G. HILBORN
Senior Vice President,
General Counsel and Secretary
MICHAEL A. GOLDBERG
Senior Vice President
(1) Audit Committee Member
(2) Executive Compensation Committee Member
(3) Nominating Committee Member Officers
SHAREHOLDER INFORMATION
ANNUAL MEETING The 1998 Annual Meeting of Shareholders will be held at 10:00
a.m. local time on Wednesday, May 6, 1998 at:
American National Bank
1 North LaSalle Street
Chicago, Illinois.
SHARE INFORMATION In 1997, shares of Urban Shopping Centers traded at a high of
$35 1/8 and a low of $27 7/8. The stock closed at $34.75 on February 10, 1998.
Urban Shopping Centers is listed on The New York Stock Exchange and The
Chicago Stock Exchange (Symbol: URB). As of February 20, 1998, there were
17,728,263 shares outstanding held by 551 shareholders of record.
DIVIDEND Urban Shopping Centers most recently declared a quarterly cash
dividend of 52.50 cents per share on February 10, 1998. The dividend equates to
an annual dividend of $2.10. The dividend was paid on March 5, 1998 to
shareholders of record on February 20,1998.
Of the total dividends paid in 1997, 68.04% was ordinary income, 5.14% was
long-term capital gain, 1.89% was unrecaptured section 1250 gain and 24.93% 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 DirectSERVICE Program with all
applicable brokerage commissions and transaction fees paid by Urban Shopping
Centers. The DirectSERVICE 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
34
URBAN RETAIL PROPERTIES CO.
MANAGEMENT
Joseph M. Shrader
President
Charles J. Gill
Executive Vice President and Regional Manager
David S. Kattar
Executive Vice President and Regional Manager
Robert D. Oliver
Executive Vice President and Regional Manager
Timothy W. Olson
Executive Vice President and Regional Manager
Robert W. Powell, Jr.
Executive Vice President and Regional Manager
Mary L. Schlachter
Executive Vice President and Regional Manager
Palmer W. Cameron
Senior Vice President and Director of Technical Services
MARKETING
Cynthia S. Bohde
Senior Vice President
Lisa A. Bell
Vice President
Evan C. Geroux, Jr.
Vice President
Constance Hollenberg
Vice President
J. Charlene Slack
Vice President
LEASING
Ross B. Glickman
President
John F. Bergh
Senior Vice President
Susan Cadieux-Smith
Senior Vice President
Fred M. Heichman
Senior Vice President
R. Webber Hudson
Senior Vice President
Lisa Lasota-Poole
Senior Vice President
Max S. Reiswerg
Senior Vice President
Steven B. Warsaw
Senior Vice President
Lisa J. Balis
Vice President
Arnold D. Blake
Vice President
Pamela S. Bordner
Vice President
Danna L. Diamond
Vice President
Paul E. Geddis
Vice President
Steve A. Greenwood
Vice President
Judith J. Jacobs
Vice President
Nancy L. Jones
Vice President
Michael A. Law
Vice President
Doyle P. Liesenfelt
Vice President
Jeanne A. Morrison
Vice President
J. Michael Nagy
Vice President
Kimberly A. Pohlen
Vice President
Daniel J. Pollard
Vice President
Martin J. Porter
Vice President
Wendy J. Silverman
Vice President
Stewart T. Waller
Vice President
Lynn S. Warren
Vice President
Andrea Weisberg
Vice President
Steven M. Weiss
Vice President
Mark A. Williamson
Vice President
TENANT COORDINATION
Martha J. Spatz
Senior Vice President
Peter V. Irie
Vice President
Christopher M. West
Vice President
DEVELOPMENT
Michael S. Levin
Executive Vice President
Oscar Reid
Executive Vice President
Rohan S. Andrew
Senior Vice President
Ronald R. Brunswig
Senior Vice President
James J. Farrell
Senior Vice President
Mark A. Flom
Senior Vice President
Richard J. Kobe
Senior Vice President
Robert W. Lenke
Senior Vice President
W. Wayne Litzau
Senior Vice President
Charles C. Porter
Senior Vice President
Jan C. Porter
Senior Vice President
Adrian A. Hogg
Vice President
Thomas D. Howes
Vice President
Michael T. Laing
Vice President
John C. Parapetti
Vice President
Victor H. Pildes
Vice President
ADMINISTRATION
Avrum R. Miller
Executive Vice President
Len W. Tobiaski
Executive Vice President/Controller
Mark Brown
Vice President/Chief Information Officer
Sherry K. Cooper
Vice President
Patrick R. Dunne
Vice President
Thomas R. Field
Vice President
John R. Houren
Vice President
Joseph S. McCarthy, Jr.
Vice President
Paul J. Olimpio
Vice President
Karen Ruthman
Vice President
Charles E. Schulze
Vice President
Kathy A. Senten
Vice President
Mindy W. Sherman
Vice President
Gail M. Silver
Vice President
Harold J. Wagner
Vice President
LEASE ADMINISTRATION
La Bonney Taylor
Vice President
Urban Shopping Centers, Inc.
[LOGO] 900 North Michigan Avenue
Suite 1500
Chicago, Illinois 60611
<PAGE>
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
O. Copley Place Associates, LLC Delaware
P. S.F. Shopping Centre Associates, L.P. California
Q. Urban Roseville LLC Delaware
R. Urban Deer Park LLC Delaware
S. Fox Valley Mall, LLC Delaware
T. Hawthorn, L.P. Illinois
U. Hawthorn Theatre, LLC Delaware
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
<PAGE>
Name of Subsidiary Jurisdiction
- ------------------ ------------
USC Old Orchard, Inc. Delaware
A. Old Orchard Urban Venture, L.P. Illinois
Urban Roseville LLC Delaware
Urban Deer Park LLC Delaware
USC Fox Valley, Inc. Delaware
A. Fox Valley Mall, LLC Delaware
USC Hawthorn, Inc. Delaware
A. Hawthorn, L.P. Illinois
B. Hawthorn Theatre, LLC Delaware
USC San Francisco, Inc. Delaware
A. S.F. Shopping Centre Associates, L.P. California
<PAGE>
Exhibit 23.1
Accountants' Consent
--------------------
The Board of Directors
Urban Shopping Centers, Inc.:
We consent to incorporation by reference in the registration
statements No. 333-35909 (Form S-8), No. 333-86778 (Form S-8),
No. 333-96388 (Form S-8) and No. 333-35911 (Form S-3) of Urban
Shopping Centers, Inc. and consolidated partnerships of our
report dated February 6, 1998, relating to the consolidated
balance sheets of Urban Shopping Centers, Inc. as of December 31,
1997 and 1996, 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, 1997, which
report is incorporated by reference in the December 31, 1997
annual report on Form 10-K of Urban Shopping Centers, Inc. and
the related financial statement schedule included herein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<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, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,268
<SECURITIES> 0
<RECEIVABLES> 21,096
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,364
<PP&E> 1,234,908
<DEPRECIATION> (125,594)
<TOTAL-ASSETS> 1,280,976
<CURRENT-LIABILITIES> 38,538
<BONDS> 666,908
0
30
<COMMON> 173
<OTHER-SE> 309,453
<TOTAL-LIABILITY-AND-EQUITY> 1,280,976
<SALES> 152,360
<TOTAL-REVENUES> 153,980
<CGS> 0
<TOTAL-COSTS> 86,004
<OTHER-EXPENSES> 8,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,876
<INCOME-PRETAX> 26,002
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,904
<DISCONTINUED> 0
<EXTRAORDINARY> (5,719)
<CHANGES> 0
<NET-INCOME> 16,374
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
