SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
AMENDMENT NO. 1
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 15, 1999
URBAN SHOPPING CENTERS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 1-12278 36-3886885
- ------------------- -------------- --------------------
(State of incorpor- (Commission (IRS Employer
ation) File Number) 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
-------------------------------------------------------------------
Not Applicable
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
The undersigned registrant hereby amends the following section of its
Report dated November 15, 1999 on Form 8-K as set forth in the pages
attached hereto:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Listed below are the financial statements, pro forma financial
information and exhibits which are included herein:
a. Financial Statements.
Combined Statements of Operating Income for Gallerias I, II and
III for the nine months ended September 30, 1999 (unaudited) and the year
ended December 31, 1998 with Report of Independent Public Accountants
thereon
b. Pro Forma Financial Information.
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1999 (unaudited)
Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1999 (unaudited)
Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1998 (unaudited)
c. Exhibits
23.1 Consent of Independent Public Accountants
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URBAN SHOPPING CENTERS, INC.
By: ADAM S. METZ
Executive Vice President, Chief
Financial Officer, Treasurer,
Director of Acquisitions and
Chief Accounting Officer
Date: January 28, 2000
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Urban Shopping Centers, Inc.:
We have audited the accompanying combined statement of operating income of
Gallerias I, II and III (the Building, as defined in Note 1) for the year
ended December 31, 1998. This financial statement is the responsibility of
Hines Interests Limited Partnership, the manager of the Building. Our
responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statement of
operating income is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the combined statement of operating income. 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 audit provides a reasonable basis for
our opinion.
The accompanying combined statement of operating income was prepared for
the purpose of complying with the rules and regulations of the Securities
and Exchange Commission as described in Note 1. The presentation is not
intended to be a complete presentation of the Building's revenues and
expenses.
In our opinion, the combined statement of operating income referred to
above presents fairly, in all material respects, the certain operating
revenues and expenses described in Note 1 of Gallerias I, II, and III for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 27, 1999
<PAGE>
GALLERIAS I, II AND III
Combined Statements of Operating Income (Note 1)
For the Nine Months Ended September 30, 1999 (Unaudited)
and the Year Ended December 31, 1998
($000's omitted)
Nine Months
Ended
September 30, Year Ended
1999 December 31,
(Unaudited) 1998
------------- ------------
Operating revenues:
Minimum rents . . . . . . . . . . . . $ 18,093 $ 22,148
Percentage rents. . . . . . . . . . . 2,441 4,497
Recoveries from tenants . . . . . . . 13,838 20,146
Other . . . . . . . . . . . . . . . . 1,308 1,384
-------- --------
35,680 48,175
-------- --------
Operating expenses:
Salaries and wages. . . . . . . . . . 1,351 1,688
Cleaning. . . . . . . . . . . . . . . 730 896
Utilities . . . . . . . . . . . . . . 2,263 3,077
Repairs, maintenance and supplies . . 1,534 2,154
General and administrative. . . . . . 2,459 3,442
Management fees . . . . . . . . . . . 1,552 2,000
Parking operations. . . . . . . . . . 2,437 3,471
Property taxes. . . . . . . . . . . . 3,936 6,806
Other . . . . . . . . . . . . . . . . 343 762
-------- --------
16,605 24,296
-------- --------
Operating income. . . . . . . . . . . $ 19,075 $ 23,879
======== ========
See accompanying notes to combined statements of operating income.
<PAGE>
GALLERIAS I, II AND III
Notes to Combined Statements of Operating Income
Nine Months Ended September 30, 1999 (Unaudited)
and Year Ended December 31, 1998
($000's omitted, except per square foot amounts)
(1) NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
Gallerias I, II and III (the Building) comprise the retail portion of
a mixed-use complex which includes the Building, three office towers, two
hotels and related parking facilities, commonly known as the Houston
Galleria. Gallerias I and II are owned by Galleria Limited (Galleria), a
Texas limited partnership formed effective January 26, 1976. Galleria III
is owned by Post Oak Associates Limited (Post Oak), a Texas limited
partnership formed effective July 1, 1967. Subsequent to December 31,
1998, Galleria and Post Oak have sold the Building (see Note 4).
BASIS OF PRESENTATION
The accompanying combined statements of operating income for
Gallerias I, II and III are presented in conformity with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission.
The combined statements of operating income are not representative of
the actual operations for the nine months ended September 30, 1999 and the
year ended December 31, 1998, as certain revenues and expenses, which may
not be comparable to the revenues and expenses expected to be incurred in
the future operations, have been excluded. Amounts excluded from the
accompanying combined statements of the operating income consist of
interest income, interest expense and depreciation and amortization. All
significant intercompany transactions and amounts have been eliminated.
The unaudited interim financial statements have been prepared pursuant
to the rules of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures, normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles, have been omitted pursuant to those rules and regulations,
although management believes that the disclosures made are adequate to make
the information presented not misleading. In the opinion of management,
all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the combined statements of operating
income have been included. The results for the interim period ended
September 30, 1999 are not necessarily indicative of the results to be
obtained for the full fiscal year.
LEASING ACTIVITIES
At December 31, 1998, the approximate net rentable area (NRA) leased
and percentages of total NRA committed under operating leases to tenants
were as follows:
Percentage
of NRA
NRA Leased Leased to
(Square Feet) Total NRA
------------ -----------
Galleria I 1,029,000 96%
Galleria II 888,000 97
Galleria III 506,000 97
<PAGE>
GALLERIAS I, II AND III
Notes to Combined Statements of Operating Income - Continued
Most shopping center tenant leases expire in various years through
2012, except for Neiman Marcus, Saks & Company and R.H. Macy & Co., Inc.,
retail tenant leases which expire in 2019, 2019 and 2020, respectively.
The leases generally provide for a base monthly rent and for additional
rent based on certain percentages of each tenant's gross sales for the 12-
month period ending on their respective lease anniversary dates. Minimum
rent is recognized on a straight-line basis over the terms of the related
leases. Annual rentals also generally include the tenant's proportionate
shares of certain common area maintenance expenses. Tenant leases expire
in various years as follows:
Approximate Square Footage
------------------------------------------
Galleria I Galleria II Galleria III
---------- ----------- ------------
1999 53,000 90,000 31,000
2000 15,000 12,000 --
2001 40,000 17,000 20,000
2002 25,000 14,000 6,000
2003 40,000 38,000 3,000
Thereafter 856,000 717,000 446,000
Pursuant to executed leases, the approximate fixed future minimum
rentals are as follows:
Fixed Future Minimum Rentals
------------------------------------------
Galleria I Galleria II Galleria III
---------- ----------- ------------
1999 $ 11,042 $ 6,941 $ 2,967
2000 11,118 6,466 2,764
2001 10,615 6,177 2,723
2002 9,888 5,725 2,371
2003 8,653 5,020 2,178
Thereafter 29,033 17,277 24,680
Subsequent to December 31, 1998, two significant tenants defaulted on
their leases (see Note 4). The lease expirations and fixed future minimum
rentals information disclosed above does not reflect reductions for these
two tenants.
The following leases are at or exceed 10 percent of the NRA of
Galleria I, Galleria II and Galleria III, respectively:
Percentage
of NRA
NRA Leased Lease Leased to
Tenant Premise (Square Feet) Expiration Premise NRA
- ------ -------- ------------ ---------- -----------
Neiman Marcus Galleria I 200,000 2019 19%
University Club Galleria I 105,450 2006 10
Lord & Taylor Galleria II 135,484 2010 15
R.H. Macy &
Co., Inc. Galleria III 232,600 2020 47
Saks & Company Galleria III 185,532 2019 36
<PAGE>
GALLERIAS I, II AND III
Notes to Combined Statements of Operating Income - Continued
REPAIR AND MAINTENANCE EXPENSES
Repair and maintenance expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated
over their estimated useful lives.
INCOME TAXES
No provision for income taxes is made in the accounts of the Building
since such taxes are the liabilities of the partners of Galleria and Post
Oak through November 14, 1999 and depend upon their respective tax
situations.
The Building was acquired in part by Urban Shopping Centers, Inc.
(Urban) through Urban Shopping Centers, L.P. as of November 15, 1999.
Urban operates as a real estate investment trust (REIT) and under the
provision of the Internal Revenue Code, a REIT will generally not be
subject to Federal and state income taxes.
PERVASIVE RISK DUE TO USE OF ESTIMATES IN THE FINANCIAL STATEMENT
The preparation of the combined statements of operating income in
conformity with the basis of accounting described above requires management
to make estimates and assumptions that affect the reported amounts of
operating revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(2) RELATED-PARTY TRANSACTIONS
TRANSACTIONS WITH AFFILIATES
The accompanying statement for the year ended December 31, 1998
includes operating expenses of approximately $7,878 charged by Hines
Interests Limited Partnership to the Building for management fees,
accounting, elevator maintenance, leasing commissions, security, tenant
construction, building improvements and other services provided during the
year.
(3) COMMITMENTS AND CONTINGENCIES
Galleria has entered into a leaseback agreement with Associated Dry
Goods Corporation (parent corporation of Lord & Taylor, a Galleria II mall
tenant) whereby Galleria leases back from Lord & Taylor a portion of the
garage and retail space. This lease extends through 2009 and provides for
annual payments of approximately $60.
Post Oak, as lessee, has entered into a 99-year lease agreement
covering approximately 1.3 acres of land located under Galleria III. Post
Oak was obligated to pay annual rentals of $57 through June 30, 1995.
Beginning July 1, 1995, for each 10-year period through June 30, 2065, and
the last four years of the term, annual rentals will be equivalent to 1
percent above prime multiplied by the then-determined fair market value of
the land; however, the fair market value shall be between $10 and $15 per
square foot for the period from July 1, 1995, through June 30, 2005. The
annual rentals charged to expense related to this lease were $46 for the
year ended December 31, 1998.
On July 26, 1995, Post Oak exercised its option to purchase the leased
premises. The purchase price was the fair market value of the land as of
July 1, 1995. The purchase of this land closed on July 15, 1998, with a
sales price of $2,468.
<PAGE>
GALLERIAS I, II AND III
Notes to Combined Statements of Operating Income - Concluded
YEAR 2000 ISSUES (UNAUDITED)
Potential adverse effects, if any, of the year 2000 calendar date
conversion on systems and operations have been considered and are being
addressed and accounted for as appropriate in the financial statement.
Management does not presently anticipate any material impact to arise from
year 2000 issues.
(4) SUBSEQUENT EVENT
As of October 27, 1999, Galleria and Post Oak have entered into
negotiations to sell the Building two-thirds to affiliates of Urban
Shopping Centers, Inc., and the remaining one-third to institutional funds
advised by Walton Street Capital, LLC, pursuant to the purchase and sale
agreement dated September 17, 1999. The sale closed on November 15, 1999.
During September and October 1999, two significant Galleria I and II
tenants defaulted on their leases, resulting in a decrease in fixed future
minimum rentals of $1,590 and $6,948, respectively, and square footage
expirations of 6,000 square feet and 14,000 square feet, respectively.
<PAGE>
URBAN SHOPPING CENTERS, INC.
Pro Forma Financial Statements
September 30, 1999
(Unaudited)
The following unaudited pro forma condensed consolidated financial
statements for Urban Shopping Centers, Inc. (Urban) reflect the acquisition
by Urban of Houston Galleria (the "Galleria"). The pro forma condensed
consolidated financial statements have been prepared based upon certain pro
forma adjustments to the historical financial statements of Urban.
The accompanying unaudited pro forma condensed consolidated balance
sheet as of September 30, 1999 has been prepared as if the Galleria had
been acquired as of the balance sheet date.
The accompanying unaudited pro forma condensed consolidated statements
of operations for the nine months ended September 30, 1999 and for the year
ended December 31, 1998 have been prepared as if the Galleria acquisition
had occurred as of January 1, 1998.
The unaudited pro forma condensed consolidated financial statements do
not purport to be indicative of the results which would actually have been
obtained had the transactions described above been completed on the dates
indicated or which may be obtained in the future. The unaudited pro forma
condensed consolidated financial statements should be read in conjunction
with the combined statements of operating income for the Gallerias I, II
and III included herein.
<PAGE>
URBAN SHOPPING CENTERS, INC.
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1999
(Unaudited)
($000's omitted, except share amounts)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
ASSETS
Investment properties, net of
accumulated depreciation. . . . $1,505,966 $ $1,505,966
Investment property held for
sale. . . . . . . . . . . . . . 12,568 12,568
Investments in unconsolidated
partnerships and the
Management Company. . . . . . . 178,362 99,623 (a) 277,985
Cash, cash equivalents and
short-term investments. . . . . 20,781 (16,810)(b) 3,971
Interest, rents and other
receivables . . . . . . . . . . 16,740 16,740
Deferred expenses and other
assets. . . . . . . . . . . . . 17,688 17,688
---------- ---------- ----------
$1,752,105 $ 82,813 $1,834,918
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable. . . . . $1,064,154 $ $1,064,154
Land sale-leaseback
proceeds . . . . . . . . . . . 75,000 75,000
Deferred lease accrual. . . . . 22,339 22,339
Accounts payable and other
liabilities. . . . . . . . . . 69,433 69,433
Investments in uncon-
solidated partnerships . . . . 44,387 44,387
Commitments and
contingencies. . . . . . . . .
---------- ---------- ----------
Total liabilities . . . . . 1,275,313 1,275,313
Minority interest . . . . . . . . 162,813 82,813 (c) 245,626
<PAGE>
URBAN SHOPPING CENTERS, INC.
Pro Forma Condensed Consolidated Balance Sheet - Continued
September 30, 1999
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
Stockholders' equity:
Preferred stock, $.01 par
value, authorized
5,000,000 shares,
3,772,915 historical
and pro forma shares
issued and outstanding . . . . 38 38
Common stock, $.01 par
value, authorized
140,000,000 shares,
17,520,484 historical
and pro forma shares
issued and outstanding . . . . 176 176
Unit voting stock, $.01 par
value, authorized
5,000,000 shares,
407,935 historical
and pro forma shares
issued and outstanding . . . . 4 4
Additional paid-in capital. . . 494,851 494,851
Retained earnings (deficit) . . (181,090) (181,090)
---------- ---------- ----------
Total stockholders'
equity . . . . . . . . . . 313,979 313,979
---------- ---------- ----------
$1,752,105 $ 82,813 $1,834,918
========== ========== ==========
See accompanying notes to pro forma financial statements.
<PAGE>
URBAN SHOPPING CENTERS, INC.
Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 1999
(Unaudited)
($000's omitted, except share amounts)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
Revenues:
Shopping center revenues:
Minimum rents. . . . . . . . . $ 104,155 $ $ 104,155
Percentage rents . . . . . . . 3,413 3,413
Recoveries from tenants. . . . 55,706 55,706
Other. . . . . . . . . . . . . 7,404 7,404
---------- ---------- ----------
170,678 170,678
Interest income . . . . . . . . 585 585
---------- ---------- ----------
171,263 171,263
---------- ---------- ----------
Expenses:
Shopping center expenses. . . . 61,141 61,141
Mortgage and other interest
and ground rent. . . . . . . . 46,780 46,780
Depreciation, amortization
and write-off of assets. . . . 38,079 38,079
General and administrative. . . 4,478 4,478
---------- ---------- ----------
150,478 150,478
---------- ---------- ----------
Operating income. . . . . . . 20,785 20,785
Income from unconsolidated
partnerships and the
Management Company. . . . . . . 8,981 (1,055)(d) 7,926
---------- ---------- ----------
Income before other
gains, minority
interest and extra-
ordinary items . . . . . . . 29,766 (1,055) 28,711
Other gains . . . . . . . . . . . 632 632
Minority interest . . . . . . . . (10,047) (3,662)(e) (13,709)
---------- ---------- ----------
Income before extra-
ordinary items . . . . . . . 20,351 (4,717) 15,634
Dividends on preferred stock. . . (6,339) (6,339)
---------- ---------- ----------
Income before extra-
ordinary items applicable
to common and unit
voting common stock. . . . . $ 14,012 $ (4,717) $ 9,295
========== ========== ==========
Basic income before
extraordinary items per
common and unit voting
common stock . . . . . . . . $ 0.78 $ 0.52
========== ==========
<PAGE>
URBAN SHOPPING CENTERS, INC.
Pro Forma Condensed Consolidated Statement of Operations - Continued
For the Nine Months Ended September 30, 1999
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
Diluted income before
extraordinary items per
common and unit voting
common stock. . . . . . . . $ 0.77 $ 0.51
========== ==========
Weighted average common
and unit voting common
stock outstanding:
Basic. . . . . . . . . . . 17,903,077 17,903,077
========== ==========
Diluted. . . . . . . . . . 18,118,013 18,118,013
========== ==========
See accompanying notes to pro forma financial statements.
<PAGE>
URBAN SHOPPING CENTERS, INC.
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
($000's omitted, except share amounts)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
Revenues:
Shopping center revenues:
Minimum rents. . . . . . . . . $ 118,290 $ $ 118,290
Percentage rents . . . . . . . 7,322 7,322
Recoveries from tenants. . . . 65,108 65,108
Other. . . . . . . . . . . . . 6,866 6,866
---------- ---------- ---------
197,586 197,586
Interest income . . . . . . . . 1,103 1,103
---------- ---------- ---------
198,689 198,689
---------- ---------- ---------
Expenses:
Shopping center expenses. . . . 72,538 72,538
Mortgage and other interest
and ground rent. . . . . . . . 48,347 48,347
Depreciation, amortization
and write-off of assets. . . . 41,649 41,649
General and administrative. . . 4,829 4,829
---------- ---------- ---------
167,363 167,363
---------- ---------- ---------
Operating income. . . . . . . 31,326 31,326
Income from unconsolidated
partnerships and the
Management Company. . . . . . . 11,042 (2,559)(d) 8,483
---------- --------- ---------
Income before other
gains, minority
interest and extra-
ordinary items . . . . . . . 42,368 (2,559) 39,809
Other gains . . . . . . . . . . . 479 479
Minority interest . . . . . . . . (13,540) (4,528)(e) (18,068)
---------- --------- ---------
Income before extra-
ordinary items . . . . . . . 29,307 (7,087) 22,220
Dividends on preferred stock. . . (6,359) (6,359)
---------- --------- ---------
Income before extra-
ordinary items applicable
to common and unit
voting common stock. . . . . $ 22,948 $ (7,087) $ 15,861
========== ========= =========
Basic income before
extraordinary items per
common and unit voting
common stock . . . . . . . . $ 1.29 $ 0.89
========== =========
<PAGE>
URBAN SHOPPING CENTERS, INC.
Pro Forma Condensed Consolidated Statement of Operations - Continued
For the Year Ended December 31, 1998
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
Diluted income before
extraordinary items per
common and unit voting
common stock. . . . . . . . $ 1.27 $ 0.88
========== =========
Weighted average common
and unit voting common
stock outstanding:
Basic. . . . . . . . . . . 17,744,072 17,744,072
========== ==========
Diluted. . . . . . . . . . 18,013,943 18,013,943
========== ==========
See accompanying notes to pro forma financial statements.
<PAGE>
URBAN SHOPPING CENTERS, INC.
Notes to Pro Forma Condensed Consolidated Financial Statements
September 30, 1999 and for the Nine Months Ended
September 30, 1999 and the Year Ended December 31, 1998
(Unaudited)
($000's omitted, except share amounts)
(a) The pro forma adjustment reflects Urban's acquisition of a 66.67%
interest in a partnership owning the Galleria as if it occurred on
September 30, 1999. All major decisions concerning the Galleria require
the approval of all partners of the partnership and thus Urban does not
control the partnership.
(b) The pro forma adjustment reflects the use of working capital to fund,
in part, the pro forma acquisition of a 66.67% interest in a partnership
owning the Galleria.
(c) The pro forma adjustment represents the issuance of $85,000 of
Series D Cumulative Redeemable Preferred Partnership Units, net of closing
costs. The preferred units are entitled to distributions at a rate of
9.45% per annum. The proceeds from the issuance were used to fund a
portion of the pro forma acquisition of a 66.67% interest in a partnership
owning the Galleria.
(d) The pro forma adjustment reflects Urban's 66.67% share of the net
income of the Galleria. The net income of the Galleria represents certain
historical revenue and expenses, plus (i) a reduction to historical
management fees to equal 3.0% of minimum rents, percentage rents and other
operating revenues as a result of the new management agreement with Urban
Retail Properties Co., (ii) interest expense on the new mortgage note
payable of $225,000 at an interest rate of 7.932% based upon 30 year
amortization, (iii) depreciation expense assuming an asset life of 30 years
and building and improvements of $329,836 and (iv) amortization expense
assuming a loan term of six years and deferred financing costs of $613.
(e) The pro forma adjustment reflects the adjustment for the operating
partnership unit holders' (including preferred unit holders) share of pro
forma income before extraordinary items.
EXHIBIT 23.1
- ------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the inclusion of
our report dated October 27, 1999 on the combined statement of operating
income of Gallerias I, II and III (the Building) for the year ended
December 31, 1998, in this Current Report on Form 8-K/A of Urban Shopping
Centers, Inc. It should be noted that we have not audited any financial
statements of the Building subsequent to December 31, 1998 or performed any
audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
January 28, 2000
