UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from
______ to ______
Commission file number 0-27562
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ATLANTIC REALTY TRUST
(Exact name of Registrant as specified in its charter)
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MARYLAND 13-3849655
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
747 Third Avenue, New York, NY 10017
------------------------------------
(Address of principal executive offices)(Zip Code)
212-702-8561
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Shares of Beneficial Interest,
$0.01 Par Value Per Share NASDAQ Small Cap Market
- ------------------------- -----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such fling
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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate Market Value of the Shares of Beneficial Interest held by
non-affiliates of the Registrant as of March 20, 1998: approximately
$41,168,000.
Approximately 3,561,553 Shares of Beneficial Interest of the Registrant were
outstanding as of March 20, 1998.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PART I............................................................................................................1
1. - Business..................................................................................................1
2. - Properties................................................................................................5
3. - Legal Proceedings.........................................................................................6
4. - Submission of Matters to a Vote of Security Holders.......................................................6
PART II...........................................................................................................6
5. - Market for Registrant's Common Equity and Related Stockholder Matters.....................................6
6. - Selected Financial Data...................................................................................7
7. - Management's Discussion and Analysis of Financial Condition and Liquidation Activities....................8
7A.-Quantitative and Qualitative Disclosures About Market Risk................................................10
8. - Financial Statements and Supplementary Data..............................................................10
9. - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................10
PART III.........................................................................................................11
10. - Directors and Executive Officers of the Registrant......................................................11
11. - Executive Compensation..................................................................................13
12. - Security Ownership of Certain Beneficial Owners and Management..........................................16
13. - Certain Relationships and Related Transactions..........................................................16
PART IV..........................................................................................................18
14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................18
</TABLE>
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS" AS
SET FORTH IN THE COMPANY'S REGISTRATION STATEMENT ON FORM 10 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1996 (FILE NO. 0-27562) AND IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
<PAGE>
PART I
Item 1. Business
Atlantic Realty Trust (together with its subsidiary, the "Trust"), a Maryland
real estate investment trust, was organized pursuant to a Declaration of Trust
dated July 27, 1995 (as amended, the "Declaration of Trust"). The principal
office of the Trust is located at 747 Third Avenue, New York, New York 10017.
The Trust commenced operations on May 10, 1996 as a result of a spinoff (the
"Spin-Off Transaction") from RPS Realty Trust ("RPS"). The Spin-Off Transaction
was consummated in order to permit RPS to complete an acquisition (the "Ramco
Acquisition") of assets from Ramco Gershenson, Inc. and its affiliates
("Ramco"), which permitted RPS to become an equity shopping center real estate
investment trust (a "REIT"). RPS undertook the Spin-Off Transaction because
Ramco was unwilling to consummate the Ramco acquisition if the assets that were
contributed by RPS to the Trust (the "Trust Assets") remained in RPS. Pursuant
to the Spin-Off Transaction, the Board of Trustees of RPS approved a
distribution of one common share of beneficial interest (the "Shares") of the
Trust for every eight shares of beneficial interest of RPS (the "Distribution").
Under the provisions of its Declaration of Trust, the Trust was to continue for
a period of 18 months from May 10, 1996 (November 10, 1997), during which time
it was to reduce to cash or cash equivalents the Trust Assets and either (i)
make a liquidating distribution to its shareholders or (ii) agree to merge or
combine operations with another real estate entity, in either case, as soon as
practicable following the Distribution and within such 18-month period. Such
18-month period was subject to extension if (i) the Trust had not achieved its
objective and the holders of at least two-thirds of the outstanding Shares
approved the extension of such date or (ii) a contingent tax liability relating
to RPS that has been assumed by the Trust had not been satisfactorily resolved.
Because the RPS Tax Issues have not yet been satisfactorily resolved, the Trust
has continued its business past November 10, 1997. The Trust cannot currently
estimate the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues. Upon obtaining a satisfactory resolution to the RPS Tax Issues (as
defined below) and liquidating the Trust's remaining assets, any liquidating
distribution effected by the Trust would be subject to the satisfaction of the
Trust's liabilities to its creditors. In the event that at the end of this
period, the Trust is unable to achieve its business objectives, the Trust's
Trustees will appoint an independent third party to liquidate the Trust's
remaining assets.
As a result of the Spin-Off Transaction, the Trust acquired the Trust Assets.
The Trust Assets which have not been disposed of by the Trust are described
below under "--Description of Trust Assets." The Trust's principal investment
objective is to maximize shareholder value from the reduction of the Trust
Assets to cash or cash equivalents. As part of its plan to reduce to cash or
cash equivalents the Trust Assets, the Trust intends, among other things, to
continue to (i) contact strategic buyers of the Trust's assets regarding
possible portfolio sales transactions, and (ii) list the Trust's assets for sale
with qualified real estate brokers. No assurance can be given, however, that
such objective will be achieved. The Trust expects to continue to invest the net
proceeds of such sales in short-term or temporary investments, such as
certificates of deposit, pass-through mortgage-backed certificates, mortgage
participation certificates and mortgaged-backed securities (or similar
investment products), all or some of which investments may be guaranteed by
Ginnie Mae, Fannie Mae or Freddie Mac. Unless otherwise approved by the
shareholders, the Trust does not expect that it will make new permanent
investments or raise additional capital. In addition, the Trust does not expect
to acquire additional mortgage loans or properties.
-1-
<PAGE>
In addition, the Trust expects that it will explore the possibility of merging
or entering into a business combination with another real estate entity. The
Trust expects that it will pursue such a transaction only if it represents an
attractive alternative to the distribution to shareholders of the net proceeds
from the orderly liquidation of the Trust Assets, as described above. The merger
candidates that may be available to the Trust may be limited as a result of the
amount of cash and the nature of the assets which the Trust will hold.
Accordingly, there can be no assurance that the Trust will successfully merge or
combine operations with another real estate entity. Because the Trust has
adopted a policy not to re-invest sales proceeds in additional mortgage loans on
real estate (except to the extent necessary to satisfy applicable REIT
requirements), a merger or other business combination involving the Trust and
another real estate entity may constitute a "roll-up transaction" under
applicable securities laws. In such case, the Trust would be required to comply
with the heightened disclosure rules as well as special rules relating to the
proxy solicitation process and the listing of the securities of the surviving
company on any exchange or the inclusion for quotation of such securities on
Nasdaq. Application of the roll-up rules to a company merger or business
combination could delay, defer or prevent such a transaction from occurring.
The Trust was organized for the purpose of qualifying as a real estate
investment trust ("REIT") under sections 856-860 of the Internal Revenue Code of
1986, as amended (the "Code"). The Trust will elect to qualify as a REIT for the
years ended December 31, 1996 and 1997 and intends to operate so as to continue
to qualify as a REIT.
Description of Trust Assets
As of December 31, 1997, the Trust owned two (2) real properties, and held
short-term investments in the principal amount of $14,750,000, consisting
primarily of a certificate of deposit at a major New York bank.
Mortgage Loan and Real Property Investments
During the year ended December 31, 1997, the Trust received aggregate net
proceeds of $7,523,500 from the prepayment of the balance of its mortgage loan
portfolio. Additionally the Trust received proceeds of approximately $1,045,000
from the sale of the North Wabash Avenue Building.
The following table and notes thereto describe the Trust's equity investments in
real properties at their estimated net realizable value as of December 31, 1997.
<TABLE>
<CAPTION>
Avg. Base
Approximate Rental
% of GLA Approx. Base Revenue/Leased
Leased as Rental Revenue Sq. Ft. As of Estimated Net
Type of Year Total of December 31, as of December 31, December 31, Realizable
Property Name Property Acquired GLA 1997 1997 1997 (1) Value(2)
------------- -------- -------- --- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Hylan Plaza Shopping Community 1996 349,000 98% 3,470,925 10.10 37,725,000
Center Center
Staten Island, NY
Norgate Shopping Center Community 1994 208,000 70% 512,981 3.50 3,602,000 (3)
Indianapolis, IN Center ----------
41,327,000
==========
</TABLE>
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<PAGE>
(1) The calculation of total average base rental revenue was determined by
taking the total base revenue as of December 31, 1997 and dividing such
amount by the occupied GLA.
(2) Includes estimated cash flows using disposition periods ranging from 3
months to 10 months. Realized values may differ depending on actual
disposition results and time periods.
(3) This property was sold by the Trust on February 25, 1998 for $3,850,000
in cash.
Hylan Plaza Shopping Center. The Hylan Plaza Shopping Center is a one-story
shopping center located in Staten Island, New York. The shopping center contains
approximately 349,000 square feet of leasable space approximately 98% of which
was leased and occupied as of December 31, 1997. Major tenants (i.e., tenants
who accounted for 10% or more of the leasable space as of December 31, 1997)
include K-Mart Corp., a department store chain ("K-Mart"), Supermarkets General
Corp. d/b/a Pathmark, a supermarket chain ("Pathmark"), and the Toys "R" Us --
Nytex, Inc., a retail toy store chain ("Toys "R" Us"). These three tenants lease
approximately 105,000, 55,000 and 42,000 square feet, respectively, which
constitutes 30%, 16% and 12%, respectively, of the total leasable space. The
K-Mart lease expires in January 2002 and provides for annual base rental
payments of approximately $235,000; the Pathmark lease expires in January 2002
and provides for annual base rental payments of approximately $339,000; and the
Toys "R" Us lease, which was due to expire in October 1995, was extended
pursuant to the tenant's exercise of a renewal option and is due to expire in
October 2005 and provides for annual base rental payments of approximately
$90,000. The K-Mart lease contains three 5-year tenant renewal options; the
Pathmark lease contains five 5-year tenant renewal options; and the Toys "R" Us
lease contains one 10-year tenant renewal option. Leases for approximately 1,483
square feet expired on or prior to December 31, 1997 and such space is currently
leased on a month to month basis, and leases for approximately 1,730 square feet
are due to expire on or prior to December 31, 1998. The average base rent per
square foot paid by tenants at such property as of December 31, 1997 excluding
percentage rent and similar provisions was $10.10. The Trust believes the
property is adequately covered by insurance. On May 31, 1996 the Trust's
independent real estate appraisers appraised the value of the property at
$27,300,000.
Norgate Shopping Center. The Norgate Shopping Center is a one-story shopping
center located in Indianapolis, Indiana (Marion County). The shopping center
contains approximately 208,000 square feet of leasable space, approximately 70%
of which was leased and occupied as of December 31, 1997. Major tenants (i.e.,
tenants who accounted for 10% or more of the revenues at such property during
the 12-month period ended December 31, 1997) are Kohl's Oakland, Inc., a
department store retail chain ("Kohl's Oakland") and Consolidated Stores, Inc.,
a discount variety store retail chain ("Consolidated Stores"). These two tenants
lease approximately 65,000 and 37,300 square feet, respectively, which
constitutes 31% and 18%, respectively, of the total leasable space. The Kohl's
Oakland lease expires in January 1999 and provides for annual base rental
payments of approximately $211,000 and the Consolidated Stores lease is month to
month and provides for rental payments of approximately $140,000 on an
annualized basis. The Kohl's lease contains three 5-year tenant renewal options.
In April of 1997 Kohl's vacated their space but continued to make rental
payments under the lease through December 31, 1997. As of January 1, 1998 Kohl's
discontinued to make rental payments under the lease. The Trust intends to
pursue its remedies under the lease in order to recover rental payments due
until the termination date. Leases for approximately 66,852 square feet expired
on or prior to December 31, 1997 and such space is currently leased on a
month-to-month basis. The average base rent per square foot paid by tenants at
such property as of December 31, 1997 excluding percentage rent and similar
provisions was $3.50. The Trust believes the property is adequately covered by
insurance. On December 12, 1997, the Trust entered into a contract to sell the
property for approximately $3,850,000 with Midland Realty LLC, an Indianapolis
shopping center developer (the "Norgate Transaction"). The Trust closed the
Norgate Transaction on February 25, 1998.
-3-
<PAGE>
Qualification as a REIT
The Trust intends to qualify as a REIT for federal income tax purposes. If the
Trust so qualifies, amounts paid by the Trust as distributions to its
shareholders will not be subject to corporate income taxes. For any year in
which the Trust does not meet the requirements for electing to be taxed as a
REIT, it will be taxed as a corporation.
The requirements for qualification as a REIT are contained in Sections 856-860
of the Code and the regulations promulgated thereunder. The following discussion
is a brief summary of some of those requirements. Such requirements include
certain provisions relating to the nature of a REIT's assets, the sources of its
income, the ownership of its stock, and the distribution of its income. Among
other things, at the end of each fiscal quarter, at least 75% of the value of
the total assets of the Company must consist of real estate assets (including
interests in mortgage loans secured by real property and interests in other
REITs, as well as cash, cash items and government securities) (the "75% Asset
Test"). There are also certain limitations on the amount of other types of
securities which can be held by a REIT. Additionally, at least 75% of the gross
income of the Company for the taxable year must be derived from certain sources,
which include "rents from real property," and interest secured by mortgages on
real property. An additional 20% of the gross income of the Company must be
derived from these same source or from dividends, interest from any source, or
gains from the sale or other disposition of stock or securities or any
combination of the foregoing. Furthermore, less than 30% of the annual gross
income of a REIT must be derived from the sale or other distribution of real
property or obligations secured by a mortgage on real property which has been
held for less than four years (the "30% Income Test").
The Trust may invest the proceeds derived from the sale or other disposition of
the Trust Assets in pass-through mortgage-backed certificates, mortgage
participation certificates and mortgage-backed securities, all or some of which
instruments may be guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. Such
instruments produce qualifying income for REIT qualification purposes and also
satisfy the requirements of the 75% Asset Test. A REIT is also required to
distribute at least 95% of its REIT Taxable Income (as defined in the Code) to
its shareholders.
Tax Contingency
During the third quarter of 1994, RPS held more than 25% of the value of its
gross assets in overnight Treasury Bill reverse repurchase transactions which
the Internal Revenue Service ("IRS") may view as non-qualifying assets for the
purposes of satisfying an asset qualification test applicable to REITs, based on
a Revenue Ruling published in 1977 (the "Asset Issue"). RPS has requested that
the IRS enter into a closing agreement with RPS that the Asset Issue will not
impact RPS' status as a REIT. The IRS has deferred any action relating to the
Asset Issue pending the further examination of RPS' 1991-1995 tax returns (the
"RPS Audit," and together with the Asset Issue, the "RPS Tax Issues"). Based on
developments in the law which occurred since 1977, RPS' tax counsel, Battle
Fowler LLP, rendered an opinion that RPS' investment in Treasury Bill repurchase
obligations would not adversely affect its REIT status. However, such opinion is
not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax liability
arising out of the RPS Tax Issues (other than liability that relates to events
occurring or actions taken by RPS following the date of the Transaction)
pursuant to a tax agreement, dated May 10, 1996, by and between RPS and the
Trust, which provides that RPS (now named Ramco-Gershenson Properties Trust)
under the direction of its Continuing Trustees, and not the Trust, will control,
conduct and effect the settlement of any tax claims against RPS relating to the
-4-
<PAGE>
RPS Tax Issues. Accordingly, the Trust does not have any control as to the
timing of the resolution or disposition of any such claims and no assurance can
be given that the resolution or disposition of any such claims will be on terms
or conditions as favorable to the Trust as if they were resolved or disposed of
by the Trust. RPS and the Trust also have received an opinion from Special Tax
Counsel, Wolf, Block, Schorr and Solis-Cohen LLP, that, to the extent there is a
deficiency in RPS' taxable income arising out of the IRS examination and
provided RPS timely makes a deficiency dividend (i.e. declares and pays a
distribution which is permitted to relate back to the year for which each
deficiency was determined to satisfy the requirement that a REIT distribute 95
percent of its taxable income), the classification of RPS as a REIT for the
taxable years under examination would not be affected. If, notwithstanding the
above-described opinions of legal counsel, the IRS successfully challenged the
status of RPS as a REIT, the REIT status of the Trust could be adversely
affected. Management estimates that this would have an effect of approximately
$415,000 for 1997, $0 for 1996, $600,000 for 1995 and $400,000 for 1994 for
state taxes in prior years as well as $145,000 for 1997 for federal taxes
which have not been provided in the financial statements of RPS or the Trust.
Such amounts do not include potential penalties and interest. The possible
effect of the Trust for subsequent periods could be significant depending on
the taxable income of either RPS or the Trust in such periods.
As of December 31, 1997, the Trust has not been required to perform its
indemnity with respect to the RPS Tax Issues other than with respect to legal
fees and expenses paid in connection with the IRS' ongoing examination. Although
the agent conducting the examination has not issued his final examination report
with respect to the RPS Tax Issues, RPS has received a preliminary draft of the
examining agent's report and a copy of that draft report has been furnished by
RPS to the Trust. Although the examining agent's draft report proposes to
disallow RPS' status as a REIT for the taxable years 1991-1995 and to assess
deficiencies in income tax, plus interest and penalties for such years, the
Continuing Trustees are engaged in ongoing discussions with the examining agent
and his supervisors with regard to the positions set forth in the draft report.
Special Tax Counsel (defined above) has reviewed the examining agent's draft
report and the positions set forth therein. One of the positions, dealing with
the failure of RPS to send certain shareholder demand letters, is the subject
of a Closing Agreement previously entered into by RPS and the IRS pursuant to
which the IRS agreed that the status of RPS as a REIT will not be lost solely
because of its failure to satisfy certain shareholder demand notice requirements
for RPS' taxable years 1988-1992. Another position, the acquisitions of assets
by RPS that could be viewed as non-qualifying assets for REIT purposes, has been
addressed in the opinion letter of counsel referred to above. Finally, the agent
has proposed to disallow the deductions for bad debts and certain other items
claimed by RPS in the years under examination. In reaching his conclusion with
respect to the deduction for bad debts, the examining agent has disregarded
transactions with third parties involving either the loans, or the subject
properties, in which the values of the assets corresponded to the values used by
RPS in determining its bad debt deductions. Special Tax Counsel, referred to
above, has advised that, to the extent that there is a deficiency in RPS'
taxable income arising out of the RPS Audit and provided that RPS makes a timely
deficiency dividend distribution, the classification of RPS as a REIT for the
taxable years under examination should not be affected adversely. There can be
no assurance that the examining agent will not issue the proposed report in the
form previously delivered to RPS (or another form). Issuance of the revenue
agent's report constitutes only the first step in the IRS administrative process
for determining whether there is any deficiency in the RPS tax liability for the
years at issue and any adverse determination by the examining agent is subject
to administrative appeal within the IRS and, thereafter to judicial review. If
the examining agent were to issue his report in its current form and if the
determinations made in the draft report were sustained following the exhaustion
by RPS of its rights to contest such IRS determination, the Trust's
indemnification liability to RPS could be substantial and could exceed the
assets of the Trust.
Item 2. Properties
The Trust leases approximately 4,800 square feet of office space at 747 Third
Avenue, New York, New York at an annual base rent of approximately $172,000.
This lease will expire on October 31, 1998. The Trust has an option to extend
the term of the lease for an additional six months upon written notice on or
prior to June 30, 1998, which option the Trust intends to exercise unless the
RPS Tax Issues are satisfactorily resolved. In addition, the Trust owns the
properties described under Item 1.
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<PAGE>
Item 3. Legal Proceedings
There are no material pending legal proceedings other than ordinary routine
litigation incidental to the business (including without limitation, foreclosure
proceedings), against or involving the Trust or its properties.
Item 4. Submission of Matters to a Vote of Security Holders
The Trust did not submit any matter to a vote of its shareholders during the
fourth quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
The Shares of the Trust have been included for quotation on the Nasdaq Small Cap
Market under the symbol ATLRS since May 10, 1996. Set forth below is the range
of high and low bid prices for the shares for each of the quarters during the
period from May 10, 1996 through December 31, 1997.
<TABLE>
<CAPTION>
High Low
--- ---
<S> <C> <C>
Inception (May 10, 1996) through June 30, 1996 9.000 7.500
Third Quarter 1996 9.500 8.375
Fourth Quarter 1996 10.875 9.250
First Quarter 1997 11.750 10.125
Second Quarter 1997 12.000 10.500
Third Quarter 1997 12.500 11.750
Fourth Quarter 1997 12.750 11.875
</TABLE>
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<PAGE>
(b) Approximate Number of Equity Security Holders
Approximate Number
of Record Holders
Title of Class (As of February 3, 1998)
- -------------- ------------------------
Shares of Beneficial Interest
$.01 Par Value 3,549
(c) Dividend Information
Under the Code, a REIT must meet certain qualifications including a requirement
that it distribute annually to its shareholders at least 95% of its REIT Taxable
Income. The Trust has continued the cash distribution policy of the predecessor
programs by making quarterly distributions to its shareholders in amounts such
that annual distributions equal 100% of REIT Taxable Income, thereby complying
with the distribution requirements of the federal income tax laws applicable to
REITs. See "Qualification as a REIT" in Item 1 above.
The Trust declared the following cash distributions to shareholders for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
Record Date Distribution Payment Date
----------- ------------ ------------
<S> <C> <C>
December 26, 1996 $.39 per share January 21, 1997
</TABLE>
The Trust did not pay a distribution for the year ended December 31, 1997.
Item 6. Selected Financial Data
The following tables set forth certain selected historical information for the
Trust and for the Net Assets to be transferred to the Trust. The financial
information should be read in conjunction with the financial statements and
notes thereto included herein.
<TABLE>
<S> <C> <C> <C>
ATLANTIC REALTY TRUST 12/31/97 12/31/96 5/10/96
Statement of Net Assets
in Liquidation Data:
Total Assets $ 56,962,910 $ 51,175,032 $ 54,445,060
Total Liabilities 2,914,206 3,559,268 9,580,845
Net Assets in Liquidation 54,048,704 47,615,764 44,864,215
Statement of Changes in
Net Assets in Liquidation Data:
Increase (Decrease)
Assets Transferred to the Trust
Adjustments for RPS Transaction
Distributions Payable - (1,389,006)
Adjustments to Reflect Liquidation
Basis of Accounting 6,432,940 4,140,555
Net Change in net assets in Liquidation 6,432,940 2,751,549
</TABLE>
-7-
Net Assets To Be Transferred to Atlantic Realty Trust
<PAGE>
<TABLE>
<CAPTION>
For the
period
1/1/96-
5/10/96 1995 1994 1993
<S> <C> <C> <C> <C>
Total Revenues $ 1,255,607 4,573,011 4,423,519 5,488,801
Total Assets 51,297,578 54,230,032 56,087,512 55,616,772
Income (Loss) 595,587 (1,682,764) 722,058 435,891
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Liquidation Activities
Capital Resources And Liquidity - Atlantic Realty Trust
Upon consummation of the Spin-Off Transaction, the Trust owned seven mortgage
loans and three retail properties (Hylan Plaza Shopping Center, located in
Staten Island, New York, Norgate Shopping Center located in Indianapolis,
Indiana and 9 North Wabash Avenue Building, located in Chicago, Illinois), as
well as cash and certain other assets, which include furniture, fixtures and
equipment, formerly held by RPS. In addition, upon consummation of the Spin-Off
Transaction, the Trust assumed the repayment obligation in respect of $5,550,000
in indebtedness from RPS. This indebtedness was evidenced by a promissory note
which bore interest at a rate of 8.25% and matured on November 9, 1997 (the
"Promissory Note"). The Promissory Note was secured by a collateral assignment
of the Trust's interest in the Hylan Shopping Center. On July 10, 1996, the
Trust repaid $3,500,000 of the principal balance of the Promissory Note. On
December 16, 1996 the Trust prepaid the remaining balance of $2,050,000. The
Trust does not intend to make new loans or actively engage in either the
mortgage lending or the property acquisition business.
The Trust's primary objective has been to liquidate its assets in an eighteen
month period from the date of the Spin-Off Transaction while realizing the
maximum values for such assets; however because the RPS Tax Issues have not been
satisfactorily resolved, the Trust has continued its business beyond such
period. Although the Trust considers its assumptions and estimates as to the
values and timing of such liquidations to be reasonable, the period of time to
liquidate the assets and distribute the proceeds of such assets is subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Trust's control. There can be no assurance that the
net values ultimately realized and costs actually incurred for such assets will
not materially differ from the Trust's estimate.
The Trust believes that cash and cash equivalents on hand, proceeds generated
from the real estate properties that continue to operate and from the eventual
sale of such assets will be sufficient to support the Trust and meets its
obligations. As of December 31, 1997 the Trust had approximately $15,635,000 in
cash and short term investments.
During the third quarter of 1997, the Trust received proceeds in the aggregate
of approximately $2,934,500 in connection with the disposition of the 9 North
Wabash Building ($1,045,000) and the Mt. Morris Commons mortgage loan
($1,889,500).
During the second quarter of 1997, the Trust received proceeds of approximately
$5,284,000 in connection with the disposition of the Rector mortgage loan
($2,422,000) and the Copps Hill Plaza mortgage loan ($2,862,000). At December
31, 1997 the Trust owned two retail properties, Hylan Plaza Shopping Center and
Norgate Shopping Center, which was sold by the Trust on February 25, 1998.
-8-
<PAGE>
During the period ended December 31, 1996, the Trust received proceeds of
approximately $8,715,000 from the prepayment of four mortgage loans. At December
31, 1996, the Trust owned three mortgage loans and the three retail properties
discussed above. As of December 31, 1997, the Trust had disposed of all of its
mortgage loans. The Trust intends to reduce to cash or cash equivalents the real
property portfolio in an orderly manner as soon as practicable and make a
liquidating distribution or distributions to its shareholders, or merge or
combine operations with another real estate entity.
Because the original plans of the Trust contemplated liquidation or disposition
of the Trust within eighteen months from May 10, 1996, the Trust did not
consider what impact, if any, the year 2000 will have on its operations. Due to
the extension of the Trust's existence, the Trust is beginning to consider such
issues.
Net Assets To Be Transferred To Atlantic Realty Trust
The following information is based upon the consolidated financial statements of
the Net Assets to be transferred to the Trust, which were derived from RPS'
historical financial statements to reflect the transfer of the assets to the
Trust as a result of the Distribution. The financial information, and the
discussion that follows, assumes that the assets were transferred to the Trust
at the beginning of the periods indicated, and that the Trust and RPS were
separate companies with separate operations as of such dates. The allocation of
certain expenses between the Trust and RPS was determined by using the weighted
average of the Trust's total assets to RPS' total assets and the Trust's total
revenues to RPS' total revenues and reflects management's best estimate of the
appropriate allocation of such expenses between the two companies. As described
below, the Trust has utilized a weighted average of approximately 30%, 29%, and
24% for the purpose of allocating such expenses for the period January 1, 1996
through May 10, 1996 (Date of Transfer) and for the years ended December 31,
1995, and 1994, respectively.
Results Of Operations
Period from January 1, 1996 to May 10, 1996 Compared to Period From
January 1, 1995 to May 10, 1995
Interest income on mortgage loans for the period ended May 10, 1996
decreased by approximately $192,799 or 16% as compared to the period ended May
10, 1995. During the 1995 period, the Trust received contingent interest of
$43,862 as compared to none during the comparable 1996 period. The Trust also
received $19,166 in extension fee income during the 1995 period. For the period
of 1996 the Trust received rental income of $241,502 as compared to $369,755 for
the 1995 period or a reduction of $128,253 or 35%. This is the result of the
tenant at the 9 No. Wabash property vacating at the end of 1995.
During the period ended May 10, 1995, the Trust provided additional
allowance for possible loan losses of $3,000,000 based on an offer for the sale
of the Hylan Mortgage received in the first quarter of 1995 which was $3,000,000
less than the Trust's net carrying amount of the loan at such date. During the
period ending May 10, 1996, the Trust recognized a loss of $128,866 as a result
of the disposition of the Simmons Mortgage loan. General and administrative
expenses amounted to $321,197 for the period ended May 10, 1996. This reflects
the use of a weighted average of approximately 30% during the period ended May
10, 1996 for the purpose of allocating expenses between the Trust and RPS.
-9-
<PAGE>
Calendar Year 1995 Compared To Calendar Year 1994
Total revenues before rental income during 1995 increased $22,411 or
.6% from the 1994 year. During 1995, the Trust received contingent interest of
$43.862 as compared to $41,836 during the comparable 1994 period.
The Trust also received $19,166 in extension fee income during 1995.
During the year ended December 31, 1995, expenses (excluding property
operating expenses, real estate taxes and depreciation) increased $2,624,401 or
87.2% compared to the same period during 1994. This increase was primarily due
to increasing the provision for possible loan losses. During the year ended
December 31, 1995, the Trust provided allowance for possible loan losses of
$3,650,000 as compared to $2,100,000 during 1994, representing an increase of
$1,550,000 or 73.8%. $3,000,000 of the $3,650,000 allowance for possible loan
losses related to the Hylan mortgage loan was based on an offer for the sale of
the Hylan mortgage received in the first quarter of 1995 which was $3,000,000
less than the Trust's net carrying amount of that loan at such date.
Additionally, the Trust provided an impairment of $800,000 with regard to the 9
No. Wabash building. General and administrative expenses amounted to $1,185,161
for 1995. This reflects the use of a weighted average of approximately 29%
during 1995 for the purpose of allocating expenses between RPS and the Trust.
During 1995, the Trust received rental income of $994,369 as compared to
$867,288 for the 1994 year. This increase of $127,081 or 14.7% resulted
primarily from the Trust's ownership of the Norgate Shopping Center property for
a full 12 months during 1995 as compared with only 6 months of ownership of such
property during 1994. Property operating expenses and depreciation expense
increased during the 1995 year by $74,459 and $45,858 due to the aforementioned
acquisition of the Norgate Center. Real estate tax expense decreased by $190,404
during 1995 as a result of the Trust having to pay past due real estate taxes on
the Norgate property during 1994. For the year ended December 31, 1995, the
Trust recognized net income from the investment in real estate of $373,755 as
compared to net income of $176,587 for 1994.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
See pages F-1 through F-17, which are included herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-10-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Trust's Board of Trustees are composed of eight Trustees, each of whom will
serve until the respective successors are elected and qualified.
The trustees and executive officers of the Trust are as follows:
<TABLE>
<CAPTION>
Name Age Offices and Positions
<S> <C> <C>
Joel M. Pashcow......... 55 Chairman and President of the Trust effective as of February 29,
1996. He has been a member of the Bar of the State of New York
since 1968. Chairman of RPS from inception (December 1988) through
May 1996. He is a graduate of Cornell University and the Harvard
Law School. Mr. Pashcow is also a trustee of Ramco-Gershenson
Properties Trust and Chairman of its Executive Committee (formerly named
RPS Realty Trust).
Herbert Liechtung....... 67 Private investor. President of RPS until February 1996.
Mr. Liechtung is also a trustee of Ramco-Gershenson
Properties Trust (formerly named RPS Realty Trust).
Edwin J. Glickman........ 65 Private investor. Executive Vice President of Capital Lease
Funding Corp. from January 1995 to December 1997, which is a
company engaged in commercial real estate lending. Prior to that,
Mr. Glickman was President of the Glickman Organization, Inc.
(Glickman) from January 1992 to December 1994. Glickman conducted
real estate investment consulting services and real estate
financial services, including mortgage brokerage, arranging joint
ventures and equity financing. Prior to that, Mr. Glickman was
Chairman of the Executive Committee of Schoenfeld Glickman Maloy
Inc. from May 1989, which is a company that conducted real estate
financial services, including mortgage brokerage, arranging joint
ventures and equity financing. Also served successively as
Executive Vice President, President and Vice Chairman of Sybedon
Corporation from 1977 to 1993, which is a company that conducted
real estate financial services, including mortgage brokerage,
arranging joint ventures and equity financing. In all positions,
Mr. Glickman has been engaged in real estate financial services,
including mortgage brokerage, arranging joint ventures and equity
financing.
Stephen R. Blank.......... 52 Managing Director of CIBC Oppenheimer Corp. ("Oppenheimer") since
November 1, 1993. Prior to joining Oppenheimer, Mr. Blank was a
Managing Director, Real Estate Corporate Finance, of Cushman &
Wakefield, Inc. for four years. Prior to that, Mr. Blank was
associated for ten years with Kidder, Peabody & Co. Incorporated as
</TABLE>
-11-
<PAGE>
<TABLE>
<S> <C> <C>
a Managing Director of the firm's Real Estate Group. Mr. Blank
graduated from Syracuse University in 1967 and was awarded a
Masters Degree in Business Administration (Finance Concentration)
by Adelphi University in 1971. He is a member of the Urban Land
Institute and the American Society of Real Estate Counselors. He
has lectured before the Practising Law Institute, the New York
University Real Estate Institute, the Urban Land Institute and the
International Council of Shopping Centers. He is a Trustee of the
Crohn's & Colitis Foundation of America, Inc. Trustee of RPS since
1990. Mr. Blank is also a trustee of Ramco-Gershenson Properties
Trust (formerly named RPS Realty Trust).
Edward Blumenfeld....... 57 A principal of Blumenfeld Development Group, Ltd, a real estate
development firm principally engaged in the development of
commercial properties since 1978.
Samuel M. Eisenstat...... 58 Engaged in the private practice of law for more than five years.
Mr. Eisenstat serves as a director of various mutual funds managed
by Sun America Asset Management and of the North European Oil
Royalty Trust. Mr. Eisenstat received a B.S. degree from New York
University School of Commerce in 1961 and graduated from New York
University School of Law.
Arthur H. Goldberg....... 55 President of Manhattan Associates, LLC, a merchant and investment
banking firm since February 1994. Prior to that, Mr. Goldberg was
Chairman of Reich & Company, Inc. formerly, Vantage Services,
Inc.), a securities brokerage and investment brokerage firm from
January 1990 to December 1993. Mr. Goldberg was employed by
Integrated Resources, Inc. from its inception in December 1968, as
President and Chief Operating Officer from May 1973 and as Chief
Executive Officer from February 1989 until January 1990. On
February 13, 1990, Integrated Resources, Inc. filed a voluntary
petition for reorganization under Chapter 11 of the United States
Bankruptcy Code. Mr. Goldberg has been a member of the Bar of the
State of New York since 1967. He is a graduate of New York
University School of Commerce and its School of Law. Trustee of
RPS since 1988. Mr. Goldberg is also a trustee of Ramco-Gershenson
Properties Trust (formerly named RPS Realty Trust).
William A. Rosoff........ 54 Vice-Chairman of Advanta Corporation, a financial services company,
since January 1996. Prior thereto, Mr. Rosoff was associated with
the law firm of Wolf, Block, Schorr and Solis-Cohen since 1969, a
partner since 1975. Mr. Rosoff is a past chairman of that firm's
Executive Committee and is a past chairman of its tax department.
Mr. Rosoff serves on the Legal Activities Policy Board of Tax
</TABLE>
-12-
<PAGE>
<TABLE>
<S> <C>
Analysts, the Advisory Board for Warren, Gorham and Lamont's
Journal of Partnership Taxation, and has served on the Tax Advisory
Boards of Commerce Clearing House, and Little, Brown and Company.
Mr. Rosoff also serves on the Advisory Group for the American Law
Institute's ongoing Federal Income Tax Project; as a consultant for
the ALI's current study of the Taxation of Pass Through Entities.
He is a fellow of the American College of Tax Counsel. Mr. Rosoff
is Chairman of the Board of RMH Teleservices, Inc.
Mr. Rosoff serves as a member of the Board of Directors of the
Philadelphia Chapter of the American Jewish Congress and is a
member of the Board of Regents of the Philadelphia chapter of the
American Society for Technion. Mr. Rosoff earned a B.S. degree
with honors from Temple University in 1964, and earned an L.L.B.
magna cum laude from the University of Pennsylvania Law School in
1967.
52 Since the inception of the Trust, Mr. Frankel has served as its
Executive Vice President, Chief Financial Officer, Secretary and
Edwin R. Frankel......... Principal Financial and Accounting Officer. Prior to such time,
Mr. Frankel was employed by RPS since its inception; and since 1992
as its Senior Vice President and Treasurer.
</TABLE>
The Audit Committee, established on October 22, 1997, consists of two trustees,
Messrs. Blank and Goldberg. The Audit Committee meets with management and the
Trust's independent accountants to determine the adequacy of internal controls
and other financial reporting matters. In addition, the Disposition Committee,
established in July 1996, consists of three trustees, Messrs. Blumenfeld,
Glickman and Blank. The Disposition Committee works with management in
connection with the orderly disposition of the Trust's assets.
Item 11. Executive Compensation
Executive Officers
Mr. Pashcow receives no cash compensation for serving as an executive officer of
the Trust. Mr. Frankel receives compensation of approximately $79,000 per annum
based on working two days per week, plus an additional amount on a per diem
basis at the same daily rate, for any additional time spent working on Trust
matters.
-13-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
Awards Payouts
Name and Other Annual Restricted Stock Securities Underlying LTIP Payouts
Principal Year Salary Bonus ($) Compensation ($) Awards($) Options/SARs ($) ($)
Position ($)
Edwin R. 1996 54,067 -- -- -- -- --
Frankel*
Executive Vice
President,
Chief
Financial
Officer and
Secretary
1997 100,672** 7,122
</TABLE>
* No other executive officer received compensation in excess of $100,000.
** Compensation is $79,040 per annum based on working two days per week, plus an
additional amount on a per diem basis at the same daily rate, for any
additional time spent working on Trust matters.
The Trust had no compensation committee, however all of the trustees
participated in deliberations of the registrant's board of trustees concerning
executive officer compensation.
Trustees
The Trustees will not receive any compensation for serving as trustees and
likewise will not receive any compensation for attending meetings or for serving
on any committees of the Board of Trustees; however, Trustees will receive
reimbursement of travel and other expenses and other out-of-pocket disbursements
incurred in connection with attending any meetings.
During 1997, Messrs. Edwin Glickman and Edward Blumenfeld each received fees of
$56,250 in connection with services they provided to the Trust as members of the
Disposition Committee. During 1996, Mr. Glickman received fees of $80,000 and
Mr. Blumenfeld received fees of $45,000, in each case, in connection with
services provided to the Trust as members of the Disposition Committee.
-14-
<PAGE>
<TABLE>
<CAPTION>
[PERFORMANCE GRAPH]
Relative Price Performance
Prices Indexed to 100
May 1996 - December 1997
Atlantic Realty Trust Equity REIT Index Mortgage REIT Index S&P 500
<S> <C> <C> <C> <C> <C>
May-96 100.00 100.00 100.00 100.00
Jun-96 103.08 100.16 102.44 100.23
Jul-96 104.62 100.02 103.53 95.64
Aug-96 113.85 103.20 109.03 97.44
Sep-96 115.38 104.76 111.05 102.72
Oct-96 116.92 107.11 117.28 105.40
Nov-96 121.54 111.08 122.26 113.14
Dec-96 124.62 124.66 127.76 110.70
Jan-97 133.08 122.72 132.43 117.49
Feb-97 130.77 121.73 136.22 118.19
Mar-97 133.08 121.13 121.69 113.15
Apr-97 135.38 116.48 126.21 119.76
May-97 141.54 119.76 134.61 126.78
Jun-97 144.62 125.13 138.87 132.28
Jul-97 144.62 128.22 142.03 142.62
Aug-97 146.15 127.20 140.58 134.43
Sep-97 146.15 138.18 139.02 141.57
Oct-97 147.69 133.58 133.47 136.69
Nov-97 154.62 135.72 131.08 142.78
Dec-97 149.23 138.35 124.18 145.03
</TABLE>
Note: Atlantic Realty Trust and S&P 500 data is sourced to Factset Database and
the REIT indexes are sourced to NAREIT.
-15-
<PAGE>
SOURCE: FACTSET SECURITY PRICE HISTORY REPORT, IDD INFORMATION SERVICES,
AND NAREIT
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 5, 1998, each of the following persons were known by the Trust to be
the beneficial owners of more than five percent of the Shares of the Trust.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL
TITLE OF CLASS OWNER PERCENT OF CLASS
<S> <C> <C> <C>
Shares of beneficial Private Management Group, Inc., 541,236(1) 15.2%
interest an investment advisor in a
$.01 par value fiduciary capacity
20 Corporate Park, Suite 400
Irvine, CA 92606
Shares of beneficial Kimco Realty Corporation 314,098(2) 8.8%
interest 3333 New Hyde Park Rd.
$.01 par value New Hyde Park, NY 11042
Shares of beneficial Milton Cooper 496,979(3) 14.0%
interest c/o Kimco Realty Corporation
$.01 par value 3333 New Hyde Park Rd.
New Hyde Park, NY 11042
Shares of beneficial Corbyn Investment Management, 304,480(4) 8.5%
interest Inc. et al.
$.01 par value Suite 108
2330 W. Joppa Road
Lutherville, MD 21093
</TABLE>
1 Based upon Schedule 13G/A filing with the Securities and Exchange
Commission, filed on 1/15/98.
2 Based upon Schedule 13D/A filing with the Securities and Exchange
Commission, filed on 6/11/97.
3 Based upon a Schedule 13D/A filing with the Securities and Exchange
Commission, filed on 6/11/97, and information provided to the Trust by
Kimco Realty
Corporation. Includes 29,824 shares owned by Mr. Cooper, which are
beneficially owned with sole voting and disposition power, and 464,028
shares for which Kimco Realty Services, Inc. has shared voting and
disposition power.
4 Based upon Schedule 13G filing with the Securities and Exchange Commission,
filed on 1/8/98. Includes 271,496 shares owned by Greenspring Fund, Inc.,
which are beneficially owned with sole voting and disposition power, and
32,984 shares owned by Corbyn Investment Management, Inc., which are
beneficially owned with sole voting and disposition power.
Item 13. Certain Relationships and Related Transactions
Set forth below is information as to the Shares beneficially owned as of March
10, 1997 by each of the Trustees, each of the executive officers included in the
Summary Compensation Table set forth in Item 11 and all Trustees and executive
-16-
<PAGE>
officers as a group, based on information furnished by each Trustee and
executive officer.
<TABLE>
<CAPTION>
Name of Trustee/ Shares Owned
Executive Officer Beneficially(1) Percent of Class
- ---------------- -------------- ----------------
<S> <C> <C>
Joel M. Pashcow..................................... 94,154(2) 2.62%
Herbert Liechtung................................... 11,906(3) *
Arthur H. Goldberg.................................. 24,487(4) *
William A. Rosoff................................... 125(5) *
Stephen R. Blank.................................... 981(6) *
Edward Blumenfeld................................... 125 *
Samuel M. Eisenstat................................. 1,125(7) *
Edwin J. Glickman................................... 0 *
Edwin R. Frankel.................................... 0 *
All Trustees and 130,903 3.68%
Executive Officers as a group (9 persons)
</TABLE>
- ---------------------
* Less than 1% of class.
(1) All amounts are directly owned unless stated otherwise.
(2) Includes 25,890 shares held in an IRA account for the benefit of Mr.
Pashcow, a retirement savings plan, a pension and profit sharing
account and a money purchase plan, 47,662 shares owned by an
irrevocable trust of which Mr. Pashcow is a trustee, an irrevocable
trust for his daughter and a foundation of which Mr. Pashcow is trustee
(for all of which trusts Mr. Pashcow has shared voting and investment
powers). Mr. Pashcow disclaims beneficial ownership of the Shares owned
by the foundation and each of the trusts.
(3) Includes 11,906 shares held in an IRA account for the benefit of Mr.
Liechtung and a retirement savings plan.
(4) Includes 19,563 shares owned by Mr. Goldberg's wife, 1,875 shares owned
by trusts for his daughters and 3,050 shares owned by a pension trust.
Mr. Goldberg disclaims beneficial ownership of the shares owned by his
wife and the trusts for his daughters.
(5) Includes 125 shares held by Mr. Rosoff as a trustee for his sister,
Barbara Rosoff, pursuant to a trust indenture dated December 30, 1991.
(6) Includes 706 shares owned by trusts for Mr. Blank's daughters and 275
shares held in an IRA account for the benefit of Mr. Blank. Mr. Blank
disclaims beneficial ownership of the shares owned by the trusts for
his daughters.
(7) Includes 125 shares held in an IRA account for which Mr. Eisenstat has
sole voting and investment power.
-17-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements, Schedules and Exhibits
(a)(1) Financial Statements
See pages F-1 through F-17, which are included herein.
(a)(2) Financial Statement Schedules
All schedules have been omitted because they are inapplicable,
not required, or the information is included in the financial
statements or notes thereto.
(a)(3) Exhibits
The exhibits listed in the Exhibit Index immediately preceding
the exhibits are filed as a part of this Annual Report on Form
10-K.
(b) No Current Reports on Form 8-K were filed by the Company
during the last quarter of the period covered by this report.
-18-
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Page
----
Financial Statements - Atlantic Realty Trust and Subsidiary (Liquidation Basis)
Independent Auditors' Report........................................................................... F-2
Consolidated Statements of Net Assets in Liquidation at December 31, 1997 and 1996..................... F-3
Consolidated Statements of Changes in Net Assets in Liquidation for the Year Ended
December 31, 1997 and the Period May 11, 1996 through December 31, 1996.............................. F-4
Notes to Consolidated Financial Statements............................................................... F-5
Financial Statements - Net Assets to be Transferred to Atlantic Realty Trust
(Going Concern Basis)
Independent Auditors' Report........................................................................... F-9
Combined Statements of Operations for the Period January 1, 1996 through
May 10, 1996 (Date of Transfer) and for the Year Ended December 31, 1995............................. F-10
Combined Statement of Shareholders' Equity for the Period January 1, 1996
through May 10, 1996 (Date of Transfer) and for the Year Ended December 31, 1995..................... F-11
Combined Statement of Cash Flows for the Period January 1, 1996 through
May 10, 1996 (Date of Transfer) and for the Year Ended December 31, 1995............................. F-12
Notes to Combined Financial Statements for the Period January 1, 1996 through
May 10, 1996 (Date of Transfer) and for the Year Ended December 31, 1995............................. F-13
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of
ATLANTIC REALTY TRUST
We have audited the accompanying consolidated statements of net
assets in liquidation of Atlantic Realty Trust and subsidiaries (the "Trust") at
December 31, 1997 and 1996, and the related consolidated statements of changes
in net assets in liquidation for the year ended December 31, 1997 and the period
May 11, 1996 through December 31, 1996. These consolidated financial statements
are the responsibility of the Trust'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.
As discussed in Note 1 to the consolidated financial statements,
the Trust was formed for the purpose of liquidating the mortgage loan portfolio
and certain other assets and liabilities which were transferred to the Trust
from RPS Realty Trust on May 10, 1996 (Date of Transfer) and liquidating and
distributing capital to the Trust's shareholders. As a result, the Trust adopted
the liquidation basis of accounting effective May 10, 1996 (Date of Transfer).
In our opinion, such consolidated financial statements present
fairly, in all material respects, the net assets in liquidation of the Trust at
December 31, 1997 and 1996 and the changes in its net assets in liquidation for
the year ended December 31, 1997 and the period May 11, 1996 through December
31, 1996 in conformity with generally accepted accounting principles on the
basis described in the preceding paragraph.
/s/ Deloitte & Touche LLP
New York, New York
March 4, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
<S> <C> <C>
December 31, 1997 December 31, 1996
----------------- -----------------
ASSETS:
Investments in real estate................................ $ 41,327,000 $ 36,995,500
Mortgage loans and related interest....................... - 7,132,434
Cash and short-term investments........................... 15,635,910 7,047,098
--------------- ---------------
Total assets......................................... 56,962,910 51,175,032
--------------- ---------------
LIABILITIES:
Estimated costs of liquidation............................ 2,914,206 2,170,262
Distribution payable...................................... - 1,389,006
--------------- ---------------
Total liabilities.................................... 2,914,206 3,559,268
--------------- ---------------
Net assets in liquidation................................. $ 54,048,704 $ 47,615,764
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
<S> <C> <C>
For the Period
For the Year Ended May 11, 1996 to
December 31, December 31,
1997 1996
----------------------- -----------------
Net assets in liquidation, beginning of period....................... $ 47,615,764 $ 44,864,215
Distributions payable................................................ - (1,389,006)
Adjustments to reflect liquidation basis of accounting............... 6,432,940 4,140,555
-------------- ---------------
Net assets in liquidation........................................... $ 54,048,704 $ 47,615,764
============== ===============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Liquidation Basis of Accounting)
1. Organization and Significant Accounting Policies
Atlantic Realty Trust (the "Trust"), a Maryland real estate investment
trust, was formed on July 27, 1995 for the purpose of liquidating its interests
in real properties, the mortgage loan portfolio and certain other assets and
liabilities which were transferred to the Trust from RPS Realty Trust ("RPS") on
May 10, 1996 (the "Spin-Off Transaction"). The Trust had no operations from the
date of formation to the date of the Spin-Off Transaction. The Trust adopted the
liquidation basis of accounting as of the date of the Spin-Off Transaction based
on its intention to liquidate its assets or merge or combine operations with
another real estate entity within eighteen months from the date of the Spin-Off
Transaction.
Liquidation Basis of Accounting - As a result of the Spin-Off Transaction,
the Trust has adopted the liquidation basis of accounting. The liquidation basis
of accounting is appropriate when liquidation appears imminent and the Trust is
no longer viewed as a going concern. Under this method of accounting, assets are
stated at their estimated net realizable values and liabilities are stated at
the anticipated settlement amounts.
The valuations presented in the accompanying Statements of Net Assets in
Liquidation represent the estimates at the dates shown, based on current facts
and circumstances, of the estimated net realizable value of assets and estimated
costs of liquidating the Trust. In determining the net realizable values of the
assets, the Trust considered each asset's ability to generate future cash flows,
offers to purchase received from third parties, if any, and other general market
information. Such information was considered in conjunction with operating the
Trust's plan for disposition of assets. The estimated costs of liquidation
represent the estimated cost of operating the Trust through its anticipated
termination. These costs primarily include payroll, consulting and related
costs, rent, shareholder relations, legal and auditing. Computations of net
realizable value necessitate the use of certain assumptions and estimates.
Future events, including economic conditions that relate to real estate markets
in general, may differ from those assumed or estimated at the time such
computations are made. Because of inherent uncertainty of valuation when an
entity is in liquidation, the amounts ultimately realized from assets disposed
and costs incurred to settle liabilities may materially differ from amounts
presented.
Pursuant to the terms of the Trust's Amended and Restated Declaration of
Trust, the Trust was to continue for a period of 18 months from the date of the
Spin-Off Transaction, subject to, among certain other things, satisfactory
resolution of the RPS Tax Issues (See Note 6). Because the RPS Tax Issues have
not yet been satisfactorily resolved, the Trust will continue its business past
that date. The Trust cannot currently estimate the timing of the future
satisfactory resolution of the RPS Tax Issues. Accordingly, the Trust will
continue until there is a final determination of these issues.
Consolidation - The consolidated financial statements include the accounts
of the Trust and its subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
F-5
<PAGE>
2. Mortgage Loans and Related Interest
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Estimated Net
Realized value
Current Average Maturity December 31, December 31,
Description Type Rate Accrued Date 1997 1996
- ----------- ------- -------- ---------- --------- ----------- ------------
Mt. Morris Commons (c) Shopping Ctr. 10.50% 2.00% June-99 $ - $ 2,000,000
Copps Hill Plaza (b) Shopping Ctr 6.00% 0.50% Jul- 96 - 2,506,398
Rector (a) Office Bldg. 0.00% 6.00% Mar- 04 - 2,626,036
----------- -----------
- $ 7,132,434
=========== ===========
</TABLE>
(a) On June 9, 1997, the Trust received proceeds of approximately $2,422,000
from the repayment of the Rector mortgage loan. Previously in 1997, the
Trust received $275,000 as a good faith deposit.
(b) On June 18, 1997, the Trust received approximately $2,862,000 from the sale
of the Copps Hill Plaza mortgage loan.
(c) On August 29, 1997, the Trust received proceeds of approximately $1,889,500
from the repayment of the Mt. Morris Commons mortgage loan. Previously in
1997 the Trust received $125,000 as a good faith deposit.
3. Investments in Real Estate
<TABLE>
<CAPTION>
Estimated Net
Realized Value
December 31, December 31,
Property Location 1997 1996
------------- ------------
<S> <C> <C> <C>
Hylan Shopping Center Staten Island, NY $ 37,725,000 $ 31,137,500
Norgate Shopping Center Indianapolis, IN 3,602,000 4,780,000
9 North Wabash Building Chicago, IL - 1,078,000
-------------- ---------------
$ 41,327,000 $ 36,995,500
============== ===============
</TABLE>
(a) Includes estimated cash flows using disposition periods ranging from 3
months to 10 months. Realized values may differ depending on actual
disposition results and time periods.
(b) On July 1, 1997, the Trust received net proceeds of $1,045,000 for the
sale of the 9 North Wabash Building.
4. Shares Outstanding
The weighted average number of common shares outstanding for the periods
ended December 31, 1997 and 1996 was 3,561,553.
F-6
<PAGE>
5. Short-Term Investments
Short-term investments at December 31, 1997 and 1996 consist primarily of
Certificates of Deposit at a major New York bank of $14,750,000 and $5,500,000,
respectively, bearing interest at a fixed rate of 5.00% and 4.65%, respectively.
6. Income Taxes
Even though the Trust will not be subject to income taxes as discussed in
Note 1, since the Trust is a public enterprise it is required to reconcile the
net difference between the assets and liabilities for tax purposes and financial
reporting, in accordance with the Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes," such amounts net differences are not
materially different.
During the third quarter of 1994, RPS held more than 25% of the value of its
gross assets in overnight Treasury Bill reverse repurchase transactions which
the Internal Revenue Service ("IRS") may view as nonqualifying assets for the
purposes of satisfying an asset qualification test applicable to REITs, based on
a Revenue Ruling published in 1977 (the "Asset Issue"). RPS has requested that
the IRS enter into a closing agreement with RPS that the Asset Issue will not
impact RPS' status as a REIT. The IRS has deferred any action relating to the
Asset Issue pending the further examination of RPS' 1991-1995 tax returns (the
"RPS Audit," and together with the Asset Issue, the "RPS Tax Issues"). Based on
developments in the law which occurred since 1977, RPS' tax counsel, Battle
Fowler LLP, rendered an opinion that RPS' investment in Treasury Bill repurchase
obligations would not adversely affect its REIT status. However, such opinion is
not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that relates
to events occurring or actions taken by RPS following the date of the
Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS
and the Trust, which provides that RPS (now named Ramco-Gershenson Properties
Trust) under the direction of its Continuing Trustees, and not the Trust, will
control, conduct and effect the settlement of any tax claims against RPS
relating to the RPS Tax Issues. Accordingly, the Trust does not have any control
as to the timing of the resolution or disposition of any such claims and no
assurance can be given that the resolution or disposition of any such claims
will be on terms or conditions as favorable to the Trust as if they were
resolved or disposed of by the Trust. RPS and the Trust also have received an
opinion from Special Tax Counsel, Wolf, Block, Schorr and Solis-Cohen LLP, that,
to the extent there is a deficiency in RPS' taxable income arising out of the
IRS examination and provided RPS timely makes a deficiency dividend (i.e.
declares and pays a distribution which is permitted to relate back to the year
for which each deficiency was determined to satisfy the requirement that a REIT
distribute 95 percent of its taxable income), the classification of RPS as a
REIT for the taxable years under examination would not be affected. If,
notwithstanding the above-described opinions of legal counsel, the IRS
successfully challenged the status of RPS as a REIT, the REIT status of the
Trust could be adversely affected. Management estimates that this would have an
effect of approximately $415,000 for 1997, $0 for 1996, $600,000 for 1995 and
$400,000 for 1994 for state taxes in prior years as well as $145,000 for 1997
for federal taxes which have not been provided in the financial statements of
RPS or the Trust. Such amounts do not include potential penalties and interest.
The possible effect on the Trust for subsequent periods could be significant
depending on the taxable income of either RPS or the Trust in such periods.
F-7
<PAGE>
As of December 31, 1997, the Trust has not been required to perform its
indemnity with respect to the RPS Tax Issues other than with respect to legal
fees and expenses paid in connection with the IRS' ongoing examination. Although
the agent conducting the examination has not issued his final examination report
with respect to the RPS Tax Issues, RPS has received a preliminary draft of the
examining agent's report, and a copy of that draft report has been furnished by
RPS to the Trust. Although the examining agent's draft report proposes to
disallow RPS' status as a REIT for the taxable years 1991-1995 and to assess
deficiencies in income tax, plus interest and penalties for such years, the
Continuing Trustees are engaged in ongoing discussions with the examining agent
and his supervisors with regard to the positions set forth in the draft report.
Special Tax Counsel, referred to above, has reviewed the examining agent's draft
report and the positions set forth therein. One of the positions, dealing with
the failure of RPS to send certain shareholder demand letters, is the subject of
a Closing Agreement previously entered into by RPS and the IRS pursuant to which
the IRS agreed that the status of RPS as a REIT will not be lost solely because
of its failure to satisfy certain shareholder demand notice requirements for
RPS' taxable years 1988-1992. Another position, the acquisition of assets by RPS
that could be viewed as nonqualifying assets for REIT purposes, has been
addressed in the opinion letter of counsel referred to above. Finally, the agent
has proposed to disallow the deductions for bad debts and certain other items
claimed by RPS in the years under examination. In reaching his conclusion with
respect to the deduction for bad debts, the examining agent has disregarded
transactions with third parties involving either the loans, or the subject
properties, in which the values of the assets corresponded to the values used by
RPS in determining its bad debt deductions. Special Tax Counsel, referred to
above, has advised that, to the extent that there is a deficiency in RPS'
taxable income arising out of the RPS Audit and provided that RPS timely makes a
deficiency dividend distribution, the classification of RPS as a REIT for the
taxable years under examination should not be affected adversely. There can be
no assurance that the examining agent will not issue the proposed report in the
form previously delivered to RPS (or another form). Issuance of the revenue
agent's report constitutes only the first step in the IRS administrative process
for determining whether there is any deficiency in the RPS tax liability for the
years at issue and any adverse determination by the examining agent is subject
to administrative appeal within the IRS and, thereafter, to judicial review. If
the examining agent were to issue his report in its current form and if the
determinations made in the draft report were sustained following the exhaustion
by RPS of its rights to contest such IRS determinations, the Trust's
indemnification liability to RPS could be substantial and could exceed the
assets of the Trust.
7. Dividends/Distributions to Shareholders
Under the Internal Revenue Code, a REIT must meet certain qualifications,
including a requirement that it distribute annually to its shareholders at least
95 percent of its taxable income. The Trust's policy is to distribute to
shareholders all taxable income. There were no dividends in 1997. Dividend
distributions for the year ended December 31, 1996 are summarized as follows:
Record Date Distribution Payment
- ----------- ------------ -------
December 26, 1996 $.39 per share January 21, 1997
8. Commitments
In March 1995 a lease was entered into for approximately 4,863 square feet
of office space at 747 Third Avenue, New York, New York. The term of the lease
commenced on April 1, 1995. The lease was extended in January 1997 at an annual
base rental of approximately $172,000. The Trust intends to extend the lease to
June 1999 upon proper written notice to the landlord.
9. Subsequent Event
On February 25, 1998, the Trust sold the Norgate Shopping Center for
approximately $3,850,000 and received net proceeds of $3,242,000, including a
$265,000 receivable from a tenant, for the sale of the Norgate Shopping Center.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of
RPS REALTY TRUST AND
ATLANTIC REALTY TRUST
We have audited the accompanying combined statements of shareholders'
equity, operations and cash flows for the period January 1, 1996 through
May 10, 1996, (Date of Transfer) and the year ended December 31, 1995. These
combined financial statements are the responsibility of management. Our
responsibility is to express an opinion on these 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 combined 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, such combined financial statements present fairly in all
material respects, the results of operations and cash flows for the period
January 1, 1996 through May 10, 1996 (Date of Transfer) and for the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
As more fully described in Note 1, Atlantic Realty Trust was obligated to adopt
the liquidation basis of accounting upon completion of the Transaction. The
accompanying combined financial statements do not give effect to the adjustments
if any, to be recorded at such time.
/s/Deloitte & Touche LLP
New York, New York
March 28, 1997 (March 4, 1998 as to Note 3)
F-9
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
COMBINED STATEMENTS OF OPERATIONS
<S> <C> <C>
For the Period
January 1, 1996
Through Year Ended
May 10, 1996 December 31,
(Date of Transfer) 1995
REVENUES:
Interest income.................................................... $ 1,014,205 $ 3,515,614
Contingent interest and fee income................................ - 63,028
Rental income...................................................... 241,402 994,369
------------- --------------
Total revenues............................................ 1,255,607 4,573,011
------------- --------------
EXPENSES:
Provision for possible loan losses................................. - 3,650,000
Provision for impairment of real estate............................ - 800,000
Loss on disposition of mortgage loan............................... 128,886 -
General and administrative expenses................................ 321,197 1,185,161
Property operating................................................. 63,285 200,209
Real estate tax.................................................... 110,161 311,642
Depreciation....................................................... 36,491 108,763
------------- --------------
Total expenses........................................... 660,020 6,255,775
------------- --------------
Net Income (Loss)................................................... $ 595,587 $(1,682,764)
============= ===============
</TABLE>
See notes to combined financial statements.
F-10-
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
Additional Total
Number of Paid-in Cumulative Cumulative Shareholders'
Shares Amount Capital Earnings Distributions Equity
--------- ------ ---------- ---------- ------------- ------------
BALANCE:
<S> <C> <C> <C> <C> <C> <C>
January 1, 1995 28,492,421 $ 2,849,242 $ 195,591,125 $ 51,324,071 $ (194,569,545) $ 55,194,893
Net Loss - - - (1,682,764) - (1,682,764)
Distributions - - - - (345,453) (345,453)
------------- ------------- --------------- --------------- ---------------- --------------
BALANCE:
December 31,1995 28,492,421 2,849,242 195,591,125 49,641,307 (194,914,998) 53,166,676
============= ============= =============== =============== ================ ==============
Net Income 595,587 595,587
Distributions (9,994,955) (9,994,955)
Net assets Transferred (28,492,421) (2,849,242) (195,591,125) (50,236,894) 204,909,953 (43,767,308)
------------ ---------- ------------- ------------ ----------- ------------
BALANCE:
May 10, 1996
(Date of Transfer) 0 $0 $0 $0 $0 $0
============ ========== ============= ============ =========== ============
</TABLE>
See notes to combined financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
COMBINED STATEMENTS OF CASH FLOWS
For the Period
January 1, 1996
Through Year Ended
May 10, 1996 December 31,
(Date of Transfer) 1995
----------------- ------------
<S> <C> <C>
CASH FLOWS FORM OPERATING
ACTIVITIES:
Net (loss) income.................................................. $ 595,587 $ (1,682,764)
Adjustments to reconcile net income (loss) to......................
net cash provided by operating activities
Provision for possible loan losses........................... - 3,650,000
Provision for impairment of real estate...................... - 800,000
Loss on disposition of mortgage loan......................... 128,886 -
Depreciation................................................. 36,491 108,763
Changes in operating assets and liabilities:
Interest and accounts receivable........................... 352,813 (159,824)
Accounts payable and deferred
commitment fees......................................... 1,149,735 170,737
------------- ------------
Net cash provided by operating activities................ 2,263,512 2,886,912
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Satisfaction of mortgage loans receivable.......................... 3,416,564 -
Investment in mortgage loans receivable............................ - (255,596)
Investment in real estate.......................................... (1,933,762) (271,847)
------------- ------------
Net cash provided by (used in) investing activities....... 1,482,802 (527,443)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of financing.............................................. 5,550,000 -
Distribution to RPS Realty Trust................................... (9,994,955) (345,453)
------------- -------------
Net cash used in investing activities.................... (4,444,955) (345,453)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................................................. (698,641) 2,014,016
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD................................................ 3,356,995 1,342,979
------------- ------------
CASH AND CASH EQUIVALENTS
END OF PERIOD...................................................... $ 2,658,354 $ 3,356,995
============= ==============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Investment in real estate.......................................... $ 25,455,310 -
Interest and accounts receivable................................... (6,275,000) -
Use (recovery) of provision for possible loan losses............... 5,819,690 -
Gross mortgage receivable exchanged for real estate................ (25,000,000) -
See notes to combined financial statements.
</TABLE>
F-12
<PAGE>
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE
PERIOD JANUARY 1, 1996 THROUGH MAY 10, 1996
(DATE OF TRANSFER) AND FOR THE YEAR
ENDED DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Atlantic Realty Trust (the "Trust") is a newly formed Maryland real
estate investment trust formed as a condition of the Spin-Off Transaction
described in Note 7 for the transfer from RPS Realty Trust ("RPS") of the
remaining mortgage loan portfolio, as well as certain other assets and
liabilities ("Net Assets").
The combined financial statements reflect the Net Assets and the related
results of their operations for the periods presented. Historical
performance of the Net assets is presented as if those assets were
separately managed. Under the provisions of its Declaration of Trust, the
Trust is obligated to make a final liquidating distribution of the net cash
proceeds attributable to the sale or other disposition of the Trust's
assets within 18-months, or to merge or combine operations with another
real estate entity during such 18 month period, unless on or before such
date the holders of at least two-thirds of the Trust's outstanding shares
approve the extension of such date or such date is automatically extended
without a shareholder vote because a contingent tax liability relating to
RPS that has been assumed by the Trust has not been satisfactorily
resolved. In the event that at the end of such 18-month period, the Trust
is unable to dispose of all of its assets, and the shareholders of the
Company have not approved an extension of such date, the Trust will appoint
an independent third party to liquidate the Trust's remaining assets.
On May 10, 1996, the Transaction was consummated. As a result, the Trust
was obligated to adopt the liquidation basis of accounting. Under this
method of accounting, assets are stated at the amounts to be realized in
liquidation and liabilities are stated at anticipated settlement amounts.
The accompanying financial statements do not give effect to the
adjustments, if any, to be recorded upon adoption of the liquidation basis
of accounting.
Certain common payroll and other general and administrative expenses
have been allocated to the Net Assets based on the average of the weighted
average of the Trust's total revenue to the total revenue of RPS. Such
averages were 30 percent, and 9 percent for the period January 1, 1996
through May 10, 1996 (Date of Transfer) and the year ended December 31,
1995, respectively.
The following is a summary of significant accounting policies followed in
the preparation of the historical financial statements of the Net Assets:
a. Income Tax Status - The Trust intends to conduct its operations with
the intent of meeting the requirements applicable to a real estate
investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"). RPS conducts
its operations with the intent of meeting the requirements applicable
to a REIT under Sections 856 through 860 of the Code. For the year
ended December 31, 1995, the Trust has distributed all of its taxable
income prior to filing its tax return. As a result, the Trust will have
no current and deferred tax liabilities. See Note 6 for current
developments.
b. Principles of Combination - The combined financial statements include
the accounts of the Net Assets.
F-13
<PAGE>
c. Investment in Real Estate - Investment in real estate is depreciated
using the straight-line method over the estimated useful life of the
property. Repairs and maintenance are expensed. In the event that it
appears that the cost less accumulated depreciation cannot be recovered
through operations and/or a sale over a reasonable future period, then
it will be considered probable that an impairment that is other than
temporary has occurred and the net cost less accumulated depreciation
will be written down to market value and a new cost basis will be
established.
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and Assets to be Disposed of," which requires that long lived assets
and certain identifiable intangibles to be held and used by an entity
bet reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The adoption of the Statement is required for years beginning after
December 15, 1995. The provisions of this Statement were adopted as of
January 1, 1996 and the adoption of this Statement did not have a
significant impact on the carrying value of the real estate.
d. Income Recognition - Current interest income on mortgage loans is
recognized on the accrual method during the periods in which the
mortgage loans are outstanding. Deferred interest, due at the maturity
of the mortgage loan, is recognized as income based on the interest
method using the implicit rate of interest on the mortgage loan. Income
from operating leases held in connection with the investments in real
estate is recognized when earned. Contingent and additional contingent
income and prepayment premium income are recognized as cash is
received. Certain leases at one of the Trust's real estate properties
may have percentage rent features and such amounts are recognized upon
receipt.
e. Impairment of Loans - In May 1993, the Financial Accounting Standards
Board issued Statement No. 114, "Accounting by Creditors for Impairment
of a Loan," which requires creditors to account for impaired loans at
the present value of their future cash flows or at the fair value of
the collateral, if the loan is collateral dependent. The provisions of
this statement were adopted as of January 1, 1995 and the adoption of
this statement did not have a significant impact on the carrying value
of the loans.
An allowance for possible loan losses is established based upon a
review of each of the loans in the portfolio. In performing the review,
management considers the estimated net realizable value of the property
or collateral as well as other factors, such as the current occupancy,
the amount and status of senior debt, if any, the prospects for the
property, the credit worthiness and current financial position of the
borrower and the economic situation in the region where the property is
located. Because this determination of the collectibility of loans is
based upon future economic events, the amounts ultimately realized at
disposition may differ materially from the carrying value as of
December 31, 1995.
The allowance is indicative of the continued weakness and the
protracted declines in values of commercial real estate throughout the
country which resulted in part from the general economic decline in
earlier years and the continuing lack of readily available credit
sources for commercial real estate. The allowance is inherently
subjective and is based on management's best estimates of current
conditions and assumptions about expected future conditions. It is
reasonably possible that future conditions may not meet management's
expectation and that additional allowances for possible loan losses may
be required.
F-14
<PAGE>
f. Allocation of Distributions - Net Cash flows form operating, financing
and investing activities are those amounts which would have been
distributed to RPS or received from RPS to the extent required to
fulfill the cash contributions of RPS to the Operating Partnership, as
described in Note 7.
g. 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.
2. INVESTMENT IN REAL ESTATE
Properties are depreciated over an estimated life of 39 years using the
straight-line method. As the sole tenant at 9 North Wabash terminated
its lease on December 3, 1995, the property value was impaired and a
provision for impairment of $800,000 was recognized.
3. TAX CONTINGENCY
During the third quarter of 1994, RPS held more than 25% of the value
of its gross assets in overnight Treasury Bill reverse repurchase
transactions which the Internal Revenue Service ("IRS") may view as
nonqualifying assets for the purposes of satisfying an asset qualification
test applicable to REITs, based on a Revenue Ruling published in 1977 (the
"Asset Issue"). RPS has requested that the IRS enter into a closing
agreement with RPS that the Asset Issue will not impact RPS' status as a
REIT. The IRS has deferred any action relating to the Asset Issue pending
the further examination of RPS' 1991-1995 tax returns (the "RPS Audit," and
together with the Asset Issue, the "RPS Tax Issues"). Based on developments
in the law which occurred since 1977, RPS' tax counsel, Battle Fowler LLP,
rendered an opinion that RPS' investment in Treasury Bill repurchase
obligations would not adversely affect its REIT status. However, such
opinion is not binding upon the IRS.
F-15
<PAGE>
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that
relates to events occurring or actions taken by RPS following the date of
the Transaction) pursuant to a tax agreement, dated May 10, 1996, by and
between RPS and the Trust, which provides that RPS (now named
Ramco-Gershenson Properties Trust) under the direction of its Continuing
Trustees, and not the Trust, will control, conduct and effect the settlement
of any tax claims against RPS relating to the RPS Tax Issues. Accordingly,
the Trust does not have any control as to the timing of the resolution or
disposition of any such claims and no assurance can be given that the
resolution or disposition of any such claims will be on terms or conditions
as favorable to the Trust as if they were resolved or disposed of by the
Trust. RPS and the Trust also have received an opinion from Special Tax
Counsel, Wolf, Block, Schorr and Solis-Cohen LLP, that, to the extent there
is a deficiency in RPS' taxable income arising out of the IRS examination
and provided RPS timely makes a deficiency dividend (i.e. declares and pays
a distribution which is permitted to relate back to the year for which each
deficiency was determined to satisfy the requirement that a REIT distribute
95 percent of its taxable income), the classification of RPS as a REIT for
the taxable years under examination would not be affected. If,
notwithstanding the above-described opinions of legal counsel, the IRS
successfully challenged the status of RPS as a REIT, the REIT status of the
Trust could be adversely affected. Management estimates that this would have
an effect of approximately $415,000 for 1997, $0 for 1996, $600,000 for 1995
and $400,000 for 1994 for state taxes in prior years as well as $145,000 for
1997 for federal taxes which have not been provided in the financial
statements of RPS or the Trust. Such amounts do not include potential
penalties and interest. The possible effect on the Trust for subsequent
periods could be significant depending on the taxable income of either RPS
or the Trust in such periods.
As of December 31, 1997, the Trust has not been required to perform its
indemnity with respect to the RPS Tax Issues other than with respect to
legal fees and expenses paid in connection with the IRS' ongoing
examination. Although the agent conducting the examination has not issued
his final examination report with respect to the RPS Tax Issues, RPS has
received a preliminary draft of the examining agent's report, and a copy of
that draft report has been furnished by RPS to the Trust. Although the
examining agent's draft report proposes to disallow RPS' status as a REIT
for the taxable years 1991-1995 and to assess deficiencies in income tax,
plus interest and penalties for such years, the Continuing Trustees are
engaged in ongoing discussions with the examining agent and his supervisors
with regard to the positions set forth in the draft report. Special Tax
Counsel, referred to above, has reviewed the examining agent's draft report
and the positions set forth therein. One of the positions, dealing with the
failure of RPS to send certain shareholder demand letters, is the subject of
a Closing Agreement previously entered into by RPS and the IRS pursuant to
which the IRS agreed that the status of RPS as a REIT will not be lost
solely because of its failure to satisfy certain shareholder demand notice
requirements for RPS' taxable years 1988-1992. Another position, the
acquisition of assets by RPS that could be viewed as non-qualifying assets
for REIT purposes, has been addressed in the opinion letter of counsel
referred to above. Finally, the agent has proposed to disallow the
deductions for bad debts and certain other items claimed by RPS in the years
under examination. In reaching his conclusion with respect to the deduction
for bad debts, the examining agent has disregarded transactions with third
parties involving either the loans, or the subject properties, in which the
values of the assets corresponded to the values used by RPS in determining
its bad debt deductions. Special Tax Counsel, referred to above, has advised
that, to the extent that there is a deficiency in RPS' taxable income
arising out of the RPS Audit and provided that RPS timely makes a deficiency
dividend distribution, the classification of RPS as a REIT for the taxable
years under examination should not be affected adversely. There can be no
assurance that the examining agent will not issue the proposed report in the
form previously delivered to RPS (or another form). Issuance of the revenue
agent's report constitutes only the first step in the IRS administrative
process for determining whether there is any deficiency in the RPS tax
liability for the years at issue and any adverse determination by the
examining agent is subject to administrative appeal within the IRS and,
thereafter, to judicial review. If the examining agent were to issue his
report in its current form and if the determinations made in the draft
report were sustained following the exhaustion by RPS of its rights to
contest such IRS determinations, the Trust's indemnification liability to
RPS could be substantial and could exceed the assets of the Trust.
4. RAMCO TRANSACTION
On December 27, 1995, RPS and Ramco-Gershenson, Inc. ("Ramco") and its
affiliates (the "Ramco Group") entered into an agreement relating to the
acquisition through an operating partnership (the "Operating Partnership")
controlled by RPS of substantially all of the real estate assets as well as
the business operations of Ramco (the "Transaction"). As part of the
Transaction, the Operating Partnership will succeed to the ownership of
interests in 22 shopping center and retail properties (the "Ramco
Properties"), as well as 100% of the nonvoting stock and 5% of the voting
stock of Ramco (representing in excess of 95% of the economic interests of
Ramco). Under the proposed revised structure to the Transaction, RPS will
contribute to the Operating Partnership six retail properties ("RPS
Properties") and $68,000,000 in cash and will be liable for approximately
$7,000,000 of Transaction expenses. Following the closing of the
Transaction, Ramco will manage the Ramco Properties, the RPS Properties and
properties of certain third parties and other Ramco affiliates.
F-16
<PAGE>
Upon consummation of the Transaction, RPS will be the sole general partner
of and a limited partner in the Operating Partnership and under the proposed
revised structure to the Transaction will initially hold approximately 75%
of the interests therein. The members of the Ramco Group will be limited
partners in the Operating Partnership and will initially hold, in the
aggregate, approximately 25% of the interests therein. The Ramco Group could
also increase its interest in the Operating Partnership based on the future
performance of certain of the Ramco properties; such performance incentives
could increase the Ramco Group's interest in the Operating partnership to
approximately 29% in the aggregate. The Ramco Group's units in the Operating
Partnership will be exchangeable for shares of RPS Realty Trust commencing
one year after consummation of the Transaction, subject to purchase of such
OP Units for cash by RPS Realty Trust, at RPS' option.
As part of the Transaction, it is anticipated that RPS will change its name
to Ramco-Gershenson Properties Trust and will implement a one-for-four
reverse share split.
Upon consummation of the Transaction, it is contemplated that four of the
nine current members of the Board of Trustees of RPS will resign and will be
replaced by four individuals designated by the Ramco Group, two of whom will
be independent of RPS, Ramco and their respective affiliates. In addition,
the five current principal executive officers of Ramco will become executive
officers of RPS and will be responsible for the management of the RPS' real
estate operations.
In connection with the Transaction, and as a condition thereto, RPS will
transfer its remaining mortgage loan portfolio, as well as certain other
assets, to the Trust and thereafter will distribute the shares after taking
into account the reverse stock split referred to above, to the RPS
shareholders. Additionally, pursuant to the terms of the Transaction, the
Trust will incur approximately $6,500,000 in indebtedness, the proceeds of
which, together with existing resources of RPS to be used primarily for the
payment of severance benefits of approximately $4,500,000, distributions to
shareholders of $2,279,000 and directors' and officers' insurance premiums
of approximately $1,150,000 and approximately $750,000 in working capital.
It is anticipated that such indebtedness will accrue interest at 10% per
annum (approximately $650,000 per year) and mature on the date which is 18
months after the Transaction. Such interest will be included as a decrease
in the Statement of Changes in Net Assets following the consummation of the
Transaction. Upon consummation of the Transaction, the Trust will assume
this indebtedness. The actual amount of such indebtedness may be less than
$6,500,000 to the extent that RPS effects the sale of the assets to be
distributed to the Trust or is prepaid by any of the borrowers under its
mortgage loans.
5. COMMITMENTS
In March 1995, a lease was entered into for approximately 4,863 square
feet of office space at 747 Third Avenue, New York, New York. The term of
the lease commenced on April 1, 1995. The lease was extended in January
1997 at an annual base rental of approximately $172,000. The lease will
expire on April 30, 1998. The Trust and the landlord each have options to
terminate the lease as of November 20, 1997 or as of February 28, 1998 upon
90 days prior written notice to the other.
F-17
<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, on the __th day of
March, 1998.
ATLANTIC REALTY TRUST
Date: March 27, 1998 By: /s/ Joel M. Pashcow
-------------------
Joel M. Pashcow, President
and Chairman of the Board
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joel M. Pashcow President and Chairman of the Board March 27, 1998
- -------------------
Joel M. Pashcow
/s/ Edwin R. Frankel Executive Vice President, Chief March 27, 1998
- -------------------- Financial Officer, Secretary and
Edwin R. Frankel Principal Financial and Accounting
Officer
/s/ Herbert Liechtung Trustee March 27, 1998
- --------------------
Herbert Liechtung
/s/ Edwin J. Glickman Trustee March 27, 1998
- ---------------------
Edwin J. Glickman
/s/ Stephen R. Blank Trustee March 27, 1998
- --------------------
Stephen R. Blank
/s/ Edward Blumenfeld Trustee March 27, 1998
- ----------------------
Edward Blumenfeld
Trustee March 27, 1998
/s/ Samuel M. Eisenstat
- -----------------------
Samuel M. Eisenstat
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Arthur H. Goldberg Trustee March 27, 1998
- ----------------------
Arthur H. Goldberg
/s/ William A. Rosoff Trustee March 27, 1998
- ----------------------
William A. Rosoff
</TABLE>
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Annual Report on Form 10-K.
Description
3.1 Amended and Restated Declaration of Trust of the Company (Incorporated
by reference to the Company's definitive registration statement on
Form 10, dated March 28, 1996, File No. 0-27562, Exhibit 3.1).
3.2 Amended and Restated By-Laws of the Company (Incorporated by reference
to the Company's definitive registration statement on Form 10, dated
March 28, 1996, File No. 0-27562, Exhibit 3.2).
3.3 First Amendment to Amended and Restated Declaration of Trust of the
Company (Incorporated by reference to the Company's definitive
registration statement on Form 10, dated March 28, 1996, File No.
0-27562, Exhibit 3.3).
4.1 Form of Share Certificate (Incorporated by reference to the Company's
definitive registration statement on Form 10, dated March 28, 1996,
File No. 0-27562, Exhibit 4.1).
10.1 Lease Agreement, dated as of January 16, 1997, by and between Sage
Realty Corporation, as the lessor, and the Trust, as the lessee
(Incorporated by reference to the Company's annual report on Form 10-K
for the year ended December 31, 1996, Exhibit 10.1.)
10.2 Form of Assignment, Assumption and Indemnification Agreement between
RPS Realty Trust and the Company (Incorporated by reference to the
Company's definitive registration statement on Form 10, dated March
28, 1997, File No. 0-27562, Exhibit 10.1).
10.3 Form of Tax Agreement between RPS Realty Trust and the Company
(Incorporated by reference to the Company's definitive registration
statement on Form 10, dated March 28, 1996, File No. 0-27562, Exhibit
10.2).
10.4 Form of Information Statement (Incorporated by reference to the
Company's definitive registration statement on Form 10, dated March
28, 1996, File No. 0-27562, Exhibit 20.1).
27.1 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> No
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-01-1997
<EXCHANGE-RATE> 1
<CASH> 15,635,910
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,635,910
<PP&E> 41,327,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,962,910
<CURRENT-LIABILITIES> 2,914,206
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,048,704
<TOTAL-LIABILITY-AND-EQUITY> 56,962,910
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
