FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-27562
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ATLANTIC REALTY TRUST
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(Exact name of registrant as specified in its charter)
Maryland 13-3849655
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
747 Third Avenue, New York, New York 10017
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(Address of principal executive offices)
(Zip Code)
(212) 702-8561
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of beneficial interest, par value $.01 per share,
outstanding on July 28, 1999 was 3,561,553.
858348.1
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I N D E X
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Trust's actual results in future periods to
be materially different from any future performance suggested herein. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in, the Trust's Form 10 filed with the
Securities and Exchange Commission on March 28, 1996 as well as the Trust's
filings with the Securities and Exchange Commission during the past 12 months.
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Part I -- FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements.
Consolidated Statements of Net Assets in Liquidation
June 30, 1999 and December 31,1998.................................................................................1
Consolidated Statements of Changes in Net Assets in Liquidation --
Periods April 1, 1999 through June 30, 1999 and January 1, 1999 through
June 30, 1999 and Periods April 1, 1998 through June 30, 1998 and January 1, 1998 through June 30, 1998............2
Notes to Consolidated Financial Statements.........................................................................3
Item 2. Management's Discussion and Analysis of Financial Condition and Liquidation Activities...........................6
Item 3. Quantitative and Qualitative Disclosure About Market Risk........................................................6
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................................................................7
Item 2. Changes in Securities and Use of Proceeds........................................................................7
Item 3. Defaults Upon Senior Securities..................................................................................7
Item 4. Submission of Matters to a Vote of Security Holders..............................................................7
Item 5. Other Information................................................................................................7
Item 6. Exhibits and Reports on Form 8-K.................................................................................8
Signatures................................................................................................................9
</TABLE>
858348.1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
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ASSETS
<S> <C> <C>
Investments in Real Estate............................................ $ 37,775,000 $ 38,625,000
Cash and Short Term Investments....................................... 22,950,760 21,751,057
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Total Assets.......................................... $ 60,725,760 $ 60,376,057
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LIABILITIES
Estimated Costs of Liquidation ....................................... $ 4,152,918 $ 4,164,168
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Total Liabilities.................................... $ 4,152,918 $ 4,164,168
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Net Assets in Liquidation............................................. $ 56,572,842 $ 56,211,889
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
858348.1
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ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
<TABLE>
<CAPTION>
For the Period For the Period
April 1, 1999 to January 1, 1999 to
June 30, 1999 June 30, 1999
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<S> <C> <C>
Net Assets in Liquidation
Beginning of Period.................................................. $56,313,419 $56,211,889
Adjustments to Reflect
Liquidation Basis of Accounting...................................... 259,423 360,953
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Net Assets in Liquidation End of Period................................. $56,572,842 $56,572,842
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For the Period For the Period
April 1, 1998 to January 1, 1998 to
June 30, 1998 June 30, 1998
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Net Assets in Liquidation
Beginning of Period.................................................. $54,508,375 $54,048,704
Adjustments to Reflect
Liquidation Basis of Accounting...................................... 24,356 484,027
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Net Assets in Liquidation End of Period................................. $54,532,731 $54,532,731
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
858348.1
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ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, a mortgage loan portfolio and certain other assets
and liabilities which were transferred to the Trust from Ramco-Gershenson
Properties Trust (formerly named 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 costs 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 (as such term is defined in
footnote 5 below). Because the RPS Tax Issues have not yet been satisfactorily
resolved, the Trust has continued 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.
2. Investments in Real Estate:
Estimated Net
Property Location Realizable Value 6/30/99(a)
- -------- -------- ----------------------------
Hylan Shopping Center Staten Island, NY $37,775,000
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(a) Includes estimated cash flows using a disposition period of 9 months.
Realized values may differ depending on actual disposition results
and time period.
858348.1
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ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Shares Outstanding:
The weighted average number of shares of beneficial interest
outstanding for the period ending June 30, 1999 was 3,561,553.
4. Short-Term Investments:
Short-term investments at June 30, 1999 consist primarily of a
Certificate of Deposit at a major New York bank of $21,500,000 bearing interest
at a fixed rate of 3.75%.
5. 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 requested
that the IRS enter into a closing agreement with RPS that the Asset Issue would
not impact RPS' status as a REIT. The IRS declined such request. In February
1995, the IRS initiated an examination of the 1991-1995 income tax returns of
RPS (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
Spin-Off 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 four trustees, each of whom are
trustees of both RPS and the Trust (the "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 Wolf, Block, Schorr and Solis-Cohen LLP (the "Special Tax Counsel")
that, to the extent there is a deficiency in RPS distributions 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.
As of June 30, 1999, the Trust has not been required to perform its
indemnity obligation with respect to the RPS Tax Issues other than with respect
to legal fees and expenses paid in connection with the IRS' ongoing examination.
On March 1, 1999, the IRS revenue agent conducting the examination issued his
examination report (the "Revenue Agent's Report") with respect to the tax issues
in the RPS Tax Audit, including the RPS Tax Issues. The Revenue Agent's Report
sets forth a number of positions which the IRS examining agent has taken with
respect to the RPS Tax Issues for the years that are subject to the RPS Audit,
which Special Tax Counsel to the Continuing Trustees believes are not consistent
with applicable law and regulations of the IRS. One of the positions, 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. In addition, the IRS revenue 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 IRS revenue agent has disregarded the fact that the values
actually obtained for assets corresponded to the values used by RPS in
determining its bad debt deductions. If all
858348.1
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ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
of the positions taken in the Revenue Agent's Report were to be sustained, RPS,
with funds supplied by the Trust, would have to distribute up to approximately
$16.5 million to its shareholders, in accordance with the procedures for
deficiency dividends, in order to preserve its status as a REIT and could, in
addition, be subject to taxes, interest and penalties up to approximately $24
million through March 15, 1999. The 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 RPS' tax liability for the years
at issue and any adverse determination by the IRS revenue agent is subject to
administrative appeal with the IRS and, thereafter, to judicial review. As noted
above, the Revenue Agent's Report sets forth a number of positions which Special
Tax Counsel to RPS and the Trust believe are not consistent with applicable law
and regulations of the IRS. The Trust has been informed that RPS has filed an
administrative appeal challenging the findings contained in the Revenue Agent's
Report.
858348.1
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Item 2. Management's Discussion and Analysis of Financial Condition and
Liquidation Activities.
Capital Resources and Liquidity
At June 30, 1999, the Trust owned one retail property (Hylan Plaza
Shopping Center, located in Staten Island, New York) as well as cash and certain
other assets, which include furniture, fixtures and equipment. 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 estimates.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the remaining property and the proceeds from the eventual sale of
such property will be sufficient to support the Trust and meet its obligations.
As of June 30, 1999, the Trust had approximately $22,305,000 in cash and
short-term investments.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
858348.1
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Trust was held on May 19,
1999 (i) to elect eight trustees to sit on the Board of Trustee's of the Trust
(the "Board") until the next Annual Meeting of Shareholders and until their
successors are duly elected and qualified and (ii) to ratify the selection by
the Board of Deloitte & Touche LLP as the independent auditors of the Trust for
the fiscal year commencing January 1, 1999.
On the first proposal, the vote of the Shareholders was as follows:
NOMINEE FOR WITHHELD ABSTAIN
- -----------------------------------------------------------------------------
Stephen R. Blank 2,729,864 23,122 --
Edward Blumenfeld 2,730,014 22,972 --
Samuel M. Eisenstat 2,729,923 23,063 --
Edwin J. Glickman 2,729,980 23,006 --
Arthur H. Goldberg 2,729,874 23,112 --
Herbert Liechtung 2,729,594 23,392 --
Joel M. Pashcow 2,729,516 23,470 --
William A. Rosoff 2,729,824 23,162 --
On the second proposal, the Shareholders voted to ratify the
selection by the Board of Deloitte & Touche LLP as the independent auditors of
the Trust. There were 2,730,297 votes for, 14,350 against and 8,339 votes
abstained.
Item 5. Other Information.
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 (which 18-month period ended on November 10, 1997),
subject to, among certain other things, satisfactory resolution of the RPS Tax
Issues. Because the RPS Tax Issues have not yet been satisfactorily resolved,
the Trust has continued 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.
858348.1
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Item 6. Exhibits and Reports on Form 8-K.
1. Exhibits: The registrant has filed the following exhibit as a part
of this Quarterly Report on Form 10-Q:
Exhibit Number Description
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27.1 Financial Data Schedule
2. The registrant has not filed any reports on Form 8-K for the three month
period ended June 30, 1999.
858348.1
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SIGNATURES
Pursuant to the requirements 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.
ATLANTIC REALTY TRUST
(Registrant)
Date: July 28, 1999 /s/ Joel M. Pashcow
------------------------------------
Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
Date: July 28, 1999 /s/ Edwin R. Frankel
------------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President, Chief Financial
Officer and Secretary
(Principal Financial and Accounting
Officer)
858348.1
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Atlantic Realty Trust Condensed Consolidated Balance Sheets and
Statements of Income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000948975
<NAME> ATLANTIC REALTY TRUST
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 22,950,760
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 37,775,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,725,760
<CURRENT-LIABILITIES> 4,152,918
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 56,572,842
<TOTAL-LIABILITY-AND-EQUITY> 60,725,760
<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-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
