UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 __________________
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 (IRS Employer
Incorporation or organization Identification No.)
747 Third Avenue, New York, NY 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-702-8561
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Shares of Beneficial Interest, NASDAQ SmallCap Market
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$0.01 Par Value Per Share
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
928534.4
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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 14, 2000: approximately
$24,513,962.
Approximately 3,561,553 Shares of Beneficial Interest of the Registrant
were outstanding as of March 14, 2000.
928534.4
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TABLE OF CONTENTS
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Page
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PART I .........................................................................................................1
1. Business.............................................................................................1
2. Properties...........................................................................................5
3. Legal Proceedings....................................................................................5
4. Submission of Matters to a Vote of Security Holders..................................................5
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...............7
7A. Quantitative and Qualitative Disclosures About Market Risk..........................................9
8. Financial Statements and Supplementary Data..........................................................9
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................9
PART III ........................................................................................................10
10. Directors and Executive Officers of the Registrant.................................................10
11. Executive Compensation.............................................................................13
12. Security Ownership of Certain Beneficial Owners and Management.....................................15
13. Certain Relationships and Related Transactions.....................................................17
PART IV ........................................................................................................18
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................................18
</TABLE>
928534.4
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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, WITHOUT LIMITATION, THOSE STATEMENTS RELATING TO THE "RPS
TAX ISSUES" DISCUSSED IN ITEM 1 OF THIS ANNUAL REPORT ON FORM 10-K, STATEMENTS
SET FORTH IN THE SECTION CAPTIONED "RISK FACTORS" IN THE TRUST'S REGISTRATION
STATEMENT ON FORM 10 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH
28, 1996 (FILE NO. 0-27562) AND STATEMENTS IN THE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" OF THIS ANNUAL REPORT
ON FORM 10-K. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD- LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE TRUST
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.
928534.4
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PART I
Item 1. Business.
Atlantic Realty Trust, a Maryland real estate investment trust
(together with its subsidiary, the "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, 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 (as defined below) have not yet been satisfactorily
resolved, the Trust has continued its business past such 18-month period. 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 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 members (the
"Trustees") of the Trust's board of trustees (the "Board of 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 liquidate the
Trust Assets to cash or cash equivalents, the Trust intends, among other things,
and subject to the Internal Revenue Service's ("IRS") continuing review of its
audit of RPS (as more fully described below under "-- Tax Contingency") to
continue to: (i) contact strategic buyers of the Trust's remaining asset (the
Hylan Plaza Shopping Center, located in Staten Island, New York (the "Hylan
Center")) regarding possible sales transactions and (ii) list the Hylan Center
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 from sales of the Trust Assets 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.
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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.
In addition, the Trust may 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 the
Nasdaq Small Cap Market. 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 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, 1999,
1998 and 1997 and intends to operate so as to continue to qualify as a REIT.
As of December 31, 1999, the Trust had six employees.
Description of Trust Assets
As of December 31, 1999, the Trust owned and operated one real
property, the Hylan Center and held short-term investments in the principal
amount of approximately $22,000,000, consisting primarily of a certificate of
deposit at a major New York bank.
Real Property Investment
The Hylan Plaza Shopping Center. At December 31, 1999, the Trust held
an equity investment in one property, the Hylan Center . The Hylan Center is a
one-story community shopping center located in Staten Island, New York which was
acquired by the Trust in April, 1996. The Hylan Center contains approximately
349,000 square feet of leasable space approximately 99% of which was leased and
occupied as of December 31, 1999. Major tenants (i.e., tenants who accounted for
10% or more of the leasable space as of December 31, 1999) 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;
928534.4
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the Pathmark lease contains seven 5-year tenant renewal options; and the Toys
"R" Us lease contains one 10-year tenant renewal option. Leases for
approximately 1,481 square feet expired on or prior to December 31, 1999 and
such space is currently leased on a month to month basis, and leases for
approximately 8,468 square feet are due to expire on or prior to December 31,
2000. The approximate base rental revenue as of December 31, 1999 was
approximately $3,630,000. The average base rental revenue per leased square foot
as of December 31, 1999 was $10.51, excluding percentage rent and similar
provisions. 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. As of December 31, 1999, the estimated net
realizable value of the Hylan Center was $37,775,000, including estimated cash
flows using a disposition period of 9 months. Realized values may differ
depending on actual disposition results and time periods.
Under various federal, state, and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with the ownership, operation and
management of the Hylan Center, the Trust may be potentially liable for removal
or remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property. Certain environmental
laws and common law principles could also be used to impose liability for
release of an exposure to hazardous substances, including asbestos-containing
materials ("ACMs") into the air, and third parties may seek recovery from owners
or operators of real properties for personal injury or property damage
associated with exposure to released hazardous substances, including ACMs. As
the owner of the Hylan Center, the Trust may be potentially liable for any such
costs.
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 sources 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.
928534.4
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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% (90% for taxable years beginning after December 31,
2000) 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 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. Such agreement provides that RPS (now named Ramco-Gershenson
Properties Trust), under the direction of four trustees, three of whom are also
trustees of 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. During the third quarter of 1999, the
number of Continuing Trustees decreased from four to three upon the resignation
of Herbert Leichtung as a trustee of both RPS and the Trust. Subsequent to Mr.
Leichtung's resignation, Robert A. Meister was named as a Continuing Trustee to
fill the vacancy on the board of trustees of RPS caused by Mr. Leichtung's
resignation.
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 December 31, 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
928534.4
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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 the assets corresponded to the
values used by RPS in determining its bad debt deductions. If all 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 $28 million through
March 31, 2000. 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. The
administrative appeal is pending with the IRS.
Segment Information
The Trust considers its business to include one industry segment,
investment in real estate.
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
$195,000. This lease will expire on October 31, 2000. In addition, the Trust
owns and operates the Hylan Center property described under Item 1.
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 1999.
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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
SmallCap Market under the symbol ATLRS. Set forth below is the range of high and
low bid prices for the shares for each of the quarters during the years ended
December 31, 1998 and 1999.
High Low
---- ---
First Quarter 1998 $12.750 $11.500
Second Quarter 1998 $12.000 $6.750
Third Quarter 1998 $9.625 $6.750
Fourth Quarter 1998 $9.000 $7.250
First Quarter 1999 $8.500 $6.250
Second Quarter 1999 $8.125 $6.750
Third Quarter 1999 $8.125 $6.250
Fourth Quarter 1999 $7.750 $7.250
(b) Approximate Number of Equity Security Holders
Approximate Number
of Record Holders
Title of Class (As of March 14, 2000)
- -------------- ----------------------
Shares of beneficial interest, $.01 par value 3,087
(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 (90% for taxable years beginning after December 31, 2000).
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 paid a distribution of $.28 per share for the year ended
December 31, 1999. Such distribution represents ordinary income.
The Trust did not pay a distribution for the years ended
December 31, 1998 and 1997.
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Item 6. Selected Financial Data.
The following tables set forth certain selected historical information
for the Trust. The financial information should be read in conjunction with the
financial statements and notes thereto included herein.
<TABLE>
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ATLANTIC REALTY TRUST 12/31/99 12/31/98 12/31/97 12/31/96 5/10/96
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Statement of Net Assets
In Liquidation:
Total Assets $61,826,132 $ 60,376,057 $ 56,962,910 $ 51,175,032 $ 54,445,060
Total Liabilities 4,394,443 4,164,168 2,914,206 3,559,268 9,580,845
Net Assets in Liquidation 57,431,689 56,211,889 54,048,704 47,615,764 44,864,215
Statement of Changes in
Net Assets in Liquidation:
Increase (Decrease)
Distributions Paid (997,235) -- -- (1,389,006)
Adjustments to Reflect Liquidation
Basis of Accounting 2,217,035 2,163,185 6,432,940 4,140,555
Net Change in net assets in Liquidation 1,219,800 2,163,185 6,432,940 2,751,549
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Liquidation Activities.
Capital Resources and Liquidity -- Atlantic Realty Trust
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 does not intend to
make new loans or actively engage in either the mortgage lending or the property
acquisition business.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the real estate property that it owns and operates (the Hylan
Center) and proceeds from the eventual sale of such property will be sufficient
to support the Trust and meet its obligations. As of December 31, 1999, the
Trust had approximately $24,000,000 in cash and short-term investments.
During the first quarter of 1998, the Trust received net proceeds of
approximately $3,242,000 from the sale of the Norgate Shopping Center. At
December 31, 1998 and 1999, the Trust's remaining real property asset was the
Hylan Center.
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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, the Hylan Center and
the Norgate Shopping Center, which was sold by the Trust on February 25, 1998.
Year 2000 Issue
By the end of 1999, the Trust had purchased and installed new computer
hardware and software for both its corporate operations and for the management
office at the Hylan Center. The cost of the Trust's preparation for the Year
2000 issue was approximately $32,000, and the Trust does not anticipate material
Year 2000 compliance costs in the future. The Trust has not, to date,
experienced any Year 2000 disruptions in these systems. The Trust will continue
to assess all of its internal systems for operational effectiveness and
efficiency beyond Year 2000 concerns.
The Trust believes that its significant vendors and tenants at the
Hylan Center are Year 2000 compliant and the Trust has not, to date, been made
aware that any significant vendors or tenants have suffered any material Year
2000 disruptions in their systems.
In the event that the Trust discovers Year 2000 or similar related
problems in its internal systems, the Trust will endeavor to resolve these
problems by making modifications to its systems or purchasing new systems on a
timely basis. Although the Trust is not aware of any material operational issues
associated with preparing its internal systems for the Year 2000 or material
issues with respect to the adequacy of third party systems, no assurances can be
given that the Trust will not experience material, unanticipated, negative
consequences and/or material costs caused by undetected errors or defects in
such systems or by the Trust's failure to adequately prepare for the results of
such errors or defects, including costs of related litigation, if any. The
impact of such consequences could have a material and adverse effect on the
Trust's business, financial condition and results of operations.
Results of Operations
Period from January 1, 1997 to December 31, 1997, January 1, 1998 to December
31, 1998 and January 1, 1999 to December 31, 1999.
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. The Trust's income or loss is included in the adjustments to
reflect liquidation basis of accounting. Net income for the years ended December
31, 1999 and 1998 was approximately $2,600,000 and $1,400,000 respectively. For
the 1997 year, the Trust had a loss of approximately $3,000,000.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
See pages F-1 through F-8, which are included herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
928534.4
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PART III
Item 10. Directors and Executive Officers of the Registrant.
The Board of Trustees is 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:
Name Age Offices and Positions
- ---- --- ---------------------
Joel M. Pashcow* 57 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).
Edwin J. Glickman 67 Executive Vice President of Capital Lease
Funding Corp., a company engaged in
commercial real estate lending, since
January 1995. 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.
928534.4
10
<PAGE>
Name Age Offices and Positions
- ---- --- ---------------------
Stephen R. Blank* 54 Senior Fellow, Finance of the Urban Land
Institute ("ULI"). Mr. Blank is also a
director of Cavanaughs Hospitality
Corporation, a New York Stock
Exchange-listed corporation and
Boddie-Noell Properties, Inc., an
American Stock Exchange-listed REIT.
Prior to joining the ULI in December of
1998, Mr. Blank was a Managing Director,
Real Estate Investment Banking 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 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. Since
September 1998, Mr. Blank has been an
adjunct professor in the Real Estate
Executive MBA Program at Columbia
University Graduate School of Business.
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. Mr. Blank is also a
trustee of Ramco-Gershenson Properties
Trust (formerly named RPS Realty Trust).
Edward Blumenfeld 59 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 60 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.
928534.4
11
<PAGE>
Name Age Offices and Positions
- ---- --- ---------------------
Arthur H. Goldberg* 57 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 56 Vice-Chairman of the Board of Directors
of Advanta Corporation, a financial
services company, since January 1996 and
President of Advanta Corporation since
October 1999. 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
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 ("ALI") 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 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 Technion Society. 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.
928534.4
12
<PAGE>
Name Age Offices and Positions
- ---- --- ---------------------
Edwin R. Frankel 54 Since the inception of the Trust in May
1996, Mr. Frankel has served as its
Executive Vice President, Chief Financial
Officer, Secretary and Principal
Financial and Accounting Officer. From
1988 to 1992, Mr. Frankel served as Vice
President and Chief Financial Officer of
RPS and from 1992 to 1996 as Senior Vice
President, Chief Financial Officer and
Treasurer of RPS.
- ----------
* Designates status as a Continuing Trustee.
Committees of the Board of Trustees
The Audit Committee of the Board of Trustees (the "Audit Committee"),
established on October 22, 1997, consists of three Trustees, Messrs. Blank ,
Goldberg and Glickman. The Audit Committee meets with management and the Trust's
independent accountants to determine the adequacy of internal controls and other
financial reporting matters. On February 10, 2000, Mr. Glickman was appointed as
a third member of the Audit Committee in order for the Trust to be in compliance
with new regulations promulgated by the Securities and Exchange Commission and
the NASDAQ Stock Market regarding the size, duties and responsibilities of audit
committees of public companies.
The Disposition Committee of the Board of Trustees (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
$163,000 per annum pursuant to an employment contract entered into between the
Trust and Mr. Frankel on June 11, 1998, as more fully described below.
928534.4
13
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Restricted
Name and Principal Other Annual Stock Securities Underlying Payout LTIP
Position Year Salary($) Bonus($) Compensation($) Awards($) Options/SARs($) Payouts($)
- ------------------- ---- --------- -------- --------------- ----------- --------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Edwin R. Frankel*
Executive Vice 1997 100,672** -- 7,122 -- -- --
President, Chief 1998 146,634 -- 3,762*** -- -- --
Financial Officer and 1999 160,735 4,837***
Secretary
</TABLE>
- ----------------
* No other executive officer received compensation in excess of $100,000.
** Compensation was $79,040 per annum based on working two days per week,
plus an amount on a per diem basis at the same rate, for any additional
time spent working on Trust matters.
*** Includes approximately $1,000 in imputed interest under the Frankel
Note (as defined below).
The Trust had no compensation committee, however all of the Trustees
participated in deliberations of the Trustees concerning executive officer
compensation.
On June 11, 1998, the Trust entered into an employment agreement with
Mr. Frankel (the "Frankel Employment Agreement"), which provided Mr. Frankel
with a base salary of $158,000 (as adjusted from time to time, the "Base
Salary") per annum. The term of the Frankel Employment Agreement is from June
11, 1998 until the date of a "change of control" of the Trust (as defined in the
Frankel Employment Agreement) unless earlier terminated by either Mr. Frankel or
the Trust upon written notice. The Frankel Employment Agreement also provides
that Mr. Frankel will be entitled to a one-time payment upon the liquidation of
the Trust or a change in control of 150% of Mr. Frankel's Base Salary as in
effect at such time. In addition, the Frankel Employment Agreement provides for
a loan from the Trust to Mr. Frankel in the principal amount of $37,500, which
loan is evidenced by a promissory note, dated June 11, 1998, made by Mr. Frankel
in favor of the Trust (the "Frankel Note"). The Frankel Note will be canceled
upon the occurrence of certain conditions, including a Change of Control or
liquidation of the Trust. In January, 2000, the Frankel Employment Agreement was
amended to additionally provide that Mr. Frankel's estate or designated
beneficiary will be entitled to receive a one time payment of 150% of his Base
Salary as in effect at the time of his demise.
Trustees
The Trustees do 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 1999, Messrs. Edwin Glickman and Edward Blumenfeld each received
fees of $60,000 in connection with services they provided to the Trust as
Members of the Disposition Committee.
During 1998, Messrs. Edwin Glickman and Edward Blumenfeld each received
fees of $64,000 in connection with services they provided to the Trust as
members of the Disposition Committee.
928534.4
14
<PAGE>
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 14, 2000, 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
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
-------------- ------------------- --------- -----
<S> <C> <C> <C>
Shares of beneficial Private Management Group, Inc., 698,756(1) 19.62%
interest an investment advisor in a fiduciary
$.01 par value capacity
20 Corporate Park, Suite 400
Irvine, CA 92606
Shares of beneficial Kimco Realty Corporation 345,498(2) 9.7%
interest 3333 New Hyde Park Rd.
$.01 par value New Hyde Park, NY 11042
Shares of beneficial Milton Cooper 538,179(3) 15.1%
interest c/o Kimco Realty Corporation
$.01 par value 3333 New Hyde Park Rd.
New Hyde Park, NY 11042
Shares of beneficial Gotham Partners, L.P., et al. 224,011(4) 6.33%
interest 110 East 42nd Street, 18th Floor
$.01 par value New York, NY 10017
Shares of beneficial Magten Asset Management Corp. 195,550(5) 5.5%
interest 35 East 21st Street
$.01 per share New York, NY 10010
</TABLE>
- ------------------
(1) Based upon Schedule 13G/A filing with the Securities and Exchange
Commission, filed on January 27, 2000.
(2) Based upon Schedule 13D/A filing with the Securities and Exchange
Commission, filed on September 24, 1999.
(3) Based upon a Schedule 13D filing with the Securities and Exchange
Commission, filed on September 24, 1999 , and information provided to
the Trust by Kimco Realty Corporation. Includes 32,951 shares owned by
Mr. Cooper, which are beneficially owned with sole voting and
disposition
928534.4
15
<PAGE>
power and 505,228 shares for which Kimco Realty Services, Inc., of
which Mr. Cooper owns 60% of the outstanding voting common stock, has
shared voting and disposition power.
(4) Based upon Schedule 13G/A filing with the Securities and Exchange
Commission, filed on January 14, 2000. Of the 224,011 shares
beneficially owned by this group, 178,069 shares are solely owned by
Gotham Partners, L.P., 30,300 shares are solely owned by Gotham
International Advisors, L.L.C. ("Gotham L.L.C.") and 15,642 are solely
owned by Gotham Partners III, L.P. Gotham L.L.C. serves as the
investment manager to Gotham Partners International, Ltd. which has an
address c/o Goldman Sachs (Cayman) Trust, Limited, Harbour Centre, 2nd
Floor, P.O. Box 896, George Town, Grand Cayman, Cayman Islands, British
West Indies.
(5) Based upon Schedule 13G/A filing with the Securities and Exchange
Commission, filed on February 14, 2000. Of the 195,550 shares
beneficially owned, 66,250 shares are owned with shared power to vote
or direct the vote of such shares and all 195,550 shares are owned with
shared power to dispose or direct the disposition of such shares.
928534.4
16
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Set forth below is information as to the Shares beneficially owned as
of March 14, 2000 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 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) 2.64%
Arthur H. Goldberg 24,487(3) *
William A. Rosoff 125(4) *
Stephen R. Blank 981(5) *
Edward Blumenfeld 125 *
Samuel M. Eisenstat 1,125(6) *
Edwin J. Glickman 0 *
Edwin R. Frankel 0 *
All Trustees and Executive Officers as a group (8 persons) 120,997 3.40%
</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 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.
(4) Includes 125 shares held by Mr. Rosoff as a trustee for his sister,
Barbara Rosoff, pursuant to a trust indenture dated December 30, 1991.
(5) 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.
(6) Includes 125 shares held in an IRA account for which Mr. Eisenstat has
sole voting and investment power.
928534.4
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-8, 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.
928534.4
18
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements-- Atlantic Realty Trust and Subsidiary (Liquidation Basis)
<S> <C>
Independent Auditors' Report....................................................................................F-2
Consolidated Statements of Net Assets in Liquidation at December 31, 1999 and 1998..............................F-3
Consolidated Statements of Changes in Net Assets in Liquidation for the Years Ended
December 31, 1999, 1998 and 1997.......................................................................F-4
Notes to Consolidated Financial Statements....................................................................F-5-8
</TABLE>
928534.4
F-1
<PAGE>
INDEPENDENT AUDITOR'S 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 subsidiary (the "Trust") at December
31, 1999 and 1998, and the related consolidated statements of changes in net
assets in liquidation for each of the three years in the period ended December
31, 1999. 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 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.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the net assets in liquidation of Atlantic Realty Trust and
subsidiary at December 31, 1999 and 1998 and the changes in their net assets in
liquidation for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles on the basis described
in the preceding paragraph.
As discussed in Notes 1 and 5 to the consolidated financial statements, because
of the inherent uncertainty of valuation when an entity is in liquidation, the
amounts ultimately realized from assets disposed and costs incurred to settle
liabilities may differ materially from amounts presented in the accompanying
consolidated financial statements.
/s/ DELIOTTE & TOUCHE LLP
March 22, 2000
928534.4
F-2
<PAGE>
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
ASSETS:
<S> <C> <C>
Investments in real estate........................... $37,775,000 $38,625,000
Cash and short-term investments...................... 24,051,132 21,751,057
------------------------ ------------------------
Total assets................................ 61,826,132 60,376,057
------------------------ ------------------------
LIABILITIES:
Estimated costs of liquidation....................... 4,394,443 4,164,168
------------------------ ------------------------
Total liabilities........................... 4,394,443 4,164,168
------------------------ ------------------------
Net assets in liquidation............................ $57,431,689 $56,211,889
======================== ========================
</TABLE>
See notes to consolidated financial statements.
928534.4
F-3
<PAGE>
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
<TABLE>
<CAPTION>
For the Year For the Year For the Year
Ended December Ended December Ended December
31, 31, 31,
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net assets in liquidation, beginning of
period............................................. $56,211,889 $54,048,704 $47,615,764
Distributions paid................................. (997,235) -- --
Adjustments to reflect liquidation basis of
Accounting......................................... 2,217,035 2,163,185 6,432,940
----------- ----------- -----------
Net assets in liquidation, end of period........... $57,431,689 $56,211,889 $54,048,704
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
928534.4
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 , a Maryland real estate investment trust (the
"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. 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"). As a result, the Trust will have
no current or deferred income tax liabilities.
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. Changes in these
costs during the year are reflected in the adjustments to reflect liquidation
basis of accounting. 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 5). 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.
928534.4
F-5
<PAGE>
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
<TABLE>
<CAPTION>
Estimated Net Realized Value
Property Location December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C> <C>
Hylan Shopping Center Staten Island, NY $37,775,000 $38,625,000
</TABLE>
- --------------
(a) Includes estimated cash flows using a disposition period of nine
months. Realized values may differ depending on actual disposition
results and time periods.
(b) On February 25, 1998, the Trust sold the Norgate Shopping Center for
$3,850,000 and received net proceeds of approximately $3,242,000.
(c) Net income of the Trust for the years ended December 31, 1999 and 1998
was approximately $2,600,000 and $1,400,000 respectively and is
included in the adjustments to reflect liquidation basis of accounting.
3. Shares Outstanding
The weighted average number of common shares outstanding for the
periods ended December 31, 1999, 1998, and 1997 was 3,561,553, respectively.
4. Short-Term Investments
Short-term investments at December 31, 1999 and 1998, consist primarily
of Certificates of Deposit at a major New York bank of $22,000,000 and
$20,000,000, respectively, bearing interest at a fixed rate of 5.30% and 4.50%,
respectively.
5. 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," net differences in basis are
not material.
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,
928534.4
F-6
<PAGE>
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. Such agreement provides that RPS (now named Ramco-Gershenson
Properties Trust), under the direction of four trustees, three of whom are also
trustees of 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. During the third quarter of 1999, the
number of Continuing Trustees decreased from four to three upon the resignation
of Herbert Leichtung as a trustee of both RPS and the Trust. Subsequent to Mr.
Leichtung's resignation, Robert A. Meister was named as a Continuing Trustee to
fill the vacancy on the board of trustees of RPS caused by Mr. Leichtung's
resignation.
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 December 31, 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 the assets corresponded to the values used by RPS in
determining its bad debt deductions. If all 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 $28 million through March 31,
2000. 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. The
administrative appeal is pending with the IRS.
928534.4
F-7
<PAGE>
6. 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 (90% for taxable years beginning after December
31, 2000) of its REIT taxable income. The Trust's policy is to distribute to
shareholders all taxable income. There were no dividends in 1998 and 1997.
Dividend distributions for the year ended December 31, 1999 are summarized as
follows:
Record Date Distribution Payment
----------- ------------ -------
December 15, 1999 $.28 per share December 28, 1999
7. Commitments
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
$195,000. This lease will expire on October 31, 2000.
928534.4
F-8
<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 27th day of
March, 2000.
ATLANTIC REALTY TRUST
Date: March 28, 2000 By: /s/ Joel M. Pashcow
-------------------
Name: Joel M. Pashcow
Title: 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 March 28, 2000
- ------------------- Board
Joel M. Pashcow
/s/ Edwin R. Frankel Executive Vice President, Chief March 28, 2000
- -------------------- Financial Officer, Secretary and
Edwin R. Frankel Principal Financial and
Accounting Officer
/s/ Edwin J. Glickman Trustee March 28, 2000
- ---------------------
Edwin J. Glickman
/s/ Stephen R. Blank Trustee March 28, 2000
- --------------------
Stephen R. Blank
/s/ Edward Blumenfeld Trustee March 28, 2000
- ---------------------
Edward Blumenfeld
/s/ Samuel M. Eisenstat Trustee March 28, 2000
- -----------------------
Samuel M. Eisenstat
</TABLE>
928534.4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Trustee March 28, 2000
/s/ Arthur H. Goldberg
- ----------------------
Arthur H. Goldberg
/s/ William A. Rosoff Trustee March 28, 2000
- ----------------------
William A. Rosoff
</TABLE>
928534.4
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Annual Report on Form 10-K.
Exhibit No. Description
3.1 Amended and Restated Declaration of Trust of the Trust
(Incorporated by reference to the Trust'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 Trust (Incorporated by
reference to the Trust'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 Trust (Incorporated by reference to the Trust'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
Trust'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 Trust'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 Trust (Incorporated by
reference to the Trust'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 Trust
(Incorporated by reference to the Trust'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 Trust's definitive registration statement on Form 10,
dated March 28, 1996, File No. 0-27562, Exhibit 20.1).
10.5 Employment Agreement, dated as of June 11, 1998, by and
between the Trust and Edwin R. Frankel (Incorporated by
reference to the Trust's quarterly report on Form 10-Q for the
three months ended June 30, 1998, File No. 000-27198, Exhibit
10.1).
10.6 Amendment to Employment Agreement, dated as of January 28,
2000, by and between the Trust and Edwin R. Frankel.
21.1 Subsidiary of the Registrant
27.1 Financial Data Schedule
928534.4
EXHIBIT 10.6
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made and entered into as of January 28, 2000, by and between Atlantic Realty
Trust, a Maryland real estate investment trust (the "Company"), whose principal
place of business is 747 Third Avenue, New York, New York 10017 and Edwin R.
Frankel ("Employee"), who resides at 49 Demopolis Avenue, Staten Island, New
York 10308.
W I T N E S S E T H:
WHEREAS, the Company and Employee are parties to that certain
Employment Agreement, dated as of June 11, 1998, by and between the Company and
Employee (the "Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend the
Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual premises and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Employee do hereby agree as follows:
1. Paragraph 6(b) of the Employment Agreement is hereby
deleted and replaced in its entirety with the following:
"(b) Termination Due to Death or after Change in Control. In
the event that Employee's employment with the Company is terminated (i)
by reason of his death or (ii) for any reason other than Cause (as
defined below) coincident with or after a Change in Control of the
Company, then Employee (or, in the case of Employee's death, his estate
or a beneficiary designated in writing by Employee to receive the
payments provided by this Paragraph 6(b) in the event of Employee's
death) shall be entitled to receive (A) all accrued but unpaid Base
Salary, unpaid bonus, if any, and benefits through the date of
termination and (B) a lump-sum payment equal to 150 percent of
Employee's Base Salary as in effect on the date of termination."
2. Except as amended and modified herein, the Employment
Agreement is in all respects ratified and confirmed, and the terms, covenants
and agreements therein shall remain in full force and effect.
3. This Amendment may be executed in one or more counterparts,
each of which will be deemed an original and all of which, together, will
constitute one and the same instrument.
[signature page follows]
908205.3
<PAGE>
IN WITNESS WHEREOF, the Company and Employee have caused this
Amendment to be executed as of the day and year first above written.
COMPANY:
ATLANTIC REALTY TRUST
By: /s/ Joel M. Pashcow
-------------------
Name: Joel M. Pashcow
Title: President and Chief Executive Officer
EMPLOYEE:
/s/ Edwin R. Frankel
--------------------
Edwin R. Frankel
908205.3
2
SUBSIDIARY OF THE REGISTRANT
Name of Subsidiary State of Organization
- -------------------------- ----------------------------
Atlantic Hylan Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 24,051,132
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,051,132
<PP&E> 37,775,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 61,826,132
<CURRENT-LIABILITIES> 4,394,443
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 57,431,689
<TOTAL-LIABILITY-AND-EQUITY> 61,826,132
<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>
