INDEPENDENT AUDITORS' REPORT
To the Partners of Kaahumanu Center Associates:
We have audited the accompanying balance sheets of Kaahumanu
Center Associates (a Hawaii limited partnership) as of December
31, 1999 and 1998, and the related statements of operations,
changes in partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Partnership at
December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE
DELOITTE & TOUCHE LLP
February 9, 2000
KAAHUMANU CENTER ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
Current Assets
Cash $ 504,712 $ 404,688
Accounts receivable - less allowance of
$107,707 and $206,402
for doubtful accounts 618,900 558,272
Prepaid expenses 64,305 76,084
Total Current Assets 1,187,917 1,039,044
Property
Land and land improvements 6,054,330 6,050,064
Buildig 81,879,796 81,529,259
Furniture, fixtures and equipment 5,128,820 5,047,416
Construction in process 1,348,581 60,227
Total Property 94,411,527 92,686,966
Accumulated depreciation 22,134,416 18,826,086
Net Property 72,277,111 73,860,880
Other Assets 1,700,997 2,310,999
Total Assets $75,166,025 $77,210,923
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Current portion of long-term debt $1,018,643 $ 948,517
Accounts payable 690,470 825,831
Due to Maui Land &
Pineapple Company, Inc. 1,153,658 333,290
Other current liabilities 105,764 92,312
Total Current Liabilities 2,968,535 2,199,950
Long-Term Liabilities
Long-term debt 60,266,149 61,284,878
Other long-term liabilities 86,204 80,688
Total Long-Term Liabilities 60,352,353 61,365,566
Partners' Capital 11,845,137 13,645,407
Total Liabilities
and Partners' Capital $75,166,025 $77,210,923
See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Revenues
Rental income - minimum $7,472,086 $7,235,108 $7,521,860
Rental income - percentage 1,112,419 1,029,760 874,362
Other operating income - primarily
recoveries from tenants 5,921,174 5,359,743 5,548,824
Total Revenues 14,505,679 13,624,611 13,945,046
Costs and Expenses
Utilities 2,668,013 2,427,054 2,689,715
Payroll and related costs 2,087,090 1,976,969 1,938,328
Depreciation
and amortization 3,539,544 3,452,639 3,349,654
Interest 5,369,013 5,447,733 5,522,235
Repairs and maintenance 570,175 652,390 545,817
General excise taxes 566,518 530,313 547,949
Real property taxes 315,005 314,181 305,842
Insurance 366,253 278,605 320,284
Provision for
doubtful accounts 57,349 327,914 360,788
Advertising and promotions 204,328 158,493 148,972
Management fee 268,264 258,275 262,380
Professional fees 143,646 175,971 191,915
Other expenses 150,751 103,414 71,305
Total Costs and Expenses 16,305,949 16,103,951 16,255,184
Net Loss $(1,800,270) $(2,479,340) $(2,310,138)
See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
State of
Hawaii
Maui Land & Employees'
Pineapple Retirement
Company, Inc. System TOTAL
Partners' Capital (Deficit),
December 31, 1996 $(7,125,504) $23,900,389 $16,774,885
Cash Calls 830,000 830,000 1,660,000
Net Loss - 1997 (1,155,069) (1,155,069) (2,310,138)
Partners' Capital (Deficit),
December 31, 1997 (7,450,573) 23,575,320 16,124,747
Net Loss - 1998 (1,239,670) (1,239,670) (2,479,340)
Partners' Capital (Deficit),
December 31, 1998 (8,690,243) 22,335,650 13,645,407
Net Loss - 1999 (900,135) (900,135) (1,800,270)
Partners' Capital (Deficit),
December 31, 1999 $(9,590,378) $21,435,515 $11,845,137
See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Operating Activities:
Net Loss $(1,800,270) $(2,479,340) $(2,310,138)
Adjustments to reconcile
net loss to cash provided
by operating activities:
Depreciation
and amortization 3,539,544 3,452,639 3,349,654
Loss on property disposals 88,074 -- --
(Increase) decrease in accounts
receivable (60,628) (239,868) 161,743
Increase (decrease) in
accounts payable 609,583 548,765 (337,831)
Increase in noncurrent
accounts receivable (285,546) (192,282) (139,743)
Net change in other operating
assets and liabilities 30,747 77,282 (9,734)
Net Cash Provided by
Operating Activities 2,121,504 1,167,196 713,951
Investing Activities:
Purchases of property (1,831,275) (414,746) (1,344,934)
(Increase) decrease in
restricted cash 758,398 (30,641) 144,669
Net Cash Used in
Investing Activities (1,072,877) (445,387) (1,200,265)
Financing Activities:
Payments of long-term debt (948,603) (870,000) (797,799)
Proceeds from cash calls -- -- 1,660,000
Net Cash Provided by (Used in)
Financing Activities (948,603) (870,000) 862,201
Net Increase (Decrease) in Cash 100,024 (148,191) 375,887
Cash, Beginning of Year 404,688 552,879 176,992
Cash, End of Year $504,712 $404,688 $552,879
See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ORGANIZATION
Kaahumanu Center Associates (the Partnership) was formed on June
23, 1993 as a limited partnership between Maui Land & Pineapple
Company, Inc. (ML&P), as general partner, and the Employees'
Retirement System of the State of Hawaii (ERS), as limited
partner. The purpose of the partnership is to finance the
expansion and renovation of and to own and operate the Kaahumanu
Shopping Center (the Center).
The Center is a regional shopping mall located in Kahului, Maui.
Prior to the expansion, the Center consisted of approximately
315,000 square feet of gross leasable area. The expansion and
renovation which was completed in November 1994, increased the
Center to approximately 573,000 square feet of gross leasable
area.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The Partnership's policy is to prepare its
financial statements using the accrual basis of accounting.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses
during the reporting periods. Future actual amounts could differ
from those estimates.
Property - Property which was contributed to the partnership by
ML&P is stated at ML&P's net book value at the date of
contribution; subsequent additions are stated at cost.
Depreciation is computed using the straight-line method.
Advertising and Promotion - The cost of advertising and sales
promotion activities is expensed as incurred.
Income Taxes - The Partnership is not subject to federal and
state income taxes. The distributive shares of income or loss
and other tax attributes from the Partnership are reportable by
the individual partners.
PARTNERSHIP AGREEMENTS
Capital Contributions - ML&P contributed the land and the
shopping center improvements as they existed prior to the
expansion and renovation project, subject to the existing first
mortgage, together with approximately nine acres of adjacent land
which became part of the expanded shopping center, for a 99%
interest in the Partnership.
ERS originally contributed $312,000 for a one- percent interest
in the Partnership and made a loan of $30.6 million to the
Partnership. Effective April 30, 1995, after completion of the
expansion and renovation and the satisfaction of certain
conditions, ERS converted its loan to capital for an additional
49% interest and became a 50% partner with ML&P.
In 1997 the Partnership received cash of $1,660,000 from the
partners pursuant to cash calls.
Allocations and Distributions - Profit and loss allocations and
cash distributions of the partnership are based on the ownership
interests of the partners.
ERS and ML&P each have a 9% cumulative, non-compounded priority
right to cash distributions based on their net contributions to
the partnership (preferred return). The ML&P preferred return is
subordinate to the ERS preferred return. For the purpose of
calculating the preferred returns, each partner's capital
contribution had an agreed upon value of $30.9 million on April
30, 1995. The accumulated unpaid preferred returns at December
31, 1999 were $11 million each for ML&P and ERS.
Management and Operations - The Partnership has an Operating
Agreement with ML&P for the operation of the Center. The
Operating Agreement has an initial term of 15 years, which
commenced when ERS became a 50% partner, with options to renew
for four additional 10-year periods. It provides for certain
performance tests, which if not met, could result in termination
of the Agreement. The tests were not met in 1999, but
termination of the Agreement is not presently being considered.
ML&P as managing partner, is responsible for the day-to-day
management of the Partnership's business affairs. Major
decisions, as defined in the partnership agreement, require the
unanimous approval of the partners.
SUPPLEMENTAL CASH FLOW INFORMATION
1. Purchases of property of $75,000 is included in accounts
payable at December 31, 1999.
2 Interest paid during 1999, 1998 and 1997 was $5,369,000,
$5,448,000 and $5,522,000, respectively.
RELATED PARTY TRANSACTIONS
Pursuant to the Partnership Operating Agreement, the Partnership
pays to ML&P an operator's fee equal to 3% of gross revenues, as
defined. In 1999, 1998 and 1997, ML&P charged the Partnership
$268,000, $258,000 and $262,000, respectively, for management
fees.
The Partnership does not have any employees. As such, ML&P
provides all on-site and administrative personnel and also incurs
other costs and expenses, primarily insurance, which are
reimbursable by the Partnership. In 1999, 1998, and 1997 ML&P
charged the Partnership $2,417,000, $2,303,000 and $2,240,000,
respectively, for payroll and other costs and expenses.
ML&P generates a portion of the electricity which is used by the
Center. In 1999, 1998, and 1997 ML&P charged the Partnership
$2,263,000, $2,144,000 and $2,312,000, respectively, for
electricity.
Amounts due to ML&P for management fees, electricity and
reimbursable costs were
$1,154,000 and $333,000 as of December 31, 1999 and 1998,
respectively.
OTHER ASSETS
Other Assets at December 31, 1999 and 1998 consisted of the
following:
1999 1998
Deferred costs $ 719,171 $ 856,321
Restricted cash -- 758,398
Noncurrent accounts receivable 981,826 696,280
Total Other Assets $1,700,997 $2,310,999
Deferred costs are primarily leasing consultation costs and are
net of amortization of $845,000 and $721,000, respectively, at
December 31, 1999 and 1998. Restricted cash represents proceeds
from the mortgage loan which are reserved for additional
expansion costs, as well as a percentage of revenues retained for
capital improvements as set forth in the Partnership Operating
Agreement. The balance at December 31, 1998 was expended for
property additions in 1999. The Partners agreed to waive the
required reserve for the year ended December 31, 1999.
Noncurrent accounts receivable represents the excess of minimum
rental income recognized on a straight-line basis over amounts
receivable according to the provisions of the lease, after
deducting an estimated amount for amounts not recoverable.
BORROWING ARRANGEMENTS
The Partnership has a mortgage loan which bears interest at 8.57%
and is payable in monthly installments of $526,000, including
interest, through 2005 when the entire balance is payable. The
loan is collateralized by the Center and is nonrecourse except
for the first $10 million which is guaranteed by ML&P until the
Center attains a defined level of net operating income.
Scheduled principal maturities for the next five years from 2000
through 2004 are as follows: $1,019,000, $1,126,000, $1,228,000,
$1,338,000 and $1,459,000.
LEASES
Tenant leases of the Center provide for monthly base rent plus
percentage rents and reimbursement for common area maintenance
and other costs. Future minimum rental income to be received
under non-cancelable operating leases aggregates $50,347,000 and
is receivable during the next five years (2000 through 2004) as
follows: $6,532,000, $6,498,000, $6,165,000, $5,337,000,
$4,597,000, respectively, and $21,218,000 thereafter.
CONCENTRATION OF CREDIT RISK
The Partnership extends credit to its tenants in the course of
its leasing operations. The creditworthiness of existing and
potential tenants is evaluated and under certain circumstances a
security deposit is required.
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