Kaahumanu Center Associates (A Hawaii
Limited Partnership)
Financial Statements for Each of the Three
Years Ended December 31, 2001, 2000 and
1999 and Independent Auditors' Report
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, 2001 and 2000, 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, 2001.
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 auditing standards
generally accepted in the United States of America. 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, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years
in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States
of America.
/S/DELOITTE & TOUCHE LLP
Honolulu, Hawaii
February 12, 2002
KAAHUMANU CENTER ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS 2001 2000
CURRENT ASSETS:
Cash $ 33,960 $ 32,578
Accounts receivable - less allowance
of $250,073 and $95,298 for
doubtful accounts 699,626 1,093,832
Prepaid expenses 31,023 70,905
Total current assets 764,609 1,197,315
PROPERTY:
Land and land improvements 6,068,132 6,054,330
Building 83,724,161 83,580,660
Furniture, fixtures and equipment 5,147,455 5,182,690
Construction in process 261,380 65,071
Total property 95,201,128 94,882,751
Accumulated depreciation (28,849,489) (25,682,580)
Property - net 66,351,639 69,200,171
OTHER ASSETS 1,274,227 1,710,131
TOTAL $68,390,475 $72,107,617
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Bank overdraft $ -- $ 39,637
Current portion of long-term debt 1,228,322 1,126,451
Accounts payable 457,015 473,094
Due to Maui Land & Pineapple
Company, Inc. 1,667,283 1,216,086
Other current liabilities 39,453 122,556
Total current liabilities 3,392,073 2,977,824
LONG-TERM DEBT - Less current portion 57,911,022 59,139,567
OTHER LONG-TERM LIABILITIES 90,726 87,175
Total liabilities 61,393,821 62,204,566
CONTINGENCIES AND COMMITMENTS
PARTNERS' CAPITAL 6,996,654 9,903,051
TOTAL $68,390,475 $72,107,617
See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
REVENUES:
Rental income - minimum $7,023,484 $7,552,188 $7,472,086
Rental income - percentage 1,009,772 1,372,884 1,112,419
Other operating income -
primarily recoveries
from tenants 7,172,942 6,728,646 5,921,174
Total revenues 15,206,198 15,653,718 14,505,679
COSTS AND EXPENSES:
Interest 5,245,434 5,332,655 5,369,013
Depreciation and amortization 3,693,930 3,685,323 3,539,544
Utilities 3,301,571 3,400,142 2,668,013
Payroll and related costs 2,343,025 2,282,740 2,087,090
Repairs and maintenance 647,124 701,391 570,175
General excise taxes 594,008 616,644 566,518
Write down/loss on disposal
of assets 364,646 - 88,074
Real property taxes 348,689 327,190 315,005
Insurance 303,817 333,704 366,253
Provision for doubtful accounts 302,613 44,497 57,349
Advertising and promotions 278,036 241,379 204,328
Management fee 251,038 278,907 268,264
Professional fees 194,613 207,240 143,646
Other expenses 244,051 143,992 62,677
Total costs and expenses 18,112,595 17,595,804 16,305,949
NET LOSS $(2,906,397) $(1,942,086)$(1,800,270)
See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
State of
Hawaii
Maui Land & Employees'
Pineapple Retirement
Company, Inc. System Total
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
Net loss - 2000 (971,043) (971,043) (1,942,086)
PARTNERS' CAPITAL (DEFICIT),
DECEMBER 31, 2000 (10,561,421) 20,464,472 9,903,051
Net loss - 2001 (1,453,199) (1,453,198) (2,906,397)
PARTNERS' CAPITAL (DEFICIT),
DECEMBER 31, 2001 $(12,014,620) $19,011,274 $ 6,996,654
See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
OPERATING ACTIVITIES:
Net loss $(2,906,397) $(1,942,086) $(1,800,270)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization 3,693,930 3,685,323 3,539,544
Loss on property disposals 364,646 - 88,074
Decrease (increase) in
accounts receivable 394,206 (474,932) (60,628)
Decrease (increase) in
noncurrent accounts
receivable 288,927 (146,295) (285,546)
(Decrease) increase in
accounts payable (39,768) (702,026) 609,583
Net change in other operating
assets and liabilities (11,026) 11,165 30,747
Net cash provided by
operating activities 1,784,518 431,149 2,121,504
INVESTING ACTIVITIES:
Purchases of property (1,099,123) (460,224) (1,831,275)
Decrease in restricted cash - - 758,398
Net cash used in
investing activities (1,099,123) (460,224) (1,072,877)
FINANCING ACTIVITIES:
Payments of long-term debt (1,126,674) (1,018,774) (948,603)
Proceeds from Partner
Advances, net of repayments 482,298 536,078 -
(Decrease) increase in bank
overdraft (39,637) 39,637 -
Net cash used in financing
activities (684,013) (443,059) (948,603)
NET INCREASE (DECREASE) IN CASH 1,382 (472,134) 100,024
CASH, BEGINNING OF YEAR 32,578 504,712 404,688
CASH, END OF YEAR $ 33,960 $ 32,578 $ 504,712
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION - Cash paid
during the year for interest $5,242,000 $5,328,000 $5,369,000
SUPPLEMENTAL INFORMATION RELATING TO NONCASH INVESTING ACTIVITIES
- Amounts included in accounts payable for additions to property
totaled $8,000, $11,000, and $75,000 at December 31, 2001, 2000,
and 1999, respectively.
See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. ORGANIZATION
Kaahumanu Center Associates (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 Queen
Ka'ahumanu Center (Center).
The Center is a regional shopping mall located in Kahului,
Maui, and currently consists of 570,000 square feet of gross
leasable area.
2. 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 accounting principles generally accepted in
the United States of America 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.
Restricted Cash - Restricted cash is a percentage of revenues
retained for capital improvements as set forth in the
Partnership Operating Agreement, as well as proceeds from the
mortgage loan that were reserved for additional expansion
costs. The partners agreed to waive the required capital
improvement reserve for the years ended December 31, 2001 and
2000.
Property - Property that 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 over
the estimated useful lives of the respective assets.
Advertising and Promotion - The costs of advertising and sales
promotion activities are 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.
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.
Reclassifications - Certain amounts in the 1999 and 2000
financial statements have been reclassified to conform to the
2001 presentation.
3. 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 1% 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.
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, 2001 were $15.7 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 2001,
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.
4. 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 2001, 2000 and 1999, ML&P
charged the Partnership $251,000, $279,000 and $268,000,
respectively, for management fees.
In accordance with the Limited Partnership Agreement, the
Managing Partner may make cash advances to the Partnership as
necessary in order to avoid a cash flow deficit. Such
advances bear interest at 1% above the rate being charged the
Partnership under the mortgage loan (see Borrowing
Arrangements). Partner Advances totaled $1,018,000 and
$536,000 at December 31, 2001 and 2000, respectively.
Interest expense on the advances at 9.57% totaled $54,000 and
$34,000 for 2001 and 2000, respectively.
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 2001, 2000 and 1999,
ML&P charged the Partnership $2,634,000, $2,637,000, and
$2,417,000, respectively, for payroll and other costs and
expenses.
ML&P generates the majority of the electricity that is used by
the Center. In 2001, 2000 and 1999, ML&P charged the
Partnership $2,952,000, $3,049,000 and $2,263,000,
respectively, for electricity.
Amounts due to ML&P for management fees, electricity, Partner
Advances, and reimbursable costs were $1,667,000 and
$1,216,000 as of December 31, 2001 and 2000, respectively.
5. OTHER ASSETS
Other assets at December 31, 2001 and 2000 consisted of the
following:
2001 2000
Deferred costs $435,033 $582,010
Noncurrent accounts receivable 839,194 1,128,121
Total other assets $1,274,227 $1,710,131
Deferred costs are primarily leasing consultation costs and
are net of accumulated amortization of $1,130,000 and
$983,000, respectively, at December 31, 2001 and 2000.
Noncurrent accounts receivable represents the excess of
minimum rental income recognized on a straight-line basis,
over the life of the lease, over amounts receivable according
to the provisions of the lease, after deducting an estimated
amount for amounts not recoverable.
6. 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 four years from
2002 through 2005 are as follows: $1,228,000, $1,339,000,
$1,446,000, and $55,126,000, respectively.
7. 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 $44,213,000
and is receivable during the next five years (2002 through
2006) as follows: $5,975,000, $5,764,000, $5,024,000,
$3,666,000, $2,980,000, respectively, and $20,804,000
thereafter.
8. CONTINGENCIES AND COMMITMENTS
The Partnership had commitments under signed contracts
totaling $305,000 at December 31, 2001.
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