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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934 (NO FEE REQUIRED)
Commission File No. 1-8815
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EQK REALTY INVESTORS I
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(Exact name of Registrant as specified in its Charter)
Massachusetts 23-2320360
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, GA 30342
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (404) 303-6100
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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
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Shares of Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark 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]
Indicate by checkmark 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
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The aggregate market value of Shares of Beneficial Interest held by
non-affiliates of the Registrant, based on the closing price of the Shares on
March 22, 1996 on the New York Stock Exchange of $1.250 per Share, is
$9,466,300. As of March 22, 1996, 9,264,344 Shares of Beneficial Interest were
outstanding. Officers and Trustees of the Trust (and certain of their family
members) and Equitable Realty Portfolio Management, Inc., Advisor to the Trust,
are treated as affiliates for the purposes of this computation, with no
admission being made that such people or entities are actually affiliates.
DOCUMENTS INCORPORATED BY REFERENCE.
The Trust's Proxy Statement relating to its 1996 Annual Meeting of
Shareholders is incorporated in Part III, Items 10, 11, 12 and 13.
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TABLE OF CONTENTS
PART I PAGE
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 27
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PART I
ITEM 1. BUSINESS.
General Development of Business
EQK Realty Investors I, a Massachusetts business trust (the
"Trust"), was formed pursuant to a Declaration of Trust dated October 8, 1984.
Equitable Realty Portfolio Management, Inc. ("ERPM," successor in interest to
EQK Partners), acts as the advisor (the "Advisor") to the Trust. ERPM is a
wholly owned subsidiary of Equitable Real Estate Investment Management, Inc.
("Equitable Real Estate"), itself an indirect wholly owned subsidiary of The
Equitable Life Assurance Society of the United States ("Equitable"). The
principal executive offices of the Trust and of the Advisor are located at 5775
Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia, 30342, and their
telephone number is (404) 303-6100.
The Trust has adopted a fiscal and taxable year ending
December 31. The Trust has transacted its affairs so as to qualify as, and has
elected to be treated as, a real estate investment trust under applicable
provisions of the Internal Revenue Code. Under the Internal Revenue Code, a
real estate investment trust that meets applicable requirements is not subject
to Federal income tax on that portion of its taxable income that is distributed
to its shareholders.
The Trust consummated the public offering of its Shares of
Beneficial Interest (the "Shares") on March 12, 1985. The net proceeds to the
Trust from such offering, net of underwriting discount, amounted to
$170,856,000 before deducting offering expenses of $1,062,000. Certain of
those proceeds aggregating $167,032,000 were expended to acquire certain
properties on March 13, 1985 (which were comprised of Harrisburg East Mall as
described below under "Narrative Description of Business," as well as two
properties subsequently sold: Castleton Park or "Castleton", an office park in
Indianapolis, Indiana, which was sold in December 1995, and Peachtree Dunwoody
Pavilion, or "Peachtree", an office complex in Atlanta, Georgia, which was sold
during the period 1992-1993).
The Trust initially intended to hold its real estate
investments for a period not to exceed 12 years from the date of acquisition
and, after the twelfth year, to dispose of any remaining investments in an
orderly fashion within a period of two years in order to achieve a complete
liquidation of the Trust by March 1999. Actual disposition of the remaining
property may occur at any time prior to March 1999, depending on both the
prevailing conditions in the relevant real estate market and the ability of the
Trust to extend or refinance its debt maturing in December 1996 (see Note 2 to
the financial statements). The precise timing of this disposition will be at
the discretion of the Trustees.
Since December 15, 1992, the Trust has had in place a
"Mortgage Note" with the Prudential Insurance Company of America, which had an
initial balance of $75,689,000, and an original maturity date of December 15,
1995. The interest rates on the Mortgage Notes averaged 9.79% over the three
year term. However, the note agreement required monthly payments of interest
only at the rate of 8.54% per annum.
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The additional interest charges were accrued and added to
principal over this initial term of the loan. Absent any prepayments of debt
arising from property dispositions, the amount of principal due on the original
maturity date of December 15, 1995 would have been $78,928,000. Under the
terms of the Mortgage Note agreement, the lender received warrants to purchase
367,868 shares of beneficial interest of the Trust for $.0001 per share, none
of which have been exercised.
The Trust also had a "Term Loan" in place since December 15,
1992 bearing interest at 8.33% per annum and requiring payments at the same
annual rate of 8.54% as is required under the Mortgage Note agreement. The
payments made in excess of the interest rate were applied to the principal
balance of the loan such that the original principal balance of $2,859,000
would have been reduced over its three year term to $2,839,000, absent any
prepayments arising from property dispositions.
On December 8, 1995, the Trust completed the sale of Castleton
Park ("Castleton"), its 44 building office park located in Indianapolis,
Indiana. The Trust used net proceeds of $35,990,000 (reduced by customary
prorations of $2,517,000) to retire $34,738,000 of the Mortgage Notes and
$1,252,000 of the Term Loan.
The remaining principal balances outstanding under the
Mortgage Note and the Term Loan at December 15, 1995, $44,125,000 and
$1,587,000, respectively, were extended for one year under terms substantially
comparable to those previously in effect. The Mortgage Note remains
collateralized by a first mortgage lien on Harrisburg East Mall, an assignment
of leases and rents, and certain cash balances. The Term Loan is
collateralized by a subordinate lien on Harrisburg East Mall. The Mortgage
Note agreement was amended to stipulate an interest accrual rate equal to the
pay rate of 8.54% per annum, which reflects a decrease from the average accrual
rate of 9.79% per annum during the initial three year term of the debt. The
extended Mortgage Note agreement with Prudential Insurance Company of America
requires monthly payments of $340,000, of which $314,000 represents interest
accrued at 8.54%. The differential, which represents amortization of
principal, will result in a balance at maturity of $43,794,000. The Term Loan
agreement was amended to provide for an accrual rate that resets periodically
and is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate
(as defined) or 1 1/8% above the Prime Rate (as defined). The accrual rate in
effect for the period January 5, 1996 through April 7, 1996 is 8.25%. The
differential between the accrual rate and the pay rate of 8.54% will be added
or subtracted to the principal balance due at maturity.
Management continues to pursue the sale of Harrisburg
as a means of paying its remaining outstanding debt obligations and making a
liquidating distribution to its shareholders. As more fully described in Item
7 - Management's Discussion and Analysis, the current vacancy of one of the
anchor department stores is complicating Management's efforts to complete this
objective.
In connection with the December 15, 1992 debt financings, the
Trust issued 1,675,000 previously repurchased shares of its stock to its
Advisor. The Trust received proceeds of $6,700,000, or $4.00 per share, for
the Shares. The Trust may, at its discretion, reissue the remaining 791,211
Shares previously repurchased. Any issuance of Shares in excess of the Shares
previously repurchased would require shareholder approval.
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Apart from its initial investments in the Properties, and
subject to certain restrictions, the Trust is permitted to make additional real
estate investments involving the expansion of existing properties. Given the
fact that the Trust is liquidating, the Trust has no intentions of acquiring
additional real estate interests, but will make certain capital expenditures
required to enhance or maintain the value of Harrisburg, including tenant
allowances associated with leasing activity.
The Trust may make secured or unsecured borrowings to make
distributions to its shareholders and for normal working capital needs,
including tenant alterations and/or allowances and the repair and maintenance
of properties in which it has invested. The Declaration of Trust prohibits the
Trust's aggregate borrowings from exceeding 75% of its total asset value, as
defined.
The Trust will not engage in any business not related to its
real estate investments and, in that connection, the Declaration of Trust
imposes certain prohibitions and investment restrictions on various investment
practices or activities of the Trust.
Narrative Description of Business
As discussed above, the Trust has completed the disposition of
two of its three real estate investments. The office buildings comprising
Peachtree were sold in three separate transactions during the period 1992 to
1993. Two of the office buildings at Castleton were sold in 1991. The
remaining office buildings at Castleton were sold on December 8, 1995. The
Trust's remaining real estate investment is its regional mall located in
Harrisburg, Pennsylvania. The Trust intends to sell Harrisburg as conditions
in the relevant real estate market permit, subject to its ability to extend or
refinance its mortgage debt that matures in December 1996, but in any case
before March 1999. The Trust anticipates making certain capital expenditures
in order to maintain or enhance the value of the property. For 1996, the
Trust has budgeted $900,000 for capital expenditures, which includes budgeted
tenant allowances of $550,000 and roof and parking lot repairs of $290,000.
Certain of these expenditures are discretionary in nature and therefore may be
deferred into future periods.
Harrisburg East Mall
Location and Area Overview. The Mall is located in Dauphin
County, Pennsylvania, near the intersection of Paxton Street (U.S. Route 322)
and Interstate 83. The property is adjacent to Pennsylvania Route 441,
approximately five miles from the Pennsylvania Turnpike and three miles from
the central business district of Harrisburg. Access to the site from
Interstate 83, the major north-south traffic corridor serving Harrisburg, is
provided by the Paxton Street interchange. Access from the Pennsylvania
Turnpike, the major east-west traffic corridor serving Harrisburg, is provided
by the Interstate 283 interchange.
Tenants. At December 31, 1995, Harrisburg had 85 mall and
outparcel tenants (excluding anchor store tenants) occupying approximately
303,000 square feet of gross leasable area, representing an occupancy rate of
89%. Other than the anchor store
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spaces, which are occupied by JC Penney and Hecht's, as well as the department
store space formerly occupied by John Wanamaker (which closed on October 9,
1995), only Toys 'R' Us, which occupies approximately 45,950 square feet of
space as the sole tenant in Harrisburg's outparcel building, occupies more than
five percent of the gross leasable area of the Mall.
Anchor Department Stores. There were two major developments
concerning anchor department stores at Harrisburg during the past 1 1/2 years.
Replacement of Hess's with Hecht's
On October 19, 1995, May Department Stores Company ("May
Company") opened a Hecht's in the department store space previously occupied by
Hess's. Hess's had previously announced in August 1994 its decision to sell
certain of its stores, including its location at Harrisburg, to May Company.
In November 1994, the Hess's location at Harrisburg closed, its anchor tenant
lease was assigned to May Company, and remodeling and expansion of the former
Hess's space commenced for the purpose of accommodating the opening of a
Hecht's. Such remodeling and expansion costs were borne by May Company.
The expansion of the Hecht's space resulted in the relocation
in April 1995 of Toys 'R' Us (which was situated in the basement area adjacent
to Hess's) to Harrisburg's outparcel building. Prior to the Toys 'R' Us
relocation, the Trust redeveloped the outparcel building to suit this tenant's
specifications at a cost of $3,440,000.
Closing of John Wanamaker
On August 8, 1995, the U.S. Bankruptcy Court approved the sale
of certain Woodward & Lothrop department stores to May Company, including the
John Wanamaker location at Harrisburg. Given its existing presence at
Harrisburg with its newly opened Hecht's, May has indicated that it will pursue
an assignment of the John Wanamaker leasehold interest to another department
store retailer.
On October 9, 1995, the John Wanamaker store ceased
operations, although May Company continues to make rental payments in
accordance with its lease agreement. As a result of this store closure, the
Trust believes that May Company is in violation of a continuous operating
covenant stipulated in the related lease agreement. As discussed further under
Item 3 - Legal Proceedings, Management filed complaints of ejectment
(eviction) and money damages on March 22, 1996 in the local jurisdiction to
gain control of the premises on the basis that the lease and May Company's
right of possession have been terminated. Until a replacement department
store opens in the John Wanamaker location, certain tenants will be permitted,
pursuant to co-tenancy provisions provided for under the terms of their
leases, to pay percentage rent in lieu of fixed minimum rentals. This matter
is discussed further under Item 7 - Management's Discussion and Analysis.
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Competition. The following table provides selected
information with respect to the Mall's primary existing competitors. Each
property is located within five miles of the Mall, except for Park City Mall
which is 35 miles away. The inclusion of Park City is due to the lack of major
retail space along Interstate 283 between Harrisburg and Lancaster, although
its degree of competition with the Mall is limited.
Gross Leasable Anchor
Shopping Center Type of Center Area (Sq. Ft.) Stores
- --------------- -------------- -------------- ------
Strawberry Square Enclosed multi- 230,000 None
level urban mall
Colonial Park Plaza Enclosed one- 762,000 Sears
level regional mall The Bon Ton
Boscov's
Camp Hill Shopping Enclosed one- 505,000 Boscov's
Center level mall Montgomery Ward
Capital City Mall Enclosed one- 722,000 Sears
level regional mall Hecht's
JCPenney
Park City Mall Enclosed two- 1,400,000 The Bon Ton, Sears
level regional mall JCPenney
Boscov's, Clover
York Galleria Enclosed two- 770,000 The Bon Ton,Sears
level mall JCPenney, Boscov's
Competition Analysis. The boundaries of the trade area for
Harrisburg East Mall are influenced by the existence of natural boundaries,
competing developments, and demographic characteristics. The Susquehanna River
splits the Harrisburg market in two, creating the East and West shores.
Harrisburg East Mall is located in Dauphin County in the East shore area. The
Mall's primary trade area consists of all of Dauphin County, while the
secondary trade area includes sections of Lebanon and Lancaster counties on the
East shore and sections of Perry and Cumberland counties on the West shore.
Primary competition for Harrisburg East Mall consists of three regional centers
located in the Harriburg trade area: Colonial Park Plaza, Capital City Mall,
and Camp Hill Mall.
Colonial Park Plaza, which opened in 1960, is located approximately five miles
north of Harrisburg East Mall in the primary trade area, and contains 762,000
square feet of gross leasable area. It is anchored by The Bon-Ton, Sears, and
Boscov's, contains 90 in-line specialty retailers and has an occupancy
percentage of 96%. In 1990, this one-level center
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was renovated and expanded to include a food court and additional specialty
shops. Colonial Center continues to be Harrisburg East's primary competitor
due to the strength of Boscov's and its tenant mix, which is very similar to
that found at Harrisburg.
Capital City Mall, a one-level center which opened in 1974, is located eight
miles west of Harrisburg East Mall in the secondary trade area. The center
contains approximately 722,000 square feet of gross leasable area and is
anchored by Hecht's, JC Penney, and Sears. It is currently 97.8% occupied,
with a strong concentration of boutique style retailers, and with the addition
of Hecht's and JC Penney in 1995, offers the same anchor appeal as Harrisburg
East Mall.
Camp Hill Mall, a former community center originally constructed in 1959, was
completely enclosed and renovated in 1987. Camp Hill is located approximately
eight miles west of Harrisburg East Mall in the secondary trade area, and
contains approximately 505,700 square feet. The center is anchored by Boscov's
and Montgomery Ward, and also contains a 42,000 square foot Pathmark
Superstore. The tenant mix is mostly comprised of local retailers and
occupancy is currently at 90.0%.
ITEM 2. PROPERTIES.
Harrisburg East Mall
General. Harrisburg is a two-level enclosed regional shopping
mall located approximately three miles from the central business district of
Harrisburg, Pennsylvania, the state capitol. The Mall contains approximately
875,000 gross leasable square feet and is currently anchored by two major
department stores: JCPenney and Hecht's. As discussed below, a third
department store space, formerly occupied by John Wanamaker, has been vacant
since John Wanamaker's closure on October 9, 1995. The Mall is located on a
site of approximately 64 acres with paved surface parking for approximately
4,763 automobiles (5.5 spaces per 1,000 gross leasable square feet).
Anchor Department Stores. There were two major developments
concerning anchor department stores at Harrisburg during the past 1 1/2 years.
Replacement of Hess's with Hecht's
On October 19, 1995, May Department Stores Company ("May
Company") opened a Hecht's in the department store space previously occupied by
Hess's. Hess's had previously announced in August 1994 its decision to sell
certain of its stores, including its location at Harrisburg, to May Company.
In November 1994, the Hess's location at Harrisburg closed, its anchor tenant
lease was assigned to May Company, and remodeling and expansion of the former
Hess's space commenced for the purpose of accommodating the opening of a
Hecht's. Such remodeling and expansion costs were borne by May Company.
The expansion of the Hecht's space resulted in the relocation
in April 1995 of Toys 'R' Us (which was situated in the basement area adjacent
to Hess's) to Harrisburg's
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outparcel building. Prior to the Toys 'R' Us relocation, the Trust redeveloped
the outparcel building to suit this tenant's specifications at a cost of
$3,440,000.
Closing of John Wanamaker
May Department Stores Company ("May Company") acquired from
Woodward & Lothrop pursuant to an August 1995 bankruptcy court auction the
leasehold interest in the John Wanamaker department store at Harrisburg. Given
the October 19, 1995 opening of its Hecht's department store at Harrisburg, May
Company indicated that it would pursue an assignment of the John Wanamaker
leasehold interest to another department store retailer.
On October 9, 1995, the John Wanamaker store ceased
operations, although May Company continues to make rental payments in
accordance with its lease agreement. As a result of this store closure, the
Trust believes that May Company is in violation of a continuous operating
covenant stipulated in the related lease agreement. As discussed further under
Item 3 - Legal Proceedings, Management filed complaints of ejectment (eviction)
and money damages on March 22, 1996 in the local jurisdiction to gain control
of the premises on the basis that the lease and May Company's right of
possession have been terminated. Until a replacement department store opens in
the John Wanamaker location, certain tenants will be permitted, pursuant to
co-tenancy provisions provided for under the terms of their leases, to pay
percentage rent in lieu of fixed minimum rentals. This matter is discussed
further under Item 7 - Management's Discussion and Analysis.
Capital Requirements
While Harrisburg is held for sale, the Trust will make certain
capital expenditures to maintain or enhance the value of the property,
including tenant allowances associated with leasing activity. The Trust
anticipates making 1996 capital expenditures of $900,000, which includes
budgeted tenant allowances of $550,000 and roof and parking lot repairs of
$290,000. Certain of these expenditures are discretionary in nature and
therefore may be deferred into future periods.
One of the conditions of the Mortgage Note was the
establishment of a capital reserve account, which is maintained by a
third-party escrow agent and from which expenditures must be approved by the
lender. The balance of this account at December 31, 1995 was $2,083,000.
Management believes the current cash balance in this account will be sufficient
to fund Harrisburg's capital expenditures requirements.
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The total building area of the Mall is allocated as shown in
the table below.
Gross % of
Number of Leasable Total
Store Spaces Area Building Occupancy %
2/28/96 (Sq.Ft.) Area at 2/28/96
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Gross leasable area
Anchor Stores 3 534,013 52.3 % 63.9 %(1)
Mall Stores 104 289,673 28.4 85.7
Free-standing building 3 51,381 5.0 95.7
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Total gross leasable area 110 875,067 85.7 72.9 %
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Common area 146,371 14.3
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Total building area 1,021,438 100.0 %
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(1) Reflects the existing vacancy of the former John Wanamaker department store
space.
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Occupancy Data and Average Effective Annual Rent. Information
regarding occupancy rates and average effective annual rent for the property,
including anchor and outparcel tenants, is set forth below:
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Occupancy Rate 73.6%(a) 94.3% 96.9% 97.5% 98.9%
========== ========== ========== ========== ==========
Total Annual Minimum Rent
(b) $5,110,162 $5,973,828 $5,943,748 $5,591,915 $4,941,813
Total Percentage
Rent 269,558 294,591 154,039 262,870 450,051
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Total Annual Effective Rent $5,379,720 $6,268,419 $6,097,787 $5,854,785 $5,391,864
========== ========== ========== ========== ==========
Average Annual Rent Per
Square Foot: (c)
Mall Anchor Tenants $ 1.32(d) $ 1.67 $ 1.71 $ 1.71 $ 1.71
Outparcel Stores $ 6.91 $ 5.69 $ 6.30 $ 6.27 $ 7.67
Mall Tenants $ 16.46 $ 16.55 $ 15.48 $ 14.76 $ 13.58
All Tenants $ 6.44(d) $ 7.49 $ 7.16 $ 6.88 $ 6.41
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(a) Occupancy rate reflects vacancy of the John Wanamaker anchor space,
although May Company is paying monthly rent under the terms of the lease.
Excluding the effect of the John Wanamaker space vacancy, the occupancy rate at
February 29, 1996 on a pro forma basis is 95.0%.
(b) Total minimum annual rent and percentage rent represents actual tenant
rental income for each calendar year, and does not include adjustments for
stipulated rent increases in accordance with Generally Accepted Accounting
Principles.
(c) Anchor and outparcel rent per square foot data is based on actual leased
square footage during each calendar year presented. Mall tenant rent per
square foot data is based on leased square footage at December 31 of each year
presented.
(d) The decrease in mall anchor tenant rent per square foot in 1995 and its
effect on the rent per square foot for all tenants, is due to the replacement
of the Hess department store with Hecht's in November 1994, and Hecht's
expansion into an adjacent basement space. Hecht's now occupies 187,280 square
feet at $1.07 per square foot, whereas Hess formerly occupied 139,656 square
feet at $2.18 per square foot.
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Lease Expirations. The lease expiration schedule for mall and
outparcel stores as of December 31, 1995 is shown below:
% of
1995 1995
Gross Minimum Minimum
# of leases Leased Annual Annual
expiring(1) Area (Sq./Ft.) Rent Rent
----------- -------------- ------ ------
month to
month 2 6,492 67,737 1.5%
1996 9 16,938 335,911 6.6%
1997 5 8,263 157,884 3.4%
1998 14 12,838 331,116 6.3%
1999 6 15,696 249,344 5.3%
2000 10 39,187 652,529 14.0%
2001 8 20,464 444,693 9.6%
2002 6 21,630 326,362 7.0%
2003 10 24,672 236,412 5.1%
2004 4 8,602 191,944 4.1%
2005 and
thereafter 11 127,750 773,822 16.6%
---- ------- --------- -----
TOTAL 85 302,532 3,767,754 79.5%
==== ======= ========= =====
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(1) Assumes no renewal options will be exercised in order to present the
earliest point of termination of the leases.
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Anchor Tenants. The following chart presents tenants that
occupy more than 10% of the property's rentable square footage, along with
certain provisions contained in their leases:
Leased Area Rent Lease
Tenant (Sq. Ft.) per Annum Expiration Date Renewal Options
- ------ ----------- --------- --------------- ---------------
Hecht's 187,280 $200,000 1/31/2007 3-10 Year Options
JCPenney 153,770 $300,000 3/31/2001 6-5 Year Options
May Stores/
Wanamaker(1) 192,963 $226,000 10/8/1999 1-20 Year Option
4-10 Year Options
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(1) On August 8, 1995, May Department Stores assumed the lease of John
Wanamaker.
Debt. As discussed under Item 1-Business, the Trust completed
an extension of its existing mortgage debt effective December 1995. The
outstanding balance on these debt instruments at December 31, 1995 aggregated
$45,712,000. These debt instruments mature on December 15, 1996. The
following table sets forth certain information regarding the outstanding debt.
Both the Prudential Insurance Company of America Mortgage Loan and the PNC Bank
Term Loan are due in full on December 15, 1996 and if prepaid must be prepaid
in full.
Principal Principal
Balance Balance
as of Annual Debt at
Annual 1995 Service Maturity Maturity
Lender Rate (000's) (000's) Date (000's)
- ------ ------ --------- --------- ------ --------
Prudential 8.54%(1) $44,125 $4,092 12/15/96 $43,794
PNC 8.54%(2) 1,587 132 12/15/96 1,587(2)
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(1) The extended Mortgage Note agreement with Prudential Insurance Company of
America requires monthly payments of $340,000, of which $314,000 represents
interest accrued at 8.54%. The differential, which represents amortization of
principal, will result in a balance at maturity of $43,794,000.
(2)The extended Term Loan agreement with PNC Bank provides for the accrual
interest rate to be re-set periodically, and is computed at the Trust's
discretion at either 2 5/8% above the Euro-Rate (as defined) or 1 1/8% above
the Prime Rate (as defined). The accrual rate in effect at January 5, 1996
through April 7, 1996 is 8.25%. The differential between the accrual rate and
the pay rate of 8.54% will be added or subtracted to the principal balance due
at maturity.
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Depreciation. As of December 31, 1995, for Federal income tax
purposes, the Trust depreciates its assets under the Accelerated Cost Recovery
System (ACRS) and the Modified Accelerated Cost Recovery System (MACRS) as
follows:
Buildings:
Gross Federal Income Tax Basis $49,923,000
Accumulated Depreciation $12,722,000
Depreciation Method Straight Line
Depreciable Life 40 Years
Land Improvements:
Gross Federal Income Tax Basis $ 2,195,000
Accumulated Depreciation $ 130,000
Depreciation Method Straight Line
Depreciable Life 40 Years
Personal Property:
Gross Federal Income Tax Basis $ 185,000
Accumulated Depreciation $ 87,000
Depreciation Method Straight Line*
Depreciable Life 10 Years*
*Except for automobiles which are depreciated over a range of 3 to 7
years using the double declining balance method.
Real Estate Taxes. Real estate taxes are levied for county and
township, and school tax purposes. County and township taxes are payable March
1 and school taxes are payable on September 1. Harrisburg paid $911,000 in
real estate taxes in 1995. The 1995 millage rate was 26.886. Due to the
renovation of the outparcel building in 1995, the Trust estimates an increase
in real estate taxes for 1996 of $196,000. However, this increase will be
recoverable from the tenants through real estate tax recovery billings at a
ratio of 92.5%.
Physical Improvements. Since acquiring the Mall in 1985, the
Trust has undertaken several physical improvement programs. In 1987, the Trust
converted approximately 51,400 square feet of space in the basement of the
former Hess's department store space into mall tenant space, at which time it
was leased to Toys ' R' Us. During 1988, a new food court with approximately
13,000 square feet of gross leasable area was added. In 1991, the Trust
completed the conversion of 47,960 square feet of space previously occupied by
JCPenney into approximately 31,500 square feet of new leasable area leased at
substantially higher rates.
In conjunction with the JCPenney conversion, the remaining area
of the JCPenney store was remodeled. In addition, the terms of the amended
JCPenney lease
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required the Trust to renovate the common areas and the exterior facade of the
Mall. This renovation was completed in 1993 for a cost of approximately
$4,000,000. The project included a complete refurbishment of the property's
interior common area, with new floors, finishes, and lighting throughout.
As discussed in Item 2-Properties, upon the expansion of Hecht's
into the basement space (approximately 51,400 square feet) previously occupied
by Toys' R' Us, the Trust renovated Harrisburg's outparcel building
(approximately 51,000 square feet) to accommodate the relocation of Toys 'R' Us
for a cost of approximately $3,440,000. In addition to the expansion of the
anchor tenant space, Hecht's performed an interior renovation of its new
department store space.
ITEM 3. LEGAL PROCEEDINGS.
In August 1995, May Department Stores Company ("May Company")
acquired the leasehold interest in the John Wanamaker department store at
Harrisburg from Woodward & Lothrop. Given that May Company already had an
anchor tenant position at Harrisburg, in its Hecht's department store, May
Company indicated that it would pursue an assignment of the John Wanamaker
leasehold interest to another department store retailer.
On October 9, 1995, the John Wanamaker store ceased operations.
This anchor store location is subject to a continuous operating covenant set
forth in the applicable lease agreement, but no assignment has occurred to date
and the store remains dark, although May Company continues to make rental
payments in accordance with its lease agreement. On October 11, 1995,
Management notified May Company of its violation of the lease and of its
intentions to exercise its remedies provided for under such lease, including
the right to terminate the lease and regain possession of the premises, if a
Trust-approved retailer did not open within the specified cure period.
Management granted three extensions to the cure period (without waiving the
Trust's default remedies provided for in the lease agreement) to allow May
Company additional time to identify a replacement retailer. However, upon
concluding that May Company's actions and plans with respect to identifying a
replacement retailer lacked the specificity and timeliness that Management
believed was necessary to protect the interests of the Trust, Management filed
complaints of ejectment (eviction) and money damages on March 22, 1996 in the
local jurisdiction to gain control of the premises on the basis that the lease
and May Company's right of possession have been terminated. May Company had
previously submitted the dispute to arbitration, but the Trust is contesting
the availability of that remedy. Although Management believes it has a
meritorious case, the pending status of this matter prevents Management from
being able to determine its ultimate outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and positions of the
executive officers of the Trust. The term of office of each officer expires at
the annual meeting of the Board of Directors or when the respective successor
is elected and qualifies.
Name Position
---- --------
Phillip E. Stephens President
Gregory R. Greenfield Executive Vice President and Treasurer
William G. Brown, Jr. Vice President and Controller
Scott M. Boggio Vice President
Gary L. Werkheiser Vice President
Linda K. Schear Secretary
Phillip E. Stephens, age 48, has been Chairman and Chief
Executive Officer of Compass Retail, Inc., a subsidiary of Equitable Real
Estate, since February 1996, and was President and Chief Executive Officer from
January 1992 to January 1996. Mr. Stephens was Executive Vice President of the
Compass Retail division of Equitable Real Estate from January 1990 to December
1991. He has also served as President of ERPM since December 1989. Prior to
that date and since October 1987, he was President of EQK Partners, the
predecessor in interest to ERPM. Prior to that date and since its inception in
September 1983, he was Senior Vice President of EQK Partners. Mr. Stephens is
also a managing trustee of Arbor Property Trust, successor in interest to EQK
Green Acres, L.P.
Gregory R. Greenfield, age 39, has been President and Chief
Operating Officer of Compass Retail, Inc. since February 1996, and was
Executive Vice President and Chief Operating Officer from January 1992 to
January 1996. Mr. Greenfield was Senior Vice President of the Compass Retail
division of Equitable Real Estate from January 1990 to December 1991. He has
also served as Vice President and Treasurer of ERPM since December 1989. Prior
to that date and since November 1988, he was Senior Vice President, General
Counsel and Secretary of EQK Partners. Mr. Greenfield joined EQK Partners in
June 1984. From 1981 to 1984, he was associated with the law firm of Wolf,
Block, Schorr and Solis-Cohen.
William G. Brown, Jr., age 40, has been Executive Vice President
and Chief Financial Officer of Compass Retail, Inc. since February 1996, and
was Senior Vice President and Chief Financial Officer from January 1992 through
January 1996. Mr. Brown was Vice President of the Compass Retail division of
Equitable Real Estate from March 1990 to December 1991. He has also served as
a Vice President of ERPM since March 1990. Prior to that date and since
November 1988, he was Vice President and Chief Financial Officer of Envirosafe
Services, Inc., a hazardous waste management company. Mr. Brown joined
Envirosafe in July 1987. From 1981 to 1987, he held financial management
positions with IU International Corporation, and from 1978 to 1981, he was
associated with the accounting firm of Coopers & Lybrand.
Scott M. Boggio, age 36, has been Senior Vice President of
Compass Retail, Inc. since February 1996, and was Vice President from February
1992 through January
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1996. Mr. Boggio was Director of Construction and Development of the Compass
Retail division of Equitable Real Estate from January 1990 to January 1992. He
has also served as Assistant Vice President of ERPM since December 1989. Prior
to that date and since February 1989, he was Vice President of Construction and
Planning of EQK Partners. From 1986 until 1988, he was employed by VMS Realty
Management, Inc. as its Northeast Regional Manager. From 1985 to 1986, he was
employed by the Linpro Company in acquisitions and site selection.
Gary L. Werkheiser, age 36, has been Vice President of Asset
Management and Acquisitions of Compass Retail, Inc. since February 1992 and was
Director of Asset Management of Equitable Real Estate from May 1990 to January
1992. Prior to that date and since August of 1986, he was a real estate
analyst for EQK Partners.
Linda K. Schear, age 43, has been Senior Vice President and
General Counsel to Compass Retail, Inc. since February 1995, and was Vice
President and General Counsel from February 1992 to January 1995. Ms. Shear
was General Counsel to the Compass Retail division of Equitable Real Estate
from April 1990 to February 1992. She has also served as Counsel to ERPM and
Vice President of Equitable since April 1990. Prior to that date, she was
first an associate and then a partner with the Atlanta law firm of Merritt &
Tenney, specializing in commercial real estate.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Trust's shares of beneficial interest are traded on the New
York Stock Exchange (symbol EKR). The Trust is listed in the stock tables as
"EQK Rt." As of February 29, 1996, the record number of shareholders of the
Trust was 300. Although the Trust does not know the exact number of beneficial
holders of its shares, it believes the number exceeds 2,000.
The following table presents the high and low prices of the
Trust's shares based on the New York Stock Exchange daily composite
transactions.
HIGH LOW
---- ---
Year ended December 31, 1995:
First Quarter $ 2.250 $ 1.625
Second Quarter 2.250 1.500
Third Quarter 2.125 1.375
Fourth Quarter 2.000 1.375
Year ended December 31, 1994:
First Quarter $ 2.750 $ 2.500
Second Quarter 2.500 2.250
Third Quarter 2.500 2.000
Fourth Quarter 2.500 1.750
There were no distributions to shareholders during 1994 and 1995. It is the
Trust's current policy to reinvest all of its excess cash flow into its
remaining property to fund capital expenditures and leasing costs. The Trust
does not anticipate a change in this policy.
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ITEM 6. SELECTED FINANCIAL DATA.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Revenues from rental operations $ 15,761 $ 16,512 $ 18,458 $ 20,900 $ 21,276
Write down of investments in
real estate (a) (3,200) -- -- (4,001) (8,448)
Loss before gain on sales of
real estate and extraordinary loss (6,575) (3,459) (2,351) (9,993) (15,224)
Gain on sales of real estate (b) 229 -- 282 1,143 248
Loss before extraordinary loss (6,346) (3,459) (2,069) (8,850) (14,976)
Extraordinary loss from early
retirement of debt -- -- (1,711) -- --
Net loss (6,346) (3,459) (3,780) (8,850) (14,976)
Total assets 48,209 90,258 93,163 103,690 124,051
Long-term obligations:
Mortgage notes payable, net of
imputed interest and discount 45,712 80,032 78,727 86,713 9,022
Zero coupon mortgage notes,
net of unamortized discount -- -- -- -- 84,910
Per share data (c):
Loss per share:
Loss before gain on sales of
real estate and extraordinary
loss $ (0.71) $ (0.37) $ (0.25) $ (1.31) $ (2.00)
Loss before extraordinary loss (0.68) (0.37) (0.22) (1.16) (1.97)
Net loss (0.68) (0.37) (0.41) (1.16) (1.97)
Dividends declared -- -- -- -- --
- ------------------
(a) The Trust classifies all of its properties as being held for sale.
Therefore, to the extent that the net cost investment in any property
exceeds its current market value, an allowance is recorded to adjust
the net investment to net realizable value. In 1995, the Trust
recorded a $3,200,000 write-down to adjust its investment in Castleton
to net realizable value. In 1992, the Trust recorded a write-down of
$4,001,000 to adjust its investment in Castleton to net realizable
value. In 1991, the Trust recorded a $8,448,000 adjustment to reflect
its investment in Castleton and Peachtree Dunwoody Pavilion to net
realizable value.
(b) In 1995, the Trust sold Castleton Park and recognized a gain on the
sale of $229,000. In 1993, the Trust sold its remaining two buildings
at Peachtree Dunwoody Pavilion and recognized a gain on the sale of
$282,000. In 1992, the Trust sold five buildings at Peachtree Dunwoody
Pavilion and recognized a gain on the sale of $1,143,000. In 1991,
the Trust sold two buildings at Castleton Park and recognized a gain
on the sale of $248,000.
(c) Calculation is based on 9,264,344 weighted average shares outstanding
during 1995, 1994 and 1993; 7,653,415 weighted average shares
outstanding during 1992; and 7,589,344 weighted average shares
outstanding during 1991.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This discussion should be read in conjunction with the
financial statements and notes that appear immediately following the Signatures
page.
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FINANCIAL CONDITION
CAPITAL RESOURCES
Background
The Trust was formed pursuant to a Declaration of Trust dated
October 8, 1984 to acquire certain income-producing real estate investments.
On March 13, 1985, the Trust acquired Harrisburg East Mall ("Harrisburg" or the
"Mall"), a regional shopping mall located in Harrisburg, Pennsylvania;
Castleton Park ("Castleton"), an office park located in Indianapolis, Indiana;
and Peachtree Dunwoody Pavilion ("Peachtree"), an office park located in
Atlanta, Georgia. The Trust initially intended to hold its real estate
investments for a period not to exceed 12 years from the date of acquisition
and, after the twelfth year, to dispose of any remaining investments in an
orderly fashion to achieve a complete liquidation of the Trust by March 1999.
As of December 31, 1995, the Trust has completed the
disposition of two of its three real estate investments. The office buildings
comprising Peachtree were sold in three separate transactions during the period
1992 to 1993. Two of the office buildings at Castleton were sold in 1991. The
remaining 44 office buildings at Castleton were sold on December 8, 1995 (see
discussion below). The Trust intends to dispose of its remaining real estate
investment, Harrisburg, prior to March 1999, depending upon the prevailing
conditions in the relevant real estate market and subject to the ability of the
Trust to extend or refinance its mortgage debt that matures on December 15,
1996 (see discussion below).
Sale of Castleton and Partial Repayment of Debt
On December 8, 1995, the Trust completed the sale of its
remaining 44 buildings at Castleton for $38,507,000, net of closing costs and
other transaction expenses. After deductions for customary prorations, the net
proceeds of $35,990,000 were used to partially retire $34,738,000 of its
Mortgage Notes and $1,252,000 of its Term Loans (see Note 2 to the financial
statements).
One of the conditions of the sale was the establishment of a
$277,000 escrow account related to certain tenant performance and office space
buildout issues. The Trust believes that it will meet the conditions for the
release of such funds, and in accordance with the escrow agreement, anticipates
that it will receive such funds in the fourth quarter of 1996.
As discussed in Note 3 to the financial statements, the
carrying values of the Trust's investments in real estate, which are stated at
the lower of cost or market, have been determined in conjunction with
independent appraisals, but ultimately may differ from such indications of
market value as determined through negotiations with prospective buyers. In
contemplation of completing the sale of Castleton, Management wrote down its
investment in Castleton by $3,200,000 during the third quarter of 1995 to its
then current estimate of net realizable value. The $229,000 gain on sale of
Castleton recognized during the fourth quarter of 1995 took into consideration
such write-down as well as earlier write-downs aggregating $19,565,000
reflected during the period 1990 to 1994.
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Mortgage Debt Extensions
Following the completion of the sale of Castleton and the
partial repayment of its mortgage debt, the Trust extended the maturity dates
on its Mortgage Note (remaining balance, $44,125,000) and its Term Loan
(remaining balance, $1,587,000) for a period of one year. The terms of such
debt facilities pursuant to the extensions are substantially unchanged from the
terms in effect since the original issuance date, December 15, 1992, except as
described below. The Mortgage Note remains collateralized by a first mortgage
lien on Harrisburg, an assignment of leases and rents, and certain cash
balances. The Term Loan is collateralized by a subordinate lien on Harrisburg.
The Mortgage Note now accrues interest at the pay rate of 8.54%, which reflects
a decrease from the average accrual rate of 9.79% per annum in effect during
the initial three year term of the debt. The extended Mortgage Note agreement
requires monthly payments of $340,000, of which $314,000 represents interest
accrued at 8.54%. The differential, which represents amortization of
principal, will result in a balance at maturity of $43,794,000. The Term Loan
still reflects the same pay rate of 8.54% that is applicable to the Mortgage
Note, but now bears interest at an accrual rate that re-sets periodically and
is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate (as
defined) or 1 1/8% above the Prime Rate (as defined). The accrual rate in
effect for the period January 5, 1996 through April 7, 1996 is 8.25%. Prior to
its refinancing, the Term Loan bore interest at 8.33%. The differential
between the accrual rate and the pay rate of 8.54% will be added or subtracted
to the principal balance due at maturity. In connection with the Term Loan
extension, the lender consented to the release of a $300,000 escrow deposit
that had been required as a condition of the debt origination in December 1992.
In the event that the Trust does not sell Harrisburg during
1996 (see discussion below), Management continues to explore its external
financing alternatives, including the refinancing of its debt with the existing
lenders, in anticipation of the maturity of Mortgage Note and the Term Loan on
December 15, 1996. Based on its current assessment of the credit markets,
Management believes that it can refinance its existing debt, and that such new
facility will be in place on or before the maturity date of the existing debt.
However, if the Trust is unable to refinance or replace the existing debt at
commercially reasonable terms or at all, Management's plans with respect to
liquidating Harrisburg will be accelerated to satisfy its debt obligations.
Harrisburg East Mall
As previously discussed, the Trust is currently holding
Harrisburg for sale, and intends to complete the disposition of this remaining
investment prior to March 1999, depending upon the prevailing conditions in the
relevant real estate market and subject to its ability to extend or refinance
its maturing mortgage debt.
Although it would be desirable to sell Harrisburg during 1996
and thus avoid the costs associated with extending or refinancing its mortgage
debt maturing in December 1996, Management is concerned that completing such a
sale prior to the identification of a replacement retailer to operate in the
former John Wanamaker department store location could result in sales proceeds
less than that which Management estimates could be obtained if the property was
valued on a more stabilized basis. As discussed in Note 9 to the financial
statements, May Department Stores Company ("May Company") acquired
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22
from Woodward & Lothrop the leasehold interest in the John Wanamaker
department store at Harrisburg in an August 1995 bankruptcy court auction.
Since it already operates a Hecht's department store at Harrisburg, May Company
indicated that it would pursue an assignment of the John Wanamaker leasehold
interest to another department store retailer.
On October 9, 1995, the John Wanamaker store ceased
operations. This anchor store location is subject to a continuous operating
covenant set forth in the applicable lease agreement, but no assignment has
occurred to date and the store remains dark, although May Company continues to
make rental payments in accordance with its lease agreement. On October 11,
1995, Management notified May Company of its violation of the lease, and of
its intentions to exercise its remedies provided for under such lease,
including the right to terminate the lease and regain possession of the
premises, if a Trust-approved retailer did not open within the specified cure
period. Management granted three extensions to the cure period (without
waiving the Trust's default remedies provided for in the lease agreement) to
allow May Company additional time to identify a replacement retailer. However,
upon concluding that May Company's actions and plans with respect to
identifying a replacement retailer lacked the specificity and timeliness that
Management believed was necessary to protect the interests of the Trust,
Management filed complaints of ejectment (eviction) and money damages on March
22, 1996 in the local jurisdiction to gain control of the premises on the
basis that the lease and May Company's right of possession have been
terminated. May Company had previously submitted the dispute to arbitration,
but the Trust is contesting the availability of that remedy. Although
Management believes it has a meritorious case, the pending status of this
matter prevents Management from being able to determine the ultimate outcome.
Despite Management's belief that the filing of this complaint
will accelerate the resolution of this matter, Management believes it is likely
that the former John Wanamaker department store space will remain vacant for a
substantial portion, if not all, of 1996. Until a replacement department store
opens in the John Wanamaker location, certain tenants will be permitted,
pursuant to co-tenancy provisions provided for in their leases, to pay
percentage rent in lieu of fixed minimum rentals. Based on the current sales
volumes of these tenants, the reduction in rental revenues from amounts that
otherwise would have been earned is estimated to be approximately $115,000 per
quarter for such time in the future as the Wanamaker store location remains
vacant. In addition to having a deleterious effect on Management's efforts to
sell Harrisburg and on the property's ability to collect the full amount of
rents provided under certain existing tenants' leases, the department store
vacancy will likely to continue to have a negative impact on the property
manager's ability to attract new tenants under lease terms that otherwise could
be achieved if the property had three department stores open and operating.
While Harrisburg is held for sale, the Trust will make certain
capital expenditures to maintain or enhance the value of the property,
including tenant allowances associated with leasing activity. The Trust
anticipates making 1996 capital expenditures of $900,000, which includes
budgeted tenant allowances of $550,000 and roof and parking lot repairs of
$290,000. Certain of these expenditures are discretionary in nature and
therefore may be deferred into future periods.
One of the conditions of the Mortgage Note was the
establishment of a capital reserve account, which is maintained by a
third-party escrow agent and from which
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23
expenditures must be approved by the lender. The cash balance of the Trust's
capital reserve account at December 31, 1995 was $2,083,000. Management
believes the current cash balance in this account will be sufficient to fund
Harrisburg's routine capital expenditure requirements.
LIQUIDITY
The comparability of the Statements of Cash Flows during 1993
to 1995 is affected by the property dispositions and debt repayments that
occurred during this time period.
During 1995, the Trust generated cash flows from operating
activity of $1,123,000, a decline of $1,061,000 from the prior year's operating
cash flows of $2,184,000. The decline was primarily attributable to the
accelerated payment of $1,425,000 of Castleton's real estate taxes in
connection with sale of the property in December, and a $619,000 decrease in
rental revenues for Harrisburg as described below. This decline in operating
cash flow was partially offset by a $400,000 real estate tax refund and a
reduction in operating expenses for Castleton and Harrisburg which are also
described below.
The Trust's 1994 cash flow provided by operating activities
declined $1,903,000 compared to 1993. The decline was attributable to the loss
of Peachtree's contribution to operating cash flows in 1994 upon its 1993
sale, an increase in Castleton's operating costs, higher collections of 1993
Harrisburg tenant receivables related to the prior year, and the timing of
payment of certain recurring operational expenses. This decline was partially
offset by a $693,000 decrease in interest paid resulting from the 1993
retirement of the Harrisburg mortgage notes.
During 1995, cash flow from investing activities increased
$36,337,000 over the prior year, while cash consumed in financing activities
increased $35,990,000 over the prior year. Cash flow from investing activities
for 1995 of $38,507,000 was generated from the disposition of Castleton, which
was partially offset by the investment in the Harrisburg outparcel building
renovation. The related net proceeds from the sale of Castleton were used to
paydown the mortgage note and term loan which accounts for the increase in cash
used in financing activities. In addition to the capital expenditure
requirements described above, liquidity requirements for 1996 will also include
principal and interest payments of $4,224,000 pursuant to existing loan
agreements. These loan agreements mature on December 15, 1996; the principal
balance at maturity will be approximately $45,381,000.
During 1993 the Trust generated cash flow of $5,542,000 from
investing activities and consumed cash in financing activities of $10,478,000.
The cash flows from investing activities were generated from dispositions of
real estate. The related net proceeds were used to prepay and retire debt
instruments that were then outstanding. Cash flows used in investing
activities in 1994 primarily were for routine capital additions at the
Properties.
As a result of the difficult economic climate facing retailers
across the country, the parent companies of certain national tenants have had
to give consideration to, and in certain situations implemented, plans of
reorganization, including filing for protection under
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the U.S. Bankruptcy Code. Certain of these tenants lease space at Harrisburg.
Based on (i) the bankruptcy filings of certain national retailers, (ii)
unanticipated closings of other financially-troubled retailers, and (iii) rent
relief requests from certain additional tenants, Management believes that
approximately $250,000 in minimum rents earned in 1995 may not be achieved in
1996. These problems have been exacerbated by the currently vacant department
store which, as discussed above, is likely to result in a further reduction in
minimum rents that otherwise would have been earned as a result of certain
tenants exercising co-tenancy provisions pursuant to their leases.
The Trust's cash management agreement stipulates that all
rental payments from tenants are to be made directly to a third party escrow
agent who also funds monthly operating expenses in accordance with a budget
approved by the lender. The Trust believes that its cash flow for 1996 will be
sufficient to fund its various operating requirements, including budgeted
capital expenditures and monthly principal and interest payments, although its
discretion with respect to cash flow management will be limited by the terms of
the cash management agreement. Despite the anticipated reductions in revenues
discussed in the previous paragraph, Management believes that the Trust's
current cash reserves, coupled with additional cash flow projected to be
generated from operations, will permit the Trust to meet its operating,
capital and debt service requirements.
As discussed above and in Note 1 to the financial statements,
the Trust records its investments in real estate in accordance with the
historical cost accounting convention. Accordingly, the Trust has not written
up the cost basis of its investment in Harrisburg to its substantially higher
net realizable value. Therefore, Management does not believe that its deficit
in shareholders' equity of $1,533,000 at December 31, 1995 is indicative of its
current liquidity or the net distribution that its shareholders will receive
upon liquidation.
RESULTS OF OPERATIONS
For the year ended December 31, 1995, the Trust reported a net
loss of $6,346,000 ($.68 per share) compared to net losses of $3,459,000 ($.37
per share) and $3,780,000 ($.41 per share) for the years ended December 31,
1994 and 1993, respectively. The current year results include a write-down of
the investment in Castleton of $3,200,000 ($.35 per share). For the quarter
ended December 31, 1995, the Trust reported a net loss of $526,000 ($.06 per
share), compared to a net loss of $1,290,000 ($.14 per share) for the quarter
ended December 31, 1994. During the fourth quarter of 1995, the Trust
recognized a $229,000 gain on the sale of Castleton. The 1994 annual period was
impacted by a fourth quarter write-off of $429,000 of capitalized
pre-development costs, while the 1993 annual period was impacted by the fourth
quarter recognition of a $282,000 gain on the sale of real estate, and a
$1,711,000 extraordinary charge for early retirement of debt.
The Trust's revenues for the fourth quarter and year ended
December 31, 1995 were $3,692,000 and $15,761,000, respectively, which
represented a decline from 1994 amounts of $4,193,000 and $16,512,000,
respectively. The annual decline is primarily attributable to a decrease in
rental revenue of $584,000 for Harrisburg, which in
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turn is primarily the result of rental reductions pursuant to cotenancy
provisions of certain tenant leases relating to department store vacancies.
Such cotenancy provisions first became applicable upon the closure of Hess's
Department Store in November 1994. Hess's replacement, Hecht's, re-opened in
October 1995. These cotenancy provisions continued to be operable upon the
October 1995 closure of John Wanamakers (as discussed above). The decrease in
Harrisburg rental revenues is also attributable to the partial year vacancy of
the outparcel building during its renovation in 1995, and lower net utility
income due to an increase in maintenance expenses. The fourth quarter decline
is primarily due to the sale of Castleton on December 8 1995, and the proration
of December rents with the new owner.
Revenue from rental operations of $16,512,000 during 1994
declined from $18,458,000 during 1993, primarily due to the December 1993 sale
of the remaining buildings at Peachtree, which had accounted for 1993 revenues
of $2,164,000. The decline in annual revenues for 1994 was partially offset
by the receipt of certain insurance recoveries and higher income from temporary
tenant leasing at Harrisburg. Revenues at Castleton were comparable between
1994 and 1993.
Operating expenses for the fourth quarter and year ended
December 31, 1995 were $1,282,000 and $5,403,000, respectively, which also
declined from the related 1994 amounts of $1,527,000 and $5,836,000
respectively. The fourth quarter and annual declines were attributable to
lower operating expenses for both Harrisburg and Castleton. At Castleton,
operating expenses decreased due to a reduction in repairs and maintenance
expenses and a reduction in real estate tax expense resulting from both a
valuation reassessment and the proration of real estate tax expense effective
with the December 8, 1995 sale. These declines were partially offset by an
increase in security costs. Harrisburg's operating expenses decreased in 1995
due to unexpected recoveries of previously recognized bad debts and reductions
in legal and consulting costs.
Operating expenses for the year ended December 31, 1994 were
$5,836,000, which declined from the 1993 amount of $6,384,000. The declines
were primarily attributable to the sale of certain buildings at Peachtree in
1993, which had accounted for 1993 operating expenses of $1,342,000. The
decline was partially offset by increases in net operating expenses at both
Harrisburg and Castleton. At Harrisburg, 1994 operating expenses exceeded
1993 amounts due to higher snow removal costs and to increases in temporary
tenant leasing costs and bad debt expense. Castleton's annual net operating
costs were higher due to operating expenses coupled with a decline in tenant
reimbursements, and to one-time repairs to street lighting.
Interest expense for the years ended December 31, 1995, 1994,
and 1993 was $8,302,000, $8,132,000, and $8,706,000, respectively. The increase
in interest expense in 1995 as compared to 1994 is due to an increase in the
Mortgage Note principal balance from accrued but not currently payable
interest and the amortization of non-cash expense arising from the issuance of
warrants to the lender. The decrease in interest expense in 1994 as compared to
1993 was due primarily to the retirement of the Harrisburg mortgage notes,
which accounted for $1,150,000 of interest expense in 1993. This decrease was
partially offset by an increase in interest expense also due to an increase in
the Mortgage Note principal balance from accrued but not currently payable
interest and the amortization of non-cash expense arising from the issuance of
warrants to the lender.
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Other expenses consist of portfolio management fees, other
costs related to the operation of the Trust, and interest income earned on cash
balances. There was no significant fluctuation in other expenses between 1995
and 1994. In the aggregate, there was no significant fluctuation in other
expenses between 1994 and 1993. However, in 1994 there was a decrease in
interest income and an increase in administrative costs related to efforts to
sell Harrisburg that were largely offset by decreases in portfolio management
and other professional fees associated with reductions in the Trust's real
estate holdings over the past two years.
As discussed in the liquidity section above, Management
believes that its existing cash reserves and its anticipated cash flow
generated from operations will be sufficient to meet its capital and debt
service requirements. However, due to the effects of non-cash accounting
adjustments (principally depreciation and amortization), Management anticipates
that the Trust will continue to incur net losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's financial statements and supplementary data
listed in Item 14(a) appear immediately following the signatures page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
25
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1996 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1996 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1996 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Trust's Proxy Statement
relating to its 1996 Annual Meeting of Shareholders.
26
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
Page
Number
------
(a) The following documents are filed as part of this
report:
1. Financial Statements
--------------------
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993
Statements of Shareholders' Equity
for the years ended December 31, 1995,
1994 and 1993
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to financial statements, including
supplementary data
2. Financial Statement Schedule
----------------------------
Schedule III: Real Estate and Accumulated
Depreciation
Independent Auditors' Report
All other schedules are omitted as the required
information is inapplicable or the information
is presented in the financial statements, or the
related notes thereto.
3. Exhibits
--------
(2) None.
(3) (a) Form of Amended and Restated
Declaration of Trust, as amended.(2)
(b) Trustees' Regulations, as amended.(2)
(4) Form of certificate for Shares of
Beneficial Interest.(1)
(9) None.
(10) (a) Form of Advisory Agreement between
the Registrant and EQK Partners.(1)
(e) Property management agreement
between Salomon Brothers Peachtree
Properties Inc. and Equitable Real
Estate Investment Management, Inc.
with respect to Peachtree-Dunwoody
Pavilion.(1)
27
29
Page
Number
------
(f) Form of property management
agreement between the Registrant
and Castleway Management Corp.
with respect to Castleton
Commercial Park.(1)
(k) Mortgage encumbering Harrisburg
East Mall in favor of Continental
Assurance Company and related
documents.(1)
(m) Mortgage encumbering Harrisburg
East Mall in favor of The
Philadelphia Savings Fund Society
and related documents.(1)
(n) Amended and Restated Zero Coupon
Mortgage Note due December 1992 in
the principal amount of $45,000,000.(1)
(o) Mortgage encumbering Harrisburg East
Mall in favor of Salomon Brothers
Realty Corp.(2)
(p) Mortgages encumbering Peachtree-Dunwoody
Pavilion in favor of Salomon Brothers Realty Corp.(2)
(q) Mortgages encumbering Castleton
Commercial Park in favor of Salomon
Brothers Realty Corp.(2)
(r) Zero Coupon Mortgage Note due
December 1992 in the principal
amount of $5,000,000.(3)
(s) Form of Amendments dated February 4,
1988 to Exhibits 10(o), 10(p) and 10(q).(3)
(t) Form of Mortgages securing 10(r).(3)
(u) First Amendment to Advisory Agreement
dated as of December 31, 1989.(4)
(v) Form of property management
agreement between Registrant and
Compass Retail, a division of
Equitable Real Estate Investment
Management, Inc.(5)
(w) Agreement of sale dated June 25, 1991
between McCready and Keene, Inc.
and the Registrant.(6)
28
30
Page
Number
------
(x) Agreement for release of collateral between
The Prudential Insurance Company of America
and the Registrant dated August 30, 1991.(6)
(y) Agreement of sale dated September 23, 1991
between the Wesleyan Church Corporation
and the Registrant.(6)
(z) Agreement of sale dated June 24, 1992
between Computer Generation Incorporated
and the Registrant.(7)
(aa) Purchase and Sale Agreement dated
October 21, 1992 between Minneapolis
Investment Associates L.P. and the Registrant(7)
(bb) Second Amended and Restated Note
dated as of December 16, 1992 from the
Registrant to The Prudential Insurance
Company of America(7)
(cc) Cash Management and Security Agreement
dated as of December 15, 1992, among
the Registrant, The Prudential Insurance
Company of America and First Union
National Bank of Georgia(7)
(dd) Amended and Restated Deed to Secure
Debt and Security Agreement (Peachtree)
dated as of December 16, 1992 by Successor
Trustees of the Registrant as Debtor in
favor of The Prudential Insurance Company
of America as Secured Party(7)
(ee) Amended and Restated Open-End Mortgage
and Security Agreement (Harrisburg) dated
as of December 15, 1992 by Successor
Trustees of the Registrant as Debtor in
favor of The Prudential Insurance Company
of America as Secured Party(7)
(ff) Amended and Restated Mortgage and Security
Agreement (Castleton) dated as of December 15,
1992 by the Registrant as Debtor in favor of
The Prudential Insurance Company of
America as Secured Party(7)
29
31
Page
Number
------
(gg) Absolute Assignment of Leases and Rents
and Rental Collection Agreement
(Peachtree) dated as of December 16,
1992 among Successor Trustees of the
Registrant as Assignor, The Prudential
Insurance Company of America as
Assignee and First Union National Bank
of Georgia as Rental Collection Agent(7)
(hh) Absolute Assignment of Leases and Rents
and Rental Collection Agreement
(Harrisburg) dated as of December 16,
1992 among Successor Trustees of the
Registrant as Assignor, The Prudential
Insurance Company of America as
Assignee and First Union National Bank
of Georgia as Rental Collection Agent(7)
(ii) Absolute Assignment of Leases and Rents
and Rental Collection Agreement (Castleton)
dated as of December 15, 1992 among
the Registrant as Assignor, The Prudential
Insurance Company of America as Assignee
and First Union National Bank of Georgia
as Rental Collection Agent(7)
(jj) Warrant Agreement dated as of December 18,
1992 between the Registrant and
The Prudential Insurance Company of America(7)
(kk) Subordination and Intercreditor Agreement
dated as of December 16, 1992
among Provident National Bank,
The Prudential Insurance Company of America
and the Registrant(7)
(ll) Second Amended and Restated Loan
Agreement dated as of December 16,
1992 from the Registrant to
Provident National Bank(7)
(mm) Amended and Restated Note dated as of
December 16, 1992 from the
Registrant to Provident National Bank(7)
(nn) Mortgage and Security Agreement (Castleton)
dated as of December 16, 1992 between
the Registrant and Provident National Bank(7)
(oo) Deed to Secure Debt and Security
Agreement (Peachtree) dated as of
December 16, 1992 between the
Registrant and Provident National Bank(7)
30
32
Page
Number
------
(pp) Open-End Mortgage and Security
Agreement (Harrisburg) dated as of
December 16, 1992 between the
Registrant and Provident National Bank(7)
(qq) Assignment of Lessor's Interest in Leases
(Castleton) dated as of December 16,
1992 between the Registrant and
Provident National Bank(7)
(rr) Assignment of Lessor's Interest in Leases
(Peachtree) dated as of December 16,
1992 between the Registrant and
Provident National Bank(7)
(ss) Assignment of Lessor's Interest in Leases
(Harrisburg) dated as of December 16,
1992 between the Registrant and
Provident National Bank(7)
(tt) Assignment of Cash Collateral Account
and Security Agreement dated as of
December 16, 1992 between the
Registrant and Provident National Bank(7)
(uu) Purchase and Sale Agreement dated
July 6, 1993 between Lawrence E.
Cooper and the Registrant(8)
(vv) Amendment dated October 1, 1993
to Exhibit 10(cc)(8)
(ww) Amendment dated December 3, 1993
to Exhibits 10(ll) and 10(mm)(8)
(xx) Purchase Agreement for Real Property and
Escrow Instructions (9)
(yy) Note, Mortgage, and Modification agreement
dated December 15, 1995 between the
Registrant and The Prudential
Insurance Company of America
(zz) Mutual Estoppel and Modification Agreement
dated December 15, 1995 between the
Registrant and The Prudential Insurance
Company of America
(aaa) Amended Mutual Estoppel and Modification
Agreement dated December 15, 1995
between the Registrant, PNC Bank, National
Association and The Prudential Insurance
Company of America
(bbb) Extension and Partial Paydown of loan from
PNC Bank National Association, dated
December 15, 1995 to EQK Investors I
(11) See Note 1 to the Financial Statements.
(12) Inapplicable.
31
33
(13) Inapplicable.
(16) None.
(18) None.
(21) None.
(22) None.
(23) None.
(24) None.
(27) Included in EDGAR transmission only.
(28) None.
(b) Reports on Form 8-K
Report on Form 8-K dated November 22, 1995 regarding the sale of
Castleton Park.
Report on Form 8-K dated December 8, 1995 regarding the sale of
Castleton Park.
(c) See paragraph (a) 3. above
(d) See paragraph (a) 2. above
- -------------------------
(1) Incorporated herein by reference to exhibit filed with
Registrant's Registration Statement on Form S- 11, File No.
2-93936.
(2) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K dated for fiscal year ended December
31, 1985.
(3) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K dated for fiscal year ended December
31, 1987.
(4) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1989.
(5) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1990.
(6) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1991.
(7) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1992.
(8) Incorporated herein by reference to exhibit filed with
Registrant's Form 10-K for fiscal year ended December 31,
1993.
(9) Incorporated herein by reference to exhibit filed with
Registrant's Form 8-K dated November 22, 1995.
32
34
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 28th day of
March, 1996.
EQK Realty Investors I
By: /s/Phillip E. Stephens
--------------------------------
Phillip E. Stephens
President and Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 28, 1996 by the following persons on
behalf of the Registrant and in the capacities indicated.
Signatures Title
- ---------- -----
/s/Phillip E. Stephens President (Principal Executive
- ------------------------------- Officer) and Trustee
Phillip E. Stephens
/s/Gregory R. Greenfield Executive Vice President and Treasurer
- ------------------------------- (Principal Financial Officer)
Gregory R. Greenfield
/s/William G. Brown, Jr. Vice President and Controller
- -------------------------------
William G. Brown, Jr.
/s/Sylvan M. Cohen Trustee
- -------------------------------
Sylvan M. Cohen
/s/Alton G. Marshall Trustee
- -------------------------------
Alton G. Marshall
/s/George R. Peacock Trustee
- -------------------------------
George R. Peacock
/s/Robert C. Robb, Jr. Trustee
- -------------------------------
Robert C. Robb, Jr.
35
INDEPENDENT AUDITORS' REPORT
Board of Trustees and Shareholders
EQK Realty Investors I:
We have audited the accompanying balance sheets of EQK Realty Investors I (a
Massachusetts business trust) as of December 31, 1995 and 1994 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 14. These financial
statements and the financial statement schedule are the responsibility of the
Trust's management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule 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 EQK Realty Investors I as of December 31,
1995 and 1994 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 2 to the financial statements, the Trust's existing
mortgage note and its term loan mature on December 15, 1996. Management's plans
with regard to the maturity of the mortgage note and term loan are also
described in Note 2.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 8, 1996
36
EQK REALTY INVESTORS I
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
--------------------------
1995 1994
----------- ------------
ASSETS
Investments in real estate held for sale, at lower of cost
or net realizable value:
Harrisburg East Mall $ 52,033 $ 47,819
Castleton Park, net of valuation allowance of $19,565 -- 61,706
----------- ------------
52,033 109,525
Less accumulated depreciation 13,446 31,793
----------- ------------
38,587 77,732
Cash and cash equivalents:
Cash Management Agreement 2,972 3,734
Other -- 967
Accounts receivable and other assets 6,650 7,825
----------- ------------
TOTAL ASSETS $ 48,209 $ 90,258
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Mortgage note payable, net of debt discount of $413 in 1994 $ 44,125 $ 77,186
Term loan payable to bank 1,587 2,846
Accounts payable and other liabilities (including amounts due
affiliates of $2,765 and $ 2,475, respectively) 4,030 5,413
----------- ------------
49,742 85,445
Shareholders' equity (deficit):
Shares of beneficial interest, without par value: 10,055,555 shares
authorized, 9,264,344 shares issued and outstanding 135,875 135,875
Accumulated deficit (137,408) (131,062)
----------- ------------
(1,533) 4,813
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 48,209 $ 90,258
=========== ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
37
EQK REALTY INVESTORS I
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------------------
Years ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------
Revenues from rental operations $15,761 $16,512 $18,458
Operating expenses, net of tenant
reimbursements (including property management
fees earned by an affiliate of $291, $314 and
$306, respectively) 5,403 5,836 6,384
Depreciation and amortization 4,848 4,612 4,761
Real estate tax refund (400) -- --
Write-off of capitalized predevelopment costs -- 429 --
Write-down of investment in real estate 3,200 -- --
- --------------------------------------------------------------------------------------------
Income from rental operations 2,710 5,635 7,313
Interest expense 8,302 8,132 8,706
Other expenses, net of interest income
(including portfolio management fees earned by
an affiliate of $403, $430 and $481, respectively) 983 962 958
- --------------------------------------------------------------------------------------------
Loss before gain on sales of real estate and
extraordinary loss (6,575) (3,459) (2,351)
Gain on sales of real estate 229 -- 282
- --------------------------------------------------------------------------------------------
Loss before extraordinary loss (6,346) (3,459) (2,069)
Extraordinary loss from early retirement of debt -- -- (1,711)
- --------------------------------------------------------------------------------------------
Net loss ($6,346) ($3,459) ($3,780)
============================================================================================
Loss per share:
Loss before gain on sales of real estate
and extraordinary loss ($0.71) ($0.37) ($0.25)
Gain on sales of real estate 0.03 -- 0.03
- --------------------------------------------------------------------------------------------
Loss before extraordinary loss (0.68) (0.37) (0.22)
Extraordinary loss from early retirement of debt -- -- (0.19)
- --------------------------------------------------------------------------------------------
Net loss ($0.68) ($0.37) ($0.41)
============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
38
EQK REALTY INVESTORS I
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
- ----------------------------------------------------------------------
Shares of
Beneficial Accumulated
Interest Deficit Total
- ----------------------------------------------------------------------
Balance, December 31, 1992 $135,382 ($123,823) $11,559
Net loss -- (3,780) (3,780)
Issuance of 151,556 warrants in
connection with financing 397 -- 397
- ----------------------------------------------------------------------
Balance, December 31, 1993 135,779 (127,603) 8,176
- ----------------------------------------------------------------------
Net loss -- (3,459) (3,459)
Issuance of 51,226 warrants in
connection with financing 96 -- 96
- ----------------------------------------------------------------------
Balance, December 31, 1994 135,875 (131,062) 4,813
- ----------------------------------------------------------------------
Net Loss -- (6,346) (6,346)
BALANCE, DECEMBER 31, 1995 $135,875 ($137,408) ($1,533)
======================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
39
EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------
Years ended December 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss ($6,346) ($3,459) ($3,780)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary loss from early retirement of debt -- -- 1,711
Write-down of investment in real estate 3,200 -- --
Depreciation and amortization 4,848 4,612 4,761
Amortization of debt discount 460 334 139
Imputed and deferred interest 1,494 1,320 1,295
Gain on sales of real estate (229) -- (282)
Changes in assets and liabilities:
Decrease in accounts
payable and other liabilities (1,661) (388) (119)
Increase (decrease) in accounts receivable
and other assets (643) (235) 362
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,123 2,184 4,087
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of real estate 38,507 -- 10,768
Additions to real estate investments (5,362) (2,976) (5,226)
Payment of real estate disposition fee -- (216) --
- ---------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 33,145 (3,192) 5,542
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Scheduled repayments of debt (7) (7) (852)
Repayments of debt due to sales of properties (35,990) -- (9,626)
- ---------------------------------------------------------------------------------------------
Net cash used in financing activities (35,997) (7) (10,478)
- ---------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (1,729) (1,015) (849)
Cash and cash equivalents
beginning of year 4,701 5,716 6,565
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents
end of year $2,972 $4,701 $5,716
=============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
40
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS:
EQK Realty Investors I, a Massachusetts business trust (the "Trust"),
was formed pursuant to a Declaration of Trust dated October 8, 1984 to acquire
certain income-producing real estate investments. Commencing with the period
beginning April 1, 1985, the Trust qualified for and elected real estate
investment trust ("REIT") status under the provisions of the Internal Revenue
Code.
At December 31, 1995, the Trust's remaining real estate investment is
Harrisburg East Mall ("Harrisburg" or the "Mall"), a regional shopping center
in Harrisburg, Pennsylvania. On December 8, 1995, the Trust sold its interest
in Castleton Park ("Castleton"), an office park in Indianapolis, Indiana (see
Note 3). During 1993, the Trust sold its two remaining office buildings within
its office complex located in Atlanta, Georgia, formerly known as Peachtree-
Dunwoody Pavilion or "Peachtree" (see Note 3). Prior to 1993, the Trust
completed the sale of two office buildings at Castleton (1991) and five office
buildings at Peachtree (1992).
The Declaration of Trust established the Trust as a finite life REIT
with an investment holding period of up to 12 years, after which it is required
to dispose of its assets in an orderly fashion within two years. The Trust's
management is currently pursuing the sale of Harrisburg.
CAPITALIZATION, DEPRECIATION AND AMORTIZATION:
Property additions are recorded at cost. Costs directly associated
with major renovations and improvements, including interest on funds borrowed
to finance construction, are capitalized to the point of substantial
completion.
Depreciation of real estate investments is provided on a straight-line
basis over the estimated useful lives of the related assets, ranging generally
from 5 to 40 years. Tenant improvements are amortized over their estimated
useful lives, which do not exceed the terms of the respective tenant leases.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives.
OTHER ASSETS:
Other assets primarily consist of deferred leasing costs. Costs
incurred in connection with the execution of a new lease including leasing
commissions, costs associated with the acquisition or buyout of existing
leases, and legal fees are deferred and amortized over the term of the new
lease. At December 31, 1995 and 1994, deferred leasing costs, net of
accumulated amortization, amounted to $4,331,000 and $4,816,000, respectively.
Included in deferred leasing costs is a 1990 payment of $5,500,000 made to an
anchor tenant at Harrisburg in exchange for the tenant relinquishing space that
was subsequently converted into leasable area for mall shops.
41
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
REVENUE RECOGNITION:
Minimum rents are recognized on a straight-line basis over the term of
the related leases. Percentage rents are recognized on an accrual basis.
NET LOSS PER SHARE:
The net loss per share calculation is based on the weighted average
number of shares outstanding during the year, which was 9,264,344 for all years
presented.
Share warrants issued in connection with the Trust's 1992 debt
restructuring (see Note 2) are considered common share equivalents. However,
the warrants have not been included in the net loss per share calculation
since the effect on such calculation would be anti-dilutive.
INCOME TAXES:
The Trust has complied with all applicable provisions established by
the Internal Revenue Code for maintaining its REIT status. Accordingly, no
income tax provision or benefit has been recognized in the accompanying
financial statements.
STATEMENTS OF CASH FLOWS:
Cash equivalents include short-term investments with an original
maturity of three months or less. Included in the statements of cash flows are
cash payments for interest of $6,703,000, $6,746,000, $7,439,000 in 1995, 1994
and 1993, respectively. Such amounts are net of interest costs capitalized of
$69,000 and $115,000 in 1995 and 1993, respectively.
As of December 31, 1993, the Trust accrued additions to investments
in real estate and a real estate disposition fee payable to the Advisor in the
amounts of $489,000 and $216,000, respectively. Such amounts were paid in
1994.
As a condition of the Trust's debt restructuring (see Note 2), the
Trust issued a total of 367,868 share warrants since December 1992, to its
primary mortgage lender. The value of the warrants at the time of issuance was
recorded as a debt discount and an increase in Shareholders' equity.
FAS 107:
The Trust values the financial instruments as required by FAS No. 107,
"Disclosures about Fair Values of Financial Instruments". The carrying amounts
of cash and cash equivalents, the Mortgage Note, and the Term Loan approximate
fair value.
42
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
FAS 121:
The Trust adopted FAS No. 121, "Accounting for Long Lived Assets and
Long Lived Assets to be Disposed of", in the fourth quarter of 1994. There was
no material impact on the financial statements upon such adoption.
MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2: MORTGAGE DEBT AND RESTRUCTURING ACTIVITIES
On December 15, 1992, the Trust completed a restructuring of its
existing mortgage debt through the issuance of a "Mortgage Note" and a "Term
Loan", both due December 15, 1995, with original principal balances of
$75,689,000 and $2,859,000, respectively. The Mortgage Note bore interest at
an average rate of 9.79% per annum during its three year term, although
interest was payable at 8.54% per annum. The Term Loan bore interest at 8.33%
and was subject to the same pay rate of 8.54%. The differences between the
accrual and pay rates of interest under both debt instruments were reflected in
the principal balances due at maturity. Accordingly, the scheduled amount of
principal due under the Mortgage Note and the Term Loan on the original
maturities date (assuming no prepayments due to property dispositions) was
$78,928,000 and $2,839,000, respectively.
Pursuant to its Mortgage Note agreement, the Trust issued the lender
warrants to purchase 367,868 of its shares of beneficial interest at $.0001 per
share, none of which has been exercised.
As part of the 1992 restructuring, the Trust entered into a Cash
Management Agreement with the mortgage lender and assigned all lease and rent
receipts to the lender as additional collateral. Pursuant to this agreement, a
third- party escrow agent has been appointed to receive all rental payments
from tenants and to fund monthly operating expenses in accordance with a budget
approved by the lender. The agreement also provides for the establishment of a
capital reserve account, which is maintained by the escrow agent.
Disbursements from this account, which is funded each month with any excess
operating cash flow, are limited to capital expenditures approved by the
lender. As of December 31, 1995 the balance of the capital reserve account
was $2,083,000.
43
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
On December 8, 1995, the Trust completed the sale of Castleton Park
(see Note 3) and used the net proceeds of $35,990,000 (reflecting reductions of
$2,517,000 for customary prorations) to prepay such debt obligations in the
amounts of $34,738,000 and $1,252,000, respectively.
EXTENSIONS OF DEBT
The remaining principal balances outstanding under the Mortgage Note
and the Term Loan at December 15, 1995, $44,125,000 and $1,587,000,
respectively, were extended for one year through December 15, 1996, under terms
substantially unchanged from those previously in effect, except as described
below. The Mortgage Note remains collateralized by a first mortgage lien on
Harrisburg, an assignment of leases and rents, and certain cash balances. The
Term Loan remains collateralized by a subordinate lien on Harrisburg.
The Mortgage Note agreement was amended to provide for monthly
payments of principal (assuming a 30 year amortization) and interest (at an
accrual rate equal to the former pay rate of 8.54%) in the aggregate amount of
$341,000. The Term Loan agreement was amended to provide for an accrual rate
that resets periodically and is computed at the Trust's discretion at either 2
5/8% above the Euro-Rate (as defined) or 1 1/8% above the Prime Rate (as
defined). The accrual rate in effect for the period January 5, 1996 through
April 7, 1996 is 8.25%.
Upon completion of the extension, the Term Loan lender consented to
the removal of a provision that required a $300,000 escrow deposit. The escrow
account was established with funds borrowed from the Advisor. The release of
these funds enabled the Trust to repay the $300,000 obligation, plus accrued
interest to the Advisor in March 1996.
Management continues to pursue the sale of Harrisburg as a means of
paying its remaining outstanding debt balances. In the event the Trust does
not sell Harrisburg during 1996, Management has continued to explore its
external financing alternatives, including the refinancing of its debt with its
existing lenders in anticipation of the Mortgage Note and the Term Loan
maturities on December 15, 1996. Based on its current assessment of the credit
markets, Management believes that it can refinance its existing debt, and that
such new facility will be in place on or before the maturity date of the
existing debt. However, if the Trust is unable of refinance or replace the
existing debt at commercially reasonable terms or at all, Management's plans
with respect to the sale of Harrisburg will be accelerated to satisfy its debt
obligations.
NOTE 3: VALUATION AND SALES OF REAL ESTATE
As discussed in Note 1, the Trust is currently holding Harrisburg for
sale, and intends to complete the disposition at any time prior to March 1999,
depending upon the prevailing conditions in the relevant real estate market and
subject to its ability to extend or refinance its maturing mortgage debt.
44
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
On December 8, the Trust completed the sale of its remaining
forty-four buildings at Castleton. The Trust received net sales proceeds of
$38,507,000 before reduction for customary prorations of $2,517,000. As
discussed in Note 2, the Trust prepaid portions of its Mortgage Note and Term
Loan in the amounts of $34,738,000 and $1,252,000, respectively, with such
proceeds, prior to the extension of such debt on December 15, 1995.
Management has recorded its real estate investments (including
Peachtree, which was sold during the period 1992 - 1993), at the lower of
historical cost or market. Market values have been determined in connection
with independent appraisals, but ultimately may differ from such indication of
market value as determined through negotiations with prospective buyers. In
contemplation of completing the sale of Castleton, Management wrote down its
investment in Castleton by $3,200,000 during the third quarter of 1995 to its
then current estimate of net realizable value. The $229,000 gain on sale of
Castleton recognized during the fourth quarter of 1995 took into consideration
this write-down as well as earlier write-downs aggregating $19,565,000 recorded
since 1990.
In December 1993, the Trust completed the sale of its remaining two
office buildings at Peachtree. In the aggregate, the Trust received cash
proceeds of $10,552,000 net of associated costs of $248,000, and recognized a
gain on sale of $282,000. These proceeds were used to fully retire certain
mortgage indebtedness then outstanding (See Note 6).
NOTE 4: LEASING ARRANGEMENTS
The Trust leases shopping center space generally under noncancelable
operating leases, some of which contain renewal options. The shopping center
leases generally provide for minimum rentals, plus percentage rentals based
upon the retail stores' sales volume. Percentage rentals amounted to $270,000,
$295,000, and $154,000 for the years ended December 31, 1995, 1994, and 1993,
respectively. In addition, the tenants pay certain utility charges to the
Trust and, in most leases, reimburse their proportionate share of real estate
taxes and common area expenses.
Future minimum rentals under existing, non-cancelable leases at
December 31, 1995 are as follows:
Years ending December 31, Amount
------------------------- ------------
1996 $ 4,512,000
1997 4,406,000
1998 4,220,000
1999 3,778,000
2000 3,211,000
Thereafter 11,524,000
------------
$ 31,651,000
============
45
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
Due to a department store vacancy, certain tenants at Harrisburg have
elected under cotenancy provisions provided for under the terms of their
leases, to pay percentage rent in lieu of fixed minimum rents (See Note 9).
Future minimum rentals for these tenants which have not been included in the
above schedule, are $878,000, $878,000, $830,000, $825,000, $825,000, and
$3,490,000, for the years 1996, 1997, 1998, 1999, 2000 and thereafter,
respectively.
Rental revenues from one tenant at Castleton approximated 10% of total
revenues from rental operations for the year ended December 31, 1995.
NOTE 5: INVESTMENTS IN REAL ESTATE
The Trust's investments in real estate at December 31, 1995 and 1994
consisted of the following:
1995 1994
------------- -------------
Land $ 4,700,000 $ 15,411,000
Buildings and improvements 44,975,000 101,957,000
Tenant improvements 2,195,000 11,497,000
Personal property 163,000 225,000
------------- -------------
52,033,000 129,090,000
Less valuation allowance -- 19,565,000
------------- -------------
$ 52,033,000 $ 109,525,000
============= =============
During 1995, the Trust renovated Harrisburg's outparcel building to
accommodate the relocation of Toys 'R Us. The final cost of the renovation
project was approximately $3,440,000.
NOTE 6: EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT
The Trust used proceeds of $9,626,000 from the 1993 sale of its
remaining two buildings at Peachtree (see Note 3) to retire the Harrisburg
mortgage notes that had been assumed by the Trust in connection with its
purchase of the Mall. The Harrisburg mortgage notes, with stated interest
rates of 8.8% and 8.562% per annum, had been discounted for financial reporting
purposes using a market interest rate of 14%. At retirement, the Harrisburg
mortgage notes had a carrying value of $7,975,000, net of a $1,547,000
discount. The Trust also paid accommodation fees of $60,000 to the holders of
its mortgage note and term loan. In connection with the retirement of the
Harrisburg mortgage notes, the Trust recognized an extraordinary charge to
earnings of $1,711,000.
46
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 7: ADVISORY AND MANAGEMENT AGREEMENTS
ADVISORY AGREEMENT
The Trust has entered into an agreement with Equitable Realty
Portfolio Management, Inc. (successor in interest to EQK Partners), a wholly
owned subsidiary of Equitable Real Estate Investment Management, Inc.
("Equitable Real Estate"), to act as its "Advisor". The Advisor makes
recommendations to the Trust concerning investments, administration and
day-to-day operations.
Under the terms of the advisory agreement, as amended in December
1989, the Advisor receives a management fee that is based upon the average
daily per share price of the Trust's shares plus the average daily balance of
outstanding mortgage indebtedness. Such fee is calculated using a factor of
42.5 basis points (0.425%) and generally has been payable monthly without
subordination. In connection with the December 1995 extension of debt (see
Note 2), the Advisor has agreed to a partial deferral of payment of its 1996
fee. Whereas the fee will continue to be computed as described, payments to
the Advisor will be limited to $37,500 per quarter. Accrued but unpaid amounts
will be eligible for payment upon the repayment of The Mortgage Note. For the
years ended December 31, 1995, 1994 and 1993, portfolio management fees were
$403,000, $430,000, and $484,000, respectively.
As of December 31, 1989, portfolio management fees of $5,440,000
payable to the Advisor were deferred in accordance with subordination
provisions contained in the original advisory agreement. Pursuant to the
amended advisory agreement, the Advisor forgave one-half, or $2,720,000, of the
deferred balance. The remaining deferred fees are to be paid upon the
disposition of the Trust's properties. For financial reporting purposes, the
deferred balance is being discounted at the rate of 13% per year from December
1, 1996. As of December 31, 1995, the discounted liability for deferred
management fees was $2,418,000.
Upon the sale of all or any portion of any real estate investment of
the Trust, the Advisor will receive a disposition fee equal to 2% of the gross
sale price (including outstanding indebtedness taken subject to or assumed by
the buyer and any purchase money indebtedness taken back by the Trust). The
disposition fee will be reduced by the amount of any brokerage commissions and
legal expenses incurred by the Trust in connection with such sales. For the
years ended December 31, 1995 and 1993, disposition fees earned by the Advisor
were $788,000 and $216,000, respectively.
PROPERTY MANAGEMENT AGREEMENTS
The Trust has also entered into agreements for the on-site management
of each of its properties. Harrisburg East Mall is managed by Compass Retail,
Inc. ("Compass"), an affiliate of Equitable Real Estate. The buildings at
Peachtree were managed by another affiliate of Equitable Real Estate up until
the time of their respective sales. Castleton Park was managed by an
unaffiliated third-party management company up until the time of its sale.
47
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
Management fees paid to each of the Equitable Real Estate management
affiliates are generally based upon a percentage of rents and certain other
charges. For Peachtree, the Trust also paid leasing commissions based upon a
percentage of total minimum future rents. Such fees and commissions are
comparable to those charged by unaffiliated third-party management companies
providing comparable services. For the years ended December 31, 1995, 1994 and
1993, management and leasing fees paid to Equitable Real Estate were $291,000,
$314,000, and $403,000, respectively.
In connection with the redevelopment of Harrisburg's outparcel
building as described in Note 5, Compass received a $150,000 development fee in
1995. Compass also received development and construction management fees of
$185,000 in connection with a 1993 renovation of Harrisburg.
SHARE OWNERSHIP
In connection with a debt restructuring in December 1992, the Trust
issued 1,675,000 previously repurchased shares to its Advisor. Upon issuance,
the Trust received proceeds of $6,700,000, or $4.00 per share. In total, the
Advisor owns 1,685,556 shares, or 18.2% of the total shares outstanding. The
Advisor earned a $500,000 fee in connection with this refinancing, which was
paid in 1993-1994.
NOTE 8: RELATED PARTY TRANSACTIONS
In addition to providing management and advisory services to the Trust
as described in Note 7, Equitable Real Estate and certain of its affiliates,
including the Advisor, leased space at Peachtree. As discussed in Note 3, the
Trust sold its office buildings at Peachtree during 1992 and 1993. The Trust
received rent payments of approximately $1,167,000 for the year ended December
31, 1993 with respect to such leases.
As a condition of the Term Loan issuance in December 1992 (Note 2), an
escrow deposit of $300,000 was required as additional collateral. The Trust
borrowed this amount from its Advisor. In connection with the December 15,
1995 extension of this debt, the escrow deposit was released and the Advisor
was repaid.
NOTE 9: COMMITMENTS AND CONTINGENCIES
JOHN WANAMAKER
On August 8, 1995, the U.S. Bankruptcy Court approved the sale of
certain Woodward & Lothrop department stores to May Department Stores Company
("May Company"), including the John Wanamaker location at Harrisburg. On
October 9, 1995, the John Wanamaker store ceased operations. On October 19,
1995, May Company opened a Hecht's store at Harrisburg
48
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
Mall. Given its existing presence at Harrisburg, May Company indicated that it
would pursue an assignment of the Wanamaker leasehold interest to another
department store retailer.
This anchor store location is subject to a continuous operating
covenant set forth in the applicable lease agreement, but no assignment has
occurred to date and the store remains dark, although May Company continues to
make rental payments in accordance with its lease agreement. On October 11,
1995, Management notified May Company of its violation of the lease and of its
intentions to exercise its remedies provided for under such lease, including
the right to terminate the lease and regain possession of the premises, if a
Trust approved retailer did not open within the specified cure period.
Management granted three extensions to the cure period, (without waiving the
Trust's default remedies provided for in the lease agreement) to allow May
Company additional time to identify a replacement retailer. However, upon
concluding that May Company's actions and plans with respect to identifying a
replacement retailer lacked the specificity and timeliness that Management
believed necessary to protect the interests of the Trust, management filed
complaints of ejectment (eviction) and money damages on March 22, 1996 in the
local jurisdiction to gain control of the premises on the basis that the lease
and May Company's right of possession have been terminated. May Company had
previously submitted the dispute to arbitration, but the Trust is contesting
the availability of that remedy. Although Management believes it has a
meritorious case, the pending status of this matter prevents Management from
being able to determine its ultimate outcome.
Despite Management's belief that the filing of this complaint will
accelerate the resolution of this matter, management believes it is likely that
the former Wanamaker store space will remain vacant for a substantial portion,
if not all, of 1996. As a result, certain tenants will be permitted, pursuant
to co-tenancy provisions provided for under the terms of their leases, to pay
percentage rent in lieu of fixed minimum rentals. Until a new retailer opens
for business in the former Wanamaker space, Management anticipates that these
tenants will continue to exercise their co-tenancy rights.
49
EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 10: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for
the years ended December 31, 1995 and 1994:
(in thousands, except per share amounts)
Quarter Ended
------------------------------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31
Revenues from rental operations $ 3,966 $ 4,113 $ 3,990 $ 3,692
Write down of investment in real estate -- -- (3,200) --
Income from rental operations 1,286 1,487 (1,388) 1,325
Loss before gain on sale of real estate (1,128) (890) (3,802) (755)
Gain on sale of real estate -- -- -- 229
Net loss (1,128) (890) (3,802) (526)
Net loss per share before write down
of investment in real estate -- -- (.06) --
Net loss per share before gain on sale
of real estate -- -- -- (.08)
Net loss per share (.12) (.10) (.41) (.06)
Quarter Ended
------------------------------------------------------------
1994 March 31 June 30 Sept. 30 Dec. 31
Revenues from rental operations $ 4,018 $ 4,169 $ 4,132 $ 4,193
Income from rental operations 1,346 1,598 1,586 1,105
Net loss (928) (621) (620) (1,290)
Net loss per share (.10) (.07) (.06) (.14)
During the third quarter of 1995, as a result of a successful
valuation appeal, the Trust received and recognized a $400,000 refund of
Castleton real estate taxes relating to years 1989 to 1994. Also in the third
quarter of 1995, in contemplation of completing the sale of Castleton,
Management wrote down its investment in Castleton by $3,200,000 to its then
current estimate of net realizable value. In the fourth quarter of 1995, the
Trust completed the sale of Castleton and recognized a gain on the sale of
$229,000 (Note 3).
During the period 1992 to 1994, management explored the possibility
of expanding Harrisburg by possibly acquiring an adjacent tract of land and/or
by developing additional leasable space contiguous with the existing mall
structure. In light of the anchor tenant changes and redevelopment activities
discussed in Note 9, coupled with the on-going efforts to sell the Property,
management concluded during the fourth quarter of 1994 that further development
activity currently was not feasible. Accordingly, the related capitalized
predevelopment costs of $429,000, including payments made under a land purchase
option agreement, were written off in the fourth quarter of 1994.
50
- --------------------------------------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
December 31, 1995
(in thousands)
- --------------------------------------------------------------------------------
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
- --------------------------------------------------------------------------------
Cost
Capitalized
Subsequent
to Gross Amount at which Carried at
Initial Cost Acquisition Close of Period(3)
----------------------------------- ------------ ---------------------------------
Bldg & Bldg & Accum.
Description Encumbrance Land Improve. Improvements Land Improve. Total Deprec.
- ---------------------------------------------------------------------------------------------------------------------------
Harrisburg East Mall $45,712(1) $4,700(2) $ 31,287(2) $ 16,046 $4,700(2) $ 47,333(2) $52,033 $13,446
Harrisburg, PA
- ---------------------------------------------------------------------------------------------------------------------------
Totals $45,712 $4,700 $ 31,287 $ 16,046 $4,700 $ 47,333 $52,033 $13,446
- ---------------------------------------------------------------------------------------------------------------------------
Life on which
Depreciation in
Latest Income
Date of Date Stmt. is
Description Construction Acquired Computed
- -----------------------------------------------------------------
Harrisburg East Mall 1969(4) 3/13/85 30 yrs.
Harrisburg, PA
- -----------------------------------------------------------------
Totals
- -----------------------------------------------------------------
(1) Encumbrance is a mortgage note payable constituting first liens on the
Harrisburg real estate and a term loan payable to a bank constituting
subordinated liens on the property.
(2) Initial cost is net of imputed interest of $5,280 at date of acquisition.
(3) The aggregate tax basis of the Trust's property is $52 million as of
December 31, 1995.
(4) Renovation of Harrisburg was completed in 1993.
RECONCILIATION OF GROSS CARRYING AMOUNT OF REAL RECONCILIATION OF ACCUMULATED DEPRECIATION:
ESTATE: Balance, December 31, 1992 27,997
Balance, December 31, 1992 114,666 Depreciation expense 3,812
Improvements and Additions 5,715 Deductions -- Accumulated depreciation of real
Deductions -- costs of real estate sold (13,299) estate sold (3,691)
-------- --------
Balance, December 31, 1993 107,082 Balance, December 31, 1993 28,118
Improvements and Additions 2,487 Depreciation expense 3,719
Deductions -- Reversal of net book value of fully Deductions -- Reversal of net book value of fully
depreciated assets (44) depreciated assets (44)
-------- --------
Balance, December 31, 1994 $109,525 Balance, December 31, 1994 $ 31,793
Improvements and Additions 2,823 Depreciation Expense 4,016
Deductions -- Sale of Castleton Commercial Park (60,315) Deductions -- Sale of Castleton Commercial Park (22,363)
-------- --------
Balance, December 31, 1995 52,033 Balance, December 31, 1995 13,446
======== ========