1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
FORM 10-Q
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(Mark One)
QUARTERLY REPORT UNDER SECTION 13 AND 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
[ ] EXCHANGE ACT 1934
For the transition period from to
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Commission File Number: 1-8815
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EQK REALTY INVESTORS 1
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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
incorporation or organization) Identification No.)
5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, GA 30342
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(Address of principal executive offices) (Zip Code)
(404) 303-6100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING
FIVE YEARS:
Indicate by checkmark whether the Registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable data: 9,264,344 Shares as of August 13,
1996. -------------------------------
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EQK REALTY INVESTORS I
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1996
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Balance Sheets as of June 30, 1996 3
and December 31, 1995
Statements of Operations for the three 4
and six months ended June 30, 1996 and
June 30, 1995
Statements of Cash Flows for the six 5
months ended June 30, 1996 and
June 30, 1995
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
PART II - OTHER INFORMATION
Items 1 through 6. 16
SIGNATURES 18
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EQK REALTY INVESTORS I
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31
1996 1995
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ASSETS
Investment in Harrisburg East Mall-held for sale, at lower of cost
or net realizable value: $ 52,132 $ 52,033
Less accumulated depreciation 14,422 13,446
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37,710 38,587
Cash and cash equivalents:
Cash Management Agreement 2,076 2,972
Other 958 --
Accounts receivable and other assets 6,067 6,650
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TOTAL ASSETS $ 46,811 $ 48,209
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LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY
Liabilities:
Mortgage note payable $ 43,963 $ 44,125
Term loan payable to bank 1,587 1,587
Accounts payable and other liabilities (including amounts due
affiliates of $2,692 and $2,765, respectively) 3,462 4,030
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49,012 49,742
Deficit in Shareholders' Equity:
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 (138,076) (137,408)
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(2,201) (1,533)
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TOTAL LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY $ 46,811 $ 48,209
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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4
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EQK REALTY INVESTORS I
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three months ended June 30, Six months ended June
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1996 1995 1996 1995
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Revenues from rental operations $1,412 $4,113 $3,126 $8,079
Operating expenses, net of tenant
reimbursements (including property
management fees earned by an affiliate
of $68, $71, $152 and $145,
respectively) 217 1,411 531 2,862
Depreciation and amortization 572 1,215 1,196 2,444
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Income from rental operations 623 1,487 1,399 2,773
Other income 72 -- 264 --
Interest expense 972 2,152 1,953 4,296
Other expenses, net of interest income
(including portfolio management fees
earned by an affiliate of $62, $104,
$123, and $206, respectively) 198 225 378 495
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Net loss ($475) ($890) ($668) ($2,018)
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Net loss per share ($0.05) ($0.10) ($0.07) ($0.22)
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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Six months ended June 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($668) ($2,018)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,196 2,444
Amortization of debt discount -- 213
Imputed and deferred interest 157 816
Changes in assets and liabilities:
Increase (decrease) in accounts
payable and other liabilities (725) 161
Decrease in accounts receivable
and other assets 363 43
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Net cash provided by operating activities 323 1,659
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (99) (3,565)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of mortgage debt (162) (3)
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Increase (decrease) in cash and cash equivalents 62 (1,909)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,972 4,701
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $3,034 $2,792
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Supplemental disclosure of cash flow information:
Interest paid $1,949 $3,350
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 1: 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 June 30, 1996, the Trust's remaining real estate investment is
Harrisburg East Mall ("Harrisburg" or the "Mall"), a regional shopping
center located in Harrisburg, Pennsylvania. On December 8, 1995, the
Trust sold its interest in Castleton Park ("Castleton"), an office park
located in Indianapolis, Indiana. During 1993, the Trust sold its two
remaining office buildings within its office complex located in
Atlanta, Georgia, formerly known as Peachtree-Dunwoody Pavilion
("Peachtree"). Prior to 1993, the Trust sold 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.
NOTE 2: BASIS OF PRESENTATION
The financial statements have been prepared by the Trust, without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Trust
believes that the disclosures are adequate to make the information
presented not misleading. The financial statements should be read in
conjunction with the audited financial statements and related notes
thereto included in the Annual Report on Form 10-K for the year ended
December 31, 1995.
In the opinion of the Trust, all adjustments, which include only normal
recurring adjustments necessary to present fairly its financial
position as of June 30, 1996, its results of operations for the three
and six months ended June 30, 1996 and 1995 and its cash flows for the
six months ended June 30, 1996 and 1995, have been included in the
accompanying unaudited financial statements.
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EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 2: BASIS OF PRESENTATION (CONTINUED)
Net loss per share for the three and six months ended June 30, 1996 and
1995 have been computed on the basis of the 9,264,344 shares
outstanding during the periods. Stock warrants held by the
Trust's mortgage lender are considered common stock equivalents for
purposes of the calculation of net loss per share. However, the
warrants have not been included in the calculation of net loss per
share for the periods presented since the effect of such calculation
would be antidilutive.
NOTE 3: CASH MANAGEMENT AGREEMENT
In connection with the Trust's mortgage agreement, 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. As of June 30, 1996, a balance of $405,000 was held by the
third-party escrow agent in accordance with the Cash Management
Agreement. 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 June 30, 1996 the balance of the
capital reserve account was $1,671,000.
NOTE 4: ADVISORY AND MANAGEMENT AGREEMENTS
The Trust has entered into an agreement with Equitable Realty Portfolio
Management, Inc., 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 one year
extension of its existing mortgage debt, which now matures in December
1996, the Advisor 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
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EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 4: ADVISORY AND MANAGEMENT AGREEMENTS (CONTINUED)
the six months ended June 30, 1996 and 1995, portfolio management fees
amounted to $123,000 and $206,000, respectively.
As part of the 1989 amendment to the advisory agreement, the Advisor
forgave one-half, or $2,720,000, of the total amount of fees previously
deferred pursuant to subordination provisions of the original advisory
agreement. The remaining deferred fees are to be paid upon the
disposition of Harrisburg. For financial reporting purposes, the
deferred balance is being discounted at the rate of 13% per year from
December 1, 1996. As of June 30, 1996, the discounted liability for
deferred management fees was $2,575,000.
The Trust has also entered into an agreement with Compass Retail, Inc.
("Compass"), an affiliate of Equitable Real Estate, for the on-site
management of Harrisburg. Castleton Park was managed by an unaffiliated
third-party management company up until the time of its sale.
Management fees paid to Compass are generally based upon a percentage
of rents and certain other charges. Such fees and commissions are
comparable to those charged by unaffiliated third-party management
companies providing comparable services. For the six months ended June
30, 1996 and 1995, management fee expense attributable to services
rendered by Compass was $152,000 and $145,000, respectively.
NOTE 5: COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Resolution of Anchor Department Store Vacancy
On May 13, 1996, the Trust and May Department Stores Company ("May
Company") executed a lease agreement that provides for the opening of a
Lord & Taylor department store (a division of May Company) in the
anchor space previously occupied by John Wanamaker. The John Wanamaker
location at Harrisburg East Mall has been closed since October 1995
following Woodward & Lothrop's (the owner of John Wanamaker) sale of
certain department stores in this retail chain to May Company pursuant
to an August 1995 bankruptcy court auction. Given its existing
presence at Harrisburg East Mall through its recently-opened Hecht's
department store, May Company initially pursued an assignment of this
leasehold interest to other retail operators before deciding instead to
open a Lord & Taylor department store in this location. The execution
of such lease agreement has resulted in, among other things, the
termination of the legal proceedings initiated by the Trust against
May Company in March 1996 following May Company's failure to open or
cause
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EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 5: COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
(CONTINUED)
another retail operator to open for business once the John Wanamaker
store closed, which was a violation of a continuous operating covenant
contained in its lease agreement.
The new lease agreement with May Company has an initial term of nine
years (October 31, 2005), with three renewal options of ten years each.
The new lease agreement has a longer committed lease term than the
John Wanamaker lease agreement, which stipulated an initial lease term
expiration date of October 31, 1999. The financial terms are comparable
to those contained in the John Wanamaker lease, although minimum rent
payments during the first three years of the lease are anticipated to be
approximately $75,000 less per annum. Due to certain rent offsets that
John Wanamaker would have otherwise been entitled to, the revenue stream
after the third lease year is anticipated to be more favorable to the
Trust. In connection with the execution of this lease agreement, the
Trust received approval from May Company, on behalf of its Hecht's and
Lord & Taylor stores, of certain modifications to the Mall's site plan
which will give the Trust flexibility in future development planning. The
opening of a Lord & Taylor store is expected to have a positive impact on
the Trust's ability to lease space to new tenants and to renew leases
with existing tenants.
The Trust anticipates that Lord & Taylor will open its newly renovated
store in Spring 1997. Initially, Lord & Taylor had projected an opening
prior to the 1996 Holiday shopping season. However, issues affecting
construction scheduling have delayed the opening date. Until the Lord &
Taylor store opens, certain tenants will be permitted to pay, pursuant to
co-tenancy provisions provided for in their leases, 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
$75,000 to $115,000 per quarter.
Debt Maturities
The Trust's mortgage note and term loan mature on December 15, 1996 in
the aggregate principal amount of $45,381,000. Given that the Trust
expects to hold its investment in Harrisburg beyond 1996 (see
discussion in Management's Discussion and Analysis), Management is
pursuing its external financing alternatives, including the refinancing
of its debt with its existing lenders in anticipation of the mortgage
and term loan maturities. 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 the sale of Harrisburg
will be accelerated to satisfy its debt obligations.
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EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS
NOTE 5: COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
(CONTINUED)
Other Income
In March 1996, the Trust was notified by the Fulton County (Georgia)
Tax Commissioner's office of a reduction in the assessed value of the
real estate underlying Peachtree Dunwoody Pavilion for tax years 1991
and 1992. As previously disclosed in Note 1, the Trust completed the
sale of Peachtree Dunwoody Pavilion during the period 1992-1993. Such
reduction in assessed value resulted in a refund of previously paid
real estate taxes in the amount of $192,000 which the Trust recognized
as other income during the first quarter. In June 1996, the Trust was
notified by the Fulton County Tax Commissioner's office of an
additional tax refund of $72,000, which the Trust received in July 1996
and recognized as other income in the second quarter.
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EQK REALTY INVESTORS I
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 on pages 3-10.
FINANCIAL CONDITION
CAPITAL RESOURCES
Background
As of June 30, 1996, the Trust's remaining real estate investment is Harrisburg
East Mall ("Harrisburg"), a regional shopping center located in Harrisburg,
Pennsylvania. During the period 1992 to 1995, the Trust completed the
disposition of its two other real estate investments. Castleton Park
("Castleton"), an office park located in Indianapolis, Indiana, was sold in
December 1995, and Peachtree Dunwoody Pavilion, an office park located in
Atlanta, Georgia, was sold in three separate transactions during 1992 and
1993. Consistent with the requirements of its charter, the Trust intends to
dispose of its remaining real estate investment, Harrisburg East Mall, prior to
March 1999. Management believes that it is most likely that a prospective
buyer will be willing to offer an amount that approximates Harrisburg's
stabilized value after Lord & Taylor opens for business and operates for some
period of time. Lord & Taylor is currently scheduled to open in the Spring of
1997. In addition, Management believes that Harrisburg's selling price can be
further enhanced if Harrisburg is held for a sufficient period of time to
permit completion of certain ongoing leasing and development initiatives.
Therefore, Management anticipates that Harrisburg will not be sold prior to
the December 15, 1996 maturity date of the Trust's mortgage debt
(see discussion below).
Harrisburg Anchor Tenant Status
On May 13, 1996, the Trust and May Department Stores Company ("May Company")
executed a lease agreement that provides for the opening of a Lord & Taylor
department store (a division of May Company) in the anchor space previously
occupied by John Wanamaker. The John Wanamaker location at Harrisburg has been
closed since October 1995 following Woodward & Lothrop's (the owner of John
Wanamaker) sale of certain department stores in this retail chain to May
Company pursuant to an August 1995 bankruptcy court auction. Given its
existing presence at Harrisburg through its recently-opened Hecht's department
store, May Company initially pursued an assignment of this leasehold interest
to other retail operators before deciding instead to open a Lord & Taylor
department store in this location. The execution of such lease agreement has
resulted in, among other things, the termination of the legal proceedings
initiated by the Trust against the
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EQK REALTY INVESTORS I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
May Company in March 1996 following May Company's failure to open or cause
another retail operator to open for business once the John Wanamaker store
closed, which was a violation of a continuous operating covenant contained in
its lease agreement.
The new lease agreement with May Company has an initial term of nine years
(October 31, 2005), with three renewal options of ten years each. The new
lease agreement has a longer committed lease term than the John Wanamaker lease
agreement, which stipulated an initial lease term expiration date of October
31, 1999. The financial terms are comparable to those contained in the John
Wanamaker lease, although minimum rent payments during the first three years of
the lease are anticipated to be approximately $75,000 less per annum. Due to
certain rent offsets that John Wanamaker would have otherwise been entitled to,
the revenue stream after the third lease year is anticipated to be more
favorable to the Trust. In connection with the execution of this lease
agreement, the Trust received approval from May Company on behalf of its
Hecht's and Lord & Taylor stores to certain modifications to the mall's site
plan which will give the Trust flexibility in future development planning. The
opening of a Lord & Taylor store is expected to have a positive impact on the
Trust's ability to lease space to new tenants and to renew leases with existing
tenants.
The Trust anticipates that Lord & Taylor will open its newly renovated store in
Spring 1997. Initially, Lord and Taylor had projected an opening prior to the
1996 Holiday shopping season. However, issues affecting construction
scheduling have delayed the opening date. Until the Lord & Taylor store
opens, certain tenants will be permitted to pay, pursuant to co-tenancy
provisions provided for in their leases, 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 $75,000 to $115,000 per quarter.
Debt Maturities
The Trust's mortgage note and term loan mature on December 15, 1996 in the
aggregate principal amount of $45,381,000. Given that the Trust expects to
hold its investment in Harrisburg beyond 1996, Management is pursuing its
external financing alternatives, including the refinancing of its debt with its
existing lenders in anticipation of the mortgage and term loan maturities.
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 the sale of Harrisburg will
be accelerated to satisfy its debt obligations.
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EQK REALTY INVESTORS I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
The Trust's cash flows from operating activities declined $1,336,000 during the
six months ended June 30, 1996 as compared to the six months ended June 30,
1995. This decline was primarily due to a reduction in cash flows stemming
from the December 1995 sale of Castleton ($2,890,000), partially offset by a
reduction in interest payments resulting from the partial repayment of mortgage
debt following the sale ($1,401,000). Also, cash provided by operating
activities during the first six months of 1996 was reduced by the Trust's
repayment of a $300,000 loan to its Advisor. The proceeds of this loan had
been used to fund an escrow deposit that was released by the lender in
connection with the 1995 debt extension. The effect of this loan repayment was
offset by a $192,000 refund of previously paid real estate taxes discussed in
Note 5 to the financial statements and collections of Harrisburg's outstanding
receivables of $115,000.
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 have had to implement, plans of
reorganization, including filing for protection under 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 other tenants, Management believes that approximately $230,000 in
minimum rents earned in 1995 may not be achieved in 1996 (in addition to the
previously discussed decline in minimum rents due to the exercise of co-tenancy
provisions by certain tenants). The Trust has received lease termination fees
in certain situations that will partially offset this anticipated decline in
minimum rents. Further, approximately $200,000 of the $230,000 in minimum rent
shortfalls relate to short-term rent relief agreements that will expire once
the new Lord & Taylor store opens as currently scheduled in late 1996.
Management will continue to counter the negative trends associated with the
current retail economic climate with aggressive leasing and marketing programs.
Cash flows used in investing activities during the six months ended June 30,
1996 and 1995 amounted to $99,000 and $3,565,000, respectively. The 1996
results reflect routine capital additions at Harrisburg while the 1995 results
reflect expenditures related to the outparcel building redevelopment and a
tenant allowance at Harrisburg, in addition to routine capital expenditures at
both Harrisburg and Castleton. The Trust anticipates capital expenditure
requirements of approximately $900,000 for the remainder of 1996 for tenant
alterations, roof repairs, parking lot overlays, and routine capital additions,
although certain of these expenditures may be deferred into future periods at
Management's discretion.
During both the six month periods ended June 30, 1996 and 1995, cash flows used
in financing
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EQK REALTY INVESTORS I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
activities were limited to principal payments on the Trust's debt. Pursuant to
the terms of the one year mortgage debt extensions executed in December 1995,
the Trust is required to make principal payments on both the mortgage note and
the term loan in 1996, while 1995 scheduled principal payments were required
for the term loan only.
The Trust's liquidity requirements for the remainder of 1996 will also include
principal and interest payments of approximately $2,112,000 pursuant to the
existing loan agreements prior to such debt maturities in December 1996.
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 will be limited by the terms of the Cash Management Agreement.
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.
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 $2,201,000 at June 30, 1996 is indicative of its
current liquidity or distribution that its shareholders will receive upon
liquidation.
RESULTS OF OPERATIONS
For the six months ended June 30, 1996, the Trust reported a net loss of
$668,000 ($.07 per share) compared to a net loss of $2,018,000 ($.22 per share)
for the six months ended June 30, 1995. For the second quarter of 1996, a net
loss of $475,000 ($.05 per share) was reported compared to a net loss of
$890,000 ($.10 per share) for the second quarter of 1995.
The Trust's revenues for the three and six month periods ending June 30, 1996
were $1,412,000 and $3,126,000, respectively, representing decreases of
$2,701,000 and $4,953,000 over the comparable 1995 periods. The decline in
revenues was primarily due to the December 1995 sale of Castleton. The decline
was partially offset by an increase in Harrisburg's revenues due to the receipt
of lease termination fees in the first quarter of 1996. The lease termination
fees were partially offset by a decrease in Harrisburg's rental revenues
associated with co-tenancy provisions in certain tenants' leases which allow
them to pay percentage rent in lieu of fixed minimum rentals until the Lord &
Taylor store opens for business.
Operating expenses for the three and six month periods ending June 30, 1996 and
1995 were $217,000 and $531,000, respectively, representing decreases of
$1,194,000 and $2,331,000 over the comparable 1995 periods. The decline in
expenses was also primarily due to the December 1995
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EQK REALTY INVESTORS I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
sale of Castleton. There was no significant fluctuation in Harrisburg's
expenses between the first six months of 1996 and 1995.
Interest expense for the three and six month periods ending June 30, 1996
declined $1,180,000 and $2,343,000, respectively, over the comparable 1995
periods. The decline is due primarily to the mortgage debt reduction following
the sale of Castleton. Total debt outstanding at June 30, 1996 was $45,550,000
as compared to $80,919,000 at June 30, 1995. Also, reductions in interest
rates applicable in 1996 for both the mortgage note and term loan resulted in
lower interest expense as compared to interest charges which would have been
incurred at interest rates in effect in 1995.
In March 1996, the Trust was notified by the Fulton County (Georgia) Tax
Commissioner's office of a reduction in the assessed value of the real estate
underlying Peachtree Dunwoody Pavilion for tax years 1991 and 1992. As
previously discussed, the Trust completed the sale of Peachtree Dunwoody
Pavilion during the period 1992-1993. Such reduction in assessed value resulted
in a refund of previously paid real estate taxes in the amount of $192,000,
which the Trust recognized as other income during the first quarter. In June
1996, the Trust was notified by the Fulton County Tax Commissioner's office of
an additional tax refund of $72,000 for tax year 1992, which the Trust
received in July 1996 and recognized as other income in the second quarter.
Other expenses consist of portfolio management fees, other costs related to the
operation of the Trust, and interest income earned on cash balances. The
decrease in other expenses of $27,000 and $117,000 for the three and six month
periods ending June 30, 1996 is primarily attributable to a decrease in
advisory fees.
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EQK REALTY INVESTORS I
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
On March 22, 1996, the Trust filed complaints of ejectment (eviction)
and monetary damages in the local jurisdiction against May Department
Stores Company ("May Company") to gain control of the department
store space formerly occupied by John Wanamaker. May Company had
earlier acquired the leasehold interest in the John Wanamaker store
at Harrisburg East Mall from John Wanamaker's owner, Woodward &
Lothrop, in an August 1995 bankruptcy court auction. Following this
transaction, the John Wanamaker store at Harrisburg East Mall closed
in October 1995. May Company's failure to cause the store to reopen
(with either one of its department store divisions or with another
retail operator) represented a violation of a continuous operating
covenant contained in the lease agreement.
On May 13, 1996, the Trust and May Company executed a lease agreement
that provides for the opening of a Lord & Taylor department store (a
division of May Company ) in this vacant anchor department store
space. The execution of such lease agreement with May Company has
resulted in the termination of these legal proceedings.
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Shareholders was held on May 29,
1996. The only matter submitted to a vote at the meeting was the
election of five Trustees to serve for the ensuing year. All members
were elected without opposition.
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2. None
4. None
10. None
11. See Note 2 to the Financial Statements.
15. Not Applicable
18. Not Applicable
19. None
22. None
23. Not Applicable
24. None
27. Included in EDGAR transmission only.
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EQK REALTY INVESTORS I
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K (continued)
(b) Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1996 EQK REALTY INVESTORS I
By: /s/Gregory R. Greenfield
---------------------------
Gregory R. Greenfield
Executive Vice President and Treasurer
(Principal Financial Officer)
By: /s/William G. Brown, Jr.
---------------------------
William G. Brown, Jr.
Vice President and Controller
(Principal Accounting Officer)
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