FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-27562
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ATLANTIC REALTY TRUST
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(Exact name of registrant as specified in its charter)
Maryland 13-3849655
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(State or other jurisdiction of (I.R.S. Employer-
incorporation or organization) Identification No.)
747 Third Avenue, New York, New York 10017
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(Address of principal executive offices)
(Zip Code)
212-702-8561
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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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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of beneficial interest, par value $.01 per share,
outstanding on May 6, 2002 was 3,561,553.
I N D E X
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS HISTORICAL INFORMATION AND
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS FORM 10-Q PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THEY INVOLVE KNOWN AND UNKNOWN RISKS
AND UNCERTAINTIES THAT MAY CAUSE THE TRUST'S ACTUAL RESULTS IN FUTURE PERIODS TO
BE MATERIALLY DIFFERENT FROM ANY FUTURE PERFORMANCE SUGGESTED HEREIN. IN THE
CONTEXT OF FORWARD-LOOKING INFORMATION PROVIDED IN THIS FORM 10-Q AND IN OTHER
REPORTS, PLEASE REFER TO THE DISCUSSION OF RISK FACTORS DETAILED IN, AS WELL AS
THE OTHER INFORMATION CONTAINED IN, THE TRUST'S FORM 10 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1996 AS WELL AS THE TRUST'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION DURING THE PAST 12 MONTHS.
PAGE NO.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements................................................................................................3
Consolidated Statements Of Net Assets In Liquidation
March 31, 2002 and December 31, 2001.....................................................................................3
Consolidated Statements Of Changes In Net Assets In Liquidation - Periods
January 1, 2002 through March 31, 2002 and January 1, 2001 through March 31, 2001........................................4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Liquidation Activities..............................8
Item 3. Quantitative and Qualitative Disclosure About Market Risk...........................................................9
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................................10
Item 2. Changes in Securities and Use of Proceeds..........................................................................10
Item 3. Defaults Upon Senior Securities....................................................................................10
Item 4. Submission of Matters to a Vote of Security Holders................................................................10
Item 5. Other Information..................................................................................................10
Item 6. Exhibits and Reports on Form 8-K...................................................................................10
Signatures.................................................................................................................11
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
March 31, 2002 December 31, 2001
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ASSETS
Investment in Real Estate........................................ $ 39,520,375 $ 39,520,375
Cash and Short-Term Investments.................................. 24,428,040 23,424,552
Other Assets..................................................... 331,100 341,250
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Total Assets..................................................... 64,279,515 63,286,177
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LIABILITIES
Estimated Costs of Liquidation................................... 5,317,548 5,430,048
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Net Assets in Liquidation........................................ $ 58,961,967 $ 57,856,129
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
For the Period For the Period
January 1, 2002 January 1, 2001
to March 31, 2002 to March 31, 2001
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Net Assets in Liquidation
Beginning of Period ............................................. $ 57,856,129 $ 58,146,371
Adjustments to Reflect
Liquidation Basis of Accounting................................... 1,105,838 1,115,939
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Net Assets in Liquidation End of Period............................ $ 58,961,967 $ 59,262,310
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Atlantic Realty Trust, a Maryland real estate investment trust (the
"Trust"), was formed on July 27, 1995 for the purpose of liquidating its
interests in real properties, its mortgage loan portfolio and certain other
assets and liabilities which were transferred to the Trust from Ramco-Gershenson
Properties Trust (formerly named RPS Realty Trust) ("RPS") on May 10, 1996 (the
"Spin-Off Transaction"). The Trust adopted the liquidation basis of accounting
as of the date of the Spin-Off Transaction based on its originally stated
intention to liquidate its assets or merge or combine operations with another
real estate entity within eighteen months from the date of the Spin-Off
Transaction. The Trust intends to conduct its operations with the intent of
meeting the requirements applicable to a real estate investment trust ("REIT")
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, the Trust will have no current or deferred income tax
liabilities.
In the opinion of management, the accompanying consolidated financial
statements, which have not been audited, include all adjustments necessary to
present fairly the results for the interim periods. Such adjustments consists
only of normal recurring accruals.
The consolidated financial statements should be read in conjunction
with the annual financial statements and notes thereto included in the Trust's
annual report on form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 2001. The results of interim periods may not be
indicative of the results for the entire year.
LIQUIDATION BASIS OF ACCOUNTING
As a result of the Spin-Off Transaction, the Trust has adopted the
liquidation basis of accounting. The liquidation basis of accounting is
appropriate when liquidation appears imminent and the Trust is no longer viewed
as a going concern. Under this method of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at the anticipated
settlement amounts.
The valuations presented in the accompanying Consolidated Statements of
Net Assets in Liquidation represent the estimates at the dates shown, based on
current facts and circumstances, of the estimated net realizable value of the
assets and estimated costs of liquidating the Trust. In determining the net
realizable values of the assets, the Trust considered each asset's ability to
generate future cash flows, offers to purchase received from third parties, if
any, and other general market information. Such information was considered in
conjunction with operating the Trust's plan for disposition of assets. The
estimated costs of liquidation represent the estimated costs of operating the
Trust through its anticipated termination. These costs primarily include
payroll, consulting and related costs, rent, shareholder relations, legal and
auditing. Changes in these costs during the periods presented are reflected in
the adjustments to reflect the liquidation basis of accounting. Computations of
net realizable value necessitate the use of certain assumptions and estimates.
Future events, including economic conditions that relate to real estate markets
in general, may differ from those assumed or estimated at the time such
computations are made. Because of the inherent uncertainty of valuation when an
entity is in liquidation, the amounts ultimately realized from assets disposed
and costs incurred to settle liabilities may materially differ from amounts
presented.
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Pursuant to the terms of the Trust's Amended and Restated Declaration
of Trust, the Trust was to continue for a period of 18 months from the date of
the Spin-Off Transaction, subject to, among certain other things, satisfactory
resolution of the RPS Tax Issues (as such term is defined in footnote 5 below).
Because the RPS Tax Issues have not yet been satisfactorily resolved, the Trust
has continued its business past that date. The Trust cannot currently estimate
the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues.
CONSOLIDATION
The consolidated financial statements include the accounts of the Trust
and its subsidiary. All significant intercompany accounts and transactions have
been eliminated in consolidation.
2. INVESTMENT IN REAL ESTATE:
ESTIMATED NET ESTIMATED NET
PROPERTY LOCATION REALIZABLE VALUE 3/31/02(a) REALIZABLE VALUE 12/31/01 (a)
- -------- -------- --------------------------- -----------------------------
Hylan Shopping Center Staten Island, NY $39,520,375 $39,520,375
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(a) Includes estimated cash flows using a disposition period of 9 months.
Realized value may differ depending on actual disposition results and
time period.
(b) The operations of the Trust and the Hylan Shopping Center for the
quarter ended March 31, 2002 and the year ended December 31, 2001 are
as follows:
Quarter Ended Year ended
March 31, 2002 December 31, 2001
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Rental Income............................................................ $ 1,208,072 $ 3,998,999
Expense Reimbursements................................................... 483,493 1,883,932
Interest from Short-Term Investments .................................... 65,538 675,317
Other.................................................................... 1,215 39,095
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1,758,318 6,597,343
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Operating Property Expenses.............................................. 603,375 2,145,100
Depreciation............................................................. 64,750 259,000
General and Administrative............................................... 429,113 1,491,658
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1,097,238 3,895,758
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Net Income............................................................... $ 661,080 $ 2,701,585
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3. SHARES OUTSTANDING:
The weighted average number of shares of beneficial interest
outstanding for the periods ending March 31, 2002 and December 31, 2001 was
3,561,553.
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4. CASH AND SHORT-TERM INVESTMENTS:
Cash and short-term investments at March 31, 2002 consist primarily of
a certificate of deposit at a major New York bank of $23,650,000, purchased with
an original maturity of three months or less, bearing interest at a fixed rate
of 1.40%.
5. INCOME TAXES:
During the third quarter of 1994, RPS held more than 25% of the value
of its gross assets in overnight Treasury Bill reverse repurchase transactions
which the IRS may view as non-qualifying assets for the purposes of satisfying
an asset qualification test applicable to REITs, based on a Revenue Ruling
published in 1977 (the "Asset Issue"). RPS requested that the IRS enter into a
closing agreement with RPS that the Asset Issue would not impact RPS' status as
a REIT. The IRS declined such request. In February 1995, the IRS initiated an
examination of the 1991-1995 income tax returns of RPS (the "RPS Audit" and,
together with the Asset Issue, the "RPS Tax Issues"). Based on developments in
the law which occurred since 1977, RPS' tax counsel at that time, Battle Fowler
LLP, rendered an opinion that RPS' investment in Treasury Bill repurchase
obligations would not adversely affect its REIT status. However, such opinion is
not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that relates
to events occurring or actions taken by RPS following the date of the Spin-Off
Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS
and the Trust. Such agreement provides that RPS (now named Ramco-Gershenson
Properties Trust), under the direction of four trustees, three of whom are also
trustees of the Trust (the "Continuing Trustees") and not the Trust, will
control, conduct and effect the settlement of any tax claims against RPS
relating to the RPS Tax Issues. Accordingly, the Trust does not have any control
as to the timing of the resolution or disposition of any such claims and no
assurance can be given that the resolution or disposition of any such claims
will be on terms or conditions as favorable to the Trust as if they were
resolved or disposed of by the Trust.
RPS and the Trust have also received an opinion from Wolf, Block,
Schorr and Solis-Cohen LLP (the "Special Tax Counsel") that, to the extent there
is a deficiency in RPS distributions arising out of the IRS examination, and
provided RPS timely makes a deficiency dividend (i.e. declares and pays a
distribution which is permitted to relate back to the year for which each
deficiency was determined to satisfy the requirement that a REIT distribute
ninety-five percent (95%) of its taxable income), the classification of RPS as a
REIT for the taxable years under examination would not be affected.
As of March 31, 2002, the Trust has not been required to perform its
indemnity obligation with respect to the RPS Tax Issues other than with respect
to the payment of legal fees and expenses incurred in connection with the IRS'
ongoing examination. On March 1, 1999, the IRS revenue agent conducting the
examination issued his examination report (the "Original Revenue Agent's
Report") with respect to the tax issues in the RPS Tax Audit, including the RPS
Tax Issues. The Original Revenue Agent's Report set forth a number of positions
which the IRS examining agent took with respect to the RPS Tax Issues for the
years that are subject to the RPS Tax Audit, which Special Tax Counsel to the
Continuing Trustees believes are not consistent with applicable law and
regulations of the IRS. One of the positions, the acquisition of assets by RPS
that could be viewed as non-qualifying assets for REIT purposes, has been
addressed in the opinion letter of counsel referred to above. In addition, the
IRS revenue agent proposed to disallow the deductions for bad debts and certain
other items claimed by RPS in the years under examination. In reaching his
conclusion with respect to the deduction for bad debts, the IRS revenue agent
disregarded the fact that the values actually obtained for the assets
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corresponded to the values used by RPS in determining its bad debt deductions.
The issuance of the Original Revenue Agent's Report constituted only the first
step in the IRS administrative process for determining whether there is any
deficiency in RPS' tax liability for the years at issue and any adverse
determination by the IRS revenue agent is subject to administrative appeal with
the IRS and, thereafter, to judicial review. As noted above, the Original
Revenue Agent's Report set forth a number of positions which Special Tax Counsel
to RPS and the Trust believe are not consistent with applicable law and
regulations of the IRS. RPS filed an administrative appeal (the "Protest")
challenging the findings contained in the Original Revenue Agent's Report. The
appellate conferee to whom the administrative appeal was assigned reviewed the
Original Revenue Agent's Report and the Protest and, rather than considering the
appeal further, returned the case to the revenue agent for further factual
development. During a meeting with the Special Tax Counsel to the Continuing
Trustees, the appellate conferee indicated that, even assuming the assertions in
the Original Revenue Agent's Report justified the disallowances, he was required
to return the case to the revenue agent because the facts necessary to sustain
the assertions in the Report had not been established to the degree necessary to
permit the consideration of the case on appeal. In response, the revenue agent
requested information in accordance with the directions of the appellate
conferee and, although much of the information was examined by the agent
previously, RPS responded to the new request.
On October 29, 2001, the IRS issued a new Revenue Agent's Report (the
"New Revenue Agent's Report") with respect to the issues presented by the Tax
Audit. The amount of the proposed adjustments to the taxable income of RPS and
the amount of the additional taxes asserted as being due from RPS, for the years
under examination in the New Revenue Agent's Report, include all of the amounts
included in the Original Revenue Agent's Report. In addition, the IRS has
proposed to disallow the loss claimed by RPS on the disposition of the fee title
interest in a property (acquired by RPS in 1992 at foreclosure) that was made to
an unrelated third-party. This results in the disallowance of a loss claimed by
RPS in 1994 in the approximate amount of $1,810,000. The New Revenue Agent's
Report asserts additional grounds in support of the disallowance of the RPS bad
debt deductions in the years under examination. If all of the positions taken in
the New Revenue Agent's Report were to be sustained, RPS, with funds which could
be supplied by the Trust, would have to distribute up to approximately $16.5
million to its shareholders, in accordance with the procedures for deficiency
dividends, in order to preserve its status as a REIT and could, in addition, be
subject to taxes, interest and penalties up to approximately $39.4 million
through March 31, 2002. The Trust has been advised that Ramco-Gershenson
Properties Trust timely filed a new administrative appeal (the "New Protest")
challenging the determinations made. No action has been taken by the IRS with
respect to the New Protest.
6. OTHER ASSETS:
Other assets include the estimated interest income from the Trust's
short-term investments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
LIQUIDATION ACTIVITIES.
CAPITAL RESOURCES AND LIQUIDITY
At March 31, 2002, the Trust owned one retail property (Hylan Plaza
Shopping Center, located in Staten Island, New York) as well as cash and certain
other assets. The Trust does not intend to make new loans or actively engage in
either the mortgage lending or the property acquisition business.
The Trust's primary objective has been to liquidate its assets in an
eighteen-month period from the date of the Spin-Off Transaction while realizing
the maximum values for such assets; however because the RPS Tax
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Issues have not been satisfactorily resolved, the Trust has continued its
business beyond such period. Although the Trust considers its assumptions and
estimates as to the values and timing of such liquidations to be reasonable, the
period of time to liquidate the assets and distribute the proceeds of such
assets is subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Trust's control.
There can be no assurance that the net values ultimately realized and costs
actually incurred for such assets will not materially differ from the Trust's
estimates.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the real estate property that it owns and operates and proceeds
from the eventual sale of such property will be sufficient to support the Trust
and meet its obligations. As of March 31, 2002, the Trust had approximately
$24,428,000 in cash and short-term investments.
INFLATION
Inflation has been consistently low during the periods presented in the
consolidated financial statements and, as a result, has not had a significant
effect on the operations on the Trust or its investment.
RESULTS OF OPERATIONS
As a result of the Trust adopting the liquidation basis of accounting
in accordance with accounting principles generally accepted in the United States
of America as of May 10, 1996 and thus not reporting results of operations
thereafter, there is no management discussion comparing the corresponding
periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
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PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Pursuant to the terms of the Trust's Amended and Restated Declaration
of Trust, the Trust was to continue for a period of 18 months from the date of
the Spin-Off Transaction (which 18-month period ended on November 10, 1997),
subject to, among certain other things, satisfactory resolution of the RPS Tax
Issues. Because the RPS Tax Issues have not yet been satisfactorily resolved,
the Trust has continued its business past that date. The Trust cannot currently
estimate the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The registrant has not filed any reports on Form 8-K for the
three-month period ended March 31, 2002.
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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.
ATLANTIC REALTY TRUST
(Registrant)
Date: May 13, 2002 /s/ Joel M. Pashcow
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Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
Date: May 13, 2002 /s/ Edwin R. Frankel
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Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
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