UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 __________________
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 (IRS Employer
Incorporation or organization Identification No.)
747 Third Avenue, New York, NY 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-702-8561
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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
Common Shares of Beneficial Interest, NASDAQ SmallCap Market
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$0.01 Par Value Per Share
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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 [ ]
Indicate by check mark 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 check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
Aggregate market value of the Shares of Beneficial Interest held by
non-affiliates of the registrant as of June 28, 2002: approximately $31,257,777.
Approximately 3,561,553 Shares of Beneficial Interest of the Registrant were
outstanding as of March 14, 2003.
TABLE OF CONTENTS
Page
PART I ..................................................................... 1
Item 1. Business. ........................................................ 1
Item 2. Properties. ...................................................... 5
Item 3. Legal Proceedings. ............................................... 6
Item 4. Submission of Matters to a Vote of Security Holders............... 6
PART II .................................................................... 6
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 6
Item 6. Selected Financial Data........................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities........................................ 7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 8
Item 8. Financial Statements and Supplementary Data....................... 8
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................... 8
PART III.................................................................... 9
Item 10. Directors and Executive Officers of the Registrant............... 9
Item 11. Executive Compensation........................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management... 14
Item 13. Certain Relationships and Related Transactions................... 15
Item 14. Controls and Procedures.......................................... 16
PART IV..................................................................... 17
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.............................................. 17
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, WITHOUT LIMITATION, THOSE STATEMENTS RELATING TO THE "RPS
TAX ISSUES" DISCUSSED IN ITEM 1 OF THIS ANNUAL REPORT ON FORM 10-K, STATEMENTS
SET FORTH IN THE SECTION CAPTIONED "RISK FACTORS" IN THE TRUST'S REGISTRATION
STATEMENT ON FORM 10 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH
28, 1996 (FILE NO. 0-27562) AND STATEMENTS IN THE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" OF THIS ANNUAL REPORT
ON FORM 10-K. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE TRUST
UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
PART I
Item 1. Business.
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Atlantic Realty Trust, a Maryland real estate investment trust (together
with its subsidiary, the "Trust"), was organized pursuant to a Declaration of
Trust dated July 27, 1995 (as amended, the "Declaration of Trust"). The
principal office of the Trust is located at 747 Third Avenue, New York, New York
10017.
The Trust commenced operations on May 10, 1996 as a result of a spinoff
(the "Spin-Off Transaction") from RPS Realty Trust ("RPS"). The Spin-Off
Transaction was consummated in order to permit RPS to complete an acquisition
(the "Ramco Acquisition") of assets from Ramco Gershenson, Inc. and its
affiliates ("Ramco"), which permitted RPS to become an equity shopping center
real estate investment trust (a "REIT"). RPS undertook the Spin-Off Transaction
because Ramco was unwilling to consummate the Ramco Acquisition if the assets
that were contributed by RPS to the Trust (the "Trust Assets") remained in RPS.
Pursuant to the Spin-Off Transaction, the board of trustees of RPS approved a
distribution of one common share of beneficial interest (the "Shares") of the
Trust for every eight shares of beneficial interest of RPS (the "Distribution").
Under the provisions of its Declaration of Trust, the Trust was to continue
for a period of 18 months from May 10, 1996, during which time it was to reduce
to cash or cash equivalents the Trust Assets and either (i) make a liquidating
distribution to its shareholders or (ii) agree to merge or combine operations
with another real estate entity, in either case, as soon as practicable
following the Distribution and within such 18-month period. Such 18-month period
was subject to extension if (i) the Trust had not achieved its objective and the
holders of at least two-thirds of the outstanding Shares approved the extension
of such date or (ii) a contingent tax liability relating to RPS that has been
assumed by the Trust had not been satisfactorily resolved. Because the RPS Tax
Issues (as defined below) have not yet been satisfactorily resolved, the Trust
has continued its business past such 18-month period. 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. Upon obtaining a satisfactory resolution to the RPS Tax Issues and
liquidating the Trust's remaining assets, any liquidating distribution effected
by the Trust would be subject to the satisfaction of the Trust's liabilities to
its creditors. In the event that at the end of this period, the Trust is unable
to achieve its business objectives, the members (the "Trustees") of the Trust's
board of trustees (the "Board of Trustees") will appoint an independent third
party to liquidate the Trust's remaining assets.
As a result of the Spin-Off Transaction, the Trust acquired the Trust
Assets. The Trust Assets which have not been disposed of by the Trust are
described below under "-- Description of Trust Assets." The Trust's principal
investment objective is to maximize shareholder value from the reduction of the
Trust Assets to cash or cash equivalents. As part of its plan to liquidate the
Trust Assets to cash or cash equivalents, the Trust intends, among other things,
and subject to the Internal Revenue Service's ("IRS") consideration of the
appeals filed, by RPS and the Trust in connection with the examination reports
issued by the IRS in connection with their audits of RPS and the Trust (as more
fully described below under "-- Tax Contingency") to continue to: (i) contact
strategic buyers of the Trust's remaining asset (the Hylan Plaza Shopping
Center, located in Staten Island, New York (the "Hylan Center")) regarding
possible sales transactions and (ii) list the Hylan Center for sale with
qualified real estate brokers. No assurance can be given, however, that such
objective will be achieved. The Trust expects to continue to invest the net
proceeds from sales of the Trust Assets in short-term or temporary investments,
such as certificates of deposit, pass-through mortgage-backed certificates,
mortgage participation certificates and mortgaged-backed securities (or similar
investment products), all or some of which investments may be guaranteed by
1
Ginnie Mae, Fannie Mae or Freddie Mac. Unless otherwise approved by the
shareholders, the Trust does not expect that it will make new permanent
investments or raise additional capital. In addition, the Trust does not expect
to acquire additional mortgage loans or properties.
In addition, the Trust may explore the possibility of merging or entering
into a business combination with another real estate entity. The Trust expects
that it will pursue such a transaction only if it represents an attractive
alternative to the distribution to shareholders of the net proceeds from the
orderly liquidation of the Trust Assets, as described above. The merger
candidates that may be available to the Trust may be limited as a result of the
amount of cash and the nature of the assets which the Trust will hold.
Accordingly, there can be no assurance that the Trust will successfully merge or
combine operations with another real estate entity. Because the Trust has
adopted a policy not to re-invest sales proceeds in additional mortgage loans on
real estate (except to the extent necessary to satisfy applicable REIT
requirements), a merger or other business combination involving the Trust and
another real estate entity may constitute a "roll-up transaction" under
applicable securities laws. In such case, the Trust would be required to comply
with the heightened disclosure rules as well as special rules relating to the
proxy solicitation process and the listing of the securities of the surviving
company on any exchange or the inclusion for quotation of such securities on the
Nasdaq Small Cap Market. Application of the roll-up rules to a company merger or
business combination could delay, defer or prevent such a transaction from
occurring.
The Trust was organized for the purpose of qualifying as a REIT under
sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").
The Trust will elect to qualify as a REIT for the year ended December 31, 2002
and intends to operate so as to continue to qualify as a REIT.
As of December 31, 2002, the Trust had six employees.
Description of Trust Assets
As of December 31, 2002, the Trust owned and operated one real property,
the Hylan Center and held short-term investments in the principal amount of
approximately $22,150,000, consisting primarily of a certificate of deposit at a
major New York bank.
Real Property Investment
The Hylan Plaza Shopping Center. At December 31, 2002, the Trust held an
equity investment in one property, the Hylan Center. The Hylan Center is a
one-story community shopping center located in Staten Island, New York which was
acquired by the Trust in April, 1996. The Hylan Center contains approximately
361,000 square feet of leasable space approximately 99% of which was leased and
occupied as of December 31, 2002. Major tenants (i.e., tenants who accounted for
10% or more of the leasable space as of December 31, 2002) include K-Mart
Corporation, a department store chain ("K-Mart"), Pathmark Stores, Inc.
("Pathmark"), and the Toys "R" Us -- NY L.L.C.., a retail toy store chain ("Toys
"R" Us"). These three tenants lease approximately 104,000, 60,000 and 42,000
square feet, respectively, which constitutes 30%, 16% and 12%, respectively, of
the total leasable space. The K-Mart lease expires in January 2007 and provides
for annual base rental payments of approximately $235,000; the Pathmark lease
expires in January 2007 and provides for annual base rental payments of
approximately $339,000; and the Toys "R" Us lease expires in October 2005 and
provides for annual base rental payments of approximately $90,000. K-Mart is
currently operating under bankruptcy protection pursuant to Title 11, United
States Code, 11 U.S.C. Sections 101 et seq., however, it has assumed its
obligations under its lease except for approximately $85,000 of unpaid
reimbursements due and owing to a subsidiary of the Trust prior to the
bankruptcy filing for which the Trust has filed a proof of claim. The K-Mart
lease contains two 5-year tenant renewal options; the Pathmark lease contains
six 5-year tenant renewal options; and the Toys "R" Us lease contains one
10-year tenant renewal option. Leases for approximately 11,000 square feet are
due to expire on or prior to December 31, 2003. The approximate
2
base rental revenue as of December 31, 2002 was approximately $4,088,000. The
average base rental revenue per leased square foot as of December 31, 2002 was
$11.59, excluding percentage rent and similar provisions. The Trust believes the
property is adequately covered by insurance. As of December 31, 2002, the
estimated net realizable value of the Hylan Center was approximately
$43,929,000, including estimated cash flows using a disposition period of 9
months. Realized values may differ depending on actual disposition results and
time periods.
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with the ownership, operation and
management of the Hylan Center, the Trust may be potentially liable for removal
or remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property. Certain environmental
laws and common law principles could also be used to impose liability for
release of an exposure to hazardous substances, including asbestos-containing
materials ("ACMs") into the air, and third parties may seek recovery from owners
or operators of real properties for personal injury or property damage
associated with exposure to released hazardous substances, including ACMs. As
the owner of the Hylan Center, the Trust may be potentially liable for any such
costs.
Qualification as a REIT
The Trust intends to qualify as a REIT for federal income tax purposes. If
the Trust so qualifies, amounts paid by the Trust as distributions to its
shareholders will not be subject to corporate income taxes. For any year in
which the Trust does not meet the requirements for electing to be taxed as a
REIT, it will be taxed as a corporation.
The requirements for qualification as a REIT are contained in Sections
856-860 of the Code and the regulations promulgated thereunder. The following
discussion is a brief summary of some of those requirements. Such requirements
include certain provisions relating to the nature of a REIT's assets, the
sources of its income, the ownership of its stock, and the distribution of its
income. Among other things, at the end of each fiscal quarter, at least 75% of
the value of the total assets of the Company must consist of real estate assets
(including interests in mortgage loans secured by real property and interests in
other REITs, as well as cash, cash items and government securities) (the "75%
Asset Test"). There are also certain limitations on the amount of other types of
securities which can be held by a REIT. Additionally, at least 75% of the gross
income of the Company for the taxable year must be derived from certain sources,
which include "rents from real property," and interest secured by mortgages on
real property. An additional 20% of the gross income of the Company must be
derived from these same sources or from dividends, interest from any source, or
gains from the sale or other disposition of stock or securities or any
combination of the foregoing.
The Trust may invest the proceeds derived from the sale or other
disposition of the Trust Assets in pass-through, mortgage-backed certificates,
mortgage participation certificates and mortgage-backed securities, all or some
of which instruments may be guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
Such instruments produce qualifying income for REIT qualification purposes and
also satisfy the requirements of the 75% Asset Test. A REIT is also required to
distribute at least 90% (95% for taxable years on or before December 31, 2000)
of its REIT Taxable Income (as defined in the Code) to its shareholders.
3
Tax Contingency
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) as more fully set forth in a tax agreement, dated May 10, 1996, by
and between RPS and the Trust (the "Tax Agreement"). 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 also have 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 December 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
corresponded to the values used by RPS in determining its bad debt deductions
for financial reporting purposes. 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. RPS
filed an
4
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 $43.1 million
through December 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 and discussions between Special Tax Counsel
to the Continuing Trustees and the IRS appellate conferees are ongoing.
On February 21, 2003, the IRS issued an examination report to the Trust
with respect to the 1996 and 1997 taxable years of the Trust. This examination
report proposes to disallow all of the loss deductions claimed by the Trust upon
the disposition of Trust Assets during that period. In addition, the examination
report proposes to increase the REIT taxable income of the Trust during 1996 and
1997 on account of two items reported on the Trust's tax returns for which the
Trust did not claim any taxable loss or deduction. Counsel to the Trust has
advised that the examination report contains numerous errors of fact with
respect to the operations of the Trust and that the legal conclusions in the
examination report are not consistent with the applicable provisions of the Code
and the income tax regulations. The Trust intends to file a timely
administrative appeal (the "Trust Protest") challenging the adjustments proposed
in the examination report.
Segment Information
The Trust considers its business to include one industry segment,
investment in real estate.
Item 2. Properties.
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The Trust leases approximately 4,100 square feet of office space at 747
Third Avenue, New York, New York at an annual base rent of approximately
$262,000. This lease will expire on October 31, 2004. In addition, the Trust
owns and operates the Hylan Center property described under Item 1.
5
Item 3. Legal Proceedings.
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There are no material pending legal proceedings other than ordinary routine
litigation incidental to the business (including without limitation, foreclosure
proceedings), against or involving the Trust or its properties.
Item 4. Submission of Matters to a Vote of Security Holders.
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The Trust did not submit any matter to a vote of its shareholders during
the fourth quarter of 2002.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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(a) Market Information
The Shares of the Trust have been included for quotation on the Nasdaq
SmallCap Market under the symbol ATLRS. Set forth below is the range of high and
low bid prices for the shares for each of the quarters during the years ended
December 31, 2002 and 2001.
High Low
---- ---
First Quarter 2002 $8.700 $7.890
Second Quarter 2002 $9.400 $8.030
Third Quarter 2002 $11.400 $9.250
Fourth Quarter 2002 $11.050 $9.380
First Quarter 2001 $8.625 $6.750
Second Quarter 2001 $9.900 $7.500
Third Quarter 2001 $9.250 $7.720
Fourth Quarter 2001 $8.900 $7.580
(b) Approximate Number of Equity Security Holders
Approximate Number
of Record Holders
Title of Class (As of March 14, 2003)
----------------------
Shares of beneficial interest, $.01 par value 2,266
(c) Dividend Information
Under the Code, a REIT must meet certain qualifications including a
requirement that it distribute annually to its shareholders at least 90% of its
REIT Taxable Income (95% for taxable years on or before December 31, 2000). The
Trust has continued the cash distribution policy of the predecessor programs by
making quarterly distributions to its shareholders in amounts such that annual
distributions equal 100% of
6
REIT Taxable Income, thereby complying with the distribution requirements of the
federal income tax laws applicable to REITs. See "Qualification as a REIT" in
Item 1 above.
The Trust paid distributions of $.62, $.76 and $.86 per share for the years
ended December 31, 2002, 2001 and 2000 respectively. Such distributions
represent ordinary income.
Item 6. Selected Financial Data.
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The following tables set forth certain selected historical information for
the Trust. The financial information should be read in conjunction with the
financial statements and notes thereto included herein.
ATLANTIC REALTY TRUST 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
-------- -------- -------- -------- --------
Statement of Net Assets
In Liquidation:
Total Assets $ 66,876,929 $63,286,177 $62,691,522 $61,826,132 $ 60,376,057
Total Liabilities 4,971,363 5,430,048 4,545,181 4,394,443 4,164,168
Net Assets in Liquidation 61,905,566 57,856,129 58,146,371 57,431,689 56,211,889
Statement of Changes in
Net Assets in Liquidation:
Increase (Decrease)
Distributions Paid (2,208,163) (2,706,780) (3,062,936) (997,235) --
Adjustments to Reflect Liquidation
Basis of Accounting 6,257,600 2,416,538 3,777,618 2,217,035 2,163,185
Net Change in Net Assets in Liquidation $4,049,437 $(290,242) $714,682 $1,219,800 $2,163,185
Item 7. Management's Discussion and Analysis of Financial Condition and
Liquidation Activities.
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Capital Resources and Liquidity -- Atlantic Realty Trust
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 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 estimate. The Trust does not intend to
make new loans or actively engage in either the mortgage lending or the property
acquisition business.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the real estate property that it owns and operates (the Hylan
Center) and proceeds from the eventual sale of such property will be sufficient
to support the Trust and meet its obligations. As of December 31, 2002, the
Trust had approximately $22,678,000 in cash and short-term investments.
7
During the first quarter of 1998, the Trust received net proceeds of
approximately $3,242,000 from the sale of the Norgate Shopping Center. Following
such sale, the Trust's sole remaining property was the Hylan Center.
The Trust expects that it will liquify its investment in the Hylan Center
upon resolution of the RPS Tax Issues and any resolution of any liabilities
relating thereto under the Tax Agreement.
Results of Operations
Period from January 1, 2000 to December 31, 2000, January 1, 2001 to December
31, 2001 and January 1, 2002 to December 31, 2002.
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. The Trust's income or loss is included in the adjustments to
reflect liquidation basis of accounting. Net income for the years ended December
31, 2002, 2001 and 2000 was approximately $2,187,000, $2,701,000 and $3,045,000
respectively.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- -------- -----------------------------------------------------------
As of December 31, 2002, the Trust has approximately $22,677,000 of cash
and short term investments. The earnings from these assets are affected by
changes in market interest rates over which the Trust has no control. Although
changes in market interest rates may significantly affect the earnings on these
assets the impact in changes in rates on the Trust's net assets in liquidation
is not expected to be material.
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
See pages F-1 through F-9, which are included herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
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None.
8
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
The Board of Trustees is composed of six Trustees, each of whom will serve
until the respective successors are elected and qualified.
The Trustees and executive officers of the Trust are as follows:
Name Age Offices and Positions
- ---- --- ---------------------
Joel M. Pashcow* 60 Chairman and President of the Trust effective
as of February 29, 1996. He has been a member
of the Bar of the State of New York since
1968. Chairman of RPS from inception
(December 1988) through May 1996. He is a
graduate of Cornell University and the
Harvard Law School. Mr. Pashcow is also a
trustee of Ramco-Gershenson Properties Trust
and Chairman of its Executive Committee
(formerly named RPS Realty Trust).
Edwin J. Glickman 70 Executive Vice President of Capital Lease
Funding Corp., a company engaged in
commercial real estate lending, since January
1995. Prior to that, Mr. Glickman was
President of the Glickman Organization, Inc.
("Glickman") from January 1992 to December
1994. Glickman conducted real estate
investment consulting services and real
estate financial services, including mortgage
brokerage, arranging joint ventures and
equity financing. Prior to that, Mr. Glickman
was Chairman of the Executive Committee of
Schoenfeld Glickman Maloy Inc. from May 1989,
which is a company that conducted real estate
financial services, including mortgage
brokerage, arranging joint ventures and
equity financing. Also served successively as
Executive Vice President, President and Vice
Chairman of Sybedon Corporation from 1977 to
1993, which is a company that conducted real
estate financial services, including mortgage
brokerage, arranging joint ventures and
equity financing. In all positions, Mr.
Glickman has been engaged in real estate
financial services, including mortgage
brokerage, arranging joint ventures and
equity financing.
9
Name Age Offices and Positions
- ---- --- ---------------------
Stephen R. Blank* 57 Senior Fellow, Finance of the Urban Land
Institute ("ULI"). Mr. Blank is also a
director of West Coast Hospitality
Corporation, a New York Stock Exchange-listed
corporation, BNP Residential Trust, Inc., an
American Stock Exchange-listed REIT, and MFA
Mortgage Investments, Inc., a New York Stock
Exchange-listed REIT. Prior to joining the
ULI in December of 1998, Mr. Blank was a
Managing Director, Real Estate Investment
Banking of CIBC Oppenheimer Corp.
("Oppenheimer") since November 1, 1993. Prior
to joining Oppenheimer, Mr. Blank was a
Managing Director, Real Estate Corporate
Finance, of Cushman & Wakefield, Inc. for
four years. Prior to that, Mr. Blank was
associated for ten years with Kidder, Peabody
& Co. Incorporated as a Managing Director of
the firm's Real Estate Group. Mr. Blank
graduated from Syracuse University in 1967
and was awarded a Masters Degree in Business
Administration (Finance Concentration) by
Adelphi University in 1971. He is a member of
the Urban Land Institute and the American
Society of Real Estate Counselors. Since
September 1998, Mr. Blank has been an adjunct
professor in the Real Estate Executive MBA
Program at Columbia University Graduate
School of Business. He has lectured before
the Practising Law Institute, the New York
University Real Estate Institute, the Urban
Land Institute and the International Council
of Shopping Centers. Mr. Blank is also a
trustee of Ramco-Gershenson Properties Trust
(formerly named RPS Realty Trust).
Edward Blumenfeld 62 A principal of Blumenfeld Development Group,
Ltd., a real estate development firm
principally engaged in the development of
commercial properties since 1978.
Arthur H. Goldberg* 60 President of Manhattan Associates, LLC, a
merchant and investment banking firm since
February 1994. Prior to that, Mr. Goldberg
was Chairman of Reich & Company, Inc.,
(formerly Vantage Services, Inc.), a
securities brokerage and investment brokerage
firm, from January 1990 to December 1993. Mr.
Goldberg was employed by Integrated
Resources, Inc. from its inception in
December 1968, as President and Chief
Operating Officer from May 1973 and as Chief
Executive Officer from February 1989 until
January 1990. On February 13, 1990,
Integrated Resources, Inc. filed a voluntary
petition for reorganization under Chapter 11
of the United States Bankruptcy Code. Mr.
Goldberg has been a member of the Bar of the
State of New York since 1967. He is a
graduate of New York University School of
Commerce and its School of Law. Trustee of
RPS since 1988. Mr. Goldberg is also a
trustee of Ramco-Gershenson Properties Trust
(formerly named RPS Realty Trust).
10
Name Age Offices and Positions
- ---- --- ---------------------
William A. Rosoff 59 Vice-Chairman of the Board of Directors of
Advanta Corporation, a financial services
company, since January 1996 and President of
Advanta Corporation since October 1999. Prior
thereto, Mr. Rosoff was associated with the
law firm of Wolf, Block, Schorr and
Solis-Cohen since 1969, a partner since 1975.
Mr. Rosoff is a past chairman of that firm's
Executive Committee and is a past chairman of
its tax department. Mr. Rosoff served on the
Legal Activities Policy Board of Tax
Analysts, the Advisory Board for Warren,
Gorham and Lamont's Journal of Partnership
Taxation, and has served on the Tax Advisory
Boards of Commerce Clearing House and Little,
Brown and Company. Mr. Rosoff also serves on
the Advisory Group for the American Law
Institute. He is a fellow of the American
College of Tax Counsel. Mr. Rosoff is a
member of the Board of Regents of the
Philadelphia chapter of the American
Technion Society. Mr. Rosoff earned a
B.S. degree with honors from Temple
University in 1964, and earned an L.L.B.
magna cum laude from the University of
Pennsylvania Law School in 1967.
Edwin R. Frankel 57 Since the inception of the Trust in May 1996,
Mr. Frankel has served as its Executive Vice
President, Chief Financial Officer, Secretary
and Principal Financial and Accounting
Officer. From 1988 to 1992, Mr. Frankel
served as Vice President and Chief Financial
Officer of RPS and from 1992 to 1996 as
Senior Vice President, Chief Financial
Officer and Treasurer of RPS.
- ---------------------
* Designates status as a Continuing Trustee.
Committees of the Board of Trustees
- -----------------------------------
The Audit Committee of the Board of Trustees (the "Audit Committee"),
established on October 22, 1997, consists of three Trustees, Messrs. Blumenfeld,
Goldberg and Glickman. The Audit Committee meets with management and the Trust's
independent accountants to determine the adequacy of internal controls and other
financial reporting matters. On February 10, 2000, Mr. Glickman was appointed as
a third member of the Audit Committee in order for the Trust to be in compliance
with new regulations promulgated by the Securities and Exchange Commission and
the NASDAQ Stock Market regarding the size, duties and responsibilities of audit
committees of public companies.
The Disposition Committee of the Board of Trustees (the "Disposition
Committee"), established in July 1996, consists of three Trustees, Messrs.
Blumenfeld, Glickman and Blank. The Disposition Committee works with management
in connection with the orderly disposition of the Trust's assets.
11
Item 11. Executive Compensation.
- -------- -----------------------
Executive Officers
Mr. Pashcow receives no cash compensation for serving as an executive
officer of the Trust. Mr. Frankel receives compensation of approximately
$178,000 per annum pursuant to an employment contract entered into between the
Trust and Mr. Frankel on June 11, 1998, as more fully described below.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Restricted
Name and Principal Other Annual Stock Securities Underlying Payout LTIP
Position Year Salary($) Bonus($) Compensation($) Awards($) Options/SARs($) Payouts($)
- ------------------ ---- --------- -------- --------------- ---------- ------------------ ----------
Edwin R. Frankel*
Executive Vice
President, Chief
Financial Officer and
Secretary
2000 165,557 5,142*
2001 170,317 11,200*
2002 175,638 15,250 13,900*
Stanley Rappoport 2000 114,231
2001 119,616
2002 124,423
- ----------------
* Includes approximately $1,000 in imputed interest under the Frankel Note (as
defined below).
The Trust had no compensation committee, however all of the Trustees
participated in deliberations of the Trustees concerning executive officer
compensation.
On June 11, 1998, the Trust entered into an employment agreement with Mr.
Frankel (the "Frankel Employment Agreement"), which provided Mr. Frankel with a
base salary of $158,000 (as adjusted from time to time, the "Base Salary") per
annum. The term of the Frankel Employment Agreement is from June 11, 1998 until
the date of a "change of control" of the Trust (as defined in the Frankel
Employment Agreement) unless earlier terminated by either Mr. Frankel or the
Trust upon written notice. The Frankel Employment Agreement also provides that
Mr. Frankel will be entitled to a one-time payment upon the liquidation of the
Trust or a change in control of 150% of Mr. Frankel's Base Salary as in effect
at such time. In addition, the Frankel Employment Agreement provides for a loan
from the Trust to Mr. Frankel in the principal amount of $37,500, which loan is
evidenced by a promissory note, dated June 11, 1998, made by Mr. Frankel in
favor of the Trust (the "Frankel Note"). The Frankel Note will be canceled upon
the occurrence of certain conditions, including a Change of Control or
liquidation of the Trust. In January, 2000, the Frankel Employment Agreement was
amended to additionally provide that Mr. Frankel's estate or designated
beneficiary will be entitled to receive a one time payment of 150% of his Base
Salary as in effect at the time of his demise.
In connection with his employment with the Trust, Mr. Rappoport received a
bonus plan that provided as follows: (i) for the period 1996, and ending July
31, 2003, Mr. Rappoport will receive an aggregate total $100,000, such sum to be
earned on a monthly pro rata basis over that period and the first $75,000 of
such earned amount shall be payable on September 1, 2003 with the balance of
such earned
12
amount up to an additional $25,000 shall be payable on January 1, 2004; (ii) for
the period beginning August 1, 2003 and ending December 31, 2003, Mr. Rappoport
will earn, to the extent he remains employed by the Trust, an aggregate of
$25,000 in addition to his then current salary, such sum to be earned on a
monthly pro rata basis over that period and to the extent earned, the $25,000
shall be payable the earlier of June 30, 2004 and the liquidation date of the
Trust; and (iii) for the period beginning January 1, 2004 and ending June 30,
2004, Mr. Rappoport will earn, to the extent he remains employed by the Trust,
an aggregate total of $15,000 in addition to his then current salary, such sum
to be earned on a monthly pro rata basis over that period and to the extent
earned, shall be payable the earlier of June 30, 2004 or the liquidation date of
the Trust.
Trustees
The Trustees do not receive any compensation for serving as trustees and
likewise will not receive any compensation for attending meetings or for serving
on any committees of the Board of Trustees; however, Trustees will receive
reimbursement of travel and other expenses and other out-of-pocket disbursements
incurred in connection with attending any meetings.
During the years ended 2002, 2001 and 2000, respectively, Messrs. Edwin
Glickman and Edward Blumenfeld each earned fees of $25,000 in connection with
services they provided to the Trust as Members of the Disposition Committee.
13
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
As of March 14, 2003, each of the following persons were known by the Trust
to be the beneficial owners of more than five percent of the Shares of the
Trust.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
-------------- ------------------------------ --------------- ----------
Shares of beneficial Private Management Group, Inc., an 664,151(1) 18.65%
interest investment advisor in a fiduciary
$.01 par value capacity
20 Corporate Park, Suite 400
Irvine, CA 92606
Shares of beneficial Kimco Realty Corporation 1,068,037(2) 30.0%
interest 3333 New Hyde Park Rd.
$.01 par value New Hyde Park, NY 11042
- ------------------
(1) Based upon Schedule 13G/A filing with the Securities and Exchange
Commission, filed on February 11, 2003.
(2) Based upon Schedule 13D/A filing with the Securities and Exchange
Commission, filed on February 4, 2003.
14
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
Set forth below is information as to the Shares beneficially owned as of
March 14, 2003 by each of the Trustees, each of the executive officers included
in the Summary Compensation Table set forth in Item 11 and all Trustees and
executive officers as a group, based on information furnished by each Trustee
and executive officer.
Name of Trustee/ Shares Owned
Executive Officer Beneficially(1) Percent of Class
- ----------------- --------------- ----------------
Joel M. Pashcow 94,154(2) 2.64%
Arthur H. Goldberg 24,487(3) *
William A. Rosoff 125 *
Stephen R. Blank 981(4) *
Edward Blumenfeld 125 *
Edwin J. Glickman 10,531 *
Edwin R. Frankel 0 *
All Trustees and Executive
Officers as a group (7 persons) 130,403 3.66%
- ---------------------
* Less than 1% of class.
(1) All amounts are directly owned unless stated otherwise.
(2) Includes 25,890 shares held in an IRA account for the benefit of Mr.
Pashcow, a retirement savings plan, a pension and profit sharing account
and a money purchase plan, 47,662 shares owned by an irrevocable trust of
which Mr. Pashcow is a trustee, an irrevocable trust for his daughter and
a foundation of which Mr. Pashcow is trustee (for all of which trusts Mr.
Pashcow has shared voting and investment powers). Mr. Pashcow disclaims
beneficial ownership of the Shares owned by the foundation and each of the
trusts.
(3) Includes 19,563 shares owned by Mr. Goldberg's wife, 1,875 shares owned by
trusts for his daughters and 3,050 shares owned by a pension trust. Mr.
Goldberg disclaims beneficial ownership of the shares owned by his wife
and the trusts for his daughters.
(4) Includes 706 shares owned by trusts for Mr. Blank's daughters and 275
shares held in an IRA account for the benefit of Mr. Blank. Mr. Blank
disclaims beneficial ownership of the shares owned by the trusts for his
daughters.
15
Item 14. Controls and Procedures.
- -------- ------------------------
Within the 90-day period prior to the filing of this Annual Report on Form 10-K,
an evaluation was carried out under the supervision and with the participation
of the Trust's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-14(c) under the
Securities and Exchange Act of 1934). Based upon evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the design and operation of
these disclosure controls and procedures were effective. No significant changes
were made in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
16
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
Financial Statements, Schedules and Exhibits
(a)(1) Financial Statements
See pages F-1 through F-9, which are included herein.
(a)(2) Financial Statement Schedules
All schedules have been omitted because they are inapplicable, not
required, or the information is included in the financial statements
or notes thereto.
(a)(3) Exhibits
The exhibits listed in the Exhibit Index immediately preceding the
exhibits are filed as a part of this Annual Report on Form 10-K.
(b) No Current Reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this report.
17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements -- Atlantic Realty Trust and Subsidiary
(Liquidation Basis)
Independent Auditors' Report............................................. F-2
Consolidated Statements of Net Assets in Liquidation at
December 31, 2002 and 2001........................................ F-3
Consolidated Statements of Changes in Net Assets in Liquidation
for the Years Ended December 31, 2002, 2001 and 2000............ F-4
Notes to Consolidated Financial Statements............................... F-5-9
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of
Atlantic Realty Trust
We have audited the accompanying consolidated statements of net assets in
liquidation of Atlantic Realty Trust and subsidiary (the "Trust") at December
31, 2002 and 2001, and the related consolidated statements of changes in net
assets in liquidation for each of the three years in the period ended December
31, 2002. These consolidated financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Trust was
formed for the purpose of liquidating the mortgage loan portfolio and certain
other assets and liabilities which were transferred to the Trust from RPS Realty
Trust on May 1, 1996 and liquidating and distributing capital to the Trust's
shareholders. As a result, the Trust adopted the liquidation basis of
accounting, effective May 10, 1996.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the net assets in liquidation of Atlantic Realty Trust and
subsidiary at December 31, 2002 and 2001 and the changes in its net assets in
liquidation for each of the three years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America on the basis described in the preceding paragraph.
As discussed in Notes 1 and 6 to the consolidated financial statements, 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 differ materially from amounts presented in the accompanying
consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 14, 2003
F-2
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
December 31, 2002 December 31, 2001
----------------- -----------------
ASSETS:
Investment in real estate........... $43,929,250 $39,520,375
Cash and short-term investments..... 22,677,679 23,424,552
Other assets........................ 270,000 341,250
----------------- -----------------
Total assets 66,876,929 63,286,177
----------------- -----------------
LIABILITIES:
Estimated costs of liquidation...... 4,971,363 5,430,048
----------------- -----------------
Net assets in liquidation........... $61,905,566 $57,856,129
================= =================
See notes to consolidated financial statements.
F-3
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
For the Year Ended For the Year Ended For the Year Ended
December 31, 2002 December 31, 2001 December 31, 2000
------------------ ------------------ ------------------
Net assets in liquidation, beginning $57,856,129 $58,146,371 $57,431,689
of period
Distributions paid (2,208,163) (2,706,780) (3,062,936)
Adjustments to reflect 6,257,600 2,416,538 3,777,618
liquidation basis of accounting ------------------- ------------------ ------------------
Net assets in liquidation, end of $61,905,566 $57,856,129 $ 58,146,371
period =================== ================== ==================
See notes to consolidated financial statements.
F-4
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Liquidation Basis of Accounting)
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 had no operations from the date of formation
to the date of the Spin-Off Transaction. The Trust adopted the liquidation basis
of accounting as of the date of the Spin-Off Transaction based on its 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.
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 cost 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 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 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.
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 6).
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.
F-5
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Liquidation Basis of Accounting)
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 Realized Value(a)(b)
Property Location December 31, December 31,
2002 2001
---------------- -----------------
Hylan Shopping Center Staten Island, NY $43,929,250 $39,520,375
- --------------
(a) Includes estimated cash flows using a disposition period of nine months.
Realized values may differ depending on actual disposition results and time
periods.
(b) The operations of the Trust and the Hylan Shopping Center for the years
ended December 31, 2002 and December 31, 2001 are as follows:
2002 2001
---- ----
Rental income $4,310,090 $3,998,999
Expense reimbursements 2,000,635 1,883,932
Interest from short-term investments 312,168 675,317
Other 5,837 39,095
---------------- -----------------
6,628,730 6,597,343
---------------- -----------------
Operating property expenses 2,433,994 2,145,100
Depreciation 292,981 259,000
General and administrative 1,714,304 1,491,658
---------------- -----------------
4,441,279 3,895,758
---------------- -----------------
Net income $2,187,451 $2,701,585
================ =================
3. Shares Outstanding
The weighted average number of common shares outstanding for each of the
periods ended December 31, 2002, 2001, and 2000 was 3,561,553.
4. Cash and Short-Term Investments
Cash and short-term investments at December 31, 2002 and 2001, consist
primarily of certificates of deposit at a major New York bank of $22,150,000 and
$22,750,000, respectively, purchased with original maturities of three months or
less, bearing interest at a fixed rate of 1.05% and 1.45%, respectively.
5. Other Assets
Other assets include the estimated interest income from the Trust's
short-term investments.
F-6
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Liquidation Basis of Accounting)
6. Income Taxes
Even though the Trust will not be subject to income taxes as discussed in
Note 1, since the Trust is a public enterprise it is required to reconcile the
net difference between the assets and liabilities for tax purposes and financial
reporting, in accordance with the Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes." Net differences in basis are not
material.
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 also have 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 December 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
F-7
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Liquidation Basis of Accounting)
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 corresponded to the values used by RPS
in determining its bad debt deductions for financial reporting purposes. 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. 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 $43.1 million
through December 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 and discussions between Special Tax Counsel
to the Continuing Trustees and the IRS appellate conferees are ongoing.
On February 21, 2003, the IRS issued an examination report to the Trust
with respect to the 1996 and 1997 taxable years of the Trust. This examination
report proposes to disallow all of the loss deductions claimed by the Trust upon
the disposition of Trust Assets during that period. In addition, the examination
report proposes to increase the REIT taxable income of the Trust during 1996 and
1997 on account of two items reported on the Trust's tax returns for which the
Trust did not claim any taxable loss or deduction. Counsel to the Trust has
advised that the examination report contains numerous errors of fact with
respect to the operations of the Trust and that the legal conclusions in the
examination report are not consistent with the applicable provisions of the Code
and the income tax regulations. The Trust intends to file a timely
F-8
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Liquidation Basis of Accounting)
administrative appeals (the "Trust Protest") challenging the adjustments
proposed in the examination report.
7. Dividends/Distributions to Shareholders
Under the Internal Revenue Code, a REIT must meet certain
qualifications, including a requirement that it distribute annually to its
shareholders at least 90 percent (95% for taxable years on or before December
31, 2000) of its REIT taxable income. The Trust's policy is to distribute to
shareholders all taxable income. Dividend distributions for the years ended
December 31, 2002, 2001 and 2000 are summarized as follows:
Record Date Distribution Payment
----------- ------------ -------
December 15, 2002 $.62 per share December 27, 2002
December 14, 2001 $.76 per share December 27, 2001
December 15, 2000 $.86 per share December 28, 2000
8. Commitments
The Trust leases approximately 4,100 square feet of office space at 747
Third Avenue, New York, New York at an annual base rent of approximately
$262,000. This lease will expire on October 31, 2004.
F-9
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 27th day of
March, 2003.
ATLANTIC REALTY TRUST
Date: March 27, 2003 By: /s/ Joel M. Pashcow
-------------------------------------
Name: Joel M. Pashcow
Title: President and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Joel M. Pashcow President and Chairman of the March 27, 2003
- ------------------- Broad
Joel M. Pashcow
/s/ Edwin R. Frankel Executive Vice President, Chief March 27, 2003
- -------------------- Financial Officer, Secretary and
Edwin R. Frankel Principal Financial and Accounting
Officer
/s/ Edwin J. Glickman Trustee March 27, 2003
- ---------------------
Edwin J. Glickman
/s/ Stephen R. Blank Trustee March 27, 2003
- --------------------
Stephen R. Blank
/s/ Edward Blumenfeld Trustee March 27, 2003
- ---------------------
Edward Blumenfeld
/s/ Arthur H. Goldberg March 27, 2003
- ----------------------
Arthur H. Goldberg Trustee
/s/ William A. Rosoff Trustee March 27, 2003
- ----------------------
William A. Rosoff
Exhibit Index
The following exhibits are filed as part of this Annual Report on Form 10-K.
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Declaration of Trust of the Trust
(Incorporated by reference to the Trust's definitive
registration statement on Form 10, dated March 28, 1996,
File No. 0-27562, Exhibit 3.1).
3.2 Amended and Restated By-Laws of the Trust (Incorporated by
reference to the Trust's definitive registration statement
on Form 10, dated March 28, 1996, File No. 0-27562, Exhibit
3.2).
3.3 First Amendment to Amended and Restated Declaration of Trust
of the Trust (Incorporated by reference to the Trust's
definitive registration statement on Form 10, dated March
28, 1996, File No. 0-27562, Exhibit 3.3).
4.1 Form of Share Certificate (Incorporated by reference to the
Trust's definitive registration statement on Form 10, dated
March 28, 1996, File No. 0-27562, Exhibit 4.1).
10.1 Lease Agreement, dated as of January 16, 1997, by and
between Sage Realty Corporation, as the lessor, and the
Trust, as the lessee (Incorporated by reference to the
Trust's annual report on Form 10-K for the year ended
December 31, 1996, File No. 0-27562, Exhibit 10.1).
10.2 Form of Assignment, Assumption and Indemnification Agreement
between RPS Realty Trust and the Trust (Incorporated by
reference to the Trust's definitive registration statement
on Form 10, dated March 28, 1997, File No. 0-27562, Exhibit
10.1).
10.3 Form of Tax Agreement between RPS Realty Trust and the Trust
(Incorporated by reference to the Trust's definitive
registration statement on Form 10, dated March 28, 1996,
File No. 0-27562, Exhibit 10.2).
10.4 Form of Information Statement (Incorporated by reference to
the Trust's definitive registration statement on Form 10,
dated March 28, 1996, File No. 0-27562, Exhibit 20.1).
10.5 Employment Agreement, dated as of June 11, 1998, by and
between the Trust and Edwin R. Frankel (Incorporated by
reference to the Trust's quarterly report on Form 10-Q for
the three months ended June 30, 1998, File No. 0-27562,
Exhibit 10.1).
10.6 Amendment to Employment Agreement, dated as of January 29,
2000, by and between the Trust and Edwin R. Frankel
(Incorporated by reference to the Trust's annual report on
Form 10-K, for the year ended December 31, 2000, File No.
0-27562, Exhibit 10.6).
10.7 Amended and Restated Standstill Agreement, dated as of July
21, 2000, by and among Atlantic Realty Trust, on the one
hand, and Kimco Realty Corporation, Kimco Realty Services,
Inc. and Milton Cooper, on the other hand.
10.8 Second Amended and Restated Standstill Agreement, dated as
of January 31, 2003, by and among Atlantic Realty Trust, on
the one hand, and Kimco Realty Corporation, Kimco Realty
Services, Inc. and Milton Cooper, on the other hand.
21.1 Subsidiary of the Registrant (incorporated by reference to
the Trust Annual Report on 10-K, for the year ended December
31, 1999, File No.0-27562, Exhibit 21.1).
CERTIFICATION BY JOEL M. PASHCOW PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Joel M. Pashcow, certify that:
1. I have reviewed this annual report on Form 10-K of Atlantic Realty Trust;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 27, 2003 /s/ Joel M. Paschow
------------------------------------
Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
CERTIFICATION BY EDWIN R. FRANKEL PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13a-14
I, Edwin R. Frankel, certify that:
1. I have reviewed this annual report on Form 10-K of Atlantic Realty Trust;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 27, 2003 /s/ Edwin R. Frankel
-----------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
Exhibit 99.1
To Atlantic Realty Trust
Report on Form 10-K
December 31, 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Chairman and President of Atlantic Realty Trust (the
"Company"), hereby certifies, to the best of my knowledge, that the Form 10-K of
the Company for the quarter ended December 31, 2002 (the "Periodic Report")
accompanying this certification fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78(d))
and that the information contained in the Periodic Report fairly represents, in
all material respects, the financial condition and results of operations of the
Company. The foregoing certification is incorporated solely for purposes of
complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is
not intended to be used for any other purpose.
Date: March 27, 2003 /s/ Joel M. Paschow
-----------------------------------
Name: Joel M. Pashcow
Title:Chairman and President
(Principal Executive Officer)
Exhibit 99.2
To Atlantic Realty Trust
Report on Form 10-K
December 31, 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Executive Vice President, Chief Financial Officer and
Secretary of Atlantic Realty Trust (the "Company"), hereby certifies, to the
best of my knowledge, that the Form 10-K of the Company for the quarter ended
December 31, 2002 (the "Periodic Report") accompanying this certification fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78(d)) and that the information contained
in the Periodic Report fairly represents, in all material respects, the
financial condition and results of operations of the Company. The foregoing
certification is incorporated solely for purposes of complying with the
provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be
used for any other purpose.
Date: March 27, 2003 /s/ Edwin R. Frankel
----------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)