EX-99 5 kca00.txt FINANCIAL STATEMENTS OF KAAHUMANU CENTER ASSOCIATE Kaahumanu Center Associates (A Hawaii Limited Partnership) Financial Statements for Each of the Three Years Ended December 31, 2000, 1999 and 1998 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Partners of Kaahumanu Center Associates: We have audited the accompanying balance sheets of Kaahumanu Center Associates (a Hawaii limited partnership) as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' capital (deficit), and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /S/DELOITTE & TOUCHE LLP Honolulu, Hawaii February 1, 2001 KAAHUMANU CENTER ASSOCIATES BALANCE SHEETS DECEMBER 31, 2000 AND 1999 ASSETS 2000 1999 Current Assets Cash $ 32,578 $ 504,712 Accounts receivable - less allowance of $95,298 and $107,707 for doubtful accounts 1,093,832 618,900 Prepaid expenses 70,905 64,305 Total current assets 1,197,315 1,187,917 Property Land and land improvements 6,054,330 6,054,330 Building 83,580,660 81,879,796 Furniture, fixtures and equipment 5,182,690 5,128,820 Construction in process 65,071 1,348,581 Total property 94,882,751 94,411,527 Accumulated depreciation 25,682,580 22,134,416 Property - net 69,200,171 72,277,111 Other Assets 1,710,131 1,700,997 Total Assets $72,107,617 $75,166,025 LIABILITIES AND PARTNERS' CAPITAL Current Liabilities Bank overdraft $ 39,637 -- Current portion of long-term debt 1,126,451 $1,018,643 Accounts payable 473,094 690,470 Due to Maui Land & Pineapple Company, Inc. 1,216,086 1,153,658 Other current liabilities 122,556 105,764 Total Current Liabilities 2,977,824 2,968,535 Long-Term Debt - Less current portion 59,139,567 60,266,149 Other Long-Term Liabilities 87,175 86,204 Total Liabilities 62,204,566 63,320,888 Contingencies and Commitments Partners' Capital 9,903,051 11,845,137 Total Liabilities and Partners' Capital $72,107,617 $75,166,025 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 2000 1999 1998 Revenues Rental income - minimum $7,552,188 $7,472,086 $7,235,108 Rental income - percentage 1,372,884 1,112,419 1,029,760 Other operating income - primarily recoveries from tenants 6,728,646 5,921,174 5,359,743 Total Revenues 15,653,718 14,505,679 13,624,611 Costs and Expenses Interest 5,332,655 5,369,013 5,447,733 Depreciation and amortization 3,685,323 3,539,544 3,452,639 Utilities 3,400,142 2,668,013 2,427,054 Payroll and related costs 2,282,740 2,087,090 1,976,969 Repairs and maintenance 701,391 570,175 652,390 General excise taxes 616,644 566,518 530,313 Insurance 333,704 366,253 278,605 Real property taxes 327,190 315,005 314,181 Management fee 278,907 268,264 258,275 Advertising and promotions 241,379 204,328 158,493 Professional fees 207,240 143,646 175,971 Provision for doubtful accounts 44,497 57,349 327,914 Other expenses 143,992 150,751 103,414 Total Costs and Expenses 17,595,804 16,305,949 16,103,951 Net Loss $(1,942,086) $(1,800,270) $(2,479,340) See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 State of Hawaii Maui Land & Employees' Pineapple Retirement Company, Inc. System TOTAL Partners' Capital (Deficit), December 31, 1997 $(7,450,573) $23,575,320 $16,124,747 Net Loss - 1998 (1,239,670) (1,239,670) (2,479,340) Partners' Capital (Deficit), December 31, 1998 (8,690,243) 22,335,650 13,645,407 Net Loss - 1999 (900,135) (900,135) (1,800,270) Partners' Capital (Deficit), December 31, 1999 (9,590,378) 21,435,515 11,845,137 Net Loss - 2000 (971,043) (971,043) (1,942,086) Partners' Capital (Deficit), December 31, 2000 $(10,561,421) $20,464,472 $9,903,051 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 2000 1999 1998 Operating Activities: Net loss $(1,942,086) $(1,800,270) $(2,479,340) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,685,323 3,539,544 3,452,639 Loss on property disposals -- 88,074 -- Increase in accounts receivable (474,932) (60,628) (239,868) Increase (decrease) in accounts payable (702,026) 609,583 548,765 Increase in noncurrent accounts receivable (146,295) (285,546) (192,282) Net change in other operating assets and liabilities 11,165 30,747 77,282 Net Cash Provided by Operating Activities 431,149 2,121,504 1,167,196 Investing Activities: Purchases of property (460,224) (1,831,275) (414,746) (Increase) decrease in restricted cash -- 758,398 (30,641) Net Cash Used in Investing Activities (460,224) (1,072,877) (445,387) Financing Activities: Payments of long-term debt (1,018,774) (948,603) (870,000) Proceeds from Partner Advances 536,078 -- -- Increase in bank overdraft 39,637 -- -- Net Cash Used in Financing Activities (443,059) (948,603) (870,000) Net Increase (Decrease) in Cash (472,134) 100,024 (148,191) Cash, Beginning of Year 504,712 404,688 552,879 Cash, End of Year $ 32,578 $504,712 $404,688 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the year for interest $5,328,000 $5,369,000 $ 5,448,000 SUPPLEMENTAL INFORMATION RELATING TO NONCASH INVESTING ACTIVITIES - Accounts payable included purchases of property of $11,000 and $75,000 as of December 31, 2000 and 1999, respectively. See notes to financial statements. KAAHUMANU CENTER ASSOCIATES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 1. ORGANIZATION Kaahumanu Center Associates (the Partnership) was formed on June 23, 1993 as a limited partnership between Maui Land & Pineapple Company, Inc. (ML&P), as general partner, and the Employees' Retirement System of the State of Hawaii (ERS), as limited partner. The purpose of the Partnership is to finance the expansion and renovation of and to own and operate the Kaahumanu Shopping Center (the Center). The Center is a regional shopping mall located in Kahului, Maui, and currently consists of 570,000 square feet of gross leasable area. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting - The Partnership's policy is to prepare its financial statements using the accrual basis of accounting. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Future actual amounts could differ from those estimates. Restricted Cash - Restricted cash is a percentage of revenues retained for capital improvements as set forth in the Partnership Operating Agreement, as well as proceeds from the mortgage loan that were reserved for additional expansion costs. The partners agreed to waive the required capital improvement reserve for the years ended December 31, 2000 and 1999. Property - Property which was contributed to the Partnership by ML&P is stated at ML&P's net book value at the date of contribution; subsequent additions are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Advertising and Promotion - The costs of advertising and sales promotion activities are expensed as incurred. Income Taxes - The Partnership is not subject to federal and state income taxes. The distributive shares of income or loss and other tax attributes from the Partnership are reportable by the individual partners. 3. PARTNERSHIP AGREEMENTS Capital Contributions - ML&P contributed the land and the shopping center improvements as they existed prior to the expansion and renovation project, subject to the existing first mortgage, together with approximately nine acres of adjacent land which became part of the expanded shopping center, for a 99% interest in the Partnership. ERS originally contributed $312,000 for a 1% interest in the Partnership and made a loan of $30.6 million to the Partnership. Effective April 30, 1995, after completion of the expansion and renovation and the satisfaction of certain conditions, ERS converted its loan to capital for an additional 49% interest and became a 50% partner with ML&P. Allocations and Distributions - Profit and loss allocations and cash distributions of the Partnership are based on the ownership interests of the partners. ERS and ML&P each have a 9% cumulative, non-compounded priority right to cash distributions based on their net contributions to the Partnership (preferred return). The ML&P preferred return is subordinate to the ERS preferred return. For the purpose of calculating the preferred returns, each partner's capital contribution had an agreed upon value of $30.9 million on April 30, 1995. The accumulated unpaid preferred returns at December 31, 2000 were $13 million each for ML&P and ERS. Management and Operations - The Partnership has an Operating Agreement with ML&P for the operation of the Center. The Operating Agreement has an initial term of 15 years, which commenced when ERS became a 50% partner, with options to renew for four additional 10-year periods. It provides for certain performance tests, which if not met, could result in termination of the Agreement. The tests were not met in 2000, but termination of the Agreement is not presently being considered. ML&P, as managing partner, is responsible for the day-to-day management of the Partnership's business affairs. Major decisions, as defined in the partnership agreement, require the unanimous approval of the partners. 4. RELATED PARTY TRANSACTIONS Pursuant to the Partnership Operating Agreement, the Partnership pays to ML&P an operator's fee equal to 3% of gross revenues, as defined. In 2000, 1999 and 1998, ML&P charged the Partnership $279,000, $268,000, and $258,000, respectively, for management fees. In accordance with the Limited Partnership Agreement, the Managing Partner may make cash advances to the Partnership as necessary in order to avoid a cash flow deficit. Such advances bear interest at 1% above the rate being charged the Partnership under the mortgage loan (see Borrowing Arrangements). In 2000, Partner Advances totaled $586,000, and interest expense on the advances at 9.57% totaled $34,000. The Partnership does not have any employees. As such, ML&P provides all on-site and administrative personnel and also incurs other costs and expenses, primarily insurance, which are reimbursable by the Partnership. In 2000, 1999 and 1998, ML&P charged the Partnership $2,637,000, $2,417,000 and $2,303,000, respectively, for payroll and other costs and expenses. ML&P generates a portion of the electricity which is used by the Center. In 2000, 1999 and 1998, ML&P charged the Partnership $3,049,000, $2,263,000 and $2,144,000, respectively, for electricity. Amounts due to ML&P for management fees, electricity, Partner Advances, and reimbursable costs were $1,216,000 and $1,154,000 as of December 31, 2000 and 1999, respectively. 5. OTHER ASSETS Other assets at December 31, 2000 and 1999 consisted of the following: 2000 1999 Deferred costs $ 582,010 $ 719,171 Noncurrent accounts receivable 1,128,121 981,826 Total other assets $1,710,131 $1,700,997 Deferred costs are primarily leasing consultation costs and are net of amortization of $983,000 and $845,000, respectively, at December 31, 2000 and 1999. Noncurrent accounts receivable represents the excess of minimum rental income recognized on a straight-line basis over amounts receivable according to the provisions of the lease, after deducting an estimated amount for amounts not recoverable. 6. BORROWING ARRANGEMENTS The Partnership has a mortgage loan which bears interest at 8.57% and is payable in monthly installments of $526,000, including interest, through 2005 when the entire balance is payable. The loan is collateralized by the Center and is nonrecourse except for the first $10 million, which is guaranteed by ML&P until the Center attains a defined level of net operating income. Scheduled principal maturities for the next five years from 2001 through 2005 are as follows: $1,126,000, $1,228,000, $1,339,000, $1,459,000 and $1,659,000, respectively. 7. LEASES Tenant leases of the Center provide for monthly base rent plus percentage rents and reimbursement for common area maintenance and other costs. Future minimum rental income to be received under non-cancelable operating leases aggregates $48,453,000 and is receivable during the next five years (2001 through 2005) as follows: $7,068,000, $6,747,000, $6,618,000, $5,850,000, $4,386,000, respectively, and $17,784,000 thereafter. 8. CONTINGENCIES AND COMMITMENTS The Partnership had commitments under signed contracts totaling $124,000 at December 31, 2000. 9. CONCENTRATION OF CREDIT RISK The Partnership extends credit to its tenants in the course of its leasing operations. The creditworthiness of existing and potential tenants is evaluated and under certain circumstances a security deposit is required. * * * * * *