-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wb4GXxTdgi9vYqc4BjssKBJcCQFx3DFYQqpNEdbx5CNrUmjwC5/3UJvT1Cvmh/1d dTmSaTm2XHo07tq0drqgoA== 0000950144-96-008190.txt : 19961118 0000950144-96-008190.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950144-96-008190 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQK REALTY INVESTORS I CENTRAL INDEX KEY: 0000755926 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 232320360 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08815 FILM NUMBER: 96663651 BUSINESS ADDRESS: STREET 1: 5775 PEACHTREE DUNWOODY RD STE 200D CITY: ATLANTA STATE: GA ZIP: 30342 BUSINESS PHONE: 4043036100 MAIL ADDRESS: STREET 1: 1401 WALNUT STREET STREET 2: C/O KLEHR HARRISON HARVEY BRANZBURG & EL CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-Q 1 EQK REALITY INVESTORS FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE [ X ] SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ 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 No. 1-8815 -------------------------- EQK REALTY INVESTORS I ------------------------------------------------------ (Exact name of Registrant as specified in its Charter) Massachusetts 23-2320360 ------------------------------------------------------------------ (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, GA 30342 -------------------------------------------------------------- (Address of principal executive offices) (Zip code) (404) 303-6100 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by checkmark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date: 9,264,344 Shares as of November 13, 1996. 2 EQK REALTY INVESTORS I QUARTERLY REPORT ON FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 INDEX
Page ---- PART I - FINANCIAL INFORMATION Item 1. Balance Sheets as of September 30, 1996 3 and December 31, 1995 Statements of Operations for the three 4 and nine months ended September 30, 1996 and September 30, 1995 Statements of Cash Flows for the nine 5 months ended September 30, 1996 and September 30, 1995 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION Items 1 through 6. 16 SIGNATURES 17
2 3 EQK REALTY INVESTORS I BALANCE SHEETS (In thousands, except share data)
September 30, December 31 1996 1995 ------------- ----------- ASSETS Investment in Harrisburg East Mall-held for sale, at lower of cost or net realizable value: $ 52,223 $ 52,033 Less accumulated depreciation 14,886 13,446 ------------- ----------- 37,337 38,587 Cash and cash equivalents: Cash Management Agreement 2,212 2,360 Other 894 612 Accounts receivable and other assets 6,059 6,650 ------------- ----------- TOTAL ASSETS $ 46,502 $ 48,209 ============= =========== LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY Liabilities: Mortgage note payable $ 43,879 $ 44,125 Term loan payable to bank 1,587 1,587 Accounts payable and other liabilities (including amounts due affiliates of $2,823 and $2,765, respectively) 3,498 4,030 ------------- ----------- 48,964 49,742 Deficit in Shareholders' Equity: Shares of beneficial interest, without par value: 10,055,555 shares authorized, 9,264,344 shares issued and outstanding 135,875 135,875 Accumulated deficit (138,337) (137,408) ------------- ----------- (2,462) (1,533) ------------- ----------- TOTAL LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY $ 46,502 $ 48,209 ============= ===========
See accompanying Notes to Financial Statements 3 4
=============================================================================================================================== EQK REALTY INVESTORS I STATEMENTS OF OPERATIONS (In thousands, except per share amounts) - ------------------------------------------------------------------------------------------------------------------------------- Three months ended September 30, Nine months ended September 30, 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Revenues from rental operations $ 1,576 $ 3,990 $ 4,705 $ 12,069 Operating expenses, net of tenant reimbursements (including property management fees earned by an affiliate of $77, $67, $229 and $212, respectively) 123 1,257 654 4,119 Write-down of investment in real estate -- 3,200 -- 3,200 Depreciation and amortization 585 1,321 1,781 3,765 - ------------------------------------------------------------------------------------------------------------------------------- Income (loss) from rental operations 868 (1,788) 2,270 985 Other income -- 400 264 400 Interest expense 971 2,173 2,924 6,469 Other expenses, net of interest income (including portfolio management fees earned by an affiliate of $65, $103, $188, and $309, respectively) 158 241 539 736 - ------------------------------------------------------------------------------------------------------------------------------- Net loss $ (261) $(3,802) $ (929) $ (5,820) =============================================================================================================================== Net loss per share $ (0.03) $ (0.41) $ (0.10) $ (0.63) ===============================================================================================================================
See accompanying Notes to Financial Statements 4 5 EQK REALTY INVESTORS I STATEMENTS OF CASH FLOWS (In thousands)
- ---------------------------------------------------------------------------------------- Nine months ended September 30, 1996 1995 - ---------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (929) $ (5,820) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,781 3,765 Write-down of investment in real estate -- 3,200 Amortization of debt discount -- 366 Imputed and deferred interest 236 1,239 Changes in assets and liabilities: Increase (decrease) in accounts payable and other liabilities (767) 664 (Increase) decrease in accounts receivable and other assets 249 (798) - ---------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 570 2,616 - ---------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to real estate investments (190) (4,895) - ---------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of mortgage debt (246) (5) - ---------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 134 (2,284) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,972 4,701 - ---------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,106 $ 2,417 ======================================================================================== Supplemental disclosure of cash flow information: Interest paid $ 2,921 $ 5,031 ========================================================================================
See accompanying Notes to Financial Statements 5 6 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS NOTE 1: DESCRIPTION OF BUSINESS EQK Realty Investors I, a Massachusetts business trust (the "Trust"), was formed pursuant to a Declaration of Trust dated October 8, 1984 to acquire certain income-producing real estate investments. Commencing with the period beginning April 1, 1985, the Trust qualified for and elected real estate investment trust ("REIT") status under the provisions of the Internal Revenue Code. At September 30, 1996, the Trust's remaining real estate investment is Harrisburg East Mall ("Harrisburg" or the "Mall"), a regional shopping center located in Harrisburg, Pennsylvania. On December 8, 1995, the Trust sold its interest in Castleton Park ("Castleton"), an office park located in Indianapolis, Indiana. During 1993, the Trust sold its two remaining office buildings within its office complex located in Atlanta, Georgia, formerly known as Peachtree-Dunwoody Pavilion ("Peachtree"). Prior to 1993, the Trust sold two office buildings at Castleton (1991) and five office buildings at Peachtree (1992). The Declaration of Trust established the Trust as a finite life REIT with an investment holding period of up to 12 years, after which it is required to dispose of its assets in an orderly fashion within two years. The Trust's management is currently pursuing the sale of Harrisburg. NOTE 2: BASIS OF PRESENTATION The financial statements have been prepared by the Trust, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Trust believes that the disclosures are adequate to make the information presented not misleading. The financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1995. In the opinion of the Trust, all adjustments, which include only normal recurring adjustments necessary to present fairly its financial position as of September 30, 1996, its results of operations for the three and nine months ended September 30, 1996 and 1995 and its cash flows for the nine months ended September 30, 1996 and 1995, have been included in the accompanying unaudited financial statements. 6 7 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS NOTE 2: BASIS OF PRESENTATION (CONTINUED) Net loss per share for the three and nine months ended September 30, 1996 and 1995 have been computed on the basis of the 9,264,344 shares outstanding during the periods. Stock warrants held by the Trust's mortgage lender are considered common stock equivalents for purposes of the calculation of net loss per share. However, the warrants have not been included in the calculation of net loss per share for the periods presented since the effect of such calculation would be antidilutive. NOTE 3: CASH MANAGEMENT AGREEMENT In connection with the Trust's mortgage agreement, the Trust entered into a Cash Management Agreement with the mortgage lender and assigned all lease and rent receipts to the lender as additional collateral. Pursuant to this agreement, a third-party escrow agent has been appointed to receive all rental payments from tenants and to fund monthly operating expenses in accordance with a budget approved by the lender. As of September 30, 1996, a balance of $166,000 was held by the third-party escrow agent in accordance with the Cash Management Agreement. The agreement also provides for the establishment of a capital reserve account, which is maintained by the escrow agent. Disbursements from this account, which is funded each month with any excess operating cash flow, are limited to capital expenditures approved by the lender. As of September 30, 1996 the balance of the capital reserve account was $2,046,000. NOTE 4: ADVISORY AND MANAGEMENT AGREEMENTS The Trust has entered into an agreement with Equitable Realty Portfolio Management, Inc., a wholly owned subsidiary of Equitable Real Estate Investment Management, Inc. ("Equitable Real Estate"), to act as its "Advisor". The Advisor makes recommendations to the Trust concerning investments, administration and day-to-day operations. Under the terms of the advisory agreement, as amended in December 1989, the Advisor receives a management fee that is based upon the average daily per share price of the Trust's shares plus the average daily balance of outstanding mortgage indebtedness. Such fee is calculated using a factor of 42.5 basis points (0.425%) and generally has been payable monthly without subordination. In connection with the one year extension of its existing mortgage debt, which now matures in December 1996, the Advisor agreed to a partial deferral of payment of its 1996 fee. Whereas the fee will continue to be computed as described, payments to the Advisor will be limited to $37,500 per quarter. Accrued but unpaid amounts will be eligible for payment upon the repayment of the mortgage note. For 7 8 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS NOTE 4: ADVISORY AND MANAGEMENT AGREEMENTS (CONTINUED) the nine months ended September 30, 1996 and 1995, portfolio management fees amounted to $188,000 and $309,000, respectively. As part of the 1989 amendment to the advisory agreement, the Advisor forgave one-half, or $2,720,000, of the total amount of fees previously deferred pursuant to subordination provisions of the original advisory agreement. The remaining deferred fees are to be paid upon the disposition of Harrisburg. For financial reporting purposes, the deferred balance is being discounted at the rate of 13% per year from December 1, 1996. As of September 30, 1996, the discounted liability for deferred management fees was $2,654,000. The Trust has also entered into an agreement with Compass Retail, Inc. ("Compass"), an affiliate of Equitable Real Estate, for the on-site management of Harrisburg. Castleton Park was managed by an unaffiliated third- party management company up until the time of its sale. Management fees paid to Compass are generally based upon a percentage of rents and certain other charges. Such fees and commissions are comparable to those charged by unaffiliated third-party management companies providing comparable services. For the nine months ended September 30, 1996 and 1995, management fee expense attributable to services rendered by Compass was $229,000 and $212,000, respectively. NOTE 5: COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS Resolution of Anchor Department Store Vacancy On May 13, 1996, the Trust and May Department Stores Company ("May Company") executed a lease agreement that provides for the opening of a Lord & Taylor department store (a division of May Company) in the anchor space previously occupied by John Wanamaker. The John Wanamaker location at Harrisburg East Mall has been closed since October 1995 following Woodward & Lothrop's (the owner of John Wanamaker) sale of certain department stores in this retail chain to May Company pursuant to an August 1995 bankruptcy court auction. Given its existing presence at Harrisburg East Mall through its recently-opened Hecht's department store, May Company initially pursued an assignment of this leasehold interest to other retail operators before deciding instead to open a Lord & Taylor department store in this location. The execution of such lease agreement has resulted in, among other things, the termination of the legal proceedings initiated by the Trust against May Company in March 1996 following May Company's failure to open or cause 8 9 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS NOTE 5: COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (CONTINUED) another retail operator to open for business once the John Wanamaker store closed, which was a violation of a continuous operating covenant contained in its lease agreement. The new lease agreement with May Company has an initial term of nine years (October 31, 2005), with three renewal options of ten years each. The new lease agreement has a longer committed lease term than the John Wanamaker lease agreement, which stipulated an initial lease term expiration date of October 31, 1999. The financial terms are comparable to those contained in the John Wanamaker lease, although minimum rent payments during the first three years of the lease are anticipated to be approximately $75,000 less per annum. Due to certain rent offsets that John Wanamaker would have otherwise been entitled to, the revenue stream after the third lease year is anticipated to be more favorable to the Trust. In connection with the execution of this lease agreement, the Trust received approval from May Company, on behalf of its Hecht's and Lord & Taylor stores, of certain modifications to the Mall's site plan which will give the Trust flexibility in future development planning. The opening of a Lord & Taylor store is expected to have a positive impact on the Trust's ability to lease space to new tenants and to renew leases with existing tenants. The Trust anticipates that Lord & Taylor will open its newly renovated store in Spring 1997. Initially, Lord & Taylor had projected an opening prior to the 1996 Holiday shopping season. However, issues affecting construction scheduling have delayed the opening date. Until the Lord & Taylor store opens, certain tenants will be permitted to pay, pursuant to co-tenancy provisions provided for in their leases, percentage rent in lieu of fixed minimum rentals. Based on the current sales volumes of these tenants, the reduction in rental revenues from amounts that otherwise would have been earned is estimated to be approximately $75,000 per quarter. Debt Maturities The Trust's mortgage note and term loan mature on December 15, 1996 in the aggregate principal amount of $45,381,000. Given that the Trust expects to hold its investment in Harrisburg beyond 1996 (see discussion in Management's Discussion and Analysis), Management is in advanced discussions regarding the refinancing of its debt with its existing lenders in anticipation of the mortgage and term loan maturities. Based on these discussions and its current assessment of the credit markets, Management believes that it can extend or refinance its existing debt, and that such new facility will be in place on or before the maturity date of the existing debt. However, if the Trust is unable to refinance or replace the existing debt at commercially reasonable terms or at all, Management's plans with respect to the sale of Harrisburg will be accelerated to satisfy its debt obligations. 9 10 EQK REALTY INVESTORS I NOTES TO FINANCIAL STATEMENTS NOTE 5: COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (CONTINUED) Other Income In March 1996, the Trust was notified by the Fulton County (Georgia) Tax Commissioner's office of a reduction in the assessed value of the real estate underlying Peachtree Dunwoody Pavilion for tax years 1991 and 1992. As previously disclosed in Note 1, the Trust completed the sale of Peachtree Dunwoody Pavilion during the period 1992-1993. Such reduction in assessed value resulted in a refund of previously paid real estate taxes in the amount of $192,000 which the Trust recognized as other income during the first quarter. In June 1996, the Trust was notified by the Fulton County Tax Commissioner's office of an additional tax refund of $72,000, which the Trust received in July 1996 and recognized as other income in the second quarter. 10 11 EQK REALTY INVESTORS I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the financial statements and notes that appear on pages 3-10. FINANCIAL CONDITION CAPITAL RESOURCES Background As of September 30, 1996, the Trust's remaining real estate investment is Harrisburg East Mall ("Harrisburg" or the "Mall"), a regional shopping center located in Harrisburg, Pennsylvania. During the period 1992 to 1995, the Trust completed the disposition of its two other real estate investments. Castleton Park ("Castleton"), an office park located in Indianapolis, Indiana, was sold in December 1995, and Peachtree Dunwoody Pavilion, an office park located in Atlanta, Georgia, was sold in three separate transactions during 1992 and 1993. Consistent with the requirements of its charter, the Trust intends to dispose of Harrisburg prior to March 1999. Management believes that it is most likely that a prospective buyer will be willing to offer an amount that approximates Harrisburg's stabilized value after Lord & Taylor opens for business and operates for some period of time. Lord & Taylor is currently scheduled to open in the Spring of 1997. In addition, Management believes that Harrisburg's selling price can be further enhanced if Harrisburg is held for a sufficient period of time to permit completion of certain ongoing leasing and development initiatives. Therefore, Management anticipates that Harrisburg will not be sold prior to the December 15, 1996 maturity date of the Trust's mortgage debt (see discussion below). Harrisburg Anchor Tenant Status On May 13, 1996, the Trust and May Department Stores Company ("May Company") executed a lease agreement that provides for the opening of a Lord & Taylor department store (a division of May Company) in the anchor space previously occupied by John Wanamaker. The John Wanamaker location at Harrisburg has been closed since October 1995 following Woodward & Lothrop's (the owner of John Wanamaker) sale of certain department stores in this retail chain to May Company pursuant to an August 1995 bankruptcy court auction. Given its existing presence at Harrisburg through its recently-opened Hecht's department store, May Company initially pursued an assignment of this leasehold interest to other retail operators before deciding instead to open a Lord & Taylor department store in this location. The execution of such lease agreement has resulted in, among other things, the termination of the legal proceedings initiated by the Trust against the May Company in March 1996 following May Company's failure to open or cause another retail operator to open for 11 12 EQK REALTY INVESTORS I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS business once the John Wanamaker store closed, which was a violation of a continuous operating covenant contained in its lease agreement. The new lease agreement with May Company has an initial term of nine years (October 31, 2005), with three renewal options of ten years each. The new lease agreement has a longer committed lease term than the John Wanamaker lease agreement, which stipulated an initial lease term expiration date of October 31, 1999. The financial terms are comparable to those contained in the John Wanamaker lease, although minimum rent payments during the first three years of the lease are anticipated to be approximately $75,000 less per annum. Due to certain rent offsets that John Wanamaker would have otherwise been entitled to, the revenue stream after the third lease year is anticipated to be more favorable to the Trust. In connection with the execution of this lease agreement, the Trust received approval from May Company on behalf of its Hecht's and Lord & Taylor stores to certain modifications to the mall's site plan which will give the Trust flexibility in future development planning. The opening of a Lord & Taylor store is expected to have a positive impact on the Trust's ability to lease space to new tenants and to renew leases with existing tenants. The Trust anticipates that Lord & Taylor will open its newly renovated store in Spring 1997. Initially, Lord & Taylor had projected an opening prior to the 1996 Holiday shopping season. However, issues affecting construction scheduling have delayed the opening date. Until the Lord & Taylor store opens, certain tenants will be permitted to pay, pursuant to co-tenancy provisions provided for in their leases, percentage rent in lieu of fixed minimum rentals. Based on the current sales volumes of these tenants, the reduction in rental revenues from amounts that otherwise would have been earned is estimated to be approximately $75,000 per quarter. Debt Maturities The Trust's mortgage note and term loan mature on December 15, 1996 in the aggregate principal amount of $45,381,000. Given that the Trust expects to hold its investment in Harrisburg beyond 1996, Management is in advanced discussions regarding the refinancing of its debt with its existing lenders in anticipation of the mortgage and term loan maturities. Based on these discussions and its current assessment of the credit markets, Management believes that it can extend or refinance its existing debt, and that such new facility will be in place on or before the maturity date of the existing debt. However, if the Trust is unable to refinance or replace the existing debt at commercially reasonable terms or at all, Management's plans with respect to the sale of Harrisburg will be accelerated to satisfy its debt obligations. 12 13 EQK REALTY INVESTORS I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY The Trust experienced a net decline of $2,046,000 in cash flows from operating activities during the nine months ended September 30, 1996 as compared to the nine months ended September 30, 1995. This decline was primarily due to a reduction in cash flows of $4,178,000 stemming from the December 1995 sale of Castleton and by the repayment of a $300,000 loan to its Advisor. The proceeds of this loan had been used to fund an escrow deposit that was released by the lender in connection with the 1995 debt extension. The effect of these reductions were partially offset by a reduction in interest payments of $2,110,000 resulting from the partial repayment of mortgage debt following the sale of Castleton, an increase in Harrisburg's cash flows for the nine months ended September 30, 1996 as discussed under Results of Operations (page 14) and a $264,000 refund of previously paid real estate taxes discussed in Note 5 to the financial statements. As a result of the difficult economic climate facing retailers across the country, the parent companies of certain national tenants have had to give consideration to, and in certain situations have had to implement, plans of reorganization, including filing for protection under the U.S. Bankruptcy Code. Certain of these tenants lease space at Harrisburg. Based on (i) the bankruptcy filings of certain national retailers, (ii) unanticipated closings of other financially-troubled retailers, and (iii) rent relief requests from certain other tenants, Management believes that approximately $230,000 in minimum rents earned in 1995 may not be achieved in 1996 (in addition to the previously discussed decline in minimum rents due to the exercise of co-tenancy provisions by certain tenants). The Trust has received lease termination fees in certain situations that will partially offset this anticipated decline in minimum rents. Further, approximately $200,000 of the $230,000 in minimum rent shortfalls relate to short-term rent relief agreements that will expire once the new Lord & Taylor store opens as currently scheduled in Spring 1997. Management will continue to counter the negative trends associated with the current retail economic climate with aggressive leasing and marketing programs. Cash flows used in investing activities during the nine months ended September 30, 1996 and 1995 amounted to $190,000 and $4,895,000, respectively. The 1996 results reflect routine capital additions at Harrisburg while the 1995 results reflect expenditures related to the outparcel building redevelopment and a tenant allowance at Harrisburg, in addition to routine capital expenditures at both Harrisburg and Castleton. The Trust anticipates capital expenditure requirements of approximately $270,000 for the remainder of 1996 for tenant alterations and routine capital additions, although certain of these expenditures may be deferred into future periods at Management's discretion. During both the nine month periods ended September 30, 1996 and 1995, cash flows used in financing activities were limited to scheduled principal payments on the Trust's debt. Pursuant to the 13 14 EQK REALTY INVESTORS I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS terms of the one year mortgage debt extensions executed in December 1995, the Trust is required to make principal payments on both the mortgage note and the term loan in 1996, while 1995 scheduled principal payments were required for the term loan only. The Trust's liquidity requirements for the remainder of 1996 will also include principal and interest payments of approximately $1,056,000 pursuant to the existing loan agreements prior to such debt maturities in December 1996. The Trust's Cash Management Agreement stipulates that all rental payments from tenants are to be made directly to a third party escrow agent who also funds monthly operating expenses in accordance with a budget approved by the lender. The Trust believes that its cash flow for 1996 will be sufficient to fund its various operating requirements, including budgeted capital expenditures and monthly principal and interest payments, although its discretion with respect to cash flow will be limited by the terms of the Cash Management Agreement. Management believes that the Trust's current cash reserves, coupled with additional cash flow projected to be generated from operations, will permit the Trust to meet its operating, capital and debt service requirements. The Trust records its investments in real estate in accordance with the historical cost accounting convention. Accordingly, the Trust has not written up the cost basis of its investment in Harrisburg to its substantially higher net realizable value. Therefore, Management does not believe that its deficit in shareholders' equity of $2,462,000 at September 30, 1996 is indicative of its current liquidity or the distribution that its shareholders will receive upon liquidation. RESULTS OF OPERATIONS For the nine months ended September 30, 1996, the Trust reported a net loss of $929,000 ($.10 per share) compared to a net loss of $5,820,000 ($.63 per share) for the nine months ended September 30, 1995. For the third quarter of 1996, a net loss of $261,000 ($.03 per share) was reported compared to a net loss of $3,802,000 ($.41 per share) for the third quarter of 1995. The Trust's revenues for the three and nine month periods ending September 30, 1996 were $1,576,000 and $4,705,000, respectively, representing decreases of $2,411,000 and $7,364,000 over the comparable 1995 periods. The decline in revenues was primarily due to the December 1995 sale of Castleton. For the three and nine month periods ending September 30, 1995, Castleton accounted for $2,561,000 and $7,625,000 in revenues, respectively. The decline was partially offset by an increase in Harrisburg's revenues for the three and nine month periods ending September 30, 1996 of $147,000 and $261,000, respectively, over the same periods in 1995. The increase in Harrisburg's revenues is largely due to the receipt of lease termination fees totalling $386,000 during 1996. These 14 15 EQK REALTY INVESTORS I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS fees were partially offset by a decrease in Harrisburg's rental revenues associated with short-term rent relief agreements executed in 1996 that will expire once Lord &Taylor opens as currently scheduled in Spring 1997. Operating expenses for the three and nine month periods ending September 30, 1996 and 1995 were $123,000 and $654,000, respectively, representing decreases of $1,134,000 and $3,465,000 over the comparable 1995 periods. The decline in expenses was primarily due to the December 1995 sale of Castleton. For the three and nine month periods ending September 30, 1995, Castleton accounted for $1,118,000 and $3,603,000 in expenses, respectively. The decline was partially offset by an increase in Harrisburg's operating expenses for the three and nine month periods ending September 30, 1996 of $57,000 and $138,000, respectively, over the same periods in 1995. The change was due to increases in miscellaneous operating expenses, none of which was individually significant. Interest expense for the three and nine month periods ending September 30, 1996 declined $1,202,000 and $3,545,000, respectively, over the comparable 1995 periods. The decline is due primarily to the mortgage debt reduction following the sale of Castleton. Total debt outstanding at September 30, 1996 was $45,466,000 as compared to $81,423,000 at September 30, 1995. Also, reductions in interest rates applicable in 1996 for both the mortgage note and term loan resulted in lower interest expense as compared to interest charges which would have been incurred at interest rates in effect in 1995. In March 1996, the Trust was notified by the Fulton County (Georgia) Tax Commissioner's office of a reduction in the assessed value of the real estate underlying Peachtree Dunwoody Pavilion for tax years 1991 and 1992. As previously discussed, the Trust completed the sale of Peachtree Dunwoody Pavilion during the period 1992-1993. Such reduction in assessed value resulted in a refund of previously paid real estate taxes in the amount of $192,000, which the Trust recognized as other income during the first quarter. In June 1996, the Trust was notified by the Fulton County Tax Commissioner's office of an additional tax refund of $72,000 for tax year 1992, which the Trust received in July 1996 and recognized as other income in the second quarter. Other expenses consist of portfolio management fees and other costs related to the operation of the Trust partially offset by interest income earned on cash balances. The decrease in other expenses of $87,000 and $204,000 for the three and nine month periods ending September 30, 1996 is primarily attributable to a decrease in portfolio management and other professional fees. 15 16 EQK REALTY INVESTORS I PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None ITEM 2. Changes in Securities. None ITEM 3. Defaults Upon Senior Securities. None ITEM 4. Submission of Matters to a Vote of Security Holders. None ITEM 5. Other Information. None ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits: 2. None 4. None 10. None 11. See Note 2 to the Financial Statements. 15. Not Applicable 18. Not Applicable 19. None 22. None 23. Not Applicable 24. None 27. Included in EDGAR transmission only. (b) Reports on Form 8-K. None
16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 13, 1996 EQK REALTY INVESTORS I By: /s/Gregory R. Greenfield ----------------------------- Gregory R. Greenfield Executive Vice President and Treasurer (Principal Financial Officer) By: /s/William G. Brown, Jr. ----------------------------- William G. Brown, Jr. Vice President and Controller (Principal Accounting Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF EQK REALTY INVESTORS I FOR THE PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 3,106 0 0 0 0 0 0 0 46,502 0 0 0 0 135,875 (138,337) 46,502 0 4,705 0 654 2,056 0 2,924 (929) 0 (929) 0 0 0 (929) (.10) (.10)
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