-----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, NOQRxPVSTv0sNJZm9uLCLA9fXYoR7B0kRjQ9SIbqYhCWl8kYErnghZBEOvKUdsjL GvJ8cE+Y9uAx08RFkwCaxQ== 0000852748-96-000009.txt : 19961203 0000852748-96-000009.hdr.sgml : 19961203 ACCESSION NUMBER: 0000852748-96-000009 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961129 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RETAIL PROPERTY INVESTORS INC CENTRAL INDEX KEY: 0000852748 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 043060233 STATE OF INCORPORATION: VA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-18247 FILM NUMBER: 96674619 BUSINESS ADDRESS: STREET 1: 265 FRANKLIN STREET 15TH FL CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 2127134214 FORMER COMPANY: FORMER CONFORMED NAME: RETAIL PROPERTY INVESTMENTS INC DATE OF NAME CHANGE: 19931118 FORMER COMPANY: FORMER CONFORMED NAME: PAINEWEBBER RETAIL PROPERTY INVESTMENTS INC DATE OF NAME CHANGE: 19920703 10-K405 1 THIS IS A 10-K FOR RETAIL PROPERTY INVESTORS, INC. U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED: AUGUST 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to . Commission File Number: 0-18247 RETAIL PROPERTY INVESTORS, INC. (Exact name of registrant as specified in its charter) Virginia 04-3060233 (State of organization) (I.R.S. Employer Identification No.) 1285 Avenue of the Americas, New York, New York 10019 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (212) 713-4264 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: Shares of Common Stock, $.01 Par Value (Title of class) 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 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 (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____ Shares of common stock outstanding as of August 31, 1996: 5,010,050. The aggregate sales price of the shares sold was $100,201,000. This does not reflect market value. There is no current market for these shares. DOCUMENTS INCORPORATED BY REFERENCE Documents Form 10-K Reference Original Offering Prospectus of registrant Part IV dated October 6, 1989, as supplemented RETAIL PROPERTY INVESTORS, INC. 1996 FORM 10-K TABLE OF CONTENTS Part I Page Item 1 Business I-1 Item 2 Properties I-4 Item 3 Legal Proceedings I-7 Item 4 Submission of Matters to a Vote of Security Holders I-8 Part II Item 5 Market for the Registrant's Shares and Related Stockholder Matters II-1 Item 6 Selected Financial Data II-1 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations II-2 Item 8 Financial Statements and Supplementary Data II-8 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure II-8 Part III Item 10 Directors and Executive Officers of the Registrant III-1 Item 11 Executive Compensation III-3 Item 12 Security Ownership of Certain Beneficial Owners and Management III-4 Item 13 Certain Relationships and Related Transactions III-4 Part IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K IV-1 Signatures IV-2 Index to Exhibits IV-3 Financial Statements and Supplementary Data F-1 to F-27 PART I Item 1. Business Retail Property Investors, Inc. (the "Company"), formerly PaineWebber Retail Property Investments, Inc., is a corporation organized on August 9, 1989 in the Commonwealth of Virginia for the purpose of investing in a portfolio of retail shopping centers located throughout the midwestern, southern and southeastern United States. The Company has elected to qualify to be taxed as a Real Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986, as amended, for each taxable year of operations. As a REIT, the Company is allowed a tax deduction for the amount of dividends paid to its shareholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only. On October 23, 1989, the Company commenced an initial public offering of up to 10,000,000 shares of its Common Stock (the "Shares"), priced at $10 per Share, pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933 (Registration Statement No. 33-29755). The initial offering closed during the second quarter of fiscal 1991, after 10,020,100 shares had been sold (including the sale of 20,100 shares to an affiliate, PaineWebber Group, Inc.), representing gross proceeds of $100,201,000. Effective September 7, 1993, the Company's shareholders approved a resolution to complete a 1 for 2 reverse stock split. Consequently, the resulting outstanding shares, which number 5,010,050, have an effective original issue price of $20 per share. As of November 1, 1996, PaineWebber and its affiliates held 111,601 shares of the Company's common stock. The Company was originally organized as a finite-life, non-traded REIT that had a stated investment policy of investing exclusively in shopping centers in which Wal-Mart Stores, Inc. ("Wal-Mart") was or would be an anchor tenant. The Company invested the net proceeds of the initial public offering in 22 Wal-Mart anchored shopping centers, as discussed in more detail below. In September 1993 and November 1994, the Company's shareholders approved certain amendments to the Company's Articles of Incorporation and Bylaws as part of a plan to reposition the Company to take advantage of the liquidity and potentially attractive source of capital available in the market for publicly held REITs which had existed at that time. As discussed further in Item 7, however, due to changes in interest rate levels and other market factors which adversely affected the market for new public REIT equity offerings during the latter half of calendar 1994 and the first half of calendar 1995, the Company did not complete the final phase of its restructuring plans. In view of the then existing capital market conditions, the Company's Board of Directors engaged the investment banking firm of Lehman Brothers Inc. ("Lehman") in June of 1995 to act as its financial adviser and to provide financial and strategic advisory services to the Board of Directors regarding other options available to the Company. The strategic options considered included, among other things, a recapitalization of the Company, sales of the Company's assets and the exploration of merger opportunities. In November 1995, Lehman presented a summary to the Board of the proposals which it had received to date, all of which were indications of interest from third parties to buy the Company's real estate assets. The Board concluded that it would be in the shareholders' best interests to immediately initiate the process of soliciting firm offers to purchase the Company's portfolio of operating investment properties. The Directors instructed Lehman to work with the various third parties that expressed an interest in such a transaction to obtain transaction terms most favorable to the Company and its shareholders. As discussed further in Item 7, subsequent to year end, in October 1996 the Company completed the sale of its real estate assets to Glimcher Realty Trust ("GRT"). As also discussed further in Item 7, the Company expects to complete a plan of liquidation prior to December 31, 1996 and to distribute all of the Company's net cash assets to the shareholders prior to such date. As of August 31, 1996, the Company owned the investment properties referred to below: Property Name Date of and Location (1) Type of Property Investment Size - ---------------- ---------------- ---------- ---- Village Plaza Shopping Center 8/16/89 490,970 Sq. Ft. Augusta, GA Logan Place Shopping Center 1/18/90 114,748 Sq. Ft. Russellville, KY Property Name Date of and Location (1) Type of Property Investment Size - ---------------- ---------------- ---------- ---- (continued: Piedmont Plaza Shopping Center 1/19/90 249,052 Sq. Ft. Greenwood, SC Artesian Square Shopping Center 1/30/90 177,428 Sq. Ft. Martinsville, IN Sycamore Square Shopping Center 4/26/90 93,304 Sq. Ft. Ashland City, TN Audubon Village Shopping Center 5/22/90 124,592 Sq. Ft. Henderson, KY Crossroads Centre Shopping Center 6/15/90 242,430 Sq. Ft. Knoxville, TN East Pointe Plaza Shopping Center 8/7/90 279,261 Sq. Ft. Columbia, SC Cross Creek Plaza Shopping Center 12/19/90 237,765 Sq. Ft. Beaufort, SC Cypress Bay Plaza Shopping Center 12/19/90 258,245 Sq. Ft. Morehead City, NC Walterboro Plaza Shopping Center 12/19/90 132,130 Sq. Ft. Walterboro, SC Lexington Parkway Shopping Center 3/5/91 210,150 Sq. Ft. Plaza Lexington, NC Roane County Plaza Shopping Center 3/5/91 160,198 Sq. Ft. Rockwood, TN Franklin Square Shopping Center 6/21/91 237,062 Sq. Ft. Spartanburg, SC Barren River Plaza Shopping Center 8/9/91 234,795 Sq. Ft. Glasgow, KY Cumberland Crossing Shopping Center 8/9/91 144,734 Sq. Ft. LaFollette, TN Applewood Village Shopping Center 10/25/91 140,039 Sq. Ft. Fremont, OH Aviation Plaza Shopping Center 8/31/92 174,715 Sq. Ft. Osh Kosh, WI Crossing Meadows Shopping Center 8/31/92 233,984 Sq. Ft. Onalaska, WI Property Name Date of and Location (1) Type of Property Investment Size - ---------------- ---------------- ---------- ---- (continued) Southside Plaza Shopping Center 10/21/92 172,293 Sq. Ft. Sanford, NC College Plaza Shopping Center 4/29/93 178,431 Sq. Ft. Bluefield, VA Marion Towne Center Shopping Center 6/23/93 156,543 Sq. Ft. Marion, SC (1) See Notes to the Financial Statements filed with this Annual Report for a description of the mortgage debt which encumbered these real estate investments. The 22 retail shopping centers listed above are located in nine central and eastern states and aggregate approximately 4.4 million square feet of gross leasable area. All of the properties are or were anchored by Wal-Mart stores. The typical property profile for the Company's portfolio was a community shopping center of roughly 180,000 square feet (they range in size from 93,304 to 490,970 square feet) anchored by Wal-Mart and a major grocery chain store. The Wal-Mart anchors range in size from 41,000 to 149,000 square feet. At many of the centers, in addition to the Wal-Mart and grocery anchors, there are also national credit tenants such as Sears, JC Penney, Goody's and Lowe's, among others. All centers contain a moderate amount of shop space which is leased to both credit and non-credit tenants. Of the gross leasable space at the Company's properties, 49% is leased to Wal-Mart and its affiliates and 40% is leased to other national and regional credit tenants. The properties are generally located on major state and federal highways, with many at intersections of primary thoroughfares. The majority of the properties are located in county seat markets with a few located in smaller metropolitan areas or at the fringe of larger metropolitan areas. Shopping center leases typically provide for a minimum base rental per square foot which the tenant is obligated to pay in all cases ("Minimum Base Rent"), plus additional rentals equal to a negotiated percentage of gross receipts or gross sales above a stated sales volume ("Percentage Rentals"). Small tenants typically pay from 3% to 6% in Percentage Rentals. Anchor tenants or other significant tenants often pay lower Percentage Rentals, and sometimes no Percentage Rentals. The typical Wal-Mart department store lease provides that no Percentage Rentals will be paid during the first seven years. Thereafter, Percentage Rentals will equal only .5% to .75% of gross receipts in excess of the gross receipts during the seventh year of the lease, up to a maximum of $1.00 per square foot. In addition to rentals, tenants are ordinarily required to pay their pro rata share of real estate taxes, certain insurance premiums, and other common area maintenance costs. However, the Wal-Mart leases generally contain a limit on Wal-Mart's share of such costs. Certain other costs are usually not paid by the tenants. For example, the landlord is usually responsible for maintaining roofs, exterior walls, foundations and parking areas to some extent. Wal-Mart remains one of the leading and fastest growing discount mass merchandisers in the United States. An anchor tenant usually commits to a long-term lease with an initial term of 10 to 20 years or more with a succession of renewal options. All of the Company's Wal-Mart leases had an initial term of 20 years. However, as discussed further in Item 7, over the past several years Wal-Mart has begun building "supercenters", which contain up to 200,000 square feet and include a grocery store component in addition to a Wal-Mart discount store. This practice reflects a broad trend among retailers to maximize selling areas and reduce costs by constructing supercenters or by emphasizing larger properties and closing smaller, marginal stores. In response to these changes, which occurred during the Company's initial acquisition phase, management became particularly selective in its purchase of existing centers in an effort to address Wal-Mart's changing needs by generally purchasing centers with larger Wal-Mart stores which also had future expansion capabilities. Despite such efforts to alter the Company's acquisition criteria to accommodate Wal-Mart's strategic growth plans, at certain of the Company's properties management had been unable to satisfy Wal-Mart's space and location preferences and Wal-Mart had either moved or expressed its intent to move from such properties. Wal-Mart would remain obligated to pay rent and its share of operating expenses through the remaining terms of the leases even upon vacating the properties. However, unless a suitable replacement anchor tenant could be located, such a relocation of a Wal-Mart store would have a long-term negative impact on renewals by other tenants and on the long-term performance of the affected shopping center. Certain tenants of the properties have co-tenancy clauses in their lease agreements which stipulate that if the Wal-Mart anchor space is vacant these tenants are entitled to pay a reduced amount of rent and, in some cases, retain the right to terminate their lease agreements. Management expected that there would be additional Wal-Mart relocation vacancies at certain of its properties as a result of this trend toward supercenter construction, which was one of the factors which influenced the Board of Directors to pursue a sale of the entire portfolio of properties during fiscal 1995. The Company has been engaged solely in the business of real estate investment. Therefore, a presentation of information about industry segments is not applicable. There currently are four directors of the Company, none of whom are affiliated with the Advisor. The Directors are subject to removal by the vote of the holders of a majority of the outstanding Shares. The Directors are responsible for the general policies of the Company, but they are not required to conduct personally the business of the Company. Subject to the supervision of the Company's Board of Directors, the business of the Company has been managed to date by PaineWebber Realty Advisors, L.P. (the "Advisor"), a limited partnership composed of PaineWebber Properties Incorporated ("PWPI"), a Delaware corporation, and Properties Associates, L.P., a Virginia limited partnership. Both partners of the Advisor are affiliates of PaineWebber Incorporated ("PWI"). PWI is a subsidiary of PaineWebber Group, Inc. ("PaineWebber"). The terms of transactions between the Company and the Advisor and its affiliates are set forth in Items 11 and 13 below to which reference is hereby made for a description of such terms and transactions. Item 2. Properties As of August 31, 1996, the Company owned directly, or through a partnership interest, the operating properties referred to under Item 1 above to which reference is made for the description, name and location of such properties. Occupancy figures for each fiscal quarter during 1996, along with an average for the year, are presented below for each property: Percent Leased At ------------------------------------------------------- Fiscal 1996 11/30/95 2/28/96 5/31/96 8/31/96 Average -------- ------- ------- ------- ------- Village Plaza 100% 99% 100% 100% 100% Logan Place 100% 96% 96% 97% 97% Piedmont Plaza 99% 99% 99% 99% 99% Artesian Square 100% 100% 98% 99% 99% Sycamore Square 89% 88% 89% 89% 89% Audubon Village 94% 91% 91% 92% 92% Crossroads Centre 98% 98% 98% 98% 98% East Pointe Plaza 99% 99% 99% 99% 99% Cross Creek Plaza 96% 97% 96% 96% 96% Cypress Bay Plaza 97% 97% 97% 97% 97% Walterboro Plaza 95% 97% 97% 96% 96% Lexington Parkway Plaza 96% 96% 96% 96% 96% Roane County Plaza 100% 100% 100% 100% 100% Franklin Square 100% 100% 100% 100% 100% Barren River Plaza 100% 99% 99% 99% 99% Cumberland Crossing 98% 98% 100% 99% 99% Applewood Village 100% 99% 99% 99% 99% Aviation Plaza 99% 100% 100% 100% 100% Crossing Meadows 100% 100% 100% 100% 100% Southside Plaza 100% 100% 100% 100% 100% College Plaza 100% 100% 100% 100% 100% Marion Towne Center 96% 96% 96% 96% 96% The Village Plaza shopping center, located in Augusta, Georgia, was the Company's largest property, representing 10% of the Company's total assets as of August 31, 1996 and 11% of the Company's total revenues for the year ended August 31, 1996. The Village Plaza property was encumbered by a mortgage loan with a principal balance of $18,900,000 as of August 31, 1996. The loan bore interest at 8% (after the effect a loan buydown fee paid at inception) and required monthly payments of interest-only through November 1996. Thereafter, monthly payments of principal and interest totalling $138,682 were to be due through maturity on November 1, 1999. At maturity, a balloon payment of $18,401,949 would have been due. For calendar year 1996, the Company owed real estate taxes with respect to Village Plaza at a rate of $27.22 per $1,000 of assessed value. Fiscal 1996 real estate tax expense for the Village Plaza property amounted to $108,098. Certain information concerning the Federal income tax basis of the Village Plaza property and the methods of depreciation used for Federal income tax purposes is summarized below (in thousands): Federal income tax basis Method of Property component as of 9/30/96 depreciation used - ------------------ ------------- ----------------- Land $ 6,307 N/A Land improvements 3,556 20 year straight-line Building 14,321 40 year straight-line Personal property 971 12 year straight-line Tenant improvements 40 12 year straight-line -------- $ 25,195 ======== As of August 31, 1996, three tenants leased greater than 10% of the leasable square footage at Village Plaza. Certain information regarding these tenants and their leases is summarized below: Annual Lease Square Feet Base Expiration Renewal Tenant Merchandise Occupied Rent Date Options ------ ----------- -------- ---- ---- ------- Wal-Mart Discount 149,211 $ 396,764 10/28/08 5 successive Department 5-year options Store Sam's Club Member 106,728 $ 547,358 7/11/08 5 successive Warehouse 5-year options (Wal-Mart affiliate) Home Quarters Home 95,971 $ 434,874 1/31/09 4 successive Improvements 5-year options Scheduled lease expirations at Village Plaza over the next ten years are summarized as follows: Square Annual footage base rent Year Number of of Percent ended of leases expiring expiring of total August 31 expiring leases leases base rent --------- -------- ------ ------ --------- 1997 2 4,600 $ 68,016 3% 1998 8 63,460 $ 539,171 21% 1999 2 6,800 $ 70,166 3% 2000 2 1,600 $ 33,227 1% 2001 - - - - 2002 1 23,000 $ 184,000 7% 2003 - - - - 2004 - - - - 2005 - - - - 2006 - - - - The average leased percentage and effective rent per square foot for Village Plaza for each of the past five fiscal years is summarized as follows:
Fiscal 1992 Fiscal 1993 Fiscal 1994 Fiscal 1995 Fiscal 1996 -------------------- --------------------- --------------------- -------------------- --------------------- Effective Effective Effective Effective Effective Rent Rent Rent Rent Rent per per per per per Average % Square Average % Square Average % Square Average % Square Average % Square Leased Foot * Leased Foot * Leased Foot * Leased Foot* Leased Foot* - ------ ------ ------ ------ ------ ------ ------ ----- ------ ----- 98% $5.61 100% $ 5.90 100% $ 5.95 100% $ 5.98 $100% $6.00
* Effective rent per square foot is calculated as total annualized base and percentage rent divided by average occupied square feet. The amount of occupied square feet used for this calculation excludes two expansions of the Wal-Mart anchor store at Village Plaza because the expansions were not owned by the Company and, therefore, were not covered under the terms of the lease agreement. The average leased percentage and effective rent per square foot for each property (other than Village Plaza) for each of the past three fiscal years is summarized as follows: Fiscal 1994 Fiscal 1995 Fiscal 1996 ------------------------ ----------------------- -------------------- Effective Effective Effective Rent Rent Rent per per per Average % Square Average % Square Average % Square Leased Foot * Leased Foot* Leased Foot* ------ ------ ------ ----- ------ ----- Logan Place 95% $ 3.99 98% $ 4.01 97% $ 4.23 Piedmont Plaza 100% $ 5.50 100% $ 5.76 99% $ 5.89 Artesian Square 100% $ 5.17 100% $ 5.23 99% $ 5.20 Sycamore Square 86% $ 4.52 89% $ 4.54 89% $ 4.83 Audubon Village 93% $ 5.25 94% $ 5.33 96% $ 5.34 Crossroads Centre 99% $ 4.66 100% $ 4.70 98% $ 4.71 East Pointe Plaza 76% $ 5.90 82% $ 5.86 99% $ 5.00 Cross Creek Plaza 96% $ 5.94 98% $ 5.92 96% $ 6.04 Cypress Bay Plaza 97% $ 5.38 98% $ 5.66 97% $ 5.71 Walterboro Plaza 97% $ 5.17 95% $ 5.22 96% $ 5.22 Lexington Parkway Plaza 98% $ 4.99 92% $ 4.98 96% $ 5.14 Fiscal 1994 Fiscal 1995 Fiscal 1996 ------------------------ ----------------------- -------------------- Effective Effective Effective Rent Rent Rent per per per Average % Square Average % Square Average % Square Leased Foot * Leased Foot* Leased Foot* ------ ------ ------ ----- ------ ----- Roane County Plaza 99% $ 4.76 100% $ 4.80 100% $ 4.90 Franklin Square 100% $ 5.18 100% $ 5.27 100% $ 5.41 Barren River Plaza 100% $ 5.15 100% $ 5.26 99% $ 5.31 Cumberland Crossing 100% $ 5.22 100% $ 5.32 99% $ 5.27 Applewood Village 100% $ 5.09 100% $ 5.15 99% $ 5.09 Aviation Plaza 100% $ 5.28 99% $ 5.31 100% $ 5.31 Crossing Meadows 100% $ 5.49 100% $ 5.61 100% $ 5.64 Southside Plaza 100% $ 5.91 100% $ 5.88 100% $ 5.98 College Plaza 100% $ 6.26 100% $ 6.30 100% $ 6.29 Marion Towne Center 100% $ 5.70 100% $ 5.64 96% $ 5.60
* Effective rent per square foot is calculated as total annualized base and percentage rent divided by average occupied square feet. The amount of occupied square feet used for this calculation excludes certain expansions of the Wal-Mart anchor stores at five of the properties because such expansions were not owned by the Company and, therefore, were not covered under the terms of the respective lease agreements. Item 3. Legal Proceedings In November 1994, a series of purported class actions (the "New York Limited Partnership Actions") were filed in the United States District Court for the Southern District of New York concerning PaineWebber Incorporated's sale and sponsorship of various limited partnership interests and common stock, including the securities offered by the Company. The lawsuits were brought against PaineWebber Incorporated and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by allegedly dissatisfied investors. In March 1995, after the actions were consolidated under the title In re PaineWebber Limited Partnership Litigation, the plaintiffs amended their complaint to assert claims against a variety of other defendants, including PaineWebber Properties Incorporated, which is the General Partner of the Advisor. The Company is not a defendant in the New York Limited Partnership Actions. On May 30, 1995, the court certified class action treatment of the claims asserted in the litigation. The amended complaint in the New York Limited Partnership Actions alleged, among other things, that, in connection with the sale of common stock of the Company, the defendants (1) failed to provide adequate disclosure of the risks involved; (2) made false and misleading representations about the safety of the investments and the Company's anticipated performance; and (3) marketed the Company to investors for whom such investments were not suitable. The plaintiffs, who are not shareholders of the Company but were suing on behalf of all persons who invested in the Company, also alleged that following the sale of the common stock of the Company the defendants misrepresented financial information about the Company's value and performance. The amended complaint alleged that the defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the federal securities laws. The plaintiffs sought unspecified damages, including reimbursement for all sums invested by them in the Company, as well as disgorgement of all fees and other income derived by PaineWebber from the Company. In addition, the plaintiffs also sought treble damages under RICO. In January 1996, PaineWebber signed a memorandum of understanding with the plaintiffs in this class action outlining the terms under which the parties have agreed to settle the case. Pursuant to that memorandum of understanding, PaineWebber irrevocably deposited $125 million into an escrow fund under the supervision of the United States District Court for the Southern District of New York to be used to resolve the litigation in accordance with a definitive settlement agreement and a plan of allocation. On July 17, 1996, PaineWebber and the class plaintiffs submitted a definitive settlement agreement which has been preliminarily approved by the court and provides for the complete resolution of the class action litigation, including releases in favor of the Company and the General Partner of the Advisor, and the allocation of the $125 million settlement fund among investors in the various partnerships and REITs at issue in the case. As part of the settlement, PaineWebber also agreed to provide class members with certain financial guarantees relating to some of the partnerships and REITs. The details of the settlement are described in a notice mailed directly to class members at the direction of the court. A final hearing on the fairness of the proposed settlement is scheduled to continue in November 1996. In February 1996, approximately 150 plaintiffs filed an action entitled Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against PaineWebber Incorporated and various affiliated entities concerning the plaintiffs' purchases of various limited partnership interests and REIT stocks, including those offered by the Company. The complaint alleges, among other things, that PaineWebber and its related entities committed fraud and misrepresentation and breached fiduciary duties allegedly owed to the plaintiffs by selling or promoting investments that were unsuitable for the plaintiffs and by overstating the benefits, understating the risks and failing to state material facts concerning the investments. The complaint seeks compensatory damages of $15 million plus punitive damages. In September 1996, the court dismissed many of the plaintiffs' claims as barred by applicable securities arbitration regulations. The eventual outcome of this litigation and the potential impact, if any, on the Company's shareholders cannot be determined at the present time. In June 1996, approximately 50 plaintiffs filed an action entitled Bandrowski v. PaineWebber Inc. in Sacramento, California Superior Court against PaineWebber Incorporated and various affiliated entities concerning the plaintiffs' purchases of various limited partnership interests and REIT stocks, including those offered by the Company. The complaint is substantially similar to the complaint in the Abbate action described above, and seeks compensatory damages of $3.4 million plus punitive damages. In July 1996, approximately 15 plaintiffs filed an action entitled Barstad v. PaineWebber Inc. in Maricopa County, Arizona Superior Court against PaineWebber Incorporated and various affiliated entities concerning the plaintiffs' purchases of various limited partnership interests and REIT stocks, including those offered by the Company. The complaint is substantially similar to the complaint in the Abbate action described above, and seeks compensatory damages of $752,000 plus punitive damages. Mediation hearings on the Abbate, Bandrowski, and Barstad actions are scheduled to be held in December 1996. Under certain limited circumstances, pursuant to the Advisory Agreement and other contractual obligations, PaineWebber affiliates could be entitled to indemnification for expenses and liabilities in connection with the litigation described above. However, PaineWebber and its affiliates have formally waived all such rights with regard to this litigation and any other similar litigation that has been or may be threatened, asserted or filed by or on behalf of purchasers of the Company's common stock. Thus, the Advisor believes that these matters will have no material effect on the Company's financial statements, taken as a whole. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of fiscal 1996, the Company's Board of Directors presented a proxy to the shareholders which recommended approval of the sale of substantially all of the Company's real estate assets to Glimcher Realty Trust ("GRT") and the complete and voluntary liquidation and dissolution of the Company pursuant to the Plan of Liquidation and Dissolution. The proxy proposal was voted on at a Special Meeting of Shareholders which was held on October 16, 1996. The proposal required an affirmative vote of more than two-thirds of all the votes entitled to be cast on the transaction. The proposal was approved at the Special Meeting on October 16, 1996 by the required affirmative votes of the shareholders. The following table sets forth a summary of the votes cast with respect to the proposal: Votes Votes Abstentions/ Total For Against Non-Votes Votes ----- ------- ---------- ----- Approval of the Transaction and the Plan of Liquidation and Dissolution of the Company 3,807,939 90,714 83,379 3,982,032 PART II Item 5. Market for the Registrant's Shares and Related Stockholder Matters During the initial public offering period, which commenced on October 23, 1989 and closed in the second quarter of fiscal 1991, the Company issued 10,020,100 shares of common stock at a selling price of $10 per share. Effective September 7, 1993, the Company's shareholders approved a resolution to complete a 1 for 2 reverse stock split. Consequently, the resulting outstanding shares, which number 5,010,050, have an effective original issue price of $20 per share. As of August 31, 1996, there were 5,885 record holders of the Company's Shares. There has been no established public market for the resale of the Shares. The Company is required to make distributions to shareholders in an amount equal to at least 95% of its taxable income in order to continue to qualify as a REIT. The Company incurred a taxable loss in fiscal 1996 and, therefore, was not required to pay a cash dividend in order to retain its REIT status. Item 6. Selected Financial Data RETAIL PROPERTY INVESTORS, INC. (In thousands, except per share data) Years ended August 31, 1996, 1995, 1994, 1993 and 1992 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Revenues $ 25,513 $ 25,009 $ 24,590 $ 22,606 $ 18,582 Loss before extraordinary gain $ (3,677) $ (6,364) $ (6,070) $(1,732) $ (1,990) Extraordinary gain from forgiveness of debt $ 1,139 $ - $ - $ - $ - Net loss $ (2,538) $ (6,364) $ (6,070) $ (1,732) $ (1,990) Per share amounts: Loss before extraordinary gain $ (0.74) $ (1.27) $ (1.21) $ (0.35) $ (0.40) Extraordinary gain on forgiveness of debt $ 0.23 $ - $ - $ - $ - Net loss $ (0.51) $ (1.27) $ (1.21) $ (0.35) $ (0.40) Cash dividends declared $ - $ - $ 0.80 $ 1.60 $ 1.60 Mortgage notes payable, net $155,483 $156,508 $157,599 $156,547 $ 135,978 Total assets $198,164 $202,544 $208,910 $219,086 $ 207,619 The above selected financial data should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report. The above per share amounts are based upon the weighted average number of shares outstanding on a daily basis during each of the years ended August 31, 1996, 1995, 1994, 1993 and 1992, of 5,010,050, as adjusted for the 1 for 2 reverse stock split effective September 7, 1993. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company was formed for the purpose of investing in a portfolio of retail shopping centers anchored primarily by discount retailers and invested in centers containing Wal-Mart Stores, Inc. ("Wal-Mart") as the principal anchor tenant. On October 23, 1989, the Company commenced an initial public offering of up to 10,000,000 shares of its Common Stock (the "Shares"), priced at $10 per Share, pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933 (Registration Statement No. 33-29755). The initial offering closed during the second quarter of fiscal 1991, after 10,020,100 shares had been sold (including the sale of 20,100 shares to an affiliate, PaineWebber Group, Inc.), representing gross proceeds of $100,201,000. Effective September 7, 1993, the Company's shareholders approved a resolution to complete a 1 for 2 reverse stock split. Consequently, the resulting outstanding shares, which number 5,010,050, have an effective original issue price of $20 per share. As of November 1, 1996, PaineWebber and its affiliates held 111,601 shares of the Company's common stock. The Company completed the investment of the initial net offering proceeds in fiscal 1993 with the acquisition of the last of its 22 shopping centers. These centers, which were financed with approximately 75% leverage, contain approximately 4.4 million square feet of leasable space and include other national and regional credit tenants. Of the total gross leasable square footage at the Company's properties, 49% is leased to Wal-Mart and its affiliates and 40% is leased to other national and regional credit tenants. The overall portfolio was 98% leased as of August 31, 1996. The Company was originally organized as a finite-life, non-traded REIT. In September 1993 and November 1994, the Company's shareholders approved certain amendments to the Company's Articles of Incorporation and Bylaws as part of a plan to reposition the Company to take advantage of the liquidity and potentially attractive source of capital available in the market for publicly held REITs which had existed at that time. However, due to a deterioration in the public equity markets for REIT stocks during the latter part of calendar 1994, management delayed its plans to proceed with a public offering and subsequent listing of the Company's common stock on a national securities exchange pending an improvement in the market conditions. Due to changes in interest rate levels and other market factors which continued to adversely affect the market for new public REIT equity offerings during the first half of calendar 1995, the Company did not complete the final phase of its restructuring plans. In view of the then existing capital market conditions, the Company's Board of Directors engaged the investment banking firm of Lehman Brothers Inc. ("Lehman") in June of 1995 to act as its financial adviser and to provide financial and strategic advisory services to the Board of Directors regarding other options available to the Company. The strategic options considered included, among other things, a recapitalization of the Company, sales of the Company's assets and the exploration of merger opportunities. Lehman's services included the solicitation and identification of potential transactions for the Company, the evaluation of these transactions, and the provision of advice to the Board regarding them. In November 1995, Lehman presented a summary to the Board of the proposals which it had received to date, all of which were indications of interest from third parties to buy the Company's real estate assets. The Board concluded that it would be in the shareholders' best interests to immediately initiate the process of soliciting firm offers to purchase the Company's portfolio of operating investment properties. The Directors instructed Lehman to work with the various third parties that expressed an interest in such a transaction to obtain transaction terms most favorable to the Company and its shareholders. In March 1996, the Company announced the execution of a definitive agreement for the sale of its assets to Glimcher Realty Trust ("GRT"). Under the original terms of the agreement, GRT was to have purchased the properties of the Company subject to certain indebtedness and leases for an aggregate purchase price of $203 million plus prepayment penalties on debt to be prepaid and assumption fees on debt to be assumed, subject to certain adjustments. As of May 14, 1996, the terms of the purchase contract were amended to reduce the aggregate purchase price to $197 million plus prepayment penalties and assumption fees. The sale transaction closed into escrow on June 27, 1996 with GRT depositing the net proceeds required to close the transaction in the form of bank letters of credit. Pursuant to the Company's Articles of Incorporation and Virginia law, the sale of all or substantially all of the Company's real estate assets required approval by vote of at least two-thirds of the outstanding shares of common stock. A proxy statement describing the sale transaction and a proposed subsequent liquidation plan for the Company was mailed to shareholders in August 1996 and received the requisite vote of the outstanding shares at a special meeting of the shareholders held on October 16, 1996. The Company received votes totalling 79% of the shares outstanding, and shareholders representing 76% of the shares outstanding voted to approve the sale transaction and plan of liquidation. Upon receiving the required shareholder approval, the Company finalized the closing of the sale transaction, which occurred on October 17, 1996. The Company received net proceeds of $36,371,000 on October 17, 1996 from the final closing of the sale transaction. The net proceeds reflected the aggregate sales price of $197,000,000, less selling costs paid at closing of $489,000, capital improvement and repair allowances of $572,000, mortgage debt outstanding of $158,857,000 and other closing prorations and purchase price adjustments of $711,000. During the escrow period in which the Company sought to obtain the required shareholder approval, the Company's operating properties were managed by GRT. Under the terms of the management agreement, GRT received a base fee of 3% of the gross operating revenues of the properties. In addition, GRT earned an incentive management fee equal to the net cash flow of the properties attributable to the period commencing on May 14, 1996 and ending on the date of the final closing of the sale transaction. A portion of the incentive management fee was paid to GRT out of the net closing proceeds. In addition, the Company transferred to GRT at the time of the closing certain cash balances, together with outstanding receivables and payables, related to the net cash flow generated subsequent to May 14, 1996. The total incentive management fee through the date of the sale transaction aggregated approximately $3.1 million. The Company received interest earnings from GRT beginning June 20, 1996 through the escrow period on a net equity amount of approximately $37,401,000 at a rate equivalent to the published market rate on 6-month U.S. Treasury Bills as of June 20, 1996 (5.39% per annum). The interest credit totalled $657,000 through the date of the sale transaction and is included in the net proceeds of $36,371,000 referred to above. The incentive management fee and the interest credit described above were treated as purchase price adjustments in connection with the sale and will be recorded in the Company's financial statements as of the sale closing date. In addition to the net proceeds received upon the closing of the sale transaction, the Company retained an interest in tenant receivables with a carrying value of approximately $878,000 as of October 17, 1996 (net of an allowance for possible uncollectible amounts of $162,000). Such receivables are primarily comprised of expense reimbursements for real estate taxes, insurance and common area maintenance associated with the Company's period of ownership of the properties. The majority of these receivables are expected to be collected over the next several months with the major portion expected to be received in early calendar year 1997 after the preparation of the annual tenant reconciliations of common area charges is completed. However, subsequent to year-end the Advisor agreed to buy the outstanding receivables from the Company at their net carrying value so that the Company can complete its liquidation during calendar 1996 without the need to establish a liquidating trust for any remaining non-cash assets. The Company's original investment objectives were to (1) provide quarterly cash distributions, a substantial portion of which was expected to have deferred federal income tax liability; (ii) achieve long-term capital appreciation through potential appreciation in the values of the Company's properties; and (iii) preserve and protect the shareholders' capital. The Company, for the most part, has not achieved these original objectives. From its inception in 1989 through the end of fiscal 1993, the Company was in the process of investing the net proceeds of its initial public offering. Delays in the placement of such proceeds in real estate assets resulted from a number of unforeseen changes in the real estate and mortgage financing markets. Because the acquisition period was longer than originally anticipated and because there was a significant decline in short-term reinvestment rates during the acquisition period, the Company had lower than anticipated earnings during this period. In addition to the extended acquisition period, the Company's earnings were affected by changes in its acquisition criteria. As Wal-Mart accelerated its in-house development activity and increased the size of its prototype store, the Company attempted to keep pace with these developments by modifying its acquisition criteria. As a result, acquisition costs exceeded the original budgets for legal and investment analysis expenses. The consequences of these conditions are that the Company supported a portion of its quarterly dividend payments to shareholders during this period by returning capital from cash reserves. The use of cash reserves in this manner, along with the need for funds to pay for the initial costs of pursuing the desired restructuring and recapitalization transactions, led to the Directors' decision to suspend dividend payments in the second quarter of fiscal 1994. Through the date of the dividend suspension in fiscal 1994, shareholders had received total dividend payments of approximately $30.8 million, of which approximately $9.7 million was from cash reserves. The Company did not achieve its capital appreciation objective. While the $197 million selling price of the Company's real estate assets significantly exceeded the book value of the assets, net of accumulated depreciation and the reserve for impairment loss discussed further below, the amount is below the aggregate price at which the 22 properties were purchased by the Company between August 1989 and June 1993 of approximately $224 million (including $6.7 million of capitalized acquisition fees and expenses). At the present time, real estate values for retail shopping centers in many markets are being adversely impacted by the effects of overbuilding and corporate restructurings and consolidations among retailers which have resulted in an oversupply of space. In addition, the adverse conditions in the capital markets for public REIT stocks referred to above have resulted in a drop off in acquisition demand from large institutional buyers of retail properties. Furthermore, certain strategic changes in Wal-Mart's corporate growth plans appear to have resulted in potential buyers attributing a higher leasing risk to the Company's portfolio of properties. Over the past several years, Wal-Mart has begun building "supercenters", which contain up to 200,000 square feet and include a grocery store component in addition to a Wal-Mart discount store. This practice reflects a broad trend among retailers to maximize selling areas and reduce costs by constructing supercenters or by emphasizing larger properties and closing smaller, marginal stores. In response to these changes, which occurred during the Company's initial acquisition phase, management became particularly selective in its purchase of existing centers in an effort to address Wal-Mart's changing needs by generally purchasing centers with larger Wal-Mart stores which also had future expansion capabilities. Despite such efforts to alter the Company's acquisition criteria to accommodate Wal-Mart's strategic growth plans, at certain of the Company's properties management had been unable to satisfy Wal-Mart's space and location preferences and Wal-Mart had either moved or expressed its intent to move from such properties. As previously reported, during the first quarter of fiscal 1996 Wal-Mart announced plans to build a 200,000 square foot Supercenter on land secured by the Company adjacent to Audubon Village, subject to various regulatory approvals. During the second quarter of fiscal 1996, the Planning Board in Henderson, Kentucky rejected Wal-Mart's proposal to construct the Supercenter adjacent to the Company's site. The Company and Wal-Mart had been discussing potential options in light of this development. As discussed further in the 1995 Annual Report, it was anticipated that Wal-Mart would vacate its store at Applewood Village in Fremont, Ohio. During the second quarter of fiscal 1996, Wal-Mart vacated, as expected, to relocate to a newly constructed Supercenter several miles away. During the first quarter of fiscal 1996, the Company learned that Wal-Mart is also expected to relocate from Piedmont Plaza in Greenwood, South Carolina to a new Supercenter currently under construction in that market. Wal-Mart remains obligated to pay rent and its share of operating expenses through the remaining terms of the leases even upon vacating the properties. However, unless a suitable replacement anchor tenant could be located, such a relocation of a Wal-Mart store would have a long-term negative impact on renewals by other tenants and on the long-term performance of the affected shopping center. Certain tenants of the properties have co-tenancy clauses in their lease agreements which stipulate that if the Wal-Mart anchor space is vacant these tenants are entitled to pay a reduced amount of rent and, in some cases, retain the right to terminate their lease agreements. Management expected that there would be additional Wal-Mart relocation vacancies at certain of its properties as a result of this trend toward supercenter construction, which was one of the factors which influenced the Board of Directors to pursue a sale of the entire portfolio of properties during fiscal 1995. In addition to the general retail market conditions and Wal-Mart relocation risk discussed above, the decision by the Board to pursue a sale of the Company's real estate assets was partly based on the refinancing risk to which the Company has been and would remain subject in the event that it continued to hold the operating properties for long-term investment purposes. The first mortgage loans secured by the College Plaza and Franklin Square properties are held by the same lender and were scheduled to mature during fiscal 1996. The College Plaza loan with a principal balance of $6,862,000, had an original maturity date of April 23, 1996. The Franklin Square loan, with a principal balance of $6,600,000, had an original maturity date of June 21, 1996. During the quarter ended May 31, 1996, the Company reached an agreement with the lender of the College Plaza and Franklin Square notes on terms for a short-term extension of the two notes. The maturity date of both notes was extended to March 31, 1997. Subsequent to the original maturity dates, the interest rate for both mortgage notes was changed to a variable rate equal to either prime plus 0.75% or LIBOR plus 2.75%, as selected by the Company. Formal closing of the College Plaza and Franklin Square extension agreements occurred in May 1996 and August 1996, respectively. The next significant loan maturities were scheduled to occur during fiscal 1998, when approximately $30 million of debt would have needed to be repaid or refinanced. The obligation to repay the lenders with respect to the outstanding mortgage loans at the time of the sale transaction in October 1996 was equal to the outstanding mortgage principal balances prior to unamortized loan buydown fees. In conjunction with the sale transaction, the amount of the remaining unamortized loan buydown fees, of approximately $3.5 million, will be written off as a loss on the early extinguishment of debt in the period in which the sale occurred. As previously reported, in September 1993, in order to take advantage of a negotiated prepayment right which was due to expire, PaineWebber Properties Incorporated (PWPI), the general partner of the Advisor, purchased the mortgage note secured by Applewood Village from the original lender at par for $5,175,000. The Applewood Village mortgage loan was refinanced in June 1995 for $4,000,000 leaving a balance of $1,175,000 which PWPI agreed to hold as an unsecured note payable. During fiscal 1996, PWPI agreed to release the Company from its remaining obligation under this promissory note. Effective June 1, 1996, the outstanding balance of this note payable to affiliate, of $1,136,000, was forgiven, together with the related accrued interest payable of $3,000. The extraordinary gain from forgiveness of debt resulting from this transaction is recognized in the Company's statement of operations for fiscal 1996. As a result of the Company's plan to complete the sale of all of its operating investment properties, the accompanying financial statements as of August 31, 1996 and 1995 reflect the reclassification of the operating investment properties and certain related assets to operating investment properties held for sale and the writedown of the individual properties to the lower of adjusted cost or net realizable value. The Company recorded impairment losses for financial reporting purposes of $1,030,000 and $3,850,000 in fiscal 1996 and 1995, respectively, in connection with this accounting treatment. The resulting writedowns apply only to the properties for which losses were expected based on their estimated fair values. The gains on properties for which fair value less costs to sell exceeded the adjusted cost basis will be recognized in the first quarter of fiscal 1997; the period in which the sale transaction was completed. The Company also incurred portfolio sale expenses of $1,834,000 in fiscal 1996. Portfolio sale related expenses consisted primarily of legal fees associated with negotiating the sale agreement and preparing, distributing and soliciting the shareholder proxy. Such costs were expensed as incurred because of the impairment issues discussed further above and the uncertainty regarding the ability to complete the sale transaction which existed until the subsequent shareholder vote. As reported on the Company's Statements of Cash Flows, net cash provided by operating activities decreased by approximately $639,000 in fiscal 1996 as compared to the prior year. The decline in net cash provided by operating activities was primarily due to expenses incurred in fiscal 1996 related to the subsequent sale of the operating investment properties. Net cash provided by investing activities totalled $468,000 during fiscal 1996, as compared to $114,000 for fiscal 1995. The increase in net cash provided by investing activities was mainly due to the transfer of cash reserved for capital improvements to cash and cash equivalents during fiscal 1996 as a result of the subsequent sale of the operating investment properties. The Company had net cash used in financing activities of $2,039,000 in fiscal 1996, as compared to $2,928,000 for fiscal 1995. Net cash used in financing activities was higher in fiscal 1995 due to a number of mortgage loan refinancing transactions completed during the year. The Company generally is obligated to distribute annually at least 95% of its taxable income to its shareholders in order to continue to qualify as a REIT under the Internal Revenue Code. The Company incurred a loss for both book and tax purposes in fiscal 1996 and, therefore, was not required to pay a cash dividend in order to retain its REIT status. The accompanying balance sheet as of August 31, 1996 reflects cash and cash equivalents totalling $9,208,000. A portion of such cash balance, in the amount of $1,471,000, relates to net cash flow of the operating properties subsequent to May 14, 1996 which was due to GRT as part of the incentive management fee calculation described above and was transferred to GRT on October 17, 1996 in conjunction with the sale closing. The Company's balance sheet at August 31, 1996 also included escrowed cash of $1,379,000. The majority of this amount, which primarily represented cash designated for real estate taxes and insurance premiums, was either transferred to GRT at the time of the sale or applied by certain lenders against the respective mortgage debt liabilities. The remaining net cash balance of approximately $7,737,000, along with the net proceeds of $36,371,000 received at closing, $86,000 of escrowed cash refunded to the Company subsequent to the closing and a recovery of prepaid insurance in the amount of $167,000 received subsequent to the closing, were available to be used to pay for the expenses associated with winding up the Company's business and for liquidation distributions to the shareholders. In addition, as discussed further above, the Company retains outstanding tenant receivables in the net amount of $878,000 which the Advisor has agreed to purchase at carrying value. The Company also expects to receive certain state tax refunds of approximately $109,000 and interest income of approximately $441,000. From the available cash and receivables, the Company expects to pay expenses totalling $1,354,000 subsequent to August 31, 1996. Such costs are comprised of operating expenses through the date of the sale transaction of approximately $98,000, expenses related to the sale transaction of approximately $930,000 and estimated liquidation expenses of $326,000. After these estimated expenses, the Company expects to have net assets totalling approximately $44.4 million available for distribution to the shareholders. From these net assets, the Company expects to make a final liquidating distribution to the shareholders of approximately $8.80 per share in December 1996 which will be followed by the formal liquidation of the Company by December 31, 1996. Results of Operations 1996 Compared to 1995 The Company reported a net loss of $2,538,000 for the year ended August 31, 1996, as compared to a net loss of $6,364,000 for the prior year. The decrease in net loss occurred primarily due to the effects of certain non-recurring items: a decrease in loss on impairment of assets held for sale and a $1,139,000 extraordinary gain recognized in fiscal 1996 from the forgiveness of the unsecured debt owed to an affiliate, as discussed further above. The decrease in loss on impairment of assets held for sale resulted from the fiscal 1995 $3,850,000 writedown of the Company's assets to the lower of cost or fair value less estimated selling costs stemming from its decision to market its portfolio of assets for sale. The fiscal 1995 impairment loss was partially offset by the additional loss of $1,030,000 recognized in the current year, as discussed further above. Partially offsetting the effect on net loss of these non-recurring items were the expenses of $1,834,000 recognized in fiscal 1996 relating to the sale of the Company's assets, as discussed further above. Also contributing to the decrease in net loss for fiscal 1996 were increases in revenues combined with decreases in the interest, general and administrative, financial and investor servicing and REIT management fee expense categories. Total revenues increased by $504,000 due to increases in interest income and rental income and expense reimbursements. Interest income increased by $176,000 due to the higher average invested cash reserve balances which resulted from the suspension of the Company's dividend payments to shareholders. Rental income increased by $175,000 primarily due to an increase in occupancy at Lexington Parkway Plaza and higher percentage rent earned at Village Plaza during the current year. The remainder of the increase in revenues is attributable to higher recorded expense reimbursements in the current year which corresponds to the increase in property expenses and real estate taxes discussed below. Interest expense decreased by $475,000 due to the reduction in effective interest rates associated with certain loans which were refinanced in fiscal 1995. General and administrative expenses decreased by $755,000 partly due to costs incurred in the prior year related to an independent valuation of the Company's operating properties which was commissioned in fiscal 1995 as part of management's refinancing and portfolio management efforts. In addition, a decline in other required professional services and certain non-recurring expenses incurred in fiscal 1995 related to a transfer of property management responsibilities also contributed to the decline in general and administrative expenses. REIT management fees and financial and investor servicing expenses declined by $236,000 due to the Advisor's decision to waive collection of such amounts, effective March 1, 1995, as an accommodation to the Company in order to maximize earnings and cash flow while the strategic plans regarding the Company's future operations were evaluated and implemented. Increases in property expenses, real estate taxes, and bad debts partially offset the overall decrease in net loss for the current year. Property expenses increased by $167,000 mainly due to an increase in snow removal costs at several properties from the record breaking snowfall levels during the winter of 1996. Real estate taxes increased by $124,000 mainly as a result of higher tax expense recognized for the Piedmont Plaza and East Pointe Plaza properties. At Piedmont Plaza, the taxing authority began billing the Company for taxes on the anchor tenant stores in 1996 as compared to prior years when these amounts had been billed directly to the anchor tenants. Such amounts are recoverable from the tenants through the expense reimbursement revenues referred to above. At East Pointe Plaza, the prior year tax expense had been reduced to correct the overaccrual of taxes in fiscal 1994 as a result of a successful appeal of the property's tax assessment. Bad debt expense increased mainly due to the write off of a note which was deemed to be uncollectible due from a tenant of the Aviation Plaza property that filed for bankruptcy protection during fiscal 1996. 1995 Compared to 1994 The Company reported a net loss of $6,364,000 for the year ended August 31, 1995, as compared to a net loss of $6,070,000 for fiscal 1994. The increase in net loss occurred despite a decrease in non-recurring charges recorded in fiscal 1995 as compared to the prior year. Due to the changing conditions in the debt and equity markets which impacted the Company's restructuring plans, the Company took significant charges against earnings in fiscal 1994 to reflect certain costs incurred in connection with the restructuring plans which were either no longer expected to have future economic benefit or were no longer deferrable because the prospects for a second equity offering were uncertain as of the end of fiscal 1994. Acquisition due diligence costs totalling approximately $2,015,000 and non-deferrable offering expenses of $1,561,000 were charged to earnings in fiscal 1994. In addition, interest expense and related fees in fiscal 1994 included $760,000 paid to one of the Company's mortgage lenders to extend a debt prepayment agreement, which was entered into as part of the Company's restructuring plans, but which was allowed to lapse due to increases in market interest rates. Such non-recurring charges, which totalled $4.3 million, were approximately $400,000 greater than the non-recurring charges reflected in the fiscal 1995 net loss, which consisted primarily of the writedown of the Company's assets to the lower of adjusted cost or fair value less costs to sell at August 31, 1995, in the amount of $3.9 million, as discussed further above. The unfavorable change in the Company's net operating results for fiscal 1995 was primarily the result of increases in interest expense, depreciation and amortization and general and administrative expenses during fiscal 1995. Interest expense, net of the prior year prepayment extension fees referred to above, increased by $584,000 mainly due to the write-off of unamortized loan buydown fees totalling $336,000 at the time of the Lexington Parkway, Roane County and Applewood Village mortgage loan refinancings. Interest expense also increased due to additional amortization of deferred loan costs associated with the loans refinanced in fiscal 1995 and increases in the prime lending rate, upon which the variable rate College Plaza loan was based. Non-cash depreciation and amortization charges increased by $161,000 due to property expansion and tenant improvement costs, as well as the related leasing commissions, which were incurred in fiscal 1995 and 1994. General and administrative expenses increased by $734,000 in fiscal 1995 partly as a result of certain costs, totalling approximately $289,000, which were incurred in connection with an independent valuation of the Company's operating properties which was commissioned in fiscal 1995 as part of management's ongoing refinancing and portfolio management efforts. In addition, fiscal 1995 general and administrative expenses include certain professional fees and other costs, of approximately $258,000, which were incurred during the first quarter in connection with the Company's planned conversion to self-administration and self-management. An increase in revenues of $419,000 and decreases in bad debt expense, REIT management fees and financial and investor servicing expenses for the year ended August 31, 1995 served to partially offset the unfavorable changes referred to above. The increase in revenues was mainly due to a 1% increase in base rental income and a $179,000 increase in interest income. The increase in base rental income was attributable to base rent increases on lease renewals as well as the signing of several new leases during fiscal 1995. The increase in interest income was achieved due to the higher average invested cash reserve balances which resulted from the suspension of the Company's dividend payments to shareholders. REIT management fees and financial and investor servicing fees declined by a total of $261,000 due to the Advisor's decision to waive collection of such amounts effective March 1, 1995. 1994 Compared to 1993 The Company reported a net loss of approximately $6,070,000 for fiscal 1994, as compared to a net loss of approximately $1,732,000 for fiscal 1993. The increase in net loss was due, in large part, to the expenses incurred in pursuing certain shareholder approvals and restructuring plans. As noted above, due to the changing conditions in the debt and equity markets which impacted the Company's restructuring plans, the Company took significant charges against earnings in fiscal 1994. Acquisition due diligence costs totalling approximately $2,015,000 related to certain properties that were reviewed for potential acquisition as part of the planned public offering, but were withdrawn by the sellers due to delays in the timing of the offering, were written off to investment analysis expense during fiscal 1994. All expenses incurred in connection with the planned equity offering, as well as a possible securitized debt offering, were written off to non-deferrable offering expenses. The non-deferrable offering expenses, which totalled approximately $1,562,000, included legal, regulatory and rating agency expenses, in addition to costs incurred in determining the appropriate terms for the proposed equity offering and preparing required filings for regulatory purposes. Additionally, extension fees of $760,000 related to the debt prepayment agreement which lapsed during fiscal 1994, were included in the balance of interest expense and related fees in fiscal 1994. Net operating income from the Company's shopping centers, before depreciation expense and amortization of loan buydown fees increased from approximately $6,640,000 for fiscal 1993 to approximately $7,526,000 for fiscal 1994. The increase in net operating income from the properties resulted mainly from the additional contribution of operating income from the three shopping centers purchased during fiscal 1993. In addition, leasing gains at several of the properties accounted for a portion of the increase in rental income and expense reimbursements during fiscal 1994. As of August 31, 1994, the portfolio was 99% leased on average. Non-cash depreciation and amortization charges increased by approximately $764,000 in fiscal 1994, mainly due to acquisitions, property expansions and tenant improvements. Inflation The Company commenced operations on August 9, 1989 and completed its seventh full year of operations in fiscal 1996. The effects of inflation and changes in prices on the Company's operating results to date have not been significant. Inflation in future periods is likely to have a minimal effect on the Company's net cash flow as a result of the October 1996 sale of the Company's real estate assets and the Company's plan of liquidation, which it expects to complete by December 31, 1996. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data are included under Item 14 of this Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant There currently are four directors of the Company, none of whom are affiliated with the Advisor. The directors are subject to removal by the vote of the holders of a majority of the outstanding shares. The directors are responsible for the general policies of the Company, but they are not required to conduct personally the business of the Company. (a) and (b) The names and ages of the directors and executive officers of the Company are as follows: Date Elected Name Office Age to Office ---- ------ --- --------- Lawrence A. Cohen President, Chief Executive Officer and Director 43 5/15/91 Lawrence S. Bacow (1) Director 45 8/20/93 Joseph W. Robertson, Jr. (1) Director 49 10/20/89 J. William Sharman, Jr. (1) Director 56 10/20/89 Walter V. Arnold Senior Vice President and Chief Financial Officer 49 10/20/89 James A. Snyder Senior Vice President 51 7/6/92 John B. Watts III Senior Vice President 43 5/31/91 Timothy J. Medlock Vice President and Treasurer 35 10/20/89 Rock M. D'Errico Vice President 40 11/01/89 Dorothy F. Haughey Secretary 70 10/20/89 (1) Member of the Audit Committee. The Board of Directors of the Company has established an Audit Committee that consists of the Independent Directors. Independent Directors are those Directors who are not and have not been affiliated, directly or indirectly, with an affiliate of the Company. The Audit Committee was established to make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans and results of the audit engagement, approve professional services provided by the independent public accountants, review the independence of the independent public accountants, consider the range of audit fees and review the adequacy of the Company's internal accounting controls. (c) PaineWebber Properties Incorporated ("PWPI"), the general partner of the Advisor, assists the directors and officers of the Company in the management and control of the Company's affairs. The principal executive officers of PWPI are as follows: Name Office Age ---- ------ --- Bruce J. Rubin President and Chief Executive Officer 37 Walter V. Arnold Senior Vice President and Chief Financial Officer 49 James A. Snyder Senior Vice President 51 David F. Brooks First Vice President and Assistant Treasurer 54 Timothy J. Medlock Vice President and Treasurer 35 Thomas W. Boland Vice President 34 (d) There is no family relationship among any of the foregoing directors or officers. All of the foregoing directors and officers of the Company have been elected to serve until the Company's next annual meeting. (e) The business experience of each of the directors and officers of the Company, as well as the principal executive officers of PWPI, is as follows: Lawrence A. Cohen has served as President, Chief Executive Officer and Director of the Company since 1991. Mr. Cohen is also Vice Chairman and Chief Financial Officer of Capital Senior Living Corp., a company that develops and operates senior housing facilities. Mr. Cohen was President and Chief Executive Officer of PWPI until August 1996. Mr. Cohen joined PWPI in January 1989 as its Executive Vice President and Director of Marketing and Sales. He is a member of the Board of Directors of PaineWebber Independent Living Mortgage Fund, Inc. ("PWIL I") and PaineWebber Independent Living Mortgage Inc. II ("PWIL II"). PWIL I and PWIL II are REITs that were formed to invest in mortgage loans secured by rental housing projects for independent senior citizens. Mr. Cohen received his L.L.M. (in Taxation) from New York University School of Law and his J.D. degree from St. John's University School of Law. Mr. Cohen received his B.B.A. degree in Accounting from George Washington University. He is a member of the New York Bar and is a Certified Public Accountant. Lawrence S. Bacow joined the Company as a director in August 1993. He is a professor at the Massachusetts Institute of Technology ("M.I.T.") where he is on the faculty of the M.I.T. Center for Real Estate and the M.I.T. Department of Urban Studies and Planning. Professor Bacow joined the M.I.T. faculty in 1977 and served as a director of the Center for Real Estate from 1990 until 1992. While on leave from M.I.T. from 1985 to 1987, Professor Bacow served as Chief Operating Officer of Spaulding Investment Company, a New England-based real estate firm. From 1990 to 1992, he was a principal of Artel Associates, Inc., a provider of real estate advisory services to investment entities. Professor Bacow is a director of the LaSalle Street Fund and Grubb & Ellis. He received his B.S. in economics from M.I.T., his J.D. from Harvard Law School, and his Ph.D. from Harvard's Kennedy School of Government. Joseph W. Robertson, Jr. has served as a director of the Company since 1989. Mr. Robertson is Executive Vice President and Chief Financial Officer of Weingarten Realty Investors, a REIT that owns, develops and operates shopping centers and other commercial real estate. In 1971, Mr. Robertson joined Weingarten Realty, Inc., the predecessor of Weingarten Realty Investors, and served as Executive Vice President and Chief Financial Officer from 1980 to 1985 when Weingarten Realty Investors was formed. Mr. Robertson serves as a trustee of Weingarten Realty Investors and as a director of Weingarten Properties, Inc. J. William Sharman, Jr. is a director of the Company and has held such position since he was elected to the Board of Directors as of October 20, 1989. Mr. Sharman is also a director of PWIL 1 and PWIL II. Mr. Sharman is the Chairman of the Board and President of Lancaster Hotel Management, L.C., a hotel management company, and Bayou Equities, Inc., a hotel development company. Mr. Sharman served for ten years as Chairman of the Board and President of The Lancaster Group, Inc., a real estate development firm based in Houston, Texas, which is the predecessor of Lancaster Hotel Management, L.C. and Bayou Equities, Inc. Mr. Sharman is Vice Chairman of Small Luxury Hotels, Ltd. of the United Kingdom, an international hotel marketing and reservations firm. He has a Bachelor of Science degree in Civil Engineering from the University of Notre Dame. John B. Watts III is a Senior Vice President of the Company and, until August 1996, he was a Senior Vice President of PWPI which he joined in June 1988. Mr. Watts has had over 16 years of experience in acquisitions, dispositions and finance of real estate. He received degrees of Bachelor of Architecture, Bachelor of Arts and Master of Business Administration from the University of Arkansas. Bruce J. Rubin was named President and Chief Executive Officer of PWPI in August 1996. Mr. Rubin joined PaineWebber Real Estate Investment Banking in November 1995 as a Senior Vice President. Prior to joining PaineWebber, Mr. Rubin was employed by Kidder, Peabody and served as President for KP Realty Advisers, Inc. Prior to his association with Kidder, Mr. Rubin was a Senior Vice President and Director of Direct Investments at Smith Barney Shearson. Prior thereto, Mr. Rubin was a First Vice President and a real estate workout specialist at Shearson Lehman Brothers. Prior to joining Shearson Lehman Brothers in 1989, Mr. Rubin practiced law in the Real Estate Group at Willkie Farr & Gallagher. Mr. Rubin is a graduate of Stanford University and Stanford Law School. Walter V. Arnold is a Senior Vice President and Chief Financial Officer of the Company and Senior Vice President and Chief Financial Officer of PWPI which he joined in October 1985. Mr. Arnold joined PWI in 1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice President and Controller since 1978, and where he continued until joining PWPI. He began his career in 1974 with Arthur Young & Company in Houston. Mr. Arnold is a Certified Public Accountant licensed in the state of Texas. James A. Snyder is a Senior Vice President of the Company and a Senior Vice President of PWPI. Mr. Snyder re-joined PWPI in July 1992 having served previously as an officer of PWPI from July 1980 to August 1987. From January 1991 to July 1992, Mr. Snyder was with the Resolution Trust Corporation, where he served as the Vice President of Asset Sales prior to re-joining PWPI. From February 1989 to October 1990, he was President of Kan Am Investors, Inc., a real estate investment company. During the period August 1987 to February 1989, Mr. Snyder was Executive Vice President and Chief Financial Officer of Southeast Regional Management Inc., a real estate development company. David F. Brooks is a First Vice President and Assistant Treasurer of PWPI. Mr. Brooks joined PWPI in March 1980. From 1972 to 1980, Mr. Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and also, from March 1974 to February 1980, the Assistant Treasurer of Capital for Real Estate, which provided real estate investment, asset management and consulting services. Timothy J. Medlock is Vice President and Treasurer of the Company and a Vice President and Treasurer of PWPI which he joined in 1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of PWPI. From 1983 to 1986, Mr. Medlock was associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate University in 1983 and received his Masters in Accounting from New York University in 1985. Rock M. D'Errico is Vice President of the Company and a Vice President of PWPI which he joined in 1986. Previously he was associated with First Winthrop Corporation and John Hancock Mutual Life Insurance Company as a Real Estate Asset Manager. Thomas W. Boland is a Vice President and Manager of Financial Reporting of PWPI which he joined in 1988. From 1984 to 1987, Mr. Boland was associated with Arthur Young & Company. Mr. Boland is a Certified Public Accountant licensed in the state of Massachusetts. He holds a B.S. in Accounting from Merrimack College and an M.B.A. from Boston University. Dorothy F. Haughey is Secretary of the Company, Assistant Secretary of PaineWebber and Secretary of PWI and PWPI. Ms. Haughey joined PaineWebber in 1962. (f) None of the directors and officers was involved in legal proceedings which are material to an evaluation of his or her ability or integrity as a director or officer. (g) Compliance With Exchange Act Filing Requirements: The Securities Exchange Act of 1934 requires the officers and directors of the Company, and persons who own more than ten percent of a registered class of the Company's equity securities, to file certain reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and ten-percent beneficial holders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, the Company believes that, during the year ended August 31, 1996, all filing requirements applicable to its officers, directors and ten-percent beneficial holders were complied with. Item 11. Executive Compensation The three Independent Directors each receive an annual fee of $12,000, plus $1,000 for each meeting attended, and reimbursement for expenses incurred in attending meetings and as a result of other work performed for the Company. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) As of the date hereof, no person of record owns or is known by the Registrant to own beneficially more than five percent of the outstanding shares of common stock of the Company. (b) The following table sets forth the ownership of shares owned directly or indirectly by the Directors and principal officers of the Company as of August 31, 1996: Number of Shares Beneficially Percent Title of Class Name of Beneficial Owner Owned of Class - -------------- ------------------------ ---------------- --------- Shares of Lawrence A. Cohen 350 Shares Less than 1% Common Stock All Directors and Officers 350 Shares Less than 1% of the Company, as a group (c) There exists no arrangement, known to the Company, the operation of which may at a subsequent date result in a change in control of the Company. Item 13. Certain Relationships and Related Transactions The Company has entered into an advisory agreement with PaineWebber Realty Advisors, L.P. (the "Advisor") to perform various services in connection with the sale of the Shares, the management of the Company and the acquisition, management and disposition of the Company's investments. The Advisor is a limited partnership composed of PaineWebber Properties Incorporated ("PWPI") as the general partner and Properties Associates, L.P. ("PA") as the limited partner. Both partners of the Advisor are affiliates of PaineWebber Incorporated ("PWI"), which is a wholly owned subsidiary of PaineWebber Group, Inc. ("PaineWebber"). The advisory agreement is renewable on an annual basis at the discretion of the Company's Board of Directors. The type of compensation due to the Advisor and its affiliates under the terms of the Advisory Agreement is as follows: (i) Under the Advisory Agreement, the Advisor has specific management responsibilities to perform day-to-day operations of the Company and to act as the investment advisor and consultant for the Company in connection with general policy and investment decisions. The Advisor earns an annual Asset Management Fee and an Advisory Incentive Fee of 0.25% and 0.25%, respectively, of the Capital Contributions of the Company. The Advisory Incentive Fee is subordinated to the shareholders' receipt of distributions of net cash sufficient to provide a return equal to 8% per annum on their Invested Capital, as defined. During the quarter ended February 28, 1994, the payment of regular quarterly distributions was suspended. Accordingly, the Advisor has not earned any Advisory Incentive Fees since December 1, 1993. Effective March 1, 1995, the Advisor agreed to waive its management fees indefinitely in order to maximize the Company's earnings and cash flow while the strategic plans regarding the Company's future operations were evaluated and implemented. Accordingly, the Advisor did not receive an asset management fee for the year ended August 31, 1996. (ii) For its services in finding and recommending investments, and for analyzing, structuring and negotiating the purchase of properties by the Company, PWPI received non-recurring Acquisition Fees equal to 3% of the Capital Contributions. PWPI received acquisition fees in connection with the Company's real estate investments in the amount of $3,006,000. (iii)Fees equal to 1/2 of 1% of any financing and 1% of any refinancing obtained by the Company for which the Advisor rendered substantial services, and for which no fees were paid to a third party, were to be paid to the Advisor as compensation for such services. No such fees will be due to the Advisor through the Company's expected liquidation date. (iv) Upon disposition of the Company's investments, the Advisor could have earned sales commissions and disposition fees. These fees and commissions are subordinated to the repayment to shareholders of their Capital Contributions plus certain minimum returns on their Invested Capital. In no event were the disposition fees to exceed an amount equal to 15% of Disposition Proceeds remaining after the shareholders have received an amount equal to their Capital Contributions plus a return on Invested Capital of 6% per annum, cumulative and noncompounded. No disposition fees or sales commissions will be due to the Advisor through the Company's expected liquidation date. An affiliate of the Advisor performs certain accounting, tax preparation, securities law compliance and investor communications and relations services for Company. Total costs incurred by this affiliate in providing these services are allocated among several entities, including the Company. Effective March 1, 1995, the Advisor agreed that it would not be reimbursed for providing these services to the Company. As with the management fees discussed above, the Advisor agreed to waive these servicing fees indefinitely in order to maximize the Company's earnings and cash flow while the strategic plans regarding the Company's future operations were evaluated and implemented. Accordingly, for the year ended August 31, 1996 no payments were made by the Company to this affiliate for providing the above services to the Company. Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins") provides cash management services with respect to the Company's cash assets. Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an independently operated subsidiary of PaineWebber. For the year ended August 31, 1996, Mitchell Hutchins earned fees of $23,000 for managing the Company's cash assets. Fees charged by Mitchell Hutchins are based on a percentage of invested cash reserves which varies based on the total amount of invested cash which Mitchell Hutchins manages on behalf of PWPI. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: (1) and (2) Financial Statements and Schedule: The response to this portion of Item 14 is submitted as a separate section of this report. See Index to Financial Statements and Financial Statement Schedule at page F-1. (3) Exhibits: The exhibits listed on the accompanying index to exhibits at page IV-3 are filed as part of this Report. (b) No Current Reports on Form 8-K were filed during the last quarter of fiscal 1996. A Current Report on Form 8-K dated October 16, 1996 was filed subsequent to the fiscal year end to report the sale of the Company's 22 shopping centers and the shareholder-approved plan of liquidation. (c) Exhibits: See (a)(3) above. (d) Financial Statement Schedule: The response to this portion of Item 14 is submitted as a separate section of this report. See Index to Financial Statements and Financial Statement Schedule at page F-1. 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. RETAIL PROPERTY INVESTORS, INC. By: /s/ Lawrence A. Cohen Lawrence A. Cohen President, Chief Executive Officer and Director By /s/ Walter V. Arnold Walter V. Arnold Senior Vice President and Chief Financial Officer (additionally functioning as chief accounting officer) Dated: November 27, 1996 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 in the capacity and on the dates indicated. By: /s/ Lawrence S. Bacow Date: November 27, 1996 ------------------------ ----------------- Lawrence S. Bacow Director By: /s/ Joseph W. Robertson, Jr. Date: November 27, 1996 ----------------------------- ----------------- Joseph W. Robertson, Jr. Director By: /s/ J. William Sharman, Jr. Date: November 27, 1996 ---------------------------- ----------------- J. William Sharman, Jr. Director ANNUAL REPORT ON FORM 10-K Item 14(a)(3) RETAIL PROPERTY INVESTORS, INC. INDEX TO EXHIBITS
Page Number in the Report Exhibit No. Description of Document Or Other Reference - ----------- ----------------------- ------------------ (3) and (4) Prospectus of the Registrant Filed with the Commission dated October 6, 1989, as pursuant to Rule 424(c) supplemented. and incorporated herein by reference. (10) Material contracts previously Filed with the Commission filed as exhibits to registration pursuant to Section 13 or statements and amendments thereto 15(d) of the Securities of the registrant together with Exchange Act of 1934 and all such contracts filed as incorporated herein by exhibits of previously filed reference. Forms 8-K and Forms 10-K are hereby incorporated herein by reference. (13) Annual Report to Stockholders No Annual Report for the year ended August 31, 1996 has been sent to the shareholders. An Annual Report will be sent to the shareholders subsequent to this filing. (27) Financial Data Schedule Filed as the last page of EDGAR submission following the Financial Statements and Financial Statement Schedule required by Item 14.
ANNUAL REPORT ON FORM 10-K Item 14(a)(1) and (2) RETAIL PROPERTY INVESTORS, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Reference RETAIL PROPERTY INVESTORS, INC.: Report of Independent Accountants F-2 Balance sheets at August 31, 1996 and 1995 F-3 Statements of operations for the years ended August 31, 1996, 1995 and 1994 F-4 Statements of changes in shareholders' equity for the years ended August 31, 1996, 1995 and 1994 F-5 Statements of cash flows for the years ended August 31, 1996, 1995 and 1994 F-6 Notes to financial statements F-7 Schedule III - Real Estate and Accumulated Depreciation F-24 Other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements, including the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Retail Property Investors, Inc. In our opinion, the financial statements listed in the index appearing under Item 14(a)(1) and (2) on page F-1 present fairly, in all material respects, the financial position of Retail Property Investors, Inc. (the "Company") at August 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed further in Note 8 to the financial statements, the Company completed the sale of all of its operating investment properties on October 17, 1996 and adopted a plan of liquidation. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Boston, Massachusetts November 22, 1996 RETAIL PROPERTY INVESTORS, INC. BALANCE SHEETS August 31, 1996 and 1995 (In thousands, except per share amounts) ASSETS 1996 1995 ---- ---- Operating investment properties held for sale, net (Note 4) $ 185,541 $ 192,311 Cash and cash equivalents 9,208 5,943 Escrowed cash 1,379 1,067 Accounts receivable, net of allowance for doubtful accounts of $162 ($80 in 1995) 640 170 Other assets 1 77 Prepaid expenses 336 308 Capital improvement reserve - 1,201 Deferred expenses, net of accumulated amortization of $856 ($446 in 1995) 1,059 1,467 ---------- ---------- $ 198,164 $ 202,544 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable - affiliates $ 4 $ 4 Accounts payable and accrued expenses 1,909 1,316 Mortgage interest payable 371 358 Note payable - affiliate - 1,168 Security deposits and other liabilities 513 768 Mortgage notes payable, net 155,483 156,508 ------------ ----------- Total liabilities 158,280 160,122 Shareholders' equity (Note 2.I): Common stock, $.01 par value, 50,000,000 shares authorized, 5,010,050 shares issued and outstanding 50 50 Additional paid-in capital, net of offering costs 87,181 87,181 Accumulated deficit (47,347) (44,809) ---------- ---------- Total shareholders' equity 39,884 42,422 ---------- ---------- $ 198,164 $ 202,544 ========== ========== See accompanying notes to financial statements. RETAIL PROPERTY INVESTORS, INC. STATEMENTS OF OPERATIONS For the years ended August 31, 1996, 1995 and 1994 (In thousands, except per share amounts) 1996 1995 1994 ---- ---- ---- Revenues: Rental income and expense reimbursements $ 25,010 $ 24,682 $24,442 Interest income 503 327 148 --------- -------- ------- 25,513 25,009 24,590 Expenses: Interest expense and related fees 14,808 15,283 15,459 Depreciation and amortization 6,411 6,495 6,334 Property expenses 2,515 2,348 2,207 Real estate taxes 1,453 1,329 1,370 Portfolio sale expenses 1,834 - - Loss on impairment of assets held for sale 1,030 3,850 - General and administrative 947 1,702 968 Bad debt expense 169 21 241 Cash management fees 23 8 8 Financial and investor servicing expenses - 111 260 REIT management fees - 125 237 Non-deferrable offering expenses - - 1,561 Investment analysis expense - 101 2,015 --------- ---------- --------- 29,190 31,373 30,660 --------- ---------- --------- Loss before extraordinary gain (3,677) (6,364) (6,070) Extraordinary gain from forgiveness of debt 1,139 - - --------- --------- --------- Net loss $ (2,538) $ (6,364) $ (6,070) ========= ========= ======== Per share amounts (Note 2.I): Loss before extraordinary gain $ (0.74) $ (1.27) $ (1.21) Extraordinary gain from forgiveness of debt 0.23 - - -------- -------- -------- Net loss $ (0.51) $ (1.27) $ (1.21) ======== ======== ========= Cash dividends declared $ - $ - $ 0.80 ======== ======== ======== See accompanying notes to financial statements. RETAIL PROPERTY INVESTORS, INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the years ended August 31, 1996, 1995 and 1994 (In thousands, except per share amounts) Common Stock Additional $.01 Par Value Paid-in Accumulated Shares Amount Capital Deficit Total ------ ------ ------- ------- ----- Shareholders' equity at August 31, 1993 5,010,050 $ 50 $87,181 $(28,367) $58,864 Cash dividends declared - - - (4,008) (4,008) Net loss - - - (6,070) (6,070) -------- ------ ------- --------- ------- Shareholders' equity at August 31, 1994 5,010,050 50 87,181 (38,445) 48,786 Net loss - - - (6,364) (6,364) --------- ------ ------- --------- ------- Shareholders' equity at August 31, 1995 5,010,050 50 87,181 (44,809) 42,422 Net loss - - - (2,538) (2,538) ---------- ------ ------- -------- ------- Shareholders' equity at August 31, 1996 5,010,050 $ 50 $87,181 $(47,347) $39,884 ========= ====== ======= ======== ======= See accompanying notes to financial statements. RETAIL PROPERTY INVESTORS, INC. STATEMENTS OF CASH FLOWS For the years ended August 31, 1996, 1995 and 1994 Increase (Decrease) in Cash and Cash Equivalents (In thousands)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net loss $ (2,538) $ (6,364) $ (6,070) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 6,411 6,495 6,334 Amortization of loan buydown fees 982 1,566 1,572 Amortization of deferred financing costs 392 265 29 Loss on impairment of assets held for sale 1,030 3,850 - Extraordinary gain from forgiveness of debt (1,139) - - Changes in assets and liabilities: Accounts receivable (521) 22 543 Other assets 76 (8) 422 Prepaid expenses (28) (48) 66 Deferred expenses (183) (224) 238 Accounts payable - affiliates - (63) (578) Accounts payable and accrued expenses 593 (27) 202 Mortgage interest payable 16 191 (60) Security deposits and other liabilities (255) (180) (714) -------- -------- -------- Total adjustments 7,374 11,839 8,054 -------- -------- -------- Net cash provided by operating activities 4,836 5,475 1,984 -------- -------- -------- Cash flows from investing activities: Additions to operating investment properties (421) (178) (767) Use of (additions to) escrowed cash (312) 311 65 Withdrawals from (additions to) capital improvement reserve 1,201 (19) (939) Master lease payments received - - 326 ---------- --------- ------- Net cash provided by (used in) investing activities 468 114 (1,315) ---------- --------- ------- Cash flows from financing activities: Dividends paid to shareholders - - (4,008) Proceeds from issuance of mortgage notes payable - 45,825 100 Payment of debt issuance costs - (1,439) - Proceeds from issuance of unsecured note payable - 1,175 - Repayment of principal on mortgage notes payable (2,007) (48,482) (620) Repayment of principal on unsecured note payable (32) (7) - ---------- --------- --------- Net cash used in financing activities (2,039) (2,928) (4,528) --------- ------- --------- Net increase (decrease) in cash and cash equivalents 3,265 2,661 (3,859) Cash and cash equivalents, beginning of year 5,943 3,282 7,141 --------- --------- --------- Cash and cash equivalents, end of year $ 9,208 $ 5,943 $ 3,282 ========= ========= ========= Supplemental Disclosure: Cash paid during the year for interest $ 13,421 $ 13,261 $ 13,917 ======= ======== ======== See accompanying notes to financial statements.
RETAIL PROPERTY INVESTORS, INC. Notes to Financial Statements 1. Organization and Recent Business Developments Retail Property Investors, Inc. (the "Company"), formerly PaineWebber Retail Property Investments, Inc., is a corporation organized on August 9, 1989 in the Commonwealth of Virginia for the purpose of investing in a portfolio of retail shopping centers located throughout the midwestern, southern and southeastern United States. The Company commenced an initial public offering of up to 10,000,000 shares of its common stock (the "Shares"), priced at $10 per Share, on October 23, 1989 pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933 (Registration Statement No. 33-29755). The initial offering closed on December 24, 1990 after 10,020,100 shares had been sold. The Company received capital contributions of $100,201,000, of which $201,000 was received from the sale of 20,100 shares to an affiliate, PaineWebber Group, Inc. ("PaineWebber"). Effective September 7, 1993, the Company's shareholders approved a resolution to complete a 1 for 2 reverse stock split. Consequently, the resulting outstanding shares, which number 5,010,050, have an effective original issue price of $20 per share. As of November 1, 1996, PaineWebber and its affiliates held 111,601 shares of the Company's common stock. The Company was originally organized as a finite-life, non-traded real estate investment trust that had a stated investment policy of investing exclusively in shopping centers in which Wal-Mart Stores, Inc. ("Wal-Mart") was or would be an anchor tenant. In September 1993 and November 1994, the Company's shareholders approved certain amendments to the Company's Articles of Incorporation and Bylaws as part of a plan to reposition the Company to take advantage of the liquidity and potentially attractive source of capital available in the market for publicly held REITs which had existed at that time. However, due to a deterioration in the public equity markets for REIT stocks during the latter part of calendar 1994, management delayed its plans to proceed with a public offering and subsequent listing of the Company's common stock on a national securities exchange pending an improvement in the market conditions. As a result of the delays in the timing of the planned public offering which had been contemplated in fiscal 1994, the Company took significant charges against earnings in fiscal 1994 to reflect certain costs incurred in connection with the Company's restructuring plans which were either no longer expected to have future economic benefit or were no longer deferrable because the prospects for a second equity offering were uncertain. Acquisition due diligence costs totalling approximately $2,015,000 related to certain properties that had been reviewed for potential acquisition as part of the planned public offering were written off to investment analysis expense during fiscal 1994. All expenses incurred in connection with the planned equity offering, as well as a possible securitized debt offering, in the aggregate amount of approximately $1,561,000, were written off to non-deferrable offering expenses in fiscal 1994. In addition, extension fees of $760,000 related to a debt prepayment agreement which lapsed during fiscal 1994 were written off to interest expense during that year. Due to changes in interest rate levels and other market factors which continued to adversely affect the market for new public REIT equity offerings during the first half of calendar 1995, the Company did not complete the final phase of its restructuring plans. In view of the then existing capital market conditions, the Company's Board of Directors engaged the investment banking firm of Lehman Brothers Inc. ("Lehman") in June of 1995 to act as its financial adviser and to provide financial and strategic advisory services to the Board of Directors regarding other options available to the Company. The strategic options considered included, among other things, a recapitalization of the Company, sales of the Company's assets and the exploration of merger opportunities. Lehman's services included the solicitation and identification of potential transactions for the Company, the evaluation of these transactions, and the provision of advice to the Board regarding them. In November 1995, Lehman presented a summary to the Board of the proposals which it had received to date, all of which were indications of interest from third parties to buy the Company's real estate assets. The Board concluded that it would be in the shareholders' best interests to immediately initiate the process of soliciting firm offers to purchase the Company's portfolio of operating investment properties. The Directors instructed Lehman to work with the various third parties that expressed an interest in such a transaction to obtain transaction terms most favorable to the Company and its shareholders. In March 1996, the Company announced the execution of a definitive agreement for the sale of its assets to Glimcher Realty Trust ("GRT"). Under the original terms of the agreement, GRT was to have purchased the properties of the Company subject to certain indebtedness and leases for an aggregate purchase price of $203 million plus prepayment penalties on debt to be prepaid and assumption fees on debt to be assumed, subject to certain adjustments. As of May 14, 1996, the terms of the purchase contract were amended to reduce the aggregate purchase price to $197 million plus prepayment penalties and assumption fees. The sale transaction closed into escrow on June 27, 1996 with GRT depositing the net proceeds required to close the transaction in the form of bank letters of credit. Pursuant to the Company's Articles of Incorporation and Virginia law, the sale of all or substantially all of the Company's real estate assets required approval by vote of at least two-thirds of the outstanding shares of common stock. A proxy statement describing the sale transaction and a proposed subsequent liquidation plan for the Company was mailed to shareholders in August 1996 and received the requisite vote of the outstanding shares at a special meeting of the shareholders held on October 16, 1996. Upon receiving the required shareholder approval, the Company finalized the closing of the sale transaction, which occurred on October 17, 1996. See Note 8 for a further discussion of the net proceeds realized from the sale of the Company's real estate assets, the expected liquidation distribution to the shareholders and the timing of the Company's plan of liquidation. The Company's financial statements as of August 31, 1996 and 1995 reflect the reclassification of operating investment properties and certain related assets as operating investment properties held for sale and the writedown of the individual operating properties to the lower of adjusted cost or net realizable value. The Company recorded losses of $1,030,000 and $3,850,000 in fiscal 1996 and 1995, respectively, in connection with this accounting treatment. Since the sale transaction and associated liquidation plan were contingent upon the receipt of the shareholder vote, which did not occur until after August 31, 1996, the accompanying financial statements continue to reflect the going concern basis of accounting. The Company will adopt the liquidation basis of accounting effective as of October 16, 1996. 2. Use of Estimates and Summary of Significant Accounting Policies The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of August 31, 1996 and 1995 and revenues and expenses for each of the three years in the period ended August 31, 1996. Actual results could differ from the estimates and assumptions used. The Company's significant accounting policies are summarized as follows: A. INCOME TAXES The Company has elected to qualify to be taxed as a Real Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986, as amended, for each taxable year of operations. As a REIT, the Company is allowed a tax deduction for the amount of dividends paid to its shareholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only, provided it distributes at least 95% of its real estate investment trust taxable income and meets certain other requirements for qualifying as a REIT. The Company incurred a loss for both book and tax purposes in fiscal 1996 and 1995 and, therefore, was not required to pay a cash dividend in order to retain its REIT status. B. OPERATING INVESTMENT PROPERTIES Operating investment properties are carried at the lower of cost, reduced by guaranteed master lease payments (see Note 4) and accumulated depreciation, or net realizable value. The net realizable value of a property held for long-term investment purposes is measured by the recoverability of the Company's investment through expected future cash flows on an undiscounted basis, which may exceed the property's current market value. The net realizable value of a property held for sale approximates its current market value, less disposal costs, plus depreciation through the expected date of sale. As discussed further in Notes 1 and 4, all of the Company's operating investment properties were held for sale as of August 31, 1996 and 1995. Accordingly, the Company has reclassified the operating properties and certain related assets to operating investment properties held for sale and has recorded each property at the lower of adjusted cost or net realizable value at August 31, 1996 and 1995. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To be Disposed Of." In accordance with SFAS 121, an impairment loss with respect to an operating investment property is recognized when the sum of the expected future net cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset. An impairment loss is measured as the amount by which the carrying amount of the assets exceeds its fair value, where fair value is defined as the amount at which the asset could be bought or sold in a current transaction between willing parties, that is other than a forced or liquidation sale. Due to the subsequent sale of the Company's real estate assets in October 1996, FAS No. 121, which is effective for financial statements for years beginning after December 15, 1995, will not have a material effect on the Company's financial statements. Depreciation expense has been computed using the straight-line method over an estimated useful life of forty years for the buildings and improvements, twenty years for land improvements and twelve years for personal property. Certain costs and fees (including the acquisition fees paid to an affiliate, as described in Note 3) related to the acquisition of the properties have been capitalized and are included in the cost of the operating investment properties. Major additions and betterments are capitalized, while minor repairs and maintenance are charged to expense. C. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts held in banks and money market accounts and overnight, investment-grade commercial paper investments administered by Mitchell Hutchins Institutional Investors, Inc. (see Note 3). D. ESCROWED CASH Escrowed cash consists of various lender escrows and real estate tax and insurance premium escrows. The lender escrows were amounts held by various mortgage lenders to be released upon the completion of certain construction projects and other events relating to the individual property refinancings or acquisitions. The balance of the lender escrows amounted to approximately $75,000 at both August 31, 1996 and 1995. The lender escrows were refunded to the Company subsequent to the closing of the sale of the Company's real estate assets in October 1996. The Company maintained separate real estate tax and insurance premium escrows for each property. The balance of these escrows was approximately $1,304,000 and $992,000 at August 31, 1996 and 1995, respectively. Such funds were generally used to pay the Company's pro rated share of real estate tax expenses upon the sale of the Company's real estate assets in October 1996. E. CAPITAL IMPROVEMENT RESERVE The Company had elected to fund a capital improvement reserve to cover the potential cost of future capital improvement expenditures. The balance of the capital improvement reserve at August 31, 1995 was approximately $1,201,000. The Company funded $.06 per square foot of leasable space owned (approximately 4.4 million square feet) to the reserve through August 31, 1995. The capital improvement reserve was not restricted by any third parties. Due to the pending sale of the Company's investment properties, the balance of the capital improvement reserve was reclassified to cash and cash equivalents as of August 31, 1996. F. DEFERRED EXPENSES Deferred expenses as of August 31, 1996 and 1995 include costs incurred in connection with the mortgage notes payable, leasing commissions and computer software. Capitalized loan costs have been amortized using the straight-line method over the term of the related loans, which range from 3 to 20 years (see Note 5). The amortization of capitalized loan costs is included in interest expense on the accompanying statements of operations. Leasing commissions have been amortized using the straight-line method over the term of the related lease, generally 3 to 5 years. Software costs have been amortized using the straight-line method over a 60-month period. As discussed further in Note 4, due to the Company's plans to pursue a sale of its operating investment properties, deferred leasing commissions as of August 31, 1996 and 1995 were reclassified as part of the balance of operating investment properties held for sale for purposes of measuring the expected losses to be incurred upon disposal. The unamortized balance of capitalized loan costs will be written off as a loss on the early extinguishment of debt effective as of October 17, 1996 due to the subsequent sale of the Company's real estate assets. G. OFFERING COSTS Offering costs consist primarily of selling commissions and other costs such as printing and mailing costs, legal fees, filing fees and other marketing costs associated with the initial offering of Shares. Selling commissions incurred in connection with the Company's initial public offering were equal to approximately 8% of the gross proceeds raised. Commissions totalling $7,984,000 were paid to PaineWebber Incorporated in connection with the sale of Shares from the initial public offering. All of the offering costs associated with the initial public offering are shown as a reduction of additional paid-in capital on the accompanying balance sheets. H. REVENUE RECOGNITION Rental revenue is recognized on a straight-line basis over the life of the related lease agreements. The revenue recognition method takes into consideration scheduled rent increases. As of August 31, 1996 and 1995, the difference between the revenue recorded on the straight-line method and the payments made in accordance with the lease agreements totalled $356,000 and $305,000, respectively. As discussed further in Note 4, due to the Company's plans to pursue a sale of its operating investment properties, deferred rent receivable as of August 31, 1996 and 1995 was reclassified as part of the balance of operating investment properties held for sale for purposes of measuring the expected losses to be incurred upon disposal. The Company uses the allowance method to account for bad debt expense on its tenant receivables. I. COMMON STOCK AND EARNINGS PER SHARE OF COMMON STOCK The earnings and cash dividends declared per share of common stock on the accompanying statements of operations are based upon the weighted average number of shares outstanding on a daily basis during each of the three years in the period ended August 31, 1996, of 5,010,050. J. FAIR VALUE DISCLOSURES FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported on the balance sheet for cash and cash equivalents approximates its fair value due to the short-term maturities of such instruments. Escrowed cash: The carrying amount reported on the balance sheet for escrowed cash approximates its fair value due to the short-term maturities of such instruments. Mortgage notes payable: Due to the subsequent sale of the Company's real estate assets in October 1996 and the related settlement of the Company's outstanding mortgage loan liabilities, the fair value of the Company's mortgage indebtedness was deemed to equal its face value as of August 31, 1996. The carrying amounts and fair values of the Company's financial instruments at August 31, 1996 are as follows (amounts in thousands): Carrying Amount Fair Value --------------- ---------- Cash and cash equivalents $ 9,208 $ 9,208 Escrowed cash $ 1,379 $ 1,379 Mortgage notes payable, net $ 155,483 $ 159,144 3. The Advisory Agreement and Related Party Transactions The Company has entered into an advisory agreement with PaineWebber Realty Advisors, L.P. (the "Advisor") to perform various services in connection with the sale of the Shares, the management of the Company and the acquisition, management and disposition of the Company's investments. The Advisor is a limited partnership composed of PaineWebber Properties Incorporated ("PWPI") as the general partner and Properties Associates, L.P. ("PA") as the limited partner. Both partners of the Advisor are affiliates of PaineWebber Incorporated ("PWI"), which is a wholly owned subsidiary of PaineWebber Group, Inc. ("PaineWebber"). The advisory agreement is renewable on an annual basis at the discretion of the Company's Board of Directors. The type of compensation due to the Advisor and its affiliates under the terms of the Advisory Agreement is as follows: (i) Under the Advisory Agreement, the Advisor has specific management responsibilities to perform day-to-day operations of the Company and to act as the investment advisor and consultant for the Company in connection with general policy and investment decisions. The Advisor earns an annual Asset Management Fee and an Advisory Incentive Fee of 0.25% and 0.25%, respectively, of the Capital Contributions of the Company. The Advisory Incentive Fee is subordinated to the shareholders' receipt of distributions of net cash sufficient to provide a return equal to 8% per annum on their Invested Capital, as defined. During the quarter ended February 28, 1994, the payment of regular quarterly distributions was suspended. Accordingly, the Advisor has not earned any Advisory Incentive Fees since December 1, 1993. Furthermore, during the quarter ended May 31, 1994 the Advisor agreed to waive its rights to the collection of previously deferred Advisory Incentive Fees in the aggregate amount of $76,000. This amount is reflected as a reduction of management fee expense for the year ended August 31, 1994. Effective March 1, 1995, the Advisor agreed to waive its management fees indefinitely in order to maximize the Company's earnings and cash flow while the strategic plans regarding the Company's future operations were evaluated and implemented. Accordingly no management fees were paid during the year ended August 31, 1996. The Advisor received total management fees of $125,000 and $237,000 for the period September 1, 1994 through February 28, 1995 and the year ended August 31, 1994, respectively. (ii) For its services in finding and recommending investments, and for analyzing, structuring and negotiating the purchase of properties by the Company, PWPI received non-recurring Acquisition Fees equal to 3% of the Capital Contributions. PWPI received acquisition fees in connection with the Company's real estate investments in the amount of $3,006,000. (iii)Fees equal to 1/2 of 1% of any financing and 1% of any refinancing obtained by the Company for which the Advisor rendered substantial services, and for which no fees were paid to a third party, were to be paid to the Advisor as compensation for such services. No such fees will be due to the Advisor through the Company's expected liquidation date. (iv) Upon disposition of the Company's investments, the Advisor could have earned sales commissions and disposition fees. These fees and commissions are subordinated to the repayment to shareholders of their Capital Contributions plus certain minimum returns on their Invested Capital. In no event were the disposition fees to exceed an amount equal to 15% of Disposition Proceeds remaining after the shareholders have received an amount equal to their Capital Contributions plus a return on Invested Capital of 6% per annum, cumulative and noncompounded. No disposition fees or sales commissions will be due to the Advisor through the Company's expected liquidation date. Financial and investor servicing expenses represent reimbursements to an affiliate of the Advisor for providing certain financial, accounting and investor communication services to the Company. Effective March 1, 1995, the Advisor agreed that it will not be reimbursed for providing these services to the Company. As with the management fees described above, the Advisor agreed to waive these servicing fees indefinitely in order to maximize the Company's earnings and cash flow while the strategic plans regarding the Company's future operations were evaluated and implemented. Accordingly, no servicing fees were paid during the year ended August 31, 1996. For the period September 1, 1994 through February 28, 1995 and the year ended August 31, 1994, the Company paid $111,000 and $260,000, respectively, to this affiliate for providing such services to the Company. Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins") provides cash management services with respect to the Company's cash assets. Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an independently operated subsidiary of PaineWebber. For the years ended August 31, 1996, 1995 and 1994, Mitchell Hutchins earned fees of $23,000, $8,000 and $8,000, respectively, for managing the Company's cash assets. Accounts payable - affiliates at both August 31, 1996 and 1995 consists of $4,000 payable to Mitchell Hutchins. The Company had engaged the services of a consulting firm for certain professional services related to its mortgage loan refinancing and acquisition due diligence activities prior to August 31, 1995. The consulting firm was a partnership in which Mr. Robert J. Pansegrau was one of two partners. Mr. Pansegrau is formerly a Senior Vice President of the Company who resigned effective March 31, 1993. The consulting firm received fee compensation from the Company totalling $186,000 and $282,000 for the years ended August 31, 1995 and 1994, respectively. The consulting firm also received reimbursement for out-of-pocket expenses of $79,000 and $167,000 for the years ended August 31, 1995 and 1994, respectively. In June 1995, the Company secured a new mortgage loan in the amount of $4,000,000 to repay a portion of the first mortgage loan held by PWPI, which was secured by the Applewood Village operating property, in the amount of $5,175,000 (see Note 5). PWPI agreed to make an unsecured loan for the difference, in the amount of $1,175,000, which had a 15-year term and carried an interest rate tied to PWPI's cost of funds, not to exceed 8% per annum. The note was to be fully amortizing over its term and required monthly payments of principal and interest through maturity in June 2010. The balance of this note payable to affiliate as of August 31, 1995 was $1,168,000. On June 1, 1996, PWPI forgave the entire balance on this unsecured loan of $1,136,000 plus accrued interest of $3,000. The Company recorded this transaction as an extraordinary gain from forgiveness of debt in the fiscal 1996 statement of operations. Interest expense incurred by the Company under the terms of this note agreement totalled $53,000 and $12,000 in fiscal 1996 and 1995, respectively. 4. Operating Investment Properties Through August 31, 1996, the Company had acquired 22 Wal-Mart anchored shopping centers. The ownership of the Company's operating properties described below was legally held by four limited partnerships in which the Company is the sole general partner. These partnerships were created in order to, among other things, facilitate the communication of income tax information to the Company's shareholders. The limited partner of the partnerships is PaineWebber Properties Incorporated ("PWPI"), which is the general partner of the Advisor (see Note 3). The economic interest of PWPI in the partnerships was generally limited to a share of the Company's Disposition Proceeds, as defined, to which the Advisor was originally entitled through the Disposition Fee, as defined in the Company's original offering prospectus. Per the terms of the limited partnership agreements, all distributions of operating cash flow and sale proceeds generated through the disposition of the operating properties in October 1996 were allocated to the Company. Furthermore, as a limited partner in the partnerships, PWPI had no control over the operations of the partnerships or of the operating properties, other than in its capacity as a partner of the Advisor. The legal ownership of the Company's operating investment properties by the partnerships has had virtually no impact on the Company's financial position or results of operations. Accordingly, the partnerships are consolidated with the Company for financial reporting purposes. The name, location and size of the acquired properties, along with information related to the respective purchase prices and adjusted cost basis as of August 31, 1996, are as follows (in thousands):
Costs Name Acquisition Capitalized Master Adjusted Location Date Purchase Fees and Subsequent to Lease Cost at Size Acquired Price Expenses (1) Acquisition Payments (2) 8/31/96 - ---- -------- ----- ------------ ----------- ------------ ------- Village Plaza 8/16/89 $23,975 $394 $ 826 $618 $ 24,577 Augusta, GA 490,970 square feet Logan Place 1/18/90 4,917 189 16 232 4,890 Russellville, KY 114,748 square feet Piedmont Plaza 1/19/90 13,500 263 29 107 13,685 Greenwood, SC 249,052 square feet Artesian Square 1/30/90 6,990 203 989 392 7,790 Martinsville, IN 177,428 square feet Sycamore Square 4/26/90 4,970 172 23 130 5,035 Ashland City, TN 93,304 square feet Audubon Village 5/22/90 6,350 215 30 - 6,595 Henderson, KY 124,592 square feet Crossroads Centre 6/15/90 9,914 246 42 - 10,202 Knoxville, TN 242,430 square feet East Pointe Plaza 8/07/90 13,936 269 737 306 14,636 Columbia, SC 279,261 square feet Walterboro Plaza - 12/19/90 6,645 284 18 136 6,811 Phases I and II Walterboro, SC 132,130 square feet Cypress Bay Plaza 12/19/90 12,235 215 88 522 12,016 Morehead City, NC 258,245 square feet Cross Creek Plaza 12/19/90 13,565 302 20 525 13,362 Beaufort, SC 237,801 square feet Lexington Parkway Plaza 3/05/91 10,290 251 115 208 10,448 Lexington, NC 210,190 square feet Costs Name Acquisition Capitalized Master Adjusted Location Date Purchase Fees and Subsequent to Lease Cost at Size Acquired Price Expenses (1) Acquisition Payments (2) 8/31/96 - ---- -------- ----- ------------ ----------- ------------ ------- Roane County Plaza 3/05/91 7,000 197 - 43 7,154 Rockwood, TN 160,198 square feet Franklin Square 6/21/91 9,018 232 45 26 9,269 Spartanburg, SC 237,062 square feet Barren River Plaza 8/09/91 11,788 412 49 57 12,192 Glasgow, KY 234,795 square feet Cumberland Crossing 8/09/91 7,458 370 39 116 7,751 LaFollette, TN 144,734 square feet Applewood Village 10/25/91 6,965 389 - - 7,354 Fremont, OH 140,039 square feet Aviation Plaza 8/31/92 8,349 337 - - 8,686 Oshkosh, WI 174,715 square feet Crossing Meadows Plaza 8/31/92 12,100 356 6 - 12,462 Onalaska, WI 233,984 square feet Southside Plaza 10/21/92 9,200 356 7 - 9,563 Sanford, NC 172,293 square feet Costs Name Acquisition Capitalized Master Adjusted Location Date Purchase Fees and Subsequent to Lease Cost at Size Acquired Price Expenses (1) Acquisition Payments (2) 8/31/96 - ---- -------- ----- ------------ ----------- ------------ ------- College Plaza 4/29/93 9,900 461 - 2 10,359 Bluefield, VA 178,431 square feet Marion Towne 6/23/93 7,907 624 27 - 8,558 Center Marion, SC 156,558 square feet $216,972 $6,737 $ 3,106 $ 3,420 $ 223,395 ======== ====== ======= ======= =========
(1) Acquisition fees and expenses include the 3% fee payable to PWPI (see Note 3) and other capitalized costs incurred in connection with the acquisition of the properties (e.g. legal fees, appraisal fees, other closing costs, etc.). Certain expenses incurred to investigate potential investments were recorded as other assets pending the closing of a transaction and were reclassified after acquisition to the cost basis of the related property. Expenses incurred to review potential investments which were subsequently not acquired by the Company were charged to investment analysis expense once the Company stopped pursuing the acquisition. (2) The Company originally entered into master lease agreements with the sellers and certain of their affiliates (the "Guarantors") of each of the operating properties acquired. The master lease agreements generally provided that, for a period of up to 36 to 60 months (depending on the credit status of the tenant in occupancy) from the date of the acquisition of the operating property, the Guarantors guaranteed that the aggregate cash flow from all non-anchor tenants would not be less than the aggregate pro-forma net cash flow from non-anchor tenants projected at the time of the purchase. In the event that the actual aggregate net cash flow was less than the guaranteed amount, the Guarantors were obligated to make cash payments to the Company equal to any such deficit. All amounts earned under the master lease agreements were treated as purchase price adjustments and recorded as reductions to the carrying values of the related operating property for financial reporting purposes. Certain of the Guarantors secured their guarantees with cash collateral held by the Company or with letters of credit. During fiscal 1995, the Company entered into settlement agreements related to the outstanding master lease obligations on the Southside Plaza, College Plaza, Aviation Plaza and Crossing Meadows properties. As part of these settlement agreements, the Company agreed to the early termination of the respective master leases and to the release of the related cash collateral or letters of credit in return for the agreement of the related management agent to certain changes to the property management contracts. As of August 31, 1996, Applewood Village was the only property remaining under a master lease and was not generating any master lease payments based on the property's leasing level. The Applewood Village master lease was terminated subsequent to year-end in connection with the October 1996 sale of the Company's real estate assets. As discussed in Note 1, as a result of the decision by the Board of Directors to pursue a sale of the Company's portfolio of properties, the accompanying statements of operations for fiscal 1996 and 1995 include losses of $1,030,000 and $3,850,000, respectively, to reflect the writedown of the individual operating investment properties and certain related assets to the lower of adjusted cost or net realizable value as of August 31, 1996 and 1995. Such losses apply only to the properties for which losses were expected based on the estimated fair values. The gains on properties for which the estimated fair value less costs to sell exceeded the adjusted cost basis will be recognized in the period in which the sale transaction was completed. The Company also incurred portfolio sale expenses of $1,834,000 in fiscal 1996. Portfolio sale related expenses consisted primarily of legal fees associated with negotiating the sale agreement and preparing, distributing and soliciting the shareholder proxy. Such costs were expensed as incurred because of the impairment issues discussed further above and the uncertainty regarding the ability to complete the sale transaction which existed until the subsequent shareholder vote. The Company continued to recognize depreciation on its assets held for sale through the date of disposal. Operating investment properties held for sale on the accompanying balance sheets as of August 31, 1996 and 1995 is comprised of the following amounts (in thousands): 1996 1995 ---- ---- Land $ 37,845 $ 37,845 Buildings and improvements 175,874 175,453 Furniture and equipment 9,676 9,676 --------- --------- 223,395 222,974 Less: accumulated depreciation (33,666) (27,409) --------- --------- 189,729 195,565 Deferred rent receivable 356 305 Deferred leasing commissions, net 336 291 --------- --------- 190,421 196,161 Less: Allowance for possibl impairment loss (4,880) (3,850) --------- --------- $ 185,541 $ 192,311 ========= ======== 5. Mortgage Notes Payable Mortgage notes payable, reduced by unamortized loan buydown fees (see below), at August 31, 1996 and 1995 consisted of the following (in thousands): 1996 1995 ---- ---- Mortgage notes payable to a $ 49,005 $ 49,005 financial institution which (2,034) (2,504) were secured by Village Plaza, -------- -------- Piedmont Plaza, Artesian Square, 46,971 46,501 Logan Place, Sycamore Square and Crossroads Centre. These mortgage notes required monthly payments of interest only at 8% for the first seven years and then principal and interest at 8% until maturity, which ranged from November 1, 1999 to July 1, 2000. These notes contained certain cross default and cross collateral provisions. See discussion of effective interest rates and loan buydown fees below. (continued) 1996 1995 ---- ---- Mortgage notes payable to a 24,426 24,678 financial institution which were (875) (1,022) secured by East Pointe Plaza, ------ -------- Cumberland Crossing and Barren 23,551 23,656 River Plaza. The mortgage note on East Pointe Plaza, in the original principal amount of $11,150, called for monthly interest only payments at 8% per annum through June 1996. The balance of these mortgage notes required monthly payments of principal and interest at 8% through June 1996. Effective June 10, 1996, all three notes required monthly payments of principal and interest at 8.75% per annum through maturity on June 10, 2001. These notes contained certain cross default and cross collateral provisions. See discussion of effective interest rates and loan buydown fees below. Mortgage note payable to a bank 13,439 13,498 secured by Franklin Square and - (83) College Plaza. The Franklin note ------ ------- required monthly interest only 13,439 13,415 payments at 8% per annum until maturity, which was originally scheduled for June 21, 1996. Interest on the College Plaza note accrued at prime plus 0.75% per annum. Monthly payments equal to the greater of $58 or accrued interest for such month were payable until maturity, which was originally scheduled for April 23, 1996. The Company obtained a loan modification on both these loans, effective as of their respective maturity dates, extending the due dates to March 31, 1997. Both loans required monthly interest payments based on a variable interest rate equal to either prime plus 0.75% or LIBOR plus 2.75%, as selected by the Company. The College Plaza loan also required monthly principal payments of $7.5. Mortgage note payable to a 22,840 23,680 financial institution secured by Cross Creek Plaza, Cypress Bay Plaza and Walterboro Plaza (Phases I and II). The loan bore interest at a variable rate equal to 30-day LIBOR plus 3.50% per annum for the first twelve months, 30-day LIBOR plus 3.75% for the next twelve months (9.25% as of August 31, 1996), and 30-day LIBOR plus 4.25% for the final twelve months. Monthly payments of interest and principal (based on a 15-year amortization schedule) were due until maturity on December 10, 1997. (continued): 1996 1995 ---- ---- Mortgage notes payable to a 17,110 17,487 financial institution secured by Audubon Village, Lexington Parkway Plaza and Roane County Plaza. The notes secured by the Lexington and Roane properties bore interest at a fixed rate of 9.125% per annum and required monthly payments of principal and interest aggregating $119 through maturity on March 1, 2015. The note secured by Audubon Village bore interest at 8.75% per annum and required monthly payments of principal and interest of $43 through maturity on June 1, 2000. Mortgage notes payable to a 16,139 16,321 financial institution which were (621) (815) secured by Aviation Plaza and ------- ------ Crossing Meadows. Monthly payment 15,518 15,506 terms for the loan secured by Aviation Plaza, in the principal amount of $6,800, called for interest only payments at 8% per annum through August 1, 1995 and principal and interest payments at 8% thereafter until maturity. The loan secured by Crossing Meadows required monthly payments, including interest at 8% per annum, of $71 until maturity. Both notes were scheduled to mature on June 1, 1999. See discussion of effective interest rates and loan buydown fees below. Mortgage note payable to a 6,583 6,686 financial institution which was (131) (219 secured by Southside Plaza. The ------ ------ note required monthly payments, 6,452 6,467 including interest at 6.83% per annum, of $46 until maturity on November 5, 1997. See discussion of effective interest rates and loan buydown fees below. Mortgage note payable to a 5,757 5,817 financial institution which was secured by Marion Towne Center. The note, which was issued on June 23, 1993, called for monthly payments, including interest at 8% per annum, of $44 until maturity on July 1, 2002. The lender had the option, upon 120 days' written notice, to call the loan due at the end of each of the third year and the sixth year of the loan. If the loan was not called at such time, the interest rate on the loan was subject to adjustment. During fiscal 1996, the lender adjusted the interest rate to 7.375%, thereby reducing the monthly principal and interest payments to $41 effective with the August 1, 1996 payment. (continued): 1996 1995 ---- ---- Mortgage note payable to a 3,845 3,979 financial institution secured by Applewood Village. The note bore interest at 9% per annum and required monthly principal and interest payments of $41 until maturity on June 10, 2010. ------- -------- Total mortgage notes payable, net $155,483 $156,508 ======== ======== Summary of outstanding mortgage notes payable Total outstanding mortgage principal balances as of August 31, 1996 and August 31, 1995 $159,144 $161,151 Aggregate unamortized loan buydown fees (3,661) (4,643) -------- -------- Total mortgage notes payable, net $155,483 $156,508 ======== ======== At the time of the closing of certain of the mortgage notes listed above, the Company paid fees to the lenders in return for the lenders' agreement to reduce the stated interest rate on the loans to 8% per annum (6.83% in the case of Southside Plaza) over the terms of the loans. The fees have been recorded as reductions of the outstanding principal amounts and have been amortized, using the effective interest method, over the terms of the respective loans. The effective interest rates on these outstanding loans ranged from 7.38% to 9.80% per annum as of August 31, 1996. As discussed further in Note 1, the Company completed the sale of the operating investment properties which serve as collateral for the above mortgage loans subsequent to year end, on October 17, 1996. The obligation to repay the lenders with respect to such loans at the time of the sale transaction was equal to the outstanding mortgage principal balances prior to unamortized loan buydown fees. In conjunction with the sale transaction, the amount of the remaining unamortized buydown fees will be written off as a loss on the early extinguishment of debt in the period in which the sale occurred. During fiscal 1996 and 1995, the Company was not in technical compliance with provisions in certain of the above mortgage loan agreements which required formal lender approval of all property expansions and lease modifications. Under the terms of the loan agreements, failure to comply with such terms could have constituted events of default. Management had been working with the lenders to obtain the necessary approvals and, subsequent to year end, all instances of non-compliance were cured prior to the final closing of the sale transaction referred to above. As of August 31, 1996, aggregate scheduled maturities of mortgage notes payable for the next five years and thereafter were as follows (in thousands): Year ended August 31: --------------------- 1997 $ 15,590 1998 29,895 1999 17,286 2000 52,945 2001 24,037 Thereafter 19,391 ---------- $ 159,144 ========== 6. Rental income The Company has earned rental income from leasing shopping center space. All of the Company's leasing agreements were operating leases expiring in one to twenty years. Base rental income of $22,271,000 $22,183,000 and $21,958,000 was earned for the years ended August 31, 1996, 1995 and 1994, respectively. The following is a schedule of minimum future lease payments from noncancellable operating leases as of August 31, 1996 (in thousands): Year ended August 31: --------------------- 1997 $ 21,463 1998 19,805 1999 18,461 2000 16,535 2001 15,068 Thereafter 117,293 ---------- $ 208,625 ========== Total minimum future lease payments do not include percentage rentals due under certain leases, which are based upon lessees' sales volumes. Percentage rentals of approximately $247,000, $160,000 and $92,000 were earned for the years ended August 31, 1996, 1995 and 1994, respectively. Virtually all tenant leases also required lessees to pay all or a portion of real estate taxes and certain property operating costs. Rental income of approximately $7,990,000, $7,913,000 and $7,913,000 was received from leases with Wal-Mart and its affiliates for the years ended August 31, 1996, 1995 and 1994 respectively. Such amounts comprised 36% of total base rental income for each of those years. No other tenant has accounted for more than 10% of the Company's rental income during any period since inception. 7. Legal Proceedings In November 1994, a series of purported class actions (the "New York Limited Partnership Actions") were filed in the United States District Court for the Southern District of New York concerning PaineWebber Incorporated's sale and sponsorship of various limited partnership interests and common stock, including the securities offered by the Company. The lawsuits were brought against PaineWebber Incorporated and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by allegedly dissatisfied investors. In March 1995, after the actions were consolidated under the title In re PaineWebber Limited Partnership Litigation, the plaintiffs amended their complaint to assert claims against a variety of other defendants, including PaineWebber Properties Incorporated, which is the General Partner of the Advisor. The Company is not a defendant in the New York Limited Partnership Actions. On May 30, 1995, the court certified class action treatment of the claims asserted in the litigation. The amended complaint in the New York Limited Partnership Actions alleged, among other things, that, in connection with the sale of common stock of the Company, the defendants (1) failed to provide adequate disclosure of the risks involved; (2) made false and misleading representations about the safety of the investments and the Company's anticipated performance; and (3) marketed the Company to investors for whom such investments were not suitable. The plaintiffs, who are not shareholders of the Company but are suing on behalf of all persons who invested in the Company, also alleged that following the sale of the common stock of the Company the defendants misrepresented financial information about the Company's value and performance. The amended complaint alleged that the defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the federal securities laws. The plaintiffs sought unspecified damages, including reimbursement for all sums invested by them in the Company, as well as disgorgement of all fees and other income derived by PaineWebber from the Company. In addition, the plaintiffs also sought treble damages under RICO. In January 1996, PaineWebber signed a memorandum of understanding with the plaintiffs in this class action outlining the terms under which the parties have agreed to settle the case. Pursuant to that memorandum of understanding, PaineWebber irrevocably deposited $125 million into an escrow fund under the supervision of the United States District Court for the Southern District of New York to be used to resolve the litigation in accordance with a definitive settlement agreement and a plan of allocation. On July 17, 1996, PaineWebber and the class plaintiffs submitted a definitive settlement agreement which has been preliminarily approved by the court and provides for the complete resolution of the class action litigation, including releases in favor of the Company and the General Partner of the Advisor, and the allocation of the $125 million settlement fund among investors in the various partnerships and REITs at issue in the case. As part of the settlement, PaineWebber also agreed to provide class members with certain financial guarantees relating to some of the partnerships and REITs. The details of the settlement are described in a notice mailed directly to class members at the direction of the court. A final hearing on the fairness of the proposed settlement is scheduled to continue in November 1996. Under certain limited circumstances, pursuant to the Advisory Agreement and other contractual obligations, PaineWebber affiliates could be entitled to indemnification for expenses and liabilities in connection with this litigation. However, by written agreement dated April 1, 1996 PaineWebber and its affiliates have waived all such rights with regard to this litigation and any other similar litigation that has been or may be threatened, asserted or filed by or on behalf of purchasers of the Company's common stock. Thus, the Advisor believes that these matters will have no material effect on the Company's financial statements, taken as a whole. The Company is a party to certain other legal actions in the normal course of business. Management believes these actions will be resolved without material adverse effect on the Company's financial statements, taken as a whole. 8. Subsequent Events In March 1996, the Company announced the execution of a definitive agreement for the sale of its real estate assets to Glimcher Realty Trust ("GRT"). Under the original terms of the agreement, GRT was to have purchased the properties of the Company subject to certain indebtedness and leases for an aggregate purchase price of $203 million plus prepayment penalties on debt to be prepaid and assumption fees on debt to be assumed, subject to certain adjustments. As of May 14, 1996, the terms of the purchase contract were amended to reduce the aggregate purchase price to $197 million plus prepayment penalties and assumption fees. The sale transaction closed into escrow on June 27, 1996 pending the receipt of the approval of the transaction by the Company's shareholders, which was received on October 16, 1996. On October 17, 1996, the sale transaction closed out of escrow and the Company received net proceeds of $36,371,000. The net proceeds reflected the aggregate sales price of $197,000,000, less selling costs paid at closing of $489,000, capital improvement and repair allowances of $572,000, mortgage debt outstanding of $158,857,000 and other closing prorations and purchase price adjustments of $711,000. During the escrow period in which the Company sought to obtain the required shareholder approval, the Company's operating properties were managed by GRT. Under the terms of the management agreement, GRT received a base fee of 3% of the gross operating revenues of the properties. In addition, GRT earned an incentive management fee equal to the net cash flow of the properties attributable to the period commencing on May 14, 1996 and ending on the date of the final closing of the sale transaction. A portion of the incentive management fee was paid to GRT out of the net closing proceeds. In addition, the Company transferred to GRT at the time of the closing certain cash balances, together with outstanding receivables and payables, related to the net cash flow generated subsequent to May 14, 1996. The total incentive management fee through the date of the sale transaction aggregated approximately $3.1 million. The Company received interest earnings from GRT beginning June 20, 1996 through the escrow period on a net equity amount of approximately $37,401,000 at a rate equivalent to the published market rate on 6-month U.S. Treasury Bills as of June 20, 1996 (5.39% per annum). The interest credit totalled $657,000 through the date of the sale transaction and is included in the net proceeds of $36,371,000 referred to above. The incentive management fee and the interest credit described above were treated as purchase price adjustments in connection with the sale and will be recorded in the Company's financial statements as of the sale closing date. In addition to the net proceeds received upon the closing of the sale transaction, the Company retained an interest in tenant receivables with a carrying value of approximately $878,000 as of October 17, 1996 (net of an allowance for possible uncollectible amounts of $162,000). Such receivables are primarily comprised of expense reimbursements for real estate taxes, insurance and common area maintenance associated with the Company's period of ownership of the properties. The majority of these receivables are expected to be collected over the next several months with the major portion expected to be received in early calendar year 1997 after the preparation of the annual tenant reconciliations of common area charges is completed. However, subsequent to year-end the Advisor agreed to buy the outstanding receivables from the Company at their net carrying value so that the Company can complete its liquidation during calendar 1996 without the need to establish a liquidating trust for any remaining non-cash assets. The accompanying balance sheet as of August 31, 1996 reflects cash and cash equivalents totalling $9,208,000. A portion of such cash balance, in the amount of $1,471,000, relates to net cash flow of the operating properties subsequent to May 14, 1996 which was due to GRT as part of the incentive management fee calculation described above and was transferred to GRT on October 17, 1996 in conjunction with the sale closing. The Company's balance sheet at August 31, 1996 also included escrowed cash of $1,379,000. The majority of this amount, which primarily represented cash designated for real estate taxes and insurance premiums, was either transferred to GRT at the time of the sale or applied by certain lenders against the respective mortgage debt liabilities. The remaining net cash balance of approximately $7,737,000, along with the net proceeds of $36,371,000 received at closing, $86,000 of escrowed cash refunded to the Company subsequent to the closing and a recovery of prepaid insurance in the amount of $167,000 received subsequent to the closing, were available to be used to pay for the expenses associated with winding up the Company's business and for liquidation distributions to the shareholders. In addition, as discussed further above, the Company retains outstanding tenant receivables in the net amount of $878,000 which the Advisor has agreed to purchase at carrying value. The Company also expects to receive certain state tax refunds of approximately $109,000 and interest income of approximately $441,000. From the available cash and receivables, the Company expects to pay expenses totalling $1,354,000 subsequent to August 31, 1996. Such costs are comprised of operating expenses through the date of the sale transaction of approximately $98,000, expenses related to the sale transaction of approximately $930,000 and estimated liquidation expenses of $326,000. After these estimated expenses, the Company expects to have net assets totalling approximately $44.4 million available for distribution to the shareholders. From these net assets, the Company expects to make a final liquidating distribution to the shareholders of approximately $8.80 per share in December 1996 which will be followed by the formal liquidation of the Company by December 31, 1996. Schedule III - Real Estate and Accumulated Depreciation RETAIL PROPERTY INVESTORS, INC. SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION August 31, 1996 (In thousands)
Initial Cost to Gross Amount at Which Carried at Life on Which Partnership Costs Close of period Depreciation Buildings Capitalized Buildings, Total, less in Latest Improvements (Removed) Improvements Allowance for Income & Personal Subsequent to & Personal Impair- Accumulated Date of Date Statement Description Encumbrances Land Property Acquisition Land Property ment (C) Depreciation Construction Acquired is Computed - ----------- ----------- ---- -------- ----------- ---- -------- ----- ------------ ------------ -------- ----------- Shopping Center $ 18,900 $ 6,307 $ 18,062 $ 208 $ 6,307 $ 18,270 $ 24,577 $4,359 1988 8/16/89 12 - 40 yrs. Augusta, GA Shopping Center 10,125 1,532 12,231 (78) 1,532 12,153 13,685 2,639 1990 1/19/90 12 - 40 yrs. Greenwood, SC Shopping Center 3,715 448 4,659 (313) 448 4,442 4,890 964 1988 1/18/90 12 - 40 yrs. Russellville, KY (96) ------- 4,794 Shopping Center 5,340 730 6,464 596 730 7,060 7,790 1,504 1989 1/30/90 12 - 40 yrs. Martinsville, IN Shopping Center 3,595 616 4,527 (789) 616 4,419 5,035 1,048 1990 4/26/90 12 - 40 yrs. Ashland City, TN (681) ------- 4,354 Shopping Center 4,506 704 5,860 (226) 704 5,891 6,595 1,190 1989 5/22/90 12 - 40 yrs. Henderson, KY (257) ------- 6,338 Shopping Center 7,330 1,813 8,347 (76) 1,813 8,389 10,202 1,713 1990 6/15/90 12 - 40 yrs. Knoxville, TN (118) ------- 10,084 Shopping Center 11,150 4,244 9,965 (57) 4,244 10,392 14,636 2,216 1990 8/7/90 12 - 40 yrs. Columbia, SC (484) ------- 14,152 Schedule III - Real Estate and Accumulated Depreciation (continued) RETAIL PROPERTY INVESTORS, INC. SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION August 31, 1996 (In thousands) Initial Cost to Gross Amount at Which Carried at Life on Which Partnership Costs Close of period Depreciation Buildings Capitalized Buildings, Total, less in Latest Improvements (Removed) Improvements Allowance for Income & Personal Subsequent to & Personal Impair- Accumulated Date of Date Statement Description Encumbrances Land Property Acquisition Land Property ment (C) Depreciation Construction Acquired is Computed - ----------- ----------- ---- -------- ----------- ---- -------- ----- ------------ ------------ -------- ----------- Shopping Center 9,785 3,292 10,578 (508) 3,292 10,070 13,362 1,846 1990 12/19/90 12 - 40 yrs. Beaufort, SC Shopping Center 9,002 1,104 11,346 (434) 1,104 10,912 12,016 2,055 1989 12/19/90 12 - 40 yrs. Morehead City, NC Shopping Center 4,893 929 6,001 (357) 929 5,882 6,811 981 1989 12/19/90 12 - 40 yrs. Walterboro, SC (238) ------- 6,573 Shopping Center 7,729 2,438 8,103 (230) 2,438 8,010 10,448 1,569 1990 3/5/91 12 - 40 yrs. Lexington, NC (137) ------- 10,311 Shopping Center 5,252 1,280 5,918 (44) 1,280 5,874 7,154 1,125 1989 3/5/91 12 - 40 yrs. Rockwood, TN Shopping Center 6,600 2,361 6,888 20 2,361 6,908 9,269 1,277 1987 6/21/91 12 - 40 yrs. Spartanburg, SC Shopping Center 8,279 929 11,275 (152) 929 11,263 12,192 1,879 1990 8/9/91 12 - 40 yrs. Glasgow, KY (140) ------- 12,052 Shopping Center 5,249 737 7,093 (169) 737 7,014 7,751 1,199 1990 8/9/91 12 - 40 yrs. LaFollette, TN (90) ------- 7,661 Schedule III - Real Estate and Accumulated Depreciation (continued) RETAIL PROPERTY INVESTORS, INC. SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION August 31, 1996 (In thousands) Initial Cost to Gross Amount at Which Carried at Life on Which Partnership Costs Close of period Depreciation Buildings Capitalized Buildings, Total, less in Latest Improvements (Removed) Improvements Allowance for Income & Personal Subsequent to & Personal Impair- Accumulated Date of Date Statement Description Encumbrances Land Property Acquisition Land Property ment (C) Depreciation Construction Acquired is Computed - ----------- ----------- ---- -------- ----------- ---- -------- ----- ------------ ------------ -------- ----------- Shopping Center 3,979 728 6,626 (1,989) 728 6,626 7,354 1,023 1990 10/25/91 12 -40 yrs. Fremont, OH (1,989) ------ 5,365 Shopping Center 6,795 1,806 6,880 - 1,806 6,880 8,686 905 1990 8/31/92 12 -40 yrs. Osh Kosh, WI Shopping Center 9,526 2,570 9,886 6 2,570 9,892 12,462 1,261 1991 8/31/92 12 -40 yrs. Onalaska, WI Shopping Center 6,686 1,274 8,282 (274) 1,274 8,289 9,563 1,049 1991 10/21/92 3 - 40 yrs. Sanford, NC (281) ------ 9,282 Shopping Center 6,898 1,626 8,735 (2) 1,626 8,733 10,359 980 1992 4/29/93 12 - 40 yrs. Bluefield, VA Shopping Center 5,817 377 8,153 (341) 377 8,181 8,558 884 1992 6/23/93 12 - 40 yrs. Marion, SC (369) ------ 8,189 -------- ------ -------- ------- ------- -------- -------- ------- $161,151 $37,845 $185,879 $(5,209) $37,845 $185,550 $218,515 $33,666 ======== ======= ======== ======= ======= ======== ======== ======= Schedule III - Real Estate and Accumulated Depreciation (continued) RETAIL PROPERTY INVESTORS, INC. SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION August 31, 1996 (In thousands) Notes (A) See Note 5 of Notes to Financial Statements for a description of the debt encumbering the properties. (B)Included in Costs Capitalized (Removed) Subsequent to Acquisition are certain master lease payments earned that were recorded as reductions in the cost basis of the properties for financial reporting purposes. See Note 4 to the financial statements for a further description of these payments. Also included in Costs Capitalized (Removed) Subsequent to Acquisition is the provision for impairment loss described in Note C below. (C)The gross amount reflected above includes impairment losses of $1,030 and $3,850 recognized in fiscal 1996 and 1995, respectively, to writedown the operating investment properties to the lower of adjusted cost or net realizable value. See Notes 1, 2 and 4 for a further discussion. The aggregate cost of real estate owned at August 31, 1996 for Federal income tax purposes is approximately $226,815,000. (D) Reconciliation of real estate owned: 1996 1995 1994 ---- ---- ---- Balance at beginning of year $219,124 $222,814 $222,373 Acquisitions and improvements 421 178 767 Disposal of fully depreciated tenant improvements - (18) - Reduction of basis due to master lease payments received - - (326) Provision for loss on impairment of assets held for sale (1,030) (3,850) - --------- -------- -------- Balance at end of year $ 218,515 $219,124 $222,814 ========= ======== ======== (E) Reconciliation of accumulated depreciation: Balance at beginning of year $ 27,409 $ 21,080 $ 14,863 Depreciation expense 6,257 6,347 6,217 Disposal of fully depreciated tenant improvements - (18) - ---------- -------- -------- Balance at end of year $ 33,666 $ 27,409 $ 21,080 ========== ========= ========
EX-27 2 ARTICLE 5 FDS FOR THE TWELVE MONTHS ENDED 8/31/96
5 This schedule contains summary financial information extracted from the Partnership's audited financial statements for the year ended August 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS AUG-31-1996 AUG-31-1996 9,208 0 802 162 0 11,564 219,207 33,666 198,164 2,797 155,483 0 0 39,884 0 198,164 0 25,513 0 13,352 0 1,030 14,808 (3,677) 0 (3,677) 0 1,139 0 (2,538) (0.51) (0.51)
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