Item 1. Business.
(a) General Development of Business.
Concord Milestone Plus, L.P. (the "Partnership") was organized as a Delaware limited partnership on December 12, 1986 with CM Plus Corporation, a Delaware corporation (the "General Partner"), as its general partner. The General Partner is wholly owned by Concord Assets Group, Inc. ("Concord"). The Partnership is engaged in the business of owning and operating three shopping centers. CMP Beneficial Corp., a wholly owned subsidiary of Concord, was organized under Delaware law in December 1986 for the sole purpose of holding limited partnership interests in the Partnership for the benefit of holders of the Class A Interests and Class B Interests and has engaged in no business activities other than fulfilling its obligations under the Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement").
(b) Industry Segment Information.
The Partnership has only one industry segment, commercial real estate. See Item 6, "Selected Financial Data", of this report for a summary of the Partnership's operations for the last five fiscal years.
(c) Narrative Description of Business.
The Partnership was formed for the purpose of investing in existing income-producing commercial and industrial real estate, such as shopping centers, office buildings, free-standing commercial buildings, warehouses and distribution centers. The Partnership currently owns and operates three shopping centers, one located in Searcy, Arkansas (the "Searcy Property"), one located in Valencia, California (the "Valencia Property") and one located in Green Valley, Arizona (the "Green Valley Property").
The amount of revenues attributable to the Searcy Property, the Valencia Property and the Green Valley Property (collectively, the "Properties") from tenants not affiliated with the Partnership was (i) $415,505, $1,336,478, $1,299,161 respectively, for the fiscal year ended December 31, 2000 (ii) $441,946, $1,299,922 and $1,228,007, respectively, for the fiscal year ended December 31, 1999; and (iii) $438,026, $1,347,971 and $1,296,987, respectively, for the fiscal year ended December 31, 1998. There are no affiliated tenants.
See Item 2, "Properties", of this Report for additional information as to the Properties, including a description of the competitive conditions affecting them.
(d) Employees
The Partnership employs six people at the Green Valley Property who provide general maintenance and security services. Milestone Property Management, Inc., an affiliate of the General Partner, provides all management services for the Partnership and is reimbursed for its cost of administrative services provided to the Partnership, including the pro rata cost of personnel. Aside from its officers, the General Partner has no employees. See Item 11, "Compensation", of this Report.
Item 2.
Item 2. Properties.
The Properties consist of three shopping centers: the Searcy Property, the Valencia Property and the Green Valley Property. For the purposes of this section, the following is a glossary of terms:
a. Occupancy rate - The rate of the actual leased area (square footage) to gross leaseable area (square footage) as of the end of the fiscal year (December 31).
b. Leasable area - The area (square footage) for which rent is charged.
c. Average effective annual rental per square foot - The average rental rate received per square foot of leased space taking rental concessions and discounts into consideration.
d. Total rent - Minimum annual base rent plus percentage rental revenue.
Mortgage Loans
As of September 30, 1997, the Partnership closed on new mortgage loans (the "Mortgage Loans") for the Properties in the amounts of $2,865,000, $8,445,000 and $5,400,000, respectively. All three Mortgage Loans are secured by first mortgages. Prior to September 30, 1997, the Properties were encumbered by mortgages granted by the Partnership to the holders of the Partnership's Escalating Rate Collateralized Mortgage Bonds due November 30, 1997 (the "Bonds"). The Partnership used the proceeds of the Mortgage Loans and available cash to redeem all of the outstanding Bonds.
The Mortgage Loans and related terms at December 31, 2000 for the Properties are summarized as follows: Principal Monthly Balance at Payments of December Interest Principal Property/Location 31, 2000 Rate % and Interest - ----------------- -------------- ------ ------------ Searcy, AR $2,780,475 8.125 $21,640 Valencia, CA 8,105,294 8.125 65,881 Green Valley, AZ 5,244,964 8.250 41,252 ----------- ------ Total $16,130,733 $128,773 =========== =======
The Mortgage Loans require payments of principal and interest through and including September 1, 2007. On October 1, 2007, the balance of principal and interest is estimated to be $2,505,981, $7,003,227 and $4,738,096 for the Searcy, Valencia and Green Valley Properties, respectively, and will be due and payable. Subsequent to October 31, 2003 and prior to May 31, 2007, each Mortgage Loan may be prepaid in whole but not in part on any payment date with a prepayment penalty equal to the greater of (i) 1% of the outstanding principal balance at such time, or (ii) the excess, if any, of the present value of the remaining scheduled principal and interest payments (including any balloon payment), discounted at the Discount Rate (as defined below), over the amount of principal being prepaid. The Mortgage Loans may be prepaid without penalty on any payment date after May 31, 2007. The Discount Rate is a rate determined as of the week ending prior to the prepayment date and is based on the published rates of U.S. Government securities having maturities approximating the maturity date of the Mortgage Loans. The Mortgage Loans are each secured by first mortgages on all three of the Partnership's Properties and a default under any of the Mortgage Loans constitutes a default on all of the Mortgage Loans. Each mortgage may be released at the Partnership's option after the corresponding Mortgage Loan is fully paid provided that no event of default exists under any of the Mortgage Loans, the mortgagee has not given the Partnership notice of any event which, with the passage of time, would constitute an event of default, and certain other conditions are satisfied.
In connection with the Green Valley Mortgage Loan, the Partnership has deposited $150,000 into an escrow account (the "Green Valley Escrow Account") with the Lender. The funds held in the Green Valley Escrow Account may be released upon the execution of a new lease for the major tenant space, with a termination date of July 31, 2004 or later, and the satisfaction of certain other conditions.
CM Plus Corporation, the general partner of the Partnership, guarantees certain limited recourse obligations under the Mortgage Loans.
The Searcy Property Searcy, Arkansas
Location. The Searcy Property is situated on an irregularly shaped parcel of approximately 10.78 acres, which has frontages on Race Avenue and Frontage Road in the City of Searcy, Arkansas. Searcy, the county seat of White County, is located in the central portion of the State of Arkansas, approximately 50 miles northeast of Little Rock, Arkansas. The Searcy Property is part of a two-mile stretch of commercial development along Race Avenue that is the main shopping area for the city, county and surrounding areas. Searcy's marketing area includes all of White County and portions of surrounding counties.
The Searcy Property is part of a larger shopping complex known as the Town and Country Plaza. In addition to the Searcy Property, the Town and Country Plaza consists of an approximately seven acre parcel (formerly the site of a free-standing Wal-Mart department store which is now sub-divided into four retail stores) and five adjacent out parcels totaling 3.86 acres.
Description. The Searcy Property, which was completed in July 1985, is a one-story masonry and steel building whose exterior is painted concrete block with masonry, brick and glass fronts. The Searcy Property contains 78,436 gross leasable square feet divided into eleven units. The entire Town and Country Plaza has parking for 970 cars of which approximately 570 parking spaces are allocated to the Searcy Property. In the opinion of the General Partner, the Searcy Property is adequately insured.
Taxes. The Partnership's adjusted federal income tax basis for the Searcy Property is approximately $2,983,000, of which $430,000 is allocated to land and $2,553,000 to the building and improvements. For financial statement purposes, the Partnership depreciates the cost of the building over 31.5 years and improvements over 5 to 10 years using the straight-line method of cost recovery.
Competition. There are three shopping centers within two miles to the west of the Town and Country Plaza on Race Avenue. The first shopping center consists of a Goody's department store and a vacant furniture store. The second shopping center consists of a Fred's discount store, Warehouse Foods, a Sears catalog store and two satellite stores. The third center consists of a Kroger food store and a Revco drugstore. Directly across the highway from the Searcy Property is a Wal-Mart superstore. This Wal-Mart, relocated from the Town and Country Plaza in 1992. Books-A-Million, Big Lots, Hibetts Sports and TSC Tractor Supply currently occupy Wal-Mart's former space in the Town and Country Plaza.
Operating and Tenant Information. As of March 1, 2001, there were ten tenants, including two anchor tenants, at the Searcy Property. The anchor tenants are J.C. Penney department store and Dunlap Co. The other eight tenants provide a variety of goods and services. The occupancy rate was 78.8%, 95.5% and 95.5% as of December 31, 2000, 1999 and 1998, respectively. Dunlap entered into a lease of a 15,600 square foot store space, raising the occupancy rate to 98.7% as of March 1, 2001.
The tables on pages 7 and 8 further describe and summarize certain operating data and tenant information for the Property as of December 31, 2000.
Old Orchard Shopping Center Valencia, California
Location. The Valencia Property is situated on an approximately 9.94-acre parcel that has frontages on Lyons Avenue and Orchard Village Road in the town of Valencia, California. Valencia is located in the Santa Clarita Valley in Los Angeles County, approximately 35 miles north of Los Angeles. Old Orchard Shopping Center is located on the northwest corner of Lyons Avenue and Orchard Village Road in a heavily developed commercial area. Lyons Avenue is improved with shopping centers, fast food restaurants, housing developments and free standing convenience stores. The surrounding area is densely populated with apartments, condominiums and single family residences.
Description. Old Orchard Shopping center is an eight building, one-story masonry and steel shopping center complex that was originally constructed in 1965. During 1985 and 1986 the shopping center was renovated and enlarged to 103,413 square feet of gross leasable area. The exterior construction is pre-cast concrete, fluted block and decorative tile. The shopping center has over 500 parking spaces. In the opinion of the General Partner, the Valencia Property is adequately insured.
Taxes. The Partnership's adjusted federal income tax basis for the Valencia Property is $10,628,000, of which $6,500,000 is allocated to land and $4,128,000 is allocated to the buildings and improvements. For financial statement purposes the Partnership depreciates the cost of the buildings over 31.5 years and improvements over 5 to 10 years using the straight-line method of cost recovery.
Competition. In 1996, a 78,000 square foot shopping center opened on Old Orchard Street across from the Valencia Property. This center includes a 46,000 square foot Ralph's Supermarket, a 16,000 square foot drugstore and 16,000 square feet of smaller stores. This shopping center has had an adverse impact on tenant sales but it has not materially adversely affected the occupancy rate at the Valencia Property.
Within two miles of the Valencia Property there are competing shopping facilities at Newhall Plaza with a Von's Food Store and 10 satellite stores, Granary Square with a Hughes Food Market, Long's Drugstore and 26 satellite stores, a Safeway Supermarket complimented by 14 satellite stores and the Alpha Beta Center with Alpha Beta Food stores and 16 satellite stores. In 1992, a strip center anchored by a Ralph's Foods opened within a mile of the Valencia Property.
Operating and Tenant Information. As of March 1, 2001, there were 22 tenants, including two anchor tenants, at the Valencia Property. The two anchor tenants are a Lucky Store grocery and a Rite Aid pharmacy. The other 20 tenants provide a variety of goods and services. The occupancy rate was 99.50%, 96.9%, and 96.6% in 2000, 1999, and 1998, respectively.
The tables on pages 7 and 8 further describe and summarize certain operating data and tenant information for the Property as of December 31, 2000.
Green Valley Mall Green Valley, Arizona
Location. The Green Valley Property, a mall complex known as the Green Valley Mall, is situated on an approximately 21.31-acre parcel in the Town of Green Valley, Arizona. Green Valley is a planned adult community located in Pima County in the Santa Cruz River Valley approximately 25 miles south of Tucson. Green Valley has two hotels and a number of office buildings, several community centers and six 18 hole golf courses. The Green Valley Property is located at intersection 65 of Interstate 19 and Esperenza Boulevard and serves Pima County, as well as Santa Cruz County to the south with additional access from La Canada Road.
Description. Green Valley Mall is an open-air shopping complex originally built in the 1960's and expanded at various times throughout the 1970's and 1980's. The shopping center is comprised of several buildings, including some that are free standing, totaling 194,750 gross leasable square feet (adjusted by 1,800 square feet representing the mall office). The exterior construction is a combination of adobe block, split face block and painted concrete block. The mall has approximately 975 parking spaces. In the opinion of the General Partner, the Green Valley Property is adequately insured.
Taxes. The Partnership's adjusted federal income tax basis for the Green Valley Property is $9,174,000, of which $5,100,000 is allocated to land and $4,074,000 to the buildings and improvements. For financial statement purposes, the Partnership depreciates the cost of the buildings over 31.5 years and improvements over 5 to 10 years using the straight-line method of cost recovery.
Competition. The Green Valley Property competes directly with the 142,500 square foot Continental Shopping Plaza located at Continental Road and Interstate 19 approximately one mile south of the Green Valley Property. The Continental Shopping Plaza is anchored by a Safeway Supermarket. There is a shopping center located 3 miles to the north of the Green Valley Property in the newly incorporated town of Sahuarita. This shopping center includes a 65,000 square foot Wal-Mart Department Store and a 42,000 square foot Bashas' Food Store as anchor tenants plus 25,000 square feet of space for local tenants. Another center located to the north of the Green Valley Property, closed during 1995 and was anchored by a 45,000 square foot Kmart and 10,000 square feet of space for local tenants. In mid summer 2000, a six screen multiplex theater opened adjacent to Kmart. Since the incorporation of this town, several large areas have been rezoned for commercial development. One shopping area located 2.5 miles north of Green Valley, called "The Quorum", opened within the last two years. Also in 2002 a Safeway Supermarket is planned to be built 2 miles north of the Green Valley property.
Operating and Tenant Information. As of March 1, 2001, there were 71 tenants, including two anchor tenants, at the Green Valley Property. The two anchor tenants include a Beall's outlet store and an Ace Hardware store. The third anchor tenant space is currently unoccupied. The other 69 tenants provide a variety of goods and services. The occupancy rate was 70.73%, 70.7%, and 86.5% in 2000, 1999, and 1998, respectively.
During February 1999, the Partnership received notice from Abco, the principal anchor tenant at the Green Valley Property, that Abco would not be renewing its lease at the expiration of its term on July 31, 1999. Abco vacated its space in May, 1999. The Partnership retained a large regional real estate brokerage firm to help market the space. Such brokerage firm was replaced in 2000 by another large regional brokerage firm. Each of the brokerage firms have shown the space to several qualified prospective tenants. No replacement tenant has yet been identified. The plan to build Safeway Supermarket in the year 2002 near Green Valley Mall will also have an adverse effect on subleasing the Abco space. Many of the tenants at the Green Valley Property have short term leases. It is not possible to determine the long-term effects of the vacancy of the Abco space. Currently, however, the vacancy of the Abco space did not have a material adverse effect on the results of operations at the Green Valley Property by impairing the Partnership's ability to retain other tenants or to renew their leases on favorable terms, by reducing traffic at the Property and negatively affecting percentage rents. In addition, the Partnership will incur expenses in releasing the Abco space and cannot predict how soon such space will be leased and the terms of such new lease. Currently, approximately $150,000 of the Partnership's working capital is being held in escrow in connection with the refinancing by the holder of the first mortgage on the Green Valley Property (the "Lender") pending the resolution of the vacancy in this unoccupied anchor tenant space.
The tables on pages 7 and 8 further describe and summarize certain operating data and tenant information for the Property as of December 31, 2000.
Table 2. Summary of Lease Expirations
Commitments and Contingencies
Investments in real property create a potential for environmental liability on the part of the owner, operator or developer of such real property. If hazardous substances are discovered on or emanating from any of the Properties, the Partnership and/or others may be held strictly liable for all costs and liabilities relating to the clean-up of such hazardous substances, even if the problem was caused by another party or a tenant. The Partnership is not aware of any existing environmental conditions that will have a material effect on the financial statements.
Item 3.
Item 3. Legal Proceedings
None
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------
None
PART II
Item 5.
Item 5. Market for Registrant's Units and Related Security Holders Matters. ------------------------------------------------------------------
(a) Class A and Class B Interests are not traded on any established public trading market and no organized market has developed for the interests in the Partnership. Sales of the Class A and Class B Interests occur from time to time through independent broker-dealers, but to the best of the Partnership's knowledge, there are no market makers for the interests. Recently published information relating to other real estate limited partnerships (which may or may not be analogous to the Partnership) indicates that sales of limited partnership interests in those partnerships occur at substantial discounts from the amounts of the original investments.
(b) As of March 1, 2001, the 1,518,800 Class A Interests and 2,111,072 Class B Interests outstanding were held by approximately 1,140 and 1,216 holders, respectively.
(c) The Partnership is a limited partnership and, accordingly, does not pay dividends. Quarterly distributions of cash are made to its partners, from time to time, depending upon distributable cash flow and certain other conditions. The table on page 11 lists cash distributions.
Pursuant to the Partnership Agreement, distributable cash flow (as defined), if any, for each fiscal quarter is distributed as follows: (i) first, 99% to the holders of the Class A Interests as a group and 1% to the General Partner until the holders of the Class A Interests have received an amount of cumulative distributions necessary to provide such holders with a non-compounded 10.5% cumulative annual return (determined in accordance with the Partnership Agreement); (ii) next, 90% to the holders of the Class A Interests and 10% to the General Partner until the holders of the Class A Interests have received distributions of distributable capital proceeds (i.e., net proceeds of a sale or other disposition or a refinancing of Properties available for distribution) and uninvested offering proceeds equal to $10.00 for each Class A Interest plus an amount of cumulative distributions necessary to provide such holders with a cumulative, non-compounded 12.5% annual return (determined in accordance with the Partnership Agreement on their Adjusted Priority Base Amount as defined in the Partnership Agreement) (a "12.5% Priority Return"); and (iii) thereafter, 85% to the holders of the Class B Interests, 5% to the holders of the Class A Interests and 10% to the General Partner.
Pursuant to the Partnership Agreement, distributable capital proceeds are distributed as follows: (i) first, 100% to the holders of the Class A Interests as a group until they have received distributions of distributable capital proceeds and uninvested offering proceeds equal to $10.00 for each Class A Interest plus an amount of cumulative distributions necessary to provide such holders with a 12.5% Priority Return; and (ii) thereafter, 85% to the holders of the Class B Interests and 15% to the General Partner.
Distributable cash flow, as defined in the Partnership Agreement, means, with respect to any period, (i) revenues and payments (which do not include refundable deposits or unearned rent) of the Partnership received in cash during such period, and reserves set aside out of revenues during prior periods and no longer needed for the Partnership's business, but not including cash proceeds attributable to a capital transaction (as defined), Bond proceeds or capital contributions (as defined), less (ii) the sum of (A) amounts paid in cash by the Partnership during such period for operating expenses of the Partnership (excluding amounts paid from reserves or funds provided by capital contributions or loans), for debt payments, and for other fees or payments to the General Partner, (B) any capital expenditures with respect to Properties, and (C) any amount set aside for the restoration, increase or creation of reserves. Distributable cash flow is deemed to include the amount of any income tax withheld with respect to revenues that are includable in distributable cash flow.
During its two most recent fiscal years, the Partnership has made the following cash distributions with respect to the Class A Interests:
Amount of Portion Distribution Distribution Representing With Respect Per 100 Class a Return of To Quarter Ended: A Interests (1) Capital (1) - ----------------- --------------- -------------- March 31, 2000 (1) $0 $0 June 30, 2000 (1) $0 $0 September 30, 2000 (1) $0 $0 December 31, 2000 (1) $0 $0
March 31, 1999 $3.29 $3.29 June 30, 1999 $1.32 $1.32 September 30, 1999 (1) $0 $0 December 31, 1999 (1) $0 $0
- ---------------------------------
(1) The Partnership suspended making distributions subsequent to the second quarter of 1999 after determining that unrestricted working capital levels were inadequate due to (1) Abco vacating its space at the Green Valley Property in May, 1999 (2) several capital outlays for work performed at the Properties, and (3) the bankruptcy and subsequent vacancy of its 15,600 square feet store space by one of the major tenants at the Searcy Property.
There have been no distributions with respect to the Class B Interests.
In general, profits are allocated annually among the holders of Class A Interests and Class B Interests and the General Partner, first in the ratio and to the extent that they receive distributions of distributable cash flow. Profits will next be allocated 100% to holders of Class A Interests until their capital accounts equal the greater of zero or their Adjusted Priority Base Amounts (as defined in the Partnership Agreement) plus their 12.5% Priority Return. Any additional profits will be allocated to the holders of Class B Interests and the General Partner to increase their capital accounts to reflect the manner in which they are expected to share in further distributions.
Gain arising upon the sale of a Property or otherwise is allocated first to holders of Class A Interests and Class B Interests and the General Partner to eliminate any deficits in their capital accounts, and then to the holders of the Class A Interests and Class B Interests and the General Partner to increase their capital accounts to reflect the manner in which they are expected to share in further distributions.
In general, losses are allocated first to the holders of Class B Interests and the General Partner in the ratio and to the extent of any positive balances in their capital accounts; then, to the holders of Class A Interests to the extent of any positive balances in their capital accounts; and finally, 100% to the General Partner.
Item 6.
Item 6. Selected Financial Data.
The following page sets forth a summary of the selected financial information for the Partnership. The information below should be read in conjunction with the audited financial statements and with the information presented in Item 7, Management's Discussion & Analysis of Financial Condition and Results of Operations.
Notes to Selected Financial Data Schedule:
(a) All income allocated with respect to Equity Units was allocated with respect to the 100 Class A Interests in each such unit. No income was allocated with respect to Class B Interests.
(b) The net (loss) income per 100 Class A Interests has been calculated by dividing the net (loss) income for the period by the average number of Class A Interests outstanding for the period and multiplying that quotient by 100.
(c) Distributions have been allocated based upon the dates that Class A Interests were issued. Distributions with respect to each fiscal quarter of the Partnership are paid 60 days following the end of that fiscal quarter. No distributions were paid with respect to Class B Interests.
(d) Return of Capital is defined as distributions in excess of cumulative net income.
See Notes to Selected Financial Data
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. See Part I.
The following discussion and analysis should be read in conjunction with the Financial Statements of the Partnership and the notes thereto appearing in Item 14 of this report.
General
The Partnership commenced a public offering of Equity Units and Bond Units (together, "Units") on April 8, 1987 in order to fund the Partnership's real property acquisitions. The Partnership terminated the public offering of Units on April 2, 1988. On April 14, 1988, the Partnership held its final closing on the sale of Units. The Partnership was fully subscribed to with a total of 16,452 Bond Units and 15,188 Equity Units from which the Partnership received aggregate net proceeds (after deduction of sales commissions, discounts and selling agent's expense otherwise required to be reimbursed to the General Partner and its Affiliates) of $29,285,960. The Partnership purchased three shopping centers with the proceeds from this offering. No further acquisitions are planned and the Partnership has no plans to raise additional capital.
On September 30, 1997, the Partnership closed three fixed rate first mortgage loans in the amounts of $2,865,000, $8,445,000 and $5,400,000, on the Searcy, Valencia and Green Valley Properties, respectively. All three Mortgage Loans are secured by first mortgages on each of the Properties. The Partnership used the proceeds of the Mortgage Loans and available cash to redeem all of the outstanding Bonds. The Mortgage Loans are described in further detail in Item 2. Properties Section.
The Partnership has an agreement with Milestone Property Management, Inc. ("MPMI"), an affiliate of the General Partner, to provide management services to the Properties. In addition, MPMI is responsible for leasing space at the properties and actively monitors all vacancies to ensure the highest occupancy rate possible. All leasing is performed by MPMI and the terms of the leases are negotiated on a lease by lease basis.
Competition
Rental property owned by the Partnership will have substantial competition from similar properties in the vicinity in which such property is located. Such competition is generally for the retention of existing tenants and for new tenants upon space becoming vacant. Competition for tenants may result in the Partnership being unable to quickly re-lease space resulting in a decline in cash flows. The Partnership believes that the profitability of each of the Properties is based, in part, upon its geographic location, the operations and identity of the property's tenants, the performance of the property and leasing managers, the maintenance and appearance of the property, the ease of access to the property and the adequacy of property related facilities. The Partnership also believes that general economic circumstances and trends as well as the character and quality of new and existing properties which may be located in the vicinity of the Properties are factors that may affect the operation and competitiveness of the property.
Results of Operations
Comparison of Year Ended December 31, 2000 to 1999.
Revenues of the Partnership increased $92,705, or 3.1%, to $3,079,207 in 2000 from $2,986,502 in 1999 primarily due to the net effect of the following:
(1) Rent - An increase in base rent of $51,411, or 2.04%, to $2,560,747 in 2000 from $2,509,336 in 1999 is due to a decrease in vacancies and an increase in base rent at the Valencia and Green Valley properties.
(2) Reimbursed Expenses - An increase in reimbursed expenses of $29,858, or 6.03%, to $490,397 in 2000 from $460,539 in 1999 primarily due to an increase in the recovery on both common area expenses and real estate taxes at the Green Valley Property.
Management and property expenses increased $102,609, or 11.90%, to $958,610 in 2000 from $856,001 in 1999 due to increases in real estate taxes, insurance and common area expenses at the Properties.
Administrative and management fees to a related party increased by $44,264 or 28.76% to $198,169 in 2000 from $153,905 in 1999 due to an additional professional fee payable to Milestone Property Management, Inc. ("MPMI").
Comparison of Year Ended December 31, 1999 to 1998.
Revenues of the Partnership decreased $117,136, or 3.77%, to $2,986,502 in 1999 from $3,103,638 in 1998 primarily due to the net effect of the following:
(1) Rent - A decrease in base rent of $78,776, or 3.04%, to $2,509,336 in 1999 from $2,588,112 in 1998 caused by (i) a decrease in base rent and percentage rent revenues at the Green Valley Property due to Abco, a principal anchor tenant, vacating its space during the year and (ii) two vacancies at the Valencia Property.
(2) Reimbursed Expenses - A decrease in reimbursed expenses of $33,879, or 6.85%, to $460,539 in 1999 from $494,418 in 1998 primarily due to a decrease in the recovery on both common area expenses and real estate taxes at the Green Valley Property due to Abco vacating its space during the year.
Management and property expenses increased $60,047, or 7.54%, to $856,001 in 1999 from $795,954 in 1998 due to increases in real estate taxes, insurance and common area expenses at the Properties.
Professional fees and other expenses decreased $27,910, or 28.13%, to $71,317 in 1999 from $99,227 in 1998, primarily due to a decrease in accounting fees due to a change of audit firms in 1998.
Administrative and management fees to a related party decreased by $3,004 or 1.91% to $153,905 in 1999 from $156,909 in 1998 due to decreases in both rent revenue and recovery of reimbursed expenses.
Depreciation and amortization expense decreased $15,937, or 2.46%, to $630,782 in 1999 from $646,719 in 1998, primarily due to certain assets reaching the end of their depreciable lives.
Liquidity and Capital Resources
The General Partner believes that the Partnership's expected revenue and working capital is sufficient to meet the Partnership's current and future operating requirements. Nevertheless, because the cash revenues and expenses of the Partnership will depend on future facts and circumstances relating to the Partnership's properties, as well as market and other conditions beyond the control of the Partnership, a possibility exists that cash flow deficiencies may occur.
During February 1999, the Partnership received notice from Abco, a principal anchor tenant at the Green Valley Property, that Abco would not be renewing its lease at the expiration of its current term on July 31, 1999. Abco vacated its space in May, 1999. The Partnership retained a large regional real estate brokerage firm to help market the space. Such brokerage firm was replaced during 2000 by another large regional brokerage firm. No replacement tenant has yet been identified. Each of the brokerage firms have shown the space to several qualified prospective tenants. Many of the other tenants at the Green Valley Property have short term leases. It is not possible to determine the long-term effects of the vacancy of the Abco space. Currently, however, the vacancy of the Abco space did not have a material adverse effect on the results of operations at the Green Valley Property by impairing the Partnership's ability to retain other tenants or to renew their leases on favorable terms, and by reducing traffic at the Property and negatively affecting percentage rents. In addition, the Partnership will incur expenses in leasing the space vacated by Abco to a new tenant, and the Partnership cannot predict how soon such space will be leased and the terms of such new lease. Currently, approximately $150,000 of the Partnership's working capital is being held in escrow in connection with the refinancing by the Lender pending the resolution of the vacant anchor tenant space created by the departure of Abco.
The Partnership periodically makes distributions to its owners. A 1998 fourth quarter distribution of $50,001 was paid during February 1999. Also, a first quarter distribution of $50,001 was paid during May 1999 and a second quarter distribution of $20,002 was paid during August 1999. Distributions were suspended after the second quarter of 1999 following the departure of Abco from the Green Valley Property, which created vacant anchor tenant space. Additionally, several capital projects were undertaken and completed at the Properties. Further a 15,600 square feet anchor tenant at the Searcy Property filed for Chapter 11 bankruptcy protection and vacated its store space. Finally, the Partnership expects to make extensive roof repairs and/or replacements at the Valencia Property in fiscal year 2001. The Partnership will evaluate the amount of future distributions, if any, on a quarter by quarter basis. No assurances can be given as to the timing or amount of any future distributions by the Partnership. Management is not aware of any other significant trends, events, commitments or uncertainties that will or are likely to materially impact the Partnership's liquidity.
The cash on hand at December 31, 2000 may be used to fund (a) costs associated with releasing the Abco space should the costs of releasing exceed the $150,000 already held in escrow by the Lender for this purpose and (b) other general Partnership purposes.
Net cash provided by operating activities of $442,228 for the year ended December 31, 2000 was comprised of (i) net loss of $134,495, (ii) adjustments of $636,489 for depreciation and amortization and (iii) a net change in operating assets and liabilities of $59,766.
Net cash provided by operating activities of $528,387 for the year ended December 31, 1999 was comprised of (i) net loss of $84,307, (ii) adjustments of $630,782 for depreciation and amortization and (iii) a net change in operating assets and liabilities of $18,088.
Net cash provided by operating activities of $487,409 for the year ended December 31, 1998 was comprised of (i) net income of $31,270, (ii) adjustment of $646,719 for depreciation and amortization, and (iii) a net change in operating assets and liability of $190,580.
Net cash used in investing activities of $166,603 for the year ended December 31, 2000 was comprised of capital expenditures for building improvements.
Net cash used in investing activities of $114,259 for the year ended December 31, 1999 was comprised of capital expenditures for building improvements.
Net cash used in investing activities of $176,503 for the year ended December 31, 1998 was comprised of capital expenditures for building improvements.
Net cash used in financing activities of $211,936 for the year ended December 31, 2000 included (i) principal repayments on mortgage loans payable of $197,147, (ii) funds held in escrow of $14,789.
Net cash used in financing activities of $288,647 for the year ended December 31, 1999 included (i) principal repayments on mortgage loans payable of $185,173, (ii) funds held in escrow of $16,530 and (iii) cash distributions to partners of $120,004.
Net cash used in financing activities of $132,555 for the year ended December 31, 1998 included (i) principal repayments on mortgage loans payable of $170,520 and (ii) funds held in escrow of $37,965.
CURRENT ACCOUNTING ISSUES
SFAS No. 133 and No. 138
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB 133" establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position, and measure those instruments at fair value. Changes in the fair value of those derivatives will be reported in earnings or other comprehensive income depending on the use of the derivative and whether the derivative qualifies for hedge accounting. SFAS No. 133 and SFAS No. 138 are effective all fiscal quarters of all fiscal years beginning after June 30, 2000. The Partnership adopted SFAS No. 133, as amended by SFAS No. 138, on January 1, 2001.
The Partnership has identified a minimal number of embedded derivative instruments, and these were evaluated for recording on the Partnership's balance sheet at January 1, 2001. Within certain of its leases with tenants in its Properties, the Partnership has embedded derivatives resulting from possible limitations on scheduled rent increases, based on changes in CPI. These types of limitations are common in the Partnership's industry. These embedded derivatives have been valued at an insignificant amount, so the affect of the recording of this new accounting pronouncement is inconsequential at January 1, 2001.
The adoption of SFAS No. 133 resulted in the Partnership recording a net transition adjustment of an insignificant amount. The Partnership expects that the adoption of SFAS No. 133 will not increase the volatility of its reported earnings, as the embedded derivatives have not resulted in any material change in the Partnership's earnings or cash flows in the past. The Partnership believes that the impact of its embedded derivatives are not likely to be material in the future.
SFAS No. 140
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -- a replacement of FASB No. 125," was issued in September 2000. It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures but will carry over most of SFAS No. 125's provisions without reconsideration. SFAS 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures related to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of the provisions of SFAS No. 140 is not expected to have any material impact on the Company.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership, in its normal course of business, is theoretically exposed to interest rate changes as they relate to real estate mortgages and the effect of such mortgage rate changes on the values of real estate. However, for the Partnership, all of its mortgage debt is at fixed rates, is for extended terms, and would be unaffected by any sudden change in interest rates. The Partnership's possible risk is from increases in long-term real estate mortgage rates that may occur over a decade or more, as this may decrease the overall value of real estate. Since the Partnership has the intent to hold its existing mortgages to maturity (or until the sale of a Property), there is believed to be no interest rate market risk on the Partnership's results of operations or its working capital position. The Partnership estimates the fair value of its long term fixed rate Mortgage Loans generally using discounted cash flow analysis based on the Partnership's current borrowing rates for similar types of debt. At December 31, 2000, the fair value of the Mortgage Loans was estimated to be $15,218,728 compared to a carrying value amount of $16,130,733.
The Partnership's cash equivalents and short-term investments, if any, generally bear variable interest rates. Changes in the market rates of interest available will affect from time-to-time the interest earned by the Partnership. Since the Partnership does not rely on its interest earnings to fund working capital needs, changes in these interest rates will not have an impact on the Partnership's results of operations or working capital position.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data are included elsewhere in this document, as listed on the accompanying index.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
During the last two fiscal years, no changes of accountants and disagreements with accountants on accounting and financial disclosure occurred.
PART III
Item 10.
Item 10. Directors and Officers of the Registrant.
The names, offices held and the ages of the directors and executive officers of the General Partner and of CMP Beneficial Corp. are as follows: Has Served As a Director and/or Name Age Position Held Officer Since (1) --------------------- --- ------------------ -----------------
Leonard S. Mandor (3) 54 President Inception (2) and Director
Robert A. Mandor (3) 48 Vice President Inception and Director
Joseph P. Otto 47 Vice President October 3, 1997 and Secretary
Patrick Kirse 32 Treasurer and October 3, 1997 Controller - ----------------------------------
(1) Each director and officer of the General Partner and CMP Beneficial Corp. will hold office until the next annual meeting of the General Partner and CMP Beneficial Corp. and until his successor is elected and qualified.
(2) The General Partner was incorporated on December 12, 1986 and CMP Beneficial Corp. was incorporated on December 18,1986.
(3) Robert A. Mandor and Leonard S. Mandor are brothers.
LEONARD S. MANDOR is the Chief Executive Officer and a Director of Concord. Mr. Mandor is the Chairman of the Board, Chief Executive Officer and a Director of Milestone Properties, Inc. Mr. Mandor has been associated with Concord since its inception in 1981.
ROBERT A. MANDOR is the President and a Director of Concord. Mr. Mandor is the President, Chief Financial Officer, and a Director of Milestone Properties, Inc. Mr. Mandor has been associated with Concord since its inception in 1981.
JOSEPH P. OTTO was appointed Vice President and Secretary of CM Plus Corporation, the General Partner of Concord Milestone Plus, L.P. in October 1997. Mr. Otto is also a Vice President of Concord and has been associated with Concord since 1984. Mr. Otto is also a Vice President and Director of Milestone Properties, Inc.
PATRICK KIRSE was appointed Treasurer and Controller of CM Plus Corporation, the General Partner of Concord Milestone Plus, L.P. in October 1997. Mr. Kirse also serves as a Vice President of Milestone Properties, Inc. He is a CPA licensed in the state of Missouri. Before joining Milestone in 1995 he worked as a senior auditor with Deloitte & Touche LLP since 1991.
Compliance with Section 16(a) of the Exchange Act.
Based on the General Partner's review of Forms 3, 4 and 5 furnished to the Partnership, there were no late reports filed during 2000.
Item 11.
Item 11. Compensation.
During 2000, the Partnership paid or accrued:
(i) $68,500 to Milestone Property Management, Inc. ("MPMI"), an affiliate of the General Partner, for administrative services rendered to the Partnership. Pursuant to an agreement between MPMI and the Partnership, the Partnership reimburses MPMI for administrative services provided to the Partnership, such as payroll, investor services and supplies in an amount equal to $68,500 per year.
(ii)$129,660 to MPMI for property management fees for the fiscal year ended December 31, 2000. Pursuant to the management agreement between the Partnership and MPMI, property management fees are equal to a percentage of gross revenues not to exceed 5 percent for multiple tenant properties for which MPMI performs leasing services, 3 percent for multiple tenant properties for which MPMI does not perform leasing services and 1 percent for single tenant properties. The management fees are 3 percent for the Searcy Property, 4 percent for the Valencia Property and 5 percent for the Green Valley Property. The management fee for any Property may not exceed competitive fees for comparable services reasonably available to the Partnership in the same geographic area as the property in question. Gross revenues are defined in the management agreement to mean, with respect to each Property, all base, additional and percentage rents collected from the Property but exclude all other receipts or income with respect to that Property, such as, (i) receipts arising out of any sale of assets or of all or part of the Property, condemnation proceeds and other items of a similar nature; (ii) payments made by tenants for over-standard finish out improvements or other amortization; (iii) income derived from interest on investments, security deposits utility deposits; (iv) proceeds of claims under insurance policies; (v) abatements or reductions of taxes; (vi) security deposits made by tenants; or (vii) any portions of rentals which are specifically designated as amortization of, or interest on, tenant moving expenses, takeover expenses or similar items in the nature of advances by the Partnership.
No officer, director, or employee of the General Partner received any direct compensation from the Partnership during the fiscal year ended December 31, 2000.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------
(a) The General Partner knows of only one beneficial owner of five percent or more of the issued and outstanding Class A Interests. The General Partner knows of only two beneficial owners of five percent or more of the issued and outstanding Class B Interests, the information as to which is set forth below as of March 1, 2001:
Amount and Nature of Percent Title Name and Address of Beneficial of of Class Beneficial Owner Ownership Class
Class A KM Investments, LLC 98,068* 6.46% Interests 199 South Los Robles Suite #440 Pasadena, CA 91101
Class B The Guardian Life 572,292* 27.11% Interests Insurance Company of America 203 Park Avenue South New York, NY 10003
Class B KM Investments, LLC 98,284* 4.66% Interests 199 South Los Robles Suite #440 Pasadena, CA 91101 - -----------------------
* To the best of the Partnership's knowledge, both The Guardian Life Insurance Company of America and KM Investments, LLC have sole voting power and investment power with respect to these securities.
(b) The General Partner, together with its affiliates and the officers and directors of the General Partner, own less than 1% of the issued and outstanding Class A Interests and less than 1% of the issued and outstanding Class B Interests.
The number of shares of stock, no par value, of Concord (which is the parent of the General Partner) beneficially owned by all directors of the General Partner and CMP Beneficial Corp. and all directors and officers of the General Partner and CMP Beneficial Corp. as a group as of March 1, 2001 is set forth in the following table: Amount and Nature of Percent Name of Beneficial of Beneficial Owner Ownership Class
Leonard S. Mandor 267 67% Robert A. Mandor 133 33%
Item 13.
Item 13. Certain Relationships and Related Transactions.
See Item 1, "Business," Item 5, "Market for Registrant's Units and Related Security Holders Matters," Item 10, "Directors and Officers of the Registrant," and Item 11, "Compensation," of this Report for details. See also Note 5 of the Notes to Financial Statements of the Partnership's Financial Statements included in this Report.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements, Financial Schedule, and Reports on Form 8-K. ----------------------------------------------------------------------------
(a) Financial Statements and Financial Schedule
See Index to Financial Statements and Financial Schedule included elsewhere in this Report.
(b) Exhibits:
Exhibit Number Description of Document
3.1 Amended and Restated Agreement of Limited Partnership of Concord Milestone Plus, L.P. Incorporated herein by reference to Exhibit A to the Registrant's Prospectus included as Part I of the Registrant's Post-Effective Amendment No. 3 to the Registrant's Registration Statement on Form S-11 (the "Registration Statement") which was declared effective on April 3, 1987.
3.2 Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Concord Milestone Plus, L.P., included as Exhibit 3.2 to Registrant's Form 10-K for the fiscal year ended December 31, 1987 ("1987 Form 10-K"), which is incorporated herein by reference.
3.3 Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of Concord Milestone Plus, L.P. included as Exhibit 3.3 to the 1987 Form 10-K, which is incorporated herein by reference.
3.4 Amendment No. 3 to Amended and Restated Agreement of Limited Partnership of Concord Milestone Plus, L.P. included as Exhibit 3.4 to the 1987 Form 10-K, which is incorporated herein by reference.
3.5 Amendment No. 4 to Amended and Restated Agreement of Limited Partnership of Concord Milestone Plus, L.P. included as Exhibit 3.5 to the 1987 Form 10-K, which is incorporated herein by reference.
3.6 Amendment No. 5 to Amended and Restated Agreement of Limited Partnership of Concord Milestone Plus, L.P. included as Exhibit 3.6 to Registrant's Form 10-K for the fiscal year ended December 31, 1988, ("1998 Form 10-K"), which is incorporated herein by reference.
4.1 Form of certificate evidencing Class A Interests included as Exhibit 4.3 to the 1987 Form 10-K, which is incorporated herein by reference.
4.2 Form of certificate evidencing Class B Interests included as Exhibit 4.4 to the 1987 Form 10-K, which is incorporated herein by reference.
10.1 Property purchase agreements. Incorporated herein by reference to Exhibit 10.1 to the Registration Statement.
10.2 Form of property management agreement. Incorporated herein by reference to Exhibit 10.2 of the Registration Statement.
10.3 First Amendment to Management Agreement by and between Concord Milestone Plus, L.P. and Concord Assets Management, Inc. Incorporated herein by reference to Exhibit 10.3 of the 1988 Form 10-K.
10.4 Second Amendment to Management Agreement by and between Concord Milestone Plus, L.P. and Concord Assets Management, Inc. Incorporated herein by reference to Exhibit 10.4 of the 1988 Form 10-K.
10.5 Fixed Rate Note, dated September 23, 1997, executed by the Partnership in favor of Lender, relating to the property located in Green Valley, Arizona. Incorporated herein by reference to Exhibit 10.1 of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (the "September 1997 10-Q").
10.6 Mortgage, Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated September 23, 1997, executed by the Partnership for the benefit of Lender, relating to the property located in Green Valley, Arizona. Incorporated herein by reference to Exhibit 10.2 of the September 1997 10-Q.
10.7 Assignment of Leases and Rents, dated September 23, 1997, executed by the Partnership for the benefit of Lender, relating to the property located in Green Valley, Arizona. Incorporated herein by reference to Exhibit 10.3 of the September 1997 10-Q.
10.8 Environmental Liabilities Agreement, dated September 23, 1997, executed by the Partnership and CM Plus Corporation for the benefit of Lender, relating to the property located in Green Valley, Arizona. Incorporated herein by reference to Exhibit 10.4 of the September 1997 10-Q.
10.9 Tenant Occupancy Escrow and Security Agreement, dated September 23, 1997, by and between the Partnership and the Lender, relating to the property located in Green Valley, Arizona. Incorporated herein by reference to Exhibit 10.5 of the September 1997 10-Q.
10.10 Fixed Rate Note, dated September 23, 1997, executed by the Partnership in favor of Lender, relating to the property located in Searcy, Arkansas. Incorporated herein by reference to Exhibit 10.6 of the September 1997 10-Q.
10.11 Mortgage, Deed of Trust and Security Agreement, dated September 23, 1997, executed by the Partnership for the benefit of Lender, relating to the property located in Searcy, Arkansas. Incorporated herein by reference to Exhibit 10.7 of the September 1997 10-Q.
10.12 Assignment of Leases and Rents, dated September 23, 1997, executed by the Partnership for the benefit of Lender, relating to the property located in Searcy, Arkansas. Incorporated herein by reference to Exhibit 10.8 of the September 1997 10-Q.
10.13 Environmental Liabilities Agreement, dated September 23, 1997, executed by the Partnership and CM Plus Corporation for the benefit of Lender, relating to the property located in Searcy, Arkansas. Incorporated herein by reference to Exhibit 10.9 of the September 1997 10-Q.
10.14 Fixed Rate Note, dated September 23, 1997, executed by the Partnership in favor of Lender, relating to the property located in Valencia, California. Incorporated herein by reference to Exhibit 10.10 of the September 1997 10-Q.
10.15Deed of Trust, Assignment of leases, and Rents, Security Agreement and Fixture Filing, dated September 23, 1997, executed by the Partnership for the benefit of Lender, relating to the property located in Valencia, California. Incorporated herein by reference to Exhibit 10.11 of the September 1997 10-Q.
10.16Assignment of Leases and Rents, dated September 23, 1997, executed by the Partnership for the benefit of Lender, relating to the property located in Valencia, California. Incorporated herein by reference to Exhibit 10.12 of the September 1997 10-Q.
10.17 Environmental Liabilities Agreement, dated September 23, 1997, executed by the Partnership and CM Plus Corporation for the benefit of Lender, relating to the property located in Valencia, California. Incorporated herein by reference to Exhibit 10.13 of the September 1997 10-Q.
10.18 Environmental Escrow and Security Agreement, dated September 23, 1997, by and between the Partnership and the Lender, relating to the property located in Valencia, California. Incorporated herein by reference to Exhibit 10.14 of the September 1997 10-Q.
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 thereunder duly authorized on March 27, 2001.
CONCORD MILESTONE PLUS, L.P. By: CM PLUS CORPORATION, General Partner
By: /s/ Leonard S. Mandor --------------------------------- Leonard S. Mandor, President
CMP BENEFICIAL CORP. (Registrant of Beneficial Interests)
By: /s/ Leonard S. Mandor -------------------------------- Leonard S. Mandor, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated.
By:/s/ Leonard S. Mandor March 27, 2001 ----------------------------------------------- Leonard S. Mandor President (Principal Executive Officer) and Director of CM Plus Corporation and CMP Beneficial Corp.
By:/s/ Robert A. Mandor March 27, 2001 ----------------------------------------------- Robert A. Mandor Vice President and Director of CM Plus Corporation and CMP Beneficial Corp.
By:/s/ Patrick Kirse March 27, 2001 ----------------------------------------------------- Patrick Kirse Treasurer and Controller (Principal Accounting Officer) of CM Plus Corporation and CMP Beneficial Corp.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE
1. Financial Statements:
a. Concord Milestone Plus, L.P.
1. Independent Auditors' Reports ................................29
2. Balance Sheets, December 31, 2000 and December 31, 1999.. 30
3. Statements of Revenues and Expenses for the Years Ended December 31, 2000, 1999 and 1998 .............................31
4. Statements of Changes in Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998 .......................32
5. Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 ......................................33
6. Notes to Financial Statements ................................34
2. Financial Schedule:
a. Real Estate and Accumulated Depreciation (Schedule III) ......41
This financial statement schedule of the Partnership for each of the years ended December 31, 2000, 1999 and 1998 is filed as part of this Form 10-K and should be read in conjunction with the Financial Statements, and related notes thereto, of the Partnership. All other financial statement schedules have been omitted because 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 or notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Concord Milestone Plus, L.P.
We have audited the accompanying balance sheets of Concord Milestone Plus, L.P. (the "Partnership") as of December 31, 2000 and 1999, and the related statements of revenues and expenses, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the information contained in the financial statement schedule of real estate and accumulated depreciation. These financial statements and the financial statement schedule of real estate and accumulated depreciation are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule of real estate and accumulated depreciation based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Concord Milestone Plus, L.P. as of December 31, 2000, and 1999, and the results of its operations, changes in partners' capital and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the information contained in the financial statement schedule of real estate and accumulated depreciation, when considered in relation to the basic financial statements, presents fairly, in all material respects, the information set forth therein.
/s/ Ahearn, Jasco + Company, P.A.
Pompano Beach, Florida March 7, 2001
CONCORD MILESTONE PLUS, L.P. NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
1. Organization and Capitalization
Concord Milestone Plus, L.P., a Delaware limited partnership (the "Partnership"), was formed on December 12, 1986, to invest in existing income-producing commercial and industrial real estate, such as shopping centers, office buildings, free-standing commercial warehouses and distribution centers. Currently, the Partnership owns and operates three shopping centers (the "Properties"), one located in Searcy, Arkansas (the "Searcy Property"), one located in Valencia, California (the "Valencia Property") and one located in Green Valley, Arizona (the "Green Valley Property").
The Partnership commenced a public offering on April 8, 1987 in order to fund the Partnership's real property acquisitions. The Partnership terminated its public offering on April 2, 1988 and was fully subscribed to with a total of 16,452 Bond Units and 15,188 Equity Units issued. Each Bond Unit consisted of $1,000 principal amount of the Partnership's Escalating Rate Collateralized Mortgage Bonds (the "Bonds") due November 30, 1997 and 36 Class B Interests ("Class B Interests"), each such interest representing an assignment of one Class B Limited Partnership Interest held by CMP Benefit Corp., a Delaware corporation (the "Assignor"), under the Amended and Restated Agreement of Limited Partnership of the Partnership Agreement (the "Partnership Agreement"). Each Equity Unit consisted of 100 Class A Interests ("Class A Interests"), each interest representing an assignment of one Class A Limited Partnership Interest held by the Assignor under the Partnership Agreement, and 100 Class B Interests.
2. Summary of Significant Accounting Policies
Basis of Accounting, Fiscal Year
The Partnership's records are maintained on the accrual basis of accounting for both financial and tax purposes. Its fiscal year is the calendar year.
Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Partnership occasionally maintains cash balances in financial institutions in excess of the federally insured limits.
Restricted Cash
Restricted cash consists of escrow deposits held by the lender for payment of property taxes and an amount held pending the execution of a new lease of the space formerly leased to Abco at the Green Valley property and satisfaction of certain other conditions related thereto.
Revenue Recognition
Rental income is accrued as earned except when doubt exists as to collectibility, in which case the accrual is discontinued. When rental payments due under leases vary from a straight-line basis because of free rent periods or stepped increases, income is recognized on a straight-line basis in accordance with generally accepted accounting principles. Reimbursed expenses represent a portion of property operating expense billed to the tenants, including common area maintenance, real estate taxes and other recoverable costs. Expenses subject to reimbursement are recognized in the period when the expenses are incurred. Rental income based on a tenant's revenues ("percentage rent") is accrued when a tenant reports sales that exceed a specified amount.
Property
Property is carried at cost, and depreciated on a straight-line basis over the estimated useful life of 31.5 years. Building improvements and other depreciable assets are carried at cost, and depreciated on a straight-line basis using an estimate useful life of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life or the remaining term of the lease. Total depreciation expense was $596,210, $593,225, $609,161, in 2000, 1999, and 1998, respectively.
The Partnership's individually reviews each of their properties for possible impairment at least annually, and more frequently if circumstances warrant. Impairment is determined to exist when estimated amounts recoverable through future cash flows from operations on an un-discounted basis is less than the property's carrying value. If a property is determined to be impaired, it is written down to its estimated fair value to the extent that the carrying amount exceeds the fair value of the property. No write downs for impairment of property investments were recorded in 2000, 1999 and 1998.
The determination of impairment is based, not only upon future cash flows, which rely upon estimates and assumptions including expense growth, occupancy and rental rates, but also upon market capitalization and discount rates as well as other market indicators. The Partnership believes that the estimates and assumptions used are appropriate in evaluating the carrying amount of the Partnership's properties. However, changes in market conditions and circumstances may occur in the near term which would cause these estimates and assumptions to change, which, in turn, could cause the amounts ultimately realized upon the sale or other disposition of the properties to differ materially from their carrying value. Such changes may also require future write-downs.
Income Taxes
The Partnership makes no provision for income taxes because all income and losses are allocated to the partners and holders of Class A Interests and Class B Interests for inclusion in their respective tax returns. The tax bases of the Partnership's net assets and liabilities are $3,090,677 and $2,996,877 higher than the amounts reported for financial statement purposes at December 31, 2000 and 1999, respectively, due to the utilization of different estimated useful lives for the depreciation of property for tax and financial reporting purposes and the write-down of property during 1993 and 1994 for financial reporting purposes.
Debt Financing Costs
The costs to obtain the Mortgage Loans (see Note 6) were capitalized and are being amortized over the term of such mortgages using the effective interest method.
Income (loss) Per Class A Interest
The Partnership follows the provisions of Statement of Financial Accounting Standards ("SFAS") No.128, "Earnings per Share". SFAS No.128 requires a presentation of basic earnings per share and also requires dual presentation of basic and diluted earnings per share on the face of the statement of operations for all entities with complex capital structures. The Partnership has no dilutive interests. Income (loss) per Class A interest amounts are computed by dividing net income (loss) allocable to the limited partners by the weighted average number of 100 Class A Interests outstanding during the year.
Statement of Comprehensive Income (Loss)
A statement of comprehensive income (loss) has not been included per SFAS 130, "Reporting Comprehensive Income", as the Partnership has no items of other comprehensive income (loss)
Statement of Disclosures about Segments of an Enterprise and Related Information
In June 1997, the Financial Accounting Standards Board issued SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. The Partnership's operations are within one reportable segment.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications were made to the accompanying 1998 and 1999 financial statements to conform with the 2000 presentation.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain hedging Activities, an Amendment of FASB 133" establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position, and measure those instruments at fair value. Changes in the fair value of those derivatives will be reported in earnings or other comprehensive income depending on the use of the derivative and whether the derivative qualifies for hedge accounting. These pronouncements are effective for all fiscal quarters of fiscal years beginning after June 30, 2000. The Partnership adopted SFAS No. 133, as amended by SFAS No. 138, on
January 1, 2001. The Partnership does not expect this adoption to have any material impact on reported earnings, comprehensive income, or financial position, as the Partnership's derivative instruments embedded in certain leases are insignificant, and the Partnership does not use any hedging activities.
3. Partnership Agreement
Pursuant to the terms of the Partnership Agreement, the general partner of the Partnership, CM Plus Corporation, a Delaware corporation (the "General Partner"), is liable for all general obligations of the Partnership to the extent not paid by the Partnership.
Holders of Class A Interests and Class B Interests are not liable for expenses, liabilities or obligations of the Partnership beyond the amount of their contributed capital.
All distributable cash, capital proceeds, profit, gain or loss from Partnership operations are generally allocated 1 percent to the General Partner and 99 percent to the holders of Class A Interests. The holders of Class B Interests were specifically allocated certain organization and offering expenses to the extent of their positive capital account balances, thus reducing their account balance to zero. After the holders of Class A Interests have received the 12.5 percent Priority Return (as defined in the Partnership Agreement) all distributable cash is allocated in a ratio of 85 percent to the holders of Class B Interests, 5 percent to the holders of Class A Interests and 10 percent to the General Partner.
Since the inception of the Partnership, all income and distributable cash with respect to the Equity Units has been allocated to the holders of Class A Interests because they have not received the 12.5 percent Priority Return. Therefore, no income has been allocated to the holders of Class B Interests.
4. Properties
On August 20, 1987, the Partnership purchased the Searcy Property, a shopping center in Searcy, Arkansas from Concord Milestone Plus of Arkansas Limited Partnership, an affiliated entity, for $4,050,000.
On January 22, 1988, the Partnership purchased the Valencia Property, a shopping center in Valencia, California from Concord Milestone Plus of California Limited Partnership, an affiliated entity, for $11,575,000.
On April 15, 1988, the Partnership purchased the Green Valley Property, a shopping center in Green Valley, Arizona from Concord Milestone Plus of Arizona Limited Partnership, an affiliated entity, for $9,687,000.
Minimum base rental income under non-cancelable tenant lease agreements, having lease terms expiring from one to eight years, at December 31, 2000 are as follows:
Year Ended December 31 Amount ------------- ---------- 2001 $2,268,413 2002 1,779,892 2003 1,270,013 2004 928,600 2005 753,438 Thereafter 555,717 --------- Total $7,556,073 =========
The above table does not include contingent rental amounts. The total contingent rentals received in 2000, 1999, and 1998, were $148,585, $142,847, and $148,490, respectively. A majority of the leases contain provisions for additional rent calculated as a specified percentage of the tenant's gross receipts above fixed minimum amounts and for reimbursement of all or a portion of the tenant's pro rata share of real estate taxes, insurance and common area maintenance expenses. There was no tenant in 2000, 1999 and 1998 whose rents exceed 10% of the Partnership's total revenue.
5. Related Party Transactions
The Partnership pays fees for customary property management services ("Management Fees") equal to a percentage of gross revenues from the Properties, not to exceed 5 percent. The Management Fees are 3 percent for the Searcy Property, 4 percent for the Valencia Property and 5 percent for the Green Valley Property. Management Fees incurred for the years ended December 31, 2000, 1999, and 1998, were $129,660, $128,904, and $131,909, respectively. Management Fees are payable to Milestone Property Management, Inc., a Delaware corporation and affiliate of the General Partner ("MPMI").
The Partnership paid $25,000 to MPMI for administrative services for the years ended December 31, 1999 and 1998. As of December 31, 2000 and 1999, the Partnership accrued $62,754 and $51,991, respectively, payable to Milestone Properties, Inc. ("MPI"), an affiliate of the General Partner for administrative and management fees.
6. Mortgage Loans Payable
As of September 30, 1997, the Partnership closed three fixed rate first mortgage loans (the "Mortgage Loans") in the amounts of $2,865,000, $8,445,000 and $5,400,000. All three Mortgage Loans are secured by cross- collateralized first mortgages on the Partnership's shopping centers.
The Mortgage Loans and related terms at December 31, 2000 are summarized as follows:
Principal Monthly Balance at Payments of December Interest Principal Property/Location 31, 2000 Rate % and Interest ----------------- -------------- ------ ------------ Searcy, AR $2,780,475 8.125 $21,640 Valencia, CA 8,105,294 8.125 65,881 Green Valley, AZ 5,244,964 8.250 41,252 --------- ------ Total $16,130,733 $128,773 ========== =======
The Mortgage Loans require payments of principal and interest through and including September 1, 2007. On October 1, 2007, the balance of principal and interest estimated to be $2,505,981, $7,003,227, and $4,738,096 for the Searcy, Valencia and Green Valley Properties, respectively, will be due and payable. Subsequent to October 31, 2003 and prior to May 31, 2007 each Mortgage Loan may be prepaid in whole but not in part on any payment date with a prepayment penalty equal to the greater of (i) 1% of the outstanding principal balance at such time, or (ii) the excess, if any, of the present value of the remaining scheduled principal and interest payments (including any balloon payment) over the amount of principal being prepaid. The Mortgage Loans may be prepaid without penalty on any payment date after May 31, 2007.
The scheduled principal payments of the Mortgage Loans at December 31, 2000 are as follows:
Year Ending December 31 Amount ----------- ------- 2001 $218,023 2002 236,758 2003 257,101 2004 275,482 2005 302,865 Thereafter 14,840,504 ---------- Total $16,130,733 ==========
In connection with the Green Valley Mortgage Loan, the Partnership has deposited $150,000 into an escrow account with the Lender. The funds held in this escrow account may be released upon the execution of a new lease for specified vacant anchor tenant space, with a termination date of July 31, 2004 or later, and the satisfaction of certain other conditions related thereto.
CM Plus Corporation, the general partner of the Partnership, guarantees certain limited recourse obligations under the Mortgage Loans.
7. Fair Value of Financial Instruments
The following estimated fair value were determined by the Partnership using available market information and valuation methodologies considered appropriate by management. However, considerable judgement is necessary to interpret and apply market data to develop specific fair value estimates for given financial instruments, and the use of different market assumptions and/or estimation methodologies could have a material effect on reported fair value amounts. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the Partnership's financial instruments.
Cash and cash equivalents, accounts receivable and accrued expenses and other liabilities are reflected in the balance sheets at cost, which is considered by management to reasonably approximate fair value due to their short term nature.
The Partnership estimates the fair value of its long term fixed rate Mortgage Loans generally using discounted cash flow analysis based on current rates for similar types of debt. At December 31, 2000, the fair value of the Mortgage Loans was estimated to be $15,218,728 compared to a carrying value amount of $16,130,733. The fair value estimates presented herein are based on information available as of December 31, 2000. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, a comprehensive re-evaluation of all of the Properties has not been performed for purposes of these financial statement disclosures.
8. Commitments and Contingencies
During February 1999, the Partnership received notice from Abco, a principal anchor tenant at the Green Valley Property, that Abco would not be renewing its lease at the expiration of its current term on July 31, 1999. Abco vacated its space in May, 1999. No replacement tenant has yet been identified. Many of the tenants at the Green Valley Property have short term leases. It is not possible to determine the long-term effects of the vacancy of the Abco space. Currently, however, the vacancy of this anchor tenant space did not have a material adverse effect on the results of operations at the Green Valley Property by impairing the Partnership's ability to retain other tenants or to renew their leases on favorable terms, by reducing traffic at the Property and negatively affecting percentage rents. In addition, the Partnership will incur expenses in releasing the Abco space and
cannot predict how soon such space will be leased and the terms of such new lease. Currently, approximately $150,000 of the Partnership's working capital is being held in escrow in connection with the refinancing by the holder of the first mortgage on the Green Valley Property (the "Lender") pending the resolution of this anchor space vacancy.
Investments in real property create a potential for environmental liability on the part of the owner, operator or developer of such real property. If hazardous substances are discovered on or emanating from any of the Properties, the Partnership and/or others may be held strictly liable for all costs and liabilities relating to the clean-up of such hazardous substances, even if the problem was caused by another party or a tenant. The Partnership is not aware of any existing environmental conditions that will have a material effect on the financial statements.
From time to time, the Partnership is exposed to claims, regulatory, and legal actions in the normal course of business, some of which are initiated by the Partnership. At December 31, 2000, management believes that any such outstanding issues will be resolved without significantly impairing the financial condition of the Partnership.