Item 1. Business.
Atlantic Realty Trust, a Maryland real estate investment trust (together with its subsidiary, the "Trust"), was organized pursuant to a Declaration of Trust dated July 27, 1995 (as amended, the "Declaration of Trust"). The principal office of the Trust is located at 747 Third Avenue, New York, New York 10017.
The Trust commenced operations on May 10, 1996 as a result of a spinoff (the "Spin-Off Transaction") from RPS Realty Trust ("RPS"). The Spin-Off Transaction was consummated in order to permit RPS to complete an acquisition (the "Ramco Acquisition") of assets from Ramco Gershenson, Inc. and its affiliates ("Ramco"), which permitted RPS to become an equity shopping center real estate investment trust (a "REIT"). RPS undertook the Spin-Off Transaction because Ramco was unwilling to consummate the Ramco Acquisition if the assets that were contributed by RPS to the Trust (the "Trust Assets") remained in RPS. Pursuant to the Spin-Off Transaction, the board of trustees of RPS approved a distribution of one common share of beneficial interest (the "Shares") of the Trust for every eight shares of beneficial interest of RPS (the "Distribution").
Under the provisions of its Declaration of Trust, the Trust was to continue for a period of 18 months from May 10, 1996, during which time it was to reduce to cash or cash equivalents the Trust Assets and either (i) make a liquidating distribution to its shareholders or (ii) agree to merge or combine operations with another real estate entity, in either case, as soon as practicable following the Distribution and within such 18-month period. Such 18-month period was subject to extension if (i) the Trust had not achieved its objective and the holders of at least two-thirds of the outstanding Shares approved the extension of such date or (ii) a contingent tax liability relating to RPS that has been assumed by the Trust had not been satisfactorily resolved. Because the RPS Tax Issues (as defined below) have not yet been satisfactorily resolved, the Trust has continued its business past such 18-month period. The Trust cannot currently estimate the timing of the future satisfactory resolution of the RPS Tax Issues. Accordingly, the Trust will continue until there is a final determination of these issues. Upon obtaining a satisfactory resolution to the RPS Tax Issues and liquidating the Trust's remaining assets, any liquidating distribution effected by the Trust would be subject to the satisfaction of the Trust's liabilities to its creditors. In the event that at the end of this period, the Trust is unable to achieve its business objectives, the members (the "Trustees") of the Trust's board of trustees (the "Board of Trustees") will appoint an independent third party to liquidate the Trust's remaining assets.
As a result of the Spin-Off Transaction, the Trust acquired the Trust Assets. The Trust Assets which have not been disposed of by the Trust are described below under "-- Description of Trust Assets." The Trust's principal investment objective is to maximize shareholder value from the reduction of the Trust Assets to cash or cash equivalents. As part of its plan to liquidate the Trust Assets to cash or cash equivalents, the Trust intends, among other things, and subject to the Internal Revenue Service's ("IRS") continuing review of its audit of RPS (as more fully described below under "-- Tax Contingency") to continue to: (i) contact strategic buyers of the Trust's remaining asset (the Hylan Plaza Shopping Center, located in Staten Island, New York (the "Hylan Center")) regarding possible sales transactions and (ii) list the Hylan Center for sale with qualified real estate brokers. No assurance can be given, however, that such objective will be achieved. The Trust expects to continue to invest the net proceeds from sales of the Trust Assets in short-term or temporary investments, such as certificates of deposit, pass-through mortgage-backed certificates, mortgage participation certificates and mortgaged-backed securities (or similar investment products), all or some of which investments may be guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. Unless otherwise approved by the shareholders, the
Trust does not expect that it will make new permanent investments or raise additional capital. In addition, the Trust does not expect to acquire additional mortgage loans or properties.
In addition, the Trust may explore the possibility of merging or entering into a business combination with another real estate entity. The Trust expects that it will pursue such a transaction only if it represents an attractive alternative to the distribution to shareholders of the net proceeds from the orderly liquidation of the Trust Assets, as described above. The merger candidates that may be available to the Trust may be limited as a result of the amount of cash and the nature of the assets which the Trust will hold. Accordingly, there can be no assurance that the Trust will successfully merge or combine operations with another real estate entity. Because the Trust has adopted a policy not to re-invest sales proceeds in additional mortgage loans on real estate (except to the extent necessary to satisfy applicable REIT requirements), a merger or other business combination involving the Trust and another real estate entity may constitute a "roll-up transaction" under applicable securities laws. In such case, the Trust would be required to comply with the heightened disclosure rules as well as special rules relating to the proxy solicitation process and the listing of the securities of the surviving company on any exchange or the inclusion for quotation of such securities on the Nasdaq Small Cap Market. Application of the roll-up rules to a company merger or business combination could delay, defer or prevent such a transaction from occurring.
The Trust was organized for the purpose of qualifying as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). The Trust will elect to qualify as a REIT for the year ended December 31, 2001 and intends to operate so as to continue to qualify as a REIT.
As of December 31, 2001, the Trust had six employees.
Description of Trust Assets
As of December 31, 2001, the Trust owned and operated one real property, the Hylan Center and held short-term investments in the principal amount of approximately $22,750,000, consisting primarily of a certificate of deposit at a major New York bank.
Real Property Investment
The Hylan Plaza Shopping Center. At December 31, 2001, the Trust held an equity investment in one property, the Hylan Center. The Hylan Center is a one-story community shopping center located in Staten Island, New York which was acquired by the Trust in April, 1996. The Hylan Center contains approximately 350,000 square feet of leasable space approximately 99% of which was leased and occupied as of December 31, 2001. Major tenants (i.e., tenants who accounted for 10% or more of the leasable space as of December 31, 2001) include K-Mart Corp., a department store chain ("K-Mart"), Supermarkets General Corp. d/b/a Pathmark, a supermarket chain ("Pathmark"), and the Toys "R" Us -- Nytex, Inc., a retail toy store chain ("Toys "R" Us"). These three tenants lease approximately 105,000, 55,000 and 42,000 square feet, respectively, which constitutes 30%, 16% and 12%, respectively, of the total leasable space. The K- Mart lease expires in January 2002 and provides for annual base rental payments of approximately $235,000; the Pathmark lease expires in January 2002 and provides for annual base rental payments of approximately $339,000; and the Toys "R" Us lease expires in October 2005 and provides for annual base rental payments of approximately $90,000. The K-Mart lease contains three 5-year tenant renewal options; the Pathmark lease contains seven 5-year tenant renewal options; and the Toys "R" Us lease contains one 10-year tenant renewal option. Both the K-Mart and the Pathmark leases were extended for one additional 5-year term. Leases for approximately 13, 277 square feet are due to expire on or prior to December 31, 2002. The approximate base
rental revenue as of December 31, 2001 was approximately $3,791,208. The average base rental revenue per leased square foot as of December 31, 2001 was $10.83, excluding percentage rent and similar provisions. The Trust believes the property is adequately covered by insurance. As of December 31, 2001, the estimated net realizable value of the Hylan Center was approximately $39,520,000, including estimated cash flows using a disposition period of 9 months. Realized values may differ depending on actual disposition results and time periods.
Under various federal, state, and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with the ownership, operation and management of the Hylan Center, the Trust may be potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. Certain environmental laws and common law principles could also be used to impose liability for release of an exposure to hazardous substances, including asbestos-containing materials ("ACMs") into the air, and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances, including ACMs. As the owner of the Hylan Center, the Trust may be potentially liable for any such costs.
Qualification as a REIT
The Trust intends to qualify as a REIT for federal income tax purposes. If the Trust so qualifies, amounts paid by the Trust as distributions to its shareholders will not be subject to corporate income taxes. For any year in which the Trust does not meet the requirements for electing to be taxed as a REIT, it will be taxed as a corporation.
The requirements for qualification as a REIT are contained in Sections 856-860 of the Code and the regulations promulgated thereunder. The following discussion is a brief summary of some of those requirements. Such requirements include certain provisions relating to the nature of a REIT's assets, the sources of its income, the ownership of its stock, and the distribution of its income. Among other things, at the end of each fiscal quarter, at least 75% of the value of the total assets of the Company must consist of real estate assets (including interests in mortgage loans secured by real property and interests in other REITs, as well as cash, cash items and government securities) (the "75% Asset Test"). There are also certain limitations on the amount of other types of securities which can be held by a REIT. Additionally, at least 75% of the gross income of the Company for the taxable year must be derived from certain sources, which include "rents from real property," and interest secured by mortgages on real property. An additional 20% of the gross income of the Company must be derived from these same sources or from dividends, interest from any source, or gains from the sale or other disposition of stock or securities or any combination of the foregoing.
The Trust may invest the proceeds derived from the sale or other disposition of the Trust Assets in pass-through, mortgage-backed certificates, mortgage participation certificates and mortgage-backed securities, all or some of which instruments may be guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. Such instruments produce qualifying income for REIT qualification purposes and also satisfy the requirements of the 75% Asset Test. A REIT is also required to distribute at least 95% (90% for taxable years beginning after December 31, 2000) of its REIT Taxable Income (as defined in the Code) to its shareholders.
Tax Contingency
During the third quarter of 1994, RPS held more than 25% of the value of its gross assets in overnight Treasury Bill reverse repurchase transactions which the IRS may view as non-qualifying assets for the purposes of satisfying an asset qualification test applicable to REITs, based on a Revenue Ruling published in 1977 (the "Asset Issue"). RPS requested that the IRS enter into a closing agreement with RPS that the Asset Issue would not impact RPS' status as a REIT. The IRS declined such request. In February 1995, the IRS initiated an examination of the 1991-1995 income tax returns of RPS (the "RPS Audit" and, together with the Asset Issue, the "RPS Tax Issues"). Based on developments in the law which occurred since 1977, RPS' tax counsel at that time, Battle Fowler LLP, rendered an opinion that RPS' investment in Treasury Bill repurchase obligations would not adversely affect its REIT status. However, such opinion is not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax liability arising out of the RPS Tax Issues (other than liability that relates to events occurring or actions taken by RPS following the date of the Spin-Off Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS and the Trust. Such agreement provides that RPS (now named Ramco-Gershenson Properties Trust), under the direction of four trustees, three of whom are also trustees of the Trust (the "Continuing Trustees") and not the Trust, will control, conduct and effect the settlement of any tax claims against RPS relating to the RPS Tax Issues. Accordingly, the Trust does not have any control as to the timing of the resolution or disposition of any such claims and no assurance can be given that the resolution or disposition of any such claims will be on terms or conditions as favorable to the Trust as if they were resolved or disposed of by the Trust.
RPS and the Trust also have received an opinion from Wolf, Block, Schorr and Solis-Cohen LLP (the "Special Tax Counsel") that, to the extent there is a deficiency in RPS distributions arising out of the IRS examination, and provided RPS timely makes a deficiency dividend (i.e. declares and pays a distribution which is permitted to relate back to the year for which each deficiency was determined to satisfy the requirement that a REIT distribute ninety-five percent (95%) of its taxable income), the classification of RPS as a REIT for the taxable years under examination would not be affected.
As of December 31, 2001, the Trust has not been required to perform its indemnity obligation with respect to the RPS Tax Issues other than with respect to the payment of legal fees and expenses incurred in connection with the IRS' ongoing examination. On March 1, 1999, the IRS revenue agent conducting the examination issued his examination report (the "Original Revenue Agent's Report") with respect to the tax issues in the RPS Tax Audit, including the RPS Tax Issues. The Original Revenue Agent's Report set forth a number of positions which the IRS examining agent took with respect to the RPS Tax Issues for the years that are subject to the RPS Tax Audit, which Special Tax Counsel to the Continuing Trustees believes are not consistent with applicable law and regulations of the IRS. One of the positions, the acquisition of assets by RPS that could be viewed as non-qualifying assets for REIT purposes, has been addressed in the opinion letter of counsel referred to above. In addition, the IRS revenue agent proposed to disallow the deductions for bad debts and certain other items claimed by RPS in the years under examination. In reaching his conclusion with respect to the deduction for bad debts, the IRS revenue agent disregarded the fact that the values actually obtained for the assets corresponded to the values used by RPS in determining its bad debt deductions. The issuance of the Original Revenue Agent's Report constituted only the first step in the IRS administrative process for determining whether there is any deficiency in RPS' tax liability for the years at issue and any adverse determination by the IRS revenue agent is subject to administrative appeal with the IRS and, thereafter, to judicial review. As noted above, the Original Revenue Agent's Report set forth a number of positions which Special Tax Counsel to RPS and the Trust believe are not consistent with applicable law and regulations of the IRS. RPS filed an administrative appeal (the "Protest") challenging the findings contained in the Original
Revenue Agent's Report. The appellate conferee to whom the administrative appeal was assigned reviewed the Original Revenue Agent's Report and the Protest and, rather than considering the appeal further, returned the case to the revenue agent for further factual development. During a meeting with the Special Tax Counsel to the Continuing Trustees, the appellate conferee indicated that, even assuming the assertions in the Original Revenue Agent's Report justified the disallowances, he was required to return the case to the revenue agent because the facts necessary to sustain the assertions in the Report had not been established to the degree necessary to permit the consideration of the case on appeal. In response, the revenue agent requested information in accordance with the directions of the appellate conferee and, although much of the information was examined by the agent previously, RPS responded to the new request.
On October 29, 2001, the IRS issued a new Revenue Agent's Report (the "New Revenue Agent's Report") with respect to the issues presented by the Tax Audit. The amount of the proposed adjustments to the taxable income of RPS and the amount of the additional taxes asserted as being due from RPS, for the years under examination in the New Revenue Agent's Report, include all of the amounts included in the Original Revenue Agent's Report. In addition, the IRS has proposed to disallow the loss claimed by RPS on the disposition of the fee title interest in a property (acquired by RPS in 1992 at foreclosure) that was made to an unrelated third-party. This results in the disallowance of a loss claimed by RPS in 1994 in the approximate amount of $1,810,000. The New Revenue Agent's Report asserts additional grounds in support of the disallowance of the RPS bad debt deductions in the years under examination. If all of the positions taken in the New Revenue Agent's Report were to be sustained, RPS, with funds which could be supplied by the Trust, would have to distribute up to approximately $16.5 million to its shareholders, in accordance with the procedures for deficiency dividends, in order to preserve its status as a REIT and could, in addition, be subject to taxes, interest and penalties up to approximately $39.4 million through March 31, 2002. The Trust has been advised that Ramco-Gershenson Properties Trust timely filed a new administrative appeal (the "New Protest") challenging the determinations made. No action has been taken by the IRS with respect to the New Protest.
Segment Information
The Trust considers its business to include one industry segment, investment in real estate.
Item 2.
Item 2. Properties.
The Trust leases approximately 4,800 square feet of office space at 747 Third Avenue, New York, New York at an annual base rent of approximately $305,000. This lease will expire on October 31, 2003. In addition, the Trust owns and operates the Hylan Center property described under Item 1.
Item 3.
Item 3. Legal Proceedings.
There are no material pending legal proceedings other than ordinary routine litigation incidental to the business (including without limitation, foreclosure proceedings), against or involving the Trust or its properties.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
The Trust did not submit any matter to a vote of its shareholders during the fourth quarter of 2001.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information
The Shares of the Trust have been included for quotation on the Nasdaq SmallCap Market under the symbol ATLRS. Set forth below is the range of high and low bid prices for the shares for each of the quarters during the years ended December 31, 2001 and 2000.
High Low ---- ---
First Quarter 2000 $7.750 $6.500
Second Quarter 2000 $8.250 $6.812
Third Quarter 2000 $8.560 $5.531
Fourth Quarter 2000 $8.625 $7.750
First Quarter 2001 $8.625 $6.750
Second Quarter 2001 $9.906 $7.500
Third Quarter 2001 $9.250 $7.719
Fourth Quarter 2001 $8.906 $7.578
(b) Approximate Number of Equity Security Holders
Approximate Number of Record Holders Title of Class (As of March 15, 2002) - -------------- ----------------------
Shares of beneficial interest, $.01 par value 2,788
(c) Dividend Information
Under the Code, a REIT must meet certain qualifications including a requirement that it distribute annually to its shareholders at least 95% of its REIT Taxable Income (90% for taxable years beginning after December 31, 2000). The Trust has continued the cash distribution policy of the predecessor programs by making quarterly distributions to its shareholders in amounts such that annual distributions equal 100% of REIT Taxable Income, thereby complying with the distribution requirements of the federal income tax laws applicable to REITs. See "Qualification as a REIT" in Item 1 above.
The Trust paid distributions of $.76, $.86 and $.28 per share for the years ended December 31, 2001, 2000 and 1999 respectively. Such distributions represent ordinary income.
Item 6.
Item 6. Selected Financial Data.
The following tables set forth certain selected historical information for the Trust. The financial information should be read in conjunction with the financial statements and notes thereto included herein.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Liquidation Activities.
Capital Resources and Liquidity -- Atlantic Realty Trust
The Trust's primary objective has been to liquidate its assets in an eighteen-month period from the date of the Spin-Off Transaction while realizing the maximum values for such assets; however because the RPS Tax Issues have not been satisfactorily resolved, the Trust has continued its business beyond such period. Although the Trust considers its assumptions and estimates as to the values and timing of such liquidations to be reasonable, the period of time to liquidate the assets and distribute the proceeds of such assets is subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Trust's control. There can be no assurance that the net values ultimately realized and costs actually incurred for such assets will not materially differ from the Trust's estimate. The Trust does not intend to make new loans or actively engage in either the mortgage lending or the property acquisition business.
The Trust believes that cash and cash equivalents on hand, proceeds generated by the real estate property that it owns and operates (the Hylan Center) and proceeds from the eventual sale of such property will be sufficient to support the Trust and meet its obligations. As of December 31, 2001, the Trust had approximately $23,400,000 in cash and short-term investments.
During the first quarter of 1998, the Trust received net proceeds of approximately $3,242,000 from the sale of the Norgate Shopping Center. Following such sale, the Trust's sole remaining property was the Hylan Center.
The Trust will liquify its investment in the Hylan Center upon resolution of the RPS Tax Issues.
New Accounting Pronouncements -- SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), was adopted by the Trust as of January 1, 2001. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Because the Trust does not currently utilize derivative instruments or engage in hedging activities, the implementation of this standard had no effect on the Trust's financial statements.
In August of 2001, the Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment or Disposal of Long Lived Assets ("SFAS 144"). SFAS 144 was adopted by the Trust as of January 1, 2002, and supercedes existing accounting literature dealing with impairment and disposal of long-lived assets, including discontinued operations. It addresses financial accounting and reporting for the impairment of long-lived assets to be disposed of, and expands current reporting for discontinued operations to include disposals of "component" of an entity that has been disposed of or is classified as held for sale. The implementation of this standard did not have an impact on the Trust's financial statements.
Results of Operations
Period from January 1, 1999 to December 31, 1999, January 1, 2000 to December 31, 2000 and January 1, 2001 to December 31, 2001.
As a result of the spin-off transaction, the Trust has adopted the liquidation basis of accounting. The liquidation basis of accounting is appropriate when liquidation appears imminent and the Trust is no longer viewed as a going concern. The Trust's income or loss is included in the adjustments to reflect liquidation basis of accounting. Net income for the years ended December 31, 2001, 2000 and 1999 was approximately $2,701,000, $3,045,000 and $2,600,000 respectively.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
See pages through, which are included herein.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The Board of Trustees is composed of six Trustees, each of whom will serve until the respective successors are elected and qualified.
The Trustees and executive officers of the Trust are as follows:
_____________________________ * Designates status as a Continuing Trustee.
Committees of the Board of Trustees
The Audit Committee of the Board of Trustees (the "Audit Committee"), established on October 22, 1997, consists of three Trustees, Messrs. Blank , Goldberg and Glickman. The Audit Committee meets with management and the Trust's independent accountants to determine the adequacy of internal controls and other financial reporting matters. On February 10, 2000, Mr. Glickman was appointed as a third member of the Audit Committee in order for the Trust to be in compliance with new regulations promulgated by the Securities and Exchange Commission and the NASDAQ Stock Market regarding the size, duties and responsibilities of audit committees of public companies.
The Disposition Committee of the Board of Trustees (the "Disposition Committee"), established in July 1996, consists of three Trustees, Messrs. Blumenfeld, Glickman and Blank. The Disposition Committee works with management in connection with the orderly disposition of the Trust's assets.
Item 11.
Item 11. Executive Compensation.
Executive Officers
Mr. Pashcow receives no cash compensation for serving as an executive officer of the Trust. Mr. Frankel receives compensation of approximately $173,000 per annum pursuant to an employment contract entered into between the Trust and Mr. Frankel on June 11, 1998, as more fully described below.
SUMMARY COMPENSATION TABLE
__________________
* No other executive officer received compensation in excess of $100,000. ** Includes approximately $1,000 in imputed interest under the Frankel Note (as defined below).
The Trust had no compensation committee, however all of the Trustees participated in deliberations of the Trustees concerning executive officer compensation.
On June 11, 1998, the Trust entered into an employment agreement with Mr. Frankel (the "Frankel Employment Agreement"), which provided Mr. Frankel with a base salary of $158,000 (as adjusted from time to time, the "Base Salary") per annum. The term of the Frankel Employment Agreement is from June 11, 1998 until the date of a "change of control" of the Trust (as defined in the Frankel Employment Agreement) unless earlier terminated by either Mr. Frankel or the Trust upon written notice. The Frankel Employment Agreement also provides that Mr. Frankel will be entitled to a one-time payment upon the liquidation of the Trust or a change in control of 150% of Mr. Frankel's Base Salary as in effect at such time. In addition, the Frankel Employment Agreement provides for a loan from the Trust to Mr. Frankel in the principal amount of $37,500, which loan is evidenced by a promissory note, dated June 11, 1998, made by Mr. Frankel in favor of the Trust (the "Frankel Note"). The Frankel Note will be canceled upon the occurrence of certain conditions, including a Change of Control or liquidation of the Trust. In January, 2000, the Frankel Employment Agreement was amended to additionally provide that Mr. Frankel's estate or designated beneficiary will be entitled to receive a one time payment of 150% of his Base Salary as in effect at the time of his demise.
Trustees
The Trustees do not receive any compensation for serving as trustees and likewise will not receive any compensation for attending meetings or for serving on any committees of the Board of Trustees; however, Trustees will receive reimbursement of travel and other expenses and other out-of-pocket disbursements incurred in connection with attending any meetings.
During 2001, Messrs. Edwin Glickman and Edward Blumenfeld each earned fees of $25,000 in connection with services they provided to the Trust as Members of the Disposition Committee.
During 2000, Messrs. Edwin Glickman and Edward Blumenfeld each earned fees of $25,000 in connection with services they provided to the Trust as Members of the Disposition Committee.
During 1999, Messrs. Edwin Glickman and Edward Blumenfeld each earned fees of $60,000 in connection with services they provided to the Trust as members of the Disposition Committee.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 15, 2002, each of the following persons were known by the Trust to be the beneficial owners of more than five percent of the Shares of the Trust.
___________________
(1) Based upon Schedule 13G/A filing with the Securities and Exchange Commission, filed on February 7, 2002.
(2) Based upon Schedule 13D/A filing with the Securities and Exchange Commission, filed on August 9, 2001.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Set forth below is information as to the Shares beneficially owned as of March 14, 2001 by each of the Trustees, each of the executive officers included in the Summary Compensation Table set forth in Item 11 and all Trustees and executive officers as a group, based on information furnished by each Trustee and executive officer.
___________________
* Less than 1% of class. (1) All amounts are directly owned unless stated otherwise. (2) Includes 25,890 shares held in an IRA account for the benefit of Mr. Pashcow, a retirement savings plan, a pension and profit sharing account and a money purchase plan, 47,662 shares owned by an irrevocable trust of which Mr. Pashcow is a trustee, an irrevocable trust for his daughter and a foundation of which Mr. Pashcow is trustee (for all of which trusts Mr. Pashcow has shared voting and investment powers). Mr. Pashcow disclaims beneficial ownership of the Shares owned by the foundation and each of the trusts. (3) Includes 19,563 shares owned by Mr. Goldberg's wife, 1,875 shares owned by trusts for his daughters and 3,050 shares owned by a pension trust. Mr. Goldberg disclaims beneficial ownership of the shares owned by his wife and the trusts for his daughters. (4) Includes 706 shares owned by trusts for Mr. Blank's daughters and 275 shares held in an IRA account for the benefit of Mr. Blank. Mr. Blank disclaims beneficial ownership of the shares owned by the trusts for his daughters.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Financial Statements, Schedules and Exhibits
(a)(1) Financial Statements See pages through, which are included herein.
(a)(2) Financial Statement Schedules All schedules have been omitted because they are inapplicable, not required, or the information is included in the financial statements or notes thereto.
(a)(3) Exhibits The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as a part of this Annual Report on Form 10-K.
(b) No Current Reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ----
Consolidated Financial Statements -- Atlantic Realty Trust and Subsidiary (Liquidation Basis)
Independent Auditors' Report.................................................F-2 Consolidated Statements of Net Assets in Liquidation at December 31, 2001 and 2000..............................................F-3 Consolidated Statements of Changes in Net Assets in Liquidation for the Years Ended December 31, 2001, 2000 and 1999........F-4 Notes to Consolidated Financial Statements.................................F-5-9
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Atlantic Realty Trust
We have audited the accompanying consolidated statements of net assets in liquidation of Atlantic Realty Trust and subsidiary (the "Trust") at December 31, 2001 and 2000, and the related consolidated statements of changes in net assets in liquidation for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Trust was formed for the purpose of liquidating the mortgage loan portfolio and certain other assets and liabilities which were transferred to the Trust from RPS Realty Trust on May 1, 1996 and liquidating and distributing capital to the Trust's shareholders. As a result, the Trust adopted the liquidation basis of accounting, effective May 10, 1996.
In our opinion, such consolidated financial statements present fairly, in all material respects, the net assets in liquidation of Atlantic Realty Trust and subsidiary at December 31, 2001 and 2000 and the changes in its net assets in liquidation for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America on the basis described in the preceding paragraph.
As discussed in Notes 1 and 6 to the consolidated financial statements, because of the inherent uncertainty of valuation when an entity is in liquidation, the amounts ultimately realized from asssets disposed and costs incurred to settle liabilities may differ materially from amounts presented in the accompanying consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
New York, New York March 4, 2002
ATLANTIC REALTY TRUST AND SUBSIDIARY CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION (Liquidation Basis of Accounting)
See notes to consolidated financial statements.
ATLANTIC REALTY TRUST AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (Liquidation Basis of Accounting)
See notes to consolidated financial statements.
ATLANTIC REALTY TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Liquidation Basis of Accounting)
1. Organization and Significant Accounting Policies
Atlantic Realty Trust , a Maryland real estate investment trust (the "Trust"), was formed on July 27, 1995 for the purpose of liquidating its interests in real properties, its mortgage loan portfolio and certain other assets and liabilities which were transferred to the Trust from Ramco-Gershenson Properties Trust (formerly named RPS Realty Trust) ("RPS") on May 10, 1996 (the "Spin-Off Transaction"). The Trust had no operations from the date of formation to the date of the Spin-Off Transaction. The Trust adopted the liquidation basis of accounting as of the date of the Spin-Off Transaction based on its intention to liquidate its assets or merge or combine operations with another real estate entity within eighteen months from the date of the Spin-Off Transaction. The Trust intends to conduct its operations with the intent of meeting the requirements applicable to a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a result, the Trust will have no current or deferred income tax liabilities.
Liquidation Basis of Accounting -- As a result of the Spin-Off Transaction, the Trust has adopted the liquidation basis of accounting. The liquidation basis of accounting is appropriate when liquidation appears imminent and the Trust is no longer viewed as a going concern. Under this method of accounting, assets are stated at their estimated net realizable values and liabilities are stated at the anticipated settlement amounts.
The valuations presented in the accompanying Consolidated Statements of Net Assets in Liquidation represent the estimates at the dates shown, based on current facts and circumstances, of the estimated net realizable value of the assets and estimated costs of liquidating the Trust. In determining the net realizable values of the assets, the Trust considered each asset's ability to generate future cash flows, offers to purchase received from third parties, if any, and other general market information. Such information was considered in conjunction with operating the Trust's plan for disposition of assets. The estimated costs of liquidation represent the estimated cost of operating the Trust through its anticipated termination. These costs primarily include payroll, consulting and related costs, rent, shareholder relations, legal and auditing. Changes in these costs during the periods presented are reflected in the adjustments to reflect liquidation basis of accounting. Computations of net realizable value necessitate the use of certain assumptions and estimates. Future events, including economic conditions that relate to real estate markets in general, may differ from those assumed or estimated at the time such computations are made. Because of inherent uncertainty of valuation when an entity is in liquidation, the amounts ultimately realized from assets disposed and costs incurred to settle liabilities may materially differ from amounts presented.
Pursuant to the terms of the Trust's Amended and Restated Declaration of Trust, the Trust was to continue for a period of 18 months from the date of the Spin-Off Transaction, subject to, among certain other things, satisfactory resolution of the RPS Tax Issues (as such term is defined in footnote 6). Because the RPS Tax Issues have not yet been satisfactorily resolved, the Trust has continued its business past that date. The Trust cannot currently estimate the timing of the future satisfactory resolution of the RPS Tax Issues. Accordingly, the Trust will continue until there is a final determination of these issues.
ATLANTIC REALTY TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Liquidation Basis of Accounting)
Consolidation -- The consolidated financial statements include the accounts of the Trust and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
2. Investment in Real Estate
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(a) Includes estimated cash flows using a disposition period of nine months. Realized values may differ depending on actual disposition results and time periods. (b) The operations of the Trust and the Hylan Shopping Center for the years ended December 31, 2001 and December 31, 2000 are as follows:
3. Shares Outstanding
The weighted average number of common shares outstanding for each of the periods ended December 31, 2001, 2000, and 1999 was 3,561,553.
4. Cash and Short-Term Investments
Cash and short-term investments at December 31, 2001 and 2000, consist primarily of certificates of deposit at a major New York bank of $22,750,000 and $22,500,000, respectively, purchased with original maturities of three months or less, bearing interest at a fixed rate of 1.45% and 5.30%, respectively.
5. Other Assets
Other assets include the estimated interest income from the Trust's short-term investments.
ATLANTIC REALTY TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Liquidation Basis of Accounting)
6. Income Taxes
Even though the Trust will not be subject to income taxes as discussed in Note 1, since the Trust is a public enterprise it is required to reconcile the net difference between the assets and liabilities for tax purposes and financial reporting, in accordance with the Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes." Net differences in basis are not material.
During the third quarter of 1994, RPS held more than 25% of the value of its gross assets in overnight Treasury Bill reverse repurchase transactions which the IRS may view as non-qualifying assets for the purposes of satisfying an asset qualification test applicable to REITs, based on a Revenue Ruling published in 1977 (the "Asset Issue"). RPS requested that the IRS enter into a closing agreement with RPS that the Asset Issue would not impact RPS' status as a REIT. The IRS declined such request. In February 1995, the IRS initiated an examination of the 1991-1995 income tax returns of RPS (the "RPS Audit" and, together with the Asset Issue, the "RPS Tax Issues"). Based on developments in the law which occurred since 1977, RPS' tax counsel at that time, Battle Fowler LLP, rendered an opinion that RPS' investment in Treasury Bill repurchase obligations would not adversely affect its REIT status. However, such opinion is not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax liability arising out of the RPS Tax Issues (other than liability that relates to events occurring or actions taken by RPS following the date of the Spin-Off Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS and the Trust. Such agreement provides that RPS (now named Ramco-Gershenson Properties Trust), under the direction of four trustees, three of whom are also trustees of the Trust (the "Continuing Trustees") and not the Trust, will control, conduct and effect the settlement of any tax claims against RPS relating to the RPS Tax Issues. Accordingly, the Trust does not have any control as to the timing of the resolution or disposition of any such claims and no assurance can be given that the resolution or disposition of any such claims will be on terms or conditions as favorable to the Trust as if they were resolved or disposed of by the Trust.
RPS and the Trust also have received an opinion from Wolf, Block, Schorr and Solis-Cohen LLP (the "Special Tax Counsel") that, to the extent there is a deficiency in RPS distributions arising out of the IRS examination, and provided RPS timely makes a deficiency dividend (i.e. declares and pays a distribution which is permitted to relate back to the year for which each deficiency was determined to satisfy the requirement that a REIT distribute ninety-five percent (95%) of its taxable income), the classification of RPS as a REIT for the taxable years under examination would not be affected.
As of December 31, 2001, the Trust has not been required to perform its indemnity obligation with respect to the RPS Tax Issues other than with respect to the payment of legal fees and expenses incurred in connection with the IRS' ongoing examination. On March 1, 1999, the IRS revenue agent conducting the examination issued his examination report (the "Original Revenue Agent's Report") with respect to the tax issues in the RPS Tax Audit, including the RPS Tax Issues. The Original Revenue Agent's Report set forth a number of positions which the IRS examining agent took with respect to the RPS Tax Issues for the years that are subject to the RPS Tax Audit, which Special Tax Counsel to the Continuing Trustees believes are not consistent with applicable law and regulations of the IRS. One of the positions, the acquisition of assets by RPS that could be viewed as non-qualifying assets for REIT purposes, has been addressed in the opinion letter of counsel referred to above. In addition, the IRS revenue agent proposed to disallow the deductions for bad
ATLANTIC REALTY TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Liquidation Basis of Accounting)
debts and certain other items claimed by RPS in the years under examination. In reaching his conclusion with respect to the deduction for bad debts, the IRS revenue agent disregarded the fact that the values actually obtained for the assets corresponded to the values used by RPS in determining its bad debt deductions. The issuance of the Original Revenue Agent's Report constituted only the first step in the IRS administrative process for determining whether there is any deficiency in RPS' tax liability for the years at issue and any adverse determination by the IRS revenue agent is subject to administrative appeal with the IRS and, thereafter, to judicial review. As noted above, the Original Revenue Agent's Report set forth a number of positions which Special Tax Counsel to RPS and the Trust believe are not consistent with applicable law and regulations of the IRS. RPS filed an administrative appeal (the "Protest") challenging the findings contained in the Original Revenue Agent's Report. The appellate conferee to whom the administrative appeal was assigned reviewed the Original Revenue Agent's Report and the Protest and, rather than considering the appeal further, returned the case to the revenue agent for further factual development. During a meeting with the Special Tax Counsel to the Continuing Trustees, the appellate conferee indicated that, even assuming the assertions in the Original Revenue Agent's Report justified the disallowances, he was required to return the case to the revenue agent because the facts necessary to sustain the assertions in the Report had not been established to the degree necessary to permit the consideration of the case on appeal. In response, the revenue agent requested information in accordance with the directions of the appellate conferee and, although much of the information was examined by the agent previously, RPS responded to the new request.
On October 29, 2001, the IRS issued a new Revenue Agent's Report (the "New Revenue Agent's Report") with respect to the issues presented by the Tax Audit. The amount of the proposed adjustments to the taxable income of RPS and the amount of the additional taxes asserted as being due from RPS, for the years under examination in the New Revenue Agent's Report, include all of the amounts included in the Original Revenue Agent's Report. In addition, the IRS has proposed to disallow the loss claimed by RPS on the disposition of the fee title interest in a property (acquired by RPS in 1992 at foreclosure) that was made to an unrelated third-party. This results in the disallowance of a loss claimed by RPS in 1994 in the approximate amount of $1,810,000. The New Revenue Agent's Report asserts additional grounds in support of the disallowance of the RPS bad debt deductions in the years under examination. If all of the positions taken in the New Revenue Agent's Report were to be sustained, RPS, with funds which could be supplied by the Trust, would have to distribute up to approximately $16.5 million to its shareholders, in accordance with the procedures for deficiency dividends, in order to preserve its status as a REIT and could, in addition, be subject to taxes, interest and penalties up to approximately $39.4 million through March 31, 2002. The Trust has been advised that Ramco-Gershenson Properties Trust timely filed a new administrative appeal (the "New Protest") challenging the determinations made. No action has been taken by the IRS with respect to the New Protest.
7. Dividends/Distributions to Shareholders
Under the Internal Revenue Code, a REIT must meet certain qualifications, including a requirement that it distribute annually to its shareholders at least 95 percent (90% for taxable years beginning after December 31, 2000) of its REIT taxable income. The Trust's policy is to distribute to shareholders all taxable income. There were no dividends in 1998. Dividend distributions for the years ended December 31, 2001, 2000 and 1999 are summarized as follows:
ATLANTIC REALTY TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Liquidation Basis of Accounting)
Record Date Distribution Payment ----------- ------------ ------- December 14, 2001 $.76 per share December 27, 2001
December 15, 2000 $.86 per share December 28, 2000
December 15, 1999 $.28 per share December 28, 1999
8. Commitments
The Trust leases approximately 4,800 square feet of office space at 747 Third Avenue, New York, New York at an annual base rent of approximately $305,000. This lease will expire on October 31, 2003.
9. New Accounting Pronouncements
New Accounting Pronouncements -- SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), was adopted by the Trust as of January 1, 2001. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Because the Trust does not currently utilize derivative instruments or engage in hedging activities, the implementation of this standard had no effect on the Trust's financial statements.
In August of 2001, the Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment or Disposal of Long Lived Assets ("SFAS 144"). SFAS 144 was adopted by the Trust as of January 1, 2002, and supercedes existing accounting literature dealing with impairment and disposal of long-lived assets, including discontinued operations. It addresses financial accounting and reporting for the impairment of long-lived assets to be disposed of, and expands current reporting for discontinued operations to include disposals of "component" of an entity that has been disposed of or is classified as held for sale. The implementation of this standard did not have an impact on the Trust's financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of March, 2002.
ATLANTIC REALTY TRUST
Date: March 27, 2002 By: /s/ Joel M. Pashcow ------------------- Name: Joel M. Pashcow Title: President and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ----
/s/ Joel M. Pashcow President and Chairman March 27, 2002 - ------------------- of the Board Joel M. Pashcow
/s/ Edwin R. Frankel Executive Vice President, March 27, 2002 - -------------------- Chief Financial Officer, Edwin R. Frankel Secretary and Principal Financial and Accounting Officer
/s/ Edwin J. Glickman Trustee March 27, 2002 - --------------------- Edwin J. Glickman
/s/ Stephen R. Blank Trustee March 27, 2002 - -------------------- Stephen R. Blank
/s/ Edward Blumenfeld Trustee March 27, 2002 - --------------------- Edward Blumenfeld
/s/ Arthur H. Goldberg Trustee March 27, 2002 - ---------------------- Arthur H. Goldberg
/s/ William A. Rosoff Trustee March 27, 2002 - ---------------------- William A. Rosoff
Exhibit Index
The following exhibits are filed as part of this Annual Report on Form 10-K.
Exhibit No. Description - ----------- -----------
3.1 Amended and Restated Declaration of Trust of the Trust (Incorporated by reference to the Trust's definitive registration statement on Form 10, dated March 28, 1996, File No. 0-27562, Exhibit 3.1).
3.2 Restated By-Laws of the Trust (Incorporated by reference to the Trust's definitive registration statement on Form 10, dated March 28, 1996, File No. 0-27562, Exhibit 3.2).
3.3 First Amendment to Amended and Restated Declaration of Trust of the Trust (Incorporated by reference to the Trust's definitive registration statement on Form 10, dated March 28, 1996, File No. 0-27562, Exhibit 3.3).
4.1 Form of Share Certificate (Incorporated by reference to the Trust's definitive registration statement on Form 10, dated March 28, 1996, File No. 0-27562, Exhibit 4.1).
10.1 Lease Agreement, dated as of January 16, 1997, by and between Sage Realty Corporation, as the lessor, and the Trust, as the lessee (Incorporated by reference to the Trust's annual report on Form 10-K for the year ended December 31, 1996, File No. 0- 27562, Exhibit 10.1).
10.2 Form of Assignment, Assumption and Indemnification Agreement between RPS Realty Trust and the Trust (Incorporated by reference to the Trust's definitive registration statement on Form 10, dated March 28, 1997, File No. 0-27562, Exhibit 10.1).
10.3 Form of Tax Agreement between RPS Realty Trust and the Trust (Incorporated by reference to the Trust's definitive registration statement on Form 10, dated March 28, 1996, File No. 0-27562, Exhibit 10.2).
10.4 Form of Information Statement (Incorporated by reference to the Trust's definitive registration statement on Form 10, dated March 28, 1996, File No. 0-27562, Exhibit 20.1).
10.5 Employment Agreement, dated as of June 11, 1998, by and between the Trust and Edwin R. Frankel (Incorporated by reference to the Trust's quarterly report on Form 10-Q for the three months ended June 30, 1998, File No. 0-27562, Exhibit 10.1).
10.6 Amendment to Employment Agreement, dated as of January 29, 2000, by and between the Trust and Edwin R. Frankel (Incorporated by reference to the Trust's annual report on Form 10-K, for the year ended December 31, 2000, File No. 0-27562, Exhibit 10.6).
10.7 Amended and Restated Standstill Agreement, dated as of July 21, 2000, by and among Atlantic Realty Trust, on the one hand, and Kimco Realty Corporation, Kimco Realty
Services, Inc. and Milton Cooper, on the other hand.
21.1 Subsidiary of the Registrant (incorporated by reference to the Trust Annual Report on 10-K, for the year ended December 31, 1999, File No.0-27562, Exhibit 21.1).