Item 1. Business - ----------------
Outlet Centre Partners (the "Registrant") is a limited partnership formed in 1987 under the laws of the State of Illinois, which raised $30,000,000 from sales of Limited Partnership Interests. The Registrant owns (through subsidiaries) the Factory Outlet Centre (the "Centre") located in Bristol, Wisconsin as described under "Item 2.

Item 2. Property - ----------------
The Registrant owns, in fee simple, the Factory Outlet Centre, a regional enclosed mall containing approximately 310,000 square feet located on approximately 33 acres in Bristol, Wisconsin.
The average occupancy rate and the effective average rent per square foot for each of the last five years for the property owned by the Registrant at December 31, 1996, is described below. No tenant occupies 10% or more of the leasable square feet of the property. 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Factory Outlet Centre Occupancy rate 83% 86% 91% 90% 90% Effective rent $11.44 $10.83 $10.61 $9.69 $10.61
The Centre is held subject to a mortgage loan, as described in more detail in Note 5 of Notes to Financial Statements.
Real estate taxes incurred in 1996 for the above property totaled $567,357.
The Federal tax basis of the Registrant's property totaled $30,570,335 as of December 31, 1996. For Federal income tax purposes, the acquisition costs of the property is depreciated over a useful life ranging from 19 to 40 years, using the straight-line method. Other minor assets are depreciated over their applicable recovery periods.
In the opinion of the General Partner, the Registrant has provided for adequate insurance coverage for the Centre.
See Notes to Financial Statements for other information regarding the property investment.
Item 3.

Item 3. Legal Proceedings - -------------------------
Proposed class action - ---------------------
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein vs. Lehman Brothers, Inc., et al., Superior Court of New Jersey, Law Division, Union County, Docket No. Unn-L-5162-96). The Registrant, additional limited partnerships which were sponsored by The Balcor Company (together with the Partnership, the "Affiliated Partnerships"), American Express Company, Lehman Brothers, Inc., additional limited partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together with the Registrant and the Affiliated Partnerships, the "Defendant Partnerships") and Smith Barney Holdings, Inc. are the named defendants in the action. The complaint was amended on October 18, 1996 to add additional plaintiffs. The amended complaint alleges, among other things, common law fraud and deceit, negligent misrepresentation, breach of contract, breach of fiduciary duty and violation of certain New Jersey statutes relating to the disclosure of information in the offering of limited partnership interests in the Defendant Partnerships. The amended complaint seeks judgment for compensatory damages equal to the amount invested in the Defendant Partnerships by the proposed class plus interest; general damages for injuries arising from the defendants' alleged actions; equitable relief, including rescission, on certain counts; punitive damages; treble damages on certain counts; recovery from the defendants of all profits received by them as a result of their alleged actions relating to the Defendant Partnerships; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been certified as of this date. The Registrant believes it has meritorious defenses to contest the claims. It is not determinable at this time whether or not an unfavorable decision in this action would have a material adverse impact on the Registrant.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders - -----------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant during 1996.
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder - ------------------------------------------------------------------------- Matters - -------
There has not been an established public market for Limited Partnership Interests and it is not anticipated that one will develop. For information regarding previous distributions, see Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.
As of December 31, 1996, the number of record holders of Limited Partnership Interests of the Registrant was 2,007.
Item 6.

Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - ---------------------
Operations - ----------
Summary of Operations - ---------------------
Property operations decreased at the Centre during 1996 as compared to 1995 and during 1995 as compared to 1994. This resulted in an increase in the Partnership's net loss during 1996 as compared to 1995 and during 1995 as compared to 1994. Further discussion of the operations of Outlet Centre Partners (the "Partnership") is summarized below.
1996 Compared to 1995 - ---------------------
The Partnership bills tenants on a monthly basis for common area maintenance, real estate taxes and other operating expenses of the Centre based on estimates. Adjustments are periodically made to these billings once the Partnership has determined the actual amounts due. The periodic adjustment of billings for real estate taxes resulted in decreased reimbursements from tenants due to a prior year's reduction in the assessed value of the Centre levied by the local taxing authority and was the primary reason service income decreased during 1996 when compared to 1995.
As a result of higher average cash balances due to interest earned on capital improvement escrows, interest income on short-term investments increased during 1996 when compared to 1995.
Increased marketing costs were incurred in order to maintain occupancy. This, along with air conditioning and ventilation repairs and upgrades and insurance deductibles paid in relation to an April 1996 storm, resulted in an increase in property operating expense during 1996 when compared to 1995.
Decreased service income, as mentioned above, resulted in a decrease in property management fees during 1996 when compared to 1995.
As a result of lower accounting, portfolio management, and legal fees incurred by the Partnership, administrative expenses decreased during 1996 when compared to 1995.
1995 Compared to 1994 - ---------------------
The Partnership bills tenants on a monthly basis for common area maintenance, real estate taxes and other operating expenses of the Centre based on estimates. Adjustments are periodically made to these billings once the Partnership has determined the actual amounts due. The periodic adjustment of billings during 1994, combined with slightly lower occupancy at the Centre during 1995, have resulted in a decrease in service income during 1995 when compared to 1994.
As a result of higher interest rates and higher average cash balances, interest income on short-term investments increased during 1995 when compared to 1994.
As a result of legal, portfolio management and other professional fees incurred during 1994 in connection with the June 1994 refinancing, administrative expenses decreased during 1995 when compared to 1994.
Liquidity and Capital Resources - -------------------------------
The cash position of the Partnership decreased by approximately $295,000 as of December 31, 1996 when compared to December 31, 1995. The Partnership generated cash flow of approximately $313,000 from its operating activities. The operating activities reflect the operations of the Centre, interest income earned on short-term investments, and the payment of administrative expenses and expenditures related to the damage caused by a storm during 1996. The Partnership expects to be reimbursed by its insurance carrier for costs of the damage, less deductibles. The Partnership used cash to fund its financing activities of approximately $609,000 which consisted of the payment of distributions totaling approximately $663,000 to Limited Partners and the payment of principal on the mortgage note payable of approximately $137,000, plus the receipt of approximately $192,000 from the Partnership's capital improvement escrow.
As of December 31, 1996, the occupancy rate at the Centre was 83%, and during each of 1996 and 1995, the Centre generated positive cash flow, which is defined as an amount equal to the property's revenue receipts less property related expenses, which include debt service payments. The Partnership is currently marketing the Centre for sale. If the property is sold, the timing of the termination of the Partnership and final distribution of cash will depend upon the nature and extent of liabilities and contingencies which exist or may arise. Such contingencies may include legal and other fees stemming from litigation involving the Partnership including, but not limited to, the lawsuit discussed in "Item 3. Legal Proceedings." In the absence of any contingency, the reserves will be paid within twelve months of the property being sold. In the event of a contingency, reserves may be held by the Partnership for a longer period of time. In light of results to date and current market conditions, the General Partner does not anticipate that investors will recover all of their original investment.
The Centre experienced a high rate of lease expirations during 1996. However, through successful leasing strategies and efforts, many tenant leases were renewed and several significant new tenants were added to the tenant mix. These leasing strategies and efforts are continuing as additional tenant leases expire. The Centre also has continued its media and marketing campaign. In addition, continued repairs and upgrades are required in order for the Centre to remain attractive to tenants and shoppers. The success of this media campaign and the leasing and repair programs will impact the level of future cash flow which may be generated by the Centre, as well as the future sale price which may be obtained by the Partnership. Lakeside Marketplace, an outlet strip center located three miles south of the Centre, has announced construction of their third phase which they anticipate to have completed by the first quarter of 1997. This 120,000 square foot expansion may impact the ability to lease the Centre as well as tenant sales.
The Partnership made distributions totaling $22.11 and $5.53 per Interest in 1996 and 1995, respectively. See Statement of Partners Capital for additional information. All of these distributions were comprised of Net Cash Receipts. In January 1994, quarterly distributions to Limited Partners were suspended in order to provide the working capital necessary to complete the refinancing of the Centre's mortgage note payable. With the completion of the refinancing in June 1994 and the subsequent replenishing of cash reserves from operations, the Partnership resumed quarterly distributions in October 1995. In January 1997, the Partnership paid $165,810 ($5.527 per Interest) to the holders of Limited Partnership Interests for the fourth quarter of 1996. Including the January 1997 distribution, Limited Partners have received distributions of Net Cash Receipts of $299.48 and Net Cash Proceeds of $263.08, totaling $562.56 per $1,000 Interest. The Partnership expects to continue making quarterly distributions from cash flow from property operations. The General Partner believes it has retained, on behalf of the Partnership, an appropriate amount of working capital to meet cash or liquidity requirements which may occur.
Inflation has several types of potentially conflicting impacts on real estate investments. Short-term inflation can increase real estate operating costs which may or may not be recovered through increased rents and/or sales prices, depending on general or local economic conditions. In the long term, inflation can be expected to increase operating costs and replacement costs and may lead to increased rental revenues and real estate values.
Comparison of Actual Operations and the Financial Forecast - ----------------------------------------------------------
The Financial Forecast and Supplemental Projections included in the Partnership's Prospectus forecasted the operations of the Partnership for a ten year period beginning January 1, 1988 and ending December 31, 1997. The Partnership incurred a net loss of $744,997 during the year ended December 31, 1996, whereas net income of approximately $1,569,000 was originally forecasted for this period. The difference was primarily a result of lower than forecasted rental income and higher expenditures related to the ongoing media and marketing campaign and various improvements at the Centre. The General Partner anticipates that the actual operations for 1997 will also be significantly lower than the forecasted operations for 1997 in the Prospectus due primarily to lower than originally forecasted rental collections.
Item 8.

Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K is not applicable.
The net effect of the differences between the financial statements and the tax returns is summarized as follows:
December 31, 1996 December 31, 1995 ----------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ---------- --------- ---------- ---------
Total assets $22,039,698 $22,394,544 $23,620,607 $27,809,423 Partners' capital (deficit): General Partner (1,162,557) (529,352) (1,155,107) (522,372) Limited Partners 9,988,382 13,801,344 11,389,169 15,000,191 Net (loss) income: General Partner (7,450) (6,980) (2,039) 1,119 Limited Partners (737,547) (535,607) (201,894) 110,800 Per Limited Partner- ship Interest (24.58) (17.85) (6.73) 3.69
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure - --------------------
Effective October 18, 1995, the Registrant has terminated its audit agreement with Arthur Andersen LLP to act as the Registrant's independent accounting firm and has engaged Coopers & Lybrand L.L.P. as its new independent accounting firm. The report of Arthur Andersen LLP on the financial statements of the Registrant for the year ended December 31, 1994 did not contain any adverse opinion or any disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. There existed no disagreements relating to any matter of accounting principles or practices, financial statement disclosures, auditing scope and procedures or compliance with applicable rules which resulted in the termination of Arthur Andersen LLP as the Registrant's independent accounting firm. The decision to change accounting firms was approved by the General Partner of the Registrant.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant - -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Partners-XXII, its General Partner, has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers and significant employees of the General Partner of the Registrant are as follows:
TITLE OFFICERS ----- -------- Chairman, President and Chief Thomas E. Meador Executive Officer Senior Vice President Alexander J. Darragh Senior Vice President James E. Mendelson Senior Vice President John K. Powell, Jr. Managing Director, Chief Jayne A. Kosik Financial Officer, Treasurer and Assistant Secretary
Thomas E. Meador (age 49) joined Balcor in July 1979. He is Chairman, President and Chief Executive Officer and has responsibility for all ongoing day-to-day activities at Balcor. He is a Director of The Balcor Company. He is also Senior Vice President of American Express Company and is responsible for its real estate operations worldwide. Prior to joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in the commercial real estate division where he was involved in various lending activities. Mr. Meador received his M.B.A. degree from the Indiana University Graduate School of Business.
Alexander J. Darragh (age 42) joined Balcor in September 1988 and is responsible for due diligence analysis and real estate advisory services for Balcor and American Express Company. He also has supervisory responsibility for Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban Geography from Queen's University and in Urban Planning from Northwestern University.
James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible for Balcor's property sales activities. He also has supervisory responsibility for Balcor's accounting, financial, treasury, investor services and investment administration functions. From 1989 to 1995, Mr. Mendelson was Vice President - Transaction Management and Vice President - Senior Transaction Manager and had responsibility for various asset management matters relating to real estate investments made by Balcor, including negotiations for the restructuring of mortgage loan investments. Mr. Mendelson received his M.B.A. degree from the University of Chicago.
John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is responsible for portfolio and asset management matters relating to Balcor's partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk management function. He received a Master of Planning degree from the University of Virginia. Mr. Powell has been designated a Certified Real Estate Financier by the National Society for Real Estate Finance and is a full member of the Urban Land Institute.
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial Officer, is responsible for Balcor's financial, human resources and treasury functions. From June 1989 until October 1996, Ms. Kosik had supervisory responsibility for accounting functions relating to Balcor's public and private partnerships. She is also Treasurer and a Managing Director of The Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any material legal proceedings nor were any such proceedings terminated during the fourth quarter of 1996.
Item 11.

Item 11. Executive Compensation - -------------------------------
The Registrant paid $990 in 1996 with respect to one of the executive officers and directors of the General Partner. The Registrant has not paid and does not propose to pay any remuneration to the remaining executive officers and directors of the General Partner. Certain of these remaining officers receive compensation from The Balcor Company (but not from the Registrant) for services performed for various affiliated entities, which may include services performed for the Registrant. However, the General Partner believes that any such compensation attributable to services performed for the Registrant is immaterial to the Registrant. See Note 8 of Notes to Financial Statements for the information relating to transactions with affiliates.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management - -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially more than 5% of the Limited Partnership Interests of the Registrant.
(b) Neither Balcor Partners-XXII nor its partners and officers own any Limited Partnership Interests of the Registrant.
Relatives and affiliates of the partners and officers of the General Partner do not own any interests.
(c) The Registrant is not aware of any arrangements, the operation of which may result in a change of control of the Registrant.
Item 13.

Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------
(a & b) See Note 8 of Notes to Financial Statements for additional information relating to transactions with affiliates.
See Note 4 of Notes to Financial Statements for information relating to the Partnership Agreement and the allocation of distributions and profits and losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14.

Item 14. Exhibits and Reports on Form 8-K - -----------------------------------------
(a) (1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership previously filed as Exhibit 3 to Amendment No. 1 to Registrant's Registration Statement on Form S-11 dated April 2, 1987 (Registration No. 33-13097), is incorporated herein by reference.
(4) Form of Subscription Agreement previously filed as Exhibit No. 4.1 to Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated April 2, 1987 (Registration No. 33-13097) and Form of Confirmation regarding Interests in the Partnership set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1992 (Commission File No. 0-16717) are incorporated herein by reference.
(16) Letter from Arthur Anderson LLP dated October 18, 1995 regarding the change in the Registrant's certifying accountant previously filed as Exhibit 16 to the Registrant's Current Report on 8-K dated October 18,1995 (Commission File No. 0-16717) is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 1996.
(c) Exhibits: See Item 14(a)(3) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of l934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
OUTLET CENTRE PARTNERS
By: /s/ Jayne A. Kosik ------------------------- Jayne A. Kosik Managing Director and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Partners-XXII, the General Partner
Date: March 26, 1997 --------------
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 - ---------------------- ------------------------------- ------------ President and Chief Executive Officer (Principal Executive Officer) of Balcor Partners-XXII, /s/Thomas E. Meador the General Partner March 26, 1997 - -------------------- -------------- Thomas E. Meador
Managing Director and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Partners-XXII, /s/Jayne A. Kosik the General Partner March 26, 1997 - -------------------- -------------- Jayne A. Kosik
Reports of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital, for the years ended December 31, 1996, 1995 and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedules:
Financial Statement Schedules are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Partners of Outlet Centre Partners:
We have audited the accompanying balance sheets of Outlet Centre Partners (an Illinois Limited Partnership) as of December 31, 1996 and 1995 and the related statements of partners' capital, income and expenses, and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 Outlet Centre Partners as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
As described in Note 2 to the financial statements, the Partnership Agreement provides for the dissolution of the Partnership upon the disposition of all interests in real estate. The Partnership is presently marketing for sale its sole real estate asset. Upon disposition of its sole real estate asset and resolution of the litigation described in Note 11 to the financial statements, the Partnership intends to cease operations and dissolve.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois March 18, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To The Partners of Outlet Centre Partners:
We have audited the statements of partners' capital, income and expenses, and cash flows of OUTLET CENTER PARTNERS (an Illinois Limited Partnership) for the year ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of OUTLET CENTRE PARTNERS for the year ended December 31, 1994 in conformity with generally accepted accounting principles.
/s/Arthur Anderson LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois February 10, 1995
OUTLET CENTRE PARTNERS (An Illinois Limited Partnership)
BALANCE SHEETS December 31, 1996 and 1995
ASSETS
1996 1995 -------------- ------------- Cash and cash equivalents $ 2,110,693 $ 2,406,064 Accounts and accrued interest receivable 329,346 40,445 Escrow deposits 786,741 961,250 Prepaid expenses 37,666 33,798 Deferred expenses, net of accumulated amortization of $207,813 in 1996 and $124,688 in 1995 207,812 290,937 -------------- ------------- 3,472,258 3,732,494 -------------- ------------- Investment in real estate: Land 2,871,183 2,871,183 Buildings and improvements 27,565,202 27,565,202 -------------- ------------- 30,436,385 30,436,385 Less accumulated depreciation 11,868,945 10,548,272 -------------- ------------- Investment in real estate, net of accumulated depreciation 18,567,440 19,888,113 -------------- ------------- $ 22,039,698 $ 23,620,607 ============== =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 133,424 $ 137,181 Due to affiliates 34,615 13,933 Accrued liabilities - principally real estate taxes 567,357 618,892 Security deposits 47,323 48,119 Mortgage note payable 12,431,154 12,568,420 -------------- ------------- Total liabilities 13,213,873 13,386,545 -------------- ------------- Contingencies and Commitments
Limited Partners' capital (30,000 Interests issued and outstanding) 9,988,382 11,389,169 General Partner's deficit (1,162,557) (1,155,107) -------------- ------------- Total partners' capital 8,825,825 10,234,062 -------------- ------------- $ 22,039,698 $ 23,620,607 ============== =============
The accompanying notes are an integral part of the financial statements.
OUTLET CENTRE PARTNERS (An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL for the years ended December 31, 1996, 1995, and 1994
Partners' Capital (Deficit) Accounts ------------------------------------------ General Limited Total Partner Partners -------------- ------------- -------------
Balance at December 31, 1993 $ 10,722,642 $ (1,151,880) $ 11,874,522
Net loss for the year ended December 31, 1994 (118,837) (1,188) (117,649) -------------- ------------- ------------- Balance at December 31, 1994 10,603,805 (1,153,068) 11,756,873
Cash distributions to Limited Partners (A) (165,810) (165,810) Net loss for the year ended December 31, 1995 (203,933) (2,039) (201,894) -------------- ------------- ------------- Balance at December 31, 1995 10,234,062 (1,155,107) 11,389,169
Cash distributions to Limited Partners (A) (663,240) (663,240) Net loss for the year ended December 31, 1996 (744,997) (7,450) (737,547) -------------- ------------- ------------- Balance at December 31, 1996 $ 8,825,825 $ (1,162,557) $ 9,988,382 ============== ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1996 1995 1994 -------------- ------------- -------------
First Quarter $ 5.527 None None Second Quarter 5.527 None None Third Quarter 5.527 None None Fourth Quarter 5.527 $ 5.527 None
The accompanying notes are an integral part of the financial statements.
OUTLET CENTRE PARTNERS (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994 -------------- ------------- ------------- Income: Rental $ 3,158,015 $ 3,131,371 $ 3,136,357 Service 1,883,814 2,166,699 2,319,857 Interest on short-term investments 144,314 113,394 44,639 -------------- ------------- ------------- Total income 5,186,143 5,411,464 5,500,853 -------------- ------------- ------------- Expenses: Interest on mortgage note payable 1,268,175 1,281,358 1,223,270 Depreciation 1,320,673 1,323,007 1,280,011 Amortization 83,125 83,125 84,895 Property operating 2,251,600 1,841,214 1,896,235 Real estate taxes 567,357 563,950 545,840 Property management fees 231,329 257,806 244,587 Administrative 208,881 264,937 344,852 -------------- ------------- ------------- Total expenses 5,931,140 5,615,397 5,619,690 -------------- ------------- ------------- Net loss $ (744,997) $ (203,933) $ (118,837) ============== ============= ============= Net loss allocated to General Partner $ (7,450) $ (2,039) $ (1,188) ============== ============= ============= Net loss allocated to Limited Partners $ (737,547) $ (201,894) $ (117,649) ============== ============= ============= Net loss per Limited Partnership Interest (30,000 issued and outstanding) $ (24.58) $ (6.73) $ (3.92) ============== ============= =============
The accompanying notes are an integral part of the financial statements.
OUTLET CENTRE PARTNERS (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994 -------------- ------------- ------------- Operating activities: Net loss $ (744,997) $ (203,933) $ (118,837) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of property 1,320,673 1,323,007 1,280,011 Amortization of deferred expenses 83,125 83,125 84,895 Net change in: Accounts and accrued interest receivable (288,901) 34,536 43,129 Escrow deposits (17,091) (31,576) (14,949) Prepaid expenses (3,868) (33,798) Accounts payable (3,757) (66,973) (143,509) Due to affiliates 20,682 (33,760) 12,438 Accrued liabilities (51,535) 73,052 (173,262) Security deposits (796) (1,183) (16,025) -------------- ------------- ------------- Net cash provided by operating activities 313,535 1,142,497 953,891 -------------- ------------- ------------- Investing activity: Improvements to property (265,835) (261,676) ------------- ------------- Net cash used in investing activity (265,835) (261,676) ------------- ------------- Financing activities: Distributions to Limited Partners (663,240) (165,810) Proceeds from refinancing of mortgage note payable 12,750,000 Repayment of mortgage note payable (11,468,631) Principal payments on mortgage note payable (137,266) (124,082) (132,752) Funding of capital improvement escrows (914,725) Payment of deferred expenses (415,625) Release of capital improvement escrow 191,600 -------------- ------------- ------------- Net cash used in finanacing activities (608,906) (289,892) (181,733) -------------- ------------- ------------- Net change in cash and cash equivalents (295,371) 586,770 510,482 Cash and cash equivalents at beginning of year 2,406,064 1,819,294 1,308,812
-------------- ------------- ------------- Cash and cash equivalents at end of year $ 2,110,693 $ 2,406,064 $ 1,819,294 ============== ============= =============
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Outlet Centre Partners (the "Partnership") is engaged exclusively in the operation of retail real estate located in Bristol, Wisconsin.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon the occurrence of certain events, including the disposition of all interests in real estate. The Partnership is currently marketing the Centre for sale. If the property is sold, the timing of the termination of the Partnership and final distribution of cash will depend upon the nature and extent of liabilities and contingencies which exist or may arise. Such contingencies may include legal and other fees stemming from litigation involving the Partnership including, but not limited to, the lawsuit discussed in Note 11 of Notes to the Financial Statements. In the absence of any contingency, the reserves will be paid within twelve months of the property being sold. In the event of a contingency, reserves may be held by the Partnership for a longer period of time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally accepted accounting principles requires the General Partner 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 vary from those estimates.
(b) Depreciation expense is computed using the straight-line method. Rates used in the determination of depreciation are based upon the following estimated useful lives:
Years -----
Buildings and improvements 18 - 25 Furniture and fixtures 5
Depreciation expense for capitalized tenant improvements is computed using a straight-line method over the term of the lease.
Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are charged to the related asset account.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial Accounting Standards, No. 121 (SFAS 121), ("Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of"). Under SFAS 121, the Partnership records its investment in real estate at the lower of cost or fair value, and periodically assesses, but not less than on an annual basis, possible impairment to the value of its property. The General Partner estimates the fair value of its property based on the current estimated sales price less closing costs. In the event the General Partner determines an impairment in value has occurred, and the carrying amount of the real estate asset will not be recovered, a provision is recorded to reduce the carrying basis of the property to its estimated fair value. The General Partner considers the method referred to above to result in a reasonable measurement of a property's fair value, unless other factors affecting the property's value indicate otherwise.
(d) Deferred expenses consist of financing fees which are amortized over the term of the loan agreement. Upon sale, any remaining balance is recognized as debt extinguishment expense and classified as an extraordinary item.
(e) Revenue is recognized on an accrual basis in accordance with generally accepted accounting principles. Income from operating leases with significant abatements and/or scheduled rent increases is recognized on a straight line basis over the respective lease term. Service income includes reimbursements from operating costs such as real estate taxes, maintenance and insurance and is recognized as revenue in the period the applicable costs are incurred.
(f) The Financial Accounting Standard Board's Statement No. 107, _Disclosures About Fair Value of Financial Instruments_, requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. Since quoted market prices are not available for the Partnership's financial instruments, fair values have been based on estimates using present value techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument. Statement No. 107 does not apply to all balance sheet items and excludes certain financial instruments and all non-financial instruments such as real estate from its disclosure requirements.
(g) Cash and cash equivalents include all unrestricted, highly liquid investments with an original maturity of three months or less. Cash and cash equivalents are held or invested primarily in one financial institution.
(h) The Partnership is not liable for Federal income taxes as each partner recognizes his proportionate share of the Partnership income or loss in his tax return; therefore, no provision for income taxes is made in the financial statements of the Partnership.
(i) A reclassification has been made to the previously reported 1994 statements in order to conform with the classification used in 1995 and 1996. This reclassification has not changed the 1994 results.
4. Partnership Agreement:
The Partnership was organized on March 13, 1987. The Partnership Agreement provides for Balcor Partners-XXII to be the General Partner and for the admission of Limited Partners through the sale of up to 30,000 Limited Partnership Interests at $1,000 per Interest. The Partnership commenced the offering of Limited Partnership Interests to the public on July 2, 1987 and completed its minimum offering on August 13, 1987. The offering was terminated on March 9, 1988, after the sale of 30,000 Limited Partnership Interests.
The Partnership through its subsidiaries owns the Factory Outlet Centre (the "Centre") located in Bristol, Wisconsin. The Partnership Agreement provides that profits and losses will be allocated 1% to the General Partner and 99% to the Limited Partners.
Net Cash Receipts of the Partnership available for distribution will be distributed 90% to Limited Partners and 10% to the General Partner provided, however, that 100% of the General Partner's share of Net Cash Receipts will be subordinated to the prior receipt by Limited Partners of a Preferential Distribution of 7% for each of the first five 12-month periods following the termination of the offering and 8% for each 12-month period thereafter. For each period during which the Preferential Distribution is not attained, the General Partner's share of Net Cash Receipts will be deferred to the extent of any such deficiency and such deferred portion will be paid to the General Partner from future distributed Net Cash Receipts or from Net Cash Proceeds after required subordination levels are attained. A deficiency in the Preferential Distribution for a particular year will not by itself cause the subordination of the General Partner's share of Net Cash Receipts in later years. Net Cash Receipts will be computed after the deduction of the Partnership expenses. Nothing has been paid to date to the General Partner under this provision.
Net Cash Proceeds of the Partnership which are available for distribution will be distributed to Limited Partners until they have received an amount equal to their Original Capital plus a Cumulative Distribution of 12% per annum. Thereafter, Net Cash Proceeds will be distributed to pay the General Partner an amount equal to its subordinated and unpaid share of Net Cash Receipts, and then 85% to the Limited Partners and 15% to the General Partner. Upon the dissolution and liquidation of the Partnership, Net Cash Proceeds will be distributed in accordance with the Partners' respective ending capital account balances.
5. Mortgage Note Payable:
In June 1994, the Centre's mortgage loan was refinanced. The interest rate increased from 9.75% to 10.14%, the maturity date was extended from August 1994 to July 1999 and the monthly payments of principal and interest increased from $104,400 to $117,120. A portion of the proceeds from the new $12,750,000 mortgage loan were used to repay the existing mortgage loan of $11,468,631. The mortgage loan balances at December 31, 1996 and 1995 are $12,431,154 and $12,568,420, respectively. The Centre, with a carrying value of $18,567,440 at December 31, 1996, is pledged as collateral for repayment of the mortgage loan.
Future maturities of the above note are approximately as follows:
1997 $152,000 1998 168,000 1999 12,112,000
During the years ended December 31, 1996, 1995 and 1994, the Partnership incurred and paid interest expense on the mortgage note payable of $1,268,175, $1,281,358 and $1,223,270, respectively.
6. Management Agreement:
As of December 31, 1996, the Centre is under a management agreement with a third-party management company. This management agreement provides for a fee of 5% of all rental and certain service receipts collected.
7. Tax Accounting:
The Partnership maintains its books in accordance with the Internal Revenue Code, rules and regulations promulgated thereunder and existing interpretations thereof. The accompanying financial statements, which are prepared in accordance with generally accepted accounting principles, will differ from the tax returns due to the different treatment of various items as specified in the Internal Revenue Code. The net effect of these accounting differences is that the net loss for 1996 in the financial statements is $202,410 greater than the tax loss for the same period.
The aggregate cost of land for federal income tax purposes is $2,871,183 and the aggregate cost of buildings and improvements for Federal income tax purposes is $27,699,152. The total cost of these is $30,570,335.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended 12/31/96 12/31/95 12/31/94 --------------- -------------- -------------- Paid Payable Paid Payable Paid Payable ------- -------- ------ ------- ------ -------
Property management fees None None None None $225,117 None Reimbursement of expenses to the General Partner, at cost: Accounting $8,122 $6,869 $26,881 $3,057 $44,324 $16,613 Data processing 1,996 710 7,362 845 14,181 3,089 Investor communica- tions None None 4,458 None 18,104 6,960 Legal 2,000 1,634 14,193 537 16,205 4,073 Portfolio management 30,226 25,262 56,781 9,476 35,774 13,117 Other 47 138 10,715 18 17,421 3,841
Allegiance Realty Group, Inc. an affiliate of the General Partner, managed the Centre until the affiliate was sold to a third party in November 1994.
The Partnership participates in an insurance deductible program with other affiliated partnerships in which the program pays claims up to the amount of the deductible under the master insurance policies for its properties. The program is administered by an affiliate of the General Partner who receives no fee for administering the program; however, the General Partner is reimbursed for program expenses. The Partnership paid premiums to the deductible insurance program of $6,087, $23,974 and $27,307 for 1996, 1995 and 1994, respectively.
9. Rentals under Operating Leases:
The Partnership receives rental income from the leasing of retail shopping center space under operating leases. The minimum future rentals (excluding amounts representing executory costs such as taxes, maintenance and insurance) based on operating leases held at December 31, 1996 are approximately as follows:
1997 $2,387,000 1998 2,164,000 1999 1,684,000 2000 1,149,000 2001 699,000 Thereafter 509,000
Minimum future rentals do not include amounts which may be received from certain tenants based upon a percentage of their gross sales in excess of stipulated minimums. Percentage rentals totaled approximately $274,000 for 1996, $224,000 for 1995 and $221,000 for 1994.
The Partnership is subject to the usual business risks regarding the collection of rental income.
10. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments at December 31, 1996 and 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest receivable, accounts and accrued interest payable approximates fair value.
Mortgage note payable: Based on borrowing rates available to the Partnership at the end of 1996 for mortgage loans with similar terms and maturities, the fair value of the mortgage note payable approximates the carrying value.
11. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership and certain affiliates have been named as defendants alleging certain federal securities law violations with regard to the adequacy and accuracy of disclosures of information concerning, as well as the marketing efforts related to, the offering of the Limited Partnership Interests of the Partnership. The defendants continue to vigorously contest this action. A plaintiff class has not yet been certified, and no determination of the merits have been made. It is not determinable at this time whether or not an unfavorable decision in this action would have a material adverse impact on the financial position, operations and liquidity of the Partnership. The Partnership believes it has meritorious defenses to contest the claims.
12. Subsequent Event:
In January 1997, the Partnership paid $165,810 to Limited Partners representing the regular quarterly distribution of available Net Cash Receipts of $5.527 per Interest for the fourth quarter of 1996.