<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission File Number: 1-8073
CV REIT, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-0950354
(State of Incorporation) (I.R.S. Employer Identification No.)
100 Century Boulevard, West Palm Beach, Florida 33417
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 561-640-3155
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common stock, par value New York Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares outstanding of the registrant's common stock, par
value $.01 per share, as of July 31, 1998: 7,966,621.
<PAGE> 2
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Jun.30, Dec.31,
Assets 1998 1997
------ -------- --------
Real estate - income producing,
net of accumulated depreciation $129,612 $ 71,017
Real estate mortgage notes
receivable 66,078 77,652
Investments in unconsolidated affiliates 3,287 3,284
Cash and cash equivalents (includes
$922 and $915 restricted) 13,755 12,869
Other real estate (net of allowance
for losses of $2,401) 5,451 5,451
Other 4,341 1,654
-------- --------
$222,524 $171,927
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Borrowings $114,567 $ 66,281
Accounts payable and other
liabilities 5,460 4,443
Deferred income taxes 7,041 7,041
-------- --------
Total liabilities 127,068 77,765
-------- --------
Minority interests in Operating
Partnership 21,572 21,214
-------- --------
Stockholders' equity:
Common stock, $.01 par-shares authorized
20,000,000; outstanding 7,966,621 80 80
Additional paid-in capital 18,490 18,490
Retained earnings 55,314 54,378
-------- --------
Total stockholders' equity 73,884 72,948
-------- --------
$222,524 $171,927
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 3
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Rent $ 3,743 $ 534 $ 6,537 $ 1,085
Interest, principally from
mortgage notes 2,250 2,677 4,704 5,362
--------- --------- --------- ---------
5,993 3,211 11,241 6,447
--------- --------- --------- ---------
Expenses:
Interest 1,883 758 3,318 1,531
Operating 1,120 158 1,974 340
General and administrative 369 163 718 311
Depreciation and amortization 585 107 1,029 213
--------- --------- --------- ---------
3,957 1,186 7,039 2,395
--------- --------- --------- ---------
2,036 2,025 4,202 4,052
Equity in income of
unconsolidated affiliates 122 101 253 212
Gain on sale of real estate 2,347 - 2,347 -
Minority interests in income of
Operating Partnership (825) - (1,245) -
--------- --------- --------- ---------
Net income $ 3,680 $ 2,126 $ 5,557 $ 4,264
========= ========= ========= =========
Per common share:
Net income, basic and diluted $ .46 $ .27 $ .70 $ .54
========= ========= ========= =========
Dividends declared $ .29 $ .29 $ .58 $ .58
========= ========= ========= =========
Average common shares
outstanding:
Basic 7,966,621 7,966,621 7,966,621 7,966,621
========= ========= ========= =========
Diluted 7,966,621 7,966,621 7,969,844 7,966,621
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 4
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in thousands)
Balance at December 31, 1997 $54,378
Net income for the six months
ended June 30, 1998 5,557
Dividends declared (4,621)
-------
Balance at June 30, 1998 $55,314
=======
See accompanying notes to consolidated financial statements.
<PAGE>5
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
-------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,557 $ 4,264
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,029 213
Gain on sale of real estate (2,347) -
Equity in depreciation and amortization of
unconsolidated affiliates 86 87
Minority interests in income of
Operating Partnership 1,245 -
-------- --------
5,570 4,564
Changes in operating assets and liabilities,
net of effects of acquisition:
Increase in other assets (2,163) (541)
Increase (decrease) in accounts payable
and other liabilities 83 (87)
-------- --------
Net cash provided by operating activities 3,490 3,936
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fundings on real estate mortgage notes (5,190) (9,009)
Collections on real estate mortgage notes 16,764 10,191
Acquisitions of real estate, net of cash acquired (17,127) -
Proceeds from the sale of real estate 4,151 -
Other (297) 116
-------- --------
Net cash (used in) provided by investing activities (1,699) 1,298
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 7,650 -
Repayments of borrowings (3,419) (1,077)
Cash dividends paid (4,624) (4,628)
Distributions to minority interests (519) -
-------- --------
Net cash used in financing activities (912) (5,705)
-------- --------
Net increase (decrease) in unrestricted cash
and cash equivalents 879 (471)
Unrestricted cash and cash equivalents at
beginning of the period 11,954 6,666
-------- --------
Unrestricted cash and cash equivalents at
end of the period $ 12,833 $ 6,195
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,054 $ 1,524
======== ========
Acquisitions:
Fair value of assets acquired $(61,751) $ -
Liabilities assumed 44,474 -
Operating Partnership Units issued 150 -
-------- --------
Cash paid for acquisitions, net of cash
acquired $(17,127) -
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 6
CV REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization, Business and Basis of Presentation
Organization and Business
CV Reit, Inc. ("CV Reit") is a real estate investment trust ("REIT")
which until December 31, 1997, was principally engaged in investing in
real estate mortgage notes. Effective December 31, 1997, CV Reit and its
subsidiaries converted to an Umbrella Partnership REIT (UPREIT) structure
as part of a series of transactions which closed on that date and which
included the following: (1) a newly created Operating Partnership,
Montgomery CV Realty L.P. (together with its wholly-owned subsidiaries
hereinafter collectively referred to as the "OP"), acquired 100% of the
ownership interests in ten commercial properties, and an approximately
95% economic interest in Drexel Realty, Inc. ("Drexel"), a real estate
management and leasing company and (2) CV Reit and its subsidiaries
transferred substantially all of their net assets (or the economic
benefit thereof) to the OP. As a result, CV Reit, through a wholly-owned
subsidiary, indirectly owns 81.7% of the OP, is the OP's sole general
partner and has become a self-administered, self-managed equity REIT. As
of June 30, 1998, the OP owned 14 shopping centers and two office
buildings, located in Pennsylvania, New Jersey and Florida.
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of CV Reit and all subsidiaries ("the Company"), including the OP. The
Company owns 99% of the non-voting common stock and a 95% economic
interest in Drexel, and owns 45%-50% interests in certain real estate
partnerships, which are accounted for on the equity method. Significant
intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
consolidated or omitted pursuant to such rules and regulations; however,
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1997.
<PAGE> 7
The consolidated financial statements for the interim periods included
herein, which are unaudited, include, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position and results of operations of the
Company for the periods presented. The results of operations for interim
periods should not be considered indicative of results to be expected for
the full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported statements 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 revenues could differ from those
estimates.
(2) Real Estate - Income Producing ("Real Estate")
(a) Real Estate is located in Pennsylvania, New Jersey and Florida and
consists of (in thousands):
June 30, Dec.31,
1998 1997
-------- -------
Shopping centers (Note 3(b)) $125,761 $64,356
Office buildings 5,334 5,334
Motel (Note 3(c)) - 4,058
Other 81 81
-------- ------
Totals 131,176 73,829
Less accumulated depreciation (1,564) (2,812)
-------- -------
Net Real Estate (pledged as collateral
for borrowings (Note 4)) $129,612 $71,017
======== =======
(b) On March 31, 1998, the OP purchased an approximately 177,000 square
foot shopping center, located in Pennsylvania, for a purchase price of
$27.7 million, including transaction costs, which consisted of $7.5
million of cash and the assumption of $20.2 million of liabilities,
principally mortgage debt.
<PAGE> 8
On June 22 and 24, 1998, the OP purchased three shopping centers located
in Pennsylvania and New Jersey aggregating 358,000 square feet for a
total purchase price of $33.9 million, including transaction costs, which
consisted of $9.5 million in cash and the incurrence or the assumption of
$24.4 million of liabilities, principally mortgage debt.
The acquisitions were accounted for as purchases; accordingly, the
operations of the shopping centers acquired are included in the
Consolidated Financial Statements as of the dates of acquisition.
During July 1998, the OP completed the acquisition of three shopping
centers, located in Pennsylvania, aggregating 261,000 square feet for a
total purchase price of approximately $12.3 million, increasing the total
number of properties owned by the OP to 19 aggregating over 1,500,000
square feet. In addition, the OP has several pending acquisitions of
shopping centers for an aggregate purchase price of $23.5 million. See
Management's Discussion and Analysis of Results of Operations and
Financial Condition - Liquidity and Capital Resources - Future
Acquisitions for a discussion of these potential acquisitions.
(c) On May 15, 1998, the Company sold the Motel for net cash proceeds of
$4.2 million and recognized a gain of $2.3 million.
(3) Real Estate Mortgage Notes Receivable
(a) Real estate mortgage notes receivable are collateralized by real
estate located in southeast Florida and consist of (in thousands):
June 30, Dec. 31,
1998 1997
-------- --------
Long Term Recreation Notes (the
"Recreation Notes") (Notes
3(b) and 4) $65,751 $66,236
Other 327 11,416
------- -------
Totals $66,078 $77,652
======= =======
(b) At June 30, 1998, the Recreation Notes consisted of $25 million due
from Hilcoast Development Corp. (the "Hilcoast Recreation Note"),
principally collateralized by first mortgages on the recreation
facilities at the Century Village at Pembroke Pines, Florida adult
condominium project, and $40.8 million, collateralized by first mortgages
on the recreation facilities at the three previously completed Century
Village communities. Through July 31, 1998, the Hilcoast Recreation Note
required monthly interest payments only, based on 11% per annum. In
accordance with the terms of the loan agreement dated July 31, 1992,
effective July 31, 1998, the Hilcoast Recreation Note was converted to an
11%, fixed rate, 25 year, $25 million, self-amortizing loan providing for
equal monthly payments of principal and interest. This note may not be
prepaid by Hilcoast without a prepayment penalty. The remaining $40.8
million of Recreation Notes principally provide for self-amortizing equal
monthly principal and interest payments due through 2012, with interest
rates averaging 13% per annum, and contain certain prepayment
prohibitions. These notes are pledged as collateral for borrowings
(Note 4).
<PAGE> 9
(4) Borrowings
(a) Borrowings consist of (in thousands):
June 30, Dec. 31,
1998 1997
Mortgage notes payable through -------- --------
September 2008, interest ranging
from 6.9% to 10.28%, collateralized
by Real Estate (Note 2) $ 65,932 $ 33,418
Mortgage notes payable in March 2001
under $100 million credit facility, interest
at LIBOR plus 1.75% (5.66% at June 30, 1998),
collateralized by Real Estate (Note 2).
See Management's Discussion and Analysis
of Results of Operations and Financial
Condition - Liquidity and Capital
Resources - Borrowings for a description
of the terms. 16,950 -
Collateralized Mortgage Obligations,
net of unamortized discount of $615,000
and $676,000 based on an effective interest
rate of 8.84%, collateralized by certain
of the Recreation Notes (Note 3 (b)),
quarterly self-amortizing principal and
interest payments required through March 2007 31,685 32,863
-------- --------
Totals $114,567 $ 66,281
======== ========
<PAGE> 10
(5) Commitments and Contingencies
(a) TGI Development, Inc. ("TGI")
On October 9, 1989, TGI filed a complaint in the Circuit Court of Palm
Beach County against CV Reit, H. Irwin Levy, the Company's Chairman of
the Board, and certain unrelated parties alleging misrepresentations by
the defendants in connection with TGI's purchase and development of land
from a previous borrower of the Company. The complaint, as subsequently
amended, consisted of claims of common law fraud and breach of contract
and sought compensatory damages of approximately $2 million in addition
to punitive damages. On October 3, 1990, the Company filed a
counterclaim against TGI in connection with an $800,000 promissory note
from TGI to the Company. In accordance with an agreement between the
parties, on August 23, 1994 the Court dismissed the breach of contract
claim with prejudice and entered a judgment in the amount of $1.1 million
in favor of the Company on the aforementioned counterclaim. TGI's claim
of common law fraud has been scheduled for trial in September 1998 in the
Circuit Court. Although the Company believes it has substantial
defenses, the ultimate outcome of this litigation cannot presently be
determined. Accordingly, no provision for any liability that may result
upon final adjudication has been made in the accompanying financial
statements. In management's opinion, the final outcome of this
litigation will not have a material adverse effect on the Company's
financial condition.
(b) Other
The Company is subject to various claims and complaints relative to its
business activities. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial position.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results of Operations
Net Income
Three Months Ended June 30, 1998 and 1997
For the quarter ended June 30, 1998, net income was $3,680,000 or $.46
per share compared to $2,126,000 or $.27 per share for the same period of
1997.
<PAGE> 11
During the quarter ended June 30, 1998, rent revenue, operating expenses,
interest expense, and depreciation and amortization increased by
$3,209,000, $962,000, $1,125,000 and $478,000, respectively, primarily
due to the acquisition of ten commercial properties on December 31, 1997
(the "1997 Acquisition") and one additional shopping center in the first
quarter of 1998. The Company expects continued increases in rent
revenue, operating costs, interest expense and depreciation during the
remainder of 1998 primarily as a result of the acquisition of six
additional shopping centers at the end of the second quarter and in July
of 1998, and certain additional planned acquisitions (see Liquidity and
Capital Resources - Future Acquisitions), if consummated.
Interest income decreased by $427,000 during the second quarter of 1998,
primarily attributable to an approximately $10.6 million reduction in the
average balance of the Hilcoast mortgage notes receivable. The average
interest rate on the mortgage notes repaid approximated 11.5% and the
repayments have been generally utilized to acquire six shopping centers
since December 31, 1997, or reinvested in lower yielding short-term
investments (averaging approximately 5% during the second quarter of
1998), pending completion of planned acquisitions. Interest income is
anticipated to continue to decrease in 1998 although to a lesser extent,
due to scheduled repayments of the mortgage notes receivable.
General and administrative expenses increased by $206,000 during the
second quarter of 1998, reflecting increases in personnel and other
costs, principally due to the 1997 Acquisition. These expenses are not
expected to fluctuate significantly during the remainder of 1998.
Net income for the quarter ended June 30, 1998 includes a $2.3 million
gain from the sale of the Days Inn Motel on May 15, 1998.
Six Months Ended June 30, 1998 and 1997
For the six months ended June 30, 1998, net income was $5,557,000 or $.70
per share compared to $4,264,000 or $.54 per share for the same period of
1997.
During the six months ended June 30, 1998, rent revenue, operating
expenses, interest expense, and depreciation and amortization increased
by $5,452,000, $1,634,000, $1,787,000 and $816,000, respectively,
primarily due to the 1997 Acquisition and the acquisition of one
additional shopping center in the first quarter of 1998.
Interest income decreased by $658,000 during the first six months of
1998, primarily attributable to an approximately $8 million reduction in
the average balance of the Hilcoast mortgage notes receivable. The
average interest rate on the mortgage notes repaid approximated 11.5% and
the repayments have been generally utilized to acquire six shopping
centers since December 31, 1997, or reinvested in lower yielding short-term
investments (averaging approximately 5% during the first six months
of 1998), pending completion of planned acquisitions.
<PAGE> 12
General and administrative expenses increased by $407,000 during the
first six months of 1998, reflecting increases in personnel and other
costs primarily due to the 1997 Acquisition, and in legal fees primarily
in connection with the TGI litigation. See Note 5(a) to Consolidated
Financial Statements.
Funds From Operations
Funds From Operations ("FFO") as defined by the National Association of
Real Estate Investment Trusts (NAREIT), consists of net income (computed
in accordance with generally accepted accounting principles) before
depreciation and amortization of real property, certain non-recurring
items, extraordinary items, gains and losses on sales of real estate and
income taxes. The Company believes that FFO is an appropriate measure of
operating performance because real estate depreciation and amortization
charges are not meaningful in evaluating the operating results of the
Company's properties and certain non-recurring items, such as the
Company's gain on sale of real estate, are not relevant to ongoing
operations. However, FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and should not be considered as an alternative to either net
income as a measure of the Company's operating performance or to cash
flows from operating activities as an indicator of liquidity or cash
available to fund all cash flow needs. In addition, since other REITs
may not calculate FFO in the same manner, FFO presented herein may not be
comparable to that reported by other REITs.
The following schedule reconciles FFO to net income:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net income $3,680,000 $2,126,000 $5,557,000 $4,264,000
Depreciation and amortization
of real property 585,000 107,000 1,029,000 213,000
Equity in depreciation and
amortization of real property
of unconsolidated affiliates 43,000 43,000 86,000 87,000
Minority interests in income of OP 825,000 - 1,245,000 -
Gain on sale of real estate (2,347,000) - (2,347,000) -
---------- ---------- ---------- ----------
FFO of OP $2,786,000 $2,276,000 $5,570,000 $4,564,000
========== ========== ========== ==========
FFO - Company's share (81.7% in
1998 and 100% in 1997) $2,276,000 $2,276,000 $4,551,000 $4,564,000
========== ========== ========== ==========
<PAGE> 13
Liquidity and Capital Resources
Consolidated Statements of Cash Flows
Net cash provided by operating activities (prior to net changes in
operating assets and liabilities), as reported in the Consolidated
Statements of Cash Flows, increased to $5.6 million in the first six
months of 1998 from $4.6 million for the same period in 1997. These
amounts equal net income plus adjustments for depreciation and
amortization, and, during the 1998 first six months, gain on sale of real
estate and minority interests in the income of the OP.
Net cash used by investing activities increased to $1.7 million in the
first six months of 1998 from net cash provided of $1.3 million
(principally net collections on real estate mortgage notes) in the first
six months of 1997. The 1998 amounts principally consist of $17.1
million of cash required in connection with acquisitions of four shopping
centers in 1998, partially offset by $11.6 million of net collections on
real estate mortgage notes receivable and $4.2 million received from the
sale of real estate.
Net cash used in financing activities decreased to $.9 million in the
first six months of 1998 from $5.7 million during the same period of
1997. The 1998 amounts consist of $5.1 million of distributions paid to
stockholders and minority interests, offset by $4.2 million of net
borrowings. The 1997 amounts consist of $4.6 million of cash
distributions and $1.1 million of repayments of borrowings. During each
of the six month periods ended June 30, 1998 and 1997, cash dividends
declared amounted to $.58 per share.
Capital Resources
The Company's operating funds are expected to be principally generated
from rental income from income producing properties and interest income
on mortgage notes receivable. The Company believes that its operating
funds will be sufficient in the foreseeable future to fund operating and
administrative expenses, interest expense, recurring capital expenditures
and distributions to stockholders in accordance with REIT requirements.
Sources of capital for non-recurring capital expenditures and scheduled
principal payments, including balloon payments, on outstanding borrowings
are expected to be obtained from anticipated property refinancing,
scheduled principal repayments on the Long Term Recreation Notes, sales
of non-strategic other real estate, existing cash balances, the Line of
Credit (see Liquidity and Capital Resources - Borrowings) and/or
potential debt or equity financing in the public or private markets.
<PAGE> 14
Future Acquisitions
As of June 30, 1998, unrestricted cash and cash equivalents amounted to
approximately $13.6 million, with an average yield of 5%. The Company
expects to continue its strategy of investing available funds in high
quality short-term corporate and government securities while it evaluates
potential acquisitions of income producing properties. In the event such
properties are acquired, the OP may issue additional OP Units, pay cash,
or a combination thereof. If cash payments are required in excess of
funds available under the Company's Line of Credit (see Liquidity and
Capital Resources - Borrowings), the Company may be required to seek
outside financing which may or may not be available.
During the six months ended June 30, 1998, the OP completed four
acquisitions of shopping centers for purchase prices aggregating $61.7
million (the "1998 Acquisitions"), including transaction costs, which
consisted of $17.1 million of cash (including $7.7 million borrowed under
the Line of Credit) and the incurrence or assumption of $44.6 million of
liabilities, principally mortgage debt. In July 1998, the OP completed
the acquisition of three shopping centers for purchase prices aggregating
$12.3 million, including transaction costs, consisting of $3.7 million of
cash and the assumption of $8.6 million of liabilities, principally
mortgage debt. In addition, the OP has entered into agreements to
acquire four additional shopping centers for an aggregate purchase price
of approximately $23.5 million (the "Planned Acquisitions"). If
consummated, the OP intends to finance the purchase prices through
assumption of existing mortgages on the properties to be acquired, the
Line of Credit (see Liquidity and Capital Resources - Borrowings) and
available cash balances. The Planned Acquisitions are subject to due
diligence and certain other conditions and there can be no assurance that
they will be consummated.
The Company's policy is to acquire additional properties only if they are
income producing and any proposed acquisition requires a resolution by a
majority of CV Reit's Board of Directors that the acquisition will not
adversely affect CV Reit's ability to pay a quarterly dividend of at
least 29 cents per share. Under the OP agreement, all of the activities
of the OP must generally be conducted with a view toward enabling the OP
to make quarterly distributions to all partners of at least 29 cents per
OP unit and such additional amount, if required, to enable CV Reit to pay
a regular quarterly dividend of at least 29 cents per share to its
stockholders.
Borrowings
At June 30, 1998, the Company's borrowings increased to $114.6 million
from $66.3 million at December 31, 1997 as a result of the 1998
Acquisitions. Scheduled principal payments over the next five years are
$59.8 million with $54.8 million due thereafter.
<PAGE> 15
Borrowings include $82.9 million, collateralized by a substantial portion
of the Company's Real Estate, including $16.9 million under the Line of
Credit (see below). The Company expects to refinance certain of these
borrowings, at or prior to maturity, through new mortgage loans on Real
Estate including refinancing under the Line of Credit. The ability to do
so, however, is dependent upon various factors, including the income
level of the properties, interest rates and credit conditions within the
commercial real estate market. Accordingly, there can be no assurance
that such refinancing can be achieved.
The remaining $31.7 million of borrowings consists of the CMO's which
are collateralized by $41 million of the Recreation Notes and require
self-amortizing principal and interest payments through March 2007.
During the term of the CMO's, the scheduled annual debt service
requirement approximates $5.2 million compared to annual principal and
interest payments scheduled to be received under the related Recreation
Notes of $6.5 million.
Effective March 31, 1998, the Company entered into a Line of Credit with
a financial institution wherein the financial institution has agreed to
provide a $100 million three year non-revolving line of credit. Advances
under the Line of Credit: (1) must be secured by assets based on
specified aggregate loan to value and debt service coverage ratios, (2)
bear interest at an annual rate of one month LIBOR plus 1.75% and (3) may
be drawn only during the first two years of the credit facility and must
be repaid by certain dates during the third year. Additional provisions
include a 1% commitment fee, a minimum net worth covenant and cross-default
and cross-collateralization requirements. Advances under the
Line of Credit are used to fund acquisitions, expansions, renovations,
financing and refinancing of real estate, including reimbursement of
equity advances, and require certain performance covenants. As of June
30, 1998, the Company has borrowed $16.9 million under the Line of
Credit.
Inflation
During recent years, the rate of inflation has remained at a low level
and had minimal impact on the Company's operating results.
Substantially all of the tenant leases contain provisions designed to
lessen the impact of inflation. These provisions include escalation
clauses which generally increase rental rates annually based on cost of
living indexes and percentage rentals based on tenant's gross sales,
which generally increase as prices rise. Many of the leases are for
terms of less than ten years which increases the ability of the OP to
replace those leases which are below market rates with new leases at
higher base and/or percentage rentals. In addition, most of the leases
require the tenants to pay their proportionate share of increases in
operating expenses, including common area maintenance, real estate taxes
and insurance.
<PAGE> 16
However, in the event of significant inflation, the Company's operating
results could be adversely affected if general and administrative
expenses and interest expense increase at a rate higher than rent income
or if the increase in inflation exceeds rent increases for certain tenant
leases which provide for stated rent increases (rather than based on cost
of living indexes).
Other
Year 2000 issues pertain to the inability of certain computerized
information systems to properly recognize date-sensitive information as
the year 2000 approaches. Systems that do not recognize such information
could generate erroneous data or cause systems to fail. The Company is
presently reviewing the potential impact of Year 2000 compliance issues
on its information systems and business operations, and has preliminarily
determined that any costs, problems or uncertainties associated with the
potential consequences of Year 2000 issues are not expected to have a
material impact on its future operations or financial condition.
Forward Looking Information: Certain Cautionary Statements
Certain statements contained in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and elsewhere in this Form
10-Q, that are not related to historical results, are forward looking
statements, such as collectibility of the Company's real estate mortgage
notes receivable, its anticipated liquidity and capital resources and
the results of legal proceedings. The matters referred to in forward
looking statements are based on assumptions of future events which may
not prove to be accurate and which could be affected by the risks and
uncertainties involved in the Company's business; accordingly, actual
results may differ materially from those projected and implied in the
forward looking statements. These risks and uncertainties include, but
are not limited to, the effect of conditions in the commercial real
estate market and the economy in general, the level and volatility of
interest rates, Court decisions regarding the Company's litigation, the
impact of current or pending legislation and regulation, as well as
certain other risks described in the Form 10-Q. Subsequent written and
oral forward looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by
cautionary statements in this paragraph and elsewhere described in this
Form 10-Q and in other reports filed by the Company with the Securities
and Exchange Commission.
<PAGE> 17
PART II. Other Information
Item 6 - Exhibits and Reports on Form 8-K:
Exhibits:
27 Financial Data Schedule
Reports on Form 8-K:
On June 5, 1998, the Registrant filed Form 8-K/A, reporting under
Item 7. Financial Statements of Assets Acquired, Proforma
Financial Information and Exhibits. (Reference Form 8-K dated
March 31, 1998 filed June 5, 1998.)
On June 24, 1998, the Registrant filed Form 8-K reporting
Item 2. and Item 7., the acquisition of Marlton Crossing Shopping
Center - Phase I.
On June 25, 1998, the Registrant filed Form 8-K reporting
Item 2. and Item 7., the acquisition of Marlton Crossing Shopping
Center - Phase II.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CV REIT, INC.
________________________________
(Registrant)
/s/ Louis P. Meshon
August 13, 1998 ________________________________
Louis P. Meshon, President
/s/ Elaine Hauff
August 13, 1998 ________________________________
Elaine Hauff, Vice President,
Treasurer and Principal
Financial and Accounting Officer
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,755<F1>
<SECURITIES> 0
<RECEIVABLES> 66,078
<ALLOWANCES> 2,401
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 139,028
<DEPRECIATION> 1,564
<TOTAL-ASSETS> 222,524
<CURRENT-LIABILITIES> 0
<BONDS> 114,567
0
0
<COMMON> 80
<OTHER-SE> 73,804
<TOTAL-LIABILITY-AND-EQUITY> 222,524
<SALES> 0
<TOTAL-REVENUES> 11,241
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,318
<INCOME-PRETAX> 5,557
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,557
<DISCONTINUED> 0
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<CHANGES> 0
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<EPS-PRIMARY> .70
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