<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ______________
Commission File Number: 1-8073
CV REIT, INC.
(Exact name of the 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: 407-640-3155
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class 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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
<PAGE> 2
AGGREGATE MARKET VALUE OF THE VOTING STOCK
HELD BY NONAFFILIATES OF THE REGISTRANT
Common Stock, par value $.01 per share ("Common Stock"), was
the only class of voting stock of the Registrant outstanding on
December 31, 1997. Based on the last sale price of the Common
Stock on the New York Stock Exchange as reported by the
consolidated transaction reporting system on February 28, 1998
($14.375), the aggregate market value of the 6,456,285 shares of
the Common Stock held by persons other than officers, directors and
persons known to the Registrant to be the beneficial owner (as that
term is defined under the rules of the Securities and Exchange
Commission) of more than five percent of the Common Stock on that
date was approximately $93 million. By the foregoing statements,
the Registrant does not intend to imply that any of these officers,
directors or beneficial owners are affiliates of the Registrant or
that the aggregate market value, as computed pursuant to rules of
the Securities and Exchange Commission, is in any way indicative of
the amount which could be obtained for such shares of Common Stock.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
14(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes ___ No ___
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable
date:
7,966,621 shares of Common Stock, par value $.01
per share, were outstanding as of February 28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement of CV Reit, Inc.
for the 1998 Annual Meeting of Stockholders
(incorporated in Part III)
<PAGE> 3
PART I
Item 1. Business
Background
CV Reit, Inc. ("CV Reit" or "Registrant"), together with its
subsidiaries, has operated as a real estate investment trust
("REIT") under Sections 856 through 860 of the Internal Revenue
Code since January 1, 1982. A company which qualifies as a REIT
may, if it distributes at least 95% of its ordinary taxable income
for a taxable year, deduct dividends paid to stockholders with
respect to such taxable year from taxable income. CV Reit intends
to operate in such a manner that it will continue to qualify as a
REIT. In any year in which it so qualifies, CV Reit itself will
not be taxed under the Code on income distributed to its
stockholders attributable to that year.
After its qualification as a REIT in 1982, CV Reit's operating
strategy consisted of investing in real estate mortgage notes
receivable, including loans to developers for the purpose of
acquiring, developing or constructing real estate. Due to economic
conditions in the real estate market and the economy in general, in
1990 CV Reit decided to limit new loan commitments to its existing
borrowers. As a result, monies received from the repayment of
existing mortgage notes receivable and the sale of real estate were
generally utilized to reduce CV Reit's outstanding borrowings or to
fund a limited amount of new mortgage loan commitments. By the
beginning of 1994, the Company had repaid all of its outstanding
borrowings (other than its long-term Collateralized Mortgage
Obligations - "CMO's") and had significantly reduced its mortgage
loan commitments.
While CV Reit evaluated alternative real estate investments, its
available funds were principally reinvested in high quality short-term
corporate or government securities, which generally yielded an
average of 5 percent to 6 percent, as compared to an average of
approximately 12 percent earned on the mortgage notes receivable
which were being repaid. Consequently, CV Reit concluded that it
was appropriate to seek to acquire a portfolio of higher yielding
real estate investments along with proven and experienced personnel
to manage and enhance such a portfolio.
On April 28, 1997, CV Reit announced that it had entered into a
preliminary contract to acquire a number of shopping centers and
an interest in Drexel Realty, Inc. ("Drexel"), a real estate
management and leasing company, subject to due diligence and
stockholder approval. Subsequently, certain of the parties entered
into a definitive agreement (the "Master Agreement"), dated as of
<PAGE> 4
September 19, 1997. The Master Agreement and certain matters
related thereto were approved by CV Reit's stockholders at a
Special Meeting of Stockholders on December 17, 1997 and the
transactions closed on December 31, 1997.
As a result, effective December 31, 1997 CV Reit converted to an
Umbrella Partnership REIT (UPREIT) structure as part of a series of
transactions 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 nine
shopping centers and an office building, located in Pennsylvania
and New Jersey, from two separate groups, the Montgomery Parties
and the Levy Parties (see Note 8 to Consolidated Financial
Statements), and an approximately 95% economic interest in Drexel
from Louis P. Meshon, Sr., (2) CV Reit and its subsidiaries
transferred substantially all of their net assets (or the economic
benefit thereof) to the OP and (3) the Company's Certificate of
Incorporation and By-Laws were amended, among other items, to
provide that additional properties could be acquired only if a
majority of CV Reit's Board of Directors determines that the
acquisition will not adversely affect CV Reit's ability to pay a
quarterly dividend of at least 29 cents per share. As a result, CV
Reit, through a wholly-owned subsidiary, indirectly owns 81.7% of
the OP, is its sole general partner and has become a self-administered,
self-managed equity REIT. In addition, Mr. Meshon
has become President, Chief Executive Officer and a director of CV
Reit. CV Reit and/or its subsidiaries, including the OP, are
hereinafter collectively referred to as the "Company".
Operating Strategies
The Company's primary business objectives are to increase Funds
From Operations (see Item 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition - Funds From
Operations) and funds available for distribution, and to enhance
the value of the Company's properties. The Company plans to
achieve these objectives through the business strategies listed
below. There can be no assurance, however, that such objectives
will be achieved.
* Maximization of cash flow through the efficient operation of the
Company's properties including active leasing and property
management, maintenance of high occupancy levels, increasing
rental rates and controlling operating and capital costs.
* Acquisition of additional properties which satisfy the Company's
criteria, at favorable prices, including properties requiring
renovation or re-leasing.
* Completion of strategic renovations and expansions to further
maximize operating cash flow.
<PAGE> 5
* Attainment of greater access to financing sources, including
securitized debt and public capital markets.
Assets
At December 31, 1997, the book value of the Company's assets
amounted to $171.9 million, including $71 million in income
producing real estate ("Real Estate"), $77.7 million in real estate
mortgage notes receivable and $12.9 million in cash and cash
equivalents. A description of the Company's principal assets
follows:
Real Estate
The Company's Real Estate principally consists of ten neighborhood
or community shopping centers and two office buildings, located in
Pennsylvania, New Jersey and Florida, comprising approximately
754,000 square feet. The properties range in size from
approximately 8,000 square feet to approximately 161,000 square
feet of gross leasable area and average approximately 63,000 square
feet. At December 31, 1997, 97.3% of the Real Estate was leased
to tenants under operating leases. The OP, directly or indirectly,
owns 100% of each of the properties (or the economic benefit
thereof).
Real Estate with a net book value of $56.3 million, at December 31,
1997, is pledged as collateral for borrowings (See Note 6 to
Consolidated Financial Statements).
The following table set forth certain pertinent information, as of
December 31, 1997, regarding the Company's Real Estate:
Year of Lease
Year Latest Leas- Occupancy Expir-
Origin- Renova- able Rate ation/
ally tion or Square as of Principal Option
Built Expansion Footage 12/31/97 Tenants Expiration
------- ---------- ------- --------- ------------ ----------
Shopping Centers
Century Plaza 1976 1991 85,151 98.9% Broward 1998/2001
Deerfield Beach, County
FL Library
Chesterbrook
Village Center 1980 1995 122,316 92.2% Genuardi's 2010/2030
Wayne, PA
County Line Plaza 1970 N/A 160,621 100.0% Ames 2002/2017
Souderton, PA Clemens 2007/2027
Markets
Danville Plaza 1971 1987 23,981 100.0% CVS Pharmacy 2007/2027
Danville, PA
<PAGE> 6
Mount Carmel
Plaza 1988 N/A 14,504 100.0% CVS Pharmacy 2002/2012
Glenside, PA
Rio Grande
Plaza 1991 1997 139,026 95.1% JC Penney 2012/2042
Rio Grande, NJ Peebles 2012/2032
Sears 2006/2026
Route 6 Office
Max Center 1972 1990 47,224 100.0% Office Max 2006/2016
Dickson City, PA
Whitemarsh
Shopping Center 1969 1996 67,418 95.6% Clemens 2017/2037
Conshohocken, PA Markets
Woodbourne
Square 1985 N/A 29,976 100.0% Rehab Place 2000
Langhorne, PA at Oxford
Valley
555 Scott Street
Center 1961 N/A 8,400 100.0% Pet Supplies 2000/2005
Wilkes-Barre, PA Plus
Office Buildings
Century Village
Admin. Bldg. 1970 1995 25,100 100.0% First Choice 2000/2025
W. Palm Beach, Health Care
FL Services
Plymouth Plaza 1974 1974 29,821 100.0% Montgomery 2004
Plymouth Meeting, CV Realty
PA Trust
------- ------
Totals 753,538 97.3%
======= ======
The Company's Real Estate also includes a 154-room Days Inn motel,
located near the entrance to Century Village at West Palm Beach,
Florida. The motel is leased to a corporation controlled by Alan
Shulman, a director of the Company. The lease, as amended,
provides for annual rental through the expiration of the lease term
on August 31, 1999, principally equal to a minimum of $330,000,
plus 30% of gross room revenues in excess of $1.3 million. The
lease also provides for the lessee to pay all operating costs of
the motel, including real estate taxes and insurance.
On March 9, 1998, the Company entered into a contract to sell the
Days Inn. The contract is subject to various conditions and if
consummated, the Company would receive net cash proceeds of
approximately $4.2 million and recognize a gain of approximately
$2.3 million.
<PAGE> 7
Recent Development
On February 4, 1998, the Company entered into agreements to acquire
six shopping centers in Pennsylvania, containing a total of
approximately 630,000 square feet, for an aggregate purchase price
of approximately $55.5 million. The centers are approximately 97%
leased and if the acquisitions are completed, the Company's Real
Estate portfolio will nearly double to approximately 1.4 million
square feet. The acquisitions are subject to due diligence and
certain other conditions and there is no assurance that they will
be consummated. See Item 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition - Liquidity and
Capital Resources for a discussion of proposed financing in
connection with these acquisitions.
Real Estate Mortgage Notes Receivable
The Company's real estate mortgage notes receivable are described
in detail herein and are summarized as follows (in thousands):
December 31,
------------------
1997 1996
-------- --------
Long Term Recreation Notes
(the "Recreation Notes") $66,236 $67,302
Other, principally due from
Hilcoast Development Corp.
("Hilcoast") 11,416 17,506
-------- --------
Totals (1) $77,652 $84,808
======== ========
_________
(1) As of December 31, 1997, none of the above real estate
mortgage notes were delinquent.
Recreation Notes
At December 31, 1997, the Recreation Notes consisted of $25
million due from Hilcoast (the "Hilcoast Recreation Note" - see
Note 8(a) to Consolidated Financial Statements), collateralized by
first mortgages on certain real estate within the Century Village
at Pembroke Pines, Florida adult condominium project ("Pembroke
Century Village"), including the recreation facilities at that
project (the "Pembroke Recreation Facilities"), and $41.2 million,
collateralized by first mortgages on the recreation facilities at
the three previously completed Century Village communities,
including $11 million due from H. Irwin Levy (the "Levy Note"),
Chairman of the Board and a principal stockholder of the Company
and Chairman of the Board, Chief Executive Officer and a majority
stockholder of Hilcoast.
<PAGE> 8
The Hilcoast Recreation Note bears interest at 11% and through July
31, 1998, requires monthly interest payments only. On July 31,
1998, the Hilcoast Recreation Note is scheduled to be converted to
an 11%, fixed rate, 25 year, $25 million, self-amortizing loan
providing for equal monthly payments of principal and interest in
the aggregate amount of $2.9 million per annum. This note may not
be prepaid by Hilcoast without a prepayment penalty and will be
collateralized by a first mortgage on the Pembroke Recreation
Facilities.
The remaining $41.2 million of Recreation Notes generally arose
from the Company's sale of the recreation facilities at the Century
Village adult condominium communities in West Palm Beach and
Deerfield Beach, Florida to unrelated parties in January 1982 and
in Boca Raton, Florida to Mr. Levy in December 1981. The terms of
Mr. Levy's acquisition of the recreation facilities, including the
terms and security of the Levy Note, were substantially the same as
the terms of the sales (negotiated independently) of the other two
recreation facilities. These notes principally consist of 30 year
non-recourse notes maturing in 2012, with interest rates averaging
13% (13.25% in the case of the Levy Note). Equal monthly self-
amortizing installments of principal and interest in the aggregate
amount of $6.5 million per annum are required, including $1.7
million from Mr. Levy. The Levy Note may not be prepaid;
prepayments on the other Recreation Notes generally are not
permitted until 2007. Since 1990, companies owned by Mr. Levy and
certain members of his family have leased, managed and operated the
recreation facilities at the Century Villages in West Palm Beach,
Deerfield Beach and Boca Raton, which are collateral for these
notes.
The Recreation Notes, excluding the Hilcoast Recreation Note, are
pledged as collateral for the CMO's issued by the Company which as
of December 31, 1997, had an outstanding balance of $32.9 million.
See Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition - Liquidity and Capital
Resources for a description of the CMO's.
Other
Other real estate mortgage notes receivable, principally from
Hilcoast, bear interest ranging from 10% to 11%, generally mature
through July 31, 1998 and are principally collateralized by certain
real estate within the Pembroke Century Village.
Investments in Unconsolidated Affiliates
Self Storage Warehouse Partnerships
The Company owns 45%-50% general and limited partnership interests
in three partnerships whose principal assets consist of self-storage
warehouses located in southeast Florida, with an aggregate
of approximately 2,800 units and 300,000 square feet, managed by
independent parties. The Company's partners in these partnerships
are Felix Granados, Sr. and certain members of his family. The
Company has no financial obligation with respect to such
partnerships except under state law, as general partners. The
Company receives monthly distributions from each of the
partnerships based on cash flows.
<PAGE> 9
Drexel
Effective December 31, 1997, the Company acquired an approximately
95% economic interest in Drexel which for over 25 years has been
engaged in the development, brokerage, construction, leasing and
management of real estate. In addition to managing the Company's
Real Estate (excluding its two properties located in Florida),
Drexel performs these services for 28 additional properties located
in Pennsylvania and New Jersey, including five of the six
properties under contract for purchase (see Recent Development).
It is not contemplated that Drexel will seek any additional third
party management contracts in the future. Currently, 99% of the
voting stock of Drexel is beneficially owned by Mr. Meshon and held
in a voting trust and 100% of the non-voting stock is owned by the
OP. Mr. Meshon currently serves as President of Drexel.
Other Real Estate
The Company owns certain real estate acquired by deed in lieu of
foreclosure and held for resale, principally consisting of two
parcels of unimproved commercial land, totaling 38 acres located in
southeast Florida, with a book value of $5.5 million at December
31, 1997, net of a $2.4 million allowance for losses.
Industry Factors
Ownership of commercial real estate involves risks arising from
changes in economic conditions generally and in the commercial real
estate market specifically, as well as risks which result from
property-specific factors such as the failure or inability to make
needed capital improvements, competition, reductions in revenue
arising from decreased occupancy or reductions in the level of
rents obtainable, and factors which increase the cost of operating,
financing and refinancing properties such as escalating interest
rates and wage rates, increased taxes, fuel costs and other
operating expenses and casualties. All of these kinds of risks can
result in reduced net operating revenues available for
distribution. The Company's ability to manage the properties
effectively notwithstanding such risks and economic conditions will
affect the funds available for distribution.
<PAGE> 10
The results of operations of the Company also depend upon the
availability of suitable opportunities for investment and
reinvestment of its funds and on the yields available from time to
time on real estate investments, which in turn depend to a large
extent on the type of investment involved, prevailing interest
rates, the nature and geographical location of the property,
competition and other factors, none of which can be predicted
with certainty. The Company's competitors for acceptable
investments include insurance companies, pension funds, and other
REIT's which may have investment objectives similar to those of the
Company and some of which may have greater financial resources than
the Company. The Company is not aware of statistics which would
allow it to determine its position with respect to all of its
competitors in the commercial real estate investment industry.
Relationship Between the Company and Hilcoast/H. Irwin Levy
See Note 8 to Consolidated Financial Statements and Business - Real
Estate Mortgage Notes Receivable in connection with certain related
party transactions between the Company and H. Irwin Levy and
Hilcoast.
Employees
On December 31, 1997, the Company employed 98 persons, sub-
stantially all of whom were employed by Drexel or a wholly-owned
subsidiary of Drexel.
Item 2. Properties
See Item 1. Business - Real Estate, Other Real Estate and
Investments in Unconsolidated Affiliates.
Item 3. Legal Proceedings
TGI Development, Inc. ("TGI")
On October 9, 1989, TGI filed a complaint in the Circuit Court of
Palm Beach County against the Company, 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
<PAGE> 11
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.
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 4. Submission of Matters to a Vote of Security Holders
On December 17, 1997, the Company held a Special Meeting of
Stockholders in Lieu of Annual Meeting, at which time, the
following matters were voted upon:
Shares
Shares Voted Shares
Voted For Against Abstaining
---------- ---------- ----------
To approve the Master Agreement and
transfers of properties and other
transactions contemplated by the
Master Agreement 4,999,859 165,247 77,277
To approve amendments to the Company's
Certificate of Incorporation to increase
the authorized capital from 10 million
shares of Common Stock, par value $.01,
to 20 million shares of Common Stock,
par value $.01 5,122,821 296,896 86,968
To approve amendments to the Company's
Certificate of Incorporation to provide
for a board of directors divided into
three classes 4,801,751 332,676 107,955
To approve certain other amendments
to the Company's Certificate of
Incorporation 5,047,051 320,484 139,149
To approve certain amendments to the
Company's By-Laws 4,804,053 311,317 127,012
<PAGE> 12
Shares
Shares Voted Shares
Voted For Against Abstaining
---------- ---------- ----------
To approve the Montgomery CV Trust
Executive Officer Stock Option Plan 4,582,785 491,146 168,451
To elect seven directors nominated by
the Company's Board of Directors, or,
in the alternative, if all of the
foregoing proposals were not approved,
to elect four directors nominated by
the Company's Board of Directors:
H. Irwin Levy 7,086,602 104,820 -
Stanley Brenner 7,073,869 117,553 -
Allyn L. Levy 7,058,523 132,899 -
Alan L. Shulman 7,076,753 114,669 -
Louis P. Meshon, Sr. 7,085,606 105,816 -
Stanley S. Cohen 7,083,861 107,561 -
Milton S. Schneider 7,083,475 107,947 -
To approve the appointment of BDO
Seidman, LLP as the Company's
independent auditors for fiscal 1997 7,060,602 57,537 73,282
Each of the above directors was elected effective December 31, 1997 immediately
following the closing of the transactions under the Master Agreement.
PART II
Item 5. Market for Registrant's Common Stock
and Related Security Holders Matters
The Common Stock of the Company is listed for trading on the New
York Stock Exchange under the symbol CVI. The following table sets
forth the high and low sales prices per share and the dividends
per share declared by the Company on the Common Stock, for each
quarter during the past two years.
Market
Price Range
------------------- Dividends
High Low Declared
1997 ---- --- ------------
First Quarter 14 12-3/8 $ .29
Second Quarter 12-7/8 11-1/4 .29
Third Quarter 14 12-1/2 .29
Fourth Quarter 13-15/16 12-11/16 .29
-----
$1.16
=====
<PAGE> 13
1996
First Quarter 11-7/8 10-5/8 $ .27
Second Quarter 11-1/2 10-3/8 .29
Third Quarter 12-1/8 11 .29
Fourth Quarter 13-3/4 11-7/8 .29
-----
$1.14
=====
As of February 28, 1998, there were 7,966,621 shares of Common
Stock outstanding and 1,873 holders of record of such stock.
CV Reit, through its wholly-owned subsidiary, Montgomery CV Realty
Trust (the "Trust"), indirectly owns 7,966,621 OP units
(representing 81.7% of the OP). The holders of the remaining
18.3%, or 1,787,010 OP units, have the right to require the OP to
redeem their OP units for cash at any time after December 31, 1998.
However, upon a holder giving notice of the exercise of this right,
the Trust has the right to acquire such holder's OP units in
exchange for cash or, if certain conditions are satisfied, an equal
number of shares of CV Reit's Common Stock.
The Company expects to continue to qualify as a REIT. A
corporation which qualifies as a REIT may, if it distributes at
least 95% of ordinary taxable income for a taxable year, deduct
dividends paid to stockholders with respect to such taxable year
from taxable income. Future distributions will be at the
discretion of the Board of Directors and will depend on the
Company's cash flow, financial condition, capital requirements, the
annual REIT distribution requirements and such other factors as the
Board deems appropriate.
Item 6. Selected Financial Data
(dollars in millions, except per share data)
Year Ended December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
Total revenues $13.3 $12.8 $12.9 $13.9 $15.4
========= ========= ========= ========= =========
Income before income
taxes $8.5 $9.4 $8.4 $6.3 $11.3
========= ========= ========= ========= =========
Net income $8.5 $9.6 $9.4 $6.3 $9.5
========= ========= ========= ========= =========
Funds From Operations
(FFO) (a) $9.1 $9.0 $8.7 $8.4 $7.3
========= ========= ========= ========= =========
<PAGE> 14
Year Ended December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
Per common share:
Net income, basic
and diluted $1.07 $1.20 $1.18 $0.79 $1.29
========= ========= ========= ========= =========
Dividends declared $1.16 $1.14 $1.08 $1.08 $1.00
========= ========= ========= ========= =========
Average shares
outstanding 7,966,621 7,966,621 7,966,621 7,966,621 7,378,479
========= ========= ========= ========= =========
At Year End:
Total assets $171.9 $118.9 $120.0 $122.8 $163.2
========= ========= ========= ========= =========
Borrowings $66.3 $35.1 $37.1 $38.9 $77.2
========= ========= ========= ========= =========
Stockholders' equity:
Total $72.9 $73.7 $73.2 $72.4 $74.7
========= ========= ========= ========= =========
Per common share $9.16 $9.25 $9.19 $9.09 $9.38
========= ========= ========= ========= =========
__________
(a) Please refer to Management's Discussion and Analysis of Results of
Operations and Financial Condition for a definition of FFO.
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results of Operations
Net Income
1997 Compared to 1996
For the year ended December 31, 1997, net income was $8,515,000 or
$1.07 per share compared to $9,570,000 or $1.20 per share for 1996.
Net income for 1996 included a $906,000 reversal of previously
recorded losses, including $500,000 received from the settlement of
litigation in connection with a loan which had been written off and
reversals primarily related to a re-evaluation of the allowance for
losses associated with other real estate.
<PAGE> 15
Interest income decreased by $1,083,000 during 1997, including a
$694,000 reduction attributable to an approximately $6 million
reduction in the average balance of the Hilcoast mortgage notes
receivable. The average interest rate on the mortgage notes repaid
approximated 12% and the repayments were generally reinvested in
lower yielding short-term investments (averaging approximately
5.55%). Interest income also decreased by $426,000 due to the
elimination of certain income producing assets utilized in the
acquisition of the Century Plaza shopping center ("Century Plaza")
on September 30, 1996, which decrease was more than offset by
higher net rental income (rent income less operating costs) from
Century Plaza as discussed below. Interest income is anticipated
to continue to decrease in 1998 due to scheduled repayments of the
mortgage notes receivable.
During 1997, rent income, operating expenses and depreciation and
amortization increased by $1,646,000, $525,000 and $171,000,
respectively, primarily due to the acquisition of Century Plaza.
The Company expects significant increases in rent income, operating
costs and depreciation during 1998 as a result of the acquisition
of ten commercial properties on December 31, 1997 (the "1997
Acquisition").
Interest expense experienced an insignificant increase in 1997;
however, interest expense is expected to increase significantly
during 1998 due to the assumption of approximately $33.4 million of
mortgage indebtedness in connection with the 1997 Acquisition and,
if consummated, the Proposed Line of Credit (see Liquidity and
Capital Resources - Borrowings).
General and administrative expenses decreased by $230,000 during
1997, reflecting reductions in personnel costs, professional fees
and insurance. These expenses are expected to increase during 1998
due to the 1997 Acquisition.
1996 Compared to 1995
For the year ended December 31, 1996, net income was $9,570,000 or
$1.20 per share compared to $9,374,000 or $1.18 per share for 1995.
Net income for 1996 included a $906,000 reversal of previously
recorded losses, including $500,000 received from the settlement of
litigation in connection with a loan which had been written off and
reversals primarily related to a re-evaluation of the allowance for
losses associated with other real estate. The Company also
recorded a $121,000 deferred income tax benefit in 1996, compared
to a $1,017,000 deferred income tax benefit in 1995.
<PAGE> 16
Interest income decreased by $536,000 in 1996 resulting from net
principal payments received under the Hilcoast mortgage notes
receivable which were generally reinvested in lower yielding
short-term investments.
Rent income, operating expenses and depreciation and amortization
increased by $371,000, $72,000 and $94,000, respectively, primarily
from the acquisition of Century Plaza.
Interest expense decreased $202,000 in 1996 due to the scheduled
principal repayments of the CMO's.
General and administrative expenses decreased by $333,000 in 1996
reflecting reductions in personnel costs, professional fees and
insurance.
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 reversal of previously recorded losses, 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.
For the years ended December 31, 1997, 1996 and 1995, FFO amounted
to $9,099,000, $8,956,000 and $8,679,000, respectively. The
following schedule reconciles FFO to net income for the years
presented:
<PAGE> 17
1997 1996 1995
---------- ---------- ----------
Net income $8,515,000 $9,570,000 $9,374,000
Depreciation and amorti-
zation of real property 409,000 238,000 144,000
Equity in depreciation of
unconsolidated affiliates 175,000 175,000 178,000
Deferred income tax benefit - (121,000) (1,017,000)
Reversal of provision for
losses, net - (906,000) -
---------- ---------- ----------
FFO $9,099,000 $8,956,000 $8,679,000
========== ========== ==========
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 $9.1 million in 1997 from
$8.9 million in 1996 and $8.7 million in 1995. These amounts equal
net income plus adjustments for non-cash items consisting of
depreciation, deferred income tax benefit and reversal of provision
for losses.
Net cash provided by investing activities increased to $7.8 million
in 1997 from $1.8 million in 1996. The 1997 amounts principally
consist of $7.2 million of net collections on real estate mortgage
notes receivable and the maturity of $6.4 million of short-term
investments, partially offset by $5.6 million of cash required in
connection with the 1997 Acquisition. The 1996 amounts consist of
$9.4 million of net collections on real estate mortgage notes
receivable, partially offset by a $6.4 million increase in short-term
investments and $1.2 million of cash required in connection
with the acquisition of Century Plaza.
Net cash used in financing activities increased to $11.4 million in
1997 from $11.0 million in 1996 and $10.5 million in 1995. These
amounts primarily consist of distributions paid to stockholders and
to a lesser extent, net repayments of borrowings. The increases in
net cash used in financing activities are primarily attributable to
higher distributions to stockholders. During 1997, cash dividends
declared increased to an aggregate of $1.16 per share, compared to
$1.14 per share in 1996 and $1.08 per share in 1995.
<PAGE> 18
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
refinancings, scheduled principal repayments on certain Hilcoast
mortgage notes receivable, sales of non-strategic other real estate
(see Item 1. Business - Other Real Estate), existing cash balances,
and/or potential debt or equity financing in the public or private
markets.
Future Acquisitions
As of December 31, 1997, the Company's unrestricted cash and cash
equivalents amounted to approximately $12 million, with an average
yield of 5.35%. 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, the Company
may be required to seek outside financing which may or may not be
available.
On February 4, 1998, the Company entered into agreements to acquire
six shopping centers in Pennsylvania for an aggregate purchase
price of approximately $55.5 million, including projected
transaction costs and fees. If consummated, the Company intends to
finance substantially all of the purchase price through assumption
of existing mortgages on the properties to be acquired and a
Proposed Line of Credit with a financial institution (see Liquidity
and Capital Resources - Borrowings). The 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.
<PAGE> 19
Borrowings
At December 31, 1997, the Company's borrowings increased to $66.3
million from $35.1 million at December 31, 1996 as a result of the
1997 Acquisition. Scheduled principal payments over the next five
years are $33.4 million with $32.9 million due thereafter.
Borrowings include $33.4 million, collateralized by a substantial
portion of the Company's Real Estate. The Company expects to
refinance certain of these borrowings, at or prior to maturity,
through new mortgage loans on Real Estate including potential
refinancings under the Proposed Line of Credit (see below). 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 refinancings can
be achieved.
The remaining $32.9 million of borrowings consists of the CMO's
which are collateralized by $41.2 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.
On March 16, 1998, the Company entered into a letter agreement (the
("Term Sheet") with a financial institution wherein the financial
institution has agreed to provide a $100 million three year non-revolving
line of credit (the "Proposed Line of Credit"). Advances
under the Proposed 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. The Term Sheet is subject to
various conditions which must be satisfied by March 31, 1998 and
there can be no assurance that the Proposed Line of Credit will be
consummated.
<PAGE> 20
Inflation
During 1997, the rate of inflation 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
tenants 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.
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).
New Pronouncement
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which the Company will adopt as required for all
periods beginning after December 15, 1997. This statement requires
the disclosure of certain information about operating segments in
the financial statements. It also requires that public companies
report certain information about their products and services, the
geographic areas in which they operate and their major customers.
The adoption of SFAS No. 131 is not expected to have a significant
impact on the Company's financial statements.
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.
<PAGE> 21
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-K, 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-K. 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-K and in other reports filed by the Company with the
Securities and Exchange Commission.
<PAGE> 22
Item 8. Financial Statements and Supplementary Data
Table of Contents to Consolidated Financial Statements
Page
----
Report of Independent Certified Public Accountants 23
Consolidated Financial Statements:
Balance Sheets - December 31, 1997 and 1996 24
Statements of Income - Years Ended
December 31, 1997, 1996 and 1995 25
Statements of Stockholders' Equity - Years
Ended December 31, 1997, 1996 and 1995 26
Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 28-42
Consolidated Financial Statements Schedules:
Schedule IV - Mortgage Loans on Real Estate 43
Schedules, other than that listed above, are omitted because they
are not required, or because the information required therein is
set forth in the consolidated financial statements or the notes thereto.
<PAGE> 23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of CV Reit, Inc.
West Palm Beach, Florida
We have audited the accompanying consolidated balance sheets of CV
Reit, Inc. and subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended
December 31, 1997. We have also audited the schedule listed in the
accompanying index. These financial statements and the schedule
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and the schedule 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 and schedule 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of CV Reit, Inc. and subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
West Palm Beach, Florida BDO SEIDMAN, LLP
March 11, 1998
<PAGE> 24
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
-------------------
ASSETS 1997 1996
------ -------- --------
Real estate - income producing,
net of accumulated depreciation
(Notes 2, 3, 6, 8 and 14) $ 71,017 $ 10,078
Real estate mortgage notes receivable
(Notes 4 and 8) 77,652 84,808
Investments in unconsolidated affiliates 3,284 3,165
Cash and cash equivalents (includes
$915 and $898 restricted) 12,869 7,564
Short-term investments - 6,436
Other real estate (net of allowance
for losses of $2,401) (Note 5) 5,451 5,451
Other 1,654 1,428
-------- --------
$171,927 $118,930
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Borrowings (Notes 6 and 14) $ 66,281 $ 35,064
Accounts payable and other liabilities 4,443 3,151
Deferred income taxes (Note 9) 7,041 7,041
-------- --------
Total liabilities 77,765 45,256
-------- --------
Minority interests in Operating
Partnership (Notes 2 and 13) 21,214 -
------- --------
Commitments, contingencies and
subsequent events (Notes 6, 7, 11 and 14)
Stockholders' equity (Note 13):
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 54,378 55,104
-------- --------
Total stockholders' equity 72,948 73,674
-------- --------
$171,927 $118,930
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 25
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Year Ended December 31,
--------------------------------
1997 1996 1995
Revenues: --------- --------- --------
Interest, principally from
mortgage notes (Notes 4,
8 and 10) $ 10,612 $ 11,695 $ 12,231
Rent 2,703 1,057 686
--------- --------- ---------
13,315 12,752 12,917
--------- --------- ---------
Expenses:
Interest (Note 6) 3,306 3,232 3,434
Operating 870 345 273
General and administrative 654 884 1,217
Depreciation and amortization 409 238 144
--------- --------- ---------
5,239 4,699 5,068
--------- --------- ---------
8,076 8,053 7,849
Equity in income of unconsolidated
affiliates 439 490 508
Reversal of provision for losses, net - 906 -
--------- --------- ---------
Income before income tax benefit 8,515 9,449 8,357
Deferred income tax benefit (Note 9) - (121) (1,017)
--------- --------- ---------
Net income $ 8,515 $ 9,570 $ 9,374
========= ========= =========
Per Common Share:
Net income, basic and diluted $ 1.07 $ 1.20 $ 1.18
========= ========= =========
Dividends declared $ 1.16 $ 1.14 $ 1.08
========= ========= =========
Average common shares outstanding
basic and diluted 7,966,621 7,966,621 7,966,621
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 26
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------ ---------- -------- -------
Balance at December 31, 1994 $ 80 $18,490 $53,846 $72,416
Net income for the year - - 9,374 9,374
Cash dividends declared - - (8,604) (8,604)
------ --------- -------- -------
Balance at December 31, 1995 80 18,490 54,616 $73,186
Net income for the year - - 9,570 9,570
Cash dividends declared - - (9,082) (9,082)
------ --------- -------- -------
Balance at December 31, 1996 80 18,490 55,104 73,674
Net income for the year - - 8,515 8,515
Cash dividends declared - - (9,241) (9,241)
------ --------- -------- -------
Balance at December 31, 1997 $ 80 $18,490 $54,378 $72,948
====== ========= ======== =======
See accompanying notes to consolidated financial statements.
<PAGE> 27
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
-------------------------
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ------- ------- -------
Net income $8,515 $ 9,570 $ 9,374
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 409 238 144
Equity in depreciation of unconsolidated
affiliates 175 175 178
Deferred income tax benefit - (121) (1,017)
Reversal of provision for losses, net - (906) -
------- ------- -------
9,099 8,956 8,679
Changes in operating assets and liabilities,
net of effects of acquisition:
Decrease (increase) in other assets 47 (51) 32
(Decrease) increase in accounts payable
and other liabilities (242) 207 (669)
------- ------- -------
Net cash provided by operating activities 8,904 9,112 8,042
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fundings on real estate mortgage notes (16,112) (16,369) (23,068)
Collections on real estate mortgage notes 23,268 25,732 20,661
Purchase of short-term investments (8,679) (6,436) -
Maturity of short-term investments 15,115 - 2,920
Acquisitions of real estate, net of cash acquired (5,577) (1,154) -
Other (204) (7) (471)
------- ------- -------
Net cash provided by investing activities 7,811 1,766 42
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - - 500
Repayments of borrowings (2,201) (2,010) (2,334)
Cash dividends paid (9,209) (8,937) (8,615)
Increase in restricted cash (17) (14) (16)
------- ------- -------
Net cash used in financing activities (11,427) (10,961) (10,465)
------- ------- -------
Net increase (decrease) in unrestricted
cash and cash equivalents 5,288 (83) (2,381)
Unrestricted cash and cash equivalents at
beginning of the period 6,666 6,749 9,130
------- ------- -------
Unrestricted cash and cash equivalents at
end of the period $11,954 $ 6,666 $ 6,749
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,296 $ 3,239 $ 3,436
======= ======= =======
Non-cash transactions:
Mortgage notes received in exchange for
investment security $ - $ - $ 5,000
======= ======= =======
Fair value of assets acquired ($61,711)($ 7,402) $ -
Liabilities assumed 34,913 - -
Reduction of mortgage notes receivable - 6,248 -
Operating Partnership Units issued 21,221 - -
------- ------- -------
Cash paid for acquisitions, net of cash
acquired (Note 2) ($ 5,577)($ 1,154) $ -
======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE> 28
CV REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
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 subsidiary
hereinafter collectively referred to as the "OP"), acquired 100% of
the ownership interests in nine shopping centers and an office
building, located in Pennsylvania and New Jersey, and an
approximately 95% economic interest in Drexel Realty, Inc.
("Drexel"), a real estate management and leasing company (Note 2)
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.
Principles of Consolidation
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.
Real Estate - Income Producing ("Real Estate")
Real Estate, consisting of ten shopping centers, two office
buildings and a motel, is carried at cost, net of accumulated
depreciation, and is subject to operating leases. Depreciation is
provided over the estimated useful lives of the assets (7 to 40
years) on the straight-line method.
<PAGE> 29
Effective January 1, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires the Company
to evaluate long-lived assets, including its Real Estate, for
impairment based on the undiscounted future cash flows of the
asset. If a long-lived asset is identified as impaired, the value
of the asset must be reduced to its fair value. Adoption of this
standard did not have a material impact on the Company's financial
position or results of operations.
Real Estate Mortgage Notes Receivable,
Other Real Estate and Allowance For Losses
Real estate mortgage notes receivable are carried at the lower of
cost or estimated net realizable value. Accrual of interest is
discontinued when management believes, after considering economic
and business conditions and collection efforts, that timely
collection is doubtful.
Other real estate principally consists of two parcels of unimproved
commercial land, totaling 38 acres located in southeast Florida,
acquired by deed in lieu of foreclosure and held for resale. These
properties are carried at the lower of cost (fair value at date of
acquisition) or fair value less selling costs. Carrying costs and
subsequent declines in net realizable value are charged to
operations as incurred.
The allowance for losses is established through a provision charged
to operations based upon an evaluation by management of its real
estate mortgage notes receivable and other real estate. In
evaluating possible losses, management takes into consideration
appropriate information which may include the borrower's cash flow
projections, historical operating results and financial strength,
pending sales, adverse conditions that may affect the borrower's
ability to repay, appraisals and current economic conditions.
Revenue Recognition
Rental income from tenants is generally recognized on a straight-line
basis over the term of the respective leases. Certain leases
provide for reimbursement to the Company of the tenants' share of
common area maintenance costs, insurance and real estate taxes
which are recorded on the accrual basis. Interest income is
recognized on the accrual basis.
<PAGE> 30
Dividends and Income Taxes
The Company has elected to qualify as a REIT under the provisions
of Section 856-860 of the Internal Revenue Code. As a REIT, the
Company is required to distribute at least 95% of its ordinary
taxable income to stockholders and may deduct such distributions
from taxable income. A REIT is not required to distribute capital
gain income but to the extent it does not, it must pay the
applicable capital gain income tax unless it has ordinary losses to
offset such capital gain income.
The federal income tax characteristics of dividends paid by the
Company consisted of:
1997 1996 1995
Ordinary income 88.1% 91.9% 65.6%
Capital gain distribution 10.9% 8.1% 34.4%
The Company accounts for income taxes based upon SFAS No.109
"Accounting for Income Taxes", which requires, among other things,
a liability approach to calculating deferred income taxes.
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 amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share", which simplifies the standards
for computing earnings per share ("EPS") previously found in APB
No. 15, "Earnings Per Share". It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of
the diluted EPS computation. The Company adopted SFAS No. 128 in
1997 and its implementation did not have a material effect on the
financial statements. EPS has been restated for all prior periods
presented.
<PAGE> 31
Net income per common share (basic and diluted) is based on the
income for the period divided by the weighted average number of
common shares outstanding during each year.
The Company's potentially issuable shares of common stock pursuant
to the redemption provisions of the 1,787,010 OP Units issued on
December 31, 1997 and the options granted on December 31, 1997 to
acquire 150,000 shares of common stock at $13.69 per share had no
effect on diluted earnings per share for 1997.
Statements of Cash Flows
For financial statement purposes, the Company considers all highly
liquid investments with initial maturities of three months or less
to be cash equivalents.
Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform to
the 1997 financial statement presentation. These reclassifications
had no impact on operating results previously reported.
New Pronouncement
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which the Company will adopt as required for all
periods beginning after December 15, 1997. This statement requires
the disclosure of certain information about operating segments in
the financial statements. It also requires that public companies
report certain information about their products and services, the
geographic areas in which they operate and their major customers.
The adoption of SFAS No. 131 is not expected to have a significant
impact on the Company's financial statements.
(2) Acquisition
On December 31, 1997, the OP completed the acquisition of 100% of
nine shopping centers and an office building from two separate
groups, the Montgomery Parties and the Levy Parties (Note 8), and
an approximately 95% economic interest in Drexel from Louis P.
Meshon, Sr. Effective, December 31, 1997, Mr. Meshon became
President, Chief Executive Officer and a director of CV Reit. The
acquisition was accounted for as a purchase; accordingly, the net
assets acquired are included in the Consolidated Balance Sheet as
of December 31, 1997. The Consolidated Statements of Net Income
will include the operating results of the net assets acquired
beginning in 1998.
<PAGE> 32
The purchase price amounted to $61.7 million (net of cash
acquired), consisting of 1,787,010 OP Units issued to the sellers,
valued at $11.88 per OP Unit, or $21.2 million (based on the
closing price of the Company's common stock (into which the OP
Units may be redeemable - Note 13) on April 28, 1997, the date the
acquisition was publicly announced); the assumption of $34.9
million of liabilities, principally mortgage indebtedness; and,
cash in the amount of $5.6 million, including transaction costs.
The following unaudited proforma data summarizes the consolidated
results of operations for the years indicated as if the acquisition
had occurred as of the beginning of each year. The proforma
results do not purport to be indicative of the results of
operations which would have actually been reported had the
acquisition been consummated on those dates, or which may be
reported in the future (in thousands, except per share data):
1997 1996
------- -------
Revenues $21,276 $19,830
Net income $ 7,643 $ 8,029
Net income per common share,
basic and diluted $ .96 $ 1.01
(3) Real Estate
(a) Real Estate is located in Pennsylvania, New Jersey and Florida
and consists of (in thousands):
December 31,
-------------------
1997 1996
------- ------
Shopping centers $64,356 $7,402
Office buildings 5,334 962
Motel (Note 3(d) 4,058 4,058
Other 81 81
------- ------
Totals 73,829 12,503
Less accumulated depreciation (2,812) (2,425)
------- -------
Net Real Estate (Note 6) $71,017 $10,078
======= =======
<PAGE> 33
(b) Real Estate is leased to tenants under leases expiring at
various dates through 2017 some of which contain renewal options of
up to 30 years. Most of the leases require fixed base rentals
payable monthly in advance; additional rental based on
reimbursements of common area maintenance, insurance and real
estate taxes and, in some leases, based on a percentage of tenants'
sales; and, rent increases based on cost-of-living indexes. As of
December 31, 1997, future minimum rental income under
noncancellable operating leases, excluding rentals from the
exercise of renewal options, is as follows (in thousands):
Year ending December 31,
1998 $ 7,531
1999 6,762
2000 6,093
2001 5,095
2002 4,099
Thereafter 19,599
-------
Total $49,179
=======
(c) Real Estate with a net book value of $56.3 million, at
December 31, 1997, is pledged as collateral for borrowings (Note 6).
(d) On March 9, 1998, the Company entered into a contract to sell
the Motel. The contract is subject to various conditions and if
consummated, the Company would receive net cash proceeds of
approximately $4.2 million and recognize a gain of approximately
$2.3 million.
(4) 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):
December 31,
------------------
1997 1996
Long Term Recreation Notes (the ------- -------
"Recreation Notes") (Notes
4(b), 6 and 8) $66,236 $67,302
Other, principally due from
Hilcoast Development Corp.
("Hilcoast" - Note 8) 11,416 17,506
------- -------
Totals $77,652 $84,808
======= =======
<PAGE> 34
Interest Sensitivity
--------------------
Fixed Variable
Rate Rate
------- -------
Maturity of real estate
mortgage notes at
December 31, 1997:
One year or less $12,575 $ 6,463 $ 6,112
After one year through
five years 7,616 7,616 -
After five years 57,461 57,461 -
------- ------- -------
Totals $77,652 $71,540 $ 6,112
======= ======= =======
(b) At December 31, 1997, the Recreation Notes consisted of $25
million due from Hilcoast (the "Hilcoast Recreation Note"),
collateralized by first mortgages on certain real estate within the
Century Village at Pembroke Pines, Florida adult condominium
project (the "Pembroke Century Village"), including the recreation
facilities at that project (the "Pembroke Recreation Facilities")
and $41.2 million, collateralized by first mortgages on the
recreation facilities at the three previously completed Century
Village communities. The Hilcoast Recreation Note bears interest
at 11% and through July 31, 1998, requires monthly interest
payments only. On July 31, 1998, the Hilcoast Recreation Note is
scheduled to be 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 and will be collateralized by
a first mortgage on the Pembroke Recreation Facilities. The
remaining $41.2 million of Recreation Notes principally provide for
self-amortizing equal monthly principal and interest payments due
through 2012, with interest rates averaging 13%, and contain
certain prepayment prohibitions. These notes are pledged as
collateral for borrowings (Note 6).
(5) Allowance For Losses
Changes in the allowance for losses follow (in thousands):
1997 1996 1995
------ ------ ------
Balance, beginning of year $2,401 $3,107 $3,531
Reversal of provision for losses - (1,163) -
Charge-offs - (43) (424)
Recoveries - 500 -
------ ------ ------
Balance, end of year $2,401 $2,401 $3,107
====== ====== ======
<PAGE> 35
(6) Borrowings
(a) Borrowings consist of (in thousands):
December 31,
------------------
1997 1996
Mortgage notes payable through -------- --------
September 2008, interest
ranging from 7.5% to prime
(8.5% at December 31, 1997)
plus 1/2%, collateralized by
Real Estate (Note 3) $ 33,418 $ -
Collateralized Mortgage Obligations,
net of unamortized discounts of
$676,000 and $809,000 based on
an effective interest rate of
8.84%, collateralized by certain
of the Recreation Notes (Note 4
(b)), quarterly self-amortizing
principal and interest payments
required through March 2007 32,863 35,064
-------- --------
Totals $ 66,281 $ 35,064
======== ========
(b) The OP has agreed that it will not make certain prepayments or
refinancings of certain of the mortgage notes prior to various
dates not later than July 31, 2002, without the consent of certain
of the limited partners of the OP.
(c) Maturities of borrowings are as follows (in thousands):
1998 $12,637
1999 3,130
2000 7,735
2001 5,891
2002 3,942
Thereafter 32,946
-------
Total $66,281
=======
<PAGE> 36
(7) 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.
(8) Related Party Transactions
Hilcoast/H. Irwin Levy
(a) On July 31, 1992, Hilcoast, an affiliate of the Company on
that date, acquired certain assets from a previous borrower of the
Company, pursuant to approval by the Bankruptcy Court of the
Southern District of Florida in connection with Chapter 11
proceedings filed by that borrower. The assets were acquired by
Hilcoast subject to the borrower's indebtedness to the Company,
principally consisting of a term loan which as of December 31,
1997, had an outstanding balance of $25 million (Note 4(b)). H.
Irwin Levy, currently the Chairman of the Board and a principal
stockholder of the Company is the Chairman of the Board, Chief
Executive Officer and a majority stockholder of Hilcoast. During
1997, 1996 and 1995, the Company recognized interest income of $4.3
million, $5 million and $5.3 million, respectively from Hilcoast.
<PAGE> 37
(b) Effective July 31, 1992, the Company and Hilcoast entered into
a consulting and advisory agreement under which Hilcoast provides
certain investment advisory, consulting and administrative services
to the Company, excluding matters related to Hilcoast's loans from
the Company. The agreement, which originally expired on July 31,
1994, has been extended to June 30, 1999, and provides for the
payment of $10,000 per month to Hilcoast, plus reimbursement for
reasonable out of pocket expenses. The agreement may be terminated
by Hilcoast upon 180 days notice and by the Company upon 30 days
notice. During each of the three years ended December 31, 1997,
the Company paid $120,000 to Hilcoast under this agreement, plus
expense reimbursement.
(c) Mr. Levy owns the recreation facilities at the Century Village
in Boca Raton, acquired from the Company in 1981, which is
collateral for one of the Company's Recreation Notes, which had an
outstanding balance of $11 million at December 31, 1997 (Note
4(b)). The note bears interest at 13.25%, requires self-amortizing
equal monthly payments of principal and interest in the aggregate
amount of $1.7 million per annum through 2011 and may not be
prepaid. During 1997, 1996 and 1995, the Company recognized
interest income of approximately $1.5 million per year on this
note.
(d) Since 1990, companies owned by Mr. Levy and certain members of
his family lease, manage and operate the recreation facilities at
the Century Villages in West Palm Beach, Deerfield Beach and Boca
Raton, which are collateral for $41.2 million of the Company's
Recreation Notes (Note 4(b)).
(e) Two of the shopping centers purchased by the OP on December
31, 1997 (Note 2) were acquired from the Levy Parties (Mr. Levy and
members of his family) in exchange for 386,811 OP Units (valued at
approximately $4.6 million), including 77,363 OP Units (valued at
approximately $900,000) issued to Mr. Levy. The economic basis
used to determine the acquisition price was the same as that used
for the other properties acquired on that date.
(f) The Company leases approximately 3,000 square feet of an
office building, located within the Century Village at West Palm
Beach community, on a month to month basis, to a company owned by
Mr. Levy and a member of his family at a monthly rental of
approximately $2,500, plus an allocation of utility expenses.
<PAGE> 38
Days Inn
The Company owns a 154-room Days Inn motel, located near the
entrance to Century Village at West Palm Beach, Florida (Note
3(d)). The motel is leased to a corporation controlled by Alan
Shulman, a director of the Company. The lease, as amended,
provides for annual rental through the expiration of the lease term
on August 31, 1999, equal to a minimum of $330,000, plus 30% of
gross room revenues in excess of $1.3 million. The lease also
provides for the lessee to pay all operating costs of the motel,
including real estate taxes and insurance, and to pay to the
Company 50% of certain amounts received by the lessee from the
concessionaire who operates the food and beverage facilities at the
motel. In 1997, 1996 and 1995, the Company recognized rent income
of $489,000, $454,000 and $472,000, respectively, under the lease.
(9) Deferred Income Taxes
(a) Deferred income tax benefit differs from the amount computed
by applying the statutory federal income tax rate to income before
income taxes for the following reasons (in thousands):
1997 1996 1995
------ ------ ------
Tax expense computed at
statutory rate $2,895 $3,213 $2,841
State income tax benefit,
net of federal effect (29) (6) (86)
Dividends paid deduction (3,169) (3,266) (3,644)
Other 303 (62) (128)
------ ------ ------
Totals $ - ($ 121) ($1,017)
====== ====== ======
(b) The components of the net deferred tax liability are as
follows (in thousands):
December 31,
-----------------
1997 1996
------- -------
Deferred tax liabilities:
Gains on the sales of recreation
facilities reported on the install-
ment method for tax purposes $13,522 $13,833
Other 564 235
------- -------
Total deferred tax liabilities 14,086 14,068
------- -------
<PAGE> 39
Deferred tax assets:
Differences in reporting the
provision for losses 903 903
Net operating loss carryforwards
for tax purposes 5,899 5,899
Other 243 225
------- -------
Total deferred tax assets 7,045 7,027
------- -------
Net deferred tax liability $ 7,041 $ 7,041
======= =======
(c) As of December 31, 1997, the Company has aggregate net
operating loss carryforwards for tax purposes of approximately
$15.7 million, expiring $7.1 million in 2007 and $8.6 million in
2006.
(10) Major Customers
During 1997, interest income from four borrowers provided 33%
(Hilcoast), 16%, 14% and 11% (H. Irwin Levy), respectively, of
total revenues. During 1996, interest income from four borrowers
provided 39% (Hilcoast), 17%, 15% and 12% (H. Irwin Levy),
respectively, of total revenues. During 1995, interest income from
four borrowers provided 40% (Hilcoast), 17%, 15% and 12% (H. Irwin
Levy), respectively of total revenues.
(11) Financial Instruments with Off-Balance-Sheet Risk
In connection with a line of credit agreement with Hilcoast, at
December 31, 1997 the Company was a party to financial instruments
with off-balance-sheet risk, principally consisting of a $2.2
million commitment to extend credit. Those instruments, which
generally expire on July 31, 1998, involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the
balance sheet. The contract amounts of those instruments reflect
the extent of involvement and the exposure to credit loss the
Company has in particular classes of financial instruments. The
Company used the same credit policies and has the same credit risk
in making commitments and conditional obligations as it did for on-
balance-sheet instruments. Commitments to extend credit are
agreements to lend to a borrower as long as there is no violation
of any condition established in the contract and since they may
expire without being drawn upon, they do not necessarily represent
future cash requirements.
<PAGE> 40
(12) Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments
are as follows:
December 31,
-------------------------------------
1997 1996
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Real estate mortgage
notes receivable $77,652 $99,200 $84,808 $104,189
Cash and cash equivalents 12,869 12,869 7,564 7,564
Short-term investments - - 6,436 6,436
Borrowings (66,281) (67,745) (35,064) (39,894)
Real estate mortgage notes receivable - Except for the Recreation
Notes (Note 4(b)), the Company's real estate mortgage notes
receivable principally consist of loans which mature within one
year and have carrying amounts that approximate fair value. The
fair value of the fixed rate, Long Term Recreation Notes is
estimated by discounting the future cash flows using the current
rates at which similar loans would be made with similar credit
ratings and for the same remaining maturities.
Short-term investments - Fair value approximates carrying amounts
due to their short-term maturity.
Borrowings - Rates currently available to the Company for debt
with similar terms and remaining maturities are used to estimate
the fair value of the Company's borrowings.
(13) Stockholders' Equity
Stock Options
The Company applies ABP Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its two
stock option plans - the Montgomery CV Trust Executive Stock Option
Plan (the "CV Plan"), and the Drexel Realty, Inc. 1997 Stock Option
Plan (the "Drexel Plan"). Under the CV Plan, a maximum of 150,000
shares of the Company's common stock may be issued to certain
executives, all of which were granted on December 31, 1997 at an
exercise price of $13.69. The options expire on December 31, 2007
and become exercisable ratably over a five year period, commencing
on December 31, 1998.
<PAGE> 41
Under the Drexel Plan, a maximum of 400,000 shares of the Company's
common stock may be issued to employees or non-employee directors
of Drexel at an option price not less than the fair market value of
the Company's common stock on the date of grant, exercisable up to
a maximum of ten years from the date of grant. As of December 31,
1997, no options had been granted under the Drexel Plan.
Statement of Financial Accounting Standards No.123 (FAS 123),
"Accounting for Stock-Based Compensation", requires the Company to
provide pro forma information regarding net income and net income
per common share as if compensation cost for stock options granted,
if applicable, had been determined in accordance with the fair
value based method prescribed in FAS 123. Since the only options
under the CV Plan were granted on the last day of the Company's
fiscal year, there is no proforma effect.
Redemption Rights
Holders of the 1,787,010 OP Units have the right to require the OP
to redeem their OP Units at any time after December 31, 1998.
However, upon a holder giving notice of the exercise of this right,
the Company has the right to acquire such holder's OP Units in
exchange for cash or, if certain conditions are satisfied, an equal
number of shares of the Company's common stock.
(14) Subsequent Events
On February 4, 1998, the Company entered into agreements to acquire
six shopping centers in Pennsylvania for an aggregate purchase
price of approximately $55.5 million, including projected
transaction costs and fees. If consummated, the Company intends to
finance substantially all of the purchase price through assumption
of existing mortgages on the properties to be acquired and a
Proposed Line of Credit with a financial institution (as discussed
below). The acquisitions are subject to due diligence and certain
other conditions and there can be no assurance that they will be
consummated.
On March 16, 1998, the Company entered into a letter agreement (the
("Term Sheet") with a financial institution wherein the financial
institution has agreed to provide a $100 million three year non-
revolving line of credit (the "Proposed Line of Credit"). Advances
under the Proposed Line of Credit: (1) must be secured by property
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
<PAGE> 42
years of 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. The Term Sheet is subject to
various conditions which must be satisfied by March 31, 1998 and
there can be no assurance that the Proposed Line of Credit will be
consummated.
(15) Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data follows (in thousands, except per
share data):
Quarter Ended
-----------------------------------------
Mar. 31, Jun. 30, Sept.30, Dec. 31,
-------- -------- -------- --------
1997
Revenues $3,237 $3,211 $3,197 $3,670
Net income 2,138 2,126 2,195 2,056
Per common share .27 .27 .28 .26
1996
Revenues $3,290 $3,311 $3,274 $3,367
Net income 2,362 2,140 2,189 2,879
Per common share .30 .27 .27 .36
<PAGE> 43
<TABLE>
CV REIT, INC. AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ONREAL ESTATE
December 31, 1997
(dollars in thousands)
<CAPTION>
Carrrying
Final Face Amount of
Interest Maturity Amount of Mortgages
Description Rate Date Periodic Payment Terms Mortgages (a)
- --------------------------- ---------- --------- ----------------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Permanent -
Recreation Facilities
Century Village at:
Boca Raton, FL 13.25% 12/31/11 Level P & I due monthly $12,533 $10,959
West Palm Beach, FL 13.25% 01/15/12 Level P & I due monthly 18,342 16,039
Deerfield Beach, FL
(2nd mortgage) 13.50% 01/15/12 Level P & I due monthly 13,235 11,619
Deerfield Beach, FL 8.84% 03/01/07 Level P & I due monthly 3,485 2,619
Pembroke Pines, FL 11% 07/31/23 (c) 25,000 25,000
-------
66,236
Residential Construction -------
and Development:
Condominium project
in Pembroke Pines, FL 11% 07/31/98 Interest monthly, 7,500 5,095
principal at maturity
Recreation facilities
at Century Village,
Pembroke Pines, FL 10% 07/31/98 Interest quarterly, 5,000 5,000
(2nd mortgage) principal at maturity
Aggregate of mortgage loans
which individually
do not exceed 3% 8.9% to Various 1,321
11% thru 12/98 -------
11,416
-------
$77,652(b)
=======
Note: All loans are first mortgages except where noted, there are no prior liens
and no delinquent principal or interest.
(a) The tax carrying value of the notes is approximately $41 million.
(b) The changes in the carrying amounts are summarized as follows:
1997 1996 1995
--------- ------- -------
Balance, beginning of period $84,808 $99,919 $92,691
Advances on new mortgage loans 16,112 16,369 23,068
Collections of principal (23,268) (25,732) (20,661)
Reduction of mortgage note in connection with purchase
of real estate - (6,248) -
Mortgage note received in exchange for investment security - - 5,000
Foreclosures - - (171)
Recoveries (charge-offs)
- 500 (8)
-------- ------- -------
Balance, end of period $77,652 $84,808 $99,919
======== ======= ========
(c) Currently requires monthly interest only payments - see Note4(b) to Consolidated
Financial Statements regarding conversion of this loan to an 11%, fixed rate,
25 year self-amortizing loan effective July 31, 1998.
</TABLE>
<PAGE> 44
Item 9. Disagreement on Accounting
and Financial Disclosure
None
PART III
Information in response to Items 10, 11, 12 and 13 is not included
in this Report, since the Registrant anticipates filing a
definitive proxy statement pursuant to Regulation 14A for its next
annual meeting of stockholders prior to May 1, 1998. Such
definitive proxy statement is incorporated by reference herein.
<PAGE> 45
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) (1) List of Consolidated Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income - Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) List of Consolidated Financial Statements Schedules:
Schedule IV - Mortgage Loans on Real Estate
(3) List of Exhibits:
(3)(i) Amended Certificate of Incorporation of CV Reit,
Inc., filed with Secretary of State of Delaware on
December 31, 1997. (Incorporated by reference to
Appendix C to the proxy statement of the Company
filed November 11, 1997.)
(3)(ii) Amended and Restated By-laws of CV Reit, Inc.
(Incorporated by reference to Appendix D to the
proxy statement of the Company filed November 11,
1997.)
(10)(i) Agreement between Cenvill Investors, Inc. and H.
Irwin Levy, dated December 31, 1981. (Incorporated
by reference to Exhibit (2)(i) to the current
report on Form 8-K filed by the Company to report
event of December 31, 1981.)
<PAGE> 46
(10)(ii) Agreement of Lease between Cenvill Investors, Inc.
and B.R.F., Inc., dated December 30, 1981.
(Incorporated by reference to Exhibit (2) (ii) to
the current report on Form 8-K filed by the Company
to report event of December 31, 1981.)
(10)(iii) Agreement dated January 15, 1982, between Century
Village, Inc. and Benenson Capital Company.
(Incorporated by reference to Exhibit (2)(i) to the
current report on Form 8-K filed by Cenvill
Investors, Inc. (File No. 0-03427) to report event
of January 15, 1982.)
(10)(iv) Agreement dated January 15, 1982, between Century
Village East, Inc. and CVRF Deerfield Limited.
(Incorporated by reference to exhibit (2) (ii) to
the current report on Form 8-K filed by Cenvill
Investors, Inc. (File No. 0-03427) to report event
of January 15, 1982.)
(10)(v) Lease dated as of November 8, 1988 between Cenvill
Investors, Inc. and Century Inn Operating Corp.
(Incorporated by reference to Exhibit (10) (xiii)
to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1988.)
(10)(vi) Indenture for Collateralized Mortgage Obligations,
dated as of December 30, 1991 between Recreation
Mortgages, Inc. (Issuer) and Bankers Trust Company
(Trustee). (Incorporated by reference to Exhibit
(10)(xvi) to the Annual Report on Form 10-K of the
Company for the fiscal year ended December 31,
1991.)
(10)(vii) Restated Loan Agreement, dated July 31, 1992,
between CV Reit, Inc. and Cenvill Development Corp.
and certain subsidiaries and affiliates thereof.
(Incorporated by reference to Exhibit (10)(xi) to
the Annual Report on Form 10-K of the Company for
the fiscal year ended December 31, 1992.)
(10)(viii) Proposal for the Acquisition of Certain Assets,
dated June 19, 1992, by and among CV Reit, Inc.,
Cenvill Development Corp. and certain subsidiaries
and affiliates thereof. (Incorporated by reference
to Exhibit (10)(xiv) to the Annual Report on Form
10-K of the Company for the fiscal year ended
December 31, 1992.)
<PAGE> 47
(10)(ix) Order granting Motion of Debtor's [sic] for
Approval of Sale of Assets dated July 17, 1992.
(Incorporated by reference to Exhibit (10)(xv) to
the Annual Report on Form 10-K of the Company for
the fiscal year ended December 31, 1992.)
(10)(x) Stock Purchase Agreement, dated as of August 5,
1992, between CV Reit, Inc. and Hilcoast
Development Corp. (Incorporated by reference to
Exhibit (10)(xvii) to the Annual Report on Form 10-K
of the Company for the fiscal year ended December
31, 1992.)
(10)(xi) Consulting and Advisory Agreement, dated July 31,
1992, between CV Reit, Inc. and Hilcoast
Development Corp. (Incorporated by reference to
Exhibit (10)(xviii) to the Annual Report on Form
10-K of the Company for the fiscal year ended
December 31, 1992.)
(10)(xii) $5.0 million Promissory Note, dated March 31, 1995,
from C.V.P. Community Center, Inc. to Hilcoast
Development Corp. (Incorporated by reference to
Exhibit 10(ii) to the Quarterly Report on Form 10-Q
of the Company for the quarter ended March 31,
1995.)
(10)(xiii) Allonge dated March 31, 1995, which assigns the
$5.0 million Promissory Note, dated March 31, 1995,
from Hilcoast Development Corp. to CV Reit, Inc.
(Incorporated by reference to Exhibit 10(iii) to
the Quarterly Report on Form 10-Q of the Company
for the quarter ended March 31, 1995.)
(10)(xiv) Letter Agreements, dated July 11, 1994 and August
3, 1995, between CV Reit, Inc. and Hilcoast
Advisory Services, Inc. extending the Consulting
and Advisory Agreement to July 31, 1995 and July
31, 1996, respectively. (Incorporated by reference
to Exhibit 10(vi) to the Quarterly Report on Form
10-Q of the Company for the quarter ended September
30, 1995.)
(10)(xv) Letter Agreement, dated July 12, 1996, between CV
Reit, Inc. and Hilcoast Advisory Services, Inc.
extending the Consulting and Advisory Agreement to
July 31, 1997. (Incorporated by reference to
Exhibit 10(i) to the Quarterly Report on Form 10-Q
of the Company for the quarter ended September 30,
1996.)
<PAGE> 48
(10)(xvi) Letter agreement, dated June 10, 1997, between CV
Reit, Inc. and Hilcoast Advisory Services, Inc.
extending the Consulting and Advisory Agreement to
December 31, 1997. (Incorporated by reference to
Exhibit 10(i) to the Quarterly Report on Form 10-Q
of the Company for the quarter ended June 30,1997.)
(10)(xvii) Definitive Master Agreement, dated September 19,
1997, among CV Reit, Inc., Montgomery CV Realty
Trust, and Drexel Realty, Inc., Royce Realty, Inc.,
Louis P. Meshon, Sr. and certain of the Meshon
Parties named therein and the Levy Parties named
therein. (Incorporated by reference to Appendix A
to the Company's proxy statement filed on November
11, 1997.)
(10)(xviii) Amended and Restated Agreement of Limited
Partnership of Montgomery CV Realty L.P. dated
December 31, 1997. (Incorporated by reference to
Appendix B to the Company's proxy statement filed
on November 11, 1997.)
(10)(xix) Supplemental Indenture No. 2 for Collateralized
Mortgage Obligations, dated as of December 30, 1997
between Recreation Mortgages, L.P., (Issuer) and
Bankers Trust Company (Trustee).
(11) Statement regarding computation of per share
earnings. Omitted; computation can be clearly
determined from material contained in the report.
(21) Subsidiaries of the Company.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
On January 15, 1998, the Registrant filed Form 8-K to
report that the agreement to acquire shopping centers and
related transactions had been consummated.
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 and 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.
CV REIT, INC.
/s/ Elaine Hauff
March 27, 1998 By:__________________________________
Elaine Hauff, Vice President
and Treasurer
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.
/s/ H. Irwin Levy
March 27, 1998 _________________________________
H. Irwin Levy, Chairman of the
Board of Directors
/s/ Louis P. Meshon
March 27, 1998 _________________________________
Louis P. Meshon, President and
Director
/s/ Elaine Hauff
March 27, 1998 _________________________________
Elaine Hauff, Vice President,
and Treasurer (Principal
Financial Officer and
Principal Accounting Officer)
/s/ Stanley Brenner
March 27, 1998 _________________________________
Stanley Brenner, Director
/s/ Stanley S. Cohen
March 27, 1998 _________________________________
Stanley S. Cohen, Director
/s/ Allyn Levy
March 27, 1998 _________________________________
Allyn Levy, Director
/s/ Alan L. Shulman
March 27, 1998 ________________________________
Alan L. Shulman, Director
/s/ Milton S. Schneider
March 27, 1998 ________________________________
Milton S. Schneider, Director
Supplemental Indenture No. 2
This Supplemental Indenture No. 2 is dated as of
December 30, 1997 (the "Supplement"), between Recreation
Mortgages, L.P., as Issuer, and Bankers Trust Company, as Trustee
(the "Trustee") and shall modify the provisions of the Indenture
(as supplemented or amended, the "Indenture") dated as of
December 30, 1991 between the Trustee and Recreation Mortgages,
Inc. (a Delaware corporation subsequently merged into the
Issuer), in accordance with Article IX of the Indenture.
Preliminary Statement
The Trustee has received an instrument executed by
Bondholders representing not less than 100% of the Aggregate
Principal Amount of Outstanding Bonds requesting the Trustee to
execute this Supplement and a copy of such instrument has been
delivered to the Issuer. Capitalized terms not otherwise defined
herein shall have the meaning set forth in the Indenture.
Article I
The parties hereto agree that the following Sections of
the Indenture shall be modified as provided below.
(a) Section 1.01. General Definitions is modified as
follows.
(i) The phrase ", the parent of the Issuer" is deleted
from the definition of "CV Reit."
(ii) The definition of "Issuer" is deleted and
replaced with the following definition:
"Issuer": Recreation Mortgages, L.P., a Delaware
limited partnership.
Article II
(b) Section 2.02. Form of Bonds and Certificate of
Authentification is modified as follows.
(i) The phrase "Recreation Mortgages, Inc. (the
"Issuer"), a corporation", in the first sentence is deleted and
replaced with "Recreation Mortgages, L.P. (the "Issuer"), a
limited partnership."
(ii) The phrase "Recreation Mortgages, Inc., a
Delaware corporation subsequently merged into" is inserted
immediately following the word "between" in the first sentence of
the fourth paragraph.
(iii) A comma is inserted after the word "Issuer" in
the fourth line of the first sentence of the fourth paragraph.
(iv) The execution block:
"Recreation Mortgages, Inc."
By: ___________________
(Title)
is deleted and replaced with the following:
RECREATION MORTGAGES, L.P.
By: RECREATION MORTGAGES, L.L.C.,
General Partner
By: CV REIT, INC., Managing Member
By: HILCOAST ADVISORY
SERVICES, INC.,
authorized Agent
By: /s/ H. Irwin Levy
______________________
Name: H. Irwin Levy
Title: President
(In the event that CV Reit, Inc. assigns its membership interests
in Recreation Mortgages, L.L.C., the signature block of the Bond
may reflect such assignment without an additional amendment
hereto).
Article III
(c) Section 3.07. Negative Covenants is modified as
follows.
(i) Section 3.07(vi) is amended by adding the phrase
"; except, that, Recreation Mortgages, Inc. is authorized to
merge into Recreation Mortgages, L.P." after the word
"subsidiaries."
(ii) Section 3.07(vii) is deleted and replaced with
"amend the Issuer's agreement of limited partnership;"
(iii) An additional Section 3.07(xii) is hereby added
and shall read as follows:
permit any material adverse change to the cash
flow, debt equity ratio, net operating income,
capital or other reserve as a result of any attack
on, court decree or other unwinding of the merger
of Recreation Mortgages, Inc. with and into the
Issuer.
(c) Section 3.09. Corporate Existence. is modified as
follows.
(i) the heading "Corporate Existence" is deleted and
replaced with "Existence as Limited Partnership."
(ii) the word "corporation" in the first sentence is
deleted and replaced with "limited partnership."
(iii) the phrase "corporate entity" in the second
sentence is deleted and replaced with "limited partnership."
(d) Section 3.10. Representations and Warranties. is
modified as follows.
(i) Section 3.10(a) is amended by deleting the phrase
"as a foreign corporation."
(ii) Section 3.10(d) is amended by deleting the phrase
"charter or by-laws" and replacing it with "agreement of limited
partnership."
(iii) Section 3.10(d) is amended by deleting the
phrase "parent corporation" each time such phrase is used and
replacing it with "partners."
(iv) Section 3.10(f) is amended by deleting the phrase
"parent corporation" each time such phrase is used and replacing
it with "partners."
BANKERS TRUST COMPANY
Trustee
BY: /s/ David M. Arnold
Assistant Secretary
RECREATION MORTGAGES, L.P.
BY: RECREATION MORTGAGES, L.L.C.,
Managing Partner
BY: CV REIT, INC., Managing Member
BY: HILCOAST ADVISORY
SERVICES, INC., authorized Agent
By: /s/ H. Irwin Levy
_____________________
Name: H. Irwin Levy
Title: President
Subsidiaries of the Company
and State of Incorporation or Formation
CV Warehouse 75, Inc. Florida
CV Warehouse 76, Inc. Florida
CV Warehouse 78, Inc. Florida
W.X. Properties, Inc. Florida
D.X. Properties, Inc. Florida
GRX Corp. Florida
LRX Properties, Inc. Florida
Montgomery CV Realty Trust Delaware
Montgomery CV Realty L.P. Delaware
Recreation Mortgages L.P. Delaware
Recreation Mortgages LLC Delaware
Drexel Realty, Inc. Pennsylvania
Royce Realty, Inc. Pennsylvania
MGA Payroll Company, Inc. Pennsylvania
Rio Grande Associates Pennsylvania
Rio Grande Associates LLC Delaware
Danville Plaza Associates, L.P. Delaware
Danville Plaza LLC Delaware
Woodbourne Square Associates, L.P. Delaware
Woodbourne Square LLC Delaware
Chesterbrook Village Center Associates, L.P. Delaware
Chesterbrook Village Center LLC Delaware
Mount Carmel Plaza Associates, L.P. Delaware
Mount Carmel Plaza LLC Delaware
Glenmont Associates, L.P. Pennsylvania
Glenmont LLC Delaware
Plymouth Plaza Associates, L.P. Delaware
Plymouth Plaza LLC Delaware
County Line Plaza Realty Associates, L.P. Delaware
County Line Plaza Realty, LLC Delaware
555 Scott Street Associates, L.P. Delaware
555 Scott Street LLC Delaware
Route 6 Office Max Center Associates, L.P. Delaware
Route 6 Office Max Center LLC Delaware
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,869
<SECURITIES> 0
<RECEIVABLES> 77,652
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0
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