<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission File Number: 1-8073
CV REIT, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-0950354
(State of Incorporation) (I.R.S. Employer Identification No.)
100 Century Boulevard, West Palm Beach, Florida 33417
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 561-640-3155
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common stock, par value New York Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares outstanding of the registrant's common stock, par
value $.01 per share, as of October 31, 1998: 7,966,621.
<PAGE> 2
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Sept.30, Dec.31,
ASSETS 1998 1997
------ -------- --------
Real estate - income producing,
net of accumulated depreciation $141,958 $ 71,008
Real estate mortgage notes
receivable 65,574 77,652
Investments in unconsolidated affiliates 3,309 3,284
Cash and cash equivalents (includes
$926 and $915 restricted) 4,655 12,869
Other real estate (net of allowance
for losses of $2,401) 5,451 5,451
Other 5,372 1,663
-------- --------
$226,319 $171,927
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Borrowings $122,127 $ 66,281
Accounts payable and other
liabilities 6,221 4,443
Deferred income taxes 7,041 7,041
-------- --------
Total liabilities 135,389 77,765
-------- --------
Minority interests in Operating
Partnership 17,800 21,214
-------- --------
Stockholders' equity:
Common stock, $.01 par-shares authorized
20,000,000; outstanding 7,966,621 80 80
Additional paid-in capital 18,490 18,490
Retained earnings 54,560 54,378
-------- --------
Total stockholders' equity 73,130 72,948
-------- --------
$226,319 $171,927
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 3
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Rent $ 5,104 $ 547 $ 11,641 $ 1,633
Interest, principally from
mortgage notes 2,122 2,650 6,826 8,012
--------- --------- --------- ---------
7,226 3,197 18,467 9,645
--------- --------- --------- ---------
Expenses:
Interest 2,507 755 5,825 2,286
Operating 1,597 167 3,571 506
General and administrative 404 159 1,122 472
Depreciation and amortization 820 39 1,849 252
--------- --------- --------- ---------
5,328 1,120 12,367 3,516
--------- --------- --------- ---------
1,898 2,077 6,100 6,129
Equity in income of
unconsolidated affiliates 150 118 403 330
Gain on sale of real estate - - 2,347 -
Settlement of litigation (200) - (200) -
Minority interests in income of
Operating Partnership (292) - (1,537) -
--------- --------- --------- ---------
Net income $ 1,556 $ 2,195 $ 7,113 $ 6,459
========= ========= ========= =========
Per common share:
Net income, basic and diluted $ .20 $ .28 $ .89 $ .81
========= ========= ========= =========
Dividends declared $ .29 $ .29 $ .87 $ .87
========= ========= ========= =========
Average common shares
outstanding, basic
and diluted 7,966,621 7,966,621 7,966,621 7,966,621
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 4
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in thousands)
Balance at December 31, 1997 $54,378
Net income for the nine months
ended September 30, 1998 7,113
Dividends declared (6,931)
-------
Balance at September 30, 1998 $54,560
=======
See accompanying notes to consolidated financial statements.
<PAGE> 5
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
-------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,113 $ 6,459
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,849 252
Gain on sale of real estate (2,347) -
Equity in depreciation and amortization of
unconsolidated affiliates 128 131
Minority interests in income of
Operating Partnership 1,537 -
Increase in other assets (2,962) (512)
Increase (decrease) in accounts payable
and other liabilities 675 (37)
-------- --------
Net cash provided by operating activities 5,993 6,293
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fundings on real estate mortgage notes (5,190) (12,397)
Collections on real estate mortgage notes 17,268 17,464
Acquisitions of real estate (21,126) -
Proceeds from the sale of real estate 4,151 -
Purchase of short-term investments, net of maturities - (1,507)
Capital improvements (920) -
Other (164) (942)
-------- --------
Net cash (used in) provided by investing activities (5,981) 2,618
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 7,650 -
Repayments of borrowings (4,286) (1,633)
Cash dividends paid (6,934) (6,896)
Distributions to minority interests (1,036) -
Redemption of Operating Partnership units (3,631) -
-------- --------
Net cash used in financing activities (8,237) (8,529)
-------- --------
Net increase (decrease) in unrestricted cash
and cash equivalents (8,225) 382
Unrestricted cash and cash equivalents at
beginning of the period 11,954 6,666
-------- --------
Unrestricted cash and cash equivalents at
end of the period $ 3,729 $ 7,048
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,367 $ 2,269
======== ========
Acquisitions:
Fair value of assets acquired $(74,325) $ -
Liabilities assumed or incurred 53,049 -
Operating Partnership units issued 150 -
-------- --------
Cash paid for acquisitions $(21,126) -
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 6
CV REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization, Business and Basis of Presentation
Organization and Business
CV Reit, Inc. ("CV Reit") is a real estate investment trust
("REIT") which until December 31, 1997, was principally engaged in
investing in real estate mortgage notes. Effective December 31,
1997, CV Reit and its subsidiaries converted to an Umbrella
Partnership REIT (UPREIT) structure as part of a series of
transactions which closed on that date and which included the
following: (1) a newly created Operating Partnership, Montgomery
CV Realty L.P. (together with its wholly-owned subsidiaries
hereinafter collectively referred to as the "OP"), acquired 100% of
the ownership interests in ten commercial properties, and an
approximately 95% economic interest in Drexel Realty, Inc.
("Drexel"), a real estate management and leasing company and (2) CV
Reit and its subsidiaries transferred substantially all of their
net assets (or the economic benefit thereof) to the OP. As a
result, CV Reit, through a wholly-owned subsidiary, indirectly
currently owns 84.2% of the OP, is the OP's sole general partner
and is a self-administered, self-managed equity REIT. As of
September 30, 1998, the OP owned 17 shopping centers and two office
buildings, located in the Mid-Atlantic region and Florida
aggregating over 1.5 million square feet.
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of CV Reit and all subsidiaries ("the Company"), including
the OP. The Company owns 99% of the non-voting common stock and a
95% economic interest in Drexel, and owns 45%-50% interests in
certain real estate partnerships, which are accounted for on the
equity method. Significant intercompany accounts and transactions
have been eliminated in consolidation.
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been consolidated or omitted pursuant to
such rules and regulations; however, the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and
the notes thereto included in the Company's annual report on Form
10-K for the fiscal year ended December 31, 1997.
<PAGE> 7
The consolidated financial statements for the interim periods
included herein, which are unaudited, include, in the opinion of
management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position and
results of operations of the Company for the periods presented.
The results of operations for interim periods should not be
considered indicative of results to be expected for the full year.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported statements
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual revenues could differ from those estimates.
(2) Real Estate - Income Producing ("Real Estate")
(a) Real Estate is located in the Mid-Atlantic region and Florida
and consists of (in thousands):
Sept.30, Dec.31,
1998 1997
-------- -------
Shopping centers (Note 2(b) $138,928 $64,356
Office buildings 5,338 5,334
Motel (Note 2(c)) - 4,058
-------- -------
Totals 144,266 73,748
Less accumulated depreciation (2,308) (2,740)
-------- -------
Net Real Estate (pledged as collateral
for borrowings (Note 4)) $141,958 $71,008
======== =======
(b) On March 31, 1998, the OP purchased an approximately 177,000
square foot shopping center, located in Pennsylvania, for a
purchase price of $27.8 million, including transaction costs, which
consisted of $7.6 million of cash and the assumption of $20.2
million of liabilities, principally mortgage debt.
<PAGE> 8
During June 1998, the OP purchased three shopping centers, located
in Pennsylvania and New Jersey, aggregating 358,000 square feet for
a total purchase price of $34.2 million, including transaction
costs, which consisted of $9.8 million in cash and the incurrence
or the assumption of $24.4 million of liabilities, principally
mortgage debt. On July 30, 1998, the OP purchased three shopping
centers, located in Pennsylvania, aggregating 261,000 square feet
for a total purchase price of $12.3 million, including transaction
costs, which consisted of $3.7 million in cash and the assumption
of $8.6 million of liabilities, principally mortgage debt.
The acquisitions were accounted for as purchases; accordingly, the
operations of the shopping centers acquired are included in the
Consolidated Financial Statements as of the dates of acquisition.
In addition, the OP has several pending acquisitions of shopping
centers for an aggregate purchase price of $119 million. See
Management's Discussion and Analysis of Results of Operations and
Financial Condition - Liquidity and Capital Resources -
Acquisitions for a discussion of these potential acquisitions.
(c) On May 15, 1998, the Company sold the Motel for net cash
proceeds of $4.2 million and recognized a gain of $2.3 million.
(3) Real Estate Mortgage Notes Receivable
(a) Real estate mortgage notes receivable are collateralized by
real estate located in southeast Florida and consist of (in
thousands):
Sept.30, Dec. 31,
1998 1997
-------- --------
Long Term Recreation Notes (the
"Recreation Notes") (Notes
3(b) and 4) $65,431 $66,236
Other 143 11,416
------- -------
Totals $65,574 $77,652
======= =======
(b) At September 30, 1998, the Recreation Notes consisted of $25
million due from Hilcoast Development Corp. (the "Hilcoast
Recreation Note"), principally collateralized by first mortgages
on the recreation facilities at the Century Village at Pembroke
Pines, Florida adult condominium project, and $40.4 million,
<PAGE> 9
collateralized by first mortgages on the recreation facilities at
the three previously completed Century Village communities. In
accordance with the terms of the loan agreement dated July 31,
1992, effective July 31, 1998, the Hilcoast Recreation Note was
converted to an 11%, fixed rate, 25 year, self-amortizing loan
providing for equal monthly payments of principal and interest.
This note may not be prepaid by Hilcoast without a prepayment
penalty. The remaining $40.4 million of Recreation Notes
principally provide for self-amortizing equal monthly principal and
interest payments due through 2012, with interest rates averaging
13% per annum, and contain certain prepayment prohibitions. These
notes are pledged as collateral for borrowings (Note 4).
(4) Borrowings
Borrowings consist of (in thousands):
Sept.30, Dec. 31,
1998 1997
Mortgage notes payable through -------- --------
September 2008, interest ranging
from 6.85% to 10.28%, collateralized
by Real Estate (Note 2) $ 74,100 $ 33,418
Mortgage notes payable in November 2000
under $100 million credit facility, interest
at one month LIBOR (5.38% at September 30,
1998) plus 1.75%, collateralized by Real Estate
(Note 2). See Management's Discussion and
Analysis of Results of Operations and
Financial Condition - Liquidity and Capital
Resources - Borrowings for a description
of the terms. 16,950 -
Collateralized Mortgage Obligations,
net of unamortized discount of $584,000
and $676,000 based on an effective interest
rate of 8.84%, collateralized by certain
of the Recreation Notes (Note 3 (b)),
quarterly self-amortizing principal and
interest payments required through March 2007 31,077 32,863
-------- --------
Totals $122,127 $ 66,281
======== ========
<PAGE> 10
(5) Redemption of Certain Minority Interests
Effective July 1, 1998, the OP redeemed 302,552 OP units for
approximately $3.6 million, resulting in an increase in CV Reit's
indirect ownership of the OP from 81.7% to 84.2%.
(6) Settlement of Litigation
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. During the third quarter of 1998, the parties
settled the litigation. The Company paid $200,000 to TGI and both
parties executed general releases.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results of Operations
Net Income
Three Months Ended September 30, 1998 and 1997
For the quarter ended September 30, 1998, net income was $1,556,000
or $.20 per share compared to $2,195,000 or $.28 per share for the
same period of 1997.
During the quarter ended September 30, 1998, rent revenue,
operating expenses, interest expense, and depreciation and
amortization increased by $4,557,000, $1,430,000, $1,752,000 and
$781,000, respectively, primarily due to the acquisition of ten
commercial properties on December 31, 1997 (the "1997 Acquisition")
and seven additional shopping centers in 1998 (collectively, the
"Acquisitions"). The Company expects continued increases in rent
revenue, operating costs, interest expense and depreciation in the
event certain additional planned acquisitions are consummated (see
Liquidity and Capital Resources - Acquisitions).
<PAGE> 11
Interest income decreased by $528,000 during the third quarter of
1998, primarily attributable to an approximately $14.4 million
reduction in the average balance of mortgage notes receivable.
These notes principally consisted of a line of credit and certain
other loans to Hilcoast which matured and were repaid during the
third quarter. The average interest rate on these notes
approximated 10.9% and the repayments have been generally utilized
to acquire shopping centers in 1998, or reinvested in lower
yielding short-term investments (averaging approximately 5% during
the third quarter of 1998), pending completion of planned
acquisitions. The Company's remaining mortgage notes receivable
are long term and require self-amortizing payments through 2023.
Accordingly, interest income is anticipated to continue to decrease
although to a lesser extent, due to scheduled repayments.
General and administrative expenses increased by $245,000 during
the third quarter of 1998, reflecting increases in personnel and
other costs, principally due to the 1997 Acquisition, and in legal
fees primarily in connection with the TGI litigation which has been
settled (see Note 6 to Consolidated Financial Statements).
Net income for the quarter ended September 30, 1998 includes a
$200,000 non-recurring charge from the settlement of the TGI
litigation.
Nine Months Ended September 30, 1998 and 1997
For the nine months ended September 30, 1998, net income was
$7,113,000 or $.89 per share compared to $6,459,000 or $.81 per
share for the same period of 1997.
During the nine months ended September 30, 1998, rent revenue,
operating expenses, interest expense, and depreciation and
amortization increased by $10,008,000, $3,065,000, $3,539,000 and
$1,597,000, respectively, primarily due to the Acquisitions.
Interest income decreased by $1,186,000 during the first nine
months of 1998, primarily attributable to an approximately $11
million reduction in the average balance of the Hilcoast mortgage
notes receivable. The average interest rate on the mortgage notes
repaid approximated 10.9% and the repayments have been generally
utilized to acquire shopping centers in 1998, or reinvested in
lower yielding short-term investments (averaging approximately 5%
during the first nine months of 1998), pending completion of
planned acquisitions.
General and administrative expenses increased by $650,000 during
the first nine months of 1998, reflecting increases in personnel
and other costs primarily due to the 1997 Acquisition, and in legal
fees primarily in connection with the TGI litigation.
<PAGE> 12
Net income for the nine months ended September 30, 1998 includes a
$2.3 million gain from the sale of the Days Inn Motel on May 15,
1998 and a $200,000 non-recurring charge from the settlement of the
TGI litigation.
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 following schedule reconciles FFO to net income:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net income $1,556,000 $2,195,000 $7,113,000 $6,459,000
Depreciation and amortization
of real property 816,000 37,000 1,846,000 244,000
Equity in depreciation and
amortization of real property
of unconsolidated affiliates 43,000 44,000 128,000 131,000
Minority interests in income
of OP 292,000 - 1,537,000 -
Settlement of litigation 200,000 - 200,000 -
Gain on sale of real estate - - (2,347,000) -
---------- ----------
FFO - OP in 1998 $2,907,000 N/A $8,477,000 N/A
========== ---------- ========== ----------
FFO - CV Reit $2,448,000 $2,276,000 $6,999,000 $6,834,000
========== ========== ========== ==========
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
significant non-recurring items, such as the Company's gain on sale
of real estate and settlement of litigation, would distort the
comparative measurement of the Company's performance and 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.
<PAGE> 13
Liquidity and Capital Resources
Consolidated Statements of Cash Flows
As of September 30, 1998, unrestricted cash and cash equivalents
decreased to $3.7 million from $12 million at December 31, 1997.
Net cash provided by operating activities, as reported in the
Consolidated Statements of Cash Flows, decreased to $6.0 million in
1998 from $6.3 million for the same period in 1997. The 1998
amounts generally reflect FFO of $8.5 million, partially offset by
a $3 million increase in Other Assets (receivables and prepaid
expenses), as a result of the Acquisitions. The 1997 amounts
principally reflect FFO.
Net cash used by investing activities amounted to $6 million during
1998 compared to net cash provided by investing activities of $2.6
million (principally net collections on real estate mortgage notes
partially offset by an increase in short-term investments) in 1997.
The 1998 amounts principally consist of $21.1 million of cash
required in connection with acquisitions of seven shopping centers
in 1998, partially offset by $12.1 million of net collections on
real estate mortgage notes receivable and $4.2 million received
from the sale of real estate.
Net cash used in financing activities decreased to $8.2 million in
1998 from $8.5 million during the same period of 1997. The 1998
amounts consist of cash distributions amounting to $6.9 million to
stockholders and $1 million to minority interests, and $3.6 million
for the redemption of approximately 300,000 OP units, partially
offset by $3.4 million of net borrowings. The 1997 amounts consist
of $6.9 million of cash distributions to stockholders and $1.6
million of repayments of borrowings.
Borrowings
At September 30, 1998, the Company's borrowings increased to $122.1
million from $66.3 million at December 31, 1997 as a result of the
1998 Acquisitions. Scheduled principal payments over the next five
years are $77.5 million with $44.6 million due thereafter.
Borrowings include $91 million, collateralized by a substantial
portion of the Company's Real Estate, including $16.9 million under
the Line of Credit (see below). The Company expects to refinance
certain of these borrowings, at or prior to maturity, through new
mortgage loans on Real Estate including refinancing under the Line
of Credit. The ability to do so, however, is dependent upon
various factors, including the income level of the properties,
interest rates and credit conditions within the commercial real
estate market. Accordingly, there can be no assurance that such
refinancing can be achieved.
<PAGE> 14
The remaining $31.1 million of borrowings consists of the CMO's
which are collateralized by $40.4 million of the Recreation Notes
and require self-amortizing principal and interest payments through
March 2007. During the term of the CMO's, the scheduled annual
debt service requirement approximates $5.2 million compared to
annual principal and interest payments scheduled to be received
under the related Recreation Notes of $6.5 million.
Effective March 31, 1998, the Company entered into a Line of Credit
with a financial institution wherein the financial institution has
agreed to provide a $100 million three year non-revolving line of
credit. Advances under the Line of Credit: (1) must be secured by
assets based on specified aggregate loan to value and debt service
coverage ratios, (2) bear interest at an annual rate of one month
LIBOR plus 1.75% and (3) may be drawn only during the first two
years of the credit facility and must be repaid by certain dates
during the third year. Additional provisions include a 1%
commitment fee, a minimum net worth covenant and cross-default and
cross-collateralization requirements. Advances under the Line of
Credit are used to fund acquisitions, expansions, renovations,
financing and refinancing of real estate, including reimbursement
of equity advances, and require certain performance covenants. As
of September 30, 1998, the Company has borrowed $16.9 million
under the Line of Credit.
Capital Resources
The Company's operating funds are expected to be principally
generated from rent revenue from income producing properties and
interest income on the Long Term Recreation Notes. The Company
believes that its operating funds will be sufficient in the
foreseeable future to fund operating and administrative expenses,
interest expense, recurring capital expenditures and distributions
to stockholders in accordance with REIT requirements. Sources of
capital for non-recurring capital expenditures and scheduled
principal payments, including balloon payments, on outstanding
borrowings are expected to be obtained from anticipated property
refinancing, scheduled principal repayments on the Long Term
Recreation Notes, sales of non-strategic other real estate, the
Line of Credit, existing cash balances, and/or potential debt or
equity financing in the public or private markets.
Acquisitions
During the nine months ended September 30, 1998, the OP completed
seven acquisitions of shopping centers for purchase prices
aggregating $74.3 million, including transaction costs, which
<PAGE> 15
consisted of $21.1 million of cash and the incurrence or assumption
of $53.2 million of liabilities, principally mortgage debt. In
addition, the OP has entered into agreements or letters of intent
to acquire eight additional shopping centers for an aggregate
purchase price of approximately $119 million (the "Planned
Acquisitions"). If consummated, the OP intends to finance the
purchase prices through assumption of existing mortgages on the
properties to be acquired, the Line of Credit and available cash
balances. The Planned Acquisitions are subject to due diligence
and certain other conditions and there can be no assurance that
they will be consummated.
In the event properties are acquired in the future, the OP may
issue additional OP units, pay cash, or a combination thereof. If
cash payments are required in excess of funds available under the
Company's Line of Credit, the Company may be required to seek
outside financing which may or may not be available.
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. As of September 30, 1998, there were 1,495,736 OP
units held by minority interests.
Inflation
During recent years, the rate of inflation has remained at a low
level and had minimal impact on the Company's operating results.
Most 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 (or based on stated rental increases which
are currently higher than recent cost of living increases), and
percentage rentals based on tenant's gross sales, which generally
increase as prices rise. Many of the leases are for terms of less
than ten years which increases the ability of the OP to replace
those leases which are below market rates with new leases at higher
base and/or percentage rentals. In addition, most of the leases
require the tenants to pay their proportionate share of increases
in operating expenses, including common area maintenance, real
estate taxes and insurance.
<PAGE> 16
However, in the event of significant inflation, the Company's
operating results could be adversely affected if general and
administrative expenses and interest expense increase at a rate
higher than rent income or if the increase in inflation exceeds
rent increases for certain tenant leases which provide for stated
rent increases (rather than based on cost of living indexes).
Other
Year 2000 issues pertain to the inability of certain computerized
information systems to properly recognize date-sensitive
information as the year 2000 approaches. Systems that do not
recognize such information could generate erroneous data or cause
systems to fail. The Company is presently reviewing the potential
impact of Year 2000 compliance issues on its information systems
and business operations, and has preliminarily determined that any
costs, problems or uncertainties associated with the potential
consequences of Year 2000 issues are not expected to have a
material impact on its future operations or financial condition.
Forward Looking Information: Certain Cautionary Statements
Certain statements contained in "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and
elsewhere in this Form 10-Q, that are not related to historical
results, are forward looking statements, such as collectibility of
the Company's real estate mortgage notes receivable and its
anticipated liquidity and capital resources. 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, the
impact of current or pending legislation and regulation, as well as
certain other risks described in the Form 10-Q. Subsequent written
and oral forward looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their
entirety by cautionary statements in this paragraph and elsewhere
described in this Form 10-Q and in other reports filed by the
Company with the Securities and Exchange Commission.
<PAGE> 17
PART II. Other Information
Item 6 - Exhibits and Reports on Form 8-K:
Exhibits:
27 Financial Data Schedule
Reports on Form 8-K:
On September 4, 1998, the Registrant filed Form 8-K/A,
reporting under Item 7. Financial Statements of Assets
Acquired, Proforma Financial Information and Exhibits.
(Reference Form 8-K dated June 24, 1998 filed July 9,
1998.)
On September 4, 1998, the Registrant filed Form 8-K/A,
reporting under Item 7. Financial Statements of Assets
Acquired, Proforma Financial Information and Exhibits.
(Reference Form 8-K dated June 25, 1998 filed July 10,
1998.)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CV REIT, INC.
________________________________
(Registrant)
/s/ Louis P. Meshon
November 13, 1998 ________________________________
Louis P. Meshon, President
/s/ Elaine Hauff
November 13, 1998 ________________________________
Elaine Hauff, Vice President,
Treasurer and Principal
Financial and Accounting Officer
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 226,319
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