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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 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
------------------------
COMMISSION FILE NUMBER 1-9663
MID-AMERICA REALTY INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 47-0700007
(State of incorporation) (I.R.S. Employee Identification No.)
11506 NICHOLAS STREET, SUITE 100, OMAHA, NEBRASKA 68154
(Address of principal executive offices) (Zip Code)
(402) 496-3300
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER
SHARE NEW YORK STOCK EXCHANGE
(Title of Each Class) (Name of Exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to Form 10-K. / /
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 _
The number of shares of common stock outstanding as of February 27, 1998 was
8,285,235 shares. The aggregate market value of the 8,233,798 shares of common
stock held by non-affiliates on such date was $85,425,654.
The following documents are incorporated into this report by reference: a
portion of the Company's proxy statement for its 1998 Annual Meeting of
Shareholders ("1998 Proxy Statement") is incorporated by reference in Part III.
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MID-AMERICA REALTY INVESTMENTS, INC.
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
<TABLE>
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PAGE
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<S> <C> <C>
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 5
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters........................................ 7
Item 6. Selected Financial Data..................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 9
Item 8. Financial Statements and Supplementary Data................. 15
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure................................... 15
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 15
Item 11. Executive Compensation...................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 15
Item 13. Certain Transactions and Relationships...................... 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K........................................................ 16
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
Mid-America Realty Investments, Inc. (the "Company") is a self-administered
real estate investment trust ("REIT") which owns, manages and operates
income-producing commercial real estate, primarily enclosed malls and
neighborhood shopping centers. The Company was incorporated under the laws of
Maryland in October 1986. At December 31, 1997, the Company owned 18
neighborhood shopping centers and four enclosed malls located in Nebraska, Iowa,
Illinois, South Dakota, Minnesota, Michigan, Wisconsin, Indiana, Arkansas,
Georgia and Tennessee. Additionally, the Company is a 50% partner in Mid-America
Bethal Limited Partnership ("Mid-America Bethal") which owns two neighborhood
shopping centers and one enclosed mall. Most of the properties are situated in
middle-sized communities and, in many cases, represent the major retail facility
in their trade areas.
The Company's investment objectives are to own and manage income-producing
commercial real estate that will provide cash for distribution to its
shareholders on a quarterly basis and preserve investor capital, while providing
potential for capital appreciation. The Company's policy is to acquire
commercial properties that are capable of generating income through active
management, leasing, re-leasing or development of additional tenant space.
DEVELOPMENTS DURING 1997
OUTLOT SALES--During 1997, the Company sold two outlot parcels for total
proceeds of approximately $344,000, resulting in a book gain of approximately
$130,000.
LAKEWOOD MALL--During 1997, the Company completed the expansion of its five
screen theatre at Lakewood Mall in Aberdeen, South Dakota to nine screens. Total
project costs were approximately $337,500.
MID-AMERICA BETHAL MALL RENOVATION--During 1997, the Partnership
substantially completed the exterior renovation of Imperial Mall in Hastings,
Nebraska. Total project cost will approximate $600,000 of which $524,000 was
paid in 1997.
YIELD MAINTENANCE AGREEMENT--During 1997, the Company received final
payments under the June 1992 Yield Maintenance Agreement with former related
parties. Total proceeds of $1,517,000 were received in 1997 under this
agreement. See Note F to the Company's Consolidated Financial Statements.
PROPERTY MANAGEMENT AND LEASING
The Company is a fully integrated real estate company and manages its own
properties through Mid-America Centers Corp. (formerly Dial Enterprises Corp.),
its wholly-owned subsidiary. The management and leasing of the properties is
"hands on" and conducted by experienced professionals with knowledge of local
markets and relationships with local and national retailers.
INDUSTRY AND GEOGRAPHIC FACTORS
The Company is subject to various risks typically associated with the
ownership of real estate, such as defaults or non-renewal of leases, increased
operating costs or costs resulting from leveraging, changes in interest rates
and the availability of favorable financing which may render the sale or
refinancing of properties difficult or unattractive, environmental problems,
problems attributable to the location of properties, changes in general or local
economic conditions, changes in real estate and zoning laws, and increases in
real property tax rates. Real estate investments tend to be illiquid and,
consequently, the
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Company could have difficulty responding to adverse changes in any of the
aforementioned factors or similar factors (particularly if adverse changes occur
in Nebraska and the greater Midwest where most of the Company's properties are
located).
CERTAIN SIGNIFICANT TENANTS
The continued success of the Company's anchor tenants is important to the
success of the Company's properties because such anchor tenants attract other
tenants and customers to the shopping center. Wal-Mart, Herberger's, Hy-Vee
grocery stores, Kmart, J.C. Penney, Walgreens, Target and/or Shopko anchored a
total of 17 of the Company's properties either as lessees or as occupants of
buildings adjacent to the properties and lease in the aggregate approximately
39% of the total leasable space in the Company's properties.
Additionally, Kmart, Hy-Vee grocery stores, Herberger's and/or Wal-Mart
anchored all Mid-America Bethal properties as either lessees or as occupants of
buildings adjacent to the properties and lease in the aggregate approximately
38% of the total leasable space in the Mid-America Bethal properties.
The only lessee that occupies more than 10% of the gross leasable space of
the properties owned by the Company at December 31, 1997 is Wal-Mart, whose five
stores at properties owned by the Company account for approximately 15% of total
gross leasable area. Wal-Mart also operates stores adjacent to three of the
Company's properties and to one of Mid-America Bethal's properties.
ENVIRONMENTAL MATTERS
Pursuant to the terms of the Company's leases with its tenants, the Company
does not have control over the operational activities of its tenants, nor does
it monitor its tenants with respect to environmental matters. Although the
Company is not aware of any material environmental liabilities in connection
with its properties, the owner of real property with latent hazardous waste
problems may be liable for such problems even if such problems were not caused
by the current landowner. Liability for such problems under federal and state
law is generally strict, joint and several.
COMPETITION
The Company competes for acquisitions of real property with a wide variety
of investors, including insurance companies, pension funds, corporate and
individual real estate developers, other REITs and syndicators, many of which
have investment objectives similar to those of the Company and may have greater
financial resources, larger staffs and longer operating histories than those of
the Company. In addition, the Company competes with other owners of similar
properties for tenants on the basis of location, rental rates, amenities and
other factors.
INSURANCE
The Company considers its insurance coverage to be adequate. The Company
carries comprehensive general liability coverage with limits of liability of no
less than $5,000,000 per occurrence to insure against liability claims and
provide for the cost of defense. Similarly, the Company is insured against the
risk of direct physical damage in amounts structured to reimburse the Company on
a replacement cost basis for amounts incurred to repair or rebuild each
property, including loss of rental income during the period of repair or
reconstruction. When considered prudent, the Company insures against losses from
earthquakes, which coverage has a 5% deductible. The Company carries flood
insurance for the properties that are in designated 100-year flood plains.
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EMPLOYEES
The Company and its subsidiary had 101 employees (56 full-time and 45
part-time) at December 31, 1997. The corporate office in Omaha, Nebraska had 23
employees at December 31, 1997.
TAXATION OF THE COMPANY AND ITS SHAREHOLDERS
The Company was organized and intends to conduct its operations so as to
continue to qualify for taxation as a REIT under Sections 856-860 of the
Internal Revenue Code of 1986. A REIT generally is not subject to federal
corporate income tax on its net income if certain requirements are met. To
qualify as a REIT, the Company is required, among other things, to meet certain
stock ownership, income, asset and distribution rules and tests. As a REIT, the
Company distributes to its shareholders substantially all of its cash flow from
operations and, in any event, at least 95% of its real estate investment trust
taxable income.
CERTAIN RESTRICTIONS ON TRANSFER OF COMMON STOCK
Provisions of the Company's Articles of Incorporation, primarily intended to
enable the Company to maintain its status as a REIT, authorize the Company i) to
refuse to transfer common stock to, or prohibit exercise of shareholder rights
by, any person who as a result would beneficially own, directly or indirectly by
attribution, common stock in excess of 9.8% of the total outstanding capital
stock of the Company ("Excess Shares") and ii) to redeem Excess Shares of common
stock, the accumulation of which would jeopardize the status of the Company as a
REIT.
ITEM 2. PROPERTIES
The following tables set forth information concerning each of the properties
that the Company owns directly or has an equity interest in through Mid-America
Bethal as of December 31, 1997.
<TABLE>
<CAPTION>
GROSS LEASED RATE AT YEAR
DATE LEASABLE END(1)
ACQUIRED OR AREA --------------------
COMPLETED (SQ. FT.) 1997 1996
----------- ---------- --------- --------- 1998
BASE RENT(2)
------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMPANY PROPERTIES:
ENCLOSED MALLS:
Delta Plaza--Escanaba, Michigan.......................... 12/30/86 188,000 93% 94% $ 838
Lakewood Mall--Aberdeen, South Dakota.................... 08/28/92 240,000 88% 92% 1,584
Monument Mall--Scottsbluff, Nebraska..................... 12/30/86 205,000 96% 95% 1,311
Thunderbird Mall--Virginia, Minnesota.................... 12/30/86 256,000 98% 100% 1,614
---------- --------- --------- ------------
889,000 94% 95% 5,347
</TABLE>
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<TABLE>
<CAPTION>
GROSS LEASED RATE AT YEAR
DATE LEASABLE END(1)
ACQUIRED OR AREA --------------------
COMPLETED (SQ. FT.) 1997 1996
----------- ---------- --------- ---------
1998
BASE RENT(2)
------------
(THOUSANDS)
NEIGHBORHOOD SHOPPING CENTERS:
<S> <C> <C> <C> <C> <C>
Bishop Heights--Lincoln, Nebraska........................ 12/30/86 26,000 100% 100% 170
Cornhusker Plaza--South Sioux City, Nebraska............. 06/27/91 63,000 97% 100% 447
Eastville Plaza--Fremont, Nebraska....................... 12/30/86 69,000 91% 86% 405
Edgewood Shopping Center--Lincoln, Nebraska
Phase I................................................ 06/01/87 72,000 96% 96% 535
Phase II............................................... 06/26/91 100,000 100% 99% 709
Fairacres Shopping Center--Oshkosh, Wisconsin............ 12/22/92 74,000 98% 94% 597
Fitchburg Ridge Shopping Center--Fitchburg, Wisconsin.... 08/31/94 50,000 100% 97% 280
Germantown Shopping Center--Jasper, Indiana.............. 12/21/88 232,000 94% 93% 965
Ile de Grand--Grand Island, Nebraska..................... 04/09/87 82,000 100% 99% 455
Kimberly West Shopping Center--Davenport, Iowa........... 12/14/92 97,000 75% 82% 477
Macon County Plaza--Lafayette, Tennessee................. 12/21/88 87,000 92% 82% 277
Meadows Shopping Center--Lincoln, Nebraska............... 06/01/88 68,000 96% 100% 418
Miracle Hills Park Shopping Center--Omaha, Nebraska...... 07/05/88 71,000 94% 93% 660
Moorland Square--New Berlin, Wisconsin................... 11/23/92 84,000 100% 98% 740
Rivergate Shopping Center--Shelbyville, Indiana.......... 12/21/88 133,000 100% 96% 563
Shenandoah Plaza--Newnan, Georgia........................ 12/21/88 141,000 97% 92% 648
Southport Centre--Apple Valley, Minnesota................ 01/01/94 125,000 99% 98% 1,513
Town West Center--Paragould, Arkansas.................... 12/21/88 143,000 95% 94% 440
Twin Oaks Centre--Silvis, Illinois....................... 04/19/95 95,000 91% 92% 590
---------- --------- --------- ------------
1,812,000 95% 94% 10,889
---------- --------- --------- ------------
Total Enclosed Malls and Neighborhood Centers............ 2,701,000 95% 94% $ 16,236
---------- --------- --------- ------------
---------- --------- --------- ------------
MID-AMERICA BETHAL LIMITED PARTNERSHIP PROPERTIES (3):
ENCLOSED MALLS:
Imperial Mall--Hastings, Nebraska........................ 12/01/87 324,000 91% 90% $ 1,720
NEIGHBORHOOD SHOPPING CENTERS:
Stockyards--Omaha, Nebraska
Plaza (Phase I)........................................ 06/01/89 103,000 89% 95% 617
Theaters (Phase II).................................... 07/17/90 26,000 100% 100% 232
Taylor Heights Shopping Center--Sheboygan, Wisconsin..... 07/30/90 85,000 100% 100% 782
---------- --------- --------- ------------
214,000 95% 98% 1,631
---------- --------- --------- ------------
Total Enclosed Malls and Neighborhood Centers............ 538,000 93% 93% $ 3,351
---------- --------- --------- ------------
---------- --------- --------- ------------
</TABLE>
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(1) Leased rate represents the percentage of gross leasable area which is leased
to third-party tenants.
(2) Amounts are based on the 1998 lease terms of existing lessees at December
31, 1997.
(3) The Company owns a 50% partnership interest in Mid-America Bethal Limited
Partnership. All information presented is for the entire center.
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ITEM 3. LEGAL PROCEEDINGS
The Company is subject to a number of lawsuits and claims for various
amounts which arise out of the normal course of business. In the opinion of
management, the disposition of claims currently pending will not have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol MDI. The following table sets forth the high and low sale prices of
the Common Stock, as reported on the New York Stock Exchange Composite Tape and
the dividends declared per share of Common Stock by the Company for each
calendar quarter in the periods indicated. Dividends declared for a calendar
quarter were paid in the next calendar quarter. The stock price at the close of
business on December 31, 1997 was $10 1/8.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---------- ----- -------------
<S> <C> <C> <C>
1996:
First Quarter.................................................... $ 83/8 $ 73/4 $ .22
Second Quarter................................................... $ 87/8 $ 81/4 $ .22
Third Quarter.................................................... $ 93/8 $ 8 $ .22
Fourth Quarter................................................... $ 101/8 $ 87/8 $ .22
1997:
First Quarter.................................................... $ 11 $ 91/2 $ .22
Second Quarter................................................... $ 10 $ 93/8 $ .22
Third Quarter.................................................... $ 101 /16 $ 91/2 $ .22
Fourth Quarter................................................... $ 107/8 $ 97/8 $ .22
</TABLE>
At December 31, 1997, there were 8,284,743 shares of common shares issued
and outstanding which were held by approximately 1,722 shareholders of record.
The shareholders of record do not reflect the persons or entities who held their
stock in nominee or "street" name.
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ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Revenues................................... $ 23,265 $ 23,066 $ 22,333 $ 21,152 $ 18,433
Net Income (Loss)................................ $ 4,648 $ 3,889 $ 3,384 $ (128) $ 2,196
Dividends Declared:
Ordinary Income................................ $ 6,124 $ 5,135 $ 414 $ 2,650 $ 3,222
Return of Capital.............................. 1,166 2,153 6,872 4,637 4,051
---------- ---------- ---------- ---------- ----------
$ 7,290 $ 7,288 $ 7,286 $ 7,287 $ 7,273
Per Share Amounts:
Net Income (Loss).............................. $ .56 $ .47 $ .41 $ (.02) $ .27
Dividends Declared:
Ordinary Income.............................. $ .74 $ .62 $ .05 $ .32 $ .39
Return of Capital............................ .14 .26 .83 .56 .49
---------- ---------- ---------- ---------- ----------
$ .88 $ .88 $ .88 $ .88 $ .88
Weighted Average Number of Shares Outstanding.... 8,283,850 8,281,696 8,280,051 8,280,052 8,092,024
OTHER DATA
Funds From Operations (1)(2)..................... $ 9,905 $ 9,502 $ 8,631 $ 8,018 $ 7,629
</TABLE>
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(1) Persons formerly related to the Company paid certain amounts to the Company
as described in Note F Consolidated Financial Statements. Such amounts are
not included in the Funds From Operations shown above.
(2) The White Paper on Funds From Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 (the "White Paper") defines Funds From Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes Funds From Operations
is helpful to investors as a measure of the performance of an equity REIT
because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. The Company computes Funds From Operations in
accordance with the standards established by the White Paper, which may
differ from the methodology for calculating Funds From Operations utilized
by other equity REITs, and, accordingly, may not be comparable to such other
REITs. Further, Funds From Operations does not represent amounts available
for management's discretionary use because of needed capital replacement or
expansion, debt service obligations, property acquisitions, development,
dividends and distributions or other commitments and uncertainties. Funds
From Operations should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flows from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make dividends/distributions. The Company adopted the White
Paper recommendations for reporting periods beginning January 1, 1996. In
addition, 1995 Funds From Operations has been restated to conform to the
prescribed FFO White Paper.
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<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real Estate Investments:
Property, net.................................. $ 119,590 $ 124,312 $ 127,765 $ 127,261 $ 116,439
Investment in Mid-America Bethal............... 15,027 15,201 15,597 16,367 16,522
Interest in Twin Oaks Centre, net.............. -- -- -- 2,953 5,697
Investment in Valley Park Centre............... -- -- -- -- 2,889
---------- ---------- ---------- ---------- ----------
$ 134,617 $ 139,513 $ 143,362 $ 146,581 $ 141,547
Total Assets..................................... $ 140,530 $ 145,840 $ 150,339 $ 151,442 $ 147,178
Mortgages and Notes Payable...................... $ 61,522 $ 64,348 $ 65,592 $ 63,486 $ 51,868
Shareholders' Equity............................. $ 76,913 $ 79,535 $ 82,916 $ 86,813 $ 94,081
Shares Outstanding............................... 8,284,743 8,283,255 8,280,524 8,279,892 8,264,627
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information included in this report contains, and other materials
filed or to be filed by the Company with the Securities and Exchange Commission
(as well as information included in oral statements made or to be made by the
Company) contain or will contain forward looking statements within the meaning
of the Securities Act of 1933 as amended, and the Securities Act of 1934, as
amended, which reflect management's current views and estimates of future
economic circumstances, industry conditions, company performance and the
financial results. The statements are based on many assumptions and factors,
including general economic conditions, interest rates, consumer behavior,
competitive environment and related market conditions, operating efficiencies,
and actions of governments. Any changes in such assumptions or factors could
produce significantly different results.
The Company was organized in October 1986 as a real estate investment trust
and first issued shares of its common stock to the public in December 1986 to
finance the acquisition of seven properties. Since that time, 18 currently-owned
additional properties (or equity interests therein) have been acquired through
cash, debt financing and/or in exchange for common stock. The following
discussion should be read in conjunction with the Consolidated Financial
Statements and Notes thereto.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of funds are (i) cash generated from
operations which includes distributions from Mid-America Bethal, (ii)
borrowings, (iii) sales of real estate, and (iv) principal repayments on notes
receivable. Management anticipates that these sources will provide the necessary
funds for its operating expenses, interest expense on outstanding indebtedness,
recurring capital expenditures and dividends to shareholders in accordance with
REIT requirements, during the next twelve months. Management also believes that
it has capital, and the access to capital resources, sufficient to expand and
develop its business in accordance with its strategy for growth. In general, the
Company intends to acquire and finance additional real estate properties and
investments, to the extent possible, in such a manner as to maintain the ability
to make regular distributions to shareholders. However, the future issuance of
debt or equity securities by the Company or the acquisition of new properties or
investments could affect the yield to shareholders.
At December 31, 1997, the Company had invested approximately 96% of its
assets in enclosed malls and neighborhood shopping centers, including the
Company's investment in Mid-America Bethal. The remainder of the Company's
assets primarily consisted of accounts and notes receivable.
Net cash flows from investing activities were $563,000. Net cash flows
provided during 1997 from the sales of real estate totaled $344,000. In
addition, principal proceeds from the Company's notes receivable and the Yield
Maintenance Agreement with the former related parties totaled approximately
$1,674,000
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for the year ended December 31, 1997, while principal proceeds from the
repayment of tax increment financing bonds totaled $160,000 for the same period.
During 1997, the Company invested approximately $1,527,000 in expansion
projects, tenant improvements and other capital expenditures.
Net cash flows from financing activities were ($10,198,000). Dividends paid
for the year ended December 31, 1997 were $.88 per share or $7,290,000. At the
present time, the Company has sufficient funds to support operations and the
payment of dividends in accordance with the Company's dividend policy.
At December 31, 1997, the Company had a debt-to-equity ratio of .80 to 1,
compared to .81 to 1 at December 31, 1996, based upon the ratio of mortgages and
notes payable to total shareholders' equity. The decrease in the ratio from
December 31, 1996 resulted primarily from the effect of the Company's use of
proceeds from the Yield Maintenance Agreement and the sale of real estate to
reduce variable rate debt. The Company's ratio of debt to total market
capitalization was 38% at December 31, 1997, compared to 45% at December 31,
1996.
During 1998, principal payments of approximately $12,241,000 under mortgage
and revolving credit agreements will mature. The mortgages collateralized by
Lakewood Mall ($6,912,000 at 8.5%) and the Meadows Shopping Center ($2,899,000
at 9.88%) are expected to be extended for a period of five to seven years.
Revolving credit agreements of approximately $1,871,000 mature during 1998 and
are expected to be extended for one year.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1997 AND 1996
Net income for the year ended December 31, 1997 was $4,648,000 or $.56 per
share, which included a net gain on the sale of real estate of $130,000, or $.02
per share. These results compare to $3,889,000 or $.47 per share for the year
ended December 31, 1996, which included a net loss on the sale of real estate of
$289,000 or $.03 per share.
The increase in net income for the year ended December 31, 1997 compared to
the year ended December 31, 1996 was primarily due to increased base and
percentage rents, positive impact of recent expansion activities, and a decrease
in the weighted average debt outstanding which reduced the weighted average cost
of funds during 1997. Also impacting the increase in net income is a $130,000
gain on sale of real estate sold during 1997 compared to a $289,000 loss on sale
of real estate sold in 1996. The Company experienced an increase of $199,000 in
total revenues and a $70,000 decrease in total expenses from the year ended
December 31, 1997 compared to the same period in 1996.
RENTAL INCOME
Rental income for the year ended December 31, 1997 was $17,348,000 compared
to $17,012,000 for the year ended December 31, 1996, an increase of $336,000 or
2%. This increase in rental income reflects the effect of new leases and rent
increases, the full year impact of 1996 expansion activities and the partial
year impact of 1997 expansion activities, specifically the Herberger's
Department Store expansion at Lakewood Mall in Aberdeen, South Dakota which
began operating in March 1996, and the theatre expansion at Monument Mall in
Scottsbluff, Nebraska which began operating in September 1996, and the partial
year impact of the theatre expansion at Lakewood Mall in Aberdeen, South Dakota
which began operating in May 1997.
REIMBURSEMENT INCOME
Reimbursement income for the year ended December 31, 1997 was $5,130,000
compared to $5,097,000 for the year ended December 31, 1996, an increase of
$33,000 or 1%. This increase in reimbursement income reflects the effect of new
leases and the positive impact of recent expansion activities.
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PROPERTY MANAGEMENT INCOME
Property management income, which primarily consists of lease and property
management fees from properties managed for Mid-America Bethal, was $172,000 for
the year ended December 31, 1997 compared to $194,000 for the year ended
December 31, 1996, a decrease of $22,000 or 11%. The decrease was attributable
to fewer new leases at properties owned by Mid-America Bethal during 1997
compared to 1996.
OTHER INCOME
Other income for the year ended December 31, 1997 was $615,000 compared to
$763,000 for the year ended December 31, 1996, a decrease of $148,000 or 19%.
The decrease was primarily attributable to a $90,000 final settlement from the
Company's investment in Valley Park Center in 1996 and a decrease in interest
income on the Company's temporary investments, notes receivable and tax
increment financing bonds for the year ended December 31, 1997 compared to the
same period in 1996.
REAL ESTATE TAXES
Real estate taxes for the year ended December 31, 1997 were $2,952,000
compared to $3,076,000 for the year ended December 31, 1996, a decrease of
$124,000 or 4%. This decrease was primarily due to successfully negotiating a
reduction of taxable value at several properties, coupled with a decrease in the
tax assessed levy at several properties.
OTHER PROPERTY COSTS
Other property costs for the year ended December 31, 1997 were $3,813,000
compared to $3,584,000 for the year ended December 31, 1996, an increase of
$229,000 or 6%. This increase was due primarily to an increase in legal and
professional fees related to litigation arising from the normal course of
business.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1997 was $5,539,000
compared to $5,787,000 for the year ended December 31, 1996, a decrease of
$248,000 or 4%. The decrease was due primarily to a decrease in the average
total debt outstanding in 1997 over 1996 coupled with a decrease in the average
cost of funds. The Company's average total debt was $62,768,000 for the twelve
months ended December 31, 1997 compared to $65,306,000 for the twelve months
ended December 31, 1996. In addition, the average cost of funds for the twelve
months ended December 31, 1997 was 8.83% compared to 8.86% during the same
period in 1996.
ADMINISTRATIVE EXPENSES
Administrative expenses for the year ended December 31, 1997 were $1,370,000
compared to $1,268,000 for the year ended December 31, 1996, an increase of
$102,000 or 8%. This increase related primarily to legal and consulting fees
paid by the Company for evaluation of strategic alternatives.
PROPERTY MANAGEMENT AND LEASING EXPENSES
Property management and leasing expenses for the year ended December 31,
1997 were $1,118,000 compared to $1,062,000 for the year ended December 31,
1996, an increase of $56,000 or 5%. This increase was primarily attributable to
an increase in occupancy costs coupled with an increase in salary levels for
existing employees for cost of living increases.
11
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the year ended December 31, 1997
was $4,981,000 compared to $5,066,000 for the year ended December 31, 1996, a
decrease of $85,000 or 2%. This decrease was related to a reduction of the basis
of the specific properties related to proceeds received under the Yield
Maintenance Agreement. See Footnote F on the Company's Consolidated Financial
Statements.
EQUITY IN EARNINGS OF MID-AMERICA BETHAL LIMITED PARTNERSHIP
The Company's equity in earnings of Mid-America Bethal Limited Partnership
for the year ended December 31, 1997 was $1,026,000 compared to $955,000 for the
year ended December 31, 1996, an increase of $71,000 or 7%. The increase was a
result of the full year impact of 1996 leasing activities and the partial year
impact of 1997 leasing activities coupled with a slight decrease in real estate
taxes and other property expenses for the twelve months ended December 31, 1997
compared to the same period in 1996.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1996 AND 1995
Net income for the year ended December 31, 1996 was $3,889,000 or $.47 per
share, which included a net loss on the sale of real estate of $289,000, or $.03
per share. These results compare to $3,384,000 or $.41 per share for the year
ended December 31, 1995, which included a net gain on sales of real estate of
$189,000 or $.02 per share.
The increase in net income for the year ended December 31, 1996 compared to
the year ended December 31, 1995 was primarily due to increased base and
percentage rents, positive impact of expansion activities, a decrease in the
weighted average cost of funds during 1996 and the continued impact of the
Company's expense reduction initiatives. The Company experienced an increase of
$733,000 in total revenues and a $254,000 decrease in total expenses from the
year ended December 31, 1996 compared to the same period in 1995.
RENTAL INCOME
Rental income for the year ended December 31, 1996 was $17,012,000 compared
to $16,564,000 for the year ended December 31, 1995, an increase of $448,000 or
3%. This increase in rental income reflects the effect of new leases and rent
increases, the full year impact of 1995 expansion activities and the partial
year impact of 1996 expansion activities, specifically the Herberger's
Department Store expansion at Lakewood Mall in Aberdeen, South Dakota which
began operating in March 1996, and the theatre expansion at Monument Mall in
Scottsbluff, Nebraska which began operating in September 1996, and the full year
impact of the acquisition of the Twin Oaks Centre in April 1995.
REIMBURSEMENT INCOME
Reimbursement income for the year ended December 31, 1996 was $5,097,000
compared to $4,834,000 for the year ended December 31, 1995, an increase of
$263,000 or 5%. This increase in reimbursement income reflects the effect of new
leases and the positive impact of recent expansion activities.
PROPERTY MANAGEMENT INCOME
Property management income, which primarily consists of lease and property
management fees from properties managed for Mid-America Bethal, was $194,000 for
the year ended December 31, 1996 compared to $200,000 for the year ended
December 31, 1995, a decrease of $6,000 or 3%. The decrease was attributable to
fewer new leases at properties owned by Mid-America Bethal during 1996 compared
to 1995.
12
<PAGE>
OTHER INCOME
Other income for the year ended December 31, 1996 was $763,000 compared to
$735,000 for the year ended December 31, 1995, an increase of $28,000 or 4%. The
increase was primarily attributable to a $90,000 final settlement from the
Company's investment in Valley Park Center offset by a decrease in interest
income on the Company's temporary investments, notes receivable and tax
increment financing bonds.
REAL ESTATE TAXES
Real estate taxes for the year ended December 31, 1996 were $3,076,000
compared to $3,063,000 for the year ended December 31, 1995, an increase of less
than 1%.
OTHER PROPERTY COSTS
Other property costs for the year ended December 31, 1996 were $3,584,000
compared to $3,674,000 for the year ended December 31, 1995, a decrease of
$90,000 or 2%. This decrease was due to timing of certain recurring property
expenses offset by an increase in property expenses of approximately $30,000 at
Twin Oaks Centre due to the full year impact.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1996 was $5,787,000
compared to $5,965,000 for the year ended December 31, 1995, a decrease of
$178,000 or 3%. The decrease was due primarily to a decrease in the average cost
of funds slightly offset by an increase in average total debt in 1996 over 1995.
The Company's average total debt was $65,306,000 for the twelve months ended
December 31, 1996 compared to $65,209,000 for the twelve months ended December
31, 1995. In addition, the average cost of funds for the twelve months ended
December 31, 1996 was 8.86% compared to 9.17% during the same period in 1995.
ADMINISTRATIVE EXPENSES
Administrative expenses for the year ended December 31, 1996 were $1,268,000
compared to $1,458,000 for the year ended December 31, 1995, a decrease of
$190,000 or 13%. This decrease reflects the continued impact of improved cost
control throughout the Company and a decrease in legal and consulting costs due
to one-time items incurred in 1995.
PROPERTY MANAGEMENT AND LEASING EXPENSES
Property management and leasing expenses for the year ended December 31,
1996 were $1,062,000 compared to $812,000 for the year ended December 31, 1995,
an increase of $250,000 or 31%. This increase was primarily attributable to the
impact of the acquisition of the Twin Oaks Centre in April 1995, an increase in
leasing and marketing activities and the timing of certain property management
expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the year ended December 31, 1996
was $5,066,000 compared to $5,125,000 for the year ended December 31, 1995, a
decrease of $59,000 or 1%. This decrease was related to certain intangible
assets that were fully amortized in 1996 offset by an increase due to the full
year impact of the Twin Oaks Centre acquisition in April 1995, renovation and
expansion projects and tenant finish projects which were completed during 1995
and 1996.
13
<PAGE>
EQUITY IN EARNINGS OF MID-AMERICA BETHAL LIMITED PARTNERSHIP
The Company's equity in earnings of Mid-America Bethal Limited Partnership
for the year ended December 31, 1996 was $955,000 compared to $959,000 for the
year ended December 31, 1995, a decrease of $4,000 or less than 1%. The decrease
was a result of higher real estate taxes and other property expenses offset by
an increase in total revenues for the twelve months ended December 31, 1996
compared to the same period in 1995.
FUNDS FROM OPERATIONS
Management considers Funds From Operations to be an appropriate measure of
the performance of an equity REIT. See "Selected Financial Data" above for the
definition of Funds From Operations.
Funds From Operations were $9,905,000 for the year ended December 31, 1997
compared to $9,502,000 for the year ended December 31, 1996. The increase of
$403,000 or 4%, was attributable to the positive impact of recent expansion
activities, a decrease in the Company's weighted average debt outstanding which
reduced the weighted average cost of funds and, to a lesser degree, increased
base rents.
Funds From Operations is computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Income................................................................. $ 4,648 $ 3,889 $ 3,384
Depreciation and Amortization (1).......................................... 4,818 4,859 4,857
(Gain) Loss on Sales of Real Estate, net (2)............................... (130) 289 (189)
Investment in Mid-America Bethal:
Equity in Earnings....................................................... (1,026) (955) (959)
Equity in Funds From Operations (3)...................................... 1,595 1,510 1,538
Other.................................................................... -- (90) --
--------- --------- ---------
Funds From Operations...................................................... $ 9,905 $ 9,502 $ 8,631
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Depreciation and amortization for the year ended December 31, 1997, 1996 and
1995, respectively, consisted of real property depreciation of $4,487,000,
$4,489,000 and $4,389,000, lease fee amortization of $229,000, $266,000 and
$366,000, and other intangible amortization of $102,000, $104,000 and
$102,000.
(2) Gain on sale of real estate for year ended 1997 consists of a $130,000 gain
from the sale of two outlot parcels. Loss on sales of real estate for the
year ended December 31, 1996 consisted of a net loss of $314,000 on the sale
of the Westview Plaza in McCook, Nebraska and a net gain of $24,400 on the
sale of an outlot parcel. Gains on sales of real estate for the year ended
December 31, 1995 consisted of a $189,000 gain from the sale of two outlot
parcels.
(3) Equity in Funds From Operations of Mid-America Bethal for the years ended
December 31, 1997, 1996 and 1995, respectively, included real property
depreciation of $548,000, $536,000 and $542,000, and lease fee amortization
of $19,000, $19,000 and $37,000.
YEAR 2000 CHANGES
The Company plans to install vendor upgrades for each of its computer-based
applications that will accommodate the millennium change. The Company does not
believe the Year 2000 computer issues will have a material impact on the
financial position or results of operations of the Company, although the Company
is unable to quantify at this time the potential adverse effects associated with
external relationships.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item appear in the audited
consolidated financial statements and schedules included herein and listed in
the index on page 17 of this report. The supplementary data required by this
item appears at footnote J entitled "Quarterly Information (Unaudited)" on page
33 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in the Company's independent accountants during the
two most recent fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
Sections entitled "Persons Nominated for Election as Directors" and "Executive
Officers of the Company" in the 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Sections entitled "Director Meetings and Compensation", "Summary Compensation
Table", "Option Grants in 1997", "Option Exercises in 1997 and Year-End Values
Table", and "Employment Agreements" in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Sections entitled "Ownership of Shares by Directors and Executive Officers" and
"Ownership of Certain Beneficial Owners" in the 1998 Proxy Statement.
ITEM 13. CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Company has no transactions or relationships reportable pursuant to this
Item.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Financial Statements:
The audited Consolidated Financial Statements and Schedules of
Mid-America Realty Investments, Inc. are included herein and listed on
the index on page 17 of this report.
(2) Financial Statement Schedules: Certain financial statement schedules of
Mid-America Realty Investments, Inc. are included herein and listed on
the index on page 17 of this report.
(3) Exhibits:
The Exhibit Index, set forth below, is incorporated herein by reference.
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of
the fiscal year ended December 31, 1997.
(C) EXHIBITS
See Item 14(a)(3) above.
(D) FINANCIAL STATEMENTS REQUIRED BY REGULATIONS S-X WHICH ARE EXCLUDED FROM THE
ANNUAL REPORT BY RULE 14A-3(B)
The financial statements and schedules of Mid-America Bethal Limited
Partnership (financial statements of significant subsidiary, pursuant to Rule
3-09) are filed as part of this report.
16
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The following Consolidated Financial Statements of Mid-America Realty
Investments, Inc. and the related Independent Auditors' Report are included in
Item 8 and Item 14 (a) (1):
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Management................................................................... 18
Independent Auditors' Report........................................................... 19
Consolidated Balance Sheets at December 31, 1997 and 1996.............................. 20
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and
1995.................................................................................. 21
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997,
1996 and 1995......................................................................... 22
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995.................................................................................. 23
Notes to Consolidated Financial Statements............................................. 25
</TABLE>
The following Consolidated Financial Statement Schedule of Mid-America
Realty Investments, Inc. is included in Item 14(a)(2):
<TABLE>
<S> <C>
Schedule III--Real Estate and Accumulated Depreciation................ 34
</TABLE>
All other schedules have been omitted because they are not applicable or not
required, or because the required information is shown in the consolidated
financial statements or notes thereto.
17
<PAGE>
REPORT OF MANAGEMENT
The management of Mid-America Realty Investments, Inc. has prepared and is
responsible for the consolidated financial statements and other financial
information included in this Form 10-K Annual Report. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and include amounts that are based upon informed judgments and
estimates by management. The other financial information in this annual report
is consistent with the consolidated financial statements.
The Company maintains a system of internal accounting controls. Management
believes the internal accounting controls provide reasonable assurance that
transactions are executed and recorded in accordance with Company policy and
procedures and that the accounting records may be relied on as a basis for
preparation of the consolidated financial statements and other financial
information.
The Audit Committee of the Board of Directors, composed of directors who are
not employees of the Company, meets periodically with management and the
independent auditors to discuss the adequacy of internal accounting controls and
the quality of financial reporting. The independent auditors have full and free
access to the Audit Committee.
<TABLE>
<S> <C>
[SIG] [SIG]
Jerome L. Heinrichs Dennis G. Gethmann
CHAIRMAN AND CHIEF EXECUTIVE OFFICER PRESIDENT AND CHIEF OPERATING OFFICER
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mid-America Realty Investments, Inc.
We have audited the accompanying consolidated balance sheets of Mid-America
Realty Investments, Inc. and subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement 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 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Mid-America Realty Investments,
Inc. and subsidiary as of 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, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
January 28, 1998
Omaha, Nebraska
19
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(COLUMNAR DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash...................................................................................... $ -- $ --
Accounts receivable, net of allowance of $175,000 and $195,000............................ 1,744 1,571
Notes receivable, net of allowance of $70,000............................................. 400 498
Property:
Land and land improvements.............................................................. 37,129 37,352
Buildings............................................................................... 114,935 114,913
Equipment and fixtures.................................................................. 559 555
---------- ----------
152,623 152,820
Less: Accumulated depreciation.......................................................... (33,033) (28,508)
---------- ----------
Property, net........................................................................... 119,590 124,312
Investment in Mid-America Bethal Limited Partnership...................................... 15,027 15,201
Intangible assets, less accumulated amortization of $3,834,000 and $3,422,000............. 1,382 1,623
Other assets.............................................................................. 2,387 2,635
---------- ----------
$ 140,530 $ 145,840
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable............................................................... $ 61,522 $ 64,348
Accrued liabilities....................................................................... 2,095 1,957
---------- ----------
Total Liabilities..................................................................... 63,617 66,305
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.01 par value; authorized 25,000,000 shares; issued and outstanding
8,284,743 and 8,283,255 shares........................................................ 83 83
Capital in excess of par value.......................................................... 119,720 119,700
Distributions in excess of net income................................................... (42,890) (40,248)
---------- ----------
Total Shareholders' Equity............................................................ 76,913 79,535
---------- ----------
$ 140,530 $ 145,840
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(COLUMNAR DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Rental income............................................................ $ 17,348 $ 17,012 $ 16,564
Reimbursement income..................................................... 5,130 5,097 4,834
Property management and leasing income................................... 172 194 200
Other income............................................................. 615 763 735
---------- ---------- ----------
Total Revenues........................................................... 23,265 23,066 22,333
EXPENSES
Real estate taxes........................................................ 2,952 3,076 3,063
Other property costs..................................................... 3,813 3,584 3,674
Interest expense......................................................... 5,539 5,787 5,965
Administrative expenses.................................................. 1,370 1,268 1,458
Property management and leasing expenses................................. 1,118 1,062 812
Depreciation and amortization............................................ 4,981 5,066 5,125
---------- ---------- ----------
Total Expenses........................................................... 19,773 19,843 20,097
---------- ---------- ----------
Income Before Equity in Earnings of Mid-America Bethal Limited
Partnership and Gain (Loss) on Sales of Real Estate, net............... 3,492 3,223 2,236
Equity in Earnings of Mid-America Bethal Limited Partnership............. 1,026 955 959
---------- ---------- ----------
INCOME FROM OPERATIONS..................................................... 4,518 4,178 3,195
Gain (Loss) on Sales of Real Estate, net................................... 130 (289) 189
---------- ---------- ----------
NET INCOME................................................................. $ 4,648 $ 3,889 $ 3,384
---------- ---------- ----------
---------- ---------- ----------
Weighted Average Shares Outstanding During Period.......................... 8,283,850 8,281,696 8,280,051
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE................................................ $ .56 $ .47 $ .41
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN DISTRIBUTIONS
COMMON EXCESS OF IN EXCESS OF
STOCK PAR VALUE NET INCOME TOTAL
------------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995.......................................... $ 83 $ 119,677 $ (32,947) $ 86,813
Issuance of shares.............................................. -- 5 -- 5
Net income...................................................... -- -- 3,384 3,384
Dividends declared and paid--$.88 per share..................... -- -- (7,286) (7,286)
--- ---------- ------------ ---------
BALANCE, DECEMBER 31, 1995........................................ 83 119,682 (36,849) 82,916
Issuance of shares.............................................. -- 18 -- 18
Net income...................................................... -- -- 3,889 3,889
Dividends declared and paid--$.88 per share....................... -- -- (7,288) (7,288)
--- ---------- ------------ ---------
BALANCE, DECEMBER 31, 1996........................................ 83 119,700 (40,248) 79,535
Issuance of shares.............................................. -- 20 -- 20
Net income...................................................... -- -- 4,648 4,648
Dividends declared and paid--$.88 per share..................... -- -- (7,290) (7,290)
--- ---------- ------------ ---------
BALANCE, DECEMBER 31, 1997........................................ $ 83 $ 119,720 $ (42,890) $ 76,913
--- ---------- ------------ ---------
--- ---------- ------------ ---------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.................................................................... $ 4,648 $ 3,889 $ 3,384
Adjustments:
Depreciation and amortization............................................... 4,981 5,066 5,125
Investment in Mid-America Bethal Limited Partnership:
Equity in earnings........................................................ (1,026) (955) (959)
Distributions received.................................................... 1,200 1,350 1,500
(Gain) loss on sales of real estate, net.................................... (130) 289 (189)
(Decrease) increase in related liabilities.................................. (167) 145 537
Decrease (increase) in related assets....................................... 129 (358) (542)
---------- --------- ----------
Net Cash Flows From Operating Activities........................................ 9,635 9,426 8,856
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of real estate............................................ 344 572 469
Principal repayments of notes receivable...................................... 157 334 123
Additions to property:
Expansion projects & other capital expenditures............................. (1,107) (1,725) (1,184)
Tenant improvements......................................................... (420) (280) (667)
Cash paid for leasing fees.................................................... (88) (55) (263)
Payments from Yield Maintenance Agreement..................................... 1,517 19 1,027
Principal repayments of Tax Increment Financing Bonds......................... 160 242 71
---------- --------- ----------
Net Cash Flows From Investing Activities...................................... 563 (893) (424)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short-term debt, net.............................................. (2,989) (119) (2,147)
Proceeds of mortgages payable................................................. 726 -- 14,500
Principal payments on mortgages payable....................................... (563) (1,126) (13,279)
Cash paid for loan fees....................................................... (82) -- (220)
Dividends paid................................................................ (7,290) (7,288) (7,286)
---------- --------- ----------
Net Cash Flows From Financing Activities...................................... (10,198) (8,533) (8,432)
---------- --------- ----------
NET CHANGE IN CASH.............................................................. -- -- --
CASH, BEGINNING OF YEAR......................................................... -- -- --
---------- --------- ----------
CASH, END OF YEAR............................................................... $ -- $ -- $ --
---------- --------- ----------
---------- --------- ----------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<S> <C> <C>
1997: (A) Both of the Company's acquisition lines of credit were extended, one to July 1998
and the other to July 1999.
(B) The Company extended its working line of credit two years to July 1999.
(C) The Company refinanced the Miracle Hills Park Shopping Center fixed rate mortgage
for seven years to August 2004. Proceeds of $4,000,000 were used to repay the
maturing $3,300,000 fixed rate mortgage secured by Miracle Hills Shopping Center
and to repay variable rate acquisition line debt.
1996: (A) One of the Company's acquisition lines of credit was extended one year to July
1997.
(B) The Company extended the two Twin Oaks Centre mortgages for three years to April
1999.
(C) The Company repaid the maturing fixed rate mortgage loan secured by Bishop
Heights Shopping Center with proceeds from one of the Company's acquisition
lines of credit.
1995: (A) Both of the Company's acquisition lines of credit were extended, one to July 1996
and the other to July 1997.
(B) The Company extended its working line of credit two years to July 1997.
(C) The Company extended the Lakewood Mall mortgage loan for three years to August
1998.
(D) The Company assumed the Twin Oaks Centre loan. See Note B to the Company's
Consolidated Financial Statements.
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Mid-America Realty Investments, Inc. (the "Company"),
a Maryland corporation, owns and manages income-producing properties, primarily
enclosed malls and neighborhood shopping centers. The Company has qualified as a
real estate investment trust ("REIT") under the provisions of the Internal
Revenue Code.
At December 31, 1997, the Company owned 18 neighborhood shopping centers and
four enclosed malls located as follows: eight in Nebraska, three in Wisconsin,
two each in Indiana and Minnesota, and one each in Arkansas, Georgia, Illinois,
Iowa, Michigan, South Dakota and Tennessee. Additionally, the Company is a 50%
partner in Mid-America Bethal Limited Partnership ("Mid-America Bethal") which
owns two neighborhood shopping centers in Nebraska and Wisconsin and one
enclosed mall in Nebraska.
USE OF ESTIMATES--In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements are
prepared on an accrual basis and include the accounts of the Company and its
wholly-owned subsidiary, Mid-America Centers Corp. All significant intercompany
balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS--The Company considers short-term investments with
a maturity at acquisition of three months or less as cash equivalents. The
Company currently utilizes daily cash receipts to pay down any working capital
balances.
INVESTMENT IN MID-AMERICA BETHAL LIMITED PARTNERSHIP--The Company's 50%
investment in Mid-America Bethal is accounted for using the equity method.
PROPERTY--Property is stated at the lower of depreciated cost or the amount
estimated to be recoverable through future cash flows from property operations
and dispositions. Assets are depreciated using the straight-line method over the
following lives: land improvements--15 years; buildings--40 years; tenant
improvements--shorter of the term of the lease or the estimated useful life of
the improvement; and equipment and fixtures--5 to 7 years. Real property
depreciation for the years ended December 31, 1997, 1996 and 1995 was
$4,487,000, $4,489,000 and $4,389,000, respectively. Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of" requires that
long-lived assets such as real estate assets be reviewed whenever events or
changes in circumstances indicate that the book value of the asset may not be
recoverable. If the sum of the estimated future net cash flows (undiscounted and
without interest charges) from an asset to be held and used is less than the
book value of the asset, an impairment loss must be recognized in the amount of
the difference between book value and fair value as opposed to the difference
between book value and net realizable value under the previous accounting
standard. For long-term assets like those held by the Company, the determination
of whether there is an impairment loss is dependent primarily on the Company's
estimates on occupancy, rent and expense increases, which involves numerous
assumptions and judgments as to future events over a period of many years. At
December 31, 1997, the Company does not hold any assets that meet the impairment
criteria of SFAS No. 121.
25
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS--Fees paid for leasing commissions on new or renewed
leases are amortized using the straight-line method over the initial term or
extension of the lease. Costs incurred to obtain mortgages and notes payable are
being amortized over the term of the obligation or agreement. Other intangible
assets, primarily from the acquisition of Mid-America Centers Corp., are being
amortized using the straight-line method over periods of 60-120 months.
LEASES--All leases with tenants are classified as operating leases.
REVENUE RECOGNITION--Minimum rents from tenants are recognized monthly based
upon total fixed cash flow over the initial term of the lease, using the
straight-line method. Percentage rents are based upon tenant sales levels for a
specified period. Reimbursed expenses for real estate taxes, common area
maintenance, utilities, janitorial and building maintenance are recognized in
the period in which the expenses are incurred, based upon the provisions of the
tenant's lease.
FEDERAL INCOME TAXES--The Company has qualified as a REIT under the Internal
Revenue Code and, accordingly, will not be subject to federal income taxes on
amounts distributed to shareholders provided certain requirements are met,
including the provision that at least 95% of its real estate investment trust
taxable income is distributed by March 15 of the following year.
The dividends paid during 1997, 1996 and 1995 were allocated between
ordinary income and non-taxable return of capital as follows (amounts are per
share):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Ordinary income......................................................... $ .74 $ .62 $ .05
Return of capital....................................................... .14 .26 .83
--- --- ---
$ .88 $ .88 $ .88
--- --- ---
--- --- ---
</TABLE>
In 1995, a portion of previously recorded book losses associated with the
Company's interest in Twin Oaks Centre were utilized for income tax purposes. As
a result of the settlement described in footnote B, these losses affected the
taxation of dividends paid during 1995 by increasing the return of capital
portion and decreasing the ordinary income portion.
REPURCHASE OF COMMON STOCK--Under the laws of the state of Maryland, all
shares of common stock reacquired by the Company must be retired.
NET INCOME PER SHARE--Net income per share was determined by dividing net
income for the periods presented by the weighted average number of shares of
common stock outstanding for the period. Dilutive net income per share, which
includes the effect of common stock equivalents, as required by SFAS No. 128,
"Earnings Per Share", was determined to have no impact on earnings per share.
OTHER--In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", all of which are effective
for fiscal years beginning after December 15, 1997. The provisions of these
statements are of a disclosure nature only and will not have an impact on the
operations of the Company.
26
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
B. PROPERTY TRANSACTIONS
WESTVIEW PLAZA--In August 1996, the Company completed the sale of Westview
Plaza in McCook, Nebraska. The gross sales price was $425,000 resulting in a
book loss of approximately $314,000. Proceeds from the sale were used to reduce
bank debt.
OUTLOT SALES,--During 1997, the Company sold two outlot parcels for total
proceeds of $344,000, resulting in a gain of $130,000. During 1996 and 1995, the
Company sold one and two outlot parcels, respectively, for total proceeds of
$183,000 and $469,000, respectively, resulting in book gains of $24,400 and
$189,000, respectively.
TWIN OAKS CENTRE--On April 19, 1995, the Company entered into a settlement
agreement with the Twin Oaks Centre Limited Partnership (the "Partnership"). The
Partnership was in default on a mortgage loan to the Company. Pursuant to the
settlement, the Company took ownership of the underlying collateral which
consisted of the Twin Oaks Centre ("TOC"), a 95,000 square foot neighborhood
shopping center in Silvis, Illinois and tax increment financing bonds ("TIF")
payable from incremental sales and real estate taxes generated by the shopping
center and adjacent properties. In conjunction with the Settlement, the Company
transferred from "Interest in Twin Oaks Centre" on the Consolidated Balance
Sheet, the estimated value of the TOC ($4,136,000) to "Property", the estimated
value of the TIF Bonds ($2,000,000) to "Other Assets", and the balance of a
first mortgage (the "TOC Loan"), which was assumed by the Company, to "Mortgages
and Notes Payable". The TOC Loan had a balance of $3,033,000 on April 19, 1995.
Since the settlement date, the Company has received approximately $1,144,000
from the City of Silvis, Illinois related to the TIF Bonds; approximately
$472,000 of this payment was recorded by the Company as principal reduction.
C. NOTES RECEIVABLE
Notes receivable at December 31, 1997 consists of two separate notes from
parties formerly related to the Company. The notes carry interest rates of 9.50%
and 12%, mature in varying amounts through 2004 and are collateralized by
specific tangible assets and personal guarantees.
D. INVESTMENT IN MID-AMERICA BETHAL LIMITED PARTNERSHIP
The Company has a 50% general partnership interest in Mid-America Bethal, a
Nebraska limited partnership. The Company is the managing general partner of
Mid-America Bethal and a European investor is the limited partner. Mid-America
Bethal owns and operates two neighborhood shopping centers and one enclosed
mall.
27
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
D. INVESTMENT IN MID-AMERICA BETHAL LIMITED PARTNERSHIP (CONTINUED)
Summarized financial information on Mid-America Bethal is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
BALANCE SHEETS
Assets:
Cash and cash equivalents............................................................... $ 823 $ 751
Property, net of accumulated depreciation of $8,471,000 and $7,370,000.................. 28,652 29,097
Other assets............................................................................ 592 572
--------- ---------
$ 30,067 $ 30,420
--------- ---------
--------- ---------
Liabilities and Partners' Capital:
Accrued liabilities..................................................................... $ 13 $ 18
Partners' capital....................................................................... 30,054 30,402
--------- ---------
$ 30,067 $ 30,420
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
Total Revenues..................................................................... $ 4,561 $ 4,442 $ 4,330
--------- --------- ---------
--------- --------- ---------
Net Income......................................................................... $ 2,052 $ 1,909 $ 1,918
--------- --------- ---------
--------- --------- ---------
EQUITY IN EARNINGS OF MID-AMERICA BETHAL RECORDED BY THE COMPANY..................... $ 1,026 $ 955 $ 959
--------- --------- ---------
--------- --------- ---------
</TABLE>
Mid-America Centers Corp. has agreements with Mid-America Bethal for the
management and leasing of properties owned by Mid-America Bethal. For the years
ended December 31, 1997, 1996 and 1995, Mid-America Bethal paid property
management fees of $178,000, $171,000, and $172,000, respectively, and incurred
and capitalized leasing commissions of $16,000, $32,000, and $28,000,
respectively. In addition, the Company administers the day-to-day activities of
Mid-America Bethal. For these services, the Company received administrative fees
from Mid-America Bethal of $25,000, $20,000 and $20,000 for the twelve months
ended December 31, 1997, 1996 and 1995, respectively.
28
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
E. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MAXIMUM INTEREST ANNUAL --------------------
AVAILABLE RATE PAYMENT MATURITY DATE 1997 1996
----------- --------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Mortgage Debt:
Mortgages and Notes Payable:
Lakewood Mall........................... 8.50% $ 768 Aug. 1998 $ 7,043 $ 7,204
Meadows S.C............................. 9.88% $ 346 Nov. 1998 2,950 3,002
Twin Oaks Centre........................ 8.50% $ 84 Apr. 1999 688 699
Twin Oaks Centre (See Note B)........... 8.50% $ 342 Apr. 1999 2,854 2,915
Eastville Plaza......................... 9.25% $ 292 Feb. 2001 2,902 2,925
Rivergate S.C........................... 10.00% $ 336 Jan. 2002 3,064 3,093
Shenandoah Plaza........................ 10.00% $ 456 Jan. 2002 4,117 4,156
Edgewood S.C............................ 9.08% $ 590 Feb. 2002 6,500 6,500
Southport Centre........................ 9.20% $ 736 Apr. 2002 8,000 8,000
Moorland Square......................... 9.00% $ 384 Nov. 2002 3,539 3,600
Kimberly West........................... 8.00% $ 403 Dec. 2002 4,014 4,092
Miracle Hills Park...................... 8.28% $ 379 Aug. 2004 3,980 3,302
--------- ---------
Total Fixed-Rate Mortgage Debt............ 49,651 49,488
Adjustable-Rate Debt:
Revolving Credit Agreements:
Working Line of Credit.................. $ 5,000 7.66% July 1999 -- 545
Lines of Credit for Acquisitions........ $ 10,000 7.66% July 1999 10,000 4,756
$ 15,000 7.97% July 1998 1,871 9,559
--------- ---------
Total Adjustable Rate Debt.................. 11,871 14,860
--------- ---------
Total Mortgages and Notes Payable........... $ 61,522 $ 64,348
--------- ---------
--------- ---------
</TABLE>
During 1997, the Company finalized a $4,000,000, 8.28% fixed rate mortgage
loan secured by the Miracle Hills Park Shopping Center. The net proceeds from
this loan were used to repay the maturing $3,300,000 fixed rate mortgage secured
by the Miracle Hills Park Shopping Center and to repay variable rate acquisition
line debt. This loan has a seven (7) year term with payments based on a 25-year
amortization. The Company paid fees of approximately $46,000. In addition, the
Company renegotiated the terms of its revolving credit agreements. The
$5,000,000 working capital and the $10,000,000 acquisition lines of credit were
extended to July 1999 for an extension fee of $15,000. Both lines are priced at
200 basis points over LIBOR. The $15,000,000 acquisition line was extended until
July 1998 with the interest rate remaining at 250 basis points over LIBOR;
non-use fee of 25 basis points was eliminated. The interest rate can be reduced
by 25 basis points if $100,000 of non-interest bearing deposits are kept with
the lending institution. At December 31,1997, the Company had $100,000 of
deposits with the lending institution and the interest rate of the acquisition
line was LIBOR plus 225 basis points.
29
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
E. MORTGAGES AND NOTES PAYABLE (CONTINUED)
Principal maturities of total mortgages and notes payable, after giving
effect to the commitments described above, for the next five years are as
follows: 1998--$12,241,000; 1999--$13,795,000; 2000-- $479,000;
2001--$3,351,000; 2002--$27,982,000, and thereafter--$3,674,000.
Substantially all of the Company's properties serve as collateral on one or
more of the above-mentioned obligations. The Company was in compliance with all
debt covenants at December 31, 1997 which require, among other covenants, that
the Company's total debt will not exceed 50% of total assets.
F. COMMITMENTS AND CONTINGENCIES
YIELD MAINTENANCE AGREEMENT--In June 1992, the Company entered into a Yield
Maintenance Agreement (as amended, the "YMA") with parties formerly related to
the Company. Under the YMA, the formerly related parties guaranteed a 10% return
from June 1, 1992 to December 31, 1996, calculated on a quarterly basis, to the
Company based upon the amount of the Company's Investment Base for five specific
properties purchased from the formerly related parties.
Under the YMA, the market value of these properties was determined as of
December 31, 1996. The determined market value was based on a 10.25%
capitalization rate applied to net operating income for the year ended December
31, 1996. The determined market value of the properties was less than the
Company's adjusted acquisition cost, and pursuant to the YMA, the difference was
owed to the Company, subject to certain limits. The obligations of the formerly
related parties under the YMA were limited to $2,800,000.
During second quarter 1997, the Company received the final settlement of
approximately $1,421,000 due under the YMA. The proceeds, which prior to receipt
were not reflected in the consolidated financial statements of the Company, were
used to reduce bank line debt. In addition, because receipt of these amounts was
not considered operating income, these amounts were not considered net income
and were applied against the carrying value of the properties purchased from the
formerly related parties.
LITIGATION--The Company is subject to a number of lawsuits and claims for
various amounts which arise out of the normal course of business. In the opinion
of management, the disposition of claims currently pending will not have a
material adverse effect on the Company's financial position or results of
operations.
G. EMPLOYEE BENEFIT AND STOCK PLANS
RETIREMENT SAVINGS PLAN--In 1994, the Company established a qualified
savings 401(k) plan covering substantially all full-time employees. Participants
may contribute up to 15% of their pre-tax base pay with a discretionary Company
matching contribution. During 1996, the Company contribution was equal to 25% of
the first 4% of participant contributions. Effective January 1, 1997, the
Company contribution was increased to 50% of the first 4% of participant
contributions. Participants vest in Company contributions over five years.
Contribution expense for the years ended December 31, 1997 and 1996 was $19,600
and $14,400, respectively.
30
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
STOCK PLANS--Pursuant to the Amended Stock Option Plan which was approved by
shareholders in 1992 and the 1995 Stock Plan approved by shareholders in 1995
(collectively, the "Plans"), the Compensation Committee of the Board of
Directors is authorized to issue options to purchase shares of common stock at
the then current market price of such shares and other stock awards to employees
of the Company and Mid-America Centers Corp. Stock options become exercisable
over discretionary periods not to exceed 10 years from the date of grant. At
December 31, 1997, approximately 200,000 shares remained available for issuance
under the Plans.
Following is a summary of the option activity under the Plans:
<TABLE>
<CAPTION>
SHARES UNDER
OPTION OPTION PRICE PER SHARE
------------- ----------------------
<S> <C> <C>
Outstanding January 1, 1992...................................... -- --
Granted.......................................................... 108,000 $ 10.375 to $25.375
-------------
Outstanding December 31, 1992.................................... 108,000 $ 10.375 to $25.375
Granted.......................................................... 140,000 $ 10.75
Canceled......................................................... (108,000) $ 10.375 to $25.375
-------------
Outstanding December 31, 1993.................................... 140,000 $ 10.75
Forfeited........................................................ (15,000) $ 10.75
-------------
Outstanding at December 31, 1994................................. 125,000 $ 10.75
Granted.......................................................... 100,000 $ 8.00
Forfeited........................................................ (10,000) $ 10.75
-------------
Outstanding at December 31, 1995, 1996 and 1997.................. 215,000 $ 8.00 to $10.75
-------------
-------------
</TABLE>
At December 31, 1997, 215,000 stock options were exercisable.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation" (FAS 123), effective for fiscal
years beginning after December 15, 1995. The statement requires employers to
adopt a fair value method of accounting for the recognition of employee stock
based compensation expense or, as an alternative, supplemental disclosure of the
impact such expense recognition would have had on the Company's results of
operations. The Company has elected the supplemental disclosure option and has
determined, based on the use of the Black-Scholes option-pricing model and
appropriate Company-specific assumptions, that expense recognition of employee
stock based compensation would have had an immaterial impact on the Company's
consolidated operating results or net income per share.
H. DISCLOSURE OF FAIR VALUE
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
31
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
H. DISCLOSURE OF FAIR VALUE (CONTINUED)
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair value
may differ significantly from the amounts presented herein.
NOTES RECEIVABLE AND TIF BOND:
The carrying amounts of these items represent the Company's reasonable
estimate of their fair value.
MORTGAGES AND NOTES PAYABLE--FIXED RATE MORTGAGE DEBT:
At December 31, 1997, the carrying amount was $49,651,000 compared to an
estimated fair market value of approximately $50,102,000. Interest rates that
are currently available to the Company for the issuance of mortgages with
similar terms and remaining maturities were used to estimate fair value of these
mortgages.
I. LEASING ACTIVITIES
Spaces in the Company's properties are leased under operating leases with
initial terms ranging from one to 40 years. Certain of the leases contain
options to renew. Leases generally provide for minimum rents and percentage
rents plus reimbursement of certain operating expenses. The majority of tenants
pay reimbursements for their pro rata share of certain operating expenses.
Rent income in excess of base rent from tenants with percentage rent
provisions (based upon tenant sales levels for a specified period) for the years
ended December 31, 1997, 1996 and 1995 was $597,000, $471,000, and $536,000,
respectively.
Wal-Mart, Herberger's, Hy-Vee grocery stores, Kmart, Walgreens, Target
and/or Shopko and J.C. Penney anchored a total of 17 of the Company's properties
either as tenants or as occupants of buildings adjacent to the properties and
lease in the aggregate approximately 39% of the total leasable space in the
Company's properties.
Additionally, Kmart, Hy-Vee grocery stores, Herberger's and/or Wal-Mart
anchored all Mid-America Bethal properties as either lessees or as occupants of
buildings adjacent to the properties and lease approximately 38% of the total
leasable space in the Mid-America Bethal properties.
The only tenant with rental commitments more than 10% of the gross leasable
space of the properties owned by the Company at December 31, 1997 is Wal-Mart,
whose five stores at properties owned by the Company account for approximately
15% of total gross leasable area. Wal-Mart also operates stores adjacent to
three of the Company's properties and to one of Mid-America Bethal's properties.
32
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
I. LEASING ACTIVITIES (CONTINUED)
Future base rents under non-cancelable operating leases on properties owned
solely by the Company at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OTHER
YEAR ENDING DECEMBER 31, WAL-MART TENANTS TOTAL
- -------------------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
1998.......................................................... $ 1,232 $ 15,005 $ 16,237
1999.......................................................... 1,232 14,161 15,393
2000.......................................................... 1,232 13,256 14,488
2001.......................................................... 1,232 12,170 13,402
2002.......................................................... 1,232 10,940 12,172
Thereafter.................................................... 4,457 76,092 80,549
----------- ---------- ----------
$ 10,617 $ 141,624 $ 152,241
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The Company had no tenant which in any of the three years ended December 31,
1997 provided 10% or more of the Company's rental income or total revenues.
J. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOUTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Total revenues................................. $ 5,789 $ 5,815 $ 5,815 $ 5,846 $ 23,265
Net income..................................... $ 1,243 $ 1,082 $ 1,130 $ 1,193 $ 4,648
Net income per share........................... $ .15 $ .13 $ .14 $ .14 $ .56
Dividends declared per share................... $ .22 $ .22 $ .22 $ .22 $ .88
Weighted average number of shares
outstanding.................................. 8,283,255 8,283,759 8,284,275 8,284,743 8,283,850
Year Ended December 31, 1996:
Total revenues................................. $ 5,893 $ 5,797 $ 5,736 $ 5,640 $ 23,066
Net income..................................... $ 1,166 $ 950 $ 769 $ 1,004 $ 3,889
Net income per share........................... $ .14 $ .11 $ .09 $ .13 $ .47
Dividends declared per share................... $ .22 $ .22 $ .22 $ .22 $ .88
Weighted average number of shares
outstanding.................................. 8,280,842 8,281,407 8,281,978 8,282,548 8,281,696
</TABLE>
K. SUBSEQUENT EVENT
On January 27, 1998, the Company declared a cash dividend of $.22 per common
share payable on February 24, 1998 to stockholders of record on February 10,
1998.
33
<PAGE>
MID-AMERICA REALTY INVESTMENTS INC. AND SUBSIDIARY
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REDUCTIONS GROSS AMOUNT AT WHICH CARRIED AT
ADDITIONAL FROM
INITIAL COST TO COMPANY COSTS RECEIPTS DECEMBER 31, 1997
------------------------- SUBSEQUENT SUBSEQUENT ------------------------------------
ENCUM- BUILDINGS AND TO TO BUILDINGS AND
DESCRIPTION BRANCES LAND IMPROVEMENTS ACQUISITION ACQUISITION LAND IMPROVEMENTS TOTAL
- ------------------- --------- ---------- ------------- ----------- ------------ --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Monument Mall, Line of
Scottsbluff, NE Credit(2) $ 420 $ 9,691 $ 3,679 $ (1,612) $ 353 $ 11,825 $ 12,178
Delta Plaza, Line of
Escanaba, MI Credit(2) 527 6,949 4,814 (311) 1,096 10,883 11,979
Thunderbird Mall, Line of
Virginia, MN Credit(2) 305 6,027 3,862 -- 305 9,889 10,194
Eastville Plaza,
Fremont, NE $2,902 706 3,529 678 (403) 633 3,877 4,510
Bishop Heights, Line of
Lincoln, NE Credit(2) 710 723 156 -- 710 879 1,589
Ile de Grand, Line of
Grand Island, NE Credit(2) 690 2,880 1,061 -- 690 3,941 4,631
Edgewood-Phase I, (
Lincoln, NE ( 1,396 1,993 1,512 -- 1,396 3,505 4,901
( $6,500
Edgewood-Phase II, (
Lincoln, NE ( 1,387 4,327 776 -- 1,387 5,103 6,490
The Meadows,
Lincoln, NE $2,950 1,179 3,121 75 -- 1,179 3,196 4,375
Miracle Hills Park,
Omaha, NE $3,980 2,250 4,972 461 (274 ) 2,147 5,262 7,409
Macon County, Line of
Lafayette, TN Credit(2) 228 3,021 108 (40 ) 225 3,092 3,317
Town West Center, Line of
Paragould, AR Credit(2) 366 4,263 169 -- 366 4,432 4,798
Rivergate,
Shelbyville, IN $3,064 163 4,058 301 (25 ) 162 4,335 4,497
<CAPTION>
ACCUMULATED DATE OF
DEPRECIATION COMPLETION ACQUISITION
AT DECEMBER DATE FOR OR
DESCRIPTION 31, 1997 CONSTRUCTION COMPLETION
- ------------------- ------------ ------------- -----------
<S> <C> <C> <C>
Monument Mall,
Scottsbluff, NE $ (3,792) 08/1986 12/30/86
Delta Plaza,
Escanaba, MI (3,267) 09/1971 12/30/86
Thunderbird Mall,
Virginia, MN (2,714) 09/1971 12/30/86
Eastville Plaza,
Fremont, NE (1,376) 08/1986 12/30/86
Bishop Heights,
Lincoln, NE (334) 09/1971 12/30/86
Ile de Grand,
Grand Island, NE (1,385) 07/1977 04/09/87
Edgewood-Phase I,
Lincoln, NE (1,343 ) 09/1980 06/01/87
Edgewood-Phase II,
Lincoln, NE (1,148 ) 06/1991 06/26/91
The Meadows,
Lincoln, NE (985 ) 12/1987 06/01/88
Miracle Hills Park,
Omaha, NE (1,780 ) 03/1987 07/05/88
Macon County,
Lafayette, TN (944 ) 12/1985 12/21/88
Town West Center,
Paragould, AR (1,236 ) 04/1987 12/21/88
Rivergate,
Shelbyville, IN (1,227 ) 03/1986 12/21/88
</TABLE>
34
<PAGE>
MID-AMERICA REALTY INVESTMENTS INC. AND SUBSIDIARY
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REDUCTIONS GROSS AMOUNT AT WHICH CARRIED AT
ADDITIONAL FROM
INITIAL COST TO COMPANY COSTS RECEIPTS DECEMBER 31, 1997
------------------------- SUBSEQUENT SUBSEQUENT ------------------------------------
ENCUM- BUILDINGS AND TO TO BUILDINGS AND
DESCRIPTION BRANCES LAND IMPROVEMENTS ACQUISITION ACQUISITION LAND IMPROVEMENTS TOTAL
- ------------------- --------- ---------- ------------- ----------- ------------ --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Germantown, Line of
Jasper, IN Credit(2) 488 8,766 602 (15) 540 9,301 9,841
Shenandoah Plaza,
Newnan, GA $4,117 485 5,281 130 -- 485 5,411 5,896
Cornhusker Plaza,
South Sioux City, Line of
NE Credit(2) 1,185 3,143 62 -- 1,185 3,205 4,390
Lakewood Mall,
Aberdeen, SD $7,043 600 13,890 2,008 (1,682) 766 14,050 14,816
Kimberly West,
Davenport, IA $4,014 1,700 4,691 281 (614) 1,617 4,441 6,058
Moorland Square,
New Berlin, WI $3,539 1,550 3,750 1,162 (45) 1,750 4,667 6,417
Fairacres, Line of
Oshkosh, WI Credit(2) 1,500 3,310 580 (635) 1,389 3,366 4,755
Southport Centre,
Apple Valley, MN $8,000 3,675 8,946 328 -- 3,675 9,274 12,949
Fitchburg Ridge,
Fitchburg, WI None 500 1,545 47 -- 500 1,592 2,092
Twin Oaks Centre
Silvis, IL $3,543 1,075 3,062 53 (208) 867 3,115 3,982
---------- ------------- ----------- ------------ --------- ------------- ----------
$ 23,085 $ 111,938 $ 22,905 $ (5,864) $ 23,423 $ 128,641 $ 152,064
---------- ------------- ----------- ------------ --------- ------------- ----------
---------- ------------- ----------- ------------ --------- ------------- ----------
<CAPTION>
ACCUMULATED DATE OF
DEPRECIATION COMPLETION ACQUISITION
AT DECEMBER DATE FOR OR
DESCRIPTION 31, 1997 CONSTRUCTION COMPLETION
- ------------------- ------------ ------------- -----------
<S> <C> <C> <C>
Germantown,
Jasper, IN (2,443) 12/1985 12/21/88
Shenandoah Plaza,
Newnan, GA (1,576) 02/1988 12/21/88
Cornhusker Plaza,
South Sioux City,
NE (696) 02/1990 06/27/91
Lakewood Mall,
Aberdeen, SD (2,680) 08/1990 08/28/92
Kimberly West,
Davenport, IA (795) 01/1989 12/14/92
Moorland Square,
New Berlin, WI (692) 02/1990 11/23/92
Fairacres,
Oshkosh, WI (705) 05/1992 12/22/92
Southport Centre,
Apple Valley, MN (1,042) 01/1992 01/01/94
Fitchburg Ridge,
Fitchburg, WI (133) 12/1980 08/31/94
Twin Oaks Centre
Silvis, IL (245) 01/1992 04/19/95
------------
$ (32,538)
------------
------------
</TABLE>
- ------------------------------
(1) The aggregate cost for federal income tax purposes for these properties is
approximately $152,064,000.
(2) Revolving credit agreements totaled $11,871,000 at December 31, 1997.
35
<PAGE>
MID-AMERICA REALTY INVESTMENTS INC. AND SUBSIDIARY
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BUILDINGS
AND
LAND TENANT EQUIPMENT AND
LAND IMPROVEMENTS IMPROVEMENTS FIXTURES
--------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
REAL ESTATE
Balance, January 1, 1995 $ 23,469 $ 13,343 $ 109,356 $ 559
Additions at cost 1,075 22 5,181 --
Retirements (250) -- -- --
Reductions for receipts under Yield Maintenance Agreement (92) -- (935) --
Transfer of assets when placed into service -- -- -- --
--------- ------------- ------------- -----
Balance, December 31, 1995 24,202 13,365 113,602 559
Additions at cost -- 167 832 --
Retirements (232) (148) (801) (4)
Reductions for receipts under Yield Maintenance Agreement (2) -- (18) --
Transfer of assets when placed into service -- -- 1,298 --
--------- ------------- ------------- -----
Balance, December 31, 1996 23,968 13,384 114,913 555
Additions to cost 26 320 1,178 4
Retirements (208) -- -- --
Reductions for receipts under Yield Maintenance Agreement (361) -- (1,156) --
Transfer of assets when placed into service -- -- -- --
--------- ------------- ------------- -----
Balance, December 31, 1997 $ 23,425 $ 13,704 $ 114,935 $ 559
--------- ------------- ------------- -----
--------- ------------- ------------- -----
ACCUMULATED DEPRECIATION
Balance, January 1, 1995 $ -- $ 4,647 $ 14,809 $ 344
Additions charged to cost and expenses -- 884 3,506 60
Retirements -- -- -- --
--------- ------------- ------------- -----
Balance, December 31, 1995 -- 5,531 18,315 404
Additions charged to costs and expenses -- 883 3,605 53
Retirements -- (67) (216) --
--------- ------------- ------------- -----
Balance, December 31, 1996 -- 6,347 21,704 457
Additions charged to costs and expenses -- 887 3,599 39
Retirements -- -- -- --
--------- ------------- ------------- -----
Balance, December 31, 1997 $ -- $ 7,234 $ 25,303 $ 496
--------- ------------- ------------- -----
--------- ------------- ------------- -----
<CAPTION>
CONSTRUCTION-
IN-PROGRESS TOTAL
------------- ---------
<S> <C> <C>
REAL ESTATE
Balance, January 1, 1995 $ 334 $ 147,061
Additions at cost 599 6,877
Retirements -- (250)
Reductions for receipts under Yield Maintenance Agreement -- (1,027)
Transfer of assets when placed into service (646) (646)
------------- ---------
Balance, December 31, 1995 287 152,015
Additions at cost 1,011 2,010
Retirements -- (1,185)
Reductions for receipts under Yield Maintenance Agreement -- (20)
Transfer of assets when placed into service (1,298) --
------------- ---------
Balance, December 31, 1996 -- 152,820
Additions to cost -- 1,528
Retirements -- (208)
Reductions for receipts under Yield Maintenance Agreement -- (1,517)
Transfer of assets when placed into service -- --
------------- ---------
Balance, December 31, 1997 $ -- $ 152,623
------------- ---------
------------- ---------
ACCUMULATED DEPRECIATION
Balance, January 1, 1995 $ -- $ 19,800
Additions charged to cost and expenses -- 4,450
Retirements -- --
------------- ---------
Balance, December 31, 1995 -- 24,250
Additions charged to costs and expenses -- 4,541
Retirements -- (283)
------------- ---------
Balance, December 31, 1996 -- 28,508
Additions charged to costs and expenses -- 4,525
Retirements -- --
------------- ---------
Balance, December 31, 1997 $ -- $ 33,033
------------- ---------
------------- ---------
</TABLE>
36
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following Financial Statements of Mid-America Bethal Limited Partnership
and the related Independent Auditors' Report are included in Item 14(d) of
Mid-America Realty Investments, Inc.'s Form 10-K:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report........................................................... 38
Balance Sheets at December 31, 1997 and 1996........................................... 39
Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995.................................................................. 40
Statements of Partners' Capital for the Years Ended
December 31, 1997, 1996 and 1995..................................................... 41
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.................................................................. 42
Notes to Financial Statements.......................................................... 43
</TABLE>
The following Financial Statement Schedule of Mid-America Bethal Limited
Partnership is furnished pursuant to Rule 3-09:
<TABLE>
<CAPTION>
Schedule III--Real Estate and Accumulated Depreciation................ 45
<S> <C>
</TABLE>
All other schedules have been omitted because they are not applicable or not
required or because the required information is shown in the financial
statements or notes thereto.
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Mid-America Bethal Limited Partnership
Omaha, Nebraska
We have audited the accompanying balance sheets of Mid-America Bethal
Limited Partnership as of December 31, 1997 and 1996, and the related statements
of operations, partners' capital and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedule listed in the Index on page 37. These financial statements
and financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on the financial
statements and financial statement 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 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, such financial statements present fairly, in all material
respects, the financial position of Mid-America Bethal Limited Partnership as of
December 31, 1997 and 1996, and the results of its operations and its 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, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
January 28, 1998
Omaha, Nebraska
38
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
ASSETS 1997 1996
---------- ----------
<S> <C> <C>
Cash and cash equivalents.......................................... $ 823,144 $ 750,587
Accounts receivable, net of allowance of $40,500 and $36,000....... 403,327 365,048
Property:
Land and land improvements....................................... 6,497,545 6,497,545
Buildings........................................................ 29,870,791 29,738,735
Equipment and fixtures........................................... 231,353 231,353
Construction-in-process.......................................... 523,916 --
---------- ----------
37,123,605 36,467,633
Less: Accumulated depreciation................................... (8,471,322) (7,370,141)
---------- ----------
28,652,283 29,097,492
Intangible assets, less accumulated amortization of $287,000 and
$250,000.......................................................... 185,234 206,848
Other assets....................................................... 2,690 --
---------- ----------
$30,066,678 $30,419,975
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities................................................ $ 12,300 $ 17,499
Partners' capital.................................................. 30,054,378 30,402,476
---------- ----------
$30,066,678 $30,419,975
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
39
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Rental income......................................................... $ 3,622,468 $ 3,510,511 $ 3,480,916
Reimbursement income.................................................. 823,921 833,159 739,796
Other income.......................................................... 114,468 98,630 109,233
------------ ------------ ------------
Total Revenues...................................................... 4,560,857 4,442,300 4,329,945
EXPENSES
Real estate taxes..................................................... 356,000 365,061 319,972
Management fees....................................................... 178,084 171,205 172,086
Other property costs.................................................. 792,304 834,522 708,426
Administrative expenses............................................... 43,832 38,654 42,394
Depreciation and amortization......................................... 1,138,735 1,123,460 1,168,567
------------ ------------ ------------
Total Expenses...................................................... 2,508,955 2,532,902 2,411,445
------------ ------------ ------------
NET INCOME.............................................................. $ 2,051,902 $ 1,909,398 $ 1,918,500
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
40
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
ALBETH
MID-AMERICA REALTY INVESTMENTS,
INVESTMENTS, INC. L.P. TOTAL
------------------ ------------- -------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1995....................................... $ 16,137,289 $ 16,137,289 $ 32,274,578
Allocation of net income....................................... 959,250 959,250 1,918,500
Distributions paid............................................. (1,500,000) (1,500,000) (3,000,000)
------------------ ------------- -------------
BALANCE, DECEMBER 31, 1995..................................... 15,596,539 15,596,539 31,193,078
Allocation of net income....................................... 954,699 954,699 1,909,398
Distributions paid............................................. (1,350,000) (1,350,000) (2,700,000)
------------------ ------------- -------------
BALANCE, DECEMBER 31, 1996..................................... 15,201,238 15,201,238 30,402,476
Allocation of net income....................................... 1,025,951 1,025,951 2,051,902
Distributions paid............................................. (1,200,000) (1,200,000) (2,400,000)
------------------ ------------- -------------
BALANCE, DECEMBER 31, 1997..................................... $ 15,027,189 $ 15,027,189 $ 30,054,378
------------------ ------------- -------------
------------------ ------------- -------------
</TABLE>
See notes to financial statements.
41
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................................................ $ 2,051,902 $ 1,909,398 $ 1,918,500
Adjustments:
Depreciation and amortization....................................... 1,138,735 1,123,460 1,168,567
Decrease in related liabilities..................................... (5,200) (501) (15,599)
(Increase) decrease in related assets............................... (40,967) (117,002) 57,255
------------ ------------ ------------
Net Cash Flows From Operating Activities.............................. 3,144,470 2,915,355 3,128,723
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property:
Tenant improvements................................................. (93,557) (219,200) (27,227)
Other capital expenditures.......................................... (562,416) (30,705) (85,129)
Cash paid for leasing fees............................................ (15,940) (32,167) (28,579)
------------ ------------ ------------
Net Cash Flows From Investing Activities.............................. (671,913) (282,072) (140,935)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions made to partners........................................ (2,400,000) (2,700,000) (3,000,000)
------------ ------------ ------------
Net Cash Flows From Financing Activities.............................. (2,400,000) (2,700,000) (3,000,000)
------------ ------------ ------------
NET CHANGE IN CASH...................................................... 72,557 (66,717) (12,212)
CASH, BEGINNING OF YEAR................................................. 750,587 817,304 829,516
------------ ------------ ------------
CASH, END OF YEAR....................................................... $ 823,144 $ 750,587 $ 817,304
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
42
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Mid-America Bethal Limited Partnership, a Nebraska
limited partnership, was formed on June 1, 1989 between Mid-America Realty
Investments, Inc. (Mid-America Realty) and Albeth Investments, L.P. (Albeth),
pursuant to provisions of an Amended and Restated Partnership Agreement (the
"Partnership Agreement"). Mid-America Realty holds a 50% interest and is the
managing general partner and Albeth holds a 50% limited partner interest.
CASH AND CASH EQUIVALENTS--Mid-America Bethal considers short-term
investments with a maturity at acquisition of three months or less as cash
equivalents.
USE OF ESTIMATES--In preparing financial statements in conformity with
Generally Accepted Accounting Principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
PROPERTY--Property is stated at the lower of depreciated cost or the amount
estimated to be recoverable through future cash flows from property operations
and dispositions. Assets are depreciated using the straight-line method over the
following lives: land improvements--15 years; buildings--40 years; tenant
improvements--shorter of the term of the lease or the estimated useful life of
the improvement; and equipment and fixtures--5 to 7 years. Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed of" requires that
long-lived assets such as real estate assets be reviewed whenever events or
changes in circumstances indicate that the book value of the asset may not be
recoverable. If the sum of the estimated future net cash flows (undiscounted and
without interest charges) from an asset to be held and used is less than the
book value of the asset, an impairment loss must be recognized in the amount of
the difference between book value and fair value as opposed to the difference
between book value and net realizable value under the previous accounting
standard. For long-term assets like those held by the Partnership, the
determination of whether there is an impairment loss is dependent primarily on
the Partnership's estimates on occupancy, rent and expense increases, which
involves numerous assumptions and judgments as to future events over a period of
many years. At December 31, 1997, the Partnership does not hold any assets that
meet the impairment criteria of SFAS No. 121.
INTANGIBLE ASSETS--Costs incurred in the organization of Mid-America Bethal
are amortized using the straight-line method over a 60-month period. Fees paid
for leasing commissions on new or renewed leases are amortized using the
straight-line method over the initial term or extension of the lease.
LEASES--All leases with tenants are classified as operating leases.
REVENUE RECOGNITION--Minimum rents from tenants are recognized monthly based
upon total fixed cash flow over the initial term of the lease, using the
straight-line method. Percentage rents are based upon tenant sales levels for a
specified period. Reimbursed expenses for real estate taxes, common area
maintenance, utilities, janitorial and building maintenance are recognized in
the period in which the expenses are incurred, based upon the provisions of the
tenant's lease.
INCOME TAXES--The financial statements do not include any provision for
income taxes on Mid-America Bethal's earnings as such taxes are the
responsibility of the individual partners.
RECENTLY ADOPTED ACCOUNTING STANDARDS--In February 1997, the FASB issued
SFAS No. 129, "Disclosure of Information about Capital Structure." In June 1997,
the FASB issued SFAS No. 130, "Reporting
43
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" all of which are effective for fiscal years
beginning after December 15, 1997. The provisions of these statements are of a
disclosure nature only and will not have a material impact on the operations of
the Partnership.
B. RELATED PARTY TRANSACTIONS
ADMINISTRATION OF MID-AMERICA BETHAL--Pursuant to the Partnership Agreement,
Mid-America Realty provides administrative services and manages the day-to-day
affairs of Mid-America Bethal as managing general partner. For these services
during each of the years ended December 31, 1997, 1996, and 1995, Mid-America
Bethal paid $25,000, $20,000 and $20,000, respectively.
PROPERTY MANAGEMENT AND LEASING--Mid-America Bethal has entered into
property management agreements with Mid-America Centers Corp. ("Mid-America
Centers"), a wholly-owned subsidiary of Mid-America Realty. Under these
agreements, Mid-America Centers is responsible for the day-to-day operations of
all the properties, including leasing, rent collections and maintenance. For
these services, Mid-America Bethal pays a management fee of 4% of gross
revenues. Mid-America Centers also receives leasing commissions upon the
obtaining of new tenant leases, the renegotiation of existing tenant leases and
the renewal of existing tenant leases if the tenants did not have a renewal
option in the original lease. For the years ended December 31, 1997, 1996 and
1995, $178,084, $171,205 and $172,086, respectively, was incurred for management
fees and $15,940, $32,167 and $28,579, respectively, was incurred and
capitalized as leasing fee commissions.
C. LEASING ACTIVITIES
Space in the properties is leased under operating leases with initial terms
ranging from one year to thirty years. Certain of the leases contain options to
renew. Leases generally provide for minimum rents and percentage rents plus
reimbursement of certain operating expenses. The majority of tenants pay
reimbursements for their pro rata share of certain operating expenses.
Rent income in excess of base rent for tenants with percentage rent
provisions (based upon tenants sales levels for a specified period) for the
years ended December 31, 1997, 1996 and 1995 was $71,970, $71,880 and $48,901,
respectively.
Future base rents under non-cancelable operating leases at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- --------------------------------------------------------------------- -------------
<S> <C>
1998................................................................. $ 3,352,655
1999................................................................. 2,986,889
2000................................................................. 2,679,858
2001................................................................. 2,418,863
2002................................................................. 2,109,645
Thereafter........................................................... 20,611,342
-------------
$ 34,159,252
-------------
-------------
</TABLE>
44
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
REDUCTIONS GROSS AMOUNT AT WHICH CARRIED AT
ADDITIONAL FROM
INITIAL COST TO COMPANY COSTS RECEIPTS DECEMBER 31, 1997
------------------------ SUBSEQUENT SUBSEQUENT ------------------------------------
BUILDINGS AND TO TO BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION ACQUISITION LAND IMPROVEMENTS TOTAL
- -------------------- ------------- --------- ------------- ----------- ----------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Imperial Mall,
Hastings, NE None $ 677,826 $11,851,303 $7,046,340 $ -- $ 834,020 $18,741,449 $19,575,469
Stockyards Plaza,
Omaha, NE None 944,111 6,602,742 497,672 (372,877) 1,041,577 6,630,071 7,671,648
Stockyards Theatres,
Omaha, NE None 251,645 1,849,242 -- -- 251,645 1,849,242 2,100,887
Taylor Heights
Shopping Center,
Sheboygan, WI None 1,029,223 5,697,723 293,385 -- 1,034,231 5,986,100 7,020,331
--------- ------------- ----------- ----------- --------- ------------- ----------
$2,902,805 $26,001,010 $7,837,397 $(372,877) $3,161,473 $33,206,862 $36,368,335
--------- ------------- ----------- ----------- --------- ------------- ----------
--------- ------------- ----------- ----------- --------- ------------- ----------
<CAPTION>
ACCUMULATED DATE OF
DEPRECIATION COMPLETION ACQUISITION
AT DECEMBER DATE FOR OR
DESCRIPTION 31, 1997 CONSTRUCTION COMPLETION
- -------------------- ------------ ------------- -----------
<S> <C> <C> <C>
Imperial Mall,
Hastings, NE $(4,354,910) 09/1970 12/01/87
Stockyards Plaza,
Omaha, NE (1,909,833) 08/1988 06/01/89
Stockyards Theatres,
Omaha, NE (505,674) 06/1990 07/17/90
Taylor Heights
Shopping Center,
Sheboygan, WI (1,469,838) 02/1989 07/30/90
------------
$(8,240,255)
------------
------------
</TABLE>
- ------------------------
(1) The aggregate cost for federal income tax purposes for these properties is
approximately $36,368,335.
45
<PAGE>
MID-AMERICA BETHAL LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
<TABLE>
<CAPTION>
BUILDINGS
LAND AND TENANT EQUIPMENT
LAND IMPROVEMENTS IMPROVEMENTS AND FIXTURES
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
REAL ESTATE
Balance, January 1, 1995........................................ 3,161,473 3,327,612 29,384,934 231,353
Additions at cost............................................. -- 8,460 103,896 --
Retirements................................................... -- -- -- --
------------ ------------- ------------- ------------
Balance, December 31, 1995...................................... 3,161,473 3,336,072 29,488,830 231,353
Additions at cost............................................. -- -- 249,905 --
Retirements................................................... -- -- -- --
------------ ------------- ------------- ------------
Balance, December 31, 1996...................................... 3,161,473 3,336,072 29,738,735 231,353
Additions at cost............................................. -- -- 132,056 --
Retirements................................................... -- -- -- --
------------ ------------- ------------- ------------
Balance, December 31, 1997...................................... $ 3,161,473 $ 3,336,072 $ 29,870,791 $ 231,353
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
ACCUMULATED DEPRECIATION
Balance, January 1, 1995........................................ -- 1,144,504 3,837,620 205,587
Additions charged to costs and expenses....................... -- 221,879 856,338 12,160
Retirements................................................... -- -- -- --
------------ ------------- ------------- ------------
Balance, December 31, 1995...................................... -- 1,366,383 4,693,958 217,747
Additions charged to costs and expenses....................... -- 222,128 857,987 11,938
Retirements................................................... -- -- -- --
------------ ------------- ------------- ------------
Balance, December 31, 1996...................................... -- 1,588,511 5,551,945 229,685
Additions charged to costs and expenses....................... -- 222,111 877,688 1,382
Retirements................................................... -- -- -- --
------------ ------------- ------------- ------------
Balance, December 31, 1997...................................... $ -- $ 1,810,622 $ 6,429,633 $ 231,067
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
<CAPTION>
CONSTRUCTION-
IN-PROGRESS TOTAL
------------- -------------
<S> <C> <C>
REAL ESTATE
Balance, January 1, 1995........................................ -- 36,105,372
Additions at cost............................................. -- 112,356
Retirements................................................... -- --
------------- -------------
Balance, December 31, 1995...................................... -- 36,217,728
Additions at cost............................................. -- 249,905
Retirements................................................... -- --
------------- -------------
Balance, December 31, 1996...................................... -- 36,467,633
Additions at cost............................................. 523,916 655,972
Retirements................................................... -- --
------------- -------------
Balance, December 31, 1997...................................... $ 523,916 $ 37,123,605
------------- -------------
------------- -------------
ACCUMULATED DEPRECIATION
Balance, January 1, 1995........................................ -- 5,187,711
Additions charged to costs and expenses....................... -- 1,090,377
Retirements................................................... -- --
------------- -------------
Balance, December 31, 1995...................................... -- 6,278,088
Additions charged to costs and expenses....................... -- 1,092,053
Retirements................................................... -- --
------------- -------------
Balance, December 31, 1996...................................... -- 7,370,141
Additions charged to costs and expenses....................... -- 1,101,181
Retirements................................................... -- --
------------- -------------
Balance, December 31, 1997...................................... $ -- $ 8,471,322
------------- -------------
------------- -------------
</TABLE>
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
MID-AMERICA REALTY INVESTMENTS, INC.
<TABLE>
<C> <S>
by: /s/ JEROME L. HEINRICHS
------------------------------------------
Jerome L. Heinrichs, Chairman and March 11, 1998
Chief Executive Officer
</TABLE>
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.
<TABLE>
<C> <S>
/s/ JEROME L. HEINRICHS
- ---------------------------------------------
Jerome L. Heinrichs, Director and March 11, 1998
Chief Executive Officer
/s/ MICHAEL F. LAWLER
- --------------------------------------------- March 11, 1998
Michael F. Lawler, Director
/s/ DANIEL A. BURKHARDT
- --------------------------------------------- March 11, 1998
Daniel A. Burkhardt, Director
/s/ GARY R. HAWKINS
- --------------------------------------------- March 11, 1998
Gary R. Hawkins, Director
/s/ JOHN L. MAGINN
- --------------------------------------------- March 11, 1998
John L. Maginn, Director
/s/ DENNIS G. GETHMANN
- ---------------------------------------------
Dennis G. Gethmann, President and Chief March 11, 1998
Operating Officer (Principal Financial and
Accounting Officer)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
<S> <C> <C>
3. Articles of Incorporation and By-Laws
3.1 Articles of Incorporation of the Company, as amended,
incorporated by reference to Exhibit 3.1 of the Company's Form
10-Q for the quarter ended March 31, 1994.
3.2 By-Laws of the Company, as amended. ........................... 49
10. Material Contracts
10.1 Settlement Agreement dated April 19, 1995 among inter alia Twin
Oaks Centre Limited Partnership and Mid-America Realty
Investments, Inc. incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
10.2 Company Stock Option Plan (as amended and restated June 1994),
incorporated by reference to Exhibit 10.10 on the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.3 Company 1995 Stock Plan, incorporated by reference to Exhibit
10.3 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.
10.4 Employment Agreement dated April 13, 1992 by and between Jerome
L. Heinrichs and the Company ................................... 74
10.5 Employment Agreement dated January 20, 1994 by and between Dennis
G. Gethmann and the Company filed as Exhibit 10.12 to the 1993
Form 10-K and incorporated by reference herein.
10.6 Company's Executive Death Benefit Plan incorporated by reference
to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994.
10.7 Company's Executive Deferred Compensation Plan incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994.
10.8 Amendment to Employment Agreement dated February 4, 1998 by and
between Jerome L. Heinrichs and the Company. ................... 94
21. Subsidiaries of the registrant. ................................ 95
23. Consent of Experts and Counsel.
23.1 Consent of Deloitte & Touche LLP. .............................. 96
27. Financial Data Schedule
</TABLE>
Pursuant to Item 601(b) (4) of Regulation S-K, certain instruments with
respect to the Company's long-term debt obligations are not filed with this
Form 10-K. The Company will furnish a copy of any such long-term debt
agreement to the Securities and Exchange Commission upon request.
Management contracts and compensatory plans are set forth as Exhibits 10.2
through 10.8.
48
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
DIAL REIT, INC.
(Amended and Restated as of April 20, 1992)
ARTICLE I
OFFICES
Section 1.01 PRINCIPAL OFFICE. The Company's principal office in the
State of Maryland shall be in the City of Baltimore, State of Maryland.
Section 1.02 PRINCIPAL EXECUTIVE OFFICE. Unless otherwise determined
from time to time by the Board of Directors, the principal executive office
of the Company shall be in the City of Omaha and State of Nebraska.
Section 1.03 OTHER OFFICES. The Company may also have offices at such
other places both in and out of the State of Maryland as the Board of
Directors may from time to time determine or the business of the Company
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 PLACE OF MEETINGS. Meetings of Stockholders shall be held
at the office of the Company in the City of Omaha and State of Nebraska, or
at any other place within the United States as shall be designated from time
to time by the Board of Directors and stated in the notice of meeting or in a
duly executed waiver of notice hereof.
Section 2.02 ANNUAL MEETINGS. Annual meetings of Stockholders,
commencing with the year 1990, shall be held on the 1st day of June if not a
legal holiday, and if a legal holiday then on the next secular day following
at 10:00 A.M., or at such other date and time within thirty (30) days
thereafter as shall be fixed by the Board of Directors and stated in the
notice of meeting, but in no event more than sixty (60) days following the
distribution of the Annual Report to the Stockholders of the Company pursuant
to Section 7.02 hereof, at which the Stockholders shall elect a Board of
Directors and may transact any business within the powers of the Company.
Any business of the Company may be transacted at the annual meeting without
being specially designated in the notice, except such business as is
specifically required by law to be stated in the notice.
49
<PAGE>
Section 2.03 SPECIAL MEETINGS. At any time in the interval between
annual meetings, special meetings of the Stockholders, unless otherwise
provided by law or by the Charter, may be called by a majority of the Board
of Directors, a majority of the Independent Directors (as defined in Section
3.01 hereof), or the President or upon the written request of the holders of
shares representing not less than ten percent (10%) of all the votes entitled
to be cast at such meeting. Such written request of the Stockholders shall
state the purpose or purposes of such meeting and the matters proposed to be
acted on thereat. The Secretary shall give notice of such meeting in
accordance with the provisions hereof stating the purpose or purposes of the
meeting to all Stockholders entitled to notice at such meeting. No special
meeting need be called upon the request of the holders of less than a
majority of all votes entitled to be cast at such meeting to consider any
matter which is substantially the same as a matter voted upon at any special
meeting of the Stockholders held during the preceding twelve (12) months.
Business transacted at any special meeting of Stockholders shall be limited to
the purposes stated in the notice.
Section 2.04 NOTICE OF MEETINGS. Not less than ten (10) nor more than
ninety (90) days before the date of every meeting of Stockholders, the
Secretary shall give to each Stockholder entitled to vote at such meeting,
and to each Stockholder not entitled to vote who is entitled by law to
notice, written or printed notice stating the time and place of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, either by mail or by presenting it to him personally or by
leaving it at his residence or usual place of business. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, addressed to the Stockholder at his post office address at
it appears on the records of the Company.
In the case of a special meeting of Stockholders convened at the request
of Stockholders, as provided for in Section 2.03 above, the notice herein
provided for shall be given by the Secretary, in the manner herein provided,
within ten (10) days after receipt of such request of Stockholders. Such a
special meeting shall be held not less than twenty (20) nor more than sixty
(60) days after receipt of said request of Stockholders.
Section 2.05 QUORUM. At any meeting of Stockholders, the presence in
person or by proxy of Stockholders entitled to cast a majority of the votes
shall constitute a quorum; but this Section shall not affect any requirement
of law or under the Company's Charter for the vote necessary for the adoption
of any measure. If, however, such quorum shall not be present or represented
at any meeting of the Stockholders, a majority of the Stockholders entitled
to vote thereat, present in person or represented by proxy, shall have the
power to adjourn the meeting from time to
50
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time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might
have been transacted at the meeting as originally notified.
Section 2.06 VOTING. A majority of the votes cast at a meeting of
Stockholders, duly called and at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly
come before the meeting, unless more than a majority of the votes cast is
required by law or by the Company's Charter or by these By-Laws and except
that a plurality of votes shall be required for the election of any Director.
Except in the election of Directors, which shall be by written ballot, or
unless required by statute or by these By-Laws or demanded by Stockholders
present in person or represented by proxy entitled to cast twenty five
percent (25%) of the votes entitled to be cast at a meeting, any vote of
Stockholders need not be by written ballot. On a vote by written ballot, each
ballot shall be signed by the Stockholder or his proxy and shall state the
number of shares voted.
Unless any statute or the Company's Charter provide otherwise, each
outstanding share of stock having voting power shall be entitled to one vote
on each matter submitted to a vote at a meeting of Stockholders, but no share
shall be entitled to vote if any installment payable thereon is overdue and
unpaid. A Stockholder may vote only the shares owned by him as shown on the
record of Stockholders of the Company as of the record date determined
pursuant to Section 6.05 hereof or pursuant to applicable law. All persons
who were holders of record of shares at such time, and no others, shall be
entitled to vote at such meeting and any adjournment thereof. A Stockholder may
vote the shares owned of record by him either in person or by proxy executed
in writing by the stockholder or by his duly authorized attorney-in-fact. No
proxy shall be valid after eleven (11) months from its date, unless otherwise
provided in the proxy. At all meetings of Stockholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the Chairman of the meeting.
Section 2.07 ORGANIZATION AND ORDER OF BUSINESS. At each meeting of
the Stockholders, the Chairman of the Board of Directors, or in his absence
or inability to act, the President, or in the absence or inability to act of
the Chairman of the Board and the President, a Vice-President, shall act as
Chairman of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the Chairman of the meeting, shall act as
Secretary of the meeting and keep the minutes thereof. The order of business
at all meetings of the Stockholders shall be as determined by the Chairman of
the meeting.
51
<PAGE>
Section 2.08 INSPECTORS. The Board of Directors may, in advance of any
meeting of Stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the Chairman of the
meeting may, and at the request of any Stockholder entitled to vote thereat
shall, appoint inspectors. Each inspector, before entering upon the discharge
of his duties, shall take and sign an oath to execute faithfully the duties
of inspector at such meeting with strict impartiality any according to the
best of his ability. The inspectors shall determine the number of shares
represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right
to vote, count and tabulate all votes, ballots or consents, determine the
result, and so such acts as are proper to conduct the election of a vote with
fairness to all Stockholders. On request of the Chairman of the meeting, any
Stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall
execute a certificate of any fact found by them. No Director or candidate for
the office of Director shall act as inspector of an election of Directors.
Inspectors need not be Stockholders.
Section 2.09 ACTION WITHOUT MEETING. Except as otherwise provided by
statute or the Charter, any action required or permitted to be taken at any
meeting of Stockholders may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth such action, is
signed by all the Stockholders entitled to notice of a meeting of
Stockholders but not to vote thereat have waived in writing any rights which
they may have to dissent from such action, and such consent and waiver are
filed with the records of Stockholders' meetings.
ARTICLE III
DIRECTORS
Section 3.01 NUMBER, ELECTION AND TERM. The number of Directors of the
Company shall be five (5). By vote of a majority of the entire Board of
Directors, the number of Directors fixed by the Company's Charter or by these
By-Laws may from time to time be increased or decreased, but may not exceed
fifteen (15) nor be less than three (3) except as permitted by law; provided,
however, that the tenure of office of a Director shall not be affected by any
decrease or increase in the number of Directors so made by the Board. At all
times that the Company intends to be qualified as a real estate investment
trust under the Internal Revenue Code, a majority of the Board of Directors
shall be Independent Directors (as hereinafter defined). Each Director shall
have had at least three (3) years of relevant experience demonstrating the
knowledge
52
<PAGE>
and expedience required to acquire and manage the Company's properties. At
least one (1) of the Independent Directors shall have three (3) years actual
direct experience in acquiring or managing properties similar to those
acquired by the Company for his own account or as an agent. For purposes of
these By-Laws, "Independent Director" shall mean a Director of the Company
who is not employed by, or receiving any compensation (other than Director's
fees and reimbursed expenses) from or otherwise affiliated with, the Company
and any affiliate, and who is not affiliated, directly or indirectly, with
any person(s) or entity, if any, responsible for directing and performing the
day-to-day business affairs of the Company (the "Advisor"), whether by
ownership of, ownership interest in, employment by, any material business or
professional relationship with, or by serving as an officer or Director of,
such Advisor or an affiliated business entity of such Advisor. A Director
shall not be considered independent who serves as a Director of more than
three (3) real estate investment trusts organized by the Company or its
affiliates. Until the first annual meeting of Stockholders or until
successors are duly elected and qualified, the Board shall consist of the
persons named as such in the Company's Charter. At the first annual meeting
of Stockholders and at each annual meeting thereafter, the Stockholders shall
elect Directors to hold office until the next annual meeting or until their
successors are elected and qualify. Directors need not be Stockholders in the
Company. Stockholders wanting to nominate a person for election as a Director
shall deliver written notice of such nomination at least ninety (90) days
prior to an annual meeting of Stockholders and within seven (7) days
following the date on which notice of a special meeting of Stockholders to
elect Directors is first given to Stockholders.
Section 3.02 POWERS. The business and affairs of the Company shall be
managed in accordance with the Charter an these By-Laws under the direction
of its Board of Directors and where applicable, the Independent Directors,
which may exercise all of the powers of the Company, except such as are by
law or by the Company's Charter or by these By-Laws conferred upon or
reserved to the Stockholders.
Section 3.03 VACANCIES. Any vacancy occurring in the Board of Directors
for any cause other than by reason of an increase in the number of Directors,
may subject to the provisions of Section 3.08, be filled by a majority of the
remaining members of the Board of Directors, although such majority is less
than a quorum; provided, however, that if the Company has sought to qualify
as a real estate investment trust and in accordance with Section 3.01, a
majority of the Board of Directors are required to be Independent Directors,
then Independent Directors shall nominate replacements for vacancies among
the Independent Directors. Any vacancy occurring by reason of the removal of
a Director by the Stockholders may be filled by a vote of the holders of a
majority
53
<PAGE>
of the shares entitled to vote for the election of Directors. Any vacancy
occurring by reason of an increase in the number of Directors may be filled
by action of a majority of the entire Board of Directors. If the Stockholders
of any class or series are entitled separately to elect one or more
Directors, a majority of the remaining Directors elected by that class or
series or the sole remaining Director elected by that class or series may
fill any vacancy among the number of Directors elected by that class or
series. A Director elected by the Board of Directors to fill a vacancy shall
be elected to hold office until the next annual meeting of Stockholders or
until his successor is elected and qualifies.
Section 3.04 RESIGNATIONS. Any Director or member of a committee may
resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein, or if no time is specified, at the time
of the receipt by the Chairman of the Board, the President or the Secretary.
The acceptance of a resignation shall not be necessary to make it effective.
Section 3.05 FIDUCIARY DUTY OF THE DIRECTORS. The Directors shall be
charged with a fiduciary duty to the Stockholders to supervise the
relationship of the Company with the Advisor.
Section 3.06 COMMITTEES OF THE BOARD. The Board of Directors may appoint
from among its members an executive committee, an audit committee and other
committees composed of three (3) or more Directors. A majority of the members
of any committee so appointed shall be Independent Directors (as defined in
Section 3.01). The Board of Directors may delegate to any committee any of
the powers of the Board of Directors except the power to declare dividends or
distributions on stock, recommend to the Stockholders any action which
requires Stockholder approval, amend the By-Laws, approve any merger or share
exchange or issue stock. However, if the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in
accordance with a general formula or method specified by the Board of
Directors by resolution or by adoption of a stock option plan, may fix the
terms of stock subject to classification or reclassification and the terms on
which any stock may be issued.
Notice of committee meetings shall be given in the same manner as notice
for special meetings of the Board of Directors.
One third (1/3), but not less than two (2), of the members of any
committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority of those present shall be the act of such
committee. The Board of Directors may designate a Chairman of any committee
and such Chairman or any two (2) members of any committee may fix the time
and place of its meetings unless the Board shall otherwise provide. In the
absence
54
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or disqualification of any member of any such committee, the members thereof
present at any meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of such absent or disqualified members; provided,
however, that in the event of the absence or disqualification of an
independent Director, such appointee shall be an Independent Director.
Each committee shall keep minutes of its proceedings and shall report the
same to the Board of Directors at the meeting next succeeding, and any action
taken by the Committees shall be subject to revision and alteration by the
Board of Directors, provided that no rights of third persons shall be
affected by any such revision or alteration.
Subject to the provisions hereof, the Board of Directors shall have the
power at any time to change the membership of any committee, to fill all
vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any committee.
Section 3.07 MEETINGS OF THE BOARD OF DIRECTORS. Meetings of the Board of
Directors, regular or special, may be held at any place in or out of the
State of Maryland as the Board may from time to time determine or shall be
specified in the notice of such meeting.
The initial meeting of the Board of Directors shall be held as soon as
practicable after the Company has been duly formed in accordance with
Maryland law. The first meeting of each newly elected Board of Directors
shall be held as soon as practicable after the annual meeting of the
Stockholders at which the Directors were elected. The meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the Directors as provided in
Article IV, except that no notice shall be necessary if such meeting is held
immediately after the adjournment and at the site of the annual meeting of
Stockholders.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board of
Directors.
Special meetings of the Board of Directors may be called at any time by
two (2) or more Directors or by a majority of the members of the executive
committee, if one be constituted, in writing with or without a meeting of
such committee or by the Chairman of the Board or the President.
Notice of the place and time of every special meeting of the Board of
Directors shall be delivered by the Secretary to each
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Director either personally or by telephone, telegram or telegraph, or by
leaving the same at his residence or usual place of business, at least forty
eight (48) hours before the time at which such meeting is to be held, or by
first class mail, at least three (3) days before the day on which such
meeting is to be held. If mailed, such notice shall be deemed to be given
when deposited in the United States mail addressed to the Director at his
post office address as it appears on the records of the Company, with postage
thereon prepaid. For purposes of the Notice requirements provided for herein,
the initial meeting of the Board of Directors following the formation of the
Company shall be deemed to be a special meeting of the Board of Directors.
Section 3.08 QUORUM AND VOTING. At all meetings of the Board, a majority
of the entire Board of Directors shall constitute a quorum for the
transaction of business and the action of a majority of the Directors present
at any meeting at which a quorum is present shall be the action of the Board
of Directors unless the concurrence of a greater proportion, or the
concurrence of a Majority of the Independent Directors is required for such
action by law, the Company's Charter or these By-Laws. If a quorum shall not
be present at any meeting of Directors, the Directors present may, by a
majority vote, adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Notwithstanding the first paragraph of this Section 3.08, any action
pertaining to a transaction involving the Company in which any advisor, any
Director or officer of the Company or any affiliate or any of the foregoing
persons has an interest shall specifically be approved with respect to any
isolated transactions or generally be approved with respect to any series of
similar transactions, by a majority of the members of the Board of Directors,
including a majority of the Independent Directors who are not parties to and
have no financial interest in such transaction and who are not affiliates of
such interested party, even if such Directors constitute less than a quorum.
In approving any contract, joint venture or other transaction or series
of transactions between the Company and the Advisor, any Director or officer
of the Company or any affiliate of such persons, a majority of the Directors
including a majority of the Independent Directors must determine that:
(a) the contract, joint venture or other transaction as contemplated is
fair and reasonable to the Company and its Stockholders and on terms
and conditions no less favorable to the Company than those available
from unaffiliated third parties;
(b) if an acquisition of property other than mortgage loans is involved,
the total consideration for the property
56
<PAGE>
being acquired is not in excess of the appraised value of such
property as stated in an appraisal by a qualified independent real
estate appraiser selected by the Independent Directors, which shall
be obtained by the Company prior to any such acquisition, and if the
price is in excess of the cost of the asset to such seller thereof,
the Independent Directors shall determine that substantial
justification for such excess exists and that such excess is not
unreasonable;
(c) if the transaction involves compensation to any advisor or its
affiliates for services rendered in a capacity other than
contemplated by the advisory arrangements, such compensation, to the
knowledge of the Directors, is not greater than the customary charges
for comparable services between unaffiliated persons; and
(d) if the transaction involves the making of loans or the borrowing of
money, the transaction is fair, competitive, and commercially
reasonable and no less favorable to the Company than loans between
unaffiliated lenders and borrowers under the same circumstances.
The foregoing voting provisions shall not be changed without the
approval of the holders of a majority of outstanding shares.
Section 3.09 ORGANIZATION. The Chairman of the Board shall preside at
each meeting of the Board of Directors, or in the absence or inability of the
Chairman of the Board to preside at a meeting, the Vice-Chairman, or in his
absence or inability to act, another Director chosen by a majority of the
Directors present, shall act as Chairman of the meeting and preside thereat.
The Secretary (or, in his absence or inability to act, any person appointed
by the Chairman of the meeting) shall act as Secretary of the meeting and
keep the minutes thereof.
Section 3.10 MEETING BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means constitutes presence in person at a meeting.
Section 3.11 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if a written consent to such action
is signed by all members of the Board or of such committee, as the case may
be, and such written consent is filed with the minutes of proceedings of the
Board or committee.
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Section 3.12 COMPENSATION OF DIRECTORS. The Company initially shall pay
each Independent Director a fee of $10,000 annually for services as a
Director, plus $500 for attendance in person at each regular or special
meeting of the Board of Directors. Additionally, from and after October 20,
1991, the Company shall pay to each Independent Director a fee of $250.00 for
each "in person" meeting or $150.00 for each telephonic meeting of any
committee thereof, meeting on a day in which the Directors as a whole do not
meet. In addition, the Company shall reimburse the Directors for travel
expenses incurred in connection with their duties as Directors of the Company.
Section 3.13 INVESTMENT POLICIES AND RESTRICTIONS. It shall be the duty
of the Board of Directors to ensure that the purchase, sale, retention and
disposal of the Company's assets, and the investment policies of the Company
and the limitations thereon or amendments thereto are at all times:
(a) consistent with such policies, limitations and restrictions as are
contained in this Section 3.13, or recited in the Registration
Statement on Form S-11 (the "Registration Statement") filed with
the Securities and Exchange Commission in connection with this
Company's initial offering of common stock (the "Initial Offering");
and
(b) in compliance with the restrictions applicable to real estate
investment trusts pursuant to the Internal Revenue Code of 1954;
as amended.
The Company shall not:
(a) Invest more than ten percent (10%) of the value of its total assets
in equity investments in and mortgage loans secured by unimproved
non-income producing real property, unless the property was acquired
for the purpose of producing rental or other operating income or
development or construction on such land is in progress or is planned
in good faith to commence within (1) year;
(b) Invest in commodities or commodity futures contracts; provided that
such limitation shall not apply to interest rate futures, when used
solely for hedging purposes;
(c) Make or invest in mortgage loans (including construction loans) on
any one property if the aggregate amount of all mortgage loans
outstanding on the property, including the loans of the Company would
exceed eighty five percent (85%) of the appraised value of the
property as determined by appraisal, unless substantial justification
exists because of the presence of other underwriting criteria;
58
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(d) Make or invest in any mortgage loans that are subordinate to any
mortgage or equity interest of the Advisor, affiliates of the Advisor
or any Director or affiliates of the Company;
(e) Invest in any mortgage loans that are subordinate to any liens or
other indebtedness on a property if the effect of such mortgage loans
would be to cause the aggregate value of all such subordinated
indebtedness to exceed twenty five percent (25%) of the Company's
tangible assets;
(f) Make or invest in mortgage loans unless the Company first obtains an
appraisal concerning the underlying property and a mortgagee's or
owner's title insurance policy or commitment as to the priority of the
mortgage or the condition of title;
(g) Invest in the equity securities of any non-governmental issue,
including other real estate investment trusts or limited partnerships
for a period in excess of eighteen (18) months.
(h) Issue assessable or redeemable equity securities;
(i) Issue options, warrants or similar evidences of a right to purchase
its shares unless issued to all its Stockholders ratably, issued as
part of a financing arrangement, or issued as part of an incentive
stock option plan. Options, warrants or similar evidences of a right
to purchase its shares shall only be issued to the Advisor, affiliates
of the Advisor or any Director, or affiliates of the Company on the
same terms that such options, warrants or rights, if any, are sold
to the general public. Options, warrants or rights shall not be issued
at exercise prices less than the fair market value of such shares on
the date of the grant or, except as to options issued pursuant to an
incentive stock option plan, for consideration that, in the judgment
of the Independent Directors, has a market value less than the value
of such option on the date of grant. Advisor, affiliates of the
Advisor, any Director of any affiliates of the Company shall not
exceed an amount equal to ten percent (10%) of the outstanding shares
of the Company on the date of grant of any such grants, warrants or
rights. Notwithstanding any of the foregoing, any incentive stock
option plan shall provide for:
(1) the aggregate number of shares which may be issued and the class of
employees eligible to receive options;
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(2) the exclusion of any employee who owns stock possessing more
than ten percent (10%) of the total combined voting power
or value of all classes of stock of the Company;
(3) an option price which is not less than the lesser of (i) an
amount equal to eighty five percent (85%) of the fair market
price of the stock at the time the option is granted, or (ii)
an amount which under the terms of the option may not be less
than eighty five percent (85%) of the fair market price of the
stock at the time the option is granted;
(4) an exercise period of not more than ten (10) years from the
date the option is granted;
(5) the nontransferability of the options other than by will or
the laws of descent and distribution;
(6) the adjustment of the number of shares purchased under the
option in the event of a stock split, reverse stock split,
stock dividend, combination or reclassification of the
Company's stock;
(7) the assumption of outstanding options by a successor
corporation; and
(8) a plan termination date of ten (10) years from the date the
plan is adopted or the date the plan is approved by the
Stockholders, whichever is earlier.
(j) Issue debt securities unless the historical debt service coverage
(in the most recently completed fiscal year) as adjusted for known
changes is sufficient to properly service the higher level of debt;
(k) Invest in real estate contracts of sale unless such contracts are
in recordable form and are appropriately recorded in the chain of
title;
(l) Sell any of its properties to the Advisor, affiliates of the
Advisor or any Director or affiliates of the Company;
(m) Engage in any short sales of securities or trading, as
distinguished from investment activities;
(n) Engage in underwriting or the agency distribution of securities
issued by others; or
(o) Acquire securities in any company holding investment or engaging in
activities in which the Company is prohibited to invest or engage.
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(p) Invest more than ten percent (10%) of its total assets in second
mortgages, excluding wrap-around type second mortgage loans.
The total of all acquisition fees and commissions paid by any party, and
acquisition expenses paid by the Company, in connection with the Company's
purchase of any property shall be reasonable and, in no event may exceed an
amount equal to six percent (6%) of the funds advanced, unless a majority of
the Directors, including a majority of the Independent Directors, not
otherwise interested in the transaction, approve the transaction as being
commercially competitive, fair and reasonable to the Company.
The Company does not intend to invest in the securities of other issuers
for the purposes of exercising control, to offer securities in exchange for
property unless deemed prudent by a majority of the Directors, to repurchase
or otherwise reacquire shares of the Company except as may be necessary to
maintain qualification as a real estate investment trust, to issue senior
securities or to make loans to other persons except tenants (typically for
improvements to leased premises).
The Independent Directors shall review the investment policies of the
Company at least annually to determine that the policies then being followed
by the Company are in the best interests of its Stockholders. Each such
determination and the basis therefore shall be set forth in the minutes of
the Board of Directors.
The Directors shall review the borrowings of the Company quarterly for
reasonableness in relation to the Company's net assets. The Company shall not
incur indebtedness if, after giving effect to the incurrence thereof,
aggregate indebtedness, secured and unsecured, would exceed three hundred
percent (300%) of the Company's net assets on a consolidated basis. For this
purpose, the term "net assets" means the total assets (less intangibles) of
the Company at cost, before deducting depreciation or other non-cash
reserves, less total liabilities, as calculated at the end of each quarter on
a basis consistently applied. The Company shall not borrow on an unsecured
basis if such borrowing will result in an asset coverage of less than three
hundred percent (300%). "Asset Coverage" means the ratio which the value of
the total assets less liabilities, except indebtedness for unsecured
borrowings, bears to the aggregate amount of all unsecured borrowings.
The foregoing prohibitions and restrictions shall not be changed without
the approval of the Stockholders of the Company.
Section 3.14 ADVISORY ARRANGEMENTS. The Board of Directors may cause
the Company to engage an Advisor to furnish advice and recommendations
concerning the affairs of the Company, provide administrative services to the
Company and manage the Company's
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day-to-day affairs pursuant to a written contract or contracts, or any
renewal thereof, which have obtained the requisite approvals of the Board of
Directors, including a majority of the Independent Directors.
If such an Advisor is engaged, the Board of Directors shall evaluate the
performance of the Advisor and its key personnel before entering into or
renewing an advisory arrangement. The minutes of meetings with respect to
such evaluation shall reflect the criteria used by the Board of Directors in
making such evaluation. Prior to entering into a contract with any Advisor,
the Board of Directors may determine that such advisor possesses sufficient
qualifications (a) to perform the advisory function for the Company and (b)
to justify the compensation provided for in its contract with the Company.
Each contract for the services of an Advisor entered into by the Board of
Directors shall have a term of no more than one year, but may be renewed
annually at or prior to the expiration of the contract. Each contract shall
be terminable by a majority of the Independent Directors, or the advisor on
sixty (60) days written notice without cause or immediately by mutual consent
of the parties thereto.
If an Advisor is engaged, the Independent Directors shall determine at
least annually that the compensation which the Company contracts to pay the
Advisor is reasonable in relation to the nature and quality of services
performed and also shall supervise the performance of the Advisor and the
compensation paid to it by the Company to determine that the provisions of
such contract are being carried out. Each such determination shall be based
upon the following factors and all other factors the Independent Directors
may deem relevant and the findings of the Independent Directors on each of
such factors shall be recorded in the minutes of the Board of Directors:
(a) the size of the advisory fee and expense reimbursement in relation
to the size, composition and profitability of the investment
portfolio of the Company;
(b) the success of the Advisor in generating opportunities that meet
the investment objectives of the Company;
(c) the rates charged to other companies similar to the Company and to
other investors by advisors performing comparable services;
(d) additional revenues realized by the Advisor and its affiliates
through their relationship with the Company or by others with whom
the Company does business;
(e) the quality and extent of service and advice furnished to the
Company including the frequency of problem
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investments and competence in dealing with distress situations;
(f) the performance of the investment portfolio of the Company,
including income, conservation or appreciation of capital; and
(g) the quality of the investment portfolio of the Company in
relationship to the investments generated by the Advisor for its
own account.
Section 3.15 PROPERTY MANAGEMENT ARRANGEMENTS. The Board of Directors
shall cause the Company to engage a property manager who will be responsible
for the day-to-day operations of the Company's properties, including leasing,
rent collection and maintenance pursuant to a written contract or contracts,
or any renewal thereof subject to overall review and supervision by the Board
of Directors. The Board of Directors shall evaluate the performance of the
management company before entering into or renewing any management
arrangement.
Section 3.16 TOTAL EXPENSES. The Independent Directors shall
determine, from time to time but at least annually, that the total fees and
expenses of the Company are reasonable in light of the Company's investment
experience, net assets, net income and all other relevant factors, and each
such determination and the factors in support thereof shall be recorded in
the minutes of the next meeting of the Board of Directors. The Independent
Directors shall have a fiduciary duty to limit the "Total Operating Expenses"
to amounts that do not exceed (for the twelve (12) months ending with the end
of each fiscal quarter of the Company) the greater of (a) two percent (2%) of
the "Average Invested Assets" or (b) twenty five percent (25%) of the
Company's Net Income (the "Limitations"). The Company shall send a written
disclosure to all Stockholders within sixty (60) days of the end of any
fiscal quarter of the Company for which the Total Operating Expenses for the
twelve (12) months then ended exceeded the Limitation. Such written
disclosure shall contain an explanation of the Independent Directors for such
excess expenditures and the factors considered by the Independent Directors
in concluding that such higher Total Operating Expenses were justified, if
any. In the event the Total Operating Expenses exceed the Limitation, the
Advisor, if any, shall reimburse to the Company out of fees earned by the
Advisor for the Fiscal Year the amount by which Total Operating Expenses
exceeded the Limitation.
As used herein, the following terms shall have the following meanings:
(a) "Total Operating Expenses" for any period shall mean the aggregate
operating, general and administrative expenses as determined under
generally accepted accounting principles (including all fees paid
directly or
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indirectly by the Company to the Advisor) exclusive of expenses of
raising capital, interest payments, taxes, non-cash expenditures
(including but not limited to depreciation, amortization and bad
debt reserves) and direct asset acquisition, operation and
disposition costs.
(b) "Average Invested Assets" for any period shall mean the average of
the aggregate book value of the assets of the Company invested,
directly or indirectly, in equity interests in and loans secured by
real estate before reserves for depreciation, bad debts or other
similar non-cash reserves computed by taking the average of such
values at the end of each calendar month during such period.
(c) "Net Income" for any period shall mean total revenues applicable to
such period (excluding any gain from the sale of the assets of the
Company), less the expenses applicable to such period, other than
additions to reserves for depreciation, bad debts or other similar
non-cash reserves determined in accordance with generally accepted
accounting principles.
The foregoing provisions shall not be changed without the approval of
the holders of a majority of the outstanding shares.
Section 3.17 REAL ESTATE BROKERAGE COMMISSIONS. Upon the sale of any
of the Properties with respect to which sale the Advisor or any Director or
officer of the Company, or any of their affiliates performs a substantial
amount of services, the Advisor or such affiliate shall be entitled to
receive a real estate brokerage commission customary and competitive for
comparable size and type of properties in the area where the sold Property is
located (hereinafter referred to as the "Competitive Commission"); provided
that such commission shall not exceed three percent (3%) of the contracted
sales price for such Property. In the event such brokerage commissions are
also payable to any other party pursuant to such transactions, the Advisor or
any such affiliate shall be entitled to one half (1/2) of all such
commissions paid in connection therewith, provided that the total of such
commissions paid to all parties shall not exceed the lesser of the
Competitive Commission or six percent (6%) of the sales price of such
Property.
ARTICLE IV
WAIVERS OF NOTICE
Section 4.01 Whenever any notice of the time, place or purpose of any
meeting of Stockholders, Directors or committee is required to be given under
law or under the provisions of the
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Company's Charter or these By-Laws, a waiver thereof in writing, signed by
the person or persons entitled to such notice and filed with the records of
the meeting, whether before or after the holding thereof, or actual
attendance at the meeting of Stockholders in person or by proxy, or at the
meeting of Stockholders in person or by proxy, or at the meeting of Directors
or committee in person, shall be deemed equivalent to the giving of such
notice to such persons. When a meeting of Stockholders is adjourned to
another time and place, unless the Board of Directors after the adjournment
is for more than thirty (30) days, notice of such adjourned meeting need not
be given if the time and place to which the meeting shall be adjourned were
announced at the meeting at which the adjournment is taken.
ARTICLE V
OFFICERS
Section 5.01 OFFICERS. The officers of the Company shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors may also choose a Chairman of the Board, one (1) or
more Vice Presidents, and one or more Assistant Secretaries and Treasurers
(also from time to time referred to by the Company as Financial Officers).
Two (2) or more offices, except those of President and Vice President may be
held by the same person but no officer shall execute, acknowledge or verify
any instrument in more than one (1) capacity, if such instrument is required
by law, the Company's Charter or these By-Laws to be executed, acknowledge or
verified by two (2) or more officers.
The Board of Directors at its first meeting after each annual meeting of
Stockholder shall choose a President, a Secretary and a Treasurer, none of
whom need to be a member of the board.
Section 5.02 OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of
Directors.
Section 5.03 COMPENSATION. The salaries of all officers and agents of
the Company shall be fixed by the Board of Directors.
Section 5.04 REMOVAL; RESIGNATION. The officers of the Company shall
serve at the pleasure of the Board of Directors, and until their successors
are chosen and qualified. Any officer or agent may be removed by the Board of
Directors whenever, in its judgment, the best interests of the Company will
be served thereby, but such removal shall be without prejudice to the
contractual rights, if any, of the person so removed. Any officer may resign
at any time. Such resignation shall be made in writing, and shall
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take effect at the time specified therein, and if time not be specified, at
the time of its receipt by the Chairman of the Board, the President or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective. If the office of any officer becomes vacant for any reason, the
vacancy shall be filled by the Board of Directors.
Section 5.05 CHAIRMAN. The Chairman of the Board, if one shall be
elected, shall, if present, preside at all meetings of the Board of Directors
and Stockholders and exercise and perform such other powers and duties as may
be from time to time be assigned to him by the Board of Directors or
prescribed by these By-Laws and as may be set forth herein.
Section 5.06 PRESIDENT. The President shall be the chief executive
officer of the Company. The President shall have general and active control
of the business, finances and affairs, subject to the control of the Board of
Directors. Except as may otherwise be provided by the Board of Directors
from time to time, the President shall have general power to execute bonds
deeds, contracts, conveyances and other instruments in the name of the
Company and to affix the corporate seal, to appoint all employees and agents
of the Company whose appointment is not otherwise provided for and to fix the
compensation thereof subject to the provisions of these By-Laws and subject
to the approval of the Board of Directors; to remove or suspend any employee
or agent who shall not have been appointed by the Board of Directors to
suspend for cause, pending final action by the body which shall have
appointed him, any officer other than an elected officer, or any employee or
agent who shall have been appointed by the Board of Directors. In the absence
of the Chairman of the Board to act, the President shall have authority to
exercise the power and perform the duties of the Chairman of the Board. He
shall have such further powers and duties as may be conferred on him by the
Board of Directors.
Section 5.07 VICE PRESIDENT. The Vice President, or if there shall be
more than one, the Vice Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President, and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
Section 5.08 SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the Stockholders and record all the
proceedings of the meetings of the Stockholders and record all the
proceedings of the meetings of the Company and of the Board of Directors in a
book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the Stockholders and special meetings of
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the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or President, under whose supervision
the Secretary shall be. The Secretary shall keep in safe custody the seal of
the Company, and, when authorized by the Board of Directors, affix the same
to any instrument requiring it and, when so affixed, it shall be attested by
the Secretary's signature or by the signature of an Assistant Secretary.
Section 5.09 ASSISTANT SECRETARY. The Assistant Secretary, or if there
by more than one, the Assistant Secretaries in the order determined by the
Board of Directors, shall, in the absence or disability of the Secretary
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may
from time to time prescribe.
Section 5.10 TREASURER AND ASSISTANT TREASURER. The Treasurer shall
have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
Company and shall deposit all moneys and other valuable effects in the name
and to the credit of the Company in such depositories as may be designated by
the Board of Directors. The Treasurer shall disburse the funds of the Company
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors
at its regular meetings, or when the Board of Directors so requires, an
account of all his transactions as Treasurer and of the financial condition
of the Company. If required by the Board of Directors, the Treasurer shall
give the Company a bond in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Company, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Company.
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors,
shall, in the absence of disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
Section 5.11 DELEGATION OF DUTIES. In the case of the absence of any
officer of the Company, or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may confer from the time being
the powers or duties, or any of them, of such officer upon any other officer
or upon any director.
Section 5.12 INDEMNIFICATION. Except as set forth in the next
sentence, no indemnification will be allowed for any liability
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imposed by judgment and costs associated therewith, including attorneys'
fees, arising from and out of a violation of state or federal securities
laws. Indemnification will be allowed for settlements and related expenses of
lawsuits alleging securities law violations and for expenses incurred in
successfully defending on the merits (including defense by virtue of a
dismissal with prejudice) such lawsuits, provided that a court is apprised of
the positions of the Tennessee Securities Division, the North Carolina
Securities Administrator, and other applicable state securities
administrators, and the Securities and Exchange Commission with
respect to indemnification for securities law violations before seeking court
approval for indemnification and such court either:
(a) Approves the settlement and finds that indemnification of the
settlement and related costs should be made, or
(b) Approves indemnification of litigation costs if a successful defense
is made.
Subject to the foregoing limitations and restrictions, each officer,
Director or employee of the Company shall be indemnified by the Company to
the full extent permitted under the General Laws of the State of Maryland and
other applicable law, provided that such person determined in good faith,
that the course of conduct which caused the loss or liability was in the best
interests of the Company and such liability or loss was not the result of
negligence or misconduct by such person.
Indemnification pursuant to this Section is recoverable only from the
assets of the Company, and no amount is recoverable from Stockholders.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.01 CERTIFICATES. Each Stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number and
kind and class of shares owned by him in the Company. Each certificate shall
be signed by the Chairman of the Board or the President or a Vice President
and countersigned by the Secretary or the Treasurer or an Assistant Treasurer
and may be sealed with the corporate seal.
The signatures may be either manual or facsimile signatures and the seal
may be either facsimile or any other form of seal. In cases any officer who
has signed any certificate ceases to be an officer of the Company before the
certificate is issued, the certificate may nevertheless be issued by the
Company with the same effect as if the officer has not ceased to be such
officer as of the date of its issue. Each stock certificate shall include on
its
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face the name of the Company, the name of the Stockholder and the class of
stock and number of shares represented by the certificate. If the Company has
authority to issue stock of more than one class, the stock certificate shall
contain on its face or back a full statement or summary of the designations
and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions or redemption of the stock of each class which the Company is
authorized to issue and, if the Company is authorized to issue any preferred
or special class in series, the differences in the relative rights and
preferences between the shares of each series to the extent they have been
set, and the authority of the Board of Directors to set the relative rights
and preferences of subsequent series. In lieu of such full statement or
summary, there may be set forth upon the face or back of the certificate a
statement that the Company will furnish to any Stockholder upon request and
without charge, a full statement of such information. A summary of such
information included in a registration statement permitted to become
effective under the Federal Securities Act of 1933, as now or hereafter
amended, shall be an acceptable summary for purposes of this Section. Every
stock certificate representing shares of stock which are restricted as to
transferability by the Company shall contain a full statement of the
restriction or state that the Company will furnish information about the
restriction to the Stockholder on request and without charge. A stock
certificate may not issued until the stock represented by it is fully paid,
except in the case of stock purchased under an option plan as permitted by
law.
Section 6.02 LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been stolen,
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be stolen, lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such stolen, lost or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require and to give the Company a bond, with
sufficient surety, to the Company to indemnify it against any loss or claim
which may arise by reason of the issuance of a new certificate.
Section 6.03 TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may in its discretion, appoint one or more banks or trust companies is such
city or cities as the Board of Directors may deem advisable, from time to
time, to act as transfer agents and/or registrars of the shares of stock of
the Company; and upon such appointments being made, no certificate
representing shares shall be valid until countersigned by one of such
transfer agents and/or registered by one of such registrars.
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Section 6.04 TRANSFER OF STOCK. No transfers of shares of stock of
the Company shall be made if (i) void AB INITIO pursuant to Article VII of
the Company's Charter, or (ii) the Board of Directors, pursuant to such
Article VII, shall have refused to transfer such shares. The Board of
Directors of the Company may:
(a) Redeem the outstanding shares of stock of the Company or restrict
the transfer of such shares to the extent necessary to prevent the
concentration of ownership of more than fifty percent (50%) of the
outstanding shares of the Company in the hands of five (5) or fewer
individuals or entities and to ensure that the Company always has
at least one hundred (100) Stockholders;
(b) Refuse to effect a transfer of shares of stock of the Company to
any person who as a result would beneficially own shares in excess
of nine and eight tenths percent (9.8%) of the outstanding shares
of the Company ("Excess Shares"); and
(c) Redeem Excess Shares held by any Stockholder of the Company.
Permitted transfers of shares of stock of the Company shall be made on
the stock records of the Company only upon the instruction of the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and upon surrender of the certificate or certificates, if
issued for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Upon surrender to
the Company or the transfer agent of the Company of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, as to any transfers not prohibited by the Company's
Charter, these By-Laws, or by action of the Board of Directors thereunder, it
shall be the duty of the Company to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
Section 6.05 FIXING OF RECORD DATES; CLOSING OF TRANSFER BOOKS. The
Board of Directors may fix, in advance, a date as the record date for the
purpose of determining Stockholders entitled to notice of, or to vote at, any
meeting of Stockholders, or Stockholders entitled to receive payment of any
dividend or the allotment of any rights, or in order to make a determination
of Stockholders for any other proper purpose. Such date, in any case, shall
be not more than ninety (90) days, and in case of meeting of Stockholders not
less than ten (10) days, prior to the date on which the particular action
requiring such determination of Stockholders is to be taken.
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Section 6.06 REGISTERED STOCKHOLDERS. The Company shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, and to hold
liable for calls, if any, a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by law.
Section 6.07 REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Company.
ARTICLE VII
GENERAL PROVISIONS
Section 7.01 DIVIDENDS. Subject to the provisions of the Company's
Charter and any requirements of applicable law, quarterly dividends of
substantially all of the Company's available cash flow from operation of its
properties, may be declared by the Board of Directors at any regular or
special meeting. Dividends may be paid in cash, in its own shares, or in
other marketable securities, subject to the provisions of law and of the
Company's Charter. Before payment of any dividend, there may be set aside
out of any funds of the Company available for dividends such sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Company, or for such other
purpose as the Board of Directors shall deem conducive to the interests of
the Company, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created. The Company shall disclose in a
written statement accompanying each payment the source or sources of such
payment to the extent such source or sources is or are other than from
current operations.
Section 7.02 ANNUAL REPORT. The President or a Vice President or the
Treasurer shall prepare or cause to be prepared annually a full and correct
report of the affairs of the Company, including financial statements for the
preceding fiscal year, which shall be prepared in accordance with generally
accepted accounting principles, audited and certified by independent
certified public accountants and distributed to Stockholders within one
hundred twenty (120) days after the close of the Company's fiscal year and a
reasonable period of time (not less than thirty (30) days) prior to the
annual meeting of Stockholders. Such report shall also be submitted at the
annual meeting and shall be filed within twenty
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(20) days thereafter at the principal office of the Company in the State of
Maryland. The annual report shall also include full disclosure of all
material terms, factors and circumstances surrounding any transactions
between the Company and the Advisor, any Director, or any affiliates of the
Advisor or such Director. The Independent Directors will comment on the
fairness of such transactions in the annual report.
The Company shall also publish in the annual report (i) the ratio of the
cost of raising capital during the year to the capital raised and (ii) the
aggregate amount of advisory fees and the aggregate amount of other fees paid
to the Advisor and all affiliates of the Advisor by the Company, including
fees or charges paid to such Advisor and all affiliates of the Advisor by
third parties doing business with the Company.
Section 7.03 QUARTERLY REPORT. The President or a Vice President or
the Treasurer shall also prepare or cause to be prepared quarterly for each
of the first three (3) quarters of each fiscal year, a full and correct report
of the affairs of the Company, including a balance sheet and financial
statement of operations for the preceding fiscal quarter, which need not be
certified by independent certified public accountants and shall be
distributed to Stockholders within forty five (45) days after the close of
the Company's preceding fiscal quarter.
Section 7.04 CHECKS. All checks, drafts and orders for the payment of
money, notes and other evidences of indebtedness, issued in the name of the
Company shall be signed by the President or the Treasurer or by such officer
or officers as the Board of Directors may from time to time designate.
Section 7.05 DEPOSITORIES AND CUSTODIANS. The funds of the Company
shall be deposited with such banks or other depositories as the Board of
Directors of the Company may from time to time determine. All securities and
other investments shall be deposited in the safekeeping of such banks or
other companies as the Board of Directors of the Company may from time to
time determine.
Section 7.06 BOOKS OF ACCOUNT AND RECORDS. The Company shall maintain
at its office in the City of Omaha and State of Nebraska correct and complete
books and records of account of all the business and transactions of the
Company. Upon request of any Stockholder, there shall be made available in
accordance with the provisions of Maryland law, a record containing the
number of shares of stock issued during a specified period not to exceed (12)
twelve months and the consideration received by the Company for each such
share.
Section 7.07 INFORMATION FOR INSPECTION. Any Stockholder of the
Company or his agent may inspect and copy during usual business hours the
Company's By-Laws, minutes of the proceedings of its
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Stockholders, Annual Reports of its affairs and voting trust agreements on
file at its principal office.
Section 7.08 FISCAL YEAR. The fiscal year of the Company shall be the
calendar year.
Section 7.09 SEAL. The corporate seal shall have inscribed thereon the
name of the Company and the year and state of its organization. The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7.10 STOCK LEDGER. The Company shall maintain at its office in
the City of Omaha and State of Nebraska an original stock ledger containing
the names and addresses of all Stockholders and the number of shares of each
class held by each Stockholder. Such stock ledger may be in written form or
any other form capable of being converted into written form within a
reasonable time for visual inspection.
ARTICLE VIII
AMENDMENTS
Section 8.01 DIRECTORS. Except as otherwise provided herein, the Board
of Directors shall have the power, in accordance with the Charter, at any
regular meeting or at any special meeting if notice thereof be included in
the notice of such special meeting, to alter, modify or repeal any By-Laws of
the Company and to make new By-Laws, except that the Board of Directors shall
not alter, modify or repeal any By-Laws made by the Stockholders.
Section 8.02 STOCKHOLDERS. The Stockholders shall have the power, at
any annual meeting or at any special meeting if notice thereof be included in
the notice of such special meeting, to alter, modify or repeal any By-Laws of
the Company and to adopt new By-Laws by a vote of a majority of the
Stockholder votes entitled to be cast thereon. Notwithstanding the foregoing,
any amendment, alteration, modification or repeal of the provisions in
Section 6.04 hereof, shall require an affirmative vote of not less than sixty
six and two-thirds (66 2/3) of the Stockholder votes entitled to be cast
thereon.
These By-Laws were adopted by a duly-authorized vote of the Board of
Directors of the Company and were last amended at a regular meeting of the
Directors on April 20, 1992 and are hereby certified as true and correct.
/s/ Joseph H. Carter
------------------------------
Joseph H. Carter, President
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 13th day of April, 1992, (the
"Effective Date") by and among DIAL REIT, INC. ("Employer"), a Maryland
corporation with its principal place of business at Suite 205, 11506 Nicholas
Street, Omaha, Nebraska 68154, and JEROME L. HEINRICHS ("Executive"), a
resident of the State of Nebraska.
WITNESSETH:
WHEREAS, Employer desires to employ Executive, and Executive wishes to
be employed by Employer in the capacities hereinafter described, upon the
terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the parties hereto mutually agree as follows:
FIRST: EMPLOYMENT OF EXECUTIVE.
(a) EMPLOYMENT. Subject to the terms and provisions of this Agreement
and for the term hereinafter set forth, Employer hereby employs Executive to
perform the duties of Executive Vice-President and Chief Operating Officer of
Employer. Executive hereby accepts such employment.
(b) REPRESENTATION BY EXECUTIVE. By signing this Agreement, Executive
represents and warrants to Employer that he is not subject to any
non-competition or other undertaking which in any respect would restrict
Executive's rendering services hereunder and Executive shall indemnify and
hold harmless
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Employer against all liability and expense which Employer might incur as a
result of any breach of this representation and warranty.
SECOND: DUTIES OF EXECUTIVE.
(a) FULL WORKING TIME. Executive agrees that, during the term of his
employment hereunder, he will devote his full working time and attention to
the business and affairs of Employer as the Executive Vice-President and
Chief Operating Officer; provided, however, Employer agrees that until
January 1, 1993, Executive may spend a small portion of his working time in
winding up his duties as President of Investors Realty, Inc. ("Investors").
The parties hereto acknowledge that from and after January 1, 1993 Executive
may remain as a shareholder and a member of the Board of Directors of
Investors and in such capacities may participate during non-working time in
making significant policy decisions on behalf of Investors; provided,
however, Executive shall not participate in the day-to-day management or
operations of Investors; provided, further that Executive shall be entitled
to continue to retain his Real Estate License through Investors indefinitely
into the future and commensurate with said retention of his Real Estate
License through Investors, Executive shall be entitled to receive
referral fees from any source through Investors, free from any claim by
Employer.
(b) ASSIGNED DUTIES. Executive agrees that he will perform faithfully
and to the best of his abilities such duties
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and services as are customarily performed and rendered by one holding the
positions of Executive Vice-President and Chief Operating Officer, as well as
such other duties and services as may be assigned to Executive from time to
time by the Chief Executive Officer or the Board of Directors (the "Board")
of the Employer.
(c) PASSIVE INVESTMENTS. Anything to the contrary notwithstanding,
during the term of this Agreement and thereafter, Executive may continue to
expend a limited portion of his working time and may continue to invest as a
passive investor in any real estate project or venture so long as (i) such
investment does not require Executive to devote to such investment (or
anything related thereto) any significant portion of his working time and
(ii) such real estate project or venture does not involve the development,
construction, operation, management, purchase or sale of a shopping center
with more than 25,000 rentable square feet; provided, that any and all
proceeds, fees and income from said investments shall be received directly by
Executive, free from any claim by Employer.
(d) OTHER FEES. Prior to Executive accepting or agreeing to accept any
fee, salary, commission, interest, security or other gratuity, directly or
indirectly (e.g., through any affiliate or family member), from any tenant,
supplier or other person dealing, directly or indirectly, with Employer,
Executive shall give prior written notice thereof to the Board. Upon written
request of Employer, Executive shall provide to
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Employer copies of Executive's federal income tax returns to verify
compliance with this provision.
THIRD: COMPENSATION AND BENEFITS.
In full consideration for the services to be performed by Executive
hereunder and subject to the due performance thereof, Executive shall receive,
during the term of his employment hereunder, the following remuneration:
(a) BASE SALARY. Employer will pay Executive a base salary (hereinafter
called the "Base Salary") at the rate of not less than One Hundred Twenty
Thousand Dollars ($120,000.00) per annum, which Base Salary shall be payable,
in accordance with Employer's usual paying practices, at such intervals as
Employer pays its other senior executive employees (but in any event not
less frequently than monthly). Executive's Base Salary shall be reviewed by
the Board each calendar year during the term of Executive's employment
hereunder (commencing in 1993), at which time the Board will set Executive's
Base Salary for the then current calendar year; provided, however, in no event
shall such Base Salary for any calendar year be less than the Base Salary set
for the immediately preceding calendar year. In the event Executive shall be
appointed the President of Employer, his then current Base Salary shall be
increased prospectively by Ten Thousand Dollars ($10,000) per annum;
provided, further that in the event that Executive has eliminated Employer's
potential conflicts of interest with Employer's affiliates, as determined by
the Board, in its sole discretion, Executive shall receive an
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increase in salary of $10,000 independent of his entitled annual salary
increase and other increases as provided herein; provided, further that it is
generally understood that if Executive meets his expected performance as
represented to Employer, Executive shall be entitled to an annual salary of
not less than $150,000 following Executive's third year of employment.
(b) FRINGE BENEFITS. Executive shall also be entitled to receive those
customary "fringe benefits" (for example, medical and health insurance,
disability insurance, group life insurance, paid sick leave, paid vacation
and holidays and retirement plans) afforded by Employer from time to time to
its senior level executives, provided Executive is otherwise eligible to
receive the same and in each case Executive's participation shall be in
accordance with the terms and conditions of the plans and programs as may be
in effect from time to time (including any required employee contributions).
Executive agrees that Employer may change, alter or eliminate, without
Executive's consent, any and all of such "fringe benefits" at any time so
long as any such change is applicable to all senior level executives.
Subject to the provisions of the policies providing any insured "fringe
benefit", Employer will continue to provide (the "Continuation Benefit") any
such "fringe benefits" which were being provided to Executive on his
Termination date, as defined in Paragraph FOURTH below, for up to two years
following termination of this agreement by Employer (other than a Termination
pursuant to Paragraph FIFTH hereof), or until
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Executive secures alternative employment providing similar benefits,
whichever is sooner; provided, however, if the terms of any such insured
"fringe benefit" will not permit such continued participation, Employer will
reimburse Executive for the cost of comparable individual coverage.
(c) EXPENSE REIMBURSEMENT. Employer shall reimburse Executive for all
reasonable business expenses incurred by the Executive for all reasonable
business expenses incurred by the Executive in the performance of his duties
hereunder, which expenses shall be substantiated in accordance with the
procedures of Employer and in accordance with the rules and regulations of
the Internal Revenue Service (and any other taxing authority) to ensure that
Employer is entitled to a deduction for same on its federal income tax
returns (and any other applicable tax return), to the fullest extent
permitted by law. Notwithstanding the foregoing, (i) any such expense in
excess of $5,000 shall require the prior written approval of the Board and
(ii) any expense (regardless of the amount thereof) shall require the prior
written approval of the Board if the sum of such expense and all other
expenses for which Executive has requested reimbursement within the
immediately preceding thirty (30) days shall exceed $3,500.
(d) STOCK OPTION PLAN. Employer agrees to establish for the benefit of
Executive the Stock Option Plan attached hereto as Exhibit A (the "Stock
Plan"). Upon the termination for any reason of Executive's employment
hereunder, Executive shall forfeit all of his unvested rights under the Stock
Plan and shall
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not be entitled to any compensation or remuneration for the value of any such
unvested rights or otherwise forfeited rights. Executive agrees that any
stock he may purchase under the Stock Plan shall be for his own Account, for
investment only, and not with a view towards resale or distribution thereof.
Executive understands that there will be substantial restrictions on the
transferability of any such stock and he will have no right to require that
the stock be registered under the Securities Act of 1933 or any state
securities law. The investment rights and privileges conferred on Executive
by the Stock Plan shall not be transferred, assigned, pledged, hypothecated
or otherwise disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar
process, and upon any attempted disposition or levy of attachment or similar
process, such rights and privileges will immediately become null and void.
(e) TAXES. The payment of all remuneration and benefits to Executive
hereunder shall be subject to such federal, state and local taxes, deductions
and withholdings as may be required by law. Executive acknowledges that his
Internal Revenue Service Form W-2 (as well as corresponding state and local
forms) with respect to each calendar year during the term hereof may include
as income the value of certain of the "fringe benefits" and executive
perquisites provided the Executive under this Agreement as and to the extent
required by applicable law.
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FOURTH: TERM OF EMPLOYMENT.
This Agreement shall continue in effect at will from and after the
Effective Date until terminated by Employer or the Executive upon notice, as
provided below. Upon any termination of Executive's employment hereunder,
the obligation of Employer to pay further compensation or expenses to the
Executive, except as provided in subparagraph (c) of Paragraph THIRD and
Paragraphs SIXTH and SEVENTH, shall cease; provided, however, that any
obligation of Employer which accrued prior to the Termination Date shall not
be affected thereby. Executive's last day of employment with Employer shall
be referred to in this Agreement as the "Termination Date" and shall
constitute the end of the term of employment.
FIFTH: TERMINATION "FOR CAUSE".
Executive's employment under this Agreement shall be terminated
immediately upon notice to Executive (which notice shall contain a concise
statement of the event(s) giving rise to the termination) (notice shall not
be required with respect to subparagraph (f) of this Paragraph FIFTH) if any
of the following events shall occur during the term hereof:
(a) NEGLIGENCE. A good faith determination by the Board that Executive
has been grossly negligent in carrying out, or willfully failed or refused to
serve and carry out his duties and responsibilities as required by Paragraph
SECOND; or
(b) BREACH OF AGREEMENT. Executive breaches any material term of this
Agreement and fails to cure such breach
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(where capable of cure) within ten (10) days after the receipt of written
notice from Employer to Executive of such breach, which notice shall state in
reasonable detail the facts and circumstances claimed to be a breach and of
the intent of Employer to terminate the Executive's employment upon the
failure of the Executive to timely cure; or
(c) MISCONDUCT. A good faith determination by the Board that Executive
has willfully and knowingly committed an act of fraud, misappropriation,
embezzlement, theft, dishonesty, breach of fiduciary duty involving personal
profit or has willfully and knowingly violated any law, rule, or regulation
(other than traffic violations or similar minor offenses); or
(d) CRIMINAL OFFENSE. The indictment of Executive for any criminal
offense (other than traffic violations or similar minor offenses); or
(e) DISABILITY. The permanent disability of Executive, which, for the
purposes hereof, shall be deemed to have occurred if, during any year during
the term hereof, because of ill health, physical or mental disability, or for
other reasons beyond Executive's control, Executive shall have been
continuously unable to perform substantially all of his duties hereunder for
ninety (90) or more consecutive days, or if, during any year during the term
hereof, Executive shall have been unable to perform substantially all of his
duties for a total period of one hundred and twenty (120) or more work days
(exclusive of earned vacation and paid holidays), irrespective of whether
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or not such days are consecutive (for the purposes hereof, the phrase "any
year during the term hereof" is defined to mean any continuous twelve (12)
calendar month period during the term of the Agreement); or
(f) DEATH. The death of Executive. Anything to the contrary
notwithstanding, Executive shall not be entitled to receive the Termination
Severance Payments, as described in Paragraph SIXTH, in the event Executive's
employment is terminated pursuant to this Paragraph FIFTH. In the event that
any termination by Employer pursuant to this Paragraph FIFTH is ever
ultimately determined by any court, agency, or other tribunal to have been
for a cause other than described under this Paragraph FIFTH, Employer's sole
liability to Executive under this Agreement or otherwise at law or equity
shall be for it to pay the Executive said Termination Severance Payments.
SIXTH: TERMINATION "WITHOUT CAUSE".
(a) TERMINATION OF EMPLOYER WITHOUT CAUSE. In addition to its rights to
terminate the employment of Executive under Paragraph FIFTH hereof, Employer
shall have the right to terminate the employment of Executive for any reason
at any time immediately upon notice to the Executive pursuant to this
Paragraph SIXTH. In the event Employer shall exercise its termination rights
under this Paragraph SIXTH, Employer will continue to pay Executive, as
severance pay (herein the "Termination Severance Payments"), Executive's then
current Base
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Salary, payable on Executive's normal pay dates for a period of twenty four
(24) months following the Termination Date; provided, however, that (i)
during the period Executive is receiving the Termination Severance Payments,
the Executive is receiving the Termination Severance Payments, the Executive
shall make himself reasonably available to consult with the Board on
Employer's business matters for up to five (5) days per month, and (ii) the
obligation of Employer to make the Termination Severance Payments hereunder
shall cease if the Executive shall violate any of the provisions of
Paragraphs EIGHTH or NINTH hereof.
(b) TERMINATION BY EXECUTIVE. Executive may terminate his employment
hereunder at any time upon ninety (90) days' advance notice; provided,
however, Employer may treat the employment of Executive as terminated at any
time after receipt of such notice (in which case Employer shall continue to
pay the Executive the Base Salary and to provide the Executive the benefits
and perquisites he would have otherwise received for the remainder of such
ninety-day notice period). No Termination Severance Payments will be due
Executive in the event he terminates his employment hereunder.
SEVENTH: CHANGE IN CONTROL.
(a) APPLICABILITY. The provisions of this Paragraph SEVENTH shall
take effect only upon a change in control as defined in subparagraph (c) of
this Paragraph SEVENTH ("Change in Control") of Employer which occurs during
the first seventy-two (72) months of Executive's employment hereunder, which
Change in Control must be followed by a deemed termination of Executive's
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employment as provided in subparagraph (d) of this Paragraph SEVENTH within
twelve (12) months thereafter, and in such event, the provisions of this
Paragraph SEVENTH shall supersede any other provisions in this Agreement to
the contrary.
(b) CHANGE IN CONTROL SEVERANCE PAYMENT. In the event Executive's
employment shall be deemed terminated pursuant to subparagraph (d) of this
Paragraph SEVENTH after a Change in Control, Executive shall be entitled to a
single, lump sum, cash severance payment (the "Change in Control Severance
Payment") in an amount equal to 200% of the Executive's then current annual
rate of Base Salary. The Change in Control Severance Payment shall be made
within thirty (30) days of the date of termination. In addition to the
Change of Control Severance Payment, Executive shall also be entitled to
receive the Continuation Benefit, as provided for in subparagraph (b) of
Paragraph THIRD hereof.
(c) DEFINITION OF "CHANGE IN CONTROL". For purposes of this Agreement,
"Change in Control" shall be deemed to have occurred if:
(i) Employer shall be merged or consolidated with another
corporation and as a result of such merger or consolidation,
less than 50% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the
aggregate by former shareholders of Employer or any of their
affiliates
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(within the meaning of the Securities Exchange Act of 1934);
(ii) Employer shall sell substantially all of its assets to an
unaffiliated corporation. For purposes of this provision,
an "unaffiliated corporation" shall mean any corporation in
which Employer or any of its affiliate owns less than 50% of
the outstanding voting securities; or
(iii) a person, within the meaning of Section 3(a)(9) or Section
13(d)(3) (as in effect on the Effective Date or the date of
the deemed termination of employment) of the Securities
Exchange Act of 1934, which is not an affiliate of Employer
shall acquire more than 50% of the outstanding voting securities
of Employer, beneficially or of record).
For purposes of this subparagraph (c), ownership of voting
securities shall take into account and shall include ownership as determined
by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on September
1, 1989) pursuant to the Securities Exchange Act of 1934.
(d) DEEMED TERMINATION. For the purposes of this Paragraph SEVENTH,
executive's Employment with Employer hereunder shall be deemed terminated if:
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(i) There is a significant change in the level of responsibility or
authority given to Executive from that held by him
immediately prior to the Change in Control, unless such change
is agreed to in writing by Executive; or
(ii) There is a reduction in Base Salary, or significant reduction
in benefits from that to which Executive was entitled
immediately prior to the Change in Control, unless such change
is agreed to in writing by Executive; or
(iii) Executive is required to change the location of his employment
in effect immediately prior to the Change in Control by more
than fifty (50) miles, unless Executive agrees in writing to
such change.
EIGHTH: CONFIDENTIAL INFORMATION.
(a) EXECUTIVE COVENANTS. Executive hereby acknowledges that during the
course of his employment hereunder he may come into contact with certain
confidential and proprietary information of Employer. Executive agrees that
during the term of his employment, and for a two-year period after the
Termination Date, he will not, directly or indirectly, use for himself or use
for, or disclose to, any party other than Employer, any secret or
confidential information or data of
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Employer. including, but not limited to, Employer's prices, uses, methods,
customers or suppliers (and pertinent information respecting transactions and
prospective transactions therewith).
(b) DOCUMENTS. All documents, files (including files stored on any
media) and tangible items provided to Executive by Employer, created by
Executive or otherwise coming into Executive's use in connection with his
employment hereunder are the property of Employer and shall be promptly
returned to Employer upon termination of Executive's employment hereunder
together with all copies, recordings, abstracts, notes, or reproductions of
any kind made from or about such documents, files and tangible items or the
information they contain.
NINTH: POST-TERMINATION RESTRICTIONS.
Recognizing that an important element of Employer's business success is
the information, business relationships and confidential and proprietary
business information entrusted to its employees, Executive agrees that for a
period of two (2) years following the Termination Date, regardless of how
Executive's termination occurs, Executive will not directly or indirectly
cause or attempt to cause any actual tenant or prospective tenant of Employer
with whom Executive has dealt or on whose account Executive worked, at any
time during Executive's last two (2) years of employment with Employer, to
divert, terminate, limit or in any manner modify or fail to enter into any
actual or potential business relationship with Employer.
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TENTH: EMPLOYER'S RIGHT TO INJUNCTIVE RELIEF.
In the event of a breach or threatened breach of any of Executive's
duties and obligations under the terms and provisions of Paragraphs EIGHTH or
NINTH hereof, Employer shall be entitled, in addition to any other legal or
equitable remedies Employer may have in connection therewith (including any
right to damages that Employer may suffer), to a temporary, preliminary
and/or permanent injunction restraining such breach or threatened breach.
Executive hereby expressly acknowledges that the harm which might result to
Employer's goodwill or its relationships with its tenants or prospective
tenants of Employer with whom Executive has dealt, or as a result of the
disclosure or use of Employer's confidential and proprietary information, is
largely irreparable. In view of the parties' recognition and agreement that
Employer is entitled after Executive's termination of employment to certain
limited protection from competition by Executive, Executive and Employer
agree that the running of the period set forth in Paragraph NINTH hereof
shall be tolled during any period of time in which Executive violates such
Paragraph.
ELEVENTH: NON-WAIVER OF RIGHTS.
The failure of Employer to enforce at any time any of the provisions of
this Agreement or to require at any time performance by Executive of any of
the provisions hereof shall in no way be construed to be a waiver of such
provisions or to affect either the validity of this Agreement, or any part
hereof,
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or the right of Employer thereafter to enforce each and every provision in
accordance with the terms of this Agreement.
TWELFTH: GOVERNING LAW.
This Agreement is executed and delivered in the State of Nebraska and
shall be construed and enforced in accordance with, and shall be governed by,
the laws of such State.
THIRTEENTH: NOTICES.
All notices, requests, consents and other communications required or
permitted under this Agreement shall be in writing and shall be deemed
sufficient if delivered or mailed, by certified or registered mail, return
receipt requested, postage paid, in the case of Executive, to his last known
address on file with Employer, and, in the case of Employer, to its principal
office. Such notice shall be effective upon deposit in the United States mail
or actual delivery, as the case may be.
FOURTEENTH: SEVERABILITY; INTERPRETATION; LEGAL FEES.
Whenever possible, each provision of this Agreement and any portion
hereof shall be interpreted in such a manner as to be effective and valid
under applicable laws, rules, and regulations. If any covenant or other
provision of this Agreement (or portion thereof) shall be held to be invalid,
illegal, or incapable of being enforced, by reason of any rule of law, rule,
regulation, administrative order, judicial decision, or public policy, all
other conditions and provisions of this Agreement shall, nevertheless, remain
in full force and effect,
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and no covenant or provision shall be deemed dependent upon any other
covenant or provision (or portion) unless so expressed herein. The rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be employed in interpreting this Agreement. In the
event of any dispute which Employer and Executive are not able to resolve
amicably, and either party thereafter commences any litigation to enforce any
right or benefit provided under this Agreement, which is the subject of such
dispute, the successful party for the reasonable legal fees and expenses
incurred by the successful party in such litigation.
Anything to the contrary notwithstanding, any payment otherwise payable
to Executive hereunder shall not be due and payable if the payment of same
would violate any applicable law, rule or regulation and, in such event, no
compensating payments to Executive shall be due or made.
FIFTEENTH: ENTIRE AGREEMENT.
Except for a certain agreement by and between Executive and Employer
dated December 20, 1991 concerning certain consulting duties to be provided
by Executive to the Employer, this Agreement constitutes the entire agreement
between the parties relative to the employment by Employer of Executive and
any and all prior representations, agreements, correspondence, or memoranda
with respect thereto are superseded hereby. No promises, covenants or
representations of any character or nature
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other than those expressly stated herein have been made to induce to either
party to enter into this Agreement. This Agreement shall not be modified,
waived, or discharged except in a writing duly signed by each of the parties.
SIXTEENTH: ASSIGNABILITY.
The services to be performed by Executive hereunder are personal in
nature and therefore Executive shall not assign all or any portion or his
rights, or delegate all or any portion of his obligations, under this
Agreement, and any attempted or purported assignment or delegation not
expressly permitted by Employer in writing shall be null and void, AB INITIO.
SEVENTEENTH: SUCCESSORS.
Subject to the provisions of Paragraph SIXTEENTH hereof, this Agreement
shall be binding upon and shall inure to the benefit of Employer and
Executive and their respective heirs, executors, administrators, legal
administrators, successors and assigns.
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EIGHTEENTH: HEADINGS.
Headings are provided herein for convenience only and shall not modify
or alter the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
DIAL REIT, INC.
By: /s/ JOSEPH H. CARTER
------------------------------------
Its: President
-------------------------------
Date of Execution: 4-30-92
------------------
/s/ JEROME L. HEINRICHS
------------------------------------
JEROME L. HEINRICHS
-------------------------------
Date of Execution: 4-30-92
------------------
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<PAGE>
EXHIBIT 10.8
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment dated effective the 4th day of February, 1998, to an
Employment Agreement dated April 13, 1992 (the "Employment Agreement")
between Mid-America Realty Investments, Inc. (formerly Dial Reit, Inc.), a
Maryland corporation ("MDI") and Jerome L. Heinrichs ("Executive").
WHEREAS, MDI and Executive have entered into the Employment Agreement
and wish to amend a provision of the Employment Agreement relating to the
period during which certain lump-sum payments would be made to Executive
following a change-of-control of MDI as defined in the Employment Agreement,
and
WHEREAS, the parties have agreed with respect to the terms of such
change.
NOW, THEREFORE, the parties agree that subparagraph (a) of paragraph
SEVENTH of the Employment Agreement is hereby amended so that the words
"during the first seventy-two (72) months of Executive's employment
hereunder" shall be changed to "during the first eighty-four (84) months of
Executive's employment hereunder".
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
MID-AMERICA REALTY INVESTMENTS, INC.
By: _____________________________
Dennis G. Gethmann, President
______________________________
Jerome L. Heinrichs
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EXHIBIT 21
NAME OF SUBSIDIARY STATE OF INCORPORATION
Mid-America Centers Corp. Nebraska
(formerly Dial Enterprises Corp.)
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<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-87066 and Registration Statement No. 33-58987 of Mid-America Realty
Investments, Inc. on Form S-8 of our report dated January 28, 1998 appearing
in this Annual Report on Form 10-K of Mid-America Realty Investments, Inc.
for the year ended December 31, 1997.
January 28, 1998
Omaha, Nebraska
96
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,648
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
