<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
COMMISSION FILE NUMBER 1-9663
----------
Mid-America Realty Investments, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 47-0700007
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11506 Nicholas Street, Suite 100, Omaha, NE 68154
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (402) 496-3300
--------------------------
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 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
---
At April 24, 1998, the registrant had 8,285,715 shares of common stock
outstanding.
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
FORM 10-Q
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
at March 31, 1998 and December 31, 1997. 3
Consolidated Statements of Operations
for the Three Months Ended March 31,
1998 and 1997. 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1998 and 1997. 5
Notes to Consolidated Financial Statements. 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 8-11
Part II. Other Information 12
Signature Page 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- ------------------------------
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Cash $ ---- $ ----
Accounts receivable, net of allowance
of $179,000 and $175,000 1,876 1,744
Notes receivable, net of allowance of
$70,000 409 400
Property:
Land and land improvements 37,129 37,129
Buildings 115,030 114,935
Equipment and fixtures 557 559
-------- --------
152,716 152,623
Less: Accumulated depreciation (34,161) (33,033)
-------- --------
118,555 119,590
Investment in Mid-America Bethal
Limited Partnership 14,943 15,027
Intangible assets, less accumulated
amortization of $3,930,000 and $3,834,000 1,307 1,382
Other assets 2,605 2,387
-------- --------
$139,695 $140,530
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable $ 61,450 $ 61,522
Accrued liabilities 1,849 2,095
-------- --------
Total Liabilities 63,299 63,617
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding
8,285,715 and 8,284,743 shares 83 83
Capital in excess of par value 119,730 119,720
Distributions in excess of net income (43,417) (42,890)
-------- --------
Total Shareholders' Equity 76,396 76,913
-------- --------
$139,695 $140,530
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(COLUMNAR DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Rental income $ 4,333 $ 4,318
Reimbursement income 1,313 1,239
Property management and leasing income 41 40
Other income 125 192
--------- ---------
Total Revenues 5,812 5,789
EXPENSES:
Real estate taxes 760 776
Other property costs 788 878
Interest expense 1,341 1,411
Administrative expenses 403 350
Property management and leasing expenses 252 271
Depreciation and amortization 1,238 1,245
--------- ---------
Total Expenses 4,782 4,931
--------- ---------
Income Before Equity in
Earnings of Mid-America Bethal
Limited Partnership and Gain on Sale of
Real Estate 1,030 858
Equity in Earnings of Mid-America Bethal
Limited Partnership 265 255
--------- ---------
NET INCOME FROM OPERATIONS 1,295 1,113
Gain on Sale of Real Estate ---- 130
--------- ---------
NET INCOME $ 1,295 $ 1,243
--------- ---------
--------- ---------
Weighted Average Shares
Outstanding During Period 8,285,066 8,283,255
--------- ---------
--------- ---------
NET INCOME PER COMMON SHARE $ .16 $ .15
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(COLUMNAR DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,295 $ 1,243
Adjustments:
Depreciation and amortization 1,238 1,245
Gain on Sale of Real Estate ---- (130)
Investment in Mid-America Bethal
Limited Partnership:
Equity in earnings (265) (255)
Distributions received 350 350
Decrease in related liabilities (236) (287)
Increase in related assets (372) (166)
--------- ---------
Net Cash Flows From Operating Activities 2,010 2,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate ---- 344
Additions to property:
Expansion projects and other capital
expenditures ---- (2)
Tenant improvements (93) (43)
Payments from Yield Maintenance Agreement ---- 96
Cash paid for leasing fees (22) (25)
--------- ---------
Net Cash Flows From Investing Activities (115) 370
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on short-term debt, net 80 (412)
Scheduled principal payments on mortgages (152) (136)
Dividends paid (1,823) (1,822)
--------- ---------
Net Cash Flows From Financing Activities (1,895) (2,370)
--------- ---------
NET CHANGE IN CASH ---- ----
CASH, BEGINNING OF PERIOD ---- ----
--------- ---------
CASH, END OF PERIOD $ ---- $ ----
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MID-AMERICA REALTY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(COLUMNAR DOLLARS IN FOOTNOTES ARE IN THOUSANDS EXCEPT PER SHARE DATA)
A. BASIS OF CONSOLIDATION AND PRESENTATION:
The unaudited consolidated financial statements are prepared on an accrual
basis and include the accounts of Mid-America Realty Investments, Inc. (the
"Company") and its wholly-owned subsidiary, Mid-America Centers Corp. The
unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in the
Company's 1997 Annual Report on Form 10-K for the year ended December 31,
1997.
The information furnished herein reflects all adjustments, which consist of
normal recurring accruals, which are, in the opinion of management,
necessary to fairly present the financial results for the interim periods
presented. The results for the three months ended March 31, 1998 and 1997
are not necessarily indicative of the operating results for the full year.
All material intercompany transactions and profits have been eliminated in
consolidation.
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
common stock equivalents, as required by Statement of Financial Accounting
(SFAS) No. 128, "Earnings per Share", was determined to have no impact on
earnings per share.
B. INVESTMENT IN MID-AMERICA BETHAL LIMITED PARTNERSHIP:
Mid-America Bethal Limited Partnership ("Mid-America Bethal") was formed on
June 1, 1989 by the Company and a European investor. The Company has a 50%
interest in Mid-America Bethal and is the managing general partner. The
European investor has a 50% interest and is the limited partner.
Summarized financial information on Mid-America Bethal is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
BALANCE SHEETS:
Assets:
Cash $ 943 $ 823
Property, net of depreciation of
$8,749,380 and $8,471,000 28,391 28,652
Other Assets 566 592
--------- ---------
$ 29,900 $ 30,067
--------- ---------
--------- ---------
Liabilities and Partners' Capital:
Accounts payable and other
liabilities $ 15 $ 13
Partners' capital 29,885 30,054
--------- ---------
$ 29,900 $ 30,067
--------- ---------
--------- ---------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
STATEMENTS OF OPERATIONS:
Total Revenues $ 1,128 $ 1,127
--------- ---------
--------- ---------
Net Income $ 531 $ 510
--------- ---------
--------- ---------
EQUITY IN EARNINGS OF MID-AMERICA
BETHAL RECORDED BY THE COMPANY $ 265 $ 255
--------- ---------
--------- ---------
</TABLE>
C. MORTGAGES AND NOTES PAYABLE:
Mortgages and notes payable are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Mortgages Payable $ 49,499 $ 49,651
Working Capital Line of Credit
($5,000,000 available at London
International Bank Offering Rate
(LIBOR) plus 2% due July 1999) 286 ----
Acquisitions Line of Credit
($10,000,000 available at LIBOR
plus 2% due July 1999) 10,000 10,000
Acquisitions Line of Credit
($15,000,000 available at LIBOR
plus 21/4% due July 1998) 1,665 1,871
--------- ---------
$ 61,450 $ 61,522
--------- ---------
--------- ---------
</TABLE>
D. COMMITMENTS AND CONTINGENCIES:
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, accordingly, the difference
was owed to the Company, subject to certain limits. The obligations of the
formerly related parties under the YMA was limited to $2,800,000.
During the second quarter of 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,
these amounts were not considered net income and were applied against the
carrying value of the properties purchased from the formerly related
parties.
E. SUBSEQUENT EVENT:
On April 22, 1998, the Company declared a cash dividend of $.22 per common
share payable on May 20, 1998 to shareholders of record on May 6, 1998.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES:
The Company's primary source 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 March 31, 1998, 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.
The Company had a debt-to-equity ratio of .80 to 1 at March 31, 1998 and at
December 31, 1997, based upon the ratio of mortgages and notes payable to
total shareholders' equity. The Company's ratio of debt to total market
capitalization was 42% at March 31, 1998 and 38% at December 31, 1997.
RESULTS OF OPERATIONS:
Net income for the three months ended March 31, 1998 was $1,295,000 or
$.16 per share compared to $1,243,000 or $.15 per share for the three months
ended March 31, 1997, a dollar increase of $52,000 or 4%.
The increase in net income for the three months ended March 31, 1998 compared
to the three months ended March 31, 1997 was primarily due to the following:
an increase in total revenues of $23,000, an increase of $10,000 in the
Company's equity in earnings of Mid-America Bethal Limited Partnership, and a
decrease in total expenses of $149,000. In addition, the three months ended
March 31, 1997 included a $130,000 gain on sale of real estate.
Rental Income:
- -------------
Rental income for the three months ended March 31, 1998 was $4,333,000
compared to $4,318,000 for the three months ended March 31, 1997, an increase
of $15,000 or less than 1%. This slight increase was due to the effect of
new leases and rent increases.
Reimbursement Income:
- --------------------
Reimbursement income for the three months ended March 31, 1998 was $1,313,000
compared to $1,239,000 for the three months ended March 31, 1997, an increase
of $74,000 or 6%. This change was attributable to an increase in the year end
calculation adjustment of tenants' prorata share of taxes, insurance and
common area maintenance costs.
8
<PAGE>
OTHER INCOME:
Other income for the three months ended March 31, 1998 was $125,000 compared to
$192,000 for the three months ended March 31, 1997, a decrease of $67,000 or
35%. The decrease was primarily attributable to one time lease buyout amounts
recorded in the first quarter of 1997 coupled with a decrease in temporary
tenant income during the three months ended March 31, 1998 compared to the same
period one year ago.
OTHER PROPERTY COSTS:
Other property costs for the three months ended March, 31, 1998 were $788,000
compared to $878,000 for the three months ended March 31, 1997, a decrease of
$90,000 or 10%. The decrease was primarily attributable to a decrease in legal
and professional fees related to litigation arising in the normal course of
business during the three months ended March 31, 1997, coupled with a decrease
in weather related expenses for the three months ended March 31, 1998 compared
to the same period in 1997.
INTEREST EXPENSE:
Interest expense for the three months ended March 31, 1998 was $1,341,000
compared to $1,411,000 for the three months ended March 31, 1997, a decrease of
$70,000 or 5%. The Company's average total debt was $61,500,000 during the
three months ended March 31, 1998 compared to $64,100,000 during the three
months ended March 31, 1997. The Company's weighted average cost of funds was
8.7% during the first three months of 1998 compared to 8.8% during the same
period of 1997.
ADMINISTRATIVE EXPENSES:
Administrative expenses for the three months ended March 31, 1998 were $403,000
compared to $350,000 for the three months ended March 31, 1997, an increase of
$53,000 or 15%. The increase relates primarily to an increase in professional
fees.
PROPERTY MANAGEMENT AND LEASING EXPENSES:
Property management and leasing expenses for the three months ended March 31,
1998 were $252,000 compared to $271,000 for the three months ended March 31,
1997, a decrease of $19,000 or 7%. The decrease reflects the elimination of one
position in the Company's Marketing Department coupled with other improved cost
control efforts by the Company.
FUNDS FROM OPERATIONS:
Management considers Funds from Operations to be the most appropriate measure of
the performance of an equity real estate investment trust ("REIT"). The Company
defines Funds From Operations as net income before gains/losses from property
sales adjusted for non-cash items in the income statement, such as depreciation
and amortization. Funds from Operations is a supplemental measure of
performance that does not replace net income (loss) as a measure of performance
or net cash provided by operating activities as a measure of liquidity.
Funds From Operations were $2,637,000 or $.32 per share for the three months
ended March 31, 1998 compared to $2,453,000 or $.30 per share for the three
months ended March 31, 1997, an increase of $184,000 or 8%.
9
<PAGE>
Funds From Operations is computed as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
(In Thousands Except Per Share Data)
Net Income $ 1,295 $ 1,243
Depreciation and Amortization (1) 1,199 1,199
Gain on Sale of Real Estate (2) ---- (130)
Investment in Mid-America Bethal:
Equity in Earnings (265) (255)
Equity in Funds From Operations (3) 408 396
------- -------
Funds From Operations $ 2,637 $ 2,453
------- -------
------- -------
Funds From Operations Per Share $ .32 $ .30
------- -------
------- -------
</TABLE>
- ----------------------
(1) Depreciation and Amortization for the three months ended March 31, 1998 and
1997, respectively, consisted of real property depreciation of $1,122,000
and $1,118,000, lease fee amortization of $52,000 and $56,000, and
intangible amortization of $25,000 and $25,000.
(2) Gain on Sale of Real Estate consists of a $130,000 gain on the sale of two
outlot parcels for the three months ended March 31, 1997.
(3) Equity in Funds From Operations of Mid-America Bethal for the three months
ended March 31, 1998 and 1997, respectively, included real property
depreciation of $278,000 and $273,000, and lease fee amortization of $7,300
and $8,900.
The Funds From Operations reported above reflect recommendations contained in
the Funds From Operations White Paper (the "FFO White Paper") adopted by the
National Association of Real Estate Investment Trusts to standardize financial
reporting by real estate investment trusts. The Company adopted the
recommendations prescribed in the FFO White Paper for reporting periods
beginning January 1, 1996.
10
<PAGE>
TENANT AND LEASING INFORMATION:
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 Limited Partnership:
<TABLE>
<CAPTION>
(SQUARE FOOTAGE IN THOUSANDS)
GROSS LEASEABLE AREA LEASED SPACE (1) LEASED %
--------------------------- --------------------------- ---------------------------
3/31/98 12/31/97 3/31/97 3/31/98 12/31/97 3/31/97 3/31/98 12/31/97 3/31/97
------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-America Realty Investments, Inc.:
Neighborhood shopping centers 1,842 1,812 1,812 1,749 1,726 1,698 95% 95% 94%
Enclosed malls 888 889 881 834 833 838 94% 94% 95%
------- -------- ------- ------- -------- ------- ------- -------- -------
2,730 2,701 2,693 2,583 2,559 2,536 95% 95% 94%
Mid-America Bethal L.P. (2) 538 538 538 504 498 500 94% 93% 93%
------- -------- ------- ------- -------- ------- ------- -------- -------
3,268 3,239 3,231 3,087 3,057 3,036 94% 94% 94%
------- -------- ------- ------- -------- ------- ------- -------- -------
------- -------- ------- ------- -------- ------- ------- -------- -------
</TABLE>
- ----------------------
(1) Leased space represents the percentage of gross leasable area which is
leased to third-party tenants.
(2) The Company owns a 50% partnership interest in Mid-America Bethal Limited
Partnership. All information presented is for the entire partnership.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 22,
1998. The shareholders elected five directors and ratified the appointment of
the independent accountants for 1998. The voting on each proposal is set forth
below:
1. ELECTION OF DIRECTORS:
<TABLE>
<CAPTION>
FOR WITHHELD
--------- --------
<S> <C> <C>
Jerome L. Heinrichs 7,340,446 72,074
Daniel A. Burkhardt 7,339,506 73,014
Gary R. Hawkins 7,341,206 71,314
Michael F. Lawler 7,340,156 72,364
John L. Maginn 7,339,410 73,110
</TABLE>
2. RATIFICATION OF INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
FOR 7,349,323
AGAINST 19,872
ABSTAIN 43,324
BROKER NON-VOTES None
</TABLE>
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
March 31, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MID-AMERICA REALTY INVESTMENTS, INC.
/s/ Jerome L. Heinrichs Date: April 24, 1998
- ----------------------------------
Jerome L. Heinrichs,
Chief Executive Officer
/s/ Dennis G. Gethmann Date: April 24, 1998
- ----------------------------------
Dennis G. Gethmann
President and Principal Financial Officer
13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule 15
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,534
<ALLOWANCES> 249
<INVENTORY> 0
<CURRENT-ASSETS> 2,285
<PP&E> 152,716
<DEPRECIATION> 34,161
<TOTAL-ASSETS> 139,695
<CURRENT-LIABILITIES> 1,849
<BONDS> 61,450
0
0
<COMMON> 83
<OTHER-SE> 76,313
<TOTAL-LIABILITY-AND-EQUITY> 139,695
<SALES> 0
<TOTAL-REVENUES> 5,812
<CGS> 0
<TOTAL-COSTS> 1,800
<OTHER-EXPENSES> 1,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,341
<INCOME-PRETAX> 1,295
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,295
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
