SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - -------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-10547
MERIDIAN POINT REALTY TRUST VIII CO.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri 94-3058019
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
50 California Street, Suite 1600, San Francisco, California 94111
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(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (415) 956-3031
NONE
- - -------------------------------------------------------------------------------
(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of the common and preferred stock,
as of the latest practicable date:
Shares of Common Stock outstanding as of November 1, 1995: 1,609,937
Shares of Preferred Stock outstanding as of November 1, 1995: 5,273,927
- - -------------------------------------------------------------------------------
<PAGE>
PART I: FINANCIAL INFORMATION
- - -------------------------------------------------------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
The accompanying unaudited consolidated financial statements should be
read in conjunction with the 1994 Form 10-K of the registrant as amended (the
"Company"). These statements have been prepared in accordance with the
instructions of the Securities and Exchange Commission Form 10-Q and do not
include all the information and footnotes required by generally accepted
accounting principles for complete consolidated financial statements.
In the opinion of the Company's management, all normal and recurring
material adjustments considered necessary for a fair presentation of results of
operations for the interim periods have been included. The results of
consolidated operations for the three and nine month periods ended September 30,
1995 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995.
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
- - --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in Real Estate:
Rental Properties, Net $81,556,949 $ 83,465,937
Less: Accumulated Deprecation (12,420,453) (11,129,031)
- - ------------------------------------------------------------------------------------
69,136,496 72,336,906
Rental Property Held for Sale, Net of
Accumulated Depreciation -- 11,133,035
of $2,221,841 as of December 31, 1994
- - ------------------------------------------------------------------------------------
69,136,496 83,469,941
Other Assets:
Cash and Cash Equivalents 5,292,235 4,960,399
Cash Held In Escrow 175,000 --
Receivables, Net of Reserves of $320,584 and
$117,278
as of September 30, 1995 and December 31, 430,415 728,782
1994, respectively
Notes Receivable From Affiliates 228,000 228,000
Personal Property, Net 41,591 79,219
Capitalized Loan Costs, Net of Accumulated
Amortization of
$738,946 and $656,555 as of September 30,
1995 and
December 31, 1994, respectively 239,632 322,023
Capitalized Lease Commissions, Net of
Accumulated Amortization of
$279,142 and $465,770 as of September 30,
1995 and
December 31, 1994, respectively 309,583 511,743
Other Assets, Net of Accumulated Amortization of
$286,822 and $214,455 as of September 30,
1995 and
December 31, 1994, respectively 1,096,516 1,457,441
====================================================================================
Total Assets $76,949,468 $ 91,757,548
====================================================================================
Liabilities and Shareholders' Equity
Liabilities:
Mortgage Notes Payable $7,832,337 $ 7,976,495
Long-Term Debt Facilities 24,480,530 36,754,964
Due To Affiliates 40,086 131,906
Accounts Payable 1,066,770 1,289,316
Prepaid Rent, Tenant Deposits and Other 274,549 361,749
Liabilities
- - ------------------------------------------------------------------------------------
Total Liabilities 33,694,272 46,514,430
- - ------------------------------------------------------------------------------------
Shareholders' Equity:
Shares of Common and Preferred Stock with par
value of $0.001;
an aggregate of 50,000,000 Common and
Preferred Shares authorized;
1,609,937 Common Shares and 5,273,927
Preferred Shares issued and
outstanding as of September 30, 1995 and 6,884 6,884
December 31, 1994, respectively
Paid-in Capital 65,389,820 65,389,820
Distributions in Excess of Income (22,141,508) (20,153,586)
- - ------------------------------------------------------------------------------------
Total Shareholders' Equity 43,255,196 45,243,118
====================================================================================
Total Liabilities and Shareholders' Equity $76,949,468 $ 91,757,548
====================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rentals from Real Estate Investments $2,522,137 $ 2,976,673 $8,347,927 $ 8,966,763
Interest and Other 88,776 56,000 250,710 136,438
- - -------------------------------------------------------------------------------------
Total Revenues 2,610,913 3,032,673 8,598,637 9,103,201
- - -------------------------------------------------------------------------------------
Expenses:
Interest and Amortization of Debt 743,142 977,961 2,671,250 2,926,600
Premium
Property Taxes 375,952 458,818 1,136,302 1,287,313
Property Operating Costs, Including
Amounts Paid to
Related Parties of $94,020, 453,435 482,885 1,236,354 1,051,413
$115,729, $308,828 and
$359,204, respectively
General and Administrative,
Including Amounts Paid to
Related Parties of $77,774, 184,715 279,056 741,678 798,176
$80,465, $290,022 and
$268,455, respectively
Provision for Decrease in Net -- -- 1,182,015 --
Realizable Value
Depreciation and Amortization 644,032 977,143 2,095,112 2,479,193
- - -------------------------------------------------------------------------------------
Total Expenses 2,401,276 3,175,863 9,062,711 8,542,695
- - -------------------------------------------------------------------------------------
Income (Loss) Before Net Gain (Loss) 209,637 (143,190) (464,074) 560,506
on Sale of Properties
Net Gain (Loss) on Sale of Properties (106,060) -- 51,197 --
- - -------------------------------------------------------------------------------------
Income (Loss) Before Extraordinary 103,577 (143,190) (412,877) 560,506
Item
Extraordinary Item - Prepayment (129,433) -- (129,433) --
Penalty on Paydown
- - -------------------------------------------------------------------------------------
=====================================================================================
Net Income (Loss) $(25,856) $ (143,190) $(542,310) $560,506
=====================================================================================
Net Income (Loss) $(25,856) $ (143,190) $(542,310) $560,506
Less: Preferred Distributions (369,176) (1,160,264) (1,107,525) (1,160,264)
Declared
- - -------------------------------------------------------------------------------------
Net Loss Available to Common $(395,032) $(1,303,454) $(1,649,835) $(599,758)
Shareholders
=====================================================================================
Net Loss Per Share:
Loss Per Common Share Before $ (0.16) $ (0.81) $ (0.94) $ (0.37)
Extraordinary Item
Extraordinary Item (0.08) -- (0.08) --
- - -------------------------------------------------------------------------------------
Net Loss Per Common Share $ (0.24) $ (0.81) $ (1.02) $ (0.37)
=====================================================================================
Preferred Distributions Paid Per $ 0.07 $ 0.22 $ 0.21 $ 0.22
Share
=====================================================================================
Common Distributions Paid Per Share $ 0.07 $ 0.22 $ 0.21 $ 0.22
=====================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1995 and
For the Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Paid-in Distributions In
Shares Amount Shares Amount Capital
Excess of Income
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance -
December 31, 1993 1,609,937 $1,610 5,273,927 $5,274 $65,389,820 $(16,764,347)
Net Loss -- -- -- -- -- (1,874,789)
Distributions Declared
Common -- -- -- -- -- (354,186)
Preferred -- -- -- -- -- (1,160,264)
- - ---------------------------------------------------------------------------------------
Balance -
December 31, 1994 1,609,937 1,610 5,273,927 5,274 65,389,820 (20,153,586)
Net Loss -- -- -- -- -- (542,310)
Distributions Declared
Common -- -- -- -- -- (338,087)
Preferred -- -- -- -- -- (1,107,525)
- - ---------------------------------------------------------------------------------------
Balance -
September 30, 1995 1,609,937 $1,610 5,273,927 $5,274 $65,389,820 $(22,141,508)
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) $(542,310) $560,506
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided By Operating Activities:
Depreciation 1,939,330 2,254,248
Amortization - Other 238,173 359,826
Rent Adjustment 7,891 (78,637)
Provision for Decrease in Net Realizable Value 1,182,015 --
Net Gain on Sale of Properties (51,197) --
Prepayment Penalty on Paydown 129,433 --
Increase in Capitalized Lease Commissions (102,192) (175,540)
Decrease in Accounts Receivable 298,367 7,825
Decrease in Other Assets 227,713 31,823
Decrease in Accounts Payable (248,588) (175,393)
Decrease in Due to Affiliates (91,820) (14,025)
Increase in Other Liabilities 106,289 168,639
- - ---------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 3,093,104 2,939,272
- - ---------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Improvements to Existing Real Estate (311,723) (396,680)
Net Cash Received on Sale of Properties 1,605,124 --
- - ---------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Investing Activities 1,293,401 (396,680)
- - ---------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Principal Payments on Long Term Debt Facilities (2,464,899) (749,044)
Principal Payments on Mortgage Notes (144,158) (41,190)
Cash Received Due to Refinancing -- 141,672
Distributions Paid to Shareholders (1,445,612) (1,514,450)
- - ---------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (4,054,669) (2,163,012)
- - ---------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 331,836 379,580
Cash and Cash Equivalents, Beginning of Period 4,960,399 4,145,489
=======================================================================================
Cash and Cash Equivalents, End of Period $5,292,235 $4,525,069
=======================================================================================
Supplemental Schedule of Non-Cash Transactions:
Transactions Related to Sale of Properties:
Net Book Value of Properties Disposed $11,563,062 $ --
Other Assets Written-Off, Net of Other Liabilities 104,833 --
Paydown of Long-Term Debt Facility 9,809,535 --
Prepayment Penalties 129,433 --
Interest Paid In Escrow 27,650 --
Cash Held in Escrow 175,000 --
Refinancing of Auburn Hills:
Extinguishment of Bank Facility -- 5,928,958
Assumption of New Mortgage Note Payable -- 6,220,000
Loan Costs Incurred -- 62,200
Environmental Holdback -- 10,000
Closing Costs -- 77,170
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
1. General.
Meridian Point Realty Trust VIII Co. (the "Company") is a corporation
organized for the purpose of acquiring, operating, holding for investment and
ultimately selling income-producing commercial and industrial real estate.
Generally, it is the Company's intention not to invest net proceeds from sales
in additional properties, and, accordingly, the Company is a
self-liquidating/finite life entity. The Company commenced operations on October
17, 1988.
Certain prior year amounts have been reclassified in the consolidated
financial statements and related notes to conform to the 1995 presentation.
2. Consolidation.
The consolidated financial statements include the Company and NASH-IND
Corporation, a wholly-owned corporate subsidiary of the Company. All significant
intercompany transactions and balances have been eliminated.
3. Statements of Cash Flow.
For purposes of the statements of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents.
Cash paid for interest was $793,994 and $986,640 for the three months
ended September 30, 1995 and 1994, respectively. For the nine months ended
September 30, 1995 and 1994 cash paid for interest was $2,668,205 and
$2,841,310, respectively.
4. Rentals From Real Estate Investments.
Certain of the Company's leases require lessees to pay all or a portion of
real estate taxes, insurance, and operating costs ("Expense Recaptures").
Expense Recaptures of $331,521 and $400,412 were included in Rentals from Real
Estate Investments for the three months ended September 30, 1995 and 1994,
respectively. Expense Recaptures for the nine months ended September 30, 1995
and 1994 totaled $1,091,648 and $1,281,331, respectively.
All leases are classified as operating leases. The Company recognizes
rental income on the straight-line basis over the terms of the leases. Deferred
rent receivable, included in accounts receivable, represents the excess of
rental revenue recognized on a straight-line basis over cash received under the
applicable lease provisions.
5. Investments in Real Estate and Depreciation Methods.
Investments in Real Estate are stated at the lower of depreciated cost or
net realizable value. Net realizable value for financial reporting purposes: (i)
is evaluated and identified quarterly by the Company on a property by property
basis using undiscounted cashflows; (ii) is measured by comparing the Company's
estimate of fair value based upon either sales comparables or the net cash
expected to be generated by the property, less estimated carrying costs
(including interest) throughout the anticipated holding period, plus the
estimated cash proceeds from the ultimate disposition of the property; and (iii)
is not necessarily an indication of a property's current value or the amount
that will be realized upon the ultimate disposition of the property. To the
extent net realizable value is less than the carrying value of the property, a
Provision for Decrease in Net Realizable Value is recorded in the amount by
which the carrying value exceeds estimated fair value. As of September 30, 1995
and December 31, 1994, the Company's Investment in Real Estate is stated net of
a cumulative Provision for Decrease in Net Realizable Value of $5,167,000 and
$6,772,000, respectively.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long Lived Assets to Be Disposed Of". This
statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss is recognized when expected
undiscounted cash flows are less than the carrying value of the asset.
Measurement of impairment is based upon the fair value of the asset. The Company
plans to adopt the principles of SFAS No. 121 in 1996 and believes that the
adoption will not have a material impact upon its financial position and results
of operations.
Depreciation and amortization have been calculated under the straight-line
method, based upon the estimated useful lives of the assets. Property and
property additions are depreciated over 35 years. Expenditures for maintenance,
repairs, and improvements which do not materially prolong the normal useful life
of an asset are charged to operations as incurred. Leasing commissions and
tenant improvements are amortized under the straight-line method over the term
of the related lease.
6. Rental Property Held for Sale.
At December 31, 1994, Rental Property Held for Sale included the Tropicana
Marketplace located in Las Vegas, Nevada. The Company sold this property on July
24, 1995 (see Note 8).
7. Long-Term Debt Facility.
Facility
As of September 30, 1995 and December 31, 1994, there were outstanding
under a facility with an insurance company $24,480,530 and $36,754,964,
respectively. This facility has provided the Company with financing for property
acquisitions, capital improvements, and general operating needs.
Interest and Principal Maturities
Under the insurance company facility, there were outstanding five advances
totaling $24,480,530 at September 30, 1995. These advances bear fixed interest
rates for periods ranging from six months to three years. Under the existing
facility agreements, the various advances and the corresponding interest rate
contracts mature on the dates specified below.
Advance and
Notional Amount Interest Maturity
as of 09/30/95 Rate Date
--------------- ------- -----------------
3,941,173 7.60% December 1996
11,586,707 8.87% June 1997
6,087,762 8.87% June 1997
2,864,888 8.80% May 1998
---------
$24,480,530
On May 25, 1995, the Company sold the Kroger property located in Jackson,
Mississippi (see Note 8). The net sale proceeds received from that transaction
were used to make a principal payment on the facility. On July 24, 1995, the
Company sold the Tropicana Marketplace located in Las Vegas, Nevada. The Company
used the net sale proceeds from the Tropicana Marketplace to pay the entire
balance of an interest rate contract which was maturing in October 1995 and part
of the balance of the interest rate contract maturing in December 1996. (See
Note 8.)
Loan Covenants and Collateral
On June 24, 1993, the Company and the lender executed a second amendment
to the loan agreement. The amendment stipulates that if the loan to-value-ratio
is more than 55% and equal to or less than 65%, the Company must pay the lender
any excess cash which will be utilized to pay down the outstanding principal
balance. Excess cash has been defined as cash and cash equivalents at the end of
any calendar quarter in excess of $4.0 million. If the loan-to-value ratio
exceeds 65%, the loan will be in default.
Additional terms and conditions of the second amendment include: (i)
repayment of the loan in monthly principal and interest payments using a
twenty-two year amortization schedule (subject to the interest rate contract
maturities detailed above); (ii) reduction of the minimum net worth covenant to
$25.0 million; (iii) a requirement to apply 90% of the net proceeds to the
facility upon the sale of more than 2% of appraised value of the Company's
assets during any 12 month period if the loan-to-value ratio is equal to or
greater than 50%; and (iv) a requirement to apply 70% of the net proceeds to the
facility upon the sale of more than 2% of the appraised value of the Company's
assets during any 12 month period if the loan-to-value ratio is less than 50%.
Under the terms of the second amendment, unless payment of distributions is
necessary to preserve REIT status, the Company can only pay distributions if the
insurance company has determined that the Company's loan-to-value ratio is 55%
or less. (See Note 11.)
As approved by the insurance company, the property valuations as of
December 31, 1994 indicate that the Company is in compliance with all covenants
regarding the loan-to-value ratio, and the loan-to-value ratio is 53%.
On September 17, 1993, the shareholders of the Company elected four
individuals as new members of the board. The election of four new board members
(constituting a majority of the board) created a default under the loan
agreement for the Company's debt facility. The lender has indicated that it will
reserve its rights with respect to the default but will not currently pursue any
remedy available to it under the terms of the loan agreement with the Company.
8. Disposition of Properties.
On May 25, 1995, the Company sold the Kroger property located in Jackson,
Mississippi. The selling price of $2,000,000 was paid entirely in cash. The
Company received net proceeds of $1,927,677, after deductions for closing costs
and prorated items totaling $72,323. In connection with the sale, the Company
recognized a Gain on Sale of Property of $157,257. The property had previously
been written down to its estimated net realizable value.
On July 24, 1995, the Company sold the Tropicana Marketplace located in
Las Vegas, Nevada for a selling price of $10,218,000. Net proceeds amounted to
$9,644,065 after (i) $398,935 of adjustments for closing costs, interest earned
and pro-rations, and (ii) adjustment for an escrow holdback amounting to
$175,000. The net proceeds from the sale and additional funds of $322,553
deposited by the Company into an escrow account totaling $9,966,618 were
remitted to the insurance company as additional principal reduction totaling
$9,809,535, prepayment penalties amounting to $129,433, and an interest payment
of $27,650. As a result of this payment, an interest rate contract maturing in
October 1995 with a notional amount of $5,541,419 was paid off completely, and
the amount due in December 1996 was reduced. (See Note 7.) In connection with
the sale, the Company recognized a Loss on Sale of Property of $106,060. The
property had previously been written down to its estimated net realizable value.
Subsequent to September 30, 1995, the Company received a partial refund of
the $175,000 escrow holdback which refund amounted to $126,393, reflecting
deductions totaling $50,000 that were incurred in connection with the settlement
of tenant disputes outstanding on the date the Tropicana Marketplace property
was sold. The refund includes interest earned on the escrow holdback amounting
to $1,393.
9. Net Income (Loss) Per Common Share.
Net income (loss) per common share is determined by dividing net income,
after deduction of preferred stock dividends, by the weighted average number of
shares of common stock outstanding during the year. The weighted average number
of common shares outstanding for the nine months ended September 30, 1995 and
1994 was 1,609,937.
10. Income Taxes.
The Company intends to qualify and elect to be treated as a real estate
investment trust ("REIT") for the year ending December 31, 1995. As such, the
Company should be allowed a deduction for dividends paid to shareholders if the
Company satisfies certain income, asset and distribution requirements (see Note
11). Accordingly, no provision for federal income taxes has been made in the
accompanying Consolidated Statements of Operations for the nine months ended
September 30, 1995 and 1994.
11. Declaration of Dividends.
Under the Company's articles of incorporation, the Board cannot declare
any dividends on common shares until it has first declared dividends on the
preferred shares' annual preference amount as computed under those articles.
The preferred shares generally have a non-cumulative preferential right to
such current dividends as are declared each year by the Board up to an amount
equal to the lesser of (a) 6% of the aggregate adjusted stated value of
preferred shares, (b) earnings and profits for the prior year, or (c) the amount
legally available for distribution by the Company.
On April 28, 1995, the Board of Directors (the "Board") declared dividends
in the amount of $0.07 per preferred share and $0.07 per common share, payable
on May 15, 1995 to shareholders of record on May 4, 1995. On June 7, 1995, the
Board declared dividends for the second quarter in the amount of $0.07 per
preferred and $0.07 per common share, payable on June 30 to shareholders of
record on June 20, 1995. On September 8, 1995, the Board declared dividends for
the third quarter in the amount of $0.07 per preferred and $0.07 per common
share payable on September 29 to shareholders of record on September 19, 1995.
The respective $0.07 dividends per preferred share declared on April 28, June 7,
and September 8, 1995 each encompass the quarterly preferred minimum preference
of $0.06018 per share based upon earnings and profits of the prior year.
<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company owns a diversified portfolio of real estate equity interests
consisting of income-producing industrial and commercial real estate. The
Company is a self-liquidating, finite-life real estate investment trust
("REIT"). With the assistance of an outside advisor, the board of directors is
continuing to explore future opportunities for the Company. The following
discussion should be read in conjunction with the Company's Consolidated Balance
Sheets and Consolidated Statements of Operations, Shareholders' Equity, and Cash
Flows and the notes thereto included on pages 2 through 9 of this report. Unless
otherwise defined in this report, or unless the context otherwise requires, the
capitalized words or phrases referred to in this section either: (a) describe
accounting terms that are used as line items in those financial statements, or
(b) have the meanings ascribed to them in such financial statements and the
notes thereto.
Liquidity and Capital Resources.
The Company's main sources of liquidity are: (i) cash flows from operating
activities, (ii) cash reserves, and (iii) net proceeds from the sale of the
Company's real properties. A summary of the Company's historical cash flows is
as follows:
For the Nine Months Ended September 30,
1995 1994
---- ----
Cash flows provided by (used in):
Operating activities $3,093,104 $2,939,272
Investing activities $1,293,401 $(396,680)
Financing activities $(4,054,669) $(2,163,012)
In addition to cash flows and net income, management and industry analysts
generally consider Funds From Operations to be one additional measure of the
performance of an equity Real Estate Investment Trust (REIT) because, together
with net income and cash flows, Funds From Operations provides investors with an
additional basis to evaluate the ability of the Company to incur and service
debt and to fund acquisitions and other capital expenditures. However, Funds
From Operations does not measure whether cash flow is sufficient to fund all of
the Company's cash needs including principal amortization, capital improvements,
and distributions to shareholders. Funds From Operations also does not represent
cash generated from operating, investing or financing activities as determined
in accordance with generally accepted accounting principles. Funds From
Operations should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flow as a measure of liquidity. Funds From Operations represents net income
(loss) before extraordinary items, adjusted for depreciation on real property
and amortization of tenant improvement costs and lease commissions, gains from
the sale of property and net realizable value (NRV) provisions. A reconciliation
of the Company's net loss before extraordinary item to Funds From Operations is
as follows:
For the Nine Months Ended September 30,
1995 1994
---- ----
Net income (loss) before extraordinary item $(412,877) $560,506
Reconciling items -
Depreciation and amortization 2,055,873 2,367,266
Net Gain on sale of properties (51,197) --
--------- --------
Funds From Operations, including NRV provisions 1,591,799 2,927,772
NRV provisions 1,182,015 --
---------- --------
Funds From Operations, excluding NRV provisions $2,773,814 $2,927,772
Management considers Funds From Operations, excluding NRV provisions, to
represent one of the appropriate operating performance measures of an equity
REIT. Management considers NRV provisions to reflect adjustments of real estate
values based upon rising or falling market conditions which, although indicative
of impairment of the Company's investment, do not necessarily correlate to
ongoing operating results.
The decrease in Funds From Operations, excluding NRV provisions, of
$153,958 for the nine months ended September 30, 1995, as compared with the same
period in 1994, is primarily due to a decrease in Rentals from Real Estate
Investments. This was partially offset by decreases in Interest and Amortization
of Debt Premium and Property Taxes. (See "Material Changes in Results of
Operations".)
Funds From Operations may be affected in the future by changes in rental
rates and occupancy levels. As of September 30, 1995, the Company's properties
were 100% occupied. During the next 12 months, leases covering approximately 10%
of the Company's leased space are scheduled to expire.
As of September 30, 1995, the Company had cash and cash equivalents of
approximately $5.3 million.
As approved by the insurance company, the property valuations as of
December 31, 1994 indicate that the Company is in compliance with its
loan-to-value ratio covenant.
On May 25, 1995, the Company sold the Kroger property, located in Jackson,
Mississippi. The selling price of $2,000,000 was paid entirely in cash. The
Company received net proceeds of $1,927,677, after deductions for closing costs
and prorated items totaling $72,323. In connection with the sale, the Company
recognized a gain of $157,257. Pursuant to the loan agreement, the net proceeds
were remitted to the insurance company as an additional principal reduction.
On July 24, 1995, the Company sold the Tropicana Marketplace located in
Las Vegas, Nevada for a selling price of $10,218,000. Net proceeds amounted to
$9,644,065 after (i) $398,935 of adjustments for closing costs, interest earned
and pro-rations, and (ii) adjustment for an escrow holdback amounting to
$175,000. The net proceeds from the sale and additional funds of $322,553
deposited by the Company into an escrow account totaling $9,966,618 were
remitted to the insurance company as additional principal reduction totaling
$9,809,535, prepayment penalties amounting to $129,433, and an interest payment
of $27,650. As a result of this payment, an interest rate contract maturing in
October 1995 with a notional amount of $5,541,419 was paid off completely, and
the amount due in December 1996 was reduced. (See Note 7 to the Company's
consolidated financial statements.) In connection with the sale, the Company
recognized a loss of $106,060.
Subsequent to September 30, 1995, the Company received a partial refund of
the $175,000 escrow holdback which refund amounted to $126,393, reflecting
deductions totaling $50,000 that were incurred in connection with the settlement
of tenant disputes outstanding on the date the Tropicana Marketplace property
was sold. The refund includes interest earned on the escrow holdback amounting
to $1,393.
The Company has determined that a soil settlement problem at the 1033 East
Maricopa property in Phoenix, Arizona was far more serious than previously
expected. Outside consultants have indicated that if the soil under the building
continues to settle at its current rate, a portion of the building will likely
be uninhabitable within a year. The Company is currently negotiating with the
building's tenant regarding an early termination of that tenant's tenancy so
that the Company can undertake a repair of the building. In addition, the
Company has filed a lawsuit against the entity from which it purchased the
property as well as various third party consultants. The Company has not
provided for any valuation reserves or any accruals to rectify the settlement
problem because those amounts are not currently determinable. The property
represents less than one percent (1%) of the Company's investment in real
estate.
Capital expenditures for the nine months ended September 30, 1995 and 1994
totaled $311,723 and $396,680, respectively. Capital expenditures made in the
first nine months of 1995 were primarily for capital improvements at the Memphis
18, Memphis 20 and Belden properties. The capital expenditures made in the first
nine months of 1994 were primarily for tenant improvements at Memphis 8 and
structural repairs made at Phoenix 5.
On April 28, 1995, the Board of Directors (the "Board") declared dividends
in the amount of $0.07 per preferred share and $0.07 per common share, payable
on May 15, 1995 to shareholders of record on May 4, 1995. On June 7, 1995, the
Board declared dividends for the second quarter in the amount of $0.07 per
preferred and $0.07 per common share, payable on June 30, 1995 to shareholders
of record on June 20, 1995. On September 8, 1995, the Board declared dividends
for the third quarter in the amount of $0.07 per preferred and $0.07 per common
share payable on September 29 to shareholders of record on September 19, 1995.
The respective $0.07 dividends per preferred share declared on April 28, June 7,
and September 8, 1995 each encompass the quarterly preferred minimum preference
of $0.06018 per share based upon earnings and profits of the prior year.
Material Changes in Results of Operations.
Rentals from Real Estate Investments totaled $8,347,927 and $8,966,763 for
the nine months ended September 30, 1995 and 1994, respectively. The decrease of
$618,836 in 1995 is primarily due to: (i) the sale of Kroger and Tropicana
properties in May and July 1995, respectively, resulting in a decrease of
$347,000, (ii) adjustments to Expense Recaptures resulting in a decrease of
$204,900, and (iii) a decrease in miscellaneous income of $91,400 resulting from
lease termination fees received from former tenants in 1994.
Compared to the same period in 1994, Interest and Other revenue increased
by $114,272 to $250,710 for the nine month period ended September 30, 1995. The
increase is primarily due to increases in the Company's average cash balances
available for investment. Funds available for investment increased as a result
of the suspension of dividend payments during the first nine months of 1994.
(See Note 11 to the Company's consolidated financial statements.)
Interest and Amortization of Debt Premium totaled $2,671,250 and
$2,926,600 for the nine months ended September 30, 1995. The decrease of
$255,350 is primarily due to lower debt service costs as a result of reduced
principal on the Company's insurance facility resulting from the sale of Kroger
and Tropicana Marketplace in June 1995 and July 1995, respectively.
Property Taxes totaled $1,136,302 and $1,287,313 for the nine months ended
September 30, 1995 and 1994, respectively. The decrease of $151,011 is primarily
due to: (i) city and county tax refunds received in 1995 resulting in a decrease
of approximately $63,000, (ii) a decrease in the assessed values of the
Company's properties and a consequent reduction in property taxes of
approximately $35,000, and (iii) the sale of Kroger and Tropicana Marketplace
properties in 1995, which resulted in a decrease of $29,900.
Compared to the same period in 1994, Property Operating Costs increased by
$184,941 to $1,236,354. The increase is primarily due to: (i) an increase of
$104,500 resulting from a one-time decrease in 1994 bad debt expense resulting
from the collection of previously written-off accounts receivable from a
bankrupt tenant at 9219 Viscount and (ii) an increase in bad debt expense at
Tropicana in 1995 that resulted in an increase of $144,600.
Compared to the same period in 1994, General and Administrative costs
decreased by $56,498 to $741,678 for the nine month period ended September 30,
1995. This decrease is primarily due to: (i) a decrease of $78,100 in legal fees
primarily due to debt restructuring costs incurred in 1994, (ii) costs incurred
in 1994 in connection with the extinguishment of the Company's bank facility and
the refinancing of the Auburn Hills property in 1994 totaling $53,500, and (iii)
state and federal income taxes of $30,700 incurred in 1994 by the Company
resulting from the loss of its real estate investment trust status during the
1993 and 1994 tax years. These decreases were however partially offset by an
increase of $106,100 in the cost of liability insurance .
During the nine months ended September 30, 1995, the Company recognized a
Provision for Decrease in Net Realizable Value totaling $1,182,015 in connection
with the sale of the Tropicana property. (See Note 8 to the Company's
consolidated financial statements.)
Included in Net Income are the non-cash expenses of Depreciation and
Amortization. For the nine months ended September 30, 1995 and 1994, these
expenses totaled $2,095,112 and $2,479,193, respectively. The decrease of
$384,081 during 1995, compared to 1994, is primarily due to: (i) 1994
adjustments to depreciation and amortization due to tenant vacancy at the
Tropicana Marketplace property resulting in a decrease of $214,000, (ii) the
write-off of certain property accounting software during December 1994 resulting
in a decrease of $75,200, and (iii) decreases in the net realizable value of the
Company's properties that resulted in a decrease of $50,800.
On May 25, 1995, the Company sold the Kroger property. In connection with
this sale, the Company recognized a gain on sale of property totaling $157,257.
The property had previously been written down to its estimated net realizable
value.
On July 24, 1995, the Company sold the Tropicana Marketplace property. In
connection with this sale, the Company recognized a loss on sale of property
totaling $106,060. The property had previously been written down to its
estimated net realizable value.
The Company incurred a prepayment penalty amounting to $129,433 in
connection with the principal paydown it made on its insurance company facility
with proceeds received from the sale of Tropicana Marketplace. (See Notes 7 and
8 to the Company's consolidated financial statements.)
The Company incurred a Net Loss of $542,310 during the nine months ended
September 30, 1995, compared to a Net Income of $560,506 for the same period in
1994. The decrease in Net Income of $1,102,816 was primarily due to the
Provision for Decrease in Net Realizable Value incurred in 1995, which is
explained above.
- - --------------------------------------------------------------------------------
<PAGE>
PART II: OTHER INFORMATION
- - --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings which the Company or any
partnership in which the Company has an interest is a party or to which
any of the assets of the Company or any such partnership is subject.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
The Company has given notice of its intention to terminate its
arrangements with Meridian Point Properties, Inc. under the Amended and
Restated Employee Leasing Agreement dated March 24, 1992, as amended,
effective November 30, 1995. Effective December 1, 1995, the Company has
entered into a management agreement with TIS Financial Services, Inc. of
San Francisco, California, for an initial term of six months. The Company
believes that this change will have no material effect on the Company's
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None.
(b) Reports on Form 8-K. The following Form 8-K reports were filed
during the quarter ended September 30, 1995:
Current Report on Form 8-K, under Item 5 - Other Events, dated
July 24, 1995, announcing the sale of the Tropicana Marketplace
in Las Vegas, Nevada.
<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.
REGISTRANT
MERIDIAN POINT REALTY TRUST VIII CO.
Date: November 9, 1995 By: Milton K. Reeder
---------------------
Milton K. Reeder,
President, Chief Executive Officer
Date: November 9, 1995 By: Brian F. Zywiciel
---------------------
Brian F. Zywiciel
Senior Vice President,
Chief Financial Officer,
and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 5,292,235
<SECURITIES> 0
<RECEIVABLES> 750,999
<ALLOWANCES> 320,548
<INVENTORY> 0
<CURRENT-ASSETS> 228,000
<PP&E> 81,556,949
<DEPRECIATION> 12,420,453
<TOTAL-ASSETS> 76,949,468
<CURRENT-LIABILITIES> 1,381,405
<BONDS> 0
<COMMON> 1,610
0
5,274
<OTHER-SE> 43,248,312
<TOTAL-LIABILITY-AND-EQUITY> 76,949,468
<SALES> 0
<TOTAL-REVENUES> 8,598,637
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,209,446
<LOSS-PROVISION> 1,182,015
<INTEREST-EXPENSE> 2,671,250
<INCOME-PRETAX> (412,877)
<INCOME-TAX> 0
<INCOME-CONTINUING> (412,877)
<DISCONTINUED> 0
<EXTRAORDINARY> (129,433)
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