<PAGE>
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 quarter period ended: JUNE 30, 1997
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)
655 MONTGOMERY STREET, SUITE 800, SAN FRANCISCO, CALIFORNIA 94111
- --------------------------------------------------------------------------------
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (415) 274-1808
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 JULY 31, 1997: 1,609,937
SHARES OF PREFERRED STOCK OUTSTANDING AS OF JULY 31, 1997: 5,273,927
<PAGE>
- --------------------------------------------------------------------------------
PART 1: FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements should be
read in conjunction with the 1996 Form 10-K of the registrant (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 material adjustments
of a normal and recurring nature considered necessary for a fair presentation of
results of operations for the interim periods have been included. The results
of consolidated operations for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
2
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE:
Rental Properties, Net $ 80,211,400 $ 81,834,510
Less: Accumulated Depreciation (15,654,049) (15,152,397)
- ---------------------------------------------------------------------------------------------------------------
64,557,351 66,682,113
Other Assets:
Cash and Cash Equivalents 6,908,970 2,791,670
Receivables, Net of Reserves of $-0- and $25,961 as of
June 30, 1997 and December 31, 1996, respectively 792,781 493,942
Capitalized Loan Costs, Net of Accumulated Amortization of
$761,436 and $709,158 as of June 30, 1997 and
December 31, 1996, respectively 211,861 108,918
Capitalized Lease Commissions, Net of Accumulated
Amortization of $361,525 and $331,172 as of
June 30, 1997 and December 31, 1996, respectively 282,664 308,835
Other Assets, Net of Accumulated Amortization of $403,797 and
$365,084 as of June 30, 1997 and December 31, 1996,
respectively 1,067,384 1,208,477
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 73,821,011 $ 71,593,955
===============================================================================================================
Liabilities and Shareholders' Equity
Liabilities:
Mortgage Notes Payable $ 7,457,261 $ 7,570,281
Construction Loan Payable 1,720,890 --
Long-term Debt Facility 19,827,774 20,042,421
Due to Affiliates 150,000 163,000
Accounts Payable 1,046,630 1,184,057
Tenant Deposits and Other Liabilities 126,197 168,218
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 30,328,752 29,127,977
- ---------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Shares of Common and Preferred Stock, par value $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 June 30, 1997 and
December 31, 1996, respectively 6,884 6,884
Paid-in Capital 65,389,820 65,389,820
Distributions in Excess of Income (21,904,445) (22,930,726)
- ---------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 43,492,259 42,465,978
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 73,821,011 $ 71,593,955
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments $2,532,021 $2,238,121 $5,191,178 $ 4,542,793
Interest and Other 38,069 62,308 75,973 104,275
- ---------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 2,570,090 2,300,429 5,267,151 4,647,068
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Interest and Amortization of Loan Costs 632,239 684,916 1,264,280 1,375,606
Property Taxes 377,492 110,899 776,369 579,603
Property Operating Costs 297,933 369,175 656,789 702,570
General and Administrative 262,016 218,595 471,379 448,365
Depreciation and Amortization 608,798 622,251 1,213,599 1,265,069
- ---------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,178,478 2,005,836 4,382,416 4,371,213
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Before Gain on
Sale of Property 391,612 294,593 884,735 275,855
Gain on Sale of Property 1,059,484 -- 1,059,484 47,452
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $1,451,096 $ 294,593 $1,944,219 $ 323,307
=====================================================================================================================
Net Income $1,451,096 $ 294,593 $1,944,219 $ 323,307
Less Preferred Distributions Declared (323,372) (369,175) (692,547) (738,349)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS $1,127,724 $ (74,582) $1,251,672 $ (415,042)
=====================================================================================================================
NET INCOME (LOSS) PER COMMON SHARE $ 0.70 ($0.05) $ 0.78 ($0.26)
=====================================================================================================================
PREFERRED DISTRIBUTIONS PAID PER SHARE $ 0.07 $ 0.07 $ 0.14 $ 0.14
=====================================================================================================================
COMMON DISTRIBUTIONS PAID PER SHARE $ 0.07 $ 0.07 $ 0.14 $ 0.14
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,944,219 $ 323,307
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation of Rental Properties 1,113,403 1,127,518
Amortization - Other 162,755 137,551
Gain on Disposition of Assets (1,059,484) (47,452)
Decrease (Increase) in Accounts Receivable (298,839) 388,774
Decrease in Accounts Payable (126,343) (114,893)
Net Change in Other Assets and Other Liabilities 59,318 285,063
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,795,029 2,099,868
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to Existing Real Estate (945,291) (45,345)
Additions to Capitalized Lease Commissions (71,624) (34,420)
Additions to Capitalized Loan Costs (155,221) --
Net Cash Received on Sale of Properties 3,019,122 73,603
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,846,986 (6,162)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS fROM FINANCING ACTIVITIES:
Proceeds from Construction Loan Payable 1,720,890 --
Principal Payments on Debt Facility (214,647) (455,957)
Principal Payments on Mortgage Notes Payable (113,020) (103,650)
Distributions Paid to Shareholders (917,938) (963,741)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 475,285 (1,523,348)
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,117,300 570,358
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,791,670 5,016,216
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,908,970 $ 5,586,574
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
MERIDIAN POINT REALTY TRUST VIII CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. GENERAL.
Meridian Point Realty Trust VIII Co. ("the Company") is a corporation
organized for the purpose of acquiring, operating and holding for investment
income-producing commercial and industrial real estate. The Company was formed
as a self liquidating REIT. At the annual meeting of shareholders held on June
14, 1996, the shareholders approved an amendment to the Company's Bylaws related
to investment policy which will allow the Company to reinvest proceeds from the
sale of property into the purchase of new property, effectively making the
Company an infinite-life REIT. The general purpose of the Company is to seek
income that qualifies under the REIT provisions of the Internal Revenue Code. At
such time as it is in the best interests of the Company's shareholders to do so,
the Board of Directors intends to make investments in such a manner as to comply
with the requirements of the REIT Provisions of the Internal Revenue Code with
respect to the composition of the Company's investments and the derivation of
its income. The Company commenced operations on October 17, 1988.
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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. STATEMENTS OF CASH FLOWS.
For purposes of the statements of cash flows, the Company considers all
short-term investments with a maturity of three months or less to be cash
equivalents.
Cash paid for interest was $603,353 and $686,478 for the three months
ended June 30, 1997 and 1996, respectively. For the six months ended June 30,
1997 and 1996 was $1,210,296 and $1,378,700.
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 for the prior year which are overbilled are refunded to the
lessees. Expense Recaptures of $305,418 and ($24,667) were included in (or
reduced from) Rentals from Real Estate Investments for the three months ended
June 30, 1997 and 1996, respectively. Expense Recaptures for the six months
ended June 30, 1997 and 1996 totaled $739,256 and $168,158, respectively.
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 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 (comprised of the forecasted operations
for the property based upon historical results, together with management's
estimates of the property's future occupancy, lease rates and capital
improvement requirements), 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 the 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 carrying value, a Provision for
6
<PAGE>
Decrease in Net Realizable Value is recorded. Net realizable value is not
necessarily an indication of the property's current value or the amount that
will be realized on its disposition. As of June 30, 1997 and December 31, 1996,
the Company had recognized a cumulative Provision for Decrease in Net Realizable
Value of $5,167,000. This amount was recorded in years prior to 1996.
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. DEBT FACILITY.
As of June 30, 1997 and December 31, 1996, there was outstanding under a
facility with an insurance company $19,827,774 and $20,042,421, respectively.
This facility has provided the Company with financing for property acquisitions,
capital improvements, and general operating needs. These advances bear fixed
interest rates. Under the existing facility agreements, the various advances and
the corresponding interest rate contracts mature on the dates specified below.
<TABLE>
<CAPTION>
ADVANCE AND
NOTIONAL AMOUNT INTEREST MATURITY
AS OF 6/30/97 RATE DATE
----------------------------------------------
<S> <C> <C>
$ 5,874,333 8.87% July 1997
11,180,470 8.87% July 1997
2,772,971 8.80% July 1998
-----------
$19,827,774
===========
</TABLE>
On July 30, 1997 this facility was retired and paid off in full. In its
place, the Company entered into a $12,500,000 loan with an insurance company
secured by four of its properties in Phoenix, Arizona and its one property in
Chino, California. This new loan has a maturity of July 2007 and bears interest
at 8.06%. In addition to this loan, the Company used approximately $7.3 million
of proceeds from an interim construction loan secured by its property in La
Vergne, Tennessee (See Note 7). The Company has a commitment from an insurance
company for permanent financing on the La Vergne facility for $12,000,000 at a
rate of 7.83% and expects to close this loan in September 1997.
7. ADDITIONS TO RENTAL PROPERTIES
The Company has commenced a major expansion of its Waldenbooks facility
in La Vergne, TN. As of June 30, 1997, $858,719 had been spent on that project
which, at completion is estimated to cost $5,255,000. In addition, the Company
has made of deposit of $60,000 for the acquisition for $6,040,000 of three
properties aggregating 71,428 square feet in Palm Beach County, FL. This
acquisition is expected to be completed in August 1997. These costs are included
in Rental Properties.
In connection with the Waldenbooks expansion, the Company has obtained an
interim construction loan from a Tennessee bank. Under the loan agreement, the
Company may borrow up to $13 million, a portion of which is to be used to fund
interim settlement of the long-term debt facility (see Note 6). The
construction loan bears interest at LIBOR plus 1.75% and is due September 30,
1997. At June 30, 1997, $1,720,890 had been borrowed under this loan.
7
<PAGE>
8. DISPOSITION OF PROPERTY.
On June 13, 1997, the Company sold the Interchange D building in
Jackson, MS for $3,050,000 less closing costs of $30,878. The sale resulted in a
gain on disposition of assets of $1,059,484.
In May 1997, the Company entered into an agreement to sell its Bedford
Park, Illinois property. The sales price is $5,420,000. After adjustment for
closing costs, this sale is estimated to result in a gain on disposition of
assets of approximately $800,000. The anticipated closing date is October 1997.
In 1996 the Company sold all of its personal property for $73,603
resulting in a gain on sale of $47,452.
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. Weighted average common
shares outstanding for the six months ended June 30, 1997 and 1996 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, 1997. As such, the
Company should be allowed a deduction for dividends paid to shareholders if the
Company satisfies certain income, asset and distribution requirements.
Accordingly, no provision for federal income taxes has been made in the
accompanying Consolidated Statements of Operations for the six months ended June
30, 1997 and 1996.
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 March 7, 1997, 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 March 31, 1997 to shareholders of record on March 20, 1997. In
addition, at that meeting the Board also declared quarterly preference dividends
on the preferred stock equal to $0.07 per preferred share payable on June 30 and
September 30, 1997 and $0.08 per preferred share payable on December 31, 1997
for preferred shareholders of record on June 19, September 19 and December 19,
1997, respectively. In addition to the previously declared dividend on the
preferred stock, on June 18, 1997, the Board declared dividends in the amount of
$0.07 per common share, payable on June 30, 1997 to shareholders of record on
June 19, 1997.
The Company believes that at least 654,327 shares are held by Richard
Osborne and Turkey Vulture Fund XIII in violation of Section 6.5 of the
Company's bylaws, which prohibits ownership of shares by any person, directly or
indirectly, in excess of 9.8% of the Company's total outstanding shares. Those
654,327 shares are thereby bering treated as Excess Shares pursuant to the
bylaws, not entitled to vote (see Part II, Item 4) and not entitled to the
payment of dividends. As a result, a total of $45,802.89 was withheld from
dividend distribution to Turkey Vulture Fund XIII on June 30, 1997.
12. MANAGEMENT AGREEMENT.
Effective December 1, 1995, the Company terminated the Amended and
Restated Employee Leasing Agreement with Meridian Point Properties, Inc. ("MPP")
of San Francisco, California and entered into a management agreement with TIS
Financial Services, Inc. ("TIS") of San Francisco, California. Under the new
management agreement, the Company retained TIS to manage its assets, properties
and investments in addition to performing administrative services for the
Company. The agreement is on a month-to-month basis. The Company pays a base
management fee calculated on an annual basis to be an amount equal to 0.75% of
the Company's Average Invested Assets, as defined in the agreement. This
agreement requires that TIS pay the employment expenses of its personnel. The
current management agreement will expire by its terms on December 31, 1997,
subject to two three (3) month extensions at the option of the Company.
8
<PAGE>
Under the management agreement with TIS, the Company accrued $312,164 and
$333,441 as the estimated management fee for the six months ended June 30, 1997
and 1996, respectively. For the three months ended June 30, 1997 and 1996, the
management fee was $157,164 and $188,432, respectively. These amounts are
included in Property Operating Costs.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company owns a geographically diversified portfolio of real estate
equity interests consisting of income-producing industrial and commercial real
estate. The following discussion should be read in conjunction with the
Company's Consolidated Balance Sheets, Consolidated Statements of Operations and
Consolidated Statements of Cash Flows and the notes thereto. 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 such 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:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Cash flows provided by (used in):
Operating activities $1,795,029 $ 2,099,868
Investing activities 1,846,986 (6,162)
Financing activities 475,285 (1,523,348)
</TABLE>
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 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 income to Funds From Operations is as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30,
-------
1997 1996
---- ----
<S> <C> <C>
Net income $ 1,944,219 $ 323,307
Reconciling items:
Depreciation and amortization 1,185,167 1,179,982
Gain on sales of property (1,059,484) (47,452)
----------- ----------
Funds from operations $ 2,069,902 $1,455,837
=========== ==========
</TABLE>
9
<PAGE>
The increase in Funds From Operations of $614,065 for the six months
ended June 30, 1997 as compared with the same period in 1996 is primarily the
result of the increase in the accrual of expense recaptures described below (an
increase of approximately $571,000) which is primarily a refinement in the
timing of recording such accruals, together with lower interest and property tax
expense. However, as described below, much of the increase relates to the
timing of recording certain transactions in the year ended December 31, 1996
rather than a change in the results of operations.
The Company's principal applications of its cash resources are (i)
operating expenses related to real estate operations, general and administrative
expenses and interest expense, (ii) capital improvements, and (iii) principal
payments under its long-term debt facilities and mortgage notes payable. During
the first six months of 1997, Funds From Operations were sufficient to fully
fund the Company's cash needs. The Company considers its ability to generate
cash from operations adequate to meet its presently foreseeable cash
requirements. However, (i) unanticipated decreases in revenues and/or
unanticipated increases in expenses, (ii) an unanticipated decrease in property
values resulting in additional required principal payments, or (iii)
renegotiation of the Company's debt facility on terms unfavorable to the Company
(see Note 6 to the Company's financial statements) could adversely affect cash
flow and cause the Company to make use of other sources of liquidity.
Funds From Operations may be affected in the future by changes in rental
rates and occupancy levels. As of June 30, 1997, the Company's properties were
94% occupied. Through the end of 1997, leases covering approximately 8% of the
Company's leased space are scheduled to expire.
As of June 30, 1997, the Company had cash and cash equivalents of
approximately $6.9 million.
The Company has previously determined that a soil settlement problem
exists at the 1033 East Maricopa property in Phoenix, Arizona. In that regard,
the Company instituted a lawsuit against the entity from which the property was
purchased and a related party in 1994. During the third quarter of 1996, the
Company settled the lawsuit in return for monetary consideration. The amount of
the settlement will offset, to a material extent, any costs to rehabilitate the
property. Furthermore, the Company is now investigating the possibility of
insurance recoveries regarding this property. The tenant has recently vacated
the property and the Company has commenced the rehabilitation project.
Capital expenditures for improvements and additions to rental properties
for the six months ended June 30, 1997 and 1996 totaled $945,291 and $45,345,
respectively. Expenditures for amortizable lease commissions and loan costs
totaled $226,845 and $34,420 during the six months ended June 30, 1997 and 1996,
respectively.
On June 13, 1997, the Company concluded the sale of its Interchange D
property in Richland, Mississippi for $3,050,000 resulting in a gain on sale of
property of $1,059,484. In May 1997, the Company entered into an agreement to
sell its Bedford Park, Illinois property. The sales price is $5,420,000. After
adjustment for closing costs, this sale is estimated to result in a gain on
disposition of assets of approximately $800,000. The anticipated closing date is
October 1997. In addition, the Company has made of deposit of $60,000 for the
acquisition for $6,040,000 of three properties aggregating 71,428 square feet in
Palm Beach County, FL. This acquisition is expected to be completed in August
1997.
On July 30, 1997 the debt facility with an insurance company was retired
and paid off in full. In its place, the company entered into a $12,500,000 loan
with an insurance company secured by four of its properties in Phoenix, Arizona
and its one property in Chino, California. This new loan has a maturity of July
2007 and bears interest at 8.06%. In addition to this loan, the company used
approximately $7.3 million of proceeds from its interim construction loan
secured by its property in La Vergne, Tennessee (See Note 7). The Company has a
commitment from an insurance company for permanent financing on the La Vergne
facility for $12,000,000 at a rate of 7.83% and expects to close this loan in
August 1 997.
During the six months ended June 30, 1997, distributions totaling
$917,938 were made to shareholders. In the comparable prior year period,
distributions totaling $963,741 were made to shareholders. On March 7, 1997, 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 March 31, 1997 to
shareholders of record on March 20, 1997. In addition, at that meeting the Board
also declared quarterly preference dividends on the preferred stock equal to
$0.07 per preferred share payable on June 30 and September 30, 1997 and $0.08
per preferred share payable on December 31, 1997 for preferred shareholders of
record on June 19, September 19 and December 19, 1997, respectively. In addition
to the previously declared dividend on the preferred stock, on June 18, 1997,
the Board declared dividends on the amount of $0.07 per common share, payable on
June 30, 1997 to shareholders of record on June 19, 1997.
10
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS.
Rentals from Real Estate Investments totaled $5,191,178 and $4,542,793
for the six months ended June 30, 1997 and 1996, respectively. The increase of
$648,385 in 1997 is primarily due to the increased accrual of expense recaptures
which totaled $739,256 in 1997 as compared to $168,158 in 1996. The increase
results from a refinement in the timing of recording expense recapture accruals.
Compared to the same period in 1996, Interest and Other revenue
decreased by $28,302 to $75,973 for the six month period ended June 30, 1996.
The decrease is primarily due to decreases in the Company's average cash
balances available for investment.
Interest and Amortization of Loan Costs for the six months ended June
30, 1997 decreased by $111,326 as compared to the comparable prior year period
because of principal paydowns on the mortgage notes payable and debt facility.
The average debt outstanding during the six months ended June 30, 1997 was
$29,770,441 as compared to $31,762,718 during the comparable prior year period.
Property Taxes totaled $776,369 and $579,603 for the six months ended
June 30, 1997 and 1996, respectively. The increase of $196,766 is primarily due
to a change in the method of accounting for property taxes paid directly by the
tenant. Such taxes are now recorded as property tax expense and are included in
Expense Recaptures.
Property Operating Costs for the six months ended June 30, 1997 were
$45,781 less than in the comparable period of the prior year. The decrease
primarily relates to the absorption by tenants of utility costs of a previously
vacant property.
Compared to the same period in 1996, General and Administrative costs
increased by $23,014 to $471,379 for the six month period ended June 30, 1997.
This increase is primarily due to expenditures related to the development of
long-term operating plans for the Company.
Included in Net Income are the non-cash expenses of Depreciation and
Amortization. For the six months ended June 30, 1997 and 1996, these expenses
totaled $1,213,599 and $1,265,069, respectively. The decrease of $51,470 during
1997 compared to 1996, is primarily due to the sale of all the Company's
personal property in the 1996 period as well as the fact that certain of the
capital and tenant improvements became fully depreciated between the periods.
11
<PAGE>
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PART II: OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS.
On June 13, 1997, following the Annual Meeting of Shareholders, the Company
filed a lawsuit in United States District Court for the Northern District of
California, entitled Meridian Point Realty Trust VIII Co. v. Meredith Partners,
----------------------------------------------------------
Inc.; Allen K. Meredith; Turkey Vulture Fund XIII, Ltd., and Richard M. Osborne;
- --------------------------------------------------------------------------------
Christopher L. Jarratt; Thomas J. Smith; John J. Ferchill; and Committee for a
- ------------------------------------------------------------------------------
Greater Meridian Point VIII, Action No. C-97-2230 (BZ). The lawsuit seeks a
- ---------------------------
declaratory judgment that one or more of the defendants have purchased and/or
hold shares in violation of Section 6.5 of the Company's bylaws, which prohibits
ownership of shares by any Person, directly or indirectly, in excess of 9.8%
restriction were not entitled to be voted in connection with the 1997 Annual
Meeting of Shareholders (see Item 4 below), and are not entitled to the payment
of dividends. The lawsuit also contains claims against the defendants regarding
certain alleged misstatements in the proxy materials prepared by the Committee
for a Greater Meridian Point VIII in connection with the 1997 Annual Meeting of
Shareholders.
The lawsuit is in its initial stages and the parties are currently engaged
in settlement negotiations. In the absence of a negotiated resolution, the
defendants' responsive pleading is due on September 12, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders was held on June 13, 1997. The
Independent Inspectors of Election have determined that the Company received and
voted 3,242,847 proxies in connection with the election of directors. the
Committee for a Greater Meridian Point VIII (the "Committee") received 1,644,669
proxies. As a result of the direct and indirect purchase of shares by Richard
Osborne ("Osborne") and Turkey Vulture Fund XIII ("Turkey") in excess of 9.8% of
the Company's total outstanding shares, Osborne and Turkey were determined by
the Company to hold shares in violation of Section 6.5 of the Company's bylaws,
which prohibits any Person, directly or indirectly, from owning more than 9.8%
of the Company's total outstanding shares. Thus, 654,327 shares held by Osborne
and Turkey were thereby treated as Excess Shares (in excess of the 9.8%
restriction), not entitled to be voted in connection with the 1997 Annual
Meeting. This resulted in a revised proxy count for the Committee of 970,342 for
voting purposes.
In connection with the election of directors, the proxies were cast on a
cumulative basis. Following adjustments for individual ballots, the following
Company candidates were determined to have each received 3,737,150 votes and
were thereby elected: Christopher J. Doherty, Robert H. Gidel, Lawrence P.
Morris, Micolyn Yalonis, S. Michael Lucash and Homer McK. Rees. Richard Osborne
was also elected as a director with 6,792,394 votes.
In the absence of shares held in violation of Section 6.5 of the Company's
bylaws, and had the Excess Shares been included in the tabulation of votes cast
at the Annual Meeting, Allen K. Meredith would have been elected as a director
in place of Homer McK. Rees. In that event, Messrs. Doherty, Gidel, Morris,
Lucash and Ms. Yalonis would have each received 4,490,643 votes on a cumulative
basis. Mr. Meredith would have received 5,826,342 votes, and Mr. Osborne would
have received 5,686,342 votes on a cumulative basis.
The shareholders separately approved the proposed selection of Arthur
Andersen LLP as the Company's independent auditors in connection with the
preparation of the 1997 year-end financial statements. A total of 3,236,784
shares were voted in favor of the proposal, 3,864 against and 28,930 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None
(b) The following reports on Form 8-K were filed during the quarter ended June
30, 1997:
Current Report on Form 8-K under Item 5 - Other Events, dated May 6,
1997 announcing that its Annual Meeting of Stockholders will be held
on June 13, 1997.
Current Report on Form 8-K under Item 5 - Other Events, dated May 23,
1997 announcing the issuance of its 1996 Annual Report and that
certain statements contained in the report may be deemed to be
forward-looking statements within the meaning of the federal
securities laws.
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.
REGISTRANT
MERIDIAN POINT REALTY TRUST VIII CO.
August 12, 1997 By: /s/ Lorraine O. Legg
--------------------
Lorraine O. Legg,
President
August 12, 1997 By: /s/ John E. Castello
--------------------
John E. Castello,
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
13
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,908,970
<SECURITIES> 0
<RECEIVABLES> 792,781
<ALLOWANCES> 0
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<CURRENT-ASSETS> 0
<PP&E> 80,211,400
<DEPRECIATION> (15,654,049)
<TOTAL-ASSETS> 73,821,011
<CURRENT-LIABILITIES> 2,917,520
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5,274
<COMMON> 1,610
<OTHER-SE> 43,485,375
<TOTAL-LIABILITY-AND-EQUITY> 73,821,011
<SALES> 0
<TOTAL-REVENUES> 6,326,635
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> 1,944,219
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