<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: SEPTEMBER 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 OCTOBER 31, 1997: 1,609,937
SHARES OF PREFERRED STOCK OUTSTANDING AS OF OCTOBER 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 nine months ended September 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
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Investment in Real Estate:
Rental Properties, Net $ 90,605,525 $ 81,834,510
Less: Accumulated Depreciation (16,208,624) (15,152,397)
- -------------------------------------------------------------------------------------------------------------
74,396,901 66,682,113
Other Assets:
Cash and Cash Equivalents 2,503,103 2,791,670
Receivables, Net of Reserves of $-0- and $25,961 as of
September 30, 1997 and December 31, 1996, respectively 581,977 493,942
Capitalized Loan Costs, Net of Accumulated Amortization of
$36,246 and $709,158 as of September 30, 1997 and
December 31, 1996, respectively 618,723 108,918
Capitalized Lease Commissions, Net of Accumulated
Amortization of $399,400 and $331,172 as of
September 30, 1997 and December 31, 1996, respectively 296,241 308,835
Other Assets, Net of Accumulated Amortization of $423,153 and
$365,084 as of September 30, 1997 and December 31, 1996,
respectively 956,482 1,208,477
- -------------------------------------------------------------------------------------------------------------
Total Assets $ 79,353,427 $ 71,593,955
=============================================================================================================
Liabilities and Shareholders' Equity
Liabilities:
Mortgage Notes Payable $ 33,872,416 $ 7,570,281
Long-term Debt Facility -- 20,042,421
Due to Affiliates 151,944 163,000
Accounts Payable 1,958,930 1,184,057
Tenant Deposits and Other Liabilities 237,157 168,218
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 36,220,447 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 September 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 (22,263,724) (22,930,726)
- -------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 43,132,980 42,465,978
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 79,353,427 $ 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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rentals from Real Estate Investments $ 2,578,822 $2,275,596 $7,770,000 $ 6,818,389
Interest and Other 74,739 69,163 150,712 173,438
- -----------------------------------------------------------------------------------------------------------------
Total Revenues 2,653,561 2,344,759 7,920,712 6,991,827
- -----------------------------------------------------------------------------------------------------------------
Expenses:
Interest and Amortization of Loan Costs 613,929 683,700 1,878,209 2,059,306
Property Taxes 391,551 287,080 1,167,920 866,683
Property Operating Costs 350,905 242,690 1,007,695 945,260
General and Administrative 404,294 164,228 875,673 612,593
Depreciation and Amortization 606,665 641,349 1,820,263 1,906,418
- -----------------------------------------------------------------------------------------------------------------
Total Expenses 2,367,344 2,019,047 6,749,760 6,390,290
- -----------------------------------------------------------------------------------------------------------------
Net Income Before Gain on
Sale of Property 286,217 325,712 1,170,952 601,567
Gain on Sale of Property -- -- 1,059,484 47,452
- -----------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item 286,217 325,712 2,230,436 649,019
Extraordinary Item -
Prepayment Penalty on Paydown of Debt (117,824) -- (117,824) --
=================================================================================================================
Net Income $ 168,393 $ 325,712 $2,112,612 $ 649,019
=================================================================================================================
Net Income $ 168,393 $ 325,712 $2,112,612 $ 649,019
Less Preferred Distributions Declared (414,978) (369,175) (1,107,525) (1,107,525)
- -----------------------------------------------------------------------------------------------------------------
Net Income (Loss) Available to
Common Shareholders ($ 246,585) ($ 43,463) $1,005,087 ($ 458,506)
=================================================================================================================
Net Income (Loss) Per Weighted Average
Common Share
Income (Loss) Per Common Share
Before Extraordinary Item ($0.08) ($0.03) $ 0.69 ($0.28)
Extraordinary Item (0.07) -- (0.07) --
NET INCOME (LOSS) ALLOCABLE TO COMMON
PER WEIGHTED AVERAGE COMMON
SHARE OUTSTANDING ($0.15) ($0.03) $ 0.62 ($0.28)
=================================================================================================================
Preferred Distributions Declared Per Share $ 0.07 $ 0.07 $0.21 $ 0.21
=================================================================================================================
Common Distributions Declared Per Share $ 0.07 $ 0.07 $0.21 $ 0.21
=================================================================================================================
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
=================================================================================================================
Cash Flows From Operating Activities:
<S> <C> <C>
Net Income $ 2,112,612 $ 649,019
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation of Rental Properties 1,667,977 1,695,575
Amortization - Other 227,547 210,843
Gain on Disposition of Assets (1,059,484) (47,452)
Loss on Early Extinguishment of Debt 117,824 --
Decrease (Increase) in Accounts Receivable (88,035) 570,702
Decrease in Notes Receivable from Affiliates -- 228,000
Increase (Decrease) in Accounts Payable 144,337 (119,137)
Net Change in Other Assets and Other Liabilities 150,765 101,506
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 3,273,543 3,289,056
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Improvements to Existing Real Estate (4,621,502) (296,869)
Additions to Capitalized Lease Commissions (123,076) (64,390)
Net Cash Received on Sale of Properties 3,019,123 73,603
Net Cash Paid on Purchase of Properties (4,972,027) --
- -------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (6,697,482) (287,656)
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from Construction Loan Payable 11,799,778 --
Principal Payments on Construction Loan Payable (11,799,778) --
Net Proceeds from Mortgage Loans 25,457,235 --
Additions to Capitalized Loan Costs (569,644) --
Principal Payments on Debt Facilities (20,055,437) (690,970)
Principal Payments on Mortgage Notes Payable (179,150) (157,185)
Distributions Paid to Shareholders (1,399,808) (1,445,612)
Payment on Early Extinguishment of Debt (117,824) --
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 3,135,372 (2,293,767)
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (288,567) 707,633
Cash and Cash Equivalents, Beginning of Period 2,791,670 5,016,216
- -------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 2,503,103 $ 5,723,849
=============================================================================================================
Supplemental Schedule of Non-Cash Transactions
Transactions Related to Sale of Property
Net Book Value of Properties Disposed $ -- $ 26,151
Assumption of Mortgage Note in connection with acquisition 994,301 --
</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
SEPTEMBER 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 and commenced operations on October 17, 1988. 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 allows
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.
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 $610,980 and $680,609 for the three months ended
September 30, 1997 and 1996, respectively. For the nine months ended September
30, 1997 and 1996 cash paid for interest was $1,821,276 and $2,059,306.
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 $282,366 and $88,682 were included in Rentals from Real
Estate Investments for the three months ended September 30, 1997 and 1996,
respectively. Expense Recaptures for the nine months ended September 30, 1997
and 1996 totaled $1,021,621 and $256,839, 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 cash flows; (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
6
<PAGE>
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 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 September 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 AND MORTGAGE NOTES PAYABLE.
As of June 30, 1997 and December 31, 1996, there was debt outstanding under
a facility with an insurance company of $19,827,774 and $20,042,421,
respectively. On July 30, 1997 this facility was retired and paid off in full.
To fund this payoff, 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 June 2007 and
bears interest at 8.06%. In addition to this loan, the Company also used
approximately $7.3 million of proceeds from an interim construction loan secured
by its property in La Vergne, Tennessee (See Note 7) to retire the debt
facility.
On September 8th, 1997 the Company entered into a $13,000,000 permanent
loan with an insurance company secured by the La Vergne, Tennessee facility .
This new loan has a maturity of September 15, 2007 and bears interest at a rate
of 7.83%. The Company used the proceeds to pay off the interim construction
loan.
On August 27, 1997, the Company assumed a $994,301 mortgage on the
Australian One Building in conjunction with the acquisition of three properties
in West Palm Beach, Florida. (See Note 7)
After these transactions, the Company has Mortgage Notes Payable as
follows:
<TABLE>
<CAPTION>
BALANCE AS OF:
Stated Annual Sep. 30 Dec. 31
Name and Location of Property Interest Rate Payments Maturity 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix and Chino, CA Properties 8.060% $1,163,693 06/26/07 $12,486,984 $ 0
La Vergne, TN 7.830% 1,186,518 09/15/07 13,000,000 0
Australian One, W. Palm Bch, Fla. 8.250% 113,160 09/30/00 993,665 0
Memphis #20, Memphis, TN 8.000% 185,700 11/01/98 1,677,261 1,714,643
Auburn, I, Auburn Hill, MI 8.875% 693,144 08/01/09 5,714,507 5,855,638
- ------------------------------------------------------------------------------------------------------------------------
Totals $3,229,055 $33,872,416 $7,570,281
</TABLE>
7
<PAGE>
7. ADDITIONS TO RENTAL PROPERTIES
The Company has completed a major expansion of its Waldenbooks facility
in La Vergne, TN. As of September 30, 1997, $4,580,304 had been spent on that
project which, at completion is estimated to cost $5,264,000. In connection
with the Waldenbooks expansion, the Company had utilized an interim construction
loan from a Tennessee bank. Under the loan agreement, the Company was permitted
to borrow up to $13 million, a portion of which was used to fund interim
settlement of the long-term debt facility. The construction loan bore interest
at LIBOR plus 1.75% and was retired on September 8, 1997 upon the takeout of the
permanent financing. (see Note 6)
On August 27,1997, the Company completed its purchase of three properties
aggregating 71,428 square feet in Palm Beach County, FL., for a net purchase
price of $5,966,328. In conjunction with this purchase, the Company assumed a
mortgage in the amount of $994,301 which has a maturity of September 30, 2000
and bears interest at a rate of 8.250%. (See Note 6)
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.
On October 9, 1997, the Company sold its Bedford Park, Illinois property for
$5,387,000. After adjustment for closing costs, this sale resulted in a gain on
disposition of assets of approximately $800,000.
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 nine months ended September 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 nine months ended
September 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.
8
<PAGE>
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 13, 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. On September 12, 1997, the Board declared dividends in the amount
of $0.07 per common share, payable on September 30, 1997 to shareholders of
record on September 19, 1997.
In connection with the June 30, 1997 dividend distribution, the Company
withheld approximately $45,800 from distributions to Richard Osborne and Turkey
Vulture Fund XIII, representing at least 654,327 shares held in violation of
Section 6.5 of the Company's bylaws and thereby treated as excess shares. On
August 27, 1997, Richard Osborne and Turkey Vulture Fund XIII sold their shares
in the Company to EastGroup Properties Inc. Subsequently, the Company, Richard
Osborne and Turkey Vulture Fund XIII have reached a settlement of a pending
lawsuit under the terms of which the withheld dividend amounts have been paid to
Turkey Vulture Fund XIII with interest. At September 30, 1997, the amount of the
withheld dividend is reflected in accrued liabilities on the accompanying
consolidated balance sheet.
12. MANAGEMENT AGREEMENT.
Effective December 1, 1995, the Company entered into a management agreement
with TIS Financial Services, Inc. ("TIS") of San Francisco, California. The
Company retained TIS to manage its assets, properties and investments in
addition to performing administrative services for the Company. 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 on December 31, 1997. The Company
is currently negotiating the terms of a possible extension of the Agreement
with TIS.
Under the management agreement with TIS, the Company accrued $477,164
and $500,449 as the estimated management fee for the nine months ended September
30, 1997 and 1996, respectively. For the three months ended September 30, 1997
and 1996, the management fee was $165,000 and $167,008, respectively. These
amounts are included in Property Operating Costs.
13. PERSONAL SERVICES AGREEMENT/STOCK APPRECIATION RIGHTS AGREEMENT
On June 30, 1997, the Board of Directors announced the appointment of
Robert H. Gidel as Chief Executive Officer of the Company, following his
election as a director. Effective July 1, 1997 the Company entered into an
Agreement for Personal Services with Mr. Gidel whereby Mr. Gidel will provide
services to the Company as Chief Executive Officer and will in turn be paid an
annualized fee of $180,000, payable quarterly and shall be reimbursed for
certain direct out of pocket expenses incurred on behalf of the Company. The
agreement runs until September 22, 1998. The Company accrued $45,000 of
compensation expense in the third quarter for this agreement. Mr Gidel also has
the option to purchase, directly or through a partnership, up to 100,000 shares
of the Company's common stock to be issued by the Company. Effective November
11, 1997 Mr. Gidel has exercised his right to purchase those shares at the
weighted average trading price for the previous ten days, calculated to be $5.61
per share.
In conjunction with the Personal Services Agreement, the Company also
entered into a Stock Appreciation Rights Agreement whereby the Company granted
stock appreciation right ("SARs") to Mr. Gidel as follows: 150,000 shares of
common stock SARs at $5.50 per share and 75,000 shares of preferred stock SARs
at $8.50 per share. These SARs vest after one year of service or upon a change
of control of the Company. They may be exercised at any time until September 21,
2000. Upon exercise, the grantee of the SARs will be paid the difference between
the fair market price of the stock as determined by the Board of Directors and
the exercise price. As of September 30, 1997 none of the SARs had been
exercised. The Company accrued $1,853 in expense in the third quarter of 1997.
9
<PAGE>
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 NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
--------- -----------
<S> <C> <C>
Cash flows provided by (used in):
Operating activities $ 3,273,543 $ 3,289,056
Investing activities (6,697,482) (287,656)
Financing activities 3,135,372 (2,293,767)
</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 NINE MONTHS ENDED
---------------------------
SEPTEMBER 30,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net income $ 2,112,612 $ 649,019
Reconciling items:
Loss on Early Extinguishment of Debt 117,824 --
Depreciation and amortization
on Real Estate 1,760,254 1,785,087
Gain on sales of property (1,059,484) (47,452)
----------- ----------
Funds from operations $ 2,931,206 $2,386,654
=========== ==========
</TABLE>
The increase in Funds From Operations of $483,230 for the nine months
ended September 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 $765,000) which is primarily a
10
<PAGE>
refinement in the timing of recording such accruals. This increase was offset
by an increase in General and Administrative expenses of $263,080 as described
in material changes in results of operations below.
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 property
acquisitions, and (iii) principal payments under its long-term debt facilities
and mortgage notes payable. 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 September 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 September 30, 1997, the Company had cash and cash equivalents of
approximately $2.5 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. 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 nine months ended September 30, 1997 and 1996 totaled $4,621,502 and
$296,869, respectively. Expenditures for amortizable lease commissions and loan
costs totaled $692,720 and $64,390 during the nine months ended September 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 $5,387,000. After
adjustment for closing costs, this sale resulted in a gain on disposition of
assets of approximately $800,000 and the sale closed on October 9, 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. 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. On September 7, 1997 the
Company completed permanent financing from an insurance company on its La
Vergne, TN facility for $13,000,000. This loan replaced the interim construction
loan. (See Note 7)
On August 27,1997, the Company completed its purchase of three
properties aggregating 71,428 square feet in Palm Beach County, FL., for a
purchase price of $6,000,000. In conjunction with this purchase, the Company
assumed a mortgage in the amount of $994,301.
During the nine months ended September 30, 1997, distributions totaling
$1,399,808 were made to shareholders. In the comparable prior year period,
distributions totaling $1,445,612 were made to shareholders. On March 7, 1997,
the Board of Directors (the "Board") declared dividends in the amount
11
<PAGE>
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 13, 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. On September 12, 1997, the Board declared dividends in the amount of $0.07
per common share, payable on September 30, 1997 to shareholders of record on
September 19, 1997.
MATERIAL CHANGES IN RESULTS OF OPERATIONS.
Rentals from Real Estate Investments totaled $7,770,000 and $6,818,389
for the nine months ended September 30, 1997 and 1996, respectively. The
increase of $951,611 in 1997 is primarily due to the increased accrual of
expense recaptures which totaled $1,021,621 in 1997 as compared to $256,839 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 $22,726 to $150,712 for the nine month period ended September 30,
1997. 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 nine months ended
September 30, 1997 decreased by $181,097 as compared to the comparable prior
year period because of principal paydowns on the mortgage notes payable and debt
facility.
Property Taxes totaled $1,167,920 and $866,683 for the nine months ended
September 30, 1997 and 1996, respectively. The increase of $301,237 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.
Compared to the same period in 1996, General and Administrative costs
increased by $263,080 to $875,673 for the nine month period ended September 30,
1997. This increase is primarily due to expenditures related to the development
of long-term operating plans for the Company and increased expenses related to
the annual meeting of shareholders.
Included in Net Income are the non-cash expenses of Depreciation and
Amortization. For the nine months ended September 30, 1997 and 1996, these
expenses totaled $1,820,263 and $1,906,418, respectively. The decrease of
$86,155 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.
12
<PAGE>
- --------------------------------------------------------------------------------
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 sought a
declaratory judgment that one or more of the defendants had purchased and/or
held 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% of
the Company's total outstanding shares. The lawsuit further sought a declaration
confirming that any such shares held in excess of the 9.8% restriction were not
entitled to be voted in connection with the 1997 Annual Meeting of Shareholders
and were not entitled to the payment of dividends. The lawsuit also contained
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.
On August 27, 1997, the defendants and related parties sold 1,411,756
shares to EastGroup Properties Inc. in a privately negotiated transaction,
resulting in the defendants reducing the number of shares held in the Company to
less than the 9.8% restriction. Subsequently, the parties have recently reached
a settlement of the lawsuit. Under the terms of the settlement, the defendants
have waived any claims relating to the Company's application of Section 6.5 of
the bylaws and/or the results of the election of directors as announced by the
Company. The defendants have further waived certain monetary claims for proxy
and litigation expenses. In turn, the Company has released certain previously
withheld dividend payments to Turkey Vulture Fund XIII, Ltd., and certain other
possible claims relating to Turkey Vulture's purchase and sale of shares in the
Company. The lawsuit has recently been dismissed, with prejudice, as to all
defendants except Meredith Partners Inc. and Allen K. Meredith, who are
attempting to renegotiate certain terms of the Settlement Agreement.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
September 30, 1997.
13
<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.
November 12, 1997 By: /s/ Lorraine O. Legg
--------------------
Lorraine O. Legg,
President
November 12, 1997 By: /s/ John E. Castello
--------------------
John E. Castello,
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,503,103
<SECURITIES> 0
<RECEIVABLES> 581,977
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