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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
(x) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____ to ____
Commission file number 1-10641
MILESTONE PROPERTIES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 65-0158204
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.
5200 TOWN CENTER CIRCLE
BOCA RATON, FLORIDA 33486
- ----------------------------- -----------------------------
(Address of principal (Zip Code)
executive offices)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value New York Stock Exchange
$.78 Convertible Series A
Preferred Stock, $.01 par value New York Stock Exchange
Registrant's telephone number, including area code (561) 394-9533
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Indicate by check mark whether the Registrant (1) 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. [x]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or by any
amendment to this Form 10-KSB.
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The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked price of such stock, as of March 21, 1997, was $776,993 for the Common
Stock and $2,039,888 for the $.78 Convertible Series A Preferred Stock.
The Registrant's revenues for the fiscal year ended December 31, 1996 were
$33,722,442.
As of March 21, 1997, 4,080,883 shares of the Registrant's Common Stock
and 2,725,895 shares of the Registrant's $.78 Convertible Series A Preferred
Stock, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders is
hereby incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format: Yes ____ No x
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TABLE OF CONTENTS
PART I
Item 1. Business........................................................... 1
Item 2. Description of Property............................................ 9
Item 3. Legal Proceedings................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders............... 25
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................... 26
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 27
Item 7. Financial Statements.............................................. 30
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.......................................... 30
PART III
Item 9. Directors and Executive Officers; Compliance with Section
16(a)............................................................. 31
Item 10. Executive Compensation............................................ 31
Item 11. Security Ownership of Certain Beneficial Owners and Management.... 31
Item 12. Certain Relationships and Related Transactions.................... 31
Item 13. Exhibits, Financial Statements and Reports on Form 8-K............ 32
SIGNATURES................................................................. 36
Financial Statements.......................................................F-1
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PART I
Item 1. Business.
Introduction
Milestone Properties, Inc. ("Milestone"), directly and through its wholly
owned subsidiaries, is engaged in the business of owning, acquiring, managing,
developing and investing in real estate and real estate related assets.
Milestone, together with its subsidiaries, is hereinafter referred to as the
"Company." The Company is primarily engaged in the ownership and operation of 33
interests in real estate properties consisting of (i) three fee interests (the
"Fee Properties") and (ii) wraparound notes (the "Wraparound Notes") and
wraparound mortgages (the "Wraparound Mortgages" and, together with the
Wraparound Notes, the "Wrap Debt") which are secured by 30 commercial real
properties (the "Underlying Properties" and, together with the Fee Properties,
the "Properties"). The Company also serves as the master lessee under individual
leases on each of the Underlying Properties.
The Company's objectives are to realize upon, maintain and improve the value
of the Company's real estate holdings and to generate cash flow. To accomplish
these objectives, Milestone, directly or through its subsidiaries, may (i)
continue to operate the Properties, (ii) acquire additional commercial
properties to develop and/or hold for investment, (iii) expand, improve or
redevelop the Properties or properties owned by affiliates of the Company or
third parties through the acquisition and development of adjacent parcels, (iv)
engage in management services for affiliates of the Company and/or others, (v)
invest in real-estate backed or related securities, (vi) acquire related
businesses, and/or (vii) engage in such other activities or businesses as are
consistent with the Company's overall objectives. In connection with its
activities, the Company may also consider selling one or more of its Fee
Properties and/or financing or refinancing one or more of the Properties or
additional properties acquired by the Company in order to fund its business
activities. In addition, the Company may enter into joint ventures or similar
arrangements with developers or owners of shopping centers or other commercial
properties. These ventures may take the form of joint ownership, participation
in general or limited partnerships, or other forms of investment, and may
provide for the payment of preferential distributions, guaranteed returns,
and/or fees for services. The Company may also make secured real estate mortgage
loans, including mortgages junior to institutional or other indebtedness, in
connection with the acquisition, development, redevelopment or improvement of
properties, either to affiliated or unaffiliated parties.
Background
Milestone was incorporated on November 30, 1989 under the laws of the State
of Delaware. On December 18, 1990, The Concord Milestone Income Fund, L.P.
("CMIF") and Concord Milestone Income Fund II, L.P. ("CMIF II") (collectively,
the "Predecessor Partnerships") were merged with and into Milestone (the
"Merger"). In the Merger, Milestone succeeded to the business and operations of
the Predecessor Partnerships and the partnership interests in the Predecessor
Partnerships were converted into shares of Milestone's common stock, par value
$.01 per share (the "Common Stock"), and Milestone's $.78 Convertible Series A
preferred stock, par value $.01 per share (the "Series A Preferred Stock").
In October 1995, the Company entered into various agreements with affiliates
of Concord Assets Group, Inc. ("Concord") pursuant to which the Company acquired
the Fee Properties and the Wrap Debt for approximately $700,000 in cash and
2,545,000 shares of Common Stock (the "Acquisition"). Certain directors and
executive officers of Concord are also directors and executive officers of
Milestone, and Concord beneficially owns approximately 76.5% of the Common
Stock.
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In October 1995, the Company also completed the transfer (the "Transfer") of
16 of its retail properties (the "UPI Properties") to its then wholly-owned
subsidiary, Union Property Investors, Inc. ("UPI"). UPI was recapitalized and
spun-off in November 1995, when Milestone distributed all of the outstanding
shares of common stock of UPI to Milestone's Common Stockholders (the
"Distribution").
The Wrap Debt
Certain material terms generally appearing in the Wrap Debt are described
below. Since the provisions of the Wrap Debt are complex and extensive and
provisions vary among the Wrap Debts and Wraparound Mortgages, no attempt has
been made to describe in detail or to summarize all provisions of the Wrap Debt.
The Wrap Debt was issued by certain limited partnerships sponsored by
Concord (the "Partnerships") to affiliates of Concord which were formed for the
purpose of acquiring the Underlying Properties, selling such properties to the
Partnerships for cash and the issuance of the Wrap Debt, and leasing the
Underlying Properties back from the Partnerships pursuant to Master Leases (the
"Master Leases"). Certain directors and officers of the Company are also
directors, officers and controlling stockholders of the General Partner of each
of the Partnerships. In October 1995, the Company acquired the Wrap Debt and
became the lessee under the Master Leases in connection with the Acquisition.
As the holder of the Wrap Debt, the Company is required to satisfy the
obligations under notes and mortgages held by lenders (typically banks or other
commercial lenders) on each Underlying Property with a priority senior to that
of the Company, including, without limitation, debt owed under any purchase
money notes issued by the Partnerships which own the Underlying Property to the
prior owner of such property in connection with the acquisition of such
Underlying Property (all such senior indebtedness being referred to herein
collectively as the "Underlying Debt") see Table 2 in Item 2 - Description of
Property. The Partnerships are obligated to the Company for the Wrap Debt which
wraps around and includes the obligation to pay the Underlying Debt, and is
secured by a mortgage on the Underlying Property. The Wrap Debt is in a second
priority position behind the Underlying Debt, and, in some instances, may be in
a third priority position overall, behind a bank or commercial lender and a
seller or other second priority lender.
The Wraparound Notes
The Company is the holder of 39 Wraparound Notes relating to the Underlying
Properties. The maturity dates of the Wraparound Notes range from 1998 to 2016.
Each of the Wraparound Notes is a non-recourse obligation of the issuing
Partnership and includes the obligation to satisfy the Underlying Debt for the
corresponding Underlying Property. The Underlying Debt on the Underlying
Property in some instances consists of multiple notes and mortgages which may
have different priorities in relation to one another but all of which are
superior in right to the Wraparound Note and the Wraparound Mortgage relating to
an Underlying Property. A Wraparound Note may be prepaid by the Partnership
issuing such note by (i) the payment of the excess of (a) the outstanding
balance of a Wraparound Note, including accrued interest and any discount
element over (b) the then aggregate outstanding balance, including accrued
interest, of the Underlying Debt, and (ii) the assumption of the borrower's
obligations pursuant to the Underlying Debt. The wraparound mortgagor's (i.e.,
the Partnership owning the Underlying Property) source of debt service payments
on the Wraparound Note is the rent it receives as lessor under the Master
Leases. Additionally, any percentage rent payable to the Partnership pursuant to
the Master Leases will be paid to the Company as the holder of the Wraparound
Note as prepayment under the Wraparound Note.
On May 24, 1996, the Company recognized its position in the Wraparound Note
on the property located in Roanoke, Virginia as a result of the sale of such
property by its owners. The sale price
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was approximately $2,150,000, resulting in a book gain of $393,768 to the
Company. In conjunction with the sale of such property, Centaur Leasing
Company, Inc., a wholly-owned subsidiary of the Company ("Centaur"), and the
Lessor on the Master Lease on such property, cancelled the Master Lease.
On November 1, 1996, the Company recognized its position in the Wraparound
Note on the property located in Southington, Connecticut as a result of the sale
of such property by its owners. The sale price was approximately $2,745,000,
resulting in a book loss of $127,020 to the Company. In conjunction with the
sale of such property, Centaur cancelled the Master Lease.
A description of the current balances, interest rates, annual debt service,
maturity dates and amounts of any balloon payments with respect to the
Wraparound Notes is set forth in Table 3 in Item 2 - Description of Property.
The Wraparound Mortgages
The Company is the holder of 39 Wraparound Mortgages relating to the
Underlying Properties. The Wraparound Mortgages provide that, on a non-recourse
basis, the Company, as the wraparound mortgagee, will pay, or cause to be paid,
all payments required by the Underlying Debt so long as the wraparound mortgagor
(i.e., the Partnership that owns the related Underlying Property) makes all
payments under the Wraparound Notes. If the Company fails to make any payment
required to be made by it within 30 days after the due date of such payment, the
wraparound mortgagor may make such payment and deduct the amount of such payment
from the next succeeding payments required to be made under the Wraparound Note.
The Partnerships, as wraparound mortgagors, are obligated under the terms of the
Wraparound Mortgages not to perform any act which would constitute a breach of
the mortgage(s) securing the applicable Underlying Debt.
The Wraparound Mortgages provide that the wraparound mortgagor (i.e., the
Partnership that owns the Underlying Property) will maintain all buildings,
equipment and other improvements on the related Underlying Property. In the
event that the buildings and any other improvements are damaged or destroyed, in
whole or in part, or in the event of a taking of a portion of the premises under
the power of eminent domain, the wraparound mortgagor is require to restore the
same as nearly as possible to the condition they were in immediately prior to
the casualty or taking. Insurance proceeds and condemnation awards will be made
available, subject to the wraparound mortgagee's control, and subject to the
rights of the holders of the underlying mortgages, to the extent necessary to
comply with the foregoing. The wraparound mortgagor is required to maintain
property, casualty and public liability insurance on the Underlying Property and
cannot remove improvements or fixtures or structurally alter any building.
Pursuant to the terms of the Wraparound Mortgages, the outstanding balance
of each corresponding Wraparound Notes become due and payable upon the
occurrence of certain specified events, subject to grace periods and cure
rights, including, without limitation, (i) the failure of the wraparound
mortgagor to make any payment or perform any covenant required under the related
Wraparound Mortgage, (ii) the commencement of any action or proceeding to
foreclose any lien senior to the lien created by such Wraparound Mortgage, and
(iii) the Partnerships, as wraparound mortgagor, becoming the debtor in a
bankruptcy or insolvency proceeding. In addition, after any default by the
wraparound mortgagor under a Wraparound Mortgage, the Company, as the wraparound
mortgagee, may exercise certain rights of the wraparound mortgagor with respect
to the management of the related Underlying Property.
The Company, as the wraparound mortgagee, has the right to refinance,
restructure, alter, increase, renew or rearrange the Underlying Debt subject to
certain terms and conditions, including, without
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limitation, that (i) the refinanced Underlying Debt cannot increase the
obligations of the wraparound mortgagor, except in certain limited
circumstances, (ii) the rents payable on the Underlying Properties pursuant
to the operating leases (the "Operating Leases") on the related Underlying
Properties should reasonably be expected to satisfy the debt service
obligations on the refinanced Underlying Debt, and(iii) the wraparound
mortgagor is to cooperate in the execution of documents necessary to
effectuate the refinancing, so long as it is not required to become
obligated thereon.
See Item 3 - Legal Proceedings, for a description of a motion which has been
filed to enforce a settlement agreement relating to the Underlying Properties
and the Wrap Debt.
The Master Leases
Certain material terms generally appearing in the Master Leases are
described below. Since the provisions of the Master Leases are complex and
extensive, and provisions vary among the Master Leases, no attempt has been made
to describe in detail or to summarize all provisions of the Master Leases.
The Company is the Master Lessee under individual leases of each of the
Underlying Properties. As master lessee, the Company leases an entire Underlying
Property (i.e., a shopping center or single tenant commercial property) from the
owner and re-leases it under operating leases to the tenant(s) who occupy such
property.
The Master Leases were initially entered into by affiliates of Concord, as
tenants, and limited partnerships sponsored by Concord, as landlords, and are
coterminous with the Wraparound Notes and Wraparound Mortgages. The rent payable
by the lessee under each Master Lease for an Underlying Property is
approximately the same amount as the debt service due under each Wraparound Note
for such Underlying Property. The Company is both the holder of each Wrap Debt
and the lessee under the Master Leases relating to the Underlying Properties.
Prior to the Acquisition, certain of Concord's affiliates and the lessor under
the Master Leases (i.e., the Partnership that owns the related Underlying
Property) amended the Master Leases pursuant to which, among other things, the
rent payable under the Master Leases was reduced by the amount of the fees, if
any, payable by the lessor to the general partner of the lessor. The
Partnerships consented to and ratified such lease amendments. As the Master
Lessee and the wraparound mortgagee, the Company collects the rents under the
Operating leases and applies such amounts to the operating expenses of the
Underlying Property and the Underlying Debt. The obligations of the lessee under
the Master Leases are guaranteed by Concord. Such guaranty was not affected by
the transfer and assignment of the lessee interest in the Master Leases to the
Company pursuant to the Acquisition and the Company is not obligated to
indemnify Concord with respect to such guaranty. The Master Leases are subject
and subordinate to the Underlying Debt.
As between the Company, as lessor, and the operating tenants, as lessees,
the tenants are generally responsible for payment of rents to the Company and
for all or a portion of their pro rata share of operating expenses and, in some
instances, for the maintenance and repair of the property.
Pursuant to the Master Leases, the Company, as lessee, (i) pays a fixed base
rent to the applicable Partnership, as lessor, and (ii) is entitled to receive
the revenues payable under the Operating Leases and is responsible for operating
the Underlying Property. The Company is also obligated to pay percentage rent to
the lessor equal to certain percentages of net operating income in excess of
certain threshold amounts which are subject to adjustment.
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The Partnership, as lessor under the Master Lease, is responsible for the
maintenance, repair and replacement of the physical property when necessary. The
Company, as lessee, can cause the lessor, subject to certain limitations, to
borrow additional Wrap Debt to finance improvements to the related property.
Pursuant to each of the Master Leases, the Company, as lessee, is
responsible for compliance with all applicable laws and regulations and is
required to keep the property insured at certain minimum levels for certain
specified losses. The Company's management believes that the Properties are
adequately insured. The Master Leases also have termination and assignment
provisions.
The Underlying Debt of $2,325,000 for the Property located in Prattville,
Alabama ("the Prattville Property") came due in July 1996. The mortgagor
extended the balance due to December 1996. Although the Underlying Debt on the
Prattville Property has not been paid off, regular monthly debt payments have
been made by the Company through February 1997. On March 3, 1997, the mortgagor
stated its intention to commence foreclosure proceedings. As of March 12, 1997,
the Company terminated, by written notice, the Master Lease on the Prattville
Property (the "Prattville Lease"). As a result of such termination, the Company,
the tenant under such lease, assigned all of its rights, title and interest in
the Prattville Property to Ivy Ridge Plaza Associates ("IRPA"), the landlord
under the Prattville Lease and IRPA assumed all of the Company's related
obligations under the Prattville Lease.
As of April 30, 1996, the Company terminated, by written notice, the Master
Lease on the Property located in Chili, New York (the "Chili Lease"). As a
result of the termination of the Chili Lease, the Company, the tenant under such
lease, assigned all of its rights, title and interest in the Chili Property to
Valley Plaza Associates ("VPA"), the landlord under the Chili Lease, and VPA
assumed all of the Company's related obligations under the Chili Lease. Neither
VPA nor the Company have made the full required payment on the underlying
mortgage loan for such Property located in Chili, NY since May 1, 1996. VPA has
made certain partial payments. Such payments have been credited against the
Wraparound Note.
The amount of annual rents due with respect to each of the Master Leases and
the termination dates thereof are set forth in Table 3 in Item 2 - Description
of Property.
MPMI - Property Management
The Company also conducts a property management business through its wholly
owned subsidiary, Milestone Property Management, Inc. ("MPMI"). MPMI, which was
incorporated in Delaware in 1991, acquired the property management business of
Concord Assets Management, Inc. ("CAMI"), a wholly owned subsidiary of Concord,
in December 1992.
Pursuant to management agreements assigned to MPMI by CAMI (the "CAMI
Agreements"), MPMI currently has property management and leasing responsibility
for approximately 25 properties owned by affiliates of Concord (the "Concord
Properties"). Under the CAMI Agreements, MPMI receives a $5,000 per month
management fee for single tenant commercial properties and between 3% and 5% of
the rents on shopping center properties. MPMI recognized revenues of
approximately $139,968 under the CAMI Agreements for the year ended December 31,
1996.
See "Recent Developments" in Item 6 - Management's Discussion and Analysis
of Financial Condition and Results of Operations, for a discussion of the
termination of MPMI's property management agreement with UPI.
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MAMI - Real Estate Related Investments
Milestone Asset Management, Inc., ("MAMI") formerly known as Milestone
Mortgage Corporation) was formed as a wholly owned subsidiary of Milestone in
August 1993. MAMI has been focusing on increasing its investment opportunities
and purchasing issues of mortgage loan securitizations.
In March 1994, MAMI and Nomura Grand Cayman Ltd. entered into a Global
Master Repurchase Agreement to facilitate the purchase by MAMI of a subordinated
mortgage pass-through certificate from Nomura. In August 1994, the Company
entered into a Master Repurchase Agreement with DLJ Mortgage Acceptance
Corporation ("DLJMA") to facilitate the purchase of two subordinated mortgage
pass-through certificates from DLJMA. Pursuant to the Global Master Repurchase
Agreement and the Master Repurchase Agreement, MAMI enters into repurchase
agreements to finance its acquisitions of securities. A reverse repurchase
agreement is a short-term financing arrangement in which an investor, such as
MAMI, sells a security which it owns, to a securities dealer and the investor
agrees to repurchase the security from the dealer in the future, usually at a
stated time for a predetermined price. The benefit to MAMI of the arrangement is
the ability to "borrow" funds on a short-term basis.
MAMI has acquired and may continue to acquire securities backed by mortgage
loans on commercial and multi-family dwellings ("CMBS"). CMBS on multi-family
dwellings or other commercial properties may be backed by fewer loans involving
fewer borrowers than is the case for mortgage-backed securities backed by
mortgage loans on single-family homes. Mortgage loans on multi-family dwellings
and other commercial properties generally are not insured or guaranteed and
generally are non-recourse to the borrower.
As described below, MAMI has engaged in a variety of interest rate
management techniques in order to attempt to manage the effective maturity
and/or interest rate risk of its assets. These techniques may also be used to
attempt to protect against declines in the market value of MAMI's assets
resulting from general trends in debt markets. No assurance can be given,
however, that such techniques will protect MAMI against such risks.
On March 25, 1996, MAMI purchased $9,599,500 of BB rated commercial mortgage
pass-through certificates ("Certificates"), known as Merrill Lynch Mortgage
Investors Series 1995-C1 E, for $8,452,060. MAMI used $2,113,015 of available
cash and borrowed the remaining $6,339,045 from Nomura to fund such purchase.
Concurrent with this transaction, MAMI sold short $9,500,000 of U.S. Treasury
Notes and invested the proceeds in repurchase contracts in a transaction
designed to mitigate interest rate risk.
On August 22, 1996, MAMI purchased $16.7 million of B rated Certificates
known as Nomura Series 1996-MDV B2 for $11,690,000. MAMI used $3,507,000 of
available cash, and borrowed the remaining $8,183,000 from Nomura to fund such
purchase, and sold short $15,000,000 of U.S. Treasury Notes to reduce the
interest rate risk associated with these Certificates. MAMI invested the
proceeds of the short sale in repurchase contracts. Concurrent with the purchase
of the Nomura Series 1996-MDV Certificates, discussed above, MAMI sold
$12,750,000 of its $24,839,000 position in another B rated class of Certificates
known as Nomura Series 1994-MDI B3A and received $11,706,094 from such sale, of
which $8,065,246 was used to retire debt associated with such certificates.
On September 19, 1996, MAMI sold $3,259,923 of BB rated Certificates, known
as Nomura Series 1994-MDII B3, which were originally purchased on March 30,
1995. MAMI received $3,177,916 from such sale, of which $2,233,302 was used to
retire the debt associated with such certificates.
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On October 25, 1996, MAMI sold $9,599,500 of BB rated Certificates known as
Merrill Lynch Mortgage Investors Series 1995-C1 E, which were purchased on March
25, 1996. MAMI received $8,699,547 from such sale, of which $6,389,000 was used
to retire the debt associated with such certificates, and concurrent with such
sale, MAMI closed the $9,500,000 U.S. Treasury Note short position which it had
established at the time of purchase.
On January 23, 1997, MAMI sold its remaining $12,089,000 ownership of Nomura
Series 1994-MDI B3A for $9,520,088, of which $9,392,383 was used to retire the
debt associated with such security. Concurrent with the sale, MAMI closed the
U.S. Treasury Note short position which it had previously established. As a
result of such sale and close of the U.S. Treasury Note obligation, the Company
realized a loss of approximately $1,100,000, of which, approximately $475,000
has been previously recognized as an unrealized loss on Treasury Notes sold
short and approximately $600,000 has been previously recognized as an Unrealized
holding loss-available-for-sale securities.
The Company, through the operations and activities of MAMI, intends to
increase its investment in mortgage loan securitizations and other similar real
estate securities. Currently, the Company is not required to register as an
investment company under the Investment Company Act of 1940 (the "Investment
Company Act"). The Company intends to operate its businesses so that it will not
be deemed to be an investment company under Section 3(a)(3) of the Investment
Company Act or would qualify for an exemption from registration under the
Investment Company Act (e.g., Rule 3a-1 or the real estate interest exemption
under Section 3(c)(5)(C)).
More detailed information on the operations and activities of MAMI and the
intended activities of and the risks related to such activities and investments
is set forth in the Company's Proxy Statement - Information Statement dated
September 12, 1995, a copy of which is on file with the Securities and Exchange
Commission, to which reference is hereby made.
Investment Policy
There are no limitations on the percentage of assets which may be invested
in any one investment or on the type of investments the Company may make. The
Company has no present intention of investing in or acquiring the securities of
other companies for the purpose of exercising control over other companies. The
Company does not currently intend to expand its operations to include non-real
estate related activities, but may do so if the Company's Board of Directors
determines it to be in the best interest of the Company. The Company's policies
towards its investments are not subject to the vote of the Company's
stockholders.
Real Estate Revenues
For the year ended December 31, 1996, no tenant accounted for more than 10%
of the Company's gross revenues; K-Mart, however, accounted for approximately
28% of base rental revenues in 1996, and is scheduled to pay approximately 27%
of base rentals in 1997.
Potential Environmental Risks
Investments in real property create a potential for environmental liability
on the part of the owner, operator or developer of such real property. If
hazardous substances are discovered on or emanating from any of the Properties,
the Company and/or others may be held strictly liable for all costs
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and liabilities relating to the clean-up of such hazardous substances. The
Company is not aware of any environmental conditions that will have a material
impact on its financial position or results of operations.
Competition
Milestone
Any rental property owned or hereafter acquired by Milestone (whether
retail, office, industrial or residential) will have substantial competition
from similar properties in the vicinity in which such property is located. Such
competition is generally for the retention of existing tenants and for new
tenants upon space becoming vacant. Milestone believes that the profitability of
each Underlying Property is based, in part, upon its geographic location, the
operations and identity of the property's tenants, the performance of the
property and leasing managers, the maintenance and appearance of the property,
the ease of access to the property and the adequacy of property related
facilities. Milestone also believes that general economic circumstances and
trends as well as the character and quality of new and existing properties which
may be located in the vicinity of an Underlying Property are factors that may
affect the operation and competitiveness of the property.
Milestone competes with other investors, managers and developers to acquire
desirable properties and engages in a continuing effort to identify desirable
properties for acquisition. Management believes that Milestone can continue to
compete effectively in the current real estate environment because of its
experience in real estate investment, tenant selection and lease negotiation.
However, many other investors in real property who compete with Milestone have
far greater resources than Milestone.
MPMI
MPMI competes with numerous other developers, managers and owners of real
estate, many of which have far greater financial and other resources than MPMI,
for management, leasing revenues and tenants for properties. Currently, MPMI has
property management and leasing responsibility for the Concord Properties
pursuant to the CAMI Agreements.
MAMI
MAMI competes with numerous other investors and investment vehicles, many of
which have far greater financial and other resources than MAMI, for third party
investors and attractive mortgage loan securitizations and commercial
mortgage-backed securities.
Employees
Milestone employs six people, five of whom are officers. MPMI employs
thirty-two people and MAMI employs two people. Milestone and MPMI, pursuant to
separate management and service agreements, have made available to Concord
certain of their employees to perform a variety of management and administrative
services for Concord. Except for services provided by certain employees pursuant
to such agreements, all of the employees discussed above are employed full-time
by the Company.
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Item 2. Description of Property.
The following tables describe and summarize certain operating data for each
of the Properties. See also Item 1.-Business, for a description of additional
terms relating to the Properties and the Company's Investment policies.
Table 1. Summary of Properties.(1)
Table 2. Summary of Mortgages - Underlying Debt.
Table 3. Summary of Wraparound Notes.
Table 4. Summary of Depreciation.
- --------
(1) The descriptions of certain Properties set forth in Table 1 do not set forth
annual real estate taxes or realty tax rates since such properties are triple
Master Leased, and therefore, all expenses, including real estate taxes, are
the responsibility of the tenant.
9
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BEND, OR MOUNTAIN VIEW MALL (2) 346,943 95.00% $5.33
K-MART 88,801 $3.77
DISCOUNT DEPARTMENT STORE
J.C. PENNEY 51,257 $4.75
DEPARTMENT STORE
EMPORIUM DEPARTMENT STORE 38,880 $2.89
DEPARTMENT STORE
FOOD 4 LESS 35,000 $5.20
DISCOUNT SUPERMARKET
G.I. JOES 34,969 $3.50
SPORTING GOODS STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 279,704.00
1997 80,898.00
1998 50,447.00
1999 293,841.00
2000 - 2005 706,840.00
DELAND, FL DELAND PLAZA (1) 68,337 100.00% $3.11
KMART CORPORATION 68,337 $3.11
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 212,200.00
GREECE, NY RIDGEMONT PLAZA 84,180 100.00% $3.16
K-MART 84,180 $3.16
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 265,900
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BEND, OR $255,908.00 0.0123%
1% OF SALES IN 02/28/06
EXCESS OF $11,579,000.
1.5% OF SALES IN 10/31/03
EXCESS OF $12,187,808.
3% OF SALES IN 07/31/99
EXCESS OF $2,812,500.
1% OF SALES IN 05/31/05
EXCESS OF $17,220,000.
1.5% OF SALES IN 06/30/99
EXCESS OF 4,100,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
14.55% 29,807 19
4.21% 9,230 5
2.62% 3,970 5
15.28% 78,179 7
36.76% 108,017 15
DELAND, FL
1% OF SALES IN 03/31/03
EXCESS OF $7,475,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
100.00% 68,337 1
GREECE, NY $25,083.48 0.0090%
1% OF SALES IN 11/30/01
EXCESS OF $9,573,750.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
100.00% 84,180 1
</TABLE>
10
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PASCAGUOLA, MS GULF COAST PLAZA 125,802 78.64% $2.12
CONSOLIDATED STORES, INC 26,640 $2.84
(BIG LOTS)-DISCOUNT VARIETY
BADCOCK FURNITURE 15,165 $2.88
FURNITURE STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 64,200.00
1997 24,480.00
1998 35,000.00
1999 52,080.00
2000 - 2005 88,950.00
JANESVILLE, WI BLACKHAWK VILLAGE (1) 88,500 100.00% $2.62
K-MART 60,500 $2.65
DISCOUNT DEPARTMENT STORE
SUPER VALUE 12,500 $2.19
BEN FRANKLIN 11,300 $2.75
CRAFTS STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 2,792.00
1997 0.00
1998 58,393.00
1999 10,500.00
2000 - 2005 0.00
MARIETTA, OH MARIETTA, 87,543 100.00% $3.92
KMART CORPORATION 87,543 $3.92
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PASCAGUOLA, MS $48,534.00 0.2020%
2.5% OF SALES IN 01/30/00
EXCESS OF $3,030,000.
10/31/99
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
24.09% 25,142 3
9.19% 10,208 2
13.13% 20,775 2
19.54% 16,065 2
33.38% 26,641 2
JANESVILLE, WI $27,878.07 0.0293%
03/05/06
1% OF SALES IN 08/31/98
EXCESS OF $3,000,000
3% OF SALES IN 02/28/98
EXCESS OF $1,035,833
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
1.20% 1,200 1
0.00% 0 0
25.16% 23,800 2
4.53% 3,000 1
0.00% 0 0
$23,604.03 0.0256%
MARIETTA, OH 1% OF SALES IN 09/30/06
EXCESS OF $10,500,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
</TABLE>
11
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MARION,OH MARION (1) 87,436 100.00% $3.42
KMART CORPORATION 87,436 $3.42
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
MT. PLEASANT, PA MT. PLEASANT 83,552 100.00% $3.05
KMART CORPORATION 83,552 $3.05
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
NORTH CANTON, OH NORTH CANTON 84,180 100.00% $3.32
KMART CORPORATION 84,180 $3.32
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 279,500.00
2000 - 2005 0.00
OWENSBORO, KY OWENSBORO 68337 100.00% $4.60
KMART CORPORATION 68,337 100.00% $4.60
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARION,OH
1% OF SALES IN 09/30/06
EXCESS OF $10,000,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
MT. PLEASANT, PA
1% OF SALES IN 04/30/07
EXCESS OF $9,375,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
NORTH CANTON, OH
1% OF SALES IN 09/30/99
EXCESS OF $9,000,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
100.00% 84,180 1
0.00% 0 0
OWENSBORO, KY
1% OF SALES IN 11/30/07
EXCESS OF $10,500,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
</TABLE>
12
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
QUINCY, IL HARRISON STREET (3) 149,954 98.80% $2.75
PLAZA
KMART CORPORATION 90,888 $2.73
DISCOUNT DEPARTMENT STORE
HY-VEE FOODS 39,066 $3.00
SUPERMARKET
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 38,550.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 365,765.00
NATCHEZ, MS MORGANTOWN PLAZA 92,740 95.07% $2.80
BIG LOTS 23,520 $3.25
DISCOUNT VARIETY STORE
HELIG-MEYERS 26,320 $2.17
FURNITURE COMPANY
WINN-DIXIE 25,600 $4.55
SUPER MARKET
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 321,383.00
STREETSBORO, OH STREETSBORO 84,800 100.00% $2.88
KMART CORPORATION 84,800 $2.88
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
QUINCY, IL $46,678.00 0.0751%
1% OF SALES IN 11/30/04
EXCESS OF $7,500,000
.50% OF SALES IN 09/30/00
EXCESS OF $15,000,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
9.33% 9,200 2
0.00% 0 0
0.00% 0 0
0.00% 0 0
88.56% 129,954 2
NATCHEZ, MS $22,418.00 0.1263%
2.5% OF SALES IN 01/31/01
EXCESS OF $3,057,600
02/28/05
1% OF SALES IN 02/03/02
EXCESS OF $11,651,600
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
95.56% 87,120 5
STREETSBORO, OH
1% OF SALES IN 08/31/06
EXCESS OF $7,450,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
</TABLE>
13
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DUBOIS, PA SANDY PLAZA 34,019 100.00% $1.00
RIVERSIDE MARKETS 34,019 $1.00
SUPERMARKET
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
FRANKLIN TOWNSHIP, PA KROGER 31,170 100.00% $0.00
KROGER (4) 31,170 $0.00
SUPERMARKET
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
CLARKSVILLE, TN CLARKSVILLE 88,100 100.00% $3.30
KMART CORPORATION 88,100 $3.30
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DUBOIS, PA $22,924.84 0.0456%
1% OF SALES IN 03/31/07
EXCESS OF $29,800,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
FRANKLIN TOWNSHIP, PA
1% OF SALES IN 02/28/07
EXCESS OF $29,000,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
CLARKSVILLE, TN $22,924.84 0.0456%
1% OF SALES IN 08/31/06
EXCESS OF $10,000,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
</TABLE>
14
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONTGOMERY, AL CHISOLM SHOPPING 39,075 100.00% $5.28
CENTER
WINN-DIXIE (1) 30,625 $6.10
SUPERMARKET
DOLLAR GENERAL 8,450 $2.31
DISCOUNT VARIETY STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 19,500.00
1999 0.00
2000 - 2005 186,813.00
PARIS, TN PARIS PLAZA 102,453 99.99% $2.91
WALMART (5) 52,800 $1.91
DISCOUNT DEPARTMENT STORE
BIG JOHNS 12,000 $3.35
SUPERMARKET
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 66,372.00
1997 100,992.00
1998 0.00
1999 42,810.00
2000 - 2005 87,861.00
CHILI, NY CHILI PLAZA 128,864 76.60% $2.01
KMART CORPORATION 84,180 $2.88
DISCOUNT DEPARTMENT STORE
ROCHESTER BANK 14,529 $1.17
LOCAL BANK
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 17,000.00
1999 0.00
2000 - 2005 242,200.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MONTGOMERY, AL $9,655.86 0.0294%
1% OF SALES IN 11/14/04
EXCESS OF $18,681,250.
2.50% OF SALES IN 04/30/98
EXCESS OF $800,000.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
9.45% 8,450 1
0.00% 0 0
90.55% 30,625 1
PARIS, TN $46,906.00 0.0207%
1% OF SALES IN 11/07/97
EXCESS OF $10,099,200.
.75% OF SALES IN 06/09/01
EXCESS OF $5,357,584.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
22.27% 14,380 3
33.89% 52,800 1
0.00% 0 0
14.36% 10,000 2
29.48% 23,273 3
CHILI, NY $126,698.60 0.5064%
1% OF SALES IN 09/30/01
EXCESS OF $8,644,167.
03/31/98
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
6.56% 14,529 1
0.00% 0 0
93.44% 52,800 1
</TABLE>
15
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S. WILLIAMSON, KY SOUTHSIDE MALL 285,655 97.26% $6.72
KMART CORPORATION 86,577 $4.41
DISCOUNT DEPARTMENT STORE
KROGER 33,826 $7.30
SUPERMARKET
WATSONS 30,000 $4.00
DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 275,299.00
1997 65,000.00
1998 18,996.00
1999 120,398.00
2000 - 2005 959,895.00
SAVANNAH, TN SAVANNAH PLAZA 46,400 100.00% $2.39
WALMART (1) 41,400 $2.38
DISCOUNT DEPARTMENT STORE
TIMBES SALVAGE GROCERY 5,000 $2.50
SALVAGE GROCERY STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 12,500.00
1997 0.00
1998 0.00
1999 98,532.00
2000 - 2005 0.00
DANVILLE, IL HOLIDAY SQUARE 50,978 100.00% $2.57
EAGLE FOOD STORE 40,853 $2.52
SUPERMARKET
FAMILY DOLLAR 10,125 $2.75
DISCOUNT VARIETY STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 27,840.00
2000 - 2005 103,000.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S. WILLIAMSON, KY
1% OF SALES IN 09/30/06
EXCESS OF $12,200,000
1% OF SALES IN 02/28/01
EXCESS OF $24,694,440.
2% OF SALES IN 03/31/01
EXCESS OF $4,000,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
14.34% 28,734 10
3.39% 3,658 2
0.99% 3,139 1
6.27% 12,336 5
50.01% 139,382 14
SAVANNAH, TN $8,286.98 0.0147%
1% OF SALES IN 10/31/99
EXCESS OF $9853200.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
11.26% 5,000 1
0.00% 0 0
0.00% 0 0
88.74% 41,400 1
0.00% 0 0
DANVILLE, IL $41,838.64 0.0955%
1.25% OF SALES IN 10/31/01
EXCESS OF $13,000,000
2.50% OF SALES IN 12/30/99
EXCESS OF $1,113,600
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
9.34% 10,125 1
34.56% 40,853 1
</TABLE>
16
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WARSAW, VA RICHMOND PLAZA 43,200 100.00% $3.18
AMES DEPARTMENT STORE 43,200 $3.18
DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 137,500.00
1998 0.00
1999 0.00
2000 - 2005 0.00
SOUTHWICK, MA GREENWOOD PLAZA 45,000 100.00% $2.78
AMES CORPORATION 45,000 $2.78
DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
WALPOLE, NH KENDIANA PLAZA 32,400 100.00% $3.85
AMES CORPORATION 32,400 $3.85
DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
BATON ROUGE, LA CAPITOL HEIGHTS 52,700 100.00% $8.82
WINN DIXIE 44,000 $8.90
SUPERMARKET
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 32,550.00
1997 0.00
1998 40,830.00
1999 0.00
2000 - 2005 391,600.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WARSAW, VA
1% OF SALES IN 01/31/10
EXCESS OF $10,099,200.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
100.00% 43,200 1
0.00% 0 0
0.00% 0 0
0.00% 0 0
SOUTHWICK, MA
2% OF SALES IN 01/31/07
EXCESS OF $5,000,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
WALPOLE, NH
2% OF SALES IN 01/26/08
EXCESS OF $5,000,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
BATON ROUGE, LA $47,417.97 0.1020%
1.25% OF SALES IN 07/31/05
EXCESS OF $31,328,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
7.00% 3,600 2
0.00% 0 0
8.78% 5,100 3
0.00% 0 0
84.22% 44,000 1
</TABLE>
17
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PALATKA, FL WALMART 91,840 100.00% $2.39
WALMART 91,840 $2.39
DISCOUNT DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 219,338.00
PRATVILLE, AL MID-TOWN SHOPPING 56,908 100.00% $5.64
CENTER
WINN-DIXIE (1) 30,625 $5.65
SUPERMARKET
FAMILY DOLLAR 8,450 $3.31
DISCOUNT VARIETY STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 66,969.00
1997 18,897.00
1998 26,975.00
1999 0.00
2000 - 2005 173,031.00
VESTIVA HILLS, AL COLUMBIANA 35,946 100.00% $4.78
CROSSING, SC
WINN-DIXIE (1) 35,946 $4.78
SUPERMARKET
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PALATKA, FL
1.00% OF SALES IN 01/31/05
EXCESS OF $18,067,523.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
100.00% 91,840 1
PRATVILLE, AL $10,600.80 0.0280%
1.00% OF SALES IN 04/06/03
EXCESS OF $17,303,125.
3.00% OF SALES IN 12/31/96
EXCESS OF $933,333
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
20.85% 13,826 5
5.88% 2,920 2
8.40% 4,100 1
0.00% 0 0
53.87% 30,625 1
VESTIVA HILLS, AL
1.00% OF SALES IN 11/30/04
EXCESS OF $17,171,004
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
</TABLE>
18
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COLUMBUS, NE COTTONWOOD PLAZA 64,890 100.00% $3.36
WAL-MART (6) 64,890 $3.36
SUPERMARKET
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 217,875.00
HAMILTON, NY ALEXANDER PLAZA 43,200 100.00% $3.18
AMES DEPARTMENT STORE 43,200 $3.18
DEPARTMENT STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 - 2005 0.00
ZANESVILLE, OH SUNRISE SHOPPING (2) 130,071 97.60% $2.36
CENTER
BLUE GRASS THEATRES 17,500 $1.25
MOVIE THEATRES
IGA FOODLINER 15,000 $2.00
SUPERMARKET
B'S SEWING SPECIALS 47,500 $1.73
SEWING SUPPPLIES
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 77,367.00
1997 145,711.00
1998 50,603.00
1999 30,000.00
2000 - 2005 0.00
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLUMBUS, NE
1.00% OF SALES IN 01/31/11
EXCESS OF $19,363,748
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
100.00% 64,890 1
HAMILTON, NY
1.50% OF SALES IN 01/31/10
EXCESS OF $5,843,356.
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
0.00% 0 0
ZANESVILLE, OH $41,891.00 0.0458%
08/31/98
1.50% OF SALES IN 09/30/99
EXCESS OF $2,000,000
07/31/97
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
25.15% 18,051 10
47.37% 62,880 6
16.45% 25,550 3
9.75% 15,000 1
0.00% 0 0
</TABLE>
19
<PAGE>
TABLE 1. SUMMARY OF UNDERLYING AND FEE PROPERTIES
<TABLE>
<CAPTION>
TENANT OCCUPYING
(greater than) 10% OF SQUARE OCCUPANCY RENT
LOCATION PROPERTY GLA NATURE OF BUSINESS FEET RATE PER SQ FT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BLACKSTONE, VA AMES DEPARTMENT (2) 43,200 20.83% $0.75
STORE
FAMILY DOLLAR 43,200 $0.75
DISCOUNT VARIETY STORE
10 YEAR SCHEDULE OF RENTS EXPIRING
LEASE EXPIRATIONS
----------------------------- -------------------------
1996 0.00
1997 0.00
1998 32,500.00
1999 0.00
2000 - 2005 0.00
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
PERCENTAGE LEASE ANNUAL REALTY
LOCATION RENT & OTHER EXPIRATION R/E TAXES TAX
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BLACKSTONE, VA $9,343.20 0.0080%
2.50% OF SALES IN 06/30/98
EXCESS OF $1,300,000
PERCENTAGE OF GROSS SQ. FT. TENANTS
ANNUAL RENT EXPIRING EXPIRING
------------------------------------------------------
0.00% 0 0
0.00% 0 0
100.00% 9,000 1
0.00% 0 0
0.00% 0 0
- --------------------------------------------------------------------------------------------
</TABLE>
* Outside Management Company pays the real estate taxes.
(1) Dark Store.
(2) Fee Property.
(3) Sublet to Kirlin's Inc.
(4) Sublet to Giant Eagle Supermarket.
(5) Sublet to several various tenants.
(6) Sublet to Menard's.
<PAGE>
Table 2. Summary of Mortgages - Underlying Debt
<TABLE>
<CAPTION>
Balance at
Principal Maturity
Balance at Interest Maturity (Assuming
Location 12/31/96 Rate (%) Amortization Provisions Prepayment Provisions Date No Prepayment)
==================== =========== ========== ============================== ======================== ========= =================
<S> <C> <C> <C> <C> <C> <C>
Baton Rouge, LA 2,211,711 12.00 Monthly payments of 5% premium; declines 12/01/05 $0
principal & interest of 1% annually to minimum
$33,583 of 2%
Bend, OR 17,408,666 9.00 Monthly payments of Yield maintenance plus 06/01/98 $17,077,113
principal & interest of participation per
$148,925 + 67% annual formula
cash flow as defined
in the note
Chili, NY 1,477,009 9.63 Monthly payments of 1% prepayment premium 08/01/04 $0
principal & interest of
$21,687.58
Clarksville, TN 1,675,000 6.0-6.8 Bond fund - variable No prepayment until 10/01/06 $0
semi-annual payments 2002; then 3%
declines 0.5%
annually to par
52,302 12.00 Variable semi-annual 10/01/98 $0
payments
Columbus, NE 1,411,640 12.00 Monthly payments of No prepayment 09/01/10 $0
principal & interest
of $17,201
66,092 9.50 Monthly payments of
principal & interest
of $696.67
Danville, IL 542,290 9.625 Monthly payments of 1% prepayment premium 09/01/02 $64,250
principal & interest
of $9,663
Deland, FL 1,014,667 8.87 Monthly payments of 1% prepayment premium 04/01/03 $354,829
principal & interest
of $14,016
Dubois, PA 1,571,981 7.00 Bond fund - variable No prepayment 12/01/06 $0
semi-annual payments
Ellwood City 1,535,000 6.00 No prepayment 02/15/07 $0
(Franklin
Township), PA
Hamilton, NY 849,254 13.13 Monthly payments of No prepayment 12/01/09 $0
principal & interest of until 1996, then
$11,373 5% decline 1% annual
to 2% min.
Janesville, WI 1,065,955 9.00 Monthly payments of No prepayment 08/01/02 $540,492
principal & interest of penalty
$14,060
125,541 9.00 Monthly payments of 08/01/07 $0
principal & interest of
$1,529.17; subject to
available cash flow
Marietta, OH 2,177,317 5.75-6.7 Bond fund - variable No prepayment until 03/15/07 $0
semi-annual payments 2002, then 3%
declining 1% annually
to par
54,423 12.00 Variable semi-annual 09/15/98 $0
payments
Marion, OH 1,880,299 5.75-6.7 Bond fund - semi-annual No prepayment until 02/01/07 $0
payments 2002; then 3%
declining 1% annually
to par
52,731 12.00 Variable semi-annual 08/01/98 $0
payments
Montgomery, AL 1,336,967 8.75 Monthly payments of No prepayment until 04/01/07 $396,073
principal & interest 1998, then 3% decline
of $14,500 1% annual to 2% min.
Mt. Pleasant, PA 1,449,882 6.50 Bond fund - variable No prepayment until 05/01/07 $0
semi-annual payments 2001, then 3% declin ing
1% annually to par
62,660 12.00 Variable semi-annual 11/01/98 $0
payments
Natchez, MS 1,887,729 12.50 Monthly payments of 5% premium, declining 04/01/07 $1,921,107
principal & interest 1% annually to par
equal to available cash
flow (8)Ellwood City
No. Canton, OH 2,182,027 9.00 Monthly payments of principal Prepayable at a discount 10/01/12 $0
& interest of $21, 669
Owensboro, KY 1,673,850 8.00 Bond fund - variable No prepayment until 12/01/07 $0
semi-annual payments 2001; then 3% declining
1% annually to par
127,862 12.00 Variable semi-annual payments 12/31/15 $0
Palatka, FL 1,256,305 12.00 Monthly payments of principal No prepayment until 11/01/07 $0
& interest of $17,247 1996; then 5% decline
1% annual to 2% min.
Paris, TN 615,464 13.50 Monthly payments of principal No prepayment penalty 04/01/08 $0
& interest of $8,859
35,158 9.00 Monthly payments of principal 01/01/99 $0
& interest of $3,296
355,949 9.25 Monthly payments of principal 07/01/00 $0
& interest of $8,467
Southwick, MA 821,252 11.50 Monthly payments of principal 1% prepayment premium 01/01/11 $0
& interest of $9,857 in
advance
So. Williamson, KY 15,167,531 9.00 Monthly payments of principal No prepayment penalty 10/01/98 $14,463,542
& interest of $144,833 (4)
Streetsboro, OH 1,484,667 6.35-6.7 Bond fund - variable No prepayment until 12/01/06 $0
semi-annual payments 2001; then 3% declining
1% annually to par
Vestivia Hills, AL 810,985 13.00 Monthly payments of principal No prepayment until 11/01/04 $0
& interest of $13,759 1996; then 5% decline
1% annual to 2% min.
Walpole, NH 821,252 11.50 Monthly payments of principal 1% prepayment premium 01/01/11 $0
& interest of $9,857
Prattville, AL 2,314,270 11.00 Monthly payments of principal 1% prepayment premium 07/01/96 $2,330,705
& interest of $24,042
Quincy, IL 3,142,882 7.75 Monthly payments of principal No prepayment penalty 07/01/98 $3,009,116
& interest of $27,912 (1)
Rochester 1,237,282 9.25 Monthly payments of principal 1% prepayment premium 01/01/02 $757,420
(Greece), NY & interest of $15,992
Savannah, TN 370,043 9.50 Monthly payments of principal 1.5% premium, decline 02/01/03 $0
& interest of $6,612 1% annually to par
Warsaw, VA 845,064 13.13 Monthly payments of principal No prepayment until 10/01/09 $0
& interest of $11,373 1997, then 5% decline
1% annual to 2% min.
Zanesville, OH 1,252,829 9.50 Monthly payments of principal No prepayment penalty 06/01/98 $1,170,930
& interest of $14,295
</TABLE>
<PAGE>
3. Summary of Wraparound Notes
<TABLE>
<CAPTION>
Balance at Annual
Principal Maturity Master
Balance at Interest Maturity (Assuming Lease Master Lease
Location 12/31/96 Rate (%) Amortization Provisions Date No Prepayment) Payment Termination
==================== =========== ========== ============================== ========== ================= ========== ==============
<S> <C> <C> <C> <C> <C> <C> <C>
Baton Rouge, LA 4,165,014 9.75 Annual payments of 12/31/99 $3,980,636 $630,350 12/31/99
principal & interest of
$630,350
Chili, NY 1,898,943 10.00 Annual payments of 12/31/99 $3,152,116 $674,340 12/31/99
principal & interest of
$674,340
Clarksville, TN 2,301,939 9.75 Annual payments of 12/31/99 2096002320 $554,822 12/31/99
principal & interest of
$554,822
Columbus, NE 2,227,101 9.75 Annual payments of 12/31/99 $2,235,207 $309,707 12/31/99
principal & interest of
$309,207
Danville, IL 1,038,916 9.75 Annual payments of 12/31/99 $1,564,040 $275,730 12/31/99
principal & interest of
$275,730
Deland, FL 1,517,212 9.70 Annual payments of 12/31/99 $1,890,294 $207,550 12/31/99
principal & interest of
$207,550
Dubois, PA 1,774,039 10.00 Annual payments of 12/31/99 $1,995,528 $475,428 12/31/99
principal & interest of
$475,498
Ellwood City 1,774,039 10.00 Annual payments of 12/31/99 $1,995,528 $475,498 12/31/99
(Franklin principal & interest of
Township), PA $475,498
Hamilton, NY 1,142,463 9.75 Annual payments of 12/31/99 $1,229,940 $210,745 12/31/99
principal & interest of
$210,745
Janesville, WI 1,689,531 10.25 Annual payments of 12/31/15 $0 $268,502 12/31/99
principal & interest of
$268,502
Marietta, OH 3,016,388 8.32 Annual payments of 12/31/14 $0 $371,533 12/31/99
principal & interest of
$371,533
20,000 11.00 No payments 12/31/14 $160,313
Marion, OH 2,628,377 9.10 Annual payments of 12/31/14 $0 $326,940 12/31/99
principal & interest of
$326,940
Montgomery, AL 1,467,831 9.75 Annual payments of 12/31/99 $3,032,563 $295,516 12/31/99
principal & interest of
$295,516
Mt. Pleasant, PA 2,530,540 9.18 Annual payments of 12/31/15 $0 $390,345 12/31/99
principal & interest of
$290,345
Natchez, MS 1,887,730 10.00 Annual payments of 12/31/98 $3,097,351 $516,210 12/31/99
principal & interest of
$516,210
No. Canton, OH 2,262,309 9.11 Annual payments of 12/31/14 $0 $333,272 12/31/99
principal & interest of
$333,372
26,575 11.00 No payments 12/13/14 $216,478
25,950 11.00 No payments 12/01/14 $186,725
Owensboro, NY 2,826,464 10.00 Annual payments of 12/13/14 $0 $337,955 12/31/99
principal & interest of
$337,955
Palatka, FL 1,909,127 9.75 Annual payments of 12/31/99 $1,921,922 $407,745 12/31/99
principal & interest of
$407,745
Paris, TN 1,735,643 10.00 Annual payments of 12/31/99 $2,687,003 $555,860 12/31/99
principal & interest of
$555,860
51,016 11.00 No payments 12/31/99 $80,814
Southwick, MA 915,259 9.75 Annual payments of 12/31/99 $1,248,385 $196,750 12/31/99
principal & interest of
$196,750
So. Williamson, KY 15,167,532 9.88 Annual payments of 12/31/99 $19,052,522 $4,181,000 12/31/99
principal & interest of
$4,181,000
Streetsboro, OH 2,054,283 9.68 Annual payments of 12/31/14 $0 $276,986 12/31/99
principal & interest of
$276,986
21,447 11.00 No payments 12/31/14 $176,200
19,600 11.00 No Payments 12/01/14 $142,686
Vestivia Hills, AL 1,426,902 9.75 Annual payments of 12/31/99 $1,555,772 $257,306 12/31/99
principal & interest of
$3257,306
Walpole, NH 1,053,548 9.75 Annual payments of 12/31/99 $1,248,385 $196,750 12/31/99
principal & interest of
$196,750
Pascagoula, MS 2,124,922 9.75 Annual payments of 12/31/16 $0 $270,266 12/31/99
principal & interest of
$246,507
175,125 12.00 $10,000 on 12/31/95; 12/31/16 $187,335
$23,759 annually thereafter
Prattville, AL 2,505,322 9.75 Annual payments of 12/31/99 $2,905,521 $438,125 12/31/99
principal & interest of
$438,125
Quincy, IL 3,142,883 10.00 Annual payments of 12/31/98 $4,904,390 $920,890 12/31/99
principal & interest of
$920,890
Rochester 1,832,909 9.70 Annual payments of 12/31/14 $0 $220,906 12/31/99
(Greece), NY principal & interest of
$220,906
130,625 10.00 No payments 12/31/14 $910,735
Savannah, TN 763,503 9.880 Annual payments of 12/31/14 $993,633 $197,500 12/31/99
principal & interest of
$197,500
Warsaw, VA 1,079,134 9.75 Annual payments of 12/31/99 $1,547,507 $175,974 12/31/99
principal & interest of
$175,974
</TABLE>
<PAGE>
TABLE 4. SUMMARY OF DEPRECIATION
- --------------------------------
<TABLE>
<CAPTION>
FEDERAL 1996 METHOD LIFE
LOCATION TAX BASIS DEPRECIATION RATE TAXABLE/NONTAXABLE TAXABLE/NONTAXABLE
-------- --------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Bend, OR $20,274,262 2.45% ACRS REAL PROPERTY / STRAIGHT LINE 19 YRS / 40 YRS
Blackstone, VA 1,901,818 1.04% STRAIGHT LINE / STRAIGHT LINE 31.5 YRS / 40 YRS
Zanesville, OH 4,174,780 1.52% ACRS REAL PROPERTY / STRAIGHT LINE 19 YRS / 40 YRS
</TABLE>
23
<PAGE>
Item 3. Legal Proceedings.
A lawsuit (the "Rabin Litigation") purporting to be a class
action against, among others, Concord, Leonard S. Mandor, Robert A.
Mandor and certain Partnerships and affiliates of Concord, was filed in
September 1989 alleging various federal and common law claims relating
to the sales of interests in such partnerships. In November 1991, the
Rabin Litigation was settled pursuant to the terms of the court-approved
settlement agreement (the "Settlement Agreement"). The plaintiffs in the
Rabin Litigation have filed a Notice of Motion with the court seeking to
enforce the Settlement Agreement and for declaratory and other relief.
The plaintiffs assert, inter alia, that the defendants have breached the
Settlement Agreement by improperly allocating transaction expenses
against the payment to be made to the selling Partnerships in certain
circumstances pursuant to the Settlement Agreement and have breached
their fiduciary duties to the plaintiffs. Although the Company is not a
party to such action, in the event that the plaintiffs are successful in
their claim that certain transaction fees, costs and expenses incurred
upon the sale of an Underlying Property are to be borne by the holder of the
Wraparound Mortgage, the value of the Wrap Debt would be adversely affected,
although the Company does not believe the effect of a successful claim by the
plaintiffs would be materially adverse to the Company. Concord and one of its
subsidiaries have agreed to indemnify the Company for any losses, up to
$200,000 in the aggregate, resulting from any such additional transaction fees,
costs or expenses incurred by the Company as a result of such event. Concord and
its subsidiary can satisfy their indemnity obligation to the Company by
delivery of shares of Common Stock, which for such purposes will be
deemed to have a value of $7.25 per share.
In connection with the motion to enforce the Settlement Agreement, the
plaintiffs in such action have alleged, in part, that the sale of Properties by
the general partner (the "General Partner") of the Partnership selling
Properties, was premature, without valid business justification with respect to
the Partnership and a breach of the General Partner's fiduciary duty. If this
aspect of the litigation is determined adversely to the General Partner (or if
the General Partner agreed to a settlement restricting its ability to sell
Properties prior to maturity), the ability of the General Partner to sell
Partnership properties, including the Underlying Properties, prior to the
maturity of the related Wrap Debt, whether by acceleration or at stated
maturity, would be limited and could materially and adversely affect the
Company's ability to realize upon the value of the Underlying Properties.
Pursuant to the Settlement Agreement, Concord agreed to pay to the Partnerships
in which the plaintiffs are limited partners a priority distribution of 11% of
the net proceeds (as defined in the Settlement Agreement) of the sale of each
Underlying Property, generally representing 11% of the difference between (i)
the amount received by a wraparound mortgagee (i.e., the Company) in
satisfaction of a Wraparound Note and certain other obligations and (ii) the
Underlying Debt balance as of December 31, 1990, including any prepayment
penalties, subject to certain adjustments. As a result, upon the satisfaction of
the Wrap Debt acquired by the Company in the Acquisition, the Company may not be
entitled to receive all of the proceeds thereof as a portion of the proceeds
thereof may be payable to such Partnerships. Under certain circumstances
generally involving a sale of a property for a price greater than the
outstanding balance of the Wraparound Note, the Company, as the wraparound
mortgagee, will be entitled to share in such excess proceeds up to certain
predetermined amounts.
The parties have agreed in principle to a settlement of the motion to
enforce the Settlement Agreement, and have submitted a proposed Stipulation and
Order to the United States District Court for the Southern District of New York.
Under the proposed Stipulation and Order, the plaintiffs would withdraw their
breach of fiduciary duty claims and withdraw with prejudice their claim that
defendants breached the Settlement Agreement by their allocation of transaction
expenses from the sale of certain Properties in exchange for a payment of
$600,000 from the defendants. In addition, the Stipulation and Order provides
for a formula relating to the allocation of transaction expenses in connection
with the future sale of Properties owned by the Partnerships, including the
Underlying Properties subject to the Wrap Debt. Generally, under such formula,
if a Property is sold for a price less than the sum of (a) the outstanding Wrap
Debt, (b) the Permitted Additional Wrap Debt (as defined in the Settlement
Agreement), and (c) the amount to be paid to the holder of the Wrap Debt
pursuant to the Settlement Agreement, then 82.25% of the transaction expenses
shall be the obligation of the selling Partnership, and shall be deducted from
the 11% of net proceeds (as defined in the Settlement Agreement) to be
distributed to the selling Partnership, and the Company, as the holder of the
Wrap Debt, would be responsible for paying the remaining
24
<PAGE>
17.75% of the transaction expenses incurred in such sale. In the event a
Property is sold for a price in excess of the sum of (a) the outstanding Wrap
Debt, (b) the Permitted Additional Wrap Debt, and (c) the amount to be paid to
the holder of the Wrap Debt pursuant to the Settlement Agreement, then the
transaction expenses shall be deducted from the proceeds in excess of such
existing debt, and, if such excess proceeds are not sufficient to pay all such
transaction expenses, 82.25% of the balance of such transaction expenses shall
be paid out of the 11% of the net proceeds distributed to the selling
Partnership, and the Company would be responsible for paying the remaining
17.75% of the transaction expenses incurred in such sale. As stated above,
Concord and one of its subsidiaries have agreed to indemnify the Company for any
losses, up to $200,000 in the aggregate, resulting from any such additional
transaction fees, costs or expenses incurred by the Company as a result of such
events. The Company does not believe that the proposed Stipulation and Order
would, if entered into, materially adversely affect the Company. There can be no
assurance, however, that the parties will consumate the proposed Stipulation and
Order described above or, if entered into, that the plaintiffs will not pursue
the breach of fiduciary duty claims against Concord and the General Partners of
the Partnerships which own the Underlying Properties which would otherwise be
withdrawn under the terms of the proposed Stipulation and Order.
On March 26, 1993, the United States District Court for the Southern
District of New York approved a settlement (the "Settlement") of a consolidated
class action which had been filed against the Company, Concord, Leonard S.
Mandor, Robert A. Mandor, certain of the Company's other present and former
affiliates and Shareholder Communications Corporation, the proxy solicitation
firm engaged by the Company in connection with the Merger. Further information
about this litigation and the Settlement is set forth in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1993 and its Proxy
Statement relating to the Annual Meeting of Stockholders of the Company, held on
May 27, 1994, to which reference is hereby made. Under the terms of the
Settlement, the Company, among other things, was required to pay $1,360,000 in
legal fees and expenses to plaintiffs' counsel over a period of three years. As
of December 31, 1996, the Company paid the final $215,000 of the legal fees and
expenses remaining under the Settlement.
On January 30, 1996, Milestone, its Board of Directors and Concord were
named as defendants in an action commenced in the Court of Chancery of the State
of Delaware (the "Delaware Court"). In the action, the plaintiff, a Series A
Preferred Stockholder purporting to bring this action on behalf of himself and
other Series A Preferred Stockholders, alleges that in connection with the
Acquisition, the Transfer and the Distribution, Milestone and its directors
engaged in self-dealing, violated federal securities laws and an injunction
against such violations and breached their fiduciary duties to the Series A
Preferred Stockholders. The plaintiff claims, among other things, that, as a
result of such actions, Milestone will not have sufficient funds to pay
dividends on the Series A Preferred Stock and that the Properties are grossly
inferior to the UPI Properties. The defendants moved to dismiss the plaintiff's
original complaint, and thereafter, the plaintiff amended his complaint to
allege further causes of action, including a claim of rescission. The defendants
moved to dismiss the amended complaint, and after hearing arguments thereon, the
Delaware Court dismissed plaintiff's claim for rescission of both the Transfer
and the Distribution and reserved decision on the defendants' motion to dismiss
plaintiff's claim for damages and other relief. On December 9, 1996, the
plaintiff requested that the Delaware Court dismiss the amended complaint, and
filed a purported new class action. On January 14, 1997, the defendants filed a
motion to dismiss or stay the purported new class action, and the motion has
since been scheduled for oral argument on April 15, 1997.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
25
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock and the Series A Preferred Stock have traded on the New
York Stock Exchange ("NYSE") under the symbols "MPI" and "MPI PRA",
respectively, since January 29, 1991.
The quarterly high and low sales prices in 1996 and 1995 for the Common
Stock and the Series A Preferred Stock, as reported by Bloomberg, were as
follows:
Common Stock High Low
1996
First Quarter $ 2 1/8 $ 1 1/2
Second Quarter 1 7/8 1 1/8
Third Quarter 1 1/8 11/16
Fourth Quarter 1 1/8 5/8
1995
First Quarter $ 3 3/4 $ 3 1/8
Second Quarter 3 3/4 3 5/8
Third Quarter 3 3/4 3 3/8
Fourth Quarter 3 3/8 1 1/8
Series A Preferred Stock High Low
1996
First Quarter $ 3 1/4 $ 2
Second Quarter 2 5/8 1 1/8
Third Quarter 1 1/4 26/32
Fourth Quarter 1 1/8 5/8
1995
First Quarter $ 4 3/8 $ 2 1/4
Second Quarter 3 1/2 2 3/4
Third Quarter 3 1/8 2 5/8
Fourth Quarter 3 1 1/2
On March 21, 1997, the last reported sale price of the Common Stock was
$0.69 and the last reported sale price of the Series A Preferred Stock was
$0.75. On March 21, 1997, there were approximately 1,988 record holders of the
Common Stock and 1,813 record holders of the Series A Preferred Stock.
Dividend Policy
Common Stock
The Company has never paid any cash dividends on its Common Stock and
has no present intention to declare or pay cash dividends on the Common Stock in
the foreseeable future. While there are no
26
<PAGE>
restrictions on the Company's ability to pay dividends, except for the
preference of the Series A Preferred Stock, the Company anticipates that in the
future, earnings will be retained to finance the Company's operations. Any
decision as to the future payment of dividends on the Common Stock will depend
on the results of operations and the financial condition of the Company and such
other factors as the Company's Board of Directors, in its discretion, deems
relevant.
Series A Preferred Stock
Since September 30, 1995, the holders of the Series A Preferred Stock
have not been entitled to receive dividends on the Series A Preferred Stock on a
cumulative basis. The Company did not declare any dividends on the Series A
Preferred Stock in 1996; the Company, however, paid a dividend on February 15,
1996 of $.195 per share of Series A Preferred Stock for a dividend declared by
the Company for the three months ended December 31, 1995. Any decision as to the
future payment of dividends on the Series A Preferred Stock will depend on the
results of operations and the financial condition of the Company and such other
factors as the Company's Board of Directors, in its discretion, deems relevant.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company and the notes thereto
appearing in Item 13 of this report.
General
The Company is engaged in the business of owning, acquiring, managing,
developing and investing in real estate and real estate related assets.
Recent Developments
On February 27, 1997, UPI was merged (the "UPI Merger") into a
wholly-owned subsidiary of Kranzco Realty Trust, a Maryland real estate
investment trust ("Kranzco"). In connection with the UPI Merger, UPI terminated
its property management agreement with MPMI (the "Property Management
Agreement") and its management services agreement with Milestone (the
"Management Services Agreement"). The Company does not expect the termination of
the Property Management Agreement and the Management Services Agreement to have
a material adverse effect on the operations or financial condition of the
Company. The aggregate fees paid in 1996 by UPI to MPMI and Milestone for
services provided to UPI under the Property Management Agreement and the
Management Services Agreement was $975,807 and $260,024, respectively.
In connection with the UPI Merger, the 356,400 shares of preferred
stock, par value $.01 per share (the "UPI Preferred Stock"), of UPI which the
Company owned as of the date of the UPI Merger were converted into 356,400
shares of Kranzco's Series C Cumulative Redeemable Preferred Shares (the
"Kranzco Series C Shares"). The Company believes that the terms of the Kranzco
Series C Shares are similar to the terms of the UPI Preferred Stock, since the
Kranzco Series C Shares (i) have the same redemption price and liquidation
preference and price ($10 per share) as the UPI Preferred Stock, (ii) pay
cumulative dividends at the rate paid on the UPI Preferred Stock as of the date
of the UPI Merger (8%), and (iii) are required to be redeemed ratably on a
quarterly basis over a two-year period from the date of the UPI Merger, as
compared to the UPI Preferred Stock, which was not required to be redeemed until
the year 2002 (although UPI could have, at its option, redeemed shares of UPI
Preferred Stock at any time).
Results of Operations
Calendar Year 1996 Compared to Calendar Year 1995
Revenues for 1996 were $33,722,442, an increase of $7,954,932,or 31%,
from $25,767,510 in 1995. Such increase was primarily due to the net of: (1) an
increase in rental income of $1,506,092 attributable to the Properties acquired
in the Acquisition; (2) an increase in interest income of $8,637,435 resulting
primarily from (a) Wraparound Note receivable interest of approximately
$7,875,000; and (b) interest income relating to the mortgage backed securities
purchased in March 1995 and March 1996 of approximately $398,000; (3) an
unrealized holding gain on U.S. Treasury Notes sold short of $1,217,186 in 1996
compared to an unrealized holding loss of $4,137,225 for such securities
in 1995; (4) a gain on sale of real estate assets of $260,239 for 1996 as
compared to a gain of $6,326,231 on sale of property in 1995; and (5) a loss on
the sale of available-for-sale securities of $350,699 in 1996 compared to a gain
of $1,561,721 for such securities in 1995.
Operating expenses for 1996 were $23,097,797, an increase of $9,140,312,
or 65%, from $13,957,485 in 1995. Such increase was primarily due to the net of:
(1) an increase in lease expense of $11,953,480 attributable to the Master
Leases acquired in the Acquisition; (2) an increase in property expenses of
$782,070 due to the Underlying Properties relating to the Master Leases; (3) an
increase in expenses for management company operations of $653,300 due to
additional properties managed by the Company in 1996; and (5) a decrease in
professional fees of $3,979,434 for 1996 compared to 1995, when the Company
consumated the Acquisition, the Transfer and the Distribution.
Interest expense for 1996 was $11,961,780, an increase of $3,046,016, or
34%, from $8,915,764 in 1995. Such increase was primarily due to: (1) debt
service on the Underlying Properties; and (2) additional interest charges
relating to the mortgage backed securities purchased in March 1995 and March
1996.
Depreciation and amortization expense for 1996 was $783,401, a decrease
of $2,604,001, or 77%, from $3,387,402 in 1995. Such decrease was primarily due
to: (1) a decrease in depreciable real estate assets to three properties in 1996
from eighteen properties in 1995, amounting to a decrease in property
depreciation of approximately $583,270 in 1996; and (2) a net decrease in
amortization of management contract rights of approximately $191,798 in 1996.
Calendar Year 1995 Compared to Calendar Year 1994
Revenues for 1995 were $25,767,510, an increase of $6,363,756, or 54%,
from $19,403,754 in 1994. Such increase was primarily due to the net of: (1) an
increase in interest and other of $5,528,244, resulting from MAMI's acquisition
of additional interest income producing Commercial Mortgage Pass-Through
Certificates (the "Certificates"); (2) a decrease in revenue from management
company operations of $1,950,547 due to the nonrecurring receipt of termination
fees of $1,756,137 in 1994 relating to the sale of certain properties owned by
Concord which are no longer managed by MPMI; (3) an unrealized holding loss on
U.S. Treasury Notes (the "Treasury Notes") sold short of $4,137,225 in 1995
compared to an unrealized holding gain of $1,418,800 for such securities in
1994; (4) a gain of $6,326,231 on sale of the Dillards' properties located in
Plano, Texas and Kenner, Louisiana; and (5) gain on the sale of
available-for-sale securities of $1,561,721.
Operating expenses for 1995 were $13,957,485, an increase of $7,885,355,
or 130%, from $6,072,130 in 1994. Such increase was primarily due to: (1) an
increase in professional fees of $4,573,812 resulting from costs incurred in
connection with the Acquisition, the Transfer and the Distribution in 1995 and
1994; (2) Master Lease expense of $3,055,243 in 1995; and (3) a decrease in
expenses for management company operations of $357,964 as a result of the sale
of certain properties owned by Concord which are no longer managed by the
Company.
Interest expense for 1995 was $8,915,764, an increase of $2,633,629, or
42%, from $6,282,135 in 1994. Such increase was primarily due to: (1) an
increase of $627,716 resulting from loans obtained by MAMI relating to the
purchase of the Certificates in May and September of 1994, which were
outstanding throughout 1995; (2) an increase resulting from loans obtained by
MAMI relating to the purchase of the Certificates during 1995, of $532,823; (3)
an increase resulting from coupon interest owned on the Treasury Notes which
were sold short by MAMI in May and September of 1994, and were outstanding
throughout 1995, of $766,660; and (4) an increase in mortgage interest of
$1,459,870 as a result of underlying debt assumed pursuant to the Acquisition.
Depreciation and amortization for 1995 was $3,387,402, a decrease of
$1,209,660, or 26%, from $4,597,062 in 1994. Such decrease was primarily due to
(1) the sale of the Dillards' properties in July 1995; and (2) a decrease in
accelerated amortization of management contract rights from $1,469,897 in 1994
to $932,555 in 1995 resulting from the sale by Concord of certain properties
owned by limited partnerships sponsored by Concord which are no longer managed
by MPMI.
Liquidity and Capital Resources
The Company, as the holder of 356,400 shares of Kranzco Series C Shares,
is entitled to receive cash from the redemption of such shares of approximately
$3,564,000, plus interest at the rate of 8% per annum on the applicable
outstanding balance of such shares, over the next two years. Such funds will be
available to fund the Company's obligations and its real estate investment and
development activities.
The Company also expects, to the extent necessary, to have adequate
sources of cash and/or cash producing assets to meet the expected future
liquidity needs arising from the fluctuations of gain or loss inherent when
marking-to-market, monthly, the assets and liabilities associated with the
investment activities of MAMI.
The cumulative period relating to the payment of dividends on the Series
A Preferred Stock expired on September 30, 1995. If Milestone declares further
dividends and the payment thereof utilizes all, or substantially all, of the
Company's cash flow after taxes and expenses, the Company will require other
sources of funding to allow it to accomplish its other long-term goals. If such
funding does not become available, and Milestone declares and pays such
dividends in the future, the Company may not be able to accomplish its other
long term goals. As such, no assurance can be given that Milestone will declare
or pay dividends on the Series A Preferred Stock or, subject to the preference
on the Series A Preferred Stock, the Common Stock, in the future. See Item 5 -
Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's existing borrowings and the encumbrances on the Properties
securing those borrowings may inhibit or result in increased costs to the
Company in connection with its ability to incur future indebtedness and/or raise
substantial equity capital in the marketplace is limited.
29
<PAGE>
Cash Flows
Net cash used in operating activities of $2,783,859 for the year ended
December 31, 1996 included (1) a net loss of $2,486,974; (2) adjustments for
non-cash items of $728,499; and (3) a net change in operating assets and
liabilities of $431,614, compared to net cash provided by operating activities
of $637,203 for the year ended December 31, 1995, which included (1) a net loss
of $809,649; (2) adjustmets for non-cash items of $4,530,845; and (3) a net
change in operating assets and liabilities of $5,977,697.
Net cash provided by investing activities of $14,021,098 for the year
ended December 31, 1996 included (1) proceeds from principal repayments on loans
receivable and Wraparound Notes of $4,817,864; (2) issuance of Wraparound Notes
of $45,550; (3) purchase of leasehold improvements of $213,186; (4) proceeds
from the realization of Wraparound Notes of $4,325,177; (5) proceeds from the
sale of available-for-sale securities of $23,201,402; (6) proceeds from
redemption of investment in affiliate of $2,541,667; (7) purchase of
available-for-sale securities of $20,142,060; (8) proceeds from U.S. Treasury
Notes payable of $13,989,844; (9) proceeds from redemption of reverse repurchase
agreements of $9,203,125; (10) purchase of U.S. Treasury Notes of $9,143,750;
and (11) purchase of reverse repurchase agreements of $14,513,435, compared to
net cash provided by investing activities of $21,712,985 for the year ended
December 31, 1995 which included (1) purchase of property, improvements and
equipment of $745,092; (2) purchase of leasehold improvements of $51,469; (3)
proceeds from principal repayments on loans receivable of $49,771; (4) proceeds
from the sale of property of $25,079,214; (5) proceeds from the sale of
available-for-sale securities of $25,285,441; (6) proceeds from U.S. Treasury
Notes payable of $2,590,951; and (7) purchase of reverse repurchasable
agreements of $2,240,011.
Net cash used in financing activities of $10,657,904 for the year ended
December 31, 1996 included (1) distributions paid to Series A Preferred
Stockholders of $666,622; (2) principal repayments on mortgages and notes
payable of $7,586,850; (3) proceeds from loans payable of $14,522,045; (4)
principal payments on loans payable of $18,143,663; and (5) proceeds received on
treasury notes payable of $1,217,186, compared to net cash used in financing
activities of $21,606,886 for the year ended December 31, 1995, which included
(1) distributions paid to Series A Preferred Stockholders of $2,732,243, (2)
principal payments on mortgages payable of $19,733,850; (3) proceeds from loans
payable of $22,630,146, (4) principal repayments on loans payable of
$17,344,127; (5) amounts paid on treasury notes payable of $4,137,225; and (6)
payments to common and preferred claimants of $289,588.
Item 7. Financial Statements.
The Company's Consolidated Financial Statements and the notes thereto
appear in Item 13 of this report.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
30
<PAGE>
PART III
Certain information required by Part III is omitted from this report
since the Company plans to file with the Securities and Exchange Commission a
definitive proxy statement for its 1997 Annual Meeting of Stockholders (the
"Proxy Statement") no later than 120 days after the end of the fiscal year
covered by this report, and certain information included therein is incorporated
herein by reference.
Item 9. Directors and Executive Officers; Compliance with Section 16(a) of the
Exchange Act.
The information regarding the Company's directors required by this Item
is incorporated by reference to the section in the Proxy Statement entitled
"Election of Directors".
The information regarding the Company's executive officers required by
this Item is incorporated by reference to the section in the Proxy Statement
entitled "Executive Officers."
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 by the directors, executive officers and
beneficial owners of more than 10% of the Common Stock or the Series A Preferred
Stock required by this Item is incorporated by reference to the section in the
Proxy Statement entitled "Section 16(a) Beneficial Ownership Reporting
Compliance".
Item 10. Executive Compensation.
The information regarding compensation of directors and executive
officers of the Company required by this Item is incorporated by reference to
the sections in the Proxy Statement entitled "Executive Compensation" and
"Compensation of Directors."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information regarding security ownership of certain beneficial
owners and management required by this Item is incorporated herein by reference
to the section in the Proxy Statement entitled "Security Ownership of Certain
Beneficial Owners and Management."
Item 12. Certain Relationships and Related Transactions.
The information regarding certain relationships and related transactions
required by this Item is incorporated by reference to the section in the Proxy
Statement entitled "Certain Relationships and Related Transactions."
31
<PAGE>
Item 13. Exhibits, Financial Statements and Reports on Form 8-K.
(a)(1) Financial Statements.
The following consolidated financial statements of the Company are filed as
part of this report:
Page
Report of Deloitte & Touche LLP, Independent Auditors F-1
Consolidated Balance Sheet - December 31, 1996 F-2
Consolidated Statements of Revenues and Expenses -
Years Ended December 31, 1996 and 1995 F-3
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1996 and 1995 F-4
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
(a)(2) Exhibits.
The exhibits to this report are listed below.
Exhibit Description
2.1 Master Purchase and Sale Agreement dated as of February 17, 1995, as
amended, between the Company and Castle Plaza, Inc. (incorporated
by reference to Exhibit 2.1 to the Company's Form 8-K filed with the
Securities and Exchange Commission (the "Commission") on November 7,
1995).
2.2 Short-Form Contracts, dated as of February 17, 1995, between the
Company and Castle Plaza, Inc. (incorporated by reference to Exhibit
2.2 to the Company's Form 8-K filed with the Commission on November
7, 1995).
2.3 Purchase and Sale Agreement, dated as of February 17, 1995, as
amended between the Company and Mountain View Mall, Inc.
(incorporated by reference to Exhibit 2.3 to the Company's Form 8-K
filed with the Commission on November 7, 1995).
2.4 Purchase and Sale Agreement, dated as of February 17, 1995, as
amended between the Company and Concord Income Realty Partners VI,
L.P. (incorporated by reference to Exhibit 2.4 to the Company's
Form 8-K filed with the Commission on November 7, 1995).
2.5 Purchase and Sale Agreement, dated as of February 17, 1995, as
amended between the Company and Concord Income Realty Partners IX,
L.P. (incorporated by reference to Exhibit 2.5 to the Company's Form
8-K filed with the Commission on November 7, 1995).
3.1 Certificate of Amendment to Certificate of Incorporation of the
Company, filed on December 18, 1990 (incorporated by reference to
Exhibit 3.1 to the Company's Form 10-K filed with the Commission on
March 29, 1991).
32
<PAGE>
Exhibit Description
4.1 Certificate of Designations of $.78 Convertible Series A Preferred
Stock of the Company, filed on December 18, 1990 (incorporated by
reference to Exhibit 4.1 to the Company's Form 10-K filed with the
Commission on March 29, 1991).
4.1A Certificate of Amendment to Certificate of Designations of $.78
Convertible Series A Preferred Stock of the Company filed on June
9, 1994 (incorporated by reference to Exhibit 4.5 to the Company's
Form 10-QSB filed with the Commission on August 15, 1994).
4.2 Specimen form of Common Stock Certificate (incorporated by reference
to Exhibit 4.2 to the Company's Form 10-K filed with the Commission
on March 29, 1991).
4.3 Specimen form of Series A Preferred Stock Certificate
(incorporated by reference to Exhibit 4.3 to the Company's Form 10-K
filed with the Commission on March 29, 1991).
4.4 Rights Agreement, dated as of March 31, 1993 between the Company and
The Bank of New York, as Rights Agent (incorporated by reference to
Exhibit 1 to the Company's Form 8-A filed with the Commission on
March 31, 1993).
10.1 Asset purchase agreement among the Company, Milestone Property
Management, Inc., Concord Assets Group, Inc. and Concord Assets
Management, Inc. (incorporated by reference to Item 7(c) to the
Company's Form 8-K filed with the Commission on January 3, 1993).
10.2 Settlement agreement dated as of January 31, 1993 relating to the
settlement of a class action litigation (incorporated by
reference to Exhibit 10.22 to the Company's Form 10-KSB filed with
the Commission on March 30, 1993).
10.3 Letter agreement related to employment dated March 31, 1993 between
the Company and Leonard S. Mandor (incorporated by reference to
Exhibit 10.23 to the Company's Form 10-QSB filed with the Commission
on May 14, 1993).
10.3A Amendment to letter agreement related to employment dated March 31,
1993 between the Company and Leonard S. Mandor, dated May 2, 1996
(incorporated by reference to Exhibit 10.1 to the Company's Report on
Form 10-QSB filed with the Commission on May 16,1996).
10.4 Letter agreement related to employment dated March 31, 1993 between
the Company and Robert A. Mandor (incorporated by reference to
Exhibit 10.24 to the Company's Form 10-QSB filed with the Commission
on May 14, 1993).
10.4A Amendment to letter agreement related to employment dated March 31,
1993 between the Company and Robert A. Mandor, dated May 2, 1996
(incorporated by reference to Exhibit 10.2 to the Company's Report on
Form 10-QSB filed with the Commission on May 16, 1996).
10.5 Letter agreement related to employment dated March 31, 1993 between
the Company and Harvey Shore (incorporated by reference to Exhibit
10.25 to the Company's Form 10-QSB filed with the Commission on May
14, 1993).
33
<PAGE>
Exhibit Description
10.5A Amendment to letter agreement related to employment dated March
31, 1993 between the Company and Harvey Shore, dated May 2, 1996
(incorporated by reference to Exhibit 10.4 to the Company's Report
on Form 10-QSB filed with the Commission on May 16, 1996).
10.6 Letter agreement related to employment dated March 31, 1993
between the Company and Joan LeVine (incorporated by reference to
Exhibit 10.26 to the Company's Form 10-QSB filed with the Commission
on May 14, 1993).
10.6A Amendment to letter agreement related to employment dated March
31, 1993 between the Company and Joan LeVine, dated May 2, 1996
(incorporated by reference to Exhibit 10.3 to the Company's Report
on Form 10-QSB filed with the Commission on May 16, 1996).
10.7 Letter agreement related to employment dated March 31, 1993
between the Company and Joseph P. Otto (incorporated by reference
to Exhibit 10.27 to the Company's Form 10-QSB filed with the
Commission on May 14, 1993).
10.7A Amendment to letter agreement related to employment dated March
31, 1993 between the Company and Joseph P. Otto, dated May 2, 1996
(incorporated by reference to Exhibit 10.5 to the Company's Report on
Form 10-QSB filed with the Commission on May 16, 1996).
10.8 Key Executive Employment and Severance Agreements entered into
between the Company and:
a. Leonard S. Mandor
b. Robert A. Mandor
c. Harvey Shore
d. Joan LeVine
e. Joseph Otto (incorporated by reference to Exhibit 10.29 to the
Company's Form 10-QSB filed with the Commission on May 14, 1993).
10.9 Purchase money promissory note purchase money mortgage and security
agreement with The Benderson 85-1 Trust for the Tonawanda, New York,
property (incorporated by reference to Exhibit 10.33 to the
Company's Form 10-QSB filed with the Commission on August 14, 1993).
10.10 Amended indemnification agreement between the Company and related
parties (incorporated by reference to Exhibit 19.2 to the
Company's Form 10-Q filed with the Commission on May 14, 1992).
10.11 Second amended and restated management and reimbursement agreement
between the Company and Concord (incorporated by reference to
Exhibit 19.3 to the Company's Form 10-Q filed with the Commission on
March 30, 1993).
10.12 1993 Employee Stock Option Plan (incorporated by reference to Exhibit
10.20 to the Company's Form 10-KSB filed with the Commission on March
31, 1994).
10.13 1993 Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit 10.21 to the Company's Form 10-KSB filed with
the Commission on March 31, 1994).
34
<PAGE>
Exhibit Description
10.14 Pre-sale Wet Ink Funding Facility between ("MMC") and Nomura Asset
Capital Corporation (incorporated by reference to Exhibit 10.32 to
the Company's Form 10-QSB filed with the Commission on August 15,
1994).
10.15 Guaranty between the Company and Nomura Asset Capital Corporation
(incorporated by reference to Exhibit 10.33 to the Company's
Form 10-QSB filed with the Commission on August 15, 1994).
10.16 Global master Repurchase Agreement between Nomura Grand Cayman,
Ltd. and MMC (incorporated by reference to Exhibit 10.34 to the
Company's Form 10-QSB filed with the Commission on August 15, 1994).
10.17 Master Repurchase Agreement between DLJ Mortgage Acceptance
Corporation and MMC (incorporated by reference to Exhibit 10.35 to
the Company's Form 10-QSB filed with the Commission on August 15,
1996).
10.18 Management Services Agreement dated November 20, 1995, between the
Company and Union Property Investors, Inc. (incorporated by
reference to Exhibit 10.30 to the Company's Form 10-KSB filed with
the Commission on March 30, 1996).
10.19 Property Management Agreement, dated November 20, 1995, between the
Company and Milestone Property Management, Inc. (incorporated by
reference to Exhibit 10.31 to the Company's Form 10-KSB filed with
the Commission on April 1, 1996).
21 Subsidiaries of the Company.
27 Financial Data Schedule Article 5 included for Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) purposes only. This
Schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of revenues
and expenses and is qualified in its entirety by reference to such
financial statements.
(b) Reports on Form 8-K.
None
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATE: March 26, 1997 MILESTONE PROPERTIES, INC.
By: /s/ Leonard S. Mandor
------------------------------
Leonard S. Mandor
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
/s/ Leonard S. Mandor March 26, 1997
- ------------------------
Leonard S. Mandor
Chairman of the Board and
Chief Executive Officer
/s/ Robert A. Mandor March 26, 1997
- ------------------------
Robert A. Mandor
President, Chief Financial
Officer and Director
/s/ Joan LeVine March 26, 1997
- ------------------------
Joan LeVine
Senior Vice President, Treasurer
and Controller
/s/ Joseph Otto March 26, 1997
- ------------------------
Joseph Otto
Vice President and Director
/s/ Geoffrey S. Aaronson March 26, 1997
- ------------------------
Geoffrey S. Aaronson
Director
/s/ Harvey Jacobson March 26, 1997
- ------------------------
Harvey Jacobson
Director
/s/ Gregory McMahon March 26, 1997
- ------------------------
Gregory McMahon
Director
<PAGE>
INDEPENDENT AUDITORS' REPORT
Milestone Properties, Inc.:
We have audited the accompanying consolidated balance sheet of Milestone
Properties, Inc. and its subsidiaries (the "Company") as of December 31, 1996
and the related consolidated statements of revenues and expenses, stockholders'
equity and cash flows for the years ended December 31, 1996 and 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1996 and the results of their operations and their cash flows for
the years ended December 31, 1996 and 1995 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche, LLP
New York, New York
March 25, 1997
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
December 31, 1996
-----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,141,839
Loans receivable 1,684,585
Accounts receivable 1,360,621
Accrued interest receivable 9,646,886
Due from related party 599,093
Prepaid expenses and other 430,603
Reverse repurchase agreements 34,718,749
Available-for-sale securities 32,314,853
-------------
Total current assets 83,897,229
Property, improvements and equipment, net 18,884,467
Wraparound notes, net 71,431,945
Deferred income tax asset, net 3,272,873
Investment in affiliate 3,959,433
Management contract rights, net 426,467
Goodwill and organizational cost, net 222,863
------------
Total assets $182,095,277
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,031,513
Accrued interest payable 1,139,941
Master lease payable 14,445,351
Due to related party 61,688
Current portion of mortgages and notes payable 2,862,274
Income taxes payable 3,250,744
Loans payable 23,829,335
Treasury notes sold short 33,952,346
------------
Total current liabilities 81,573,192
Mortgages and notes payable 71,562,942
------------
Total liabilities 153,136,134
------------
Commitments and Contingencies
Stockholders' equity:
Common stock ($.01 par value, 10,000,000 shares
authorized, 4,743,155 issued and outstanding:
692,591 shares in treasury) 47,433
Preferred stock (Series A $0.01 par value, 10,000,000 shares authorized,
3,182,184 shares issued and outstanding) 31,822
Additional paid-in surplus 48,105,575
Unrealized holding loss - available-for-sale securities
(Net of tax benefit of $151,552) (220,396)
Accumulated deficit (15,564,873)
Shares held in treasury - at cost (3,440,418)
------------
Total stockholders' equity 28,959,143
------------
Total liabilities and stockholders' equity $182,095,277
============
</TABLE>
See Accompanying Notes to Consolidated Financial statements
F-2
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
REVENUES:
Rent $11,382,820 $ 9,876,728
Interest income 17,654,908 9,017,473
Revenue from management company operations 976,983 1,034,321
Tenant reimbursements 1,184,462 926,791
Management and reimbursement income 835,811 499,806
Percentage rent 266,653 428,739
Amortization of discount - available-for-sale
securities 294,079 232,925
Unrealized gain/(loss) on treasury notes
sold short 1,217,186 (4,137,225)
Gain on realization of wraparound notes 260,239 0
Gain on sale of property 0 6,326,231
(Loss)/gain on sale of available-for-sale securities (350,699) 1,561,721
----------- -----------
Total revenues 33,722,442 25,767,510
----------- -----------
EXPENSES:
Master lease expense 15,008,723 3,055,243
Interest expense 11,961,780 8,915,764
Depreciation and amortization 783,401 3,387,402
Valuation allowance on wraparound notes 189,853 0
Salaries, general and administration 3,538,634 3,997,591
Property expenses 2,018,249 1,236,179
Expenses for management company operations 1,281,317 628,017
Professional fees 1,061,021 5,040,455
----------- -----------
Total expenses 35,842,978 26,260,651
----------- -----------
Loss before income taxes (2,120,536) (493,141)
Provisions for income taxes 366,438 316,508
----------- -----------
Net loss (2,486,974) (809,649)
Distributions on preferred stock 0 (2,732,242)
----------- -----------
Deficit attributable to common stockholders $(2,486,974) $ (3,541,891)
=========== ============
Deficit per share of common stock $ (0.65) $ (2.13)
=========== ============
Weighted average number of shares of
common stock 3,845,546 1,664,956
=========== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
MILESTONE PROPERTIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
------------------ ------------------- ------------------
Shares Amount Shares Amount Shares Cost
------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 1,852,921 $18,529 3,549,578 $35,496 (692,591) $(3,440,418)
Conversion of preferred stock into
common stock 85,852 859 (131,023) (1,310)
Cash distributions declared -
$0.78 per preferred claimant share
Cash distributions declared -
$0.78 per preferred share
Purchase of Acquisition Assets 2,544,654 25,447
Spin-off of UPI
Net loss for the year ended
December 31, 1995
Unrealized holding gain
- - available-for-sale securities
---------------------------------------------------------------------------
Balance December 31, 1995 4,483,427 44,835 3,418,555 34,186 (692,591) (3,440,418)
---------------------------------------------------------------------------
Conversion of preferred stock
into common stock 259,728 2,598 (236,371) (2,364)
Net loss for the year ended
December 31, 1996
Unrealized holding loss
- - available-for-sale securities
---------------------------------------------------------------------------
Balance December 31, 1996 4,743,155 $47,433 3,182,184 $31,822 (692,591) $(3,440,418)
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Holding (Loss)/
Additional Gain on
Paid-in Available-for- Accumulated Stockholders'
Surplus Sale Securities Deficit Equity
------------ --------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance December 31, 1994 $ 51,326,392 $ (900,111) $ (9,536,007) $ 37,503,881
Conversion of preferred stock into
common stock 451 0
Cash distributions declared -
$0.78 per preferred claimant share (289,588) (289,588)
Cash distributions declared -
$0.78 per preferred share (2,732,243) (2,732,243)
Purchase of Acquisition Assets 12,285,779 12,311,226
Spin-off of UPI (15,217,225) (15,217,225)
Net loss for the year ended
December 31, 1995 (809,649) (809,649)
Unrealized holding gain
- - available-for-sale securities 1,749,093 1,749,093
-------------------------------------------------------------------
Balance December 31, 1995 48,105,809 848,982 (13,077,899) 32,515,495
-------------------------------------------------------------------
Conversion of preferred stock
into common stock (234) 0
Net loss for the year ended
December 31, 1996 (2,486,974) (2,486,974)
Unrealized holding loss
- - available-for-sale securities (1,069,378) (1,069,378)
-------------------------------------------------------------------
Balance December 31, 1996 $48,105,575 $(220,396) $(15,564,873) $ 28,959,143
===================================================================
</TABLE>
F-4
<PAGE>
MILESTONE PROPERTIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVTIES
Net Loss $ (2,486,974) $ (809,649)
Adjustments to reconcile net loss to
net cash (used in )provided by operating activities
Depreciation and amortization 783,401 3,387,402
Deferred benefit taxes (280,948) (3,934,595)
Valuation allowance on wraparound notes 189,853 0
Unrealized (gain)/loss on treasury notes sold short (1,217,186) 4,137,225
Amortization of discount - avialable-for-sale securities (294,079) (232,925)
Realized loss/(gain) on sale of avialable-for-sale securities 350,699 (1,561,721)
Gain on realization of wraparound notes (260,239) 0
Gain on sale of Property 0 (6,326,231)
Change in operating assets and liabilities net:
Decrease (increase) in accounts receivable 26,743 (528,548)
(Increase) decrease in due from related party (442,959) 795,267
Decrease (increase) in accrued interest receivable 1,751,144 (2,201,377)
Decrease in prepaid expenses and other 59,044 561,559
Increase in accrued expenses 196,295 657,952
Increase in accrued interest payable 194,390 514,656
(Decrease) increase in master lease payable (1,347,380) 3,042,770
Increase in income taxes payable 75,913 2,992,154
(Decrease) increase in due to related party (81,576) 143,264
------------ -------------
Net cash (used in) provided by operating activities (2,783,859) 637,203
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on loans receivable 53,460 49,771
Principal repayments on wraparound notes 4,764,404 0
Issuance of wraparound notes (45,550) 0
Acquisition payment 0 (745,092)
Purchase of leasehold improvements (213,186) (51,469)
Proceeds from realization of wraparound notes 4,325,177 0
Proceeds from sale of property 0 25,079,214
Proceeds from the sale of available-for-sale securities 23,201,402 25,285,441
Proceeds from redemption of investment in affiliate 2,541,667 0
Purchase of available-for-sale securities (20,142,060) (28,255,819)
Proceeds from treasury notes sold short 13,989,844 2,590,951
Proceeds from redemption of reverse repurchase
agreements 9,203,125 0
Purchase of treasury notes (9,143,750) 0
Purchase of reverse repurchase agreements (14,513,435) (2,240,011)
------------ -------------
Net cash provided by investing activities 14,021,098 21,712,986
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to preferred stockholders (666,622) (2,732,243)
Principal payments on mortgages and notes payable (7,586,850) (19,733,850)
Proceeds from loans payable 14,522,045 22,630,146
Principal payments on loans payable (18,143,665) (17,344,127)
Amounts received (paid) on treasury notes payable 1,217,186 (4,137,225)
Payments to common and preferred stock claimants 0 (289,588)
------------ -------------
Net cash used in financing activities (10,657,906) (21,606,887)
------------ -------------
NET INCREASE IN CASH AND CASH EQUILVALENTS 579,333 743,302
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,562,506 1,819,204
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,141,839 $ 2,562,506
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for interest $ 11,767,390 $ 8,518,507
============== ==============
Cash paid during the period for income taxes $ 451,986 $ 754,501
============== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
MILESTONE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Milestone Properties, Inc. (the "Company") was incorporated on November 30,
1989 under the laws of the State of Delaware. On December 18, 1990, The Concord
Milestone Income Fund, L.P. ("CMIF") and Concord Milestone Income Fund II, L.P.
("CMIF II") (collectively, the "Predecessor Partnerships") were merged with and
into the Company (the "Merger"). In the Merger, the Company succeeded to the
business and operations of the Predecessor Partnerships and the partnership
interests in the Predecessor Partnerships were converted into shares of
Milestone's common stock, par value $.01 per share (the "Common Stock"), and
Milestone's $.78 Convertible Series A preferred stock, par value $.01 per share
(the "Series A Preferred Stock").
Milestone Property Management, Inc. ("MPMI") was formed as a wholly-owned
subsidiary of the Company on December 21, 1992. MPMI purchased the assets
used in connection with the shopping-center management business from a
subsidiary of Concord Assets Group, Inc. ("Concord") (see notes 6 and 14).
Milestone Asset Management, Inc. ("MAMI"), formerly Milestone Mortgage
Corporation, was formed as a wholly owned subsidiary of the Company in August
1993. MAMI has been focusing on the investment opportunities available by
purchasing issues of mortgage loan securitizations (the "Certificates"). MAMI
has entered into master repurchase agreements with Nomura Securities (Bermuda)
Ltd. ("Nomura") and DLJ Mortgage Acceptance Corporation ("DLJ") to facilitate
the purchase of the Certificates (see note 4).
In October 1995, the Company entered into various agreements with affiliates of
Concord pursuant to which the company acquired certain real estate related
assets for approximately $700,000 in cash and approximately 2,545,000 shares of
Common Stock the ("Acquisition"). The Acquitision was treated in a manner
similar to a pooling of interests, and therefore the assets and liabilities
have been transferred at the historical cost basis of Concord.
In October 1995, the Company also completed the transfer (the "Transfer") of 16
of its retail properties (the "UPI Properties") to its then wholly-owned
subsidiary Union Property Investors, Inc. ("UPI"). UPI was then recapitalized
and spun-off in November 1995, when the Company distributed all of the
outstanding shares of common stock of UPI to the Company's Common Stockholders
(the "Distribution").
2. Summary of Significant Accounting Policies
Business
The Company primarily is the owner of Wraparound Notes, secured by mortgages on
commercial retail properties, as well as the master lessee (see note 8) of such
properties which are located in 16 states throughout the United States. The
Company also invests in real estate related assets through MAMI.
Principles of Consolidation
The consolidated financial statements include the accounts of Milestone
Properties, Inc. and its subsidiaries. Intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
F-6
<PAGE>
Basis of Accounting, Fiscal Year
The Company records are maintained on the accrual basis of accounting for both
financial and tax reporting purposes. Its fiscal year is the calendar year.
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 and 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.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Available-for-Sale Securities
The Company accounts for its available-for-sale securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115 - "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS No. 115, gains
and losses relating to available-for-sale securities are excluded from earnings
and reported as a separate component of stockholders' equity, net of tax
effect, until such amounts are generally realized through the sale or
redemption of the securities. Realized gains and losses are determined based on
the specific identification method.
Property, Improvements and Equipment and Related Depreciation and Amortization
Properties are stated at cost, less depreciation computed on the straight-line
method over their estimated useful lives of 25-35 years. Building improvements
and equipment are stated at cost, and depreciated on a straight-line basis
using an estimated life of five years. Leasehold improvements and leasing
commissions are amortized on the straight-line method over the remaining term
of the applicable lease.
The Company's policy, which is in accordance with SFAS No. 121 - "Accounting
for the Impairment of Long Lived Assets" (issued March 1995), is to assess
quarterly any impairment in value by making a comparison of the current and
projected operating cash flows of each of its properties on an undiscounted
basis to the carrying amount of each property. The carrying amount would be
adjusted, if necessary, to reflect an impairment in the value of the asset. No
such adjustment was required for the years December 31, 1996 and 1995.
Investment in Wraparound Notes
Investment in Wraparound Notes is stated at the lower of the unamortized note
balance or the estimated value of the underlying collateral. In accordance with
SFAS No. 118, "Accounting by Creditors for Impairments of a Loan," as an
amendment of SFAS No. 114, the Company's policy is to assess quarterly the
probability that the amounts collectible under the contractual terms of the
Wraparound Note will equal or exceed the carrying amount of such Wraparound
Note. When management believes that the Wraparound Notes have been impaired,
the Company measures impairment based on the value of the underlying
collateral. For the year ended December 31, 1996, the Company provided a
valuation allowance of $189,853.
With respect to the Discount Notes (see note 6) the Company does not recognize
income from the discount portion of the Discount Notes due to uncertainty
regarding realization of such amounts.
F-7
<PAGE>
Management Contract Rights and Goodwill
Management contract rights and goodwill are being amortized over a period of
approximately seven years. The amortization for the management contract rights
has been accelerated for those agreements that are terminated prior to the
expiration of the initial lease term.
Income Taxes
Deferred taxes are provided for the temporary differences between the tax bases
of the assets and liabilities and the amounts reported in the financial
statements.
Loss Per Common Share
The loss per common share computation gives effect to the weighted average
number of shares of Common Stock outstanding during the year ended December 31,
1996, 3,845,546, and during the year ended December 31, 1995, 1,664,956, and
the dividends declared on the Series A Preferred Stock of $0.00 for 1996 and
$2,732,242 for 1995.
The shares of Series A Preferred Stock are not considered to be common stock
equivalents and, therefore, have not been included in the computation of
primary loss per common share.
The effect of fully diluted loss per common share based on 7,342,451 and
4,290,688 shares (including 3,496,905 and 2,625,732 shares issuable on assumed
conversion of the Series A Preferred Stock) for the years ended December 31,
1996 and 1995, respectively, is anti-dilutive.
Organization Costs
Organization costs of the Company are being amortized over a five-year period.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1996
financial presentation.
3. Acquisition and Dispositions of Real Estate Assets
As a result of the Acquisition (see note 1), the Company obtained 35 Wraparound
Notes secured by mortgages on 32 properties (the "Underlying Properties") (see
note 6 for additional discussion of Wraparound Notes) and three properties in
fee simple (the "Fee Properties", and together with the Underlying Properties,
the "Properties"). Because the Acquisition was recorded in a manner similar to
a pooling of interests method, additional paid-in-surplus was adjusted to
reflect the difference between the historical cost basis of the net assets
acquired from subsidiaries of Concord and the purchase price. As described in
note 1, the Company completed the Transfer of the UPI Properties to UPI on
October 30, 1995 and the distribution on November 20, 1995.
Generally, the Properties serve secondary markets in the states where they are
located. These small city, county seat type markets are characterized by an
employment base which is predominantly light industrial, augmented by
employment in the service and governmental sectors. In some cases, employment
extends to the agricultural sector. Five of the Properties are located in
suburbs of metropolitan areas.
On May 24, 1996, the Company recognized its position in the Wraparound Note on
the property located in Roanoke, Virginia as a result of the sale of such
property by its owners. The sale price was approximately $2,150,000, resulting
in a book gain of $393,768 to the Company. In conjunction with the sale of such
property, Centaur Leasing Company, Inc.,
F-8
<PAGE>
a wholly-owned subsidiary of the Company ("Centaur"), and the Lessor on the
Master Lease on such property, cancelled the Master Lease.
On November 1, 1996, the Company recognized its position in the Wraparound
Notes on the property located in Southington, Connecticut as a result of the
sale of such property by its owners. The sale price was approximately
$2,745,000, resulting in a book loss of $127,020 to the Company. In conjunction
with the sale of such property, Centaur cancelled the Master Lease.
4. Milestone Asset Management, Inc.
In August 1993, MAMI was formed as a wholly owned subsidiary of the Company.
MAMI has been focusing on investment opportunities available by purchasing
issues of Certificates. The Certificates represent a beneficial ownership
interest in a trust fund which consists of mortgage loans made on various
property types including office, retail, multifamily, warehouse/industrial and
hotel. The right to receive distributions of principal and interest are
subordinate to such rights of all classes senior to the respective
Certificates, and are superior to the rights of all classes subordinate to the
respective Certificates.
In accordance with SFAS No. 115, the Certificates have been classified on the
Consolidated Balance Sheet as available-for-sale. Accordingly, a net unrealized
holding loss of $220,396 (net of a tax benefit of $151,552) at December 31,
1996 has been included as a separate component of stockholders' equity. The
Certificates are not registered under the Securities Act of 1933, as amended,
or under any state securities laws. Therefore, there are restrictions on the
future sale or transfer of these Certificates.
The following table illustrates certain data for the years ended December 31,
1996 and 1995 with respect to the purchases of the Certificates (table amounts
in thousands):
<TABLE>
<CAPTION> Certificate Certificate Loan Equity
Date of Purchase Certificate Description Rating (4) Amount (5) Amount (5) Amount (5)
---------------- ----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
March 23, 1995 Nomura Series 1994-MDII ("MDII") BB $ 4,567 $ 3,424 $ 1,143
May 25, 1995 (1) Nomura Series 1994-MDIII ("MDIII") B 11,407 8,047 3,360
December 8, 1995 (2) Nomura Series 1994-MDI ("MDI") B 12,282 8,476 3,806
March 25, 1996 MLMI Series 1995-C1 ("MLMI") BB 8,452 6,339 2,113
August 22, 1996 (3) Nomura Series 1996-MDV ("MD-V") B 11,690 8,183 3,507
</TABLE>
(1) Proceeds from the sale of MDI on May 25, 1995 were used to
purchase MDIII (see table of dispositions below).
(2) Proceeds from the sale of MDIII on December 8, 1995 were used to
purchase MDI (see table of dispositions below).
(3) Proceeds from the partial sale of MD-1 on August 22, 1996 were
used to purchase MD-V (see table of dispositions below).
(4) The Certificate rating was determined by at least one of the
following: Standard & Poor's Rating Group, Duff & Phelps Credit
Rating Company, or Fitch Investors Services.
(5) MAMI purchased the Certificates with a combination of cash and
financing from Nomura and MLMI (see note 10). The fourth column,
titled Certificate Amount, lists the gross price MAMI paid the
seller for each security. The Loan Amount, listed in the fifth
column, is the amount of financing obtained at the time of
purchase. The Equity Amount, in the last column, is the
Certificate Amount, less the Loan Amount, which represents the
cash paid by MAMI for the Certificates.
F-9
<PAGE>
The following table illustrates certain data for the years ended December 31,
1996 and 1995 with respect to the dispositions of Certificates (table amount in
thousands):
<TABLE>
<CAPTION>
Certificate Payment of
Certificate Disposition Loan Equity Gain
Date of Disposition Certificate Description Rating (5) Amount (6) Amount (6) Amount (6) (Loss) (6)
------------------- ------------------------ ----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
May 25, 1995 (2) Nomura Series 1994-MDI ("MDI") B $11,646 $7,869 $3,777 $726
August 4, 1995 (1) Nomura Series 1994-MDII ("MDII") BB 189 142 47 5
September 5, 1995 (1) Nomura Series 1994-MDII ("MDII") BB 908 681 227 23
November 6, 1995 (1) Nomura Series 1994-MDII ("MDII") BB 292 219 73 7
December 8, 1995 (3) Nomura Series 1994-MDIII ("MDIII") B 12,214 8,391 3,823 801
August 22, 1996 (4) Nomura Series 1994-MDI ("MDI") B 11,706 8,038 3,668 (576)
September 19, 1996 Nomura Series 1994-MDII ("MDII") BB 3,178 2,233 945 1
October 25, 1996 MLMI Series 1995-C1 ("MLMI") BB 8,700 6,389 2,311 248
</TABLE>
(1) Prepayment of a portion of the principal amount of the
Certificate.
(2) Proceeds from sale of MDI were used to purchase MDIII on May 25,
1995 (see table of purchases above).
(3) Proceeds from sale of MDIII were used to purchase MDI on December
8, 1995 (see table of purchases above).
(4) Proceeds from the partial sale of MDI were used to purchase MD-V
on August 22, 1996 (see table of purchases above).
(5) The Certificate rating was determined by at least one of the
following: Standard & Poor's Rating Group, Duff & Phelps Credit
Rating Company, or Fitch Investors Services.
(6) MAMI paid down the corresponding financing when it sold
Certificates and when it received principal prepayments on the
Certificates. The fourth column, titled Certificate Disposition
Amount, lists the gross amounts MAMI received from sales of
Certificates and from the prepayment of a portion of the principal
balance of a Certificate. The prepayments represent pass-throughs
of certain principal payments on the underlying loans in the
pools. Payment of Loan Amount, listed in the fifth column, is the
amount MAMI paid towards the reduction in financing at the time
of sale or principal prepayment. The Equity Amount, listed in the
sixth column is the net cash received by MAMI at the time of sale
or principal prepayment, and is equal to the Certificate
Disposition Amount less the Payment of Loan Amount. The Gain
Amount in the last column, which represents the realized gain on
the disposition of the Certificates. The Gain Amount is equal to
the Certificate Disposition amount less the cost basis of the
Certificate.
The following table illustrates certain data with respect to the Company's
positions in the Certificates as of December 31, 1996 (dollar amounts in
thousands for table and note (3)):
<TABLE>
<CAPTION>
Nomura Nomura
MD-I (4) MD-V DLJ Total
------- ---- --- -----
<S> <C> <C> <C> <C>
Principal Balance $12,089 $16,700 $13,560 $42,349
Unamortized Discount (1) 1,863 4,973 2,577 7,550
Fair market value at (2) 9,611 11,920 10,784 32,315
December 31, 1996
Unrealized holding gain/(loss) at (692) 193 127 (372)
December 31, 1996 (3)
Coupon rate 11.1402% 8.63 8.10% -
Maturity date 3/15/18 4/13/36 6/18/04 -
</TABLE>
(1) The discount on the Certificates is being amortized into income
over the term of the Certificates using the interest method.
(2) The Certificates are not readily marketable and there exists no
independent fair value information. The fair market value
estimate has been determined based on quotations received from
Nomura and DLJ. Because of the inherent uncertainty of valuation,
the estimates may differ from the values that would have been used
had a ready market existed for the Certificates.
(3) The tax effect of the unrealized loss is $151,552.
(4) The rating for such security was changed from B to B- in December
1996. (See note 17)
To attempt to reduce the interest rate risk associated with holding the
Certificates, and concurrent with the acquisition of certain Certificates, the
Company entered into transactions to protect against interest rate risk. The
Company has sold short U.S. Treasury Notes (the "Hedge"). As a result, the
Hedge lowers the interest rate risk of holding the Certificates over time.
However, as discussed below, the risks associated with holding the Certificates
are dependent upon additional market factors and not merely interest rate
fluctuations. Therefore, the Hedge is not highly correlated with respect to
risk
F-10
<PAGE>
regarding the Certificates. Accordingly, unrealized holding gains of $1,217,186
and unrealized holding losses of $4,137,225 on the Hedge have been recognized in
the Statement of Operations for the years ended December 31, 1996 and 1995,
respectively. Such accounting treatment could allow for periodic fluctuations
in the Company's net income. U.S. Treasury Notes sold short represent
obligations of the Company to deliver at a future date U.S. Treasury Notes by
repurchasing them at the then prevailing market prices. Accordingly, the Company
is exposed to an off-balance sheet risk that potential future market price
increases will cause the ultimate amounts paid by the Company to purchase the
U.S. Treasury Notes and thereby satisfy their purchase obligation to exceed the
amount presently recorded in the Consolidated Balance Sheet.
The Company invested the proceeds of the Hedge in a reverse repurchase
transaction. The reverse repurchase agreement provides that the Company will
receive interest at the reverse repurchase rate at a variable rate of interest.
The reverse repurchase agreements have variable interest rates based on the
reverse repurchase rate set by Nomura and DLJ. The interest rates on the Nomura
and DLJ reverse repurchase agreements at December 31, 1996 were 5.10% and 5.00%,
respectively.
The Nomura and DLJ loans (see note 10) require the Company to maintain certain
loan-to-value ratios on its borrowings associated with the Certificates.
Therefore, on a monthly basis, cash may be received by the Company or may be
required to be paid by the Company on the Nomura and DLJ loans because of
fluctuations in the market value of the Certificates. The Company was required
to pay down $1,483,284 on the Nomura, DLJ and Merrill Lynch Mortgage Investors
("MLMI") loans for the year ended December 31, 1996 because of decreases in the
fair market value of the Certificates and received cash of $2,423,635 for the
year ended December 31, 1995 because of increases in the fair market value of
the Certificates. The Company made the 1996 pay downs by primarily receiving
corresponding advances on the unrealized gain on the U.S. Treasury Notes sold
short from Nomura and DLJ. To the extent that market value changes in the
Certificates and the Hedge are not offset in the future, cash may be required
from other sources of the Company to satisfy any cash requirements.
In addition to interest rate risk, there is market risk associated with holding
the Certificates including (a) the uncertainty of cash flow to meet fixed or
variable obligations, (b) adverse changes in general and local economic
conditions, (c) credit risks, (d) the unavailability of financing, which, among
other things, may make the operation, sale or refinancing of a property more
difficult or unattractive, (e) vacancy rates, (f) operating ratios and costs,
(g) regulatory requirements, including zoning, rent control and real and
personal property tax laws, rates and assessments, (h) environmental concerns,
(i) project and borrower diversification, (j) vandalism, (k) uninsured losses
and (l) a non-recourse underlying mortgage status. In addition, commercial
properties often involve a single user or tenant, or relatively few tenants.
Commercial property specifications may be tailored to the requirements of
particular users or tenants and, accordingly, it may be difficult, costly and
time-consuming to liquidate such properties or attract new tenants.
The properties that serve as security for the mortgages collateralizing the
Certificates are located in thirty-eight states throughout the United States. In
only one state, New York, does there exist more than a 10% concentration of the
properties collaterizing the underlying mortgage balance, equaling approximately
14%.
F-11
<PAGE>
<PAGE>
The following table illustrates the property types that serve as security for
the mortgages collateralizing the Certificates.
Property Type Total Certificates at Par Percent
Office $ 2,338,000 5.52%
Retail 13,332,906 31.48
Multifamily 13,560,000 32.02
Warehouse/Industrial 835,000 1.97
Hotel 12,283,094 29.01
------------ -------
$42,349,000 100.00%
==-========= ======
5. Property and Improvements
Property and improvements at December 31, 1996 consisted of the following:
Land $ 1,030,000
Building 23,191,311
Leasehold Improvements
and Equipment 429,458
-----------
$24,650,769
Less: Accumulated Depreciation
and Amortization (5,766,302)
------------
Total $18,884,467
============
6. Investment in Wraparound Notes
Investment in Wraparound Notes represents notes due from limited partnerships
(the "Partnerships") which had previously been syndicated by Concord and
certain of its affiliates. Certain directors and officers of the Company are
also directors, officers and controlling stockholders of the general partner of
each of the Partnerships. The syndication of a Partnership by Concord typically
involved the sale of a property (the "Concord Property") owned by Concord to
the Partnership for cash and a non-recourse promissory note (the "Wraparound
Notes"), payment of which was secured by the Underlying Property. The
Wraparound Notes were subordinate to the Underlying Property Mortgage Debt
("the Underlying Debt") (see note 9) of the Concord Property. Concord then
master leased (the "Master Lease") the Concord Property back from the
Partnership for a fixed annual rental fee which entitled Concord to all rents
under the tenant operating leases. Concord was required to satisfy all other
landlord obligations.
Upon sale of the Underlying Property, proceeds are initially applied to satisfy
the Underlying Debt, and the balance, to the extent proceeds are available, is
divided between a preferred return to the Partnership's limited partners and
then repayment of the Wraparound Note. (See note 16)
Pursuant to the Acquisition (see note 1), the Company acquired 35 Wraparound
Notes, assumed the Underlying Debt and was assigned the interest in the Master
Leases (see note 8). In fiscal year 1996, the Company recognized its position
in the Wraparound Notes on two properties as a result of the sale of such
property by its owners. At December 31, 1996, the Company held 39 Wraparound
Notes with a carrying value of $71,431,945. For the year ended December
31,1996, the Wraparound Notes carrying value was written down by $189,853. The
Partnerships are obligated to make fixed payments of principal and interest on
the Wraparound Notes. Such payments approximate the Master Lease obligations.
The payments received by the Company are used to make the Master Lease payments
to the Partnerships.
F-12
<PAGE>
The scheduled principal receipts of the Wraparound Notes are as follows (dollar
amounts in thousands):
Year Ending
December 31
-----------
1997 $ 3,696
1998 4,085
1999 5,990
2000 41,864
2001 421
Thereafter (excluding 15,376
$11,202 of the
original issue discount) ----------
Total $ 71,432
==========
The Wraparound Notes have maturities ranging from 1998 to 2016.
Wraparound Notes balances at December 31, 1996 and the respective Underlying
Property locations have been aggregated as follows (dollars in thousands):
Underlying Wraparound
Property Notes
Location Carrying Amount
---------- ----------------
Alabama $ 5,209
Florida 3,426
Illinois 4,182
Kentucky 17,994
Louisiana 4,165
Massachusetts 915
Mississippi 4,187
Nebraska 2,227
New Hampshire 1,053
New York 4,574
Ohio 10,075
Pennsylvania 6,079
Tennessee 4,576
Virginia 1,079
Wisconsin 1,691
-------
Total $71,432
=======
Included in the Wraparound Notes carrying amount is $10,234,346, which
represents the non-discount portion, and $11,202,305, which represents the
discount portion, of certain original issue discount mortgage notes (the
"Discount Notes"). The carrying value of the Wraparound Notes exclude such
discount portion of the Discount Notes. The Partnerships are obligated to make
fixed payments on the non-discount portion of the Discount Notes and are not
obligated to make any principal payments on the discount portion of the
Discount Notes. The Company does not recognize income from the discount portion
of the Discount Notes due to uncertainty regarding the realization of such
amounts.
Each of the Wraparound Notes gives the Company a lien on the Underlying Property
as well as the Partnership's interest in the Master Lease. The Wraparound
Notes are subordinate to the Underlying Debt (see note 9).
The Underlying Debt of $2,325,000 for the Property located in Prattville,
Alabama ("the Prattville Property") came due in July 1996. The mortgagor
extended the balance due to December 1996. Although the Underlying Debt on the
Prattville Property has not been paid off, regular monthly debt payments have
been made by the Company through February 1997.
F-13
<PAGE>
On March 3, 1997, the mortgagor stated its intention to commence foreclosure
proceedings. As of March 12, 1997, the Company terminated, by written notice,
the Master Lease on the Prattville Property (the "Prattville Lease"). As a
result of such termination, the Company, the tenant under such lease, assigned
all of its rights, title and interest in the Prattville Property to Ivy Ridge
Plaza Associates ("IRPA"), the landlord under the Prattville Lease and IRPA
assumed all of the Company's related obligations under the Prattville Lease.
7. Investment in Affiliate
Investment in affiliate represented the Company's investment in shares of UPI
preferred stock, par value $.01 per share and $10 per share redemption value
(the "UPI Preferred Stock"). The Company was entitled to receive a dividend on
the UPI Preferred Stock at a rate per annum initially set at 9%. Each dividend
was fully cumulative and was scheduled to accrue through January 31, 2002 (the
"Dividend Period"), provided that the outstanding shares of the UPI Preferred
Stock were not redeemed in full prior to January 31, 2002. The dividend rate
decreased from 9% to 8% per annum because UPI met a redemtion schedule of at
least $270,833 of the UPI Preferred Stock per quarter for 1996.
On March 22, 1996, UPI redeemed 200,000 shares of the UPI Preferred Stock held
by the Company at $10.00 per share plus an amount equal to the accrued and
unpaid dividends thereon for a total redemption price of approximately
$2,040,000.
On February 27, 1997, UPI was merged (the "UPI Merger") into a wholly-owned
subsidiary of Kranzco Realty Trust, a Maryland real estate investment trust
("Kranzco"). In connection with the UPI Merger, the 356,400 shares of UPI
Preferred Stock, which the Company owned as of the date of the UPI Merger were
converted into 356,400 shares of Kranzco's Series C Cumulative Redeemable
Preferred Shares (the "Kranzco Series C Shares"). The terms of the Kranzco
Series C Shares are similar to the terms of the UPI Preferred Stock, since the
Kranzco Series C Shares (i) have the same redemption price and liquidation
preference and price ($10 per share) as the UPI Preferred Stock, (ii) pay
cumulative dividends at the rate paid on the UPI Preferred Stock as of the date
of the UPI Merger (8%), and (iii) are required to be redeemed ratably on a
quarterly basis over a two-year period from the date of the UPI Merger, as
compared to the UPI Preferred Stock, which was not required to be redeemed
until the year 2002 (although UPI could have, at its option, redeemed shares of
UPI Preferred Stock at any time).
8. Leases
As Lessor
The Properties have gross leasable area of approximately 2,935,493 square feet
of which approximately 95% was leased as of December 31, 1996.
Minimum base rental income under tenant lease agreements relating to the
Properties having remaining lease terms ranging from one to twenty years at
December 31, 1996 is as follows (dollar amounts in thousands):
Year Ending
December 31
-----------
1997 $11,187
1998 10,255
1999 9,799
2000 8,701
2001 8,133
Thereafter 32,151
F-14
<PAGE>
For the year ended December 31, 1996, no tenant accounted for
more than 10% of the Company's gross revenues; K-Mart, however, accounted for
approximately 28% of base rental revenues in 1996, and is scheduled to pay 27%
of the 1997 total base rentals.
As Lessee
Minimum rental expense under the Master Leases, having original lease terms
ranging from five to twenty-three years, at December 31, 1996 is as follows
(dollar amounts in thousands):
Year Ending
December 31
-----------
1997 $ 14,176
1996 14,176
1999 12,739
2000 2,670
2001 2,670
Thereafter 37,458
Although the Company's lease payments are not contingent upon receiving rent
from the Properties, such payments are expected to be made from such receipts
and the receipt of interest and principal payments from the Wraparound Notes
(see note 6).
As of April 30, 1996, the Company terminated, by written notice, the Master
Lease on the Property located in Chili, New York (the "Chili Lease"). As a
result of the termination of the Chili Lease, the Company, the tenant under
such lease, assigned all of its rights, title and interest in the Chili
Property to Valley Plaza Associates ("VPA"), the landlord under the Chili
Lease, and VPA assumed all of the Company's related obligations under the Chili
Lease. Neither VPA nor the Company have made the full required payment on the
underlying mortgage loan for such Property located in Chili, NY since May 1,
1996. VPA has made certain partial payments. Such payments have been credited
against the Wraparound Note.
9. Mortgages and Notes Payable
The mortgages and notes payable are non-recourse to the Company and are
collateralized by the Properties. Notes payable consist of purchase money notes
payable. The mortgages and purchase money notes payable were assumed by the
Company in connection with the Acquisition.
The scheduled principal payments of the mortgages and notes payable at December
31, 1996 are as follows (dollar amounts in thousands):
Year Ending
December 31
-----------
1997 $ 2,862
1998 6,038
1999 3,097
2000 3,436
2001 3,662
Thereafter 55,330
--------
Total $ 74,425
========
The interest rates on the mortgages and notes payable range from 5.75% to
13.5%.
F-15
<PAGE>
The mortgages and notes payable and related terms at December 31, 1996 for the
Properties are summarized as follows (table and note (3) dollar amounts in
thousands):
<TABLE>
<CAPTION>
Amortization
Provisions
(Monthly
Payment of
Principal
and
Principal Interest
Balance Stated
December 31 Interest in Actual
Property/Location 1996 Rate (%) Dollars) Date (4)
----------------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Dubois, PA $ 1,572 7.00 $ (1) 12/01/2006
Franklin Township, PA 1,535 6.00 (1) 02/15/2007
Clarksville, TN 1,675 6.00-6.80 (1) 10/01/2006
Clarksville, TN 52 12.00 var 10/01/1998
Montgomery, AL 1,337 8.75 14,500 04/01/2007
Paris, TN 616 13.50 8,859 04/01/2008
Paris, TN 35 9.00 3,296 01/01/1999
Paris, TN 356 9.25 8,467 07/01/2000
Chili, NY 1,477 9.63 21,687 08/01/2004
South Williamson, KY 15,168 9.00 144,833 10/01/1998
Savannah, TN 370 9.50 6,612 02/01/2003
Danville, IL 542 9.625 9,663 09/01/2002
Warsaw, VA 845 13.13 11,373 10/01/2009
Southwick, MA 821 11.50 9,857 01/01/2011
Walpole, NH 821 11.50 9,857 01/01/2011
Baton Rouge, LA 2,212 12.00 33,583 12/01/2005
Palatka, FL 1,256 12.00 17,247 11/01/2007
Prattville, AL 2,314 11.00 24,042 7/01/1996
Vestivia Hills, AL 811 13.00 13,759 11/01/2004
Columbus, NE 1,412 12.00 17,201 09/01/2010
Columbus, NE 66 9.50 697 09/01/2010
Hamilton, NY 849 13.13 11,373 12/01/2009
Bend, OR 17,409 9.00 148,925(5) 06/01/1998(3)
Zanesville, OH 1,253 9.50 14,295 06/01/1998
Deland, FL 1,015 8.87 14,016 04/01/2003
Rochester, NY 1,237 9.25 15,992 01/01/2002
Janesville, WI 1,066 9.00 14,060 08/01/2002
Janesville, WI 126 9.00 1,529(6) 08/01/2007
Marietta, OH 2,177 5.75-6.70 (1) 03/15/2007
Marietta, OH 54 12.00 var 09/15/1998
Marion, OH 1,880 5.75-6.70 (1) 02/01/2007
Marion, OH 53 12.00 var 08/01/1998
Mt. Pleasant, PA 1,450 6.50 (1) 05/01/2007
Mt. Pleasant, PA 63 12.00 var 11/01/1998
North Canton, OH 2,182 9.00 21,669 10/01/2012
Owensboro, KY 1,674 8.00 (1) 12/01/2007
Owensboro, KY 128 12.00 var 12/31/2015
Quincy, IL 3,143 7.75 27,912 07/01/1998
Natchez, MS 1,888 12.50 (2) 04/01/2007
Streetsboro, OH 1,485 6.35-6.70 (1) 12/01/2006
-------
Total Balance $74,425
=======
</TABLE>
(1) Principal and interest serviced through a bond fund with
variable semi-annual payments.
(2) Monthly payments of principal and interest equal to
available cash flow.
(3) At maturity, the mortgagee is entitled to 50% of (i) the
property's value (as determined by sale or appraisal) less
(ii) the outstanding balance plus $1,500,000.
(4) Certain mortgages and notes contain various terms regarding
prepayment penalties.
(5) Plus 67% of annual cash flow.
(6) Monthly payments subject to available cash flow.
F-16
<PAGE>
10. Loans Payable
Loans payable collateralized by repurchase agreements to Nomura and DLJ in
connection with the purchase of the Certificates (see note 4) are summarized as
follows as of December 31, 1996 (dollars amounts in thousands):
<TABLE>
<CAPTION>
Loans Loans Loans Loans
Payable Payable Payable DLJ Payable DLJ
MDI MDV B2 Cert. B3 Cert. Total
-------- -------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $6,745 $8,334 $3,548 $5,202 $23,829
Net Principal Receipts (1,701) 152 47 34 (1,468)
(payments) Year Ended
December 31, 1996
Loan to value ratio 70% 70% 80% 75% --
Interest rate LIBOR+1.75% LIBOR+1.75% LIBOR+0.75% LIBOR+1.0% --
Due date (1) (1) (2) (2) --
</TABLE>
(1) One year, renewable for one year every three months, due with minimum
nine months remaining.
(2) Three months, due with minimum three months remaining.
11. Capital Stock
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock and 10,000,000 shares of Series A Preferred Stock.
The shares of Common Stock are entitled to one vote per share. The Series A
Preferred Stock has limited voting rights. On December 21, 1995 the conversion
ratio for the Series A Preferred Stock was adjusted to provide for the receipt
of one share of Common Stock upon the conversion of .91 shares of Series A
Preferred Stock. Previously, the conversion ratio was 1.6 shares of Series A
Preferred Stock for one share of Common Stock. The new conversion ratio, which
was effective as of November 1, 1995, was determined pursuant to the
Certificate of Designations for the Series A Preferred Stock, which required
the adjustment to be made in connection with the Distribution.
The holders of Series A Preferred Stock are no longer entitled to receive a
cumulative quarterly dividend at the rate of $.78 per share per year. The
dividend was cumulative through September 30, 1995 and is non-cumulative
thereafter. The final quarterly dividend for 1995 of $.195 was paid on February
15, 1996 to stockholders of record of the Series A Preferred Stock as of the
close of business on December 29, 1995. No such quarterly dividends have been
declared or paid since such time.
Pursuant to the Settlement (as discussed and defined in note 16), the Company
paid to certain current and former holders of Series A Preferred Stock, among
other payments, for the year ended December 31, 1995 (a) $289,588 to class
members who have previously sold and not reacquired their shares of Series A
Preferred Stock as of the date of the Settlement, and (b) four quarterly
dividends totaling $2,732,243 in 1995.
In May 1994, the Common Stockholders approved the adoption of the 1993 Employee
Stock Option Plan (the "Employee Stock Option Plan"). The total number of
shares of Common Stock of the Company which may be issued pursuant to the
exercise of options granted under the Employee Stock Option Plan is 300,000.
The Compensation Committee of the Board of Directors made initial grants in
December 1993 under such plan totaling 153,000 options which are exercisable
for 153,000 shares of Common Stock at a per option exercise price of $4.75.
Options granted under the Employee Stock Option Plan expire on the tenth
anniversary of the date of their grant, or upon termination of the grantee's
employment
F-17
<PAGE>
with the Company. During the year ended December 31, 1996, 7,000 such options
were cancelled upon resignation of an employee.
In May 1994, the Common Stockholders also approved the adoption of the 1993
Non-Employee Director Stock Option Plan ("the "Non-employee Director Stock
Option Plan"). Options granted under such plan expire on the tenth anniversary
of the date of their grant, or upon the grantee's removal or resignation from
the Board of Directors. The exercise price for each option granted under the
Non-employee Director Stock Option Plan is determined by averaging the high and
low trading prices of the Common Stock as reported on the New York Stock
Exchange on the date of such options. Under the Non-employee Director Stock
Option Plan, the Company granted 2,500 options to each non-employee director in
each of 1994 (upon the adoption of the plan), 1995 and 1996 at a per option
exercise price of $4.75, $4.375 and $1.6875, respectively. As of December 31,
1996, all of the non-employee director options granted in 1993 an 1995 are
exercisable and none of the non-employee director options granted in 1996 are
exercisable. Pursuant to such plan, each non-employee director was granted
2,500 options upon adoption of such plan in 1994 and is granted 2,500 options
at each annual meeting of the stockholders of the Company.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS 123
requires expanded disclosure of stock-based compensation arrangements with
employees, and encourages, but does not require compensation cost be measured
based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply Accounting Principles Board Opinion
No. 25 ("APB 25"), which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will continue to apply APB
25 to its stock-based compensation awards.
No options have been exercised and, other than the options granted under the
Non-employee Director Stock Option Plan, no options have been granted during
the years ended December 31, 1996 and 1995. As such, in accordance with SFAS
No. 123, net loss and deficit per share of common stock for each of the years
ended December 31, 1996 and 1995 have not been disclosed on a pro-forma basis.
Certain information relating to the options granted and outstanding under the
Employee Stock Option Plan and the Non-employee Director Stock Option Plan
during the years ended December 31, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1996
---------------------------------------- -------------------------------------
Number of Weighted Average Number of Weighted Average
Options Exercise Price Options Exercise Price
------------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C>
Outstanding at January 1 160,500 $ 4.75 161,000 $ 4.73
Granted 7,500 4.375 7,500 1.6875
Exercised 0 0
Forfeited (7,000) 4.75 0
--------- -----------
Outstanding at December 31 161,000 4.73 168,500 4.60
========= ==========
Options exercised at December 31 0 0
========= ===========
</TABLE>
F-18
<PAGE>
12. Income Taxes
The Company recognizes deferred taxes for the temporary differences between
the tax bases of its assets and liabilities and the amounts reported in the
financial statements at enacted statutory rates.
The provision for income taxes consists of the following:
Current Tax: 1996 1995
---- ----
Federal $ 524,317 $3,293,167
State and other 123,069 957,936
--------- -----------
Total current 647,386 4,251,103
---------- ----------
Deferred Tax:
Federal (11,894) (3,049,311)
State and other (269,054) (885,284)
---------- -----------
Total deferred (280,948) (3,934,595)
---------- -----------
Total provision for income taxes $ 366,438 $ 316,508
========== ===========
Temporary differences between the amount reported in the Financial Statements
and the tax bases of assets and liabilities result in deferred taxes. There was
an increase in the valuation allowance of $1,355,576 for the year ended December
31, 1996. Realization of remaining deferred tax assets is dependent, in part, on
generating sufficient taxable income in the future. Although realization is not
assured, the Company believes that it is more likely than not that such deferred
tax assets will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced. Deferred tax assets and liabilities at December 31,
1996 and 1995 were as follows:
Deferred Tax Assets: 1996 1995
---- ----
Acquisition Costs $ 1,078,538 $ 1,128,897
Unrealized holding loss on U.S. Treasury
Notes sold short 517,553 1,116,073
Principal Amortization on Wraparound Note 2,210,868 341,546
Unrealized Holding Loss on Available for
Sale Securities 146,531 0
Other 766,167 350,086
----------- -----------
Gross deferred tax assets 4,719,657 2,936,602
Less: Valuation allowance (1,355,576) 0
----------- -----------
Gross deferred tax asset net of
valuation allowance 3,364,081 2,936,602
----------- -----------
Deferred Tax Liabilities:
Accelerated depreciation 91,208 91,208
Unrealized holding gain on available for
sale securities 0 565,988
----------- -----------
Gross deferred tax liabilities 91,208 657,196
----------- -----------
Net deferred tax asset $ 3,272,873 $ 2,279,406
=========== ===========
<PAGE>
The provision for total income tax differs from the amount obtained by applying
the statutory federal income tax rate to pre-tax income for the following
reasons:
1996 1995
---- ----
Amount computed on pre-tax income (35.0)% (35.0)%
Increase (Decrease) in taxes:
Increase in taxes from State and other
taxes net of Federal tax benefit (5.2) 9.7
Valuation Allowance 55.9 0
Non-deductible Acquisition Costs ---- 90.2
Other 1.6 (0.6)
---- ----
17.3% 64.3%
==== ====
13. Fair Values of Financial Instruments
SFAS No. 107 - "Disclosures about Fair Value of Financial Instruments" requires
that the Company disclose estimated fair values for certain of its financial
instruments. The following estimated fair values were determined by the Company
using available market information and valuation methodologies considered
appropriate by Management. However, considerable judgement is necessary to
interpret and apply market data to develop specific fair value estimates for
given financial instruments, and the use of different market assumptions and/or
estimation methodologies could have a material effect on reported fair value
amounts. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized upon disposition of the
Company's financial instruments.
Cash and cash equivalents, accounts and loan receivables and accounts payable
and accrued expenses are reflected in the Consolidated Balance Sheet at amounts
considered by Management to reasonably approximate fair value due to their
short-term nature. The Company estimates the fair value of its long-term fixed
rate mortgage loans generally using discounted cash flow analysis based on the
Company's current borrowing rates for similar types of debt. At December 31,
1996, the carrying value of the notes and mortgages payable and the fair value
of such instruments was not considered to be significantly different.
The fair value of the Wraparound Notes has been estimated by Management based on
the estimated fair value of the Underlying Properties. At December 31, 1996, the
fair value of the Wraparound Notes was estimated to be $80,643,928 compared to a
carrying amount of $71,431,945.
For the investment in UPI Preferred Stock the estimated fair value, which
approximates the carrying amount, is based on the applicable mandatory
redemption price and the dividend interest rates and is evaluated using interest
rates currently offered on like securities with similar remaining maturities.
The fair value estimates presented herein are based on information available as
of December 31, 1996. Although Management is not aware of any factors that would
significantly affect the estimated fair value amounts, a comprehensive
reevaluation has not been performed for purposes of these financial statement
disclosures and current estimates of fair value may differ significantly from
the amounts presented herein.
14. Related Party Transactions
The Company is a party to a management agreement (the "Management Agreement")
with Concord pursuant to which the Company provides management services and
assists Concord in the management of Concord Properties for a fee, of $25,000
per month. The services include overseeing all financing, acquisitions,
dispositions and operational functions of the relevant Concord Properties. The
operational functions include procuring and maintaining insurance, leasing,
F-20
<PAGE>
supervising and administering expansion and maintenance projects, and performing
all other necessary services for maintaining the Concord Properties involved.
The Management Agreement is renewable annually. Affiliates of Concord engaged in
real estate brokerage activities may receive brokerage or leasing commissions in
connection with the purchase, sale or leasing of properties by the Company. In
February 1992, the Management Agreement was amended (the "Amended Management
Agreement") to make available to Concord certain personnel of the Company, in
connection with which Concord will be required to reimburse the Company based on
the hourly wage rate of such personnel.
Pursuant to the Amended Management Agreement, the Company provided Concord with
office space and general office services and made available certain of its
personnel in connection with which Concord is required to reimburse the Company
based upon the hourly wage rate of such personnel. In January 1996 the amended
Management Agreement was amended to reduce the monthly fee paid by Concord to
$12,500, to reduce the amount reimbursed by Concord for office space and general
office services and eliminate the computer related services provided by the
Company; such changes were made in order to reflect actual usage of such
services following the acquisition of the property management business from
Concord by the Company. For the years ended December 31, 1996 and 1995
reimbursed expenses to the Company were $280,776 and $499,806, respectively.
MPMI entered into a property management agreement (the "MPMI Agreement") on
November 20, 1995 with UPI under which MPMI will perform property management and
leasing services for the UPI Properties. Under the MPMI Agreement, MPMI will be
paid a stated annual fee of $5,000 for each single tenant UPI Property and a fee
based on a percentage of the base and percentage rental incomes for the
remaining UPI Properties. The annual fee paid by UPI to MPMI under the MPMI
Agreement for the years ended December 31, 1996 and 1995 was approximately
$260,024 and $29,026 respectively.
On November 20, 1995, the Company entered into an agreement with UPI to provide
to UPI certain management and administrative services (the "Management Services
Agreement"). Under such agreement, the Company is required to present to UPI
asset acquisition opportunities consistent with the policies and objectives of
UPI and to furnish UPI's Board of Directors with information concerning the
acquisition, holding, performance and disposition of portfolio assets. UPI will
also be provided with office space in the Company's principal executive office
and the Company's employees, some of whom are executive officers of UPI, will
provide all levels of employee services to UPI under the Management Service
Agreement. UPI will pay the Company a fee under the Management Service Agreement
of an amount equal to approximately 1.5% of the value of the UPI Properties
based on each property's net operating income from the prior year. The aggregate
annual fee paid by UPI to the Company under the Management Services Agreement
for the year ended December 31, 1996 and 1995 was $975,807 and $125,992
respectively. (See note 7 for further discussion)
In connection with the UPI Merger, UPI terminated the MPMI Agreement and
Management Services Agreement with the Company. The Company does not expect the
termination of these agreements to have a materially adverse effect on the
operations or financial condition of the Company.
As of December 31, 1996 the Company has recorded receivables from Concord of
$599,093. Such receivables consist of management fees due to the Company and
MPMI, for expense and salary reimbursements.
Concord beneficially owned 2,901,098 shares of Common Stock at December 31,
1996. Such amount includes, as of December 31, 1996, 2,698,765 shares owned by
wholly-owned subsidiaries of Concord and 202,333 shares owned by two limited
partnerships, the sole general partners of which are wholly-owned subsidiaries
of Concord.
Concord is wholly owned by Leonard S. Mandor and Robert A. Mandor, both of whom
are executive officers and directors of Concord, the Company and UPI, and both
of whom may be deemed to beneficially own more than a majority of the voting
stock of the Company and UPI.
F-21
<PAGE>
15. Commitments and Contingent Liabilities
The Company's office facility in Boca Raton is subject to a noncancellable
operating lease arrangement. Effective March 26, 1991, Concord assigned and the
Company assumed the lease interest in the office facility. Concord remains fully
liable to the landlord under the assigned lease to the Company. Pursuant to the
Management Agreement (see note 14), the Company provides Concord with office
space for which Concord is required to reimburse the Company. Reimbursed office
space expenses for 1996 and 1995 were $86,554 and $200,481, respectively.
Aggregate annual rental payments for the year ended December 31, 1996 for the
Company were $752,344. Such lease will expire in December 1997, and rental
payments for 1997 are expected to be $752,000.
Under a long term incentive bonus plan, the Company has accrued $818,964 for
bonuses to be paid to certain officers relating to the three year period ended
December 31, 1996.
Investments in real property create a potential for environmental liability on
the part of the owner, operator or developer of such real property. If hazardous
substances are discovered on or emanating from any of the Properties, the
Company and/or others may be held strictly liable for all costs and liabilities
relating to the clean-up of such hazardous substances. The Company is not aware
of any environmental conditions that will have a material impact on its
financial position or results of operations.
16. Legal Proceedings.
A lawsuit (the "Rabin Litigation") purporting to be a class action against,
among others, Concord, Leonard S. Mandor, Robert A. Mandor and certain
Partnerships and affiliates of Concord, was filed in September 1989 alleging
various federal and common law claims relating to the sales of interests in such
partnerships. In November 1991, the Rabin Litigation was settled pursuant to the
terms of the court-approved settlement agreement (the "Settlement Agreement").
The plaintiffs in the Rabin Litigation have filed a Notice of Motion with the
court seeking to enforce the Settlement Agreement and for declaratory and other
relief. The plaintiffs assert, inter alia, that the defendants have breached the
Settlement Agreement by improperly allocating transaction expenses against the
payment to be made to the selling Partnerships in certain circumstances pursuant
to the Settlement Agreement and have breached their fiduciary duties to the
plaintiffs. Although the Company is not a party to such action, in the event
that the plaintiffs are successful in their claim that certain transaction fees,
costs and expenses incurred upon the sale of an Underlying Property are to be
borne by the holder of the Wraparound Mortgage, the value of the Wraparound
Note would be adversely affected, although the Company does not believe the
effect of a successful claim by the plaintiffs would be materially adverse to
the Company. Concord and one of its subsidiaries have agreed to indemnify the
Company for any losses, up to $200,000 in the aggregate, resulting from any
such additional transaction fees, costs or expenses incurred by the Company as
a result of such event. Concord and its subsidiary can satisfy their indemnity
obligation to the Company by delivery of shares of Common Stock, which for such
purposes will be deemed to have a value of $7.25 per share.
In connection with the motion to enforce the Settlement Agreement, the
plaintiffs in such action have alleged, in part, that the sale of Properties by
the general partner (the "General Partner") of the Partnership selling
Properties, was premature, without valid business justification with respect to
the Partnership and a breach of the General Partner's fiduciary duty. If this
aspect of the litigation is determined adversely to the General Partner (or if
the General Partner agreed to a settlement restricting its ability to sell
Properties prior to maturity), the ability of the General Partner to sell
Partnership properties, including the Underlying Properties, prior to the
maturity of the related Wraparound Note, whether by acceleration or at stated
maturity, would be limited and could materially and adversely affect the
Company's ability to realize upon the value of the Underlying Properties.
Pursuant to the Settlement Agreement, Concord agreed to pay to the Partnerships
in which the plaintiffs are limited partners a priority distribution of 11% of
the net proceeds (as defined in the Settlement Agreement) of the sale of each
Underlying Property, generally representing 11% of the difference between (i)
the amount received by a wraparound mortgagee (i.e., the Company) in
satisfaction of a Wraparound Note and certain other obligations and (ii) the
Underlying Debt balance as of December 31, 1990, including any prepayment
penalties, subject to certain adjustments. As a result, upon the satisfaction of
the Wraparound Note acquired by the Company in the
F-22
<PAGE>
Acquisition, the Company may not be entitled to receive all of the proceeds
thereof as a portion of the proceeds thereof may be payable to such
Partnerships. Under certain circumstances generally involving a sale of a
property for a price greater than the outstanding balance of the Wraparound
Note, the Company, as the wraparound mortgagee, will be entitled to share in
such excess proceeds up to certain predetermined amounts.
The parties have agreed in principle to a settlement of the motion to enforce
the Settlement Agreement, and have submitted a proposed Stipulation and Order to
the United States District Court for the Southern District of New York. Under
the proposed Stipulation and Order, the plaintiffs would withdraw their breach
of fiduciary duty claims and withdraw with prejudice their claim that defendants
breached the Settlement Agreement by their allocation of transaction expenses
from the sale of certain Properties in exchange for a payment of $600,000 from
the defendants. In addition, the Stipulation and Order provides for a formula
relating to the allocation of transaction expenses in connection with the future
sale of Properties owned by the Partnerships, including the Underlying
Properties subject to the Wraparound Note. Generally, under such formula, if a
Property is sold for a price less than the sum of (a) the outstanding Wraparound
Note, (b) the Permitted Additional Wrap Debt (as defined in the Settlement
Agreement), and (c) the amount to be paid to the holder of the Wraparound Debt
pursuant to the Settlement Agreement, then 82.25% of the transaction expenses
shall be the obligation of the selling Partnership, and shall be deducted from
the 11% of net proceeds (as defined in the Settlement Agreement) to be
distributed to the selling Partnership, and the Company, as the holder of the
Wraparound Note, would be responsible for paying the remaining 17.75% of the
transaction expenses incurred in such sale. In the event a Property is sold for
a price in excess of the sum of (a) the outstanding Wraparound Note, (b) the
Permitted Additional Wrap Debt, and otherwise, (c) the amount to be paid to the
holder of the Wraparound Note pursuant to the Settlement Agreement, then the
transaction expenses shall be deducted from the proceeds in excess of such
existing debt, and, if such excess proceeds are not sufficient to pay all such
transaction expenses, 82.25% of the balance of such transaction expenses shall
be paid out of the 11% of the net proceeds distributed to the selling
Partnership, and the Company would be responsible for paying the remaining
17.75% of the transaction expenses incurred in such sale. As stated above,
Concord and one of its subsidiaries have agreed to indemnify the Company for any
losses, up to $200,000 in the aggregate, resulting from any such additional
transaction fees, costs or expenses incurred by the Company as a result of such
events. The Company does not believe that the proposed Stipulation and Order
would, if entered into, materially adversly affect the Company. There can be no
assurance, however, that the parties will consumate the proposed Stipulation and
Order described above or, if entered into, that the plaintiffs will not pursue
the breach of fiduciary duty claims against Concord and the General Partners of
the Partnerships which own the Underlying Properties which would be withdrawn
under the terms of the proposed Stipulation and Order.
On March 26, 1993, the United States District Court for the Southern District of
New York approved a settlement (the "Settlement") of a consolidated class action
which had been filed against the Company, Concord, Leonard S. Mandor, Robert A.
Mandor, certain of the Company's other present and former affiliates and
Shareholder Communications Corporation, the proxy solicitation firm engaged by
the Company in connection with the Merger. Further information about this
litigation and the Settlement is set forth in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1993 and its Proxy Statement
relating to the Annual Meeting of Stockholders of the Company, held on May 27,
1994, to which reference is hereby made. Under the terms of the Settlement, the
Company, among other things, was required to pay $1,360,000 in legal fees and
expenses to plaintiffs' counsel over a period of three years. During the year
ended December 31, 1996, the Company paid the final $215,000 of the legal fees
and expenses remaining under the Settlement.
On January 30, 1996, Milestone, its Board of Directors and Concord were named as
defendants in an action commenced in the Court of Chancery of the State of
Delaware (the "Delaware Court"). In the action, the plaintiff, a Series A
Preferred Stockholder purporting to bring this action on behalf of himself and
other Series A Preferred Stockholders, alleges that in connection with the
Acquisition, the Transfer and the Distribution, Milestone and its directors
engaged in self-dealing, violated federal securities laws and an injunction
against such violations and breached their fiduciary duties to the Series A
Preferred Stockholders. The plaintiff claims, among other things, that, as a
result of such actions, Milestone will not have sufficient funds to pay
dividends on the Series A Preferred Stock and that the Properties are grossly
inferior to the UPI Properties. The defendants moved to dismiss the plaintiff's
original complaint, and thereafter, the plaintiff amended his
F-23
<PAGE>
complaint to allege further causes of action, including a claim of rescission.
The defendants moved to dismiss the amended complaint, and after hearing
arguments thereon, the Delaware Court dismissed plaintiff's claim for rescission
of both the Transfer and the Distribution and reserved decision the defendants'
motion to dismiss plaintiff's claim for damages and other relief. On December 9,
1996, the plaintiff requested that the Delaware Court dismiss the amended
complaint, and filed a purported new class action. On January 14, 1997, the
defendants filed a motion to dismiss or stay the purported new class action, and
the motion has since been scheduled for oral argument on April 15, 1997.
17. Subsequent Events
On January 23, 1997, MAMI sold its remaining $12,089,000 ownership of Nomura
Series 1994-MDI B3A for $9,520,088, of which $9,392,383 was used to retire the
debt associated with such security. Concurrent with the sale, MAMI closed the
U.S. Treasury Note short position which it had previously established. As a
result of such sale and close of the U.S. Treasury Note obligation, the Company
realized a loss of approximately $1,100,000, of which, approximately $475,000
has been previously recognized in the Statement of Operations as an unrealized
loss on Treasury Notes sold short and approximately $600,000 has been previously
recognized in the Balance Sheet as an Unrealized holding loss-available-for-sale
securities.
F-24
<PAGE>
Exhibit 21
Subsdiaries of Milestone Properties, Inc.
Subsidiary State of Incorporation
Milestone Asset Management, Inc. Delaware
Milestone Property Management, Inc. Delaware
Centaur Leasing Company, Inc. Delaware
Minotaur Mortgage Company of Deland, Inc. Delaware
Minotaur Mortgage Company of Rochester, Inc. Delaware
Minotaur Mortgage Company of Pascagoula, Inc. Delaware
Minotaur Mortgage Company of Janesville, Inc. Delaware
Minotaur Mortgage Company of Marietta, Inc. Delaware
Minotaur Mortgage Company of Marion, Inc. Delaware
Minotaur Mortgage Company of Mt. Pleasant, Inc. Delaware
Minotaur Mortgage Company of North Canton, Inc. Delaware
Minotaur Mortgage Company of Owensboro, Inc. Delaware
Minotaur Mortgage Company of Quincy, Inc. Delaware
Minotaur Mortgage Company of Natchez, Inc. Delaware
Minotaur Mortgage Company of Streetsboro, Inc. Delaware
Minotaur Mortgage Company of Southington, Inc. Delaware
Minotaur Mortgage Company of Dubois, Inc. Delaware
Minotaur Mortgage Company of Franklin, Inc. Delaware
Minotaur Mortgage Company of Clarksville, Inc. Delaware
Minotaur Mortgage Company of Roanoke, Inc. Delaware
Minotaur Mortgage Company of Paris, Inc. Delaware
Minotaur Mortgage Company of Chili, Inc. Delaware
Minotaur Mortgage Company of South Williamson, Inc. Delaware
Minotaur Mortgage Company of Savannah, Inc. Delaware
Minotaur Mortgage Company of Danville, Inc. Delaware
Minotaur Mortgage Company of Vestivia Hills, Inc. Delaware
Minotaur Mortgage Company of Montgomery, Inc. Delaware
Minotaur Mortgage Company of Southwick, Inc. Delaware
Minotaur Mortgage Company of Walpole, Inc. Delaware
Minotaur Mortgage Company of Baton Rouge, Inc. Delaware
Minotaur Mortgage Company of Palatka, Inc. Delaware
Minotaur Mortgage Company of Prattville, Inc. Delaware
Minotaur Mortgage Company of Columbus, Inc. Delaware
Minotaur Mortgage Company of Hamilton, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,141,839
<SECURITIES> 67,033,602
<RECEIVABLES> 13,291,185
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 83,897,229
<PP&E> 24,650,766
<DEPRECIATION> 5,766,299
<TOTAL-ASSETS> 182,095,277
<CURRENT-LIABILITIES> 81,573,192
<BONDS> 0
0
31,822
<COMMON> 47,433
<OTHER-SE> 28,879,888
<TOTAL-LIABILITY-AND-EQUITY> 182,095,277
<SALES> 0
<TOTAL-REVENUES> 33,722,442
<CGS> 0
<TOTAL-COSTS> 23,881,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,961,780
<INCOME-PRETAX> (2,120,536)
<INCOME-TAX> 366,438
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,486,974)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> 0
</TABLE>
