U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________________ to _______________
Commission file number 1-10641
MILESTONE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0158204
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
5200 TOWN CENTER CIRCLE, BOCA RATON FLORIDA 33486
------------------------------------------------ ----------
(Address of Principal executive offices) (Zip Code)
(561) 394-9533
---------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
As of August 7,1997, 4,213,368 shares of the registrant's common stock, par
value $.01 per share, and 3,033,995 shares of the registrant's $.78 Convertible
Series A preferred stock, par value $.01 per share, were outstanding.
<PAGE>
Part I: Financial Information
Item 1. Financial Statements
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents .................................................. $ 5,603,255 $ 3,141,839
Loans receivable ........................................................... 1,544,906 1,684,585
Accounts receivable ........................................................ 862,509 1,360,621
Accrued interest receivable ................................................ 4,542,942 9,646,886
Due from related party ..................................................... 740,735 599,093
Prepaid expenses and other ................................................. 135,773 430,603
Reverse repurchase agreements .............................................. 25,232,500 34,718,749
Available-for-sale securities .............................................. 23,699,225 32,314,853
------------- -------------
Total current assets .................................................. 62,361,845 83,897,229
Property, improvements and equipment, net .................................. 18,637,821 18,884,467
Wraparound notes, net ...................................................... 66,704,261 71,431,945
Deferred income tax asset, net ............................................. 2,552,810 3,272,873
Investment in affiliate .................................................... 3,119,599 3,959,433
Management contract rights, net ............................................ 373,008 426,467
Goodwill and organizational cost, net ...................................... 185,720 222,863
------------- -------------
Total assets .......................................................... $ 153,935,064 $ 182,095,277
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ...................................... $ 620,973 $ 2,031,513
Accrued interest payable ................................................... 801,622 1,139,941
Master lease payable ....................................................... 7,181,351 14,445,351
Due to related party ....................................................... 0 61,688
Current portion of mortgages and notes payable ............................. 2,926,385 2,862,274
Income taxes payable ....................................................... 2,434,373 3,250,744
Loans payable .............................................................. 17,843,513 23,829,335
Treasury notes sold short .................................................. 24,736,964 33,952,346
------------- -------------
Total current liabilities ............................................. 56,545,181 81,573,192
Mortgages and notes payable ................................................ 69,980,985 71,562,942
------------- -------------
Total liabilities ..................................................... 126,526,166 153,136,134
------------- -------------
Commitments and Contingencies
Stockholders' equity:
Common stock ($0.01 par value, 10,000,000 shares
authorized, 4,903,605 and 4,743,155 issued
respectively) ........................................................... 49,038 47,433
Preferred stock (Series A $0.01 par value, 10,000,000
shares authorized, 3,036,139 and 3,182,184
shares issued and outstanding, respectively) ........................... 30,362 31,822
Additional paid-in surplus ................................................. 48,105,431 48,105,575
Unrealized holding gain (loss) - available-for-sale securities (Net of tax
liability (benefit) of $ 457,427 and
$(151,552), respectively)................................................ 685,535 (220,396)
Accumulated deficit ........................................................ (18,021,050) (15,564,873)
Shares held in treasury - 692,591 shares at cost ........................... (3,440,418) (3,440,418)
------------- -------------
Total stockholders' equity ............................................ 27,408,898 28,959,143
------------- -------------
Total liabilities and stockholders' equity ............................ $ 153,935,064 $ 182,095,277
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(Unaudited)
For the Three Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
REVENUES:
Rent ................................................... $ 2,476,066 $ 2,868,250
Interest income ........................................ 3,293,194 4,545,626
Revenue from management company operations ............. 83,751 202,908
Tenant reimbursements .................................. 200,745 259,195
Management and reimbursement income .................... 45,011 279,503
Percentage rent ........................................ 131,363 43,776
Amortization of discount - available-for-sale securities 90,136 66,457
Unrealized (loss)/gain on treasury notes sold short .... (354,065) 1,124,295
Gain on realization of wraparound notes ................ 0 495,012
----------- ----------
Total revenues ......................................... 5,966,201 9,885,022
----------- ----------
EXPENSES:
Master lease expense ................................... 3,445,833 3,801,156
Interest expense ....................................... 2,375,655 3,101,675
Depreciation and amortization .......................... 187,808 180,831
Salaries, general and administrative ................... 587,191 1,329,759
Property expenses ...................................... 458,172 507,088
Expenses for management company operations ............. 373,529 303,089
Professional fees ...................................... 228,844 327,927
---------- ----------
Total expenses ......................................... 7,657,032 9,551,525
---------- ----------
(Loss) income before income taxes ........................... (1,690,831) 333,497
Provision for income taxes .................................. 416,309 155,511
---------- ----------
Net (loss) income ........................................... $ (2,107,140) $ 177,986
=========== ==========
(Loss) income per share of common stock ..................... $ (0.50) $ 0.05
=========== ==========
Weighted average number of shares of common stock ........... 4,192,211 3,793,783
=========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(Unaudited)
For the Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
REVENUES:
Rent ................................................... $ 5,347,516 $ 5,808,214
Interest income ........................................ 6,669,521 8,625,141
Revenue from management company operations ............. 284,442 382,619
Tenant reimbursements .................................. 558,734 607,860
Management and reimbursement income .................... 308,143 557,725
Percentage rent ........................................ 201,439 61,980
Amortization of discount - available-for-sale securities 179,436 126,510
Unrealized gain on treasury notes sold short ........... 49,365 2,441,533
Gain on realization of wraparound notes ................ 0 495,012
Loss on sale of available-for-sale securities .......... (784,122) 0
------------ ------------
Total revenues ......................................... 12,814,474 19,106,594
------------ ------------
EXPENSES:
Master lease expense ................................... 6,977,659 7,765,133
Interest expense ....................................... 4,638,932 5,459,295
Depreciation and amortization .......................... 380,916 364,162
Salaries, general and administrative ................... 1,192,209 2,072,817
Property expenses ...................................... 892,896 1,211,554
Expenses for management company operations ............. 658,869 539,415
Professional fees ...................................... 435,782 614,628
------------ ------------
Total expenses ......................................... 15,177,263 18,027,004
------------ ------------
(Loss) income before income taxes ........................... (2,362,789) 1,079,590
Provision for income taxes .................................. 93,388 439,025
------------ ------------
Net (loss) income ........................................... $ (2,456,177) $ 640,565
============ ============
(Loss) income per share of common stock ..................... $ (0.59) $ 0.17
============ ============
Weighted average number of shares of common stock ........... 4,192,211 3,793,783
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
MILESTONE PROPERTIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
--------------------- ------------------- -----------------------
Shares Amount Shares Amount Shares Cost
--------- -------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 4,743,155 $ 47,433 3,182,184 $ 31,822 (692,591) $(3,440,418)
Conversion of preferred stock into common stock 160,450 1,605 (146,045) (1,460)
Net loss for the six months ended June 30, 1997
Unrealized holding gain - available-for-sale securities
--------- -------- --------- -------- --------- ------------
Balance June 30, 1997 4,903,605 $ 49,038 3,036,139 $ 30,362 (692,591) $(3,440,418)
========= ======== ========= ======== ========= ============
Unrealized
Holding (loss)
Additional Gain on
Paid-in Available-for- Accumulated Stockholders'
Surplus Sales Securities Deficit Equity
---------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance January 1, 1997 $48,105,575 $ (220,396) $(15,564,873) $28,959,143
Conversion of preferred stock into common stock (144) 0
Net loss for the six months ended June 30, 1997 (2,456,177) (2,456,177)
Unrealized holding gain - available-for-sale securities 905,931 905,931
------------ --------- ------------ ----------
Balance June 30, 1997 $48,105,431 $ 685,535 $(18,021,050) $27,408,898
============ ========= ============ ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES June 30, 1997 June 30,1996
------------- -------------
<S> <C> <C>
Net (loss) income ............................................ $ (2,456,177) $ 640,565
Adjustments to reconcile net (loss) income to
net cash used in operating activities
Depreciation and amortization ........................... 380,916 364,162
Deferred taxes .......................................... 138,407 1,088,502
Unrealized gain on treasury notes sold short ............ (49,365) (2,441,533)
Amortization of discount - available-for-sale securities (179,436) (126,510)
Realized loss on sale of available-for-sale securities .. 784,122 0
Gain on realization of wraparound notes ................ 0 (495,012)
Change in operating assets and liabilities net:
Decrease in accounts receivable ....................... 680,112 664,089
Increase in due from related party .................... (141,642) (206,958)
Decrease in accrued interest receivable ............... 4,921,944 5,779,833
Decrease in prepaid expenses and other ................ 294,830 81,360
Decrease in accrued litigation settlement expenses .... 0 (215,000)
Decrease in accrued expenses .......................... (1,410,540) (912,239)
Decrease in accrued interest payable .................. (338,319) (122,100)
Decrease in master lease payable ...................... (7,264,000) (7,864,787)
Decrease in income taxes payable ...................... (816,371) (767,687)
Decrease in due to related party ...................... (61,688) (97,124)
------------ ------------
Net cash used in operating activities ................. (5,517,207) (4,630,439)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on loans receivable ................ 139,680 26,733
Principal repayments on wraparound notes ................ 4,727,684 4,747,664
Purchase of leasehold improvements ...................... (43,668) 0
Proceeds from realization of wraparound notes ........... 0 2,157,439
Proceeds from the sale of available-for-sale securities . 9,498,529 0
Proceeds from redemption of investment in affiliate ..... 839,834 2,000,000
Purchase of available-for-sale securities ............... 0 (8,452,060)
Proceeds from treasury notes sold short ................. 0 9,203,125
Proceeds from redemption of reverse repurchase agreements 9,436,884 0
Purchase of treasury notes .............................. (9,166,017) 0
Purchase of reverse repurchase agreements ............... 0 (9,601,171)
------------ ------------
Net cash provided by investing activities ............. 15,432,926 81,730
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to preferred stockholders ............ 0 (666,622)
Principal payments on mortgages and notes payable ....... (1,517,846) (2,967,583)
Proceeds from loans payable ............................. 0 6,339,045
Principal payments on loans payable ..................... (5,985,822) (1,818,847)
Amounts received on treasury notes payable .............. 49,365 2,441,533
------------ ------------
Net cash (used in) provided by financing activities ... (7,454,303) 3,327,526
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................................. 2,461,416 (1,221,183)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............... 3,141,839 2,562,506
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ..................... $ 5,603,255 $ 1,341,323
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for interest ................ $ 4,977,251 $ 4,812,167
============ ============
Cash paid during the period for income taxes ............ $ 793,651 $ 117,723
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
MILESTONE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying consolidated financial statements of Milestone Properties,
Inc ("Milestone") and its wholly owned subsidiaries (together with Milestone,
the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The financial statements
as of June 30, 1997 and 1996 are unaudited. The results of operations for the
interim periods are not necessarily indicative of the results of operations for
the fiscal year. Certain information for 1996 has been reclassified to conform
to the 1997 presentation. For further information, refer to the financial
statements and footnotes included thereto in Milestone's Annual Report on Form
10-KSB for the year ended December 31, 1996.
1. Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" in February, 1997. The
pronouncement established standards for computing and presenting earnings per
share, and is effective for the Company's 1997 year-end financial statements.
The Company's management has determined that this standard will not have a
significant impact on the Company's computation or presentation of net income
per common share.
2. Legal Proceedings
As previously reported, on January 30, 1996, an action was commenced in the
Court of Chancery of the State of Delaware (the "Delaware Court") against
Milestone, its Board of Directors and Concord Assets Group, Inc. ("Concord").
Concord's executive officers and directors are also executive officers and
directors of Milestone. The plaintiff, a Series A Preferred Stockholder of
Milestone purporting to bring the action on behalf of himself and other Series A
Preferred Stockholders, brought the action, seeking, among other things, damages
from Milestone, by reason of, among other things, (i) Milestone's acquisition
and assumption in October 1995 (the "Acquisition") of certain wraparound notes,
wraparound mortgages and fee properties (collectively, the "Assets") from
certain affiliates of Concord, (ii) the transfer (the "Transfer") to UPI in
August 4, 1995 and October 30, 1995 of 16 of Milestone's retail properties (the
"UPI Properties"), and (iii) the subsequent distribution of all of the issued
and outstanding shares of UPI's common stock to Milestone's Common Stockholders
<PAGE>
on a share-for-share basis and for no consideration (the "Spin-Off") (the
Acquisition, the Transfer and the Spin-Off are collectively referred to herein
as the "Transactions"). The plaintiff alleged that, in connection with the
above, Milestone and its directors engaged in self-dealing, violated federal
securities laws, and breached their fiduciary duties to the Series A Preferred
Stockholders and sought an injunction against such violations. The plaintiff
claimed, among other things, that, as a result of such actions, Milestone would
not have sufficient funds to pay dividends on the Series A Preferred Stock and
that the Assets were 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 the plaintiff's
claim for recision of both the Transfer and the Spin-Off and reserved decision
on the defendants' motion to dismiss the plaintiff's claim for damages and other
relief. On December 9, 1996, the plaintiff requested that the Delaware Court
dismiss the amended complaint, and simultaneously 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 Delaware Court heard oral arguments on
such motion on April 15, 1997. On May 12, 1997, the Delaware Court issued a
decision on the defendants' motions and dismissed the plaintiff's breach of
fiduciary duty and statutory claims (although the Delaware Court has allowed the
plaintiff to replead the fiduciary duty claim), but did not dismiss the
plaintiff's claim that the Transfer and the Spin-Off did not comply with the
Certificate of Designations for the Series A Preferred Stock. On June 4, 1997,
the plaintiff appealed the Delaware Court's dismissal of the fiduciary duty
claims, and the defendants filed a cross-appeal on June 11, 1997.
On July 15, 1997, Milestone tentatively agreed to a proposed settlement of
the purported class action (the "Proposed Settlement"). In connection with the
Proposed Settlement, the Supreme Court of the State of Delaware entered an order
consented to by the parties extending the time for the filing of the plaintiff's
opening brief to August 28, 1997. Under the terms of the Proposed Settlement,
Milestone would be released from all claims by its stockholders relating to the
Transactions and all other matters relating to the pending action. In connection
with the Proposed Settlement, Milestone would pay each of its Series A Preferred
Stockholders who are holders of such Series A Preferred Stock at the time of the
consummation of the Proposed Settlement an amount of cash equal to $0.75 per
share of Series A Preferred Stock, and each share of the Series A Preferred
Stock would be exchanged for a share of a new preferred stock to be issued by a
subsidiary of Concord. The new preferred stock of the Concord subsidiary would
have a $2.25 per share liquidation preference, would not be entitled to any
dividend rights and would be subject to mandatory redemption on the fifth
anniversary of the Proposed Settlement at $2.25 per share, and would be secured
by a letter of credit in an amount equal to the value of the aggregate
redemption price. The defendants would have the right to terminate the Proposed
Settlement if the holders of more than 10% of the Series A Preferred Stock
opt-out of the Proposed Settlement. The Proposed Settlement is subject to
certain conditions,including approval of the Proposed Settlement by the Delaware
Court, approval by Milestone's insurance carrier, clearance of various
securities matters, and the execution of a definitive settlement agreement.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
General
The Company is engaged in the business of owning, acquiring, managing,
developing and investing in real estate and real estate related assets.
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
The Company recognized a net loss of $2,107,140 for the three months ended
June 30, 1997 as compared to net income of $177,986 for the same period in 1996
due to the following factors:
Revenues for the three months ended June 30, 1997 were $5,966,201, a
decrease of $3,918,821, or 40%, from $9,885,022 for the three months ended June
30, 1996. Such decrease was primarily due to the net of: (1) a decrease in
interest income of $1,252,432 resulting primarily from (a) a decrease in the
number of wraparound notes to 28 for the three months ended June 30, 1997 from
32 for the same period in 1996 resulting in a decrease in interest income of
approximately $336,000; and (b) a decrease in mortgage backed securities held by
the Company to two for the three months ended June 30, 1997 from four for the
same period in 1996 resulting in a decrease in interest income of approximately
$806,585; (2) a decrease in rents of $392,184 resulting from a decrease in the
number of properties leased by the Company to 28 for the three months ended June
30, 1997 from 32 for the same period in 1996 resulting in a decrease in rental
income of approximately $260,000; (3) an unrealized holding loss on U.S.
Treasury Notes sold short of $354,065 for the three months ended June 30, 1997
compared to an unrealized holding gain of $1,124,295 for the same period in
1996; and (4) no gain or loss on the realization of wraparound notes for the
three months ended June 30, 1997 compared to a gain of $495,012 on the
realization of wraparound notes for the three months ended June 30, 1996.
Operating expenses for the three months ended June 30, 1997 were
$5,093,569, a decrease of $1,175,450, or 19%, from $6,269,019 for the three
months ended June 30, 1996. Such decrease was primarily due to the net of: (1) a
decrease in net lease expense of $355,323 due to a decrease in the number of
properties leased by the Company to 28 for the three months ended June 30, 1997
from 32 for the same period in 1996; (2) a decrease in property expenses of
$48,916 attributable to (a) a decrease in the number of properties leased by the
Company to 28 in 1997 from 32 in 1996 resulting in a decrease in property
expenses of approximately $23,000; (b) a decline in snow removal costs of
approximately $14,000 for the three months ended June 30, 1997 compared to the
same period in 1996;(c) a decrease in insurance expense of approximately $20,000
due to a lower premium for the three months ended June 30, 1997; and (d)such
decreases were partially offset by an increase in other expenses by
approximately $8,000; and (3) a decrease in salaries, general and administrative
expense of $742,568 resulting primarily from (a) executive bonuses which were
approved by the Compensation Committee of the Board of Directors and paid in
April of 1996 of approximately $401,000; and (b) a decrease in the number of
employees from 1996 to 1997 resulting in a decrease in salary expense of
approximately $200,000.
Interest expense for the three months ended June 30, 1997 was $2,375,655,
a decrease of $726,020, or 23%, from $3,101,675 for the three months ended June
30, 1996. Such decrease was primarily due to a decrease in financing
arrangements related to the mortgage backed securities held by the Company to
two for the three months ended June 30, 1997 from four for the same period in
1996 resulting in a decrease in interest expense of approximately $584,000.
<PAGE>
Depreciation and amortization for the three months ended June 30, 1997 was
$187,808, an increase of $6,977, or 4%, from $180,831 for the three months ended
June 30, 1996. Such increase was primarily due to approximately $200,000 of
property improvement purchases made throughout 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
The Company recognized a net loss of $2,456,177 for the six months ended
June 30, 1997 as compared to net income of $640,565 for the same period in 1996
due to the following factors:
Revenues for the six months ended June 30, 1997 were $12,814,474, a
decrease of $6,292,120, or 33%, from $19,106,594 for the six months ended June
30, 1996. Such decrease was primarily due to the net of: (1) a decrease in
interest income of $1,955,620 resulting primarily from (a) a decrease in the
number of wraparound notes to 28 for the six months ended June 30, 1997 from 32
for the same period in 1996 resulting in a decrease in interest income of
approximately $590,000; and (b) a decrease in mortgage backed securities held by
the Company to two for the six months ended June 30, 1997 from four for the same
period in 1996 resulting in a decrease in interest income of approximately
$1,099,091; (2) a decrease in rents of $460,698 resulting from a decrease in the
number of properties leased by the Company to 28 for the six months ended June
30, 1997 from 32 for the same period in 1996 resulting in a decrease in rental
income of approximately $513,000, which was offset by rental increases; (3) an
unrealized holding gain on U.S. Treasury Notes sold short of $49,365 for the six
months ended June 30, 1997 compared to an unrealized holding gain of $2,441,533
for the same period in 1996; (4) no gain or loss on the realization of
wraparound notes for the six months ended June 30, 1997 compared to a gain of
$495,012 on the realization of wraparound notes for the six months ended June
30, 1996; and (5) a realized loss on the sale of available-for- sale securities
of $784,122 for the six months ended June 30, 1997 compared to no such gain or
loss for the same period in 1996.
Operating expenses for the six months ended June 30, 1997 were $10,157,415,
a decrease of $2,046,132, or 17%, from $12,203,547 for the six months ended June
30, 1996. Such decrease was primarily due to the net of: (1) a decrease in net
lease expense of $787,474 due to a decrease in the number of properties leased
by the Company to 28 for the six months ended June 30, 1997 from 32 for the same
period in 1996; (2) a decrease in property expenses of $318,658 attributable to
(a) a decrease in the number of properties leased by the Company to 28 in 1997
from 32 in 1996 resulting in a decrease in property expenses of approximately
$110,000; (b) a decline in snow removal costs of approximately $66,000 for the
six months ended June 30, 1997 compared to the same period in 1996; and (c) a
decrease in insurance expense of approximately $40,000 due to a lower premium
for the six months ended June 30, 1997; and (3) a decrease in salaries, general
and administrative expense of $880,608 resulting primarily from (a) executive
bonuses which were approved by the Compensation Committee of the Board of
Directors and paid in April of 1996 of approximately $401,000; and (b) a
decrease in the number of employees from 1996 to 1997 resulting in a decrease in
salary expense of approximately $200,000.
Interest expense for the six months ended June 30, 1997 was $4,638,932, a
decrease of $820,363, or 15%, from $5,459,295 for the six months ended June 30,
1996. Such decrease was primarily due to a decrease in financing arrangements
related to the mortgage backed securities held by the Company to two for the six
months ended June 30, 1997 from four for the same period in 1996 resulting in a
decrease in interest expense of approximately $709,000.
<PAGE>
Depreciation and amortization for the six months ended June 30, 1997 was
$380,916, an increase of $16,754, or 5%, from $364,162 for the six months ended
June 30, 1996. Such increase was primarily due to approximately $200,000 of
property improvement purchases made throughout 1996.
Liquidity and Capital Resources
The Company, as the holder of 267,300 shares of Kranzco Series C Cumulative
Redeemable Preferred Shares is entitled to receive from the redemption of such
shares, in six equal installments over the next 18 months, an aggregate amount
of cash equal to approximately $2,673,000, plus interest at the rate of 8% per
annum on the applicable outstanding balance of such shares. 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
Milestone Asset Management Inc., a wholly-owned subsidiary of Milestone.
The Company has no present intention to declare or pay cash dividends on
the Common Stock or the Company's $.78 Convertible Series A preferred stock, par
value $.01 per share (the "Series A Preferred Stock"), in the foreseeable
future. The cumulative period relating to the payment of dividends on the Series
A Preferred Stock expired on September 30, 1995. If the Company declares future
dividends on its Common Stock or Series A Preferred Stock, the Company may need
to obtain additional funds through equity or debt financing or other
arrangements in order to fund the Company's projected operations. No assurance
can be given that additional financing would be available if and when needed or
on terms acceptable to the Company. In addition, the Company's existing
borrowings may inhibit or result in increased costs to the Company in seeking to
obtain such additional financing. Any decision as to the future payment of
dividends on the Common Stock or the Series A Preferred Stock will depend on the
results of operations and the financial condition of the Company and such other
factors as Milestone's Board of Directors, in its discretion, deems relevant.
[See Part II - Other Information, Item 1. Legal Proceedings, for a discussion of
cash requirements under the Proposed Settlement, as defined therein.]
Management is not aware of any other trends, events, commitments or
uncertainties, that will or are likely to materially impact the Company's
liquidity.
Cash Flows
Net cash used in operating activities of $5,517,207 for the six months
ended June 30, 1997 included (1) a net loss of $2,456,177; (2) adjustments for
non-cash items of $1,074,644; and (3) a net change in operating assets and
liabilities of $4,135,674, compared to net cash used in operating activities of
$4,630,439 for the six months ended June 30, 1996, which included (1) net income
of $640,565; (2) adjustments for non-cash items of $1,610,391; and (3) a net
change in operating assets and liabilities of $3,660,613.
Net cash provided by investing activities of $15,432,926 for the six months
ended June 30, 1997 included (1) proceeds from principal repayments on loans
receivable and wraparound notes of $4,867,364; (2) purchase of leasehold
improvements of $43,668; (3) proceeds from the sale of available-for-sale
securities of $9,498,529; (4) proceeds from redemption of investment in
affiliate of $839,834; (5) proceeds from redemption of reverse repurchase
agreements of $9,436,884; and (6) purchase of treasury notes of $9,166,017,
compared to net cash provided by investing activities of $81,730 for the six
months ended June 30, 1996, which included (1) proceeds from principal
repayments on loans receivable and wraparound notes of $4,774,397; (2) proceeds
from realization of wraparound notes of $2,157,439; (3) proceeds from redemption
<PAGE>
of investment in affiliate of $2,000,000; (4) purchase of available-for-sale
securities of $8,452,060; (5) proceeds from U.S. Treasury Notes payable sold
short of $9,203,125; and (6) purchase of reverse repurchase agreements of
$9,601,171.
Net cash used in financing activities of $7,454,303 for the six months
ended June 30, 1997 included (1) principal payments on mortgages and notes
payable of $1,517,846 (2) principal payments on loans payable of $5,985,822 and
(3) amounts received on U.S. Treasury Notes payable of $49,365, compared to net
cash provided by financing activities of $3,327,526 for the six months ended
June 30, 1996, which included (1) distributions of $666,622 paid to preferred
stockholders; (2) principal payments on mortgages and notes payable of
$2,967,583; (3) proceeds from loans payable of $6,339,045; (4) principal
payments on loans payable of $1,818,847; and (5) amounts received on U.S.
Treasury Notes payable of $2,441,533.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported, on January 30, 1996, an action was commenced in the
Court of Chancery of the State of Delaware (the "Delaware Court") against
Milestone, its Board of Directors and Concord Assets Group, Inc. ("Concord").
Concord's executive officers and directors are also executive officers and
directors of Milestone. The plaintiff, a Series A Preferred Stockholder of
Milestone purporting to bring the action on behalf of himself and other Series A
Preferred Stockholders, brought the action, seeking, among other things, damages
from Milestone, by reason of, among other things, (i) Milestone's acquisition
and assumption in October 1995 (the "Acquisition") of certain wraparound notes,
wraparound mortgages and fee properties (collectively, the "Assets") from
certain affiliates of Concord, (ii) the transfer (the "Transfer") to UPI in
August 4, 1995 and October 30, 1995 of 16 of Milestone's retail properties (the
"UPI Properties"), and (iii) the subsequent distribution of all of the issued
and outstanding shares of UPI's common stock to Milestone's Common Stockholders
on a share-for-share basis and for no consideration (the "Spin-Off") (the
Acquisition, the Transfer and the Spin-Off are collectively referred to herein
as the "Transactions"). The plaintiff alleged that, in connection with the
above, Milestone and its directors engaged in self-dealing, violated federal
securities laws, and breached their fiduciary duties to the Series A Preferred
Stockholders and sought an injunction against such violations. The plaintiff
claimed, among other things, that, as a result of such actions, Milestone would
not have sufficient funds to pay dividends on the Series A Preferred Stock and
that the Assets were 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 the plaintiff's
claim for recision of both the Transfer and the Spin-Off and reserved decision
on the defendants' motion to dismiss the plaintiff's claim for damages and other
relief. On December 9, 1996, the plaintiff requested that the Delaware Court
dismiss the amended complaint, and simultaneously 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 Delaware Court heard oral arguments on
such motion on April 15, 1997. On May 12, 1997, the Delaware Court issued a
decision on the defendants' motions and dismissed the plaintiff's breach of
fiduciary duty and statutory claims (although the Delaware Court has allowed the
plaintiff to replead the fiduciary duty claim), but did not dismiss the
plaintiff's claim that the Transfer and the Spin-Off did not comply with the
Certificate of Designations for the Series A Preferred Stock. On June 4, 1997,
the plaintiff appealed the Delaware Court's dismissal of the fiduciary duty
claims, and the defendants filed a cross-appeal on June 11, 1997.
On July 15, 1997, Milestone tentatively agreed to a proposed settlement of
the purported class action (the "Proposed Settlement"). In connection with the
Proposed Settlement, the Supreme Court of the State of Delaware entered an order
consented to by the parties extending the time for the filing of the plaintiff's
opening brief to August 28, 1997. Under the terms of the Proposed Settlement,
Milestone would be released from all claims by its stockholders relating to the
Transactions and all other matters relating to the pending action. In connection
with the Proposed Settlement, Milestone would pay each of its Series A Preferred
Stockholders who are holders of such Series A Preferred Stock at the time of the
consummation of the Proposed Settlement an amount of cash equal to $0.75 per
share of Series A Preferred Stock, and each share of the Series A Preferred
Stock would be exchanged for a share of a new preferred stock to be issued by a
subsidiary of Concord. The new preferred stock of the Concord subsidiary would
have a $2.25 per share liquidation preference, would not be entitled to any
dividend rights and would be subject to mandatory redemption on the fifth
anniversary of the Proposed Settlement at $2.25 per share, and would be secured
by a letter of credit in an amount equal to the value of the aggregate
redemption price. The defendants would have the right to terminate the Proposed
Settlement if the holders of more than 10% of the Series A Preferred Stock
opt-out of the Proposed Settlement. The Proposed Settlement is subject to
certain conditions,
<PAGE>
including approval of the Proposed Settlement by the Delaware Court, approval by
Milestone's insurance carrier, clearance of various securities matters, and the
execution of a definitive settlement agreement.
Item 6. Exhibits and Reports on Form 8-K.
(a)The following exhibit is included herein:
Exhibit 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 of the Company
as of and for the six month period ended June 30, 1997, and is
qualified in its entirety by reference to such financial
statements.
(b)No reports on form 8-K were filed during the quarter for which
this report is being filed.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MILESTONE PROPERTIES, INC.
(Registrant)
Date: August 11, 1997 /s/ Robert A. Mandor
-------------------------------------
Robert A. Mandor
President and Chief Financial Officer
Date: August 11, 1997 /s/ Joan LeVine
-------------------------------------
Joan LeVine
Senior Vice President, Treasurer
and Controller
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<MULTIPLIER> 1
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,603,255
<SECURITIES> 48,931,725
<RECEIVABLES> 7,691,092
<ALLOWANCES> 0
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<CURRENT-ASSETS> 62,361,845
<PP&E> 24,694,437
<DEPRECIATION> 6,099,266
<TOTAL-ASSETS> 153,935,064
<CURRENT-LIABILITIES> 56,545,181
<BONDS> 0
0
30,362
<COMMON> 49,038
<OTHER-SE> 27,329,498
<TOTAL-LIABILITY-AND-EQUITY> 153,935,064
<SALES> 0
<TOTAL-REVENUES> 12,814,474
<CGS> 0
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<INTEREST-EXPENSE> 4,638,932
<INCOME-PRETAX> (2,362,789)
<INCOME-TAX> 93,388
<INCOME-CONTINUING> (2,456,177)
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