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 September 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)
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 November 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
September 30, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents .................................................. $ 6,403,371 $ 3,141,839
Loans receivable ........................................................... 1,528,985 1,684,585
Accounts receivable ........................................................ 1,156,570 1,360,621
Accrued interest receivable ................................................ 6,670,810 9,646,886
Due from related party ..................................................... 316,472 599,093
Prepaid expenses and other ................................................. 433,008 430,603
Reverse repurchase agreements .............................................. 25,109,375 34,718,749
Available-for-sale securities .............................................. 25,811,048 32,314,853
--------------- -------------
Total current assets .................................................. 67,429,639 83,897,229
Property, improvements and equipment, net .................................. 19,734,745 18,884,467
Wraparound notes, net ...................................................... 66,704,261 71,431,945
Deferred income tax asset, net ............................................. 1,551,916 3,272,873
Investment in affiliate .................................................... 2,674,099 3,959,433
Management contract rights, net ............................................ 313,305 426,467
Goodwill and organizational cost, net ...................................... 167,148 222,863
--------------- -------------
Total assets .......................................................... $ 158,575,113 $ 182,095,277
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ...................................... $ 1,171,633 $ 2,031,513
Accrued interest payable ................................................... 491,225 1,139,941
Master lease payable ....................................................... 10,423,492 14,445,351
Due to related party ....................................................... 0 61,688
Current portion of mortgages and notes payable ............................. 2,958,441 2,862,274
Income taxes payable ....................................................... 2,343,925 3,250,744
Loans payable .............................................................. 19,392,453 23,829,335
Treasury notes sold short .................................................. 24,980,404 33,952,346
--------------- -------------
Total current liabilities ............................................. 61,761,573 81,573,192
Mortgages and notes payable ................................................ 69,382,575 71,562,942
--------------- -------------
Total liabilities ..................................................... 131,144,148 153,136,134
--------------- -------------
Commitments and Contingencies
Stockholders' equity:
Common stock ($0.01 par value, 10,000,000 shares
authorized, 4,905,959 and 4,743,155 issued,
respectively) ........................................................... 49,061 47,433
Preferred stock (Series A $0.01 par value, 10,000,000
shares authorized, 3,033,995 and 3,182,184
shares issued and outstanding, respectively) ........................... 30,341 31,822
Additional paid-in surplus ................................................. 48,105,428 48,105,575
Unrealized holding gain (loss) - available-for-sale securities
(Net of tax liability (benefit) of $1,262,446 and
$(151,552), respectively)........................................... 1,893,066 (220,396)
Accumulated deficit ........................................................ (19,206,513) (15,564,873)
Shares held in treasury - 692,591 shares at cost ........................... (3,440,418) (3,440,418)
--------------- -------------
Total stockholders' equity ............................................ 27,430,965 28,959,143
--------------- -------------
Total liabilities and stockholders' equity ............................ $ 158,575,113 182,095,277
=============== =============
</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 September 30, 1997 and 1996
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
<S> <C> <C>
REVENUES:
Rent ...................................................................... $ 2,621,451 $ 2,724,853
Interest income ........................................................... 3,301,217 4,705,171
Revenue from management company operations ................................ 166,223 174,655
Tenant reimbursements ..................................................... 228,049 383,317
Management and reimbursement income ....................................... 49,085 278,086
Percentage rent ........................................................... 87,090 187,126
Amortization of discount - available-for-sale securities .................. 99,273 77,186
Unrealized loss on treasury notes sold short .............................. (243,438) (373,674)
Gain/(loss) on realization of wraparound notes ............................ 0 (101,244)
Gain/(loss) on sale of available-for-sale securities ...................... 0 (589,048)
--------------- ---------------
Total revenues ............................................................ 6,308,950 7,466,428
--------------- ---------------
EXPENSES:
Master lease expense ...................................................... 3,445,833 3,823,927
Interest expense .......................................................... 2,266,653 3,129,830
Depreciation and amortization ............................................. 221,518 185,832
Salaries, general and administrative ...................................... 563,654 656,195
Property expenses ......................................................... 388,318 309,471
Expenses for management company operations ................................ 322,628 235,026
Professional fees ......................................................... 119,512 247,465
--------------- ---------------
Total expenses ............................................................ 7,328,116 8,587,746
--------------- ---------------
Loss before income taxes ....................................................... (1,019,166) (1,121,318)
Provision for income taxes ..................................................... 166,297 238,824
--------------- ---------------
Net loss ....................................................................... $ (1,185,463) $ (1,360,142)
=============== ===============
Loss per share of common stock ................................................. $ (0.28) $ (0.36)
=============== ===============
Weighted average number of shares of common stock .............................. 4,211,275 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 Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
<S> <C> <C>
REVENUES:
Rent ....................................................................... $ 7,968,967 $ 8,533,067
Interest income ............................................................ 9,970,738 13,330,312
Revenue from management company operations ................................. 450,665 557,274
Tenant reimbursements ...................................................... 786,783 991,177
Management and reimbursement income ........................................ 357,228 835,811
Percentage rent ............................................................ 288,528 249,106
Amortization of discount - available-for-sale securities ................... 278,709 203,696
Unrealized(loss)/ gain on treasury notes sold short ........................ (194,073) 2,067,859
Gain on realization of wraparound notes .................................... 0 393,768
Loss on sale of available-for-sale securities .............................. (784,121) (589,048)
--------------- -------------
Total revenues ............................................................. 19,123,424 26,573,022
--------------- -------------
EXPENSES:
Master lease expense ....................................................... 10,423,492 11,589,060
Interest expense ........................................................... 6,905,585 8,589,126
Depreciation and amortization .............................................. 602,434 549,994
Salaries, general and administrative ....................................... 1,755,863 2,729,012
Property expenses .......................................................... 1,281,214 1,521,025
Expenses for management company operations ................................. 981,497 774,441
Professional fees .......................................................... 555,294 862,092
--------------- -------------
Total expenses ............................................................. 22,505,379 26,614,750
--------------- -------------
Loss before income taxes ........................................................ (3,381,955) (41,728)
Provision for income taxes ...................................................... 259,685 677,849
--------------- -------------
Net loss ........................................................................ $ (3,641,640) $ (719,577)
=============== =============
Loss per share of common stock .................................................. $ (0.87) $ (0.19)
=============== =============
Weighted average number of shares of common stock ............................... 4,196,233 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 Nine Months Ended September 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 162,804 1,628 (148,189) (1,481)
into common stock
Net loss for the nine months
ended September 30, 1997
Unrealized holding gain -
available-for-sale securities
----------------------------------------------------------------------------
Balance September 30, 1997 4,905,959 $49,061 3,033,995 $ 30,341 (692,591) $(3,440,418)
========= ====== ========= ====== ========= ===========
Unrealized
Holding (Loss)/
Additional Gain on
Paid-in Available-for- Accumulated Stockholders'
Surplus Sale 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 (147) 0
into common stock
Net loss for the nine months
ended September 30, 1997 (3,641,640) (3,641,640)
Unrealized holding gain -
available-for-sale securities 2,113,462 2,113,462
-----------------------------------------------------------------
Balance September 30, 1997 $48,105,428 $1,893,066 $(19,206,513) $27,430,965
========== ========= ============ ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
September 30, 1997 September 30,1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ...........................................
Net loss ....................................................................... $ (3,641,640) $ (719,577)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization ............................................. 602,434 549,994
Deferred income taxes .................................................... 334,282 1,344,001
Unrealized (loss)/ gain on treasury notes sold short ...................... 194,073 (2,067,859)
Amortization of discount - available for sale securities .................. (278,709) (203,696)
Realized loss on sale of available for sale securities .................... 784,122 589,048
Gain on realization of wraparound notes ................................... 0 (393,768)
Change in operating assets and liabilities net:
Decrease in accounts receivable ......................................... 386,047 248,554
Decrease/(increase) in due from related party ........................... 282,621 (129,291)
Decrease in accrued interest receivable ................................. 2,794,080 3,225,430
Increase in prepaid expenses and other .................................. (2,405) (21,487)
Decrease in accrued litigation settlement expenses ...................... 0 (215,000)
Decrease in accrued expenses ............................................ (859,880) (1,065,814)
Decrease in accrued interest payable .................................... (648,716) (248,996)
Decrease in master lease payable ........................................ (4,021,859) (4,129,247)
Decrease in income taxes payable ........................................ (906,819) (717,365)
Decrease in due to related party ........................................ (61,688) (56,613)
--------------- ---------------
Net cash used in operating activities ................................... (5,044,057) (4,011,686)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on loans receivable .................................. 155,601 43,696
Principal repayments on wraparound notes .................................. 4,727,684 4,747,664
Purchase of building and land ............................................. (1,100,000) 0
Purchase of leasehold improvements ........................................ (183,836) (200,000)
Proceeds from realization of wraparound notes ............................. 0 1,916,979
Proceeds from the sale of available for sale securities ................... 9,498,529 14,478,872
Proceeds from redemption of investment in affiliate ....................... 1,285,334 2,270,833
Purchase of available for sale securities ................................. 0 (20,142,060)
Proceeds from treasury notes sold short ................................... 0 13,989,845
Proceeds from redemption of reverse repurchase agreements ................. 9,415,301 0
Purchase of treasury notes ................................................ (9,166,015) 0
Purchase of reverse repurchase agreements ................................. 0 (13,898,183)
--------------- ---------------
Net cash provided by investing activities ............................... 14,632,598 3,207,646
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to preferred stockholders .............................. 0 (666,622)
Principal payments on mortgages and notes payable ......................... (2,084,200) (3,568,982)
Proceeds from loans payable ............................................... 0 14,522,045
Principal payments on loans payable ....................................... (4,436,882) (11,522,409)
Amounts received on treasury notes payable ................................ 194,073 2,067,859
--------------- ---------------
Net cash (used in) provided by financing activities ..................... (6,327,009) 831,891
--------------- ---------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS ............................................................... 3,261,532 27,851
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 3,141,839 2,562,506
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 6,403,371 $ 2,590,357
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for interest .................................. $ 7,554,301 $ 8,838,121
=============== ===============
Cash paid during the period for income taxes .............................. $ 854,429 $ 237,621
=============== ===============
</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 and for the periods ended September 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. These consolidated
financial statements should be read in conjunction with the financial statements
and footnotes included thereto in Milestone's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
1. Acquisition and Disposition of Real Estate Related Assets
On September 24, 1997 the Company completed the purchase of Pine Oak Plaza,
a 16,994 square foot shopping center located in Sunrise (Broward County),
Florida, from REC I Corporation for approximately $1,100,000 in cash. The
shopping center is occupied by local tenants subject to operating leases ranging
from four to thirteen years with various renewal options and is currently 93.5%
occupied. This property can be classified as a neighborhood or community
unanchored strip center and is located in a secondary type market.
On October 30, 1997, the Company recognized its position in its wraparound
note on a property located in Marion, Ohio as a result of the sale of such
property by the owners. The sale price of the property was approximately
$2,750,000, which resulted in a book gain of approximately $200,000 to the
Company.
On November 10, 1997, Milestone Asset Management, Inc., a wholly-owned
subsidiary of Milestone ("MAMI"), sold its remaining holdings of
available-for-sale securities consisting of the Nomura Series 1996-MDV B2
("MDV"), DLJ 1994-MF11 B2 ("B2"), and DLJ 1994-MF11 B3 ("B3") (collectively, the
"Certificates"). The $16,700,000 par MDV Certificate was sold for $14,680,344,
of which the Company received net proceeds of $4,433,245 and used the remaining
$10,247,099 to pay off the balance of the financing associated with the
Certificates. The $5,000,000 par B2 and the $8,560,000 par B3 Certificates were
sold for an aggregate of $12,556,138, of which the Company received net proceeds
of $3,181,273, and used the remaining $9,374,865 to pay off the balance of the
financing associated with the Certificates.
At the time of the sale of the Certificates, MAMI had outstanding U.S.
Treasury Note short positions
<PAGE>
totaling $25,500,000 associated with the Certificates, which MAMI had
established to mitigate interest rate risk. In connection with the sale of the
Certificates, MAMI closed all of its remaining U.S. Treasury Note short
positions.
The sale of the Certificates and the close of the U.S. Treasury Note short
positions did not occur in and has not been reflected in the Company's 1997
third quarter consolidated financial statements. The Company will realize a
pre-tax book gain in the fourth quarter of 1997 for such transactions of
approximately $4,500,000; however, $3,155,446 of such gain is already recognized
in the Company's September 30, 1997 Balance Sheet as an unrealized holding gain
on available-for-sale securities. In connection with the sale of the
Certificates, the close of the U.S. Treasury Note short position, and the 1997
operations of MAMI, the Company will pay bonuses of approximately $1,200,000 to
several executive officers of the Company pursuant to MAMI's long term incentive
plan.
2. Legal Proceedings
Milestone entered into a Stipulation and Agreement of Settlement on October
30, 1997 (the "Settlement Agreement"), providing for the settlement (the
"Settlement") of a derivative and class action lawsuit, John Winston v. Leonard
S. Mandor, Robert A. Mandor, Joan LeVine, Harvey Jacobson, Gregory McMahon,
Geoffrey Aaronson, Milestone Properties, Inc. and Concord Assets Group, Inc.
(the "Action"), which was filed in the Court of Chancery of the State of
Delaware (the "Delaware Court") in January 1996. The action was brought against
Milestone, members of its Board of Directors, and Concord Assets Group, Inc., a
New York corporation ("Concord"), the executive officers and directors of which
are also executive officers and directors of Milestone. The plaintiff, a holder
of the MPI Preferred Stock purporting to bring the Action on behalf of himself
and other MPI Preferred Stockholders, brought the Action in connection with (i)
Milestone's acquisition in October 1995 of certain wraparound notes and
mortgages and fee properties from certain affiliates of Concord, (ii) the
transfer in August and October 1995 of 16 of Milestone's retail properties to
Union Property Investors, Inc., a then wholly-owned Delaware subsidiary of
Milestone ("UPI"), 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 events referred to in
clauses (i) through (iii) above are collectively referred to herein as the
"Transactions").
The Settlement is subject to approval by the Delaware Court, the
condition that stockholders owning more than 10% of the MPI Preferred Stock do
not opt out of the Settlement, and certain other conditions.
If the Settlement is approved and consummated, the Action will be
dismissed, Milestone's stockholders will release all derivative claims arising
in connection with the Transactions and the holders of the MPI Preferred Stock
between October 23, 1995 and the date on which the Settlement is consummated
will release any claims they may have against Milestone and the other named
defendants arising out of the Transactions. Each MPI Preferred Stockholder who
does not opt out of the Settlement and who owns shares of the MPI Preferred
Stock on the date the Settlement is consummated will surrender their shares of
MPI Preferred Stock to Concord Milestone Preferred, Inc., a Delaware subsidiary
of Concord ("CMP"), and receive in exchange for each share of MPI Preferred
Stock surrendered, $0.75 in cash payable by Milestone and one share of preferred
stock of CMP (the "CMP Preferred Stock"). The CMP Preferred Stock will have a
liquidation
<PAGE>
preference of $2.25 per share, will be required to be redeemed by CMP at $2.25
per share after five years, and will have no voting or dividend rights. In
addition, any CMP Preferred Stockholder who does not want to wait the full five
years for such shares to be redeemed can have shares redeemed by CMP at the
following prices prior to the fifth year: within 2 years after the Settlement -
$1.00 per share; 2-3 years after the Settlement - $1.40 per share; 3-4 years
after the Settlement - $1.60 per share; 4-5 years after the Settlement - $1.90
per share. CMP's redemption obligations will be secured by a letter of credit.
Subject to approval by the Delaware Court, Milestone will be sending to
the Settlement Class and the other stockholders of Milestone a notice which will
describe more fully the terms of the Settlement.
The foregoing description of the Settlement and the Settlement Agreement
is qualified in its entirety by reference to the Settlement Agreement, a copy of
which was filed with the Securities and Exchange Commission on November 12, 1997
as an Exhibit to Milestone's Form 8-K.
3. Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings per Share" establishes
standards for computing and presenting earnings per share, and is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Statement No. 129, "Disclosure of Information about Capital Structure"
establishes standards for disclosing information about an entity's capital
structure, and is effective for financial statements for periods ending after
December 15, 1997. Statement No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of comprehensive income and its
components, and is effective for fiscal years beginning after December 15, 1997.
Statement No. 131, "Disclosure about Segments of an Enterprise and Related
Information" establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers, and is effective for financial statements
for periods beginning after December 15, 1997.
Management of the Company does not believe that these new standards will
have a material effect on the Company's reported operating results, per share
amounts, financial position or cash flows.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
General
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Milestone Properties, Inc. ("Milestone") and its wholly owned
subsidiaries (together with Milestone, the "Company") to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, which will, among other
things, affect demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environmental/safety requirements.
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 September 30, 1997 Compared to Three Months Ended September
30, 1996
The Company recognized a net loss of $1,185,463 for the three months ended
September 30, 1997 as compared to a net loss of $1,360,142 for the same period
in 1996 due to the following factors:
Revenues for the three months ended September 30, 1997 were $6,308,950, a
decrease of $1,157,478 or 16%, from $7,466,428 for the three months ended
September 30, 1996. Such decrease was primarily due to: (1) a decrease in
interest income of $1,403,954 resulting primarily from (a) a decrease in the
number of wrap around notes to 28 for the three months ended September 30, 1997
from 32 for the same period in 1996 resulting in a decrease in interest income
of approximately $284,000; and (b) a decrease in available-for-sale securities
held by the Company to two for the three months ended September 30, 1997 from
four for the same period in 1996 resulting in a decrease in interest income of
$907,569; (2) a decrease in management and tenant reimbursements of $229,001
resulting primarily from the termination of the Management Services Agreement
between Union Property Investors and the Company in February 1997; and (3) no
gain or loss on the sale of available-for-sale securities for the three months
ended September 30, 1997 compared to a loss of $589,049 on the sale of
available-for-sale securities for the same period in 1996.
Operating expenses for the three months ended September 30, 1997 were
$4,839,945, a decrease of $432,139, or 8%, from $5,272,084 for the three months
ended September 30, 1996. Such decrease was primarily due to: (1) a decrease in
master lease expense of $378,094 due to a decrease in the number of properties
leased by the Company to 28 for the three months ended September 30, 1997 from
32 for the same period in 1996; and (2) a decrease in professional fees of
approximately $128,000 due to non-recurring transaction costs associated with
the disposition of real estate related assets in the third quarter of 1996.
<PAGE>
Interest expense for the three months ended September 30, 1997 was
$2,266,653, a decrease of $863,177, or 28%, from $3,129,830 for the three months
ended September 30, 1996. Such decrease was primarily due to a decrease in
financing arrangements related to the available-for-sale securities held by the
Company to two for the three months ended September 30, 1997 from four for the
same period in 1996 resulting in a decrease in interest expense of approximately
$588,000.
Depreciation and amortization for the three months ended September 30, 1997
was $ 221,518, an increase of $35,686, or 19%, from $185,832 for the three
months ended September 30, 1996. Such increase was due to accelerated
amortization of management contract rights.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
The Company recognized a net loss of $3,641,640 for the nine months ended
September 30, 1997 as compared to a net loss of $719,577 for the same period in
1996 due to the following factors:
Revenues for the nine months ended September 30, 1997 were $19,123,424, a
decrease of $7,449,598, or 28%, from $26,573,022 for the nine months ended
September 30, 1996. Such decrease was primarily due to: (1) a decrease in
interest income of $3,359,574 resulting primarily from (a) a decrease in the
number of wraparound notes to 28 for the nine months ended September 30, 1997
from 32 for the same period in 1996 resulting in a decrease in interest income
of approximately $787,000; and (b) a decrease in available-for-sale securities
held by the Company to two for the nine months ended September 30, 1997 from
four for the same period in 1996 resulting in a decrease in interest income of
$2,006,660; (2) a decrease in rents of $564,100 resulting primarily from a
decrease in the number of properties leased by the Company to 28 for the nine
months ended September 30, 1997 from 32 for the same period in 1996; (3) an
unrealized holding loss on U.S. Treasury Notes sold short of $194,703 for the
nine months ended September 30, 1997 compared to an unrealized holding gain of
$2,067,859 for the same period in 1996; (4) no gain or loss on the realization
of wraparound notes for the nine months ended September 30, 1997 compared to a
gain of $393,768 on the realization of wraparound notes for the nine months
ended September 30, 1996; (5) a realized loss on the sale of available-for-sale
securities of $784,121 for the nine months ended September 30, 1997 compared to
a realized loss on the sale of available-for-sale securities of $589,048 for the
same period in 1996; and (6) a decrease in management and reimbursement income
of $478,583 resulting primarily from the termination of the Management Services
Agreement between Union Property Investors and the Company in February 1997.
Operating expenses for the nine months ended September 30, 1997 were
$14,997,360, a decrease of $2,478,270, or 14%, from $17,475,630 for the nine
months ended September 30, 1996. Such decrease was primarily due to: (1) a
decrease in master lease expense of $1,165,568 due to a decrease in the number
of properties leased by the Company to 28 for the nine months ended September
30, 1997 from 32 for the same period in 1996; (2) a decrease in salaries,
general and administrative expenses of $973,149 resulting primarily from (a)
executive bonuses which were approved by the Compensation Committee of the Board
of Directors and paid in April 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 $550,000; and (3) a decrease in professional
fees of $306,798 due to non-recurring transaction costs associated with the
disposition of real estate related assets in the third quarter of 1996.
<PAGE>
Interest expense for the nine months ended September 30, 1997 was
$6,905,585, a decrease of $1,683,541, or 20%, from $8,589,126 for the nine
months ended September 30, 1996. Such decrease was primarily due to a decrease
in financing arrangements related to the available-for-sale securities held by
the Company to two for the nine months ended September 30, 1997 from four for
the same period in 1996 resulting in a decrease in interest expense of
approximately $1,382,000.
Depreciation and amortization for the nine months ended September 30, 1997
was $602,434, an increase of $52,440, or 10%, from $549,994 for the nine months
ended September 30, 1996. Such increase was due to accelerated amortization of
management contract rights.
Liquidity and Capital Resources
The $16,700,000 par MDV Certificate was sold for $14,680,344. The
Company received net proceeds of $4,433,245, and used the remaining $10,247,099
to pay off the balance of the financing associated with the Certificate. The
$5,000,000 par B2 and the $8,560,000 par B3 Certificates were sold for
$12,556,138. The Company received net proceeds of $3,181,273, and used the
remaining $9,374,865 to pay off the balance of the financing associated with the
Certificates.
The Company, as the holder of 222,750 shares of Kranzco Series C
Cumulative Redeemable Preferred Shares is entitled to receive from the
redemption of such shares, in five equal installments over the next 15 months,
an aggregate amount of cash equal to approximately $2,227,500, plus interest at
the rate of 8% per annum on the applicable outstanding balance of such shares.
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 "MPI Preferred Stock"), in the foreseeable future.
See Part II - Item 5. Other Information. The cumulative period relating to the
payment of dividends on the MPI Preferred Stock expired on September 30, 1995.
Any decision as to the future payment of dividends on the Common Stock or the
MPI Preferred Stock will depend on the results of operations, investment
opportunities for available fund, the financial condition of the Company and
such other factors as Milestone's Board of Directors, in its discretion, deems
relevant.
Cash generated by the sale of the Certificates, the redemption of
the Kranzco Series C Cumulative Redeemable Preferred Stock and the cash on hand
at September 30, 1997 may be used to fund (i) the cash payments to be made by
the Company pursuant to a Settlement that Milestone has recently entered into
relating to a purported class action brought against Milestone, (ii) expenses
relating to the Settlement, (iii) bonus payments to be made to several executive
officers of the Company under the long term incentive plan of Milestone Asset
Management, Inc., a wholly-owned subsidiary of Milestone ("MAMI"), (iv) the
Company's real estate investment and development activities, and (v) other
general corporate purposes. See Part II - Other Information. Item 1. Legal
Proceedings for a description of the terms of the Settlement.
Management is not aware of any other trends, events, commitments or
uncertainties, that will or are likely to materially impact the Company's
liquidity.
<PAGE>
Cash Flows
Net cash used in operating activities of $5,044,057 for the nine
months ended September 30, 1997 included (1) a net loss of $3,641,640; (2)
adjustments for non-cash items of $1,636,202; and (3) a net change in operating
assets and liabilities of $3,038,619, compared to net cash used in operating
activities of $4,011,686 for the nine months ended September 30, 1996, which
included (1) a net loss of $719,577; (2) adjustments of $182,280 for non-cash
items; and (3) a net change of $3,109,829 in operating assets and liabilities.
Net cash provided by investing activities of $14,632,598 for the nine
months ended September 30, 1997 included (1) proceeds from principal repayments
on loans receivable and wraparound notes of $4,883,285; (2) purchase of
building, land and leasehold improvements of $1,283,836; (3) proceeds from the
sale of available-for-sale securities of $9,498,529; (4) proceeds from
redemption of investment in affiliate of $1,285,334; (5) proceeds from
redemption of reverse repurchase agreements of $9,415,301; and (6) purchase of
treasury notes of $9,166,015, compared to net cash provided by investing
activities of $3,207,646 for the nine months ended September 30, 1996, which
included: (1) principal repayments of $4,791,360 on loans receivable and
wraparound notes; (2) proceeds of $2,270,833 from redemption of investment in
affiliate; (3) purchase of $20,142,060 of available-for-sale securities; (4)
proceeds from U.S. Treasury Notes sold short of $13,989,845; (5) proceeds of
$1,916,979 from the realization of wraparound notes; (6) purchase of $200,000 of
leasehold improvements; (7) proceeds of $14,478,872 from the sale of
available-for-sale securities; and (8) purchase of $13,898,183 of reverse
repurchase agreements.
Net cash used in financing activities of $6,327,009 for the nine months
ended September 30, 1997 included (1) principal payments on mortgages and notes
payable of $2,084,200; (2) principal payments on loans payable of $4,436,882;
and (3) amounts received on U.S. Treasury Notes payable of $194,073, compared to
net cash provided by financing activities of $831,891 for the nine months ended
September 30, 1996, which included; (1) distributions of $666,622 paid to
preferred stockholders; (2) principal payments of $3,568,982 on mortgages and
notes payable; (3) proceeds of $14,522,045 from loans payable; (4) principal
payments of $11,522,409 on loans payable; and (5) $2,067,859 received on U.S.
Treasury Notes payable.
See Part II - Other Information. Item 1 Legal Proceedings and Item 5.
Other Information for a description of certain transactions which occurred
subsequent to September 30, 1997 which may impact the Company's future cash
flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Milestone entered into a Stipulation and Agreement of Settlement on
October 30, 1997 (the "Settlement Agreement"), providing for the settlement (the
"Settlement") of a derivative and class action lawsuit, John Winston v. Leonard
S. Mandor, Robert A. Mandor, Joan LeVine, Harvey Jacobson, Gregory McMahon,
Geoffrey Aaronson, Milestone Properties, Inc. and Concord Assets Group, Inc.
(the "Action"), which was filed in the Court of Chancery of the State of
Delaware (the "Delaware Court") in January 1996. The action was brought against
Milestone, members of its Board of Directors, and Concord Assets Group, Inc., a
New York corporation ("Concord"), the executive officers and directors of which
are also executive officers and directors of Milestone. The plaintiff, a holder
of the MPI Preferred Stock purporting to bring the Action on behalf of himself
and other MPI Preferred Stockholders, brought the Action in connection with (i)
Milestone's acquisition in October 1995 of certain wraparound notes and
mortgages and fee properties from certain affiliates of Concord, (ii) the
transfer in August and October 1995 of 16 of Milestone's retail properties to
Union Property Investors, Inc., a then wholly-owned Delaware subsidiary of
Milestone ("UPI"), 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 events referred to in
clauses (i) through (iii) above are collectively referred to herein as the
"Transactions").
The Settlement is subject to approval by the Delaware Court, the condition
that stockholders owning more than 10% of the MPI Preferred Stock do not opt out
of the Settlement, and certain other conditions.
If the Settlement is approved and consummated, the Action will be
dismissed, Milestone's stockholders will release all derivative claims arising
in connection with the Transactions and the holders of the MPI Preferred Stock
between October 23, 1995 and the date on which the Settlement is consummated
will release any claims they may have against Milestone and the other named
defendants arising out of the Transactions. Each MPI Preferred Stockholder who
does not opt out of the Settlement and who owns shares of the MPI Preferred
Stock on the date the Settlement is consummated will surrender their shares of
MPI Preferred Stock to Concord Milestone Preferred, Inc., a Delaware subsidiary
of Concord ("CMP"), and receive in exchange for each share of MPI Preferred
Stock surrendered, $0.75 in cash payable by Milestone and one share of preferred
stock of CMP (the "CMP Preferred Stock"). The CMP Preferred Stock will have a
liquidation preference of $2.25 per share, will be required to be redeemed by
CMP at $2.25 per share after five years, and will have no voting or dividend
rights. In addition, any CMP Preferred Stockholder who does not want to wait the
full five years for such shares to be redeemed can have shares redeemed by CMP
at the following prices prior to the fifth year: within 2 years after the
Settlement - $1.00 per share; 2-3 years after the Settlement - $1.40 per share;
3-4 years after the Settlement - $1.60 per share; 4-5 years after the Settlement
- - $1.90 per share. CMP's redemption obligations will be secured by a letter of
credit.
Subject to approval by the Delaware Court, Milestone will be sending to
the Settlement Class and the other stockholders of Milestone a notice which will
describe more fully the terms of the Settlement.
The foregoing description of the Settlement and the Settlement Agreement
is qualified in its entirety by reference to the Settlement Agreement, a copy of
which was filed as an Exhibit to Milestone's Form 8-K filed with the Securities
and Exchange Commission on November 12, 1997.
<PAGE>
Item 5. Other Information.
Milestone's Board of Directors determined not to pay a dividend on the MPI
Preferred Stock for the quarters ended June 30, 1997 and September 30, 1997.
After September 30, 1995, holders of the MPI Preferred Stock were no longer
entitled to receive dividends on a cumulative basis. As a result of Milestone's
non-payment of the dividend for the quarter ended June 30, 1997, which was the
sixth quarter for which no dividend was paid on the MPI Preferred Stock, and
under Milestone's Certificate of Designations for the MPI Preferred Stock, the
number of persons entitled to serve as directors on Milestone's Board of
Directors has been increased by one, and the holders of the MPI Preferred Stock,
who currently elect one member of Milestone's Board of Directors, are entitled
to elect a second member of the Board of Directors to fill such newly created
directorship.
On November 10, 1997, MAMI sold its remaining holdings of
available-for-sale securities consisting of the Nomura Series 1996-MDV B2
("MDV"), DLJ 1994-MF11 B2 ("B2"), and DLJ 1994-MF11 B3 ("B3") (collectively, the
"Certificates"). The $16,700,000 par MDV Certificate was sold for $14,680,344,
of which the Company received net proceeds of $4,433,245 and used the remaining
$10,247,099 to pay off the balance of the financing associated with the
Certificate. The $5,000,000 par B2 and the $8,560,000 par B3 Certificates were
sold for an aggregate of $12,556,138, of which the Company received net proceeds
of $3,181,273 and used the remaining $9,374,865 to pay off the balance of the
financing associated with the Certificates.
At the time of the sale of the Certificates, MAMI had outstanding U.S.
Treasury Note short positions totaling $25,500,000 associated with the
Certificates, which MAMI had established to mitigate interest rate risk. In
connection with the sale of the Certificates, MAMI closed all of its remaining
U.S. Treasury Note short positions.
The sale of the Certificates and the close of the U.S. Treasury Note short
positions did not occur in and has not been reflected in the Company's 1997
third quarter consolidated financial statements. The Company will realize a
pre-tax book gain in the fourth quarter of 1997 for such transactions of
approximately $4,500,000; however, $3,155,446 of such gain is already recognized
in the Company's September 30, 1997 Balance Sheet as an unrealized holding gain
on available-for-sale securities. In connection with the sale of the
Certificates, the close of the U.S. Treasury Note short position, and the 1997
operations of MAMI, the Company will pay bonuses of approximately $1,200,000 to
several executive officers of the Company pursuant to MAMI's long term incentive
plan.
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 nine month period ended September 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 ended
September 30, 1997. A Form 8-K was filed on November 12, 1997
relating to the Settlement Agreement described in this report in
Item 1 - Legal Proceedings.
<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: November 11, 1997 /s/: Robert A. Mandor
Robert A. Mandor
President and Chief Financial Officer
Date: November 11, 1997 /s/: Patrick S. Kirse
Patrick S. Kirse
Vice President of Accounting
and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,403,371
<SECURITIES> 50,920,423
<RECEIVABLES> 9,672,837
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 67,429,639
<PP&E> 25,934,604
<DEPRECIATION> 6,199,859
<TOTAL-ASSETS> 158,575,113
<CURRENT-LIABILITIES> 61,761,573
<BONDS> 0
0
30,341
<COMMON> 49,061
<OTHER-SE> 27,351,563
<TOTAL-LIABILITY-AND-EQUITY> 158,575,113
<SALES> 0
<TOTAL-REVENUES> 19,123,424
<CGS> 0
<TOTAL-COSTS> 22,505,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,905,585
<INCOME-PRETAX> (3,381,955)
<INCOME-TAX> 259,685
<INCOME-CONTINUING> (3,641,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,641,640)
<EPS-PRIMARY> (0.87)
<EPS-DILUTED> 0.00
</TABLE>
