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MILESTONE PROPERTIES, INC.
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1999 ANNUAL REPORT
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Milestone Properties, Inc.
1999 Annual Report
Milestone Properties, Inc., directly and through its wholly owned subsidiaries,
in engaged in the business of owning, acquiring, managing, developing and
investing in commercial real estate and real estate related assets. The
Company's objectives are to realize upon, maintenance and improvement the value
of the Company's real estate holdings and to generate cash flow.
The Company began business operations on December 18, 1990 when two real estate
limited partnerships were merged with and into the Company. The Company's real
estate portfolio currently includes 10 properties owned in fee, and wraparound
mortgages and lease interests on 20 properties.
A market is currently being made for shares of the Company's Common Stock on the
Over-The-Counter Bulletin Board under the symbol MPRP.
The Company acquired and retired 2,983,284 shares of its $.78 Convertible Series
A Preferred Stock for which a market had been made on the Over-The-Counter
Bulletin Board under the symbol MPRPP.
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LETTER FROM THE CHAIRMAN
Dear Stockholders:
Our Company during 1999 remained focused and committed to continually seek out
real estate and real estate related investment opportunities.
We were able to increase our cash flow through the realization of our positions
in various wraparound mortgages. This trend continued during the first quarter
of 2000 and may continue throughout the year. The settlement of the Winston
litigation relating to our Series A preferred stock became effective in March
1999.
Our Company continues to monitor the performance of its existing real estate
holdings, looking to improve its cash flow and value through leasing and
management.
Sincerely,
Leonard S. Mandor
Chairman of the Board
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
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OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 No.)
incorporation or organization)
150 E. Palmetto Park Rd. 4th Floor, Boca Raton, FL 33432
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 394 - 9533
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Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12 (g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
$.78 Convertible Series A Preferred Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or by any
amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the average bid and asked price on
March 17, 2000, was approximately $3.00 for the Common Stock and $2.63 for the
$.78 Convertible Series A Preferred Stock.
As of March 17, 2000, 4,943,633 shares of the Registrant's Common Stock
were outstanding and 16,423 shares of the Registrant's $.78 Convertible Series A
Preferred Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K in Which
Document Document is Incorporated
Registrant's 2000 Proxy Statement to be filed Part III
with the Commission no later than April 30, 2000
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TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . . . . .12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .16
Item 4. Submission of Matters to a Vote of Security Holders . . . . .16
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . .17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . .19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . .20
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . 24
Item 8. Financial Statements and Supplementary Disclosure . . . . . .25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . .25
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . 26
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 26
Item 13. Certain Relationships and Related Transactions . . . . . . . 26
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . .27
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
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PART I
This Annual Report on Form 10-K for the year ended December 31, 1999 filed by
Milestone Properties, Inc. ("Milestone") contains or incorporates by reference
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and Milestone intends that such forward-looking statements be subject to the
safe harbors created thereby. Such forward-looking statements involve risks and
uncertainties and include, but are not limited to, statements regarding future
events and its plans, goals and objectives. Such statements are generally
accompanied by words such as "intend," "anticipate," "believe," "estimate,"
"expect" or similar terms. Milestone's actual results may differ materially from
such statements. Factors that could cause or contribute to such differences
include, without limitation, the following: (i) its plans, strategies,
objectives, expectations and intentions are subject to change at any time at its
discretion; (ii) general economic and business conditions, which may, among
other things, affect the demand for retail space or retails goods, the
availability and creditworthiness of prospective tenants, rental terms and the
terms and availability of financing, are subject to change at any time; (iii)
adverse changes in real estate markets including, among other things,
competition with other companies; (iv) adverse changes in the properties
Milestone owns which could require the expenditure of funds to fix or maintain
such properties; (v) the general risks of real estate development and
acquisitions, such as changes in demographics, construction delays, cost
overruns, work stoppages and slowdowns, the cost and availability of skilled
labor and weather conditions; (vi) governmental actions and initiatives, such as
seizures of property, condemnation and construction of alternative roadways;
(vii) environmental and safety conditions and hazards; and (viii) other risks
and uncertainties indicated from time to time in Milestone's filings with the
Securities and Exchange Commission and in the documents incorporated herein by
reference. Although Milestone believes that the assumptions underlying its
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, Milestone cannot make any assurances that the results
contemplated in such forward- looking statements will be realized. The inclusion
of such forward-looking information should not be regarded as a representation
by Milestone or any other person that the future events, plans or expectations
contemplated by Milestone will be achieved. Furthermore, past performance is not
necessarily an indicator of future performance.
Item 1. Business.
Introduction
Milestone Properties, Inc., directly and through its wholly owned
subsidiaries, is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets. Milestone, together with its subsidiaries, is hereinafter referred to as
the "Company." The Company is primarily engaged in the ownership, operation and
management of interests in commercial real estate properties, currently
consisting of (i) 10 properties owned in fee (the "Fee Properties"), (ii) the
ownership of wraparound notes (the "Wraparound Notes") and wraparound mortgages
(the "Wraparound Mortgages" and, together with the Wraparound Notes, the "Wrap
Debt") which are secured by 10 commercial real properties (the "Underlying
Properties" and, together with the Fee Properties, the "Properties") and (iii)
the operation and management of the Properties. At December 31, 1999, the
Properties included shopping centers, strip malls and single
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tenant properties and have an aggregate gross leasable area ("GLA") of 1,551,640
square feet, of which 435,386 square feet are in the Fee Properties and
1,116,254 square feet are in the Underlying Properties. Additional information
regarding the Properties is set forth in Table 1. Summary of Properties and
Underlying Debt located in Item 2. Description of Property of this Report.
The Company's objectives are to realize upon, maintain and improve the
value of its real estate holdings and to generate cash flow. To accomplish these
objectives, the Company may (i) continue to manage the Properties, (ii) acquire
additional commercial properties to develop and/or hold for investment, (iii)
expand, improve or redevelop the Properties or properties owned by affiliates of
the Company or third parties through the acquisition and development of adjacent
parcels, (iv) engage in management services for affiliates of the Company and/or
others, (v) invest in real estate backed or related securities, (vi) acquire
related businesses and/or (vii) engage in such other activities or businesses as
are consistent with the Company's overall objectives. In connection with its
activities, the Company may also consider selling one or more of its Fee
Properties and/or financing or refinancing one or more of the Properties or
additional properties acquired by the Company in order to fund its business
activities. In addition, the Company may enter into joint ventures and/or
similar arrangements with developers or owners of shopping centers or other
commercial properties. These ventures may take the form of joint ownership,
participation in general or limited partnerships, or other forms of investment,
and may provide for the payment of preferential distributions, guaranteed
returns and/or fees for services. The Company may also make secured real estate
mortgage loans, including mortgages junior to institutional or other
indebtedness, in connection with the acquisition, development, redevelopment or
improvement of properties, either to affiliated or unaffiliated parties.
The Company's business is operated as a single segment for financial
reporting purposes. For financial information regarding the Company for the
fiscal years ended December 31, 1999, 1998 and 1997, see the Consolidated
Financial Statements of the Company and the notes thereto in Part IV, Item 14.
Exhibits, Financial Statement Schedule and Reports on Form 8-K of this Report.
Background
Milestone was incorporated on November 30, 1989 under the laws of the
State of Delaware. On December 18, 1990, Concord Milestone Income Fund, L.P.
("CMIF") and Concord Milestone Income Fund II, L.P. ("CMIF II") (collectively,
the "Predecessor Partnerships") were merged with and into the Company (the
"Acquisition"). The Company succeeded to the business and operations of the
Predecessor Partnerships and the partnership interests in the Predecessor
Partnerships were converted into shares of Milestone's common stock and
preferred stock. In October 1995, the Company entered into various agreements
with affiliates of Concord Assets Group, Inc., a New York Corporation
("Concord"), pursuant to which the Company acquired certain real estate related
assets for cash and approximately 2,545,000 shares of common stock.
At the close of business on March 5, 1999, Milestone canceled and
retired 2,983,284 shares of its Series A Preferred Stock, representing greater
than 99% of the then outstanding shares of Series A Preferred Stock, pursuant to
the terms of a court approved settlement of a purported class action and
derivative lawsuit brought against Milestone, certain of its past and present
members of its Board of Directors and executive officers, and Concord in
connection with the Acquisition.
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The Wrap Debt
Certain material terms generally appearing in the Wraparound Notes and
Wraparound Mortgages are described below. Since the provisions of the Wraparound
Notes and Wraparound Mortgages are complex and extensive, and provisions vary
among the Wraparound Notes and Wraparound Mortgages, no attempt has been made to
describe in detail or to summarize all provisions of the Wraparound Notes and
Wraparound Mortgages.
The Wrap Debt was issued to affiliates of Concord by certain limited
partnerships (the "Partnerships") sponsored by Concord. Such affiliates of
Concord were formed for the purposes of (i) acquiring the Underlying Properties,
(ii) selling such properties to the Partnerships in exchange for cash and the
Wrap Debt and (iii) leasing the Underlying Properties back from the Partnerships
pursuant to master leases (the "Master Leases"). The payment of the Wrap Debt is
secured by the Underlying Properties. Certain directors and officers of the
Company are also directors, officers and controlling stockholders of the general
partner of each of the Partnerships (the "General Partners"). In October 1995,
as part of the Acquisition, the Company acquired certain of the Wrap Debt and
became the lessee under the Master Leases.
As the holder of the Wrap Debt, the Company is required to satisfy the
obligations under notes and mortgages held by lenders (typically banks or other
commercial lenders) on each Underlying Property with a priority senior to that
of the Company, including, without limitation, debt owed to the prior owner of
such property under any purchase money notes issued by the Partnerships which
own the respective Underlying Property in connection with the acquisitions of
such respective Underlying Property (all such senior indebtedness being referred
to herein collectively as the "Underlying Debt"). The Partnerships are obligated
to the Company for the Wrap Debt which wraps around and includes the obligation
to pay the Underlying Debt, and is secured by a mortgage on the Underlying
Property. The Wrap Debt is in a second priority position subordinate to the
Underlying Debt and, in some instances, may be in a third priority position
overall, subordinate to a bank or commercial lender and a seller or other second
priority lender.
At December 31, 1999, a description of the balances, interest rates,
monthly payments of principal and interest, prepayment provisions, maturity
dates and amount of any balloon payments with respect to the Underlying Debt is
set forth in Table 1 in Item 2. Description of Property.
The Wraparound Notes
The Company is currently the holder of 16 Wraparound Notes relating to
the Underlying Properties. The maturity dates of the Wraparound Notes range from
2000 to 2015. A discussion regarding the Wraparound Notes which are due to
mature in 2000 is included at the end of the section entitled Wraparound
Mortgages. Each of the Wraparound Notes is a non-recourse obligation of the
issuing Partnership and includes the obligation to satisfy the Underlying Debt
for the corresponding Underlying Property. The Underlying Debt associated with
an Underlying Property in some instances consists of multiple notes and
mortgages which may have different priorities in relation to one another, but
all of which are superior in right to the Wraparound Note and the Wraparound
Mortgage relating to such Underlying Property. A Wraparound Note may be prepaid
by the Partnership issuing such note by (i) the payment of the excess of (a) the
outstanding balance
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of such Wraparound Note, including accrued interest and any discount element
over (b) the then aggregate outstanding balance, including accrued interest, of
the Underlying Debt associated with the particular Underlying Property, and (ii)
the assumption of the borrower's obligations pursuant to the Underlying Debt
associated with the particular Underlying Property. The wraparound mortgagor's,
i.e., the Partnership owning the Underlying Property, source of debt service
payments on the Wraparound Note is the rent it receives as lessor under the
Master Leases. Additionally, any percentage rent payable to the Partnership
pursuant to a Master Lease will be paid to the Company as the holder of the
Wraparound Note on the relevant Underlying Property as partial prepayment under
such Wraparound Note.
At December 31, 1999, a description of the current balances, interest
rates, annual debt service, maturity dates and amounts of any balloon payments
with respect to the Wraparound Notes is set forth in Table 2 in Item 2.
Description of Property.
The Wraparound Mortgages
The maturity dates of the 16 Wraparound Mortgages currently held by
the Company range from 2000 to 2015. A discussion regarding the Wraparound
Mortgages which are due to mature in 2000 is included at the end of this
section. The Wraparound Mortgages provide that the Company, as the wraparound
mortgagee, will pay, or cause to be paid, on a non-recourse basis, all payments
required by the Underlying Debt so long as the wraparound mortgagor, i.e., the
Partnership that owns the related Underlying Property, makes all payments under
the Wraparound Notes to the Company. If the Company fails to make any payment
required to be made by it within 30 days after the due date of such payment, the
wraparound mortgagor may make such payment and deduct the amount of such payment
from the next succeeding payments required to be made under the Wraparound Note.
The Partnerships, as wraparound mortgagors, are obligated under the terms of the
Wraparound Mortgages not to perform any act which would constitute a breach of
the underlying mortgage(s) securing the applicable Underlying Debt.
The Wraparound Mortgages provide that the Partnership, as wraparound
mortgagor of each Underlying Property, will maintain all buildings, equipment
and other improvements on the related Underlying Property. In the event that the
buildings and any other improvements are damaged or destroyed, in whole or in
part, or in the event of a taking of a portion of the premises under the power
of eminent domain, the wraparound mortgagor is required to restore the same as
nearly as possible to the condition they were in immediately prior to the
casualty or taking. Insurance proceeds and condemnation awards will be made
available, subject to the wraparound mortgagee's control and subject to the
rights of the holders of the underlying mortgages, to the extent necessary to
comply with the foregoing. The wraparound mortgagor is required to maintain
property, casualty and public liability insurance on each Underlying Property
and cannot remove improvements or fixtures or structurally alter any building.
Pursuant to the terms of the Wraparound Mortgages, the outstanding
balance of each corresponding Wraparound Note becomes due and payable upon the
occurrence of certain specified events, subject to grace periods and cure
rights, including, without limitation, (i) the failure of the wraparound
mortgagor to make any payment or perform any covenant required under the related
Wraparound Mortgage, (ii) the commencement of any action or proceeding to
foreclose any lien
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senior to the lien created by such Wraparound Mortgage and (iii) the
Partnerships, as wraparound mortgagors, becoming the debtor in a bankruptcy or
insolvency proceeding. In addition, after any default by the wraparound
mortgagor under a Wraparound Mortgage, the Company, as the wraparound mortgagee,
may exercise certain rights of the wraparound mortgagor with respect to the
management of the related Underlying Property.
The Company, as the wraparound mortgagee, has the right to refinance,
restructure, alter, increase, renew or rearrange the Underlying Debt subject to
certain terms and conditions, including, without limitation, that (i) the
refinanced portion of the Underlying Debt cannot increase the obligations of the
wraparound mortgagor, except in certain limited circumstances and (ii) the rents
payable on the Underlying Properties pursuant to the operating leases (the
"Operating Leases") on the related Underlying Properties should reasonably be
expected to satisfy the debt service obligations on the refinanced portion of
the Underlying Debt. The wraparound mortgagor is required to cooperate in the
execution of documents necessary to effectuate the refinancing, so long as it is
not required to become obligated thereon.
Subsequent to December 31, 1999, several dispositions have occurred
causing differences between Table 2 in Item 2. Description of Property and the
Wraparound Notes and Wraparound Mortgages which are currently held by the
Company. These dispositions also affect the Master Leases. Table 2. Summary of
Wraparound Notes at December 31, 1999 is footnoted detailing the property
dispositions described in detail in Item 1. Business, Acquisition and
Disposition of Real Estate and Real Estate Related Assets.
The maturity dates of the 16 Wraparound Notes and Wraparound Mortgages
currently held by the Company range from June 2000 to December 2015, of which
seven Wraparound Notes and Wraparound Mortgages will mature on June 30, 2000
(the "Maturing Wrap Debt"). The Maturing Wrap Debt was due to expire on December
31, 1999; however, the Company granted a six month extension to allow each
applicable Partnership of the respective Maturing Wrap Debt issued by such
Partnership to make payment. In order for each such Partnership to make such
payment, one of the following events may occur: (i) the Partnership may sell the
Underlying Property securing the respective Maturing Wrap Debt, (ii) the
Company, as the holder of the Maturing Wrap Debt, may obtain ownership of the
Underlying Property securing the Maturing Wrap Debt in lieu of payment on the
Maturing Wrap Debt via foreclosure sale or (iii) the Company has the option to
extend the Maturing Wrap Debt for subsequent six month periods.
The Master Leases
Certain material terms generally appearing in the Master Leases are
described below. Since the provisions of the Master Leases are complex and
extensive, and provisions vary among the Master Leases, no attempt has been made
to describe in detail or to summarize all provisions of the Master Leases.
The Company is currently the master lessee under nine individual leases
on each of the Underlying Properties. The expiration dates of the Master Leases
range from 2000 to 2015. A discussion regarding the Master Leases which are due
to expire in 2000 is included at the end of this section. As the master lessee,
the Company leases an entire Underlying Property (i.e., a shopping
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center or single tenant commercial property) from the owner of such Underlying
Property and releases it under Operating Leases to the tenant(s) who occupy such
property.
The Master Leases were initially entered into by affiliates of Concord,
as tenants, and the Partnerships, as landlords, and are coterminous with the
Wraparound Notes and Wraparound Mortgages. The rent payable by the Company under
each Master Lease for an Underlying Property is approximately the same amount as
the debt service due under each Wraparound Note for such Underlying Property.
The Company is both the holder of each Wrap Debt and the lessee under the Master
Leases relating to the Underlying Properties. Prior to the Acquisition, certain
of Concord's affiliates, as tenants, and certain of the Partnerships, as
lessors, amended the applicable Master Leases pursuant to which, among other
things, the rent payable under such Master Leases was reduced by the amount of
the fees, if any, payable by the lessor to the General Partner. As the master
lessee and the wraparound mortgagee, the Company collects the rents under the
Operating Leases and applies such amounts to the operating expenses of the
Underlying Property and the payment of the Underlying Debt. The obligations of
the Company as master lessee under the Master Leases are guaranteed by Concord.
Such guaranty was not affected by the transfer and assignment of the master
lessee interest in the Master Leases to the Company pursuant to the Acquisition,
and the Company is not obligated to indemnify Concord with respect to such
guaranty. The Master Leases are subject and subordinate to the Underlying Debt.
As between the Company, as lessor, and the operating tenants, as
lessees, the tenants are generally responsible for payment of rents to the
Company and, in some instances, for all or a portion of their pro rata share of
operating expenses and, to a lesser extent, for the maintenance and repair of
the Underlying Property.
Pursuant to the Master Leases, the Company, as master lessee, (i) pays
a fixed base rent to the applicable Partnership, as master lessor, (ii) is
entitled to receive the revenues payable under the Operating Leases and (iii) is
responsible for operating the Underlying Property. The Company is also obligated
to pay percentage rent to the Partnership equal to certain percentages of net
operating income in excess of certain threshold amounts, which are subject to
adjustment.
Each Partnership, as master lessor under the Master Leases, is
responsible for the maintenance, repair and replacement of the physical property
when necessary. The Company, as master lessee, can cause the Partnership, as
master lessor, subject to certain limitations, to borrow additional amounts on a
wraparound basis to finance improvements to the related Underlying Property.
Pursuant to each Master Lease, the Company, as master lessee, is
responsible for compliance with all applicable laws and regulations and is
required to keep the Underlying Property insured at certain minimum levels for
certain specified losses. The Company's management believes that the Properties
are adequately insured. The Master Leases also have termination and assignment
provisions.
The expiration dates of nine of the Master Leases currently held by the
Company range from June 2000 to December 2015, of which six Master Leases expire
on June 30, 2000 (the "Expiring Master Leases"). The Expiring Master Leases were
due to expire on December 31, 1999; however,
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a six month extension was granted. As a result of the Expiring Master Leases,
the Company, as the tenant under such Expiring Master Leases, may (i) assign all
of its rights, title and interests in the Underlying Properties subject to the
respective Expiring Master Leases to the applicable Partnership that is the
landlord under the Expiring Master Leases and such Partnership may assume all of
the Company's related obligations under the respective Expiring Master Leases or
(ii) has the option to extend such Expiring Master Leases for subsequent six
month periods.
The amount of annual rents due with respect to each Master Lease and
the termination dates thereof are set forth in Table 2 in Item 2. Description of
Property.
Acquisition and Disposition of Real Estate and Real Estate Related Assets
On February 25, 2000, a wraparound note held by the Company on a
138,954 square foot shopping center located in Quincy, Illinois (the "Quincy
Property"), was terminated as a result of a foreclosure sale by the bank (the
holder of the Underlying Debt). The Company had previously terminated, by
written notice, the Master Lease associated with the Quincy Property as of
December 31, 1998. As a result of the foreclosure sale by the bank of the Quincy
Property and the termination of the Wraparound Note and the Underlying Debt, the
Company will record a book gain of approximately $1,727,000 in the first quarter
of 2000, but received no cash proceeds.
On February 15, 2000, a wraparound note held by the Company on a 91,800
square foot single tenant commercial building located in Palatka, Florida (the
"Palatka Property"), was paid as a result of the sale of the Palatka Property by
its owner, an affiliate of the Company (the partnership that owned the Palatka
Property), to an unrelated third party. In connection with the sale of the
Palatka Property, the Company, as the master lessee on a Master Lease on the
Palatka Property, canceled the subject Master Lease. Of the gross proceeds,
$1,067,000 was used to satisfy the underlying mortgage debt on the Palatka
Property. As a result of the payment of the wraparound note and the satisfaction
of the underlying mortgage debt, the Company realized net cash proceeds of
approximately $911,000 and will record a book gain of approximately $645,000 in
the first quarter of 2000.
On February 3, 2000, a wraparound note held by the Company on a 43,200
square foot single tenant commercial building located in Warsaw, Virginia (the
"Warsaw Property"), was paid as a result of the sale of the Warsaw Property by
its owner, an affiliate of the Company (the partnership that owned the Warsaw
Property), to an unrelated third party. In connection with the sale of the
Warsaw Property, the Company, as the master lessee on a Master Lease on the
Warsaw Property, canceled the subject Master Lease. Of the gross proceeds,
$768,000 was used to satisfy the underlying mortgage debt on the Warsaw
Property. As a result of the payment of the wraparound note and the satisfaction
of the underlying mortgage debt, the Company realized net cash proceeds of
approximately $519,000 and will record a book gain of approximately $321,000 in
the first quarter of 2000.
On January 13, 2000, a wraparound note held by the Company on a 43,200
square foot single tenant commercial building located in Hamilton, New York (the
"Hamilton Property"), was paid as a result of the sale of the Hamilton Property
by its owner, an affiliate of the Company (the partnership that owned the
Hamilton Property), to an unrelated third party. In connection with the
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sale of the Hamilton Property, the Company, as the master lessee on a Master
Lease on the Hamilton Property, canceled the subject Master Lease. Of the gross
proceeds, $774,000 was used to satisfy the underlying mortgage debt on the
Hamilton Property. As a result of the payment of the wraparound note and the
satisfaction of the underlying mortgage debt, the Company realized net cash
proceeds of approximately $521,000 and will record a book gain of approximately
$352,000 in the first quarter of 2000.
On January 7, 2000, a wraparound note held by the Company on a 32,400
square foot single tenant commercial building located in Walpole, New Hampshire
(the "Walpole Property"), was paid as a result of the sale of the Walpole
Property by its owner, an affiliate of the Company (the partnership that owned
the Walpole Property), to an unrelated third party. In connection with the sale
of the Walpole Property, the Company, as the master lessee on a Master Lease on
the Walpole Property, canceled the subject Master Lease. Of the gross proceeds,
$736,000 was used to satisfy the underlying mortgage debt on the Walpole
Property. As a result of the payment of the wraparound note, the Company
realized net cash proceeds of approximately $510,000 and will record a book gain
of approximately $381,000 in the first quarter of 2000.
On January 7, 2000, a wraparound note held by the Company on a 46,400
single-tenant commercial building located in Savannah, Tennessee (the "Savannah
Property"), was paid as a result of the sale of the Savannah Property by its
owner, an affiliate of the Company (the partnership that owned the Savannah
Property) to an unrelated third party. In conjunction with the sale of the
Savannah Property, the Company, as the master lessee on a Master Lease on the
Savannah Property, canceled the subject Master Lease. As a result of the payment
of the wraparound note, the Company realized net cash proceeds of approximately
$173,000 and will record a book gain of approximately $120,000 in the first
quarter of 2000.
On November 12, 1999, a wraparound note held by the Company on a 45,000
square foot shopping center located in Southwick, Massachusetts (the "Southwick
Property"), was paid as a result of the sale of the Southwick Property by its
owner, an affiliate of the Company (the partnership that owned the Southwick
Property), to an unrelated third party. In connection with the sale of the
Southwick Property, the Company, as the master lessee on a Master Lease on the
Southwick Property, canceled the subject Master Lease. As a result of the
payment of the wraparound note, the Company realized net cash proceeds of
approximately $520,000 and recorded a book gain of approximately $514,000 in the
fourth quarter of 1999.
On October 21, 1999, five wraparound notes held by the Company on five
separate single-tenant commercial buildings (collectively the "Five
Properties"), were paid as a result of the sale of the Five Properties by their
owners, affiliates of the Company (the partnerships that owned the Five
Properties) to unrelated parties. In conjunction with the sale of the Five
Properties, the Company, as the master lessee on a Master Lease on the Five
Properties, canceled the subject Master Lease. The negotiated sales prices of
the Five Properties aggregated $12,500,000. As a result of the sale of the Five
Properties, the payment of the wraparound notes and the assumption of the
underlying mortgage debt by the buyers, the Company realized net cash proceeds
of approximately $5,400,000 and recorded a book gain of approximately $2,316,000
in the fourth quarter of 1999.
8
<PAGE>
On July 30, 1999, a wraparound note held by the Company on a 31,170
square foot single tenant commercial building located in Franklin, Pennsylvania
(the "Franklin Property"), was paid as a result of the sale of the Franklin
Property by its owner, an affiliate of the Company (the partnership that owned
the Franklin Property), to an unrelated third party. In connection with the sale
of the Franklin Property, the Company, as the master lessee on a Master Lease on
the Franklin Property, canceled the subject Master Lease. Of the gross proceeds,
$1,348,000 was used to defease the underlying bond debt. As a result of the
payment of the wraparound note, the Company realized net cash proceeds of
approximately $896,000 and recorded a book gain of approximately $1,527,000 in
the third quarter of 1999.
On April 27, 1999, a wraparound note held by the Company on a 52,700
square foot shopping center property located in Baton Rouge, Louisiana (the
"Baton Rouge Property"), was paid as a result of the sale of the Baton Rouge
Property by its owner, an affiliate of the Company (the partnership that owned
the Baton Rouge Property), to an unrelated third party. In connection with the
sale of the Baton Rouge Property, the Company, as the master lessee on a Master
Lease on the Baton Rouge Property, canceled the subject Master Lease. Of the
gross proceeds, $1,896,208 was used to satisfy the underlying mortgage debt on
the Baton Rouge Property. As a result of the payment of the wraparound note and
the satisfaction of the underlying mortgage debt, the Company realized net cash
proceeds of approximately $2,045,000 and recorded a book gain of approximately
$306,000 in the second quarter of 1999.
On April 6, 1999, a wraparound note held by the Company on a 125,803
square foot shopping center property located in Pascagoula, Mississippi (the
"Pascagoula Property"), was paid as a result of the sale of the Pascagoula
Property by its owner, an affiliate of the Company (the partnership that owned
the Pascagoula Property), to an unrelated third party. In connection with the
sale of the Pascagoula Property, the Company, as the master lessee on a Master
Lease on the Pascagoula Property, canceled the subject Master Lease. As a result
of the payment of the wraparound note, the Company realized net cash proceeds of
approximately $2,178,000 and recorded a book gain of approximately $845,000 in
the second quarter of 1999.
During 1998, an agreement, (the "SGSC Agreement") was in effect between
the Company and certain of its affiliates, on one hand, and Societe Generale
Securities Corporation ("SGSC") on the other hand, pursuant to which the Company
and some affiliates had retained SGSC to act as financial advisor in connection
with a transaction involving the sale of a number of shopping center properties
owned by such affiliates and two retail properties owned by the Company. The
SGSC Agreement was terminated, by the Company and certain of its affiliates, via
written notice on March 29, 1999. Pursuant to the terms of the SGSC Agreement
upon certain dispositions of the properties covered by the SGSC Agreement prior
to March 29, 2000, to persons or entities to whom SGSC had shown such
properties, the Company and or such affiliates would be obligated to pay SGSC a
fee based on the sale price of such properties. No fee has been paid or is due
on any of the property sales noted herein.
From time to time the Company sells, or may take action to sell,
certain real estate assets which it does not believe to be material to the
overall business or financial condition of the Company.
9
<PAGE>
Investment in Land Ventures ("Ventures")
On May 1, 1999 and August 27, 1999, the Company made initial
investments of $262,469 and $46,762, respectively, in the Ventures, and the
Ventures assumed contracts to purchase certain land parcels in the South Florida
area. The land purchase contracts contain options to extend the closing date for
an additional fee. Subsequent to the initial investment, the Company has made
additional capital contributions of $2,693,224 to the Ventures. The consolidated
financial statements of the Company include the operating results for the
Ventures from the date of the Company's investments.
On December 29, 1999, the Ventures completed the purchase of a parcel
of land located in Miami, Florida (Miami-Dade County) from an unrelated third
party for $3,512,000. In connection with the purchase, a $2,000,000 first
mortgage was obtained which bears interest equal to 9.5% per annum which is
effective for the initial year of the term of the note. Interest on the subject
note is payable during the initial year in twelve consecutive monthly
installments; thereafter, the note requires twenty-three monthly payments of
principal and interest beginning in the thirteenth month of the note based upon
a 25 year amortization schedule. The note also requires a rate adjustment on the
anniversary date of the note equal to the base rate (prime rate) announced by
Citibank, N.A., New York, from time-to-time, plus one percent. A balloon payment
of approximately $1,974,000 is required at the end of year three of the
mortgage.
The investments included in the Ventures at December 31, 1999 also
include deposits of $700,000 which will be applied to the purchase of land
parcels in the South Florida area. Additional capital contributions may be
required by the Company to service the costs associated with extending the
expiration dates of certain land purchase contracts. The cost of extending the
land purchase contracts will be expensed if they expire before the land is
purchased.
Investment Policy
There are no limitations on the percentage of assets which may be
invested in any one investment or on the type of investments the Company may
make. The Company has no present intention of investing in or acquiring the
securities of other companies for the purpose of exercising control over other
companies. The Company does not currently intend to expand its operations to
include non-real estate related activities, but may do so if the Company's Board
of Directors determines it to be in the best interest of the Company. The
Company's policies towards its investments are not subject to the vote of the
Company's stockholders.
Real Estate Revenue
For the years ended December 31, 1999, 1998 and 1997, no tenant at any
individual property accounted for more than 10% of the Company's total revenue.
However, the total revenue from K- Mart Corporation's nine leases with the
Company accounted for approximately 30%, 29% and 32%, respectively, of the
Company's aggregate rent revenue.
Potential Environmental Risks
Under various federal, state and local environmental laws, ordinances and
regulations, the
10
<PAGE>
Company, as a current or previous owner or operator of real property, may be
held liable for the costs of removal or remediation of certain hazardous or
toxic substances, including, without limitations, asbestos-containing materials,
that could be located on, in or under such property. Such laws and regulations
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial and
the Company's liability as an owner or operator as to any property is generally
not limited under such laws and regulations, and could exceed the property's
value and the Company's aggregate assets. The Company's ability to sell or rent
a property, or to borrow using a property as collateral may be adversely
affected by the presence of these substances or failure to remediate such
substances properly. Under these laws and regulations, the Company, as an owner,
operator, or any entity who arranges for the disposal of hazardous or toxic
substances, such as asbestos-containing materials, at a disposal site, may also
be liable for these costs, as well as certain other costs, including
governmental fines and injuries to persons or properties. To date, the Company,
has not incurred any costs of removal or remediation of such hazardous or toxic
substances. However, the presence, with or without the Company's knowledge, of
hazardous or toxic substances at any property held or operated by the Company,
could adversely affect the Company's business, operating results and financial
condition. The Company is not aware of any environmental conditions at any of
the properties that it owns or in which it has an investment.
Competition
Any rental property that the Company currently owns or that the Company
purchases in the future (whether retail, office, industrial or residential) may
have competition from similar properties in the vicinity in which such property
is located, some which may be substantial. Such competition will generally be
for the retention of existing tenants and for new tenants upon space becoming
vacant. The Company believes that the profitability of each of its properties is
based, in part, upon such properties' geographic location, the operations and
identity of the property's tenants, the performance of the property and leasing
managers, the maintenance and appearance of the property, the ease of access to
the property and the adequacy of property related facilities. The Company also
believes that general economic circumstances and trends may affect the operation
and competitiveness of the property.
Numerous other developers, managers and owners of real estate compete
with the Company for management and leasing revenues, land for development,
properties for acquisition and tenants for properties, many of which may have
greater financial and other resources than the Company and may have operating
development experience greater than the Company's. In addition, retailers at the
operating properties face increasing competition from outlet malls, mail order
catalogues, discount shopping clubs, direct mail and telemarketing operations.
The development of competing properties and renovations and expansions of
existing competing properties could negatively affect the Company by encouraging
shoppers to make their purchases at the newer, expanded or renovated competing
center, attracting more popular tenants or luring tenants away from the
competing operating property. Increased competition could materially and
adversely affect the Company's revenues.
11
<PAGE>
Employees
The Company currently employs 23 people. The Company is party to a
management agreement (the "Management Agreement") with Concord pursuant to which
the Company provides management services, assists in the management of Concord
properties and provides certain personnel and office space and general office
services to Concord and for which the Company receives reimbursements from
Concord. The Management Agreement is renewable annually. Except for services
provided by certain employees to Concord pursuant to the Management Agreement,
all of the employees are employed on a full time basis to provide services to
the Company.
Impact of Year 2000
Year 2000 compliance programs and information systems modifications
were initiated by the Company in 1998 in an effort to ensure that its business
was not interrupted by the Year 2000 problem. The objective was achieved by
modifying present systems using internal and external programming resources and
by installing new hardware and software, and by monitoring supplier, customer,
and other third party readiness. Such modifications were completed by the
Company by September 1999. The total cost of the Company's Year 2000 compliance
program was approximately $52,500 which included a new AS400 computer which has
been leased on a long-term basis. At this time, neither the Company nor any
external companies that conduct business with the Company have incurred any
required modifications to its information technology or embedded technology
systems which will have a material adverse effect on the financial position,
results of operations or liquidity of the Company.
Item 2. Description of Property.
The Company's executive offices are located at 150 E. Palmetto Park
Road, 4th Floor, Boca Raton, Florida, 33432 where it leases approximately 8,000
square feet of office space.
The Company is currently engaged in the ownership and operation of 20
commercial real estate properties consisting of shopping centers, strip malls
and free standing department stores. The following tables describe and summarize
certain data for each such property. See also Item 1. Business, for a
description of additional terms relating to the Properties and the Company's
investment policies.
Table 1. Summary of Properties and Underlying Debt.
Table 2. Summary of Wraparound Notes.
12
<PAGE>
Table 1. Summary of Properties and Underlying Debt at December 31, 1999
<TABLE>
<CAPTION>
Monthly
Underlying Interest Payments of
GLA Occupancy Debt at Rate Principal &
Location Property (Sq Ft) Rate (%) 12/31/99 (%) Interest
=================== ============================= ========== ============ ============ ========= =================
<S> <S> <C> <C> <C> <C> <C>
Deland, FL Deland Plaza (1), (6) 68,337 100 $ 739,548 8.875 $ 14,016
Rochester, NY Ridgemont Plaza (1), (6) 84,181 100 970,664 9.250 15,992
Janesville, WI Blackhawk Village (4) 88,500 86 816,349 9.00 14,060
101,359 9.00 1,529
No. Canton, OH Kmart Corporation (1), (6) 84,181 100 1,969,876 9.00 21,669
Quincy, IL Harrison Street Plaza (4), (7) 149,954 99 2,883,642 7.75 27,912
Natchez, MS Morgantown Plaza (4) 92,646 100 2,172,151 7.59 15,519
Sandy, PA Sandy Plaza (1), (4) 34,019 100 1,285,000 7.00 (3)
Montgomery, AL Chisolm Shopping Center (4) 39,075 100 1,142,177 8.75 14,500
Paris, TN Paris Plaza (4) 102,453 98 530,168 13.50 8,859
308,905 9.25 8,467
Savannah, TN Savannah Plaza (4), (7) 46,400 100 216,258 9.50 6,612
- ------------------- ----------------------------- ---------- ------------ ------------ --------- -----------------
</TABLE>
Balance at
Maturity
Maturity (Assuming no
Location Prepayment Provision Date Prepayment)
=================== ============================= =========== ================
Deland, FL 1% premium 4/1/03 $ 343,437
Rochester, NY 1% premium 1/1/02 747,266
Janesville, WI none 7/31/02 540,492
none 8/1/07 0
No. Canton, OH Pre-payable at a discount 9/30/12 0
Quincy, IL Pre-payable at par 7/1/98 2,992,016
Natchez, MS None until 2004; then 1% 5/1/08 1,951,900
premium
Sandy, PA None until 2004; then 3% 12/1/06 0
declining 1% annually
Montgomery, AL 2% premium 4/1/07 396,073
Paris, TN 1% premium 4/1/08 0
Pre-payable at par 7/1/03 0
Savannah, TN none 1/31/03 0
- ------------------- ----------------------------- ----------- ----------------
13
<PAGE>
<TABLE>
<CAPTION>
Table 1. Summary of Properties and Underlying Debt at December 31, 1999 -
continued
Monthly
Underlying Interest Payments of
GLA Occupancy Debt at Rate Principal &
Location Property (Sq Ft) Rate (%) 12/31/99 (%) Interest
- ---------------- ----------------------------- ---------- ------------ ------------ --------- -----------------
<S> <S> <C> <C> <C> <C> <C>
Danville, IL Holiday Square (4) 50,978 100 320,886 9.625 9,663
Warsaw, VA Richmond Plaza (1), (6), (7) 43,200 100 751,724 13.125 11,373
Walpole, NH Kendiana Plaza (1) , (6), (7) 32,400 100 732,029 11.50 9,857 in advance
Sunrise, FL Pine Oak Plaza (2), (5) 16,994 100 1,145,613 7.48 8,095
Jacksonville, FL Regency Walk (2), (5) 34,436 92 1,818,281 7.87 13,335
Orange Park, FL Orange Park (2), (5) 21,509 95 1,282,722 7.39 8,992
Boca Raton, FL Teeca Plaza (2), (5) 22,589 97 1,779,809 7.39 12,450
W. Palm Beach, FL Country Grove Plaza (2), (5) 16,642 96 871,636 7.51 6,159
Jacksonville, FL Mandarin Central (2), (5) 63,346 99 3,918,660 8.00 28,984
Ft. Lauderdale, FL Pine Crest (2), (5) 40,408 97 2,373,511 7.00 15,967
Davie, FL Lincoln Park (2), (5) 46,190 97 3,193,271 7.58 22,684
Miami, FL Miami-Dade County Land Parcel n/a n/a 2,000,000 9.5 (8)
Palatka, FL Walmart Corporation (1), (6), 91,840 100 1,054,535 12.00 17,247
(7)
Columbus, NE Cottonwood Plaza (1), (6) 64,890 100 1,263,326 12.00 17,201
58,900 9.50 697
Hamilton, NY Alexander Plaza (1), (6), (7) 43,200 100 757,923 13.125 11,373
Zanesville, OH Sunrise Shopping Center (2), (4) 130,072 55 1,740,268 8.16 13,693
Blackstone, VA Family Dollar (2), (4) 43,200 21 0 n/a n/a
- ------------------- ----------------------------- ---------- ------------ ------------ --------- -----------------
</TABLE>
Balance at
Maturity
Maturity (Assuming no
Location Prepayment Provision Date Prepayment)
- ---------------- ----------------------------- ----------- ----------------
Danville, IL 1% premium 9/1/02 64,250
Warsaw, VA 4% in 1999, declining 1% 10/1/09 0
annually to a 2% minimum
Walpole, NH 1% premium 9/1/09 0
Sunrise, FL none 5/1/08 1,027,700
Jacksonville, FL none 5/1/08 1,643,700
Orange Park, FL none 4/1/08 1,147,600
Boca Raton, FL none 7/1/08 1,591,000
W. Palm Beach, FL none 9/1/08 780,150
Jacksonville, FL none 10/1/08 3,542,000
Ft. Lauderdale, FL none 11/11/08 2,063,000
Davie, FL 5% premium 11/1/08 2,854,000
Miami, FL none 12/29/02 1,974,482
Palatka, FL 2% premium 11/1/07 0
Columbus, NE none 9/1/10 9,274
none 7/1/11 0
Hamilton, NY 5% in 1999 declining 1% 12/1/09 0
annually to a 2% minimum
Zanesville, OH 3% premium 6/1/09 1,471,500
Blackstone, VA n/a n/a n/a
- ------------------- ----------------------------- ----------- ----------------
(1) Annual real estate taxes are the responsibility of the tenant.
(2) Represents a Fee Property.
(3) Principal and interest are paid semi annually in accordance with the
respective bond documents.
(4) Represents a shopping center.
(5) Represents a strip mall.
(6) Represents a free standing department store.
(7) Property disposed of subsequent to December 31, 1999.
(8) Interest payments only for year 2000. Monthly payments of principal and
interest of approximately $17,500 in year 2001 and 2002 dependant upon a
floating interest rate of bank prime plus 14 one percent.
14
<PAGE>
Table 2. Summary of Wraparound Notes at December 31, 1999
<TABLE>
<CAPTION>
Carrying Face Amount Annual Balance at Annual
Interest Amount of of Payments of Final Maturity Master Master
Rate Wraparound Wraparound Principal & Maturity (Assuming no Lease Lease
Location (%) Notes Notes Interest Date Prepayment) Payment Termination
=================== ======== ============= ============= ============ ========= ================ ============= ==============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deland, FL 9.70 $ 1,386,963 $ 1,904,659 $ 198,018 6/30/00 $ 1,884,837 $ 198,018 6/30/00
Rochester, NY 9.70 1,426,983 1,708,137 220,906 12/31/14 0 220,906 12/31/14
10.00 130,625 183,567 0 12/31/14 910,735 0 n/a
Janesville, WI 10.25 1,361,406 2,100,380 268,502 12/31/15 0 268,502 12/31/15
11.00 15,000 16,584 0 12/31/15 106,688 0 n/a
No Canton, OH 9.11 2,080,901 2,747,434 333,272 12/31/14 0 333,272 12/31/14
11.00 26,575 37,589 0 12/31/14 216,478 0 n/a
11.00 25,650 32,385 0 12/31/14 186,725 0 n/a
Quincy, IL (1) 10.00 1,156,057 4,903,590 920,890 12/31/98 4,904,387 920,890 n/a
Natchez, MS 10.00 840,595 3,091,460 516,210 05/01/08 3,097,127 516,210 n/a
Sandy, PA 10.00 811,425 2,387,007 207,726 6/30/00 1,994,603 207,726 6/30/00
Montgomery, AL 9.75 802,335 2,112,637 236,100 6/30/00 2,015,635 236,100 6/30/00
Savannah, TN (1) 9.88 352,116 1,079,560 197,500 12/31/99 993,627 197,500 12/31/99
Danville, IL 9.75 704,196 1,668,565 202,772 6/30/00 1,539,365 202,772 6/30/00
Warsaw, VA (1) 9.75 981,167 1,338,084 175,974 12/31/99 1,298,565 175,974 12/31/99
Paris, TN 10.00 1,122,807 2,935,475 288,924 6/30/00 2,679,715 288,924 6/30/00
11.00 51,016 74,163 0 6/30/00 78,242 0 n/a
Walpole, NH (1) 9.75 897,379 1,311,402 196,750 12/31/99 1,248,385 196,750 12/31/99
Palatka, FL (1) 9.75 1,432,915 2,114,078 407,745 12/31/99 1,921,922 407,745 12/31/99
11.00 24,650 27,687 0 12/31/99 30,891 0 n/a
Columbus, NE 9.75 2,044,449 2,309,380 227,124 6/30/00 2,233,342 227,124 6/30/00
Hamilton, NY (1) 9.75 966,643 1,370,885 210,745 12/31/99 1,300,000 210,745 12/31/99
- ------------------- -------- ------------- ------------- ------------ --------- ---------------- ------------- --------------
</TABLE>
(1) Property disposed of subsequent to December 31, 1999.
15
<PAGE>
Item 3. Legal Proceedings.
As previously reported, the Company is the plaintiff in a Florida state
court action against certain insurance companies (the "National Union Action")
for their refusal to contribute to the settlement of certain previously-reported
actions (known as the "Winston Actions") which involved the Company and certain
of its present and former officers and directors. The National Union Action is
currently in discovery, and the Company is not in a position to render an
opinion as to its outcome.
For a detailed description of the other Winston Actions, the settlement
thereof, (the "Winston Settlement"), and the commencement of the National Union
Action, please see the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (and the cross-references therein).
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the security holders, through
the solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year ended December 31, 1999.
16
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The Common Stock and the Series A Preferred Stock traded on the New
York Stock Exchange (the "NYSE") under symbols "MPI" and "MPI PRA",
respectively, from January 29, 1991 through July 3, 1998. The NYSE suspended
trading in shares of the Common Stock and Series A Preferred Stock prior to the
market opening on July 6, 1998 because it had determined that Milestone had
fallen below certain of the NYSE's continued listing criteria relating to net
income and market value of publicly held shares of the Common Stock and Series A
Preferred Stock. Effective as of the opening of the trading session on September
11, 1998, the Common Stock and Series A Preferred Stock were delisted from the
NYSE. On or about July 6, 1998, a market began to be made for shares of the
Common Stock and Series A Preferred Stock on the Over-The-Counter (the "OTC")
Bulletin Board with the ticker symbols"MPRP"and "MPRPP", respectively.
The following tables set forth the high and low sales prices for the
Common Stock and the Series A Preferred Stock, as reported on the NYSE, for the
partial 1998 fiscal year (January 1, 1998 through July 3, 1998). In addition,
the table also sets forth the high and low bid quotations for the Common Stock
and the Series A Preferred Stock, as reported on the OTC Bulletin Board, for the
period from July 6, 1998 through December 31, 1998 and for the 1999 fiscal year.
The high and low bid quotations for the Common Stock and Series A Preferred
Stock represent prices between broker-dealers, and do not include retail
mark-ups or mark-downs or any commission to the broker-dealer and may not
represent actual transactions.
<TABLE>
<CAPTION>
Common Stock High Low
======================================================================= ============= =============
1999
<S> <C> <C>
First Quarter $ 2 $ 13/16
Second Quarter 3-9/16 1-1/2
Third Quarter 3-4/5 3-1/4
Fourth Quarter 3-1/2 2-3/4
1998
First Quarter $ 1-13/16 $ 5/8
Second Quarter 1-13/16 11/16
Third Quarter
NYSE (July 1, 1998 through July 3, 1998) 3/4 11/16
OTC Bulletin Board (July 6, 1998 through September 30, 1998) 1-1/2 7/16
Fourth Quarter 7/8 3/4
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Series A Preferred Stock High Low
======================================================================= ============== =============
1999
<S> <C> <C>
First Quarter $ 2-9/10 $ 2
Second Quarter 2-3/4 2-3/4
Third Quarter 3-1/4 2-5/8
Fourth Quarter No reported trading
1998
First Quarter $ 1- 3/4 $ 1- 1/4
Second Quarter 1- 3/8 1- 5/16
Third Quarter
NYSE (July 1, 1998 through July 3, 1998) 1- 1/2 1- 7/16
OTC Bulletin Board (July 6, 1998 through September 30, 1998) 2- 1/2 7/8
Fourth Quarter 2- 1/2 2
</TABLE>
On March 17, 2000, the average bid and asked price of the Common Stock
was $3.00. There has been no reported trading on the Series A Preferred Stock
since July 15, 1999 when the average bid and ask price was $2.63. On March 17,
2000, there were approximately 1,774 record holders of the Common Stock and five
record holders of the Series A Preferred Stock.
Dividend Policy
Common Stock
Milestone has never declared any cash dividends on its Common Stock and
has no present intention to declare or pay cash dividends on the Common Stock in
the foreseeable future. While there are no restrictions on Milestone's ability
to declare dividends, except for the preference of the Series A Preferred Stock
(discussed below), the Company anticipates that in the future earnings will be
retained to finance the Company's operations. Any decision as to the future
declaration of dividends on the Common Stock will depend on the results of
operations and the financial condition of the Company and such other factors as
Milestone's Board of Directors, in its discretion, deems relevant. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources.
Series A Preferred Stock
Milestone's Board of Directors determined not to declare any dividends
on the Series A Preferred Stock during the years ended December 31, 1999, 1998
and 1997. The last dividend declared by Milestone was for the quarter ended
December 31, 1995 and was paid on February 15, 1996 at $0.195 per share of
Series A Preferred Stock.
Since September 30, 1995, holders of the Series A Preferred Stock have
not been entitled to receive dividends on a cumulative basis. Pursuant to the
Certificate of Designations of the Series A Preferred Stock, after such date, no
cash dividend may be paid on the Common Stock unless full
18
<PAGE>
dividends of $0.195 on all outstanding shares of Series A Preferred Stock for
the then current quarterly dividend period are declared and either paid or
sufficient sums for the payment thereof are set apart. As a result of
Milestone's Board Directors' determination not to declare a dividend for the
quarter ended June 30, 1997, which was the sixth consecutive quarter for which
no dividend was declared, 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 Series A Preferred Stock, who are otherwise entitled to elect one member of
the Board of Directors, became entitled to elect a second member of the Board of
Directors to fill such newly created directorship. Any decision as to the future
payment of dividends on the Series A Preferred Stock will depend on the results
of operations and the financial condition of the Company and such other factors
as Milestone's Board of Directors, in its discretion, deems relevant. See Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources.
See Item 3, Legal Proceedings, for a cross-reference to a description
of the Company's repurchase and retirement of 2,983,284 shares of Series A
Preferred Stock during 1999.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
(Amounts in thousands, except per share information)
1999 1998 1997 1996 1995
================================================== ================= ============ ============ ============== ============
<S> <C> <C> <C> <C> <C>
Total revenues $ 19,632 $ 25,515 $ 30,092 $ 33,722 $ 25,768
Total expenses 20,185 32,693 34,244 35,843 26,261
Loss before income taxes and minority interest (553) (7,178) (4,152) (2,121) (493)
(Benefit) provision for income taxes (2,012) 1,253 (721) 366 317
Net income (loss) before minority interest 1,459 (8,431) (3,431) (2,487) (810)
Minority interest in net loss of consolidated
subsidiary 664 0 0 0 0
Distributions on preferred stock 0 0 0 0 (2,732)
-------------- ------------ ------------- ------------- --------
Income (loss) attributable to common stockholders $ 2,123 $ (8,431) $ (3,431) $ (2,487) $ (3,542)
============ ========= ========= ========= =========
Income (loss) per common share, basic $ 0.50 $ (1.99) $ (0.82) $ (0.65) $ (2.13)
============ ======== ========== ========== ==========
Weighted average common shares outstanding, $ 4,260 4,235 4,207 3,846 1,665
=========== ========= ========== =========== =========
basic
Total assets $ 63,278 $ 86,922 $112,223 $ 182,095 $ 198,413
========== ========= ========= ========== =========
Mortgages and notes payable $ 38,199 $ 47,977 $ 67,740 $ 71,563 $ 79,278
========== ========= =========== =========== ===========
- -------------------------------------------------- ----------------- ------------ ------------ -------------- ------------
</TABLE>
19
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. See Item 1.
Business.
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements of the Company and the notes thereto
appearing in Item 14 of this report.
The Company is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets.
Recent Developments
For a description of "Acquisitions and Dispositions of Real Estate and Real
Estate Related Assets", see Item 1. Business.
The settlement of the Winston Actions became effective on March 5,
1999, and, pursuant to the settlement, Milestone canceled and retired 2,983,284
shares of Series A Preferred Stock, representing more than 99% of the then
outstanding shares of Series A Preferred Stock. See Item 3. Legal Proceedings
for a cross-reference to a description of the Winston Actions and the settlement
thereof. Also see "Results of Operations", below, for a discussion of the costs
associated with the settlement of the Winston Actions.
Effective as of the opening of the trading session on September 10,
1998, the Common Stock and Series A Preferred Stock were delisted from the NYSE.
See Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.
Results of Operations
Calendar Year 1999 Compared to Calendar Year 1998
For the year ended December 31, 1999, the Company reported net income
of $2,123,119 on total revenues of $19,632,289, or $0.50 per common share, basic
computation. The 1999 results included a nonrecurring reversal by the Company of
a previously recorded income tax payable accrual of approximately $2,800,000
which the Company no longer believes is a necessary liability. For the year
ended December 31, 1998, the Company reported a net loss of $8,431,112, or $1.99
per common share, on total revenues of $25,515,391. These results include a
nonrecurring charge of approximately $7,084,000 related to the settlement of the
Winston Actions. See Part I-Item 3. Legal Proceedings for a cross-reference to a
description of the settlement.
Total revenues for the year ended December 31, 1999 were $19,632,289,
as compared to $25,515,391, for the year ended December 31, 1998, a decrease of
$5,883,102, or 23%, due to the following:
20
<PAGE>
Rent decreased $2,446,047, or 25%, in 1999 compared to 1998. This
decrease is primarily due to the net of: (1) property sales, which caused a
decrease in rent revenue of approximately $4,089,000 which is offset by (2) a
full year of rents received on the properties purchased during 1998, which
caused an increase in rent revenue of approximately $1,478,000.
Interest income decreased $3,475,761, or 42%, for the year ended
December 31, 1999 compared to the year ended December 31, 1998. This decrease is
primarily due to: (1 ) a decrease of approximately $2,754,000 in interest income
as a result of the Company receiving payment on wraparound notes, held by the
Company as a result of the sales of the Underlying Properties by its owners and
(2) a decrease of approximately $515,000 in interest income as a result of less
cash on hand during 1999 due to the cash expended to settle the Winston Actions.
For the year ended December 31, 1999 the Company had gains on the sale
of real estate and real estate related assets of $5,507,817 as compared to gains
on the sale of real estate and real estate related assets of $5,617,844 for the
year ended December 31, 1998.
Master Lease expenses decreased $6,147,169, or 50%, due to a decrease
in the number of properties leased by the Company as a result of the sale of
some of the Underlying Properties by their owners.
Salaries, general and administrative expenses increased $1,543,054, or
54% primarily due to an increase in salary expense of approximately $1,447,000
as the result of the repurchase of 222,200 options to purchase shares of the
Company's common stock, from certain executives of the Company for approximately
$650,000, which amount represents the excess of the current market price of the
common stock over the exercise price of the options. Also, increasing salary
expense was an increase of approximately $701,000 in the year-end bonuses for
several executive officers of the Company.
Expired extensions to land purchase contracts for the year ended
December 31, 1999 were $1,232,659 as compared to $0 for the year ended December
31, 1998 due to investments in Land Ventures during 1999.
Professional fees decreased $349,184, or 27% due primarily to fees
associated with the settlement of the Winston Actions which were paid in the
first quarter of fiscal 1999 and which had been the cause of a significant
amount of legal fee expense in 1998.
Interest expense for the year ended December 31, 1999 was $3,711,436, a
decrease of $1,763,015 or 32%, from $5,474,451 for the year ended December 31,
1998. Such decrease was primarily due to a decrease in interest expense of
approximately $2,362,000 on the underlying debt as a result of the property
sales, as previously described, which were offset by a full year of interest
expense on the properties purchased during 1998, as previously described.
Depreciation and amortization for the year ended December 31, 1999 was
$865,102, a decrease of $48,425 or 5%, from $913,527 for the year ended December
31, 1998. Such decrease was primarily due to property dispositions, as
previously described, which is offset by property purchases, as previously
described.
21
<PAGE>
Income tax benefit for the year ended December 31, 1999 was $2,012,216
as compared to an income tax expense of $1,253,056 for the year ended December
31, 1998 due primarily to the Company reversing a previously recorded income
taxes payable accrual of approximately $2,800,000 which the Company no longer
believes is a necessary liability.
Calendar Year 1998 Compared to Calendar Year 1997
For the year ended December 31, 1998, the Company reported a net loss
of $8,431,112, or $1.99 per common share, on total revenues of $25,515,391.
These results include a nonrecurring charge of approximately $7,084,000 related
to the settlement of the Winston Actions. See Part I-Item 3. Legal Proceedings
for a cross reference to a description of the settlement. For the year ended
December 31, 1997, the Company reported a net loss of $3,430,731 on total
revenues of $30,091,911, or $0.82 per common share. The 1997 results included a
charge of approximately $2,590,000 related to the fair value adjustment of the
wraparound notes.
Total revenues for the year ended December 31, 1998 were $25,515,391,
as compared to $30,091,911, for the year ended December 31, 1997, a decrease of
$4,576,520, or 15%, due to the following:
Rent decreased $532,575, or 5%, in 1998 compared to 1997. This decrease
is primarily due to the net of: (1) property sales, as previously described,
which caused a decrease in rent revenue of approximately $1,539,000 which is
offset by (2) the property purchases, as previously described, which caused an
increase in rent revenue of approximately $1,006,000.
Interest income decreased $5,164,478, or 39%, for the year ended
December 31, 1998 compared to the year ended December 31, 1997. This decrease is
primarily due to: (1) the sale, by the Company, of all four of its remaining
mortgage backed securities during 1997 which caused a decrease in interest
income of approximately $3,655,000 and (2) a decrease of approximately
$1,436,000 in interest income as a result of the Company receiving payment on
wraparound notes, as previously described, held by the Company as a result of
the sales of the Underlying Properties by its owners.
For the year ended December 31, 1998 the Company had gains on the sale
of real estate and real estate related assets of $5,617,844 as compared to gains
on the sale of real estate and real estate related assets of $316,061 for the
year ended December 31, 1997.
During the year ended December 31, 1998, the Company did not have any
available-for-sale securities or U.S. Treasury Notes. All of the
available-for-sale securities and U.S. Treasury Notes were sold during 1997 as a
result of the Company selling all four of its remaining mortgage backed
securities during 1997 which resulted in a net gain of approximately $3,195,000
for the year ended December 31, 1997 and no such gain for the year ended
December 31, 1998.
Master Lease expenses decreased $1,427,752, or 10%, due to a decrease
in the number of properties leased by the Company as a result of the sale of
some of the Underlying Properties by their owners.
22
<PAGE>
Salaries, general and administrative expenses decreased $1,081,952, or
27%, primarily due to (1) a decrease in salary expense of approximately $999,000
as the result of a decrease in bonuses for several executive officers of the
Company for the year ended December 31, 1998 and (2) a decrease in rental
expense of approximately $563,000 for the corporate offices for the year ended
December 31, 1998 compared to the same period in 1997.
Professional fees increased $352,161, or 38%, due primarily to fees
associated with the Winston Actions and the Winston Settlement. See Part I-Item
3. Legal Proceedings for a cross-reference to a description of the Winston
Actions and the Winston Settlement.
Interest expense for the year ended December 31, 1998 was $5,474,451, a
decrease of $3,645,103, or 40%, from $9,119,554 for the year ended December 31,
1997. Such decrease was primarily due to: (1) a decrease in interest expense of
approximately $2,365,000 due to U.S. Treasury Note(s) short positions which were
closed simultaneously with the disposition during 1997, by the Company, of all
four of the remaining mortgage backed securities then held by the Company and
(2) a net decrease in interest expense of approximately $1,063,000 on the
underlying debt as a result of the property sales, as previously described,
which were offset by the property purchases, as previously described, during
1998.
Depreciation and amortization for the year ended December 31, 1998 was
$913,527, an increase of $66,142 or 8%, from $847,385 for the year ended
December 31, 1997. Such increase was primarily due to property purchases, as
previously described, and property improvements during 1998 which is offset by
property dispositions, as previously described.
Income tax expense for the year ended December 31, 1998 was $1,253,056
as compared to an income tax benefit of $721,234 for the year ended December 31,
1997 due to 1998 gains on the sale of real estate and real estate related assets
and an increase in the valuation allowance for deferred taxes in 1998.
Cash Flows
For the year ended December 31, 1999, cash used in operating activities
was $15,310,660, cash provided by investing activities was $22,908,711 and cash
used in financing activities was $11,329,094. The primary uses of these funds
were payments associated with the Winton Settlement and payments to satisfy
underlying mortgage debt as a result of property sales of the related Underlying
Property, by its owner, an affiliate of the Company (i.e., the Partnership that
owned the Underlying Property) as previously discussed in Item 1. Business. The
primary source of the funds was payments received by the Company on its
wraparound notes, as previously described.
For the year ended December 31, 1998, cash used in operating activities
was $6,567,933, cash provided by investing activities was $24,721,432 and cash
used in financing activities was $19,762,435. The primary uses and provision of
these funds was a direct result of the property purchases and sales, as
previously described, by the Company during 1998, as well as the payments
received by the Company on its wraparound notes, as previously described, as a
result of the sale of the related Underlying Property, by its owner, an
affiliate of the Company (i.e., the Partnership that owned the Underlying
Property).
23
<PAGE>
Liquidity and Capital Resources
During 1999 and 1998, the Company generated cash as a result of
payments received by the Company on its wraparound notes, as previously
described, as a result of the sale of the related Underlying Property, by its
owner, an affiliate of the Company (i.e., the Partnership that owned the
Underlying Property). This trend will continue during the first quarter of year
2000 and may continue throughout the year.
The Company's total current investment of $3,002,455 in land Ventures,
as previously discussed, also includes deposits of $700,000 at December 31, 1999
to purchase land parcels in the South Florida area. Additional capital
contributions may be required by the Company to service the costs associated
with extending the expiration dates of certain land parcel contracts. The cost
of extending the land purchase contracts will be expensed if they expire before
the land is purchased.
The Company's existing borrowings and the encumbrances on the
properties securing those borrowings may inhibit or result in increased costs to
the Company in connection with its ability to incur future indebtedness and/or
raise substantial equity capital in the marketplace.
The Company has invested available funds in secure, short-term,
interest bearing investments. The Company believes that its levels of working
capital, liquidity and funds from operations are sufficient to support present
operations.
Other than described herein, management is not aware of any other
trends, events, commitments or uncertainties that will, or are likely to,
materially impact the Company's liquidity.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company, in its normal course of business, is theoretically exposed
to interest rate changes as they relate to real estate mortgages and the effect
of such mortgage rate changes on the value of real estate. However, for the
Company, most of its mortgage debt is at fixed rates, is for extended terms, is
not assumable and would be unaffected by any sudden change in interest rates.
The Company's possible risk is from increases in long-term real estate mortgage
rates that may occur over a decade or more, as this may decrease the overall
value of real estate. Since the Company has the intent to hold its existing
mortgages to maturity (or until the sale of a Property), there is believed to be
no interest rate market risk on the Company's results of operations or its
working capital position. The Company estimates the fair value of its long term
fixed rate mortgage loans generally using discounted cash flow analysis based on
the Company's current borrowing rates for similar types of debt. At December 31,
1999, the fair value of the mortgage loans was estimated to be $37,251,323
compared to a carrying value amount of $38,199,191.
The Company's cash equivalents and short-term investments, if any,
generally bear variable interest rates. Changes in the market rates of interest
available will affect from time-to-time the interest earned by the Company.
Since the Company does not rely on its interest earnings to fund working capital
needs, changes in these interest rates will not have an impact on the Company's
results of operations or working capital position.
24
<PAGE>
Item 8. Financial Statements and Supplementary Disclosure.
The Company's Consolidated Financial Statements and the notes thereto
appear in Item 14 of this Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
On October 28, 1998, the Company terminated its relationship with the
accounting firm of Deloitte & Touche LLP as the independent auditor of the
Company's financial statements. The termination of the relationship with
Deloitte & Touche LLP was not the result of any disagreements between the
Company and Deloitte & Touche LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. On
November 2, 1998, the Company retained the accounting firm of Ahearn, Jasco +
Company, P.A. as its new independent auditor to audit the Company's financial
statements for the fiscal year ended December 31, 1998. The decision to change
accounting firms as the Company's independent auditor to audit the Company's
financial statements was approved by the Audit Committee of the Company's Board
of Directors on October 27, 1998.
25
<PAGE>
PART III
Certain information required by Part III is omitted from this report
since the Company plans to file with the Securities and Exchange Commission a
definitive proxy statement for its 2000 Annual Meeting of Stockholders (the
"Proxy Statement") no later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant.
The information regarding the Company's directors required by this Item
is incorporated by reference to the section in the Proxy Statement entitled
"Election of Directors."
The information regarding the Company's executive officers required by
this Item is incorporated by reference to the sections in the Proxy Statement
entitled "Election of Directors" and "Executive Officers."
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 by the directors, executive officers and
beneficial owners of more than 10% of the Common Stock or the Series A Preferred
Stock required by this Item is incorporated by reference to the section in the
Proxy Statement entitled "Section 16(a) Beneficial Ownership Reporting
Compliance."
Item 11. Executive Compensation.
The information regarding compensation of directors and executive
officers of the Company required by this Item is incorporated by reference to
the section in the Proxy Statement entitled "Executive Compensation" and
"Compensation of Directors."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information regarding security ownership of certain beneficial
owners and management required by this Item is incorporated by reference to the
section in the Proxy Statement entitled "Security Ownership of Certain
Beneficial Owners and Management."
Item 13. Certain Relationships and Related Transactions.
The information regarding certain relationships and related
transactions required by this Item is incorporated by reference to the sections
in the Proxy Statement entitled "Compensation Committee Interlocks and Insider
Participation" and "Certain Relationships and Related Transactions."
26
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a)(1) Financial Statements and Financial Statement Schedule.
The following consolidated financial statements of the Company are filed as part
of this report:
Page
----
Independent Auditors' Report of Ahearn, Jasco + Company, P.A. F-1
Independent Auditors' Report of Deloitte & Touche, LLP F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Revenues and Expenses -
Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statement of Comprehensive Loss -
Year Ended December 31, 1997 F-5
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-9
(a)(2) Financial Statement Schedule.
Schedule III Real Estate and Accumulated Depreciation S-1
This financial statement schedule of the Company for each of the
years ended December 31, 1999, 1998 and 1997 is filed as part of
this Form 10-K and should be read in conjunction with the
Consolidated Financial Statements, and related notes thereto, of
the Company. All other financial statement schedules have been
omitted because the required information is not present or not
present in amounts sufficient to require submission of the
schedule or because the information required is included in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits.
The exhibits to this report are listed below:
27
<PAGE>
Exhibit Description
3.1 Certificate of Amendment to Certificate of Incorporation of the Company,
filed on December 18, 1990 (incorporated by reference to Exhibit 3.1 to the
Company's Form 10- K filed with the Commission on March 29, 1991).
3.2 Certificate of Amendment to the Company's certificate of Incorporation
(incorporated by reference to Exhibit B to the Company's definitive Proxy
Statement filed with the Commission on April 30, 1999).
4.1 Certificate of Designations of $.78 Convertible Series A Preferred Stock of
the Company, filed on December 18, 1990 (incorporated by reference to
Exhibit 4.1 to the Company's Form 10-K filed with the Commission on March
29, 1991).
4.2 Certificate of Amendment to Certificate of Designations of $.78 Convertible
Series A Preferred Stock of the Company filed on June 9, 1994 (incorporated
by reference to Exhibit 4.5 to the Company's Form 10-QSB filed with the
Commission on August 15, 1994).
4.3 Specimen form of Common Stock Certificate (incorporated by reference to
Exhibit 4.2 to the Company's Form 10-K filed with the Commission on March
29, 1991).
4.4 Specimen form of $.78 Convertible Series A Preferred Stock Certificate
(incorporated by reference to Exhibit 4.3 to the Company's Form 10-K filed
with the Commission on March 29, 1991).
4.5 Rights Agreement, dated as of March 31, 1993, between the Company and The
Bank of New York, as Rights Agent (incorporated by reference to Exhibit 1
to the Company's Form 8-A filed with the Commission on March 31, 1993).
10.1 Amended indemnification agreement between the Company and related parties
(incorporated by reference to Exhibit 19.2 to the Company's Form 10-Q filed
with the Commission on May 14, 1992).
10.2 Second amended and restated management and reimbursement agreement between
the Company and Concord (incorporated by reference to Exhibit 19.3 to the
Company's Form 10-KSB filed with the Commission on March 30, 1993).
10.3 Purchase money promissory note purchase money mortgage and security
agreement with The Benderson 85-1 Trust for the Tonawanda, New York,
property (incorporated by referenced to Exhibit 10.33 to the Company's Form
10-QSB filed with the Commission on August 14, 1993).
10.4 1993 Employee Stock Option Plan (incorporated by reference to Exhibit 10.2
to the Company's Form 10-KSB filed with the Commission on March 31, 1994).
10.5 1993 Non-Employee Director Stock Option Plan (incorporated by reference to
Exhibit 10.21 to the Company's Form 10-KSB filed with the Commission on
March 31, 1994).
28
<PAGE>
Exhibit Description
10.6 Property Management Agreement, dated November 20, 1995, between the Company
and Milestone Property Management , Inc. (incorporated by reference to
Exhibit 10.31 to the Company's Form 10-KSB filed with the Commission on
March 30, 1996).
10.7 Stipulation and Agreement of Settlement dated August 5, 1998, by and among
John Winston and Leonard S. Mandor, Robert A. Mandor, Joan LeVine, Harvey
Jacobson, Gregory McMahon, Geoffrey S. Aaronson, Milestone Properties, Inc.
and Concord Assets Group, Inc. (incorporated by reference to Exhibit 10.01
to the Company's Form 8-K filed with the Commission on August 14, 1998).
10.8 Third Amendment Management Agreement dated January 1, 1998 between the
Company and Concord. (incorporated by reference to Exhibit 10.8 to the
Company's Form 10-K filed with the Commission on March 30, 1999).
10.9 Employment Agreement dated January 1, 1999, entered into between the
Company and Leonard S. Mandor. (incorporated by reference to Exhibit 10.9
to the Company's Form 10-K filed with the Commission on March 30, 1999).
10.10Employment Agreement dated January 1, 1999, entered into between the
Company and Robert A. Mandor. (incorporated by reference to Exhibit 10.10
to the Company's Form 10-K filed with the Commission on March 30, 1999).
10.11Employment Agreement dated January 1, 1999, entered into between the
Company and Harvey Shore. (incorporated by reference to Exhibit 10.11 to
the Company's Form 10-K filed with the Commission on March 30, 1999).
10.12Employment Agreement dated January 1, 1999, entered into between the
Company and Joseph P. Otto. (incorporated by reference to Exhibit 10.12 to
the Company's Form 10- K filed with the Commission on March 30, 1999).
10.13Employment Agreement dated January 1, 1999, entered into between the
Company and Patrick S. Kirse. (incorporated by reference to Exhibit 10.13
to the Company's Form 10- K filed with the Commission on March 30, 1999).
10.14Description of Long Term Incentive Plan. (incorporated by reference to
Exhibit 10.14 to the Company's Form 10-K filed with the Commission on March
30, 1999).
10.15Description of Management Incentive Plan. (incorporated by reference to
Exhibit 10.15 to the Company's Form 10-K filed with the Commission on March
30, 1999).
10.16Description of the Company's 1999 Stock Incentive Plan (incorporated by
reference to Exhibit A to the Company's definitive Proxy Statement filed
with the Commission on April 30, 1999).
29
<PAGE>
Exhibit Description
21 Subsidiaries of the Company (filed herewith).
27 Financial Data Schedule Article 5 included for Electronic Data Gathering,
Analysis and Retrieval (EDGAR) purpose only. This Schedule contains
financial information extracted from the consolidated balance sheet and
consolidated statements of revenues and expenses and is qualified in its
entirety by reference to such financial statements.
(b) Reports on Form 8-K.
On November 3, 1999, a Current Report on Form 8-K was filed with
the Commission reporting the sale of the five separate
single-tenant commercial buildings to unrelated third parties.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ Leonard S. Mandor
Leonard S. Mandor
Chairman of the Board and
Chief Executive Officer
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature and Title Date
/s/ Leonard S. Mandor March 24, 2000
- ---------------------
Leonard S. Mandor
Chairman of the Board and Chief Executive Officer
/s/ Robert A. Mandor March 24, 2000
- --------------------
Robert A. Mandor
President, Chief Financial Officer and Director
/s/ Joseph P. Otto March 24, 2000
- ------------------
Joseph P. Otto
Vice President and Director
/s/ Patrick S. Kirse March 24, 2000
- --------------------
Patrick S. Kirse
Vice President of Accounting
(Principal Accounting Officer)
/s/ Geoffrey Aaronson March 24, 2000
Geoffrey Aaronson
Director
/s/ Harvey Jacobson March 24, 2000
Harvey Jacobson
Director
/s/ Gregory McMahon March 24, 2000
Gregory McMahon
Director
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
Milestone Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Milestone
Properties, Inc. and subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of revenues and expenses,
stockholders' equity and cash flows for the years then ended. Our audits also
included the information pertaining to 1999 and 1998 contained in the financial
statement schedule of real estate and accumulated depreciation. These
consolidated financial statements and the financial statement schedule of real
estate and accumulated depreciation are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements and the financial statement schedule of real estate and
accumulated depreciation based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Milestone Properties, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years ended
December 31, 1999 and 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the information pertaining to 1999 and 1998
contained in the financial statement schedule of real estate and accumulated
depreciation, when considered in relation to the basic financial statements,
presents fairly, in all material respects, the information set forth therein.
/s/ Ahearn, Jasco + Company, P.A.
Pompano Beach, Florida
March 17, 2000
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Milestone Properties, Inc.:
We have audited the accompanying consolidated statements of revenues and
expenses, comprehensive loss, stockholders' equity and cash flows for the year
ended December 31, 1997 of Milestone Properties, Inc. and subsidiaries (the
"Company"). Our audit also included the information pertaining to 1997 contained
in the financial statement schedule of real estate and accumulated depreciation.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements and financial statement
schedule information based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Company for
the year ended December 31, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, the information pertaining to 1997
contained in such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ Deloitte & Touche, LLP
New York, New York
March 20, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 December 31, 1998
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 8,032,257 $ 11,826,301
Restricted cash 222,000 222,000
Restricted cash for settlement 1,614,156 0
Loans receivable 1,370,471 1,444,442
Accounts receivable 567,112 812,555
Accrued interest receivable 2,694,289 5,185,432
Due from related party 762,102 843,085
Prepaid expenses and other 723,397 1,200,978
Deposits to purchase land 700,000 0
------------- --------------------
Total current assets 16,685,784 21,534,793
Property, improvements and equipment, net 24,884,220 21,517,884
Wraparound notes, net 18,641,853 39,529,787
Deferred income tax asset, net 2,293,167 2,994,070
Investments in preferred stock 0 445,500
Management contract rights, net 117,875 193,600
Debt financing costs and other, net 655,393 706,562
------------- ----------------
Total assets $ 63,278,292 $ 86,922,196
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $2,547,866 $ 2,466,590
Accrued litigation payable 1,614,156 9,692,454
Accrued interest payable 148,173 306,846
Master Lease payable 3,916,308 8,933,202
Current portion of mortgages and notes payable 4,203,029 5,782,950
Income taxes payable 20,000 2,836,496
------------- -----------
Total current liabilities 12,449,532 30,018,538
Mortgages and notes payable 33,996,162 42,194,179
---------- ----------
Total liabilities 46,445,694 72,212,717
---------- ----------
Commitments and Contingencies
Stockholders' equity:
Common stock ($.01 par value, 10,000,000 shares
authorized, 4,943,633 shares issued and outstanding,
655,091 and 692,591 shares in treasury
in 1999 and 1998, respectively) 49,436 49,436
Preferred stock (Series A $.01 par value, $10 liquidation
preference, 1,000,000 and 10,000,000 shares authorized,
16,423 and 2,999,707 shares issued and outstanding in
1999 and 1998, respectively) 164 29,997
Additional paid in surplus 45,340,638 45,497,180
Accumulated deficit (25,303,597) (27,426,716)
Shares held in treasury - at cost (3,254,043) (3,440,418)
--------------- -----------
Total stockholders' equity 16,832,598 14,709,479
-------------- ----------
Total liabilities and stockholders' equity $ 63,278,292 $ 86,922,196
============ ==============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-3
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
REVENUES
<S> <C> <C> <C>
Rent $ 7,301,926 $ 9,747,973 $ 10,280,548
Interest income 4,715,610 8,191,371 13,355,849
Revenue from management company operations 664,264 457,546 512,303
Tenant reimbursements 1,060,451 1,002,691 1,261,217
Management and reimbursement income 49,978 83,091 407,286
Percentage rent 332,243 414,875 450,423
Gain on sale of real estate and real estate related assets 5,507,817 5,617,844 316,061
Net gain on securities transactions 0 0 3,508,224
----------------- --------------- ---------
Total revenues 19,632,289 25,515,391 30,091,911
---------- ---------- ----------
EXPENSES
Master Lease expense 6,212,544 12,359,713 13,787,465
Interest expense 3,711,436 5,474,451 9,119,554
Depreciation and amortization 865,102 913,527 847,385
Valuation allowance on wraparound notes 0 0 2,590,132
Salaries, general and administrative 4,416,536 2,873,482 3,955,434
Property expenses 1,881,872 1,682,791 1,718,346
Expired extensions to land purchase contracts 1,232,659 0 0
Expenses for management company operations 940,828 1,031,690 1,304,166
Professional fees 924,371 1,273,555 921,394
Settlement fees 0 7,084,238 0
------------------ --------- ----------------
Total expenses 20,185,348 32,693,447 34,243,876
---------- ---------- -----------
Loss before income taxes and minority interest (553,059) (7,178,056) (4,151,965)
(Benefit) provision for income taxes (2,012,216) 1,253,056 (721,234)
----------- ------------ ------------
Net income (loss) before minority interest $ 1,459,157 $ (8,431,112) $ (3,430,731)
Minority interest in net loss of consolidated subsidiary 663,962 0 0
------------- ---------------- ----------------
Net income (loss) attributable to common stockholders $ 2,123,119 $ (8,431,112) $ (3,430,731)
============ ============= ==============
Income (loss) per common share, basic $ 0.50 $ (1.99) $ (0.82)
================= ================== ==================
Weighted average common shares outstanding, basic 4,260,417 4,235,245 4,206,550
============ ============== =============
Income (loss) per common share, diluted $ 0.43 $ (1.99) $ (0.82)
================= ================== ==================
Weighted average common shares outstanding, diluted 4,990,970
============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-4
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
For the Year Ended December 31, 1997
December 31, 1997
Net loss attributable to common stockholders $ (3,430,731)
---------
Other comprehensive loss, net of tax:
Unrealized gain on securities:
Unrealized gain arising during period
[net of tax provision of $1,404,624] 3,511,560
Less: Reclassification adjustment for gain
included in net income [net of tax
benefit of $1,404,624] (3,511,560)
---------
Other comprehensive loss 0
Comprehensive loss $ (3,430,731)
===========
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
Cost Cost Cost
Shares Cost Shares Cost Shares Cost
========================================== =========== ========== ============== ========== =========== =============
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,743,155 $47,433 3,182,184 $31,822 (692,591) $(3,440,418)
Conversion of preferred stock into common 162,804 1,627 (148,189) (1,481)
stock
Net loss for the year ended December 31, 1997 Realization of unrealized holding
loss - available-for-sale securities
Balance, December 31, 1997 4,905,959 49,060 3,033,995 30,341 (692,591) (3,440,418)
----------- ---------- -------------- ---------- ----------- -------------
Conversion of preferred stock into common 37,674 376 (34,288) (344)
stock
Reserve for preferred stock settlement repurchase Net loss for the year ended
December 31, 1998
Balance, December 31, 1998 4,943,633 $49,436 2,999,707 29,997 (692,591) (3,440,418)
----------- ---------- -------------- ---------- ----------- -------------
Cancellation of Series A Preferred Stock (2,983,284) (29,833)
Issuance of Treasury Stock 37,500 186,375
Net income for the year ended December 31,
1999
Balance, December 31, 1999 4,943,633 $49,436 16,423 $ 164 (655,091) $(3,254,043)
=========== ========== ============== ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
Additional Unrealized holding
paid in gain (loss) on Accumulated Stockholders'
Surplus available-for-sale deficit equity
========================================== ============== ================= ============== ==============
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $48,105,575 $(220,396) $(15,564,873) $28,959,143
Conversion of preferred stock into common (146) 0
stock
Net loss for the year ended December 31, 1997 (3,430,731) (3,430,731)
Realization of unrealized holding loss -
available-for-sale securities 220,396 220,396
Balance, December 31, 1997 48,105,428 0 (18,995,604) 25,748,807
-------------- ----------------- -------------- --------------
Conversion of preferred stock into common (32) 0
stock
Reserve for preferred stock settlement repurchase (2,608,216) (2,608,216)
Net loss for the year ended December 31, 1998 (8,431,112) (8,431,112)
Balance, December 31, 1998 45,497,180 0 (27,426,716) 14,709,479
-------------- ----------------- -------------- --------------
Cancellation of Series A Preferred Stock 29,833 0
Issuance of Treasury Stock (186,375) 0 0
Net income for the year ended December 31, 2,123,119 2,123,119
1999
Balance, December 31, 1999 $ 45,340,638 $ 0 $(25,303,597) $ 16,832,598
============== ================= ============== ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
MILESTONE PROPERTIES, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
------------------- ----------------- -----------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 2,123,119 $ (8,431,112) $ (3,430,731)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 865,102 913,527 847,385
Deferred taxes 700,903 1,064,288 (785,479)
Litigation and settlement fees 0 7,084,238 0
Valuation allowance on wraparound notes 0 0 2,590,132
Net gain on securities transactions 0 0 (3,508,224)
Gain on sale of real estate related assets (5,507,817) (5,617,844) (316,061)
Changes in operating assets and liabilities
Decrease in accounts receivable 245,443 453,070 94,996
Decrease (increase) in due from related party 80,983 (451,234) 207,242
Decrease in accrued interest receivable 2,491,143 3,280,096 1,181,358
Decrease (increase) in prepaid expenses and other 379,548 (671,355) (760,071)
Increase in deposits to purchase land (700,000) 0 0
Increase (decrease) in accrued expenses 81,276 450,648 (15,571)
Decrease in accrued litigation payable (8,078,298) 0 0
(Decrease) increase in accrued interest payable (158,673) 47,730 (880,825)
Decrease in Master Lease payable (5,016,894) (4,704,362) (807,787)
(Decrease) increase in income taxes payable (2,816,496) 14,377 (428,625)
Decrease in due to related party 0 0 (61,688)
------------------ --------------- -------------
Net cash used in operating activities (15,310,661) (6,567,933) (6,073,949)
---------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Principal repayments on loans receivable 73,971 68,302 171,841
Principal repayments on wraparound notes 3,850,399 5,190,630 4,578,169
Investment in wraparound notes 0 (108,838) (81,934)
Purchase of building and land (3,511,669) (18,515,000) (1,100,000)
Purchase of leasehold improvements (635,057) (484,209) (263,153)
Proceeds from realization of real estate related assets, net22,685,567 19,407,819 5,258,708
Proceeds from the sale of real estate assets 0 17,379,628 0
Proceeds from sale of available-for-sale securities 0 0 36,360,354
Proceeds from redemption of investments in preferred stock 445,500 1,783,100 1,730,833
Proceeds from redemption of reverse repurchase agreements 0 0 35,035,636
Purchase of treasury notes 0 0 (34,269,233)
------------------- ------------------ ------------
Net cash provided by investing activities 22,908,711 24,721,432 47,421,221
----------- ------------ ------------
</TABLE>
F-7
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from mortgages and notes payable 3,750,000 18,749,000 0
Principal payments on mortgages and notes payable (13,527,938) (38,511,435) (6,685,652)
Principal payments on loans payable 0 0 (23,829,335)
Amounts paid received on treasury notes payable 0 0 (316,887)
Amounts in restricted cash (1,614,156) 0 (222,000)
------------- --------------- ----------------
Net cash used in financing activities (11,392,094) (19,762,435) (31,053,874)
------------- --------------- ----------------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (3,794,044) (1,608,936) 10,293,398
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 11,826,301 13,435,237 3,141,839
------------- --------------- ----------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 8,032,257 $ 11,826,301 $ 13,435,237
============= ============== ================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for interest $ 3,870,109 $ 5,426,721 $ 10,000,379
============== ============== ================
Cash paid during the period for income taxes $ 100,272 $ 174,396 $ 854,429
============== =============== ================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES
At the close of business on March 5, 1999, the Company canceled and retired
2,983,284 shares of Series A Preferred Stock, $.01 par value, resulting in a
reduction of Preferred Stock and an increase in Additional Paid In Surplus of
$29,833. This transaction occurred pursuant to the terms of a court approved
settlement as discussed in Note 15. Legal Proceedings. Also, 37,500 shares of
Treasury Stock were issued at a cost of $4.97 per share to certain Non-Employee
Directors pursuant to the Company's 1999 Stock Incentive Plan resulting in a
reduction in Treasury Stock and Additional Paid In Surplus of $186,375. The
transaction is described in detail in Note 10. Capital Stock.
See Accompanying Notes to Consolidated Financial Statements
F-8
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Milestone Properties, Inc. ("Milestone"), directly and through its wholly owned
subsidiaries, is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets. Milestone, together with its subsidiaries, is hereinafter referred to as
the "Company".
Milestone was incorporated on November 30, 1989 under the laws of the state of
Delaware. On December 18, 1990, the Concord Milestone Income Fund, L.P. ("CMIF")
and Concord Milestone Income Fund II, L.P. ("CMIF II") (collectively, the
"Predecessor Partnerships") were merged with and into the Company. The Company
succeeded to the business and operations of the Predecessor Partnerships and the
partnership interests in the Predecessor Partnerships were converted into shares
of Milestone's common stock and preferred stock. In October 1995, the Company
entered into various agreements with affiliates of Concord Assets Group, Inc., a
New York Corporation ("Concord"), pursuant to which the Company acquired certain
real estate related assets for cash and approximately 2,545,000 shares of common
stock. See note 13 for a description of related party transactions with Concord.
2. Summary of Significant Accounting Policies
Business
The Company is primarily engaged in a single business industry, commercial real
estate, which involves the ownership, operation and management of 26 interests
in commercial real estate properties at December 31, 1999 consisting of (i)10
fee interests (the "Fee Properties") and (ii) wraparound notes (the "Wraparound
Notes") and wraparound mortgages (the "Wraparound Mortgages" and, together with
the Wraparound Notes, the "Wrap Debt") which are secured by 16 commercial real
properties (the "Underlying Properties" and, together with the Fee Properties,
the "Properties"). The Company is also the master lessee (the "Master Lessee")
under individual leases (the "Master Leases") on each of the Underlying
Properties. The Properties are located in 12 states. The Company also invests
directly in real estate and real estate related assets.
Principles of Consolidation and Minority Interest in Consolidated Subsidiary
The consolidated financial statements include the accounts of Milestone
Properties, Inc. and its subsidiaries. Inter-company accounts and transactions
have been eliminated in the consolidated financial statements. On May 1, 1999,
the Company began investing in joint venture partnerships ("JVs") with unrelated
third parties. The JVs contracted for the acquisition of land parcels in the
South Florida area. Minority investors owned approximately 12% of the JVs at
December 31, 1999. The ownership percentages changed throughout the investment
periods as additional capital was contributed. The minority investors'
proportionate share in the JVs after-tax results is shown in the accompanying
statements of revenues and expenses. The minority investors' interest in the
consolidated subsidiary is insignificant at year end.
F-9
<PAGE>
Basis of Accounting, Fiscal Year
The Company's records are maintained on an accrual basis of accounting for both
financial and tax reporting purposes. The Company's fiscal year is the calendar
year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. The carrying value of these
investments approximates fair market value. At times, cash balances held at
financial institutions were in excess of federally insured limits.
The Company has restricted cash of $222,000 at December 31, 1999, as a
compensating balance for a Letter of Credit related to a guarantee of
performance associated with the lease of office space for the Company's
corporate offices. Restricted cash is held in an interest bearing account and
becomes available for general operating purposes of the Company on December 31,
2000. Currently, no amounts are outstanding on the Letter of Credit. See note 15
for a description of the restricted cash for settlement at December 31, 1999.
Available-for-Sale Securities
Gains and losses relating to available-for-sale securities are excluded from
earning and reported as a separate component of stockholders' equity, net of tax
effect, until such amounts are realized through the sale or redemption of the
securities.
Property, Improvements and Equipment and Related Depreciation and Amortization
Properties are stated at cost, less depreciation computed on a straight-line
basis over their estimated useful lives of 26.5 - 50 years. The allocation of
costs between land and depreciable assets are based upon estimates made by
management. Building improvements and equipment are stated at cost and
depreciated on a straight-line basis using an estimated useful life of five
years. Leasehold improvements are amortized on a straight-line basis over the
lesser of the estimated useful life or the remaining term of the Master Lease.
Investment Allowances and Impairments
The Company assesses at least annually the probability that the amounts
collectible under the contractual terms of each Wraparound Note will equal or
exceed the carrying amount of such Wraparound Note. When management believes
that a Wraparound Note has been impaired, the Company measures impairment based
on the estimated fair value of the underlying properties, using internal
analysis and independent appraisals when necessary. For the years ended December
31, 1999, 1998 and 1997, the Company provided a valuation allowance of $0, $0
and $2,590,132, respectively.
F-10
<PAGE>
The Company individually reviews each of the Fee Properties for possible
impairment at least annually, and more frequently if circumstances warrant.
Impairment is determined to exist when estimated amounts recoverable through
future cash flows from operations on an un-discounted basis is less than the
property's carrying value. If a property is determined to be impaired, it is
written down to its estimated fair value to the extent that the carrying amount
exceeds the fair value of the property. No write downs for impairment of
property investments were recorded in 1999, 1998 and 1997.
The determination of impairment is based, not only upon future cash flows, which
rely upon estimates and assumptions including expense growth, occupancy and
rental rates, but also upon market capitalization and discount rates as well as
other market indicators. The Company believes that the estimates and assumptions
used are appropriate in evaluating the carrying amount of the Company's
Wraparound Notes and Properties. However, changes in market conditions and
circumstances may occur in the near term which would cause these estimates and
assumptions to change, which, in turn, could cause the amounts ultimately
realized upon the sale or other disposition of the Wraparound Notes and
Properties to differ materially from their carrying value. Such changes may also
require future write-downs.
Management Contract Rights and Debt Financing Costs
Management contract rights are being amortized over a period of twenty-five and
thirty years. The amortization for the management contract rights has been
accelerated for those agreements that are terminated prior to the expiration of
the initial lease term. Debt financing costs are being amortized over the life
of each respective loan.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" which
requires the recognition of deferred tax assets and liabilities at currently
enacted tax rates for the expected future tax benefits or consequences of events
that have been included in the financial statements and tax returns. Deferred
taxes are provided for the temporary differences between the tax basis of the
assets and liabilities and the amounts reported in the financial statements. A
valuation allowance is recognized, if necessary, to reduce the net deferred tax
asset to an amount that is more likely than not to be realized.
Income (loss) per Common Share
SFAS No. 128, "Earnings per Share," requires companies with complex capital
structures or common stock equivalents to present both basic and diluted
earnings per share ("EPS") on the face of the income statement. Basic EPS is
calculated as income available to common stockholders divided by the weighted
average number of common shares outstanding during the period. Diluted EPS is
calculated using the "if converted" method for convertible securities and the
treasury stock method for options prescribed by APB15, "Earnings per Share." In
certain circumstances, the conversion of stock options and Convertible Series A
Preferred Stock are excluded from diluted EPS if the effect of such inclusion is
anti-dilutive. The numerators of EPS computations are as reported in the
consolidated statements of revenues and expenses; the denominators include the
effects of common share equivalents of outstanding stock options and Convertible
Series A Preferred Stock which totals 4,990,970, 7,845,326 and 7,810,901
respectively, in 1999, 1998 and 1997.
F-11
<PAGE>
Comprehensive Income (Loss)
A statement of comprehensive income (loss) has not been presented for 1998 or
1999 as there are no items of other comprehensive income (loss) in those years.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas
and major customers. The Company's operations are within one reportable segment.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. We do not believe this will have a material effect on our
operations, when adopted.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1999
financial presentation.
F-12
<PAGE>
3. Acquisition and Disposition of Real Estate and Real Estate Related Assets
On November 12, 1999, a wraparound note held by the Company on a 45,000 square
foot shopping center property located in Southwick, Massachusetts (the
"Southwick Property"), was paid as a result of the sale of the Southwick
Property by its owner, an affiliate of the Company (the partnership that owned
the Southwick Property), to an unrelated third party. In connection with the
sale of the Southwick Property, the Company, as the master lessee on a Master
Lease on the Southwick Property, canceled the subject Master Lease. As a result
of the payment of the wraparound note, the Company realized net cash proceeds of
approximately $520,000 and recorded a book gain of approximately $514,000, in
the fourth quarter of 1999.
On October 21, 1999, five wraparound notes held by the Company on five separate
single-tenant commercial buildings (collectively the "Five Properties"), were
paid as a result of the sale of the Five Properties by their owners, affiliates
of the Company (the partnerships that owned the Five Properties) to unrelated
parties. In conjunction with the sale of the Five Properties, the Company, as
the master lessee on a Master Lease on the Five Properties, canceled the subject
Master Lease. The negotiated sales prices of the Five Properties aggregated
$12,500,000. As a result of the sale of the Five Properties, the payment of the
wraparound notes and the assumption of the underlying mortgage debt by the
buyers, the Company realized net cash proceeds of approximately $5,400,000 and
recorded a book gain of approximately $2,316,000 in the fourth quarter of 1999.
On July 30, 1999, a wraparound note held by the Company on a 31,170 square foot
single tenant commercial building located in Franklin, Pennsylvania (the
"Franklin Property"), was paid as a result of the sale of the Franklin Property
by its owner, an affiliate of the Company (the partnership that owned the
Franklin Property), to an unrelated third party. In connection with the sale of
the Franklin Property, the Company, as the master lessee on a Master Lease on
the Franklin Property, canceled the subject Master Lease. Of the gross proceeds,
$1,348,000 was used to defease the underlying bond debt. As a result of the
payment of the wraparound note, the Company realized net cash proceeds of
approximately $896,000 and recorded a book gain of approximately $1,527,000 in
the third quarter of 1999.
On April 27, 1999, a wraparound note held by the Company on a 52,700 square foot
shopping center property located in Baton Rouge, Louisiana (the "Baton Rouge
Property"), was paid as a result of the sale of the Baton Rouge Property by its
owner, an affiliate of the Company (the partnership that owned the Baton Rouge
Property), to an unrelated third party. In connection with the sale of the Baton
Rouge Property, the Company, as the master lessee on a Master Lease on the Baton
Rouge Property, canceled the subject Master Lease. Of the gross proceeds,
$1,896,208 was used to satisfy the underlying mortgage debt on the Baton Rouge
Property. As a result of the payment of the wraparound note and the satisfaction
of the underlying mortgage debt, the Company realized net cash proceeds of
approximately $2,043,000 and recorded a book gain of approximately $306,000 in
the second quarter of 1999.
On April 6, 1999, a wraparound note held by the Company on a 125,803 square foot
shopping center property located in Pascagoula, Mississippi (the "Pascagoula
Property"), was paid as a result of the sale of the Pascagoula Property by its
owner, an affiliate of the Company (the partnership that owned the Pascagoula
Property), to an unrelated third party. In connection with the sale of the
Pascagoula Property, the Company, as the master lessee on a Master Lease on the
Pascagoula Property, canceled the subject Master Lease. As a result of the
payment of the wraparound note, the Company realized net cash proceeds of
approximately $2,315,000 and recorded a book gain of approximately $845,000 in
the second quarter of 1999.
F-13
<PAGE>
On November 10, 1998, the Company completed the purchase of Lincoln Park, a
46,190 square foot strip mall located in Davie, Florida (Broward County), from
an unrelated third party for $3,840,000. In connection with the purchase, the
Company obtained a $3,219,000 first mortgage loan which bears interest at a rate
of 7.58% per annum. Such first mortgage requires monthly principal and interest
payments of $22,684 based upon a 30 year self liquidating amortization schedule,
with a balloon payment of approximately $2,854,000 due November 1, 2008.
On October 27, 1998, the Company completed the purchase of Pine Crest Square, a
40,408 square foot strip mall located in Fort Lauderdale, Florida (Broward
County), from an unrelated third party for $3,200,000. In connection with the
purchase, the Company obtained a $2,400,000 first mortgage loan which bears
interest at a rate of 7.0% per annum. Such first mortgage requires monthly
principal and interest payments of $15,967 based upon a 30 year self liquidating
amortization schedule, with a balloon payment of approximately $2,063,000 due
November 11, 2008.
On October 13, 1998, the Company completed the purchase of Mandarin Central, a
63,346 square foot strip mall located in Jacksonville, Florida (Duval County),
from an unrelated third party for $4,650,000. In connection with the purchase,
the Company obtained a $3,950,000 first mortgage loan which bears interest at a
rate of 8.0% per annum. Such first mortgage requires monthly principal and
interest payments of $28,984 based upon a 30 year self liquidating amortization
schedule, with a balloon payment of approximately $3,542,000 due October 1,
2008.
On October 1, 1998, a wraparound note held by the Company on a 285,655 square
foot shopping center property located in South Williamson, Kentucky (the "South
Williamson Property"), was paid as a result of the sale of the South Williamson
Property by its owner, an affiliate of the Company (i.e., the Partnership that
owned the South Williamson Property), to an unrelated third party. In connection
with the sale of the South Williamson Property, the Company, as the master
lessee on a Master Lease on the South Williamson Property, canceled such Master
Lease. The negotiated sales price of the South Williamson Property was
approximately $14,874,000 which included acquiring the property subject to the
$14,773,655 remaining balance of the underlying mortgage debt on the South
Williamson Property (which represented approximately 21% of Company's total
liabilities at such time). The wraparound note on the South Williamson Property
represented approximately 13% of the Company's total assets at such time. As a
result of the sale of the South Williamson Property, the payment of the
wraparound note and the satisfaction of the underlying mortgage debt, the
Company realized approximately $100,000 in cash and recorded a book gain of
approximately $4,197,000.
On September 21, 1998, a wraparound note held by the Company on a 35,496 square
foot shopping center property located in Vestivia Hills, Alabama (the "Vestivia
Hills Property"), was paid as a result of the sale of the Vestivia Hills
Property by its owner, an affiliate of the Company (i.e., the Partnership that
owned the Vestivia Hills Property), to an unrelated third party. In connection
with the sale of the Vestivia Hills Property, the Company, as the master lessee
on a Master Lease on the Vestivia Hills Property, canceled such Master Lease.
The negotiated sale price of the Vestivia Hills Property was approximately
$1,640,000. Of the gross proceeds, $722,638 was used to satisfy the underlying
mortgage debt on the Vestivia Hills Property (which represented approximately 1%
of the Company's total liabilities at such time). The wraparound note on the
Vestivia Hills Property represented approximately 3% of the Company's total
assets at such time. As a result of the sale of the Vestivia Hills Property, the
payment of the wraparound note and the satisfaction of the underlying mortgage
debt, the Company realized net cash proceeds of approximately $875,000 and
recorded a book gain of approximately $338,000.
F-14
<PAGE>
On September 11, 1998, the Company completed the purchase of Country Grove
Plaza, a 16,642 square foot strip mall located in West Palm Beach, Florida (Palm
Beach County), from an unrelated third party for $1,100,000. In connection with
the purchase, the Company obtained a $880,000 first mortgage loan which bears
interest at a rate of 7.51% per annum. Such first mortgage requires monthly
principal and interest payments of $6,159 based upon a 30 year self liquidating
amortization schedule, with a balloon payment of approximately $780,150 due
September 1, 2008.
On July 15, 1998, the Company completed the purchase of Teeca Plaza, a 22,589
square foot strip mall located in Boca Raton, Florida (Palm Beach County), from
an unrelated third party for $2,075,000. In connection with the purchase, the
Company obtained a $1,800,000 first mortgage loan which bears interest at a rate
of 7.39% per annum. Such first mortgage requires monthly principal and interest
payments of $12,450 based upon a 30 year self liquidating amortization schedule,
with a balloon payment of approximately $1,591,000 due July 1, 2008.
On July 7, 1998, the Company completed the sale of its Mountain View Mall
property located in Bend, Oregon (the "Bend Property") to an unrelated third
party for approximately $17,750,000. The Company realized cash net proceeds from
the sale of approximately $319,200, after paying off the balance of the
underlying first mortgage of $17,065,000 (which represented approximately 23% of
the Company's total liabilities at such time) and used a portion of the funds
for closing costs and net credits to the buyer. At the time of the sale, the
Bend Property represented approximately 17% of the Company's total assets with a
carrying value, net of accumulated depreciation, of approximately $16,482,000.
As a result of the sale, the Company recorded a book gain of approximately
$1,001,000.
On April 17, 1998, the Company completed the purchase of Orange Park Shopping
Center, a 21,509 square foot strip mall located in Orange Park, Florida (Clay
County), from an unrelated third party for $1,500,000. In connection with the
purchase, the Company obtained a $1,300,000 first mortgage loan which bears
interest at a rate of 7.39% per annum. Such first mortgage requires monthly
principal and interest payments of $8,992 based upon a 30 year self liquidating
amortization schedule, with a balloon payment of approximately $1,147,600 due
April 1, 2008.
On April 1, 1998, the Company completed the purchase of Regency Walk Shopping
Center, a 34,436 square foot strip mall located in Jacksonville, Florida (Duval
County), from an unrelated third party for $2,150,000. In connection with the
purchase, the Company obtained a $1,840,000 first mortgage loan which bears
interest at a rate of 7.87% per annum. Such first mortgage requires monthly
principal and interest payments of $13,335 based upon a 30 year self liquidating
amortization schedule, with a balloon payment of approximately $1,643,700 due
May 1, 2008.
On February 9, 1998, a wraparound note held by the Company on a 128,864 square
foot shopping center property located in Chili, New York (the "Chili Property"),
was assigned to an unrelated third party for $75,000. The Company, as the master
lessee on a Master Lease on the Chili Property, terminated such Master Lease on
April 30, 1996. The assignment of the wraparound note relieved the Company of
its responsibility to make any payments on the underlying mortgage debt on the
Chili Property. As a result of the assignment of the wraparound note on the
Chili Property and the relief of the Company's obligation to the underlying
mortgage debt, the Company realized net cash proceeds of approximately $75,000
and recorded a book gain of approximately $82,000.
From time to time the Company sells, or may take action to sell, certain real
estate assets which it does not believe to be material to the overall business
or financial condition of the Company.
F-15
<PAGE>
4. Investment in Land Ventures ("Ventures")
On May 1, 1999 and August 27, 1999, the Company made initial investments
of $262,469 and $46,762, respectively, in the Ventures, and the Ventures assumed
contracts to purchase certain land parcels in the South Florida area. The land
purchase contracts contain options to extend the closing date for an additional
fee. Subsequent to the initial investment, the Company has made additional
capital contributions of $2,693,224 to the Ventures. The consolidated financial
statements of the Company include the operating results for the Ventures from
the date of the Company's investments.
On December 29, 1999, the Ventures completed the purchase of a parcel of
land located in Miami, Florida (Miami-Dade County) from an unrelated third party
for $3,512,000. In connection with the purchase, a $2,000,000 first mortgage was
obtained which bears interest equal to 9.5% per annum which is effective for the
initial year of the term of the note. Interest on the subject note is payable
during the initial year in twelve consecutive monthly installments; thereafter,
the note requires twenty-three monthly payments of principal and interest
beginning in the thirteenth month of the note based upon a 25 year amortization
schedule. The note also requires a rate adjustment on the anniversary date of
the note equal to the base rate (prime rate) announced by Citibank, N.A., New
York, from time-to-time, plus one percent. A balloon payment of approximately
$1,974,000 is required at the end of year three of the mortgage.
The investments included in the Ventures at December 31, 1999 also
include deposits of $700,000 which will be applied to the purchase of land
parcels in the South Florida area. Additional capital contributions may be
required by the Company to service the costs associated with extending the
expiration dates of certain land purchase contracts. The cost of extending the
land purchase contracts will be expensed if they expire before the land is
purchased.
5. Property, Improvements and Equipment
Property, improvements and equipment at December 31, 1999 and 1998 consisted of
the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
============================================ ======================== ========================
<S> <C> <C>
Land $ 5,473,169 $ 1,961,500
Building 20,978,628 20,978,628
Leasehold improvements and equipment 1,330,885 1,015,162
----------- ---------
Total, at cost 27,782,682 23,955,290
Less: Accumulated depreciation (2,898,462) (2,437,406)
------------ ---------
Total, net $ 24,884,220 $ 21,517,884
============= =============
- -------------------------------------------- ------------------------ ------------------------
</TABLE>
6. Investment in Wraparound Notes
Investment in Wraparound Notes represents obligations due from limited
partnerships (the "Partnerships"). Certain directors and officers of the Company
are also directors, officers and controlling stockholders of the general partner
of each of the Partnerships. The original formation of the Partnerships
typically involved the purchase of a property by the Partnership for cash and
certain non-recourse promissory notes (the "Wraparound Notes"), payment of which
was secured by the purchased property (the "Underlying Property"). The related
Wraparound Notes were subordinate to the Underlying Property Mortgage Debt (the
"Underlying Debt"). The property was
F-16
<PAGE>
then leased back (the "Master Leases") from the Partnership for a fixed annual
rental fee. The Partnerships are obligated to make fixed payments of principal
and interest on certain Wraparound Notes. Such payments approximate the Master
Lease obligations. The Company is entitled to all rents under the tenant
operating leases and is required to satisfy all other landlord obligations. The
payments received by the Company from the tenants are used to make the Master
Lease payments to the Partnerships.
Upon the sale of an Underlying Property, proceeds are initially applied to
satisfy the Underlying Debt, and the balance, to the extent proceeds are
available, is divided between a preferred return to the Partnership's limited
partners and then repayment of the Wraparound Note.
Each of the Wraparound Notes gives the Company a lien on the Underlying Property
as well as the Partnership's interest in the Master Lease. The Wraparound Notes
are subordinate to the Underlying Debt. The Wraparound Notes have maturities
ranging from 2000 to 2015. The scheduled principal receipts of the Wraparound
Notes are as follows (dollar amounts in thousands):
Year Ending December 31st:
=====================================
2000 $13,736
2001 178
2002 196
2003 215
2004 237
Thereafter (a) 4,080
-----------------
Total $18,642
=================
a - Excludes $7,575 of the original issue discount.
The following schedule depicts Wraparound Notes which are subordinate to the
Underlying Debt on such properties:
<TABLE>
<CAPTION>
Face Amount
Closing Interest Final of Mortgage Carrying Amount of Interest Due
Location Date Rate (%) Maturity Date Loans Mortgage Loans and Accrued
===================== ============= =========== ============== =============== ==== ===================== ===============
<S> <C> <C> <C> <C> <C> <C>
Deland, FL 10/23/95 9.70 6/30/00 $1,904,659 $1,386,963 $193,192
Rochester, NY 10/23/95 9.70 12/31/14 1,708,137 1,426,983 174,192
10.00 12/31/14 183,567 130,625 0
Janesville, WI 10/23/95 10.25 12/31/15 2,100,380 1,361,406 225,760
02/11/98 11.00 12/31/15 16,584 15,000 0
No. Canton, OH 10/23/95 9.11 12/31/14 2,747,434 2,080,901 260,968
10/23/95 11.00 12/31/14 37,589 26,575 0
10/15/96 11.00 12/01/14 32,385 25,650 0
Quincy, IL 10/23/95 10.00 12/31/98 4,903,590 a 1,156,057 0
Natchez, MS 10/23/95 10.00 05/01/08 3,091,460 a 840,595 89,495
Sandy, PA 10/23/95 10.00 6/30/00 2,387,007 a 811,425 85,028
Montgomery, AL 10/23/95 9.75 6/30/00 2,112,637 802,335 215,444
Paris, TN 10/23/95 10.00 6/30/00 2,935,475 1,122,807 307,388
10/23/95 11.00 6/30/00 74,163 51,016 0
Savannah, TN 10/23/95 9.88 12/31/99 1,079,560 352,116 111,572
Danville, IL 10/23/95 9.75 6/30/00 1,668,565 704,196 170,154
Warsaw, VA 10/23/95 9.75 12/31/99 1,338,084 981,167 136,460
Walpole, NH 10/23/95 9.75 12/31/99 1,311,402 897,379 133,731
Palatka, FL 10/23/95 9.75 12/31/99 2,114,078 1,432,915 215,597
12/09/98 11.00 12/31/99 27,687 24,650 0
Columbus, NE 10/23/95 9.75 6/30/00 2,309,380 2,044,449 235,507
Hamilton, NY 10/23/95 9.75 12/31/99 1,370,885 966,643 139,801
--------- ------- -------
Totals $35,454,708 $18,641,853 $2,694,289
========== ========== =========
- --------------------- ------------- ----------- -------------- --------------- ---- --------------------- ---------------
</TABLE>
a - Includes discount elements totaling in aggregate $7,575,000.
F-17
<PAGE>
The following schedule represents a roll forward of Wraparound Notes for the
years ended December 31, 1999 and 1998:
1999 1998
=================================== ================= =========================
Beginning balance $ 39,529,787 $ 59,402,931
Investment in wraparound notes 0 108,838
Principal repayments (3,782,763) (5,190,630)
Notes satisfied from property sales (17,105,171) (14,791,352)
Valuation allowance 0 0
------------------ --------------------
Ending balance $ 18,641,853 $ 39,529,787
============= =============
- ----------------------------------------------------- -------------------------
On February 25, 2000, a wraparound note held by the Company on a 138,954 square
foot shopping center located in Quincy, Illinois (the "Quincy Property"), was
terminated as a result of a foreclosure sale by the bank (the holder of the
Underlying Debt). The Company had previously terminated, by written notice, the
Master Lease associated with the Quincy Property as of December 31, 1998. As a
result of the foreclosure sale by the bank of the Quincy Property and the
termination of the Wraparound Note and the Underlying Debt, the Company will
record a book gain of approximately $1,727,000 in the first quarter of 2000 but
received no cash proceeds.
The maturity dates of the remaining Wraparound Notes and Wraparound Mortgages
currently held by the company range through December 2015, of which seven
Wraparound Notes and Wraparound Mortgages will mature on June 30, 2000 (the
"Maturing Wrap Debt"). The Maturing Wrap Debt was due to expire on December 31,
1999, however, the Company granted a six month extension to allow each
applicable Partnership of the respective Maturing Wrap Debt issued by such
Partnership to make payment. In order for each such Partnership to make such
payment, one of the following events may occur: (i) the Partnership may sell the
Underlying Property securing the respective Maturing Wrap Debt, (ii) the
Company, as the holder of the Maturing Wrap Debt, may obtain ownership of the
Underlying Property securing Maturing Wrap Debt in lieu of payment on the
Maturing Wrap Debt via foreclosure sale or (iii) the Company has the option to
extend the Maturing Wrap Debt to a for subsequent six month periods.
F-18
<PAGE>
7. Investment in Preferred Stock
In connection with a February 1997 merger between Union Properties Investors,
Inc. and a wholly owned subsidiary of Kranzco Realty Trust, a Maryland real
estate investment trust ("Kranzco"), the Company became the owner of 356,400
shares of Kranzco's Series C Cumulative Redeemable Preferred Shares (the
"Kranzco Series C Shares").
The Company, as the holder of 44,550 unredeemed shares of Kranzco Series C
Shares as of December 31, 1998, was entitled to receive from the redemption of
such shares, in one installment, an aggregate amount of cash equal to
approximately $445,500, plus interest at the rate of 8% per annum on the
applicable outstanding balance of such shares. Such final redemption payment,
made in February 1999, liquidated the Company's holdings of Kranzco Series C
Shares.
8. Leases
As Lessor
The Properties have a gross leaseable area of approximately 1,551,640 and
2,218,645 square feet of which approximately 94% and 96% was leased as of
December 31, 1999 and 1998, respectively.
Minimum base rental income under tenant lease agreements relating to the
Properties having remaining lease terms ranging from one to 32 years at December
31, 1999 is as follows (dollars amounts in thousands):
Year Ending December 31st:
====================================
2000 $ 5,289
2001 4,174
2002 3,143
2003 2,148
2004 1,630
Thereafter 3,842
----------
Total $ 20,226
========
- ----------------- ------------------
For the years ended December 31, 1999, 1998 and 1997, no tenant at any
individual property accounted for more than 10% of the Company's total revenue.
However, the total revenue from K- mart Corporation's nine leases with the
Company accounted for approximately 30%, 29% and 32%, respectively, of the
Company's aggregate rent revenue.
As Lessee
Minimum rental expense under the Master Leases, having original lease terms
ranging from 2000 to 2016, at December 31, 1999 is as follows (dollar amounts in
thousands):
Year Ending December 31st:
====================================
2000 $ 1,503
2001 823
2002 823
2003 823
2004 823
Thereafter 8,806
---------
Total $ 13,601
========
- ----------------- ------------------
F-19
<PAGE>
Although the Company's lease payments are not contingent upon receiving rent
from the Properties, such payments are expected to be made from such receipts
and the receipt of interest and principal payments from the Wraparound Notes.
On December 31, 1998, the Master Lease on the property located in Quincy,
Illinois (the "Quincy Property") expired. As a result of such Master Lease
expiration, the Company, as the tenant under such Master Lease, assigned all of
its rights, title and interests in the Quincy Property to Quincy Plaza
Associates, the landlord under such Master Lease and Quincy Plaza Associates
assumed all of the Company's related obligations under such Master Lease.
On December 31, 1998, the Master Lease on the property located in Natchez,
Mississippi (the "Natchez Property") expired. As a result of such Master Lease
expiration, the Company, as the tenant under such Master Lease, assigned all of
its rights, title and interests in the Natchez Property to Quincy II Plaza
Associates, the landlord under such Master Lease and Quincy II Plaza Associates,
assumed all of the Company's related obligations under such Master Lease.
The expiration dates of the nine Master Leases currently held by the Company
range from June 2000 to December 2015, of which six Master Leases expire on June
30, 2000 (the "Expiring Master Leases"). The Expiring Master Leases were due to
expire on December 31, 1999, however, a six month extension was granted. As a
result of the Expiring Master Leases, the Company, as the tenant under such
Expiring Master Leases, may (i) assign all of its rights, title and interests in
the Underlying Properties subject to the respective Expiring Master Leases to
the applicable Partnership that is the landlord under the Expiring Master Leases
and such Partnership may assume all of the Company's related obligations under
the respective Expiring Master Leases or (ii) has the option to extend such
Expiring Master Leases for subsequent six month periods.
9. Mortgages and Notes Payable
The mortgages and notes payable are non-recourse to the Company and are
collateralized by the Properties. The scheduled principal payments of the
mortgages and notes payable at December 31, 1999 are as follows (dollar amounts
in thousands):
Year Ending December 31st:
====================================
2000 $ 4,203
2001 2,420
2002 3,788
2003 1,535
2004 1,181
Thereafter 25,072
--------
Total $ 38,199
========
- ----------------- ------------------
The interest rates on the mortgages and notes payable range from 7.00% to 13.5%.
The mortgage and notes payable and related terms at December 31, 1999 for the
Properties are summarized as follows (dollar amounts in thousands, except as
noted):
F-20
<PAGE>
<TABLE>
<CAPTION>
Underlying Monthly Payment
Debt at Interest Provisions (Actual Maturity
Location 12/31/99 Rate (%) Dollars) Date (2)
==================== ============== =============== ================== =============
<S> <C> <C> <C> <C>
Deland, FL $740 8.875 $14,016 4/1/03
Rochester, NY 971 9.250 15,992 1/1/02
Janesville, WI 816 9.00 14,060 7/31/02
101 9.00 1,529 8/1/07
No. Canton, OH 1,970 9.00 21,669 9/30/12
Quincy, IL 2,883 7.75 27,912 (4) 7/1/98
Natchez, MS 2,172 7.59 15,519 5/1/08
Sandy, PA 1,285 7.00 (1) 12/1/06
Montgomery, AL 1,142 8.75 14,500 4/1/07
Paris, TN 530 13.50 8,859 4/1/08
309 9.25 8,467 7/1/03
Savannah, TN 216 9.50 6,612 1/31/03
Danville, IL 321 9.625 9,663 9/1/02
Warsaw, VA 752 13.125 11,373 10/1/09
Walpole, NH 732 11.50 9,857 9/1/09
Sunrise, FL 1,146 7.48 8,095 5/1/08
Jacksonville, FL 1,818 7.87 13,335 5/1/08
Orange Park, FL 1,283 7.39 8,992 4/1/08
Boca Raton, FL 1,780 7.39 12,450 7/1/08
West Palm Beach, 872 7.51 6,159 9/1/08
FL
Jacksonville, FL 3,919 8.00 28,984 10/1/08
Ft. Lauderdale, FL 2,373 7.00 15,967 11/11/08
Davie, FL 3,193 7.58 22,684 11/1/08
Miami, FL 2,000 9.50 (3) 12/1/02
Palatka, FL 1,055 12.00 17,247 11/1/07
Columbus, NE 1,263 12.00 17,201 9/1/10
59 9.50 697 7/1/11
Hamilton, NY 758 13.125 11,373 12/1/09
Zanesville, OH 1,740 8.16 13,693 6/1/09
-------
Total $ 38,199
========
</TABLE>
(1) Principal and interest are paid semi annually in accordance with the
bond documents.
(2) Certain mortgages and notes contain various terms regarding
prepayment penalties.
(3) Interest only during year 2000, monthly payments of approximately
$17,500 in year 2001 and 2002 dependant on a floating interest rate
of bank prime plus one percent.
(4) The mortgage was terminated as a result of a foreclosure sale on
February 25, 2000. See Note 16 Subsequent Events.
F-21
<PAGE>
The Company estimates the fair value of its long term fixed rate mortgage loans
generally using discounted cash flow analysis based on the Company's current
borrowing rates for similar types of debt. At December 31, 1999, the fair value
of the mortgage loans was estimated to be $37,251,323 compared to a carrying
value amount of $38,199,191.
The following schedule represents a reconciliation of the mortgages and notes
payable for the years ended December 31, 1999 and 1998:
1999 1998
=================================== =================== ==================
Balance at January 1st $ 47,977,129 $ 67,739,564
Principal repayments (13,527,938) (38,511,435)
Proceeds from loans 3,750,000 18,749,000
------------- ----------
Balance at December 31st $ 38,199,191 $ 47,977,129
============= =============
- ----------------------------------- ------------------- ------------------
10. Capital Stock
Common and Preferred Stock
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock at December 31, 1999 and 1998 and 1,000,000 and 10,000,000 shares
of Series A Preferred Stock at December 31, 1999 and 1998.
The shares of Common Stock are entitled to one vote per share. The Series A
Preferred Stock has limited voting rights. The Series A Preferred Stock has a
$10.00 liquidation preference and has a preferential right to receive a
quarterly dividend of $0.195 per share before dividends can be paid on the
Common Stock.
At the close of business on March 5, 1999, Milestone canceled and retire
2,983,284 shares of its Series A Preferred Stock, representing greater than 99%
of the then outstanding shares of Series A Preferred Stock, pursuant to the
terms of a court approved settlement of a purported class action and derivative
lawsuit brought against Milestone, certain of its past and present members of
its Board of Directors and executive officers, and Concord. See Note 15, Legal
Proceedings.
On December 21, 1995, the conversion ratio for the Series A Preferred Stock was
adjusted to provide for the receipt of one share of Common Stock upon the
conversion of .91 shares of Series A Preferred Stock. Previously, the conversion
ratio was 1.6 shares of Series A Preferred Stock for one share of Common Stock.
The new conversion ratio, which was effective as of November 1, 1995, was
determined pursuant to the Certificate of Designations for the Series A
Preferred Stock.
After September 30, 1995, holders of the Series A Preferred Stock having a
liquidation preference of $10.00 per share, were no longer entitled to receive
dividends on a cumulative basis. Pursuant to the Certificate of Designations of
the Series A Preferred Stock, after such date, no cash dividend may be paid on
the Common Stock unless full dividends of $0.195 per share on all outstanding
shares of Series A Preferred Stock for the then current quarterly dividend
period are declared and
F-22
<PAGE>
either paid or sufficient sums for the payment thereof are set apart. As a
result of Milestone's Board of Directors' determination not to declare a
dividend for the quarter ended June 30, 1997, which was the sixth consecutive
quarter for which no dividend was declared, the number of persons entitled to
serve as directors on Milestone's Board of Directors was increased by one, and
the holders of the Series A Preferred Stock, who, at that date, only elected one
member of the Board of Directors, were entitled to elect a second member of the
Board of Directors to fill such newly created directorship. Any decision as to
the future payment of dividends on the Series A Preferred Stock will depend on
the results of operations and the financial condition of the Company and such
other factors as Milestone's Board of Directors, in its discretion, deems
relevant.
Milestone's Board of Directors determined not to declare any dividends on the
Series A Preferred Stock for the years ended December 31, 1999 and 1998. The
last dividend declared by the Company was for the quarter ended December 31,
1995 and was paid on February 15, 1996 at $0.195 per share of Series A Preferred
Stock.
Stock Options
In May 1994, the Common Stockholders approved the adoption of the 1993 Employee
Stock Option Plan (the "Employee Stock Option Plan"). The total number of shares
of Common Stock which may be issued pursuant to the exercise of options granted
under the Employee Stock Option Plan is 300,000. The Compensation Committee of
the Board of Directors (the "Compensation Committee") made initial grants in
December 1993 under such plan totaling 146,000 options (the "Initial Grant")
which are exercisable for 146,000 shares of Common Stock at a per option
exercise price of $4.75. In June 1997, the Compensation Committee canceled the
Original Issue and reissued 146,000 options which are exercisable for 146,000
share of Common Stock at a per option exercise price of $0.50. At the same time,
the Compensation Committee granted 154,000 options which are exercisable for
154,000 shares of Common Stock at a per option exercise price of $0.50. During
June 1999, the Company repurchased 222,200 options to purchase shares of the
Company's common stock, par value $.01 per share from certain executives of the
Company for approximately $650,000, representing the excess of the current
market price of the Common Stock over the exercise price of the options. Options
granted under the Employee Stock Option Plan expire on the tenth anniversary of
the date of their grant, or upon termination of the grantee's employment with
the Company. During the years ended December 31, 1999, 1998, 1997, zero, zero
and 23,800 such options were canceled upon resignation of an employee,
respectively.
In May 1994, the Common Stockholders also approved the adoption of the 1993
Non-Employee Director Stock Option Plan (the "Non-Employee Director Stock Option
Plan"). Options granted under such plan expire on the tenth anniversary of the
date of their grant, or upon the grantee's removal or resignation from the Board
of Directors. The exercise price for each option granted under the Non-Employee
Director Stock Option Plan is determined by averaging the high and low trading
prices of the Common Stock as reported on either the New York Stock Exchange
(through September 10, 1998) or the Over-The-Counter Bulletin Board (effective
September 11, 1998) on the date of such options. Under the Non-Employee Director
Stock Option Plan, the Company granted 2,500 options to each non-employee
director in each of 1993 (upon adoption of the plan), 1994, 1995, 1996 and 1997,
at a per option exercise price of $4.75, $4.375, $1.375, $1.6875 and $0.50,
respectively. During 1999, Milestone's Board of Directors approved the
cancellation of the options to purchase 12,500 shares of Common Stock held by
each Non-Employee Director. The cancellation
F-23
<PAGE>
of the 12,500 options coincided with Milestone's Board of Directors approval of
the granting of 12,500 shares of Common Stock to each of the Non-Employee
Directors pursuant to the Company's 1999 Stock Incentive Plan. The 12,500 shares
of Common Stock issued to each Non-Employee Director were issued from the
Company's Treasury Stock.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS" No. 123"), requires expanded disclosure of stock based
compensation arrangements with employees, and encourages, but does not require
compensation cost be measured based on the fair value of the equity instrument
awarded. Companies are permitted to continue to apply Accounting Principles
Board Opinion No. 25 ("APB 25"), which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company uses APB 25 for
its stock based compensation awards. Accordingly, no compensation costs related
to employee options have been recognized in the consolidated financial
statements of the Company.
No options were exercised and no additional options were granted during the
years ended December 31, 1999 and 1998. During 1999, 37,500 options were
canceled, so as of December 31, 1999, 54,000 options remain outstanding. The pro
forma disclosure provisions of SFAS No. 123 for the year ended December 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
============================ ================= ====================== ================== ======================
<S> <S> <C> <C> <C>
Net Income (loss) As Reported $2,123,119 $(8,431,112) $ (3,430,731)
Pro Forma 2,092,403 (8,460,946) (3,443,748)
Income (loss) per As Reported $0.50 $ (1.99) $ (0.82)
Common Share, basic Pro Forma 0.49 (1.93) (0.79)
- ---------------------------- ----------------- ---------------------- ------------------ ----------------------
</TABLE>
For the purposes of providing pro forma disclosures, the fair value of options
granted in 1997 were estimated using the Black Scholes options pricing model
with the following weighted average assumption; (i) a risk free interest rate of
5.24%, (ii) an expected life of one year, (iii) volatility of 52.20% and (iv) no
dividends. The estimated fair value compensation cost of the related options was
amortized to expense over the options' vesting period.
Certain information relating to the options under the Employee Stock Option Plan
and the Non- Employee Director Stock Option Plan during the years ended December
31, 1999, 1998 and 1997 are as follows:
F-24
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
============================== ================================ ==============================
Number Weighted Number Weighted Number Weighted
of Average of Average of Average
Options Exercise Options Exercise Price Options Exercise
Price Price
=================================== ============== =============== ============= ================== ============== ===============
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1st 313,700 $ 0.74 313,700 $ 0.74 176,000 $ 4.46
Granted 0 n/a 0 n/a 307,500 0.50
Exercised 0 n/a 0 n/a 0 n/a
Repurchased (222,200) n/a 0 n/a 0 n/a
Canceled (37,500) n/a 0 n/a 0 n/a
Forfeited 0 n/a 0 n/a (169,800) 4.15
-------------- ------------ ----------
Outstanding at December 31st 54,000 $ 0.50 313,700 $ 0.74 313,700 $ 0.74
========== ======= ==========
Options exercised at December 31st 0 0 0
- ----------------------------------- -------------- ------------- ------------- ------------------ -------------- ---------------
</TABLE>
11. Income Taxes
The provision for income taxes for the years ended December 31, 1999, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
=============================================== ================== ================= ================
Current Tax:
<S> <C> <C> <C>
Federal $ (2,822,856) $ 0 $ 0
State and Other 109,740 188,768 64,245
------------ ---------- --------
Total Current Tax (2,713,116) 188,768 64,245
Deferred Tax:
Federal 595,765 904,645 (667,657)
State and Other 105,135 159,643 (117,822)
------------ ---------- ---------
Total Deferred Tax 700,900 1,064,288 (785,479)
---------- --------- ---------
Total (benefit) provision for income taxes $ (2,012,216) $ 1,253,056 $ (721,234)
============= =========== =============
- ----------------------------------------------- ------------------ ----------------- ----------------
</TABLE>
Temporary differences between the amount reported in the consolidated financial
statements and the tax basis of assets and liabilities result in deferred taxes.
There was an increase in the valuation allowance for deferred tax assets of $0
and $ 4,953,862 for the years ended December 31, 1999 and 1998, respectively.
Realization of the deferred tax asset is dependent, in part, on generating
sufficient taxable income in the future. Although such realization is not
assured, the Company believes that it is more likely than not that the deferred
tax asset not allowanced will be recognized. Should estimates of future taxable
income be reduced the deferred tax asset valuation allowance would be adjusted
accordingly. The Company has a federal tax net operating loss carry forward of
approximately $12,602,000 at December 31, 1999. Deferred tax assets and
liabilities at December 31, 1999, 1998 and 1997 are as follows:
F-25
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
============================================================== ================= ================= =================
Deferred Tax Assets:
<S> <C> <C> <C>
Acquisition Costs $ 329,492 $ 880,345 $ 1,025,222
Principal amortization on Wraparound Notes 3,229,583 1,408,957 2,000,385
Allowance on Wraparound Notes 529,967 1,380,811 1,380,811
Net Operating Loss Carryforward 4,369,331 4,953,862 0
Other 5,468 613,697 880,897
------------ -------- -------
Gross Deferred Tax Assets 8,463,841 9,237,672 5,287,315
Less: Valuation Allowance (5,968,862) (5,968,862) (1,015,000)
--------- ---------- -----------
Deferred Tax Asset, net of valuation allowance 2,494,979 3,268,810 4,272,315
--------- ---------- ---------
Deferred Tax Liabilities:
Accelerated depreciation 201,812 274,740 213,957
---------- ----------- --------
Gross deferred tax liabilities 201,812 274,740 213,957
--------- ----------- -------
Net deferred tax asset $ 2,293,167 $ 2,994,070 $ 4,058,358
========== ========== ==========
- -------------------------------------------------------------- ----------------- ----------------- -----------------
</TABLE>
The (benefit) provision for income tax differs from the amount obtained by
applying the statutory federal income tax rate to pre-tax losses for the
following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
====================================================================== =============== ============= ===========
<S> <C> <C> <C>
Statutory rate (benefit) on pre-tax loss (35.0)% (35.0)% (35.0)%
Increase (decrease) in taxes:
From State and other taxes net of Federal tax benefit 15.7 2.4 2.1
Valuation allowance 0 69.0 15.5
Decrease (Increase) of NOL 141.8 (34.0) 0.0
Basis difference on asset dispositions 34.6 14.0 0.0
Reversal of prior year provision (512.1) 0.0 0.0
Tax/book depreciation and other (8.8) 1.1 0.0
------- ------ -------
Total (363.8)% 17.5% (17.4)%
======== ======= =======
- ---------------------------------------------------------------------- --------------- ------------- -----------
</TABLE>
During 1999, the wraparound notes held by the Company on the nine properties
sold during the year as described in note 3 were satisfied. Relating to such
wraparound notes, the Company had previously recorded deferred tax assets. The
realization of the deferred tax assets relating to the wraparound notes was a
non-cash tax adjustment. Also, in prior years, the Company recorded currently
payable income taxes which the Company no longer believes is a necessary
liability, and it reversed these accruals, amounting to approximately $2,800,000
in the fourth quarter of 1999. The reversal of these accruals reduced the 1999
income tax provision, but did not affect cash or liquidity. As a consequence of
the above, the Company's effective tax rate for December 31, 1999 is
significantly different from the expected federal tax benefit rate of 35%.
12. Fair Value of Financial Instruments
The following estimated fair values were determined by the Company using
available market information and valuation methodologies considered appropriate
by management. However,
F-26
<PAGE>
considerable judgement is necessary to interpret and apply market data to
develop specific fair value estimates for given financial instruments, and the
use of different market assumptions and/or estimation methodologies could have a
material effect on reported fair value amounts. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that could be
realized upon disposition of the Company's financial instruments.
Cash and cash equivalents, accounts and loan receivables and accounts payable
and accrued expenses are reflected in the consolidated balance sheets at amounts
considered by management to reasonably approximate fair value due to their short
term nature. The Company estimates the fair value of its long term fixed rate
mortgage loans generally using discounted cash flow analysis based on the
Company's current borrowing rates for similar types of debt. At December 31,
1999 and 1998, the aggregate carrying value of the notes and mortgages payable
as compared to the aggregate fair value of such instruments was not
significantly different.
The fair value of the Wraparound Notes has been estimated by management based on
the estimated fair value of the Underlying Properties. At December 31, 1999 and
1998, the fair value of the Wraparound Notes was estimated to be $35,454,708 and
$62,802,981, compared to a carrying value amount of $18,641,853 and $39,529,787,
respectively.
The fair value estimates presented herein are based on information available as
of December 31, 1999 and 1998. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts, a
comprehensive re-evaluation of all of the Properties has not been performed for
purposes of these financial statement disclosures.
13. Related Party Transactions
The Company is party to a management agreement (the "Management Agreement") with
Concord pursuant to which the Company provides management services, assists in
the management of Concord properties, provides certain personnel and office
space and general office services to Concord which the Company receives
reimbursements from Concord. The Management Agreement is renewable annually. For
the years ended December 31, 1999, 1998 and 1997 reimbursed expenses to the
Company were $54,547, $215,684 and $338,394, respectively.
As of December 31, 1999 and 1998, the Company had recorded receivables from
Concord of $520,669 and $598,765, respectively. Such receivables consist of
management fees due to the Company and expenses for general office services as
well as salary reimbursements.
Concord is wholly owned by Leonard S. Mandor and Robert A. Mandor, both of whom
are executive officers and directors of Concord and the Company, and both of
whom may be deemed to beneficially own more than a majority of the voting stock
of the Company.
Concord beneficially owns 2,901,098 shares of Common Stock at December 31, 1999
and 1998. The wholly owned subsidiaries of Concord own 2,698,765 shares, and the
two limited partnerships, whose sole general partners are the wholly owned
subsidiaries of Concord, own 202,333 shares at December 31, 1999 and 1998.
F-27
<PAGE>
The Company sublet a portion of its leased office space and shares certain
overhead expenses with Tristone Partners, Inc. ("Tristone") Leonard S. Mandor
and Robert A. Mandor, both of whom may be deemed to beneficially own more than a
majority of the voting stock of the Company, are majority owners of Tristone. At
December 31, 1999 and 1998, the Company had recorded receivables from Tristone
of $103,018 and $25,500, respectively.
In addition, the Company received property management fees of $128,904, $132,388
and $107,725 during 1999, 1998 and 1997, respectively, from a partnership whose
general partner is an affiliate of the Company.
14. Commitments and Contingent Liabilities
The Company's office facility in Boca Raton, Florida is subject to a
noncancellable five year operating lease agreement commencing January 1, 1998
and expiring December 31, 2002. Aggregate annual rental payments for the year
ended December 31, 1999, 1998 and 1997 for the Company were $183,479, $176,374
and $758,193, respectively. Future minimum annual payments under the
noncancellable operating lease agreement, as of December 31, 1999, are as
follows:
Year Ending December 31st:
=====================================
2000 190,805
2001 198,421
2002 206,358
-------
Total $ 595,584
=========
- ------------------ -----------------
The Company has accrued performance related bonuses to certain executive
officers in the amount of $1,187,038 and $486,041 for the years ended December
31, 1999 and 1998, respectively.
As of December 31, 1998, the Company had accrued for litigation expenses and
settlement fees relating to a class action and derivative lawsuit brought
against the Company. Such settlement required, among other things, (i) the
payment of $3.00 in cash in exchange for each eligible share of Series A
Preferred Stock required to be surrendered as of the close of business on March
5, 1999 and (ii) the plaintiffs attorney fees not to exceed $750,000. See note
15. Legal Proceedings for additional information regarding the class action and
derivative lawsuit.
Under various federal, state and local environmental laws, ordinances and
regulations, the Company, as a current or previous owner or operator of real
property, may be held liable for the costs of removal or remediation of certain
hazardous or toxic substances, including, without limitations,
asbestos-containing materials, that could be located on, in or under such
property. Such laws and regulations often impose liability whether or not the
owner or operator knew of, or was responsible for, the presence of the hazardous
or toxic substances. The costs of any required remediation or removal of these
substances could be substantial and the Company's liability as an owner or
operator as to any property is generally not limited under such laws and
regulations, and could exceed the property's value and the Company's aggregate
assets. The Company's ability to sell or rent a property, or to borrow using a
property as collateral may be adversely affected by the presence of these
substances or failure to remediate such substances properly. Under these laws
and regulations, the Company, as an owner, operator, or any entity who arranges
for the disposal of hazardous or toxic substances, such as asbestos-containing
materials, at a disposal site, may also be liable for these
F-28
<PAGE>
costs, as well as certain other costs, including governmental fines and injuries
to persons or properties. To date, the Company, has not incurred any costs of
removal or remediation of such hazardous or toxic substances. However, the
presence, with or without the Company's knowledge, of hazardous or toxic
substances at any property held or operated by the Company, could adversely
affect the Company's business, operating results and financial condition. The
Company is not aware of any environmental conditions at any of the properties
that it owns or in which it has an investment.
15. Legal Proceedings
As previously reported, during 1996 Milestone, certain past and present
members of its Board of Directors and executive officers, and Concord Assets
Group, Inc. ("Concord"), a New York Corporation, were named as defendants in a
purported class action and derivative lawsuit (the "Winston Actions") commenced
in the Court of Chancery of the State of Delaware (the "Delaware Court"). In the
Winston Actions, the plaintiff, a Series A Preferred Stockholder purporting to
bring the action on behalf of himself, all other Series A Preferred Stockholders
and derivatively on behalf of Milestone, alleged that in connection with
Milestone's acquisition in October 1995 of certain wraparound notes, wraparound
mortgages and fee properties from certain affiliates of Concord and certain
related transactions (collectively, the "Transactions"), Milestone and its
directors engaged in self-dealing, violated federal securities laws and an
injunction against such violations and breached their fiduciary duties to the
Series A Preferred Stockholders. The plaintiff claimed, among other things,
that, as a result of the Transactions, Milestone would not have sufficient funds
to pay dividends on the Series A Preferred Stock and that the properties which
were not transferred to Union Properties Investors, Inc. ("UPI"), a then
wholly-owned Delaware subsidiary of Milestone, in the Transfer were grossly
inferior to the properties that were transferred to UPI.
On August 5, 1998, the counsel for the named plaintiff in the Winston
Actions and the counsel for the defendants entered into a Stipulation and
Agreement of Settlement (the "Winston Settlement Agreement") which memorialized
the terms of a settlement (the "Winston Settlement") of the Winston Actions. On
January 28, 1999, the Delaware Court approved the Winston Settlement Agreement,
which approval became final effective as of the close of business on March 5,
1999. At such time, (i) the shares of Series A Preferred Stock owned by each
Series A Preferred Stockholder who was eligible to participate in the Winston
Settlement and who did not properly opt out of the Winston Settlement and who
owned shares of Series A Preferred Stock as of the close of business on March 5,
1999 were canceled and represented only the right of such Series A Preferred
Stockholder to receive $3.00 in cash from the Company in exchange for each such
share; (ii) the holders of shares of the Series A Preferred Stock between
October 23, 1995 and the close of business on March 5, 1999, other than Series A
Preferred Stockholders who properly opted out of the Winston Settlement
Agreement or who were precluded from participating in the Winston Settlement,
released any and all claims they may have had against the Company and the other
named defendants in connection with the Transactions; (iii) Milestone's
stockholders other than Series A Preferred Stockholders who were eligible to
participate in the Winston Settlement and who properly opted out of the Winston
Settlement released all derivative claims in connection with the Transactions;
and (iv) the Winston Actions were dismissed. In connection with the Winston
Actions, the Company retained counsel for all of the defendants (including,
without limitation, Leonard S. Mandor, Robert A. Mandor, Harvey Jacobson,
Gregory McMahon and Geoffrey Aaronson (each of whom is a director and/or officer
of the Company)) and assumed responsibility for the payment of all legal fees
incurred by such persons in connection with the Winston Actions and the Winston
Settlement
F-29
<PAGE>
(subject to the insurance coverage litigation described below).
The foregoing description of the Winston Settlement and the Winston
Settlement Agreement is qualified in its entirety by reference to the Winston
Settlement Agreement, a copy of which was filed by the Company with the
Securities and Exchange Commission (the "Commission") on August 14, 1998 as
Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998.
The Company maintains a directors and officers insurance and company
reimbursement policy (the "National Policy") issued by National Union Fire
Insurance Company of Pittsburgh, PA ("National Union") with a $2,000,000 limit
and an excess directors and officers liability and company reimbursement policy
(the "Stonewall Policy") issued by Stonewall Surplus Lines Insurance Company,
now known as American Dynasty Surplus Lines Insurance Company ("Stonewall"),
with a $2,000,000 limit. The Company believes that the amounts that it has to
pay pursuant to the Winston Settlement and in connection with the Winston
Actions are covered losses under both the National Union Policy and the
Stonewall Policy. In addition, the Company believes that the legal fees and
other expenses incurred by the Company and the other defendants in connection
with the Winston Actions are also covered losses under the National Union Policy
and the Stonewall Policy. In connection with a previous proposed settlement of
the Winston Actions which was never consummated, National Union and Stonewall
both refused to contribute to such proposed settlement, asserting that such
proposed settlement did not encompass any covered loss (as defined in the
National Policy and the Stonewall Policy, respectively). On January 29, 1998,
the Company commenced a lawsuit in the United States District Court for the
Southern District of New York against National Union and Stonewall in connection
with such refusal to contribute to such proposed settlement. In the complaint,
the plaintiffs alleged that National Union and Stonewall wrongfully failed to
contribute to the proposed settlement and sought reimbursement from National
Union and Stonewall up to the limits of their respective policies. National
Union and Stonewall both answered the complaint and denied liability. As a
result of the termination of the previously proposed settlement, the Company on
one hand, and Stonewall and National Union, on the other hand, agreed to dismiss
such action without prejudice and such action was dismissed on May 29, 1998 by
the United States District Court for the Southern District of New York. The
Company gave both National Union and Stonewall notice of the Winston Settlement
and provided each of them with a copy of the Winston Settlement Agreement on
August 12, 1998. National Union and Stonewall reviewed the Winston Settlement
Agreement and separately informed the Company that their basic position, denying
coverage, had not changed. On February 12, 1999, the Company commenced a lawsuit
in the Circuit Court for the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida against both National Union and Stonewall alleging, among other
things, that National Union and Stonewall have wrongfully refused to contribute
to the Winston Settlement and seeking reimbursement from National Union and
Stonewall up to the limits of their respective policies. At this time, the
Company is not in a position to render an opinion as to the outcome of the
National Union and Stonewall Actions.
16. Subsequent Events
On February 25, 2000, a wraparound note held by the Company on a
138,954 square foot shopping center located in Quincy, Illinois (the "Quincy
Property"), was terminated as a result of a foreclosure sale by the bank (the
holder of the Underlying Debt) to an unrelated third party. The Company had
previously terminated, by written notice, the Master Lease associated with the
Quincy Property as of December 31, 1998. As a result of the foreclosure sale by
the bank of the Quincy Property and the termination of the Wraparound Note and
the Underlying Debt, the Company will
F-30
<PAGE>
record a book gain of approximately $1,727,000 in the first quarter of 2000 but
received no cash proceeds.
On February 15, 2000, a wraparound note held by the Company on a 91,800
square foot single tenant commercial building located in Palatka, Florida (the
"Palatka Property"), was paid as a result of the sale of the Palatka Property by
its owner, an affiliate of the Company (the partnership that owned the Palatka
Property), to an unrelated third party. In connection with the sale of the
Palatka Property, the Company, as the master lessee on a Master Lease on the
Palatka Property, canceled the subject Master Lease. Of the gross proceeds,
$1,067,000 was used to satisfy the underlying mortgage debt on the Palatka
Property. As a result of the payment of the wraparound note and the satisfaction
of the underlying mortgage debt, the Company realized net cash proceeds of
approximately $911,000 and will record a book gain of approximately $645,000 in
the first quarter of 2000.
On February 3, 2000, a wraparound note held by the Company on a 43,200
square foot single tenant commercial building located in Warsaw, Virginia (the
"Warsaw Property"), was paid as a result of the sale of the Warsaw Property by
its owner, an affiliate of the Company (the partnership that owned the Warsaw
Property), to an unrelated third party. In connection with the sale of the
Warsaw Property, the Company, as the master lessee on a Master Lease on the
Warsaw Property, canceled the subject Master Lease. Of the gross proceeds,
$768,000 was used to satisfy the underlying mortgage debt on the Warsaw
Property. As a result of the payment of the wraparound note and the satisfaction
of the underlying mortgage debt, the Company realized net cash proceeds of
approximately $519,000 and will record a book gain of approximately $321,000 in
the first quarter of 2000.
On January 13, 2000, a wraparound note held by the Company on a 43,200
square foot single tenant commercial building located in Hamilton, New York (the
"Hamilton Property"), was paid as a result of the sale of the Hamilton Property
by its owner, an affiliate of the Company (the partnership that owned the
Hamilton Property), to an unrelated third party. In connection with the sale of
the Hamilton Property, the Company, as the master lessee on a Master Lease on
the Hamilton Property, canceled the subject Master Lease. Of the gross proceeds,
$774,000 was used to satisfy the underlying mortgage debt on the Hamilton
Property. As a result of the payment of the wraparound note and the satisfaction
of the underlying mortgage debt, the Company realized net cash proceeds of
approximately $521,000 and will record a book gain of approximately $352,000 in
the first quarter of 2000.
On January 7, 2000, a wraparound note held by the Company on a 32,400
square foot single tenant commercial building located in Walpole, New Hampshire
(the "Walpole Property"), was paid as a result of the sale of the Walpole
Property by its owner, an affiliate of the Company (the partnership that owned
the Walpole Property), to an unrelated third party. In connection with the sale
of the Walpole Property, the Company, as the master lessee on a Master Lease on
the Walpole Property, canceled the subject Master Lease. Of the gross proceeds,
$736,000 was used to satisfy the underlying mortgage debt on the Walpole
Property. As a result of the payment of the wraparound note, the Company
realized net cash proceeds of approximately $510,000 and will record a book gain
of approximately $381,000 in the first quarter of 2000.
On January 7, 2000, a wraparound note held by the Company on a 46,400
single-tenant commercial building located in Savannah, Tennessee (the "Savannah
Property"), was paid as a result of the sale of the Savannah Property by its
owner, an affiliate of the Company (the partnership that owned the Savannah
Property) to an unrelated third party. In conjunction with the sale of the
Savannah Property, the Company, as the master lessee on a Master Lease on the
Savannah Property,
F-31
<PAGE>
canceled the subject Master Lease. As a result of the payment of the wraparound
note, the Company realized net cash proceeds of approximately $173,000 and will
record a book gain of approximately $120,000 in the first quarter of 2000.
17. Consolidated Quarterly Summary of Operations (unaudited)
The following is a summary of financial information with respect to the
Company's operations for the four fiscal quarters during fiscal year 1999 and
1998:
<TABLE>
<CAPTION>
Fourth Third Second First
1999 Quarter Quarter Quarter Quarter
================================================= ================= === =============== ================ ===============
<S> <C> <C> <C> <C>
Total revenues $ 5,600,512 $ 4,943,530 $ 5,017,243 $ 4,071,004
Total expenses 6,374,924 4,650,885 4,569,362 4,590,177
----------- ---------- ---------- ---------
(Loss) income before income taxes and
minority interest (774,412) 292,645 447,881 (519,173)
(Benefit) provision for income taxes (3,177,452) a 964,986 486,366 (286,116)
------------ ----------- ----------- -----------
Net income (loss) before minority interest 2,403,040 (672,341) (38,485) (233,057)
Minority interest in net loss of consolidated
subsidiary 663,962 0 0 0
-------------- ---------------- --------------- ---------------
Net income (loss) 3,067,002 ( 672,341) ( 38,485) (233,057)
============= ============ ============= ============
Net income (loss) per common share, basic .72 (.16) (.01) (.05)
================== =============== =============== ===============
Net income (loss) per common share, diluted .65 (.16) (.01) (.05)
================ =============== =============== ===============
- ------------------------------------------------- ----------------- --- --------------- ---------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Fourth Third Second First
1998 Quarter Quarter Quarter Quarter
================================================= ================= === =============== ================ ===============
<S> <C> <C> <C> <C>
Total revenues $ 8,094,090 $ 6,331,620 $ 5,429,905 $ 5,659,776
Total expenses 12,719,360 b 6,327,988 6,964,991 6,681,108
------------ ---------- ------------- -----------
(Loss) income before income taxes (4,625,270) 3,632 (1,535,086) (1,021,332)
Benefit for income taxes (2,606,499) (367,821) (498,584) (487,038)
------------ ----------- -------------- ------------
Net (loss) income $(7,231,769) $371,453 $(1,036,502) $ (534,294)
============== ========== ============= ============
Net (loss) income per common share, basic $(1 .71) $ 0.09 $ (.25) $ (0.13)
================= ============= ================= ==============
- ------------------------------------------------- ----------------- --- --------------- ---------------- ---------------
</TABLE>
Note:
a Includes approximately $2,800,000 of a reversal of a prior year accrual.
See Note 11 for a description of income taxes.
b Includes approximately $7,084,000 of accrued litigation expense directly
related to the Winston Settlement. See Note 15 for a description of the
Winston Actions and the Winston Settlement.
F-32
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III
Real Estate and Accumulated Depreciation
December 31, 1999
<TABLE>
<CAPTION>
Cost of Accumulated Date Depreciation
Location Encumbrances Land Building Improvements Total Depreciation Acquired Life
======================== ============= =========== ============ ============ =========== ============= ========= ============
Pine Oak Plaza,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sunrise, FL $ 1,145,613 $ 110,000 $ 990,000 $ 49,845 $1,149,845 $ (66,745) 9/24/97 50
Regency Walk,
Jacksonville, FL 1,818,281 215,000 1,935,000 161,934 2,311,934 (118,764) 4/01/98 50
Orange Park,
Orange Park, FL 1,282,722 150,000 1,350,000 4,930 1,504,930 (48,236) 4/17/98 50
Teeca Plaza,
Boca Raton, FL 1,779,809 207,500 1,867,500 139,184 2,214,184 (107,918) 7/15/98 50
Country Grove Plaza,
W. Palm Beach, FL 871,636 110,000 990,000 7,600 1,107,600 (27,920) 9/11/98 50
Mandarin Central,
Jacksonville, FL 3,918,660 465,000 4,185,000 31,228 4,681,228 (110,871) 10/13/98 50
Pine Crest,
Ft. Lauderdale, FL 2,373,571 320,000 2,880,000 13,503 3,213,503 (74,701) 10/27/98 50
Lincoln Park,
Davie, FL 3,193,271 384,000 3,456,000 10,475 3,850,475 (82,735) 11/10/98 50
Sunrise Shopping Center
Zanesville, OH 1,740,268 0 2,530,219 314,950 2,845,169 (1,215,795) 10/23/95 50
Family Dollar Stores,
Blackstone, VA 0 0 794,909 8,607 803,516 (626,841) 10/23/95 26.65
Land Parcel
Miami, FL 2,000,000 3,511,669 0 0 3,511,669 0 12/29/99 n/a
- ------------------------ ------------- ----------- ------------ ------------ ----------- ------------- --------- ------------
Totals $ 20,123,831 $ 5,473,169 $ 20,978,628 $ 742,256 $27,194,053 $ (2,480,526)
============ =========== ============ ========= =========== =============
- ------------------------------ ------------------ --------------- ---------------- ------------------ ---------------- ----------
</TABLE>
S-1
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III
Real Estate and Accumulated Depreciation
December 31, 1999
Reconciliation of Property and Improvements:
1999 1998 1997
=================== ================= ================= =================
Beginning Balance $ 23,291,713 $25,546,306 $24,268,310
Acquisitions 3,511,669 18,515,000 1,100,000
Improvements 390,671 351,585 177,996
Dispositions 0 (21,121,178) 0
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Ending Balance $ 27,194,053 $23,291,713 $25,546,306
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Reconciliation of Accumulated Depreciation:
1999 1998 1997
====================== ================= ================= =================
Beginning Balance $ 1,879,050 $6,065,951 $5,545,018
Depreciation expense 601,476 492,686 520,933
Dispositions 0 (4,679,587) 0
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Ending Balance $ 2,480,526 $1,879,050 $6,065,951
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At December 31, 1999, the tax basis of the Company's owned real estate was
approximately $25,707,669.
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Exhibit 21 - Subsidiaries of the Company
Milestone Asset Management Inc.
Milestone Property Management Inc.
Centaur Leasing, Inc.
Minotaur Mortgage Company of Paris, Inc.
Minotaur Mortgage Company of Quincy, Inc.
Minotaur Mortgage Company of Rochester, Inc.
Minotaur Mortgage Company of Savannah, Inc.
Minotaur Mortgage Company of Walpole, Inc.
Minotaur Mortgage Company of Warsaw, Inc.
Minotaur Mortgage Company of Columbus, Inc.
Minotaur Mortgage Company of Danville, Inc.
Minotaur Mortgage Company of Deland, Inc.
Minotaur Mortgage Company of Dubois, Inc.
Minotaur Mortgage Company of Hamilton, Inc.
Minotaur Mortgage Company of Janesville, Inc.
Minotaur Mortgage Company of Montgomery, Inc.
Minotaur Mortgage Company of Natchez, Inc.
Minotaur Mortgage Company of North Canton, Inc.
Minotaur Mortgage Company of Palatka, Inc.
MPI/Pine Oak, Inc.
MPI/Regency Walk, Inc.
MPI/Orange Park, Inc.
MPI/Teeca Plaza, Inc.
MPI/Country Grove Plaza, Inc.
MPI/Mandarin Central, Inc.
MPI/Pine Crest, Inc.
MPI/Lincoln Park Davie, Inc.
MPI/Zanesville, Inc.
MPI/Renaissance L.L.C.
MPI/Miami Edgewater L.L.C.
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COMPANY INFORMATION
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Executive Office
Milestone Properties, Inc.
150 East Palmetto Park Road, 4th Floor
Boca Raton, FL 33432
Telephone: (561) 394-9533
Facsimile: (561) 392-8311
Stockholders Services
Written inquiries and requests for published information regarding the Company
are welcomed and should be sent to:
Karen Renza
Director of Stockholder Services
Milestone Properties, Inc.
150 East Palmetto Park Road, 4th Floor
Boca Raton, FL 33432
Telephone inquiries should be made to
(561) 394-9533
Copies of the exhibits to the Company's Annual Report on Form 10-K, as amended,
for the year ended December 31, 1999 will be furnished to requesting
stockholders upon payment of the Company's expenses in furnishing such exhibits.
Transfer Agent and Registrar
The Bank of New York
101 Barclay Street
New York, NY 10286
(800) 524-4458
Questions and correspondence regarding changes of address, dividend checks, lost
or stolen certificates, transfer of certificates, and consolidation of accounts
should be directed to the transfer agent.
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MILESTONE PROPERTIES, INC.
150 East Palmetto Park Road
4th Floor
Boca Raton, Florida 33432
(561) 394-9533
