<PAGE>
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905, eff. 4/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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: 1-12286
MID-ATLANTIC REALTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 52-1832411
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1306 Concourse Drive, Suite 200, Linthicum 21090
(Address of principal executive offices) (Zip Code)
(410) 684-2000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
6,285,907 Common Shares were outstanding as of March 31, 1995.
<PAGE> 1
MID-ATLANTIC REALTY TRUST
AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN SECURITIES
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE> 2
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
MID-ATLANTIC REALTY TRUST
Consolidated Balance Sheets
As of
March 31, 1995 December 31, 1994
(UNAUDITED)
ASSETS
Properties:
Operating properties................$ 137,302,600 140,062,761
Development operations ............. 7,655,415 6,354,947
Property held for development or sale. 8,600,547 8,630,465
------------ ------------
153,558,562 155,048,173
Cash and cash equivalents ........... 453,929 344,522
Notes and accounts
receivable - tenants and other...... 1,662,710 1,688,194
Due from joint venture partners ...... 1,877,251 1,937,019
Prepaid expenses and deposits ....... 356,464 402,283
Deferred financing costs ............. 3,461,108 3,422,376
------------ ------------
$ 161,370,024 162,842,567
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable ......................$ 11,887,096 20,139,413
Accounts payable and accrued expenses 2,236,925 3,534,277
Mortgages payable .................. 60,829,438 53,251,140
Convertible subordinated debentures. 60,000,000 60,000,000
Deferred income..................... 676,014 730,466
Minority interest in
consolidated joint ventures ...... 347,388 330,893
------------ ------------
135,976,861 137,986,189
Shareholders' Equity:
Preferred shares of beneficial interest,
$.01 par value, authorized 2,000,000 shares,
issued and outstanding, none ..... - -
Common shares of beneficial interest,
$.01 par value, authorized 100,000,000,
issued and outstanding, 6,285,907
and 6,291,407, respectively 62,859 62,914
Additional paid-in capital.......... 42,558,644 42,602,505
Accumulated deficit ............... (17,228,340) (17,809,041)
------------ ------------
25,393,163 24,856,378
------------ ------------
$ 161,370,024 162,842,567
============ ============
See accompanying notes to consolidated financial statements.
<PAGE> 3
MID-ATLANTIC REALTY TRUST
Consolidated Statements of Operations
(UNAUDITED)
Three Months Ended March 31,
1995 1994
REVENUES:
Rentals ............................$ 5,969,903 5,341,820
Gain on sales of properties
held for sale, net ................ 4,559 -
Other .............................. 285,692 214,196
------------ ------------
6,260,154 5,556,016
------------ ------------
COSTS AND EXPENSES:
Interest .......................... 2,771,316 2,544,179
Depreciation and amortization
of property and improvements ..... 1,342,478 1,231,140
Operating ......................... 794,464 892,853
General and administrative ......... 426,556 396,892
------------ ------------
5,334,814 5,065,064
------------ ------------
EARNINGS FROM OPERATIONS
BEFORE MINORITY INTEREST .......... 925,340 490,952
Minority interest expense ............ (197,342) (125,981)
------------ ------------
EARNINGS FROM OPERATIONS ............ 727,998 364,971
Gain on life insurance proceeds ...... 1,001,787 -
(Loss) gain on sales
of operating properties ............ (377,358) 335,363
------------ ------------
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE ..... 1,352,427 700,334
Cumulative effect of change in
accounting for percentage rents .... 612,383 -
------------ ------------
NET EARNINGS ........................$ 1,964,810 700,334
============ ============
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE PER SHARE
PRIMARY ......................$ 0.21 0.11
FULLY DILUTED ................. 0.22 N/A
Cumulative effect of change in
accounting principle
PRIMARY ....................... 0.10 -
------------ ------------
FULLY DILUTED ................. 0.05 N/A
------------ ------------
NET EARNINGS PER SHARE
PRIMARY ....................... 0.31 0.11
============ ============
FULLY DILUTED ................$ 0.27 N/A
============ ============
See accompanying notes to consolidated financial statements.
<PAGE> 4
<PAGE>
MID-ATLANTIC REALTY TRUST
Consolidated Statements of Cash Flows
(UNAUDITED)
Three Months Ended March 31,
1995 1994
Cash flows from operating activities:
Net earnings .......................$ 1,964,810 700,334
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization ..... 1,342,478 1,231,140
Loss (gain on sales of
operating properties ............. 377,358 (335,363)
Minority interest in earnings,net . 197,342 125,981
Gain on sales of properties
held for sale, net ............... (4,559) -
Changes in operating assets and liabilities:
Decrease in operating assets ..... 71,303 477,854
Decrease in operating liabilities (1,351,804) (2,355,837)
------------ ------------
Total adjustments ........... 632,118 (856,225)
------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,596,928 (155,891)
------------ ------------
Cash flows from investing activities:
Additions to properties ............ (1,831,037) (948,435)
Proceeds from sales of properties... 1,744,073 1,321,602
Payments to minority partners, net (121,079) (163,659)
------------ ------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES .... (208,043) 209,508
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable ....... 14,350,000 2,400,000
Principal payments on notes payable (22,602,317) (1,100,000)
Proceeds from mortgages payable .... 7,700,000 -
Principal payments on mortgages payable (121,702) (99,513)
Additions to deferred finance costs (177,434) (4,104)
Shares purchased ................... (43,916) -
Dividends paid .................... (1,384,109) (1,321,195)
------------ ------------
NET CASH USED IN
FINANCING ACTIVITIES ..... (2,279,478) (124,812)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............... 109,407 (71,195)
CASH AND CASH EQUIVALENTS,
beginning of period ................ 344,522 687,108
------------ ------------
CASH AND
CASH EQUIVALENTS, end of period ...$ 453,929 615,913
============ ============
See accompanying notes to consolidated financial statements.
<PAGE> 5
MID-ATLANTIC REALTY TRUST
Notes To Consolidated Financial Statements
(UNAUDITED)
ORGANIZATION
Mid-Atlantic Realty Trust (the "Company", or "MART") was formed on
June 29, 1993 and commenced operations effective with the completion of its
initial public share offering on September 11, 1993. The Company is the
successor to the operations of BTR Realty, Inc. (the predecessor to the
company), (BTR), and qualifies as a real estate investment trust (REIT) for
Federal income tax purposes.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1995 and the
consolidated statements of operations for the Company for the periods
ended March 31, 1995 and March 31, 1994 and the consolidated statements
of cash flows for the periods ended March 31, 1995 and March 31, 1994,
have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and
the results of operations have been included. The results of operations
for the period ended March 31, 1995 are not necessarily indicative of the
operating results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Mid-Atlantic Realty Trust
December 31, 1994 Annual Report to Shareholders.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1995 the Company changed its accounting treatment
for percentage rent. Percentage rent revenues are based on store sales
for certain periods and are charged according to a percentage over a
breakpoint amount of sales for the period according to the lease agreement.
During the year ended December 31, 1994 and previously, percentage rent
was recognized as rental revenues in the period when the actual percentage
rent was billed and received. The new method recognizes percentage rent
as rental revenues in the period when the actual percentage rent is earned.
The Company began on January 1, 1995 estimating the percentage rent
earned from major tenants and recorded the amounts monthly as receivable.
The cumulative effect of this change on January 1, 1995 was $612,383. The
Company believes that this change is preferable since it provides better
matching of revenues and expenses.
GAIN ON LIFE INSURANCE PROCEEDS
In January, 1995, the Company received $1,002,000 in life insurance
proceeds as a result of the death of a former general partner with, and
officer of, BTR.
NET EARNINGS PER SHARE
Due to the additional earnings from the cumulative effect of change in
accounting for percentage rents, net earnings per share, for the three months
ended March 31, 1995, when calculated on a fully diluted basis was dilutive.
Therefore, net earnings per share was reported on both a primary and a fully
diluted basis.
Primary net earnings per share of common share and common share equivalents
were computed by dividing net earnings by the primary weighted average number
of common share and common share equivalents outstanding for each period.
The primary weighted average number of common shares and common share
equivalents for the periods ended March 31, 1995 and March 31, 1994 was
6,290,751 and 6,291,407, respectively.
Fully diluted net earnings per share of common share and common share
equivalents were computed by dividing net earnings plus convertible debenture
interest and convertible debenture amortization expense by the fully diluted
weighted average number of common share and common share equivalents (assumes
conversion of convertible debentures described below) outstanding for each
period. The fully diluted weighted average number of common shares and common
share equivalents for the periods ended March 31, 1995 and March 31, 1994 was
12,005,037 and 12,005,693, respectively. For the period ended March 31,
1994, the fully diluted earnings per share calculations were anti-dilutive
and therefore not reported.
The Company sold $60,000,000 in convertible subordinated debentures in
September, 1993. The debentures, which are convertible at $10.50 per share,
if fully converted, would produce an additional 5,714,286 shares.
Pursuant to the 1993 Omnibus Share Plan ("Plan"), the Company authorized on
February 1, 1994 the availability of 300,000 shares for the Plan. Trustees,
officers and key employees of the Company, are eligible for the Plan. On
February 1, 1994, the executive compensation committee of the Board of
Trustees granted to trustees, officers and key employees 256,000 option
shares at an option price of $10.50 per share with 89,333 shares vesting on
February 1, 1994, 83,333 shares vesting on January 1, 1995 and the balance
vesting over the next year. The average market price of MART shares for the
period ended March 31, 1995 was $8.05 per share and the closing market price
at March 31, 1995 was $8.00 per share. No options were exercised during the
period ended March 31, 1995 and based on the market value of MART shares, the
options, if converted, would be anti-dilutive.
ACQUISITION OF OUTSTANDING SHARES
On February 14, 1995, the MART Board of Trustees approved a stock
repurchase plan which authorizes the repurchase of up to approximately
310,000 shares. The Company purchased 5,500 shares in the three month period
ended March 31, 1995 for $43,916, at an average price of $7.98 per share.
Subsequently, the Company purchased an additional 93,100 shares in the
month of April, 1995 for $716,175, at an average price of $7.69 per share.
SHAREHOLDERS' EQUITY
During the three months ended March 31, 1995, shareholders' equity changed
for the following items:
- Net earnings of $1,964,810.
- Dividend paid by MART of $1,384,109.
- Stock purchased by MART of $43,916.
<PAGE> 6
Part I. FINANCIAL INFORMATION
Item 2.
MID-ATLANTIC REALTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the operations for the three month period
ended March 31, 1995 with the operations for the three month period ended
March 31, 1994.
Comparison of three months ended March 31, 1995 to three months ended
March 31, 1994
Rental revenues increased by $628,000 or 12% to $5,970,000 for the three
months ended March 31, 1995 from $5,342,000 for the three months ended
March 31, 1994. Net increases in occupancy and rental rates contributed to
project rental increases of approximately $366,000. In addition, the purchase
of the Shoppes at Easton in September, 1994 contributed to increased rental
revenues of approximately $336,000. And, increased percentage rents of
$26,000 contributed to increased rental revenues. The increases were offset
by a $56,000 decrease in rental revenues attributable to the sale in
February, 1995 of the Regal Row warehouse project and the sale in December,
1994 of the Oakton Bowling center. In addition, $44,000 in rental decreases
were related to vacancies primarily due to the redevelopment of York Road
Plaza. Because of the timing of the receipt of percentage rents in the three
months ended March 31, 1995, there was no effect on income from the change in
accounting for percentage rents.
Gains on properties held for sale increased by $4,000, as there were no
property sales during the three month period ended March 31, 1994.
Other income increased by $72,000 to $286,000 from $214,000 primarily due
to additional other income from fire insurance proceeds for lost rent at
Rolling Road damaged by a fire in December, 1992.
As a result of the above changes total revenues increased by $704,000 to
$6,260,000 from $5,556,000.
Interest expense increased by $227,000 to $2,771,000 from $2,544,000
primarily due to the increased debt for the purchase of the Shoppes
at Easton.
Depreciation and amortization increased by $111,000 to $1,342,000 from
$1,231,000 primarily due to depreciation increases of approximately $57,000
related to the purchase of the Shoppes at Easton, and increased tenant
improvements to Harford Mall (Hecht's Expansion) $26,000 and to the
Gateway I & II Offices of $29,000.
Operating expenses decreased by $98,000 to $795,000 from $893,000 primarily
due to higher tenant occupancy resulting in lower landlord operating
expenses.
General and administrative expenses increased by $30,000 to $427,000 from
$397,000 due primarily to a $35,000 accrued payroll expense for the incentive
based compensation plan offset by lower insurance & professional fee
expenses.
Minority interest expense increased by $71,000 to $197,000 from $126,000
generally due to higher earnings in minority interest ventures.
Earnings from operations increased by $363,000 to $728,000 from $365,000.
For the three month period ended March 31, 1995, MART had a loss on the sale
of the Regal Row warehouse operating property of $377,000, a cumulative
effect of a change in accounting for percentage rents of $612,000 and a gain
on life insurance proceeds of $1,002,000, which, when combined with earnings
from operations resulted in net earnings of $1,965,000 for the period. In the
three month period ended March 31, 1994, MART recognized a gain on sales of
operating properties of $335,000 (which included gains on the sales of
Plantation Bowling Center of $279,000 and Orchard Landing Apartments of
$56,000), which, when combined with the earnings from operations, resulted in
net earnings of $700,000 for the period.
<PAGE> 7<PAGE>
MID-ATLANTIC REALTY TRUST
Part II. OTHER INFORMATION
Item 1. Legal Proceedings - In the ordinary course of business, the
Company is involved in legal proceedings. However, there are no material
legal proceedings pending against the Company.
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holder - The Annual
Meeting of Shareholders is to be held on May 12, 1995. At this time, matters
which appeared on the April 5,1995 proxy statement will be submitted for
approval.
Item 5. Other Information -
Summary Financial Data
The following sets forth summary financial data which has been prepared by
the Company without audit. Management believes the following data should be
used as a supplement to the historical statements of operations. The data
should be read in conjunction with the historical financial statements and
the notes thereto for MART.
MID-ATLANTIC REALTY TRUST
Summary Financial Data
(In thousands, except per share data)
Three months ended March 31,
1995 1994
Revenues $6,260 $5,556
Net earnings $1,965 $700
Net earnings per share - primary $0.31 $0.11
Net earnings per share - fully diluted $0.27 N/A
OTHER FINANCIAL DATA:
Funds from operations (FFO) (1) - primary $2,066 $1,596
FFO - fully diluted $3,210 $2,769
Weighted average number of shares
outstanding - primary 6,291 6,291
Weighted average number of shares
outstanding - fully diluted 12,005 12,005
SELECTED CASH FLOW DATA:
Net cash flow provided by (used in)
operating activities $2,597 ($156)
(1) Funds from operations as defined by the National Association of Real
Estate Investment Trusts, Inc. (NAREIT) - Funds from operations means net
income (computed in accordance with generally accepted accounting
principles), excluding cumulative effects of changes in accounting
principles, extraordinary or unusual items, and gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. The
presentation of funds from operations is not normally included in financial
statements prepared in accordance with generally accepted accounting
principles (GAAP).
Item 6. Exhibits and Reports on Form 8-K -
Exhibit No. 18 - Letter regarding change in accounting principles
See Accountants letter filed with this report.
Exhibit No. 27 - Financial Data Schedule
Filed thru EDGAR
<PAGE> 8
<PAGE>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MID-ATLANTIC REALTY TRUST AND
SUBSIDIARIES
(Registrant)
Date 5/5/95 By /s/ F. Patrick Hughes
F. Patrick Hughes
President
Principal Executive Officer
Date 5/5/95 By /s/ Paul G. Bollinger
Paul G. Bollinger
Controller
Principal Financial Officer
<PAGE> 9
KPMG PEAT MARWICK LLP
111 South Calver Street
Baltimore, Maryland 21202
May 1, 1995
Mid-Atlantic Realty Trust
Linthicum, Maryland
Ladies and Gentlemen:
We have been furnished with a copy of Form 10-Q of Mid-Atlantic Realty Trust
and subsidiaries (the Company) for the three months ended March 31, 1995 and
have read the Company's statements contained in the notes to the consolidated
financial statements included therein. As stated in the notes to those
financial statements, the Company changed its method of accounting for
percentage rents and states that the newly adopted accounting principle is
preferable in the circumstances since it provides a better matching of
revenues and expenses. In accordance with your request, we have reviewed and
discussed with Company officials the circumstances and business judgment and
planning upon which the decision to make this change in the method of
accounting was based.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes
of the Company's compliance with the requirements of the Securities and
Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting
is preferable in the Company's circumstances.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 454
<SECURITIES> 0
<RECEIVABLES> 1,663
<ALLOWANCES> 319
<INVENTORY> 0
<CURRENT-ASSETS><F1> 0
<PP&E> 153,559
<DEPRECIATION> 36,917
<TOTAL-ASSETS> 161,370
<CURRENT-LIABILITIES><F1> 0
<BONDS> 120,829
<COMMON> 63
0
0
<OTHER-SE> 25,330
<TOTAL-LIABILITY-AND-EQUITY> 161,370
<SALES> 0
<TOTAL-REVENUES> 6,260
<CGS> 0
<TOTAL-COSTS> 5,335
<OTHER-EXPENSES> 197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,771
<INCOME-PRETAX> 1,352
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 612
<NET-INCOME> 1,965
<EPS-PRIMARY> .31
<EPS-DILUTED> .27
<FN>
<F1> Mid-Atlantic Realty Trust (MART) is in the specialized real estate
<F1> industry for which the current/noncurrent distinction is deemed in
<F1> practice to have little or no relevance. Therefore, MART prepares
<F1> unclassified balance sheets which do not report current assets or
<F1> current liabilities.
</FN>
</TABLE>
