<PAGE>
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 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ___________________ to _________________
Commission file Number 1-12286
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, Maryland 21090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 684-2000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Shares of Beneficial Interest, $.01 par value
(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.
X Yes 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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
As of February 15, 1996, 6,021,539 common shares of beneficial interest
of Mid-Atlantic Realty Trust were outstanding and the aggregate value of
common stock (based upon the $10 closing price on that date) held by
non-affiliates was approximately $60,022,000.
Documents Incorporated by Reference
The definitive proxy statement with respect to the 1996 annual
meeting of Mid-Atlantic Realty Trust shareholders (to be filed).
9
<PAGE>
PART I
ITEM 1
BUSINESS
Mid-Atlantic Realty Trust was incorporated June 29, 1993 and commenced
operations effective with the completion of its initial public share offering
on September 11, 1993. Mid-Atlantic Realty Trust is the successor to the
operations of BTR Realty, Inc. (the predecessor to Mid-Atlantic Realty
Trust), and qualifies as a real estate investment trust, "REIT", for
Federal income tax purposes. As used herein, the term "MART" refers to
Mid-Atlantic Realty Trust, the term "Company" refers to MART and its
subsidiaries, the successor company, and "BTR" refers to BTR Realty, Inc. and
its subsidiaries.
The Company is a fully integrated, self managed real estate investment
trust which owns, leases, develops, redevelops and manages its retail
shopping center facilities and commercial properties. The Company's primary
objective is to manage the properties for long-term cash flow growth. The
Company's principal strategies are to grow the portfolio through the
selective acquisition of additional properties in the Mid-Atlantic region,
redeveloping or developing retail properties on a selective basis, and, when
appropriate, divesting through sale or exchange of non-strategic properties.
The Company's financial strategy is to continue to refocus the portfolio
through the selective acquisition of retail properties utilizing (1) proceeds
from divestitures, (2) issuance of equity or debt securities, when
appropriate, and (3) arranging bank or other borrowings for short term needs.
The Company intends to maintain the conservative ratio of secured debt to
total estimated property value below 50%.
The Company has an equity interest in twenty-three operating shopping
centers, seventeen of which are wholly-owned by the Company, and six others
in which the Company has an interest ranging from 50% to 80%, as well as
other commercial properties. The operating properties have a gross leasable
area of approximately 3,237,000 square feet, of which approximately 93% was
leased at December 31, 1995. Total gross leasable area includes 3,001,000
square feet of established operating properties, of which approximately 96%
was leased at December 31, 1995 and approximately 236,000 square feet of a
shopping center acquired in October, 1993, currently under redevelopment, of
which 64% was leased at December 31, 1995. Of these properties, approximately
89% of the gross leasable area is in the states of Maryland, Virginia, New
York and Delaware, 9% in Arizona and 2% in other states. The Company also
owns 8 undeveloped parcels of commercial and residential zoned land totaling
approximately 166 acres and varying in size from 3 to 56 acres.
The business of the Company is not materially affected by seasonal
factors. Although construction may be affected to some extent by inclement
weather conditions, usually during winter months, property sales and revenue
from income producing properties held for investment are usually not so
affected.
The commercial real estate development and investment industry is subject
to widespread competition for desirable sites, tenants and favorable
financing. The industry is extremely fragmented and there are no principal
methods of competition. However, the ability to compete is dependent in part
upon the ability to find and complete appropriate real estate investments in
a timely manner. While many competitors have fewer assets and financial
resources than the Company, there are many competitors with greater financial
resources competing for similar business activities. Accordingly, it is not
possible to estimate the Company's position in the industry. In addition,
certain of the Company's real estate projects are near unimproved sites that
could be developed commercially and would provide further competition to the
Company. The management of the Company believes, however, that the Company
competes favorably in the industry due to the quality of its developments,
its ability to take advantage of opportunities as they arise, its access to
capital, and its reputation in the industry.
The Company has 52 full time employees and believes that its relationship
with its employees is good.
10
<PAGE>
ITEM 2
PROPERTIES
The following schedule describes the Company's commercial and residential
properties as of December 31, 1995:
I. SHOPPING CENTERS
A. In Operation (1)
Type
Percent- of Leas-
age of land Area able Percent- Lease
Name and owner- owner- in square age Principal expir-
Location ship ship acres feet leased tenants ations
MARYLAND PROPERTIES:
Harford Mall 100% Fee(2) 38.0 584,000(3) 98% Hecht's, 1996-2010
U.S. Route 1 Montgomery Ward,
Bel Air Woolworth, Best Buy
Patriots Plaza 50% Long-term 6.1 39,000 97% Denny's, 1996-2005
Ritchie Highway of lease(4) Dunkin Donuts
Anne Arundel Partnership
County
Rolling Road 100% Fee 6.5 63,000 100% Fair Lanes,1996-2009
Plaza Firestone
Rolling Road
Baltimore County
Rosedale Plaza 100% Fee 9.2 73,000 84% Valu Food, 1996-2002
Chesaco and Weyburn Avenue Rite Aid
Baltimore County
Shoppes at Easton 100% Fee 13.9 113,000 97% Giant Food,1997-2024
Route 50 Fashion Bug
Easton
New Town Village(5) 100% Fee 11.0 118,000 95% Giant Food,1998-2020
Lakeside Drive Blockbuster Video
Owings Mills Starbucks,
Hair Cuttery
Wilkens Beltway 75% Fee 7.1 77,000 100% Giant Food,1996-2014
Plaza of Provident Bank,
Wilkens Avenue Partnership Radio Shack,
Baltimore County Carrollton Bank
York Road Plaza 100% Fee 7.5 90,000 98% Giant Food,1997-2005
York Road Firestone, Starbucks
Baltimore County Sears Optical, GNC
Boston Market,
Great Clips
VIRGINIA PROPERTIES:
Burke Town Plaza 100% Long-term 12.6 114,000 91% Safeway, 1996-2005
Old Keene Mill Road lease(6) CVS Drugs
Burke
Skyline Village(7) 100% Fee 14.6 127,000 98% Toys "R" 1996-2010
US Route 33 Us, Richfood
Harrisonburg
Smoketown Plaza 60% Fee 27.0 176,000 93% Hub 1996-2011
Davis Ford and of Furniture,
Smoketown Roads Partnership Frank's Nursery
Prince William County & Crafts
Spotsylvania 80% Fee 11.2 142,000 100% K-Mart, 1996-2007
Crossing of CVS Drugs
Route 3 & Bragg Partnership
Road
Fredericksburg
11
<PAGE>
ITEM 2. Properties (continued)
I. SHOPPING CENTERS (continued)
A. In Operation (continued)
Type
Percent- of Leas-
age of land Area able Percent- Lease
Name and owner- owner- in square age Principal expir-
Location ship ship acres feet leased tenants ations
VIRGINIA PROPERTIES (continued):
Sudley Towne 100% Fee 9.6 108,000 100% Burlington 1996-2009
Plaza Coat Factory,
Route 234 & Sudley Manor Dr. CVS Drug Store
Manassas
ARIZONA PROPERTIES:
Dobson-Guadalupe(8) 100% Fee 3.2 22,000 94% Nevada 1996-2001
Shopping Center Bob's
Dobson & Guadalupe Roads
Mesa
Fair Lanes Chandler 50% Fee 1.1 10,000 100% No 1996
Plaza of principal
Arizona & Partnership tenants
Warner Roads selected
Chandler
Fair Lanes Union 50% Fee 5.9 17,000 88% No 1996-2000
Hills Plaza of principal
Union Hills Drive Partnership tenants
Phoenix selected
Gateway Park 100% Fee 10.5 82,000 89% Bashas', 1996-2011
Page Corral West
Park Sedona (9) 100% Fee 11.4 99,000 98% Safeway, 1996-2011
Highway 89 A Payless Drug
Sedona Store
Plaza Del Rio (10) 100% Fee 11.8 60,000 98% Payless 1996-2009
16th Street and Avenue B Drug Store
Yuma
DELAWARE PROPERTIES:
Brandywine Commons 100% Long-term 25.9 164,000 100% Shoprite, 2008-2014
Concord Pike lease (11) Computer City,
Wilmington Ground Round, Sports
Authority, Service
Merchandise
NEW YORK PROPERTIES:
Colonie Plaza (12) 100% Fee 18.7 140,000 98% Price 1996-2010
Central Avenue Chopper, RX Place,
Colonie Paper Cutter
Columbia Plaza 100% Fee 16.0 117,000 99% Price 1996-2008
Columbia Turnpike Chopper,
East Greenbush Ben Franklin
B. Under Development
MARYLAND PROPERTIES:
Timonium Mall 100% Long-term 12.9 236,000 64% Caldor, 2001-2011
York & Ridgely Rds. lease (13) Circuit City
Timonium
(1) Shopping centers in operation are subject to mortgage financing
aggregating $60,485,066 at December 31, 1995.
(2) Subject to the following long-term ground leases: (i) 150,000 square
feet on 10 acres for Montgomery Ward's department store, (ii) 10,200
square feet on one acre for Montgomery Ward's auto accessory store.
The Harford Mall property is subject to a mortgage principal balance
at December 31, 1995 of $19,686,335. The Harford Mall mortgage has an
interest rate of 9.78%, a 30 year amortization, with a 10 year
balloon payment of $18,148,848 due at the maturity date of July,
2003. The mortgage's prepayment provision prohibits prepayment until
June, 1997, after which the penalty is the greater of 1% of the
outstanding principal balance or yield maintenance.
(3) Includes 302,000 square feet occupied by department stores.
(4) Remaining term of 12 years plus two 10 year options.
(5) A $13,000,000 mortgage secured by Owings Mills New Town Shopping
Center is expected to close in March, 1996. This loan will bear
interest at 8.05%, will be repaid on a thirty year amortization and
will mature 10 years from closing. Proceeds will be used to repay
the construction loan secured by this project, ($10,099,510) at
December 31, 1995), as well as pay down MART's revolving line of
credit.
(6) Remaining term of 36 years plus three 15 year renewal options.
(7) On February 26, 1996, MART closed a permanent fixed rate mortgage
secured by the Skyline Village Shopping Center $5,900,000. The loan
bears interest at 7.55% and will be repaid on a 15 year amortization
schedule.
(8) A purchase option agreement was signed on February 7, 1996 to sell
this property for $850,000, which should generate a gain on the sale
of approximately $195,000.
(9) Park Sedona was sold on January 5, 1996 for $9,000,000, generating a
gain on the sale of approximately $138,000.
(10) A purchase option agreement was signed on February 22, 1996 to sell
this property for $4,150,000, which should generate a loss on the
sale of approximately $900,000. The Company signed this agreement at
a value lower than it had considered to be market value in an effort
to accelerate the divestiture of properties in Arizona.
(11) Remaining term of 57 years plus two 10 year options.
(12) On March 1, 1996, the mortgage loan secured by Colonie Plaza was
repaid ($5,442,755 at December 31, 1995).
(13) Remaining term of 21 years plus five 10 year options.
12
<PAGE>
ITEM 2. Properties (Continued)
II. OFFICE BUILDINGS
A. In Operation (14)
Type
Percent- of Leas-
age of land Area able Percent- Lease
Name and owner- owner- in square age Principal expir-
Location ship ship acres feet leased tenants ations
MARYLAND PROPERTIES:
Gateway 100% Fee 7.0 84,000 86% Browning 1997-2003
International I Ferris, Daughters
Elkridge Landing & of Charity Health
Winterson Roads System,
Anne Arundel County US Healthcare,
Tandem Computers
Gateway 100% Fee 15.5 119,000 95% AT&T, 1996-2004
International II MART, Price
Elkridge Landing & Waterhouse, American
Winterson Roads Express, TNT
Anne Arundel County Logistics
Patriots Plaza 50% Long-term 0.5 28,000 24% No 1996-2004
Office Building of lease (15) principal
Ritchie Highway Partnership tenants
Anne Arundel County selected
Wilkens Beltway 75% Fee 3.9 53,000 94% Freestate,1996-2003
Plaza Office Park of Health, Prudential
Buildings I, Partnership Health System
II & III
Wilkens Avenue & Maiden Choice Lane
Baltimore County
III. OTHER DEVELOPED PROPERTIES
A. In Operation
Type
Percent- of Leas- Per-
age of land Area Im- able cent- Princi- Lease
Name and owner- owner- in prove- square age pal expir-
Location ship ship acres ments feet leased tenants ations
MARYLAND PROPERTIES:
The Business Center 100% Fee 5.4 One-story 27,000 100% No 1996-2001
at Harford Mall Warehouse principal
Harford County tenants
selected
Clinton Property 100% Long-term2.9 Bowling 29,000 100% Fair 1996-2003
Prince George's lease (16) Center and Lanes,
County Bank Suburban Bank
Southwest Property 100% Fee 3.2 One-story 25,000 86% Shell1998-1999
Anne Arundel Office Building, One-story Oil, Carrier/
County Warehouse and Gas Station Otis, Potomac
Air Gas
Waldorf Property 100% Fee 3.6 Bowling 30,000 100% Fair 1997-1998
Waldorf Center and Lanes,
Tire Center Firestone
ILLINOIS PROPERTIES:
Illinois
Properties: (17) 100% 2 par- 5.0 2 Bowling 71,000 100% Fair 1998
Chicago cels in Centers Lanes
fee
(14) Office buildings in operation are subject to mortgage financing
aggregating $1,926,038 as of December 31, 1995.
(15) Remaining term of 12 years plus two 10 year options.
(16) Remaining term of 31 years plus a 45 year renewal option.
(17) 1 of 2 Bowling Centers, Dolton Bowl, was sold on January 4, 1996 for
$720,000 generating a gain on the sale of approximately $360,000.
13
<PAGE>
ITEM 2. Properties (Continued)
IV. UNDEVELOPED PROPERTIES
Percentage of Type of land Area in
Name and Location ownership ownership acres Zoning
MARYLAND PROPERTIES:
Dorsey Property 100% Fee 19.4 Commercial
Anne Arundel County
Gateway International III 100% Fee 6.5 Commercial
Anne Arundel County
Harford Property 100% Fee 3.0 Light
(Adjacent to Harford Mall) Industrial
Harford County
North East Property 100% Fee 56.0 Commercial/
North East Residential
Northwood Industrial Park 67% Fee 24.5 Industrial
Salisbury of Partnership
Pulaski Property 100% Fee 3.0 Industrial
Baltimore County
NORTH CAROLINA PROPERTIES:
Burlington Commerce Park 100% Fee 45.5 Commercial
Burlington
Hillsborough Crossing 100% Fee 8.0 Commercial
Hillsborough
Management believes the Company's properties are adequately covered by
insurance.
ITEM 3
LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in legal
proceedings. However, there are no material legal proceedings presently
pending against the Company.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
14
<PAGE>
PART II
ITEM 5
Market for the Registrant's Common Stock And Related Stockholder Matters
MART's common shares of beneficial interest, par value $.01 per share,
("shares"), are listed on the American Stock Exchange (symbol: MRR), which
reports high, low and last sales prices. The table below lists high and low
sales prices for MART for the periods indicated.
1995 High Low
First Quarter 8 1/2 7 3/4
Second Quarter 9 1/2 7 1/2
Third Quarter 9 1/4 8
Fourth Quarter 9 8 1/8
1994 High Low
First Quarter 10 3/8 8 1/2
Second Quarter 9 3/4 8 7/8
Third Quarter 9 1/4 8 1/2
Fourth Quarter 9 1/4 7 3/8
1993 High Low
September 11 (Inception) -
September 30 10 3/4 10 1/4
Fourth Quarter 11 9
Cash dividends paid to holders of MART's shares during the periods
indicated are as follows:
Cash Dividend Paid
1995 1994 1993
First Quarter $0.22 $0.21
Second Quarter $0.22 $0.21
Third Quarter $0.22 $0.21
Fourth Quarter $0.23 $0.22 $0.05
------- ------- -------
Totals $0.89 $0.85 $0.05
For record shareholders of MART during the entire year, for each
respective year, it was determined that the per share dividends for each year
indicated are taxable as follows:
Per Share
1995 1994 1993
Ordinary Dividends -
taxable as ordinary income $0.48 $0.55 $0.05
Capital Gain Distribution -
taxable as capital gain - $0.06 -
Non-taxable Distribution -
return of capital or taxable
gain - (depending on a
shareholder's basis in MART
shares) $0.41 $0.24 -
------- ------- -------
Total Annual Gross Dividends
Per Share $0.89 $0.85 $0.05
On February 12, 1996, MART declared a quarterly cash dividend of $.23 per
share payable March 15, 1996 to shareholders of record February 29, 1996.
The number of holders of record of the MART shares as of February 15, 1996
was 1,275.
15<PAGE>
ITEM 6
SELECTED FINANCIAL DATA
The following table sets forth the consolidated financial data for the
Company and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report. The table
consists of Selected Financial Data of Mid-Atlantic Realty Trust as of
December 31, 1995, December 31, 1994 and December 31, 1993, and for the years
ended December 31, 1995, and December 31, 1994 and for the period September
11, 1993 (commencement of operations) through December 31, 1993, and also
includes Selected Financial Data of BTR Realty, Inc. as of December 31, 1992,
and 1991 and for the periods January 1, 1993 through September 10, 1993, and
for the years ended December 31, 1992, and 1991. Mid-Atlantic Realty Trust,
a Real Estate Investment Trust, was merged with BTR Realty, Inc. on September
11, 1993. The consolidated financial data of BTR, the predecessor company,
are presented for comparative purposes.
Mid-Atlantic Realty Trust ||
------------------------------------------------||
September 11, ||
1993 to ||
Year ended December 31, December 31, ||
1995 1994 1993 ||
Revenues $24,918,971 22,848,881 6,576,684 ||
============== ============= ============ ||
Net Earnings (Loss) ||
Before Cumulative ||
Effect of Change In ||
Accounting Principle and ||
Extraordinary Item $3,165,082 2,916,286 467,474 ||
Cumulative Effect of Change ||
In Accounting Principle 612,383 - - ||
-------------- ------------- ------------ ||
Net Earnings (Loss) Before ||
Extraordinary Item 3,777,465 2,916,286 467,474 ||
Extraordinary Item - - - ||
-------------- ------------- ------------ ||
Net Earnings (Loss) $3,777,465 2,916,286 467,474 ||
============== ============= ============ ||
||
Net Earnings (Loss) Per ||
Share Before Cumulative ||
Effect of Change In ||
Accounting Principle ||
and Extraordinary Item $0.51 0.46 0.07 ||
Cumulative Effect of Change ||
In Accounting Principle $0.10 - - ||
------------- ------------- ------------ ||
Net Earnings (Loss) Per ||
Share Before ||
Extraordinary Item $0.61 0.46 0.07 ||
Extraordinary Item - - - ||
------------- ------------- ------------ ||
Net Earnings (Loss) ||
Per Share $0.61 0.46 0.07 ||
============= ============= ============ ||
||
Weighted Average Shares ||
Outstanding, ||
Including Common ||
Share Equivalents (1) 6,176,991 6,291,407 6,291,407 ||
============= ============= ============ ||
||
Total Assets $182,521,299 162,842,567 148,563,052 ||
============= ============= ============ ||
||
Indebtedness: ||
Total mortgages, convertible ||
debentures, construction ||
loans and notes payable $154,020,757 133,390,553 116,494,372 ||
============= ============= ============ ||
||
Net cash provided by ||
(used in) operating ||
activities $11,193,068 7,766,044 3,479,346 ||
============= ============= ============ ||
||
Cash Dividends ||
Paid Per Share $0.89 0.85 0.05 ||
============= ============= ============ ||
<PAGE>
BTR Realty, Inc.
---------------------------------------------
January 1, 1993
to September 10, Years ended December 31,
1993 1992 1991
Revenues 15,912,211 22,655,133 22,779,812
Net Earnings (Loss)
Before Cumulative
Effect of Change In
Accounting Principle and
Extraordinary Item (2,057,106) (1,118,957) (4,688,646)
Cumulative Effect of Change
In Accounting Principle - 1,286,000 -
-------------- ------------ ------------
Net Earnings (Loss) Before
Extraordinary Item (2,057,106) 167,043 (4,688,646)
Extraordinary Item (548,323) - -
-------------- ------------ ------------
Net Earnings (Loss) (2,605,429) 167,043 (4,688,646)
============== ============ ============
Net Earnings (Loss) Per Share
Before Cumulative
Effect of Change In
Accounting Principle and
Extraordinary Item (0.24) (0.13) (0.55)
Cumulative Effect of Change In
Accounting Principle - 0.15 -
-------------- ------------ ------------
Net Earnings (Loss) Per
Share Before
Extraordinary Item (0.24) 0.02 (0.55)
Extraordinary Item (0.06) - -
-------------- ------------ ------------
Net Earnings (Loss)
Per Share (0.30) 0.02 (0.55)
============== ============ ============
Weighted Average Shares
Outstanding,
Including Common
Share Equivalents (1) 8,512,718 8,503,916 8,527,036
============== ============ ============
Total Assets 147,869,512 153,212,133 159,879,954
============== ============ ============
Indebtedness:
Total mortgages, convertible
debentures, construction
loans and notes payable 150,666,971 149,168,632 153,024,838
============== ============ ============
Net cash provided by
(used in) operating
activities 4,129,635 1,249,138 (961,065)
============== ============ ============
Cash Dividends
Paid Per Share 0.58 - -
============== ============ ============
(1) In September, 1993, MART issued 3,450,000 shares in its initial public
offering, and as part of the merger, exchanged for every 3 shares of BTR, 1
share of MART totaling approximately 8,526,000 shares of BTR for
approximately 2,842,000 shares of MART.
Continued
16
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA - CONTINUED
Summary Financial Data
The following sets forth summary financial data on an actual and pro
forma basis. 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 included in Item 8. The pro forma financial data is
unaudited and is not necessarily indicative of the results which actually
would have occurred if the transactions had been consummated at January 1,
1992, nor does it purport to represent the financial position and results of
operations for future periods. The following assumes the MART public offering
took place on January 1, 1992.
Summary Financial Data
In thousands, except per share data
Years ended December 31,
1995 1994 1993 1992
ACTUAL ACTUAL PROFORMA
Revenues $24,919 22,849 20,777 20,051
Earnings $3,777 2,916 1,217 494
Earnings per share $0.61 0.46 0.19 0.08
Funds from operations (FFO) (1):
Primary $8,008 6,797 6,034 5,398
Fully diluted $12,582 11,400 10,609 9,973
Net Cash Flow
Provided by operating
activities $11,193 7,766 N/A (2) N/A (2)
Used in investing
activities $23,584 19,630 N/A (2) N/A (2)
Provided by financing
activities $12,561 11,521 N/A (2) N/A (2)
Weighted average number of shares
outstanding:
Primary 6,177 6,291 6,291 6,291
Fully diluted 11,889 12,005 12,005 12,005
(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 gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
flows from operations as defined by generally accepted accounting principles
(GAAP). FFO is not indicative that cash flows are adequate to fund all cash
needs and is not to be considered as an alternative to net income as defined
by GAAP. The presentation of FFO is not normally included in financial
statements prepared in accordance with GAAP.
(2) Net Cash Flow activities cannot be reasonably estimated on a pro forma
basis for 1993 and 1992.
Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for MART for 1995 are
summarized as follows:
Quarter ended
1995 March 31, June 30, September 30, December 31,
Revenues $6,260,154 6,012,769 6,044,535 6,601,513
Earnings before Cummulative
Effect of Change in
Accounting Principle $1,352,427 570,058 531,636 710,961
Cummulative Effect of Change
In Accounting Principle $612,383 - - -
----------- ----------- ----------- ----------
Net Earnings $1,964,810 570,058 531,636 710,961
=========== =========== =========== ==========
Net Earnings per share $0.31 0.09 0.09 0.12
=========== =========== =========== ==========
The unaudited quarterly results of operations for MART for 1994 are
summarized as follows:
Quarter ended
1994 March 31, June 30, September 30, December 31,
Revenues $5,556,016 5,868,272 5,444,666 5,979,927
Net earnings $700,334 750,505 317,461 1,147,986
=========== =========== =========== =========
Net earnings per share $0.11 0.12 0.05 0.18
=========== =========== =========== =========
Quarterly results are influenced by a number of factors including timing
of settlements of property sales, completion of operating projects, and
write-offs of unrecoverable development costs.
17
<PAGE>
ITEM 7
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the Company's operations for the year
ended December 31, 1995, with the year ended December 31, 1994. The
discussion also compares the Company's operations for the year ended December
31, 1994 with the year ended December 31, 1993, which includes the summation
of the Company's and BTR's results of operations.
Comparison of 1995 to 1994
Rental revenues increased by $2,023,000, or 9%, to $23,914,000 for the
year ended December 31, 1995 from $21,891,000 for the year ended December 31,
1994. Two acquisitions, Easton Shoppes in September, 1994 and Brandywine
Commons in November, 1995, contributed to rental increases of $943,000 and
$222,000, respectively. Also, new redevelopment and development projects
contributed $527,000 to rental revenue increases. Additionally, net
increases, primarily in occupancy and rental rates, resulted in rental
increases of $763,000. The rental increases were offset by a $357,000
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, $75,000 in net rental decreases were primarily
related to vacancies.
Loss (gain) on sales of properties held for sale decreased by $103,000 to
a loss of $22,000 in 1995 from a gain of $81,000 in 1994. The decrease was
attributable to a $25,000 net loss on the sales of lots in North Carolina as
well as a $3,000 gain on the sale of an Arizona outparcel in 1995. In 1994,
there was a $31,000 net gain on the sales of lots in North Carolina, as well
as a $50,000 gain on the sale of a lot in Fallston, Maryland.
Other income increased by $150,000 to $1,027,000 in 1995 from $877,000 in
1994 primarily from an increase due to fire insurance proceeds for lost rent
at Rolling Road which was damaged by a fire in December, 1992, interest
income increases and from other income increases at Patriots Plaza and
Wilkens Office II.
As a result of the above changes, total revenues increased by $2,070,000
to $24,919,000 in 1995 from $22,849,000 in 1994.
Interest expense increased by $1,005,000 to $11,348,000 in 1995 from
$10,343,000 in 1994 primarily due to the two new acquisitions, Easton Shoppes
and Brandywine Commons, which contributed to interest expense increases of
$692,000, and $97,000, respectively. Also, new redevelopment and development
projects contributed $268,000 to interest expense increases. The interest
expense increases were offset by $59,000 in interest expense decreases
related to interest rate reductions, and $25,000 in interest expense
decreases from principal reductions.
Depreciation and amortization increased by $481,000 to $5,564,000 from
$5,083,000 primarily due to the redevelopment at Harford Mall and York Road,
the Easton Shoppes acquisition, and to tenant improvements at the Gateway I
& II Offices. The increases were offset by depreciation decreases primarily
from the aforementioned sale of the Regal Row warehouse property.
Operating expenses decreased by $249,000 to $3,088,000 from $3,337,000
primarily due to $156,000 in lower legal fees related to a tenant suit,
settled in 1995, at the Smoketown Plaza project. Operating expenses also
decreased by $144,000 due to the sales of the aforementioned Regal Row
warehouse project and the Oakton bowl project sold in December, 1994. Other
net operating expense decreases of $70,000 were primarily related to higher
tenant occupancy resulting in lower landlord operating expenses. The
operating expense decreases were offset primarily by $70,000 in operating
expense increases related to McRay Plaza, sold in December, 1995 and Park
Sedona Plaza, sold in January, 1996 and $51,000 in operating expense
increases related to the new acquisition, Brandywine Commons.
General and administrative expenses increased by $29,000 to $1,780,000
from $1,751,000 due primarily to a $92,000 increase in net payroll expense,
$52,000 in other net expense increases offset by a $82,000 decrease in
insurance expense and a $33,000 decrease in legal fees.
Minority interest expense increased by $177,000 to $718,000 from $541,000
generally due to higher earnings in minority interest ventures in 1995.
18
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Comparison of 1995 to 1994 - Continued
Earnings from operations increased by $627,000 to $2,421,000 from
$1,794,000. Certain non-operating items occurred for both periods. For the
year ended December 31, 1995, MART recognized a loss on the sale of the Regal
Row warehouse operating property of $377,000, a gain on the sale of the McRay
Shopping Center in Arizona of $119,000, 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 $3,777,000 for the period. For the year ended
December 31, 1994, MART recorded a gain on sales of operating properties of
$1,122,000, and, when combined with the earnings from operations for the
period, resulted in net earnings of $2,916,000.
Comparison of 1994 to 1993
Rental revenues increased by $1,209,000, or 6%, to $21,891,000 for the
year ended December 31, 1994 from $20,682,000 for the year ended December 31,
1993. Net increases in occupancy and CPI rental rates resulted in rental
increases of approximately $1,125,000. Additionally, two acquisitions,
Timonium Mall in October, 1993 and Easton Shoppes in September, 1994,
contributed to rental increases of $600,000 and $374,000, respectively. The
rental increases were offset by a $732,000 loss of rental attributable to
operating properties sold or discontinued in 1993, a $74,000 loss of rental
attributable to the redevelopment of York Road Plaza in 1994, and $84,000 in
other net rental decreases.
Sales of residential property decreased by $1,032,000 due to the
discontinuation and final sellout of BTR's residential assets in July, 1993.
Gains on sales of properties held for sale increased by $50,000 to $81,000
in 1994 from $31,000 in 1993 due to higher profit margins on properties sold
in 1994.
Other income increased by $133,000 to $877,000 in 1994 from $744,000 in
1993 primarily as a result of $424,000 in interest income increases from
partners' notes receivables added in September, 1993, and increases due to a
$166,000 loss included in BTR's other income in September, 1993 related to a
provision for losses on notes receivable. The increases were offset by
decreases due to a $210,000 decrease in income from a lease termination
payment recorded as other income in December, 1993 and $247,000 in net
decreases primarily related to higher tenant lease cancellation charges and
fees in 1993.
As a result of the above changes, total revenues increased by $360,000 to
$22,849,000 in 1994 from $22,489,000 in 1993.
Interest expense decreased by $2,011,000 to $10,343,000 in 1994 from
$12,354,000 in 1993 primarily due to the payoff in September, 1993 of higher
fixed rate mortgage debt which was replaced by the sale of lower interest
convertible subordinated debentures and the sale of common shares.
Approximately $1,839,000 in interest expense decreases can be attributable to
the payoff of mortgage debt and replacement with debentures and common
shares. A decrease in interest expense of $409,000 can be attributable to the
discontinuation of operations in September, 1993 of a residential operating
property sold in February, 1994. Other net decreases of $100,000 in interest
expense are generally related to projects terminated in 1993 and principal
paydowns. Additionally, the interest expense decreases were offset by
increases from the two new acquisitions, Timonium Mall in October, 1993 and
Easton Shoppes in September, 1994, which contributed to interest increases of
$106,000 and $231,000, respectively.
Depreciation and amortization increased by $347,000 to $5,083,000 in 1994
from $4,736,000 in 1993, primarily due to the following increases:
amortization of debentures sold in September, 1993, $204,000, new
acquisitions - Timonium, $99,000, and Easton, $57,000, new tenant
improvements Gateway I & II, $64,000, and new redevelopment, Rolling Road
Plaza, $28,000. The increases were offset by a $111,000 decrease in depreciation
expense due to the discontinuation of operations in September, 1993 of a
residential property sold in February, 1994.
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Comparison of 1994 to 1993 - Continued
Operating expenses decreased by $417,000 to $3,337,000 in 1994 from
$3,754,000 in 1993, primarily due to the discontinuation in September, 1993
of the residential operating property sold in February, 1994 which decreased
operating expenses by $321,000. In addition, operating expense decreased by
$117,000 as a result of the sale of certain projects, Harbour Island and
Plantation Bowl,which were sold in July, 1993 and January, 1994,
respectively. Some operating expense decreases were due to projects with
additional occupancy in 1994, which included Columbia Plaza, $68,000, Sedona,
$57,000, & McRay, $49,000. Other projects had operating decreases due to
various gross expense decreases, such as Burke Town, $43,000 (primarily
legal fees decreased) and York Road Plaza, $28,000 (primarily real estate
taxes decreased). These major decreases in operating expenses were offset by
increases in operating expenses primarily related to the new acquisition of
Timonium of $173,000 and additional legal fees related to the Smoketown Plaza
project of $101,000.
Cost of residential property sold decreased by $1,008,000 due to the
discontinuation of the residential sales in July, 1993.
General and administrative expenses increased by $397,000 to $1,751,000 in
1994 from $1,354,000 in 1993 due to an increase of $120,000 in payroll
expenses which was due to the adoption, in 1994, of an incentive based
compensation plan. In addition, payroll expenses increased by $158,000
primarily due to fewer payroll costs capitalized in 1994. Other increases in
general and administrative expenses were related to additional shareholder
related costs of $52,000, an increase in 401K Plan expense of $45,000 due to
a one time downward expense adjustment in December, 1993, and various other net
increases totaling $104,000. The increases were offset by decreases in
general and administrative expenses related to lower outside professional
fees of $33,000 and a decrease of $49,000 in stock compensation expense.
Unrecoverable development costs decreased by $1,279,000 due to write-downs
in 1993 to net realizable value of two residential properties under contract
of sale pursuant to a divestiture plan and the write-down in 1993 to net
realizable value of a property held for sale.
Minority interest expense increased by $539,000 to $541,000 in 1994 from
$2,000 in 1993 generally due to higher earnings in minority interest
ventures.
Earnings from operations increased by $3,792,000 to $1,794,000 in 1994
from a loss from operations of $1,998,000 in 1993. At September 10, 1993, BTR
recorded an extraordinary loss of $548,000 due to an early extinguishment of
debt. A net income tax benefit of $408,000 was recognized by BTR for the
period January 1 to September 10, 1993. The 1993 extraordinary item and
income tax benefit for the combined year ended December 31, 1993, offset the
loss from operations for the period resulting in a $2,138,000 net loss for
the combined year ended 1993 for BTR and the Company. For the year ended
December 31, 1994, the Company recorded a gain on the sales of operating
properties of $1,122,000, and, when combined with the earnings from
operations for the period, resulted in net earnings of $2,916,000 for the
year ended December 31, 1994.
Cash Flow comparison
The following discussion compares the statements of cash flows of the
Company for the year ended December 31, 1995 with the statements of cash
flows for the year ended December 31, 1994. The discussion also compares the
statments of cash flows of the Company for the year ended December 31, 1994
with the statements of cash flows for the year ended December 31, 1993, which
includes the summation of the Company's and BTR's cash flows.
Cash Flow comparison of 1995 to 1994
Net cash flow provided by operating activities increased by $3,427,000, to
$11,193,000 for the year ended December 31, 1995 from $7,766,000 for the year
ended December 31, 1994. Net cash flow increased generally due to the
following: an increase in net earnings of $861,000 (described above), an
increase of $658,000 due to increases in depreciation and minority interest
expense adjustments, a $1,379,000 increase related to the gain on the sales
of operating properties in 1994 offset by a net loss on the sales of
operating properties in 1995, and a $1,933,000 increase in operating
liabilities. The cash flow increases were offset by a decrease in operating
assets of $1,404,000.
20
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Cash Flow comparison of 1995 to 1994 - Continued
Net cash flow used in investing activities increased by $3,954,000, to
$23,584,000 from $19,630,000. The increase was primarily a result of the
following: acquistions and additions to properties which resulted in an
increase of $7,325,000 (primarily the acquistion of Brandywine Commons, the
Owings Mills development project and the redevelopment projects in 1995
exceeding the Easton Shoppes acquisition in 1994), a decrease in cash flow
used in investing activities related to an increase in proceeds from sales of
properties of $1,652,000, and an increase of $1,719,000 related to an
increase in receipts from minority partners in 1995.
Net cash flow provided by financing activities increased by $1,040,000, to
$12,561,000 from $11,521,000. The increase was primarily from two major net
cash increases: (1) a $10,100,000 cash increase due to the addition to
construction loan payable for the new Owings Mills New Town shopping center
under development, and (2) $9,603,000 in cash increases due to additions to
mortgages payable primarily related to the closing of mortgages in 1995 for
the Shoppes at Easton and York Road redevelopment. The increases were offset
by decrease in cash flow provided by financing activities primarily from two
major cash decreases: (1) a decrease of $15,949,000 in cash flows due to a
net increase in payments on notes payable, and (2) a $2,235,000 decrease in
cash flow due to the purchase of common shares in 1995, (3) a decrease in cash
due to an increase of $347,000 in deferred finance costs, and (4) a decrease
in cash flow due to an increase in dividends paid in 1995 of $132,000.
Cash Flow comparison of 1994 to 1993
Net cash flow provided by operating activities increased by $157,000, to
$7,766,000 for the year ended December 31, 1994 from $7,609,000 for the year
ended December 31, 1993. Net cash flow increased generally due to the
following: An increase in net earnings of $5,054,000 (described above), an
increase of $886,000 due to increases in depreciation and minority interest
expense adjustments, an increase of $611,000 due to increased lease
cancellation fees deferred in 1994, an increase of $461,000 due to deferred
income tax liability for 1993 (See Note K of notes to the consolidated
financial statements), and the balance of the increases, $31,000, was an
increase in operating assets. The increases were offset by decreases of
$4,138,000 related to reductions in operating liabilities. Other major
decreases in net cash flow were due to $1,279,000 in unrecoverable
development cost decreases, a $1,122,000 decrease related to the gain on the
sales of operating properties in 1994, and other decreases totaling $347,000
primarily related to the extraordinary loss on early extinguishment of debt
in 1993.
Net cash flow used in investing activities increased by $13,680,000, to
$19,360,000 from $5,950,000. The increase was primarily a result of the
following: acquisitions and additions to properties which resulted in an
increase of $14,644,000 (primarily the Shoppes at Easton acquisition in
September, 1994), a decrease in cash flow used in investing activities
related to an increase in proceeds from sales of properties of $1,617,000
(primarily due to sales of land held for sale and operating properties in
1994), and an increase of $653,000 related to an increase in payments to
minority partners in 1994.
Net cash flow provided by or used in financing activities increased by
$12,591,000, to net cash provided by financing activities of $11,521,000 from
net cash used in financing activities of $1,070,000. The increase was
primarily from three major net cash increases: (1) $18,369,000 in cash
increases due to net additions to notes payable primarily in 1994 for tha
acquisition of the Shoppes at Easton in September, 1994 and the land for the
new Owings Mills New Town shopping center under development purchased in
December, 1994, (2) net reductions in 1993 in construction loans payable, and
mortgages payable of $84,560,000, (3) 1993 additions to deferred debenture
costs of $3,063,000. The increases were offset by a decrease in cash flow
provided by financing activities resulting from the net cash flow provided by
the net proceeds in 1993 from the sale of debentures and common shares of
$93,453,000. Other net increases for the period totaled $52,000.
Liquidity and Capital Resources
MART improved its liquidity in September, 1993 with the conversion from
BTR. The initial public share and debenture offering on September 10, 1993
replaced higher fixed rate mortgage debt with lower interest convertible
subordinated debentures and the sale of common shares.
In order to qualify as a REIT for Federal income tax purposes, MART is
required to pay dividends to its shareholders of at least 95% of its REIT
taxable income. MART intends to pay these dividends from operating cash
flows which have increased due to the reduction in debt service resulting
from the repayment of indebtedness with the proceeds of the offering, and
from future growth in rental revenues and other sources, such as the leasing
of currently vacant space and development of undeveloped parcels. While MART
intends to distribute to its shareholders a substantial portion of its cash
flows from operating activities, MART also intends to retain or reserve such
amounts as it considers necessary from time to time for the acquisition or
development of new properties as suitable opportunities arise and for the
expansion and renovation of its shopping centers. Also, MART currently has
and will continue to maintain a line of credit of at least $40,000,000 from
a commercial bank (See Note I of notes to the consolidated financial
statements).
21
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
The Company anticipates material committments for capital expenditures
to include, in the next two years, the redevelopment or development of four
Maryland projects with an additional four redevelopment projects in the
planning stage at an estimated cost between $14 and $25 million. The Company
expects to fund the development projects and other capital expenditures with
(i) available net cash flows from operating activities, (ii) if necessary,
construction loan financing, (iii) if necessary, long term mortgage financing
on unencumbered operating properties, and (iv) if necessary, the use of its
$40,000,000 line of credit from a commercial bank (See Note I of notes to the
consolidated financial statements).
It is management's intention that MART continually have access to the
capital resources necessary to expand and develop its business. Management
cannot practically quantify MART's 1996 cash requirements, but, expects to
meet its short-term liquidity requirements generally through available net
cash flow provided by operations and short-term borrowings. To meet its
long-term liquidity requirements, MART intends to obtain funds through
additional equity offerings or long-term debt financing in a manner
consistent with its intention to operate with a conservative debt
capitalization policy. MART anticipates that the cash flow available from
operations, together with cash from borrowings, will be sufficient to meet
the capital and liquidity needs of MART in both the short and long term.
New Accounting Standards
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 will recognize percentage rent as rental
revenues in the period when the actual percentage rent is earned. On January 1,
1995, the Company began 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.
Effective April 1, 1994 the Company adopted a new accounting treatment
regarding lease cancellation fees received from tenants who want to
discontinue their remaining lease term obligations. Prior to April 1, 1994,
the lease termination payments for major tenants were recognized as other
income in the period when the termination agreement was executed. Under the
new treatment, the entire amount of the cancellation or termination fee on
the date of the lease termination is deferred and then amortized into income
on a straight-line basis over the remaining original lease term as minimum
rent. The Company believes that this change is preferable since it provides
a better matching of revenues and expenses. During 1994, approximately
$687,000 of termination fees were deferred, and $56,000 were amortized.
During 1995, approximately $772,000 of termination fees were deferred, and
$266,000 were amortized.
Deferred Financing Costs
Effective January 1, 1996 the Company changed its reporting of
amortization of deferred finance costs. During the year ended December 31,
1995 and previously, the annual amortization of deferred finance costs was
reported in the depreciation and amortization of property and improvements
expense line on the consolidated statements of operations. Effective January
1, 1996, the Company will be reporting the annual amortization of deferred
finance costs in the interest expense line on the consolidated statement of
operations. The Company will restate all comparative prior year interest and
depreciation and amortization expense line items. The change will have no
effect on the presentation of net earnings, but will only reclassify interest
expense and depreciation and amortization expense line items.
Inflation
The majority of all of the leases at the shopping center properties
contain provisions which may entitle MART to receive percentage rents
based on the tenants' gross sales. Such percentage rents ameliorate the
risk to MART of the adverse effects of inflation. Percentage rent received
by MART remained stable in the year ended December 31, 1995 compared
to the year ended December 31, 1994. If a recession were to begin and continue
for a prolonged time, funds from operations could decline as some tenants may
have trouble meeting their lease obligations. Most of the leases at the
properties require the tenants to pay a substantial share of operating
expenses, such as real estate taxes, insurance and common area maintenance
costs, and thereby reduce MART's exposure to increased costs. In addition,
many of the leases at the properties are for terms of less than 10 years,
which may enable MART to seek increased rents upon renewal of existing leases
if rents are below the then-existing market value.
Stock Repurchase Plan
On February 14, 1995 the MART Board of Trustees approved a stock
repurchase plan. Under this plan, MART may, from time to time, repurchase
shares of its common stock either in the open market or in privately
negotiated transactions upon such prices and other terms as the Company deems
appropriate. The aggregate number of shares authorized on February 14, 1995 for
repurchase could not exceed 5% of the number of shares currently outstanding,
or approximately 310,000. On February 12, 1996 the MART Board of Trustees
increased by 100,000 the authorized number of shares that may be repurchased
up to 410,000.
22
<PAGE>
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES, &
BTR REALTY, INC. & SUBSIDIARIES (PREDECESSOR)
Financial Statements:
Independent auditors' report ......................24
Consolidated Balance Sheets -
as of December 31, 1995 and 1994 ................25
Consolidated Statements of Operations -
For the Years ended December 31, 1995 and 1994
and the Periods ended December 31, 1993 and
September 10, 1993 ..............................26
Consolidated Statements of Shareholders' Equity -
For the Years ended December 31, 1995 and 1994
and the Periods ended December 31, 1993 and
September 10, 1993 ..............................27
Consolidated Statements of Cash Flows -
For the Years ended December 31, 1995 and 1994
and the Periods ended December 31, 1993 and
September 10, 1993 ..............................28
Notes to Consolidated Financial Statements ........30
Exhibits, Financial Statement Schedule, and Reports on Form 8-K are included
in Part IV - Item 14.
Schedule:
Schedule III - Real Estate and Accumulated
Depreciation ..................................40
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Trustees and Shareholders
Mid-Atlantic Realty Trust :
We have audited the accompanying consolidated balance sheets of Mid-Atlantic
Realty Trust and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1995, and 1994 and the period ended
December 31, 1993 and the consolidated statements of operations, shareholders'
equity and cash flows of BTR Realty, Inc. and subsidiaries for the period
ended September 10, 1993. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule
as listed in the accompanying index. These consolidated financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
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 financial position of
Mid-Atlantic Realty Trust and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for the years ended
December 31, 1995 and 1994, and the period ended December 31, 1993, and the
results of BTR Realty, Inc. and subsidiaries' operations and their cash flows
for the period ended September 10, 1993, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in note A to the consolidated financial statements, the Company
changed its method of accounting for percentage rents on January 1, 1995.
Also, as discussed in note A, the Company changed its method of accounting
for lease termination payments in 1994.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 15, 1996
24
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES
Consolidated Balance Sheets
As of
December 31,
1995 1994
ASSETS
Properties:
Operating properties
(Notes C and D)............$ 204,132,134 176,511,730
Less accumulated depreciation
and amortization .......... 39,430,308 36,448,969
------------- -------------
164,701,826 140,062,761
Development operations
(Note E)................... 1,510,544 6,354,947
Property held for
development or sale ....... 8,179,378 8,630,465
------------- -------------
174,391,748 155,048,173
Cash and cash equivalents .... 514,386 344,522
Notes and accounts
receivable - tenants
and other (Note F).......... 2,350,578 1,688,194
Due from joint venture
partners ................... 1,599,581 1,937,019
Prepaid expenses and deposits. 449,850 402,283
Deferred financing costs
(Note G) ................... 3,215,156 3,422,376
------------- -------------
$ 182,521,299 162,842,567
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
expenses (Note H).......... $ 4,604,848 3,534,277
Notes payable (Note I)....... 21,530,143 20,139,413
Construction loan payable
(Note D)................... 10,099,510 -
Mortgages payable (Note D) .. 62,411,104 53,251,140
Convertible subordinated
debentures (Note J)........ 59,980,000 60,000,000
Deferred income ............. 1,222,673 730,466
Minority interest in
consolidated joint ventures 1,734,799 330,893
------------- -------------
161,583,077 137,986,189
Shareholders' Equity (Note L):
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, 6,016,111, and
6,291,407, respectively...... 60,161 62,914
Additional paid-in capital .. 40,389,783 42,602,505
Distributions in excess of
accumulated earnings ........ (19,511,722) (17,809,041)
------------- -------------
20,938,222 24,856,378
Commitments (Note M)
------------- -------------
$ 182,521,299 162,842,567
============= =============
See accompanying notes to consolidated
financial statements.
25
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
Consolidated Statements of Operations
Mid-Atlantic Realty Trust ||BTR Realty, Inc.
September 11 ||
to || January 1 to
Years Ended December 31, December 31,|| September 10,
1995 1994 1993 || 1993
||
REVENUES: ||
Rentals .......... $23,914,267 21,890,446 6,061,175 || 14,620,418
(Loss) gain on sales of properties held ||
for sale, net ..... (22,631) 81,313 - || 31,501
Sales of residential ||
property .......... - - - || 1,032,000
Other (Note O) ...... 1,027,335 877,122 515,509 || 228,292
------------ ----------- ---------- || -----------
24,918,971 22,848,881 6,576,684 || 15,912,211
------------ ----------- ---------- || -----------
COSTS AND EXPENSES: ||
Interest ............11,347,541 10,342,725 3,076,060 || 9,278,198
Depreciation and ||
amortization of property ||
and improvements .. 5,564,395 5,083,384 1,502,449 || 3,233,530
Operating............ 3,087,593 3,336,415 1,104,193 || 2,649,341
General and ||
administrative .... 1,780,397 1,751,101 300,625 || 1,053,295
Cost of residential ||
property sold...... - - - || 1,008,475
Unrecoverable ||
development costs.. - - - || 1,278,817
------------ ----------- ---------- || -----------
21,779,926 20,513,625 5,983,327 || 18,501,656
------------ ----------- ---------- || -----------
EARNINGS (LOSS) FROM ||
OPERATIONS BEFORE ||
MINORITY INTEREST .. 3,139,045 2,335,256 593,357 || (2,589,445)
Minority interest ||
(expense) benefit .. (718,019) (540,744) (125,883) || 124,129
------------ ----------- ---------- || -----------
EARNINGS (LOSS) FROM ||
OPERATIONS ......... 2,421,026 1,794,512 467,474 || (2,465,316)
Gain on life insurance ||
proceeds (Note P)... 1,001,787 - - || -
(Loss) gain on sales of ||
operating properties (257,731) 1,121,774 - || -
------------ ----------- ---------- || -----------
||
EARNINGS (LOSS) BEFORE INCOME ||
TAXES, CUMULATIVE EFFECT OF ||
CHANGE IN ACCOUNTING PRINCIPLE ||
AND EXTRAORDINARY ||
ITEM 3,165,082 2,916,286 467,474 || (2,465,316)
Income tax benefit, ||
net (Note K) ...... - - - || 408,210
------------ ----------- ---------- || -----------
EARNINGS (LOSS) BEFORE ||
CUMULATIVE EFFECT OF ||
CHANGE IN ACCOUNTING ||
PRINCIPLE AND ||
EXTRAORDINARY ITEM . 3,165,082 2,916,286 467,474 || (2,057,106)
Cumulative effect of ||
change in accounting ||
for percentage ||
rents .............. 612,383 - - || -
------------ ----------- ---------- || -----------
EARNINGS (LOSS) BEFORE ||
EXTRAORDINARY ITEM . 3,777,465 2,916,286 467,474 || (2,057,106)
Extraordinary item - ||
Loss on early ||
extinguishment ||
of debt ............ - - - || (548,323)
------------ ----------- ---------- || -----------
NET EARNINGS ||
(LOSS) ............$ 3,777,465 2,916,286 467,474 || (2,605,429)
============ =========== ========== || ===========
||
Earnings (loss) per share ||
before cumulative effect ||
of change in accounting ||
principle and extraordinary ||
item ............. $ 0.51 0.46 0.07 || (0.24)
Cumulative effect of change ||
in accounting principle 0.10 - - || -
------------ ----------- ---------- || -----------
Earnings (loss) per ||
share before extraordinary ||
item .............. 0.61 0.46 0.07 || (0.24)
Extraordinary item - ||
early extinguishment ||
of debt ........... - - - || (0.06)
------------ ----------- ---------- || -----------
NET EARNINGS (LOSS) ||
PER SHARE .........$ 0.61 0.46 0.07 || (0.30)
============ =========== ========== || ===========
See accompanying notes to consolidated financial statements.
26
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1995, 1994 and 1993
Distributions
Additional in Excess of Net
Common Par Paid-in Accumulated Shareholders'
Shares Value Capital Earnings Equity
BTR REALTY, INC.
BALANCE,
January 1, 1993 8,503,916 $85,039 9,078,718 (7,980,227) 1,183,530
Stock issued through
the exercise of options
pursuant to the BTR
stock compensation
plan 78,286 783 224,475 - 225,258
Stock canceled for
repayment of a note
receivable from a
former employee (56,554) (566) (176,485) - (177,051)
Dividend paid -
$.58 per share - - - (4,944,879) (4,944,879)
Net loss - - - (2,605,429) (2,605,429)
---------- ------- ---------- ------------ -----------
BALANCE,
September 10,
1993 8,525,648 85,256 9,126,708 (15,530,535) (6,318,571)
==========================================
MID-ATLANTIC REALTY TRUST
Conversion of 3 shares
of BTR for 1 share of
MART (5,683,765)(56,837) 56,837 - -
Acquisition of
fractional Shares (476) (5) (5,024) - (5,029)
Initial sale of
common shares of
beneficial
interest 3,450,000 34,500 33,423,984 - 33,458,484
Dividend paid -
$.05 per share - - - (314,570) (314,570)
Net Earnings - - - 467,474 467,474
---------- ------- ----------- ------------- ------------
BALANCE,
December 31, 1993 6,291,407 62,914 42,602,505 (15,377,631) 27,287,788
========== ======= =========== ============= ============
Dividends paid -
$.85 per share - - - (5,347,696) (5,347,696)
Net Earnings - - - 2,916,286 2,916,286
---------- ------- ----------- ------------- ------------
BALANCE,
December 31, 1994 6,291,407 62,914 42,602,505 (17,809,041) 24,856,378
========== ======= =========== ============= ============
Conversion of
convertible
subordinated
debentures 1,904 19 19,122 - 19,141
Share purchase
plan (277,200) (2,772) (2,231,844) - (2,234,616)
Dividends paid -
$.89 per share - - - (5,480,146) (5,480,146)
Net earnings - - - 3,777,465 3,777,465
---------- ------- ----------- ------------- ------------
BALANCE,
December 31, 1995 6,016,111 $60,161 40,389,783 (19,511,722) 20,938,222
========== ======= =========== ============= ============
See accompanying notes to consolidated financial statements.
27
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
Consolidated Statements of Cash Flows
Mid-Atlantic Realty Trust ||BTR Realty, Inc.
September 11 ||
to || January 1 to
Year Ended December 31, December 31,|| September 10,
1995 1994 1993 || 1993
||
Cash flows from ||
operating activities: ||
Net earnings (loss) $3,777,465 2,916,286 467,474 || (2,605,429)
Adjustments to reconcile ||
net earnings (loss) ||
to net cash provided ||
by operating activities: ||
Depreciation and ||
amortization .... 5,564,395 5,083,384 1,502,449 || 3,233,530
Minority interest ||
in earnings (loss), ||
net ............. 718,019 540,744 125,883 || (124,129)
Loss (gain) on sales ||
of operating ||
properties ...... 257,731 (1,121,774) - || -
Loss (gain) on sales of ||
residential properties ||
and properties held ||
for sale, net ... 22,631 (81,313) - || (7,976)
Unrecoverable ||
development costs - - - || 1,278,817
Loss on early ||
extinguishment ||
of debt - ||
capitalized ..... - - - || 273,308
Deferred income ||
taxes benefit ... - - - || (460,570)
Changes in operating ||
assets and liabilities: ||
(Increase) decrease ||
in operating ||
assets ......... (709,951) 694,434 108,480 || 555,067
Increase (decrease) ||
in deferred rental ||
income .......... 505,887 610,678 (974,173) || 974,173
Increase (decrease) ||
in operating ||
liabilities .... 1,056,891 (876,395) 2,249,233 || 1,012,844
----------- ---------- ---------- || -----------
Total ||
adjustments... 7,415,603 4,849,758 3,011,872 || 6,735,064
----------- ---------- ---------- || -----------
NET CASH PROVIDED BY ||
OPERATING ||
ACTIVITIES 11,193,068 7,766,044 3,479,346 || 4,129,635
----------- ---------- ---------- || -----------
||
Cash flows from ||
investing activities: ||
Additions to ||
properties .... (29,522,542)(22,197,577) (6,173,532) || (1,379,710)
Proceeds from sales ||
of properties.. 4,914,988 3,263,444 - || 1,646,748
Payments to minority ||
partners ..... (779,675) (792,394) (256,009) || (117,382)
Receipts from minority ||
partners ..... 1,803,000 96,800 42,253 || 287,606
----------- ---------- ---------- || -----------
NET CASH (USED IN) ||
PROVIDED BY ||
INVESTING ||
ACTIVITIES $(23,584,229)(19,629,727) (6,387,288) || 437,262
----------- ----------- ---------- || -----------
(CONTINUED)
28
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
Consolidated Statements of Cash Flows (Continued)
Mid-Atlantic Realty Trust ||BTR Realty, Inc.
September 11 ||
to || January 1 to
Year Ended December 31, December 31,|| September 10,
1995 1994 1993 || 1993
||
Cash flows from ||
financing activities: ||
Proceeds from ||
notes payable ..$ 80,400,000 39,456,366 3,100,000 || 90,832,649
Principal payments ||
on notes payable (79,009,270)(22,116,953) (87,486,651)|| (7,475,452)
Proceeds from ||
mortgages payable 16,400,000 - - || 2,682,600
Principal payments ||
on mortgages ||
payable ....... (7,240,036) (443,232) (3,143,953)|| (46,709,513)
Proceeds from ||
construction ||
loans payable .. 10,099,510 - - || -
Payments on ||
construction ||
loans payable .. - - - || (37,831,945)
Additions to deferred ||
finance costs - ||
other........... (374,417) (27,388) (171,954)|| (45,149)
Proceeds from sale ||
of convertible ||
debentures ..... - - 60,000,000 || -
Additions to deferred ||
finance costs - ||
debentures...... - - (3,063,274)|| -
Net proceeds from ||
sale of common ||
shares ......... - - 33,453,455 || -
Stock issued - ||
options exercised ||
in compensation ||
plan .......... - - - || 225,258
Stock canceled - ||
employee note ||
payment ....... - - - || (177,051)
Shares purchased (2,234,616) - - || -
Dividends paid .. (5,480,146) (5,347,696) (314,570)|| (4,944,879)
----------- ----------- -----------|| -----------
NET CASH PROVIDED ||
BY (USED IN) ||
FINANCING ||
ACTIVITIES ... 12,561,025 11,521,097 2,373,053 || (3,443,482)
----------- ----------- -----------|| -----------
NET INCREASE (DECREASE) ||
IN CASH AND CASH ||
EQUIVALENTS 169,864 (342,586) (534,889)|| 1,123,415
||
CASH AND CASH ||
EQUIVALENTS, ||
beginning of period 344,522 687,108 1,221,997 || 98,582
----------- ----------- -----------|| -----------
||
CASH AND CASH ||
EQUIVALENTS, ||
end of period .....$ 514,386 344,522 687,108 || 1,221,997
=========== =========== ===========|| ===========
||
Supplemental disclosures of ||
cash flow information: ||
Cash paid for: ||
Interest ...........$11,760,934 10,404,859 1,659,428 || 9,218,811
Income taxes ....... - - 20,560 || 16,813
=========== =========== ===========|| ===========
Supplemental information of noncash investing and financing activities:
In April, 1995 $20,000 in convertible debentures were converted to 1,904
common shares of beneficial interest decreasing convertible subordinated
debentures by $20,000, decreasing net deferred financing costs by $859 and
increasing shareholders' equity by $19,141.
During 1995 and 1994, respectively, $19,838,543 and $2,832,641 in assets
were transferred from Development Operations to Operating Properties.
At December 31, 1993, MART recorded an asset on the balance sheet, net
assets of properties to be sold of $449,219. The reclassification of the
assets and liabilities consisted of the following: a decrease in operating
properties of $6,505,807, a decrease in operating assets of $304,377, a
decrease in deferred financing costs of $323,449, a decrease in
operating liabilities of $42,419, and a decrease in mortgages payable of
$6,641,995. Proceeds from sales of properties for the year ended December
31, 1994 included net proceeds of $504,820 from the sale, in February, 1994,
of net assets of properties to be sold which included proceeds of $7,146,815
reduced by the payoff of the mortgage payable of $6,641,995.
On September 10, 1993, BTR reported a loss on an early extinguishment of
debt of $548,323. The loss included prepayment penalties and loan fee
expenses amounting to $275,015, and a reduction of net amortized financing
costs capitalized as costs of the related operating properties of $273,308.
In August, 1993, a former Officer of BTR surrendered 56,544 shares of BTR
stock as full repayment of his note receivable.
See accompanying notes to
consolidated financial statements.
29
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1995, 1994, 1993
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Mid-Atlantic Realty Trust, "the Company", was incorporated 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., "BTR". The Consolidated Financial Statements
for the period January 1, 1993 through September 10, 1993 of BTR Realty, Inc.
are presented for comparative purposes.
Description of Business
The Company is a fully integrated, self managed real estate investment
trust which owns, leases, develops, redevelops and manages its retail
shopping center facilities and commercial properties. The Company's primary
objective is to manage the properties for long-term cash flow growth. The
Company's principal strategies are to grow the portfolio through the
selective acquisition of additional properties in the Mid-Atlantic region,
redeveloping or developing retail properties on a selective basis, and, when
appropriate, divesting through sale or exchange of non-strategic properties.
The commercial real estate development and investment industry is subject
to widespread competition for desirable sites, tenants and favorable
financing. The industry is extremely fragmented and there are no principal
methods of competition. However, the ability to compete is dependent in part
upon the ability to find and complete appropriate real estate investments in
a timely manner. While many competitors have fewer assets and financial
resources than the Company, there are many competitors with greater financial
resources competing for similar business activities. Accordingly, it is not
possible to estimate the Company's position in the industry. In addition,
certain of the Company's real estate projects are near unimproved sites that
could be developed commercially and would provide further competition to the
Company. The management of the Company believes, however, that the Company
competes favorably in the industry due to the quality of its developments,
its ability to take advantage of opportunities as they arise, its access to
capital, and its reputation in the industry.
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
judgements that affect the reported amounts of assets and liabilities and
disclosures of contigencies at the date of the financial statements and
revenues and expenses recognized during the reporting period. Actual results
could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include all wholly-owned
subsidiaries and majority-owned partnerships. Investments in unconsolidated
joint ventures are carried on the equity method. All significant intercompany
balances and transactions have been eliminated.
The Company owns 100% majority interests in corporate subsidiaries which
are general managing partners as well as limited partners of several
partnerships which have outside partners with 50% interests. Based upon the
structure of the respective partnership management agreements the Company has
control (as defined by the Statement of Financial Accounting Standards No.
94, "Consolidation of All Majority-Owned Subsidiaries", which describes the
full consolidation method as preferable to the equity method where there is
a 50% or less financial interest but control) over the 50% owned
partnerships. The Company uses the full consolidation method to record the
50% owned partnerships.
In September, 1993, MART loaned to outside partners funds to cover their
respective partner share of partnership mortgage paydowns using their
respective equity interests in the partnerships as collateral for the notes
receivable. The company eliminates the partner notes receivable against what
is due from joint venture partners. The interest on the partner notes is
recognized as interest income.
Recognition of Revenue From Rentals
The Company earns rental income under operating leases with tenants.
Minimum rental payments are recognized as rental revenues in the period when
they are earned according to the applicable lease term. 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 will recognize percentage rent as rental revenues in the period when
the actual percentage rent is earned. On January 1, 1995, the Company began
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 a better matching of revenues and expenses.
Continued
30
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Recognition of Revenue from Rentals - Continued
Effective April 1, 1994 the Company adopted a new accounting treatment
regarding lease cancellation fees received from tenants who want to
discontinue their remaining lease term obligations. Prior to April 1, 1994,
the lease termination payments for major tenants were recognized as other
income in the period when the termination agreement was executed. Under the
new treatment, the entire amount of the cancellation or termination fee on
the date of the lease termination is deferred and then amortized into income
on a straight-line basis over the remaining original lease term as minimum
rent. The Company believes that this change is preferable since it provides
a better matching of revenues and expenses. During 1994, approximately
$687,000 of termination fees were deferred, and $56,000 were amortized.
During 1995, approximately $772,000 of termination fees were deferred, and
$266,000 were amortized.
Recognition Of Revenue From Property Sales
The sale of residential property and any resulting gain or loss on
properties held for sale are recorded upon settlement. Properties
held for sale are primarily outparcels of operating properties or
undeveloped commercial land.
Net Earnings (Loss) Per Share
Earnings (loss) per share are computed by dividing net earnings (loss) by
the weighted average number of common shares and common share equivalent
shares outstanding during each year. The effect on earnings per share
assuming conversion of the convertible subordinated debentures would be
anti-dilutive.
Capitalization Policy and Net Realizable Value
Acquisition costs, interest and other carrying costs, as well as
construction and start-up costs of commercial property are capitalized and
charged to related undeveloped land, construction in progress or deferred
costs. In addition, costs incurred in the financing and leasing of shopping
centers and other commercial properties are deferred until the project is
completed and are then amortized over the term of the related mortgage or
lease. Management ceases to capitalize or defer these costs when the carrying
value equals the net realizable value of the property or costs are unlikely
to be recoverable. Net realizable value is determined primarily by the
application of the principles of valuation of operating properties. The
basis for determining the value of operating properties is the lower of
historical cost or the net realizable value. The net realizable value of
operating properties is based on the present value of each property's
anticipated net cash flow, before debt service payments, calculated using
prevailing industry discount and capitalization rates. Anticipated net cash
flow is based upon an analysis of the history and future of the property,
existing and prospective tenant leases, occupancy rates, and estimated
operating expenses. The discount factor, capitalization rates or reversion
rates used to arrive at the net realizable value of each property are based
on the risk associated with the property as well as the prevailing rates at
the end of the reporting period. Risk variations reflect differences in
quality, age, location and market conditions of each property.
Properties
Operating properties and property held for development or sale are carried
at the lower of historical cost or, where appropriate, an amount not to
exceed estimated net realizable value. The amount the Company will
ultimately realize could differ from the estimated net realizable value.
Depreciation of buildings and leaseholds is provided using the straight-line
method over the estimated useful lives or lease terms of the properties.
Improvements for tenants are amortized on a straight-line basis over the
terms of the related tenant leases. Expenditures for normal maintenance and
repairs are charged against income as incurred.
31
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (Statement 121).
The statement established accounting standards for the impairment of long-lived
assets and certain identifiables to be disposed of. This statement
requires a write down to fair value when long-lived assets to be held and
used are impaired. The statement also requires long-lived assets to be
disposed of (e.g. real estate held for sale) to be carried at the lower of
cost or fair value less cost to sell and does not allow such assets to be
depreciated. The adoption of this statement effective January 1, 1996 will
not have a material effect on results of operations, financial condition or
liquidity.
In October 1995, the Financial Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which is effective for fiscal years beginning after December
15, 1995 and for transactions occurring after December 15, 1995. The
Statement defines a fair value based method of accounting for an employee
stock option or similar equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the value of the
award and is recognized over the service period, which is usually the vesting
period. The Statement encourages all entities to adopt the fair value method
of accounting for an employee stock option or similar equity instrument;
however, it allows an entity to continue to measure compensation costs for
stock options or similar equity instruments using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Under the intrinsic value based method,
compensation costs are the excess, if any, of the quoted market price
of the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock. Entities electing to remain with the
accounting in Opinion 25 must make proforma disclosure of net income and
earnings per share as if the fair value method of accounting had been
applied. The Company has elected to continue to measure compensation costs
for stock options or similar equity instruments using the intrinsic value
based method of accounting prescibed by APB Opinion No. 25 with proforma
disclosure of net income and earnings per share as if the fair value based
method f accounting had been applied.
Income Taxes
The Company has elected to qualify, and intends to continue to qualify as
a real estate investment trust, "REIT", pursuant to the Internal Revenue Code
Sections 856 through 860, as amended. In general, under such Code provisions
a trust which, in any taxable year, meets certain requirements and
distributes to its shareholders at least 95% of its REIT taxable income will
not be subject to Federal income tax to the extent of the income which it
distributes.
Cash and Cash Equivalents
All highly liquid unrestricted investments with original maturities of
three months or less are considered cash equivalents for purposes of the
statements of cash flows.
Deferred Financing Costs
Costs associated with the issuance of debt are capitalized and recorded as
deferred finance costs and amortized on a straight-line basis, which is not
materially different from the interest method, over the term of the related
debt.
Effective January 1, 1996 the Company changed its reporting of
amortization of deferred finance costs. During the year ended December 31,
1995 and previously, the annual amortization of deferred finance costs
was reported in the depreciation and amortization of property and
improvements expense line on the consolidated statements of operations.
Effective January 1, 1996, the Company will be reporting the annual
amortization of deferred finance costs in the interest expense line on the
consolidated statement of operations. The Company will restate all
comparative prior year interest and depreciation and amortization expense
line items. The change will have no effect on the presentation of net
earnings, but will only reclassify interest expense and depreciation and
amortization expense line items.
32
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
B. PUBLIC OFFERINGS
On September 11, 1993, the Company completed a public offering of
3,450,000 common shares of beneficial interest at $10.50 per share and
$60,000,000 in convertible subordinated debentures at 7.625%. Net proceeds
from these offerings totaled approximately $90,390,000.
C. OPERATING PROPERTIES
Operating properties consist of the following:
December 31,
1995 1994
Land $22,137,380 17,993,243
Land improvements 28,370,084 21,123,172
Buildings 115,270,325 107,030,436
Improvements for tenants 6,136,228 6,013,294
Development costs on
completed projects 16,597,684 16,577,892
Furniture, fixtures and
equipment 2,377,401 2,181,109
Deferred lease costs 13,243,032 5,592,584
------------ -----------
204,132,134 176,511,730
Less accumulated depreciation
and amortization 39,430,308 36,448,969
------------ -----------
$164,701,826 140,062,761
============ ===========
D. PROPERTIES AND RELATED ACCUMULATED DEPRECIATION AND
AMORTIZATION AND
MORTGAGES AND CONSTRUCTION LOAN PAYABLE
A summary of all of the Company's properties and related mortgages payable
at December 31, 1995 follows:
Accumulated
Cost of Depreciation
Classi- Mortgages Initial Subsequent Total and
fication Payable Cost Improvements Cost Amortization Net Cost
Shopping
centers $60,485,066 140,991,245 26,571,938 167,563,183 31,140,277136,422,906
Bowling
centers - 2,866,998 69,293 2,936,291 1,387,535 1,548,756
Office
buildings 1,926,038 26,415,163 3,652,043 30,067,206 5,718,653 24,348,553
Other rental
properties - 2,173,695 706,200 2,879,895 740,250 2,139,645
Other property - 685,559 - 685,559 443,593 241,966
--------------------------------------------------------------------
Operating
proper-
ties 62,411,104 173,132,660 30,999,474 204,132,134 39,430,308164,701,826
Development
operations - 1,510,544 - 1,510,544 - 1,510,544
Property held for
development
or sale - 8,179,378 - 8,179,378 - 8,179,378
--------------------------------------------------------------------
$62,411,104 182,822,582 30,999,474 213,822,056 39,430,308174,391,748
=================================================================
Mortgages payable aggregating $62,411,104 at December 31, 1995 bear
interest at 7.87% to 10.375% and mature in installments through 2006.
Aggregate annual principal payments applicable to mortgages payable for the
five years subsequent to December 31, 1995 are:
1996 $ 5,972,885
1997 5,388,446
1998 14,204,762
1999 425,901
2000 466,820
Thereafter 35,952,290
A construction loan payable of $10,099,510 at December 31, 1995 bears
interest at the lesser of 2.5% over the 30 day LIBOR rate or the prime rate
(at December 31, 1995 the interest rate was 8.469%) and matures on October
31, 1996.
33
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. DEVELOPMENT OPERATIONS
Development operations consist of the following:
December 31,
1995 1994
Land $ - 5,072,696
Construction in progress 1,225,844 953,456
Pre-construction costs 284,700 328,795
---------- ---------
$1,510,544 6,354,947
========== =========
Development operations are transferred to operating property costs
when a project is completed, at which time depreciation and amortization
commences. Consruction period interest cost capitalized during 1995 was
approximately $570,000.
F. NOTES AND ACCOUNTS RECEIVABLE
Included in notes and accounts receivable at December 31, 1995 are
significant concentrations of amounts due from tenants in two primary
geographical areas: the mid-Atlantic region of the United States and Arizona.
The Company performs in depth credit evaluations of prospective new tenants
and requires security deposits in most circumstances. Tenants compliance
with the terms of the leases is monitored closely and the allowance for
doubtful accounts is established based on an analysis of the risk of loss on
specific tenants, historical trends, and other relevant information. The
Company's accounts receivable at December 31, 1995 included $1,207,000 and
$336,000 due from tenants in the mid-Atlantic region and Arizona,
respectively. Management believes adequate provision has been made for the
Company's credit risk for all receivables.
G. DEFERRED FINANCING COSTS
December 31,
Deferred financing costs consist of the following: 1995 1994
Deferred costs related to the debentures $3,062,253 3,063,274
Deferred costs of line of credit 263,409 198,972
Deferred financing costs capitalized related
to operating properties 1,852,598 1,720,827
--------- ---------
5,178,260 4,983,073
Less accumulated amortization (1,963,104)(1,560,697)
--------- ---------
Deferred financing costs $3,215,156 3,422,376
========= =========
H. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31,
1995 1994
Trade accounts payable $1,600,118 1,195,143
Retainage on construction in progress 635,558 61,117
Accrued debenture interest expense 1,333,994 1,334,375
Accrued expenses 1,035,178 943,642
--------- ---------
$4,604,848 3,534,277
========= =========
I. NOTES PAYABLE
Notes payable consist of the following: December 31,
1995 1994
Line of credit $21,500,000 20,100,000
Note payable, bearing interest at 8.71% 30,143 39,413
---------- ----------
$21,530,143 20,139,413
========== ==========
At December 31, 1995, the Company has amended the existing agreement with
its primary bank to provide for an additional $5,000,000 to its $35,000,000
secured line of credit. The agreement also provides that as long as the
Company is in compliance with all loan covenants, the loan maturity date,
which at December 31, 1995 was December 31, 1998, will be extended one year
automatically each year. Under the agreement, the Bank must give the Company
two years notice should it decide to terminate the loan. Availability under
the agreement is determined by the amount of collateral provided. At
December 31, 1995, $33,000,000 was fully collateralized with $40,000,000
fully collateralized on March 1, 1996. The line bears interest at the prime
rate. However, the Company has the option to fix the rate at LIBOR plus
1.125% for fixed periods from three to nine months. A stand-by fee is
required by the bank for any unused portion of the line. The agreement
contains covenants which provide for the maintenance of specified debt
service ratios and minimum levels of net worth, and other requirements, among
which is the requirement that the Company maintain its status as a REIT, and
other normal conditions consistent with bank lines of credit.
34
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
I. NOTES PAYABLE - Continued
At December 31, 1995, the unused line of credit available to the Company,
subject to compliance with all terms and conditions of the agreement and net
of outstanding letters of credit of $232,805, was $11,267,000. The maximum
level of borrowings under the line of credit was $32,000,000, $20,100,000 and
$4,633,130 in 1995, 1994 and 1993, respectively. The average amounts of
borrowings were approximately $17,534,000, $6,131,000, and $1,888,000, with
weighted average interest approximating 7.8%, 6.5%, and 5.6%, in 1995, 1994
and 1993, respectively. The weighted average interest rate at December 31
was 7.8%, 8.1%, and 6.0% in 1995, 1994, and 1993, respectively.
Aggregate annual principal maturities of notes payable subsequent
to December 31, 1995 are as follows:
1996 $ 9,270
1997 9,270
1998 21,509,270
1999 2,333
==========
J. CONVERTIBLE SUBORDINATED DEBENTURES
Effective September 11, 1993 the Company issued $60,000,000 of
convertible subordinated debentures at 7.625% scheduled to mature in
September, 2003. Interest on the debentures is paid semi-annually on March 15
and September 15. The debentures are convertible, unless previously redeemed,
at any time prior to maturity into common shares of beneficial interest of
the Company at $10.50 per share, subject to certain adjustments. In April,
1995, $20,000 in debentures were converted to 1,904 common shares of
beneficial interest. The balance of the debentures, at December 31, 1995, of
$59,980,000, convertible at $10.50 per share, if fully converted, would
produce an additional 5,712,381 shares. Costs associated with the issuance of
the debentures were approximately $3,062,000 at December 31, 1995 and are
being amortized through 2003. The debentures are redeemable by the Company at
any time on or after September 15, 1996, or at any time for certain reasons
intended to protect the Company's REIT status, at 100% of the principal
amount thereof, together with accrued interest. The debentures are
subordinate to all mortgages payable. On January 29, 1996, $57,000 in
debentures were converted to 5,428 common shares of beneficial interest
reducing the balance of debentures to $59,923,000.
K. INCOME TAXES
As discussed in Note A, the Company plans to maintain its status as a
REIT, and be taxed under Sections 856-860 of the Internal Revenue Code of
1986, as amended. In general terms, under such Code provisions a trust or
corporation which, in any taxable year, meets certain requirements and
distributes to its shareholders at least 95% of its taxable income will not
be subject to Federal income tax to the extent of the income which it
distributes.
A REIT will generally not be subject to federal income taxation for the
portion of its income that qualifies as REIT taxable income to the extent
that it distributes at least 95 percent of its taxable income to its
shareholders and complies with certain other requirements. Accordingly, no
provision has been made for federal income taxes for the Company and certain
of its subsidiaries in the accompanying consolidated financial statements. At
December 31, 1995, the income tax basis of the Company's assets was
approximately $165,000,000 and liablities was approximately $ 160,000,000.
The income taxes benefit, net, in BTR, for the period January 1, 1993
through September 10, 1993 included a currently payable income tax expense
of $52,360, offset by a deferred income tax benefit of $460,570, including
the balance of deferred income taxes payable of $466,570 in BTR which was
recognized as an income tax benefit. It was determined by BTR that it was
more likely than not that there would be no payment in the future of any
deferred tax temporary differences due to the expected merger with the
Company. This was in accordance with the Statement 109 adopted by BTR as of
January 1, 1992.
The net benefit for income taxes consists of the following:
Jan. 1, 1993 thru
September 10, 1993
Current taxes: Federal $ -
State 52,360
----------
52,360
----------
Deferred: Federal 118,430
State (579,000)
----------
(460,570)
----------
$(408,210)
==========
35
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
L. SHAREHOLDERS' EQUITY AND STOCK COMPENSATION PLAN
Preferred Shares
At its inception on September 11, 1993, Mid-Atlantic Realty Trust
authorized 2,000,000 preferred shares of beneficial interest at a par value
of $.01 per share. At December 31, 1995, none of these shares were issued and
outstanding.
BTR Stock Compensation Plan
Under the BTR Executive Stock Compensation Plan, certain officers had
been awarded shares of BTR's stock to be issued at a rate of 20% of the
shares awarded for each year of continued employment. A charge was made to
general and administrative expense at the time of such awards. In 1993, the
78,286 remaining shares in the plan were exercised and issued prior to the
merger on September 11, 1993. For the period January 1, 1993 through
September 10, 1993, BTR recorded general and administrative expenses of
approximately $49,000 representing the increase in recorded value of the
awarded share of BTR stock.
MART Incentive Stock Option Plans
MART has an Omnibus Share Plan, "Plan", under which Trustees, officers
and employees may be granted awards of stock options, stock appreciation
rights, performance shares and restricted stock. The purpose of the Plan is
to provide equity-based incentive compensation based on long-term
appreciation in value of MART's shares and to promote the interests of MART
and its shareholders by encouraging greater management ownership of MART's
shares. Pursuant to the Plan, the Company authorized on February 1, 1994 the
availability of 300,000 shares for the Plan. Upon inception at February 1,
1994 trustees, officers and key employees were granted 256,000 stock options.
During 1995 additional grants and cancellations of stock options totaled 1,332
and 3,000, respectively. The outstanding stock options at December 31, 1995,
totaling 254,332, allow holders to purchase one share of MART for $10.50 per
share. Of outstanding stock options, 170,332 were vested and exercisable at
December 31, 1995 and an additional 84,000 vested on January 1, 1996.
The closing price of MART shares at December 31, 1995 was $8.625 per
share. No options were exercised during the year ended December
31, 1995 and based on the market value of MART shares, the options, if
converted, would be anti-dilutive producing fewer weighted average shares for
the year ended December 31, 1995.
On September 14, 1995, the Company authorized the availability of 180,000
shares for a "New Plan", the 1995 Stock Option Plan, subject to the approval
of shareholders. The New Plan granted a number of shares equal to
approximately 56% of the number under the current Plan, or 141,300, which
shares will vest 1/3, or 47,100 on September 30, 1995, exercisable at $8 15/16
per share. The balance of the shares will vest on the first and second
anniversary thereof, to be priced at the market price on the close of
business each date of vesting. No options were exercised during the period
September 30, 1995 through December 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 277,200 shares during the year ended
December 31, 1995 for $2,234,616, at an average cost of $8.06 per share. On
February 12, 1996 the MART Board of Trustees increased by 100,000 the
authorized number of shares that may be repurchased up to 410,000
In 1993, BTR retired 56,544 shares of BTR stock held as collateral for a
note receivable from a former officer of the Company.
M. COMMITMENTS
Lease Commitments
Minimum rental commitments for operating land leases as of
December 31, 1995 are as follows:
1996 $566,000
1997 566,000
1998 566,000
1999 566,000
2000 566,000
Thereafter 22,337,000
Certain of the leases contain renewal or purchase options. All of the
leases require the Company to pay real estate taxes. Total annual minimum
lease payments amounted to $262,000 in 1995, $219,000 in 1994, and $176,000 in
1993.
36
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
N. LEASES
The Company owns shopping centers and other commercial property which are
leased, generally on a long-term basis. All leases are classified as
operating leases. Future minimum lease payments receivable under
noncancelable operating leases are as follows:
1996 $23,461,821
1997 21,724,487
1998 19,208,084
1999 16,975,654
2000 15,105,709
Thereafter 117,694,206
===========
The minimum future lease payments do not include contingent rentals which
may be paid under certain leases on the basis of a percentage of sales in
excess of stipulated amounts. Contingent rentals amounted to $1,246,000 in
1995, $1,206,000 in 1994, and $1,259,000 in 1993. On a prospective basis, no
more than 3% of rental income is derived from any one tenant, except Giant
Food of Maryland, which is approximately 11% of Rental income. Giant Food
minimum lease payments represent approximately 12% for the years 1996 through
2000 and 34% thereafter of the total minimum lease payments above. The 34%
percentage of total minimum lease payments is high due to the fact that Giant
Food leases contain long lease terms compared with other major tenants who
use renewal option terms. Renewal option minimum lease payments are not
included in the totals above.
O. OTHER INCOME
Other income consists of the following:
MART BTR Realty, Inc.
Sept. 11 Jan. 1, thru
thru
Years Ended December 31, Dec. 31, Sept. 10,
1995 1994 1993 1993
Interest and dividends $757,905 727,249 266,141 93,312
Miscellaneous 269,430 149,873 249,368 134,980
-------------------------------------------------
$1,027,335 877,122 515,509 228,292
=================================================
P. 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 BTR general partner and
officer.
Q. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement 107) requires the Company to
disclose estimated fair values for certain on- and off-balance sheet
financial instruments. Fair value estimates, methods, and assumptions are
set forth below for the Company's financial instruments as of December 31,
1995 and 1994.
Cash and Cash Equivalents
The carrying amount for cash and cash equivalents approximates fair
value due to the short maturity of these instruments.
Notes and Accounts Receivable
The carrying amount for notes and accounts receivable approximates fair
value due to the short maturity of these instruments.
Notes Payable
The carrying amount for the line of credit approximates fair value due
to its adjustable interest rate.
Mortgages Payable
The fair value of mortgages payable was based on the discounted value of
contractual cash flows. The discount rate for mortgages payable was
estimated using the rate currently offered for borrowings of similar
remaining maturities. The carrying amount and estimated fair value of
mortgages payable at December 31, 1995 was $62,411,104 and $67,179,000
respectively, and at December 31, 1994 was $53,251,140 and $53,641,000,
respectively.
Convertible Subordinated Debentures
The fair value of convertible subordinated debentures was based on the
discounted value of contractual cash flows. The discount rate for
convertible subordinated debentures was estimated using the rate
currently offered for borrowings of similar remaining maturities. The
carrying amount and estimated fair value of convertible subordinated
debentures at December 31, 1995 was $59,980,000 and $60,982,000,
respectively, and at December 31, 1994 was $60,000,000 and $52,119,000,
respectively.
37
<PAGE>
ITEM 9
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
None
PART III
ITEM 10
Directors and Executive Officers of the Registrant
The information with respect to the identity and business experience
of the directors of MART and their remuneration, in the definitive proxy
statement (to be filed pursuant to Regulation 14A) with respect to the
election of directors at the 1996 annual meeting of stockholders, is
incorporated herein by reference.
The Executive Officers of MART are as follows:
Position and
Name Age Business Experience
LeRoy E. Hoffberger 70 Chairman of the Board of MART since
September, 1993.Director of BTR from 1963
to September 1993.President of CPC, Inc.,
President and Director of Keystone Realty
Co., Vice President and Director of MP
Commercial Inc., Director of the
following public mutual funds - Davis
New York Venture Fund and eight
other public mutual funds also advised
by Davis Selected Advisers, L.P.,
President and Director of the
Hoffberger Foundation, Vice President
and Director of Hoffberger Family Fund.
F. Patrick Hughes 48 President, Principal Executive Officer,
and CEO of MART since September, 1993.
President of BTR from November, 1990 to
September, 1993. Senior Vice President
BTR from May, 1989 to November, 1990.
Vice President, Controller and
Secretary of BTR for more than
five years.
Paul F. Robinson 42 Vice President of MART since
September, 1993. Vice President of BTR
from May, 1992 to September, 1993.
Secretary and General Counsel of MART
since September, 1993. Secretary and
General Counsel of BTR from May 1989
to September, 1993; General Counsel since
August, 1985.
Eugene T. Grady 47 Treasurer of MART since September, 1993.
Treasurer of BTR since May, 1989.
Paul G. Bollinger 36 Controller and Principal Financial
Officer of MART since September, 1993.
Controller of BTR since June, 1992.
Assistant Treasurer & Assistant Secretary
since May, 1992 Principal Financial
Officer of Financial Associates of
Maryland, (BTR Related Residential
development partnership), for more than
five years.
Each executive officer is elected for a term expiring at the next regular
annual meeting of the Board of Directors of the Company or until his
successor is duly elected and qualified.
ITEM 11 Executive Compensation
The information required by this item is incorporated by reference from
the Registrant's Proxy Statement filed with respect to the 1996 annual
meeting of stockholders.
38
<PAGE>
ITEM 12
Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference
from the Registrant's Proxy Statement filed with respect to the 1996
annual meeting of stockholders.
ITEM 13
Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from
the Registrant's Proxy Statement filed with respect to the 1996 annual
meeting of stockholders.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of Mid-Atlantic Realty Trust and
Subsidiaries and BTR Realty, Inc. and Subsidiaries (Predecessor)
are included in Part II Item 8:
Independent auditors' report
Consolidated balance
sheets at December 31, 1995 and 1994
Consolidated statements of operations for
the years ended December 31, 1995 and 1994
and for the periods ended December 31, 1993 and
September 10, 1993
Consolidated statements of shareholders' equity
for the years ended December 31, 1995 and 1994
and for the periods ended December 31, 1993 and
September 10, 1993
Consolidated statements of cash flows for
the years ended December 31, 1995 and 1994 and
for the periods ended December 31, 1993 and
September 10, 1993
Notes to consolidated financial statements
(a) 2. Financial Statement Schedule
Schedule III - Real estate and accumulated
depreciation and amortization
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in
the consolidated financial statements or notes thereto.
(a) 3. Exhibits
Exhibit No.
3. Articles of Incorporation and by-laws.
None.
4. Instrument Defining the Right of Shareholders.
None.
9. Voting Trust Agreement.
None.
11. Computations of net earnings per common share.
See Summary of Significant Accounting Policies under Notes
to Financial Statements appearing on page 31 of this
report.
12. Statement re: computation of ratios.
Not applicable.
13. Annual Report to Shareholders.
Not applicable.
18. Letter regarding change in accounting principles.
See Summary of Significant Accounting Policies under Notes
to Financial Statements appearing on pages 30, 31 and 32 of
this report and letter from KPMG Peat Marwick LLP.
19. Previously unfiled documents.
Not applicable.
21. List of subsidiaries of registrant.
Filed herewith.
22. Published report regarding matters submitted to vote of
security holders.
Not applicable.
23. Consents of experts and counsel.
Filed thru EDGAR.
24. Power of Attorney.
Not applicable.
27. Financial Data Schedule
Filed thru EDGAR.
28. Additional exhibits.
Not applicable.
(b) Reports on Form 8-K.
None.
39
<PAGE>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Schedule III - Real Estate and Accumulated Depreciation
Cost capitalized
subsequent
Year ended Initial cost to Company to acquisition
December 31, 1995
Mortgages Buildings and
Description Payable Land Improvements Improvements
Shopping Centers
Harford Mall $19,686,335 599,031 8,457,331 15,649,900
Owings Mills - 4,381,666 8,619,103 -
The Shoppes at Easton 7,657,932 2,600,000 10,379,069 10,486
Brandywine Commons - - 12,244,289 -
Smoketown Plaza - 516,312 10,095,077 638,297
Park Sedona - 2,251,624 8,397,274 242,766
Colonie Plaza 5,442,755 1,137,567 7,755,095 599,795
Columbia Plaza 4,921,594 999,739 6,887,711 1,466,142
Spotsylvania Crossing - 1,544,314 6,600,616 268,739
Skyline Village - 555,295 6,240,003 1,035,922
Page Plaza - 496,404 5,777,369 120,740
York Road Plaza 8,700,000 1,562,382 2,102,575 2,344,121
Plaza Del Rio - 1,291,325 3,938,734 409,334
Sudley Towne Plaza - 789,881 3,736,837 449,124
Burke Town Plaza 7,198,894 - 2,936,134 1,716,707
Rosedale Plaza 1,869,857 1,024,712 3,217,926 305,002
Wilkens Beltway Plaza 5,007,699 - 3,601,891 337,505
Timonium Shopping Ctr - - 4,031,809 246,212
Rolling Road Plaza - 338,791 1,632,268 2,000,980
Patriots Plaza - - 1,709,846 521,846
Union Hills Plaza - 274,920 679,863 150,417
Dobson-Guadalupe - 69,146 791,347 94,211
Chandler Plaza - 160,671 565,298 64,833
----------------------------------------------------
60,485,066 20,593,780 120,397,465 28,673,079
Office Buildings
Gateway II - 364,982 12,376,977 1,579,472
Gateway I - 82,396 8,271,751 1,380,776
Patriots Plaza - - 1,522,943 243,394
Wilkens Office II 1,926,038 - 1,644,370 141,706
Wilkens Office I - - 1,383,102 264,969
Wilkens Office III - - 768,642 41,726
-----------------------------------------------------
1,926,038 447,378 25,967,785 3,652,043
Bowling Centers
Freestate - 307,656 1,279,278 2,719
Waldorf - 243,139 579,161 5,690
Clinton - - 457,764 60,884
------------------------------------------------------
- 550,795 2,316,203 69,293
(Continued)
<PAGE>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Schedule III - Real Estate and Accumulated Depreciation
Cost capitalized subsequent Amount at which carried
Year ended to acquisition at close of period
December 31, 1995
Carrying Costs Land Buildings and Total
Description Land Improvements Improvements
Shopping Centers
Harford Mall 599,031 24,107,231 24,706,262
Owings Mills 4,381,666 8,619,103 13,000,769
The Shoppes at Easton 2,600,000 10,389,555 12,989,555
Brandywine Commons - 12,244,289 12,244,289
Smoketown Plaza 516,312 10,733,374 11,249,686
Park Sedona (293,550) (1,095,141) 1,958,074 7,544,899 9,502,973
Colonie Plaza 1,137,567 8,354,890 9,492,457
Columbia Plaza 999,739 8,353,853 9,353,592
Spotsylvania Crossing 1,544,314 6,869,355 8,413,669
Skyline Village 555,295 7,275,925 7,831,220
Page Plaza 496,404 5,898,109 6,394,513
York Road Plaza 1,562,382 4,446,696 6,009,078
Plaza Del Rio 1,291,325 4,348,068 5,639,393
Sudley Towne Plaza 789,881 4,185,961 4,975,842
Burke Town Plaza - 4,652,841 4,652,841
Rosedale Plaza 1,024,712 3,522,928 4,547,640
Wilkens Avenue 475,481 475,481 3,939,396 4,414,877
Timonium Shopping Ctr - 4,278,021 4,278,021
Rolling Road Plaza (837,931) 338,791 2,795,317 3,134,108
Patriots Plaza - 2,231,692 2,231,692
Union Hills Plaza 274,920 830,280 1,105,200
Dobson-Guadalupe 69,146 885,558 954,704
Chandler Plaza (86,450) (263,550) 74,221 366,581 440,802
----------------------------------------------------------
95,481 (2,196,622)20,689,261 146,873,922 167,563,183
Office Buildings
Gateway II 364,982 13,956,449 14,321,431
Gateway I 82,396 9,652,527 9,734,923
Patriots Plaza - 1,766,337 1,766,337
Wilkens Office II - 1,786,076 1,786,076
Wilkens Office I - 1,648,071 1,648,071
Wilkens Office III - 810,368 810,368
----------------------------------------------------------
- - 447,378 29,619,828 30,067,206
Bowling Centers
Freestate 307,656 1,281,997 1,589,653
Waldorf 243,139 584,851 827,990
Clinton - 518,648 518,648
-----------------------------------------------------------
- - 550,795 2,385,496 2,936,291
(Continued)
<PAGE>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Schedule III - Real Estate and Accumulated Depreciation
Life on which
Year ended depreciation on
December 31, 1995 latest income
Accumulated Date of Date statement is
Description Depreciation Construction Acquired computed
Shopping Centers
Harford Mall 9,569,980 12/73 5-50 yrs.
Owings Mills 15,692 12/95 5-50 yrs.
The Shoppes at Easton 289,368 9/94 5-50 yrs.
Brandywine Commons 34,823 11/95 5-50 yrs.
Smoketown Plaza 2,618,269 4/87 5-50 yrs.
Park Sedona 1,007,351 11/90 5-50 yrs.
Colonie Plaza 1,980,527 12/87 5-50 yrs.
Columbia Plaza 1,848,496 6/88 5-50 yrs.
Spotsylvania Crossing 1,768,599 5/87 5-50 yrs.
Skyline Village 1,626,264 5/88 5-50 yrs.
Page Plaza 740,648 8/91 5-50 yrs.
York Road Plaza 922,675 11/85 5-50 yrs.
Plaza Del Rio 696,779 2/89 5-50 yrs.
Sudley Towne Plaza 1,252,424 7/84 5-50 yrs.
Burke Town Plaza 1,801,538 7/79-7/82 5-50 yrs.
Rosedale Plaza 540,639 10/89 5-50 yrs.
Wilkens Avenue 1,394,775 5/81 5-50 yrs.
Timonium Shopping Ctr 260,285 10/93 5-50 yrs.
Rolling Road Plaza 1,051,738 6/73 5-50 yrs.
Patriots Plaza (A) 879,381 6/84 5-50 yrs.
Union Hills Plaza 323,571 11/83 5-50 yrs.
Dobson-Guadalupe 325,387 9/85 5-50 yrs.
Chandler Plaza 191,068 3/84 5-50 yrs.
--------------
31,140,277
Office Buildings
Gateway II 1,913,709 7/89 5-50 yrs.
Gateway I 2,245,984 4/87 5-50 yrs.
Patriots Plaza 519,941 8/85 5-50 yrs.
Wilkens Office II 403,326 1/87 5-50 yrs.
Wilkens Office I 516,507 1/85 5-50 yrs.
Wilkens Office III 119,186 1/91 5-50 yrs.
-----------------
5,718,653
Bowling Centers
Freestate 917,453 3/78 5-50 yrs.
Waldorf 218,707 3/79 5-50 yrs.
Clinton 251,375 8/71 5-50 yrs.
------------------
1,387,535
40
<PAGE>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Schedule III - Real Estate and Accumulated Depreciation
Cost capitalized
subsequent
Year ended Initial cost to Company to acquisition
December 31, 1995
Mortgages Buildings and
Description Payable Land Improvements Improvements
(Continued)
Other Rental Properties
Business Center - 395,536 1,190,692 59,403
Southwest - - 283,039 596,738
Waldorf Firestone - 9,261 161,543 4,910
Ocean City - - 133,624 -
---------------------------------------------------------
- 404,797 1,768,898 661,051
Development Operations - - 1,510,544 -
Property Held - 8,179,378 - -
Other Property - - 685,559 -
--------------------------------------------------------
$62,411,104 30,176,128 152,646,454 33,055,466
============================================
(Continued)
<PAGE>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Schedule III - Real Estate and Accumulated Depreciation
Cost capitalized subsequent Amount at which carried
Year ended to acquisition at close of period
December 31, 1995
Carrying Costs Land Buildings and Total
Description Land Improvements Improvements
(Continued)
Other Rental Properties
Business Center 395,536 1,250,095 1,645,631
Southwest 45,149 45,149 879,777 924,926
Waldorf Firestone 9,261 166,453 175,714
Ocean City - 133,624 133,624
---------------------------------------------------------
45,149 - 449,946 2,429,949 2,879,895
Development Operations - - - 1,510,544 1,510,544
Property Held - - 8,179,378 - 8,179,378
Other Property - - - 685,559 685,559
---------------------------------------------------------
140,630(2,196,622) 30,316,758 183,505,298 213,822,056
============================================
(Continued)
<PAGE>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Schedule III - Real Estate and Accumulated Depreciation
Life on which
Year ended depreciation on
December 31, 1995 latest income
Accumulated Date of Date statement is
Description Depreciation Construction Acquired computed
(Continued)
Other Rental Properties
Business Center 177,138 4/90 5-50 yrs.
Southwest 443,206 4/68 5-50 yrs.
Waldorf Firestone 60,889 9/78 5-50 yrs.
Ocean City 59,017 12/87 5-50 yrs.
-------------
740,250
Development Operations - 91-95
Property Held - 7/73-12/95
Other Property 443,593 9/82-12/95 3-10 yrs.
-------------
39,430,308
=============
41
<PAGE>
MID-ATLANTIC REALTY TRUST & SUBSIDIARIES & BTR REALTY, INC. &
SUBSIDIARIES (PREDECESSOR)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - Continued
(1) The changes in total cost of properties for the three years ended
December 31, 1995 are as follows:
Years ended December 31,
1995 1994 1993
Balance beginning of year $191,497,142 171,661,868 174,593,579
Additions during year:
Acquisitions 12,244,289 18,051,765 4,076,958
Improvements 2,356,780 2,159,354 5,308,235
Development operations 15,685,170 1,986,458 1,448,303
------------------------------------------
30,286,239 22,197,577 10,833,496
Deductions during year:
Write-downs to
net realizable value (2)(a) - - (1,318,314)
Cost of real estate sold (6,292,793) (2,304,214) (1,637,772)
Transfers (4) - - (9,416,190)
Retirements and disposals (1,668,532) (58,089) (1,392,931)
------------------------------------------
(7,961,325) (2,362,303) (13,765,207)
------------------------------------------
Balance end of year $213,822,056 191,497,142 171,661,868
==========================================
(2) Write-downs to net realizable value are reported in the statement of
operations as follows:
BTR Realty, Inc. January 1 thru
Sep. 10, 1993
Unrecoverable development costs $ 1,278,817
--------------
$ 1,278,817
==============
(a) In the period 1/1/93 thru 9/10/93 BTR reduced total cost of
properties by $1,318,314 and reduced related accumulated
depreciation by $39,497 resulting in a net write-down of
$1,278,817.
(3) The changes in accumulated depreciation for the three years ended
December 31, 1995 are as follows:
Years ended December 31,
1995 1994 1993
Balance beginning of year ($36,448,969) (32,650,352) (29,168,658)
Depreciation and amortization (4,983,617) (4,549,782) (4,735,979)
Transfers (4) - - 96,041
Retirements and disposals 2,002,278 751,165 1,158,244
--------------------------------------------
Balance end of year ($39,430,308) (36,448,969) (32,650,352)
============================================
(4) Transfers include assets originally in operating properties reclassified
on the balance sheet to the following:
Year ended
December 31,
1993
Total Cost
Net assets of properties
to be sold ($7,030,232)
Deferred financing costs (2,385,958)
-------------
(9,416,190)
Accumulated Depreciation
Net assets of properties
to be sold 524,425
Deferred financing costs:
- Reclassification of asset (765,192)
- Reclassification of
amortization 336,808
-------------
96,041
-------------
Net transfers ($9,320,149)
=============
(5) The aggregate basis of properties for Federal income tax purposes is
approximately $157,000,000 at December 31, 1995.
(6) See Item 2 for geographic location of properties.
(7) Freestate includes 2 bowling centers in Illinois.
42
<PAGE>
EXHIBIT 21. PARENT AND SUBSIDIARIES OF REGISTRANT
The subsidiaries of MART are listed below. All are engaged in the
ownership and/or development of commercial or residential real estate in the
United States. All are included in the consolidated financial statements
filed as part of this Annual Report.
State of
Incorporation
Name or Formation Interest
CORPORATIONS:
BTR Arkor, Inc. Maryland 100%
BTR Atlanta Daycare, Inc. Maryland 100%
BTR Business Center, Inc. Maryland 100%
BTR Chandler, Inc. Maryland 100%
BTR Delmar, Inc. Maryland 100%
BTR East Greenbush, Inc. Maryland 100%
BTR Fallston, Inc. Maryland 100%
BTR Fallston Corner, Inc. Maryland 100%
BTR Fallston Management, Inc. Maryland 100%
BTR Financial, Inc. Maryland 100%
BTR Free State Bowls, Inc. Maryland 100%
BTR Gateway, Inc. Maryland 100%
BTR Hillside, Inc. Maryland 100%
BTR Holdings, Inc.
(Formerly Diamond Alley, Inc.) Maryland 100%
BTR Manassas, Inc. Maryland 100%
BTR Marigot, Inc. Maryland 100%
BTR Marina, Inc. Maryland 100%
BTR McClintock, Inc. Maryland 100%
BTR New Ridge, Inc. Maryland 100%
BTR Northwood Properties, Inc. Maryland 100%
BTR Odenton Properties, Inc. Maryland 100%
BTR Ray Road, Inc. Maryland 100%
BTR Real Estate Enterprises, Inc. Maryland 100%
BTR Rockburn, Inc. Maryland 100%
BTR Salisbury, Inc. Maryland 100%
BTR Southdale, Inc. Maryland 100%
BTR Union Hills, Inc. Maryland 100%
BTR Waldorf Development Corporation Maryland 100%
BTR Waldorf Tire, Inc. Maryland 100%
BTR Yuma, Inc. Maryland 100%
(Continued)
43
<PAGE>
EXHIBIT 21. PARENT AND SUBSIDIARIES OF REGISTRANT - (Continued)
State of
Name Incorporation
CORPORATIONS: or Formation Interest
Burke Town Plaza, Inc. Maryland 100%
Burlington Commerce Park, Inc. Maryland 100%
Brandywine Commons, Inc. Maryland 100%
Christiansburg Plaza, Inc. Maryland 100%
Clinton Development Company, Inc. Maryland 100%
Cobleskill Plaza, Inc. Maryland 100%
Colonie Plaza, Inc. Maryland 100%
Columbia Plaza, Inc. Maryland 100%
Commonwealth Plaza, Inc. Maryland 100%
Concourse Realty Management, Inc. Maryland 100%
Cypress Square, Inc. Maryland 100%
Davis Ford Properties, Inc. Maryland 100%
Essanwy, Inc. Maryland 100%
Easton Shoppes, Inc. Maryland 100%
Fredericksburg Plaza, Inc. Maryland 100%
Greenbush Residential, Inc. Maryland 100%
Greencastle Plaza, Inc. Maryland 100%
Harrisonburg Plaza, Inc. Maryland 100%
Kingsbrook Funding, Inc. Maryland 100%
Kingston Crossing, Inc. Maryland 100%
MART Acquisitions, Inc. Maryland 100%
New Town Village, Inc. Maryland 100%
North East Station, Inc. Maryland 100%
Orchard Landing Apartments, Inc. Maryland 100%
Orchard Landing Limited, Inc. Maryland 100%
Page Plaza Associates, Inc. Maryland 100%
Park Sedona, Inc. Maryland 100%
Parkway Pond, Inc. Maryland 100%
Ridgewood Funding, Inc. Maryland 100%
Rolling Road Plaza, Inc. Maryland 100%
Rosedale Partners, Inc. Maryland 100%
Rosedale Plaza, Inc. Maryland 100%
Route 642 Properties, Inc. Maryland 100%
Scotia Crossing, Inc. Maryland 100%
Sedona Sewer, Inc. Maryland 100%
Senate Properties, Inc. Maryland 100%
Southdale Mortgage Inc. Maryland 100%
Southwest Development Properties, Inc. Maryland 100%
Timonium Shopping Center, Inc. Maryland 100%
Tempe Auto Center, Inc. Maryland 100%
Wake Plaza, Inc. Maryland 100%
Wyaness, Inc. Maryland 100%
(Continued)
44
<PAGE>
EXHIBIT 21. PARENT AND SUBSIDIARIES OF REGISTRANT - (Continued)
The following are partnerships in which Mid-Atlantic Realty Trust, BTR
Realty, Inc. or Financial Associates of Maryland have partnership interests:
State of
Incorporation
Name or Formation Interest
Arizona & Warner Limited Partnership Maryland 50%
BBG Joint Venture Maryland 60%
BBG Properties Limited Partnership Maryland 60%
Cypress Square Limited Partnership Maryland 55%
Fredericksburg Plaza Limited
Partnership Maryland 80%
Gateway International Limited
Partnership Maryland 100%
Harbour Island Associates Maryland 100%
Hillside at Seminary Joint Venture Maryland 100%
Kensington Associates Maryland 75%
North Greenbrier Limited Partnership Maryland 100%
Northwood Limited Partnership Maryland 67%
Ridgewood Associates Maryland 100%
Rockburn Associates Maryland 100%
Rosedale Plaza Limited Partnership Maryland 100%
Route 642 Limited Partnership Maryland 60%
Scotia Associates Limited Partnership Maryland 50%
Southdale Limited Partnership Maryland 50%
Union Hills Limited Partnership Maryland 50%
Wyaness Associates Maryland 100%
SIGNATURES
Pursuant to the requirements of Section 13 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
Date 3/26/96 /s/s F. Patrick Hughes
F. Patrick Hughes, President
45
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and
on the dates indicated:
Date: 3/27/96 /s/s LeRoy E. Hoffberger
LeRoy E. Hoffberger, Chairman
Date: 3/26/96 /s/s F. Patrick Hughes
F. Patrick Hughes, Trustee, Principal
Executive Officer
Date: 3/26/96 /s/s Paul G. Bollinger
Paul G. Bollinger, Controller, Principal
Financial Officer
Date: 3/26/96 /s/s Eugene T. Grady
Eugene T. Grady, Treasurer
Date: 3/26/96 /s/s Robert A. Frank
Robert A. Frank, Trustee
Date: 3/26/96 /s/s Marc P. Blum
Marc P. Blum, Trustee
Date:
M. Ronald Lipman, Trustee
Date: 3/23/96 /s/s Stanley J. Moss, Esquire
Stanley J. Moss, Esquire, Trustee
Date: 3/26/96 /s/s Daniel S. Stone
Daniel S. Stone, Trustee
Date: 3/25/96 /s/s David F. Benson
David F. Benson, Trustee
46
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> YEAR
<CASH> 514
<SECURITIES> 0
<RECEIVABLES> 2,351
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS><F1> 0
<PP&E> 174,392
<DEPRECIATION> 39,430
<TOTAL-ASSETS> 182,521
<CURRENT-LIABILITIES><F1> 0
<BONDS> 122,391
0
0
<COMMON> 60
<OTHER-SE> 20,878
<TOTAL-LIABILITY-AND-EQUITY> 182,521
<SALES> 0
<TOTAL-REVENUES> 24,919
<CGS> 0
<TOTAL-COSTS> 21,780
<OTHER-EXPENSES> 718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,348
<INCOME-PRETAX> 3,165
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 612
<NET-INCOME> 3,777
<EPS-PRIMARY> .61
<EPS-DILUTED> .73
<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>
EXHIBIT 23. ACCOUNTANTS' CONSENT
Board of Trustees
MID-ATLANTIC REALTY TRUST
We consent to the incorporation by reference in the registration statement
(No. 33-66386) on Form S-3 of our report, dated February 15, 1996
appearing in this annual report on Form 10-K, relating to the
consolidated financial statements and schedule of Mid-Atlantic
Realty Trust and subsidiaries and BTR Realty, Inc. and subsidiaries as of
December 31, 1995 and 1994 and for the years ended December 31, 1995
and 1994 and for the periods ended December 31, 1993 and
September 10, 1993.
KPMG Peat Marwick LLP
Baltimore, Maryland
March 28, 1996
