<TABLE>
<CAPTION>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
<S> <C>
[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, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES to
EXCHANGE ACT OF 1934 [No Fee Required] for the transition period from ------------------ --------------
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.)
170 West Ridgely Road, Suite 300 - Lutherville, Maryland 21093
- - -------------------------------------------------------- -----------------------
(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. [X]
As of March 10, 2000, 13,912,372 common shares of beneficial interest of
Mid-Atlantic Realty Trust were outstanding and the aggregate value of common
stock (based upon the $9.00 closing price on that date) held by non-affiliates
was approximately $125,211,348.
Documents Incorporated by Reference
The definitive proxy statement with respect to the 2000 annual meeting of
Mid-Atlantic Realty Trust shareholders (to be filed).
</TABLE>
1
<PAGE>
PART I
ITEM 1 - BUSINESS
Background
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 qualifies as a real estate
investment trust ("REIT") for Federal income tax purposes. As used herein, the
term "MART" or the "Company" refers to Mid-Atlantic Realty Trust and entities
owned or controlled by MART, including MART Limited Partnership (the "Operating
Partnership").
The Company is a fully integrated, self-administered real estate
investment trust which owns, acquires, develops, redevelops, leases and manages
primarily neighborhood or community shopping centers in the Middle Atlantic
region of the United States. The Company's primary objectives are to enhance
funds from operations ("FFO") per share and maximize shareholder value. To
achieve its objectives, the Company seeks to operate its properties for
long-term FFO growth. The Company also acquires neighborhood or community
shopping centers that either have dominant anchor tenants or contain a mix of
tenants which reflects the shopping needs of the communities they serve. The
Company also develops and redevelops shopping centers on a tenant-driven basis,
leveraging either existing tenant relationships or geographic and demographic
knowledge while seeking to minimize exposure to risk associated with long-term
land development.
The Company's financial strategy is to execute its operating and growth
strategies by utilizing a blend of internally generated funds, issuance of
Operating Partnership Units, defined below, proceeds from divestitures,
institutional borrowings and issuance of corporate equity or debt, as
appropriate. The Company currently intends to maintain a ratio of secured debt
to total estimated property value at or below 50%.
The Company has an equity interest in 33 operating shopping centers, 27
of which are wholly owned by the Company and six in which the Company has
interests ranging from 50% to 93%, as well as other commercial properties,
collectively the "Properties". The Properties have a gross leasable area of
approximately 4,629,000 square feet, of which approximately 93% was leased at
December 31, 1999. Of these Properties, approximately 99% of the gross leasable
area is in the states of Maryland, Virginia, New York, Pennsylvania,
Massachusetts and Delaware. The Company also owns seven undeveloped parcels of
land totaling approximately 147 acres and varying in size from three to
sixty-four acres.
All of MART's interests in the Properties are held directly or
indirectly by, and substantially all of its operations relating to the
Properties are conducted through the Operating Partnership. Units of partnership
interest in the Operating Partnership ("Units") may be exchanged by the limited
partners for cash or common shares of beneficial interest in MART at the option
of the Company on a one-for-one basis. MART controls the Operating Partnership
as the sole general partner, and owns approximately 82% of the Units at December
31, 1999.
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, revenues from income producing
properties held for investment are usually not affected significantly by such
conditions.
The commercial real estate development and investment industry is
subject to widespread competition for desirable sites, tenants and 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 identify and acquire and/or develop appropriate real estate
investment opportunities 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 opportunities.
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.
The Company has 61 full time employees and believes that its
relationship with its employees is good.
2
<PAGE>
ITEM 2 - PROPERTIES
The following schedule describes the Company's commercial and other properties
as of December 31, 1999.
<TABLE>
<CAPTION>
Gross
Year(s) Leasable
Percent Year Built/ Area Percent
Ownership Acquired Redeveloped ( Sq. Ft.) Leased Major Tenants
--------- -------- ----------- ---------- ------ -------------
SHOPPING CENTER PROPERTIES (1)
MARYLAND
<S> <C> <C> <C> <C> <C> <C>
Baltimore Metropolitan Area:
Harford Mall and Business Center (2) 100% 1972 1972/1984-96 613,000 97% Hecht's, Montgomery Ward, Best
Buy
Arundel Plaza Shopping Center 67% 1997 1967/1998 250,000 100% Giant Food, Lowe's Home Center
Lutherville Station Shopping Center (3) 100% 1993 1969/1997 285,000 59% Metro Food Market, Circuit City
North East Station Shopping Center 100% 1989 1998/- 79,000 97% Food Lion, Sears
Timonium Shopping Center 100% 1997 1962/- 207,000 95% Ames, Loews Theaters, Blockbuster
Perry Hall Shopping Center 100% 1997 1965/1996 195,000 89% Metro Food Market (on own pad),
Rite Aid, Frank's Nursery &
Crafts
Enchanted Forest Shopping Center 100% 1997 1992/- 140,000 93% Safeway, Petco
Wilkens Beltway Plaza Shopping Center 93% 1981* 1985-87/ 132,000 97% Giant Food, Provident Bank,
1991/1995 Radio Shack
New Town Village Shopping Center 100% 1995* 1995/- 118,000 96% Giant Food, Blockbuster,
Starbucks
Ingleside Shopping Center 100% 1997 1963/1996 115,000 100% Safeway, Rite Aid, Allfirst
Bank, Blockbuster
Shawan Plaza Shopping Center 100% 1997 1991/- 95,000 100% Giant Food, Nationsbank,
Provident Bank
Glen Burnie Village Shopping Center 100% 1997 1972/- 94,000 74% Rite Aid, Firestone, Allfirst
Bank, West Marine
York Road Plaza Shopping Center 100% 1967* 1967/1996 91,000 97% Giant Food, Firestone, Starbucks,
Boston Market
Radcliffe Shopping Center at Towson 100% 1997 1988/1993 82,000 100% CVS Drug, CompUSA, Linens N'
Things, Bryn Mawr Stereo
Rosedale Plaza Shopping Center 100% 1989 1972/- 40,000 74% A&P (Super Fresh), Exxon, Rite Aid
Patriots Plaza Shopping Center (3) 50% 1984* 1984/- 67,000 65% Denny's, Dunkin Donuts
Rolling Road Plaza Shopping Center 100% 1973* 1973/1994 63,000 97% AMF, Firestone
Timonium Crossing Shopping Center 100% 1997 1986/1996 60,000 96% Bibelot, Cosmetic Center
Club Centre at Pikesville Shopping 100% 1997 1990/- 44,000 92% Blockbuster
Easton:
Shoppes at Easton Shopping Center 100% 1994 1994/- 113,000 100% Giant Food, Wal-Mart (on own pad)
DELAWARE
Wilmington:
Brandywine Commons Shopping Center (3) 100% 1995 1992/- 166,000 100% Shop Rite, Office Depot,
Sports Authority
Milford:
Milford Commons Shopping Center 100% 1997 1994 61,000 100% Food Lion, Remco
Wal-Mart (on own pad)
3
<PAGE>
ITEM 2 - PROPERTIES (CONTINUED)
Gross
Year(s) Leasable
Percent Year Built/ Area Percent
Ownership Acquired Redeveloped ( Sq. Ft.) Leased Major Tenants
--------- -------- ----------- ---------- ------ -------------
PENNSYLVANIA
Bethlehem:
Saucon Valley Square 89% 1999 1998 81,000 100% A&P (Super Fresh), Blockbuster
Chambersburg:
Wayne Avenue Plaza Shopping Center 100% 1998 1990/1993 121,000 98% Giant Food (of Carlisle), CVS
Blockbuster
Waynesboro:
Wayne Heights Plaza Shopping Center 100% 1998 1975/- 107,000 90% Martins (Giant of Carlisle),
Ames, Eckerd Drug
MASSACHUSETTS
Pittsfield:
Del Alba Plaza Shopping Center 100% 1998 1995/- 70,000 100% Stop & Shop, First Mass Bank
NEW YORK
Colonie:
Colonie Plaza Shopping Center 100% 1987* 1987/- 140,000 88% Price Chopper, Consolidated
Stores
East Greenbush:
Columbia Plaza Shopping Center 100% 1988* 1988/1997 133,000 93% Price Chopper, Ben Franklin
VIRGINIA
Burke:
Burke Town Plaza Shopping Center (3) 100% 1979* 1979-1982/1997 116,000 88% Safeway, CVS Drug
Fredericksburg:
Spotsylvania Crossing Shopping Center 93% 1987* 1987/1991 142,000 93% Giant Food (on own pad), Kmart,
Fashion Bug
Harrisonburg:
Skyline Village Shopping Center 100% 1988* 1988/1992 127,000 100% Richfood, Toys "R" Us
Manassas:
Sudley Towne Plaza Shopping Center 100% 1984* 1984/- 108,000 100% Burlington Coat Factory
Dale City:
Smoketown Plaza Shopping Center 93% 1987* 1987/1994 176,000 92% Hub Furniture, Frank's Nursery
& Crafts
4
<PAGE>
Gross
Year(s) Leasable
Percent Year Built/ Area Percent
Ownership Acquired Redeveloped ( Sq. Ft.) Leased Major Tenants
--------- -------- ----------- ---------- ------ -------------
OTHER RETAIL AND COMMERCIAL PROPERTIES (4)
MARYLAND
Baltimore Metropolitan Area:
Orchard Square Medical Office 100% 1997 1988/- 28,000 84% N/A
Southwest Mixed Use Property 100% 1968* 1968/1984 25,000 100% Shell Oil, Otis, Potomac Air
Gas
Other:
Waldorf Property 100% 1979* 1979/- 31,000 100% AMF, Firestone
Clinton Property (3) 100% 1971* 1971/- 29,000 100% AMF, Suburban Bank
ILLINOIS
Chicago Property 100% 1978 1963/- 37,000 100% AMF
</TABLE>
<TABLE>
<CAPTION>
Area
Percent in
Ownership Acres Zoning
--------- ----- ------
UNDEVELOPED LAND
<S> <C> <C> <C>
MARYLAND
Baltimore Metropolitan Area:
Dorsey Property 100% 19.4 Commercial
Harford Property (Adjacent to Harford 100% 3.0 Light Industrial
Northeast Station Property 100% 63.7 Commercial
Pulaski Property 100% 3.0 Industrial
Salisbury:
Northwood Industrial Park 67% 16.1 Industrial
NORTH CAROLINA
Burlington:
Burlington Commerce Park 100% 34.3 Commercial
Hillsborough:
Hillsborough Crossing 100% 8.0 Commercial
</TABLE>
- - ------------------------
(1) Shopping centers in operation are subject to mortgage financing aggregating
$134,252,869 at December 31, 1999.
(2) The Harford Mall property is subject to mortgage financing aggregating
$18,994,922 at December 31, 1999. The mortgage bears interest at a rate of
9.78% and a balloon payment of $18,148,848 is due at maturity in July 2003.
The mortgage allows prepayment with a penalty of the greater of 1% of the
outstanding principal balance or yield maintenance.
(3) These properties are subject to ground leases; all of the land relating to
the other properties listed above is owned in fee simple. The ground leases
are subject to the following terms:
<TABLE>
<CAPTION>
Property Annual Rent Remaining Lease Term
-------- ----------- --------------------
<S> <C> <C>
Lutherville Station Shopping Center $60,000 17 years plus six 10 year options
Lutherville Station Shopping Center $26,000 47 years
Patriots Plaza Shopping Center $59,700 8 years plus two 10 year options
Brandywine Commons Shopping Center $392,600 53 years plus two 10 year options
Burke Towne Plaza Shopping Center $80,000 32 years plus three 15 year options
Clinton Property $33,000 27 years plus one 45 year option
</TABLE>
(4) Other retail and commercial properties in operation are subject to mortgage
financing aggregating $2,594,962 at December 31, 1999.
* Developed by MART
5
<PAGE>
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
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The number of holders of record of the Company's shares was 1,065 as of
March 10, 2000.
MART's common shares of beneficial interest, par value $.01 per share,
("shares"), began trading on the New York Stock Exchange on September 18, 1997,
under the symbol "MRR". The following table sets forth, for the quarters
indicated, the high and low closing sale prices of MART shares on the NYSE, and
the cash distributions paid per share for the indicated period.
Closing Prices Per Share
1999 High Low Distributions
- - --------------------------------------------------------------------------------
First Quarter $ 12.625 9.812 0.26
Second Quarter 12.125 10.000 0.26
Third Quarter 11.375 10.063 0.26
Fourth Quarter 10.438 8.875 0.27
1998 High Low Distributions
- - --------------------------------------------------------------------------------
First Quarter $ 14.750 13.062 0.25
Second Quarter 14.187 12.250 0.25
Third Quarter 13.500 11.312 0.25
Fourth Quarter 13.062 11.250 0.26
For the record shareholders of MART during the entire year per share
dividends indicated were taxable as follows:
<TABLE>
<CAPTION>
Per Share
==============================
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Ordinary Dividends - taxable as ordinary income $ 0.90 0.85 0.97
Capital gain distribution - taxable as capital gain - 0.01 -
Other distribution - return of capital or
capital gain - (depending on a shareholder's
basis in MART shares) 0.15 0.15 -
------------------------------
Total annual gross dividends per share $ 1.05 1.01 0.97
==============================
Percent of total annual gross dividends per share
-Return of capital or capital gain 14% 15% -
==============================
</TABLE>
6
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain 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.
<TABLE>
Years Ended December 31,
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 53,346,473 49,537,130 39,152,220 32,406,300 29,593,158
----------------------------------------------------------------------------------
Earnings before cumulative
effect of changes in accounting
principle and extraordinary loss 12,751,158 12,385,861 6,819,211 3,508,709 3,165,082
Cumulative effect of change
in accounting for percentage rents - - - - 612,383
-----------------------------------------------------------------------------------
Earnings before extraordinary loss 12,751,158 12,385,861 6,819,211 3,508,709 3,777,465
Extraordinary loss - (32,984) (226,873) - -
-----------------------------------------------------------------------------------
Net earnings $ 12,751,158 12,352,877 6,592,338 3,508,709 3,777,465
-----------------------------------------------------------------------------------
Net earnings per share - basic $ 0.89 0.85 0.70 0.56 0.61
Net earnings per share - diluted 0.88 0.84 0.70 0.56 0.61
-----------------------------------------------------------------------------------
Total assets $ 328,570,661 317,008,617 298,154,555 173,278,241 182,521,299
-----------------------------------------------------------------------------------
Indebtedness -
Total mortgages, convertible
debentures, construction
loans, notes and loans payable $ 186,593,831 166,732,850 145,660,657 133,805,495 154,020,757
-----------------------------------------------------------------------------------
Funds from Operations (FFO) (1) $ 22,176,751 21,203,335 13,757,178 8,621,847 7,427,274
-----------------------------------------------------------------------------------
Net cash flow:
Provided by operating
activities $ 25,153,624 24,255,137 16,005,958 9,898,948 11,193,068
(Used in) provided by
investing activities $ (24,175,685) (21,668,918) (5,995,155) 4,231,471 (23,584,229)
(Used in) provided by
financing activities $ (1,441,168) (10,402,329) (2,597,424) (13,631,237) 12,561,025
-----------------------------------------------------------------------------------
Cash dividends paid per share $ 1.05 1.01 0.97 0.93 0.89
-----------------------------------------------------------------------------------
Weighted average number
of shares outstanding:
Basic 14,021,403 14,240,533 9,308,682 6,211,092 6,176,991
Diluted 15,337,652 15,778,727 9,360,566 6,211,092 6,176,991
-----------------------------------------------------------------------------------
RECONCILIATION OF NET EARNINGS TO FFO
Net Earnings $ 12,751,158 12,352,877 6,592,338 3,508,709 3,777,465
Depreciation 9,557,204 8,813,251 6,954,803 5,413,737 4,983,617
Gain on life insurance proceeds - - - - (1,001,787)
(Gain) loss on properties (131,611) 4,223 (16,836) (300,599) 280,362
Cumulative effect of change in
accounting for percentage rents - - - - (612,383)
Extraordinary loss from early
extinguishment of debt - 32,984 226,873 - -
-----------------------------------------------------------------------------------
FFO $ 22,176,751 21,203,335 13,757,178 8,621,847 7,427,274
-----------------------------------------------------------------------------------
<FN>
(1) The Company believes that Funds from Operations (FFO)
provides relevant and meaningful information about its operating
performance that is necessary, along with net earnings, for an
understanding of its operating results. Funds from operations is
defined by the National Association of Real Estate Investment
Trusts, Inc. (NAREIT) as net earnings (computed in accordance
with generally accepted accounting principles), excluding
cumulative effects of changes in accounting principles,
extraordinary or unusual items, and gains or losses from debt
restructurings and sales of property, plus depreciation and
amortization, and after adjustments to record unconsolidated
partnerships and joint ventures on the same basis. 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 should not be
considered as an alternative to cash flows as a measure of
liquidity. The Company's FFO may not be comparable to the FFO of
other REITs because they may not use the current NAREIT
definition or they may interpret the definition differently.
</FN>
</TABLE>
In 1999, NAREIT clarified the definition of FFO to address diversity in
practice with respect to the treatment of nonrecurring items. Under the revised
definition, FFO will include all nonrecurring items that are included in net
earnings, except for gains and losses from sales of depreciable operating
properties and items that are defined as extraordinary items under GAAP. The
clarified definition is effective January 1, 2000 and is applicable
retroactively. It will not change the Company's calculation of FFO.
7
<PAGE>
Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for MART for 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended
1999 March 31, June 30, September 30, December 31,
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 13,021.750 13,232,391 13,234,389 13,857,943
-----------------------------------------------------------------------------
Earnings before extraordinary loss 3,174,969 3,225,090 2,905,942 3,445,157
Extraordinary loss
from early extinguishment of debt - - - -
-----------------------------------------------------------------------------
Net earnings $ 3,174,969 3,225,090 2,905,942 3,445,157
-----------------------------------------------------------------------------
Net earnings per share - basic $ 0.22 0.22 0.20 0.25
Net earnings per share - diluted $ 0.22 0.22 0.20 0.24
-----------------------------------------------------------------------------
Quarter Ended
1998 March 31, June 30, September 30, December 31,
- - ---------------------------------------------------------------------------------------------------------------------
Revenues $ 11,824,395 12,267,335 12,322,456 13,122,944
-----------------------------------------------------------------------------
Earnings before extraordinary loss 3,102,987 3,002,283 2,979,240 3,301,351
Extraordinary loss
from early extinguishment of debt (32,984) - - -
-----------------------------------------------------------------------------
Net earnings $ 3,070,003 3,002,283 2,979,240 3,301,351
-----------------------------------------------------------------------------
Net earnings per share - basic $ 0.21 0.20 0.21 0.23
Net earnings per share - diluted $ 0.21 0.20 0.21 0.22
-----------------------------------------------------------------------------
</TABLE>
Quarterly results are influenced by a number of factors, including the timing of
property acquisitions, sales and financing transactions and the completion of
development/redevelopment projects.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of operating results covers each of the
Company's business segments for the years ended December 31, 1999, 1998, and
1997.
Management believes that a segment analysis provides the most effective
means of understanding the business. As discussed in Note O to the consolidated
financial statements, segment data are reported using the accounting policies
followed by the Company for internal reporting to management. These policies are
the same as those used for external reporting. Operating results of the segments
are reconciled to earnings from operations in the financial statements in Note
O.
Operating Results- Shopping Centers
The operating results of shopping center properties are affected significantly
by acquisition and disposition transactions and openings of newly developed or
redeveloped properties. Information related to shopping center acquisitions,
dispositions and developments/redevelopments completed during 1999, 1998 and
1997 is summarized in the following table:
Transaction
Property Or Opening Date
Acquisitions
- - ------------
Saucon Valley Square March 1999
Wayne Heights January 1998
Wayne Plaza February 1998
Del Alba Plaza September 1998
Club Centre July 1997 (Note)
Enchanted Forest July 1997 (Note)
Glen Burnie Village July 1997 (Note)
Ingleside July 1997 (Note)
Little Glen July 1997 (Note)
Radcliffe Center July 1997 (Note)
Shawan Plaza July 1997 (Note)
Timonium Crossing July 1997 (Note)
Timonium Shopping Center July 1997 (Note)
Arundel Plaza December 1997
Milford Commons December 1997
8
<PAGE>
Operating Results - Shopping Centers (Continued)
Dispositions
- - ------------
Page Plaza April 1998
Union Hills March 1997
Plaza del Rio May 1997
Development/Redevelopment
- - -------------------------
Arundel Plaza March 1999
Harford Mall December 1999
North East Station March 1998
Lutherville Station April 1998
Note - The properties acquired in July 1997 were part of a portfolio of nine
shopping centers and a medical office building purchased from family members and
affiliates of the Pechter family ("JHP Acquisition").
Operating results of shopping center properties are summarized as follows (in
thousands):
1999 1998 1997
--------------------------------
Revenues $ 51,235 47,402 34,938
Operating and interest expenses,
exclusive of depreciation and
amortization 26,958 24,402 22,440
Depreciation and amortization 9,082 8,362 6,012
Minority interest 3,318 3,080 1,410
--------------------------------
Earnings from operations $ 11,877 11,558 5,076
--------------------------------
Revenues from shopping centers increased by $3,833,000 in 1999 and by
$12,464,000 in 1998. The increase in 1999 was due primarily to the operations of
the properties acquired in 1999 and 1998 ($2,101,000), the redevelopment
projects completed and opened in 1999 and 1998 ($1,266,000) and other net rental
and occupancy increases, partially offset by the sale of a property in 1998
($210,000). The increase in 1998 was due primarily to a full year of operations
of properties acquired in the JHP Acquisition ($7,544,000), the operations of
the other properties acquired in 1998 and 1997 ($3,382,000), the operation of
the two redevelopment projects which were completed in 1998 ($1,858,000), and
other occupancy and net rental increases. These increases were partially offset
by the sale of three properties during 1998 and 1997 ($773,000).
Operating and interest expenses (exclusive of depreciation and
amortization) for shopping center properties increased by $2,556,000 in 1999 and
by $1,962,000 in 1998. The increase in 1999 was due primarily to the
acquisitions and redevelopments referred to above ($2,020,000). The increase in
1998 was due primarily to the acquisitions and redevelopments referred to above
($2,348,000). Depreciation and amortization expense increased by $720,000 in
1999 and by $2,350,000 in 1998. These increases were also attributable primarily
to the acquisitions and redevelopments referred to above. Minority interest
expense increased by $238,000 in 1999 and by $1,670,000 in 1998. The increases
were due primarily to the units of limited partnership interests issued in
connection with the acquisition of Saucon Valley Square and in the JHP
Acquisition.
Operating Results- All Other Properties
Operating results of all other properties are summarized as follows (in
thousands):
1999 1998 1997
-------------------------------
Revenues $ 2,111 2,135 4,214
Operating and interest expenses,
exclusive of depreciation and
amortization 889 838 1,536
Depreciation and amortization 475 451 943
Minority interest 4 14 9
-------------------------------
Earnings from operations $ 743 832 1,726
-------------------------------
Revenues from all other properties decreased by $24,000 in 1999 and by
$2,079,000 in 1998. The decrease in 1998 was due primarily to the sale of the
Gateway International Office project ("Gateway") in September 1997 ($2,346,000),
partially offset by revenues from the medical office building acquired in the
JHP Acquisition ($275,000), and other occupancy and net rental changes.
Operating and interest expenses (exclusive of depreciation and
amortization) for all other properties increased $51,000 in 1999 and decreased
$698,000 in 1998. The increase in 1999 was due primarily to real estate taxes
and operating costs at several properties. The decrease in 1998 was due
primarily to the sale of Gateway. Depreciation and amortization increased by
$24,000 in 1999 and decreased by $492,000 in 1998. The decrease in 1998 was also
attributable to the sale of Gateway.
9
<PAGE>
Gain (Loss) on Properties
The $132,000 gain on properties for 1999 is due primarily to the final
resolution of contingencies in the sale agreements relating to properties sold
in 1997. The gain on properties for 1997 includes gains on sale of various
properties of approximately $1,165,000, including approximately $959,000
relating to Gateway. These gains were substantially offset by a provision for
loss of $1,148,000 on a shopping center the Company sold in 1998.
Funds from Operations
The Company uses a supplemental performance measure along with net
earnings to report its operating results. This measure is referred to as Funds
from Operations ("FFO"). FFO is defined by the National Association of Real
Estate Investment Trusts, Inc. (NAREIT) as net earnings computed in accordance
with GAAP, excluding cumulative effects of changes in accounting principles,
extraordinary or unusual items, and gains or losses from debt restructurings and
sales of property, plus depreciation and amortization, and after adjustments to
record unconsolidated partnerships and joint ventures on the same basis. FFO
does not represent cash flows from operations as defined by GAAP. FFO is not
indicative that cash flows are adequate to fund all cash needs and should not be
considered as an alternative to cash flows as a measure of liquidity. The
Company's FFO may not be comparable to the FFO of other REITs because they may
not use the current NAREIT definition or they may interpret the definition
differently.
FFO was $22,177,000 in 1999, $21,203,000 in 1998 and $13,757,000 in
1997. The increases in FFO in 1999 and 1998 were due primarily to the property
acquisitions and the development and redevelopment projects referred to above
and higher rents from released space. The reasons for significant changes in
revenues and expenses comprising FFO by segment are described above.
In 1999, NAREIT clarified the definition of FFO to address diversity in
practice with respect to the treatment of nonrecurring items. Under the revised
definition, FFO will include all nonrecurring items that are included in net
earnings, except for gains and losses from sales of depreciable operating
properties and items that are defined as extraordinary items under GAAP. The
clarified definition is effective January 1, 2000 and is applicable
retroactively. It will not change the Company's calculation of FFO.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $147,900 at December 31, 1999.
Net cash provided by operating activities was $25,154,000, $24,255,000,
and $16,006,000 in 1999, 1998, and 1997, respectively. The changes in cash
provided by operating activities were due primarily to the factors discussed
above in the comparisons of operating results. The level of net cash provided by
operating activities is also affected by the timing of receipt of revenues and
the payment of operating and interest expenses.
Net cash used by investing activities increased by $2,507,000, to
$24,176,000 in 1999 from $21,669,000 in 1998. The increase was primarily a
result of higher distributions to minority partners ($224,000) and a
distribution of refinancing proceeds ($3,051,000) in 1999, partially offset by a
lower level of operating property acquisitions ($768,000).
Net cash used by investing activities increased by $15,674,000, to
$21,669,000 in 1998 from $5,995,000 in 1997. The increase was primarily a result
of a lower level of sales of properties ($22,370,000) and higher distributions
to minority partners ($1,728,000) in 1998, partially offset by a decrease in
acquisitions ($8,424,000).
Net cash used by financing activities decreased by $8,961,000 to
$1,441,000 in 1999 from $10,402,000 in 1998. The decrease was due primarily to
cash provided from financing one shopping center ($11,100,000) and refinancing
another shopping center ($1,800,000), partially offset by increased share
repurchases of $2,016,000.
Net cash used by financing activities increased by $7,805,000 to
$10,402,000 in 1998 from $2,597,000 in 1997. The increase was primarily a result
of higher dividends paid in 1998 ($5,349,000) and share repurchases under the
Company's plan of $3,831,000.
The Company currently has a $75,000,000 unsecured line of credit
available for various purposes, including acquisition, development or
redevelopment of properties and liquidity, subject to various terms and
conditions. The note payable under the bank line of credit had an outstanding
balance of $27,500,000 at December 31, 1999.
The Company has registered to sell up to an aggregate of approximately
$98,000,000 (based on the public offering price) of additional commons shares of
beneficial interest and/or debt securities. The shares and debt may be issued
from time to time at prices, in amounts and on terms to be determined at the
time of offering.
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.
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
expects to continue to maintain a line of credit from its primary bank.
The Company anticipates material commitments for capital expenditures
to include, in the next two years, the ongoing redevelopment of six projects in
the planning stage at an estimated cost of $6,500,000. The Company expects to
fund the development projects and other capital expenditures with available net
cash flows from operating activities and if necessary with construction loan
financing, long-term mortgage financing on unencumbered operating properties or
the use of its line of credit.
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 2000 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 capital
requirements, MART intends to obtain funds through additional equity offerings,
joint ventures or long-term debt financing in a manner consistent with its
financial strategy.
The Company anticipates that the cash flow available from operations,
together with cash from borrowings and equity offerings, will be sufficient to
meet its liquidity and capital needs in both the short-and long-term.
10
<PAGE>
Market Risk Information
The market risk associated with financial instruments and derivative financial
and commodity instruments is the risk of loss from adverse changes in market
prices or rates. The Company's market risk arises primarily from interest rate
risk relating to variable rate borrowings used to maintain liquidity (e.g.,
credit line borrowings ) or finance project development costs (e.g.,
construction loans). The Company's interest rate risk management objective is to
limit the impact of interest rate changes on earnings and cash flows. In order
to achieve this objective, the Company relies primarily on long term, fixed rate
nonrecourse loans from institutional lenders to finance its operating
properties. In addition, long term fixed rate financing is typically arranged
concurrently with or shortly after a variable rate project construction loan is
negotiated or the project is complete. The Company has not used derivative
financial or commodity instruments to manage interest rate risk.
The Company's interest rate risk is monitored closely by management.
The table below presents the principal amounts, weighted average interest rates,
fair values and other data required to evaluate the expected cash flows of the
Company under debt agreements and its sensitivity to interest rate changes.
At December 31, 1999, the Company's variable rate debt relates to
borrowings under its credit line. The credit line borrowings are assumed to be
repaid at their various repricing dates throughout 2000.
As the table incorporates only those exposures that exist as of
December 31, 1999, it does not consider exposures or positions which could arise
after that date. As a result, the Company's ultimate realized gain or loss with
respect to interest rate fluctuations will depend on the exposures that arise
after December 31, 1999, the Company's hedging strategies, if any, during that
period and interest rates.
<TABLE>
<CAPTION>
(In thousands)
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt 10,790 13,152 9,809 44,418 2,391 78,534 159,094 153,773
Weighted average interest rate 9.63% 8.34% 8.54% 8.34% 8.17% 7.94% 8.50% -
Variable rate debt 27,500 - - - - - 27,500 27,500
Weighted average interest rate 6.79% - - - - - 6.79% -
</TABLE>
Year 2000 Issue
The year 2000 issue relates to whether computer systems will properly recognize
date sensitive information to allow accurate processing of transactions and data
relating to the year 2000 and beyond. In addition, the issue relates to whether
non-Information Technology (IT) systems that depend on embedded computer
technology will recognize the year 2000. Systems that do not properly recognize
such information could generate erroneous data or fail.
The Company has not experienced any significant issues with respect to
the year 2000 transition. The Company's IT and non-IT systems have operated
without failure since December 31, 1999, and there has been no loss of service
from major third party service providers. Although the Company believes that its
internal year 2000 issues have been addressed appropriately and is not aware of
any specific remaining year 2000 issues, there can be no assurance that all of
these issues, including those that may affect tenants, vendors and suppliers,
have been fully resolved.
Inflation
The majority of leases for the shopping center properties contain provisions for
annual increases in rents and/or provisions, which may entitle MART to receive
percentage rents, based on the tenants' gross sales. Such provisions ameliorate
the risk to MART of the adverse effects of inflation. 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 for 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 for 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 rates.
Cautionary Disclosure Relating to Forward Looking Statements
Statements made in this document include forward looking statements under the
federal securities laws. Statements that are not historical in nature, including
the words "anticipate," "estimate," "should," "expect," "believe," "intend," and
similar expressions are intended to identify forward looking statements. While
these statements reflect the Company's good faith beliefs based on current
expectations, estimates and projections about (among other things) the industry
and the markets in which the Company operates, they are not guarantees of future
performance, involve known and unknown risks and uncertainties that could cause
actual results to differ materially from those in the forward looking
statements, and should not be relied upon as predictions of future events.
Factors which could impact future results include (among other things) general
economic conditions, local real estate conditions, oversupply of available
space, financial condition of tenants, timely ability to lease or re-lease space
upon favorable economic terms, agreements with anchor tenants, interest rates,
availability of financing, competitive factors, and similar considerations. The
Company disclaims any obligation to publicly update or revise any forward
looking statement, whether as a result of new information, future events or
otherwise. For a discussion of risks and uncertainties that could cause actual
results to differ materially from those contained in the forward looking
statements, see "Risk Factors" filed as Exhibit 99.1 to the Company's Form 10-K.
11
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1999 and 1998 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule of real estate and accumulated
depreciation. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, 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.
KPMG LLP
Baltimore, Maryland
February 11, 2000, except as to
Note S which is as of
March 3, 2000
12
<PAGE>
<TABLE>
<CAPTION>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31,
1999 1998
----------------------------------
ASSETS
- - ------
<S> <C> <C>
Properties:
Operating properties (Notes C and D) $ 376,030,262 347,024,048
Less accumulated depreciation and amortization 60,097,298 50,540,094
----------------------------------
315,932,964 296,483,954
Properties in development (Note E) 2,098,324 11,281,252
Properties held for development or sale 3,587,610 3,587,610
----------------------------------
321,618,898 311,352,816
Cash and cash equivalents 147,878 611,107
Notes and accounts receivable - tenants and other (Note F) 2,160,417 1,504,951
Prepaid expenses and deposits 2,637,405 2,381,137
Deferred financing costs, net (Note G) 2,006,063 1,158,606
----------------------------------
$ 328,570,661 317,008,617
----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Liabilities:
Accounts payable and accrued expenses (Note H) $ 6,399,153 6,306,471
Notes payable (Note I) 27,500,000 18,400,000
Construction loan payable (NoteD) 9,000,000 9,000,000
Mortgages payable (Note D) 136,847,831 125,401,850
Convertible subordinated debentures (Note J) 13,246,000 13,931,000
Deferred income 549,347 743,284
----------------------------------
193,542,331 173,782,605
----------------------------------
Minority interest in consolidated joint ventures 37,359,843 38,734,953
----------------------------------
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 shares, issued and outstanding 14,005,407 and
14,495,045 shares, respectively 140,054 144,950
Additional paid-in capital 126,805,104 131,368,001
Distributions in excess of accumulated earnings (29,276,671) (27,021,892)
----------------------------------
97,668,487 104,491,059
----------------------------------
Commitments (Note M)
----------------------------------
$ 328,570,661 317,008,617
----------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31,
--------------------------------------------------
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rentals $ 44,463,148 41,678,283 33,115,087
Tenant recoveries 8,287,459 7,421,059 5,569,495
Other ( Note P) 595,866 437,788 467,638
--------------------------------------------------
53,346,473 49,537,130 39,152,220
--------------------------------------------------
EXPENSES:
Interest 14,062,178 12,081,000 12,555,017
Depreciation and amortization
of property and improvements 9,557,204 8,813,251 6,954,803
Operating 11,046,411 10,370,414 8,960,936
General and administrative 2,739,079 2,788,939 2,460,263
--------------------------------------------------
37,404,872 34,053,604 30,931,019
--------------------------------------------------
EARNINGS FROM OPERATIONS
BEFORE MINORITY INTEREST 15,941,601 15,483,526 8,221,201
Minority Interest (3,322,054) (3,093,442) (1,418,826)
--------------------------------------------------
EARNINGS FROM OPERATIONS 12,619,547 12,390,084 6,802,375
Gain (loss) on properties (Note Q) 131,611 (4,223) 16,836
--------------------------------------------------
EARNINGS BEFORE EXTRAORDINARY LOSS 12,751,158 12,385,861 6,819,211
Extraordinary loss from early
extinguishment of debt - (32,984) (226,873)
--------------------------------------------------
NET EARNINGS $ 12,751,158 12,352,877 6,592,338
--------------------------------------------------
NET EARNINGS PER SHARE - BASIC (NOTE R):
Earnings before extraordinary loss $ 0.89 0.85 0.72
Extraordinary loss on early extinguishment of debt - - (0.02)
--------------------------------------------------
Net earnings $ 0.89 0.85 0.70
--------------------------------------------------
NET EARNINGS PER SHARE - DILUTED (NOTE R):
Earnings before extraordinary loss $ 0.88 0.84 0.72
Extraordinary loss on early extinguishment of debt - - (0.02)
--------------------------------------------------
Net earnings $ 0.88 0.84 0.70
--------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1999, 1998 and 1997
Distributions
Number of Common Additional in Excess of Net
Common Shares at Paid-in Accumulated Shareholders'
Shares Par Value Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 7,225,103 $ 72,251 52,635,713 (21,896,662) 30,811,302
Conversion of convertible subordinated debentures 2,827,838 28,278 28,740,766 - 28,769,044
Redemption of Operating Partnership Units - - (15,000) - (15,000)
Share-based compensation plans 382,307 3,823 899,499 - 903,322
Sale of common shares 4,025,000 40,250 49,020,874 - 49,061,124
Dividends paid - $.97 per share - - - (9,360,567) (9,360,567)
Net earnings - - - 6,592,338 6,592,338
-----------------------------------------------------------------------
BALANCE, December 31, 1997 14,460,248 144,602 131,281,852 (24,664,891) 106,761,563
Conversion of convertible subordinated debentures 340,080 3,401 3,473,468 - 3,476,869
Share purchase plan (313,200) (3,132) (3,827,977) - (3,831,109)
Share-based compensation plans 7,917 79 467,374 - 467,453
Other, net - - (26,716) - (26,716)
Dividends paid - $1.01 per share - - - (14,709,878) (14,709,878)
Net earnings - - - 12,352,877 12,352,877
----------------------------------------------------------------------
BALANCE, December 31, 1998 14,495,045 144,950 131,368,001 (27,021,892) 104,491,059
Conversion of convertible subordinated debentures 65,235 652 670,365 - 671,017
Share purchase plan (569,200) (5,692) (5,841,867) - (5,847,559)
Share-based compensation plans 14,327 144 608,605 - 608,749
Dividends paid - $1.05 per share - - - (15,005,937) (15,005,937)
Net earnings - - - 12,751,158 12,751,158
----------------------------------------------------------------------
BALANCE, December 31, 1999 14,005,407 $ 140,054 126,805,104 (29,276,671) 97,668,487
----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31,
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,751,158 12,352,877 6,592,338
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 9,557,204 8,813,251 6,954,803
Minority interest in earnings, net 3,322,054 3,086,093 1,356,062
Amortization of deferred financing costs 315,828 247,901 374,432
(Gain) loss on properties (131,611) 4,223 (16,836)
Changes in operating assets and liabilities:
(Increase) decrease in assets (911,734) (1,077,090) (539,087)
Increase (decrease) in liabilities (101,255) 662,218 1,190,388
Other, net 351,980 165,664 93,858
---------------------------------------------------
Total adjustments 12,402,466 11,902,260 9,413,620
---------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,153,624 24,255,137 16,005,958
---------------------------------------------------
Cash flows from investing activities:
Acquisitions of and additions to properties (17,205,063) (22,470,996) (30,894,917)
Proceeds from sales of properties - 4,498,017 26,867,723
Payments to minority partners (6,970,622) (3,695,939) (1,985,568)
Receipts from minority partners - - 17,607
---------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (24,175,685) (21,668,918) (5,995,155)
---------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable 67,800,000 24,677,750 34,900,000
Principal payments on notes payable (58,700,000) (9,677,750) (47,900,000)
Proceeds from mortgages payable 25,300,000 11,600,000 -
Principal payments on mortgages payable (13,854,019) (18,435,646) (38,067,252)
Proceeds from construction loans payable - 307,084 8,692,916
Additions to deferred financing costs (1,133,621) (305,881) (31,837)
Proceeds from exercise of share options - 23 78,526
Net proceeds from sale of common shares - - 49,061,124
Shares repurchased (5,847,559) (3,831,109) -
Dividends paid (15,005,937) (14,709,878) (9,360,567)
Other, net (32) (26,922) 29,666
--------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (1,441,168) (10,402,329) (2,597,424)
--------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (463,229) (7,816,110) 7,413,379
CASH AND CASH EQUIVALENTS, beginning of year 611,107 8,427,217 1,013,838
--------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 147,878 611,107 8,427,217
--------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 14,206,045 12,540,504 13,387,175
--------------------------------------------------
Schedule of noncash investing and financing activities
- - ---------------------------------------------------------------------
Conversion of subordinated debentures,
net of deferred financing costs $ 671,051 3,477,075 28,769,882
Mortgages payable assumed - 16,171,755 83,922,498
Operating Partnership Units issued 2,273,458 - 36,064,913
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
A. Summary of Significant Accounting Policies
Organization
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 qualifies as a real estate
investment trust ("REIT") for Federal income tax purposes. As used herein, the
term "MART" or the "Company" refers to Mid-Atlantic Realty Trust and entities
owned or controlled by MART, including MART Limited Partnership (the "Operating
Partnership").
Description of Business
The Company is a fully integrated, self-administered real estate investment
trust which owns, acquires, develops, redevelops, leases and manages primarily
neighborhood or community shopping centers in the Middle Atlantic region of the
United States.
The Company has an equity interest in 33 operating shopping centers, 27
of which are wholly owned by the Company and six in which the Company has
ownership interests ranging from 50% to 93%, as well as other commercial
properties. The Company also owns seven undeveloped parcels of land totaling
approximately 147 acres, which it is holding for development or sale.
All of MART's interests in properties are held directly or indirectly
by, and all of its operations relating to the properties are conducted through,
the Operating Partnership. Subject to certain conditions, units of partnership
interest in the Operating Partnership ("Units") may be exchanged by the limited
partners for cash or, at the option of MART, the obligation may be assumed by
MART and paid either in cash or in common shares of beneficial interest in MART
on a one-for-one basis. MART controls the Operating Partnership as the sole
general partner, and owns approximately 82% of the Units at December 31, 1999.
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities and disclosures of
contingencies at the date of the financial statements and revenues and expenses
recognized during the reporting period. Actual results could differ from those
estimates. Certain amounts for prior years have been reclassified to conform to
the presentation for 1999.
Principles of Consolidation
The consolidated financial statements include all wholly owned subsidiaries and
majority-owned partnerships, including the Operating Partnership. Investments in
unconsolidated joint ventures are carried on the equity method. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company owns 100% interests in corporate subsidiaries which are
general partners in several partnerships which have outside partners with 50%
interests. Under terms of the partnership agreements, the Company has control
over the partnerships, including acquisition, leasing, financing and sale
transactions, and accordingly, it uses the full consolidation method to account
for them.
Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing earnings available to
common shareholders by the weighted average number of common shares outstanding.
Diluted EPS is computed after adjusting the numerator and denominator of the
basic EPS computation for the effects of all dilutive potential common shares
outstanding during the period. The dilutive effects of convertible securities
are computed using the "if-converted" method and the dilutive effects of
options, warrants and their equivalents (including fixed awards and nonvested
shares issued under share-based compensation plans) are computed using the
"treasury stock" method.
Capitalization Policy
Acquisition, development and construction costs of properties in development are
capitalized including, where applicable, salaries and related costs, real estate
taxes and interest costs. Development and construction costs and costs of
significant improvements, replacements and renovations to operating properties
are capitalized while costs of maintenance and repairs are expensed as incurred.
Direct costs incurred in financing transactions are capitalized as deferred
costs and amortized to interest cost over the term of the related mortgage using
the interest method. Initial direct costs incurred with respect to completed
tenant leases are deferred and amortized using the straight-line method over the
terms of the related leases. Effective March 19, 1998, the Company adopted a
policy of charging internal staff costs associated with acquisitions of
operating properties to expense as incurred as required by a consensus of the
Emerging Issues Task Force of the Financial Accounting Standards Board. Prior to
that date, such costs were capitalized as part of the cost of properties
acquired. This change did not have a material effect on net earnings for 1998.
Properties
Properties to be developed or held and used in operations are carried at cost,
reduced for impairment losses where appropriate. Properties held for sale are
carried at the lower of their carrying value (i.e. cost less accumulated
depreciation and any impairment loss recognized, where applicable) or estimated
fair value less costs to sell. The net carrying values of operating properties
are classified as properties held for sale when senior management authorizes
their disposition and the Company begins marketing the properties for sale.
Depreciation of these properties is discontinued at that time, but operating
revenues, other operating expenses and interest continue to be recognized until
the date of sale.
17
<PAGE>
Properties (continued)
If events or circumstances indicate that the carrying value of an
operating property to be held and used may be impaired, a recoverability
analysis is performed based on estimated undiscounted future cash flows to be
generated from the property. If the analysis indicates that the carrying value
is not recoverable from future cash flows, the property is written down to
estimated fair value and an impairment loss is recognized.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets, as follows: Buildings and
additions 30 -50 years; land improvements 5 - 15 years; tenant improvements,
lesser of lease term or asset useful lives; and furniture, fixtures and
equipment 3 - 10 years.
Revenue Recognition
Minimum rent revenues are generally recognized when due from tenants under terms
of the related leases. Revenues from tenant reimbursements of real estate taxes,
maintenance and insurance costs are recognized in the period in which the
related expense is incurred. Until September 30, 1999, revenues based on a
percentage of tenant's sales in excess of levels specified in the lease
agreement were estimated and accrued ratably throughout the year. Effective
October 1, 1999, the Company changed its method of accounting for percentage
rents to recognize revenues only when a tenant's sales actually exceed the
specified minimum level as required by Staff Accounting Bulletin 101 - Revenue
Recognition. This change did not have a material effect on the financial
statements for 1999.
Share-based Compensation Plans
The Company uses the intrinsic value method to account for share-based employee
compensation plans. Under this method, compensation cost is recognized for
awards of shares to employees only if the quoted market price of the share at
the grant date (or other measurement date, if later) is greater than the amount
the employee must pay to acquire the share. Information concerning the pro forma
effects on net earnings and net earnings per share of using a fair value-based
method to account for share-based employee compensation plans, rather than the
intrinsic value method, is provided in note L.
Income Taxes
The Company qualifies, and intends to continue to qualify, as a REIT pursuant to
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. In
general, under such Code provisions a trust which has made the required election
and, in the 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.
The REIT Modernization Act (RMA) was included in the Tax Relief Extension Act of
1999, which was enacted into law on December 17, 1999. The RMA includes numerous
amendments to the Code provisions governing the qualification and taxation of
REITs. These amendments are effective January 1, 2001. The Company is in the
process of evaluating the effects of and opportunities presented by these
amendments.
Cash Equivalents
All highly liquid unrestricted investments with maturities at dates of purchase
of three months or less are considered cash equivalents.
Financial Instruments
Fair values of financial instruments approximate their carrying values in the
financial statements, except for mortgages payable and convertible subordinated
debentures for which fair value information is presented in notes D and J,
respectively. The fair values of this debt at December 31, 1999 and 1998, were
determined based on quoted market prices for publicly traded debt and discounted
estimated future payments to be made for other debt. The discount rates used
approximate the rates currently offered for borrowings with similar remaining
maturities.
B. Portfolio Acquisition
On July 1, 1997, the Company acquired a portfolio of nine shopping centers and
one medical office building in the Baltimore metropolitan area from family
members and affiliates of the Pechter family ("JHP"). At closing of the
transaction ("JHP Acquisition"), the Company formed the Operating Partnership
and members of JHP were admitted as limited partners. The Company assigned to
the Operating Partnership its beneficial interest in the properties owned by the
Company and its subsidiaries in exchange for a number of Units equal to the
number of outstanding common shares of beneficial interest of the Company. For
the JHP properties, the Operating Partnership issued to the members of JHP
3,235,000 Units. The acquisition was accounted for using the purchase method.
The aggregate fair market value of the assets acquired was approximately
$120,000,000, including the assumption of existing mortgage indebtedness with a
fair value of approximately $84,000,000.
The consolidated statement of operations for the year ended December
31, 1997, includes revenues and expenses related to JHP properties only from the
date of acquisition. The Company's unaudited pro forma consolidated results of
operations for the year ended December 31, 1997, assuming the acquisition
occurred on January 1, 1997, are summarized as follows (in thousands, except per
share data):
1997
- - ---------------------------------------------
Revenues $ 46,325
Net earnings 6,728
Earnings per share 0.71
- - ---------------------------------------------
The unaudited pro forma revenues and earnings summarized above are not
necessarily indicative of the results that would have occurred if the
acquisition had been consummated on January 1, 1997.
18
<PAGE>
C. Operating Properties
<TABLE>
<CAPTION>
Operating properties consist of the following: December 31,
1999 1998
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 76,731,707 68,845,324
Land improvements 31,739,820 31,383,623
Buildings 223,025,234 205,329,992
Improvements for tenants 14,804,586 13,811,972
Development costs on completed projects 8,506,140 8,289,484
Furnitures, fixtures and equipment 3,158,010 2,662,261
Deferred leasing costs 18,064,765 16,701,392
-----------------------------------
376,030,262 347,024,048
Less accumulated depreciation and amortization 60,097,298 50,540,094
-----------------------------------
$ 315,932,964 296,483,954
-----------------------------------
</TABLE>
D. Properties and Related Accumulated Depreciation and Amortization and Debt
A summary of the Company's properties and related mortgages payable is as
follows at December 31, 1999:
<TABLE>
<CAPTION>
Accumulated
Cost of Depreciation
Mortgages Initial Subsequent Total and
Classification Payable Cost Improvements Cost Amortization Net Cost
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping centers $ 134,252,869 272,563,778 86,395,676 358,959,454 54,585,445 304,374,009
Bowling centers - 2,200,106 71,706 2,271,812 1,220,303 1,051,509
Office buildings 2,594,962 9,439,113 1,099,089 10,538,202 2,694,120 7,844,082
Other rental properties - 2,040,072 1,063,390 3,103,462 956,486 2,146,976
Other property - 681,313 476,019 1,157,332 640,944 516,388
----------------------------------------------------------------------------------
Operating properties 136,847,831 286,924,382 89,105,880 376,030,262 60,097,298 315,932,964
Properties in development - 2,098,324 - 2,098,324 - 2,098,324
Properties held for development or sale - 3,587,610 - 3,587,610 - 3,587,610
==================================================================================
$ 136,847,831 292,610,316 89,105,880 381,716,196 60,097,298 321,618,898
----------------------------------------------------------------------------------
</TABLE>
Mortgages payable at December 31, 1999 bear interest at a weighted
average effective rate of 8.61% and mature in installments through 2029.
Aggregate annual principal payments applicable to mortgages payable are as
follows at December 31, 1999:
2000 $ 10,790,035
2001 4,152,187
2002 9,809,315
2003 31,172,318
2004 2,391,204
Thereafter 78,532,772
- - --------------------------------
Total $ 136,847,831
================================
At December 31, 1999 and 1998, the estimated fair values of mortgages
payable were $132,079,000 and $131,225,000, respectively.
The construction loan payable at December 31, 1999 and 1998 relates to a
property on which development was completed in 1998. The loan bears interest at
8% and is due in June 2001.
E. Properties in Development
Properties in development consist of the following:
December 31,
1999 1998
- - ------------------------------------------------------------------
Land $ 67,046 3,144,000
Construction in progress 1,267,288 6,286,980
Preconstruction costs 763,990 1,850,272
---------------------------------
$ 2,098,324 11,281,252
---------------------------------
Costs of completed development projects are transferred to operating property
costs when the project is completed, at which time depreciation and amortization
commences. Construction period interest cost capitalized during 1999 and 1998
was approximately $242,000 and $873,000, respectively.
19
<PAGE>
F. Notes and Accounts Receivable
The Company performs credit evaluations of prospective new tenants and requires
security deposits where appropriate. Tenants' compliance with the terms of the
leases is monitored closely and the allowance for doubtful accounts is
established based on management's analysis of the risk of loss on specific
tenants, historical trends, and other relevant information. Management believes
adequate provision has been made for the Company's credit risk for all
receivables.
G. Deferred Financing Costs
Deferred financing costs consist of the following:
December 31,
1999 1998
- - ---------------------------------------------------------------------------
Costs related to subordinated debentures $ 676,283 711,256
Costs related to line of credit 794,771 411,538
Costs related to operating properties' debt 2,420,417 1,626,416
----------------------------
3,891,471 2,749,210
Less accumulated amortization 1,885,408 1,590,604
----------------------------
$ 2,006,063 1,158,606
----------------------------
H. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 31,
1999 1998
- - ---------------------------------------------------------------------------
Trade accounts payable $ 4,930,250 4,077,756
Retainage on construction in progress 248,909 352,069
Accrued interest on subordinated debentures 294,586 309,820
Other accrued expenses 925,408 1,566,826
------------------------------
$ 6,399,153 6,306,471
------------------------------
I. Notes Payable
Notes payable consist of line of credit borrowings of $27,500,000 and
$18,400,000 at December 31, 1999 and 1998, respectively. The Company has an
agreement with its primary bank that provides for a $75,000,000 unsecured line
of credit. The loan maturity date is April 2002, with the option to extend for
one year provided no event of default exists. The agreement contains covenants
which provide for the maintenance of specified debt service coverage ratios,
minimum levels of net worth, negative pledges concerning certain secured
financings, and other requirements, among which is the requirement that the
Company maintains its status as a REIT. The line bears interest at the prime
rate (8.5% at December 31,1999). However, the Company has the option to fix the
rate at LIBOR plus 1.25% for fixed periods from three to nine months. A stand-by
fee is required by the bank for any unused portion of the line. At December 31,
1999, 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 $773,365, was $46,726,635. The maximum level of borrowings under the
line of credit was $28,500,000, $19,800,000 and $21,300,000 in 1999, 1998 and
1997, respectively. The average amounts of borrowings were approximately
$23,937,000, $14,236,000 and $13,191,000, in 1999, 1998 and 1997, respectively,
with weighted average interest rates approximating 6.8%, 6.8% and 7.1%
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 1999, $685,000 in debentures were
converted to 65,235 common shares of beneficial interest. In 1998, $3,571,000 in
debentures were converted to 340,080 common shares of beneficial interest. In
1997, $29,693,000 in debentures were converted to 2,827,838 common shares of
beneficial interest. The balance of the debentures, at December 31, 1999, of
$13,246,000, if fully converted, would produce an additional 1,261,524 shares.
The debentures are redeemable by the Company at any time at 100% of the
principal amount thereof, together with accrued interest. The debentures are
subordinate to all mortgages payable. At December 31, 1999 and 1998, the
estimated fair values of convertible subordinated debentures were $12,694,000
and $16,336,000 respectively.
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. Accordingly, no provision has been made for Federal income taxes. At
K. Income Taxes (continued)
December 31, 1999, the income tax bases of the Company's assets and liabilities
were approximately $258,000,000 and $196,000,000, respectively.
The net operating losses carried forward from December 31, 1999 for
Federal income tax purposes aggregate approximately $12,000,000 and will begin
to expire in 2006.
In connection with its election to be taxed as a REIT, the Company has
elected to be subject to the "built-in gain" rules. Under these rules, taxes may
be payable at the time and to the extent that the net unrealized gains on the
Company's assets at the date of conversation to REIT status are recognized in
taxable dispositions of such assets in the ten-year period following conversion.
The remaining net unrealized gains were
20
<PAGE>
K. Income Taxes (Continued)
approximately $90,500,000 at December 31, 1999. Management believes that the
Company will not be required to make payments of taxes on built-in gains
throughout the ten-year period due to the availability of the net operating loss
carryforward to offset built-in gains which might be recognized and the
potential for the Company to make nontaxable dispositions, if necessary.
Accordingly, at December 31, 1999, no deferred tax liability for built-in gains
has been recognized. It may be necessary to recognize a liability for such taxes
in the future if management's plans and intentions with respect to asset
dispositions or the related tax laws change.
L. Shareholders' Equity
Preferred Shares
At its inception on September 11, 1993, MART authorized 2,000,000
preferred shares of beneficial interest at a par value of $.01 per share. At
December 31, 1999, none of these shares were issued and outstanding.
Share-Based Compensation Plans
The Company has established a 1993 Omnibus share plan and a 1995 share
option plan ("Plans") under which trustees, officers and employees may be
granted awards of share options, share appreciation rights, performance shares
and/or restricted shares. The purposes of the Plans are to provide equity-based
incentive compensation based on long-term appreciation in value of MART's shares
and to promote the interests of the Company and its shareholders by encouraging
greater management ownership of the Company's shares.
Share options granted generally vest over a three-year period, subject
to certain conditions, typically have an exercise price equal to the market
price at the grant date and have a maximum term of ten years. The Company has
not granted any share appreciation rights or performance shares.
Changes in options outstanding under the Plans are summarized as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
- - --------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 554,533 $ 11.61 570,854 $ 11.58 395,632 $ 10.19
Options granted - - - - 209,000 13.25
Options exercised - - (2,354) 9.97 (13,974) 9.97
Options canceled (24,933) 10.58 (13,967) 10.58 (19,804) 10.08
---------------------------------------------------------------
Balance at end of year 529,600 $ 11.66 554,533 $ 11.61 570,854 $ 11.58
---------------------------------------------------------------
Options exercisable 529,600 $ 11.66 514,490 $ 11.49 430,185 $ 11.04
---------------------------------------------------------------
</TABLE>
Information about options outstanding at December 31, 1999 is
summarized as follows:
Exercise price Options Remaining life Options
per share outstanding (years) Exercisable
- - ------------------------------------------------------
$ 10.50 211,000 4.0 211,000
$ 8.94 33,400 5.8 33,400
$ 9.75 35,200 6.8 35,200
$ 11.50 10,000 7.5 10,000
$ 11.38 4,000 7.4 4,000
$ 13.38 236,000 7.8 236,000
-------------------------------------
529,600 529,600
-------------------------------------
The per share weighted-average fair values of options granted during 1997 was
$.92. This fair value was estimated on the dates of each grant using the
Black-Scholes option-pricing model with the following assumptions:
- - ----------------------------------
Risk-free interest rate 5.78%
Dividend yield 8.47%
Volatility factor 18.43%
Life (years) 3.00
- - ----------------------------------
21
<PAGE>
L. Shareholders' Equity (Continued)
The option prices were equal to the market prices at the date of grant
or vesting date for all of the options granted in 1997 and, accordingly, no
compensation cost was recognized for these options in the financial statements.
If the Company had applied a fair value-based method to recognize compensation
cost for all stock options issued after 1994, net earnings and net earnings per
common share would have been reduced as indicated below:
Years ended December 31,
1999 1998 1997
- - ----------------------------------------------------------------------------
Net earnings:
As reported $ 12,751,158 12,352,877 6,592,338
Pro forma 12,687,065 12,288,172 6,505,220
Net earnings per common share:
Basic
As reported 0.89 0.85 0.70
Pro forma 0.88 0.84 0.69
Diluted
As reported 0.88 0.84 0.70
Pro forma 0.88 0.84 0.69
- - --------------------------------------------------------------------------------
Restricted Share Plan
In 1997, the Executive Compensation Committee recommended, and the Board of
Trustees approved, a Restricted Share Plan. The Executive Compensation Committee
believes that the grant of restricted share awards provides a long-term
incentive to persons who contribute to the growth of MART and establishes a
direct link between compensation and shareholder return.
In 1997, 400,000 restricted shares were made available for the plan.
Awards granted in 1999, 1998 and 1997 aggregated 15,000, 1,572 and 368,333
shares, respectively, with a weighted-average market value of $10.38, $13.69 and
$13.38 per share, respectively. Shares awarded are subject to forfeiture
restrictions which lapse at defined annual rates to 2008, subject to the
recipients' continued employment with the Company. The Company recognizes the
amortization of the fair value of the shares awarded as compensation costs over
the terms of the awards.
Share Repurchase Plan
At December 31, 1999, the Company was authorized to repurchase up to 1,831,782
common shares of beneficial interest (from a total authorization of 3,000,000
common shares of beneficial interest) pursuant to its share repurchase plan.
During 1999 and 1998, the Company purchased 569,200 and 313,200 shares,
respectively, at an average per share cost of $10.21 and $12.18, respectively.
The excess of the purchase price over the par value of shares repurchased is
applied to reduce additional paid-in capital.
M. Commitments
The Company leases the land relating to certain of its properties under
operating leases expiring at various dates to 2053, subject to renewal options
in most cases. Minimum rental commitments under leases in effect as of December
31, 1999 are as follows:
2000 $ 651,000
2001 651,000
2002 651,000
2003 651,000
2004 651,000
Thereafter 23,722,000
=============================
Total $ 26,977,000
- - -----------------------------
Certain of the leases contain purchase options. All of the leases
require the Company to pay real estate taxes. Total annual minimum lease
payments amounted to $702,000 in 1999, $781,000 in 1998, and $675,000 in 1997.
N. Leases
The Company's shopping centers and other commercial properties are generally
leased on a long-term basis. All leases are classified as operating leases.
Future minimum lease payments receivable under noncancelable operating leases in
effect as of December 31, 1999 are as follows:
2000 $ 43,097,000
2001 40,082,000
2002 37,062,000
2003 33,518,000
2004 29,330,000
Thereafter 230,282,000
=============================
Total $ 413,371,000
- - -----------------------------
22
<PAGE>
N. Leases (Continued)
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 $1,381,000 in 1999,
$1,435,000 in 1998, and $816,000 in 1997. On a prospective basis, no more than
3.3% of annual rental revenue is derived from any one tenant, except Royal
Ahold. Royal Ahold minimum lease payments represent approximately 11% for the
years 2000 through 2004 and 31% thereafter of the total minimum lease payments
above. The percentage of total minimum lease payments in the years beyond 2004
is higher than in the prior years due to the fact that Royal Ahold leases have
long initial lease terms compared with other major tenants which generally use
renewal option terms. Renewal option minimum lease payments are not included in
the totals above.
Effective July 31, 1999, a principal tenant at one of the Company's shopping
centers formally rejected its lease in connection with bankruptcy proceedings.
The Company ceased accruing revenue under the lease at that time, but is
pursuing claims against the former tenant for termination payments and recovery
of costs of space improvements as provided in the lease agreement. The Company's
total claim is approximately $3,100,000 and is being contested by the former
tenant. The ultimate outcome of this matter is not determinable at this time.
O. Segment Information
The Company's only reportable segment is Shopping Centers. This segment includes
the operation and management of shopping center properties, and revenues are
derived primarily from rents and services to tenants. These properties are
managed separately from the other property types owned by the Company because
they require different operating strategies and management expertise.
The accounting policies of the segments are the same as those of the
Company described in Note A. Segment operating results are measured and assessed
based on a performance measure known as Funds from Operations ("FFO"). FFO is
defined as net earnings (computed in accordance with generally accepted
accounting principles), excluding cumulative effects of changes in accounting
principles, extraordinary or unusual items and gains or losses from debt
restructurings and sales of properties, plus depreciation and amortization, and
after adjustments to record unconsolidated partnerships and joint ventures on
the same basis. FFO is not a measure of operating results or cash flows from
operating activities as measured by generally accepted accounting principles, is
not necessarily indicative of cash available to fund cash needs and should not
be considered an alternative to cash flows as a measure of liquidity.
Operating results for the segments are summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------------------
Shopping All Shopping All Shopping All
Centers Other Total Centers Other Total Centers Other Total
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 51,235,338 2,111,135 53,346,473 47,402,079 2,135,051 49,537,130 34,938,201 4,214,019 39,152,220
Expenses, exclusive of 26,958,271 889,397 27,847,668 24,402,390 837,963 25,240,353 22,439,674 1,536,542 23,976,216
depreciation and
amortization of property
and improvements
Minority Interest 3,318,389 3,665 3,322,054 3,079,697 13,745 3,093,442 1,409,598 9,228 1,418,826
-------------------------------------------------------------------------------------------------------------
FFO $ 20,958,678 1,218,073 22,176,751 19,919,992 1,283,343 21,203,335 11,088,929 2,668,249 13,757,178
-------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of FFO reported above to earnings from operations in the
financial statements is summarized as follows:
Years ended December 31,
1999 1998 1997
- - ---------------------------------------------------------------------------
FFO $ 22,176,751 21,203,335 13,757,178
Depreciation and
amortization of
property and
Improvements 9,557,204 8,813,251 6,954,803
------------------------------------------------
Earnings from operations $ 12,619,547 12,390,084 6,802,375
------------------------------------------------
23
<PAGE>
O. Segment Information (Continued)
Substantially all assets of the Company, with the exception of
properties held for development or sale and cash and cash equivalents, are
allocable to the Shopping Center segment. Additions to long-lived assets of the
segments are summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shopping Centers:
Acquisitions $ 10,602,882 26,417,356 129,060,063
Development 6,491,855 6,738,109 15,633,614
Improvements for tenants
and other 2,614,639 5,596,654 2,117,173
--------------------------------------------------
19,709,376 38,752,119 146,810,850
All others, including
acquisitions of $4,115,752 in 1997 113,910 76,022 5,109,227
==================================================
Total $ 19,823,286 38,828,141 151,920,077
--------------------------------------------------
</TABLE>
P. Other Revenues
Other revenues consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividends $ 115,320 195,693 321,185
Miscellaneous 480,546 242,095 146,453
---------------------------------------------------
$ 595,866 437,788 467,638
---------------------------------------------------
</TABLE>
Q. Gain (Loss) on Properties
Gain (loss) on properties consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain (loss) on sales of operating properties $ 131,611 1,042,727
(11,584)
Gain on sales of properties held for development or sale, net - 7,361 122,109
Allowance for loss on operating properties - - (1,148,000)
---------------------------------------------
$ 131,611 (4,223) 16,836
---------------------------------------------
</TABLE>
The gain on sales of operating properties for 1999 is due primarily to the final
resolution of contingencies in the sale agreements relating to properties sold
in 1997. The gain on properties for 1997 includes gains on sale of various
properties, including approximately $959,000 relating to the Gateway
International Office project. These gains were substantially offset by a
provision for loss of $1,148,000 on a shopping center the Company sold in 1998.
The gain (loss) on sales of operating properties for 1997 includes minority
interest of $75,173.
24
<PAGE>
R. Earnings Per Share
The following table sets forth information relating to the computation of basic
and diluted earnings per share:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Earnings before extraordinary loss $ 12,751,158 12,385,861 6,819,211
Dividends on unvested restricted share awards (294,038) (310,529) (76,667)
---------------------------------------
Numerator for basic earnings per share--earnings available to common shareholders 12,457,120 12,075,332 6,742,544
Adjustment to dividends on restricted share awards - - 537
Interest on subordinated debentures 1,111,858 1,206,760 -
---------------------------------------
Numerator for diluted earnings per share--earnings available to common shareholders $ 13,568,978 13,282,092 6,743,081
=======================================
Denominator:(1)
Denominator for basic earnings per share--weighted average shares outstanding 14,021,403 14,240,533 9,308,682
Effect of dilutive securities:
Debentures 1,306,079 1,473,257 -
Unvested portion of restricted share awards and share options 10,170 64,937 51,884
---------------------------------------
Denominator for diluted earnings per share--adjusted weighted average shares 15,337,652 15,778,727 9,360,566
---------------------------------------
<FN>
(1) Effects of potentially dilutive securities are presented only in
periods in which they are dilutive. At December 31, 1999, the convertible
subordinated debentures, if converted, would produce an additional 1,261,524
shares and the Units, if exchanged, would produce an additional 3,373,463
shares.
</FN>
</TABLE>
S. Subsequent Events
On February 15, 2000, the Company acquired Stonehedge Square Shopping Center for
approximately $8,225,000 including the assumption of a mortgage approximating
$5,662,000.
On March 3, 2000, the Company acquired Fullerton Plaza Shopping Center
for approximately $8,196,000.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE>
PART III
ITEM 10 - TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the identity and business experience of
the trustees of MART and their remuneration, in the definitive proxy statement
(to be filed pursuant to Regulation 14A) with respect to the election of
trustees at the 2000 annual meeting of shareholders, is incorporated herein by
reference.
<TABLE>
<CAPTION>
The Executive Officers of MART are as follow:
Name Age Position and Business Experience
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LeRoy E. 74 Chairman of the Board of MART since September 1993.
Hoffberger
F. Patrick 52 President and CEO of MART since September 1993.
Hughes
Paul F. 46 Executive Vice President of MART since March 1996.
Robinson Vice President and Secretary / General Counsel of MART since September 1993.
Janice C. 44 Vice President of MART since May 1999.
Robinson Controller of MART since January 1998.
Controller and Vice President of Operations of O'Conor Real Estate Management
from January 1995 to December 1997.
Eugene T. 51 Treasurer of MART since September 1993.
Grady
</TABLE>
Each executive officer is elected for a term expiring at the next regular
annual meeting of the Board of Trustees of the Company or until his/her
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 to be filed with respect to the 2000 annual meeting
of shareholders.
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 to be filed with respect to the 2000 annual meeting
of shareholders.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Registrant's Proxy Statement to be filed with respect to the 2000 annual meeting
of shareholders.
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 are included in Part II Item 8:
Independent auditor's report
Consolidated balance sheets as of December 31, 1999 and 1998
Consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated statements of shareholders' equity for the years
ended December 31, 1999, 1998 and 1997
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997
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.
26
<PAGE>
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit No.
- - -----------
<S> <C>
3(a) Declaration of Trust dated June 29, 1993 (incorporated by reference to Exhibit 3(a) to MART's Registration Statement on
Form S-11, File No.
33-66386).
3(b) By-laws (incorporated by reference to the Exhibit 3(b) to MART's Registration Statement on Form S-11, File No.
33-66386).
3(c) Amendment to Declaration of Trust dated August 4, 1998.*
4(a) Specimen certificate for Common Shares of Beneficial Interest (incorporated by reference to Exhibit 4(a) to
MART's Registration Statement on Form S-11, File No. 33-66386).
4(b) Trust Indenture dated September 8, 1993, between MART and Security Trust Company, N.A. (incorporated by reference
to Exhibit 4(b) to MART's Registration Statement on Form S-11, File No. 33-66386).
10(a) Mid-Atlantic Realty Trust 1993 Omnibus Share Plan, as amended through November 14, 1997 (incorporated by reference to
Exhibit 10(a) to MART's Annual Report on Form 10-K, filed April 1, 1998).
10(b) Mid-Atlantic Realty Trust 1995 Stock Option Plan (incorporated by reference to MART's Registration Statement on
Form S-8, File No. 333-12161).
10(c) Employment Agreement between BTR Realty, Inc. and F. Patrick Hughes (incorporated by reference to Exhibit 10(b)
to MART's Registration Statement on Form S-11, File No. 33-66386).
10(d) Employment Agreement between Paul F. Robinson (incorporated by reference to Exhibit 10(c) to MART's
Registration Statement on Form S-11, File No. 33-66386).
10(e) Amendment dated December 1, 1995 to Employment Agreement between MART and F. Patrick Hughes and MART and Paul F.
Robinson (incorporated by reference to Exhibit 10(e) to MART's Annual Report on Form 10-K, filed April 1, 1998).
10(f) Commitment Letter from First National Bank of Md. for Line of Credit to MART (incorporated by reference to Exhibit 10(d) to
MART's Registration Statement on Form S-11, File No.33-66386).
10(g) Agreement for Contribution of Interests dated April 1, 1997, among MART and the Contributors named therein (incorporated
by reference to Exhibit (c)1 to Form 8-K filed July 15, 1997).
10(h) Agreement of Limited Partnership of MART Limited Partnership dated as of June 30, 1997 (incorporated by
reference to Exhibit (c)2 to Form 8-K filed July 15, 1997).
10(i) Partnership Purchase and Sale Agreement among BTR Gateway, Inc., MART, and Prentiss Properties Acquisition, L.P.
(incorporated by reference to Exhibit (b)1 to Form 8-K filed September 30, 1997).
10(j) Mid-Atlantic Realty Trust Restricted Share Plan, adopted on November 14, 1997 (incorporated by reference to
Exhibit 10(j) to MART's Annual Report on Form 10-K, filed April 1, 1998).
10(k) Mid-Atlantic Realty Trust Non-Employee Trustee Deferred Compensation Plan, adopted on November 14, 1997 (incorporated by
reference to Exhibit 10(k) to MART's Annual Report on Form 10-K, filed April 1, 1998).
10(l) Financing Agreement dated April 23, 1999, with Named Banks (incorporated by reference to Exhibit 10(l) to MART's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999).
12 Computation of Ratio of Earnings to Fixed Charges.*
21 Subsidiaries of the Registrant.*
23 Consent of KPMG LLP.*
27 Financial Data Schedule.*
99.1 Real Estate Investment Risks.*
</TABLE>
*Filed herewith
(b) Reports on Form 8-K
None.
27
<PAGE>
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: 3/22/00 /s/ F. Patrick Hughes
------------------- --------------------------------------
F. Patrick Hughes, President and
Chief Executive Officer
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: 3/22/00 /s/ LeRoy E. Hoffberger
------------------- -----------------------------------------
LeRoy E. Hoffberger, Chairman
Date: 3/22/00 /s/ F. Patrick Hughes
------------------- -----------------------------------------
F. Patrick Hughes, President and Chief Executive
Officer
Date: 3/22/00 /s/ Janice C. Robinson
------------------- ------------------------------------------------
Janice C. Robinson, Vice President and Controller
Date: 3/22/00 /s/ Eugene T. Grady
------------------- ------------------------------------------------
Eugene T. Grady, Treasurer
Date: 3/22/00 /s/ Robert A. Frank
------------------- ------------------------------------------------
Robert A. Frank, Trustee
Date: 3/22/00 /s/ Marc P. Blum
------------------- ------------------------------------------------
Marc P. Blum, Trustee
Date: 3/22/00 /s/ M. Ronald Lipman
------------------- ------------------------------------------------
M. Ronald Lipman, Trustee
Date: 3/22/00 /s/ Daniel S. Stone
------------------- ------------------------------------------------
Daniel S. Stone, Trustee
Date: 3/22/00 /s/ David F. Benson
------------------- ------------------------------------------------
David F. Benson, Trustee
28
<PAGE>
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
Schedule III - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Intitial cost to Company Cost capitalized subsequent to acquistion
------------------------ -----------------------------------------
December 31, 1999 Carrying Costs
--------------
Mortgages Buildings and
Description Payable Land Improvements Improvements Land Improvements
- - --------------------------------------------------------------------------------------------------------------------------------
Shopping Centers
<S> <C> <C> <C> <C> <C> <C>
Arundel Plaza $11,047,885 1,695,566 530,951 6,056,413 1,843,683 --
Brandywine Commons -- -- 12,164,821 68,396 -- --
Burke Town Plaza -- -- 2,936,134 1,837,308 -- --
Club Centre 5,342,856 2,029,919 3,600,663 71,904 -- --
Colonie Plaza -- 1,137,567 7,755,095 771,598 -- --
Columbia Plaza -- 999,739 6,887,711 3,984,211 203,353 --
Del Alba 6,885,068 2,270,000 7,882,217 24,708 -- --
Enchanted Forest Shopping Center 11,561,370 3,873,246 15,314,736 213,692 -- --
Glen Burnie Village -- 3,081,553 4,598,794 82,349 -- --
Harford Mall 18,994,922 599,031 8,457,331 25,780,829 (12,954) --
Ingleside Shopping Center -- 3,023,230 11,817,212 151,149 -- --
Little Glen -- -- -- 70,370 -- --
Lutherville Station -- -- 4,031,809 14,894,063 -- --
Milford Commons -- 673,306 3,789,682 23,406 -- --
North East -- -- -- 5,883,091 2,687,905 --
Owings Mills 12,548,175 4,381,666 9,547,434 146,295 -- --
Patriots Plaza -- -- 1,709,846 638,998 -- --
Perry Hall Square 5,905,931 3,538,825 6,604,216 694,560 -- --
Radcliffe Center -- 11,205,665 5,663,480 16,855 -- --
Rolling Road Plaza -- 338,791 1,632,268 2,099,002 -- (837,931)
Rosedale Plaza 1,681,952 1,024,712 3,217,926 850,785 -- --
Saucon Valley Square -- -- 4,560,182 -- 6,042,700 --
Shawan Plaza 13,864,711 2,055,694 13,930,839 65,014 -- --
Shoppes at Easton 7,381,422 2,600,000 10,379,069 47,093 -- --
Skyline Village 4,956,983 555,295 6,240,003 1,119,053 -- --
Smoketown Plaza -- 516,312 10,095,077 735,507 -- --
Spotsylvania Crossing -- 1,544,314 6,600,616 391,682 -- --
Sudley Towne Plaza -- 789,881 3,736,837 494,942 -- --
Timonium Crossing 5,546,444 4,276,779 4,792,548 99,823 -- --
Timonium Shopping Center 11,367,320 6,252,248 12,090,955 774,267 -- --
Wayne Heights -- 1,546,720 3,837,159 129,677 -- --
Wayne Plaza 8,388,861 1,650,300 9,230,960 857,520 -- --
Wilkens Beltway Plaza 415,795 -- 3,601,891 1,151,141 475,481 2,923,200
York Road Plaza 8,363,174 1,562,382 2,102,575 2,844,538 -- --
----------------------------------------------------------------------------------------
134,252,869 63,222,741 209,341,037 73,070,239 11,240,168 2,085,269
----------------------------------------------------------------------------------------
Office Buildings
Orchard Square 2,594,962 1,160,666 2,959,390 32,597 -- --
Patriots Plaza -- -- 1,522,943 256,097 -- --
Wilkens Office II -- -- 1,644,370 293,210 -- --
Wilkens Office I -- -- 1,383,102 379,181 -- --
Wilkens Office III -- -- 768,642 138,004 -- --
----------------------------------------------------------------------------------------
2,594,962 1,160,666 8,278,447 1,099,089
----------------------------------------------------------------------------------------
Bowling Centers
Clinton -- -- 457,764 63,297 -- --
Freestate -- 180,025 740,082 2,719 -- --
Waldorf -- 243,139 579,096 5,690 -- --
----------------------------------------------------------------------------------------
423,164 1,776,942 71,706 -- --
----------------------------------------------------------------------------------------
Other Rental Properties
Business Center -- 395,537 1,190,692 111,315 235,022 --
Southwest -- -- 283,039 666,993 45,149 --
Waldorf Firestone -- 9,261 161,543 4,911 -- --
----------------------------------------------------------------------------------------
-- 404,798 1,635,274 783,219 280,171 --
----------------------------------------------------------------------------------------
Properties in Development -- -- 2,098,324 -- -- --
Properties held for development or Sale -- 3,587,610 -- -- -- --
Other Property -- -- 681,313 476,019 -- --
----------------------------------------------------------------------------------------
$ 136,847,831 68,798,979 223,811,337 75,500,272 11,520,339 2,085,269
==========================================================================================
</TABLE>
1
<PAGE>
Schedule III - Real Estate and Accumulated Depreciation - Continued
<TABLE>
<CAPTION>
Amount at which carried Life on which
at close of period depreciation
December 31, 1999 latest income
Buildings Accumulated Date of Date statement is
Description Land improvements Total Depreciation Construction acquired computed
- - --------------------------------------------------------------------------------------------------------------------------------
Shopping Centers
<S> <C> <C> <C> <C> <C> <C> <C>
Arundel Plaza 3,539,249 6,587,364 10,126,613 200,602 12/97 5-50 yrs.
Brandywine Commons -- 12,233,217 12,233,217 1,711,537 11/95 5-50 yrs.
Burke Town Plaza -- 4,773,442 4,773,442 2,232,219 7/79-7/82 5-50 yrs.
Club Centre 2,029,919 3,672,567 5,702,486 540,887 7/97 5-50 yrs.
Colonie Plaza 1,137,567 8,526,693 9,664,260 2,849,417 12/87 5-50 yrs.
Columbia Plaza 1,203,092 10,871,922 12,075,014 2,913,476 6/88 5-50 yrs.
Del Alba 2,270,000 7,906,925 10,176,925 207,681 9/98 5-50 yrs.
Enchanted Forest Shopping Center 3,873,246 15,528,428 19,401,674 1,357,068 7/97 5-50 yrs.
Glen Burnie Village 3,081,553 4,681,143 7,762,696 418,784 7/97 5-50 yrs.
Harford Mall 586,077 34,238,160 34,824,237 13,438,532 12/73 5-50 yrs.
Ingleside Shopping Center 3,023,230 11,968,361 14,991,591 759,049 7/97 5-50 yrs.
Little Glen -- 70,370 70,370 17,517 7/97 5-50 yrs.
Lutherville Station -- 18,925,872 18,925,872 1,355,838 10/93 5-50 yrs.
Milford Commons 673,306 3,813,088 4,486,394 164,962 12/97 5-50 yrs.
North East 2,687,905 5,883,091 8,570,996 202,908 2/96 5-50 yrs.
Owings Mills 4,381,666 9,693,729 14,075,395 903,601 12/95 5-50 yrs.
Patriots Plaza -- 2,348,844 2,348,844 1,079,674 6/84 5-50 yrs.
Perry Hall Square 3,538,825 7,298,776 10,837,601 1,489,901 7/97 5-50 yrs.
Radcliffe Center 11,205,665 5,680,335 16,886,000 1,182,537 7/97 5-50 yrs.
Rolling Road Plaza 338,791 2,893,339 3,232,130 1,413,608 6/73 5-50 yrs.
Rosedale Plaza 1,024,712 4,068,711 5,093,423 1,052,079 10/89 5-50 yrs.
Saucon Valley Square 6,042,700 4,560,182 10,602,882 66,205 3/99 5-50 yrs.
Shawan Plaza 2,055,694 13,995,853 16,051,547 1,662,477 7/97 5-50 yrs.
Shoppes at Easton 2,600,000 10,426,162 13,026,162 1,219,822 9/94 5-50 yrs.
Skyline Village 555,295 7,359,056 7,914,351 2,455,524 5/88 5-50 yrs.
Smoketown Plaza 516,312 10,830,584 11,346,896 3,643,936 4/87 5-50 yrs.
Spotsylvania Crossing 1,544,314 6,992,298 8,536,612 2,407,509 5/87 5-50 yrs.
Sudley Towne Plaza 789,881 4,231,779 5,021,660 1,637,378 7/84 5-50 yrs.
Timonium Crossing 4,276,779 4,892,371 9,169,150 473,703 7/97 5-50 yrs.
Timonium Shopping Center 6,252,248 12,865,222 19,117,470 944,221 7/97 5-50 yrs.
Wayne Heights 1,546,720 3,966,836 5,513,556 156,404 1/98 5-50 yrs.
Wayne Plaza 1,650,300 10,088,480 11,738,780 394,931 2/98 5-50 yrs.
Wilkens Beltway Plaza 475,481 7,676,232 8,151,713 1,992,311 5/81 5-50 yrs.
York Road Plaza 1,562,382 4,947,113 6,509,495 2,039,147 11/85 5-50 yrs.
-----------------------------------------------
74,462,909 284,496,545 358,959,454 54,585,445
-----------------------------------------------
Office Buildings
Orchard Square 1,160,666 2,991,987 4,152,653 340,320 7/97 5-50 yrs.
Patriots Plaza -- 1,779,040 1,779,040 675,368 8/85 5-50 yrs.
Wilkens Office II -- 1,937,580 1,937,580 680,171 1/87 5-50 yrs.
Wilkens Office I -- 1,762,283 1,762,283 725,790 1/85 5-50 yrs.
Wilkens Office III -- 906,646 906,646 272,471 1/91 5-50 yrs.
-----------------------------------------------
1,160,666 9,377,536 10,538,202 2,694,120
-----------------------------------------------
Bowling Centers
Clinton -- 521,061 521,061 306,357 8/71 5-50 yrs.
Freestate 180,025 742,801 922,826 648,932 3/78 5-50 yrs.
Waldorf 243,139 584,786 827,925 265,014 3/79 5-50 yrs.
-----------------------------------------------
423,164 1,848,648 2,271,812 1,220,303
-----------------------------------------------
Other Rental Properties
Business Center 630,559 1,302,007 1,932,566 345,384 4/90 5-50 yrs.
Southwest 45,149 950,032 995,181 537,288 4/68 5-50 yrs.
Waldorf Firestone 9,261 166,454 175,715 73,814 9/78 5-50 yrs.
-----------------------------------------------
684,969 2,418,493 3,103,462 956,486
-----------------------------------------------
Properties in development -- 2,098,324 2,098,324 -- 91-98
Properties held for development or
sale 3,587,610 -- 3,587,610 -- 7/73-
12/98
Other Property -- 1,157,332 1,157,332 640,944 9/82- 3-10 yrs.
12/98
-----------------------------------------------
80,319,318 301,396,878 381,716,196 60,097,298
===============================================
</TABLE>
2
<PAGE>
(1) The changes in total cost of properties are as follows:
Year ended December 31,
--------------------------------------------
1999 1998 1997
- - ------------------------------------------------------------------------------
Balance beginning of year $361,892,910 328,527,402 210,258,781
Additions during year:
Acquisitions 10,602,882 26,417,356 133,175,815
Improvements 2,728,549 5,672,676 3,110,648
Development 6,491,855 6,738,109 15,633,614
---------------------------------------------
19,823,286 38,828,141 151,920,077
---------------------------------------------
Deductions during year:
Valuation allowance for
loss -- -- (1,148,000)
Cost of real estate sold -- (5,462,633) (32,340,056)
Retirements and disposals -- -- (163,400)
---------------------------------------------
-- (5,462,633) (33,651,456)
---------------------------------------------
Balance end of year $381,716,196 361,892,910 328,527,402
=============================================
(2) The changes in accumulated depreciation are as follows:
Year ended December 31,
1999 1998 1997
----------------------------------------------
Balance beginning of year $ (50,540,094) (42,781,532) (42,702,472)
Depreciation and Amortization (9,557,204) (8,813,251) (6,954,803)
Retirements, disposals and sales 1,054,689 6,875,743
---------------------------------------------
Balance end of year $ (60,097,298) (50,540,094) (42,781,532)
==============================================
(3) The aggregate cost of properties for Federal income tax purposes is
approximately $342,000,000 at December 31, 1999.
(4) See Item 2 for geographic location of properties.
(5) Freestate includes one bowling center in Illinois.
3
<PAGE>
MID-ATLANTIC REALTY TRUST
AMENDMENT TO DECLARATION OF TRUST
Mid-Atlantic Realty Trust, a Maryland Real Estate Investment Trust, having
its principal office in Anne Arundel County in the State of Maryland
(hereinafter called the Trust"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Declaration of Trust of the Trust is hereby amended by striking
Section 6.6 (b) (4) and inserting in lieu thereof the following:
"(4) Any Person attempting to make any Transfer shall first ascertain
that such Transfer is not a Prohibited Transfer. Any Prohibited Transfer or
other event which, if effective, would result in the Shares being
Beneficially Owned by less than 100 persons, or would result in the Trust
being "closely held", shall be void ab initio and of no force or effect."
SECOND: The Declaration of Trust of the Trust is hereby amended by striking
Section 6.6 (g) and inserting in lieu thereof the following:
"(g) Remedies Not Limited. Subject to Section 6.10 of the Declaration
of Trust, nothing contained in this Article VI shall limit the authority of
the Board of Trustees to take such other action as it deems necessary or
advisable to protect the Trust and the interests of its Shareholders by
preservation of the Trust's status as a REIT."
THIRD: The Trustees of the Trust, at a meeting of the Board of Trustees
held on November 14, 1997, unanimously adopted a resolution in which set forth
the foregoing amendments to the Declaration of Trust, declaring that said
amendments to the Declaration of Trust are advisable and approved.
FOURTH: The Amendment to the Declaration of Trust of the Trust, as
hereinabove set forth, has been duly advised by the Trustees and approved by the
shareholders of the Trust by an affirmative vote of holders of at least
two-thirds of the outstanding common shares of beneficial interest of the Trust
at a meeting of the shareholders held on May 15, 1998.
<PAGE>
IN WITNESS WHEREOF, Mid-Atlantic Realty Trust has caused these Articles of
Amendment to be signed and acknowledged in its name and on its behalf by its
President and witnessed by its Secretary on this 23rd day of June, 1998, and
they acknowledge the same to be the act of said Trust, and that to the best of
their knowledge, information and belief, all matters and facts stated herein are
true in all material respects, and that this statement is made under the
penalties of perjury.
ATTEST: Mid-Atlantic Realty Trust
____________________________ By:________________________(SEAL)
F. Paul Robinson, Secretary F. Patrick Hughes, President
<PAGE>
EXHIBIT 12.1
MID-ATLANTIC REALTY TRUST AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)
(AMOUNTS IN THOUSANDS, EXCEPT FOR RATIO INFORMATION)
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (loss) from operations (2) $ 12,619 12,390 6,802 3,208 2,444
Less: sales of residential property, net
of cost of residential property sold - - - - -
Add:
Interest expense (3) 14,062 12,081 12,555 12,354 11,928
Interest portion of rentals (4) 234 260 225 227 113
--- --- --- --- ---
Earnings available for fixed charges $ 26,915 24,731 19,582 15,789 14,485
========== ====== ====== ====== ======
Fixed Charges:
Interest expense (3) 14,062 12,081 12,555 12,354 11,928
Interest capitalized 242 873 445 104 565
Interest portion of rentals (4) 234 260 225 227 113
-- --- --- --- --- ---
Fixed Charges $ 14,538 13,214 13,225 12,685 12,606
========== ====== ====== ====== ======
Ratio of earnings to fixed charges $ 1.85 1.87 1.48 1.24 1.15
Excess of Fixed Charges over Earnings $ - - - - -
</TABLE>
There were no preferred shares outstanding during any of the periods above, and
therefore the ratio of earnings to combined fixed charges and preferred shares
dividend requirements would have been the same as the ratio of earnings to fixed
charges for the periods indicated.
(1) The computations above use the Consolidated Financial Statements of
Mid-Atlantic Realty Trust and Subsidiaries for the years December 31, 1999,
1998, 1997, 1996, and 1995.
(2) Effective January 1, 1996, the Company changed its reporting of gains or
losses on sales of properties held for sale. During the year ended December
31, 1995, and previously, gains or losses on sales of properties held for
sale had been included in the revenues of the consolidated statements of
operations and were therefore included in earnings from operations. The
Company is not in the business of buying land for resale. Therefore,
management believes that gains or losses on sales of properties held for
sale should not be included in earnings or losses from operations, and
should be an adjustment to earnings from operations to arrive at net
earnings. The comparative prior year earnings (losses) from operations have
been reclassified to reflect this change.
(3) Effective January 1, 1996, the Company changed its reporting of
amortization of deferred financing costs. During the year ended December
31, 1995, and previously, the annual amortization of deferred financing
costs was reported in the depreciation and amortization of property and
improvements expense line in the consolidated statements of operations. In
1996, the Company began reporting the amortization of deferred financing
costs in the interest expense line in the consolidated statements of
operations. The comparative prior year interest expense amounts above have
been reclassified to reflect this change.
(4) Amounts reflect a one-third portion of rentals, the portion deemed
representative of the interest factor.
<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 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 East Greenbush, Inc. Maryland 100%
BTR Fallston Corner, Inc. Maryland 100%
BTR Free State Bowls, Inc. Maryland 100%
BTR Gateway, Inc. Maryland 100%
BTR Holdings, Inc. Maryland 100%
BTR Manassas, Inc. Maryland 100%
BTR Marigot, Inc. Maryland 100%
BTR Marina, 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 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%
Burke Town Plaza, Inc. Maryland 100%
Brandywine Commons, Inc. Maryland 100%
Clinton Development Company, Inc. Maryland 100%
Colonie Plaza, Inc. Maryland 100%
Columbia Plaza, Inc. Maryland 100%
Commonwealth Plaza, Inc. Maryland 100%
Concourse Realty Management, Inc. Maryland 100%
Davis Ford Properties, Inc. Maryland 100%
Essanwy, Inc. Maryland 100%
Easton Shoppes, Inc. Maryland 100%
Fredericksburg Plaza, Inc. Maryland 100%
Harrisonburg Plaza, Inc. Maryland 100%
Kingston Crossing, Inc. Maryland 100%
MART Acquisition, 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%
Rolling Road Plaza, Inc. Maryland 100%
Rosedale Partners, Inc. Maryland 100%
Rosedale Plaza, Inc. Maryland 100%
Route 642 Properties, Inc. Maryland 100%
Southdale Mortgage, Inc. Maryland 100%
Southwest Development Properties, Inc. Maryland 100%
Timonium Shopping Center, Inc. Maryland 100%
Wake Plaza, Inc Maryland 100%
Waverly Woods Center, Inc. Maryland 100%
Wyaness, Inc. Maryland 100%
1
<PAGE>
LIMITED LIABILITY COMPANIES:
Perry Hall Square, LLC Maryland 100%
Pittsfield Center, LLC Maryland 100%
Radcliffe, LLC Maryland 100%
Round Hollow, LLC Maryland 100%
Stonehenge, LLC Maryland 100%
Talton, LLC Maryland 100%
Timonium Shopping Center Associates, LLC Maryland 100%
Yorkway Associates, LLC Maryland 100%
The following are partnerships in which Mid-Atlantic Realty Trust has
partnership interests:
State of
Name Formation Interest
- - --------------------------------------------------------------------------------
Kensington Associates Maryland 93%
MART Limited Partnership Maryland 82%
Northwood Limited Partnership Maryland 67%
Ritchie Limited Liability Partnership Maryland 67%
Rosedale Plaza Limited Partnership Maryland 100%
Saucon Valley Limited Partnership Maryland 89%
Scotia Associates Limited Partnership Maryland 50%
Southdale Limited Partnership Maryland 50%
Wyaness Associates Maryland 100%
2
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Trustees MID-ATLANTIC REALTY TRUST:
We consent to incorporation by reference in the registration statements of
Mid-Atlantic Realty Trust on Form S-3 (File Nos. 33-66386, 333-20813 and
333-59061) and Form S-8 (File Nos. 333-12161 and 333-56885) of our report dated
February 11, 2000, relating to the consolidated balance sheets of Mid-Atlantic
Realty Trust and subsidiaries as of December 31, 1999, and 1998, the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1999 and the
related financial statement schedule, which report appears in the December 31,
1999 annual report on Form 10-K of Mid-Atlantic Realty Trust.
KPMG LLP
Baltimore, MD
March 21, 2000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 000909298
<NAME> MID-ATLANTIC REALTY TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<EXCHANGE-RATE> 1 1 1
<CASH> 148 611 8,427
<SECURITIES> 0 0 0
<RECEIVABLES> 2,160 1,505 880
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 321,619 311,353 285,746
<DEPRECIATION> 60,097 50,540 42,782
<TOTAL-ASSETS> 328,571 317,009 298,155
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 159,094 148,333 142,261
0 0 0
0 0 0
<COMMON> 140 145 145
<OTHER-SE> 97,528 104,346 106,617
<TOTAL-LIABILITY-AND-EQUITY> 328,571 317,009 298,155
<SALES> 0 0 0
<TOTAL-REVENUES> 53,347 49,537 39,152
<CGS> 0 0 0
<TOTAL-COSTS> 37,405 34,054 30,931
<OTHER-EXPENSES> 3,322 3,093 1,419
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 14,062 12,081 12,555
<INCOME-PRETAX> 12,751 12,386 6,819
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 12,751 12,386 6,819
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (33) (227)
<CHANGES> 0 0 0
<NET-INCOME> 12,751 12,353 6,592
<EPS-BASIC> 0.89 0.85 0.70
<EPS-DILUTED> 0.88 0.84 0.70
<FN>
<F1> Mid-Atlantic Realty Trust (MART) is in the specialized real estate industry
for which the current/noncurrent distinction is deemed in practice to have
little or no relevance. Therefore, MART prepares unclassifed balance sheets
which do not report current assets or current liabilities.
</FN>
</TABLE>
EXHIBIT 99.1
REAL ESTATE INVESTMENT RISK
Statements in this document filed with the SEC include forward
looking statements under the federal securities laws. Statements that are not
historical in nature, including the words "anticipate," "estimate," "should,"
"expect," "believe," "intend," and similar expressions, are intended to identify
forward-looking statements. While these statements reflect our good faith belief
based on current expectations, estimates and projections about (among other
things) the industry and the markets in which we operate, they are not
guarantees of future performance, involve known and unknown risks and
uncertainties that could cause actual results to differ materially from those in
the forward looking statements, and should not be relied upon as predictions of
future events. In making these cautionary statements, we are not committed to
addressing or updating each factor in future filings of communications regarding
our business or results, or addressing how any of these factors may have caused
results to differ from discussions or information contained in previous filings
or communications. The following is a discussion of factors that could impact
future results:
Industry Risks
Real property investments are subject to changes in general economic
conditions.
Real property investments are subject to varying types and degrees of
risk that may hinder or otherwise affect our ability to generate revenues. These
risks could reduce the amount of cash available for distributions to
shareholders.
Any of the following factors could affect the value of our real estate
and our ability to generate revenues:
o changes in the general economic climate;
o local conditions (such as an oversupply of space or a
reduction in demand for real estate in an area);
o competition from other shopping centers, properties,
developers or real estate owners;
o variable operating costs;
o government regulations;
o changes in interest rates;
o the availability of financing; and
o potential liability due to changes in environmental and other
laws.
Real estate investments are relatively illiquid.
Real estate investments are relatively illiquid and, therefore, our
ability to react promptly in response to changes in economic or other conditions
will be limited. In addition, the Internal Revenue Code limits our ability to
sell property held for less than four years.
We may not be able to re-lease properties upon the expiration of
existing leases.
Upon the expiration of leases, tenants may not renew leases and we
may not be able to re-lease properties or the terms of the renewal or re-lease,
including the costs of required renovations or concessions to tenants may be
less favorable than current lease terms. Our operating cash flow would decrease
if we were unable to properly re-lease all or a substantial portion of this
space, if the rental rates upon the re-lease were significantly lower than
expected, or if reserves for costs of the re-leasing prove inadequate.
If tenants are unable to meet their obligations to us our cash flow
would be adversely affected.
If a significant number of tenants are unable to meet their
obligations to us, the cash receipts and cash available for distribution will
decrease. A tenant may experience a downturn in its business which may weaken
its financial condition and result in a reduction or failure to make rental
payments when due. If a lessee or sublessee defaults in its obligations to us,
we may be delayed in enforcing our rights as lessor or sublessor. In addition,
we may incur substantial costs and experience significant delays associated with
protecting our investment, including costs incurred in renovating and re-leasing
the property.
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At any time, one or more of our tenants may seek the protection of
the bankruptcy laws, which could result in the rejection and termination of
their lease. We are subject to risks that:
o any present tenant that has filed for bankruptcy protection
will not continue making payments under its lease;
o any tenant may file for bankruptcy protection in the future;
or
o any tenants that file for bankruptcy protection may not
continue to make rental payments in a timely manner.
Losses from earthquakes and other natural disasters are uninsurable or
insurable only at costs that are not economically justifiable.
We carry comprehensive liability, fire, flood, extended coverage and
rental loss insurance with policy specifications and insured limits that are
customary for similar properties. Losses from catastrophic events and natural
disasters like wars or earthquakes, however, are uninsurable or insurable only
at costs that are not economically justifiable. If an uninsured loss occurs, we
may lose both our invested capital and anticipated profits from the property.
Nevertheless, we would still be obligated to repay any recourse mortgage
indebtedness on the property.
We are subject to risks associated with debt financing and existing
debt maturities.
We are subject to a variety of risks associated with debt financing.
Examples of these risks include the following:
o our cash from operating activities may be insufficient to meet
required payments;
o we may be unable to pay or refinance indebtedness on our
properties;
o if interest rates or other factors result in higher interest
rates on refinancing, these factors will diminish our returns
on development and redevelopment activities, reduce cash from
operating activities, and hamper our ability to make
distributions to shareholders;
o if we are unable to secure refinancing of indebtedness on
acceptable terms, we may be forced to dispose of properties
upon disadvantageous terms, which may cause losses and affect
our funds from operations; and
o if properties are mortgaged to secure payment of indebtedness
and we are unable to meet payments, the mortgagee may
foreclose upon the properties, resulting in a loss of income
and a valuable asset to us.
Because many of our competitors have greater capital resources, we may
be at a disadvantage with regard to exploiting land development,
property acquisition and tenant opportunities.
Based on total assets and annual revenues, we are smaller than many of
the numerous commercial developers, real estate companies and other owners of
real estate that compete with us in seeking land for development, properties for
acquisition and tenants for properties. We are even smaller than many of our
competitors that operate in the region in which our properties are located. Many
of these competitors may have greater capital and resources than us, and this
fact could impair our ability to acquire properties in the future.
We may become liable for the costs of removal or remediation of
certain environmentally hazardous or toxic substances under federal,
state or local laws.
Under various federal, state and local laws, ordinances and
regulations, we may become liable for the cost of removal or remediation of
certain hazardous or toxic substances on or in our real property. Liability may
be imposed regardless of whether we or the tenant knew of, or was responsible
for, the presence of such hazardous or toxic substances. The costs of any
required remediation or removal of environmentally hazardous substances may be
substantial, and our liability as to any property is generally not limited under
those laws, ordinances and regulations. The liability could exceed the value of
our property and/or aggregate assets. The presence of, or the failure to
properly remediate substances when released may adversely affect our ability to
sell the affected real estate or to borrow using the real estate as collateral.
At the time of this filing, we had not been notified by any governmental
authority of any non-compliance, liability or other claim in connection with any
of our properties, and we are not aware of any other environmental condition
with respect to any of the our portfolio properties that we believe would have a
material adverse effect on our business, assets or results of operations.
However, we cannot assure that there are no potential environmental liabilities,
that no environmental liabilities may develop, that no prior owner created any
material environmental condition not known to us, or that future uses or
conditions, including, without limitation, changes in applicable environmental
laws and regulations, will not result in liability.
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We may incur significant costs complying with the Americans with
Disabilities Act.
We must comply with Title III of the Americans with Disabilities Act.
To comply with the ADA's requirements, we may be required to remove structural,
architectural or communication barriers to handicapped access and utilization in
certain public areas of our properties. Noncompliance could result in injunctive
relief, imposition of fines or an award of damages to private litigants. If we
are required to make changes to bring any of the properties into compliance with
the ADA, expenses associated with these changes could adversely affect our
ability to make expected distributions to shareholders. We believe that our
competitors face similar costs to comply with the requirements of the ADA.
The ownership limitations on REITs create an anti-takeover effect.
To maintain our qualification as a REIT not more than 50% in value
of our outstanding common shares may be owned, actually or constructively, by
five or fewer individuals. In addition, the Internal Revenue Code imposes
certain other limitations on the ownership of the shares of a REIT. For the
purpose of preserving our tax status as a REIT, our charter prohibits actual or
constructive ownership of more than 9.9% of the outstanding shares, either in
the aggregate or of any class, by any person, unless waived by the board of
trustees. In addition, the beneficial ownership limitations restrict the
ownership, under applicable attribution rules of the Internal Revenue Code, of
more than 9.9% of the outstanding shares, either in the aggregate or of any
class. The rules addressing constructive ownership are complex and may cause
shares owned, actually or constructively, by a group of related individuals
and/or entities to be deemed to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.9% of the outstanding
shares, either in the aggregate or of any class, by an individual or entity
could cause that individual or entity (or another individual or entity) to
constructively own more than 9.9% of the outstanding shares. This situation
would subject such shares to the beneficial ownership limitations. Actual or
constructive ownership of shares in excess of such limits would either cause the
violative transfer or ownership to be void or cause such shares to be converted
to Excess Shares.
The ownership restrictions have the effect of deterring
non-negotiated acquisitions of us, and proxy fights for us by third parties.
Limiting the ownership of our shares may discourage a change of control and may
also:
o deter tender offers for the common shares, which offers may be
attractive to the shareholders,
o limit the opportunity for shareholders to receive a premium
for the common shares that might otherwise exist if an
investor attempted to assemble a block of shares in excess of
the 9.9% beneficial ownership limitation, or
o limit the opportunity for shareholders to effect a change in
our control.
We may not qualify as a REIT in the future causing us to be taxed at
regular corporate rates and reducing the amount of cash for
distribution.
We believe that we have operated in a manner that permits us to
qualify as a REIT under the Internal Revenue Code for each taxable year since
our formation as a REIT in 1993. Qualification as a REIT, however, involves the
application of highly technical and complex Internal Revenue Code provisions for
which there are only limited judicial or administrative interpretations. In
addition, REIT qualification involves the determination of various factual
matters and circumstances not entirely within our control. For example, in order
to qualify as a REIT, at least 95% of our gross income in any year must be
derived from qualifying sources, and we must distribute annually to shareholders
95% of our REIT taxable income, excluding net capital gains. Therefore, although
we believes that we are organized and operating in a manner that permits us to
remain qualified as a REIT, we cannot guarantee that we will be able to continue
to operate in such a manner. In addition, if we are ever audited by the IRS with
respect to any past year, the IRS may challenge our qualification as a REIT for
that year.
Similarly, new legislation, regulations, administrative
interpretations or court decisions may change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of that
qualification. We are not aware, however, of any currently pending tax
legislation that would adversely affect our ability to continue to operate as a
REIT.
If we fail to qualify as a REIT, we will be subject to federal
income tax on taxable income at regular corporate rates. Increased tax liability
in a given year could significantly reduce, or possibly eliminate, the amount of
cash we have available for investment or distribution to shareholders for that
year. In addition, we will also be disqualified from treatment as a REIT for the
next four taxable years, unless we are entitled to relief under other statutory
provisions.
If we do not qualify as a REIT, we will no longer be required to
make annual distributions to shareholders. To the extent that we made
distributions to shareholders in anticipation of our qualifying as a REIT, we
might be required to borrow funds or to liquidate some of our investments to pay
the applicable tax. Our failure to qualify as a REIT would also constitute a
default under certain of our debt obligations and would significantly reduce the
market value of our shares.
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Company Risks
Our performance depends on the economic conditions of the Middle
Atlantic Area where most of our properties are located.
Our performance depends on the economic conditions in markets in which
our properties are concentrated. Since our properties are located in the Middle
Atlantic area, our results could be adversely affected if conditions, such as an
oversupply of space or a reduction in demand for real estate, in the Middle
Atlantic area become more competitive than other geographic areas. The existence
of these conditions could have a greater adverse impact on us than on a real
estate company with properties in a number of different geographic areas.
Our organizational documents do not place limits on the incurrence of
debt.
Our documents do not limit the amount of indebtedness that we may
incur. Although our board of trustees attempts to maintain a balance between
total outstanding indebtedness and the value of our portfolio (for example, a
ratio of secured debt and preferred stock to real estate value of 50% or less),
it could alter this balance at any time. If we become more highly leveraged,
then the resulting increase in debt service could diminish our ability to make
expected distributions to shareholders and make payments on outstanding
indebtedness. If we default on our obligations under any outstanding
indebtedness, we could lose our interest in any properties that secure that
indebtedness.
Many real property leases contain covenants that restrict the use of
space at a property and may prevent us from re-leasing the property.
Many leases with existing tenants have covenants that restrict the
use of other space at a property. For example, many
shopping center leases have covenants that provide for an appropriate tenant mix
or balance of the shopping center. Leases with covenants that provide for an
appropriate tenant mix would require a high end luxury store to be replaced with
a high end luxury store rather than a discount clothes store (for example,
Macy's must be replaced with a store such as a Saks Fifth Avenue or Nordstrom's
rather than a K-Mart or another discount store).
We may need to borrow money to qualify as a REIT.
Our ability to make distributions to shareholders could be
diminished by increased debt service obligations if we need to borrow money in
order to maintain our REIT qualification. For example, differences in timing
between when we receive income and when we have to pay expenses could require us
to borrow money to meet the requirement that we distribute to shareholders at
least 95% of our net taxable income excluding net capital gain each year. The
incurrence of large expenses also could require us to borrow money to meet this
requirement. We might need to borrow money for these purposes even if we believe
that market conditions are not favorable for such borrowings. In other words, we
may have to borrow money on unfavorable terms.
We cannot avoid risks inherent in development and acquisition
activities.
Developing or expanding existing properties in our real estate
portfolio is an integral part of our strategy for maintaining and enhancing the
value of our portfolio. We may also choose to acquire additional properties in
the future. While our policies with respect to developing and expanding
properties are intended to limit some of the risks otherwise associated with
property acquisition such as not starting construction on a project prior to
obtaining a commitment from an anchor tenant, we nevertheless will incur risks,
including risks related to delays in construction and lease-up, costs of
materials, financing availability, volatility in interest rates and labor
availability.
In addition, once a property is acquired, the renovation and
improvement costs we incur in bringing an acquired property up to market
standards may exceed our estimates, and the property may fail to perform as
expected.
Maryland law may prevent or discourage a change in control.
The Maryland General Corporation Law establishes special restrictions
against "business combinations" between a Maryland corporation and "interested
shareholders" or their affiliates unless an exemption is applicable. The
business combination statute could have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any offers to
acquire us, even if our acquisition would be in our shareholders' best
interests.
Maryland law also provides that "control shares" of a Maryland
corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of beneficial interest owned by the
acquiror, by officers or by trustees who are employees of the corporation. The
control share statute could have the effect of discouraging offers to acquire us
and of increasing the difficulty of consummating any control share acquisitions,
even if our acquisition would be in our shareholders' best interests.
Increased market interest rates could reduce share prices.
The annual dividend rate on shares as a percentage of its market price
may influence the trading price of stock. Also, an increase in market interest
rates may lead purchasers to demand a higher annual dividend rate, which could
lower the market price of the shares. A decrease in the market price of the
shares could reduce our ability to raise additional equity in the public
markets.
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