<PAGE> 1
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 1-13092
MALAN REALTY INVESTORS, INC.
(Exact name of registrant as specified in charter)
Michigan 38-1841410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
30200 Telegraph Rd., Ste. 105 48025
Birmingham, Michigan (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (810) 644-7110
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 at least the past 90 days. YES [X] NO [ ]
As of July 31, 1996, 3,460,372 shares of Common Stock, Par Value $.01
Per share, were outstanding.
<PAGE> 2
MALAN REALTY INVESTORS, INC.
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of June 30, 1996
(unaudited) and December 31, 1995 3
Statements of Operations (unaudited) for
the three months and the six months
ended June 30, 1996 and 1995 4
Statements of Cash Flows (unaudited) for the
six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements (unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
PART II OTHER INFORMATION 17-18
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 19
2
<PAGE> 3
MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate
Land, buildings and improvements $206,592 $206,085
Less: accumulated depreciation (8,500) (6,114)
----------- ------------
198,092 199,971
Leasehold improvements and
equipment, net 68 99
Accounts receivable, net 3,982 1,439
Deferred financing and other 10,823 11,294
Cash and cash equivalents 6,795 9,095
Escrow deposits 2,839 1,462
----------- ------------
Total Assets $222,599 $223,360
=========== ============
LIABILITIES
Mortgages $ 83,689 $ 83,734
Convertible debentures 61,285 61,285
Convertible notes 27,000 27,000
Deferred income 2,524 2,679
Accrued distributions payable 1,471 1,509
Accounts payable and other 1,433 647
Accrued property taxes 3,476 1,085
Accrued interest payable 4,226 4,178
----------- ------------
Total Liabilities 185,104 182,117
----------- ------------
SHAREHOLDERS' EQUITY
Common stock ($.01 par value, 30 million shares
authorized, 3,460,372 and 3,550,204 shares
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively) 35 36
Additional paid in capital 45,911 46,984
Accumulated distributions in excess of net income (8,451) (5,717)
Deferred compensation- incentive shares (60)
----------- ------------
Total shareholders' equity 37,495 41,243
----------- ------------
Total Liabilities and
Shareholders' Equity $222,599 $223,360
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Minimum rent $5,971 $5,271 $11,918 $10,438
Percentage and overage rents 269 245 524 475
Recoveries from tenants 2,302 1,887 4,840 3,977
Management fees 13 12 25 25
Interest and other income 147 109 314 257
------ ------ ------- -------
Total Revenues 8,702 7,524 17,621 15,172
------ ------ ------- -------
EXPENSES
Property operating and maintenance 676 450 1,776 1,033
Real estate taxes 1,994 1,819 3,935 3,605
General and administrative 728 526 1,357 1,078
Depreciation and amortization 1,221 1,058 2,439 2,093
------ ------ ------- -------
Total Operating Expenses 4,619 3,853 9,507 7,809
------ ------ ------- -------
OPERATING INCOME 4,083 3,671 8,114 7,363
INTEREST EXPENSE 3,963 3,115 7,907 6,166
------ ------ ------- -------
NET INCOME $ 120 $ 556 $ 207 $ 1,197
====== ====== ======= =======
NET INCOME PER SHARE $ 0.03 $ 0.06
====== =======
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,460,097 3,467,733
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
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MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
SIX MONTHS ENDED JUNE 30,
1996 1995
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $207 $1,197
------ -------
Adjustments to reconcile net income to
net cash flows provided by
operating activities:
Depreciation and amortization 2,439 2,093
Amortization of deferred financing costs 800 184
Amortization of deferred compensation expense 60 63
Directors compensation issued in stock 24
Change in operating assets and liabilities that
provided (used) cash:
Accounts receivable and other assets (2,894) (1,552)
Accounts payable, deferred income and
other accrued liabilities 3,070 (47)
------ -------
Total adjustments 3,499 741
------ -------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 3,706 1,938
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate developed, acquired or improved (507) (13,926)
Deposits to escrow (9,204)
Disbursements from escrow 7,826
------ -------
NET CASH FLOWS USED FOR
INVESTING ACTIVITIES (1,885) (13,926)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock (1,097) (4,791)
Principal repayments on mortgages (45) (44)
Proceeds from line of credit 15,500
Distributions to shareholders (2,979) (3,148)
------ ------
NET CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (4,121) 7,517
------ ------
Net decrease in cash and cash equivalents (2,300) (4,471)
Cash and cash equivalents at beginning of
period 9,095 11,749
------ ------
Cash and cash equivalents at end of period $6,795 $7,278
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION-
CASH PAID FOR
INTEREST DURING THE PERIOD $7,059 $6,245
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS AND FORMATION OF REIT
In June 1994, Malan Realty Investors, Inc. (the "Company") completed an initial
public offering of common stock and convertible debentures and a private
placement of convertible notes (collectively, the "Offerings") and became a
publicly held real estate investment trust (REIT). Proceeds of the Offerings
were primarily used to acquire 46 retail properties which the Company had
managed on a third party basis prior to the Offerings. Subsequent acquisitions
of properties were made utilizing additional borrowings and the Company now
owns and operates 52 shopping centers located primarily in the Midwestern
United States. In addition to ownership and management of operations of the
centers, the Company is engaged in the leasing, acquisition, development and
redevelopment of such properties, and, on a limited basis, the management of
properties owned by unrelated third parties.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying interim consolidated financial
statements and related notes of the Company are unaudited; however, they have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting, the instructions to Form 10-Q and the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared under generally accepted accounting principles have been condensed or
omitted pursuant to such rules. In the opinion of management, all adjustments
considered necessary for a fair presentation of the Company's consolidated
financial position, results of operations and cash flows have been included.
The results of such interim periods are not necessarily indicative of the
results of operations for the full year.
Principles of Consolidation - The accompanying consolidated financial
statements include the activity of the Company and Malan Mortgagor, Inc., its
wholly owned subsidiary. All significant inter-company balances and
transactions have been eliminated.
Reclassifications- Certain reclassifications have been made to the consolidated
financial statements for the three months and the six months ended June 30,
1995 to conform with the consolidated financial statements for the three months
and the six months ended June 30, 1996.
6
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Impact of Recently Adopted Accounting Standards - In March 1995, Statement of
Financial Accounting Standards (SFAS) No. 121 was issued which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The statement is effective
for financial statements for fiscal years beginning after December 15, 1995.
Management has determined that there is no effect resulting from the
implementation of SFAS No. 121 on the Company's consolidated financial
statements for the three months and the six months ended June 30, 1996.
3. STOCK REPURCHASE PLAN
On January 19, 1995, the Company's Board of Directors approved a plan to
repurchase up to 755,000 shares of the Company's Common Stock. Under the plan,
any purchases of Common Stock are to be made in the open market or in privately
negotiated transactions subject to SEC rules and regulations regarding such
transactions. During the six months ended June 30, 1996, the Company had
repurchased 91,500 shares at a total cost of $1.097 million.
4. STOCK OPTION AND COMPENSATION PLANS
The following table outlines the activity in the Company's stock option and
compensation plans for the six months ended June 30, 1996:
Options (O)/ Exercise (E)/
Shares (S) Issuance (I)
Plan Issued Price
---------------------- ------------- -------------
Employee Option Plan (O) 50,000 (E) $14.375
Directors Option Plan (O) 4,000 (E) $14.375
Directors Stock
Compensation Plan (S) 1,668 (I) $14.375
7
<PAGE> 8
5. SUMMARIZED PRO FORMA INFORMATION
The following table of pro forma information has been presented as if (i) the
Company's acquisitions of Clinton Pointe Shopping Center ("Clinton Pointe") and
the Shops at Fairlane Meadows ("Fairlane Meadows") had occurred on January 1,
1995, and (ii) the Company had qualified as a REIT, distributed all of its
taxable income and, therefore, had incurred no tax expense during the period.
In management's opinion, all adjustments necessary to reflect the acquisitions
of Clinton Pointe and Fairlane Meadows have been made. The proforma
information is not necessarily indicative of what the actual results of
operations of the Company would have been had such transactions actually
occurred as of January 1, 1995, nor do they purport to represent the results of
the operations of the Company for future periods (in thousands except for per
share data).
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
--------------------
<S> <C>
Total revenues.........................................................$17,286
Net income.............................................................$ 1,325
Net income per share...................................................$ 0.38
</TABLE>
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1996 to Three Months Ended
June 30, 1995
Results of operations from rental properties increased from 1995 to
1996 primarily due to the Company's acquisitions of the Clinton Pointe Shopping
Center ("Clinton Pointe") purchased June 5, 1995 and The Shops at Fairlane
Meadows ("Fairlane") purchased September 15, 1995. Accordingly, results of
operations for the three months ended June 30, 1995 do not include the rental
operations of Fairlane and include only the results of Clinton Pointe for the
25 day period from June 5 through June 30, 1995.
Total revenue increased approximately $1.178 million which is
attributable to increases in minimum and percentage rents and recoveries from
tenants of approximately $1.139 million and management fees and interest and
other income of $39,000. The increases in rents and recoveries from tenants
are primarily attributable to revenues added by the acquisitions of Clinton
Pointe and Fairlane of approximately $971,000 offset by revenues lost due to
lease terminations by Kmart Corporation and Builders Square which took affect
in the latter part of 1995. The increase in interest and other income resulted
primarily from investment earnings due to increased levels of investable cash
due to the build up of cash reserves that are required under the Company's
REMIC financing.
Total operating expenses increased approximately $766,000 from 1995 to
1996. Increases in property operating and maintenance, real estate taxes and
depreciation and amortization of approximately $226,000, $175,000 and $163,000,
respectively, primarily due to the acquisitions of Clinton Pointe and Fairlane,
accounted for the majority of this increase. General and administrative
expenses increased approximately $202,000 from 1995 to 1996 primarily due to
increases in payroll and state income and franchise taxes.
Interest expense (including related amortization of deferred financing
costs) increased approximately $848,000. The increase is due primarily to
increased debt levels from 1995 offset by interest rate reductions and
decreases attributable to conversions of $2.510 million aggregate principal
amount of the Company's 9.5% subordinated convertible debentures into shares of
common stock which occurred in the latter part of 1995. The debenture
conversions accounted for a decrease in interest expense of approximately
$60,000. The conversion of the Company's acquisition line of credit to a
Securitized Mortgage Loan at more favorable rates coupled with additional
borrowings thereon accounted for an increase of approximately $345,000 while
interest on a $12.45 million mortgage utilized for the acquisition of Fairlane
Meadows was approximately $250,000. Amortization of deferred financing costs
of approximately $313,000 related primarily to the Securitized Mortgage Loan
and the Fairlane mortgage comprise the balance of the increase from 1995.
9
<PAGE> 10
Overall, net income decreased approximately $436,000 primarily as a
result of increases in non-cash expenses such as depreciation and amortization
of approximately $163,000 and amortization of deferred financing costs of
$313,000.
Comparison of Six Months Ended June 30, 1996 to Six Months Ended June 30, 1995
Results of operations from rental properties increased from 1995 to
1996 primarily due to the Company's acquisitions of Clinton Pointe purchased
June 5, 1995 and Fairlane Meadows purchased September 15, 1995. Accordingly,
results of operations for the six months ended June 30, 1995 do not include the
rental operations of Fairlane and include only the results of Clinton Pointe
for the 25 day period from June 5 through June 30, 1995.
Total revenue increased approximately $2.449 million which is
attributable to increases in minimum and percentage rents and recoveries from
tenants of approximately $2.392 million and interest and other income of
$57,000. The increases in rents and recoveries from tenants are primarily
attributable to revenues added by the acquisitions of Clinton Pointe and
Fairlane of approximately $2.172 million and increased recoveries from tenants
due to additional operating expenses discussed below offset by revenues lost
due to lease terminations by Kmart Corporation and Builders Square which took
affect in the latter part of 1995. The increase in interest and other income
resulted primarily from brokerage commissions earned in 1996.
Total operating expenses increased approximately $1.698 million.
Increases in property operating and maintenance, real estate taxes and
depreciation and amortization of approximately $743,000, $330,000 and $346,000,
respectively due to the acquisitions of Clinton Pointe and Fairlane as well as
additional repair and maintenance performed at the properties and increases in
taxes due to reassessments, accounted for the majority of this increase.
General and administrative expenses increased approximately $279,000 primarily
due to increases in payroll and state income and franchise taxes.
10
<PAGE> 11
The following table summarizes the contributions of each of the
Company's portfolio acquisitions to income for the six months ended June 30,
1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995
----------------------------------- --------------------------------
Date Direct Direct Direct Direct
Acquired Operating Operating Operating Operating
Properties (or Developed) Revenues Expenses(1) Income Revenues Expenses(1) Income
---------- -------------- -------- -------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bricktown Square 1987-1989 $ 2,652 $ 858 $ 1,794 $ 2,561 $ 854 $ 1,707
Claridge Properties 6/24/95 10,191 3,594 6,597 10,222 3,398 6,824
-------- ------ -------- ------- ----- -------
Core Portfolio 12,843 4,452 8,391 12,783 4,252 8,531
Wal-Mart
Properties 11/30/94 2,137 503 1,634 1,999 371 1,628
Clinton
Pointe S.C. 6/5/95 1,024 363 661 108 15 93
The Shops at
Fairlane Meadows 9/15/95 1,278 393 885 - - -
-------- ------ ------- ------- ------ -------
TOTAL $17,282 $5,711 $11,571 $14,890 $4,638 $10,252
======== ====== ======= ======= ====== =======
</TABLE>
(1) Direct operating expenses include property operating and maintenance and
real estate taxes but do not include general and administrative, depreciation
and amortization or interest expenses.
Interest expense, including related amortization of deferred financing
costs, increased approximately $1.741 million. The increase is due primarily
to increased debt levels from 1995 offset by interest rate reductions and
decreases attributable to conversions of $2.510 million aggregate principal
amount of the Company's 9.5% subordinated convertible debentures into shares of
common stock which occurred in the latter part of 1995. The debenture
conversions accounted for a decrease in interest expense of approximately
$119,000. The conversion of the Company's acquisition line of credit to a
Securitized Mortgage loan at more favorable rates coupled with additional
borrowings thereon accounted for an increase of approximately $736,000 while
interest on a $12.45 million mortgage utilized for the acquisition of Fairlane
Meadows was approximately $500,000. Amortization of deferred financing costs
of approximately $624,000 related primarily to the Securitized Mortgage Loan
and the Fairlane mortgage comprise the balance of the increase from 1995.
Overall, net income decreased $990,000 primarily as a result of
increases in non-cash expenses such as depreciation and amortization of
approximately $346,000 and amortization of deferred financing costs of
$624,000.
11
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Impact of Recently Adopted Accounting Standards
In March 1995, Statement of Financial Accounting Standards (SFAS) No.
121 was issued which establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The statement is effective for financial statements for fiscal
years beginning after December 15, 1995. Management has determined that there
is no effect resulting from the implementation of SFAS No. 121 on the Company's
consolidated financial statements for the six months and the three months ended
June 30, 1996.
FUNDS FROM OPERATIONS
Management considers Funds From Operations ("FFO") to be an
appropriate measure of performance of an equity real estate investment trust.
The Company calculates FFO as net income or (loss) excluding gains and losses
from sales of property, further adjusted for certain non-cash items including
depreciation and amortization and amortization of deferred financing costs
included in interest expense. It is the opinion of the management that
reduction for or inclusion of these items is not meaningful in evaluating
income-producing real estate which, in general, has historically not
depreciated. FFO does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs, including
distributions. FFO should not be considered as an alternative to net income as
an indicator of the Company's operating performance or as an alternative to
cash flow as a measure of liquidity or the ability to pay distributions but
rather, as a supplemental tool to be used in conjunction with these factors in
analyzing the Company's overall performance.
12
<PAGE> 13
The Company is aware that there are variations between companies in
the REIT industry as to how FFO is calculated. The following table shows the
components that comprise the Company's calculation of FFO for the six months
ended June 30, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
---- ----
<S> <C> <C>
Net income.............................................................. $ 207 $ 1,197
Depreciation & amortization:
Depreciation of buildings & improvements........................... 2,374 2,040
Depreciation of furniture, equipment & leasehold improvements...... 53 48
Amortization of leasing costs...................................... 12 4
Amortization of deferred financing costs included in interest expense:
Mortgages.......................................................... 624 -
Convertible debt................................................... 176 184
-------- -------
Funds From Operations................................................... $3,446 $ 3,473
========= =======
Additional information:
Weighted average shares outstanding:
Primary............................................................ 3,468 3,602
========= =======
Fully diluted...................................................... 8,661 8,943
========= =======
Convertible debt interest............................................... $4,059 $4,155
========= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company is authorized to repurchase up to 755,000 shares of its
Common Stock under a plan approved by its Board of Directors on January 19,
1995. For the six months ended June 30, 1996, the Company had repurchased
91,500 shares at a total cost of approximately $1.097 million or an average of
$11.98 per share.
The Company has a $63 million loan (the "Securitized Mortgage Loan")
outstanding which is administered under a real estate mortgage investment
conduit (REMIC). Certificates issued by the REMIC trust carry ratings from
'AAA' to 'A' by both Fitch Investors Services, Inc. and Duff & Phelps Credit
Rating Co. Under the loan agreement, the Company is required to fund certain
reserves on a monthly basis and request disbursement of funds as certain
requirements are met. The Capital Improvements/Replacement Reserve requires an
annual deposit (funded monthly) equal to $0.20 per qualifying square foot as
defined in the loan agreement or approximately $575,000 per year. The Basic
Carrying Cost Reserve which is utilized to pay real estate taxes, ground lease
payments and insurance payments related to the properties which collateralize
the loan requires a monthly deposit equal to one-twelfth of the estimated
annual cost of these expenses or approximately $1.290 million for 1996.
13
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An additional provision in the loan agreement provides that in the
event that the long-term debt rating of either of the two major tenants of the
properties, Kmart or Wal-Mart, is downgraded to 'BB+' or lower, the Company
will be required to maintain an additional amount in the Basic Carrying Cost
Reserve equal to 1/4 of the applicable real estate tax obligation borne by
those tenants. In January 1996, the long-term debt rating of Kmart was lowered
to 'BB' and accordingly, the Company made an additional deposit to the Basic
Carrying Cost account in compliance with this provision of $561,000,
representing 1/4 of the Kmart properties estimated real estate taxes for 1996.
In January 1996, the Company completed an agreement with Builders
Square, ("Builders") a subsidiary of Kmart Corporation, for its property
located in Manchester, Missouri whereby the Company assumed a sublease
agreement between Builders and Levitz Furniture for a portion of the building.
Builders received a cash payment of approximately $319,000 and is released from
further obligation under its lease. Under the terms of the sublease, which
expires May 2002, the Company receives an increase in the annual base rental
amount of $75,000 over what was previously being paid by Builders.
On December 1, 1995 the Company's lease with Builders Square at its
Melrose Park, Illinois property was terminated. On an annual basis, revenues
from this lease were approximately $650,000. The building is presently being
marketed for lease and may be redeveloped to help facilitate this. While the
loss of revenue is anticipated to be short-term, it is possible that no revenue
could be generated from this space for a year or more.
Dillons, a tenant at the Company's Wichita, Kansas property, vacated
its space in November 1995. Dillons' lease remains in effect through November
30, 2001; however, as a result of the closure, the Company will no longer
receive percentage rent from this tenant which totaled approximately $132,000
for the lease year ended November 30, 1995. To help offset this decrease in
total revenue generated from the property, the Company plans to enter into a
lease termination agreement with Dillons and redevelop and re-tenant the
property at a higher base rent. While the Company anticipates this loss of
revenue to be short-term it cannot predict at this time when such re-tenanting
will occur.
The Company was informed in March 1996 that Kmart would not be
exercising its option to extend its lease on its freestanding store in North
Aurora, Illinois. Accordingly, this lease will expire on March 31, 1997. Cash
flows generated from the store are approximately $80,000 annually. The Company
is already pursuing re-leasing of this building. If the Company does not
re-lease the property by the termination date, future cash flows could be
affected.
14
<PAGE> 15
In March 1996, the Company entered into a sale and leaseback agreement
with an existing tenant at its Lawrence, Kansas shopping center. Under the
agreement, the tenant will construct a new theater on property located near the
shopping center, which, upon completion will be purchased by the Company for
approximately $4.2 million. The Company will lease back the theater to the
tenant for a term of twenty years at a base rent of approximately $500,000 per
year. The Company anticipates the project to be completed in the second
quarter of 1997 and to be funded out of long-term financing collateralized by
the acquired property.
Several other new developments and redevelopments are being
contemplated by the Company and may be completed within the next year. It is
anticipated that these projects will be funded with property specific financing
and subsequent long-term loans.
The Company has begun the process of refinancing a $12.45 million,
7.95% fixed rate mortgage loan held by NBD Bank which is due in September 1996.
The loan is extendable for a period of one year for a fee and is subject to
market rate of interest at the time of the extension. The Company is reviewing
proposals from several lenders and intends to refinance the mortgage with fixed
rate debt with a term of seven to ten years.
In March 1996, the Company's 9.5% Convertible Subordinated Debentures,
due August 2004, received a rating of B3 by Moody's Investors Services, Inc.
The Company incurs capital expenditures in the ordinary course of
business in order to maintain its properties. Such capital expenditures
typically include roof, parking lot and other structural repairs, some of which
are reimbursed by tenants. The Company anticipates spending approximately $1.0
million on such expenditures in 1996 of which approximately $496,000 were
incurred during the six months ended June 30, 1996. Included in the
anticipated expenditures are approximately $778,000 for major roof repairs and
replacements on four properties. These expenditures are anticipated to be
funded primarily out of the Capital Improvement/Replacement Reserve required
for the Company's Securitized Mortgage Loan and partially from operating cash
flows.
While it is anticipated that the Company's cash flow from operations
will generally be sufficient to fund its cash needs for payment of expenses,
capital expenditures (other than acquisitions and redevelopments) and
distributions necessary to maintain its status as a REIT for federal income tax
purposes, the Company may from time to time experience temporary shortages of
working capital. In order to alleviate these shortages, the Company intends to
enter into secured and unsecured financing agreements in the future as the need
arises.
15
<PAGE> 16
INFLATION
The Company's long-term leases contain provisions to mitigate the
adverse impact of inflation on its results from operations. Such provisions
include clauses entitling the Company to receive (i) scheduled base rent
increases and (ii) percentage rents based upon tenants' gross sales, which
generally increase as prices rise. In addition, many of the Company's
non-anchor leases are for terms of less than 10 years, which permits the
Company to seek increases in rents upon re-rental at market rates if rents
provided in the expiring leases are below then existing market rates. Most of
the Company's leases require tenants to pay a share of operating expenses,
including common area maintenance, real estate taxes, insurance and utilities,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation.
16
<PAGE> 17
MALAN REALTY INVESTORS, INC.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
NONE
Item 2: Changes in Securities
NONE
Item 3: Defaults Upon Senior Securities
NONE
Item 4: Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of the security holders
of the Company at its Annual Meeting of Shareholders held on
May 21, 1996.
(a) Election of Directors
The shareholders voted on the re-election of five directors to serve a
one-year term. Anthony S. Gramer, Robert D. Kemp, Jr., William McBride
III, William F. Pickard and Richard T. Walsh were elected at the
meeting to serve until the next annual meeting of shareholders and
until their respective successors have been elected and qualified.
NOMINEES VOTES FOR VOTES WITHHELD
------------------- --------- --------------
Anthony S.Gramer 3,315,958 13,325
Robert D. Kemp, Jr. 3,315,948 13,335
William McBride III 3,314,448 14,835
William F. Pickard 3,315,248 14,035
Richard T. Walsh 3,315,948 13,335
17
<PAGE> 18
(b) Ratification of Auditors
The shareholders ratified the selection of Deloitte & Touche LLP as the
Company's independent auditors for 1996.
Votes cast for ratification 2,429,276
Votes cast against ratification 7,500
Votes which abstained 12,185
Item 5: Other Information
NONE
Item 6: Exhibits and Reports on Form 8-K
a) Exhibit Index:
11 Computation of Earnings Per Share Filed with
this document
27 Financial Data Schedule Filed with
this document
b) Reports on Form 8-K
NONE
18
<PAGE> 19
MALAN REALTY INVESTORS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MALAN REALTY INVESTORS, INC.
By: /s/ Anthony S. Gramer
-------------------------------
Anthony S. Gramer
Chief Executive Officer and President
By: /s/ Elliott J. Broderick
-------------------------------
Elliott J. Broderick
Chief Accounting Officer
Dated: August 2, 1996
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
EX-11 Computation of earnings
EX-27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except share and earnings per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1996 1995
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
<S> <C> <C> <C> <C>
INCOME
NET INCOME $120 $ 120 $556 $ 556
INTEREST ON CONVERTIBLE
DEBT 2,118 2,158
---- ------ ---- ------
TOTAL $120 $2,238 $556 $2,714
==== ====== ==== ======
NUMBER OF SHARES
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,460,097 3,460,097 3,458,223 3,458,223
SHARES ISSUED UPON
CONVERSION OF CONVERTIBLE DEBT 5,193,234 5,340,882
--------- --------- --------- ---------
TOTAL 3,460,097 8,653,331 3,458,223 8,799,105
========= ========= ========= =========
NET INCOME PER SHARE $0.03 $0.26 $0.16 $0.31
===== ===== ===== =====
</TABLE>
MALAN REALTY INVESTORS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except share and earnings per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
<S> <C> <C> <C> <C>
INCOME
NET INCOME $207 $ 207 $1,197 $1,197
INTEREST ON CONVERTIBLE
DEBT 4,235 4,339
---- ------ ------ ------
TOTAL $207 $4,442 $1,197 $5,536
==== ====== ====== ======
NUMBER OF SHARES
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,467,733 3,467,733 3,602,351 3,602,351
SHARES ISSUED UPON
CONVERSION OF CONVERTIBLE DEBT 5,193,235 5,340,882
--------- --------- --------- ---------
TOTAL 3,467,733 8,660,968 3,602,351 8,943,233
========= ========= ========= =========
NET INCOME PER SHARE $0.06 $0.51 $0.33 $0.62
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,634
<SECURITIES> 0
<RECEIVABLES> 14,805
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,439
<PP&E> 206,660
<DEPRECIATION> 8,500
<TOTAL-ASSETS> 222,599
<CURRENT-LIABILITIES> 13,130
<BONDS> 171,974
0
0
<COMMON> 45,946
<OTHER-SE> (8,451)
<TOTAL-LIABILITY-AND-EQUITY> 222,599
<SALES> 0
<TOTAL-REVENUES> 17,621
<CGS> 0
<TOTAL-COSTS> 5,711
<OTHER-EXPENSES> 3,796
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,907
<INCOME-PRETAX> 207
<INCOME-TAX> 0
<INCOME-CONTINUING> 207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207
<EPS-PRIMARY> .06
<EPS-DILUTED> .51
</TABLE>
