<PAGE> 1
______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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: (248) 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 October 31, 1997, 3,733,759 shares of Common Stock, Par Value
$.01 Per share, were outstanding.
<PAGE> 2
MALAN REALTY INVESTORS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 3
Statements of Operations (unaudited) for
the three months and the nine months ended
September 30, 1997 and 1996 4
Statements of Cash Flows (unaudited) for the
nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
PART II OTHER INFORMATION 16
SIGNATURES 17
</TABLE>
2
<PAGE> 3
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate
Land, buildings and improvements $ 208,356 $ 207,590
Less: accumulated depreciation (14,591) (10,907)
---------- ----------
193,765 196,683
Leasehold improvements and
equipment, net 25 47
Accounts receivable, net 2,581 1,332
Deferred financing and other 9,931 10,705
Cash and cash equivalents 2,446 6,966
Escrow deposits 1,337 2,119
---------- ----------
Total Assets $ 210,085 $ 217,852
========== ==========
LIABILITIES
Mortgages $ 82,238 $ 83,643
Convertible debentures 56,740 61,285
Convertible notes 27,000 27,000
Deferred income 2,244 2,493
Accrued distributions payable 1,587 1,472
Accounts payable and other 1,090 1,535
Accrued property taxes 1,821 1,157
Accrued interest payable 2,171 4,274
---------- ----------
Total Liabilities 174,891 182,859
---------- ----------
SHAREHOLDERS' EQUITY
Common stock ($.01 par value, 30 million shares
authorized, 3,733,759 and 3,463,684 shares
issued and outstanding at September 30, 1997 and
December 31, 1996, respectively) 37 35
Additional paid in capital 50,415 45,960
Accumulated distributions in excess of net income (15,258) (11,002)
---------- ----------
Total shareholders' equity 35,194 34,993
---------- ----------
Total Liabilities and
Shareholders' Equity $ 210,085 $ 217,852
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Minimum rent $6,023 $5,929 $17,913 $17,846
Percentage and overage rents 276 285 900 809
Recoveries from tenants 2,350 2,459 7,066 7,309
Interest and other income 138 195 323 524
--------- --------- --------- ---------
Total Revenues 8,787 8,868 26,202 26,488
--------- --------- --------- ---------
EXPENSES
Property operating and maintenance - recoverable 668 608 2,287 2,184
Other operating expenses 357 402 1,021 1,070
Real estate taxes 2,043 2,017 5,885 5,952
General and administrative 389 414 1,217 1,302
Depreciation and amortization 1,271 1,241 3,798 3,680
--------- --------- --------- ---------
Total Operating Expenses 4,728 4,682 14,208 14,188
--------- --------- --------- ---------
OPERATING INCOME 4,059 4,186 11,994 12,300
INTEREST EXPENSE 3,846 3,966 11,717 11,873
--------- --------- --------- ---------
NET INCOME $213 $220 $277 $427
========= ========= ========= =========
NET INCOME PER SHARE $0.06 $0.08
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,552,374 3,518,042
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $277 $427
------- ------
Adjustments to reconcile net income to
net cash flows provided by
operating activities:
Depreciation and amortization 3,798 3,680
Amortization of deferred financing costs 1,191 1,197
Amortization of deferred compensation expense 60
Directors compensation issued in stock 36 36
Change in operating assets and liabilities that
used cash:
Accounts receivable and other assets (1,890) (2,443)
Accounts payable, deferred income and
other accrued liabilities (2,133) (152)
------- ------
Total adjustments 1,002 2,378
------- ------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 1,279 2,805
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate developed, acquired or improved (766) (1,037)
Deposits to escrow (13,226) (12,742)
Disbursements from escrow 14,008 12,300
------- ------
NET CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES 16 (1,479)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock (1,097)
Principal repayments on mortgages (1,405) (92)
Proceeds from stock options exercised 8
Distributions to shareholders (4,418) (4,450)
------- ------
Net cash flows used for
financing activities (5,815) (5,639)
------- ------
Net decrease in cash and cash equivalents (4,520) (4,313)
Cash and cash equivalents at beginning of
period 6,966 9,095
------- ------
Cash and cash equivalents at end of period $2,446 $4,782
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION-
CASH PAID FOR
INTEREST DURING THE PERIOD $12,629 $12,643
</TABLE> ======= =======
See Notes to Consolidated Financial Statements
5
<PAGE> 6
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF 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 its wholly owned active
subsidiaries, Malan Mortgagor, Inc. and Malan Meadows, Inc. 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 nine months ended September
30, 1996 to conform with the consolidated financial statements for the three
months and the nine months ended September 30, 1997.
Management Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Impact of Recently Adopted Accounting Standards -In March 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share". This Statement establishes standards
for computing and presenting earnings per share ("EPS") and applies to all
entities with publicly-held common shares or potential common shares. SFAS No.
128 replaces the presentation of primary EPS and fully-diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to common shareholders
by the weighted-average number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings.
6
<PAGE> 7
SFAS No. 128 is effective for the Company's financial statements for the year
ending December 31, 1997 and is not expected to have a material effect on the
Company's reported EPS amounts.
2. COMPENSATION PLANS
The following table outlines the activity in the Company's stock
option and compensation plans for the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
Shares Options
Plan Issued Exercised Price
--------------------------------- ------ --------- ------------------------
<S> <C> <C> <C>
Employee Option Plan 634 $13.375
Directors Stock
Compensation Plan 2,092 $17.00 - $17.375
</TABLE>
Effective January 1, 1997, the Company established a 401(k) retirement
plan (the "Plan") covering substantially all of its employees. Under the Plan,
participants are able to defer, until termination of employment with the
Company, up to 20% of their annual compensation. The Company intends to match
a portion of the participants' contributions in an amount to be determined each
year by the Company's Board of Directors. Compensation expense in connection
with the Plan was approximately $14,900 for the nine months ended September 30,
1997.
3. MORTGAGES
In January 1997, the Company satisfied a $12.45 million mortgage loan
that was collateralized by The Shops at Fairlane Meadows ("Fairlane Meadows")
with proceeds received from an $11.2 million loan with Daiwa Finance
Corporation ("Daiwa") and the balance from available cash reserves. The loan
with Daiwa is collateralized by a mortgage on Fairlane Meadows and calls for
monthly payments totaling $83,827 consisting of interest at the rate of 8.21%
per annum and principal amortized over a 30-year life. Real estate tax
payments and an annual replacement reserve of $17,157 are required to be
escrowed monthly. The loan matures on February 1, 2007, at which time a
balloon payment of approximately $9.9 million will be due. The loan also
contains an earn-out provision whereby the company can request, at any time
prior to January 1, 1998, that the property be revalued and that the loan be
increased if the revised valuation supports such an increase. The Company has
initiated such a request with Daiwa and anticipates that the loan will be
increased and additional funds will be received in November 1997.
The Company established a line of credit (the "Line") with First
Chicago NBD totaling $2.5 million in January 1997 which decreased to $1.5
million as of September 30, 1997. The Line is collateralized by the Company's
interest in Orchard-14 Shopping Center in Farmington Hills, Michigan and any
proceeds received as a result of the earn-out provision contained in the
7
<PAGE> 8
Daiwa loan, is subject to certain other restrictions as to its use and is
extendable for a one year period for a fee. Payments of interest only at
either the bank's prime rate, or the London Interbank Offering Rate (LIBOR)
plus 200 basis points, are due monthly until maturity. To date there have been
no draws on the Line.
4. COMMITMENTS AND CONTINGENCIES
In July 1997, the Company entered into an agreement with Cinemark USA,
a national theater operator, for construction of a 59,680 square foot, 17-plex
theater complex at the Company's North Aurora, Illinois property. Upon
completion of the theater, the Company will provide a construction allowance of
approximately $3.9 million to Cinemark USA who will ground lease the property
for a twenty year base term at an annual rent of approximately $746,000 plus
reimbursement of real estate taxes and operating expenses. Construction of the
theater began in October 1997 and is anticipated to be completed in May 1998.
The Company and Greenwich Capital Markets, Inc., ("Greenwich
Capital"), a division of National Westminster Bank, Plc., have entered into a
commitment to provide the Company with a $25 million secured line of credit.
The line of credit will have a two year term which may be extended for a period
of one year and can be expanded to $50 million for additional acquisitions.
The line of credit will be collateralized by certain of the Company's
unencumbered properties and is anticipated to close simultaneously with the
Company's acquisition of a theater complex in Lawrence, Kansas in November
1997.
The Company has entered into two separate agreements to acquire
approximately 9 acres of vacant land adjacent to its shopping center in
Lawrence, Kansas at a cost of approximately $2.9 million. Closing on the
property is scheduled to take place in November 1997 and the Company intends to
fund the acquisition out of proceeds from the line of credit with Greenwich
Capital.
5. SIGNIFICANT NONCASH TRANSACTIONS
During the nine months ended September 30, 1997, approximately $4.545
million aggregate principal of the Company's 9.5% Convertible Subordinated
Debentures due July 2004 have been converted into 267,349 shares of Common
Stock.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1997 to Three Months Ended
September 30, 1996
Total revenue decreased approximately $81,000 primarily due to an
increase in minimum rent of $94,000 offset by decreases in percentage rent of
$9,000, recoveries from tenants of approximately $109,000 and interest and
other income of $57,000. Minimum rents increased primarily due to the
re-leasing of a vacant building in Emporia, Kansas and approximately 20,000
square feet of vacant space at Bricktown Square in Chicago, Illinois in late
1996. The decrease in percentage rent is primarily due to increases in current
year percentage rent from Kmart Corporation ("Kmart") and Wal-Mart Corporation
("Wal-Mart"), the Company's two largest tenants, offset by a nonrecurring
percentage rent of approximately $80,000 received from a tenant in 1996. The
decrease in recoveries from tenants is primarily attributable to an increase in
repair work performed at certain centers that could not be recovered because
anchor tenant recovery charges were fixed. The decrease in interest and other
income resulted primarily from decreases in investment earnings on working
capital resulting from the utilization of $1.25 million of cash reserves to
satisfy the repayment of the balance on a mortgage collateralized by The Shops
at Fairlane Meadows ("Fairlane Meadows"). The resulting decrease in interest
income is partially offset by a decrease in interest expense on the mortgage.
Total operating expenses increased approximately $46,000 from 1996 to
1997. Recoverable expenses which include property operating and maintenance -
recoverable and real estate tax expenses increased a total of $86,000,
primarily due to an increase in parking lot repairs, building repairs and
interior maintenance. Depreciation and amortization increased approximately
$30,000, primarily related to depreciation of capitalized roof and parking lot
expenditures incurred in the second half of 1996. Other operating expenses
decreased approximately $45,000 primarily due to lower bad debt writeoffs than
in 1996. General and administrative expenses decreased approximately $25,000,
primarily due to decreases in payroll costs.
Interest expense (including related amortization of deferred financing
costs) decreased approximately $120,000 primarily due to decreased debt levels
on mortgages collateralized by Fairlane Meadows, discussed above and the
conversion of approximately $4.545 million of the Company's 9.5% Convertible
Subordinated Debentures due July 2004 into 267,349 shares of Common Stock.
Overall, net income decreased approximately $7,000.
9
<PAGE> 10
Comparison of Nine Months Ended September 30, 1997 to Nine Months Ended
September 30, 1996
Total revenue decreased approximately $286,000 due to increases in
minimum rent of $67,000 and percentage rent of approximately $91,000 offset by
decreases in recoveries from tenants of approximately $243,000 and interest and
other income of $201,000. Minimum rent increased primarily due to the
re-leasing and retenanting of two vacant former Kmart buildings in 1996.
Percentage rents increased primarily due to increases in sales for Kmart and
Wal-Mart, the Company's two largest tenants, offset by a nonrecurring
percentage rent of approximately $80,000 received from a tenant in 1996. The
decreases in recoveries from tenants is primarily attributable to an increase
in repair work performed at certain centers that could not be recovered because
anchor tenant recovery charges were fixed. The decrease in interest and other
income resulted primarily from a nonrecurring brokerage commission of $58,000
received in 1996 and from decreases in investment earnings on working capital
resulting from the utilization of $1.25 million of cash reserves to satisfy the
repayment of the balance on a mortgage collateralized by Fairlane Meadows. The
resulting decrease in interest income is partially offset by a decrease in
interest expense on the mortgage.
Total operating expenses decreased approximately $20,000. Decreases
in real estate taxes of approximately $67,000 resulting primarily from
reductions obtained through successful appeals of tax assessments were offset
by an increase in property operating and maintenance - recoverable of
approximately $103,000 primarily due to increases in parking lot repairs and
snowplowing. Other operating expenses decreased approximately $49,000 due to
lower bad debt writeoffs than in 1996. General and administrative expenses
decreased approximately $85,000 primarily due to decreases in payroll costs.
Depreciation and amortization increased approximately $118,000, primarily
related to depreciation on capitalized roof and parking lot expenditures
incurred in the second half of 1996.
Interest expense (including related amortization of deferred financing
costs) decreased approximately $156,000 primarily due to decreased debt levels
on mortgages collateralized by Fairlane Meadows, discussed above and the
conversion of approximately $4.545 million aggregate principal of the Company's
9.5% Subordinated Convertible Debentures due July 2004 into 267,349 shares of
Common Stock.
Overall, net income decreased approximately $150,000 primarily as a
result of lower recoveries from tenants, increases in non-cash expenses such as
depreciation and amortization of approximately $118,000 and decreases in
interest and other income of $201,000 partially offset by decreases in interest
expense of approximately $156,000 and general and administrative expenses of
$83,000.
Impact of Recently Adopted Accounting Standards
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to all entities with publicly-held
common shares or potential common shares. SFAS No. 128 replaces the
10
<PAGE> 11
presentation of primary EPS and fully-diluted EPS with a presentation of basic
EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed
by dividing earnings available to common shareholders by the weighted-average
number of common shares outstanding for the period. Similar to fully diluted
EPS, diluted EPS reflects the potential dilution of securities that could share
in the earnings. SFAS No. 128 is effective for the Company's financial
statements for the year ending December 31, 1997 and is not expected to have a
material effect on the Company's reported EPS amounts.
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.
The Company is aware that there are variations between companies in
the REIT industry as to how FFO is calculated. In 1995, the National
Association of Real Estate Investment Trusts (NAREIT) issued an opinion paper
(the "White Paper") clarifying the definitions of certain components of FFO.
The primary differences between the method in which the Company reports FFO and
the White Paper definition is in the treatment of amortization of nonrecurring
deferred financing costs and certain depreciation expense.
11
<PAGE> 12
The following table shows the components that comprise the Company's
calculation of FFO for the nine months ended September 30, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Net income............................................................................. $ 277 $ 427
Depreciation & amortization:
Depreciation of buildings & improvements.......................................... 3,634 3,569
Amortization of tenant allowances & tenant improvements........................... 72 34
Amortization of leasing costs..................................................... 69 34
Amortization of nonrecurring settlement cost on hedging
contract...................................................................... 328 328
------ ------
"White Paper" FFO 4,380 4,392
Depreciation of furniture, equipment & leasehold improvements.......................... 23 44
Amortization of deferred financing costs included in interest expense
(excluding hedge cost amortization reported above):
Mortgages......................................................................... 600 605
Convertible debt.................................................................. 263 264
------ ------
Funds From Operations.................................................................. $5,266 $5,305
====== ======
Additional information:
Weighted average shares outstanding:
Primary........................................................................... 3,518 3,465
====== ======
Fully diluted..................................................................... 8,694 8,659
====== ======
Convertible debt interest excluding amortization of deferred financing
costs............................................................................. $5,979 $6,088
====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
In order to fund its commitments and other potential uses of cash
discussed below, the Company and Greenwich Capital Markets, Inc., a division of
National Westminster Bank, Plc, have entered into a commitment to provide the
Company with a $25 million secured line of credit (the "Greenwich Capital
Line"). The Greenwich Capital Line will have a two year term and may be
extended for a period of one year and can be expanded to $50 million for
additional acquisitions. The line will be collateralized by certain of the
Company's currently unencumbered properties and a theater complex in Lawrence,
Kansas, (to be acquired in November 1997). The Company plans to repay any
outstanding borrowings under this line prior to maturity either through an
additional public offering of equity and/or permanent financing secured by
future acquisitions and other existing properties.
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 Company will purchase for approximately $4.2 million, a new
41,000 square foot, 12-plex theater complex
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<PAGE> 13
constructed by the tenant and will lease the theater back to the tenant for a
term of twenty years at a base rent of approximately $550,000 per year.
Closing on the theater, which began operations in May 1997, is anticipated to
take place in November 1997 simultaneously with the closing on the Greenwich
Capital Line.
In January 1997, the Company satisfied a $12.45 million mortgage loan
collateralized by Fairlane Meadows due September 15, 1997 using proceeds
received from an $11.2 million loan with Daiwa Finance Corporation ("Daiwa")
and available cash reserves for the balance. The loan with Daiwa is
collateralized by a mortgage on Fairlane Meadows and calls for monthly payments
totaling $83,827, consisting of interest at the rate of 8.21% per annum and
principal amortized over a 30-year life. Real estate tax payments and an
annual replacement reserve of $17,157 are required to be escrowed monthly. The
loan is due in full on February 1, 2007, at which time a balloon payment of
approximately $9.9 million will be due. The loan also contains an earn-out
provision whereby the Company can request at any time prior to January 1, 1998,
that the property be reappraised and that the loan be increased if the revised
valuation supports such an increase. The Company has recently signed a lease
with a national credit computer company for a large vacant space within
Fairlane Meadows and believes that the value added to the shopping center by
such tenant along with other recent leasing activity at the center will be
sufficient to provide enough earn-out proceeds to replenish the cash reserves
utilized to extinguish the previous mortgage. The Company has requested funds
under the earn-out provision and anticipates that such funds will be received
in November 1997.
The Company established a one year line of credit ( the "NBD Line") in
January 1997 with First Chicago NBD totaling $2.5 million which decreased to
$1.5 million on September 30, 1997. The NBD Line is collateralized by the
Company's interest in Orchard-14 Shopping Center in Farmington Hills, Michigan
and any proceeds received as a result of the earn-out provision contained in
the Daiwa loan and is subject to certain other restrictions as to its use and
is extendable for a one-year period for a fee. Payments of interest only at
either the bank's prime rate, or the London Interbank Offering Rate (LIBOR)
plus 200 basis points are due monthly until maturity.
In July 1997, the Company signed an agreement with Cinemark USA
("Cinemark") to construct a 59,680 square foot, 17-plex theater complex on its
property in North Aurora, Illinois. Once completed, the Company will provide a
construction allowance to Cinemark of $65 per square foot or approximately $3.9
million. Cinemark will subsequently ground lease the property from the Company
for a base term of twenty years with annual rent of approximately $746,000,
plus reimbursement of real estate taxes and operating costs. The site had
previously been leased to Kmart under an agreement which expired March 31, 1997
that had provided approximately $126,000 in net cash flow during calendar year
1996. Construction of the theater began in October 1997 and is anticipated to
be completed in May 1998. Total costs of the development to the company are
estimated to be approximately $4.3 million and are anticipated to be funded out
of proceeds from the Greenwich Capital Line.
The Company has a separate agreement with Cinemark to construct a
58,000 square foot, 10-plex theater complex on its property in Melrose Park,
Illinois. Construction was originally anticipated to begin in the second
quarter 1997 and to be completed in the first quarter 1998,
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<PAGE> 14
however, the project may be delayed as long as nine months due to certain
unanticipated issues with the City of Melrose Park.
The Company plans on redeveloping its existing retail center in
Lawrence, Kansas. In addition to expansion and improvement of the existing
Kmart store, the Company intends to add approximately 150,000 square feet of
new retail space. Total cost of the redevelopment project to the Company is
anticipated to be approximately $9 million. In order to facilitate the
additional space, the Company has entered into two contracts to purchase
approximately 9 acres of land adjacent to the center at a total cost of
approximately $2.9 million. Closing on the land is scheduled for November 1997
and is anticipated to be funded out of proceeds from the Greenwich Capital
Line.
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. In 1997, the Company anticipates spending
approximately $1.1 million (of which approximately $988,000 has been incurred
through September 30, 1997) for capital expenditures to be funded primarily out
of the Capital Improvement/Replacement Reserve required for the Company's
Securitized Mortgage Loan financing and partially from operating cash flows.
Occasionally it is necessary for the Company to provide inducements
such as building allowances or space improvements and/or to pay leasing
commissions to outside brokers in order to procure new tenants or renegotiate
expiring leases with current tenants. The total cost of these expenditures in
1997 is estimated to be approximately $350,000 (of which approximately $264,000
has been incurred through September 30, 1997). These expenditures are
generally funded by operating cash flows and increased revenues resulting from
such expenditures.
The Company has entered into the following commitments:
<TABLE>
<CAPTION>
Anticipated
Approximate Funding
Amount Date
--------------- ----------------
(in thousands)
<S> <C> <C>
Purchase and leaseback of 12-plex
theater complex - Lawrence, KS $ 4,200 11/97
Acquisition of 9 acres of land for
development - Lawrence, KS 2,884 11/97
Payment of tenant construction
allowance on 10-plex theater complex-
Melrose Park, IL 3,773 3/98 - 12/98
Payment of tenant construction
allowance on 17-plex theater complex -
North Aurora, IL 3,879 5/98
--------
Total $14,736 11/97 - 12/98
========
</TABLE>
14
<PAGE> 15
The Company anticipates that its 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 currently has available borrowing of up to $1.5 million on the NBD
Line for temporary working capital needs and intends to enter into other
secured and unsecured financing agreements in the future as the need arises.
Each of the above statements regarding future revenues or expenses may
be a "forward looking statement" within the meaning of the Securities Exchange
Act of 1934. Such statements are subject to important factors that could cause
actual results to differ materially from those in the forward looking
statement, including the factors set forth in the Management's Discussion and
Analysis of Financial Condition and Results of Operations.
INFLATION
The Company's long-term leases contain provisions to mitigate the
adverse impact of inflation on its results of 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 ten years, which permits the
Company to seek increases in rents upon re-rental at then current 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.
15
<PAGE> 16
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
NONE
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
16
<PAGE> 17
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: November 4, 1997
17
<PAGE> 18
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except share and earnings per share amounts)
<TABLE>
<CAPTION>
Three Months September 30, Nine Months September 30,
1997 1996 1997 1996
FULLY FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
--------- --------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
NET INCOME $213 $213 $220 $220 $277 $277 $427 $427
INTEREST ON CONVERTIBLE
DEBT 2,009 2,117 6,243 6,352
--------- --------- --------- --------- --------- --------- ---------- ---------
TOTAL $213 $2,222 $220 $2,337 $277 $6,520 $427 $6,779
========= ========= ========= ========= ========= ========= ========= =========
NUMBER OF SHARES
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,516,407 3,516,407 3,460,435 3,460,435 3,482,075 3,482,075 3,465,282 3,465,282
OTHER COMMON STOCK EQUIVALENTS 35,967 36,007 35,967 36,007
SHARES ISSUED UPON
CONVERSION OF CONVERTIBLE DEBT 5,142,660 5,193,234 5,176,084 5,193,234
--------- --------- --------- --------- --------- --------- ---------- ---------
TOTAL 3,552,374 8,695,074 3,460,435 8,653,669 3,518,042 8,694,166 3,465,282 8,658,516
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,783
<SECURITIES> 0
<RECEIVABLES> 12,512
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,295
<PP&E> 208,381
<DEPRECIATION> 14,591
<TOTAL-ASSETS> 210,085
<CURRENT-LIABILITIES> 8,913
<BONDS> 165,978
0
0
<COMMON> 50,452
<OTHER-SE> (15,258)
<TOTAL-LIABILITY-AND-EQUITY> 210,085
<SALES> 0
<TOTAL-REVENUES> 26,202
<CGS> 0
<TOTAL-COSTS> 9,193
<OTHER-EXPENSES> 5,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,717
<INCOME-PRETAX> 277
<INCOME-TAX> 0
<INCOME-CONTINUING> 277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.75
</TABLE>
