<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 June 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 July 31, 1997, 3,469,837 shares of Common Stock, Par Value $.01 Per
share, were outstanding.
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MALAN REALTY INVESTORS, INC.
FORM 10-Q
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996 3
Statements of Operations (unaudited) for
the three months and the six months ended
June 30, 1997 and 1996 4
Statements of Cash Flows (unaudited) for the
three months and the six months ended
June 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 9-14
PART II OTHER INFORMATION 15-16
SIGNATURES 17
2
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MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate
Land, buildings and improvements $ 207,983 $ 207,590
Less: accumulated depreciation (13,359) (10,907)
----------- ---------
194,624 196,683
Leasehold improvements and
equipment, net 32 47
Accounts receivable, net 3,801 1,332
Deferred financing and other 10,029 10,705
Cash and cash equivalents 4,912 6,966
Escrow deposits 2,032 2,119
----------- ---------
Total Assets $ 215,430 $ 217,852
=========== =========
LIABILITIES
Mortgages $ 82,309 $83,643
Convertible debentures 61,268 61,285
Convertible notes 27,000 27,000
Deferred income 2,213 2,493
Accrued distributions payable 1,473 1,472
Accounts payable and other 1,496 1,535
Accrued property taxes 3,179 1,157
Accrued interest payable 4,332 4,274
----------- ---------
Total Liabilities 183,270 182,859
----------- ---------
SHAREHOLDERS' EQUITY
Common stock ($.01 par value, 30 million shares
authorized, 3,466,720 and 3,463,684 shares
issued and outstanding at June 30, 1997 and
December 31, 1996, respectively) 35 35
Additional paid in capital 46,009 45,960
Accumulated distributions in excess of net income (13,884) (11,002)
----------- ---------
Total shareholders' equity 32,160 34,993
----------- ---------
Total Liabilities and
Shareholders' Equity $ 215,430 $ 217,852
=========== =========
</TABLE>
See Notes to Consolidated Financial Statements
3
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MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
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,
1997 1996 1997 1996
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUES
Minimum rent $5,907 $5,972 $11,890 $11,918
Percentage and overage rents 320 269 624 524
Recoveries from tenants 2,203 2,309 4,716 4,850
Interest and other income 98 152 185 329
----------- ---------- ------------ ----------
Total Revenues 8,528 8,702 17,415 17,621
----------- ---------- ------------ ----------
EXPENSES
Property Operating and Maintenance - Recoverable 554 577 1,619 1,576
Other Operating Expenses 335 355 664 668
Real Estate Taxes 1,923 1,994 3,842 3,935
General and Administrative 434 472 828 889
Depreciation and Amortization 1,262 1,221 2,527 2,439
----------- ---------- ------------ ----------
Total Operating Expenses 4,508 4,619 9,480 9,507
----------- ---------- ------------ ----------
OPERATING INCOME 4,020 4,083 7,935 8,114
INTEREST EXPENSE 3,949 3,963 7,871 7,907
----------- ---------- ------------ ----------
NET INCOME $71 $120 $64 $207
=========== ========== ============ ==========
NET INCOME PER SHARE $0.02 $0.02
=========== ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,473,614 3,472,809
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
4
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MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 64 $ 207
-------- -------
Adjustments to reconcile net income to
net cash flows used for
operating activities:
Depreciation and amortization 2,527 2,439
Amortization of deferred financing costs 786 800
Amortization of deferred compensation expense 60
Directors compensation issued in stock 24 24
Change in operating assets and liabilities that
provided (used) cash:
Accounts receivable and other assets (2,639) (2,894)
Accounts payable, deferred income and
other accrued liabilities 1,761 3,070
-------- -------
Total adjustments 2,459 3,499
-------- -------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 2,523 3,706
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate developed, acquired or improved (393) (507)
Deposits to escrow (7,927) (9,204)
Disbursements from escrow 8,014 7,826
-------- -------
Net cash flows used for
investing activities (306) (1,885)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock (1,097)
Principal repayments on mortgages (1,334) (45)
Proceeds from stock options exercised 8
Distributions to shareholders (2,945) (2,979)
-------- -------
NET CASH FLOWS USED FOR
FINANCING ACTIVITIES (4,271) (4,121)
-------- -------
Net decrease in cash and cash equivalents (2,054) (2,300)
Cash and cash equivalents at beginning of
period 6,966 9,095
-------- -------
Cash and cash equivalents at end of period $ 4,912 $ 6,795
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION-
CASH PAID FOR
INTEREST DURING THE PERIOD $ 7,027 $ 7,059
======== =======
</TABLE>
See Notes to Consolidated Financial Statements
5
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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 six months ended June 30,
1996 to conform with the consolidated financial statements for the three months
and the six months ended June 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. 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.
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2. COMPENSATION PLANS
The following table outlines the activity in the Company's stock option
and compensation plans for the six months ended June 30, 1997:
Shares Options
Plan Issued Exercised Price
-------------------- ------ --------- ----------------
Employee Option Plan 634 $13.375
Directors Stock
Compensation Plan 1,402 $17.00 - $17.125
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 $4,000 for the six months ended June 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 established a line of credit (the "Line") with First Chicago
NBD totaling $2.5 million in January 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 Daiwa loan and is subject to certain other restrictions as to its use. The
line is for a one-year period and decreases to $1 million the earlier of
September 30, 1997, or upon the receipt of any funds from the earn-out
provision 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.
7
<PAGE> 8
4. SUBSEQUENT EVENTS
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. It is anticipated
that completion of the theater and subsequent funding of the construction
allowance will take place in May 1998.
In July 1997, the Company and Greenwich Capital Markets, Inc. a division
of National Westminster Bank, Plc., have entered into a conditional commitment
to provide the Company with a $25 million secured line of credit. The line of
credit would 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 September 1997.
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, 1997 to Three Months Ended June 30,
1996
Total revenue decreased approximately $174,000 primarily due to decreases
in minimum rent of $65,000, recoveries from tenants of approximately $106,000
and interest and other income of $54,000 offset by an increase in percentage
rent of $51,000. The decrease in minimum rent is primarily due to the
expiration of the Kmart lease at North Aurora, Illinois which occurred in the
first quarter 1997, while the decrease in recoveries from tenants was
attributable to a corresponding decrease in recoverable property expenses and
real estate taxes as discussed below. 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.
Percentage rents increased primarily due to increases in sales for Kmart
Corporation ("Kmart") and Wal-Mart Corporation ("Wal-Mart"), the Company's two
largest tenants.
Total operating expenses decreased approximately $111,000 from 1996 to
1997. Recoverable expenses which include property operating and maintenance
and real estate tax expenses decreased a total of $94,000, primarily due to a
reduction in real estate taxes of aproximately $71,000 obtained through
successful appeals of tax assessments. General and administrative expenses
decreased approximately $38,000, primarily due to decreases in payroll costs,
and other operating expenses decreased approximately $20,000. Depreciation and
amortization increased approximately $41,000, 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 $14,000 primarily due to decreased debt levels
on mortgages collateralized by Fairlane Meadows, discussed above.
Overall, net income decreased approximately $49,000 primarily as a result
of the loss of revenue due to the expiration of the Kmart lease in North
Aurora.
Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30, 1996
Total revenue decreased approximately $206,000 which is attributable to
decreases in minimum rent and recoveries from tenants of approximately $162,000
and interest and other income of $144,000, offset by an increase in percentage
rent of approximatley $100,000. The
9
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decreases in rents and recoveries from tenants are primarily attributable to
the expiration of the Kmart lease at North Aurora, Illinois and the retenanting
of a space at Bricktown Square in Chicago, Illinois. 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. Percentage rents increased
primarily due to increases in sales for Kmart and Wal-Mart, the Company's two
largest tenants.
Total operating expenses decreased approximately $27,000. Decreases in
real estate taxes of approximately $93,000 resulting primarily from reductions
obtained through successful appeals of tax assessments were offset by an
increase in property operating and maintenance - recoverable of approximately
$43,000. General and administrative expenses decreased approximately $61,000
primarily due to decreases in payroll costs. Depreciation and amortization
increased approximately $88,000, 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 $36,000 primarily due to decreased debt levels
on mortgages collateralized by Fairlane Meadows, discussed above.
Overall, net income decreased approximately $143,000 primarily as a result
of the loss of revenue due to the expiration of the Kmart lease in North
Aurora, increases in non-cash expenses such as depreciation and amortization of
approximately $88,000 and decreases in interest and other income of $144,000
partially offset by decreases in interest expense of approximately $36,000 and
general administrative expenses of $61,000.
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 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
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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. The following table shows the
components that comprise the Company's calculation of FFO for the six months
ended June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------ -------
<S> <C> <C>
Net income.............................................................. $ 64 $ 207
Depreciation & amortization:
Depreciation of buildings & improvements.............................. 2,419 2,374
Amortization of tenant allowances & tenant improvements............... 48 22
Amortization of leasing costs......................................... 45 12
Amortization of nonrecurring settlement cost on hedging
contract............................................................. 219 219
------- -------
"White Paper" FFO 2,795 2,834
Depreciation of furniture, equipment & leasehold improvements............ 15 31
Amortization of deferred financing costs included in interest expense
(excluding hedge cost amortization reported above):
Mortgages............................................................. 391 405
Convertible debt...................................................... 176 176
------- -------
Funds From Operations.................................................... $ 3,377 $ 3,446
======= =======
Additional information:
Weighted average shares outstanding:
Primary............................................................. 3,473 3,468
======= =======
Fully diluted....................................................... 8,667 8,661
======= =======
Convertible debt interest excluding amortization of deferred financing
costs............................................................... $ 4,059 $ 4,059
======= =======
</TABLE>
11
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LIQUIDITY AND CAPITAL RESOURCES
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, 10-plex theater complex 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 September 1997 and to
be funded out of proceeds received from a $25 million line of credit discussed
further below.
In January 1997, the Company satisfied a $12.45 million mortgage loan
collateralized by Fairlane Meadows due September 15, 1997 using proceeds
received from a $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 plans to request
funds under the earn-out provision in August 1997 and anticipates that such
funds will be received by the end of the fourth quarter 1997.
The Company established a line of credit ( the "Line") in January 1997
with First Chicago NBD totaling $2.5 million. 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 Daiwa loan and is subject to certain other restrictions as to
its use. The Line is for a one-year period and decreases to $1 million on the
earlier of September 30, 1997 or upon the receipt of any funds from the Daiwa
earn-out provision 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
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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 is anticipated to begin in September 1997 and be
completed in May 1998. Total costs of the development are estimated to be
approximately $4.3 million and are anticipated to be funded out of proceeds
from a $25 million line of credit discussed further below.
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, however, the project may be
delayed as long as nine months due to certain unanticipated issues with the
City of Melrose Park.
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
$1.3 million (of which approximately $393,000 has been incurred through June
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 $300,000 (of which approximately $35,000 has been
incurred through June 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:
Anticipated
Approximate Funding
Amount Date
-------------- -------------
(in thousands)
Purchase and leaseback of 12-plex
theater complex - Lawrence, KS $ 4,200 9/97
Replacement of roofs on two retail
buildings 360 7/97 - 9/97
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 3/98 - 12/98
--------
Total $12,212 7/97 - 12/98
========
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In addition to these commitments and other potential uses of cash discussed
above, several other new developments and redevelopments are being contemplated
by the Company and may be completed within the next year. In order to fund
these projects, the Company and Greenwich Capital Markets, Inc., a division of
National Westminster Bank, Plc., have entered into a conditional commitment to
provide the Company with a $25 million secured line of credit. The line of
credit would 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 will
be collateralized by certain of the Company's currently unencumbered properties
and the theater complex in Lawrence, Kansas, (to be acquired in September
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.
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 million on its line
of credit with First Chicago NBD 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.
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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 15, 1997.
(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 3,097,510 13,589
Robert D. Kemp, Jr. 3,098,810 12,289
William McBride III 3,097,810 13,289
William F. Pickard 3,096,310 14,789
Richard T. Walsh 3,098,810 12,289
15
<PAGE> 16
(b) Ratification of Auditors
The shareholders ratified the selection of Deloitte & Touche LLP as the
Company's independent auditors for 1997.
Votes cast for ratification 3,099,116
Votes cast against ratification 5,614
Votes which abstained 6,364
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: July 31, 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 earnngs per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
FULLY FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
--------- --------- --------- --------- --------- -------- --------- ---------
INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INCOME $71 $71 $120 $120 $64 $64 $207 $207
INTEREST ON CONVERTIBLE
DEBT 2,117 2,118 4,234 4,235
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL $71 $2,188 $120 $2,238 $64 $4,298 $207 $4,442
========= ========= ========= ========= ========= ========= ========= =========
NUMBER OF SHARES
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,465,424 3,465,424 3,460,097 3,460,097 3,464,619 3,464,619 3,467,733 3,467,733
OTHER COMMON STOCK EQUIVALENTS 8,190 9,100 8,190 9,100
SHARES ISSUED UPON
CONVERSION OF CONVERTIBLE DEBT 5,192,905 5,193,234 5,193,069 5,193,235
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL 3,473,614 8,667,429 3,460,097 8,653,331 3,472,809 8,666,788 3,467,733 8,660,968
========= ========= ========= ========= ========= ========= ========= =========
NET INCOME PER SHARE $ 0.02 $ 0.25 $ 0.03 $ 0.26 $ 0.02 $ 0.50 $ 0.06 $ 0.51
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,944
<SECURITIES> 0
<RECEIVABLES> 13,830
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,774
<PP&E> 208,015
<DEPRECIATION> 13,359
<TOTAL-ASSETS> 215,430
<CURRENT-LIABILITIES> 12,693
<BONDS> 170,577
0
0
<COMMON> 46,044
<OTHER-SE> (13,884)
<TOTAL-LIABILITY-AND-EQUITY> 215,430
<SALES> 0
<TOTAL-REVENUES> 17,415
<CGS> 0
<TOTAL-COSTS> 6,125
<OTHER-EXPENSES> 3,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,871
<INCOME-PRETAX> 64
<INCOME-TAX> 0
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.50
</TABLE>
