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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, 1998
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
Bingham Farms, 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 August 6, 1998, 5,143,139 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> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997 3
Statements of Operations (unaudited) for
the three months and the six months ended
June 30, 1998 and 1997 4
Statements of Cash Flows (unaudited) for the
six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements (unaudited) 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION 16-17
SIGNATURES 18
</TABLE>
2
<PAGE> 3
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate
Land, buildings and improvements $ 253,662 $ 215,785
Less: accumulated depreciation (18,381) (15,817)
--------- ---------
235,281 199,968
Accounts receivable, net 3,634 1,608
Deferred financing and other 12,216 10,705
Cash and cash equivalents 4,192 1,717
Escrow deposits 2,421 2,140
--------- ---------
Total Assets $ 257,744 $ 216,138
========= =========
LIABILITIES
Mortgages $ 107,474 $ 88,585
Convertible debentures 55,004 56,680
Convertible notes 27,000 27,000
Deferred income 1,903 2,102
Accrued distributions payable 2,185 1,620
Accounts payable and other 2,760 845
Accrued property taxes 3,294 1,184
Accrued interest payable 4,218 4,180
--------- ---------
Total Liabilities 203,838 182,196
--------- ---------
SHAREHOLDERS' EQUITY
Common stock ($.01 par value, 30 million shares
authorized, 5,140,375 and 3,737,936 shares
issued and outstanding at June 30, 1998 and
December 31, 1997, respectively) 51 37
Additional paid in capital 73,538 50,485
Accumulated distributions in excess of net income (19,683) (16,580)
--------- ---------
Total shareholders' equity 53,906 33,942
--------- ---------
Total Liabilities and
Shareholders' Equity $ 257,744 $ 216,138
========= =========
</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,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Minimum rent $ 6,704 $ 5,907 $ 12,987 $ 11,890
Percentage and overage rents 305 320 606 624
Recoveries from tenants 2,250 2,203 4,649 4,716
Interest and other income 53 98 124 185
---------- ---------- ---------- ----------
Total Revenues 9,312 8,528 18,366 17,415
---------- ---------- ---------- ----------
EXPENSES
Property operating and maintenance 581 554 1,317 1,619
Other operating expenses 396 335 743 664
Real estate taxes 1,908 1,923 3,865 3,842
General and administrative 403 434 792 828
Depreciation and amortization 1,336 1,262 2,646 2,527
---------- ---------- ---------- ----------
Total Operating Expenses 4,624 4,508 9,363 9,480
---------- ---------- ---------- ----------
OPERATING INCOME 4,688 4,020 9,003 7,935
INTEREST EXPENSE 4,285 3,949 8,301 7,871
---------- ---------- ---------- ----------
NET INCOME $ 403 $ 71 $ 702 $ 64
========== ========== ========== ==========
EARNINGS PER SHARE:
BASIC $ 0.10 $ 0.02 $ 0.18 $ 0.02
========== ========== ========== ==========
DILUTED $ 0.10 $ 0.02 $ 0.18 $ 0.02
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 3,898,900 3,465,424 3,841,777 3,464,619
========== ========== ========== ==========
DILUTED 3,939,554 3,498,456 3,882,431 3,497,651
========== ========== ========== ==========
</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,
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 702 $ 64
-------- --------
Adjustments to reconcile net income to
net cash flows provided by operating activities:
Depreciation and amortization 2,646 2,527
Amortization of deferred financing costs 965 786
Forfeited interest on debt conversions 14
Directors compensation issued in stock 24 24
Change in operating assets and liabilities that
provided (used) cash:
Accounts receivable and other assets (4,316) (2,639)
Accounts payable, deferred income and
other accrued liabilities 3,864 1,761
-------- --------
Total adjustments 3,197 2,459
-------- --------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 3,899 2,523
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate developed, acquired or improved, net
of mortgage assumed (32,230) (393)
Deposits to escrow (9,554) (7,927)
Disbursements from escrow 9,273 8,014
Proceeds from sale of land 240
-------- --------
NET CASH FLOWS USED FOR
INVESTING ACTIVITIES (32,271) (306)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from secondary stock offering 21,362
Principal repayments on mortgages (300) (1,334)
Proceeds from mortgages 18,000
Debt issuance costs (311)
Draws on lines of credit 14,350
Repayments on lines of credit (19,050)
Proceeds from stock options exercised 36 8
Distributions to shareholders (3,240) (2,945)
-------- --------
NET CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 30,847 (4,271)
-------- --------
Net increase (decrease) in cash and cash equivalents 2,475 (2,054)
Cash and cash equivalents at beginning of
period 1,717 6,966
-------- --------
Cash and cash equivalents at end of period $ 4,192 $ 4,912
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION-
CASH PAID FOR INTEREST DURING THE PERIOD $ 7,426 $ 7,027
======== ========
</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., Malan Meadows, Inc., Malan Revolver, Inc. and Malan
Midwest LLC. All significant inter-company balances and transactions have been
eliminated.
Reclassifications- Certain reclassifications have been made to prior years
financial statements in order to conform with the current year presentation.
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.
6
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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, 1998:
<TABLE>
<CAPTION>
Shares Options Options Issue/Exercise
Plan Issued Granted Exercised Price
- ------------------------ ------ ------- --------- -----------------
<S> <C> <C> <C> <C>
Directors Stock Option Plan 4,000 2,500 $14.50 - $17.6875
Directors Stock
Compensation Plan 1,356 $ 17.6875
</TABLE>
The Company has 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 for the six months
ended June 30, 1998 was approximately $15,000.
7
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3. PROPERTY ACQUISITIONS
In February 1998, the Company acquired the Westland Shopping Center in
Westland, Michigan for $7.925 million (the "Westland Acquisition"). Terms of the
agreement included a cash payment of $2.025 million and assumption of a $5.9
million mortgage loan.
In May 1998, the Company completed the acquisition of 12 community
shopping centers located throughout the Midwestern United States (the "Midwest
Acquisition") and agreed to acquire another community shopping center located in
Decatur, Illinois at a later date. Terms of the Midwest Acquisition included a
cash payment of $29.470 million which was funded out of proceeds of an $18
million mortgage loan and draws on the Company's lines of credit. It is
anticipated that the acquisition of the Decatur, Illinois property will be
completed by November 1998 for approximately $4.2 million after the seller
completes a redevelopment of the property.
Additional information regarding the above acquisitions is as follows:
<TABLE>
<CAPTION>
GROSS
ACQUISITION LEASABLE CAPITALIZED
DATE PROPERTY LOCATION AREA COSTS
- ----------- -------- -------- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Westland Shopping
2/23/98 Center Westland, MI 85 $ 7,925
MIDWEST ACQUISITION
5/29/98 Wal-Mart Plaza Champaign, IL 11 1,110
5/29/98 Wal-Mart Plaza Jacksonville, IL 53 4,907
5/29/98 Wal-Mart Plaza Crawfordsville, IN 26 2,019
5/29/98 Wal-Mart Plaza Decatur, IN 36 2,995
5/29/98 Wal-Mart Plaza Huntington, IN 13 1,171
5/29/98 Wal-Mart Plaza Chanute, KS 16 1,257
5/29/98 Wal-Mart Plaza El Dorado, KS 20 1,546
5/29/98 Wal-Mart Plaza Benton Harbor, MI 14 1,460
5/29/98 Wal-Mart Plaza Owosso, MI 60 5,127
5/29/98 Wal-Mart Plaza Sturgis, MI 12 1,241
5/29/98 Wal-Mart Plaza Little Falls, MN 13 972
5/29/98 Wal-Mart Plaza Mansfield, OH 55 5,830
-------- --------
414 $ 37,560
======== ========
</TABLE>
8
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4. MORTGAGES
In connection with the Westland Acquisition the Company assumed a $5.9
million mortgage loan with Wells Fargo Bank. The mortgage calls for monthly
payments of interest at the rate of 8.02% per annum and principal amortized over
30 years and is due in full November 1, 2007. Real estate taxes and insurance
are required to be escrowed monthly.
In May 1998, simultaneously with the Midwest Acquisition, the Company
obtained an $18 million mortgage loan with Bloomfield Acceptance Company. The
loan is collateralized by 12 separate cross-collateralized and cross defaulted
mortgages or deeds of trust on the properties which were acquired by a wholly
owned subsidiary Malan Midwest, LLC. The loan calls for monthly payments of
interest at the rate of 7.43% per annum and principal amortized over 30 years
and is due in full May 2013. Real estate taxes and a replacement reserve of 15
cents per square foot or approximately $49,000 annually are required to be
escrowed monthly.
5. EARNINGS PER SHARE
Earnings per share ("EPS") data were computed as follows (in thousands
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income ................................................ $ 403 $ 71 $ 702 $ 64
======= ======= ======= =======
Basic EPS
Weighted-average shares outstanding ....................... 3,899 3,465 3,842 3,465
======= ======= ======= =======
Basic earnings per share .................................. $ 0.10 $ 0.02 $ 0.18 $ 0.02
======= ======= ======= =======
Diluted EPS
Weighted-average shares outstanding -
Basic .................................................... 3,899 3,465 3,842 3,465
Shares issued upon exercise of
dilutive options .......................................... 313 164 313 164
Shares purchased with proceeds of
options ................................................... (272) (131) (273) (131)
------- ------- ------- -------
Weighted average shares outstanding -
Diluted ................................................... 3,940 3,498 3,882 $ 3,498
======= ======= ======= =======
Diluted earnings per share ................................ $ 0.10 $ 0.02 $ 0.18 $ 0.02
======= ======= ======= =======
</TABLE>
Diluted EPS reflects the potential dilution of securities that could share in
the earnings but does not include shares issuable upon conversion of securities
that would have an antidilutive effect on earnings per share.
9
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6. SECONDARY STOCK OFFERING
In June 1998, the Company issued 1.3 million common shares at a price of $17.75
per share (the "Secondary Offering"). Net proceeds of approximately $21.4
million after underwriting discounts and expenses were used to pay down the
Company's lines of credit and for general corporate purposes including working
capital.
7. SUMMARIZED PRO FORMA INFORMATION
The following unaudited table of pro forma information has been presented as if
the Secondary Offering and the Westland Acquisition and Midwest Acquisition had
occurred on January 1, 1997. In management's opinion, all adjustments necessary
to reflect these transactions have been made. The pro forma 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, 1997,
nor do they purport to represent the results of the operations of the Company
for future periods (in thousands except per share amounts).
<TABLE>
<CAPTION>
Six Months ended June 30,
1998 1997
---- ----
<S> <C> <C>
Total revenues ...................................... $ 19,884 $ 19,505
Net income .......................................... $ 1,481 $ 538
Net income per share:
Basic ......................................... $ 0.38 $ 0.16
Diluted ....................................... $ 0.38 $ 0.16
</TABLE>
10
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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, 1998 to Three
Months Ended June 30, 1997
Total revenue increased approximately $784,000, due to an increase in
minimum rent of approximately $797,000 resulting primarily from the Company's
acquisitions of properties. The acquisitions of a 12 shopping center portfolio
located in the Midwestern United States in May 1998 (the "Midwest Acquisition"),
the Westland Shopping Center in Westland, Michigan in February 1998 (the
"Westland Acquisition") , and the Southwind Theater complex in Lawrence Kansas
in November 1997 accounted for approximately $276,000, $223,000 and $147,000,
respectively, of the increase.
Total operating expenses increased approximately $116,000 from 1997 to
1998. Recoverable expenses which include property operating and maintenance and
real estate tax expenses decreased a total of $12,000 resulting from
construction period taxes capitalized on redevelopment projects. Other operating
expenses increased $61,000 due to an increase in bad debt expense for the
period. Depreciation and amortization increased approximately $74,000, primarily
related to the above acquisitions. General and administrative expenses decreased
approximately $31,000, due to decreases in payroll costs and a reduction in the
premium for directors and officers insurance.
Interest expense (including related amortization of deferred financing
costs) increased approximately $336,000 due to increased debt levels from
borrowings on the Company's lines of credit, long-term financings related to the
acquisitions of properties and amortization of deferred financing costs on such
borrowings.
Overall, net income increased approximately $332,000 to $403,000 in
1998 primarily as a result of the acquisitions discussed above.
Comparison of Six Months Ended June 30, 1998 to Six Months Ended June 30, 1997
Total revenue increased approximately $951,000 which is attributable to
an increase in minimum rent of $1.097 million, offset by decreases in recoveries
from tenants, and interest and other income totaling $146,000. The increase in
minimum rent is primarily attributable to the Midwest Acquisition, the Westland
Acquisition and the acquisition of the Southwind Theater which accounted for
approximately $276,000, $312,000, and $293,000, respectively of the increase.
Recoveries from tenants decreased primarily due to a corresponding decrease in
property operating and maintenance expense discussed below. Interest and other
income decreased primarily due to reduced investments resulting from the
utilization of excess working capital to fund the various redevelopment projects
that are currently underway.
Total operating expenses decreased approximately $117,000. Decreases in
property operating and maintenance of $302,000 was primarily attributable to
lower snow removal costs in 1998. General and administrative costs decreased
approximately $36,000 primarily due to a reduction in premium for the directors
and officers insurance. The above decreases were offset by increases in other
operating expenses, real estate tax expense and depreciation and amortization.
Other operating expenses increased
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approximately $79,000, primarily due to an increase in bad debt expense. Real
estate tax expense and depreciation and amortization expense increased
approximately $23,000 and $119,000, respectively, primarily as a result of the
acquisitions discussed above offset by construction period taxes capitalized on
redevelopment projects.
Interest expense (including related amortization of deferred financing
costs) increased approximately $430,000 primarily due to increased debt levels
from borrowings on the Company's lines of credit, long-term financing related to
the acquisitions of properties and amortization of deferred financing costs on
such borrowings.
Overall, net income increased approximately $638,000 to a total of
$702,000 for the six months ended primarily from the acquisitions.
FUNDS FROM OPERATIONS
Management considers Funds From Operations ("FFO") to be an appropriate
measure of performance of an equity real estate investment trust. Effective for
the quarter ended June 30, 1998, the Company adopted the method of calculating
FFO as prescribed by the National Association of Real Estate Investment Trusts
(NAREIT) as further clarified in a 1995 opinion paper (the "White Paper"), which
utilizes net income or loss excluding gains and losses from sales of property,
further adjusted for certain non-cash items including depreciation and
amortization of real estate assets. 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 primary differences between the method in which the Company
previously computed FFO and the White Paper definition is in the treatment of
amortization of deferred financing costs and certain depreciation expense. Also
effective for the quarter ended June 30, 1998, the Company began reporting FFO
on both a basic and diluted basis. The diluted basis assumes the conversion of
the Company's convertible debentures and convertible notes into shares of common
stock as well as other common stock equivalents including those which are
antidilutive to earnings per share.
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The following table shows the components that comprise the Company's
FFO for the three months and the six months ended June 30, 1998 and 1997 and a
reconciliation of basic to diluted FFO. The 1997 periods have been restated to
conform with the 1998 presentation (in thousands):
<TABLE>
<CAPTION>
Three Months June 30, Six Months June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $ 403 $ 71 $ 702 $ 64
Depreciation of buildings and improvements 1,277 1,210 2,528 2,419
Amortization of tenant allowances and
improvements 29 22 57 48
Amortization of leasing costs 28 22 57 45
------ ------ ------ ------
FUNDS FROM OPERATIONS, BASIC $1,737 $1,325 $3,344 $2,576
Interest expense on convertible securities 1,884 2,030 3,781 4,058
Amortization of deferred financing costs on
convertible securities 83 88 166 176
------ ------ ------ ------
FUNDS FROM OPERATIONS, DILUTED $3,704 $3,443 $7,291 $6,810
------ ------ ------ ------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 3,899 3,465 3,842 3,465
------ ------ ------ ------
Diluted, assuming conversion of convertible
securities 8,774 8,691 8,738 8,691
------ ------ ------ ------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations is the principal source of capital to fund
the Company's ongoing operations. Current efforts to increase cash flow have
centered on additional acquisitions of properties and redevelopment
opportunities at certain of the Company's existing properties.
In June 1998, the Company issued 1.3 million shares of common stock at
a price of $17.75 per share. Net proceeds of $21.4 million after underwriting
discounts and expenses were used to pay down the Company's lines of credit and
for general corporate purposes including working capital.
In May 1998, the Company completed the acquisition of 12 community
shopping centers, each anchored by a Wal-Mart store containing a total of
approximately 329,000 feet of gross leasable area ("GLA"). Total cost of the
acquisition was approximately $29.6 million which was funded out of proceeds of
an $18 million, 15-year, 7.43% fixed rate mortgage loan with Bloomfield
Acceptance Company and funds from existing lines of credit. Terms of the loan
include monthly payments of interest and principal amortized over a 30 year life
totaling approximately $124,000 and escrows for real estate taxes and a reserve
for replacements equal to 15 cents per square foot or approximately $49,000
annually. The loan is collateralized by 12 separate cross-collateralized and
cross-defaulted mortgages or
13
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deeds of trust on the properties, which were acquired by a wholly owned
subsidiary, Malan Midwest, LLC. Net operating income from the centers is
anticipated to be approximately $2.9 million annually.
As part of the purchase agreement, the Company also agreed to acquire
an additional community shopping center having approximately 40,000 square feet
of GLA for approximately $4.2 million. The acquisition is anticipated to be
completed in November 1998 after the seller completes a redevelopment of the
property.
In February 1998, the Company acquired the Westland Shopping Center in
Westland, Michigan for $7.925 million. Terms of the agreement included
assumption of a $5.9 million, 8.02% mortgage with Wells Fargo Bank and a cash
payment of $2.025 million, which was funded out of proceeds from the Company's
line of credit with Greenwich Capital Markets, Inc. (the "Greenwich Capital
Line"). The mortgage calls for monthly payments of interest and principal
amortized over a 30-year life and is due in full in November 2007. Net operating
income from the 85,000 square foot center, which has Dick's Sporting Goods and
Med Max, Inc. as its anchor tenants, is anticipated to be approximately $893,000
annually.
Construction is nearing completion in North Aurora, Illinois on a
60,000 square foot, 17-plex theater complex to replace a freestanding Kmart
whose lease expired in March 1997. Upon completion, which is now anticipated to
take place in September 1998, the Company will provide a construction allowance
of approximately $3.9 million to the theater operator, Cinemark USA ("Cinemark")
and, Cinemark will subsequently ground lease the property from the Company for a
base term of twenty years with an initial annual rent of approximately $746,000,
plus reimbursement of real estate taxes and operating costs. The previous lease
with Kmart provided approximately $126,000 annually in net cash flow. The total
costs of the development to the Company including capitalized interest, taxes
and leasing commissions are estimated to be approximately $4.4 million and are
anticipated to be funded out of proceeds from the Greenwich Capital Line.
Construction is underway for the redevelopment of a 40,000 square foot
former Kmart site in Lincoln, Illinois. Stage Stores, Inc. will lease 15,000
square feet of the building at an annual rent of approximately $69,000 for a ten
year term. The Company intends to re-lease the balance of the building to other
national and/or regional retailers. Total cost of renovating the building
including a tenant building allowance is anticipated to be approximately
$800,000 and is anticipated to be funded from the Greenwich Capital Line. The
redevelopment is expected to be completed in September 1998.
In February 1998, construction began at the Company's property in
Melrose Park, Illinois on a 58,000, 10-plex theater complex under a separate
agreement with Cinemark to replace a freestanding former Builders Square
building which had been vacant since 1995. Completion of the complex is
anticipated to take place by December 1998. Once completed, the Company will
provide a construction allowance to Cinemark of approximately $3.8 million.
Cinemark will then ground lease the property for a term of twenty years with
initial annual rent of approximately $963,000 plus reimbursement of real estate
taxes and operating costs. Total costs of the development including capitalized
interest, taxes and leasing commissions are estimated to be approximately $4.5
million, and are anticipated to be funded out of proceeds from the Greenwich
Capital Line.
Redevelopment of the Company's existing retail center in Lawrence,
Kansas is progressing. Kmart has begun the expansion and remodeling of its store
which will result in an increase in rental
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<PAGE> 15
revenue to the Company of approximately $194,000 annually. The Company has also
signed a ground lease with Kohl's Corporation ("Kohl's") at the site. Kohl's is
currently constructing an 80,000 square foot department store at the shopping
center with an anticipated opening in October 1998. The Company also plans to
develop an additional 58,000 square feet of retail space on the property. Total
costs of the project including additional land costs is expected to be
approximately $9.0 million of which $4.0 million has been incurred through June
30, 1998. The balance of the cost is anticipated to be funded with 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 1998, the Company anticipates spending
approximately $1.5 million (of which approximately $516,000 had been incurred in
the six months ended June 30, 1998) for capital expenditures to be funded
primarily out of reserves required for the Company's collateralized mortgages
and partially from operating cash flows.
The Company will occasionally provide inducements such as building
allowances or space improvements and/or 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 1998 excluding costs
associated with the redevelopment projects discussed above is estimated to be
approximately $245,000 (of which $17,000 had been incurred in the six months
ended June 30, 1998). These expenditures are generally funded by operating cash
flows and increased revenues resulting from such expenditures.
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 to maintain the
Company's current distribution policy. The Company currently has $4.5 million
available for temporary working capital needs on its line of credit with First
Chicago NBD (the "NBD Line") and approximately $20.1 million available on the
Greenwich Capital Line and intends to enter into other secured and unsecured
financing agreements in the future as the need arises.
The NBD line calls for monthly payments of interest at the rate of 200
basis points over LIBOR, is collateralized by the Company's interest in
Orchard-14 Shopping Center in Farmington Hills, Michigan and is due March 31,
1999. The Greenwich Capital Line is a two year revolving line of credit which
expires November 1999 and is collateralized by 16 properties owned by the
Company's wholly owned subsidiary, Malan Revolver, Inc. The Greenwich Capital
Line requires monthly payments of interest only at LIBOR plus 150 basis points.
As of August 6, 1998 $2.0 million was outstanding on the Greenwich Capital Line
and nothing was outstanding on the NBD Line.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
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
The following matters were submitted to a vote of the security holders
of the Company at its Annual Meeting of Shareholders held on May 13,
1998.
(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.
<TABLE>
<CAPTION>
NOMINEES VOTES FOR VOTES WITHHELD
-------- --------- --------------
<S> <C> <C>
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
</TABLE>
16
<PAGE> 17
(b) Ratification of Auditors
The shareholders ratified the selection of Deloitte & Touche LLP as the
Company's independent auditors for 1998.
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:
10(r) - Agreement of Sale and Purchase between Sandor
Development Company, as agent for sellers, and Malan
Realty Investors, Inc., as buyer dated as of May 6,
1998. (incorporated herein by reference to exhibit
10(r) filed with the June 1, 1998 Amendment No. 1 to
Form S-2).
10(s) - Loan Agreement among Malan Midwest L.L.C., and
Bloomfield Acceptance Company, L.L.C., dated as of May
29, 1998 (incorporated herein by reference to
exhibit 10(s) filed with the June 1, 1998 Amendment
No. 1 to Form S-2)
27 Financial Data Schedule Filed with
this document
b) Reports on Form 8-K
During the three-month period ended June 30, 1998, one report
was filed on form 8-K under Item 2- Acquisition or Disposition
of Assets, relative to the Midwest Acquisition. This report
was dated May 29, 1998 and filed June 12, 998.
17
<PAGE> 18
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 6, 1998.
18
<PAGE> 19
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 6,613
<SECURITIES> 0
<RECEIVABLES> 15,850
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,463
<PP&E> 253,662
<DEPRECIATION> 18,381
<TOTAL-ASSETS> 257,744
<CURRENT-LIABILITIES> 14,360
<BONDS> 189,478
0
0
<COMMON> 73,589
<OTHER-SE> (19,683)
<TOTAL-LIABILITY-AND-EQUITY> 257,744
<SALES> 0
<TOTAL-REVENUES> 18,366
<CGS> 0
<TOTAL-COSTS> 5,925
<OTHER-EXPENSES> 3,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,301
<INCOME-PRETAX> 702
<INCOME-TAX> 0
<INCOME-CONTINUING> 702
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 702
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
