<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on Which Registered
--------------------- -----------------------------------------
Common Stock, Par Value $0.01 Per Share New York Stock Exchange
91/2% Convertible Subordinated
Debentures due 2004 New York Stock Exchange
</TABLE>
1
<PAGE> 2
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K: [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $65,321,000 (computed on the basis of $14.0625 per
share), which was the last sale price on the New York Stock Exchange on February
26, 1999. (For this computation, the Registrant has excluded the market value of
all shares of its Common Stock reported as beneficially owned by executive
officers and directors of the Registrant; such exclusion shall not be deemed to
constitute admission that any such person is an "affiliate" of the Registrant.)
As of February 26, 1999, 5,168,742 shares of Common Stock, Par Value $0.01
Per Share, and $44,925,000 aggregate principal 9 1/2% Convertible Subordinated
Debentures due 2004, were outstanding.
LIST OF DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference information from the
Registrant's definitive proxy statement for the annual shareholders' meeting to
be held in 1999, which is to be filed with the Securities and Exchange
Commission within 120 days of the close of Registrant's fiscal year.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
PART I
<S> <C> <C>
Item 1. Business........................................................................................... 4
Item 2. Properties......................................................................................... 5
Item 3. Legal Proceedings.................................................................................. 7
Item 4. Submission of Matters to a Vote of Security Holders................................................ 7
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters............................... 8
Item 6. Selected Financial Data............................................................................ 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 10
Item 7a. Quantitative and Qualitative Disclosure About Market Risk.......................................... 14
Item 8. Consolidated Financial Statements and Supplementary Data........................................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 32
PART III
Item 10. Directors and Executive Officers of the Registrant................................................. 32
Item 11. Executive Compensation............................................................................. 32
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 32
Item 13. Certain Relationships and Related Transactions..................................................... 32
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K...................... 33
Signatures ................................................................................................... 34
</TABLE>
3
<PAGE> 4
PART I
ITEM 1. BUSINESS
Malan Realty Investors, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") engaged in the ownership,
management, leasing, acquisition, development and redevelopment of commercial
retail properties. The Company's operating units are comprised of approximately
66 commercial retail properties. All financial results are aggregated into one
operating segment since the properties have similar economic characteristics.
The Company also manages properties owned by unrelated third parties on a
limited basis.
The Company is one of the original developers of properties for Kmart
Corporation ("Kmart") and ranks among the leading operators of shopping centers
in the United States. Since its initial public offering ("IPO") in 1994, the
Company has maintained a strategy of reducing the Kmart concentration of its
portfolio by acquiring shopping centers anchored by national retailers other
than Kmart. Subsequent acquisitions include 18 community shopping centers
anchored by, or containing as a tenant, Wal-Mart Corporation. ("Wal-Mart"),
three community shopping centers located in Michigan having other national
retailers as the major tenant, and a 12-plex cinema complex leased and operated
by a major national motion picture company. In addition, two of the Company's
properties previously anchored by Kmart were redeveloped into multiplex cinema
complexes. These two theaters, completed in September 1998 and March 1999,
respectively, are operated by Cinemark USA ("Cinemark"), which is the nation's
sixth leading theater operator.
At the time of the IPO Kmart represented 60.1% of the Company's rental
income and 77.5% of the gross leasable area within the Company's portfolio. In
1998, approximately 35.5% of the Company's rental income was derived from Kmart
and at December 31, 1998 50.9% of its gross leasable area was leased to Kmart.
Wal-Mart accounted for approximately 6.0% of the Company's rental income in 1998
and approximately 6.5% of its gross leasable area at December 31, 1998. The
Company's total gross leasable area has grown from approximately 4.7 million
square feet at the time of the IPO to approximately 6.2 million currently.
Objectives of the Company include maximizing growth and enhancing the value
of its portfolio through effective operating, acquisition, development and
financing strategies and management policies. The Company believes that
attractive opportunities exist to increase rental revenues through effective
leasing and management of the properties in its portfolio. The Company has
demonstrated its ability to create additional value through the acquisition and
redevelopment of existing community shopping centers, freestanding retail stores
and entertainment facilities, as well as the development of new commercial
properties in selected geographical markets with an emphasis on small to
medium-sized communities where such properties can be positioned among the
leading centers in their respective trade area.
The Company's primary target area is the Midwestern United States; however
management is aware that attractive opportunities may exist outside of this
geographic area and the Company may pursue such opportunities if management
believes they will enhance overall shareholder value. In addition, certain of
the properties owned by the Company have parcels of undeveloped land which are
available for future development. The Company will also pursue certain expansion
opportunities available within the current portfolio.
The Company is taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company
generally is not subject to federal income taxes to the extent it distributes at
least 95% of its real estate investment trust taxable income (as defined in the
Code) to its shareholders.
The Company presently has 22 full time employees and believes that its
relationship with its employees is good.
4
<PAGE> 5
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
OWNERSHIP YEAR GROSS
INTEREST DEVELOPED LEASABLE PERCENT
(EXPIRATION OR LAND AREA AREA (GLA) LEASED
PROPERTY INCL. OPTIONS) REDEVELOPED (ACRES) (SQ. FT.) (A) OF GLA
- -------------------------------------------------------------------------------------------------------------------------
CALIFORNIA (1)
<S> <C> <C> <C> <C> <C>
Kmart, Colma, CA Fee 1980 8.29 94,282 100%
ILLINOIS (15)
Bricktown Square, Chicago, IL Fee 1987 26.00 306,433 97%
Wal-Mart Plaza, Champaign, IL Fee 1994 1.00 11,458 100%
Kmart, Chicago, IL Fee 1977 8.51 96,268 100%
Kmart, Fairview Heights, IL Ground Lease (2051) 1976 12.65 96,268 100%
Kmart, Franklin Park, IL Fee 1975 9.84 96,268 100%
Wal-Mart Plaza, Jacksonville, IL Fee 1995 6.89 52,880 100%
Kmart, Lansing, IL Fee 1976 10.48 96,268 100%
Lincoln, IL Fee 1975 4.86 39,797 100%
Kmart, Loves Park, IL Ground Lease (2026) 1971 12.50 106,084 100%
Cinemark Theatre, Melrose Park, IL Ground Lease (2048) 1998 10.90 66,747 100%
Kmart, New Lenox, IL Fee 1977 8.72 88,580 100%
Tinseltown 17, North Aurora, IL Fee 1998 11.36 65,416 100%
Kmart, Rockford, IL Fee 1971 10.70 110,471 100%
Sherwood Plaza, Springfield, IL Fee 1975 13.85 125,101 97%
Woodriver Plaza, Woodriver, IL Fee 1987 19.40 147,470 100%
INDIANA (9)
Wal-Mart Plaza, Crawfordsville, IN Fee 1996 11.32 25,750 80%
Clifty Crossing, Columbus, IN Fee 1989 19.90 190,919 95%
Wal-Mart Plaza, Decatur, IN Fee 1997 5.80 36,300 100%
Miller Mall, Gary, IN Ground Lease (2048) 1973 17.95 129,914 9%
Wal-Mart Shops, Huntington, IN Fee 1995 1.00 12,485 100%
Broadway Center, Merrillville, IN Fee 1974 19.89 177,692 93%
Flatrock Village, Rushville, IN Fee 1988 14.00 73,608 98%
Kmart, Valparaiso, IN Ground Lease (2050) 1974 9.61 93,592 100%
Cherry Tree Plaza, Washington, IN Fee 1988 20.60 143,682 98%
<CAPTION>
ANCHOR TENANTS
(LEASE EXPIRATION/
PROPERTY OPTION EXPIRATION)
- --------------------------------------------------------------------------
CALIFORNIA (1)
<S> <C>
Kmart, Colma, CA Kmart (2011/2061)
ILLINOIS (15)
Bricktown Square, Chicago, IL Toys "R" Us (2013/2038)
Kids "R" Us (2014/2039)
Marshall's (2000/2015)
Sportmart (2003/2018)
Cineplex-Odeon (2008/2018)
Frank's Nursery (2009/2029)
Wal-Mart Plaza, Champaign, IL Wal-Mart (B)/Sam's Club (B)
Kmart, Chicago, IL Kmart (2011/2061)
Kmart, Fairview Heights, IL Kmart (2001/2051)
Kmart, Franklin Park, IL Kmart (2011/2061)
Wal-Mart Plaza, Jacksonville, IL Wal-Mart (B)/Country Mkt. (B)
Kmart, Lansing, IL Kmart (2011/2061)
Lincoln, IL Stage Dept. Store (2009/2019)
Staples (2009)
Kmart, Loves Park, IL Kmart (2011/2026)
Cinemark Theatre, Melrose Park, IL Cinemark USA (2019/2036)
Kmart, New Lenox, IL Kmart (2011/2061)
Tinseltown 17, North Aurora, IL Cinemark USA (2018/2033)
Kmart, Rockford, IL Kmart (2011/2061)
Sherwood Plaza, Springfield, IL Kmart (2011/2061)
Woodriver Plaza, Woodriver, IL Wal-Mart (2007/2037)
INDIANA (9)
Wal-Mart Plaza, Crawfordsville, IN Wal-Mart (B)
Clifty Crossing, Columbus, IN Wal-Mart (2009/2039)
Jay C Foods (2009/2034)
Wal-Mart Plaza, Decatur, IN Wal-Mart (B)
Miller Mall, Gary, IN Wing Wah (2002/2007)
Wal-Mart Shops, Huntington, IN Wal-Mart (B)
Broadway Center, Merrillville, IN Kmart (2011/2061)
Flatrock Village, Rushville, IN Wal-Mart (2008/2038)
Kmart, Valparaiso, IN Kmart (2011/2050)
Cherry Tree Plaza, Washington, IN Wal-Mart (2008/2038)
Jay C Foods (2008/2033)
</TABLE>
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<TABLE>
<CAPTION>
OWNERSHIP YEAR GROSS
INTEREST DEVELOPED LEASABLE PERCENT
(EXPIRATION OR LAND AREA AREA (GLA) LEASED
PROPERTY INCL. OPTIONS) REDEVELOPED (ACRES) (SQ. FT.) (A) OF GLA
- ------------------------------------------------------------------------------------------------------------------------
KANSAS (14)
<S> <C> <C> <C> <C> <C>
Ace Hardware, Arkansas City, KS Fee 1976 4.41 39,797 56%
Wal-Mart Plaza, Chanute, KS Fee 1995 1.00 15,447 92%
Wal-Mart Outparcel, El Dorado, KS Fee 1996 1.70 20,000 84%
Big Lots, Emporia, KS Fee 1976 6.55 39,797 100%
Food Bonanza, Garden City, KS Fee 1977 5.60 39,797 100%
Great Bend, KS Fee 1977 5.41 55,552
Orscheln Farm Supply, Hayes, KS Fee 1977 4.96 40,050 100%
Food 4 Less, Independence, KS Fee 1976 4.12 39,797 100%
Pine Ridge Plaza, Lawrence, KS Fee 1974 31.57 187,033 100%
Southwind Theater, Lawrence, KS Fee 1997 7.89 42,497 100%
Standard Supply, Liberal, KS Fee 1977 4.57 40,279 100%
Kmart, Salina, KS Fee 1978 16.00 87,406 100%
Kmart, Topeka, KS Ground Lease (2049) 1974 13.93 108,960 77%
South City Center, Wichita, KS Fee 1976 13.74 130,380 100%
MARYLAND (1)
Kmart, Forestville, MD Fee 1979 8.00 84,180 100%
MICHIGAN (7)
Wal-Mart Outlot Shops, Fee 1995 1.30 14,280 100%
Benton Harbor, MI
Orchard-14, Farmington Hills, MI Fee 1973 11.49 139,670 98%
Clinton Pointe Shopping Center, Fee 1992 11.72 135,330 92%
Clinton Township, MI
The Shops at Fairlane Meadows, Fee 1987 17.73 137,508 100%
Dearborn, MI
Wal-Mart Plaza, Owosso, MI Fee 1996 10.00 60,324 100%
Wal-Mart Plaza, Sturgis, MI Fee 1994 1.00 12,000 100%
Westland Shopping Center, Fee 1996 6.99 85,000 100%
Westland, MI
MINNESOTA (1)
Wal-Mart Plaza, Little Falls, MN Fee 1996 1.00 12,456 100%
MISSOURI (5)
Kmart, Cape Girardeau, MO Fee 1974 5.68 79,856 100%
Kmart, Jefferson City, MO Fee 1973 9.76 124,798 100%
Prairie View Plaza, Kansas City, MO Ground Lease (2050) 1975 3.24 104,490 96%
Levitz Furniture, Manchester, MO Fee 1977 14.89 117,255 98%
Kmart Plaza, Springfield, MO Fee 1978 7.41 98,878 100%
<CAPTION>
ANCHOR TENANTS
(LEASE EXPIRATION/
PROPERTY OPTION EXPIRATION)
- ----------------------------------------------------------------------
KANSAS (14)
<S> <C>
Ace Hardware, Arkansas City, KS Westlake Hdwe. (2009/2019)
Wal-Mart Plaza, Chanute, KS Wal-Mart (B)
Wal-Mart Outparcel, El Dorado, KS Wal-Mart (B)
Big Lots, Emporia, KS Big Lots (2002/2007)
Food Bonanza, Garden City, KS Food Bonanza (2002/2029)
Great Bend, KS (C)
Orscheln Farm Supply, Hayes, KS Orscheln Farm Supply
(2004/2014)
Food 4 Less, Independence, KS Food 4 Less (2001/2026)
Pine Ridge Plaza, Lawrence, KS Kmart (2011/2061)
Kohl's (2019/2055)
Southwind Theater, Lawrence, KS Hollywood Theaters (2017/2027)
Standard Supply, Liberal, KS Standard Supply (2003/2013)
Kmart, Salina, KS Kmart (2011/2061)
Kmart, Topeka, KS Kmart (2011/2049)
South City Center, Wichita, KS Kmart (2011/2061)
MARYLAND (1)
Kmart, Forestville, MD Kmart (2011/2061)
MICHIGAN (7)
Wal-Mart Outlot Shops, Wal-Mart (B)/Lowe's (B)
Benton Harbor, MI
Orchard-14, Farmington Hills, MI Kmart (2011/2061)
Clinton Pointe Shopping Center, OfficeMax (2007/2017)
Clinton Township, MI Sports Authority (2017/2067)
Target (B)
The Shops at Fairlane Meadows, Best Buy (2009/2024)
Dearborn, MI Kids "R" Us (2003/2018)
Target (B)
Mervyn's (B)
Wal-Mart Plaza, Owosso, MI Wal-Mart (B)
Wal-Mart Plaza, Sturgis, MI Wal-Mart (B)
Westland Shopping Center, Dick's Sporting Goods (2011)
Westland, MI
MINNESOTA (1)
Wal-Mart Plaza, Little Falls, MN Wal-Mart (B)
MISSOURI (5)
Kmart, Cape Girardeau, MO Kmart (2011/2061)
Kmart, Jefferson City, MO Kmart (2011/2061)
Prairie View Plaza, Kansas City, MO Kmart (2011/2050)
Levitz Furniture, Manchester, MO Levitz Furniture (2004/2056)
Kmart Plaza, Springfield, MO Kmart (2011/2061)
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
OWNERSHIP YEAR GROSS
INTEREST DEVELOPED LEASABLE PERCENT ANCHOR TENANTS
(EXPIRATION OR LAND AREA AREA (GLA) LEASED (LEASE EXPIRATION/
PROPERTY INCL. OPTIONS) REDEVELOPED (ACRES) (SQ. FT.) (A) OF GLA OPTION EXPIRATION)
- ------------------------------------------------------------------------------------------------------------------------------------
OHIO (2)
<S> <C> <C> <C> <C> <C> <C>
Wal-Mart Plaza, Mansfield, OH Fee 1998 3.90 55,316 97% Wal-Mart (B)
Shannon Station, Van Wert, OH Fee 1989 20.20 145,607 99% Wal-Mart (2009/2039)
Roundy's (2010/2030)
WISCONSIN (11)
Kmart Plaza, Ft. Atkinson, WI Fee 1979 8.90 88,608 100% Kmart (2004/2054)
Kmart, Green Bay, WI Fee 1974 11.59 118,988 100% Kmart (1999/2049)
Country Fair Shopping Center, Fee 1974 10.50 152,165 92% Kmart (2011/2061)
Hales Corners, WI
Kmart, Janesville, WI Fee 1968 13.78 104,000 100% Kmart (2003/2038)
Kmart Plaza, Kenosha, WI Fee 1973 9.95 119,726 100% Kmart (2011/2061)
Westland Plaza, Madison, WI Fee 1978 12.40 122,534 99% Kmart (2002/2053)
Kmart, Madison, WI Fee 1968 12.53 106,058 100% Kmart (2002/2022)
Northway Mall, Marshfield, WI Ground Lease (2022) 1978 21.63 288,245 95% Kmart (2011/2022)
JCPenney (1999/2019)
Younkers (2004/2019)
Kmart, Milwaukee, WI Fee 1971 11.23 117,791 100% Kmart (2011/2061)
Kmart, Oshkosh, WI Fee 1968 10.00 104,000 100% Kmart (2003/2038)
Kmart, Stevens Point, WI Fee 1972 8.00 109,197 100% Kmart (2011/2061)
---------
Total 6,208,785
=========
</TABLE>
(A) Includes only Company owned square footage.
(B) These stores and the underlying pads are owned and managed by third parties
not related to the Company.
(C) The lease on this property was terminated effective November 1, 1995 as part
of an agreement with Kmart and the property is currently vacant.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in routine
litigation. However, there are no material legal proceedings presently pending
against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
7
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange under
the symbol "MAL". As of February 26, 1999 the Company had approximately 223
stockholders of record. The following table sets forth, for the periods
indicated, the high and low sales price as reported on the New York Stock
Exchange, the dividends declared and paid by the Company per common share for
each such period, and the income tax treatment of such distributions:
<TABLE>
<CAPTION>
ORDINARY RETURN
TAXABLE OF
1997 HIGH LOW DIVIDENDS DIVIDEND CAPITAL
- -------------- ------------ ------------ ------------- ----------- -------
<S> <C> <C> <C> <C> <C>
First Quarter................ $ 17.13 $ 15.88 $ 0.425 -% 100.0%
Second Quarter............... $ 18.38 $ 16.38 0.425 - 100.0
Third Quarter................ $ 18.00 $ 16.88 0.425 - 100.0
Fourth Quarter............... $ 19.56 $ 17.19 0.425 - 100.0
------------
$ 1.70
============
1998
- --------------
First Quarter................ $ 18.31 $ 17.31 $ 0.425 30.9% 69.1%
Second Quarter............... $ 18.13 $ 17.13 0.425 30.9 69.1
Third Quarter................ $ 17.75 $ 16.25 0.425 30.9 69.1
Fourth Quarter............... $ 17.75 $ 14.50 0.425 30.9 69.1
------------
$ 1.70
============
</TABLE>
The Company has paid regular quarterly distributions to its shareholders of
$.425 per share ($1.70 per share on an annualized basis) on the Common Stock
since the completion of the IPO. The Company intends to continue to declare
quarterly distributions to its shareholders. However, distributions by the
Company are determined by the Board of Directors and will depend on the
Company's actual results of operations, cash flows from operations, economic
conditions and other factors, such as debt service requirements, cash
requirements, including the repayment or refinancing of indebtedness, capital
expenditure requirements, including improvements to and expansions of existing
properties, the development of additional properties, and such other factors as
the Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company and
its predecessor, on a historical basis. Malan's predecessor is not a legal
entity but rather a combination of the principal real estate properties of a
partnership, Bricktown Square Associates ("BTS"), and the real estate management
operations of an affiliated S-Corporation, Malan Construction Company ("MCC"),
which managed the operations of BTS. Because of the commonality of ownership and
management, the financial results of operations of MCC and BTS are presented on
a combined basis. On June 24, 1994, MCC completed its IPO and began operating as
a real estate investment trust under the name of Malan Realty Investors, Inc.
The selected financial data of the Company for the year ended December 31,
1994 consists of the operations of Malan's predecessor for the period beginning
January 1 through June 23, 1994 combined with the operations of Malan Realty
Investors, Inc. from June 24 through December 31, 1994. The selected financial
data after June 23, 1994 includes the effects of the IPO and related property
acquisitions. The following data should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in the
Form 10-K.
8
<PAGE> 9
SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
OPERATING DATA
Revenues
<S> <C> <C> <C> <C> <C>
Rental income............................... $ 28,084 $ 24,092 $ 23,836 $ 22,100 $ 11,029
Percentage and overage rents................ 1,215 1,177 1,164 963 573
Recoveries from tenants..................... 9,954 9,271 9,340 8,662 4,577
---------- ---------- --------- ---------- ----------
Total rental revenues....................... 39,253 34,540 34,340 31,725 16,179
Management and leasing fees................. 47 47 48 50 899
Interest and other income................... 264 396 575 472 299
---------- ---------- --------- ---------- ----------
Total revenues................................. 39,564 34,983 34,963 32,247 17,377
Operating expenses
Property operating and maintenance........... 2,876 2,867 2,769 1,961 823
Other operating expenses..................... 1,615 1,493 1,481 1,216 841
Real estate taxes............................ 8,134 7,891 7,715 7,511 4,251
General and administrative................... 2,068 1,545 1,664 1,463 1,488
Depreciation and amortization................ 5,633 5,068 4,920 4,597 2,125
Impairment of real estate.................... 431
---------- ---------- --------- ---------- ----------
Total operating expenses....................... 20,757 18,864 18,549 16,748 9,528
---------- ---------- ---------- ---------- ----------
Operating income............................... 18,807 16,119 16,414 15,499 7,849
Interest expense............................... 16,770 15,576 15,815 13,749 6,477
---------- ---------- --------- ---------- ----------
Income before minority interest and
extraordinary item........................... 2,037 543 599 1,750 1,372
Minority interest in partnership............... 151
---------- ---------- --------- ---------- ----------
Income before extraordinary item............... 2,037 543 599 1,750 1,523
Extraordinary item:
Loss on extinguishment of debt............... (191)
---------- ---------- --------- ---------- ----------
Net income..................................... $ 1,846 $ 543 $ 599 $ 1,750 $ 1,523
========== ========== ========= ========== ==========
Basic and diluted earnings per share........... $ 0.41 $ 0.15 $ 0.17 $ 0.49 $ 0.72
========== ========== ========= ========== ==========
Weighted-average basic shares.................. 4,507 3,546 3,464 3,547 2,114
========== ========== ========= ========== ==========
Weighted-average diluted shares (1)............ 4,524 3,591 3,475 3,547 2,114
========== ========== ========= ========== ==========
CASH FLOW DATA
Cash flows provided by operating activities.... $ 10,069 $ 5,149 $ 7,117 $ 8,541 $ 9,369
Cash flows used for investing activities....... (40,627) (8,216) (2,162) (33,337) (144,307)
Cash flows provided by (used for)
financing activities......................... 31,739 (2,182) (7,084) 22,142 145,589
---------- ---------- --------- ---------- ----------
Net Increase (decrease) in cash and cash
equivalents ............................... $ 1,181 $ (5,249) $ (2,129) $ (2,654) $ 10,651
========== ========== ========= ========== ==========
OTHER DATA
Funds from operations (2):
Basic.......................................... $ 8,094 $ 5,581 $ 5,467 $ 6,310 $ 3,567
========== ========== ========= ========== ==========
Diluted........................................ $ 15,697 $ 13,846 $ 13,937 $ 14,897 $ 8,098
========== ========== ========= ========== ==========
Cash distributions declared per basic
common share................................. $ 1.70 $ 1.70 $ 1.70 $ 1.70 $ 0.85
========== ========== ========= ========== ==========
Total gross leasable area at period end........ 6,209 5,653 5,707 5,695 5,407
========== ========== ========= ========== ==========
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- --------- ---------- ----------
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Real estate, before accumulated depreciation.... $ 261,783 $ 215,785 $ 207,590 $ 206,085 $ 174,173
Total assets.................................... 256,837 216,138 217,852 223,360 192,184
Mortgage indebtedness........................... 122,279 88,585 83,643 83,734 43,123
Convertible debentures.......................... 44,925 56,680 61,285 61,285 63,795
Convertible notes............................... 27,000 27,000 27,000 27,000 27,000
Shareholders' equity............................ 51,237 33,942 34,993 41,243 48,091
</TABLE>
(1) In accordance with Statement of Financial Accounting Standards, No. 128,
"Earnings per Share", conversion of all of the debt securities would be
antidilutive and as such are not included in the weighted-average diluted
shares reported above.
(2) 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 of real estate assets. It is the
opinion of 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. See "Funds From Operations" in Item 7-"Management's Discussion
and Analysis of Financial Condition and Results of Operations." Diluted FFO
assumes the conversion of all debt securities.
9
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997
Total revenue increased approximately $4.581 million which is attributable
to increases in minimum rent and recoveries from tenants of approximately $3.992
million and $683,000, respectively resulting primarily from the Company's
acquisitions of properties. The acquisitions of a 12 shopping center portfolio
in May 1998, the Westland Shopping Center in February 1998, and the Southwind
Theater complex in Lawrence, Kansas in November 1997, accounted for
approximately $2.130 million, $852,000 and $630,000, respectively, of the
increase in revenues. Interest and other income decreased approximately $132,000
primarily due to nonrecurring lease termination income received in 1997 and
lower amounts of working capital available for investment in 1998 due to funding
of ongoing redevelopment projects.
Total operating expenses increased approximately $1.893 million. Other
operating expenses and general and administrative expenses increased
approximately $122,000 and $523,000, respectively, primarily due to increased
compensation expense. Real estate taxes and depreciation and amortization
expense increased approximately $243,000 and $565,000, respectively, primarily
as a result of the acquisitions discussed above. A loss on impairment of real
estate of approximately $431,000 was recorded in 1998 due to the reduction of
the Company's carrying value in a shopping center in Gary, Indiana to its net
realizable value.
As a result of a plan (the "Convertible Debenture Repurchase Plan") to
repurchase and retire up to $15 million aggregate principal of the Company's
9.5% Subordinated Convertible Debentures ("Debentures") due July 2004, the
Company incurred an extraordinary loss on extinguishment of debt of $191,000
primarily from the charge off of deferred financing costs associated with the
retired debt. The Company had repurchased $9.625 million principal of Debentures
through December 31, 1998.
Interest expense (including related amortization of deferred financing
costs) increased approximately $1.194 million primarily due to increased debt
levels from borrowing 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. Interest capitalized as part of the cost of
redevelopment projects totaled $447,000 in 1998 and 50,000 in 1997.
Overall, net income increased approximately $1.303 million to $1.846 million
primarily as a result of an increase in operating income from acquisitions
offset by losses incurred from the write down of real estate assets and the
extinguishment of debt.
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Total revenue increased approximately $20,000 which is attributable to
increases in minimum and percentage rents of approximately $269,000 offset by
decreases in recoveries from tenants of approximately $69,000 and interest and
other income of $180,000. The increases in rents are primarily attributable to
additional revenues from the acquisition of the Southwind Theater in Lawrence,
Kansas and to the re-leasing and re-tenanting of two vacant former Kmart
buildings in late 1996 offset by revenues lost due to the termination of Kmart's
lease at North Aurora, Illinois. Increases in percentage rents of approximately
$13,000 are attributable to increases in sales for Kmart and Wal-Mart, the
Company's two largest tenants, offset by a decrease resulting from the loss of a
nonrecurring percentage rent of approximately $80,000 received from a tenant in
1996. The decrease in interest and other income resulted primarily from
brokerage commissions and lease termination income earned in 1996 as well as
decreased levels of cash available for investment 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")
in Dearborn, Michigan. The resulting decrease in interest income is partially
offset by a decrease in interest expense on the mortgage.
Total operating expenses increased approximately $315,000. Increases in
property operating and maintenance, real estate taxes and depreciation and
amortization were approximately $98,000, $176,000 and $148,000, respectively.
The increase in property operating and maintenance was primarily due to
increases in parking lot repairs and snowplowing. Real estate taxes increased
primarily due to increased assessments at Fairlane Meadows and other centers
offset by reductions obtained
10
<PAGE> 11
through successful appeals of tax assessments at certain centers. Depreciation
and amortization increased primarily due to depreciation on capitalized roof and
parking lot expenditures. General and administrative expenses decreased
approximately $119,000, primarily due to lower payroll costs of $48,000 and a
decrease in the cost of directors and officers insurance of $41,000.
Interest expense, including related amortization of deferred financing
costs, decreased approximately $239,000. The decrease is due primarily to
conversions of $4.605 million aggregate principal amount of the Company's 9.5%
subordinated convertible debentures into shares of common stock during 1997. The
debenture conversions accounted for a net decrease in interest expense of
approximately $201,000. The refinancing of a $12.45 million mortgage utilized
for the acquisition of Fairlane Meadows with an $11.2 million loan with Daiwa
Finance Corporation accounted for a decrease in interest expense of
approximately $69,000. An increase in amortization of deferred financing costs
of approximately $40,000, related primarily to a $25 million line of credit
obtained from Greenwich Capital Markets, Inc. in November 1997, offset the
overall decrease from 1996.
Overall, net income decreased $56,000 primarily as a result of increases in
non-cash expenses such as depreciation and amortization of approximately
$148,000 and amortization of deferred financing costs of $40,000 and operating
expenses which could not be recovered from tenants, offset by a decrease in
interest expense resulting from conversions of debentures into common stock.
Year 2000 Date Conversion
Certain computer systems that have time-sensitive programs may not properly
recognize the year 2000 which could result in major system failures or
miscalculations. The Company has developed a high-level plan to address the
risks posed by the Year 2000 issue which includes the testing of internal
systems and inquiry of third parties with which the Company conducts business
including major tenants, vendors, contractors and creditors. The Company is in
the process of obtaining written confirmation of Year 2000 readiness from third
parties. Implementation and testing of Year 2000 remedies for all critical
systems have begun and are expected to be conducted throughout 1999 in
sufficient time to correct any additional Year 2000 issues that may be
identified.
There are Year 2000 issues that will generally affect all businesses
including the Company, such as the Year 2000 compliance of public utility
companies and governmental agencies. If such issues occur, then there could be
an interruption in, or failure of, the Company's normal business activities,
that could have a material adverse effect on the Company's operations, liquidity
and financial condition. At this time, there is insufficient information to
evaluate the likelihood of such an occurrence.
While the Company would generally expect to manage business interruptions
relating to Year 2000 issues in a manner similar to other potential interruption
issues encountered in the regular course of business, the Company is developing
certain contingency plans relating specifically to Year 2000 issues. For
example, the current contingency plan would allow the Company to operate for a
short period of time without the intervention of computers. The Company intends
to modify its contingency plans as necessary as it progresses with its Year 2000
project. However, the contingency plans are expected to provide relief only for
short periods, after which there could be an interruption in, or failure of, the
Company's normal business activities, that could have a material adverse effect
on the Company's operations, liquidity and financial condition. The Company does
not expect the costs to address the Year 2000 issue to be material.
Impact of Recently Adopted Accounting Principles
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. This Statement is
not expected to have a material impact on the Company's consolidated financial
statements. This Statement is effective for fiscal years beginning after June
15, 1999.
Funds From Operations
Management considers Funds From Operations ("FFO") to be an appropriate
measure of performance of an equity real estate investment trust. Effective
beginning with 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 and debt restructuring, further adjusted for certain non-cash
items including depreciation and amortization of real estate assets and other
nonrecurring items. It is the opinion of the management that reduction for, or
inclusion of these items, is
11
<PAGE> 12
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 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
with 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.
The following table shows the components that comprise the Company's FFO for
each of the three years ended December 31, 1998. Prior periods have been
restated to conform with the 1998 presentation (in thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Net income.......................................................... $ 1,846 $ 543 $ 599
Depreciation and Amortization:
Depreciation of buildings and improvements...................... 5,399 4,845 4,766
Amortization of tenant allowances and improvements.............. 113 97 46
Amortization of leasing costs................................... 114 96 56
Loss on impairment of real estate................................... 431
Loss on extinguishment of debt...................................... 191
----------- ----------- ----------
Funds From Operations, Basic........................................ 8,094 5,581 5,467
Interest expense on convertible securities.......................... 7,287 7,916 8,117
Amortization of deferred financing costs on
convertible securities............................................ 316 349 353
----------- ----------- ----------
Funds From Operations, Diluted...................................... $ 15,697 $ 13,846 $ 13,937
----------- ----------- ----------
Weighted-average shares outstanding:
Basic........................................................... 4,507 3,546 3,464
----------- ----------- ----------
Diluted......................................................... 4,524 3,591 3,475
----------- ----------- ----------
Diluted, assuming conversion of convertible securities.......... 9,206 8,704 8,669
----------- ----------- ----------
</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
Acquisitions
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").
In May 1998, the Company completed the acquisition of 12 community shopping
centers, each anchored by a Wal-Mart store and having 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. The loan is collateralized by 12 cross-collateralized
and cross-defaulted mortgages or separate deeds of trust on the properties which
were acquired by a wholly owned subsidiary, Malan Midwest, LLC. As part of the
purchase agreement, the Company acquired an additional community shopping center
in Decatur, Illinois in January 1999. The 45,000 square foot center was acquired
for $4.68 million which was funded out of the Company's line of credit with NBD
First Chicago (the "NBD Line") and from available cash reserves.
Redevelopments
In September 1998, construction was completed on a 61,000 square foot,
17-plex theater complex in North Aurora, Illinois to replace a freestanding
former Kmart building. In November 1998 the Company provided a construction
allowance of approximately $3.9 million to the theater operator, Cinemark USA
("Cinemark"). The property is being leased by Cinemark
12
<PAGE> 13
under a ground lease with a base term of twenty years. The total costs of the
development to the Company including capitalized interest, taxes and leasing
commissions were approximately $4.4 million and were funded out of proceeds from
the Greenwich Capital Line.
The Company completed the redevelopment of a 40,000 square foot former Kmart
site in Lincoln, Illinois in September 1998. Stage Stores, Inc. is leasing
15,000 square feet of the building. Total cost of renovating the building
including a tenant building allowance was approximately $860,000 which was
funded from the Greenwich Capital Line. In January 1999, the Company entered
into a lease with Staples, Inc. for the balance of the building.
In March 1999, construction was completed at the Company's property in
Melrose Park, Illinois on a 61,000, 10-plex theater complex under a separate
agreement with Cinemark to replace a freestanding former Builders Square
building which had been vacant since 1995. The Company provided a construction
allowance to Cinemark of approximately $3.9 million which was funded out of
available cash reserves. Total costs of the development including capitalized
interest, taxes and leasing commissions are estimated to be approximately $4.6
million.
Phase I of the Company's redevelopment of its existing retail center in
Lawrence, Kansas is completed. In October 1998, Kohl's Corporation ("Kohl's")
completed construction of an 80,000 square foot department store at the center.
The expansion and remodeling of the Kmart store at the center was completed in
December 1998. The Company also plans a second phase of redevelopment which
includes the construction of approximately 60,000 square feet of additional
retail space on the property in 1999. Total cost of the project, including
additional land acquired previously, is expected to be approximately $9.0
million of which $5.9 million has been incurred through December 31, 1998. The
balance of the cost is anticipated to be funded with proceeds from the Company's
lines of credit.
Another former Kmart store in Arkansas City, Kansas is being subdivided and
redeveloped to accommodate a 24,000 square foot Ace Hardware store. Cost of the
redevelopment is estimated to be approximately $591,000 and is anticipated to be
funded from the Greenwich Capital Line. A Spring 1999 completion date is
anticipated.
Capital Expenditures
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 incurred $745,000 for capital expenditures which
were funded primarily out of reserves required for the Company's collateralized
mortgages and partially from operating cash flows. Approximately $1.1 million is
anticipated to be incurred in 1999 for capital expenditures, also to be funded
from similar sources.
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 was $324,000. These
expenditures are generally funded by operating cash flows and increased revenues
resulting from such expenditures. In 1999, the Company anticipates spending
approximately $333,000 on such expenditures.
Sources of Capital
In June 1998, the Company issued 1.3 million shares of common stock at a
price of $17.75 per share. Net proceeds after underwriting discounts and
expenses totaled $21.5 million and were used to pay down the Company's lines of
credit and for general corporate purposes including working capital.
In June 1998, Elias Brothers Restaurants, Inc., which was an outlot tenant
at the Company's community shopping center in Owosso, Michigan, exercised an
option to purchase its demised premises. Net proceeds from the sale of
approximately $240,000 were used to pay down a portion of the balance on the
existing mortgage and for working capital.
The Company has entered into a letter of intent to sell its interest in the
Miller Mall, a 130,000 square foot shopping center in Gary, Indiana. The sale is
anticipated to close in March 1999. Net proceeds from a sale of approximately
$600,000 are anticipated to be used to pay down outstanding indebtedness.
The Company has entered into an agreement to sell its property in Colma,
California for approximately $7.7 million. The property is currently included as
collateral for the Company's Securitized Mortgage Loan. Net proceeds from the
sale after payments required for release of the property from the collateral
pool and selling expenses are anticipated to be approximately $3.4 million and
are anticipated to be used for general corporate purposes including payment of
other debt and working capital. The sale is expected to be completed in March
1999.
13
<PAGE> 14
The Company has outstanding as of December 31, 1998 and 1997 $44.925 million
and $56.680 million, respectively of, Debentures and $27 million of Convertible
Notes (the "Notes"), which are convertible into shares of Common Stock at a
price of $17.00 per share. The Debentures carry a rating of B3 from Moody's
Investors Services, Inc. During 1998, $2.142 million aggregate principal of
Debentures were converted into 125,286 shares of Common Stock. Through December
31, 1998, the Company had made repurchases under the Convertible Debentures
Repurchase Plan of $9.65 million principal of Debentures which were funded from
available working capital.
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 two lines of credit
available for temporary working capital needs 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 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. Amounts outstanding as
of February 26, 1999 under the Greenwich Capital Line and the NBD Line were
$17.8 million and $4.5 million, respectively which was the total borrowing
available under each line.
The Company is in the process of renegotiating and extending the NBD Line
and is in discussions with several lenders to replace the Greenwich Capital Line
and obtain permanent financings on several of its unencumbered properties. The
Company intends to reduce its outstanding Debentures and related interest costs
by making repurchases of these securities in the open market and replacing them
with lower cost, fixed rate financings.
The Company's major tenant, Kmart, accounted for approximately 35.6% of its
gross revenue and 35.5% of its base minimum rent in 1998. Since its IPO, the
Company has substantially reduced its exposure to Kmart through acquisitions and
redevelopments of properties, lease termination agreements with Kmart and the
assumption of certain Kmart sublease agreements. At the IPO, Kmart accounted for
approximately 60.1% of the Company's annualized base minimum rents.
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 from operations. Such provisions include
clauses entitling the Company to receive (i) scheduled base rent increases and
(ii) percentage rents based upon tenants' gross sales, which generally increase
as prices rise. In addition, many of the Company's non-anchor leases are for
terms of less than 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has exposure to interest rate risk on its debt obligations and
interest rate instruments. Based on the Company's outstanding variable rate debt
at December 31, 1998, a one percent increase or decrease in interest rates would
decrease or increase, respectively, the Company's earnings and cash flows by
approximately $223,000 on an annualized basis.
Based on the Company's consolidated debt and interest rates in effect at
December 31, 1998, a one percent increase or decrease in interest rates would
decrease or increase the fair value of debt by approximately $2.5 million.
14
<PAGE> 15
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report............................................................................................. 16
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................................. 17
Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 1998.................. 18
Consolidated Statements of Shareholders' Equity for Each of the Three Years in the Period Ended December 31, 1998........ 19
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 1998.................. 20
Notes to Consolidated Financial Statements............................................................................... 21
Consolidated Financial Statement Schedule III--Real Estate and Accumulated Depreciation.................................. 30
</TABLE>
Schedules other than the one above are omitted because they are not
applicable, not required, or the information required to be set forth therein is
included in the consolidated financial statements or the notes thereto.
15
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Malan Realty Investors, Inc.
We have audited the consolidated financial statements and the consolidated
financial statement schedule listed at Item 8 of Malan Realty Investors, Inc.
and Subsidiaries (the "Company"). These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also in our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/DELOITTE & TOUCHE LLP
Detroit, Michigan
January 28, 1999
16
<PAGE> 17
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------- --------
<S> <C> <C>
ASSETS
Real Estate (Notes 2 and 9):
Land.................................................................... $ 28,178 $ 22,302
Buildings and improvements.............................................. 233,605 193,483
--------- --------
Total................................................................ 261,783 215,785
Less: accumulated depreciation....................................... (21,286) (15,817)
--------- --------
Total................................................................ 240,497 199,968
Other Assets:
Accounts receivable (net of allowance of $140 and $78 at
December 31, 1998 and 1997)........................................... 1,662 1,608
Deferred financing and other............................................ 9,450 10,705
Cash and cash equivalents............................................... 2,898 1,717
Escrow deposits (Note 2)................................................ 2,330 2,140
--------- --------
TOTAL ASSETS......................................................... $ 256,837 $216,138
========= ========
LIABILITIES
Mortgages (Note 2).......................................................... $ 122,279 $ 88,585
Convertible debentures (Note 2)............................................. 44,925 56,680
Convertible notes (Note 2).................................................. 27,000 27,000
Deferred income............................................................. 1,160 2,102
Accrued distributions payable............................................... 2,200 1,620
Accounts payable and other.................................................. 2,871 845
Accrued property taxes...................................................... 1,265 1,184
Accrued interest payable.................................................... 3,900 4,180
--------- --------
Total liabilities.................................................... 205,600 182,196
========= ========
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY (NOTES 3, 7 AND 8)
Common stock ($.01 par value, 30 million shares authorized, 5,168,742
and 3,737,936 shares issued and outstanding as of
December 31, 1998 and 1997)............................................. 52 37
Additional paid in capital.................................................. 74,117 50,485
Accumulated distributions in excess of net income........................... (22,932) (16,580)
--------- --------
Total shareholders' equity........................................... 51,237 33,942
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $ 256,837 $216,138
========= ========
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE> 18
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
REVENUES
Minimum rent (Note 4)................................................... $ 28,084 $ 24,092 $ 23,836
Percentage and overage rents............................................ 1,215 1,177 1,164
Recoveries from tenants................................................. 9,954 9,271 9,340
Interest and other income............................................... 311 443 623
--------- --------- --------
(Total Revenues)..................................................... 39,564 34,983 34,963
--------- --------- --------
EXPENSES
Property operating and maintenance...................................... 2,876 2,867 2,769
Other operating expenses................................................ 1,615 1,493 1,481
Real estate taxes....................................................... 8,134 7,891 7,715
General and administrative.............................................. 2,068 1,545 1,664
Depreciation and amortization........................................... 5,633 5,068 4,920
Impairment of real estate............................................... 431
--------- --------- --------
(Total Operating Expenses)........................................... 20,757 18,864 18,549
--------- --------- --------
OPERATING INCOME.......................................................... 18,807 16,119 16,414
INTEREST EXPENSE.......................................................... 16,770 15,576 15,815
--------- --------- --------
Income before extraordinary item.......................................... 2,037 543 599
Extraordinary Item
Loss on extinguishment of debt (Note 2)................................ (191)
--------- --------- --------
NET INCOME................................................................ $ 1,846 $ 543 $ 599
========= ========= ========
BASIC AND DILUTED EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM (NOTE 12).. $ 0.45 $ 0.15 $ 0.17
========= ========= ========
BASIC AND DILUTED EARNINGS PER SHARE (NOTE 12)............................ $ 0.41 $ 0.15 $ 0.17
========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
18
<PAGE> 19
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
ACCUMULATED DEFERRED
DISTRIBUTIONS IN COMPENSATION TOTAL
PAR ADDITIONAL EXCESS OF INCENTIVE SHAREHOLDERS'
VALUE PAID-IN CAPITAL NET INCOME SHARES EQUITY
------ --------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996.............................. $ 36 $46,984 $ (5,717) $ (60) $ 41,243
Amortization of deferred
compensation-incentive shares.................. 60 60
Common shares repurchased........................ (1) (1,096) (1,097)
Directors compensation paid in stock............. 48 48
Stock options exercised.......................... 24 24
Distributions--$1.70 per share................... (5,884) (5,884)
Net income....................................... 599 599
------ ------- -------- ----- --------
BALANCE, DECEMBER 31, 1996............................ 35 45,960 (11,002) 34,993
Conversion of debentures......................... 2 4,469 4,471
Directors compensation paid in stock............. 48 48
Stock options exercised.......................... 8 8
Distributions--$1.70 per share................... (6,121) (6,121)
Net income....................................... 543 543
------ ------- -------- ----- --------
BALANCE, DECEMBER 31, 1997............................ 37 50,485 (16,580) 33,942
Conversion of debentures......................... 2 2,080 2,082
Secondary sale of 1,300 common shares of
Malan Realty Investors, Inc., net of costs... 13 21,466 21,479
Directors compensation paid in stock............. 48 48
Stock options exercised.......................... 38 38
Distributions--$1.70 per share................... (8,198) (8,198)
Net income....................................... 1,846 1,846
------ ------- -------- ----- --------
BALANCE, DECEMBER 31, 1998............................ $ 52 $74,117 $(22,932) $ 51,237
====== ======= ======== ===== ========
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE> 20
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME............................................................................... $ 1,846 $ 543 $ 599
------- -------- -------
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization......................................................... 5,633 5,068 4,920
Amortization of deferred financing costs.............................................. 1,929 1,620 1,581
Amortization of deferred compensation expense......................................... 60
Directors compensation issued in stock................................................ 48 48 48
Loss on impairment of real estate..................................................... 431
Loss on extinguishment of debt........................................................ 191
Change in operating assets and liabilities that provided (used) cash:
Accounts receivable and other.................................................... (907) (982) (961)
Accounts payable, deferred income and other accrued liabilities.................. 898 (1,148) 870
------- -------- -------
Total adjustments................................................................... 8,223 4,606 6,518
------- -------- -------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES..................................... 10,069 5,149 7,117
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Real estate developed, acquired or improved, net of mortgage assumed..................... (40,677) (8,195) (1,505)
Deposits to escrow....................................................................... (19,149) (17,274) (17,642)
Disbursements from escrow................................................................ 18,959 17,253 16,985
Proceeds from sale of land............................................................... 240
------- -------- -------
NET CASH FLOWS USED FOR INVESTING ACTIVITIES.......................................... (40,627) (8,216) (2,162)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Draws on lines of credit................................................................. 29,350 6,200
Repayment of lines of credit............................................................. (19,050) (1,500)
Net proceeds from secondary equity offering.............................................. 21,479
Principal repayments on mortgages........................................................ (494) (1,428) (91)
Net proceeds from mortgages.............................................................. 18,000 1,670
Distributions to shareholders............................................................ (7,621) (5,973) (5,921)
Debt issuance costs...................................................................... (338) (1,159)
Proceeds from stock options exercised.................................................... 38 8 24
Repurchase of debentures................................................................. (9,625)
Repurchases of common stock.............................................................. (1,096)
------- -------- -------
NET CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES............................ 31,739 (2,182) (7,084)
------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... 1,181 (5,249) (2,129)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................................ 1,717 6,966 9,095
------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................................................. $ 2,898 $ 1,717 $ 6,966
======= ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--
CASH PAID FOR INTEREST DURING THE YEAR................................................... $15,457 $ 14,058 $14,139
======= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE> 21
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--The Company is engaged in the ownership, management, leasing,
acquisition, development and redevelopment of shopping centers and entertainment
facilities and leases space to tenants pursuant to lease agreements. The lease
agreements provide for terms ranging from one to 25 years and, in some cases,
for annual rentals which are subject to upward adjustment based on operating
expense levels and sales volume.
Basis of Combination and Principles of Consolidation--The accompanying
consolidated financial statements include the activity of the Company and its
wholly owned 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.
Real Estate is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight line
basis over the estimated useful lives of the assets as follows:
Buildings.................................. 40 Years
Land and Building Improvements............. 10-40 Years
Maintenance and repairs are charged to expense as incurred. Renovations
which improve or extend the life of the asset are capitalized.
Deferred Financing and Other consists primarily of deferred financing costs
and lease procurement costs. Deferred financing costs at December 31, 1998 and
1997 of $12,634,000 and $12,764,000, respectively, are amortized on a straight
line basis over the terms of the applicable debt agreements. Accumulated
amortization of deferred financing costs at December 31, 1998 and 1997 was
$5,902,000 and $4,147,000, respectively, and amortization expense for 1998, 1997
and 1996 was $1,929,000, $1,620,000 and $1,581,000, respectively, and are
included in interest expense in the Consolidated Statement of Operations.
Lease procurement costs of $2,291,000 and $1,605,000 at December 31, 1998
and 1997, respectively, consist of direct leasing costs, tenant allowances and
tenant improvements and are amortized on a straight line basis over the terms of
the applicable tenant lease. Accumulated amortization of lease procurement costs
at December 31, 1998 and 1997 was $529,000 and $273,000, respectively, and
amortization expense for 1998, 1997 and 1996 was $227,000, $193,000, and
$102,000, respectively.
Revenue Recognition--Minimum rents are recognized on a basis which
approximates the straight line method over the terms of the leases. Percentage
rent is accrued when lessees' specified sales targets have been met or
achievement of the sales targets is probable. Had the Company utilized the
method of recognizing percentage rent only after specified sales targets have
been achieved, net income for 1998 would have been reduced by approximately
$406,000.
Income received on lease terminations is amortized over the expected period
of tenant vacancy. Revenue recognized under arrangements of this nature was
approximately $1,015,000, $577,000 and $428,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
Income Taxes--The Company has elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a REIT, the Company generally will not be subject to federal
income taxation at the corporate level to the extent it distributes annually at
least 95% of its real estate investment trust taxable income, as defined in the
Code, to its shareholders and satisfies certain other requirements. Accordingly,
no provision has been made for federal income taxes in the accompanying
financial statements.
Earnings per common share--Earnings per share ("EPS") are computed on both a
basic and diluted basis. Basic EPS excludes potential share dilution and is
computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period. 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.
Distributions of $1.70 per common share were declared for each of the years
ended December 31, 1998, 1997 and 1996 of which $1.17, $1.70 and $1.34,
respectively, represent a return of capital for federal income tax purposes.
21
<PAGE> 22
Cash and cash equivalents consist of deposits in banks and certificates of
deposit with maturities of three months or less at the date of purchase.
Long-lived assets and long-lived assets to be disposed of--The Company's
long-lived assets are periodically reviewed throughout the year for impairments
in value. The review is based principally on the projected, undiscounted cash
flow from the related asset. In 1998, the Company reduced the carrying value of
its interest in a shopping center in Gary, Indiana to its net realizable value
and recorded a loss on impairment of real estate of approximately $431,000.
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.
Segment Information--The Company's operating units are comprised of
approximately 66 commercial retail properties. All financial results are
aggregated into one operating segment since the properties have similar economic
characteristics.
Impact of Recently Adopted Accounting Principles--In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement requires
companies to record derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivatives
and whether it qualifies for hedge accounting. This Statement is not expected to
have a material impact on the Company's consolidated financial statements. This
Statement is effective for fiscal years beginning after June 15, 1999.
2. MORTGAGES, DEBENTURES AND NOTES
The following table sets forth certain information regarding the Company's
debt:
<TABLE>
<CAPTION>
INTEREST MATURITY
COLLATERAL RATE DATE
Mortgages ------------------------------ ------------------------ --------------
<S> <C> <C> <C>
Greenwich Capital Line of Credit..... 16 Retail Properties LIBOR + 150 Basis Points November 1999
UDAG Loan............................ Bricktown Square 5% increasing to 9% March 2023
Securitized Mortgage Loan............ 25 Retail Properties 7.57% (1) August 2002
Daiwa Finance Corp................... The Shops at Fairlane Meadows 8.18% February 2007
Bloomfield Acceptance Company........ 12 Retail Properties 7.43% May 2013
Wells Fargo Bank..................... Westland Shopping Center 8.02% November 2007
First Chicago NBD Line of Credit..... Orchard 14 Shopping Center LIBOR + 200 Basis Points March 1999
Total Mortgages......................
Convertible Debenture................ Unsecured 9.5% July 2004
Convertible Notes.................... Bricktown Square 8.5% July 2003
</TABLE>
<TABLE>
<CAPTION>
BALANCE
DECEMBER 31,
1998 1997
Mortgages -------- -------
(in thousands)
<S> <C> <C>
Greenwich Capital Line of Credit..... $ 15,000 $ 4,700
UDAG Loan............................ 8,006 8,097
Securitized Mortgage Loan............ 63,000 63,000
Daiwa Finance Corp................... 12,676 12,788
Bloomfield Acceptance Company........ 17,755 -
Wells Fargo Bank..................... 5,842 -
First Chicago NBD Line of Credit..... - -
-------- -------
Total Mortgages...................... $122,279 $88,585
======== =======
Convertible Debenture................ $ 44,925 $56,680
======== =======
Convertible Notes.................... $ 27,000 $27,000
======== =======
</TABLE>
(1) Overall blended rate. The interest rate on four different tranches are
either fixed or capped through the use of an interest rate cap and floor
agreement. The effective interest rate is fixed at 7.57% through February
10, 2002; thereafter, the interest rate on $42 million of the mortgage loans
converts to a variable rate based on certain requirements. Net settlement
costs paid under interest rate cap agreements are recorded on an accrual
basis and recognized as an adjustment to interest expense.
The Greenwich Capital Line of Credit is a revolving line of credit provided
by Greenwich Capital Markets, Inc., a division of National Westminister Bank,
Plc. for up to $25 million which can be expanded up to $50 million for
additional acquisitions. Due to certain financial covenants, $17.8 million was
the maximum allowable borrowing under the facility at December 31, 1998 of which
$15.0 million was outstanding.
22
<PAGE> 23
The line of credit with First Chicago NBD is a revolving line of credit
which allows for borrowings up to $4.5 million. As of December 31, 1998 there
were no outstanding borrowings on the line.
The Company has Convertible Debentures (the "Debentures") and Convertible
Notes (the "Notes"), which are convertible into shares of Common Stock at a
price of $17 per share. The debentures are 10-year unsecured general obligations
of the Company and carry a rating of B3 from Moody's Investors Services, Inc.
The Notes are nine-year general obligations due July 15, 2003 secured by a first
mortgage on Bricktown Square in Chicago, Illinois. The Debentures are redeemable
by the Company at par beginning July 15, 2001. During 1998, $2.142 million
aggregate principal of Debentures were converted into 125,286 shares of Common
Stock.
In September 1998, the Company's Board of Directors approved a plan to
repurchase and retire up to $15 million aggregate principal of Debentures.
Through December 31, 1998, the Company had repurchased $9.625 million principal
of Debentures. The repurchases were funded from the Company's available working
capital. As a result of the repurchases, the Company incurred an extraordinary
loss in 1998 of approximately $191,000 primarily from the charge off of
deferred financing costs associated with the retired debt.
Interest capitalized as part of the cost of redevelopment projects totaled
$447,000 in 1998 and $50,000 in 1997.
Several of the above debt agreements contain various financial covenants,
all of which the Company was in compliance with as of December 31, 1998.
Approximate scheduled principal payments for the years subsequent to
December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999................................... $ 15,401
2000................................... 442
2001................................... 479
2002................................... 63,515
2003................................... 27,547
2004 and thereafter.................... 86,820
----------
Total............................... $ 194,204
==========
</TABLE>
3. WARRANTS AND STOCK OPTION AND COMPENSATION PLANS
Warrants--In connection with its initial public offering, the Company issued
warrants to National Westminister Bank Plc, New York branch, an affiliate of one
of the underwriters, for the purchase of 353,000 shares of common stock. The
warrants are exercisable through June 17, 1999 at a price of $20.40 per share.
No warrants have been exercised.
Employee Option Plan--The Company has a stock option plan (the "Employee
Option Plan") to enable its employees to participate in the ownership of the
Company. Under the Employee Option Plan, executive officers and employees of the
Company may be granted options to acquire shares of Common Stock of the Company
("Options"). The Employee Option Plan is administered by the compensation
committee of the Board of Directors (the "Board"), which is authorized to select
the executive officers and other employees to whom Options are to be granted. No
member of the compensation committee is eligible to participate in the Employee
Option Plan. The aggregate number of shares of Common Stock that may be issued
upon the exercise of all Options is 400,000 shares.
The exercise price of each Option granted is equal to the fair market value
of the underlying shares on the date of grant. With the exception of those
granted on the date of the Company's initial public offering, which vested over
a three-year period at the rate of 33 1/3% per year, Options vest over a
five-year period at the rate of 20% per year, beginning on the first anniversary
of the date of grant and are exercisable until the tenth anniversary of the date
of grant.
Directors Option Plan--The Company has a stock option plan for non-employee
directors (the "Directors Option Plan"). Under the Directors Option Plan,
following each Annual Meeting of the Board, each non-employee Director is
automatically granted an option to purchase 1,000 shares of Common Stock.
All Options granted under the Directors Option Plan will have an exercise
price equal to the fair market value of the underlying shares on the date of the
grant. Each Option granted will vest immediately upon grant but will not become
exercisable by the Director until six months following the date of grant.
Options granted to a Director will remain exercisable until the tenth
anniversary of the date of grant or, if earlier, until one year after the
Director ceases to be a member of the Board for any reason. The aggregate number
of shares that may be issued under the Directors Option Plan is 80,000 shares.
23
<PAGE> 24
The following table summarizes the activity for the Company's Stock Option
Plans:
<TABLE>
<CAPTION>
EMPLOYEE OPTION PLAN
----------------------------------------------
SHARES EXERCISE WEIGHTED-
SUBJECT PRICE AVERAGE
TO OPTION PER SHARE EXERCISE PRICE
--------- -------------------- --------------
<S> <C> <C> <C>
Balance, January 1, 1996................ 250,000 $13.375-17.00 $ 15.528
Options Granted 1996.................... 54,000 $14.375-15.375 $ 14.449
Options Exercised 1996..................
-------
Balance, December 31, 1996.............. 304,000 $13.375-17.00 $ 15.383
Options Granted 1997....................
Options Exercised 1997.................. (634) $13.375 $ 13.375
-------
Balance, December 31, 1997.............. 303,366 $13.375-17.00 $ 15.383
Options Granted 1998.................... 21,000 $16.580 $ 16.580
Options Exercised 1998.................. (150) $13.375 $ 13.375
-------
Balance, December 31, 1998.............. 324,216 $13.375-17.00 $ 15.422
=======
Options Exercisable
at December 31, 1998............... 251,300 15.609
======= ==========
<CAPTION>
DIRECTORS OPTION PLAN
--------------------------------------------
SHARES EXERCISE WEIGHTED-
SUBJECT PRICE AVERAGE
TO OPTION PER SHARE EXERCISE PRICE
--------- --------- --------------
<S> <C> <C> <C>
Balance, January 1, 1996................ 6,000 $14.50 $ 14.50
Options Granted 1996.................... 4,000 $14.375 $ 14.375
Options Exercised 1996.................. (1,708) $14.375 $ 14.375
------
Balance, December 31, 1996.............. 8,292 $14.375-14.50 $ 14.465
Options Granted 1997.................... 4,000 $17.125 $ 17.125
Options Exercised 1997..................
------
Balance, December 31, 1997.............. 12,292 $14.375-17.125 $ 15.331
Options Granted 1998.................... 4,000 $17.688 $ 17.688
Options Exercised 1998.................. (2500) $14.375-14.50 $ 14.45
------
Balance, December 31, 1998.............. 13,792 $14.375-17.688 $ 16.174
======
Options Exercisable
at December 31, 1998............... 13,792 $ 16.174
====== ==========
</TABLE>
The Company has elected to report compensation by applying the requirements
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and therefore has recorded no charge to income for stock options.
There would have been no effect on the Company's net income and earnings per
share for 1998,1997 and 1996 had the Company recognized compensation expense
using the Black-Scholes option pricing model utilizing the following values and
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Option value.................... $ .05 $ 0.54 $ 0.03
Dividend yield.................. 10.1% 9.9% 11.8%
Expected volatility............. 8% 17% 10%
Risk-free interest rate......... 6% 6% 6%
Expected lives (in years)....... 10 10 10
</TABLE>
The outstanding stock options at December 31, 1998 have a weighted-average
contractual life of 6.3 years.
Stock Compensation Plan--In order to provide an opportunity for them to
increase their ownership, the Company has a stock compensation plan for
non-employee directors (the "Stock Compensation Plan"). Under the Stock
Compensation Plan, each non-employee Director may make an election by June 30 of
each year to receive all or a portion of the Director's compensation for the
following calendar year in the form of Common Stock of the Company in lieu of
cash. Once made, the election is irrevocable for the following year's
compensation.
The number of shares of Common Stock to be paid to a Director instead of
cash compensation will be determined based on the closing price of the Common
Stock on the New York Stock Exchange on the day before the compensation is
earned by the Director (i.e., the day before a Board meeting). A maximum of
100,000 shares may be issued under the Stock Compensation Plan. During 1998,
1997 and 1996, a total of 2,870, 2,740 and 3,272 shares, respectively, were
issued under the plan reflecting compensation of $48,000 in each year.
401(k) Plan - In 1997, the Company implemented a 401(k) retirement plan
(the "401(k) Plan") covering substantially all of its employees. Under the
401(k) 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 Board. Compensation expense in connection with the 401(k) Plan
for 1998 and 1997 was $32,000 and $24,000, respectively.
24
<PAGE> 25
4. COMMITMENTS AND CONTINGENCIES
Revenues derived from the Company's major tenant, Kmart, amounted to 35.6%,
39.0% and 38.2% of consolidated revenues arising from lease agreements for the
years ended December 31, 1998, 1997 and 1996, respectively. Amounts billed and
owing from the major tenant were $ 75,000 and $56,000 at December 31, 1998 and
1997, respectively.
Approximate future minimum rent under operating leases for the years
subsequent to December 31, 1998, assuming no new or renegotiated leases or
option extensions, are as follows (in thousands):
<TABLE>
<S> <C>
1999................................. $ 29,664
2000................................. 27,669
2001................................. 25,539
2002................................. 22,861
2003................................. 20,163
2004 and thereafter.................. 137,476
------------
Total............................. $ 263,372
============
</TABLE>
Approximate future minimum rental payments under the terms of all
non-cancelable operating leases in which the Company is the lessee, principally
for ground leases and office rent, subsequent to December 31, 1998, are as
follows (in thousands):
<TABLE>
<S> <C>
1999................................. $ 460
2000................................. 442
2001................................. 403
2002................................. 295
2003................................. 270
2004 and thereafter.................. 7,864
------------
Total............................. $ 9,734
============
</TABLE>
Rent expense for operating leases for the years ended December 31, 1998,
1997 and 1996 was $491,000, $498,000 and $457,000, respectively.
The Company has entered into the following commitments as of December 31,
1998 (in thousands):
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Construction contract for redevelopment of existing retail property--Arkansas City, KS.... $ 595
Payment of tenant construction allowance on 10-plex theater complex--Melrose Park, IL..... 3,773
----------
Total..................................................................................... $ 4,368
==========
<CAPTION>
ANTICIPATED
FUNDING
DATE
------------------------
<S> <C>
Construction contract for redevelopment of existing retail property--Arkansas City, KS.... February 1999--April 1999
Payment of tenant construction allowance on 10-plex theater complex--Melrose Park, IL..... March 1999
Total..................................................................................... February 1999--April 1999
</TABLE>
The Company, as an owner of real estate, is subject to various environmental
laws. Compliance by the Company with existing laws has not had a material
adverse financial effect during the three-year period ended December 31, 1998,
nor does management believe it will have a material impact in the future.
However, management cannot predict the impact of new or changed laws or
regulations on its current properties or properties that it may acquire.
25
<PAGE> 26
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined using
available market information and appropriate valuation methodologies.
Cash and Cash Equivalents--The carrying amount for cash and cash equivalents
approximates fair value due to the short maturity of these instruments.
Interest Rate Hedging Instruments--The Company entered into interest rate
agreements to reduce its exposure to changes in the cost of the floating rate
portion of its Securitized Mortgage Loan.
As of December 31, 1998, the following interest rate cap agreements were
outstanding (in thousands):
<TABLE>
<CAPTION>
FREQUENCY
NOTIONAL LIBOR OF RATE
AMOUNT CAP RATE RESETS TERM
--------- --------- --------- -----------
<S> <C> <C> <C>
$ 42,000 6.67% Monthly July 1995 - February 2002
42,000 8.75% Monthly February 2002 - August 2002
</TABLE>
The Company is exposed to credit risk in the event of nonperformance by the
counterparties to its interest rate cap agreements, but has no off-balance sheet
risk of loss. The Company anticipates that its counterparties will fully perform
their obligations under the agreements.
The carrying value of the interest rate caps as of December 31, 1998 and
1997 was $1,024,000 and $1,310,000, respectively, and the fair value was
$2,004,000 and $890,000, respectively.
Mortgages--The fair value of the mortgages is based on the present value of
contractual cash flows and is as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------------------- -----------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
AMOUNT VALUE AMOUNT VALUE
------------ -------------- ---------- --------------
<S> <C> <C> <C> <C>
Greenwich Capital Line of Credit............ $ 15,000 $ 15,000 $ 4,700 $ 4,700
UDAG Loan................................... 8,006 4,589 8,097 4,529
Securitized Mortgage Loan................... 63,000 63,000 63,000 63,000
Daiwa Finance Corp.......................... 12,676 12,676 12,788 12,788
Bloomfield Acceptance Company............... 17,755 17,755 - -
Wells Fargo Bank............................ 5,842 5,842 - -
------------ -------------- ---------- --------------
Total....................................... $ 122,279 $ 118,862 $ 88,585 $ 85,017
============ ============== ========== ==============
</TABLE>
Convertible Debentures and Convertible Notes--The fair value of the
Convertible Debentures is based on the traded value at the close of business at
year end. The carrying value of the Convertible Debentures as of December 31,
1998 and 1997 is $44.925 million and $56.680 million, respectively. The
estimated fair value based upon the traded value at the close of business on
December 31, 1998 and 1997 was $43.128 million and $60.081 million,
respectively. Management believes that the carrying value of the Convertible
Notes as of December 31, 1998 and 1997 approximates the fair value.
The fair value estimates presented herein are based on information available
to management as of December 31, 1998 and 1997. Although management is not aware
of any factors that would significantly affect the estimated fair value amounts,
such financial instruments have not been comprehensively revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
6. SIGNIFICANT NONCASH TRANSACTIONS
Significant noncash transactions for the three years ended
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Conversion of debentures into 125,286 in 1998 and 270,878 in 1997 shares
of common stock, net of unamortized costs................................... $ 2,082 $ 4,471
Distributions declared not yet paid........................................... $ 2,200 $ 1,620 $ 1,472
</TABLE>
26
<PAGE> 27
7. STOCK REPURCHASE PLAN
In January 1995, the Company's Board of Directors approved a plan to
repurchase up to 755,000 shares of the Company's Common Stock. During 1996, the
Company repurchased 91,500 shares at an average cost of $11.98. No shares were
repurchased during the years ended December 31, 1998 and 1997.
8. 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 $21.5
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.
9. PROPERTY ACQUISITIONS
During the three years ended December 31, 1998, the Company acquired the
following properties (in thousands):
<TABLE>
<CAPTION>
GROSS
ACQUISITION LEASABLE CAPITALIZED
DATE PROPERTY LOCATION AREA (SQ.FT.) COSTS
----------- ------------------------ ------------------ ------------- --------------
<S> <C> <C> <C> <C>
11/24/97 Southwind Theater Lawrence, KS 42 $ 4,207
2/23/98 Westland Shopping 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 Shops Huntington, IN 13 1,171
5/29/98 Wal-Mart Plaza Chanute, KS 16 1,257
5/29/98 Wal-Mart Outparcel El Dorado, KS 20 1,546
5/29/98 Wal-Mart Outlet Shops 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
------------- --------------
Totals 456 $ 41,767
============= ==============
</TABLE>
In January 1999, the Company acquired the 45,000 square foot Wal-Mart Plaza
in Decatur, IL for approximately $4.68 million.
10. SUMMARIZED PRO FORMA INFORMATION
The following unaudited pro forma information is presented as if the
Secondary Offering, the acquisition of the Westland Shopping Center and the
Midwest Acquisition had occurred on January 1, 1997. In management's opinion,
all adjustments necessary to reflect these transactions have been recorded. 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>
YEARS ENDED DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Total revenues.......................... $ 41,296 $ 39,160
Net income.............................. $ 2,626 $ 1,672
Net income per share:
Basic................................... $ .51 $ .35
Diluted................................. $ .51 $ .34
</TABLE>
27
<PAGE> 28
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the periods indicated are as follows
(in thousands except per share amounts):
<TABLE>
<CAPTION>
BASIC AND BASIC AND
NET INCOME DILUTED EARNINGS DILUTED
(LOSS) BEFORE PER SHARE BEFORE NET EARNINGS
1998 REVENUES EXTRAORDINARY ITEM EXTRAORDINARY ITEM INCOME (LOSS) PER SHARE
- --------------- -------------- ------------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
March 31.......................... $ 9,054 $ 299 $ 0.08 $ 299 $ 0.08
June 30........................... 9,312 403 0.10 403 0.10
September 30 (1)(2)............... 10,211 220 0.04 64 0.01
December 31 (1)................... 10,987 1,115 0.22 1,080 0.21
-------------- ------------ ------------
Total............................. $ 39,564 $ 2,037 $ 1,846
============== ============ ============
1997
- ---------------
March 31.......................... $ 8,887 $ (7) $ - $ (7) $ -
June 30........................... 8,528 71 0.02 71 0.02
September 30...................... 8,787 213 0.06 213 0.06
December 31....................... 8,781 266 0.07 266 0.07
-------------- ------------ ------------
Total............................. $ 34,983 $ 543 $ 543
============== ============ ============
</TABLE>
(1) Third quarter 1998 results are reduced by approximately $280,000 due to
the adoption of an Emerging Issues Task Force ("EITF") consensus on Issue
98-9, relating to the recognition of percentage rent. This consensus was
withdrawn during the fourth quarter 1998, allowing for the Company to
revert to the practice of accruing percentage rent based on a probability
model.
(2) An extraordinary loss on extinguishment of debt of $156,000 and an
impairment of real estate of $431,000 were incurred in the third quarter
1998.
12. EARNINGS PER SHARE
Earnings per share ("EPS") data were computed as follows (in thousands except
per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------------- ----------- ------------
<S> <C> <C> <C>
Net Income before extraordinary item........................ $ 2,037 $ 543 $ 599
============== =========== ============
Net Income.................................................. $ 1,846 $ 543 $ 599
============== =========== ============
Basic EPS:
Weighted-average shares outstanding......................... 4,507 3,546 3,464
============== =========== ============
Basic earnings per share before extraordinary item.......... $ 0.45 $ 0.15 $ 0.17
============== =========== ============
Basic earnings per share.................................... $ 0.41 $ 0.15 $ 0.17
============== =========== ============
Diluted EPS:
Weighted-average shares outstanding......................... 4,507 3,546 3,464
Shares issued upon exercise of dilutive options............. 160 312 160
Shares purchased with proceeds of options................... ( 143) (267) (149)
-------------- ----------- ------------
Shares applicable to diluted earnings....................... 4,524 3,591 3,475
============== =========== ============
Diluted earnings per share before extraordinary item........ $ 0.45 $ 0.15 $ 0.17
============== =========== ============
Diluted earnings per share.................................. $ 0.41 $ 0.15 $ 0.17
============== =========== ============
</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.
28
<PAGE> 29
13. SUBSEQUENT EVENTS
Shareholder Rights Plan--In January 1999, the Board of Directors of the
Company (the "Board") adopted a Rights Agreement. In connection with the Rights
Agreement, the Board declared a dividend of one preferred share purchase right
(a "Right") for each outstanding share of the Company's Common Stock. Upon the
occurrence of a Distribution Date, as described below, each Right entitles a
shareholder to purchase 1/1000th of a newly issued share of Series A Junior
Participating Preferred Stock of the Company at an exercise price of $42,
subject to adjustment. The Rights will become exercisable only if a person or
group (i) acquires beneficial ownership of 15% or more of the Company's
outstanding common stock; (ii) announces a tender or exchange offer, the
consummation of which would result in the acquiring person or group owning 15%
or more of the Company's outstanding common stock. The date on which either
event described in (i) or (ii) occurs is a Distribution Date. Until the Rights
become exercisable, the Rights will be evidenced by certificates for common
stock and will be transferred only with such certificates.
If any person or group intentionally acquires 15% or more of the Company's
outstanding common stock, then each Right (except for those held by the
acquiring person) "flips in" and entitles the holder to purchase for the
exercise price, shares of the Company's common stock having a market value of
twice the then current exercise price (a "flip-in" event).
In addition, in the event that, after a person or group has intentionally
acquired 15% or more of the Company's outstanding common stock, the Company was
acquired in a merger or other business combination transaction or more than 50%
of its assets or earnings power were sold, each Right will entitle its holder to
purchase, at the Right's then current exercise price, shares of common stock of
such other person having a market value of twice the then current exercise price
(a "flip-over" event).
The Company may redeem the Rights for $.001 per Right at any time prior to
the earlier of a flip-in event or the expiration of the Rights. The Rights
expire on January 15, 2009 unless the Rights are earlier redeemed by the
Company. The Company has authorized 20,000 shares of Series A Junior
Participating Preferred Stock.
Sale of Property--The Company has entered into an agreement to sell its
property in Colma, California for approximately $7.7 million. The property is
currently included as collateral for the Company's Securitized Mortgage Loan.
Net proceeds from the sale after payments required for release of the property
from the collateral pool and selling expenses are anticipated to be
approximately $3.4 million. The sale is expected to be completed in March 1999.
29
<PAGE> 30
MALAN REALTY INVESTORS, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(in thousands)
<TABLE>
<CAPTION>
COST CAPITALIZED (SOLD)
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------- ---------------------------
BUILDINGS & BUILDINGS &
STATE/TYPE (# OF PROPERTIES) ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- ---------------------------- ------------ ------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C>
CALIFORNIA
Freestanding Retail Properties (1) * $ 634 $ 5,704
ILLINOIS
Community Shopping Centers (5) $ 35,006 4,858 41,886 $ 1,199
Freestanding Retail Properties (8) * 1,612 18,623 $ (14) 1,097
Entertainment Facilities (2) 159 6,071 4,366
INDIANA
Community Shopping Centers (8) * 3,447 25,741 1,639
Freestanding Retail Properties (1) * 2,241 19
KANSAS
Community Shopping Centers (5) * 942 11,135 2,902 3,483
Freestanding Retail Properties (8) * 691 6,578 258
Entertainment Facility (1) 1,118 3,090
MARYLAND
Freestanding Retail Properties (1) * 282 2,534 177
MICHIGAN
Community Shopping Centers (7) 18,518 6,384 44,619 (240) 253
MINNESOTA
Community Shopping Centers (1) 125 847
MISSOURI
Community Shopping Centers (4) * 969 11,764 7 515
Freestanding Retail Properties (1) * 85 768
OHIO
Community Shopping Centers (2) * 1,645 11,118 30
WISCONSIN
Community Shopping Centers (7) * 2,045 21,535 834
Freestanding Retail Properties (4) * 543 4,885 (16) 596
--------- --------- ---------- -------- --------
$ 53,524 $ 25,539 $ 219,139 $ 2,639 $ 14,466
========= ========= ========== ======== ========
</TABLE>
* Certain properties are included as collateral for securitized mortgages
The changes in total real estate for the three years ended December 31, are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ -----------
<S> <C> <C> <C>
Balance at Beginning of Year ..... $ 215,785 $ 207,590 $ 206,085
Acquisitions ................... 41,767 7,110
Improvements ................... 4,918 1,099 1,505
Dispositions ................... (256) (14)
Impairment of real estate (431)
---------- ------------ -----------
Balance at End of Year ........... $ 261,783 $ 215,785 $ 207,590
========== ============ ===========
</TABLE>
The changes in accumulated depreciation for the three years ended December
31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ -----------
<S> <C> <C> <C>
Balance at Beginning of Year ..... $ 15,817 $ 10,907 $ 6,114
Depreciation for year .......... 5,469 4,910 4,793
---------- ------------ -----------
Balance at End of Year ........... $ 21,286 $ 15,817 $ 10,907
========== ============ ===========
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------------------
BUILDINGS & ACCUMULATED DATE OF
STATE/TYPE (# OF PROPERTIES) LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- ---------------------------- -------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CALIFORNIA
Freestanding Retail Properties (1) $ 634 $ 5,704 $ 6,338 $ 643 1980
ILLINOIS
Community Shopping Centers (5) 4,858 43,085 47,943 4,299 1975-1995
Freestanding Retail Properties (8) 1,598 19,720 21,318 2,185 1967-1977
Entertainment Facilities (2) 159 10,437 10,596 576 1998
INDIANA
Community Shopping Centers (8) 3,447 27,380 30,827 2,487 1973-1997
Freestanding Retail Properties (1) 2,260 2,260 261 1974
KANSAS
Community Shopping Centers (5) 3,844 14,618 18,462 1,051 1974-1996
Freestanding Retail Properties (8) 691 6,836 7,527 802 1976-1978
Entertainment Facility (1) 1,118 3,090 4,208 77 1997
MARYLAND
Freestanding Retail Properties (1) 282 2,711 2,993 310 1979
MICHIGAN
Community Shopping Centers (7) 6,144 44,872 51,016 3,140 1970-1996
MINNESOTA
Community Shopping Centers (1) 125 847 972 12 1996
MISSOURI
Community Shopping Centers (4) 976 12,279 13,255 1,420 1973-1978
Freestanding Retail Properties (1) 85 768 853 87 1974
OHIO
Community Shopping Centers (2) 1,645 11,148 12,793 717 1989-1998
WISCONSIN
Community Shopping Centers (7) 2,045 22,369 24,414 2,569 1960-1979
Freestanding Retail Properties (4) 527 5,481 6,008 650 1968-1976
-------- -------- -------- --------
$ 28,178 $233,605 $261,783 $ 21,286
======== ======== ======== ========
<CAPTION>
LIFE ON WHICH
DEPRECIATION IN
DATE INCOME STATEMENT
STATE/TYPE (# OF PROPERTIES) ACQUIRED IS COMPUTED
- ---------------------------- -------- ----------------
<S> <C> <C>
CALIFORNIA
Freestanding Retail Properties (1) 6/94 40 Years
ILLINOIS
Community Shopping Centers (5) 6/94-5/98 40 Years
Freestanding Retail Properties (8) 6/94 40 Years
Entertainment Facilities (2) 6/94
INDIANA
Community Shopping Centers (8) 6/94-5/98 40 Years
Freestanding Retail Properties (1) 6/94 40 Years
KANSAS
Community Shopping Centers (5) 6/94-5/98 40 Years
Freestanding Retail Properties (8) 6/94 40 Years
Entertainment Facility (1) 11/97 40 Years
MARYLAND
Freestanding Retail Properties (1) 6/94 40 Years
MICHIGAN
Community Shopping Centers (7) 6/94-5/98 40 Years
MINNESOTA
Community Shopping Centers (1) 5/98 40 Years
MISSOURI
Community Shopping Centers (4) 6/94 40 Years
Freestanding Retail Properties (1) 6/94 40 Years
OHIO
Community Shopping Centers (2) 11/94-5/98 40 Years
WISCONSIN
Community Shopping Centers (7) 6/94 40 Years
Freestanding Retail Properties (4) 6/94 40 Years
</TABLE>
31
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item 10 is incorporated herein by
reference to the information included under the captions "Election of Directors"
and "Management" in the Company's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item 11 is incorporated herein by
reference to the information included in the Proxy Statement under the caption
"Executive Compensation" and "Management--Compensation of Directors".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item 12 is incorporated herein by
reference to the information included under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
32
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
A. The following documents are filed as part of this report:
(a)(1) Consolidated Financial Statements:
See Index to Consolidated Financial Statements and Supplementary
Data on page 15 of this Annual Report on Form 10-K.
(a)(2) Consolidated Financial Statement Schedule:
See Index to Consolidated Financial Statements and Supplementary
Data on page 15 of this Annual Report on Form 10-K.
(a)(3) Exhibits:
The following exhibits listed on the attached Exhibit Index
are included as part of this Annual Report on Form 10-K as
required by Item 601 of Regulation S-K:
(b) Reports on Form 8-K:
During the three-month period ending December 31, 1998, there
were no reports on Form 8-K filed.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 Date: March 17, 1999
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------- ------------------------- --------------
<S> <C> <C>
/s/Anthony S. Gramer Chief Executive Officer, March 17, 1999
- ------------------------------------- President and Director
Anthony S. Gramer
/s/Elliott J. Broderick Chief Accounting Officer March 17, 1999
- -------------------------------------
Elliott J. Broderick
* Director March 17, 1999
- -------------------------------------
Robert D. Kemp, Jr.
* Director March 17, 1999
- -------------------------------------
William McBride III
* Director March 17, 1999
William F. Pickard
- -------------------------------------
* Director March 17, 1999
- -------------------------------------
Richard T. Walsh
*by:/s/Anthony S. Gramer
- -------------------------------------
Anthony S. Gramer, as attorney-in-fact
</TABLE>
34
<PAGE> 35
MALAN REALTY INVESTORS, INC.
FORM 10-K EXHIBIT INDEX
EXHIBIT
NUMBER
- ------
3(a)--Amended and Restated Articles of Incorporation of Malan Realty
Investors, Inc. filed with this document.
3(b)--By-Laws of Malan Realty Investors, Inc. (incorporated herein by
reference to Exhibit 3(b) filed with the 1994 Second Quarter Form
10-Q).
3(c)--Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock of Malan Realty Investors, Inc. filed
with this document.
4(a)--Indenture, dated as of June 24, 1994, between Malan Realty Investors,
Inc. and The Bank of New York, as Trustee, with respect to the 9 1/2%
Convertible Subordinated Debentures due 2004 (incorporated herein by
reference to Exhibit 4(a) filed with the 1994 Second Quarter Form
10-Q).
4(b)--Indenture, dated as of June 24, 1994, between Malan Realty Investors,
Inc. and IBJ Schroeder, as Trustee, with respect to the 8 1/2% Secured
Convertible Notes due 2003 (incorporated herein by reference to
Exhibit 4(b) filed with the 1994 Second Quarter Form 10-Q).
4(c)--Rights Agreement, dated as of January 15, 1999, between Malan Realty
Investors, Inc. and The Bank of New York which includes the
Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock of Malan Realty Investors, Inc. as
Exhibit A. Incorporated by reference to the Company's Registration
Statement on Form 8-A filed with the Commission on February 3, 1999
(File No. 1-13092).
10(a)--The Malan Realty Investors, Inc. 1994 Stock Option Plan (incorporated
herein by reference to Exhibit 10(a) filed with the 1994 Second
Quarter Form 10-Q).
*10(b)--Employment Agreement, dated as of June 25, 1994, between the Company
and Anthony S. Gramer (incorporated herein by reference to Exhibit
10(b) filed with the 1994 Second Quarter Form 10-Q).
10(c)--Note Purchase Agreement, dated as of June 24, 1994, between Malan
Realty Investors, Inc. and Merrill Lynch Global Allocation Fund, Inc.
(incorporated herein by reference to Exhibit 10(e) filed with the 1994
Second Quarter Form 10-Q).
10(d)--Warrant Agreement, dated as of June 17, 1994, between Malan Realty
Investors, Inc. and National Westminster Bank Plc, New York Branch
(incorporated herein by reference to Exhibit 10(f) filed with the 1994
Second Quarter Form 10-Q).
10(e)--Mortgage, Security Agreement, Assignment of Rents and Financing
Statement, dated as of June 24, 1994, made by Malan Realty Investors,
Inc. to IBJ Schroeder Bank & Trust Company, as modified by First
Modification of Mortgage, Security Agreement, Assignment of Rents and
Financing Statement, dated as of August 1, 1994 (incorporated herein
by reference to Exhibit 10(g) filed with the 1994 Second Quarter Form
10-Q).
10(f)--Registration Rights Agreement, dated as of June 24, 1994, between the
Company and Merrill Lynch Global Allocation Fund, Inc. (incorporated
herein by reference to Exhibit 10(h) filed with the 1994 Second
Quarter Form 10-Q).
*10(g)--Malan Realty Investors, Inc. 1995 Stock Option Plan for Non-Employee
Directors (incorporated herein by reference to Exhibit 10(p) filed
with the 1994 Form 10-K).
*10(h)--Malan Realty Investors, Inc. 1995 Stock Compensation Plan for
Non-Employee Directors (incorporated herein by reference to Exhibit
10(q) filed with the 1994 Form 10-K).
10(i)--Purchase and Sale Agreement, dated as of April 13, 1995, between the
Company and Clinton Pointe Joint Venture (incorporated herein by
reference to Exhibit 10(s) filed with the 1995 First Quarter Form
10-Q).
10(j)--Agreement of Sale and Purchase, dated as of July 18, 1995, among
TG-Ford Associates and Ford Motor Land Development Corporation,
collectively, and Malan Realty Investors, Inc. (incorporated herein by
reference to Exhibit 10(x) filed with the 1995 Second Quarter Form
10-Q).
10(k)--$63,000,000 Amended and Restated Credit Agreement, dated as of August
16, 1995, between Malan Realty Investors, Inc. and National
Westminster Bank Plc, New York Branch (incorporated herein by
reference to Exhibit 10(y) filed with the Company's Amended Quarterly
Report on Form 10-Q/A for the quarter ended September 30, 1995 (the
"1995 Third Quarter Form 10-Q/A").
35
<PAGE> 36
10(l)--$63,000,000 Malan Mortgage Securities Trust 1995-A, Trust and
Servicing Agreement, dated as of August 16, 1995, by and among Malan
Depositor, Inc., as Depositor, Banker's Trust Company, as Servicer,
and Marine Midland Bank, as Trustee (incorporated herein by reference
to Exhibit 10(z) filed with the 1995 Third Quarter Form 10-Q/A).
*10(m)--First Amendment to Employment Agreement, dated as of August 15, 1997
between the Company and Anthony S. Gramer.
*10(n)--Change in Control Agreement, dated as of August 15, 1997 between the
Company and Michael K. Kaline.
*10(o)--Change in Control Agreement, dated as of August 15, 1997 between the
Company and Elliott Broderick.
10(p)--Revolving Loan Agreement among Malan Revolver, Inc., as Company, Malan
Realty Investors, Inc. As Parent and Greenwich Capital Markets, Inc.
As Lender dated as of November 24, 1997 (incorporated herein by
reference to exhibit 10(p) filed with the 1997 Form 10-K).
10(q)--Agreement For Purchase of Real Estate between Brandon Associates
Westland, L.L.C., "Seller" and Malan Realty Investors, Inc., "Buyer"
dated as of January 29, 1998 (incorporated herein by reference to
exhibit 10(q) filed with the 1997 Form 10-K).
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 LLC., and Bloomfield Acceptance
Company, LLC., dated as of May 29, 1998 (incorporated herein by
reference to exhibit 10(s) filed with the June 1, 1998 Amendment No. 1
Form S-2).
21--Subsidiaries
23(A)--Consent of Deloitte & Touche LLP
24--Powers of Attorney
27--Financial Data Schedule
* A management contract or compensatory plan or arrangement required to
be filed pursuant to Item 14(c) of Form 10-K (incorporated herein by
reference to exhibits 10(m), 10(n) and 10(o) filed with the 1997 Form
10-K).
36
<PAGE> 1
EXHIBIT 3(a)
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MALAN CONSTRUCTION COMPANY
1. These Amended and Restated Articles of Incorporation are executed
pursuant to the provisions of Section 643 of the Michigan Business
Corporation Act (the "Act").
2. The present name of the Corporation is: Malan Construction Company.
3. The corporation identification number (CID) assigned by the Bureau
is: 001957.
4. Except for the corporation's present name, Malan Construction
Company, the Corporation has not used any name other than MCC Construction
Company.
5. The date of filing the original Articles of Incorporation was June
11, 1969.
6. These Amended and Restated Articles of Incorporation were duly
adopted on the 16th day of June, 1994, in accordance with the provisions of
Section 641 of the Act and were duly adopted by the written consent of all
the shareholders entitled to vote in accordance with Section 407(2) of the
Act.
7. The following Amended and Restated Articles of Incorporation
supersede the Articles of Incorporation and shall be the Articles of
Incorporation of the Corporation:
ARTICLE I
Name
The name of the Corporation is: Malan Realty Investors, Inc.
ARTICLE II
Purpose
The purpose for which the Corporation is organized is to:
1. own, hold, manage, acquire, develop, redevelop and dispose of and
invest in any type of retail real property or mixed use real
property having a retail component of significant value in relation
to the value of the entire mixed use real property, including any
entity whose material assets include such real properties;
<PAGE> 2
2. qualify as a REIT (as hereinafter defined); and
3. engage in any other lawful act or activity for which corporations
may be organized under the Michigan Business Corporation Act, in
addition to any of the foregoing purposes, that is consistent with
the Corporation's qualification as a REIT.
ARTICLE III
Capital
1. Classes and Number of Shares.
The total number of shares of all classes of stock that the Corporation
shall have authority to issue is 35,000,000 shares. The classes and the
aggregate number of shares of stock of each class are as follows:
30,000,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), and
5,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock").
2. Powers, Rights and Limitations of the Common Stock.
A statement of all or any of the relative rights, preferences and
limitations of the shares of Common Stock is as follows:
(a) Dividend Rights. The holders of shares of the Common Stock
shall be entitled to receive such dividends as may be declared by the Board of
Directors of the Corporation (the "Board of Directors" or "Directors").
(b) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, each holder of shares of the Common Stock shall
be entitled to receive, ratably with each other holder of Common Stock, that
portion of the assets of the Corporation available for distribution to its
shareholders as the number of shares of the Common Stock held by such holder
bears to the total number of shares of Common Stock then outstanding.
(c) Voting Rights. The holders of shares of the Common Stock
shall be entitled to vote on all matters (for which a common shareholder shall
be entitled to vote thereon) at all meetings of the shareholders of the
Corporation, and shall be entitled to one vote for each share of the Common
Stock entitled to vote at such meeting. Any action to be taken by the
shareholders, including, but not limited to, the approval of an amendment to
these Amended and Restated Articles of Incorpora tion, shall be authorized if
approved by a majority of the votes cast by such holders present in person or by
proxy and entitled to vote.
2
<PAGE> 3
(d) Restrictions on Transfer.
(i) Definitions. The following terms shall have
the following meanings:
"Affiliate" and "Affiliates" mean (i) with
respect to any individual, any member of such individual's Immediate Family, a
Family Trust with respect to such individual, and any Person (other than an
individual) in which such individual and/or his Affiliate(s) owns, directly or
indirectly, more than fifty percent (50%) of any class of Equity Security or of
the aggregate Beneficial Interest of all beneficial owners, or in which such
individual or his Affiliate is a general partner, or which is controlled by such
individual and/or his Affiliates; and (ii) with respect to any Person (other
than an individual), any Person (other than an individual) which controls, is
controlled by, or is under common control with, such Person, and any individual
who is a general partner in, or who controls, such Person. The terms
"Affiliated" and "Affiliated with" shall have the correlative meanings.
"Beneficial Interest" means an interest,
whether as partner, joint venturer, cestui que trust, or otherwise, a contract
right, or a legal or equitable position under or by which the possessor
participates in the economic or other results of the Person (other than an
individual) to which such interest, contract right, or position relates.
"Beneficial Ownership" means ownership of
shares of Common Stock (including Common Stock that may be acquired upon
conversion of the Debentures) (i) by a Person who owns such shares of Common
Stock in his own name or is treated as an owner of such shares of Common Stock
constructively through the application of Section 544 of the Code, as modified
by Sections 856(h)(1)(B) and 856(h)(3)(A) of the Code; or (ii) by a person who
falls within the definition of "Beneficial Owner" under Section 776(4) of the
Act. The terms "Beneficial Owner", "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.
"Code" means the Internal Revenue Code of
1986, as amended from time to time.
"Constructive Ownership" means ownership of
shares of Common Stock (including Common Stock that may be acquired upon
conversion of the Debentures) by a Person who owns such shares of Common Stock
in his own name or would be treated as an owner of such shares of Common Stock
or constructively through the application of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code. The terms "Constructive Owner",
"Constructively Owns" and "Constructively Owned"
shall have the correlative meanings.
"Control(s)" (and its correlative terms
"Controlled By" and "Under Common Control With") means, with respect to any
Person (other than an individual), possession by the applicable Person or
Persons of the power, acting alone (or, solely among such applicable Person or
Persons, acting together), to designate and direct or cause the
3
<PAGE> 4
designation and direction of the management and policies thereof, whether
through the ownership of voting securities, by contract, or otherwise.
"Debentures" means the Convertible
Subordinated Debentures of the Corporation due 2004 and the Secured Convertible
Notes of the Corporation due 2004 to the extent that, as of any relevant date,
the Secured Convertible Notes of the Corporation due 2003 are, as of such date,
convertible into shares of Common Stock, issued at the same time as the Initial
Public Offering, and includes any other convertible debentures issued by the
Corporation from time to time.
"Equity Security" has the meaning ascribed
to it in the Securities Exchange Act of 1934, as amended from time to time, and
the rules and regulations thereunder (and any successor laws, rules and
regulations of similar import).
"Family Trust" means, with respect to an
individual, a trust for the benefit of such individual or for the benefit of any
member or members of such individual's Immediate Family or for the benefit of
such individual and any member or members of such individual's Immediate Family
(for the purpose of determining whether or not a trust is a Family Trust, the
fact that one or more of the beneficiaries (but not the sole beneficiary) of the
trust includes a Person or Persons, other than a member of such individual's
Immediate Family, entitled to a distribution after the death of the settlor if
he, she, it, or they shall have survived the settlor of such trust and/or
includes an organization or organizations exempt from federal income taxes
pursuant to the provisions of Section 501(a) of the Code and described in
Section 501(c)(3) of the Code, shall be disregarded); provided, however, that in
respect of transfers by way of testamentary or inter vivos trust, the trustee or
trustees shall be solely such individual, a member or members of such
individual's Immediate Family, a responsible financial institution and/or an
attorney that is a member of the bar of any state in the United States.
"Immediate Family" means, with respect to a
Person, (i) such Person's spouse (former or then current), (ii) such Person's
parents and grandparents, and (iii) ascendants and descendants (natural or
adoptive, of the whole or half blood) of such Person's parents or of the parents
of such Person's spouse (former or then current).
"Initial Public Offering" means the initial
sale of shares of Common Stock to the public pursuant to the Corporation's first
effective registration statement for such Common Stock filed under the
Securities Act of 1933, as amended.
"Look Through Entity" means any Person that
(i) is not an individual or an organization described in Sections 501(c)(17) or
509(a) of the Code, or a portion of a trust permanently set aside or to be used
exclusively for the purposes described in Section 642(c) of the Code or a
corresponding provision of a prior income tax law, and (ii) provides the
Corporation, not less than 10 days prior to becoming a holder of shares of
Common Stock, with (a) a written affirmation and undertaking, subject only to
such exceptions as are acceptable to the Corporation in its sole discretion,
that (x) it is not an organization described in Sections 501(c)(17) or 509(a) of
the Code, or a portion of a trust
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<PAGE> 5
permanently set aside or to be used exclusively for the purposes described in
Section 642(c) of the Code or a corresponding provision of a prior income tax
law, (y) after the application of the rules for determining stock ownership, as
set forth in Section 544(a) of the Code, as modified by Sections 856(h)(1)(B)
and 856(h)(3)(A) of the Code, no "individual" would own, Beneficially or
Constructively, more than the then-applicable Ownership Limit taking into
account solely for the purpose of determining such "individual's" ownership for
the purposes of this clause (y) (but not for determining whether such
"individual" is in compliance with the Ownership Limit for any other purpose),
only such "individual's" Beneficial and Constructive Ownership derived solely
from such Person and (z) it does not Constructively Own 10% or more of the
equity of any tenant with respect to real property from which the Corporation
receives or accrues any rent from real property, and (b) such other information
regarding the Person that is relevant to the Corporation's qualifications to be
taxed as a REIT as the Corporation may reasonably request.
"Note Holder" means Merrill Lynch Global
Allocation Fund, Inc., a Maryland corporation, and any Person to whom a Note
Holder transfers Beneficial Interest of Common Stock provided that (i) such
transferee is a Look Through Entity, (ii) the result of such transfer would be
to cause the transferee to Beneficially Own or Constructively Own shares of
Common Stock in excess of the greater of the Ownership Limit or any pre-existing
Note Holder Limit with respect to such transferee (such excess being herein
referred to as the "Excess Percentage") and (iii) the transferor Note Holder, by
notice to the Corporation in connection with such transfer, designates such
transferee as a successor Note Holder (it being understood that, upon any such
transfer, the Note Holder Limit for the transferor Note Holder shall be reduced
by the Excess Percentage and then applicable Ownership Limit or Note Holder
Limit for the transferee Note Holder shall be increased by such Excess
Percentage).
"Note Holder Limit" means 40% of the value
of the outstanding Common Stock.
"Ownership Limit" means 9.9% of the value of
the outstanding Common Stock of the Corporation.
"Person" means (a) an individual,
corporation, partnership, estate, trust (including a trust qualified under
Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section 642(c)
of the Code, association, private foundation within the meaning of Section
509(a) of the Code, joint stock company or other entity and (b) also includes a
group as that term is used for purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
"REIT" means a Real Estate Investment Trust
defined in Section 856 of the Code.
"Transfer" means any sale, transfer, gift,
assignment, devise or other disposition of Common Stock (including, without
limitation (i) the granting of any option
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<PAGE> 6
or entering into any agreement for the sale, transfer or other disposition of
Common Stock, (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or for Common Stock or (iii) an
acquisition within the meaning of Rule 13d-5(b)(1) of the Rules and Regulations
under the Securities Exchange Act of 1934, as amended), whether voluntary or
involuntary, whether of record or beneficial ownership, and whether by operation
of law or otherwise.
(ii) Restriction on Transfers.
(a) Except as provided in Item (vii) of
Subsection (d) of Section 2 of this Article III, from and after the date of the
Initial Public Offering, no Person (other than a Note Holder) shall Beneficially
Own or Constructively Own shares of Common Stock in excess of the Ownership
Limit, and no Note Holder shall Beneficially Own or Constructively Own shares of
Common Stock in excess of the Note Holder Limit for such Note Holder.
(b) Except as provided in Item (vii) of
Subsection (d) of Section 2 of this Article III, from and after the date of the
Initial Public Offering, any Transfer that, if effective, would result in any
Person (other than a Note Holder) Beneficially Owning or Constructively Owning
shares of Common Stock in excess of the Ownership Limit shall be void ab initio
as to the Transfer of such shares of Common Stock which would be otherwise
Beneficially Owned or Constructively Owned by such Person in excess of the
Ownership Limit, and the intended transferee shall acquire no rights in such
shares of Common Stock.
(c) Except as provided in Item (vii) of
Subsection (d) of Section 2 of this Article III, from the date of the Initial
Public Offering, any Transfer that, if effective, would result in any Note
Holder Beneficially Owning or Constructively Owning shares of Common Stock in
excess of the applicable Note Holder Limit shall be void ab initio as to the
Transfer of such shares of Common Stock which would be otherwise Beneficially
Owned or Constructively Owned by such Note Holder in excess of the applicable
Note Holder Limit, and such Note Holder shall acquire no rights in such shares
of Common Stock.
(d) Except as provided in Item (vii) of
Subsection (d) of Section 2 of this Article III, from the date of the Initial
Public Offering, any Transfer that, if effective, would result in the Common
Stock being Beneficially Owned by fewer than 100 Persons (determined without
reference to any rules of attribution) shall be void ab initio as to the
Transfer of such shares of Common Stock which would be otherwise Beneficially
Owned by the transferee, and the intended transferee shall acquire no rights in
such shares of Common Stock.
(e) From and after the date of the Initial
Public Offering, any Transfer that, if effective, would result in the
Corporation being "closely held" within the meaning of Section 856(h) of the
Code shall be void ab initio as to the Transfer of the shares of Common Stock,
which would cause the Corporation to be "closely held" within the meaning of
Section 856(h) of the Code, and the intended transferee shall acquire no rights
in such shares of Common Stock.
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<PAGE> 7
(f) In determining the percentage of the
value of the outstanding stock which any Person Beneficially Owns (or would
Beneficially Own following a purported Transfer) or Constructively Owns (or
would Constructively Own following a purported Transfer) for purposes of
applying the limitations contained in Paragraphs (a), (b), (c), (d) and (e) of
Item (ii) of Subsection (d) of this Article III:
(1) shares of Common Stock that may
be acquired upon conversion of Debentures Beneficially Owned or Constructively
Owned by such Person, but not shares of Common Stock issuable upon conversion of
Debentures held by others, are deemed to be outstanding.
(2) a pension trust shall be
treated as owning all shares of Common Stock (including Common Stock that may be
acquired upon conversion of the Debentures) that are (x) owned in its own name
or with respect to which it is treated as an owner constructively through the
application of Section 544 of the Code as modified by Section 856(h)(1)(B) of
the Code but not by Section 856(h)(3) of the Code and (y) owned by, or treated
as owned by, constructively through the application of Section 544 of the Code,
all pension trusts sponsored by the same employer as such pension trust or
sponsored by any of such employer's Affiliates.
(g) If any shares of Common Stock are
transferred resulting in a violation of the limitations contained in Paragraphs
(b), (c), (d) or (e) of Item (ii) of Subsection (d) of Section 2 of this Article
III, such Transfer shall be valid only with respect to such amount of shares of
Common Stock transferred as does not result in a violation of such limitations,
and such Transfer otherwise shall be null and void ab initio.
(iii) Notice of Restricted Transfer. Any Person
who acquires or attempts to acquire shares in violation of Item (ii) of
Subsection (d) of Section 2 of this Article III, or any Person who is a
transferee of shares in violation of Item (ii) of Subsection (d) of Section 2 of
this Article III, shall immediately give written notice to the Corporation of
such event and shall provide to the Corporation such other information as the
Corporation may request regarding such Person's Beneficial Ownership or
Constructive Ownership of Common Stock.
(iv) Owners Required to Provide Information. From
and after the date of the Initial Public Offering:
(a) every Beneficial Owner of more than
5% (or such other percentage as provided in the applicable regulations adopted
under Sections 856 through 859 of the Code) of the outstanding shares of Common
Stock of the Corporation shall, within 30 days after January 1 of each year,
give written notice to the Corporation stating the name and address of such
Beneficial Owner, the number of shares Beneficially Owned and Constructively
Owned, and a full description of how such shares are held. Every Beneficial
Owner shall, upon demand by the Corporation, disclose to the Corporation in
writing such additional information with respect to the Beneficial Ownership and
Constructive Ownership of the Common Stock as the Board of Directors deems
appropriate or necessary (i) to comply
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<PAGE> 8
with the provisions of the Code, regarding the qualification of the Corporation
as a REIT under the Code, and (ii) to ensure compliance with the Ownership Limit
or the Note Holder Limit.
(b) any Person who is a Beneficial Owner
or Constructive Owner of shares of Common Stock and any Person (including the
shareholder of record) who is holding Common Stock for a Beneficial Owner or
Constructive Owner, and any proposed transferee of shares, upon the
determination by the Board of Directors to be reasonably necessary to protect
the status of the Corporation as a REIT under the Code, shall provide a
statement or affidavit to the Corporation, setting forth the number of shares of
Common Stock already Beneficially Owned or Constructively Owned by such
shareholder or proposed transferee and any related person specified, which
statement or affidavit shall be in the form prescribed by the Corporation for
that purpose.
(v) Remedies Not Limited. Subject to Subsection
(g) of Section 2 of this Article III, nothing contained in this Article III
shall limit the authority of the Board of Directors to take such other action as
it deems necessary or advisable (i) to protect the Corporation and the interests
of its shareholders in the preservation of the Corporation's status as a REIT,
and (ii) to ensure compliance with the Ownership Limit and the Note Holder
Limit.
(vi) Determination. Any question regarding the
application of any of the provisions of Subsection (d) of Section 2 of this
Article III, including any definition contained in Item (i) of Subsection (d) of
Section 2 of this Article III, shall be determined or resolved by the Board of
Directors and any such determination or resolution shall be final and binding on
the Corporation, its shareholders, and all parties in interest.
(vii) Exceptions. The Board of Directors, upon
advice from, or an opinion from, Counsel, may exempt a Person from the Ownership
Limit if such Person is a Look Through Entity, provided, however, in no event
may any such exception cause such Person's ownership, direct or indirect, to
exceed 40% of the value of the outstanding Common Stock.
For a period of 90 days following the purchase of Common Stock by an
underwriter that (i) is a Look Through Entity and (ii) participates in a public
offering of the Common Stock, such underwriter shall not be subject to the
Ownership Limit with respect to the Common Stock purchased by it as a part of
such public offering.
(e) Legend. Each certificate for Common Stock shall bear
the following legend:
"The shares of Common Stock represented by this
certificate are subject to restrictions on transfer. No
person may Beneficially Own or Constructively Own shares of
Common Stock in excess of the Ownership Limit or the Note
Holder Limit, as the case may be. Any transfer of shares of
Common Stock in violation of the restrictions on transfer is
void ab initio. Any Person who attempts to Beneficially Own
or Constructively Own shares of
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<PAGE> 9
Common Stock in excess of the Ownership Limit or the Note
Holder Limit, as the case may be, must immediately notify the
Corporation. All capitalized terms in this legend have the
meanings ascribed to such terms in the Corporation's Amended
and Restated Articles of Incorporation, a copy of which,
including the restrictions on transfer, will be sent without
charge to each shareholder who so requests. Upon effectiveness
of the Corporation's Amended and Restated Articles of
Incorporation providing for Excess Stock, if the restrictions
on transfer are violated, the shares of Common Stock
represented hereby will be automatically exchanged for shares
of Excess Stock which are non-transferable and must be
surrendered to the Designated Agent upon demand by the
Corporation."
(f) Severability. If any provision of this Article III
or any application of any such provision is determined to be invalid by any
Federal or state court having jurisdiction over the issues, the validity of the
remaining provisions shall not be affected and other applications of such
provision shall be affected only to the extent necessary to comply with the
determination of such court.
(g) New York Stock Exchange Settlement. Nothing
contained in these Articles of Incorporation shall preclude the settlement of a
transaction entered through the facilities of the New York Stock Exchange.
3. Series of Preferred Stock.
The Board of Directors shall have authority, by resolution or
resolutions, to divide the Preferred Stock into series, to establish and fix the
distinguishing designation of each such series and the number of shares thereof
(which number, by like action of the Board of Directors, from time to time
thereafter, may be increased except when otherwise provided by the Board of
Directors in creating such series, or may be decreased but not below the number
of shares thereof then outstanding) and, within the limitations of applicable
law of the State of Michigan, the provisions of Sections 856 through 859 of the
Code, or as otherwise set forth or limited in these Articles, to fix and
determine the relative rights and preferences of the shares of each series so
established prior to the issuance thereof, and particularly, but without
limitation, with respect to:
(i) The rate of dividend, the cumulative or
noncumulative nature of the dividend, and the
initial original issue date or other date from
which such dividends shall be cumulative if
designated as such.
(ii) The price or prices at, the period or periods
within, and the terms and conditions on, which
shares may or shall be redeemed.
(iii) The amounts payable upon shares in the event of
voluntary liquidation or of involuntary
liquidation.
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(iv) The terms of sinking fund provisions, if any,
or redemption or purchase account, if any, for
the redemption or purchase of shares.
(v) The terms and conditions on which shares may be
converted into shares of Common Stock, or of
authorized shares of any other class or series,
if the shares of any series are issued with the
privilege of conversion.
(vi) Whether or not shares shall have voting rights,
and the terms and conditions upon which any
voting rights may be exercised; provided that
unless specifically designated as nonvoting,
each share of a series of Preferred Stock shall
be voting preferred, entitling the holder
thereof to vote as provided in these Articles
or the act.
(vii) The terms of any restrictions on transfer.
Any such resolution(s) by the Board of Directors establishing and designating
the series and prescribing the relative rights and preferences thereof shall be
fully set forth in an appropriate certificate which certificate shall be filed
as provided in the Act and which certificate, when so filed, shall constitute an
amendment to these Articles.
ARTICLE IV
Registered Office and Registered Agent
1. Registered Office.
The address and mailing address of the registered office of the
Corporation is 30200 Telegraph Road, Suite 105, Birmingham, Michigan 48025-4503.
2. Resident Agent.
The resident agent for service of process on the Corporation at the
registered office is Anthony S. Gramer.
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<PAGE> 11
ARTICLE V
Plan of Compromise or Reorganization
When a compromise or arrangement or a plan of reorganization of the
Corporation is proposed between the Corporation and its creditors or any class
of them or between the Corporation and its shareholders or any class of them, a
court of equity jurisdiction within the State of Michigan, on application of the
Corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the Corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a majority in number
representing 75% in value of the creditors or class of creditors, or of the
shareholders or class of shareholders to be affected by the proposed compromise
or arrangement or a reorganization, agree to a compromise or arrangement or a
reorganization of the Corporation as a consequence of the compromise or
arrangement, the compromise or arrangement and the reorganization, if sanctioned
by the court to which the application has been made, shall be binding on all the
creditors or class of creditors, or on all the shareholders or class of
shareholders and also on the Corporation.
ARTICLE VI
Directors
The Board of Directors shall consist of, except during the period of
any vacancy between annual meetings of the shareholders, that number of members
as are set forth in the By-Laws of the Corporation of which, except during the
period of any vacancy between annual meetings of the shareholders, not less than
a majority of the members shall be Independent Directors (as hereinafter
defined). For purposes of this Article VI, "Independent Director" shall mean an
individual who is not an employee, officer or person who regularly acts in a
professional advisory role to the Corporation.
The affirmative vote of a majority of all members of the Board of
Directors who do not have a beneficial financial interest in the action before
the Board of Directors is required for the approval of all actions to be taken
by the Board of Directors. The establishment of reasonable compensation of
Directors for services to the Corporation as Directors or officers shall not
constitute action in which any Director has a beneficial financial interest.
ARTICLE VII
Limited Liability of Directors
No director of the Corporation shall be liable to the Corporation or
its shareholders for monetary damages for a breach of the director's fiduciary
duty; provided, however, the foregoing provision shall not be deemed to limit a
director's liability to the Corporation or its shareholders resulting from:
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(i) a breach of the director's duty of loyalty to the
Corporation or its shareholders;
(ii) acts or omissions of the director not in good faith or
which involve intentional misconduct or knowing
violation of law;
(iii) a violation of Section 551(1) of the Act or;
(iv) a transaction from which the director derived an
improper personal benefit.
ARTICLE VIII
Indemnification of Officers, Directors, Etc.
1. Indemnification of Directors.
The Corporation shall and does hereby indemnify a person
(including the heirs, executors, and administrators of such person) who is or
was a party to, or who is threatened to be made a party to, a threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal, including,
without limitation, an action by or in the right of the Corporation, by reason
of the fact that he or she is or was a director of the Corporation, or is or was
serving at the request of the Corporation as a director (or in a similar
capacity) or in any other representative capacity of another foreign or domestic
corporation, a partnership joint venture, trust or other enterprise, or of or
with respect to any other entity whether for profit or not, against expenses,
attorneys' fees, judgments, penalties, fines, and amounts paid in settlement
actually and reasonably incurred by him or her in connection with the action,
suit, or proceeding. Section I of this Article VIII is intended to grant the
persons herein described with the fullest protection not prohibited by existing
law in effect as of the date of filing this Amended and Restated Articles of
Incorporation or such greater protection as may be permitted or not prohibited
under succeeding provisions of law.
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2. Indemnification of Officers, etc.
The Corporation has the power to indemnify a person (including
the heirs, executors, and administrators of such person) who is or was a party
to, or who is threatened to be made a party to, a threatened, pending, or
contemplated action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal, including an
action by or in the right of the Corporation, by reason of the fact that he or
she is or was an officer, employee, or agent of the Corporation or is or was
serving at the request of the Corporation as an officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, whether for profit or not, against
expenses, including attorneys' fees, judgments, penalties, fines, and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with the action, suit, or proceeding, if the person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation or its shareholders, and with respect to a criminal
action or proceeding, if the person had no reasonable cause to believe his or
her conduct was unlawful. Unless ordered by a court, an indemnification under
Section 2 of this Article VIII shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
officer, employee, or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Section 2 of this Article
VIII.
3. Advancement of Expenses.
The Corporation shall pay the expenses incurred by a person
described in Section 1 of this Article VIII in defending a civil or criminal
action, suit, or proceeding described in such Section 1 in advance of the final
disposition of the action, suit, or proceeding. The Corporation shall pay the
expenses incurred by a person described in Section 2 of this Article VIII in
defending a civil or criminal action, suit, or proceeding described in such
Section 2 in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of such person to repay the
expenses if it is ultimately determined that the person is not entitled to be
indemnified by the Corporation. Such undertaking shall be by unlimited general
obligation of the person on whose behalf advances are made but need not be
secured.
Signed this 16th day of June, 1994.
/s/ Anthony S. Gramer
---------------------
Anthony S. Gramer
President
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<PAGE> 1
EXHIBIT 3(c)
CERTIFICATE OF DESIGNATIONS, PREFERENCES, AND RIGHTS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
MALAN REALTY INVESTORS, INC.
(Pursuant to Section 302(4) of the
Michigan Business Corporation Act)
Corporate Identification Number 001957
---------------------------
Malan Realty Investors, Inc., a Michigan corporation (the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation pursuant to Section 302(4) of the
Michigan Business Corporation Act at a meeting duly called and held on January
15, 1999:
RESOLVED, that pursuant to the authority granted and vested in the
Board of Directors of the Corporation in accordance with the Corporation's
Amended and Restated Articles of Incorporation, the Board of Directors hereby
creates a series of Preferred Stock, par value $.01 per share, of the
Corporation and hereby states the designation and number of shares, and hereby
fixes the voting powers, preferences and relative, participating, optional and
other special rights thereof and the qualifications, limitations or restrictions
thereof (in addition to the provisions set forth in the Amended and Restated
Articles of Incorporation of the Corporation which are also applicable to all
classes and series of the Preferred Stock), in the form set forth below.
Series A Junior Participating Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 20,000, and such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of
the holders of any shares of any series of Preferred Stock (or any similar
stock) ranking prior and superior to the Series A Preferred Stock with respect
to dividends, the holders of shares of Series A Preferred Stock, in preference
to the holders of Common Stock, par value $.01 per share (the "Common Stock") of
the Corporation, and of any other stock ranking junior
<PAGE> 2
to the Series A Preferred Stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the date of each quarterly
payment of a dividend with respect to the Common Stock or if no such dividend is
paid in any quarter on the first day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set
forth, 1000 times the aggregate per share amount of all cash dividends, and 1000
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock since the immediately preceding
quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of
<PAGE> 3
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
SECTION 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 1000 votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or
<PAGE> 4
in arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock of
the Corporation ranking junior (both as to dividends and upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock; except in accordance with
a purchase offer made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Company's Amended and Restated Articles of Incorporation, or in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock or as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any
liquidation, dissolution or winding up of the Corporation, voluntary or
otherwise, no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received an amount per share
(the "Series A Liquidation Preference") equal to $1000 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive, if greater than $1000 per
share, an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time
<PAGE> 5
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other classes and series of stock of the
Corporation, if any, that rank on a parity with the Series A Preferred Stock in
respect thereof, then the assets available for such distribution shall be
distributed ratably to the holders of the Series A Preferred Stock and the
holders of such parity shares in proportion to their respective liquidation
preferences.
(C) Neither the merger or consolidation of the Corporation into or with
another corporation nor the merger or consolidation of any other corporation
into or with the Corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 6.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Series A Preferred Stock
shall not be redeemable by the Company.
SECTION 9. RANK. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, junior to all series of any other class of the
Corporation's Preferred Stock unless the terms of any such series shall provide
otherwise.
<PAGE> 6
SECTION 10. AMENDMENT. At any time any shares of Series A Preferred
Stock are outstanding, the Amended and Restated Articles of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred
Stock, as set forth herein, so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series A Preferred Stock, voting together as a single class.
SECTION 11. FRACTIONAL SHARES. Series A Preferred Stock may be issued
in fractions of a share that shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its President and attested by its Secretary this
15th day of January, 1999.
/s/ Anthony S. Gramer
---------------------
President
Attest:
/s/ Kenneth H. Gold
- --------------------
Secretary
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF MALAN REALTY INVESTORS, INC.
MALAN DEPOSITOR, INC.
MALAN MORTGAGOR, INC.
MALAN MEADOWS, INC.
MALAN REVOLVER, INC.
MALAN MIDWEST, LLC
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement Nos.
33-94124 on Form S-8 and 33-94116 on Form S-3 of Malan Realty Investors, Inc. of
our report dated January 28, 1999, appearing in this Annual Report on Form 10-K
of Malan Realty Investors, Inc. for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
Detroit, Michigan
March 12, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, a Director of Malan Realty Investors, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Anthony
S. Gramer and Elliott J. Broderick, with full power of substitution, as his true
and lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on Form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended,
and any and all instruments that such attorneys and agents, or either of them,
may deem necessary or advisable to enable the Company to comply with the Act and
the rules, regulations, and requirements of the Commission. The undersigned
hereby ratifies and confirms as his own act and deed everything that such
attorneys and agents, and each of them, does or causes to be done. Each such
attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 12th day of February, 1999.
/s/ ROBERT D. KEMP, JR.
---------------------------
Robert D. Kemp, Jr.
<PAGE> 2
POWER OF ATTORNEY
The undersigned, a Director of Malan Realty Investors, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Anthony
S. Gramer and Elliott J. Broderick, with full power of substitution, as his true
and lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on Form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended,
and any and all instruments that such attorneys and agents, or either of them,
may deem necessary or advisable to enable the Company to comply with the Act and
the rules, regulations, and requirements of the Commission. The undersigned
hereby ratifies and confirms as his own act and deed everything that such
attorneys and agents, and each of them, does or causes to be done. Each such
attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 16th day of March, 1999.
/s/ WILLIAM F. PICKARD
------------------------------
William F. Pickard
<PAGE> 3
POWER OF ATTORNEY
The undersigned, a Director of Malan Realty Investors, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Anthony
S. Gramer and Elliott J. Broderick, with full power of substitution, as his true
and lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on Form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended,
and any and all instruments that such attorneys and agents, or either of them,
may deem necessary or advisable to enable the Company to comply with the Act and
the rules, regulations, and requirements of the Commission. The undersigned
hereby ratifies and confirms as his own act and deed everything that such
attorneys and agents, and each of them, does or causes to be done. Each such
attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 12th day of February, 1999.
/s/ WILLIAM MCBRIDE III
----------------------------
William McBride III
<PAGE> 4
POWER OF ATTORNEY
The undersigned, a Director of Malan Realty Investors, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Anthony
S. Gramer and Elliott J. Broderick, with full power of substitution, as his true
and lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on Form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended,
and any and all instruments that such attorneys and agents, or either of them,
may deem necessary or advisable to enable the Company to comply with the Act and
the rules, regulations, and requirements of the Commission. The undersigned
hereby ratifies and confirms as his own act and deed everything that such
attorneys and agents, and each of them, does or causes to be done. Each such
attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 12th day of February, 1999.
/s/ RICHARD T. WALSH
------------------------------
Richard T. Walsh
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