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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission file number 1-13092
MALAN REALTY INVESTORS, INC.
(Exact name of registrant as specified in charter)
Michigan 38-1841410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
30200 Telegraph Rd., Ste. 105 48025
Bingham Farms, Michigan (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (248) 644-7110
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. YES [X] NO [ ]
As of May 10, 2000, 5,174,220 shares of Common Stock, Par Value $.01
Per share, were outstanding.
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MALAN REALTY INVESTORS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999 3
Statements of Operations (unaudited) for
the three months ended March 31, 2000 and 1999 4
Statements of Cash Flows (unaudited) for the
three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements (unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II OTHER INFORMATION 14
SIGNATURES 15
</TABLE>
2
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MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate
Land, building and improvements $ 267,682 $ 267,117
Less: accumulated depreciation (28,155) (26,584)
--------- ---------
Total 239,527 240,533
Accounts receivable, net 2,367 1,149
Deferred financing and other 7,882 7,554
Cash and cash equivalents 2,755 1,857
Restricted cash - mortgage escrow deposits 2,192 2,387
--------- ---------
TOTAL ASSETS $ 254,723 $ 253,480
========= =========
LIABILITIES
Mortgages $ 129,932 $ 126,601
Convertible debentures 42,743 42,743
Convertible notes 27,000 27,000
Accounts payable and other 2,449 2,699
Accrued distributions payable 2,199 2,198
Accrued property taxes 2,303 1,315
Accrued interest payable 2,195 3,783
--------- ---------
Total Liabilities 208,821 206,339
--------- ---------
SHAREHOLDERS' EQUITY
Common stock ($.01 par value, 30 million shares authorized, 5,173,342
and 5,172,404 shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively) 52 52
Additional paid in capital 74,181 74,169
Accumulated distributions in excess of net income (28,331) (27,080)
--------- ---------
Total shareholders' equity 45,902 47,141
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 254,723 $ 253,480
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
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MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
REVENUES
Minimum rent $ 7,461 $ 7,682
Percentage and overage rents 519 245
Recoveries from tenants 2,787 2,984
Interest and other income 262 87
Gain on sale of real estate 1,751
----------- -----------
Total Revenues 11,029 12,749
----------- -----------
EXPENSES
Property operating and maintenance 944 1,170
Other operating expenses 380 368
Real estate taxes 2,074 2,158
General and administrative 572 545
Depreciation and amortization 1,632 1,579
----------- -----------
Total Operating Expenses 5,602 5,820
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OPERATING INCOME 5,427 6,929
INTEREST EXPENSE 4,479 4,438
----------- -----------
INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 948 2,491
EXTRAORDINARY ITEM:
Loss on extinguishment of debt (459)
----------- -----------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 948 2,032
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (522)
----------- -----------
NET INCOME $ 948 $ 1,510
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE
BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE
ACCOUNTING PRINCIPLE $ 0.18 $ 0.48
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE
BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE $ 0.18 $ 0.39
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.18 $ 0.29
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 5,172,590 5,168,892
=========== ===========
DILUTED 5,172,860 5,174,224
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
4
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MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 948 $ 1,510
-------- --------
Adjustments to reconcile net income to
net cash flows provided by operating activities:
Depreciation and amortization 1,632 1,579
Amortization of deferred financing costs 417 480
Directors compensation issued in stock 12 12
Gain on sale of real estate (1,751)
Loss on extinguishment of debt 459
Change in operating assets and liabilities that
used cash:
Accounts receivable and other assets (1,951) (648)
Accounts payable, deferred income and
other accrued liabilities (850) (1,039)
-------- --------
Total adjustments (740) (908)
-------- --------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 208 602
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate developed, acquired or improved, net
of mortgage assumed (565) (9,873)
Deposits to escrow (5,084) (5,300)
Disbursements from escrow 5,279 5,153
Net proceeds from sale of real estate 7,175
-------- --------
NET CASH FLOWS USED FOR
INVESTING ACTIVITIES (370) (2,845)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgages (169) (3,787)
Proceeds from mortgages 3,800
Debt issuance costs (73) (108)
Draws on lines of credit 3,500 11,294
Repayments on lines of credit (8,300)
Distributions to shareholders (2,198) (2,200)
-------- --------
NET CASH FLOWS PROVIDED BY 1,060 699
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in cash and cash equivalents 898 (1,544)
Cash and cash equivalents at beginning of
period 1,857 2,898
-------- --------
Cash and cash equivalents at end of period $ 2,755 $ 1,354
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION-
CASH PAID FOR INTEREST DURING THE PERIOD $ 5,649 $ 5,628
======== ========
</TABLE>
5
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MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation - The accompanying interim consolidated financial
statements and related notes of the Company are unaudited; however, they have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting, the instructions to Form 10-Q and the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared under generally accepted accounting principles have been condensed or
omitted pursuant to such rules. In the opinion of management, all adjustments
considered necessary for a fair presentation of the Company's consolidated
financial position, results of operations and cash flows have been included. The
results of such interim periods are not necessarily indicative of the results of
operations for the full year.
Principles of Consolidation - The accompanying consolidated financial statements
include the activity of the Company and its wholly owned subsidiaries, Malan
Mortgagor, Inc., Malan Meadows, Inc., Malan Revolver, Inc., Malan Aurora Corp.
and Malan Midwest, LLC. All significant inter-company balances and transactions
have been eliminated.
Reclassifications- Certain reclassifications have been made to prior years
financial statements in order to conform with the current year presentation.
Management Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Impact of Recently Adopted Accounting Standards- In December 1999, the SEC
issued Staff Accounting Bulletin (SAB) No. 101-Revenue Recognition in Financial
Statements which addresses the proper recognition of certain revenue items
including contingent (percentage) rents. Certain of the Company's leases contain
provisions whereby additional rent is due from a tenant once the tenant has
achieved a certain sales level i.e. contingent rental. Under SAB No. 101, a
lessor should not recognize contingent rental income until the changes in the
factor (s) on which the contingent lease payments is (are) based actually occur.
The Company had previously recorded accrued percentage rental income as lessee's
specified sales targets were met or achievement of the sales target was
probable.
6
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The Company elected to adopt the provisions of SAB No. 101 in 1999. The
cumulative effect of such adoption is a reduction in percentage rental revenue
of approximately $522,000 as of January 1, 1999. The 1999 financial information
has been restated to conform with the provisions of SAB 101.
2. COMPENSATION PLANS
The activity in the Directors Stock Compensation Plan for the three
months ended March 31, 2000 consisted of 938 shares issued at $12.75 per share.
Compensation expense in connection with the Company's 401(k) retirement
plan for the three months ended March 31, 2000 was $8,700.
3. MORTGAGES
In March 2000, the Company extended its revolving line of credit with
Bank One through May 31, 2000. The Company is currently negotiating with Bank
One to extend the line for an additional four months to September 30, 2000.
4. EARNINGS PER SHARE
Earnings per share ("EPS") data were computed as follows (in thousands
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Income before extraordinary item and cummulative
effect of change in accounting principle...................... $ 948 $ 2,491
======= =======
Income before extraordinary item............................... $ 948 $ 2,032
======= =======
Net income..................................................... $ 948 $ 1,510
======= =======
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic.......................................................... 5,173 5,169
Net shares issuable upon exercise of dilutive options.......... -- 5
Shares applicable to diluted earnings.......................... 5,173 5,174
======= =======
BASIC AND DILUTED EPS:
Earnings per share before
extraordinary item and cumulative effect of change
in accounting principle....................................... $ 0.18 $ 0.48
======= =======
Earnings per share before cummulative effect of change
in accounting principle....................................... $ 0.18 $ 0.39
======= =======
Earnings per share............................................. $ 0.18 $ 0.29
======= =======
</TABLE>
Diluted EPS reflects the potential dilution of securities that could share in
the earnings but does
7
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not include shares issuable upon conversion of securities that would have an
antidilutive effect on earnings per share.
5. CONTINGENCIES
The Company is currently involved in a proxy contest with Kensington
Investment Group ("Kensington"). According to its filings with the U.S.
Securities and Exchange Commission (SEC), Kensington purports to be the
beneficial owner of 496,350 shares of the Company's Common Stock as of March 17,
2000, which is the record date of ownership set by the Board of Directors
entitling shareholders to vote at the Company's Annual Meeting on May 10, 2000
(the "Annual Meeting"). Kensington has proposed a slate of five individuals for
election at the Annual Meeting to run against the Company's current Board of
Directors. Final results of the voting were unavailable at the time of this
filing.
The Company estimates that it will spend approximately $400,000 for
solicitation of proxies to oppose the Kensington nominees including expenditures
for attorneys, solicitors, and public relations advisors and advertising,
printing, transportation and related expenses. In a previous SEC filing,
Kensington has stated that if its nominees are elected, it will seek
reimbursement of its proxy solicitation expenses from the Company, and it
estimates these expenses to be approximately $400,000.
The Company has in place "change in control" agreements with its three
officers. The agreements provide that if a change in control of the Company
occurs during the person's employment, Messrs. Gramer, Kaline and Broderick
shall receive lump sum payments totaling $1,750,000, and each individual is also
entitled to receive, at the Company's expense, health insurance for their
respective lifetimes. Replacement of the current Board of Directors by the
Kensington nominees would constitute a change in control under the agreements.
6. SUBSEQUENT EVENTS
In May 2000, the Company entered into an agreement to sell a 117,000
square foot shopping center in Manchester, Missouri for $6.8 million. Net
proceeds after repayment of debt and transaction fees are anticipated to be
approximately $5.0 million.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 2000 to Three Months Ended March 31,
1999
The total revenues decreased approximately $1.720 million from 1999.
Approximately $1.751 million of the decrease resulted from a nonrecurring gain
on the sale of a freestanding Kmart retail building located in Colma, California
that was recorded in March 1999. Minimum rents and recoveries from tenants
decreased approximately $418,000, due to lease termination agreements that were
executed with four tenants at the end of 1999 and the beginning of 2000, as well
as a decrease attributable to the Colma sale. Percentage rents increased
approximately $274,000 from 1999 primarily due to a settlement of additional
percentage rents from prior years of $195,000 and an overall increase in
percentage rents from Kmart and Walmart, the Company's two largest tenants.
Interest and other income increased $175,000 primarily due to lease termination
income recognized in 2000.
Total operating expenses decreased approximately $218,000 from 1999 to
2000. Property operating and maintenance expense decreased $226,000 primarily
due to lower cost of snow removal in 2000 and lower security costs due to the
sale of the Gary, Indiana property in 1999. Real estate taxes decreased $84,000
primarily due to the sales of property in 1999. General and administrative
increased by $27,000 primarily due to the cost of a shareholder proxy contest
discussed further below offset by decreased compensation expense. Depreciation
and amortization increased by $53,000 primarily due to acquisitions and
redevelopments that were completed in 1999.
Interest expense (including related amortization of deferred financing
costs) increased approximately $41,000 primarily due to an increase in the
interest rate on the Company's lines of credit.
In March 1999, the Company incurred a loss on extinguishment of debt of
$459,000, primarily from the charge off of deferred financing costs associated
with the pay down of debt related to the Colma sale and a related prepayment
penalty.
In 1999, the Company elected to apply the provisions of SEC Staff
Accounting Bulletin No. 101, which addresses the proper recognition of certain
revenue items including contingent (percentage) rents. The cumulative effect of
the change in accounting principle is a reduction in percentage rental revenue
of approximately $522,000 as of January 1, 1999.
Overall, net income decreased approximately $562,000 in 2000 primarily
as a result of nonrecurring items in 1999 including a sale of a property, a loss
on the extinguishment of debt and the cumulative effect of a change in
accounting principle offset by lease termination revenues and a settlement of
prior year percentage rents received in the current year.
9
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FUNDS FROM OPERATIONS
Management considers Funds From Operations ("FFO") to be an appropriate
measure of performance of an equity real estate investment trust. The Company
uses the method of calculating FFO prescribed by the October 1999 White Paper
issued by the National Association of Real Estate Investment Trusts (NAREIT)
which utilizes net income or loss excluding gains and losses from sales of
depreciable operating property, further adjusted for certain non-cash items
including depreciation and amortization of real estate assets and including
items from nonrecurring except for those that are defined as extraordinary items
under generally accepted accounting principles. It is the opinion of the
management that reduction for, or inclusion of these items, is not meaningful in
evaluating income-producing real estate which, in general, has historically not
depreciated.
FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not necessarily
indicative of cash available to fund cash needs, including distributions. FFO
should not be considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flow as a measure
of liquidity or the ability to pay distributions but rather, as a supplemental
tool to be used in conjunction with these factors in analyzing the Company's
overall performance.
The Company reports 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 the
three months ended March 31, 2000 and 1999 and the reconciliation of basic to
diluted FFO. The 1999 presentation has been restated to conform with 2000.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
NET INCOME............................................................... $ 948 $ 1,510
DEPRECIATION AND AMORTIZATION:
Depreciation of buildings and improvements.......................... 1,545 1,507
Amortization of tenant allowances and tenant improvements........... 47 38
Amortization of leasing costs....................................... 39 33
Gain on sale of real estate.............................................. (1,751)
Loss on extinguishment of debt........................................... 459
Cummulative effect of change in accounting principle..................... 522
------- --------
FUNDS FROM OPERATIONS, BASIC............................................. $ 2,579 $ 2,318
Interest expense on convertible securities............................... 1,589 1,641
Amortization of deferred financing costs on covertible securities........ 69 71
------- --------
FUNDS FROM OPERATIONS, DILUTED $ 4,237 $ 4,030
======= ========
Weighted average shares outstanding:
5,173 5,169
======= ========
Basic....................................................................
Diluted, assuming conversion of convertible securities................... 9.275 9.405
======= ========
</TABLE>
10
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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 2000, the Company completed the acquisition of a ground
lease interest in a portion of its property in Topeka, Kansas. Terms of the
agreement included a purchase price of $525,000 plus payment of all closing
costs. As a result of the acquisition, the Company now owns the fee interest in
the entire property.
Redevelopments
Phase II of the redevelopment of the Pine Ridge Plaza in Lawrence,
Kansas is in process. Current plans call for the addition of two "big box"
national retailers consisting of 20-25,000 square feet each and approximately
15,000 square feet of additional in-line retail space. Construction on one of
the two big box retailers is anticipated to begin in the second quarter 2000,
after finalization of lease terms. Total costs of the Phase II development range
from approximately $3.7 million to $4.0 million depending on the final scope of
the project and are anticipated to be expended over the next twelve to eighteen
months. Possible sources of funding for the project include the Company's lines
of credit and property specific financing.
Construction was completed in April 2000 on the Company's property in
Topeka, Kansas to redevelop 24,280 square feet of vacant space . The space has
been subdivided at a cost of approximately $472,000, including capitalized
interest, taxes and leasing commissions, which was funded primarily from the
Company's line of credit with Greenwich Capital Markets, Inc. The property is
100 % leased with Harbor Freight Tools leasing 10,380 square feet of the new
space and Sav-a-lot leasing the remaining 13,900 square feet. Both tenants have
opened for business as of May 10, 2000.
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 2000, the Company anticipates spending
approximately $1.1 million (of which none had been incurred in the three months
ended March 31, 2000) for capital expenditures to be funded primarily out of
reserves required for the Company's collateralized mortgages and partially from
operating cash flows.
The Company will occasionally provide inducements such as building
allowances or space improvements and/or pay leasing commissions to outside
brokers in order to procure new tenants or renegotiate expiring leases with
current tenants. The total cost of these expenditures in 2000 is estimated to be
approximately $657,000 (of which $18,000 had been incurred in the three months
ended March 31, 2000). These expenditures are generally funded by operating cash
flows and increased revenues resulting from such expenditures.
11
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Sources of Capital
The Company has in place a plan to repurchase and retire up to $15
million aggregate principal of its 9.5% Subordinated Convertible Debentures
("Debentures") due July 2004. Through March 31, 2000, the Company had
repurchased $11.807 million of Debentures. No Debentures were repurchased during
the quarter ended March 31, 2000; however, the Company intends to make
additional purchases in the future as funds become available.
In May 2000, the Company announced it had reached an agreement to sell
its property in Manchester, Missouri for $6.8 million. Net proceeds of the sale
after repayment of debt and transaction fees are anticipated to be approximately
$5.0 million. Possible uses of the proceeds include repayment of debt,
repurchase of Common Stock and/or Debentures and general corporate purposes.
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. As discussed further below, the Company
is currently involved in a proxy contest with one of its shareholders. Should
the Company be unsuccessful in the contest, expenditures related to proxy
solicitations and a corresponding change in control could amount to
approximately $2.5 million and may require borrowings on the Company's lines of
credit to fund such expenditures. 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 Company's line of credit with Bank One (the "Bank One Line") is a
revolving line of credit which expires May 2000. The Company is negotiating with
Bank One to extend the line for an additional four months through September
2000. The Bank One Line calls for monthly payments of interest at the rate of
200 basis points over LIBOR and is collateralized by the Company's interest in
Orchard-14 Shopping Center in Farmington Hills, Michigan. The Company's line of
credit with Greenwich Capital Markets, Inc. (the "Greenwich Capital Line") is a
revolving line of credit which expires November 2001 and is collateralized by 17
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 250 basis points. Amounts outstanding as of March 31, 2000 under the
Greenwich Capital Line and the Bank One Line were $11.2 million and $3.0
million, respectively, and the total maximum borrowings under each line as of
that date were $18.9 million and $4.5 million, respectively.
Proxy Contest and Related Costs
The Company is currently involved in a proxy contest with Kensington
Investment Group ("Kensington"). According to its filings with the U.S.
Securities and Exchange Commission (SEC), Kensington purports to be the
beneficial owner of 496,350 shares of the Company's common stock as of March 17,
2000, which is the record date of ownership set by the Board of Directors
entitling shareholders to vote at the Company's Annual Meeting on May 10, 2000.
Kensington has proposed a slate of five individuals for election at the Annual
Meeting to run against the Company's current Board of Directors. Final results
of the voting were unavailable at the time of this filing.
12
<PAGE> 13
The Company estimates that it will spend approximately $400,000 for
solicitation of proxies to oppose the Kensington nominees including expenditures
for attorneys, solicitors, and public relations advisors and advertising,
printing, transporation and related expenses. In a previous SEC filing,
Kensington has stated that if its nominees are elected, it will seek
reimbursement of its proxy solicitation expenses from the Company, and it
estimates these expenses to be approximately $400,000.
The Company has in place "change in control" agreements with its three
officers. The agreements provide that if a change in control of the Company
occurs during the person's employment, Messrs. Gramer, Kaline and Broderick
shall receive lump sum payments totaling $1,750,000, and each individual is also
entitled to receive, at the Company's expense, health insurance for their
respective lifetimes. Replacement of the current Board of Directors by the
Kensington nominees would constitute a change in control under the agreements.
Each of the above statements regarding anticipated operating results
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes the statements and
projections are based upon reasonable assumptions, actual results may differ
from those projected. Key factors that could cause actual results to differ
materially include economic downturns, successful and timely completion of
acquisitions, renovations and development programs, leasing activities, the
outcome of the proxy contest and other risks associated with the commercial real
estate business, and as detailed in the Managment's Discussion and Analysis of
Financial Condition and Results of Operations.
INFLATION
The Company's long-term leases contain provisions to mitigate the
adverse impact of inflation on its results of operations. Such provisions
include clauses entitling the Company to receive (i) scheduled base rent
increases and (ii) percentage rents based upon tenants' gross sales, which
generally increase as prices rise. In addition, many of the Company's non-anchor
leases are for terms of less than ten years, which permits the Company to seek
increases in rents upon re-rental at then current market rates if rents provided
in the expiring leases are below then existing market rates. Most of the
Company's leases require tenants to pay a share of operating expenses, including
common area maintenance, real estate taxes, insurance and utilities, thereby
reducing the Company's exposure to increases in costs and operating expenses
resulting from inflation.
ITEM 3. 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 March 31, 2000, a one percent increase or decrease in interest rates
would decrease or increase, respectively, the Company earnings and cash flows by
approximately $147,000 on an annualized basis.
13
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MALAN REALTY INVESTORS, INC.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
NONE
Item 2: Changes in Securities
NONE
Item 3: Defaults Upon Senior Securities
NONE
Item 4: Submission of Matters to a Vote of Security Holders
NONE
Item 5: Other Information
NONE
Item 6: Exhibits and Reports on Form 8-K
a) Exhibit Index:
27 Financial Data Schedule Filed with
this document
b) Reports on Form 8-K
NONE
14
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MALAN REALTY INVESTORS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MALAN REALTY INVESTORS, INC.
By: /s/ Anthony S. Gramer
---------------------
Anthony S. Gramer
Chief Executive Officer and President
By: /s/ Elliott J. Broderick
------------------------
Elliott J. Broderick
Chief Accounting Officer
Dated: May 10, 2000
15
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EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4947
<SECURITIES> 0
<RECEIVABLES> 10249
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15196
<PP&E> 0
<DEPRECIATION> 28155
<TOTAL-ASSETS> 254723
<CURRENT-LIABILITIES> 9146
<BONDS> 199675
0
0
<COMMON> 74233
<OTHER-SE> (28331)
<TOTAL-LIABILITY-AND-EQUITY> 254723
<SALES> 0
<TOTAL-REVENUES> 11029
<CGS> 0
<TOTAL-COSTS> 3398
<OTHER-EXPENSES> 2204
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4479
<INCOME-PRETAX> 948
<INCOME-TAX> 0
<INCOME-CONTINUING> 948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 948
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
