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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
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MALAN REALTY INVESTORS, INC.
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(Name of Registrant as Specified In Its Charter)
KENSINGTON INVESTMENT GROUP, INC.
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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previously. Identify the previous filing by registration statement number,
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KENSINGTON INVESTMENT GROUP
May 5, 2000
In a letter to the shareholders of Malan Realty Investors (the
"Company") on April 21, 2000, we stated that Kensington believes that the
Company's properties are worth 20% to 40% more that recent trading prices. We
wanted to write you one more time to clarify and explain the basis for that
statement.
Kensington continually values the underlying properties held by its
portfolio companies and the valuation of Malan's properties was not made in
contemplation of our proxy solicitation. We did not use a third party valuation
with respect to Malan's properties. Kensington's valuation was based on the two
valuation methodologies most relied on by real estate appraisers: direct
capitalization and discounted cash flow.
Both the direct capitalization and discounted cash flow analyses begin
with a definition of property revenues, operating expenses and net operating
income. In order to be more conservative, Kensington's definition of revenue
excluded lease termination revenues, interest income, and other unspecified
income. Kensington's definition of expenses excluded amortization,
depreciation, and any provisions for "straight lining" of rental payments. The
income, expenses, and net operating income projection used in Kensington's
analysis was based on Malan's operations through June 30, 1999 and was
annualized to reflect a full year's operations. This is also conservative
because Kensington did not project 2000 net operating income, and relied upon
annualized "current year" net operating income.
Kensington relied primarily on its direct capitalization amalysis of
Malan's portfolio. In the direct capitalization analysis, Kensington's estimate
of net operating income of $28.75 million was reduced by an amount intended to
reflect the costs of propert management (approximately 3% of gross income). The
adjusted net operating income was then capitalized at rates ranging from 9.25%
to 10.0%. These are rates Kensington, in its judgment, believes are reasonable
given its history of valuation experience and its research on the Malan
portfolio. Next Kensington reduced the gross value of the portfolio by 3% to
account for all costs which would be incurred in a liquidation, then reduced
the remainder by the amount of all debt and debt equivalents outstanding.
Kensington then added the amount of what Kensington believed are realizable
current assets and subtracted current liabilities to arrive at net asset value.
Kensington tested its direct capitalization analysis against a
discounted cash flow analysis but did not rely primarily on this analysis
because of the many assumptions which are necessarily included. The discounted
cash flow approach projected growth in property revenues, operating expenses,
net operating income, and net cash flow which a buyer could reasonably expect
to receive from owning Malan. This analysis assumed a holding period of twelve
years, income growth of 2.75% annually, expense growth of 1.0% annually, a
reversionary capitalization rate of 12%, and discount rates of 12% to 13%.
Kensington believes, based on its experience, that these assumptions are
reasonable.
Based on these analyses Kensington concluded that there was a
reasonable basis to state that Malan's properties were worth 20%-40% more than
recent trading prices. We note that there can be no assurance that these values
can be realized and that they are subject to various contingencies, including
that no buyers may be found or that the sales prices may be lower than
expected.
