SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12002
MARK CENTERS TRUST
(Exact name of registrant in its charter)
MARYLAND 23-2715194
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 THIRD AVENUE, KINGSTON, PENNSYLVANIA 18704
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(717) 288-4581
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 the past 90 days.
Yes X No
As of May 12, 1997, there were 8,548,817 common
shares of beneficial interest, par value $.001
per share, outstanding.
MARK CENTERS TRUST
FORM 10-Q
INDEX
Part I: Financial Information Page
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets as of
March 31, 1997 and as of December 31, 1996 1
Consolidated statements of operations for
the three months ended March 31, 1997 and 1996 2
Consolidated statements of cash flows for
the three months ended March 31, 1997 and 1996 3
Notes to consolidated financial statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II: Other Information
Signatures 17
Part I. Financial Information
Item 1. Financial Statements
MARK CENTERS TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except for per share amounts)
March 31, December 31,
1997 1996
(unaudited) (audited)
--------- -----------
ASSETS
Rental property - at cost:
Land $ 30,855 $ 31,084
Buildings and improvements 270,008 271,423
Construction-in-progress 6,063 4,904
-------- --------
306,926 307,411
Less accumulated depreciation 75,010 72,956
-------- --------
Net rental property 231,916 234,455
Cash and cash equivalents 8,109 3,912
Rents receivable - less allowance
for doubtful accounts of $535 and
$544, respectively 3,843 4,956
Prepaid expenses 1,281 1,421
Due from related parties 160 203
Furniture, fixtures and equipment,
net 521 570
Deferred charges 9,669 9,034
Mortgage escrows and other assets 7,316 3,966
-------- --------
$262,815 $258,517
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $179,438 $156,772
Lines of credit 5,536 16,051
Accounts payable and accrued expenses 5,740 9,397
Payable to Principal Shareholder 3,050 3,050
Distributions payable 3,662 3,662
Rents received in advance and tenant
security deposits 1,998 2,027
-------- --------
Total Liabilities 199,424 190,959
-------- --------
Minority Interest 10,079 10,752
-------- --------
Shareholders' Equity:
Common shares, $.001 par value,
authorized 50,000,000 shares, issued
and outstanding 8,548,817 shares 9 9
Additional paid-in capital 54,443 57,521
Deficit (1,140) (724)
-------- --------
Total Shareholders' Equity 53,312 56,806
-------- --------
$262,815 $258,517
======== ========
See accompanying notes
1
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands, except for per share amounts)
(unaudited)
March 31, March 31,
1997 1996
--------- ---------
Revenue:
Minimum rents $ 8,444 $ 8,466
Percentage rents 684 602
Expense reimbursements 1,777 1,944
Other 219 223
------- -------
Total revenue 11,124 11,235
------- -------
Expenses:
Property operating 2,563 2,817
Real estate taxes 1,439 1,298
Depreciation and amortization 3,324 3,202
General and
administrative expenses 537 758
------- -------
Total operating expenses 7,863 8,075
------- -------
Operating income 3,261 3,160
Loss on sale of property 12 --
Interest and financing
expenses 3,736 2,974
------- -------
(Loss)income before
minority interest (487) 186
Minority interest 71 (52)
------- -------
Net (loss) income $ (416) $ 134
======= =======
Net (loss) income per
common share $ (.05) $ .02
======= =======
See accompanying notes
2
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands, except for per share amounts)
(unaudited)
March 31, March 31,
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(416) $ 134
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and leasing amortization 3,175 2,968
Amortization - financing costs 149 234
Minority interest (71) 52
Provision for bad debts 88 194
Loss on sale of property 12 --
------- -------
2,937 3,582
Changes in assets and liabilities:
Rents receivable 1,025 651
Prepaid expenses 140 274
Due from related parties 43 75
Other assets (191) 467
Accounts payable and accrued expenses (37) 20
Rents received in advance and tenant
security deposits (29) (224)
------- -------
Net cash provided by operating activities 3,888 4,845
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate
and improvements (1,720) (3,892)
(Decrease) increase in accounts payable
related to construction in progress (3,620) 2,633
Net proceeds from sale of property 1,288 --
Deferred leasing and other charges (64) (2,761)
Expenditures for furniture, fixtures and
equipment (3) --
------- -------
Net cash used in investing activities (4,119) (4,020)
------- -------
3
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages
and lines of credit (10,849) (2,060)
Proceeds received for mortgage notes 23,000 3,360
Net (increase) decrease in mortgage escrows (3,159) 2,014
Payment of deferred financing costs (884) (39)
Dividends paid (3,078) (3,075)
Distributions to Principal Shareholder (602) (611)
------- -------
Net cash provided by (used in)
financing activities 4,428 (411)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 4,197 414
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,912 3,068
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,109 $ 3,482
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest, net
of amounts capitalized of $112 and $189,
respectively $3,791 $ 2,993
======= =======
See accompanying notes
4
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for per share amounts)
1. BASIS OF PRESENTATION
The consolidated financial statements include the consolidated
accounts of Mark Centers Trust (the "Company") and its majority
owned partnerships, including Mark Centers Limited Partnership
(the "Operating Partnership"), and have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with instruction to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The information furnished in the accompanying
consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair
presentation of the aforementioned consolidated financial
statements for the interim periods. Operating results for the
three month period ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the fiscal
year ending December 31, 1997.
The aforementioned consolidated financial statements should be
read in conjunction with the notes to the aforementioned
consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
2. ORGANIZATION AND FORMATION OF THE COMPANY
The Company was formed as a Maryland Real Estate Investment Trust
("REIT") on March 4, 1993 by Marvin L. Slomowitz (the "Principal
Shareholder"), the principal owner of Mark Development Group (the
"Predecessor"), to continue the business of the Predecessor in
acquiring, developing, renovating, owning and operating shopping
center properties. The Company effectively commenced operations
on June 1, 1993 with the completion of its initial public
offering, whereby it issued an aggregate of 8,350,000 common
shares of beneficial interest to the public at an initial public
offering price of $19.50 per share (the "Offering"). The
proceeds from the Offering were used to repay certain property-
related indebtedness, for costs associated with the Offering and
transfer of the properties to the Company and for working
capital. The acquisition of the properties was recorded by the
Company at the historical cost reflected in the Predecessor's
financial statements since these transactions were conducted with
entities deemed to be related parties.
5
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
The Company currently owns and operates thirty-nine properties
consisting of thirty-four neighborhood and community shopping
centers, three enclosed malls and two mixed use (retail/office)
properties. All of the Company's assets are held by, and all of
its operations are conducted through, the Operating Partnership
and its majority owned partnerships. As of March 31, 1997, the
Company controlled 84% of the Operating Partnership as the sole
general partner. The Company will at all times be the sole
general partner of, and owner of a 51% or greater interest in,
the Operating Partnership. In excess of 99% of the minority
interest in the Operating Partnership is owned by the Principal
Shareholder who is the principal limited partner of the Operating
Partnership.
3. SHAREHOLDERS' EQUITY AND MINORITY INTEREST
The following table summarizes the change in the shareholders'
equity and minority interest since December 31, 1996:
Shareholders' Minority
Equity Interest
Balance at December 31, 1996 $56,806 $10,752
Loss for the period January 1 through
March 31, 1997 (416) (71)
Distributions to Principal Shareholder -- (602)
Dividends paid, $.36 per share (3,078) --
------- -------
Balance at March 31, 1997 $53,312 $10,079
======= =======
4. RELATED PARTY TRANSACTIONS
As of March 31, 1997 amounts due from related parties consisted
of the following:
Accrued ground rent due from Blackman Plaza
Partners (a limited partnership in which the
Principal Shareholder is a 1% general partner) $ 190
Other amounts (net) due to Principal Shareholder (30)
-------
$ 160
=======
6
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
5. MORTGAGE NOTES AND LINES OF CREDIT
On March 4, 1997 , the Company closed on $23,000 of fixed rate
financing from Nomura Asset Capital Corporation ("Nomura"). The
loan, which matures on March 11, 2022, is secured by a mortgage
on one of the Company's properties, bears interest at 9.02% and
requires monthly payments of interest and principal amortized
over 25 years. Approximately $10,155 of the proceeds were used to
retire existing debt with Fleet National Bank, $673 were used to
pay financing costs, $3,105 was deposited in escrows, and the
remaining proceeds were used for working capital. The Company is
subject to certain affirmative and negative covenants.
6. PER SHARE DATA
Primary earnings per share are computed based on 8,559,535 and
8,563,053 shares outstanding, which represent the weighted
average number of shares outstanding (including restricted
shares) during the three month periods ended March 31, 1997 and
1996, respectively. Fully diluted earnings per share is based on
an increased number of shares that would be outstanding assuming
the exercise of share options at the market price at the end of
the period. Since fully diluted earnings per share is not
materially dilutive or is anti-dilutive, such amounts are not
presented.
7. ACCOUNTING CHANGE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("FAS 128"). FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997,
including interim periods. Early adoption is not permitted and
the statement requires restatement of all prior-period earnings
per share ("EPS") presented after the effective date. The
Company will adopt FAS 128 effective with the year ending
December 31, 1997 and does not expect the impact on EPS to be
material.
7
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
8. DISTRIBUTIONS PAYABLE
On March 13, 1997, the Trustees declared a cash distribution of
$0.36 per common share and OP Unit payable on April 30, 1997 to
shareholders and limited partners of record as of March 28, 1997.
9. SALE OF PROPERTY
On March 5, 1997, the Company completed the sale of the Newberry
Plaza for $1.3 million. A $392,000 reduction in carrying value
had been recorded as of December 31, 1996 to reflect the property
at a fair value equal to the contract sales price less direct
selling costs.
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion is based on the consolidated financial
statements of Mark Centers Trust (the "Company") as of March 31,
1997 and 1996 and for the three months then ended.
This information should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
These financial statements include all adjustments which, in the
opinion of management, are necessary to reflect a fair statement
of the results for the interim periods presented, and all such
adjustments are of a normal recurring nature. Operating results
for the three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1997.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1997 to Three Months
Ended March 31, 1996
Total revenue remained essentially stable, decreasing marginally
by $111,000, or 1% to $11.1 million for the quarter ended March
31, 1997 compared to $11.2 million for the quarter ended March
31, 1996. A decline in minimum rents following the loss of two
anchor tenants was offset by the minimum rents generated from the
Company's development and expansion activities. The completion of
Sears and Hill's department stores in October 1996 (Phase I of
the planned development) at the Union Plaza and the opening of
the HomePlace store in June 1996, completing the expansion of the
New Louden Center, offset the impact of the loss of Jamesway at
the Ledgewood Mall and Rich's Department Store at the Auburn
Plaza following their bankruptcy proceedings in 1996. Expense
reimbursements, which represents the pass-through of certain
property operating expenses to the tenants, decreased $167,000,
or 9%, primarily due to a decrease in winter related reimbursable
expenses following the comparatively milder 1997 winter.
9
RESULTS OF OPERATIONS, continued
Total operating expenses of $7.9 million for the quarter ended
March 31, 1997 decreased $212,000, or 3% from $8.1 million for
the quarter ended March 31, 1996. The decrease was primarily a
result of a $238,000 reduction in snow removal costs and a
$221,000, or 29% reduction in general and administrative expenses
which reflected the effect of the write-off of certain costs
during the quarter ended March 31, 1996 following the Company's
decision to terminate the development of land in Gettysburg,
Pennsylvania. The foregoing factors were partially offset by
increases in real estate taxes and depreciation and amortization
totalling $263,000 due to the Company's property development and
expansion activities.
Interest and financing expenses increased $762,000 for the
quarter ended March 31, 1997 compared to the quarter ended March
31, 1996. This variance was primarily a result of higher average
outstanding borrowings related to property development and
expansion activities.
As a result of the changes in revenues and expenses as discussed
above, income before minority interest declined $673,000 from
$186,000 for the quarter ended March 31, 1996 resulting in a net
loss before minority interest of $487,000 for the quarter ended
March 31, 1997.
Funds from Operations
The Company, along with most industry analysts, consider funds
from operations("FFO") as defined by the National Association of
Real Estate Investment Trusts ("NAREIT")as an appropriate
supplemental measure of operating performance. However, FFO does
not represent cash generated from operations as defined by
generally accepted accounting principles and is not indicative of
cash available to fund cash needs. It should not be considered as
an alternative to net income for the purpose of evaluating the
Company's performance or to cash flows as a measure of liquidity.
Generally, NAREIT defines FFO as net income (loss) before gains
(losses) on sales of property, non-recurring charges and
extraordinary items, adjusted for certain non-cash charges,
primarily depreciation and amortization of capitalized leasing
costs.
10
FUNDS FROM OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands, except for per share amounts)
March 31, 1997 March 31, 1996
Revenue
Minimum rents (a) $ 8,349 $ 8,406
Percentage rents 684 602
Additional rents-
expense reimbursements 1,777 1,944
Other 219 223
------- -------
Total revenue 11,029 11,175
------- -------
Expenses
Property operating (b) 2,553 2,741
Real estate taxes 1,439 1,298
General and administrative 531 751
------- -------
Total operating expenses 4,523 4,790
------- -------
Operating income 6,506 6,385
Interest and financing expense 3,736 2,974
Amortization of deferred
financing costs 149 234
Depreciation of non-real
estate assets 52 57
------- -------
Funds from operations $ 2,569 $ 3,120
======= =======
Funds from operations per share (c) $ .25 $ .31
======= =======
Reconciliation of Funds from Operations to Net Income
determined in accordance with Generally Accepted Accounting
Principles (GAAP)
Funds from operations above $ 2,569 $ 3,120
Depreciation and amortization of
leasing costs (3,123) (2,911)
Straight-line rents and
related write-offs, net 94 (8)
Minority interest 71 (52)
Loss on sale of property (12) --
Other non-cash adjustments (15) (15)
------- -------
Net (loss) income $ (416) $ 134
======= =======
Net (loss) income per share (d) $ (.05) $ .02
======= =======
11
(a) Excludes income from straight-lining of rents.
(b) Represents all expenses other than depreciation,
amortization, write-off of unbilled rent receivables
recognized on a straight-line basis and the non-cash charge
for compensation expense related to the Company's restricted
share plan.
(c) Assumes full conversion of 1,623,000 Operating Partnership
Units into common shares of the Company for the
three months ended March 31, 1997 and 1996, respectively,
for a total of 10,171,817 and 10,166,452 shares,
respectively.
(d) Net income per share is computed based on the weighted
average number of shares outstanding for the three
months ended March 31, 1997 and 1996 of 8,559,535
and 8,563,053, respectively.
12
LIQUIDITY AND CAPITAL RESOURCES
On March 4, 1997 , the Company closed on $23 million of fixed
rate financing from Nomura Asset Capital Corporation ("Nomura").
The loan, which matures on March 11, 2022, is secured by a
mortgage on one of the Company's properties, bears interest at
9.02% and requires monthly payments of interest and principal
amortized over 25 years. Approximately $10.2 million of the
proceeds were used to retire existing debt with Fleet National
Bank, $673,000 were used to pay financing costs, $3.1 million was
deposited in escrows, and the remaining proceeds were used for
working capital. The Company is subject to certain affirmative
and negative covenants.
At March 31, 1997 the Company had $3.2 million outstanding under
the Mellon Bank, N.A. ("Mellon Bank") facility requiring the
amortization of principal through the maturity date of April 2,
1998. The facility bears interest at LIBOR plus 200 basis points
or the prime rate established by Mellon Bank plus 1/2% and is
secured by one property.
The Company also has $2.3 million outstanding on its revolving
line of credit facility with Firstrust Savings Bank
("Firstrust"). The facility bears interest at the higher of
8.75% or the prime rate established by Firstrust Bank plus 1/2%,
requires the monthly payment of principal through the maturity
date of June 30, 1997 and is secured by the Mark Plaza. The
Company has obtained a commitment from Firstrust to provide
additional financing of $3.2 million for the expansion and
renovation of the Mark Plaza (of which $3.0 million is included
in the 1997 estimated capital outlays as discussed hereinafter in
Liquidity and Capital Resources), and convert the entire facility
of $5.5 million to a construction loan to mature in 18 months
following closing.
The Company has additional mortgage indebtedness of $156.4
million outstanding which bears fixed rates of interest ranging
from 7.70% to 9.11% with maturities ranging from April 1, 2000 to
November 1, 2021.
13
LIQUIDITY AND CAPITAL RESOURCES, continued
At March 31, 1997, the Company's capitalization consisted of
$185.0 million of debt and $110.6 million of market equity (using
a March 31, 1997 market price of $10.875 per share). Of the total
outstanding debt, $175.4 million, or 95%, is carried at fixed
interest rates and the remaining $9.6 million, or 5%, is carried
at variable rates.
The Company currently estimates that capital outlays for property
development, property expansion and tenant improvements will
require $10.3 million during the remainder of 1997. Of these
capital outlays, $673,000 is reflected in accounts payable and
accrued expense balances at March 31, 1997.
Historically, the principal sources for funding operations,
renovations, expansion, development and acquisitions have been
funds from operations, construction and permanent secured debt
financings, as well as short term construction and line of credit
borrowing from various lenders. The Company anticipates that cash
flow from operating activities will continue to provide adequate
capital for all debt service payments, recurring capital
improvements, as well as distributions in accordance with REIT
requirements (95% of taxable income). In addition, cash on hand,
amounts currently escrowed with lenders and the use of
construction financing as well as other debt and equity financing
alternatives will provide the necessary capital to fund planned
1997 outlays for property development, property expansion and
tenant improvements, and achieve continued growth.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares the
Company's cash flow for the three months ended March 31, 1997
with the Company's cash flow for the three months ended March 31,
1996.
Net cash provided by operating activities decreased from $4.8
million for the three months ended March 31, 1996 to $3.9 million
for the three months ended March 31, 1997. This variance was
primarily attributable to a $428,000 decrease in cash provided
from net income as adjusted for depreciation and amortization and
a $658,000 increase in cash used for other assets.
14
HISTORICAL CASH FLOW, continued
Investing activities used $4.1 million during the three months
ended March 31, 1997, a $100,000 increase in cash used from the
same period in 1996. This was due to $4.1 million more cash used
during the three months ended March 31, 1997 related to property
development, expansion and retenanting activities (including the
payment of accounts payable related thereto) offset by a $2.7
million decrease in deferred leasing charges paid and the receipt
of $1.3 million from the sale of the Newberry Plaza during the
three months ended March 31, 1997.
Net cash provided by financing activities was $4.4 million for
the three months ended March 31, 1997 representing a $4.8 million
increase from net cash used in financing activities of $411,000
for the three months ended March 31, 1996. This increase is
primarily attributable to financing obtained from Nomura on March
4, 1997.
INFLATION
The Company's long-term leases contain provisions designed to
mitigate the adverse impact of inflation on the Company's net
income. Such provisions include clauses enabling the Company to
receive percentage rents based on tenants' gross sales, which
generally increase as prices rise, and/or, in certain cases,
escalation clauses, which generally increase rental rates during
the terms of the leases. Such escalation clauses are often
related to increases in the consumer price index or similar
inflation indexes. In addition, many of the Company's leases are
for terms of less than ten years, which permits the Company to
seek to increase rents upon re-rental at market rates if rents
are below the then existing market rates. Most of the Company's
leases require the tenants to pay their 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.
15
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) Exhibits
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
None
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has fully caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
MARK CENTERS TRUST
By: /s/ Marvin L. Slomowitz
Marvin L. Slomowitz
Chief Executive Officer and
Trustee (Principal Executive
Officer)
/s/ Joshua Kane
Joshua Kane
Senior Vice President
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
Date: May 14, 1997
17
INDEX OF EXHIBITS
27 Financial Data Schedule (EDGAR filing only)
18
5
0000899629
MARK CENTERS TRUST
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
8,109
0
4,378
535
0
0
306,926
75,010
262,815
0
184,974
0
0
9
53,303
262,815
0
11,124
0
7,863
0
0
3,736
0
0
(407)
(9)
0
0
(416)
(.05)
(.05)
