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 September 30, 1996
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 November 11, 1996, 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
September 30, 1996 and
as of December 31, 1995 1
Consolidated statements of operations for
the three and nine months ended
September 30, 1996 and 1995 2
Consolidated statements of cash flows for
the nine months ended September 30, 1996
and 1995 3
Notes to consolidated financial statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II: Other Information
Signatures 21
Part I. Financial Information
Item 1. Financial Statements
MARK CENTERS TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1996 1995
ASSETS (audited)
Rental property - at cost:
Land $ 30,179 $ 25,270
Buildings and improvements 258,839 258,827
Construction-in-progress 15,776 7,060
-------- --------
304,794 291,157
Less accumulated depreciation 69,608 61,269
-------- --------
Total rental property 235,186 229,888
Cash and cash equivalents 1,349 3,068
Rents receivable - less allowance
for doubtful accounts of $469 and
$509, respectively 4,811 5,200
Prepaid expenses 1,319 1,352
Due from related parties 211 384
Furniture, fixtures and equipment,
net 618 796
Deferred charges 7,853 4,905
Tenant security and other deposits 1,150 3,922
-------- --------
$252,497 $249,515
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $114,538 $107,975
Lines of credit 46,127 43,853
Accounts payable and accrued expenses 14,839 7,058
Accrued contingent payable to
Principal Shareholder -- 6,156
Note payable to Principal Shareholder 3,182 --
Rents received in advance and tenant
security deposits 1,790 1,466
-------- --------
Total Liabilities 180,476 166,508
-------- --------
Minority interest 11,462 13,228
-------- --------
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 60,550 69,770
Retained earnings -- --
-------- --------
Total Shareholders' Equity 60,559 69,779
-------- --------
$252,497 $249,515
======== ========
See accompanying notes to consolidated financial statements
1
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
(in thousands except for per share data)
Three months ended Nine months ended
9/30/96 9/30/95 9/30/96 9/30/95
Revenue:
Minimum rents $ 8,388 $ 8,342 $25,113 $24,386
Percentage rents 581 829 1,797 2,407
Additional rents-
expense reimbursements 1,443 1,570 4,994 4,493
Other 85 183 547 685
------- ------- ------- -------
Total revenue 10,497 10,924 32,451 31,971
------- ------- ------- -------
Expenses:
Property operating 2,273 1,968 7,366 6,248
Real estate taxes 1,282 1,286 3,948 3,581
Depreciation and
amortization 3,487 3,010 9,957 8,795
General and
administrative expenses 642 658 2,114 2,070
------- ------- ------- -------
Total operating expenses 7,684 6,922 23,385 20,694
------- ------- ------- -------
Operating income 2,813 4,002 9,066 11,277
Gain on sale of land 21 -- 21 94
Interest and financing
expenses (3,017) (2,805) (9,067) (7,759)
------- ------- ------- -------
(Loss)income before
minority interest (183) 1,197 20 3,612
Minority interest 4 (209) (69) (652)
------- ------- ------- -------
Net (loss) income $ (179) $ 988 $ (49) $ 2,960
======= ======= ======= =======
Net (loss)income per
common share $ (.02) $ .12 $ (.01) $ .35
======= ======= ======= =======
See accompanying notes to consolidated financial statements
2
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1996 AND 1995
(in thousands)
Sept 30, Sept 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (49) $2,960
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,957 8,795
Minority interest 69 652
Provision for bad debts 782 435
Gain on sale of land (21) (94)
Other 56 94
------- -------
10,794 12,842
Changes in assets and liabilities:
Rents receivable (392) (1,083)
Prepaid expenses 33 (1,145)
Due from related parties 173 470
Tenant security and other deposits 758 13
Accounts payable and accrued expenses 4,378 1,111
Rents received in advance and tenant
security deposits 322 (128)
------- -------
Net cash provided by operating activities 16,066 12,080
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements(16,905) (14,544)
Increase (decrease)in accounts payable
related to construction in progress 3,410 (1,302)
Payment to Principal Shareholder for
acquisition of land -- (1,500)
Net proceeds from sale of land 22 104
Deferred leasing and other charges (3,097) (1,415)
Expenditures for furniture, fixtures and
equipment -- (81)
------- -------
Net cash used in investing activities (16,570) (18,738)
------- -------
3
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages (2,751) (49,259)
Proceeds received on mortgage notes 11,588 67,750
Reduction in debt service escrow 2,014 --
Payment of deferred financing costs (1,004) (584)
Dividends paid (9,227) (9,221)
Distributions to Principal Shareholder (1,835) (1,847)
------- ------
Net cash (used in) provided by
financing activities (1,215) 6,839
------- ------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,719) 181
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,068 3,021
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,349 $ 3,202
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest, net
of amounts capitalized of $819 and $755,
respectively $ 8,939 $ 7,444
======= =======
Summary of the resolution of certain transactions with the
Principal Shareholder:
Reduction in contingent liability due to
Principal Shareholder $(6,156)
Establishment of note payable to Principal
Shareholder 3,174
------
Net reduction in cost of acquired property $(2,982)
======
Acquisition of the Plaza 15 Shopping Center:
Assumption of mortgage $(1,219)
Application of balance due Company
under the ground lease (196)
Building and equipment 1,389
Operating Partnership Units issued (20)
-------
Cash received $ 46
=======
See accompanying notes to consolidated financial statements
4
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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
nine month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the fiscal
year ending December 31, 1996.
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 of 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
(unaudited)
The Company currently owns and operates forty properties
consisting of thirty-five 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.
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, 1995:
(in thousands)
Shareholders' Minority
Equity Interest
Balance at December 31, 1995 $69,779 $13,228
Loss for the period January 1 through
September 30, 1996 (49) 69
Vesting of restricted shares 56 --
Distributions to Principal Shareholder -- (1,835)
Dividends paid, $.36 per share (9,227) --
------- -------
Balance at September 30, 1996 $60,559 $11,462
======= =======
6
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. RELATED PARTY TRANSACTIONS
As of September 30, 1996 amounts due to/from related parties
consisted of the following (in thousands):
Accrued ground rent due from Blackman Plaza
Partners (a limited partnership in which the
Principal Shareholder is a 1% general partner) $ 261
Other amounts (net) due to Principal Shareholder (50)
------
Total due from related parties $ 211
======
Note payable to Principal Shareholder $3,182
======
5. CONSTRUCTION LOAN
On September 27, 1996 the Company completed a closing on a
construction loan with First Western Bank, N.A. in the maximum
amount of $12.0 million which is secured by a mortgage on the
Union Plaza in New Castle, Pennsylvania. As of September 30,
1996, the Company had $4.0 million outstanding on this facility
with an additional $1.0 million available upon the execution of
certain additional leases. The remaining $7.0 million will be
made available upon the Company issuing an irrevocable letter of
credit for $7.0 million. During the construction period, the loan
bears interest at the lender's prime rate plus 1%. Following the
construction period, the Company has the option to convert the
Loan from a variable rate of interest to a fixed rate, upon which
principal will be amortized on a monthly basis over a 15 year
period. The Loan matures on March 1, 2013. The Company is
subject to certain affirmative and negative covenants.
6. PER SHARE DATA
Primary earnings per share are computed based on 8,560,708 and
8,567,672 shares outstanding, which represent the weighted
average number of shares outstanding (including restricted
shares) during the nine month periods ended September 30, 1996
and 1995, 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
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. SUBSEQUENT EVENTS
On October 4, 1996 , the Company closed on $45.9 million in
fixed rate financing from Morgan Stanley Mortgage Capital, Inc.
("Morgan Stanley"). The loan, which matures in November 2021, is
secured by mortgages on 17 of the Company's properties, bears
interest at 8.84% and requires monthly payments of interest and
principal amortized over 25 years. Approximately $33.6 million of
the proceeds were used to retire existing debt, $1.4 million for
financing costs, $6.3 million for escrows, and the remaining
proceeds were used for working capital. The Company is subject to
certain affirmative and negative covenants, including the
maintenance of debt service coverage ratios.
As a result of the Morgan Stanley financing, the Company amended
certain existing facilities. The Company used $8.1 million of the
proceeds of the Morgan Stanley facility to partially repay its
facility with Fleet Bank of Massachusetts, N.A. The Fleet Bank
facility was then amended by reducing the maximum line of credit
to $12,000,000, by releasing three properties formerly mortgaged
as security and by modifying certain covenants. The Company
currently has $10.2 million outstanding under the facility which
is now secured by three properties and matures May 31, 1997. The
remaining $1.8 million under the facility is currently
unavailable as it is subject to certain occupancy requirements at
the Ledgewood Mall.
Following the repayment of $16.6 million with proceeds from the
Morgan Stanley financing, the Company's facility with Mellon Bank
N.A. was amended by reducing the available line of credit to $3.8
million, releasing five properties formerly mortgaged as
security, requiring the amortization of principal through the
extended maturity date of April 2, 1998 and modifying certain
covenants. The Company currently has $3.8 million outstanding
under the facility which is now secured by one property.
Upon the repayment of $5.0 million, three properties formerly
mortgaged as security for the Company's facility with Firstrust
Bank were released and the maximum loan amount was reduced to
$2.5 million. The Company currently has $2.5 million outstanding
under the facility.
8
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. SUBSEQUENT EVENTS, continued
In addition, three other mortgage notes payable with various
lenders totalling $3.9 million were paid off in full with
proceeds from the Morgan Stanley financing.
Upon conducting environmental site inspections in connection with
obtaining the Morgan Stanley financing, certain environmental
contamination was identified at two of the collateral properties:
soil contamination at the Troy Plaza in Troy, New York and soil
and ground water contamination at the Cloud Springs Plaza in Fort
Oglethorpe, Georgia. In each case, the contamination was
determined to have originated from dry cleaning operations by a
former tenant, in the case of the contamination at Troy Plaza,
and by a current tenant, in the case of Cloud Springs Plaza. The
environmental consultants estimate that the total cost to
remediate both sites will be approximately $300,000, for which
the Company has recorded a liability as of September 30, 1996.
Morgan Stanley has placed $3.1 million of loan proceeds in escrow
which will be released, net of the estimated cleanup costs,
pending the final determination of the costs of environmental
remediation.
9
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 September
30, 1996 and 1995 and for the three and nine 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 nine month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1996.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1996 to Three
Months Ended September 30, 1995
Total revenue decreased approximately $427,000 or 4%, to $10.5
million for the quarter ended September 30, 1996 compared to
$10.9 million for the quarter ended September 30, 1995. Increases
in minimum rents and tenant recoveries associated with
development and acquisition activities totalled $177,000. This
increase was offset by a decrease in minimum rents and tenant
recoveries at comparable centers primarily due to certain tenant
bankruptcies which occurred after September 30, 1995. A decrease
of $248,000 was experienced in percentage rents primarily due to
timing differences affecting the period that tenant sales figures
were received and percentage rent recognized in 1995. Other
income decreased approximately $98,000 primarily due to certain
non-recurring development cost reimbursements received from the
Principal Shareholder in 1995 and a decrease in management income
for 1996 arising from the termination of management services at
properties owned by the Principal Shareholder or his affiliates.
Total operating expenses increased approximately $762,000, or 11%
to $7.7 million during the quarter ended September 30, 1996
compared to $6.9 million for the quarter ended September 30,
1995. Increases in depreciation and amortization of approximately
$477,000 were primarily due to additional depreciation expense
related to retenanting, expansion, acquisition and development
activities. Additionally, a $300,000 liability was established as
of September 30, 1996 for estimated costs associated with
environmental remediation at two properties relating to
contamination identified in connection with the October 1996
financing with Morgan Stanley.
10
Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Net interest and related financing expenses increased $212,000
for the quarter ended September 30, 1996 compared to the quarter
ended September 30, 1995. This increase was attributable to
higher average outstanding borrowings related to retenanting,
acquisition, expansion and development activities.
As a result of the aforementioned changes in revenues and
expenses, a loss before minority interest of $183,000 for the
quarter ended September 30, 1996 represented a $1.4 million
decrease from income before minority interest of $1.2 million for
the quarter ended September 30, 1995.
Comparison of Nine Months Ended September 30, 1996 to Nine Months
Ended September 30, 1995
Total revenue increased $480,000, or 1.5%, to $32.5 million for
the nine months ended September 30, 1996 compared to $32.0
million for the nine months ended September 30, 1995. Increases
in minimum rent and tenant recoveries as a result of acquisition
and development activities totalled approximately $1.2 million.
Recovery of increased snow removal expenses from tenants at
comparable centers further contributed to the increase in expense
reimbursements. These were partially offset by a decrease in
minimum rents and tenant recoveries at comparable centers
primarily due to certain tenant bankruptcies which occurred after
September 30, 1995. The decrease in percentage rent was primarily
due to timing differences affecting the period that tenant sales
figures were received and percentage rent recognized in 1995. The
decrease in other income was primarily due to certain non-
recurring development cost reimbursements received from the
Principal Shareholder in 1995 and a decrease in management income
in 1996 arising from the termination of management services at
properties owned by the Principal Shareholder or his affiliates.
Total operating expenses increased $2.7 million, or 13%, to $23.4
million for the nine months ended September 30, 1996 compared to
$20.7 million for the nine months ended September 30, 1995.
Increases in property operating expenses and real estate taxes
related to acquisition and development activities following
September 30, 1995 were approximately $173,000 and $119,000,
respectively. The increase in property operating expenses at
comparable centers was primarily attributable to: (i) increased
costs due to the extremely harsh winter experienced in the
Northeast totalling $469,000; (ii) the establishment of a
11
Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
$300,000 liability for estimated environmental remediation costs
to be incurred at two properties as previously discussed and 3) a
$347,000 increase in bad debt expense due to certain tenant
bankruptcies and continued weakness among certain local and
regional tenants.
The increase in depreciation and amortization of approximately
$1.2 million was primarily due to additional depreciation expense
related to retenanting, expansion, acquisition and development
activities.
Net interest and related financing expenses increased $1.3
million for the nine months ended September 30, 1996 compared to
the nine months ended September 30, 1995. This increase was
attributable to higher average outstanding borrowings related to
retenanting, acquisition, expansion and development activities.
As a result of the aforementioned changes in revenues and
expenses, net income before minority interest of $20,000 for the
nine months ended September 30, 1996 represented a $3.6 million
decrease from $3.6 million for the nine months ended September
30, 1995.
Funds from Operations
The Company, along with most industry analysts, consider funds
from operations ("FFO") 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 necessarily 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.
Effective for 1996, NAREIT has established new guidelines
clarifying its definition of FFO. The following table sets forth
the Company's calculation of FFO in accordance with the new
NAREIT guidelines ("Adjusted funds from operations").
12
FUNDS FROM OPERATIONS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
(in thousands, except per share amounts)
Three months ended Nine months ended
9/30/96 9/30/95 9/30/96 9/30/95
Revenue
Minimum rents (a) $ 8,303 $ 8,267 $24,876 $24,167
Percentage rents 581 829 1,797 2,407
Additional rents-
expense reimbursements 1,443 1,570 4,994 4,493
Other 85 183 547 685
------- ------- ------- -------
Total revenue 10,412 10,849 32,214 31,752
------- ------- ------- -------
Expenses
Property operating (b) 1,944 1,944 6,905 6,108
Real estate taxes 1,282 1,286 3,948 3,581
General and administrative 642 652 2,104 2,052
------- ------- ------- -------
Total operating expenses 3,868 3,882 12,957 11,741
------- ------- ------- -------
Operating income 6,544 6,967 19,257 20,011
Interest and financing
expense 3,017 2,805 9,067 7,759
------- ------- ------- -------
Funds from operations (c) 3,527 4,162 10,190 12,252
Amortization of deferred
financing costs (263) (187) (732) (662)
Depreciation of non-real
estate assets (52) (53) (163) (157)
------- ------- ------- -------
Adjusted funds from
operations (d) $ 3,212 $ 3,922 $ 9,295 $11,433
======= ======= ======= =======
Funds from operations
per share (c)(e) $ .35 $ .41 $ 1.00 $ 1.21
======= ======= ======= =======
Adjusted funds from operations
per share (d)(e) $ .32 $ .39 $ .91 $ 1.12
======= ======= ======= =======
Reconciliation of Adjusted Funds from Operations to Net Income
determined in accordance with Generally Accepted Accounting
Principles (GAAP)
Adjusted funds from
operations above 3,212 3,922 9,295 11,433
Depreciation and
amortization of
leasing costs (3,172) (2,770) (9,062) (7,976)
Straight-line rents and
related write-offs net 67 75 100 219
Reserve for environmental
remediation (300) -- (300) --
Minority interest 4 (209) (69) (652)
Gain on sale of land 21 -- 21 94
Other non-cash adjustments (11) (30) (34) (158)
------- ------- ------- -------
Net (loss) income $ (179) $ 988 $ (49) $ 2,960
======= ======= ======= =======
Net (loss)income per share(f)$ (.02) $ .12 $ (.01) $ .35
======= ======= ======= =======
13
(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. Additionally, accrued environmental remediation
costs are excluded as they are significant non-recurring
costs that distort the comparative measurement of
performance between periods.
(c) Funds from operations as defined by NAREIT prior to the 1995
White Paper on Funds from Operations is net income (computed
in accordance with generally accepted accounting principles)
excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint
ventures.
(d) Commencing in 1996, the Company has adopted the new NAREIT
definition of Funds from Operations which does not add back
amortization of deferred financing costs and depreciation of
non-real estate assets.
(e) Assumes full conversion of 1,623,000 and 1,621,000 Operating
Partnership Units into common shares of the Company for the
quarter ended September 30, 1996 and 1995, respectively for
a total of 10,171,817 and 10,166,452 shares, respectively.
(f) Net income per share is computed based on the weighted
average number of shares outstanding for the nine months
ended September 30, 1996 and 1995 of 8,562,846 and
8,567,672, respectively.
14
LIQUIDITY AND CAPITAL RESOURCES
On October 4, 1996, the Company closed on $45.9 million in
fixed rate financing from Morgan Stanley Mortgage Capital, Inc.
("Morgan Stanley"). The loan, which matures in November 2021, is
secured by mortgages on 17 of the Company's properties, bears
interest at 8.84%, requires monthly payments of interest and
principal amortized over 25 years and requires the Company
to comply with certain affirmative and negative covenants.
Approximately $33.6 million of the proceeds were used to retire
existing debt, $1.4 million for financing costs, $6.3 million for
escrows, and the remaining proceeds were used for working capital.
Of these escrows $3.1 million is subject to release to the Company
pending the determination of the costs of environmental remediation at two
properties and $1.1 million on the renewal of certain leases,
both of which are expected to occur before the end of the first
quarter in 1997.
As a result of the Morgan Stanley financing, the Company amended
certain existing facilities. The Company used $8.1 million of the
proceeds of the Morgan Stanley facility to partially repay its
facility with Fleet Bank of Massachusetts, N.A. The Fleet Bank
facility was then amended by reducing the maximum line of credit
to $12,000,000, by releasing three properties formerly mortgaged
as security and by modifying certain covenants. The Company
currently has $10.2 million outstanding under the facility which
is now secured by three properties and matures May 31, 1997. The
remaining $1.8 million under the facility is currently
unavailable as it is subject to certain occupancy requirements at
the Ledgewood Mall.
Following the repayment of $16.6 million with proceeds from the
Morgan Stanley financing, the Company's facility with Mellon Bank
N.A. was amended by reducing the available line of credit to $3.8
million, releasing five properties formerly mortgaged as
security, requiring the amortization of principal through the
extended maturity date of April 2, 1998 and modifying certain
covenants. The Company currently has $3.8 million outstanding
under the facility which is now secured by one property.
15
LIQUIDITY AND CAPITAL RESOURCES, continued
Upon the repayment of $5.0 million, three properties formerly
mortgaged as security for the Company's facility with Firstrust
Bank were released and the maximum loan amount was reduced to
$2.5 million. The Company currently has $2.5 million outstanding
under the facility.
In addition, three other mortgage notes payable with various
lenders totalling $3.9 million were paid off in full with
proceeds from the Morgan Stanley financing.
On September 27, 1996 the Company completed a closing on a
construction loan with First Western Bank, N.A. in the maximum
amount of $12.0 million which is secured by a mortgage on the
Union Plaza in New Castle, Pennsylvania. As of September 30,
1996, the Company had $4.0 million outstanding on this facility
with an additional $1.0 million available upon the execution of
certain additional leases. The remaining $7.0 million will be
made available upon the Company issuing an irrevocable letter of
credit for $7.0 million. During the construction period, the loan
bears interest at the lender's prime rate plus 1%. Following the
construction period, the Company has the option to convert the
Loan from a variable rate of interest to a fixed rate, upon which
principal will be amortized on a monthly basis over a 15 year
period. The Loan matures on March 1, 2013. The Company is
subject to certain affirmative and negative covenants.
At September 30, 1996, the Company had $3.5 million outstanding
on a construction loan from Mellon Bank, N.A. which is secured by
one of the Company's properties. The $4.7 million facility bears
interest equal to the bank's prime rate plus 1/2% or LIBOR plus
225 basis points and matures May 15, 1997.
The Company has additional mortgage indebtedness of $103.0
million outstanding at fixed rates of interest ranging from 7.7%
to 9.11% and have maturities ranging from April 1, 2000 to
December 1, 2008.
16
LIQUIDITY AND CAPITAL RESOURCES, continued
The Company's capitalization as of November 11, 1996, consisted
of $172.9 million of debt and $113.2 million of market equity
(using a November 11, 1996 market price of $11.125 per share).
The Company's interest coverage ratio was 2.1 to 1. Following the
financing with Morgan Stanley Capital, Inc., $148.9 million, or
86%, of the Company's outstanding debt is carried at a fixed
rate.
The Company currently estimates that capital outlays for tenant
improvements, related renovations and other property improvements
will require $2.4 million during the remainder of 1996.
Additionally, capital outlays for ongoing property development in
New Castle, Pennsylvania will be $5.3 million. Of these capital
outlays, $6.7 million has been recorded and is reflected in
accounts payable and accrued expense balances at September 30,
1996. While the Company continues to experience a cash shortfall
relating to the development of its New Castle, Pennsylvania
project, the added working capital realized from the Morgan
Stanley financing in conjunction with funds from additional
sources currently under review by the Company are expected to
adequately fund the ongoing activities and obligations of the
Company.
The Company's current outstanding indebtedness and committed
financings encumbers 37 of its 40 properties. The three
remaining properties, with the exception of one property which
the Company owns as ground lessor under a long-term ground lease,
remain unencumbered, and therefore are available to secure
potential future borrowings.
ENVIRONMENTAL ISSUES
Upon conducting environmental site inspections in connection with
obtaining the Morgan Stanley financing, certain environmental
contamination was identified at two of the collateral properties:
soil contamination at the Troy Plaza in Troy, New York and soil
and ground water contamination at the Cloud Springs Plaza in Fort
Oglethorpe, Georgia. In each case, the contamination was
determined to have originated from dry cleaning operations by a
former tenant, in the case of the contamination at Troy Plaza,
and by a current tenant, in the case of Cloud Springs Plaza.
17
ENVIRONMENTAL ISSUES, continued
The environmental consultants estimate that the total cost to
remediate both sites will be approximately $300,000 for which the
Company has recorded a liability as of September 30, 1996. Morgan
Stanley has placed $3.1 million of loan proceeds in escrow which
will be released, net of the estimated cleanup costs, pending the
final determination of the costs of environmental remediation.
HISTORICAL CASH FLOW
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 following discussion of historical cash flow compares the
Company's cash flow for the nine months ended September 30, 1996
with the Company's cash flow for the nine months ended September
30, 1995.
Net cash provided by operating activities increased from $12.1
million for the nine months ended September 30, 1995 to $16.1
million for the nine months ended September 30, 1996. This
increase was primarily attributable to increased cash flow from
accounts payable and prepaid expenses, offset by decreased cash
flow from income before depreciation and amortization.
Investing activities used $16.6 million during the nine months
ended September 30, 1996, a $2.2 million decrease in cash used
from the same period in 1995. This was primarily due to decreased
payments for real estate and improvements offset by an increase
in deferred leasing charges paid as a result of retenanting
activities.
Net cash used in financing activities was $1.2 million for the
nine months ended September 30, 1996 representing a $8.0 million
decrease from net cash provided by financing activities of $6.8
million for the nine months ended September 30, 1995. This
decrease is primarily attributable to a decrease in net proceeds
received on mortgage notes in 1996.
18
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.
19
PART II. OTHER INFORMATION
Items 1-5
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.3(d) Amendment Number Two To First Amended and Restated
Assumption, Extension and Loan Agreement between the
Company and Fleet National Bank
10.17(d) Third Amendment To Revolving Credit Loan Agreement
between the Company and Mellon Bank, N.A.
10.21 Construction Loan Agreement between
the Company and First Western Bank
10.21(a) Mortgage Note between the Company
and First Western Bank
10.22 Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and
Assignment of Leases, Rents and Security Deposits
between the Company and Morgan Stanley Mortgage
Capital, Inc.
10.22(a) Mortgage Note between the Company and
Morgan Stanley Mortgage Capital, Inc.
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
None
20
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: November 14, 1996
21
INDEX OF EXHIBITS
10.3(d) Amendment Number Two To First Amended and Restated
Assumption, Extension and Loan Agreement between the
Company and Fleet National Bank
10.17(d) Third Amendment To Revolving Credit Loan Agreement
between the Company and Mellon Bank, N.A.
10.21 Construction Loan Agreement between
the Company and First Western Bank
10.21(a) Mortgage Note between the Company
and First Western Bank
10.22 Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and
Assignment of Leases, Rents and Security Deposits
between the Company and Morgan Stanley Mortgage
Capital, Inc.
10.22(a) Mortgage Note between the Company and
Morgan Stanley Mortgage Capital, Inc.
27 Financial Data Schedule (EDGAR filing only)
22