Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 1-12002
MARK CENTERS TRUST
(Exact name of registrant as specified in its charter)
Maryland 23-2715194
(State of incorporation) (I.R.S. employer identification no.)
600 Third Avenue, Kingston PA 18704 (717) 288-4581
(Address of principal executive offices) (Registrant's
telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, $.001 par value
(Title of Class)
New York Stock Exchange
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
YES X NO
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $96,174,191 million based on the
closing price on the New York Stock Exchange for such stock on March
24, 1997.
The number of shares of the Registrant's Common Shares of Beneficial
Interest outstanding was 8,548,817 on March 24, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Definitive proxy statement for the Annual Meeting of
Shareholders presently scheduled to be held June 12, 1997, to be
filed pursuant to Regulation 14A.
TABLE OF CONTENTS
Form 10-K Report
Item No. Page
PART I
1. Business 3
2. Properties 10
3. Legal Proceedings 19
4. Submission of Matters to a Vote
of Security Holders 20
PART II
5. Market for the Registrant's Common Equity and
Related Shareholder Matters 20
6. Selected Financial Data 21
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
8. Financial Statements and Supplementary Data 33
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
10. Directors and Executive Officers of the Registrant 33
11. Executive Compensation 33
12. Security Ownership of Certain Beneficial Owners and
Management 34
13. Certain Relationships and Related Transactions 34
PART IV
14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 34
2
PART I
Item 1. Business
General
Mark Centers Trust (the "Company") was formed on March 4, 1993 as
a Maryland Real Estate Investment Trust ("REIT") to continue the
business of its predecessor company, Mark Development Group
("MDG" or the "Predecessor"). The Company is a fully integrated,
self-managed and self-administered equity REIT which owns,
acquires, develops and operates primarily neighborhood and
community shopping centers in the eastern and southeastern United
States. The Company currently owns and operates 39 properties
totalling approximately 7.2 million square feet of gross leasable
area ("GLA"), consisting of thirty-four neighborhood and
community shopping centers, three enclosed malls, and two mixed
use (retail/office) properties located in ten states.
The Company conducts substantially all of its activities through,
and substantially all of its properties are owned by, Mark
Centers Limited Partnership (the "Operating Partnership"), a
Delaware limited partnership and its majority owned partnerships.
The Company owns an 84% interest in the Operating Partnership as
the sole general partner. Concurrently with the consummation of
the Company's initial public offering (the "Offering") on June 1,
1993, the Operating Partnership acquired thirty-one properties
from Marvin L. Slomowitz, the founder of MDG and the Company's
Chairman and Chief Executive Officer (the "Principal
Shareholder"), or from affiliates of the Principal Shareholder,
in exchange for Operating Partnership Units ("OP Units") which
are exchangeable on a one for one basis into the Company's Common
Shares of Beneficial Interest ("Shares"). The properties had
been developed directly or indirectly by the Principal
Shareholder from 1964 through 1992 and were operated under MDG's
direction. The Principal Shareholder owns in excess of 99% of
the remaining 16% of the Operating Partnership in the form of OP
Units. The remaining OP Units, which represent less than 1%
ownership of the Operating Partnership, were issued by the
Company in July 1995 to an unrelated entity in consideration for
a property acquired by the Company. The Company at all times will
be the general partner of and own no less than a 51% interest in
the Operating Partnership.
3
The Company has transacted its affairs so as to qualify as, and
has elected to be treated as, a real estate investment trust
under sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"). Under the Code, a real estate
investment trust that meets applicable requirements is not
subject to Federal income tax to the extent it distributes at
least 95% of its REIT taxable income to its shareholders.
The Company's executive offices are located at 600 Third Avenue,
Kingston, Pennsylvania, and its telephone number is (717) 288-
4581.
Business Objectives and Operating Strategy
The Company intends to continue to specialize in neighborhood and
community shopping centers strategically located in secondary
markets where basic staple merchandise is not available in
adequate supply. The Company intends to continue to expand its
operations through leasing, property management, renovation and
expansion of existing shopping centers and through the
development of new centers and acquisition of additional centers.
Operating and administrative functions such as leasing, property
management, construction, finance and legal are provided by
Company personnel, providing for fully integrated property
management. In addition, management believes that the experience
and tenant relationships developed through in-house leasing and
property management staff enhance the Company's ability to
attract and retain high quality tenants. Property operations are
managed centrally at the Company's headquarters and are augmented
by regional management and leasing offices at the Northwood
Centre in Tallahassee, Florida, the Normandale Mall in
Montgomery, Alabama and in Columbia, South Carolina. The Company
also maintains property management offices at the Ledgewood Mall
in Ledgewood, New Jersey, the Northside Mall in Dothan, Alabama,
and the Searstown Mall in Titusville, Florida.
As with other shopping center owners and operators, the general
weakness in the retail sector has adversely impacted the
Company's cash flow and income, particularly given the retail
concentration of the Company's tenants. In a soft retail
environment tenants may experience downturns in their business
which may weaken their financial condition and, potentially,
result in their bankruptcy.
4
In 1996, the Company was unfavorably impacted by the loss of
anchor tenants at four locations following their bankruptcy
proceedings. Jamesway, Rich's and Bradlees vacated a total of
approximately 220,000 square feet during 1996 and Sugarman's
vacated 45,000 square feet in September 1995. The soft retail
environment has made releasing this vacant space challenging and
has required the Company to incur tenant improvements for new
tenants earlier than had been originally anticipated because of
early termination of the prior leases.
The Company believes it has begun to meet these challenges during
the end of fiscal year 1996 and the beginning of fiscal year 1997
through new leasing activity, including releasing of previously
vacated space, through expansion activities to increase existing
space for current tenants, and through ongoing development
activities designed to attract new tenants. The Company's
ability to overcome these challenges will remain dependent on the
general real estate uncertainties which affect the industry in
general and the Company's tenants in particular, and on the
Company's ability to finance its ongoing capital plans and tenant
improvements to maintain and increase occupancy levels.
As of December 31, 1996, the Company had leased approximately
150,000 square feet to two replacement anchor tenants (of which
one anchor tenant was installed in 30,000 square feet during
1996) at two locations at market rental rates in excess of the
rates paid by the former anchors. The Company has also signed
major leases totalling 91,000 square feet related to planned
expansion at three of its centers. In addition, the Company
leased approximately 203,000 gross square feet of small store
space, of which the majority of tenants took occupancy and
commenced paying rent in 1996.
The Company anticipates the majority of the space currently under
lease but not yet occupied will be occupied and rent payment to
commence during 1997. The Company's portfolio occupancy declined
3% to 86% as of December 31, 1996 from 89% as of December 31,
1995, primarily as a result of the loss of anchor tenants as
previously discussed. However, as a result of space leased but
not yet occupied related primarily to the replacement of anchors
and expansion at existing centers, the Company's portfolio was
90% leased as of December 31, 1996.
5
During the year ended December 31, 1996, the Company installed
three major tenants in three of its centers. In June 1996, a
48,000 square foot Home Place Store opened at the New Loudon
Center in Latham, New York. In August 1996, Dunham's Sporting
Goods opened in 30,000 square feet at the East End Centre located
in Wilkes-Barre, Pennsylvania filling the majority of space
vacated by Sugarman's following bankruptcy proceedings. An Old
American Store opened in 30,000 square feet in November 1996 at
the Wesmark Plaza in Sumter, South Carolina.
Development
In 1996, the Company completed development at one center and
continued with scheduled development at a second.
Pittston Plaza in Pittston, Pennsylvania, was completed in June 1996.
This center, which is currently 97% leased, is anchored by a
59,000 square foot Insalaco's Supermarket which opened in
December 1995.
Phase I of the development at the Union Plaza located in New
Castle, Pennsylvania was completed in October 1996 with the
opening of both Sears and Hills Department Stores which total
193,000 square feet. Development of Phase II has commenced
following the signing of a lease with Peebles Department Store in
1996 for 25,000 square feet. Upon completion of all phases, the
Union Plaza is expected to total approximately 350,000 square feet.
Acquisition Options - Development Properties
Concurrent with the Offering, the Company obtained acquisition
options ("Acquisition Options") to acquire six properties under
development from the Principal Shareholder (the "Development
Properties), which were in various stages of the development
process. As of December 31, 1995, the Company had exercised
three of these options for the Bradford Towne Centre in Towanda,
Pennsylvania, the Route 6 Mall in Honesdale, Pennsylvania, and
the Columbia Towne Centre in Hudson, New York. Development on
the Columbia Towne Centre was suspended due to the bankruptcy of
a former anchor tenant. Upon substantial completion of each
Development Property the Company had agreed to pay the Principal
Shareholder an amount (the "Contingent Payment Amount") equal to
the (i) land acquisition costs, (ii) third-party development
costs, (iii) allocated overhead expenses, (iv) leasing
commissions for all tenant leases signed prior to the Offering
and an incentive payment equal to 5% of construction costs
(excluding engineering, architectural and other "soft costs").
The Contingent Payment Amount was to be reduced as necessary to
6
Acquisition Options - Development Properties, continued
provide the Company with a minimum 13.5% return on its investment
based on the annualized operating income from the property within
two years after completion of construction. The Contingent
Payment was to be made through the issuance of OP Units, unless
such issuance would have resulted in the Company owning less than
51% of the Operating Partnership or would have jeopardized the
Company's REIT status in which case, payment was to be made in
cash.
In February 1996, the Principal Shareholder and Board of Trustees
("Trustees") took certain actions in an effort to eliminate the
appearance of potential conflicts of interest arising between the
Principal Shareholder and the Company in the context of the
Acquisition Options, and to eliminate potential disputes arising
from the complex manner in which the reimbursement to the
Principal Shareholder for the Development Properties was
calculated. As a result, the Company and the Principal
Shareholder executed the following agreements:
- - The Trustees and the Principal Shareholder terminated all
Acquisition Options (other than the Acquisition Option pertaining
to the New Castle property which had been terminated in May
1995).
- - The Principal Shareholder repurchased the Columbia Towne Centre
from the Company for $3,065,000, which represented the total
development costs incurred by the Company to the date of
repurchase, and was greater than the value of the property as
determined by an independent appraiser.
- - The Company purchased the Union Plaza, located in New Castle,
Pennsylvania, from the Principal Shareholder for $4,495,000 which
represented the amount the Principal Shareholder had invested in
the property less $378,000 of predevelopment costs previously
advanced by the Company. This purchase price was less than the
value of the property as determined by an independent appraiser.
- - Upon completion of a review in June 1996 of the payments due
the Principal Shareholder for the acquisition of the Route 6 Mall
and the Bradford Towne Centre, for which development is complete
and both are currently operating, the Company agreed to pay the
Principal Shareholder $1,600,000, which included the conveyance
of approximately two acres of land by the Principal Shareholder
which became part of the Route 6 Mall.
7
Acquisition Options - Development Properties, continued
- - The Company and Principal Shareholder also terminated all
management agreements for properties owned by the Principal
Shareholder.
As a result of these transactions and to reflect the net result
of the purchase and sales price for these properties, the Company
issued a note payable to the Principal Shareholder for the
principal sum of $3,030,000. The note, which bears interest at a
rate equal to that charged by Fleet Bank, N.A. on the Company's
revolving line of credit facility, is payable in full the earlier
of (i) two years following the date the Union Plaza is completed
or (ii) on June 12, 1999. Since the payment to the Principal
Shareholder reflects, in part, land acquisition costs associated
with the Union Plaza, the Company has agreed with the Principal
Shareholder to prepay the principal sum with any construction
loan proceeds specifically allocable for land acquisition. The
financing with First Western Bank, N.A. did not provide any
proceeds allocable to land acquisition.
The Company currently holds an option to acquire 26 acres
contiguous to the Plaza 15 in Lewisburg, Pennsylvania from the
Principal Shareholder for $1,325,000 which represents the fair
market value as established by an independent appraisal.
Dispositions
As part of a its ongoing strategic evaluation of its properties,
the Company sold the Newberry Plaza, located in Newberry, South
Carolina for $1,300,000 in March of 1997. The net proceeds of
the sale were used by the Company to supplement its working
capital.
In 1995, Newberry Plaza was found to have petroleum related soil
and ground water contamination. The Company is not obligated to
reimburse the purchaser for any remediation costs it might incur
and the purchaser has waived all claims it might have against the
Company arising out of such contamination.
Financing Strategies
The Company intends to continue to finance acquisitions and
development with the most appropriate sources of capital, which
may include undistributed funds from operations (subject to
provisions in the Code concerning taxability of undistributed
REIT income), the issuance of equity and/or debt securities, the
sale of properties, and bank and other institutional borrowing.
Future borrowing by the Company may be either on a secured or
unsecured basis. The Company intends to continue its practice of
managing its exposure to floating rate debt primarily through the
use of fixed-rate debt.
8
Environmental Matters
Under various Federal, state and local laws, ordinances and
regulations relating to the protection of the environment, a
current or previous owner or operator of real estate may be
liable for the cost of removal or remediation of certain
hazardous or toxic substances disposed, stored, generated,
released, manufactured or discharged from, on, at, under, or in a
property. The Company believes that it is in compliance in all
material respects with all Federal, state and local ordinances
and regulations regarding hazardous or toxic substances.
Other than as disclosed below and as otherwise relating to
Newberry Plaza (which was sold in March 1997), the Company has
not been notified by any government authority of any material
non-compliance, liability or other claim in connection with any
of the properties.
Upon conducting environmental site inspections in connection with
obtaining financing from Morgan Stanley Mortgage Capital, Inc.
("Morgan Stanley") during 1996, (see "Management's Discussion and
Analysis of Financial Results of Operations") certain
environmental contamination was identified at two of the
properties which were to serve as collateral for the financing:
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 former tenants. The Company
has agreed to enter into a voluntary remedial agreement with the
State of New York for remediation of the Troy Plaza.
Environmental consultants estimate that the total cost of such
remediation will be approximately $75,000. The Company has
received notification from the State of Georgia that Cloud
Springs Plaza will not be listed on the State's Hazardous Site
Inventory because it has no reason to believe that contamination
exceeding a reportable quantity has occurred at this property.
As of December 31, 1996, Morgan Stanley held in escrow $563,000
of loan proceeds to be released upon final environmental
remediation.
Competition
There are numerous commercial developers and real estate
companies that compete with the Company in seeking land for
9
Competition, continued
development, properties for acquisition and tenants for their
properties. There are numerous shopping facilities that compete
with the properties in attracting retailers to lease space. In
addition, retailers at the Company's properties face increasing
competition from outlet malls, discount shopping clubs, direct
mail and telemarketing.
Employees
At December 31, 1996, the Company employed 67 persons, 35 of whom
were located at the Company's headquarters in Kingston,
Pennsylvania and the remainder located in the Company's regional
offices. The Company believes that its relationships with its
employees are good.
Item 2. Properties
Shopping Center Properties
The Company currently owns and operates 39 properties totalling
approximately 7.2 million square feet of (GLA), consisting of
thirty-four neighborhood and community shopping centers, three
enclosed malls, and two mixed use (retail/office) properties
located in ten states. The Company's shopping centers offer day
to day necessities and value-oriented merchandise rather than
high priced luxury items. The Company has specialized, and
intends to continue to specialize, in neighborhood and community
shopping centers strategically located in underserved, secondary
markets. The shopping centers are diverse in size, ranging from
approximately 45,000 to 507,000 square feet with an average size
of 184,000 square feet. The Company's portfolio was approximately
86% occupied and 90% leased at December 31, 1996. (See Business
Objectives and Operating Strategy)
The Company's shopping centers are typically anchored by a
national or regional discount department store and/or
supermarket. Typical department store tenants at the Company's
properties are Kmart (nine), Ames (five), Hills (four), Sears
(four), Marshalls (two), and one of each of the following:
Bradlees, Montgomery Wards, Sports Authority, J.C. Penney, Sterns
and Walmart. At December 31, 1996, twenty-six of the Company's
properties were anchored by supermarkets including Price Chopper
(six), Insalaco's (four), Acme (two), BI-LO (two), and one of
each of the following: P&C, Giant, Winn-Dixie, Shaw's, Food Max,
Publix, Weis, Shoprite, Food Lion, and Kroger's. Penn Traffic
owns and operates all the Insalaco's, BI-LO and P&C grocery
stores. 10
Properties, continued
The Company currently has 566 leases of which approximately 58%
are with national or regional tenants. A substantial portion of
the income from the properties consists of rent received under
long term leases. Most of these leases provide for the payment
of fixed minimum rent monthly in advance and for the payment by
tenants of a pro-rata share of the real estate taxes, insurance,
utilities and common area maintenance of the shopping centers.
Certain of the tenant leases permit tenants to exclude some or
all of these expenses from their rental obligations. Minimum
rents and expense reimbursements accounted for approximately 92%
of the Company's rental revenues for the year ended December 31,
1996.
Approximately 57% of the Company's existing leases also provide
for the payment of percentage rents in addition to minimum rents.
These arrangements generally provide for payment to the Company
of a certain percentage of a tenant's gross sales in excess of a
stipulated annual amount. Percentage rents accounted for
approximately 6% of the total 1996 rental revenue of the Company.
In 1996, approximately 10.8% of the Company's total revenue was
derived from current leases of office space and specialized
computer facilities with two agencies of the State of Florida at
Northwood Centre in Tallahassee, the Florida Department of Health
and Rehabilitative Services (6.3%) and the Florida Department of
Business Professional Regulation (4.5%). Leases with these
Florida agencies contain customary conditions, required under
Florida law, permitting state agency tenants to cancel their
leases upon six months' notice in the event that state-owned
office facilities in the same county become available. These
leases do not provide for early termination penalties. The
exercise by either of these state agencies of these cancellation
provisions would have an impact on the Company's revenues unless
the Company could successfully relet the space once vacated. The
Company is unaware of any such state owned facility currently
available which would result in either of these agencies
cancelling their leases. The Florida Department of Health and
Rehabilitative Services lease term expires July 31, 1999, and it
has five two-year renewal options. The Florida Department of
Business and Professional Regulation lease term expires April 30,
1999. The Company would be adversely affected in the event that
any current state agency tenants do not renew their leases or
negotiate a new lease.
11
Properties, continued
In 1996, the Company also received approximately 10.8% of its
total revenues under leases with the Kmart Corporation at nine
locations. The Company received no more than 4.8% of total
revenues from any other single tenant.
Six of the Company's shopping center properties are subject to
long-term ground leases in which a third party owns and has
leased the underlying land to the Company. The Company pays rent
for the use of the land and is responsible for all costs and
expenses associated with the building and improvements.
The following sets forth more specific information with respect
to each of the Company's properties at December 31, 1996:
12
MARK CENTERS TRUST PROPERTY LIST
YEAR LEASABLE % ANCHOR TENANTS
SHOPPING CENTER CONSTRUCTED(C) OWNERSHIP LAND AREA AREA LEASED(4) CURRENT LEASE EXPIR
PROPERTY LOCATION ACQUIRED(A) INTEREST (ACRES) SQ FT 12/31/96 LEASE OPTION EXPIR
PENNSYLVANIA
AMES PLAZA SHAMOKIN 1966(C) FEE 17.6 98,210 92% Ames 1998/2013
MARK PLAZA EDWARDSVILLE 1968(C) LI(1) 20.2 176,786 92% Kmart 1999/2049
MONROE PLAZA STROUDSBURG 1964(C) FEE(1) 7.8 130,569 100% Ames 1999/2019
Shoprite 2005/2023
VALMONT PLAZA WEST HAZLETON 1985(A) FEE 26.0 200,039 100% Hills 2007/2027
Insalaco's 2008/2027
CIRCLE PLAZA SHAMOKIN DAM 1978(C) FEE 21.0 92,171 100% Kmart 2004/2054
DUNMORE PLAZA DUNMORE 1975(A) FEE(5) 6.0 45,380 100% Price Chopper 2000/2020
Fay's Drug 2004/2019
LUZERNE STREET SCRANTON 1983(A) FEE 4.6 57,715 100% Price Chopper 2004/2024
SHOPPING CENTER Fay's Drug 2004/2019
TIOGA WEST TUNKHANNOCK 1965(C) FEE 17.2 122,338 100% Insalaco's 2014/2024
Ames 2000/2015
BLACKMAN PLAZA WILKES-BARRE 1968(C) FEE(2) 9.7 121,206 92% Kmart 1999/2049
13
MARK CENTERS TRUST PROPERTY LIST
YEAR LEASABLE % ANCHOR TENANTS
SHOPPING CENTER CONSTRUCTED(C) OWNERSHIP LAND AREA AREA LEASED(4) CURRENT LEASE EXPIR
PROPERTY LOCATION ACQUIRED(A) INTEREST (ACRES) SQ FT 12/31/96 LEASE OPTION EXPIR
PENNSYLVANIA
BIRNEY MALL MOOSIC 1968(C) FEE 28.3 193,899 99% Kmart 1999/2049
Consolidated Stores
1998/2008
PLAZA 15 LEWISBURG 1995(A) FEE 16.4 113,600 96% BI-LO 2001/2021
Ames 2001/2021
GREEN RIDGE SCRANTON 1986(C) FEE 16.1 197,292 99% Hills 2007/2037
PLAZA Insalaco's 2008/2017
EAST END CENTRE WILKES-BARRE 1986(C) FEE 40.3 304,754 93% Hills 2007/2037
PharMor 2003/2017
Price Chopper 2008/2028
Dunham's Sporting Goods
2007/2017
MOUNTAINVILLE ALLENTOWN 1983(A) FEE 11.4 114,801 97% Acme 1999/2028
SHOPPING CENTER Klings Handyman
1999/2009
PLAZA 422 LEBANON 1972(C) FEE 13.4 154,791 96% Hills 2001/2021
Giant Grocery 2004/2029
KINGSTON PLAZA KINGSTON 1982(C) FEE 13.7 64,824 100% Price Chopper 2006/2026
25TH STREET EASTON 1993(A) FEE 16.2 131,477 100% F.W.Woolworth's
SHOPPING CENTER 1998/1998
BRADFORD TOWNE TOWANDA 1993(C) FEE 48.0 257,319 98% Kmart 2019/2069
CENTRE P&C 2014/2024
JC Penney 2009/2044
14
MARK CENTERS TRUST PROPERTY LIST
YEAR LEASABLE % ANCHOR TENANTS
SHOPPING CENTER CONSTRUCTED(C) OWNERSHIP LAND AREA AREA LEASED(4) CURRENT LEASE EXPIR
PROPERTY LOCATION ACQUIRED(A) INTEREST (ACRES) SQ FT 12/31/96 LEASE OPTION EXPIR
PENNSYLVANIA
SHILLINGTON READING 1994(A) FEE 20.3 150,742 100% Kmart 1999/2049
PLAZA Weiss Market 1999/2019
ROUTE 6 MALL HONESDALE 1994(C) FEE 23.0 175,482 100% Kmart 2020/2070
Fay's Drug 2011/2025
PITTSTON PLAZA PITTSTON 1994(C) FEE 10.2 79,568 97% Insalaco's 2015/2025
UNION PLAZA
(PHASE I) NEW CASTLE 1996(C) FEE 118.0 192,940 100% Sears 2011/2031
Hills 2017/2026
FLORIDA
SEARSTOWN MALL TITUSVILLE 1984(A) FEE 28.5 263,689 66% Sears 1998/2013
United Artist 2005/2015
NEW SMYRNA BEACH NEW SMYRNA 1983(A) FEE 9.6 100,430 97% DeMarsh Theater
SHOPPING CENTER BEACH 2005/2015
NORTHWOOD CENTRE TALLAHASSEE 1985(A) FEE 34.1 499,718 89% FL Dept of HRS 1999/2009
FL Dept of Business and
Professional Regulation
1999
Publix 2005/2025
ALABAMA
NORMANDALE CENTRE MONTGOMERY 1985(A) FEE 30.0 295,591 75% Winn Dixie 2008/2033
MIDWAY PLAZA OPELIKA 1984(A) FEE 21.6 201,976 63% Crafts Plus 2005/2015
Carmike Cinema 2005/2015
15
MARK CENTERS TRUST PROPERTY LIST
YEAR LEASABLE % ANCHOR TENANTS
SHOPPING CENTER CONSTRUCTED(C) OWNERSHIP LAND AREA AREA LEASED(4) CURRENT LEASE EXPIR
PROPERTY LOCATION ACQUIRED(A) INTEREST (ACRES) SQ FT 12/31/96 LEASE OPTION EXPIR
ALABAMA
NORTHSIDE MALL DOTHAN 1986(A) FEE(1) 36.2 381,677 92% Walmart 1999/2029
Montgomery Ward
1999/2014
Goody's 2003/2018
SOUTH CAROLINA
MARTINTOWN PLAZA N. AUGUSTA 1985(A) LI(1) 18.8 133,878 93% Belk Store 2004/2024
Foodmax 2010/2025
WESMARK PLAZA SUMTER 1986(A) FEE 26.0 215,198 65% Staples 2005/2015
Old America Store
2007/2012
NEW YORK
NEW LOUDON LATHAM 1982(A) FEE 26.1 251,725 70% Price Chopper 2015/2035
CENTER Homeplace Stores
2011/2026
Marshalls 1999/2004
TROY PLAZA TROY 1982(A) FEE 12.3 128,479 97% Ames 2001/2016
Price Chopper 1999/2014
NEW JERSEY
LEDGEWOOD MALL LEDGEWOOD 1983(A) FEE 46.0 507,080 89% Marshalls 2002/2017
Pharmhouse 1999/2014
The Sports' Authority
2007/2037
Stern's 2005/2030
MANAHAWKIN
VILLAGE MANAHAWKIN 1993(A) FEE 20.6 143,737 97% Kmart 2019/2069
SHOPPING CENTER
16
MARK CENTERS TRUST PROPERTY LIST
YEAR LEASABLE % ANCHOR TENANTS
SHOPPING CENTER CONSTRUCTED(C) OWNERSHIP LAND AREA AREA LEASED(4) CURRENT LEASE EXPIR
PROPERTY LOCATION ACQUIRED(A) INTEREST (ACRES) SQ FT 12/31/96 LEASE OPTION EXPIR
NEW JERSEY
BERLIN SHOPPING BERLIN 1994(A) FEE 22.0 187,296 83% Kmart 1999/2049
CENTER Acme 2005/2015
MASSACHUSETTS
CRESCENT PLAZA BROCKTON 1984(A) FEE(3) 22.5 216,095 97% Bradlees 2009/2027
Shaws 2012/2042
VIRGINIA
KINGS FAIRGROUND DANVILLE 1992(A) LI(1) 15.2 118,535 100% Schewel Furniture
2001/2011
The Kroger Co 2002/2012
GEORGIA
CLOUD SPRINGS FT. OGELTHORPE 1985(A) FEE 12.2 113,367 98% Food Lion 2011/2031
PLAZA Consolidated Stores
2000/2005
Badcock Furniture
2000/2010
MAINE
AUBURN PLAZA AUBURN 1994(A) LI(1) 28.4 256,459 65% Hoyt Cinema 2005/2020
(Partial) Service Merchandise
FEE 2011/2090
T.J. Maxx 2000/2015
TOTAL OPERATING PROPERTIES 7,190,833 90%
17
<FN>
<F1>
(1) The Company is ground lessee under long-term ground leases having at least 60 years remaining in
term (including options) at existing rental rates.
<F2>
(2) The Company's interest in the land has been leased to, and a fee interest in the improvements is
held by, an industrial development authority for the benefit of an affiliated entity subject
to a mortgage to a third party. The Company's interest in the land is also subject to that
mortgage. The Company manages the property and, after making debt service payments and paying a fixed fee to said
entity, retains all remaining cash flow as ground rent. In accordance with the terms of the
ground lease, the Company receives and accounts for most of its income from this property as percentage
rent.
<F3>
(3) During the term of its lease, Bradlees has a right of first refusal in the event that the Company sells all
or a portion of Crescent Plaza giving it the right to purchase on the same terms as a bona fide
offer from a third party.
<F4>
(4) Includes space leased for which rent is being paid but which is not presently occupied or space that is leased but
rent has not commenced.
<F5>
(5) The Company holds a fee interest in a portion of Dunmore Plaza and an equitable interest in the land on the
remaining portion. The fee for this remaining portion is held by an industrial development authority and the
equitable interest in the building on such remaining portion is held by an unrelated entity. The Company receives
and accounts for most of its income from this property as percentage rent.
</FN>
18
Item 3. Legal Proceedings
On November 20, 1995, Mr. Wertheimer, the former President of the
Company, filed a complaint against the Company, its Trustees
including the Principal Shareholder, and the Company's in-house
General Counsel and Chief Financial Officer in the United States
District Court for the Middle District of Pennsylvania. The
complaint, which was filed in connection with the termination of
Mr. Wertheimer's employment, includes many of the allegations
raised in a state court proceeding commenced by Mr. Wertheimer in
November 1994. The Federal court complaint also includes a civil
RICO action in which Mr. Wertheimer alleges that the Board of
Trustees of the Company conspired with the Principal Shareholder
to terminate Mr. Wertheimer's employment as part of the Principal
Shareholder's breach of his duty of good faith and fair dealing.
Further, Mr. Wertheimer alleges that the above defendants engaged
in securities fraud in connection with the Offering and that the
Principal Shareholder has defrauded or overcharged the Company in
corporate transactions. The Federal complaint seeks treble
damages under RICO, as well as damages arising from Mr.
Wertheimer's alleged termination of employment, invasion of
privacy, intentional infliction of emotional distress, fraud and
misrepresentation. The Company and all defendants filed motions
to dismiss the RICO and tort claims which the court, on December
9, 1996, granted in part and denied in part. Specifically, the
court dismissed Mr. Wertheimer's claims for wrongful discharge,
fraud and negligence misrepresentation, but declined to dismiss
the remainder of the claims at this time. On January 23, 1997,
the defendants filed an answer to Mr. Wertheimer's Complaint. In
the answer, the defendants denied all allegations of wrongdoing,
and intend to vigorously defend against all of the counts. The
Company and the Principal Shareholder have also filed
counterclaims against Mr Wertheimer alleging Mr. Wertheimer made
material misrepresentations in connection with his hiring and
breached his employment contract and fiduciary duties to the
Company.
The Company is involved in other various matters of litigation
arising in the normal course of business. While the Company is
unable to predict with certainty the amounts involved, the
Company's management and counsel are of the opinion that, when
such litigation is resolved, the Company's resulting liability,
if any, will not have a significant effect on the Company's
consolidated financial position.
19
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of
1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters
(a) Market Information
The following table shows, for the period indicated, the high and
low sales price for the Shares as reported on the New York Stock
Exchange (the "NYSE"), and cash dividends paid during the two
years ended December 31, 1996 and 1995.
Dividend
Quarter Ended High Low Per Share
March 31, 1996 12 3/4 10 1/2 $.36
June 30, 1996 11 9 3/4 .36
September 30, 1996 11 3/4 10 .36
December 31, 1996 11 1/4 9 3/4 .36(a)
March 31, 1995 13 1/2 12 1/2 .36
June 30, 1995 14 1/8 12 1/4 .36
September 30, 1995 13 1/2 11 3/4 .36
December 31, 1995 12 3/4 9 3/4 .36
(a) The dividend for the quarter ended December 31, 1996 was
declared on March 13, 1997 and is payable April 30, 1997 to
shareholders of record as of March 28, 1997.
At March 24, 1997, there were 283 holders of record of the
Shares.
(b) Dividends
The Company has determined that 35.06% and 64.25% of the total
dividends distributed to shareholders in fiscal years 1996 and
1995, respectively, represented ordinary income, while the
remaining 64.94% and 35.75%, respectively, represented return of
capital. The Company's cash flow is affected by a number of
factors, including the revenues received from rental properties,
the operating expenses of the Company, the interest expense on
its borrowings, the ability of lessees to meet their obligations
20
(b) Dividends, continued
to the Company and unanticipated capital expenditures. Future
dividends paid by the Company will be at the discretion of the
Trustees and will depend on the actual cash flow of the Company,
its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code
and such other factors as the Trustees deem relevant.
Item 6. Selected Financial Data
The following table sets forth, on a historical basis, selected
financial data for the Company and MDG which, for accounting
purposes only, is considered the Predecessor entity to the
Company. This information should be read in conjunction with the
audited consolidated financial statements of the Company and
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing elsewhere in this Form 10-K. The
historical selected financial data for the Company as of December
31, 1996, 1995 and 1994 have been derived from the audited
financial statements of the Company. The historical selected
financial data for MDG for the period from January 1, 1993 to May
31, 1993 and for the year ended December 31, 1992 have been
derived from the audited financial statements of MDG.
21
MARK CENTERS TRUST MARK DEVELOPMENT GROUP
Seven Five
Year Ended Year Ended Year Ended Months Ended Months Ended Year Ended
12/31/96 12/31/95 12/31/94 12/31/93 5/31/93 12/31/92
OPERATING DATA:
Revenue:
Minimum rents $33,695 $32,740 $27,543 $12,971 $ 9,267 $22,971
Percentage rents 2,795 3,340 2,505 1,644 1,147 2,325
Expense reimbursements 6,559 6,431 5,220 2,629 1,687 4,049
Other 747 821 1,065 961 72 203
------- ------- ------- ------- ------- ------
Total revenue 43,796 43,332 36,333 18,205 12,173 29,548
------- ------- ------- ------- ------- ------
Operating expenses 18,260 16,374 14,797 7,718 5,182 12,607
Interest and other
financing expense 12,733 10,598 5,763 2,094 5,172 13,046
Depreciation and
amortization 13,398 11,820 9,066 3,945 2,934 7,793
------- ------- ------- ------- ------- -------
44,391 38,792 29,626 13,757 13,288 33,446
------- ------- ------- ------- ------- -------
(Loss) income before
reorganization costs,
extraordinary items,
gain on sale and
minority interest (595) 4,540 6,707 4,448 (1,115) (3,898)
Gain on sale of land 21 93 305 -- -- --
Reorganization costs -- -- -- (2,629) -- --
Extraordinary items (190) -- -- 194 -- --
------- ------- ------- ------- ------- -------
Income (loss) before
minority interest (764) 4,633 7,012 2,013 (1,115) (3,898)
Minority Interest 40 (833) (1,222) (321) 39 53
------- ------- ------- ------- ------- ------
Net income (loss) $(724) $3,800 $5,790 $1,692 ($1,076) ($3,845)
======= ======= ======= ======= ======= =======
22
MARK CENTERS TRUST MARK DEVELOPMENT GROUP
Seven Five
Year Ended Year Ended Year Ended Months Ended Months Ended Year Ended
12/31/96 12/31/95 12/31/94 12/31/93 5/31/93 12/31/92
Net (loss) income per
Common Share $(.08) $0.44 $0.68 $0.20
======= ======= ======= =======
Weighted average
number of Common
Shares outstanding 8,560,415 8,563,466 8,563,529 8,490,114
========= ========= ========= =========
Funds from Operations $12,372 $15,281 $14,831 $8,262
======= ======= ======= =======
Funds from Operations per
share(1) $1.22 $1.50 $ 1.46 $ 0.81
======= ======= ======= =======
BALANCE SHEET DATA:
Real estate before
accumulated
depreciation $307,411 $291,157 $278,611 $210,133 $163,095 $161,983
Total assets 258,517 249,515 242,483 180,083 127,968 130,531
Total mortgage
indebtedness 172,823 151,828 124,410 61,578 150,392 151,771
Minority interest-
Operating Partnership 10,752 13,228 14,827 16,049 -- --
Total equity (deficit) 56,806 69,779 78,183 84,606 (32,993) (31,790)
<FN>
<F1>
(1) Includes OP units
</FN>
23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with
the consolidated financial statements of the Company (including
the related notes thereto) appearing elsewhere in this Form 10-K.
The Company effectively commenced its operations on June 1, 1993
with the completion of its initial public offering and the
issuance of 8,350,000 Shares to the public at a price of $19.50
per share (the "Offering"). The proceeds of the Offering were
primarily used to reduce indebtedness, establish a working
capital reserve and to pay reorganization and Share issuance
costs.
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 1996 ("1996") to the
year ended December 31, 1995 ("1995").
Total revenue increased $464,000, or 1% to $43.8 million in
1996 compared to $43.3 million in 1995. This increase was
attributable to increases in minimum rents and expense
reimbursements partially offset by decreases in percentage rents
and other income. Minimum rents increased $955,000, or 3%, in
1996 primarily as a result of the inclusion of a full year of
results from the acquisition of the Plaza 15 Shopping Center in
July 1995 and the development of the Route 6 Mall opened in April
1995, and from the development of the Pittston Plaza completed in
June 1996 and completion of Phase I of development at the Union
Plaza. Expense reimbursements, which represent the pass- through
of certain property expenses to the tenants, increased $128,000,
or 2%, from $6.4 million in 1995 to $6.5 million in 1996. The
increase was primarily due to increases in property operating
expenses and real estate taxes. Percentage rents, representing
the Company's participation in tenants' gross sales above
predetermined thresholds, decreased $545,000, or 2%, to $2.8
million in 1996 compared to $3.3 million in 1995. This decrease
was primarily attributable to timing differences effecting the
period that tenant sales figures were received and percentage
rent recognized. Additionally, 1996 revenues were unfavorably
impacted by the loss of two anchor tenants during 1996 as a
result of bankruptcies (Jamesway at the Ledgewood Mall, for which
a replacement anchor tenant has been signed, and Rich's at the
Auburn Plaza) which resulted in a decline in total revenues at
the two properties totalling $984,000.
24
RESULTS OF OPERATIONS, continued
Total 1996 operating expenses, including depreciation and
amortization increased $3.1 million, or 11%, to $31.3 million
compared to $28.2 million in 1995. Of this increase, a $1.4
million increase in depreciation expense was related to increased
investments in properties as a result of acquisition, development
and expansion activities. The remaining $1.7 million increase
was a result of several factors including: (i) a $496,000
increase in real estate taxes due primarily to acquisition,
development and expansion activities, (ii) increased winter
related costs of $469,000 due to the extremely harsh winter
experienced in the Northeast during the first quarter of 1996,
(iii) the establishment of a $425,000 reserve for estimated
environmental remediation costs and related consulting fees
related to two properties (See "Business-Environmental Matters")
and (iv) a $253,000 increase in bad debt expense primarily as a
result of certain tenant bankruptcies offset by repair work
completed at certain properties below initial insurance
estimates.
Net interest expense and financing fees increased $2.1
million, or 20%, to $12.7 million in 1996, compared to $10.6
million in 1995 primarily due to higher borrowing levels
associated with acquisition, development, expansion and tenant
replacement activities.
As a result of the foregoing, and in addition to a $392,000
reduction in the carrying value of certain property held for sale
in 1996 (See Note 13 to the consolidated financial statements),
the loss before extraordinary item (write-off of deferred
financing costs) and minority interest for 1996 was $574,000,
representing a decrease of $5.2 million from income before
minority interest of $4.6 million for 1995.
Comparison of the twelve months ended December 31, 1995 ("1995")
to the twelve months ended December 31, 1994 ("1994").
Total revenue increased approximately $7.0 million, or 19%,
to $43.3 million in 1995 compared to $36.3 million in 1994. This
increase was attributable to increases in minimum rents,
percentage rents and expense reimbursements, and was partially
offset by a $244,000 decrease in other income. Minimum rents
increased $5.2 million, or 19%, in 1995 compared to 1994. This
increase resulted primarily from the effect of acquiring four
shopping centers (one of which was acquired in May 1994, two in
October 1994 and one in July 1995), the commencement of minimum
25
RESULTS OF OPERATIONS, continued
rents at three properties formerly under development in 1995 and
during the end of the second quarter of 1994, and the Company's
replacement of expiring leases and the renewal of existing leases
at higher rents. Percentage rents, representing the Company's
participation in tenants' gross sales above predetermined
thresholds, increased $835,000 or 33% to $3.3 million in 1995
compared with $2.5 million in 1994. The increase was primarily
attributable to percentage rent at the properties acquired and
developed in 1995 and 1994 and the effect of certain tenants
converting from paying minimum rent to paying percentage rent
only without any thresholds. The increase in expense
reimbursements, which rose 23% from $5.2 million in 1994 to $6.4
million in 1995, were primarily attributable to the properties
acquired and developed in 1995 and 1994.
Total 1995 operating expenses, including depreciation and
amortization, increased approximately $4.3 million, or 18%, to
$28.2 million compared to $23.9 million in 1994. Of this
increase, $2.7 million is attributable to increased depreciation
related to properties acquired, developed and tenant improvements
placed in service, and increased amortization of deferred leasing
costs offset by a decrease in amortization of deferred financing
costs. Of the remaining $1.6 million, increases of $892,000 for
real estate taxes and $740,000 in property operating expenses are
primarily due to the acquisition and development of properties in
1995 and 1994. The remaining increase of $301,000 in property
operating expenses and a corresponding decrease in general and
administrative expenses relate to a reclassification of certain
property-related expenses.
Net interest expense and financing fees increased $4.8
million, or 84%, to $10.6 million in 1995, compared to $5.8
million in 1994. This increase is due to higher average
outstanding borrowings related to the Company's acquisition,
development and expansion activities and an increase in the
weighted average interest rate of 8.2% for 1995, compared with
7.3% for 1994 primarily as a result of the rise in short-term
interest rates during 1995 as compared with 1994.
As a result of the foregoing, offset by a $212,000 decrease
in the gain from sale of property in 1995 as compared to 1994,
income before minority interest for 1995 was $4.6 million,
representing a decrease of $2.4 million from $7.0 million for
1994.
26
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company invested $20.0 million in its property
portfolio including $13.2 million for new development, $3.0
million for expansion, renovation and tenant replacement at
existing centers, $3.4 million for deferred leasing and other
charges and $415,000 for recurring capital expenditures at the
properties. As a significant portion of the Company's funds from
operations are distributed to shareholders in accordance with
REIT requirements, the principal sources of funding for the
Company's investment activity has historically been through
permanent debt financing as well as short-term construction and
line of credit borrowing from various lenders. Total debt
outstanding at December 31, 1996 and 1995 was $172.8 million and
$151.8 million, respectively. The $21.0 million increase in debt
was primarily a result of funding the 1996 investment activity.
At December 31, 1996, the Company's capitalization consisted of
$172.8 million of debt and $103.0 million of market equity (based
on a December 31, 1996 market price of $10.125 per share). Of
the outstanding debt at December 31, 1996, $156.8 million, or
91%, was carried at a fixed rate and the remaining $16.0 million,
or 9%, at variable rates. Accordingly, interest expense on only
9% of the Company's outstanding indebtedness would be adversely
impacted during a period of rising interest rates.
Mortgage Debt
On December 20, 1996, the Company obtained $4.1 million in fixed rate
financing from Anchor National Life Insurance Company. The
mortgage loan is secured by one property, and requires payment of
interest at 7.93% with principal amortized over a 22 year period,
and matures January 1, 2004.
On October 4, 1996 , the Company consummated a $45.9 million
fixed rate financing from Morgan Stanley Mortgage Capital, Inc.
("Morgan Stanley"). The non-recourse 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 with principal amortized over 25 years, and requires the
Company to comply with certain affirmative and negative
covenants. Of the loan proceeds, $33.6 million was used to retire
existing debt, $1.1 million for financing costs, $2.8 million was
held in escrow as of December 31, 1996, and the remaining
proceeds were used for property investment and working capital.
On September 27, 1996 the Company consummated a construction loan
with First Western Bank, N.A. in the maximum amount of $12.0
million. The loan is secured by a mortgage on the Union Plaza in
27
Mortgage Debt, continued
New Castle, Pennsylvania. As of December 31, 1996, $4.0 million
was 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
obtaining 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 December 31, 1996, other mortgage notes payable aggregated
$102.8 million and were collateralized by 13 properties and
related tenant leases. Interest rates ranged from 7.7% to 9.11%.
Mortgage payments are due in monthly installments of principal
and/or interest and mature at various dates through 2008. The
loan agreements contain customary representations, covenants and
events of default. Certain loan agreements require the Company
to comply with certain affirmative and negative covenants,
including the maintenance of certain debt service coverage
ratios. Additionally, the Principal Shareholder has personally
guaranteed the repayment of mortgage loans with the aggregate
balance of $41.0 million at December 31, 1996 without consideration
from the Company.
Lines of Credit
As a result of the Morgan Stanley financing, the Company amended
its existing revolving credit 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. ("Fleet Bank"). The Fleet Bank facility was then amended by
reducing the maximum line of credit to $12.0 million, releasing
three properties formerly mortgaged as security (which properties
were then used to secure the Morgan Stanley loan) and modifying
certain covenants. As of December 31, 1996, the Company had $10.2
million outstanding under the Fleet Bank facility which was
secured by three properties and scheduled to mature May 31, 1997
(amounts outstanding to Fleet Bank were repaid in full in March
1997 in connection with new financing). The remaining $1.8
million under the facility was unavailable as it was subject to
certain occupancy requirements at the Ledgewood Mall property.
Advances under the facility bear interest at LIBOR plus 200 basis
points or the prime rate established by Fleet Bank plus 1/4% and
are recourse to the Company and are guaranteed by the Principal
Shareholder without consideration from the Company.
28
Lines of Credit, continued
Following the repayment of $16.6 million with proceeds from the
Morgan Stanley financing, the Company's facility with Mellon
Bank, N.A. ("Mellon Bank") was amended by reducing the available
facility to $3.8 million with no additional obligation by Mellon
Bank to advance any additional loan amounts, releasing five
properties formerly mortgaged as security (which properties were
then used to secure the Morgan Stanley loan), requiring the
amortization of principal through the extended maturity date of
April 2, 1998 and modifying certain affirmative and negative
covenants. At December 31, 1996, $3.4 million was outstanding
under the facility which 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.
Upon the repayment of $5.0 million, three properties formerly
mortgaged as security for the Company's facility with Firstrust
Bank were released (which properties were then used to secure the
Morgan Stanley loan) and the maximum loan amount was reduced to
$2.5 million. 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 one property.
In March 1997, the Company obtained additional working capital
from two sources. On March 4, 1997, the Company consummated a
$23.0 million fixed rate, non-recourse financing from Nomura
Asset Capital Corporation ("Nomura"). The loan, which matures on
March 11, 2022, bears interest at 9.02%, requires monthly
payments of interest and principal amortized over 25 years, and
requires the Company to comply with certain affirmative and
negative covenants. $10.2 million of the proceeds were used to
retire existing debt with Fleet Bank, $673,000 for financing
costs, $3.1 million for escrows, and the remaining proceeds are
available for investment and working capital. As part of the
Company's ongoing strategic evaluation and realignment of its
property portfolio, the Company completed the sale of the
Newberry Plaza on March 5, 1997 for $1.3 million, collecting $1.2
million in net sales proceeds after closing costs and
adjustments. The proceeds have been used to supplement working
capital.
29
Lines of Credit, continued
During 1996, the Company experienced a short-term cash shortfall
as a result of the delay in obtaining construction financing for
the Union Plaza in New Castle, Pennsylvania, and the Company's
decision to continue to fund the development of the project with
cash from operations in order to take advantage of certain
construction cost economies and to meet certain tenant deadlines.
This shortfall was significantly alleviated by the First Western
and Nomura financings.
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 dividend
payments in accordance with REIT requirements. In addition, cash
on hand, amounts currently escrowed with lenders, the use of
construction financing as well as other debt and equity financing
alternatives will provide the necessary capital to achieve
continued growth. The Company currently estimates that capital
outlays for tenant improvements, related renovations and other
property improvements will require $8.1 million during 1997.
The Company anticipates that capital outlays for property
development will total $5.5 million. Of these capital outlays
$4.7 is reflected in accounts payable and accrued expense
balances at December 31, 1996.
Industry analysts generally consider Funds from Operations to be
a meaningful supplement to net income and an appropriate measure
of the performance of an equity REIT. Funds from Operations is
defined as net income (loss), excluding gains (losses) on sales
of property, non-recurring charges and extraordinary items,
adjusted for certain non-cash items, primarily depreciation and
amortization. Funds from Operations does not represent cash
generated by operating activities in accordance with generally
accepted accounting principles and is not intended as the sole
measure of cash generated by the Company nor of its dividend
paying capacity.
30
MARK CENTERS TRUST
FUNDS FROM OPERATIONS
For the Years Ended December 31, 1996 and 1995
(in thousands except per share data)
For the year ended December 31,
1996 1995
Revenue
Minimum rents(a) $33,396 $32,456
Percentage rents 2,795 3,340
Expense reimbursements 6,559 6,431
Other 747 821
------- -------
Total revenue 43,497 43,048
------- -------
Expenses
Property operating(b) 9,181 8,614
Real estate taxes 5,285 4,789
General and administrative 2,796 2,726
------- -------
Total operating expenses 17,262 16,129
------- -------
Operating income 26,235 26,919
Interest and financing expense 12,733 10,598
Amortization of deferred
financing costs 915 827
Depreciation of non-real
estate assets 215 213
------- -------
Funds from operations $12,372 $15,281
======= =======
Funds from operations
per share (c) $ 1.22 $ 1.50
======= =======
Reconciliation of funds from operations to net income
determined in accordance with Generally Accepted
Accounting Principles(GAAP)
Funds from operations above $12,372 $15,281
Depreciation or real estate and
amortization of leasing costs (12,268) (10,780)
Straight-line rents and
related write-offs (net) 164 107
Gain on sale of land 21 93
Reserve for environmental
remediation costs (425) --
Adjustment to carrying value of
property held for sale (392) --
Extraordinary item write-off of
deferred financing costs (190) --
Minority interest 40 (833)
Other non-cash adjustments (46) (68)
------- -------
Net (loss)income ($724) $3,800
======= =======
Net (loss) income per share(d) ($0.08) $0.44
======= =======
31
(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 OP Units into common
shares of the Company for the years ended December 31, 1996
and 1995, 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 years ended
December 31, 1996 and 1995 of 8,560,415 and 8,563,466,
respectively.
Historical Cash Flow
The following discussion of historical cash flow compares
the Company's cash flows for the year ended December 31, 1996
("1996") with the year ended December 31, 1995 ("1995").
Net cash provided by operating activities decreased $2.1
million to $14.1 million in 1996 from $16.2 million in 1995.
This decrease was primarily attributable to a $3.0 million
decrease in cash provided by net income before depreciation and
amortization partially offset by a net increase of $770,000 in
cash provided by changes in operating assets and liabilities for
1996.
Investing activities used $20.0 million during 1996, a
decrease of $4.9 million from $24.9 million for 1995 due
primarily to an increase in accounts payable related to
development costs as of December 31, 1996.
Net cash provided by financing activities was $6.8 million
for 1996, representing a $1.9 million decrease from net cash
provided by financing activities of $8.7 million for 1995. This
decrease is primarily attributable to a decrease in borrowings
related to property investment in 1996.
32
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 10 years, which permit 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.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in items
14(a)(1) and 14(a)(2) hereof are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Company
This item is incorporated by reference from the definitive
proxy statement for the Annual Meeting of Shareholders presently
scheduled to be held on June 12, 1997, to be filed pursuant to
Regulation 14A.
Item 11. Executive Compensation
This item is incorporated by reference from the definitive
proxy statement for the Annual Meeting of Shareholders presently
scheduled to be held on June 12, 1997, to be filed pursuant to
Regulation 14A.
33
Item 12. Security Ownership of Certain Beneficial Owners and
Management
This item is incorporated by reference from the definitive
proxy statement for the Annual Meeting of Shareholders presently
scheduled to be held on June 12, 1997, to be filed pursuant to
Regulation 14A.
Item 13. Certain Relationships and Related Transactions
This item is incorporated by reference from the definitive
proxy statement for the Annual Meeting of Shareholders presently
scheduled to be held on June 12, 1997, to be filed pursuant to
Regulation 14A.
PART IV
Item. 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K
(a) 1. Financial Statements - Form 10-K
The following consolidated financial Report Page
information is included as a separate
section of this annual report on
Form 10-K
MARK CENTERS TRUST
INDEX OF FINANCIAL STATEMENTS
Report of Independent Auditors F-2
Consolidated Balance Sheets as of
December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the
year ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Shareholders'
Equity for the year ended December 31, 1996,
1995 and 1994 F-5
Consolidated Statements of Cash Flows for
the year ended December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-10
2. Financial Statement Schedules
Schedule III - Real Estate and
Accumulated Depreciation F-32
All other schedules are omitted since
the required information is not present
or is not present in amounts sufficient
to require submission of the schedule.
34
3. Exhibits
Exhibit No.
3.1 Declaration of Trust Incorporated by reference
of the Company, as to the copy thereof filed as
amended an exhibit to the Company's
Form 10-K filed for the fiscal
year ended December 31, 1994
3.2 By-Laws of the Company Incorporated by reference to
the copy thereof filed as an
exhibit to the Company's Form
S-11 (File No.33-60008)
("Form S-11")
10.1 Agreement of Limited Incorporated by reference to
Partnership of Mark the copy thereof filed as an
Limited Partnership exhibit to Amendment No. 3 to
the Company's Form S-11
10.2 Loan Agreement Incorporated by reference to
between the Company the copy thereof filed as
and Metropolitan exhibit to Amendment No. 3
Life Insurance to the Company's Form S-11
Company
10.3(a) Loan Agreement Incorporated by reference to
between the Company the copy thereof filed as an
and Fleet Bank of exhibit to Amendment No. 3
Massachusetts, N.A. to the Company's Form S-11
10.3(b) First Amended and Incorporated by reference to
Restated Loan Agreement the copy thereof filed as an
between the Company and exhibit to the Company's Form
Fleet National Bank 10-K filed for the fiscal
dated May 30, 1995 year ended December 31, 1995
10.3(c) Amended Number One to Incorporated by reference to
the First Amended and the copy thereof filed as an
Restated Assumption, exhibit to the Company's Form
Extension and Loan 10-K filed for the fiscal
Agreement between the year ended December 31, 1995
Company and Fleet
National Bank dated
December 6, 1995
35
10.3(d) Amendment Number Two Incorporated by reference to
To First Amended and the copy thereof filed as an
Restated Assumption, exhibit to the Company's Form
Extension and Loan 10-Q filed for the quarter
Agreement between the ended September 30, 1996
Company and Fleet
National Bank
10.4 Acquisition Option Incorporated by reference to
Agreement between the copy thereof filed as an
the Company and exhibit to Amendment No. 3
Marvin L. Slomowitz to the Company's Form S-11
10.5(a) Option Agreement Incorporated by reference
between the Company to the copy thereof filed
and the Principal as an exhibit to Amendment
Shareholder allowing No. 3 to the Company's Form
the Company to acquire S-11
certain properties
from the Principal
Shareholder
10.5(b) Amendment to the Option Incorporated by reference
Agreement between the to the copy thereof filed as
Company and the an exhibit to the Company's
Principal Shareholder Form 10-K filed for the fiscal
year ended December 31, 1993
10.5(c) Agreement of Sale and Incorporated by reference to
Purchase (Hudson, New the copy thereof filed as an
York) between the exhibit to the Company's
Company and Marvin L. Form 10-K filed for the fiscal
Slomowitz dated year ended December 31, 1995
February 27, 1996
10.5(d) Agreement of Sale and Incorporated by reference to
Purchase (New Castle, the copy thereof filed as an
Pennsylvania) between exhibit to the Company's
the Company and Form 10-K filed for the fiscal
Marvin L. Slomowitz year ended December 31, 1995
dated February 19, 1996
10.5(e) Termination of Option Incorporated by reference to
Agreements between the the copy thereof filed as an
Company and the exhibit to the Company's Form
Principal Shareholder 10-Q filed for the quarter
to acquire certain ended June 30, 1996
properties
36
10.5(f) Option Agreement Incorporated by reference to
between the Company the copy thereof filed as an
and the Principal exhibit to the Company's Form
Shareholder allowing 10-Q filed for the quarter
the Company to acquire ended June 30, 1996
a certain property from
the Principal Shareholder
10.5(g) First Amendment to Incorporated by reference to
Agreement of Sale and the copy thereof filed as an
Purchase (Hudson, NY) exhibit to the Company's Form
between the Company 10-Q filed for the quarter
and Marvin L. Slomowitz ended June 30, 1996
*10.6(a) Share Option Plan Incorporated by reference to
the copy thereof filed as an
exhibit to Amendment No. 3 to
the Company's Form S-11
*10.6(b) Mark Centers Trust Incorporated by reference to
1994 Share Option the copy thereof filed as an
Plan exhibit to the Company's
Form S-8 filed August 17,
1995
*10.6(c) Mark Centers Trust Incorporated by reference to
1994 Non-Employee the copy thereof filed as an
Trustees'Share Option exhibit to the Company's Form
Plan S-8 filed August 17, 1995
*10.7 Restricted Share Plan Incorporated by reference to
the copy thereof filed as an
exhibit to Amendment No. 3 to
the Company's Form S-8 filed
June 15, 1994
*10.8 Noncompetition Incorporated by reference
Agreement between to the copy thereof filed as
Marvin L. Slomowitz an exhibit to Amendment No. 3
and the Company to the Company's Form S-11
*10.9 Form of Severance Incorporated by reference
Agreement between the to the copy thereof filed
Company and certain as an exhibit to Amendment
executive officers No. 3 to the Company's
Form S-11
37
10.10 Form of Lock-Up Incorporated by reference
Agreement between the to the copy thereof filed as
Company and its an exhibit to Amendment No. 3
Trustees and to the Company's Form S-11
executive officers
10.11 Form of Agreement Incorporated by reference
of Purchase and Sale to the copy thereof filed as
for the properties an exhibit to Amendment No. 3
to the Company's Form S-11
10.12 Form of Lease for Incorporated by reference to
headquarters the copy thereof filed as an
exhibit to Amendment No. 3
to the Company's Form S-11
10.13(a) Management Agreements Incorporated by reference to
the copy thereof filed as an
exhibit to Amendment No. 3
to the Company's Form S-11
10.13(b) Termination of Incorporated by reference to
Management Agreements the copy thereof filed as an
exhibit to the Company's Form
10-Q filed for the quarter
ended June 30, 1996
10.14 Form of Registration Incorporated by reference
Rights Agreement to the copy thereof filed as
an exhibit to Amendment No. 4
to the Company's Form S-11
10.15 Agreement of Purchase Incorporated by reference
and Sale between Mark to the copy thereof filed as
Centers Limited an exhibit to the Company's
Partnership, Form 8-K filed on
a Delaware limited December 30, 1993
partnership and
Manahawkin Route 72 L.P.
dated November 23, 1993
38
10.16 Agreement of Purchase Incorporated by reference
and Sale between Mark to the copy thereof filed as
Centers Limited an exhibit to the Company's
Partnership, a Form 8-K filed on
Delaware limited December 30, 1993
partnership, and
Twenty-Fifth
Street Associates, L.P.
dated November 23, 1993
10.17(a) Loan Agreement Incorporated by reference
between the Company to the copy thereof filed as
and Mellon Bank, N.A. an exhibit to the Company's
Form 10-K filed for the fiscal
year ended December 31, 1994
10.17(b) First Amendment to Incorporated by reference
Revolving Credit Loan to the copy thereof filed as
Agreement between the an exhibit to the Company's
Company and Mellon Form 10-K filed for the fiscal
Bank, N.A. dated year ended December 31, 1995
November 15, 1995
10.17(c) Second Amendment to Incorporated by reference
Revolving Credit Loan to the copy thereof filed as
Agreement between the an exhibit to the Company's
Company and Mellon Form 10-K filed for the fiscal
Bank, N.A. dated year ended December 31, 1995
February 29, 1996
10.17(d) Third Amendment To Incorporated by reference to
Revolving Credit Loan the copy thereof filed as an
Agreement between the exhibit to the Company's Form
Company and Mellon 10-Q filed for the quarter
Bank, N.A. ended September 30, 1996
10.18 Form of Loan Agreement Incorporated by reference
together with Form of to the copy thereof filed as
First Mortgage and an exhibit to the Company's
Security Agreement Form 10-K filed for the fiscal
between the Company and year ended December 31, 1995
John Hancock Mutual Life
Insurance Company dated
March 15, 1995
39
10.19 Construction Loan Incorporated by reference
Agreement between the to the copy thereof filed as
Company and Mellon Bank, an exhibit to the Company's
N.A. dated November 15, Form 10-K filed for the fiscal
1995 year ended December 31, 1995
10.20(a) Loan Agreement between Incorporated by reference
the Company and to the copy thereof filed as
Firstrust Bank dated an exhibit to the Company's
December 21, 1995 Form 10-K filed for the fiscal
year ended December 31,1995
10.20(b) Amendment to Mortgage Incorporated by reference to
and Assignments of the copy thereof filed as an
Rents and Leases between exhibit to the Company's Form
the Company and 10-Q filed for the quarter
Firstrust Bank ended June 30, 1996
10.21(a) Promissory Note Incorporated by reference to
Agreement between the the copy thereof filed as an
Company and First exhibit to the Company's Form
Federal Savings Bank 10-Q filed for the quarter
of New Smyrna ended June 30, 1996
10.21(b) Mortgage Deed and Incorporated by reference to
Security Agreement the copy thereof filed as an
between the Company and exhibit to the Company's Form
First Federal Savings 10-Q filed for the quarter
Bank of New Smyrna ended June 30, 1996
10.22(a) Indenture of Mortgage, Incorporated by reference to
Deed of Trust, Security the copy thereof filed as an
Agreement, Financing exhibit to the Company's Form
Statement, Fixture 10-Q filed for the quarter
Filing and Assignment ended September 30, 1996
of Leases, Rents and
Security Deposits
between the Company
and Morgan Stanley
Mortgage Capital, Inc.
10.22(b) Mortgage Note between Incorporated by reference to
the Company and Morgan the copy thereof filed as an
Stanley Mortgage exhibit to the Company's Form
Capital, Inc. 10-Q for the quarter
ended September 30, 1996
40
10.23(a) Construction Loan Incorporated by reference to
Agreement between the the copy thereof filed as an
Company and First exhibit to the Company's Form
Western Bank 10-Q filed for the quarter
ended September 30, 1996
10.23(b) Mortgage Note between Incorporated by reference to
the Company and First the copy thereof filed as an
Western Bank exhibit to the Company's Form
10-Q filed for the quarter
ended September 30, 1996
10.24(a) Open-End Mortgage,
Security Agreement,
Future Filing, Financing
Statement and Assignment
of Leases and Rents
between the Company
and Anchor National Life
Insurance Company
10.24(b) Promissory Note between
the Company and Anchor
National Life Insurance
Company
10.25 Agreement of Sale
of Newberry Plaza
between Mark Centers
Limited Partnership,
a Delaware limited
partnership, and
Ronnie W. Cromer,
William B. Rush,
Earl H. Berger, Jr.
Rodney S. Griffin and
William W. Reiser, Jr.
10.26(a) Loan Agreement dated
March 4, 1997 by and
between Mark Northwood
Associates, Limited
Partnership, a Florida
limited partnership,
and Nomura Asset
Capital Corporation
41
10.26(b) Promissory Note dated
March 4, 1997 between
Mark Northwood Associates,
Limited Partnership, a
Florida limited
partnership, and Nomura
Asset Capital Corporation
10.26(c) Leasehold Mortgage,
Assignment of Rents,
Security Agreement and
Fixture Filing by Mark
Northwood Associates,
Limited Partnership, a
Florida limited partnership,
to Nomura Asset Capital
Corporation dated March
4, 1997
21 List of Subsidiaries
of Mark Centers Trust
23 Consent of Independent
Auditors to Form S-3
and Form S-8
27 Financial Data Schedule
(EDGAR filing only)
* Constitutes a compensatory plan or arrangement required
to be filed as an exhibit to this Form.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company for the quarter
ended December 31, 1996.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereto duly authorized.
MARK CENTERS TRUST
(Registrant)
By: /s/ Marvin L. Slomowitz
Marvin L. Slomowitz
Chief Executive Officer
Dated: March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/Marvin L. Slomowitz Chief Executive Officer March 24, 1997
(Marvin L. Slomowitz)and Trustee (Principal
Executive Officer)
/s/Joshua Kane Senior Vice President March 24, 1997
(Joshua Kane) Chief Financial Officer
and Treasurer (Principal
Financial and Accounting
Officer)
/s/Harvey Shanus Trustee March 24, 1997
(Harvey Shanus)
/s/Marvin J. Levine Trustee March 24, 1997
(Marvin J. Levine Esq)
/s/Joseph L.Castle,II Trustee March 24, 1997
(Joseph L. Castle, II)
/s/John Vincent Weber Trustee March 24, 1997
(John Vincent Weber)
/s/Lawrence J. Longua Trustee March 24, 1997
(Lawrence J. Longua)
43
EXHIBIT INDEX
The following is an index to all exhibits filed with the
Annual Report on Form 10-K other than those incorporated by
reference herein:
Exhibit Number Description Page
10.24(a) Open-End Mortgage,
Security Agreement,
Future Filing, Financing
Statement and
Assignment of Leases and
Rents between the Company
and Anchor National Life
Insurance Company
10.24(b) Promissory Note between
the Company and Anchor
National Life Insurance
Company
10.25 Agreement of Sale
between Mark Centers
Limited Partnership,
a Delaware limited
partnership, and
Ronnie W. Cromer,
William B. Rush,
Earl H. Berger, Jr.
Rodney S. Griffin and
William W. Reiser, Jr.
10.26(a) Loan Agreement dated
March 4, 1997 by and
between Mark Northwood
Associates, Limited
Partnership, a Florida
limited partnership,
and Nomura Asset
Capital Corporation
44
10.26(b) Promissory Note dated
March 4, 1997 between
Mark Northwood Associates,
Limited Partnership, a
Florida limited
partnership, and Nomura
Asset Capital Corporation
10.26(c) Leasehold Mortgage,
Assignment of Rents,
Security Agreement and
Fixture Filing by Mark
Northwood Associates,
Limited Partnership, a
Florida limited partnership,
to Nomura Asset Capital
Corporation dated March
4, 1997
21 List of Subsidiaries
of Mark Centers Trust
23 Consent of Independent
Auditors to Form S-3
and Form S-8
27 Financial Data Schedule
(EDGAR filing only)
45
MARK CENTERS TRUST
INDEX TO FINANCIAL STATEMENTS
I. MARK CENTERS TRUST
Report of Independent Auditors F-2
Consolidated Balance Sheets as of
December 31, 1996 and 1995 F-3
Consolidated Statements of Operations
for the years ended December 31, 1996,
1995 and 1994 F-4
Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1996,
1995 and 1994 F-5
Consolidated Statements of Cash Flows for
the years ended December 31, 1996, 1995
and 1994 F-7
Notes to Consolidated Financial Statements F-10
Schedule III - Real Estate and Accumulated
Depreciation F-32
F-1
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of
Mark Centers Trust
We have audited the accompanying consolidated balance sheets of
Mark Centers Trust (a Maryland Trust) and subsidiaries (the
"Company") as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended
December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These
financial statements and the schedule are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Mark Centers Trust and subsidiaries as of
December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
March 5, 1997
F-2
MARK CENTERS TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for per share amounts)
December 31,
ASSETS 1996 1995
Rental property-at cost
Land $ 31,084 $ 25,270
Buildings and improvements 271,423 258,827
Construction in progress 4,904 7,060
-------- --------
307,411 291,157
Less accumulated depreciation 72,956 61,269
-------- --------
Net rental property 234,455 229,888
Cash and cash equivalents 3,912 3,068
Rents receivable-less allowance
for doubtful accounts of
$544 and $509, respectively 4,956 5,200
Prepaid expenses 1,421 1,352
Due from related parties 203 384
Furniture, fixtures, and
equipment, net 570 796
Deferred charges, net 9,034 4,905
Tenant security and other
deposits 3,966 3,922
-------- --------
$258,517 $249,515
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $156,772 $107,975
Lines of credit 16,051 43,853
Accounts payable and accrued
expenses 9,397 7,058
Distributions payable 3,662 --
Payable to Principal Shareholder 3,050 6,156
Rents received in advance and
tenant security deposits 2,027 1,466
-------- --------
Total Liabilities 190,959 166,508
-------- --------
Minority interest 10,752 13,228
Commitments and contingencies -- --
Shareholders' Equity:
Common stock, $.001 par value,
authorized 50,000,000 shares,
issued and outstanding, 8,548,817
and 8,543,452 shares,
respectively 9 9
Additional paid-in capital 57,521 69,770
Deficit (724) --
-------- --------
Total Shareholders' Equity 56,806 69,779
-------- --------
$258,517 $249,515
======== ========
See accompanying notes
F-3
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Year ended December 31,
1996 1995 1994
Revenue
Minimum rents $ 33,695 $ 32,740 $ 27,543
Percentage rents 2,795 3,340 2,505
Expense reimbursements 6,559 6,431 5,220
Other 747 821 1,065
------- ------- -------
Total revenue 43,796 43,332 36,333
------- ------- -------
Expenses
Property operating 9,772 8,834 7,793
Real estate taxes 5,285 4,789 3,897
Depreciation and amortization 13,398 11,820 9,066
General and administrative 2,811 2,751 3,107
------- ------- -------
Total operating expenses 31,266 28,194 23,863
------- ------- -------
Operating income 12,530 15,138 12,470
Interest and financing
expense (12,733) (10,598) (5,763)
Gain on sale of land 21 93 305
Adjustment to carrying value
of property held for sale (392) -- --
------- ------- -------
(Loss) income before
extraordinary item and
minority interest (574) 4,633 7,012
Extraordinary item-write-off
of deferred financing costs (190) -- --
------- ------- -------
(764) 4,633 7,012
Minority interest 40 (833) (1,222)
------- ------- -------
Net (loss) income $ (724) $ 3,800 $ 5,790
======= ======= =======
Net (loss)income per common share:
(Loss) income before
extraordinary item $ (.06) $ .44 $ .68
Extraordinary item (.02) -- --
------- ------- -------
Net (loss) income $ (.08) $ .44 $ .68
======= ======= =======
See accompanying notes
F-4
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Shares of Retained Total
Common Common Additional Paid Earnings Shareholders'
Stock Stock in Capital (Deficit) Equity
Balance, December 31, 1993 8,530,000 $9 $84,597 $ -- $84,606
Payments of additional share
issuance costs -- -- (29) -- (29)
Issuance of shares pursuant to
the Company's restricted
share plan 6,765 -- 100 -- 100
Income before minority interest -- -- -- 7,012 7,012
Distributions paid to the
limited partner of the
Operating Partnership -- -- -- (2,440) (2,440)
Dividends paid from accumulated
earnings ($0.39 per share) -- -- -- (3,350) (3,350)
Dividends paid in excess of
accumulated earnings
($1.05 per share) -- -- (8,938) -- (8,938)
Minority interest's equity -- -- 2,444 (1,222) 1,222
---------- --- ------- ------- -------
Balance,
December 31, 1994 8,536,765 9 78,174 -- 78,183
Issuance of shares pursuant to
the Company's restricted share
plan 6,687 -- 93 -- 93
Issuance of Operating Partnership
Units in connection with the
acquisition of property -- -- (20) -- (20)
Income before minority interest -- -- -- 4,633 4,633
Distributions paid to limited
partners of the Operating
Partnership -- -- -- (2,452) (2,452)
Dividends paid from accumulated
earnings ($0.16 per share) -- -- -- (1,348) (1,348)
F-5
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Shares of Total
Common Common Additional Paid Retained Shareholders'
Stock Stock in Capital Earnings Equity
Dividends paid in excess of
accumulated earnings
($1.28 per share) -- -- (10,949) -- (10,949)
Minority interest's equity -- -- 2,472 (833) 1,639
---------- --- ------- ------- -------
Balance,
December 31, 1995 8,543,452 9 69,770 -- 69,779
Issuance of shares pursuant to
the Company's restricted share
plan 5,365 -- 57 -- 57
Loss before minority interest -- -- -- (764) (764)
Distributions paid or declared
to limited partners of the
Operating Partnership -- -- (2,435) -- (2,435)
Dividends paid or declared in
excess of accumulated earnings
($1.44 per share) -- -- (12,306) -- (12,306)
Minority interest's equity -- -- 2,435 40 2,475
---------- --- ------- ------- -------
Balance, December 31, 1996 8,548,817 $9 $57,521 $(724) $56,806
========== === ======= ======= =======
See accompanying notes
F-6
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)income $(724) $ 3,800 $ 5,790
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Gain on sale of land (21) (93) (305)
Depreciation and amortization of leasing costs 12,483 10,993 8,162
Amortization of deferred financing costs 915 827 904
Write-off of deferred financing costs 190 -- --
Adjustment to carrying value of property held for sale 392 -- --
Minority interest (40) 833 1,222
Provision for bad debts 972 721 495
Other 57 93 100
------- ------- -------
14,224 17,174 16,368
Net changes in operating assets and liabilities:
Rents receivable (580) (1,846) (1,806)
Prepaid expenses (69) (387) 211
Due from related parties 31 408 (503)
Tenant security and other deposits 645 (820) (84)
Accounts payable and accrued expenses (756) 1,656 (1,193)
Rents received in advance and tenants security deposits 561 51 491
------- ------- -------
Net cash provided by operating activities 14,056 16,236 13,484
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements (19,737) (19,260) (40,619)
Acquisition of properties -- -- (24,049)
Net change in accounts payable related to
construction-in-progress 3,095 (2,411) 4,084
Payment to Principal Shareholder for acquisition of land -- (1,500) --
Deferred leasing and other charges (3,399) (1,650) (294)
Expenditures for furniture, fixtures and equipment (4) (139) (535)
Proceeds from sale of land 22 105 325
------- ------- -------
Net cash used in investing activities (20,023) (24,855) (61,088)
F-7
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payment for debt service escrow (688) (2,014) --
Payment of underwriting fees and share issuance costs -- -- (29)
Principal payments on mortgages (40,622) (49,491) (13,280)
Payment of deferred finance costs (2,415) (770) (1,751)
Proceeds received on mortgage notes 61,617 75,690 76,112
Dividends paid (9,229) (12,297) (12,288)
Distributions paid to Principal Shareholder (1,852) (2,452) (2,440)
------- ------- -------
Net cash provided by financing activities 6,811 8,666 46,324
------- ------- -------
Increase (decrease) in cash and cash equivalents 844 47 (1,280)
Cash and cash equivalents, beginning of period 3,068 3,021 4,301
------- ------- -------
Cash and cash equivalents, end of period $3,912 $3,068 $ 3,021
======= ======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest, net of amounts
capitalized of $897, $978 and $1,065, respectively $12,950 $10,172 $ 5,155
======= ======= =======
Supplemental disclosures of non-cash investing and
financing activities:
Distributions of $3,078 and Operating Partnership distributions of $584 had been declared but not paid as of December 31, 1996.
F-8
MARK CENTERS TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
In connection with the exercise of the Company's options to acquire and develop certain properties and the subsequent
transactions as a result of certain resolutions with the Principal Shareholder, the following assets and liabilities were
recorded:
YEAR ENDED DECEMBER 31,
1996 1995 1994
Contingent liability due to Principal Shareholder $(6,156) $(8,133) $2,331
Establishment of note payable to the Principal Shareholder 3,031 -- --
------- ------ -------
Net (decrease) increase in cost of property acquired $(3,125) $(8,133) $2,331
======= ======= =======
In connection with the acquisition of the Plaza 15 Shopping Center, the following assets and liabilities were recorded:
Assumption of mortgage $1,219
Application of balance due the Company under the ground lease 196
Operating Partnership Units issued 20
Cash received (46)
-------
Cost of property acquired $1,389
=======
See accompanying notes
F-9
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies,
Formation of the Company, Initial Public Offering and Basis of
Presentation
Mark Centers Trust (the "Company") was formed as a Maryland Real
Estate Investment Trust 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
8,350,000 common shares 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
the 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. The Company currently
owns and operates 39 properties consisting of 34 neighborhood and
community shopping centers, three enclosed malls and two mixed-
use (retail/office space) properties. All of the Company's
assets are held by, and all of its operations are conducted
through Mark Centers Limited Partnership (the "Operating
Partnership") and its majority owned partnerships. The Company
as of December 31, 1996 controlled, as the sole general partner,
84% of 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.
Acquisition of Properties
On July 14, 1995, the Company acquired the equitable interest in
the building and other improvements constituting the Plaza 15
Shopping Center, located in Lewisburg, Pennsylvania. The
equitable interest in the land had already been assigned to the
Company by the Principal Shareholder in the Offering in exchange
F-10
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Acquisition of Properties, continues
for Operating Partnership Units ("OP Units"). The Company paid
$1,389 for the equitable interest in the building and
improvements held by an unrelated third party under an industrial
development authority installment sales agreement through the
issuance of 2,000 OP Units, the assumption of $1,219 of mortgage
debt and the application of other amounts due the Company.
In May 1995, the Company and Principal Shareholder agreed to
terminate an acquisition option which was obtained concurrent
with the Offering to acquire property in New Castle,
Pennsylvania. In lieu of the option the Company purchased the
property from the Principal Shareholder in February 1996 for
$4,495.
On December 27, 1994, the Company exercised its option to acquire
land in Pittston Township, Pennsylvania from the Principal
Shareholder for $1,500.
On October 6, 1994, the Company purchased two community shopping
centers, the Shillington Plaza Shopping Center located in
Reading, Pennsylvania, and the Auburn Plaza located in Auburn,
Maine, for a total of $17,200. On May 25, 1994, the Company
acquired the Berlin Shopping Center located in Berlin, New Jersey
for $6,500. Had these properties been acquired as of January 1,
1994 the Company's net income for the year ended December 31,
1994 would have been approximately $6,154.
On April 28, 1994, the Company exercised an option which was
obtained concurrent with the Offering to acquire the Route 6 Mall
in Honesdale, Pennsylvania from the Principal Shareholder. The
Company had previously exercised two other options with the
Principal Shareholder to acquire the Bradford Towne Centre in
Towanda, Pennsylvania and the Columbia Towne Centre in Hudson,
New York in 1993. In February of 1996, in an effort to eliminate
the potential conflicts of interest between the Company and the
Principal Shareholder in the context of these acquisition
options, the Board of Trustees and Principal Shareholder
terminated all acquisition options, the Principal Shareholder
repurchased the Columbia Towne Centre from the Company for
$3,065, and the Company paid a total of $1,600 for the Bradford
Towne Centre and Route 6 Mall. (See note 4)
F-11
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Principles of Consolidation
The consolidated financial statements of Mark Centers Trust
include the accounts of the Company and its majority owned
partnerships, including the Operating Partnership. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Properties
Real estate assets are stated at cost less accumulated
depreciation. Such carrying amounts would be adjusted, if
necessary, to reflect any impairment in the value of the assets.
Expenditures for acquisition, development construction and
improvement of properties, as well as significant renovations are
capitalized. Interest costs are capitalized until construction
is substantially complete. Depreciation is computed on the
straight-line method over estimated useful lives of thirty to
forty years for buildings and the shorter of the useful life or
lease term of improvements, furniture, fixtures and equipment.
Expenditures for maintenance and repairs are charged to
operations as incurred.
Deferred Costs
Fees and costs incurred in the successful negotiation of leases
have been deferred and are being amortized on a straight-line
basis over the terms of the respective leases. Fees and costs
incurred in connection with obtaining financing have been
deferred and are being amortized over the term of the related
debt obligation.
F-12
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Revenue Recognition
Leases with tenants are accounted for as operating leases.
Minimum annual rentals are generally recognized on a straight-
line basis over the term of the respective lease. As of December
31, 1996 and 1995, unbilled rents receivable were $1,476 and
$1,359, respectively. Contingent rents based on percentage rents
are accrued based on historical tenant sales.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash and cash
equivalents.
Minority Interest
In excess of 99% of the minority interest represents the
Principal Shareholder's 16% interest as a limited partner of the
Operating Partnership. Such interest is held in the form of OP
Units which are exchangeable on an equivalent basis with common
shares. The remaining interest is the result of the issuance of
OP Units to an unrelated third party related to the acquisition
of a property.
Income Taxes
The Company has made an election to be taxed, and believes it
qualifies as a real estate investment trust ("REIT) under
Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended. A REIT will generally not be subject to federal income
taxation on that portion of its income that qualifies as REIT
taxable income to the extent that it distributes at least 95% of
its taxable income to its shareholders and complies with certain
other requirements. Accordingly, no provision has been made for
federal income taxes for the Company in the accompanying
consolidated financial statements. The Company is subject to
state income or franchise taxes in certain states in which some
of its properties are located. These state taxes, which in total
are not significant, are recorded as general and administrative
expenses in the accompanying consolidated financial statements.
F-13
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Per Share Data
Primary earnings per share for the years ended December 31, 1996,
1995 and 1994 are computed based upon 8,560,415, 8,563,466 and
8,563,529 shares outstanding, respectively, which represents the
weighted average number of shares outstanding during the periods.
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 anti-dilutive, such amounts are not presented.
Reclassifications
Certain 1995 and 1994 amounts were reclassified to conform with
the 1996 presentation.
2. Deferred Charges
Deferred charges consist of the following as of December 31, 1996
and 1995:
1996 1995
Deferred financing costs $5,822 $4,617
Deferred leasing costs 7,063 4,362
------ ------
12,885 8,979
Accumulated amortization (3,851) (4,074)
------ ------
$9,034 $4,905
====== ======
F-14
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
3. Mortgage Loans
Mortgage Notes Payable
At December 31, 1996, mortgage notes payable aggregated $156,772
and were collateralized by 32 properties and related tenant
leases. Interest rates ranged from 7.7% to 9.25%. Mortgage
payments are due in monthly installments of principal and/or
interest and mature at various dates through 2021. The loan
agreements contain customary representations, covenants and
events of default. Certain loan agreements require the Company
to comply with certain affirmative and negative covenants,
including the maintenance of certain debt service coverage and
leverage ratios. Additionally, the Principal Shareholder has
personally guaranteed the repayment of mortgage loans with an
aggregate balance of $41,000 at December 31, 1996 without
consideration from the Company.
On December 20, 1996, the Company obtained $4,100 in fixed rate
financing from Anchor National Life Insurance Company. The mortgage
loan is secured by one property, requires payment of interest at 7.93%
and principal amortized over a 22 year period, and matures
January 1, 2004.
On October 4, 1996 , the Company closed on $45,930 in fixed rate
financing from Morgan Stanley Mortgage Capital, Inc. ("Morgan
Stanley"). The non-recourse mortgage 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. Of the proceeds from the financing, $33,616 was used
to retire existing debt, $1,062 for financing costs, $2,847 was
held in escrow as of December 31, 1996, and the remaining
proceeds were used for property investment and working capital.
On September 27, 1996 the Company completed a closing on a
construction loan with First Western Bank, N.A. in the maximum
amount of $12,000 which is secured by a mortgage on the Union
Plaza in New Castle, Pennsylvania. As of December 31, 1996, the
Company had $4,000 outstanding on this facility with an
additional $1,000 available upon the execution of certain
additional leases. The remaining $7,000 will be made available
upon the Company issuing an irrevocable letter of credit for
$7,000. During the construction period, the loan bears interest
F-15
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Mortgage Notes Payable, continued
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.
Lines of Credit
As a result of the Morgan Stanley financing, the Company amended
its existing revolving credit facilities. The Company used $8,105
of the proceeds of the Morgan Stanley facility to partially repay
its facility with Fleet Bank of Massachusetts, N.A. ("Fleet
Bank"). The Fleet Bank facility was then amended by reducing the
maximum line of credit to $12,000, releasing three properties
formerly mortgaged as security (which properties were then used
to secure the Morgan Stanley loan) and modifying certain
covenants. The Company currently has $10,155 outstanding under
the Fleet Bank facility which is now secured by three properties
and matures May 31, 1997. The remaining $1,845 under the facility
is currently unavailable as it is subject to certain occupancy
requirements at the Ledgewood Mall property. Advances under the
facility bear interest at LIBOR plus 200 basis points or the
prime rate established by Fleet Bank plus 1/4%, and are recourse
to the Company and are guaranteed by the Principal Shareholder
without consideration from the Company.
Following the repayment of $16,555 with proceeds from the Morgan
Stanley financing, the Company's facility with Mellon Bank, N.A.
("Mellon Bank") was amended by reducing the available facility to
$3,812 with no additional obligation by Mellon Bank to advance
any additional loan amounts, releasing five properties formerly
mortgaged as security (which properties were then used to secure
the Morgan Stanley loan), requiring the amortization of principal
through the extended maturity date of April 2, 1998 and modifying
certain affirmative and negative covenants. The Company currently
has $3,396 outstanding under the facility which 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.
Upon the repayment of $5,000, three properties formerly mortgaged
as security for the Company's facility with Firstrust Bank were
released (which properties were then used to secure the Morgan
Stanley loan) and the maximum loan amount was reduced to the
current outstanding balance of $2,500. 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 one property.
F-16
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Mortgage Loans, continued
The following table summarizes lines of credit and mortgage indebtedness as of December 31, 1996 and 1995:
Monthly
December 31, December 31, Interest Maturity Properties Payment
1996 1995 Rate Date Encumbered Terms
Lines of credit-variable rate
Fleet Bank of Massachusetts,NA $10,155 $17,808 LIBOR + 200 basis May 31, 1997 (1) (10)
points/Prime+1/4%
Mellon Bank, NA 3,396 22,295 LIBOR + 200 basis April 2, 1998 (2) (11)
points/Prime+1/2%
Firstrust Savings Bank 2,500 3,750 8.750%/Prime+1/2% June 30, 1997
------- -------
Total-lines of credit 16,051 43,853
------- -------
Construction loan-variable rate
Mellon Bank, NA -- 2,191
First Western Bank, NA 4,000 -- 9.250% March 1, 2013 (4) (10)
Mortgage notes payable-fixed
rate Metropolitan Life
Insurance Company 41,000 41,000 7.750% June 1, 2000 (5) (10)
Morgan Stanley Mortgage Capital 45,845 -- 8.840% November 1, 2021 (6) $380 (11)
Anchor National Life
Insurance Company 4,100 -- 7.930% January 1, 2004 (7) $33 (10)
Provident Mutual Life
Insurance Company -- 1,075
Northern Life Insurance Company 3,829 4,016 7.700% December 1, 2008 (8) $41 (11)
Bankers Security Life 2,641 2,770 7.700% December 1, 2008 (8) $28 (11)
John Hancock Mutual Life
Insurance Co. 55,357 55,754 9.110% April 1, 2000 (9) $455 (11)
Roosevelt Bank -- 1,169
------- -------
Total-mortgage notes payable 156,772 107,975
------- -------
$172,823 $151,828
======== ========
F-17
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Mortgage Loans, continued
<C<
Notes:
(1) Searstown Mall (6) Midway Plaza (7) Pittston Plaza
Wesmark Plaza Northside Mall
Northwood Centre New Smyrna Beach (8) Manahawkin Shopping Center
Cloud Springs Plaza
(2) Auburn Plaza Troy Plaza (9) New Loudon Centre
Martintown Plaza Ledgewood Mall
(3) Mark Plaza Kings Fairgrounds Plaza 422
Shillington Plaza Berlin Shopping Center
(4) Union Plaza Dunmore Plaza Route 6 Mall
Kingston Plaza Tioga West
(5) Valmont Plaza Twenty Fifth Street Shopping Center Bradford Towne Centre
Luzerne Street Plaza Circle Plaza
Green Ridge Plaza Mountainville Plaza (10) Interest only monthly
Crescent Plaza Plaza 15
East End Centre Birney Plaza (11) Monthly principal
Monroe Plaza and interest
Ames Plaza
F-18
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
3. Mortgage Loans, continued
The scheduled maturities of all mortgage indebtedness as of
December 31, 1996 are as follows:
1997 $ 14,603
1998 4,336
1999 1,640
2000 96,139
2001 1,322
Thereafter 54,783
--------
$172,823
========
Of the $14,603 scheduled to mature in 1997, $10,155 was repaid in
March of 1997 in connection with new financing (see note 18).
4. Related Party Transactions
As of December 31, 1996 and 1995 amounts due from related parties
consisted of the following:
December 31,
1996 1995
Accrued management fees due from
the Principal Shareholder for
certain operating properties
owned by the Principal Shareholder $ -- $ 58
Accrued ground rent and management fees
due from Blackman Plaza Partners 232 260
Other net amounts due (to) from
Principal Shareholder (29) 66
----- -----
$203 $384
===== =====
Included in other income are management fees earned on properties
owned by the Principal Shareholder or affiliates which for the
years ended December 31, 1996, 1995 and 1994 aggregated $36, $166
and $228, respectively.
Included in rental income is rent earned pursuant to a ground
lease on Blackman Plaza, a limited partnership in which the
Principal Shareholder is the sole general partner (owning a one
percent economic interest), which for the years ended December
31, 1996, 1995 and 1994 aggregated $0, $140 and $140,
respectively. The Company has not recognized income in 1996 due
F-19
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
4. Related Party Transactions, continued
to the lessee's inability to pay the ground rent as a result of
insufficient cash flow from the property. The lease, which
expires in the year 2051, provides the Company ("Lessor") with an
option, exercisable between January 2, 1997 and August 2, 2001,
to purchase the lessee's interests in the shopping center. In
the event the Lessor's option is not exercised prior to August 2,
2001, the lessee may, until and including December 1, 2002,
require the Lessor to purchase its interest in the shopping
center, thereby terminating the ground lease. In addition, the
ground lease provides the lessee with an option, exercisable at
any time, to purchase the leased premises from the Lessor. The
purchase price with respect to each of the above options is
defined in the lease and is no less than the fair market value of
the premises.
Concurrent with the Offering, the Company obtained acquisition
options ("Acquisition Options") to acquire six properties under
development from the Principal Shareholder (the "Development
Properties"), which were in various stages of the development
process. As of December 31, 1995, the Company had exercised three
of these options for the Bradford Towne Centre in Towanda,
Pennsylvania, the Route 6 Mall in Honesdale, Pennsylvania, and
the Columbia Towne Centre in Hudson, New York. Development on the
Columbia Towne Centre was suspended due to the bankruptcy of a
former anchor tenant. Upon substantial completion of each
Development Property the Company had agreed to pay the Principal
Shareholder an amount (the "Contingent Payment Amount") equal to
the (i) land acquisition costs, (ii) third-party development
costs, (iii) allocated overhead expenses, (iv) leasing
commissions for all tenant leases signed prior to the Offering
and an incentive payment equal to 5% of construction costs
(excluding engineering, architectural and other "soft costs").
The Contingent Payment Amount was to be reduced as necessary to
provide the Company with a minimum 13.5% return on its investment
based on the annualized operating income from the property within
two years after completion of construction. The Contingent
Payment Amount was to be made through the issuance of OP Units,
unless such issuance would have resulted in the Company owning
less than 51% of the Operating Partnership or would have
jeopardized the Company's REIT status, in which case, payment was
to be made in cash.
F-20
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
4. Related Party Transactions, continued
The Company also provided certain services to the Principal
Shareholder with regard to the Development Properties for which
the Principal Shareholder was contractually obligated to
reimburse the Company $31 quarterly per Development Property
until such time as the Company exercised or declined to exercise
the development options, subject to a minimum of $125 per
Development Property for one year from the date of the Offering.
For the year ended December 31, 1996, the Company did not provide
any services nor was reimbursed for such by the Principal
Shareholder. Reimbursements totalled $107 and $469 for the years
ended December 31, 1995 and 1994, respectively.
In February 1996, the Principal Shareholder and Board of Trustees
("Trustees") took certain actions in an effort to eliminate the
appearance of potential conflicts of interest arising between the
Principal Shareholder and the Company in the context of the
Acquisition Options, and to eliminate potential disputes arising
from the complex manner in which the reimbursement to the
Principal Shareholder for the Development Properties was
calculated. As a result, the Company and the Principal
Shareholder executed the following agreements:
The Trustees of the Company and the Principal Shareholder
terminated all Acquisition Options (other than the Acquisition
Option pertaining to the New Castle property which had been
terminated in May 1995).
The Principal Shareholder repurchased the Columbia Towne Centre
from the Company for $3,065, which represented total development
costs incurred by the Company to the date of repurchase, and was
greater than the value of the property as determined by an
independent appraiser.
The Company purchased the Union Plaza, located in New Castle,
Pennsylvania, from the Principal Shareholder for $4,495 which
represented the amount the Principal Shareholder had invested in
the property less $378 of predevelopment costs previously
advanced by the Company in 1994. This purchase price was less
than the value of the property as determined by an independent
appraiser.
F-21
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
4. Related Party Transactions, continued
Upon completion of a review in June 1996 of the payments due the
Principal Shareholder for the acquisition of the Route 6 Mall and
the Bradford Towne Centre, for which development is completed and
both are currently operating, the Company agreed to pay the
Principal Shareholder $1,600 which included the conveyance of
approximately two acres of land by the Principal Shareholder
which became part of the Route 6 Mall.
The Company and Principal Shareholder also terminated all
management agreements for properties owned by the Principal
Shareholder.
As a result of these transactions and to reflect the net result
of the purchase and sales price for these properties, the Company
issued a note payable to the Principal Shareholder for the
principal sum of $3,030. The note, which bears interest at a rate
equal to that charged by Fleet Bank, N.A. on the Company's
revolving line of credit facility, is payable in full the earlier
of (i) two years following the date the Union Plaza is completed
or (ii) on June 12, 1999. Since the payment to the Principal
Shareholder reflects in part land acquisition costs associated
with the Union Plaza, the Company has agreed with the Principal
Shareholder to prepay the principal sum with any construction
loan proceeds specifically allocable for land acquisition. The
financing with First Western Bank, N.A. did not provide any
proceeds allocable to land acquisition.
Following is a summary of the liability to the Principal
Shareholder as of December 31, 1996 and 1995 related to the
Development Properties:
Contingent payable to Principal
Shareholder for the Bradford Towne
Centre and the Route 6 Mall,
December 31, 1995 $ 6,156
Termination of the Acquisition Options (6,156)
Purchase price for the Union Plaza 4,495
Purchase price for the Bradford Towne
Centre and the Route 6 Mall 1,600
Sale of the Columbia Towne Centre (3,065)
Accrued interest 20
-------
Amount payable to Principal
Shareholder, December 31, 1996 $ 3,050
=======
F-22
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
4. Related Party Transactions, continued
On December 27, 1994, the Company exercised an option to acquire
a parcel of land in Pittston, Pennsylvania for $1,500 from the
Principal Shareholder which was paid in 1995.
On May 21, 1996, the Company obtained an option to purchase
approximately 27 acres of land adjacent to the Plaza 15 from the
Principal Shareholder. The option has a term of three years
requires annual option payments of $5 and establishes a purchase
price of $1,325 reduced by all annual option payments made by the
Company.
The Company leases office space from the Principal Shareholder
under the terms of a noncancellable ten year operating triple net
lease which provides for annual rent of $104 for the first five
years with annual escalations thereafter based on increases in
the consumer price index. Rent expense, excluding escalations,
for the years ended December 31, 1996, 1995 and 1994 was $104
each year.
The Principal Shareholder is a member of the Board of Directors
of a tenant which leases space in 12 of the properties. Rental
income from this tenant for the years ended December 31, 1996,
1995 and 1994 aggregated $909, $929 and $635, respectively, of
which $86 and $32 are receivable as of December 31, 1996 and
1995, respectively. Additionally, for the year ended December
31, 1995, the Company paid $1,050 for tenant improvements at
three properties for this tenant.
5. Tenant Leases
Space in the shopping centers and other properties is leased to
various tenants under operating leases which usually grant
tenants renewal options and generally provide for additional or
contingent rents based on certain operating expenses as well as
tenants' sales volume.
Minimum future rentals to be received under noncancelable leases
as of December 31, 1996 are summarized as follows:
F-23
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
5. Tenant Leases, continued
1997 $ 31,853
1998 29,884
1999 24,876
2000 19,598
2001 17,471
Thereafter 133,840
--------
$257,522
========
Minimum future rentals above include two tenants which filed for
bankruptcy protection totalling $3,768. Neither of these leases
have been rejected or affirmed.
During the years ended December 31, 1996, 1995 and 1994, rental
income representing 10% or more of combined annual rentals was
earned from various governmental agencies of the State of
Florida. These agencies have the right, under certain
conditions, to cancel their leases upon three to six months
written notice and are therefore not included in the above table
of minimum future rentals. Rentals earned under these leases
during the years ended December 31, 1996, 1995 and 1994 were
$4,735, $4,389 and $4,499, respectively. During the year ended
December 31, 1996, the Company also earned greater than 10% of
its rental income from the Kmart Corporation. Rents earned under
leases at nine locations for this tenant totaled $4,733, $4,180
and $2,190 for the years ended December 31, 1996, 1995 and 1994,
respectively.
6. Lease Obligations
The Company leases land at six of its shopping centers which are
accounted for as operating leases and generally provide the
Company with renewal options. One of the leases terminates in
2088, with no renewal options and a purchase option for $1,600,
that expires in 1999. Six of the leases which terminate during
the years 2006 to 2033 and provide the Company with options to
renew the leases for additional terms aggregating from 20 to 60
years. Another ground lease which has no remaining renewal
options, terminates in 2066. Additionally, the Company leases
office space from the Principal Shareholder under a non-
cancelable lease agreement for a term of ten years. Future
minimum rental payments required for leases having remaining non-
cancelable lease terms in excess of one year are as follows:
F-24
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
6. Lease Obligations, continued
1997 $ 313
1998 313
1999 313
2000 313
2001 313
Thereafter 13,833
------
$15,398
=======
7. Share Option Plan
On November 10, 1994, the Company terminated the original
incentive and nonqualified share option plan and adopted two new
share option plans effective as of that date, authorizing the
issuance of 500,000 share options to employees and 100,000 share
options to non-employee trustees, respectively.
The Company has issued 100,000 share options to the Principal
Shareholder and 57,000 to employees of the Company which vested
20% immediately and 20% for each of the four remaining years.
The options are exercisable at the average fair market value as
of the date preceding the grant date ($12.69 per share) for
employees and 110% thereof ($13.96 per share) for the Principal
Shareholder for a period of ten years. The Company has also
issued a total of 60,000 share options to non-employee trustees
which vest 20% immediately and 20% for each of the four remaining
years, and are exercisable at the average fair market price as of
the date preceding the grant date for a period of ten years. In
addition each trustee is entitled to 1,000 share options on each
January 1, subsequent to the initial grant date of November 10,
1994. The options issued to non-employee trustees are
exercisable at prices ranging from $11.38 to $12.69 per share.
Effective for the year ended December 31, 1996, the Company
adopted Statement of Financial Accounting Standards No. 123,
("FASB 123"), "Accounting for Stock-Based Compensation". In
accordance with the provisions of FASB 123, the Trust applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations in accounting
for its stock option plan and accordingly, does not recognize
compensation expense. Had compensation expense for the Trust's
stock option plan been determined based upon the fair value at
the grant date for awards under the plan consistent with the
methodology prescribed under FASB 123, the effect on reported net
income and earnings per share would have been immaterial.
F-25
Changes in the number of shares under all option arrangements are
summarized as follows:
Year ended December 31,
1996 1995 1994
Outstanding at beginning
of period 234,500 234,500 84,000
Granted 5,000 5,000 284,500
Option price per share
granted $11.38 $12.75 $12.69-$13.96
Cancelled 22,500 5,000 134,000
Exercisable at end
of period 217,000 234,500 234,500
Exercised -- -- --
Expired -- -- --
Outstanding at end
of period 217,000 234,500 234,500
Option prices per
share outstanding $11.38-$13.96 $12.69-$13.96 $12.69-$13.96
8. Restricted Share Plan
The Company has established a restricted share plan which
originally granted to employees 47,722 restricted common shares.
Restricted common shares aggregating 10,718 and 19,601 were
granted, but not vested, as of December 31, 1996 and 1995,
respectively. The restricted shares which were granted vest and
are issued 20% per year over a five year period which began June
1, 1994. Each plan participant is entitled to receive additional
compensation on a quarterly basis equal to the dividend declared
on their respective restricted shares granted under the plan
until such plan participants' restricted shares are vested.
9. Employee 401(k) Plan
The Company maintains a 401(k) plan for employees under which the
Company matches 50% of a plan participant's contribution. A plan
participant may contribute up to a maximum of 15% of their
compensation but not in excess of $9.5 for the year ended
December 31, 1996. The Company contributed $67, $64 and $59 for
the years ended December 31, 1996, 1995 and 1994, respectively.
10. Extraordinary Item - Write-off of Deferred Financing Costs
The consolidated statement of operations for the year ended
December 31, 1996 includes the write-off of $190 in net deferred
financing fees as a result of the repayment of the related debt.
F-26
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
11. Distributions payable
On November 14, 1996, the Trustees declared a cash distribution
of $0.36 per common share and OP Unit payable on January 31, 1997
to shareholders and limited partners of record as of November 26,
1996.
The Company has determined that the cash distributed to the
shareholders is characterized as follows for federal income tax
purposes:
1996 1995 1994
Ordinary income 35% 64% 68%
Return of capital 65% 36% 32%
--- --- ---
100% 100% 100%
==== ==== ====
12. Management Agreements
The Company managed four properties in which the Principal
Shareholder holds interests in and which are not owned by the
Company. The Company received fees for these management services
based on 4% of gross cash collections. The Company also managed
a property for an unrelated party for which it receives a
management fee based on 4% of the fixed minimum rents, excluding
the minimum rent of the anchor tenant who is also the owner of
the property. All of these management agreements were terminated
in 1996. The Company continues to manage the Blackman Plaza and
receives management fees based on 4% of gross cash collections.
13. Adjustment to Carrying Value of Property
As a result of the Company's ongoing strategic evaluation of its
portfolio of properties, it has entered into an agreement to sell
the Newberry Plaza located in Newberry, South Carolina. As the
property is held for sale as of December 31, 1996, the Company
has recorded a $392 reduction in the carrying value to reflect
the property at a fair value of $1,300, (the contract sales price
less direct selling costs).
14. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures
About Fair Value of Financial Instruments", requires disclosure
on the fair value of financial instruments. Certain of the
Company's assets and liabilities are considered financial
instruments. Fair value estimates, methods and assumptions are
set forth below.
F-27
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
14. Fair Value of Financial Instruments, continued
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable
and Accrued Expenses
The carrying amount of these assets and liabilities approximates
fair value due to the short-term nature of such accounts.
Mortgage Notes Payable
As of December 31, 1996 and 1995, the Company has determined the
estimated fair value of its mortgage notes payable are
approximately $150,801 and $108,859, respectively, by discounting
future cash payments utilizing a discount rate equivalent to the
rate at which similar mortgage notes payable would be originated
under conditions then existing.
Lines of Credit
The Company has determined the estimated fair value of its lines
of credit are equal to the carrying value of such liabilities as
such financial instruments provide for variable rates of interest
which readjust as market conditions change.
F-28
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
15. Summary of Quarterly Financial Information
The unaudited results of operations of the Company for the years ended December 31, 1996, 1995 and 1994 are as follows:
March 31, 1996 June 30, 1996 Sept 30,1996 Dec 31, 1996 Total for Year
Revenue $11,235 $10,719 $10,497 $11,345 $43,796
Income (loss) before gain from
sale, extraordinary item, and
minority interest 186 18 (204) (595) (595)
Net income (loss) 134 (4) (179) (675) (724)
Net income (loss) per share $0.02 $0.00 $(0.02) $(0.08) $(0.08)
Cash dividends declared per share .36 .36 .36 (a) $1.08
Weighted average shares
outstanding 8,563,053 8,559,535 8,559,535 8,559,535 8,560,415
(a) The dividend for the quarter ended December 31, 1996 will be determined by the Trustees in March 1997.
March 31, 1995 June 30, 1995 Sept 30,1995 Dec 31, 1995 Total for Year
Revenue $10,416 $10,631 $10,924 $11,361 $43,332
Income before gain from sale
and minority interest 1,202 1,120 1,197 1,021 4,540
Net income 986 987 988 839 3,800
Net income per share $ 0.12 $ 0.12 $ 0.12 $ 0.08 $ 0.44
Cash dividends declared
per share .36 .36 .36 .36 1.44
Weighted average shares
outstanding 8,564,036 8,573,461 8,563,884 8,563,356 8,563,466
March 31, 1994 June 30, 1994 Sept 30,1994 Dec 31, 1994 Total for Year
Revenue $ 8,610 $ 8,648 $ 8,785 $10,290 $36,333
Income before gain from sale
and minority interest 1,760 1,718 1,912 1,317 6,707
Net income 1,465 1,405 1,584 1,336 5,790
Net income per share $ 0.17 $ 0.16 $ 0.19 $ 0.16 $ 0.68
Cash dividends declared
per share .36 .36 .36 .36 1.44
Weighted average shares
outstanding 8,564,121 8,563,816 8,565,502 8,563,686 8,563,529
F-29
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
16. Legal Proceedings
On November 20, 1995, Mr. Wertheimer, the former President of the
Company, filed a complaint against the Company, its Trustees
including the Principal Shareholder, and the Company's in-house
General Counsel and Chief Financial Officer in the United States
District Court for the Middle District of Pennsylvania. The
complaint, which was filed in connection with the termination of
Mr. Wertheimer's employment, includes many of the allegations
raised in a state court proceeding commenced by Mr. Wertheimer in
November 1994. The Federal court complaint also includes a civil
RICO action in which Mr. Wertheimer alleges that the Board of
Trustees of the Company conspired with the Principal Shareholder
to terminate Mr. Wertheimer's employment as part of the Principal
Shareholder's breach of his duty of good faith and fair dealing.
Further, Mr. Wertheimer alleges that the above defendants engaged
in securities fraud in connection with the Offering and that the
Principal Shareholder has defrauded or overcharged the Company in
corporate transactions. The Federal complaint seeks treble
damages under RICO, as well as damages arising from Mr.
Wertheimer's alleged termination of employment, invasion of
privacy, intentional infliction of emotional distress, fraud and
misrepresentation. The Company and all defendants filed motions
to dismiss the RICO and tort claims which the court, on December
9, 1996, granted in part and denied in part. Specifically, the
court dismissed Mr. Wertheimer's claims for wrongful discharge,
fraud and negligence misrepresentation, but declined to dismiss
the remainder of the claims at this time. On January 23, 1997,
the defendants filed an answer to Mr. Wertheimer's Complaint. In
the answer, the defendants denied all allegations of wrongdoing,
and intends to vigorously defend against all of the counts. The
Company and the Principal Shareholder have also filed
counterclaims against Mr. Wertheimer alleging Mr. Wertheimer made
material misrepresentations in connection with his hiring and
breached his employment contract and fiduciary duties to the
Company.
The Company is involved in other various matters of litigation
arising in the normal course of business. While the Company is
unable to predict with certainty the amounts involved, the
Company's management and counsel are of the opinion that, when
such litigation is resolved, the Company's resulting liability,
if any, will not have a significant effect on the Company's
consolidated financial position.
F-30
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
17. Contingencies
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 a former tenant. The Company
will be entering into a voluntary remedial agreement with the
State of New York for the remediation of the Troy Plaza.
Environmental consultants estimate that the total cost of such
remediation will be approximately $75. The Company has received
notification from the State of Georgia that the Cloud Springs
Plaza will not be listed on the State's Hazardous Site
Inventory because it has no reason to believe that contamination
exceeding a reportable quantity has occurred at this property. As
of December 31, 1996, the Company has reserved a total of $425
for remediation costs at both properties for which Morgan Stanley
holds $563 of loan proceeds in escrow to be released upon final
environmental remediation.
Management is not aware of any other environmental liability that
they believe would have a material adverse impact on the
Company's financial position or results of operations.
Management is unaware of any instances in which it would incur
significant environmental costs if any or all properties were
sold, disposed of or abandoned.
18. Subsequent Events
On March 4, 1997, the Company closed on $23,000 in fixed rate
financing from Nomura Asset Capital Corporation. The mortgage
loan, which matures on March 11, 2022, bears interest at 9.02%,
requires monthly payments of interest and principal amortized
over 25 years, and requires the Company to comply with certain
affirmative and negative covenants. $10,155 of the proceeds were
used to retire exist debt with Fleet Bank, $673 for financing
costs, $3,105 million for escrows and the remaining proceeds were
available for property investment and working capital.
On March 5, 1997, the Company completed the sale of the Newberry
Plaza for $1,300, collecting $1,177 in sales proceeds after
closing costs and adjustments.
F-31
MARK CENTERS TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(Dollars in Thousands)
INITIAL COST TO COMPANY GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD
Costs Capitalized Date of
Building & Subsequent Building & Accumulated Acquisition(A)
Description Encumbrances Land Improvements to Acq Land Improvements Total Depreciation Construction(C)
Shopping Centers
Circle Plaza (2) $ -- $3,435 $ 13 $ 2 $ 3,446 $3,448 $1,119 1978(C)
Shamokin Dam,PA
Martintown Plaza (2) -- 4,625 1,289 -- 5,914 5,914 1,770 1985(A)
N.Augusta,SC
Newberry Plaza -- 254 2,297 (345) 254 1,952 2,206 905 1985(A)
Newberry,SC
Midway Plaza (2) 196 1,647 2,425 195 4,073 4,268 1,511 1984(A)
Opelika,AL
Northside Mall (2) 1,604 7,080 1,709 1,604 8,789 10,393 2,804 1986(A)
Dothan,AL
Searstown Mall (1) 491 4,854 3,105 491 7,959 8,450 3,217 1984(A)
Titusville,FL
New Smyrna Beach
Shopping Center (2) 247 2,219 2,507 247 4,726 4,973 1,503 1983(A)
New Smyrna Beach,FL
Wesmark Plaza (1) 380 3,419 1,188 370 4,617 4,987 1,616 1986(A)
Sumter,SC
Kings
Fairground (2) -- 1,426 3 -- 1,429 1,429 200 1992(A)
Danville,VA
Cloud Springs
Plaza (2) 159 2,712 1,202 159 3,914 4,073 1,176 1985(A)
Ft. Oglethorpe,GA
Crescent
Plaza 12,000 1,147 7,425 502 1,147 7,927 9,074 2,243 1984(A)
Brocton,MA
New Loudon Center(3) 505 4,161 9,627 505 13,788 14,293 2,680 1982(A)
Latham,NY
Ledgewood Mall (3) 619 5,434 25,515 619 30,949 31,568 8,961 1983(A)
Ledgewood,NJ
Troy Plaza (2) 479 1,976 812 479 2,788 3,267 1,257 1982(A)
Troy,NY
Birney Mall (2) 210 2,979 929 210 3,908 4,118 3,038 1968(C)
Moosic,PA
Dunmore Plaza (2) 100 506 123 100 629 729 271 1975(A)
Dunmore,PA
F-32
MARK CENTERS TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(Dollars in Thousands)
INITIAL COST TO COMPANY GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD
Costs Capitalized Date of
Building & Subsequent Building & Accumulated Acquisition(A)
Description Encumbrances Land Improvements to Acq Land Improvements Total Depreciation Construction(C)
Shopping Centers
Mark Plaza 2,500 -- 4,268 999 -- 5,267 5,267 3,101 1968(C)
Edwardsville,PA
Kingston Plaza (2) 305 1,745 480 305 2,225 2,530 1,166 1982(C)
Kingston,PA
Luzerne St.
Shopping Center 2,000 35 315 1,131 35 1,446 1,481 652 1983(A)
Scranton,PA
Blackman Plaza -- 120 -- -- 120 -- 120 -- 1968(C)
Wilkes-Barre,PA
East End Centre 14,200 1,086 8,661 3,181 1,086 11,842 12,928 3,897 1986(C)
Wilkes-Barre,PA
Green Ridge Plaza 6,700 1,335 6,314 596 1,335 6,910 8,245 2,154 1986(C)
Scranton,PA
Plaza 15 (2) 171 81 1,456 171 1,537 1,708 201 1976(C)
Lewisburg,PA
Plaza 422 (3) 190 3,004 429 190 3,433 3,623 1,760 1972(C)
Lebanon,PA
Tioga West (3) 48 1,238 3,376 48 4,614 4,662 1,652 1965(C)
Tunkhannock,PA
Mountainville (2) 420 2,390 454 420 2,844 3,264 1,207 1983(A)
Shopping Center
Allentown,PA
Monroe Plaza (2) 70 2,083 51 70 2,134 2,204 830 1964(C)
Stroudsburg,PA
Ames Plaza (2) 57 1,958 198 57 2,156 2,213 1,560 1966(C)
Shamokin,PA
Route 6 Mall (3) -- -- 12,696 1,664 11,032 12,696 686 1995(C)
Honesdale,PA
Pittston Plaza 4,100 -- -- 7,162 1,521 5,641 7,162 174 1995(C)
Pittston,PA
Valmont Plaza 6,100 522 5,591 902 522 6,493 7,015 2,312 1985(A)
W. Hazleton,PA
Manahawkin
Village 6,470 2,400 9,396 394 2,400 9,790 12,190 812 1993(A)
Shopping Center
Manahawkin,NJ F-33
MARK CENTERS TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(Dollars in Thousands)
INITIAL COST TO COMPANY GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD
Costs Capitalized Date of
Building & Subsequent Building & Accumulated Acquisition(A)
Description Encumbrances Land Improvements to Acq Land Improvements Total Depreciation Construction(C)
Shopping Centers
25th St.
Shopping Center (2) 2,280 9,276 183 2,280 9,459 11,739 995 1993(A)
Easton,PA
Berlin Shopping (3) -- -- 6,849 1,332 5,517 6,849 467 1994(A)
Center
Berlin,NJ
Auburn Plaza 3,396 -- -- 13,287 2,644 10,643 13,287 798 1994(A)
Auburn,ME
Shillington Plaza (2) -- -- 4,109 809 3,300 4,109 250 1994(A)
Reading,PA
Union Plaza 4,000 -- -- 17,914 5,401 12,513 17,914 70 1996(C)
New Castle,PA
Bradford Towne (3) -- -- 16,091 816 15,275 16,091 1,247 1994(C)
Centre
Towanda,PA
Mixed Use
Properties
Northwood (1) 1,209 6,204 17,598 1,189 23,822 25,011 10,005 1985(A)
Centre
Tallahassee,FL
Normandale Centre -- 287 2,584 4,138 287 6,722 7,009 2,689 1985(A)
Montgomery,AL
Construction -- -- -- 4,904 -- 4,904 4,904 --
in Progress
------------------------------------------------------------------------------------------------
$172,823 $16,926 $121,303 $169,182 $31,084 $276,327 $307,411 $72,956
================================================================================================
F-34
MARK CENTERS TRUST
NOTES TO SCHEDULE III
DECEMBER 31, 1996
(Dollars in thousands)
1. These three properties serve as collateral for the line of
credit with Fleet Bank of Massachusetts, N.A.
2. These seventeen properties serve as collateral for the
financing with Morgan Stanley Mortgage Capital, Inc.
3. These seven properties serve as collateral for the financing
with John Hancock Life Insurance.
4. Depreciation of investments in buildings and improvements
reflected in the statements of operations is calculated over
the estimated useful lives of the assets as follows:
Buildings 30 to 40 years
Improvements Shorter of lease term
or useful life
5. The aggregate gross cost of property included above for
Federal income tax purposes was $322,177 as of December 31,
1996.
6.(a)Reconciliation of Real Estate Properties:
The following reconciles the real estate properties from
January 1, 1994 to December 31, 1996:
Year ended December 31,
1996 1995 1994
Balance at beginning
of period $291,157 $278,611 $210,133
Additions during period
Acquisitions through
purchase -- -- 24,049
Acquisition through
exercise of purchase
option -- 1,446 1,500
Acquisitions and
adjustments related to
development options
and establishment of
note payable to the
Principal Shareholder (3,125) (8,133) 2,331
Other improvements 19,380 19,242 40,618
Sale of land (1) (9) (20)
-------- -------- --------
Balance at end of
period $307,411 $291,157 $278,611
======== ======== ========
F-35
MARK CENTERS TRUST
NOTES TO SCHEDULE III
DECEMBER 31, 1996
(Dollars in thousands)
(b) Reconciliation of accumulated depreciation:
The following table reconciles accumulated depreciation from
January 1, 1994 to December 31, 1996:
Balance at beginning
of period $61,269 $51,002 $43,318
Depreciation related
to real estate 11,687 10,267 7,684
------- ------- -------
Balance at end
of period $72,956 $61,269 $51,002
======= ======= =======
F-36