SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12002
MARK CENTERS TRUST
(Exact name of registrant in its charter)
MARYLAND 23-2715194
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 THIRD AVENUE, KINGSTON, PENNSYLVANIA 18704
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(717) 288-4581
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of November 8, 1997, there were 8,554,177 common
shares of beneficial interest, par value $.001
per share, outstanding.
MARK CENTERS TRUST
FORM 10-Q
INDEX
Part I: Financial Information Page
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets as of
September 30, 1997 and December 31, 1996 1
Consolidated statements of operations for
the three and nine months ended
September 30, 1997 and 1996 2
Consolidated statements of cash flows for
the nine months ended September 30, 1997
and 1996 3
Notes to consolidated financial statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II:Other Information
Signatures 18
Part I. Financial Information
Item 1. Financial Statements
MARK CENTERS TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except for per share amounts)
September 30, December 31,
1997 1996
(unaudited)
ASSETS
Rental property - at cost:
Land $ 30,855 $ 31,084
Buildings and improvements 271,474 271,423
Property under development 7,856 4,904
-------- --------
310,185 307,411
Less: accumulated depreciation 80,720 72,956
-------- --------
Net rental property 229,465 234,455
Cash and cash equivalents 1,149 3,912
Restricted cash - escrows 7,613 3,578
Rents receivable - less allowance
for doubtful accounts of $773
and $544, respectively 4,964 4,956
Prepaid expenses 1,609 1,421
Due from related parties 171 203
Deferred charges, net 9,755 9,034
Other assets 1,248 958
-------- --------
$255,974 $258,517
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $180,723 $156,772
Lines of credit 2,995 16,051
Accounts payable and accrued expenses 6,721 9,397
Payable to Principal Shareholder 3,050 3,050
Distributions payable 2,035 3,662
Other liabilities 1,909 2,027
-------- --------
Total Liabilities 197,433 190,959
-------- --------
Minority Interest 9,314 10,752
-------- --------
Shareholders' Equity:
Common shares, $.001 par value,
authorized 50,000,000 shares, issued
and outstanding 8,554,177 and
8,548,817 shares, respectively 9 9
Additional paid-in capital 51,072 57,521
Deficit (1,854) (724)
-------- --------
Total Shareholders' Equity 49,227 56,806
-------- --------
$255,974 $258,517
======== ========
See accompanying notes
1
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(in thousands except for per share amounts)
Three months ended Nine months ended
9/30/97 9/30/96 9/30/97 9/30/96
(unaudited) (unaudited)
Revenue:
Minimum rents $ 8,375 $ 8,388 $25,125 $25,113
Percentage rents 705 581 2,230 1,797
Expense reimbursements 1,611 1,443 5,015 4,994
Other 183 85 756 547
------- ------- ------- -------
Total revenue 10,874 10,497 33,126 32,451
------- ------- ------- -------
Expenses:
Property operating 2,052 2,273 6,744 7,366
Real estate taxes 1,393 1,282 4,246 3,948
Depreciation and
amortization 3,547 3,487 10,236 9,957
General and administrative 538 642 1,646 2,114
------- ------- ------- -------
Total operating expenses 7,530 7,684 22,872 23,385
------- ------- ------- -------
Operating income 3,344 2,813 10,254 9,066
(Loss) gain on sale of
property -- 21 (12) 21
Interest expense (3,888) (3,017) (11,533) (9,067)
------- ------- ------- -------
(Loss) income before
minority interest (544) (183) (1,291) 20
Minority interest 72 4 161 (69)
------- ------- ------- -------
Net loss $ (472)$ (179) $(1,130) $ (49)
======= ======= ======= =======
Net loss per
common share $ (.06)$ (.02) $ (.13) $ (.01)
======= ======= ======= =======
See accompanying notes
2
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(in thousands)
Sept 30, Sept 30,
1997 1996
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,130) $ (49)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of leasing
costs 9,804 9,225
Amortization of deferred financing costs 432 732
Minority interest (161) 69
Provision for bad debts 509 782
Loss (gain) on sale of property 12 (21)
Other 52 56
------- -------
9,518 10,794
Changes in assets and liabilities:
Rents receivable (517) (392)
Prepaid expenses (188) 33
Due from related parties 32 173
Other assets (447) 758
Accounts payable and accrued expenses 733 4,378
Other liabilities (118) 322
------- -------
Net cash provided by operating activities 9,013 16,066
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and
improvements, net of payables (8,876) (13,495)
Net proceeds from sale of property 1,288 22
Payment of deferred leasing charges (751) (3,097)
------- -------
Net cash used in investing activities (8,339) (16,570)
------- -------
3
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages (14,183) (2,751)
Proceeds received on mortgage notes 25,078 11,588
Net (increase) decrease in mortgage escrows (4,035) 2,014
Payment of deferred financing costs (895) (1,004)
Dividends paid (7,866) (9,227)
Distributions paid to Principal Shareholder (1,536) (1,835)
------- -------
Net cash used in financing activities (3,437) (1,215)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (2,763) (1,719)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,912 3,068
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,149 $ 1,349
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest, net
of amounts capitalized of $425 and $819,
respectively $11,610 $ 8,939
======= =======
See accompanying notes
4
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for per share amounts)
1. THE COMPANY
Mark Centers Trust (the "Company") currently owns and operates
thirty-nine properties consisting of thirty-four neighborhood and
community shopping centers, three enclosed malls and two mixed
use (retail/office) properties. All of the Company's assets are
held by, and all of its operations are conducted through Mark
Centers Limited Partnership, (the "Operating Partnership") and
its majority owned partnerships. As of September 30, 1997, the
Company controlled 84% of the Operating Partnership as the sole
general partner. The Company will at all times be the sole
general partner of, and owner of a 51% or greater interest in,
the Operating Partnership. Marvin L. Slomowitz (the "Principal
Shareholder"), who is the principal limited partner of the
Operating Partnership, owns in excess of 99% of the minority
interest in the Operating Partnership. The Company is operating
as a real estate investment trust ("REIT") for federal income tax
purposes.
2. BASIS OF PRESENTATION
The consolidated financial statements include the consolidated
accounts of the Company and its majority owned partnerships,
including the Operating Partnership, and have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with instruction to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The information furnished in the accompanying
consolidated financial statements reflects all adjustments which
are, in the opinion of management, necessary for a fair
presentation of the aforementioned consolidated financial
statements for the interim periods. Operating results for the
nine month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the fiscal
year ending December 31, 1997. For further information, refer to
the consolidated financial statements and accompanying footnotes
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
5
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
3. SHAREHOLDERS' EQUITY AND MINORITY INTEREST
The following table summarizes the change in the shareholders'
equity and minority interest since December 31, 1996:
Shareholders' Minority
Equity Interest
Balance at December 31, 1996 $56,806 $10,752
Net loss for the period January 1
through September 30, 1997 (1,130) (161)
Vesting of restricted shares 52 --
Distributions to Principal Shareholder -- (1,277)
Dividends, $.76 per share (6,501) --
------- -------
Balance at September 30, 1997 $49,227 $ 9,314
======= =======
4. RELATED PARTY TRANSACTIONS
As of September 30, 1997 amounts due from related parties
consisted of the following:
Accrued ground rent due from Blackman Plaza
Partners (a limited partnership in which the
Principal Shareholder is a 1% general partner) $ 190
Other amounts (net) due to Principal Shareholder (19)
-------
$ 171
=======
5. CONSTRUCTION LOAN
On September 18, 1997 , the Company closed on a $5.5 million
construction loan with Firstrust Savings Bank ("Firstrust") which
refinanced and expanded the Company's existing $2.1 million
credit facility with Firstrust. This construction loan is for
the expansion of the Mark Plaza in Edwardsville, Pennsylvania, to
accommodate a 52,825 square foot Redner's Supermarket. The loan
bears interest, payable monthly, at the Firstrust commercial
reference rate plus 1% and matures March 18, 1999.
6
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
6. PER SHARE DATA
Primary earnings per share are computed based on 8,559,229 and
8,560,708 shares outstanding, which represent the weighted
average number of shares outstanding (including restricted
shares) during the nine month periods ended September 30, 1997
and 1996, respectively. Fully diluted earnings per share is
based on an increased number of shares that would be outstanding
assuming the exercise of share options at the market price at the
end of the period. Since fully diluted earnings per share is not
materially dilutive or is anti-dilutive, such amounts are not
presented. The Company intends to adopt Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128")
effective with the year ending December 31, 1997 (earlier
adoption is not permitted) and does not expect the impact on EPS
to be material.
7. DISTRIBUTIONS PAYABLE
On September 17, 1997, the Trustees declared a cash dividend of
$0.20 per common share and Operating Partnership Unit payable on
December 15, 1997 to shareholders and limited partners of record
as of October 31, 1997.
8. NEW ACCOUNTING PRONOUNCEMENT
Financial Accounting Standards Board Statement No. 131 ("FAS No.
131") "Disclosure about Segments of an Enterprise and Related
Information" is effective for financial statements issued for
periods beginning after December 15, 1997. FAS No. 131 requires
disclosure about segments of an enterprise and related
information regarding the different types of business activities
in which an enterprise engages and the different economic
environments in which it operates. The Company does not believe
that the implementation of FAS No. 131 will have a material
impact on its financial statements.
7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion is based on the consolidated financial
statements of Mark Centers Trust (the "Company") as of September
30, 1997 and 1996 and for the three and nine months then ended.
This information should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
Certain statements made in this report may constitute "forward-
looking statements" within the meaning of federal securities
laws. Such statements are inherently subject to risk and
uncertainties which may cause the actual results to differ
materially from the future results implied by such forward-
looking statements. Factors which might cause such differences
include general economic conditions, adverse changes in the real
estate markets in general and in the geographic regions in which
the Company's properties are located, changes in interest rates,
potential bankruptcy of tenants and environmental requirements.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1997 to Three
Months Ended September 30, 1996
Total revenue increased $377,000, or 4%, to $10.9 million for the
quarter ended September 30, 1997 compared to $10.5 million for
the quarter ended September 30, 1996.
In total, minimum rents did not vary significantly between 1997
and 1996. A $253,000 increase in minimum rents was experienced
following the completion of Phase I of the Union Plaza in October
1996. Additionally, minimum rents increased in 1997 following
the retenanting of various space within the core portfolio at
increased market rates. These increases were offset by certain
tenants paying percentage rent in lieu of minimum rent pursuant
to anchor cotenancy requirements with Jamesway who vacated the
Ledgewood Mall in 1996, and from the effect of the State of
Alabama Department of Public Health vacating its leased space at
the Normandale Mall following the expiration of its leases in
April 1997. The Company is actively remarketing this vacated
space.
8
RESULTS OF OPERATIONS, continued
Percentage rents, representing the Company's participation in
tenants' gross sales above predetermined thresholds, increased
$124,000, or 21%, to $705,000 for the quarter ended September 30,
1997 compared to $581,000 for the same period in 1996. The
increase was primarily the result of tenants paying percentage
rent in lieu of minimum rents at the Ledgewood Mall as discussed
above.
Expense reimbursements, which represent the pass-through of
certain property expenses to the tenants, increased $168,000, or
12% in 1997, primarily as a result of the recovery of increases
in real estate taxes.
Other income increased $98,000, or 115%, to $183,000 for the
quarter ended September 30, 1997 from $85,000 for the same period
in 1996 primarily as a result of an increase in interest earned
on mortgage escrows for the quarter ended September 30, 1997.
Total operating expenses of $7.5 million for the quarter ended
September 30, 1997 decreased $154,000, or 2%, from $7.7 million
for the quarter ended September 30, 1996.
Property operating expenses decreased $221,000 for the quarter
ended September 30, 1997 compared to the same period in 1996
primarily due to a reserve for estimated environmental
remediation costs for two properties which had been established
in September 1996. (This reserve was initially in the amount of
$300,000, but was subsequently revised and reduced in June 1997
to $55,000 following a reduction in the scope of environmental
remediation required by State agencies).
The foregoing decreases in operating expenses were partially
offset by increases in real estate taxes of $111,000 and
depreciation and amortization totalling $60,000 for the quarter
ended September 30, 1997 primarily, due to the Company's property
development and expansion activities.
General and administrative expenses decreased $104,000, or 16%,
to $538,000 for the quarter ended September 30, 1997 compared to
$642,000 for the same period in 1996 primarily as a result of
lower professional fees.
Interest expense increased $871,000, or 29%, for the quarter
ended September 30, 1997 compared to the same period in 1996.
This variance was primarily the result of higher average
outstanding borrowings related to increased property development
and expansion activities.
9
RESULTS OF OPERATIONS, continued
As a result of the foregoing, the net loss for the quarter ended
September 30, 1997 increased $293,000 to a loss of $472,000 from
a loss of $179,000 for the same period in 1996.
Comparison of Nine Months Ended September 30, 1997 to Nine Months
Ended September 30, 1996
Total revenue increased $675,000, or 2%, to $33.1 million for the
nine months ended September 30, 1997 compared to $32.5 million
for the same period in 1996.
The increases in minimum rents of (i) $702,000 following the
completion of Phase I at the Union Plaza in October 1996, (ii)
$290,000 following the opening of HomePlace at the New Louden
Center in June 1996 and (iii) $67,000 following the opening of
Dunham's Sporting Goods at the East End Centre in August 1996
were partially offset by a decline in minimum rents at two
centers following the loss of two anchor tenants during
1996(Jamesway at the Ledgewood Mall and Rich's Department Store
at the Auburn Plaza) as well as certain tenants at these two
centers paying percentage rent in lieu of minimum rent pursuant
to anchor cotenancy requirements. Further offsetting the gains in
minimum rent was the loss of $231,000 in minimum rent as a result
of the State of Alabama Department of Public Health vacating its
leased space at the Normandale Mall following the expiration of
its leases in April 1997 and a $110,000 decrease in rents
following the sale of the Newberry Plaza in March 1997.
Percentage rents increased $433,000, or 24%, to $2.2 million for
the nine months ended September 30, 1997 compared to $1.8 million
for the same period in 1996 primarily as a result of tenants
paying percentage rent in lieu of minimum rents as previously
discussed.
Other income increased $209,000, or 38%, to $756,000 for the nine
months ended September 30, 1997 from $547,000 for the same period
in 1996 primarily as a result of an increase in interest earned
on mortgage escrows for the nine months ended September 30, 1997.
Total operating expenses decreased $513,000, or 2%, to $22.9
million for the nine months ended September 30, 1997 compared to
$23.4 million for the same period in 1996.
Property operating expenses decreased $622,000, or 8%, for the
nine months ended September 30, 1997 compared to the same period
in 1996 primarily due to the reduction of the reserve for
10
RESULTS OF OPERATIONS, continued
environmental remediation costs in 1997 as discussed earlier and
a $352,000 reduction in snow removal costs as a result of the
comparatively mild 1997 winter season.
The foregoing decreases in operating expenses were partially
offset by increases in real estate taxes of $298,000 and
depreciation and amortization totalling $279,000 for the nine
months ended September 30, 1997 primarily due to the Company's
property development and expansion activities.
General and administrative expenses decreased $468,000, or 22%,
to $1.6 million for the nine months ended September 30, 1997
compared to $2.1 million for the same period in 1996 primarily
due to the write-off of non-recurring costs totalling $286,000 as
a result of the Company's decision to terminate certain
acquisition and development activities during 1996 and reductions
in professional fees during 1997.
Interest expense increased $2.4 million to $11.5 million for the
nine months ended September 30, 1997 compared to $9.1 million for
the same period in 1996. This increase was primarily
attributable to higher average outstanding borrowings related to
retenanting, acquisition, expansion and development activities.
The net loss for the nine months ended September 30, 1997
increased $1.1 million to a loss of $1.1 million from a loss of
$49,000 for the same period in 1996.
Funds from Operations
The Company, along with most industry analysts, consider funds
from operations("FFO") as defined by the National Association of
Real Estate Investment Trusts ("NAREIT")as an appropriate
supplemental measure of operating performance. However, FFO does
not represent cash generated from operations as defined by
generally accepted accounting principles and is not indicative of
cash available to fund cash needs. It should not be considered as
an alternative to net income for the purpose of evaluating the
Company's performance or to cash flows as a measure of liquidity.
Generally, NAREIT defines FFO as net income (loss) before gains
(losses) on sales of property, non-recurring charges and
extraordinary items, adjusted for certain non-cash charges,
primarily depreciation and amortization of capitalized leasing
costs.
11
FUNDS FROM OPERATIONS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(in thousands, except per share data)
Three months ended Nine months ended
9/30/97 9/30/96 9/30/97 9/30/96
Revenue
Minimum rents (a) $ 8,280 $ 8,303 $24,892 $24,876
Percentage rents 705 581 2,230 1,797
Expense reimbursements 1,611 1,443 5,015 4,994
Other 183 85 756 547
------- ------- ------- -------
Total revenue 10,779 10,412 32,893 32,214
------- ------- ------- -------
Expenses
Property operating (b) 2,031 1,944 6,921 6,905
Real estate taxes 1,393 1,282 4,246 3,948
General and administrative 537 642 1,637 2,104
------- ------- ------- -------
Total operating expenses 3,961 3,868 12,804 12,957
------- ------- ------- -------
Operating income 6,818 6,544 20,089 19,257
Interest expense (3,888) (3,017) (11,533) (9,067)
Amortization of deferred
financing costs (127) (263) (432) (732)
Depreciation of non-real
estate assets (52) (52) (156) (163)
------- ------- ------- -------
Funds from operations $ 2,751 $ 3,212 $ 7,968 $ 9,295
======= ======= ======= =======
Funds from operations
per share (c) $ .27 $ .32 $ .78 $ .91
======= ======= ======= =======
12
Three months ended Nine months ended
9/30/97 9/30/96 9/30/97 9/30/96
Funds from operations above $ 2,751 $ 3,212 $ 7,968 $ 9,295
Depreciation of real estate
and amortization of
leasing costs (3,368) (3,172) (9,648) (9,062)
Straight-line rents and
related write-offs (net) 74 67 176 100
(Loss) gain on sale of land -- 21 (12) 21
Adjust reserve for environmental
remediation costs -- (300) 245 (300)
Minority interest 72 4 161 (69)
Other non-cash adjustments (1) (11) (20) (34)
------- ------- ------- -------
Net loss $ (472) $ (179) $(1,130) $ (49)
======= ======= ======= =======
Net loss per share (d) $ (.06) $ (.02) $ (.13) $ (.01)
======= ======= ======= =======
(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 nine months ended September 30, 1997 and
1996, respectively, for a total of 10,177,177 and 10,171,817
shares, respectively.
(d) Net income per share is computed based on the weighted average
number of shares outstanding for the nine months ended September
30, 1997 and 1996 of 8,559,229 and 8,560,708, respectively.
13
LIQUIDITY AND CAPITAL RESOURCES
On September 18, 1997 , the Company closed on a $5.5 million
construction loan with Firstrust Savings Bank ("Firstrust") which
refinanced and expanded the Company's existing $2.1 million
credit facility with Firstrust. This construction loan is for
the expansion of the Mark Plaza in Edwardsville, Pennsylvania, to
accommodate a 52,825 square foot Redner's Supermarket. The loan
bears interest, payable monthly, at the Firstrust commercial
reference rate plus 1% and matures March 18, 1999.
As of September 30, 1997, the Company had outstanding mortgage
indebtedness totalling $183.7 million which bears interest at
rates ranging from 7.70% to 9.50% with maturities ranging from
April 1998 to November 2021. Of the total outstanding debt,
$174.6 million, or 95%, is carried at fixed interest rates and
the remaining $9.1 million, or 5%, is carried at variable rates.
Of the total outstanding debt, $99.8 million will become due by
2000, with scheduled maturities of $2.8 million in 1998, $2.1
million in 1999 and $94.9 million in 2000. As the Company does
not anticipate having sufficient cash on hand to repay such
indebtedness, it will need to refinance this indebtedness or
select other alternatives based on market conditions at that
time. The Company believes that the current loan-to-value ratios
on the collateral properties are at levels which would allow it
to fully refinance these loans on commercially competitive terms.
At September 30, 1997, the Company's capitalization consisted of
$183.7 million of debt and $96.0 million of market equity (using
a September 30, 1997 market price of $9.4375 per share).
The Company currently estimates that capital outlays of
approximately $10.3 million will be required for property
development, property expansion and tenant improvements as a
result of executed leases under which the Company expects tenants
to commence occupancy during the remainder of 1997 and 1998. Of
this amount, approximately $6.1 million will be provided through
existing construction financing or financing for which the
Company is currently negotiating a commitment. The remaining
amounts are expected to be funded through the combination of cash
provided from operations and the release of $1.8 million in
restricted cash-escrow which is held subject to certain occupancy
requirements at the Ledgewood Mall. At September 30, 1997,
$881,000 of these outlays are reflected in accounts payable and
accrued expense balances.
14
LIQUIDITY AND CAPITAL RESOURCES, continued
Historically, the principal sources for funding operations,
renovations, expansion, development and acquisitions have been
funds from operations, construction and permanent secured debt
financings, as well as short term construction and line of credit
borrowings from various lenders.
The Company anticipates that cash flow from operating activities
will continue to provide adequate capital for all debt service
payments, recurring capital expenditures and REIT distribution
requirements as well as current dividend levels as established in
June 1997. Consistent with past practice, the Company
anticipates that it will obtain construction financing related to
its capital outlays for certain property development, property
expansion and tenant improvements. The Company anticipates
meeting these and its other long-term capital needs from the
above sources as well as through other debt and equity financing
alternatives to achieve continued growth. However, there can be
no assurance that these alternative debt and equity sources will
be available and the inability to obtain these sources of capital
could have an adverse effect on the Company's ability to fund
future development, expansion and acquisition activities.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares the
Company's cash flow for the nine months ended September 30, 1997
with the Company's cash flow for the nine months ended September
30, 1996.
Net cash provided by operating activities decreased from $16.1
million for the nine months ended September 30, 1996 to $9.0
million for the nine months ended September 30, 1997. This
variance was primarily attributable to a $1.3 million decrease in
cash provided from net income before changes in operating assets
and liabilities and a $5.8 decrease in cash provided by changes
in operating assets and liabilities (primarily accounts payable)
for 1997.
Investing activities used $8.3 million during the nine months
ended September 30, 1997, an $8.2 million decrease in cash used
compared to the same period in 1996. This was due to $4.6 million
15
HISTORICAL CASH FLOW, continued
less cash used during the nine months ended September 30, 1997
related to property development, expansion and retenanting
activities (including the payment of accounts payable related
thereto), a $2.3 million decrease in deferred leasing charges
paid and the receipt of $1.3 million from the sale of the
Newberry Plaza during the nine months ended September 30, 1997.
Net cash used in financing activities was $3.4 million for the
nine months ended September 30, 1997 representing a $2.2 million
increase compared to the same period in 1996. Cash provided by a
$2.1 million increase in new mortgage financing as well as a
reduction in dividends paid in 1997 was offset by a $6.0 million
increase in cash used in mortgage escrows for 1997.
INFLATION
The Company's long-term leases contain provisions designed to
mitigate the adverse impact of inflation on the Company's net
income. Such provisions include clauses enabling the Company to
receive percentage rents based on tenants' gross sales, which
generally increase as prices rise, and/or, in certain cases,
escalation clauses, which generally increase rental rates during
the terms of the leases. Such escalation clauses are often
related to increases in the consumer price index or similar
inflation indexes. In addition, many of the Company's leases are
for terms of less than ten years, which permits the Company to
seek to increase rents upon re-rental at market rates if rents
are below the then existing market rates. Most of the Company's
leases require the tenants to pay their share of operating
expenses, including common area maintenance, real estate taxes,
insurance and utilities, thereby reducing the Company's exposure
to increases in costs and operating expenses resulting from
inflation.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.20(c) Construction and/or Development Loan Agreement between
the Company and Firstrust Bank
10.20(d) Open End Fee and Leasehold Mortgage between the Company
and Firstrust Bank
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
None
17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has fully caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
MARK CENTERS TRUST
By: /s/ Marvin L. Slomowitz
Marvin L. Slomowitz
Chief Executive Officer and
Trustee (Principal Executive
Officer)
/s/ Joshua Kane
Joshua Kane
Senior Vice President
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
Date: November 13, 1997
18
INDEX OF EXHIBITS
10.20(c) Construction and/or Development Loan Agreement between
the Company and Firstrust Bank
10.20(d) Open End Fee and Leasehold Mortgage between the Company
and Firstrust Bank
27 Financial Data Schedule (EDGAR filing only)
19