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, 1997
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 $76,452,957 million based on the
closing price on the New York Stock Exchange for such stock on March
31, 1998.
The number of shares of the Registrant's Common Shares of Beneficial
Interest outstanding was 8,554,177 on March 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Definitive proxy statement for the Annual Meeting of
Shareholders presently scheduled to be held June 12, 1998, 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 25
8. Financial Statements and Supplementary Data 36
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
PART III
10. Directors and Executive Officers of the Registrant 36
11. Executive Compensation 36
12. Security Ownership of Certain Beneficial Owners and
Management 36
13. Certain Relationships and Related Transactions 36
PART IV
14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 37
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 7.3 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 is in the late stages of negotiation of a
significant transaction which will provide additional properties
and capital to the Company. If the transaction is completed in
its current form, assuming execution of a definitive agreement
(the "Agreement") and satisfaction of all conditions to the
transaction, including approval by the Company's shareholders,
the Company, through Mark Centers Limited Partnership, a Delaware
limited partnership through which the Company conducts
substantially all its activities ("the Operating Partnership"),
and in exchange for approximately 11 million Operating
Partnership Units ("OP Units"), will acquire substantially all of
the ownership interests in twelve retail shopping centers and
five multi-family apartment complexes controlled by a private New
York real estate company. Under the current proposal, the
Company will also receive a cash investment of $100 million in
exchange for newly issued common shares of beneficial interest
("Shares") valued at a price of $7.50 per share. Upon completion
of the transaction, it is contemplated that two senior executives
of the New York real estate company will become Chief Executive
Officer and President of the Company, respectively. Mr. Marvin
Slomowitz, the current Chairman of the Board and Chief Executive
Officer, will remain as a board member and is expected to continue
as a consultant to the Company. The two new executives will serve
on the board together with two designees of the real estate
company and two designees (in addition to Mr. Slomowitz) of the
existing board.
3
The transaction is subject to the completion of final
negotiation and execution of the Agreement, receipt of a fairness
opinion from Bear, Stearns & Co. Inc. (the Company's investment
bankers), approval by the Company's Board of Trustees, evidence
of the receipt by the real estate company of the necessary funds
to make the cash investment and the completion of closing. The
transaction is a complex one involving many parties and there can
be no assurance that the Agreement will be executed or that the
closing on this transaction will be completed. The transaction
is subject to the approval by the shareholders of the Company at
a meeting to be scheduled for that purpose if and when the
Agreement is signed.
The Company conducts substantially all of its activities
through, and substantially all of its properties are owned by,
the Operating Partnership and its majority owned partnerships.
The Company currently 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 OP Units which are exchangeable on a
one for one basis into the Company's 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.
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.
4
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 currently specializes 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 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. As previously
discussed, the Company is also in the late stages of negotiation
of a significant transaction which would provide additional
properties and capital to the Company.
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
currently 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.
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.
On March 28, 1997, Crafts Plus+, Inc., a 30,000 square foot
single location tenant, filed for protection under Chapter 11 of
the United Sates Bankruptcy laws. For the fiscal years ended
December 31, 1997 and 1996, rental revenues from this tenant
(including expense reimbursements) totalled $111,000 and
$110,000, respectively. The lease was rejected and in January
1998, the Company installed a replacement tenant, Beall's Outlet,
at a lower per square foot rent in the entire space.
5
On July 7, 1997, Montgomery Ward & Co., Incorporated filed
for protection under Chapter 11 of the United States Bankruptcy
laws. Montgomery Ward is currently a tenant at one retail
location and related storage space in the Company's portfolio
comprising approximately 77,000 square feet in total. For the
fiscal years ended December 31, 1997 and 1996, rental revenues
(including expense reimbursements and percentage rent) for this
space totalled $154,000 and $142,000, respectively. The lease has
been neither affirmed nor rejected and the Company continues to
receive rent under its lease agreement.
On August 11, 1997, Old America Stores, Inc. filed for
protection under Chapter 11 of the United Sates Bankruptcy laws.
Old America currently is a tenant at one location in the
Company's portfolio comprising approximately 30,000 square feet.
Rental revenues for the fiscal year ended December 31, 1997
(including expense reimbursements) from this tenant totalled
$94,000. On January 21, 1998, the lease was assigned to KOB, LP
in connection with KOB, LP's acquisition of substantially all of
the assets of Old America Stores, Inc. As such, the Company
continues to receive rent under its lease agreement.
On January 2, 1998, Bruno's Inc. filed for protection under
Chapter 11 of the United Sates Bankruptcy laws. Bruno's is a
tenant at one location in the Company's portfolio comprising
approximately 48,000 square feet. For the fiscal years ended
December 31, 1997 and 1996, rental revenues (including expense
reimbursements) from this tenant totalled $231,000 and $227,000,
respectively. The lease was rejected March 18, 1998 and the
Company signed a lease with Office Depot, Inc. on March 31, 1998
for 30,000 square feet of this space at a higher per square foot
rent and is engaged in releasing efforts for the balance of the
space.
On January 5, 1998, HomePlace Stores, Inc. filed for
protection under Chapter 11 of the United States Bankruptcy laws.
Homeplace Stores is currently a tenant at one location in the
Company's portfolio comprising approximately 48,000 square feet.
For the fiscal years ended December 31, 1997 and 1996, rental
revenues (including expenses reimbursements) for this tenant
totalled $614,000 and $265,000, respectively. The lease has been
neither affirmed nor rejected and the Company continues to
receive rent under its lease agreement. The Company is currently
in negotiation with the tenant to amend the terms of the lease
which would include a reduction in rent.
6
Operating Strategy
The Company believes it continued to make strides during
fiscal 1997 in recovering from the unfavorable impact of the loss
of anchor tenants at three locations following their bankruptcy
filings in 1996 (Jamesway, Rich's and Bradlees vacated a total of
approximately 220,000 square feet during 1996) as well as
contending with the unfavorable impact of the above bankruptcy
proceedings which commenced in fiscal 1997. The continuing soft
retail environments within the secondary markets in which the
Company operates 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'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.
Leasing and Expansion
The Company's leasing efforts during fiscal 1997 resulted in
the opening and commencement of rent of a 25,000 square foot
Goody's at the Wesmark Plaza, a 28,000 square foot Diversified
Records at the Normandale Mall, an 18,000 square foot Dunham's
Sporting Goods in the Valmont Plaza, a 29,000 square foot Office
Depot in the Midway Plaza and a 13,000 square foot Factory Card
Outlet in the East End Centre. In addition, the Company installed
approximately 142,000 additional square feet of small store
tenants for which rent also commenced.
The Company also has signed leases totalling approximately
74,000 square feet for which the Company anticipates the tenants
to occupy and commence paying rent during fiscal 1998.
Furthermore, the Company has entered into an agreement to
settle certain litigation with Pharmhouse Corp., a tenant at the
Ledgewood Mall, which had obtained an injunction during fiscal
1997 against the installation of Walmart in the mall based on
certain exclusive use provisions within Pharmhouse Corp.'s lease. The
Company has agreed to pay the tenant approximately $1.7 million
by May 1, 1998 after which the Company anticipates proceeding
with the installation of Walmart in approximately 120,000 square
feet. As part of this settlement, the Company has also agreed to
amend certain terms of the lease with Pharmhouse Corp. including
reductions in rent and the lease term and withdraw its appeal of
7
this case in return for Pharmhouse Corp.'s withdrawal of all
legal actions against the installation of Walmart at the mall.
The Company also commenced construction to expand one of its
centers in fiscal 1997 and obtained the construction financing
and commenced construction in February 1998 to expand another.
Construction of a 52,825 square foot Redner's Supermarket at the
Mark Plaza commenced in September 1997 with completion scheduled
to occur during the second quarter of 1998. Financing has been
obtained and construction has also commenced for a 32,000 square
foot Hoyts Cinema at the Manahawkin Village Shopping Center.
Development
In fiscal 1997, the Company continued development of Phase
II of the Union Plaza located in New Castle, Pennsylvania with
the opening of Peebles Department Store on October 9, 1997,
occupying 25,000 square feet. This followed the completion of
Phase I in October 1996 and the opening of Sears and Hills
Department Stores which totalled 193,000 square feet. Upon
completion of all phases, the Union Plaza is expected to total
approximately 350,000 square feet.
Despite the unfavorable impact of the continuing soft retail
markets within the secondary markets in which the Company
operates, the Company held its portfolio occupancy stable at 86%
as of December 31, 1997, the same as that of December 31, 1996,
primarily as a result of the above development, leasing and
installation efforts. Due to space leased but not yet occupied
related primarily to anchor replacement and expansion at existing
centers, the Company's portfolio was 89% leased as of December
31, 1997.
Dispositions
As part of the ongoing strategic evaluation of its
properties, the Company sold the Newberry Plaza, located in
Newberry, South Carolina for $1.3 million in March 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. 8
Financing Strategies
The Company intends to continue to finance property
development and tenant improvements with sources of capital
determined by management to be the most appropriate based on,
among other factors, availability, pricing and other commercial
and financial terms. The sources of capital 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.
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
the 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 fiscal 1996, 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 entered into a
voluntary remedial agreement with the State of New York for
remediation of the Troy Plaza. Environmental consultants estimate
9
that the total cost of remediation for the Troy Plaza will be
approximately $80,000. During fiscal 1997, the Company 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. Following
this notification, Morgan Stanley released $375,000 previously
held in escrow for the Cloud Springs Plaza. As of December 31,
1997, Morgan Stanley held $228,000 in escrow for the Troy Plaza
which is 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
development, properties for acquisition and tenants for their
properties. There are numerous shopping facilities that compete
with the Company's 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, 1997, the Company employed 61 persons, 32 of
whom were located at the Company's headquarters in Kingston,
Pennsylvania and the remainder were 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 7.3 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
currently specializes in neighborhood and community shopping
10
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 186,000 square feet. The Company's portfolio was approximately
86% occupied and 89% leased at December 31, 1997.
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 (five), Sears
(two), Marshalls (two), and one of each of the following:
Bradlees, Montgomery Wards, Sports Authority, J.C. Penney, Sterns
and Walmart. At December 31, 1997, twenty-three of the Company's
properties were anchored by supermarkets including Price Chopper
(six), BiLo (four), Acme (two), Weis Markets (two), and one of
each of the following: P&C Foods, Winn-Dixie, Shaw's, Gerrity's,
Publix, Shoprite, Bargain Town, Food Lion, and Kroger's. Penn
Traffic owns and operates all the BiLo and P&C Foods grocery
stores.
The Company currently has 562 leases of which approximately
64% 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 93%
of the Company's rental revenues for the year ended December 31,
1997.
Approximately 57% of the Company's existing leases also
provide for the payment of percentage rents either in addition to
or in place of 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 7% of the total 1997
rental revenue of the Company.
In 1997, approximately 11.3% of the Company's total rents
were derived from current leases of office space and specialized
computer facilities with two agencies of the State of Florida at
11
the Northwood Centre in Tallahassee, Florida; the Florida
Department of Health and Rehabilitative Services (6.7%) and the
Florida Department of Business Professional Regulation (4.6%).
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 unfavorable 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. Furthermore,
the State of Florida tenants increased their leased space at the
Northwood Centre during fiscal 1997 by approximately 19,000
square feet. 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. During fiscal 1997, the Company also received
approximately 10.0% of its total rents under leases with the
Kmart Corporation at nine locations. The Company received no
more than 5.5% of its total rents 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, 1997:
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 12/31/97 LEASE OPTION EXPIR
PENNSYLVANIA
AMES PLAZA SHAMOKIN 1966(C) FEE 17.6 98,210 92% Ames 2000/2013
MARK PLAZA EDWARDSVILLE 1968(C) LI(1) 20.2 216,406 100% Kmart 1999/2049
Redner's Markets Inc(6)
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 26.0 200,164 98% Hills 2007/2027
BiLo 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
Eckerd Drug 2004/2019
LUZERNE STREET SCRANTON 1983(A) FEE 4.6 57,715 100% Price Chopper 2004/2024
SHOPPING CENTER Eckerd Drug 2004/2019
TIOGA WEST TUNKHANNOCK 1965(C) FEE 17.2 122,338 100% BiLo 2014/2024
Ames 2000/2015
BLACKMAN PLAZA WILKES-BARRE 1968(C) FEE(2) 9.7 121,206 97% 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 12/31/97 LEASE OPTION EXPIR
PENNSYLVANIA
BIRNEY MALL MOOSIC 1968(C) FEE 28.3 193,899 100% Kmart 1999/2049
Consolidated Stores
2003/2008
PLAZA 15 LEWISBURG 1995(A) FEE 16.4 113,530 98% Weis Market 2001/2021
Ames 2001/2021
GREEN RIDGE SCRANTON 1986(C) FEE 16.1 197,622 100% Hills 2007/2037
PLAZA BiLo 2008/2017
EAST END CENTRE WILKES-BARRE 1986(C) FEE 40.3 304,754 95% 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 95% Hills 2001/2021
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% CVS Inc.
SHOPPING CENTER 2005/2010
BRADFORD TOWNE TOWANDA 1993(C) FEE 48.0 257,319 97% Kmart 2019/2069
CENTRE P&C Foods 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 12/31/97 LEASE OPTION EXPIR
PENNSYLVANIA
SHILLINGTON READING 1994(A) FEE 20.3 150,742 100% Kmart 1999/2049
PLAZA Weis Market 1999/2019
ROUTE 6 MALL HONESDALE 1994(C) FEE 23.0 175,482 100% Kmart 2020/2070
Eckerd Drug 2011/2025
PITTSTON PLAZA PITTSTON 1994(C) FEE 10.2 79,568 97% BiLo 2015/2025
UNION PLAZA NEW CASTLE 1996(C) FEE 118.0 217,992 100% Sears 2011/2031
Hills 2017/2026
Peebles 2018/2026
FLORIDA
SEARSTOWN MALL TITUSVILLE 1984(A) FEE 28.5 263,609 76% Sears 1998/2013
United Artist 2005/2015
NEW SMYRNA BEACH NEW SMYRNA 1983(A) FEE 9.6 100,430 85% DeMarsh Theater
SHOPPING CENTER BEACH 2005/2015
NORTHWOOD CENTRE TALLAHASSEE 1985(A) FEE 34.1 499,636 90% 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 42% Winn Dixie 2008/2033
MIDWAY PLAZA OPELIKA 1984(A) FEE 21.6 207,538 74% Office Depot 2007/2022
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 12/31/97 LEASE OPTION EXPIR
ALABAMA
NORTHSIDE MALL DOTHAN 1986(A) FEE(1) 36.2 382,498 93% Wal-Mart 1999/2029
Montgomery Ward (7)
1999/2014
Goody's 2003/2018
SOUTH CAROLINA
MARTINTOWN PLAZA N. AUGUSTA 1985(A) LI(1) 18.8 133,878 97% Belk's Store 2004/2024
Bargain Town 1999
WESMARK PLAZA SUMTER 1986(A) FEE 26.0 215,198 78% 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 (7)
2011/2026
Marshalls 2004
TROY PLAZA TROY 1982(A) FEE 12.3 128,479 93% 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 20.6143,737 95% 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 12/31/97 LEASE OPTION EXPIR
NEW JERSEY
BERLIN SHOPPING BERLIN 1994(A) FEE 22.0 187,296 85% Kmart 1999/2049
CENTER Acme 2005/2015
MASSACHUSETTS
CRESCENT PLAZA BROCKTON 1984(A) FEE(3) 22.5 216,095 99% Bradlees (7) 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 96% Food Lion 2011/2031
PLAZA Consolidated Stores
2000/2005
Badcock Furniture
2000/2010
MAINE
AUBURN PLAZA AUBURN 1994(A) LI(1) 28.4 259,218 61% Hoyt Cinema 2005/2020
(Partial) Service Merchandise
FEE 2011/2090
T.J. Maxx 2000/2015
TOTAL OPERATING PROPERTIES 7,264,870 89%
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.
<F6>
(6) Leased premises is currently under construction.
<F7>
(7) The tenant is currently operating under Chapter 11 of the United States Bankruptcy laws and has neither affirmed nor
rejected the lease.
</FN>
18
Item 3. Legal Proceedings
On November 20, 1995, Jack Wertheimer, the former President
of the Company, filed a complaint against the Company, its
Trustees including the Principal Shareholder, and the Company's
former in-house General Counsel and current 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 1997.
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, 1997 and 1996.
Dividend
Quarter Ended High Low Per Share
1997
March 31, 1997 11 3/4 10 1/8 $.36
June 30, 1997 10 7/8 8 7/8 .20
September 30, 1997 9 9/16 8 15/16 .20
December 31, 1997 9 7/16 8 3/4 (1)
1996
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
(1) To be determined by the Trustees in 1998
At March 31, 1998, there were 239 holders of record of the
Shares.
(b) Dividends
The Company has determined that 34.50% and 35.06% of the
total dividends distributed to shareholders in fiscal years 1997
and 1996, respectively, represented ordinary income, while the
remaining 65.50% and 64.94%, 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 flows 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. In the
event that the transaction described in Item 1 is consummated,
the Company's dividend policy would likely be affected.
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.
21
MARK CENTERS TRUST MARK DEVELOPMENT
GROUP
Seven Five
Year Ended Year Ended Year Ended Year Ended Months Ended Months Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 5/31/93
OPERATING DATA:
Revenue:
Minimum rents $33,669 $33,695 $32,740 $27,543 $12,971 $ 9,267
Percentage rents 3,183 2,795 3,340 2,505 1,644 1,147
Expense reimbursements 6,632 6,559 6,431 5,220 2,629 1,687
Other 1,014 747 821 1,065 961 72
------- ------- ------- ------- ------- -------
Total revenue 44,498 43,796 43,332 36,333 18,205 12,173
------- ------- ------- ------- ------- -------
Operating expenses 17,055 18,260 16,374 14,797 7,718 5,182
Interest and other
financing expense 15,444 12,733 10,598 5,763 2,094 5,172
Depreciation and
amortization 13,768 13,398 11,820 9,066 3,945 2,934
------- ------- ------- ------- ------- -------
46,267 44,391 38,792 29,626 13,757 13,288
------- ------- ------- ------- ------- -------
(Loss) income before
gain on sale,
reorganization costs,
extraordinary items
and minority interest (1,769) (595) 4,540 6,707 4,448 (1,115)
(Loss) gain on sale of land (12) 21 93 305 -- --
Reorganization costs -- -- -- -- (2,629) --
Extraordinary items -- (190) -- -- 194 --
------- ------- ------- ------- ------- -------
(Loss) income before
minority interest (1,781) (764) 4,633 7,012 2,013 (1,115)
Minority interest 217 40 (833) (1,222) (321) 39
------- ------- ------- ------- ------- -------
Net (loss) income $(1,564) $ (724) $ 3,800 $ 5,790 $ 1,692 $(1,076)
======= ======= ======= ======= ======= =======
22
MARK CENTERS TRUST MARK DEVELOPMENT
GROUP
Seven Five
Year Ended Year Ended Year Ended Year Ended Months Ended Months Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 5/31/93
Net (loss) income per
Common Share
- basic and diluted $(0.18) $(.08) $0.44 $0.68 $0.20
======= ======= ======= ======= =======
Weighted average number of
Common Shares outstanding
- basic 8,551,930 8,546,553 8,540,631 8,533,688 8,445,493
========= ========= ========= ========= =========
- diluted (1) 8,551,930 8,546,553 8,563,466 8,563,529 8,490,114
========= ========= ========= ========= =========
Funds from
Operations (2) $10,827 $12,372 $15,281 $14,831 $8,262
======= ======= ======= ======= =======
Funds from Operations per
share(3) $ 1.06 $ 1.22 $ 1.50 $ 1.46 $ 0.81
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Real estate before
accumulated
depreciation $311,688 $307,411 $291,157 $278,611 $210,133 $163,095
Total assets 254,500 258,517 249,515 242,483 180,083 127,968
Total mortgage
indebtedness 183,943 172,823 151,828 124,410 61,578 150,392
Minority interest-
Operating Partnership 9,244 10,752 13,228 14,827 16,049 --
Total equity (deficit) 48,800 56,806 69,779 78,183 84,606 (32,993)
23
<FN>
<F1>
(1) Due to a net loss for the years ended December 31, 1997 and 1996, the weighted average number of shares
outstanding on a diluted basis is not presented as the inclusion of additional shares is anti-
dilutive.
<FN2>
(2) 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.
<FN3>
(3) Includes OP units
</FN>
24
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.
Certain statements made in this report may constitute
"forward-looking statements" within the meaning of the 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 the year ended December 31, 1997 ("1997") to the
year ended December 31, 1996 ("1996").
Total revenue increased $702,000, or 2%, to $44.5 million in
1997 compared to $43.8 million in 1996.
In total, minimum rents of $33.7 million for 1997 were
essentially unchanged from 1996. Increases in minimum rents of
$757,000 and $102,000 were achieved in 1997 following the
completion of the development of Phase I of the Union Plaza and
completion of the initial lease-up of the Pittston Plaza
following its construction in 1996, respectively. A $680,000
increase in minimum rents was realized throughout the remaining
portfolio, except at those properties as noted below, primarily
from rents received following the installation of new tenants in
excess of rents lost due to vacating tenants. These increases
were, however, offset by declines in minimum rent for 1997 of
(i)$1.1 million at the Ledgewood Mall and Auburn Plaza following
the loss of two anchor tenants during 1996 as well as certain
remaining tenants at these two centers paying percentage rent in
lieu of minimum rent pursuant to anchor cotenancy requirements,
(ii)$338,000 at the Normandale Mall primarily as a result of the
25
State of Alabama Department of Public Health vacating its leased
space following the expiration of its leases in April 1997 and
(iii)$155,000 following the sale of the Newberry Plaza in March
1997.
Percentage rents increased $388,000, or 14%, to $3.2 million
for 1997 compared to $2.8 million for 1996 primarily as a result
of tenants paying percentage rent in lieu of minimum rents at the
Ledgewood Mall and Auburn Plaza as previously discussed.
Expense reimbursements of $6.6 million for 1997, which
represent the pass-through of certain property expenses to the
tenants, were essentially unchanged from 1996. Increases
relating to the pass-through of higher real estate taxes in 1997
were offset by a decline in expense reimbursements as a result of
a decrease in other property operating expenses in 1997, and by a
decrease in expense reimbursements following the loss of anchor
tenants at the Ledgewood Mall and Auburn Plaza as previously
discussed.
Other income increased $267,000, or 36%, to $1.0 million for
1997 compared to $747,000 for 1996 primarily as a result of an
increase in interest earned on mortgage escrows in connection
with financings with Morgan Stanley Mortgage Capital, Inc. and
Nomura Asset Capital Corporation.
Total 1997 operating expenses decreased $443,000, or 1%, to
$30.8 million compared to $31.3 million in 1996.
Property operating expenses decreased $759,000, or 8%, to
$9.0 million for 1997 from $9.8 million for 1996, primarily due
to the establishment of a $425,000 reserve in 1996 for estimated
environmental remediation costs and related consulting fees
related to two properties (See "Business-Environmental Matters")
and a decrease in winter related costs due to the comparatively
mild winter experienced in the Northeast during 1997.
Real estate taxes increased $406,000, or 8%, to $5.7 million
for 1997 from $5.3 million for 1996 primarily due to the
expiration of a ten-year development abatement at the Greenridge
Plaza and increases in assessed property values as a result of
recent development and expansion activities.
26
Depreciation and amortization increased $370,000, or 3%, to
$13.8 million for 1997 from $13.4 million for 1996 primarily due
to an increase in depreciation expense following the completion
of the development of Phase I of the Union Plaza in October 1996.
General and administrative expense decreased $460,000, or
16%, to $2.4 million for 1997 from $2.8 million for 1996
primarily due to the write-off during 1996 of non-recurring costs
totalling $492,000 as a result of the Company's decision to
terminate certain acquisition and development activities.
Net interest expense increased $2.7 million, or 21%, to
$15.4 million in 1997, compared to $12.7 million in 1996 due to
higher borrowing levels primarily associated with development and
tenant replacement activities.
The loss before minority interest for 1997 was $1.8 million,
representing an increased loss of $1.0 million compared to the
loss before minority interest of $764,000 for 1996 due to the
above items, as well as a $392,000 loss in 1996 on the reduction
in the carrying value of certain property held for sale and
$190,000 in extraordinary expense for 1996 related to certain
1996 refinancings.
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.
27
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 16%, 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.
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.
28
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)
and extraordinary expenses of $190,000 related to the write-off
of deferred financing costs in 1996, the loss before minority
interest for 1996 was $764,000, representing a decrease of $5.4
million from income before minority interest of $4.6 million for
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the late stages of negotiation of a
significant transaction which will provide additional properties
and capital to the Company. If the transaction as described in
Item 1 is completed as anticipated in the current negotiations,
the Company's liquidity and capital resources would be
significantly impacted.
During 1997, the Company invested $11.8 million in its
property portfolio (of which $3.3 million was included in
accounts payable as of December 31, 1996), including $6.5 million
for new development, $3.5 million for renovation and tenant
replacement at existing centers, $1.2 million for deferred
leasing and other charges and $624,000 for non-revenue generating
capital expenditures at the properties. As a significant portion
of the Company's funds from operations are distributed to
shareholders, 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, 1997 and 1996 was
$183.9 million and $172.8 million, respectively. The $11.1
million increase in debt was primarily a result of funding the
1997 investment activity. At December 31, 1997, $174.2 million,
or 95%, of the outstanding debt was carried at a fixed rate and
the remaining $9.7 million, or 5%, at variable rates. Of the
total outstanding debt, $100.6 million will mature by December
31, 2000, with scheduled maturities of $2.8 million in 1998, $2.9
million in 1999 and $94.9 million in 2000. As the Company
currently 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
29
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.
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 $2.0 million
credit facility with Firstrust. This construction loan, which is
for the expansion of the Mark Plaza in Edwardsville,
Pennsylvania, bears interest, payable monthly, at the Firstrust
commercial reference rate plus 1% and matures in March 1999.
On March 4, 1997, the Company closed on $23.0 million of
fixed rate financing from Nomura Asset Capital Corporation. The
loan, which matures in March 2022, is secured by a mortgage on
one of the Company's properties, bears interest at 9.02% and
requires monthly payments of interest and principal amortized
over 25 years. Approximately $10.2 million of the proceeds were
used to retire existing debt with Fleet Bank of Massachusetts,
NA, $673,000 was used to pay financing costs, $3.0 million was
deposited in escrows, and the remaining proceeds were used for
working capital. The Company is subject to certain affirmative
and negative covenants relating to this facility.
At December 31, 1997, other mortgage notes payable
aggregated $158.1 million and were collateralized by 35
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
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 ratios. Additionally, the Principal Shareholder has
personally guaranteed the repayment of mortgage loans with an
aggregate balance of $41.0 million at December 31, 1997 without
consideration from the Company.
At December 31, 1997, the Company's capitalization consisted
of $183.9 million of debt and $91.6 million of market equity
(based on a December 31, 1997 market price of $9.00 per share).
As part of the Company's ongoing strategic evaluation and
realignment of its property portfolio, the Company completed the
30
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 were used to supplement working
capital.
The Company currently estimates that capital outlays for
tenant improvements, related renovations and other property
improvements will require $12.4 million during 1998. Certain
tenant improvement costs are being incurred earlier than
anticipated because of early termination of leases due to tenant
bankruptcies. Of these outlays, $1.4 million is reflected in
accounts payable as of December 31, 1997. Furthermore, the
Company has entered into an agreement whereby it has agreed to
pay a tenant at the Ledgewood Mall $1.7 million to settle certain
litigation (see "Business-Leasing and Expansion") so as to
proceed with the installation of Walmart at the mall.
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. However,
the Company may experience a cash shortfall in 1998 if there are
delays in obtaining construction financing to fund the above
capital outlays. Any delays in construction financing will
increase the Company's short term reliance on cash from
operations to meet these commitments.
In order to meet part of its 1998 capital requirements, the
Company obtained $3.5 million in construction financing on
January 28, 1998 with Royal Bank of Pennsylvania for the
construction of a theater at the Manahawkin Village Shopping
Center. The loan, which is secured by the center, requires
monthly payment of interest only at the lender's prime rate plus
150 basis points and matures in February 1999 with additional
extension periods available through February 2000. In addition,
certain amounts currently escrowed with lenders as well as other
debt and equity financing alternatives are expected to provide
the necessary capital to fund the installation of tenants and
achieve continued future growth.
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
31
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.
32
MARK CENTERS TRUST
FUNDS FROM OPERATIONS
For the Years Ended December 31, 1997 and 1996
(in thousands except per share data)
For the year ended December 31,
1997 1996
Revenue
Minimum rents(a) $33,360 $33,396
Percentage rents 3,183 2,795
Expense reimbursements 6,632 6,559
Other 1,014 747
------- -------
Total revenue 44,189 43,497
------- -------
Expenses
Property operating(b) 9,113 9,181
Real estate taxes 5,691 5,285
General and administrative 2,339 2,796
------- -------
Total operating expenses 17,143 17,262
------- -------
Operating income 27,046 26,235
Interest expense 15,444 12,733
Amortization of deferred
financing costs 567 915
Depreciation of non-real
estate assets 208 215
------- -------
Funds from operations $10,827 $12,372
======= =======
Funds from operations
per share (c) $ 1.06 $ 1.22
======= =======
Reconciliation of funds from operations to net income
determined in accordance with Generally Accepted
Accounting Principles(GAAP)
Funds from operations above $10,827 $12,372
Depreciation of real estate and
amortization of leasing costs (12,993) (12,268)
Straight-line rents and
related write-offs (net) 176 164
(Loss) gain on sale of land (12) 21
Adjustment (reserve) for
environmental remediation costs 245 (425)
Adjustment to carrying value of
property held for sale -- (392)
Extraordinary item, write-off of
deferred financing costs -- (190)
Minority interest 217 40
Other non-cash adjustments (24) (46)
------- -------
Net loss $(1,564) $ (724)
======= =======
Net loss per share
- basic and diluted (d) $ (0.18) $(0.08)
======= =======
33
(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, 1997
and 1996, respectively, for a total of 10,177,177 and
10,171,817 shares, respectively.
(d) Net loss per share (basic and diluted) is computed based on
the weighted average number of shares outstanding for the
years ended December 31, 1997 and 1996 of 8,551,930 and
8,546,553, respectively.
Historical Cash Flow
The following discussion of historical cash flow compares
the Company's cash flows for the year ended December 31, 1997
("1997") with the year ended December 31, 1996 ("1996").
Net cash provided by operating activities decreased $815,000
to $13.2 million in 1997 from $14.1 million in 1996. This
decrease was primarily attributable to a $1.3 million decrease in
cash provided by net income as adjusted for non-cash expenses
including depreciation, amortization, property carrying value
adjustment and the write-off of deferred financing costs. This
was offset by a $525,000 increase in cash provided by changes in
operating assets, primarily an increase in accounts payable
related to operations in 1997.
Investing activities used $10.5 million during 1997, a
decrease of $9.5 million from $20.0 million for 1996 due
primarily to greater development costs paid associated with the
Union Plaza in New Castle, Pennsylvania in 1996.
Net cash used in financing activities was $5.4 million for
1997, representing a $12.2 million decrease from net cash
provided by financing activities of $6.8 million for 1996. This
decrease is primarily attributable to a decrease in borrowings
related to property investment in 1997.
34
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.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for
publicly-held business enterprises to report information about
operating segments in annual financial statements and requires
that these enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. SFAS 131 is effective for financial statements for
years beginning after December 15, 1997. The Company plans to
adopt SFAS 131 in 1998.
Year 2000 Compliance
The Company is in the process of evaluating its major
information systems to verify that they are Year 2000 compliant.
If these systems are not compliant, the appropriate upgrades will
be purchased. The cost of any required upgrades are not
anticipated to be significant. In addition, the Company is
communicating with its customers, suppliers and service providers
to determine whether they are actively involved in projects to
ensure that their products and business systems will be Year 2000
compliant. The Company is not aware of any significant Year 2000
issues involving its customers, suppliers or service providers.
35
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, 1998, 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, 1998, to be filed pursuant to
Regulation 14A.
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, 1998, 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, 1998, to be filed pursuant to
Regulation 14A.
36
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, 1997 and 1996 F-3
Consolidated Statements of Operations for the
years ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1997,
1996 and 1995 F-5
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-10
2. Financial Statement Schedules
Schedule III - Real Estate and
Accumulated Depreciation F-31
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.
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")
37
10.1 Agreement of Limited Incorporated by reference to
Partnership of Mark the copy thereof filed as an
Centers Limited exhibit to Amendment No. 3 to
Partnership 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) Amendment 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
10.3(d) Amendment Number Two Incorporated by reference to
To the First Amended the copy thereof filed as an
and 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
38
10.3(e) Amendment Number Three Incorporated by reference to
to the First Amended the copy thereof filed as an
and Restated Assumption, exhibit to the Company's Form
Extension and Loan 10-Q filed for the quarter
Agreement between the ended June 30, 1997
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
39
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
10.5(h) Option Purchase Agreement
between the Company
and the Principal
Shareholder allowing
the Company to acquire
a certain property from
the Principal Shareholder
10.5(i) Termination of Option
to Purchase (Lewisburg)
between the Company and
the Principal Shareholder
*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 exhibit to the Company's Form
Option Plan S-8 filed August 17, 1995
40
*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
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
41
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
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
42
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
10.17(e) Fourth 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 June 30, 1997
10.17(f) Fifth Amendment to
Revolving Credit Loan
Agreement between the
Company and Mellon
Bank, N.A.
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
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
43
10.20(c) Construction and/or Incorporated by reference to
Development Loan the copy thereof filed as an
Agreement between exhibit to the Company's Form
the Company and 10-Q filed for the quarter
Firstrust Bank ended September 30, 1997
10.20(d) Open End Fee and Incorporated by reference to
Leasehold Mortgage the copy thereof filed as an
between the Company exhibit to the Company's Form
and Firstrust Bank 10-Q for the quarter
ended September 30, 1997
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
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
44
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, Incorporated by reference
Security Agreement, to the copy thereof filed as
Future Filing, Financing an exhibit to the Company's
Statement and Assignment Form 10-K filed for the fiscal
of Leases and Rents year ended December 31, 1996
between the Company
and Anchor National Life
Insurance Company
10.24(b) Promissory Note between Incorporated by reference
the Company and Anchor to the copy thereof filed as
National Life Insurance an exhibit to the Company's
Company Form 10-K filed for the fiscal
year ended December 31, 1996
10.25 Agreement of Sale Incorporated by reference
of Newberry Plaza to the copy thereof filed as
between Mark Centers an exhibit to the Company's
Limited Partnership, Form 10-K filed for the fiscal
a Delaware limited year ended December 31, 1996
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 Incorporated by reference
March 4, 1997 by and to the copy thereof filed a
between Mark Northwood an exhibit to the Company's
Associates, Limited Form 10-K filed for the fiscal
Partnership, a Florida year ended December 31, 1996
limited partnership,
and Nomura Asset
Capital Corporation
45
10.26(b) Promissory Note dated Incorporated by reference
March 4, 1997 between to the copy thereof filed
Mark Northwood as an exhibit to the Company's
Associates, Limited Form 10-K filed for the fiscal
Partnership, a Florida year ended December 31, 1996
limited partnership,
and Nomura Asset Capital
Corporation
10.26(c) Leasehold Mortgage, Incorporated by reference
Assignment of Rents, to the copy thereof filed
Security Agreement and as an exhibit to the Company's
Fixture Filing by Mark Form 10-K filed for the fiscal
Northwood Associates, year ended December 31, 1996
Limited Partnership, a
Florida limited partnership,
to Nomura Asset Capital
Corporation dated March
4, 1997
10.27(a) Mortgage and Security
Agreement between the
Company and Royal Bank
of Pennsylvania
10.27(b) Promissory Note between
the Company and Royal
Bank of Pennsylvania
21 List of Subsidiaries Incorporated by reference to
of Mark Centers Trust the copy thereof filed as an
exhibit to the Company's
Form 10-K filed for the fiscal
year ended December 31, 1996
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.
46
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company for the quarter
ended December 31, 1997.
47
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: April 13, 1998
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 April 13, 1998
(Marvin L. Slomowitz)and Trustee (Principal
Executive Officer)
/s/Joshua Kane Senior Vice President April 13, 1998
(Joshua Kane) Chief Financial Officer
and Treasurer (Principal
Financial and Accounting
Officer)
/s/Harvey Shanus Trustee April 13, 1998
(Harvey Shanus)
/s/Marvin J. Levine Trustee April 13, 1998
(Marvin J. Levine Esq)
/s/Joseph L. Castle,II Trustee April 13, 1998
(Joseph L. Castle, II)
/s/John Vincent Weber Trustee April 13, 1998
(John Vincent Weber)
/s/Lawrence J. Longua Trustee April 13, 1998
(Lawrence J. Longua)
48
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
10.5(h) Option Purchase Agreement
between the Company
and the Principal
Shareholder allowing
the Company to acquire
a certain property from
the Principal Shareholder
10.5(i) Termination of Option
to Purchase (Lewisburg)
between the Company and
the Principal Shareholder
10.17 (f) Fifth Amendment to
Revolving Credit Loan
Agreement between the
Company and Mellon
Bank, N.A.
10.27(a) Mortgage and Security
Agreement between the
Company and Royal Bank
of Pennsylvania
10.27(b) Promissory Note between
the Company and Royal
Bank of Pennsylvania
23 Consent of Independent
Auditors to Form S-3
and Form S-8
27 Financial Data Schedule
(EDGAR filing only)
49
MARK CENTERS TRUST
INDEX TO FINANCIAL STATEMENTS
I. MARK CENTERS TRUST
Report of Independent Auditors F-2
Consolidated Balance Sheets as of
December 31, 1997 and 1996 F-3
Consolidated Statements of Operations
for the years ended December 31, 1997,
1996 and 1995 F-4
Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1997,
1996 and 1995 F-5
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996
and 1995 F-7
Notes to Consolidated Financial Statements F-10
Schedule III - Real Estate and Accumulated
Depreciation F-31
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, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended
December 31, 1997. 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, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1997 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.
/s/ ERNST & YOUNG LLP
New York, New York
April 8, 1998
F-2
MARK CENTERS TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31,
ASSETS 1997 1996
------- --------
Rental property, at cost:
Land $ 30,855 $ 31,084
Buildings and improvements 274,165 271,423
Property under development 6,668 4,904
-------- --------
311,688 307,411
Less: accumulated depreciation 83,326 72,956
-------- --------
Net rental property 228,362 234,455
Cash and cash equivalents 1,287 3,912
Cash in escrow 7,906 3,603
Rents receivable 4,802 4,956
Prepaid expenses 1,241 1,421
Due from related parties 177 203
Deferred charges, net 9,710 9,034
Other assets 1,015 933
-------- --------
$254,500 $258,517
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $183,943 $160,168
Lines of credit -- 12,655
Accounts payable and accrued
expenses 7,553 9,397
Distributions payable -- 3,662
Note payable to Principal Shareholder 3,050 3,050
Other liabilities 1,910 2,027
-------- --------
Total liabilities 196,456 190,959
-------- --------
Minority interest 9,244 10,752
-------- --------
Commitments and contingencies
Shareholders' equity:
Common stock, $.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 51,073 57,521
Deficit (2,282) (724)
-------- --------
Total shareholders' equity 48,800 56,806
-------- --------
$254,500 $258,517
======== ========
See accompanying notes
F-3
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year ended December 31,
1997 1996 1995
-------- -------- --------
Revenue
Minimum rents $ 33,669 $ 33,695 $ 32,740
Percentage rents 3,183 2,795 3,340
Expense reimbursements 6,632 6,559 6,431
Other 1,014 747 821
-------- -------- --------
Total revenue 44,498 43,796 43,332
-------- -------- --------
Operating expenses
Property operating 9,013 9,772 8,834
Real estate taxes 5,691 5,285 4,789
Depreciation and amortization 13,768 13,398 11,820
General and administrative 2,351 2,811 2,751
-------- -------- --------
Total operating expenses 30,823 31,266 28,194
-------- -------- --------
Operating income 13,675 12,530 15,138
Interest expense (15,444) (12,733) (10,598)
(Loss) gain on sale of land (12) 21 93
Adjustment to carrying value
of property held for sale -- (392) --
-------- -------- --------
(Loss) income before
extraordinary item and
minority interest (1,781) (574) 4,633
Extraordinary item - write-off
of deferred financing costs -- (190) --
-------- -------- --------
(1,781) (764) 4,633
Minority interest 217 40 (833)
-------- -------- --------
Net (loss) income $ (1,564) $ (724) $ 3,800
======== ======== ========
Basic and diluted net (loss) income per common share:
(Loss) income before
extraordinary item $ (.18) $ (.06) $ .44
Extraordinary item -- (.02) --
-------- -------- --------
Basic and diluted net (loss)
income per common share $ (.18) $ (.08) $ .44
======== ======== ========
See accompanying notes
F-4
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(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, 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)
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)
F-5
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
Shares of Retained Total
Common Common Additional Paid Earnings Shareholders'
Stock Stock in Capital (Deficit) Equity
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
Issuance of shares pursuant to
the Company's restricted share
plan 5,360 -- 52 -- 52
Adjustment to minority interest -- -- -- 6 6
Loss before minority interest -- -- -- (1,781) (1,781)
Distributions paid to limited
partners of the
Operating Partnership -- -- (1,285) -- (1,285)
Dividends paid in
excess of accumulated earnings
($0.76 per share) -- -- (6,500) -- (6,500)
Minority interest's equity -- -- 1,285 217 1,502
---------- --- ------- ------- -------
Balance, December 31, 1997 8,554,177 $ 9 $51,073 $(2,282) $48,800
========== === ======= ======= =======
See accompanying notes
F-6
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)income $(1,564) $ (724) $ 3,800
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Loss (gain) on sale of land 12 (21) (93)
Depreciation and amortization of leasing costs 13,201 12,483 10,993
Amortization of deferred financing costs 567 915 827
Write-off of deferred financing costs -- 190 --
Adjustment to carrying value of property held for sale -- 392 --
Minority interest (217) (40) 833
Provision for bad debts 833 972 721
Other 52 57 93
------- ------- -------
12,884 14,224 17,174
Changes in assets and liabilities:
Rents receivable (679) (580) (1,846)
Prepaid expenses 180 (69) (387)
Due from related parties 26 31 408
Other assets (290) 641 (959)
Accounts payable and accrued expenses 1,233 (756) 1,656
Other liabilities (117) 561 51
------- ------- -------
Net cash provided by operating activities 13,237 14,052 16,097
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements, inclusive of
payables related to construction activity (10,558) (16,642) (21,671)
Payment to Principal Shareholder for acquisition of land -- -- (1,500)
Payment of deferred leasing charges (1,205) (3,399) (1,650)
Proceeds from sale of property 1,288 22 105
------- ------- -------
Net cash used in investing activities (10,475) (20,019) (24,716)
------- ------- -------
F-7
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
1997 1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
Net funding of escrows (4,303) (688) (2,014)
Principal payments on mortgages (14,835) (40,622) (49,491)
Payment of deferred finance costs (757) (2,415) (770)
Proceeds received on mortgage notes 25,955 61,617 75,690
Dividends paid (9,577) (9,229) (12,297)
Distributions paid to Principal Shareholder (1,870) (1,852) (2,452)
------- ------- -------
Net cash (used in) provided by financing activities (5,387) 6,811 8,666
------- ------- -------
(Decrease) increase in cash and cash equivalents (2,625) 844 47
Cash and cash equivalents, beginning of period 3,912 3,068 3,021
------- ------- -------
Cash and cash equivalents, end of period $ 1,287 $ 3,912 $ 3,068
======= ======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest, net of amounts
capitalized of $569, $897, and $978, respectively $15,502 $12,950 $10,172
======= ======= =======
F-8
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
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,
1997 1996 1995
Contingent liability due to Principal Shareholder $ -- $(6,156) $(8,133)
Establishment of note payable to the Principal Shareholder -- 3,031 --
------- ------ -------
Net decrease in cost of property acquired $ -- $(3,125) $(8,133)
======= ======= =======
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, Basis of Presentation and Summary of Significant
Accounting Policies
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 (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, 1997 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.
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.
F-10
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
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.
In accordance with Financial Accounting Standards Board Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", the Company records
impairment losses on long-lived assets used in operations when
events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of
those assets. During 1997 market events and circumstances and
the requirement for significant capital expenditures indicated
that $35,412 of real estate assets might be impaired. However,
the Company's estimate of undiscounted cash flows indicated that
such carrying amounts were expected to be recovered.
Nonetheless, it is reasonably possible that the estimate of
undiscounted cash flows may change in the near term resulting in
the need to write-down those assets to fair value.
F-11
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
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
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.
Sale of Property
On March 5, 1997, the Company completed the sale of the Newberry
Plaza for $1,300. A $392 reduction in carrying value had been
recorded as of December 31, 1996 to reflect the property at a
fair value equal to the contract sales price less direct selling
costs.
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.
Revenue Recognition
Leases with tenants are accounted for as operating leases.
Minimum rents are recognized on a straight-line basis over the
term of the respective leases. As of December 31, 1997 and 1996,
unbilled rents receivable relating to straight-lining of rents
were $1,652 and $1,476, respectively. Percentage rents, which
are additional rents based on tenants' sales, are accrued based
on historical tenant sales. Certain tenants pay percentage rent
F-12
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Revenue Recognition, continued
in lieu of minimum rent pursuant to their leases. Reimbursements
from tenants for real estate taxes, insurance and other property
operating expenses are recognized as revenue in the period the
expenses are incurred.
An allowance for doubtful accounts has been provided against
certain tenant accounts receivable which are estimated to be
uncollectible. Rents receivable at December 31, 1997 and 1996
are shown net of an allowance for doubtful accounts of $972 and
$544, respectively.
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.
Cash in Escrow
Cash in escrow consists principally of cash held for real estate
taxes, property maintenance, insurance, lease renewals,
environmental remediation and minimum occupancy requirements at
specific properties as required by certain loan agreements.
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 in consideration for 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
F-13
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Income Taxes, continued
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.
Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), Earnings Per Share. SFAS 128
replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share (which were not
separately presented historically as they were either anti-
dilutive or not materially dilutive). All earnings per share
amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS 128 requirements.
For the years ended December 31, 1997, 1996 and 1995, basic
earnings per share was determined by dividing net income (loss)
applicable to common shareholders for the year by the weighted
average number of common shares of beneficial interest ("Common
Shares") outstanding during each year.
Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue Common
Shares were exercised or converted into Common Shares or
resulted in the issuance of Common Shares that then shared in the
earnings of the Company. For the years ended December 31, 1997
and 1996 no additional shares were reflected as the impact would
be anti-dilutive due to the net loss in such periods. For the
year ended December 31, 1995 diluted earnings per share was
determined by dividing net income applicable to common
F-14
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Earnings Per Common Share, continued
shareholders for the year by the total of the weighted average
number of shares of common stock outstanding plus the dilutive
effect of the Company's nonvested restricted shares (which
amounted to 22,835 additional shares). The Company's outstanding
stock options were not considered for the purpose of computing
diluted earnings
per share because their assumed conversion is antidilutive.
Segment Reporting
In June, 1997 the Financial Accounting Standards Board issued
Statement No. 131 (SFAS 131), Disclosure About Segments of an
Enterprise and Related Information, which is effective for
financial statements issued for periods beginning after December
15, 1997. SFAS 131 requires disclosures 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 SFAS 131 will
have a material impact on its financial statements.
Reclassifications
Certain 1996 and 1995 amounts were reclassified to conform with
the 1997 presentation.
2. Deferred Charges
Deferred charges consist of the following as of December 31, 1997
and 1996:
1997 1996
Deferred financing costs $6,382 $5,822
Deferred leasing and other costs 8,054 7,063
------ ------
14,436 12,885
Accumulated amortization (4,726) (3,851)
------ ------
$9,710 $9,034
====== ======
F-15
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
3. Mortgage Loans
Mortgage Notes Payable
At December 31, 1997, mortgage notes payable aggregated $183,943
and were collateralized by 37 properties and related tenant
leases. Interest rates ranged from 7.7% to 9.50%. Mortgage
payments are due in monthly installments of principal and/or
interest and mature on various dates through 2022. 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, 1997 without
consideration from the Company.
On September 18, 1997, the Company closed on a $5,500
construction loan with Firstrust Savings Bank ("Firstrust") which
refinanced and expanded the Company's existing $2,000 credit
facility with Firstrust. This construction loan, which is for
the expansion of the Mark Plaza in Edwardsville, Pennsylvania,
bears interest, payable monthly, at the Firstrust commercial
reference rate plus 1% (9.5% as of December 31, 1997) and matures
in March 1999.
On March 4, 1997, the Company closed on $23,000 of fixed rate
financing from Nomura Asset Capital Corporation. The loan, which
matures in March 2022, is secured by a mortgage on one of the
Company's properties, bears interest at 9.02% and requires
monthly payments of interest and principal amortized over 25
years. Approximately $10,155 of the proceeds were used to retire
existing debt with Fleet Bank of Massachusetts, NA, $673 were
used to pay financing costs, $3,015 was deposited in escrows, and
the remaining proceeds were used for working capital. The
Company is subject to certain affirmative and negative covenants
related to this facility.
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, 1997 and 1996:
Monthly
December 31, December 31, Interest Maturity Properties Payment
1997 1996 Rate Encumbered Terms
Lines of credit-variable rate
Fleet Bank of
Massachusetts, NA $ -- $10,155
Firstrust Savings Bank -- 2,500
------- -------
Total-lines of credit -- 12,655
------- -------
Construction loans-variable rate
Firstrust Savings Bank 2,954 -- Prime + 1% March 1999 (1) (11)
First Western Bank, NA 4,000 4,000 Prime + 1% March 2013 (2) (11)
Mortgage notes payable-variable rate
Mellon Bank, NA 2,759 3,396 LIBOR + 200 basis April 1998 (3) (12)
points/Prime+1/2%
Mortgage notes payable-fixed rate
Metropolitan Life
Insurance Company 41,000 41,000 7.750% June 2000 (4) (11)
Morgan Stanley Mortgage Capital 45,312 45,845 8.840% November 2021 (5) $380 (12)
Anchor National Life
Insurance Company 4,028 4,100 7.930% January 2004 (6) $33 (12)
Northern Life Insurance Company 3,627 3,829 7.700% December 2008 (7) $41 (12)
Bankers Security Life 2,501 2,641 7.700% December 2008 (7) $28 (12)
John Hancock Mutual
Life Insurance Co. 54,922 55,357 9.110% April 2000 (8)(9) $455 (12)
Nomura Asset Capital
Corporation 22,840 -- 9.020% March 2022 (10) $193 (12)
------- -------
Total-mortgage notes payable 183,943 160,168
------- -------
$183,943 $172,823
======== ========
F-17
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Mortgage Loans, continued
Notes:
(1) Mark Plaza (5) Midway Plaza (6) Pittston Plaza
Northside Mall
(2) Union Plaza New Smyrna Beach (7) Manahawkin Shopping Center
Cloud Springs Plaza
(3) Auburn Plaza Troy Plaza (8) New Loudon Centre
Martintown Plaza Ledgewood Mall
(4) Valmont Plaza Kings Fairgrounds Plaza 422
Luzerne Street Plaza Shillington Plaza Berlin Shopping Center
Green Ridge Plaza Dunmore Plaza Route 6 Mall
Crescent Plaza Kingston Plaza Tioga West
East End Centre Twenty Fifth Street Shopping Center Bradford Towne Centre
Circle Plaza
Mountainville Plaza (9) The following two properties
Plaza 15 are encumbered related to an
Birney Plaza outstanding letter of credit
Monroe Plaza held by the lender:
Ames Plaza Wesmark Plaza
Searstown Mall
(10) Northwood Centre
(11) Interest only monthly
(12) Monthly principal and
interest
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, 1997 are as follows:
1998 $ 4,506
1999 4,858
2000 96,423
2001 1,638
2002 1,784
Thereafter 74,734
--------
$183,943
========
4. Related Party Transactions
As of December 31, 1997 and 1996 amounts due from related parties
consisted of the following:
December 31,
1997 1996
Accrued ground rent and management fees
due from Blackman Plaza Partners $202 $232
Other net amounts due to
Principal Shareholder (25) (29)
---- ----
$177 $203
==== ====
Included in other income are management fees earned on properties
owned by the Principal Shareholder or affiliates which for the
years ended December 31, 1997, 1996 and 1995 aggregated $19, $36
and $166, respectively.
Included in rental income for the year ended December 31, 1995 is
$140 of rent earned pursuant to a ground lease on Blackman Plaza
with Blackman Plaza Partners, a limited partnership ("Lessee") in
which the Principal Shareholder is the sole general partner
(owning a one percent economic interest). The Company has not
recognized rental income for the years ended December 31, 1997
and 1996 due 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.
F-19
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Related Party Transactions, continued
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 (See Note 16).
In 1996, the Company issued a note payable to the Principal
Shareholder for $3,030 for the purchase of the Union Plaza,
located in New Castle, Pennsylvania. The note, which bears
interest payable monthly at a rate equal to that charged on the
Mellon Bank, N.A. 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. The note payable balance in the accompanying
balance sheet also reflects $20 of accrued interest as of
December 31, 1997 and 1996.
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 was $104 for each of the
years ended December 31, 1997, 1996 and 1995.
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, 1997,
1996 and 1995 aggregated $885, $909 and $929, respectively, of
which $100, $86 and $32 are receivable as of December 31, 1997,
1996 and 1995, respectively. Additionally, for the year ended
December 31, 1995, the Company paid $1,050 for tenant
improvements as provided by the respective lease agreements, at
three properties for this tenant.
F-20
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
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
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, 1997 are summarized as follows:
1998 $ 27,213
1999 24,507
2000 21,146
2001 19,044
2002 17,271
Thereafter 115,717
--------
$224,898
========
Minimum future rentals above include a total of $7,016 for six
tenants which have filed for bankruptcy protection. None of
these leases have been rejected or affirmed.
During the years ended December 31, 1997, 1996 and 1995, rental
income representing 10% or more of total revenues 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, 1997, 1996 and 1995 were $4,890, $4,735, and
$4,389, respectively. During the year ended December 31, 1996,
the Company also earned greater than 10% of its rental income
from the Kmart Corporation at nine locations totaling $4,733.
Rents from Kmart were less than 10% of total revenues for the
years ended December 31, 1997 and 1995, totalling $4,348 and
$4,180, 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,
F-21
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
6. Lease Obligations, continued
that expires in 1999. Six of the leases 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:
1998 $ 313
1999 313
2000 313
2001 313
2002 313
Thereafter 13,520
------
$15,085
=======
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 200,000 share options to the Principal
Shareholder and 64,500 to employees of the Company which vested
20% on the grant date 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 ($11.19 to $12.69
per share) for a period of ten years. The Company has also
issued a total of 65,000 share options to non-employee trustees
which vested 20% on the grant date 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 ($10.13 to $12.75
per share) 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.
F-22
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
7. Share Option Plan, continued
The Company elected Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options.
Under APB 25, no compensation expense is recognized because the
exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant. The
alternative fair value accounting provided for under SFAS 123,
Accounting for Stock-Based Compensation, is not applicable
because it requires use of option valuation models that were not
developed for use in valuing employee stock options.
Proforma information regarding net income and earnings per share
is required by SFAS 123, and has been determined as if the
Company had accounted for its employee stock options under the
fair value method. The fair value for these options was
estimated at the date of the grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
risk free interest rates ranging from 6.14% to 6.49%, expected
dividend yield of 8.95%, volatility factor of the expected market
price of the Company's common stock based on historical results
of .137; and an expected life of 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics
significantly different from those of traded options, and changes
in the subjective input assumptions can materially affect the
fair value estimate, management believes the existing models do
not necessarily provide a reliable single measure of the fair
value of its employee stock options. The Company has elected not
to present proforma information because the impact on the
reported net income and earnings per share is immaterial.
F-23
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
7. Share Option Plan, continued
Changes in the number of shares under all option arrangements are
summarized as follows:
Year ended December 31,
1997 1996 1995
Outstanding at beginning
of period 217,000 234,500 234,500
Granted 152,500 5,000 5,000
Option price per share
granted $10.13-$11.19 $11.38 $12.75
Cancelled 40,000 22,500 5,000
Exercisable at end
of period 181,100 127,200 92,800
Exercised -- -- --
Expired -- -- --
Outstanding at end
of period 329,500 217,000 234,500
Option prices per
share outstanding $10.13-$12.75 $11.38-$12.75 $12.75
As of December 31, 1997 the outstanding options had a weighted
average remaining contractual life of approximately 7.8 years and
a weighted average exercise price of $12.66.
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 3,800 and 10,718 were
granted, but not vested, as of December 31, 1997 and 1996,
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. For
the years ended December 31, 1997, 1996 and 1995, compensation
expense related to such restricted shares vested in such periods
amounted to $24, $46 and $68, respectively.
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
F-24
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
9. Employee 401(k) Plan, continued
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, 1997. The Company contributed $67, $67 and $64 for
the years ended December 31, 1997, 1996 and 1995, respectively.
10. Distributions payable
On November 14, 1996, the Trustees declared a cash distribution
of $0.36 per common share and OP Unit which was subsequently paid
on January 31, 1997.
The Company has determined that the cash distributed to the
shareholders is characterized as follows for federal income tax
purposes:
1997 1996 1995
Ordinary income 34% 35% 64%
Return of capital 66% 65% 36%
--- --- ---
100% 100% 100%
==== ==== ====
11. 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.
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, 1997 and 1996, the Company has determined the
estimated fair value of its mortgage notes payable are
approximately $206,491 and $153,668, 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.
F-25
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
13. Summary of Quarterly Financial Information (unaudited)
The separate results of operations of the Company for the years ended December 31, 1997 and 1996 are as follows:
March 31, 1997 June 30, 1997 Sept 30,1997 Dec 31, 1997 Total for Year
Revenue $11,124 $11,128 $10,874 $11,372 $44,498
Loss before minority interest (487) (260) (544) (490) (1,781)
Net loss (416) (242) (472) (434) (1,564)
Net loss per share-
basic and diluted $ (0.05) $ (0.03) $ (0.06) $ (0.04) $ (0.18)
Cash dividends declared
per share $ 0.36 $ 0.20 $ 0.20 $ 0.00 (a) $ 0.76
Weighted average shares outstanding
- basic and diluted (1) 8,548,817 8,550,466 8,554,177 8,554,177 8,551,930
(a) To be determined by the Trustees in 1998.
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-
basic and diluted $ 0.02 $ 0.00 $ (0.02) $ (0.08) $ (0.08)
Cash dividends declared
per share $ 0.36 $ 0.36 $ 0.36 $ 0.36 $ 1.44
Weighted average shares outstanding
- basic 8,543,452 8,544,985 8,548,717 8,548,717 8,546,553
- diluted (1) 8,563,053 8,544,985 8,548,717 8,548,717 8,546,553
(1) Due to a net loss for the last three quarters in fiscal 1996 and all quarters in fiscal 1997, the weighted average
number of shares on a diluted basis does not include additional incremental shares as they would be anti-dilutive.
F-26
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
14. Legal Proceedings
On November 20, 1995, Jack Wertheimer, the former President of
the Company, filed a complaint against the Company, its Trustees
including the Principal Shareholder, and the Company's former in-
house General Counsel and current 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.
F-27
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
15. Contingencies
Upon conducting environmental site inspections in connection with
obtaining the Morgan Stanley financing during October 1996,
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 has entered 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 $80 for which the
Company has recorded a reserve for as of December 31, 1997 and
for which Morgan Stanley holds $228 in escrow to be released upon
final environmental remediation at this property. 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
such, there is no reserve for remediation costs at this site
recorded as of December 31, 1997.
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.
16. Subsequent Events
On January 7, 1998, the Company exercised its option to purchase
the Lessee's interests in the Blackman Plaza (See Note 4) with a
closing date anticipated to occur during fiscal 1998.
On January 28, 1998, the Company completed a closing on a
construction loan with Royal Bank of Pennsylvania in the maximum
amount of $3,500. The loan, which is secured by one of the
Company's properties, requires monthly payment of interest only
at the lender's prime rate plus 150 basis points and matures in
February 1999 with additional extension periods through February
2000.
F-28
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
16. Subsequent Events, continued
On January 31, 1998, the Company entered into an agreement with
Pharmhouse Corp. (the "Tenant") to settle certain litigation.
During 1997, the Tenant had obtained an injunction against the
installation of Walmart in the Ledgewood Mall based on certain
exclusive use provisions within the Tenant's lease. The Company
has agreed to pay the Tenant $1,675 on or before May 1, 1998,
amend certain terms of the Tenant's lease including rent and the
lease expiration date, and withdraw its appeal of this case in
return for the Tenant's withdrawal of all legal actions against
the installation of Walmart at the mall.
On March 16, 1998, the Company and the Principal Shareholder
agreed to terminate the option to purchase certain land owned by
the Principal Shareholder in Lewisburg, Pennsylvania.
16.1 Event (Unaudited) Subsequent To Date of Report of
Independent Auditors
The Company is in the late stages of negotiation of a significant
transaction which will provide additional properties and capital
to the Company. If the transaction is completed in its current
form, assuming execution of a definitive agreement (the
"Agreement") and satisfaction of all conditions to the
transaction, including approval by the Company's shareholders,
the Company, through Mark Centers Limited Partnership, a Delaware
limited partnership through which the Company conducts
substantially all of its activities, and in exchange for
approximately 11 million Operating Partnership Units, will
acquire substantially all of the ownership interests in twelve
retail shopping centers and five multi-family apartment complexes
controlled by a private New York real estate company. Under the
current proposal, the Company will also receive a cash investment
of $100 million in exchange for newly issued common shares of
beneficial interest valued at a price of $7.50 per share. Upon
completion of the transaction, it is contemplated that two senior
executives of the New York real estate company will become
Chief Executive Officer and President of the Company, respectively.
Mr. Marvin Slomowitz, the current Chairman of the Board and Chief
Executive Officer, will remain as a board member and is expected to
continue as a consultant to the Company. The two new executives will
serve on the board together with two designees of the real estate company
and two designees (in addition to Mr. Slomowitz) of the existing board.
F-29
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
16.1 Event (Unaudited) Subsequent To Date of Report of
Independent Auditors, continued
The transaction is subject to the completion of final negotiation
and execution of the Agreement, receipt of a fairness opinion
from Bear, Stearns & Co. Inc. (the Company's investment bankers),
approval by the Company's Board of Trustees, evidence of the
receipt by the real estate company of the necessary funds to make
the cash investment and the completion of closing. The
transaction is a complex one involving many parties and there can
be no assurance that the Agreement will be executed or that the
closing on this transaction will be completed. The transaction
is subject to the approval by the shareholders of the Company at
a meeting to be scheduled for that purpose if and when the
Agreement is signed.
F-30
MARK CENTERS TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(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 Acquis Land Improvements Total Depreciation Construction(C)
Shopping Centers
Circle Plaza (1) $ -- $3,435 $ 13 $ 2 $ 3,446 $3,448 $1,206 1978(C)
Shamokin Dam,PA
Martintown Plaza (1) -- 4,625 1,252 -- 5,877 5,877 1,981 1985(A)
N.Augusta,SC
Midway Plaza (1) 196 1,647 2,650 196 4,297 4,493 1,700 1984(A)
Opelika,AL
Northside Mall (1) 1,604 7,080 1,721 1,604 8,801 10,405 3,206 1986(A)
Dothan,AL
Searstown Mall (2) 491 4,854 3,155 491 8,009 8,500 3,529 1984(A)
Titusville,FL
New Smyrna Beach
Shopping Center (1) 247 2,219 3,136 247 5,355 5,602 1,933 1983(A)
New Smyrna Beach,FL
Wesmark Plaza (2) 380 3,419 1,447 370 4,876 5,246 1,704 1986(A)
Sumter,SC
Kings
Fairground (1) -- 1,426 171 -- 1,597 1,597 279 1992(A)
Danville,VA
Cloud Springs
Plaza (1) 159 2,712 1,189 159 3,901 4,060 1,334 1985(A)
Ft. Oglethorpe,GA
Crescent
Plaza 12,000 1,147 7,425 481 1,147 7,906 9,053 2,479 1984(A)
Brocton,MA
New Loudon
Center (3) 505 4,161 9,630 505 13,791 14,296 3,229 1982(A)
Latham,NY
Ledgewood Mall (3) 619 5,434 25,472 619 30,906 31,525 10,755 1983(A)
Ledgewood,NJ
Troy Plaza (1) 479 1,976 812 479 2,788 3,267 1,359 1982(A)
Troy,NY
Birney Mall (1) 210 2,979 931 210 3,910 4,120 3,193 1968(C)
Moosic,PA
Dunmore Plaza (1) 100 506 182 100 688 788 296 1975(A)
Dunmore,PA
F-31
MARK CENTERS TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(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 Acquis Land Improvements Total Depreciation Construction(C)
Shopping Centers
Mark Plaza 2,954 -- 4,268 999 -- 5,267 5,267 3,312 1968(C)
Edwardsville,PA
Kingston Plaza (1) 305 1,745 473 305 2,218 2,523 1,228 1982(C)
Kingston,PA
Luzerne St.
Shopping Center 2,000 35 315 1,150 35 1,465 1,500 704 1983(A)
Scranton,PA
Blackman Plaza -- 120 -- -- 120 -- 120 -- 1968(C)
Wilkes-Barre,PA
East End Centre 14,200 1,086 8,661 3,164 1,086 11,825 12,911 4,367 1986(C)
Wilkes-Barre,PA
Green Ridge Plaza 6,700 1,335 6,314 595 1,335 6,909 8,244 2,373 1986(C)
Scranton,PA
Plaza 15 (1) 171 81 1,481 171 1,562 1,733 302 1976(C)
Lewisburg,PA
Plaza 422 (3) 190 3,004 429 190 3,433 3,623 1,866 1972(C)
Lebanon,PA
Tioga West (3) 48 1,238 3,414 48 4,652 4,700 1,849 1965(C)
Tunkhannock,PA
Mountainville (1) 420 2,390 491 420 2,881 3,301 1,324 1983(A)
Shopping Center
Allentown,PA
Monroe Plaza (1) 70 2,083 67 70 2,150 2,220 903 1964(C)
Stroudsburg,PA
Ames Plaza (1) 57 1,958 219 57 2,177 2,234 1,615 1966(C)
Shamokin,PA
Route 6 Mall (3) -- -- 12,696 1,664 11,032 12,696 1,121 1995(C)
Honesdale,PA
Pittston Plaza 4,028 -- -- 7,167 1,521 5,646 7,167 398 1995(C)
Pittston,PA
Valmont Plaza 6,100 522 5,591 1,027 522 6,618 7,140 2,444 1985(A)
W. Hazleton,PA
Manahawkin
Village 6,128 2,400 9,396 260 2,400 9,656 12,056 1,066 1993(A)
Shopping Center
Manahawkin,NJ F-32
MARK CENTERS TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(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 Acquis Land Improvements Total Depreciation Construction(C)
Shopping Centers
25th St.
Shopping Center (1) 2,280 9,276 184 2,280 9,460 11,740 1,331 1993(A)
Easton,PA
Berlin Shopping (3) -- -- 6,887 1,332 5,555 6,887 678 1994(A)
Center
Berlin,NJ
Auburn Plaza 2,759 -- -- 13,287 2,644 10,643 13,287 1,153 1994(A)
Auburn,ME
Shillington Plaza (1) -- -- 4,109 809 3,300 4,109 362 1994(A)
Reading,PA
Union Plaza 4,000 -- -- 20,241 5,426 14,815 20,241 505 1996(C)
New Castle,PA
Bradford Towne (3) -- -- 16,087 816 15,271 16,087 1,806 1994(C)
Centre
Towanda,PA
Mixed Use
Properties
Northwood 22,840 1,209 6,204 18,519 1,188 24,744 25,932 11,620 1985(A)
Centre
Tallahassee,FL
Normandale Centre -- 287 2,584 4,154 287 6,738 7,025 2,816 1985(A)
Montgomery,AL
Construction -- -- -- 6,668 -- 6,668 6,668 --
in Progress
------------------------------------------------------------------------------------------------
$183,943 $16,672 $119,006 $176,010 $30,855 $280,833 $311,688 $83,326
================================================================================================
See accompanying notes
F-33
MARK CENTERS TRUST
NOTES TO SCHEDULE III
DECEMBER 31, 1997
(Dollars in thousands)
1. These seventeen properties serve as collateral for the
financing with Morgan Stanley Mortgage Capital, Inc.
2. These two properties serve as collateral for a letter of
credit with Fleet Bank.
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 $326,412 as of December 31,
1997.
6.(a)Reconciliation of Real Estate Properties:
The following reconciles the real estate properties from
January 1, 1995 to December 31, 1997:
Year ended December 31,
1997 1996 1995
Balance at beginning
of period $307,411 $291,157 $278,611
Additions during period
Acquisitions through
purchase -- -- --
Acquisition through
exercise of purchase
option -- -- 1,446
Acquisitions and
adjustments related to
development options
and establishment of
note payable to the
Principal Shareholder -- (3,125) (8,133)
Other improvements 7,480 19,380 19,242
Fully depreciated assets
written off (998) -- --
Sale of property (2,205) (1) (9)
-------- -------- --------
Balance at end of
period $311,688 $307,411 $291,157
======== ======== ========
F-34
MARK CENTERS TRUST
NOTES TO SCHEDULE III
DECEMBER 31, 1997
(Dollars in thousands)
(b) Reconciliation of accumulated depreciation:
The following table reconciles accumulated depreciation from
January 1, 1995 to December 31, 1997:
1997 1996 1995
Balance at beginning
of period $72,956 $61,269 $51,002
Sale of property (905) -- --
Fully depreciated assets
written off (998) -- --
Depreciation related
to real estate 12,273 11,687 10,267
------- ------- -------
Balance at end
of period $83,326 $72,956 $61,269
======= ======= =======
F-35