-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WvrlrVgfgRpUP+N/XzIcs3Snf9oCwZzCqx/Y/qYR1iZlHSojFhMwvWE9rbO5fu7T NVfcH9ypl/7mrVr78azMpA== 0000018934-98-000014.txt : 19981116 0000018934-98-000014.hdr.sgml : 19981116 ACCESSION NUMBER: 0000018934-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CV REIT INC CENTRAL INDEX KEY: 0000018934 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 590950354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08073 FILM NUMBER: 98747019 BUSINESS ADDRESS: STREET 1: 100 CENTURY BLVD CITY: WEST PALM BEACH STATE: FL ZIP: 33417 BUSINESS PHONE: 4076403155 MAIL ADDRESS: STREET 1: 100 CENTURY BOULEVARD CITY: WEST PALM BEACH STATE: FL ZIP: 33417 FORMER COMPANY: FORMER CONFORMED NAME: CENVILL INVESTORS INC DATE OF NAME CHANGE: 19900515 FORMER COMPANY: FORMER CONFORMED NAME: CENVILL COMMUNITIES INC DATE OF NAME CHANGE: 19810812 10-Q 1 FORM 10-Q 9/30/98 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 __________ FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _______________ Commission File Number: 1-8073 CV REIT, INC. (Exact name of registrant as specified in its charter) Delaware 59-0950354 (State of Incorporation) (I.R.S. Employer Identification No.) 100 Century Boulevard, West Palm Beach, Florida 33417 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 561-640-3155 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common stock, par value New York Stock Exchange $.01 per share 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 (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares outstanding of the registrant's common stock, par value $.01 per share, as of October 31, 1998: 7,966,621. 2 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) Sept.30, Dec.31, ASSETS 1998 1997 ------ -------- -------- Real estate - income producing, net of accumulated depreciation $141,958 $ 71,008 Real estate mortgage notes receivable 65,574 77,652 Investments in unconsolidated affiliates 3,309 3,284 Cash and cash equivalents (includes $926 and $915 restricted) 4,655 12,869 Other real estate (net of allowance for losses of $2,401) 5,451 5,451 Other 5,372 1,663 -------- -------- $226,319 $171,927 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Borrowings $122,127 $ 66,281 Accounts payable and other liabilities 6,221 4,443 Deferred income taxes 7,041 7,041 -------- -------- Total liabilities 135,389 77,765 -------- -------- Minority interests in Operating Partnership 17,800 21,214 -------- -------- Stockholders' equity: Common stock, $.01 par-shares authorized 20,000,000; outstanding 7,966,621 80 80 Additional paid-in capital 18,490 18,490 Retained earnings 54,560 54,378 -------- -------- Total stockholders' equity 73,130 72,948 -------- -------- $226,319 $171,927 ======== ======== See accompanying notes to consolidated financial statements. 3 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Revenues: Rent $ 5,104 $ 547 $ 11,641 $ 1,633 Interest, principally from mortgage notes 2,122 2,650 6,826 8,012 --------- --------- --------- --------- 7,226 3,197 18,467 9,645 --------- --------- --------- --------- Expenses: Interest 2,507 755 5,825 2,286 Operating 1,597 167 3,571 506 General and administrative 404 159 1,122 472 Depreciation and amortization 820 39 1,849 252 --------- --------- --------- --------- 5,328 1,120 12,367 3,516 --------- --------- --------- --------- 1,898 2,077 6,100 6,129 Equity in income of unconsolidated affiliates 150 118 403 330 Gain on sale of real estate - - 2,347 - Settlement of litigation (200) - (200) - Minority interests in income of Operating Partnership (292) - (1,537) - --------- --------- --------- --------- Net income $ 1,556 $ 2,195 $ 7,113 $ 6,459 ========= ========= ========= ========= Per common share: Net income, basic and diluted $ .20 $ .28 $ .89 $ .81 ========= ========= ========= ========= Dividends declared $ .29 $ .29 $ .87 $ .87 ========= ========= ========= ========= Average common shares outstanding, basic and diluted 7,966,621 7,966,621 7,966,621 7,966,621 ========= ========= ========= ========= See accompanying notes to consolidated financial statements. 4 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS (in thousands) Balance at December 31, 1997 $54,378 Net income for the nine months ended September 30, 1998 7,113 Dividends declared (6,931) ------- Balance at September 30, 1998 $54,560 ======= See accompanying notes to consolidated financial statements. 5 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Nine Months Ended September 30, ------------------- 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,113 $ 6,459 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,849 252 Gain on sale of real estate (2,347) - Equity in depreciation and amortization of unconsolidated affiliates 128 131 Minority interests in income of Operating Partnership 1,537 - Increase in other assets (2,962) (512) Increase (decrease) in accounts payable and other liabilities 675 (37) -------- -------- Net cash provided by operating activities 5,993 6,293 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Fundings on real estate mortgage notes (5,190) (12,397) Collections on real estate mortgage notes 17,268 17,464 Acquisitions of real estate (21,126) - Proceeds from the sale of real estate 4,151 - Purchase of short-term investments, net of maturities - (1,507) Capital improvements (920) - Other (164) (942) -------- -------- Net cash (used in) provided by investing activities (5,981) 2,618 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 7,650 - Repayments of borrowings (4,286) (1,633) Cash dividends paid (6,934) (6,896) Distributions to minority interests (1,036) - Redemption of Operating Partnership units (3,631) - -------- -------- Net cash used in financing activities (8,237) (8,529) -------- -------- Net increase (decrease) in unrestricted cash and cash equivalents (8,225) 382 Unrestricted cash and cash equivalents at beginning of the period 11,954 6,666 -------- -------- Unrestricted cash and cash equivalents at end of the period $ 3,729 $ 7,048 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest $ 5,367 $ 2,269 ======== ======== Acquisitions: Fair value of assets acquired $(74,325) $ - Liabilities assumed or incurred 53,049 - Operating Partnership units issued 150 - -------- -------- Cash paid for acquisitions $(21,126) - ======== ======== See accompanying notes to consolidated financial statements. 6 CV REIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization, Business and Basis of Presentation Organization and Business CV Reit, Inc. ("CV Reit") is a real estate investment trust ("REIT") which until December 31, 1997, was principally engaged in investing in real estate mortgage notes. Effective December 31, 1997, CV Reit and its subsidiaries converted to an Umbrella Partnership REIT (UPREIT) structure as part of a series of transactions which closed on that date and which included the following: (1) a newly created Operating Partnership, Montgomery CV Realty L.P. (together with its wholly-owned subsidiaries hereinafter collectively referred to as the "OP"), acquired 100% of the ownership interests in ten commercial properties, and an approximately 95% economic interest in Drexel Realty, Inc. ("Drexel"), a real estate management and leasing company and (2) CV Reit and its subsidiaries transferred substantially all of their net assets (or the economic benefit thereof) to the OP. As a result, CV Reit, through a wholly-owned subsidiary, indirectly currently owns 84.2% of the OP, is the OP's sole general partner and is a self-administered, self-managed equity REIT. As of September 30, 1998, the OP owned 17 shopping centers and two office buildings, located in the Mid-Atlantic region and Florida aggregating over 1.5 million square feet. Basis of Presentation The accompanying consolidated financial statements include the accounts of CV Reit and all subsidiaries ("the Company"), including the OP. The Company owns 99% of the non-voting common stock and a 95% economic interest in Drexel, and owns 45%-50% interests in certain real estate partnerships, which are accounted for on the equity method. Significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been consolidated or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1997. 7 The consolidated financial statements for the interim periods included herein, which are unaudited, include, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations of the Company for the periods presented. The results of operations for interim periods should not be considered indicative of results to be expected for the full year. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported statements of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual revenues could differ from those estimates. (2) Real Estate - Income Producing ("Real Estate") (a) Real Estate is located in the Mid-Atlantic region and Florida and consists of (in thousands): Sept.30, Dec.31, 1998 1997 -------- ------- Shopping centers (Note 2(b) $138,928 $64,356 Office buildings 5,338 5,334 Motel (Note 2(c)) - 4,058 -------- ------- Totals 144,266 73,748 Less accumulated depreciation (2,308) (2,740) -------- ------- Net Real Estate (pledged as collateral for borrowings (Note 4)) $141,958 $71,008 ======== ======= (b) On March 31, 1998, the OP purchased an approximately 177,000 square foot shopping center, located in Pennsylvania, for a purchase price of $27.8 million, including transaction costs, which consisted of $7.6 million of cash and the assumption of $20.2 million of liabilities, principally mortgage debt. 8 During June 1998, the OP purchased three shopping centers, located in Pennsylvania and New Jersey, aggregating 358,000 square feet for a total purchase price of $34.2 million, including transaction costs, which consisted of $9.8 million in cash and the incurrence or the assumption of $24.4 million of liabilities, principally mortgage debt. On July 30, 1998, the OP purchased three shopping centers, located in Pennsylvania, aggregating 261,000 square feet for a total purchase price of $12.3 million, including transaction costs, which consisted of $3.7 million in cash and the assumption of $8.6 million of liabilities, principally mortgage debt. The acquisitions were accounted for as purchases; accordingly, the operations of the shopping centers acquired are included in the Consolidated Financial Statements as of the dates of acquisition. In addition, the OP has several pending acquisitions of shopping centers for an aggregate purchase price of $119 million. See Management's Discussion and Analysis of Results of Operations and Financial Condition - Liquidity and Capital Resources - Acquisitions for a discussion of these potential acquisitions. (c) On May 15, 1998, the Company sold the Motel for net cash proceeds of $4.2 million and recognized a gain of $2.3 million. (3) Real Estate Mortgage Notes Receivable (a) Real estate mortgage notes receivable are collateralized by real estate located in southeast Florida and consist of (in thousands): Sept.30, Dec. 31, 1998 1997 -------- -------- Long Term Recreation Notes (the "Recreation Notes") (Notes 3(b) and 4) $65,431 $66,236 Other 143 11,416 ------- ------- Totals $65,574 $77,652 ======= ======= (b) At September 30, 1998, the Recreation Notes consisted of $25 million due from Hilcoast Development Corp. (the "Hilcoast Recreation Note"), principally collateralized by first mortgages on the recreation facilities at the Century Village at Pembroke Pines, Florida adult condominium project, and $40.4 million, 9 collateralized by first mortgages on the recreation facilities at the three previously completed Century Village communities. In accordance with the terms of the loan agreement dated July 31, 1992, effective July 31, 1998, the Hilcoast Recreation Note was converted to an 11%, fixed rate, 25 year, self-amortizing loan providing for equal monthly payments of principal and interest. This note may not be prepaid by Hilcoast without a prepayment penalty. The remaining $40.4 million of Recreation Notes principally provide for self-amortizing equal monthly principal and interest payments due through 2012, with interest rates averaging 13% per annum, and contain certain prepayment prohibitions. These notes are pledged as collateral for borrowings (Note 4). (4) Borrowings Borrowings consist of (in thousands): Sept.30, Dec. 31, 1998 1997 Mortgage notes payable through -------- -------- September 2008, interest ranging from 6.85% to 10.28%, collateralized by Real Estate (Note 2) $ 74,100 $ 33,418 Mortgage notes payable in November 2000 under $100 million credit facility, interest at one month LIBOR (5.38% at September 30, 1998) plus 1.75%, collateralized by Real Estate (Note 2). See Management's Discussion and Analysis of Results of Operations and Financial Condition - Liquidity and Capital Resources - Borrowings for a description of the terms. 16,950 - Collateralized Mortgage Obligations, net of unamortized discount of $584,000 and $676,000 based on an effective interest rate of 8.84%, collateralized by certain of the Recreation Notes (Note 3 (b)), quarterly self-amortizing principal and interest payments required through March 2007 31,077 32,863 -------- -------- Totals $122,127 $ 66,281 ======== ======== 10 (5) Redemption of Certain Minority Interests Effective July 1, 1998, the OP redeemed 302,552 OP units for approximately $3.6 million, resulting in an increase in CV Reit's indirect ownership of the OP from 81.7% to 84.2%. (6) Settlement of Litigation TGI Development, Inc. ("TGI") On October 9, 1989, TGI filed a complaint in the Circuit Court of Palm Beach County against CV Reit, H. Irwin Levy, the Company's Chairman of the Board, and certain unrelated parties alleging misrepresentations by the defendants in connection with TGI's purchase and development of land from a previous borrower of the Company. The complaint, as subsequently amended, consisted of claims of common law fraud and breach of contract and sought compensatory damages of approximately $2 million in addition to punitive damages. During the third quarter of 1998, the parties settled the litigation. The Company paid $200,000 to TGI and both parties executed general releases. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Net Income Three Months Ended September 30, 1998 and 1997 For the quarter ended September 30, 1998, net income was $1,556,000 or $.20 per share compared to $2,195,000 or $.28 per share for the same period of 1997. During the quarter ended September 30, 1998, rent revenue, operating expenses, interest expense, and depreciation and amortization increased by $4,557,000, $1,430,000, $1,752,000 and $781,000, respectively, primarily due to the acquisition of ten commercial properties on December 31, 1997 (the "1997 Acquisition") and seven additional shopping centers in 1998 (collectively, the "Acquisitions"). The Company expects continued increases in rent revenue, operating costs, interest expense and depreciation in the event certain additional planned acquisitions are consummated (see Liquidity and Capital Resources - Acquisitions). 11 Interest income decreased by $528,000 during the third quarter of 1998, primarily attributable to an approximately $14.4 million reduction in the average balance of mortgage notes receivable. These notes principally consisted of a line of credit and certain other loans to Hilcoast which matured and were repaid during the third quarter. The average interest rate on these notes approximated 10.9% and the repayments have been generally utilized to acquire shopping centers in 1998, or reinvested in lower yielding short-term investments (averaging approximately 5% during the third quarter of 1998), pending completion of planned acquisitions. The Company's remaining mortgage notes receivable are long term and require self-amortizing payments through 2023. Accordingly, interest income is anticipated to continue to decrease although to a lesser extent, due to scheduled repayments. General and administrative expenses increased by $245,000 during the third quarter of 1998, reflecting increases in personnel and other costs, principally due to the 1997 Acquisition, and in legal fees primarily in connection with the TGI litigation which has been settled (see Note 6 to Consolidated Financial Statements). Net income for the quarter ended September 30, 1998 includes a $200,000 non-recurring charge from the settlement of the TGI litigation. Nine Months Ended September 30, 1998 and 1997 For the nine months ended September 30, 1998, net income was $7,113,000 or $.89 per share compared to $6,459,000 or $.81 per share for the same period of 1997. During the nine months ended September 30, 1998, rent revenue, operating expenses, interest expense, and depreciation and amortization increased by $10,008,000, $3,065,000, $3,539,000 and $1,597,000, respectively, primarily due to the Acquisitions. Interest income decreased by $1,186,000 during the first nine months of 1998, primarily attributable to an approximately $11 million reduction in the average balance of the Hilcoast mortgage notes receivable. The average interest rate on the mortgage notes repaid approximated 10.9% and the repayments have been generally utilized to acquire shopping centers in 1998, or reinvested in lower yielding short-term investments (averaging approximately 5% during the first nine months of 1998), pending completion of planned acquisitions. General and administrative expenses increased by $650,000 during the first nine months of 1998, reflecting increases in personnel and other costs primarily due to the 1997 Acquisition, and in legal fees primarily in connection with the TGI litigation. 12 Net income for the nine months ended September 30, 1998 includes a $2.3 million gain from the sale of the Days Inn Motel on May 15, 1998 and a $200,000 non-recurring charge from the settlement of the TGI litigation. Funds From Operations Funds From Operations ("FFO"), as defined by the National Association of Real Estate Investment Trusts (NAREIT), consists of net income (computed in accordance with generally accepted accounting principles) before depreciation and amortization of real property, certain non-recurring items, extraordinary items, gains and losses on sales of real estate and income taxes. The following schedule reconciles FFO to net income: Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net income $1,556,000 $2,195,000 $7,113,000 $6,459,000 Depreciation and amortization of real property 816,000 37,000 1,846,000 244,000 Equity in depreciation and amortization of real property of unconsolidated affiliates 43,000 44,000 128,000 131,000 Minority interests in income of OP 292,000 - 1,537,000 - Settlement of litigation 200,000 - 200,000 - Gain on sale of real estate - - (2,347,000) - ---------- ---------- FFO - OP in 1998 $2,907,000 N/A $8,477,000 N/A ========== ---------- ========== ---------- FFO - CV Reit $2,448,000 $2,276,000 $6,999,000 $6,834,000 ========== ========== ========== ========== The Company believes that FFO is an appropriate measure of operating performance because real estate depreciation and amortization charges are not meaningful in evaluating the operating results of the Company's properties and certain significant non-recurring items, such as the Company's gain on sale of real estate and settlement of litigation, would distort the comparative measurement of the Company's performance and are not relevant to ongoing operations. However, FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and should not be considered as an alternative to either net income as a measure of the Company's operating performance or to cash flows from operating activities as an indicator of liquidity or cash available to fund all cash flow needs. In addition, since other REITs may not calculate FFO in the same manner, FFO presented herein may not be comparable to that reported by other REITs. 13 Liquidity and Capital Resources Consolidated Statements of Cash Flows As of September 30, 1998, unrestricted cash and cash equivalents decreased to $3.7 million from $12 million at December 31, 1997. Net cash provided by operating activities, as reported in the Consolidated Statements of Cash Flows, decreased to $6.0 million in 1998 from $6.3 million for the same period in 1997. The 1998 amounts generally reflect FFO of $8.5 million, partially offset by a $3 million increase in Other Assets (receivables and prepaid expenses), as a result of the Acquisitions. The 1997 amounts principally reflect FFO. Net cash used by investing activities amounted to $6 million during 1998 compared to net cash provided by investing activities of $2.6 million (principally net collections on real estate mortgage notes partially offset by an increase in short-term investments) in 1997. The 1998 amounts principally consist of $21.1 million of cash required in connection with acquisitions of seven shopping centers in 1998, partially offset by $12.1 million of net collections on real estate mortgage notes receivable and $4.2 million received from the sale of real estate. Net cash used in financing activities decreased to $8.2 million in 1998 from $8.5 million during the same period of 1997. The 1998 amounts consist of cash distributions amounting to $6.9 million to stockholders and $1 million to minority interests, and $3.6 million for the redemption of approximately 300,000 OP units, partially offset by $3.4 million of net borrowings. The 1997 amounts consist of $6.9 million of cash distributions to stockholders and $1.6 million of repayments of borrowings. Borrowings At September 30, 1998, the Company's borrowings increased to $122.1 million from $66.3 million at December 31, 1997 as a result of the 1998 Acquisitions. Scheduled principal payments over the next five years are $77.5 million with $44.6 million due thereafter. Borrowings include $91 million, collateralized by a substantial portion of the Company's Real Estate, including $16.9 million under the Line of Credit (see below). The Company expects to refinance certain of these borrowings, at or prior to maturity, through new mortgage loans on Real Estate including refinancing under the Line of Credit. The ability to do so, however, is dependent upon various factors, including the income level of the properties, interest rates and credit conditions within the commercial real estate market. Accordingly, there can be no assurance that such refinancing can be achieved. 14 The remaining $31.1 million of borrowings consists of the CMO's which are collateralized by $40.4 million of the Recreation Notes and require self-amortizing principal and interest payments through March 2007. During the term of the CMO's, the scheduled annual debt service requirement approximates $5.2 million compared to annual principal and interest payments scheduled to be received under the related Recreation Notes of $6.5 million. Effective March 31, 1998, the Company entered into a Line of Credit with a financial institution wherein the financial institution has agreed to provide a $100 million three year non-revolving line of credit. Advances under the Line of Credit: (1) must be secured by assets based on specified aggregate loan to value and debt service coverage ratios, (2) bear interest at an annual rate of one month LIBOR plus 1.75% and (3) may be drawn only during the first two years of the credit facility and must be repaid by certain dates during the third year. Additional provisions include a 1% commitment fee, a minimum net worth covenant and cross-default and cross-collateralization requirements. Advances under the Line of Credit are used to fund acquisitions, expansions, renovations, financing and refinancing of real estate, including reimbursement of equity advances, and require certain performance covenants. As of September 30, 1998, the Company has borrowed $16.9 million under the Line of Credit. Capital Resources The Company's operating funds are expected to be principally generated from rent revenue from income producing properties and interest income on the Long Term Recreation Notes. The Company believes that its operating funds will be sufficient in the foreseeable future to fund operating and administrative expenses, interest expense, recurring capital expenditures and distributions to stockholders in accordance with REIT requirements. Sources of capital for non-recurring capital expenditures and scheduled principal payments, including balloon payments, on outstanding borrowings are expected to be obtained from anticipated property refinancing, scheduled principal repayments on the Long Term Recreation Notes, sales of non-strategic other real estate, the Line of Credit, existing cash balances, and/or potential debt or equity financing in the public or private markets. Acquisitions During the nine months ended September 30, 1998, the OP completed seven acquisitions of shopping centers for purchase prices aggregating $74.3 million, including transaction costs, which 15 consisted of $21.1 million of cash and the incurrence or assumption of $53.2 million of liabilities, principally mortgage debt. In addition, the OP has entered into agreements or letters of intent to acquire eight additional shopping centers for an aggregate purchase price of approximately $119 million (the "Planned Acquisitions"). If consummated, the OP intends to finance the purchase prices through assumption of existing mortgages on the properties to be acquired, the Line of Credit and available cash balances. The Planned Acquisitions are subject to due diligence and certain other conditions and there can be no assurance that they will be consummated. In the event properties are acquired in the future, the OP may issue additional OP units, pay cash, or a combination thereof. If cash payments are required in excess of funds available under the Company's Line of Credit, the Company may be required to seek outside financing which may or may not be available. The Company's policy is to acquire additional properties only if they are income producing and any proposed acquisition requires a resolution by a majority of CV Reit's Board of Directors that the acquisition will not adversely affect CV Reit's ability to pay a quarterly dividend of at least 29 cents per share. Under the OP agreement, all of the activities of the OP must generally be conducted with a view toward enabling the OP to make quarterly distributions to all partners of at least 29 cents per OP unit and such additional amount, if required, to enable CV Reit to pay a regular quarterly dividend of at least 29 cents per share to its stockholders. As of September 30, 1998, there were 1,495,736 OP units held by minority interests. Inflation During recent years, the rate of inflation has remained at a low level and had minimal impact on the Company's operating results. Most all of the tenant leases contain provisions designed to lessen the impact of inflation. These provisions include escalation clauses which generally increase rental rates annually based on cost of living indexes (or based on stated rental increases which are currently higher than recent cost of living increases), and percentage rentals based on tenant's gross sales, which generally increase as prices rise. Many of the leases are for terms of less than ten years which increases the ability of the OP to replace those leases which are below market rates with new leases at higher base and/or percentage rentals. In addition, most of the leases require the tenants to pay their proportionate share of increases in operating expenses, including common area maintenance, real estate taxes and insurance. 16 However, in the event of significant inflation, the Company's operating results could be adversely affected if general and administrative expenses and interest expense increase at a rate higher than rent income or if the increase in inflation exceeds rent increases for certain tenant leases which provide for stated rent increases (rather than based on cost of living indexes). Other Year 2000 issues pertain to the inability of certain computerized information systems to properly recognize date-sensitive information as the year 2000 approaches. Systems that do not recognize such information could generate erroneous data or cause systems to fail. The Company is presently reviewing the potential impact of Year 2000 compliance issues on its information systems and business operations, and has preliminarily determined that any costs, problems or uncertainties associated with the potential consequences of Year 2000 issues are not expected to have a material impact on its future operations or financial condition. Forward Looking Information: Certain Cautionary Statements Certain statements contained in "Management's Discussion and Analysis of Results of Operations and Financial Condition" and elsewhere in this Form 10-Q, that are not related to historical results, are forward looking statements, such as collectibility of the Company's real estate mortgage notes receivable and its anticipated liquidity and capital resources. The matters referred to in forward looking statements are based on assumptions of future events which may not prove to be accurate and which could be affected by the risks and uncertainties involved in the Company's business; accordingly, actual results may differ materially from those projected and implied in the forward looking statements. These risks and uncertainties include, but are not limited to, the effect of conditions in the commercial real estate market and the economy in general, the level and volatility of interest rates, the impact of current or pending legislation and regulation, as well as certain other risks described in the Form 10-Q. Subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this paragraph and elsewhere described in this Form 10-Q and in other reports filed by the Company with the Securities and Exchange Commission. 17 PART II. Other Information Item 6 - Exhibits and Reports on Form 8-K: Exhibits: 27 Financial Data Schedule Reports on Form 8-K: On September 4, 1998, the Registrant filed Form 8-K/A, reporting under Item 7. Financial Statements of Assets Acquired, Proforma Financial Information and Exhibits. (Reference Form 8-K dated June 24, 1998 filed July 9, 1998.) On September 4, 1998, the Registrant filed Form 8-K/A, reporting under Item 7. Financial Statements of Assets Acquired, Proforma Financial Information and Exhibits. (Reference Form 8-K dated June 25, 1998 filed July 10, 1998.) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CV REIT, INC. ________________________________ (Registrant) /s/ Louis P. Meshon November 13, 1998 ________________________________ Louis P. Meshon, President /s/ Elaine Hauff November 13, 1998 ________________________________ Elaine Hauff, Vice President, Treasurer and Principal Financial and Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 4,655 0 65,574 2,401 0 0 152,118 2,308 226,319 0 122,127 0 0 80 73,050 226,319 0 18,467 0 0 3,571 0 5,825 7,113 0 7,113 0 0 0 7,113 .89 .89 INCLUDES $926 OF RESTRICTED CASH.
-----END PRIVACY-ENHANCED MESSAGE-----