-----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, T/nSiTGoa12fhPLqZNdMkiml+XALJvLNHfkB/O/UuBxc3N1EUI+3/Z5ar7IHFSvW fc8lsJcCLrbDTyXtOf38MA== 0000018934-99-000003.txt : 19990331 0000018934-99-000003.hdr.sgml : 19990331 ACCESSION NUMBER: 0000018934-99-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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-K SEC ACT: SEC FILE NUMBER: 001-08073 FILM NUMBER: 99577567 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-K 1 FORM 10-K 12/31/98 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------- FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1998 OR ______ 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: 1-8073 CV REIT, INC. (Exact name of the 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: 407-640-3155 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class 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 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. [ X ] 2 AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE REGISTRANT Common Stock, par value $.01 per share ("Common Stock"), was the only class of voting stock of the Registrant outstanding on December 31, 1998. Based on the last sale price of the Common Stock on the New York Stock Exchange as reported by the consolidated transaction reporting system on March 25, 1999 ($11.38), the aggregate market value of the 6,531,285 shares of the Common Stock held by persons other than officers, directors and persons known to the Registrant to be the beneficial owner (as that term is defined under the rules of the Securities and Exchange Commission) of more than five percent of the Common Stock on that date was approximately $74 million. By the foregoing statements, the Registrant does not intend to imply that any of these officers, directors or beneficial owners are affiliates of the Registrant or that the aggregate market value, as computed pursuant to rules of the Securities and Exchange Commission, is in any way indicative of the amount which could be obtained for such shares of Common Stock. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 14(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ No ___ (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 7,966,621 shares of Common Stock, par value $.01 per share, were outstanding as of March 25, 1999. DOCUMENTS INCORPORATED BY REFERENCE Definitive Proxy Statement of CV Reit, Inc. for the 1999 Annual Meeting of Stockholders (incorporated in Part III) 3 PART I Item 1. Business Background CV Reit, Inc. ("CV Reit"), together with its subsidiaries, has operated as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code since January 1, 1982. A company which qualifies as a REIT may, if it distributes at least 95% of its ordinary taxable income for a taxable year, deduct dividends paid to stockholders with respect to such taxable year from taxable income. We intend to operate in such a manner that we will continue to qualify as a REIT. In any year in which we qualify, we will not be taxed under the Code on income distributed to our stockholders attributable to that year. After our qualification as a REIT in 1982, our operating strategy consisted of investing in real estate mortgage notes receivable, primarily loans to developers. Due to economic conditions in the real estate market and the economy in general, in the early 1990's we decided to limit new loan commitments and began to utilize monies received from the repayment of mortgage notes receivable and the sale of real estate primarily to reduce our outstanding borrowings. By 1994, we had repaid all of our outstanding borrowings (other than our long-term Collateralized Mortgage Obligations - "CMO's") and had significantly reduced our mortgage loan commitments. While we evaluated alternative real estate investments, our available funds were principally reinvested in high quality short-term corporate or government securities, which generally yielded an average of only 5 percent to 6 percent. Consequently, we concluded that it was appropriate to seek to acquire a portfolio of higher yielding real estate investments along with proven and experienced personnel to manage and enhance such a portfolio. On April 28, 1997, we entered into a contract to acquire a number of shopping centers and an interest in Drexel Realty, Inc. ("Drexel"), a real estate management and leasing company. Subsequently, certain of the parties entered into a definitive agreement (the "Master Agreement"), dated as of September 19, 1997. The Master Agreement and certain related matters were approved by our stockholders at a Special Meeting of Stockholders on December 17, 1997 and the transactions closed on December 31, 1997. 4 As a result, effective December 31, 1997 we converted to an Umbrella Partnership REIT (UPREIT) structure as part of a series of transactions which included the following: (1) a newly created Operating Partnership, Montgomery CV Realty L.P. (together with its wholly-owned subsidiaries, collectively referred to as the "OP"), acquired 100% of the ownership interests in nine shopping centers and an office building, located in Pennsylvania and New Jersey, from two separate groups, the Montgomery Parties and the Levy Parties (see Note 8 to Consolidated Financial Statements), and an approximately 95% economic interest in Drexel from Louis P. Meshon, Sr., (2) CV Reit and its subsidiaries transferred substantially all of their net assets (or the economic benefit) to the OP and (3) our Certificate of Incorporation and By-Laws were amended, among other items, to provide that additional properties could be acquired only if a majority of our Board of Directors determines that the acquisition will not adversely affect our ability to pay a quarterly dividend of at least 29 cents per share. As a result, CV Reit, through a wholly-owned subsidiary, indirectly currently owns 84.2% of the OP, is its sole general partner and has become a self-administered, self-managed equity REIT. In addition, Mr. Meshon has become President, Chief Executive Officer and a director of CV Reit. Operating Strategies Our primary business objectives are to increase Funds From Operations (see Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition - Funds From Operations) and funds available for distribution, and to enhance the value of our properties. We plan to achieve these objectives through the business strategies listed below. There can be no assurance, however, that such objectives will be achieved. Maximization of cash flow through the efficient operation of our properties including active leasing and property management, maintenance of high occupancy levels, increasing rental rates and controlling operating and capital costs. Acquisition of additional properties which satisfy our criteria, at favorable prices, including properties requiring renovation or re-leasing. Completion of strategic renovations and expansions to further maximize operating cash flow. Attainment of greater access to financing sources, including securitized debt and public capital markets. 5 Assets At December 31, 1998, the book value of our assets amounted to $225.4 million, including $142.4 million in income producing real estate and $65 million in real estate mortgage notes receivable. A description of our principal assets follows: Real Estate - Income Producing The OP, directly or indirectly, owns 100% (or the economic benefit) of seventeen neighborhood or community shopping centers and two office buildings, located in Pennsylvania, New Jersey and Florida ("Real Estate"), comprising 1,542,000 square feet. The properties are diverse in size, ranging from 8,000 square feet to 177,000 square feet of gross leasable area and average 81,000 square feet. The shopping centers generally attract local area customers and are typically anchored by a supermarket, drugstore and/or discount stores. The centers are smaller than regional malls and do not depend on customers who travel long distances. The tenant base generally concentrates on everyday purchases from local customers. Anchors attract shoppers who then also often patronize the smaller shops. At December 31, 1998, 95.6% of the Real Estate was leased to tenants under operating leases. Substantially all of the Real Estate is pledged as collateral for borrowings (See Note 6 to Consolidated Financial Statements). The following table sets forth certain pertinent information, as of December 31, 1998, regarding our Real Estate. Except for Century Plaza and the Century Village Administration Building, which we originally built, each of the properties was acquired by the OP on December 31, 1997, or during 1998: Year of Lease Year Latest Leas- Occupancy Expir- Origin- Renova- able Rate ation/ ally tion or Square as of Principal Option Built Expansion Footage 12/31/98 Tenants Expiration ------- --------- ------- --------- ------------ ---------- Shopping Centers Century Plaza Deerfield Beach, 1976 1991 85,151 92.4% Broward 2001 FL County Library Chesterbrook Village Center 1980 1995 122,316 96.9% Genuardi 2010/2030 Wayne, PA Markets Collegeville Shopping Center 1978 1994 110,518 98.3% Acme 2003/2038 Collegeville, PA 6 County Line Plaza 1970 1998 175,023 100.0% Ames 002/2017 Souderton, PA (1) Clemens 2007/2027 Markets Danville Plaza 1971 1987 24,052 92.8% CVS Pharmacy 2007/2027 Danville, PA Gilbertsville Shopping Center 1974 N/A 85,748 96.5% Weis Markets 2004/2014 Gilbertsville, PA Marlton Shopping Center-Phase II 1986 N/A 141,795 90.9% Burlington 2002/2030 Evesham, NJ Coat Factory T.J. Maxx 2001/2011 Marlton Shopping Center-Phase I 1985 N/A 146,542 100.0% Super Fresh 2007/2047 Evesham, NJ Markets New Holland Plaza 1977 N/A 65,730 83.1% Weis Markets 2000/2015 New Holland, PA Mount Carmel Plaza 1988 N/A 14,504 90.3% CVS Pharmacy 2002/2012 Glenside, PA (1) North Penn Marketplace 1983 N/A 57,898 100.0% Eckerd Drugs 2003/2018 Upper Gwynedd, PA Rio Grande Plaza 1991 1997 138,747 100.0% JC Penney 2012/2042 Rio Grande, NJ (1) Peebles 2012/2022 Sears 2006/2026 Route 6 Office Max Center 1972 1990 47,224 100.0% Office Max 2006/2016 Dickson City, PA Village at 1989 N/A 177,032 94.6% Genuardi 2008/2018 Newtown Markets Newtown, PA Whitemarsh Shopping Center 1969 1996 67,546 100.0% Clemens 2017/2027 Conshohocken, PA Markets Woodbourne Square 1985 N/A 29,976 86.2% Rehab Place 2000 Langhorne, PA at Oxford Valley 555 Scott Street Center 1961 N/A 8,400 100.0% Pet Supplies 2000/2005 Wilkes-Barre, PA Plus Office Buildings Century Village Administration Building 1970 1995 25,100 100.0% First Choice 2000/2025 W. Palm Beach, Health Care FL Services Plymouth Plaza 1974 1974 30,026 96.3% Montgomery 2004 Plymouth Meeting, CV Realty PA Trust --------- ------ Totals 1,553,328 96.3% ========= ====== ________ (1) Includes space for which rent is being paid but which is not presently occupied (total of 20,800 square feet). 7 In March 1999, we entered into conditional agreements to acquire three additional shopping centers in Pennsylvania and New Jersey, containing a total of approximately 400,000 square feet and an overall occupancy of 96%, for an aggregate purchase price of approximately $43 million. The acquisitions are subject to due diligence and certain other conditions and there is no assurance that they will be consummated. On May 15, 1998, we sold our 154-room Days Inn motel for net cash proceeds of $4.2 million and recognized a gain of $2.3 million. Real Estate Mortgage Notes Receivable Our real estate mortgage notes receivable are summarized as follows (in thousands): December 31, ------------------ 1998 1997 -------- -------- Long Term Recreation Notes (the "Recreation Notes") $64,963 $66,236 Other, principally due from Hilcoast Development Corp. ("Hilcoast") 25 11,416 -------- -------- Totals (1) $64,988 $77,652 ======== ======== _________ (1) As of December 31, 1998, none of the above real estate mortgage notes were delinquent. 8 Recreation Notes At December 31, 1998, the Recreation Notes consisted of $24.9 million due from Hilcoast (the "Hilcoast Recreation Note" - see Note 8(a) to Consolidated Financial Statements regarding Related Party Transactions), principally collateralized by first mortgages on the recreation facilities at the Century Village at Pembroke Pines, Florida adult condominium project, and $40.1 million, collateralized by first mortgages on the recreation facilities at the three previously completed Century Village communities, including $10.7 million due from H. Irwin Levy (the "Levy Note"), Chairman of the Board and a principal stockholder of our company and Chairman of the Board, Chief Executive Officer and a majority stockholder of Hilcoast. The Hilcoast Recreation Note bears interest at 11% and through July 31, 1998, required monthly interest payments only. On 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 in the aggregate amount of $2.9 million per annum. This note may not be prepaid by Hilcoast without a prepayment penalty. The remaining $40.1 million of Recreation Notes generally arose from our sale of the recreation facilities at the Century Village adult condominium communities in West Palm Beach and Deerfield Beach, Florida to unrelated parties in January 1982 and in Boca Raton, Florida to Mr. Levy in December 1981. The terms of Mr. Levy's acquisition of the recreation facilities, including the terms and security of the Levy Note, were substantially the same as the terms of the sales (negotiated independently) of the other two recreation facilities. These notes principally consist of 30 year non-recourse notes maturing in 2012, with interest rates averaging 13% (13.25% in the case of the Levy Note). Equal monthly self-amortizing installments of principal and interest in the aggregate amount of $6.5 million per annum are required, including $1.7 million from Mr. Levy. The Levy Note may not be prepaid; prepayments on the other Recreation Notes generally are not permitted until 2007. Since 1990, companies owned by Mr. Levy and certain members of his family have leased, managed and operated the recreation facilities at the Century Villages in West Palm Beach, Deerfield Beach and Boca Raton, which are collateral for these notes. The Recreation Notes, excluding the Hilcoast Recreation Note, are pledged as collateral for the CMO's issued by our company, which as of December 31, 1998, had an outstanding balance of $30.5 million. In March 1999, the Hilcoast Recreation Note was pledged as collateral for future borrowings under an $18.5 million Promissory Note as part of the our $100 million line of credit. See Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition - Liquidity and Capital Resources for descriptions of the CMO's and line of credit. 9 Investments in Unconsolidated Affiliates Self Storage Warehouse Partnerships We own 45%-50% general and limited partnership interests in three partnerships whose principal assets consist of self-storage warehouses located in southeast Florida, with an aggregate of approximately 2,800 units and 320,000 square feet, managed by independent parties. Our partners in these partnerships are certain members of the Granados family. We have no financial obligation with respect to such partnerships except under state law, as general partners. We receive monthly distributions from each of the partnerships based on cash flows. Drexel Effective December 31, 1997, we acquired an approximately 95% economic interest in Drexel, which for over 25 years has been engaged in the development, brokerage, construction, leasing and management of real estate. In addition to managing our Real Estate, Drexel currently manages eleven other properties located in Pennsylvania and New Jersey, including one property under contract to the OP for purchase. During 1998, management contracts for 15 additional properties were terminated, primarily as a result of Drexel's decision to concentrate mainly on management, leasing and renovation of our Real Estate. It is not contemplated that Drexel will seek any additional third party management contracts in the future. Currently, 99% of the voting stock of Drexel is beneficially owned by Mr. Meshon and held in a voting trust and 100% of the non-voting stock is owned by the OP. Mr. Meshon currently serves as President of Drexel. Other Real Estate We own certain real estate acquired by deed in lieu of foreclosure and held for resale, principally consisting of three parcels of unimproved commercial land, totaling 38 acres located in southeast Florida, with a book value of $5.5 million at December 31, 1998, net of a $2.4 million allowance for losses. 10 Industry Factors Ownership of commercial real estate involves risks arising from changes in economic conditions generally and in the commercial real estate market specifically, as well as risks which result from property-specific factors such as the failure or inability to make needed capital improvements, competition, reductions in revenue arising from decreased occupancy or reductions in the level of rents obtainable, and factors which increase the cost of operating, financing and refinancing properties such as escalating interest rates and wage rates, increased taxes, fuel costs and other operating expenses and casualties. All of these kinds of risks can result in reduced net operating revenues available for distribution. Our ability to manage the properties effectively notwithstanding such risks and economic conditions will affect the funds available for distribution. The results of operations of our company also depend upon the availability of suitable opportunities for investment and reinvestment of our funds and on the yields available from time to time on real estate investments, which in turn depend to a large extent on the type of investment involved, prevailing interest rates, the nature and geographical location of the property, competition and other factors, none of which can be predicted with certainty. Our competitors for acceptable investments include insurance companies, pension funds, and other REIT's which may have investment objectives similar to ours and some of which may have greater financial resources than ours. We are not aware of statistics which would allow us to determine our position with respect to all of our competitors in the commercial real estate investment industry. Relationship With Hilcoast/H. Irwin Levy See Note 8 to Consolidated Financial Statements and Business - Real Estate Mortgage Notes Receivable in connection with certain related party transactions with H. Irwin Levy and Hilcoast, and with one of our directors, Alan Shulman. Employees On December 31, 1998, we employed 96 persons, substantially all of whom were employed by Drexel or a wholly-owned subsidiary of Drexel. Item 2. Properties See Item 1. Business - Real Estate, Other Real Estate and Investments in Unconsolidated Affiliates. 11 Item 3. Legal Proceedings TGI Development, Inc. ("TGI") On October 9, 1989, TGI filed a complaint in the Circuit Court of Palm Beach County against our company, Mr. Levy and certain unrelated parties, alleging misrepresentations by the defendants in connection with TGI's purchase and development of land from a previous borrower of our 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 1998, the parties settled the litigation whereby we paid $200,000 to TGI and both parties executed general releases. Other We are subject to various claims and complaints relative to our business activities. In our opinion, the ultimate disposition of these matters will not have a material adverse effect on our financial position. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the fourth quarter of 1998. PART II Item 5. Market for Our Common Stock and Related Security Holders Matters Our Common Stock is listed for trading on the New York Stock Exchange under the symbol CVI. The following table sets forth the high and low sales prices per share and the dividends per share which we declared on the Common Stock, for each quarter during the past two years. 12 Market Price Range ------------------- Dividends High Low Declared 1998 ---- --- ------------ First Quarter 15-1/4 13-1/4 $ .29 Second Quarter 14-5/16 13 .29 Third Quarter 13-5/8 12 .29 Fourth Quarter 13 11-1/2 .29 ----- $1.16 1997 ===== First Quarter 14 12-3/8 $ .29 Second Quarter 12-7/8 11-1/4 .29 Third Quarter 14 12-1/2 .29 Fourth Quarter 13-15/16 12-11/16 .29 ----- $1.16 ===== As of March 25, 1999 there were 7,966,621 shares of Common Stock outstanding and approximately 1,800 holders of record of our stock. CV Reit, through its wholly-owned subsidiary, Montgomery CV Realty Trust (the "Trust"), indirectly owns 7,966,621 OP units (representing 84.2% of the OP). The holders of substantially all of the remaining 15.8%, or 1,495,736 OP units, have the right to require the OP to redeem their OP units for cash at any time after December 31, 1998. However, upon a holder giving notice of the exercise of this right, the Trust has the right to acquire such holder's OP units in exchange for cash or, if certain conditions are satisfied, an equal number of shares of CV Reit's Common Stock. We expect to continue to qualify as a REIT. A corporation which qualifies as a REIT may, if it distributes at least 95% of ordinary taxable income for a taxable year, deduct dividends paid to stockholders with respect to such taxable year from taxable income. A REIT is not required to distribute capital gain income but to the extent it does not, it must pay the applicable capital gain income tax unless it has ordinary losses to offset such capital gain income. We have historically distributed to our stockholders capital gain income arising from principal repayments on the Recreation Notes (see Item 1. Business - Real Estate Mortgage Notes Receivable) which are being reported on the installment method for tax purposes. We intend to continue to distribute such capital gain income in the future. Future distributions will be at the discretion of the Board of Directors and will depend on our cash flow, financial condition, capital requirements, the annual REIT distribution requirements and such other factors as the Board deems appropriate. 13 Item 6. Selected Financial Data (dollars in millions, except per share data) Year Ended December 31, ------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Revenues: Income producing real estate $17.2 $ 2.7 $ 1.1 $ .7 $ .6 Mortgage notes receivable 8.8 10.6 11.7 12.2 12.8 --------- --------- --------- --------- --------- Total revenues $26.0 $13.3 $12.8 $12.9 $13.4 ========= ========= ========= ========= ========= Income before income taxes $8.8 $8.5 $9.4 $8.4 $6.3 ========= ========= ========= ========= ========= Net income $15.9(b) $8.5 $9.6 $9.4 $6.3 ========= ========= ========= ========= ========= Funds From Operations (FFO) (a) $9.5 $9.1 $9.0 $8.7 $8.4 ========= ========= ========= ========= ========= Per common share: Net income, basic and diluted $1.99 $1.07 $1.20 $1.18 $0.79 ========= ========= ========= ========= ========= Dividends declared $1.16 $1.16 $1.14 $1.08 $1.08 ========= ========= ========= ========= ========= Average shares outstanding, basic and diluted 7,966,621 7,966,621 7,966,621 7,966,621 7,966,621 ========= ========= ========= ========= ========= At Year End: Total assets $225.4 $171.9 $118.9 $120.0 $122.8 ========= ========= ========= ========= ========= Borrowings $121.9 $66.3 $35.1 $37.1 $38.9 ========= ========= ========= ========= ========= Stockholders' equity: Total $79.6 $72.9 $73.7 $73.2 $72.4 ========= ========= ========= ========= ========= Per common share $9.99 $9.16 $9.25 $9.19 $9.09 ========= ========= ========= ========= ========= __________ (a) Please refer to Management's Discussion and Analysis of Results of Operations and Financial Condition for a definition of FFO. (b) Includes $7 million benefit arising from the reversal of deferred tax liability - please refer to Note 9 to Consolidated Financial Statements. 14 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Net Income 1998 Compared to 1997 Net income for the year ended December 31, 1998 was $15,850,000 or $1.99 per share compared to $8,515,000 or $1.07 per share for 1997. During 1998, rent revenue, operating expenses, interest expense and depreciation and amortization increased by $14,452,000, $4,314,000, $5,049,000 and $2,298,000, 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 expenses, interest expense and depreciation and amortization as we realize a full twelve months of operations from our 1998 acquisitions. Interest income decreased by $1,758,000 during 1998, primarily attributable to an approximately $11.2 million reduction in the average balance of the mortgage notes receivable. These notes principally consisted of a line of credit and certain other loans to Hilcoast which matured and were repaid during 1998. The average interest rate on these notes approximated 10.9% and the repayments as well as a substantial portion of our existing cash balances were generally utilized to acquire shopping centers in 1998 or reinvested in lower yielding short-term investments (averaging approximately 5% during 1998), pending the completion of certain 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 $1,039,000 during 1998, reflecting increases in personnel and other costs due to the 1997 Acquisitions, and in legal fees primarily in connection with the TGI litigation which has been settled (see Note 7 to Consolidated Financial Statements). Net income for the year ended December 31, 1998 includes a $2,347,000 gain on the sale of the Days Inn Motel on May 15, 1998 and a $7,041,000 deferred income tax benefit (see Note 9 to Consolidated Financial Statements). 15 1997 Compared to 1996 For the year ended December 31, 1997, net income was $8,515,000 or $1.07 per share compared to $9,570,000 or $1.20 per share for 1996. Net income for 1996 included a $906,000 reversal of previously recorded losses, including $500,000 received from the settlement of litigation in connection with a loan which had been written off and reversals primarily related to a re-evaluation of the allowance for losses associated with other real estate. Interest income decreased by $1,083,000 during 1997, including a $694,000 reduction attributable to an approximately $6 million reduction in the average balance of the Hilcoast mortgage notes receivable. The average interest rate on the mortgage notes repaid approximated 12% and the repayments were generally reinvested in lower yielding short-term investments (averaging approximately 5.55%). Interest income also decreased by $426,000 due to the elimination of certain income producing assets utilized in the acquisition of the Century Plaza shopping center ("Century Plaza") on September 30, 1996, which decrease was more than offset by higher net rental income (rent income less operating costs) from Century Plaza as discussed below. During 1997, rent income, operating expenses and depreciation and amortization increased by $1,646,000, $525,000 and $171,000, respectively, primarily due to the acquisition of Century Plaza. General and administrative expenses decreased by $230,000 during 1997, reflecting reductions in personnel costs, professional fees and insurance. 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. For the years ended December 31, 1998, 1997 and 1996, FFO amounted to $9,535,000, $9,088,000 and $8,956,000, respectively. The following schedule reconciles FFO to net income for the years presented (in thousands): 16 1998 1997 1996 ------- ------- ------- Net income $15,850 $ 8,515 $ 9,570 Minority interests in income of OP 1,855 - - Deferred income tax benefit (7,041) - (121) ------- ------- ------- Income before minority interests and deferred income tax benefit 10,664 8,515 9,570 Depreciation and amortization of real property 2,702 398 238 Equity in depreciation and amortization of real property of unconsolidated affiliates 171 175 175 Gain on sale of real estate (2,347) - - Non-recurring items, principally settlement of litigation in 1998 and reversal of provision for losses in 1996 300 - (906) ------- FFO before minority interests $11,490 ======= ------- ------- FFO after minority interests (a) $ 9,535 $ 9,088 $ 8,956 ======= ======= ======= ________ (a) Minority interests in OP averaged 17% in 1998. There were no minority interests prior to December 31, 1997. We believe 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 our properties and certain non-recurring items, such as the gain on the sale of real estate, deferred income tax benefit, reversal of provision for losses and settlement of litigation, would distort the comparative measurement of 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 our 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. 17 Liquidity and Capital Resources Consolidated Statements of Cash Flows As of December 31, 1998, unrestricted cash and cash equivalents decreased to $3.8 million from $12 million at December 31, 1997. Net cash provided by operating activities, as reported in the Consolidated Statements of Cash Flows, increased to $9.9 million in 1998 from $8.9 million in 1997 and $9.1 million in 1996. These amounts generally reflect FFO and net changes in other assets and liabilities. Net cash used by investing activities amounted to $6.8 million in 1998 compared to net cash provided by investing activities of $7.8 million in 1997 and $1.8 million in 1996. The 1998 amounts principally consist of $21.4 million of cash required in connection with the acquisitions of seven shopping centers and $2.1 million of capital improvements, partially offset by $12.7 million of net collections on real estate mortgage notes receivable and $4.2 million received from the sale of real estate. The 1997 amounts principally consist of $7.2 million of net collections on real estate mortgage notes receivable and the maturity of $6.4 million of short-term investments, partially offset by $5.6 million of cash required in connection with the acquisition of nine shopping centers and an office building on December 31, 1997. The 1996 amounts consist of $9.4 million of net collections on real estate mortgage notes receivable, partially offset by a $6.4 million increase in short-term investments and 1.2 million of cash required in connection with the acquisition of Century Plaza. Net cash used in financing activities amounted to $11.2 million in 1998 compared to $11.4 million in 1997 and $10.9 million in 1996. The 1998 amounts consist of cash distributions amounting to $9.2 million to stockholders and $1.5 million to minority interests, and $3.7 million for the redemption of approximately 300,000 OP units, partially offset by $3.2 million of net borrowings. The 1997 amounts consist of $9.2 million of cash distributions to stockholders and $2.2 million of repayments of borrowings. The 1996 amounts consist of $8.9 million of cash distributions to stockholders and $2 million of repayments of borrowings. There were no minority interests prior to December 31, 1997. Cash dividends declared amounted to $1.16 per share in 1998 and 1997 and $1.14 per share in 1996. 18 Borrowings At December 31, 1998, our borrowings increased to $121.9 million from $66.3 million at December 31, 1997 as a result of the acquisition of seven shopping centers during 1998. Scheduled principal payments over the next five years are $70.3 million with $51.6 million due thereafter. Borrowings include $91.4 million, collateralized by a substantial portion of our Real Estate, including $16.9 million under the Line of Credit (see below). We expect 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 refinancings can be achieved. The remaining $30.5 million of borrowings consists of the CMO's which are collateralized by $40.1 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, we entered into an agreement with a financial institution which provides us with a three year non-revolving line of credit for up to $100 million (the "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 December 31, 1998, we had borrowed $16.9 million under the Line of Credit. In March 1999, we pledged the Hilcoast Recreation Note as collateral for future borrowings under an $18.5 million Promissory Note as part of the Line of Credit. 19 Capital Resources Our operating funds are expected to be principally generated from rent revenue from income producing properties and interest income on the Long Term Recreation Notes. We believe that our 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 property refinancings, scheduled principal repayments on the Long Term Recreation Notes, sales of non-strategic other real estate, the Line of Credit and/or potential debt or equity financing in the public or private markets. Acquisitions During 1998, we acquired seven shopping centers for purchase prices aggregating $74.6 million, including transaction costs, which consisted of $21.4 million of cash and the incurrence or assumption of $53.2 million of liabilities, principally mortgage debt. In addition, in March 1999, we entered into conditional agreements to acquire three shopping centers in Pennsylvania and New Jersey for an aggregate purchase price of approximately $43 million. The acquisitions are subject to due diligence and certain other conditions and there can be no assurance that they will be consummated. If consummated, we plan to finance substantially all of the purchase prices. We are also in various stages of negotiating acquisitions of additional shopping centers. However, there is no assurance that we will be able to complete any such acquisition. 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 Line of Credit, we may be required to seek outside financing which may or may not be available. Our policy is to acquire additional properties only if they are income producing and any proposed acquisition requires a resolution by a majority of our Board of Directors that the acquisition will not adversely affect our 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 December 31, 1998, there were 1,495,736 OP units held by minority interests. 20 Inflation During recent years, the rate of inflation has remained at a low level and had minimal impact on our operating results. Most 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 tenants gross sales, which generally increase as prices rise. Many of the leases are for terms of less than ten years which increases our ability 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. However, in the event of significant inflation, our 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). Year 2000 Issue As many computer systems, software programs and other equipment with embedded chips or processors (collectively, "Information Systems") use only two digits rather than four to define the applicable year, they may be unable to process accurately certain data, during or after the year 2000. As a result, business and governmental entities are at risk for possible miscalculations or systems failures causing disruptions in their business operations. This is commonly known as the Year 2000 ("Y2K") issue. The Y2K issue concerns not only Information Systems used solely within a company but also concerns third parties, such as customers, vendors and creditors, using Information Systems that may interact with or affect a company's operations. 21 Our State of Readiness We have implemented a Y2K readiness program with the objective of having all of our significant Information Systems functioning properly with respect to Y2K before January 1, 2000. The first component of our readiness program was to identify our internal Information Systems that are susceptible to system failures or processing errors as a result of the Y2K issue. This effort is substantially complete and any issues which arose have been identified and corrected where necessary. As to the second component of the Y2K readiness program, we intend to identify our significant tenants, vendors and creditors that are believed, at this time, to be critical to business operations subsequent to January 1, 2000. We expect to reasonably ascertain their respective stages of Y2K readiness through the use of questionnaires, interviews, on-site visits and other available means. We will take appropriate action based on those responses, but there can be no assurance that the Information Systems provided by or utilized by other companies which affect their operations will be timely converted in such a way as to allow them to continue normal business operations or furnish products, services or data to us without disruption. Risks If needed remediations and conversions to the Information Systems are not made on a timely basis by our materially-significant customers or vendors, we could be affected by business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on our operations, liquidity or financial condition. Factors which could cause material differences in results, many of which are outside our control, include, but are not limited to, the accuracy of representations by manufacturers of our Information Systems that their products are Y2K complaint, the ability of our tenants and vendors to identify and resolve their own Y2K issues and our ability to respond to unforeseen Y2K complications. Y2K Costs Our total cost of these Y2K compliance activities has not been and is not anticipated to be material to our business, results of operations or financial condition. The costs and time necessary to complete the Y2K modification and testing processes are based on our best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no assurance that these estimates will be achieved and actual results could differ from the estimates. Our Y2K readiness program is an ongoing process and the estimates of costs and completion dates for various components of the Y2K readiness program described above are subject to change. 22 Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. SFAS 133 is effective for periods beginning after June 15, 1999. The adoption of this pronouncement is not expected to have a material impact on our financial statements or disclosures. 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-K, that are not related to historical results, are forward looking statements, such as anticipated liquidity and capital resources, completion of potential acquisitions and collectibility of real estate mortgage notes receivable. 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 our 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-K. Subsequent written and oral forward looking statements attributable to our 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-K and in other reports we filed with the Securities and Exchange Commission. 23 Item 8. Financial Statements and Supplementary Data Table of Contents to Consolidated Financial Statements Page ---- Report of Independent Certified Public Accountants 24 Consolidated Financial Statements: Balance Sheets - December 31, 1998 and 1997 25 Statements of Income - Years Ended December 31, 1998, 1997 and 1996 26 Statements of Stockholders' Equity - Years Ended December 31, 1998, 1997 and 1996 27 Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996 28-29 Notes to Consolidated Financial Statements 30-44 Consolidated Financial Statements Schedules: Schedule III - Real Estate and Accumulated 45-46 Depreciation Schedule IV - Mortgage Loans on Real Estate 47 Schedules, other than that listed above, are omitted because they are not required, or because the information required therein is set forth in the consolidated financial statements or the notes thereto. 24 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of CV Reit, Inc. West Palm Beach, Florida We have audited the accompanying consolidated balance sheets of CV Reit, Inc. and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. We have also audited the schedules listed in the accompanying index. 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 the 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 and schedule 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 financial position of CV Reit, Inc. and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the schedules present fairly, in all material respects, the information set forth therein. New York, New York BDO SEIDMAN, LLP March 9, 1999 25 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, ------------------- ASSETS 1998 1997 ------ -------- -------- Real estate - income producing, net of accumulated depreciation (Notes 2, 3, 6 and 8): Land $ 14,980 $ 7,556 Buildings 127,428 63,452 -------- -------- 142,408 71,008 Real estate mortgage notes receivable (Notes 4 and 8) 64,988 77,652 Investments in unconsolidated affiliates 3,323 3,284 Cash and cash equivalents (includes $930 and $915 restricted) 4,775 12,869 Other real estate (net of allowance for losses of $2,401) (Note 5) 5,463 5,451 Other 4,465 1,663 -------- -------- $225,422 $171,927 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Borrowings (Notes 2 and 6) $121,933 $ 66,281 Accounts payable and other liabilities 6,282 4,443 Deferred income taxes (Note 9) - 7,041 -------- -------- Total liabilities 128,215 77,765 -------- -------- Minority interests in Operating Partnership (Notes 2 and 13) 17,650 21,214 -------- -------- Commitments and contingencies (Notes 6 and 7) Stockholders' equity (Note 12): 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 60,987 54,378 -------- -------- Total stockholders' equity 79,557 72,948 -------- -------- $225,422 $171,927 ======== ======== See accompanying notes to consolidated financial statements. 26 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) Year Ended December 31, --------------------------------- 1998 1997 1996 --------- --------- --------- Revenues: Rent $ 17,155 $ 2,703 $ 1,057 Interest, principally from mortgage notes (Notes 4, 8 and 10) 8,854 10,612 11,695 --------- --------- -------- 26,009 13,315 12,752 --------- --------- -------- Expenses: Interest (Note 6) 8,355 3,306 3,232 Operating 5,184 870 345 General and administrative 1,693 654 884 Depreciation and amortization 2,707 409 238 --------- --------- -------- 17,939 5,239 4,699 --------- --------- -------- 8,070 8,076 8,053 Equity in income of unconsolidated affiliates 547 439 490 Gain on sale of real estate (Note 3(d)) 2,347 - - Non-recurring items, principally settlement of litigation in 1998 and reversal of provision for losses in 1996 (300) - 906 Minority interests in income of Operating Partnership (1,855) - - --------- --------- -------- Income before income tax benefit 8,809 8,515 9,449 Deferred income tax benefit (Note 9) (7,041) - (121) --------- --------- -------- Net income $ 15,850 $ 8,515 $ 9,570 ========= ========= ======== Per Common Share: Net income, basic and diluted $ 1.99 $ 1.07 $ 1.20 ========= ========= ======== Dividends declared $ 1.16 $ 1.16 $ 1.14 ========= ========= ======== Average common shares outstanding, basic and diluted 7,966,621 7,966,621 7,966,621 ========= ========= ========= See accompanying notes to consolidated financial statements. 27 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) Additional Common Paid-in Retained Stock Capital Earnings Total ------ ---------- -------- ------- Balance at December 31, 1995 80 18,490 54,616 $73,186 Net income for the year - - 9,570 9,570 Cash dividends declared - - (9,082) (9,082) ------ --------- -------- ------- Balance at December 31, 1996 80 18,490 55,104 73,674 Net income for the year - - 8,515 8,515 Cash dividends declared - - (9,241) (9,241) ------ --------- -------- ------- Balance at December 31, 1997 80 18,490 54,378 72,948 Net income for the year - - 15,850 15,850 Cash dividends declared - - (9,241) (9,241) ------ --------- -------- ------- Balance at December 31, 1998 $ 80 $18,490 $60,987 $79,557 ====== ========= ======== ======= See accompanying notes to consolidated financial statements. 28 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $15,850 $8,515 $ 9,570 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,707 409 238 Equity in depreciation of unconsolidated affiliates 171 175 175 Gain on sale of real estate (2,347) - - Minority interests in income of Operating Partnership 1,855 - - Deferred income tax benefit (7,041) - (121) Reversal of provision for losses, net - - (906) Changes in assets and liabilities, net of effects from acquisitions: (Increase) decrease in other assets (2,069) 47 (51) Increase (decrease) in accounts payable and other liabilities 743 (242) 207 ------- ------- ------- Net cash provided by operating activities 9,869 8,904 9,112 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of real estate (21,364) (5,577) (1,154) Capital improvements (2,069) (59) (7) Fundings on real estate mortgage notes (5,190) (16,112) (16,369) Collections on real estate mortgage notes 17,854 23,268 25,732 Proceeds from the sale of real estate 4,151 - - Purchase of short-term investments, net of maturities - 6,436 (6,436) Other (146) (162) (14) ------- ------- ------- Net cash (used) provided by investing activities (6,764) 7,794 1,752 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 8,366 - - Repayments of borrowings (5,196) (2,201) (2,010) Cash dividends paid (9,249) (9,209) (8,937) Distributions to minority interests (1,470) - - Redemption of Operating Partnership units (3,665) - - ------- ------- ------- Net cash used in financing activities (11,214) (11,410) (10,947) ------- ------- ------- Net (decrease) increase in unrestricted cash and cash equivalents (8,109) 5,288 (83) Unrestricted cash and cash equivalents at beginning of the period 11,954 6,666 6,749 ------- ------- ------- Unrestricted cash and cash equivalents at end of the period $ 3,845 $11,954 $ 6,666 ======= ======= ======= 29 CV REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (concluded) Year Ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Supplemental disclosure of cash flow information: Cash paid for interest $ 7,542 $ 3,296 $ 3,239 ======= ======= ======= Acquisitions: Fair value of assets acquired ($74,561)($61,711)($ 7,402) Liabilities assumed 53,047 34,913 - Reduction of mortgage notes receivable - - 6,248 Operating Partnership units issued 150 21,221 - ------- ------- ------- Cash paid for acquisitions, net of cash acquired (Note 2) ($21,364)($ 5,577)($ 1,154) ======= ======= ======= See accompanying notes to consolidated financial statements. 30 CV REIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies 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 subsidiary 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 (Note 2) 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 has become a self-administered, self-managed equity REIT. Principles of Consolidation 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 of, 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. Real Estate - Income Producing ("Real Estate") Real Estate, consisting of seventeen shopping centers and two office buildings, is carried at cost, net of accumulated depreciation, and is subject to operating leases. Depreciation is provided over the estimated useful lives of the assets (7 to 40 years) on the straight-line method. 31 The Company evaluates its long-lived assets, including its Real Estate, for impairment based on the undiscounted future cash flows of the asset. If a long-lived asset is identified as impaired, the value of the asset must be reduced to its fair value. Real Estate Mortgage Notes Receivable, Other Real Estate and Allowance For Losses Real estate mortgage notes receivable are carried at the lower of cost or estimated net realizable value. Accrual of interest is discontinued when management believes, after considering economic and business conditions and collection efforts, that timely collection is doubtful. Other real estate principally consists of three parcels of unimproved commercial land, totaling 38 acres located in southeast Florida, acquired by deed in lieu of foreclosure and held for resale. These properties are carried at the lower of cost (fair value at date of acquisition) or fair value less selling costs. Carrying costs and subsequent declines in net realizable value are charged to operations as incurred. The allowance for losses is established through a provision charged to operations based upon an evaluation by management of its real estate mortgage notes receivable and other real estate. In evaluating possible losses, management takes into consideration appropriate information which may include the borrower's cash flow projections, historical operating results and financial strength, pending sales, adverse conditions that may affect the borrower's ability to repay, appraisals and current economic conditions. Revenue Recognition Rental income from tenants is generally recognized on a straight-line basis over the term of the respective leases. Certain leases provide for reimbursement to the Company of the tenants' share of common area maintenance costs, insurance and real estate taxes which are recorded on the accrual basis. Interest income is recognized on the accrual basis. Dividends and Income Taxes The Company has elected to qualify as a REIT under the provisions of Section 856-860 of the Internal Revenue Code. As a REIT, the Company is required to distribute at least 95% of its ordinary taxable income to stockholders and may deduct such distributions from taxable income. A REIT is not required to distribute capital gain income but to the extent it does not, it must pay the applicable capital gain income tax unless it has ordinary losses to offset such capital gain income. 32 The federal income tax characteristics of dividends paid by the Company consisted of: 1998 1997 1996 Ordinary income 65.4% 88.1% 91.9% Capital gain distribution 34.6% 10.9% 8.1% The Company accounts for income taxes based upon SFAS No.109 "Accounting for Income Taxes", which requires, among other things, a liability approach to calculating deferred income taxes (Note 9). 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 amounts 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 results could differ from those estimates. Net Income Per Common Share Basic net income per common share is computed using net income divided by the weighted average number of common shares outstanding. Diluted net income per common share includes the effect of potentially dilutive securities. During the years presented, the Company had no dilutive securities since the exercise price of all outstanding options exceeded the average market price of the Company's common stock for the year, accordingly, basic and diluted net income per share are identical. Statements of Cash Flows For financial statement purposes, the Company considers all highly liquid investments with initial maturities of three months or less to be cash equivalents. Reclassifications Certain 1997 and 1996 amounts have been reclassified to conform to the 1998 financial statement presentation. These reclassifications had no impact on operating results previously reported. 33 New Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. SFAS 133 is effective for periods beginning after June 15, 1999. The adoption of this pronouncement is not expected to have a material impact on our financial statements or disclosures. (2) Acquisitions During 1998, the OP purchased seven shopping centers, aggregating 796,000 square feet, located in Pennsylvania and New Jersey. The aggregate purchase prices amounted to $74.6 million, including transaction costs, which consisted of $21.4 million of cash and the incurrence or assumption of $53.2 million of liabilities, principally mortgage debt. On December 31, 1997, the OP completed the acquisition of nine shopping centers and an office building from two separate groups, the Montgomery Parties and the Levy Parties (Note 8), and an approximately 95% economic interest in Drexel from Louis P. Meshon, Sr. Effective December 31, 1997, Mr. Meshon became President, Chief Executive Officer and a director of CV Reit. The purchase price amounted to $61.7 million (net of cash acquired), consisting of 1,787,010 OP units issued to the sellers, valued at $11.88 per OP unit, or $21.2 million, based on the closing price of the Company's common stock (into which the OP units were redeemable - Note 13) on April 28, 1997, the date the acquisition was publicly announced; the assumption of $34.9 million of liabilities, principally mortgage indebtedness; and, cash in the amount of $5.6 million, including transaction costs. All of the acquisitions were accounted for under the purchase method; accordingly, the operating results of the net assets acquired are included in the consolidated financial statements from their respective purchase dates. The following unaudited proforma data summarizes the consolidated results of operations for the years indicated as if the acquisitions had occurred as of the beginning of each year. The proforma results do not purport to be indicative of the results of operations which would have actually been reported had the acquisitions been consummated on those dates, or which may be reported in the future (in thousands, except per share data): 34 1998 1997 ------- ------- Revenues $30,116 $31,361 Net income before tax benefit $ 8,532 $ 6,814 Net income $15,573 $ 6,814 Net income per common share, basic and diluted $1.95 $.86 In March 1999, the Company entered into conditional agreements to acquire three shopping centers in Pennsylvania and New Jersey for an aggregate purchase price of approximately $43 million. If consummated, the Company plans to finance substantially all of the purchase prices. The acquisitions are subject to due diligence and certain other conditions and there can be no assurance that they will be consummated. (3) Real Estate (a) Real Estate is located in Pennsylvania, New Jersey and Florida and consists of (in thousands): December 31, --------------------- 1998 1997 -------- ------- Shopping centers $140,212 $64,356 Office buildings 5,338 5,334 Motel (Note 3(d)) - 4,058 -------- ------- Totals 145,550 73,748 Less accumulated depreciation (3,142) (2,740) -------- ------- Net Real Estate (Note 6) $142,408 $71,008 ======== ======= (b) Real Estate is leased to tenants under leases expiring at various dates through 2017, some of which contain renewal options of up to 30 years. Most of the leases require fixed base rentals payable monthly in advance; additional rental based on reimbursements of common area maintenance, insurance and real estate taxes and, in some leases, based on a percentage of tenants' sales; and, rent increases based on cost-of-living indexes. As of December 31, 1998, future minimum rental income under noncancellable operating leases, excluding rentals from the exercise of renewal options, is as follows (in thousands): 35 Year ending December 31, 1999 $15,431 2000 14,087 2001 12,472 2002 9,994 2003 8,190 Thereafter 29,514 ------- Total $89,688 ======= (c) Real Estate with a net book value of $136.8 million, at December 31, 1998, is pledged as collateral for borrowings (Note 6). (d) 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. (4) 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): December 31, ------------------ 1998 1997 Long Term Recreation Notes (the ------- ------- "Recreation Notes") (Notes 4(b), 6 and 8) $64,963 $66,236 Other, principally due from Hilcoast Development Corp. ("Hilcoast" - Note 8) 25 11,416 ------- ------- Totals $64,988 $77,652 ======= ======= The real estate mortgage notes at December 31, 1998 bear interest at fixed rates and mature as follows: One year or less $ 1,459 After one year through five years 8,614 After five years 54,915 ------- Totals $64,988 ======= 36 (b) At December 31, 1998, the Recreation Notes consisted of $24.9 million due from Hilcoast (the "Hilcoast Recreation Note"), primarily collateralized by first mortgages on the recreation facilities at the Century Village at Pembroke Pines, Florida adult condominium project and $40.1 million, collateralized by first mortgages on the recreation facilities at the three previously completed Century Village communities. The Hilcoast Recreation Note bears interest at 11% and through July 31, 1998, required monthly interest payments only. On 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 $40.1 million of Recreation Notes principally provide for self-amortizing equal monthly principal and interest payments due through 2012, with interest rates averaging 13%, and contain certain prepayment prohibitions. These notes are pledged as collateral for borrowings (Note 6). (5) Allowance For Losses Changes in the allowance for losses follow (in thousands): 1998 1997 1996 ------ ------ ------ Balance, beginning of year $2,401 $2,401 $3,107 Reversal of provision for losses - - (1,163) Charge-offs - - (43) Recoveries - - 500 ------ ------ ------ Balance, end of year $2,401 $2,401 $2,401 ====== ====== ====== (6) Borrowings (a) Borrowings consist of (in thousands): December 31, ------------------ 1998 1997 Mortgage notes payable through -------- -------- September 2008, interest ranging from 6.85% to 10.25%, collateralized by Real Estate (Note 3) $ 74,528 $ 33,418 37 Mortgage notes payable in December 2000, under $100 million credit facility (the "Line of Credit"), interest at one month LIBOR plus 1.75% (6.81% at December 31, 1998), collateralized by Real Estate (Note 3) 16,950 - Collateralized Mortgage Obligations, net of unamortized discounts of $553,000 and $676,000 based on an effective interest rate of 8.84%, collateralized by certain of the Recreation Notes (Note 4 (b)), quarterly self-amortizing principal and interest payments required through March 2007 30,455 32,863 -------- -------- Totals $121,933 $ 66,281 ======== ======== (b) Effective March 31, 1998, the Company entered into the Line of Credit with a financial institution which provides the Company with 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. (c) The OP has agreed that it will not make certain prepayments or refinancings of certain of the mortgage notes prior to various dates not later than July 31, 2002, without the consent of certain of the limited partners of the OP. (d) Maturities of borrowings are as follows (in thousands): 1999 23,145 2000 20,625 2001 3,976 2002 4,237 2003 18,311 Thereafter 51,639 -------- Total $121,933 ======== 38 (7) Contingencies (a) 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 a principal stockholder, 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 1998, the parties settled the litigation whereby the Company paid $200,000 to TGI and both parties executed general releases. (b) Other The Company is subject to various claims and complaints relative to its business activities. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position. (8) Related Party Transactions Hilcoast/H. Irwin Levy ("Mr. Levy") (a) On July 31, 1992, Hilcoast, an affiliate of the Company on that date, acquired certain assets from a previous borrower of the Company, subject to the borrower's indebtedness to the Company, principally consisting of the Hilcoast Recreation Note (Note 4(b)), which as of December 31, 1998, had an outstanding balance of $24.9 million. Mr. Levy is the Chairman of the Board, Chief Executive Officer and a majority stockholder of Hilcoast. During 1998, 1997 and 1996, the Company recognized interest income of $3.1 million, $4.3 million and $5 million, respectively, from Hilcoast. (b) Effective July 31, 1992, the Company and Hilcoast entered into a consulting and advisory agreement under which Hilcoast provides certain investment advisory, consulting and administrative services to the Company, excluding matters related to Hilcoast's loans from the Company. The agreement provides for the payment of $10,000 per month to Hilcoast, plus reimbursement for reasonable out of pocket expenses. The agreement may be terminated by Hilcoast upon 180 days notice and by the Company upon 30 days notice. During 1998, 1997 and 1996 the Company paid $110,000, $120,000, and $120,000, respectively, to Hilcoast under this agreement, plus expense reimbursement. 39 (c) Mr. Levy owns the recreation facilities at the Century Village in Boca Raton, acquired from the Company in 1981, which is collateral for one of the Company's Recreation Notes, which had an outstanding balance of $10.7 million at December 31, 1998 (Note 4(b)). The note bears interest at 13.25%, requires self-amortizing equal monthly payments of principal and interest in the aggregate amount of $1.7 million per annum through 2011 and may not be prepaid. During 1998, 1997 and 1996, the Company recognized interest income of approximately $1.4 million, $1.5 million and $1.5 million, respectively, on this note. (d) Companies owned by Mr. Levy and certain members of his family lease, manage and operate the recreation facilities at the Century Villages in West Palm Beach, Deerfield Beach and Boca Raton, which are collateral for $40.1 million of the Company's Recreation Notes (Note 4(b)). (e) Two of the shopping centers purchased by the OP on December 31, 1997 (Note 2) were acquired from the Levy Parties (Mr. Levy and members of his family) in exchange for 386,811 OP units (valued at approximately $4.6 million), including 77,363 OP units (valued at approximately $900,000) issued to Mr. Levy. The economic basis used to determine the acquisition price was the same as that used for the other properties acquired on that date. (f) The Company leases approximately 2,500 square feet of an office building, located within the Century Village at West Palm Beach community, on a month to month basis, to a company owned by Mr. Levy and a member of his family at a monthly rental of approximately $2,100, plus an allocation of utility expenses. Days Inn On May 15, 1998, the Company sold its Days Inn motel, located near the entrance to Century Village at West Palm Beach, Florida (Note 3(d)). The motel had been leased to a corporation controlled by Alan Shulman, a director of the Company. In 1998, 1997 and 1996, the Company recognized rent income of $223,000, $489,000 and $454,000, respectively, under the lease. (9) Deferred Income Taxes (a) Net deferred tax liability included in the Company's consolidated balance sheets prior to 1998 principally arose in connection with capital gains on the sales of the recreation facilities during 1981 and 1982 which are being reported on the installment method for tax purposes. The Company has historically distributed to its stockholders capital gain income arising from principal payments on the related installment notes. As a result of the acquisitions described in Note 2 and the OP structure, the Company does not expect to be subject to federal income taxes in the future as it intends to distribute such capital gain income. Accordingly, during 1998, the Company reversed the net deferred tax liability and recorded a deferred tax benefit of $7,041,000. 40 (b) As of December 31, 1998, the Company has aggregate net operating loss carryforwards for tax purposes of approximately $15.7 million, expiring $7.1 million in 2007 and $8.6 million in 2006 (10) Major Customers During 1998, interest income from one borrower (Hilcoast) provided 12% of total revenues. During 1997, interest income from four borrowers provided 33% (Hilcoast), 16%, 14% and 11% (Mr. Levy), respectively, of total revenues. During 1996, interest income from four borrowers provided 39% (Hilcoast), 17%, 15% and 12% (Mr. Levy), respectively, of total revenues. (11) Fair Value of Financial Instruments The estimated fair values of the Company's financial instruments are as follows: December 31, ------------------------------------- 1998 1997 ------------------ ------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Real estate mortgage notes receivable $ 64,988 $ 90,835 $77,652 $99,200 Cash and cash equivalents 4,775 4,775 12,869 12,869 Borrowings (121,933) (124,274) (66,281) (67,745) Real estate mortgage notes receivable - The fair value of the fixed rate, Long Term Recreation Notes (Note 4(b)) is estimated by discounting the future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. Borrowings - Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of the Company's borrowings. 41 (12) Stockholders' Equity Stock Options The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its three stock option plans - the Montgomery CV Trust Executive Stock Option Plan (the "CV Plan"), the Drexel Realty, Inc. 1997 Stock Option Plan (the "Drexel Plan") and the CV Reit, Inc. Non-Employee Director 1998 Stock Option Plan (the "Director Plan"). Under the CV Plan, the Drexel Plan and the Director Plan, qualified and nonqualified stock options to purchase up to 150,000 shares, 400,000 shares and 150,000 shares, respectively, of the Company's common stock may be granted to certain executives, employees and non-employee directors. The maximum term of the options granted under each of the plans are ten years. Statement of Financial Accounting Standards No.123 (SFAS 123), "Accounting for Stock-Based Compensation", requires the Company to provide pro forma information regarding net income and net income per common share as if compensation cost for stock options granted under the plans, if applicable, had been determined in accordance with the fair value based method prescribed in SFAS 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants: dividend yield of 8.44%, volatility at 46%, risk free interest rate of 5.71% and expected lives of ten years. Under accounting provisions of SFAS 123 the Company's net income per share, for the year ended December 31, 1998, would have been reduced to the pro forma amounts indicated below (in thousands, except per share data): Net income: As reported $15,850 Pro forma $15,515 Income per share: As reported $1.99 Pro forma $1.95 42 Changes in options outstanding are summarized as follows: Weighted Average Weighted Fair Average Value Per Exercise Share of Price per Options Shares Share Granted 1997: ------- ---------- ---------- Granted - equal to market value $13.69 150,000 $13.69 $2.95 1998: Granted - equal to market value: $13.69 95,000 $13.69 $2.91 $14.50 25,000 14.50 3.15 ------- Balance December 31, 1998 270,000 $13.76 $2.96 ======= At December 31, 1998, the weighted average remaining contractual life of the 270,000 options outstanding was 7.36 years. A total of 84,000 of the outstanding options were exercisable with a weighted - - average exercise price of $13.93 per share. Redemption Rights Holders of the 1,495,736 OP units at December 31, 1998 have the right to require the OP to redeem their OP units at any time. However, upon a holder giving notice of the exercise of this right, the Company has the right to acquire such holder's OP units in exchange for cash or, if certain conditions are satisfied, an equal number of shares of the Company's common stock. Effective July 1, 1998, the OP redeemed 302,552 OP units for approximately $3.7 million, resulting in an increase in CV Reit's indirect ownership of the OP from 81.7% to 84.2%. (13) Segment Reporting The Company has adopted Statement of Financial Accounting Standards No.131, "Disclosures about Segments of an Enterprise and Related Information", which requires disclosure of financial and descriptive information about the Company's reportable operating segments. The operating segments presented are the segments of the Company for which separate financial information is available and operating performance is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance. The Company evaluates the performance of its operating segments generally based on net operating income (before and after interest expense) and Funds From Operations ("FFO" - see below). 43 Effective December 31, 1997, the Company became an equity REIT engaged in the acquisition, leasing and management of neighborhood or community shopping centers, located in Pennsylvania, New Jersey and Florida. Prior to 1998, the Company's only principal business segment consisted of investments in real estate mortgage notes and its ownership of income producing properties was not significant. Accordingly, the following table presents segment information for 1998 only. Although the Company no longer invests in new real estate mortgage notes, it continues to hold its Long-Term Recreation Notes (Note 4(b)), and, as a result, the 1998 segment disclosure includes information on those investments. Income Producing Real Estate, Real Principally Estate Shopping Mortgage Centers Notes Other Consolidated --------- -------- ------ ------------ Rent revenues $ 16,853 $ - $ 302 $ 17,155 Operating expenses (4,985) - (199) (5,184) -------- ------- ------ -------- Real estate net operating income 11,868 - 103 11,971 -------- ------- ------ -------- Interest income - 8,471 383 8,854 Interest expense (5,528) (2,827) - (8,355) -------- ------- ------ -------- Net interest income (expense) (5,528) 5,644 383 499 -------- ------- ------ -------- Net operating income after interest expense 6,340 5,644 486 12,470 General, administrative and other (26) - (954) (980) -------- ------- ------ -------- FFO - OP (a) 6,314 5,644 (468) 11,490 Reconciliation of FFO to income before income tax benefit: Depreciation and amorti- zation of real property (2,668) - (205) (2,873) Non-recurring items, principally gain on sale of real estate - - 2,047 2,047 -------- ------- ------ -------- Income before deferred income tax benefit - OP $ 3,646 $ 5,644 $1,374 10,664 ======== ======= ====== Less minority interests in OP (1,855) -------- 44 Income before deferred income tax benefit - consolidated $ 8,809 ======== At December 31, 1998: Investment in real estate and real estate mortgage notes $142,708 $64,988 $8,786 $216,482 ======== ======= ====== ======== Additions to real estate $ 75,397 $ - $ - $ 75,397 ======== ======= ====== ======== Borrowings $ 91,478 $30,455 $ - $121,933 ======== ======= ====== ======== ________ (a) 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. (14) Selected Quarterly Financial Data (Unaudited) Selected quarterly financial data follows (in thousands, except per share data): Quarter Ended ----------------------------------------- Mar. 31, Jun. 30, Sept.30, Dec. 31, -------- -------- -------- -------- 1998 Revenues $5,248 $5,993 $7,226 $7,542 Net income 1,877 3,680(a) 1,556 8,737(b) Per common share .24 .46 .20 1.09 1997 Revenues $3,237 $3,211 $3,197 $3,670 Net income 2,138 2,126 2,195 2,056 Per common share .27 .27 .28 .26 ________ (a) Includes the Company's share of $2.3 million gain on sale of real estate. (b) Includes $7 million benefit arising from reversal of deferred tax liability. 45 CV Reit, Inc. and Subsidiaries Schedule III - Real Estate and Accumulated Depreciation December 31, 1998 (in thousands)
Costs Gross Amount at Initaial Capitalized Which Carried at Depreciable Cost to Company Subsequent to Close of Year Accumulated Date of Date Life Description Encumbrances Land Building Acquisition Land Building Total Depreciation Construction Acquired (Years) - ------------------------------------------------------------------------------------------------------------------------------------ Shopping Centers Pennsylvania Chesterbrook Village Center $5,545 $1,337 $12,030 $93 $1,337 $12,123 $13,460 $313 1980 1997 40 Collegeville Shopping Center 4,764 718 6,461 8 718 6,469 7,187 68 1978 1998 40 County Line Plaza 5,133 539 4,852 1,806 539 6,658 7,197 197 1970 1997 40 Danville Plaza 867 156 1,400 33 156 1,433 1,589 36 1971 1997 40 Gilbertsville Shopping Center 2,664 382 3,441 - 382 3,441 3,823 36 1974 1998 40 New Holland Plaza 952 117 1,051 - 117 1,051 1,168 11 1977 1998 40 Mount Carmel Plaza 838 210 1,892 - 210 1,892 2,102 47 1988 1997 40 North Penn Marketplace 3,024 532 4,219 10 532 4,229 4,761 53 1983 1998 40 Route 6 Office Max Center - 427 3,844 - 427 3,844 4,271 96 1972 1997 40 Village at Newtown 19,753 2,766 24,893 - 2,766 24,893 27,659 467 1989 1998 40 Whitemarsh Shopping Center 7,164 1,077 9,694 - 1,077 9,694 10,771 242 1969 1997 40 Woodbourne Square 1,993 427 3,840 - 427 3,840 4,267 96 1985 1997 40 555 Scott Street Center - 74 662 - 74 662 736 17 1961 1997 40 New Jersey Marlton Shopping Center - Phase II 9,300(1) 1,252 11,272 25 1,252 11,297 12,549 143 1986 1998 40 Marlton Shopping Center - Phase I 11,650 1,657 14,921 - 1,657 14,921 16,578 187 1985 1998 40 Rio Grande Plaza 7,835 1,442 12,975 - 1,442 12,975 14,417 324 1991 1997 40 Florida Century Plaza 10,200(1) 1,429 5,973 275 1,429 6,248 7,677 433 1976 1996 15-39 Office Buildings Century Village Administration Building, Florida - - 750 212 - 962 962 277 1970 1991 5-30 Plymouth Plaza, Pennsylvania 2,346 438 3,938 - 438 3,938 4,376 99 1974 1997 40 ------- ------- -------- ------ ------- -------- -------- ------ $94,028 $14,980 $128,108 $2,462 $14,980 $130,570 $145,550 $3,142 ======= ======= ======== ====== ======= ======== ======== ====== (1) These encumbrances are cross collateralized under mortgages in the amount of $19.5 million at December 31, 1998.
46 CV Reit, Inc. and Subsidiaries Schedule III - Real Estate and Accumulated Depreciation December 31, 1998 (in thousands) The changes in total real estate assets for the three years ended December 31, 1998, are as follows: 1998 1997 1996 -------- ------- ------- Balance, beginning of year $73,748 $12,423 $5,014 New property acquisitions 73,881 61,266 7,402 Capital improvements 2,069 59 7 Sale of real estate (4,148) - - -------- ------- ------- Balance, end of year $145,550 $73,748 $12,423 ======== ======= ======= The changes in accumulated depreciation for the three years ended December 31, 1998, are as follows: 1998 1997 1996 ------ ------ ------ Balance, beginning of year $2,740 $2,359 $2,146 Depreciation for the year 2,656 381 213 Sale of real estate (2,254) - - ------ ------ ------ Balance, end of year $3,142 $2,740 $2,359 ====== ====== ====== 47 CV REIT, INC. AND SUBSIDIARIES SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE December 31, 1998 (dollars in thousands)
Carrying Final Face amount of Interest maturity amount of mortgages Description Rate date Periodic payment terms mortgages (a) - ----------------------- -------- -------- ---------------------- --------- ---------- Permanent - Recreation Facilities Century Village at: Boca Raton, FL 13.25% 12/31/11 Level P & I due monthly $12,533 $10,669 West Palm Beach, FL 13.25% 01/15/12 Level P & I due monthly 18,342 15,615 Deerfield Beach, FL (2nd mortgage) 13.50% 01/15/12 Level P & I due monthly 13,235 11,318 Deerfield Beach, FL 8.84% 03/01/07 Level P & I due monthly 3,485 2,425 Pembroke Pines, FL 11% 07/31/23 Level P & I due monthly 25,000 24,936 ------- $64,963 Aggregate of mortgage loans which individually do not exceed 3% 15.00% 02/01/1025 25 ------- $64,988(b) ======= Note: All loans are first mortgages except where noted, there are no prior liens and no delinquent principal or interest. (a) The tax carrying value of the notes is approximately $30 million. (b) The changes in the carrying amounts are summarized as follows: 1998 1997 1996 ------- ------- ------- Balance, beginning of period $77,652 $84,808 $99,919 Advances on new mortgage loans 5,190 16,112 16,369 Collections of principal (17,854) (23,268) (25,732) Reduction of mortgage note in connection with purchase of real estate - - (6,248) Recoveries (charge-offs) - - 500 ------- ------- ------- Balance, end of period $64,988 $77,652 $84,808 ======= ======= =======
48 Item 9. Disagreement on Accounting and Financial Disclosure None PART III Information in response to Items 10, 11, 12 and 13 is not included in this Report, since we anticipate filing prior to May 1, 1999, a definitive proxy statement pursuant to Regulation 14A for our next annual meeting of stockholders. Such definitive proxy statement is incorporated by reference herein. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) List of Consolidated Financial Statements: Report of Independent Certified Public Accountants Consolidated Balance Sheets - December 31, 1998 and 1997 Consolidated Statements of Income - Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1998, 1997, and 1996 Consolidated Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements (2) List of Consolidated Financial Statements Schedules: Schedule III - Real Estate and Accumulated Depreciation Schedule IV - Mortgage Loans on Real Estate (3) See Exhibit Index at page 49 of this Form 10-K (b) Reports on Form 8-K: No reports were filed by the Registrant on Form 8-K during the fourth quarter of 1998. 49 Exhibit Number Description 3.1 Amended Certificate of Incorporation of CV Reit, Inc., filed with Secretary of State of Delaware on December 31, 1997. (Incorporated by reference to Appendix C to the proxy statement of the Company filed November 11, 1997.) 3.2 Amended and Restated By-laws of CV Reit, Inc. (Incorporated by reference to Appendix D to the proxy statement of the Company filed November 11, 1997.) 10.1 Agreement between Cenvill Investors, Inc. and H. Irwin Levy, dated December 31, 1981. (Incorporated by reference to Exhibit (2)(i) to the current report on Form 8-K filed by the Company to report event of December 31, 1981.) 10.2 Agreement of Lease between Cenvill Investors, Inc. and B.R.F., Inc., dated December 30, 1981. (Incorporated by reference to Exhibit (2) (ii) to the current report on Form 8-K filed by the Company to report event of December 31, 1981.) 10.3 Agreement dated January 15, 1982, between Century Village, Inc. and Benenson Capital Company. (Incorporated by reference to Exhibit (2) (i) to the current report on Form 8-K filed by Cenvill Investors, Inc. (File No. 0-03427) to report event of January 15, 1982.) 10.4 Agreement dated January 15, 1982, between Century Village East, Inc. and CVRF Deerfield Limited. (Incorporated by reference to exhibit (2) (ii) to the current report on Form 8-K filed by Cenvill Investors, Inc. (File No. 0-03427) to report event of January 15, 1982.) 10.5 Indenture for Collateralized Mortgage Obligations, dated as of December 30, 1991 between Recreation Mortgages, Inc. (Issuer) and Bankers Trust Company (Trustee). (Incorporated by reference to Exhibit (10)(xvi) to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1991.) 10.6 Restated Loan Agreement, dated July 31, 1992, between CV Reit, Inc. and Cenvill Development Corp. and certain subsidiaries and affiliates thereof. (Incorporated by reference to Exhibit (10)(xi) to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1992.) 50 10.7 Proposal for the Acquisition of Certain Assets, dated June 19, 1992, by and among CV Reit, Inc., Cenvill Development Corp. and certain subsidiaries and affiliates thereof. (Incorporated by reference to Exhibit (10)(xiv) to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1992.) 10.8 Order granting Motion of Debtor's [sic] for Approval of Sale of Assets dated July 17, 1992. (Incorporated by reference to Exhibit (10)(xv) to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1992.) 10.9 Consulting and Advisory Agreement, dated July 31, 1992, between CV Reit, Inc. and Hilcoast Development Corp. (Incorporated by reference to Exhibit (10)(xviii) to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1992.) 10.10 Letter Agreements, dated July 11, 1994 and August 3, 1995, between CV Reit, Inc. and Hilcoast Advisory Services, Inc. extending the Consulting and Advisory Agreement to July 31, 1995 and July 31, 1996, respectively. (Incorporated by reference to Exhibit 10(vi) to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 1995.) 10.11 Letter Agreement, dated July 12, 1996, between CV Reit, Inc. and Hilcoast Advisory Services, Inc. extending the Consulting and Advisory Agreement to July 31, 1997. (Incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 1996.) 10.12 Letter agreement, dated June 10, 1997, between CV Reit, Inc. and Hilcoast Advisory Services, Inc. extending the Consulting and Advisory Agreement to December 31, 1997. (Incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30,1997.) 10.13 Definitive Master Agreement, dated September 19, 1997, among CV Reit, Inc., Montgomery CV Realty Trust, and Drexel Realty, Inc., Royce Realty, Inc., Louis P. Meshon, Sr. and certain of the Meshon Parties named therein and the Levy Parties named therein. (Incorporated by reference to Appendix A to the Company's proxy statement filed on November 11,1997.) 51 10.14 Amended and Restated Agreement of Limited Partnership of Montgomery CV Realty L.P. dated December 31, 1997. (Incorporated by reference to Appendix B to the Company's proxy statement filed on November 11, 1997.) 10.15 Supplemental Indenture No. 2 for Collateralized Mortgage Obligations, dated as of December 30, 1997 between Recreation Mortgages, L.P., (Issuer) and Bankers Trust Company (Trustee). (Incorporated by reference to the Annual Report on Form 10-K of the Company for fiscal year ended December 31, 1997.) 10.16 Real Estate Purchase Agreement dated September 29, 1997 by and between Newtown Village Partnership and RCEK, Inc., or its nominee or assignee. (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K filed by CV Reit, Inc. on April 14, 1998.) 10.17 Letter Amendment to Real Estate Purchase Agreement dated December 15, 1997 by and between Newtown Village Partnership and RCEK, Inc. (Incorporated by reference to Exhibit 2.2 to the current report on Form 8-K filed by CV Reit, Inc. on April 14, 1998.) 10.18 Assignment of Real Estate Purchase Agreement dated January 26, 1998 from RCEK, Inc. to Newtown Village Plaza Associates, L.P. (Incorporated by reference to Exhibit 2.3 to the current report on Form 8-K filed by CV Reit, Inc. on April 14, 1998.) 10.19 Second Amendment to Real Estate Purchase Agreement dated February 5, 1998 by and between Newtown Village Partnership and Newtown Village Plaza Associates, L.P. (Incorporated by reference to Exhibit 2.4 to the current report on Form 8-K filed by CV Reit, Inc. on April 14, 1998.) 10.20 Third Amendment to Real Estate Purchase Agreement dated March 31, 1998 by and between Newtown Village Partnership and Newtown Village Plaza Associates, L.P. (Incorporated by reference to Exhibit 2.5 to the current report on Form 8-K filed by CV Reit, Inc. on April 14, 1998.) 10.21 Loan and Credit Facility Agreement dated as of March 31, 1998 by and between Montgomery CV Realty L.P. as Borrower, Century Plaza Associates, L.P. and CV Reit, Inc., as guarantors, and GMAC Commercial Mortgage Corporation, as Lender. (Incorporated by reference to Exhibit 5.1 to the current report on Form 8-K filed by CV Reit, Inc. on April 15, 1998.) 52 10.22 $7,650,000 Promissory Note dated as of April 9, 1998 from Montgomery CV Realty L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 5.2 to the current report on Form 8-K filed by CV Reit, Inc. on April 15, 1998.) 10.23 Mortgage and Security Agreement dated as of April 9, 1998 by Century Plaza Associates, L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 5.3 to the current report on Form 8-K filed by CV Reit, Inc. on April 15, 1998.) 10.24 Guaranty and Suretyship Agreement dated as of April 9, 1998 by CV Reit, Inc. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 5.4 to the current report on Form 8-K filed by CV Reit, Inc. on April 15, 1998.) 10.25 Contribution Agreement dated May 29, 1998 by and between Marlton Crossing Shopping Center Limited Partnership and Montgomery CV Realty L.P. (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K dated June 24, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10.26 Assignment and Assumption of Contribution Agreement dated June 22, 1998 by and between Montgomery CV Realty L.P. and Marlton Plaza Associates II, L.P. (Incorporated by reference to Exhibit 2.2 to the current report on Form 8-K dated June 24, 1998 filed by CV Reit, Inc. on July 7, 1998.) 10.27 Mortgage and Security Agreement dated as of June 24, 1998 by and between Marlton Plaza Associates II, L.P., as Borrower, and GMAC Commercial Mortgage Corporation, as Lender. (Incorporated by reference to Exhibit 2.3 to the current report on Form 8-K dated June 24, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10,28 $11,650,000 Promissory Note dated as of June 24, 1998 from Marlton Plaza Associates II, L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 2.4 to the current report on Form 8-K dated June 24, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10.29 Real Estate Purchase Agreement dated January 27, 1998 by and between Seller and Purchaser. (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit, Inc. on July 7, 1998.) 53 10.30 Amendment to Real Estate Purchaser Agreement dated February 26, 1998 by and between Seller and Purchaser. (Incorporated by reference to Exhibit 2.2 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10.31 Second Amendment to Real Estate Purchase Agreement dated March 31, 1998 by and between Seller and Purchaser. (Incorporated by reference to Exhibit 2.3 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10.32 Mortgage and Security Agreement dated as of June 25, 1998 by and between Marlton Plaza Associates, L.P., as Borrower, and GMAC Commercial Mortgage Corporation, as Lender. (Incorporated by reference to Exhibit 2.4 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10.33 $9,300,000 Promissory Note dated as of June 25, 1998 from Marlton Plaza Associates, L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 2.5 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10.34 Guaranty and Suretyship Agreement dated as of June 25, 1998 by CV Reit,Inc. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 2.6 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10.35 Guaranty and Suretyship Agreement dated as of June 25, 1998 by Montgomery CV Realty L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 2.7 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit, Inc. on July 7, 1998.) 10.36 Second Amendment to Loan and Credit Facility Agreement dated as of March 8, 1999, by and between Montgomery CV Realty, L.P. as Borrower, Century Plaza Associates, L.P. and CV Reit, Inc., as Guarantors, and GMAC Commercial Mortgage Corporation as Lender. 10.37 $18,500,000 Note dated March 8, 1999 between Montgomery CV Realty, L.P. as Borrower and GMAC Commercial Mortgage Corporation as Lender. 10.38 Collateral, Pledge, Assignment and Security Agreement, dated March 8, 1999 between Montgomery CV Realty, L.P. and GMAC Commercial Mortgage Corporation. 54 11 Statement regarding computation of per share earnings. Omitted; computation can be clearly determined from material contained in the report. 21 Subsidiaries of the Company. 27 Financial Data Schedule SIGNATURES Pursuant to the requirements of Section 13 and 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, thereunto duly authorized. CV REIT, INC. /s/ Elaine Hauff March 29, 1999 By:__________________________________ Elaine Hauff, Vice President and Treasurer 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. /s/ H. Irwin Levy March 29, 1999 _________________________________ H. Irwin Levy, Chairman of the Board of Directors /s/ Louis P. Meshon March 29, 1999 _________________________________ Louis P. Meshon, President and Director /s/ Elaine Hauff March 29, 1999 _________________________________ Elaine Hauff, Vice President, and Treasurer (Principal Financial Officer and Principal Accounting Officer) /s/ Stanley Brenner March 29, 1999 _________________________________ Stanley Brenner, Director /s/ Stanley S. Cohen March 29, 1999 _________________________________ Stanley S. Cohen, Director /s/ Allyn Levy March 29, 1999 _________________________________ Allyn Levy, Director /s/ Alan L. Shulman March 29, 1999 ________________________________ Alan L. Shulman, Director /s/ Milton S. Schneider March 29, 1999 ________________________________ Milton S. Schneider, Director EX-10 2 EXHIBIT 10 EXHIBIT 10.36 SECOND AMENDMENT TO LOAN AND CREDIT FACILITY AGREEMENT by and between MONTGOMERY CV REALTY L.P. (Borrower), CENTURY PLAZA ASSOCIATES, L.P., MARLTON PLAZA ASSOCIATES, L.P. and CV REIT, INC. (Guarantors) and GMAC COMMERCIAL MORTGAGE CORPORATION (Lender) Date: March 8, 1999 SECOND AMENDMENT TO LOAN AND CREDIT FACILITY AGREEMENT THIS SECOND AMENDMENT TO LOAN AND CREDIT FACILITY AGREEMENT (this "Amendment") is made as of the 8th day of March, 1999, by and between MONTGOMERY CV REALTY L.P., a Delaware limited partnership ("Borrower"), CENTURY PLAZA ASSOCIATES, L.P., a Delaware limited partnership ("Century"), MARLTON PLAZA ASSOCIATES, L.P., a Delaware limited partnership ("Marlton"), and CV REIT, INC., a Delaware corporation ("CV") (each, a "Guarantor" and collectively, "Guarantors") and GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation ("Lender"). PRELIMINARY STATEMENTS A. Borrower, Century, CV and Lender entered into a Loan and Credit Facility Agreement dated March 31, 1998, amended June 25, 1998 (the "Agreement") pursuant to which Lender agreed, upon the terms and subject to the conditions set forth therein and in other Facility Loan Documents (as such term is defined in the Agreement), to make advances (each advance, a "Loan", as more particularly described in the Agreement) to Borrower in an aggregate maximum outstanding principal amount of One Hundred Million Dollars ($100,000,000), and Borrower agreed to pay the amounts due thereunder and otherwise comply with the terms and conditions of the Agreement and of each Loan. B. Borrower has requested that Lender make a Loan to Borrower pursuant to the Agreement in an amount not to exceed $18,500,000, which such Loan shall be secured by Borrower's pledge of all its right, title and interest in a certain note receivable, which such note receivable is secured by certain real property in the County of Broward, State of Florida, all as more particularly described herein. C. All terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties agree as follows: 1. The List of Loan Schedules shall be replaced with that set forth on Exhibit "A" attached hereto and made a part hereof. 2. Schedule 3-1 shall be added to the Agreement as set forth on Exhibit "B" attached hereto and made a part hereof, and such Loan shall be referred to herein as the "Pembroke Note Advance". The note receivable pledged to Lender as collateral for the Pembroke Note Advance is referred to herein as the "Pembroke Note Receivable" 3. Section 2.9 is amended and restated in its entirety as follows: 2.9 Funding of Facility. (a) Advances. Each Loan under this Agreement shall be a minimum amount of one million dollars ($1,000,000) with any additional amounts of such Loan in fifty thousand dollar ($50,000) increments. No Loan under this Agreement shall be permitted after the twenty-fourth (24th) month after the date of this Agreement. (b) Maximum Outstanding Facility Amount/Loan Amount. I. The Maximum Outstanding Facility Amount shall not exceed the sum of the following: A. In the case of Loans which are secured by mortgages on real estate, seventy-five (75%) percent of the Appraised Value (as hereinafter defined) of the Projects which are collateral for the Loans; B. In the case of the Pembroke Note Advance, the lesser of (i) $18,500,000; (ii) 75 percent of the Adjusted Principal Balance (as hereinafter defined) only in the event any Voluntary Prepayments (as hereinafter defined) are made under the Pembroke Note Receivable; or (iii) 75 percent of the Mark-to-Market Value of the Pembroke Note Receivable (as hereinafter defined); and C. One hundred (100%) percent of the Reserves and the Insurance Reserve. II. Lender reserves the right to perform periodic re-valuations of the Pembroke Note Receivable at any time at its discretion (the "Mark-to-Market Value"). Initially, Lender will value the Pembroke Note Receivable utilizing a discount rate equal to 350 basis points above the 30 year Treasury Note Rate, and the initial appraised value at the time of this Amendment is $28,516,000. However, Lender reserves the right to modify the mark-to-market discount rate at its sole discretion based upon market conditions and other criteria, at any time, as it deems prudent; but in no event shall the mark-to-market discount rate utilized by Lender herein at anytime be less than 9 percent. As used in this section 2.9, Adjusted Principal Balance shall mean $24,475,000, less Voluntary Prepayments under the Pembroke Note Receivable. "Voluntary Prepayments" shall mean any payments which reduce the amount of principal due and owing under the Pembroke Note Receivable other than through regularly scheduled payments of principal and interest in accordance with the terms therein. III. Provided the Loan Criteria in Section 3.1 are met and the Maximum Outstanding Facility Amount is not exceeded, for Newly Acquired Projects, each Loan shall not exceed the higher of (i) seventy-five (75%) percent of the Appraised Value, or (ii) one hundred (100%) percent of the Total Acquisition Costs. (c) Debt Service Coverage/Outstanding Facility Amount. The minimum Debt Service Coverage Ratio for the Outstanding Facility Amount shall be 1.30. The Debt Service Coverage Ratio will be recalculated quarterly or upon the making of any Loan utilizing the average interest rate of the daily closing yield of the benchmark 10-year Treasury Note as published by the Wall Street Journal for the preceding three months, plus 175 basis points using a 30-year amortization schedule. 4. Section 3.1(a) is amended and restated as follows: Debt Service Coverage. (i) The minimum Debt Service Coverage Ratio for the Outstanding Facility Amount shall be 1.30, as set forth in Section 2.9 hereof. (ii) The minimum Debt Service Coverage Ratio for each Project for which a Loan is made under this Agreement, other than the Pembroke Note Advance, shall be 1.20. (iii) With respect to the Pembroke Note Advance, theowners ("Pembroke Owners") of the property ("Recreation Mortgaged Property") securing the Pembroke Note Receivable shall at all times maintain a minimum Lease Debt Service Coverage Ratio of 1.25. For purposes hereof, the Lease Debt Service Coverage Ratio shall mean a ratio derived by dividing the Net Unit Lease Income for a trailing twelve (12) month period by the debt service on the Note Receivable for that twelve (12) month period. Net Unit Lease Income shall mean the gross proceeds arising from the operations of the Pembroke Owners, including revenues from unit leases, social programs and miscellaneous income, less the Operating Expenses incurred in connection therewith. Operating Expenses shall mean all expenses annually incurred by Pembroke Owners with respect to the ownership, operation, maintenance, repair, leasing and occupancy of the Recreation Mortgaged Property, including, but not limited to real estate taxes, special assessments or similar charges, personal property taxes, costs of utilities, non-capital maintenance and repair costs, operating and management fees, insurance, and all other costs incurred in connection with leasing commissions and advertising and professional and administrative general expenses. Borrower and/or Pembroke Owners shall calculate and certify (by authorized officer) to Lender on a quarterly basis the Lease Debt Service Coverage Ratio for that quarter, which shall be subject to Lender's review and approval. 5. Article 3 is amended by adding the following section: 3.5 Conditions to Funding Advances under any Loan. The following shall be conditions precedent to any disbursement by Lender of any portion of any Loan to Borrower or any Affiliate (any "Advance") if such Advance is (i) not made in connection with Borrower or any Affiliate providing new security or collateral for such Advance; and (ii) made subsequent to the date of the closing of such Loan, and provided that all of the conditions set forth in Sections 3.2 and 3.3 hereof have previously been satisfied with respect to such Loan (for purposes of this section 3.5, the closing of any such Loan shall be deemed to be the date of the Title Insurance Policy for such Loan): (a) Borrower shall provide to Lender, with respect to all real property securing the Loan pursuant to which an Advance is requested, an updated title report, revealing no other liens or encumbrances other than the exceptions set forth on the Title Insurance Policy for such Loan, along with such endorsements to the Title Insurance Policy as Lender shall require to ensure that the Title Insurance Policy insures the Lender's Mortgage for such Loan as a first lien on such property to the full extent of the amount of the Loan disbursed. Notwithstanding the foregoing, Borrower shall not be required to provide updated title searches or endorsements with respect to the real property that is security for the Pembroke Note Receivable. (b) Borrower shall pay all reasonable fees of Lender in connection with such Advance, including but not limited to title search and endorsement fees and reasonable legal fees of Lender's counsel. (c) Borrower shall execute a certificate which shall certify to Lender that: (i) There exists no Event of Default under any Loan and there exists no state of facts or circumstances, which with the passage of time would result in an Event of Default under any Loan; (ii) Each Project is in compliance with all Governmental Requirements, and Borrower and its Affiliates have received no notices from any governmental entity or any other party that Borrower or any Affiliate is or may be in violation of any Governmental Requirements; (iii) There have been no material changes to the conditions at any property of Borrower or any Affiliate since the delivery by Borrower of required engineering and environmental reports for such property; (iv) All management agreements for all Projects are in full force and effect; (v) All representations and warranties made by Borrower or any Affiliate in this Agreement or any document executed in connection with any Loan remain true and are reaffirmed; (vi) There has been no material adverse change in the financial position of Borrower or any Affiliate; (vii) Borrower and any applicable Affiliate is in compliance with all of the covenants contained in this Agreement, including but not limited to the affirmative covenants contained in Article 4 and the negative covenants contained in Article 5. Borrower shall attach as an exhibit to such certificate all calculations necessary to show that Borrower and such affiliates are in compliance with all the financial covenants of this Agreement, including but not limited to Debt Service Coverage Ratios and Loan to Value Ratios. (d) At Lender's option, all Advances will be disbursed through the title company insuring Lender's title to the Projects. 6. Article 4 is amended by adding the following section: 4.15 Borrower's Requirements to Post Cash or Collateral if Maximum Availability under Pembroke Note Advance is Exceeded. In the event that the aggregate amount of the Pembroke Note Advance outstanding exceeds the maximum allowable availability as set forth in Section 2.9(b)I.B. hereof, then Borrower shall be required to either pay down the Pembroke Note Advance or provide cash or pledge other collateral acceptable to Lender to bring the Pembroke Note Advance outstanding balance into compliance with the maximum Pembroke Note Advance amount. 7. The following is added to Section 4.4 of the Agreement Financial Reporting with respect to Pembroke Note Advance: (i) Borrower and Pembroke Owners shall, within forty-five (45) days of the end of each calender quarter, certify to Lender the outstanding principal balance of the Pembroke Note Receivable, verify all payments made thereunder through that calendar quarter and certify to Lender the payment status of real property taxes, assessments and insurance with respect to the Recreation Mortgaged Property. (ii) Borrower and Pembroke Owners shall notify Lender in writing, within 3 business days of knowledge thereof, of any pending, contemplated or actual receipt of any prepayment or premium made in connection with the Pembroke Note Receivable. (iii) Borrower and Pembroke Owners shall, within forty-five (45) days of each calendar quarter, certify to Lender the rents paid under the unit leases for the Recreation Mortgaged Property ("Unit Leases") for said quarter, and shall determine and provide to Lender the delinquency rate (in terms of dollars and number of tenants) of payments under the Unit Leases. For purposes of this certification, lease payments shall be deemed delinquent if made thirty (30) days after the actual due date thereof. Lender reserves the right to receive all supporting detail and documentation, including a list of all tenants in arrears, amount of delinquency, etc. in connection with said certification. (i) Pembroke Owners shall, within forty-five (45) days of the end of each calendar quarter, provide to Lender financial statements, certified by an authorized officer, including a balance sheet and operating statements. Audits: Lender shall have the right at any time and from time to time, to audit the books and records of Borrower and Pembroke Owners at Lender's sole cost and expense. However, such audit shall be at the cost of Borrower in the event of any of the following: (i) a material adverse change, in Lender's sole determination, in the financial condition of Borrower, Pembroke Owners or the Recreation Mortgaged Property; (ii) any default under the Pembroke Note Advance; (iii) any Change in Management or Change in Control of Borrower; or (iv) any default under any the loan documents made in connection with the Pembroke Note Receivable. 8. Section 8.1 is amended by adding the following subsections: (l) A default by Borrower or any Affiliate pursuant to any of the loan documents executed in connection with any Loan. (m) A default by Pembroke Owners under the Pembroke Note Receivable or a default under the mortgage on the Recreation Mortgaged Property which secures the Pembroke Note Receivable, following all applicable cure periods. 9. Section 8.2 is amended by adding the following subsection: (a) An Event of Default under this Agreement or under any Loan shall be an Event of Default under each and every Loan. Notwithstanding the foregoing, the Mortgage and Security Agreement from Century Plaza Associates, L.P. listed as item No. 5 on Schedule 1-1 shall secure only the note listed as No. 2 on said Schedule 1-1. 10. Section 10.9 is amended and restated as follows: 10.9 Waiver of Jury Trial. BORROWER AND LENDER WAIVE ALL RIGHTS TO TRIAL BY JURY OF ANY AND ALL CLAIMS, COUNTERCLAIMS, AND DEFENSES ARISING UNDER THIS AGREEMENT, THE NOTES, THE OTHER FACILITY LOAN DOCUMENTS, OR ANY OTHER AGREEMENT OR AGREEMENTS BETWEEN BORROWER AND LENDER AT ANY TIME, INCLUDING ANY SUCH AGREEMENTS, WHETHER WRITTEN OR ORAL, MADE OR ALLEGED TO HAVE BEEN MADE AT ANY TIME PRIOR TO THE DATE HEREOF, AND ALL AGREEMENTS MADE HEREAFTER OR OTHERWISE. IN MAKING THIS WAIVER BORROWER AND LENDER ACKNOWLEDGE AND AGREE THAT ANY AND ALL SUCH CLAIMS, COUNTERCLAIMS, AND DEFENSES SHALL BE HEARD BY A JUDGE OF A COURT OF COMPETENT JURISDICTION, WITHOUT A JURY. BORROWER AND LENDER ACKNOWLEDGE AND AGREE THAT THIS WAIVER OF TRIAL BY JURY IS A MATERIAL ELEMENT OF THE CONSIDERATION FOR THIS AGREEMENT. BORROWER AND LENDER ACKNOWLEDGE THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT THIS WAIVER IS MADE KNOWINGLY AND VOLUNTARILY AFTER CONSULTATION WITH, OR THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE. 11. Except as expressly amended hereby, the terms and conditions of the Agreement shall remain unchanged and in full force and effect, and the parties hereto hereby ratify and confirm the terms and conditions of the Agreement, as amended hereby. IN WITNESS WHEREOF, and intending to be legally bound hereby, Borrower, Guarantors and Lender have executed this Amendment under seal as of the day and year first above written. BORROWER: MONTGOMERY CV REALTY L.P. By: Montgomery CV Realty Trust, a Delaware business trust, its sole general partner /s/ Louis P. Meshon By:___________________________ Louis P. Meshon, Sr. President GUARANTORS: CENTURY PLAZA ASSOCIATES, L.P. By: CP General Partner LLC, a Delaware limited liability company, its sole general partner By: Montgomery CV Realty L.P., a Delaware limited partnership, its sole member By: Montgomery CV Realty Trust, a Delaware business trust, its sole general partner /s/ Louis P. Meshon By: ________________________ Louis P. Meshon, Sr. President CV REIT, INC. /s/ Louis P. Meshon By:_______________________________ Louis P. Meshon, Sr., President LENDER: GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation By:___________________________________ Name: Title: GUARANTOR: MARLTON PLAZA ASSOCIATES, L.P. By: Marlton Plaza, LLC, a Delaware limited liability company, its sole general partner By: Montgomery CV Realty L.P., a Delaware limited partnership, its sole member By: Montgomery CV Realty Trust, a Delaware business trust, its sole general partner /s/ Jeni Fischer /s/ Louis P. Meshon Witness: __________________ By: ___________________________ Name: Jeni Fischer Louis P. Meshon, Sr. President Exhibit "A" to Amendment to Loan and Credit Facility Agreement Dated March 31, 1998 LIST OF LOAN SCHEDULES 1-1 Century Plaza, Deerfield Beach, Florida 2-1 Marlton Crossing Shopping Center--Phase II, Evesham, New Jersey 3-1 Assignment of Note secured by Pembroke Pines properties Exhibit "B" to Amendment to Loan and Credit Facility Agreement Dated March 31, 1998 Schedule 3-1 [ASSIGNMENT OF NOTE SECURED BY PEMBROKE PINES PROPERTIES] Location: Amount of Loan: $ 18,500,000.00 Repair Reserve: $ 0 Replacement Reserve: $ 0 TI/Leasing Commissions Reserve: $ 0 Insurance Escrow: None from Borrower to Lender Tax Escrow: None from Borrower to Lender Facility Loan Documents: 1. Loan and Credit Facility Agreement (Montgomery CV Realty L.P., Century Plaza Associates, L.P., CV Reit, Inc. and GMAC Commercial Mortgage Corporation) 2. Amendment to Loan and Credit Facility Agreement Dated March 31, 1998 (Montgomery CV Realty L.P., Century Plaza Associates, L.P., CV Reit, Inc. and GMAC Commercial Mortgage Corporation) dated June 24, 1998 3. Second Amendment to Loan and Credit Facility Agreement (Montgomery CV Realty L.P., Century Plaza Associates, L.P., CV Reit, Inc. and GMAC Commercial Mortgage Corporation) dated March 8, 1999 4. Promissory Note ($18,500,000) from Montgomery CV Realty L.P. to Lender 5. Allonge to Pledged Note 6. Collateral Pledge, Assignment and Security Agreement 7. UCC-1 Financing Statements 8, Assignment of Mortgage and Security Agreements 9. UCC-3 Financing Statements 10. Assignment of Assignment of Leases and Rents 11. Assignment Regarding Management Agreement and Subordination of Management Fees 12. Guaranty and Suretyship Agreement of Marlton Plaza Associates, L.P. 13. Guaranty and Suretyship Agreement of CV Reit, Inc. 14. Certification of Borrower and Affiliates 15. Assignment of Lockbox Contract 16. Certificate of GP of Montgomery CV Realty L.P. 17. Certificate of GP of Century Plaza Associates, L.P. 18. Certificate of CV Reit, Inc. 19. Certification of GP of Marlton Plaza Associates, L.P. 20. Funding Escrow Agreement 21. Owners' Estoppel and Recognition Agreement to Lender EXHIBIT 10.37 NOTE $18,500,000 Philadelphia, Pennsylvania March 8, 1999 FOR VALUE RECEIVED, the undersigned, MONTGOMERY CV REALTY L.P., a Delaware limited partnership having an address at Plymouth Plaza, 580 West Germantown Pike, Suite 200, Plymouth Meeting, Pennsylvania 19462 ("Borrower"), hereby promises to pay to the order of GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation, having an address at 650 Dresher Road, P.O. Box 1015, Horsham, Pennsylvania 19044-8015 ("Lender"), its successors and permitted assigns as holder of this Note (Lender, its successors and permitted assigns, being hereinafter sometimes referred to collectively as "Holder"), at Lender's address set forth above or at such other place or to such other person as may be designated in writing to Borrower by Lender, the principal sum of Eighteen Million Five Hundred Thousand Dollars ($18,500,000) or so much thereof which shall be advanced by Lender to Borrower (the "Loan"), together with interest on the unpaid balance thereof at the rates hereinafter set forth. The Loan is being made pursuant to a Loan and Credit Facility Agreement between Borrower, Century Plaza Associates, L.P., Marlton Plaza Associates, L.P., CV Reit, Inc., and Lender dated March 31, 1998 and amended June 25, 1998 and as of the date hereof (as amended, the "Credit Facility"). ON THE TERMS AND SUBJECT TO THE CONDITIONS which are hereinafter set forth: Section 1. Interest Rate and Payment Dates. 1.1 Initial Rate and Initial Payment. Interest shall accrue on the balance of the principal amount outstanding hereunder from time to time from and after the date hereof at the rate of 6.715% per annum until the first Rate Adjustment Date (as defined below). On each successive Rate Adjustment Date, the rate of interest at which interest accrues shall be adjusted to the then applicable LIBOR Rate (as defined below) for the calendar month commencing on such date. Interest for the period beginning on the date of the first advance hereunder (the "Funding Date") and ending on and including the last day of the month in which the Funding Date occurs shall be payable on the Funding Date. Interest shall be calculated on the basis of a 360-day year and shall be charged on the principal balance outstanding from time to time for the actual number of days elapsed. 1.2 Rate Adjustment Date. The interest rate shall be adjusted on the dates (each being a "Rate Adjustment Date") described in this paragraph. The first Rate Adjustment Date shall be the first day of the month following the Funding Date, and subsequent Rate Adjustment Dates shall fall on the first day of each subsequent calendar month thereafter. 1.3 Default Interest Rate. If Borrower fails to make any payment of principal, interest or fees on the date on which such payment becomes due and payable, whether at maturity or by acceleration, such payment shall bear interest beginning on the eleventh day following the date which such amount became due and payable until paid at the fluctuating rate (the "Default Rate") which is four (4) percentage points above the then applicable LIBOR Rate, but in no event shall the rate of interest payable hereunder exceed the highest rate allowed by law. 1.4 LIBOR Rate. The LIBOR Rate shall mean the rate per annum determined solely by Holder as of each Rate Adjustment Date, and shall be one and seventy-five one-hundredths percent (1.75%) per annum in excess of one month LIBOR (stated as a number out to five decimal places), determined in the manner set forth below. On each Rate Adjustment Date, Holder will determine one month LIBOR from the appropriate Bloomberg display page, available as of the close of business on the last business day of the month immediately preceding the Rate Adjustment Date. In the event Bloomberg ceases publication or ceases to publish one month LIBOR, Holder shall select a comparable publication to determine one month LIBOR and provide notice thereof to Borrower. LIBOR may or may not be the lowest rate based upon the market for U.S. Dollar deposits in the London Interbank Eurodollar Market at which Holder prices loans on the date on which the LIBOR Rate is determined by Holder as set forth above. 1.5 LIBOR Rate Adjustments. This Note shall bear interest at the rate set forth above or at the applicable LIBOR Rate until a new LIBOR Rate is determined on each Rate Adjustment Date in accordance with the provisions hereof; provided, however, that, if Holder at any time determines, in its sole discretion, that it has miscalculated the amount of the monthly payment of interest, then Holder shall give notice to Borrower of the corrected amount of such monthly payment (and the corrected amount of the LIBOR Rate, if applicable) and (a) if the corrected amount of such monthly payment represents an increase thereof, then Borrower shall, within ten (10) calendar days thereafter, pay to Holder any sums that Borrower would have otherwise been obligated under this Note to pay to Holder had the amount of such monthly payment not been miscalculated, or (b) if the corrected amount of such monthly payment represents a decrease thereof and Borrower is not otherwise in breach or default under any of the terms and provisions of this Note or the Credit Facility, then Borrower shall, within (10) calendar days thereafter be paid the sums that Borrower would not have otherwise been obligated to pay to Holder had the amount of such monthly payment not been miscalculated. 1.6 LIBOR Unascertainable. Anything herein to the contrary notwithstanding, if (i) on any date on which the LIBOR Rate would otherwise be set Holder shall have determined in good faith (which determination shall be conclusive) that (A) adequate and reasonable means do not exist for ascertaining one month LIBOR, or (B) a contingency has occurred which materially and adversely affects the London Interbank Eurodollar Market at which Holder prices loans on the date on which the LIBOR Rate is determined by Holder as set forth above, or (ii) at any time Holder shall have determined in good faith (which determination shall be conclusive) that the making, maintenance or funding of any part of the Loan has been made impracticable or unlawful by compliance by Holder in good faith with any applicable law, regulation or guideline or interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof or with any request or directive of any such governmental authority (whether or not having the force of law); then, and in any such event, Holder may notify Borrower of such determination. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given) the obligation of Holder to charge interest to Borrower at the LIBOR Rate shall be suspended until Holder shall have later notified Borrower of Holder's determination in good faith (which determination shall be conclusive) that the circumstances giving rise to such previous determination no longer exist. 1.7 Treasury Rate. If Holder notifies Borrower of a determination under Section 1.6 hereof, the LIBOR Rate shall automatically be converted to the Treasury Rate as of the date specified in such notice (and accrued interest thereon shall be due and payable on such date). "Treasury Rate" shall mean a rate equal to the "Index" of the weekly average yield on United States Treasury Securities adjusted to a constant maturity of one year, as made available by the Federal Reserve Board 45 days prior to each Rate Adjustment Date (the "Yield"), plus or minus, as the case may be, the difference between the Yield and the last available LIBOR Rate (stated as a number out to five decimal places). 1.8 Increased Cost and Reduced Return. (a) If on or after the date hereof, the adoption of any applicable law, rule, or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by the Holder with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency shall subject Holder to any tax, duty or other charge with respect to the Loan, or shall change the basis of taxation of payments to Holder of the principal of or interest on the Loan or any other amounts due under the Notes or in respect of the Loan or its obligation to make the Loan (except for changes in the rate of tax on the overall net income of the Holder) and the result of the foregoing is to increase the cost to Holder of making or maintaining the Loan, or to reduce the amount of any sum received or receivable by Holder under this Note with respect thereto, by an amount reasonably deemed by Holder to be material, then, within fifteen days after demand by Holder, Borrower shall pay to Holder such additional amount or amounts as will compensate Holder for such increased cost or reduction. (b) Holder will promptly notify Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle Holder to compensation pursuant to this Section. A certificate of Holder claiming compensation under this Section, setting forth the additional amount or amounts to be paid to it hereunder and evidence reasonably substantiating Holder's claim for compensation shall be conclusive in the absence of manifest error. In determining such amount, Holder may use any reasonable averaging and attribution methods. Section 2. Interest Payments. Commencing on the first day of the second month following the Funding Date, and continuing on the first day of each calendar month thereafter through and including the Maturity Date (as defined below), interest shall be due and payable by Borrower to Holder hereunder in arrears at the applicable LIBOR Rate (or the Treasury Rate, if applicable) determined as of the immediately preceding Rate Adjustment Date, on the then outstanding principal balance of the Loan. Lender will use its best efforts to deliver to Borrower prior to the first of each month an invoice which sets forth the amount of interest due to Lender. Section 3. Application of Payments. Payments made by Borrower on account hereof shall be applied first toward any Late Fees (as defined below) or other fees and charges due hereunder, second toward payment of any interest due at the Default Rate, third toward payment of any interest due at the then applicable LIBOR Rate set forth in Section 1.4 hereof (or the Treasury Rate, if applicable), and fourth toward payment of principal. Notwithstanding the foregoing, if any advances made by Holder under the terms of any instruments securing this Note have not been repaid, any payments made may, at the option of Holder, be applied first to repay such advances, and interest thereon, with the balance, if any, applied as set forth in the preceding sentence. Section 4. Maturity Date. Anything in this Note to the contrary notwithstanding, the entire unpaid balance of the principal amount thereof and all interest accrued thereon (including, without limitation, interest accruing at the Default Rate), all Late Fees (hereinafter defined) and all other amounts due hereunder and under any other instrument or document evidencing or securing the Loan which has been executed by Borrower and/or others and by or in favor of Holder (collectively, the "Loan Documents"), shall, unless sooner paid, and except to the extent that payment thereof is sooner demanded in accordance with the terms of the Loan Documents, be and become due and payable on the Maturity Date, as defined below. The "Maturity Date" shall be December 1, 2000 if the Funding Date occurs on or before March 31, 1999; and the Maturity Date shall be April 1, 2001 if the Funding Date occurs after March 31, 1999. Section 5. Prepayment. Prepayment of the Loan in full or in part shall be permitted only in accordance with the Credit Facility as the Credit Facility may be amended, supplemented, replaced or otherwise modified from time to time. Section 6. Method of Payment. All payments to be made under this Note shall be paid directly to Holder in lawful tender of the United States of America. Each such payment shall be paid by 1:00 p.m. at Horsham, Pennsylvania, time on the date such payment is due, except if such date is not a business day such payment shall then be due on the first business day after such date, but interest shall continue to accrue until the date payment is received. Any payment received after 1:00 p.m. Horsham, Pennsylvania, time shall be deemed to have been received on the immediately following business day for all purposes, including, without limitation, the accrual of interest on principal. Section 7. Security. The debt evidenced by this Note is secured by, among other things, a Collateral Pledge, Assignment and Security Agreement dated as of the date hereof (the "Pledge") between Borrower and Lender, and certain Collateral Assignments (the "Assignments") of the Mortgages and Assignments of Leases set forth on Exhibit A to the Pledge, which Assignments are intended to be recorded in the office of the Recorder of Deeds of Broward County, Florida and which cover the real property in such county more particularly described on Exhibit A to such Assignments. Section 8. Default. 8.1 Events of Default. The entire outstanding principal sum of this Note, together with all interest accrued and unpaid thereon and all other sums due under the Pledge, the Loan Documents and this Note (all such sums hereinafter collectively referred to as the "Debt"), or any portion thereof, shall without notice become immediately due and payable at the option of Holder if any payment required under this Note is not paid within ten (10) days of the date when due or on the happening of any other default, after the expiration of any applicable notice and grace periods, herein or under the terms of the Loan Documents, the Credit Facility or any document executed in connection with any loan made pursuant to the Credit Facility (hereinafter each an "Event of Default"). Time is of the essence in this Note, the Pledge and the Credit Facility. All of the terms, covenants and conditions contained in the Pledge and the Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event that Holder employs counsel to collect the Debt or to protect or foreclose the security hereof, Borrower also agrees to pay on demand all costs of collection incurred by Holder, including reasonable attorneys' fees for the services of counsel whether or not suit be brought. Borrower does hereby agree that upon the occurrence of an Event of Default which is not cured within any applicable grace or notice period, or upon the failure of Borrower to pay the Debt in full on the Maturity Date, Holder shall be entitled to receive and Borrower shall pay interest on the entire unpaid principal sum at "Default Rate". The Default Rate shall be computed from the occurrence of the Event of Default until the actual receipt and collection of the Debt. This charge shall be added to the Debt, and shall be deemed secured by the Pledge and the Assignments. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Holder by reason of the occurrence of any Event of Default. In the event the Default Rate would otherwise exceed the maximum rate permitted by applicable law, the Default Rate shall be the maximum rate permitted by applicable law. 8.2 No Impairment of Rights; Premium Due. Nothing in this Section shall be deemed in any way to alter or impair any right which Holder has under this Note, the Pledge or the Assignments, or any of the other Loan Documents or at law or in equity, to accelerate such debt on the occurrence of any Event of Default provided herein or therein, whether or not relating to this Note. Upon the acceleration of this Note because of an Event of Default, Holder shall be entitled to receive, in addition to all other amounts due Holder, the Exit Fee (as defined in the Credit Facility). 8.3 Late Fees. Without limiting the generality of the foregoing provisions of this Section, if any sum payable under this Note is not paid within ten (10) days after the date on which it becomes due and payable, Borrower shall thereupon automatically become obligated immediately to pay to Holder a late charge equalling five (5%) percent of the amount of such payment ("Late Fees"), which shall be due and payable immediately thereupon, to defray the expenses incurred by Holder in handling and processing such delinquent payment and to compensate Holder for the loss of the use of such delinquent payment and such amount shall be secured by the Pledge, the Assignments and the Loan Documents. Section 9. Costs of Enforcement. Borrower shall pay to Holder on demand by the latter the amount of any and all expenses incurred by Holder in enforcing its rights hereunder or under the Pledge, the Assignments and/or the other Loan Documents following an Event of Default, including but not limited to the expense of collecting any amount owed hereunder, and of any and all reasonable attorneys' fees incurred by Holder in connection with such default, whether suit be brought or not, or in protecting the security hereof. Such expenses shall be added to the principal amount hereof, shall be secured by the Pledge, the Assignments and the Loan Documents and shall accrue interest at the Default Rate. Section 10. Borrower's Waiver of Certain Rights. Borrower hereby waives the exercise of any and all exemption rights which it holds at law or in equity with respect to the debt evidenced by this Note, and of any and all rights which it holds at law or in equity to have or receive any presentment, protest, demand and notice of dishonor, protest, demand and nonpayment as a condition to Holder's exercise of any of its rights under this Note or the Loan Documents. Section 11. Extensions. The Maturity Date and/or any other date by which any payment is required to be made hereunder may be extended by Holder from time to time in the exercise of its sole discretion, without in any way altering or impairing Borrower's liability hereunder. Section 12. General. 12.1 Applicable Law. This Note shall be given effect and construed by application of the laws of the Commonwealth of Pennsylvania, and any action or proceeding arising hereunder, and each of Holder and Borrower submits (and waives all rights to object) to non-exclusive personal jurisdiction in the Commonwealth of Pennsylvania, for the enforcement of any and all obligations under this Note and the Loan Documents except that if any such action or proceeding arises under the Constitution, laws or treaties of the United States of America, or if there is a diversity of citizenship between the parties thereto, so that it is to be brought in a United States District Court, it shall be brought in the United States District Court for the Eastern District of Pennsylvania or any successor federal court having original jurisdiction. 12.2 Headings. The headings of the Sections, subsections, paragraphs and subparagraphs hereof are provided herein for and only for convenience of reference, and shall not be considered in construing their contents. 12.3 Construction. As used herein, (a) the term "person" means a natural person, a trustee, a corporation, a limited liability company, a partnership and any other form of legal entity, and (b) all references made (i) in the neuter, masculine or feminine gender shall be deemed to have been made in all such genders, (ii) in the singular or plural number shall be deemed to have been made, respectively, in the plural or singular number as well, and (iii) to any Section, subsection, paragraph or subparagraph shall, unless therein expressly indicated to the contrary, be deemed to have been made to such Section, subsection, paragraph or subparagraph of this Note. 12.4 Severability. No determination by any court, governmental body or otherwise that any provision of this Note or any amendment hereof is invalid or unenforceable in any instance shall affect the validity or enforceability of (a) any other such provision, or (b) such provision in any circumstance not controlled by such determination. Each such provision shall be valid and enforceable to the fullest extent allowed by, and shall be construed wherever possible as being consistent with, applicable law. 12.5 No Waiver. Holder shall not be deemed to have waived the exercise of any right which it holds hereunder unless such waiver is made expressly and in writing. No delay or omission by Holder in exercising any such right (and no allowance by Holder to Borrower of an opportunity to cure a default in performing its obligations hereunder) shall be deemed a waiver of its future exercise. No such waiver made as to any instance involving the exercise of any such right shall be deemed a waiver as to any other such instance, or any other such right. Further, acceptance by Holder of all or any portion of any sum payable under, or partial performance of any covenant of, this Note, the Pledge, the Assignment or any of the other Loan Documents, whether before, on, or after the due date of such payment or performance, shall not be a waiver of Holder's right either to require prompt and full payment and performance when due of all other sums payable or obligations due thereunder or hereunder or to exercise any of Holder's rights and remedies hereunder or thereunder. 12.6 Waiver of Jury Trial; Service of Process; Court Costs. BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH BORROWER AND HOLDER MAY BE PARTIES ARISING OUT OF, IN CONNECTION WITH, OR IN ANY WAY PERTAINING TO, THIS NOTE AND/OR ANY OF THE LOAN DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING BUT NOT LIMITED TO CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER, AND BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. BORROWER FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. BORROWER AGREES TO PAY ALL COURT COSTS AND REASONABLE ATTORNEY'S FEES INCURRED BY HOLDER IN CONNECTION WITH ENFORCING ANY PROVISION OF THIS NOTE. 12.7 Offset. Upon the occurrence of an Event of Default, Holder may set-off against any principal and interest owing hereunder, any and all credits, money, stocks, bonds or other security or property of any nature whatsoever on deposit with, or held by, or in the possession of, Holder, to the credit of or for the account of Borrower, without notice to or consent of Borrower or any guarantor, provided that Holder shall give subsequent notice to Borrower of any such set-off. 12.8 Non-Exclusivity of Rights and Remedies. None of the rights and remedies herein conferred upon or reserved to Holder is intended to be exclusive of any other right or remedy contained herein or in any of the Loan Documents and each and every such right and remedy shall be cumulative and concurrent, and may be enforced separately, successively or together, and may be exercised from time to time as often as may be deemed necessary or desirable by Holder. 12.9 Incorporation by Reference. All of the agreements, conditions, covenants and provisions contained in each of the Loan Documents are hereby made a part of this Note to the same extent and with the same force and effect as if they were fully set forth herein. Borrower covenants and agrees to keep and perform, or cause to be kept and performed, all such agreements, conditions, covenants and provisions strictly in accordance with their terms. 12.10 Joint and Several Liability. If Borrower consists of more than one person and/or entity, each such person and/or entity agrees that its liability hereunder is joint and several. 12.11 Business Purpose. Borrower represents and warrants that the Loan is being obtained solely for the purpose of acquiring or carrying on a business, professional or commercial activity and is not for personal, agricultural, family or household purposes. 12.12 Interest Limitation. This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Loan and other sums due hereunder or any portion thereof at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Borrower is at any time required or obligated to pay interest on the Loan and other sums due hereunder or any portion thereof at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. 12.13 Modification. This Note may not be modified, amended, extended, changed, discharged, terminated or waived orally or by any act or failure to act on the part of Borrower or Holder, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, extension, change, discharge, termination or waiver is sought. 12.14 Time of the Essence. Time is strictly of the essence of this Note. 12.15 Negotiable Instrument. Borrower agrees that this Note shall be deemed a negotiable instrument, even though this Note may not otherwise qualify, under applicable law, absent this paragraph, as a negotiable instrument. Borrower agrees that Holder shall have the right to transfer, sell and assign this Note, the Pledge, the Assignments and the other Loan Documents, and the obligations hereunder, provided that Holder shall promptly give Borrower subsequent notice of such transfer, sale or assignment. 12.16 Interest Rate After Judgment. If judgment is entered against Borrower on this Note, the amount of the judgment entered (which may include principal, interest, fees, Late Fees and costs) shall bear interest at the Default Rate, to be determined on the date of the entry of the judgment. 12.17 Relationship. Borrower and Holder intend that the relationship between them shall be solely that of creditor and debtor. Nothing contained in this Note or in any of the other Loan Documents shall be deemed or construed to create a partnership, tenancy-in-common, joint tenancy, joint venture or co-ownership by or between Borrower and Holder. 12.18 Waiver of Automatic Stay. BORROWER HEREBY AGREES THAT, IN CONSIDERATION OF HOLDER'S AGREEMENT TO MAKE THE LOAN AND IN RECOGNITION THAT THE FOLLOWING COVENANT IS A MATERIAL INDUCEMENT FOR HOLDER TO MAKE THE LOAN, IN THE EVENT THAT BORROWER SHALL (I) FILE WITH ANY BANKRUPTCY COURT OF COMPETENT JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER ANY SECTION OR CHAPTER OF TITLE 11 OF THE UNITED STATES CODE, AS AMENDED ("BANKRUPTCY CODE"), OR SIMILAR LAW OR STATUTE; (II) BE THE SUBJECT OF ANY ORDER FOR RELIEF ISSUED UNDER THE BANKRUPTCY CODE OR SIMILAR LAW OR STATUTE; (III) FILE OR BE THE SUBJECT OF ANY PETITION SEEKING ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR DEBTORS; (IV) HAVE SOUGHT OR CONSENTED TO OR ACQUIESCED IN THE APPOINTMENT OF ANY TRUSTEE, RECEIVER, CONSERVATOR, OR LIQUIDATOR; OR (V) BE THE SUBJECT OF AN ORDER, JUDGMENT OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION APPROVING A PETITION FILED AGAINST ANY BORROWER FOR ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY OR RELIEF FOR DEBTORS, THEN, SUBJECT TO COURT APPROVAL, HOLDER SHALL THEREUPON BY ENTITLED AND BORROWER HEREBY IRREVOCABLY CONSENTS TO, AND WILL NOT CONTEST, AND AGREES TO STIPULATE TO RELIEF FROM ANY AUTOMATIC STAY OR OTHER INJUNCTION IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE, OR SIMILAR LAW OR STATUTE (INCLUDING, WITHOUT LIMITATION, RELIEF FROM ANY EXCLUSIVE PERIOD SET FORTH IN SECTION 1121 OF THE BANKRUPTCY CODE) OR OTHERWISE, ON OR AGAINST THE EXERCISE OF THE RIGHTS AND REMEDIES OTHERWISE AVAILABLE TO HOLDER AS PROVIDED IN THIS NOTE AND THE LOAN DOCUMENTS, AND AS OTHERWISE PROVIDED BY LAW, AND BORROWER HEREBY IRREVOCABLY WAIVES ITS RIGHTS TO OBJECT TO SUCH RELIEF. 12.19 Notices. All notices or other written communications hereunder shall be given and become effective as provided in the Credit Facility IN WITNESS WHEREOF, Borrower has executed this Note or caused it to be executed on its behalf by its duly authorized representatives, the day and year first above written, and the obligations under this Note shall be binding upon Borrower's successors and assigns. MONTGOMERY CV REALTY L.P., a Delaware limited partnership By: Montgomery CV Realty Trust, a Delaware business trust, its sole general partner /s/ Louis P. Meshon By:____________________________ Louis P. Meshon, Sr. President EXHIBIT 10.38 [Pembroke Pines] COLLATERAL PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT THIS COLLATERAL PLEDGE AND ASSIGNMENT (this "Assignment"), is made this 8th day of March, 1999 by MONTGOMERY CV REALTY L.P. ("Pledgor"), a Delaware limited partnership, with its principal offices located at Plymouth Plaza, 580 W. Germantown Pike, Suite 200, Plymouth Meeting, Pennsylvania 19426, to and for the benefit of GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation ("Lender"), with offices located at 650 Dresher Road, Horsham, Pennsylvania, 19044 to secure obligations of the Pledgor. BACKGROUND: a. Pursuant to a certain Loan and Credit Facility Agreement (the "Credit Facility") between Lender, Pledgor, Century Plaza Associates, L.P., Marlton Plaza Associates, L.P. and CV Reit, Inc. dated March 31, 1998, amended June 25, 1998 and as of the date hereof, Lender has agreed to make loans up to an aggregate amount of $100,000,000 to the Pledgor and/or its affiliates on the terms and conditions set forth in the Credit Facility. Lender has agreed to make non-revolving line of credit facility of up to the maximum principal sum of $18,500,000 (the "Note Advance") to Pledgor pursuant to the Credit Facility. The Loan is evidenced by a certain Promissory Note (the "Note") of even date herewith from Pledgor to Lender. The Note and all the other documents executed by Pledgor or any other party in connection with the Loan are hereinafter referred to as the "Loan Documents". b. Pursuant to the Credit Facility, Lender made a loan to Pledgor in an amount not to exceed $7,650,000, (the "Century Plaza Loan"), evidenced by a Promissory Note dated April 9, 1998 from Pledgor in favor of Lender, and Lender made a loan to Marlton Plaza Associates, L.P. in an amount not to exceed $9,300,000 (the "Marlton Crossing Loan"), evidenced by a Promissory Note dated June 24, 1998. The note and all the documents executed by Pledgor or any other party in connection with the Century Plaza Loan are hereinafter referred to as the "Century Plaza Loan Documents", and the note and all the documents executed by Pledgor or any other party in connection with the Marlton Crossing Loan are hereinafter referred to as the "Marlton Crossing Loan Documents." c. Pledgor is the holder of a Consolidated Term Note dated July 31, 1992 in the original principal sum of $35,672,941.33, executed in connection with that certain Restated Loan Agreement dated July 31, 1992 among Century Village West, Inc., F.W.D.C., Inc. and Wynmoor Limited Partnership, others and CV Reit, Inc. (collectively, the "Note Receivable"), which Note Receivable was assigned to Pledgor by assignment dated February 2, 1999. The Note Receivable is secured by certain mortgages encumbering real estate, which mortgages and real estate are more particularly described on Exhibit A attached hereto and made a part hereof (each a "Mortgage" and collectively, the "Mortgages"), by a certain Assignment of Recreation Lease and a certain Assignment of Leases, Rents, Profits, Purchase and Sale Contracts and Other Agreements, as more particularly described on Exhibit B attached hereto and made a part hereof (each an "Assignment" and collectively, the "Assignments"), and by certain UCC-1 financing statements (the "Financing Statements") executed by Collateral Owners (as hereinafter defined), copies of which appear on Exhibit D attached hereto. The owners of all the collateral securing the Note Receivable are CVP Community Center, Inc., a Florida corporation, and Newcen Golf Course, Inc., a Florida corporation, and are hereinafter referred to as the "Collateral Owner". d. As security for the payment and performance by Pledgor of all of its obligations (whether monetary or non-monetary) owed to Lender pursuant to the Loan Documents, the Marlton Crossing Loan Documents, the Century Plaza Loan Documents and all other obligations of Pledgor to Lender pursuant to the Credit Facility (individually and collectively, the "Pledgor Obligations"), Lender has required the execution and delivery of this Assignment and Pledgor has agreed to assign to Lender, all of Pledgor's right, title and interest in and under the Note Receivable, the Mortgages and the Assignments and all other collateral securing the Note Receivable. NOW, THEREFORE, for value received and intending to be legally bound, Pledgor agrees as follows: i. Pledge and Assignment. As security for the payment and performance of all of the Pledgor Obligations, Pledgor hereby pledges, assigns, transfers and grants to Lender a security interest in, all of Pledgor's right, title and interest in and to the Note Receivable, the Mortgages, the Assignments and the Financing Statements (collectively, the "Assigned Instruments") including the right to receive and retain all payments or sums due and payable thereunder, all cash and other monies and property paid thereon and all other proceeds and substitutions thereof. Simultaneously with the execution hereof, Pledgor shall execute an allonge in favor of Lender and shall deliver to Lender the original Note Receivable. Pledgor shall also execute collateral assignments of each Mortgage and Assignment of Leases and all other instruments, in recordable form, as shall be necessary to assign to Lender the Assigned Instruments. ii. Payments Prior to Event of Default. All payments made under the Note Receivable or any of the other Assigned Instruments shall be applied as provided in the Note Receivable and the Assigned Instruments, and Collateral Owners shall continue to make all such payments to Pledgor thereunder, and may rely conclusively on the authority of Pledgor to make all decisions, take all actions and exercise all rights that can be made, taken or exercised, until Collateral Owner is given written notice by Lender to do otherwise following the occurrence of an Event of Default or by court order. Pledgor shall cause Collateral Owner to execute the Estoppel and Recognition Agreement attached hereto as Exhibit C to evidence its agreement to act in accordance with any such notice from Lender specifying that an Event of Default has occurred. iii. Limitation of Lender's Liability. This Assignment is executed only as security for the payment and performance of the Pledgor Obligations and, therefore, the execution and delivery of this Assignment shall not subject Lender to, or transfer or pass to Lender, or in any way affect or modify, any liability or obligation of Pledgor as a party to or beneficiary of any of the Assigned Instruments, it being understood and agreed that, notwithstanding this Assignment, all of Pledgor's liabilities and obligations as a party to the Assigned Instruments shall be and remain enforceable only against Pledgor. Pledgor agrees to pay and perform all such liabilities and obligations. Except in the event of Lender's fraudulent acts, Pledgor agrees to indemnify Lender against and hold it harmless from any and all liability, loss or damage which it may incur under any of the Assigned Instruments or under or by reason of this Assignment and of and from any and all claims and demands whatsoever which may be asserted against it by reason of any alleged obligation or undertaking on its part to perform or discharge any of the terms of any of the Assigned Instruments. iv. Representations and Warranties. Pledgor, further represents and warrants to Lender that: (i) Pledgor is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware with full power and authority to execute and deliver and perform its obligations under this Assignment; (ii) This Assignment has been duly executed and delivered by Pledgor and is a valid and binding obligation of Pledgor enforceable in accordance with its terms; (iii) All of Pledgor's right, title and interest in the Assigned Instruments is now owned, or upon receipt thereof by by Pledgor will be owned, by Pledgor free and clear of all Security interests, liens, encumbrances or other restrictions; and (iv) Pledgor has full and complete right, authority and power to assign all of Pledgor's right, title and interest which Pledgor has or may have in the Assigned Instruments and to endorse and deliver the Note Receivable to Lender. (e) The outstanding principal balance of the Note Receivable is $24,902,623.89, and the date amount of the last payment received is February 4, 1999 and $245,028.07. (f) There are no existing defenses to payment of the Note Receivable that Owner may assert against Pledgor, and Pledgor knows of no existing state of facts which would give rise to a defense to the Note Receivable. (g) There are no oral or written agreements which modify the terms of the Note Receivable. (h) All Florida Documentary Stamp Taxes and Florida Intangible Taxes have been paid in connection with the execution of the Note Receivable and the recordation of the Mortgages. v. Covenants. Pledgor will, unless Lender consents in writing to the contrary, (a) fulfill or perform every condition and covenant of the Assigned Instruments to be fulfilled or performed by Pledgor; (b) give to Lender prompt notice of the receipt of any notice of default under any of the Assigned Instruments, together with a copy of such notice of default; (c) enforce the performance or observance of every covenant and condition of the Assigned Instruments to be performed or observed by Collateral Owner; (d) not modify, release or terminate nor in any way alter the terms of any of the Assigned Instruments; (e) neither waive nor release Collateral Owner from any obligations or conditions under any of the Assigned Instruments; and (f) deliver to Lender, upon written demand, a statement specifying the payments received under the Assigned Instruments for the period specified in such demand, together with such other similar information as Lender may require. Pledgor hereby covenants that Pledgor will not sell, convey, assign, transfer, or otherwise dispose of any of the Assigned Instruments or any interest therein or create, incur or permit to exist any pledge, mortgage, lien, charge or encumbrance or any security interest whatsoever in or with respect to any of the Assigned Instruments other than that created hereby, without the prior written consent of Lender which may be withheld at the Lender's sole discretion. vi. Warrant of Attorney. (i) Pledgor hereby irrevocably constitutes and appoints Lender and any officer or agent thereof, with full power of substitution coupled with an interest, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Pledgor and in the name of Pledgor or in its own name effective as long as an Event of Default is continuing, for the purpose of carrying out the terms of this Assignment, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or appropriate to accomplish the purpose of this Assignment and the other Lender Loan Documents, and, without limiting the generality of the foregoing, Pledgor hereby grants Lender the power and rights on behalf of Pledgor, without notice to or assent by Pledgor, to do the following: (i) During the existence of any Event of Default, in the name of Pledgor or in its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances, or other instruments for the payment of monies due under, or with respect to, the Note Receivable, and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Lender for the purpose of collecting any and all such moneys due under or with respect to the Note Receivable whenever payable; and (ii) During the existence of any Event of Default, (A) to direct Collateral Owner to make payment of any and all monies due or to become due under the Note Receivable directly to Lender; (B) to ask or demand for, collect, receive payment of and receipt for, sign and indorse, any and all monies, drafts, claims, and other amounts due or to become due at any time in respect of or arising out of the Note Receivable and (C) generally, to sell, transfer, pledge, and make any agreement with respect to or otherwise deal with any Assigned Instrument as fully and completely as though Lender were the absolute owner thereof for all purposes, and to do, at Lender's option and Pledgor's expense, all acts and things which Lender deems necessary to protect, preserve, or realize upon the Assigned Instruments, all as fully and effectively as Pledgor might do. vii. Remedies of Lender Upon Default. Upon the occurrence of an Event of Default under the Note Advance or any of the loans made by Lender to Pledgor or Pledgor's affiliates under the Credit Facility, Lender, in its sole discretion, may: (i) Exercise all or some or any of its rights and remedies under this Assignment or as may otherwise be available to Lender at law or in equity, in such order as Lender may elect; (ii) Exercise, on its behalf or on behalf of Pledgor, all or some or any of the rights and remedies of Pledgor under the Assigned Instruments, including, without limitation, the right to ask or demand for, collect, receive payment of and receipt for, any and all monies, claims, and other amounts due or to become due at any time in respect of or arising under any of the Assigned Instruments; and (iii) Exercise all such rights as a secured party under the Uniform Commercial Code (the "U.C.C.") as now enacted or hereinafter applicable under the laws of Pennsylvania or Delaware, as the case may be, as Lender, in Lender's sole judgment, shall deem necessary or appropriate, without demand of performance or other demand, advertisement, or notice of any kind (except the notice of time and place of public or private sale) to or upon or any other person (all of which are to the extent permitted by law, hereby expressly waived), including without limitation the right to sell all or any part of the Assigned Instruments at one or more public or private sales; and any such sale or sales may be made for cash, upon credit, or for future delivery. Lender may resort first to the security created by this Assignment or first to the security afforded by any other instruments, in any such case without affecting Lender's rights under this Assignment. Pledgor expressly waives and agrees not to assert: (i) any right to require Lender to proceed against Pledgor or any affiliate of Pledgor in any particular order or manner; and (ii) any right to require Lender to proceed against or exhaust any security for the Pledgor Obligations in any particular order or manner. Pledgor waives any and all right to require the marshalling of assets or to require that any of the security be sold in inverse order of alienation or that any of the security be sold in parcels or as an entirety in connection with the exercise of any of the remedies permitted by applicable law or provided in this Agreement, the Mortgages or the Assignments. viii. Perfection of Security Interests. Pledgor shall deliver to Lender, at the time of execution of this Assignment and from time to time thereafter as required by Lender, such executed financing and continuation statements as are required to perfect Lender's security interest in the Assigned Instruments. ix. Release of Assigned Instruments. Upon all of the Pledgor Obligations having been satisfied in full, (a) this Assignment and all rights of Lender hereunder shall terminate and be of no further force and effect, and (b) Lender shall endorse the Note Receivable to the order of Pledgor and return it to Pledgor and execute and deliver to Pledgor such termination statements with respect to Lender's security interest in the Assigned Instruments as Pledgor may reasonably request. x. Notices. All notices shall be sent to the parties hereto at the addresses set forth in the heading section of this Assignment. All notices to the parties to the Assigned Instruments, other than those parties who are a party hereto, shall be sent to the addresses set forth in the Assigned Instruments. All notices under the provisions of this Assignment shall be in writing (including telex or facsimile communication) and shall be effective (i) in the case of telex or facsimile, when received, (ii) in the case of hand delivered notice, when hand delivered, (iii) if given by United States mail, three (3) days after such communication is deposited in the mail with first class postage prepaid, return receipt requested, and (iv) if given by any other means (including by overnight courier), when delivered. xi. Miscellaneous. (i) Pledgor, at its expense, will execute, acknowledge and deliver all such instruments in form satisfactory to Lender and take all such action as Lender from time to time may reasonably require in order further to effectuate the purposes of this Assignment and to carry out the terms hereof. (ii) This Assignment shall inure to the benefit of and shall be binding upon the successors and assigns of the parties hereto. (iii) This Assignment and the rights and obligations hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania without regard to principles of conflicts of law. (iv) The paragraph headings used herein are for convenience only and do not affect or modify the terms and conditions hereof. (v) If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or enforceable, nor invalidate the other provisions hereof. xii. Waiver of Jury Trial. PLEDGOR AND LENDER WAIVE ALL RIGHTS TO TRIAL BY JURY OF ANY AND ALL CLAIMS, COUNTERCLAIMS, AND DEFENSES ARISING UNDER THIS AGREEMENT, THE NOTES, THE OTHER FACILITY LOAN DOCUMENTS, OR ANY OTHER AGREEMENT OR AGREEMENTS BETWEEN PLEDGOR AND LENDER AT ANY TIME, INCLUDING ANY SUCH AGREEMENTS, WHETHER WRITTEN OR ORAL, MADE OR ALLEGED TO HAVE BEEN MADE AT ANY TIME PRIOR TO THE DATE HEREOF, AND ALL AGREEMENTS MADE HEREAFTER OR OTHERWISE. IN MAKING THIS WAIVER PLEDGOR AND LENDER ACKNOWLEDGE AND AGREE THAT ANY AND ALL SUCH CLAIMS, COUNTERCLAIMS, AND DEFENSES SHALL BE HEARD BY A JUDGE OF A COURT OF COMPETENT JURISDICTION, WITHOUT A JURY. PLEDGOR AND LENDER ACKNOWLEDGE AND AGREE THAT THIS WAIVER OF TRIAL BY JURY IS A MATERIAL ELEMENT OF THE CONSIDERATION FOR THIS AGREEMENT. PLEDGOR AND LENDER ACKNOWLEDGE THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT THIS WAIVER IS MADE KNOWINGLY AND VOLUNTARILY AFTER CONSULTATION WITH, OR THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE. IN WITNESS WHEREOF, Pledgor has caused this Assignment to be executed the day and year first above written. MONTGOMERY CV REALTY L.P., a Delaware limited partnership [CORP SEAL] By: Montgomery CV Realty Trust, its sole general partner /s/ Louis P. Meshon By:_________________________________ Louis P. Meshon, Sr. President COMMONWEALTH OF PENNSYLVANIA : : SS. COUNTY OF : On the _____ day of March, 1999, before me, a Notary Public in and for the State and County aforesaid, the undersigned, personally appeared Louis P. Meshon, who acknowledged himself to be the President of Montgomery CV Realty Trust, the general partner of MONTGOMERY CV REALTY L.P., a Delaware limited partnership, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing as President of such general partner. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. ______________________________ Notary Public My commission expires: EXHIBIT A [Mortgage and Security Agreement from __________ in favor of CV Reit, Inc., dated _____________ and recorded in the office of the [Recorder of Deeds] of __________ County, Florida, ("Recorder's Office") on ___________, 1992 in Book ______, Page ______, and assigned to Pledgor by assignment dated _________________ and recorded in the Recorder's Office on _______________, 19__, in Book _____, Page _____.] EXHIBIT B [Assignment of Rents and Leases from ____________ in favor of CV Reit, Inc., dated _____________ and recorded in the office of the [Recorder of Deeds] of __________ County, Florida, ("Recorder's Office") on ___________, 1992 in Book ______, Page ______, and assigned to Pledgor by assignment dated _________________ and recorded in the Recorder's Office on _______________, 19__, in Book _____, Page _____.] EX-21 3 SUBSIDIARIES OF COMPANY EXHIBIT 21 Subsidiaries of the Company and State of Incorporation or Formation CV Warehouse 75, Inc. Florida CV Warehouse 76, Inc. Florida CV Warehouse 78, Inc. Florida W.X. Properties, Inc. Florida D.X. Properties, Inc. Florida GRX Corp. Florida Montgomery CV Realty Trust Delaware Montgomery CV Realty L.P. Delaware Recreation Mortgages L.P. Delaware Recreation Mortgages LLC Delaware Drexel Realty, Inc. Pennsylvania Royce Realty, Inc. Pennsylvania MGA Payroll Company, Inc. Pennsylvania Rio Grande Associates, L.P. Pennsylvania Rio Grande Associates LLC Delaware Danville Plaza Associates, L.P. Delaware Danville Plaza LLC Delaware Woodbourne Square Associates, L.P. Delaware Woodbourne Square LLC Delaware Chesterbrook Village Center Associates, L.P. Delaware Chesterbrook Village Center LLC Delaware Mount Carmel Plaza Associates, L.P. Delaware Mount Carmel Plaza LLC Delaware Glenmont Associates, L.P. Pennsylvania Glenmont LLC Delaware Plymouth Plaza Associates, L.P. Delaware Plymouth Plaza LLC Delaware County Line Plaza Realty Associates, L.P. Delaware County Line Plaza Realty, LLC Delaware 555 Scott Street Associates, L.P. Delaware 555 Scott Street LLC Delaware Route 6 Office Max Center Associates, L.P. Delaware Route 6 Office Max Center LLC Delaware Century Plaza Associates, L.P. Delaware CP General Partner, LLC Delaware Collegeville Plaza Associates, L.P. Delaware Collegeville Plaza, LLC Delaware Gilbertsville Plaza Associates, L.P. Delaware Gilbertsville Plaza, LLC Delaware Marlton Plaza Associates, L.P. Delaware Marlton Plaza, LLC Delaware Marlton Plaza Associates II, L.P. Delaware Marlton Plaza II, LLC Delaware New Holland Plaza Associates, L.P. Delaware New Holland Plaza, LLC Delaware Newtown Village Plaza Associates, L.P. Delaware Newtown Village Plaza, LLC Delaware North Penn Marketplace Associates, L.P. Delaware North Penn Marketplace, LLC Delaware EX-27 4 FINANCIAL DATA SCHD
5 1,000 YEAR DEC-31-1998 DEC-31-1998 4,775 0 64,988 2,401 0 0 153,414 3,142 225,422 0 121,933 0 0 80 79,477 225,422 0 26,009 0 5,184 1,693 0 8,355 8,809 (7,041) 0 0 0 0 15,850 1.99 1.99 Includes $930 of restricted cash.
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