UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-12002 MARK CENTERS TRUST (Exact name of registrant in its charter) MARYLAND 23-2715194 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 THIRD AVENUE, KINGSTON, PENNSYLVANIA 18704 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (717) 288-4581 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of May 12, 1998, there were 8,554,177 common shares of beneficial interest, par value $.001 per share, outstanding.
MARK CENTERS TRUST FORM 10-Q INDEX Part I: Financial Information Page Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 1 Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 2 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 3 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II:Other Information Exhibits and Reports on Form 8-K 17 Signatures 18
Part I. Financial Information Item 1. Financial Statements <TABLE> <CAPTION> MARK CENTERS TRUST CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) March 31, December 31, 1998 1997 (unaudited) <S> <C> <C> ASSETS Rental property - at cost: Land $ 31,560 $ 30,855 Buildings and improvements 271,331 274,165 Property under development 8,650 6,668 -------- -------- 311,541 311,688 Less: accumulated depreciation 83,104 83,326 -------- -------- Net rental property 228,437 228,362 Cash and cash equivalents 757 1,287 Cash in escrow 8,612 7,906 Rents receivable 4,105 4,802 Prepaid expenses 1,122 1,241 Due from related parties 206 177 Deferred charges, net 11,625 9,710 Other assets 923 1,015 -------- -------- $255,787 $254,500 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $185,240 $183,943 Accounts payable and accrued expenses 8,457 7,553 Note payable to Principal Shareholder 3,050 3,050 Other liabilities 1,629 1,910 -------- -------- Total Liabilities 198,376 196,456 -------- -------- Minority Interest 9,144 9,244 -------- --------
<S> <C> <C> Shareholders' Equity: Common shares, $.001 par value, authorized 50,000,000 shares, issued and outstanding 8,554,177 shares, respectively 9 9 Additional paid-in capital 51,073 51,073 Deficit (2,815) (2,282) -------- -------- Total Shareholders' Equity 48,267 48,800 -------- -------- $255,787 $254,500 ======== ======== See accompanying notes </TABLE> 1
<TABLE> <CAPTION> MARK CENTERS TRUST CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (in thousands, except per share amounts) March 31, March 31, 1998 1997 (unaudited) <S> <C> <C> Revenue: Minimum rents $8,464 $ 8,444 Percentage rents 565 684 Expense reimbursements 1,753 1,777 Other 169 219 ------- ------- Total revenue 10,951 11,124 ------- ------- Operating Expenses: Property operating 2,292 2,563 Real estate taxes 1,428 1,439 Depreciation and amortization 3,473 3,324 General and administrative 456 537 ------- ------- Total operating expenses 7,649 7,863 ------- ------- Operating income 3,302 3,261 Loss on sale of property -- 12 Interest expense 3,923 3,736 ------- ------- Loss before minority interest (621) (487) Minority interest 88 71 ------- ------- Net loss $ (533) $ (416) ======= ======= Basic and diluted net loss per common share $ (.06) $ (.05) ======= ======= See accompanying notes </TABLE> 2
<TABLE> <CAPTION> MARK CENTERS TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (in thousands) March 31, March 31, 1998 1997 (unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (533) $ (416) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of leasing costs 3,328 3,175 Amortization of deferred financing costs 145 149 Minority interest (88) (71) Provision for bad debts 310 88 Loss on sale of property -- 12 ------- ------- 3,162 2,937 Changes in assets and liabilities: Rents receivable 387 1,025 Prepaid expenses 119 140 Due from related parties (29) 43 Other assets 20 (191) Accounts payable and accrued expenses (164) (37) Other liabilities (281) (32) ------- ------- Net cash provided by operating activities 3,214 3,885 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for real estate and improvements, inclusive of payables related to construction activity (3,810) (5,340) Net proceeds from sale of property -- 1,288 Payment of deferred leasing charges (451) (64) ------- ------- Net cash used in investing activities (4,261) (4,116) ------- ------- 3
<S> <C> <C> CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgages (702) (10,849) Proceeds received on mortgage notes 1,999 23,000 Net funding of escrows (681) (3,159) Payment of deferred financing costs (87) (884) Dividends paid -- (3,078) Distributions paid to Principal Shareholder (12) (602) ------- ------- Net cash provided by financing activities 517 4,428 ------- ------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (530) 4,197 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,287 3,912 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 757 $ 8,109 ======= ======= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest, net of amounts capitalized of $168 and $112, respectively $ 3,509 $ 3,791 ======= ======= </TABLE> See accompanying notes 4
MARK CENTERS TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 1. THE COMPANY Mark Centers Trust (the "Company") currently owns and operates thirty-nine properties consisting of thirty-four neighborhood and community shopping centers, three enclosed malls and two mixed use (retail/office) properties. All of the Company's assets are held by, and all of its operations are conducted through Mark Centers Limited Partnership, (the "Operating Partnership") and its majority owned partnerships. As of March 31, 1998, the Company controlled 84% of the Operating Partnership as the sole general partner. The Company will at all times be the sole general partner of, and owner of a 51% or greater interest in, the Operating Partnership. Marvin L. Slomowitz (the "Principal Shareholder"), who is the principal limited partner of the Operating Partnership, owns in excess of 99% of the minority interest in the Operating Partnership. The Company is operating as a real estate investment trust ("REIT") for federal income tax purposes. On April 15, 1998 the Company entered into a Contribution and Share Purchase Agreement which will provide additional properties and capital to the Company (Note 8). 2. BASIS OF PRESENTATION The consolidated financial statements include the consolidated accounts of the Company and its majority owned partnerships, including the Operating Partnership, and have been prepared in accordance with generally accepted accounting principles for interim financial information and with instruction to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information furnished in the accompanying consolidated financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1998. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company's Annual Report on Forms 10-K and 10-K/A for the year ended December 31, 1997. 5
MARK CENTERS TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 3. SHAREHOLDERS' EQUITY AND MINORITY INTEREST The following table summarizes the change in the shareholders' equity and minority interest since December 31, 1997: <TABLE> <CAPTION> Shareholders' Minority Equity Interest <S> <C> <C> Balance at December 31, 1997 $48,800 $ 9,244 Net loss for the period January 1 through March 31, 1998 (533) (88) Distributions to Principal Shareholder -- (12) ------- ------- Balance at March 31, 1998 $48,267 $ 9,144 ======= ======= </TABLE> 4. RELATED PARTY TRANSACTIONS As of March 31, 1998 amounts due from related parties consisted of the following: Accrued ground rent due from Blackman Plaza Partners (a limited partnership in which the Principal Shareholder is a 1% general partner) $ 205 Other amounts (net) due from Principal Shareholder 1 ------- $ 206 ======= On January 7, 1998, the Company exercised its option to purchase Blackman Plaza Partners' interests in the Blackman Plaza with a closing date anticipated to occur during fiscal 1998. On March 16, 1998, the Company and the Principal Shareholder agreed to terminate the option to purchase certain land owned by the Principal Shareholder in Lewisburg, Pennsylvania. 5. MORTGAGE LOANS On January 28, 1998, the Company completed a closing on a construction loan with Royal Bank of Pennsylvania in the maximum amount of $3,500. The loan, which is secured by one of the Company's properties, requires monthly payments of interest only at the lender's prime rate plus 150 basis points and matures in February 1999 with additional extension periods through February 2000. 6
MARK CENTERS TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) MORTGAGE LOANS, continued On March 24, 1998, the Company completed an amendment and extension of its existing agreement with Mellon Bank, N.A. which extended the maturity date to July 2, 1998 and established minimum monthly payments of the greater of (a) actual net operating income from the collateral property or (b) $50 plus interest at the current rate of LIBOR plus 200 basis points. 6. PER SHARE DATA Basic earnings per share was determined by dividing net loss applicable to common shareholders by the weighted average number of common shares of beneficial interest ("Common Shares") outstanding during each period consistent with the guidelines of the Financial Accounting Standards Board Statement No. 128. The weighted average number of Common Shares for the three months ended March 31, 1998 and 1997 totalled 8,544,177 and 8,548,817, respectively. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted into Common Shares or resulted in the issuance of Common Shares that then shared in the earnings of the Company. For the three months ended March 31, 1998 and 1997, no additional Common Shares were reflected as the impact would be anti-dilutive due to the net loss in each period. 7. TENANT LEASES On January 31, 1998, the Company entered into an agreement with Pharmhouse Corp. (the "Tenant") to settle certain litigation. During 1997, the Tenant had obtained an injunction against the installation of Walmart in the Ledgewood Mall based on certain exclusive use provisions within the Tenant's lease. The Company paid $200 to the Tenant on May 1, 1998 and has further agreed, pursuant to the agreement as modified May 1, 1998, to pay the Tenant $1,525 on or before May 31, 1998, amend certain terms of the Tenant's lease including rent and the lease expiration date, and withdraw its appeal of this case in return for the Tenant's withdrawal of all legal actions against the installation of Walmart at the mall. The total of $1,725 is reflected in deferred charges as of March 31, 1998 in the accompanying financial statements. 7
8. SUBSEQUENT EVENTS On April 15, 1998 the Company entered into a Contribution and Share Purchase Agreement (the "Agreement") which will provide additional properties and capital to the Company. Subject to the satisfaction of all conditions to the transaction, including approval by the Company's shareholders at a meeting expected to be held during the third quarter of 1998, the Company, through Mark Centers Limited Partnership, a Delaware limited partnership through which the Company conducts substantially all of its activities, and in exchange for approximately 11.3 million Operating Partnership Units, will acquire substantially all of the ownership interests in twelve retail shopping centers, five multi-family apartment complexes, certain third party management contracts and promissory notes owned by real estate investment partnerships and related entities in which RD Capital, Inc., a Delaware corporation ("RD Capital"), or its affiliates serves as the general partner or in another similar management capacity. In addition, the Company will also receive a cash investment of $100 million from affiliates of RD Capital in exchange for approximately 13.3 million newly issued common shares of beneficial interest valued at a price of $7.50 per share. The Agreement also provides that Ross Dworman and Kenneth Bernstein of RD Capital will become Chairman of the Board and Chief Executive Officer and President of the Company, respectively. Mr. Marvin Slomowitz, the current Chairman of the Board and Chief Executive Officer, will remain as a board member and as a consultant to the Company. The two new executives will serve on the board together with two independent designees of RD Capital and two independent designees (in addition to Mr. Slomowitz) of the existing board. The Company will change its name to Acadia Realty Trust effective upon the closing of the transaction. The transaction is subject to evidence of the receipt by RD Capital of the necessary funds to make the cash investment and the completion of closing. The transaction is a complex one involving many parties and there can be no assurance that the closing on this transaction will be completed. The Company has incurred costs totalling $530 related to this transaction as of March 31, 1998 which are reflected in deferred charges in the accompanying financial statements. On April 1, 1998, the Company completed an amendment with Fleet National Bank which extended to June 15, 1998 the maturity of a standby letter of credit in the amount of $1.7 million. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is based on the consolidated financial statements of Mark Centers Trust (the "Company") as of March 31, 1998 and 1997 and for the three months then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. Certain statements made in this report may constitute "forward- looking statements" within the meaning of federal securities laws. Such statements are inherently subject to risk and uncertainties which may cause the actual results to differ materially from the future results implied by such forward- looking statements. Factors which might cause such differences include general economic conditions, adverse changes in the real estate markets in general and in the geographic regions in which the Company's properties are located, changes in interest rates, potential bankruptcy of tenants and environmental requirements. RESULTS OF OPERATIONS Comparison of Three Months Ended March 31, 1998 ("1998") to Three Months Ended March 31, 1997 ("1997") Total revenue decreased $173,000, or 2%, to $11.0 million for 1998 compared to $11.1 million for 1997. In total, minimum rents were essentially constant at $8.5 million for 1998 and 1997. Minimum rents increased at certain centers in 1998 following the re-tenanting of various space at increased market rates as well as the effect of Stern's at the Ledgewood Mall reverting to paying minimum rent of $138,000 in 1998. During 1997, Stern's was paying percentage rent in lieu of minimum rent pursuant to anchor cotenancy requirements with Jamesway which vacated the Ledgewood Mall in 1996. These increases were offset by the $141,000 effect of the State of Alabama Department of Public Health vacating its leased space at the Normandale Mall following the expiration of its leases in April 1997, the $32,000 effect of the sale of the Newberry Plaza in March 1997 and the $48,000 effect of Bruno's vacating its 48,000 square feet at the Martintown Plaza following its Chapter 11 bankruptcy filing on January 2, 1998. On March 31, 1998, the Company signed a lease with Office Depot, Inc. for 30,000 square feet of this space at a higher per square foot rent and is engaged in re-leasing efforts for the balance of the space. 9
RESULTS OF OPERATIONS, continued Percentage rents decreased $119,000, or 17%, to $565,000 for 1998 compared to $684,000 for 1997. The decrease was primarily the result of Stern's at the Ledgewood Mall paying minimum rent rather then percentage rent in 1998 as discussed above. Other income decreased $50,000 for 1998 primarily as a result of a decrease in interest earning assets. Total operating expenses of $7.6 million for 1998 decreased $214,000, or 3%, from $7.9 million for 1997. Property operating expenses decreased $271,000 for 1998 compared to 1997 primarily due to a $287,000 decrease in winter related expenses following the comparatively mild weather experienced in the Northeast in 1998. Depreciation and amortization increased $149,000 for 1998 primarily due to the Company's property development and expansion activities. General and administrative expenses decreased $81,000 for 1998 primarily as a result of lower salaries expense and certain professional fees. Interest expense of $3.9 million for 1998 increased $187,000, or 5%, from $3.7 million for 1997 primarily as a result of higher average outstanding borrowings related to increased property development and expansion activities. As a result of the foregoing, the net loss for 1998 increased $117,000 to a loss of $533,000 from a loss of $416,000 for 1997. Funds from Operations The Company, along with most industry analysts, consider funds from operations("FFO") as defined by the National Association of Real Estate Investment Trusts ("NAREIT")as an appropriate supplemental measure of operating performance. However, FFO does not represent cash generated from operations as defined by generally accepted accounting principles and is not indicative of cash available to fund cash needs. It should not be considered as an alternative to net income for the purpose of evaluating the Company's performance or to cash flows as a measure of liquidity. Generally, NAREIT defines FFO as net income (loss) before gains (losses) on sales of property, non-recurring charges and extraordinary items, adjusted for certain non-cash charges, primarily depreciation and amortization of capitalized leasing costs. 10
<TABLE> <CAPTION> FUNDS FROM OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (in thousands, except per share data) March 31, March 31, 1998 1997 <S> <C> <C> Revenue Minimum rents (a) $ 8,407 $ 8,349 Percentage rents 565 684 Expense reimbursements 1,753 1,777 Other 169 219 ------- ------- Total revenue 10,894 11,029 ------- ------- Expenses Property operating (b) 2,262 2,553 Real estate taxes 1,428 1,439 General and administrative 447 531 ------- ------- Total operating expenses 4,137 4,523 ------- ------- Operating income 6,757 6,506 Interest expense 3,923 3,736 Amortization of deferred financing costs 145 149 Depreciation of non-real estate assets 47 52 ------- ------- Funds from operations $ 2,642 $ 2,569 ======= ======= Funds from operations per share (c) $ 0.26 $ 0.25 ======= ======= </TABLE> 11
<TABLE> <CAPTION> March 31, March 31, 1998 1997 <S> <C> <C> Funds from operations above $ 2,642 $ 2,569 Depreciation of real estate and amortization of leasing costs (3,281) (3,123) Straight-line rents and related write-offs, (net) 29 94 Minority interest 88 71 Loss on sale of property -- (12) Other non-cash adjustments (11) (15) ------- ------- Net loss $ (533) $ (416) ======= ======= Net loss per share (d) $ (0.06) $ (0.05) ======= ======= </TABLE> (a) Excludes income from straight-lining of rents. (b) Represents all expenses other than depreciation, amortization, write-off of unbilled rent receivables recognized on a straight- line basis and the non-cash charge for compensation expense related to the Company's restricted share plan. (c) Assumes full conversion of 1,623,000 OP Units into common shares of the Company for the three months ended March 31, 1998 and 1997, respectively, for a total of 10,177,177 and 10,171,817 shares, respectively. (d) Net loss per share (basic and diluted)is computed based on the weighted average number of shares outstanding for the three months ended March 31, 1998 and 1997 of 8,554,177 and 8,548,817, respectively. 12
LIQUIDITY AND CAPITAL RESOURCES As previously disclosed in a current report on Form 8-K filed on April 20, 1998, and as discussed in Note 8 in the accompanying financial statements, the Company has entered into a Contribution and Share Purchase Agreement with certain real estate investment partnerships and related entities in which R.D. Capital, ("RDC") or certain of its affiliates serves as the general partner or in another similar management capacity, which will provide additional properties and capital to the Company. Consummation of the transaction is subject to the satisfaction of a number of conditions, including, but not limited to approval by the Company's shareholders. If the transaction is completed as anticipated, the Company's liquidity and capital resources would be significantly impacted. Pursuant to the terms of the Agreement, the Company has agreed, among other things, not to declare or pay a dividend until the closing of the RDC transaction. After closing, the newly reconstituted Board of Trustees will reassess the Company's dividend policy in light of the new Company's REIT distribution requirements, cash flow and prospects. On January 28, 1998, the Company completed a closing on a construction loan with Royal Bank of Pennsylvania in the maximum amount of $3.5 million. The loan, which is secured by one of the Company's properties, requires monthly payment of interest only at the lender's prime rate plus 150 basis points and matures in February 1999 with additional extension periods through February 2000. On March 24, 1998, the Company completed an amendment to and extension of its existing agreement with Mellon Bank, N.A. which extended the maturity date to July 2, 1998 and established minimum monthly payments equal to the greater of (a) actual net operating income from the collateral property or (b) $50,000 plus interest at the current rate of LIBOR plus 200 basis points. On April 1, 1998, the Company completed an amendment with Fleet National Bank which extended to June 15, 1998 the maturity of a Standby Letter of Credit in the amount of $1.7 million. At March 31, 1998, the Company's capitalization consisted of $185.2 million of debt and $91.0 million of market equity. As of March 31, 1998 interest on the Company's mortgage indebtedness ranged from 7.7% to 10.0% with maturities that ranged from July 1998 to November 2021. Of the total outstanding 13
Liquidity and Capital Resources, continued debt, $173.8 million, or 94%, was carried at fixed interest rates and the remaining $11.4 million, or 6%, carried at variable rates. Of the total outstanding debt, $99.5 million will become due by 2000, with scheduled maturities of $2.5 million in 1998, $2.1 million in 1999 and $94.9 million in 2000. As the Company does not anticipate having sufficient cash on hand to repay such indebtedness, it will need to refinance this indebtedness or select other alternatives based on market conditions at that time. The Company believes that the current loan-to-value ratios on the collateral properties are at levels which would allow it to fully refinance these loans on commercially competitive terms. Historically, the principal sources for funding operations, renovations, expansion, development and acquisitions have been funds from operations, construction and permanent secured debt financings, as well as short term construction and line of credit borrowings from various lenders. The Company anticipates that cash flow from operating activities will continue to provide adequate capital for all debt service payments, recurring capital expenditures and REIT distribution requirements. Consistent with past practice, the Company anticipates that it will obtain construction financing related to its capital outlays for certain property development, property expansion and tenant improvements. However, the Company may experience a cash shortfall in 1998, in the absence of consummating the proposed RDC transaction, if there are delays in obtaining construction financing to fund its anticipated capital outlays. Any delays in construction financing will increase the Company's short term reliance on cash from operations to meet these commitments. The Company currently estimates that capital outlays of approximately $9.2 million will be required for tenant improvements, related renovations and other property improvements primarily as a result of executed leases under which the Company expects tenants to commence occupancy during the next 12 months. Of this amount, approximately $3.1 million will be provided through existing construction financing. In addition, the Company has entered into an agreement whereby it has agreed to pay a tenant $1.5 million by May 31, 1998 to settle certain litigation as discussed in Note 7 to the accompanying financial statements. Although it has not yet received final commitment, the Company has signed a term sheet to obtain $20.7 million in short-term financing which will be secured by four of the Company's properties, of which approximately $10.9 million will be used to refinance existing debt and pay for transaction costs, 14
Liquidity and Capital Resources, continued approximately $7.8 million will be used for working capital and $2.0 million will be held in escrow relating to certain reserves. The Company intends on repaying this loan with the cash to be invested by affiliates of RD Capital following the closing of the RDC transaction. Final commitment from the lender is contingent upon the satisfaction of various conditions including completion of confirmatory due diligence on the collateral properties. While there can be no assurance that this transaction will be completed, the Company believes it will be concluded in an orderly fashion to meet the Company's capital needs. The Company's inability to complete this financing or obtain alternative sources of capital would have an adverse effect on the Company's ability to fund current tenant installation activity. HISTORICAL CASH FLOW The following discussion of historical cash flow compares the Company's cash flow for the three months ended March 31, 1998 ("1998") with the Company's cash flow for the three months ended March 31, 1997 ("1997"). Net cash provided by operating activities decreased from $3.9 million for 1997 to $3.2 million for 1998. This variance was primarily attributable to a $896,000 decrease in cash provided from changes in operating assets and liabilities (primarily accounts receivable) for 1998. Investing activities used $4.3 million during 1998, a $145,000 increase in cash used compared to $4.1 million used during 1997. $1.5 million in additional cash was used in 1997 for property development, expansion and retenanting activities (including the payment of accounts payable related thereto). The Company received $1.3 million in sales proceeds in 1997 related to the sale of the Newberry Plaza. Cash used for deferred leasing costs associated with the Company's leasing activities increased by $387,000 for 1998. Net cash provided by financing activities was $517,000 for 1998 representing a $3.9 million decrease compared to $4.4 million provided during 1997. A $8.4 million net decrease in funds provided by mortgage financing activities in 1998 was partially offset by a $3.7 million reduction in dividends and distributions paid in 1998. 15
INFLATION The Company's long-term leases contain provisions designed to mitigate the adverse impact of inflation on the Company's net income. Such provisions include clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and/or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of the Company's leases are for terms of less than ten years, which permits the Company to seek to increase rents upon re-rental at market rates if rents are below the then existing market rates. Most of the Company's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. 16
PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.3(f) Second Amended and Restated Assumption Extension and Loan Agreement between the Company and Fleet National Bank 27 Financial Data Schedule (EDGAR filing only) (b) Reports on Form 8-K A Form 8-K filed on April 20, 1998. Under Item 5 - Other Events, the Company reported that it had entered into a Contribution and Share Purchase Agreement with RD Capital, Inc. and certain of its affiliates. In addition, under Item 7 - Financial Statements and Exhibits, the Company included a copy of the Contribution and Share Purchase Agreement and a press release announcing the agreement. 17
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MARK CENTERS TRUST By: /s/ Marvin L. Slomowitz Marvin L. Slomowitz Chief Executive Officer and Trustee (Principal Executive Officer) /s/ Joshua Kane Joshua Kane Senior Vice President Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Date: May 15, 1998 18
INDEX OF EXHIBITS 10.3(f) Second Amended and Restated Assumption Extension and Loan Agreement between the Company and Fleet National Bank 27 Financial Data Schedule (EDGAR filing only) 19