Malan Realty Investors Announces Results for First Quarter of 2001; Discloses Adverse Order in Litigation with Former CEO; Reviews Progress on Implementing Strategic Plan and Announces New Professional Affliations

BINGHAM FARMS, Mich., May 10 /PRNewswire/ -- Malan Realty Investors, Inc. (NYSE: MAL), a self-administered real estate investment trust (REIT), today announced financial results for the first quarter of 2001. For the quarter ended March 31, 2001, funds from operations (FFO) was $2.0 million or 38 cents per basic share vs. $2.6 million or 50 cents per basic share for the quarter ended March 31, 2000. FFO on a diluted basis (assuming conversion of convertible debt securities and inclusion of other common stock equivalents) was $3.6 million or 39 cents per share in the first quarter of 2001 vs. $4.2 million or 46 cents per share in the first quarter of 2000. Cash available for distribution (CAD) for the quarter ended March 31, 2001 was $2.1 million or 40 cents per share compared with $2.8 million or 54 cents per share for the quarter ended March 31, 2000. Total revenues, consisting primarily of rent and recoveries from tenants, were $10.6 million in the first quarter of 2001 vs. $11.0 million in the first quarter of 2000. "The theater vacancy at Bricktown Square continues to impact our performance in 2001," said Jeffrey Lewis, chief executive officer of Malan Realty Investors. "We are currently pursuing several options for the property." Litigation with Anthony Gramer The company announced that the Circuit Court in Oakland County, Michigan has granted summary disposition in favor of Anthony S. Gramer, Malan's former president and CEO, in litigation brought by Gramer seeking more than $1 million for breach of an employment agreement. Malan believes that the order was entered in error and intends either to seek a rehearing before the court or to file an appeal with the Michigan Court of Appeals. The court ruled that Gramer is entitled under his agreements with Malan to both change in control payments and termination payments through December 2003, absent termination for cause. Malan is not able to determine from the order whether the court would require that the payments sought by Gramer, which total between approximately $1.0 and $1.2 million, be made in a lump sum or throughout the disputed term of Gramer's employment agreement ending on December 31, 2003. "The company intends to vigorously pursue all available avenues open to us in the litigation because we strongly believe we have met all obligations under the employment agreement," said Jeffrey D. Lewis, CEO of Malan Realty Investors. He also stated that Malan is considering amending its counterclaims against Gramer. Strategic Plan The company is reporting significant progress in implementing its new strategic plan. Malan's strategic plan calls for selling mature and non- strategic assets, restructuring debt to provide maximum operational flexibility and redeploying capital in order to enhance shareholder value and liquidity. "Malan has taken several important steps designed to improve the company's portfolio and strengthen its financial position," said Lewis. "We have executed a number of agreements to sell properties and begun work on improving the company's debt structure. In addition, we are addressing problems at Bricktown Square." Property Sales The company has closed the sale of its Liberal, Kansas, property (formerly leased to Standard Supply) and entered into three separate sale agreements for the sale of seven properties. 1. In the largest transaction, a private investment group is under contract to purchase five properties leased to Kmart. The properties are located in Loves Park, Illinois; Valparaiso, Indiana; Cape Girardeau, Missouri; and Milwaukee and Stevens Point, Wisconsin. 2. In addition, the Kmart-leased property in Green Bay, Wisconsin is under contract to an individual buyer, and 3. The Madison, Wisconsin property is under contract with Kmart. The closings on all of these properties are contingent on typical and customary due diligence by the purchasers. Malan projects total proceeds from the anticipated sale before selling costs from the eight properties, which consist of approximately 770,000 square feet of space, will be approximately $15.8 million. About $10.4 million will be used to pay down its revolving line of credit. The remainder of the proceeds will be used for investments that are consistent with the company's strategic plan. Value-Added Joint Ventures Malan and joint-development partner Grand/Sakwa Acquisitions, LLC are currently negotiating with several national retailers for sites in Phase I of the redevelopment of the property at Orchard Lake Road, Northwestern Highway and 14 Mile Road in Farmington Hills, Michigan. Phase I of this project is expected to include two major retail tenants in up to 370,000 square feet of space on 39 acres. The anticipated ground-lease structure, in which the tenants will construct their own buildings, will reduce project costs, risk and capital commitments and should increase returns to the development partners. Company President Michael Kaline noted that Malan might participate in future phases of this project at the company's discretion. Professional Affiliations Investment Banking Malan has retained Chicago-based Cohen Financial, a national real estate finance company, to investigate opportunities to improve the company's debt structure. An improved debt structure will allow greater flexibility in selling assets and facilitate additional investment opportunities. Cohen Financial is in the final stages of arranging a $10 million, short-term loan secured by Pine Ridge Plaza, a 193,000 square-foot shopping center in Lawrence Kansas. It is expected that the proceeds of the financing will be used to fund the Farmington Hills development project or otherwise invested in a manner consistent with the strategic plan. Professional Accounting Firm The board of directors announced it has retained the firm of PricewaterhouseCoopers LLP for all audit and tax matters. The firm of Deloitte & Touche, LLP formerly served as Malan's auditors. Legal Counsel Malan has also retained Foley & Lardner, the nation's eleventh largest law firm, as its corporate counsel. Miro, Weiner & Kramer previously represented the company. Other Matters Bricktown Square The company is pursuing leasing, property sale and refinancing options for improving its position in Bricktown Square Shopping Center. The 306,010 square-foot property on Chicago's Northwest Side is the most troubled property in Malan's portfolio. Leasing Capital Fitness, Inc. has signed a 15-year lease for a health club in 37,000 square feet abandoned by the original tenant, a movie theater company that is currently in bankruptcy. Under terms of the agreement, Malan is leasing the building "as-is" and Capital Fitness will pay for the build-out of the space. Capital Fitness will pay annual rent averaging $447,000, compared with about $670,000 paid by the former tenant. According to the Capital Fitness lease, Malan expects the rent to commence by January 1, 2002. Property Sale Bricktown Square has been listed for sale with CB Richard Ellis. Debt Restructuring The company has entered into an agreement with the City of Chicago under which no payments will be due on its UDAG loan until December 2001. Approximately $7.8 million remains outstanding on this loan. Malan has also held discussions with representatives of the Merrill Lynch Global Asset Fund and the City of Chicago regarding restructuring the first mortgage and UDAG loan, respectively. Stock Repurchase Program The board of directors has authorized the purchase of up to 500,000 shares of the company's common stock. Since January 1, 2001, the company has purchased 37,000 shares at an average price of $8.52 per share. Additional share purchases will be based on market conditions, the projected rate of return on the stock compared with other investment opportunities and the availability of funds. Malan Realty Investors, Inc. owns, acquires, redevelops and manages properties that are leased primarily to national and regional retail companies. The company owns a portfolio of 63 properties located in nine states that contains an aggregate of approximately 5.9 million square feet of gross leasable area. Safe Harbor Statement: This news release contains forward-looking statements, including the company's belief that it will prevail in the Gramer litigation, projections about property sales and statements about future developments. Although the company believes that the statements and projections are based on reasonable assumptions, actual results may differ from those projected. While Malan believes that the court's decision concerning the company's obligations to Gramer is legally erroneous and ultimately will be reversed, Malan cannot predict with certainty the likelihood that the adverse decision will withstand scrutiny by a reviewing court. Other key factors that could cause actual results to differ materially include development risks such as unanticipated costs, economic downturns, bankruptcies and other financial difficulties of tenants, and other risks associated with the commercial real estate business, and as detailed in the company's filings from time to time with the Securities and Exchange Commission. Many of these factors are beyond the control of the company. Malan does not undertake to update these forward-looking statements. News releases for Malan Realty Investors are available on the company's web site at http://www.malanreit.comor through Company News On-Call by fax at (800) 758-5804, ext. 114165, or http://www.prnewswire.com . MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 2001 2000 Revenues Minimum rent $7,172 $7,461 Percentage and overage rents 413 519 Recoveries from tenants 2,915 2,787 Interest and other income 69 262 Total Revenues 10,569 11,029 Expenses Property operating and maintenance 1,150 944 Other operating expenses 375 380 Real estate taxes 2,055 2,074 General and administrative 675 572 Depreciation and amortization 1,671 1,632 Total Operating Expenses 5,926 5,602 Operating Income 4,643 5,427 Interest Expense 4,319 4,479 Income before cumulative effect of change in accounting principle 324 948 Cumulative effect of change in accounting principle (450) Net Income (Loss) ($126) $948 Earnings per share before cumulative effect of change in accounting principle: Basic and diluted $0.06 $0.18 Earnings per share: Basic and diluted ($0.02) $0.18 Depreciation and Amortization: Depreciation of buildings and improvements $1,518 $1,545 Amortization of tenant allowances and improvements 108 47 Amortization of leasing costs 38 39 Cumulative effect of change in accounting principle 450 Funds From Operations, Basic 1,988 2,579 Interest expense on convertible securities 1,589 1,589 Amortization of deferred financing costs on convertible securities 69 69 Funds From Operations, Diluted $3,646 $4,237 Funds From Operations Per Share: Basic $0.38 $0.50 Diluted $0.39 $0.46 Weighted average shares outstanding: Basic 5,165 5,173 Diluted 5,165 5,173 Diluted, assuming conversion of convertible securities 9,268 9,275 MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES ADDITIONAL INFORMATION (in thousands, except for per square foot amounts and leases) Three Months Ended March 31, 2001 2000 Summary of Capital Expenditures Total Total Gross Leasable Area of Portfolio 5,980 6,041 - New tenants 10 3 Square footage 35 9 - Renewal tenants 42 35 Square footage 245 94 New Tenants: - Tenant improvements and tenant allowances $8 $- Per sqare foot $7.14 $- - Leasing commissions $71 $18 Per sqare foot $1.63 $4.50 Renewal Tenants - Tenant improvements and allowances $- $- - Leasing commissions $- $- Corporate / administrative items: - Computer equipment $46 $- Existing Properties - Capital maintenance $- $129 Per sqare foot $- $0.13 - Gross leasable area - 968 Development Properties - Building expansions $- $- - Gross leasable area - - Other Information - Amortization of deferred financing costs $345 $417 - Officer's compensation paid in stock $70 $- - Same store NOI $7,159 $7,685 - Leases signed 52 38 Square Footage 280 103 - Leases expiring 58 42 Square Footage 385 105