UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 | |
For the quarterly period ended | ||
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 | |
For the transition period from to |
Commission file number 1-10093
Ramco-Gershenson Properties Trust
Maryland | 13-6908486 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
27600 Northwestern Highway, Suite 200, Southfield, Michigan (Address of principal executive offices) | 48034 (Zip code) |
248-350-9900
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 þ No o
Number of common shares of beneficial interest ($.01 par value) of the Registrant outstanding as of March 31,June 30, 2002: 7,095,84112,241,216
Page No. | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | Financial Statements | |||||
Consolidated Balance Sheets — | 2 | |||||
Consolidated Statements of Income (unaudited) — Three Months and Six Months Ended | 3 | |||||
Consolidated Statements of Comprehensive Income (unaudited) — Three Months and Six Months Ended | 4 | |||||
Consolidated Statement of Shareholders’ Equity (unaudited) — | 5 | |||||
Consolidated Statements of Cash Flows (unaudited) — | 6 | |||||
Notes to Consolidated Financial Statements (unaudited) | 7 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||||
PART II. OTHER INFORMATION | ||||||
Item 4. | Submission of Matters to a Vote of Security Holders | 19 | ||||
Item 6. | Exhibits and Reports on Form 8-K |
1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
RAMCO-GERSHENSON PROPERTIES TRUST
March 31, | December 31, | June 30, | December 31, | |||||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Assets | Assets | Assets | ||||||||||||||||||
Investment in real estate — net | Investment in real estate — net | $ | 497,370 | $ | 496,269 | Investment in real estate — net | $ | 578,345 | $ | 496,269 | ||||||||||
Cash and cash equivalents | Cash and cash equivalents | 5,062 | 5,542 | Cash and cash equivalents | 5,740 | 5,542 | ||||||||||||||
Accounts receivable — net | Accounts receivable — net | 17,287 | 17,627 | Accounts receivable — net | 18,779 | 17,627 | ||||||||||||||
Equity investments in and advances to unconsolidated entities | Equity investments in and advances to unconsolidated entities | 12,986 | 12,977 | Equity investments in and advances to unconsolidated entities | 10,981 | 12,658 | ||||||||||||||
Other assets — net | Other assets — net | 20,394 | 20,314 | Other assets — net | 21,069 | 20,633 | ||||||||||||||
Property held for sale | 7,210 | — | ||||||||||||||||||
Total Assets | $ | 560,309 | $ | 552,729 | Total Assets | $ | 634,914 | $ | 552,729 | |||||||||||
Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | ||||||||||||||||||
Mortgages and notes payable | Mortgages and notes payable | $ | 355,488 | $ | 347,275 | Mortgages and notes payable | $ | 377,253 | $ | 347,275 | ||||||||||
Distributions payable | Distributions payable | 5,043 | 5,062 | Distributions payable | 6,374 | 5,062 | ||||||||||||||
Accounts payable and accrued expenses | Accounts payable and accrued expenses | 18,985 | 18,830 | Accounts payable and accrued expenses | 20,267 | 18,830 | ||||||||||||||
Total Liabilities | 379,516 | 371,167 | Total Liabilities | 403,894 | 371,167 | |||||||||||||||
Minority Interest | Minority Interest | 47,853 | 48,157 | Minority Interest | 48,106 | 48,157 | ||||||||||||||
Commitments and Contingencies | Commitments and Contingencies | — | — | Commitments and Contingencies | — | — | ||||||||||||||
Shareholders’ Equity | Shareholders’ Equity | Shareholders’ Equity | ||||||||||||||||||
Preferred Shares, par value $.01, 10,000 shares authorized; 1,400 Series A convertible shares issued and outstanding, liquidation values of $35,000 | 33,829 | 33,829 | Preferred Shares, par value $01, 10,000 shares authorized; 0 and 1,400 Series A convertible shares issued and outstanding, respectively | — | 33,829 | |||||||||||||||
Common Shares of Beneficial Interest, par value $.01, 30,000 shares authorized; 7,096 and 7,128 issued and outstanding, respectively | 71 | 71 | Common Shares of Beneficial Interest, par value $01, 30,000 shares authorized; 12,241 and 7,128 issued and outstanding, respectively | 122 | 71 | |||||||||||||||
Additional paid-in capital | 150,257 | 150,186 | Additional paid-in capital | 233,219 | 150,186 | |||||||||||||||
Accumulated other comprehensive loss | (2,347 | ) | (3,179 | ) | Accumulated other comprehensive loss | (3,164 | ) | (3,179 | ) | |||||||||||
Cumulative distributions in excess of net income | (48,870 | ) | (47,502 | ) | Cumulative distributions in excess of net income | (47,263 | ) | (47,502 | ) | |||||||||||
Total Shareholders’ Equity | Total Shareholders’ Equity | 132,940 | 133,405 | Total Shareholders’ Equity | 182,914 | 133,405 | ||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 560,309 | $ | 552,729 | Total Liabilities and Shareholders’ Equity | $ | 634,914 | $ | 552,729 | |||||||||||
See notes to consolidated financial statements.
2
RAMCO-GERSHENSON PROPERTIES TRUST
For the Three Months | For the Three Months | For the Six Months | ||||||||||||||||||||||||||
Ended March 31, | Ended June 30, | Ended June 30, | ||||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||
Revenues | Revenues | |||||||||||||||||||||||||||
Minimum rents | $ | 13,868 | $ | 15,032 | Minimum rents | $ | 15,022 | $ | 14,749 | $ | 28,890 | $ | 29,781 | |||||||||||||||
Percentage rents | 522 | 921 | Percentage rents | 194 | 173 | 716 | 1,094 | |||||||||||||||||||||
Recoveries from tenants | 5,948 | 5,639 | Recoveries from tenants | 5,762 | 5,390 | 11,710 | 11,029 | |||||||||||||||||||||
Fees and management income | 651 | 658 | Fees and management income | 229 | 438 | 880 | 1,096 | |||||||||||||||||||||
Interest and other income | 750 | 934 | Interest and other income | 223 | 351 | 973 | 1,285 | |||||||||||||||||||||
Total revenues | 21,739 | 23,184 | Total revenues | 21,430 | 21,101 | 43,169 | 44,285 | |||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||
Expenses | Expenses | |||||||||||||||||||||||||||
Real estate taxes | 2,572 | 2,093 | Real estate taxes | 2,728 | 2,185 | 5,300 | 4,278 | |||||||||||||||||||||
Recoverable operating expenses | 3,384 | 3,724 | Recoverable operating expenses | 3,242 | 3,468 | 6,626 | 7,192 | |||||||||||||||||||||
Depreciation and amortization | 4,010 | 3,926 | Depreciation and amortization | 4,339 | 4,038 | 8,349 | 7,964 | |||||||||||||||||||||
Other operating | 312 | 332 | Other operating | 382 | 419 | 694 | 751 | |||||||||||||||||||||
General and administrative | 2,051 | 2,495 | General and administrative | 2,108 | 1,751 | 4,159 | 4,246 | |||||||||||||||||||||
Interest expense | 6,310 | 6,957 | Interest expense | 6,056 | 6,436 | 12,366 | 13,393 | |||||||||||||||||||||
Total expenses | 18,639 | 19,527 | Total expenses | 18,855 | 18,297 | 37,494 | 37,824 | |||||||||||||||||||||
Operating income | Operating income | 3,100 | 3,657 | Operating income | 2,575 | 2,804 | 5,675 | 6,461 | ||||||||||||||||||||
Earnings from unconsolidated entities | Earnings from unconsolidated entities | 169 | 75 | Earnings from unconsolidated entities | 177 | 339 | 346 | 414 | ||||||||||||||||||||
Income from continuing operations before gain on sale of real estate and minority interest | Income from continuing operations before gain on sale of real estate and minority interest | 3,269 | 3,732 | Income from continuing operations before gain on sale of real estate and minority interest | 2,752 | 3,143 | 6,021 | 6,875 | ||||||||||||||||||||
Gain on sale of real estate | Gain on sale of real estate | — | 5,006 | Gain on sale of real estate | — | 343 | — | 5,349 | ||||||||||||||||||||
Minority interest | Minority interest | (1,046 | ) | (2,657 | ) | Minority interest | 590 | 1,032 | 1,573 | 3,614 | ||||||||||||||||||
Income from continuing operations | Income from continuing operations | 2,223 | 6,081 | Income from continuing operations | 2,162 | 2,454 | 4,448 | 8,610 | ||||||||||||||||||||
Income from discontinued operations | 214 | 255 | ||||||||||||||||||||||||||
Discontinued operations, net of minority interest: | Discontinued operations, net of minority interest: | |||||||||||||||||||||||||||
Gain on sale of property | 2,164 | — | 2,164 | — | ||||||||||||||||||||||||
(Loss) Income from operations | (4 | ) | 180 | 147 | 360 | |||||||||||||||||||||||
Net income | Net income | 2,437 | 6,336 | Net income | 4,322 | 2,634 | 6,759 | 8,970 | ||||||||||||||||||||
Preferred dividends | Preferred dividends | 828 | 828 | Preferred dividends | — | (838 | ) | (828 | ) | (1,666 | ) | |||||||||||||||||
Gain on redemption of preferred shares | Gain on redemption of preferred shares | 2,425 | — | 2,425 | — | |||||||||||||||||||||||
Net income available to common shareholders | Net income available to common shareholders | $ | 1,609 | $ | 5,508 | Net income available to common shareholders | $ | 6,747 | $ | 1,796 | $ | 8,356 | $ | 7,304 | ||||||||||||||
Basic earnings per share: | Basic earnings per share: | Basic earnings per share: | ||||||||||||||||||||||||||
Income from continuing operations | $ | 0.20 | $ | 0.74 | ||||||||||||||||||||||||
Income from continuing operations | $ | 0.44 | $ | 0.23 | $ | 0.69 | $ | 0.98 | ||||||||||||||||||||
Income from discontinued operations | $ | 0.03 | $ | 0.03 | Income from discontinued operations | 0.21 | 0.02 | 0.26 | 0.05 | |||||||||||||||||||
Net income | $ | 0.23 | $ | 0.77 | Net income | $ | 0.65 | $ | 0.25 | $ | 0.95 | $ | 1.03 | |||||||||||||||
Diluted earnings per share: | Diluted earnings per share: | Diluted earnings per share: | ||||||||||||||||||||||||||
Income from continuing operations | $ | 0.20 | $ | 0.67 | Income from continuing operations | $ | 0.39 | $ | 0.23 | $ | 0.66 | $ | 0.94 | |||||||||||||||
Income from discontinued operations | 0.17 | 0.02 | 0.21 | 0.04 | ||||||||||||||||||||||||
Income from discontinued operations | $ | 0.03 | $ | 0.02 | ||||||||||||||||||||||||
Net income | $ | 0.56 | $ | 0.25 | $ | 0.87 | $ | 0.98 | ||||||||||||||||||||
Net income | $ | 0.23 | $ | 0.69 | ||||||||||||||||||||||||
Weighted average shares outstanding: | Weighted average shares outstanding: | Weighted average shares outstanding: | ||||||||||||||||||||||||||
Basic | 7,089 | 7,121 | Basic | 10,435 | 7,102 | 8,771 | 7,111 | |||||||||||||||||||||
Diluted | 7,146 | 9,124 | Diluted | 14,674 | 7,120 | 13,392 | 9,122 | |||||||||||||||||||||
See notes to consolidated financial statements.
3
RAMCO-GERSHENSON PROPERTIES TRUST
For the Three | For the Three | For the Six | ||||||||||||||||||||||
Months Ended | Months Ended | Months Ended | ||||||||||||||||||||||
March 31, | June 30, | June 30, | ||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||
Net Income | $ | 2,437 | $ | 6,336 | ||||||||||||||||||||
Net income | $ | 4,322 | $ | 2,634 | $ | 6,759 | $ | 8,970 | ||||||||||||||||
Cumulative effect of change in accounting principle | — | (348 | ) | — | — | — | (348 | ) | ||||||||||||||||
Unrealized gains (losses) on interest rate swaps | 832 | (867 | ) | |||||||||||||||||||||
Unrealized (losses) gains on interest rate swaps | (817 | ) | 120 | 15 | (747 | ) | ||||||||||||||||||
Comprehensive income | $ | 3,269 | $ | 5,121 | $ | 3,505 | $ | 2,754 | $ | 6,774 | $ | 7,875 | ||||||||||||
See notes to consolidated financial statements.
4
RAMCO-GERSHENSON PROPERTIES TRUST
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||
Common | Additional | Other | Cumulative | Total | Additional | Other | Cumulative | Total | ||||||||||||||||||||||||||||||||||||||||||
Preferred | Stock | Paid-In | Comprehensive | Earnings/ | Shareholders’ | Preferred | Common | Paid-In | Comprehensive | Earnings/ | Shareholders’ | |||||||||||||||||||||||||||||||||||||||
Stock | Par Value | Capital | Loss | Distribution | Equity | Stock | Stock | Capital | Loss | Distribution | Equity | |||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2002 | Balance, January 1, 2002 | $ | 33,829 | $ | 71 | $ | 150,186 | $ | (3,179 | ) | $ | (47,502 | ) | $ | 133,405 | Balance, January 1, 2002 | $ | 33,829 | $ | 71 | $ | 150,186 | $ | (3,179 | ) | $ | (47,502 | ) | $ | 133,405 | ||||||||||||||||||||
Cash distributions declared | (2,977 | ) | (2,977 | ) | Cash distributions declared | (8,117 | ) | (8,117 | ) | |||||||||||||||||||||||||||||||||||||||||
Preferred Shares dividends declared | (828 | ) | (828 | ) | Preferred shares dividends declared | (828 | ) | (828 | ) | |||||||||||||||||||||||||||||||||||||||||
Conversion of Operating Partnership Units to Common Shares (6,915 Shares) | 113 | 113 | Conversion of Operating Partnership Units to common shares | 113 | 113 | |||||||||||||||||||||||||||||||||||||||||||||
Purchase and retirement of common shares | (42 | ) | (42 | ) | Conversion of preferred shares to common shares | (4,833 | ) | 3 | 4,830 | — | ||||||||||||||||||||||||||||||||||||||||
Unrealized gains on interest rate swaps | 832 | 832 | Redemption of preferred shares | (28,996 | ) | 2,425 | (26,571 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net income | 2,437 | 2,437 | Stock issuance | 48 | 77,650 | 77,698 | ||||||||||||||||||||||||||||||||||||||||||||
Purchase and retirement of common shares | (42 | ) | (42 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2002 | $ | 33,829 | $ | 71 | $ | 150,257 | $ | (2,347 | ) | $ | (48,870 | ) | $ | 132,940 | ||||||||||||||||||||||||||||||||||||
Stock options exercised | 482 | 482 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains on interest rate swaps | 15 | 15 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 6,759 | 6,759 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2002 | Balance, June 30, 2002 | $ | — | $ | 122 | $ | 233,219 | $ | (3,164 | ) | $ | (47,263 | ) | $ | 182,914 | |||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
5
RAMCO-GERSHENSON PROPERTIES TRUST
For the Three Months | For the Six Months | |||||||||||||||||||||
Ended March 31, | Ended June 30, | |||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||||||||
Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | ||||||||||||||||||||
Net income | $ | 6,759 | $ | 8,970 | ||||||||||||||||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | ||||||||||||||||||||||
Net Income | $ | 2,437 | $ | 6,336 | Depreciation and amortization | 8,434 | 8,074 | |||||||||||||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | Amortization of deferred financing costs | 481 | 381 | |||||||||||||||||||
Depreciation and amortization | 4,095 | 3,978 | Gain on sale of discontinued operations | (2,164 | ) | — | ||||||||||||||||
Amortization of deferred financing costs | 241 | 77 | Gain on sale of real estate | — | (5,349 | ) | ||||||||||||||||
Gain on sale of real estate | — | (5,006 | ) | Earnings from unconsolidated entities | (346 | ) | (414 | ) | ||||||||||||||
Earnings from unconsolidated entities | (169 | ) | (75 | ) | Minority interest, continuing operations | 1,573 | 3,614 | |||||||||||||||
Minority interest | 1,046 | 2,657 | Minority interest, discontinued operations | 61 | 149 | |||||||||||||||||
Changes in assets and liabilities that provided (used) cash: | Changes in assets and liabilities that provided (used) cash: | |||||||||||||||||||||
Accounts receivable | 340 | 556 | Accounts receivable | (1,179 | ) | (106 | ) | |||||||||||||||
Other assets | 988 | (814 | ) | Other assets | (1,496 | ) | (1,699 | ) | ||||||||||||||
Accounts payable and accrued expenses | (819 | ) | (3,598 | ) | Accounts payable and accrued expenses | 805 | (3,852 | ) | ||||||||||||||
Cash Flows Provided By Operating Activities | Cash Flows Provided By Operating Activities | 8,159 | 4,111 | Cash Flows Provided By Operating Activities | 12,928 | 9,768 | ||||||||||||||||
Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | ||||||||||||||||||||
Capital expenditures | (11,718 | ) | (3,669 | ) | Capital expenditures | (64,426 | ) | (7,046 | ) | |||||||||||||
Proceeds from sale of real estate | — | 28,288 | Acquisition of additional interest in joint venture properties | (7,887 | ) | — | ||||||||||||||||
Repayment of advances to unconsolidated entities | (127 | ) | 8 | Proceeds from sale of discontinued operations | 10,272 | — | ||||||||||||||||
Investment in unconsolidated entities | — | (48 | ) | Proceeds from sales of real estate | — | 28,631 | ||||||||||||||||
Distributions received from unconsolidated entities | 287 | 164 | Distributions received from unconsolidated entities | 468 | 301 | |||||||||||||||||
Other | — | 179 | Investment in unconsolidated entities | — | (28 | ) | ||||||||||||||||
Other | — | 179 | ||||||||||||||||||||
Cash Flows (Used In) Provided By Investing Activities | (11,558 | ) | 24,922 | |||||||||||||||||||
Cash Flow (Used In) Provided By Investing Activities | Cash Flow (Used In) Provided By Investing Activities | (61,573 | ) | 22,037 | ||||||||||||||||||
Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | ||||||||||||||||||||
Cash distributions to shareholders | (2,978 | ) | (2,994 | ) | Cash distributions to shareholders | (5,958 | ) | (5,978 | ) | |||||||||||||
Cash distributions to operating partnership unit holders | (1,237 | ) | (1,237 | ) | Cash distributions to operating partnership unit holders | (2,471 | ) | (2,474 | ) | |||||||||||||
Cash dividends paid on preferred shares | (847 | ) | (845 | ) | Cash dividends paid on preferred shares | (1,675 | ) | (1,673 | ) | |||||||||||||
Repayment of Credit Facility | (1,200 | ) | (12,450 | ) | Redemption of preferred shares | (26,571 | ) | — | ||||||||||||||
Repayment of construction loan | — | (13,575 | ) | Repayment of Credit Facility | (24,150 | ) | (19,050 | ) | ||||||||||||||
Principal repayments on unsecured term loan | (875 | ) | (1,000 | ) | Repayment of unsecured term loan | (7,125 | ) | (1,500 | ) | |||||||||||||
Principal repayments on mortgages payable | (1,132 | ) | (950 | ) | Payment of construction loan | — | (13,575 | ) | ||||||||||||||
Purchase and retirement of common shares | (42 | ) | (348 | ) | Principal repayments on mortgages payable | (2,260 | ) | (1,957 | ) | |||||||||||||
Payment of deferred financing costs | (190 | ) | (75 | ) | Payment of deferred financing costs | (598 | ) | (78 | ) | |||||||||||||
Borrowings on Credit Facility | 6,420 | 5,420 | Purchase and retirement of common shares | (42 | ) | (416 | ) | |||||||||||||||
Borrowings on unsecured term loan | 5,000 | — | Net proceeds from issuance of common shares | 77,698 | — | |||||||||||||||||
Proceeds from mortgage | 30,113 | 10,334 | ||||||||||||||||||||
Borrowings on Credit Facility | 6,400 | 5,420 | ||||||||||||||||||||
Borrowings on unsecured term loan | 5,000 | — | ||||||||||||||||||||
Proceeds from exercise of stock options | 482 | 79 | ||||||||||||||||||||
Cash Flows Provided By (Used In) Financing Activities | Cash Flows Provided By (Used In) Financing Activities | 2,919 | (28,054 | ) | Cash Flows Provided By (Used In) Financing Activities | 48,843 | (30,868 | ) | ||||||||||||||
Net (Decrease) Increase in Cash and Cash Equivalents | (480 | ) | 979 | |||||||||||||||||||
Net Increase in Cash and Cash Equivalents | Net Increase in Cash and Cash Equivalents | 198 | 937 | |||||||||||||||||||
Cash and Cash Equivalents, Beginning of Period | Cash and Cash Equivalents, Beginning of Period | 5,542 | 2,939 | Cash and Cash Equivalents, Beginning of Period | 5,542 | 2,939 | ||||||||||||||||
Cash and Cash Equivalents, End of Period | Cash and Cash Equivalents, End of Period | $ | 5,062 | $ | 3,918 | Cash and Cash Equivalents, End of Period | $ | 5,740 | $ | 3,876 | ||||||||||||
Supplemental Disclosures of Cash Flow Information: | Supplemental Disclosures of Cash Flow Information: | Supplemental Disclosures of Cash Flow Information: | ||||||||||||||||||||
Cash paid for interest during the period | $ | 5,978 | $ | 5,889 | Cash paid for interest during the period | $ | 11,741 | $ | 12,435 | |||||||||||||
Supplemental Disclosures of Noncash Items: | Supplemental Disclosures of Noncash Items: | Supplemental Disclosures of Noncash Items: | ||||||||||||||||||||
Consolidation of Ramco-Gershenson, Inc., net of cash | $ | — | $ | 4,081 | Consolidation of Ramco-Gershenson, Inc., net of cash | $ | — | $ | 4,081 | |||||||||||||
Increase (Decrease) in fair value of interest rate swaps | 832 | (1,215 | ) | Increase (Decrease) in fair value of interest rate swaps | 15 | (1,095 | ) | |||||||||||||||
Assumed debt of acquired properties | 28,840 | — |
See notes to consolidated financial statements.
6
RAMCO-GERSHENSON PROPERTIES TRUST
1. | Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying interim financial statements and related notes of the Company are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting, the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules. The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results for interim periods are not necessarily indicative of the results for a full year.
Reclassifications
Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation.
2. | Property Held for Sale |
Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). This statement requires that we account for shopping centers that have been disposed of, or that have been classified as property held for sale, as discontinued operations for all years presented in the Consolidated Statements of Income. On April 11, 2002, we sold Hickory Corners shopping center for cash of approximately $10,640,$10,272, and the sale resulted in a gain of approximately $3,200. At March 31, 2002, this shopping center was included in property held for sale in the Consolidated Balance Sheet, and$2,164, net of minority interest. Hickory Corners’ results of operations and the gain on sale have been included in income from discontinued operations in the Consolidated Statements of Income for the three and six months ended March 31,June 30, 2002 and 2001.
3. | Accounts Receivable — Net |
Accounts receivable include $10,917$11,938 and $10,560 of unbilled straight-line rent receivables at March 31,June 30, 2002 and December 31, 2001, respectively. Straight line rent receivable at March 31,June 30, 2002 includes approximately $3,005$3,108 due from Kmart Corporation.
Corporation which filed for bankruptcy protection in January 2002. 4. Investment in Real Estate |
Investment in real estate consists of the following:
March 31, 2002 | December 31, 2001 | June 30, 2002 | December 31, 2001 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Land | $ | 79,041 | $ | 77,546 | $ | 86,980 | $ | 77,546 | ||||||||
Buildings and improvements | 462,180 | 471,317 | 532,453 | 471,317 | ||||||||||||
Construction in progress | 19,696 | 8,486 | 26,294 | 8,486 | ||||||||||||
560,917 | 557,349 | 645,727 | 557,349 | |||||||||||||
Less: accumulated depreciation | (63,547 | ) | (61,080 | ) | (67,382 | ) | (61,080 | ) | ||||||||
Investment in real estate — net | $ | 497,370 | $ | 496,269 | $ | 578,345 | $ | 496,269 | ||||||||
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5. | Acquisition of Joint Venture Properties |
In May 2002 we acquired an additional 75% ownership interest in RPT/ INVEST, LLC, which owns two community centers: Chester Springs and Rivertowne Square. As a result of this purchase, we became the 100% owner of the two centers. The transaction resulted in a net payment to our joint venture partner of approximately $7,887 in cash and we assumed $22,000 of debt. The acquisition of the additional interest was accounted for using the purchase method of accounting and the results have been included in the consolidated financial statements since the date of acquisition. The excess of the fair value over the net book basis of the interest in Chester Springs and Rivertowne Square has been allocated to land and buildings. The preliminary purchase price allocation is subject to adjustments until finalized by December 31, 2002.
6. | Property Acquisitions |
We acquired three properties during 2002 at an aggregate cost of $45,500. These acquisitions have been accounted for using the purchase method of accounting and the results of their operations have been included in the consolidated financial statements since the date of acquisition. The purchase prices were allocated to the assets acquired and liabilities assumed based upon their estimated fair market value. The preliminary purchase price allocation is subject to adjustments until finalized by December 31, 2002.
Acquisition | Purchase | Debt | ||||||||||||||
Date | Property Name | Property Location | Price | Assumed | ||||||||||||
May 2002 | Horizon Village | Suwanee, GA | $ | 11,300 | $ | 6,840 | ||||||||||
June 2002 | Royal Palm | Royal Palm Beach, FL | 18,500 | — | ||||||||||||
June 2002 | Coral Creek Shops | Coconut Creek, FL | 15,700 | — |
7. Other Assets
Other assets consist of the following:
March 31, 2002 | December 31, 2001 | June 30, 2002 | December 31, 2001 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Leasing costs | $ | 15,468 | $ | 14,908 | $ | 16,086 | $ | 14,908 | ||||||||
Prepaid expenses and other | 6,633 | 6,765 | 7,342 | 6,765 | ||||||||||||
Deferred financing costs | 6,062 | 5,872 | 6,793 | 5,872 | ||||||||||||
28,163 | 27,545 | 30,221 | 27,545 | |||||||||||||
Less: accumulated amortization | (11,159 | ) | (10,485 | ) | (12,265 | ) | (10,485 | ) | ||||||||
17,004 | 17,060 | 17,956 | 17,060 | |||||||||||||
Proposed development and acquisition costs | 3,390 | 3,254 | 3,113 | 3,573 | ||||||||||||
Other assets — net | $ | 20,394 | $ | 20,314 | $ | 21,069 | $ | 20,633 | ||||||||
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6.8. Mortgages and Notes Payable
Mortgages and notes payable consist of the following:
March 31, 2002 | December 31, 2001 | |||||||
(Unaudited) | ||||||||
Fixed rate mortgages with interest rates ranging from 6.83% to 8.81% due at various dates through 2011 | $ | 194,248 | $ | 195,290 | ||||
Floating rate mortgages at 75% of the rate of long-term Capital A rated utility bonds, due January 1, 2010, plus supplemental interest to equal LIBOR plus 200 basis points. The effective rate at March 31, 2002, was 6.43% and at December 31, 2001, was 6.41% | 6,490 | 6,560 | ||||||
Floating rate mortgage with interest rate at prime or LIBOR plus 200 basis points, due September 2005. The effective rate at March 31, 2002, was 3.88% and at December 31, 2001 was 4.75% | 21,000 | 21,000 | ||||||
Unsecured term loan, with an interest rate at LIBOR plus 400 basis points, due September 2003. The effective rate at March 31, 2002, was 5.79% and at December 31, 2001, was 6.03% | 26,250 | 22,125 | ||||||
Credit Facility, with an interest rate at LIBOR plus 200 basis points, due September 2003, maximum available borrowings of $110,000. The effective rate at March 31, 2002, was 6.54% and at December 31, 2001, was 6.64% | 107,500 | 102,300 | ||||||
$ | 355,488 | $ | 347,275 | |||||
June 30, 2002 | December 31, 2001 | |||||||
(Unaudited) | ||||||||
Fixed rate mortgages with interest rates ranging from 6.78% to 8.81%, due at various dates through 2012 | $ | 223,303 | $ | 195,290 | ||||
Floating rate mortgages at 75% of the rate of long-term Capital A rated utility bonds, due January 1, 2010, plus supplemental interest to equal LIBOR plus 200 basis points, if applicable. The effective rate at June 30, 2002, was 5.25% and at December 31, 2001, was 6.41% | 6,400 | 6,560 | ||||||
Floating rate mortgage, with an interest rate at prime or LIBOR plus 200 basis points, due September 2005. The effective rate at June 30, 2002, was 3.84% and at December 31, 2001, was 4.75% | 21,000 | 21,000 | ||||||
Floating rate mortgages, with an interest rate at LIBOR plus 215 basis points, due August 2002 with two one year extensions. The effective rate at June 30, 2002, was 4.05% | 16,000 | — | ||||||
Floating rate mortgages, with an interest rate at LIBOR plus 215 basis points, due August 2002 with two one year extensions. The effective rate at June 30, 2002, was 4.05% | 6,000 | — | ||||||
Unsecured term loan, with an interest rate at LIBOR plus 400 basis points, due September 2003. The effective rate at June 30, 2002, was 5.89% and at December 31, 2001, was 6.03% | 20,000 | 22,125 | ||||||
Credit Facility, with an interest rate at LIBOR plus 200 basis points, due September 2003, maximum available borrowings of $110,000. The effective rate at June 30, 2002, was 7.18% and at December 31, 2001, was 6.64% | 84,550 | 102,300 | ||||||
$ | 377,253 | $ | 347,275 | |||||
The mortgage notes and construction loans are secured by mortgages on properties that have an approximate net book value of $337,439$416,019 as of March 31,June 30, 2002. The Credit Facility is secured by mortgages on various properties that have an approximate net book value of $166,691$161,750 as of March 31,June 30, 2002.
The $110,000 Credit Facility bears interest between 162.5 and 225 basis points over LIBOR depending on certain debt ratios (using 200 basis points over LIBOR at March 31,June 30, 2002, the effective interest rate was 6.6%)7.2%, including interest rate swap agreements) and is secured by mortgages on various properties.
At March 31,June 30, 2002, outstanding letters of credit issued under the Credit Facility, not reflected in the accompanying consolidated balance sheet, total approximately $818.
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The Credit Facility and the unsecured term loan contain financial covenants relating to loan to asset value, minimum operating coverage ratios, and a minimum equity value. As of March 31,June 30, 2002, we were in compliance with the covenant terms.
The mortgage loans (other than our Credit Facility) encumbering our properties, including properties held by our unconsolidated joint ventures, are generally non-recourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. In
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The following table presents scheduled principal payments on mortgages and notes payable as of March 31,June 30, 2002:
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||
2002 (April 1 — December 31) | $ | 11,300 | ||||||||
2002 (July 1 – December 31) | 2002 (July 1 – December 31) | $ | 26,136 | |||||||
2003 | 2003 | 130,710 | 2003 | 114,812 | ||||||
2004 | 2004 | 17,322 | 2004 | 17,641 | ||||||
2005 | 2005 | 14,362 | 2005 | 14,707 | ||||||
2006 | 2006 | 108,988 | 2006 | 109,357 | ||||||
Thereafter | Thereafter | 72,806 | Thereafter | 94,600 | ||||||
Total | $ | 355,488 | Total | $ | 377,253 | |||||
7.9. Leases
Approximate future minimum rentals under noncancelable operating leases in effect at March 31,June 30, 2002, assuming noneither new or renegotiated leases nor option extensions on lease agreements, are as follows:
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||
2002 (April 1 — December 31) | $ | 40,153 | ||||||||
2002 (July 1 – December 31) | 2002 (July 1 – December 31) | $ | 30,247 | |||||||
2003 | 2003 | 50,967 | 2003 | 57,984 | ||||||
2004 | 2004 | 45,955 | 2004 | 52,529 | ||||||
2005 | 2005 | 39,968 | 2005 | 46,140 | ||||||
2006 | 2006 | 35,603 | 2006 | 41,331 | ||||||
Thereafter | Thereafter | 242,562 | Thereafter | 282,449 | ||||||
Total | $ | 455,208 | Total | $ | 510,680 | |||||
8. Earnings Per Share10. Common Shares Offering
Basic average earnings per share were computed using the weighted average number of shares outstanding of 7,089,013 for the three months ended March 31,On April 29, 2002, and 7,120,599 for the three months ended March 31, 2001. Diluted average earnings per share assume the conversion of 2,000,000we issued 4.2 million common shares of Preferred Shares intobeneficial interest in a public offering. On May 29, 2002, we issued an additional 630,000 common shares duringupon the three months ended March 31, 2001.exercise by the underwriters of their over-allotment option. We received total net proceeds of $77,698, based on an offering price of $17.50 per share. The net proceeds from the offering were used to redeem 1.2 million of our Series A preferred shares, purchase the equity interest of our joint venture partner in RPT/ INVEST, LLC and pay down amounts outstanding under our Credit Facility.
As a result of Preferred Shares being antidilutive forthis offering, the three months ended March 31, 2002, no conversion was required.remaining 200,000 of our Series A preferred shares automatically converted into 286,537 common shares on April 29, 2002.
9.11. Commitments and Contingencies
During the third quarter of 1994, we held more than 25% of the value of our total assets in short-term Treasury Bill reverse repurchase agreements, which could be viewed as non-qualifying assets for purposes of determining whether we qualify to be taxed as a REIT. We requested that the IRS enter into a closing
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In connection with the incorporation and distribution of all of the shares of Atlantic Realty Trust in May 1996, we entered into a tax agreement with Atlantic under which Atlantic assumed all our tax liability arising out of the IRS’ then ongoing examination, excluding any tax liability relating to any actions or events occurring, or any tax return position taken after May 10, 1996, but including liabilities for additions to tax, interest, penalties and costs relating to covered taxes. Under the tax agreement, a group of our Trustees consisting of Stephen R. Blank, Arthur Goldberg and Joel Pashcow has the right to control, conduct and effect the settlement of any claims for taxes for which Atlantic assumed liability. Accordingly, Atlantic does not have any control as to the timing of the resolution or disposition of any such claims. In addition, the tax agreement provides that, to the extent any tax which Atlantic is obligated to pay under the tax agreement can be avoided through the declaration of a “deficiency dividend” (that is, our declaration and payment of a distribution that is permitted to relate back to the year for which the IRS determines a deficiency in order to satisfy the requirement for REIT qualification that we distribute a certain minimum amount of our “REIT taxable income” for such year), we will make, and Atlantic will reimburse us for the amount of, such deficiency dividend.
In addition to examining our taxable years ended December 31, 1991, through 1994, the IRS examined our taxable year ended December 31, 1995. The IRS revenue agent issued an examination report on March 1, 1999 (which is hereinafter referred to as the “First Report”). As previously noted, the First Report proposes to disqualify us as a REIT for our taxable year ended December 31, 1994, based on our ownership of the short-term Treasury Bill reverse repurchase agreements. In addition, the First Report proposes to adjust our “REIT taxable income” for our taxable years ended December 31, 1991, 1992, 1993, and 1995. In this regard, we and Atlantic received an opinion from special tax counsel, Wolf, Block, Schorr and Solis-Cohen, on March 25, 1996, that, to the extent there is a deficiency in our “REIT taxable income” for our taxable years ended December 31, 1991, through 1994, and provided we timely make a deficiency dividend, our status as a REIT for those taxable years would not be affected. The First Report acknowledges that we may avoid disqualification for failure to meet the distribution requirement with respect to a year for which our income is increased can be avoided by payment of a deficiency dividend. However, the First Report notes that the payment of a deficiency dividend cannot cure our disqualification as a REIT for the taxable year ended December 31, 1994, based on our ownership of the short-term Treasury Bill reverse repurchase agreements.
We believe that most of the positions set forth in the First Report are unsupported by the facts and applicable law. Accordingly, on April 30, 1999, we filed a protest with the Appeals Office of the IRS to contest most of the positions set forth in the First Report. The Appeals Officer returned the case file to the revenue agent for further development. On October 29, 2001, the revenue agent issued a new examination report (which is hereinafter referred to as the “Second Report”) that arrived at very much the same conclusions as the First Report. We filed a protest of the Second Report with the IRS on November 29, 2001, and expect to have a meeting with the appellate conferee in the near future. If a satisfactory result cannot be obtained through the administrative appeals process, judicial review of the determination is available to us. In addition, the IRS is currently conducting an examination of us for the taxable years ended December 31, 1996, and 1997, and of one of our subsidiary partnerships for the taxable years ended December 31, 1997, and 1998, and may shortly begin examination of us and/or the subsidiary partnership for subsequent taxable years.
Based on the Second Report, we could be liable for up to $54.9$56 million in combined taxes, penalties and interest through March 31,June 30, 2002. However, the Second Report acknowledges (as does the First Report as noted above) that we can avoid disqualification as a REIT for certain of our examined tax years if we distribute a deficiency dividend to our shareholders. The distribution of a deficiency dividend would be
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If, notwithstanding the above-described opinions of legal counsel, the IRS successfully challenges our status as a REIT for any taxable year, we will be able to re-elect REIT status commencing with the fifth succeeding taxable year (or possibly an earlier taxable year if we meet certain relief provisions under the Internal Revenue Code).
�� In the notes to the consolidated financial statements made part of Atlantic’s most recent annual report on Form 10-K10-Q filed with the Securities and Exchange Commission for its fiscal yearquarterly period ended DecemberMarch 31, 2001,2002, Atlantic has disclosed its liability for the tax deficiencies (and interest and penalties on the tax deficiencies) proposed to be assessed against us by the IRS for the taxable years ended December 31, 1991, through 1995, as reflected in each of the First Report and Second Report. We believe, but can provide no assurance, that Atlantic currently has sufficient assets to pay such tax deficiencies, interest and penalties. According to the annual report on Form 10-K10-Q filed by Atlantic for its fiscal yearquarter ended DecemberMarch 31, 2001,2002, Atlantic had net assets on DecemberMarch 31, 2001,2002, of approximately $57.9$59.0 million (as determined pursuant to the liquidation basis of accounting). If the amount of tax, interest and penalties assessed against us ultimately exceeds the amounts proposed in each of the First Report and Second Report, however, because interest continues to accrue on the proposed tax deficiencies, or if additional tax deficiencies are proposed or for any other reason, then Atlantic may not have sufficient assets to reimburse us for all amounts we must pay to the IRS, and we would be required to pay the difference out of our own funds. Accordingly, the ultimate resolution of any controversy over tax liabilities covered by the above-described tax agreement may have a material adverse effect on our financial position, results of operations or cash flows, including if we are required to distribute deficiency dividends to our shareholders and/or pay additional taxes, interest and penalties to the IRS in amounts that exceed the value of Atlantic’s net assets. Moreover, the IRS may assess us with taxes that Atlantic is not required under the above-described tax agreement to pay, such as taxes arising from the recently-commenced examination of us for the taxable years ended December 31, 1996, and 1997, and of our subsidiary partnership for the taxable years ended December 31, 1997, and 1998. There can be no assurance, therefore, that the IRS will not assess us with substantial taxes, interest and penalties which Atlantic cannot, is not required to, or otherwise does not pay.
In connection with the development and expansion of various shopping centers as of March 31,June 30, 2002, we have entered into agreements for the construction of shopping centers of approximately $7,590.
12. Mortgage Note Receivable |
On April 29,July 11, 2002, we issued 4,200,000 common shares of beneficialpurchased a note receivable, which bears interest at 16.75% (18.75% during any period of default), from Metropolitan Life Insurance Company for $2,401. The note is due December 31, 2002. At the time we acquired the note, the unpaid principal and interest amounted to approximately $4,600. This note is secured by a pricemortgage on property located adjacent to our Naples Towne Center in Naples, Florida. The property was previously leased to Kmart Corporation, but the publiclease was rejected by Kmart in January 2002. Certain defaults have occurred with respect to this note, including the failure of $17.50 per share,the borrower to make monthly payments of principal and we received net proceeds of approximately $67,800. We intend to use the net proceeds from the offering to redeem 1,200,000 of our Series A Preferred Shares at a cost of $26,571, purchase the equity interest of our joint venture partner in RPT/ INVEST, LLC, an unconsolidated entity, for approximately $9,100 and reduce our outstanding debt.interest.
In connection withWe have commenced action, including the offering, we grantedinitiation of legal proceedings to receive the underwriters an option, exercisablecollateralized assets in partial satisfaction of the amount due us under terms of the mortgage note. We will not later than May 23, 2002, to purchase up to 630,000 additional common shares at $17.50 per share, less underwriting discounts and commissions.
As a result ofaccrue interest income on this offering of our common shares,note receivable during the remaining 200,000 of our Series A Preferred Shares automatically converted into 286,537 common shares on April 29, 2002.
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period the borrower is in default.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements of the Company, including the respective notes thereto which are included in this Form 10-Q.
Capital Resources and Liquidity
We generated $8,074 in cashCash flows from operating activities, and $2,919 from financing activitiesas reported in the Statement of Consolidated Cash Flows, increased to $12,928 for the threesix months ended March 31, 2002. RedevelopmentJune 30, 2002 from $9,768 for the six months ended June 30, 2001. Cash
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Investing activities included the acquisition of three shopping centers at an aggregate cost of $45,500. We also purchased an additional interest in RPT/ INVEST, LLC, a previously unconsolidated entity consisting of two shopping centers, at a net cost of $7,887 plus the assumption of $22,000 of debt, and we also invested in the redevelopment of four shopping centers and improvements to existing properties used $11,633amounting to approximately $18,926 during the quarter. Borrowingssix months ended June 30, 2002.
On April 29, 2002, we issued 4.2 million common shares of beneficial interest in a public offering. On May 29, 2002, we issued an additional 630,000 common shares upon the exercise by the underwriters of their over-allotment option. We received total net proceeds of $77,698, based on an offering price of $17.50 per share. The net proceeds from the offering were used to redeem 1.2 million of our Series A preferred shares, purchase the equity interest of our joint venture partner in RPT/ INVEST, LLC and pay down amounts outstanding under our Credit Facility.
Repayment under our Credit Facility provided $5,220,used $17,750, net of repaymentsborrowings of $1,200, and borrowings under$6,400. During the six months ended June 30, 2002, we repaid $2,260 of mortgage obligations, repaid $2,125 of our unsecured term loan, provided $4,125. During the three months ended March 31, 2002, we repaid $1,132net of mortgage obligationsborrowings of $5,000, and paid $5,062 for$10,104 in cash distributions to common shareholders, holders of operating partnership units and preferred shareholders.
Our mortgage and notes payable amounted to $355,488$377,253 at March 31,June 30, 2002, with a weighted average interest rate of 7.03%7.0%. The debt consists of twelveseventeen loans secured by various properties, one unsecured term loan and the Credit Facility, as described below. TenThirteen of the mortgage loans, amounting to $194,248$223,303, have maturities ranging from 20062003 to 2011,2012, monthly payments that include regularly scheduled amortization, and fixed interest rates ranging between 6.83%6.8% to 8.81%8.8%. Three of the mortgage loans, amounting to $43,000, have maturities ranging from 2002 to 2004 and monthly payments that include variable interest rates ranging between 3.8% to 4.1% at June 30, 2002. One of the mortgage loans, evidenced by tax free bonds, amounting to $6,490$6,400 and secured by Oak Brook Square Shopping Center, matures in 2010 and carries a floating interest rate equal to 75% of the new issue long term Capital A rated utility bonds, plus interest to the lender sufficient to cause the lender’s overall yield on its investment in the bonds to be equal to 200 basis points over their applicable LIBOR rate, (6.43%if applicable (5.3% at March 31,June 30, 2002).
The Credit Facility bears interest between 162.5 and 225 basis points over LIBOR depending on certain debt ratios (effective(and had an effective interest rate of 6.5%7.2% at March 31,June 30, 2002), including interest rate swap agreements, and matures in September 2003. The Credit Facility is secured by mortgages on various properties and contains financial covenants relating to liabilities-to-assets ratios, minimum operating coverage ratios and a minimum equity value. As of March 31,June 30, 2002, we were in compliance with the covenant terms.
Outstanding letters of credit issued under the Credit Facility amounted to $818 at March 31, 2002.
Under terms of the Credit Facility, we are required to maintain interest rate swap agreements to reduce the impact of changes in interest rate on our floating rate debt. We havehad interest rate swap agreements with an aggregate notional amount of $75,000 at March 31,June 30, 2002. Based on rates in effect at March 31,June 30, 2002, the agreements provide for fixed rates ranging from 7.0% to 8.3% and expire at various dates through March 2004. We are exposed to credit loss in the event of non-performance by the counter party to the interest rate swap agreements,agreements; however we do not anticipate non-performance by the counter party.
After taking into account the impact of converting our variable rate debt into fixed rate debt by use of the interest rate swap agreements, at March 31,June 30, 2002, our variable rate debt accounted for approximately $86,240$78,950 of outstanding debt with a weighted average interest rate of 4.81%4.6%. Variable rate debt accounted for approximately 24.3%20.9% of our total debt and 15.2%11.6% of our total capitalization.
Our debt to total market capitalization (our debt plus the market value of our equity) ratio was 62.5%decreased from 64.3% at MarchDecember 31, 2001 to 55.2% at June 30, 2002.
The properties in which Ramco-Gershenson Properties, L.P. (the “Operating Partnership”), owns an interest and which are accounted for on the equity method of accounting are subject to non-recourse mortgage
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The mortgage loans (other than our Credit Facility) encumbering our properties, including properties held by our unconsolidated joint ventures, are generally non-recourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional
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With respect to the Crossroads Centre shopping center, which is owned by a joint venture in which we have a 10% interest, we have guaranteed to the joint venture the completion of the center by October 17, 2002, and we have entered into a master lease with the joint venture under which we are obligated to provide net operating income sufficient to provide a 1.2 to 1.0 debt service coverage ratio. In the event that the center is not completed by the scheduled completion date, we would be obligated to the joint venture for any damages it incurs due to such failure. We believe that the construction of the center has been substantially completed in accordance with the terms of our agreement. We have the option to purchase the Crossroads Centre shopping center from the joint venture, exercisable by notice on or before July 16,October 15, 2002, and if we do not exercise this option, we will be obligated to make an option payment of $3.3 million to the 90% owner of this joint venture on July 17,October 15, 2002.
Our capital structure at March 31,June 30, 2002, includes property specific mortgages, an unsecured term loan, the Credit Facility, our Series A Preferred Shares, our Common Shares and the minority interest in the Operating Partnership. At March 31,June 30, 2002, the minority interest in the Operating Partnership represented a 29.3%19.4% ownership in the Operating Partnership which may, under certain conditions, be exchanged for an aggregate of 2,938,062 Common Shares.
As of March 31,June 30, 2002, the units in the Operating Partnership Units (“OP Units”) were exchangeable for Common Shares of the Company on a one-for-one basis. We, as sole general partner of the Operating Partnership, have the option, but not the obligation, to settle exchanged OP Units in cash based on the current trading price of our Common Shares. Assuming the exchange of all limited partnership interests in the Operating Partnership, there would have been 10,034,00015,179,278 of our common shares outstanding at March 31,June 30, 2002, with a market value of approximately $178,202$305,856 (based on the closing price of $17.76$20.15 per share on March 31,June 30, 2002).
The principal uses of our liquidity and capital resources are for acquisitions, development, redevelopment, including expansion and renovation programs, and debt repayment. To maintain our qualification as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), we are required to distribute to our shareholders at least 90% of our “Real Estate Investment Trust Taxable Income” as defined in the Code.
As part of our business plan to improve our capital structure and reduce debt, we will continue to pursue the strategy of selling fully-valued properties and to dispose of shopping centers that no longer meet the criteria established for our portfolio. Our ability to obtain acceptable selling prices and satisfactory terms will impact the timing of future sales. Net proceeds from the sale of properties are expected to reduce outstanding debt.
On April 29, 2002 we issued 4,200,000 common shares of beneficial interest at a price to the public of $17.50 per share, and we received net proceeds of approximately $67,800. We intend to use the net proceeds from the offering to redeem 1,200,000 of our Series A Preferred Shares at a cost of $26,571, purchase the equity interest of our joint venture partner in RPT/ INVEST, LLC, an unconsolidated entity for approximately $9,100, and to reduce our outstanding debt.
In connection with the offering, we granted the underwriters an option, exercisable not later than May 23, 2002, to purchase up to 630,000 additional common shares at $17.50 per share, less underwriting discounts and commissions.
As a result of this offering of our common shares, the remaining 200,000 of our Series A Preferred Shares automatically converted into 286,537 common shares on April 29, 2002.
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The conversion of our Tel-Twelve shopping center from an enclosed regional mall to an open-air center is currently in process along with the proposed redevelopment at our Shoppes of Lakeland. These redevelopments will include demolition and rebuilding of a portion of Tel-Twelve, as well as retenanting of the Shoppes of Lakeland. As a result of reduced rental income during the redevelopment period, it is our estimate that net income will decrease by approximately $3,400 for these two centers for the year ended December 31, 2002, as compared to the year ended December 31, 2001.
As part of our business plan to improve our capital structure and reduce debt, we will continue to pursue the strategy of selling fully-valued properties and to dispose of shopping centers that no longer meet the criteria established for our portfolio. Our ability to obtain acceptable selling prices and satisfactory terms will impact the timing of future sales. Net proceeds from the sale of properties are expected to reduce outstanding debt.
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We anticipate that the combination of the availability under the Credit Facility, the offering of our common shares,possible equity offerings, the sale of existing properties, and potential new debt will satisfy our expected working capital requirements through at least the next 12 months. We anticipate adequate liquidity for the foreseeable future to fund future developments, expansions, repositionings, and to continue currently planned capital programs, and to make distributions to our shareholders in accordance with the Code’s requirements applicable to REITs. Although we believe that the combination of factors discussed above will provide sufficient liquidity, no such assurance can be given.
Comparison of ThreeSix Months Ended March 31,June 30, 2002 to ThreeSix Months Ended March 31, 2001.June 30, 2001
Total revenues for the threesix months ended March 31,June 30, 2002 were $21,739,$43,169, a $1,445$1,116 decrease over the comparable period in 2001. Of the $1,445$1,116 decrease, $1,164$891 was the result of decreased minimum rents. TheAcquisitions of five shopping centers during the second quarter of 2002 resulted in an increase of $802 in minimum rents. Redevelopment projects, including the conversion of our Tel-Twelve shopping center from an enclosed regional mall to an open-air center, reduced minimum rents during the redevelopment period by approximately $592$954 when compared to the threesix months ended March 2001June 2001. The sale of White Lake MarketPlace and Athens Town Center during the first quarter of 2001 resulted in a reduction of $292 in minimum rents.
Recoveries from tenants increased $309, or 5.5%, to $5,948 as compared to $5,639 forFor the same three months in 2001. The increase is primarily due to a higher level of recoverable operating expenses and real estate taxes associated with the Auburn Mile development. The overall recovery ratio was 99.9% for the threesix months ended March 31, 2002, compared to 96.9% for the three months ended March 31, 2001.
For the three months ended March 31,June 30, 2002, percentage rents decreased $399$378 to $522,$716, as compared to $921$1,094 for the threesix months ended March 31,June 30, 2001. The decrease is the result of tenant changes associated with redevelopment projects and our efforts to convert percentage rent to higher minimum rent when renewing leases.
Recoveries from tenants increased $681, or 6.2%, to $11,710 as compared to $11,029 for the same six months in 2001. The increase is primarily due to a higher level of recoverable operating expenses and real estate taxes associated with the Auburn Mile development and the acquisition of five properties during the six months ended June 30, 2002. The overall recovery ratio was 98.2% for the six months ended June 30, 2002, compared to 96.2% for the six months ended June 30, 2001.
Fees and management income decreased $216 to $880 as compared to $1,096 for the six months ended June 30, 2001. The decrease is primarily attributed to a decrease in development fees when compared to six months ended June 30, 2001. Interest and other income decreased $184$312 to $750$973 for the threesix months ended March 31,June 30, 2002, and the decrease was primarily attributable to a decrease in lease termination fees and temporary tenant income when compared to the same quarterperiod in 2001.
Total expenses for the threesix months ended March 31,June 30, 2002 decreased $888,$330, or 4.5%0.9%, to $18,639$37,494 as compared to $19,527$37,824 for the threesix months ended March 31,June 30, 2001. The decrease was due to a $444an $87 decrease in general and administrative expenses, a $57 decrease in other operating expenses and a $647$1,027 decrease in interest expense, offset by a $139$385 increase in depreciation and amortization and a $456 increase in total recoverable expenses, including recoverable operating expenses and real estate taxes.
Total recoverable expenses, including recoverable operating expenses and real estate taxes, increased by $139,$456, to $5,956$11,926 as compared to $5,817$11,470 for the threesix months ended March 31,June 30, 2001. Real estate taxes increased $479$1,022 for the threesix months ended March 31,June 30, 2002 when compared to the same period in 2001. The increase in real estate taxes was primarily due to the completion of the development of the Auburn Mile shopping center in 2001, resulting in higher assessed valuation.valuation and the acquisitions made during the second quarter 2002.
GeneralDepreciation and administrative expenses decreased $444amortization expense increased $385, or 4.8%, to $2,051,$8,349 as compared to $2,495$7,964 for the threesix months ended March 31,June 30, 2001. This decrease is principally attributableAcquisitions during the second quarter contributed $203 to a $271 decrease in salaries, bonusesthe increase and other fringe benefits and a $125 decrease in consulting and other professional feesredevelopment of various properties accounted for the three months ended March 31, 2002.balance of the increase.
Interest expense decreased $647,$1,027, from $6,957$13,393 to $6,310$12,366 during the first quarterhalf of 2002. The 9.3%7.7% decrease is the result of a reduction of our averagelower interest rate to 7.2% for the three months ended March 31, 2002 from 8.1% for the same period in 2001. The net decrease wasrates, offset by an increase in borrowings during the three months ended March 31, 2002 when compared to the quarter ended March 31, 2001.
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We sold White Lake MarketPlace and Athens Town Center during the first quarter of 2001 for cash of $28,600, resulting in a gain on sale of real estate of approximately $5,300. The proceeds from the sales of the properties were used to reduce debt.
The decrease in minority interest is the result of lower income before minority interest for the three months ended March 31, 2002 when compared to 2001.15
Minority interest representsdecreased to a 29.3%19.4% share of income before minority interest of the operating partnership for the threesix months ended March 31,June 30, 2002 from a 29.3% share for the six months ended June 30, 2001. The decrease is the result of the issuance of 4,830,000 common shares during the second quarter of 2002 and the threelower income before minority interest for the six months ended March 31,June 30, 2002 when compared to June 30, 2001.
Income from discontinued operations, which consists of operating income for the Hickory Corners shopping center, which was sold on April 10, 2002, decreased $41,$213 or 16.1%59.2%. Minimum rents decreased $22$308 and operating expenses at the Hickory Corners shopping center increased $33decreased $67 offset by a $14$72 increase in lease termination income and other revenue when compared to the six months ended June 30, 2001. The sale of Hickory Corners resulted in a gain on sale of property of approximately $2,164, net of minority interest.
Comparison of Three Months Ended June 30, 2002 to Three Months Ended June 30, 2001 |
Total revenues for the three months ended March 31,June 30, 2002 were $21,430, a $329 increase over the comparable period in 2001. Minimum rents increased 1.9%, or $273, to $15,022 for the quarter, as compared to $14,749 for the same period in 2001. Acquisitions during the second quarter of 2002 resulted in an increase of $802 in minimum rents, offset by a reduction of $529 related to our redevelopment properties.
Recoveries from tenants increased $372, or 6.9%, to $5,762 as compared to $5,390 for the same three months in 2001. The increase is primarily due to a higher level of recoverable operating expenses and real estate taxes associated with the Auburn Mile development and the acquisition of five properties during the three months ended June 30, 2002. The overall recovery ratio was 96.5% for the three months ended June 30, 2002, compared to 95.3% for the three months ended June 30, 2001.
Fees and management income decreased $209 to $229, for the three months ended June 30, 2002 and was attributable to a decrease in leasing and development fees when compared to the same quarter of 2001.
For the three months ended June 30, 2002, interest and other income decreased $128 to $223, as compared to $351 for the three months ended June 30, 2001. The decrease was primarily due to a reduction in temporary tenant income.
Total expenses for the three months ended June 30, 2002 increased $558, or 3.0%, to $18,855 as compared to $18,297 for the three months ended June 30, 2001. The increase was due to a $357 increase in general and administrative expenses, a $301 increase in depreciation and amortization expense and a $317 increase in total recoverable expenses, including recoverable operating expenses and real estate taxes, offset by a $380 decrease in interest expense and a $37 decrease in other operating expenses.
Total recoverable expenses, including recoverable operating expenses and real estate taxes, increased by $317, to $5,970 as compared to $5,653 for the three months ended June 30, 2001. Real estate taxes increased $543 for the three months ended June 30, 2002 when compared to the same period in 2001. The increase in real estate taxes was primarily due to the completion of the development of the Auburn Mile shopping center in 2001, resulting in higher assessed valuation and acquisitions made during the second quarter 2002.
General and administrative expenses increased $357 to $2,108, as compared to $1,751 for the three months ended June 30, 2001. This increase is principally attributable to a $399 increase in salaries, bonuses and other fringe benefits for the three months ended June 30, 2002.
Interest expense decreased $380, from $6,436 to $6,056 during the second quarter of 2002. The 5.9% decrease is the result of lower interest rates, offset by an increase of $571 from new mortgages relating to acquisitions and refinancing during the three months ended June 30, 2002.
Minority interest decreased to a 19.4% share of income before minority interest of the operating partnership for the six months ended June 30, 2002 from a 29.3% share for the six months ended June 30, 2001. The decrease is the result of the issuance of 4,830,000 common shares during the second quarter of 2002 and the lower income before minority interest for the three months ended June 30, 2002 when compared to June 30, 2001.
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Income from discontinued operations, which consists of operating income for the Hickory Corners shopping center which was sold on April 10, 2002, decreased $184. Minimum rents and recoveries from tenants decreased $362 and operating expenses at the Hickory Corners shopping center decreased $100 when compared to the three months ended June 30, 2001. The sale of Hickory Corners resulted in a gain on sale of property of $2,164, net of minority interest.
Economic Conditions |
Substantially all of the leases at our properties provide for tenants to pay their pro rata share of operating expenses, including common area maintenance and real estate taxes, thereby reducing our exposure to increases in operating expenses resulting from inflation. Many of the tenants’ leases contain provisions designed to lessen the impact of inflation. Such provisions include the ability to receive percentage rentals based on a tenant’s gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than ten years, which may enable us to replace existing leases with new leases at a higher base and/or percentage rentals if rents of the existing leases are below the then existing market rate.
The retail industry has experienced some financial difficulties during the past few years and certain local, regional and national retailers have filed for protection under bankruptcy laws. If this trend should continue, our future earnings performance could be negatively impacted.
Sensitivity Analysis
We are exposed to interest rate risk on our variable rate debt obligations. Based on our debt and interest rates and the interest rate swap agreements in effect at March 31,June 30, 2002, a 100 basis point change in interest rates would affect our earnings and cash flows by approximately $862.$790.
Funds from Operations
We generally consider funds from operations, also known as “FFO,” an appropriate supplemental measure of our financial performance because it is predicated on cash flow analyses. We have adopted the most recent National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO, which was amended onin April 4, 2002. Under the NAREIT definition, FFO represents income before minority interest, excluding extraordinary items, as defined under accounting principles generally accepted in the United States of America, gains on sales of depreciable property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. Our computation of FFO may, however, differ from the methodology for calculating FFO utilized by other real estate companies, and therefore, may not be comparable to these other real estate companies. FFO should not be considered an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or our ability to pay distributions.
FFO does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States of America and should not be considered an alternative to net income as an indication of our performance or to cash flows from operating activities as a measure of liquidity or our ability to pay distributions. Furthermore, while net income and cash generated from operating, investing and financing activities, determined in accordance with accounting principles generally accepted in the United
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The following table illustrates the calculation of FFO for the three months and six months ended March 31,June 30, 2002 and 2001:
Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
March 31, | June 30, | June 30, | ||||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||
Net Income | Net Income | $ | 2,437 | $ | 6,336 | Net Income | $ | 4,322 | $ | 2,634 | $ | 6,759 | $ | 8,970 | ||||||||||||||
Add: | Add: | Add: | ||||||||||||||||||||||||||
Depreciation and amortization expense | 3,971 | 3,982 | Depreciation and amortization expense | 4,597 | 4,101 | 8,569 | 8,083 | |||||||||||||||||||||
Minority interest in partnership | 1,046 | 2,657 | Minority interest in partnership: | |||||||||||||||||||||||||
Continuing operations | 590 | 1,032 | 1,573 | 3,614 | ||||||||||||||||||||||||
Discontinued operations | (2 | ) | 74 | 61 | 149 | |||||||||||||||||||||||
Less: | Less: | Less: | ||||||||||||||||||||||||||
Discontinued operations, gain on sale of property | (2,164 | ) | — | (2,164 | ) | — | ||||||||||||||||||||||
Gain on sale of property | — | (5,017 | ) | Gain on sale of real estate | — | (195 | ) | — | (5,212 | ) | ||||||||||||||||||
Funds from operations — diluted | Funds from operations — diluted | 7,454 | 7,958 | Funds from operations — diluted | 7,343 | 7,646 | 14,798 | 15,604 | ||||||||||||||||||||
Less: | Less: | Less: | ||||||||||||||||||||||||||
Preferred share dividends | (828 | ) | (828 | ) | Preferred share dividends | — | (838 | ) | (828 | ) | (1,666 | ) | ||||||||||||||||
Funds from operations — basic | Funds from operations — basic | $ | 6,626 | $ | 7,130 | Funds from operations — basic | $ | 7,343 | $ | 6,808 | $ | 13,970 | $ | 13,938 | ||||||||||||||
Weighted average equivalent shares outstanding (1) | ||||||||||||||||||||||||||||
Weighted average equivalent shares outstanding: (1) | Weighted average equivalent shares outstanding: (1) | |||||||||||||||||||||||||||
Basic | 10,034 | 10,066 | Basic | 13,373 | 10,047 | 11,713 | 10,056 | |||||||||||||||||||||
Diluted | 12,091 | 12,069 | Diluted | 14,674 | 12,065 | 13,392 | 12,067 | |||||||||||||||||||||
Supplemental disclosure: | Supplemental disclosure: | Supplemental disclosure: | ||||||||||||||||||||||||||
Straight-line rental income | $ | 357 | $ | 627 | Straight-line rental income | $ | 1,090 | $ | 606 | $ | 1,447 | $ | 1,233 | |||||||||||||||
Amortization of management contracts | $ | 56 | $ | 56 | ||||||||||||||||||||||||
(1) | For basic FFO, represents the weighted average total shares outstanding, assuming the redemption of all Operating Partnership Units for Common Shares. For diluted FFO, represents the weighted average total shares outstanding, assuming the redemption of all Operating Partnership Units for Common Shares, the Series A Preferred Shares converted to Common Shares, and the |
Capital Expenditures |
During the threesix months ended March 31,June 30, 2002, we spent approximately $1,497$1,599 on revenue-generatingrevenue generating capital expenditures including tenant allowances, leasing commissions paid to third-party brokers, legal costs relative to lease documents, and capitalized leasing and construction costs. These types of costs generate a return through rents from tenants over the term of their leases. Revenue-enhancingRevenue enhancing capital expenditures, including expansions, renovations or repositionings, were approximately $10,828.
Forward Looking Statements$18,135. Revenue neutral capital expenditures, such as roof and parking lot repairs which are anticipated to be recovered from tenants, amounted to approximately $80.
In addition, during the first six months of 2002, we acquired three shopping centers at an aggregate cost of $45,500, and we assumed debt in the amount of $6,840. We also purchased an additional interest in RPT/INVEST, LLC, an unconsolidated joint venture, at a net cost of $7,887 plus the assumption of $22,000 of debt. As a result of this purchase, we became the 100% owner of two community centers owned by the joint venture.
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Forward Looking Statements |
This Form 10-Q contains forward-looking statements with respect to the operation of certain of our properties. We believe the expectations reflected in the forward-looking statements made in this document are based on reasonable assumptions. Certain factors could occur that might cause actual results to vary. These include general economic conditions, the strength of key industries in the cities in which our properties are located, the performance of tenants at our properties and elsewhere, and other factors discussed in this report and other reports we have filed with the Securities and Exchange Commission.
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PART II — OTHER INFORMATION
Item 4. | Submission of Matters to a Vote of Security Holders |
The Annual Meeting of Shareholders of the Company was held on June 6, 2002. At the Annual Meeting, Selwyn Isakow, Arthur H. Goldberg and Mark K. Rosenfeld were re-elected as trustees of the Company to serve until the 2005 Annual Meeting of Shareholders or until their successors are elected and qualified. The following votes were cast for or were withheld from voting with respect to the election of each of the following persons:
Votes | Authority | |||||||
Name | For | Withheld | ||||||
Selwyn Isakow | 7,565,477 | 54,606 | ||||||
Arthur H. Goldberg | 7,365,066 | 255,017 | ||||||
Mark K. Rosenfeld | 7,565,477 | 54,606 |
There were no broker non-votes or abstentions in connection with the election of the trustees at the Annual Meeting.
The following votes were cast for, against or withheld regarding the ratification of Deloitte & Touche LLP as the independent auditors for the Company for the fiscal year commencing January 1, 2002:
For | Against | Abstain | ||||||
7,194,390 | 400,739 | 24,954 |
Item 6. | Exhibits and Reports on Form 8-K |
(a) Exhibits
See Exhibit Index.Index immediately preceding the exhibits.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed April 19, 2002, reporting under Item 5, Other Events, the sale of the Hickory Corners Shopping Center and the announcement of financial results for the quarter ended March 31, 2002.Not applicable
A Current Report on Form 8-K was filed April 24, 2002, reporting under Item 5, Other Events, a Tax Agreement with Atlantic Realty Trust and a Certificate of Correction to the Company’s Articles Supplementary.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized.
RAMCO-GERSHENSON PROPERTIES TRUST | ||||
Date: | By: | /s/ DENNIS E. GERSHENSON Dennis E. Gershenson President and Trustee (Chief Executive Officer) | ||
Date: | By: | /s/ RICHARD J. SMITH Richard J. Smith Chief Financial Officer (Principal Accounting Officer) |
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EXHIBIT INDEX
Exhibit No. | Description | |||
10.44 | Assumption and Modification Agreement of a secured note dated May 16, 2002 between Phoenix Life Insurance Company, Horizon Village Associates and Ramco-Gershenson Properties, | |||
10.45 | Mortgage dated June XX, 2002 between Ramco and Key Bank relating to a $10,273,000 loan. | |||
10.46 | Promissory Note dated June XX, 2002 in the principal amount of $10,272,000 made by Ramco in favor of Key Bank. | |||
10.47 | Purchase and Sale Agreement, dated May 21, 2002 between Ramco-Gershenson Properties, L.P. and Shop Invest, LLC. | |||
99.1 | Certification pursuant To 18 U.S.C. Section 1350, as |
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