Maryland | 13-6908486 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
27600
Copies To:
Copy to: Donald J. Kunz, Esq. Honigman Miller Schwartz and Cohn LLP 2290 First National Building 660 Woodward Ave. Detroit, Michigan 48226-3506 (313) 465-7454 (telephone) (313) 465-7455 (facsimile) |
Approximate date of commencement of proposed sale to the public: As soon as practicableFrom time to time after the effective date of this Registration Statement.registration statement.
Large accelerated filero | Accelerated filerþ | Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyo |
Proposed maximum | Proposed maximum | |||||||
Title of securities | Amount to be | aggregate price | aggregate | Amount of | ||||
to be registered | registered | per share(1) | offering price(1) | registration fee | ||||
Common Shares of Beneficial Interest, $0.01 par value | 4,025,000 | $17.685 | $71,182,125 | $6,549(2) | ||||
Proposed | ||||||||||||||
Amount | Proposed | Maximum | ||||||||||||
to be | Maximum | Aggregate | Amount of | |||||||||||
Title of Each Class of | Registered | Offering Price | Offering Price | Registration | ||||||||||
Securities to be Registered | (1) | Per Unit(1)(2) | (1)(3)(4) | Fee | ||||||||||
Debt Securities | ||||||||||||||
Preferred Shares of Beneficial Interest, par value $.01 per share | ||||||||||||||
Common Shares of Beneficial Interest, par value $.01 per share(5) | ||||||||||||||
Warrants | ||||||||||||||
Rights | ||||||||||||||
TOTAL | $300,000,000 | $11,790(5) | ||||||||||||
(1) | The Registrant is hereby registering such indeterminate amount and number of each identified class of the identified securities as may be issued upon conversion, exchange, or exercise of any other securities that provide for such conversion, exchange or exercise. | |
(2) | The proposed maximum initial offering price per unit will be determined, from time to time, by the registrant. | |
(3) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule | |
In U.S. dollars or the equivalent thereof in one or more foreign currencies or currency units or composite currencies, including the European Currency Unit. | ||
(5) | In accordance with Rule 457(p), the Registrant is applying the previously paid |
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where an offer or sale is not permitted.
3,500,000 Shares
Common Shares may offer, issue and sell from time to time our debt securities, which may be in one or more class or series and may be senior debt securities or subordinated debt securities; our preferred shares, which we may issue in one or more class or series; our common shares; warrants to purchase our preferred shares or common shares; rights to purchase our common shares; and any combination of Beneficial Interest
these securities. The securities will have an aggregate initial offering price of up to $300,000,000. We may sell any combination of the securities described in this prospectus in one or more offerings. We may offer the securities separately or together, in separate classes or series and in amounts, at prices and on terms described in one or more supplements to this prospectus and other offering material.
distribution for that offering.
Investing in the common shares involves risk. See “Risk Factors” beginning on page 8.1
Neither the Securities
2
4 | ||||||||
4 | ||||||||
We have granted the underwriters the right to purchase up to 525,000 additional common shares to cover over-allotments.
Deutsche Bank Securities
5 | |
6 | |||
The date of this prospectus is , 2002
3
Our SEC filings also are available through the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Statements contained inof which this prospectus concerning the provisions of documents are necessarily summaries of those documents and when any of those documents is an exhibit to the registration statement, each such statement is qualified in its entirety by reference to the copy of the document filed with the SEC.
a part.
4
• | the following sections from our | ||
“Section 16(a) Beneficial Ownership Reporting Compliance”; | |||
• | our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008, June 30, 2008, and September 30, 2008; | ||
• | our Current Reports on Form 8-K filed on February 21, 2008, April 30, 2008, July 30, 2008, October 8, 2008, October 22, 2008, October 23, 2008, and December 3, 2008; and | ||
• | the description of our common shares contained in our registration statement on Form 8-A filed with the SEC on November 1, 1988 (which incorporates by reference pages 101-119 of our prospectus/proxy statement filed with the SEC on November 1, 1988), as updated by the description of our common shares contained in our definitive proxy statement on Schedule 14A for our special meeting of shareholders held on December 18, 1997. |
i
Some
It is importantand do not undertake to note that our actualupdate forward-looking statements. Our future events, financial condition, business or other results couldmay differ materially from those anticipated fromand discussed in the forward-looking statements depending on various importantstatements. Risks and other factors that might cause differences, some of which could be material, include, those factors discussed under “Risk Factors,” beginning on page 8,but are not limited to, changes in political, economic or market conditions generally and the following:real estate and capital markets specifically; availability of capital; tenant bankruptcies; concentration of our credit risk; REIT distribution requirements; inability to successfully identify or complete suitable acquisitions and new developments; inability of our redevelopment projects to yield anticipated returns; competition for both the acquisition and development of real estate properties and the leasing operations; existing exclusivity lease provisions;
5
You should read this prospectus,
All forward-lookingother cautionary statements in this prospectus and any prospectus supplement hereto and in reports of the Company filed with the SEC. Readers are basedcautioned not to place undue reliance on information available to us onany of these forward-looking statements, which reflect our management’s views as of the date of this prospectus.prospectus, or, if applicable, the date of a document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced to in this section. Although we believe that the expectations reflected in the forward-looking statements are based on reasonable assumptions, we cannot guarantee future results, levels of activity, performance or achievements. We do not undertake no obligation to publicly update any forward-looking statements, that may be madewhether as a result of new information, future events or the occurrence of unanticipated events except as required by us or on our behalf in this prospectus or otherwise.
ii
applicable law.
This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary
the context may require. Our Business
We areprincipal office is located at 31500 Northwestern Highway, Suite 300, Farmington Hills, Michigan 48334. Our predecessor, RPS Realty Trust, a fully integrated, self-administered and self-managed real estate investmentMassachusetts business trust, also known aswas formed on June 21, 1988 to be a “REIT,” that develops, acquires, manages and owns community shopping centers in the midwestern, southeastern and mid-Atlantic regions of the United States. As of December 31, 2001, we had a portfolio of 57 shopping centers totaling approximately 11.4 million square feet of gross leaseable area located in 12 states. Our properties consist of 56 community shopping centers, nine of which are power centers and three of which are single tenant facilities. We also own one enclosed regional mall. Our shopping centers are located in convenient and easily-accessible locations with abundant parking which are close to residential communities and offer excellent visibility for our tenants and easy access for shoppers.
For approximately half a century, Ramco-Gershenson, Inc. and its predecessor developed and owned shopping centers throughout the United States. Over that time, we developed or acquired over 60 shopping centers with a total of over 16.5 million square feet.
diversified growth-oriented REIT. In May 1996, RPS Realty Trust acquired the Ramco-Gershenson interests through a reverse merger, including substantially all of the shopping centers and retail properties as well as the management company and business operations of Ramco-Gershenson, Inc. and certain of its affiliates. The resulting trust changed its name to Ramco-Gershenson Properties Trust.
Competitive Strengths
Based on our long history in the shopping center industry, the caliber of our management team and the quality of our assets, we feel that we are uniquely positioned to capitalize on opportunities in the real estate market as they present themselves.
Community Shopping Center Focus
We are predominantly a community shopping center company with a focus on acquiring, developing and managing centers primarily anchored by grocery stores and nationally- recognized discount department stores. It is our belief that centers with a grocery and/or discount component attract consumers seeking value-priced products. Since these products are required to satisfy everyday needs, customers usually visit the centers on a weekly basis.
Markets In Which We Operate
Our shopping centers are primarily located in major metropolitan areas in the midwestern and southeastern regions of the United States. Within specific markets, we seek a convenient and easily accessible location with abundant parking facilities, close to residential communities, with excellent visibility for our tenants and easy access for shoppers. In both of these regions we have concentrated a number of centers in reasonable proximity to each other in order to achieve market penetration as well as efficiencies in management, oversight and purchasing.
1
Proactive Asset Management
We use our asset management personnel to perform a variety of functions, including playing a major role in creating and assessing leasing, redevelopment, acquisition and development opportunities. Our proactive approach to leasing has allowed us to consistently maintain a high occupancy rate, ranging between 93.0% and 95.5% during each of the last five years. Our asset management team also helps to ensure that our centers remain competitive in their respective trade areas. In addition, when considering an acquisition, we use our experience and tenant contacts to look for value-added opportunities. We maintain strong relationships with national and regional anchor tenants, allowing us to assess their interest in our prospective developments.
Experienced Management Team
Our management team has an average of approximately 27 years of experience in the real estate industry, including acquisition, development, financing, leasing and asset management experience. Our 45-year history as a shopping center developer provides us with the ability to discover attractive investment opportunities. Our management and trustees currently own 19.9% of our company (assuming the conversion into our common shares of all of our outstanding preferred shares and all of the outstanding units in our operating partnership but excluding our outstanding stock options), which aligns management’s interests with that of our shareholders.
Business Strategy
Our goal is to maximize total return for our shareholders by improving operating income and enhancing asset value. We pursue our goal through:
2
Geographic Diversification
The following table sets forth the distribution by region and by state of our gross leaseable area and annualized base rent as of December 31, 2001.
Company Owned | |||||||||||||||||||||
Gross Leaseable Area | Annualized Base Rent(2) | ||||||||||||||||||||
Number of | % of Total | % of Total | |||||||||||||||||||
Region/State | Properties | Total Sq. Ft.(1) | Portfolio | Total | Portfolio | ||||||||||||||||
Midwestern | |||||||||||||||||||||
Michigan | 22 | 4,093,003 | 41.8 | $ | 30,310,224 | 43.6 | |||||||||||||||
Ohio | 4 | 786,696 | 8.0 | 6,621,321 | 9.5 | ||||||||||||||||
Wisconsin | 2 | 538,413 | 5.5 | 3,963,058 | 5.7 | ||||||||||||||||
Subtotal Midwestern | 28 | 5,418,112 | 55.4 | 40,894,604 | 58.8 | ||||||||||||||||
Southeastern | |||||||||||||||||||||
Florida | 10 | 1,197,579 | 12.2 | 7,712,971 | 11.1 | ||||||||||||||||
Tennessee | 6 | 806,590 | 8.2 | 4,515,575 | 6.5 | ||||||||||||||||
Georgia | 4 | 547,331 | 5.6 | 3,213,370 | 4.6 | ||||||||||||||||
North Carolina | 3 | 544,627 | 5.6 | 3,194,857 | 4.6 | ||||||||||||||||
South Carolina | 2 | 433,588 | 4.4 | 2,561,631 | 3.7 | ||||||||||||||||
Alabama | 1 | 126,701 | 1.3 | 787,937 | 1.1 | ||||||||||||||||
Subtotal Southeastern | 26 | 3,656,416 | 37.4 | 21,986,342 | 31.6 | ||||||||||||||||
Mid-Atlantic | |||||||||||||||||||||
New Jersey | 1 | 224,138 | 2.3 | 2,716,554 | 3.9 | ||||||||||||||||
Virginia | 1 | 240,042 | 2.5 | 2,556,412 | 3.7 | ||||||||||||||||
Maryland | 1 | 250,016 | 2.6 | 1,416,244 | 2.0 | ||||||||||||||||
Subtotal Mid-Atlantic | 3 | 714,196 | 7.3 | 6,689,211 | 9.6 | ||||||||||||||||
Total | 57 | 9,788,724 | 100.0 | $ | 69,570,157 | 100.0 | |||||||||||||||
Occupancy
The following table sets forth the occupancy rates by category of our properties for 2000 and 2001. Our overall occupancy rates for 2000 and 2001 were 93.7% and 95.5%, respectively.
2000 | 2001 | |||||||
Community Centers | 94.2 | % | 95.6 | % | ||||
Enclosed Regional Mall | 89.9 | 94.0 |
Year End Results
Our diluted funds from operations for the twelve months ended December 31, 2001 were $31.6 million, up from $30.1 million for the twelve months ended December 31, 2000, representing a 4.9% increase. Our total revenues for the twelve months ended December 31, 2001 increased 2.8%, or $2.4 million, to $91.0 million, from $88.5 million for the twelve months ended December 31, 2000.
During 2001, we acquired two new shopping centers through joint ventures in which we have a 40% interest for an aggregate purchase price of approximately $27 million, and we sold two shopping centers and four outparcels for approximately $29 million. We also completed three redevelopment projects, commenced expansion of two shopping centers and announced the de-malling and expansion of one of our shopping centers.
3
Recent Developments
Two of our tenants, Kmart Corporation and Jacobson Stores Inc., filed for Chapter 11 bankruptcy protection during January 2002. Jacobson is an anchor tenant at one of our shopping centers, with a total annualized base rent at December 31, 2001 of approximately $158,000. Kmart is our second largest tenant (based on the percentage of our total annualized base rent) and leases ten locations with a total annualized base rent at December 31, 2001 of approximately $4,242,000. Builders Square is the lessee of two of these ten locations under leases guaranteed by Kmart. Kmart has rejected the lease guarantee for one of these locations, which is presently vacant. The other Builders Square location has been subleased to two subtenants. The eight other Kmart leases are located in major metropolitan markets. On March 8, 2002, Kmart announced its intention to close 284 stores, including three stores leased from us. Kmart will continue to be obligated under the leases for these stores unless it rejects the leases as part of its bankruptcy proceedings.
On March 14, 2002, we entered into an agreement to redeem 1,200,000 of our series A preferred shares upon consummation of a public offering of our common shares on or before September 26, 2002. We may also elect to redeem the shares before that date if we secure alternative financing of the redemption price. We issued these series A preferred shares beginning in September 1997 for a price of $25.00 per share. The redemption price for the shares depends on the public offering price of the common shares sold in this offering, but the redemption price will not be less than $22.14 per series A preferred share, or approximately $26.6 million in the aggregate. If the public offering price of the common shares sold in this offering is $17.88, which was the last sale price for our common shares reported on the New York Stock Exchange for April 5, 2002, the redemption price for the series A preferred shares would be $22.69 per share, or $27.2 million in the aggregate. The holder of the remaining 200,000 of our outstanding series A preferred shares has elected not to have us redeem its shares, and these series A preferred shares will automatically convert into 286,537 common shares upon the consummation of this offering.
We have recently decided to exercise our option to purchase the equity of our joint venture partner in RPT/Invest L.L.C., which owns the Rivertowne Square and Chester Springs shopping centers upon the completion of this offering. Pursuant to the terms of the limited liability company agreement for this joint venture, we have the option to purchase these shopping centers within 36 months of their original acquisition for a purchase price which is sufficient to provide the joint venture with a 20% internal rate of return compounded annually, after payment of all expenses, on the capital invested by the joint venture in the shopping centers. Assuming that we exercise the option to purchase the equity of our joint venture partner in RPT/Invest L.L.C. on April 30, 2002, we estimate that the purchase price would be approximately $9.1 million.
On April 10, 2002, we sold Hickory Corners, a 178,000 square foot community shopping center located in Hickory, North Carolina, leaving us with a current portfolio of 56 shopping centers. The total proceeds from the sale were approximately $10.7 million.
First Quarter 2002 Results
Our diluted funds from operations for the three months ended March 31, 2002 were $7.5 million, compared with $8.0 million for the three months ended March 31, 2001, representing a 6.3% decrease. This decrease is primarily the result of the major redevelopment of two of our shopping centers, Tel-Twelve Shopping Center and Shoppes of Lakeland. Our income from continuing operations for the three months ended March 31, 2002 was $2.2 million, compared with $6.1 million for the three months ended March 31, 2001. This decrease is primarily attributable to the $5.0 million gain on sale of White Lake MarketPlace and Athens Towne Center which occurred in the first quarter of 2001.
4
The Offering
The number of common shares outstanding after the offering is based on the number of common shares outstanding as of December 31, 2001. This number does not include shares reserved for issuance upon the exercise of outstanding options, the conversion of preferred shares and the exchange of units in our operating partnership, as detailed in “Capitalization” on page 17.
Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the underwriters’ over-allotment option.
Corporate Information
Our executive offices are located at 27600 Northwestern Highway, Suite 200, Southfield, Michigan 48034. Our telephone number is (248) 350-9900.
5
Summary Financial Data
The following summary financial data as of December 31, 1997, 1998, 1999, 2000 and 2001, and for each of the years in the five-year period ended December 31, 2001 have been derived from our audited financial statements, some of which appear elsewhere in this prospectus together with the report of Deloitte & Touche LLP, independent auditors. This summary financial data might not be a good indicator of our results for 2002. You should read the summary financial data together with our financial statements and the notes to our financial statements and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
Year Ended or At December 31, | |||||||||||||||||||||
1997 | 1998 | 1999 | 2000 | 2001 | |||||||||||||||||
Operating Data (in thousands, except per share amounts): | |||||||||||||||||||||
Total revenue | $ | 59,244 | $ | 76,755 | $ | 84,299 | $ | 88,532 | $ | 90,973 | |||||||||||
Operating income | 12,856 | 12,413 | 15,984 | 13,969 | 13,303 | ||||||||||||||||
Gain on sale of real estate | 974 | 3,795 | 5,550 | ||||||||||||||||||
Net income before cumulative effect of change in accounting principle | 9,198 | 8,658 | 11,839 | 13,020 | 13,863 | ||||||||||||||||
Cumulative effect of change in accounting principle(1) | (1,264 | ) | |||||||||||||||||||
Net income | 9,198 | 8,658 | 11,839 | 11,756 | 13,863 | ||||||||||||||||
Preferred share dividends | 278 | 1,614 | 3,407 | 3,360 | 3,360 | ||||||||||||||||
Net income available to common shareholders | 8,920 | 7,044 | 8,432 | 8,396 | 10,503 | ||||||||||||||||
Per Common Share Data: | |||||||||||||||||||||
Earning per share after cumulative effect of change in accounting principle: | |||||||||||||||||||||
Basic | $ | 1.25 | $ | 0.99 | $ | 1.17 | $ | 1.17 | $ | 1.48 | |||||||||||
Diluted | 1.25 | 0.98 | 1.17 | 1.17 | 1.47 | ||||||||||||||||
Distributions to shareholders | $ | 11,967 | $ | 11,970 | $ | 12,126 | $ | 12,091 | $ | 11,942 | |||||||||||
Weighted average basic shares outstanding | 7,123 | 7,133 | 7,218 | 7,186 | 7,105 | ||||||||||||||||
Weighted average diluted shares outstanding | 7,148 | 7,165 | 7,218 | 7,187 | 7,125 | ||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||||
Cash and cash equivalents | $ | 5,033 | $ | 4,550 | $ | 5,744 | $ | 2,939 | $ | 5,542 | |||||||||||
Accounts receivable — net | 6,035 | 9,864 | 12,791 | 15,954 | 17,627 | ||||||||||||||||
Investment in real estate (before accumulated depreciation) | 473,213 | 535,980 | 542,955 | 557,995 | 557,349 | ||||||||||||||||
Total assets | 484,682 | 544,404 | 550,506 | 560,284 | 552,729 | ||||||||||||||||
Mortgages and notes payable | 295,618 | 328,248 | 337,552 | 354,008 | 347,275 | ||||||||||||||||
Total liabilities | 314,436 | 348,727 | 358,662 | 374,439 | 371,167 | ||||||||||||||||
Minority interest | 42,282 | 48,535 | 48,396 | 47,301 | 48,157 | ||||||||||||||||
Shareholders equity | 127,964 | 147,142 | 143,448 | 138,544 | 133,405 |
6
Year Ended or At December 31, | ||||||||||||||||||||
1997 | 1998 | 1999 | 2000 | 2001 | ||||||||||||||||
Other Data: | ||||||||||||||||||||
Funds from operations — diluted(2) | $ | 20,778 | $ | 24,330 | $ | 28,868 | $ | 30,126 | $ | 31,607 | ||||||||||
Funds available for distribution(3) | 17,342 | 21,226 | 25,245 | 24,985 | 28,572 | |||||||||||||||
Cash provided by operating activities | 17,026 | 16,794 | 23,954 | 17,126 | 24,556 | |||||||||||||||
Cash provided by (used in) investing activities | (153,183 | ) | (38,280 | ) | (10,703 | ) | (12,779 | ) | 5,774 | |||||||||||
Cash (used in) provided by financing activities | 137,649 | 21,003 | (12,057 | ) | (7,152 | ) | (27,727 | ) | ||||||||||||
Number of properties | 50 | 54 | 54 | 56 | 57 | |||||||||||||||
Company owned GLA (in thousands) | 8,372 | 9,029 | 9,213 | 10,043 | 9,789 | |||||||||||||||
Occupancy rate | 93.6 | % | 93.1 | % | 93.0 | % | 93.7 | % | 95.5 | % |
7
RISK FACTORS
Investing in our common shares involves risk. You should carefully consider the specific factors listed below, together with the cautionary statements under the caption “Forward Looking Statements” and the other information included in this prospectus and the documents incorporated by reference, before purchasing our common shares. The risks described below are not the only ones that we face. Additional risks that are not yet known to us or that we currently think are immaterial could also impair our business, operating results or financial condition. If any of the following risks actually occur, our business, financial condition or results of operations could be adversely affected. In that case, the trading price of our common shares could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
Adverse market conditions may impede our ability to collect lease payments, which could adversely affect our business and operating results.
The economic performance and value of our real estate assets are subject to all the risks associated with owning and operating real estate, including risks related to adverse changes in national, regional and local economic and market conditions. Our current properties are located in 12 states in the midwestern, southeastern and mid-Atlantic regions of the United States. The economic condition of each of our markets may be dependent on one or more industries. An economic downturn in one of these industries may result in a business downturn for our tenants, and as a result, these tenants may fail to make rental payments, decline to extend leases upon expiration, delay lease commencements or declare bankruptcy.
Any tenant bankruptcies, leasing delays, or failure to make rental payments when due could result in the termination of the tenant’s lease, causing material losses to us and adversely impacting our operating results. If our properties do not generate sufficient income to meet our operating expenses, including future debt service, our income and results of operations would be adversely affected. During 2001, seven of our tenants filed for bankruptcy protection, representing a total of 15 locations. These tenants represented approximately 1.7% of our annualized base rental income at December 31, 2001. During January 2002, two more of our tenants filed for bankruptcy protection, including Kmart Corporation, which represented approximately 6.1% of our annualized base rental income at December 31, 2001.
In particular, if any of our anchor tenants becomes insolvent, suffers a downturn in business, or decides not to renew its lease or vacates a property and prevents us from re-letting that property by continuing to pay rent for the balance of the term, it may adversely impact our business. In addition, a lease termination by an anchor tenant or a failure of an anchor tenant to occupy the premises could result in lease terminations or reductions in rent by some of our non-anchor tenants in the same shopping center pursuant to the terms of their leases. In that event, we may be unable to re-let the vacated space.
Similarly, the leases of some anchor tenants may permit them to transfer their leases to other retailers. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease which would reduce the income generated by that retail center. In addition, a transfer of a lease to a new anchor tenant could also give other tenants the right to make reduced rental payments or to terminate their leases with us.
We may be unable to collect balances due from any tenants in bankruptcy, which would adversely affect our operating results.
Any bankruptcy filings by or relating to one of our tenants or a lease guarantor would bar all efforts by us to collect pre-bankruptcy debts from that tenant, the lease guarantor or their property, unless we receive an order permitting us to do so from the bankruptcy court. The
8
Although five of our seven tenants who declared bankruptcy in 2001 have made full and timely payments of rent to us following their bankruptcy filings, six of these seven tenants owed us a combined total of approximately $167,000, as of February 28, 2002, in unpaid rent relating to the period prior to their bankruptcy filings. Our two tenants who declared bankruptcy in January 2002, Kmart Corporation and Jacobson Stores, Inc., owed us approximately $684,000 and $96,000, respectively, as of February 28, 2002, in unpaid rent relating to the period prior to their bankruptcy filings, including approximately $171,000 relating to a lease which has been rejected by Kmart. If leases are rejected, we may not be able to collect the related unpaid amounts. In addition, we cannot assure you that these tenants will continue to pay us rent.
Several of our tenants represent a significant portion of our leasing revenues.
As of December 31, 2001, we received 8.7% of our annualized base rent from Wal-Mart Stores Inc. and 6.1% from Kmart Corporation. Five other tenants each represented at least 2.0% of our total annualized base rent. The concentration in our leasing revenues from a small number of tenants creates the risk that, should these tenants experience financial difficulties, our operating results could be adversely affected.
We face competition for the acquisition and development of real estate properties, which may impede our ability to grow our operations or may increase the cost of these activities.
We compete with many other entities for the acquisition of retail shopping centers and land that is appropriate for new developments, including other REITs, institutional pension funds and other owner-operators of shopping centers. These competitors may increase the price we pay to acquire properties or may succeed in acquiring those properties themselves. In addition, the sellers of properties we wish to acquire may find our competitors to be more attractive buyers because they may have greater resources, may be willing to pay more, or may have a more compatible operating philosophy. In particular, larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable properties may increase. This would increase demand for these properties and therefore increase the prices paid for them. If we pay higher prices for properties or are unable to acquire suitable properties at reasonable prices, our financial condition and operating results may be adversely affected.
We may not be successful in identifying or completing suitable acquisitions and new developments that meet our criteria, which may affect our financial results and impede our growth.
Integral to our business strategy is our ability to continue to acquire and develop properties. We may not be successful in identifying suitable real estate properties that meet our acquisition criteria and are compatible with our growth strategy or in consummating acquisitions or investments on satisfactory terms. We also may not be successful in identifying suitable areas for new development, negotiating for the acquisition of the land, obtaining required permits and
9
Our redevelopment projects may not yield anticipated returns, which would adversely affect our operating results.
A key component of our business strategy is exploring redevelopment opportunities at existing properties within our portfolio and in connection with property acquisitions. To the extent that we engage in these redevelopment activities, they will be subject to the risks normally associated with these projects, including, among others, cost overruns and timing delays as a result of the lack of availability of materials and labor, weather conditions and other factors outside of our control. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these redevelopment projects and adversely impact our operating results.
Competition may affect our ability to renew leases or re-let space on favorable terms and may require us to make unplanned capital improvements.
We face competition from similar retail centers within the trade areas in which our centers operate to renew leases or re-let space as leases expire. Some of these competing properties may be newer, better located or better tenanted than our properties. In addition, any new competitive properties that are developed within the trade areas in which we operate may result in increased competition for customer traffic and creditworthy tenants. We may not be able to renew leases or obtain new tenants to whom space may be re-let as leases expire, and the terms of renewals or new leases (including the cost of required renovations or concessions to tenants) may be less favorable to us than current lease terms. Increased competition for tenants may require us to make capital improvements to properties which we would not have otherwise planned to make. In addition, we face competition from alternate forms of retailing, including home shopping networks, mail order catalogues and on-line based shopping services, which may limit the number of retail tenants that desire to seek space in shopping center properties generally. If we are unable to re-let substantial amounts of vacant space promptly, if the rental rates upon a renewal or new lease are significantly lower than expected, or if reserves for costs of re-letting prove inadequate, then our earnings and cash flow will decrease.
We may be restricted from re-letting space based on existing exclusivity lease provisions with some of our tenants.
In many cases, our leases contain provisions giving the tenant the exclusive right to sell clearly identified types of merchandise or provide specific types of services within the particular retail center or limit the ability of other tenants to sell that merchandise or provide those services. When releasing space after a vacancy, these provisions may limit the number and types of prospective tenants suitable for the vacant space. If we are unable to re-let space on satisfactory terms, our operating results would be adversely impacted.
Rising operating expenses could adversely affect our operating results.
Our current properties and any properties we acquire in the future are and will be subject to risks associated with rising operating expenses, any or all of which may negatively affect us. If any property is not fully occupied or if rents being paid are not sufficient to cover operating expenses, then we could be required to expend funds for that property’s operating expenses. Our properties are subject to increases in real estate and other tax rates, utility costs, insurance costs, repairs and maintenance and administrative expenses.
10
While most of our leases require that tenants pay all or a portion of the applicable real estate taxes, insurance and operating and maintenance costs, renewals of leases or future leases may not be negotiated on these terms, in which event we will have to pay those costs. If we are unable to lease properties on a basis requiring the tenants to pay all or some of these costs, or if tenants fail to pay required tax, insurance, utility and other expenses, we could be required to pay those costs, which could adversely affect our operating results.
The illiquidity of our real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties, which could adversely impact our financial condition.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial and investment conditions is limited. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to complete the sale of a property. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could significantly adversely affect our financial condition and operating results.
If we suffer losses that are not covered by insurance or that are in excess of our insurance coverage limits, we could lose invested capital and anticipated profits.
Catastrophic losses, such as losses resulting from wars, acts of terrorism, earthquakes, floods, hurricanes, tornadoes or other natural disasters, pollution or environmental matters, generally are either uninsurable or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments. Although we currently maintain “all risk” replacement cost insurance for our buildings, rents and personal property, commercial general liability insurance and pollution liability insurance, our insurance coverage may be inadequate if any of the events described above occurred to, or caused the destruction of, one or more of our properties. Under that scenario, we could lose both our invested capital and anticipated profits from that property.
RISKS RELATED TO OUR DEBT OBLIGATIONS
We have substantial debt obligations, including variable rate debt, which may impede our operating performance and put us at a competitive disadvantage.
Required repayments of debt and related interest can adversely affect our operating performance. Upon completion of this offering, the application of the estimated net proceeds (assuming an offering price of $17.88 per share) and the consummation of the transactions described under “Use of Proceeds,” we expect to have approximately $348.0 million of outstanding indebtedness. Approximately $77.7 million of this debt will bear interest at a variable rate, and we have the ability to borrow an additional $29.0 million under our existing secured credit facility. Increases in interest rates on our existing indebtedness would increase our interest expense, which could adversely affect our cash flow and our ability to pay dividends. For example, if market rates of interest on our variable rate debt outstanding as of December 31, 2001 increased by 100 basis points, the increase in interest expense on our existing variable rate debt would decrease future earnings and cash flows by approximately $768,000 annually.
11
The amount of our debt may adversely affect our business and operating results by:
Subject to compliance with the financial covenants in our borrowing agreements, our management and Board of Trustees have discretion to increase the amount of our outstanding debt at any time. We could become more highly leveraged, resulting in an increase in debt service costs that could adversely affect our cash flow and the amount available for distribution to our shareholders. If we increase our debt, we may also increase the risk of default on our debt.
Because we must annually distribute a substantial portion of our income to maintain our REIT status, we will continue to need additional debt and/or equity capital to grow.
In general, we must annually distribute at least 90% of our taxable net income to our shareholders to maintain our REIT status. As a result, those earnings will not be available to fund acquisition, development or redevelopment activities. We have historically funded acquisition, development and redevelopment activities by:
We expect to continue to fund our acquisition, development and redevelopment activities in this way. Our failure to obtain funds from these sources could limit our ability to grow, which could have a material adverse effect on the value of our common shares.
Our financial covenants may restrict our operating or acquisition activities, which may adversely impact our financial condition and operating results.
The financial covenants contained in our mortgages and debt agreements reduce our flexibility in conducting our operations and create a risk of default on our debt if we cannot continue to satisfy them. The mortgages on our properties contain customary negative covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. In addition, if we breach covenants in our debt agreements, the lender can declare a default and require us to repay the debt immediately and, if the debt is secured, can ultimately take possession of the property securing the loan.
In particular, our outstanding credit facility contains customary restrictions, requirements and other limitations on our ability to incur indebtedness, including limitations on total liabilities to assets and minimum debt service coverage and tangible net worth ratios. Our ability to borrow under our credit facility is subject to compliance with these financial and other
12
Mortgage debt obligations expose us to increased risk of loss of property, which could adversely affect our financial condition.
Incurring mortgage debt increases our risk of loss because defaults on indebtedness secured by properties may result in foreclosure actions by lenders and ultimately our loss of the related property. We have entered into mortgage loans which are secured by multiple properties and contain cross collateralization and cross default provisions. Cross collateralization provisions allow a lender to foreclose on multiple properties in the event that we default under the loan. Cross default provisions allow a lender to foreclose on the related property in the event a default is declared under another loan. For federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure but would not receive any cash proceeds.
TAX RISKS
For purposes of this section, “we”, “our” and “us” refer to Ramco-Gershenson Properties Trust, a Maryland real estate investment trust, including its predecessor, Ramco-Gershenson Properties Trust (formerly known as RPS Realty Trust), a Massachusetts business trust, but excluding all of its subsidiaries and affiliated entities.
We are involved in various tax disputes with the Internal Revenue Service and may not be able to resolve these disputes on satisfactory terms.
We are involved in a dispute with the Internal Revenue Service, also known as the “IRS,” that relates to its examination of our taxable years ended December 31, 1991 through 1995. 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 qualified to be taxed as a REIT. We requested that the IRS enter into a closing agreement with us that our ownership of the short-term Treasury Bill reverse repurchase agreements would not adversely affect our status as a REIT. The IRS deferred any action relating to this issue pending the further examination of our taxable years ended December 31, 1991 through 1994. As discussed below, the IRS has proposed 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.
If we were to fail to qualify as a REIT for any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates for such year, and distributions to shareholders would not be deductible by us in computing our taxable income. Any such corporate tax liability could be substantial and, unless we were indemnified against such tax liability, would reduce the amount of cash we have available for distribution to our shareholders, which in turn could have a material adverse impact on the value of, and trading prices for, our common shares. In addition, we would not be able to re-elect REIT status until the fifth taxable year following the initial year of disqualification unless we were to qualify for relief under applicable Internal Revenue Code provisions. See “Federal Income Tax Considerations” beginning on page 61 of this prospectus for a discussion of the material federal income tax consequences relating to us and the acquisition, holding and disposition of our common shares.
13
In May 1996, we acquired substantially all of the shopping center and retail properties, as well as the management organization and business operations, of Ramco-Gershenson, Inc. and certain of its affiliates. At that time, we contributed seven mortgage loans, three real estate properties and other assets to Atlantic Realty Trust, a newly formed REIT (referred to in this section as “Atlantic”), and distributed all of the stock of Atlantic to our shareholders. In connection with the organization of Atlantic and distribution of all of its stock, we entered into a tax agreement with Atlantic under which Atlantic assumed all 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 interest, penalties, additions to tax and costs relating to covered taxes. In addition, the tax agreement provides that, to the extent any taxes covered by the tax agreement can be avoided through the declaration of a “deficiency dividend” (that is, our declaration and payment of a current 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 percentage of our 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 has examined our taxable year ended December 31, 1995. Based on these examinations, the IRS has not only proposed 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, as noted above, but has also proposed to adjust (increase) our “REIT taxable income” for the taxable years ended December 31, 1991, 1992, 1993 and 1995. If sustained, the adjustments proposed by the IRS to our “REIT taxable income” would in and of themselves disqualify us as a REIT for at least some of these years unless we were to pay a deficiency dividend for each of the taxable years for which we would otherwise be disqualified as a REIT as a result of having failed to distribute a sufficient amount of our taxable income. We are continuing to dispute these issues with the IRS through an administrative appeals procedure. In addition, the IRS is currently conducting an examination of our 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.
Based on the second of two examination reports issued by the IRS, we could be liable for up to approximately $54.1 million in combined taxes, penalties and interest through March 31, 2002, for our taxable years ended December 31, 1991 through 1995. However, the second examination report acknowledges (as does the first examination report) that we can avoid disqualification as a REIT for our examined tax years other than for the tax year ended December 31, 1994 if we distribute a deficiency dividend to our shareholders. The distribution of a deficiency dividend would be deductible by us, thereby reducing our liability for federal income tax. Based on the second examination report, the proposed adjustments to our “REIT taxable income” would require us to pay a deficiency dividend to our current shareholders resulting in combined taxes, penalties, interest and deficiency dividends for our taxable years ended December 31, 1991 through 1995 of approximately $56.3 million as of March 31, 2002.
If the IRS successfully challenges our status as a REIT for any taxable year, we would not be able to re-elect REIT status until the fifth taxable year following the initial year of disqualification (unless we were to qualify for relief under applicable Internal Revenue Code provisions). Thus, for example, if the IRS successfully challenges our status as a REIT solely for our taxable year ended December 31, 1994 based on our ownership of the short-term Treasury Bill reverse repurchase agreements, we would not be able to re-elect REIT status until our taxable year which began January 1, 1999, unless we were to qualify for relief.
In the notes to the consolidated financial statements made part of Atlantic’s annual report on Form 10-K filed with the Securities and Exchange Commission for its fiscal year ended December 31, 2001, Atlantic has disclosed its liability for the tax deficiencies (and interest and
14
Our failure to qualify as a REIT would result in higher taxes and reduced cash
We operate in a manner so as to qualify as a REIT for federal income tax purposes. Although we do not intend to request a ruling from the IRS as to our REIT status, we have received the opinion of Honigman Miller Schwartz and Cohn LLP with respect to our qualification as a REIT since the commencement of our taxable year which began January 1, 2002. This opinion was issued in connection with this offering of common shares. A copy of this opinion is filed as an exhibit to the registration statement of which this prospectus is a part. Investors should be aware, however, that opinions of counsel are not binding on the IRS or any court. The opinion of Honigman Miller Schwartz and Cohn LLP represents only the view of our special tax counsel based on its review and analysis of existing law and on certain representations as to factual matters and covenants made by us and our Chief Executive Officer. Furthermore, both the validity of the opinion and our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution and shareholder ownership requirements on a continuing basis, the results of which will not be monitored by Honigman Miller Schwartz and Cohn LLP.
As discussed above, if we were to fail to qualify as a REIT for any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and distributions to shareholders would not be deductible by us in computing our taxable income. Any such corporate tax liability could be substantial and, unless we were indemnified against such tax liability, would reduce the amount of cash available to us for distribution to our shareholders, which in turn could have a material adverse impact on the value of, and trading prices for, our common shares.
15
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of 3,500,000 common shares in this offering will be approximately $57,575,000, after payment of the underwriting discounts and estimated offering expenses payable by us, assuming a public offering price of $17.88 per common share.
We intend to use the net proceeds of the sale of our common shares in this offering initially to pay down outstanding balances under our credit facility. Our credit facility expires in September 2003 and has a variable interest rate which is between 162.5 basis points and 225.0 basis points above LIBOR, depending on certain debt ratios, and was 200.0 basis points above LIBOR at December 31, 2001.
Following the offering, we expect to borrow approximately $27.2 million under our credit facility to redeem 1,200,000 of our series A preferred shares. These shares were originally issued at a price of $25.00 per share, and we have entered into an agreement with the holders of these shares giving us the right to redeem the shares at a price per series A preferred share equal to the greater of (a) $22.14 or (b) the quotient obtained by dividing (1) the product of (A) $25.00 and (B) the public offering price of the common shares in this offering less $2.00 by (2) $17.50. Assuming a public offering price of $17.88 per common share for the shares sold in this offering, the redemption price for the series A preferred shares would be $22.69 per share or $27.2 million in the aggregate. The table below sets forth the redemption price for the series A preferred shares at various public offering prices for the shares sold in this offering.
Redemption Price | ||||
Public Offering Price | Per Series A | |||
Per Common Share | Preferred Share | |||
$17.50 or below | $ | 22.14 | ||
$18.00 | $ | 22.86 | ||
$18.50 | $ | 23.57 |
We also plan to borrow approximately $9.1 million under our credit facility to purchase the equity of our joint venture partner in the Rivertowne Square and Chester Springs shopping centers.
The description above is our estimated allocation of the estimated net proceeds from the sale of common shares in this offering. We might change the allocation among the categories discussed above or to new categories in response to, among other things, changes in our business plans, future revenues and expenses and industry, regulatory or competitive conditions. The amount of our expenses and their timing will vary depending on a number of factors, including changes in our expected operations or business plan and changes in economic and industry conditions. Any such shifts will be at the discretion of our Board of Trustees and officers.
16
CAPITALIZATION
The following table sets forth our actual capitalization at December 31, 2001 and as adjusted to give effect to the sale of 3,500,000 common shares we are offering by this prospectus at an assumed public offering price of $17.88 per share, the application of the estimated net proceeds to us from that offering and the consummation of the transactions described under “Use of Proceeds.” See “Use of Proceeds.” You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes to our financial statements included elsewhere in this prospectus.
December 31, 2001 | ||||||||||
Actual | As Adjusted | |||||||||
(in thousands) | ||||||||||
Debt: | ||||||||||
Mortgage loans | $ | 222,850 | $ | 244,850 | ||||||
Secured credit facility | 102,300 | 81,022 | ||||||||
Unsecured term loan | 22,125 | 22,125 | ||||||||
Total debt | 347,275 | 347,997 | ||||||||
Minority Interest | 48,157 | 48,157 | ||||||||
Shareholders’ equity: | ||||||||||
Preferred shares, par value $0.01; 10,000,000 shares authorized; 1,400,000 series A preferred shares issued and outstanding (0 shares, as adjusted), liquidation value of $35,000,000 ($0, as adjusted)(1) | 33,829 | — | ||||||||
Common shares, par value $0.01; 30,000,000 shares authorized; 7,091,526 issued and outstanding (10,878,063 shares, as adjusted)(1)(2) | 71 | 109 | ||||||||
Additional paid-in capital | 150,186 | 212,556 | ||||||||
Accumulated other comprehensive loss | (3,179 | ) | (3,179 | ) | ||||||
Cumulative distributions in excess of net income | (47,502 | ) | (45,729 | ) | ||||||
Total shareholders’ equity | 133,405 | 163,757 | ||||||||
Total Capitalization | $ | 528,837 | $ | 559,911 | ||||||
See Notes 14 and 15 of the accompanying financial statements.
17
COMMON SHARE PRICE AND DIVIDEND PERFORMANCE
Our common shares are listed on The New York Stock Exchange under the trading symbol “RPT.” The following table sets forth, for the periods indicated, the range of high and low closing sales prices for our common shares as reported on The New York Stock Exchange and the cash dividends paid per share.
High | Low | Dividends | |||||||||||
Year Ended December 31, 2000 | |||||||||||||
First Quarter | $ | 14.875 | $ | 12.375 | $ | 0.42 | |||||||
Second Quarter | 15.875 | 13.500 | 0.42 | ||||||||||
Third Quarter | 15.562 | 13.875 | 0.42 | ||||||||||
Fourth Quarter | 14.750 | 12.937 | 0.42 | ||||||||||
Year Ended December 31, 2001 | |||||||||||||
First Quarter | $ | 15.00 | $ | 13.25 | $ | 0.42 | |||||||
Second Quarter | 17.55 | 13.70 | 0.42 | ||||||||||
Third Quarter | 18.15 | 14.33 | 0.42 | ||||||||||
Fourth Quarter | 17.57 | 16.05 | 0.42 | ||||||||||
Year Ending December 31, 2002 | |||||||||||||
First Quarter | $ | 18.30 | $ | 16.15 | $ | 0.42 | |||||||
Second Quarter (through April 5, 2002) | $ | 17.88 | $ | 17.65 | — |
On April 5, 2002 the last sales price for our common shares reported on The New York Stock Exchange was $17.88 per share. As of December 31, 2001, we had 2,170 shareholders of record.
Dividend Policy
Dividends are paid to our shareholders on a quarterly basis if, as and when declared by our Board of Trustees. In order to maintain our status as a REIT, we are generally required to distribute annually to our shareholders at least 90% of our adjusted “REIT taxable income” (as defined in the Internal Revenue Code).
Future dividends on our common shares will be at the discretion of our Board of Trustees and will depend on, among other things, our results of operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, our debt service requirements and other factors as our Board of Trustees may deem relevant. In addition, our credit facility contains a financial covenant which could limit the amount of dividends we could pay in the event of a deterioration in our results of operations or financial condition and which prohibits the payment of dividends on our common shares in the event that we fail to pay when due (subject to any applicable grace period) any principal of or interest on borrowings under the credit facility. Accordingly, we cannot assure you that future dividends will be paid or sustained at current levels.
18
Historically, our retained funds from operation have allowed us to maintain strong dividend coverage. The chart below sets forth our distribution coverage for each of the last two years:
For the Year Ended | |||||||||
December 31, | |||||||||
2000 | 2001 | ||||||||
Total Funds from Operations — Diluted | $ | 30,126 | $ | 31,607 | |||||
Less: Distributions | (20,362 | ) | (20,233 | ) | |||||
Retained Funds from Operations — Diluted | 9,764 | 11,374 | |||||||
Diluted Funds from Operations Payout Ratio(1) | 67.6 | % | 64.0 | % | |||||
Distribution Coverage(2) | 1.5 | 1.6 |
19
DESCRIPTION OF THE COMPANY
Overview
We are a fully integrated, self-administered and self-managed real estate investment trust, also known as a “REIT,” that develops, acquires, manages and owns community shopping centers in the midwestern, southeastern and mid-Atlantic regions of the United States. As of December 31, 2001, we had a portfolio of 57 shopping centers totaling approximately 11.4 million square feet of gross leaseable area located in 12 states. Our shopping centers include 56 community shopping centers, including nine power centers and three single tenant facilities. We also own one enclosed regional mall. Our properties are located in convenient and easily-accessible locations with abundant parking which are close to residential communities and offer excellent visibility for our tenants and easy access for shoppers.
Historical Overview and Organizational Structure
For approximately half a century, Ramco-Gershenson, Inc. and its predecessor developed and owned shopping centers throughout the United States. Over that time, we developed or acquired over 60 shopping centers with a total of over 16.5 million square feet.
In May 1996, our predecessor, RPS Realty Trust, acquired through a reverse merger substantially all the shopping centers and retail properties as well as the management company and business operations of Ramco-Gershenson, Inc. and some of its affiliates. The resulting trust changed its name to Ramco-Gershenson Properties Trust and relocated its corporate office to Southfield, Michigan, where Ramco-Gershenson, Inc.’s officers assumed management responsibility. The trust also changed its operations from a mortgage REITreal estate investment trust (“REIT”) to an equity REIT and contributed sevencertain mortgage loans threeand real estate properties and other assets to Atlantic Realty Trust, an independent, newly formed liquidating REIT, all of the stock of which was distributed to the shareholders of the trust.
REIT. In 1997, with approval from our shareholders, we changed our state of organization from Massachusetts to Maryland by terminating the Massachusetts trust and merging into a newly-formednewly formed Maryland real estate investment trust.
6
7
Years ended December 31, | ||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||
1.31 | 1.36 | 1.45 | 1.43 | 1.37 |
Years ended December 31, | ||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||
1.22 | 1.19 | 1.26 | 1.26 | 1.27 |
8
20
ORGANIZATIONAL STRUCTURE
21
Competitive Strengths
Based onoperations are conducted through our long history insubsidiaries. Accordingly, our cash flow and our ability to service our debt, including the shopping center industry,debt securities, are dependent upon the caliberearnings of our management teamsubsidiaries and the qualitydistribution of those earnings to us, whether by dividends, loans or otherwise. The payment of dividends and the making of loans and advances to us by our subsidiaries may be (i) subject to statutory or contractual restrictions, (ii) contingent upon the earnings of our subsidiaries, and (iii) subject to various business considerations. Our right to receive assets we believeof any of our subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of the debt securities to participate in those assets) will be effectively subordinated to the claims of that subsidiary’s creditors (including trade creditors), except to the extent that we are uniquely positionedrecognized as a creditor of that subsidiary, in which case our claims would still be subordinate to capitalize on opportunitiesany security interests in the real estate market as they present themselves.
Community Shopping Center Focus
We are predominantlyassets of the subsidiary and any indebtedness held by a community shopping center company with a focus on acquiring, developingsubsidiary that is senior to indebtedness held by us.
9
Markets In Which We Operate
Our shopping centers are primarily located in major metropolitan areas in the midwestern and southeastern regions of the United States. By focusing our energies on these markets, we have developed a thorough understanding of the unique characteristics of these trade areas. Based on data provided by Market Insight Group, 61.5% of our midwestern centers are located in trade areas with income levels that exceed the national average, and 84.0% of our southeastern centers are located within markets that exceed national average population growth rates. In both of these regions we have concentrated a number of centers in reasonable proximity to each other in order to achieve market penetration as well as efficiencies in management, oversight and purchasing.
Proactive Asset Management
We are proactive asset managers. We use our asset management personnel to perform a variety of functions, including playing a major role in creating and assessing leasing, redevelopment, acquisition and development opportunities. Our proactive approach to leasing has allowed us to consistently maintain a high occupancy rate, ranging between 93.0% and 95.5% during each of the last five years. As of December 31, 2001, our annual rate of tenant retention upon lease expiration averaged 73.0%. Our asset management team also helps to ensure that our centers remain competitive in their respective trade areas. For example, based on our asset managers’ recommendations, we have repositioned fully leased centers to take advantage of changes in retail trends and demographics. In addition, when considering an acquisition, we use our experience and tenant contacts to look for value-added opportunities which may not have been capitalized on by the existing owner and which may have been overlooked by our competitors. We are also able to use our tenant contacts to assess our customers’ needs for space when we evaluate potential development projects.
Experienced Management Team
Our management team has an average of approximately 27 years of experience in the real estate industry, including acquisition, development, financing, leasing and asset management experience. Over the last three decades, the members of our management team have taken advantage of the opportunities that are present in prosperous times and have met the challenges of working through market downturns. A number of our executives have worked for
22
Business Strategy
Our goal is to maximize total return for our shareholders by improving operating income and enhancing asset value. We achieve this objective by owning and managing a portfolio of shopping centers located in attractive markets with strong economic and demographic characteristics.
We pursue our goal through:
• | the | ||
• | the | ||
• | whether the | ||
• | the name of the trustee and |
23
Financing Strategy
Our goal is to have a strong and flexible financial position by accessing multiple sources of capital and by managing our leverage and variable interest rate exposure. We expect to finance future growth by:
• | any limit on the amount of debt securities that | ||
• | any | ||
• | any provisions regarding the conversion or exchange of such debt securities | ||
• | any default provisions and events of default applicable to such debt securities; | ||
• | any covenants applicable to such debt securities; | ||
• | whether such debt securities are issued in certificated or book-entry form, and the identity of the depositary for those issued in book-entry form; | ||
• | whether such debt securities are to be issuable in registered or bearer form, or both, and any restrictions applicable to the exchange of one form or another and to the offer, sale and delivery of such debt securities in either form; | ||
• | whether such debt securities may be represented initially by a debt security in temporary or permanent global form, and, if so, the initial depositary and the circumstances under which beneficial owners of interests may exchange such interests for debt securities of like tenor and of any authorized form and denomination and the authorized newspapers for publication of notices to holders of bearer securities; | ||
• | any other terms required to establish a class or series of bearer securities; | ||
• | the price(s) at which such debt securities class or series will be issued; | ||
• | the person to whom any interest will be payable on any debt securities, if other than the person in whose name the debt security is registered at the close of business on the regular record date for the payment of interest; | ||
• | any provisions restricting the declaration of dividends or requiring the maintenance of any asset ratio or maintenance of reserves; | ||
• | the date or dates on which the principal of and premium, if any, is payable or the method(s), if any, used to determine those dates; | ||
• | the rate(s) at which such debt securities will bear interest or the method(s), if any, used to calculate the rate(s); |
10
• | the date(s), if any, from which any interest will accrue, or the method(s), if any, used to determine the dates on which interest will accrue and date(s) on which interest will be payable; | ||
• | any redemption or early repayment provisions applicable to such debt securities; | ||
• | the stated maturities of installments of interest, if any, on which any interest on such debt securities will be payable and the regular record dates for any interest payable on any debt securities which are registered securities; | ||
• | the places where and the manner in which the principal of and premium and/or interest, if any, will be payable and the places where the debt securities may be presented for transfer; | ||
• | our obligation or right, if any, to redeem, purchase or repay such debt securities of the class or series pursuant to any sinking fund amortization or analogous provisions or at the option of a holder of such debt securities and other related provisions; | ||
• | the denominations in which any registered securities are to be issuable; | ||
• | the currency, currencies or currency units, including composite currencies, in which the purchase price for, the principal of and any premium and interest, if any, on such debt securities will be payable; | ||
• | the time period within which the manner in which and the terms and conditions upon which the purchaser of any of such debt securities can select the payment currency; | ||
• | if the amount of payments of principal, premium, if any, and interest, if any, on such debt securities is to be determined by reference to an index, formula or other method, or based on a coin or currency or currency unit other than that in which such debt securities are stated to be payable, the manner in which these amounts are to be determined and the calculation agent, if any, with respect thereto; | ||
• | if other than the principal amount thereof, the portion of the principal amount of the debt securities of the class or series which will be payable upon declaration or acceleration of the maturity thereof pursuant to an event of default; | ||
• | if we agree to pay any additional amounts on any of the debt securities, and coupons, if any, of the classes or series to any holder in respect of any tax, assessment or governmental charge withheld or deducted, the circumstances, procedures and terms under which we will make these payments; | ||
• | any terms applicable to debt securities of any class or series issued at an issue price below their stated principal amount; | ||
• | whether such debt securities are to be issued or delivered (whether at the time of original issuance or at the time of exchange of a temporary security of such class or series or otherwise), or any installment of principal or any premium or interest is to be payable only, upon receipt of certificates or other documents or satisfaction of other conditions in addition to those specified in the applicable indenture; | ||
• | any provisions relating to covenant defeasance and legal defeasance; | ||
• | any provisions relating to the satisfaction and discharge of the applicable indenture; | ||
• | any special applicable United States federal income tax considerations; | ||
• | any provisions relating to the modification of the applicable indenture both with and without the consent of the holders of the debt securities of the class or series issued under such indenture; and | ||
• | any other material terms not inconsistent with the provisions of |
Industry Overview
11
According to the Urban Land Institute, shopping centers are typically organized in five categories: convenience, neighborhood, community, regional and super regional centers. The shopping centers are distinguished by various characteristics, including center size, the number and type of anchor tenants and the types of products sold.
Convenience centers include at least three tenants with a gross leaseable area of up to 30,000 square feet and are generally anchored by a tenant that provides personal/convenience service such as a mini market.
24
Neighborhood centers provide
Community centers provide,part. We have also incorporated by reference in addition to convenience goods and personal servicesthis prospectus a description of our common shares which is contained in other documents we have filed with the SEC. You should read these other documents before you acquire any common shares.
Regional centers, also known as regional malls, are built around two or more full line department stores of generally not less than 50,000 square feet. Their typical size ranges from 250,000 to about 900,000 square feet. Regional malls provide services typical of a business district but are not as extensive as those provided by a super regional mall.
Super regional centers, also known as super regional malls, are built around three or more full line department stores of generally not less than 75,000 square feet. Their typical size ranges from 500,000 square feet to more than 1,500,000 square feet. These centers offer an extensive variety of general merchandise, apparel furniture and home furnishings.
Acquisition and Market Selection Process
We seek to acquire primarily community shopping centers in trade areas with attractive demographic characteristics. Our acquisition activities are focused in major metropolitan areas in the states in which we currently operate. In general, our strategy is to target geographic areas proximate to our existing community shopping centers which allows us to maximize our current resources and manage expenses. We seek to establish a firm market presence by owning multiple properties in an area. We will, however, continue to evaluate all potential acquisitions on a property-by-property and market-by-market basis. The types of markets in which we seek to acquire community shopping centers have some or all of the following characteristics:
Within specific markets, we seek a convenient and easily accessible location with abundant parking facilities, close to residential communities, with excellent visibility for our tenants and easy access for shoppers. We also look for community shopping centers with a tenant mix which is appropriate for the trade area and in which we believe there are redevelopment opportunities which could increase our investment returns. Since 1996, we have acquired 28 properties, totaling approximately 4.6 million square feet, at a total cost of $260.7 million and an average stabilized unleveraged return on costs of 10.4%.
Development of New Shopping Centers
Our 45-year history as a shopping center developer provides us with the ability to discover outstanding retail sites with development potential. We maintain strong relationships with national and regional anchor tenants, allowing us to assess their interest in our prospective developments. We seek opportunities in trade areas in metropolitan markets in which we currently operate and where we believe demand exists.
25
We do not purchase property on a speculative basis. Instead, we only purchase a development parcel once allownership of our primary anchors have signed leases and manycommon shares are subject to the preferential rights of any other class or series of our smaller retail space tenants have signed leases or indicated an interest inshares and to the project. We seek to achieve a stabilized unleveraged return on costs of at least 12.0% for eachprovisions of our developments by:
Our goal has been to develop at least one new shopping center each year. Since 1996, we have developed five shopping centers, totaling approximately 1.6 million square feet, at a costDeclaration of $93.4 million and an average stabilized unleveraged returnTrust regarding restrictions on costs of 13.7%.
Following are examplestransfer of our recent development projects:
shares.
The redevelopment of our portfolio is a driver of income growth. In addition, our redevelopment activities enable us to keep our properties competitive and well tenanted. Since 1996, we have completed 19 redevelopments totaling 1.1 million square feet, at an estimated cost of $38.6 million and a weighted average return on incremental invested capital of 14.7%.
Following are examples of our recent redevelopment projects.
26
27
Properties
As of December 31, 2001, we owned and operated a portfolio of 57 shopping centers totaling approximately 11.4 million square feet of gross leaseable area located in 12 states. Our properties consist of 56 community shopping centers, nine2008 our authorized capital included 45,000,000 common shares, of which are power centers18,583,362 shares were issued and threeoutstanding. All common shares offered pursuant to any prospectus supplement will, when issued, be duly authorized, fully paid and non-assessable. This means that the full price for our common shares will be paid at issuance and that you, as a purchaser of which are single tenant facilities. We also own one enclosed regional mall.
The following table sets forth informationsuch common shares will not be later required to pay us any additional monies for such common shares.
Year | |||||||||||||||||||||||||||||
Opened or | Gross Leaseable Area at 12/31/01 | ||||||||||||||||||||||||||||
Acquired / | Annualized Base Rent | ||||||||||||||||||||||||||||
Year of | at 12/31/01 | ||||||||||||||||||||||||||||
Latest | Company | ||||||||||||||||||||||||||||
Property Name | Expansion | Total | Owned | Anchor | % | Total | Per | ||||||||||||||||||||||
and Location | (3) | (11) | (12) | (13) | Leased | (14) | Sq. Ft. | Anchors(15) | |||||||||||||||||||||
Community Shopping Centers | |||||||||||||||||||||||||||||
Community Centers | |||||||||||||||||||||||||||||
Chester Springs, | |||||||||||||||||||||||||||||
Chester, NJ(6) | 1994/1999 | 224,138 | 224,138 | 81,760 | 99.0 | $ | 2,716,554 | $ | 12.25 | ShopRite Supermarket, Staples | |||||||||||||||||||
Aquia Towne Center, | |||||||||||||||||||||||||||||
Stafford, VA | 1998 | 240,042 | 240,042 | 117,195 | 96.4 | 2,556,412 | 11.05 | Shoppers Food Warehouse, Big Lots | |||||||||||||||||||||
West Allis Town Centre, | |||||||||||||||||||||||||||||
West Allis, WI | 1987 | 329,454 | 329,454 | 216,474 | 98.8 | 2,291,608 | 7.04 | Kmart(8), Kmart, Kohl’s Supermarket (A&P)(5) | |||||||||||||||||||||
East Town Plaza, | |||||||||||||||||||||||||||||
Madison, WI(6) | 1992/1999 | 341,954 | 208,959 | 277,680 | 93.7 | 1,671,449 | 8.54 | Burlington, Marshalls, JoAnn, Borders, Toys R Us(1), Shopco(1) | |||||||||||||||||||||
Eastridge Commons, | |||||||||||||||||||||||||||||
Flint, MI | 1990/1997 | 271,749 | 169,840 | 226,112 | 98.2 | 1,627,231 | 9.76 | Farmer Jack (A&P), Staples, Target(1), TJ Maxx | |||||||||||||||||||||
Northwest Crossing, | |||||||||||||||||||||||||||||
Knoxville, TN | 1997/1995 | 260,707 | 260,707 | 217,443 | 99.2 | 1,612,097 | 6.23 | Goody’s Family Clothing, Ingles Market(5), Wal- Mart | |||||||||||||||||||||
Roseville Plaza, | |||||||||||||||||||||||||||||
Roseville, MI | 1983/1994 | 295,987 | 295,987 | 211,166 | 91.5 | 1,582,534 | 5.84 | Marshall’s, Service Merchandise, Wal- Mart | |||||||||||||||||||||
Jackson West, | |||||||||||||||||||||||||||||
Jackson, MI | 1996/1999 | 210,321 | 210,321 | 194,484 | 100.0 | 1,566,331 | 7.45 | Circuit City, Lowe’s Home Improvement, Michael’s, OfficeMax | |||||||||||||||||||||
Crofton Plaza, | |||||||||||||||||||||||||||||
Crofton, MD | 1991 | 250,016 | 250,016 | 181,039 | 98.0 | 1,416,244 | 5.78 | Super Valu, Kmart | |||||||||||||||||||||
New Towne Plaza, | |||||||||||||||||||||||||||||
Canton, MI | 1976/1998 | 171,790 | 171,790 | 91,122 | 100.0 | 1,408,218 | 8.20 | Kohl’s Department Store | |||||||||||||||||||||
Madison Center, | |||||||||||||||||||||||||||||
Madison | |||||||||||||||||||||||||||||
Heights, MI | 1997/2000 | 226,488 | 226,488 | 167,830 | 98.9 | 1,357,158 | 6.06 | Dunham’s, Kmart | |||||||||||||||||||||
Edgewood Square, | |||||||||||||||||||||||||||||
North Augusta, SC | 1997/1995 | 228,204 | 228,204 | 207,829 | 97.9 | 1,355,001 | 6.07 | Bi-Lo Grocery, Goody’s Family Clothing, Wal-Mart | |||||||||||||||||||||
Shenandoah Square, | |||||||||||||||||||||||||||||
Davie, FL(10) | 2001 | 119,332 | 119,332 | 42,112 | 88.9 | 1,276,172 | 12.02 | Publix, Walgreens |
12
28
Year | |||||||||||||||||||||||||||||
Opened or | Gross Leaseable Area at 12/31/01 | ||||||||||||||||||||||||||||
Acquired / | Annualized Base Rent | ||||||||||||||||||||||||||||
Year of | at 12/31/01 | ||||||||||||||||||||||||||||
Latest | Company | ||||||||||||||||||||||||||||
Property Name | Expansion | Total | Owned | Anchor | % | Total | Per | ||||||||||||||||||||||
and Location | (3) | (11) | (12) | (13) | Leased | (14) | Sq. Ft. | Anchors(15) | |||||||||||||||||||||
Southfield Plaza, | |||||||||||||||||||||||||||||
Southfield, MI | 1983/1999 | 166,018 | 166,018 | 128,358 | 96.8 | 1,241,452 | 7.73 | Burlington Coat Factory, Marshall’s, F & M Drugs | |||||||||||||||||||||
Clinton Valley Mall, | |||||||||||||||||||||||||||||
Sterling | |||||||||||||||||||||||||||||
Heights, MI | 1979/1999 | 143,742 | 143,742 | 55,175 | 67.2 | 1,218,374 | 12.60 | Office Depot, DSW Shoe Warehouse | |||||||||||||||||||||
Taylors Square, | |||||||||||||||||||||||||||||
Greenville, SC | 1997/1995 | 205,384 | 205,384 | 174,624 | 100.0 | 1,206,631 | 5.87 | Wal-Mart, Tags(5) | |||||||||||||||||||||
Hickory Corners, | |||||||||||||||||||||||||||||
Hickory, NC | 1997/1999 | 177,519 | 177,519 | 118,402 | 94.1 | 1,197,711 | 7.17 | Food Lion Grocery, Wal-Mart(4), OfficeMax | |||||||||||||||||||||
Troy Towne Center, | |||||||||||||||||||||||||||||
Troy, OH | 1990/1996 | 221,358 | 130,437 | 151,921 | 93.5 | 1,180,171 | 9.67 | County Market(5), Sears Hardware, Wal-Mart(1) | |||||||||||||||||||||
Ridgeview Crossing, | |||||||||||||||||||||||||||||
Elkin, NC | 1997/1995 | 211,524 | 211,524 | 168,659 | 99.3 | 1,170,989 | 5.58 | Belk Department Store, Ingles Market, Wal-Mart | |||||||||||||||||||||
West Acres Commons, | |||||||||||||||||||||||||||||
Flint, MI(10) | 2001 | 95,089 | 95,089 | 59,889 | 94.0 | 1,139,833 | 12.75 | Farmer Jack (A&P) | |||||||||||||||||||||
Oakbrook Square, | |||||||||||||||||||||||||||||
Flint, MI | 1989 | 140,217 | 140,217 | 57,160 | 92.2 | 1,120,673 | 8.67 | Kids ’R’ Us, TJ Maxx | |||||||||||||||||||||
Sunshine Plaza, | |||||||||||||||||||||||||||||
Tamarac, FL | 1991/1998 | 233,123 | 233,123 | 162,054 | 91.9 | 1,109,745 | 5.18 | Publix, Old Time Pottery, Price Cutter | |||||||||||||||||||||
Rivertowne Square, | |||||||||||||||||||||||||||||
Deerfield | |||||||||||||||||||||||||||||
Beach, FL(6) | 1998 | 136,647 | 136,647 | 70,948 | 93.1 | 1,083,009 | 8.51 | Winn-Dixie, Office Depot | |||||||||||||||||||||
Pelican Plaza, | |||||||||||||||||||||||||||||
Sarasota, FL | 1997 | 105,873 | 105,873 | 35,768 | 95.7 | 1,051,603 | 10.38 | Linens ’n Things | |||||||||||||||||||||
Holcomb Center, | |||||||||||||||||||||||||||||
Alpharetta, GA | 1996 | 106,503 | 106,503 | 39,668 | 97.3 | 962,145 | 9.28 | A&P(5) | |||||||||||||||||||||
Village Lakes S.C., | |||||||||||||||||||||||||||||
Land O’ | |||||||||||||||||||||||||||||
Lakes, FL | 1997 | 186,476 | 186,476 | 125,141 | 96.2 | 953,213 | 5.31 | Kash ’N Karry Food Store, Wal-Mart | |||||||||||||||||||||
Conyers Crossing, | |||||||||||||||||||||||||||||
Conyers, GA | 1998 | 170,475 | 170,475 | 138,915 | 100.0 | 895,419 | 5.25 | Kmart, Hobby Lobby | |||||||||||||||||||||
Highland Square, | |||||||||||||||||||||||||||||
Crossville, TN | 1997 | 171,546 | 171,546 | 131,126 | 100.0 | 888,080 | 5.18 | Kroger, Wal- Mart(4) | |||||||||||||||||||||
Holly Springs Plaza, | |||||||||||||||||||||||||||||
Franklin, NC | 1997/1992 | 155,584 | 155,584 | 124,484 | 97.9 | 826,157 | 5.42 | Ingles Market, Wal- Mart | |||||||||||||||||||||
Cox Creek Plaza, | |||||||||||||||||||||||||||||
Florence, AL | 1997/2000 | 126,701 | 126,701 | 92,901 | 89.8 | 787,937 | 6.92 | Goody’s, Toy’s R Us, Old Navy | |||||||||||||||||||||
Stonegate Plaza, | |||||||||||||||||||||||||||||
Kingsport, TN | 1997/1993 | 138,490 | 138,490 | 127,042 | 100.0 | 709,011 | 5.12 | Food Lion Grocery, Wal-Mart |
29
Year | |||||||||||||||||||||||||||||
Opened or | Gross Leaseable Area at 12/31/01 | ||||||||||||||||||||||||||||
Acquired / | Annualized Base Rent | ||||||||||||||||||||||||||||
Year of | at 12/31/01 | ||||||||||||||||||||||||||||
Latest | Company | ||||||||||||||||||||||||||||
Property Name | Expansion | Total | Owned | Anchor | % | Total | Per | ||||||||||||||||||||||
and Location | (3) | (11) | (12) | (13) | Leased | (14) | Sq. Ft. | Anchors(15) | |||||||||||||||||||||
Mays Crossing, | |||||||||||||||||||||||||||||
Stockbridge, GA | 1997/1986 | 137,223 | 137,223 | 100,183 | 94.1 | 705,261 | 5.46 | Ingles Market(17), Wal-Mart(4) | |||||||||||||||||||||
Indian Hills, | |||||||||||||||||||||||||||||
Calhoun, GA | 1997 | 133,130 | 133,130 | 97,930 | 96.1 | 650,545 | 5.09 | Ingles Market, Wal- Mart(4) | |||||||||||||||||||||
Tellico Plaza, | |||||||||||||||||||||||||||||
Lenoir City, TN | 1997 | 114,192 | 114,192 | 94,805 | 100.0 | 614,783 | 5.38 | Bi-Lo Grocery, Wal-Mart(4) | |||||||||||||||||||||
Lake Orion Plaza, | |||||||||||||||||||||||||||||
Lake Orion, MI | 1977 | 129,452 | 129,452 | 114,574 | 99.1 | 567,417 | 4.42 | Farmer Jack (A&P), Kmart | |||||||||||||||||||||
Lantana Plaza, | |||||||||||||||||||||||||||||
Lantana, FL | 1993 | 101,622 | 101,622 | 40,275 | 94.0 | 538,376 | 5.63 | Publix | |||||||||||||||||||||
Crestview Corners, | |||||||||||||||||||||||||||||
Crestview, FL | 1997/1993 | 111,618 | 111,618 | 79,603 | 95.7 | 513,196 | 4.80 | Fleming Foods, Wal-Mart(4) | |||||||||||||||||||||
Clinton Valley Strip, | |||||||||||||||||||||||||||||
Sterling | |||||||||||||||||||||||||||||
Heights, MI | 1979 | 94,360 | 44,360 | 50,000 | 100.0 | 489,364 | 11.03 | Service Merchandise(1) | |||||||||||||||||||||
Southbay Fashion Center, | |||||||||||||||||||||||||||||
Osprey, FL | 1998 | 96,690 | 96,690 | 31,700 | 75.0 | 460,419 | 6.35 | Jacobson, Ethan Allen, Eckerd Drugs | |||||||||||||||||||||
Cumberland Gallery, | |||||||||||||||||||||||||||||
New Tazewell, TN | 1997 | 98,155 | 98,155 | 73,304 | 97.2 | 456,604 | 4.78 | Ingles Market, Wal- Mart | |||||||||||||||||||||
Fraser Shopping Center, | |||||||||||||||||||||||||||||
Fraser, MI | 1983 | 76,699 | 76,699 | 52,784 | 93.5 | 409,341 | 5.71 | Oakridge Market, Rite-Aid | |||||||||||||||||||||
Ferndale Plaza, | |||||||||||||||||||||||||||||
Ferndale, MI | 1984 | 30,916 | 30,916 | 0 | 88.7 | 335,292 | 12.22 | Old Navy | |||||||||||||||||||||
Southfield Plaza | |||||||||||||||||||||||||||||
Expansion, | |||||||||||||||||||||||||||||
Southfield, MI(2) | 1985 | 19,410 | 19,410 | 0 | 90.7 | 246,027 | 13.97 | No Anchor | |||||||||||||||||||||
Naples Towne Centre, | |||||||||||||||||||||||||||||
Naples, FL | 1983 | 148,729 | 44,152 | 125,577 | 100.0 | 235,813 | 5.34 | Kmart(1), Florida Food & Drug(1) | |||||||||||||||||||||
Subtotal — | |||||||||||||||||||||||||||||
Community | |||||||||||||||||||||||||||||
Centers | 7,354,647 | 6,874,245 | 5,005,216 | 95.7 | $ | 47,401,601 | $ | 7.20 | |||||||||||||||||||||
Power Centers | |||||||||||||||||||||||||||||
Tel-Twelve Shopping Center, | |||||||||||||||||||||||||||||
Southfield, MI | 1983/1997 | 449,176 | 449,176 | 328,537 | 77.8 | 4,074,853 | 11.66 | Circuit City, Kmart, Media Play, Office Depot | |||||||||||||||||||||
Crossroads Centre, | |||||||||||||||||||||||||||||
Rossford, OH(9) | 2001 | 443,613 | 443,613 | 381,291 | 100.0 | 3,147,091 | 7.09 | Home Depot, Target, Giant Eagle, Michael’s, Linens ’n Things | |||||||||||||||||||||
Auburn Mile, | |||||||||||||||||||||||||||||
Auburn Hills, MI | 2000 | 600,421 | 538,451 | 594,107 | 100.0 | 2,393,150 | 4.44 | Best Buy(1), Target, Meijer, Costco, Joann etc, Ethan Allen(1) |
30
Year | |||||||||||||||||||||||||||||
Opened or | Gross Leaseable Area at 12/31/01 | ||||||||||||||||||||||||||||
Acquired / | Annualized Base Rent | ||||||||||||||||||||||||||||
Year of | at 12/31/01 | ||||||||||||||||||||||||||||
Latest | Company | ||||||||||||||||||||||||||||
Property Name | Expansion | Total | Owned | Anchor | % | Total | Per | ||||||||||||||||||||||
and Location | (3) | (11) | (12) | (13) | Leased | (14) | Sq. Ft. | Anchors(15) | |||||||||||||||||||||
West Oaks II, | |||||||||||||||||||||||||||||
Novi, MI | 1987/2000 | 388,051 | 167,954 | 310,850 | 93.9 | 2,373,635 | 15.06 | �� | Kmart(1), Kohl’s Department Store(1), Marshall’s, Toys ’R’ Us(1), Kids ’R’ Us(1), Joann etc. | ||||||||||||||||||||
Spring Meadows Place, | |||||||||||||||||||||||||||||
Holland, OH | 1987/1997 | 465,088 | 189,716 | 329,443 | 95.2 | 2,039,536 | 11.29 | Dick’s Sporting Goods(1), Kroger(1), Service Merchandise(1), Target(1), TJ Maxx, OfficeMax | |||||||||||||||||||||
West Oaks I, | |||||||||||||||||||||||||||||
Novi, MI | 1981/1998 | 242,163 | 242,163 | 226,839 | 100.0 | 1,568,545 | 6.48 | Circuit City, Kmart (land lease)(1), OfficeMax, Service Merchandise(16), DSW Shoe Warehouse | |||||||||||||||||||||
Kentwood Towne Centre, | |||||||||||||||||||||||||||||
Kentwood, MI(2) | 1989 | 285,564 | 183,655 | 224,299 | 98.9 | 1,442,363 | 7.94 | Kmart(7), OfficeMax, Target(1) | |||||||||||||||||||||
Edgewood Towne Center, | |||||||||||||||||||||||||||||
Lansing, MI | 1990/1992 | 295,029 | 85,757 | 232,796 | 100.0 | 802,178 | 9.35 | OfficeMax, Sam’s Club(1), Target(1) | |||||||||||||||||||||
Shoppes of Lakeland, | |||||||||||||||||||||||||||||
Lakeland, FL | 1996 | 62,046 | 62,046 | 50,000 | 100.0 | 491,425 | 7.92 | Service Merchandise(16) | |||||||||||||||||||||
Subtotal — Power | |||||||||||||||||||||||||||||
Centers | 3,231,151 | 2,362,531 | 2,678,162 | 94.9 | $ | 18,332,776 | $ | 8.18 | |||||||||||||||||||||
Single Tenant Property | |||||||||||||||||||||||||||||
Taylor Plaza, | |||||||||||||||||||||||||||||
Taylor, MI | 1996 | 122,374 | 122,374 | 122,374 | 100.0 | 255,740 | 2.09 | Kmart | |||||||||||||||||||||
OfficeMax Center, | |||||||||||||||||||||||||||||
Toledo, OH | 1994 | 22,930 | 22,930 | 22,930 | 100.0 | 254,523 | 11.10 | OfficeMax | |||||||||||||||||||||
Northwest Crossing II, | |||||||||||||||||||||||||||||
Knoxville, TN | 1999 | 23,500 | 23,500 | 23,500 | 100.0 | 235,000 | 10.00 | OfficeMax | |||||||||||||||||||||
Subtotal — Single | |||||||||||||||||||||||||||||
Tenant Property | 168,804 | 168,804 | 168,804 | 100.0 | $ | 745,263 | $ | 4.41 | |||||||||||||||||||||
Subtotal — All | |||||||||||||||||||||||||||||
Community | |||||||||||||||||||||||||||||
Centers | 10,754,602 | 9,405,580 | 7,902,182 | 95.6 | $ | 66,479,641 | $ | 7.40 | |||||||||||||||||||||
Regional Mall | |||||||||||||||||||||||||||||
Jackson Crossing, | |||||||||||||||||||||||||||||
Jackson, MI | 1990/2000 | 637,387 | 383,144 | 425,280 | 94.0 | 3,090,516 | 8.58 | Kohl’s Department | |||||||||||||||||||||
Store, Sears(1), Toys ’R’ Us, Target(1), Best Buy | |||||||||||||||||||||||||||||
Total Portfolio | 11,391,989 | 9,788,724 | 8,327,462 | 95.5 | $ | 69,570,157 | $ | 7.44 | |||||||||||||||||||||
31
32
Company Owned | |||||||||||||||||||||
Gross Leaseable Area | Annualized Base Rent(2) | ||||||||||||||||||||
Number of | % of Total | % of Total | |||||||||||||||||||
Region/State | Properties | Total Sq. Ft.(1) | Portfolio | Total | Portfolio | ||||||||||||||||
Midwestern | |||||||||||||||||||||
Michigan | 22 | 4,093,003 | 41.8 | $ | 30,310,224 | 43.6 | |||||||||||||||
Ohio | 4 | 786,696 | 8.0 | 6,621,321 | 9.5 | ||||||||||||||||
Wisconsin | 2 | 538,413 | 5.5 | 3,963,058 | 5.7 | ||||||||||||||||
Subtotal Midwestern | 28 | 5,418,112 | 55.4 | 40,894,604 | 58.8 | ||||||||||||||||
Southeastern | |||||||||||||||||||||
Florida | 10 | 1,197,579 | 12.2 | 7,712,971 | 11.1 | ||||||||||||||||
Tennessee | 6 | 806,590 | 8.2 | 4,515,575 | 6.5 | ||||||||||||||||
Georgia | 4 | 547,331 | 5.6 | 3,213,370 | 4.6 | ||||||||||||||||
North Carolina | 3 | 544,627 | 5.6 | 3,194,857 | 4.6 | ||||||||||||||||
South Carolina | 2 | 433,588 | 4.4 | 2,561,631 | 3.7 | ||||||||||||||||
Alabama | 1 | 126,701 | 1.3 | 787,937 | 1.1 | ||||||||||||||||
Subtotal Southeastern | 26 | 3,656,416 | 37.4 | 21,986,342 | 31.6 | ||||||||||||||||
Mid-Atlantic | |||||||||||||||||||||
New Jersey | 1 | 224,138 | 2.3 | 2,716,554 | 3.9 | ||||||||||||||||
Virginia | 1 | 240,042 | 2.5 | 2,556,412 | 3.7 | ||||||||||||||||
Maryland | 1 | 250,016 | 2.6 | 1,416,244 | 2.0 | ||||||||||||||||
Subtotal Mid-Atlantic | 3 | 714,196 | 7.3 | 6,689,211 | 9.6 | ||||||||||||||||
Total | 57 | 9,788,724 | 100.0 | $ | 69,570,157 | 100.0 | |||||||||||||||
Occupancy
The following table sets forthTrust authorizes our board of trustees, without the occupancy rates by categoryapproval of our properties for 2000 and 2001. Our overall occupancy rates for 2000 and 2001 were 93.7% and 95.5%, respectively.
2000 | 2001 | |||||||
Community Centers | 94.2 | % | 95.6 | % | ||||
Enclosed Regional Mall | 89.9 | 94.0 |
33
Tenant Mix
The following table sets forth information regardingshareholders, to amend our top ten tenants asDeclaration of December 31, 2001, determined byTrust from time to time to increase or decrease the percentageaggregate number of our total annualized base rent in place at December 1, 2001.
Company Owned | ||||||||||||||||||||||
Gross Leaseable Area | Annualized Base Rent(1) | |||||||||||||||||||||
Number | % of Total | % of Total | ||||||||||||||||||||
Tenant | of Stores | Total Sq. Ft. | Portfolio | Total | Portfolio(2) | Type of Business | ||||||||||||||||
Wal-Mart | 15 | 1,382,031 | 14.1 | $ | 6,074,806 | 8.7 | Discount Department Store | |||||||||||||||
Kmart(3) | 10 | 1,011,846 | 10.3 | 4,242,048 | 6.1 | Discount Department Store | ||||||||||||||||
Farmer Jack/A & P | 5 | 252,280 | 2.6 | 2,405,664 | 3.5 | Supermarket | ||||||||||||||||
OfficeMax | 8 | 185,301 | 1.9 | 2,036,745 | 2.9 | Office Supply Store | ||||||||||||||||
Circuit City | 3 | 100,439 | 1.0 | 1,469,481 | 2.1 | Electronics Store | ||||||||||||||||
Jo-Ann Fabrics | 6 | 153,758 | 1.6 | 1,457,457 | 2.1 | Fabric & Craft Retailer | ||||||||||||||||
T.J. Maxx/Marshalls | 7 | 199,406 | 2.0 | 1,434,792 | 2.1 | Off-Price Department Store | ||||||||||||||||
Kohl’s | 3 | 187,500 | 1.9 | 1,169,262 | 1.7 | Department Store | ||||||||||||||||
Meijer | 1 | 218,139 | 2.2 | 950,000 | 1.4 | Discount Department Store | ||||||||||||||||
Fashion Bug | 12 | 105,555 | 1.1 | 862,812 | 1.2 | Women’s Apparel |
Ascommon shares and/or preferred shares or the number of December 31, 2001, 32shares of our community shopping centers, representing 57.1% of our total of 56 community shopping centers, had a grocery anchor tenant. In six of these locations, the grocery store location is currently unoccupied, but the grocery store tenant remains obligated on the lease. We hope to re-let those spaces to another grocery anchor tenant in the near future.
34
Expiring Leases
The following tables set forth information regarding the timing of the expiration of our leases as of December 31, 2001.
All Leases:
Company-Owned | Annualized Base Rent in Place | |||||||||||||||||||||||
Gross Leasable Area | at December 31, 2001 | |||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Lease | Leases | % of Total | % of Total | Per | ||||||||||||||||||||
Expiration Year | Expiring | Total Sq. Ft. | Portfolio | Total | Portfolio | Sq. Ft. | ||||||||||||||||||
2001(1) | 45 | 130,434 | 1.4 | $ | 1,180,295 | 1.7 | $ | 9.05 | ||||||||||||||||
2002 | 133 | 384,094 | 4.1 | 4,127,436 | 5.9 | 10.75 | ||||||||||||||||||
2003 | 160 | 649,312 | 6.9 | 6,586,570 | 9.5 | 10.14 | ||||||||||||||||||
2004 | 160 | 833,619 | 8.9 | 6,543,385 | 9.4 | 7.85 | ||||||||||||||||||
2005 | 119 | 769,279 | 8.2 | 6,886,696 | 9.9 | 8.95 | ||||||||||||||||||
2006 | 113 | 863,115 | 9.2 | 6,444,180 | 9.3 | 7.47 | ||||||||||||||||||
2007 | 50 | 592,753 | 6.3 | 3,980,370 | 5.7 | 6.72 | ||||||||||||||||||
2008 | 30 | 1,040,307 | 11.1 | 6,000,856 | 8.6 | 5.77 | ||||||||||||||||||
2009 | 23 | 761,512 | 8.1 | 4,583,314 | 6.6 | 6.02 | ||||||||||||||||||
2010 | 18 | 353,137 | 3.8 | 2,270,326 | 3.3 | 6.43 | ||||||||||||||||||
2011+ | 69 | 2,972,286 | 31.8 | 20,966,729 | 30.1 | 7.05 | ||||||||||||||||||
Total | 920 | 9,349,848 | 100.0 | $ | 69,570,157 | 100.0 | $ | 7.44 | ||||||||||||||||
Anchor Leases:
Company-Owned | Annualized Base Rent in Place | |||||||||||||||||||||||
Gross Leasable Area | at December 31, 2001 | |||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Lease | Leases | % of Total | % of Total | Per | ||||||||||||||||||||
Expiration Year | Expiring | Total Sq. Ft. | Portfolio | Total | Portfolio | Sq. Ft. | ||||||||||||||||||
2001(1) | 1 | 35,000 | 0.4 | $ | 262,500 | 0.4 | $ | 7.50 | ||||||||||||||||
2002 | 1 | 35,000 | 0.4 | 227,500 | 0.3 | 6.50 | ||||||||||||||||||
2003 | 5 | 186,060 | 2.0 | 1,519,709 | 2.2 | 8.17 | ||||||||||||||||||
2004 | 10 | 392,471 | 4.2 | 1,722,726 | 2.5 | 4.39 | ||||||||||||||||||
2005 | 11 | 380,916 | 4.1 | 2,193,835 | 3.2 | 5.76 | ||||||||||||||||||
2006 | 12 | 494,849 | 5.3 | 2,505,386 | 3.6 | 5.06 | ||||||||||||||||||
2007 | 6 | 407,379 | 4.4 | 1,891,991 | 2.7 | 4.64 | ||||||||||||||||||
2008 | 17 | 984,152 | 10.5 | 5,269,309 | 7.6 | 5.35 | ||||||||||||||||||
2009 | 12 | 693,856 | 7.4 | 3,793,299 | 5.5 | 5.47 | ||||||||||||||||||
2010 | 8 | 299,567 | 3.2 | 1,662,355 | 2.4 | 5.55 | ||||||||||||||||||
2011+ | 40 | 2,737,506 | 29.3 | 18,072,500 | 26.0 | 6.60 | ||||||||||||||||||
Total | 123 | 6,646,756 | 71.1 | $ | 39,121,110 | 56.2 | $ | 5.89 | ||||||||||||||||
35
Non-Anchor Leases:
Company-Owned | Annualized Base Rent in Place | |||||||||||||||||||||||
Gross Leaseable Area | at December 31, 2001 | |||||||||||||||||||||||
Number of | ||||||||||||||||||||||||
Lease | Leases | % of Total | % of Total | |||||||||||||||||||||
Expiration Year | Expiring | Total Sq. Ft. | Portfolio | Total | Portfolio | Per Sq. Ft. | ||||||||||||||||||
2001(1) | 44 | 95,434 | 1.0 | $ | 917,795 | 1.3 | $ | 9.62 | ||||||||||||||||
2002 | 132 | 349,094 | 3.8 | 3,899,936 | 5.6 | 11.17 | ||||||||||||||||||
2003 | 155 | 463,252 | 5.0 | 5,066,861 | 7.3 | 10.94 | ||||||||||||||||||
2004 | 150 | 441,148 | 4.7 | 4,820,659 | 6.9 | 10.93 | ||||||||||||||||||
2005 | 108 | 388,363 | 4.2 | 4,692,861 | 6.8 | 12.08 | ||||||||||||||||||
2006 | 101 | 368,266 | 3.9 | 3,938,794 | 5.7 | 10.70 | ||||||||||||||||||
2007 | 44 | 185,374 | 2.0 | 2,088,379 | 3.0 | 11.27 | ||||||||||||||||||
2008 | 13 | 56,155 | 0.6 | 731,547 | 1.1 | 13.03 | ||||||||||||||||||
2009 | 11 | 67,656 | 0.7 | 790,015 | 1.1 | 11.68 | ||||||||||||||||||
2010 | 10 | 53,570 | 0.6 | 607,971 | 0.9 | 11.35 | ||||||||||||||||||
2011+ | 29 | 234,780 | 2.5 | 2,894,229 | 4.2 | 12.33 | ||||||||||||||||||
Total | 797 | 2,703,092 | 28.9 | $ | 30,449,047 | 43.8 | $ | 11.26 | ||||||||||||||||
In-house Leasing and Property Management Program
We believeany class or series that effective leasing is one of the primary components of successful asset management. We maintain close relationships with our tenants, properties and markets by employing six leasing representatives, who report to our vice president of leasing. In addition, three of our vice presidents are responsible for anchor leasing and relationships. Our primary goal is for each leasing representative to become an expert in his or her marketplace by becoming familiar with current tenants as well as potential local, regional and national tenants who would complement our current tenant mix.
We annually review the need to renovate and improve our properties in response to changing market conditions and to attract and retain our tenants. We maintain an aggressive redevelopment program under which we have renovated, expanded or retenanted at least five shopping centers during each of the last four years.
36
Historical Leasing Activity
The following table reflects leasing activity in our portfolio beginning with the year ended December 31, 1999. As used in the table below, the term “expiring base rent” represents the last 12 months of base rent payable immediately priorauthority to the expiration of the lease. The term “new base rent” represents the base rent payable for the first 12 months of the lease. Expiring base rent and new base rents do not include straight line rent adjustments, tenant improvements or leasing commissions.
Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||
December 31, 1999 | December 31, 2000 | December 31, 2001 | ||||||||||||||||||||||||||||||||||
Non- | Non- | Non- | ||||||||||||||||||||||||||||||||||
Anchors | Anchors | Total | Anchors | Anchors | Total | Anchors | Anchors | Total | ||||||||||||||||||||||||||||
Summary of Expiring Leases: | ||||||||||||||||||||||||||||||||||||
Total Number of Scheduled Lease Expirations | 102 | 4 | 106 | 171 | 9 | 180 | 118 | 3 | 121 | |||||||||||||||||||||||||||
Gross Leaseable Area (sq.ft.) | 214,827 | 144,614 | 359,441 | 428,020 | 322,208 | 750,228 | 321,056 | 192,374 | 513,430 | |||||||||||||||||||||||||||
Average Base Rent/Sq.Ft. ($/sq.ft.) | $ | 10.99 | $ | 6.12 | $ | 8.47 | $ | 11.28 | $ | 5.07 | $ | 8.61 | $ | 10.74 | $ | 3.88 | $ | 8.17 | ||||||||||||||||||
Leases Renewed at Expiration: | ||||||||||||||||||||||||||||||||||||
Number of Leases | 54 | 2 | 56 | 101 | 7 | 108 | 69 | 2 | 71 | |||||||||||||||||||||||||||
Gross Leaseable Area (sq.ft.) | 112,286 | 67,260 | 179,546 | 259,142 | 273,108 | 532,250 | 168,162 | 157,374 | 325,536 | |||||||||||||||||||||||||||
Renewal Base Rent/Sq.Ft. ($/sq.ft.) | $ | 11.77 | $ | 6.29 | $ | 9.71 | $ | 12.49 | $ | 5.22 | $ | 8.76 | $ | 12.11 | $ | 3.07 | $ | 7.74 | ||||||||||||||||||
Previous Base Rent/Sq.Ft. ($/sq.ft.) | $ | 10.73 | $ | 6.13 | $ | 9.01 | $ | 11.22 | $ | 4.74 | $ | 7.90 | $ | 11.35 | $ | 3.07 | $ | 7.35 | ||||||||||||||||||
PSF Increase/(Decrease) | $ | 1.04 | $ | 0.16 | $ | 0.71 | $ | 1.27 | $ | 0.47 | $ | 0.86 | $ | 0.76 | $ | 0.00 | $ | 0.39 | ||||||||||||||||||
% Increase/(Decrease) | 9.7 | % | 2.6 | % | 7.9 | % | 11.3 | % | 10.0 | % | 10.9 | % | 6.7 | % | 0.0 | % | 5.3 | % | ||||||||||||||||||
Leases Currently Month-to-Month or Under Negotiation for Renewal: | ||||||||||||||||||||||||||||||||||||
Number of Leases | 17 | 1 | 18 | 24 | 0 | 24 | 16 | 0 | 16 | |||||||||||||||||||||||||||
Gross Leaseable Area (sq.ft.) | 40,555 | 35,000 | 75,555 | 54,809 | 0 | 54,809 | 28,549 | 0 | 28,549 | |||||||||||||||||||||||||||
Current Base Rent/Sq.Ft. ($/sq.ft.) | $ | 9.58 | $ | 7.50 | $ | 8.61 | $ | 10.54 | $ | 0.00 | $ | 10.54 | $ | 13.61 | $ | 0.00 | $ | 13.61 | ||||||||||||||||||
Leases Ended at Expiration: | ||||||||||||||||||||||||||||||||||||
Number of Leases | 31 | 1 | 32 | 46 | 2 | 48 | 33 | 1 | 34 | |||||||||||||||||||||||||||
Gross Leaseable Area (sq.ft.) | 61,986 | 42,354 | 104,340 | 114,069 | 49,100 | 163,169 | 124,345 | 35,000 | 159,345 | |||||||||||||||||||||||||||
Base Rent/Sq.Ft. ($/sq.ft.) | $ | 12.50 | $ | 6.00 | $ | 9.86 | $ | 11.76 | $ | 6.89 | $ | 9.30 | $ | 9.25 | $ | 7.50 | $ | 8.87 | ||||||||||||||||||
Lease-Up of Vacant Space: | ||||||||||||||||||||||||||||||||||||
Number of Leases | 60 | 14 | 74 | 70 | 5 | 75 | 64 | 8 | 72 | |||||||||||||||||||||||||||
Gross Leaseable Area (sq.ft.) | 171,077 | 901,778 | 1,072,855 | 245,839 | 470,274 | 716,113 | 250,263 | 416,129 | 666,392 | |||||||||||||||||||||||||||
Base Rent/Sq.Ft. ($/sq.ft.) | $ | 11.93 | $ | 6.02 | $ | 6.96 | $ | 13.05 | $ | 3.98 | (1) | $ | 7.09 | $ | 11.54 | $ | 8.05 | $ | 9.36 | |||||||||||||||||
% Increase/(Decrease) from Portfolio Average | 13.1 | % | 9.2 | % | (2.1 | )% | 19.9 | % | (27.4 | )% | 0.8 | % | 2.5 | % | 36.6 | % | 25.8 | % | ||||||||||||||||||
Portfolio Average Base Rent/Sq.Ft | $ | 10.55 | $ | 5.51 | $ | 7.11 | $ | 10.88 | $ | 5.48 | $ | 7.04 | $ | 11.26 | $ | 5.89 | $ | 7.44 |
Employees
At December 31, 2001, we employed 82 corporate employees, including six executives and two executive support personnel, 25 employees in asset management, nine employees in development and construction, two employees in acquisitions, 16 employees in financial and treasury services, 13 employees in lease administration, six employees in human resources and office services and three employees in information services. In addition, at December 31, 2001, we employed 42 on-site shopping center maintenance personnel. None of our employees are unionized.
37
Insurance
We carry “all risk” replacement cost insurance, commercial general liability insurance and pollution liability insurance on our properties.issue.
38
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1997, 1998, 1999, 2000 and 2001, and for each of the years in the five-year period ended December 31, 2001 have been derived from our audited financial statements, some of which appear elsewhere in this prospectus together with the report of Deloitte & Touche LLP, independent auditors. This selected financial data might not be a good indicator of our results for 2002. You should read the selected financial data together with our financial statements and notes to our financial statements and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
Year Ended December 31, | ||||||||||||||||||||||
1997 | 1998 | 1999 | 2000 | 2001 | ||||||||||||||||||
Operating Data: | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Rental revenues | $ | 58,492 | $ | 75,997 | $ | 83,302 | $ | 85,857 | $ | 85,788 | ||||||||||||
Fees and management income | — | — | — | — | 2,485 | |||||||||||||||||
Interest and other income | 752 | 758 | 997 | 2,675 | 2,700 | |||||||||||||||||
Total revenues | 59,244 | 76,755 | 84,299 | 88,532 | 90,973 | |||||||||||||||||
Expenses: | ||||||||||||||||||||||
Real estate taxes | 6,230 | 7,354 | 7,810 | 9,449 | 10,168 | |||||||||||||||||
Recoverable operating expenses | 11,462 | 12,763 | 14,391 | 15,104 | 14,286 | |||||||||||||||||
Depreciation and amortization | 8,216 | 12,189 | 13,311 | 15,274 | 17,083 | |||||||||||||||||
Other operating | 1,130 | 1,092 | 1,418 | 1,460 | 1,464 | |||||||||||||||||
General and administrative | 4,597 | 5,548 | 5,964 | 5,520 | 8,337 | |||||||||||||||||
Interest expense | 14,753 | 25,396 | 25,421 | 27,756 | 26,332 | |||||||||||||||||
Total expenses | 46,388 | 64,342 | 68,315 | 74,563 | 77,670 | |||||||||||||||||
Operating income | 12,856 | 12,413 | 15,984 | 13,969 | 13,303 | |||||||||||||||||
Earnings (loss) from unconsolidated entities | (314 | ) | (304 | ) | (204 | ) | 198 | 813 | ||||||||||||||
Income before gain on sale of real estate and minority interest | 12,542 | 12,109 | 15,780 | 14,167 | 14,116 | |||||||||||||||||
Gain on sale of real estate | — | — | 974 | 3,795 | 5,550 | |||||||||||||||||
Minority interest | (3,344 | ) | (3,451 | ) | (4,915 | ) | (4,942 | ) | (5,803 | ) | ||||||||||||
Net income before cumulative effect of change in accounting principle | 9,198 | 8,658 | 11,839 | 13,020 | 13,863 | |||||||||||||||||
Cumulative effect of change in accounting principle | — | — | — | (1,264 | ) | — | ||||||||||||||||
Net income | $ | 9,198 | $ | 8,658 | $ | 11,839 | $ | 11,756 | $ | 13,863 | ||||||||||||
Net income available to common shareholders | $ | 8,920 | $ | 7,044 | $ | 8,432 | $ | 8,396 | $ | 10,503 | ||||||||||||
39
Year Ended December 31, | |||||||||||||||||||||
1997 | 1998 | 1999 | 2000 | 2001 | |||||||||||||||||
Basic and diluted earnings per share before cumulative effect of change in accounting principle: | |||||||||||||||||||||
Basic | $ | 1.25 | $ | 0.99 | $ | 1.17 | $ | 1.34 | $ | 1.48 | |||||||||||
Diluted | $ | 1.25 | $ | 0.98 | $ | 1.17 | $ | 1.34 | $ | 1.47 | |||||||||||
Basic and diluted earnings per share after cumulative effect of change in accounting principle: | |||||||||||||||||||||
Basic | $ | 1.25 | $ | 0.99 | $ | 1.17 | $ | 1.17 | $ | 1.48 | |||||||||||
Diluted | $ | 1.25 | $ | 0.98 | $ | 1.17 | $ | 1.17 | $ | 1.47 | |||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||
Basic | 7,123 | 7,133 | 7,218 | 7,186 | 7,105 | ||||||||||||||||
Diluted | 7,148 | 7,165 | 7,218 | 7,187 | 7,125 | ||||||||||||||||
Pro Forma(1): | |||||||||||||||||||||
Pro forma amount assuming the change in accounting method for percentage rent revenue is applied retroactively: | |||||||||||||||||||||
Net income (loss) | $ | 8,907 | $ | 8,546 | $ | 11,656 | $ | 11,756 | $ | 13,863 | |||||||||||
Basic earnings (loss) per share | $ | 1.25 | $ | 0.97 | $ | 1.14 | $ | 1.17 | $ | 1.48 | |||||||||||
Diluted earnings (loss) per share | $ | 1.25 | $ | 0.97 | $ | 1.14 | $ | 1.17 | $ | 1.47 | |||||||||||
Other Data: | |||||||||||||||||||||
Funds from operations — Basic(2) | $ | 20,500 | $ | 22,716 | $ | 25,461 | $ | 26,766 | $ | 28,247 | |||||||||||
Funds from operations — Diluted(2) | 20,778 | 24,330 | 28,868 | 30,126 | 31,607 | ||||||||||||||||
Cash flows provided by (used in): | |||||||||||||||||||||
Operating activities | 17,026 | 16,794 | 23,954 | 17,126 | 24,556 | ||||||||||||||||
Investing activities | (153,183 | ) | (38,280 | ) | (10,703 | ) | (12,779 | ) | 5,774 | ||||||||||||
Financing activities | 137,649 | 21,003 | (12,057 | ) | (7,152 | ) | (27,727 | ) | |||||||||||||
Number of properties at end of period | 50 | 54 | 54 | 56 | 57 | ||||||||||||||||
Company owned GLA | 8,372 | 9,029 | 9,213 | 10,043 | 9,789 | ||||||||||||||||
Cash distributions declared per share | $ | 1.68 | $ | 1.68 | $ | 1.68 | $ | 1.68 | $ | 1.68 | |||||||||||
Occupancy rate | 93.6% | 93.1% | 93.0% | 93.7% | 95.5% |
At December 31, | ||||||||||||||||||||
1997 | 1998 | 1999 | 2000 | 2001 | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 5,033 | $ | 4,550 | $ | 5,744 | $ | 2,939 | $ | 5,542 | ||||||||||
Accounts receivable — net | 6,035 | 9,864 | 12,791 | 15,954 | 17,627 | |||||||||||||||
Investment in real estate (before accumulated depreciation) | 473,213 | 535,980 | 542,955 | 557,995 | 557,349 | |||||||||||||||
Total assets | 484,682 | 544,404 | 550,506 | 560,284 | 552,729 | |||||||||||||||
Mortgages and notes payable | 295,618 | 328,248 | 337,552 | 354,008 | 347,275 | |||||||||||||||
Total liabilities | 314,436 | 348,727 | 358,662 | 374,439 | 371,167 | |||||||||||||||
Minority interest | 42,282 | 48,535 | 48,396 | 47,301 | 48,157 | |||||||||||||||
Shareholders’ equity | 127,964 | 147,142 | 143,448 | 138,544 | 133,405 |
40
41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
The following analysis of our financial condition and results of operations should be read together with the preceding section, “Selected Financial Data”. Additionally, you should read and analyze our financial statements and notes to our financial statements, as well as other data included in this prospectus, in combination with the analysis below. See also the “Forward-Looking Statements” section. Dollars are in thousands.
Overview
Our operating results are dependant primarily upon rental income received from tenants under existing leases. Our future success is dependent in part on our ability to collect rental payments, maintain occupancy and increase rental rates as leases expire. An economic slowdown could result in increases in our overall vacancy rates or declines in the rent we can charge to re-lease properties upon expiration of current leases.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. It is our opinion that we fully disclose our significant accounting policies in the notes to our consolidated financial statements. Consistent with our disclosure policies we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult, subjective or complex judgment:
Reserve for Bad Debts
We provide for bad debt expense based upon the reserve method of accounting. Historically, we have provided approximately 0.5% of rental revenues as our annual bad debt reserve based on the level of bad debt we have experienced. Due to the economic downturn in the retail industry and the increase in the number of retail companies filing for bankruptcy protection (including Kmart Corporation during January 2002), we increased the bad debt expense to approximately 0.9% of rental revenue for the year ended December 31, 2001.
We continuously monitor the collectability of our accounts receivable (billed, unbilled and straight-line) from tenants and based on our judgment, adjust the allowance for bad debts as necessary. It is our policy to cease recording rental income from tenants when we believe such amounts would be uncollectible. Management believes the allowance is adequate to absorb currently estimated bad debts. However, if we experience bad debts in excess of the reserves we have established, our operating income would be reduced.
Bad debt expense amounted to $735, $330 and $559 for the three years ended December 31, 2001, 2000 and 1999, respectively.
Revenue Recognition
Shopping center space is generally leased to retail tenants under leases which are accounted for as operating leases. We recognize minimum rents on the straight-line method over the terms of the leases, as required under Statement of Financial Accounting Standard No. 13. Certain of the leases also provide for additional revenue based on contingent percentage income which is recorded on an accrual basis once the specified target that triggers this type of income is achieved. The leases also typically provide for tenant recoveries of common area maintenance, real estate taxes and other operating expenses. These recoveries are recognized as revenue in the period the applicable costs are incurred.
42
Straight line rental income was greater than the current amount required to be paid by our tenants by $2,135, $3,383 and $2,705 for the years ended December 31, 2001, 2000 and 1999, respectively. Accounts receivable include unbilled straight-line rent receivables of $10,560 at December 31, 2001 and $9,865 at December 31, 2000. Straight line rent receivable at December 31, 2001, includes approximately $1,997 due from Kmart Corporation.
Real Estate
We record real estate assets at the lower of cost or fair value if impaired. Costs incurred for the acquisition, development and construction of properties are capitalized. For redevelopment of an existing operating property, the undepreciated net book value plus the cost for the construction (including demolition costs) incurred in connection with the redevelopment are capitalized to the extent such costs do not exceed the estimated fair value when complete. To the extent such costs exceed the estimated fair value of such property, the excess is charged to expense.
We evaluate the recoverability of our investment in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired. Our assessment of recoverability of our real estate assets includes, but is not limited to recent operating results, expected net operating cash flow and our plans for future operations. For the years ended, December 31, 2001, 2000 and 1999, none of our assets were considered impaired.
During 2001, we have completed redevelopment projects aggregating approximately 212,300 square feet at a total cost of approximately $9,100 at three of our shopping centers. We are currently expanding or redeveloping two shopping centers for a total cost of approximately $12,000.
In 2002 we will begin the redevelopment of our Tel-Twelve shopping center from an enclosed regional mall to an open-air center for a total cost of approximately $17,000. In connection with the redevelopment, we will demolish approximately 20% of the gross leasable area (133,000 square feet) of the shopping center and construct a 139,600 square foot building for a nationally recognized home improvement retailer.
Other Assets
Other assets consist primarily of prepaid expenses, proposed development and acquisition costs, and financing and leasing costs which are amortized using the straight-line method over the terms of the respective agreements.
Proposed development and acquisition costs amounted to $8,394 at December 31, 2001 and $5,190 at December 31, 2000, and included our investment of $5,140 in an entity that is currently developing a shopping center. The cost method is used to account for our investment in the entity because we do not have the ability to exercise significant influence over the investee’s operating and financial policies.
Using our best estimates based on reasonable and supportable assumptions and projections, we review for impairment such assets whenever events or changes in circumstances indicate that the carrying amount of these assets might not be recoverable.
Result of Operations
Comparison of Year Ended December 31, 2001 to Year Ended December 31, 2000
Total revenue increased 2.8% or $2,441 to $90,973 for the year ended December 31, 2001 as compared to $88,532 for the year ended December 31, 2000. Of the $2,441
43
Recoveries from tenants decreased $581, or 2.4% to $23,303 for the twelve months ended December 31, 2001, as compared to $23,884 for the twelve months ended December 31, 2000. The overall recovery ratio was 95.3% for the year ended December 31, 2001, compared to 97.3% for the year ended December 31, 2000. The decline in this ratio is a result of decreased occupancy during redevelopment of four shopping centers and the sale of White Lake MarketPlace and Athens Town Center.
In January 2001, we sold White Lake MarketPlace to Pontiac Mall Limited Partnership for cash of $20,200, resulting in a gain on sale of $5,300. Various of our executive officers and trustees are partners in that partnership. The property was offered for sale utilizing the services of a national real estate brokerage firm, and we accepted the highest offer from an unrelated party. Subsequently, that party cancelled the agreement. Pontiac Mall Limited Partnership presented a comparable offer which resulted in more favorable economic benefits to us. The sale of the property was entered into upon the unanimous approval of the independent members of our Board of Trustees.
Since January 1, 2001, Ramco-Gershenson, Inc., our management company providing property management services to uspreferred shares and to other entities, has been consolidated in our financial statements. As of January 1, 2001, Ramco-Gershenson, Inc. elected to be a taxable real estate investment trust subsidiary for federal income tax purposes. In conjunction with the tax election, we entered into an option agreement to purchase the remaining votingclassify or reclassify unissued common stock of Ramco-Gershenson, Inc. In prior years this entity was accounted for using the equity method of accounting. Fees and management income earned by Ramco-Gershenson, Inc. contributed $2,485 to the increase in revenue for the year ended December 31, 2001.
For the twelve months ended December 31, 2001, percentage rents decreased $303 to $1,442, as compared to $1,745 for the twelve months ended December 31, 2000. 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. Interest and other income increased $25, to $2,700 for the twelve months ended December 31, 2001.
Total expenses for the year ended December 31, 2001 increased 4.2%, or $3,107 to $77,670, compared to $74,563 for the year ended December 31, 2000. The increase was due to a $1,809 increase in depreciation and amortization; a $2,817 increase in general and administrative expenses; and a $4 increase in other operating expenses. The increase was offset by a $99 decrease in total recoverable expenses, including real estate taxes, and a $1,424 decrease in interest expense.
Depreciation and amortization increased 11.8% in 2001 to $17,083 from $15,274 in 2000. The increase is primarily due to the redevelopment projects completed during 2001 and amortization of leasing commissions and financing costs. The consolidation of Ramco-Gershenson, Inc. in 2001 contributed $299 to the increase.
General and administrative expenses were $8,337 and represented 9.2% of total revenue for the year ended December 31, 2001, as compared to $5,520 and 6.2% of total revenue for the same period in 2000. The $2,817 increase is principally attributable to consolidating Ramco-Gershenson, Inc. in our financial statements in 2001. Fee and management income of $2,485 included in total revenue for the year ended December 31, 2001, were offset against our management fee paid to Ramco-Gershenson, Inc. prior to 2001.
Interest expense decreased $1,424, from $27,756 to $26,332 for the twelve months ended December 31, 2001. The 5.1% decrease is the result of lower balances on our credit
44
Earnings from unconsolidated entities increased $615, from $198 in 2000 to $813 for the year ended December 31, 2001. Our share of Rossford Development LLC’s income increased from $24 in 2000 to $262 in 2001. The two joint ventures we invested in during 2001 contributed $15 to the increase. In addition, depreciation and amortization expense arising from our net basis in the unconsolidated entities’ assets decreased by $148 from $267 in 2000 to $119 for the year ended December 31, 2001.
During the year ended December 31, 2001, we completed $29,045 in asset sales and recognized net gains of $5,550. The sales of properties included White Lake MarketPlace and Athens Town Center, as well as the sale of four parcels of land.
The increase in minority interest is the result of higher income before minority interest for the twelve months ended December 31, 2001 when compared to the twelve months ended December 31, 2000.
Comparison of Year Ended December 31, 2000 to Year Ended December 31, 1999
Total revenue increased 5.0% or $4,233 to $88,532 for the year ended December 31, 2000, compared to $84,299 for the year ended December 31, 1999. Of this increase, minimum rents increased by $449, or 0.8%, to $60,228 in 2000 from $59,779 in 1999. Recoveries from tenants increased $2,398 or 11.2% to $23,884 for the year ended December 31, 2000, compared to $21,486 for the year ended December 31, 1999.
The sale of Chester Springs and Rivertowne Square in August 1999 to RPT/ Invest, LLC and the disposition of Commack (Toys R Us) and Trinity Corners Shopping Center in December 1999 accounted for a reduction in minimum rent of $3,066 for the year ended December 31, 2000. Development projects at White Lake MarketPlace and Auburn Mile contributed $2,441 to minimum rent when compared to 1999. The balance of the increase in minimum rents is primarily attributable to five redevelopment projects completed during 2000.
Recoveries from tenants increased $2,398, or 11.2%, and is primarily due to a higher level of recoverable operating expenses and real estate taxes associated with White Lake MarketPlace and Auburn Mile developments. The overall recovery ratio was 97.3% for the year ended December 31, 2000, compared to 96.8% for the year ended December 31, 1999.
For the twelve months ended December 31, 2000, percentage rents decreased $292 to $1,745, compared to $2,037 for the twelve months ended December 31, 1999. This decrease is primarily the result of our initiative to convert tenants to higher minimum rent, reducing our reliance on percentage rents as a potential source of revenue. Interest and other income increased $1,678, from $997 for the twelve months ended December 31, 1999 to $2,675. Lease termination fees were $1,001 greater in the twelve months ended December 31, 2000 when compared to the same period in 1999 and kiosk license income increased $255 for the period. Gain on sale of land options during the twelve months ended December 31, 2000 accounted for $238 of the increase.
Total expenses for the year ended December 31, 2000 increased 9.1%, or $6,248 to $74,563, compared to $68,315 for the year ended December 31, 1999. The increase was due to a $2,352 increase in operating expenses, including recoverable operating expenses and real estate taxes, a $1,963 increase in depreciation and amortization, a $42 increase in other
45
Real estate taxes increased $1,639, or 21.0%, from $7,810 to $9,449 for the year ended December 31, 2000. White Lake MarketPlace and Auburn Mile development projects contributed $1,228 to the increase in real estate taxes when compared to 1999.
The $1,963 increase in depreciation is primarily due to the redevelopment projects we completed during 2000 and amortization for current year additions of tenant improvements and leasing commissions. Depreciation and amortization for White Lake MarketPlace contributed $286 to the increase.
General and administrative expenses were $5,520 and represented 6.2% of total revenue for the year ended December 31, 2000, compared to $5,964 and 7.1% of total revenue for the same period in 1999. The decrease is primarily attributable to a $249 gain on sale of real estate recognized by Ramco-Gershenson Inc., one of our unconsolidated entities in 2000, and by increased leasing and developments fees earned by the unconsolidated entity, which reduced our reimbursement obligation.
Interest expense increased $2,335, from $25,421 to $27,756 for the twelve months ended December 31, 2000. The 9.2% increase is the result of higher interest rates on variable rate debt for the twelve months ended December 31, 2000, increased borrowings on our credit facility and increased borrowings on the construction loans used to finance White Lake MarketPlace and the Auburn Mile developments.
Earnings from unconsolidated entities increased $402, to $198 in 2000 from a loss of $204 in 1999. Improved operating results of the unconsolidated entities increased $208, from $257 in 1999 to $465 for the year ended December 31, 2000. In addition, depreciation and amortization expense arising from our net basis in the unconsolidated entities’ assets decreased by $194 for the year ended December 31, 2000.
During the year ended December 31, 2000, we completed $5,431 in asset sales and recognized net gains of $3,795. The sales of properties included land parcels at Tel-Twelve Mall in April 2000 and Roseville Plaza in December 2000.
The increase in minority interest is the result of higher income before minority interest for the twelve months ended December 31, 2000 when compared to the twelve months ended December 31, 1999.
Liquidity and Capital Resources
We generated $24,556 in cash from operating activities and $5,774 from investing activities for the year ended December 31, 2001. Redevelopment of four shopping centers and improvements to existing properties used $21,727 and additional investments in unconsolidated entities used $2,469 during the year ended December 31, 2001. Proceeds from the sale of real estate provided $29,045 during the year. Financing activities used $27,727 during the twelve months ended December 31, 2001. Borrowings under our credit facility provided $470, net of repayments of $4,950, and repayments on construction loans used $13,575. Cash distributions to shareholders, holders of operating partnership units, and dividends paid to preferred shareholders amounted to $20,247.
46
Following is a summary of our contractual cash obligations at December 31, 2001.
Payments Due by Period | ||||||||||||||||||||
Less than | ||||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 4-5 Years | After 5 Years | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Long-term debt | $ | 347,275 | $ | 8,287 | $ | 157,194 | $ | 154,680 | $ | 27,114 | ||||||||||
Operating leases | 908 | 363 | 545 | — | — | |||||||||||||||
Unconditional construction cost obligations | 5,300 | 5,300 | — | — | — | |||||||||||||||
Total contractual cash obligations | $ | 353,483 | $ | 13,950 | $ | 157,739 | $ | 154,680 | $ | 27,114 | ||||||||||
Our mortgages and notes payable amounted to $347,275 at December 31, 2001 with a weighted average interest rate of 7.2%. The debt consists of 12 loans secured by various properties, plus one unsecured term loan and our credit facility, as described below. Ten of the mortgage loans amounting to $195,290 have maturities ranging from 2006 to 2011, monthly payments which include regularly scheduled amortization, and have fixed interest rates ranging between 6.8% to 8.8%. One of the mortgage loans, evidenced by tax free bonds, amounting to $6,560 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 the applicable LIBOR rate (6.4% at December 31, 2001).
In April 2001, we executed a $10,340 mortgage loan with LaSalle Bank N.A., secured by the property at Madison Shopping Center. The loan has a fixed interest rate of 7.5% and matures in May 2011.
In November 2001, we converted a construction loan to finance the Auburn Mile shopping center development located in Auburn Hills, Michigan to a new $21,000 mortgage loan. The loan carries an interest rate of 200 basis points over LIBOR, an effective rate of 4.8% at December 31, 2001, and matures in September 2005.
Our credit facility bears interest between 162.5 and 225 basis points over LIBOR depending on certain debt ratios (effective interest rate of 6.6% at December 31, 2001) 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 December 31, 2001, we were in compliance with the covenant terms.
Outstanding letters of credit issued under our credit facility amounted to $818 at December 31, 2001.
Under the terms of our credit facility, we are required to maintain interest rate swap agreements to reduce the impact of changes in interest rates on our variable rate debt. We have interest rate swap agreements with an aggregate notional amount of $75,000 at December 31, 2001. Based on rates in effect at December 31, 2001, the agreements provide for fixed rates ranging from 7.0% to 8.3% and expire on 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; 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 interest rate swap agreements, at December 31, 2001, our variable rate debt accounted for approximately $77.0 million of outstanding debt with a weighted average interest rate of 5.1%. Variable rate debt accounted for approximately 22.2% of our total debt and 14.2% of our total capitalization.
47
Our debt to total market capitalization (our debt plus the market value of our equity) ratio was 64.3% at December 31, 2001.
The properties in which Ramco-Gershenson Properties, L.P., our operating partnership, owns an interest and which we account for using the equity method of accounting are subject to non-recourse mortgage indebtedness. At December 31, 2001, our pro rata share of non-recourse mortgage debt of these properties held by unconsolidated entities was $25,796, with a weighted average interest rate of 6.2%.
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 addition, upon the occurrence of certain of such events, such as fraud or filing of a bankruptcy petition by the borrower, we would be liable for the entire outstanding balance of the loan, all accrued interest and certain other costs, penalties and expenses.
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, 2002, and if we do not exercise this option, we will be obligated to make a payment of $3.3 million to the 90% owner of this joint venture on July 17, 2002.
Our capital structure at December 31, 2001 includes property-specific mortgages, an unsecured term loan, our credit facility, our series A preferred shares our commonand thereafter to issue the classified or reclassified shares provides us with increased flexibility in structuring possible future financings and the minority interestacquisitions and in our operating partnership. At December 31, 2001, the minority interest in our operating partnership represented a 29.3% ownership interest in the operating partnershipmeeting other needs which may, under certain conditions, be exchanged for an aggregate of 2,944,977 of our common shares.
At December 31, 2001, the units in our operating partnership were exchangeable for our common shares on a one-for-one basis. As the sole general partner of our operating partnership, we have the option, but not the obligation, to settle exchanged units in our operating partnership in cash based on the current trading price of our common shares. Assuming the exchange of all limited partnership interests in our operating partnership, there would have been 10,036,503 of our common shares outstanding at December 31, 2001, with a market value of approximately $161,086 at December 31, 2001 (based on the closing price of $16.05 per common share on December 31, 2001).
The principal uses of our liquidity and capital resources are for acquisitions, development and redevelopment, including expansion and renovation programs, and debt repayment. To maintain our qualification as a REIT under the Internal Revenue Code, we are required to distribute to our shareholders at least 90% of our adjusted “REIT taxable income” (as defined in the Internal Revenue Code).
48
We have historically funded, and may continue to fund, some of our acquisition and development activities by entering into joint venture transactions with third parties in which we own 50% or less of the joint venture entity.
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.
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 redevelopment of the Shoppes of Lakeland.might arise. 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.
We anticipate that the combination of the availability under our credit facility, 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 and repositionings, to continue our currently planned capital programs and to make distributions to our shareholders in accordance with the Internal Revenue Code’s requirements applicable to REITs. Although we believe that the combination of factors discussed above will provide sufficient liquidity, no such assuranceactions can be given.
Sensitivity Analysis
We are exposed to interest rate risk on our variable rate debt obligations. Based on our debt, interest rates and the interest rate swap agreements in effect at December 31, 2001, a 100 basis point change in interest rates would affect our earnings and cash flows by approximately $768.
Funds From Operations
We generally consider funds from operations, also known as “FFO,” an appropriate supplemental measure of our financial performance because ittaken without shareholder approval, unless shareholder approval is predicated on cash flow analyses. We have adopted the most recent National Association of Real Estate Investment Trusts definition of FFO, which was amended effective January 1, 2000. Under that 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 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 States of America, consider capital expenditures which have been and will be incurred in the future, the calculation of FFO does not.
49
The following table illustrates the calculation of FFO for the years ended December 31, 1999, 2000 and 2001:
Year Ended December 31, | |||||||||||||
1999 | 2000 | 2001 | |||||||||||
(in thousands) | |||||||||||||
Net Income | $ | 11,839 | $ | 11,756 | $ | 13,863 | |||||||
Less: Gain on sale of property(1) | (1,225 | ) | (3,420 | ) | (5,207 | ) | |||||||
Add: Depreciation and amortization | 13,339 | 15,584 | 17,148 | ||||||||||
Cumulative effect of change in accounting principle | — | 1,264 | — | ||||||||||
Minority interest in partnership | 4,915 | 4,942 | 5,803 | ||||||||||
Funds from operations — diluted | 28,868 | 30,126 | 31,607 | ||||||||||
Less: Preferred share dividends | (3,407 | ) | (3,360 | ) | (3,360 | ) | |||||||
Funds from operations — basic | $ | 25,461 | $ | 26,766 | $ | 28,247 | |||||||
Weighted average equivalent shares outstanding(2) | |||||||||||||
Basic | 10,170 | 10,131 | 10,050 | ||||||||||
Diluted | 12,170 | 12,132 | 12,070 | ||||||||||
Supplemental disclosure: | |||||||||||||
Straight-line rental income | $ | 2,705 | $ | 3,383 | $ | 2,135 | |||||||
Amortization of management contracts and covenants not to compete | $ | 422 | $ | 224 | $ | 224 |
Capital Expenditures
During 2001, we spent approximately $6,193 on revenue-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-enhancing capital expenditures, including expansions, renovations and repositionings, were approximately $12,884.
Impact of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board, also known as the “FASB,” issued Statement of Financial Accounting Standard No. 141, “Business Combinations.” This statement requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. This statement prohibits the use of the pooling-of-interests method of accounting for business combinations. We do not expect the provisions of this statement to have a material impact on our consolidated financial statements.
The FASB issued Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (SFAS 142) in June 2001. This statement changes the accounting for the amortization of goodwill and other intangible assets acquired in a business combination from an amortization method to an impairment-only method. The implementation of this
50
In August 2001, the FASB issued Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). This statement supersedes FASB Statement No. 122, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144 requires an impairment loss to be recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. This statement requires the use of one of two present value techniques to measure the fair value of an asset. In addition, this statement would require us to account for the sale of shopping centers as discontinued operations and not as part of our ongoing operations. We do not expect SFAS 144 to have a material impact on our consolidated financial statements, and SFAS 144 is effective as of January 1, 2002.
Effective January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). This statement, as amended, requires us to measure all derivatives at fair value and to recognize them in our consolidated balance sheet as an asset or liability, depending on our rights and obligations under each derivative contract. If the derivative is designated as a cash flow hedge, the effective portions of change in the fair value of the derivative are deferred and recorded as a component of other comprehensive income until the hedged transactions occur and are recognized in earnings. If the derivative is designated as a fair value hedge, the changes in fair value of the derivative and the ineffective portion of a hedged derivative are recognized in earnings in the current period. The adoption of SFAS 133 resulted in a transition adjustment in other comprehensive income (loss) of $348 as of January 1, 2001. This is attributable to fair value losses on interest rate swap agreements designated as cash flow hedges. For the year ended December 31, 2001, the change in fair market value of our interest rate swap agreements increased other comprehensive loss by $2,831, to $3,179.
51
INDEBTEDNESS OUTSTANDING AFTER THIS OFFERING
Credit Facility
We maintain a credit facility through Fleet National Bank, with which we have a 35-year relationship, allowing us to borrow up to $110.0 million, which is secured by mortgages on various properties that have an approximate net book value of $164.7 million as of December 31, 2001. As of December 31, 2001, $102.3 million was outstanding under this credit facility. The credit facility expires in September 2003 and could be terminated by our lenders upon the occurrence of customary events of default. We use our credit facility to fund our acquisition, development and redevelopment activities as well as for general corporate purposes. The interest rate on this credit facility varies between 162.5 and 225.0 basis points over LIBOR depending on certain debt ratios and was 200.0 basis points over LIBOR at December 31, 2001.
Unsecured Term Loan
We have an unsecured term loan from Fleet National Bank under which $22.1 million was outstanding as of December 31, 2001. This term loan requires principal payments of $875,000 each on March 31, 2002, June 30, 2002 and September 30, 2002 and quarterly principal payments of $1,125,000 each beginning on December 31, 2002 until maturity in September 2003, and could be terminated by our lenders upon the occurrence of customary events of default. The interest rate on our term loan varies between 325.0 and 450.0 basis points over LIBOR depending on certain debt ratios and was 400.0 basis points over LIBOR at December 31, 2001.
Mortgage Indebtedness
As of December 31, 2001, we had the following outstanding mortgage indebtedness (other than the secured credit facility described above):
Principal Balance | |||||||||||||||||
as of | Balance Due | Interest | |||||||||||||||
Property Securing Loan | 12/31/01 | Maturity Date(1) | At Maturity(2) | Rate | |||||||||||||
Eight property portfolio | $ | 71,816,805 | January 2006 | $ | 65,143,737 | 8.3% | |||||||||||
Seven property portfolio | 47,891,484 | December 2007(3) | 43,480,830 | 6.8% | |||||||||||||
Ten property portfolio | 24,636,467 | January 2006 | 23,164,920 | 8.8% | |||||||||||||
Auburn Mile | 21,000,000 | September 2005 | 8,800,000 | 4.8% | (7) | ||||||||||||
Aquia Town Center | 14,643,590 | March 2008(4) | 13,242,747 | 7.4% | |||||||||||||
Madison Shopping Center | 10,294,156 | May 2011(5) | 9,152,743 | 7.5% | |||||||||||||
Jackson West | 7,635,669 | January 2006 | 6,464,078 | 7.2% | |||||||||||||
Oakbrook Square | 6,560,000 | January 2010 | 3,120,000 | 6.4% | (8) | ||||||||||||
West Oaks II | 6,243,874 | April 2006 | 4,367,103 | 8.3% | |||||||||||||
Spring Meadows | 5,446,447 | April 2006 | 3,809,365 | 8.3% | |||||||||||||
West Oaks I | 4,000,273 | January 2006 | 3,608,363 | 7.8% | |||||||||||||
Highland Square | 2,681,206 | February 2008(6) | — | 8.4% | |||||||||||||
Total | $ | 222,849,970 | |||||||||||||||
52
53
AFFILIATED TRANSACTIONS
Ramco-Gershenson, Inc., our subsidiary which provides property management and leasing services to properties owned by our operating partnership and our other affiliates, as well as to other third party property owners, provides property management, accounting and other administrative services to various entities and properties owned and/or controlled by Messrs. Joel Gershenson, Dennis Gershenson, Richard Gershenson, Bruce Gershenson and Michael Ward, each of whom is one of our executive officers and/or trustees. We believe that these services are provided on terms no less favorable than terms that we could obtain on an arm’s length basis. During the year ended December 31, 2001, Ramco-Gershenson, Inc. charged an aggregate of approximately $630,000 in respect of these services to entities owned and/or controlled by Messrs. Gershenson and Ward for approximately 1.9 million square feet under management and was owed approximately $355,000 by such entities as of December 31, 2001 for those services.
In November 2001, we invested $1.7 million in a 40% interest in Ramco/ Shenandoah LLC. The remaining 60% of this company is owned by an entity a portion of which is beneficially owned by various family partnerships and trusts under the control of two uncles of Joel Pashcow, one of our trustees, and a portion of which is beneficially owned by various trusts for the benefit of members of Mr. Pashcow’s immediate family. Mr. Pashcow is a trustee of several of these trusts. In November 2001, Ramco/ Shenandoah LLC acquired the Shenandoah Square shopping center and engaged Ramco-Gershenson, Inc. to provide property management, accounting and other administrative services to the company and the shopping center which has approximately 119,000 square feet. We believe that the terms of our management agreement with Ramco/ Shenandoah LLC are no less favorable than terms that we could obtain on an arm’s length basis. During the year ended December 31, 2001, Ramco-Gershenson, Inc. charged approximately $171,000 in respect of these services to Ramco/ Shenandoah LLC and was owed approximately $9,000 as of December 31, 2001 for those services.
In January 2001, we sold White Lake MarketPlace to Pontiac Mall Limited Partnership for $20.2 million in cash, resulting in a gain on sale to us of $5.3 million. Pontiac Mall Limited Partnership is owned 50.2% by two entities which are owned by Messrs. Joel Gershenson, Dennis Gershenson, Richard Gershenson, Bruce Gershenson and Michael Ward equally and 49.2% by a trust of which Messrs. Joel Gershenson, Dennis Gershenson, Richard Gershenson and Bruce Gershenson are equal beneficiaries and of which Bruce Gershenson serves as trustee. The remaining portion is owned by an unrelated party. This property was offered for sale utilizing the services of a national real estate brokerage firm, and we accepted the highest offer from an unrelated party which subsequently cancelled the agreement. Pontiac Mall Limited Partnership presented a comparable offer which resulted in more favorable economic benefits to us. We obtained the unanimous approval of the members of our Board of Trustees other than Joel Gershenson and Dennis Gershenson for the sale of this property to Pontiac Mall Limited Partnership.
54
MANAGEMENT
Trustees and Executive Officers
Our executive officers and trustees are as follows:
Joel D. Gershenson. Mr. Joel Gershenson has served as Chairman of the Board of Trustees and a Trustee since May 1996. He was the President of Ramco-Gershenson, Inc. from 1976 to 1996 and spent fifteen years directing its Property Management/ Asset Management Department.
Dennis E. Gershenson. Mr. Dennis Gershenson has served as our President and Chief Executive Officer and a Trustee since May 1996. Previously, he served as Vice President — Finance and Treasurer of Ramco-Gershenson, Inc. from 1976 to 1996 and arranged all of the financing of Ramco’s initial developments, expansions and acquisitions. Mr. Gershenson currently serves on the Board of Directors of Hospice of Southeastern Michigan, the Merrill Palmer Institute and the Metropolitan Affairs Coalition and has served as Regional Director of the International Council of Shopping Centers, also known as the “ICSC.”
Bruce A. Gershenson. Mr. Bruce Gershenson has served as our Executive Vice President and Treasurer since May 1996. Previously, he served as Vice President — Land Acquisitions and Sales of Ramco-Gershenson, Inc. from 1972 to 1996. Mr. Gershenson currently serves on the Board of Trustees of the Karmanos Cancer Institute and the Jewish Community Center of Detroit.
Richard D. Gershenson. Mr. Richard Gershenson has served as our Executive Vice President and Secretary since May 1996. Previously, he served as Vice President — Development and Construction of Ramco-Gershenson, Inc. from 1970 to 1996. Mr. Gershenson currently serves on the Board of Directors of the Detroit Urban League and New Detroit and is a member of the ICSC’s Governmental Affairs Committee.
55
Richard J. Smith. Mr. Smith has served as our Chief Financial Officer since May 1996. Previously, he was Vice President of Financial Services of the Hahn Company from January 1996 to May 1996, and he served as Chief Financial Officer and Treasurer of Glimcher Realty Trust, an owner, developer and manager of community shopping centers and regional and super regional malls, from 1993 to 1996. Mr. Smith was Controller and Director of Financial Services of the Taubman Company, an owner, developer and manager of regional malls, from 1978 to 1988.
Michael A. Ward. Mr. Ward has served as our Executive Vice President and Chief Operating Officer since May 1996. Previously, he was Executive Vice President of Ramco-Gershenson, Inc. from 1966 to 1996.
Stephen R. Blank. Mr. Blank has served as a Trustee since 1988. He is currently a Senior Fellow, Finance at the Urban Land Institute and has served in such position since December 1998. Previously, Mr. Blank was Managing Director of CIBC Oppenheimer Corp. from November 1993 to November 1998. He also serves on the Board of Trustees of Atlantic Realty Trust, a real estate investment trust, and on the Board of Directors of West Coast Hospitality Corporation and BNP Residential Properties, Inc.
Arthur H. Goldberg. Mr. Goldberg has served as a Trustee since 1988. He is currently the President of Manhattan Associates, LLC, a merchant and investment banking firm, and has served in such position since February 1994. Mr. Goldberg also serves on the Board of Trustees of Atlantic Realty Trust and on the Board of Directors of Educational Video Conferencing Inc.
Selwyn Isakow. Mr. Isakow has served as a Trustee since 1996. He is the founder and President of Oxford Investment Group, Inc., a private investment and development group investing in manufacturing, financial services and selected other companies, and has served in such position since 1985. Mr. Isakow also serves on the Board of Directors of Champion Enterprises, Inc., and as Chairman of Bloomfield Bancorporation and Oxford Automotive, Inc.
Robert A. Meister. Mr. Meister has served as a Trustee since 1996. He is the Vice Chairman of Aon Risk Services Companies, Inc., an insurance brokerage, risk consulting, reinsurance and employee benefits company and a subsidiary of Aon Corporation, and he has served in such position since March 1991.
Joel M. Pashcow. Mr. Pashcow has served as a Trustee since 1980. He is the Chairman of the Board of Trustees of Atlantic Realty Trust and has served in such position since May 1996. Mr. Pashcow served as our Chairman from 1988 to May 1996. He also serves on the Board of Directors of Hi Rise Recycling Solutions, Inc.
Mark K. Rosenfeld. Mr. Rosenfeld has served as a Trustee since 1996. He is the Chairman and Chief Executive Officer of Wilherst Developers Inc. and has served in such position since July 1997. Mr. Rosenfeld served as Chairman of the Board (from 1993 to 1996) and Chief Executive Officer (from 1992 to 1996) of Jacobson Stores Inc., a retail fashion merchandiser, and served as a director and member of the Executive Committee of the Board of Directors of Jacobson.
Messrs. Joel Gershenson, Dennis Gershenson, Richard Gershenson and Bruce Gershenson are brothers.
56
Committees
Our Board of Trustees has four standing committees, the Audit Committee, the Compensation Committee, the Executive Committee and the Nominating Committee, which have the following duties:
Audit Committee
Compensation Committee
Executive Committee
Nominating Committee
57
13
Because our Board of Trustees believes it is desirable for us to qualify as a REIT,status, our Declaration of Trust (asprohibits:
• | any person from actually or constructively owning our shares that would cause us to be “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT, including by reason of receiving rents from tenants that are “Related Party Tenants” in an amount that would cause us to fail to satisfy one or both of the REIT gross income tests, and | ||
• | any person from transferring our shares if the transfer would cause our shares to be owned by fewer than 100 persons. |
• | with respect to our common shares, 9.8%, in value or number of shares, whichever is more restrictive, of our outstanding common shares, and | ||
• | with respect to any class or series of our preferred shares, 9.8%, in value or number of shares, whichever is more restrictive, of the outstanding shares of the applicable class or series of our preferred shares. |
• | such person is not an | ||
• | such person’s share ownership will not cause a person who is an | ||
• | such person’s share ownership will not otherwise jeopardize our |
58
Our Board of Trusteestrustees also has the authority to increase the ownership limit from time to time, but it does not have the authority to do so to the extent that, after giving effect to an increase, five beneficial owners of our common shares could
14
Our Declaration of Trust further prohibits:
REIT status.
59
15
60
• | the title and stated value of such preferred shares; | ||
• | the number of such preferred shares being offered, the liquidation preference per share and the offering price of such preferred shares; | ||
• | the distribution rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof applicable to such preferred shares; | ||
• | the date from which distributions on such preferred shares shall accumulate, if applicable; | ||
• | the procedures for any auction and remarketing, if any, for such preferred shares; | ||
• | the provision for a sinking fund, if any, for such preferred shares; | ||
• | the provisions for redemption, if applicable, of such preferred shares; | ||
• | any listing of such preferred shares on any securities exchange; | ||
• | the terms and conditions, if applicable, upon which such preferred shares will be convertible into common shares, including the conversion price (or manner of calculation thereof); | ||
• | a discussion of United States federal income tax considerations applicable to such preferred shares; | ||
• | the relative ranking and preferences of such preferred shares as to distribution rights (including whether any liquidation preference as to the preferred shares will be treated as a liability for purposes of determining the availability of assets of ours for distributions to holders of common or preferred shares remaining junior to the preferred shares as to distribution rights) and rights upon liquidation, dissolution or winding up of our affairs; | ||
• | any limitations on issuance of any class or series of preferred shares ranking senior to or on a parity with such class or series of preferred shares as to distribution rights and rights upon liquidation, dissolution or winding up of our affairs; | ||
• | any limitations on direct or beneficial ownership and restrictions on transfer of such preferred shares, in each case as may be appropriate to preserve our status as a REIT; and |
16
17
18
19
• | the title of the warrants, | ||
• | the offering price, | ||
• | the exercise price of the warrants, | ||
• | the aggregate number of common or preferred shares purchasable upon exercise of the warrants and, in the case of warrants for preferred shares, the designation, aggregate number and terms of the class or series of preferred shares purchasable upon exercise of the warrants, |
20
• | the designation and terms of any class or series of preferred shares with which the warrants are being offered and the number of warrants being offered with such preferred shares, | ||
• | the date, if any, on and after which the warrants and any related class or series of common shares or preferred shares will be transferable separately, | ||
• | the date on which the right to exercise the warrants will commence and the date on which such right shall expire, | ||
• | any federal income tax considerations, and | ||
• | any other material terms of the warrants. |
• | the date for determining the shareholders entitled to the rights distribution; | ||
• | the aggregate number of common shares or other securities purchasable upon exercise of the rights and the exercise price and any adjustments to such exercise price; | ||
• | the aggregate number of rights being issued; | ||
• | the date, if any, on and after which the rights may be transferable separately; | ||
• | the date on which the right to exercise the rights shall commence and the date on which the right shall expire; | ||
• | any special United States federal income tax consequences; and | ||
• | any other terms of the rights, including terms, procedures and limitations relating to the distribution, exchange and exercise of the rights. |
21
• | any person who beneficially owns ten percent or more of the voting power of the trust’s shares; or | ||
• | an affiliate or associate of the trust who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting shares of the trust. |
• | 80% of the votes entitled to be cast by holders of outstanding voting shares of the trust; and | ||
• | two-thirds of the votes entitled to be cast by holders of voting shares of the trust other than shares held by the interested shareholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested shareholder. |
22
• | one-tenth or more but less than one-third; | ||
• | one-third or more but less than a majority; or | ||
• | a majority or more of all voting power. |
23
24
• | financial institutions; | ||
• | insurance companies; | ||
• | broker-dealers; | ||
• | regulated investment companies; | ||
• | holders who receive | ||
• | persons holding |
and, except to the extent discussed below:
• | except to the extent discussed below, tax-exempt organizations; and | ||
• | except to the extent discussed below, foreign investors. |
25
61
62
• | We will be taxed at regular corporate rates on any undistributed income, including undistributed net capital gains. | ||
• | We may be subject to the “alternative minimum tax” on our items of tax preference, | ||
26
• | If we have net income from “prohibited transactions,” which are, in general, sales or other dispositions of property, other than foreclosure property, held primarily for | ||
• | If we elect to treat property that we acquire in connection with a foreclosure of a mortgage loan or certain leasehold terminations as “foreclosure property,” we may thereby avoid the 100% excise tax on gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction), but the income from the sale or operation of the property may be subject to corporate income tax at the highest applicable rate (currently 35%). | ||
• | We will be subject to a 100% penalty tax on any redetermined rents, redetermined deductions, or excess interest. In general, redetermined rents are rents from real property that are overstated as a result of services furnished by a “taxable REIT subsidiary” (described below) of ours to any of our tenants. Redetermined deductions and excess interest represent amounts that are deducted by a “taxable REIT subsidiary” (described below) of ours for amounts paid to us that are in excess of the amounts that would have been charged based on arm’s-length negotiations. See “— Redetermined Rents, Redetermined Deductions, and Excess Interest” below. | ||
• | If we should fail to satisfy the 75% gross income test or the 95% gross income test discussed below, | ||
• | If we fail to satisfy any of the REIT asset tests (other than a de minimis failure of the 5% and 10% asset tests) described below, due to reasonable cause and not due to willful neglect and we nonetheless maintain our REIT qualification as a result of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test. | ||
• | If we fail to satisfy any requirement of the Code for qualifying as a REIT, other than a failure to satisfy the REIT gross income tests or asset tests, and the failure is due to reasonable cause, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such failure. | ||
• | If we should fail to distribute during each calendar year at least the sum of (1) 85% of our | ||
• | We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet certain record keeping requirements intended to monitor our compliance with rules relating to the composition of a REIT’s shareholders, as described below in | ||
• | |||
If |
63
market value of the asset as of the beginning of the Recognition Period, over | |||
• | Certain of our subsidiaries are corporations |
27
64
28
In the event that any of our disregarded subsidiaries ceases to be wholly-owned by us (for example, if any equity interest in the subsidiary is acquired by a person other than us or anotherone of our other disregarded subsidiaries), the subsidiary’s separate existence would no longer be disregarded for federal income tax purposes. Instead, it would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% (as measured by either voting power or value) of the securities of another corporation.any one issuer. See “— Income Tests” and “— Asset Tests” below
below.
65
29
• | Any amount received or accrued, directly or indirectly, with respect to any real or personal property cannot be based in whole or in part on the income or profits of any person from such property. However, an amount received or accrued generally will not be excluded from rents from real property solely by reason of being based on a fixed percentage or percentages of receipts or sales. In addition, amounts received or accrued based on income or profits do not include amounts received from a tenant based on the tenant’s income from the property if the tenant derives substantially all of its income with respect to such property from | ||
• | Amounts received from a tenant generally will not qualify as rents from real property in satisfying the gross income tests if the REIT directly, indirectly, or constructively owns, (1) in the case of a tenant which is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the total value of shares of all classes of stock of such tenant, or (2) in the case of a tenant which |
66
is not a corporation, an interest of 10% or more in the assets or net profits of such tenant. (Such a tenant is referred to in this section as a “Related Party Tenant.”) Rents that we receive from a Related Party Tenant that is also a TRS of ours, however, will not be excluded from the definition of “rents from real property” if at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the TRS are substantially comparable to rents paid by our other tenants for comparable space. Whether rents paid by our TRS are substantially comparable to rents paid by our other tenants is determined at the time the lease with the TRS is entered into, extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a “controlled” TRS is modified and such modification results in an increase in the rents payable by such TRS, any such increase will not qualify as rents from real property. For purposes of this rule, a “controlled” TRS is a TRS in which we own stock possessing more than 50% of the voting power or more than 50% of the total value. | |||
• | If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as rents from real property. The determination whether more than 15% of the rents received by a REIT from a property | ||
• | Rents from real property do not include any amount received or accrued directly or indirectly by a REIT for services furnished or rendered to tenants of a property or for managing or operating a property, unless the services furnished or rendered, or management or operation provided, are of a type that a tax-exempt organization can provide to its tenants without causing its rental income to be unrelated business taxable income under the |
30
67
• | At least 75% of the value of our total assets must be represented by some combination of “real estate assets,” cash, cash items, U.S. government securities, and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose, “real estate assets” include interests in real property, such as land, buildings, leasehold interests in real property, stock of corporations that qualify as REITs, and some kinds of | ||
• | The aggregate value of all securities of TRSs we hold may not exceed 20% of the value of our total assets (or 25% of the value of our total assets for our taxable years beginning on or after July 31, 2008). |
31
• | The value of any one issuer’s securities owned by us may not exceed 5% of the value of our assets. This asset test does not apply to securities of | ||
• | We may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. This asset test does not apply to securities of TRSs or to any security that qualifies as a “real estate asset.” In addition, solely for purposes of the 10% value test, certain types of securities, including certain “straight debt” | ||
Notwithstanding
68
32
In order to
69
To the extent
In addition, if we dispose of any asset subject to the Built-in Gain Rule (described above), then depending on the character of the asset, we might be required to distribute 90% of the Built-in Gain (less our tax on such gain), if any, recognized on the disposition of such asset under the 90% distribution requirement described above.
33
70
In the event we determine that a property, the ultimate sale of which is expected to result in taxable gain, will be regarded as held primarily for sale to customers in the ordinary course of trade or business, we intend to cause such property to be acquired by or transferred to a TRS so that gain from such sale will be subject to regular corporate income tax as discussed above under “— Effect of Subsidiary Entities — Taxable Subsidiaries.”
During the third quarter
In connection with the incorporation and distribution of allconstitute redetermined rents (by reason of the sharesperformance of Atlantic Realty Trust (which is referredservices by any TRS to in this section as “Atlantic”) in May 1996, we entered into a tax agreement with Atlantic under which Atlantic assumed all our tax liability arising out of the IRS’such tenants) if:
• | So much of such amounts as constitutes impermissible tenant service income does not exceed 1% of all amounts received or accrued during the year with respect to the property; | ||
• | The TRS renders a significant amount of similar services to unrelated parties and the charges for such services are substantially comparable; | ||
• | Rents paid by tenants leasing at least 25% of the net leasable space in the property who are not receiving services from the TRS are substantially comparable to the rents paid by tenants leasing comparable space who are receiving such services from the TRS and the charge for the services is separately stated; or |
34
71
In addition to examining our taxable years ended December 31, 1991 through 1994, the IRS has examined our taxable year ended December 31, 1995. The IRS revenue agent issued an examination report on March 1, 1999 (which is referred to in this section 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 the Asset Issue. In addition, the First Report proposes to increase 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 pay a deficiency dividend, our status as a REIT for those taxable years would not be affected. The First Report acknowledges that we can avoid disqualification as a REIT for failure to meet the distribution requirement with respect to a year for which our “REIT taxable income” is increased 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 the Asset Issue.
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 referred to in this section 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.
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 taxable year following the initial year of disqualification (or possibly an earlier taxable year if we meet certain relief provisions under the Internal Revenue Code). Thus, for example, if the IRS successfully challenges our status as a REIT solely for our taxable year ended December 31, 1994 based on the Asset Issue, we will be able to re-elect REIT status no later than our taxable year which began January 1, 1999.
72
In addition to the above-described examinations, the IRS is currently conducting an examination of us for the taxable years ended December 31, 1996 and 1997, and of the Operating Partnership for the taxable years ended December 31, 1997 and 1998.
In the notes to the consolidated financial statements made part of Atlantic’s annual report on Form 10-K filed with the Securities and Exchange Commission for its fiscal year ended December 31, 2001, 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 net assets to pay such tax deficiencies, interest and penalties. According to the annual report on Form 10-K filed by Atlantic for its fiscal year ended December 31, 2001, Atlantic had net assets at December 31, 2001 of $57.9 million (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 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 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 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 the Operating 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.
As discussed above under “Tax Audit,” if the IRS is successful in its challenge of our REIT status 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). Thus, for example, if the IRS is successful in its challenge of our REIT status for our taxable year ended December 31, 1994, we will be able to re-elect REIT status no later than our taxable year which began on January 1, 1999. Under Temporary Treasury Regulations effective for transactions in which a subchapter C corporation qualifies as a REIT (including, in the case of a subchapter C corporation that formerly qualified as a REIT, requalification as a REIT) or in which a REIT acquires (without the recognition of gain or loss) any asset from a subchapter C corporation on or after January 2, 2002, the Built-in Gain Rule applies unless the REIT elects to have the Deemed Sale Rule apply. See “Taxation of the Company — Taxation of REITs in General” above.
Under Temporary Treasury Regulations effective for transactions in which a subchapter C corporation qualifies as a REIT (including, in the case of a subchapter C corporation that formerly qualified as a REIT, requalification as a REIT) or in which a REIT acquires (without the recognition of gain or loss) any asset from a subchapter C corporation on or after June 10, 1987 and before January 2, 2002, the Deemed Sale Rule applies unless the REIT elects to have the Built-in Gain Rule apply. A REIT can retroactively elect to have the Built-in Gain Rule apply if it makes the election on any federal income tax return filed by it before March 15, 2003 (provided, however, that the REIT has reported consistently with the election for all prior periods).
73
Both sets of Temporary Treasury Regulations, are (and each of the Deemed Sale Rule and the Built-in Gain Rule is) inapplicable to any requalification as a REIT by a corporation that, (1) immediately prior to requalifying as a REIT, was taxed as a subchapter C corporation for a period not exceeding two taxable years, and, (2) immediately prior to being taxed as a subchapter C corporation, was taxed as a REIT for a period of at least one taxable year. In addition, if the REIT had an asset subject to the Built-in Gain Rule before the REIT became subject to tax as a subchapter C corporation, then the Recognition Period with respect to such asset is reduced by the portion of the Recognition Period that expired before the REIT became subject to tax as a subchapter C corporation and by the ensuing period of time that the corporation was subject to tax as a subchapter C corporation.
If we are disqualified as a REIT for any taxable year as a result of the recently-concluded or pending IRS examination described in “Tax Audit” above, and we re-elect REIT status beginning with the fifth succeeding taxable year after such taxable year, (i) the Deemed Sale Rule would apply if our election to requalify as a REIT is effective on or after June 10, 1987 and before January 2, 2002, unless we elect to have the Built-in Gain Rule apply, and (ii) the Built-in Gain Rule would apply to all of our assets held on the first day of the fifth succeeding taxable year after disqualification if our election to requalify as a REIT is effective on or after January 2, 2002 (and we would begin a new Recognition Period on the first day of such fifth succeeding taxable year), unless we elect to have the Deemed Sale Rule apply. We intend to elect to have the Built-in Gain Rule apply for the period after June 9, 1987 and before January 2, 2002, but we do not intend to elect to have the Deemed Sale Rule apply for the period after January 1, 2002. In any event, if we were able to re-elect REIT status beginning with the first or second succeeding taxable year after the taxable year of disqualification, the rules under the Temporary Treasury Regulations would not apply under the exception to such rules described in the immediately preceding paragraph.
In addition, if we are disqualified as a REIT for any taxable year or years and we re-elect REIT status in a subsequent taxable year, we would be required to distribute the earnings and profits we accumulated as a subchapter C corporation to our shareholders by the close of the first taxable year for which we re-elect REIT status. For taxable years beginning before August 6, 1997, a distribution is treated for this purpose as being made from the most recently accumulated earnings and profits instead of the earliest accumulated earnings and profits. Conversely, for taxable years beginning after August 5, 1997 and before 2001, a distribution is treated for this purpose as being made from the earliest accumulated earnings and profits rather than from the most recently accumulated earnings and profits. For taxable years after 2000, a distribution is treated for this purpose as first coming from earnings and profits that the REIT accumulated while subject to tax as a subchapter C corporation. Therefore, if we are disqualified as a REIT for any taxable year or years and we re-elect REIT status in a subsequent taxable year beginning after August 5, 1997, any distributions in such subsequent taxable year would likely be treated as first having been made from the earnings and profits we accumulated while subject to tax as a subchapter C corporation. Moreover, if we re-elect to be a REIT for a taxable year and fail to distribute such accumulated earnings and profits by the close of such year, we may distribute them (less an interest charge payable to the IRS on half the amount of the accumulated earnings and profits) in a subsequent year in which there is a determination that we would not otherwise qualify as a REIT for the taxable year of the re-election, provided that such determination contains a finding that the failure to distribute such accumulated earnings and profits by the close of the year of re-election was not due to fraud with intent to evade tax.
Tax Aspects of Investment in the Operating Partnership
74
In general, under certain Treasury Regulations which became effective January 1, 1997 (referred to in this section as the “Check-the-Box Regulations”), an unincorporated entity with at least two members may elect to be classified either as a corporation or as a partnership for federal income tax purposes. If such an entity does not make an election, it generally will be treated as a partnership for federal income tax purposes. For such an entity that was in existence prior to January 1, 1997, such as the Operating Partnership and mostsome of the other Partnerships, the entity will have the same classification (unless it elects otherwise) that it claimed under the rules in effect prior to the Check-the-Box Regulations. In addition, the federal income tax classification of an entity that was in existence prior to January 1, 1997 will be respected for all periods prior to January 1, 1997 if (1) the entity had a reasonable basis for its claimed classification, (2) the entity and all members of the entity recognized the federal income tax consequences of any changes in the entity’s classification within the 60 months prior to January 1, 1997, and (3) neither the entity nor any member of the entity was notified in writing by a taxing authority on or before May 8, 1996 that the classification of the entity was under examination. We believe that the Operating Partnership and each of the other Partnerships whichthat existed prior to January 1, 1997 reasonably claimed partnership classification under the Treasury Regulations relating to entity classification in effect prior to January 1, 1997, and such classification should be respected for federal income tax purposes. Each of them intends to continue to be classified as a partnership for federal income tax purposes, and none of them willintends to elect to be treated as an association taxable as a corporation under the Check-the-Box Regulations.
75
35
apply unless such property is subsequently revalued for capital accounting purposes under applicable Treasury Regulations.
Our share of any gain realized by the Operating Partnership or any other Partnership on the sale of any dealer property generally will be treated as income from a prohibited transaction that
76
securities.
36
• | our dividends attributable to dividends received by us from non-REIT corporations, such as TRSs; | ||
• | our dividends attributable to our REIT taxable income in the prior taxable year on which we were subject to corporate level income tax (net of the amount of such tax); and | ||
• | our dividends attributable to income in the prior taxable year from the sale of appreciated (i.e., Built-in Gain) property acquired by us from “C” corporations in carryover basis transactions or held by us on the first day of a taxable year for which we first re-qualify as a REIT after being subject to tax as a “C” corporation for more than two years (net of the amount of corporate tax on such income). |
77
To
37
38
78
interest limitation.
• | a citizen or resident of the United States, | ||
• | a corporation | ||
• | an estate the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source, or | ||
• | a trust if (1) a United States court is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of the |
39
79
Even if the foregoing test is not met, common shares nonetheless will not constitute a USRPI if we are a “domestically-controlled REIT.” A domestically-controlled REIT is a REIT in which, at all times during a specific testing period, less than 50% in value of itsthe shares of which is held directly or indirectly by non-U.S. shareholders.shareholders at all times during a prescribed testing
40
Estate Tax.Common shares owned or treated as owned by an individual who is notgain at a citizen or resident (as specially defined for U.S. federal estate tax purposes) of the United States at the time of death will be includable in the individual’s gross estate for U.S. federal estate tax purposes, unless an applicable estate30% rate (or lower tax treaty provides otherwise, and may therefore be subject to U.S. federal estate tax.
rate, if applicable).
80
In certain circumstances, a
Because our shares are publicly traded, however, no assurance can be given that we are not (or will not be) a pension-held REIT.
41
• | does not actually or constructively own a 10% or greater interest in us; | ||
• | is not a controlled foreign corporation with respect to which we are a “related person” within the meaning of Section 864(d)(4) of the Code; | ||
• | is not a bank receiving interest described in Section 881(c)(3)(A) of the Code; and | ||
• | provides the appropriate certification as to its foreign status. |
42
In addition, we may be required to withhold a portion of capital gain distributions to, or gross proceeds from our redemption of shares or other securities from, any holders who fail to certify their non-foreign status, if applicable.
81
securities.
43
82
UNDERWRITING
Subject toterms and conditionsapplicable prospectus supplement for a discussion of the underwriting agreement, the underwriters named below, through their representatives, Deutsche Bank Securities Inc., McDonald Investments Inc. and Robertson Stephens, Inc., have severally agreed to purchase from us the following respective numberany additional tax consequences for holders of common shares at a public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus:Number ofUnderwritersSharesDeutsche Bank Securities Inc. McDonald Investments Inc. Robertson Stephens, Inc. Total3,500,000 The underwriting agreement provides that the obligations of the several underwriters to purchase the common shares offered hereby are subject to certain conditions precedent and that the underwriters will purchase all of the common sharesrights offered by thissuch prospectus other than those covered bysupplement.over-allotment option described below, if any of these shares are purchased. We have been advised by the representatives of the underwriters that the underwriters propose to offer the common shares to the public at the public offering price set forth on the cover of this prospectus and to dealers at a price that represents a concession not in excess of $ per share under the public offering price. The underwriters may allow, and these dealers may re-allow, a concession of not more than $ per share to other dealers. After the public offering, representatives of the underwriters may change the offering price and other selling terms. We have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to 525,000 additional common shares at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the common shares offered by this prospectus. To the extent that the underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of these additional common shares as the number of common shares to be purchased by it in the above table bears to the total number of common shares offered by this prospectus. We will be obligated, pursuant to the option, to sell these additional common shares to the underwriters to the extent the option is exercised. If any additional common shares are purchased, the underwriters will offer the additional shares on the same terms as those on which the 3,500,000 shares are being offered.The underwriting discounts and commissions per share are equal to the public offering price per common share less the amount paid by the underwriters to us per common share. The underwriting discounts and commissions are % of the public offering price. We have agreed to pay the underwriters the following discounts and commissions, assuming either no exercise or full exercise by the underwriters of the underwriters’ over-allotment option:Total FeesFeeWithout Exercise ofWith Full Exercise ofper ShareOver-Allotment OptionOver-Allotment OptionDiscounts and commissions paid by us$$$83 In addition, we estimate that our share of the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $1,250,000. We have agreed to indemnify the underwriters against some specified types of liabilities, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments the underwriters may be required to make in respectvalidity of any of these liabilities. Each of our officers and trustees have agreed not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction that is designed to, or could be expected to, result in the disposition of any of our common shares or other securities convertible into, exchangeable into or exercisable for our common shares or derivatives of our common shares owned by these persons prior to this offering or common shares issuable upon exercise of options or warrants held by these persons for a period of 90 days after the date of this prospectus without the prior written consent of Deutsche Bank Securities Inc. This consent may be given at any time without public notice. We have entered into a similar agreement with the representatives of the underwriters except that without such consent we may grant options and sell shares pursuant to our share option plans, and we may issue our common shares or units of our operating partnership in connection with a strategic partnering transaction or in exchange for all or substantially all of the equity or assets of a company in connection with a merger or acquisition. There are no agreements between the representatives and any of our officers and trustees releasing them from these lock-up agreements prior to the expiration of the 90-day period. In order to facilitate the offering of our common shares, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the market price of our common share. Specifically, the underwriters may over-allot our common shares in connection with this offering, thus creating a short sales position in our common shares for their own account. A short sales position results when an underwriter sells more common shares than that underwriter is committed to purchase. A short sales position may involve either “covered” short sales or “naked” short sales. Covered short sales are sales made for an amount not greater than the underwriters’ over-allotment option to purchase additional shares in the offering described above. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are sales in excess of the over-allotment option. The underwriters will have to close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Accordingly, to cover these short sales positions or to stabilize the market price of our common shares, the underwriters may bid for, and purchase, our common shares in the open market. These transactions may be effected on The New York Stock Exchange or otherwise. Additionally, the representatives, on behalf of the underwriters, may also reclaim selling concessions allowed to an underwriter or dealer if the underwriting syndicate repurchases shares distributed by that underwriter or dealer. Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales or to stabilize the market price of our common shares may have the effect of raising or maintaining the market price of our common shares or preventing or mitigating a decline in the market price of our common shares. As a result, the price of our common shares may be higher than the price that might otherwise exist in the open market. The underwriters are not required to engage in these activities and, if commenced, may end any of these activities at any time.84 This prospectus is being made available in electronic format on Internet web sites maintained by one or more of the lead underwriters of this offering and may be made available on web sites maintained by other underwriters. Other than this prospectus in electronic format, the information on any underwriter’s web site and any information contained in any other web site maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part. Affiliates of each of Deutsche Bank Securities Inc., McDonald Investments Inc. and Robertson Stephens, Inc. act as lenders to us under our credit facility. Since we intend to use the net proceeds of this offering initially to reduce the outstanding balance of our credit facility, those affiliates may receive over 10% of the net proceeds. Accordingly, this offering is being made in compliance with the requirements of Rule 2710(c)(8) of the Conduct Rules of the National Association of Securities Dealers, Inc.Some of the underwriters or their affiliates have provided commercial and investment banking services to us in the past and may do so in the future. They have received customary fees and commissions for these services.LEGAL MATTERSThe validity of the issuance of the common shares offered by this prospectus will be passed upon for us by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland. Certain tax matters will be passed upon for us by Honigman Miller Schwartz and Cohn LLP, Detroit, Michigan. Certain legal matters will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
44
85
FINANCIAL INFORMATION
Index to Financial Statements
F-1
RAMCO-GERSHENSON PROPERTIES TRUST
To the Board of Trustees of
We have audited the accompanying consolidated balance sheets of Ramco-Gershenson Properties Trust and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Ramco-Gershenson Properties Trust and subsidiaries as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 3 to the consolidated financial statements, in 2001, Ramco-Gershenson Properties Trust and subsidiaries changed its method of accounting for derivative instruments to conform to Statement of Financial Accounting Standards No. 133, as amended or interpreted.
/s/ Deloitte & Touche LLP
F-2
RAMCO-GERSHENSON PROPERTIES TRUST
2001 | 2000 | |||||||||
(In thousands, except | ||||||||||
per share amounts) | ||||||||||
ASSETS | ||||||||||
Investment in real estate — net | $ | 496,269 | $ | 509,629 | ||||||
Cash and cash equivalents | 5,542 | 2,939 | ||||||||
Accounts receivable — net | 17,627 | 15,954 | ||||||||
Equity investments in and advances to unconsolidated entities | 7,837 | 9,337 | ||||||||
Other assets — net | 25,454 | 22,425 | ||||||||
Total Assets | $ | 552,729 | $ | 560,284 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Mortgages and notes payable | $ | 347,275 | $ | 354,008 | ||||||
Distributions payable | 5,062 | 5,076 | ||||||||
Accounts payable and accrued expenses | 18,830 | 15,355 | ||||||||
Total Liabilities | 371,167 | 374,439 | ||||||||
Minority Interest | 48,157 | 47,301 | ||||||||
Commitments and Contingencies | — | — | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||||
Preferred Shares, par value $.01, 10,000 shares authorized; 1,400 Series A convertible shares issued and outstanding, liquidation value of $35,000 | 33,829 | 33,829 | ||||||||
Common Shares of Beneficial Interest, par value $.01, 30,000 shares authorized; 7,092 and 7,128 issued and outstanding, respectively | 71 | 71 | ||||||||
Additional paid-in capital | 150,186 | 150,728 | ||||||||
Accumulated other comprehensive loss | (3,179 | ) | — | |||||||
Cumulative distributions in excess of net income | (47,502 | ) | (46,084 | ) | ||||||
Total Shareholders’ Equity | 133,405 | 138,544 | ||||||||
Total Liabilities and Shareholders’ Equity | $ | 552,729 | $ | 560,284 | ||||||
See notes to consolidated financial statements.
F-3
RAMCO-GERSHENSON PROPERTIES TRUST
2001 | 2000 | 1999 | ||||||||||||
(In thousands, except | ||||||||||||||
per share amounts) | ||||||||||||||
REVENUES | ||||||||||||||
Minimum rents | $ | 61,043 | $ | 60,228 | $ | 59,779 | ||||||||
Percentage rents | 1,442 | 1,745 | 2,037 | |||||||||||
Recoveries from tenants | 23,303 | 23,884 | 21,486 | |||||||||||
Fees and management income | 2,485 | — | — | |||||||||||
Interest and other income | 2,700 | 2,675 | 997 | |||||||||||
Total Revenues | 90,973 | 88,532 | 84,299 | |||||||||||
EXPENSES | ||||||||||||||
Real estate taxes | 10,168 | 9,449 | 7,810 | |||||||||||
Recoverable operating expenses | 14,286 | 15,104 | 14,391 | |||||||||||
Depreciation and amortization | 17,083 | 15,274 | 13,311 | |||||||||||
Other operating | 1,464 | 1,460 | 1,418 | |||||||||||
General and administrative | 8,337 | 5,520 | 5,964 | |||||||||||
Interest expense | 26,332 | 27,756 | 25,421 | |||||||||||
Total Expenses | 77,670 | 74,563 | 68,315 | |||||||||||
Operating income | 13,303 | 13,969 | 15,984 | |||||||||||
Earnings (Loss) from unconsolidated entities | 813 | 198 | (204 | ) | ||||||||||
Income before gain on sale of real estate and minority interest | 14,116 | 14,167 | 15,780 | |||||||||||
Gain on sale of real estate | 5,550 | 3,795 | 974 | |||||||||||
Minority interest | (5,803 | ) | (4,942 | ) | (4,915 | ) | ||||||||
Net income before cumulative effect of change in accounting principle | 13,863 | 13,020 | 11,839 | |||||||||||
Cumulative effect of change in accounting principle | — | (1,264 | ) | — | ||||||||||
Net income | 13,863 | 11,756 | 11,839 | |||||||||||
Preferred stock dividends | 3,360 | 3,360 | 3,407 | |||||||||||
Net income available to common shareholders | $ | 10,503 | $ | 8,396 | $ | 8,432 | ||||||||
Basic and diluted earnings per share before cumulative effect of change in accounting principle: | ||||||||||||||
Basic | $ 1.48 | $ | 1.34 | $ | 1.17 | |||||||||
Diluted | $ 1.47 | $ | 1.34 | $ | 1.17 | |||||||||
Basic and diluted earnings per share after cumulative effect of change in accounting principle: | ||||||||||||||
Basic | $ 1.48 | $ | 1.17 | $ | 1.17 | |||||||||
Diluted | $ 1.47 | $ | 1.17 | $ | 1.17 | |||||||||
Weighted average shares outstanding: | ||||||||||||||
Basic | 7,105 | 7,186 | 7,218 | |||||||||||
Diluted | 7,125 | 7,187 | 7,218 | |||||||||||
See notes to consolidated financial statements.
F-4
RAMCO-GERSHENSON PROPERTIES TRUST
Accumulated | |||||||||||||||||||||||||
Common | Additional | Other | Cumulative | Total | |||||||||||||||||||||
Preferred | Stock | Paid-In | Comprehensive | Earnings/ | Shareholders’ | ||||||||||||||||||||
Stock | Par Value | Capital | Loss | Distributions | Equity | ||||||||||||||||||||
(In thousands, except share amounts) | |||||||||||||||||||||||||
Balance, January 1, 1999 | $ | 33,829 | $ | 72 | $ | 151,973 | $ | — | $ | (38,732 | ) | $ | 147,142 | ||||||||||||
Cash distributions declared | (12,126 | ) | (12,126 | ) | |||||||||||||||||||||
Preferred Shares dividends declared | (3,407 | ) | (3,407 | ) | |||||||||||||||||||||
Net income and comprehensive income | 11,839 | 11,839 | |||||||||||||||||||||||
Balance, December 31, 1999 | 33,829 | 72 | 151,973 | — | (42,426 | ) | 143,448 | ||||||||||||||||||
Cash distributions declared | (12,054 | ) | (12,054 | ) | |||||||||||||||||||||
Preferred Shares dividends declared | (3,360 | ) | (3,360 | ) | |||||||||||||||||||||
Purchase and retirement of common shares | (1 | ) | (1,245 | ) | (1,246 | ) | |||||||||||||||||||
Net income and comprehensive income | 11,756 | 11,756 | |||||||||||||||||||||||
Balance, December 31, 2000 | 33,829 | 71 | 150,728 | — | (46,084 | ) | 138,544 | ||||||||||||||||||
Cash distributions declared | (11,921 | ) | (11,921 | ) | |||||||||||||||||||||
Preferred Shares dividends declared | (3,360 | ) | (3,360 | ) | |||||||||||||||||||||
Purchase and retirement of common shares | (654 | ) | (654 | ) | |||||||||||||||||||||
Stock options exercised | 112 | 112 | |||||||||||||||||||||||
33,829 | 71 | 150,186 | — | (61,365 | ) | 122,721 | |||||||||||||||||||
Components of comprehensive income (loss): | |||||||||||||||||||||||||
Net income | 13,863 | 13,863 | |||||||||||||||||||||||
Cumulative effect of change in accounting principle | (348 | ) | (348 | ) | |||||||||||||||||||||
Unrealized losses on interest rate swaps | (2,831 | ) | (2,831 | ) | |||||||||||||||||||||
Total Comprehensive Income | — | — | — | (3,179 | ) | 13,863 | 10,684 | ||||||||||||||||||
Balance, December 31, 2001 | $ | 33,829 | $ | 71 | $ | 150,186 | $ | (3,179 | ) | $ | (47,502 | ) | $ | 133,405 | |||||||||||
See notes to consolidated financial statements.
F-5
RAMCO-GERSHENSON PROPERTIES TRUST
2001 | 2000 | 1999 | |||||||||||||
(In thousands) | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||
Net Income | $ | 13,863 | $ | 11,756 | $ | 11,839 | |||||||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | |||||||||||||||
Depreciation and amortization | 17,083 | 15,274 | 13,311 | ||||||||||||
Amortization of deferred financing costs | 785 | 375 | 635 | ||||||||||||
Gain on sale of real estate | (5,550 | ) | (3,795 | ) | (974 | ) | |||||||||
(Earnings) Loss from unconsolidated entities | (813 | ) | (198 | ) | 204 | ||||||||||
Minority Interest | 5,803 | 4,942 | 4,915 | ||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Accounts receivable | (1,231 | ) | (4,089 | ) | (2,927 | ) | |||||||||
Other assets | (4,688 | ) | (7,421 | ) | (3,796 | ) | |||||||||
Accounts payable and accrued expenses | (696 | ) | 282 | 747 | |||||||||||
Cash Flows Provided By Operating Activities | 24,556 | 17,126 | 23,954 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||
Capital expenditures | (21,727 | ) | (27,332 | ) | (43,178 | ) | |||||||||
Investment in unconsolidated entities | (2,469 | ) | (1,430 | ) | (2,329 | ) | |||||||||
Proceeds from sale of real estate | 29,045 | 5,431 | 34,425 | ||||||||||||
Collection of note receivable from unconsolidated entity | — | 9,326 | — | ||||||||||||
Advances from unconsolidated entities | 122 | 924 | 92 | ||||||||||||
Distributions received from unconsolidated entities | 803 | 302 | 287 | ||||||||||||
Cash Flows Provided by (Used In) Investing Activities | 5,774 | (12,779 | ) | (10,703 | ) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||
Cash distributions to shareholders | (11,942 | ) | (12,091 | ) | (12,126 | ) | |||||||||
Cash distributions to operating partnership unit holders | (4,947 | ) | (4,948 | ) | (5,227 | ) | |||||||||
Cash dividends paid on preferred shares | (3,358 | ) | (3,374 | ) | (3,253 | ) | |||||||||
Repayment of Credit Facility | (4,950 | ) | (20,120 | ) | (34,388 | ) | |||||||||
Repayment of unsecured loan | (2,875 | ) | (20,000 | ) | — | ||||||||||
Principal repayments on mortgage debt | (4,076 | ) | (5,605 | ) | (3,179 | ) | |||||||||
Purchase and retirement of common shares | (654 | ) | (1,246 | ) | — | ||||||||||
Payments of deferred financing costs | (205 | ) | (1,949 | ) | (658 | ) | |||||||||
Purchase of operating partnership units | — | — | (97 | ) | |||||||||||
Borrowings on Credit Facility | 5,420 | 33,250 | 25,100 | ||||||||||||
Borrowings on fixed rate mortgage | 10,340 | 25,000 | — | ||||||||||||
Borrowings on variable rate mortgage | 2,983 | — | — | ||||||||||||
(Repayment) borrowings on construction loans | (13,575 | ) | 3,931 | 21,771 | |||||||||||
Proceeds from exercise of stock options | 112 | — | — | ||||||||||||
Cash Flows Used In Financing Activities | (27,727 | ) | (7,152 | ) | (12,057 | ) | |||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 2,603 | (2,805 | ) | 1,194 | |||||||||||
Cash and Cash Equivalents, Beginning of Period | 2,939 | 5,744 | 4,550 | ||||||||||||
Cash and Cash Equivalents, End of Period | $ | 5,542 | $ | 2,939 | $ | 5,744 | |||||||||
Supplemental Disclosures of Cash Flow Information: | |||||||||||||||
Cash Paid for Interest During the Period | $ | 25,110 | $ | 28,905 | $ | 26,361 | |||||||||
See notes to consolidated financial statements.
F-6
RAMCO-GERSHENSON PROPERTIES TRUST
1. Organization
We are engaged in The following table itemizes the business of owning, developing, acquiring, managing and leasing community shopping centers, regional malls and single tenant retail properties. At December 31, 2001, we had a portfolio of 57 shopping centers, with more than 11,400,000 square feet of gross leasable area, located in the midwestern, southeastern and mid-Atlantic regions of the United States. Our centers are usually anchoredexpenses incurred by discount department stores or supermarkets and the tenant base consists primarily of national and regional retail chains and local retailers. Our credit risk, therefore, is concentrated in the retail industry.
The economic performance and value of our real estate assets are subject to all the risks associated with owning and operating real estate, including risks related to adverse changes in national, regional and local economic and market conditions. The economic condition of each of our markets may be dependent on one or more industries. An economic downturn in one of these industries may result in a business downturn for our tenants, and as a result, these tenants may fail to make rental payments, decline to extend leases upon expiration, delay lease commencements or declare bankruptcy.
Any tenant bankruptcies, leasing delays, or failure to make rental payments when due could result in the termination of the tenant’s lease, causing material losses to us and adversely impacting our operating results. If our properties do not generate sufficient income to meet our operating expenses, including future debt service, our income and results of operations would be adversely affected. During 2001, seven of our tenants filed for bankruptcy protection, representing a total of 15 locations. These tenants represented approximately 1.7% of our aggregate base rental income during 2001. During January 2002, two more of our tenants filed for bankruptcy protection, including Kmart Corporation which represented approximately 6.1% of our annualized base rental income at December 31, 2001.
Revenues from our largest tenant, Wal-Mart, amounted to 8.7%, 9.2% and 10.2% of our annualized base rent for the years ended December 31, 2001, 2000 and 1999, respectively.
2. Summary of Significant Accounting Policies
Principles of Consolidation — The consolidated financial statements include the accounts of the Company and our majority owned subsidiary, the Operating Partnership, Ramco-Gershenson Properties, L.P. (70.7% owned by us at December 31, 2001 and 70.8% at December 31, 2000), our wholly owned subsidiary, Ramco Properties Associates Limited Partnership, a financing subsidiary and Ramco-Gershenson, Inc, our management company. See Note 4 to the Consolidated Financial Statements. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition — Shopping center space is generally leased to retail tenants under leases which are accounted for as operating leases. We recognize minimum rents on the straight-line method over the terms of the leases, as required under Statement of Financial
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting Standard No. 13. Certain of the leases also provide for additional revenue based on contingent percentage income and is recorded on an accrual basis once the specified target that triggers this type of income is achieved. The leases also typically provide for tenant recoveries of common area maintenance, real estate taxes and other operating expenses. These recoveries are recognized as revenue in the period the applicable costs are incurred.
Straight line rental income was greater than the current amount required to be paid by our tenants by $2,135, $3,383 and $2,705 for the years ended December 31, 2001, 2000 and 1999, respectively.
Cash and Cash Equivalents — We consider all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
Income Tax Status — We conduct our operations with the intent of meeting the requirements applicable to a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986 as amended, also known as the Code, . In order to maintain qualification as a real estate investment trust, the REIT is also required to distribute annually at least a minimum percentage (90% for tax years beginning after December 31, 2000, and 95% for earlier tax years) of its REIT Taxable Income (as defined in the IRC) to its shareholders. As a real estate investment trust, the REIT will generally not be liable for federal corporate income taxes. Thus, no provision for federal income taxes has been included in the accompanying financial statements.
Real Estate — We record real estate assets at the lower of cost or fair value if impaired. Costs incurred for the acquisition, development and construction of properties are capitalized. For redevelopment of an existing operating property, the undepreciated net book value plus the cost for the construction (including demolition costs) incurred in connection with the redevelopment are capitalized to the extent such costs do not exceed the estimated fair value when complete. To the extent such costs exceed the estimated fair value of such property, the excess is charged to expense.
We evaluate the recoverability of our investment in real estate whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired. Our assessment of recoverability of our real estate assets includes, but is not limited to, recent operating results, expected net operating cash flowissuance and our plans for future operations. For the years ended, December 31, 2001, 2000 and 1999, none of our assets were considered impaired.
Depreciation is computed using the straight-line method and estimated useful lives for buildings and improvements of 40 years and equipment and fixtures of 5 to 10 years. Expenditures for improvements and construction allowances paid to tenants are capitalized and amortized over the remaining liferegistration of the initial terms of each lease. Expenditures for normal, recurring, or periodic maintenance and planned major maintenance activitiessecurities being registered hereunder. All amounts shown are charged to expense when incurred. Renovations which improve or extendestimates except the life of the asset are capitalized.
Other Assets — Other assets consist primarily of prepaid expenses, proposed development and acquisition costs, and financing and leasing costs which are amortized using the straight-line method over the terms of the respective agreements. Using our best estimates based on reasonable and supportable assumptions and projections, we review for impairment such assets whenever events or changes in circumstances indicate that the carrying amount of these assets might not be recoverable.
F-8
SEC registration fee.
SEC registration fee | $ | 11,790.00 | * | |
Printing and engraving expenses** | $ | ** | ||
Legal fees and expenses** | $ | 150,000.00 | ||
Accounting fees and expenses** | $ | 42,000.00 | ||
Miscellaneous** | $ | ** | ||
Total | $ | 203,790.00 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivative Financial Instruments — In managing interest rate exposure on certain floating rate debt, we at times enter into interest rate protection agreements. We do not utilize these arrangements for trading or speculative purposes. The differential between fixed and variable rates to be paid or received is accrued, as interest rates change, and recognized currently in the Consolidated Statement of Income. We are exposed to credit loss in the event of non-performance by the counter party to the interest rate swap agreements, however, we do not anticipate non-performance by the counter party.
Impact of Recent Accounting Pronouncements — In June 2001, The Financial Accounting Standards Board, also known as FASB, issued Statement of Financial Accounting Standard No. 141 “Business Combinations” (“SFAS 141”). This statement requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 prohibits the use of the pooling of interest method of accounting for business combinations. We do not expect the provisions of this statement to have a material impact on our consolidated financial statements.
The FASB issued Statement of Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) in June 2001. This statement changes the accounting for the amortization of goodwill and other intangible assets acquired in a business combination from an amortization method to an impairment-only method. The implementation of this statement may require the use of significant judgment to determine how to measure the fair value of intangible assets. We do not expect this statement to have a material effect on our consolidated financial statements. We will adopt SFAS 142 as required for our first quarterly filing of our 2002 fiscal year.
In August 2001, the FASB issued Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). This statement supersedes FASB Statement No. 122, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144 requires an impairment loss to be recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. This statement requires the use of one of two present value techniques to measure the fair value of an asset. In addition, this statement would require us to account for the sale of shopping centers as discontinued operations and not as part of our ongoing operations. SFAS 144 is not expected to have a material impact on our consolidated financial statements and is effective as of January 1, 2002.
3. Accounting Change — Derivative Financial Instruments
Effective January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). This statement, as amended, requires us to measure all derivatives at fair value and to recognize them in the Consolidated Balance Sheet as an asset or liability, depending on our rights and obligations under each derivative contract. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are deferred and recorded as a component of other comprehensive income (“OCI”) until the hedged transactions occur and are recognized in earnings. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the ineffective portion of a hedged derivative are recognized in earnings in the current period.
Under the 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 variable rate debt. We have entered into five interest rate swap agreements with a notional amount of $75,000 as of
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2001, and provide for a fixed rate ranging from 7.0% to 8.3% at various dates through March 2004. The differential between fixed and variable rates to be paid or received is accrued, as interest rates change, and recognized currently in the Consolidated Statement of Income. We are exposed to credit loss in the event of non-performance by the counter party to the interest rate swap agreements, however, we do not anticipate non-performance by the counter party.
The adoption of SFAS 133 resulted in a transition adjustment loss charged to OCI of $348 as of January 1, 2001. For the year ended December 31, 2001, the change in fair market value of the interest rate swap agreements increased the OCI loss by $2,831, to $3,179.
4. Consolidation of Ramco-Gershenson, Inc.
Through our operating partnership, Ramco-Gershenson Properties, L.P., we own 100% of the non-voting and voting common stock of Ramco-Gershenson, Inc. (“Ramco”), the management company which provides property management services to us and to other entities. We previously accounted for our investment in Ramco under the equity method. As of January 1, 2001, Ramco elected to be a taxable real estate investment trust subsidiary for federal income tax purposes. In conjunction with the tax election, we entered into an option agreement to purchase the remaining voting common stock of Ramco. Subsequent to December 31, 2000, the assets, liabilities, revenue and expenses of Ramco have been included in the accompanying consolidated financial statements. This increased revenues and expenses by $2,485 for the year ended December 31, 2001.
The following unaudited pro forma consolidated results of operations for the years ended December 31, 2000 and 1999, assumes that Ramco was included in the consolidated financial statements as of January 1, 1999 (in thousands, except per share data):
December 31, | December 31, | ||||||||
2000 | 1999 | ||||||||
Revenue | $ | 90,529 | $ | 85,806 | |||||
Expenses | 76,560 | 69,822 | |||||||
Operating income | 13,969 | 15,984 | |||||||
Net income | $ | 11,756 | $ | 11,839 | |||||
Net income: | |||||||||
Basic earnings per share | $ | 1.17 | $ | 1.17 | |||||
Diluted earnings per share | $ | 1.17 | $ | 1.17 | |||||
The effect of including Ramco in the Consolidated Balance Sheet was to increase the following accounts as of January 1, 2001 and to reduce equity investments:
Cash | $ | 179 | ||
Accounts receivable | 1,627 | |||
Other assets | 3,447 | |||
Accounts payable and accrued expenses | (993 | ) | ||
Reduction in equity investments in unconsolidated entities | $ | 4,260 | ||
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. Accounts Receivable — Net
Accounts receivable include $10,560 and $9,865 of unbilled straight-line rent receivables at December 31, 2001, and December 31, 2000, respectively. Straight line rent receivable at December 31, 2001, includes approximately $1,997 due from Kmart Corporation.
We provide for bad debt expense based upon the reserve method of accounting. Historically we have provided approximately 0.5% of rental revenues as our annual bad debt reserve based on the level of bad debt we have experienced. Due to the economic downturn in the retail industry and the increase in the number of retail companies filing for bankruptcy protection (including Kmart Corporation during January 2002), we increased the bad debt expense to approximately 0.9% of rental revenue for the year ended December 31, 2001.
We continuously monitor the collectability of our accounts receivable (billed, unbilled and straight-line) from tenants and based on our judgment, adjust the allowance for bad debts as necessary. It is our policy to cease recording rental income from tenants when we believe such amounts would be uncollectible. Management believes the allowance is adequate to absorb currently estimated bad debts. However, if we experience bad debts in excess of the reserves we have established, our operating income would be reduced.
An allowance for doubtful accounts has been provided against the portion of tenant accounts receivable which is estimated to be uncollectible. Accounts receivable in the accompanying balance sheet is shown net of an allowance for doubtful accounts of $1,773 and $1,283 as of December 31, 2001 and 2000 respectively.
Bad debt expense amounted to $735, $330 and $559 for the three years ended December 31, 2001, 2000 and 1999, respectively.
6. Investment in Real Estate
Investment in real estate consists of the following:
December 31, | ||||||||
2001 | 2000 | |||||||
Land | $ | 77,546 | $ | 71,809 | ||||
Buildings and improvements | 471,317 | 472,846 | ||||||
Construction in progress | 8,486 | 13,340 | ||||||
557,349 | 557,995 | |||||||
Less: accumulated depreciation | (61,080 | ) | (48,366 | ) | ||||
Investment in real estate — net | $ | 496,269 | $ | 509,629 | ||||
Gain on Sale of Real Estate — In January 2001, we sold White Lake MarketPlace for cash of $20,200, resulting in a gain on sale of approximately $5,300. See Note 18. In addition, we sold our Athens Town Center property and four parcels of land and recognized an additional aggregate gain of $250.
During 2000, we sold two parcels of land and recognized an aggregate gain of $3,795. In addition, a subsidiary of Ramco, an unconsolidated entity, sold a parcel of land and recognized a gain of $249. Accordingly, the cost reimbursement by the Operating Partnership to Ramco was reduced by the amount of the gain, thereby reducing our general and administrative expenses in 2000.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 1999, we sold two properties for cash of $34,425 and recognized an aggregate gain of $974.
7. Investments in and Advances to Unconsolidated Entities
We have investments in and advances to the following unconsolidated entities:
* | ||||
In September 2001, we invested $756 for a 40 percent interest in a joint venture, Ramco/ West Acres LLC. Simultaneously, the joint venture acquired West Acres Commons shopping center located in Flint Township, Michigan for a purchase price of approximately $11,000 and assumed a mortgage note of $9,407. At December 31, 2001, the principal balance was $9,388, with fixed interest at 8.14% due April 2010.
In November 2001, we invested $1,713 for a 40 percent interest in a joint venture, Ramco/ Shenandoah LLC. The remaining 60% of Ramco/ Shenandoah LLC is owned by various partnerships and trusts for the benefit of family members of one of our trustees, who also serves as a trustee for several of these trusts. The joint venture acquired Shenandoah Square shopping center located in Davie, Florida for a purchase price of approximately $16,300. At December 31, 2001, this entity had a note payable of $12,469, with interest at 4.75%, due February 2002. On January 29, 2002, the LLC refinanced the debt and obtained a mortgage note in the amount of $13,000, with fixed interest at 7.33% due March 2012.
Under terms of the joint venture agreements, we earned acquisition fees of $165 and $163, respectively, from the above-mentioned joint ventures. We are responsible for the leasing and management of the projects, for which we receive management fees and leasing fees. The joint venture agreements included a buy-sell provision whereby we have the right to purchase or sell the properties during specific time periods.
In April 2000, we contributed $1,287 for a 25% interest in a joint venture, in connection with the acquisition of East Town Plaza shopping center located in Madison, Wisconsin. The entity has a mortgage note in the amount of $12,000, with variable interest rate at LIBOR plus 232 basis points, due May 2003. The effective interest rate at December 31, 2001 was 4.47%.
On September 29, 2000, we assigned 90 percent of our interest in Rossford Development LLC to an unrelated party. Simultaneously, we invested $100 in the entity. The joint venture reimbursed us approximately $9,700 for advances paid for the acquisition of land and construction in progress related to the development of the Crossroads Centre project, located in Rossford, Ohio. At December 31, 2001, Rossford Development LLC had a construction loan payable in the amount of $19,255, due June 2003, with variable interest at 5.57% and a note payable in the amount of $6,773, due October 2004 with interest at 17.05% but interest payable during the term of the note at 12%. In addition, the joint venture has a payable to us in the amount of $369, due June 2002, with interest at 15%.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Under terms of the joint venture agreement with Rossford Development LLC, we are responsible for the development, leasing and management of the project, for which we will receive fees. The joint venture agreement included a provision whereby we have the right, but not the obligation, to purchase the project during specific time periods. If we do not exercise this option, we will be obligated to make an option payment of $3,300 to the 90% owner of this joint venture on July 17, 2002.
Other unconsolidated entities had the following debt outstanding at December 31, 2001:
Combined condensed financial information of our unconsolidated entities is summarized as follows:
2001 | 2000 | 1999 | |||||||||||
ASSETS | |||||||||||||
Investment in real estate — net | $ | 104,594 | $ | 63,805 | $ | 33,526 | |||||||
Other assets | 6,151 | 8,428 | 5,341 | ||||||||||
Total Assets | $ | 110,745 | $ | 72,233 | $ | 38,867 | |||||||
LIABILITIES | |||||||||||||
Mortgage notes payable | $ | 94,080 | $ | 58,804 | $ | 34,223 | |||||||
Other liabilities | 3,287 | 4,335 | 1,606 | ||||||||||
Total Liabilities | 97,367 | 63,139 | 35,829 | ||||||||||
Owners’ equity | 13,378 | 9,094 | 3,038 | ||||||||||
Total Liabilities and Owners’ Equity | $ | 110,745 | $ | 72,233 | $ | 38,867 | |||||||
Company’s equity investments in unconsolidated entities | $ | 7,139 | $ | 8,915 | $ | 6,357 | |||||||
Advances to unconsolidated entities | 698 | 422 | 1,285 | ||||||||||
Total Equity Investments in and Advances to Unconsolidated Entities | $ | 7,837 | $ | 9,337 | $ | 7,642 | |||||||
Revenues | |||||||||||||
Property revenues | $ | 13,986 | $ | 9,450 | $ | 3,705 | |||||||
Fees and management income | 3,841 | 2,544 | |||||||||||
Leasing/development cost reimbursements | 2,485 | 2,323 | |||||||||||
Total Revenues | 13,986 | 15,776 | 8,572 | ||||||||||
Expenses | |||||||||||||
Property expenses | 9,302 | 8,276 | 3,087 | ||||||||||
Employee expenses | 6,574 | 5,932 | |||||||||||
Office and other expenses | 1,683 | 1,908 | |||||||||||
Total Expenses | 9,302 | 16,533 | 10,927 | ||||||||||
Earnings (loss) before gain on sale of real estate | 4,684 | (757 | ) | (2,355 | ) | ||||||||
Gain on sale of real estate | 249 | 251 | |||||||||||
Excess (deficiency) of revenues over expenses | 4,684 | (508 | ) | (2,104 | ) | ||||||||
Cost reimbursement from Operating Partnership | 1,682 | 2,722 | |||||||||||
Income | $ | 4,684 | $ | 1,174 | $ | 618 | |||||||
Company’s share of income | $ | 932 | $ | 465 | $ | 257 | |||||||
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our share of the unconsolidated entities’ income of $932, $465 and $257, for the years ended December 31, 2001, 2000 and 1999, was reduced by $119 in 2001, $267 in 2000, and $461 in 1999, which represents depreciation and amortization adjustments arising from our net basis adjustments in the unconsolidated entities’ assets. These adjustments result in net earnings (loss) of $813, $198 and ($204) from the unconsolidated entities’ for the years ended December 31, 2001, 2000 and 1999, respectively. In addition, our investment in RPT/ Invest is approximately $722 lower than the net basis in the unconsolidated entity as a result of deferring the gain on the sale of the two properties sold to the joint venture.
For the year ended December 31, 2001, Ramco, the management company which provides property management services to us and to other entities, is included in the consolidated financial statements. Prior to January 1, 2001, Ramco was accounted for under the equity method.
8. Other Assets
Other assets at December 31 are as follows:
2001 | 2000 | |||||||
Leasing costs | $ | 14,908 | $ | 13,101 | ||||
Prepaid expenses and other | 6,765 | 5,652 | ||||||
Deferred financing costs | 5,872 | 5,667 | ||||||
27,545 | 24,420 | |||||||
Less: accumulated amortization | (10,485 | ) | (7,185 | ) | ||||
17,060 | 17,235 | |||||||
Proposed development and acquisition costs | 8,394 | 5,190 | ||||||
Other assets — net | $ | 25,454 | $ | 22,425 | ||||
Proposed development and acquisition costs include $5,140 at December 31, 2001 and 2000, for an investment in a shopping center currently under development. Our investment in this entity is accounted for using the cost method of accounting because we do not have the ability to exercise significant influence over the investee’s operating and financial policies.
We may not be successful in identifying suitable real estate properties that meet our acquisition criteria or to develop proposed sites on satisfactory terms. We may not be successful negotiating for the acquisition of the land, obtaining required permits and completing developments in accordance with our budgets and on a timely basis. If we are not successful, costs incurred may be impaired and our financial condition and results of operations could be adversely affected.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Mortgages and Notes Payable
Mortgages and notes payable at December 31 consist of the following:
2001 | 2000 | |||||||
Fixed rate mortgages with interest rates ranging from 6.83% to 8.81% due at various dates through 2011 | $ | 195,290 | $ | 188,786 | ||||
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 December 31, 2001, was 6.41% and at December 31, 2000, was 7.95% | 6,560 | 6,800 | ||||||
Floating rate mortgage with interest rate at prime or LIBOR plus 200 basis points, due September 2005. The effective rate at December 31, 2001, was 4.75% | 21,000 | — | ||||||
Construction loan financing, converted to floating rate mortgage during 2001 | — | 18,017 | ||||||
Construction loan financing | — | 13,575 | ||||||
Unsecured term loan, with an interest rate at LIBOR plus 400 basis points, due September 2003. The effective rate at December 31, 2001, was 6.03% and at December 31, 2000, was 10.64% | 22,125 | 25,000 | ||||||
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 December 31, 2001, was 6.64% and at December 31, 2000, was 8.66% | 102,300 | 101,830 | ||||||
$ | 347,275 | $ | 354,008 | |||||
The mortgage notes and construction loans are secured by mortgages on properties that have an approximate net book value of $325,667 as of December 31, 2001. The Credit Facility is secured by mortgages on various properties that have an approximate net book value of $164,702 as of December 31, 2001.
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 December 31, 2001, the effective interest rate was 6.6%) and is secured by mortgages on various properties.
At December 31, 2001, outstanding letters of credit issued under the Credit Facility, not reflected in the accompanying consolidated balance sheet, total approximately $818.
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 December 31, 2001, 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 (See Note 7), 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
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
liabilities. In addition, upon the occurrence of certain of such events, such as fraud or filing of a bankruptcy petition by the borrower, we would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, penalties and expenses.
The following table presents scheduled principal payments on mortgages and notes payable as of December 31, 2001:
Year end December 31, | |||||
2002 | $ | 8,287 | |||
2003 | 125,510 | ||||
2004 | 17,322 | ||||
2005 | 14,362 | ||||
2006 | 108,988 | ||||
Thereafter | 72,806 | ||||
Total | $ | 347,275 | |||
10. Leases
Approximate future minimum rentals under noncancelable operating leases in effect at December 31, 2001, assuming no new or renegotiated leases nor option extensions on lease agreements, are as follows:
Year ended December 31, | |||||
2002 | $ | 54,593 | |||
2003 | 51,556 | ||||
2004 | 46,284 | ||||
2005 | 40,007 | ||||
2006 | 35,766 | ||||
Thereafter | 239,106 | ||||
Total | $ | 467,312 | |||
We lease office space under an operating lease that had an initial term of five years commencing on July 1, 1999. Rent expense under this lease amounted to $363 in 2001 and 2000 and $298 in 1999. Future minimum rental payments are as follows:
Year ended December 31, | |||||
2002 | $ | 363 | |||
2003 | 363 | ||||
2004 | 182 | ||||
Total | $ | 908 | |||
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share (EPS) (in thousands, except share and per share data):
2001 | 2000 | 1999 | ||||||||||||
Numerator: | ||||||||||||||
Net Income | $ | 13,863 | $ | 11,756 | $ | 11,839 | ||||||||
Preferred stock dividends | (3,360 | ) | (3,360 | ) | (3,407 | ) | ||||||||
Income available to common shareholders for basic and dilutive EPS | $ | 10,503 | $ | 8,396 | $ | 8,432 | ||||||||
Denominator: | ||||||||||||||
Weighted-average common shares for basic EPS | 7,104,714 | 7,185,603 | 7,217,993 | |||||||||||
Effect of dilutive securities: | ||||||||||||||
Options outstanding | 20,465 | 1,778 | — | |||||||||||
Weighted-average common shares for dilutive EPS | 7,125,179 | 7,187,381 | 7,217,993 | |||||||||||
Basic EPS | $ | 1.48 | $ | 1.17 | $ | 1.17 | ||||||||
Diluted EPS | $ | 1.47 | $ | 1.17 | $ | 1.17 | ||||||||
In 2001, 2000 and 1999, conversion of the Series A Preferred Shares and of the Operating Partnership Units would have been antidilutive and, therefore, were not considered in the computation of diluted earnings per share.
12. Change in Method of Accounting for Percentage Rental Revenue
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101), which among other topics, requires that real estate companies should not recognize contingent percentage rents until the specified target that triggers this type of income is achieved. We had previously recorded percentage rents throughout the year based on rent estimated to be due from the tenant.
We elected to adopt the provisions of SAB 101 as of April 1, 2000. The cumulative effect of such adoption is a reduction in percentage rental revenue retroactive to January 1, 2000, of approximately $1,264.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following pro forma amounts reflect the effect of retroactive application of the change in method of accounting for percentage rents that would have been made in 1999 had the new method been in effect:
1999 | ||||||
Pro forma amounts assuming the new method of Accounting is applied retroactively: | ||||||
Net income | $ | 11,656 | ||||
Preferred dividends | (3,407 | ) | ||||
Net income available to common shareholders | $ | 8,249 | ||||
Earnings per share: | ||||||
Basic | $1.14 | |||||
Diluted | $1.14 | |||||
13. 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 agreement with us that our ownership of the short-term Treasury Bill reverse repurchase agreements will not adversely affect our status as a REIT. The IRS deferred any action relating to this issue pending the further examination of our taxable years ended December 31, 1991, through 1994. As discussed below, the field examination has since been completed and the IRS has proposed 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. Our former tax counsel, Battle Fowler LLP, had rendered an opinion on March 6, 1996, that our investment in the short-term Treasury Bill reverse repurchase agreements would not adversely affect our REIT status. This opinion, however, is not binding upon the IRS or any court.
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”).
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 $54.1 million in combined taxes, penalties and interest through March 31, 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 deductible by us, thereby reducing our liability for federal income tax. Based on the Second Report, the proposed adjustments to our “REIT taxable income” would require us to pay a deficiency dividend to our current shareholders resulting in combined taxes, penalties, interest and deficiency dividends of approximately $56.3 million as of March 31, 2002.
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 quarterly report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 2001, 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 quarterly report on Form 10-Q filed by Atlantic for its quarter ended September 30, 2001,
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Atlantic had net assets on September 30, 2001, of approximately $60 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.
On December 31, 2001, Ramco/ Shenandoah LLC had a $12,469 unsecured note payable, which is due in February 2002. We unconditionally guaranteed this debt and, therefore, we were contingently liable for this amount. Subsequent to December 31, 2001, Ramco/ Shenandoah LLC obtained a mortgage note payable in the amount of $13,000 and used part of the proceeds to pay off the original note. We did not guarantee the subsequent financing.
In connection with the development and expansion of various shopping centers as of December 31, 2001, we have entered into agreements for construction costs of approximately $5,300.
14. Shareholders’ Equity
Convertible Series A Preferred Shares — In October, 1997 we entered into an agreement with certain clients advised by Morgan Stanley Asset Management, Inc. (“MSAM”), and Kimco Realty Corporation (“Kimco”) pursuant to which such entities agreed to invest up to an aggregate of $35,000 in the Operating Partnership. The MSAM clients and Kimco initially purchased Preferred Operating Partnership Units which, after shareholder approval in December 1997, were converted into our Series A Convertible Preferred Shares (“Series A Preferred Series”) and, ultimately, may be converted into Common Shares. The initial investments of $11,667 were made in October 1997. During 1998, we issued 933,000 Series A Preferred Shares receiving net proceeds of approximately $22,682.
The MSAM clients are required to purchase 19.4% of the first $50,000 in a follow-on public offering of our Shares at the offering price less the underwriter’s fees, commissions, and discounts per share. Upon consummation of such public offering, all outstanding Series A Preferred Shares will be exchanged into Common Shares, at a conversion price of $17.50 per share, which conversion price is subject to adjustment in certain circumstances.
The Series A Preferred Shares rank senior to the Common Shares with respect to dividends and upon liquidation, dissolution or winding up of the Company. The Series A Preferred Shares are entitled to receive cumulative dividends, payable quarterly in arrears, at an annual rate equal to the greater of (i) 9.60% of the stated value ($25.00 per share) and (ii) the dividend rate expressed as an annual rate which is implicit in the amount of dividends actually paid with respect to Common Shares, based on a $17.50 per share price for the Common Shares, determined as of each quarterly dividend payment date (the “Payable Component”).
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Payable Component will be increased by an amount equal to an annual rate of 3% under certain circumstances. The holders of Series A Preferred Shares have the right to vote on all matters which holders of Common Shares are entitled to vote upon on an as converted basis, as though such holders own Common Shares. In addition, the Trust will not be permitted to engage in or effect certain types of transactions or actions without the approval of holders of at least 51% of the outstanding Series A Preferred Shares voting separately as a class. The conversion price for Common Shares of $17.50 contain anti-dilution rights and will be adjusted to reflect the effects of stock dividends, distributions, subdivisions or combination.
The Series A Preferred Shares are subject to mandatory conversion on the date which is the earlier of a qualified underwritten offering or the maturity date which is on October 3, 2002. At the option of the holders, the Series A Preferred Shares will be convertible in whole or in part into Common Shares at the stated value plus unpaid dividends prior to the maturity date or qualified underwritten offering date. The maturity date will be accelerated and all Series A Preferred Shares will be redeemed in cash at the stated value plus unpaid dividends in the event that it is determined by the IRS that it will, for any period, deny to us the tax benefits associated with REIT qualification and either or both of the following circumstances arise: (i) we do not receive (within a period of 60 days of the date established by the IRS as the date of which the deficiency dividend or other additional taxes are required to be paid) the full indemnity payment for such loss of tax benefits that we are entitled to receive from Atlantic pursuant to the Tax Agreement with Atlantic, or (ii) counsel reasonably satisfactory to MSAM is unable to provide to the holders of the Series A Preferred Shares affirmative advice that, commencing not later than with the taxable year ending December 31, 2001, we will, notwithstanding such determination by the IRS, be able to elect to be qualified and taxed as a REIT under the Code, and its proposed method of operation will enable it so to qualify for following years.
On March 14, 2002, we entered into an agreement with the MSAM clients to redeem all 1,200,000 of the Series A Preferred Shares they hold upon consummation of a public offering of Common Shares on or before September 26, 2002. We may also elect to redeem the shares before that date if we secure alternative financing of the redemption price. The redemption price for the shares depends on the public offering price of the Common Shares sold in the public offering or the price at which the Common Shares trade on the New York Stock Exchange, but the redemption price will not be less than $22.14 per Series A Preferred Share, or approximately $26.6 million in the aggregate. If the public offering price of the Common Shares sold in the offering is greater than $17.50 per share, the redemption price for the Series A Preferred Shares would be greater than $22.14 per share, based upon the formula contained in the redemption agreement.
Dividend Reinvestment Plan — We have a dividend reinvestment plan that allows for participating shareholders to have their dividend distributions automatically invested in additional shares of beneficial interest in the Company based on the average price of the shares acquired for the distribution.
15. Benefit Plans
Stock Option Plans
1996 Share Option Plan — In May 1996, we adopted the 1996 Share Option Plan (the “Plan”) to enable our employees to participate in the ownership of the Company. The Plan was amended in June 1999 to provide for the maximum number of common shares available for issuance under the Plan to equal 9 percent of the total number of issued and outstanding common shares (on a fully diluted basis assuming the exchange of all OP units and Series A
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Preferred Shares for common shares), which number would equal approximately 1,083,000 common shares at December 31, 2001. The Plan provides for the award of up to 1,083,000 stock options to purchase common shares of beneficial interest, at the fair market value at the date of grant, to executive officers and employees of the Company. The Plan is administered by the independent trustee members of the Compensation Committee of the Board of Trustees, whose members are not eligible for grants under the Plan. Stock options granted under the Plan vest and become exercisable in installments on each of the first three anniversaries of the date of grant and expire ten years after the date of grant. No more than 50,000 share options may be granted to any one individual in any calendar year.
1997 Non-Employee Trustee Stock Option Plan — On June 10, 1997, we adopted the 1997 Non-Employee Trustee Stock Option Plan (the “Trustees’ Plan”) which permits us to grant non-qualified options to purchase up to 100,000 common shares of beneficial interest in the Company at the fair market value at the date of grant. Each Non-Employee Trustee will be granted an option to purchase 2,000 shares annually on our annual meeting date, beginning June 10, 1997. Stock options granted to participants vest and become exercisable in installments on each of the first two anniversaries of the date of grant and expire ten years after the date of grant.
Information relating to the 1996 Share Option Plan and the 1997 Non-Employee Trustee Stock Option Plan (the “Plans”) from December 31, 1998 through December 31, 2001 is as follows:
Number | Weighted Average | |||||||
Of Shares | Exercise Price | |||||||
Outstanding at December 31, 1998 | 511,103 | $ | 16.74 | |||||
Granted | 24,000 | 16.38 | ||||||
Cancelled or expired | (15,779 | ) | 17.23 | |||||
Outstanding at December 31, 1999 | 519,324 | $ | 16.71 | |||||
Granted | 162,000 | 14.11 | ||||||
Cancelled or expired | (13,695 | ) | 18.60 | |||||
Outstanding at December 31, 2000 | 667,629 | $ | 16.04 | |||||
Granted | 12,000 | 17.33 | ||||||
Cancelled or expired | (19,191 | ) | 19.02 | |||||
Exercised | (6,833 | ) | 16.42 | |||||
Outstanding at December 31, 2001 | 653,605 | $ | 15.97 | |||||
Shares exercisable at December 31, 1999 | 318,119 | $ | 16.58 | |||||
Shares exercisable at December 31, 2000 | 424,954 | $ | 16.70 | |||||
Shares exercisable at December 31, 2001 | 532,269 | $ | 16.31 | |||||
At December 31, 2001, the range of exercise prices and weighted average remaining contractual life of outstanding options was $14.06 — $21.63, and 6.3 years.
The fair value of options granted during 2001, 2000 and 1999 was estimated to be immaterial on the date of grant. All options granted were non-qualified share options. This was
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
determined using the Black-Scholes option pricing model with the following weighted average assumptions used:
2001 | 2000 | 1999 | ||||||||||
Risk-free interest rate | 4.8 | % | 6.5 | % | 5.7 | % | ||||||
Dividend yield | 9.7 | % | 11.9 | % | 11.2 | % | ||||||
Volatility | 19.5 | % | 19.0 | % | 17.3 | % | ||||||
Weighted average expected life | 5.0 | 5.0 | 5.0 |
We account for the Plans in accordance with Accounting Principles Board Opinion No. 25 under which no compensation cost has been recognized for stock option awards. There would be no material difference if compensation cost had been calculated consistent with the provisions of Statement of Financial Standards No. 123, “Accounting for Stock Based Compensation.”
401(k) Plan
We sponsor a 401(k) defined contribution plan covering substantially all officers and employees of the Company which allows participants to defer up to a maximum of 17.5% of their compensation. We contribute up to a maximum of 50% of the employee’s contribution for 2001 and 2000 and 25% for 1999, up to a maximum of 5% of an employee’s annual compensation. During 2001, 2000 and 1999, our matching cash contributions were $154, $157 and $57, respectively.
16. Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure about fair value of all financial instruments. The carrying values of cash and cash equivalents, receivables, accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturity of these financial instruments. As of December 31, 2001 and 2000 the mortgages and notes payable amounts are also a reasonable estimate of their fair value because their interest rates approximate the current borrowing rates available to us.
17. Quarterly Financial Data (Unaudited)
The following table sets forth the quarterly results of operations for the years ended December 31, 2001 and 2000 (in thousands, except per share amounts):
Earnings Per Share | |||||||||||||||||
Revenues | Net income | Basic | Diluted | ||||||||||||||
2001 | |||||||||||||||||
Quarter ended: | |||||||||||||||||
March 31 | $ | 23,544 | $ | 6,336 | $ | 0.77 | $ | 0.69 | |||||||||
June 30 | 21,466 | 2,634 | 0.25 | 0.25 | |||||||||||||
September 30 | 22,653 | 2,674 | 0.26 | 0.26 | |||||||||||||
December 31 | 23,310 | 2,219 | 0.19 | 0.19 |
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Earnings Per Share | |||||||||||||||||
Revenues | Net income | Basic | Diluted | ||||||||||||||
2000(1) | |||||||||||||||||
Quarter ended: | |||||||||||||||||
March 31 | $ | 21,828 | $ | 3,224 | $ | 0.33 | $ | 0.33 | |||||||||
June 30 | 21,158 | 4,972 | 0.57 | 0.54 | |||||||||||||
September 30 | 21,634 | 2,685 | 0.26 | 0.26 | |||||||||||||
December 31 | 23,912 | 2,139 | 0.18 | 0.18 |
18. Transactions With Related Parties
In January 2001, we sold White Lake MarketPlace to Pontiac Mall Limited Partnership for cash of $20,200, resulting in a gain on sale of approximately $5,300. Various executive officers/trustees of the Company are partners in that partnership. The property was offered for sale, utilizing the services of a national real estate brokerage firm, and we accepted the highest offer from an unrelated party. Subsequently the buyer cancelled the agreement. Pontiac Mall Limited Partnership presented a comparable offer, which resulted in more favorable economic benefits to us. The sale of the property to Pontiac Mall Limited Partnership was entered into upon the unanimous approval of the independent members of our Board of Trustees.
Under terms of an agreement with Pontiac Mall Limited Partnership, we continue to manage the property and receive management fees. In 2001, we received $70 in management fees from the partnership.
At December 31, 2001, Ramco/Shenandoah LLC had a $12,469 unsecured note payable, due February 2002. We unconditionally guaranteed this debt and therefore we were contingently liable for this amount. Subsequent to December 31, 2001, Ramco/Shenandoah LLC obtained a mortgage note payable in the amount of $13,000 and used part of the proceeds to pay off the original note. We did not guarantee the subsequent financing.
At December 31, 2001, we had a receivable from Rossford Development LLC in the amount of $369, due June 2002, with interest at 15%.
We have management agreements with various partnerships and perform certain administrative functions on behalf of entities owned in part by certain trustees and/or officers of the
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company. The following revenue was earned during the three years ended December 31, 2001 from these related parties:
2001 | 2000 | 1999 | |||||||||||
Management fees | $ | 322 | $ | 391 | $ | 787 | |||||||
Leasing fee income | 77 | 231 | |||||||||||
Acquisition fee | 163 | ||||||||||||
Brokerage commission and other | 57 | 8 | 2 | ||||||||||
Payroll reimbursement | 88 | 88 | 97 | ||||||||||
Total | $ | 630 | $ | 564 | $ | 1,117 | |||||||
We had receivables from related entities in the amount of $355 at December 31, 2001 and $337 at December 31, 2000.
F-25
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19. REAL ESTATE ASSETS
Net Investment in Real Estate Assets at December 31, 2001 Initial Cost to Company Building & Year Year Year Improvements Property Location Constructed(a) Acquired Renovated Land (f) Cox Creek Plaza Florence, AL 1997 2000 589 5,336 Crestview Corners Crestview, FL 1997 400 3,602 Lantana Plaza Lantana, FL 1993 2,590 2,600 Naples Towne Center Naples, FL 1983 1996 218 1,964 Pelican Plaza Sarasota, FL 1997 710 6,404 Shoppes of Lakeland Lakeland, FL 1996 1,279 11,543 Southbay Fashion Center Osprey, FL 1998 597 5,355 Sunshine Plaza Tamarac, FL 1991 1998 1,748 7,452 Village Lakes Land O’ Lakes, FL 1997 862 7,768 Conyers Crossing Conyers, GA 1998 729 6,562 Holcomb Center Alpharetta, GA 1996 658 5,953 Indian Hills Calhoun, GA 1997 706 6,355 Mays Crossing Stockbridge, GA 1997 725 6,532 Crofton Plaza Crofton, MD 1991 3,201 6,499 Auburn Mile Auburn Hills, MI 2000 1999 15,704 0 Clinton Valley Mall Sterling Heights, MI 1979 1996 1999 1,101 9,910 Clinton Valley Shopping Center Sterling Heights, MI 1979 1996 399 3,588 Eastridge Commons Flint, MI 1990 1996 1997 1,086 9,775 Edgewood Towne Center Lansing, MI 1990 1996 1992 665 5,981 Ferndale Plaza Ferndale, MI 1984 1996 265 2,388 Fraser Shopping Center Fraser, MI 1996 363 3,263 Jackson Crossing Jackson, MI 1996 2000 2,249 20,237 Jackson West Jackson, MI 1996 1996 1999 2,806 6,270 Lake Orion Plaza Lake Orion, MI 1977 1996 470 4,234 Madison Center Madison Heights, MI 1997 2000 817 7,366 New Towne Plaza Canton, MI 1976 1996 1998 817 7,354 Oak Brook Square Flint, MI 1996 955 8,591 Roseville Plaza Roseville, MI 1996 2001 1,403 13,195 Southfield Plaza Southfield, MI 1996 1999 1,121 10,090 Taylor Plaza Taylor, MI 1996 400 1,930 Tel-Twelve Center Southfield, MI 1968 1996 1997 3,819 43,181 West Oaks I Novi, MI 1981 1996 1997-98 0 6,304 West Oaks II Novi, MI 1987 1996 2000 1,391 12,519 White Lake Marketplace White Lake Township, MI 1999 1998 2,965 0
[Additional columns below]
[Continued from above table, first column(s) repeated] Gross Cost at End of Period(b) Subsequent Capitalized Building & Accumulated Property Costs Land Improvements Total Depreciation(c) Encumbrances Cox Creek Plaza 1,408 932 6,401 7,333 715 (d) Crestview Corners 21 400 3,623 4,023 378 (d) Lantana Plaza 1,658 2,590 4,258 6,848 796 (d) Naples Towne Center 277 218 2,241 2,459 364 (d) Pelican Plaza 155 710 6,559 7,269 818 (d) Shoppes of Lakeland 273 1,279 11,816 13,095 1,548 (d) Southbay Fashion Center 89 597 5,444 6,041 510 (d) Sunshine Plaza 10,784 1,748 18,236 19,984 2,451 (d) Village Lakes 44 862 7,812 8,674 786 (d) Conyers Crossing 617 729 7,179 7,908 600 (d) Holcomb Center 582 658 6,535 7,193 875 (d) Indian Hills 88 707 6,442 7,149 676 (d) Mays Crossing 45 725 6,577 7,302 697 (d) Crofton Plaza 1,462 3,201 7,961 11,162 1,989 (d) Auburn Mile 12,104 24,945 2,863 27,808 99 21,000 Clinton Valley Mall 4,256 1,101 14,166 15,267 1,600 (e) Clinton Valley Shopping Center 329 399 3,917 4,316 612 (d) Eastridge Commons 2,061 1,086 11,836 12,922 1,904 (e) Edgewood Towne Center 4 645 6,005 6,650 858 (d) Ferndale Plaza 47 265 2,435 2,700 352 (d) Fraser Shopping Center 162 363 3,425 3,788 567 (e) Jackson Crossing 7,687 2,249 27,924 30,173 3,851 (e) Jackson West 6,216 2,806 12,486 15,292 1,771 7,636 Lake Orion Plaza 91 471 4,324 4,795 624 (e) Madison Center 2,794 817 10,160 10,977 1,145 10,294 New Towne Plaza 1,503 817 8,857 9,674 1,218 (e) Oak Brook Square 299 955 8,890 9,845 1,376 6,560 Roseville Plaza 2,265 1,403 15,460 16,863 2,208 (e) Southfield Plaza 1,300 1,121 11,390 12,511 1,613 (e) Taylor Plaza 15 400 1,945 2,345 269 (d) Tel-Twelve Center 10,980 3,819 54,161 57,980 7,143 (e) West Oaks I 2,837 0 9,141 9,141 1,208 4,000 West Oaks II 5,728 1,391 18,247 19,638 2,154 6,244 White Lake Marketplace (2,771 ) 194 0 194 0
F-26
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Initial Cost to Company Building & Year Year Year Improvements Property Location Constructed(a) Acquired Renovated Land (f) Hickory Corners Hickory, NC 1997 1999 798 7,192 Holly Springs Plaza Franklin, NC 1997 829 7,470 Ridgeview Crossing Elkin, NC 1997 1,054 9,494 Office Max Center Toledo, OH 1994 1996 227 2,042 Spring Meadows Place Holland, OH 1987 1996 1997 1,662 14,959 Troy Towne Center Troy, OH 1990 1996 1996 930 8,372 Edgewood Square North Augusta, SC 1997 1,358 12,229 Taylors Square Greenville, SC 1997 1,581 14,237 Cumberland Gallery New Tazewell, TN 1997 327 2,944 Highland Square Crossville, TN 1997 913 8,189 Northwest Crossing Knoxville, TN 1997 1,284 11,566 Northwest Crossing II Knoxville, TN 1999 1999 570 0 Stonegate Plaza Kingsport, TN 1997 606 5,454 Tellico Plaza Lenoir City, TN 1997 611 5,510 Aquia Towne Center Stafford, VA 1998 2,187 19,776 West Allis Towne Centre West Allis, WI 1987 1996 1,866 16,789 Totals $ 70,611 $ 406,324
[Additional columns below]
[Continued from above table, first column(s) repeated] Gross Cost at End of Period(b) Subsequent Capitalized Building & Accumulated Property Costs Land Improvements Total Depreciation(c) Encumbrances Hickory Corners 75 798 7,267 8,065 781 (d) Holly Springs Plaza 69 829 7,539 8,368 791 (d) Ridgeview Crossing 78 1,054 9,572 10,626 1,001 (e) Office Max Center 0 227 2,042 2,269 289 (d) Spring Meadows Place 1,069 1,662 16,028 17,690 2,526 5,446 Troy Towne Center 1,070 930 9,442 10,372 1,387 (e) Edgewood Square 30 1,358 12,259 13,617 1,279 (d) Taylors Square 477 1,721 14,574 16,295 1,570 (e) Cumberland Gallery 22 327 2,966 3,293 316 (d) Highland Square 32 913 8,221 9,134 857 2,681 Northwest Crossing 49 1,284 11,615 12,899 1,218 (e) Northwest Crossing II 1,623 570 1,623 2,193 86 Stonegate Plaza 107 606 5,561 6,167 580 (e) Tellico Plaza 10 611 5,520 6,131 576 (d) Aquia Towne Center 249 2,187 20,025 22,212 1,657 14,644 West Allis Towne Centre 44 1,866 16,833 18,699 2,391 (e) $ 80,414 $ 77,546 $ 479,803 $ 557,349 $ 61,080
The changes in real estate assets and accumulated depreciation for the years ended December 31, 2001 and 2000 are as follows:
Real Estate Assets | 2001 | 2000 | ||||||
Balance at beginning of period | $ | 557,995 | $ | 542,955 | ||||
Land Development/ Acquisitions | 140 | — | ||||||
Capital Improvements | 21,587 | 17,354 | ||||||
Sale of Assets | (22,373 | ) | (2,314 | ) | ||||
Balance at end of period | $ | 557,349 | $ | 557,995 | ||||
Accumulated Depreciation | 2001 | 2000 | ||||||
Balance at beginning of period | $ | 48,366 | $ | 35,492 | ||||
Sales/ Retirements | (944 | ) | — | |||||
Depreciation | 13,658 | 12,874 | ||||||
Balance at end of period | $ | 61,080 | $ | 48,366 | ||||
F-27
RAMCO-GERSHENSON PROPERTIES TRUST
Balance at | |||||||||||||||||
Beginning | Charged | Balance at | |||||||||||||||
of Year | to Expense | Deductions | End of Year | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Year ended December 31, 2001 — | |||||||||||||||||
Allowance for doubtful accounts | $ | 1,283 | $ | 735 | $ | 245 | $ | 1,773 | |||||||||
Year ended December 31, 2000 — | |||||||||||||||||
Allowance for doubtful accounts | $ | 1,490 | $ | 330 | $ | 537 | $ | 1,283 | |||||||||
Year ended December 31, 1999 — | |||||||||||||||||
Allowance for doubtful accounts | $ | 1,298 | $ | 559 | $ | 367 | $ | 1,490 |
F-28
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, common shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common shares.
** | ||||
particular securities. |
Ramco-GershensonProperties Trust
3,500,000
Common Shares of
Deutsche Bank Securities
Prospectus
, 2002
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth all expenses payable by us (other than underwriting commissions and discounts) in connection with the offering of our common shares being registered by this registration statement. All amounts are estimated except the SEC registration fee, the NYSE supplemental listing fee and the NASD filing fee.
SEC registration fee | $ | 6,549 | |||
NYSE supplemental listing fee | $ | 44,388 | |||
NASD filing fee | $ | 20,000 | |||
Legal fees and expenses | $ | 600,000 | |||
Accounting fees and expenses | $ | 75,000 | |||
Printing expenses | $ | 400,000 | |||
Miscellaneous | $ | 104,063 | |||
Total | $ | 1,250,000 | |||
Item 15. Indemnification of Directors and OfficersOfficers.
Under Maryland law, a real estate investment trust formed in Maryland is permitted to eliminate, by provision in its declaration of trust, the liability of its trustees and officers to the trust and shareholders for money damages except for (i) actual receipt of an improper benefit or profit in money, property or services or (ii) acts or omissions involving active and deliberate dishonesty established by a final judgment as being material to the cause of action.
Under our Declaration of Trust and Bylaws, we are requiredlaw in effect from time to time, to indemnify any trustee or officer (a) against reasonable expenses incurred by him in the successful defense (on the merits or otherwise) of any proceeding to which he is made a party by reason of such status or (b) against any claim or liability to which he may become subject by reason of such status unless it is established that (i) the act or omission that was material to the matter giving rise to the claimprocedure was committed in bad faith or was the result of active and deliberate dishonesty, (ii) he actually received an improper personal benefit in money, property or services, or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful. We are also required by our Bylaws to pay or reimburse, in advance of a final disposition and without requiring a preliminary determination of the ultimate entitlement to indemnification, reasonable expenses of a trustee or officer made a party to a proceeding by reason of his status as such, upon receipt ofprovided, however, that in accordance with Maryland law, we have received a written affirmation by the trustee or officer of his good faith belief that he has met the applicable standard for indemnification under such Bylaws and a written undertaking to repay such expenses if it shall ultimately be determined that the applicable standard was not met.
II-1
The following exhibits are filed herewith or incorporated by reference:
Exhibit No. | ||||
1.1** | Form of | |||
4.1 | Amended and Restated Declaration of Trust of the | |||
4.2 | Articles of Amendment to Ramco-Gershenson Properties Trust Declaration of Trust, dated June 8, 2005, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K dated June 9, 2005. | |||
4.3 | Bylaws of the Company, as amended and restated as of March 10, 2008, incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, | |||
4.4** | Form of Articles Supplementary with respect to any preferred shares (including any form of Preferred Share Certificate) | |||
Form of | ||||
4.6** | Form of Rights Agreement (including any form of Rights Certificate) | |||
Form of | ||||
5.1* | Opinion of Ballard Spahr Andrews | |||
8.1* | Opinion of Honigman Miller Schwartz and Cohn LLP as to certain tax | |||
12.1* | Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. | |||
23.1* | Consent of | |||
23.2* | Consent of Ballard Spahr Andrews | |||
23.3* | Consent of Honigman Miller Schwartz and Cohn LLP (included in Exhibit | |||
24.1* | Powers of | |||
25.1** | Statement of Eligibility of Trustee on Form T-1 under the Indenture |
* | Filed herewith | |
** | To be filed by amendment or as an exhibit to a report pursuant to Section 13(a) or 15(d) of the Exchange Act, including any Current Report on Form 8-K |
II-2
Item 17. Undertakings
(1) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant, the registrant pursuant to the foregoing provisions, or otherwise has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(3) The undersigned registrant hereby undertakes that:
The undersigned registrant hereby undertakes: |
(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
i. | To include any prospectus required by section 10(a)(3) of | ||
ii. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information |
II-2
To include any material information with respect to the plan of distribution not previously disclosed in |
Provided, however, that paragraphs (a)(1)(i), (a)(l)(ii) and (a)(l)(iii) of this section do not apply if the registration statement is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed | |||
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment | |||
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | ||
(4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
(i) | Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and | ||
(ii) | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the |
II-3
initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date. |
(5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | ||
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | ||
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | ||
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(b) | The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | ||
(c) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. | ||
(d) | The undersigned registrant hereby further undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. |
II-4
Pursuant to the requirements of the Securities Act of 1933, the registrantRegistrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 3 to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston,Farmington Hills, State of Massachusetts,Michigan, on April 19, 2002.
RAMCO-GERSHENSON PROPERTIES TRUST |
By: | /s/ |
Gershenson | ||||
Name: | Dennis E. Gershenson | |||
Title: | Chairman of the Board, President | |||
and Chief Executive Officer | ||||
II-5Amendment No. 3 to registration statementRegistration Statement has been signed by the following persons in the capacities and on the dates as indicated. SignatureNameTitle DateDate:*Joel D./s/ Dennis E. Gershenson Chairman of the Board, of TrusteesPresident and Chief Executive Officer April 19, 2002 *
Dennis E. Gershenson President, Chief Executive Officer and Trustee (Principal(Principal Executive Officer) April 19, 2002January 8, 2009*Richard J. SmithChief Financial Officer(Principal Financial Officer andPrincipal Accounting Officer)April 19, 2002*Stephen R. BlankTrusteeApril 19, 2002*Arthur H. GoldbergTrusteeApril 19, 2002*Selwyn IsakowTrusteeApril 19, 2002*Robert A. MeisterTrusteeApril 19, 2002*Joel M. PashcowTrusteeApril 19, 2002*Mark K. RosenfeldTrusteeApril 19, 2002*By: /s/ DENNIS E. GERSHENSONDennis E. Gershenson,Attorney in FactApril 19, 2002II-4EXHIBIT INDEX Exhibit/s/ Richard J. SmithChief Financial Officer & Secretary NumberRichard J. Smith(Principal Accounting and Financial Officer) Description of Exhibit
January 8, 2009 1 /s/ Stephen R. Blank Trustee Stephen R. Blank January 8, 2009 /s/ Arthur H. Goldberg Trustee Arthur H. Goldberg January 8, 2009 /s/ Robert A. Meister Trustee Robert A. Meister January 8, 2009 /s/ Joel M. Pashcow Trustee Joel M. Pashcow January 8, 2009 /s/ Mark K. Rosenfeld Trustee Mark K. Rosenfeld January 8, 2009 /s/ Michael A. Ward Trustee Michael A. Ward January 8, 2009
Exhibit No. | ||||
1.1** | Form of | |||
4.1 | Amended and Restated Declaration of Trust of the | |||
4.2 | Articles of Amendment to Ramco-Gershenson Properties Trust Declaration of Trust, dated June 8, 2005, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K dated June 9, 2005. | |||
4.3 | Bylaws of the Company, as amended and restated as of March 10, 2008, incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, | |||
4.4** | Form of Articles Supplementary with respect to any preferred shares (including any form of Preferred Share Certificate) | |||
Form of | ||||
4.6** | Form of Rights Agreement (including any form of Rights Certificate) | |||
Form of | ||||
5.1* | Opinion of Ballard Spahr Andrews | |||
8.1* | Opinion of Honigman Miller Schwartz and Cohn LLP as to certain tax | |||
12.1* | Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. | |||
23.1* | Consent of | |||
23.2* | Consent of Ballard Spahr Andrews | |||
23.3* | Consent of Honigman Miller Schwartz and Cohn LLP (included in Exhibit | |||
24.1* | Powers of | |||
25.1** | Statement of Eligibility of Trustee on Form T-1 under the Indenture |
* | Filed herewith | |
** | To be filed by amendment or as an exhibit to a report pursuant to Section 13(a) or 15(d) of the Exchange Act, including any Current Report on Form 8-K |
II-6