RPT Realty (KIM+N) 10-Q 2001 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the quarterly period ended September 30, 2001,
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from              to
Commission file number 1-10093

RAMCO-GERSHENSON PROPERTIES TRUST

(Exact name of registrant as specified in its charter)

MARYLAND (State or other jurisdiction of incorporation or organization)	13-6908486 (I.R.S. Employer Identification Number)
27600 Northwestern Highway, Suite 200, Southfield, Michigan (Address of principal executive offices)	48034 (Zip code)

248-350-9900

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ü                     No    

      Number of common shares of beneficial interest ($.01 par value) of the Registrant outstanding as of September 30, 2001: 7,092,826

TABLE OF CONTENTS

INDEX
PART I -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF INCOME
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2 -- Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II -- OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX
EX-10.53 Limited Liability Company Agreement
EX-10.54 Assignment and Assumtion Agreement

INDEX

		Page No.
PART I.	Financial Information
ITEM 1.	Financial Statements
	Consolidated Balance Sheets — September 30, 2001 (unaudited) and December 31, 2000		3
	Consolidated Statements of Income (unaudited) — Three Months and Nine Months Ended September 30, 2001 and 2000.		4
	Consolidated Statements of Comprehensive Income (unaudited) — Three Months and Nine Months Ended September 30, 2001 and 2000.		5
	Consolidated Statement of Shareholders’ Equity (unaudited) — Nine Months Ended September 30, 2001.		6
	Consolidated Statements of Cash Flows (unaudited) — Nine Months Ended September 30, 2001 and 2000.		7
	Notes to Consolidated Financial Statements (unaudited)		8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
PART II.	Other Information
ITEM 6.	Exhibits and Reports on Form 8-K		21

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PART I — FINANCIAL INFORMATION

ITEM 1 — Financial Statements

RAMCO-GERSHENSON PROPERTIES TRUST

CONSOLIDATED BALANCE SHEETS

(In thousands)

			September 30,			December 31,
			2001			2000
			(Unaudited)
Assets
Investment in real estate — net			$	491,973		$	509,629
Cash and cash equivalents				4,224			2,939
Accounts receivable — net				16,410			15,954
Equity investments in and advances to unconsolidated entities				6,103			9,337
Other assets — net				25,268			22,425
	Total Assets		$	543,978		$	560,284
Liabilities and Shareholders’ Equity
Mortgages and notes payable			$	339,289		$	354,008
Distributions payable				5,063			5,076
Accounts payable and accrued expenses				16,349			15,355
	Total Liabilities			360,701			374,439
Minority Interest				48,480			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 values of $35,000.				33,829			33,829
Common Shares of Beneficial Interest, par value $.01, 30,000 shares authorized; 7,093 and 7,128 issued and outstanding, respectively				71			71
Additional paid-in capital				150,207			150,728
Accumulated other comprehensive loss				(3,414	)		—
Cumulative distributions in excess of net income				(45,896	)		(46,084	)
	Total Shareholders’ Equity			134,797			138,544
		Total Liabilities and Shareholders’ Equity	$	543,978		$	560,284

See notes to consolidated financial statements.

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RAMCO-GERSHENSON PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

			For the Three				For the Nine
			Months Ended				Months Ended
			September 30,				September 30,
			2001		2000		2001		2000
Revenues
	Minimum rents		$	14,819	$	15,218	$	45,239	$	44,965
	Percentage rents			132		197		1,226		1,585
	Recoveries from tenants			5,921		5,496		17,035		16,141
	Fees and management income			838		—		1,934		—
	Interest and other income			943		723		2,229		1,929
		Total Revenues		22,653		21,634		67,663		64,620
Expenses
	Real estate taxes			2,511		1,929		6,841		5,712
	Recoverable operating expenses			3,733		3,858		10,972		11,035
	Depreciation and amortization			4,049		3,774		12,123		11,004
	Other operating			355		426		1,113		1,095
	General and administrative			2,022		1,129		6,268		4,033
	Interest expense			6,503		6,998		19,896		20,125
		Total Expenses		19,173		18,114		57,213		53,004
Operating income				3,480		3,520		10,450		11,616
Earnings from unconsolidated entities				203		31		617		115
Income before gain on sale of real estate and minority interest				3,683		3,551		11,067		11,731
Gain on sale of real estate				117		—		5,466		3,420
Minority interest				1,126		866		4,889		4,270
Net income before cumulative effect of change in accounting principle				2,674		2,685		11,644		10,881
Cumulative effect of change in accounting principle				—		—		—		(1,264	)
Net income				2,674		2,685		11,644		9,617
Preferred stock dividends				847		845		2,513		2,515
Net income available to common shareholders			$	1,827	$	1,840	$	9,131	$	7,102
Basic and diluted earnings per share before cumulative effect of change in accounting principle:
		Basic	$	0.26	$	0.26	$	1.28	$	1.16
		Diluted	$	0.26	$	0.26	$	1.28	$	1.16
Basic and diluted earnings per share after cumulative effect of change in accounting principle:
		Basic	$	0.26	$	0.26	$	1.28	$	0.99
		Diluted	$	0.26	$	0.26	$	1.28	$	0.99
Weighted average shares outstanding:
		Basic		7,105		7,179		7,109		7,197
		Diluted		7,158		7,188		9,127		7,200

See notes to consolidated financial statements.

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RAMCO-GERSHENSON PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2001			2000		2001			2000
Net Income	$	2,674		$	2,685	$	11,644		$	9,617
Cumulative effect of change in accounting principle (Note  2)		—			—		(348	)		—
Unrealized losses on interest rate swaps (Note 2)		(2,319	)		—		(3,066	)		—
Comprehensive income	$	355		$	2,685	$	8,230		$	9,617

See notes to consolidated financial statements.

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RAMCO-GERSHENSON PROPERTIES TRUST

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

									Accumulated
				Common		Additional			Other			Cumulative			Total
		Preferred		Stock		Paid-In			Comprehensive			Earnings/			Shareholders’
		Stock		Par Value		Capital			Loss			Distribution			Equity
Balance, January 1, 2001		$	33,829	$	71	$	150,728			—		$	(46,084	)	$	138,544
	Cash distributions declared												(8,943	)		(8,943	)
	Preferred shares dividends declared												(2,513	)		(2,513	)
	Purchase and retirement of common shares						(633	)								(633	)
	Stock options exercised						112									112
	Cumulative effect of change in accounting principle								$	(348	)					(348	)
	Unrealized losses on interest rate swaps									(3,066	)					(3,066	)
	Net income												11,644			11,644
Balance, September 30, 2001		$	33,829	$	71	$	150,207		$	(3,414	)	$	(45,896	)	$	134,797

See notes to consolidated financial statements.

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RAMCO-GERSHENSON PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

					For the Nine Months
					Ended September 30,
					2001			2000
Cash Flows from Operating Activities:
	Net Income					$11,644			$9,617
	Adjustments to reconcile net income to net cash flows provided by operating activities:
			Depreciation and amortization			12,123			11,004
			Amortization of deferred financing costs			578			319
			Gain on sales of real estate			(5,466	)		(3,420	)
			Earnings from unconsolidated entities			(617	)		(115	)
			Minority interest			4,889			4,270
			Changes in assets and liabilities that provided (used)  cash:
				Accounts receivable		(104	)		(2,597	)
				Other assets		(3,007	)		(5,890	)
				Accounts payable and accrued expenses		(3,408	)		(64	)
Cash Flows Provided By Operating Activities						16,632			13,124
Cash Flows from Investing Activities:
	Capital expenditures					(13,626	)		(20,370	)
	Proceeds from sales of real estate					28,961			4,994
	Advances to unconsolidated entities					137			437
	Investment in unconsolidated entities					(756	)		(1,387	)
	Distributions received from unconsolidated entities					557			191
Cash Flows Provided By (Used In) Investing Activities						15,273			(16,135	)
Cash Flows from Financing Activities:
	Cash distributions to shareholders					(8,963	)		(9,080	)
	Cash distributions to operating partnership unit holders					(3,710	)		(3,711	)
	Cash dividends paid on preferred shares					(2,511	)		(2,529	)
	Repayment of Credit Facility					(11,900	)		(20,050	)
	Repayment of unsecured loan					—			(20,000	)
	Repayment of construction loan					(13,575	)		—
	Principal repayments on unsecured term loan					(2,000	)		—
	Principal repayments on mortgages payable					(3,004	)		(2,567	)
	Purchase and retirement of common shares					(633	)		(678	)
	Payment of deferred financing costs					(196	)		(1,949	)
	Borrowings on Credit Facility					5,420			33,250
	Proceeds from mortgage					10,340			25,000
	Borrowings on construction loan					—			3,523
	Proceeds from exercise of stock options					112			—
Cash Flows (Used In) Provided By Financing Activities						(30,620	)		1,209
Net Increase (Decrease) in Cash and Cash Equivalents						1,285			(1,802	)
Cash and Cash Equivalents, Beginning of Period						2,939			5,744
Cash and Cash Equivalents, End of Period						$4,224			$3,942
Supplemental Disclosures of Cash Flow Information:
		Cash paid for interest during the period				$18,752			$20,712
Supplemental Disclosures of Noncash Items:
		Consolidation of Ramco-Gershenson, Inc., net of cash (Note 3)				$4,081		$	—
		Decrease in fair value of interest rate swaps (Note 2)				(3,414	)		—

See notes to consolidated financial statements.

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RAMCO-GERSHENSON PROPERTIES TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

1.  Basis of Presentation and Summary of Significant Accounting Policies

     Basis of Presentation — The accompanying interim financial statements and related notes of the Company are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting, the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules. The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results for interim periods are not necessarily indicative of the results for a full year.

2.  Accounting Change — Derivative Financial Instruments

      Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). This statement, as amended, requires the Company to measure all derivatives at fair value and to recognize them in the Consolidated Balance Sheet as an asset or liability, depending on the Company’s 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.

      The Company has entered into five interest rate swap agreements to reduce the impact of changes in interest rate on its floating rate debt. The interest rate swap agreements had a notional amount of $75,000 as of September 30, 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. The Company is exposed to credit loss in the event of non-performance by the counter party to the interest rate swap agreements, however, the Company does not anticipate non-performance by the counter party.

      The adoption of SFAS 133 resulted in a transition adjustment in OCI 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 nine months ended September 30, 2001, the change in fair market value of the interest rate swap agreements increased the amount charged to OCI by $3,066, to $3,414.

3.  Consolidation of Ramco-Gershenson, Inc.

      The Company, through its operating partnership, Ramco-Gershenson Properties, L.P., owns 100% of the non-voting common stock and 5% of the voting common stock of Ramco-Gershenson, Inc. (“Ramco”), the management company which provides property management services to the Company and to other entities. The Company previously accounted for its 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, the Company 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 $1,934 for the nine months ended September 30, 2001.

8

      The following unaudited pro forma consolidated results of operations for the three months and nine months ended September 30, 2000, assumes that Ramco was included in the consolidated financial statements as of January 1, 2000 (in thousands, except per share data):

		Three Months		Nine Months
		Ended		Ended
		September 30, 2000		September 30, 2000
Revenue		$	22,067	$	66,014
Expenses			18,547		54,398
Operating income			3,520		11,616
Net income		$	2,685	$	10,881
Net income:
	Basic earnings per share	$	0.26	$	1.16
	Diluted earnings per share	$	0.26	$	1.16

      The effect of including Ramco in the Consolidated Balance Sheet was to increase the following accounts as of January 1, 2001:

Cash	$	179
Accounts receivable		1,627
Other assets		3,447
Accounts payable and accrued expenses		(993	)
Increase in net assets	$	4,260

4.  Accounts Receivable — Net

      Accounts receivable include $10,267 and $9,865 of unbilled straight-line rent receivables at September 30, 2001, and December 31, 2000, respectively.

5.  Investment in Real Estate

      Investment in real estate consists of the following:

	September 30, 2001			December 31, 2000
	(Unaudited)
Land	$	70,807		$	71,809
Buildings and improvements		464,462			472,846
Construction in progress		13,978			13,340
		549,247			557,995
Less: accumulated depreciation		(57,274	)		(48,366	)
Investment in real estate — net	$	491,973		$	509,629

6.  Investment in Unconsolidated Joint Venture

      On September 28, 2001, the Company 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.

      Under terms of the joint venture agreement, the Company earned an acquisition fee of $165 and is responsible for the leasing and management of the project, for which the Company will receive management fees and leasing fees. The joint venture agreement included a buy-sell provision whereby the Company has the right to purchase or sell the property during specific time periods.

9

7.  Other Assets

      Other assets are as follows:

	September 30, 2001			December 31, 2000
	(Unaudited)
Leasing costs and other	$	14,562		$	13,101
Prepaid expenses and other		5,939			5,652
Deferred financing costs		5,863			5,667
Proposed development and acquisition costs		6,088			5,190
Intangible assets		2,145			—
		34,597			29,610
Less: accumulated amortization		(9,329	)		(7,185	)
Other assets — net	$	25,268		$	22,425

      Included in intangible assets at September 30, 2001, are management service contracts, net of cumulative amortization, which are being amortized over 15 years.

8.  Mortgages and Notes Payable

      Mortgages and notes payable consist of the following:

	September 30, 2001		December 31, 2000
	(Unaudited)
Fixed rate mortgages with interest rates ranging from 6.83% to 8.81%, due at various dates through 2011	$	196,302	$	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 September 30, 2001, was 6.33% and at December 31, 2000, was 7.95%		6,620		6,800
Construction loan financing, with an interest rate at LIBOR plus 200 basis points, due November 2001. The effective rate at September 30, 2001, was 6.00% and at December 31, 2000, was 8.50%. Maximum borrowings of $18,500		18,017		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 September 30, 2001, was 7.20% and at December 31, 2000, was 10.64%		23,000		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 September 30, 2001, was 7.15% and at December 31, 2000, was 8.66%		95,350		101,830
	$	339,289	$	354,008

      The mortgage notes and construction loans are secured by mortgages on properties that have an approximate net book value of $324,523 as of September 30, 2001. The Credit Facility is secured by mortgages on various properties that have an approximate net book value of $164,373 as of September 30, 2001.

      The Company currently has a $110,000 Credit Facility, of which $95,350 was outstanding as of September 30, 2001. The 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 September 30, 2001, the effective

10

interest rate was 7.2%) and matures September 2003. The credit facility is secured by mortgages on various properties.

      At September 30, 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 September 30, 2001, the Company was in compliance with the covenant terms.

      The following table presents scheduled principal payments on mortgages and notes payable as of September 30, 2001:

Year Ended
December 31,
2001 (October 1 — December 31)		$	2,082
2002			8,571
2003			136,226
2004			5,122
2005			5,562
Thereafter			181,726
	Total	$	339,289

9.  Leases

      The Company is engaged in the operation of shopping center and retail properties and leases space to tenants and certain anchors pursuant to lease agreements. The lease agreements provide for initial terms ranging from 3 to 30 years and, in some cases, for annual rentals which are subject to upward adjustment based on operating expense levels and sales volume.

      Approximate future minimum rentals under noncancelable operating leases in effect at September 30, 2001, assuming no new or renegotiated leases nor option extensions on lease agreements, are as follows:

Year Ended
December 31,
2001 (Oct 1 — December 31)		$	13,823
2002			53,865
2003			49,940
2004			44,499
2005			38,283
Thereafter			253,353
	Total	$	453,763

10.  Sale of Properties

      In January 2001, the Company sold White Lake MarketPlace to Pontiac Mall Limited Partnership (“PMLP”) for cash of $20,200, resulting in a gain on sale of approximately $5,200. Various executive officers/trustees of the Company are partners in PMLP. The property was offered for sale, utilizing the services of a national real estate brokerage firm, and the Company accepted the highest offer from an unrelated party. Subsequently the buyer cancelled the agreement. PMLP presented a comparable offer, which resulted in more favorable economic benefits to the Company. The sale of the property to PMLP was entered into upon the unanimous approval of the independent members of the Company’s Board of Trustees.

      Under terms of an agreement with PMLP, the Company will continue to manage the property and will receive management fees.

11

      In February 2001, the Company sold its Athens Town Center property for cash of approximately $8,400. In addition, the Company sold a parcel of land in White Lake Township, Michigan in May 2001, for cash of approximately $400. In July 2001, the Company sold a parcel of land in Lansing, Michigan for cash of approximately $161. The proceeds from the sales of the properties were used to reduce debt.

      As part of the Company’s business plan to improve its capital structure and reduce debt, the Company 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 the core portfolio.

11.  Earnings Per Share

      Basic earnings per share was computed using the weighted average number of shares outstanding of 7,105,000 for the three months ended September 30, 2001, and 7,179,000 for the three months ended September 30, 2000. For the nine months ended September 30, 2001, 7,109,000 shares were used in the earnings per share calculation and 7,197,000 shares for the nine months ended September 30, 2000. Diluted earnings per share assume the conversion of 2,000,000 shares of Preferred Shares into common shares during the nine months ended September 30, 2001. As a result of Preferred Shares being antidilutive for the three months ended September 30, 2001, the three months ended September 30, 2000, and the nine months ended September 30, 2000, no conversion was required.

12.  Commitments and Contingencies

      During the third quarter of 1994, the Company held more than 25% of the value of its gross assets in overnight Treasury Bill reverse repurchase transactions which the United States Internal Revenue Service (the “IRS”) may view as non-qualifying assets for the purposes of satisfying an asset qualification test applicable to REITs, based on a Revenue Ruling published in 1977 (the “Asset Issue”). The IRS has addressed the Asset Issue in an examination of the Company’s 1991-1995 tax returns (the “Tax Audit”). Based on developments in the law which have occurred since 1977, the Company’s Tax Counsel, Battle Fowler LLP, has rendered an opinion that the Company’s investment in Treasury Bill repurchase obligations would not adversely affect its REIT status. However, such opinion is not binding upon the IRS.

      In connection with the spin-off of Atlantic, Atlantic has assumed all liability arising out of the Tax Audit and the Asset Issue, including liabilities for interest and penalties and attorney fees relating thereto. In connection with the assumption of such potential liabilities, Atlantic and the Company have entered into a tax agreement which provides that the Company (under the direction of its Continuing Trustees), and not Atlantic, will control, conduct and effect the settlement of any tax claims against the Company relating to the Tax Audit and the Asset Issue. Accordingly, Atlantic will not have any control as to the timing of the resolution or disposition of any such claims. The Company and Atlantic also received an opinion from Special Tax Counsel, Wolf, Block, Schorr and Solis-Cohen LLP, that, to the extent there is a deficiency in the Company’s taxable income arising out of the IRS examination and provided the Company timely makes a deficiency dividend (i.e., declares and pays a distribution which is permitted to relate back to the year for which each deficiency was determined to satisfy the requirement that the REIT distribute 95 percent of its taxable income), the classification of the Company as a REIT for certain tax years under examination would not be affected. Under the tax agreement referred to above, Atlantic has agreed to reimburse the Company for the amount of any deficiency dividend so made. Notwithstanding the above-described opinions of legal counsel, the IRS could successfully challenge the status of the Company as a REIT. If the Company lost its status as a REIT, the Company believes that it will be able to re-elect REIT status for the taxable year beginning January 1, 1999.

      The IRS agent conducting the examination issued his examination report with respect to the tax issues raised in the Tax Audit, including the Asset Issue (collectively, the “Tax Issues”) on March 1, 1999. The report sets forth a number of positions which the examining agent has taken with respect to the Company’s taxes for the years that are subject to the Tax Audit, which the Company believes are not consistent with applicable law and regulations of the IRS.

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      The issuance of a revenue agent’s report constitutes only the first step in the IRS administrative process for determining whether there is any deficiency in the Company’s tax liability for the years at issue and any adverse determination by the examining agent is subject to administrative appeal within the IRS and, thereafter, to judicial review. The Company filed an administrative appeal challenging the findings contained in the IRS agent’s examination report on April 30, 1999.

      On October 29, 2001, the IRS issued a new revenue agent’s report. The IRS has, however, asserted additional grounds in support of the disallowance of certain deductions, and has proposed adjustments to taxable income and to the amount of tax asserted as being due from the Company. The proposed tax reflected in the new revenue agent’s report is not materially different from the amount in the original report. The Company intends to file an administrative appeal challenging the finding’s contained in the new revenue agent’s report.

      Based on the new report, the Company could be liable for up to $52.4 million in combined taxes, penalties and interest through November 15, 2001. The IRS examination report notes, however, that the Company is eligible to avoid termination of its REIT status for certain of the years under audit if the Company makes a deficiency distribution to its shareholders. A deficiency dividend would be deductible by the Company, thereby reducing its liability for federal income tax. The proposed adjustments to taxable income would require the Company to pay a deficiency dividend to its current shareholders resulting in combined taxes, penalties, interest and deficiency dividends of approximately $54.5 million as of November 15, 2001.

      As noted above, pursuant to a Tax Agreement between Atlantic and the Company, Atlantic assumed all liability arising out of the Tax Audit and Tax Issues, including the payment of the deficiency dividend. Based on the amount of Atlantic’s net assets, as disclosed in its most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, the Company does not believe that the ultimate resolution of the Tax Issues will have a material adverse effect on the financial position, results of operations or cash flows of the Company.

      In December 1999, the Board of Trustees approved the repurchase, at management’s discretion, of up to $10 million of the Company’s common stock. The program allows the Company to repurchase its common stock from time to time in the open market and/or in negotiated transactions. As of September 30, 2001, the Company has purchased and retired 132,000 shares of the Company’s common stock under this program at a cost of $1,879.

      In connection with the development and expansion of various shopping centers as of September 30, 2001, the Company has entered into agreements for the renovation and expansion of shopping centers of approximately $1,031.

ITEM 2     —    Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in Thousands, except per Share and per Unit amounts)

      The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements of the Company, including the respective notes thereto which are included in this Form 10-Q.

Capital Resources and Liquidity

      For the nine months ended September 30, 2001, the Company generated $16,632 in cash flows from operating activities, and $15,273 from investing activities. Proceeds from the sale of White Lake MarketPlace, Athens Town Center and two parcels of land provided $28,961 during the period. Financing activities used $30,620 during the nine months ended September 30, 2001. Repayments on the Credit Facility used $6,480, net of borrowings of $5,420, and repayments on construction loans used $13,575. During the nine months ended September 30, 2001, the Company used $2,000 to reduce the unsecured term loan, repaid $3,004 of mortgage obligations and paid $15,184 for cash distributions to shareholders, holders of operating partnership units and to preferred shareholders.

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      The Company’s mortgage and notes payable amounted to $339,289 at September 30, 2001, with a weighted average interest rate of 7.5%. The debt consists of eleven loans secured by various properties, plus one construction loan, one unsecured term loan and the Credit Facility, as defined below. Ten of the mortgage loans amounting to $196,302 have maturities ranging from 2006 to 2011, monthly payments which include regularly scheduled amortization, and have fixed interest rates ranging between 6.83% to 8.81%. One of the mortgage loans, evidenced by tax free bonds, amounting to $6,620 secured by Oak Brook Square Shopping Center matures in 2010, and carries a floating interest rate equal to 75% of the new issue long term Capital A rated utility bonds, plus interest to the lender sufficient to cause the lender’s overall yield on its investment in the bonds to be equal to 200 basis points over their applicable LIBOR rate (6.3% at September 30, 2001).

      In April 2001, the Company executed a $10,340 mortgage loan secured by the property at Madison Shopping Center. The loan has a fixed interest rate of 7.51% and matures May 2011.

      The Company has an $18.5 million construction loan to finance the Auburn Mile shopping center development located in Auburn Hills, Michigan. The loan carries an interest rate of 200 basis points over LIBOR, an effective rate of 6.0% at September 30, 2001, and matures November 2001. At the Company’s option, the loan can then be converted to a 2-year term loan. Approximately $18.0 million has been borrowed at September 30, 2001. The Company’s has a commitment from a financial institution to refinance this construction loan with a new $21 million, four-year term loan with an interest rate of 200 basis points over LIBOR.

      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 September 30, 2001, the Company was in compliance with the covenant terms.

      Outstanding letters of credit issued under the Credit Facility amounted to $818 at September 30, 2001.

      The Company has five interest rate swap agreements that limit the Company’s exposure to increases in interest rates on its floating rate debt. The agreements had an aggregate notional amount of $75,000 at September 30, 2001. Based on rates currently in effect, the agreements provide for fixed rates ranging from 7.0% to 8.3% and expire at various dates through March 2004. The Company is exposed to credit loss in the event of non-performance by the counter party to the interest rate swap agreements, however, the Company does not anticipate non-performance by the counter party. The Company will continue to evaluate the economic benefits of swap agreements as a method of managing its interest rate risks.

      After taking into account the impact of converting the variable rate debt into fixed rate debt by use of the interest rate swap agreements, at September 30, 2001, the Company’s variable rate debt accounted for approximately $67,987 of outstanding debt with a weighted average interest rate of 6.4%. Variable rate debt accounted for approximately 20.0% of the Company’s total debt and 12.7% of its total capitalization.

      Based on the debt and the market value of equity, the Company’s debt to total market capitalization (debt plus market value equity) ratio was 63.2% at September 30, 2001.

      The properties in which Ramco-Gershenson Properties, L.P. (the “Operating Partnership”), owns an interest and are accounted for using the equity method of accounting are subject to non-recourse mortgage indebtedness. At September 30, 2001, the pro rata share of non-recourse mortgage debt on the unconsolidated properties (accounted for using the equity method) was $20,472 with a weighted average interest rate of 7.2%.

      The Company’s capital structure at September 30, 2001, includes property specific mortgages, one construction loan, the unsecured term loan, the Credit Facility, Series A Preferred Shares, Common Shares and a minority interest in the Operating Partnership. Currently, the minority interest in the Operating Partnership represents a 29.3% ownership in the Operating Partnership which, may under certain conditions, be exchanged for 2,944,977 Common Shares.

      As of September 30, 2001, Operating Partnership Units (“OP Units”) issued are exchangeable for Common Shares of the Company on a one-for-one basis. The Company, as sole general partner of the Operating Partnership, has the option to settle exchanged OP Units in cash based on the current trading price of the Company’s Common Shares. Assuming the exchange of all limited partnership interests in the

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Operating Partnership, there would be outstanding 10,038 Common Shares with a market value of approximately $164,820 at September 30, 2001, (based on the closing price of $16.42 per share on September 30, 2001).

      The principal uses of the Company’s liquidity and capital resources are for acquisitions, development, including expansion and renovation programs, debt repayment and repurchase of its common stock. To maintain its qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”), the Company is required to distribute to its shareholders at least 90% of its “Real Estate Investment Trust Taxable Income” as defined in the Code.

      As part of the Company’s business plan to improve its capital structure and reduce debt, the Company 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 the core portfolio. The Company’s 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 Company has announced the conversion of its Tel-Twelve shopping center from an enclosed regional mall to an open-air center and the redevelopment of its Troy Towne Center and the Shoppes of Lakeland. These redevelopments will include demolition of a major portion of Tel-Twelve and a part of the Troy Towne Center, as well as retenanting of the Shoppes of Lakeland. As a result of reduced rental income during the redevelopment period, the Company has estimated that net income will decrease by approximately $3,400 for these three centers for the year ended December 31, 2002.

      The Company anticipates that the combination of the availability under the Credit Facility, construction loan, the sale of existing properties, and potential new debt will satisfy its expected working capital requirements through at least the next 12 months. The Company anticipates adequate liquidity for the foreseeable future to fund future redevelopments, expansions, repositionings, and to continue its currently planned capital programs, to repurchase up to an additional $8.1 million of the Company’s common stock and to make distributions to its shareholders in accordance with the Code’s requirements applicable to REITs. Although the Company believes that the combination of factors discussed above will provide sufficient liquidity, no such assurance can be given.

Comparison of Nine Months Ended September 30, 2001 to Nine Months Ended September 30, 2000

      Total revenues for the nine months ended September 30, 2001, increased by 4.7%, or $3,043, to $67,663 as compared to $64,620 for the nine months ended September 30, 2000. Minimum rents increased 0.6%, or $274, to $45,239 for the nine months ended September 30, 2001, as compared to $44,965 for the same period in 2000. The sale of White Lake Marketplace and Athens Town Center resulted in a reduction of $1,818 in minimum rent. The development at Auburn Mile contributed $277 to minimum rent and $1,815 was attributable to changes in minimum rents in the core portfolio when compared to the nine months ended September 30, 2000.

      Since January 1, 2001, Ramco-Gershenson, Inc. (“Ramco”), the management company providing property management operations to the Company and to other entities, has been consolidated in the Company’s financial statements. In prior years this entity was accounted for using the equity method of accounting. Fees and management income earned by Ramco contributed $1,934 to the increase in revenue for the nine months ended September 30, 2001.

      Recoveries from tenants increased $894, or 5.5% to $17,035 for the nine months ended September 30, 2001, as compared to $16,141 for the nine months ended September 30, 2000. The recovery ratio decreased to 95.6% from 96.4% for the nine months ended September 30, 2000, resulting from decreased occupancy during redevelopment of four shopping centers.

      For the nine months ended September 30, 2001, percentage rents decreased $359 to $1,226, as compared to $1,585 for the nine months ended September 30, 2000. The decrease is the result of tenant changes associated with redevelopment projects and the Company’s efforts to convert percentage rent to higher minimum rent when renewing leases. Interest and other income increased from $1,929 for the nine months

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ended September 30, 2000, to $2,229. The increase is primarily the result of an increase of $228 in temporary tenant income in 2001.

      Total expenses for the nine months ended September 30, 2001, increased by $4,209, to $57,213, from $53,004 for the nine months ended September 30, 2000. The increase was due to a $1,066 increase in total recoverable expenses, including real estate taxes; a $1,119 increase in depreciation and amortization; a $2,235 increase in general and administrative expenses; a $18 increase in other operating expenses, offset by a $229 decrease in interest expense.

      Depreciation and amortization expense increased $1,119, or 10.2%, to $12,123 as compared to $11,004 for the nine months ended September 30, 2000. Amortization of leasing commissions and financing costs increased $425; the consolidation of Ramco contributed $228 to the increase, and redevelopment of various properties accounted for the balance of the increase.

      General and administrative expenses increased $2,235 to $6,268, as compared to $4,033 for the nine months ended September 30, 2000. This increase is principally attributable to consolidating Ramco-Gershenson, Inc. in the Company’s financial statements in 2001. Items classified as fee and management income for the nine months ended September 30, 2001, were offset against the Company’s management fee paid to Ramco prior to 2001. For the nine months ended September 30, 2001, fees and management income increased $1,934 resulting in a $301 net increase in expense, due to normal increased operating costs.

      Interest expense decreased $229, from $20,125 to $19,896 for the nine months ended September 30, 2001. The 1.1% decrease is the result of lower balances on the credit facility and mortgages as well as reduced interest rates, offset by a reduction in our capitalization of interest on development and redevelopment projects. Capitalized interest amounted to $1,219 during the nine months ended September 30, 2000, and related to construction of Auburn Mile and redevelopment projects, as compared to $221 of capitalized interest for redevelopment projects for the same period in 2001. For the nine months ended September 30, 2001, weighted average interest rates decreased to 7.8% compared to 8.1% for the same period in 2000.

      Gain on sale of real estate increased $2,046, to $5,466 for the nine months ended September 30, 2001, as compared to $3,420 for the nine months ended September 30, 2000. The increase is attributable to the sales of WhiteLake Marketplace and Athens Town Center, as well as the sale of two parcels of land.

      The increase in minority interest is the result of higher income before minority interest for the nine months ended September 30, 2001, when compared to the nine months ended September 30, 2000. Minority interest represents a 29.3% share of income before minority interest of the operating partnership for the nine months ended September 30, 2001, and 29.1% for the nine months ended September 30, 2000.

Comparison of Three Months Ended September 30, 2001 to Three Months Ended September 30, 2000

      Total revenues increased $1,019, or 4.7%, from $21,634 for the three months ended September 30, 2000, to $22,653 for the three months ended September 30, 2001. Fees and management income increased $838 in the third quarter 2001, as a result of the consolidation of Ramco.

      Minimum rents decreased $399 to $14,819 in 2001, as compared to $15,218 for the three months ended September 30, 2000. The sale of White Lake Marketplace and Athens Town Center accounted for a reduction in minimum rent of $718 for the three months ended September 30, 2001. Increases of $319 were attributable to changes in minimum rents in the core portfolio when compared to the three months ended September 30, 2000.

      Recoveries from tenants increased $425, or 7.7%, to $5,921 as compared to $5,496 for the same three months in 2000. The overall recovery ratio was 94.8% for the three months ended September 30, 2001, compared to 95.0% for the three months ended September 30, 2000, resulting from decreased occupancy during redevelopment of four shopping centers during 2001.

      For the three months ended September 30, 2001, percentage rents decreased $65 to $132, as compared to $197 for the three months ended September 30, 2000. The decrease is the result of tenant changes associated

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with redevelopment projects and the Company’s efforts to convert percentage rent to higher minimum rent when renewing leases.

      Interest and other income increased $220 to $943 for the three months ended September 30, 2001. The consolidation of Ramco contributed to an increase of $116 during the quarter. Temporary tenant income and lease termination fees increased $89 when compared to the same quarter in 2000.

      Total expenses for the three months ended September 30, 2001, increased $1,059 or 5.8%, to $19,173 as compared to $18,114 for the three months ended September 30, 2000. The increase was due to a $457 increase in total recoverable expenses, including recoverable operating expenses and real estate taxes; a $275 increase in depreciation and amortization expense; a $893 increase in general and administrative expenses; offset by a decrease of $71 in other operating expense and a $495 decrease in interest expense.

      Total recoverable expenses, including recoverable operating expenses and real estate taxes, increased by 7.9%, or $457, to $6,244 as compared to $5,787 for the three months ended September 30, 2000. Real estate taxes increased $582 for the quarter ended September 30, 2001, when compared to the three months ended September 30, 2000. The development at Auburn Mile contributed $341 to the increase.

      Depreciation and amortization expense increased 7.3%, or $275, to $4,049 for the three months ended September 30, 2001, as compared to $3,774 for the three months ended September 30, 2000. Amortization of leasing commissions and financing costs increased $107; the consolidation of Ramco contributed $70 to the increase, and redevelopment of various properties accounted for the balance of the increase.

      General and administrative expenses increased $893 to $2,022, as compared to $1,129 for the three months ended September 30, 2000. This increase is principally attributable to consolidating Ramco-Gershenson, Inc. in the Company’s financial statements in 2001. Items classified as fee and management income for the three months ended September 30, 2001, were offset against the Company’s management fee paid to Ramco prior to 2001. For the three months ended September 30, 2001, fees and management income increased $838 resulting in a $55 net increase in expense, due to normal increased operating costs.

      Other operating expenses decreased $71, from $426 for the three months ended September 30, 2000, to $355 for the same period ended September 30, 2001. The decrease is primarily the result of reduced operating costs resulting from the sale of Athens Town Center and WhiteLake Marketplace.

      Interest expense decreased $495, from $6,998 to $6,503 during the third quarter of 2001. The decrease is the result of a lower average interest rate and lower average outstanding loan balance offset by a reduction in our capitalization of interest on development and redevelopment projects. Capitalized interest amounted to $411 during the three months ended September 30, 2000, and related to construction of Auburn Mile and redevelopment projects, as compared to $119 of capitalized interest for redevelopment projects for the same period in 2001.

      The increase in minority interest is the result of higher income before minority interest for the three months ended September 30, 2001, when compared to 2000.

Economic Conditions

      Substantially all of the leases at the Company’s properties provide for tenants to pay their pro rata share of operating expenses, including common area maintenance and real estate taxes, thereby reducing the Company’s exposure to increases in operating expenses resulting from inflation. Many of the tenants’ leases contain provisions designed to lessen the impact of inflation. Such provisions include the ability to receive percentage rentals based on a tenant’s gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than ten years, which may enable the Operating Partnership to replace existing leases with new leases at a higher base and/or percentage rentals if rents of the existing leases are below the then existing market rate.

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      The retail industry has experienced some financial difficulties during the past few years and certain local, regional and national retailers have filed for protection under bankruptcy laws. If this trend should continue, the Company’s future earnings performance could be negatively impacted.

Funds from Operations

      Management generally considers funds from operations (“FFO”) an appropriate supplemental measure of the Company’s financial performance because it is predicated on cash flow analyses. The Company has adopted the most recent National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO, which was amended effective January 1, 2000. Under the NAREIT definition, FFO represents income before minority interest, excluding extraordinary items, as defined under accounting principles generally accepted in the United States of America, gains on sales of depreciable property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The Company’s computation of FFO may, however, differ from the methodology for calculating FFO utilized by other real estate companies, and therefore, may not be comparable to these other real estate companies. FFO should not be considered an alternative to net income as an indication of the Company’s performance or to cash flows as a measure of liquidity or the Company’s ability to pay distributions.

      The Company’s FFO calculations include $120 and $256 of gain on sale of undepreciated land for the three months and nine months ended September 30, 2001, respectively.

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      The following table illustrates the calculation of FFO for the three months and nine months ended September 30, 2001, and 2000:

		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2001		2000		2001			2000
Net Income		$	2,674	$	2,685	$	11,644		$	9,617
Add:
	Depreciation and amortization expense		4,066		3,858		12,149			11,228
	Cumulative effect of change in accounting principle		—		—		—			1,264
	Minority interest in partnership		1,126		866		4,889			4,270
	Loss (Gain) on sale of real estate		3		—		(5,209	)		(3,669	)
Funds from operations — diluted			7,869		7,409		23,473			22,710
Less:
	Preferred share dividends		847		845		2,513			2,515
Funds from operations — basic		$	7,022	$	6,564	$	20,960		$	20,195
Weighted average equivalent shares outstanding:(1)
	Basic		10,050		10,124		10,054			10,142
	Diluted		12,103		12,133		12,072			12,145
Supplemental disclosure:
	Straight-line rental income	$	445	$	961	$	1,678		$	2,652
	Amortization of management contracts and covenants not to compete	$	56	$	56	$	168		$	168

(1)  For basic FFO, represents the weighted average total shares outstanding, assuming the redemption of all Operating Partnership Units for Common Shares. For diluted FFO, represents the weighted average total shares outstanding, assuming the redemption of all Operating Partnership Units for Common Shares, the Series A Preferred Shares converted to Common Shares, and the common shares issuable under the treasury stock method upon exercise of stock options.

Sensitivity Analysis

      The Company has exposure to interest rate risk on its debt obligations. Based on the Company’s debt and interest rates and the interest rate swap agreements in effect at September 30, 2001, a 0.25 percent increase in interest rates would decrease earnings and cash flows by approximately $170 and a 0.25 percent decrease in interest rates would increase earnings and cash flows by approximately $170.

Capital Expenditures

      During the nine months ended September 30, 2001, the Company spent approximately $4,405 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 or repositionings, were approximately $11,713. Revenue neutral capital expenditures, such as roof and parking lot repairs which are anticipated to be recovered from tenants, amounted to approximately $188.

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Forward Looking Statements

      This Form 10-Q contains forward-looking statements with respect to the operation of certain of the Company’s properties. Management of the Company believes the expectations reflected in the forward-looking statements made in this document are based on reasonable assumptions. Certain factors could occur that might cause actual results to vary. These include general economic conditions, the strength of key industries in the cities in which the Company’s properties are located, the performance of the Company’s tenants at the Company’s properties and elsewhere, and other factors discussed in this report and the Company’s reports filed with the Securities and Exchange Commission.

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PART II — OTHER INFORMATION

ITEM 6 — Exhibits and Reports on Form 8-K

(a)  Exhibits

      See Exhibit Index immediately preceding the exhibits.

(b)  Reports on Form 8-K

      Not applicable

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized.

RAMCO-GERSHENSON PROPERTIES TRUST

Date: November 8, 2001	By: /s/ DENNIS E. GERSHENSON Dennis E. Gershenson President and Trustee (Chief Executive Officer)
Date: November 8, 2001	By: /s/ RICHARD J. SMITH Richard J. Smith Chief Financial Officer (Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit No.		Description
	10.53	Limited Liability Company Agreement of Ramco/ West Acres LLC.
	10.54	Assignment and Assumption Agreement dated September 28, 2001 among Flint Retail, LLC and Ramco/ West Acres LLC and State Street Bank and Trust For holders of J.P. Mortgage Commercial Mortgage Pass-Through Certificates.

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