UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-12482
GLIMCHER REALTY TRUST
(Exact name of registrant as specified in its charter)
| Maryland | 31-1390518 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 180 East Broad Street | 43215 | |
| Columbus, Ohio | (Zip Code) | |
Registrant’s telephone number, including area code: (614) 621-9000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common Shares of Beneficial Interest, par value $0.01 per share | New York Stock Exchange | |
| 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share | New York Stock Exchange | |
| 7.50% Series H Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share | New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicated by check mark if the Registrant is not required to file reports pursuant to Section 12 or Section 15(d) of the Securities Exchange Act of 1934. Yes o No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one): Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company.) Smaller reporting company o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of February 21, 2013, there were 143,173,121 Common Shares of Beneficial Interest outstanding, par value $0.01 per share. The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant's Common Shares of Beneficial Interest as quoted on the New York Stock Exchange as of June 29, 2012, was $1,409,054,763.
Documents Incorporated By Reference
Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K with respect to the 2013 Annual Meeting of Shareholders to be held on May 9, 2013 are incorporated by reference into Part III of this Report.
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TABLE OF CONTENTS
| Item No. | Form 10-K | |
| Report Page | ||
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PART 1.
Glimcher Realty Trust ("GRT" or the "Registrant"), Glimcher Properties Limited Partnership (the “Operating Partnership,” “OP” or “GPLP”) and entities directly or indirectly owned or controlled by GRT, on a consolidated basis, are hereinafter referred to as the “Company,” “we,” “us,” or “our company.”
Special Note Regarding Forward Looking Statements
This Form 10-K, together with other statements and information publicly disseminated by GRT, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated.
Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Statements that do not relate strictly to historical or current facts are forward-looking and are generally identifiable by the use of forward-looking terminology such as “may”, “will”, “should”, “potential”, “intend”, “expect”, “endeavor”, “seek”, “anticipate”, “estimate”, “overestimate”, “underestimate”, “believe”, “plans”, “could”, “project”, “predict”, “continue”, “trend”, “opportunity”, “pipeline”, “comfortable”, “current”, “position”, “assume”, “outlook”, “remain”, “maintain”, “sustain”, “achieve”, “would” or other similar words or expressions. Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated.
Forward-looking statements speak only as of the date they are made and are qualified in their entirety by reference to the factors discussed throughout this annual report. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or the occurrence of unanticipated events except as required by applicable law. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements. Risks and other factors that might cause differences, some of which could be material, include, but are not limited to: changes in political, economic or market conditions generally and the real estate and capital markets specifically; impact of increased competition; availability of capital and financing; tenant or joint venture partner(s) bankruptcies; failure to increase mall store occupancy and same-mall operating income; rejection of leases by tenants in bankruptcy; financing and development risks; construction and lease-up delays; cost overruns; the level and volatility of interest rates; the rate of revenue increases as compared to expense increases; the financial stability of tenants within the retail industry; the failure to make additional investments in regional mall properties and to redevelop properties; failure to complete proposed or anticipated acquisitions; the failure to sell properties as anticipated and to obtain estimated sale prices; the failure to upgrade our tenant mix; restrictions in current financing arrangements; inability to exercise available extension options on debt instruments; failure to comply or remain in compliance with the covenants in the Company's debt instruments, including, but not limited to, the covenants under our corporate credit facility; the failure to fully recover tenant obligations for common area maintenance (“CAM”), insurance, taxes and other property expenses; the impact of changes to tax legislation and, generally, our tax position; the failure of GRT to qualify as a real estate investment trust (“REIT”); the failure to refinance debt at favorable terms and conditions; an increase in impairment charges with respect to other properties as well as impairment charges with respect to properties for which there has been a prior impairment charge; loss of key personnel; material changes in GRT’s dividend rates on its securities or the ability to pay its dividend on its common shares or other securities; possible restrictions on our ability to operate or dispose of any partially-owned properties; failure to achieve earnings/funds from operations targets or estimates; conflicts of interest with existing joint venture partners; failure to achieve projected returns on development or investment properties; changes in generally accepted accounting principles or interpretations thereof; terrorist activities and international hostilities which may adversely affect the general economy, as well as domestic and global financial and capital markets, specific industries, and our properties; the unfavorable resolution of legal proceedings; the impact of future acquisitions and divestitures; significant costs related to environmental issues, bankruptcies of lending institutions within GRT’s construction loans and corporate credit facility as well as other risks listed from time to time in its press releases, and in GRT’s other reports and statements filed with the Securities and Exchange Commission (“SEC”).
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Item 1. Business
| (a) | General Development of Business |
GRT is a fully-integrated, self-administered and self-managed Maryland REIT which was formed on September 1, 1993 to continue the business of The Glimcher Company and its affiliates, of owning, leasing, acquiring, developing and operating a portfolio of retail properties consisting of regional and super regional malls, and community shopping centers. Enclosed regional and super regional malls and open-air centers in which we hold an ownership position (including joint venture interests) are referred to herein as “Malls” and community shopping centers in which we hold an ownership position (including joint venture interests) are referred to herein as “Community Centers.” The Malls and Community Centers may from time to time be individually referred to herein as a “Property” and collectively referred to herein as the “Properties.” On January 26, 1994, GRT consummated an initial public offering (the “IPO”) of 18,198,000 of its common shares of beneficial interest (the “Common Shares” or “Common Stock”) including 2,373,750 over allotment option shares. The net proceeds of the IPO were used by GRT primarily to acquire (at the time of the IPO) an 86.2% interest in the Operating Partnership, a Delaware limited partnership, of which Glimcher Properties Corporation (“GPC”), a Delaware corporation and a wholly-owned subsidiary of GRT, is sole general partner. At December 31, 2012, GRT held a 98.3% interest in the Operating Partnership. GRT has completed several secondary public offerings of Common Shares since the IPO.
The Company does not engage or pay a REIT advisor. Management, leasing, accounting, legal, design and construction supervision and expertise is provided through its own personnel, or, where appropriate, through outside professionals.
| (b) | Narrative Description of Business |
General: The Company is a recognized leader in the ownership, management, acquisition and development of Malls and Community Centers. At December 31, 2012, we owned material interests in and managed 28 Properties (23 wholly-owned and five partially owned through joint ventures) which are located in 15 states. The Properties contain an aggregate of approximately 21.5 million square feet of gross leasable area (“GLA”) of which approximately 95.2% was occupied at December 31, 2012.
For purposes of computing occupancy statistics, anchors are defined as occupants whose space is equal to or greater than 20,000 square feet of GLA. This definition is consistent with the industry’s standard definition determined by the International Council of Shopping Centers. All tenant spaces less than 20,000 square feet and all outparcels are considered to be non-anchor. The Company computes occupancy on an economic basis, which means only those spaces where the store is open and/or the tenant is paying rent are considered occupied, excluding all tenants with leases having an initial term of less than one year. The Company includes GLA in its occupancy statistics for certain anchors and outparcels that are owned by third parties. Mall anchors, which are owned by third parties and are open and/or are obligated to pay the Company charges, are considered occupied when reporting occupancy statistics. Community Center anchors owned by third parties are excluded from the Company’s GLA. These differences in treatment between Malls and Community Centers are consistent with industry practice. Outparcels at both Community Center and Mall Properties are included in GLA if the Company owns the land or building. The outparcels where a third party owns the land and building, but contributes only nominal ancillary charges are excluded from GLA.
As of December 31, 2012, the occupancy rate for all of the Properties was 95.2% of GLA. The occupied GLA was leased at 81.4%, 9.8%, and 8.8% to national, regional, and local retailers, respectively. The Company's focus is to maintain high occupancy rates for the Properties by capitalizing on management's long-standing relationships with national and regional tenants and its extensive experience in marketing to local retailers.
As of December 31, 2012, the Properties had annualized minimum rents of $251.7 million. Approximately 75.5%, 8.1%, and 16.4% of the annualized minimum rents of the Properties as of December 31, 2012 were derived from national, regional, and local retailers, respectively. No single tenant represented more than 2.6% of the aggregate annualized minimum rents of the Properties as of December 31, 2012.
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Malls: The Malls provide a broad range of shopping alternatives to serve the needs of customers in all market segments. Our Malls are in various formats such as enclosed regional malls, open-air retail centers, and outlet properties. Malls are generally anchored by multiple department stores such as Belk's, The Bon-Ton, Boscov's, Dick's Sporting Goods, Dillard's, Elder-Beerman, Herberger's, JCPenney, Kohl's, Macy's, Nordstrom, Saks, Sears, and Von Maur. Mall stores, most of which are national retailers, include Abercrombie & Fitch, American Eagle Outfitters, Apple, Banana Republic, Bath & Body Works, Finish Line, Foot Locker, Forever 21, Gap, H&M, Hallmark, Kay Jewelers, The Limited, Express, Old Navy, Pacific Sunwear, and Victoria's Secret. To provide a complete shopping, dining and entertainment experience, the Malls generally have at least one restaurant, a food court which offers a variety of fast food alternatives, and, in certain Malls, multiple screen movie theaters, fitness centers, and other entertainment and leisure activities. Our largest enclosed Mall has approximately 1.5 million square feet of GLA and approximately 166 stores, while our smallest open-air center has approximately 31,000 square feet of GLA and approximately 18 stores. The Malls also have additional restaurants and retail businesses, such as Benihana, Cheesecake Factory, P.F. Chang's, and Red Lobster, located along the perimeter of the parking areas.
As of December 31, 2012, the Malls accounted for 98.4% of the total GLA, 99.0% of the aggregate annualized minimum rents of the Properties, and had an overall occupancy rate of 95.3%.
Community Centers: The Company's Community Centers are designed to attract local and regional area customers and are typically anchored by a combination of discount department stores or supermarkets which attract shoppers to each center's smaller shops. The tenants at the Company's Community Centers typically offer day-to-day necessities and value-oriented merchandise. Many of the Community Centers have retail businesses or restaurants located along the perimeter of the parking areas.
As of December 31, 2012, Community Centers accounted for 1.6% of the total GLA, 1.0% of the aggregate annualized minimum rents of the Properties, and had an overall occupancy rate of 93.4%.
Growth Strategies and Operating Policies: Management of the Company believes per share growth in both net income and funds from operations (“FFO”) are important factors in enhancing shareholder value. The Company believes that the presentation of FFO provides useful information to investors and a relevant basis for comparison among REITs. Specifically, the Company believes that FFO is a supplemental measure of the Company's operating performance as it is a recognized standard in the real estate industry, in particular, REITs. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders (computed in accordance with Generally Accepted Accounting Principles (“GAAP”)), excluding gains or losses from sales of depreciable property, impairment adjustments associated with depreciable real estate, real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company's FFO may not be directly comparable to similarly titled measures reported by other REITs. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. A reconciliation of FFO to net loss to common shareholders is provided in Item 7 of this Form 10-K.
GRT intends to operate in a manner consistent with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), applicable to REITs and related regulations with respect to the composition of the Company’s portfolio and the derivation of income unless, because of circumstances or changes in the Code (or any related regulation), the GRT Board of Trustees (the "Board") determines that it is no longer in the best interests of GRT to qualify as a REIT.
The Company’s growth strategy is to upgrade the quality of our portfolio of assets. We focus on selective acquisitions, redevelopment of our core Mall assets, the disposition of non-strategic assets, and ground-up development in markets with high growth potential. Our development and acquisition strategy is focused on dominant retail properties within the top 100 metropolitan markets by population that have near-term upside potential or offer advantageous opportunities for the Company.
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The Company acquires and develops its Properties as long-term investments. Therefore, its focus is to provide for regular maintenance of its Properties and to conduct periodic renovations and refurbishments to preserve and increase Property values while also increasing the retail sales prospects of its tenants. The projects usually include renovating existing facades, installing uniform signage, updating interior decor, replacement of roofs and skylights, resurfacing parking lots and increasing parking lot lighting. To meet the needs of existing or new tenants and changing consumer demands, the Company also reconfigures and expands its Properties, including utilizing land available for expansion and development of outparcels or the addition of new anchors. In addition, the Company works closely with its tenants to renovate their stores and enhance their merchandising capabilities.
Financing Strategies: At December 31, 2012, the Company had a total-debt-to-total-market-capitalization ratio of 43.8% based upon the closing price of the Common Shares on the New York Stock Exchange (“NYSE”) on December 31, 2012. This ratio does not include our pro-rata share of indebtedness related to unconsolidated joint ventures. The Company also looks at other metrics to assess overall leverage levels including debt to total asset value and total debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratios. The Company expects that it may, from time to time, re-evaluate its strategy with respect to leverage in light of the current economic conditions; relative costs of debt and equity capital; market values of its Properties; acquisition, development, and expansion opportunities; and other factors, including meeting the taxable income distribution requirement for REITs under the Code in the event the Company has taxable income without receipt of cash sufficient to enable the Company to meet such distribution requirements. The Company’s preference is to obtain fixed rate, long-term debt for its Properties. At December 31, 2012, 89.2% of total Company debt was fixed rate debt. Shorter term and variable rate debt typically is employed for Properties that we expect to redevelop or expand.
Competition: All of the Properties are located in areas that have competing shopping centers and/or malls and other retail facilities. Generally, there are other retail properties within a five-mile radius of a Property. The amount of rentable retail space in the vicinity of the Company’s Properties could have a material adverse effect on the amount of rent charged by the Company and on the Company’s ability to rent vacant space and/or renew leases at such Properties. There are numerous commercial developers, real estate companies and major retailers that compete with the Company in seeking land for development, properties for acquisition and tenants for properties, some of which may have greater financial resources than the Company and personnel with greater operating or development experience than that of the Company's personnel. There are numerous shopping facilities that compete with the Company’s Properties in attracting retailers to lease space. Additionally, retailers at the Properties may face increasing competition from on-line shopping, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks.
Employees: At December 31, 2012, the Company had 1,094 employees, of which 374 were part-time.
Seasonality: The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are typically at their highest levels. Additionally, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season.
Tax Status: GRT believes it has been organized and operated in a manner that qualifies for taxation as a REIT and intends to continue to be taxed as a REIT under Sections 856 through 860 of the Code. As such, GRT generally will not be subject to federal income tax to the extent it distributes at least 90.0% of its REIT ordinary taxable income to its shareholders. Additionally, GRT must satisfy certain requirements regarding its organization, ownership and certain other conditions, such as a requirement that its shares be transferable. Moreover, GRT must meet certain tests regarding its income and assets. At least 75.0% of GRT’s gross income must be derived from passive income closely connected with real estate activities. Additionally, 95.0% of GRT’s gross income must be derived from these same sources, plus dividends, interest and certain capital gains. To meet the asset test, at the close of each quarter of the taxable year, at least 75.0% of the value of the total assets must be represented by real estate assets, cash and cash equivalent items (including receivables), and government securities. Additionally, to qualify as a REIT, there are several rules limiting the amount and type of securities that GRT can own, including a requirement that not more than 25.0% of the value of its total assets can be represented by securities. If GRT fails to meet the requirements to qualify for REIT status, GRT may cease to qualify as a REIT and may be subject to certain penalty taxes. If GRT fails to qualify as a REIT in any taxable year, then it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. As a qualified REIT, GRT is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed income.
Intellectual Property: GRT, by and through its affiliates, holds service marks registered with the United States Patent and Trademark Office, including the term GLIMCHER® (expiration date January 2019), certain of its Property names such as Scottsdale Quarter® (expiration date November 2019), and Polaris Fashion Place® (expiration date July 2022), as well as other marketing terms, phrases, and materials it uses to promote its business, services, and Properties.
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| (c) | Available Information |
GRT files this Form 10-K and other periodic reports and statements electronically with the SEC. The SEC maintains an Internet site that contains reports, statements and proxy and information statements, and other information provided by issuers at http://www.sec.gov. GRT’s reports and statements, including amendments, are also available free of charge on its website, www.glimcher.com, as soon as reasonably practicable after such documents are filed with the SEC. The information contained on our website is not incorporated by reference into this report and such information should not be considered a part of this report.
Item 1A. Risk Factors
A number of factors affect our business and the results of our operations, many of which are beyond our control. The following is a description of the most significant factors that present a risk of adversely impacting our actual results of operations in future periods in a manner that would cause such results to differ materially from those currently expected, desired, or expressed in any forward looking statement made by us or on our behalf.
We are subject to risks inherent in owning real estate investments.
Real property investments are subject to varying degrees of risk. Our ability to make dividend distributions, debt repayments, the amount or timing of any distribution or dividend, and our operating results, may be adversely affected by the economic climate, business conditions, and certain local conditions including:
•oversupply of space or reduced demand for rental space and newly developed properties;
•the attractiveness of our properties compared to other retail space;
•our ability to provide adequate maintenance to our properties; and
•unanticipated fluctuations in real estate taxes, insurance, and other operating costs.
Applicable laws, including tax laws, interest rate levels and the availability of financing, may adversely affect our income and real estate values. In addition, real estate investments are relatively illiquid and, therefore, our ability to sell our properties quickly may be limited. We cannot be sure that we will be able to lease space as tenants move out or as to the rents we may be able to charge new tenants entering such space.
Some of our potential losses may not be covered by insurance.
We maintain appropriate property, business interruption, and third-party liability insurance on our consolidated real estate assets as well as those held in joint ventures in which we have an investment interest. Regardless of our insurance coverage, insured losses could cause a serious disruption to our business and reduce or delay our operations and receipt of revenue. In addition, certain catastrophic perils are subject to large deductibles that may cause an adverse impact on our operating results. Lastly, some types of losses, including lease and other contractual claims, are not insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital that we have invested in a property. If this happens, we may still remain obligated for any mortgage debt or other financial obligations related to the property or group of impacted properties.
Our insurance policies include coverage for acts of terrorism by foreign or domestic agents. The United States ("U.S.")government provides reinsurance coverage to insurance companies following a declared terrorism event under the Terrorism Risk Insurance Program Reauthorization Act (the “Act”) which extended the effectiveness of the Terrorism Risk Insurance Extension Act of 2005. The Act is designed to reinsure the insurance industry from declared terrorism events that cause or create in excess of $100 million in damages or losses. The U.S. government could terminate its reinsurance of terrorism, thus increasing the risk of uninsured loss by the Company for such acts.
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Some of our Properties depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of or a store closure by one or more of these tenants.
The ability of anchor tenants to attract customers to a property has a significant effect on the ability of the property to attract tenants and, consequently, on the revenue generated by the property. In recent years, the retail industry has experienced consolidation, and retailers that serve as anchor tenants have experienced or are currently experiencing operational changes and other ownership and leadership changes. The closure of an anchor store or a large number of anchor stores might have a negative effect on a property, on our portfolio and on our results of operations. In addition, for anchors that lease their space, the loss of any rental payments from an anchor, a lease termination by an anchor for any reason, a failure by that anchor to occupy the premises, or any other cessation of operations by an anchor could result in lease terminations or reductions in rent by other tenants of the same property whose leases permit cancellation or rent reduction if an anchor's lease is terminated or the anchor otherwise ceases occupancy or operations. In that event, we might be unable to re-lease the vacated space of the anchor or in-line store in a timely manner, or at all. In addition, the leases of some anchors might permit the anchor to transfer its lease, including any attendant approval rights, to another retailer. The transfer to a new anchor could cause customer traffic in the property to decrease or to be composed of different types of customers, which could reduce the income generated by that property. A transfer of a lease to a new anchor also could allow other tenants to make reduced rental payments or to terminate their leases at the property, which could adversely affect our results of operations. At December 31, 2012, our three largest tenants were Limited Brands, Inc., The Gap, Inc., and Bain Capital, LLC, representing 2.6%, 1.9%, and 1.8% of our annualized minimum rents, respectively.
Our financial position, operating results, ability to make distributions and ability to finance our indebtedness may also be adversely affected by the bankruptcy, insolvency or general downturn in the business of any such tenant as well as requests from such tenants for significant rent relief or other lease concessions, or if any such tenant should elect to close locations at any of our properties before the expiration of their leases or choose not to renew any such leases at our properties as they expire.
Bankruptcy of our tenants or downturns in our tenants' businesses may reduce our cash flow.
Since we derive almost all of our income from rental payments and other tenant charges, our cash available for distribution as well as our operating results would be adversely affected if a significant number of our tenants were unable to meet their obligations to us, or if we were unable to lease vacant space in our properties on economically favorable terms. A tenant may seek the protection of the bankruptcy laws which could result in the termination of its lease causing a reduction in our cash available for distribution. Furthermore, certain of our tenants, including anchor tenants, hold the right under their lease(s) to terminate their lease(s) or reduce their rental rate if certain occupancy conditions are not met, if certain anchor tenants close, if certain sales levels or profit margins are not achieved, or if an exclusive use provision is violated, which all could be triggered in the event of one or more tenant bankruptcies. A significant increase in the number of tenant bankruptcies, particularly amongst anchor tenants, may make it more difficult for us to lease the remainder of the property or properties in which the bankrupt tenant operates and adversely impact our ability to successfully execute our re-leasing strategy.
Prolonged instability or volatility in the U.S. economy, on a regional or national level, may adversely impact consumer spending and therefore our operating results.
A downturn in the U.S. economy, including continued high levels of unemployment, on a regional or national level, and reduced consumer spending could impact our tenants' ability to meet their lease obligations due to poor operating results, lack of liquidity or other reasons, and therefore decrease the revenue generated by our properties or the value of our properties. Our ability to lease space, negotiate lease terms, and maintain favorable rents could also be negatively impacted by prolonged periods of high unemployment, extended instability, volatility, or weakness in consumer spending, and the overall U.S. economy. Moreover, the demand for leasing space in our existing shopping centers as well as our development properties could also significantly decline during additional downturns in the U.S. economy which could result in a decline in our occupancy percentage and reduction in rental revenues.
We face significant competition that may decrease the occupancy and rental rates of our properties as well as our operating results.
We compete with many commercial developers, real estate companies and major retailers. Some of these entities develop or own malls, open-air centers, value-oriented retail properties, and community shopping centers with what are perceived to be our competion for tenants. We face competition for prime locations and for tenants. New regional malls, open-air centers, or other retail shopping centers with more convenient locations or better rents may attract tenants or cause them to seek more favorable lease terms at or prior to renewal. Retailers at our properties may face increasing competition from other retailers, on-line shopping, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks, all of which could adversely impact their profitability or desire to occupy one or more of our properties.
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The failure to fully recover cost reimbursements for common area maintenance, real estate taxes and insurance from tenants could adversely affect our operating results.
The computation of cost reimbursements from tenants for CAM, insurance and real estate taxes is complex and involves numerous judgments including interpretation of lease terms and other tenant lease provisions. Most tenants make monthly fixed payments of estimated CAM, real estate taxes and other cost reimbursement items. After the end of the calendar year, we compute each tenant's final cost reimbursements and issue a bill or credit for the full amount, after considering amounts paid by the tenants during the year. The billed amounts could be disputed by the tenant(s) or become the subject of a tenant audit or even litigation. Final adjustments for the year ended December 31, 2012 have not yet been determined. At December 31, 2012, our recorded accounts receivable reflected $3.6 million of 2012 costs that we expect to recover from tenants during the first six months of 2013. There can be no assurance that we will collect all or substantially all of this amount.
Other tenants have fixed annual CAM obligations, payable in equal monthly installments, based upon our estimated annual CAM expenses. Unforeseen or under-estimated expenses may cause us to collect less than our actual expenses.
The results of operations for our properties depend on the economic conditions of the regions of the U.S. in which they are located.
Our results of operations and distributions to our shareholders will generally be subject to economic conditions in the regions in which our properties are located. For the year ended December 31, 2012, approximately 24.8% of annualized minimum rents came from our properties located in Ohio, the highest percentage in any one state.
We may be unable to successfully redevelop, develop or operate our properties.
As a result of economic and other conditions and required approvals from governmental entities, lenders, or our joint venture partners, development projects may not be pursued or may be completed later or at higher costs than anticipated. In the event of an unsuccessful development project, our loss could exceed our investment in the project. Development and redevelopment activities involve significant risks, including:
| • | the expenditure of funds on and devotion of time to projects that may not come to fruition; |
| • | increased construction costs that may make the project economically unattractive; |
| • | an inability to obtain construction financing and permanent financing on favorable terms; |
| • | occupancy rates and rents not sufficient to make a project profitable; and |
| • | provisions within our corporate financing or other agreements that may prohibit or significantly limit the use of capital proceeds for development or redevelopment projects. |
We may acquire or develop new properties (including outlet properties and open-air centers), and these activities are subject to various risks.
We actively pursue development and acquisition activities as opportunities arise, and these activities are subject to the following risks:
| • | the pre-construction phase for a new project often extends over several years, and the time to obtain anchor and tenant commitments, zoning and regulatory approvals, as well as public or private financing can vary significantly from project to project; |
| • | we may not be able to obtain the necessary zoning, governmental approvals, or anchor or tenant commitments for a project, or we may determine that the expected return on a project is not sufficient; if we abandon our development activities with respect to a particular project, we may incur a loss on our investment; |
| • | construction and other project costs may exceed our original estimates because of increases in material and labor costs, delays and costs to obtain anchor and tenant commitments; |
| • | we may not be able to obtain construction financing, or non-recourse financing of construction loans which financing may have to be recourse to GRT, GPLP, or other significant affiliates of GRT; |
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| • | occupancy rates and rents, as well as occupancy costs and expenses, at a completed project or an acquired property may not meet our projections, and the costs of development activities that we explore but ultimately abandon will, to some extent, diminish the overall return on our completed development projects and perhaps our financial results; and |
| • | we may have difficulty integrating acquired operations, including restructuring and realigning activities, personnel, and technologies. |
We face competition for the acquisition and development of real estate properties and other assets in the retail sector, which may impede our ability to grow our operations through acquisition and development or may increase the cost of these activities which may impact our financial results and diminish our overall investment return for such activity.
We compete with many other entities engaged in real estate investment activities for the acquisitions of regional shopping malls, other retail properties, and other premier development sites, including institutional pension funds, private institutional investors, other REITs, and other private owner-operators of retail properties. In particular, larger entities may enjoy competitive advantages that result from, among other things, a lower cost of capital, a better ability to raise capital, a better ability to finance an acquisition, and enhanced operating efficiencies. Additionally, our potential acquisition targets might find our competitors to be more attractive suitors if they have greater resources, are willing to pay more, or have a more compatible operating philosophy. These competitors may increase the market prices we would have to pay in order to acquire properties. If we are unable to acquire properties that meet our criteria at prices we deem reasonable, our ability to grow may be adversely affected and the investment return on the properties we do acquire may be diminished, adversely impacting our financial results and overall enterprise value.
We could incur significant costs related to environmental issues.
Under some environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating these substances on or under the property. In connection with the ownership or operation of our properties, we could be liable for such costs, which could be substantial and even exceed the value of such property or the value of our aggregate assets. We could incur such costs or be liable for such costs during a period after we dispose of or transfer a property. The failure to remediate toxic substances may adversely affect our ability to sell or rent any of our properties or to borrow funds. In addition, existing or future environmental laws or regulations may require us to expend substantial sums in order to use our properties or operate our business. Lastly, in connection with certain mortgage loans encumbering our properties, GPLP, singly, or together with certain affiliates has executed environmental indemnification agreements to indemnify the respective lender(s) for those loans against losses or costs to remediate damage to the mortgaged property caused by the presence or release of hazardous materials. The costs of investigating, perhaps litigating, or remediating these substances on or under the property in question could be substantial and even exceed the value of such property, the unpaid balance of the mortgage, or the value of our aggregate assets.
We have established a contingency reserve for one environmental matter as noted in Note 14 - "Commitments and Contingencies" of our consolidated financial statements.
Our assets may be subject to impairment charges that may materially affect our financial results.
We evaluate our real estate assets and other assets for impairment indicators whenever events or changes in circumstances indicate that recoverability of our investment in the asset is not reasonably assured. This evaluation is conducted periodically, but no less frequently than quarterly. Our determination of whether a particular held-for-use asset is impaired is based upon the undiscounted projected cash flows used for the impairment analysis and our determination of the asset's estimated fair value, that in turn are based upon our plans for the respective asset and our views of market and economic conditions. With respect to assets held-for-sale, our determination of whether such an asset is impaired is based upon market and economic conditions. If we determine that a significant impairment has occurred, then we would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our results of operations and funds from operations in the accounting period in which the adjustment is made. Furthermore, changes in estimated future cash flows due to a change in our plans, policies, or views of market and economic conditions could result in the recognition of additional impairment losses for already impaired assets, which, under the applicable accounting guidance, could be substantial.
10
Our ability to change our portfolio is limited because real estate investments are illiquid.
Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. The Board may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of Properties in which we may seek to invest or on the concentration of investments in any one geographic region. We could change our investment, disposition and financing policies without a vote of our shareholders.
We may incur significant costs of complying with the Americans with Disabilities Act and similar laws.
We may be required to expend significant sums of money to comply with the Americans with Disabilities Act of 1990, as amended, and other federal and local laws in order for our properties to meet requirements related to access and use by physically challenged persons. Additionally, unanticipated costs and expenses may be incurred in connection with defending lawsuits not covered by our liability insurance.
Our failure to qualify as a REIT would have serious adverse consequences.
GRT believes that it has qualified as a REIT under the Code since 1994, but cannot be sure that it will remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions, and the determination of various factual matters and circumstances not entirely within GRT's control that may impact GRT's ability to qualify as a REIT under the Code. In addition, GRT cannot be sure that new laws, regulations and judicial decisions will not significantly change the tax laws relating to REITs, or the federal income tax consequences of REIT qualification.
If GRT fails to qualify as a REIT, it would be subject to federal income tax (including any applicable alternative minimum tax) on taxable income at regular corporate income tax rates. Additionally, unless entitled to relief under certain statutory provisions, GRT would also be disqualified from electing to be treated as a REIT for the four taxable years following the year during which the qualification is lost, thereby reducing net earnings available for investment or distribution to our shareholders because of the additional tax liability imposed for the year or years involved. Lastly, GRT would no longer be required by the Code to make any dividend distributions as a condition to REIT qualification. To the extent that dividend distributions to our shareholders may have been made in anticipation of qualifying as a REIT, we might be required to borrow funds or to liquidate certain of our investments to pay the applicable tax and as a result defer or eliminate one or more scheduled dividend payments.
Our ownership interests in certain partnerships and other ventures are subject to certain tax risks.
Some of our property interests and other investments are made or held through entities in which we have an interest. The tax risks of this type of ownership include possible challenge by the Internal Revenue Service ("IRS") of allocations of income and expense items which could affect the computation of our taxable income, a challenge to the status of any such entities as partnerships (as opposed to associations taxable as corporations) for federal income tax purposes, and the possibility of action being taken by tax regulators or the entities themselves could adversely affect GRT's qualification as a REIT, for example, by requiring the sale by such entity of a property. We believe that the entities in which we have an interest have been and will be treated for tax purposes as partnerships (and not treated as associations taxable as corporations). If our ownership interest in any entity taxable as a corporation exceeded 10% (in terms of vote or value) of such entity's outstanding securities (unless such entity were a “taxable REIT subsidiary,” or a “qualified REIT subsidiary,” as those terms are defined in the Code) or the value of interest in any such entity exceeded 5% of the value of our assets, then GRT would cease to qualify as a REIT; distributions from any of these entities would be treated as dividends, to the extent of earnings and profits, and we would not be able to deduct our share of losses, if any, generated by such entity in computing our taxable income.
We may not have access to other sources of funds necessary to meet our REIT distribution requirements.
In order to qualify to be taxed as a REIT, we must make annual distributions to our shareholders of at least 90% of our taxable income (determined by excluding any net capital gain). The amount available for distribution will be affected by a number of factors, including the operation of our properties. As part of our business and operations, we may sell additional selected non-core assets or monetize all or a portion of our investment in our other properties. The loss of rental income associated with our properties sold will in turn affect net income and FFO. In order to maintain REIT status, we may be required to make distributions in excess of net income and FFO. In such a case, it may be necessary to arrange for short or long term borrowings, to sell assets, or to issue common or preferred stock or other securities in order to raise funds, which may not be possible due to unsatisfactory market conditions or other factors beyond our control.
11
Debt financing could adversely affect our performance.
As of December 31, 2012, we had approximately $1.5 billion of total indebtedness outstanding, including $85 million borrowed from our credit facility. A number of our outstanding loans will require lump sum or “balloon” payments for the outstanding principal balance at maturity, and we may finance future investments that may be structured in the same manner. Our ability to repay indebtedness at maturity, or otherwise, may depend on our ability to either refinance such indebtedness or to sell certain properties. Additionally, our ability to repay any indebtedness secured by properties the maturity of which is accelerated upon any default may adversely affect our ability to obtain debt financing for such properties or to own such properties. If we are unable to repay any of our debt at or before maturity, then we may have to borrow from our credit facility, to the extent it has availability thereunder, to make such repayments. In addition, a lender could foreclose on one or more of our properties to collect its debt. This could cause us to lose part or all of our investment, which could reduce the value of the Common Shares or preferred shares and the distributions payable to our shareholders. Furthermore, we have agreements with each of our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our consolidated indebtedness, then we could also be declared in default on our derivative obligations and would be required to settle our derivative obligations under the agreements at their termination value.
Volatility, uncertainty, or instability in the credit markets could adversely affect our ability to fund our development projects and cause us to seek financing from alternative sources.
The state of the credit markets and requirements to obtain credit may negatively impact our ability to access capital or to finance our future expansions of existing properties as well as future acquisitions, development activities, and redevelopment projects. A prolonged downturn in the credit markets or overly stringent or restrictive requirements to obtain credit may cause us to seek alternative sources of potentially less attractive financing from non-traditional lending entities that may be subject to greater market risk and may require us to adjust our business plan(s) or financing objectives accordingly. Weakness in the credit markets may also negatively affect the credit ratings of our securities and promote a perceived decline in the value of our properties based on deteriorating general and retail economic conditions which could adversely affect the amount and type of financing available for our properties and operations as well as the terms of such financing.
Our access to funds under our credit facility is dependent on the ability of the bank participants to meet their funding commitments.
Banks that are a party to our credit facility may have incurred substantial losses or be in danger of incurring substantial losses as a result of previous loans to other borrowers, a decline in the value of certain securities they hold, or their other business dealings and investments. As a result, these banks may become capital constrained, more restrictive in their lending or funding standards, or become insolvent, in which case these banks might not be able to meet their funding commitments under our credit facility.
If one or more banks do not meet their funding commitments under our credit facility, then we may be unable to draw sufficient funds under our credit facility for capital to operate our business or other needs and will not be able to utilize the full capacity under the credit facility until replacement lenders are located or one or more of the remaining lenders under the credit facility agrees to fund any shortfall, both of which may be difficult. Accordingly, for all practical purposes under such a scenario, the borrowing capacity under our credit facility may be reduced by the amount of unfunded bank commitments. Our inability to access funds under our credit facility for these reasons could result in our deferring development and redevelopment projects or other capital expenditures, not being able to satisfy debt maturities as they become due or satisfy loan requirements to reduce the amounts outstanding under certain loans, reducing or eliminating future cash dividend payments or other discretionary uses of cash, or modifying significant aspects of our business strategy.
Certain of our financing arrangements contain limitations on the amount of debt that we may incur.
Our existing credit facility is the most restrictive of our financing arrangements. Accordingly, at December 31, 2012, the aggregate amount that, based upon the restrictive covenants in the credit facility, may be borrowed through financing arrangements is $128.5 million. Additional amounts could be borrowed as long as we maintain a ratio of total-debt-to-total-asset value, as defined in the credit agreement, that complies with the restrictive covenants of the credit facility. We would also be required to maintain certain coverage covenants on a prospective basis which could impact our ability to borrow these additional amounts. Management believes we are in compliance with all covenants under our financing arrangements at December 31, 2012.
12
Our ability to borrow and make distributions could be adversely affected by financial covenants.
Our mortgage indebtedness and existing credit facility impose certain financial and operating restrictions on our properties, on our secured subordinated financing, and on additional financings on properties. These restrictions include restrictions on borrowings, prepayments, and distributions. Additionally, our existing credit facility requires certain financial tests be met, such as the total amount of recourse indebtedness to which we are permitted to take on, and some of our mortgage indebtedness provides for prepayment penalties, either of which could restrict our financial flexibility. Our existing credit facility also has payment requirements to reduce the amount that may be outstanding at any one time which could restrict our financial flexibility and liquidity. Moreover, our failure to satisfy certain financial covenants in our financing arrangements may result in a decrease in the market price of our common or preferred stock which could negatively impact our capital raising strategies.
The state of financial markets could affect our financial condition and results of operations, our ability to obtain financing, or have other adverse effects on us or the market or trading price of our outstanding securities.
Extreme volatility and instability in the U.S. and global equity and credit markets could result in significant price volatility and liquidity disruptions causing the market prices of stocks to fluctuate substantially and the credit spreads on prospective debt financings to widen considerably. These circumstances could have a significantly negative impact on liquidity in the financial markets, making terms for certain financings less attractive or unavailable to us. Prolonged uncertainty in the equity and credit markets would negatively impact our ability to access additional financing at reasonable terms or at all. With respect to debt financing, our cost of borrowing in the future will likely be significantly higher than historical levels. In the case of a common equity financing, the disruptions in the financial markets could continue to have a material adverse effect on the market value of our Common Shares, potentially requiring us to issue more shares than we would otherwise have issued with a higher market value for our Common Shares. These financial market circumstances will negatively affect our ability to make acquisitions, undertake new development projects and refinance our debt. These circumstances could also make it more difficult for us to sell properties (including outparcels) and may adversely affect the price we receive for properties that we do sell, as prospective buyers are experiencing increased costs of financing and difficulties in obtaining financing. There is a risk that government responses to the disruptions in the financial markets will not restore consumer confidence, stabilize the markets or increase liquidity and the availability of equity or credit financing.
A weakened national and regional economy can also adversely affect many of our tenants and their businesses, including their ability to pay rents when due, or pay rents that are set at levels competitive with the market. Tenants may also involuntarily terminate or stop paying on leases prior to the lease termination date due to bankruptcy. Tenants may decide not to renew leases and we may not be able to re-let the space the tenant vacates. The terms of renewals, including the cost of required improvements or concessions, may be less favorable than current lease terms. As a result, our cash flow could decrease and our ability to make distributions to our shareholders and conduct our operations could be adversely affected.
Our variable rate debt obligations may impede our operating performance and put us at a competitive disadvantage, as well as adversely affect our ability to pay distributions to you.
Required repayments of debt and related interest can adversely affect our operating performance. As of December 31, 2012, approximately $160.0 million of our indebtedness bears interest at variable rates. An increase in interest rates on our existing variable rate indebtedness would increase interest expense, which could adversely affect our cash flow and ability to pay distributions as well as the amount of any distributions. For example, if market rates of interest on our variable rate debt outstanding as of December 31, 2012 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 $1.6 million annually which could impact our earnings and financial results.
Our corporate structure imposes no limit on the amount of debt we may incur or authority to increase the amount of debt that we may incur.
The Board determines our financing objectives and the amount of the indebtedness that we may incur. We may make revisions to these objectives at any time without a vote of our shareholders. Although the Board has no present intention to change these objectives, revisions could result in a more highly leveraged company with an increased risk of default on indebtedness, an increase in debt service charges, and the addition of new financial covenants that restrict our business.
13
We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our Common Shares as to distributions and in liquidation, which could negatively affect the value of our Common Shares.
In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred shares, hybrid securities, or securities convertible into or exchangeable for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive distributions of our available assets before distributions to the holders of our Common Shares. Because our decision to incur debt and issue securities in future secondary offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future secondary offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.
There may be future dilution of our Common Shares and resales of our Common Shares in the public market following any secondary offering we do that may cause the market price for our Common Shares to decline.
Our Second Amended and Restated Declaration of Trust (the “Declaration of Trust”) authorizes the Board to, among other things, issue additional common or preferred shares or securities convertible or exchangeable into equity securities without shareholder approval. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional common or preferred shares or convertible securities could be substantially dilutive to our common shareholders. Moreover, to the extent that we issue restricted share units, share appreciation rights, performance shares, options, or warrants to purchase our Common Shares in the future and those share appreciation rights, options, or warrants are exercised or the restricted share units and performance shares vest, our common shareholders may experience further dilution. Holders of our Common Shares have no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our common shareholders. Furthermore, the resale by shareholders of our Common Shares in the public market following any secondary offering could have the effect of depressing the market price for our Common Shares.
The return on our investment in Scottsdale Quarter® may be adversely impacted by inherent risks related to financing, new tenant leasing, new competing developments or operations, and the condition of the local and regional economy.
Our development at Scottsdale Quarter, a premium retail and office complex located in Scottsdale, Arizona, is our most significant real estate development project at December 31, 2012. The first two phases of Scottsdale Quarter are completed with approximately 541,000 square feet of GLA consisting of approximately 367,000 square feet of retail space and approximately 174,000 square feet of office space above the retail units. Plans for Phase III of the project are still being finalized and will include a retail component, along with other uses that could include residential, lodging, or office. A portion of the Phase III real estate is in contract and the buyer has plans to develop luxury apartment units on the north parcel of the land. The contract is subject to completion of the buyer's due diligence and is expected to close in the second half of 2013. The project has a $130.0 million loan outstanding which is fully recourse to the Company. Leasing delays, especially to specialty, boutique or small tenant operators, can also adversely impact the anticipated return on our investment, the operation of the development, and its profitability. Additionally, the development is located in a growing part of the state of Arizona and subject to the economic trends of the area. If the economic condition of the area materially deteriorates, then the ability of retailers and other tenants to meet their lease obligations due to reduced consumer spending, poor operating results, diminished liquidity, unavailability of inventory financing, or other reasons could decrease the revenue generated by the development or its value which could increase the impairment risk with respect to the Property and adversely impact our return on our investment in the development as well as its profitability.
Clauses in leases with certain tenants of our recent development properties, such as Scottsdale Quarter®, frequently include inducements such as reduced rent and tenant allowance payments that can reduce our rents and funds from operations. As a result, these development properties are more likely to achieve lower returns during their stabilization periods than our development properties historically have.
The leases for a number of the tenants that have opened stores in Scottsdale Quarter also include reduced rent from co-tenancy clauses that allow those tenants to pay reduced rent until occupancy reaches certain thresholds and/or certain named co-tenants open stores. In addition, many office tenants have rent abatement clauses that may delay rent commencement a few months after initial occupancy. The effect of these clauses is to reduce our rents and FFO while they are applicable. We expect to continue to offer co-tenancy and rent abatement clauses in the future to attract tenants to our development properties. As a result, our current and future development properties are more likely to achieve lower returns during their stabilization periods than our development properties historically have, which may adversely impact our investment in such developments.
14
The market value or trading price of our preferred and Common Shares could decrease based upon uncertainty in the marketplace and market perception.
The market price of our common and preferred shares may fluctuate widely as a result of a number of factors, many of which are outside our control or influence. In addition, the stock market is subject to fluctuations in share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations have adversely affected and may continue to adversely affect the market price of our common and preferred shares. Among the factors that could adversely affect the market price of our common and preferred shares are:
•actual or anticipated quarterly fluctuations in our operating results and financial condition;
| • | changes in our FFO, revenue, or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs; |
•negative speculation or information in the media or investment community;
•any changes in our distribution or dividend policy;
| • | any sale or disposal of properties within our portfolio; |
| • | any future issuances of equity securities; |
| • | increases in leverage, mortgage debt financing, or outstanding borrowings; |
| • | strategic actions by our Company or our competitors, such as acquisitions, joint ventures, or restructurings; |
| • | general market conditions and, in particular, developments related to market conditions for the real estate industry; |
| • | proposed or adopted regulatory or legislative changes or developments; or |
| • | anticipated or pending investigations, proceedings, or litigation that involves or affect us. |
We may change the dividend policy for our Common Shares in the future.
IRS revenue procedure allows us to satisfy our REIT distribution requirement with respect to a taxable year ending on or before December 31, 2013 by distributing up to 90% of our dividends in common shares in lieu of paying dividends entirely in cash. Although we reserve the right to utilize this procedure with respect to a taxable year ending on or before December 31, 2013, we have not done so and do not currently have any intention to do so with respect to any of our regular quarterly dividends. The issuance of common shares in lieu of paying dividends in cash could have a dilutive effect on our earnings per share and FFO per share and could result in the resale by shareholders of our Common Shares in the public market following such a distribution, which could have the effect of depressing the market price for our Common Shares.
In the event that we pay a portion of a dividend in common shares, taxable U.S. shareholders would be required to pay tax on the entire amount of the dividend, including the portion paid in common shares, in which case such shareholders might have to pay the tax using cash from other sources. If a U.S. shareholder sells the common shares it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our Common Shares at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividend, including with respect to all or a portion of such dividend that is payable in common shares. In addition, if a significant number of our shareholders sell our Common Shares in order to pay taxes owed on dividends or for other purposes, such sales may put downward pressure on the market price of our Common Shares.
The decision to declare and pay dividends on our Common Shares in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of the Board and will depend on our earnings, FFO, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the distribution requirement necessary for us to both maintain our REIT qualification under the Code, and avoid (and/or minimize) the income and/or excise tax liability that we would otherwise incur under the rules applicable to REITs on our taxable income and gains in the event we do not distribute, state law and such other factors as the Board deems relevant. Any change to our dividend policy for our Common Shares could have a material adverse effect on the market price of our Common Shares.
15
Our hedging interest rate protection arrangements may not effectively limit our interest rate risk.
We manage our exposure to interest rate risk by a combination of interest rate protection agreements to effectively fix or cap a portion of our variable rate debt. Additionally, we refinance fixed rate debt at times when we believe rates and terms are appropriate. Our efforts to manage these exposures may not be successful. Our use of interest rate hedging arrangements to manage risk associated with interest rate volatility may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations. Additionally, pending regulatory and legislative initiatives as well as recently imposed requirements on counterparties we transact with may increase the costs and time to negotiate and execute hedging arrangements and therefore negate some or all of the benefits of such transactions. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. The unscheduled termination of these hedging agreements typically involves costs, such as transaction fees or breakage costs.
Our ability to operate or dispose of any partially-owned properties that we may acquire may be restricted.
Our ownership of properties through partnership or joint venture investments may involve risks not otherwise present for wholly-owned properties. These risks include the possibility that our partners or co-venturers might become bankrupt, might have economic or other business interests or goals which are inconsistent with our business interests or goals and may be in a position to take action contrary to our instructions or make requests contrary to our policies or objectives, including our policy to maintain our qualification as a REIT. We may need the consent of our partners for major decisions affecting properties that are partially-owned. Joint venture agreements may also contain provisions that could cause us to sell all or a portion of our interest in, or buy all or a portion of our partners' interests in, such entity or property. These provisions may be triggered at a time when it is not advantageous for us to either buy our partners' interests or sell our interest. Additionally, if we serve as the managing member of a property-owning joint venture, we may have certain fiduciary responsibilities to the other participants in such entity. There is no limitation under our organizational documents as to the amount of funds that may be invested in partnerships or joint ventures; however, covenants of our credit facility limit the amount of capital that we may invest in joint ventures at any one time.
Our charter, bylaws and the laws of the state of our formation contain provisions that may delay, defer or prevent a change in control or other transactions that could provide shareholders with the opportunity to realize a premium over the then-prevailing market price for our Common Shares.
In order to maintain GRT's qualification as a REIT for federal income tax purposes, not more than 50% in value of the outstanding Common Shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of the taxable year. Additionally, 100 or more persons must beneficially own the outstanding Common Shares during the last 335 days of a taxable year of 12 months or during a proportionate part of a shorter tax year.
To ensure that GRT will not fail to qualify as a REIT under this test, GRT's organizational documents authorize the Board to take such action as may be required to preserve GRT's qualification as a REIT and to limit any person, other than entities or persons approved by the Board, to direct or indirect ownership exceeding a certain percentage. Despite these provisions and other safeguards existing in the Declaration of Trust, GRT cannot be sure that there will not be five or fewer individuals who will own more than 50% in value of its outstanding Common Shares, thereby causing GRT to fail to qualify as a REIT. The ownership limits may also discourage a change in control in GRT.
The members of the Board are currently divided into three equal classes whose terms expire in 2013, 2014 and 2015, respectively. Each year one class of trustees is elected by GRT's shareholders to hold office for three years. The staggered terms for Board members may affect the ability of GRT shareholders to change control of GRT even if a change in control were in the interests of the shareholders.
GRT's Declaration of Trust authorizes the Board to establish one or more series of preferred shares, in addition to those currently outstanding, and to determine the preferences, rights and other terms of any series. The Board could authorize GRT to issue other series of preferred shares that could deter or impede a merger, tender offer or other transaction that some, or a majority, of GRT shareholders might believe to be in their best interest or in which GRT shareholders might receive a premium for their shares over the prevailing market price of such shares.
16
The Declaration of Trust and our Amended and Restated Bylaws also contain other provisions that may delay or prevent a transaction or a change in control that might involve a premium price for the Common Shares or otherwise be in the best interests of GRT's shareholders. As a Maryland REIT, GRT is subject to the provisions of the Maryland REIT law which imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions can occur, thus delaying or preventing offers to acquire GRT or increasing the difficulty of completing an acquisition of GRT, even if the acquisition is in the best interests of GRT's shareholders.
Risks associated with information systems may interfere with our operations or ability to maintain adequate records.
We are continuing to implement new information systems and problems with the design or implementation of these new systems could interfere with our operations or ability to maintain adequate records.
Our operations could be affected if we lose any key management personnel.
Our executive officers have substantial experience in owning, operating, managing, acquiring and developing shopping centers. Success depends in large part upon the efforts of these executives, and we cannot guarantee that they will remain with us. The loss of key management personnel in leasing, finance, legal, construction, development, or property management could have a negative impact on our operations. Additionally, there are generally no restrictions on the ability of these executives to compete with us after termination of their employment.
Inflation or deflation may adversely affect our financial condition and results of operations.
Increased inflation could impact our operations due to increases in construction costs as well as other costs pertinent to our business, including, but not limited to, the cost of insurance and utilities. These costs could increase at a rate higher than our rents. Also, inflation may adversely affect tenant leases with stated rent increases, which could be lower than the increase in inflation at any given time. Inflation could also have an adverse effect on consumer spending which could impact our tenants' sales and, in turn, our percentage rents, where applicable.
Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand. Restricted lending practices could impact our ability to obtain financings or re-financings for our properties and our tenants' ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company’s headquarters are located at 180 East Broad Street, Columbus, Ohio 43215, and its telephone number is 614.621.9000. In addition, the Company maintains management offices at each of its Malls.
At December 31, 2012, the Company managed and leased a total of 28 Properties in which the Company had a material ownership interest (23 wholly-owned and 5 partially owned through joint ventures). The Properties are located in 15 states as follows: Ohio (8), West Virginia (3), California (3), Arizona (2), Florida (2), Hawaii (1), Kansas (1), Kentucky (1), Minnesota (1), New Jersey (1), Oklahoma (1), Oregon (1), Pennsylvania (1), Tennessee (1), and Washington (1).
| (a) | Malls |
Twenty-five of the Properties are Malls that range in size from approximately 31,441 square feet of GLA to 1.5 million square feet of GLA. Seven of the Malls are located in Ohio and 18 are located throughout the country in the states of California (3), Florida (2), West Virginia (2), Arizona (1), Hawaii (1), Kansas (1), Kentucky (1), Minnesota (1), New Jersey (1), Oklahoma (1), Oregon (1), Pennsylvania (1), Tennessee (1), and Washington (1). The location, general character and anchor information are set forth below.
17
Summary of Operating Malls at December 31, 2012
| Property/Location | Anchors GLA | Stores GLA(1) | Total GLA | % of Anchors Occupied (2) | % of Stores Occupied (3) | Store Sales Per Square Ft. (4) | Anchors | Lease Expiration (5) | |||||||||||||||
Held for Investment Wholly-Owned | |||||||||||||||||||||||
| Ashland Town Center | |||||||||||||||||||||||
| Ashland, KY | 226,640 | 188,578 | 415,218 | 100.0 | 100.0 | $ | 396 | Belk Belk Home Store JCPenney (7) TJ Maxx | 01/31/15 01/31/25 07/31/28 05/31/20 | ||||||||||||||
| Colonial Park Mall | |||||||||||||||||||||||
| Harrisburg, PA | 504,446 | 234,756 | 739,202 | 100.0 | 97.8 | $ | 280 | The Bon-Ton Boscov’s Sears | 01/31/15 (6) (6) | ||||||||||||||
| Dayton Mall | |||||||||||||||||||||||
| Dayton, OH | 939,906 | 496,441 | 1,436,347 | 96.7 | 91.6 | $ | 313 | Dick's Sporting Goods DSW Shoe Warehouse Elder-Beerman JCPenney Macy’s Sears | 01/31/23 01/31/23 (6) 03/31/16 (6) (6) | ||||||||||||||
| Eastland Mall | |||||||||||||||||||||||
| Columbus, OH | 726,534 | 272,655 | 999,189 | 69.4 | 88.9 | $ | 359 | JCPenney (7) Macy’s Sears | 01/31/18 (6) (6) | ||||||||||||||
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| Property/Location | Anchors GLA | Stores GLA(1) | Total GLA | % of Anchors Occupied (2) | % of Stores Occupied (3) | Store Sales Per Square Ft. (4) | Anchors | Lease Expiration (5) | |||||||||||||||
| Grand Central Mall | |||||||||||||||||||||||
| City of Vienna, WV | 531,788 | 315,719 | 847,507 | 100.0 | 95.5 | $ | 333 | Belk Dunham’s Sports Elder-Beerman (7) JCPenney Regal Cinemas Sears | 03/31/18 01/31/20 01/31/33 09/30/17 01/31/17 09/25/17 | ||||||||||||||
| Indian Mound Mall | |||||||||||||||||||||||
| Heath, OH | 389,589 | 166,273 | 555,862 | 79.5 | 87.3 | $ | 208 | Crown Cinema Dick's Sporting Goods Elder-Beerman JCPenney Sears (7) | 12/31/14 01/31/22 01/31/14 10/31/16 09/23/27 | ||||||||||||||
| Malibu Lumber Yard | |||||||||||||||||||||||
| Malibu, CA | — | 31,441 | 31,441 | — | 89.0 | $1,188 | N/A | ||||||||||||||||
| Mall at Fairfield Commons, The | |||||||||||||||||||||||
| Beavercreek, OH | 768,284 | 368,679 | 1,136,963 | 100.0 | 93.3 | $ | 356 | Dick’s Sporting Goods Elder-Beerman Elder-Beerman For Her JCPenney Macy’s (7) Sears | 01/31/21 01/31/15 01/31/14 10/31/18 01/31/15 10/26/18 | ||||||||||||||
| Mall at Johnson City, The | |||||||||||||||||||||||
| Johnson City, TN | 393,797 | 176,270 | 570,067 | 100.0 | 97.0 | $ | 426 | Belk for Her Belk Home Store Dick’s Sporting Goods Forever 21 JCPenney Sears (7) | 10/31/17 06/30/16 01/31/18 08/31/19 09/30/18 03/09/16 | ||||||||||||||
| Merritt Square Mall | |||||||||||||||||||||||
| Merritt Island, FL | 542,648 | 254,517 | 797,165 | 100.0 | 88.8 | $ | 353 | Cobb Theatres Dillard’s JCPenney Macy’s Sears | 05/31/24 (6) 07/31/20 (6) (6) | ||||||||||||||
| Morgantown Mall | |||||||||||||||||||||||
| Morgantown, WV | 396,361 | 159,229 | 555,590 | 100.0 | 98.6 | $ | 371 | Belk Carmike Cinemas Elder-Beerman JCPenney Sears Timeless Traditions | 03/15/14 10/31/2501/31/1609/30/15 09/30/15 08/31/17 | ||||||||||||||
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| Property/Location | Anchors GLA | Stores GLA(1) | Total GLA | % of Anchors Occupied (2) | % of Stores Occupied (3) | Store Sales Per Square Ft. (4) | Anchors | Lease Expiration (5) | |||||||||||||||
| New Towne Mall | |||||||||||||||||||||||
| New Philadelphia, OH | 360,195 | 152,567 | 512,762 | 100.0 | 92.1 | $ | 267 | Elder-Beerman Elder-Beerman Home JCPenney JoAnn Fabrics Kohl’s Regal Cinemas Sears Super Fitness Center | 01/31/14 01/31/14 09/30/18 01/31/22 01/31/27 03/31/14 10/31/13 02/28/14 | ||||||||||||||
| Northtown Mall | |||||||||||||||||||||||
| Blaine, MN | 346,669 | 243,398 | 590,067 | 100.0 | 87.0 | $ | 382 | Becker Furniture Best Buy Burlington Coat Factory Herberger’s LA Fitness | 12/31/20 01/31/20 09/30/15 01/31/24 11/30/23 | ||||||||||||||
| Outlet Collection™ | Jersey Gardens, The | |||||||||||||||||||||||
| Elizabeth, NJ | 662,099 | 633,557 | 1,295,656 | 100.0 | 100.0 | $ | 688 | Bed Bath & Beyond Burlington Coat Factory Cohoes Fashions Daffy’s Forever 21 Gap Outlet, The Group USA H&M Last Call Loew’s Theaters Marshalls Modell’s Sporting Goods Nike Factory Store Off 5th Saks Fifth Ave Outlet Old Navy Tommy Hilfiger VF Outlet | 01/31/15 01/31/15 01/31/15 01/31/15 01/31/21 01/31/15 12/31/18 01/31/21 11/30/14 12/31/20 01/31/15 01/31/17 01/31/16 11/22/22 05/31/15 01/31/23 08/31/15 | ||||||||||||||
| Outlet Collection™ | Seattle, The | |||||||||||||||||||||||
| Auburn, WA | 516,693 | 364,135 | 880,828 | 95.7 | 88.6 | $ | 254 | Bed Bath & Beyond Burlington Coat Factory Marshalls Nordstrom Sam’s Club Sports Authority Vision Quest | 01/31/18 01/31/16 01/31/17 08/31/15 05/31/19 01/31/16 11/30/18 | ||||||||||||||
| Pearlridge Center | |||||||||||||||||||||||
| Aiea, HI | 438,516 | 709,294 | 1,147,810 | 100.0 | 96.4 | $ | 511 | DSI Renal INspiration Longs Drug Store Macy’s Pearlridge Mall Theaters Sears | 08/31/18 (6) 02/28/21 08/31/14 (15) 06/30/29 | ||||||||||||||
20
| Property/Location | Anchors GLA | Stores GLA(1) | Total GLA | % of Anchors Occupied (2) | % of Stores Occupied (3) | Store Sales Per Square Ft. (4) | Anchors | Lease Expiration (5) | |||||||||||||||
Polaris Fashion Place (12) | |||||||||||||||||||||||
| Columbus, OH | 837,239 | 600,903 | 1,438,142 | 100.0 | 100.0 | $ | 529 | Barnes & Noble Forever 21 H&M JCPenney Macy’s Saks Fifth Avenue Sears Von Maur | 01/31/19 03/31/19 01/31/23 (6) (6) (6) (6) (6) | ||||||||||||||
| River Valley Mall | |||||||||||||||||||||||
| Lancaster, OH | 316,947 | 267,590 | 584,537 | 74.8 | 94.4 | $ | 311 | Dick’s Sporting Goods Elder-Beerman JCPenney Regal Cinemas Sears | 01/31/21 02/02/13 09/30/17 12/31/13 10/31/14 | ||||||||||||||
| Scottsdale Quarter | |||||||||||||||||||||||
| Scottsdale, AZ | 147,375 | 393,891 | 541,266 | 100.0 | 84.2 | $ | 1,019 | H&M iPic Theaters Restoration Hardware Starwood Hotels | 01/31/20 12/31/25 01/31/28 02/28/27 | ||||||||||||||
Town Center Plaza (13) | |||||||||||||||||||||||
| Leawood, KS | 185,108 | 422,702 | 607,810 | 100.0 | 90.4 | $ | 588 | Barnes & Noble Crate & Barrel Macy's | 07/31/16 12/31/16 (6) | ||||||||||||||
| Weberstown Mall | |||||||||||||||||||||||
| Stockton, CA | 602,817 | 253,012 | 855,829 | 100.0 | 98.0 | $ | 419 | Barnes & Noble Dillard's JCPenney (7) Sears (7) | 01/31/14(6) 03/31/14 01/31/23 | ||||||||||||||
Subtotal – Malls Held for Investment – Wholly-Owned | 9,833,651 | 6,705,607 | 16,539,258 | 95.6 | % | 93.9 | % | $ | 453 | ||||||||||||||
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| Property/Location | Anchors GLA | Stores GLA(1) | Total GLA | % of Anchors Occupied (2) | % of Stores Occupied (3) | Store Sales Per Square Ft. (4) | Anchors | Lease Expiration (5) | |||||||||||||||
| Malls Held in Joint Ventures | |||||||||||||||||||||||
Lloyd Center (10) | |||||||||||||||||||||||
| Portland, OR | 734,263 | 743,794 | 1,478,057 | 100.0 | 94.8 | $ | 346 | Apollo College Barnes & Noble H&M Lloyd Center Ice Rink (8) Lloyd Mall Cinemas Macy’s Marshalls Nordstrom Ross Dress for Less Sears | 11/30/18 01/31/15 01/31/23 12/31/14 01/31/16 01/31/16 01/31/14 (6) 01/31/15 (6) | ||||||||||||||
Puente Hills Mall (11) | |||||||||||||||||||||||
| City of Industry, CA | 776,082 | 331,808 | 1,107,890 | 100.0 | 82.5 | $ | 274 | 24 Hour Fitness AMC 20 Theaters Burlington Coat Factory Forever 21 H&M Macy’s Ross Dress for Less Round 1 Sears Toys "R" Us Warehouse Furniture Outlet | 01/31/14 04/30/17 10/31/23 01/31/19 01/31/23 (6) 01/31/15 08/31/20 (6) 01/31/22 04/30/13 | ||||||||||||||
Tulsa Promenade (11) (14) | |||||||||||||||||||||||
| Tulsa, OK | 690,235 | 235,824 | 926,059 | 100.0 | 85.1 | $ | 295 | Dillard’s Hollywood Theaters JCPenney Macy’s MDS Acquisition | (6) 01/31/19 03/31/16 (6) (6)(9) | ||||||||||||||
WestShore Plaza (10) | |||||||||||||||||||||||
| Tampa, FL | 785,172 | 288,507 | 1,073,679 | 100.0 | 93.2 | $ | 405 | AMC Theaters H&M JCPenney Macy’s Old Navy Saks Fifth Avenue Sears | 01/31/21 01/31/23 09/30/17 (6) 01/31/16 11/30/18 09/30/17 | ||||||||||||||
| Subtotal - Malls Held in Joint Ventures | 2,985,752 | 1,599,933 | 4,585,685 | 100.0 | % | 90.5 | % | $ | 338 | ||||||||||||||
Total Mall Portfolio | 12,819,403 | 8,305,540 | 21,124,943 | 96.6 | % | 93.2 | % | $ | 435 | ||||||||||||||
| (1) | Includes outparcels. |
| (2) | Occupied space is space where a store is open and/or paying charges at the date indicated, excluding all tenants with leases having an initial term of less than one year. The occupancy percentage is calculated by dividing the occupied space into the total available space to be leased. Anchor occupancy is for stores of 20,000 square feet or more. |
| (3) | Occupied space is space where a store is open and/or a paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year. The occupancy percentage is calculated by dividing the occupied space into the total available space to be leased. Store occupancy is for stores of less than 20,000 square feet and outparcels. |
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| (4) | Average 2012 store sales per square foot for in-line stores of less than 10,000 square feet. |
| (5) | Lease expiration dates do not contemplate or include options to renew unless exercised. |
| (6) | The land and building are owned by the anchor store or other third party. |
| (7) | This is a ground lease by the Company to the tenant. The Company owns the land, but not the building. |
| (8) | Managed by Ohio Entertainment Corporation, a wholly owned subsidiary of Glimcher Development Corporation. |
| (9) | Anchor vacated the store, but continues to pay ancillary charges through the expiration date. |
| (10) | The Operating Partnership has a joint venture investment in this Mall of 40%. The Company provides management and leasing services and receives fees for providing these services. |
| (11) | The Operating Partnership has a joint venture investment in this Mall of 52%. The Company provides management and leasing services and receives fees for providing these services. |
| (12) | Property consists of both the enclosed regional mall, Polaris Fashion Place, as well as the separate open-air center known as Polaris Lifestyle Center. |
| (13) | Property consists of both Town Center Plaza and Town Center Crossing. |
| (14) | Property is currently classified as held-for-sale. |
| (15) | Tenant is currently month-to-month. |
| (b) | Community Centers |
Three of the Properties are Community Centers ranging in size from approximately 18,000 to 231,000 square feet of GLA. They are located in three states as follows: Arizona (1), Ohio (1), and West Virginia (1). The location, general character and major tenant information are set forth below.
Summary of Community Centers at December 31, 2012
Property/Location | Anchors GLA | Stores GLA (1) | Total GLA | % of Anchors Occupied (2) | % of Stores Occupied (3) | Anchors | Lease Expiration (4) | ||||||||||||
| Morgantown Commons | |||||||||||||||||||
| Morgantown, WV | 200,187 | 30,656 | 230,843 | 100.0 | 64.9 | Gabriel Brothers Kmart | 01/31/17 02/28/21 | ||||||||||||
| Ohio River Plaza | |||||||||||||||||||
| Gallipolis, OH | — | 87,378 | 87,378 | N/A | 89.5 | N/A | |||||||||||||
Town Square at Surprise (5) | |||||||||||||||||||
| Surprise, AZ | — | 17,859 | 17,859 | N/A | 86.6 | N/A | |||||||||||||
| Total | 200,187 | 135,893 | 336,080 | 100.0 | % | 83.6 | % | ||||||||||||
| (1) | Includes outparcels. |
| (2) | Occupied space is space where a store is open and/or paying charges at the date indicated, excluding all tenants with leases having an initial term of less than one year. The occupancy percentage is calculated by dividing the occupied space into the total available space to be leased. Anchor occupancy is for stores of 20,000 square feet or more. |
| (3) | Occupied space is space where a store is open and/or a paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year. The occupancy percentage is calculated by dividing the occupied space into the total available space to be leased. Store occupancy is for stores of less than 20,000 square feet and outparcels. |
| (4) | Lease expiration dates do not contemplate options to renew unless exercised. |
| (5) | The Operating Partnership has a joint venture investment in this Community Center of 50%. |
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| (c) | Lease Expiration and Rent Per Square Foot |
Our lease expirations, total number of tenants whose leases will expire (shown by No. of Leases), the total area in square feet covered by such leases, the annual base rental (“Base Rent”), and the percentage of gross annual rents represented by such leases (% of Total Base Rent) for the next ten years for our total portfolio of Properties (including wholly-owned as well as material joint venture Properties) are disclosed in the chart below:
Expiration Year | No. of Leases | Square Feet | Annual Base Rent | % of Total Base Rent | |||||||
| 2013 | 663 | 1,885,031 | $ | 34,896,268 | 13.9% | ||||||
| 2014 | 437 | 2,027,944 | $ | 32,469,072 | 12.9% | ||||||
| 2015 | 367 | 2,246,259 | $ | 31,241,859 | 12.4% | ||||||
| 2016 | 223 | 1,872,722 | $ | 23,561,540 | 9.4% | ||||||
| 2017 | 213 | 1,647,460 | $ | 22,275,478 | 8.9% | ||||||
| 2018 | 152 | 1,549,835 | $ | 21,224,585 | 8.4% | ||||||
| 2019 | 115 | 724,840 | $ | 15,611,375 | 6.2% | ||||||
| 2020 | 104 | 865,134 | $ | 15,033,082 | 6.0% | ||||||
| 2021 | 110 | 954,236 | $ | 21,080,240 | 8.4% | ||||||
| 2022 | 115 | 615,216 | $ | 13,128,955 | 5.2% | ||||||
The primary reason that the near term expirations are higher than subsequent years relates to our specialty tenants. The specialty tenants have terms of thirteen to thirty-six months and represent approximately 7.3% of the annualized rent in the aggregate as of December 31, 2012. As the specialty tenants typically pay below-market rents, we feel this represents an opportunity to grow net operating income ("NOI").
The average base rent per square foot for tenants at December 31, 2012 for the Company’s portfolio of Properties (including wholly-owned Properties as well as material joint venture Properties) is $7.40 per square foot for anchor stores and $28.00 per square foot for non-anchor stores. Average base rent for tenants under 10,000 square feet is $34.44 per square foot. Average Base Rent per square foot includes the contractual rental terms currently in effect at the end of the period and includes rent concessions or rent relief. The calculation excludes tenants who pay a percentage of sales in lieu of minimum rent, tenants that own their own buildings, and those on short-term rent abatements.
| (d) | Significant Properties |
Scottsdale Quarter in Scottsdale, Arizona and Pearlridge Center in Aiea, Hawaii each have a net book value of more than 10% of the Company’s total assets. The Outlet Collection | Jersey Gardens and Polaris Fashion Place ("Polaris") contribute in excess of 10% of the Company’s consolidated revenue.
| (e) | Properties Subject to Indebtedness |
At December 31, 2012, 21 of the material Properties, consisting of 20 Malls (16 wholly-owned and 4 partially owned through joint ventures) and one Community Center (owned through a joint venture), were encumbered by mortgage loans. Six of the Properties, consisting of four wholly-owned Malls, two wholly-owned Community Centers and Polaris Lifestyle Center (a component of Polaris) are encumbered with first lien mortgages as part of the collateral for the Company's corporate credit facility.
The total unconsolidated material joint venture Properties below represents our proportionate ownership share of the encumbered property. Our unencumbered Properties and developments had a net book value of $59.7 million at December 31, 2012. To facilitate the funding of working capital requirements, and to finance the acquisition of additional properties and the development of the Properties, GPLP has entered into a secured revolving line of credit with several financial institutions.
24
Various Mortgage and Term Loans
The following table sets forth certain information regarding the mortgages and term loans which encumber various consolidated Properties as well as material unconsolidated joint venture Properties. All of the mortgages are first mortgage liens on the Properties. The information is as of December 31, 2012 (dollars in thousands).
| Encumbered Property | Fixed/ Variable Interest Rate | Interest Rate | Loan Balance | Annual Debt Service | Balloon Payment | Maturity | ||||||||||||||||
| Polaris Fashion Place | Fixed | 5.24% | $ | 125,414 | $ | 9,928 | $ | 124,572 | 04/11/13 | |||||||||||||
| The Outlet Collection | Jersey Gardens | Fixed | 4.83% | 140,409 | $ | 10,424 | $ | 135,194 | 06/08/14 | ||||||||||||||
| Mall at Fairfield Commons, The | Fixed | 5.45% | 97,285 | $ | 7,724 | $ | 92,762 | 11/01/14 | ||||||||||||||
| The Outlet Collection | Seattle | Fixed | 7.54% | 53,018 | $ | 5,412 | $ | 49,969 | 02/11/15 | (1) | |||||||||||||
| Merritt Square Mall | Fixed | 5.35% | 55,205 | $ | 3,820 | $ | 52,914 | 09/01/15 | ||||||||||||||
| Scottsdale Quarter Fee Interest | Fixed | 4.91% | 67,778 | $ | 4,464 | $ | 64,577 | 10/01/15 | ||||||||||||||
| Pearlridge Center | Fixed | 4.60% | 175,000 | $ | 8,591 | $ | 169,327 | 11/01/15 | ||||||||||||||
| River Valley Mall | Fixed | 5.65% | 47,378 | $ | 3,463 | $ | 44,931 | 01/11/16 | ||||||||||||||
| Weberstown Mall | Fixed | 5.90% | 60,000 | $ | 3,590 | $ | 60,000 | 06/08/16 | ||||||||||||||
| Eastland Mall | Fixed | 5.87% | 40,791 | $ | 3,049 | $ | 38,057 | 12/11/16 | ||||||||||||||
| Mall at Johnson City, The | Fixed | 6.76% | 53,573 | $ | 4,287 | $ | 47,768 | 05/06/20 | ||||||||||||||
| Grand Central Mall | Fixed | 6.05% | 43,730 | $ | 3,255 | $ | 38,307 | 07/06/20 | ||||||||||||||
| Ashland Town Center | Fixed | 4.90% | 41,223 | $ | 2,680 | $ | 34,569 | 07/06/21 | ||||||||||||||
| Dayton Mall | Fixed | 4.57% | 82,000 | $ | 3,800 | $ | 75,241 | 09/01/22 | ||||||||||||||
| Town Center Plaza | Fixed | 5.00% | 76,057 | $ | 4,960 | $ | 52,465 | 02/01/27 | ||||||||||||||
| Town Center Crossing | Fixed | 4.25% | 37,948 | $ | 2,244 | $ | 25,820 | 02/01/27 | ||||||||||||||
| Total fixed rate notes | 1,196,809 | |||||||||||||||||||||
| Colonial Park Mall | Variable | 3.71% | 33,455 | $ | 1,630 | $ | 33,283 | 04/23/13 | ||||||||||||||
Town Square at Surprise (3) | Variable | 5.50% | 3,592 | $ | 297 | $ | 3,566 | 06/30/13 | (4) | |||||||||||||
| Scottsdale Quarter Phase III Fee Interest | Variable | 3.11% | 12,930 | $ | 408 | $ | 12,930 | 12/01/13 | ||||||||||||||
| Scottsdale Quarter | Variable | 3.28% | 130,000 | $ | 4,323 | $ | 130,000 | 05/22/15 | ||||||||||||||
| Total variable rate notes | 179,977 | |||||||||||||||||||||
| Total Consolidated Properties | $ | 1,376,786 | (2) | |||||||||||||||||||
Unconsolidated Joint Venture Properties – Pro Rata Share | ||||||||||||||||||||||
Tulsa Promenade (5) | Variable | 5.25% | 13,560 | $ | 1,346 | $ | 13,560 | 12/31/12 | (6) | |||||||||||||
| Lloyd Center | Fixed | 5.42% | 47,274 | $ | 3,782 | $ | 46,769 | 06/11/13 | (7) | |||||||||||||
| WestShore Plaza | Variable | 3.65% | 49,000 | $ | 1,764 | $ | 49,000 | 10/01/15 | (8) | |||||||||||||
| Puente Hills Mall | Fixed | 4.50% | 31,200 | $ | 1,404 | $ | 31,200 | 07/01/17 | ||||||||||||||
| Total Unconsolidated Joint Venture Properties - Pro Rata Share | $ | 141,034 | ||||||||||||||||||||
| (1) | Optional prepayment date (without penalty) is shown. Loan matures at a later date as disclosed in Note 4 in our consolidated financial statements. |
| (2) | This total differs from the amounts reported in the financial statements due to $19,000 in tax exempt borrowings which are not secured by a mortgage and fair value adjustments to debt instruments as required by Accounting Standards Codification ("ASC") Topic 805 - "Business Combinations." |
| (3) | Beginning in July 2012, Town Square at Surprise is being included in the Company's consolidated results. It was previously classified as an unconsolidated entity. |
| (4) | A loan modification was executed for this property in July 2012 that extended the maturity date to June 30, 2013 with an additional option to extend the maturity to December 31, 2014 subject to certain loan extension fees and conditions. The interest rate is the greater of 5.50% or LIBOR plus 4.00% per annum. |
| (5) | This property is listed as held-for-sale by the joint venture. |
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| (6) | The joint venture is in discussions with the lender regarding a loan modification that would extend the maturity date to March 31, 2013. The interest rate is the greater of 5.25% or LIBOR plus 4.25% per annum. |
| (7) | Optional prepayment date (without penalty) is shown. Loan matures December 11, 2033. |
| (8) | Interest rate is the greater of 3.65% or LIBOR plus 3.15% per annum. The rate has been capped at 7.15% per annum. |
Item 3. Legal Proceedings
The Company is involved in lawsuits, claims and proceedings which arise in the ordinary course of business. The Company is not presently involved in any material litigation. In accordance with ASC Topic 450 – “Contingencies,” the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
Item 4. Mine Safety Disclosures
None.
PART II.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
| (a) | Market Information |
The Common Shares are currently listed and traded on the NYSE under the symbol “GRT.” On February 21, 2013, the last reported sales price of the Common Shares on the NYSE was $10.93. The following table shows the high and low sales prices for the Common Shares on the NYSE for the 2012 and 2011 quarterly periods indicated as reported by the NYSE Composite Tape and the cash distributions per Common Share paid by GRT with respect to such period:
| Quarter Ended | High | Low | Distributions Per Share | |||||||
| March 31, 2012 | $ | 10.48 | $ | 8.85 | $0.10 | |||||
| June 30, 2012 | $ | 10.26 | $ | 8.71 | $0.10 | |||||
| September 30, 2012 | $ | 11.29 | $ | 9.65 | $0.10 | |||||
| December 31, 2012 | $ | 11.17 | $ | 10.28 | $0.10 | |||||
| March 31, 2011 | $ | 9.45 | $ | 8.17 | $0.10 | |||||
| June 30, 2011 | $ | 10.38 | $ | 8.63 | $0.10 | |||||
| September 30, 2011 | $ | 10.42 | $ | 7.05 | $0.10 | |||||
| December 31, 2011 | $ | 9.40 | $ | 6.24 | $0.10 | |||||
For 2012 and 2011, the Common Share dividends declared in December and paid in January are reported in the 2013 and 2012 tax years, respectively.
| (b) | Holders |
The number of holders of record of the Common Shares was 733 as of February 21, 2013.
| (c) | Distributions |
Future distributions paid by GRT on the Common Shares will be at the discretion of the Board and will depend upon the actual cash flow of GRT, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board deems relevant.
26
GRT has implemented a Distribution Reinvestment and Share Purchase Plan under which its shareholders or Operating Partnership unit holders may elect to purchase additional Common Shares at fair value and/or automatically reinvest their distributions in Common Shares at fair value. In order to fulfill its obligations under the plan, GRT may purchase Common Shares in the open market or issue Common Shares that have been registered and authorized specifically for the plan. As of December 31, 2012, 2,100,000 Common Shares were authorized, of which 440,256 Common Shares have been issued.
Item 6. Selected Financial Data
The following table sets forth Selected Financial Data for the Company. This information should be read in conjunction with the consolidated financial statements of the Company and Management's Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K.
| For the Years Ended December 31, | |||||||||||||||||||
| 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Operating Data (in thousands, except per share amounts): (1) | |||||||||||||||||||
| Total revenues | $ | 326,035 | $ | 267,447 | $ | 267,016 | $ | 301,038 | $ | 312,463 | |||||||||
| Operating income | $ | 51,989 | $ | 65,122 | $ | 74,097 | $ | 85,207 | $ | 96,722 | |||||||||
| Interest expense | $ | 70,667 | $ | 70,115 | $ | 75,776 | $ | 77,201 | $ | 79,377 | |||||||||
| (Loss) income from continuing operations | $ | (3,666 | ) | $ | (9,932 | ) | $ | (458 | ) | $ | 4,405 | $ | 17,813 | ||||||
| Gain (loss) on disposition of properties, net | $ | — | $ | 27,800 | $ | (215 | ) | $ | (288 | ) | $ | 1,244 | |||||||
| Net (loss) income attributable to Glimcher Realty Trust | $ | (2,081 | ) | $ | 19,557 | $ | 5,853 | $ | 4,581 | $ | 16,769 | ||||||||
| Preferred stock dividends | $ | 24,969 | $ | 24,548 | $ | 22,236 | $ | 17,437 | $ | 17,437 | |||||||||
| Net loss to common shareholders | $ | (30,496 | ) | $ | (4,991 | ) | $ | (16,383 | ) | $ | (12,856 | ) | $ | (668 | ) | ||||
| (Loss) income from continuing operations per share common (diluted) | $ | (0.23 | ) | $ | (0.32 | ) | $ | (0.23 | ) | $ | (0.26 | ) | $ | 0.01 | |||||
| Net loss to common shareholders per common share (diluted) | $ | (0.23 | ) | $ | (0.05 | ) | $ | (0.22 | ) | $ | (0.28 | ) | $ | (0.02 | ) | ||||
| Distributions (per common share) | $ | 0.40 | $ | 0.40 | $ | 0.40 | $ | 0.40 | $ | 1.28 | |||||||||
| Balance Sheet Data (in thousands): | |||||||||||||||||||
| Investment in real estate, net | $ | 2,187,028 | $ | 1,754,149 | $ | 1,688,199 | $ | 1,669,761 | $ | 1,761,033 | |||||||||
| Total assets | $ | 2,329,407 | $ | 1,865,426 | $ | 1,794,007 | $ | 1,853,621 | $ | 1,880,904 | |||||||||
| Total long-term debt | $ | 1,484,774 | $ | 1,253,053 | $ | 1,397,312 | $ | 1,571,897 | $ | 1,659,953 | |||||||||
| Total equity | $ | 711,557 | $ | 543,929 | $ | 331,767 | $ | 207,414 | $ | 130,552 | |||||||||
| Other Data: | |||||||||||||||||||
| Cash provided by operating activities (in thousands) | $ | 115,185 | $ | 79,000 | $ | 70,751 | $ | 96,047 | $ | 93,706 | |||||||||
| Cash used in investing activities (in thousands) | $ | (318,937 | ) | $ | (162,987 | ) | $ | (162,910 | ) | $ | (42,651 | ) | $ | (127,954 | ) | ||||
| Cash provided by financing activities (in thousands) | $ | 212,365 | $ | 83,618 | $ | 16,397 | $ | 13,877 | $ | 29,835 | |||||||||
Funds from operations (2) (in thousands) | $ | 80,064 | $ | 56,402 | $ | 58,105 | $ | 69,801 | $ | 83,126 | |||||||||
Number of Properties (3) (4) | 28 | 27 | 27 | 25 | 27 | ||||||||||||||
Total GLA (in thousands) (3) (4) | 21,461 | 21,502 | 21,275 | 19,863 | 21,694 | ||||||||||||||
Occupancy rate % (3) | 95.2 | % | 94.8 | % | 94.6 | % | 93.3 | % | 92.8 | % | |||||||||
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| (1) | Operating data for the years ended December 31, 2011, 2010, 2009 and 2008 have been reclassified to reflect Properties held-for-sale and discontinued operations as required. |
| (2) | FFO as defined by NAREIT is used by the real estate industry and investment community as a supplemental measure of the performance of real estate companies. NAREIT defines FFO as net income (loss) available to common shareholders (computed in accordance with GAAP), excluding gains or losses from sales of depreciable property, impairment adjustments associated with depreciable real estate, real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company's FFO may not be directly comparable to similarly titled measures reported by other REITs. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP), as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. A reconciliation of FFO to net loss to common shareholders is provided in Item 7 of this Form 10-K. |
| (3) | Number of Properties and GLA include Properties which are both wholly-owned by the Company or by a joint venture in which the Company has a material joint venture interest. Occupancy of the Properties is defined as any space where a store is open or a tenant is paying rent at the date. |
| (4) | The number of Properties owned by joint ventures in which the Company has a material interest and the GLA of those Properties included in the table are as follows: 2012 includes 4.6 million square feet of GLA (5 Properties); 2011 includes 5.7 million square feet of GLA (6 Properties); 2010 includes 5.7 million square feet of GLA (6 Properties); 2009 includes 2.0 million square feet of GLA (3 Properties); and 2008 includes 2.1 million square feet of GLA (3 Properties). |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
GRT is a fully-integrated, self-administered and self-managed REIT which commenced business operations in January 1994 at the time of its initial public offering. The “Company,” “we,” “us” and “our” are references to GRT, Glimcher Properties Limited Partnership (“GPLP” or “Operating Partnership”), as well as entities in which the Company has an interest. We own, lease, manage and develop a portfolio of retail properties (“Properties” or "Property"). The Properties consist of open-air centers, enclosed regional malls, outlet centers and community shopping centers. As of December 31, 2012, we owned material interests in and managed 28 Properties (23 wholly-owned and five partially owned through joint ventures) which are located in 15 states. The Properties contain an aggregate of approximately 21.5 million square feet of gross leasable area (“GLA”) of which approximately 95.2% was occupied at December 31, 2012.
Our primary business objective is to achieve growth in net income and funds from operations (“FFO”) by developing and acquiring retail properties, by improving the operating performance and value of our existing portfolio through selective expansion and renovation of our Properties, and by maintaining high occupancy rates, increasing minimum rents per square-foot of GLA, and aggressively controlling costs.
Key elements of our growth strategies and operating policies are to:
| • | Increase Property values by aggressively marketing available GLA and renewing existing leases; |
| • | Negotiate and sign leases which provide for regular or fixed contractual increases to minimum rents; |
| • | Capitalize on management’s long-standing relationships with national and regional retailers and extensive experience in marketing to local retailers, as well as exploit the leverage inherent in a larger portfolio of properties in order to lease available space; |
| • | Establish and capitalize on strategic joint venture relationships to maximize capital resource availability; |
| • | Utilize our team-oriented management approach to increase productivity and efficiency; |
| • | Hold Properties for long-term investment and emphasize regular maintenance, periodic renovation and capital improvements to preserve and maximize value; |
| • | Selectively dispose of assets we believe have achieved long-term investment potential and redeploy the proceeds; |
| • | Strategic acquisitions of high quality retail properties subject to market conditions and availability of capital; |
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| • | Capitalize on opportunities to raise additional capital on terms consistent with the Company’s long-term objectives as market conditions may warrant; |
| • | Control operating costs by utilizing our employees to perform management, leasing, marketing, finance, accounting, construction supervision, legal and information technology services; |
| • | Renovate, reconfigure or expand Properties and utilize existing land available for expansion and development of outparcels to meet the needs of existing or new tenants; and |
| • | Utilize our development capabilities to develop quality properties at low cost. |
Our strategy is to be a leading REIT focusing on retail properties such as open-air centers, enclosed regional malls, and outlet properties located primarily in the top 100 metropolitan statistical areas by population. We expect to continue investing in select development opportunities and in strategic acquisitions of quality retail properties that provide growth potential while disposing of non-strategic assets.
Critical Accounting Policies and Estimates
General
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of the Board of Trustees and the Company’s independent registered public accounting firm. Actual results may differ from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that are reasonably likely to occur could materially impact the financial statements. Management believes the critical accounting policies discussed in this section reflect its more significant estimates and assumptions used in preparation of the consolidated financial statements.
Revenue Recognition
The Company’s revenue recognition policy relating to minimum rents does not require the use of significant estimates. Minimum rents are recognized on an accrual basis over the term of the related leases on a straight-line basis. Percentage rents, tenant reimbursements, and components of other revenue include estimates.
Percentage Rents
Percentage rents, which are based on tenants’ sales as reported to the Company, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants’ leases. The percentage rents are recognized based upon the measurement dates specified in the leases which indicate when the percentage rent is due.
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Tenant Reimbursements
Estimates are used to record cost reimbursements from tenants for common area maintenance ("CAM"), real estate taxes, utilities and insurance. We recognize revenue based upon the amounts to be reimbursed from our tenants for these items in the same period these reimbursable expenses are incurred. Differences between estimated cost reimbursements and final amounts billed are recognized in the subsequent year. Leases are not uniform in dealing with such cost reimbursements and variations exist in computations between Properties and tenants. The Company analyzes the balance of its estimated accounts receivable for real estate taxes, CAM and insurance for each of its Properties by comparing actual reimbursements versus actual expenses. Adjustments are also made throughout the year to these receivables and the related cost reimbursement income based upon the Company’s best estimate of the final amounts to be billed and collected. Final billings to tenants for CAM, real estate taxes, utilities and insurance in 2011 and 2010, which were billed in 2012 and 2011, respectively, did not vary significantly as compared to the estimated receivable balances. If management’s estimate of the percent of recoverable expenses that can be billed to the tenants in 2012 differs from actual amounts billed by 1%, the amount of income recorded during 2012 would increase or decrease by approximately $1.1 million.
Outparcel Sales
The Company may sell outparcels at its various Properties. The estimated cost used to calculate the margin from these sales involves a number of estimates. The estimates made are based either upon assigning a proportionate value based upon historical cost paid for the total parcel to the portion of the parcel that is sold, or by incorporating the relative sales value method. The proportionate share of actual cost is derived through consideration of numerous factors. These factors include items such as ease of access to the parcel, visibility from high traffic areas, acreage of the parcel as well as other factors that may differentiate the desirability of the particular section of the parcel that is sold.
Tenant Accounts Receivable and Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects the Company’s estimate of the amount of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods. The Company’s policy is to record a periodic provision for doubtful accounts based on total revenues. The Company also periodically reviews specific tenant balances and determines whether an additional allowance is necessary. In recording such a provision, the Company considers a tenant’s creditworthiness, ability to pay, probability of collections and consideration of the retail sector in which the tenant operates. The allowance for doubtful accounts is reviewed and adjusted periodically based upon the Company’s historical experience.
Investment in Real Estate
Carrying Value of Assets
The Company maintains a diverse portfolio of real estate assets. The portfolio holdings have increased as a result of both acquisitions and the development of Properties and have been reduced by selected sales of assets. The amounts to be capitalized as a result of acquisition and developments and the periods over which the assets are depreciated or amortized are determined based on the application of accounting standards that may require estimates as to fair value and the allocation of various costs to the individual assets. The Company capitalizes direct and indirect costs that are clearly related to the development, construction, or improvement of Properties including internal costs such as interest, taxes and qualifying payroll related expenditures. Cost capitalization begins once the development or construction activity commences and ceases when the asset is ready for its intended use.
The Company allocates the cost of the acquisition based upon the estimated fair value of the net assets acquired. The Company also estimates the fair value of intangibles related to its acquisitions. The valuation of the fair value of the intangibles involves estimates related to market conditions, probability of lease renewals and the current market value of in-place leases. This market value is determined by considering factors such as the tenant’s industry, location within the Property and competition in the specific market in which the Property operates. Differences in the amount attributed to the fair value estimate for intangible assets can be significant based upon the assumptions made in calculating these estimates.
Impairment Evaluation
Management evaluates the recoverability of its investment in real estate assets as required by Accounting Standards Codification ("ASC") Topic 360 - “Property, Plant and Equipment.” Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the investment in the asset is not reasonably assured.
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The Company evaluates the recoverability of its investments in real estate assets to be held and used each quarter and records an impairment charge when there is an indicator of impairment and the undiscounted projected cash flows from the use and eventual disposition of the property are less than the carrying amount for a particular property. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on the Company’s plans for the respective asset(s) and the Company’s views of market and economic conditions. The Company evaluates each Property that has material reductions in occupancy levels and/or net operating income performance and conducts a detailed evaluation of the Properties. The evaluations consider matters such as current and historical rental rates, occupancies for the respective properties and comparable properties as well as recent sales data for comparable properties in comparable markets. Changes in estimated future cash flows due to changes in the Company’s plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.
Investment in Real Estate – Held-for-Sale
The Company evaluates the held-for-sale classification of its real estate each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. Management evaluates the fair value less cost to sell each quarter and records impairment charges as required. An asset is generally classified as held-for-sale once management commits to a plan to sell its entire interest in a particular Property which results in no continuing involvement in the asset as well as initiates an active program to market the asset for sale. In instances where the Company may sell either a partial or entire interest in a Property and has commenced marketing of the Property, the Company evaluates the facts and circumstances of the potential sale to determine the appropriate classification for the reporting period. Based upon management’s evaluation, if it is expected that the sale will be for a partial interest, the asset remains classified as held for investment. If during the marketing process it is determined the asset will be sold in its entirety, the period of that determination is the period the asset would be reclassified as held-for-sale. During the three months ended December 31, 2011, the Company entered into a contract to sell a sixty-nine acre parcel of vacant land located near Cincinnati, Ohio. As of December 31, 2012, the contract is still in place and the Company expects the transaction to close in 2013. Accordingly, we have classified this land as held-for-sale.
On occasion, the Company will receive unsolicited offers from third parties to buy individual Properties. Under these circumstances, the Company will classify the particular Property as held-for-sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.
Sale of Real Estate Assets
The Company records sales of operating properties and outparcels using the full accrual method at closing when both of the following conditions are met: (a) the profit is determinable, meaning that, the collectability of the sales price is reasonably assured or the amount that will not be collectible can be estimated; and (b) the earnings process is virtually complete, meaning that, the seller is not obligated to perform significant activities after the sale to earn the profit. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods.
Accounting for Acquisitions
The value of the real estate acquired is allocated to acquired tangible assets, consisting of land, buildings and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, acquired in-place leases and the value of tenant relationships, based in each case on their fair values.
The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, based on management’s determination of the relative fair values of these assets. Management determines the fair value of an acquired property using a variety of methods to estimate the fair value of the tangible assets.
In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between a) the contractual amounts to be paid pursuant to the in-place leases and b) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the initial lease term.
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The Company considers fixed-rate renewal options in its calculation of the fair value of below-market lease intangibles. The Company compares the contractual lease rates to the projected market lease rates and makes a determination as to whether or not to include the fixed-rate renewal option into the calculation of the fair value of below-market leases. The determination of the likelihood that a fixed-rate renewal option will be exercised is approached from both a quantitative and qualitative perspective.
From a quantitative perspective, the Company determines if the fixed-rate renewal option is economically compelling to the tenant. The Company also considers qualitative factors such as: overall tenant sales performance, the industry the tenant operates in, the tenant's commitment to the concept, and other information the Company may have knowledge of relating to the particular tenant. This quantitative and qualitative information is then used, on a case-by-case basis, to determine if the fixed-rate renewal option should be included in the fair value calculation.
The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions, and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The value assigned to this intangible asset is amortized over the remaining lease term plus an assumed renewal period that is reasonably assured.
The aggregate value of other acquired intangible assets includes tenant relationships. Factors considered by management in assigning a value to these relationships include: assumptions of probability of lease renewals, investment in tenant improvements, leasing commissions, and an approximate time lapse in rental income while a new tenant is located. The value assigned to this intangible asset is amortized over the average life of the relationship.
Depreciation and Amortization
Depreciation expense for real estate assets is computed using a straight-line method and estimated useful lives for buildings and improvements using a weighted average composite life of forty years and three to ten years for equipment and fixtures. Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the initial term of each lease. Cash allowances paid to tenants that are used for purposes other than improvements to the real estate are amortized as a reduction to minimum rents over the initial lease term. Maintenance and repairs are charged to expense as incurred. Cash allowances paid in return for operating covenants from retailers who own their real estate are capitalized as contract intangibles. These intangibles are amortized over the period the retailer is required to operate their store.
Investment in and Advances to Unconsolidated Real Estate Entities
The Company evaluates all joint venture arrangements for consolidation. The percentage interest in the joint venture, evaluation of control and whether an entity is a variable interest entity (“VIE”) are all considered in determining if the arrangement qualifies for consolidation. We evaluate our investments in joint ventures to determine whether such entities may be a VIE, and, if a VIE, whether we are the primary beneficiary. Generally, an entity is determined to be a VIE when either (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest, (2) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The primary beneficiary is the entity that has both (1) the power to direct matters that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE's economic performance including, but not limited to; the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, we consider the rights of other investors to participate in policy making decisions, to replace or remove the manager of the entity and to liquidate or sell the entity. The obligation to absorb losses and the right to receive benefits when a reporting entity is affiliated with a VIE must be based on ownership, contractual, and/or other pecuniary interests in that VIE.
We have determined that we are the primary beneficiary in two VIE's, and have consolidated them as disclosed in Note 12 - “Investment in Joint Ventures - Consolidated.”
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The Company accounts for its investments in unconsolidated real estate entities using the equity method of accounting whereby the cost of an investment is adjusted for the Company’s share of equity in net income or loss beginning on the date of acquisition and reduced by distributions received. The income or loss of each joint venture investor is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences between the carrying amount of the Company’s investment in the respective joint venture and the Company’s share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets as applicable.
The Company treats distributions from joint ventures as operating activities if they meet all three of the following conditions: the amount represents the cash effect of transactions or events; the amounts result from a company’s normal operations; and the amounts are derived from activities that enter into the determination of net income. The Company treats distributions from joint ventures as investing activities if they relate to the following activities: lending money and collecting on loans; acquiring and selling or disposing of available-for-sale or held-to-maturity securities (trading securities are classified based on the nature and purpose for which the securities were acquired); acquiring and selling or disposing of productive assets that are expected to generate revenue over a long period of time.
In the instance where the Company receives a distribution made from a joint venture that has the characteristics of both an operating and investing activity, management identifies where the predominant source of cash was derived in order to determine its classification in the Consolidated Statement of Cash Flows. When a distribution is made from operations, it is compared to the available retained earnings within the Property. Cash distributed that does not exceed the retained earnings of the Property is classified in the Company’s Consolidated Statement of Cash Flows as cash received from operating activities. Cash distributed in excess of the retained earnings of the Property is classified in the Company’s Consolidated Statement of Cash Flows as cash received from an investing activity.
The Company periodically reviews its investment in unconsolidated real estate entities for other than temporary declines in market value. Any decline that is not considered temporary will result in the recording of an impairment charge to the investment.
Deferred Costs
The Company capitalizes initial direct costs of leases and amortizes these costs over the initial lease term. The costs are capitalized upon the execution of the lease and the amortization period begins the earlier of the store opening date or the date the tenant’s lease obligation begins.
Derivative Instruments and Hedging Activities
The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.
The Company accounts for derivative instruments and hedging activities by following ASC Topic 815 - “Derivatives and Hedging.” The objective of the guidance is to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under this guidance; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit risk-related contingent features in derivative instruments.
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The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative; whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Also, derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
Funds From Operations
Our consolidated financial statements have been prepared in accordance with GAAP. We have indicated that FFO is a key measure of financial performance. FFO is an important and widely used financial measure of operating performance in our industry, which we believe provides important information to investors and a relevant basis for comparison among REITs.
We believe that FFO is an appropriate and valuable non-GAAP measure of our operating performance because real estate generally appreciates over time or maintains a residual value to a much greater extent than personal property and, accordingly, reductions for real estate depreciation and amortization charges are not meaningful in evaluating the operating results of the Properties.
FFO is defined by the National Association of Real Estate Investment Trusts, or “NAREIT,” as net income (or loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of depreciable property, impairment adjustments associated with depreciable real estate, real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company's FFO may not be directly comparable to similarly titled measures reported by other real estate investment trusts. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance, or to cash flow from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.
The following table illustrates the calculation of FFO and the reconciliation of FFO to net loss to common shareholders for the years ended December 31, 2012, 2011, and 2010 (in thousands):
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Net loss to common shareholders | $ | (30,496 | ) | $ | (4,991 | ) | $ | (16,383 | ) | |||
| Add back (less): | ||||||||||||
| Real estate depreciation and amortization | 95,426 | 67,767 | 67,548 | |||||||||
| Pro-rata share of consolidated joint venture depreciation | (37 | ) | — | (1,337 | ) | |||||||
| Equity in loss (income) of unconsolidated entities | 10,127 | 6,380 | (31 | ) | ||||||||
| Pro-rata share of unconsolidated entities funds from operations | 12,189 | 15,258 | 9,331 | |||||||||
| Noncontrolling interest in Operating Partnership | (554 | ) | (212 | ) | (691 | ) | ||||||
| Gain on the disposition of real estate assets, net | — | (27,800 | ) | (332 | ) | |||||||
| Impairment loss on real estate assets | 18,477 | — | — | |||||||||
| Gain on remeasurement of equity investment | (25,068 | ) | — | — | ||||||||
| Funds from operations | $ | 80,064 | $ | 56,402 | $ | 58,105 | ||||||
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FFO – Comparison of Years Ended December 31, 2012 to December 31, 2011
FFO increased by $23.7 million, or 42.0%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. During the year ended December 31, 2012, we experienced a $36.2 million increase in minimum rents. This increase in minimum rents can be associated primarily with our recent acquisitions. During December 2011, we acquired Town Center Plaza located in Leawood, Kansas. During May 2012, we purchased our former joint venture partner's 80% interest ("Pearlridge Acquisition") in Pearlridge Center ("Pearlridge"), a regional mall located in Aiea, Hawaii. Also, during May 2012, we purchased the retail center adjacent to Town Center Plaza, One Nineteen. During the fourth quarter of 2012, we re-branded One Nineteen and it is now known and referred to herein as “Town Center Crossing” (collectively, with Town Center Plaza, referred to herein as “Town Center”). Lastly, during June 2012, we purchased Malibu Lumber Yard, located in Malibu, California ("Malibu"). These recent acquisitions contributed $31.5 million in additional minimum rents. Also, Scottsdale Quarter® located in Scottsdale, Arizona experienced a $5.0 million increase in minimum rents which was attributable to an increase in the number of tenants open, operating, and paying rent. During the year ended December 31, 2011, we recorded a $9.0 million impairment charge associated with approximately sixty-nine acres of undeveloped land located near Cincinnati, Ohio. We determined that it was more likely than not that the land would not be developed as previously planned and accordingly reduced the carrying value of the land to its estimated net realizable value.
Offsetting these increases to FFO, we reduced the carrying amount of a note receivable during the year ended December 31, 2012 from Tulsa Promenade REIT, LLC (“Tulsa REIT”), an affiliate of the joint venture (the "ORC Venture") that owns Tulsa Promenade (“Tulsa”), located in Tulsa, Oklahoma, by $3.3 million. We recorded this amount as a provision for doubtful accounts after we determined that the estimated proceeds from the sale of Tulsa would not be sufficient to pay the Tulsa REIT note receivable. Also, during the year ended December 31, 2012, we incurred $3.2 million in discontinued development costs associated with a potential development in Panama City, Florida that we no longer intend to pursue. We also incurred $5.4 million in ground lease expense associated with Pearlridge and Malibu. General and administrative expenses were $3.4 million higher for the year ended December 31, 2012 as compared to the same period ending in 2011. This increase relates primarily to an increase in share-based executive compensation as well as an increase in professional fees. The increase in professional fees can primarily be attributed to the acquisitions of Pearlridge, Town Center Crossing and Malibu. Finally, we wrote-off $3.4 million in previously incurred issuance costs associated with the redemption of our 8.75% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series F Preferred Shares") and the partial redemption of our 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series G Preferred Shares").
FFO – Comparison of Years Ended December 31, 2011 to December 31, 2010
FFO decreased by $1.7 million, or 2.9%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. During the year ended December 31, 2011, we received $2.3 million less in operating income excluding real estate depreciation, gains on the sale of operating assets, adjustments for consolidated joint ventures and impairment losses. This decrease was primarily driven by the conveyance of both Lloyd Center located in Portland, Oregon (“Lloyd”) and WestShore Plaza located in Tampa, Florida (“WestShore”) to a new entity and related sale of a 60% interest in the entity to an affiliate of The Blackstone Group (“Blackstone”) to form a new joint venture (“Blackstone Venture”) late in the first quarter of 2010. We also recorded during 2011 a $9.0 million impairment charge associated with approximately sixty-nine acres of undeveloped land located near Cincinnati, Ohio. Lastly, we incurred $2.3 million in additional preferred share dividends as a result of issuing an additional 3.5 million shares of Series G Preferred Shares during April 2010 (the “April Offering”).
Offsetting these decreases to FFO, we experienced $5.7 million less in interest expense. This decrease can be attributed to lower average borrowings during fiscal year 2011 as compared to 2010. Our average loan balance decreased due to the conveyance of mortgage debt to the Blackstone Venture in March 2010 as well as reductions to outstanding borrowings on our corporate credit facility resulting from the application of net proceeds received from the April Offering, a common stock offering completed in July 2010 (the "July Offering"), and common shares issued throughout 2011, as well as proceeds generated from the conveyance of Lloyd and WestShore. We also received $5.9 million more in FFO from our investment in unconsolidated entities. This increase can be attributed to positive contributions we received from our investment in the joint venture that formerly owned Pearlridge (“Pearlridge Venture”), as well as full year contributions from the malls that comprise the Blackstone Venture.
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Comparable Net Operating Income (NOI)
Management considers comparable NOI to be a relevant indicator of property performance, and NOI is also used by industry analysts and investors. NOI represents total property revenues less property operating and maintenance expenses. Accordingly, NOI excludes certain expenses included in the determination of net income such as corporate general and administrative expenses and other indirect operating expenses, interest expense, impairment charges, depreciation and amortization expense. These items are excluded from NOI in order to provide results that are more closely related to a property's results of operations. In addition, the Company's computation of same mall NOI excludes property straight-line adjustments of minimum rents, amortization of above-below market intangibles, termination income, and income from outparcel sales. The Company also adjusts for other miscellaneous items in order to enhance the comparability of results from one period to another.
Comparable NOI Growth - Years Ended December 31, 2012 to December 31, 2011
The reconciliation of the Company's NOI to GAAP operating income is provided in the table below (in thousands):
Net Operating Income Growth for Comparable Properties (including pro-rata share of unconsolidated joint venture properties) | ||||||||
For the Years Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Operating income | $ | 51,989 | $ | 65,122 | ||||
Depreciation and amortization (1) | 97,501 | 69,921 | ||||||
General and administrative (1) | 23,711 | 20,384 | ||||||
| Proportionate share of unconsolidated joint venture comparable NOI | 21,775 | 22,401 | ||||||
Non-comparable properties (2) | (31,297 | ) | (8,081 | ) | ||||
| Termination and outparcel net income | (2,685 | ) | (1,679 | ) | ||||
Straight-line rents (1) | (2,700 | ) | (3,029 | ) | ||||
Non-recurring, non-cash items (3) | 21,799 | 8,995 | ||||||
Other (4) | (3,929 | ) | 791 | |||||
| Comparable NOI | $ | 176,164 | $ | 174,825 | ||||
| Comparable NOI percentage change | 0.8 | % | ||||||
| (1) | Amounts include both continued and discontinued operations. |
| (2) | Amounts include Community Centers, Scottsdale Quarter, Town Center, Malibu, and the 80% interest in Pearlridge we acquired in 2012. |
| (3) | Amounts include impairments and write-down of the Tulsa REIT note receivable. |
| (4) | Other adjustments include fee income, discontinued development costs, non-property income and expenses, intangible amortization of above/below market leases and other non-recurring income or expenses. |
The growth in NOI in 2012 primarily relates to growth in percentage rent and a decrease in provision for doubtful accounts. The growth is offset by a large volume of re-tenanting that resulted in a lower minimum rent for the year ending December 31, 2012 compared to December 31, 2011 for our comparable Properties.
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Comparable NOI Growth - Years Ended December 31, 2011 to December 31, 2010
The reconciliation of the Company's NOI to GAAP operating income is provided in the table below (in thousands):
Net Operating Income Growth for Comparable Properties (including pro-rata share of unconsolidated joint venture properties) | ||||||||
For the Years Ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| Operating income | $ | 65,122 | $ | 74,097 | ||||
Depreciation and amortization (1) | 69,912 | 69,544 | ||||||
General and administrative (1) | 20,384 | 19,483 | ||||||
| Proportionate share of unconsolidated joint venture comparable NOI | 18,291 | 17,872 | ||||||
Non-comparable properties (2) | (5,081 | ) | (8,156 | ) | ||||
| Termination and outparcel net income | (1,622 | ) | (1,101 | ) | ||||
Straight-line rents (1) | (3,029 | ) | (721 | ) | ||||
| Impairment loss | 8,995 | — | ||||||
Other (3) | (2,014 | ) | (4,359 | ) | ||||
| Comparable NOI | $ | 170,958 | $ | 166,659 | ||||
| Comparable NOI percentage change | 2.6 | % | ||||||
| (1) | Amounts include both continued and discontinued operations. |
| (2) | Amounts include Community Centers, Scottsdale Quarter and Town Center Plaza. |
| (3) | Other adjustments include fee income, discontinued development costs, non-property income and expenses, intangible amortization of above/below market leases and other non-recurring income or expenses. |
The growth in NOI in 2011 primarily relates to growth in rents and a decrease in provision for doubtful accounts for our comparable Properties.
Results of Operations - Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenues
Total revenues increased 21.9%, or $58.6 million, for the year ended December 31, 2012 compared to the year ended December 31, 2011. Of this amount, minimum rents increased $36.2 million, percentage rents increased $3.5 million, tenant reimbursements increased $19.2 million, and other revenues decreased $312,000.
Minimum Rents
Minimum rents increased 22.6%, or $36.2 million, for the year ended December 31, 2012 compared to the year ended December 31, 2011. During the year ended December 31, 2012, we experienced a $17.4 million increase in minimum rents associated with our acquisition of Pearlridge. We also experienced increases in minimum rents of $11.7 million and $2.4 million associated with our acquisitions of Town Center and Malibu, respectively. Lastly, we experienced a $5.0 million increase in minimum rents from Scottsdale Quarter which can primarily be attributed to new tenant openings.
Percentage Rents
Percentage rents increased 55.3%, or $3.5 million, for the year ended December 31, 2012 compared to the year ended December 31, 2011. During the year ended December 31, 2012 we experienced a $2.0 million increase associated with our acquisition of Pearlridge. The remaining increase is primarily the result of increased sales productivity from certain tenants whose sales exceeded their respective lease breakpoints.
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Tenant Reimbursements
Tenant reimbursements increased 24.9%, or $19.2 million, for the year ended December 31, 2012 compared to the year ended December 31, 2011. During the year ended December 31, 2012, we experienced a $12.0 million increase in tenant reimbursements associated with our acquisition of the remaining joint venture interest in Pearlridge. We also experienced an increase in tenant reimbursements of $5.6 million and $437,000 associated with our acquisitions of Town Center and Malibu, respectively. Lastly, we experienced a $1.2 million increase associated with Scottsdale Quarter. This increase can primarily be attributed to additional new tenant openings at the center.
Other Revenues
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | Inc. (Dec.) | ||||||||||
| Licensing agreement income | $ | 9,023 | $ | 8,830 | $ | 193 | ||||||
| Outparcel sales | 760 | 1,050 | (290 | ) | ||||||||
| Sponsorship income | 1,965 | 1,846 | 119 | |||||||||
| Fee and service income | 7,886 | 8,575 | (689 | ) | ||||||||
| Other | 4,078 | 3,723 | 355 | |||||||||
| Total | $ | 23,712 | $ | 24,024 | $ | (312 | ) | |||||
License agreement income relates to our tenants with rental agreement terms of less than thirteen months. During the year ended December 31, 2012, we sold two outparcels at Grand Central Mall, located in City of Vienna, West Virginia, for $760,000. During the year ended December 31, 2011, we sold one outparcel at Ashland Town Center located in Ashland, Kentucky for $1.1 million. Fee and service income primarily relates to fee and service income earned from our joint ventures. These fees are calculated in accordance with each specific joint venture arrangement. The decrease in fee and service income relates primarily to the purchase of our former partner's 80% interest in the Pearlridge Venture in May 2012.
Expenses
Total expenses increased 35.4%, or $71.7 million, for the year ended December 31, 2012 compared to the year ended December 31, 2011. Property operating expenses increased $13.8 million, real estate taxes increased $6.4 million, the provision for doubtful accounts increased $2.6 million, other operating expenses increased $7.7 million, depreciation and amortization increased $28.3 million, general and administrative costs increased $3.4 million, and impairment losses increased by $9.5 million.
Property Operating Expenses
Property operating expenses are costs directly related to the operations of the Properties. The expenses include, but are not limited to: wages and benefits for Property personnel, utilities, marketing and insurance. Numerous leases with our tenants contain provisions that permit the Company to be reimbursed for these expenses.
Property operating expenses increased $13.8 million, or 24.1%, for the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase was primarily driven by an increase in Property operating expenses of $10.3 million and $2.0 million, which were associated with the acquisitions of Pearlridge and Town Center, respectively. We also experienced a $1.0 million increase at Scottsdale Quarter which can be primarily attributed to new tenant openings.
Real Estate Taxes
Real estate taxes increased $6.4 million, or 19.6%, for the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase can be primarily attributed to increases of $2.1 million and $3.8 million associated with the acquisitions of Pearlridge and Town Center, respectively. The remaining variance can be attributed to increases in real estate taxes for various Properties throughout our portfolio.
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Provision for Doubtful Accounts
The provision for doubtful accounts was $6.1 million for the year ended December 31, 2012 compared to $3.4 million for the year ended December 31, 2011. The provision represented 1.9% and 1.3% of revenue for the year ended December 31, 2012 and 2011, respectively.
The provision for doubtful accounts for the year ended December 31, 2012 includes a $3.3 million charge to reduce the value of a note receivable from Tulsa REIT. Following the acceptance by the ORC Venture of an offer to sell Tulsa for a price lower than Tulsa's net book value, the ORC Venture reduced the estimated sales value of the Property. Accordingly, the value of the note receivable from Tulsa REIT was reduced to its estimated net recoverable amount.
Other Operating Expenses
Other operating expenses are expenses that relate indirectly to the operations of the Properties. These expenses include, but are not limited to: costs related to providing services to our unconsolidated real estate entities, expenses incurred by the Company for vacant spaces, legal fees related to tenant collection matters, or other tenant related litigation, costs associated with wages and benefits related to short-term leasing, rental expense associated with any of our properties subject to a ground lease, discontinued development costs, and costs associated with the sale of outparcels, as applicable.
Other operating expenses increased $7.7 million, or 70.3%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. During the year ended December 31, 2012, we incurred $3.2 million in discontinued development costs associated with a potential development in Panama City, Florida that we no longer intend to pursue. Also, we incurred $199,000 related to the sale of two outparcels, both located at Grand Central Mall. During the year ended December 31, 2011, we expensed $499,000 in costs related to the sale of an outparcel at Ashland Town Center. Lastly, during the year ended December 31, 2012, we incurred $5.4 million in ground lease expense associated with Pearlridge and Malibu. Offsetting these increases to expenses we experienced a $591,000 decrease in professional fees primarily related to tenant collection matters for the year ended December 31, 2012 when compared to the year ended December 31, 2011.
Depreciation and Amortization
Depreciation and amortization expense increased by $28.3 million, or 41.3%, for the year ended December 31, 2012 compared to the year ended December 31, 2011. We experienced increases of $13.9 million, $7.8 million, and $1.1 million related to the acquisitions of Pearlridge, Town Center, and Malibu, respectively. We also experienced an increase of $4.4 million at Scottsdale Quarter which related primarily to more assets being placed into service.
General and Administrative
General and administrative expenses relate primarily to the overall corporate related costs of the Company. These costs include, but are not limited to: wages and benefits, travel, third party professional fees, and occupancy costs that relate to our executive, legal, leasing, accounting, and information technology departments.
General and administrative expenses were $23.7 million and $20.3 million for the years ended December 31, 2012 and 2011, respectively. The increase in general and administrative expenses can primarily be attributed to increased costs relating to share-based executive compensation. We also experienced a $345,000 increase in state and local taxes. Lastly we incurred $312,000 in professional fees and other costs relating to the acquisitions of Pearlridge, Town Center, and Malibu for the year ended December 31, 2012.
Impairment Loss – Real Estate Assets, Continuing Operations
During the year ended December 31, 2012, the Company initiated discussions with the special servicer related to the non-recourse mortgage on Eastland Mall ("Eastland") located in Columbus, Ohio. Based upon management's estimated future use of the property, the Company reduced the carrying value of the Property to its estimated net realizable value as part of the Company's impairment evaluation and recorded an $18.5 million impairment loss. The Company valued the Property using an independent appraisal.
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During the year ended December 31, 2011, the Company's management, in connection with its impairment evaluation, determined that it was more likely than not that a planned retail project on a sixty-nine acre parcel located near Cincinnati, Ohio would not be developed as previously planned. Accordingly, the Company reduced the carrying value of the asset to its estimated net realizable value and recorded an impairment loss of $9.0 million. The Company valued the parcel based upon an independent review of comparable land sales.
Interest Income
Interest income decreased 95.1%, or $1.4 million, for the year ended December 31, 2012 compared with interest income for the year ended December 31, 2011. This decrease is primarily attributed to interest that is no longer being accrued on a note receivable from Tulsa REIT.
Interest Expense
Interest expense increased 0.8%, or $552,000, for the year ended December 31, 2012 as compared to the year ended December 31, 2011. The summary below identifies the increase by its various components (dollars in thousands).
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | Inc. (Dec.) | ||||||||||
| Average loan balance | $ | 1,369,170 | $ | 1,238,518 | $ | 130,652 | ||||||
| Average rate | 5.08 | % | 5.39 | % | (0.31 | )% | ||||||
| Total interest | $ | 69,554 | $ | 66,756 | $ | 2,798 | ||||||
| Amortization of loan fees | 3,895 | 6,042 | (2,147 | ) | ||||||||
| Capitalized interest | (2,506 | ) | (5,201 | ) | 2,695 | |||||||
| Swap termination fees | — | 819 | (819 | ) | ||||||||
| Fair value adjustments | (841 | ) | 262 | (1,103 | ) | |||||||
| Defeasance costs | — | 727 | (727 | ) | ||||||||
| Other | 565 | 710 | (145 | ) | ||||||||
| Interest expense | $ | 70,667 | $ | 70,115 | $ | 552 | ||||||
The increase in interest expense was due to an increase in the average loan balance and a decrease in capitalized interest due to the placement of the completed phases of Scottsdale Quarter into service. The average loan balance increased due to the consolidation of Pearlridge, the new mortgage loans placed on Town Center Plaza and Town Center Crossing during 2012 and the refinancing of Dayton Mall in August 2012. These costs were offset by decreases in the average rate, swap termination fees, defeasance costs, fair value adjustments and amortization of loan fees. The average rate decreased due to the refinancing of mortgages, lower rates achieved on financing for acquired properties and the removal of the LIBOR floor in our corporate credit facility that was included in the modification completed in March 2011 (the "March Modification"). Amortization of loan fees decreased due to the Scottsdale Quarter construction loan fees being fully amortized in May 2011 and the write-off of loan fees associated with the payoff of mortgage loans in connection with the March Modification. The swap termination fees incurred during the first quarter of 2011 were also related to the payoff of debt in connection with the March Modification. The decrease in defeasance costs was due to costs incurred in connection with the mortgage refinancing for Ashland Town Center in June 2011. In addition, the consolidation of Pearlridge resulted in a larger fair value adjustment which lowered interest expense during 2012.
Gain on remeasurement of equity method investment
During the year ended December 31, 2012, we recorded a gain of $25.1 million as it relates to the remeasurement of our equity investment in Pearlridge. This gain is the result of the application of accounting standards that require a company to re-measure its previously held equity interest in the acquired asset at its acquisition-date fair value and recognize the resulting gain in earnings for an acquisition achieved in stages.
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Equity in (Loss) Income of Unconsolidated Real Estate Entities, Net
Equity in (loss) income of unconsolidated real estate entities, net in both periods primarily contain results from our investments in the ORC Venture that owns both Puente Hills Mall (“Puente”) located in City of Industry, California, and Tulsa as well as the Blackstone Venture that owns both Lloyd and WestShore. The results from Pearlridge are also included from the period January 1, 2011 through May 8, 2012. On May 9, 2012, we purchased our former joint venture partner's interest in Pearlridge and we now own all of the equity interest in this Property. The results from the joint venture ("Surprise Venture") that owns the Town Square at Surprise ("Surprise") located in Surprise, Arizona are included from January 1, 2011 through July 19, 2012. On July 20, 2012, the Company made a loan to the Surprise Venture to facilitate a pay down of the principal balance of the mortgage loan for Surprise which was deemed a reconsideration event. In accordance with applicable accounting rules, the Company determined that the Surprise Venture was a VIE and that it was the primary beneficiary. Accordingly, the Company consolidated the Surprise Venture effective July 20, 2012.
Net loss from the unconsolidated entities was $19.7 million and $11.7 million for the years ended December 31, 2012 and 2011, respectively. Our proportionate share of the loss was $10.1 million and $6.4 million for the years ended December 31, 2012 and 2011, respectively.
The increase in Equity in loss from unconsolidated real estate entities, net relates primarily to impairment charges. During the years ended December 31, 2012 and 2011, the ORC Venture incurred $20.5 million and $17.2 million in impairment charges, respectively. Our proportionate share of these charges amounted to $10.6 million and $9.0 million during the years ended December 31, 2012 and 2011, respectively. These impairment charges relate to changes in the estimated fair value based on contingent sales contracts for the sale of Tulsa. Also, during the year ended December 31, 2012, the Surprise Venture was written down to its fair value based upon its estimated future use and recorded a $3.1 million impairment loss. The Surprise Venture used its estimated net sales value of the Property to determine its fair value and was calculated by combining an estimated sales value for a stabilized multi-tenant building plus an estimated sales value for a currently occupied outparcel. Our proportionate share of this loss was $1.6 million.
In January 2013, the Blackstone Venture commenced marketing a group of outparcels that comprise approximately 205,000 square feet at Lloyd. The sale of these outparcels is expected to occur in 2013. The fair value of the assets being marketed, which are comprised of land, buildings and tenant improvements, is in excess of their carrying value at December 31, 2012.
The Company has determined that the holding company of the Blackstone Venture, GRT Mall JV, LLC, has met the conditions of a significant subsidiary under Rule 1-02(w) of Regulation S-X for which the Company is required, pursuant to Rule 3-09 of Regulation S-X, to attach separate audited financial statements as an exhibit to this Annual Report on Form 10-K.
Discontinued Operations
The net income from discontinued operations during the years ended December 31, 2012 and 2011 was $984,000 and $29.3 million, respectively. This variance in income can be primarily attributable to the disposal of Polaris Towne Center which was sold for a gain of $27.8 million during December 2011.
Total revenues from discontinued operations were $6.7 million compared to $7.6 million for the years ended December 31, 2012 and 2011, respectively. Revenues for the year ended December 31, 2012 primarily relate to the sale of an outparcel at Northtown Mall ("Northtown"). Revenues for the year ended December 31, 2011 primarily relate to Polaris Town Center. Income from discontinued operations was $984,000 compared to $1.5 million for the years ended December 31, 2012 and 2011, respectively.
Allocation to Noncontrolling Interests
The allocation of loss to noncontrolling interest was $601,000 and $212,000 for the years ended December 31, 2012 and 2011, respectively. For the year ended December 31, 2012, noncontrolling interest represents the aggregate partnership interest within the Operating Partnership that is held by certain limited partners as well as the underlying equity held by unaffiliated third parties in consolidated joint ventures. For the year ended December 31, 2011, noncontrolling interest represented the aggregate partnership interest within the Operating Partnership that is held by certain limited partners.
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Results of Operations - Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Revenues
Total revenues increased 0.2%, or $431,000, for the year ended December 31, 2011 compared to the year ended December 31, 2010. Of this amount, minimum rents increased $121,000, percentage rents increased $1.7 million, tenant reimbursements decreased $2.7 million, and other income increased $1.3 million.
Minimum Rents
Minimum rents increased 0.1%, or $121,000, for the year ended December 31, 2011 compared to the year ended December 31, 2010. Minimum rents increased $6.0 million at Scottsdale Quarter. This increase was primarily driven by new tenant openings. We also experienced a $1.2 million increase at The Outlet Collection | Jersey Gardens related to expansions by certain tenants as well as new tenants opening their stores. Lastly, we experienced a $617,000 increase related to the acquisition of Town Center Plaza. Offsetting these increases, we experienced a decrease in minimum rents of $7.8 million due to the conveyance of both Lloyd and WestShore to the Blackstone Venture which occurred in the first quarter of 2010.
Percentage Rents
Percentage rents increased by $1.7 million, or 36.6%, for the year ended December 31, 2011 compared to the year ended December 31, 2010. This increase is primarily the result of increased sales productivity from certain tenants whose sales exceeded their respective breakpoints.
Tenant Reimbursements
Tenant reimbursements decreased 3.3%, or $2.7 million, for the year ended December 31, 2011 compared to the year ended December 31, 2010. We experienced a $3.5 million decrease associated with the conveyance of both Lloyd and WestShore to the Blackstone Venture. Offsetting this decrease, we received a $913,000 increase in tenant reimbursements from Scottsdale Quarter related to additional tenant openings.
Other Revenues
Other revenues increased 5.6%, or $1.3 million, for the year ended December 31, 2011 compared to the year ended December 31, 2010. The components of other revenues are shown below (in thousands):
| For the Years Ended December 31, | |||||||||||
| 2011 | 2010 | Inc. (Dec.) | |||||||||
| Licensing agreement income | $ | 8,830 | $ | 9,215 | $ | (385 | ) | ||||
| Outparcel sales | 1,050 | — | 1,050 | ||||||||
| Sale of an operating asset | — | 547 | (547 | ) | |||||||
| Sponsorship income | 1,846 | 2,023 | (177 | ) | |||||||
| Fee and service income | 8,575 | 6,272 | 2,303 | ||||||||
| Other | 3,723 | 4,683 | (960 | ) | |||||||
| Total | $ | 24,024 | $ | 22,740 | $ | 1,284 | |||||
Licensing agreement income relates to our tenants with rental agreement terms of less than thirteen months. We experienced a $385,000 decrease in licensing agreement income in 2011. Of this decrease, $326,000 can be attributed to the conveyance of both Lloyd and WestShore to the Blackstone Venture. The remaining Properties in the portfolio experienced an aggregate decrease of $59,000. During the year ended December 31, 2011, we sold an outparcel at Ashland Town Center for $1.1 million. We had no outparcel sales during the year ended December 31, 2010. We also recorded a $547,000 gain when we sold 60% of both Lloyd and WestShore to an affiliate of Blackstone in connection with the formation of the Blackstone Venture for the year ended December 31, 2010. Fee and service income increased $2.3 million during the year ended December 31, 2011 compared to the same period ended December 31, 2010. This increase primarily relates to fees earned from the Pearlridge Venture and the Blackstone Venture. The decrease in other revenues can be primarily attributed to the closing of a theater that we previously operated at a Mall we sold in 2007.
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Expenses
Total expenses increased 4.9%, or $9.4 million, for the year ended December 31, 2011 compared to the year ended December 31, 2010. Property operating expenses increased $333,000, real estate taxes increased $111,000, the provision for doubtful accounts decreased $245,000, other operating expenses decreased $1.4 million, depreciation and amortization increased $729,000, general and administrative costs increased $868,000, and impairment loss increased by $9.0 million.
Property Operating Expenses
Property operating expenses increased $333,000, or 0.6%, for the year ended December 31, 2011 compared to the year ended December 31, 2010. We experienced $2.6 million in additional costs related to Scottsdale Quarter. This increase is associated with the incremental costs related to additional tenant openings at this development. The remaining increase can be attributed to various Properties throughout our portfolio. Offsetting this growth was a decrease of $2.5 million in property operating expenses attributable to the conveyance of both Lloyd and WestShore to the Blackstone Venture.
Real Estate Taxes
Real estate taxes increased $111,000, or 0.3%, for the year ended December 31, 2011 compared to the year ended December 31, 2010. We experienced $924,000 in additional costs related to Scottsdale Quarter. This increase can be primarily attributed to expensing real estate taxes that were previously capitalized as part of the development of this center. Also Northtown experienced a $570,000 increase in taxes. The increase at Northtown can be attributed to a successful, multi-year real estate tax appeal in which the benefits were recognized during the year ended December 31, 2010. Offsetting this growth was a decrease of $1.2 million as a result of the conveyance of both Lloyd and WestShore to the Blackstone Venture.
Provision for Doubtful Accounts
The provision for doubtful accounts was $3.4 million for the year ended December 31, 2011 compared to $3.7 million for the year ended December 31, 2010. The provision represents 1.3% and 1.4% of total revenues for the year ended December 31, 2011 and 2010, respectively. During 2011, our provision included a $1.0 million expense related to the adjustment of a note receivable from Tulsa REIT. The recorded value of this note was reduced to the estimated amount we anticipate receiving upon the sale of the Property.
Other Operating Expenses
Other operating expenses decreased 11.2%, or $1.4 million, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. During the year ended December 31, 2010, we incurred $2.6 million in ground lease expense associated with Scottsdale Quarter. Following our purchase of the fee simple interest in Scottsdale Quarter in September 2010, the ground lease expense associated with Scottsdale Quarter for the year ended December 31, 2011 was eliminated in consolidation. Also, during the year ended December 31, 2010, we incurred $1.1 million in costs related to a theater we previously operated at a Mall we sold in 2007. Offsetting these decreases were $1.1 million of additional costs to provide services to our unconsolidated entities for year ended December 31, 2011 as compared to the year ended December 31, 2010. We also incurred an additional $285,000 of legal fees associated with various tenant matters throughout the portfolio during the year ended December 31, 2011 as compared to the year ended December 31, 2010. Lastly, we expensed $499,000 in costs related to the sale of an outparcel at Ashland Town Center. We did not sell any outparcels during the year ended December 31, 2010.
Depreciation and Amortization
Depreciation and amortization expense increased for the year ended December 31, 2011 by $729,000, or 1.1%, as compared to the year ended December 31, 2010. We experienced a $6.6 million increase in depreciation expense associated with Scottsdale Quarter. This increase can be primarily attributed to an increase in the level of investment placed in service at this development. Offsetting this increase, we experienced a $3.3 million decrease attributable to the conveyance of both Lloyd and WestShore to the Blackstone Venture. Also, we experienced a $2.3 million decrease in depreciation expense associated with Eastland. This decrease can be attributed to tenant improvements for anchor tenants that were fully depreciated during the second half of 2010.
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General and Administrative
General and administrative expenses were $20.3 million and $19.4 million for the years ended December 31, 2011 and 2010, respectively. The increase in general and administrative expenses can be attributed to increased costs relating to compensation and travel related expenses. Offsetting these increases, we experienced a decrease in income tax expense, primarily associated with The Outlet Collection | Jersey Gardens, and decreased legal fees.
Impairment Loss – Real Estate Assets, Continuing Operations
During the year ended December 31, 2011, the Company’s management, in connection with its impairment evaluation, determined that it was more likely than not that a planned retail project on a sixty-nine acre parcel located near Cincinnati, Ohio would not be developed as previously planned. Accordingly, the Company reduced the carrying value of the asset to its estimated net realizable value and recorded an impairment loss of $9.0 million. The Company valued the parcel based upon an independent review of comparable land sales. The Company did not record any impairment losses during the year ended December 31, 2010.
Interest Income
Interest income increased 21.1%, or $251,000, for the year ended December 31, 2011 compared with interest income for the year ended December 31, 2010. This increase is primarily attributed to interest accrued on a note receivable from Tulsa REIT.
Interest Expense
Interest expense decreased 7.5%, or $5.7 million, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The summary below identifies the decrease by its various components (dollars in thousands).
| For the Years Ended December 31, | |||||||||||
| 2011 | 2010 | Inc. (Dec.) | |||||||||
| Average loan balance | $ | 1,238,518 | $ | 1,369,439 | $ | (130,921 | ) | ||||
| Average rate | 5.39 | % | 5.75 | % | (0.36 | )% | |||||
| Total interest | $ | 66,756 | $ | 78,743 | $ | (11,987 | ) | ||||
| Amortization of loan fees | 6,042 | 6,416 | (374 | ) | |||||||
| Swap termination fees | 819 | — | 819 | ||||||||
| Capitalized interest | (5,201 | ) | (10,970 | ) | 5,769 | ||||||
| Defeasance costs | 727 | 589 | 138 | ||||||||
| Other | 972 | 998 | (26 | ) | |||||||
| Interest expense | $ | 70,115 | $ | 75,776 | $ | (5,661 | ) | ||||
The decrease in interest expense was due to decreases in the average loan balance, average rate and amortization of loan fees. The average loan balance decreased due primarily to our use of proceeds from the Company's common stock offering completed in January 2011, along with proceeds from the “at-the-market” equity offering program instituted in May 2011, to reduce the outstanding borrowings under our corporate credit facility. The average rate has decreased due to mortgage refinancings and the removal of the LIBOR floor in our corporate credit facility that was part of the modification completed in March 2011. Amortization of loan fees decreased due to the Scottsdale Quarter loan fees being fully amortized in May 2011 and to the write-off of loan fees associated with the payoff of the loan agreements for Morgantown Mall ("Morgantown"), Northtown, and Polaris Lifestyle Center in connection with the modification as well as fees related to the corporate credit facility. These cost savings were partially offset by a decrease in capitalized interest due to placing the completed phases of Scottsdale Quarter into service.
Equity in (Loss) Income of Unconsolidated Real Estate Entities, Net
Net (loss) income from unconsolidated entities was $(11.7) million and $41,000 for the years ended December 31, 2011 and 2010, respectively. Our proportionate share of the (loss) income was $(6.4) million and $31,000 for the years ended December 31, 2011 and 2010, respectively.
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During the year ended December 31, 2011, the ORC Venture entered into a contingent contract to sell Tulsa. The ORC Venture reduced the carrying value of this Property to its estimated net realizable value and recorded a total of $17.2 million in impairment losses. The Company’s proportionate share of this impairment loss amounts to $9.0 million. The contract was terminated on February 21, 2012 during the contingency period. Offsetting this decline, we experienced an $819,000 increase in equity income related to Lloyd and WestShore.
Discontinued Operations
The net income from discontinued operations during the year ended December 31, 2011 and 2010 was $29.3 million and $838,000, respectively. This variance in income can be primarily attributable to the disposal of Polaris Towne Center which was sold for a gain of $27.8 million during December 2011. During the year ended December 31, 2010, we recorded an adjustment of $215,000 to a Property that was sold in a prior period.
Total revenues from discontinued operations were $7.6 million compared to $7.7 million for the years ended December 31, 2011 and 2010, respectively. Income from operations was $1.5 million compared to $1.1 million for the years ended December 31, 2011 and 2010, respectively.
Allocation to Noncontrolling Interests
The allocation of the loss to noncontrolling interests was $212,000 and $5.5 million for the years ended December 31, 2011 and 2010, respectively. During the year ended December 31, 2011, the allocation to noncontrolling interest represents only the aggregate partnership interest within the Operating Partnership that is held by certain limited partners ("Unit Holder Interest"). Of the allocation to noncontrolling interest during the year ended December 31, 2010, $691,000 represents an allocation to Unit Holder Interest and $4.8 million represents 50% of the net loss to the then existing joint venture that owned Scottsdale Quarter (the “Scottsdale Venture”) that was allocated to our former noncontrolling joint venture partner for activity during the period January 1, 2010 through October 14, 2010. The loss in the Scottsdale Venture is driven primarily by our pro-rata share of non-cash items including $1.4 million of depreciation expense and $796,000 of straight-line expense associated with the ground lease as well as interest expense of $2.2 million.
Liquidity and Capital Resources
Liquidity
Our short-term (less than one year) liquidity requirements include recurring operating costs, capital expenditures, debt service requirements, and dividend requirements for our preferred shares, Common Shares of Beneficial Interest (“Common Shares”) and units of partnership interest in the Operating Partnership (“OP Units”). We anticipate that these needs will be met primarily with cash flows provided by operations.
Our long-term (greater than one year) liquidity requirements include scheduled debt maturities, capital expenditures to maintain, renovate and expand existing assets, property acquisitions, dispositions and development projects. Management anticipates that net cash provided by operating activities, the funds available under our credit facility, construction financing, long-term mortgage debt, contributions from strategic joint ventures, issuance of preferred and common shares of beneficial interest, and proceeds from the sale of assets will provide sufficient capital resources to carry out our business strategy. Our business strategy includes focusing on possible growth opportunities such as pursuing strategic investments and acquisitions (including joint venture opportunities), property acquisitions, development and redevelopment projects. Also as part of our business strategy, we regularly assess the debt and equity markets for opportunities to raise additional capital on favorable terms as market conditions may warrant.
In light of the improving debt and equity markets, we have remained focused on addressing our near-term debt maturities. On January 17, 2012, we completed a $77.0 million mortgage loan secured by Town Center Plaza. We used $70.0 million of the loan proceeds to repay the existing bridge loan with the remainder of the proceeds being used to reduce the outstanding principal amount under the credit facility.
On March 27, 2012, we completed an underwritten secondary public offering of 23,000,000 Common Shares at a price of $9.90 per share (the “March Offering”). The net proceeds to GRT from the offering, after deducting underwriting commissions, discounts and offering expenses, were $216.9 million. GRT used the proceeds from this secondary public offering to fund the Pearlridge Acquisition and the acquisition of Town Center Crossing.
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On May 9, 2012, we closed on the Pearlridge Acquisition. The purchase price for this ownership interest was approximately $289.4 million, including Blackstone's pro-rata share of the $175.0 million mortgage debt which currently encumbers the Property. The indebtedness remained in place after the closing and is included with our other long term indebtedness for our consolidated real estate Properties, resulting in a cash purchase price for Blackstone's interest of approximately $149.4 million. The cash portion of the Pearlridge Acquisition price was funded with the net proceeds from the March Offering and available funds from our credit facility.
On May 24, 2012, we closed on the purchase of Town Center Crossing, an outdoor retail center located in Leawood, Kansas. Town Center Crossing is adjacent to Town Center Plaza and added approximately 164,000 square feet of leasable retail space to our portfolio ("Town Center Crossing Acquisition"). The purchase price for this acquisition was approximately $67.5 million and was funded with the net proceeds from the March Offering and available funds from our credit facility.
On June 26, 2012, we closed on the purchase of the ground leasehold interest and improvements of Malibu. Malibu is a two-story, approximately 31,000 square foot specialty retail center located in Malibu, California. The purchase price for this acquisition was approximately $35.5 million and was funded with available funds from our credit facility.
On July 11, 2012, we completed a $50.0 million term loan (the “Dayton Term Loan”) secured by Dayton Mall, an enclosed regional mall located in Dayton, Ohio. The proceeds were used to repay the prior mortgage loan on Dayton Mall. The Dayton Term Loan was repaid with proceeds from the Dayton Loan (as defined below).
On August 10, 2012, we completed an underwritten secondary public offering of 4,000,000 shares of our 7.5% Series H Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series H Preferred Shares"). The net proceeds to GRT from the offering, after deducting underwriting commissions, discounts and offering expenses, were $96.5 million. GRT used the proceeds from this secondary public offering to redeem all 2,400,000 of the Series F Preferred Shares as well as 1,200,000 of the Series G Preferred Shares, and used the remainder to repay a portion of the principal amount outstanding under its corporate credit facility.
On August 22, 2012, we completed an $82.0 million loan (the “Dayton Loan”) secured by Dayton Mall. The proceeds of the Dayton Loan were used to repay the Dayton Term Loan and to reduce outstanding borrowings on our credit facility.
On October 25, 2012, we completed a $38.0 million mortgage loan secured by Town Center Crossing. We used the loan proceeds to reduce the outstanding principal amount under the credit facility.
During 2012, we issued 2,606,900 Common Shares under the GRT at-the-market equity offering program (the "GRT ATM Program") at a weighted average issue price of $10.44 per Common Share generating net proceeds of $26.4 million after deducting $808,000 of offering related costs and commissions. We used the proceeds from the GRT ATM Program to reduce the outstanding balance under the credit facility. As of December 31, 2012, we had $30.0 million available for issuance under the GRT ATM Program. In January 2013, the Company issued an additional 78,800 Common Shares that were sold during December 2012 generating net proceeds of $852,000 after deducting $17,000 of offering costs. With these shares issued during January 2013, GRT has $29.2 million available for issuance under the GRT ATM Program.
On January 7, 2013, we closed on the purchase of University Park Village, an outdoor retail center located in Fort Worth, Texas. University Park Village adds approximately 173,220 square feet of GLA to our portfolio. The purchase price for this acquisition was approximately $105.0 million and was funded with the net proceeds from a term loan as well as available funds from our credit facility.
On February 11, 2013, we completed a $225.0 million term loan (the “Polaris Loan”) secured by Polaris Fashion Place, an enclosed regional mall located in Columbus, Ohio. The proceeds were used to repay the prior $125.2 million mortgage loan on Polaris Fashion Place and to repay a portion of the principal amount outstanding under our corporate credit facility.
On February 19, 2013, we repaid the $33.4 million mortgage loan on Colonial Park Mall with funds available from our corporate credit facility.
At December 31, 2012, the Company's total-debt-to-total-market capitalization, including our pro-rata share of joint venture debt, was 46.1%, compared to 50.6% at December 31, 2011. We also look at the Company's debt-to-EBITDA ratio and other metrics to assess overall leverage levels. EBITDA represents our share of the earnings before interest, income taxes, and depreciation and amortization of our consolidated and unconsolidated operations.
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We continue to evaluate joint venture opportunities, property acquisitions and development projects in the ordinary course of business and, to the extent debt levels remain in an acceptable range, we also may use the proceeds from any future asset sales or equity offerings to fund expansion, renovation and redevelopment of existing Properties, fund joint venture opportunities, and property acquisitions.
Capital Resource Availability
On February 25, 2011, we filed an automatically effective universal shelf registration statement on Form S-3 with the SEC, registering debt securities, preferred shares, Common Shares, warrants, units, rights to purchase our Common Shares, purchase contracts, and any combination of the foregoing. This universal shelf registration statement has a three year term and is not limited in the amount of securities that can be issued for subsequent registered debt or equity offerings.
At the annual meeting of our shareholders held in May 2011, holders of our Common Shares approved an amendment to GRT's Amended and Restated Declaration of Trust to increase the number of authorized shares of beneficial interest that GRT may issue from 150,000,000 to 250,000,000. As of December 31, 2012, we have approximately 83.2 million shares of beneficial interest of GRT available for issuance.
At December 31, 2012, the aggregate borrowing availability on the credit facility, based upon quarterly availability tests, was $214.3 million and the outstanding balance was $85.0 million. Additionally, $817,000 represents a holdback on the available balance for letters of credit issued under the credit facility. As of December 31, 2012, the unused balance of the credit facility available to the Company was $128.5 million.
At December 31, 2012, our credit facility was collateralized by first mortgage liens on six Properties having a net book value of $125.2 million and other assets with a net book value of $72.4 million. Our mortgage notes payable were collateralized by first mortgage liens on seventeen of our Properties having a net book value of $1.8 billion. We have one unencumbered asset and other corporate assets that have a combined net book value of $59.7 million.
On February 20, 2013, we closed on a modification and extension of our $250.0 million corporate credit facility. The modification extends the facility's maturity date to February 2017 with an additional one-year extension option available that would extend the final maturity date to February 2018. The amended credit facility is unsecured and provides for improved pricing through a lower interest rate structure. Based upon current debt levels, credit facility pricing is set initially at LIBOR plus 1.95% per annum versus the current rate of LIBOR plus 2.38% per annum. The commitment amount may be increased to $400.0 million under an accordion feature. Our availability under the credit facility is determined based upon the value of our unencumbered assets and is measured on a quarterly basis. Based upon the current pool of unencumbered properties at closing, we had $193.0 million of availability under the credit facility and approximately $157.0 million of unused capacity.
Simultaneously with the closing of the new unsecured credit facility, we closed on a new $45.0 million secured credit facility. The credit facility is secured by 49% of the partnership interests in four of our Properties. The interest rate is LIBOR plus 2.50% per annum and the term of the loan will not exceed 15 months. The secured credit facility is subject to borrowing availability limits and financial covenants that are consistent with market terms.
Cash Activity
For the Year Ended December 31, 2012
Net cash provided by operating activities was $115.2 million for the year ended December 31, 2012. (See also “Results of Operations - Year Ended December 31, 2012 compared to Year Ended December 31, 2011” for descriptions of 2012 and 2011 transactions affecting operating cash flow.)
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Net cash used in investing activities was $318.9 million for the year ended December 31, 2012. We spent $89.3 million on our investments in real estate. Of this amount, $42.2 million was spent on development and redevelopment projects. The amount spent on development and redevelopment projects include $14.9 million related to the renovation of The Outlet Collection | Jersey Gardens, $9.5 million at Polaris Fashion Place to acquire the Great Indoors store, $4.5 million at Dayton Mall, Scottsdale Quarter accounted for $6.2 million and the remaining amount is spread throughout the mall portfolio. We also spent $27.6 million to re-tenant existing spaces, with the most significant expenditures occurring at The Outlet Collection | Jersey Gardens, Polaris Fashion Place, Scottsdale Quarter, and Town Center Plaza. The remaining amount was spent on operational capital expenditures. In addition, we spent $239.3 million toward the Pearlridge Acquisition, the Town Center Crossing Acquisition, and the acquisition of Malibu. Offsetting these decreases in cash, we received $17.9 million in distributions from unconsolidated real estate entities. We also received $7.1 million from the sale of two outparcels at Grand Central Mall and another outparcel at Northtown.
Net cash provided by financing activities was $212.4 million for the year ended December 31, 2012. We issued additional Common Shares as part of the March Offering which raised net proceeds of $216.9 million. Additionally, we raised net proceeds of $26.4 million as part of the GRT ATM Program. We received $197.0 million in proceeds from the issuance of mortgage notes payable of which $77.0 million was secured by Town Center Plaza, $82.0 million secured by Dayton Mall, and $38.0 million secured by Town Center Crossing. We also received $50.0 million associated with the bridge loan for Dayton Mall. We increased our outstanding indebtedness under the credit facility by $7.0 million. Furthermore, the Company issued Series H Preferred Shares in August 2012, raising net proceeds of $96.5 million. This amount was offset by the redemption of all Series F Preferred Shares and a portion of the Series G Preferred Shares totaling $60.0 million and $30.0 million, respectively. Offsetting the other increases to cash, we made $205.9 million in principal payments on existing mortgage debt. Of this amount, $70.0 million was used to repay the existing bridge loan associated with the 2011 purchase of Town Center Plaza and $50.0 million was used to repay the Dayton Term Loan. We used a total of $66.7 million of cash towards the reduction of mortgage loans for Colonial Park Mall, Dayton Mall, and Scottsdale Quarter mortgages. Additionally, principal payments of $19.2 million were made on various loan obligations. Also, $80.1 million in dividend payments were made to holders of our Common Shares, OP Units, and preferred shares.
For the Year Ended December 31, 2011
Net cash provided by operating activities was $79.0 million for the year ended December 31, 2011. (See also “Results of Operations - Year Ended December 31, 2011 compared to Year Ended December 31, 2010” for descriptions of 2011 and 2010 transactions affecting operating cash flow.)
Net cash used in investing activities was $163.0 million for the year ended December 31, 2011. We spent $54.4 million on our investments in real estate. Of this amount, $21.1 million related to the development of Scottsdale Quarter. We also spent $12.4 million to re-tenant existing spaces, with the most significant expenditures occurring at The Outlet Collection | Jersey Gardens, The Mall at Johnson City, Merritt Square Mall, New Towne Mall, Polaris Fashion Place, and Weberstown Mall. In addition, $6.9 million was spent on operational capital expenditures. We spent $98.7 million on the acquisition of Town Center Plaza. Offsetting these uses of cash, we received $1.1 million from the sale of an outparcel at Ashland Town Center.
Net cash provided by financing activities was $83.6 million for the year ended December 31, 2011. We made $153.3 million in principal payments on existing mortgage debt. Of this amount, $137.0 million was primarily used to repay the existing mortgages on Polaris Lifestyle Center, Morgantown, Northtown, and Ashland Town Center. Additionally, regularly scheduled principal payments of $16.3 million were made on various loan obligations. Also, $65.7 million in dividend payments were made to holders of our Common Shares, OP Units, and preferred shares. Throughout 2011 we reduced our outstanding indebtedness under the credit facility by $75.6 million. Offsetting the decreases to cash were proceeds we received from the issuance of Common Shares, a mortgage refinancing and additional borrowings. We raised net proceeds of $256.3 million from the issuance of an additional offering of Common Shares and from the GRT ATM Program. Finally, we received $129.5 million in proceeds from the issuance of mortgage notes payable. Of this amount, $70.0 million was received for the term loan associated with the acquisition of Town Center Plaza, $42.1 million was received for the mortgage associated with Ashland Town Center, and $15.0 million was received for the mortgage associated with the Phase III land at Scottsdale Quarter. The remaining amount is the result of additional borrowings from the Scottsdale Quarter construction loan.
For the Year Ended December 31, 2010
Net cash provided by operating activities was $70.8 million for the year ended December 31, 2010. (See also “Results of Operations - Year Ended December 31, 2011 compared to Year Ended December 31, 2010” for descriptions of 2011 and 2010 transactions affecting operating cash flow.)
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Net cash used in investing activities was $162.9 million for the year ended December 31, 2010. We spent $199.8 million on our investments in real estate. Of this amount, $44.6 million was spent on development and redevelopment projects. The amount spent on development and redevelopment projects includes $40.7 million related to the development of Scottsdale Quarter. We also spent $15.4 million to re-tenant existing spaces, with the most significant expenditures occurring at Ashland Town Center, The Outlet Collection | Jersey Gardens, Polaris Fashion Place, River Valley Mall, and Polaris Towne Center. An additional $5.9 million was spent on operational capital expenditures. In addition, we spent $121.5 million towards the purchase of the fee interest in the real estate underlying Scottsdale Quarter. Lastly, we made $15.0 million in investments in our unconsolidated real estate entities. Of this amount, $14.9 million relates to the Company's 20% investment in the Pearlridge Venture's acquisition of Pearlridge with Blackstone. Offsetting these decreases to cash, we received $60.1 million in proceeds from the sale of a 60% interest in both Lloyd and WestShore to the Blackstone Venture.
Net cash provided by financing activities was $16.4 million for the year ended December 31, 2010. We received $146.0 million in proceeds from the refinancing of Polaris Towne Center, Grand Central Mall, and The Mall at Johnson City as well as receiving $95.8 million of proceeds from new mortgage notes relating to the purchase of the fee interest in the real estate underlying Scottsdale Quarter and draws under the Scottsdale Construction Loan. Finally, we issued additional Series G Preferred Shares as part of the April Offering, raising net proceeds of $72.6 million, as well as additional Common Shares as part of the July Offering, raising net proceeds of $95.6 million. Offsetting these increases to cash, we made $136.2 million in principal payments on existing mortgage debt. Of this amount, $120.3 million was primarily used to repay the existing mortgages on Polaris Towne Center, Grand Central Mall, and The Mall at Johnson City. In addition, regularly scheduled principal payments of $15.9 million were made on various loan obligations. Also, $51.3 million in dividend payments were made to holders of our Common Shares, OP units, and preferred shares. Additionally, we reduced our outstanding indebtedness under the credit facility by $193.4 million. Lastly, the Company incurred $13.0 million in financing costs, mainly related to the modification of the credit facility in March 2010.
Financing Activity - Consolidated
Total debt increased by $231.7 million during 2012. The change in outstanding borrowings is summarized as follows (in thousands):
Mortgage Notes | Notes Payable | Total Debt | |||||||||
| December 31, 2011 | $ | 1,175,053 | $ | 78,000 | $ | 1,253,053 | |||||
| New mortgage debt | 247,000 | — | 247,000 | ||||||||
| Repayment of debt | (188,767 | ) | — | (188,767 | ) | ||||||
| Consolidation of Pearlridge | 175,000 | — | 175,000 | ||||||||
| Pearlridge fair value adjustment | 5,790 | — | 5,790 | ||||||||
| Consolidation of Surprise | 3,625 | — | 3,625 | ||||||||
| Debt amortization payments | (17,086 | ) | — | (17,086 | ) | ||||||
| Amortization of fair value adjustments | (841 | ) | — | (841 | ) | ||||||
| Net borrowings, facilities | — | 7,000 | 7,000 | ||||||||
| December 31, 2012 | $ | 1,399,774 | $ | 85,000 | $ | 1,484,774 | |||||
On January 17, 2012, a GRT affiliate borrowed $77.0 million (the “Leawood TCP Loan”). The Leawood TCP Loan is evidenced by a promissory note and secured by a mortgage, assignment of rents and leases, collateral assignment of property agreements, security agreement and fixture filing on Town Center Plaza. The Leawood TCP Loan is non-recourse and has an interest rate of 5.00% per annum and a maturity date of February 1, 2027. The Leawood TCP Loan requires the borrower to make periodic payments of principal and interest with all outstanding principal and accrued interest being due and payable at the maturity date. The proceeds of the Leawood TCP Loan were used to payoff the existing short term loan that was due on March 5, 2012.
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During April 2012, we reduced the balance of the mortgage loan on Colonial Park Mall (the “Colonial Loan”) by $6.2 million to a balance of $33.8 million. We also exercised our option to extend the maturity date of the loan to April 23, 2013. During the extension period, the Colonial Loan requires the borrower to make periodic payments of principal and interest with all outstanding principal and accrued interest being due and payable at the maturity date. The interest rate on the Colonial Loan increased from LIBOR plus 3.00% to LIBOR plus 3.50% per annum.
On May 9, 2012, we closed on the Pearlridge Acquisition. The purchase price for the remaining 80% ownership interest was approximately $289.4 million, including Blackstone's pro-rata share of the $175.0 million mortgage debt currently encumbering the Property, which remains in place after the closing and is included with our other long term indebtedness for consolidated real estate properties, resulting in a cash purchase price for Blackstone's interest of approximately $149.4 million. The Pearlridge Acquisition was funded with the net proceeds from the March Offering and available funds from our credit facility.
On May 23, 2012, we executed an Amended and Restated Loan Agreement for Scottsdale Quarter (the “Scottsdale Loan”). The Scottsdale Loan converts the prior construction loan from a credit facility to a term loan with a loan amount of $130.0 million. The Scottsdale Loan is evidenced by promissory notes and is secured by an amended mortgage for Phases I and II of Scottsdale Quarter. The Scottsdale Loan is fully recourse to the borrower and has an average interest rate of 3.28% per annum as of December 31, 2012. We fixed the interest rate on $105.0 million of the loan amount at a rate of 3.14% per annum through an interest rate protection agreement and the remaining $25.0 million incurs interest at an average rate of LIBOR plus 3.65% per annum. The maturity date of the Scottsdale Loan is May 22, 2015 with an option to extend the maturity on a portion of the loan ($107.0 million) for one additional year, subject to certain conditions. The Scottsdale Loan requires the borrower to make periodic payments of interest only with all outstanding principal and accrued interest being due and payable at the maturity date. The Scottsdale Loan requires additional principal payments to be made if the debt service coverage ratio for the property is below a targeted ratio. The prior $140.6 million construction loan was repaid using proceeds from the Scottsdale Loan and available funds from our credit facility.
On July 11, 2012, we executed the $50.0 million Dayton Term Loan. The Dayton Term Loan was evidenced by a promissory note and secured by a collateral assignment of interests by an affiliate of the borrowers. The Dayton Term Loan was fully guaranteed by GPLP, had an interest rate of LIBOR plus 3.00% per annum, and a maturity date of October 11, 2012. The Dayton Term Loan required the borrowers to make periodic payments of interest only with all outstanding principal and accrued interest being due and payable on the maturity date. The proceeds of the Dayton Term Loan were used to repay the prior mortgage loan on Dayton Mall. On August 22, 2012, we executed the $82.0 million Dayton Loan. The Dayton Loan is evidenced by a promissory note and secured by a first mortgage lien on Dayton Mall. The Dayton Loan is non-recourse and has an interest rate of 4.57% per annum and a maturity date of September 1, 2022. The Dayton Loan requires the borrowers to make periodic payments of interest only during the first five years of the loan and payments of principal and interest for the remainder of the term with all outstanding principal and accrued interest being due and payable on the maturity date. A portion of the proceeds of the Dayton Loan were used to repay the Dayton Term Loan and the remaining proceeds were used to reduce outstanding borrowings on our credit facility.
Effective July 20, 2012, we began reporting the Surprise Venture as a consolidated entity in our financial statements. Previously, it was recorded as an unconsolidated joint venture; therefore, the mortgage loan on Surprise is now recorded as part of our consolidated mortgage notes payable in our financial statements.
On October 25, 2012, a GRT affiliate borrowed $38.0 million (the “Town Center Crossing Loan”). The Town Center Crossing Loan is evidenced by a promissory note and secured by a mortgage, assignment of rents and leases, collateral assignment of property agreements, security agreement and fixture filing on Town Center Crossing. The Town Center Crossing Loan is non-recourse and has an interest rate of 4.25% per annum and a maturity date of February 1, 2027. The Town Center Crossing Loan requires the borrower to make periodic payments of principal and interest with all outstanding principal and accrued interest being due and payable at the maturity date. The Town Center Crossing Loan is cross-collateralized with the Leawood TCP Loan under which any default under the terms and conditions of either the Town Center Crossing Loan or the Leawood TCP Loan that remain uncured after the expiration of the applicable grace period or cure periods shall entitle the lender to exercise any and all remedies available to it under the mortgage documents for both the Town Center Crossing Loan and the Leawood TCP Loan. The proceeds of the Town Center Crossing Loan were used to reduce outstanding borrowings on our credit facility.
During November 2012, we modified the mortgage loan on SDQ III Fee (the “SDQ III Fee Loan”). The modification reduced the loan balance by $2.1 million to $12.9 million and extended the maturity date to December 1, 2013. During the extension period, the SDQ III Fee Loan requires the borrower to make monthly payments of interest with all outstanding principal and accrued interest being due and payable at the maturity date.
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On February 11, 2013, we executed the $225.0 million Polaris Loan for Polaris Fashion Place. The Polaris Loan is evidenced by a promissory note and secured by a first mortgage lien on Polaris Fashion Place. The Polaris Loan is non-recourse and has an interest rate of 3.90% per annum and a maturity date of March 1, 2025. The Polaris Loan requires the borrowers to make periodic payments of interest only during the first seven years of the loan and payments of principal and interest for the remainder of the term with all outstanding principal and accrued interest being due and payable on the maturity date. The proceeds of the Polaris Loan were used to repay the prior $125.2 million mortgage loan on Polaris Fashion Place and to reduce outstanding borrowings on our credit facility.
On February 19, 2013, we repaid the $33.4 million mortgage loan on Colonial Park Mall with funds available from our corporate credit facility.
Financing Activity - Unconsolidated Real Estate Entities
Total debt related to our material unconsolidated real estate entities decreased by $132.2 million during 2012 of which $16.7 million represents our pro-rata share. The change in outstanding borrowings is primarily attributed to the following activity described below.
During January 2012, an agreement was reached that extended the maturity date to June 30, 2012 for the mortgage on Surprise ("Surprise Loan"). On July 20, 2012, the loan was further extended to June 2013, with an option to extend the maturity date to December 31, 2014, subject to certain conditions. In connection with this extension, the borrower agreed to make a principal reduction payment of $1.0 million. The Surprise Loan also requires the borrower to make periodic payments of principal and interest and has an interest rate of LIBOR plus 4.00% or 5.50% per annum, whichever is greater. Beginning July 20, 2012, we began reporting the Surprise Venture as a consolidated entity in our financial statements. Previously, it was recorded as an unconsolidated joint venture; therefore, the Surprise Loan is now recorded as part of our consolidated mortgage notes payable in our financial statements.
During 2011, an affiliate of the ORC Venture executed modification agreements for Tulsa's mortgage loan (the “Tulsa Loan”) that extended the maturity date to March 2012. The loan modification decreased the interest rate to the greater of 5.25% per annum or LIBOR plus 4.25% per annum. The modification also required the ORC Venture to market the Property for sale in order to further extend the maturity date. The Tulsa Loan matured on March 14, 2012 and was in default, however during 2012, an affiliate of the ORC Venture executed a modification agreement for the Tulsa Loan that cured the existing default and extended the maturity date to December 31, 2012. As the loan is now past maturity, the Tulsa Loan is currently in default. The lender has not initiated any adverse actions against the property and the ORC Venture, in which the Company has a 52% interest, is engaged in active discussions with the lender regarding an extension of the loan's term and the continued marketing of Tulsa for sale.
On May 9, 2012, we completed the Pearlridge Acquisition. As a result of the consolidation, we are now including the mortgage debt associated with Pearlridge in our consolidated financial statements.
On June 21, 2012, an affiliate of the ORC Venture borrowed $60.0 million to refinance the loan for Puente (the “Puente Loan”). The Puente Loan is evidenced by a promissory note secured by a mortgage and assignment of rents and leases on Puente. The Puente Loan is non-recourse and has an interest rate of 4.50% per annum and a maturity date of July 1, 2017. The Puente Loan requires the borrower to make periodic payments of interest only with all outstanding principal and accrued interest being due and payable at the maturity date. The majority of the proceeds of the Puente Loan were applied toward the extinguishment of the previous $45.0 million loan on Puente that matured on June 1, 2012, $10.0 million of the proceeds were distributed to the partners as a return of capital, and the remainder is being held in the ORC Venture to fund future obligations.
On September 7, 2012, affiliates of the Blackstone Venture borrowed $122.5 million to refinance the loan for WestShore consisting of a $102.5 million mortgage loan (the “WestShore Mortgage Loan”) and a $20.0 million mezzanine loan (the “WestShore Mezz Loan” and together with the WestShore Mortgage Loan, the “WestShore Loans”). The WestShore Mortgage Loan is evidenced by a promissory note secured by a mortgage and assignment of rents and leases on WestShore. The WestShore Mezz Loan is evidenced by a mezzanine loan agreement and promissory note. The WestShore Loans are non-recourse and have an average interest rate equal to the greater of 3.65% per annum or LIBOR plus 3.15% per annum. The WestShore Loans have a maturity date of October 1, 2015, with two successive one-year extension options available, subject to certain conditions. The WestShore Loans require the borrower to make periodic payments of interest only with all outstanding principal and accrued interest being due and payable at the maturity date. The majority of the proceeds of the WestShore Loans were applied toward the extinguishment of the previous $84.8 million loan on WestShore, $25.0 million of the proceeds were distributed to the Blackstone Venture partners as a return of capital, and the remainder is being held in the Blackstone Venture to fund future obligations.
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At December 31, 2012, the mortgage notes payable associated with Properties held in the ORC Venture were collateralized with first mortgage liens on two Properties having a net book value of $191.0 million. At December 31, 2012, the mortgage notes payable associated with Properties held in the Blackstone Venture were collateralized with first mortgage liens on two Properties having a net book value of $291.9 million.
Consolidated Obligations and Commitments
The following table shows the Company’s contractual obligations and commitments as of December 31, 2012 related to our consolidated operations (in thousands):
| Consolidated Obligations and Commitments | Total | 2013 | 2014-2015 | 2016-2017 | Thereafter | |||||||||||||||
| Long-term debt (includes interest payments) | $ | 1,778,459 | $ | 255,919 | $ | 906,450 | $ | 193,043 | $ | 423,047 | ||||||||||
| Distribution obligations | 20,626 | 20,626 | — | — | — | |||||||||||||||
| OP Unit redemptions | 25,504 | 25,504 | — | — | — | |||||||||||||||
| Lease obligations | 3,869 | 855 | 1,577 | 1,214 | 223 | |||||||||||||||
| Tenant allowances | 7,732 | 7,732 | — | — | — | |||||||||||||||
| Ground lease obligations | 311,969 | 4,363 | 9,506 | 9,506 | 288,594 | |||||||||||||||
| Purchase obligations | 28,324 | 28,324 | — | — | — | |||||||||||||||
| Total consolidated obligations and commitments | $ | 2,176,483 | $ | 343,323 | $ | 917,533 | $ | 203,763 | $ | 711,864 | ||||||||||
Long-term debt obligations including both scheduled interest and principal payments are disclosed in Note 4 - “Mortgage Notes Payable” and Note 5 - "Notes Payable" to the consolidated financial statements.
At December 31, 2012, we had the following obligations relating to dividend distributions. In the fourth quarter of 2012 the Company declared distributions of $0.10 per Common Share and OP Units, which totaled $14.5 million, to be paid during the first quarter of 2013. Our Series G Preferred Shares and the Series H Preferred Shares pay cumulative dividends and therefore the Company is obligated to pay the dividends for these shares in each fiscal period in which the shares remain outstanding. This obligation is $24.4 million per year. The distribution obligation at December 31, 2012 for Series G Preferred Shares and Series H Preferred Shares is $4.2 million and $1.9 million, which represent the dividends declared but not paid as of December 31, 2012, respectively.
At December 31, 2012, there were approximately 2.3 million OP Units outstanding. These OP Units are redeemable, at the option of the holders, beginning on the first anniversary of their issuance. The redemption price for an OP Unit shall be, at the option of GPLP, payable in the following form and amount: (i) cash at a price equal to the fair market value of one Common Share of GRT or (ii) Common Shares at the exchange ratio of one share for each OP Unit. The fair value of the OP Units outstanding at December 31, 2012 is $25.5 million based upon a per unit value of $11.05 at December 31, 2012 (based upon a five-day average of the Common Stock price from December 21, 2012 to December 28, 2012).
Our lease obligations are for office space, office equipment, computer equipment and other miscellaneous items. The obligation for these leases at December 31, 2012 was $3.9 million.
At December 31, 2012, we had executed leases committing to $7.7 million in tenant allowances. The leases will generate gross rents of approximately $38.8 million over the original lease term.
Other purchase obligations relate to commitments to vendors for various matters such as development contractors and other miscellaneous commitments. These obligations totaled $28.3 million at December 31, 2012.
The Company currently has two ground lease obligations relating to Pearlridge and Malibu. The ground lease at Pearlridge provides for scheduled rent increases every five years and expires in 2058 with two ten-year extension options that are exercisable at our option. The ground lease at Malibu provides for scheduled rent increases every five years. Beginning in 2023, the increases will be determined by the consumer price index and will be a minimum of 5% and a maximum of 20%. The ground lease at Malibu expires in 2047 with three five-year extension options. Our obligations under the aforementioned ground leases are included in the above table.
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Commercial Commitments
The credit facility terms as of December 31, 2012, are discussed in Note 5 - “Notes Payable” to the consolidated financial statements.
Pro-rata share of Unconsolidated Joint Venture Obligations and Commitments
The following table shows the Company's pro-rata share of our contractual obligations and commitments as of December 31, 2012 with our material unconsolidated real estate entities (in thousands):
| Pro-rata Share of Unconsolidated Joint Venture Obligations | Total | 2013 | 2014-2015 | 2016-2017 | Thereafter | |||||||||||||||
| Long-term debt (includes interest payments) | $ | 152,046 | $ | 64,874 | $ | 53,846 | $ | 33,326 | $ | — | ||||||||||
| Tenant allowances | 809 | 809 | — | — | — | |||||||||||||||
| Ground lease obligations | 479 | 274 | 205 | — | — | |||||||||||||||
| Purchase obligations | 4,560 | 4,560 | — | — | — | |||||||||||||||
| Total pro-rata share of unconsolidated joint venture obligations | $ | 157,894 | $ | 70,517 | $ | 54,051 | $ | 33,326 | $ | — | ||||||||||
Our pro-rata share of the long-term debt obligation for scheduled payments of both principal and interest related to loans at Properties owned through unconsolidated joint ventures.
We have a pro-rata obligation for tenant allowances in the amount of $809,000 for tenants who have signed leases at the unconsolidated joint venture Properties. The leases will generate pro-rata gross rents of approximately $3.1 million over the original lease term.
Other pro-rata share of purchase obligations relate to commitments to vendors for various matters such as development contractors and other miscellaneous commitments. These obligations totaled $4.6 million at December 31, 2012.
The Company currently has one ground lease obligation relating to Puente. The ground lease at Puente is set to fair market value every ten years as determined by independent appraisal with the next re-appraisal due in 2014. Accordingly, our pro-rata share of this obligation is included in the above table through 2014. The ground lease at Puente expires in 2059.
Capital Expenditures and Deferred Leasing Costs
Capital expenditures are generally accumulated within a project and classified as “Developments in Progress” on the Consolidated Balance Sheets until such time as the project is completed and placed in service. At the time the project is completed, the dollars are transferred to the appropriate category on the Consolidated Balance Sheets and are depreciated on a straight-line basis over the useful life of the asset. Included within Developments in Progress is the capitalization of internal costs such as wages and benefits of which we capitalized $2.6 million and $2.4 million for the years ended December 31, 2012 and 2011, respectively.
Deferred leasing costs primarily consist of leasing and legal expenditures used to facilitate a signed lease agreement. These costs are deferred and amortized over the initial term of the lease. During the years ended December 31, 2012 and 2011 the Company capitalized $5.6 million and $4.6 million, respectively, as it related to these costs.
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The table below provides the amount we spent on our capital expenditures (amounts in thousands) during the year ended December 31, 2012:
Capital Expenditures for the Year Ended December 31, 2012 | |||||||||||
Consolidated Properties | Unconsolidated Joint Venture Proportionate Share | Total | |||||||||
| Development Capital Expenditures: | |||||||||||
| Development projects | $ | 7,291 | $ | — | $ | 7,291 | |||||
| Redevelopment and renovation projects | $ | 34,889 | $ | 415 | $ | 35,304 | |||||
| Property Capital Expenditures: | |||||||||||
| Tenant improvements and tenant allowances: | |||||||||||
| Anchor stores | $ | 11,604 | $ | 4,185 | $ | 15,789 | |||||
| Non-Anchor stores | 15,997 | 904 | 16,901 | ||||||||
| Operational capital expenditures | 9,172 | 707 | 9,879 | ||||||||
| Total Property Capital Expenditures | $ | 36,773 | $ | 5,796 | $ | 42,569 | |||||
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements (as defined in Item 303 of Regulation S-K).
Expansion, Renovation and Development Activity
We continue to be active in expansion, renovation and development activities. Our business strategy is to enhance the quality of the Company's assets in order to improve cash flow and increase shareholder value.
Expansions and Renovations
We maintain a strategy of selective expansions and renovations in order to improve the operating performance and the competitive position of our existing portfolio. We also engage in an active redevelopment program, with the objective of attracting innovative retailers, which we believe will enhance the operating performance of the Properties. We anticipate funding our expansion and renovation projects with the net cash provided by operating activities, the funds available under the credit facility, proceeds from the GRT ATM Program, construction financing, long-term mortgage debt, and proceeds from the sale of assets or other equity offerings.
We continue to make significant progress on our redevelopment projects to update our two outlet Properties, The Outlet Collection | Jersey Gardens in Elizabeth, New Jersey and The Outlet Collection | Seattle in Auburn, Washington. We anticipate investing approximately $55 - $65 million to renovate, re-brand, and enhance the tenant mix at these outlet Properties. Plans include remodeled corridors, entrances, food courts, restrooms and the introduction of premier outlet retail brands to complement the existing retailers at the Properties. The Company has spent $17.5 million during the year ended December 31, 2012 on The Outlet Collection™ redevelopment and anticipates it will yield a return of 7% - 9%. With some of the key new outlet retailers, such as two Coach Factory Outlets and one Coach Men's store, open in our Outlet Collection Properties for the holiday season of 2012, we expect the full impact of the redevelopment from the remaining re-tenanting efforts in the second half of 2013.
As we enter 2013, we are focusing on a redevelopment of the former Great Indoors space at Polaris Fashion Place. We purchased the anchor store and land in 2012 for $9.5 million and have plans to transform the former department store space to a mixed use, open-air format. The new addition will compliment the outdoor retail and restaurants we added to Polaris in our 2008 redevelopment of the former Kauffman's department store. We have a high level of interest from retailers and restaurants for our new addition and expect to have this redevelopment completed in the next several years.
Our redevelopment and renovation expenditures in 2012 related primarily to the outlet redevelopment project at The Outlet Collection | Jersey Gardens and The Outlet Collection | Seattle, as well as the purchase of the Great Indoors store at Polaris Fashion Place. It also includes expenditures relating to the new Dick's Sporting Goods at the Dayton Mall and a new Applebee's restaurant at The Outlet Collection | Jersey Gardens.
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Developments
One of our objectives is to enhance portfolio quality by developing new retail properties. Our management team has developed numerous retail properties nationwide and has significant experience in all phases of the development process including site selection, zoning, design, pre-development leasing, construction financing, and construction management.
Our development spending for the year ended December 31, 2012 primarily relates to our investment in Scottsdale Quarter.
The first two phases of Scottsdale Quarter are completed with approximately 541,000 square feet of GLA consisting of approximately 367,000 square feet of retail space with approximately 174,000 square feet of office space above the retail units. Approximately 89% of the tenants in the first two phases are now open and Scottsdale Quarter has become a dynamic, outdoor urban environment featuring sophisticated architectural design, comfortable pedestrian plazas, an open park space, and a variety of upscale shopping, dining and entertainment options. Scottsdale Quarter's improvements have been funded by the proceeds from the mortgage loan on Scottsdale Quarter as well as proceeds from our credit facility. We are pleased with the tenant mix and overall leasing progress made to date on Scottsdale Quarter. Between signed leases and letters of intent, we have approximately 94% of Phases I and II space addressed. Apple, Armani Exchange, Brio, Dominick's Steakhouse, Express, Free People, Gap, Gap Kids, Grimaldi's Pizzeria, H&M, iPic Theater, lululemon athletica, Nike, Pottery Barn, Restoration Hardware, Sephora, Stingray Sushi, True Food, and West Elm have opened their stores. The first two phases of Scottsdale Quarter are completed and we expect to reach a stabilized return of approximately 5.5% - 6.0% in 2015 or thereafter.
With respect to Phase III of Scottsdale Quarter, our goal is to finalize our plans for this phase and we anticipate that the retail component of Phase III will be the cornerstone of that portion of the project. In addition to retail, a portion of Phase III of Scottsdale Quarter could be developed for various uses including residential, lodging, or office. A portion of the Phase III real estate is in contract and the buyer has plans to develop luxury apartment units on the north parcel of the land. The contract is subject to completion of the buyer's due diligence.
We also continue to actively pursue a variety of other prospective development opportunities. With the continued improvement in overall economic market conditions, management believes the possibility of moving forward with such opportunities is increasing.
Portfolio Data
Tenant Sales
Average store sales for tenants in stores less than 10,000 square feet, including our material joint venture Malls (“Mall Store Sales”) for the twelve months ended December 31, 2012 were $435 per square foot, a 7.7% increase from the $404 per square foot reported for the twelve months ended December 31, 2011. Comparable Mall Store Sales, which include only those stores open for the twelve months ended December 31, 2012 and the same period of 2011, increased approximately 3.9%.
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Property Occupancy
Portfolio occupancy statistics by Property type are summarized below:
Occupancy (1) | |||||||||
| 12/31/2012 | 9/30/2012 | 6/30/2012 | 3/31/2012 | 12/31/2011 | |||||
Core Mall Portfolio (2): | |||||||||
| Mall Anchors | 96.6% | 96.8% | 96.7% | 96.7% | 96.5% | ||||
| Mall Non-Anchors | 93.2% | 91.4% | 88.8% | 89.5% | 92.2% | ||||
| Total Occupancy | 95.3% | 94.7% | 93.6% | 93.8% | 94.8% | ||||
| Mall Portfolio – excluding Joint Ventures: | |||||||||
| Mall Anchors | 95.6% | 95.9% | 95.7% | 95.5% | 95.3% | ||||
| Mall Non-Anchors | 93.9% | 91.7% | 88.9% | 88.7% | 91.5% | ||||
| Total Occupancy | 94.9% | 94.2% | 92.9% | 92.9% | 93.9% | ||||
| Community Centers: | |||||||||
| Community Center Anchors | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | ||||
| Community Center Non-Anchors | 83.6% | 86.6% | 72.6% | 77.0% | 75.9% | ||||
| Total Occupancy | 93.4% | 94.6% | 88.9% | 90.7% | 90.2% | ||||
| (1) | Occupied space is defined as any space where a tenant is occupying the space or paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year. |
| (2) | Includes the Company’s joint venture Malls. |
As of December 31, 2012, physical occupancy for Core Malls - Total Occupancy was 94.1%. Physical occupancy excludes tenants who are paying for vacant spaces as well as non-leasable space that is under development.
Core Mall portfolio total non-anchor occupancy increased from 92.2% at December 31, 2011 to 93.2% at December 31, 2012. Core Mall anchor occupancy increased from 96.5% at December 31, 2011 to 96.6% at December 31, 2012. The increase in occupancy can be attributed to the numerous tenants that opened at Scottsdale Quarter which included Bath and Body Works, Calvin Klein, Sephora as well as numerous office tenants. Also, Lloyd, Polaris Fashion Place, Puente and WestShore added new H&M stores that opened during 2012.
Leasing Results
We evaluate our leasing results by anchor and non-anchor as well as new deals versus renewals of existing tenants' leases. Anchor stores are those stores of 20,000 square feet or more and non-anchor stores are stores that are less than 20,000 square feet and outparcels. We report our leasing results for the leases we refer to as permanent leases, which exclude our specialty tenant activity that has a shorter term. Permanent leases have terms in excess of 35 months, while specialty deals have terms ranging from 13 - 35 months. The tenant allowances on the permanent leasing deals signed in 2012 are in-line with historical levels and typically have a reimbursement time horizon of 12-24 months based upon the base rent amount in the respective lease.
The following table summarizes our new and renewal leasing activity for the year ended December 31, 2012:
| GLA Analysis | Average Annualized Base Rents | |||||||||||||||||||
| Property Type | New Leases | Renewal Leases | Total | New Leases | Renewal Leases | Total | ||||||||||||||
| Mall Anchors | 134,691 | 141,478 | 276,169 | $ | 24.55 | $ | 11.85 | $ | 14.91 | |||||||||||
| Mall Non-Anchors | 347,441 | 786,905 | 1,134,346 | $ | 32.74 | $ | 31.97 | $ | 32.21 | |||||||||||
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Re-leasing spreads represent the percentage change in base rent for permanent leases signed, both new and renewals, to the base rent for comparative tenants for those leases where the space was occupied in the previous twenty-four months. Re-leasing spreads for the Core Malls increased by 10% for the non-anchor leases signed during the fiscal year 2012, with base rents averaging $35.18 psf. This is consistent with the 5% - 10% growth in rents that we targeted for our 2012 leasing activity. With tenant occupancy cost of less than 11% at end of 2012, we expect that we can continue to see our re-leasing spreads remain at 10% or more in 2013.
The following table summarizes the new and renewal lease activity and the comparative prior rents for the twelve months ended December 31, 2012, for only those leases where the space was occupied in the previous 24 months:
| GLA Analysis | Average Annualized Base Rents | |||||||||||||||||||||||||||||||
| Property Type | New Leases | Renewal Leases | Total | New Leases | Prior Tenants | Renewal Leases | Prior Rent | Total New/ Renewal | Total Prior Tenants/ Rent | Percent Change in Base Rent | ||||||||||||||||||||||
| Mall Anchors | 20,751 | 86,084 | 106,835 | $ | 5.78 | $ | 2.70 | $ | 11.85 | $ | 11.85 | $10.67 | $10.07 | 6 | % | |||||||||||||||||
| Mall Non-Anchors | 196,115 | 589,162 | 785,277 | $ | 37.53 | $ | 33.69 | $ | 34.40 | $ | 31.61 | $35.18 | $32.13 | 10 | % | |||||||||||||||||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure is interest rate risk. We use interest rate protection agreements or swap agreements to manage interest rate risks associated with long-term, floating rate debt. At December 31, 2012, approximately 89.2% of our debt, after giving effect to interest rate protection agreements, bore interest at fixed rates with a weighted-average maturity of 4.2 years and a weighted-average interest rate of approximately 5.2%. At December 31, 2011, approximately 85.0% of our debt, after giving effect to interest rate protection agreements, bore interest at fixed rates with a weighted-average maturity of 3.4 years, and a weighted-average interest rate of approximately 5.4%. The remainder of our debt at December 31, 2012 and December 31, 2011, bears interest at variable rates with weighted-average interest rates of approximately 3.1% and 3.0%, respectively.
At December 31, 2012, the fair value of our debt (excluding borrowings under our credit facility) was $1,433.5 million, compared to its carrying amount of $1,399.8 million. Fair value was estimated using cash flows discounted at current market rates, as estimated by management. When determining current market rates for purposes of estimating the fair value of debt, we employed adjustments to the original credit spreads used when the debt was originally issued to account for current market conditions. Our combined future earnings, cash flows and fair values relating to financial instruments are dependent upon prevalent market rates of interest, primarily LIBOR. Based upon consolidated indebtedness and interest rates at December 31, 2012, a 100 basis point increase in the market rates of interest would decrease both future earnings and cash flows by $1.6 million per year. Also, the fair value of our debt would decrease by approximately $31.6 million. A 100 basis point decrease in the market rates of interest would increase future earnings and cash flows by $339,000 per year and increase the fair value of our debt by approximately $33.8 million. The savings in interest expense noted above resulting from a 100 basis point decrease in market rates is limited due to the current LIBOR rate, which was 0.21% as of December 31, 2012. We have entered into certain swap agreements which impact this analysis at certain LIBOR rate levels (see Note 8 - "Derivative Financial Instruments" to the consolidated financial statements).
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and financial statement schedules of GRT and the Report of the Independent Registered Public Accounting Firm thereon, to be filed pursuant to this Item 8 are included in this report in Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis in the Company’s periodic reports filed with the SEC and are effective to ensure that information that we are required to disclose in our Exchange Act reports is accumulated, communicated to management, and disclosed in a timely manner. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to provide reasonable assurance. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As of December 31, 2012, management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in "Internal Control - Integrated Framework," issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management has concluded that as of December 31, 2012, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our independent registered public accounting firm, BDO USA, LLP, assessed the effectiveness of the Company’s internal control over financial reporting. BDO USA, LLP has issued an attestation report concurring with management’s assessment, which is set forth below.
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Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
Board of Trustees and Shareholders
Glimcher Realty Trust
Columbus, Ohio
We have audited Glimcher Realty Trust’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Glimcher Realty Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Annual Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Glimcher Realty Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Glimcher Realty Trust as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive (loss) income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012 and our report dated February 22, 2013 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Chicago, Illinois
February 22, 2013
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
59
Item 9B. Other Information
None.
PART III
Item 10. Trustees, Executive Officers and Corporate Governance
Information regarding trustees, board committee members, corporate governance and the executive officers of the Registrant is incorporated herein by reference to GRT’s definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Form 10-K with respect to the 2013 Annual Meeting of Shareholders.
Item 11. Executive Compensation
Information regarding executive compensation of the Company’s executive officers is incorporated herein by reference to the Registrant’s definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Form 10-K with respect to the 2013 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Information regarding the Company’s equity compensation plans in effect as of December 31, 2012 is as follows:
| Equity Compensation Plan Information | ||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and right (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||
| Equity compensation plans approved by shareholders | 1,845,892 | $16.23 | 3,120,647 | |||
| Equity compensation plans not approved by shareholders | N/A | N/A | N/A | |||
Additional information regarding security ownership of certain beneficial owners and management of the Registrant is incorporated herein by reference to GRT’s definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Form 10-K with respect to the 2013 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions, and Trustee Independence
Information regarding certain relationships, related transactions and trustee independence of the Company is incorporated herein by reference to GRT’s definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Form 10-K with respect to the 2013 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
Information regarding principal accountant fees and services of the Company is incorporated herein by reference to GRT’s definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Form 10-K with respect to the 2013 Annual Meeting of Shareholders.
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PART IV
Item 15. Exhibits and Financial Statements
| (1) | Financial Statements | Page Number | |
| Report of Independent Registered Public Accounting Firm | |||
| Glimcher Realty Trust Consolidated Balance Sheets as of December 31, 2012 and 2011 | |||
| Glimcher Realty Trust Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2012, 2011 and 2010 | |||
| Glimcher Realty Trust Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010 | |||
| Glimcher Realty Trust Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010 | |||
| Notes to Consolidated Financial Statements | |||
| (2) | Financial Statement Schedules | ||
| Schedule III - Real Estate and Accumulated Depreciation | |||
| Notes to Schedule III | |||
| (3) | Exhibits | ||
| 2.1 | Agreement of Purchase and Sale by and between Glimcher Properties Limited Partnership, as seller, and BRE/GRJV Holdings LLC, as buyer, dated as of November 5, 2009 (pertains to joint venture between The Blackstone Group and Glimcher Properties Limited Partnership). (35) |
| 2.2 | First Amendment to Agreement of Purchase and Sale by and between Glimcher Properties Limited Partnership, as seller, and BRE/GRJV Holdings LLC, as buyer, dated as of January 14, 2010 (pertains to joint venture between The Blackstone Group and Glimcher Properties Limited Partnership). (35) |
| 3.1 | Articles of Amendment and Restatement of Declaration of Trust for the Glimcher Realty Trust Second Amended and Restated Declaration of Trust. (7) |
| 3.2 | Amended and Restated Bylaws. (4) |
| 3.3 | Articles Supplementary classifying 4,000,000 Shares of Beneficial Interest of the Registrant as Series H Cumulative Redeemable Preferred Shares, par value $0.01 per share. (10) |
| 3.4 | Articles Supplementary Classifying 6,900,000 Shares of Beneficial Interest as 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest of the Registrant, par value $0.01 per share. (11) |
| 3.5 | Articles Supplementary Classifying and Designating an additional 3,500,000 preferred shares as 8.125% Series G Cumulative Redeemable Preferred Shares, par value $.01 per share. (31) |
| 3.6 | Specimen Certificate for Common Shares of Beneficial Interest. (1) |
| 3.7 | Specimen Certificate evidencing the Series H Cumulative Redeemable Preferred Shares of Beneficial Interest. (10) |
| 3.8 | Specimen Certificate for evidencing 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest. (11) |
| 4.1 | Form of Senior Debt Indenture. (26) |
| 4.2 | Form of Subordinated Debt Indenture. (26) |
| 4.3 | Agreement of Purchase and Sale by and between Glimcher Properties Limited Partnership, as seller, and BRE/GRJV Holdings LLC, as buyer, dated as of November 5, 2009 (pertains to joint venture between The Blackstone Group and Glimcher Properties Limited Partnership). (35) |
| 4.4 | First Amendment to Agreement of Purchase and Sale by and between Glimcher Properties Limited Partnership, as seller, and BRE/GRJV Holdings LLC, as buyer, dated as of January 14, 2010 (pertains to joint venture between The Blackstone Group and Glimcher Properties Limited Partnership). (35) |
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| 4.5 | Articles of Amendment and Restatement of Declaration of Trust for the Glimcher Realty Trust Second Amended and Restated Declaration of Trust. (7) |
| 10.01 | Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of November 30, 1993. (24) |
| 10.02 | Amendment to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of November 30, 1993. (24) |
| 10.03 | Amendment No. 1 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of November 1, 1994. (24) |
| 10.04 | Amendment No. 2 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of November 26, 1996. (24) |
| 10.05 | Amendment No. 3 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of November 12, 1997. (24) |
| 10.06 | Amendment No. 4 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of December 4, 1997. (24) |
| 10.07 | Amendment No. 5 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of March 9, 1998. (24) |
| 10.08 | Amendment No. 6 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of April 24, 2000. (24) |
| 10.09 | Amendment No. 7 to Limited Partnership Agreement of Glimcher Properties Limited Partnership dated August 7, 2003. (24) |
| 10.10 | Amendment No. 8 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of January 22, 2004. (24) |
| 10.11 | Amendment No. 9 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated as of May 9, 2008. (24) |
| 10.12 | Amendment No. 10 to Limited Partnership Agreement of Glimcher Properties Limited Partnership, dated and effective as of April 28, 2010. (31) |
| 10.13 | Glimcher Realty Trust 1997 Incentive Plan. (3) |
| 10.14 | Glimcher Realty Trust Amended and Restated 2004 Incentive Compensation Plan. (12) |
| 10.15 | 2011 Glimcher Long-Term Incentive Compensation Plan. (35) |
| 10.16 | Form of Performance Share Award Agreement for the Glimcher Realty Trust Amended and Restated 2004 Incentive Compensation Plan and 2011 Glimcher Long-Term Incentive Compensation Plan (replaces Exhibit 10.130 of Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended March 31, 2011, filed with the Securities and Exchange Commission on April 29, 2011). (2) |
| 10.17 | Form of Amendment to Severance Benefits Agreement by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership, and certain named executives of Glimcher Realty Trust. (35) |
| 10.18 | Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Michael P. Glimcher. (3) |
| 10.19 | Severance Benefits Agreement, dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and George A. Schmidt. (3) |
| 10.20 | Severance Benefits Agreement, dated June 26, 2002, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Thomas J. Drought, Jr. (14) |
| 10.21 | Severance Benefits Agreement, dated June 28, 2004, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Lisa A. Indest. (16) |
| 10.22 | Severance Benefits Agreement, dated May 16, 2005, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Marshall A. Loeb. (18) |
| 10.23 | Severance Benefits Agreement, dated August 30, 2004, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Mark E. Yale. (8) |
| 10.24 | Severance Benefits Agreement, dated as of June 15, 2010, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership, and Armand Mastropietro. (34) |
| 10.25 | First Amendment to the Severance Benefits Agreement, dated September 8, 2006, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership, and Mark E. Yale. (6) |
| 10.26 | Offer Letter of Employment to Marshall A. Loeb, dated April 26, 2005. (17) |
| 10.27 | Comprehensive Amendment to Amended and Restated Credit Agreement, dated as of March 4, 2010, between Glimcher Properties Limited Partnership, KeyBank National Association, and certain other banks, financial institutions, and other entities. (32) |
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| 10.28 | Second Amendment to Amended and Restated Credit Agreement, dated as of April 27, 2010, by and among Glimcher Properties Limited Partnership, KeyBank National Association, and the several participating banks, financial institutions, and other entities. (33) |
| 10.29 | Amended and Restated Limited Liability Company Agreement of GRT Mall JV LLC, dated as March 26, 2010 (pertains to the joint venture between The Blackstone Group and Glimcher Properties Limited Partnership). (32) |
| 10.30 | Second Amended and Restated Credit Agreement, dated as of March 31, 2011, among Glimcher Properties Limited Partnership, KeyBank National Association, and certain other participating banks, financial institutions, and other entities. (35) |
| 10.31 | Amended and Restated Subsidiary Guaranty, dated as of March 31, 2011, by Morgantown Commons Limited Partnership and several of its affiliated entities for the benefit of KeyBank National Association, individually and as administrative agent for itself and the lenders under the Second Amended and Restated Credit Agreement, dated as of March 31, 2011. (35) |
| 10.32 | Third Amendment to Construction, Acquisition and Interim Loan Agreement and to Guaranties, dated as of April 1, 2011, by and among KeyBank National Association, Kierland Crossing, LLC and Glimcher Properties Limited Partnership, and certain other participating banks and financial institutions. (35) |
| 10.33 | Loan Agreement, dated as of June 21, 2011, between ATC Glimcher, LLC and Goldman Sachs Commercial Mortgage Capital, L.P. (36) |
| 10.34 | Promissory Note, dated June 21, 2011, for forty-two million seventy-five thousand dollars ($42,075,000) issued by ATC Glimcher, LLC to Goldman Sachs Commercial Mortgage Capital, L.P. (36) |
| 10.35 | Mortgage, Assignment of Rents and Leases, Collateral Assignment of Property Agreements, Security Agreement and Fixture Filing, effective as of June 21, 2011, issued by ATC Glimcher, LLC to Goldman Sachs Commercial Mortgage Capital, L.P. (36) |
| 10.36 | Guaranty, dated as of June 21, 2011, by Glimcher Properties Limited Partnership for the benefit of Goldman Sachs Commercial Mortgage Capital, L.P. (36) |
| 10.37 | Environmental Indemnity Agreement, dated June 21, 2011, issued by Glimcher Properties Limited Partnership and ATC Glimcher, LLC in favor of Goldman Sachs Commercial Mortgage Capital, L.P. (36) |
| 10.38 | Purchase Agreement, dated as of August 22, 2011, by and between Town Center Plaza, L.L.C. and Leawood TCP, LLC. (5) |
| 10.39 | Third Amended and Restated Credit Agreement, dated as of October 12, 2011, by and between Glimcher Properties Limited Partnership, Glimcher Realty Trust, and KeyBank National Association, Bank of America, N.A., Wells Fargo Bank, N.A., U.S. Bank National Association, Huntington National Bank, Goldman Sachs Bank USA, and PNC Bank, National Association. (2) |
| 10.40 | Promissory Note, dated December 6, 2011, issued by Glimcher Properties Limited Partnership and Leawood TCP, LLC in the amount of $70 million (relates to Leawood bridge financing). (2) |
| 10.41 | Amended and Restated Subsidiary Guaranty, dated as of October 12, 2011, by Morgantown Commons Limited Partnership, Morgantown Mall Associates Limited Partnership, Glimcher Northtown Venture, LLC, GB Northtown, LLC, Polaris Lifestyle Center, LLC, EM Columbus, III, Fairfield Village, LLC, Glimcher JB Urban Renewal, Inc., Jersey Gardens Center, LLC, Polaris Mall, LLC, RV Boulevard Holdings, LLC, and Weberstown Mall, LLC for the benefit of KeyBank National Association, individually and as administrative agent for itself and the lenders under the Third Amended and Restated Credit Agreement, dated as of October 12, 2011. (2) |
| 10.42 | Amended and Restated Parent Guaranty, dated as of October 12, 2011, by Glimcher Realty Trust and Glimcher Properties Corporation for the benefit of KeyBank National Association, individually and as administrative agent for itself and the lenders under the Third Amended and Restated Credit Agreement, dated as of October 12, 2011. (2) |
| 10.43 | Promissory Note, dated January 17, 2012, issued by Leawood TCP, LLC in the amount of seventy-seven million dollars ($77,000,000) (issued in connection with $77 million mortgage loan to Leawood TCP, LLC from ING Life Insurance and Annuity Company for Town Center Plaza). (2) |
| 10.44 | Mortgage, Security Agreement, Financing Statement and Fixture Filing, dated January 17, 2012, issued by Leawood TCP, LLC to ING Life Insurance and Annuity (relates to $77 million mortgage loan to Leawood TCP, LLC from ING Life Insurance and Annuity Company for Town Center Plaza). (2) |
| 10.45 | Assignment of Leases and Rents, dated January 17, 2012, issued by Leawood TCP, LLC to ING Life Insurance and Annuity Company (relates to $77 million mortgage loan to Leawood TCP, LLC from ING Life Insurance and Annuity Company for Town Center Plaza). (2) |
| 10.46 | Limited Guaranty, dated January 17, 2012, by Glimcher Properties Limited Partnership in favor of ING Life Insurance and Annuity Company (relates to $77 million mortgage loan to Leawood TCP, LLC from ING Life Insurance and Annuity Company for Town Center Plaza). (2) |
| 10.47 | Environmental Indemnification Agreement, dated January 17, 2012, by Glimcher Properties Limited Partnership for benefit of ING Life Insurance and Annuity Company (relates to $77 million mortgage loan to Leawood TCP, LLC from ING Life Insurance and Annuity Company for Town Center Plaza). (2) |
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| 10.48 | Loan Agreement, as amended, dated as of April 8, 2010, between Glimcher MJC, LLC and Goldman Sachs Commercial Mortgage Capital, L.P. (33) |
| 10.49 | Promissory Note, dated April 8, 2010, issued by Glimcher MJC, LLC in the amount of fifty-five million dollars ($55,000,000). (33) |
| 10.50 | Deed of Trust, Assignment of Rents and Leases, Collateral Assignment of Property Agreements, Security Agreement and Fixture Filing, as amended, effective as of April 8, 2010, by Glimcher MJC, LLC. (33) |
| 10.51 | Guaranty (unfunded obligations), executed as of April 8, 2010, by Glimcher Properties Limited Partnership (relates to the mortgage loan to Glimcher MJC, LLC). (33) |
| 10.52 | Guaranty, executed as of April 8, 2010, by Glimcher Properties Limited Partnership (relates to the mortgage loan to Glimcher MJC, LLC). (33) |
| 10.53 | Environmental Indemnity Agreement, dated April 8, 2010, by Glimcher Properties Limited Partnership and Glimcher MJC, LLC in favor of Goldman Sachs Commercial Mortgage Capital, L.P. (33) |
| 10.54 | Loan Agreement, dated as of June 30, 2010, between Grand Central Parkersburg, LLC and Goldman Sachs Commercial Mortgage Capital, L.P. (33) |
| 10.55 | Promissory Note, dated June 30, 2010, issued by Grand Central Parkersburg, LLC in the amount of forty-five million dollars ($45,000,000). (33) |
| 10.56 | Environmental Indemnity Agreement, dated June 30, 2010, by Glimcher Properties Limited Partnership and Grand Central Parkersburg, LLC in favor of Goldman Sachs Commercial Mortgage Capital, L.P. (34) |
| 10.57 | Loan Agreement, dated as of September 9, 2010, between SDQ Fee, LLC and German American Capital Corporation. (33) |
| 10.58 | Guaranty of Recourse Obligations, dated as of September 9, 2010, by Glimcher Properties Limited Partnership for the benefit of German American Capital Corporation. (34) |
| 10.59 | Deed of Trust, Assignment of Leases and Rents and Security Agreement and Fixture Filing, dated September 9, 2010, by SDQ Fee, LLC. (34) |
| 10.60 | Promissory Note, dated September 9, 2010, issued by SDQ Fee, LLC in the amount of Seventy Million Dollars ($70,000,000). (34) |
| 10.61 | Real Property Purchase and Sale Agreement and Escrow Instructions, dated as of August 25, 2010, by and between Sucia Scottsdale, LLC, as seller, Kierland Crossing, LLC, as buyer, and Fidelity National Title Insurance Corporation, as escrow agent. (33) |
| 10.62 | Guaranty, executed as of June 30, 2010, by Glimcher Properties Limited Partnership (relates to the mortgage loan to Grand Central Parkersburg, LLC). (33) |
| 10.63 | Deed of Trust, Assignment of Rents and Leases, Collateral Assignment of Property Agreements, Security Agreement and Fixture Filing, executed as of June 30, 2010, by Grand Central Parkersburg, LLC. (33) |
| 10.64 | Loan Agreement, dated as of April 23, 2008, among Catalina Partners, L.P. and U.S. Bank National Association, as administrative agent and lender. (24) |
| 10.65 | Open-End Fee Mortgage, Leasehold Mortgage Assignment of Rents and Security Agreement and Fixture Filing, dated as of April 22, 2008, made by Catalina Partners L.P. for the benefit of U.S. Bank National Association (issued in connection with $42.25 million dollar loan to Catalina Partners, L.P. from U.S. Bank National Association). (24) |
| 10.66 | Unconditional Guaranty of Payment and Performance, dated as of April 22, 2008, by Catalina Partners L.P. for the benefit of U.S. Bank National Association (issued in connection with $42.25 million dollar loan to Catalina Partners, L.P. from U.S. Bank National Association). (24) |
| 10.67 | Note, dated April 23, 2008, issued by Catalina Partners, L.P. in the amount of five million dollars ($5,000,000) (issued in connection with $42.25 million dollar loan to Catalina Partners, L.P. from U.S. Bank National Association). (24) |
| 10.68 | Note, dated April 23, 2008, issued by Catalina Partners, L.P. in the amount of ten million dollars ($10,000,000) (issued in connection with $42.25 million dollar loan to Catalina Partners, L.P. from U.S. Bank National Association). (24) |
| 10.69 | Note, dated April 23, 2008, issued by Catalina Partners, L.P. in the amount of twenty-seven million two hundred and fifty thousand dollars ($27,250,000) (issued in connection with $42.25 million dollar loan to Catalina Partners, L.P. from U.S. Bank National Association). (24) |
| 10.70 | First Modification of Notes, Open-End Fee Mortgage, Leasehold Mortgage, Assignment of Rents and Security Agreement and Fixture Filing and Loan Agreement, dated as of April 30, 2010, by and between U.S. Bank National Association, Catalina Partners, L.P., and Glimcher Properties Limited Partnership. (34) |
| 10.71 | Loan Agreement, dated as of August 22, 2012, by and between Dayton Mall II, LLC and Wells Fargo Bank, National Association. (37) |
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| 10.72 | Promissory Note, dated August 22, 2012, issued by Dayton Mall II, LLC to Wells Fargo Bank, National Association in the principal amount of $82,000,000. (37) |
| 10.73 | Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of August 22, 2012, by Dayton Mall II, LLC for the benefit of Wells Fargo Bank, National Association. (37) |
| 10.74 | Guaranty of Recourse Obligations, dated as of August 22, 2012, by Dayton Mall II, LLC in favor of Wells Fargo Bank, National Association. (37) |
| 10.75 | Purchase and Sale Agreement, dated as of March 20, 2012, by and between BRE/Pearlridge Member LLC and GRT Pearlridge, LLC. (39) |
| 10.76 | Consent Agreement, dated as of October 9, 2007, by and among LaSalle Bank National Associations, as trustee for Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-IQ11, Thor MS, LLC, Thor Merritt Square, LLC, Glimcher MS, LLC, Glimcher Merritt Square, LLC, Thor Urban Operating Fund, L.P., and Glimcher Properties Limited Partnership. (28) |
| 10.77 | Substitution of Guarantor, dated as of October 9, 2007, by Glimcher Properties Limited Partnership, Thor Urban Operating Fund, L.P., and LaSalle National Bank Associations, as trustee for Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-IQ11. (28) |
| 10.78 | Second Modification of Loan Documents, dated as of July 13, 2009, by and among Tulsa Promenade, LLC, Charter One Bank, N.A. (a/k/a RBS Citizens, National Association d/b/a Charter One) and JP Morgan Chase Bank, N.A. (27) |
| 10.79 | Loan Agreement, dated June 21, 2012, by and between Puente Hills Mall, LLC and Midland National Life Insurance Company. (38) |
| 10.80 | Deed of Trust, Security Agreement and Fixture Filing, dated as of June 21, 2012, by Puente Hills Mall, LLC for the benefit of Midland National Life Insurance Company. (38) |
| 10.81 | Assignment of Leases and Rents, dated as of June 21, 2012, by Puente Hills Mall, LLC to Midland National Life Insurance Company. (38) |
| 10.82 | Environmental Indemnity Agreement, dated as of June 21, 2012, by Puente Hills Mall, LLC and Glimcher Properties Limited Partnership in favor of Midland National Life Insurance Company. (38) |
| 10.83 | Guaranty Agreement, dated as of June 21, 2012, by Glimcher Properties Limited Partnership in favor of Midland National Life Insurance Company. (38) |
| 10.84 | Promissory Note, dated as of June 21, 2012, issued by Puente Hills Mall, LLC to Midland National Life Insurance Company in the principal amount of $60,000,000. (38) |
| 10.85 | Term Loan Agreement, dated July 11, 2012, among Dayton Mall Venture, LLC, Glimcher Properties Limited Partnership, KeyBank National Association and the several lenders party to the agreement from time to time. (38) |
| 10.86 | Note, dated July 11, 2012, issued from Dayton Mall Venture, LLC and Glimcher Properties Limited Partnership to KeyBank National Association in the principal amount of $50,000,000. (38) |
| 10.87 | Collateral Assignment of Interests, dated July 11, 2012, by Glimcher Properties Limited Partnership and Glimcher Dayton Mall, Inc. to KeyBank National Association. (38) |
| 10.88 | Parent Guaranty, dated July 11, 2012, by Glimcher Realty Trust in favor of KeyBank National Association. (38) |
| 10.89 | Loan Agreement, dated as of May 25, 2006, by and between WTM Glimcher, LLC and Morgan Stanley Credit Corporation (relates to Weberstown Mall). (13) |
| 10.90 | Promissory Note A1, dated May 25, 2006, issued by WTM Glimcher, LLC in the principal amount of thirty million dollars ($30,000,000) (relates to Weberstown Mall). (13) |
| 10.91 | Promissory Note A2, dated May 25, 2006, issued by WTM Glimcher, LLC in the principal amount of thirty million dollars ($30,000,000) (relates to Weberstown Mall). (13) |
| 10.92 | Deed of Trust and Security Agreement, dated May 25, 2006, by and among WTM Glimcher, LLC, Chicago Title Insurance Company, and Morgan Stanley Credit Corporation (relates to Weberstown Mall). (13) |
| 10.93 | Assignment of Leases and Rents, dated as of May 25, 2006, by and between WTM Glimcher, LLC and Morgan Stanley Credit Corporation (relates to Weberstown Mall). (13) |
| 10.94 | Guaranty of Recourse Obligations, dated as of May 25, 2006, by Glimcher Properties Limited Partnership in favor of Morgan Stanley Credit Corporation (relates to Weberstown Mall). (13) |
| 10.95 | Amended and Restated Promissory Note 1, dated as of June 30, 2003, issued by LC Portland, LLC in the amount of seventy million dollars ($70,000,000.00). (15) |
| 10.96 | Amended and Restated Promissory Note 2, dated June 30, 2003, issued by LC Portland, LLC in the amount of seventy million dollars ($70,000,000.00). (15) |
| 10.97 | Operating Agreement for OG Retail Holding Co., LLC, dated as of December 29, 2005 (pertains to joint venture between Glimcher Properties Limited Partnership and Oxford Properties Group). (19) |
| 10.98 | First Amendment to Limited Liability Agreement of OG Retail Holding Co., LLC, dated August 22, 2008. (25) |
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| 10.99 | Term Loan Agreement, dated as of January 7, 2013, among UPV Glimcher L.P., Glimcher Properties Limited Partnership, KeyBank National Association and several other participating lenders that are parties to the agreement from time to time. |
| 10.100 | Collateral Assignment of Interest, dated January 7, 2013, by Glimcher Properties Limited Partnership and UPV Glimcher L.P. to KeyBank National Association, as agent for itself and other participating lenders that are parties to the Term Loan Agreement from time to time. |
| 10.101 | Note, dated January 7, 2013, issued from UPV Glimcher L.P. and Glimcher Properties Limited Partnership to KeyBank National Association in the principal amount of $60,000,000. |
| 10.102 | Parent Guaranty, dated January 7, 2013, by Glimcher Realty Trust to and for the benefit of KeyBank National Association, as agent for itself and other participating lenders that are parties to the Term Loan Agreement from time to time. |
| 10.103 | Promissory Note A1, dated October 17, 2003, issued by MFC Beavercreek, LLC in the amount of eighty-five million dollars ($85,000,000). (9) |
| 10.104 | Promissory Note A2, dated October 17, 2003, issued by MFC Beavercreek, LLC in the amount of twenty-eight million five hundred thousand dollars ($28,500,000). (9) |
| 10.105 | Open End Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing, dated October 17, 2003, between MFC Beavercreek, LLC and KeyBank National Association, relating to the Mall at Fairfield Commons in Beavercreek, Ohio. (9) |
| 10.106 | Key Principal's Guaranty Agreement, dated October 17, 2003, between Glimcher Properties Limited Partnership and KeyBank National Association, relating to the loan on the Mall at Fairfield Commons in Beavercreek, Ohio. (9) |
| 10.107 | Open End Mortgage, Assignment of Rents and Security Agreement, dated November 20, 2006, by EM Columbus II, LLC to Lehman Brothers Bank, FSB (relating to Eastland Ohio). (22) |
| 10.108 | Assignment of Leases and Rents, dated as of November 20, 2006, by EM Columbus II, LLC to Lehman Brothers Bank, FSB (relating to Eastland Ohio). (22) |
| 10.109 | Loan Agreement, dated November 20, 2006, by and between EM Columbus II, LLC, and Lehman Brothers Bank, FSB (relating to Eastland Ohio). (22) |
| 10.110 | Guaranty, dated November 20, 2006, by and between Glimcher Properties Limited Partnership to and for the benefit of Lehman Brothers Bank, FSB (relating to Eastland Ohio). (22) |
| 10.111 | Promissory Note, dated November 20, 2006, by EM Columbus II, LLC in favor of Lehman Brothers Bank, FSB in the principal amount of $43,000,000 (relating to Eastland Ohio). (22) |
| 10.112 | Agreement of Purchase and Sale by and between UPB Corporation and Glimcher Properties Limited Partnership, dated December 6, 2012 (Purchase of University Park Village). |
| 10.113 | Amended and Restated Promissory Note A, dated May 22, 2003, issued by PFP Columbus, LLC, for $135,000,000. (9) |
| 10.114 | Amended and Restated Promissory Note B, dated May 22, 2003, issued by PFP Columbus, LLC, for $24,837,623. (9) |
| 10.115 | Mortgage, Assignment of Leases and Rents and Security Agreement, dated April 1, 2003, from PFP Columbus, LLC to UBS Warburg Real Estate Investments Inc., relating to Polaris Fashion Place. (9) |
| 10.116 | Loan Agreement, dated as of April 1, 2003, between PFP Columbus, LLC, as borrower, and UBS Warburg Real Estate Investments Inc., as lender. (9) |
| 10.117 | Loan Agreement, dated as of June 9, 2004, between N.J. METROMALL Urban Renewal, Inc., JG Elizabeth, LLC and Morgan Stanley Mortgage Capital Inc. relating to Jersey Gardens Mall in Elizabeth, New Jersey. (16) |
| 10.118 | Promissory Note A1, dated June 9, 2004, issued by N.J. METROMALL Urban Renewal, Inc. and JG Elizabeth, LLC in the amount of $85,000,000. (16) |
| 10.119 | Promissory Note A2, dated June 9, 2004, between N.J. METROMALL Urban Renewal, Inc. and JG Elizabeth, LLC in the amount of $80,000,000. (16) |
| 10.120 | Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement, dated June 9, 2004 among N.J. METROMALL Urban Renewal Inc, JG Elizabeth, LLC and Morgan Stanley Mortgage Capital, Inc., relating to Jersey Gardens Mall in Elizabeth, New Jersey. (16) |
| 10.121 | Guaranty, dated June 9, 2004, by Glimcher Properties Limited Partnership to Morgan Stanley Mortgage Capital Inc., relating to Jersey Gardens Mall in Elizabeth, New Jersey. (16) |
| 10.122 | Loan Agreement, dated as of October 8, 2008, between Morgantown Mall Associates Limited Partnership and First Commonwealth Bank. (29) |
| 10.123 | Term Note, dated as of October 8, 2008, issued by Morgantown Mall Associates Limited Partnership to First Commonwealth Bank in the principal amount of $40,000,000 relating to Morgantown Mall located in Morgantown, WV. (29) |
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| 10.124 | Deed of Trust and Security Agreement, effective as of October 14, 2008, by Morgantown Mall Associates Limited Partnership for the benefit of First Commonwealth Bank. (29) |
| 10.125 | Limited Guaranty and Suretyship Agreement, dated as of October 8, 2008, by Glimcher Properties Limited Partnership to and for the benefit of First Commonwealth Bank. (29) |
| 10.126 | Promissory Note, dated as of October 22, 2008, issued by Glimcher Northtown Venture, LLC and GB Northtown, to the order of KeyBank National Association (relates to Term Loan Agreement, dated as of October 22, 2008, between Glimcher Northtown Venture, LLC, GB Northtown, KeyBank National Association, and the other lenders named therein). (29) |
| 10.127 | Term Loan Agreement, dated as of October 22, 2008, between Glimcher Northtown Venture, LLC, GB Northtown, KeyBank National Association, and the other lenders named therein. (29) |
| 10.128 | Mortgage, Assignment of Rents, Security Agreement, and Fixture Filing, dated as of October 22, 2008, between Glimcher Northtown Venture, LLC, GB Northtown, KeyBank National Association, and the other lenders named in the Term Loan Agreement relating to Northtown Mall in Blaine, MN. (29) |
| 10.129 | Limited Payment Guaranty, dated as of October 22, 2008, by Glimcher Properties Limited Partnership to and for the benefit of KeyBank National Association, and the other lenders named in the Term Loan Agreement relating to Northtown Mall in Blaine, MN. (29) |
| 10.130 | Promissory Note, dated as of October 22, 2008, issued by Glimcher Northtown Venture, LLC and GB Northtown, to the order of Huntington National Bank (relates to Term Loan Agreement, dated as of October 22, 2008, between Glimcher Northtown Venture, LLC, GB Northtown, KeyBank National Association, and the other lenders named therein). (29) |
| 10.131 | Promissory Note, dated as of October 22, 2008, issued by Glimcher Northtown Venture, LLC and GB Northtown, to the order of U.S. Bank National Association (relates to Term Loan Agreement, dated as of October 22, 2008, between Glimcher Northtown Venture, LLC, GB Northtown, KeyBank National Association, and the other lenders named therein). (29) |
| 10.132 | Loan Agreement, dated as of December 15, 2005, between RVM Glimcher, LLC and Lehman Brothers Bank, FSB, relating to River Valley Mall in Lancaster, Ohio. (19) |
| 10.133 | Open-End Mortgage and Security Agreement, dated as of December 15, 2005, between RVM Glimcher, LLC and Lehman Brothers Bank, FSB, relating to River Valley Mall in Lancaster, Ohio. (19) |
| 10.134 | Assignment of Leases and Rents, dated as of December 15, 2005, between RVM Glimcher, LLC and Lehman Brothers Bank, FSB, relating to River Valley Mall in Lancaster, Ohio. (19) |
| 10.135 | Guaranty of Recourse Obligations, dated December 15, 2005, by Glimcher Properties Limited Partnership to and for the benefit of Lehman Brothers Bank, FSB, relating to River Valley Mall in Lancaster, Ohio. (19) |
| 10.136 | Form Restricted Stock Award Agreement for Glimcher Realty Trust's 2004 Incentive Compensation Plan (Extended Vesting). (20) |
| 10.137 | Term Loan Agreement, dated as of December 6, 2011, by and between Leawood TCP, LLC, Glimcher Properties Limited Partnership, KeyBank National Association and other vested lenders. (2) |
| 10.138 | Form Option Award Agreement for the Glimcher Realty Trust Amended and Restated 2004 Incentive Compensation Plan (Incentive Stock Options). (23) |
| 10.139 | Form Option Award Agreement for the Glimcher Realty Trust Amended and Restated 2004 Incentive compensation Plan (Non-Qualified Stock Options). (23) |
| 10.140 | Form Restricted Stock Award Agreement for the Glimcher Realty Trust Amended and Restated 2004 Incentive Compensation Plan (Extended Vesting/Anti-Dilution/Grant Date Valuation). (21) |
| 10.141 | Form Restricted Stock Award Agreement for Glimcher Realty Trust's 2004 Incentive Compensation Plan (Trustee Awards). (24) |
| 10.142 | Amended and Restated Loan Agreement, dated as of May 23, 2012, among Kierland Crossing, LLC, Glimcher Properties Limited Partnership, KeyBank National Association, KeyBanc Capital Markets, PNC Bank National Association, and the several lenders party to the agreement from time to time. (38) |
| 10.143 | First Amendment to Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of May 23, 2012, by Kierland Crossing, LLC for the benefit of KeyBank National Association, as administrative agent. (38) |
| 10.144 | Tranche A Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to KeyBank National Association in the principal amount of $26,750,000. (38) |
| 10.145 | Tranche A Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to U.S. Bank National Association in the principal amount of $26,750,000. (38) |
| 10.146 | Tranche A Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to U.S. Bank National Association in the principal amount of $26,750,000. (38) |
| 10.147 | Tranche A Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to PNC Bank, National Association in the principal amount of $26,750,000. (38) |
67
| 10.148 | Tranche B Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to KeyBank National Association in the principal amount of $5,750,000. (38) |
| 10.149 | Tranche B Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to The Huntington National Bank in the principal amount of $5,750,000. (38) |
| 10.150 | Tranche B Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to U.S. Bank National Association in the principal amount of $5,750,000. (38) |
| 10.151 | Tranche B Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to U.S. Bank National Association in the principal amount of $5,750,000. (38) |
| 10.152 | Tranche B Note, dated May 23, 2012, issued by Glimcher Properties Limited Partnership and Kierland Crossing, LLC to PNC Bank, National Association in the principal amount of $5,750,000. (38) |
| 10.153 | Loan Agreement, dated October 25, 2012, by and between 119 Leawood, LLC and ING Life Insurance and Annuity Company. |
| 10.154 | Promissory Note, dated October 25, 2012, issued by 119 Leawood, LLC to ING Life Insurance and Annuity Company in the principal amount of $38,000,000. |
| 10.155 | Mortgage, Security Agreement, Financing Statement and Fixture Filing, dated October 25, 2012, by 119 Leawood, LLC for benefit of ING Life Insurance and Annuity Company. |
| 10.156 | Mortgage, Security Agreement, Financing Statement and Fixture Filing, dated October 25, 2012, by 119 Leawood, LLC for benefit of ING Life Insurance and Annuity Company (2nd Mortgage). |
| 10.157 | Assignment of Rents and Leases, dated October 25, 2012, by 119 Leawood, LLC for benefit of ING Life Insurance and Annuity Company. |
| 10.158 | Assignment of Rents and Leases, dated October 25, 2012, by 119 Leawood, LLC for benefit of ING Life Insurance and Annuity Company (2nd Mortgage). |
| 10.159 | Limited Guaranty, dated October 25, 2012, by Leawood TCP, LLC for the benefit of ING Life Insurance and Annuity Company. |
| 10.160 | Limited Guaranty, dated October 25, 2012, by 119 Leawood, LLC for the benefit of ING Life Insurance and Annuity Company. |
| 10.161 | Form Restricted Stock Award Agreement for Glimcher Realty Trust's 2012 Incentive Compensation Plan (Executive Awards - Five Year Cliff Vesting). (37) |
| 10.162 | Form Restricted Stock Award Agreement for Glimcher Realty Trust's 2012 Incentive Compensation Plan (Trustee Awards). (38) |
| 10.163 | Form Restricted Stock Award Agreement for Glimcher Realty Trust's 2012 Incentive Compensation Plan (Trustee Awards). (38) |
| 10.164 | Form Performance Share Award Agreement for Glimcher Realty Trust's 2012 Incentive Compensation Plan. (38) |
| 10.165 | Form Stock Option Award Agreement for Glimcher Realty Trust's 2012 Incentive Compensation Plan (Incentive Stock Options). (38) |
| 10.166 | Form Stock Option Award Agreement for Glimcher Realty Trust's 2012 Incentive Compensation Plan (Non-Qualified Stock Options). (38) |
| 10.167 | Glimcher Realty Trust 2012 Incentive Compensation Plan. (30). |
| 21.1 | Subsidiaries of the Registrant. |
| 23.1 | Consent of Independent Registered Public Accounting Firm. |
| 23.2 | Consent of Independent Registered Public Accounting Firm. |
| 31.1 | Certification of the Company's CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of the Company's CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of the Company's CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification of the Company's CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 99.1 | GRT Mall JV, LLC Financial Statements |
| 101.INS | XBRL Instance Document* |
| 101.SCH | XBRL Taxonomy Extension Schema Document* |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document* |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
68
| * | Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
| (1) | Incorporated by reference to Glimcher Realty Trust's Registration Statement on Form S-11, SEC File No. 33-69740. |
| (2) | Incorporated by reference to Glimcher Realty Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission on February 24, 2012. |
| (3) | Incorporated by reference to Glimcher Realty Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, filed with the Securities and Exchange Commission on March 31, 1998. |
| (4) | Incorporated by reference to Glimcher Realty Trust's Form 8-K, filed with the Securities and Exchange Commission on December 13, 2007. |
| (5) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended September 30, 2011, filed with the Securities and Exchange Commission on November 1, 2011. |
| (6) | Incorporated by reference to Glimcher Realty Trust's Form 8-K, filed with the Securities and Exchange Commission on September 8, 2006. |
| (7) | Incorporated by reference to Glimcher Realty Trust's Form 8-K, filed with the Securities and Exchange Commission on May 16, 2012. |
| (8) | Incorporated by reference to Glimcher Realty Trust's Form 8-K, filed with the Securities and Exchange Commission on August 31, 2004. |
| (9) | Incorporated by reference to Glimcher Realty Trust's Form 8-K, filed with the Securities and Exchange Commission on January 20, 2004. |
| (10) | Incorporated by reference to Glimcher Realty Trust's Form 8-K, filed with the Securities and Exchange Commission on August 10, 2012. |
| (11) | Incorporated by reference to Glimcher Realty Trust's Registration Statement on Form 8-A12B, SEC File No. 001-12482, filed with the Securities and Exchange Commission on February 20, 2004. |
| (12) | Incorporated by reference to Appendix A of Glimcher Realty Trust's Schedule 14A Proxy Statement, filed with the Securities and Exchange Commission on March 30, 2007. |
| (13) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended June 30, 2006, filed with the Securities and Exchange Commission on July 28, 2006. |
| (14) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed with the Securities and Exchange Commission on August 13, 2002. |
| (15) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended June 30, 2003, filed with the Securities and Exchange Commission on August 12, 2003. |
| (16) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed with the Securities and Exchange Commission on August 13, 2004. |
| (17) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended March 31, 2005, filed with the Securities and Exchange Commission on April 29, 2005. |
| (18) | Incorporated by reference to Glimcher Realty Trust's Form 8-K, filed with the Securities and Exchange Commission on May 17, 2005. |
| (19) | Incorporated by reference to Glimcher Realty Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, filed with the Securities and Exchange Commission on February 24, 2006. |
| (20) | Incorporated by reference to Glimcher Realty Trust's Form 8-K, filed with the Securities and Exchange Commission on May 9, 2006. |
| (21) | Incorporated by reference to Glimcher Realty Trust's Registration Statement on Form S-8, SEC File No. 333-143237, filed with the Securities and Exchange Commission on May 24, 2007. |
| (22) | Incorporated by reference to Glimcher Realty Trust's Form 10-K, for the period ended December 31, 2006, filed with the Securities and Exchange Commission on February 23, 2007. |
| (23) | Incorporated by reference to Glimcher Realty Trust's Form 10-K, for the period ended December 31, 2007, filed with the Securities and Exchange Commission on February 22, 2008. |
| (24) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended June 30, 2008, filed with the Securities and Exchange Commission on July 25, 2008. |
| (25) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended September 30, 2008, filed with the Securities and Exchange Commission on October 24, 2008. |
| (26) | Incorporated by reference to Glimcher Realty Trust's Registration Statement on Form S-3ASR, SEC File No. 333-172462, filed with the Securities and Exchange Commission on February 25, 2011. |
69
| (27) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended September 30, 2009, filed with the Securities and Exchange Commission on October 30, 2009. |
| (28) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended September 30, 2007, filed with the Securities and Exchange Commission on October 26, 2007. |
| (29) | Incorporated by reference to Glimcher Realty Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange Commission on February 24, 2009. |
| (30) | Incorporated by reference to Glimcher Realty Trust's Form S-8, filed with the Securities and Exchange Commission on May 10, 2012. |
| (31) | Incorporated by reference to Glimcher Realty Trust's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2010. |
| (32) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended March 31, 2010, filed with the Securities and Exchange Commission on May 6, 2010. |
| (33) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed with the Securities and Exchange Commission on July 23, 2010. |
| (34) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended September 30, 2010, filed with the Securities and Exchange Commission on October 29, 2010. |
| (35) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended March 31, 2011, filed with the Securities and Exchange Commission on April 29, 2011. |
| (36) | Incorporated by reference to Glimcher Realty Trust's Quarterly Report on Form 10-Q for the period ended June 30, 2011, filed with the Securities and Exchange Commission on July 28, 2011. |
| (37) | Incorporated by reference to Glimcher Realty Trust's Form 10-Q, filed with the Securities and Exchange Commission on October 26, 2012. |
| (38) | Incorporated by reference to Glimcher Realty Trust's Form 10-Q, filed with the Securities and Exchange Commission on July 27, 2012. |
| (39) | Incorporated by reference to Glimcher Realty Trust's Form 10-Q, filed with the Securities and Exchange Commission on April 26, 2012. |
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GLIMCHER REALTY TRUST /s/ Mark E. Yale Mark E. Yale Executive Vice President, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer) | |
| February 22, 2013 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | |
| /s/ Michael P. Glimcher | Chairman of the Board and | February 22, 2013 | |
| Michael P. Glimcher | Chief Executive Officer | ||
| (Principal Executive Officer) | |||
| /s/ Mark E. Yale | Executive Vice President, | February 22, 2013 | |
| Mark E. Yale | Chief Financial Officer and Treasurer | ||
| (Principal Accounting and Financial Officer) | |||
| /s/ Herbert Glimcher | Chairman Emeritus | February 22, 2013 | |
| Herbert Glimcher | of the Board of Trustees | ||
| /s/ David M. Aronowitz | Member, Board of Trustees | February 22, 2013 | |
| David M. Aronowitz | |||
| /s/ Richard F. Celeste | Member, Board of Trustees | February 22, 2013 | |
| Richard F. Celeste | |||
| /s/ Wayne S. Doran | Member, Board of Trustees | February 22, 2013 | |
| Wayne S. Doran | |||
| /s/ Howard Gross | Member, Board of Trustees | February 22, 2013 | |
| Howard Gross | |||
| /s/ Timothy J. O’Brien | Member, Board of Trustees | February 22, 2013 | |
| Timothy J. O’Brien | |||
| /s/ Niles C. Overly | Member, Board of Trustees | February 22, 2013 | |
| Niles C. Overly | |||
| /s/ Alan R. Weiler | Member, Board of Trustees | February 22, 2013 | |
| Alan R. Weiler | |||
| /s/ William S. Williams | Member, Board of Trustees | February 22, 2013 | |
| William S. Williams | |||
71
Report of Independent Registered Public Accounting Firm
Board of Trustees and Shareholders
Glimcher Realty Trust
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of Glimcher Realty Trust as of December 31, 2012 and 2011 and the related consolidated statements of operations and comprehensive (loss) income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we have also audited the schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Glimcher Realty Trust at December 31, 2012 and 2011, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Glimcher Realty Trust's internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control−Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 22, 2013 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Chicago, Illinois
February 22, 2013
72
GLIMCHER REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and par value amounts)
| December 31, | |||||||
| 2012 | 2011 | ||||||
| ASSETS | |||||||
| Investment in real estate: | |||||||
| Land | $ | 338,543 | $ | 312,496 | |||
| Buildings, improvements and equipment | 2,361,077 | 1,876,048 | |||||
| Developments in progress | 75,748 | 46,530 | |||||
| 2,775,368 | 2,235,074 | ||||||
| Less accumulated depreciation | 710,042 | 634,279 | |||||
| Property and equipment, net | 2,065,326 | 1,600,795 | |||||
| Deferred costs, net | 30,944 | 24,505 | |||||
| Real estate asset held-for-sale | 4,056 | 4,056 | |||||
| Investment in and advances to unconsolidated real estate entities | 86,702 | 124,793 | |||||
| Investment in real estate, net | 2,187,028 | 1,754,149 | |||||
| Cash and cash equivalents | 17,489 | 8,876 | |||||
| Restricted cash | 22,043 | 18,820 | |||||
| Tenant accounts receivable, net | 31,793 | 26,873 | |||||
| Deferred expenses, net | 17,642 | 15,780 | |||||
| Prepaid and other assets | 53,412 | 40,928 | |||||
| Total assets | $ | 2,329,407 | $ | 1,865,426 | |||
| LIABILITIES AND EQUITY | |||||||
| Mortgage notes payable | $ | 1,399,774 | $ | 1,175,053 | |||
| Notes payable | 85,000 | 78,000 | |||||
| Other liabilities associated with asset held-for-sale | 132 | 127 | |||||
| Accounts payable and accrued expenses | 112,630 | 50,304 | |||||
| Distributions payable | 20,314 | 18,013 | |||||
| Total liabilities | 1,617,850 | 1,321,497 | |||||
| Glimcher Realty Trust shareholders’ equity: | |||||||
| Series F Cumulative Preferred Shares of Beneficial Interest, $0.01 par value, 0 and 2,400,000 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively | — | 60,000 | |||||
| Series G Cumulative Preferred Shares of Beneficial Interest, $0.01 par value, 8,300,000 and 9,500,000 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively | 192,412 | 222,074 | |||||
| Series H Cumulative Preferred Shares of Beneficial Interest, $0.01 par value, 4,000,000 and 0 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively | 96,466 | — | |||||
| Common Shares of Beneficial Interest, $0.01 par value, 143,089,670 and 115,975,420 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively | 1,431 | 1,160 | |||||
| Additional paid-in capital | 1,264,104 | 1,016,188 | |||||
| Distributions in excess of accumulated earnings | (853,530 | ) | (766,571 | ) | |||
| Accumulated other comprehensive loss | (1,284 | ) | (483 | ) | |||
| Total Glimcher Realty Trust shareholders’ equity | 699,599 | 532,368 | |||||
| Noncontrolling interest | 11,958 | 11,561 | |||||
| Total equity | 711,557 | 543,929 | |||||
| Total liabilities and equity | $ | 2,329,407 | $ | 1,865,426 | |||
The accompanying notes are an integral part of these consolidated financial statements.
73
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(dollars in thousands, except per share amounts)
| For the Years Ended December 31, | |||||||||||
| 2012 | 2011 | 2010 | |||||||||
| Revenues: | |||||||||||
| Minimum rents | $ | 196,147 | $ | 159,958 | $ | 159,837 | |||||
| Percentage rents | 9,815 | 6,320 | 4,627 | ||||||||
| Tenant reimbursements | 96,361 | 77,145 | 79,812 | ||||||||
| Other | 23,712 | 24,024 | 22,740 | ||||||||
| Total revenues | 326,035 | 267,447 | 267,016 | ||||||||
| Expenses: | |||||||||||
| Property operating expenses | 70,935 | 57,181 | 56,848 | ||||||||
| Real estate taxes | 39,221 | 32,801 | 32,690 | ||||||||
| Provision for doubtful accounts | 6,065 | 3,448 | 3,693 | ||||||||
| Other operating expenses | 18,661 | 10,960 | 12,345 | ||||||||
| Depreciation and amortization | 96,998 | 68,658 | 67,929 | ||||||||
| General and administrative | 23,689 | 20,282 | 19,414 | ||||||||
| Impairment loss | 18,477 | 8,995 | — | ||||||||
| Total expenses | 274,046 | 202,325 | 192,919 | ||||||||
| Operating income | 51,989 | 65,122 | 74,097 | ||||||||
| Interest income | 71 | 1,441 | 1,190 | ||||||||
| Interest expense | 70,667 | 70,115 | 75,776 | ||||||||
| Gain on remeasurement of equity method investment | 25,068 | — | — | ||||||||
| Equity in (loss) income of unconsolidated real estate entities, net | (10,127 | ) | (6,380 | ) | 31 | ||||||
| Loss from continuing operations | (3,666 | ) | (9,932 | ) | (458 | ) | |||||
| Discontinued operations: | |||||||||||
| Gain (loss) on disposition of properties | — | 27,800 | (215 | ) | |||||||
| Income from operations | 984 | 1,477 | 1,053 | ||||||||
| Net (loss) income | (2,682 | ) | 19,345 | 380 | |||||||
| Add: allocation to noncontrolling interest | 601 | 212 | 5,473 | ||||||||
| Net (loss) income attributable to Glimcher Realty Trust | (2,081 | ) | 19,557 | 5,853 | |||||||
| Less: Preferred share dividends | 24,969 | 24,548 | 22,236 | ||||||||
| Less: Write-off of issuance costs related to preferred share redemptions | 3,446 | — | — | ||||||||
| Net loss to common shareholders | $ | (30,496 | ) | $ | (4,991 | ) | $ | (16,383 | ) | ||
| Earnings Per Common Share (“EPS”): | |||||||||||
| EPS (basic): | |||||||||||
| Continuing operations | $ | (0.23 | ) | $ | (0.32 | ) | $ | (0.23 | ) | ||
| Discontinued operations | $ | 0.01 | $ | 0.27 | $ | 0.01 | |||||
| Net loss to common shareholders | $ | (0.23 | ) | $ | (0.05 | ) | $ | (0.22 | ) | ||
| EPS (diluted): | |||||||||||
| Continuing operations | $ | (0.23 | ) | $ | (0.32 | ) | $ | (0.23 | ) | ||
| Discontinued operations | $ | 0.01 | $ | 0.27 | $ | 0.01 | |||||
| Net loss to common shareholders | $ | (0.23 | ) | $ | (0.05 | ) | $ | (0.22 | ) | ||
| Weighted average common shares outstanding | 135,152 | 104,220 | 75,738 | ||||||||
| Weighted average common shares and common share equivalent outstanding | 137,624 | 107,101 | 78,724 | ||||||||
| Net (loss) income | $ | (2,682 | ) | $ | 19,345 | $ | 380 | ||||
| Other comprehensive (loss) income on derivative instruments, net | (815 | ) | 3,320 | 6,578 | |||||||
| Comprehensive (loss) income | (3,497 | ) | 22,665 | 6,958 | |||||||
| Comprehensive loss (income) attributable to noncontrolling interest | 14 | (96 | ) | (169 | ) | ||||||
| Comprehensive (loss) income attributable to Glimcher Realty Trust | $ | (3,483 | ) | $ | 22,569 | $ | 6,789 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
74
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended December 31, 2012, 2011 and 2010
(dollars in thousands, except share, par value and unit amounts)
Common Shares of Beneficial Interest | ||||||||||||||||||||||||||||||||||||||
Series F Cumulative Preferred Shares | Series G Cumulative Preferred Shares | Series H Cumulative Preferred Shares | Shares | Amount | Additional Paid-in Capital | Distributions In Excess of Accumulated Earnings | Accumulated Other Comprehensive (Loss) Income | Noncontrolling Interest | Total | |||||||||||||||||||||||||||||
| Balance, December 31, 2009 | $ | 60,000 | $ | 150,000 | $ | — | 68,718,924 | $ | 687 | $ | 666,489 | $ | (671,351 | ) | $ | (3,819 | ) | $ | 5,408 | $ | 207,414 | |||||||||||||||||
| Distributions declared, $0.4000 per share | (30,795 | ) | (1,194 | ) | (31,989 | ) | ||||||||||||||||||||||||||||||||
| Distribution Reinvestment and Share Purchase Plan | 34,482 | 1 | 179 | 180 | ||||||||||||||||||||||||||||||||||
| Excercise of stock options | 18,668 | — | 26 | 26 | ||||||||||||||||||||||||||||||||||
| Restricted stock grant | 180,666 | 2 | (2 | ) | — | |||||||||||||||||||||||||||||||||
| Amortization of restricted stock | 897 | 897 | ||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | (22,236 | ) | (22,236 | ) | ||||||||||||||||||||||||||||||||||
| Net income | 5,853 | (5,473 | ) | 380 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income on derivative instruments | 6,409 | 169 | 6,578 | |||||||||||||||||||||||||||||||||||
| Stock option expense | 171 | 171 | ||||||||||||||||||||||||||||||||||||
| Issuance of Series G Cumulative Preferred stock | 74,751 | 74,751 | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 16,100,000 | 161 | 100,464 | �� | 100,625 | |||||||||||||||||||||||||||||||||
| Preferred and common stock issuance costs | (2,677 | ) | (5,010 | ) | (7,687 | ) | ||||||||||||||||||||||||||||||||
| Adjustments related to consolidation of a previously unconsolidated entity | (6,297 | ) | 8,954 | 2,657 | ||||||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interest in partnership | 4,174 | (4,174 | ) | — | ||||||||||||||||||||||||||||||||||
| Transfer to noncontrolling interest in partnership | (3,437 | ) | 3,437 | — | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2010 | 60,000 | 222,074 | — | 85,052,740 | 851 | 763,951 | (718,529 | ) | (3,707 | ) | 7,127 | 331,767 | ||||||||||||||||||||||||||
| Distributions declared, $0.4000 per share | (43,051 | ) | (1,146 | ) | (44,197 | ) | ||||||||||||||||||||||||||||||||
| Distribution Reinvestment and Share Purchase Plan | 16,534 | — | 143 | 143 | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | 39,698 | — | 106 | 106 | ||||||||||||||||||||||||||||||||||
| Restricted stock grant | 255,886 | 3 | (3 | ) | — | |||||||||||||||||||||||||||||||||
| OP unit conversion | 196,909 | 2 | 2 | |||||||||||||||||||||||||||||||||||
| Amortization of performance stock | 212 | 212 | ||||||||||||||||||||||||||||||||||||
| Amortization of restricted stock | 1,035 | 1,035 | ||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | (24,548 | ) | (24,548 | ) | ||||||||||||||||||||||||||||||||||
| Net income | 19,557 | (212 | ) | 19,345 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income on derivative instruments | 3,224 | 96 | 3,320 | |||||||||||||||||||||||||||||||||||
| Stock option expense | 415 | 415 | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 30,413,653 | 304 | 265,454 | 265,758 | ||||||||||||||||||||||||||||||||||
| Stock issuance costs | (9,429 | ) | (9,429 | ) | ||||||||||||||||||||||||||||||||||
| Transfer to noncontrolling interest in partnership | (5,696 | ) | 5,696 | — | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2011 | 60,000 | 222,074 | — | 115,975,420 | 1,160 | 1,016,188 | (766,571 | ) | (483 | ) | 11,561 | 543,929 | ||||||||||||||||||||||||||
| Distributions declared, $0.4000 per share | (56,463 | ) | (968 | ) | (57,431 | ) | ||||||||||||||||||||||||||||||||
| Distribution Reinvestment and Share Purchase Plan | 10,416 | — | 90 | 90 | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | 152,694 | 1 | 480 | 481 | ||||||||||||||||||||||||||||||||||
| Restricted stock grant | 898,224 | 9 | (9 | ) | — | |||||||||||||||||||||||||||||||||
| Cancellation of restricted stock grant | (35,174 | ) | — | — | — | |||||||||||||||||||||||||||||||||
| OP unit conversion | 481,190 | 5 | — | 5 | ||||||||||||||||||||||||||||||||||
| Amortization of performance stock | 766 | 766 | ||||||||||||||||||||||||||||||||||||
| Amortization of restricted stock | 1,669 | 1,669 | ||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | (24,969 | ) | (24,969 | ) | ||||||||||||||||||||||||||||||||||
| Net loss | (2,081 | ) | (601 | ) | (2,682 | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive loss on derivative instruments | (801 | ) | (14 | ) | (815 | ) | ||||||||||||||||||||||||||||||||
| Stock option expense | 817 | 817 | ||||||||||||||||||||||||||||||||||||
| Issuances of common stock | 25,606,900 | 256 | 254,670 | 254,926 | ||||||||||||||||||||||||||||||||||
| Issuance of Series H Cumulative Preferred Shares | 100,000 | 100,000 | ||||||||||||||||||||||||||||||||||||
| Preferred and common stock issuance costs | (3,534 | ) | (11,650 | ) | (15,184 | ) | ||||||||||||||||||||||||||||||||
| Redemption of Cumulative Preferred Shares | (60,000 | ) | (30,000 | ) | (90,000 | ) | ||||||||||||||||||||||||||||||||
| Write-off of issuance costs related to preferred share redemptions | 338 | 3,108 | (3,446 | ) | — | |||||||||||||||||||||||||||||||||
| Adjustments related to consolidation of a previously unconsolidated entity | (45 | ) | (45 | ) | ||||||||||||||||||||||||||||||||||
| Transfer to noncontrolling interest in partnership | (2,025 | ) | 2,025 | — | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2012 | $ | — | $ | 192,412 | $ | 96,466 | 143,089,670 | $ | 1,431 | $ | 1,264,104 | $ | (853,530 | ) | $ | (1,284 | ) | $ | 11,958 | $ | 711,557 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
75
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| For the Years Ended December 31, | |||||||||||
| 2012 | 2011 | 2010 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net (loss) income | $ | (2,682 | ) | $ | 19,345 | $ | 380 | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
| Provision for doubtful accounts | 5,859 | 3,547 | 3,754 | ||||||||
| Depreciation and amortization | 97,501 | 69,921 | 69,543 | ||||||||
| Amortization of financing costs | 3,895 | 6,119 | 6,488 | ||||||||
| Equity in loss (income) of unconsolidated real estate entities, net | 10,127 | 6,380 | (31 | ) | |||||||
| Distributions from unconsolidated real estate entities | 4,064 | 7,062 | 1,925 | ||||||||
| Discontinued development costs charged to expense | 3,359 | 100 | 241 | ||||||||
| Impairment loss | 18,477 | 8,995 | — | ||||||||
| Gain on sale of operating real estate assets | — | — | (547 | ) | |||||||
| Gain on sale of outparcels | (1,979 | ) | (551 | ) | — | ||||||
| Gain on remeasurement of equity method investment | (25,068 | ) | — | — | |||||||
| (Gain) loss on disposition of properties | — | (27,800 | ) | 215 | |||||||
| Stock compensation expense | 3,252 | 1,662 | 1,068 | ||||||||
| Net changes in operating assets and liabilities: | |||||||||||
| Tenant accounts receivable, net | (7,823 | ) | (7,527 | ) | (6,276 | ) | |||||
| Prepaid and other assets | 1,369 | (4,754 | ) | (3,222 | ) | ||||||
| Accounts payable and accrued expenses | 4,834 | (3,499 | ) | (2,787 | ) | ||||||
| Net cash provided by operating activities | 115,185 | 79,000 | 70,751 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to investment in real estate | (89,331 | ) | (54,362 | ) | (199,804 | ) | |||||
| Acquisition of properties, net of cash assumed | (239,326 | ) | (98,692 | ) | — | ||||||
| Additions to investment in unconsolidated real estate entities | (5,761 | ) | (41 | ) | (15,028 | ) | |||||
| Proceeds from sale of properties | — | — | 60,070 | ||||||||
| Proceeds from sale of outparcels | 7,050 | 1,050 | — | ||||||||
| Additions to restricted cash | (1,909 | ) | (2,393 | ) | (5,984 | ) | |||||
| Additions to deferred costs and other | (7,511 | ) | (8,549 | ) | (7,463 | ) | |||||
| Distributions from unconsolidated real estate entities | 17,851 | — | — | ||||||||
| Net increase in cash from previously unconsolidated real estate entity | — | — | 5,299 | ||||||||
| Net cash used in investing activities | (318,937 | ) | (162,987 | ) | (162,910 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from (payments to) revolving line of credit, net | 7,000 | (75,553 | ) | (193,353 | ) | ||||||
| Payments of deferred financing costs | (5,997 | ) | (8,015 | ) | (12,971 | ) | |||||
| Proceeds from issuance of mortgages and other notes payable | 247,000 | 129,529 | 241,816 | ||||||||
| Principal payments on mortgages and other notes payable | (205,853 | ) | (153,250 | ) | (136,176 | ) | |||||
| Net proceeds from issuance of common shares | 243,276 | 256,329 | 95,615 | ||||||||
| Net proceeds from issuance of preferred shares | 96,466 | — | 72,608 | ||||||||
| Redemption of preferred shares | (90,000 | ) | — | — | |||||||
| Proceeds received from dividend reinvestment and exercise of stock options | 571 | 249 | 206 | ||||||||
| Cash distributions | (80,098 | ) | (65,671 | ) | (51,348 | ) | |||||
| Net cash provided by financing activities | 212,365 | 83,618 | 16,397 | ||||||||
| Net change in cash and cash equivalents | 8,613 | (369 | ) | (75,762 | ) | ||||||
| Cash and cash equivalents, at beginning of year | 8,876 | 9,245 | 85,007 | ||||||||
| Cash and cash equivalents, at end of year | $ | 17,489 | $ | 8,876 | $ | 9,245 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
76
GLIMCHER REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)
| 1. | Organization and Basis of Presentation |
Organization
Glimcher Realty Trust (“GRT”) is a fully-integrated, self-administered and self-managed Maryland real estate investment trust (“REIT”), which owns, leases, manages and develops a portfolio of retail properties (the “Property” or “Properties”). The Properties consist of enclosed regional malls, open-air centers, outlet centers, and community shopping centers. At December 31, 2012, GRT both owned material interests in and managed 28 Properties (23 wholly-owned and five partially owned through joint ventures). The "Company" refers to GRT and Glimcher Properties Limited Partnership (the "Operating Partnership," "OP" or "GPLP"), a Delaware limited partnership, as well as entities in which the Company has an ownership or financial interest, collectively.
Basis of Presentation
The consolidated financial statements include the accounts of GRT, GPLP, and Glimcher Development Corporation (“GDC”). As of December 31, 2012, GRT was a limited partner in GPLP with a 98.3% ownership interest and GRT’s wholly-owned subsidiary, Glimcher Properties Corporation, was GPLP’s sole general partner, with a 0.1% interest in GPLP. GDC, a wholly-owned subsidiary of GPLP, provides development, construction, leasing and legal services to the Company’s affiliates and is a taxable REIT subsidiary. The Company consolidates entities in which it owns more than 50% of the voting equity, and control does not rest with other parties, as well as variable interest entities (“VIE”) in which it is deemed to be the primary beneficiary in accordance with Accounting Standards Codification (“ASC”) Topic 810 – “Consolidation.” The equity method of accounting is applied to entities in which the Company has more than a nominal interest. These entities are reflected on the Company’s consolidated financial statements as “Investment in and advances to unconsolidated real estate entities.” All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Subsequent events that have occurred since December 31, 2012 that require recognition or disclosure in these financial statements are presented in Note 26 - "Subsequent Events."
| 2. | Summary of Significant Accounting Policies |
Revenue Recognition
Minimum rents are recognized on an accrual basis over the terms of the related leases on a straight-line basis. Percentage rents, which are based on tenants’ sales as reported to the Company, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants’ leases. The percentage rents are recognized based upon the measurement dates specified in the leases which indicate when the percentage rent is due.
Recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period that the applicable costs are incurred. The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. Final billings to tenants for real estate taxes, insurance and other shopping center operating expenses in 2011 and 2010, which were billed in 2012 and 2011, respectively, did not vary significantly as compared to the estimated receivable balances. Other revenues primarily consist of fee income which relates to property management services and other related services and is recognized in the period in which the service is performed, license agreement revenues which are recognized as earned, and the proceeds from sales of development land which are generally recognized at the closing date.
Tenant Accounts Receivable
The allowance for doubtful accounts reflects the Company’s estimate of the amount of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods. The Company’s policy is to record a periodic provision for doubtful accounts based on a percentage of total revenues. The Company also periodically reviews specific tenant and other receivable balances and determines whether an additional allowance is necessary. In recording such a provision, the Company considers a tenant’s or other party's creditworthiness, ability to pay, probability of collection and consideration of the retail sector in which the tenant operates. The allowance for doubtful accounts is reviewed and adjusted periodically based upon the Company’s historical experience.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
Investment in Real Estate – Carrying Value of Assets
The Company maintains a diverse portfolio of real estate assets. The portfolio holdings have increased as a result of both acquisitions and the development of Properties and have been reduced by selected sales of assets. The amounts to be capitalized as a result of acquisitions and developments and the periods over which the assets are depreciated or amortized are determined based on the application of accounting standards that may require estimates as to fair value and the allocation of various costs to the individual assets. The Company allocates the cost of the acquisition based upon the estimated fair value of the net assets acquired. The Company also estimates the fair value of intangibles related to its acquisitions. The valuation of the fair value of the intangibles involves estimates related to market conditions, probability of lease renewals and the current market value of in-place leases. This market value is determined by considering factors such as the tenant’s industry, location within the Property and competition in the specific market in which the Property operates. Differences in the amount attributed to the fair value estimate for intangible assets can be significant based upon the assumptions made in calculating these estimates.
Depreciation and Amortization
Depreciation expense for real estate assets is computed using a straight-line method and estimated useful lives for buildings and improvements using a weighted average composite life of forty years and three to ten years for equipment and fixtures. Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the initial term of each lease. Cash allowances paid to tenants that are used for purposes other than improvements to the real estate are amortized as a reduction to minimum rents over the initial lease term. Maintenance and repairs are charged to expense as incurred. Cash allowances paid in return for operating covenants from retailers who own their real estate are capitalized as contract intangibles and are classified as "Buildings, improvements and equipment" in the Company's Consolidated Balance Sheets. These intangibles are amortized over the period the retailer is required to operate their store.
Investment in Real Estate – Impairment Evaluation
Management evaluates the recoverability of its investments in real estate assets. Long-lived assets are tested on a quarterly basis for recoverability or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.
The Company records an impairment charge when there is an indicator of impairment and the undiscounted projected cash flows are less than the carrying amount for a particular property. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on the Company’s plans for the respective asset(s) and the Company’s views of market and economic conditions. The Company evaluates each property that has material reductions in occupancy levels and/or net operating income and conducts a detailed evaluation of the respective property. The evaluation also considers factors such as current and historical rental rates, occupancies for the respective properties and comparable properties, sales contracts for certain land parcels and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in the Company’s plans or its views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.
Sale of Real Estate Assets
The Company records sales of operating properties and outparcels using the full accrual method at closing when both of the following conditions are met: a) the profit is determinable, meaning that, the collectability of the sales price is reasonably assured or the amount that will not be collectible can be estimated; and b) the earnings process is virtually complete, meaning that the seller is not obligated to perform significant activities after the sale to earn the profit. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods.
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
Investment in Real Estate – Held-for-Sale
The Company evaluates the held-for-sale classification of its consolidated real estate assets each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. Management evaluates the fair value less cost to sell each quarter and records impairment charges as required. An asset is generally classified as held-for-sale once management commits to a plan to sell its entire interest in a particular Property which results in no continuing involvement in the asset and initiates an active program to market the asset for sale. In instances where the Company may sell either a partial or entire interest in a Property and has commenced marketing of the Property, the Company evaluates the facts and circumstances of the potential sale to determine the appropriate classification for the reporting period. Based upon management’s evaluation, if it is expected that the sale will be for a partial interest, the asset is classified as held for investment. If during the marketing process it is determined the asset will be sold in its entirety, the period of that determination is the period the asset would be reclassified as held-for-sale. The results of operations for these real estate Properties that are classified as held-for-sale are reflected as discontinued operations in all periods reported.
On occasion, the Company will receive unsolicited offers from third parties to buy individual Properties. Under these circumstances, the Company will classify the particular Property as held-for-sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.
As of December 31, 2012 and 2011, the Company was in a contract to sell a sixty-nine acre parcel of vacant land located near Cincinnati, Ohio. Accordingly, the land is classified as held-for-sale.
Accounting for Acquisitions
The value of the real estate acquired is allocated to acquired tangible assets, consisting of land, buildings and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, acquired in-place leases and the value of tenant relationships, based in each case on their fair values.
The fair value of the tangible assets of an acquired property noted above is determined by valuing the property as if it were vacant, based on management’s determination of the relative fair values of these assets. Management determines the fair value of an acquired property using a variety of methods to estimate the fair value of the tangible assets.
In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between a) the contractual amounts to be paid pursuant to the in-place leases and b) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market and below-market lease values are amortized as an adjustment to rental income over the initial lease term.
The Company considers fixed-rate renewal options in its calculation of the fair value of below-market lease intangibles. The Company compares the contractual lease rates to the projected market lease rates and makes a determination as to whether or not to include the fixed-rate renewal option into the calculation of the fair value of below-market leases. The determination of the likelihood that a fixed-rate renewal option will be exercised is approached from both a quantitative and qualitative perspective.
From a quantitative perspective, the Company determines if the fixed-rate renewal option is economically compelling to the tenant. The Company also considers qualitative factors such as: overall tenant sales performance, the industry the tenant operates in, the tenant's commitment to the concept, and other information the Company may have knowledge of relating to the particular tenant. This quantitative and qualitative information is then used, on a case-by-case basis, to determine if the fixed-rate renewal option should be included in the fair value calculation.
The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions, and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The value assigned to this intangible asset is amortized over the remaining lease term plus an assumed renewal period that is reasonably assured.
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The aggregate value of other acquired intangible assets includes tenant relationships. Factors considered by management in assigning a value to these relationships include: assumptions of probability of lease renewals, investment in tenant improvements, leasing commissions, and an approximate time lapse in rental income while a new tenant is located. The value assigned to this intangible asset is amortized over the average life of the relationship.
Deferred Costs
The Company capitalizes initial direct costs of leases and amortizes these costs over the initial lease term. The initial direct costs primarily include salaries, commissions and travel of the Company’s leasing and legal personnel. The costs are capitalized upon the execution of the lease and the amortization period begins the earlier of the store opening date or the date the tenant’s lease obligation begins.
Stock-Based Compensation
The Company expenses the fair value of share awards in accordance with the fair value recognition requirements of ASC Topic 718 - “Compensation-Stock Compensation.” ASC Topic 718 requires companies to measure the cost of the recipient services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The cost of the share award is expensed over the requisite service period (usually the vesting period).
Cash and Cash Equivalents
For purposes of the statements of cash flows, all highly liquid investments purchased with original maturities of three months or less are considered to be cash equivalents. Cash and cash equivalents primarily consists of short term securities and overnight purchases of debt securities. The carrying amounts approximate fair value.
Restricted Cash
Restricted cash consists primarily of cash held for real estate taxes, insurance, property reserves for maintenance, and expansion or leasehold improvements as required by certain of our loan agreements.
Deferred Expenses
Deferred expenses consist principally of fees associated with obtaining financing. These costs are amortized as interest expense over the terms of the respective agreements. Deferred expenses in the accompanying Consolidated Balance Sheets are shown net of accumulated amortization.
Derivative Instruments and Hedging Activities
The Company accounts for derivative instruments and hedging activities in accordance with ASC Topic 815 - “Derivatives and Hedging.” The objective of the guidance is to provide users of financial statements with an enhanced understanding of: a) how and why an entity uses derivative instruments; b) how derivative instruments and related hedged items are accounted for under this guidance; and c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. It also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Also, derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The change in fair value of derivative instruments that do not qualify for hedge accounting is recognized in earnings.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
Interest Costs
The components of the Company’s interest costs related to its continuing operations are shown in the table below. Interest expense and loan fees are recorded consistent with the terms of the Company’s financing arrangements. Capitalized interest is recorded as a reduction to interest expense based upon the Company’s weighted average borrowing rate.
| Years Ended December 31, | |||||||||||
| 2012 | 2011 | 2010 | |||||||||
| Interest expense | $ | 66,772 | $ | 64,073 | $ | 69,360 | |||||
| Amortization of financing costs | 3,895 | 6,042 | 6,416 | ||||||||
| Total interest expense | 70,667 | 70,115 | 75,776 | ||||||||
| Interest capitalized | 2,506 | 5,201 | 10,970 | ||||||||
| Total interest costs | $ | 73,173 | $ | 75,316 | $ | 86,746 | |||||
The Company paid $70,131, $70,178 and $79,978 for interest for the years ended December 31, 2012, 2011 and 2010, respectively.
Investment in and Advances to Unconsolidated Real Estate Entities
The Company evaluates all joint venture arrangements for consolidation. The percentage interest in the joint venture, evaluation of control and whether the joint venture is a VIE are all considered in determining if the arrangement qualifies for consolidation. The Company evaluates its investments in joint ventures to determine whether such entities may be a VIE, and, if a VIE, whether the Company is the primary beneficiary. Generally, an entity is determined to be a VIE when either (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest, (2) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The primary beneficiary is the entity that has both (1) the power to direct matters that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE's economic performance including, but not limited to; the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, the Company considers the rights of other investors to participate in policy making decisions, to replace or remove the manager of the entity and to liquidate or sell the entity. The obligation to absorb losses and the right to receive benefits when a reporting entity is affiliated with a VIE must be based on ownership, contractual, and/or other pecuniary interests in that VIE.
The Company has determined that it is the primary beneficiary in two VIEs, and has consolidated each as disclosed in Note 12 - “Investment in Joint Ventures - Consolidated.”
The Company accounts for its investments in unconsolidated real estate entities using the equity method of accounting whereby the cost of an investment is adjusted for the Company’s share of equity in net income or loss beginning on the date of acquisition and reduced by distributions received. The income or loss of each joint venture investor is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Any differences between the carrying amount of the Company’s investment in the respective joint venture and the Company’s share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets as applicable.
The Company classifies distributions from joint ventures as operating activities if they satisfy all three of the following conditions: the amount represents the cash effect of transactions or events; the amounts result from the joint ventures’ normal operations; and the amounts are derived from activities that enter into the determination of net income. The Company treats distributions from joint ventures as investing activities if they relate to the following activities: lending money and collecting on loans; acquiring and selling or disposing of available-for-sale or held-to-maturity securities (trading securities are classified based on the nature and purpose for which the securities were acquired); and acquiring and selling or disposing of productive assets that are expected to generate revenue over a long period of time.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
Advertising Costs
The Company promotes its Properties on behalf of its tenants through various media. Advertising is expensed as incurred and the majority of the advertising expense is recovered from the tenants through lease obligations. Advertising expense was $4,844, $4,098, and $4,577 for the years ended December 31, 2012, 2011, and 2010, respectively.
Income Taxes
GRT qualifies as a REIT under Sections 856-860 of the Internal Revenue Code (“IRC”) of 1986, as amended (the “Code”). In order to qualify as a REIT, GRT is required to distribute at least 90.0% of its ordinary taxable income to shareholders and to meet certain asset and income tests as well as certain other requirements. GRT will generally not be liable for federal income taxes, provided it satisfies the necessary distribution requirements and maintains its REIT status. Even as a qualified REIT, the Company is subject to certain state and local taxes on its income and property.
The Company’s subsidiary, GDC, has elected taxable REIT subsidiary status under Section 856(l) of the Code. GPLP wholly-owns GDC. For federal income tax purposes, GDC is treated as a separate entity and taxed as a C-Corporation. As required by ASC Topic 740 – “Income Taxes,” deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carry forwards of GDC. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Noncontrolling Interest
Noncontrolling interest represents both the aggregate partnership interest in the Operating Partnership held by the Operating Partnership limited partner unit holders (the “Unit Holders”) as well as the underlying equity held by unaffiliated third parties in consolidated joint ventures. During the year ended December 31, 2012, noncontrolling interest allocated to the partner in the joint venture that owns Town Square at Surprise amounted to $47. At December 31, 2011, noncontrolling interest included only the aggregate partnership interest in the Operating Partnership held by the Unit Holders.
Income or loss allocated to noncontrolling interest related to the Unit Holders' ownership percentage of the Operating Partnership is determined by dividing the number of Operating Partnership Units (“OP Units”) held by the Unit Holders' by the total number of OP Units outstanding at the time of the determination. The issuance of additional common shares of beneficial interest of GRT (the “Common Shares,” “Shares,” “Share,” or “Stock”) or OP Units changes the percentage ownership in the OP Units of both the Unit Holders and the Company. Because an OP Unit is generally redeemable for cash or Shares at the option of GPLP, it is deemed to be equivalent to a Share. Therefore, such transactions are treated as capital transactions and result in an allocation between shareholders’ equity and noncontrolling interest in the accompanying Consolidated Balance Sheets to account for the change in the ownership of the underlying equity in the Operating Partnership.
Supplemental Disclosure of of Non-Cash Operating, Investing, and Financing Activities
The Company's other non-cash activities for the year ended December 31, 2012 accounted for changes in the following areas: a) investment in real estate - $217,904, b) cash in escrow - $1,315, c) investment in joint venture - $(11,811), d) accounts receivable - $2,956, e) deferred costs - $7,310, f) prepaid and other assets - $14,053, g) mortgage notes payable $(183,574), h) accounts payable and accrued liabilities - $(57,488), and i) accumulated other comprehensive loss - $801.
Share distributions of $14,306 and $11,597 were declared, but not paid as of December 31, 2012 and December 31, 2011, respectively. Operating Partnership distributions of $230 and $279 were declared, but not paid as of December 31, 2012 and December 31, 2011, respectively. Distributions for GRT's 8.75% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series F Preferred Shares”) of $1,313 were declared, but not paid as of December 31, 2011. Distributions for GRT's 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series G Preferred Shares”) of $4,215 and $4,824 were declared, but not paid as of December 31, 2012 and December 31, 2011, respectively. Distributions for GRT's 7.5% Series H Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series H Preferred Shares”) of $1,875 were declared, but not paid as of December 31, 2012, $1,563 of which relates to the three months ended December 31, 2012.
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
Comprehensive Income
ASC Topic 220 – “Comprehensive Income,” establishes guidelines for the reporting and display of comprehensive income and its components in financial statements. Comprehensive income includes net income or loss and unrealized gains and losses from fair value adjustments on certain derivative instruments, net of allocations to noncontrolling interests.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) 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 periods. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications of prior period amounts, including the presentation of the Consolidated Statements of Operations required by ASC Topic 205 - “Presentation of Financial Statements” have been made in the financial statements in order to conform to the 2012 presentation.
| 3. | Tenant Accounts Receivable, Net |
The Company’s tenant accounts receivable is comprised of the following components:
| December 31, | |||||||
| 2012 | 2011 | ||||||
| Billed receivables | $ | 6,219 | $ | 6,071 | |||
| Straight-line receivables | 20,129 | 17,287 | |||||
| Unbilled receivables | 10,146 | 7,249 | |||||
| Less: allowance for doubtful accounts | (4,701 | ) | (3,734 | ) | |||
| Tenant accounts receivable, net | $ | 31,793 | $ | 26,873 | |||
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
4. | Mortgage Notes Payable as of December 31, 2012 and 2011 consist of the following: |
| Description/Borrower | Carrying Amount of Mortgage Notes Payable | Interest Rate | Interest Terms | Payment Terms | Payment at Maturity | Maturity Date | ||||||||||||||||||
| Mortgage Notes Payable | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||||
Fixed Rate: | ||||||||||||||||||||||||
| PFP Columbus, LLC | $125,414 | $128,570 | 5.24 | % | 5.24 | % | (a) | $ | 124,572 | April 11, 2013 | ||||||||||||||
| JG Elizabeth, LLC | 140,409 | 143,846 | 4.83 | % | 4.83 | % | (a) | $ | 135,194 | June 8, 2014 | ||||||||||||||
| MFC Beavercreek, LLC | 97,285 | 99,551 | 5.45 | % | 5.45 | % | (a) | $ | 92,762 | November 1, 2014 | ||||||||||||||
| Glimcher Supermall Venture, LLC | 53,018 | 54,309 | 7.54 | % | 7.54 | % | (i) | (a) | $ | 49,969 | (e) | |||||||||||||
| Glimcher Merritt Square, LLC | 55,205 | 55,999 | 5.35 | % | 5.35 | % | (a) | $ | 52,914 | September 1, 2015 | ||||||||||||||
| SDQ Fee, LLC | 67,778 | 68,829 | 4.91 | % | 4.91 | % | (a) | $ | 64,577 | October 1, 2015 | ||||||||||||||
| BRE/Pearlridge, LLC | 175,000 | - | 4.60 | % | - | (m) | $ | 169,327 | November 1, 2015 | |||||||||||||||
| RVM Glimcher, LLC | 47,378 | 48,097 | 5.65 | % | 5.65 | % | (a) | $ | 44,931 | January 11, 2016 | ||||||||||||||
| WTM Glimcher, LLC | 60,000 | 60,000 | 5.90 | % | 5.90 | % | (b) | $ | 60,000 | June 8, 2016 | ||||||||||||||
| EM Columbus II, LLC | 40,791 | 41,388 | 5.87 | % | 5.87 | % | (a) | $ | 38,057 | December 11, 2016 | ||||||||||||||
| Glimcher MJC, LLC | 53,573 | 54,153 | 6.76 | % | 6.76 | % | (a) | $ | 47,768 | May 6, 2020 | ||||||||||||||
| Grand Central Parkersburg, LLC | 43,730 | 44,277 | 6.05 | % | 6.05 | % | (a) | $ | 38,307 | July 6, 2020 | ||||||||||||||
| ATC Glimcher, LLC | 41,223 | 41,833 | 4.90 | % | 4.90 | % | (a) | $ | 34,569 | July 6, 2021 | ||||||||||||||
| Dayton Mall II, LLC | 82,000 | - | 4.57 | % | - | (d) | $ | 75,241 | September 1, 2022 | |||||||||||||||
| Leawood TCP, LLC | 76,057 | - | 5.00 | % | - | (a) | $ | 52,465 | (j) | |||||||||||||||
| 119 Leawood, LLC | 37,948 | - | 4.25 | % | - | (a) | $ | 25,820 | (j) | |||||||||||||||
| Tax Exempt Bonds (k) | 19,000 | 19,000 | 6.00 | % | 6.00 | % | (c) | $ | 19,000 | November 1, 2028 | ||||||||||||||
| 1,215,809 | 859,852 | |||||||||||||||||||||||
Variable Rate: | ||||||||||||||||||||||||
| Catalina Partners, LP (f) | 33,455 | 40,000 | 3.71 | % | 3.41 | % | (g) | (a) | $ | 33,283 | April 23, 2013 | |||||||||||||
| Surprise Peripheral Venture, LLC (p) | 3,592 | - | 5.50 | % | - | (q) | (a) | $ | 3,566 | (r) | ||||||||||||||
| SDQ III Fee, LLC (s) | 12,930 | 15,000 | 3.11 | % | 3.20 | % | (l) | (b) | $ | 12,930 | December 1, 2013 | |||||||||||||
| Kierland Crossing, LLC (t) | 130,000 | 140,633 | 3.28 | % | 2.86 | % | (h) | (b) | $ | 130,000 | (n) | |||||||||||||
| 179,977 | 195,633 | |||||||||||||||||||||||
| Other: | ||||||||||||||||||||||||
| Fair value adjustments | 3,988 | (961 | ) | |||||||||||||||||||||
| Extinguished debt | - | 120,529 | (o) | |||||||||||||||||||||
| Mortgage Notes Payable | $ | 1,399,774 | $ | 1,175,053 | ||||||||||||||||||||
| (a) | The loan requires monthly payments of principal and interest. |
| (b) | The loan requires monthly payments of interest only. |
| (c) | The loan requires semi-annual payments of interest. |
| (d) | The loan requires monthly payments of interest only until October 2017. Thereafter, monthly payments of principal and interest are required. |
| (e) | The loan matures in September 2029, with an optional prepayment (without penalty) date on February 11, 2015. |
| (f) | In April 2012, the Company reduced the loan amount by $6,200 to a balance of $33,800. |
| (g) | Interest rate of LIBOR plus 3.50%. |
| (h) | $105,000 was fixed through a swap agreement at a rate of 3.14% at December 31, 2012 and the remaining $25,000 incurs interest at an average rate of LIBOR plus 3.65%. $125,000 was fixed through a swap agreement at a rate of 2.86% at December 31, 2011. |
| (i) | Interest rate escalates after optional prepayment date. |
| (j) | The loans for Town Center Plaza and Town Center Crossing are cross-collateralized and have a call date of February 1, 2027. |
| (k) | The bonds were issued by the New Jersey Economic Development Authority as part of the financing for the development of The Outlet Collection | Jersey Gardens site. Although not secured by the Property, the loan is fully guaranteed by GRT. |
| (l) | Interest rate of LIBOR plus 2.90%. |
| (m) | The loan requires monthly payments of interest only until November 2013. Thereafter, monthly payments of principal and interest are required. |
| (n) | The loan matures on May 22, 2015; however, a portion of the loan ($107,000) may be extended for one year subject to certain loan extension fees and conditions. |
| (o) | Interest rates ranging from 3.30% to 8.27% at December 31, 2011. |
| (p) | Beginning in July 2012, the joint venture that owns Town Square at Surprise is being included in the Company's consolidated results. It was previously classified as an unconsolidated entity. |
| (q) | Interest rate is the greater of 5.50% or LIBOR plus 4.00%. |
| (r) | The loan matures June 30, 2013, however, the loan may be extended for eighteen months subject to certain loan extension fees and conditions. |
| (s) | In November 2012, the Company reduced the loan by $2,070 to a balance of $12,930. |
| (t) | In May 2012, the Company modified the loan which resulted in a $10,633 reduction of the loan amount. |
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
All mortgage notes payable are collateralized either directly or indirectly by certain Properties (owned by the respective entities) with net book values of $1,812,056 and $1,384,982 at December 31, 2012 and December 31, 2011, respectively. Certain of the loans contain financial covenants regarding minimum net operating income and coverage ratios. Management believes the Company’s affiliate borrowers are in compliance with all covenants at December 31, 2012. Additionally, $173,639 of mortgage notes payable relating to certain Properties, including $19,000 of tax exempt bonds issued as part of the financing for the development of The Outlet Collection | Jersey Gardens, have been guaranteed by GRT as of December 31, 2012.
Principal maturities (excluding extension options) on mortgage notes payable during each of the five years subsequent to December 31, 2012 and thereafter, are as follows:
| December 31, | Amount | ||
| 2013 | $ | 191,722 | |
| 2014 | 244,699 | ||
| 2015 | 477,852 | ||
| 2016 | 147,993 | ||
| 2017 | 4,886 | ||
| Thereafter | 332,622 | ||
| Total | $ | 1,399,774 | |
| 5. | Notes Payable |
GPLP's secured credit facility (the “Credit Facility”) has a maximum borrowing capacity of $250,000, subject to certain quarterly availability tests. GPLP may increase the total borrowing availability to $400,000 by providing additional collateral and adding new financial institutions as facility lenders or obtaining agreements from the existing lenders to increase their lending commitment. The Credit Facility matures on October 12, 2014 and contains an option to extend the maturity date an additional year to October 12, 2015. The interest rate ranges from LIBOR plus 2.00% to LIBOR plus 2.75% based upon the quarterly measurement of our consolidated debt outstanding as a percentage of total asset value. The applicable interest rate as of December 31, 2012 is LIBOR plus 2.25%. The Credit Facility is secured by perfected first mortgage liens with respect to four of the Company's mall Properties, two community center Properties, and certain other assets. The Credit Facility contains customary covenants, representations, warranties and events of default, including maintenance of a specified net worth requirement; a consolidated debt outstanding as a percentage of total asset value ratio; an interest coverage ratio; a fixed charge ratio; and a total recourse debt outstanding as a percentage of total asset value ratio. Management believes GPLP is in compliance with all covenants of the Credit Facility as of December 31, 2012.
At December 31, 2012, the availability level on the Credit Facility was $214,346 and the outstanding balance was $85,000. Additionally, $817 represents a holdback on the available balance for letters of credit issued under the Credit Facility. As of December 31, 2012, the unused balance of the Credit Facility available to the Company was $128,529 and the average interest rate on the outstanding balance was 2.46% per annum.
At December 31, 2011, the availability level on the Credit Facility was $250,000 and the outstanding balance was $78,000. Additionally, $327 represented a holdback on the available balance for letters of credit issued under the Credit Facility. As of December 31, 2011, the unused balance of the Credit Facility available to the Company was $171,673 and the average interest rate on the outstanding balance was 2.71% per annum.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
| 6. | Income Taxes |
The following table reconciles the Company’s net (loss) income to taxable income for the years ended December 31, 2012, 2011 and 2010:
| 2012 | 2011 | 2010 | |||||||||
| Net (loss) income attributable to Glimcher Realty Trust | $ | (2,081 | ) | $ | 19,557 | $ | 5,853 | ||||
| Add: Net (loss) income of taxable REIT subsidiaries | (185 | ) | 8,568 | 2,211 | |||||||
Net (loss) income from REIT operations (1) | (2,266 | ) | 28,125 | 8,064 | |||||||
| Add: Book depreciation and amortization | 109,723 | 86,585 | 79,028 | ||||||||
| Less: Tax depreciation and amortization | (66,875 | ) | (59,392 | ) | (54,406 | ) | |||||
| Book loss from capital transactions and impairments | (26,554 | ) | (33,424 | ) | (319 | ) | |||||
| Tax gain (loss) from capital transactions | 353 | 20,737 | (10,207 | ) | |||||||
| Stock options | 1,338 | 1,004 | 598 | ||||||||
| Write-off of issuance costs related to preferred share redemption | 3,446 | — | — | ||||||||
| Straight line rent payable | 1,855 | 10 | 10 | ||||||||
| Intangible assets | (3,954 | ) | 32 | (775 | ) | ||||||
| Adjustments to equity in (loss) income of unconsolidated real estate entities, net | 7,495 | 12,578 | (3,068 | ) | |||||||
| Other book/tax differences, net | 5,273 | (5,941 | ) | 2,715 | |||||||
| Taxable income subject to 90% requirement | $ | 29,834 | $ | 50,314 | $ | 21,640 | |||||
| (1) | Adjustments to “Net income from REIT operations” are net of amounts attributable to noncontrolling interest and taxable REIT subsidiaries. |
At December 31, 2012, GRT has a tax loss carryforward of $40,326. This net operating loss can be used in future years to reduce taxable income. The tax loss carryforward will expire in 2029.
Reconciliation Between Cash Dividends Paid and Dividends Paid Deduction:
The following table reconciles cash dividends paid with the dividends paid deduction for the years ended December 31, 2012, 2011 and 2010:
| 2012 | 2011 | 2010 | |||||||||
| Cash dividends paid | $ | 79,082 | $ | 64,506 | $ | 50,153 | |||||
| Less: Dividends designated to prior year | — | — | — | ||||||||
| Plus: Dividends designated from following year | — | — | — | ||||||||
| Less: Portion designated return of capital | (49,248 | ) | (14,192 | ) | (28,513 | ) | |||||
| Dividends paid deduction | $ | 29,834 | $ | 50,314 | $ | 21,640 | |||||
Characterization of Distributions:
The following table characterizes distributions paid per common share for the years ended December 31, 2012, 2011 and 2010:
| 2012 | 2011 | 2010 | ||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||
| Ordinary income | $ | 0.0329 | 8.23 | % | $ | 0.2574 | 64.35 | % | $ | 0.0089 | 2.23 | % | ||||||||
| Return of capital | 0.3671 | 91.77 | 0.1426 | 35.65 | 0.3911 | 97.77 | ||||||||||||||
| $ | 0.4000 | 100.00 | % | $ | 0.4000 | 100.00 | % | $ | 0.4000 | 100.00 | % | |||||||||
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
For 2012, 2011, and 2010, the Common Share dividends declared in December and paid in January are reported in the 2013, 2012, and 2011 tax years, respectively.
The following table characterizes distributions paid per Series F Preferred Share for the years ended December 31, 2012, 2011 and 2010:
| 2012 | 2011 | 2010 | ||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||
| Ordinary income | $ | 2.0303 | 100.00 | % | $ | 2.1876 | 100.00 | % | $ | 2.1876 | 100.00 | % | ||||||||
| Return of capital | — | — | — | — | — | — | ||||||||||||||
| $ | 2.0303 | 100.00 | % | $ | 2.1876 | 100.00 | % | $ | 2.1876 | 100.00 | % | |||||||||
For 2011 and 2010, the Series F Preferred dividends declared in December and paid in January are reported in the 2012 and 2011 tax years, respectively. The Series F Shares were redeemed on September 4, 2012 at a redemption price of $25.00 per share, plus accumulated and unpaid distributions up to but excluding the redemption date in an amount equal to $0.3896 per share, for a total payment of $25.3896 per share.
The following table characterizes distributions paid per Series G Preferred Share for the years ended December 31, 2012, 2011 and 2010:
| 2012 | 2011 | 2010 | ||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||
| Ordinary income | $ | 2.0312 | 100.00 | % | $ | 2.0312 | 100.00 | % | $ | 2.0312 | 100.00 | % | ||||||||
| Return of capital | — | — | — | — | — | — | ||||||||||||||
| $ | 2.0312 | 100.00 | % | $ | 2.0312 | 100.00 | % | $ | 2.0312 | 100.00 | % | |||||||||
For 2012, 2011 and 2010, the Series G Preferred dividends declared in December and paid in January are reported in the 2013, 2012 and 2011 tax years, respectively. The Company redeemed 1.2 million of the 9.5 million issued and outstanding Series G Shares on September 4, 2012, at a redemption price of $25.00 per share, plus accumulated and unpaid distributions up to, but excluding, the redemption date in an amount equal to $0.3617 per share, for a total payment of $25.3617 per share.
The following table characterizes distributions paid per Series H Preferred Share for the years ended December 31, 2012:
| 2012 | 2011 | 2010 | ||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||
| Ordinary income | $ | 0.3333 | 100.00 | % | $ | — | — | % | $ | — | — | % | ||||||||
| Return of capital | — | — | — | — | — | — | ||||||||||||||
| $ | 0.3333 | 100.00 | % | $ | — | — | % | $ | — | — | % | |||||||||
The Series H Shares were issued on August 10, 2012. For 2012, the Series H dividend declared in December and paid in January will be reported in the 2013 tax year.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities of GDC. Deferred tax assets (liabilities) include the following:
| 2012 | 2011 | 2010 | |||||||||
| Investment in partnership | $ | 89 | $ | 27 | $ | 78 | |||||
| Capitalized development costs | (1,148 | ) | (1,148 | ) | (1,148 | ) | |||||
| Depreciation and amortization | 19 | 47 | 76 | ||||||||
| Charitable contributions | 22 | 22 | 22 | ||||||||
| Accrued bonuses | 214 | 174 | 140 | ||||||||
| Interest expense | 3,472 | 3,907 | 4,075 | ||||||||
| Other | 1,736 | (1,248 | ) | (1,261 | ) | ||||||
| Net operating losses | 5,581 | 6,144 | 5,759 | ||||||||
| Net deferred tax asset | 9,985 | 7,925 | 7,741 | ||||||||
| Valuation allowance | (9,985 | ) | (7,925 | ) | (7,741 | ) | |||||
| Net deferred tax asset after valuation allowance | $ | — | $ | — | $ | — | |||||
The gross tax loss carryforwards for GDC total $13,953 at December 31, 2012 and will begin to expire in 2018.
The income tax provision consisted of $25, $6, and $4 in 2012, 2011 and 2010, respectively, related to current state and local taxes. Net deferred tax expense for each of the years was $0. The income tax expense reflected in the Consolidated Statements of Operations and Comprehensive Income differs from the amount determined by applying the federal statutory rate of 34% to the income before taxes of the Company’s taxable REIT subsidiaries as a result of state income taxes and the utilization of tax loss carryforwards. A full valuation allowance had previously been provided against the tax loss carryforwards utilized.
In 2012, the Company continued to maintain a valuation allowance for the Company’s net deferred tax assets, which consisted primarily of tax loss carryforwards and non-deductible interest expense. The valuation allowance was determined in accordance with the provisions of ASC Topic 740 which requires the recording of a valuation allowance when it is more likely than not that any or all of the deferred tax assets will not be realized. In the absence of favorable factors, application of ASC Topic 740 requires a 100% valuation allowance for any net deferred tax assets when a company has cumulative financial accounting losses, excluding unusual items, over several years. The Company’s cumulative loss within GDC represented negative evidence sufficient to require a full valuation allowance under the provisions of ASC Topic 740. The Company intends to maintain a full valuation allowance for its net deferred tax asset until sufficient positive evidence exists to support reversal of the reserve. Until such time, except for minor state and local tax provisions, the Company will have no reported tax provision, net of valuation allowance adjustments.
ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It requires a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, in an income tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has compiled a listing of its tax positions. Positions such as the Company’s transfer pricing model, REIT income test assumptions, apportionment and allocation of income and evaluation of prohibited transactions by REITs were evaluated. The Company concluded that tax positions taken will more likely than not be sustained at the full amount upon examination. Accordingly, there was no tax benefit or penalty recognized in the financial statements.
The Company had no unrecognized tax benefits as of the January 1, 2007 adoption date or as of December 31, 2012. The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2012. When applicable, the Company recognizes interest and penalties as a component of general and administrative expenses on the Consolidated Statement of Operations and Comprehensive (Loss) Income as incurred. The Company has no interest or penalties recognized for the year ended December 31, 2012. As of December 31, 2012, returns for the calendar years 2009 through 2011 remain subject to examination by U.S. in various state tax jurisdictions.
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
| 7. | Preferred Shares |
GRT’s Second Amended and Restated Declaration of Trust authorizes GRT to issue up to an aggregate 250,000,000 shares in GRT, consisting of Common Shares and/or one or more series of preferred shares of beneficial interest.
On August 25, 2003, GRT completed a $60,000 public offering of 2,400,000 shares of Series F Preferred Shares, par value $0.01 per share, at a purchase price of $25.00 per Series F Preferred Share. Aggregate net proceeds of the offering were $58,110. Distributions on the Series F Preferred Shares were payable quarterly in arrears.
On February 23, 2004, GRT completed a $150,000 public offering of 6,000,000 shares of Series G Preferred Shares. Aggregate net proceeds of the offering were $145,300. Distributions on the Series G Preferred Shares are payable quarterly in arrears. GRT generally may redeem the Series G Preferred Shares anytime at a redemption price of $25.00 per share, plus accrued and unpaid distributions.
On April 28, 2010, GRT completed a $75,285 public offering of 3,500,000 additional shares of Series G Preferred Shares, which included accrued dividends of $534. GRT incurred $2,677 in issuance costs in connection with the Series G Preferred Shares. Aggregate net proceeds received from the offering were $72,608. GRT generally may redeem the Series G Preferred Shares anytime at a redemption price of $25.00 per share, plus accrued and unpaid distributions. The offering represented a re-opening of GRT’s original issuance of Series G Preferred Shares.
On August 10, 2012, GRT completed a $100,000 public offering of 4,000,000 of its Series H Preferred Shares. The net proceeds to GRT from the offering, after deducting underwriting commissions, discounts, and offering expenses, were $96,466. The proceeds were used to redeem all 2,400,000 of its Series F Preferred Shares outstanding at $25.00 per share, as well as 1,200,000 of its Series G Preferred Shares outstanding at $25.00 per share, and used the remainder to repay a portion of the amount outstanding under the Credit Facility. In connection with the redemptions, the Company wrote-off $3,446 of previously incurred issuance costs associated with the Series F Preferred Shares and Series G Preferred Shares. At December 31, 2012, GRT has 8,300,000 Series G Preferred Shares outstanding.
| 8. | Derivative Financial Instruments |
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash payments related to the Company's borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has elected to designate all interest rate swaps as cash flow hedging relationships.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in “Accumulated other comprehensive loss” (“OCL”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2012, 2011 and 2010, such derivatives were used to hedge the variable cash flows associated with our existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2012, 2011 and 2010, the Company reflected $0, $60 and $(60) of hedge ineffectiveness in earnings, respectively.
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
Amounts reported in OCL related to derivatives that will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. During the next twelve months, the Company estimates that an additional $448 will be reclassified as an increase to interest expense.
During the year ended December 31, 2011, the Company incurred $819 of fees associated with the early termination of the interest rate protection agreements that were hedging loans that were terminated in connection with a modification of the Credit Facility. The fees were recognized as an increase to interest expense.
As of December 31, 2012, the Company had one outstanding interest rate swap that was designated as a cash flow hedge of interest rate risk with a notional value of $105,000.
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2012, 2011 and 2010.
| Liability Derivatives | |||||||||||||
| As of December 31, | |||||||||||||
| 2012 | 2011 | 2010 | |||||||||||
Balance Sheet Location | Fair Value | Fair Value | Fair Value | ||||||||||
| Derivatives designated as hedging instruments | |||||||||||||
| Interest Rate Products | Accounts Payable and Accrued Expenses | $ | 813 | $ | (2 | ) | $ | 3,378 | |||||
The derivative instruments were reported at their fair value of $813, $(2) and $3,378 in accounts payable and accrued expenses at December 31, 2012, 2011 and 2010, respectively, with a corresponding adjustment to OCL for the unrealized gains and losses (net of noncontrolling interest participation). Over time, the unrealized gains and losses held in OCL will be reclassified to earnings. This reclassification will correlate with the recognition of the hedged interest payments in earnings.
The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Operations and Comprehensive (Loss) Income for the year ended December 31, 2012, 2011 and 2010:
| Derivatives in Cash Flow | Amount of Gain or (Loss) Recognized in OCL on Derivatives (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCL into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCL into Income (Effective Portion) | |||||||||||||||||||||||
| Hedging Relationships | Years ending December 31, | Years ending December 31, | ||||||||||||||||||||||||
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||||
| Interest Rate Products | $ | (1,110 | ) | $ | 2,826 | $ | (2,344 | ) | Interest expense | $ | (295 | ) | $ | (494 | ) | $ | (8,922 | ) | ||||||||
Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) | Amount of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) Years ending December 31, | |||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Interest expense | $ | — | $ | 60 | $ | (60 | ) | |||||
During the year ended December 31, 2012, the Company recognized additional other comprehensive income of $(815) to adjust the carrying amount of the interest rate swaps to fair values at December 31, 2012, net of $295 in reclassifications to earnings for interest rate swap settlements during the period. The Company allocated $(14) of other comprehensive income to noncontrolling interest participation during the year ended December 31, 2012.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
During the year ended December 31, 2011, the Company recognized additional other comprehensive income of $3,320 to adjust the carrying amount of the interest rate swaps to fair values at December 31, 2011, net of $494 in reclassifications to earnings for interest rate swap settlements during the period. The Company allocated $96 of other comprehensive income to noncontrolling interest participation during the year ended December 31, 2011.
During the year ended December 31, 2010, the Company recognized additional other comprehensive income of $6,578 to adjust the carrying amount of the interest rate swaps to fair values at December 31, 2010, net of $8,922 in reclassifications to earnings for interest rate swap settlements during the period. The Company allocated $169 of other comprehensive income to noncontrolling interest participation during the year ended December 31, 2010.
Non-designated Hedges
The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.
Credit Risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its consolidated indebtedness, then the Company could also be declared in default on its derivative obligations.
The Company has agreements with its derivative counterparties that incorporate the loan covenant provisions of the Company's indebtedness, including the maintenance of certain financial ratios, with a lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.
As of December 31, 2012, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $879. As of December 31, 2012, the Company has not posted any collateral related to these agreements and is not in default with any of the above provisions. If the Company had breached any of these provisions at December 31, 2012, 2011 and 2010, it would have been required to settle its obligations under the agreements at their termination value of $879, $13 and $3,978, respectively.
| 9. | Fair Value Measurements |
The Company measures and discloses its fair value measurements in accordance with ASC Topic 820 - “Fair Value Measurements and Disclosure” (“Topic 820”). Topic 820 guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The fair value hierarchy, as defined by Topic 820, contains three levels of inputs that may be used to measure fair value as follows:
| • | Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. |
| • | Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly such as interest rates, foreign exchange rates, and yield curves, that are observable at commonly quoted intervals. |
| • | Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity's own assumptions, as there is little, if any, related market activity. |
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The Company has derivatives that must be measured under the fair value standard. The Company currently does not have any non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.
Derivative financial instruments
Currently, the Company uses interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. Based on these inputs the Company has determined that its interest rate swap valuations are classified within Level 2 of the fair value hierarchy.
To comply with the provisions of Topic 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2012, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Recurring Valuations
The Company values its derivative instruments, net using significant other observable inputs (Level 2).
Nonrecurring Valuations
During the three months ended December 31, 2012, based upon management's estimated future use for Eastland Mall ("Eastland") and in accordance with ASC Topic 360 - "Property, Plant, and Equipment" the Company reduced the carrying value of the property to its estimated net realizable value and recorded an $18,477 impairment loss. The Company valued the property using an independent appraisal.
At December 31, 2011, the Company identified one fair value measurement using significant unobservable inputs (Level 3). In connection with the quarterly impairment evaluation described in Note 2 - “Summary of Significant Accounting Policies,” the Company's management determined in 2011 that it was more likely than not that a planned retail project on a sixty-nine acre parcel located near Cincinnati, Ohio would not be developed as previously planned. In accordance with ASC Topic 360 - “Property Plant and Equipment," the Company reduced the carrying value of the asset to its estimated net realizable value and recorded an $8,995 impairment loss. The Company valued the parcel based upon an independent review of comparable land sales.
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The table below presents the Company's assets and liabilities measured at fair value as of December 31, 2012 and 2011, aggregated by the level in the fair value hierarchy within which those measurements fall:
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance at December 31, 2012 | ||||||||||||
| Assets: | |||||||||||||||
| Investment in real estate, net | $ | — | $ | — | $ | 25,500 | $ | 25,500 | |||||||
Liabilities: | |||||||||||||||
| Derivative instruments, net | $ | — | $ | 813 | $ | — | $ | 813 | |||||||
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance at December 31, 2011 | ||||||||||||
Assets: | |||||||||||||||
| Investment in real estate, net | $ | — | $ | — | $ | 4,056 | $ | 4,056 | |||||||
| Liabilities: | |||||||||||||||
| Derivative instruments, net | $ | — | $ | (2 | ) | $ | — | $ | (2 | ) | |||||
| 10. | Rentals Under Operating Leases |
The Company receives rental income from the leasing of retail shopping center space under operating leases with expiration dates through the year 2035. The minimum future base rentals for each of the next five years and thereafter under non-cancelable operating leases as of December 31, 2012 are as follows:
| Year Ending December 31, | Amount | |||
| 2013 | $ | 202,018 | ||
| 2014 | 179,851 | |||
| 2015 | 154,227 | |||
| 2016 | 134,991 | |||
| 2017 | 116,918 | |||
| Thereafter | 370,928 | |||
| Total | $ | 1,158,933 | ||
Minimum future base rentals do not include amounts which may be received from certain tenants based upon a percentage of their gross sales or as reimbursement of real estate taxes and property operating expenses. Minimum rents contain straight-line adjustments which caused rental revenue to increase by $2,825, $3,025, and $811, for the years ended December 31, 2012, 2011 and 2010, respectively. In 2012, 2011, and 2010, no tenant collectively accounted for more than 10.0% of rental income. The tenant base includes national, regional and local retailers, and consequently the credit risk is concentrated in the retail industry.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
11. Investment in and Advances to Unconsolidated Real Estate Entities
The Company's investment in material unconsolidated real estate entities at December 31, 2012 consisted of investments in two separate joint venture arrangements (the “Ventures”). A description of each of the Ventures is provided below:
| • | Blackstone Joint Venture |
This investment consists of a 40% interest held by a GPLP subsidiary in a joint venture (the “Blackstone Joint Venture”) with an affiliate of The Blackstone Group® ("Blackstone") that owns and operates both Lloyd Center, located in Portland, Oregon, and WestShore Plaza, located in Tampa, Florida. The Blackstone Joint Venture was formed in March 2010.
| • | ORC Venture |
This investment consists of a 52% economic interest held by GPLP in a joint venture (the “ORC Venture”) with an affiliate of Oxford Properties Group (“Oxford”), which is the global real estate platform for the Ontario (Canada) Municipal Employees Retirement System, a Canadian pension plan. The ORC Venture, formed in December 2005, owns and operates two mall Properties - Puente Hills Mall located in City of Industry, California and Tulsa Promenade ("Tulsa") located in Tulsa, Oklahoma.
•Pearlridge Venture - through May 8, 2012
This investment consisted of a 20% interest held by a GPLP subsidiary in a joint venture (the “Pearlridge Venture”) formed in November 2010 with Blackstone. The Pearlridge Venture owned and operated Pearlridge Center ("Pearlridge") which is located in Aiea, Hawaii.
On May 9, 2012, a GRT affiliate purchased the remaining 80% ownership interest in Pearlridge Venture from affiliates of Blackstone. The details of this transaction are further discussed in Note 24 - "Acquisition of Properties." After the purchase, the Pearlridge Venture was terminated.
Individual agreements specify which services the Company is to provide to each Venture. The Company, through its affiliates GDC and GPLP, provides management, development, construction, leasing and legal services for a fee to each of the Ventures described above. The Company recognized fee and service income of $7,886, $8,575 and $6,272 for the years ended December 31, 2012, 2011 and 2010, respectively.
Assets, liabilities and equity of the Blackstone Venture are included in the December 31, 2012 and 2011 combined unconsolidated joint venture Balance Sheets. The results of operations for the Blackstone Joint Venture are included in the combined unconsolidated joint venture Statements of Operations for the period March 26, 2010 through December 31, 2012.
With the initial purchase of its 20% interest in Pearlridge by the Pearlridge Venture on November 1, 2010 and subsequent purchase of Blackstone's 80% interest in Pearlridge by the Company on May 9, 2012, the assets, liabilities and equity for the Property are only included in the December 31, 2011 combined unconsolidated joint venture Balance Sheets. The results of operations for the Pearlridge Venture are included in the combined unconsolidated joint venture Statements of Operations for the period from November 1, 2010 through May 8, 2012.
As discussed in Note 12 - “Investment in Joint Ventures - Consolidated”, the Surprise Venture was consolidated as of July 20, 2012. Accordingly, the assets, liabilities and equity for this Property are included in the December 31, 2011 combined unconsolidated joint venture Balance Sheet and the results of operations for the Surprise Venture are included in the combined unconsolidated joint venture Statements of Operations for the period from January 1, 2010 through July 19, 2012.
The following combined joint venture Balance Sheets and Statements of Operations for all periods presented below include the ORC Venture.
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The net income or loss of the Company's unconsolidated joint ventures are allocated in accordance with the provisions of the applicable operating agreements. The summary financial information for all of the Company's unconsolidated joint ventures accounted for using the equity method is presented below:
| Balance Sheets | December 31, | ||||||
| 2012 | 2011 | ||||||
| Assets: | |||||||
| Investment properties at cost, net | $ | 488,499 | $ | 726,390 | |||
| Construction in progress | 8,055 | 10,485 | |||||
Intangible assets (1) | 7,065 | 34,351 | |||||
| Other assets | 39,606 | 46,802 | |||||
| Total assets | $ | 543,225 | $ | 818,028 | |||
| Liabilities and Members’ Equity: | |||||||
| Mortgage notes payable | $ | 347,575 | $ | 458,937 | |||
Notes payable (2) | 5,000 | 5,000 | |||||
Intangible liabilities (3) | 4,486 | 30,928 | |||||
| Other liabilities | 11,337 | 17,615 | |||||
| Total liabilities | 368,398 | 512,480 | |||||
| Members’ equity | 174,827 | 305,548 | |||||
| Total liabilities and members’ equity | $ | 543,225 | $ | 818,028 | |||
| GPLP’s share of members’ equity | $ | 85,849 | $ | 124,229 | |||
(1)Includes value of acquired in-place leases and acquired above-market leases.
(2) Amount represents a note payable to GPLP.
| (3) | Amount includes at December 31, 2012 and 2011 the value of acquired below-market leases. The |
amount at December 31, 2011 also includes the value of an acquired above-market ground lease.
| December 31, | |||||||
| 2012 | 2011 | ||||||
| GPLP’s share of members’ equity | $ | 85,849 | $ | 124,229 | |||
| Advances and additional costs | 853 | 564 | |||||
| Investment in and advances to unconsolidated real estate entities | $ | 86,702 | $ | 124,793 | |||
| For the Years Ended December 31, | |||||||||||
| Combined Statements of Operations | 2012 | 2011 | 2010 | ||||||||
| Total revenues | $ | 93,732 | $ | 129,235 | $ | 75,440 | |||||
| Operating expenses | 45,001 | 61,970 | 36,180 | ||||||||
| Depreciation and amortization | 26,025 | 36,944 | 22,251 | ||||||||
| Impairment loss | 23,575 | 17,246 | — | ||||||||
| Operating income | (869 | ) | 13,075 | 17,009 | |||||||
| Other expenses, net | 439 | 379 | 908 | ||||||||
| Interest expense, net | 18,392 | 24,327 | 16,029 | ||||||||
| Net (loss) income | (19,700 | ) | (11,631 | ) | 72 | ||||||
| Preferred dividend | 31 | 31 | 31 | ||||||||
| Net (loss) income from the Company's unconsolidated real estate entities | $ | (19,731 | ) | $ | (11,662 | ) | $ | 41 | |||
| GPLP’s share of (loss) income from the Company’s unconsolidated real estate entities | $ | (10,127 | ) | $ | (6,380 | ) | $ | 31 | |||
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
During the year ended December 31, 2012, the ORC Venture entered into a contingent contract to sell Tulsa at an amount less than its carrying value. Accordingly, the ORC Venture recorded impairments totaling $20,475 during the year ended December 31, 2012. The Company's proportionate share of the impairment loss related to Tulsa amounted to $10,647 for the year ended December 31, 2012. Also, the Surprise Venture recorded a $3,100 impairment loss for Town Square at Surprise, of which the Company's share totaled $1,550, as discussed in Note 12 - "Investment in Joint Ventures - Consolidated."
During the year ended December 31, 2011, the Company determined that it was more likely than not, that the ORC Venture would market the Tulsa property for sale. In accordance with ASC Topic 360, the ORC Venture reduced the carrying value of this Property to its estimated net realizable value and recorded impairment losses totaling $17,246. The ORC Venture initially used an independent appraisal to determine the Property's fair market value and recorded a $15,149 impairment loss. Subsequently, the ORC Venture entered into a contingent contract to sell Tulsa that was for a sale price lower than the reduced carrying value and recorded an additional impairment loss of $2,097. The contract was terminated in February 2012. The Company's proportionate share of the impairment loss related to Tulsa amounted to $8,967 for the year ended December 31, 2011.
12. Investment in Joint Ventures - Consolidated
As of December 31, 2012, the Company has an interest in two consolidated joint ventures. Each qualify as a VIE under ASC Topic 810 and the Company is the primary beneficiary of both of these joint ventures.
| • | Surprise Venture |
This investment consists of a 50% interest held by a GPLP subsidiary in a joint venture (the “Surprise Venture”) with the former landowner of the real property. The Surprise Venture owns and operates Town Square at Surprise (“Surprise”), a community shopping center located in Surprise, Arizona.
In accordance with ASC Topic 360 - “Property, Plant, and Equipment,” the Surprise Venture reduced the carrying value of this Property in 2012, to its estimated net realizable value based upon the Surprise Venture's best estimate of future use for the property and recorded a $3,100 impairment loss. The Surprise Venture used its estimated net sales value of the Property to determine its fair value. The Company's proportionate share of this impairment loss was $1,550 and is reflected in the 2012 Consolidated Statements of Operations and Comprehensive (Loss) Income within "Equity in (loss) income of unconsolidated real estate entities, net."
During the third quarter of 2012, the Surprise Venture extended the mortgage loan ("Surprise Loan") that encumbers Surprise. As part of the extension, the Surprise Venture was required to make a partial pay down of the principal balance on the loan. In connection with this, GPLP loaned $1,250 to the Surprise Venture, which was used primarily to reduce the principal balance of the Surprise Loan. This transaction was deemed to be a reconsideration event and it was determined that the Surprise Venture was a VIE.
After evaluating several key control activities that could potentially provide a substantial impact to the entity's overall economic performance, and evaluating which member of the Surprise Venture has the ability to receive the primary benefit or risk of loss, it was determined that the Company was the primary beneficiary of the Surprise Venture. Effective July 20, 2012, the Company began reporting the Surprise Venture as a consolidated real estate entity on a prospective basis.
During the fourth quarter of 2012, GPLP made $150 in additional loans to the Surprise Venture. GPLP's outstanding loan to the Surprise Venture is $1,400 at December 31, 2012 and eliminates in consolidation.
| • | VBF Venture |
On October 5, 2007, an affiliate of the Company entered into an agreement with Vero Venture I, LLC to form Vero Beach Fountains, LLC (the “VBF Venture”). The VBF Venture owns undeveloped land in Vero Beach, Florida. The Company contributed $5,000 in cash for a 50% interest in the VBF Venture. The economics of the VBF Venture require the Company to receive a preferred return and 75% of the distributions from the VBF Venture until such time as the capital contributed by the Company is returned.
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The Company did not provide any additional financial support to the VBF Venture during the year ended December 31, 2012. Furthermore, the Company does not have any contractual commitments or obligations to provide additional financial support to the VBF Venture.
The carrying amounts and classification on the Company's Consolidated Balance Sheets of the total assets and liabilities of both the Surprise Venture and the VBF Venture at December 31, 2012 and December 31, 2011 are as follows:
December 31, 2012 | December 31, 2011 | |||||||
Investment in real estate, net (1) | $ | 8,513 | $ | 5,215 | ||||
| Total assets | $ | 8,699 | $ | 5,215 | ||||
| Mortgage notes payable | $ | 3,592 | $ | — | ||||
| Total liabilities | $ | 3,755 | $ | — | ||||
| (1) | As of December 31, 2011, the Company's investment in the Surprise Venture of $1,557 was classified as an "Investment in and advances to unconsolidated real estate entities." |
Both the Surprise Venture and the VBF Venture are separate legal entities, and are not liable for the debts of the Company. All of the assets in the table above are restricted for settlement of the joint venture obligations. Accordingly, creditors of the Company may not satisfy their debts from the assets of the Surprise Venture or the VBF Venture except as permitted by applicable law or regulation, or by agreement. Also, creditors of the Surprise Venture or VBF Venture may not satisfy their debts from the assets of the Company except as permitted by applicable law or regulation, or by agreement.
13. Related Party Transactions
Huntington Insurance, Inc. (successor-in-interest of the Archer-Meek-Weiler Insurance Agency)
The Company has engaged Huntington Insurance, Inc. (f/k/a Sky Insurance) as its agent for the purpose of obtaining property, liability, directors and officers, and employee practices liability insurance coverage. Sky Insurance, Inc., a subsidiary of Huntington Bancshares Corporation and known now as Huntington Insurance, Inc., acquired The Archer-Meek-Weiler Insurance Agency (“Archer-Meek-Weiler”), our previous insurance agent, in October 2007. Mr. Alan R. Weiler, a Class II Trustee, currently serves as Senior Vice President of Huntington Insurance, Inc. In connection with serving as an insurance agent for the Company and securing the above-described insurance coverage, Huntington Insurance, Inc. received commissions and fees of $330, $330, and $340 for years ended December 31, 2012, 2011, and 2010, respectively. The stock of Archer-Meek-Weiler was owned by a trust for the benefit of Mr. Weiler's children and the children of his brother, Robert J. Weiler, until October 2007 when it was purchased by Sky Insurance, Inc. (n/k/a Huntington Insurance, Inc.).
Leasing Activity
Until September 30, 2012, Herbert Glimcher, the Company's Chairman Emeritus and a Class III Trustee, held an ownership interest in a limited liability company that has executed a commercial lease for one location in one of the Company's regional mall properties. Mr. Glimcher divested his interest on September 30, 2012. Rents or other lease charges billed by the Company for the aforementioned lease during the year ended December 31, 2012 and 2011 totaled $109 and $39, respectively. During the second quarter of 2011, the Company completed construction on the store and had expended approximately $18 on such construction. The lease has a ten year initial term with annual base rents of approximately $78 per year. The base rent, percentage rent, and other lease related charges for such location were determined in a negotiated transaction between the parties.
Mayer Glimcher, a brother of Herbert Glimcher, owns a company that currently leases four store locations in the Company's Properties. Rents totaled $315, $437, and $364, for the years ended December 31, 2012, 2011, and 2010, respectively. The rents for each location were determined in negotiated transactions between the parties involved.
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
14. Commitments and Contingencies
The Operating Partnership leases office and parking space for its corporate headquarters under two operating leases that have initial terms of ten years and five years, respectively, commencing in 2008. Subsequently, the lease for the parking space was amended and extended to expire on July 31, 2016. Future minimum rental payments for each of the next five years and thereafter, as of December 31, 2012, are as follows:
| Year Ending December 31, | Office and Parking Leases | |||
| 2013 | $ | 676 | ||
| 2014 | 698 | |||
| 2015 | 698 | |||
| 2016 | 630 | |||
| 2017 | 535 | |||
| Thereafter | 223 | |||
| Total | $ | 3,460 | ||
Office rental and parking expenses, including reimbursement for common area maintenance costs, for the years ended December 31, 2012, 2011 and 2010 were $1,258, $1,217, and $1,188, respectively.
The Company has commitments under ground leases at both the Malibu Lumber Yard ("Malibu") and Pearlridge. The ground lease at Malibu will expire in 2047 and has three five-year extension options which are exercisable at the option of the Company. The ground lease at Malibu provides for scheduled rent increases every five years. The ground lease at Malibu may require additional payments which are calculated based on percentage rent. The ground lease payments in the below schedule do not reflect payments based on percentage rent.
The ground lease at Pearlridge will expire in 2058 and has two ten-year extension options which are exercisable at the option of the Company. The ground lease at Pearlridge provides for scheduled rent increases every five years through the end of 2043, at which time minimum ground rent is adjusted to the higher of fair market value or the ground rent charged in the previous year. Future minimum ground lease payments due as of December 31, 2012 are as follows:
| Year Ending December 31, | Malibu and Pearlridge Ground Leases | |||
| 2013 | $ | 4,363 | ||
| 2014 | 4,753 | |||
| 2015 | 4,753 | |||
| 2016 | 4,753 | |||
| 2017 | 4,753 | |||
| Thereafter | 288,594 | |||
| Total | $ | 311,969 | ||
Ground lease expense for the year ended December 31, 2012 totaled $5,381 which includes $1,845 in straight-line rent, $514 in net below market ground lease amortization, and $217 in percentage rent, and is reflected as a component of “Other operating expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. There was no ground lease expense for the year ended December 31, 2011.
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
At December 31, 2012, there were 2.3 million OP Units outstanding. These OP Units are redeemable, at the option of the holders, beginning on the first anniversary of their issuance. The redemption price for an OP Unit shall be, at the option of GPLP, payable in the following form and amount: a) cash at a price equal to the fair market value of one Common Share of GRT or b) one Common Share for each OP Unit. The fair value of the OP Units outstanding at December 31, 2012 is $25,504 based upon a per unit value of $11.05 at December 31, 2012 (based upon a five-day average of the Common Stock price from December 21, 2012 to December 28, 2012).
In July 1998, the New Jersey Economic Development Authority issued approximately $140,500 of Economic Development Bonds. On May 29, 2002, the New Jersey Economic Development Authority refunded certain of the Economic Development Bonds issued in 1998 and issued approximately $108,940 of replacement Economic Development Bonds. The Company began making quarterly Payment In Lieu of Taxes (“PILOT”) payments commencing May 2001 and terminating on the date of the final payment of the bonds. Such PILOT payments are treated as real estate tax expense in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The amount of the annual PILOT payments beginning with the bond year ended April 1, 2001 was $8,925 and increases 10.0% every five years until the final payment is made. The Company has provided a limited guarantee of franchise tax payments to be received by the city until franchise tax payments achieve $5,600 annually. The guarantee agreement allows the Company to recover payments made under the guaranty plus interest at LIBOR plus 2% per annum. The reimbursement will occur from any excess assessments collected by the city above specified annual levels over the Franchise Assessment period of 30 years. Through December 31, 2012, the Company has made $17,560 in payments under this guarantee agreement. Of these payments, $15,032 is included in “Prepaid and other assets” in the Consolidated Balance Sheets as of December 31, 2012 and 2011, that the Company anticipates recovering from excess franchise assessments collected by the city in future years. During 2010, the Company was relieved from its limited guarantee of franchise taxes.
The Company has reserved $118 in relation to a contingency associated with the sale of Loyal Plaza, a community center sold in 2002, for environmental assessment and monitoring matters.
The Company is involved in lawsuits, claims and proceedings, which arise in the ordinary course of business. The Company is not presently involved in any material litigation. In accordance with SFAS No. 5, “Accounting for Contingencies,” which was primarily codified into ASC Topic 450 - “Contingencies,” the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Although the outcome of any litigation is uncertain, the Company does not expect any such legal actions to have a material adverse effect on the Company's consolidated financial condition or results of operations taken as a whole.
15. Stock-Based Compensation
Restricted Common Stock
Outstanding shares of restricted Common Stock have been granted pursuant to GRT’s 2004 Amended and Restated Incentive Compensation Plan (the “2004 Plan”) and the GRT 2012 Incentive Compensation Plan (the "2012 Plan").
During the year ended December 31, 2012, 852,720 restricted Common Shares were awarded to GRT's senior executive officers. Of this amount, 659,091 restricted Common Shares vest on the fifth anniversary of the grant date and 193,629 vest in one-third installments over a period of five years beginning on the third anniversary of the grant date.
Restricted Common Shares issued to GRT's senior executive officers for the years ended December 31, 2011 and 2010 vest in one-third installments over a period of five (5) years beginning on the third anniversary of the grant date.
During the year ended December 31, 2012, 45,504 restricted Common Shares were awarded to GRT's non-employee members of GRT's Board of Trustees. Restricted Common Shares issued for the year ended December 31, 2012 and 2011 to non-employee members of GRT's Board of Trustees vest in one-third installments over a period of three (3) years beginning on the one year anniversary of the grant date. Restricted Common Shares issued for the year ended December 31, 2010 to non-employee members of GRT's Board of Trustees vest in one-third installments over a period of five (5) years beginning on the third anniversary of the grant date.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The restricted Common Stock value is determined by the Company’s closing market share price on the grant date. As restricted Common Stock represents an incentive for future periods, the Company recognizes the related compensation expense ratably over the applicable vesting periods. The related compensation expense recorded for the years ended December 31, 2012, 2011 and 2010 was $1,669, $1,035, and $897, respectively. The amount of compensation expense related to unvested restricted shares that we expect to recognize in future periods is $10,752 over a weighted average period of 4.3 years. During the years ended December 31, 2012, 2011, and 2010 the aggregate intrinsic value of shares that vested was $900, $1,184, and $854, respectively.
A summary of the status of restricted Common Stock at December 31, 2012, 2011 and 2010 and changes during the years then ended on those dates are presented below:
| Activity for the Years Ending December 31, | ||||||||||||||||||||
| 2012 | 2011 | 2010 | ||||||||||||||||||
| Restricted Shares | Weighted Average Grant Date Fair Value | Restricted Shares | Weighted Average Grant Date Fair Value | Restricted Shares | Weighted Average Grant Date Fair Value | |||||||||||||||
| Outstanding at beginning of year | 691,942 | $ | 6.514 | 498,447 | $ | 6.623 | 350,056 | $ | 9.544 | |||||||||||
| Shares granted | 898,224 | $ | 10.715 | 255,886 | $ | 9.340 | 180,666 | $ | 4.510 | |||||||||||
| Shares vested/forfeited | (149,934 | ) | $ | 7.517 | (62,391 | ) | $ | 18.977 | (32,275 | ) | $ | 26.474 | ||||||||
| Shares outstanding | 1,440,232 | $ | 9.030 | 691,942 | $ | 6.514 | 498,447 | $ | 6.623 | |||||||||||
Long Term Incentive Awards
During the year ended December 31, 2012, GRT allocated 193,629 performance shares to its senior executive officers under the 2012 Plan. Under the terms of the 2012 Plan, a 2012 Plan participant’s allocation of performance shares are convertible into Common Shares as determined by the outcome of GRT’s relative total shareholder return (“TSR”) for its Common Shares during the period of January 1, 2012 to December 31, 2014 (the “2012 Performance Period”), as compared to the TSR for the common shares of a selected group of twenty-four retail-oriented real estate investment trusts (the "Peer Group").
During the year ended December 31, 2011, GRT allocated 103,318 performance shares to certain of its executive officers under the 2011 Glimcher Long-Term Incentive Compensation Plan (the "LTIP"). An LTIP participant’s allocation of performance shares are convertible into Common Shares as determined by the outcome of GRT’s relative TSR for its Common Shares during the period of January 1, 2011 to December 31, 2013 (the "2011 Performance Period") as compared to the TSR for the common shares of a selected group of companies in the Peer Group.
The compensation expense recorded for performance shares was calculated in accordance with ASC Topic 718 - “Compensation-Stock Compensation.” The fair value of the unearned portion of the performance share awards was determined utilizing the Monte Carlo simulation technique and will be amortized to compensation expense over the length of the 2012 Performance Period and the 2011 Performance Period, as appropriate.
The fair value of the performance shares allocated under the 2012 Plan was determined to be $9.26 per share for a total compensation amount of $1,793 to be recognized over the 2012 Performance Period. The assumptions used to calculate the fair value were as follows: three year risk free rate of 0.33%; volatility of 48.1% and a dividend yield of 4.03%. The fair value of the performance shares allocated under the 2004 Plan was determined to be $8.64 per share for a total compensation amount of $846 to be recognized over the 2011 Performance Period. The assumptions used to calculate the fair value were as follows: three year risk free rate of 1.00%; volatility of 45.6% and a dividend yield of 5.45%.
The amount of compensation expense related to all outstanding performance shares was $766 and $212 for the years ended December 31, 2012 and 2011, respectively. The Company did not incur any compensation expense related to performance shares for the year ended December 31, 2010. The amount of compensation expense related to performance shares that we expect to recognize in future periods is $1,661 over a weighted average period of 1.8 years.
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
16. Stock Option Plans
GRT has established the 1997 Incentive Plan (the “1997 Plan”), the 2004 Plan, and the 2012 Plan for the purpose of attracting and retaining the Company’s trustees, executives and other employees (the 1997 Plan, the 2004 Plan, and the 2012 Plan are collectively referred to as the “Plans”). There are 344,110 options outstanding under the 1997 Plan which are all exercisable; 1,214,282 options outstanding under the 2004 Plan, of which 978,367 are exercisable and 287,500 options outstanding under the 2012 Plan of which none are exercisable.
Options granted under the Plans generally vest over a three-year period, with options exercisable at a rate of 33.3% per annum beginning with the first anniversary of the grant date. The options generally expire on the tenth anniversary of the grant date. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options pricing model and is amortized over the requisite vesting period. Compensation expense recorded related to the Company’s stock option plans was $817, $415, and $171 for the years ended December 31, 2012, 2011 and 2010, respectively. The amount of compensation expense related to stock options that we expect to recognize in future periods is $1,463 over a weighted average period of 2.0 years.
A summary of the status of the Company’s Plans at December 31, 2012, 2011 and 2010, and changes during the years then ended, are presented below:
| Option Plans: | Options | 2012 Weighted Average Exercise Price | Options | 2011 Weighted Average Exercise Price | Options | 2010 Weighted Average Exercise Price | |||||||||||||||
| Outstanding at beginning of year | 1,827,839 | $ | 16.14 | 1,676,936 | $ | 16.69 | 1,677,441 | $ | 19.28 | ||||||||||||
| Granted | 297,000 | $ | 9.93 | 246,500 | $ | 9.38 | 297,766 | $ | 4.49 | ||||||||||||
| Exercised | (151,527 | ) | $ | 3.15 | (43,198 | ) | $ | 2.72 | (18,668 | ) | $ | 1.40 | |||||||||
| Forfeited | (127,420 | ) | $ | 15.77 | (52,399 | ) | $ | 12.99 | (279,603 | ) | $ | 20.26 | |||||||||
| Outstanding at end of year | 1,845,892 | $ | 16.23 | 1,827,839 | $ | 16.14 | 1,676,936 | $ | 16.69 | ||||||||||||
| Exercisable at end of year | 1,322,477 | $ | 19.13 | 1,323,573 | $ | 19.88 | 1,198,587 | $ | 21.85 | ||||||||||||
The fair value of each option grant was estimated on the date of the grant using the Black-Scholes options pricing mode. The weighted average per share value of options granted as well as the assumptions used to value the grants is listed below:
| 2012 | 2011 | 2010 | |||||||||
| Weighted average per share value of options granted | $ | 4.99 | $ | 4.93 | $ | 1.68 | |||||
| Weighted average risk free rates | 1.0 | % | 2.2 | % | 2.4 | % | |||||
| Expected average lives in years | 6 | 6 | 5 | ||||||||
| Annual dividend rates | $ | 0.40 | $ | 0.40 | $ | 0.40 | |||||
| Weighted average volatility | 79.4 | % | 84.6 | % | 82.8 | % | |||||
The Company uses the following methods to determine its significant assumptions as it relates to calculating the fair value of options: the weighted average risk free rates are derived from the treasury notes that corresponds to the estimated life of the options; the expected lives are calculated by using historical activity from options granted to the end of the previous year; the annual dividend rates are calculated based upon the Company’s current annual dividend; and the weighted average volatility percentage is primarily calculated by using a rolling five year period ending on the date of the new options granted.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The following table summarizes information regarding the options outstanding at December 31, 2012 under the Plans:
| Options Outstanding | Options Exercisable | |||||||||||
Range of Exercise Prices | Number Outstanding at December 31, 2012 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at December 31, 2012 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | ||||||
| $18.93 – $22.36 | 150,670 | 0.2 | $18.97 | 150,670 | 0.2 | $18.97 | ||||||
| $19.56 – $26.69 | 255,583 | 1.3 | $25.35 | 255,583 | 1.3 | $25.35 | ||||||
| $24.74 – $25.67 | 212,667 | 2.2 | $25.56 | 212,667 | 2.2 | $25.56 | ||||||
| $25.22 | 236,250 | 3.3 | $25.22 | 236,250 | 3.3 | $25.22 | ||||||
| $21.45 – $27.28 | 90,750 | 4.2 | $26.96 | 90,750 | 4.2 | $26.96 | ||||||
| $10.94 | 79,500 | 5.2 | $10.94 | 79,500 | 5.2 | $10.94 | ||||||
| $1.40 – $3.07 | 131,866 | 6.2 | $1.42 | 131,866 | 6.2 | $1.42 | ||||||
| $3.30 - $4.51 | 183,631 | 7.2 | $4.50 | 99,704 | 7.2 | $4.51 | ||||||
| $9.38 | 217,475 | 8.3 | $9.38 | 65,487 | 8.3 | $9.38 | ||||||
| $9.93 | 287,500 | 9.4 | $9.93 | — | ||||||||
| 1,845,892 | 4.9 | $16.23 | 1,322,477 | 3.4 | $19.13 | |||||||
Options granted under the Plans primarily are exercisable over a three-year period. The three-year period vests with options exercisable at a rate of 33.3% per annum beginning with the first anniversary of the date of grant and will remain exercisable through the tenth anniversary of such date. Exceptions to this vesting schedule are options that are exercisable immediately and will remain exercisable through the tenth anniversary of date granted. There were no options that were exercisable immediately granted during the years ended December 31, 2012, 2011, and 2010. The aggregate intrinsic value of those options outstanding as of December 31, 2012 was $3,203. The intrinsic value of options exercisable at December 31, 2012 was $2,055.
The following table summarizes the intrinsic value of options exercised and fair value of options vested for the three years ended December 31, 2012, 2011 and 2010:
For the year ended December 31, 2012 | For the year ended December 31, 2011 | For the year ended December 31, 2010 | |||||||||
| Aggregate intrinsic value of options exercised | $ | 1,088 | $ | 278 | $ | 101 | |||||
| Aggregate fair value of options vested | $ | 542 | $ | 179 | $ | 133 | |||||
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
17. Employee Benefit Plan – 401(k) Plan
In January 1996, the Company established a qualified retirement savings plan under IRC Section 401(k) for eligible employees, which contains a cash or deferred arrangement which currently permits participants to defer up to a maximum 75% of their compensation, subject to certain limitations. Employees 21 years old or above who have been employed by the Company for at least six months are eligible to participate. Participants' salary deferrals of qualified compensation were matched as follows: the first 3% of qualified compensation were matched at 100% and qualified compensation of between 4% and 5% were matched at 50%. The plan qualifies as a safe harbor plan. The Company contributed $891 and $819 to the plan in 2012 and 2011, respectively. During the year ended December 31, 2010 the Company did not match any qualified contributions to the plan.
18. Distribution Reinvestment and Share Purchase Plan
The Company has a Distribution Reinvestment and Share Purchase Plan under which its shareholders may elect to purchase additional Common Shares and/or automatically reinvest their distributions in Common Shares. In order to fulfill its obligations under the plan, GRT may purchase Common Shares in the open market or issue Common Shares that have been registered and authorized specifically for the plan. During the year ended December 31, 2012, GRT received $90 in net proceeds from the Distribution Reinvestment and Share Purchase Plan. As of December 31, 2012, there were 2,100,000 Common Shares authorized specifically for the plan, of which 440,256 Common shares have been issued.
19. Secondary Offerings
On July 30, 2010, GRT completed a secondary public offering of 16,100,000 Common Shares at a price of $6.25 per share, which included 2,100,000 Common Shares issued and sold upon the full exercise of the underwriters' option to purchase additional Common Shares. The net proceeds to GRT from the offering, after deducting underwriting commissions, discounts and offering expenses were $95,615.
On January 11, 2011, GRT completed a secondary public offering of 14,822,620 Common Shares at a price of $8.30 per share, which included 1,822,620 Common Shares issued and sold upon the full exercise of the underwriters' option to purchase additional Common Shares. The net proceeds to GRT from the offering, after deducting underwriting commissions, discounts, and offering expenses, were $116,657.
On March 27, 2012, GRT completed a secondary public offering of 23,000,000 Common Shares at a price of $9.90 per share, which included 3,000,000 Common Shares issued and sold upon the full exercise of the underwriters' option to purchase additional Common Shares. The net proceeds to GRT from the offering, after deducting underwriting commissions, discounts, and offering expenses, were $216,858.
On May 5, 2011, the GRT Board of Trustees approved the issuance of up to $100,000 in Common Shares under an “at-the-market” equity offering program (the “GRT ATM Program”). Actual sales under the GRT ATM Program will depend on a variety of factors and conditions, including, but not limited to, market conditions, the trading price of the Common Stock, and determinations of the appropriate sources of funding for the Company. GRT expects to continue to offer, sell, and issue Common Shares under the GRT ATM Program from time to time based on various factors and conditions, although GRT is not under any obligation to sell any Common Shares. On December 20, 2011, GRT completed an amendment to the GRT ATM Program to increase the aggregate sale price of Common Shares that may be offered and sold under the GRT ATM Program from $100,000 to $200,000.
During the year ended December 31, 2011, GRT issued 15,591,033 Common Shares under the GRT ATM Program at a weighted average issue price of $9.15 per Common Share generating net proceeds of $139,672 after deducting $3,058 of offering related costs and commissions. GRT used the proceeds from the GRT ATM Program to reduce the outstanding balance under the Credit Facility. As of December 31, 2011, GRT had $57,270 available for issuance under the GRT ATM Program.
During the year ended ended December 31, 2012, GRT issued 2,606,900 Common Shares under the GRT ATM Program at a weighted average issue price of $10.44 per Common Share, generating net proceeds of $26,418 after deducting $808 of offering related costs and commissions. GRT used the proceeds from the GRT ATM Program to reduce the outstanding balance under the Credit Facility. As of December 31, 2012, GRT had $30,043 available for issuance under the GRT ATM Program.
The Company is authorized to issue 250,000,000 Common Shares of beneficial interest of GRT. As of December 31, 2012 the Company has 83,173,578 Common Shares remaining for future issuance.
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
20. Earnings Per Share
The presentation of primary EPS and diluted EPS is summarized in the table below (shares in thousands):
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||
| 2012 | 2011 | 2010 | ||||||||||||||||||||||||||||||
| Income | Shares | Per Share | Income | Shares | Per Share | Income | Shares | Per Share | ||||||||||||||||||||||||
| Basic EPS | ||||||||||||||||||||||||||||||||
| Loss from continuing operations | $ | (3,666 | ) | $ | (9,932 | ) | $ | (458 | ) | |||||||||||||||||||||||
| Less: Preferred stock dividends | (24,969 | ) | (24,548 | ) | (22,236 | ) | ||||||||||||||||||||||||||
| Less: Preferred stock redemption costs | (3,446 | ) | - | - | ||||||||||||||||||||||||||||
| Noncontrolling interest adjustments (1) | 618 | 997 | 5,505 | |||||||||||||||||||||||||||||
| Loss from continued operations | $ | (31,463 | ) | 135,152 | $ | (0.23 | ) | $ | (33,483 | ) | 104,220 | $ | (0.32 | ) | $ | (17,189 | ) | 75,738 | $ | (0.23 | ) | |||||||||||
| Income from discontinued operations | $ | 984 | $ | 29,277 | $ | 838 | ||||||||||||||||||||||||||
| Noncontrolling interest adjustments (1) | (17 | ) | (785 | ) | (32 | ) | ||||||||||||||||||||||||||
| Income from discontinued operations | $ | 967 | 135,152 | $ | 0.01 | $ | 28,492 | 104,220 | $ | 0.27 | $ | 806 | 75,738 | $ | 0.01 | |||||||||||||||||
| Net loss to common shareholders | $ | (30,496 | ) | 135,152 | $ | (0.23 | ) | $ | (4,991 | ) | 104,220 | $ | (0.05 | ) | $ | (16,383 | ) | 75,738 | $ | (0.22 | ) | |||||||||||
| Diluted EPS | ||||||||||||||||||||||||||||||||
| Loss from continuing operations | $ | (3,666 | ) | 135,152 | $ | (9,932 | ) | 104,220 | $ | (458 | ) | 75,738 | ||||||||||||||||||||
| Less: Preferred stock dividends | (24,969 | ) | (24,548 | ) | (22,236 | ) | ||||||||||||||||||||||||||
| Less: Preferred stock redemption costs | (3,446 | ) | - | - | ||||||||||||||||||||||||||||
| Noncontrolling interest adjustments (2) | 47 | - | 4,782 | |||||||||||||||||||||||||||||
| Operating Partnership Units | 2,472 | 2,881 | 2,986 | |||||||||||||||||||||||||||||
| Loss from continuing operations | $ | (32,034 | ) | 137,624 | $ | (0.23 | ) | $ | (34,480 | ) | 107,101 | $ | (0.32 | ) | $ | (17,912 | ) | 78,724 | $ | (0.23 | ) | |||||||||||
| Income from discontinued operations | $ | 984 | 137,624 | $ | 0.01 | $ | 29,277 | 107,101 | $ | 0.27 | $ | 838 | 78,724 | $ | 0.01 | |||||||||||||||||
| Net loss to common shareholders before noncontrolling interest | $ | (31,050 | ) | 137,624 | $ | (0.23 | ) | $ | (5,203 | ) | 107,101 | $ | (0.05 | ) | $ | (17,074 | ) | 78,724 | $ | (0.22 | ) | |||||||||||
| (1) | The noncontrolling interest adjustment reflects the allocation of noncontrolling interest expense to continuing and discontinued operations for appropriate allocation in the calculation of the earnings per share. |
| (2) | Amount represents noncontrolling interest expense associated with consolidated joint ventures. |
Loss from continuing operations for Basic EPS for the year ended December 31, 2010 was previously reported as $(0.22). This change can be attributed to the reclassification of activity to discontinued operations in accordance with applicable accounting guidance.
All Common Stock equivalents have been excluded from the respective computation of EPS because to do so would have been antidilutive. The Company has issued restricted shares which have non-forfeitable rights to dividends immediately after issuance. These shares are considered participating securities and have been included in the weighted average outstanding share amounts.
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
21. Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted cash, tenant accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturity of these financial instruments. The carrying value of the Credit Facility is also a reasonable estimate of its fair value because it bears variable rate interest at current market rates. Based on the discounted amount of future cash flows using rates currently available to GRT for similar liabilities (ranging from 3.00% to 6.00% per annum at December 31, 2012 and from 2.89% to 6.25% at December 31, 2011), the fair value of GRT's mortgage notes payable is estimated at $1,433,470 and $1,205,046 at December 31, 2012 and December 31, 2011, respectively, compared to its carrying amounts of $1,399,774 and $1,175,053, respectively. The fair value of the debt instruments considers, in part, the credit of GRT as an entity and not just the individual entities and Properties owned by GRT. Fair value of debt was estimated using cash flows discounted at current market rates, as estimated by management. When determining current market rates for purposes of estimating the fair value of debt, the Company employed adjustments to the original credit spreads used when the debt was originally issued to account for current market conditions.
22. Intangible Assets Associated with Acquisitions
Intangibles assets and liabilities as of December 31, 2012 and 2011, which were recorded at the respective acquisition dates, are associated with acquisitions of Eastland, Polaris Fashion Place ("Polaris") located in Columbus, Ohio, Merritt Square Mall in Merritt Island, Florida, Town Center Plaza and One Nineteen both located in Leawood, Kansas, Pearlridge, and Malibu. The Company has re-branded One Nineteen and will be referred to herein as "Town Center Crossing."
During the second quarter of 2012, the Company acquired the remaining 80% of Pearlridge and the entire asset is now included in the Consolidated Balance Sheet at December 31, 2012. The Company also acquired Town Center Crossing and Malibu during the second quarter of 2012.
The gross intangibles recorded as of their respective acquisition dates are comprised of an asset for acquired above-market leases of $13,558 in which the Company is the lessor, a liability for acquired below-market leases of $58,043 in which the Company is the lessor, an asset of $12,571 for an acquired below-market lease in which the Company is the lessee, a liability of $8,102 for an acquired above-market lease in which the Company is the lessee, an asset for tenant relationships of $2,689, and an asset for in-place leases for $46,977.
The intangibles related to above and below-market leases in which the Company is the lessor are amortized to minimum rents on a straight-line basis over the estimated life of the lease. The above and below-market leases in which the Company is the lessee are amortized to other operating expenses over the life of the non-cancelable lease terms. Tenant relationships are amortized to depreciation and amortization expense over the remaining estimated useful life of the tenant relationship. In-place leases are amortized to depreciation and amortization expense over the life of the leases to which they pertain.
Net amortization for all of the acquired intangibles is an decrease to net income in the amount of $4,390, $255, and $33 for the years December 31, 2012, 2011, and 2010, respectively.
The table below identifies the type of intangible assets, their location on the Consolidated Balance Sheets, their weighted average amortization period, and their book value, which is net of amortization, as of December 31, 2012 and 2011.
| Balance as of December 31, | ||||||||||||
Intangible Asset/Liability | Location on the Consolidated Balance Sheets | Weighted Average Remaining Amortization (in years) | 2012 | 2011 | ||||||||
| Above-Market Leases - Company is lessor | Prepaid and other assets | 8.1 | $ | 9,224 | $ | 4,327 | ||||||
| Below-Market Leases - Company is lessor | Accounts payable and accrued expenses | 11.7 | $ | 43,040 | $ | 5,548 | ||||||
| Below-Market Leases - Company is lessee | Prepaid and other assets | 31.0 | $ | 11,764 | $ | — | ||||||
| Above-Market Leases - Company is lessee | Accounts payable and accrued expenses | 50.0 | $ | 7,808 | $ | — | ||||||
| Tenant Relationships | Prepaid and other assets | 4.0 | $ | 827 | $ | 1,034 | ||||||
| In-Place Leases | Building, improvements, and equipment | 6.7 | $ | 34,061 | $ | 7,272 | ||||||
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The table below shows the net amortization of intangibles as a decrease to net income over the next five years:
| Year Ending December 31, | Amount | |||
| 2013 | $ | 4,976 | ||
| 2014 | 2,858 | |||
| 2015 | 1,562 | |||
| 2016 | 1,149 | |||
| 2017 | 553 | |||
| Total | $ | 11,098 | ||
23. Discontinued Operations
Financial results of Properties the Company sold are reflected in discontinued operations for all periods reported in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The table below summarizes key financial results for these discontinued operations:
| For the Years Ended December 31, | |||||||||||
| 2012 | 2011 | 2010 | |||||||||
| Revenues | $ | 6,729 | $ | 7,638 | $ | 7,749 | |||||
| Operating expenses | (5,747 | ) | (3,193 | ) | (3,580 | ) | |||||
| Operating income | 982 | 4,445 | 4,169 | ||||||||
| Interest income (expense), net | 2 | (2,968 | ) | (3,116 | ) | ||||||
| Net income from operations | 984 | 1,477 | 1,053 | ||||||||
| Gain (loss) on disposition of properties | — | 27,800 | (215 | ) | |||||||
| Net income from discontinued operations | $ | 984 | $ | 29,277 | $ | 838 | |||||
The revenues and operating expenses for the year ended December 31, 2012 primarily relate to the sale of an outparcel at Northtown Mall, located in Blaine, Minnesota during the third quarter of 2012. The revenues and expenses for the years ended December 31, 2011 and 2010 primarily relate to Polaris Towne Center, located in Columbus, Ohio, which was sold during the fourth quarter of 2011.
The gain on disposition of property during the year ended December 31, 2011 relates to the sale of Polaris Towne Center. The loss on disposition of properties during the year ended December 31, 2010 relates to a litigation settlement pertaining to one of the Company's sold properties.
24. Acquisition of Properties
On May 9, 2012, the Company purchased the remaining 80% indirect ownership interest in the Pearlridge Venture from an affiliate of Blackstone. The purchase price amounted to $289,400, which included the assumption of Blackstone's pro-rata share of the $175,000 mortgage debt encumbering Pearlridge, which remained in place after the closing, and a cash payment of $149,400. The Company determined that the purchase price represented the fair value of the additional ownership interest in Pearlridge that was acquired. As required for an acquisition achieved in stages, the Company re-measured its previously held 20% interest in the Pearlridge Venture, which had a recorded value of $12,282 at the date of acquisition. This recorded value was adjusted to fair value which resulted in a recognized gain of $25,068 and is reflected as a “Gain on remeasurement of equity method investment” in the Consolidated Statement of Operations and Comprehensive (Loss) Income.
On May 24, 2012, the Company purchased Town Center Crossing, an approximately 164,000 square foot outdoor retail center, for $67,500. Town Center Crossing is adjacent to Town Center Plaza, which was purchased during the fourth quarter of 2011.
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
On June 26, 2012, the Company acquired the ground leasehold interest and improvements at Malibu, an approximately 31,000 square foot outdoor retail center which is located in Malibu, California, for $35,500.
Since its acquisition date, Pearlridge had revenues of $32,521 for the year ended December 31, 2012. Town Center Crossing and Malibu had combined revenues of $7,121. Pearlridge, Town Center Crossing, and Malibu (the "Acquisitions") had a combined net loss of $2,117 for the year ended December 31, 2012. The Company expensed $312 in acquisition related costs for the year ended December 31, 2012.
The following table summarizes the consideration paid for the Acquisitions and the amounts of the assets acquired and liabilities assumed at their respective acquisition dates. The information listed below reflects final purchase price allocations as determined by the Company.
| Pearlridge | Combined Town Center Crossing and Malibu (6) | Total | ||||||||||
Cash consideration paid for Acquisitions (1) | $ | 139,519 | $ | 99,807 | $ | 239,326 | ||||||
| Fair value of Company's interest in Pearlridge Center before acquisition | 37,350 | — | 37,350 | |||||||||
| Fair value of net assets acquired | $ | 176,869 | $ | 99,807 | $ | 276,676 | ||||||
| Recognized amounts of identifiable assets acquired and liabilities assumed | ||||||||||||
| Land | $ | 17,229 | $ | 12,499 | $ | 29,728 | ||||||
| Buildings, improvements and equipment | 354,933 | 99,062 | 453,995 | |||||||||
| Deferred costs | 4,542 | 2,628 | 7,170 | |||||||||
| Restricted cash | 1,315 | — | 1,315 | |||||||||
Tenant accounts receivable (2) | (222 | ) | (177 | ) | (399 | ) | ||||||
Prepaid and other assets (3) | 16,220 | 2,394 | 18,614 | |||||||||
Mortgage notes payable (4) | (180,790 | ) | — | (180,790 | ) | |||||||
Accounts payable and accrued expenses (5) | (36,358 | ) | (16,599 | ) | (52,957 | ) | ||||||
| Total amount of identifiable assets acquired and liabilities assumed | $ | 176,869 | $ | 99,807 | $ | 276,676 | ||||||
(1) Amount shown is net of the $9,881 in cash the Company received from the acquisition of Pearlridge.
(2) Amounts relate to credits given at closing for cash collected related to tenant accounts receivable.
(3) Amount relates to above-market leases and a below-market ground lease.
(4) Amount includes a fair value adjustment of $5,790 related to above-market debt.
(5) Amount primarily includes below-market leases and an above-market ground lease.
| (6) | Amounts include the combined results of Town Center Crossing and Malibu, which for purposes of this presentation, are not required to be disclosed separately. |
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
The pro-forma information presented below represents the change in consolidated revenue and earnings as if the Pearlridge acquisition had occurred on January 1, 2011. Amortization of the estimated above/below market lease intangibles and the fair value adjustment to the carrying value of the mortgage, as well as the depreciation of the buildings, improvements and equipment, have been reflected in the pro-forma information listed below. Certain expenses such as property management fees and other costs not directly related to the future operations of Pearlridge have been excluded. The acquisitions of Town Center Crossing and Malibu have not been included in the pro-forma information presented below as their results do not have a material effect on revenues or earnings.
| For the years ended December 31, | |||||||||||||||||||||||
| 2012 | 2011 | ||||||||||||||||||||||
As Reported | Pro-Forma Adjustments | Pro-Forma | As Reported | Pro-Forma Adjustments | Pro-Forma | ||||||||||||||||||
| Revenues | $ | 326,035 | $ | 15,950 | (1) | $ | 341,985 | $ | 267,447 | $ | 48,228 | (1) | $ | 315,675 | |||||||||
| Net (loss) income | $ | (2,682 | ) | $ | (28,143 | ) | (2) | $ | (30,825 | ) | $ | 19,345 | $ | (6,655 | ) | (2) | $ | 12,690 | |||||
| Net (loss) income attributable to Glimcher Realty Trust | $ | (2,081 | ) | $ | (27,617 | ) | (3) | $ | (29,698 | ) | $ | 19,557 | $ | (6,473 | ) | (3) | $ | 13,084 | |||||
| Earnings per share - (basic) | $ | (0.23 | ) | $ | (0.43 | ) | $ | (0.05 | ) | $ | (0.11 | ) | |||||||||||
| Earnings per share - (diluted) | $ | (0.23 | ) | $ | (0.43 | ) | $ | (0.05 | ) | $ | (0.11 | ) | |||||||||||
Pro-forma earnings per share, both basic and diluted, are calculated with an appropriate adjustment to noncontrolling interest expense for the difference in pro-forma income.
| (1) | Represents the estimated revenues for Pearlridge which takes into consideration adjustments for: fees previously earned by the Company for the management and the leasing of Pearlridge and the estimated amortization of above-below market leases. |
| (2) | Includes the adjustments in (1) and the following adjustments: estimated above market ground lease amortization, management fees, estimated amortization of the fair value adjustment to the carrying value of the mortgage, estimated depreciation expense, removal of the gain on remeasurement of equity method investment, and previously recorded Equity in income or loss of unconsolidated real estate entities. |
| (3) | Amount also includes the allocation to noncontrolling interests. |
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
25. Interim Financial Information (unaudited)
The following presents a summary of the unaudited financial information for the years ended December 31, 2012 and 2011:
| Year Ended December 31, 2012 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| Total revenues | $ | 69,828 | $ | 77,071 | $ | 87,329 | $ | 91,807 | ||||||||
| Total revenues as previously reported | $ | 69,828 | $ | 77,071 | $ | 87,329 | $ | 91,807 | ||||||||
| Operating income | $ | 14,665 | $ | 15,174 | $ | 17,094 | $ | 5,056 | ||||||||
| Operating income as previously reported | $ | 14,665 | $ | 15,174 | $ | 17,094 | $ | 5,056 | ||||||||
| Net (loss) income attributable to Glimcher Realty Trust | $ | (5,219 | ) | $ | 21,640 | $ | (312 | ) | $ | (18,190 | ) | |||||
| Net (loss) income to common shareholders | $ | (11,356 | ) | $ | 15,503 | $ | (10,363 | ) | $ | (24,280 | ) | |||||
| (Loss) earnings per share (diluted) | $ | (0.10 | ) | $ | 0.11 | $ | (0.07 | ) | $ | (0.17 | ) | |||||
| Year Ended December 31, 2011 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| Total revenues | $ | 63,987 | $ | 64,731 | $ | 66,831 | $ | 71,898 | ||||||||
| Total revenues as previously reported | $ | 63,987 | $ | 64,731 | $ | 66,831 | $ | 72,006 | ||||||||
| Operating income | $ | 17,345 | $ | 8,515 | $ | 16,784 | $ | 22,478 | ||||||||
| Operating income as previously reported | $ | 17,345 | $ | 8,515 | $ | 16,784 | $ | 22,522 | ||||||||
| Net income (loss) attributable to Glimcher Realty Trust | $ | 160 | $ | (16,239 | ) | $ | 1,481 | $ | 34,155 | |||||||
| Net (loss) income to common shareholders | $ | (5,977 | ) | $ | (22,376 | ) | $ | (4,656 | ) | $ | 28,018 | |||||
| (Loss) earnings per share (diluted) | $ | (0.06 | ) | $ | (0.22 | ) | $ | (0.04 | ) | $ | 0.26 | |||||
Total revenues and operating income for 2012 and 2011 are restated to reflect guidance from ASC Topic 205 - "Presentation of Financial Statements." Net (loss) income to common shareholders reflects the net gains and losses associated with the sale of discontinued operations. It also reflects the income and loss from discontinued operations.
26. Subsequent Events
On January 7, 2013, the Company purchased University Park Village, an approximate 173,220 square foot open-air center located in Fort Worth, Texas for $105,000. The Company funded the acquisition through a $60,000 term loan with the remaining funds coming from the Company’s Credit Facility. The term loan has an interest rate of LIBOR plus 3.00% and matures on April 8, 2013. The Company is in the process of completing a purchase price allocation for this acquisition.
In January 2013, GRT issued 78,800 Common Shares that were sold during 2012 under the GRT ATM Program at a weighted average issue price of $11.04 per Common Share generating net proceeds of $852 after deducting $17 of offering related costs and commissions. GRT used the proceeds from the GRT ATM Program to reduce the outstanding balance under the Credit Facility. With these shares issued subsequent to December 31, 2012, GRT has $29,173 available for issuance under the GRT ATM Program.
On February 11, 2013, the Company closed on a $225,000 loan secured by Polaris. The interest rate is 3.90% per annum and the loan has a term of 12 years. A portion of the proceeds from the loan were used to repay the previously outstanding $125,200 loan on Polaris and the balance of the loan's excess proceeds were used to reduce the amount outstanding under the Company's credit facility.
On February 19, 2013 the Company repaid the $33,369 mortgage loan on Colonial Park Mall with funds available from its corporate Credit Facility.
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(dollars in thousands, except share and unit amounts)
On February 20, 2013, the Company closed on a modification and extension of its $250,000 corporate credit facility. The modification extends the facility's maturity date to February 2017 with an additional one-year extension option available that would extend the final maturity date to February 2018. The amended credit facility is unsecured and provides for improved pricing through a lower interest rate structure. Based upon current debt levels, credit facility pricing is set initially at LIBOR plus 1.95% per annum versus the current rate of LIBOR plus 2.38% per annum. The commitment amount may be increased to $400,000 under an accordion feature. The Company's availability under the credit facility is determined based upon the value of its unencumbered assets and is measured on a quarterly basis. Based upon the current pool of unencumbered properties, at closing the Company had $193,000 of availability under the credit facility and approximately $157,000 of unused capacity.
Simultaneously with the closing of the new unsecured credit facility, the Company closed on a $45,000 secured credit facility. The credit facility is secured by 49% of the partnership interests in four of its properties. The interest rate is LIBOR plus 2.50% per annum and the term of the loan will not exceed 15 months. The secured credit facility is subject to borrowing availability limits and financial covenants that are consistent with market terms.
110
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 2012
(dollars in thousands)
| Initial Cost | Costs Capitalized Subsequent to Acquisition | Gross Amounts at Which Carried at Close of Period | ||||||||||||||||||||||||||||||||||||
Description and Location of Property | Encumbrances [d] | Land | Buildings and Improvements [a] | Improvements and Adjustments | Land [b] | Buildings and Improvements [c] | Total [b] [c] | Accumulated Depreciation | Date Construction Was Completed | Date Acquired | Life Upon Which Depreciation in Latest Statement of Operations is Computed | |||||||||||||||||||||||||||
| MALL PROPERTIES | ||||||||||||||||||||||||||||||||||||||
| Ashland Town Center | ||||||||||||||||||||||||||||||||||||||
| Ashland, KY | $ | 41,223 | $ | 3,866 | $ | 21,454 | $ | 18,769 | $ | 3,823 | $ | 40,266 | $ | 44,089 | $ | 18,808 | 1989 | [e] | ||||||||||||||||||||
| Colonial Park Mall | ||||||||||||||||||||||||||||||||||||||
| Harrisburg, PA | $ | 33,455 | 9,765 | 43,770 | 3,408 | 9,704 | 47,239 | 56,943 | 22,059 | 2003 | [e] | |||||||||||||||||||||||||||
| Dayton Mall | ||||||||||||||||||||||||||||||||||||||
| Dayton, OH | $ | 82,000 | 9,068 | 90,676 | 43,600 | 8,710 | 134,634 | 143,344 | 53,272 | 2002 | [e] | |||||||||||||||||||||||||||
| Eastland Mall | ||||||||||||||||||||||||||||||||||||||
| Columbus, OH | $ | 40,791 | 12,570 | 17,794 | 13,889 | 7,441 | 36,812 | 44,253 | 21,576 | 2003 | [e] | |||||||||||||||||||||||||||
| Grand Central Mall | ||||||||||||||||||||||||||||||||||||||
| Parkersburg, WV | $ | 43,730 | 3,961 | 41,135 | 39,219 | 3,612 | 80,703 | 84,315 | 37,449 | 1993 | [e] | |||||||||||||||||||||||||||
| Indian Mound Mall | ||||||||||||||||||||||||||||||||||||||
| Newark, OH | $ | — | 892 | 19,497 | 16,682 | 773 | 36,298 | 37,071 | 21,970 | 1986 | [e] | |||||||||||||||||||||||||||
| Malibu Lumber Yard | ||||||||||||||||||||||||||||||||||||||
| Malibu, CA | $ | — | — | 41,142 | — | — | 41,142 | 41,142 | 991 | 2012 | [e] | |||||||||||||||||||||||||||
| The Mall at Fairfield Commons | ||||||||||||||||||||||||||||||||||||||
| Beavercreek, OH | $ | 97,285 | 5,438 | 102,914 | 20,899 | 7,194 | 122,057 | 129,251 | 61,443 | 1993 | [e] | |||||||||||||||||||||||||||
| The Mall at Johnson City | ||||||||||||||||||||||||||||||||||||||
| Johnson City, TN | $ | 53,573 | 4,462 | 39,439 | 40,089 | 10,146 | 73,844 | 83,990 | 24,606 | 2000 | [e] | |||||||||||||||||||||||||||
| Merritt Square | ||||||||||||||||||||||||||||||||||||||
| Merritt Island, FL | $ | 55,205 | 14,460 | 70,810 | (845 | ) | 14,460 | 69,965 | 84,425 | 13,017 | 2007 | [e] | ||||||||||||||||||||||||||
| Morgantown Mall | ||||||||||||||||||||||||||||||||||||||
| Morgantown, WV | $ | — | 1,273 | 40,484 | 8,441 | 1,381 | 48,817 | 50,198 | 27,873 | 1990 | [e] | |||||||||||||||||||||||||||
| New Towne Mall | ||||||||||||||||||||||||||||||||||||||
| New Philadelphia, OH | $ | — | 1,190 | 23,475 | 9,346 | 1,107 | 32,904 | 34,011 | 20,428 | 1988 | [e] | |||||||||||||||||||||||||||
| Northtown Mall | ||||||||||||||||||||||||||||||||||||||
| Blaine, MN | $ | — | 13,264 | 40,988 | 35,060 | 13,300 | 76,012 | 89,312 | 30,061 | 1998 | [e] | |||||||||||||||||||||||||||
| Outlet Collection | Jersey Gardens, The | ||||||||||||||||||||||||||||||||||||||
| Elizabeth, NJ | $ | 140,409 | 32,498 | 206,478 | 47,162 | 36,419 | 249,719 | 286,138 | 105,545 | 2000 | [e] | |||||||||||||||||||||||||||
| Outlet Collection | Seattle, The | ||||||||||||||||||||||||||||||||||||||
| Auburn, WA | $ | 53,018 | 1,058 | 104,612 | 3,301 | 7,548 | 101,423 | 108,971 | 52,148 | 2002 | [e] | |||||||||||||||||||||||||||
111
| Initial Cost | Costs Capitalized Subsequent to Acquisition | Gross Amounts at Which Carried at Close of Period | ||||||||||||||||||||||||||||||||||||
Description and Location of Property | Encumbrances [d] | Land | Buildings and Improvements [a] | Improvements and Adjustments | Land [b] | Buildings and Improvements [c] | Total [b] [c] | Accumulated Depreciation | Date Construction Was Completed | Date Acquired | Life Upon Which Depreciation in Latest Statement of Operations is Computed | |||||||||||||||||||||||||||
| Pearlridge Center | ||||||||||||||||||||||||||||||||||||||
| Aiea, HI | $ | 175,000 | 17,229 | 357,093 | — | 17,229 | 357,093 | 374,322 | 12,709 | 2012 | [e] | |||||||||||||||||||||||||||
| Polaris Fashion Place | ||||||||||||||||||||||||||||||||||||||
| Columbus, OH | $ | 125,414 | 36,687 | 167,251 | 17,245 | 38,798 | 182,385 | 221,183 | 67,622 | 2004 | [e] | |||||||||||||||||||||||||||
| Polaris Lifestyle Center | ||||||||||||||||||||||||||||||||||||||
| Columbus, OH | $ | — | 5,382 | 52,638 | 2,654 | 5,382 | 55,292 | 60,674 | 9,693 | 2009 | [e] | |||||||||||||||||||||||||||
| River Valley Mall | ||||||||||||||||||||||||||||||||||||||
| Lancaster, OH | $ | 47,378 | 875 | 26,910 | 30,239 | 2,228 | 55,796 | 58,024 | 29,350 | 1987 | [e] | |||||||||||||||||||||||||||
| Scottsdale Quarter | ||||||||||||||||||||||||||||||||||||||
| Scottsdale, AZ | $ | 197,778 | 49,824 | 127,395 | 189,576 | 98,050 | 268,745 | 366,795 | 22,941 | 2010 | [e] | |||||||||||||||||||||||||||
| Town Center Crossing | ||||||||||||||||||||||||||||||||||||||
| Leawood, KS | $ | 37,948 | 12,499 | 58,662 | — | 12,499 | 58,662 | 71,161 | 1,474 | 2012 | [e] | |||||||||||||||||||||||||||
| Town Center Plaza | ||||||||||||||||||||||||||||||||||||||
| Leawood, KS | $ | 76,057 | 31,055 | 104,476 | 2,249 | 31,055 | 106,725 | 137,780 | 6,432 | 2011 | [e] | |||||||||||||||||||||||||||
| Weberstown Mall | ||||||||||||||||||||||||||||||||||||||
| Stockton, CA | $ | 60,000 | 3,237 | 23,479 | 13,656 | 3,298 | 37,074 | 40,372 | 20,885 | 1998 | [e] | |||||||||||||||||||||||||||
| COMMUNITY CENTERS | ||||||||||||||||||||||||||||||||||||||
| Morgantown Commons | ||||||||||||||||||||||||||||||||||||||
| Morgantown, WV | $ | — | $ | 175 | $ | 7,549 | $ | 13,517 | $ | 175 | $ | 21,066 | $ | 21,241 | $ | 10,731 | 1991 | [e] | ||||||||||||||||||||
| Ohio River Plaza | ||||||||||||||||||||||||||||||||||||||
| Gallipolis, OH | $ | — | 502 | 6,373 | 1,466 | 351 | 7,990 | 8,341 | 5,005 | 1989 | [e] | |||||||||||||||||||||||||||
| Town Square at Surprise | ||||||||||||||||||||||||||||||||||||||
| Surprise, AZ | $ | 3,592 | 3,860 | 1,388 | — | 3,860 | 1,388 | 5,248 | 560 | 2012 | [e] | |||||||||||||||||||||||||||
| CORPORATE ASSETS | ||||||||||||||||||||||||||||||||||||||
| Corporate Investment in Real Estate Assets | ||||||||||||||||||||||||||||||||||||||
| Columbus, OH | $ | — | $ | — | $ | 1,780 | $ | 14,691 | $ | — | $ | 16,471 | $ | 16,471 | $ | 11,070 | [e] | |||||||||||||||||||||
| Lloyd Ice Rink | ||||||||||||||||||||||||||||||||||||||
| OEC | $ | — | — | — | 555 | — | 555 | 555 | 324 | [e] | ||||||||||||||||||||||||||||
| $ | 275,090 | $ | 1,839,662 | $ | 584,868 | $ | 338,543 | $ | 2,361,077 | $ | 2,699,620 | $ | 710,042 | |||||||||||||||||||||||||
| DEVELOPMENTS IN PROGRESS | ||||||||||||||||||||||||||||||||||||||
| Eastland Mall Redevelopment | ||||||||||||||||||||||||||||||||||||||
| Columbus, OH | $ | — | $ | — | $ | — | $ | 2,597 | $ | 1,939 | $ | 658 | $ | 2,597 | ||||||||||||||||||||||||
112
| Initial Cost | Costs Capitalized Subsequent to Acquisition | Gross Amounts at Which Carried at Close of Period | ||||||||||||||||||||||||||||||||||||
Description and Location of Property | Encumbrances [d] | Land | Buildings and Improvements [a] | Improvements and Adjustments | Land [b] | Buildings and Improvements [c] | Total [b] [c] | Accumulated Depreciation | Date Construction Was Completed | Date Acquired | Life Upon Which Depreciation in Latest Statement of Operations is Computed | |||||||||||||||||||||||||||
| Georgesville Square | ||||||||||||||||||||||||||||||||||||||
| Columbus, OH | $ | — | — | — | 363 | 300 | 63 | 363 | ||||||||||||||||||||||||||||||
| Outlet Collection | Jersey Gardens, The | ||||||||||||||||||||||||||||||||||||||
| Elizabeth, NJ | $ | — | — | — | 18,359 | — | 18,359 | 18,359 | ||||||||||||||||||||||||||||||
| Outlet Collection | Seattle, The | ||||||||||||||||||||||||||||||||||||||
| Auburn, WA | $ | — | — | — | 4,253 | — | 4,253 | 4,253 | ||||||||||||||||||||||||||||||
| Polaris Fashion Place | ||||||||||||||||||||||||||||||||||||||
| Columbus, OH | $ | — | — | — | 9,672 | 9,672 | — | 9,672 | ||||||||||||||||||||||||||||||
| Scottsdale Quarter | ||||||||||||||||||||||||||||||||||||||
| Scottsdale, AZ | $ | 12,930 | — | — | 30,208 | 29,265 | 943 | 30,208 | ||||||||||||||||||||||||||||||
| Vero Beach Fountains | ||||||||||||||||||||||||||||||||||||||
| Vero Beach, FL | $ | — | — | — | 3,658 | 3,658 | — | 3,658 | ||||||||||||||||||||||||||||||
| Other Developments | $ | — | — | — | 6,638 | — | 6,638 | 6,638 | ||||||||||||||||||||||||||||||
| $ | — | $ | — | $ | 75,748 | $ | 44,834 | $ | 30,914 | $ | 75,748 | |||||||||||||||||||||||||||
| ASSET HELD FOR SALE | ||||||||||||||||||||||||||||||||||||||
| Vacant Land | ||||||||||||||||||||||||||||||||||||||
| Cincinnati, OH | $ | — | $ | — | $ | — | $ | 4,056 | $ | 4,056 | $ | — | $ | 4,056 | ||||||||||||||||||||||||
| Total | $ | 275,090 | $ | 1,839,662 | $ | 664,672 | $ | 387,433 | $ | 2,391,991 | $ | 2,779,424 | $ | 710,042 | ||||||||||||||||||||||||
113
GLIMCHER REALTY TRUST
NOTES TO SCHEDULE III
(dollars in thousands)
| (a) | Initial cost for constructed and acquired property is cost at end of first complete calendar year subsequent to opening or acquisition. |
| (b) | The aggregate gross cost of land as of December 31, 2012. |
| (c) | The aggregate gross cost of building, improvements and equipment as of December 31, 2012. |
| (d) | See description of debt in Note 4 of Notes to Consolidated Financial Statements. |
| (e) | Depreciation is computed based upon the following estimated weighted average composite lives: Buildings and improvements-40 years; equipment and fixtures - three to ten years. |
Reconciliation of Real Estate
| Years Ended December 31, | |||||||||||
| 2012 | 2011 | 2010 | |||||||||
| Balance at beginning of year | $ | 2,235,074 | $ | 2,118,359 | $ | 2,136,277 | |||||
| Additions: | |||||||||||
| Improvements | 92,219 | 43,562 | 42,090 | ||||||||
Acquisitions (1) | 488,809 | 135,534 | 347,743 | ||||||||
| Deductions | (40,734 | ) | (62,381 | ) | (407,751 | ) | |||||
| Balance at close of year | $ | 2,775,368 | $ | 2,235,074 | $ | 2,118,359 | |||||
Reconciliation of Accumulated Depreciation
| Years Ended December 31, | |||||||||||
| 2012 | 2011 | 2010 | |||||||||
| Balance at beginning of year | $ | 634,279 | $ | 588,351 | $ | 624,165 | |||||
| Depreciation expense and other | 97,501 | 69,921 | 69,543 | ||||||||
| Deductions | (21,738 | ) | (23,993 | ) | (105,357 | ) | |||||
| Balance at close of year | $ | 710,042 | $ | 634,279 | $ | 588,351 | |||||
| (1) | Acquisitions in 2012 relate to Malibu, Pearlridge, Town Center Crossing, and the consolidation of Surprise. Acquisitions in 2011 relate to the purchase of Town Center Plaza. Acquisitions in 2010 include the consolidation of Scottsdale Quarter, and the purchases of SDQ Fee and SDQ Fee III. |
114