1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
- --- 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
- --- 1934
For the transition period from to
---------- ----------
Commission file number 1-10093
RAMCO-GERSHENSON PROPERTIES TRUST
---------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 13-6908488
- ------------- ----------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
27600 Northwestern Highway, Suite 200, Southfield, Michigan 48034
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
810-350-9900
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of beneficial interest ($.10 par value) of the Registrant
outstanding as of July 8, 1996: 7,123,105.
2
INDEX
Part I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996
December 31, 1995............................................................... 3
Consolidated Statements of Operations - Three Months and Six Months Ended
June 30, 1996 and 1995.......................................................... 4
Consolidated Statement of Shareholders' Equity - Six Months Ended
June 30, 1996................................................................... 5
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1996 and 1995.......................................................... 6
Notes to Consolidated Financial Statements.............................................. 7
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 16
Item 4.
Submission of Matters to a Vote of
Security Holders................................................................ 21
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................................... 22
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3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, December 31,
1996 1995 (*)
-------- ------------
(unaudited)
ASSETS
Real Estate, Net (Note 3) $283,871 $ 55,299
Mortgage Loans Receivable, net of allowance
for possible loan losses of $10,231
in 1995 0 36,023
REMIC Investments 0 58,099
Interest and Accounts receivable, net 1,929 7,748
Due from Atlantic Realty Trust 5,644 0
Other assets, net (Note 4) 1,722 11,945
Equity Investments in Unconsolidated Entities 5,395 0
Cash and cash equivalents 3,024 11,467
-------- --------
TOTAL $301,585 $180,581
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgages and Notes Payable (Note 5) $114,530 $0
Distributions Payable 2,738 2,279
Accounts Payable 2,067 1,282
Accrued Expenses 5,682 0
Due to Ramco Affiliates 10,037 0
-------- --------
TOTAL LIABILITIES 135,054 3,561
COMMITMENTS AND CONTINGENCIES (Note 7) -- --
MINORITY INTEREST 44,961 0
SHAREHOLDERS' EQUITY 121,570 177,020
-------- --------
TOTAL $301,585 $180,581
======== ========
See notes to consolidated financial statements
(*) The 1995 historical results consist of the operations of RPS Realty Trust
(Note 1)
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995 (*) 1996 1995 (*)
---- -------- ---- --------
REVENUES
Minimum rents $5,790 $1,527 $7,254 $3,157
Percentage rents 250 236 646 494
Recoveries from tenants 2,879 387 3,364 791
Interest and other income 632 1,928 2,548 3,883
------- ------ ------- ------
TOTAL REVENUES 9,551 4,078 13,812 8,325
------- ------ ------- ------
EXPENSES
Property operating and maintenance 2,646 502 3,048 853
Real estate taxes 831 329 1,159 660
General and administrative 1,205 1,004 2,287 1,974
Interest expense 1,740 0 1,740 0
Depreciation and amortization 1,208 305 1,465 604
Spin-off and other expenses (Note 1) 6,276 0 7,933 0
Allowance for loan losses 0 0 0 3,000
------- ------ ------- ------
TOTAL EXPENSES 13,906 2,140 17,632 7,091
------- ------ ------- ------
OPERATING INCOME (LOSS) (4,355) 1,938 (3,820) 1,234
LOSS FROM UNCONSOLIDATED ENTITIES (92) 0 (92) 0
------- ------ ------- ------
INCOME (LOSS) BEFORE MINORITY INTEREST (4,447) 1,938 (3,912) 1,234
MINORITY INTEREST (447) 0 (447) 0
------- ------ ------- ------
NET INCOME (LOSS) ($4,894) $1,938 ($4,359) $1,234
======= ====== ======= ======
NET INCOME (LOSS) PER SHARE ($0.69) $0.27 ($0.61) $0.17
======= ====== ======= ======
WEIGHTED AVERAGE SHARES OUTSTANDING 7,123 7,123 7,123 7,123
======= ====== ======= ======
See notes to consolidated financial statements
(*) The 1995 historical results consist of the operations of RPS Realty Trust
(Note 1)
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5
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(Unaudited)
SHARES OF ADDITIONAL CUMULATIVE TOTAL
BENEFICIAL INTEREST PAID-IN EARNINGS/ SHAREHOLDERS'
---------------------------
NUMBER AMOUNT CAPITAL DISTRIBUTION EQUITY
------ ------- -------- ------------ -----------
BALANCE AT JANUARY 1, 1996 7,123 $712 $197,061 ($20,753) $177,020
Assets transferred in spin-off transaction (45,483) (45,483)
Minority interests' equity (1,335) (1,335)
Cash Distributions Declared (4,273) (4,273)
Net loss for the six months ended June 30, 1996 (4,359) (4,359)
----- ---- -------- -------- --------
BALANCE AT JUNE 30, 1996 7,123 $712 $150,243 ($29,385) $121,570
===== ==== ======== ======== ========
See notes to consolidated financial statements
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6
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
FOR THE SIX MONTHS
ENDED
JUNE 30,
1996 1995 (*)
---- --------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) ($4,359) $1,234
Adjustments to reconcile net income to
net cash flows provided by operating
activities:
Provision for possible loan losses 129 3,000
Write-off of deferred acquisition expenses 2,154 0
Loss on disposal of REMICs 91 0
Depreciation and Amortization 1,465 604
Loss from unconsolidated entities 92 0
Minority Interest 447 0
Changes in assets and liabilities that
provided (used) cash:
Interest and accounts receivable 5,232 350
Other assets (966) (4,345)
Accounts payable and accrued expenses 2,770 14
------ -----
Total Adjustments 11,414 (377)
CASH FLOWS PROVIDED BY ------ -----
OPERATING ACTIVITIES 7,055 857
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES
Satisfaction of Mortgage Loans Receivable (3,417) 3,000
Amortization of REMICs 1,100 0
Proceeds from REMICS 56,908 0
Real Estate Acquired (1,574) (811)
CASH FLOWS PROVIDED BY ------ -----
INVESTING ACTIVITIES 53,017 2,189
------ -----
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders (4,559) (4,559)
Principal repayments on debt (70,050) 0
Advances to affiliated entities, net (4,044) 0
Advances from affiliated entities, net 232 0
Borrowings on debt 9,906 0
------- -------
CASH FLOWS USED IN
FINANCING ACTIVITIES (68,515) (4,559)
======= =======
Net decrease in cash and cash equivalents ($8,443) ($1,513)
======= =======
Cash and cash equivalents, beginning of period $11,467 $74,584
======= =======
Cash and cash equivalents, end of period $3,024 $73,071
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION - CASH PAID FOR
INTEREST DURING THE PERIOD $1,106 $0
------ -------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Accrued distributions payable $2,738 $2,279
Spin-off of Net Assets to Atlantic $45,483 $0
Acquisition of Ramco:
Debt assumed $176,556 $0
Value of OP Units issued $43,835 $0
Other liabilities assumed $2,097 $0
Debt assumed from Ramco affiliates in exchange
for real estate $9,805 $0
Interest and Accounts Payable $0 ($326)
Allowance for Possible Loan Losses $0 $1,876
Mortgages Receivable $0 ($1,550)
See notes to consolidated financial statements
(*) The 1995 historical results consist of the operations of RPS Realty Trust
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. RAMCO ACQUISITION AND SPIN-OFF TRANSACTIONS
Effective May 1, 1996, Ramco-Gershenson Properties Trust, formerly known as RPS
Realty Trust (the "Company"), completed the previously announced acquisition of
substantially all of the shopping center and retail properties, as well as the
management organization, personnel, and business operations of
Ramco-Gershenson, Inc. and its affiliates (the "Ramco Acquisition") and the
spin-off of its wholly owned subsidiary Atlantic Realty Trust ("Atlantic"), a
Maryland real estate investment trust. In connection with the Ramco
Acquisition, the Company's name was changed to Ramco-Gershenson Properties
Trust and a one-for-four reverse stock split was effectuated as of the close of
business on May 1, 1996.
Concurrent with the Ramco Acquisition, the former owners of the Ramco Properties
(as defined below) and the shareholders of Ramco-Gershenson, Inc. ("Ramco")
(collectively, the "Ramco Group") transferred to Ramco-Gershenson Properties,
L.P. (the "Operating Partnership") (i) their interests in 20 shopping center and
retail properties (the "Ramco Properties") containing an aggregate of
approximately 5,114,000 square feet of total GLA, of which approximately
3,706,000 square feet is owned by the Operating Partnership, and the balance is
owned by certain anchor tenants, (ii) 100% of the non-voting common stock and 5%
of the voting common stock in Ramco (representing in excess of a 95% economic
interest in Ramco), (iii) 50% general partner interests of two partnerships
which each own a shopping center, (iv) rights in and/or options to acquire
certain development land , (v) options to acquire the Ramco Group's interest in
six shopping center properties and (vi) five outparcels.
In return for these transfers, the Ramco Group received, 2,377,492 units of the
Operating Partnership (representing an approximate 25% limited partnership
interest in the operating partnership). In addition, the Ramco Group received
279,181 units (the "PharMor Space Units") as a partial earnout relative to
Jackson Crossing Shopping Center (representing an approximate 2% limited
partnership interest in the operating partnership). Ramco Group's aggregate
units of 2,656,673 represent an approximate 27% limited partnership interest in
the Operating Partnership. The Company assumed approximately $176,556 of secured
indebtedness on the Ramco Properties. The aggregate interest in the Operating
Partnership to be received by the Ramco Group may be increased to a maximum of
approximately 29% if certain leasing plans with respect to one of the Ramco
Properties are fulfilled. Subject to certain limitations, the interests in the
Operating Partnership are exchangeable into shares of the Company on a
one-for-one basis beginning on May 10, 1997.
Pursuant to the Ramco Acquisition, the Company transferred to the Operating
Partnership six properties containing an aggregate of approximately 931,000
square feet of gross leaseable area ("GLA") and $68,000 in cash in exchange for
7,123,105 units of the Operating Partnership (representing a 1% General
Partnership interest, and a 72% limited partnership interest after giving effect
for the reduction of 2% for the Ramco Group's earnout).
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Concurrently with the closing of the Ramco Acquisition, the Company's former
mortgage loan portfolio as well as certain of its former real estate assets
were transferred to Atlantic and the shares of Atlantic were distributed to the
Company's shareholders.
For the six months ended June 30, 1996 non-recurring expenses, including the
spin-off of Atlantic have been charged to operations as follows:
Severance and other termination costs $4,629
Directors and officers insurance 1,150
Write-off of deferred acquisition expense 2,154
------
$7,933
======
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying interim financial statements and
related notes of the Company are unaudited; however, they have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting, the instructions to Form 10-Q and the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared under
generally accepted accounting principles have been condensed or omitted
pursuant to such rules. The unaudited interim financial statements should be
read in conjunction with the audited financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
financial statements for the interim periods have been made. The results for
interim periods are not necessarily indicative of the results for a full year.
The consolidated financial statements of the Company include the effects of the
Ramco Acquisition and the spin-off of Atlantic as well as the operations of the
Operating Partnership for the 61-day period ended June 30, 1996.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1995
consolidated financial statements in order to conform with the 1996
presentation.
OTHER ASSETS - consist primarily of financing costs and leasing costs which are
amortized over the terms of the respective agreements.
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its majority owned subsidiary, the Operating
Partnership (73% owned by the Company at June 30, 1996). All significant
intercompany accounts and transactions have been eliminated in consolidation.
INVESTMENTS IN UNCONSOLIDATED ENTITIES - consist of 50% general partner
interests in Kentwood Town Center ("Kentwood") and the Southfield Plaza
Expansion ("Southfield Plaza") and the Company's 100% interest in the
non-voting and 5% interest in the voting common stock of Ramco. These
investments are not unilaterally controlled and are therefore accounted for on
the equity method.
REAL ESTATE - Real estate assets are stated at cost. Costs incurred for the
acquisition, development, construction, and improvement of properties are
capitalized, including direct costs incurred by Ramco. Depreciation is
computed using the straight-line method over estimated useful lives.
Expenditures for improvements and construction allowances paid to tenants are
capitalized and amortized over the remaining life of the initial terms of each
lease. Maintenance and repairs are charged to expense when incurred.
REVENUE RECOGNITION - Shopping center space is generally leased to retail
tenants under leases which are accounted for as operating leases. Minimum
rents are recognized on the straight-line method over the terms of the leases.
Percentage rents are recognized as earned on an accrual basis over the terms of
the leases. The leases also typically provide for tenant
recoveries of common area maintenance, real estate taxes and other operating
expenses. These recoveries are recognized as revenue in the period the
applicable costs are incurred.
An allowance for doubtful accounts has been provided against the portion of
tenant accounts receivable which is estimated to be uncollectible. Accounts
receivable in the accompanying balance sheet is shown net of an allowance for
doubtful accounts of approximately $147 as of June 30, 1996.
EARNINGS PER COMMON SHARE - Computations of earnings per common share are based
on the weighted number of shares outstanding during the period. Common shares
issuable under stock options have not been considered in the computation of
earnings per share because such inclusion would be anti-dilutive.
The conversion of an Operating Partnership unit to common stock will have no
effect on earnings per share since the allocation of earnings to an Operating
Partnership unit is equivalent to earnings allocated to a share of common
stock.
9
10
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
MINORITY INTEREST - represents the Ramco Group's 27% interest as a limited
partner of the Operating Partnership. Such interest is held in the form of
Operating Partnership Units which are exchangeable on an equivalent basis with
common shares of the Company.
3. REAL ESTATE
The Company's real estate at June 30, 1996 and December 31, 1995 are as
follows:
JUNE 30, 1996 DECEMBER 31, 1995
Land $ 37,542 $18,459
Buildings and Improvements 240,340 40,387
Construction-in-progress 9,906 0
--------- -------
Total 287,788 58,846
Less: Accumulated Depreciation 3,917 3,547
--------- -------
$283,871 $55,299
========= =======
4. OTHER ASSETS
Other assets at June 30, 1996 and December 31, 1995 are as follows:
JUNE 30, 1996 DECEMBER 31, 1995
Leasing costs, net 875
Deferred financing costs, net 439
Other, net 408
Deferred acquisition expenses, net $ 2,154
Transaction advances 9,791
------ -------
$1,722 $11,945
====== =======
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
5. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable at June 30, 1996 consist of the following:
Fixed rate mortgages with interest rates ranging
from 7.8% to 8.75% due at various dates through
2006 $99,999
Floating rate mortgages at 75% of the rate of
long-term Capital A rated utility bonds due
December 1, 1996 7,000
Credit Facility, with an interest rate at the
reserve adjusted Eurodollar rate plus 1.75%
basis points, due May 1999, maximum available
borrowings of $50,000 7,531
---------
$114,530
=========
The mortgage notes are secured by mortgages on properties that have an
approximate net book value of $136,664 as of June 30, 1996. The Credit
Facility is secured by mortgages on various properties that have an approximate
net book value of $76,146 as of June 30, 1996.
The following table presents scheduled principal payments on mortgages and
notes payable as of June 30, 1996:
Year ended December 31,
1996 (July 1, 1996 to December 31, 1996)....... $7,421
1997........................................... 1,874
1998........................................... 3,799
1999........................................... 9,558
2000........................................... 2,130
Thereafter........................................ 89,748
---------
Total $114,530
=========
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
6. LEASES
The Company is engaged in the operation of shopping center and retail properties
and leases space to tenants and certain anchors pursuant to lease agreements.
The lease agreements provide for terms ranging from three to 30 years and, in
some cases, for annual rentals which are subject to upward adjustment based on
operating expense levels and sales volume.
Approximate future minimum rent under noncancelable operating leases in effect
at June 30, 1996, assuming no new or renegotiated leases nor option extensions
on lease agreements, is as follows:
Year ended December 31,
1996 (July 1, 1996 to December 31, 1996)...... $ 14,779
1997.......................................... 27,090
1998.......................................... 23,320
1999.......................................... 20,407
2000.......................................... 16,827
Thereafter.................................... 118,050
-----------
Total......................................... $ 220,473
===========
7. COMMITMENTS AND CONTINGENCIES
Certain of the Ramco Properties (Roseville Plaza, Lake Orion Plaza and Jackson
Crossing) contain environmental contamination caused by underground storage
tanks. Remediation programs have been implemented at Roseville Plaza and
Jackson Crossing with Lake Orion Plaza to be implemented in the future. Since
third parties are obligated and have paid for remediation work to date, in
management's opinion the Company will not incur any future costs related to the
remediation work. Management of the Company is not aware of any other
situations which require remediation.
During the third quarter of 1994, the Company held more than 25% of the value
of its gross assets in overnight Treasury Bill reserve repurchase transactions
which the United States Internal Revenue Service (the "IRS") may view as
non-qualifying assets for the purposes of satisfying an asset qualification
test applicable to REITs, based on a Revenue Ruling published in 1977 (the
"Asset Issue"). The Company has requested that the IRS enter into a closing
agreement with the Company that the Asset Issue will not impact the Company's
status as a REIT. The IRS has deferred any action relating to the Asset Issue
pending the further examination of the Company's 1991-1994 tax returns. Based
on developments in the law which occurred since 1977, the Company's legal
counsel has rendered an opinion that the Company's investment in Treasury Bill
repurchase obligations would not adversely affect its REIT status. However,
such opinion is not binding upon the IRS. In connection with the spin-off of
Atlantic, Atlantic has assumed all tax liability arising out of the Asset Issue
and the IRS audit of the Company's 1991-1994 tax returns. In connection with
the assumption of such potential
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
liabilities, Atlantic and the Company have entered into a tax agreement which
provides that the Company (under the direction of its Continuing Trustees), and
not Atlantic, will control, conduct and effect the settlement of any tax claims
against the Company relating to the Asset Issue. Accordingly, Atlantic will not
have any control as to the timing of the resolution or disposition of any such
claims. No assurance can be given that the resolution or disposition of any
such claims will be on terms or conditions favorable to the Company. The
Company and Atlantic also received an opinion from legal counsel that, to the
extent there is a deficiency in the Company's taxable income arising out of the
IRS examination and provided the Company makes a deficiency dividend (i.e,
declares and pays a distribution which is permitted to relate back to the year
for which each deficiency was determined to satisfy the requirement that the
REIT distribute 95 percent of its taxable income), the classification of the
Company as a REIT for the taxable years under examination would not be affected.
If notwithstanding the above-described opinions of legal counsel, the IRS
successfully challenged the status of the Company as a REIT, its status could be
adversely affected.
8. SHARE OPTION PLAN
Concurrent with the Ramco Acquisition, the Company adopted a share option plan
(the "Plan") to enable its employees to participate in the ownership of the
Company. The Plan is designed to attract and retain executive officers and
other key employees of the Company, to encourage a proprietary interest in the
Company, and to provide incentives to employees.
Under the Plan, executive officers and employees of the Company may be granted
options to acquire shares of common stock of the Company ("Options"). The Plan
is administered by the independent trustee members of the Compensation
Committee, who are authorized to select the executive officers and other
employees to whom Options are to be granted. No member of the compensation
committee is eligible to participate in the Plan.
The compensation committee, at its discretion, determines the number of Options
to be granted. At June 30, 1996, the Plan provided for Options to purchase up
to 855,000 shares of the Company's stock. However, no more than 50,000 stock
options may be granted to any one individual in any calendar year.
13
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Each option will have an exercise price equal to the fair market value
of the shares of the Company at the date of grant.
In connection with the Ramco Acquisition and the spin-off of Atlantic, the
Company granted certain principals of the Ramco Group, options to purchase
120,000 shares at an exercise price of $16.00 per share. Subsequent to the
Ramco Acquisition, an additional 25,000 options have been granted to the Chief
Financial Officer.
9. PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated statements of operations have been
presented as if (i), the Ramco Acquisition and the spin-off of Atlantic had
occurred on January 1, 1995, and (ii) the Company had qualified as a REIT,
distributed all of its taxable income and, therefore had incurred no tax
expense during the periods. In management's opinion all adjustments necessary
to reflect the Ramco Acquisition and spin-off of Atlantic have been made. The
pro forma consolidated statements of operations are not necessarily indicative
of what the actual results of operations of the Company would have been had
such transactions actually occurred as of January 1, 1995, nor do they purport
to represent the results of the Company for future periods.
14
15
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1996 1995
----------------------------
REVENUES
Minimum rents $15,289 $14,702
Percentage rents 856 957
Recoveries from tenants 8,274 7,754
Interest and other income 239 171
------- -------
TOTAL REVENUES 24,658 23,584
EXPENSES
Property operating and maintenance 5,933 5,482
Real estate taxes 2,594 2,568
General and administrative 2,412 1,535
Interest expense 4,940 4,940
Depreciation and amortization 3,180 3,180
Spin-off and other expenses 7,933 -
-------- -------
TOTAL EXPENSES 26,992 17,705
-------- -------
OPERATING INCOME (LOSS) (2,334) 5,879
LOSS FROM UNCONSOLIDATED ENTITIES (189) (473)
-------- -------
INCOME (LOSS) BEFORE MINORITY INTEREST (2,523) 5,406
MINORITY INTEREST (1,461) (1,353)
-------- -------
NET INCOME (LOSS) $(3,984) $4,053
======== =======
PRO FORMA EARNINGS (LOSS) PER SHARE $ (.56) $ .57
======== =======
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,123 7,123
======== =======
15
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS FROM OPERATIONS
(Dollars in Thousands)
OVERVIEW
The following should be read in conjunction with the Consolidated Financial
Statements of the Company, including the respective notes thereto which are
included in this Form 10-Q. Capitalized terms used herein and not defined
below have the meanings set forth in the Trust's definitive proxy statement
dated as of March 29, 1996 (the "Proxy Statement").
The Pro Forma Consolidated Statements of Operations which are included in Note
9 to the Consolidated Financial Statements are presented as if the Company had
been a REIT for the entire periods presented and the Ramco Acquisition and the
Spin-off Transaction had been completed at the beginning of the periods
presented.
In connection with the Ramco Acquisition, the Trust acquired, among other
things, interests in the 22 Ramco Properties, assumed and incurred certain debt,
and repaid a portion of the debt encumbering the Ramco Properties. Also, due to
the re-leasing of the Phar Mor Space at the Jackson Crossing Property as part of
the earnout prior to closing, the Ramco Group became entitled to 279,181
additional Operating Partnership units issued effective at closing. In
connection with the Spin-off Transaction, the Company transferred its remaining
mortgage portfolio as well as certain other assets, which included interests in
its Norgate Center and 9 North Wabash Avenue properties, to Atlantic Realty
Trust (a newly formed real estate investment trust), shares in which were
distributed ratably to the Shareholders of the Trust. With the closing of the
Ramco Acquisition and the consummation of the Spin-off Transaction the Trust
successfully completed its previously announced plan to transform itself into an
equity REIT. The discussion below should be read in conjunction with the
discussion set forth in the Proxy Statement.
16
17
CAPITAL RESOURCES AND LIQUIDITY
As of the closing of the Ramco Acquisition (the "Closing"), the Company assumed
debt on the Ramco Properties amounting to $176,556. In conjunction with the
Closing and giving effect to the application of the RPS Cash and the initial
drawdown of $9,906 on the Credit Facility, mortgage indebtedness of $69,485 was
paid down. Taking into account the mortgage indebtedness remaining after the
paydowns and the initial draw on the Credit Facility, the Company had long term
debt of $116,977 upon the Closing of the Ramco Acquisition.
At the Closing, a total of $9,906 was borrowed under the Credit Facility, which
will mature on May 6, 1999. As of the Closing, $25,000 of the Credit Facility
was in place, of which only $12,300 was available for borrowing. The balance of
the $25,000 Credit Facility was to become available upon receipt by the lender
of satisfactory appraisals with respect to certain of the properties securing
the Credit Facility. Effective June 1996, the appraisals had been completed and
the availability under the Credit Facility was increased to $25,000, subject to
borrowings outstanding at that point. During June 1996 negotiations were
completed with a second participant-lender and the Credit Facility was increased
to $50,000. A total of approximately $10,500 will be borrowed under the Credit
Facility to be used to reimburse affiliates of Ramco for certain out-of-pocket
costs incurred in connection with certain development opportunities acquired by
the Trust. As stated in the Proxy Statement, the Trust intends to use the
balance of the Credit Facility principally to fund future acquisitions,
developments, expansions and redevelopments.
At the Closing, the Trust made a loan to, and assumed an obligation of,
Atlantic. In that connection, Atlantic is obligated to pay the Trust the sum of
$5,550 pursuant to a promissory note which matures on November 9, 1997 and bears
interest at the Base Rate under the Credit Facility (which was 8.25% at
Closing). The promissory note is secured by a collateral assignment of the
borrower's interest in the Hylan Center. Subsequent to the quarter ended June
30, 1996 Atlantic repaid $3,500 plus accrued interest.
Atlantic used the proceeds of the promissory note primarily to make (on behalf
of the Trust or otherwise) certain required severance and bonus payments to the
Trust's executive officers, to pay the cost of a run-off directors' and
officers' liability insurance policy for the Trust, to pay the cost of a
directors' and officers' liability insurance policy for Atlantic, and to provide
cash for Atlantic's initial working capital.
RECENT DEVELOPMENTS
Subsequent to the Closing, the lender holding the $7,000 of bonds secured by
the Oakbrook Square Shopping Center exercised its option to tender the bonds
for purchase on December 1, 1996. The underlying bonds have a maturity date of
January 1, 2010. The Company is pursuing various alternatives to find new
lender(s) to buy the bonds to hold until maturity but it is not
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known at this time whether a buyer will be found. The Company may need to draw
on the Credit Facility to either retire the bonds or purchase the bonds until a
new buyer can be found.
In August 1996, the Trust intends to purchase a Shopping Center for
approximately $2,200. The Trust expects to borrow on the Credit Facility
in order to fund the acquisition.
Expansions are currently underway at the Tel-Twelve Mall, Spring Meadows
Shopping Center, and the Troy Towne Center. The costs relative to these
expansions are anticipated to be approximately $3,900 and will be paid for
by borrowings under the Credit Facility.
RESULTS OF OPERATIONS
Six months ended June 30, 1996 compared to six months ended June 30, 1995
Total revenues for the six months ended June 30, 1996 increased $5,487, or 65%,
as compared to the six months ended June 30, 1995. Minimum rents increased to
$7,254, an increase of $4,097, or 130%, for the six months ended June 30, 1996
as compared to the six months ended June 30, 1995. Percentage rents and tenant
recoveries increased $2,725, or 212%, from $1,285 in 1995 to $4,010 in 1996.
These net increases are primarily attributable to the acquisition of the Ramco
Properties effective May 1, 1996. Two months of the Ramco Properties' operating
results have been included in the six months ended June 30, 1996 as compared to
none in the corresponding six months of 1995. In addition, due to the Spin-off
Transaction, two properties which were part of the Trust portfolio at June 30,
1995 were spun off effective May 1, 1996 and therefore the revenues for the six
months of 1996 include only four months of their activity as compared to six
months in 1995. The Company's results also show a decrease in the revenues
derived from the mortgage loan portfolio which was spun off as of May 1, 1996.
During the six months ended June 30, 1996 expenses increased $10,541 from $7,091
to $17,632, or 148% as compared to the six months ended June 30, 1995. This
increase was attributable principally to the non-recurring expenses related to
the Spin-off Transaction of $7,933, including employee severance and bonus
expenses, the cost of the run-off director's and officer's liability insurance
policy for the Trust and the write off of the Trust's deferred acquisition
expenses. In addition, a significant portion of the increase of approximately
$3,867 in the property operating and maintenance, real estate tax and general
and administrative expenses are directly attributable to
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the increase in the size of the real estate portfolio due to the acquisition of
the Ramco Properties, offset slightly by the decrease related to the two former
RPS properties which were spun-off effective May 1, 1996. Interest expense for
the six months ended June 30, 1996 has increased $1,740 due to the debt
assumed in connection with the Ramco acquisition. Interest expense for the six
months ended June 30, 1996 included approximately $140 in additional
costs for the period May 1 to May 10, 1996 due to the Closing being
effective May 1, 1996 while the Trust contributed the RPS cash on May 10, 1996
thus incurring additional interest expense on the assumed debt. Total
expenses for the six months ended June 30, 1995 included an addition to the
allowance for loan losses of $3,000, no such allowance was required in the
six months ended June 30, 1996.
Three months ended June 30, 1996 compared to three months ended June 30, 1995
Total revenues increased $5,473 or 134% to $9,551 for the three months ended
June 30, 1996, as compared with $4,078 for the three months ended June 30, 1995.
Minimum rents grew from $1,527 for the three months ended June 30, 1995 to
$5,790, an increase of $4,263, or 279%. Percentage rents and recoveries from
tenants increased $2,506, or 402%, from $623 in 1995 to $3,129 in 1996. This net
increase is primarily attributable to the acquisition of the Ramco Properties
effective May 1, 1996. Two months of the Ramco Properties operating results have
been included in the three months ended June 30, 1996 as compared to none in the
corresponding three months of 1995. In addition, due to the Spin-off
Transaction, two properties which were part of the Trust portfolio at June 30,
1995 were spun-off effective May 1, 1996 and, therefore, the revenues for the
three months of 1996 only include one month of their activity as compared to
three months in 1995. The results also show a decrease in the revenues related
to the mortgage loan portfolio which was spun-off as of May 1, 1996.
During the three months ended June 30, 1996 expenses increased $11,766 from
$2,140 to $13,906, or 549%, as compared to the three months ended June 30, 1995.
This increase was attributable principally to the non-recurring expenses
related to the Spin-off Transaction of $6,276, including employee severance and
bonus expenses, the cost of the run-off director's and officer's liability
insurance policy for the Trust and the write off of the Trust's deferred
acquisition expenses. In addition, a significant portion of the increase of
approximately $3,750 in the property operating and maintenance, real estate tax
and general and administrative expenses are directly attributable to the
increase in the size of the real estate portfolio due to the acquisition of the
Ramco Properties, offset slightly by a decrease related to the two former RPS
properties which were spun-off effective May 1, 1996. Interest expense for the
three months ended June 30, 1996 increased $1,740 due to the debt assumed
relative to the Ramco Acquisition. Interest expense for the three months
included approximately $140 in additional expense for the period May 1 to May
10, 1996 due to the Closing being effective May 1, 1996 while the Trust
contributed the RPS cash on May 10, 1996 thus incurring additional interest
expense on the assumed debt.
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Pro Forma six months ended June 30, 1996 compared to Pro Forma six months ended
June 30, 1995
Total revenues increased 4.6%, or $1,074 for the six months ended June 30,
1996, to $24,658 from $23,584 for the six months ended June 30, 1995. The
increase was primarily due to a $587 increase in minimum rents, a $101 decrease
in percentage rents, and a $520 increase in recoveries from tenants.
Minimum rents increased 4.0%, or $587, to $15,289 for the six months ended June
30, 1996 from $14,702 for the six months ended June 30, 1995. The increase was
primarily due to the openings of new anchor tenants at Tel-Twelve Mall, West
Oaks I and Jackson Crossing Shopping Center. Percentage rents decreased 10.6%,
or $101, to $856 for the six months ended June 30, 1996 from $957 for the six
months ended June 30, 1995. The decrease resulted primarily from the conversion
of percentage rent to minimum rent due to contractual rent increases.
Recoveries from tenants increased 6.7%, or $520, to $8,274 for the six months
ended June 30, 1996 from $7,754 for the six months ended June 30, 1995. The
increase was primarily due to corresponding increases in recoverable property
operating and real estate tax expense. The Company's overall recovery ratio for
1996 and 1995 remained relatively consistent at 97.0% and 96.3%, respectively.
Total expenses increased 52.5%, or $9,287 for the six months ended June 30,
1996, to $26,992 from $17,705 for the six months ended June 30, 1995. The
increase was primarily due to a $7,933 increase in Spin-off Transaction and
other related expenses, a $477 increase in property operating and real estate
tax expense and a $877 increase in general and administrative expenses.
For the six months ended June 30, 1996 the Company incurred $7,933 of Spin-off
Transaction and other related expenses for which there was no corresponding
costs for the six months ended June 30, 1995. These non-recurring costs were
primarily a result of the employee severance and bonus expense, the cost of
run-off director's and officer's liability insurance, and the write-off of
deferred acquisition costs related to the Transaction. Property operating and
real estate tax expenses increased 5.9%, or $477, to $8,527 for the six months
ended June 30, 1996 from $8,050 for the six months ended June 30, 1995. The
increase was offset primarily by an increase in recoveries from tenants. As
noted above, the Company's recovery ratio for the six months ended June 30, 1996
remained consistent with the corresponding 1995 period. General and
administrative expenses increased $877, or 57.1%, to $2,412 for the six months
ended June 30, 1996 from $1,535 for the six months ended June 30, 1995. The
increase in general and administrative expenses was primarily due to a $156
increase in bad debt expense, and a $576 increase in cost reimbursement to
Ramco-Gershenson, Inc. The $576 increase was a result of a decrease in
revenues of $343, and an increase in expenses of approximately $333. Of the
$343 decrease in revenues, $168 pertained to leasing fees and $44 pertained to
development fees. Leasing and development fees are not necessarily earned
consistently over time since these fees are based upon measurements related to
specific transactions. The $333 increase in expenses was primarily
attributable to a $180 increase in payroll and related benefits and a $100
increase in equipment leasing costs.
Management generally considers funds from operations ("FFO") to be one measure
of financial performance of an equity REIT. It has been presented to assist
investors in analyzing the performance of the Company and to provide a relevant
basis for comparison to other REITs.
The Company has adopted the most recent National Association of Real Estate
Investment Trusts ("NAREIT") definition of FFO, which was effective on January
1, 1996. Under the NAREIT definition, FFO represents income (loss) before
minority interest (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures.
Therefore, FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and should not be
considered an alternative to net income as an indication of the Company's
performance or to cash flows from operating activities as a measure of
liquidity of the ability to pay distributions. Furthermore, while net income
and cash generated from operating, investing and financing activities
determined in accordance with generally accepted accounting principles
consider capital expenditures which have been and will be incurred in the
future, the calculation of FFO does not.
The following table illustrates the calculation of FFO for the six months ended
June 30, 1996 and 1995:
PRO FORMA SIX MONTHS ENDED
JUNE 30,
1996 1995
---- ----
Net Income (Loss) $(3,984) $4,053
Add back
Depreciation and amortization 3,180 3,180
Minority interest in partnerships 1,461 1,353
Non-recurring spin-off costs 7,933
------- ------
Funds from operations $ 8,590 $8,586
======= ======
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ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Shareholders of the Company was held on April 29, 1996 to
consider and vote upon the following matters:
1. A proposal to consummate an acquisition (the "Ramco Acquisition") by the
Company of substantially all of the shopping center and retail properties, as
well as the management organization and personnel and business operations, of
Ramco-Gershenson, Inc. and its affiliates upon the terms and conditions
described in the Proxy Statement distributed in connection with the Special
Meeting ("First Proposal").
2. A proposal to amend the Company's Declaration of Trust to, among other
things, (i) increase certain quorum percentage requirements in connection with
meetings of the Board of Trustees, (ii) establish a Nominating Committee and
Advisory Committee of the Board of Trustees, (iii) change the Company's name to
Ramco-Gershenson Properties Trust, and (iv) authorize the Board of Trustees, on
a one-time basis in connection with the Ramco Acquisition, to combine
outstanding Shares by way of a 1 for 4 reverse split, provide for the payment
of cash in lieu of any fractional interest in a combined Share and establish
mechanics to implement any such combination ("Second Proposal").
3. A proposal to approve and ratify a new employee share option plan for
certain key employees of the Company and its subsidiaries ("Third Proposal").
The following table shows the number of votes for and against each proposal and
the number of votes abstaining with respect to each proposal:
Proposal For Against Abstain
- -------- --- ------- -------
First 15,005,720 933,321 348,890
Second 14,909,713 976,088 402,130
Third 12,380,955 3,435,010 471,966
There were no broker non-votes with respect to any of the proposals at the
Special Meeting.
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PART II - OTHER INFORMATION
ITEM 6-EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Amendment to Amended and Restated Declaration of Trust of the Company
(formerly known as RPS Realty Trust).
3(ii) Amendment to By-laws of the Company (formerly known as RPS Realty
Trust).
10.1 Pledge Agreement, dated as of May 10, 1996, among the Company, Dennis
Gershenson, Joel Gershenson, Bruce Gershenson, Richard Gershenson,
Michael A. Ward, Michael A. Ward U/T/A dated 2/22/77, as amended, and
the holders of interests in Ramco-Gershenson Properties, L.P., a
Delaware limited partnership.
10.2 Registration Rights Agreement, dated as of May 10, 1996, among the
Company, Dennis Gershenson, Joel Gershenson, Bruce Gershenson, Richard
Gershenson, Michael A. Ward, Michael A. Ward U/T/A dated 2/22/77, as
amended, and each of the Persons set forth on Exhibit A attached
thereto.
10.3 Exchange Rights Agreement, dated as of May 10, 1996, by and among the
Company and each of the Persons whose names are set forth on Exhibit A
attached thereto.
10.4 1996 Share Option Plan of the Company.
10.5 Letter Agreement, dated May 10, 1996, among the Persons and Entities
party to the Amended and Restated Master Agreement, dated as of
December 27, 1995, as amended.
10.6 Promissory Note payable by Atlantic Realty Trust ("Atlantic") in favor
of the Company in the principal face amount of 5,500,000 due November
9, 1997.
10.7 Letter Agreement, dated as of May 10, 1996, by and between Atlantic
and the Company concerning the assumption of certain liabilities by
Atlantic.
10.8 Employment Agreement, dated as of May 10, 1996, between the Company
and Joel Gershenson.
10.9 Employment Agreement, dated as of May 10, 1996, between the Company
and Dennis Gershenson.
10.10 Employment Agreement, dated as of May 10, 1996, between the Company
and Michael A. Ward.
10.11 Employment Agreement, dated as of May 10, 1996, between the Company
and Richard Gershenson.
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10.12 Employment Agreement, dated as of May 10, 1996, between the Company
and Bruce Gershenson.
10.13 Noncompetition Agreement, dated as of May 10, 1996, by and between
Joel Gershenson and the Company.
10.14 Noncompetition Agreement, dated as of May 10, 1996, by and between
Dennis Gershenson and the Company.
10.15 Noncompetition Agreement, dated as of May 10, 1996, by and between
Michael A. Ward and the Company.
10.16 Noncompetition Agreement, dated as of May 10, 1996, by and between
Richard Gershenson and the Company.
10.17 Noncompetition Agreement, dated as of May 10, 1996, by and between
Bruce Gershenson and the Company.
10.18 Letter Agreement, dated April 15, 1996, among the Company and Richard
Smith concerning Mr. Smith's employment by the Company.
27.1 Financial Data Schedule.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAMCO-GERSHENSON PROPERTIES TRUST
Date: August 14, 1996 By: /s/ Dennis Gershenson
------------------------------
Dennis Gershenson
President and Trustee
(Chief Executive Officer)
Date: August 14, 1996 By: /s/ Richard Smith
------------------------------
Richard Smith
Chief Financial Officer (Principal
Accounting Officer)
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EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
3(i) Amendment to Amended and Restated Declaration of Trust of the Company
(formerly known as RPS Realty Trust).
3(ii) Amendment to By-laws of the Company (formerly known as RPS Realty
Trust).
10.1 Pledge Agreement, dated as of May 10, 1996, among the Company, Dennis
Gershenson, Joel Gershenson, Bruce Gershenson, Richard Gershenson,
Michael A. Ward, Michael A. Ward U/T/A dated 2/22/77, as amended, and
the holders of interests in Ramco-Gershenson Properties, L.P., a
Delaware limited partnership.
10.2 Registration Rights Agreement, dated as of May 10, 1996, among the
Company, Dennis Gershenson, Joel Gershenson, Bruce Gershenson, Richard
Gershenson, Michael A. Ward, Michael A. Ward U/T/A dated 2/22/77, as
amended, and each of the Persons set forth on Exhibit A attached
thereto.
10.3 Exchange Rights Agreement, dated as of May 10, 1996, by and among the
Company and each of the Persons whose names are set forth on Exhibit A
attached thereto.
10.4 1996 Share Option Plan of the Company.
10.5 Letter Agreement, dated May 10, 1996, among the Persons and Entities
party to the Amended and Restated Master Agreement, dated as of
December 27, 1995, as amended.
10.6 Promissory Note payable by Atlantic Realty Trust ("Atlantic") in favor
of the Company in the principal face amount of 5,500,000 due November
9, 1997.
10.7 Letter Agreement, dated as of May 10, 1996, by and between Atlantic
and the Company concerning the assumption of certain liabilities by
Atlantic.
10.8 Employment Agreement, dated as of May 10, 1996, between the Company
and Joel Gershenson.
10.9 Employment Agreement, dated as of May 10, 1996, between the Company
and Dennis Gershenson.
10.10 Employment Agreement, dated as of May 10, 1996, between the Company
and Michael A. Ward.
10.11 Employment Agreement, dated as of May 10, 1996, between the Company
and Richard Gershenson.
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
10.12 Employment Agreement, dated as of May 10, 1996, between the Company
and Bruce Gershenson.
10.13 Noncompetition Agreement, dated as of May 10, 1996, by and between
Joel Gershenson and the Company.
10.14 Noncompetition Agreement, dated as of May 10, 1996, by and between
Dennis Gershenson and the Company.
10.15 Noncompetition Agreement, dated as of May 10, 1996, by and between
Michael A. Ward and the Company.
10.16 Noncompetition Agreement, dated as of May 10, 1996, by and between
Richard Gershenson and the Company.
10.17 Noncompetition Agreement, dated as of May 10, 1996, by and between
Bruce Gershenson and the Company.
10.18 Letter Agreement, dated April 15, 1996, among the Company and Richard
Smith concerning Mr. Smith's employment by the Company.
27.1 Financial Data Schedule.