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 September 30, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from to
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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 September 30, 1996: 7,123,105.
2
INDEX
Part I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
December 31, 1995 ................................................................................ 3
Consolidated Statements of Operations - Three Months and Nine Months Ended
September 30, 1996 and 1995 ...................................................................... 4
Consolidated Statement of Shareholders' Equity - Nine Months Ended
September 30, 1996 ............................................................................... 5
Consolidated Statements of Cash Flows - Nine Months Ended
September 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......................................................................... 13
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................................................... 17
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30, December 31,
1996 1995 (*)
------------ ------------
(unaudited)
ASSETS
Real Estate, Net (Note 3) $288,329 $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 2,249 7,748
Due from Atlantic Realty Trust 2,078 0
Other assets, net (Note 4) 2,573 11,945
Equity Investments in Unconsolidated Entities 5,247 0
Cash and cash equivalents 5,199 11,467
-------- --------
TOTAL $305,675 $180,581
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgages and Notes Payable (Note 5) $116,820 $0
Distributions Payable 4,108 2,279
Accounts Payable 3,720 1,282
Accrued Expenses 4,694 0
Due to Ramco Affiliates 10,634 0
-------- --------
TOTAL LIABILITIES 139,976 3,561
COMMITMENTS AND CONTINGENCIES (Note 7) -- --
MINORITY INTEREST 45,012 0
SHAREHOLDERS' EQUITY 120,687 177,020
-------- --------
TOTAL $305,675 $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 NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 (*) 1996 1995 (*)
---- -------- ---- --------
REVENUES
Minimum rents $8,053 $1,427 $15,307 $4,584
Percentage rents 214 213 860 707
Recoveries from tenants 4,226 732 7,723 1,523
Interest and other income 244 1,883 2,785 5,766
------ ------ ------ ------
TOTAL REVENUES 12,737 4,255 26,675 12,580
------ ------ ------ ------
EXPENSES
Real estate taxes 1,330 328 2,489 988
Recoverable Operating Expenses 2,814 444 5,413 1,297
Depreciation and amortization 1,631 306 3,095 910
Other Operating 263 0 497 0
General and administrative 1,021 882 3,416 2,856
Interest expense 2,337 0 4,077 0
Spin-off and other expenses (Note 1) 42 0 7,976 0
Allowance for loan losses 0 0 0 3,000
------ ------ ------ ------
TOTAL EXPENSES 9,438 1,960 26,963 9,051
------ ------ ------ ------
OPERATING INCOME (LOSS) 3,299 2,295 (288) 3,529
LOSS FROM UNCONSOLIDATED ENTITIES 149 0 240 0
------ ------ ------ ------
INCOME (LOSS) BEFORE MINORITY INTEREST 3,150 2,295 (528) 3,529
MINORITY INTEREST 869 0 1,350 0
------ ------ ------ ------
NET INCOME (LOSS) $2,281 $2,295 ($1,878) $3,529
====== ====== ====== ======
NET INCOME (LOSS) PER SHARE $0.32 $0.32 ($0.26) $0.50
====== ====== ====== ======
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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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(Unaudited)
SHARES OF
BENEFICIAL INTEREST ADDITIONAL CUMULATIVE TOTAL
------------------- PAID-IN EARNINGS/ SHAREHOLDERS'
NUMBER AMOUNT CAPITAL DISTRIBUTIONS 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 (1,707) (1,707)
Cash Distributions Declared (7,265) (7,265)
Net loss for the nine months ended September 30, 1996 (1,878) (1,878)
------- ----- -------- -------- --------
0
BALANCE AT SEPTEMBER 30, 1996 7,123 $712 $149,871 ($29,896) $120,687
======= ===== ======== ======== ========
See notes to consolidated financial statements
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30
1996 1995 (*)
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) ($1,878) $3,529
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 3,095 910
Loss from unconsolidated entities 240 0
Minority Interest 1,350 0
Changes in assets and liabilities that
provided (used) cash:
Interest and accounts receivable 4,912 168
Other assets (1,866) (5,582)
Accounts payable and accrued expenses 3,435 210
------- ------
Total Adjustments 13,540 (1,294)
------- ------
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES 11,662 2,235
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Satisfaction of Mortgage Loans Receivable (3,417) 3,000
Amortization of REMICs 1,100 0
Investment in REMICs 0 (60,072)
Proceeds from REMICs 56,908 0
Real Estate Acquired (7,721) (873)
------- ------
CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES 46,870 (57,945)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders (7,297) (6,838)
Principal repayments on debt (70,260) 0
Advances to affiliated entities, net (478) 0
Advances from affiliated entities, net 829 0
Borrowings on debt 12,406 0
------- ------
CASH FLOWS USED IN
FINANCING ACTIVITIES (64,800) (6,838)
------- ------
Net decrease in cash and cash equivalents ($6,268) ($62,548)
======= ======
Cash and cash equivalents, beginning of period $11,467 $74,584
======= ======
Cash and cash equivalents, end of period $5,199 $12,036
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION - CASH PAID FOR
INTEREST DURING THE PERIOD $3,411 $0
------- ------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Accrued distributions payable $4,108 $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 (i) the 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 (ii) 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 leasable 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).
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 nine months ended September 30, 1996 non-recurring expenses, including
the spin-off of Atlantic have been charged to operations as follows:
Severance and other termination costs $4,672
Directors and officers insurance 1,150
Write-off of deferred acquisition expense 2,154
------
$7,976
======
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
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
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 commencing May 1, 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.
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 September 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 and operating expenses, and real estate taxes. 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 $282 as of September 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.
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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 September 30, 1996 and December 31, 1995 are as
follows:
SEPTEMBER 30, 1996 DECEMBER 31, 1995
Land $ 40,748 $18,459
Buildings and Improvements 250,643 40,387
Construction-in-progress 2,437 0
-------- -------
Total 293,828 58,846
Less: Accumulated Depreciation 5,499 3,547
-------- -------
$288,329 $55,299
======== =======
4. OTHER ASSETS
Other assets at September 30, 1996 and December 31, 1995 are as follows:
SEPTEMBER 30, 1996 DECEMBER 31, 1995
Leasing costs, net $1,575
Deferred financing costs, net 423
Other, net 575
Deferred acquisition expenses, net $ 2,154
Transaction advances 9,791
------ -------
$2,573 $11,945
====== =======
5. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable at September 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 $ 99,789
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 175
basis points, due May 1999, maximum available
borrowings of $50,000 10,031
--------
$116,820
========
The mortgage notes are secured by properties that have an approximate
net book value of $135,806 as of September 30, 1996. The Credit Facility is
secured by mortgages on various properties that have an approximate net book
value of $75,717 as of September 30, 1996.
The following table presents scheduled principal payments on mortgages and
notes payable as of September 30, 1996:
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
Year ended December 31,
1996 (October 1, 1996 to December 31, 1996) .. $ 7,211
1997 ......................................... 1,874
1998 ......................................... 3,799
1999 ......................................... 12,058
2000 ......................................... 2,130
Thereafter ................................... 89,748
--------
Total ........................................ $116,820
========
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 rents under noncancelable operating leases in effect
at September 30, 1996, assuming no new or renegotiated leases nor option
extensions on lease agreements, are as follows:
Year ended December 31,
1996 (October 1, 1996 to December 31, 1996) .. $ 7,690
1997 ......................................... 29,539
1998 ......................................... 26,202
1999 ......................................... 23,322
2000 ......................................... 20,151
Thereafter ................................... 158,693
--------
Total ........................................ $265,597
========
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 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.
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
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. The Plan provided for Options to purchase up to 1,000,000 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. 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 at an exercise price of $15.44 per share, and an additional
37,575 options have been granted to Ramco-Gershenson, Inc. employees at an
exercise price of $16.56 per share.
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, properties acquired subsequently and the
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.
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
-------------------------------
REVENUES
Minimum rents $23,983 $22,416
Percentage rents 1,070 1,292
Recoveries from tenants 12,633 12,342
Interest and other income 475 234
------- -------
TOTAL REVENUES 38,161 36,284
EXPENSES
Real estate taxes 3,924 3,878
Recoverable Operating Expenses 8,518 8,202
Depreciation and amortization 4,838 4,786
Other Operating 609 370
General and administrative 3,159 2,185
Interest expense 7,552 7,393
Spin-off and other expenses 7,976
------- -------
TOTAL EXPENSES 36,576 26,814
------- -------
OPERATING INCOME 1,585 9,470
LOSS FROM UNCONSOLIDATED ENTITIES (338) (347)
------- -------
INCOME BEFORE MINORITY INTEREST 1,247 9,123
MINORITY INTEREST 2,414 2,280
------- -------
NET INCOME (LOSS) ($1,167) $ 6,843
======= =======
PRO FORMA EARNINGS (LOSS) PER SHARE ($0.16) $0.96
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,123 7,123
======= =======
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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.
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.
At the Closing, the Trust made a loan to, and assumed an obligation of,
Atlantic Realty Trust ("Atlantic"). In that connection, Atlantic was obligated
to pay the Trust the sum of $5,550, of which $3,500 was repaid during
July 1996. The promissory note with a remaining balance of $2,050 at September
30, 1996, matures November 9, 1997, bears interest at the Base Rate under the
Credit Facility (which was 8.25% at Closing), and is secured by a collateral
assignment of the borrower's interest in the Hylan Center.
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
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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
During August 1996 the Trust acquired for $2,300, a property known as
Telegraph and Goddard located in Taylor, Michigan. The shopping center is a
122,374 square foot, free-standing retail property currently occupied by a
Kmart store, with potential for future growth.
The Trust has approximately $40,000 available under the Credit Facility and
intends to reimburse affiliates of Ramco, during the fourth quarter of 1996, for
$10,500 of development costs incurred in connection with certain development
opportunities acquired by the Trust, including the Jackson West Shopping Center
which opened in June 1996. In addition, 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.
The Trust intends to use the balance of the Credit Facility principally to fund
future acquisitions, developments, expansions, and redevelopments. The Company
expects that the combination of the Credit Facility and other borrowings will
be sufficient to meet its liquidity needs.
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 Trust is pursuing an extension from the existing lender.
In addition, the Trust is pursuing various alternatives to find new
lender(s) to buy the bonds to hold until maturity but it is not known at this
time whether a buyer will be found. The Trust may need to draw on the Credit
Facility to either retire the bonds or purchase the bonds until a new buyer can
be found.
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 compared to nine months ended September
30, 1995
Total revenues for the nine months ended September 30, 1996 increased $14,095,
or 112%, as compared to the nine months ended September 30, 1995. Minimum rents
increased to $15,307, an increase of $10,723, or 234%, for the nine months
ended September 30, 1996 as compared to the nine months ended September 30,
1995. Percentage rents increased $153 or 22% from $707 in 1995 to $860 in 1996.
Tenant recoveries increased $6,200, or 407%, from $1,523 in 1995 to $7,723 in
1996. These net increases are primarily attributable to the acquisition of the
Ramco Properties effective May 1, 1996. Five months of the Ramco Properties'
operating results have been included in the nine months ended September 30, 1996
as compared to none in the corresponding nine months of 1995. In addition, due
to the Spin-off Transaction, two properties which were part of the Trust
portfolio at September 30, 1995 were spun off effective May 1, 1996 and
therefore the revenues for the nine months of 1996 include only four months of
their activity as compared to nine 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 nine months ended September 30, 1996 expenses increased $17,912 from
$9,051 to $26,963, or 198% as compared to the nine months ended September 30,
1995. This increase was attributable principally to the non-recurring expenses
related to the Spin-off Transaction of $7,976, including employee severance and
bonus expenses, the cost of the run-off directors' and officers' 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 $6,674 in the recoverable operating, other operating, 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 the decrease related to the two former RPS
properties which were spun-off effective May 1, 1996. Interest expense for the
nine months ended September 30, 1996 has increased $4,077 due to the debt
assumed in connection with the Ramco acquisition. Interest expense for the nine
months ended September 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 nine
months ended September 30, 1995 included an addition to the allowance for loan
losses of $3,000, no such allowance was required in the nine months ended
September 30, 1996.
Three months ended September 30, 1996 compared to three months ended September
30, 1995
Total revenues increased $8,482 or 199% to $12,737 for the three months ended
September 30, 1996, as compared with $4,255 for the three months ended September
30, 1995. Minimum rents grew from $1,427 for the three months ended September
30, 1995 to $8,053, an increase of $6,626, or 464%. Percentage rents remained
the same as 1995 primarily due to the conversion of percentage rent to minimum
rent due to contractual rent increases. Recoveries from tenants increased $3,494
or 477% from $732 in 1995 to $4,226 in 1996. This net increase is primarily
attributable to the acquisition of the Ramco Properties effective May 1, 1996.
Three months of the Ramco Properties operating results have been included in the
three months ended September 30, 1996 as compared to none in the corresponding
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three months of 1995. In addition, due to the Spin-off Transaction, two
properties which were part of the Trust portfolio at September 30, 1995 were
spun-off effective May 1, 1996 and, therefore, the revenues for the three
months of 1996 do not include any 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 September 30, 1996 expenses increased $7,478 from
$1,960 to $9,438, or 382%, as compared to the three months ended September 30,
1995. This increase is primarily attributable to the acquisition of the Ramco
properties effective May 1, 1996. In addition, a significant portion of the
increase of approximately $3,774 in the recoverable operating, other operating,
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 September 30, 1996 increased $2,337
due to the debt assumed relative to the Ramco Acquisition.
Pro Forma nine months ended September 30, 1996 compared to Pro Forma nine
months ended September 30, 1995
Total revenues increased 5.2%, or $1,877 for the nine months ended September
30, 1996, to $38,161 from $36,284 for the nine months ended September 30, 1995.
The increase was primarily due to a $1,567 increase in minimum rents, a $222
decrease in percentage rents, and a $291 increase in recoveries from tenants.
Minimum rents increased 7.0%, or $1,567, to $23,983 for the nine months
ended September 30, 1996 from $22,416 for the nine months ended September 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 and the
opening of the Jackson West Shopping Center. Percentage rents decreased 17.2%,
or $222, to $1,070 for the nine months ended September 30, 1996 from $1,292 for
the nine months ended September 30, 1995. The decrease resulted primarily from
the conversion of percentage rent to minimum rent due to contractual rent
increases. Recoveries from tenants increased 2.4%, or $291, to $12,633 for the
nine months ended September 30, 1996 from $12,342 for the nine months ended
September 30, 1995. The increase was primarily due to corresponding increases
in recoverable operating and real estate tax expense. The Company's overall
recovery ratio for 1996 and 1995 remained relatively consistent at 101.5% and
102.2%, respectively.
Total expenses increased 36.4%, or $9,762 for the nine months ended September
30, 1996, to $36,576 from $26,814 for the nine months ended September 30, 1995.
The increase was primarily due to a $7,976 increase in Spin-off Transaction and
other related expenses, a $362 increase in recoverable operating and real estate
tax expense, a $239 increase in other operating expenses, a $159 increase in
interest expense and a $974 increase in general and administrative expenses.
For the nine months ended September 30, 1996 the Company incurred $7,976 of
Spin-off Transaction and other related expenses for which there were no
corresponding costs for the nine months ended September 30, 1995. These
non-recurring costs were primarily a result of the employee severance and bonus
expense, the cost of run-off directors' and officers' liability insurance, and
the write-off of deferred acquisition costs related to the Transaction.
Recoverable operating and real estate tax expenses increased 3.0%, or $362, to
$12,442 for the nine months ended September 30, 1996 from $12,080 for the nine
months ended September 30, 1995. The increase was offset primarily by an
increase in recoveries from tenants. As noted above, the Company's recovery
ratio for the nine months ended September 30, 1996 remained consistent with the
corresponding 1995 period. Other operating expenses increased 64.6% or $239 to
$609 for the nine months ended September 30, 1996 from $370 for the nine months
ended September 30, 1995 due to a $217 increase in bad debt expense. Interest
expense increased $159, or 2.2% to $7,552 for the nine months ended September
30, 1996 as compared to $7,393 for the nine months ended September 30, 1995.
General and administrative expenses increased $974, or 44.6%, to $3,159 for
the nine months ended September 30, 1996 from $2,185 for the nine months
ended September 30, 1995. The increase in general and administrative expenses
was primarily due to a $964 increase in cost reimbursement to Ramco-Gershenson,
Inc. The $964 increase was a result of a decrease in revenues of $388, and an
increase in expenses of approximately $576. Of the $388 decrease in revenues,
$182 pertained to leasing fees and $184 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
$576 increase in expenses was primarily attributable to a $196 increase in
payroll and related benefits and a $145 increase in equipment leasing costs.
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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 net 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 or 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 pro forma FFO for the nine
months ended September 30, 1996 and 1995:
PRO FORMA FUNDS FROM OPERATIONS NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
Net Income (Loss) ($1,167) $ 6,843
Add Back
Depreciation 4,867 4,786
Minority Interest in Partnerships 2,414 2,280
Non-recurring spin-off costs 7,976
-------- --------
Funds from operations $14,090 $13,909
======= =======
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PART II: OTHER INFORMATION
For Quarter Ended September 30, 1996
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on September 10,
1996. At the Annual Meeting, Selwyn Isakow, Arthur H. Goldberg and Mark K.
Rosenfeld were elected as trustees of the Company to serve until the 1999
Annual Meeting of Shareholders or until their successors are elected and
qualified. The following votes were cast for or were withheld from voting
with respect to the election of each of the following persons:
Votes
------------------------
Authority
Name For Withheld
----------------- --------- ---------
Selwyn Isakow 4,816,361 43,720
Arthur H. Goldberg 4,818,630 41,451
Mark K. Rosenfeld 4,634,811 225,270
There were no abstentions or broker non-votes in connection with the
election of the trustees at the Annual Meeting.
In addition, at the Annual Meeting, the shareholders voted to ratify the
selection of Deloitte & Touche LLP, independent certified public
accountants, as auditors for the fiscal year commencing January 1, 1996.
The following table shows the number of votes for and against the proposal
and the number of votes abstaining with respect to the proposal:
For Against Abstain
--------- ------- -------
4,809,028 17,010 34,043
There were no broker non-votes in connection with the appointment of the
Company's auditors at the Annual Meeting.
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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: NOVEMBER 14, 1996 By:/s/ Dennis Gershenson
---------------------
Dennis Gershenson
President and Trustee
(Chief Executive Officer)
Date: NOVEMBER 14, 1996 By:/s/ Richard Smith
-----------------
Richard Smith
Chief Financial Officer
(Principal Accounting Officer)
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