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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
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 13-6908486
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporated or Organization)
27600 NORTHWESTERN HIGHWAY, SUITE 200 48034
SOUTHFIELD, MICHIGAN (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 248-350-9900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Shares of Beneficial Interest, New York Stock Exchange, Inc.
$0.10 Par Value Per Share
Share Purchase Rights New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements to
this Form 10-K. [X]
Aggregate Market Value of the voting shares held by non-affiliates of the
Registrant as of March 14, 1997: approximately $122,798,000.
Approximately 7,123,105 Shares of Beneficial Interest of the Registrant
were outstanding as of March 14, 1997.
DOCUMENT INCORPORATED BY REFERENCE: Portions of the 1997 Ramco-Gershenson
Properties Trust Proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to the annual meeting of shareholders to be held on June 10, 1997 are
incorporated by reference into Part III.
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TABLE OF CONTENTS
NOTE: Ramco-Gershenson Properties Trust is sometimes referred to in this Annual
Report on Form 10-K as "Registrant", or the "Company".
ITEM PAGE
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PART I 1. Business.................................................... 2
2. Properties.................................................. 8
3. Legal Proceedings........................................... 12
4. Submission of Matters to a Vote of Security Holders......... 12
PART II 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 13
6. Selected Financial Data..................................... 15
7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................... 17
8. Financial Statements and Supplementary Data................. 26
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26
PART III 10. Directors and Executive Officers of the Registrant.......... 26
11. Executive Compensation...................................... 26
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
13. Certain Relationships and Related Transactions.............. 26
PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 27
S-1
SIGNATURES.....................................................................
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PART I
ITEM 1. BUSINESS
GENERAL
Ramco-Gershenson Properties Trust (the "Company") is a Massachusetts
business trust organized pursuant to a Declaration of Trust declared and
accepted in Boston, Massachusetts on June 21, 1988, as amended and restated by
an Amended and Restated Declaration of Trust dated June 21, 1988, as amended and
restated by an Amended and Restated Declaration of Trust dated October 14, 1988
and by a First Amendment to the Amended and Restated Declaration of Trust dated
May 10, 1996 (as amended, the "Declaration of Trust"). The principal office of
the Company is located at 27600 Northwestern Highway, Suite 200, Southfield,
Michigan 48034.
The Company is the successor entity of Resources Pension Shares 1 ("RPS
1"), Resources Pension Shares 2 ("RPS 2"), and Resources Pension Shares 3 ("RPS
3"), each of which was a Massachusetts business trust (collectively, the "RPS
Trusts"), and Integrated Resources Pension Shares 4, a California limited
partnership ("RPS 4") (the RPS Trusts and RPS 4 are collectively referred to as
the "Predecessor Programs"). On December 28, 1988, the Company (i) acquired the
assets, subject to the liabilities, of the Predecessor Programs (the "Exchange")
in exchange for issuing an aggregate of 28,576,022 shares of beneficial
interest, $.10 par value per share (the "Shares"), and (ii) acquired all of the
outstanding stock of RPS Advisory Corp., a Delaware corporation, in
consideration for a note in the original principal amount of $24,250,000. The
assets of the Predecessor Programs acquired in the Exchange consisted primarily
of mortgage loan investments. Immediately prior to the Company's acquisition of
its stock, RPS Advisory Corp. acquired certain assets (consisting primarily of
10 year employment agreements with Herbert Liechtung, the Company's former
President, and Joel M. Pashcow, the Company's former Chairman and President, and
advisory agreements with, and the managing general partner's right to certain
management, mortgage servicing, and incentive fees from, the Predecessor
Programs). The Company's acquisition of such stock enabled the Company to
internalize its management.
In May 1996, the Company (i) acquired substantially all of the shopping
center and retail properties as well as the management organization and business
operations, of Ramco-Gershenson, Inc. and certain of its affiliates (the "Ramco
Acquisition"), (ii) changed the Company's name from RPS Realty Trust to Ramco-
Gershenson Properties Trust, (iii) combined the outstanding shares of the
Company by way of a one-for-four reverse split, and, (iv) spun-off eight
mortgage loans and two real properties (the "RPS Mortgage Assets") to Atlantic
Realty Trust , a newly formed real estate investment trust ("Atlantic"). The
Ramco Acquisition was accomplished by the transfer by the Company to
Ramco-Gershenson Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership of which the Company is the general partner, of six
properties containing approximately 931,000 square feet of gross leasable area
("GLA") and of $68,000,000 in cash, and by the transfer to the Operating
Partnership by the principals of Ramco-Gershenson, Inc. (the "Ramco Principals")
and by their affiliates (collectively the "Ramco Group"), of (a) 20 shopping
center properties containing approximately 4,826,000 square feet of gross
leasable area (the "Ramco Properties"), (b) 100% of the non-voting stock and 5%
of the voting stock (representing in excess of 95% of the economic interest) in
Ramco-Gershenson, Inc. ("Ramco"), (c) 50% general partner interests of two
partnerships which each own a shopping center (d) rights in and/or options to
acquire certain development land totaling approximately 155 acres, (e) options
to acquire interests in six shopping center properties and (f) five outparcels
totaling 7.1 acres. In return for its transfers, the Ramco Group received
2,377,492 Units ("Units") of the Operating Partnership (representing an
approximate 25% limited partnership interest in the Operating Partnership). The
acquisition was accounted for using the purchase method. The purchase price was
allocated to the assets acquired and liabilities assumed based upon their
estimated fair market value. Units were valued at $16.50 per share representing
the average trading price of the Company's stock immediately preceding and
following the Ramco Acquisition. In addition, the Ramco Group received 279,181
Units as a partial earnout relative to Jackson Crossing Shopping Center
(representing an approximate 2% limited partnership interest in the Operating
Partnership). The Ramco Group's aggregate Units of 2,656,673 represent an
approximate 27% limited partnership interest in the Operating Partnership. The
Company assumed approximately $176,556,000
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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 objectives with respect to one
of the Ramco Properties are fulfilled by March 31, 1997. Subject to certain
limitations, the Units are exchangeable into shares of the Company on a
one-for-one basis beginning May 10, 1997. At December 31, 1996, the Company
owned 7,123,105 Units which represents partnership interests amounting to
approximately 73% of the total interest in the Operating Partnership. In
connection with the Ramco Acquisition, the Company entered into three-year
employment agreements with Joel D. Gershenson (the Chairman and a Director of
the Company), Dennis E. Gershenson (the President and a Director of the
Company), Richard D. Gershenson (an Executive Vice President and the Secretary
of the Company), Bruce A. Gershenson (an Executive Vice President and the
Treasurer of the Company) and Michael A. Ward (an Executive Vice President and
the Chief Operating Officer of the Company). The Ramco Acquisition permitted the
Company to become a self-administered, self-managed and fully integrated real
estate investment trust.
The Company was organized for the purpose of qualifying as a real estate
investment trust ("REIT") under Section 856-860 of the Internal Revenue Code of
1986, as amended (the "Code").
The RPS Trusts first elected to qualify as a REIT for the years ended
December 31, 1982, 1983 and 1984 respectively. The Company first elected to
qualify as a REIT for the year ended December 31, 1988 and intends to operate so
as to continue to qualify as a REIT. See "Qualification as a REIT."
The Company is engaged in the business of owning, developing, acquiring,
managing and leasing community shopping centers, regional malls and single
tenant retail properties, nationally. At December 31, 1996, the Company had a
portfolio of 32 shopping centers, with more than 6,700,000 square feet of gross
leasable area, located in Michigan, Ohio, Florida, New York, New Jersey,
Maryland, Wisconsin and Georgia.
The Company's properties consist of 2 regional enclosed malls, 15 community
centers, 12 power centers, and 3 single tenant retail properties. Regional
enclosed malls are larger retail properties (containing 400,000 to more than
1,000,000 square feet of GLA) with two or more department stores as Anchors and
a wide variety of stores along enclosed, climate controlled malls connecting the
Anchors. This layout is intended to maximize customer traffic for the mall
stores. At many regional enclosed malls, freestanding stores are located along
the perimeter of the parking area.
Community shopping centers generally range in size up to 400,000 square
feet of GLA and are located in developed retail and commercial areas in which
other similar centers may be nearby. In addition, with respect to some of these
centers, there may be one or more regional enclosed malls nearby. Community
shopping centers generally fall into two types: traditional community centers
and power centers. Traditional community centers typically are convenient to
their trade areas and focus primarily on value-oriented and convenience goods
and services. They are designed to service a neighborhood area, and are usually
anchored by a supermarket, drugstore or discount retailer providing basic
necessities, although certain community centers are free standing single-user
buildings. Power centers are different from traditional community centers
because they are designed to service a larger trade area and they contain at
least two Anchors which occupy a substantial portion of the GLA in the center.
These Anchors are often national retailers which are leaders in their market or
"category killers" i.e., larger stores which offer a complete selection of a
category of items (e.g., toys, office supplies, home improvement products,
electronics, etc.) at low prices, and often in a warehouse format.
Operations of the Company after the Ramco Acquisition. Since the
consummation of the Ramco Acquisition, the Company conducts substantially all of
its business through the Operating Partnership. The Company is the sole general
partner of, and has exclusive power to manage and conduct the business of, the
Operating Partnership. The Operating Partnership holds substantially all of the
Company's interest in its properties, either directly or indirectly through
subsidiaries (including subsidiary property partnerships). The Operating
Partnership also owns 100% of the non-voting common stock and 5% of the voting
common stock of Ramco, such stock ownership enables the Company to receive in
excess of 95% of the dividend and liquidating distributions of Ramco. The
Company's property management operations are conducted through Ramco to
facilitate compliance with certain REIT requirements under the Code. After the
closing of the Ramco
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Acquisition, the income attributable to the ownership of the Ramco Stock is
accounted for under the equity method.
The Company's business objective and operating strategy is to increase cash
available for distribution per share. The Company expects to achieve internal
growth and to enhance the value of the properties by increasing their rental
income over time through (i) contractual rent increases, (ii) the leasing and
re-leasing of available space at higher rental levels, and (iii) the selective
renovation of the properties. The Company intends to achieve external growth
through the development of new shopping center properties, the selective
acquisition of shopping center properties and through the expansion and
redevelopment of existing properties.
Ramco performs all property management functions for the properties. Ramco
has 139 full-time employees devoted exclusively to property management,
including on-site personnel. Property management efforts will continue to be
directed toward improving tenant sales and rents by continually respositioning
the centers. Ramco strives to meet the needs of its tenants in the areas of
promotion, marketing and ongoing management of its properties and seeks to bring
together a sufficient critical mass of complementary tenants. As part of its
property management efforts, Ramco monitors tenant mix, store size, sales
results and store locations, and works closely with tenants to improve the
overall performance of their stores. Ramco seeks to anticipate trends in the
retailing industry and introduce new retail names and concepts into its shopping
center properties in response to these trends.
As part of its ongoing business strategy, the Company seeks to expand and
redevelop existing properties in its shopping center portfolio, as well as newly
acquired properties, depending on tenant demands and market conditions. The
Company plans to take advantage of attractive purchase opportunities by
acquiring additional shopping center properties in underserved, attractive
and/or expanding markets. The Company also seeks to acquire strategically
located, quality shopping centers that (i) have leases at rental rates below
market rates, (ii) have potential for rental and/or occupancy increases or (iii)
offer cash flow growth or capital appreciation potential where the Company's
financial strength, relationships with retail companies or expansion or
redevelopment capabilities can enhance value, and provide anticipated total
returns that will increase the Company's cash available for distribution per
share. The Company believes that its in-house redevelopment and expansion
capabilities provide it with opportunities to acquire shopping center properties
that may not necessarily be attractive to other potential owners.
During August 1996, the Company acquired for $2,300,000 a property known as
Telegraph and Goddard located in Taylor, Michigan. The shopping center is an
approximately 122,000 square foot, free standing retail property currently
occupied by a Kmart store. The Kmart lease's primary term expired August 31,
1996 and Kmart exercised the first-of-four, five year options extending the term
to August 31, 2001. A provision of the Kmart lease requires Kmart to occupy the
premises in order to exercise any future options. Thus, if Kmart desires to open
a Super Kmart in this area, and the current site cannot accommodate the
expansion of the store, then possession of the premises would revert back to the
Operating Partnership which could seek to re-lease the property at current
market levels. In addition, there is an opportunity to add an outlot user to the
property.
In November 1996 the Company acquired The Shoppes of Lakeland, located in
Lakeland, Florida, for approximately $12,700,000. The shopping center is an
approximately 249,000 square foot power center. The Shoppes of Lakeland is
anchored by Builders Square (72,000 square feet), Service Merchandise (50,000
square feet), Montgomery Ward (78,792 square feet), and Montgomery Ward Electric
Avenue (16,000 square feet). There is approximately 32,000 feet of smaller
tenant GLA. There is also a ground lease to Checkers, a drive-in restaurant. The
Lakeland center offers the potential for long-term growth. The Company believes
that the average rent presently being paid by the smaller tenants is below
current market rates, and the location provides an advantage for the Company's
expansion/renovation strategy.
The Holcomb Center, an approximately 107,000 square foot community center
in Alpharetta, Georgia was acquired in December 1996 for approximately
$6,700,000. Holcomb Center is anchored by A&P (39,668 square feet)and Big B Drug
(9,490 square feet) with the remaining 57,000 square feet being comprised of
smaller tenants. The shopping center is located in a high-growth area with
strong demographics and provides the opportunity for anchor-store expansion,
leaseup and repositioning by leasing to unique, specialty, upscale retailers.
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Numerous shopping center properties compete with the Company's properties
in attracting tenants to lease space. Some of these competing properties may be
newer, better located, better capitalized or better tenanted than some of the
Company's properties. Furthermore, the Company believes that it is likely that
major national or regional commercial property developers will continue to seek
development opportunities in markets where the Company's properties are located.
These developers may have greater financial resources than the Company. The
number of competitive commercial properties in a particular area could have a
material effect on the Company's ability to lease space in its properties or at
newly developed or acquired properties and on the rents charged. In addition,
the Company may face competition from alternate forms of retailing, including
home shopping networks, mail order catalogues and on-line based shopping
services which may limit the number of retail tenants that desire to seek space
in shopping center properties generally, all of which may affect the Company's
ability to make expected distributions.
The Company is subject to the risks that upon expiration of leases for
space located in its properties, the leases may not be renewed, the space may
not be relet or the terms of renewal or reletting (including the cost of
required renovations) may be less favorable than current lease terms. Leases on
a total of approximately 2.6% of the Company owned GLA will expire in 1997. If
the Company were unable to promptly relet or renew the leases for all or a
substantial portion of this space and, if the rental rates upon such renewal or
reletting were significantly lower than expected rates, then the Company's cash
flow and ability to make distributions to shareholders may be adversely
affected. If the Company were unable to maintain its current occupancy levels,
then the Company's cash flow and ability to make expected distributions to
shareholders may be adversely affected.
The shopping center industry is seasonal in nature. Tenant sales and
occupancy are higher in the fourth quarter due to the Christmas selling season.
Back-to-school and Easter events also result in sales fluctuations.
Qualification as a REIT. The Company first elected to qualify as a REIT for
the year ended December 31, 1988. The Company's policy is to qualify as a REIT
for federal income tax purposes. If the Company so qualifies, amounts paid by
the Company as distributions to its shareholders will not be subject to
corporate income taxes. For any year in which the Company does not meet the
requirements for electing to be taxed as a REIT, it will be taxed as a
corporation.
The requirements for qualification as a REIT are contained in sections
856-860 of the Code and the regulations issued thereunder. The following
discussion is a brief summary of some of those requirements. Such requirements
include certain provisions relating to the nature of a REIT's assets, the
sources of its income, the ownership of its stock, and the distribution of its
income. Among other things, at the end of each fiscal quarter, at least 75% of
the value of the total assets of the Company must consist of real estate assets
(including interests in mortgage loans secured by real property and interests in
other REIT's) as well as cash, cash items and government securities (the "75%
Asset Test"). There are also certain limitations on the amount of other types of
securities which can be held by a REIT. Additionally, at least 75% of the gross
income of the Company for the taxable year must be derived from certain sources,
which include "rents from real property," and interest secured by mortgages on
real property. An additional 20% of the gross income of the Company must be
derived from these same sources or from dividends, interest from any source, or
gains from the sale or other disposition of stock or securities or any
combination of the foregoing. There are also restrictions on the percentage of
gross income derived from the sale or disposition of certain assets within
certain time periods. A REIT is also required to distribute annually at least
95% of its REIT Taxable Income (as defined in the Code) to its shareholders.
During the third quarter of 1994, the Company held more than 25% of its
value of its gross assets in overnight Treasury Bill reverse repurchase
transactions which the United States Internal Revenue Service (the "IRS") may
view as non-qualifying assets for the purpose 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 have occurred since 1977, the
Company's legal counsel has rendered an opinion that the Company's investment in
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Treasury Bill repurchase obligations would not adversely affect the 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. 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% 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.
Environmental Matters. Under various Federal, state and local laws,
ordinances and regulations relating to the protection of the environment
("Environmental Laws"), a current or previous owner or operator of real estate
may be liable for the costs of removal or remediation of certain hazardous or
toxic substances disposed, stored, released, generated, manufactured or
discharged from, on, at, onto, under or in such property. Environmental Laws
often impose such liability without regard to whether the owner or operator knew
of, or was responsible for, the presence or release of such hazardous or toxic
substance. The presence of such substances, or the failure to properly remediate
such substances when present, released or discharged, may adversely affect the
owner's ability to sell or rent such property or to borrow using such property
as collateral. The cost of any required remediation and the liability of the
owner or operator therefore as to any property is generally not limited under
such Environmental Laws and could exceed the value of the property and/or the
aggregate assets of the owner or operator. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the cost of
removal or remediation of such substances at a disposal or treatment facility,
whether or not such facility is owned or operated by such persons. In addition
to any action required by Federal, state or local authorities, the presence or
release of hazardous or toxic substances on or from any property could result in
private plaintiffs bringing claims for personal injury or other causes of
action.
In connection with the ownership (direct or indirect), operation,
management and development of real properties, the Company may be potentially
liable for remediation, releases or injury. In addition, Environmental Laws
impose on owners or operators the requirement of on-going compliance with rules
and regulations regarding business-related activities that may affect the
environment. Such activities include, for example, the ownership or use of
transformers or underground tanks, the treatment or discharge of waste waters,
the removal or abatement of asbestos-containing materials ("ACMs") or
lead-containing paint during renovations or otherwise, or notification to the
parties concerning the potential presence of regulated matter, including ACMs.
Failure to comply with such requirements could result in difficulty in the lease
or sale of any affected property and/or the imposition of monetary penalties and
fines in addition to the costs required to attain compliance.
Each of the Ramco Properties has been the subject of a Phase I
Environmental Assessment completed by an environmental consultant, performed and
obtained in contemplation of the Ramco Acquisition (collectively "Phase I
Assessments"). The Phase I Assessments consisted of, among other activities, a
visual inspection of the Ramco Properties and nearby properties and review of
pertinent publicly available information. The Phase I Assessments, as with
standard Phase I environmental assessments, generally do not include sampling or
analysis of soil, groundwater or other media; however, at certain Ramco
Properties, limited testing was performed for the presence of ACMs.
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Based on the Phase I Assessments, the Company is aware of the following
environmental issues:
- The Phase I Assessments included observation and/or limited testing
for the presence of ACMs at the Ramco Properties. The Phase I Assessments
revealed that ACMs and/or suspected ACMs are present at Clinton Valley
Mall, Clinton Valley Strip, Fraser Shopping Center, Jackson Crossing, Lake
Orion Plaza, New Towne Plaza, Roseville Plaza, Southfield Plaza and
Tel-Twelve Mall, primarily in the form of ceiling tiles, floor tiles,
mastics or pipe insulation. The identified ACMs and suspected ACMs are
generally classified as non-friable and in good condition. In the course of
future operations, maintenance, renovation or demolition at such Ramco
Properties that may disturb such ACMs or suspected ACMs whether classified
as friable or non-friable, some or all of such ACMs or suspected ACMs
ultimately may require removal.
- The Phase I Assessments indicated that underground storage tanks
("USTs") are present at Jackson Crossing and Roseville Plaza and were
formerly present at Lake Orion Plaza, New Towne Plaza, Tel-Twelve Mall and
West Oaks I Shopping Center, often in connection with tenant operations at
gasoline stations or automotive tire, battery and accessory service
centers. USTs also are or were present at properties nearby certain Ramco
Properties. Certain of these tanks have or may have leaked, and
consequently the Company may incur investigation, remediation, and/or
monitoring costs, if the responsible current or former tenant or other
responsible parties are unavailable to pay such costs.
Except as described below, none of the Phase I Assessments revealed, nor is
the Company aware of, any potential environmental liability that the Company
believes could have a material adverse effect on the Company's business, assets
or results of operations. No assurance can be given that the Phase I Assessments
reveal all potential environmental liabilities, that any prior owner or tenant
did not create any material adverse environmental condition not known to the
Company, that no environmental liabilities have developed since the Phase I
Assessments were prepared, that future laws, ordinances or regulations will not
impose any material environmental requirement or liability, or that a material
adverse environmental condition does not otherwise exist.
The Phase I Assessment of Jackson Crossing revealed that, as to a gasoline
station located at such property, there was a release of approximately 2,300
gallons of gasoline from a product line break in August 1986 and a release of
approximately 1,200 gallons of gasoline from a delivery line break in October
1991. The Phase I Assessment of Lake Orion Plaza revealed that a release of
gasoline was discovered in 1987 at the time of removal of USTs from a gasoline
station located adjacent to such property. Subsequent investigations indicated
that levels of contamination exist in the ground water under such property. The
Ramco Principals, jointly and severally, have agreed to indemnify the Company,
the Operating Partnership and their respective subsidiaries and affiliates for
any and all damages arising from or in connection with such environmental
conditions at the Jackson Crossing and Lake Orion Plaza properties. On March 20,
1995, the Company received a letter from the New York Department of
Environmental Conservation regarding the release of materials to the ground
water from an off-site source and the presence of such in the well or ground
water at the Trinity Corners Shopping Center property. Although the Company
believes that the costs of any such remediation are the responsibility of third
parties, if such remediation is required to be undertaken by the Company and at
its expense, it may have a material adverse effect on the Company's financial
condition and results of operations. The Company has agreed to indemnify the
Operating Partnership for any and all damages arising from or in connection with
the environmental condition present at its Trinity Corners property.
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ITEM 2. PROPERTIES
The Company's properties are located in eight states primarily throughout
the Midwest and the East as follows:
STATE NUMBER OF PROPERTIES
----- --------------------
Michigan.................................................... 19
Florida..................................................... 4
Ohio........................................................ 3
New York.................................................... 2
Georgia..................................................... 1
Maryland.................................................... 1
New Jersey.................................................. 1
Wisconsin................................................... 1
--
Total.................................................. 32
==
With the exception of Kentwood Towne Centre and Southfield Plaza Expansion
in which the Company owns 50% interests, all of the properties are 100% owned by
the Operating Partnership.
Additional information regarding the Properties is included in the Property
Schedule on the following pages.
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RAMCO-GERSHENSON PROPERTIES TRUST
PROPERTY SCHEDULE
YEAR OPENED OR
ACQUIRED/YEAR COMPANY COMPANY
OF LATEST ANCHOR OWNED OWNED
RENOVATION OR OWNED ANCHOR TENANT
PROPERTY LOCATION TYPE OF PROPERTY EXPANSION(3) GLA GLA GLA
-------- -------- ---------------- -------------- ------ ------- -------
FLORIDA
Shoppes at Lakeland... Lakeland, FL Power Center 1996/NA 216,792 32,000
Lantana Plaza......... Lantana, FL Community Center 1993/NA 38,884 76,022
Naples Towne Center... Naples, FL Community Center 1983/NA 104,577 21,000 23,152
Sunshine Plaza........ Tamarac, FL Power Center 1991/NA 146,342 99,729
GEORGIA
Holcomb Center........ Alpharetta, GA Community Center 1996/NA 39,668 66,835
MARYLAND
Crofton Plaza......... Crofton, MD Power Center 1991/NA 181,039 68,977
MICHIGAN
Clinton Valley Mall... Sterling Heights, MI Community Center 1979/1993 108,680 48,333
Clinton Valley
Strip................ Sterling Heights, MI Community Center 1979/NA 50,000 0 44,360
Eastridge Commons..... Flint, MI Power Center 1990/NA 101,909 123,869 45,637
Edgewood Towne
Center............... Lansing, MI Power Center 1990/1992 209,272 23,524 62,233
Ferndale Plaza........ Ferndale, MI Community Center 1984/NA 0 30,916
Fraser Shopping
Center............... Fraser, MI Community Center 1983/NA 52,384 23,800
Jackson Crossing...... Jackson, MI Regional Mall 1990/1996 254,243 112,967 266,917
Jackson West.......... Jackson, MI Community Center 1996/NA 153,997 0
Kentwood Towne
Center(2)............ Kentwood, MI Power Center 1989/NA 101,909 122,390 61,265
Lake Orion Plaza...... Lake Orion, MI Community Center 1977/NA 114,574 14,878
New Towne Center...... Canton, MI Community Center 1976/1993 95,810 67,594
Oak Brook Square...... Flint, MI Community Center 1989/NA 57,160 83,122
Roseville Plaza....... Roseville, MI Power Center 1983/1994 114,507 116,769
% OF TOTAL
COMPANY
TOTAL TOTAL OWNED
COMPANY SHOPPING % OF TOTAL GLA LEASED
OWNED CENTER COMPANY AS OF
PROPERTY GLA GLA OWNED GLA 12/31/96 ANCHORS
-------- ------- -------- ---------- ---------- -------
FLORIDA
Shoppes at Lakeland... 248,792 248,792 4.7% 100.00% Builder's Square
Montgomery Ward
Service Merchandise
Lantana Plaza......... 114,906 114,906 2.2% 97.82% Publix
Naples Towne Center... 44,152 148,729 0.8% 75.21% Florida Food & Drug(1)
Kmart(1)
Luria's
Sunshine Plaza........ 246,071 246,071 4.6% 52.64% Publix
Luria's
GEORGIA
Holcomb Center........ 106,503 106,503 2.0% 84.38% A & P
MARYLAND
Crofton Plaza......... 250,016 250,016 4.7% 100.00% Basic's Supermarket
Drug Emporium
Kmart
MICHIGAN
Clinton Valley Mall... 157,013 157,013 3.0% 99.91% Montgomery Ward
Clinton Valley
Strip................ 44,360 94,360 0.8% 100.00% Service Merchandise(1)
Eastridge Commons..... 169,506 271,415 3.2% 97.61% TJ Maxx
Farmer Jack
Staples
Target(1)
Edgewood Towne
Center............... 85,757 295,029 1.6% 100.00% OfficeMax
Sam's Club(1)
Target(1)
Ferndale Plaza........ 30,916 30,916 0.6% 95.16% None
Fraser Shopping
Center............... 76,184 76,184 1.4% 95.87% Oakridge Supermarket; Rite
Aid
Jackson Crossing...... 379,884 634,127 7.2% 86.46% Kohls Department Store
Toys R Us
Sears(1)
Target(1)
Jackson West.......... 153,997 153,997 2.9% 100.00% Lowe's
OfficeMax
Kentwood Towne
Center(2)............ 183,655 285,564 3.5% 100.00% Builder's Square
OfficeMax
Target(1)
Lake Orion Plaza...... 129,452 129,452 2.4% 100.00% Kmart
Farmer Jack (A&P)
New Towne Center...... 163,404 163,404 3.1% 97.55% Kmart
Oak Brook Square...... 140,282 140,282 2.6% 97.90% Kids R Us
TJ Maxx
Roseville Plaza....... 231,276 231,276 4.4% 90.64% A & P
Marshall's
Service Merchandise
9
11
YEAR OPENED OR
ACQUIRED/YEAR COMPANY COMPANY
OF LATEST ANCHOR OWNED OWNED
RENOVATION OR OWNED ANCHOR TENANT
PROPERTY LOCATION TYPE OF PROPERTY EXPANSION(3) GLA GLA GLA
-------- -------- ---------------- -------------- ------ ------- -------
Southfield Plaza...... Southfield, MI Community Center 1983/1983 128,192 37,168
Southfield Plaza
Expansion(2)......... Southfield, MI Community Center 1985/NA 0 19,410
Taylor Plaza.......... Taylor, MI Single Tenant Retail 1996/NA 122,374 0
Tel-Twelve Mall....... Southfield, MI Regional Mall 1983/1995 447,033 212,467
West Oaks I........... Novi, MI Power Center 1981/NA 186,158 44,003
West Oaks II.......... Novi, MI Power Center 1987/NA 220,097 25,000 95,944
NEW JERSEY
Chester Springs....... Chester, NJ Power Center 1994/NA 81,760 142,489
NEW YORK
Toys R Us............. Commack, NY Single Tenant Retail 1992/NA 47,500 0
Trinity Corners....... Pound Ridge, NY Community Center 1992/NA 28,515 22,536
OHIO
OfficeMax Center...... Toledo, OH Single Tenant Retail 1994/NA 22,930 0
Spring Meadows
Place................ Springfield Township, OH Power Center 1987/1996 275,372 74,125 117,276
Troy Towne Center..... Troy, OH Community Center 1990/1996 90,921 85,000 71,797
WISCONSIN
West Allis Town
Centre............... West Allis, WI Power Center 1987/NA 0 216,474 112,933
--------- --------- ---------
Total.............. 1,408,300 3,188,648 2,108,562
========= ========= =========
% OF TOTAL
COMPANY
TOTAL TOTAL OWNED
COMPANY SHOPPING % OF TOTAL GLA LEASED
OWNED CENTER COMPANY AS OF
PROPERTY GLA GLA OWNED GLA 12/31/96 ANCHORS
-------- ------- -------- ---------- ---------- -------
Southfield Plaza...... 165,360 165,360 3.1% 92.93% Burlington Coat Factory
Marshall's
Service Merchandise
Southfield Plaza
Expansion(2)......... 19,410 19,410 0.4% 81.40% None
Taylor Plaza.......... 122,374 122,374 2.3% 100.00% Kmart
Tel-Twelve Mall....... 659,500 659,500 12.4% 94.26% Kmart
Montgomery Ward
Office Depot
Crowley's
Media Play
Chrysler (land lease)
Crowley's (land lease)
West Oaks I........... 230,161 230,161 4.3% 95.15% Circuit City
Kmart (land lease)
Service Merchandise
West Oaks II.......... 120,944 341,041 2.3% 100.00% Marshall's
Toys R Us(1)
Kids R Us(1)
Builder's Square(1)
Kohls Department Store(1)
NEW JERSEY
Chester Springs....... 224,249 224,249 4.2% 93.96% Shop-Rite Supermarket
Rickel Home Centers
NEW YORK
Toys R Us............. 47,500 47,500 0.9% 100.00% Toys R Us
Trinity Corners....... 51,051 51,051 1.0% 65.08% Scott's Corner Market
OHIO
OfficeMax Center...... 22,930 22,930 0.4% 100.00% OfficeMax
Spring Meadows
Place................ 191,401 466,773 3.6% 97.44% Marshall's
OfficeMax
TJ Maxx
Target(1)
Dick's Sporting Goods
Service Merchandise
Kroger(1)
Troy Towne Center..... 156,797 247,718 3.0% 95.15% County Market
Sears Hardware
Stage Department Store
Wal Mart(1)
WISCONSIN
West Allis Town
Centre............... 329,407 329,407 6.2% 100.00% Builder's Square
Kmart
Kohl's Supermarket (A&P)
--------- --------- --- ------
Total.............. 5,297,210 6,705,510 100.0% 93.51%
========= ========= === ======
- -------------------------
(1) Anchor-owned store
(2) 50% general partner interest
(3) Represents year opened or acquired/year of latest renovation or expansion by
either the Company or the former Ramco Group, as applicable.
10
12
TENANT INFORMATION
The following table sets forth, as of December 31, 1996 information
regarding space leased to tenants which in each case, individually account for
more than 2% of total base rental revenue from the Company's properties.
% OF BASE
TOTAL AGGREGATE % OF TOTAL BASE RENTAL RENTAL
NUMBER OF GLA LEASED COMPANY REVENUE AS OF REVENUE AS
TENANT STORES BY TENANT OWNED GLA 12/31/96 OF 12/31/96
------ --------- ---------- ---------- ------------- -----------
Kmart................................ 7 693,001 13.1% $1,719,570 5.3%
Montgomery Ward...................... 5 358,130 6.8 1,458,494 4.5
Builder's Square..................... 3 249,440 4.7 1,345,086 4.1
A&P/Farmer Jack...................... 5 231,257 4.4 1,340,991 4.1
Service Merchandise.................. 4 208,348 3.9 1,018,023 3.1
OfficeMax............................ 5 116,823 2.2 985,495 3.0
Marshall's........................... 4 107,649 2.0 673,339 2.1
- --------- ---- ---------- ----
1,964,648 37.1% $8,540,998 26.1%
========= ==== ========== ====
The following table sets forth, as of December 31, 1996, the total GLA
leased to Anchors, retail tenants, and available space, in the aggregate, of the
Company's properties.
% OF BASE
AGGREGATE % OF TOTAL BASE RENTAL RENTAL
GLA LEASED COMPANY REVENUE AS OF REVENUE AS
TYPE OF TENANT BY TENANT OWNED GLA 12/31/96 OF 12/31/96
-------------- ---------- ---------- ------------- -----------
Anchor......................................... 3,115,101 58.80% $14,952,299 45.7%
Retail (non-Anchor)............................ 1,838,467 34.71 17,785,469 54.3
Available...................................... 343,642 6.49 -- --
--------- ------ ----------- -----
Total..................................... 5,297,210 100.00% $32,737,768 100.0%
========= ====== =========== =====
The following table sets forth as of December 31, 1996, the total GLA
leased to national, regional and local tenants in the aggregate of the Company's
properties.
% OF BASE
AGGREGATE % OF TOTAL BASE RENTAL RENTAL
GLA LEASED COMPANY REVENUE AS OF REVENUE AS
TYPE OF TENANT BY TENANT OWNED GLA 12/31/96 OF 12/31/96
-------------- ---------- ---------- ------------- -----------
National....................................... 3,994,380 75.40% $24,303,091 74.2%
Regional....................................... 262,291 4.95 2,089,089 6.4
Local.......................................... 696,897 13.16 6,345,588 19.4
Vacant......................................... 343,642 6.49 -- --
--------- ------ ----------- -----
Total..................................... 5,297,210 100.00% $32,737,768 100.0%
========= ====== =========== =====
11
13
The following table sets forth lease expirations for the next five years at
the Company's properties assuming that no renewal options are exercised.
% OF TOTAL AVERAGE BASE % OF BASE
LEASED COMPANY COMPANY BASE RENTAL RENTAL REVENUE RENTAL REVENUE
NO. OF OWNED GLA OWNED GLA REVENUE AS OF PER SQ. FT. AS OF AS OF 12/31/96
LEASE LEASES EXPIRING (IN REPRESENTED BY 12/31/96 UNDER 12/31/96 UNDER REPRESENTED BY
EXPIRATION EXPIRING SQUARE FEET) EXPIRING LEASES EXPIRING LEASES EXPIRING LEASES EXPIRING LEASES
---------- -------- -------------- --------------- --------------- ----------------- ---------------
1997................. 60 136,055 2.6% $1,775,190 $13.05 5.4%
1998................. 106 465,637 8.8 4,138,889 8.89 12.6
1999................. 79 476,018 9.0 3,592,730 7.55 11.0
2000................. 79 505,858 9.5 4,040,942 7.99 12.3
2001................. 69 462,193 8.7 2,923,984 6.33 8.9
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, against or involving the Company
or its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its shareholders during
the fourth quarter of 1996.
12
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION -- The Shares have been listed and traded on the New
York Stock Exchange ("NYSE") under the symbol "RPT" since May 13, 1996. The
Shares were previously listed on the NYSE under the name of RPS Realty Trust,
symbol "RPS", from December 28, 1988 until May 10, 1996.
The following table shows high and low closing prices per Share for each
quarter in 1996 and 1995. The closing prices have been adjusted to reflect the
effect of the one-for-four reverse split effective May 1, 1996. On May 10, 1996,
the Company spun-off the RPS Mortgage Assets to Atlantic Realty Trust and
effected a stock dividend of shares of Atlantic Realty Trust to shareholders of
the Company; trading price information for subsequent periods does not include
any adjustment for the spin-off transaction.
SHARE PRICE
---------------
QUARTER ENDED HIGH LOW
------------- ---- ---
March 31, 1995.............................................. $18.50 $16.50
June 30, 1995............................................... 20.50 17.00
September 30, 1995.......................................... 18.50 16.50
December 31, 1995........................................... 18.50 16.50
March 31, 1996.............................................. 19.50 18.00
June 30, 1996............................................... 19.00 15.00
September 30, 1996.......................................... 17.00 15.38
December 31, 1996........................................... 17.75 16.25
HOLDERS -- The approximate number of holders of record of the Company's
Shares was 11,335 as of March 10, 1997.
DIVIDENDS -- Under the Code, a REIT must meet certain requirements,
including a requirement that it distribute annually to its shareholders at least
95% of its taxable income. Dividend distributions per share for the years ended
December 31, 1996 and 1995, as adjusted for the one-for-four reverse split
effective May 1, 1996 are summarized as follows.
The Company declared the following cash distributions per share, as
adjusted to reflect the effect of the one-for-four reverse split to
shareholders, for the year ended December 31, 1995:
DIVIDEND
RECORD DATE DISTRIBUTION PAYMENT DATE
----------- ------------ ------------
April 27, 1995................................. $.32 May 17, 1995
July 28, 1995.................................. $.32 August 17, 1995
October 27, 1995............................... $.32 November 17, 1995
December 27, 1995.............................. $.32 January 25, 1996
The Company declared the following cash distributions per share to
shareholders for the year ended December 31, 1996. The distribution paid April
29, 1996 has been adjusted to reflect the effect of the one-for-four reverse
split.
DIVIDEND
RECORD DATE DISTRIBUTION PAYMENT DATE
----------- ------------ ------------
April 7, 1996.................................. $.32 April 29, 1996
July 8, 1996................................... $.28 July 23, 1996
September 30, 1996............................. $.42 October 15, 1996
December 31, 1996.............................. $.42 January 21, 1997
13
15
Effective May 1, 1996 the shareholders of RPS, as part of the spin-off of
Atlantic, received one share of beneficial interest of Atlantic Realty Trust for
every two shares of RPS that they held, subsequent to the one-for-four reverse
split of RPS.
Future distributions paid by the Company will be at the discretion the
Board of Trustees and will depend on a number of factors, including cash flow of
the Company, its financial condition and capital requirements, the annual
distribution requirements necessary to maintain its status as a REIT under the
Code, and such other factors as the Board of Trustees deem relevant.
The Company has an Automatic Dividend Reinvestment Plan (the "Plan") which
allows shareholders to acquire additional Shares by automatically reinvesting
cash dividends. Shares are acquired pursuant to the Plan at a price equal to the
prevailing market price of such Shares, without payment of any brokerage
commission or service charge. Shareholders who do not participate in the Plan
continue to receive cash distributions, as declared.
14
16
ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report:
PRO FORMA YEAR ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------------
1996 1995 1996(1) 1995 1994 1993 1992
---- ---- ------- ---- ---- ---- ----
(UNAUDITED)
OPERATING DATA:
Revenues
Rental revenues........... $53,788 $51,150 $37,598 $ 8,936 $ 6,764 $ 4,087 $ 2,580
Interest and other
income.................. 628 390 2,915 7,781 19,642 22,881 27,277
--------- --------- --------- --------- --------- ------- -------
Total Revenues.......... 54,416 51,540 40,513 16,717 26,406 26,968 29,857
--------- --------- --------- --------- --------- ------- -------
Expenses:
Real estate taxes......... 6,496 5,487 4,643 1,271 1,236 704 396
Recoverable operating
expenses................ 11,259 11,302 8,230 1,934 1,530 1,206 726
Depreciation and
amortization............ 6,919 6,805 4,798 1,214 947 748 557
Other Operating........... 1,043 943 791 183 227
General and
administrative.......... 4,440 3,369 4,683 4,127 3,898 3,636 3,820
Interest expense.......... 11,544 11,132 6,725 426 2,623 2,649
Spin-off and other
expenses................ 7,976 7,976
Allowance for loan
losses.................. 4,450 2,500 15,000 13,875
--------- --------- --------- --------- --------- ------- -------
Total Expenses.......... 49,677 39,038 37,846 13,179 10,764 23,917 22,023
--------- --------- --------- --------- --------- ------- -------
Operating Income............. 4,739 12,502 2,667 3,538 15,642 3,051 7,834
Loss From Unconsolidated
Entities.................. 314 418 216
--------- --------- --------- --------- --------- ------- -------
Income Before Minority
Interest.................. 4,425 12,084 2,451 3,538 15,642 3,051 7,834
Minority Interest............ 3,279 3,021 2,159
--------- --------- --------- --------- --------- ------- -------
Income Before Extraordinary
Items..................... 1,146 9,063 292 3,538 15,642 3,051 7,834
Extraordinary Gains on Early
Extinguishment of Debt.... 1,005
--------- --------- --------- --------- --------- ------- -------
Net Income.............. $ 1,146 $ 9,063 $ 292 $ 3,538 $15,642 $ 3,051 $ 8,839
--------- --------- --------- --------- --------- ------- -------
Earnings Per Common Share:
Net Income.............. $0.16 $1.27 $0.04 $0.50 $2.20 $0.43 $1.24
========= ========= ========= ========= ========= ======= =======
Weighted Average Shares
Outstanding............... 7,123 7,123 7,123 7,123 7,123 7,146 7,150
========= ========= ========= ========= ========= ======= =======
OTHER DATA:
Funds from operations(2)..... $19,154 $18,722
Weighted average equivalent
shares outstanding(3)..... 9,687 9,501
Number of Properties at Year
End....................... 32 31 32 8 8 7 5
Company owned GLA............ 5,297,000 5,143,000 5,297,000 1,189,000 1,189,000 885,000 701,000
Cash Distributions Declared
Per Share................. $1.44 $1.28 $1.28 $1.28 $2.40
15
17
DECEMBER 31,
--------------------------------------------------------
1996(1) 1995 1994 1993 1992
------- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 3,541 $ 11,467 $ 74,584 $ 38,800 $ 37,649
REMIC Investments....................... 58,099
Interest and accounts receivable........ 3,901 7,748 8,608 9,978 13,229
Mortgage loans receivable -- net........ 36,023 41,892 100,692 130,595
Investment in real estate (before
accumulated depreciation)............ 314,854 58,046 57,841 36,332 26,415
Total Assets............................ 322,854 180,581 186,171 186,420 215,558
Mortgage and Notes Payable.............. 143,410 5,027 6,232
Total Liabilities....................... 158,283 3,561 3,572 10,107 32,999
Minority Interest....................... 44,706
Shareholders' Equity.................... 119,865 177,020 182,599 176,313 182,559
- -------------------------
(1) Effective May 1, 1996, Ramco-Gershenson Properties Trust, formerly RPS
Realty Trust, completed the acquisition of substantially all of the shopping
center and retail properties, as well as the management organization and
business operations of Ramco-Gershenson, Inc. and its affiliates and the
spin-off of its wholly owned subsidiary, Atlantic Realty Trust, 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.
(2) Management generally considers Funds From Operations ("FFO") to be one
measure of financial performance of an equity REIT. 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 new definition, FFO represents income (loss) before minority interest
(computed in accordance with generally accepted accounting principles
("GAAP")), excluding gains (losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustment for unconsolidated
partnerships and joint ventures. Therefore, FFO does not represent cash
generated from operating activities in accordance with GAAP 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 GAAP, consider capital expenditures which have
been and will be incurred in the future, the calculation of FFO does not.
(3) Represents the weighted average total shares outstanding, assuming the
redemption of all Operating Partnership Units for Shares.
16
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with Ramco-Gershenson
Properties Trust Consolidated Financial Statements, the notes thereto, and the
comparative summary of selected financial data appearing elsewhere in this
report.
RPS Realty Trust, a Massachusetts business trust, was formed on June 21,
1988 to be a diversified, growth oriented real estate investment trust ("REIT").
From 1988 until April 30, 1996, RPS Realty Trust was primarily engaged in the
business of owning and managing a participating mortgage loan portfolio, and,
through its wholly-owned subsidiaries, owning and operating eight real estate
properties. In May 1996, in connection with the closing of the Ramco Acquisition
and the consummation of the spin-off of Atlantic Realty Trust, discussed below,
RPS Realty Trust successfully completed its plan to transform itself into an
equity REIT.
Effective May 1, 1996, RPS Realty Trust completed the acquisition of
substantially all of the shopping center and retail properties, as well as the
management organization 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, RPS Realty Trust'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.
Ramco-Gershenson Properties Trust is referred to herein as the "Company".
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") contributed 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 4,826,000 square feet of total gross leasable area
("GLA"), of which approximately 3,520,000 square feet is owned by the Operating
Partnership, and the balance is owned by certain anchor tenants, (ii) 100% of
the nonvoting 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
("Units") of the Operating Partnership (representing an approximate 25% limited
partnership interest in the Operating Partnership). The acquisition was
accounted for using the purchase method. The purchase price was allocated to the
assets acquired and liabilities assumed based upon their estimated fair market
value. Units, which are convertible into shares of beneficial interest in the
Company, as described below, were valued at $16.50 per Unit representing the
average trading price of the Company's shares immediately preceding and
following the Ramco Acquisition. In addition, the Ramco Group received 279,181
Units as a partial earnout relative to Jackson Crossing Shopping Center
(representing an approximate 2% limited partnership interest in the Operating
Partnership). The Ramco Group's 2,656,673 aggregate Units of represent an
approximate 27% limited partnership interest in the Operating Partnership. In
connection with the transfer of the Ramco Properties, 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
objectives with respect to one of the Ramco Properties are fulfilled by March
31, 1997. 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 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).
17
19
The transfer of the Company's net assets in exchange for Units was
accounted for as a reorganization of entities under common control. As such,
these assets and liabilities were transferred and accounted for at historical
cost in a manner similar to that of a pooling of interests.
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.
CAPITAL RESOURCES AND LIQUIDITY
At the closing of the Ramco Acquisition (the "Closing"), the Company's
long-term debt was $116,977, which consisted of $176,556 of mortgage debt
assumed on the Ramco Properties, $9,906 borrowed under the Company's $50,000
revolving credit facility (the "Credit Facility") less $69,485 paid down using
the proceeds from the Credit Facility and the cash contributed to the Operating
Partnership by the Company.
At the Closing, the Company made a loan to, and assumed an obligation of,
Atlantic. In that connection, Atlantic was obligated to pay the Company the sum
of $5,550 pursuant to a promissory note which would have matured on November 9,
1997 and bore interest at the Base Rate under the Credit Facility (which was
8.25% at Closing). The promissory note was secured by a collateral assignment of
Atlantic's interest in the Hylan Center. Atlantic repaid the promissory note in
full plus accrued interest during 1996.
The Company's mortgage debt consists of debt on certain shopping centers as
well as on two properties in which the Operating Partnership owns an interest
and is accounted for on the equity method of accounting. At December 31, 1996
the Company's portion of mortgage debt attributable to properties 100% owned is
$143,410, with a weighted average interest rate of 8.00%, and its pro rata share
of non-recourse mortgage debt on unconsolidated properties (accounted for on the
equity method) was $6,341, with a weighted average interest rate of 9.13%.
The mortgage debt consists of six loans secured by various properties, two
loans secured by the unconsolidated properties, and the Credit Facility which is
secured by various properties. Seven of the mortgage loans amounting to $99,579
have maturities ranging from 1998 to 2006, monthly payments which include
regularly scheduled amortization, and have fixed interest rates ranging between
7.8% to 8.75%. One of the mortgage loans, evidenced by tax free bonds, amounting
to $7,000 secured by Oakbrook Square Shopping Center is non-amortizing, matures
in 2010, and carries a floating interest equal to 75% of the new issue long-term
Capital A rated utility bonds. In connection with the tender of these bonds for
repayment in December 1996, the Company entered into a supplemental interest
agreement to pay interest to the lender sufficient to cause the lender's overall
yield on its investment in the bonds to be equal to 200 basis points over their
applicable Libor rate.
The Company currently has a $50,000 Credit Facility, which bears interest
at 175 basis points over Libor and matures on May 6, 1999. Upon closing of the
Ramco Acquisition $25,000 of the Credit Facility was in place and $12,000 was
available for borrowing. Effective in June 1996 the additional $13,000 became
available under the Credit Facility when satisfactory appraisals were obtained
by the lender, and the Credit Facility was increased to $50,000 when an
additional participant was added to the bank group. The Company is currently
negotiating with the lender to increase the Credit Facility to $75,000. Although
the Company expects that negotiations should be completed shortly, there can be
no assurance that the increase in the Credit Facility will occur. The Credit
Facility is secured by mortgages on various properties and contains financial
covenants relating to debt-to-market capitalization, minimum operating coverage
ratios and a minimum equity value. Borrowings under the Credit Facility amounted
to $36,831 at December 31, 1996, with approximately $13,200 available.
The Company has used proceeds from borrowings under the Credit Facility to
pay for acquisitions, the development cost reimbursement to the Ramco Group and
for revenue producing expenditures. During 1996 the Company utilized borrowings
of approximately $21,700 under the Credit Facility to purchase several shopping
centers. During August 1996 the Company acquired for approximately $2,300, a
property known as Telegraph and Goddard located in Taylor, Michigan. The
shopping center is an approximately 122,000 square
18
20
foot, free standing retail property currently occupied by a Kmart store. In
November 1996, the Company acquired The Shoppes of Lakeland, located in
Lakeland, Florida, for approximately $12,700. The shopping center is an
approximately 249,000 square foot power center. The Holcomb Center, an
approximately 107,000 square foot community center in Alpharetta, Georgia was
acquired in December 1996 for approximately $6,700.
In November 1996 approximately $9,600 was borrowed to reimburse affiliates
of the Ramco Group for certain out-of-pocket costs incurred in connection with
developments acquired by the Company, including approximately $8,800 related to
the Jackson West Shopping Center which opened in June 1996. Approximately $568
is still expected to be paid to the Ramco Affiliates for costs incurred
subsequent to the original reimbursement request but prior to the date that the
Company took over the development opportunities.
The Tel-Twelve Mall is in the process of completing its most recent
repositioning phase. This phase involved relocating Lane Bryant into a new store
which opened September 1996 and completing the addition of a 43,728 square foot
Circuit City store projected to open in Spring 1997. The addition will increase
the gross leasable area of the center by 11,551 square feet. The costs relative
to the repositioning of Tel-Twelve Mall are expected to be approximately $2,200,
of which approximately $419 was spent during 1996. The Company anticipated the
vacancies of two bankrupt tenants at Eastridge Commons and signed two nationally
recognized retailers, Farmer Jack (A & P) and Staples. The 27,000 square foot
Staples store opened in Spring 1996 and the Farmer Jack, a superstore in 72,000
square feet, is scheduled to open in Spring 1997. Approximately $2,200 is
expected to be spent at Eastridge Commons, of which $184 was spent in 1996. The
costs relative to completing Jackson West Shopping Center are expected to be
approximately $2,250.
The Company's current capital structure includes property specific
mortgages, the Credit Facility, shares of beneficial interest and a minority
interest in the Operating Partnership. The minority interest in the Operating
Partnership represents the 27% ownership in the Operating Partnership held by
the Ramco Group which may, under certain conditions, be exchanged for
approximately 2,656,673 shares of beneficial interest.
The Units owned by the Ramco Group are subject to lock-up agreements which
provide that the Units cannot be transferred, except under certain conditions,
for a period of one year after the closing of the Ramco Acquisition (May 1997)
for those Units owned by holders other than the Ramco Principals, and for a
period of 30 months after the closing of the Ramco Acquisition for those Units
owned by the Ramco Principals. In addition, the Units issued to the Ramco Group
will be exchangeable for shares of the Company on a one-for-one basis. The
Company, as sole general partner of the Operating Partnership, will have the
option to exchange such Units for cash based on the current trading price of the
Shares. Assuming the exchange of all limited partnership interests in the
Operating Partnership, there would be outstanding approximately 9,779,778 shares
of beneficial interest with a market value of approximately $165,033 at December
31, 1996 (based on the closing price of $16.875 per share on December 31, 1996).
The principal uses of the Company's liquidity and capital resources are for
acquisitions, development, including expansion and renovation programs, and debt
repayment. To maintain its qualification as a real estate investment trust under
the Internal Revenue Code, the Company is required to distribute to its
shareholders at least 95% of its "Real Estate Investment Trust Taxable Income"
as defined in the Internal Revenue Code of 1986, as amended (the "Code").
Variable rate debt accounted for $43,831 of outstanding debt with a
weighted average interest rate of 7.4% at December 31, 1996. Variable rate debt
accounted for approximately 30.6% of the Company's total debt and 14.2% of its
total capitalization.
Based on the debt and the market value of equity described above, the
Company's debt to total market capitalization (debt plus market value equity)
ratio was 46.5% at December 31, 1996.
The Company anticipates that the combination of the availability under the
Credit Facility, potential new borrowings relative to the acquired properties
and development properties, construction loans and potential equity offerings,
will provide adequate liquidity for the foreseeable future to fund future
acquisitions, developments, expansions, repositionings, and to continue its
currently planned capital programs and to make distributions to its shareholders
in accordance with the Code's requirements applicable to REIT's. Although
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the Company believes that the combination of factors discussed above will
provide sufficient liquidity, no such assurance can be given that the Company
will have adequate liquidity to meet its needs.
RESULTS OF OPERATIONS
Comparison of year ended December 31, 1996 to year ended December 31, 1995
Total revenues increased $23,796, or 142.3%, for the year ended December
31, 1996 to $40,513 from $16,717 for the year ended December 31, 1995. Minimum
rents increased to $23,713, an increase of $17,242, or 266.5%, for the year
ended December 31, 1996 as compared to $6,471 for the year ended December 31,
1995. Percentage rents increased $424 or 55.4% from $766 in 1995 to $1,190 in
1996. Recoveries from tenants increased $10,996 or 647.2%, from $1,699 in 1995
to $12,695 in 1996. Interest and other income decreased from $7,781 in 1995 to
$2,915 in 1996, a decrease of $4,866, or 62.5%.
The increases in minimum rents, percentage rents, and recoveries from
tenants are primarily attributable to the acquisition of the Ramco Properties
effective May 1, 1996 and the acquisitions of the Taylor, Lakeland and Holcomb
shopping centers effective August 14, November 22, and December 13, 1996,
respectively. The operating results have included the impact of eight months of
the Ramco Properties in 1996 as compared to none in 1995. In addition, two
properties which were part of the Company's portfolio at December 31, 1995 were
spun-off to Atlantic effective May 1, 1996 and thus the revenues in 1996 include
only four months of their activity as compared to twelve months in 1995. The
decrease of $4,866 in interest and the other income is due to the impact of the
spin-off of Atlantic, including the transfer of the mortgage loan portfolio to
Atlantic Realty Trust. The operating results of the Company represent four
months of mortgage loan portfolio activity in 1996 as compared to twelve months
in 1995.
Total expenses increased $24,667, or 187.2%, from $13,179 in 1995 to
$37,846 in 1996. Total recoverable expenses, including recoverable operating
expenses and real estate taxes, increased $9,668, or 301.7%, to $12,873 for the
year ended December 31, 1996 from $3,205 for the year ended December 31, 1995.
Other operating expenses increased 332.2%, or $608, to $791 in 1996 from $183 in
1995. General and administrative expenses increased $556, or 13.5%, from $4,127
in 1995 to $4,683 in 1996. Interest expense was $6,725 in 1996 as compared to
zero in 1995. Spin-off and other expenses were $7,976 in 1996 as compared to
zero in 1995. Depreciation and amortization increased $3,584, or 295.2%, to
$4,798 in 1996 as compared to $1,214 in 1995. The allowance for loan losses were
zero in 1996 as compared to $4,450 in 1995.
The increases in recoverable expenses of $9,668, other operating expenses
of $608, general and administrative expenses of $556, and depreciation and
amortization of $3,584 reflect the impact for the partial year on expenses that
are principally attributable to the increase in the size of the real estate
shopping portfolio due to the acquisition of the Ramco Properties in May 1996.
Spin-off and other expenses amounting to $7,976 were a result of
non-recurring expenses, including employee severance and bonus expenses, the
cost of the run-off director's and officer's liability insurance policy for the
Company and the write-off of the Company's deferred acquisition expenses. Total
expenses for the year ended December 31, 1995 included an addition for loan
losses of $4,450, no such addition to the allowance was required in 1996.
Interest expense for the year ended December 31, 1996 increased $6,725 due
to the partial year effect of the debt assumed in connection with the Ramco
Acquisition and additional borrowings for subsequent acquisitions and
development cost reimbursements. Interest expense for the year ended December
31, 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 Company
contributed the RPS cash on May 10, 1996 thus incurring additional interest
expense on the assumed debt.
The loss from unconsolidated entities of $216 in 1996 as compared to zero
in 1995 is due to the impact of the acquisition during May 1996 of
Ramco-Gershenson Inc., and the 50% general partner interests in two partnerships
which each own a shopping center.
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The minority interest of $2,159 in 1996 represents the 27% share of income
of the Operating Partnership relative to the period May 1, 1996 to December 31,
1996 allocable to the Ramco Group.
As a result of the previous factors, the Company's net income decreased
$3,246 or 91.7%.
Comparison of Pro forma year ended December 31, 1996 to Pro forma year ended
December 31, 1995
The Pro Forma Consolidated Statements of Operations which are included in
Note 14 to the Consolidated Financial Statements are presented as if the Ramco
Acquisition, the Taylor, Holcomb and Lakeland acquisitions and the spin-off of
Atlantic Realty Trust had occurred on January 1, 1995.
Total revenues increased 5.6% or $2,876 for the year ended December 31,
1996 to $54,416 from $51,540 for the year ended December 31, 1995. Of this
increase, minimum rents increased by $1,637, or 4.9%, to $34,722 as compared to
$33,085 in 1995, percentage rents deceased by $222, or 16.7%, to $1,105 as
compared to $1,327 in 1995, recoveries from tenants increased $1,223, or 7.3%,
to $17,961 in 1996 as compared to $16,738 in 1995 and interest and other income
increased $238, or 61.0%, to $628 from $390 in 1995.
Minimum rents increased $1,637, or 4.9%, to $34,722 for the year ended
December 31, 1996 as compared to $33,085 for the year ended December 31, 1995.
Approximately $500 of the increase was attributable to initial anchor tenant
openings at Jackson West Shopping Center and $979 was due to opening of new
anchors at Tel-Twelve Mall, Jackson Crossing and West Oaks I.
The decrease in percentage rent of $222, or 16.7%, to $1,105 for the year
ended December 31, 1996 from $1,327 for the year ended December 31, 1995 was
attributable to the conversion of percentage rent to minimum rent due to
contractual rent increases. Recoveries from tenants increased 7.3%, or $1,223,
to $17,961 for 1996 as compared to $16,738 for 1995. The increase was due to a
corresponding net increase in real estate taxes and recoverable operating
expenses. The Company's overall recovery ratio for 1996 and 1995 remained
relatively consistent at 101.2% and 99.7%, respectively.
Total expenses increased 27.3%, or $10,639, for the year ended December 31,
1996, to $49,677 from $39,038 for the year ended December 31, 1995. The increase
was primarily due to a $7,976 increase in spin-off and other expenses, a $966
increase in recoverable operating and real estate tax expense and a $1,071
increase in general and administrative expenses.
For the year ended December 31, 1996, the Company incurred $7,976 of
spin-off and other expenses for which there was no corresponding costs for the
year ended December 31, 1995. These non-recurring costs were primarily a result
of the employee severance and bonus expenses, the cost of run-off director's and
officer's liability insurance, and the write-off of deferred acquisition costs
related to the spin-off of Atlantic.
Recoverable operating and real estate tax expenses increased 5.8%, or $966,
to $17,755 for the year ended December 31, 1996 from $16,789 for the year ended
December 31, 1995. The increase was offset primarily by an increase in
recoveries from tenants. As noted above, the Company's recovery ratio for the
year ended December 31, 1996 remained relatively consistent with the
corresponding 1995 period.
The increase of $100, or 10.6%, in other operating expense from $943 in
1995 to $1,043 in 1996 was due to an increase of $43 in the allowance for bad
debts due to the overall increase in revenues discussed previously, and an
increase of $57 in landlord costs, advertising and promotional expenses which
are not recoverable from tenants.
Interest expense increased $412, or 3.7%, from $11,132 in 1995 to $11,544
in 1996. The increase was attributable to the impact of borrowings relative to
the Jackson West Shopping Center. In addition, the increase of $114, or 1.7%, in
depreciation expense to $6,919 in 1996 from $6,805 in 1995 was a result of the
opening of the first phase of the Jackson West Shopping Center in 1996.
General and administrative expenses increased $1,071, or 31.8%, to $4,440
in 1996 from $3,369 in 1995. The level of general and administrative expenses is
impacted by several factors, including the cost of the Company's administrative
activities, the cost reimbursement relationship between the Operating
Partnership and Ramco-Gershenson, Inc. (the "Manager") and the capitalization of
costs relative to leasing and
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development at the centers owned by the Operating Partnership. The Company's
administrative expenses include officers' salaries and benefits, trustee fees,
directors' and officers' liability insurance, transfer agent and shareholder
relations expenses, and professional fees including legal, audit and tax. The
Manager provides third party management, leasing, brokerage and development
services to entities not controlled by the Company. These third party leasing
and development fees earned under management contracts are not necessarily
earned consistently over time since these fees are based on measurements related
to specific transactions and are dependent on the availability of space to lease
or develop at the centers. The operating expenses of the Manager include
employee expenses, such as salaries and benefits, and office and other expenses.
Some of these costs are fixed in nature. The net cost reimbursement to be
charged as general and administrative expense to the Operating Partnership is
dependent on the ability of the Manager to continue to charge leasing, brokerage
and development fees to third party entities, while continuing to generate third
party management business. It is also dependent on the Manager's ability to
control expenses, the majority of which are employee related expenses. Some of
the expenses of the Manager, those which are directly attributable to revenues
to be earned in the future, are charged to the Operating Partnership and
capitalized in order to be amortized over the related revenue.
Following is a breakdown of the general and administrative expenses shown
in the Pro forma financial statements:
PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
Operating Partnership Administrative Expenses............... $2,142 $2,027
------- -------
Manager
Management Fees........................................... 1,078 1,092
Leasing, Brokerage and Development Fees................... 151 782
Other Revenues............................................ 293 288
Leasing/Development Cost Reimbursements................... 836 888
------- -------
Total Revenues......................................... 2,358 3,050
------- -------
Employee Expenses......................................... 3,292 2,991
Office and Other Expenses................................. 946 856
Depreciation and Amortization............................. 56 94
------- -------
Total Expenses......................................... 4,294 3,941
------- -------
Operating Partnership Cost Reimbursement Expenses......... 1,936 891
------- -------
Shopping Center Level General and Administrative Expenses... 362 451
------- -------
Total Pro forma General and Administrative Expenses......... $4,440 $3,369
======= =======
The increase in general and administrative expenses of $1,071 was due
primarily to an increase of $1,045 in the cost reimbursement expense between the
Operating Partnership and Ramco-Gershenson, Inc. The $1,045 increase was a
result of a decrease in revenues of $692, and an increase in expenses of
approximately $353. Of the $692 decrease in revenues, $398 pertained to leasing
fees and $233 pertained to development fees billed relative to third party
management contracts. Leasing and development fees are not necessarily earned
consistently over time since these fees are based upon measurements related to
specific transactions. The $353 increase in expenses is primarily attributable
to a $301 increase in employee and related costs, and a $127 increase in
equipment leasing costs offset in part by decreases in office rental costs.
The loss from unconsolidated entities decreased $104, or 24.9%, to $314 in
1996 as compared to $418 in 1995. The decrease in the loss was due to improved
operating results at the two 50% owned shopping centers.
Minority interest increased $258, or 8.5%, to $3,279 in 1996 from $3,021 in
1995. The minority interest for 1996 was computed before the impact of the
spin-off and other expenses on income before minority interest, which were
considered to be 100% attributable to the Company's operations. In addition, the
minority interest percentage increased from 25% as of December 31, 1995 to 27%
at December 31, 1996 due to the
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earnout, effective May 1996, of the additional Units relative to the Jackson
Crossing Mall by the Ramco Group.
As a result of the factors discussed previously, the Company's net income
decreased $7,917 or 87.4%.
Comparison of year ended December 31, 1995 to year ended December 31, 1994
The discussion that follows concerns the historical operating results of
the Company, formerly RPS Realty Trust, prior to the spin-off of Atlantic and
the Ramco Acquisition.
Total revenues (before rental income) for the year ended December 31, 1995
decreased $11,861 or 60%, as compared to the year ended December 31, 1994.
During the 1994 year the Company received $8,406 in additional contingent
interest and pre-payment premium income as compared to none in 1995. Interest
from mortgage loans decreased in the 1995 year as compared to the 1994 year by
$4,906, or 57%. The reduction in interest from mortgage loans is attributable to
the reduction in the size of the Company's mortgage loan portfolio during 1995
as compared to 1994. Current interest income from mortgage loans decreased
$2,757, or 44%, primarily as a result of lower mortgage balances. The Company in
1995 recognized $117 in deferred interest as compared to $1,813 in 1994, a
decrease of $1,696, or 94%. Contingent interest income for 1995 was $44, as
compared to $441 in 1994. This represents a decrease of $397, or 90%. Income
from mortgage backed securities (REMICs) increased 100% or $1,516, as a result
of the Company investing in Mortgage Backed Securities to maintain REIT
qualifying income.
During the year ended December 31, 1995, expenses (excluding interest on
mortgages, property operating expenses, real estate taxes and depreciation)
increased $2,135, or 32%. This increase was primarily due to the increase in the
allowance for possible loan losses expense of $1,150 combined with the increase
in the provision for impairment on real estate expense of $800. The Company
during the first quarter of 1995 provided an additional allowance for possible
loan losses of $3,000 based on an offer for the sale of the Hylan mortgage
received in the first quarter of 1995 which was $3,000 less than the Company's
net carrying amount of the loan at such date. The Company also during the fourth
quarter of 1995 provided an additional allowance for possible loan losses of
$650 based on an agreement in principle with the borrower under the 1-5 Wabash
loan for such borrower to acquire the mortgage for $2,200 in cash. Additionally,
the Company provided an impairment provision of $800 with regard to the 9 North
Wabash building during the fourth quarter of 1995. As a result of these
increases, the Company made allowance for possible loan losses and provision for
impairment of real estate of $4,450 in 1995 as compared to $2,500 in 1994
representing an increase of $1,950, or 78%. The Company during 1995 recognized a
loss of $183 as a result of the Company selling the New England Telephone
Company loan. During 1994 the Company recognized a loss of $227 as a result of
the Company selling the Saratoga Office Building. General and administrative
expenses including payroll and related expenses increased during 1995 by $229,
or 5.8%, as compared to the 1994 year. This increase was primarily due to
increased costs associated with the formation of Atlantic Realty Trust and the
increase in professional fees paid by the Company offset by decreases in payroll
and related expenses.
During 1995, the Company received rental income of $8,936 as compared to
$6,764 for the 1994 year. This increase of $2,172, or 32%, is primarily as a
result of the Company receiving rental income on eight properties during 1995 as
compared to receiving income on six properties during 1994. Interest expense on
mortgage payable in 1995 decreased 100%, or $426, due to the Company exercising
its right to prepay the first mortgage loan relating to the Crofton Plaza
Shopping Center property on September 30, 1994. Property operating expenses,
real estate taxes and depreciation expenses increased during the 1995 year by
$404, or 26%, $35, or 3%, and $267, or 28%, respectively over 1994 due to the
aforementioned increase in number of properties. For the year ended December 31,
1995, the Company recognized net income from the investment of real estate of
$4,714 as compared to $2,823 for the year ended December 31, 1995. As a result
of the foregoing factors, the Company's net earnings for the 1995 year as
compared to the 1994 year decreased $12,104 or 77%.
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FUNDS FROM OPERATIONS
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
or 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 pro forma FFO are presented as if the Ramco Acquisition, the
Taylor, Holcomb and Lakeland acquisitions and the spin-off of Atlantic Realty
Trust had occurred on January 1, 1995.
The following table illustrates the calculation of pro forma FFO for the
years ended December 31, 1996 and 1995:
PRO FORMA YEARS ENDED
DECEMBER 31,
----------------------
1996 1995
---- ----
Net Income................................................ $ 1,146 $ 9,063
Add: Depreciation and amortization...................... 6,919 6,805
Less: Amortization of deferred financing costs.......... (139) (139)
Less: Non-real estate depreciation and amortization..... (27) (28)
Add: Minority interest in partnership................... 3,279 3,021
Add: Non-recurring spin-off and other expenses.......... 7,976
------- -------
Funds from operations..................................... $19,154 $18,722
======= =======
Weighted average equivalent shares outstanding(1)......... 9,687 9,501
======= =======
Supplemental disclosure:
Straight-line rental income............................. $ 1,517 $ 1,417
======= =======
Amortization of management contracts and covenants not
to compete........................................... $ 494 $ 494
======= =======
- -------------------------
(1) Represents the weighted average total shares outstanding, assuming the
redemption of all Operating Partnership Units for common shares.
CAPITAL EXPENDITURES
During 1996 the Company spent approximately $1,003 on revenue generating
capital expenditures including tenant allowances, leasing commissions paid to
third-party brokers, legal costs relative to lease documents, and capitalized
leasing and construction costs. These types of costs generate a return through
rents from tenants over the term of their leases. Revenue enhancing capital
expenditures, including expansions, renovations or repositionings were
approximately $1,830. Revenue neutral capital expenditures, such as roof and
parking lot repairs which are anticipated to be recovered from tenants, amounted
to approximately $422.
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The Company spent approximately $21,700 on the acquisition of the Taylor,
Lakeland and Holcomb shopping centers, while approximately $12,700 has been
incurred on the development of the Jackson West Shopping Center. In conjunction
with the Ramco Acquisition, not including the development costs reimbursement
for Jackson West Shopping Center, the Company capitalized approximately $226,764
of real estate assets.
This Form 10-K contains forward-looking statements with respect to the
operation of certain of the Company's properties. Management of the Company
believes the expectations reflected in the forward-looking statements made in
this document are based on reasonable assumptions. Certain factors could occur
that might cause actual results to vary. These include general economic
conditions, the strength of key industries in the cities in which the Company's
properties are located, the performance of the Company's tenants at the
Company's properties and elsewhere, and other factors discussed in this report.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 to F-18, which are included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to Ramco-Gershenson Properties Trust
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on June 10, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to Ramco-Gershenson Properties Trust
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on June 10, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to Ramco-Gershenson Properties Trust
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on June 10, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to Ramco-Gershenson Properties Trust
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to its Annual Meeting of Shareholders to be held on June 10, 1997.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1) FINANCIAL STATEMENTS
See pages F-1 through F-18 which are included herein.
(A)(3) EXHIBITS
3.1 Amended and Restated Declaration of Trust of the Company,
dated October 14, 1988, incorporated by reference to
Exhibits 3 and 4(a) to the Company's Registration Statement
on Form S-4, File No. 33-25272.
3.2 Amendment to Amended and Restated Declaration of Trust of
the Company, incorporated by reference to Exhibit 3(i) to
the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1996.
3.3 By-Laws of the Company adopted December 6, 1989,
incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K, dated December 6, 1989.
3.4 Amendment to Bylaws of the Company, incorporated by
reference to Exhibit 3(ii) to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
4. Rights Agreement dated as of December 6, 1989 between the
Company and American Stock Transfer & Trust Company,
incorporated by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A, File No. 1-10093, for
the registration of Share Purchase Rights.
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
interest in Ramco-Gershenson Properties, L.P., a Delaware
limited partnership, incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996.
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,
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1996.
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, incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.4 1996 Share Option Plan of the Company, incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
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, incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.6 Promissory Note payable by Atlantic Realty Trust in favor of
the Company in the principal face amount of 5,500,000 due
November 9, 1997, incorporated by reference to Exhibit 10.6
to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996.
10.7 Letter Agreement, dated as of May 10, 1996, by and between
Atlantic Realty Trust ("Atlantic") and the Company
concerning the assumption of certain liabilities by
Atlantic, incorporated by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996.
10.8 Employment Agreement, dated as of May 10, 1996, between the
Company and Joel Gershenson, incorporated by reference to
Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
27
29
10.9 Employment Agreement, dated as of May 10, 1996, between the
Company and Dennis Gershenson, incorporated by reference to
Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
10.10 Employment Agreement, dated as of May 10, 1996, between the
Company and Michael A. Ward, incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
10.11 Employment Agreement, dated as of May 10, 1996, between the
Company and Richard Gershenson, incorporated by reference to
Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
10.12 Employment Agreement, dated as of May 10, 1996, between the
Company and Bruce Gershenson, incorporated by reference to
Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
10.13 Noncompetition Agreement, dated as of May 10, 1996, by and
between Joel Gershenson and the Company, incorporated by
reference to Exhibit 10.13 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.14 Noncompetition Agreement, dated as of May 10, 1996, by and
between Dennis Gershenson and the Company, incorporated by
reference to Exhibit 10.14 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.15 Noncompetition Agreement, dated as of May 10, 1996, by and
between Michael A. Ward and the Company, incorporated by
reference to Exhibit 10.15 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.16 Noncompetition Agreement, dated as of May 10, 1996, by and
between Richard Gershenson and the Company, incorporated by
reference to Exhibit 10.16 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.17 Noncompetition Agreement, dated as of May 10, 1996, by and
between Bruce Gershenson and the Company, incorporated by
reference to Exhibit 10.17 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.18 Letter Agreement, dated April 15, 1996, among the Company
and Richard Smith concerning Mr. Smith's employment by the
Company, incorporated by reference to Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996.
10.19 Amended and Restated Master Revolving Credit Agreement dated
as of June 24, 1996 by and among Ramco-Gershenson
Properties, L.P., the Company, The First National Bank of
Boston, NBD Bank, the other lending institutions that may
become a party thereto, and The First National Bank of
Boston, as Agent for the Banks.
10.20 Note dated June 24, 1996 in the aggregate principal amount
of $25,000,000 made by Ramco-Gershenson Properties, L.P. in
favor of The First National Bank of Boston.
10.21 Note dated June 24, 1996 in the aggregate principal amount
of $25,000,000 made by Ramco-Gershenson Properties, L.P. in
favor of NBD Bank.
10.22 Loan Agreement dated May 1, 1996 by and between
Ramco-Gershenson Properties, L.P. and The Lincoln National
Life Insurance Company relating to a $77,585,524.73 loan.
10.23 Note dated May 1, 1996 in the aggregate principal amount of
$77,585,524.73 made by Ramco-Gershenson Properties, L.P. in
favor of The Lincoln National Life Insurance Company.
10.24 Loan Agreement dated May 1, 1996 by and between
Ramco-Gershenson Properties, L.P. and The Lincoln National
Life Insurance Company relating to a $4,346,778.76 loan.
10.25 Note dated May 1, 1996 in the aggregate principal amount of
$4,346,778.76 made by Ramco-Gershenson Properties, L.P. in
favor of The Lincoln National Life Insurance Company.
21.1 Subsidiaries.
27.1 Financial Data Schedule.
28
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Ramco-Gershenson Properties Trust
Dated: March 28, 1997 By: /s/ JOEL D. GERSHENSON
----------------------------------------------------
Joel D. Gershenson,
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of registrant and in
the capacities and on the dates indicated.
Dated: March 28, 1997 By: /s/ JOEL D. GERSHENSON
----------------------------------------------------
Joel D. Gershenson,
Trustee and Chairman
Dated: March 28, 1997 By: /s/ DENNIS E. GERSHENSON
----------------------------------------------------
Dennis E. Gershenson,
Trustee and President
(Principal Executive Officer)
Dated: March 28, 1997 By: /s/ STEPHEN R. BLANK
----------------------------------------------------
Stephen R. Blank,
Trustee
Dated: March , 1997 By:
----------------------------------------------------
Arthur H. Goldberg,
Trustee
Dated: March , 1997 By:
----------------------------------------------------
Herbert Liechtung,
Trustee
Dated: March , 1997 By:
----------------------------------------------------
Robert A. Meister,
Trustee
Dated: March 28, 1997 By: /s/ JOEL M. PASHCOW
----------------------------------------------------
Joel M. Pashcow,
Trustee
Dated: March 28, 1997 By: /s/ MARK K. ROSENFELD
----------------------------------------------------
Mark K. Rosenfeld,
Trustee
Dated: March , 1997 By:
----------------------------------------------------
Selwyn Isakow,
Trustee
Dated: March 28, 1997 By: /s/ RICHARD J. SMITH
----------------------------------------------------
Richard J. Smith,
Chief Financial Officer
(Principal Financial and Accounting Officer)
S-1
31
RAMCO-GERSHENSON PROPERTIES TRUST
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES OF
RAMCO-GERSHENSON PROPERTIES TRUST:
We have audited the accompanying consolidated balance sheets of
Ramco-Gershenson Properties Trust and subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Ramco-Gershenson Properties
Trust and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Detroit, Michigan
February 28, 1997
F-1
32
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
1996 1995(*)
---- -------
ASSETS
Investment in real estate -- net (Notes 3, 6 and 16)........ $307,752 $ 55,299
Mortgage loans receivable -- net of allowance for possible
loan losses
of $10,231 in 1995 (Note 4)............................... 36,023
REMIC investments........................................... 58,099
Interest and accounts receivable............................ 3,901 7,748
Equity investments in unconsolidated entities (Note 8)...... 5,271
Cash and cash equivalents................................... 3,541 11,467
Other assets -- net (Note 5)................................ 2,389 11,945
-------- --------
TOTAL ASSETS........................................... $322,854 $180,581
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable (Note 6)........................ $143,410
Distributions payable....................................... 4,108 $ 2,279
Accounts payable and accrued expenses....................... 9,712 1,282
Due to related entities (Note 1)............................ 1,053
-------- --------
Total liabilities...................................... 158,283 3,561
MINORITY INTEREST........................................... 44,706
COMMITMENTS AND CONTINGENCIES (NOTE 9)......................
SHAREHOLDERS' EQUITY........................................ 119,865 177,020
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $322,854 $180,581
======== ========
- -------------------------
(*) The 1995 historical results consist of the operations of RPS Realty Trust
prior to the Spin-Off Transaction and the Ramco Acquisition, which was
effective on May 1, 1996 (Note 1).
See notes to consolidated financial statements.
F-2
33
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995(*) 1994(*)
---- ------- -------
REVENUES
Minimum rents............................................. $23,713 $ 6,471 $ 4,978
Percentage rents.......................................... 1,190 766 555
Recoveries from tenants................................... 12,695 1,699 1,231
Interest and other income................................. 2,915 7,781 19,642
------- ------- -------
TOTAL REVENUES....................................... 40,513 16,717 26,406
------- ------- -------
EXPENSES
Real estate taxes......................................... 4,643 1,271 1,236
Recoverable operating expenses............................ 8,230 1,934 1,530
Depreciation and amortization............................. 4,798 1,214 947
Other operating........................................... 791 183 227
General and administrative................................ 4,683 4,127 3,898
Interest expense.......................................... 6,725 426
Spin-off and other expenses (Note 1)...................... 7,976
Allowance for loan losses................................. 4,450 2,500
------- ------- -------
TOTAL EXPENSES....................................... 37,846 13,179 10,764
------- ------- -------
OPERATING INCOME............................................ 2,667 3,538 15,642
LOSS FROM UNCONSOLIDATED ENTITIES (Note 8).................. 216
------- ------- -------
INCOME BEFORE MINORITY INTEREST............................. 2,451 3,538 15,642
MINORITY INTEREST........................................... 2,159
------- ------- -------
NET INCOME.................................................. $ 292 $ 3,538 $15,642
======= ======= =======
NET INCOME PER SHARE........................................ $0.04 $0.50 $2.20
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING......................... 7,123 7,123 7,123
======= ======= =======
- -------------------------
(*) The 1995 and 1994 historical results consist of the operations of RPS Realty
Trust prior to the Spin-Off Transaction and the Ramco Acquisition, which was
effective on May 1, 1996 (Note 1).
See notes to consolidated financial statements.
F-3
34
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
ADDITIONAL CUMULATIVE TOTAL
NUMBER OF PAR PAID-IN EARNINGS/ SHAREHOLDERS'
SHARES VALUE CAPITAL DISTRIBUTION EQUITY
--------- ----- ---------- ------------ -------------
BALANCE, JANUARY 1, 1994................... 7,138 $714 $197,297 $(21,699) $176,312
Shares repurchased and retired........... (15) (2) (236) (238)
Net income............................... 15,642 15,642
Cash distributions declared.............. (9,117) (9,117)
----- ---- -------- -------- --------
BALANCE, DECEMBER 31, 1994................. 7,123 712 197,061 (15,174) 182,599
Net income............................... 3,538 3,538
Cash distributions declared.............. (9,117) (9,117)
----- ---- -------- -------- --------
BALANCE, DECEMBER 31, 1995................. 7,123 712 197,061 (20,753) 177,020
Assets transferred in Spin-Off
Transaction........................... (45,483) (45,483)
Minority interests' equity............... (1,706) (1,706)
Cash distributions declared.............. (10,258) (10,258)
Net income............................... 292 292
----- ---- -------- -------- --------
BALANCE, DECEMBER 31, 1996................. 7,123 $712 $149,872 $(30,719) $119,865
===== ==== ======== ======== ========
See notes to consolidated financial statements.
F-4
35
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995(*) 1994(*)
---- ------- -------
Cash Flows From Operating Activities:
Net Income................................................ $ 292 $ 3,538 $ 15,642
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Provision for possible loan losses...................... 129 4,450 2,500
Write-off of deferred acquisition expenses.............. 2,154
Loss on disposition of real estate/loans................ 183 227
Loss on disposal of REMIC's............................. 91
Depreciation and amortization........................... 4,798 1,214 947
Loss from unconsolidated entities....................... 216
Minority interest....................................... 2,159
Changes in assets/liabilities that provided (used) cash:
Interest and accounts receivable...................... (2,987) 125 (390)
Other assets.......................................... (1,902) (7,165) (2,132)
Transaction advances.................................. 2,471
Accounts payable and accrued expenses................. 6,830 (10) (2,342)
-------- -------- --------
Total adjustments......................................... 13,959 (1,203) (1,190)
-------- -------- --------
Cash Flows Provided By Operating Activities................. 14,251 2,335 14,452
-------- -------- --------
Cash Flows From Investing Activities:
Satisfaction of mortgage loans receivable................. 3,468 3,025 45,904
Investment in mortgage loans receivable................... (256)
Amortization of REMICs.................................... 1,100
Investment of REMICs...................................... (58,098)
Proceeds from REMICs...................................... 56,908
Sale of real estate....................................... 113
Real estate acquired...................................... (41,727) (1,006) (8,833)
-------- -------- --------
Cash Flow Provided By (Used In) Investing Activities........ 19,749 (56,335) 37,184
-------- -------- --------
Cash Flows From Financing Activities:
Cash distributions to shareholders........................ (9,545) (9,117) (9,123)
Cash distributions to operating partnership unit
holders................................................. (1,860)
Shares repurchased........................................ (238)
Principal repayments on debt.............................. (74,852) (6,491)
Net advances from affiliated entities..................... 2,625
Borrowings on debt........................................ 41,706
-------- -------- --------
Cash Flows Used In Financing Activities..................... (41,926) (9,117) (15,852)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........ (7,926) (63,117) 35,784
Cash and Cash Equivalents, Beginning of Period.............. 11,467 74,584 38,800
-------- -------- --------
Cash and Cash Equivalents, End of Period.................... $ 3,541 $ 11,467 $ 74,584
======== ======== ========
Supplemental Disclosures of Cash Flow Information :
Cash Paid for Interest During the Period.................. $ 6,100 $ 426
======== ========
Supplemental Schedule of Noncash Investing and Financial
Activities:
Spin-off of net assets to Atlantic........................ $ 45,483
Acquisition of Ramco:
Debt assumed............................................ 176,478
Value of OP units issued................................ 43,835
Other liabilities assumed............................... 1,600
Interest and accounts receivable.......................... $ (733) $ (1,761)
Allowance for possible loan losses........................ 5,076 14,567
Net mortgages receivable sold............................. (4,343) (13,829)
Investment in real estate................................. 14,626
Mortgages payable assumed................................. (1,464)
Gross mortgages exchanged for real estate................. (9,500)
Mortgage receivable exchanged............................. (3,000)
Accounts payable.......................................... (839)
Deposit on sale of loans.................................. 1,365
Other assets.............................................. (165)
- -------------------------
(*) The 1995 and 1994 historical results consist of the operations of RPS Realty
Trust prior to the Spin-Off Transaction and the Ramco Acquisition, which was
effective on May 1, 1996 (Note 1).
See notes to consolidated financial statements.
F-5
36
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
1. RAMCO ACQUISITION AND SPIN-OFF TRANSACTION
RPS Realty Trust, a Massachusetts business trust, was formed on June 21,
1988 to be a diversified, growth-oriented real estate investment trust.
Effective May 1, 1996, RPS Realty Trust completed the acquisition of
substantially all of the shopping center and retail properties, as well as the
management organization 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, RPS Realty Trust'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.
Ramco-Gershenson Properties Trust is referred to herein as the "Company".
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 4,826,000 square feet of total gross leasable area
("GLA"), of which approximately 3,520,000 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 in 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
("Units") of the Operating Partnership (representing an approximate 25% limited
partnership interest in the Operating Partnership). The Acquisition was
accounted for using the purchase method. The purchase price was allocated to the
assets acquired and liabilities assumed based upon their estimated fair market
value. Units, which are convertible into shares of beneficial interest in the
Company, as described below, were valued at $16.50 per Unit representing the
average trading price of the Company's shares immediately preceding and
following the Ramco Acquisition. In addition, the Ramco Group received 279,181
Units as a partial earnout relative to Jackson Crossing Shopping Center
(representing an approximate 2% limited partnership interest in the Operating
Partnership). The Ramco Group's 2,656,673 aggregate Units represent an
approximate 27% limited partnership interest in the Operating Partnership. In
connection with the transfer of the Ramco Properties, 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
objectives 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 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 to the reduction of 2% for the
Ramco Group's earnout).
The transfer of the Company's net assets in exchange for Units was
accounted for as a reorganization of entities under common control. As such,
these assets and liabilities were transferred and accounted for at historical
cost in a manner similar to that of a pooling of interests.
F-6
37
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 year ended December 31, 1996 non-recurring expenses, including
expenses related to 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
======
At December 31, 1996, the Company has a payable to its former Chairman and
President of $1,600, plus interest, representing the final installment of his
severance package. The final installment is due April 1, 1997.
In connection with the Ramco Acquisition, the due to related entities at
December 31, 1996 of $1,053 represents unreimbursed development costs of $568
and funds collected on behalf of the Ramco Group relating to receivables prior
to the closing of $485.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements for
the year ended December 31, 1996, include the accounts of the Company and its
majority owned subsidiary, the Operating Partnership (73% owned by the Company
at December 31, 1996). All significant intercompany accounts and transactions
have been eliminated in consolidation.
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.
The Company has included the results of three property acquisitions (the
"Property Acquisitions") in 1996. The Taylor Shopping Center was acquired on
August 14, 1996 for approximately $2,300, Shoppes of Lakeland was acquired on
November 22, 1996 for approximately $12,700, and the Holcomb Shopping Center was
acquired on December 13, 1996 for approximately $6,700. Each of these
acquisitions has been accounted for using the purchase method of accounting. The
purchase price was allocated to the assets acquired based upon their estimated
fair market value.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION -- Shopping center space is generally leased to retail
tenants under leases which are accounted for as operating leases. 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 $417 as of December 31, 1996.
Until May 1, 1996 and in 1995 and 1994, interest income on mortgage loans
was recognized on the accrual method during the periods in which the mortgage
loans were outstanding. Deferred interest, due at the
F-7
38
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
maturity of the mortgage loan, was recognized as income based on the interest
method using the implicit rate of interest on the mortgage loan. Contingent and
additional contingent income, extension fee income and prepayment premium income
was recognized as cash was received.
INCOME TAX STATUS -- The Company conducts its operations with the intent of
meeting the requirements applicable to a real estate investment trust ("REIT")
under Sections 856 through 860 of the Internal Revenue Code of 1986 as amended
(the "Code"). In order to maintain qualification as a real estate investment
trust, the REIT is required to distribute at least 95% of its taxable income to
shareholders and meet certain other asset and income tests as well as other
requirements (Note 9). As a real estate investment trust, the REIT will
generally not be liable for federal corporate income taxes. Thus, no provision
for federal income taxes has been included in the accompanying financial
statements.
REAL ESTATE -- 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.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and Assets to be
Disposed of" which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes indicate that the carrying amount of an asset may not be
recoverable. The provisions of this Statement were adopted as of January 1, 1996
and the adoption of this Statement did not have an impact on the carrying value
of the real estate.
MORTGAGE LOANS RECEIVABLE -- Investments in mortgage loans receivable are
stated at the lower of the carrying amount of the loan or the market value of
the underlying real estate. Effective May 1, 1996, the Mortgage loans receivable
were spun-off to Atlantic Realty Trust (Note 1).
CASH AND CASH EQUIVALENTS -- In 1995, short term investments of $10,300
were considered cash equivalents for the purposes of the balance sheet and the
statement of cash flows and consist primarily of highly liquid investments
having original maturities of less than three months. Accordingly, in 1995 the
Company classified its short term investments as held-to-maturity and carried
such investments at amortized cost, which approximated fair value.
REMIC INVESTMENTS -- In 1995, the Company's investments in REMICS,
consisted of collateralized mortgage backed securities which were guaranteed by
the Federal National Mortgage Association ("FNMA"), Government National Mortgage
Association ("GNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
At December 31, 1995, the cost of such securities approximated fair value and
accordingly, there were no unrealized gains and losses.
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.
OTHER ASSETS -- Consist primarily of financing costs and leasing costs
which are amortized over the terms of the respective agreements.
MINORITY INTEREST -- Represents the Ramco Group's 27% limited partnership
interest in the Operating Partnership. Such interest is held in the form of
Units which become exchangeable on a one-for-one equivalent basis into common
shares of the Company on May 10, 1997.
F-8
39
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
EARNINGS PER COMMON SHARE -- Computations of earnings per common share are
based on the weighted number of shares and dilutive common share equivalents
outstanding during the year. The conversion of a Unit to common stock will have
no effect on earnings per share since the allocation of earnings to a Unit is
equivalent to earnings allocated to a share of common stock.
Earnings per common share and the weighted average number of shares
outstanding for 1995 and 1994 have been adjusted to reflect the one-for-four
reverse stock split which occurred on May 1, 1996 (Note 1).
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1995
and 1994 financial statements in order to conform with the 1996 presentation.
3. REAL ESTATE
The Company's real estate at December 31, 1996 and December 31, 1995
consists of the following:
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
Land...................................................... $ 42,681 $18,459
Buildings and Improvements................................ 270,544 39,587
Construction in progress.................................. 1,629
-------- -------
Sub Total............................................... 314,854 58,046
Less: Accumulated Depreciation............................ (7,102) (2,747)
-------- -------
Total Investment in Real Estate -- net.................. $307,752 $55,299
======== =======
4. MORTGAGE LOANS RECEIVABLE
Effective May 1, 1996 the mortgage loans receivable and associated interest
receivable were spun-off to Atlantic Realty Trust (Note 1). The following is a
summary of mortgage loans receivable activity for the years ended December 31,
1996, 1995 and 1994:
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
Beginning balance............................ $ 36,023 $41,892 $100,692
Additions during period.................... 255
Payments during period..................... (3,468) (2,474) (56,300)
Provision for possible losses.............. (3,650) (2,500)
Spin-off to Atlantic Realty Trust (net).... (32,555)
-------- ------- --------
Ending Balance............................... $ 0 $36,023 $ 41,892
======== ======= ========
F-9
40
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. OTHER ASSETS
Other assets at December 31, 1996 and December 31, 1995 are as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
Leasing costs............................................. $1,868 $ 493
Deferred financing costs.................................. 471
Other..................................................... 282 6,827
Deferred acquisition expenses............................. 3,672
Transaction advances...................................... 2,471
------- -------
Sub Total............................................... 2,621 13,463
Less: Accumulated Amortization............................ (232) (1,518)
------- -------
Total Other Assets -- net............................... $2,389 $11,945
======= =======
6. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable at December 31, 1996 consist of the following:
Fixed rate mortgages with interest rates ranging from 7.8%
to 8.75% due at various dates through 2006................ $ 99,579
Floating rate mortgages at 75% of the rate of long-term
Capital A rated utility bonds due January 1, 2010. The
effective rate at December 31 was 7.59%................... 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. The
effective rate at December 31 was 7.37%................... 36,831
--------
$143,410
========
The mortgage notes are secured by mortgages on properties that have an
approximate net book value of $135,898 as of December 31, 1996. The Credit
Facility is secured by mortgages on various properties that have an approximate
net book value of $78,100 as of December 31, 1996.
The Credit Facility contains financial covenants relating to debt to market
capitalization, minimum operating coverage ratios, and a minimum equity value.
As of December 31, 1996 the Company was in compliance with the covenant terms.
The following table presents scheduled principal payments on mortgages and
notes payable as of December 31, 1996:
Year ended December 31,
1997................................................. $ 1,874
1998................................................. 3,799
1999................................................. 38,857
2000................................................. 2,130
2001................................................. 2,243
Thereafter........................................... 94,507
--------
Total................................................ $143,410
========
F-10
41
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. LEASES
Approximate future minimum rentals under noncancelable operating leases in
effect at December 31, 1996, assuming no new or renegotiated leases nor option
extensions on lease agreements, is as follows:
Year ended December 31,
1997................................................. $ 32,674
1998................................................. 29,127
1999................................................. 26,081
2000................................................. 22,726
2001................................................. 19,822
Thereafter........................................... 162,146
--------
Total................................................ $292,576
========
F-11
42
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. UNCONSOLIDATED ENTITIES
Condensed financial statement information of Ramco, Kentwood and Southfield
Plaza Expansion as of December 31, 1996, and for the period from May 1, 1996
through December 31, 1996 are presented as follows:
SOUTHFIELD
RAMCO KENTWOOD PLAZA TOTAL
----- -------- ---------- -----
ASSETS
Net Real Estate Assets........................... $ 1,966 $ 585 $ 2,551
Other Assets..................................... $ 4,909 504 67 5,480
------- ------- ------- -------
Total Assets.................................. $ 4,909 $ 2,470 $ 652 $ 8,031
======= ======= ======= =======
LIABILITIES
Mortgage Notes Payable........................... $11,050 $ 1,632 $12,682
Other Liabilities................................ $ 1,296 409 25 1,730
------- ------- ------- -------
Total Liabilities............................. 1,296 11,459 1,657 14,412
------- ------- ------- -------
OWNERS' EQUITY (DEFICIT)........................... 3,613 (8,989) (1,005) (6,381)
------- ------- ------- -------
Total Liabilities and Owners' Deficit............ $ 4,909 $ 2,470 $ 652 $ 8,031
======= ======= ======= =======
Company's Equity Investments in Unconsolidated
Entities......................................... $ 3,948 $ 800 $ 523 $ 5,271
======= ======= ======= =======
REVENUES
Management Fees.................................. $ 711 $ 711
Leasing and Development Fees..................... 131 131
Property Revenues................................ $ 1,380 $ 191 1,571
Other Revenues................................... 417 417
------- ------- ------- -------
Total Revenues................................ 1,259 1,380 191 2,830
------- ------- ------- -------
EXPENSES
Employee Expenses................................ 2,187 2,187
Office and Other Expenses........................ 630 630
Property Expenses................................ 1,186 121 1,307
Depreciation and amortization.................... 45 45
------- ------- ------- -------
Total Expenses................................ 2,862 1,186 121 4,169
------- ------- ------- -------
Excess Revenues Over Expenses...................... (1,603) 194 70 (1,339)
Cost Reimbursement From Operating Partnership...... 1,603 1,603
------- ------- ------- -------
Income............................................. $ 0 $ 194 $ 70 $ 264
======= ======= ======= =======
Company's Share of Income.......................... $ 0 $ 97 $ 35 $ 132
======= ======= ======= =======
The Company's share of the unconsolidated entities' income of $132 for the
period from May 1, 1996 through December 31, 1996 was reduced by $348 which
represents depreciation and amortization adjustments arising from the Company's
net basis adjustments in the unconsolidated entities' assets. These adjustments
result in a net loss of $216 from unconsolidated entities.
9. COMMITMENTS AND CONTINGENCIES
Substantially all of the properties have been subjected to Phase I
environmental audits. Such audits have not revealed nor is management aware of
any environmental liability that management believes would have a material
adverse impact on the Company's financial position or results of operations.
Management is unaware
F-12
43
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
of any instances in which it would incur significant environmental costs if any
or all properties were sold, disposed of or abandoned.
During the third quarter of 1994, the Company held more than 25% of the
value of its gross assets in overnight Treasury Bill reverse repurchase
transactions which the United States Internal Revenue Service (the "IRS") may
view as nonqualifying 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. 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.
10. SHARE PURCHASE RIGHTS
On December 6, 1989, the Company's Board of Trustees (the "Board") declared
a dividend distribution of one share purchase right to each outstanding share of
beneficial interest, $.10 par value per share, to shareholders of record at the
close of business on December 18, 1989. These rights may be exercised to
purchase one share of beneficial interest at a price of $80 per share, subject
to adjustment, under certain specified conditions at the Board's option. These
rights are not exercisable or transferable apart from the shares of beneficial
interest until the distribution date, which is the earlier of (i) 10 days
following a public announcement that any person or group has acquired beneficial
ownership of 20 percent or more of the outstanding shares (the "Share
Acquisition Date"), (ii) 10 days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning 20
percent or more of the outstanding shares or (iii) the day the Board determines
that any person or group has become the beneficial owner of an amount of shares
the Board determines to be substantial (which amount shall in no event be less
than 10 percent of the shares outstanding) and the Board shall determine that
such beneficial ownership is intended to cause the Company to repurchase the
shares owned by such person or group or is reasonable likely to cause a material
adverse impact on the Company's business. The rights, which do not have voting
rights, expire on December 6, 1999 and may be redeemed by the Company at a price
of $.01 per right at any time until rights expire or, if earlier, 10 days
following the Share Acquisition Date.
Upon the occurrence of certain events following the distribution date, the
holder of each right will have the right to receive, upon exercise, shares (or,
in certain circumstances, cash, property or other securities of the Company)
having a value equal to two times the exercise price of the right. In certain
events in which the Company is not a surviving entity or has transferred 50
percent or more of its assets or earnings power, the
F-13
44
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
rights will entitle the holder, upon exercise, to receive equity securities of
the acquiring company having a value equal to two times the exercise price of
the right.
11. STOCK OPTION PLANS
a. 1989 Trustees' Stock Option Plan -- On April 4, 1989, the Board approved
the establishment of the 1989 Trustees' Stock Option Plan (the "Trustees' Plan")
which permitted the Company to grant options to purchase up to 350,000 shares of
beneficial interest in the Company at the fair market value at the date of
grant. The Company had 350,000 options outstanding under the Trustees' Plan at
December 31, 1995 and 1994. In connection with the Ramco Acquisition and
Spin-off Transaction, all Trustees who had been granted options under the
Trustees' Plan have surrendered their options to the Company without
consideration.
b. 1989 Employee's Stock Option Plan -- On June 21, 1989, the Board
approved the establishment of the 1989 Employee Stock Option Plan which
permitted the Company to grant options to purchase up to 1,550,000 shares of
beneficial interest in the Company at the fair market value at the date of
grant. On December 6, 1989, 1,355,000 options were granted. Option shares in the
amount of 125,000 were purchased from certain employees prior to the closing of
the Ramco Acquisition and Spin-off Transaction for $.50 per share and the
balance of the options were canceled.
c. 1996 Share Option Plan -- Concurrent with the Ramco Acquisition, the
Company adopted the 1996 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, of the Board of Trustees, 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.
Stock options issued under the Plan allow for the purchase of common stock at
the fair market value of the stock at the date of grant. Stock options granted
to officers and employees under the Plan vest and become exercisable in
installments on each of the first three anniversaries of the date of grant and
expire ten years after the date of grant.
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
38,200 options have been granted to Ramco-Gershenson, Inc. employees at an
exercise price of $16.56 per share.
Information relating to the Plan from inception through December 31, 1996
is as follows:
SHARES OPTION PRICE
------ ------------
Granted (since inception)............................. 183,200 $15.44-$16.56
Exercised.............................................
Forfeited.............................................
------- -------------
Outstanding at December 31, 1996...................... 183,200 $15.44-$16.56
======= =============
Exercisable........................................... None
=======
F-14
45
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The fair value of options granted during 1996 was estimated to be
negligible on the date of grant. This was determined using the Black-Scholes
option pricing model with the following weighted average assumptions used:
expected dividend yield of 10.21%; expected life of six years; risk free
interest rate of 6.53% and expected volatility of 10%.
The Company accounts for the Plan in accordance with Accounting Principles
Board Option No. 25 under which no compensation cost has been recognized for
stock option awards. There is no material difference if compensation cost had
been calculated consistent with the provisions of Statement of Financial
Standards No. 123, "Accounting for Stock Based Compensation". Therefore, there
would be no change in the Company's pro forma net income and earnings per share
for 1996.
12. DIVIDEND REINVESTMENT PLAN
The Company has a dividend reinvestment plan that allows for participating
shareholders to have their dividend distributions automatically invested in
additional shares of beneficial interest in the Company based on the average
price of the shares acquired for the distribution.
13. FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standards No. 107 requires disclosure
about the fair value of all financial instruments. The carrying values of cash
and cash equivalents, receivables, accounts payable and accrued expenses are
reasonable estimates of their fair values because of the short maturity of these
financial instruments. As of December 31, 1996 the mortgages and notes payable
amounts are also a reasonable estimate of their fair value because their
interest rates approximate the current borrowing rates available to the Company.
The market value of the Company's mortgage loans and receivables as of
December 31, 1995 was estimated to be approximately $45,000. At December 31,
1995, the aggregate estimated fair market value of five of the Company's ten
mortgage loans exceeded the aggregate carrying value of $32,517 by $4,244. The
remaining five mortgage loans were stated at their fair market value.
14. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma consolidated statements of operations have been
presented as if (i), the Ramco Acquisition, the Property Acquisitions, 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, the Property
Acquisitions 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
F-15
46
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.
1996 1995
---- ----
REVENUES
Minimum rents............................................ $34,722 $33,085
Percentage rents......................................... 1,105 1,327
Recoveries from tenants.................................. 17,961 16,738
Interest and other income................................ 628 390
------- -------
Total Revenues............................................. 54,416 51,540
EXPENSES
Real estate taxes........................................ 6,496 5,487
Recoverable operating expenses........................... 11,259 11,302
Depreciation and amortization............................ 6,919 6,805
Other operating.......................................... 1,043 943
General and administrative............................... 4,440 3,369
Interest expense......................................... 11,544 11,132
Spin-off and other expenses.............................. 7,976
------- -------
Total Expenses............................................. 49,677 39,038
------- -------
Operating Income........................................... 4,739 12,502
Loss From Unconsolidated Entities.......................... 314 418
------- -------
Income Before Minority Interest............................ 4,425 12,084
Minority Interest.......................................... 3,279 3,021
------- -------
Net Income................................................. $ 1,146 $ 9,063
======= =======
Pro Forma Earnings Per Share............................... $.16 $1.27
======= =======
Weighted Average Number of Common Shares Outstanding....... 7,123 7,123
======= =======
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME PER SHARE:
REVENUES (LOSS) NET INCOME (LOSS)
-------- ---------- -----------------
1996
Quarter ended:
March 31................................ $ 4,262 $ 536 $ 0.08
June 30................................. 9,676 (4,691) (0.66)
September 30............................ 12,737 2,281 0.32
December 31............................. 13,838 2,166 0.30
1995
Quarter ended:
March 31................................ $ 4,246 $ (705) $(0.09)
June 30................................. 4,079 1,939 0.27
September 30............................ 4,254 2,295 0.32
December 31............................. 4,138 9 0.00
During 1996, the Company recorded spin-off and other related expenses of
$1,657, $6,276, and $43 in the first, second and third quarters respectively.
During the first and fourth quarters of 1995, the Company recorded provisions
for possible loan losses of $3,000, and $650 respectively. In addition, the
Company provided $800 for the impairment in value of real estate in the fourth
quarter of 1995.
F-16
47
RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
16. REAL ESTATE ASSETS
Net investment in real estate assets at December 31, 1996 consisted of the
following:
YEAR YEAR YEAR
DESCRIPTION AND LOCATION OF THE PROPERTY CONSTRUCTED ACQUIRED RENOVATED
- ---------------------------------------- ----------- -------- ---------
Tel-Twelve Mall Southfield, Michigan 1996 1995
Office Max Center Toledo, Ohio 1994 1996
New Towne Plaza Canton, Michigan 1976 1996 1993
Ferndale Plaza Ferndale, Michigan 1984 1996
Clinton Valley Strip Center Sterling Heights, Michigan 1979 1996
Fraser Shopping Center Fraser, Michigan 1996
Eastridge Commons Flint, Michigan 1990 1996
Oakbrook Square Flint, Michigan 1996
Jackson West Jackson, Michigan 1996
Jackson Crossing Jackson, Michigan 1996 1996
Roseville Plaza Roseville, Michigan 1996 1994
Naples Towne Center Naples, Florida 1983 1996
Southfield Plaza Southfield, Michigan 1996 1983
Clinton Valley Mall Sterling Heights, Michigan 1979 1996 1993
Lake Orion Plaza Lake Orion, Michigan 1977 1996
Edgewood Towne Centre Lansing, Michigan 1990 1996 1992
Troy Towne Center Troy, Ohio 1990 1996 1996
West Oaks I Novi, Michigan 1981 1996
West Oaks II Novi, Michigan 1987 1996
Spring Meadows Place Springfield Twp, Ohio 1987 1996 1996
West Allis Towne Center West Allis, Wisconsin 1987 1996
Chester Springs Chester, New Jersey 1994
Crofton Plaza Crofton, Maryland 1991
Lantana Plaza Lantana, Florida 1993
Sunshine Plaza Tamarac, Florida 1991
Commack Shopping Center Commack, New York 1992
Trinity Corners Pound Ridge, New York 1992
Taylor Shopping Center Taylor, Michigan 1996
Shoppes of Lakeland Lakeland, Florida 1996
Holcomb Center Alpharetta, Georgia 1996
Totals
INITIAL COST TO
COMPANY GROSS COST AT END OF PERIOD(B)
---------------------- SUBSEQUENT ---------------------------------
BUILDING & CAPITALIZED BUILDING &
DESCRIPTION AND LOCATION OF THE PROPERTY LAND IMPROVEMENTS COSTS LAND IMPROVEMENTS TOTAL
- ---------------------------------------- ---- ------------ ----------- ---- ------------ -----
Tel-Twelve Mall $ 4,777 $ 43,181 $ 314 $ 4,777 $ 43,495 $ 48,272
Office Max Center 227 2,042 0 227 2,042 2,269
New Towne Plaza 817 7,354 0 817 7,354 8,171
Ferndale Plaza 265 2,388 3 265 2,391 2,656
Clinton Valley Strip Center 399 3,588 0 399 3,588 3,987
Fraser Shopping Center 363 3,263 0 363 3,263 3,626
Eastridge Commons 1,086 9,775 5 1,086 9,780 10,866
Oakbrook Square 955 8,591 0 955 8,591 9,546
Jackson West 2,806 6,270 3,624 2,806 9,894 12,700
Jackson Crossing 2,249 20,237 86 2,249 20,323 22,572
Roseville Plaza 1,466 13,195 98 1,466 13,293 14,759
Naples Towne Center 218 1,964 1 218 1,965 2,183
Southfield Plaza 1,121 10,090 89 1,121 10,179 11,300
Clinton Valley Mall 1,101 9,910 119 1,101 10,029 11,130
Lake Orion Plaza 470 4,234 69 470 4,303 4,773
Edgewood Towne Centre 665 5,981 3 665 5,984 6,649
Troy Towne Center 930 8,372 872 930 9,244 10,174
West Oaks I 630 5,674 13 630 5,687 6,317
West Oaks II 1,391 12,519 4 1,391 12,523 13,914
Spring Meadows Place 1,662 14,959 378 1,662 15,337 16,999
West Allis Towne Center 1,866 16,789 0 1,866 16,789 18,655
Chester Springs 4,931 13,331 986 4,931 14,317 19,248
Crofton Plaza 3,201 6,499 1,050 3,201 7,549 10,750
Lantana Plaza 2,590 2,600 473 2,590 3,073 5,663
Sunshine Plaza 1,748 7,452 742 1,748 8,194 9,942
Commack Shopping Center 1,160 1,740 2 1,160 1,742 2,902
Trinity Corners 1,250 1,250 501 1,250 1,751 3,001
Taylor Shopping Center 400 1,930 0 400 1,930 2,330
Shoppes of Lakeland 1,279 11,543 67 1,279 11,610 12,889
Holcomb Center 658 5,953 0 658 5,953 6,611
------- -------- ------ ------- -------- --------
$42,681 $262,674 $9,499 $42,681 $272,173 $314,854
======= ======== ====== ======= ======== ========
ACCUMULATED
DESCRIPTION AND LOCATION OF THE PROPERTY DEPRECIATION(A) ENCUMBRANCES
- ---------------------------------------- --------------- ------------
Tel-Twelve Mall $ 722 (d)
Office Max Center 34 (c)
New Towne Plaza 123 (d)
Ferndale Plaza 40 (c)
Clinton Valley Strip Center 60 (c)
Fraser Shopping Center 54 (c)
Eastridge Commons 163 (d)
Oakbrook Square 143 $ 7,000
Jackson West 114
Jackson Crossing 341 (d)
Roseville Plaza 221 (d)
Naples Towne Center 33
Southfield Plaza 169 (d)
Clinton Valley Mall 166 (d)
Lake Orion Plaza 71 (d)
Edgewood Towne Centre 100 (c)
Troy Towne Center 145 (c)
West Oaks I 95 4,347(d)
West Oaks II 209 8,409
Spring Meadows Place 251 9,237
West Allis Towne Center 280 (c)
Chester Springs 896 (c)
Crofton Plaza 995 (c)
Lantana Plaza 285
Sunshine Plaza 985
Commack Shopping Center 176 (c)
Trinity Corners 171
Taylor Shopping Center 18
Shoppes of Lakeland 36
Holcomb Center 6
------ -------
$7,102 $28,993
====== =======
- -------------------------
(a) Depreciation for all properties is computed over the useful life which is
generally forty years.
(b) The aggregate cost of land and buildings and improvements for federal income
tax purposes is approximately $262 million.
(c) The property is pledged as collateral on the secured line of credit.
(d) The property is pledged as collateral on secured mortgages.
F-17
48
RAMSON-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The changes in real estate assets and accumulated depreciation for the
three years ended December 31, 1996 are as follows:
1996 1995 1994
---- ---- ----
REAL ESTATE ASSETS
Balance at beginning of period.............................. $ 58,046 $57,840 $34,751
Ramco Acquisition........................................... 235,840
Other Acquisitions.......................................... 21,765 22,462
Capital Improvements........................................ 6,252 1,006 997
Disposition of Saratoga..................................... (370)
Provision for impairment.................................... (800)
Spin-off of assets to Atlantic.............................. (7,049)
-------- ------- -------
Balance at end of period.................................... $314,854 $58,046 $57,840
======== ======= =======
ACCUMULATED DEPRECIATION
Balance at beginning of period.............................. $ 2,747 $ 1,731 $ 1,012
Depreciation................................................ 4,567 1,016 749
Spin-off of Assets to Atlantic.............................. (212)
Disposition of Saratoga..................................... (30)
-------- ------- -------
Balance at end of period.................................... $ 7,102 $ 2,747 $ 1,731
======== ======= =======
F-18
49
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Amended and Restated Declaration of Trust of the Company,
dated October 14, 1988, incorporated by reference to
Exhibits 3 and 4(a) to the Company's Registration Statement
on Form S-4, File No. 33-25272.
3.2 Amendment to Amended and Restated Declaration of Trust of
the Company, incorporated by reference to Exhibit 3(i) to
the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1996.
3.3 By-Laws of the Company adopted December 6, 1989,
incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K, dated December 6, 1989.
3.4 Amendment to Bylaws of the Company, incorporated by
reference to Exhibit 3(ii) to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
4. Rights Agreement dated as of December 6, 1989 between the
Company and American Stock Transfer & Trust Company,
incorporated by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A, File No. 1-10093, for
the registration of Share Purchase Rights.
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
interest in Ramco-Gershenson Properties, L.P., a Delaware
limited partnership, incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996.
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,
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1996.
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, incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.4 1996 Share Option Plan of the Company, incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
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, incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.6 Promissory Note payable by Atlantic Realty Trust in favor of
the Company in the principal face amount of 5,500,000 due
November 9, 1997, incorporated by reference to Exhibit 10.6
to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996.
10.7 Letter Agreement, dated as of May 10, 1996, by and between
Atlantic Realty Trust ("Atlantic") and the Company
concerning the assumption of certain liabilities by
Atlantic, incorporated by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996.
10.8 Employment Agreement, dated as of May 10, 1996, between the
Company and Joel Gershenson, incorporated by reference to
Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
10.9 Employment Agreement, dated as of May 10, 1996, between the
Company and Dennis Gershenson, incorporated by reference to
Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
50
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.10 Employment Agreement, dated as of May 10, 1996, between the
Company and Michael A. Ward, incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
10.11 Employment Agreement, dated as of May 10, 1996, between the
Company and Richard Gershenson, incorporated by reference to
Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
10.12 Employment Agreement, dated as of May 10, 1996, between the
Company and Bruce Gershenson, incorporated by reference to
Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996.
10.13 Noncompetition Agreement, dated as of May 10, 1996, by and
between Joel Gershenson and the Company, incorporated by
reference to Exhibit 10.13 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.14 Noncompetition Agreement, dated as of May 10, 1996, by and
between Dennis Gershenson and the Company, incorporated by
reference to Exhibit 10.14 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.15 Noncompetition Agreement, dated as of May 10, 1996, by and
between Michael A. Ward and the Company, incorporated by
reference to Exhibit 10.15 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.16 Noncompetition Agreement, dated as of May 10, 1996, by and
between Richard Gershenson and the Company, incorporated by
reference to Exhibit 10.16 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.17 Noncompetition Agreement, dated as of May 10, 1996, by and
between Bruce Gershenson and the Company, incorporated by
reference to Exhibit 10.17 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996.
10.18 Letter Agreement, dated April 15, 1996, among the Company
and Richard Smith concerning Mr. Smith's employment by the
Company, incorporated by reference to Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996.
10.19 Amended and Restated Master Revolving Credit Agreement dated
as of June 24, 1996 by and among Ramco-Gershenson
Properties, L.P., the Company, The First National Bank of
Boston, NBD Bank, the other lending institutions that may
become a party thereto, and The First National Bank of
Boston, as Agent for the Banks.
10.20 Note dated June 24, 1996 in the aggregate principal amount
of $25,000,000 made by Ramco-Gershenson Properties, L.P. in
favor of The First National Bank of Boston.
10.21 Note dated June 24, 1996 in the aggregate principal amount
of $25,000,000 made by Ramco-Gershenson Properties, L.P. in
favor of NBD Bank.
10.22 Loan Agreement dated May 1, 1996 by and between
Ramco-Gershenson Properties, L.P. and The Lincoln National
Life Insurance Company relating to a $77,585,524.73 loan.
10.23 Note dated May 1, 1996 in the aggregate principal amount of
$77,585,524.73 made by Ramco-Gershenson Properties, L.P. in
favor of The Lincoln National Life Insurance Company.
10.24 Loan Agreement dated May 1, 1996 by and between
Ramco-Gershenson Properties, L.P. and The Lincoln National
Life Insurance Company relating to a $4,346,778.76 loan.
10.25 Note dated May 1, 1996 in the aggregate principal amount of
$4,346,778.76 made by Ramco-Gershenson Properties, L.P. in
favor of The Lincoln National Life Insurance Company.
21.1 Subsidiaries.
27.1 Financial Data Schedule.