1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
----- OF 1934
For the quarterly period ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
----- OF 1934
For the transition period from to
--------- ---------
Commission file number 1-10093
RAMCO-GERSHENSON PROPERTIES TRUST
----------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 13-6908486
- ------------- ----------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
27600 Northwestern Highway, Suite 200, Southfield, Michigan 48034
- ----------------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
248-350-9900
-------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Number of shares of beneficial interest ($.10 par value) of the Registrant
outstanding as of March 31, 1997: 7,123,105.
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INDEX
Part I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 ........................... 3
Consolidated Statements of Operations - Three Months Ended March 31, 1997 and 1996............ 4
Consolidated Statement of Shareholders' Equity - Three Months Ended March 31, 1997............ 5
Consolidated Statements of Cash Flows - Three Months Ended March 31, 1997 and 1996............ 6
Notes to Consolidated Financial Statements.................................................... 7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations......... 12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................. 18
The Company did not file any reports on Form 8-K for the quarter ended March 31, 1997.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31, December 31,
1997 1996
----------- -------------
(unaudited)
ASSETS
Real estate, net (Note 2)..................................................... $ 309,459 $ 307,752
Interest and accounts receivable, net......................................... 4,658 3,901
Other assets, net (Note 3).................................................... 3,136 2,389
Equity investments in unconsolidated entities (Note 6)........................ 5,183 5,271
Cash and cash equivalents..................................................... 3,178 3,541
----------- -----------
TOTAL........................................................................ $ 325,614 $ 322,854
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgages and notes payable (Note 4).......................................... $ 145,168 $ 143,410
Distributions payable......................................................... 4,108 4,108
Accounts payable and accrued expenses......................................... 11,667 9,712
Due to related entities ...................................................... 1,018 1,053
----------- -----------
TOTAL LIABILITIES............................................................ 161,961 158,283
COMMITMENTS AND CONTINGENCIES (Note 8)......................................... - -
MINORITY INTEREST.............................................................. 44,436 44,706
SHAREHOLDERS' EQUITY........................................................... 119,217 119,865
----------- -----------
TOTAL........................................................................ $ 325,614 $ 322,854
=========== ===========
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
For The Three
Months Ended
March 31,
----------------------------
1997 1996 (*)
---- --------
REVENUES
Minimum rents...................................................... $ 8,884 $ 1,464
Percentage rents................................................... 366 396
Recoveries from tenants............................................ 4,394 485
Interest and other income.......................................... 175 1,916
-------- --------
TOTAL REVENUES.................................................. 13,819 4,261
-------- --------
EXPENSES
Real estate taxes................................................. 1,497 328
Recoverable operating expenses.................................... 2,839 402
Depreciation and amortization..................................... 1,801 257
Other operating................................................... 256
General and administrative........................................ 1,178 1,082
Interest expense.................................................. 2,970
Spin-off and other expenses....................................... 1,658
-------- --------
TOTAL EXPENSES.................................................. 10,541 3,727
-------- --------
OPERATING INCOME .................................................... 3,278 534
LOSS FROM UNCONSOLIDATED ENTITIES (Note 6)........................... 88
-------- --------
INCOME BEFORE MINORITY INTEREST...................................... 3,190 534
MINORITY INTEREST.................................................... 846
-------- --------
NET INCOME........................................................... $ 2,344 $ 534
======== ========
NET INCOME PER SHARE................................................. $ 0.33 $ 0.07
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING................................... 7,123 7,123
======== ========
See notes to consolidated financial statements.
*The 1996 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.
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(Unaudited)
Shares of
Beneficial Interest
------------------- Additional Cumulative Total
Paid-In Earnings/ Shareholders'
Number Amount Capital Distributions Equity
---------- --------- ----------- --------------- ---------------
BALANCE AT JANUARY 1, 1997............. 7,123 $ 712 $ 149,872 ($30,719) $ 119,865
Cash distributions declared............ (2,992) (2,992)
Net income for the three months ended
March 31, 1997........................ 2,344 2,344
----- ------ --------- -------- ---------
BALANCE AT MARCH 31, 1997............... 7,123 $ 712 $ 149,872 ($31,367) $ 119,217
===== ====== ========= ======== =========
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For The Three Months
Ended March 31
---------------------
1997 1996(*)
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME.................................................................... $ 2,344 $ 534
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Loss on disposition of real estate/loans....................................... 129
Depreciation and amortization.................................................. 1,801 257
Amortization of deferred acquisition expense................................... 49
Loss from unconsolidated entities.............................................. 88
Minority interest.............................................................. 846
Changes in assets and liabilities that provided (used) cash:
Interest and accounts receivable.............................................. (757) 266
Other assets.................................................................. (828) (924)
Accounts payable and accrued expenses......................................... 1,955 (343)
-------- ---------
Total adjustments............................................................... 3,105 (566)
-------- ---------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES............................ 5,449 (32)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Satisfaction of mortgage loans receivable....................................... 3,417
Amortization of REMICs.......................................................... 1,110
Real estate acquired............................................................ (3,427) (124)
-------- ---------
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES............................ (3,427) 4,403
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions to shareholders.............................................. (2,992) (2,279)
Cash distributions to operating partnership unit holders........................ (1,116)
Principal repayments on mortgage debt........................................... (461)
Net advances from affiliated entities........................................... (35)
Borrowings on notes payable - net............................................... 2,219
-------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES.......................................... (2,385) (2,279)
-------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............................. (363) 2,092
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................... 3,541 11,467
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................................... $ 3,178 $ 13,559
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - CASH
PAID FOR INTEREST DURING THE PERIOD $ 2,453
========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Accrued distributions payable.................................................... $ 4,108 $ 2,279
See notes to consolidated financial statements.
*The 1996 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.
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying interim financial statements and
related notes of the Company are unaudited; however, they have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting, the instructions to Form 10-Q and the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared under
generally accepted accounting principles have been condensed or omitted
pursuant to such rules. The unaudited interim financial statements should be
read in conjunction with the audited financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
financial statements for the interim periods have been made. The results for
interim periods are not necessarily indicative of the results for a full year.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS - In March 1997, the FASB issued
SFAS No. 128, "Earnings per Share." This statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to all entities
with publicly-held common shares or potential common shares. This Statement
replaces the presentation of primary EPS and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to common shareholders
by the weighted-average number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings. This statement is not expected to
have a material effect on the Company's reported EPS amounts. The Statement is
effective for the Company's financial statements for the year ending December
31, 1997.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1996
financial statements in order to conform with the 1997 presentation.
2. REAL ESTATE
The Company's real estate at March 31, 1997, and December 31, 1996, consists of
the following:
March 31, 1997 December 31, 1996
Land $ 42,051 $ 42,051
Buildings and Improvements 274,564 271,174
Construction-in-progress 1,667 1,629
----------- ----------
Sub Total 318,282 314,854
Less: Accumulated Depreciation (8,823) (7,102)
------------ -----------
Total Investment in Real Estate - net $ 309,459 $ 307,752
============ ==========
3. OTHER ASSETS
Other assets at March 31, 1997, and December 31, 1996, are as follows:
March 31, 1997 December 31, 1996
Leasing costs $ 2,324 $ 1,868
Deferred financing costs 473 471
Other 685 282
------------ ----------
Sub Total 3,482 2,621
Less: Accumulated Amortization (346) (232)
------------ -----------
Total Other Assets - net $ 3,136 $ 2,389
============ ===========
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4. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable at March 31, 1997, consist of the following:
Fixed rate mortgages with interest rates ranging
from 7.8% to 8.75% due at various dates through 2006 $ 99,118
Floating rate mortgage at 75% of the rate of
long-term Capital A rated utility bonds due January 1, 2010 plus
supplemental interest to equal LIBOR plus 200 basis points 7,000
Credit Facility, with an interest rate at the reserve adjusted
Eurodollar rate plus 175 basis points, due May 1999,
maximum borrowings of $50,000 39,050
---------
$ 145,168
=========
The mortgage notes are secured by mortgages on properties that have an
approximate net book value of $137,441 as of March 31, 1997 .
The Credit Facility is secured by mortgages on various properties that have
an approximate net book value of $77,746 as of March 31, 1997.
The Credit Facility contains financial covenants relating to debt to market
capitalization, minimum operating coverage ratios, and a minimum equity value.
As of March 31, 1997 the Company was in compliance with the covenant terms.
The following table presents scheduled principal payments on mortgages and
notes payable as of March 31, 1997:
Year ended December 31,
1997 (April 1 - December 31) $ 1,413
1998 3,799
1999 41,076
2000 2,130
2001 2,243
Thereafter 94,507
----------
Total $ 145,168
==========
5. LEASES
The Company is engaged in the operation of shopping center and retail
properties and leases space to tenants and certain anchors pursuant to lease
agreements. The lease agreements provide for initial terms ranging from 3 to 30
years and, in some cases, for annual rentals which are subject to upward
adjustment based on operating expense levels and sales volume.
Approximate future minimum rentals under noncancelable operating leases in
effect at March 31, 1997, assuming no new or renegotiated leases nor option
extensions on lease agreements, are as follows:
Year ended December 31,
1997 (April 1 - December 31) $ 25,256
1998 30,321
1999 27,265
2000 23,772
2001 20,976
Thereafter 168,571
----------
Total $ 296,161
==========
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6. UNCONSOLIDATED ENTITIES
Condensed financial statement information of Ramco, Kentwood and Southfield
Plaza Expansion as of March 31, 1997 and for the quarter ended March 31, 1997
is presented as follows:
Southfield
Ramco Kentwood Plaza Total
----- -------- ----- -----
ASSETS
Net Real Estate Assets.............................. $ 1,939 $ 579 $ 2,518
Other Assets........................................ $5,231 567 89 5,887
------ ------- ------ --------
Total Assets................................... $5,231 $ 2,506 $ 668 $ 8,405
====== ======= ====== ========
LIABILITIES
Mortgage Notes Payable.............................. $11,026 $1,622 $ 12,648
Other Liabilities................................... $1,625 333 36 1,994
------ ------- ------ --------
Total Liabilities.............................. 1,625 11,359 1,658 14,642
------ ------- ------ --------
OWNERS' EQUITY (DEFICIT)................................. 3,606 (8,853) (990) (6,237)
------ ------- ------ --------
Total Liabilities and Owners' Equity................ $5,231 $ 2,506 $ 668 $ 8,405
====== ======= ====== ========
Company's Equity Investments in Unconsolidated Entities.. $3,824 $ 828 $ 531 $ 5,183
====== ======= ====== ========
REVENUES
Management Fees..................................... $ 262 $ 262
Leasing and Development Fees........................ 0
Property Revenues................................... 96 $ 540 $ 68 704
Leasing/Development Cost Reimbursements............. 372 372
------ ------- ------ --------
Total Revenues................................... 730 540 68 1,338
------ ------- ------ --------
EXPENSES
Employee Expenses................................... 941 941
Office and Other Expenses........................... 275 275
Property Expenses................................... 476 47 523
Depreciation and Amortization....................... 60 60
------ ------- ------ --------
Total Expenses.................................. 1,276 476 47 1,799
------ ------- ------ --------
Excess Revenues Over Expenses............................ (546) 64 21 (461)
Cost Reimbursement From Operating Partnership............ 546 546
------ ------- ------ --------
Income.................................................. $ 0 $ 64 $ 21 $ 85
====== ======= ====== ========
Company's Share of Income............................... $ 0 $ 32 $ 11 $ 43
====== ======= ====== ========
The Company's share of the unconsolidated entities' income of $43 for the
quarter ended March 31, 1997 was reduced by $131 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 $88 from unconsolidated entities.
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7. PRO FORMA FINANCIAL INFORMATION
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, 1996, 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 the Company would have been had such
transactions actually occurred as of January 1, 1996, nor do they purport to
represent the results of the Company for future periods.
Three Months Ended
March 31,
--------------------------------
1997 1996
---- ----
Actual Pro forma
REVENUES
Minimum rents . . . . . . . . . . . . . . . . . . . . . . . . $ 8,884 $ 8,496
Percentage rents . . . . . . . . . . . . . . . . . . . . . . 366 252
Recoveries from tenants . . . . . . . . . . . . . . . . . . . 4,394 4,285
Interest and other income . . . . . . . . . . . . . . . . . . 175 87
--------- ----------
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . . 13,819 13,120
EXPENSES
Real estate taxes . . . . . . . . . . . . . . . . . . . . . . 1,497 1,452
Recoverable operating expenses . . . . . . . . . . . . . . . 2,839 2,784
Depreciation and amortization . . . . . . . . . . . . . . . . 1,801 1,678
Other operating . . . . . . . . . . . . . . . . . . . . . . . 256 231
General and administrative . . . . . . . . . . . . . . . . . 1,178 1,081
Interest expense . . . . . . . . . . . . . . . . . . . . . . 2,970 2,838
Spin-off and other expenses . . . . . . . . . . . . . . . . . 1,658
--------- ----------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . 10,541 11,722
--------- ----------
OPERATING INCOME.... . . . . . . . . . . . . . . . . . . . . . 3,278 1,398
LOSS FROM UNCONSOLIDATED ENTITIES . . . . . . . . . . . . . . . 88 31
---------- ----------
INCOME BEFORE MINORITY INTEREST . . . . . . . . . . . . . . . . 3,190 1,367
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . 846 756
--------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,344 $ 611
========= ==========
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . . $ 0.33 $ 0.09
========= ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING. . . . . . 7,123 7,123
========= ==========
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8. 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 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
non-qualifying assets for the purpose of satisfying an asset qualification test
applicable to REIT's, 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 so 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
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 claim 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in Thousands, except per Share and per Unit amounts)
OVERVIEW
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements of the Company, including the respective notes thereto which are
included in this Form 10-Q.
CAPITAL RESOURCES AND LIQUIDITY
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 March 31, 1997 the
Company's portion of mortgages attributable to properties 100% owned is
$145,168, with a weighted average interest rate of 7.96% and its pro rata share
of non-recourse mortgage debt on unconsolidated properties (accounted for on
the equity method) was $6,324 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
$99,118 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 Oak Brook Square Shopping Center is
non-amortizing, matures in 2010, and carries a floating interest rate equal to
75% of the new issue long-term Capital A rated utility bonds, plus interest to
the lender sufficient to cause the lender's overall yield on its investment in
the bonds to be equal to 200 basis points over their applicable LIBOR rate.
The Company currently has a $50,000 Credit Facility, which bears interest at
175 basis points over LIBOR and matures on May 6, 1999. 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 $39,050 at March 31, 1997, with approximately
$11,000 available.
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 ("Units") 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 $169,924 at
March 31, 1997 (based on the closing price of $17.375 per share on March 31,
1997).
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 of 1986, as amended (the "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 Code.
Variable rate debt accounted for $46,050 of outstanding debt with a weighted
average interest rate of 7.3% at March 31, 1997. Variable rate debt accounted
for approximately 31.7% of the Company's total debt and 14.6% of its total
market 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
46.1% at March 31, 1997.
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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 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 meets its needs.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED MARCH 31,
1996.
Total revenues for the three months ended March 31, 1997 increased by 224.3% ,
or $9,558, to $13,819 as compared to $4,261 for the three months ended March
31, 1996. The increase was a result of a $7,420 increase in minimum rents, a
$30 decrease in percentage rents, a $3,909 increase in recoveries from tenants
and a $1,741 decrease in interest and other income.
Minimum rents increased 506.8%, or $7,420, to $8,884 for the three months ended
March 31, 1997 as compared to $1,464 for the three months ended March 31, 1996.
Recoveries from tenants increased 806.0%, or $3,909, to $4,394 as compared to
$485 for the three months ended March 31, 1996. These increases are primarily
attributable to the acquisition of the Ramco properties effective May 1, 1996,
and the acquisition of the Taylor, Lakeland, and Holcomb shopping centers
effective August 14, November 22, and December 13, 1996, respectively. The
operating results for the three months ended March 31, 1997 included the impact
of the acquisition of the Ramco properties and the other shopping centers for
the full three months in 1997, while the results for the three months ended
March 31, 1996 do not include any impact for those acquisitions. In addition,
two properties which were part of the Company's portfolio during the three
months ended March 31, 1996 were spun-off to Atlantic Realty Trust effective
May 1, 1996.
Interest and other income decreased 90.9%, or $1,741, to $175 as compared to
$1,916 for the three months ended March 31,1996 due primarily to the spin-off
of the Company's mortgage portfolio to Atlantic Realty Trust effective May 1,
1996.
Total expenses for the three months ended March 31, 1997 increased by 182.8%,
or $6,814, to $10,541 as compared to $3,727 for the three months ended March
31, 1996. The increase was due to a $3,606 increase in total recoverable
expenses, including real estate taxes and recoverable operating expenses, a
$1,544 increase in depreciation and amortization, a $256 increase in other
operating expenses, a $96 increase in general and administrative expenses, a
$2,970 increase in interest expense and a $1,658 decrease in spin-off and other
expenses.
Total recoverable expenses, including real estate taxes and recoverable
operating expenses, increased by 494.0%, or $3,606, to $4,336 as compared to
$730 for the three months ended March 31, 1996, depreciation and amortization
increased by 600.8%, or $1,544, to $1,801 as compared to $257 for the three
months ended March 31, 1996, and other operating expenses for the three months
ended March 31, 1997 were $256 as compared to zero for the three months ended
March 31, 1996. General and administrative expenses increased 8.9 %, or $96,
to $1,178 as compared to $1,082 for the three months ended March 31, 1996. The
increase in recoverable expenses of $3,606, depreciation and amortization of
$1,544, other operating expenses of $256, and general and administrative
expenses of $96 are due to the acquisition of the Ramco properties and the
other property acquisitions, offset in part by the decrease related to the May
1, 1996 spin-off of two former RPS properties.
Interest expense for the three months ended March 31, 1997 was $2,970 compared
to zero for the three months ended March 31, 1996 due to the effect of the debt
assumed in connection with the Ramco acquisition and additional borrowings for
subsequent acquisitions and development cost reimbursements.
For the three months ended March 31, 1996, the company incurred $1,658 of
spin-off and other expenses for which there were no corresponding expenses for
the three months ended March 31, 1997.
The loss from unconsolidated entities of $88 for the three months ended March
31, 1997 as compared to zero for the three months ended March 31, 1996 is due
to the impact of the Ramco acquisition on May 1, 1996.
The minority interest of $846 for the three months ended March 31, 1997
represents the 27% share of income before minority interest of the operating
partnership relative to that period, which is allocable to the Ramco Group.
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COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO PRO FORMA THREE MONTHS ENDED
MARCH 31, 1996.
Total revenues for the three months ended March 31, 1997 increased by 5.3% , or
$699, to $13,819 as compared to $13,120 for the three months ended March 31,
1996. The increase was a result of a $388 increase in minimum rents, a $114
increase in percentage rents, a $109 increase in recoveries from tenants and an
$88 increase in interest and other income, for the three months ended March 31,
1997 as compared to the three months ended March 31, 1996.
Minimum rents increased 4.6%, or $388, to $8,884 for the three months
ended March 31, 1997 as compared to $8,496 for the three months ended March 31,
1996. This first quarter increase was primarily due to the opening of the
Jackson West Shopping Center in June 1996, and the opening of a new anchor
tenant at Jackson Crossing in March 1996. Percentage rents increased 45.2%, or
$114, to $366 as compared to $252 for the three months ended March 31, 1996.
Recoveries from tenants increased 2.5%, or $109, to $4,394 as compared to
$4,285 for the three months ended March 31, 1996. The increase was due to
corresponding increases in recoverable operating and real estate tax expense.
The company's overall recovery ratio for 1997 and 1996 remained relatively
consistent at 101.3% and 101.2%, respectively.
Total expenses for the three months ended March 31, 1997, decreased 10.1%, or
$1,181, to $10,541 as compared to $11,722 for the three months ended March 31,
1996. The decrease was due to a $1,658 decrease in spin-off and other
expenses, partially offset by a $100 increase in total recoverable expenses,
including real estate taxes and recoverable operating expenses, a $123 increase
in depreciation and amortization, a $25 increase in other operating expenses, a
$97 increase in general and administrative expenses, and a $132 increase in
interest expense.
For the three months ended March 31, 1996 the Company incurred $1,658 of
spin-off and other expenses related to the spin-off of Atlantic for which
there were no corresponding costs in 1997.
Recoverable expenses, including real estate taxes and recoverable operating
expenses, increased 2.4%, or $100, to $4,336 as compared to $4,236 for the
three months ended March 31, 1996 due to expenses related to the Jackson West
Shopping Center which opened in June 1996. The increase was offset by an
increase in recoveries from tenants. As noted above, the Company's recovery
ratio for the three months ended March 31, 1997 remained consistent with the
comparable 1996 period.
Depreciation and amortization increased 7.3%, or $123, to $1,801 as compared to
$1,678 for the three months ended March 31, 1996 due to the Jackson West
Shopping Center opening in June 1996, in addition to the impact of various
other revenue producing and capital improvement expenditures.
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General and administrative expenses increased 9.0%, or $97, to $1,178 as
compared to $1,081 for the three months ended March 31, 1996. The Company's
level of general and administrative expenses is impacted by several factors,
including the cost reimbursement relationship between the Operating Partnership
and Ramco-Gershenson, Inc. (the "Manager"), the capitalization of costs
relative to leasing and development at the centers owned by the Operating
Partnership and the cost of the Company's administrative activities. 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. The Company's administrative expenses include officers'
salaries and benefits, trustee fees, directors' and officers' liability
insurance, transfer agent and shareholders' relations expenses, and
professional fees including legal, audit and tax.
Following is a breakdown of the general and administrative expenses shown in
the financial statements:
Actual Pro Forma
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
------------------ ------------------
Manager
Management Fees.................................................. $ 262 $ 274
Leasing, Brokerage and Development Fees.......................... 2
Other Revenues................................................... 96 82
Leasing/Development Cost Reimbursements.......................... 372 102
------- ---------
Total Revenues................................................ 730 460
------- ---------
Employee Expenses................................................ 941 799
Office and Other Expenses........................................ 275 215
Depreciation and Amortization................................... 60 8
------- ---------
Total Expenses................................................ 1,276 1,022
------- ---------
Operating Partnership Cost Reimbursement Expenses................ 546 562
Operating Partnership Administrative Expenses....................... 559 441
Shopping Center Level General and Administrative Expenses........... 73 78
------- ---------
Total General and Administrative Expenses........................... $ 1,178 $ 1,081
======= =========
The increase of $97 in general and administrative expenses was primarily due to
a $118 increase in the operating partnership administrative expenses and a $16
decrease in the cost reimbursement to Ramco-Gershenson, Inc. The $16 decrease
in the cost reimbursement to the Manager was due to increased
leasing/development reimbursements, which are charged to, and capitalized by the
Operating Partnership related to leasing/development activity, offset primarily
by increased employee expenses due to additional headcount and the impact of
annual salary and employee benefit increases. The increase of $118 in Operating
Partnership administrative expenses was due to a higher annualized level of
expenses for the three months ended March 31, 1997 as compared to the annualized
expenses based on the three months ended March 31, 1996.
Interest expense increased 4.7%, or $132, to $2,970 as compared to $2,838 for
the three months ended March 31, 1996, due to the impact of borrowings relative
to the Jackson West Shopping Center and other improvements. At March 31, 1997
the Company's portion of mortgages attributable to properties 100% owned is
$145,168, with a weighted average interest rate of 7.96%. Variable rate debt at
March 31, 1997 which amounted to $46,050, with a weighted average interest rate
of 7.3% accounted for approximately
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31.7% of the Company's total debt. The loss from unconsolidated entities
increased by 183.9%, or $57, to $88 for the three months ended March 31, 1997,
as compared to $31 for the three months ended March 31, 1996.
Minority interest expense increased by 11.9% or $90, to $846 for the three
months ended March 31, 1997 from $756 for the three months ended March 31, 1996.
Minority interest expense represents the 27% share of income, for the three
months ended March 31, 1997, of the operating partnership relative to the
respective period, which is allocable to the Ramco Group. The minority interest
expense for the three months ended March 31, 1996 reflected a 25% share of
income as the Phar Mor portion of the Jackson earnout was not yet in place. In
addition, the minority interest for the three months ended March 31, 1996 was
computed before the impact of spin-off and other expenses on income before
minority interest, which were considered to be 100% attributable to the
Company's operations.
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 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, 1996.
The following table illustrates the calculation of FFO for the three months
ended March 31, 1997, and 1996:
Three Months Ended
March 31,
-------------------------
1997 1996
---- ----
Actual Proforma
Net Income................................................. $ 2,344 $ 611
Add: Depreciation and amortization...................... 1,808 1,678
Add: Minority interest in partnership.................. 846 756
Add: Non-recurring spin-off and other expenses........... 1,658
-------- --------
Funds from operations...................................... $ 4,998 $ 4,703
======== ========
Weighted average equivalent shares outstanding (1).......... 9,780 9,501
======== ========
Supplemental disclosure:
Straight-line rental income.............................. $ 527 $ 352
======== ========
Amortization of management contracts and covenants
not to compete......................................... $ 124 $ 124
======== ========
(1) Represents the weighted average total shares outstanding, assuming the
redemption of all Operating Partnership Units for common shares.
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CAPITAL EXPENDITURES
During the first quarter of 1997, the Company spent approximately $456 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 $3,428. Revenue neutral
capital expenditures, such as roof and parking lot repairs which are
anticipated to be recovered from tenants, amounted to approximately $60.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share." This
statement establishes standards for computing and presenting earnings per share
("EPS") and applies to all entities with publicly-held common shares or
potential common shares. This Statement replaces the presentation of primary
EPS and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
available to common shareholders by the weighted-average number of common
shares outstanding for the period. Similar to fully diluted EPS, diluted EPS
reflects the potential dilution of securities that could share in the earnings.
This statement is not expected to have a material effect on the Company's
reported EPS amounts. The Statement is effective for the Company's financial
statements for the year ending December 31, 1997.
This Form 10-Q contains forward-looking statements with respect to the
operation of certain of the Company's properties. Management of the Company
believes the expectations reflected in the forward-looking statements made in
this document are based on reasonable assumptions. Certain factors could occur
that might cause actual results to vary. These include general economic
conditions, the strength of key industries in the cities in which the Company's
properties are located, the performance of the Company's tenants at the
Company's properties and elsewhere, and other factors discussed in this report
and the Company's reports filed with the Securities and Exchange Commission.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(2) Exhibits
27.1 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
RAMCO-GERSHENSON PROPERTIES TRUST
Date: May 15, 1997 By: /s/ Dennis E. Gershenson
---------------------------------
Dennis E. Gershenson
President and Trustee
(Chief Executive Officer)
Date: May 15, 1997 By: /s/ Richard J. Smith
---------------------------------
Richard J. Smith
Chief Financial Officer
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit
No. Description Page
- ------- ----------- -----
27 Financial Data Schedule