1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- ACT OF 1934
For the quarterly period ended September 30, 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
of incorporation or organization) Identification
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 September 30, 1997: 7,123,105.
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INDEX
Part I. FINANCIAL INFORMATION Page No.
--------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997 (Unaudited) and December 31, 1996 ............. 3
Consolidated Statements of Operations (Unaudited) - Three Months Ended and Nine Months Ended
September 30, 1997 and 1996 ................................................................... 4
Consolidated Statement of Shareholders' Equity (Unaudited) - Nine Months Ended
September 30, 1997 ............................................................................ 5
Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended
September 30, 1997 and 1996 ................................................................... 6
Notes to Consolidated Financial Statements (Unaudited) ......................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................................... 14
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................................................. 23
The Company did not file any reports on Form 8-K for the quarter ended
September 30, 1997.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
ASSETS
Real estate, net (Note 2)................ $323,394 $307,752
Accounts receivable, net................. 5,190 3,901
Other assets, net (Note 3)............... 6,848 2,389
Equity investments in
unconsolidated entities (Note 6)....... 5,031 5,271
Cash and cash equivalents................ 2,407 3,541
-------- --------
TOTAL.................................. $342,870 $322,854
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgages and notes payable (Note 4)..... $168,045 $143,410
Distributions payable.................... 4,070 4,108
Accounts payable and accrued
expenses................................ 9,097 9,712
Due to related entities.................. 1,371 1,053
-------- --------
TOTAL LIABILITIES...................... 182,583 158,283
COMMITMENTS AND
CONTINGENCIES (Note 8)....................
MINORITY INTEREST.......................... 42,516 44,706
SHAREHOLDERS' EQUITY....................... 117,771 119,865
-------- --------
TOTAL.................................. $342,870 $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 For The Nine
Months Ended Months Ended
September 30, September 30,
1997 1996 1997 1996 (*)
---- ---- ---- ----
REVENUES
Minimum rents.................................... $ 9,304 $ 8,053 $27,220 $15,307
Percentage rents................................. 341 214 1,123 860
Recoveries from tenants.......................... 4,677 4,226 13,273 7,723
Interest and other income........................ 139 244 595 2,785
------- ------- ------- -------
TOTAL REVENUES................................. 14,461 12,737 42,211 26,675
------- ------- ------- -------
EXPENSES
Real estate taxes............................... 1,551 1,330 4,560 2,489
Recoverable operating expenses.................. 2,970 2,814 8,444 5,413
Depreciation and amortization................... 1,999 1,631 5,692 3,095
Other operating................................. 179 263 722 497
General and administrative...................... 1,108 1,021 3,583 3,416
Interest expense................................ 3,476 2,337 9,588 4,077
Spin-off and other expenses..................... - 42 - 7,976
------- ------- ------- -------
TOTAL EXPENSES................................ 11,283 9,438 32,589 26,963
------- ------- ------- -------
OPERATING INCOME (LOSS)........................... 3,178 3,299 9,622 (288)
LOSS FROM UNCONSOLIDATED ENTITIES (Note 6) 85 149 240 240
------- ------- ------- -------
INCOME (LOSS) BEFORE MINORITY INTEREST............ 3,093 3,150 9,382 ( 528)
MINORITY INTEREST................................. 806 869 2,500 1,350
------- ------- ------- -------
NET INCOME (LOSS)................................ $ 2,287 $ 2,281 $ 6,882 $(1,878)
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE....................... $ 0.32 $ 0.32 $ 0.97 $(0.26)
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING............... 7,123 7,123 7,123 7,123
======= ======= ======= =======
See notes to consolidated financial statements.
*The 1996 historical results for the nine months ended September 30, 1996,
include the operations of RPS Realty Trust prior to the Spin Off Transaction
and the Ramco Acquisition which were 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 DECEMBER 31, 1996........ 7,123 $ 712 $149,872 ($30,719) $119,865
Cash distributions declared......... (8,976) (8,976)
Net income for the nine months ended
September 30, 1997................. 6,882 6,882
------ ----- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1997 7,123 $ 712 $149,872 ($32,813) $117,771
====== ===== ======== ======== ========
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For The Nine Months
Ended September 30
------------------
1997 1996*
---- -----
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS)............................................................................ $ 6,882 $ (1,878)
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:
Provisions for possible loan losses.......................................................... 129
Write-off of deferred acquisition expenses.................................................. 2,154
Loss on disposal of REMIC's.................................................................. 91
Depreciation and amortization................................................................ 5,692 3,095
Loss from unconsolidated entities............................................................ 240 240
Minority Interest............................................................................ 2,500 1,350
Changes in assets and liabilities that provided (used) cash:
Interest and accounts receivable.......................................................... (1,289) 4,912
Other assets.............................................................................. (4,746) (1,866)
Accounts payable and accrued expenses..................................................... (615) 3,435
-------- --------
Total adjustments........................................................................... 1,782 13,540
-------- --------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES................................................... 8,664 11,662
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Satisfaction of Mortgage Loans Receivable.................................................... (3,417)
Amortization of REMICs....................................................................... 1,100
Proceeds from REMIC's........................................................................ 56,908
Real estate acquired......................................................................... (21,048) (7,721)
-------- --------
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES......................................... (21,048) 46,870
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions to shareholders.......................................................... (8,976) (6,553)
Cash distribution to operating partnership unit holders...................................... (3,311) ( 744)
Purchase of operating partnership units...................................................... (1,416)
Principal repayments on debt................................................................. (1,398) (70,260)
Net advances from affiliated entities........................................................ 318 351
Borrowings on notes payable - net............................................................ 26,033 12,406
-------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES......................................... 11,250 (64,800)
-------- --------
NET DECREASE IN CASH AND EQUIVALENTS.......................................................... (1,134) (6,268)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................................ 3,541 11,467
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................................................... $ 2,407 $ 5,199
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - CASH
PAID FOR INTEREST DURING THE PERIOD.......................................................... $ 9,070 $ 3,411
======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued distributions payable............................................................... $ 4,070 $ 4,108
======== ========
See notes to consolidated financial statements.
*The 1996 historical results include the operations of RPS Realty Trust prior to
the Spin-off Transaction and the Ramco Acquisition which were effective on
May 1, 1996.
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, except per Unit amounts)
(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 February 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.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure" which establishes standards for disclosing information about
an entity's capital structure. The Statement is effective for the Company's
financial statements for the year ending December 31, 1997. The adoption of
the SFAS No. 129 is not expected to have a material effect on the Company's
financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of financial statements. The Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Statement is effective for the Company's financial statements
for the year ending December 31, 1998. The adoption of the Statement is not
expected to have a material effect on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" which establishes standards for reporting
information about operating segments in financial statements. It also
establishes standards for disclosure about products and services, geographical
areas, and major customers. The Statement is effective for the Company's
financial statements for the year ending December 31, 1998. Management has not
determined the impact of the Statement on the Company's financial statements.
MINORITY INTEREST - Minority Interest represents the Ramco Group's interest as
a limited partner in the Operating Partnership. Such interest is held in the
form of Operating Partnership Units ("Units") which are exchangeable on an
equivalent basis with the beneficial shares of the Company. During the nine
month period ended September 30, 1997, the Operating Partnership redeemed 88,530
Operating Partnership Units at $16.00 per Unit. This redemption reduced the
minority interest from approximately 27% to 26.5%.
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ACQUISITIONS - On May 28, 1997, the Company acquired the Madison Center,
("Madison") a 186,000 square foot shopping center in Madison Heights, Michigan.
The center was acquired for approximately $7,400. On July 30, 1997, the
company acquired Pelican Plaza, ("Pelican") a 106,000 square foot community
shopping center/office development in Sarasota, Florida. The development was
acquired for approximately $7,200. Both acquisitions have been accounted for
using the purchase method of accounting. The purchase prices were allocated to
the assets acquired based upon their estimated fair market value.
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 September 30, 1997, and December 31, 1996,
consists of the following:
September 30, 1997 December 31, 1996
Land $ 43,575 $ 42,051
Buildings and Improvements 291,914 271,174
Construction-in-progress 413 1,629
-------- --------
Sub Total 335,902 314,854
Less: Accumulated Depreciation (12,508) (7,102)
-------- --------
Total Investment in Real Estate - net $323,394 $307,752
======== ========
3. OTHER ASSETS
Other assets at September 30, 1997, and December 31, 1996, are as follows:
September 30, 1997 December 31, 1996
Leasing costs $3,086 $1,868
Deferred financing costs 1,084 471
Proposed development and acquisition costs 2,288 205
Deferred tenant revenue 717 -
Other 346 77
------ ------
Sub Total 7,521 2,621
Less: Accumulated Amortization (673) (232)
------ ------
Total Other Assets - net $6,848 $2,389
====== ======
4. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable at September 30, 1997, consist of the following:
Fixed rate mortgages with interest rates ranging
from 7.8% to 8.75% due at various dates through 2006 $98,181
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 (at
September 30, 1997 the rate was 7.08%) 7,000
Credit Facility, with borrowings at either LIBOR plus 175 basis points,
or the bank's base rate (7.61% average rate at September 30, 1997),
due May 1999, maximum borrowings of $75,000
62,864
--------
$168,045
========
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The mortgage notes are secured by mortgages on properties that have an
approximate net book value of $145,024 as of September 30, 1997. The Credit
Facility is secured by mortgages on various properties that have an approximate
net book value of $115,501 as of September 30, 1997.
During May and June 1997, the Company modified its $50,000 credit facility to
provide for an increase in the borrowings available under the credit facility
to $75,000. As of September 30, 1997, $75,000 of the credit facility was
available for borrowing, of which $62,864 was outstanding. At September 30,
1997, outstanding letters of credit issued under the Credit Facility, not
reflected in the accompanying consolidated balance sheet, total approximately
$4,336.
The Credit Facility contains financial covenants relating to debt to market
capitalization, minimum operating coverage ratios, and a minimum equity value.
As of September 30, 1997, the Company was in compliance with the covenant terms.
In July 1997, the Company executed an interest rate protection agreement to
limit the Company's exposure to increases in interest rates on its floating
rate debt. The notional amount of the agreement was $75,000. The agreement caps
the Company's interest rate on $75,000 of floating rate debt to 8.50%, through
May 1, 1999, with a floor of 7.25%.
The following table presents scheduled principal payments on mortgages and
notes payable as of September 30, 1997:
Year ended December 31,
1997 (October 1 - December 31) $ 476
1998 3,799
1999 64,890
2000 2,130
2001 2,243
Thereafter 94,507
--------
Total $168,045
========
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 September 30, 1997, assuming no new or renegotiated leases nor option
extensions on lease agreements, are as follows:
Year ended December 31,
1997 (October 1 - December 31) $ 8,986
1998 34,126
1999 31,199
2000 27,587
2001 24,555
Thereafter 187,528
--------
Total $313,981
========
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6. UNCONSOLIDATED ENTITIES
Condensed financial statement information of Ramco, Kentwood and Southfield
Plaza Expansion as of September 30, 1997 and for the nine months ended
September 30, 1997 is presented as follows:
Southfield
Ramco Kentwood Plaza Total
----- -------- ----- -----
ASSETS
Net Real Estate Assets......................... $ 1,883 $ 571 $ 2,454
Other Assets................................... $ 4,514 528 88 5,130
------- ------- ------ -------
Total Assets................................. $ 4,514 $ 2,411 $ 659 $ 7,584
======= ======= ====== =======
LIABILITIES
Mortgage Notes Payable......................... $10,975 $1,603 $12,578
Other Liabilities.............................. $ 1,163 163 29 1,355
------- ------- ------ -------
Total Liabilities............................ 1,163 11,138 1,632 13,933
------- ------- ------ -------
OWNERS' EQUITY (DEFICIT)......................... 3,351 (8,727) (973) (6,349)
------- ------- ------ -------
Total Liabilities and Owners' Equity (Deficit). $ 4,514 $ 2,411 $ 659 $7,584
======= ======= ====== ======
Company's Equity Investments in
Unconsolidated Entities........................ $ 3,578 $ 916 $ 537 $5,031
======= ======= ====== ======
REVENUES
Management Fees................................ $ 778 $ 778
Leasing and Development Fees................... 269 269
Property Revenues.............................. $ 1,354 $ 190 1,544
Other Revenues................................. 410 410
Leasing/Development Cost Reimbursements........ 952 - - 952
------- ------- ------ -------
Total Revenues............................... 2,409 1,354 190 3,953
------- ------- ------ -------
EXPENSES
Employee Expenses.............................. 3,033 3,033
Office and Other Expenses...................... 873 873
Property Expenses.............................. 1,112 153 1,265
Depreciation and Amortization.................. 183 - - 183
------- ------- ------ -------
Total Expenses............................... 4,089 1,112 153 5,354
------- ------- ------ -------
Excess Revenues Over Expenses.................... (1,680) 242 37 (1,401)
Cost Reimbursement From Operating Partnership.... 1,680 - - 1,680
------- ------- ------ -------
Income........................................... $ 0 $ 242 $ 37 $ 279
======= ======= ====== =======
Company's Share of Income........................ $ 0 $ 121 $ 19 $ 140
======= ======= ====== =======
The Company's share of the unconsolidated entities' income of $140 for the nine
months ended September 30, 1997, was reduced by $380 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 $240 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 Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
1997 1996 1997 1996
--------------- -------------- -------------- ----------------
Actual Pro forma Actual Pro forma
REVENUES
Minimum rent........................ $ 9,304 $ 8,703 $27,220 $25,815
Percentage rents.................... 341 231 1,123 758
Recoveries from tenants............. 4,677 4,307 13,273 12,858
Interest and other income........... 139 188 595 416
------- ------- ------- -------
TOTAL REVENUES.................... 14,461 13,429 42,211 39,847
EXPENSES
Real estate taxes................... 1,551 1,397 4,560 4,265
Recoverable operating expenses...... 2,970 2,861 8,444 8,446
Depreciation and amortization....... 1,999 1,711 5,692 5,067
Other operating..................... 179 255 722 749
General and administrative.......... 1,108 1,019 3,583 3,217
Interest expense.................... 3,476 2,919 9,588 8,594
Spin-off and other expenses......... 42 7,976
------- ------- ------- -------
TOTAL EXPENSES.................... 11,283 10,204 32,589 38,314
------- ------- ------- -------
OPERATING INCOME ..................... 3,178 3,225 9,622 1,533
LOSS FROM UNCONSOLIDATED ENTITIES..... 85 149 240 339
------- ------- ------- -------
INCOME BEFORE MINORITY INTEREST....... 3,093 3,076 9,382 1,194
MINORITY INTEREST..................... 806 847 2,500 2,401
------- ------- ------- -------
NET INCOME (LOSS)..................... $ 2,287 $ 2,229 $ 6,882 $(1,207)
======= ======= ======= =======
EARNINGS (LOSS) PER SHARE............. $ 0.32 $ 0.31 $ 0.97 $ (0.17)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING............ 7,123 7,123 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 reverse
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.
9. STOCK OPTION PLAN
On June 10, 1997, the Company's shareholders approved the establishment of
the Ramco Gershenson Properties Trust 1997 Non-Employee Trustee Stock Option
Plan (the "Plan"). Under the Plan, 100,000 shares are reserved for issuance
pursuant to options to be granted to the Trustees of the Company who are not
officers or employees of the Company.
The purpose of the Plan is to provide Trustees of the Company with an
increased incentive to make contributions to the long term performance and
growth of the Company, to join the interests of the Trustees with the interests
of the Company's shareholders, and to facilitate attracting qualified
independent trustees. Options granted under the Plan allow for the purchase of
shares of the Company at the fair market value of the shares at the date of
grant. Options granted under the Plan vest and become exercisable in equal
installments on each of the first two anniversaries of the date of grant and
expire ten years after the date of grant. As of September 30, 1997 there were
14,000 options granted pursuant to the Plan.
10. SUBSEQUENT EVENTS
The Company has entered into an agreement with certain clients advised by
Morgan Stanley Asset Management, Inc. ("MSAM"), and Kimco Realty Corporation
("Kimco") pursuant to which such entities have agreed to invest up to an
aggregate of $35,000 in Ramco-Gershenson Properties, L.P. (the "Operating
Partnership"). The MSAM clients and Kimco will initially purchase preferred
Operating Partnership Units which, after shareholder approval, will be
converted into the Company's preferred shares and, ultimately, into its common
shares. The initial investments of $11,667 were made in October 1997.
The equity investment will initially involve the issuance of up to 1.4 million
Operating Partnership preferred units at a price of $25.00 per preferred unit.
The aggregate investment of $35,000 may be drawn by the Operating Partnership
over a one-year period and may be used to help fund strategic acquisitions,
retenanting or redevelopment activities, and to reduce outstanding debt. The
anticipated dividend rate on the preferred Operating Partnership units and
preferred Company shares is expected to equal that presently being paid to the
Company's shareholders.
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After the closing of this transaction, the MSAM clients will be required to
purchase 19.4% of the first $50,000 in a follow-on public offering of the
Company's shares of common stock. At that time, all Operating Partnership
preferred units or Company preferred shares will be exchanged into common
shares of the Company, at a conversion price of $17.50 per share, which
conversion price is subject to adjustment in certain circumstances.
On October 30, 1997, the Company acquired a portfolio of 15 community shopping
centers (the "Southeast Portfolio"), comprised of approximately 2.5 million
square feet, located in the Southeast United States. The Southeast Portfolio
properties are located in Alabama, Florida, Georgia, North Carolina, South
Carolina, and Tennessee. The properties were acquired for a purchase price of
approximately $124,500.
Financing for the Southeast Portfolio acquisition was obtained by increasing the
Company's existing credit facility from $75,000 to $160,000, the assumption of
an existing $5,900 mortgage on one of the acquired properties, and by the
addition of a new $45,000 unsecured term loan. The interest rate payable under
the revolving credit facility has been reduced from 175 basis points over LIBOR,
to between 137.5 and 162.5 basis points over LIBOR, depending on certain debt
ratios set forth in the loan agreement. The interest rate payable on the new
unsecured loan is between 250 and 275 basis points over LIBOR, which rate is
also dependent on certain debt ratios. The revolving credit facility and the
unsecured term loan mature on May 1, 1999, and the maturity date of each
may, under certain circumstances, be extended to October 2000 at the election
of the Operating Partnership. The credit facility continues to have, and the
term loan has various financial covenants relating to debt to market
capitalization, minimum operating coverage ratios and minimum equity value.
The Company currently has a commitment from Morgan Stanley Mortgage Capital
Inc. to replace $50,000 of the credit facility with permanent debt at an
interest rate of 6.83% for 10 years. The Company provided a $1,500 letter of
credit in October 1997, in conjunction with the rate lock commitment.
Letters of credit, amounting to $4,000 at September 30, 1997, were cancelled on
October 30, 1997, in conjunction with the Southeast Portfolio acquisition
closing.
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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 are accounted for on the equity method of accounting. At September 30,
1997 the Company's portion of mortgages attributable to properties 100% owned
is $168,045, with a weighted average interest rate of 7.97% and its pro rata
share of non-recourse mortgage debt on unconsolidated properties (accounted for
on the equity method) was $6,290 with a weighted average interest rate of
9.14%.
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. Five of the mortgage loans amounting to
$98,181 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 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
(7.08% at September 30, 1997).
During May and June, 1997, the Company modified its $50,000 credit facility to
provide for an increase in the borrowings available under the credit facility
to $75,000. As of September 30, 1997, $75,000 of the credit facility was
available for borrowing, of which $62,864 was outstanding. At September 30,
1997, outstanding letters of credit issued under the Credit Facility, not
reflected in the accompanying consolidated balance sheets, totalled
approximately $4,336. The Credit Facility bears interest at 175 basis points
over LIBOR, or the bank's base rate (weighted average 7.61% interest rate at
September 30,1997), and matures on May 6, 1999. As described below, these
rates have been reduced in connection with an increase in the size of this
credit facility. 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.
The Company used proceeds from borrowings under the Credit Facility to pay for
the acquisition of Madison Center, Pelican Plaza and for other capital
expenditures. During May 1997, the Company acquired the Madison Center, in
Madison Heights, Michigan, an approximately 186,000 square foot community
shopping center, for approximately $7,400. During July 1997, the Company
acquired Pelican Plaza in Sarasota, Florida, an approximately 106,000 square
foot shopping center/office development, for approximately $7,200.
On October 30, 1997, the Company acquired a portfolio of 15 community shopping
centers (the "Southeast Portfolio"), comprised of approximately 2.5 million
square feet, located in the Southeast United States. The Southeast Portfolio
properties are located in Alabama, Florida, Georgia, North Carolina, South
Carolina, and Tennessee. The properties were acquired for a purchase price of
approximately $124,500.
Financing for the Southeast Portfolio acquisition was obtained by increasing
the Company's existing credit facility from $75,000 to $160,000, the assumption
of an existing $5,900 mortgage on one of the acquired properties and by the
addition of a new $45,000 unsecured term loan. The interest rate payable under
the revolving credit facility has been reduced from 175 basis points over
LIBOR, to between 137.5 and 162.5 basis points over LIBOR, depending on certain
debt ratios set forth in the loan agreement. The interest rate payable on the
new unsecured term loan is between 250 and 275 basis points over LIBOR, which
rate is also dependent on certain debt ratios. The Credit Facility and the
unsecured term loan mature on May 1, 1999, and the maturity date of each may,
under certain circumstances, be extended to October 2000 at the election of the
Operating Partnership. The credit facility continues to have, and the term
loan has, various financial covenants relating to debt to market
capitalization, minimum operating coverage ratios and minimum equity value.
The Company currently has a commitment from Morgan Stanley Mortgage Capital
Inc. to replace $50,000 of the credit facility with permanent debt at an
interest rate of 6.83% for 10 years. The Company provided a $1,500 letter of
credit in October 1997, in conjunction with the rate lock commitment.
14
15
Letters of credit, amounting to $4,000 at September 30, 1997, were cancelled on
October 30, 1997 in conjunction with the Southeast Portfolio acquisition
closing. The Company plans to repay the $45,000 unsecured term loan with the
proceeds from an equity offering slated for 1998.
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. At March 31, 1997, the minority interest represented
the approximately 27% ownership in the Operating Partnership held by the Ramco
Group. On April 1, 1997, the Operating Partnership redeemed 88,530 Units at
$16.00 per Unit. The redemption reduced the minority interest from
approximately 27% to approximately 26.5%. Currently, the minority interest in
the Operating Partnership represents the 26.5% ownership in the Operating
Partnership ("Units") held by the Ramco Group which may, under certain
conditions, be exchanged for approximately 2,568,143 shares of beneficial
interest.
The Units owned by the Ramco Principals are subject to lock-up agreements which
provide that the Units cannot be transferred, except under certain conditions,
for a period of 30 months after the closing of the Ramco Acquisition (November
1998). In addition, the Units issued to the Ramco Group are exchangeable for
shares of the Company on a one-for-one basis. The Company, as sole general
partner of the Operating Partnership, has 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 9,691,248 shares of beneficial interest with a market
value of approximately $192,013 at September 30, 1997 (based on the closing
price of $19.813 per share on September 30, 1997).
The Company has entered into an agreement with certain clients advised by
Morgan Stanley Asset Management, Inc. ("MSAM"), and Kimco Realty Corporation
("Kimco") pursuant to which such entities have agreed to invest up to an
aggregate of $35,000 in Ramco-Gershenson Properties, L.P. (the "Operating
Partnership"). The MSAM clients and Kimco will initially purchase preferred
Operating Partnership Units which, after shareholder approval, will be
converted into the Company's preferred shares and, ultimately, into its common
shares. The initial investments of $11,667 were made in October 1997.
The equity investment will initially involve the issuance of up to 1.4 million
Operating Partnership preferred units at a price of $25.00 per preferred unit.
The aggregate investment of $35,000 may be drawn by the Operating Partnership
over a one-year period and may be used to help fund strategic acquisitions,
retenanting or redevelopment activities, or to reduce outstanding debt. The
anticipated dividend rate on the preferred Operating Partnership units and
preferred Company shares is expected to equal that presently being paid to the
Company's shareholders.
After the closing of this transaction, the MSAM clients will be required to
purchase 19.4% of the first $50,000 in a follow-on public offering of the
Company's shares of common stock. At that time, all Operating Partnership
preferred units or Company preferred shares will be exchanged into common
shares of the Company, at a conversion price of $17.50 per share, which
conversion price is subject to adjustment in certain circumstances.
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 $69,864 of outstanding debt with a weighted
average interest rate of 7.54% at September 30, 1997. Variable rate debt
accounted for approximately 41.6% of the Company's total debt and 19.4% of its
total market capitalization (debt plus market value equity).
In July 1997, the Company executed an interest rate protection agreement to
limit the Company's exposure to increases in interest rates on floating rate
debt. The notional amount of the agreement was $75,000. The agreement caps
the Company's interest rate on $75,000 of floating rate debt to 8.50%, through
May 1, 1999, with a floor of 7.25%.
Based on the debt and the market value of equity described above, the Company's
debt to total market capitalization ratio was 46.7% at September 30, 1997.
15
16
During July 1997 Montgomery Wards, ("Wards") a tenant at three of the Company's
properties, Tel-Twelve Mall, Clinton Valley Mall and Shoppes of Lakeland, filed
for protection under Chapter 11 of the Bankruptcy Code. Wards, subsequently in
October 1997, issued a list of anticipated store closings which included the
stores at the Company's Clinton Valley Mall. This location consists of a
101,200 square foot department store and a 7,480 square foot TBA store (Tires,
Batteries and Automotive). Although the Company was notified that the location
would be closed, it has not been notified that Wards intends to reject the
lease and is aware that Wards is marketing the space. On an annual basis,
Wards pays approximately $1,000 in base rent, operating and real estate tax
expense reimbursements for the Clinton Valley Mall.
The Company anticipates that the combination of the availability under the
Credit Facility, the unsecured term loan, potential new borrowings relative to
the acquired properties and development properties, construction loans, and the
MSAM/Kimco 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.
In 1997, the Company began a program to repurchase shares of beneficial
interest in the open market to be used as compensation for the Board of
Trustees. The Company expects to purchase approximately 5,600 shares annually.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996.
Total revenues for the nine months ended September 30, 1997 increased by 58.2%,
or $15,536, to $42,211 as compared to $26,675 for the nine months ended
September 30, 1996. The increase was a result of an $11,913 increase in
minimum rents, a $263 increase in percentage rents, a $5,550 increase in
recoveries from tenants and a $2,190 decrease in interest and other income.
Minimum rents increased 77.8%, or $11,913, to $27,220 for the nine months ended
September 30, 1997 as compared to $15,307 for the nine months ended September
30, 1996. Recoveries from tenants increased 71.9%, or $5,550, to $13,273 as
compared to $7,723 for the nine months ended September 30, 1996. These
increases are primarily attributable to the acquisition of the Ramco properties
effective May 1, 1996, and the acquisitions of the Taylor, Lakeland, Holcomb,
and Madison, and Pelican shopping centers effective August 14, 1996, November
22, 1996, December 13, 1996, and May 28, 1997,and July 30, 1997 respectively.
The operating results for the nine months ended September 30, 1997, included
the impact of the acquisition of the Ramco properties and the other shopping
centers for the full nine months in 1997, except for Madison and Pelican, while
the results for the nine months ended September 30, 1996 include the results of
the Ramco properties for only five months and do not include any impact for any
of the subsequent acquisitions except for Taylor. In addition, two properties
which were part of the Company's portfolio during the nine months ended
September 30, 1996 were spun-off to Atlantic Realty Trust effective May 1,
1996.
Interest and other income decreased 78.6%, or $2,190, to $595 as compared to
$2,785 for the nine months ended September 30, 1996 due primarily to the
spin-off of the Company's mortgage loan portfolio to Atlantic Realty Trust
effective May 1, 1996.
Total expenses for the nine months ended September 30, 1997 increased by 20.9%,
or $5,626, to $32,589 as compared to $26,963 for the nine months ended
September 30, 1996. The increase was due to a $5,102 increase in total
recoverable expenses, including real estate taxes and recoverable operating
expenses, a $2,597 increase in depreciation and amortization, a $225 increase
in other operating expenses, a $167 increase in general and administrative
expenses, a $5,511 increase in interest expense offset by a $7,976 decrease in
spin-off and other expenses.
Total recoverable expenses, including real estate taxes and recoverable
operating expenses, increased by 64.6%, or $5,102, to $13,004 as compared to
$7,902 for the nine months ended September 30, 1996, depreciation and
amortization increased by 83.9%, or $2,597, to $5,692 as compared to $3,095 for
the nine months ended September 30, 1996, and other operating expenses for the
nine months ended September 30, 1997 increased by $45.0% or $225 to $722 as
compared to $497 for the nine months ended September 30, 1996. General and
administrative expenses increased 4.9%, or $167, to $3,583 as compared to
$3,416 for the nine months ended September 30, 1996. The increase in
recoverable expenses, depreciation and amortization, and other operating
expenses are due to the acquisition of the Ramco properties and the subsequent
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 nine months ended September 30, 1997 increased 135.2%
or $5,511 to $9,588 compared to $4,077 for the nine months ended September 30,
1996, due to the effect of the debt assumed in connection with the Ramco
acquisition effective May 1, 1996, and additional borrowings for subsequent
acquisitions, development cost reimbursements, and other capital
expenditures.
16
17
For the nine months ended September 30, 1996, the Company incurred $7,976 of
spin-off and other expenses for which there were no corresponding expenses for
the nine months ended September 30, 1997.
The loss from unconsolidated entities of $240 for the nine months ended
September 30, 1997 is the same as for the nine months ended September 30, 1996.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996.
Total revenues for the three months ended September 30, 1997 increased by
13.5%, or $1,724, to $14,461 as compared to $12,737 for the three months ended
September 30, 1996. The increase was a result of a $1,251 increase in minimum
rents, a $127 increase in percentage rents, a $451 increase in recoveries from
tenants and a $105 decrease in interest and other income.
Minimum rents increased 15.5%, or $1,251, to $9,304 for the three months ended
September 30, 1997 as compared to $8,053 for the three months ended September
30, 1996. Percentage rents increased 59.3%, or $127, to $341 for the three
months ended September 30, 1997, as compared to $214 for the three months ended
September 30, 1996. Recoveries from tenants increased 10.7%, or $451, to $4,677
as compared to $4,226 for the three months ended September 30, 1996. These
increases are primarily attributable to the acquisition of the Taylor,
Lakeland, Holcomb, Madison, and Pelican shopping centers effective August 14,
1996, November 22, 1996, December 13, 1996, May 28, 1997, and July 30, 1997
respectively. The operating results for the three months ended September 30,
1997 included the impact of the acquisitions for the full three months in 1997
except for Pelican, while the results for the three months ended September 30,
1996 do not include any impact for any of the subsequent acquisitions except
Taylor.
Interest and other income decreased 43.0%, or $105, to $139 as compared to $244
for the three months ended September 30, 1996 due primarily to the repayment in
full of the Atlantic loan in 1996.
Total expenses for the three months ended September 30, 1997 increased by
19.5%, or $1,845, to $11,283 as compared to $9,438 for the three months ended
September 30, 1996. The increase was due to a $377 increase in total
recoverable expenses, including real estate taxes and recoverable operating
expenses, a $368 increase in depreciation and amortization, a $84 decrease in
other operating expenses, a $87 increase in general and administrative
expenses, a $1,139 increase in interest expense and a $42 decrease in spin-off
and other expenses.
Total recoverable expenses, including real estate taxes and recoverable
operating expenses, increased by 9.1%, or $377, to $4,521 as compared to $4,144
for the three months ended September 30, 1996, depreciation and amortization
increased by 22.6%, or $368, to $1,999 as compared to $1,631 for the three
months ended September 30, 1996, and other operating expenses for the three
months ended September 30, 1997 decreased by 31.9%, or $84, to $179 as compared
to $263 for the three months ended September 30, 1996. General and
administrative expenses increased 8.5 %, or $87, to $1,108 as compared to
$1,021 for the three months ended September 30, 1996. The increase in
recoverable expenses of $377 and depreciation and amortization of $368, are
primarily due to the property acquisitions.
Interest expense for the three months ended September 30, 1997, increased 48.7%,
or $1,139, to $3,476 compared to $2,337 for the three months ended September
30, 1996 due to the effect of the additional borrowings for acquisitions
subsequent to the Ramco acquisition, development cost reimbursements, and other
capital expenditures.
For the three months ended September 30, 1996, the Company incurred $42 of
spin-off and other expenses for which there were no corresponding expenses for
the three months ended September 30, 1997.
The loss from unconsolidated entities for the three months ended September 30,
1997, decreased 42.9%, or $64, to $85 as compared to $149 for the three months
ended September 30, 1996.
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COMPARISON OF ACTUAL NINE MONTHS ENDED SEPTEMBER 30, 1997 TO PRO FORMA NINE
MONTHS ENDED SEPTEMBER 30, 1996.
Total revenues for the nine months ended September 30, 1997 increased by 5.9%,
or $2,364, to $42,211 as compared to $39,847 for the nine months ended
September 30, 1996. The increase was a result of a $1,405 increase in minimum
rents, a $365 increase in percentage rents, a $415 increase in recoveries from
tenants and an $179 increase in interest and other income, for the nine months
ended September 30, 1997 as compared to the nine months ended September 30,
1996.
Minimum rents increased 5.4%, or $1,405, to $27,220 for the nine months ended
September 30, 1997 as compared to $25,815 for the nine months ended September
30, 1996. This increase was primarily due to the opening of the Jackson West
Shopping Center in June 1996, and the impact of new anchor tenants at the
Jackson Crossing Shopping Center, Tel-Twelve Mall, Troy Towne Center and
Eastridge Commons as well as the Madison and Pelican acquisitions. Percentage
rents increased 48.2%, or $365, to $1,123 as compared to $758 for the nine
months ended September 30, 1996. Recoveries from tenants increased 3.2%, or
$415, to $13,273 as compared to $12,858 for the nine months ended September 30,
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 102.1% and 101.2%, respectively.
Interest and other income increased 43%, or $179, to $595, as compared to $416
for the nine months ended September 30, 1996. Approximately $183 of the increase
was attributable to non-recurring tenant lease obligations.
Total expenses for the nine months ended September 30, 1997, decreased 14.9%,
or $5,725, to $32,589 as compared to $38,314 for the nine months ended
September 30, 1996. The decrease was due to a $7,976 decrease in spin-off and
other expenses, offset by a $293 increase in total recoverable expenses,
including real estate taxes and recoverable operating expenses, a $625 increase
in depreciation and amortization, a $27 decrease in other operating expenses, a
$366 increase in general and administrative expenses, and a $994 increase in
interest expense.
For the nine months ended September 30, 1996 the Company incurred $7,976 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 2.3%, or $293, to $13,004 as compared to $12,711 for the
nine months ended September 30, 1996 due primarily to expenses related to the
Jackson West Shopping Center which opened in June 1996 and the expenses
related to the Madison and Pelican Shopping Centers. The increase was offset by
an increase in recoveries from tenants.
Depreciation and amortization increased 12.3%, or $625 to $5,692 as compared to
$5,067 for the nine months ended September 30, 1996, due to the Jackson West
Shopping Center opening in June 1996, the Madison and Pelican acquisitions, and
the impact of the various other revenue producing and capital improvement
expenditures.
General and administrative expenses increased 11.4%, or $366 to $3,583
as compared to $3,217 for the nine months ended September 30, 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 also 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.
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Following is a breakdown of the general and administrative expenses shown in
the financial statements:
Three Months Ended Nine Months Ended
September 30 September 30,
1997 1996 1997 1996
---- ---- ---- ----
Actual Pro forma Actual Pro forma
MANAGER
Management Fees................................. $ 264 $ 303 $ 778 $ 819
Leasing, Brokerage and Development Fees......... 142 50 269 124
Other Revenues.................................. 98 40 410 190
Leasing/Development Cost Reimbursements......... 357 291 952 595
------ ------ ------ ------
Total Revenues.............................. 861 684 2,409 1,728
------ ------ ------ ------
Employee Expenses............................... 1,038 820 3,033 2,475
Office and Other Expenses....................... 252 196 873 659
Depreciation and Amortization................... 60 8 183 25
------ ------ ------ ------
Total Expenses.............................. 1,350 1,024 4,089 3,159
------ ------ ------ ------
Operating Partnership
Cost Reimbursement Expenses................... 489 340 1,680 1,431
------ ------ ------ ------
OPERATING PARTNERSHIP ADMINISTRATIVE EXPENSES 524 597 1,604 1,546
------ ------ ------ ------
SHOPPING CENTER LEVEL GENERAL AND
ADMINISTRATIVE EXPENSES....................... 95 82 299 240
------ ------ ------ ------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES....... $1,108 $1,019 $3,583 $3,217
====== ====== ====== ======
The increase of $366 in general and administrative expenses for the nine months
ended September 30, 1997 as compared to the pro forma nine months ended
September 30, 1996, was primarily due to a $249 increase in the cost
reimbursement to Ramco-Gershenson, Inc. The $249 increase in the cost
reimbursement to the Manager was due to increased employee expenses due to
additional headcount and the impact of annual salary and employee benefit
increases.
Interest expense increased 11.6%, or $994, to $9,588 as compared to $8,594 for
the nine months ended September 30, 1996, due to the impact of borrowings
relative to the Madison and Pelican acquisitions, development cost
reimbursements and other capital expenditures.
COMPARISON OF ACTUAL THREE MONTHS ENDED SEPTEMBER 30, 1997 TO PRO FORMA THREE
MONTHS ENDED SEPTEMBER 30, 1996.
Total revenues for the three months ended September 30, 1997 increased by 7.7%
or $1,032 to $14,461 as compared to $13,429 for the three months ended
September 30, 1996. The increase was a result of a $601 increase in minimum
rents, a $110 increase in percentage rents, a $370 increase in recoveries from
tenants, and a $49 decrease in interest and other income for the three months
ended September 30, 1997 as compared to the three months ended September 30,
1996.
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20
Minimum rents increased 6.9% or $601 to $9,304 for the three months ended
September 30, 1997 as compared to $8,703 for the three months ended September
30, 1996. This increase was primarily due to the impact of new anchor tenants
at Eastridge Commons, Troy Towne Center, Tel-Twelve Mall, and Jackson Crossing.
Percentage rent increased 47.6% or $110 to $341 as compared to $231 for the
three months ended September 30, 1996. Recoveries from tenants increased 8.6%
or $370, to $4,677 from $4,307 for the three months ended September 30, 1996.
The decrease was due to corresponding increases in recoverable operating and
real estate tax expense. Interest and other income decreased 26.1% or $49, to
$139, from $188 for the three months ended September 30, 1996.
Total expenses for the three months ended September 30, 1997 increased 10.6% or
$1,079 to $11,283 from $10,204 for the three months ended September 30, 1996.
The increase was due to a $42 decrease in spin-off and other expenses and a $76
decrease in other operating expenses, offset by a $254 increase in depreciation
and amortization, $263 increase in recoverable operating expenses including
real estate taxes, an $89 increase in general and administrative expenses, and
a $557 increase in interest expense.
For the three months ended September 30, 1996 the Company incurred $42 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 recoverable operating and real estate tax
expense, decreased 6.2% or $263 to $4,521 from $4,258 for the three months
ended September 30, 1996. The increase was offset by a increase in recoveries
from tenants.
Depreciation and amortization increased 16.8% or $288 to $1,999 compared to
$1,711 for the three months ended September 30, 1996. The increase was
primarily due to the Madison and Pelican acquisitions, and the impact of the
various other revenue generating and capital improvement expenditures.
General and administrative expenses increased 8.7%, or $89, to $1,108 from
$1,019 for the three months ended September 30, 1996. The increase was
primarily due to a $149 increase in the cost reimbursement to Ramco-Gershenson,
Inc. The $149 increase in the cost reimbursement was due to increased employee
expenses due to additional headcount and the impact of annual salary and
employee benefit increases.
Interest expense increased 19.1% or $557, to $3,476 as compared to $2,919 for
the three months ended September 30, 1996, due to the impact of borrowings
relative to the Jackson West Shopping Center, the Madison and Pelican
acquisitions, and other capital expenditures.
The loss from unconsolidated entities decreased 42.9%, or $64, to $85 from $149
for the three months ended September 30, 1996.
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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 FFO are presented as if the Ramco Acquisition, the Property
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 and
nine months ended September 30, 1997, and 1996:
Three Months Ended Nine Months Ended
September 30, September 30
------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
Actual Pro forma Actual Pro forma
Net Income........................................ $2,287 $2,229 $ 6,882 $(1,207)
Add: Depreciation and amortization............. 1,999 1,705 5,692 5,061
Add: Minority interest in partnership.......... 806 847 2,500 2,401
Add: Non-recurring spin-off and other expenses. - 42 - 7,976
------ ------ ------- -------
Funds from operations............................. $5,092 $4,823 $15,074 $14,231
====== ====== ======= =======
Weighted average equivalent shares outstanding
(1).............................................. 9,691 9,780 9,721 9,657
====== ====== ======= =======
Supplemental disclosure:
Straight-line rental income.................... $ 304 $ 372 $ 1,337 $ 1,049
====== ====== ======= =======
Amortization of management contracts and covenant
Not to compete................................. $ 124 $ 124 $ 248 $ 248
====== ====== ======= =======
(1) Represents the weighted average total shares outstanding, assuming the
redemption of all Operating Partnership Units for common shares.
CAPITAL EXPENDITURES
During the nine months ended September 30, 1997, the Company spent
approximately $1,579 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 $5,328. Revenue neutral
capital expenditures, such as roof and parking lot repairs which are
anticipated to be recovered from tenants, amounted to approximately $792.
21
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IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 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.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" which establishes standards for disclosing information
about an entity's capital structure. The Statement is effective for the
Company's financial statements for the year ending December 31, 1997. The
adoption of SFAS No. 129 is not expected to have a material effect on the
Company's financial statements.
In June 1997, the FASB issued SFAS No. 140, "Reporting Comprehensive Income"
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of financial statements. The Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Statement is effective for the Company's financial statements
for the year ending December 31, 1998 and is not expected to have a material
effect on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" which establishes standards for reporting
information about operating segments in financial statements. It also
establishes standards for disclosure about products and services, geographical
areas, and major customers. The Statement is effective for the Company's
financial statements for the year ending December 31, 1998. Management has not
determined the impact of the statement on the Company's financial statements.
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.
22
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PART II - OTHER INFORMATION
For Quarter Ended September 30, 1997
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index immediately preceding the exhibits.
(b) Report on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report was filed.
23
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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: November 14, 1997 By: /s/ Dennis E. Gershenson
-----------------------------------
Dennis E. Gershenson
President and Trustee
(Chief Executive Officer)
Date: November 14, 1997 By: /s/ Richard J. Smith
-----------------------------------
Richard J. Smith
Chief Financial Officer
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Preferred Units and Stock Purchase Agreement dated as of
September 30, 1997 by and among the Trust, Special Situations
RG REIT, Inc., and the Advancing Party named therein.
10.2 Agreement Regarding Exercise of Registration Rights
dated as of September 30, 1997 among the Trust, the Ramco
Principals (as defined therein), the Other Holders (as defined
therein), Special Situations RG REIT, Inc., and the Advancing
Party.
10.3 Registration Rights Agreement dated as of September 30, 1997
by and among the Trust, Special Situations RG REIT, Inc.,
and the Advancing Party named therein.
10.4 Second Amended and Restated Master Revolving Credit Agreement
dated as of October 30, 1997 among Ramco-Gershenson Properties,
L.P. (the "Operating Partnership"), as Borrower, the Trust, as
Guarantor, and BankBoston, N.A., and the other Banks which may
become parties to the loan agreement, and BankBoston, N.A., as
Agent.
10.5 Second Amended and Restated Note dated October 30, 1997 in the
principal amount of $160,000,000 made by the Operating
Partnership in favor of BankBoston, N.A.
10.6 Second Amended and Restated Unconditional Guaranty of Payment
and Performance dated as of October 30, 1997 by the Trust in
favor of BankBoston, N.A.
10.7 Unsecured Term Loan Agreement dated as of October 30, 1997
among the Operating Partnership, as Borrower, the Trust, as
Guarantor, BankBoston, N.A., the other Banks which may become
parties to the agreement, and BankBoston N.A., as Agent.
10.8 Note dated as of October 30, 1997 in the principal amount of
$45,000,000 made by the Operating Partnership in favor of
BankBoston, N.A.
10.9 Unconditional Guaranty of Payment and Performance dated
as of October 30, 1997 by the Trust in favor of BankBoston,
N.A.
10.10 Form of Contract of Sale dated July 7, 1997 relating to the
acquisition of the Southeast Portfolio (Form #1).
10.11 Form of Contract of Sale dated July 7, 1997 relating to
the acquisition of the Southeast Portfolio (Form #2).
10.12 Form of Contract of Sale dated July 7, 1997 relating to
the acquisition of the Southeast Portfolio (Form #3).
10.13 Agreement dated July 7, 1997 by and between Seller (as defined
therein) and the Operating Partnership, which agreement amends
certain Contracts of Sale relating to the acquisition of the
Southeast Portfolio.
27 Financial Data Schedule