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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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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, 1998
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)
MARYLAND 13-6908486
(State or other jurisdiction of (I.R.S. Employer
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 common shares of beneficial interest ($.01 par value) of the
Registrant outstanding as of March 31, 1998: 7,123,355.
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INDEX
PAGE NO.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1998 (unaudited)
and December 31, 1997................................................ 3
Consolidated Statements of Operations (unaudited) -- Three Months
Ended March 31, 1998 and 1997........................................ 4
Consolidated Statement of Shareholders' Equity (unaudited) -- Three
Months Ended March 31, 1998.......................................... 5
Consolidated Statements of Cash Flows (unaudited) -- Three Months
Ended March 31, 1998 and 1997........................................ 6
Notes to Consolidated Financial Statements (unaudited)................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................... 16
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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,
1998 1997
--------- ------------
(UNAUDITED)
ASSETS
Investment in real estate -- net (Note 2)................. $457,189 $458,294
Accounts receivable -- net................................ 5,888 6,035
Equity investments in and advances to unconsolidated
entities............................................... 6,253 6,421
Cash and cash equivalents................................. 5,288 5,033
Other assets -- net (Note 3).............................. 9,873 8,899
-------- --------
Total Assets........................................... $484,491 $484,682
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable (Note 4)...................... $297,413 $295,618
Distributions payable..................................... 4,434 4,348
Accounts payable and accrued expenses..................... 12,737 13,145
Due to related entities................................... 1,399 1,325
-------- --------
Total Liabilities...................................... 315,983 314,436
Minority Interest........................................... 41,911 42,282
Commitments and Contingencies (Note 7)......................
SHAREHOLDERS' EQUITY
Series A convertible preferred shares, par value $.01,
10,000 shares authorized; 467 issued and outstanding,
$11,666 liquidation value.............................. 11,147 11,147
Common Shares of Beneficial Interest, par value $.01,
30,000 shares authorized; 7,123 issued and
outstanding............................................ 71 71
Additional paid-in capital................................ 150,414 150,513
Cumulative distributions in excess of net income.......... (35,035) (33,767)
-------- --------
Total Shareholders' Equity.................................. 126,597 127,964
-------- --------
Total Liabilities and Shareholders' Equity............. $484,491 $484,682
======== ========
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,
-----------------
1998 1997
---- ----
REVENUES
Minimum rents............................................. $13,295 $ 8,884
Percentage rents.......................................... 398 366
Recoveries from tenants................................... 4,643 4,394
Interest and other income................................. 108 175
------- -------
Total Revenues......................................... 18,444 13,819
------- -------
EXPENSES
Real estate taxes......................................... 1,747 1,497
Recoverable operating expenses............................ 2,966 2,839
Depreciation and amortization............................. 2,936 1,801
Other operating........................................... 236 256
General and administrative................................ 1,637 1,178
Interest expense.......................................... 6,049 2,970
------- -------
Total Expenses......................................... 15,571 10,541
------- -------
Operating income............................................ 2,873 3,278
Loss from unconsolidated entities........................... 79 88
------- -------
Income before minority interest............................. 2,794 3,190
Minority interest........................................... 791 846
------- -------
Net income.................................................. 2,003 2,344
Preferred dividends......................................... (280)
------- -------
Net income available to common shareholders................. $ 1,723 $ 2,344
======= =======
Basic earnings per share.................................... $0.24 $0.33
======= =======
Diluted earnings per share.................................. $0.24 $0.33
======= =======
Weighted average shares outstanding:
Basic..................................................... 7,123 7,123
======= =======
Diluted................................................... 7,169 7,140
======= =======
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
---------------- --------------- PAID-IN EARNINGS/ SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DISTRIBUTION EQUITY
------ ------ ------ ------ ---------- ------------ -------------
Balance at January 1, 1998....... 467 $11,147 7,123 $71 $150,513 $(33,767) $127,964
Cash distributions declared...... (3,271) (3,271)
Adjustment of net proceeds from
Preferred Shares............... (99) (99)
Net income for the three months
ended March 31, 1998........... 2,003 2,003
--- ------- ----- --- -------- -------- --------
Balance at March 31, 1998........ 467 $11,147 7,123 $71 $150,414 $(35,035) $126,597
=== ======= ===== === ======== ======== ========
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,
------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 2,003 $ 2,344
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization.......................... 2,936 1,766
Amortization of deferred financing costs............... 272 35
Loss from unconsolidated entities...................... 79 88
Minority interest...................................... 791 846
Changes in assets and liabilities that provided (used)
cash:
Accounts receivable.................................. 147 (757)
Other assets......................................... (1,681) (826)
Accounts payable and accrued expenses................ (408) 2,256
------- -------
Total adjustments...................................... 2,136 3,408
------- -------
Cash Flows Provided by Operating Activities................. 4,139 5,752
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Real estate acquired...................................... (1,595) (3,427)
Advances from (to) unconsolidated entities................ 89 (301)
------- -------
Cash Flows Used in Investing Activities..................... (1,506) (3,728)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions to shareholders........................ (3,271) (2,992)
Cash distributions to operating partnership unit
holders................................................ (1,079) (1,116)
Repayment of Credit Facility.............................. (1,000) (1,681)
Principal repayments on mortgage payable.................. (705) (461)
Adjustment of net proceeds from Preferred Shares.......... (99)
Payment of deferred financing costs....................... (48) (2)
Borrowings on Credit Facility............................. 3,500 3,900
Net advances from (to) related entities................... 74 (35)
Refund of deferred financing costs........................ 250
------- -------
Cash Flows Used in Financing Activities..................... (2,378) (2,387)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents........ 255 (363)
------- -------
Cash and Cash Equivalents, Beginning of Period.............. 5,033 3,541
------- -------
Cash and Cash Equivalents, End of Period.................... $ 5,288 $ 3,178
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the period.................. $ 5,736 $ 2,453
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Accrued distributions payable............................. $ 4,434 $ 4,348
======= =======
See notes to consolidated financial statements.
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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, 1997.
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 June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". Readers are referred
to the "Impact of Recent Accounting Pronouncements" section of the Company's
1997 Annual Report to Shareholders for further discussion.
Reclassifications -- Certain reclassifications have been made to the 1997
financial statements in order to conform with the 1998 presentation.
2. REAL ESTATE
The Company's real estate consists of the following:
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
Land................................................... $ 57,075 $ 57,075
Buildings and Improvements............................. 417,052 414,115
Construction-in-progress............................... 681 2,023
-------- --------
474,808 473,213
Less: accumulated depreciation......................... (17,619) (14,919)
-------- --------
Investment in real estate -- net....................... $457,189 $458,294
======== ========
3. OTHER ASSETS
Other assets are as follows:
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
Leasing costs and other................................ $ 6,957 $ 5,845
Deferred financing costs............................... 2,604 2,806
Proposed development and acquisition costs............. 1,766 1,214
-------- --------
11,327 9,865
Less: accumulated amortization......................... (1,454) (966)
-------- --------
Other assets -- net.................................... $ 9,873 $ 8,899
======== ========
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4. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consist of the following:
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
Fixed rate mortgages with interest rates ranging from
6.83% to 8.75% due at various dates through 2007..... $161,325 $162,030
Floating rate mortgages 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. The effective rate at March 31, 1998
and December 31, 1997 was 7.33%. .................... 7,000 7,000
Unsecured term loan, with an interest rate at LIBOR
plus 275 basis points, due May 1, 1999. The effective
rate at March 31, 1998 and December 31, 1997 was
8.44% and 8.75% respectively. ....................... 45,000 45,000
Credit Facility, with an interest rate at LIBOR plus
162.5 basis points at March 31, 1998 and December 31,
1997 due May 1999, maximum available borrowings of
$110,000. The effective rate at March 31, 1998 was
7.31% and 7.66% at December 31, 1997. ............... 84,088 81,588
-------- --------
$297,413 $295,618
======== ========
The mortgage notes are secured by mortgages on properties that have an
approximate net book value of $276,270 and $276,619 as of March 31, 1998 and
December 31, 1997, respectively. The Credit Facility is secured by mortgages on
various properties that have an approximate net book value of $172,249 and
$172,970 as of March 31, 1998 and December 31, 1997 respectively.
At March 31, 1998, outstanding letters of credit issued under the Credit
Facility, not reflected in the accompanying consolidated balance sheet, total
approximately $940.
The following table presents scheduled principal payments on mortgages and
notes payable as of March 31, 1998:
Year ended December 31,
1998 (April 1 -- December 31)............................. $ 4,059
1999...................................................... 132,169
2000...................................................... 8,243
2001...................................................... 3,131
2002...................................................... 3,317
Thereafter................................................ 146,494
--------
Total................................................ $297,413
========
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.
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Approximate future minimum rentals under noncancelable operating leases in
effect at March 31, 1998, assuming no new or renegotiated leases nor option
extensions on lease agreements, are as follows:
Year ended December 31,
1998 (April 1 -- December 31)............................. $ 37,246
1999...................................................... 44,661
2000...................................................... 40,253
2001...................................................... 36,206
2002...................................................... 32,430
Thereafter................................................ 220,139
--------
Total..................................................... $410,935
========
6. PRO FORMA FINANCIAL INFORMATION
During 1997, the Company acquired properties with an aggregate cost of
approximately $147,700. The acquisitions were accounted for as purchases and,
accordingly, results of operations were included in the consolidated financial
statements since the various dates of acquisitions.
The following pro forma financial data for the three months ended March 31,
1997, have been presented as if the acquisitions had occurred on January 1,
1997:
Revenues.................................................... $18,397
=======
Net Income.................................................. $ 2,365
=======
Basic Earnings per Share.................................... $0.33
=======
Diluted Earnings per Share.................................. $0.33
=======
7. 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 of the 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 purposes of satisfying an asset
qualification test applicable to REITs, based on a Revenue Ruling published in
1977 (the "Asset Issue"). The Company has requested that the IRS enter into a
closing agreement with the Company that the Asset Issue will not impact the
Company's status as a REIT. The IRS has deferred any action relating to the
Asset Issue pending the further examination of the Company's 1991-1995 tax
returns (the "Tax Audit"). Based on developments in the law which occurred since
1977, the Company's Tax Counsel, Battle Fowler LLP, 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
liability arising out of the Tax Audit and the Asset Issue, including
liabilities for interest and penalties and attorney fees relating thereto. 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 Tax Audit and the Asset Issue. Accordingly, Atlantic will not have any
control as to the timing of the resolution or disposition of any such claims.
The Company and Atlantic also received an opinion from Special Tax Counsel,
Wolf, Block, Schorr and Solis-Cohen LLP, that, to the extent there is a
deficiency in the
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Company's taxable income arising out of the IRS examination and provided the
Company timely 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. Under the tax
agreement referred to above, Atlantic has agreed to reimburse the Company for
the amount of any deficiency dividend so made. 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. If the
Company lost its status as a REIT, the Company believes that it will be able to
re-elect REIT status for the taxable year beginning January 1, 1999.
Although the IRS agent conducting the examination has not issued his final
examination report with respect to the tax issues raised in the Tax Audit,
including the Asset Issue (collectively, the "Tax Issues"), the Company has
received a preliminary draft of the examining agent's report. The draft sets
forth a number of positions which the examining agent has taken with respect to
the Company's taxes for the years that are subject to the Tax Audit, which the
Company believes are not consistent with applicable law and regulations of the
IRS. If the final report were issued in its current form, the liability of
Atlantic to indemnify the Company may be substantial. The Continuing Trustees of
the Company are engaged in ongoing discussions with the examining agent and his
supervisors with regard to the positions set forth in the draft report. There
can be no assurance that, after conclusion of discussions with such agent and
his supervisors regarding the draft report, the examining agent will not issue
the proposed report in the form previously delivered to the Company (or another
form). Issuance of the revenue agent's report constitutes only the first step in
the IRS administrative process for determining whether there is any deficiency
in the Company's tax liability for the years at issue and any adverse
determination by the examining agent is subject to administrative appeal within
the IRS and, therefore, to judicial review. As noted above, pursuant to the tax
agreement between Atlantic and the Company, Atlantic has assumed all liability
arising out of the Tax Audit and the Tax Issues. Based on the amount of
Atlantic's assets, as disclosed in its Annual Report on Form 10-K for the year
ended December 31, 1997, the Company does not believe that the ultimate
resolution of the Tax Issues will have a material adverse effect on the
financial position, results of operations or cash flows of the Company.
During July 1997 Montgomery Ward ("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. In
October 1997, Wards 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). The Company was notified in March 1998 that Wards
rejected the lease. The Company is pursuing replacement tenants to lease the
space. On an annual basis, Wards paid approximately $1,000 in base rent and
operating and real estate tax expense reimbursements for the Clinton Valley
Mall.
8. SUBSEQUENT EVENT
On May 1, 1998, the Company acquired Southbay Fashion Center, a 96,700
square foot community center located in Sarasota, Florida, for approximately
$6,000. The purchase will be financed utilizing the Company's Credit Facility.
The acquisition will be accounted for under the purchase method, whereby the
purchase price will be allocated to the assets acquired and liabilities assumed
based upon their estimated fair market values.
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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)
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, secured by certain properties, amounted to
$297,413 at March 31, 1998, with a weighted average interest rate of 7.73%. The
mortgage debt consists of nine loans secured by various properties, one
unsecured term loan, and the Credit Facility which is secured by various
properties. Eight of the mortgage loans amounting to $161,325 have maturities
ranging from 1998 to 2007, monthly payments which include regularly scheduled
amortization, and have fixed interest rates ranging between 6.83% 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 (7.325% at March 31, 1998).
Variable rate debt accounted for $136,088 of outstanding debt with a
weighted average interest rate of 7.69%. Variable rate debt accounted for
approximately 45.8% of the Company's total debt and 26.8% of its total
capitalization.
The Company has an unsecured term loan amounting to $45,000, maturing May
1999, which may under certain circumstances be extended to October 2000 at the
election of the Ramco-Gershenson Properties, L.P. (the "Operating Partnership").
This term loan bears interest between 250 and 275 basis points over LIBOR,
depending on certain debt ratios (8.44% at March 31, 1998).
The Company currently has a $110,000 Credit Facility, of which $84,088 was
outstanding as of March 31, 1998. This credit facility bears interest between
137.5 and 162.5 basis points over LIBOR depending on certain debt ratios
(weighted average 7.31% interest rate at March 31, 1998) and matures May 1999,
and the maturity date may under certain circumstances be extended to October
2000 at the election of the Operating Partnership. 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. As of March 31, 1998 the Company was in compliance with
the covenant terms. At March 31, 1998, outstanding letters of credit issued
under the credit facility total $940.
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. Based on rates currently
in effect under the Company's Credit Facility, the agreement caps the Company's
interest rate on $75,000 of floating rate debt to 8.375%, with a floor of
7.125%, through May 1, 1999. The Company is exposed to credit loss in the event
of non-performance by the other parties to the interest rate swap agreement.
However, the Company does not anticipate non-performance by the counter party.
In December 1997, the Company executed another 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 $50,000. Based on
rates currently in effect under the Company's Credit Facility, the agreement
caps the Company's interest rate on $50,000 of floating rate debt to 8.375%,
with a floor of 7.225% for the period May 1999 to October 2000. The Company is
exposed to credit loss in the event of non-performance by the other parties to
the interest rate swap agreement. However, the Company does not anticipate non-
performance by the counter party.
Based on the debt and the market value of equity, the Company's debt to
total market capitalization (debt plus market value equity) ratio was 58.5% at
March 31, 1998. On a pro forma basis, if the full
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MSAM/Kimco equity investment were infused, the debt to total market
capitalization would be 53.5% at March 31, 1998.
The two properties in which the Operating Partnership owns an interest and
are accounted for on the equity method of accounting are subject to non-recourse
mortgage indebtedness. At March 31, 1998, the pro rata share of non-recourse
mortgage debt on the unconsolidated properties (accounted for on the equity
method) was $6,253 with a weighted average interest rate of 9.14%.
The Company's current capital structure includes property specific
mortgages, the unsecured term loan, the Credit Facility, Series A Preferred
Shares, Common Shares and a minority interest in the Operating Partnership.
Minority interest was increased to 27.99% effective January 1, 1998 from 26.5%
at December 31, 1997. The increase to minority interest resulted from the
earnout calculation for the Jackson Crossing shopping center. The minority
interest computation assumes the issuance of an additional 200,000 OP Units to
the Ramco Group relative to increases in net operating income at the Jackson
Crossing shopping center. The computation is subject to due diligence procedures
and to Board of Director approval. Currently, the minority interest in the
Operating Partnership represents the 27.99% ownership in the Operating
Partnership held by the Ramco Group which may, under certain conditions, be
exchanged for approximately 2,768,143 Common Shares.
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 Common 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 Common
Shares. Assuming the exchange of all limited partnership interests in the
Operating Partnership, there would be outstanding approximately 9,891,498 Common
Shares with a market value of approximately $201,539 at March 31, 1998 (based on
the closing price of $20.3750 per share on March 31, 1998).
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.
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. In
October 1997, Wards 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). The Company was notified in March 1998 that Wards
rejected the lease. The Company is pursuing replacement tenants to lease the
space. On an annual basis, Wards paid approximately $1,000 in base rent and
operating and real estate tax expense reimbursement for the Clinton Valley Mall.
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, the remaining MSAM/Kimco equity
commitment for Series A Preferred Shares, and other future 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.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS ENDED MARCH 31,
1997
Total revenues for the three months ended March 31, 1998 increased by
33.5%, or $4,625, to $18,444 as compared to $13,819 for the three months ended
March 31, 1997. The increase was a result of a $4,411
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increase in minimum rents, a $32 increase in percentage rents, a $249 increase
in recoveries from tenants, offset by a $67 decrease in interest and other
income.
Minimum rents increased 49.7%, or $4,411, to $13,295 for the three months
ended March 31, 1998 as compared to $8,884 for the three months ended March 31,
1997. Recoveries from tenants increased 5.7%, or $249, to $4,643 as compared to
$4,394 for the three months ended March 31, 1997. These increases are primarily
attributable to the acquisition of the Madison, Pelican and Village Lakes
shopping centers effective May, June and December 1997, respectively, and the
acquisition of the Southeast Portfolio on October 30, 1997. The operating
results for the three months ended March 31, 1998 include the impact of these
acquisitions for the full three months in 1998, while the results for the three
months ended March 31, 1997 do not include any impact for those acquisitions.
Total expenses for the three months ended March 31, 1998 increased by
47.7%, or $5,030, to $15,571 as compared to $10,541 for the three months ended
March 31, 1997. The increase was due to a $377 increase in total recoverable
expenses, including real estate taxes and recoverable operating expenses, a
$1,135 increase in depreciation and amortization, a $20 decrease in other
operating expenses, a $459 increase in general and administrative expenses, and
a $3,079 increase in interest expense.
Total recoverable expenses, including real estate taxes and recoverable
operating expenses, increased by 8.7%, or $377, to $4,713 as compared to $4,336
for the three months ended March 31, 1997, depreciation and amortization
increased by 63.0%, or $1,135, to $2,936 as compared to $1,801 for the three
months ended March 31, 1997, and other operating expenses for the three months
ended March 31, 1998 were $236 as compared to $256 for the three months ended
March 31, 1997. General and administrative expenses increased 39.0%, or $459, to
$1,637 as compared to $1,178 for the three months ended March 31, 1997. The
increase in recoverable expenses of $377, depreciation and amortization of
$1,135, general and administrative expenses of $459, and interest expense of
$3,079, are due to the acquisition of the Southeast Portfolio and the other
property acquisitions in 1997.
Following is a breakdown of the general and administrative expenses shown
in the financial statements:
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
Management Fees.......................................... $ 328 $ 262
Leasing, Brokerage and Development Fees.................. 65
Other Revenues........................................... 162 96
Leasing/Development Cost Reimbursements.................. 494 372
------ ------
Total Revenues...................................... 1,049 730
------ ------
Employee Expenses........................................ 1,355 941
Office and Other Expenses................................ 318 275
Depreciation and Amortization............................ 62 60
------ ------
Total Expenses...................................... 1,735 1,276
------ ------
OPERATING PARTNERSHIP COST REIMBURSEMENT EXPENSES........ 686 546
------ ------
OPERATING PARTNERSHIP ADMINISTRATIVE EXPENSES............ 653 559
------ ------
SHOPPING CENTER LEVEL GENERAL AND ADMINISTRATIVE
EXPENSES............................................... 298 73
------ ------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES................ $1,637 $1,178
====== ======
The increase in general and administrative expenses, when compared to the
three months ended, March 31, 1997 is primarily due to general salary increases
and an increase in headcount incurred subsequent to the first quarter of 1997.
The loss from unconsolidated entities decreased 10.2% or $9 to $79 for the
three months ended March 31, 1998 as compared to $88 for the three months ended
March 31, 1997.
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The minority interest of $791 for the three months ended March 31, 1998
represents the 27.99% share of income before minority interest of the operating
partnership compared to the 27% share of income before minority interest, or
$846 for the three months ended March 31, 1997.
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 table illustrates the calculation of FFO for the three months
ended March 31, 1998, and 1997:
THREE MONTHS
ENDED
MARCH 31,
----------------
1998 1997
ACTUAL ACTUAL
------ ------
Net Income.................................................. $2,003 $2,344
Add: Depreciation and amortization........................ 2,943 1,808
Add: Minority interest in partnership..................... 791 846
------ ------
Funds from operations -- diluted............................ 5,737 4,998
Less: Preferred share dividends........................... (280)
------ ------
Funds from operations -- basic.............................. $5,457 $4,998
====== ======
Weighted average equivalent shares outstanding(1)
Basic..................................................... 9,891 9,780
====== ======
Diluted................................................... 10,604 9,797
====== ======
Supplemental disclosure:
Straight-line rental income............................... $ 421 $ 527
====== ======
Amortization of management contracts and covenants not to
compete................................................ $ 124 $ 124
====== ======
- -------------------------
(1) For basic, represents the weighted average total shares outstanding,
assuming the redemption of all Operating Partnership Units for Common
Shares. For diluted, represents the weighted average total shares
outstanding, assuming the redemption of all Operating Partnership Units for
Common Shares, the Series A Preferred Shares converted to Common Shares, and
the common shares issuable under the treasury stock method upon exercise of
stock options.
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CAPITAL EXPENDITURES
During the first quarter of 1998, the Company spent approximately $491 on
revenue generating capital expenditures including tenant allowances, leasing
commissions paid to third-party brokers, legal costs relative to lease
documents, and capitalized leasing and construction costs. These types of costs
generate a return through rents from tenants over the term of their leases.
Revenue enhancing capital expenditures, including expansions, renovations or
repositionings, were approximately $1,834. Revenue neutral capital expenditures,
such as roof and parking lot repairs which are anticipated to be recovered from
tenants, amounted to approximately $307.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". Readers are referred to the "Impact of Recent Accounting
Pronouncements" section of the Company's 1997 Annual Report to Shareholders for
further discussion.
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
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K/A dated January 13, 1998.
The Company reported under Item 2, the acquisition of the Southeast Portfolio on
October 30, 1997. Included in the filing were the following financial
statements:
INDEPENDENT AUDITORS' REPORT
Ramco-Gershenson Southeast Portfolio, Combined Historical Summary of
Revenues and Direct Operating Expenses for the Year Ended December 31, 1996 and
the Nine Months Ended September 30, 1997 (Unaudited)
Notes to Combined Historical Summary of Revenues and Direct Operating
Expenses for the Year Ended December 31, 1996, and the Nine Months Ended
September 30, 1997 (Unaudited)
Ramco-Gershenson Properties Trust Pro Forma Condensed Consolidated Balance
Sheet as of September 30, 1997 (Unaudited)
Ramco-Gershenson Properties Trust Pro Forma Consolidated Statements of
Operations for the Year Ended December 31, 1996 (Unaudited) and the Nine Months
Ended September 30, 1997 (Unaudited)
Ramco-Gershenson Properties Trust Statement of Estimated Taxable Operating
Results of the Southeast Portfolio and Estimated Cash to be Made Available by
the Operations of the Southeast Portfolio for the Twelve Month Period Ended
September 30, 1997 (Unaudited)
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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 14, 1998 By: /s/ DENNIS E. GERSHENSON
------------------------------------
Dennis E. Gershenson
President and Trustee
(Chief Executive Officer)
Date: May 14, 1998 By: /s/ RICHARD J. SMITH
------------------------------------
Richard J. Smith
Chief Financial Officer
(Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule
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