1
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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 JUNE 30, 1999
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 (I.R.S. Employer
of incorporation or organization) Identification Number)
27600 NORTHWESTERN HIGHWAY, SUITE 200, 48034
SOUTHFIELD, MICHIGAN (Zip code)
(Address of principal executive offices)
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 June 30, 1999: 7,217,993
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INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1999 (unaudited) and
December 31, 1998......................................... 3
Consolidated Statements of Income (unaudited) -- Three
Months and Six Months Ended June 30, 1999 and 1998........ 4
Consolidated Statement of Shareholders' Equity
(unaudited) -- Six Months Ended June 30, 1999............. 5
Consolidated Statements of Cash Flows (unaudited) -- Six
Months Ended June 30, 1999 and 1998....................... 6
Notes to Consolidated Financial Statements (unaudited)...... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
PART II. OTHER INFORMATION
ITEM 3. Submission of Matters to a Vote of Security Holders......... 17
ITEM 4. Exhibits and Reports on Form 8-K............................ 17
SIGNATURES........................................................... 18
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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)
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(UNAUDITED)
ASSETS
Investment in real estate -- net (Note 2)................... $528,242 $509,844
Cash and cash equivalents................................... 3,049 4,550
Accounts receivable -- net.................................. 10,738 9,864
Equity investments in and advances to unconsolidated
entities.................................................. 5,769 5,896
Other assets -- net (Note 3)................................ 15,412 14,250
-------- --------
Total Assets........................................... $563,210 $544,404
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable (Note 4)........................ $350,150 $328,248
Distributions payable....................................... 5,121 5,244
Accounts payable and accrued expenses....................... 14,945 15,235
-------- --------
Total Liabilities...................................... 370,216 348,727
Minority Interest........................................... 48,271 48,535
Commitments and Contingencies (Note 6)...................... -- --
SHAREHOLDERS' EQUITY
Preferred Shares, par value $.01, 10,000 shares authorized;
1,400 Series A convertible shares issued and outstanding,
liquidation value of $35,000.............................. 33,829 33,829
Common Shares of Beneficial Interest, par value $.01, 30,000
shares authorized; 7,218 issued and outstanding........... 72 72
Additional paid-in capital.................................. 151,973 151,973
Cumulative distributions in excess of net income............ (41,151) (38,732)
-------- --------
Total Shareholders' Equity............................. 144,723 147,142
-------- --------
Total Liabilities and Shareholders' Equity........ $563,210 $544,404
======== ========
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES
Minimum rents....................................... $14,909 $13,146 $30,023 $26,441
Percentage rents.................................... 534 354 1,159 752
Recoveries from tenants............................. 5,121 4,620 10,929 9,263
Interest and other income........................... 191 141 422 249
------- ------- ------- -------
Total Revenues................................... 20,760 18,261 42,533 36,705
------- ------- ------- -------
EXPENSES
Real estate taxes................................... 2,008 1,700 3,986 3,447
Recoverable operating expenses...................... 3,305 3,001 7,195 5,967
Depreciation and amortization....................... 3,361 2,940 6,652 5,867
Other operating..................................... 105 179 551 415
General and administrative.......................... 1,916 1,312 3,510 2,949
Interest expense.................................... 6,428 6,195 12,939 12,244
------- ------- ------- -------
Total Expenses................................... 17,123 15,327 34,833 30,898
------- ------- ------- -------
Operating income...................................... 3,637 2,934 7,700 5,807
Loss from unconsolidated entities..................... 82 84 150 163
------- ------- ------- -------
Income before minority interest....................... 3,555 2,850 7,550 5,644
Minority interest..................................... 1,030 771 2,216 1,562
------- ------- ------- -------
Net income............................................ 2,525 2,079 5,334 4,082
Preferred dividends................................... (849) (283) (1,689) (563)
------- ------- ------- -------
Net income available to common shareholders........... $ 1,676 $ 1,796 $ 3,645 $ 3,519
======= ======= ======= =======
Basic earnings per share.............................. $0.23 $0.25 $0.50 $0.49
======= ======= ======= =======
Diluted earnings per share............................ $0.23 $0.25 $0.50 $0.49
======= ======= ======= =======
Weighted average shares outstanding:
Basic............................................... 7,218 7,123 7,218 7,123
======= ======= ======= =======
Diluted............................................. 7,219 7,172 7,218 7,171
======= ======= ======= =======
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
COMMON ADDITIONAL CUMULATIVE TOTAL
PREFERRED STOCK PAID-IN EARNINGS/ SHAREHOLDERS'
STOCK PAR VALUE CAPITAL DISTRIBUTION EQUITY
--------- --------- ---------- ------------ -------------
BALANCE, JANUARY 1, 1999................. $33,829 $72 $151,973 $(38,732) $147,142
Cash distributions declared.............. (6,064) (6,064)
Preferred Shares dividends declared...... (1,689) (1,689)
Net income............................... 5,334 5,334
------- --- -------- -------- --------
BALANCE, JUNE 30, 1999................... $33,829 $72 $151,973 $(41,151) $144,723
======= === ======== ======== ========
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 5,334 $ 4,082
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization.......................... 6,652 5,876
Amortization of deferred financing costs............... 469 528
Loss from unconsolidated entities...................... 150 163
Minority interest...................................... 2,216 1,562
Changes in assets and liabilities that provided (used)
cash:
Accounts receivable.................................. (874) (1,185)
Other assets......................................... (1,716) (2,694)
Accounts payable and accrued expenses................ (290) (269)
-------- --------
Cash Flows Provided by Operating Activities................. 11,941 8,063
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Real estate acquired...................................... (24,481) (12,176)
Advances (to) from unconsolidated entities................ (23) 227
-------- --------
Cash Flows Used in Investing Activities..................... (24,504) (11,949)
-------- --------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Cash distributions to shareholders........................ (6,064) (6,546)
Cash distributions to operating partnership unit
holders................................................ (2,603) (2,158)
Cash dividends paid on Preferred Shares................... (1,689) --
Repayment of Credit Facility.............................. (4,000) (3,000)
Principal repayments on mortgages payable................. (1,505) (3,279)
Adjustment of net proceeds from Preferred Shares.......... -- (330)
Payment of deferred financing costs....................... (484) (154)
Borrowings on Credit Facility............................. 10,000 19,100
Borrowings on Construction Loans.......................... 17,407 --
Net advances from related entities........................ -- 21
Refund of deferred financing costs........................ -- 250
Net proceeds from exercise of stock options............... -- 5
-------- --------
Cash Flows Provided by Financing Activities................. 11,062 3,909
-------- --------
Net (Decrease) Increase in Cash and Cash Equivalents........ (1,501) 23
Cash and Cash Equivalents, Beginning of Period.............. 4,550 5,033
-------- --------
Cash and Cash Equivalents, End of Period.................... $ 3,049 $ 5,056
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the period............... $ 12,860 $ 11,628
======== ========
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998.
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 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management has not yet evaluated the effects of
this change on its financial position or results of operations. The Company will
adopt SFAS No. 133 as required for its first quarterly filing of fiscal year
2001.
2. REAL ESTATE
Investment in real estate consists of the following:
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(UNAUDITED)
Land........................................................ $ 82,781 $ 64,433
Buildings and Improvements.................................. 471,790 464,216
Construction-in-progress.................................... 5,890 7,331
-------- --------
560,461 535,980
Less: accumulated depreciation.............................. (32,219) (26,136)
-------- --------
Investment in real estate -- net............................ $528,242 $509,844
======== ========
3. OTHER ASSETS
Other assets are as follows:
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(UNAUDITED)
Leasing costs and other..................................... $ 8,089 $ 6,893
Prepaid expenses and other.................................. 3,504 3,426
Deferred financing costs.................................... 3,543 3,059
Proposed development and acquisition costs.................. 4,353 3,911
------- -------
19,489 17,289
Less: accumulated amortization.............................. (4,077) (3,039)
------- -------
Other assets -- net......................................... $15,412 $14,250
======= =======
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4. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consist of the following:
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(UNAUDITED)
Fixed rate mortgages with interest rates ranging from 6.83%
to 8.50% due at various dates through 2008................ $170,866 $172,371
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 June 30, 1999 was 6.59% and
at December 31, 1998 was 7.49%............................ 7,000 7,000
Construction loan financing, with an interest rate at LIBOR
plus 250 basis points due December 2002. The effective
rate at June 30, 1999, was 7.02% Maximum borrowings of
$18,500................................................... 15,801 --
Construction loan financing, with an interest rate at LIBOR
plus 185 basis points due June 2002. The effective rate at
June 30, 1999, was 7.01% and at December 31, 1998 was
7.10%. Maximum borrowings of $14,000...................... 7,495 5,889
Unsecured term loan, due October 1, 2000. The effective rate
at June 30, 1999 was 8.88% and at December 31, 1998 was
9.06%..................................................... 45,000 45,000
Credit Facility, due October 2000, maximum available
borrowings of $110,000. The effective rate at June 30,
1999 was 7.37%, and at December 31, 1998 was 7.35%........ 103,988 97,988
-------- --------
$350,150 $328,248
======== ========
The mortgage notes and construction loans are secured by mortgages on
properties that have an approximate net book value of $325,942 as of June 30,
1999. The Credit Facility is secured by mortgages on various properties that
have an approximate net book value of $179,772 as of June 30, 1999.
At June 30, 1999, outstanding letters of credit issued under the Credit
Facility, not reflected in the accompanying consolidated balance sheet, total
approximately $335.
The following table presents scheduled principal payments on mortgages and
notes payable as of June 30, 1999:
YEAR ENDED
DECEMBER 31,
------------
1999 (July 1 -- December 31)................................ $ 1,607
2000........................................................ 157,486
2001........................................................ 4,128
2002........................................................ 25,693
2003........................................................ 3,653
Thereafter.................................................. 157,583
--------
Total.................................................. $350,150
========
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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9
Approximate future minimum rentals under noncancelable operating leases in
effect at June 30, 1999, assuming no new or renegotiated leases nor option
extensions on lease agreements, are as follows:
YEAR ENDED
DECEMBER 31,
------------
1999 (July 1 -- December 31)................................ $ 28,832
2000........................................................ 54,076
2001........................................................ 48,692
2002........................................................ 43,752
2003........................................................ 38,556
Thereafter.................................................. 263,230
--------
Total.................................................. $477,138
========
6. 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 purposes of satisfying an asset
qualification test applicable to REIT's, based on a Revenue Ruling published in
1977 (the "Asset Issue"). The Company requested that the IRS enter into a
closing agreement which would state that the Asset Issue would not impact the
Company's status as a REIT. The IRS 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, 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 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 entered
into a tax agreement which provides that the Company (under the direction of its
Continuing Trustees), and not Atlantic, would 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 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 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 would be able to re-elect REIT status for the
taxable year beginning January 1, 1999.
The IRS agent conducting the examination has issued his examination report
with respect to the tax issues raised in the Tax Audit, including the Asset
Issue (collectively, the "Tax Issues"). The report 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
9
10
regulations of the IRS. Based upon the report, the Company could be liable for
up to $41.2 million in combined taxes, penalties and interest through August 15,
1999. The proposed adjustments to taxable income could require the Company to
pay a deficiency dividend to its current shareholders resulting in combined
taxes, penalties, interest and deficiency dividend of approximately $42.5
million as of August 15, 1999.
As noted above, pursuant to a Tax Agreement between Atlantic and the
Company, Atlantic assumed all liability arising out of the Tax Audit and Tax
Issues, including the payment of the deficiency dividend. Based upon the amount
of Atlantic's net assets, as disclosed in its most recent quarterly report on
Form 10-Q for the period ended March 31, 1999, 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. The
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,
thereafter, to judicial review. As noted above, the agent's report sets forth a
number of positions, which the Company and its legal counsel believe are not
consistent with applicable law and regulations of the IRS. Accordingly, the
Company intends to file an administrative appeal challenging the findings
contained in the IRS agent's examination report.
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 store 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. 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. The Company leased 30,900 square feet of the former department
store and rental income commenced during the first quarter of 1999. The Company
is pursuing replacement tenants for the balance of the space.
In February 1999, Crowley, Milner and Company (Crowley's), a tenant at the
Company's Tel-Twelve Mall, filed for protection under Chapter 11 of the
Bankruptcy Code. For 1998, Crowley's paid approximately $396 in base rent and
operating and real estate tax expense reimbursement.
On March 27, 1999, Service Merchandise Company, Inc. ("Service
Merchandise"), a tenant at three of the Company's properties (Shoppes of
Lakeland, West Oaks I and Roseville Plaza), filed for protection under Chapter
11 of the Bankruptcy Code. For 1998, Service Merchandise paid approximately
$1,188 in base rent and operating and real estate tax expense reimbursements.
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 generated $11,941 in cash flows from operating activities for
the six months ended June 30, 1999 and used $24,504 to fund investing
activities, principally the development of two shopping centers and to improve
its properties. During the six months ended June 30, 1999, financing activities
provided $17,407 from borrowings on two construction loans; $6,000 from
borrowings on the Credit Facility, net of repayments of $4,000; used $1,505 to
pay mortgage obligations and $10,356 for cash distributions to shareholders,
holders of operating partnership units and dividends paid to preferred
shareholders.
The Company's mortgage and notes payable amounted to $350,150 at June 30,
1999, with a weighted average interest rate of 7.70%. The debt consists of nine
loans secured by various properties, plus two
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construction loans, one unsecured term loan and the Credit Facility, as defined
below. Eight of the mortgage loans amounting to $170,866 have maturities ranging
from 2000 to 2008, monthly payments which include regularly scheduled
amortization, and have fixed interest rates ranging between 6.83% to 8.50%. 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 (6.59% at June 30, 1999).
The Company has a $18.5 million construction loan to finance the
development of an 88 acre parcel of land located in Auburn Hills, Michigan. The
loan carries an interest rate of 250 basis points over LIBOR, an effective
interest rate of 7.01% at June 30, 1999 and matures December 2000. At the
Company's option, the loan can be converted to a 2-year term loan. Approximately
$15.8 million has been borrowed as of June 30, 1999.
The Company has a $14 million construction loan to finance the White Lake
MarketPlace shopping center development. The loan carries an interest rate of
185 basis points over LIBOR, an effective rate of 7.01% at June 30, 1999, and
matures June 2000. At the Company's option, the loan can then be converted to a
2-year term loan. Approximately $7.5 million has been borrowed at June 30, 1999.
The Company has an unsecured term loan amounting to $45,000, maturing
October 2000. This term loan bears interest between 250 and 275 basis points
over LIBOR, depending on certain debt ratios (8.88% at June 30, 1999).
The Company currently has a $110,000 Credit Facility, of which $103,988 was
outstanding as of June 30, 1999. This credit facility bears interest between
137.5 and 162.5 basis points over LIBOR depending on certain debt ratios
(effective interest rate of 7.37% at June 30, 1999) and matures October 2000.
The credit facility is secured by mortgages on various properties and contains
financial covenants relating to liabilities-to-assets ratio, minimum operating
coverage ratios and a minimum equity value. As of June 30, 1999, the Company was
in compliance with the covenant terms.
At June 30, 1999, outstanding letters of credit issued under the Credit
Facility amounted to $335.
The Company used proceeds from the borrowings under the Credit Facility and
the construction loans to finance the development of the two above-mentioned
properties and to pay for other capital expenditures.
In 1998, the Company executed an interest rate swap 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 provides for a fixed rate of
7.425% through 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 parties.
After taking into account the impact of converting the variable rate debt
into fixed rate debt by use of the rate protection agreement, the Company's
variable rate debt accounted for $104,285 of outstanding debt with a weighted
average interest rate of 7.85%. Variable rate debt accounted for approximately
29.8% of the Company's total debt and 19.0% of its total capitalization. The
Company has an interest rate protection agreement in place relative to $75,000
of floating rate debt as discussed above.
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 63.9% at
June 30, 1999
The two properties in which Ramco-Gershenson Properties, L.P. (the
"Operating Partnership"), owns an interest and are accounted for on the equity
method of accounting are subject to non-recourse mortgage indebtedness. At June
30, 1999, the pro rata share of non-recourse mortgage debt on the unconsolidated
properties (accounted for on the equity method) was $6,154 with a weighted
average interest rate of 9.14%.
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The Company's current capital structure includes property specific
mortgages, two construction loans, the unsecured term loan, the Credit Facility,
Series A Preferred Shares, Common Shares and a minority interest in the
Operating Partnership. Currently, the minority interest in the Operating
Partnership represents the 29.0% ownership in the Operating Partnership which,
may under certain conditions, be exchanged for approximately 2.9 million Common
Shares.
As of June 30, 1999, Operating Partnership Units ("OP Units"), issued 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 OP Units for cash based on the current trading price of the Company's
Common Shares. Assuming the exchange of all limited partnership interests in the
Operating Partnership, there would be outstanding approximately 10.2 million
Common Shares with a market value of approximately $165,270 at June 30, 1999
(based on the closing price of $16.25 per share on June 30, 1999).
The principal uses of the Company's liquidity and capital resources are for
development, including expansion and renovation programs, acquisitions 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.
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 sale of existing properties,
joint ventures, and potential future offering of securities under a shelf
registration statement will provide adequate liquidity for the foreseeable
future to fund future developments, expansions, repositionings, acquisitions 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 SIX MONTHS ENDED JUNE 30, 1999 TO SIX MONTHS ENDED JULY 30, 1998
Total revenues for the six months ended June 30, 1999 increased by 15.9%,
or $5,828, to $42,533 as compared to $36,705 for the six months ended June 30,
1998. Minimum rents increased 13.5%, or $3,582 to $30,023 for the six months
ended June 30, 1999 as compared to $26,441 for the same period in 1998. The
acquisition of Southbay Fashion Center, Conyers Crossing, Aquia Towne Center and
Rivertowne Square during 1998 contributed $2,317 to the increase in minimum
rents for the six months ended June 30, 1999.
Recoveries from tenants increased $1,666, or 18.0% to $10,929 for the six
months ended June 30, 1999 as compared to $9,263 for the six months ended June
30, 1998. The increase is attributable to increases in recoverable operating
expenses in 1999 and higher occupancy rates for the Core Portfolio (shopping
center properties owned as of January 1, 1998); 93.7% occupancy rate at June 30,
1999 compared to 91.9% at June 30, 1998. The recovery ratio for the six months
ended June 30, 1999 decreased to 97.7% from 98.4% for the same period in 1998.
The decrease in the ratio is attributable to lower recovery ratios at the 1998
acquisitions properties when compared to the Core Portfolio. If the four
acquisition properties were excluded from the calculation, the recovery ratio
would have been approximately 99% for the six months ended June 30, 1999. As
leases expire at the four properties acquired during 1998, new lease agreements
should be negotiated at rates similar to the Company's normal recovery ratio of
approximately 100%.
For the six months ended June 30, 1999, percentage rents increased $407, of
which $145 was due to the four acquisitions made in 1998. Interest and other
income increased from $249 for the six months ended June 30, 1998 to $422. The
material components of this increase were attributable to higher temporary
tenant rentals and additional interest income for the six months ended June 30,
1999.
Total expenses for the six months ended June 30, 1999 increased by 12.7%,
or $3,935, to $34,833 as compared to $30,898 for the six months ended June 30,
1998. The increase was due to a $1,767 increase in total recoverable expenses,
including real estate taxes and recoverable operating expenses, a $776 increase
in
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depreciation and amortization, a $136 increase in other operating expenses, a
$561 increase in general and administrative expenses, and a $695 increase in
interest expense.
Total recoverable expenses, including real estate taxes and recoverable
operating expenses, increased by 18.18%, or $1,767, to $11,181 as compared to
$9,414 for the six months ended June 30, 1998. The increase in recoverable
expenses is primary attributable to the four acquisitions made during 1998 and
the opening of Home Depot at White Lake Marketplace development during the first
quarter of 1999.
Depreciation and amortization expense increased $776, or 13.2%, to $6,652
as compared to $5,876 for the six months ended June 30, 1998. The increase is
the result of acquisitions and renovations made during 1998. Other operating
expenses increased from $415 for the six months ended June 30, 1998 to $551 for
the six months ended June 30, 1999. The increase is primarily due to $92 of
additional bad debt expense for the six months ended June 30, 1999 when compared
to 1998.
Interest expense increased $695, from $12,244 to $12,939 for the six months
ended June 30, 1999. The 5.7% increase is the result of additional interest
expense on a mortgage loan assumed in connection with the acquisition of Aqua
Towne Center in September 1998 and increased borrowings on the Credit Facility
and construction loans.
The minority interest of $2,216 for the six months ended June 30, 1999
represents a 29.0% share of income before minority interest of the operating
partnership compared to a 28.0% share of income before minority interest, or
$1,562 for the six months ended June 30, 1998.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 TO THREE MONTHS ENDED JUNE 30,
1998
Total revenues increased $2,499, or 13.7%, from $18,261 for the three
months ended June 30, 1998 to $20,760 for the three months ended June 30, 1999.
The increase was a result of a $1,763 increase in minimum rents, a $501 increase
in recoveries from tenants, $180 increase in percentage rents and an increase of
$50 in interest and other income.
Minimum rents for the three months ended June 30, 1999 increased $1,763, or
13.4% to $14,909 from $13,146 for the three months ended June 30, 1998. The four
properties acquired during 1998 and the opening of an anchor store at White Lake
MarketPlace development during the first quarter of 1999 accounted for $1,433,
or 81.3% of this increase. Recoveries from tenants increased 10.8%, or $501, to
$5,121 from $4,620 for the three months ended June 30, 1998. The impact of the
1998 acquisitions amounted to $208, or 41.5% of this increase.
The recovery ratio for the three months ended June 30, 1999 decreased to
96.4% as compared to 98.3% for the comparable quarter ended June 30, 1998. The
decrease in the ratio is attributable to lower recovery ratios at the 1998
acquisitions properties as compared to the Core Portfolio. As leases turnover at
these four properties, the recovery ratios should increase to a level comparable
to the Company's normal ratio.
Percentage rents increased 50.8%, or $180, to $534 for the three months
ended June 30, 1999 as compared to $354 for the three months ended June 30,
1998. The increase in percentage rents is attributable to $102 related to the
1998 acquisitions included in the three months ended June 30, 1999 and the
result of strong retail sales.
Total expenses for the three months ended June 30, 1999 increased by
$1,796, or 11.7%, to $17,123 as compared to $15,327 for the three months ended
June 30, 1998. The increase was due to a $612 increase in total recoverable
expenses, including real estate taxes and recoverable operating expenses, a $421
increase in depreciation and amortization, an increase of $604 in general and
administrative expenses, a decrease of $74 in other operating expenses and an
increase of $233 in interest expense.
Total recoverable expenses, including real estate taxes and recoverable
operating expenses, increased by 13.0%, or $612, to $5,313 as compared to $4,701
for the three months ended June 30, 1998. Depreciation and amortization
increased by 14.3%, or $421, to $3,361 as compared to $2,940 for the three
months ended June 30, 1998, and general and administrative expenses increased
$604, or 46.0% to $1,916 as compared to $1,312 for the three months ended June
30, 1998. The increase in recoverable expenses of $612 and
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depreciation and amortization of $421 are primarily due to the 1998 acquisitions
and the opening of Home Depot at the White Lake MarketPlace development during
the first quarter of 1999.
Other operating expenses decreased $74, or 41.3%, to $105 for the three
months ended June 30, 1999 as compared to $179 for the three months ended June
30, 1998. The decrease is the primarily the result of a decrease in bad debt
expense for the three months ended June 30, 1999 when compared to the same
quarter ended June 30, 1998.
Interest expense increased $233, from $6,195 to $6,428 for the three months
ended June 30, 1999. The 3.8% increase is the result of additional interest
expense on a mortgage loan assumed in connection with the acquisition of Aqua
Townie Center in September 1998 and increased borrowings on the Credit Facility
and construction loans.
The minority interest of $1,030 for the three months ended June 30, 1999
represents a 29.0% share of income before minority interest of the operating
partnership compared to a 28.0% share of income before minority interest, or
$771 for the three months ended June 30, 1998.
GENERAL AND ADMINISTRATIVE
Following is a breakdown of the general and administrative expenses shown
in the financial statements:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Management fees............................................. $ 353 $ 320 $ 770 $ 648
Leasing and development fees................................ 127 77 237 142
Other revenues.............................................. 175 183 424 345
Leasing/Development cost reimbursements..................... 469 510 1,195 1,004
------ ------ ------ ------
Total revenues......................................... 1,124 1,090 2,626 2,139
------ ------ ------ ------
Employee expenses........................................... 1,365 1,119 2,918 2,474
Office and other expenses................................... 571 479 880 797
Depreciation and amortization............................... 106 65 159 128
------ ------ ------ ------
Total expenses......................................... 2,042 1,663 3,957 3,399
------ ------ ------ ------
Operating partnership cost reimbursement expenses........... 918 573 1,331 1,260
------ ------ ------ ------
Operating partnership administrative expenses............... 716 620 1,507 1,273
------ ------ ------ ------
Shopping center level general and administrative expenses... 282 119 672 416
------ ------ ------ ------
Total general and administrative expenses......... $1,916 $1,312 $3,510 $2,949
====== ====== ====== ======
The increase in general and administrative expenses, when compared to the
six months ended June 30, 1998 is primarily due to corporate general salary
increases and an increase in headcount when compared to the six months ended
June 30, 1998.
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
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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
and six months ended June 30, 1999, and 1998:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net Income.............................................. $ 2,525 $ 2,079 $ 5,334 $ 4,082
Add: Depreciation and amortization.................... 3,356 2,947 6,654 5,890
Add: Minority interest in partnership................. 1,030 771 2,216 1,562
------- ------- ------- -------
Funds from operations -- diluted........................ 6,911 5,797 14,204 11,534
Less: Preferred share dividends....................... 849 283 1,689 563
------- ------- ------- -------
Funds from operations -- basic.......................... $ 6,062 $ 5,514 $12,515 $10,971
======= ======= ======= =======
Weighted average equivalent shares outstanding(1)
Basic................................................. 10,170 9,891 10,170 9,891
======= ======= ======= =======
Diluted............................................... 12,171 10,607 12,171 10,606
======= ======= ======= =======
Supplemental disclosure:
Straight-line rental income........................... $ 458 $ 330 $ 1,115 $ 751
======= ======= ======= =======
Amortization of management contracts and covenants not
to compete......................................... $ 124 $ 124 $ 248 $ 248
======= ======= ======= =======
- -------------------------
(1) For basic FFO, represents the weighted average total shares outstanding,
assuming the redemption of all Operating Partnership Units for Common
Shares. For diluted FFO, 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.
CAPITAL EXPENDITURES
During the six months ended June 30, 1999, the Company spent approximately
$20,784 on revenue generating capital expenditures including tenant allowances,
leasing commissions paid to third-party brokers, legal costs relative to lease
documents, capitalized leasing, land acquisition costs and construction costs.
These types of costs generate a return through rents from tenants over the term
of their leases. Revenue enhancing capital expenditures, including expansions,
renovations or repositionings, were approximately $3,205. Revenue neutral
capital expenditures, such as roof and parking lot repairs, which are
anticipated to be recovered from tenants, amounted to approximately $1,318.
YEAR 2000
The Company recognizes that Year 2000 issues may have an impact on its
business, operations and financial condition. The Company has completed an
assessment of its Year 2000 readiness with respect to all of its information
technology ("IT") systems and is currently addressing the reliability and
condition of its non-IT systems. These assessments will continue to be updated
as additional information becomes available and as new concerns are identified.
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The Company's IT systems generally consist of file servers, operating
systems, application programs and workstations that utilize purchased and
customized software. The Company continues to evaluate the Year 2000 compliance
status of each vendor and tenant and believes that its existing systems or
planned upgrades during 1999 will be Year 2000 compliant. Implementation and
upgrades of non-Year 2000 compliant systems are not expected to result in
significant additional cost to the Company.
The Company's non-IT systems which may be subject to Year 2000 issues are
facility related and encompass areas such as HVAC systems, elevators, security,
lighting, telecommunications, electrical, plumbing, fire and sprinkler controls.
The Company is currently addressing the potential impact of Year 2000 issues in
these areas and has not identified any instances where Year 2000 issues will
require material costs to repair or replace any of these systems.
The significant risks to the Company, in the event that Year 2000 issues
are not identified and corrected, are that the Company could experience delays
or errors in processing financial and operational information. Non-IT system
problems could result in forced closure of certain facilities, which could limit
the efficient operation of the Company's properties.
Contingency plans will be developed if it appears the Company or its key
suppliers and tenants will not be Year 2000 compliant, and if such noncompliance
is expected to have a significant adverse effect on the Company's financial
position or results of operations.
INFLATION
Substantially all of the leases at the Company's properties provide for
tenants to pay their pro rata share of operating expenses, including common area
maintenance and real estate taxes, thereby reducing the Company's exposure to
increases in operating expenses resulting from inflation. Many of the tenants'
leases contain provisions designed to lessen the impact of inflation. Such
provisions include the ability to receive percentage rentals based on a tenant's
gross sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. In
addition, many of the leases are for terms of less than ten years, which may
enable the Operating Partnership to replace existing leases with new leases at a
higher base and/or percentage rentals if rents of the existing leases are below
the then existing market rate.
FORWARD LOOKING 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.
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PART II -- OTHER INFORMATION
ITEM 3 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual Meeting of Shareholders of the Company was held on June 9, 1999.
At the Annual Meeting, Selwyn Isakow, Arthur H. Goldberg and Mark K. Rosenfeld
were re-elected as trustees of the Company to serve until the 2002 Annual
Meeting of Shareholders or until their successors are elected and qualified. The
following votes were cast for or were withheld from voting with respect to the
election of each of the following persons:
VOTES AUTHORITY
NAME FOR WITHHELD
---- ----- ---------
Selwyn Isakow........................................... 7,108,386 412,224
Arthur H. Goldberg...................................... 7,107,575 413,035
Mark K. Rosenfeld....................................... 7,108,236 412,374
There were no broker non-votes or abstentions in connection with the
election of the trustees at the Annual Meeting.
The following votes were cast for, against or withheld regarding the
ratification to increase the number of shares available under the trust's 1996
Share Option Plan:
FOR AGAINST ABSTAIN
--- ------- -------
4,469,758 804,808 64,878
ITEM 4 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index immediately preceding the exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ending June 30,
1999.
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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: August 11, 1999 By: /s/ Dennis E. Gershenson
----------------------------------------------------
Dennis E. Gershenson
President and Trustee
(Chief Executive Officer)
Date: August 11, 1999 By: /s/ Richard J. Smith
----------------------------------------------------
Richard J. Smith
Chief Financial Officer
(Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.48 Loan Agreement dated June 1, 1999 between RAMCO-GERSHONSON
PROPERTIES, L.P. and BANK ONE.
27.1 Financial Data Schedule