1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 October 31, 1999: 7,217,993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets -- September 30, 1999
(unaudited) and December 31, 1998......................... 3
Consolidated Statements of Income (unaudited) -- Three
Months and Nine Months Ended September 30, 1999 and
1998...................................................... 4
Consolidated Statement of Shareholders' Equity
(unaudited) -- Nine Months Ended September 30, 1999....... 5
Consolidated Statements of Cash Flows (unaudited) -- Nine
Months Ended September 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 4. Exhibits and Reports on Form 8-K............................ 18
SIGNATURES........................................................... 19
2
3
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
ASSETS
Investment in real estate -- net (Note 2)................... $507,302 $509,844
Cash and cash equivalents................................... 2,812 4,550
Accounts receivable -- net.................................. 12,367 9,864
Equity investments in and advances to unconsolidated
entities (Note 3)......................................... 12,231 5,896
Other assets -- net (Note 4)................................ 11,486 14,250
-------- --------
Total Assets........................................... $546,198 $544,404
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable (Note 5)........................ $332,752 $328,248
Distributions payable....................................... 5,130 5,244
Accounts payable and accrued expenses....................... 16,669 15,235
-------- --------
Total Liabilities...................................... 354,551 348,727
Minority Interest........................................... 48,137 48,535
Commitments and Contingencies (Note 7).................... -- --
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............ (42,364) (38,732)
-------- --------
Total Shareholders' Equity............................. 143,510 147,142
-------- --------
Total Liabilities and Shareholders' Equity........ $546,198 $544,404
======== ========
See notes to consolidated financial statements.
3
4
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES
Minimum rents....................................... $14,790 $13,693 $44,813 $40,134
Percentage rents.................................... 510 46 1,669 798
Recoveries from tenants............................. 5,670 5,058 16,599 14,321
Interest and other income........................... 124 166 546 415
------- ------- ------- -------
Total Revenues................................. 21,094 18,963 63,627 55,668
------- ------- ------- -------
EXPENSES
Real estate taxes................................... 2,019 1,761 6,005 5,208
Recoverable operating expenses...................... 3,768 3,246 10,963 9,213
Depreciation and amortization....................... 3,356 3,059 10,008 8,935
Other operating..................................... 188 183 739 598
General and administrative.......................... 1,682 1,400 5,192 4,349
Interest expense.................................... 6,276 6,444 19,215 18,688
------- ------- ------- -------
Total Expenses................................... 17,289 16,093 52,122 46,991
------- ------- ------- -------
Operating income...................................... 3,805 2,870 11,505 8,677
Loss from unconsolidated entities..................... 21 65 171 228
------- ------- ------- -------
Income before minority interest....................... 3,784 2,805 11,334 8,449
Minority interest..................................... 1,106 810 3,322 2,372
------- ------- ------- -------
Net income............................................ 2,678 1,995 8,012 6,077
Preferred dividends................................... (859) (345) (2,548) (908)
------- ------- ------- -------
Net income available to common shareholders........... $ 1,819 $ 1,650 $ 5,464 $ 5,169
======= ======= ======= =======
Basic earnings per share.............................. $ 0.25 $ 0.23 $ 0.76 $ 0.73
======= ======= ======= =======
Diluted earnings per share............................ $ 0.25 $ 0.23 $ 0.76 $ 0.72
======= ======= ======= =======
Weighted average shares outstanding:
Basic............................................... 7,218 7,124 7,218 7,123
======= ======= ======= =======
Diluted............................................. 7,218 7,144 7,218 7,162
======= ======= ======= =======
See notes to consolidated financial statements.
4
5
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.............. (9,096) (9,096)
Preferred Shares dividends declared...... (2,548) (2,548)
Net income............................... 8,012 8,012
------- --- -------- -------- --------
BALANCE, SEPTEMBER 30, 1999.............. $33,829 $72 $151,973 $(42,364) $143,510
======= === ======== ======== ========
See notes to consolidated financial statements.
5
6
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
--------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 8,012 $ 6,077
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization.......................... 10,008 8,935
Amortization of deferred financing costs............... 567 804
Loss from unconsolidated entities...................... 171 228
Minority interest...................................... 3,322 2,372
Changes in assets and liabilities that provided (used)
cash:
Accounts receivable.................................. (2,503) (1,022)
Other assets......................................... (3,074) (5,187)
Accounts payable and accrued expenses................ 1,434 1,171
-------- --------
Cash Flows Provided by Operating Activities................. 17,937 13,378
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds from real estate sales........................... 27,851 --
Real estate acquired...................................... (34,443) (24,838)
Investment in RPT/INVEST L.L.C............................ (1,403) --
Advances (to) from unconsolidated entities................ (76) 428
-------- --------
Cash Flows Used in Investing Activities..................... (8,071) (24,410)
-------- --------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Cash distributions to shareholders........................ (9,096) (9,322)
Cash distributions to operating partnership unit
holders................................................ (3,987) (3,603)
Cash dividends paid on Preferred Shares................... (2,395) (563)
Repayment of Credit Facility.............................. (29,000) (3,700)
Principal repayments on mortgages payable................. (2,297) (3,992)
Payment of deferred financing costs....................... (630) (370)
Borrowings on Credit Facility............................. 17,000 22,600
Borrowings on construction loans.......................... 18,801 --
Net proceeds from issuance of Preferred Shares............ -- 9,380
Net advances from related entities........................ -- 52
Refund of deferred financing costs........................ -- 250
Net proceeds from exercise of stock options............... -- 10
-------- --------
Cash Flows (Used in) Provided by Financing Activities....... (11,604) 10,742
-------- --------
Net Decrease in Cash and Cash Equivalents................... (1,738) (290)
Cash and Cash Equivalents, Beginning of Period.............. 4,550 5,033
-------- --------
Cash and Cash Equivalents, End of Period.................... $ 2,812 $ 4,743
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the period.................. $ 19,826 $ 17,591
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of Aquia Towne Center:
Debt assumed........................................... -- $ 15,170
Value of OP units issued............................... -- 5,273
See notes to consolidated financial statements.
6
7
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 (in thousands):
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
Land...................................................... $ 76,758 $ 64,433
Buildings and Improvements................................ 449,416 464,216
Construction-in- progress................................. 14,283 7,331
-------- --------
540,457 535,980
Less: accumulated depreciation............................ (33,155) (26,136)
-------- --------
Investment in real estate -- net.......................... $507,302 $509,844
======== ========
3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
On August 30, 1999 the Company entered into a joint venture agreement with
an affiliate of Investcorp International, Inc. (Investcorp) to create
RPT/INVEST, L.L.C. The purpose of the joint venture is to acquire existing
shopping centers with purchase prices amounting up to $125 million located in
the Mid-West, Mid-Atlantic and northeast United States.
The Company sold two existing properties to joint venture entities for cash
of approximately $27.8 million, net of a $2.5 million equity contribution for
its 25% interest in the joint venture. The Company used the proceeds from the
sale to repay $25.0 million of variable rate debt on its revolving Credit
Facility. Investcorp contributed cash of approximately $7.6 million in exchange
for a 75% equity interest in the joint venture.
The joint venture is managed by a five member Investment Committee,
consisting of three members appointed by Investcorp and two members appointed by
the Company. Under terms of the joint venture agreement, the Company will
continue to manage the properties, including leasing and operating
responsibilities, for which the Company will receive management fees, leasing
commissions and asset management fees.
7
8
In addition, the Company is responsible for identifying and acquiring properties
and is expected to receive fees from the joint venture for such services.
The joint venture agreement includes a provision whereby the Company has
the right to purchase any property acquired by the joint venture during specific
time periods from the date of acquisition of the property.
4. OTHER ASSETS
Other assets are as follows (in thousands):
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
Leasing costs and other..................................... $ 8,118 $ 6,893
Prepaid expenses and other.................................. 3,525 3,426
Deferred financing costs.................................... 3,690 3,059
Proposed development and acquisition costs.................. 486 3,911
------- -------
15,819 17,289
Less: accumulated amortization.............................. (4,333) (3,039)
------- -------
Other assets -- net......................................... $11,486 $14,250
======= =======
5. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consist of the following (in thousands):
SEPTEMBER 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.................. $170,075 $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 September 30, 1999 was 6.93%
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 September 30, 1999, was 7.64%. 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
September 30, 1999, was 7.25% and at December 31, 1998 was
7.10%. Maximum borrowings of $14,000...................... 8,888 5,889
Unsecured term loan, due October 1, 2000. The effective rate
at September 30, 1999 was 9.19% 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 September
30, 1999 was 7.51%, and at December 31, 1998 was 7.35%.... 85,988 97,988
-------- --------
$332,752 $328,248
======== ========
The mortgage notes and construction loans are secured by mortgages on
properties that have an approximate net book value of $332,194 as of September
30, 1999. The Credit Facility is secured by mortgages on various properties that
have an approximate net book value of $166,032 as of September 30, 1999.
At September 30, 1999, outstanding letters of credit issued under the
Credit Facility, not reflected in the accompanying consolidated balance sheet,
amounted to approximately $912.
8
9
The following table presents scheduled principal payments on mortgages and
notes payable as of September 30, 1999:
YEAR ENDED
DECEMBER 31,
- ------------
1999 (October 1 -- December 31)............................ $ 815
2000........................................................ 139,486
2001........................................................ 4,128
2002........................................................ 27,087
2003........................................................ 3,653
Thereafter.................................................. 157,583
--------
Total.................................................. $332,752
========
6. LEASES
The Company is engaged in the operation of shopping center and retail
properties and leases space to tenants and certain anchors pursuant to lease
agreements. The lease agreements provide for initial terms ranging from 3 to 30
years and, in some cases, for annual rentals which are subject to upward
adjustment based on operating expense levels and sales volume.
Approximate future minimum rentals under noncancelable operating leases in
effect at September 30, 1999, assuming no new or renegotiated leases nor option
extensions on lease agreements, are as follows (in thousands):
YEAR ENDED
DECEMBER 31,
- ------------
1999 (October 1 -- December 31)............................. $ 13,795
2000........................................................ 52,009
2001........................................................ 47,706
2002........................................................ 42,968
2003........................................................ 37,848
Thereafter.................................................. 257,393
--------
Total.................................................. $451,719
========
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 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.
9
10
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 (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 for the years prior to 1999 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 regulations of the IRS.
Based upon the report, the Company could be liable for up to $42.2 million in
combined taxes, penalties and interest through November 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 $43.5 million as of November
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 June 30, 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 has filed an administrative appeal challenging the findings contained in
the IRS agent's examination report.
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 $17,937 in cash flows from operating activities for
the nine months ended September 30, 1999 and used $34,443 to fund development
projects for two shopping centers and to improve its properties. During the nine
months ended September 30, 1999, financing activities provided $18,801 from
borrowings on two construction loans; used $2,297 to pay regularly scheduled
principal repayments on mortgage obligations and $15,478 for cash distributions
to shareholders, holders of operating partnership units
10
11
and dividends paid to preferred shareholders. The Company reduced borrowings on
the Credit Facility by $12,000, net of borrowings of $17,000.
In August 1999, the Company received $27,851 from the sale of two
properties from an affiliated joint venture and used the proceeds to reduce the
Credit Facility by $25,000 and for general corporate purposes.
The Company's mortgage and notes payable amounted to $332,752 at September
30, 1999, with a weighted average interest rate of 7.83 %. The debt consists of
nine loans secured by various properties, plus two construction loans, one
unsecured term loan and the Credit Facility, as defined below. Eight of the
mortgage loans amounting to $170,075 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 its
applicable LIBOR rate (6.93% at September 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 (7.64% at September
30, 1999) and matures in 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 September 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 (7.25% at September 30, 1999) and matures June 2000.
At the Company's option, the loan can then be converted to a 2-year term loan.
Approximately $8.9 million has been borrowed at September 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 (9.19% at September 30, 1999).
The Company currently has a $110,000 Credit Facility, of which $85,988 was
outstanding as of September 30, 1999. This credit facility bears interest
between 137.5 and 162.5 basis points over LIBOR depending on certain debt ratios
(7.51% at September 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 September 30, 1999, the Company was in compliance
with the covenant terms.
At September 30, 1999, outstanding letters of credit issued under the
Credit Facility amounted to $912.
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 $87,677 of outstanding debt with a weighted
average interest rate of 8.39%. Variable rate debt accounted for approximately
26.4% of the Company's total debt and 17.0% of its total capitalization.
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 64.7% at
September 30, 1999
The four 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
11
12
indebtedness. At September 30, 1999, the pro rata share of non-recourse mortgage
debt on the unconsolidated properties (accounted for on the equity method) was
$11,633 with a weighted average interest rate of 8.45%.
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 September 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 $151,921 at September 30,
1999 (based on the closing price of $14.938 per share on September 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 NINE MONTHS ENDED SEPTEMBER 30, 1999 TO NINE MONTHS ENDED
SEPTEMBER 30, 1998.
Total revenues for the nine months ended September 30, 1999 increased by
14.3%, or $7,959, to $63,627 as compared to $55,668 for the nine months ended
September 30, 1998. Minimum rents increased 11.7%, or $4,679 to $44,813 for the
nine months ended September 30, 1999 as compared to $40,134 for the same period
in 1998. The acquisition of Southbay Fashion Center, Conyers Crossing, Aquia
Towne Center and Rivertowne Square during 1998 contributed $3,576 to the
increase in minimum rents for the nine months ended September 30, 1999.
Recoveries from tenants increased $2,278 or 15.9% to $16,599 for the nine
months ended September 30, 1999 as compared to $14,321 for the nine months ended
September 30, 1998. Of this increase, $637 relates to the 1998 acquisitions and
the remaining increase is attributable to increases in recoverable operating
expenses in 1999 for the Core Portfolio (shopping center properties owned as of
January 1, 1998). The recovery ratio for the nine months ended September 30,
1999 decreased to 97.8% from 99.3% for the same period in 1998. The decrease in
the ratio is attributable to lower recovery ratios at the 1998 acquisition
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 nine months ended September 30, 1999. As leases
expire at the 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 nine months ended September 30, 1999, percentage rents increased
$871, of which $225 was due to the four acquisitions made in 1998. Percentage
rents for the nine months ended September 30, 1998, would have been
approximately $300 higher if the Company had not been required to adopt the
Emerging Issues Task Force Issue No. 98-9, "Accounting for Contingent Rent in
Interim Periods" during the second quarter of
12
13
1988. This statement was withdrawn in November 1998. Interest and other income
increased from $415 for the nine months ended September 30, 1998 to $546. The
material components of this increase were attributable to higher temporary
tenant rentals and additional interest income for the nine months ended
September 30, 1999.
Total expenses for the nine months ended September 30, 1999 increased by
10.9%, or $5,131, to $52,122 as compared to $46,991 for the nine months ended
September 30, 1998. The increase was due to a $2,547 increase in total
recoverable expenses, including real estate taxes and recoverable operating
expenses, a $1,073 increase in depreciation and amortization, a $141 increase in
other operating expenses, a $843 increase in general and administrative
expenses, and a $527 increase in interest expense.
Total recoverable expenses, including real estate taxes and recoverable
operating expenses, increased by 17.7%, or $2,547, to $16,968 as compared to
$14,421 for the nine months ended September 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 $1,073, or 12.0%, to
$10,008 as compared to $8,935 for the nine months ended September 30, 1998. The
increase is the result of acquisitions and renovations made during 1998. Other
operating expenses increased from $598 for the nine months ended September 30,
1998 to $739 for the nine months ended September 30, 1999. The increase is
primarily due to $101 of additional bad debt expense for the nine months ended
September 30, 1999 when compared to 1998.
Interest expense increased $527, from $18,688 to $19,215 for the nine
months ended September 30, 1999. The 2.8% increase is the result of additional
interest expense due to increased borrowings on the Credit Facility during 1999,
mortgage debt assumed in connection with the acquisition of Aqua Towne Center in
September 1998, and increased borrowings on construction loans during 1999.
The minority interest of $3,322 for the nine months ended September 30,
1999 represents a 29.0% share of income before minority interest of the
operating partnership compared to a 28.1% share of income before minority
interest, or $2,372 for the nine months ended September 30, 1998.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Total revenues increased $2,131 or 11.2%, from $18,963 for the three months
ended September 30, 1998 to $21,094 for the three months ended September 30,
1999. The increase was a result of a $1,097 increase in minimum rents, a $612
increase in recoveries from tenants, $464 increase in percentage rents, offset
by a decrease of $42 in interest and other income.
Minimum rents for the three months ended September 30, 1999 increased
$1,097, or 8.0% to $14,790 from $13,693 for the three months ended September 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 $964 or 87.9% of this increase. Recoveries from tenants increased
12.1%, or $612, to $5,670 from $5,058 for the three months ended September 30,
1998. The impact of the 1998 acquisitions amounted to $172, or 28.1% of this
increase and the reaming increase is principally due to increases in recoverable
operating expenses in 1999 for the Core Portfolio.
The recovery ratio for the three months ended September 30, 1999 decreased
to 98.0% as compared to 101.0% for the comparable quarter ended September 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 properties, the recovery ratios should increase to a level
comparable to the Company's normal ratio.
Percentage rents increased $464, from $46 for the three months ended
September 30, 1998, to $510 for the same period in 1999. Of this increase, $104
is attributable to the 1998 acquisitions included in the three months ended
September 30, 1999. Percentage rents for the three months ended September 30,
1998, would have been approximately $300 higher if the Company had not been
required to adopt Emerging Issues Task Force Issue No.98-9, "Accounting for
Contingent Rent in Interim Financial Periods" during the second quarter of 1998.
This statement was withdrawn in November 1998.
13
14
Total expenses for the three months ended September 30, 1999 increased by
$1,196, or 7.4%, to $17,289 as compared to $16,093 for the three months ended
September 30, 1998. The increase was due to a $780 increase in total recoverable
expenses, including real estate taxes and recoverable operating expenses, a $297
increase in depreciation and amortization, an increase of $282 in general and
administrative expenses, an increase of $5 in other operating expenses and a
decrease of $168 in interest expense.
Total recoverable expenses, including real estate taxes and recoverable
operating expenses, increased by 15.6%, or $780, to $5,787 as compared to $5,007
for the three months ended September 30, 1998. Depreciation and amortization
increased by 9.7%, or $297, to $3,356 as compared to $3,059 for the three months
ended September 30, 1998, and general and administrative expenses increased
$282, or 20.1% to $1,682 as compared to $1,400 for the three months ended
September 30, 1998. The increase in recoverable expenses of $780 and
depreciation and amortization of $282 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.
Interest expense decreased $168, from $6,444 to $6,276 for the three months
ended September 30, 1999. The 2.6% decrease is primarily attributable to $597 of
interest capitalized during the three months ended September 30, 1999, and the
reduction of the Credit Facility during the quarter ended September 30, 1999.
The minority interest of $1,106 for the three months ended September 30,
1999 represents a 29.0% share of income before minority interest of the
operating partnership compared to a 28.9% share of income before minority
interest, or $810 for the three months ended September 30, 1998.
GENERAL AND ADMINISTRATIVE
Following is a breakdown of the general and administrative expenses shown
in the financial statements:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
Management fees............................................. $ 687 $ 234 $1,457 $ 686
Leasing and development fees................................ 99 5 336 147
Other revenues.............................................. 188 216 612 561
Leasing/Development cost reimbursements..................... 545 391 1,740 1,395
------ ------ ------ ------
Total revenues......................................... 1,519 846 4,145 2,789
------ ------ ------ ------
Employee expenses........................................... 1,517 1,213 4,435 3,687
Office and other expenses................................... 410 315 1,290 1,112
Depreciation and amortization............................... 22 67 181 195
------ ------ ------ ------
Total expenses......................................... 1,949 1,595 5,906 4,994
------ ------ ------ ------
Operating partnership cost reimbursement expenses........... 430 749 1,761 2,205
------ ------ ------ ------
Operating partnership administrative expenses............... 762 539 2,269 1,811
------ ------ ------ ------
Shopping center level general and administrative expenses... 490 112 1,162 333
------ ------ ------ ------
Total general and administrative expenses......... $1,682 $1,400 $5,192 $4,349
====== ====== ====== ======
For the three months ended September 30, 1999, management fees revenue
included $307 of acquisition fees paid to the Company by affiliated joint
venture entities. The increase in general and administrative expenses, when
compared to the nine months ended September 30, 1998 is primarily due to
corporate general salary increases and an increase in headcount when compared to
the nine months ended September 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.
14
15
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
and nine months ended September 30, 1999, and 1998:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net Income.............................................. $ 2,678 $ 1,995 $ 8,012 $ 6,077
Add: Depreciation and amortization.................... 3,374 3,066 10,028 8,956
Add: Minority interest in partnership................. 1,106 810 3,322 2,372
------- ------- ------- -------
Funds from operations -- diluted........................ 7,158 5,871 21,362 17,405
Less: Preferred share dividends....................... (859) (345) (2,548) (908)
------- ------- ------- -------
Funds from operations -- basic.......................... $ 6,299 $ 5,526 $18,814 $16,497
======= ======= ======= =======
Weighted average equivalent shares outstanding(1)
Basic................................................. 10,170 10,010 10,170 9,931
======= ======= ======= =======
Diluted............................................... 12,170 10,831 12,171 10,681
======= ======= ======= =======
Supplemental disclosure:
Straight-line rental income........................... $ 472 $ 662 $ 1,587 $ 1,413
======= ======= ======= =======
Amortization of management contracts and covenants not
to compete......................................... $ 124 $ 124 $ 372 $ 372
======= ======= ======= =======
- -------------------------
(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 nine months ended September 30, 1999, the Company spent
approximately $24,339 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 $9,557.
Revenue neutral capital expenditures, such as roof and parking lot repairs,
which are anticipated to be recovered from tenants, amounted to approximately
$1,538.
15
16
YEAR 2000
The Year 2000 issue is a result of computer programs and embedded
microprocessors being designed to function using a two-digit year designation
rather than the now customary four-digit extension. On January 1, 2000, computer
programs and embedded systems that have date sensitive hardware or software may
interpret a date extension of "00" as the year 1900 rather than the year 2000.
As a result, systems failures and/or programming miscalculations may occur
causing operational disruptions which could hinder the Company's ability to
process transactions, collect rents, or engage in other standard business
activities.
The Company believes that it has identified and inventoried all information
and non-information based technology systems that need to be assessed for Year
2000 readiness. All systems identified have been classified by the Company as
either mission critical or non-mission critical. Mission critical systems
include, but are not limited to: general ledger, accounts payable and
receivable, human resources, payroll, fixed assets, cash management, and all
associated information technology (IT) hardware. Non-IT systems which have been
deemed to be critical in nature include corporate and mall telephone systems, on
and off-site facsimile and copy machines, and security systems.
The Company has conducted and completed an assessment of all mission
critical and non-mission critical systems. The majority of these systems are
either currently Year 2000 compliant or are in the process of being upgraded to
become compliant. The Company continues to evaluate both its critical and
non-critical information technology systems as new information becomes available
from our vendors and product manufacturers.
The Company has surveyed the majority of its vendors and tenants in an
effort to inform and question the state of their Year 2000 readiness. To date,
the Company is not aware of any vendor or tenant whose Year 2000 issue would
materially impact operations. However, there can be no assurances that the
systems of other companies, on which the Company relies upon, will be
functionally ready for the Year 2000.
In September 1999, the Company entered into what it considers to be the
final phase of its remediation efforts. The Company continues to work on
contingency planning as it considers various possible scenarios. It is
anticipated that a contingency plan will be in place prior to the end of
November 1999.
The Company believes that it has an effective Year 2000 program in place.
Aside from catastrophic failure of utilities, banks, or governmental agencies
the Company believes that normal business operations should not be effected
materially. The cost associated with Year 2000 testing and remediation have not
had a material impact on the results of operations during the first nine months
ended September 30, 1999, and management does not currently anticipate that
there will be a material impact during the fourth quarter of 1999.
ECONOMIC CONDITIONS
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.
The retail industry has experienced some financial difficulties during the
past few years and certain local, regional and national retailers have filed for
protection under bankruptcy laws. If this trend should continue, the Company's
future earnings performance could be negatively impacted.
16
17
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.
17
18
PART II -- OTHER INFORMATION
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 September
30, 1999.
18
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
RAMCO-GERSHENSON PROPERTIES TRUST
Date: November 12, 1999 By: /s/ DENNIS E. GERSHENSON
----------------------------------------------------
Dennis E. Gershenson
President and Trustee
(Chief Executive Officer)
Date: November 12, 1999 By: /s/ RICHARD J. SMITH
----------------------------------------------------
Richard J. Smith
Chief Financial Officer
(Principal Accounting Officer)
19
20
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Limited Liability Company Agreement of RPT/INVEST L.L.C.
dated August 23, 1999.
27.1 Financial Data Schedule