<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM 10-K/A3
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
RPS REALTY TRUST
(Exact name of registrant as specified in charter)
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of the Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 as set forth in the pages attached
hereto:
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a)(1) All Financial Statements
<PAGE> 2
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
RPS REALTY TRUST
(Registrant)
Date: September 8, 1995 By: /s/Edwin R. Frankel
--------------------
Edwin R. Frankel
Senior Vice President and
Treasurer
(Principal Financial and
Accounting Officer)
<PAGE> 3
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(i) All Financial Statements
RPS REALTY TRUST AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT FS-2
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992:
Consolidated Balance Sheets FS-3
Consolidated Statements of Income FS-4
Consolidated Statements of Shareholders' Equity FS-5
Consolidated Statements of Cash Flows FS-6
Notes to Consolidated Financial Statements FS-7
</TABLE>
<PAGE> 4
[DELOITTE & TOUCHE LLP LETTERHEAD]
Two World Financial Center Telephone:(212)436-2000
New York, New York 10281-1414 Facsimile:(212)436-5000
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of
RPS Realty Trust:
We have audited the accompanying consolidated balance sheets of RPS Realty Trust
and subsidiaries (the "Trust") as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of RPS Realty Trust and subsidiaries
as of December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
-------------------------
February 27, 1995 (except for Note 16, which
is dated April 10, 1995)
FS-2
<PAGE> 5
RPS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
MORTGAGE LOANS RECEIVABLE - Net of allowance
for possible loan losses of $11,657,236 in 1994
and $23,724,537 in 1993 $ 41,891,769 $100,692,130
INVESTMENT IN REAL ESTATE - Net 56,109,381 33,740,202
SHORT-TERM INVESTMENTS 73,781,582 37,747,388
INTEREST AND ACCOUNTS RECEIVABLE 8,607,992 9,977,893
CASH 802,384 1,053,375
DEFERRED ACQUISITION EXPENSES - Net of accumulated
amortization of $1,319,706 in 1994 and $1,121,842 in 1993 2,352,107 2,549,971
OTHER ASSETS 2,625,607 659,037
------------ ------------
TOTAL ASSETS $186,170,822 $186,419,996
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Distributions payable $ 2,279,394 $ 2,285,058
Deposits on sale of loans -- 1,365,042
Accounts payable and accrued expenses 1,292,260 1,430,273
Mortgages payable -- 5,027,023
------------ ------------
Total liabilities 3,571,654 10,107,396
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY 182,599,168 176,312,600
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $186,170,822 $186,419,996
============ ============
</TABLE>
See notes to consolidated financial statements.
FS-3
<PAGE> 6
RPS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
REVENUES:
Interest income:
Mortgage loans $ 8,597,619 $13,990,819 $20,037,918
Short-term investments 2,604,284 1,104,562 1,598,437
Additional contingent interest and prepayment
premium income 8,405,813 3,433,116 5,250,000
Rental income 6,764,394 4,086,850 2,579,905
Gain on sale of marketable securities -- 3,942,513 --
Dividend income -- 395,185 351,000
Other 34,651 15,460 40,000
----------- ----------- -----------
26,406,761 26,968,505 29,857,260
----------- ----------- -----------
EXPENSES:
Losses on disposition of real estate/loans 227,708 -- 919,471
Allowance for possible loan losses 2,500,000 15,000,000 12,955,100
Interest on note payable -- 2,019,710 1,928,453
Interest on mortgages payable 426,414 603,152 721,031
General and administrative 2,086,318 1,912,228 2,054,377
Payroll and related 1,811,485 1,723,528 1,765,933
Property operating 1,529,731 1,206,002 725,786
Real estate tax 1,235,961 704,228 396,015
Depreciation 749,404 550,527 359,467
Amortization of deferred acquisition expense 197,864 197,864 197,864
----------- ----------- -----------
10,764,885 23,917,239 22,023,497
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS 15,641,876 3,051,266 7,833,763
----------- ----------- -----------
EXTRAORDINARY ITEMS -- -- 1,005,073
----------- ----------- -----------
NET INCOME $15,641,876 $ 3,051,266 $ 8,838,836
=========== =========== ===========
Per share:
Income before extraordinary items $ .55 $ .11 $ .27
Extraordinary items -- -- .04
----------- ----------- -----------
Net income $ .55 $ .11 $ .31
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
FS-4
<PAGE> 7
RPS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
NUMBER OF PAID-IN CUMULATIVE CUMULATIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS DISTRIBUTIONS EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 28,653,021 $2,865,302 $195,591,125 $60,209,549 $ (67,494,562) $191,171,414
Shares repurchased and retired (56,700) (5,670) (287,461) - - (293,131)
Net income - - - 8,838,836 - 8,838,836
Cash distributions declared - - - - (17,158,168) (17,158,168)
Reversal of reserve for estimated
merger costs
---------- ---------- ------------ ----------- ------------- ------------
BALANCE, DECEMBER 31, 1992 28,596,321 2,859,632 195,303,664 69,048,385 (84,652,730) 182,558,951
Shares repurchased and retired (43,400) (4,340) (147,750) - - (152,090)
Net income - - - 3,051,266 - 3,051,266
Cash distributions declared - - - - (9,145,527) (9,145,527)
---------- ---------- ------------ ----------- ------------- ------------
BALANCE, DECEMBER 31, 1993 28,552,921 2,855,292 195,155,914 72,099,651 (93,798,257) 176,312,600
Shares repurchased and retired (60,500) (6,050) (231,683) (237,733)
Net income 15,641,876 15,641,876
Cash distributions declared (9,117,575) (9,117,575)
---------- ---------- ------------ ----------- ------------- ------------
BALANCE, DECEMBER 31, 1994 28,492,421 $2,849,242 $194,924,231 $87,741,527 $(102,915,832) $182,599,168
========== ========== ============ =========== ============= ============
</TABLE>
See notes to consolidated financial statements.
FS-5
<PAGE> 8
RPS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,641,876 $ 3,051,266 $ 8,838,836
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 2,500,000 15,000,000 12,955,100
Loss on disposition of real estate 227,708 -- --
Amortization of deferred acquisition expense 197,864 197,864 197,864
Depreciation 749,404 550,527 359,467
Gain on sale of marketable securities -- (3,942,513) --
Extraordinary items -- -- (1,005,073)
Changes in operating assets and liabilities:
Interest and accounts receivable (391,122) 444,197 (3,766,367)
Other assets (2,131,770) (166,789) 67,752
Interest on note payable -- (6,532,559) (504,047)
Deposits on sale of loans -- 1,365,042 --
Accounts payable and accrued expenses (2,342,457) (32,985) 44,875
------------ ------------ ------------
Net cash provided by operating activities 14,451,503 9,934,050 17,188,407
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Satisfaction of mortgage loans receivable 45,903,575 16,902,474 10,675,000
Investment in mortgage loans receivable -- (3,064,000) (7,937,641)
Investment in real estate (8,832,548) (1,426,743) (115,000)
Proceeds from sale of marketable securities -- 9,294,453 --
Sale of real estate 112,500 -- --
Return on marketable securities -- -- 48,060
------------ ------------ ------------
Net cash provided by investing activities 37,183,527 21,706,184 2,670,419
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends declared and paid (9,123,239) (11,149,917) (17,166,673)
Shares repurchased (237,734) (152,090) (293,131)
Repayment of note payable -- (14,482,500) (9,767,500)
Repayment of mortgages payable (6,490,854) (4,703,555) (6,218,437)
------------ ------------ ------------
Net cash used in financing activities (15,851,827) (30,488,062) (33,445,741)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 35,783,203 1,152,172 (13,586,915)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 38,800,763 37,648,591 51,235,506
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 74,583,966 $ 38,800,763 $ 37,648,591
============ ============ ============
CASH AND CASH EQUIVALENTS, END OF YEAR:
Cash $ 802,384 $ 1,053,375 $ 1,068,367
Short-term investments 73,781,582 37,747,388 36,580,224
------------ ------------ ------------
$ 74,583,966 $ 38,800,763 $ 37,648,591
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 426,414 $ 9,155,421 $ 3,153,531
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Investment in real estate $ 14,626,242 $ 8,490,000 $ 7,400,000
Investment in limited partnership -- 460,000 --
Mortgages payable assumed (1,463,831) (3,498,907) (984,019)
Interest and accounts receivable (1,761,023) (2,806,571) (515,599)
Use of allowance for possible loan losses 14,567,301 6,155,478 300,382
Gross mortgages receivable exchanged for real estate (9,500,000) (8,800,000) (5,600,000)
Mortgage receivable exchanged (3,000,000) -- --
Net mortgages receivable sold (13,829,129) -- --
Accounts payable (839,402) -- --
Deposit on sale of loans 1,365,042 -- --
Other assets (165,200) -- --
</TABLE>
See notes to consolidated financial statements.
FS-6
<PAGE> 9
RPS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
RPS Realty Trust (the "Trust"), a Massachusetts business trust, was
formed on June 21, 1988 to be a diversified, growth-oriented real estate
investment trust.
a. Income Tax Status - The Trust conducts its operations with the
intent of meeting the requirements applicable to a real estate
investment trust ("REIT") under Section 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"). For the
year ended December 31, 1994, the Trust intends to distribute all
of its taxable income prior to filing its tax return. See Note 15
for current year developments.
b. Principles of Consolidation - The consolidated financial statements
include the accounts of the Trust and all majority owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
c. Cash Equivalents - Short-term investments are considered cash
equivalents for purposes of the statement of cash flows and consist
primarily of highly liquid investments at December 30, 1994 having
original maturities of less than three months.
d. Investment in Real Estate - Investment in real estate is
stated at the lower of cost less accumulated depreciation or
market. Depreciation is calculated using the straight-line
method over the estimated useful life of the property. The
market value for real estate is determined based on independent
appraisals obtained for the property. Additions and improvements
which extend the estimated useful life of the property are
capitalized. Repairs and maintenance are expensed. In the event it
appears that the cost less accumulated depreciation cannot be
recovered through operations and/or a sale over a reasonable future
period, then it will be considered probable that an impairment that
is other than temporary has occured and the net cost less
accumulated depreciation will be written down to market value and a
new cost basis will be established.
e. Investment in Mortgage Loans Receivable - Investments in
mortgage loans receivable are stated at the lower of the carrying
amount of the loan or the market value of the underlying real
estate. Market values are determined based upon accepted appraisal
techniques including present value of expected cash flows for the
underlying real estate and other observable market comparables. An
allowance for possible loan losses is established based upon a
review of each of the properties in the Trust's portfolio. In
performing the review, management considers the estimated net
realizable value of the property or collateral as well as other
factors, such as the current occupancy, the amount and status of
senior debt, if any, the prospects for the property, the credit
worthiness and current financial position of the borrower and the
economic situation in the region where the property is located.
Because this determination of net realizable value is based upon
future economic events, the amounts ultimately realized at
disposition may differ materially from the carrying value as of
December 31, 1994.
f. Income Recognition - Current interest income on mortgage
loans is recognized on the accrual method during the periods in
which the mortgage loans are outstanding. Deferred interest, due
at the maturity of the mortgage loan, is recognized as income
based on the interest method using the implicit rate of interest
on the mortgage loan. Contingent and additional contingent income
and prepayment premium income are recognized as cash is
received.
g. Deferred Advisory Fees - Deferred advisory fees were paid to
buy out the management contracts of the advisors to the
predecessor entities of the Trust in connection with its formation
in 1988. Such amounts are being amortized over periods of 13 to 20
years representing the expected period over which such fees would
have been paid.
h. Transaction Costs - Direct costs associated with the proposed Ramco
Transaction have been capitalized and are included in other assets.
Depending upon the outcome of the transaction these costs will
either be allocated as part of the purchase price of the assets
acquired or expensed in their entirety.
FS-7
<PAGE> 10
i. Income Per Share - The weighted average number of shares
outstanding used in computing income per share for the years ended
December 31, 1994, 1993 and 1992 were 28,494,379, 28,582,344 and
28,599,637, respectively. The stock options outstanding at December
31, 1994, 1993 and 1992 were not considered in computing income per
share since there was no dilutive effect for the years then ended.
j. Reclassifications - Certain reclassifications have been made to
prior year financial statements to conform with current year's
presentation.
2. MORTGAGE LOANS RECEIVABLE
The principal amounts of the Trust's mortgage loans receivable at
December 31, 1994 and 1993 are summarized below:
<TABLE>
<CAPTION>
INTEREST RATE(B)
CURRENT DECEMBER 31, 1994
RATE AT --------------------------------------------
DECEMBER 31, AVERAGE MATURITY AMOUNT ALLOWANCE NET
DESCRIPTION AVERAGE 1994 ACCRUED DATE ADVANCED FOR LOSS CARRYING AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping centers/retail:
Coral Way 9.00% 9.00% -- 3/95 $ 3,000,000 0 3,000,000
Holiday Park 8.25 9.50 -- 12/95 1,916,564 0 1,916,554
Branhaven Plaza 11.19 10.50 2.25 8/99 2,800,000 0 2,800,000
Plainview Shopping Center 12.50 12.50 2.00 1/99 -- 0 0
Janss Mall 12.20 11.75 3.00 11/99 -- 0 0
Norgate Plaza 12.60 12.50 2.00 11/99 -- 0 0
Madison Heights(j) 9.30 9.50 2.70 9/94 1,550,000 (1,875,900) (325,900)
The Tackett Center 11.33 11.00 2.00 11/00 -- 0 0
Chester Springs 11.92 11.25 3.50 12/00 -- 0 0
1733 Massachusetts
Avenue 8.58 8.00 1.42 6/99 2,200,000 0 2,200,000
Tampa Plaza 10.52 9.00 2.00 5/01 -- 0 0
Mt. Morris Commons 11.20 10.50 2.00 7/01 2,700,000 (1,000,000) 1,700,000
Copps Hill Plaza 6.00 6.00 0.50 7/96 3,563,948 0 3,563,948
Hylan Center (e) 12.00 7.50 4.50 1/01 25,000,000 (3,000,336) 21,999,664
Office buildings:
NCR Building (d) 10.00 10.00 -- 7/94 468,493 0 468,493
New England Telephone
Co 6.92 8.27 3.58 12/99 3,000,000 (2,800,000) 200,000
Wellesley Plaza 10.67 10.00 1.13 7/00 -- 0 0
1-5 Wabash Avenue 5.00 5.00 -- 3/96 2,850,000 0 2,850,000
Industrial/commercial:
Meadowlands Industrial
Park II 17.43% 17.43% - 1/99 $ - $ 0 $ 0
Simmons Mfg. Warehouse 10.00 10.00 2.00% 8/01 1,500,000 0 1,500,000
Loan secured by first lien:
Rector (e) 6.00 6.00 - 4/04 3,000,000 (2,000,000) 1,000,000
Additional amounts assigned
based on experience 0 (981,000) (981,000)
----------- ------------ -----------
53,549,005 (11,657,236) 41,891,769
=========== =========== ==========
</TABLE>
FS-8
<PAGE> 11
<TABLE>
<CAPTION>
DECEMBER 31, 1993 (A)(C)(H)
------------------------------------------------------
AMOUNT ALLOWANCE NET
DESCRIPTION ADVANCED FOR LOSS CARRYING AMOUNT
<S> <C> <C> <C>
Shopping centers/retail:
Coral Way $ 3,000,000 0 3,000,000
Holiday Park 1,916,564 0 1,916,564
Branhaven Plaza 2,800,000 0 2,800,000
Plainview Shopping Center 5,250,000 0 5,250,000
Janss Mall 21,090,000 (4,599,537) 16,490,463
Norgate Plaza 2,500,000 (500,000) 2,000,000
Madison Heights 1,550,000 (1,300,000) 250,000
The Tackett Center 3,400,000 (1,631,000) 1,769,000
Chester Springs 7,000,000 0 7,000,000
1733 Massachusetts
Avenue 2,200,000 0 2,200,000
Tampa Plaza 8,000,000 (3,119,000) 4,881,000
Mt. Morris Commons 2,700,000 (1,000,000) 1,700,000
Copps Hill Plaza 3,641,610 0 3,641,010
Hylan Center (e) -- (3,500,000) 27,500,000
Office buildings:
NCR Building (d) 468,493 0 468,493
New England Telephone
Co 3,000,000 (2,400,000) 600,000
Wellesley Plaza 5,200,000 (5,075,000) 125,000
1-5 Wabash Avenue 2,850,000 0 2,850,000
Industrial/commercial:
Meadowlands Industrial
Park II 15,350,000 0 15,350,000
Simmons Mfg. Warehouse 1,500,000 0 1,500,000
Loan secured by first lien:
Rector (e) 31,000,000 0 0
Additional amounts assigned
based on experience 0 (600,000) (600,000)
------------ ------------ -------------
124,416,667 (23,724,537) 100,692,130
============ ============ =============
</TABLE>
Deferred interest due at maturity of the mortgage loans is recognized as income
based on the interest method. The amounts currently recognized, which are
included on the consolidated balance sheet in Interest and Accounts Receivable,
through December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
<S> <C> <C>
Holiday Park $ 67,080 $ 67,080
Branhaven Plaza 267,329 203,573
Plainview Shopping Center -- 598,557
Norgate Plaza -- 98,455
Madison Heights 128,933 128,933
Chester Springs -- 671,994
1733 Massachusetts Avenue 325,786 297,054
Mt. Morris Commons 52,923 52,923
Hylan Center 6,275,000 --
New England Telephone Co. 407,284 407,284
Simmons Mfg. Warehouse 100,352 77,009
Rector -- 2,980,669
---------- ----------
Total $7,624,687 $5,583,531
========== ==========
</TABLE>
(a) Of the 13 loans outstanding, 5 are wraparound mortgage loans and 8 are
first mortgage loans. The wraparound mortgage loans are subordinate to
prior liens held by others with no recourse to the Trust. Such prior liens
are not liabilities of the Trust and, therefore, are not reflected in the
accompanying financial statements.
(b) In addition to fixed interest, the Trust is entitled, on certain loans, to
contingent interest in an amount equal to a percentage of the gross rent
received by the borrower from the property securing the mortgage above a
base amount, payable annually, and additional contingent interest based on
a predetermined multiple of the contingent interest or a percentage of the
net value of the property at such date, payable at maturity (equity
participation). Contingent interest in the amount of $440,688, $578,027
and $467,080 was received for the years ended December 31, 1994, 1993 and
1992, respectively. Additional contingent interest of $5,505,813,
$3,433,116 and $3,250,000 was received in the years ended December 3l,
1994, 1993 and 1992, respectively. Additionally, the Trust received
prepayment premium income (in lieu of equity participations) of $2,900,000
and $2,000,000 for the years ended December 31, 1994 and 1992,
respectively.
(c) The aggregate cost for Federal income tax purposes approximates that used
for financial reporting.
(d) The NCR mortgage loan represented a transaction in which, for accounting
purposes, the Trust was considered to have substantially the same risks
and potential rewards as the borrower and, accordingly, was accounted for
as an investment in real estate rather than a loan. Although the
transaction was structured as a loan due to the terms of the zero coupon
mortgage, it was not readily determinable at inception that the borrower
would continue to maintain a minimum investment in the property.
Therefore, under the method of accounting applicable to this loan, the
Trust recognized as revenue the lesser of the amount of interest as
contractually provided for in the mortgage, or the actual operations of
the underlying property inclusive of depreciation expense and interest
expense on any senior indebtedness. Under the terms of the loan agreement,
the Trust was entitled to accrued interest of $498,896 for the year ended
December 31, 1992, which was not recognized as a result of the accounting
policy described above (Note 3e).
FS-9
<PAGE> 12
(e) The interest income from this loan represented more than 10 percent of the
Trust's total revenue for the years ended December 31, 1992. The mortgage
receivable balance also represents more than 10 percent of the Trust's
total assets at December 31, 1994 and 1993.
(f) As of December 31, 1994 and 1993, the Trust had five and ten,
respectively, loans that were in arrears (three monthly payments or more)
or otherwise considered to be "problem loans" by the Trust. The aggregate
gross principal amounts of these loans, together with receivables relating
to such loans comprised of accrued interest and payments made on behalf of
the borrowers for mortgage payments relating to such properties, total
$42,311,106 and $93,609,900, representing 23.0% and 47.2% of the Trust's
invested assets at December 31, 1994 and 1993, respectively. At December
31, 1994 and 1993, the Trust was not accruing current and deferred
interest on four and eight of the above-mentioned loans, in the aggregate
approximate principal amounts of $10,250,000 and $56,940,000,
respectively. In addition, as of such dates, the Trust was not accruing
deferred interest on one and one additional loan, respectively, in the
aggregate approximate principal amount of $25,000,000 and $3,000,000,
respectively. The Trust has an allowance for possible loan losses of
$11,657,236 and $23,724,537 at December 31, 1994 and 1993, and recognized
a loan loss of $919,471 during the year ended December 31, 1992.
(g) An allowance for possible loan losses is established based upon a review
of each of the properties in the Trust's portfolio. In performing the
review, management considers the estimated net realizable value of the
property or collateral as well as other factors, such as the current
occupancy, the amount and status of senior debt, if any, the prospects for
the property, the credit worthiness and current financial position of the
borrower and the economic situation in the region where the property is
located. Because this determination of net realizable value is based upon
future economic events, the amounts ultimately realized at disposition may
differ materially from the carrying value as of December 31, 1994.
The allowance is indicative of the continued and protracted declines in
values of commercial real estate throughout the country resulting in part
from the general economic decline and the lack of available credit sources
for real estate. The allowance is inherently subjective and is based on
management's best estimates of current conditions and assumptions about
expected future conditions.
(h) A summary of mortgage receivable loan activity for the years ended
December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
Balance, beginning of year $ 100,692,130 $ 130,595,126
Mortgage loans issued -- 3,064,000
Mortgage loan satisfaction (56,300,361) (19,546,996)
Provision for possible loan losses (2,500,000) (15,000,000)
Transfer of allowance for possible loan losses
to investment in real estate -- 1,580,000
------------- -------------
Balance, end of year $ 41,891,769 $ 100,692,130
============= =============
</TABLE>
(i) Impairment of Loans - In May 1993, the Financial Accounting Standards
Board issued Statement No. 114, "Accounting by Creditors for Impairment of
a Loan," which requires creditors to account for loans at the present
value of their future cash flows or at the fair value of the collateral,
if the loan is collateral dependent. The adoption of the statement is
required for years beginning after December 15,
(j) Allowance for loss at December 31, 1994 includes accrued interest.
FS-10
<PAGE> 13
1994. The Trust has not adopted the provisions of this statement and does
not expect the adoption of this statement to have a significant impact on
the carrying value of the loans.
3. PREPAYMENTS AND OTHER ACTIVITY
a. On January 3, 1994, the Trust sold the following mortgage loans: (i)
its wrap-around mortgage loan secured by the Tampa Plaza shopping
center located in Northridge, California (the "Tampa Loan"); (ii) its
wrap-around mortgage loan secured by the Wellesley Plaza office
building located in Los Angeles, California (the "Wellesley Loan");
and (iii) its first mortgage loan secured by the Tackett Center
mixed-use retail center located in Palm Springs, California (the
"Tackett Loan"). On January 7, 1994, the Trust sold its first
mortgage loan secured by the Janss Mall shopping center located in
Thousand Oaks, California (the "Janss Mall Loan", and collectively,
the "California Mortgage Loans"). The California Mortgage Loans at
closing had an approximate aggregate outstanding balance of
$39,698,000 before taking into consideration allowance for possible
losses of approximately $14,567,000. The Tampa, Tackett and Janss
Mall Loans were sold pursuant to a competitive offering process,
pursuant to which bids for each of the Loans were solicited; the
Wellesley Loan was offered in the competitive offering process, but
was sold in an arms-length negotiation outside of the competitive
offering process. Secured Capital Corp. of Los Angeles, California
acted as the Trust's representative with respect to the offering and
sale of the California Mortgage Loans. In the aggregate, the Trust
received cash proceeds of $25,500,000 from the sale of the California
Mortgage Loans, before deduction of costs, fees and expenses relating
to such transactions, including the payment of a fee to Secured
Capital Corp.
b. On January 25, 1994, the Trust restructured its mortgage loan in the
original principal amount of $31,000,000 which was secured by a
collateral assignment of mortgages on two properties, an office
building located on Rector Street, New York City (the "Rector
Property") and a shopping center located on Hylan Boulevard, Staten
Island, New York (the "Hylan Center"). Pursuant to the restructuring,
the Trust received a direct assignment of the first mortgage with a
principal amount of $25,000,000 and accrued interest of $7,881,250
secured by the Hylan Center and retained the collateral assignment of
the Rector Property mortgage, the principal amount of which was
reduced to $3,000,000. The holder of the first mortgage secured by
the Rector Property has granted the Trust a pledge of a senior
participation interest in such mortgage. In addition, upon a
foreclosure, the Trust will obtain a direct first mortgage secured by
the Rector Property. The restructuring was completed in October 1994.
c. On June 30, 1994, Norgate Shops, Corp., a wholly-owned subsidiary of
the Trust, acquired title to the Norgate Shopping Center property.
The property was subject to a first mortgage in the approximate
amount of $1,463,830, which the Trust pre-paid at the time of such
acquisition.
d. On July 12, 1994, Chester Plaza Shops, Inc., a wholly-owned
subsidiary of the Trust acquired title to the Chester Springs
Shopping Center, an approximately 216,000 square foot community-type
shopping center located in Chester, New Jersey. The purchase price
for the property was approximately $18,262,000.
e. On August 15, 1994 the Trust received proceeds of $18,354,047 from
the prepayment of the Meadowlands Industrial Park mortgage loan. The
proceeds consisted of the repayment of the principal loan balance of
$15,350,000, payment of current interest of $104,047 and prepayment
premium income (in lieu of equity participation) of $2,900,000.
FS-11
<PAGE> 14
f. On September 29, 1994, the Trust received proceeds of $11,805,825
from the prepayment of the Plainview Shopping Center mortgage loan.
The proceeds consisted of the repayment of the principal loan balance
of $5,250,000, payment of accrued interest of $994,187, current
interest of $55,825 and additional contingent interest (equity
participation) of $5,505,813.
g. On March 5, 1993, Lantana Plaza Shops, Inc., a wholly-owned
subsidiary of the Trust, acquired title to the Lantana Shopping
Center property. The property was subject to a first mortgage in the
amount of $3,464,246. The Trust exercised its right to prepay the
mortgage on May 24, 1993.
h. On March 15, 1993, the Trust funded a $3,000,000 first mortgage loan
secured by the Coral Way Plaza Shopping Center. The loan bears
current interest at 9 percent and matures in March 1995.
i. The Trust entered into a Settlement Agreement (the "Agreement") as of
April 30, 1993 with respect to the note it held secured by a mortgage
on 5 and 9 North Wabash Avenue, Chicago, Illinois. Pursuant to the
Agreement, (a) a subsidiary of the Trust received title by deed in
lieu of foreclosure to the property at 9 North Wabash Avenue, b) the
Trust received $1,350,000 and c) another subsidiary of the Trust
received a 20% limited partnership interest in a newly organized
limited partnership which owns 5 North Wabash Avenue. The Trust will
continue to hold a note secured by a first mortgage on 5 North Wabash
Avenue in the reduced amount of $3,450,000. The note bears interest
at 5% per annum, matures on March 31, 1996 and is non-amortizing,
except for a $600,000 principal reduction payment made on December
20, 1993. The maturity date of the note may be extended to March 31,
1997 at the option of the borrower under the note, provided, among
other things, that the principal amount of the note is reduced by an
additional $600,000 payment prior to its initial maturity. Interest
during the extension period shall be at 7% per annum. As to the
limited partnership interest to be held by a subsidiary of the Trust,
no distributions shall be made with respect thereto until the
maturity or earlier repayment of the mortgage loan held by the Trust.
Thereafter, other than distributions of net operating income, the
Trust will not receive cash distributions from refinancing or a sale
of the property on account of its limited partnership interest until
the general and initial limited partner of the limited partnership
have received $1,550,000 and any payments reducing the Trust loan
balance below $3,450,000 in aggregate distributions from such
sources. The transaction closed on July 7, 1993 and resulted in a
taxable loss approximating $4,500,000, which amount was previously
recognized for accounting purposes in 1992.
j. On May 20, 1993, the Trust executed a contract to purchase the
Chester Springs Shopping Center, an approximately 216,000 square foot
community-type shopping center located in Chester, New Jersey. The
Trust exercised its right of first refusal contained in its mortgage
documents relating to the property. The closing date for the
transaction was July 12, 1994. The purchase price for the property
was approximately $18,262,000.
k. On July 2, 1993, the Trust received proceeds of $3,506,713 from the
partial prepayment of the NCR mortgage loan. The original principal
balance of $2,300,000 was reduced to $468,493. The remaining
principal amount matures on December 31, 1995 and bears current
interest of 10% payable quarterly. Also included in the proceeds was
approximately $1,675,000 of deferred interest.
l. On August 23, 1993, the Trust exercised its right to receive rental
payments pursuant to an Assignment of Rents for its approximately
$2,500,000 mortgage loan secured by the Norgate
FS-12
<PAGE> 15
Plaza Shopping Center property. On September 21, 1993, a foreclosure
action was commenced by the Trust, and on motion by the Trust a
Receiver was appointed. On February 8, 1994, the first mortgagee
joined the action in order to foreclose its mortgage, and the Trust
currently is proceeding with its foreclosure action.
m. On December 30, 1993, the Trust received proceeds of $18,028,776 from
the prepayment of the Sayre Woods mortgage loan. The proceeds
consisted of the repayment of the principal loan balance of
$13,080,000, payment of accrued interest of $1,183,990, current
interest of $118,354, contingent interest of $213,316 and additional
contingent interest (equity participation) of $3,433,116.
n. On January 31, 1992, the Trust increased its existing $7,500,000
wraparound mortgage loan by $2,000,000 to the borrower on the
Tel-Twelve Mall at a current interest rate of 12 percent. In
addition, the borrower was given the right to prepay the entire loan
together with the payment of $3,250,000 in additional contingent
interest on or before December 31, 1992. In consideration for this
right the Trust received $2,000,000 in additional contingent interest
(equity participation). On May 19, 1992, the Trust received proceeds
of $15,181,346 from the prepayment of the mortgage loan. The proceeds
consisted of accrued interest of $2,092,500, current interest of
$144,480, contingent interest of $194,366 and additional contingent
interest (equity participation) of $3,250,000 and repayment of the
principal loan balance of $9,500,000.
o. On May 11, 1992, the Trust funded an additional $4,690,000 on the
$16,500,000 Janss Mall wraparound mortgage loan which enabled the
owners of the Janss Mall property to repay in full the outstanding
first mortgage secured by such property and allowed in the Trust to
acquire a consolidated first mortgage loan position of $21,190,000.
The additional funding carries a current interest rate of 1 percent
above the prime rate of a major banking institution with a minimum
rate of 9 percent and a maximum rate of 12 percent.
p. On June 1, 1992, the Saratoga Building Inc., a subsidiary of the
Trust, acquired the deed to the 222 East Saratoga Street property
("the Saratoga Property") in lieu of payment of the mortgage loan
that the Trust held on the property. The mortgage indebtedness owed
to the Trust by the prior owner amounted to $2,850,154.
q. On June 12, 1992, the Trust exercised its right to receive rental
payments pursuant to an Assignment of Rents under its approximately
$3,000,000 first mortgage loan secured by the Trinity Corners
property. On July 1, 1992, the borrower under such loan filed for
protection under the bankruptcy code.
On December 30, 1992, Trinity Shops, Inc., a wholly owned subsidiary
of the Trust, acquired the deed to Trinity Corners Shopping Center
(the "Trinity Property"), pursuant to a bankruptcy court action sale.
Pursuant to the terms of such acquisition, the mortgage indebtedness
of $3,209,317 (including accrued interest) owed to the Trust by the
prior owner of the Trinity Property was credited against the purchase
price of the Trinity Property.
r. On September 21, 1992, the Trust restructured the loan secured by the
Copps Hill Plaza property. Total mortgage indebtedness owed to the
Trust comprised of accrued interest and payments made on behalf of
the borrower, relating to such property totaled $3,981,077. On
September 30, 1992 and December 20, 1992, the Trust received
principal payments of $200,000 and $175,000, respectively, from the
borrower pursuant to the terms of such restructured loan. The current
loan balance of $3,606,077, as restructured now, bears interest at
the rate of 6 percent per annum and matures July 1996.
FS-13
<PAGE> 16
s. On December 30, 1992, the Commack Site, Inc., a wholly owned
subsidiary of the Trust, acquired certain real property located in
Commack, New York (the "Commack Property") for a purchase price of
approximately $2,900,000, including the existing mortgage
indebtedness secured by the Commack Property. In connection with the
acquisition of the Commack Property, the Trust assigned the Church
Street Judgment to the seller's designee (Note 8).
t. On December 31, 1992, the Trust restructured wrap-around the loan
secured by the Holiday Park property. Total mortgage indebtedness
including accrued interest and payments made on behalf of the
borrower relating to such property totaled $2,716,564. Also on such
date the Trust received an $800,000 principal payment. The current
loan balance of $1,916,564, as restructured, now bears interest at a
minimum rate of 7 percent and matures on December 31, 1995.
FS-14
<PAGE> 17
4. INVESTMENT IN REAL ESTATE
<TABLE>
<CAPTION>
INITIAL COST TO
COMPANY CAPITAL GROSS ACCUMULATED DATE PREDICTABLE
DESCRIPTION LAND BUILDING IMPROVEMENTS AMOUNT(1) DEPRECIATION ACQUIRED LIFE
<S> <C> <C> <C> <C> <C> <C> <C>
Sunshine Plaza $ 1,748,000 $ 7,452,000 $ 522,781 $ 9,722,781 $ 578,815 12/19/91 40
Shopping Center
Tamarack, Florida
Crofton Plaza 3,201,000 6,499,000 945,119 10,645,119 619,159 5/01/91 40
Shopping Center
Crofton, Maryland
Commack Shopping Center 1,160,000 1,740,000 - 2,900,000 88,813 12/30/92 40
Commack, New York
Trinity Shopping Center 1,250,000 1,250,000 499,318 2,999,318 82,756 12/30/92 40
Pound Ridge, New York
Lantana Shopping Center 2,589,810 2,600,190 436,077 5,626,077 130,145 3/01/93 39
Lantana Florida
9 North Wabash 2,319,900 980,100 - 3,300,000 36,648 7/01/93 39
Chicago, Illinois
Norgate Shopping Center 1,260,000 2,940,000 77,528 4,277,528 37,775 6/01/94 39
Indianapolis, Indiana
Chester Shopping Center
Chester, New Jersey 4,930,740 13,331,260 107,711 18,369,711 157,042 7/15/94 39
----------- ------------ --------- ------------ ---------
Totals $18,459,450 $36,792,550 $2,588,534 $57,840,534 $1,731,153
=========== =========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
REAL ESTATE OWNED:
Balance at beginning of year: $34,751,743 $26,415,000 $18,900,000
Acquired Properties 22,462,000 8,490,000 7,400,000
Capital Improvements 996,791 1,426,743 115,000
Disposition of Saratoga (3) (370,000) - -
------------ ------------ ------------
57,840,534 36,331,743 26,415,000
Allowance for Impairment - (1,580,000) -
------------- ------------ -----------
Balance at end of year $57,840,534 $34,751,743 $26,415,000
=========== =========== ===========
ACCUMULATED DEPRECIATION:
Balance at beginning of year: $ 1,011,541 $ 461,014 $ 101,547
Depreciation Expense (2) 749,404 550,527 359,467
Disposition of Saratoga (3) (29,792) - -
---------- ----------- ------------
Balance at end of year $ 1,731,153 $ 1,011,541 $ 461,014
=========== =========== ===========
</TABLE>
(1) Aggregate cost for Federal income tax purposes approximates $57,840,534.
(2) Properties are depreciated over an estimated life of 39 or 40 years using
the straight-line method.
(3) On September 28, 1994 the Trust sold the capital stock of The Saratoga
Building, Inc., a wholly owned subsidiary of the Trust for $12,500. The
Trust had previously provided an allowance for impairment of $1,580,000
against this asset. The sale resulted in an additional loss of approximately
$227,708.
FS-15
<PAGE> 18
RENTALS UNDER OPERATING LEASES
The following is a schedule by years of minimum future rentals on
noncancelable operating leases at December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
<S> <C>
1995 $ 5,468,129
1996 4,827,161
1997 4,320,375
1998 3,763,684
1999 2,975,203
Later Years 9,015,510
-----------
$30,370,062
===========
</TABLE>
5. MARKETABLE SECURITIES
During the period May 21, 1993 through December 31, 1993, the Trust
received cumulative proceeds of $9,294,453 representing the sale of all
270,000 of its shares of common stock at an average price of $34.42 per
share. The Trust realized a gain from these sales of $3,942,513.
6. NOTE PAYABLE
On December 28, 1993 (the "Repurchase Date"), the first date on which the
Trust was permitted to do so, the Trust exercised its option to redeem in
full Reissued Note Number 5 ("the Note") issued pursuant to the Note
Issuance Agreement dated as of December 28, 1988 among Integrated
Resources, Inc., Resources Pension Advisory Corp. and the Trust, made to
the order of Anchor National Life Insurance Company ("Anchor"). The Note,
which was scheduled to mature in December 2001, accrued simple interest at
an interest rate that increased semi-annually, so as to be the equivalent
of 9.5% per annum, compounded semi-annually. On the Repurchase Date, the
Trust paid to Anchor $23,034,769, representing the outstanding principal
amount on the Note and accrued interest to the Repurchase Date.
7. MORTGAGE PAYABLE
Mortgages payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
Crofton, 8.78 percent, maturing March 1, 2006 $ - $5,027,023
---- ----------
$ - $5,027,023
==== ==========
</TABLE>
On September 30, 1994, the Trust exercised its right to prepay the
$4,868,046 first mortgage loan relating to the Crofton Plaza Shopping
Center property. The property is owned by a wholly-owned subsidiary of the
Trust.
On January 26, 1993, the Trust exercised its right to prepay the $984,019
first mortgage loan relating to the Commack Property, which property is
owned by a wholly-owned Subsidiary of the Trust.
FS-16
<PAGE> 19
On April 29, 1992, the Trust exercised its option to purchase the first
mortgage loan relating to the Sunshine Plaza Shopping Center, which
property is owned by a wholly-owned subsidiary of the Trust. The purchase
price of $7,000,000 represented a $222,500 discount from the principal and
interest accrued totaling $7,222,500. Such discount was recorded as an
extraordinary item.
8. SHARE PURCHASE RIGHTS
On December 6, 1989, the Trust's Board of Trustees (the "Board") declared
a dividend distribution of one share purchase right for each outstanding
share of beneficial interest, $.10 par value per share, to shareholders of
record at the close of business on December 18, 1989. These rights may be
exercised to purchase one share of beneficial interest at a price of $20
per share, subject to adjustment, under certain specified conditions at
the Board's option. These rights are not exercisable or transferable apart
from the shares of beneficial interest until the distribution date, which
is the earlier of (i) 10 days following a public announcement that any
person or group has acquired beneficial ownership of 20 percent or more of
the outstanding shares (the "Share Acquisition Date"), (ii) 10 days
following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 20 percent or more of the
outstanding shares or (iii) the day the Board determines that any person
or group has become the beneficial owner of an amount of shares the Board
determines to be substantial (which amount shall in no event be less than
10 percent of the shares outstanding) and the Board shall determine that
such beneficial ownership is intended to cause the Trust to repurchase the
shares owned by such person or group or is reasonably likely to cause a
material adverse impact on the Trust's business. The rights, which do not
have voting rights, expire on December 6, 1999 and may be redeemed by the
Trust at a price of $.01 per right at any time until rights expire or, if
earlier, 10 days following the Share Acquisition Date.
Upon the occurrence of certain events following the distribution date, the
holder of each right will have the right to receive, upon exercise, shares
(or, in certain circumstances, cash, property or other securities of the
Trust) having a value equal to two times the exercise price of the right.
In certain events in which the Trust is not a surviving entity or has
transferred 50 percent or more of its assets or earnings power, the rights
will entitle the holder, upon exercise, to receive equity securities of
the acquiring company having a value equal to two times the exercise price
of the right.
9. STOCK OPTION PLANS
a. 1989 Trustees' Stock Option Plan - On April 4, 1989, the Board
approved the establishment of the 1989 Trustees' Stock Option Plan
(the "Plan") which permits the Trust to grant options to purchase up
to 350,000 shares of beneficial interest in the Trust at the fair
market value at the date of the grant. Each member of the Board who is
not an officer or employee of the Trust is eligible to participate in
the Plan. Each participant is granted an option to purchase that
number of shares equal to 0.1 percent of the shares then outstanding
on each of (a) the later of (i) November 28, 1989 or (ii) the date on
which the participant first becomes a member of the Board and (b) the
second anniversary of the date of the preceding grant. In October
1991, the Board modified and amended the Plan to provide that the
remaining options due to be issued after October 8, 1991 be issued pro
rata to each of the eligible Trustees. Options granted under the Plan
become exercisable, with respect to 50 percent of the shares covered
thereby, on the first anniversary of the date of grant and on a
cumulative basis with respect to the remaining shares on the second
anniversary of the date of grant. Options granted under this plan
expire ten years from the date of grant.
FS-17
<PAGE> 20
The Trust has 350,000 options outstanding under the Plan at December
31, 1994. The fair market value of the shares and exercise price of
such options at the dates of grant ranged from $5.25 to $5.75.
b. 1989 Employee's Stock Option Plan - On June 21, 1989, the Board
approved the establishment of the 1989 Employee Stock Option Plan
which permits the Trust to grant options to purchase up to 1,550,000
shares of beneficial interest in the Trust at the fair market value at
the date of grant. The options are exercisable each year starting one
year from the date of grant, on a cumulative basis, at the annual rate
of 20 percent of the total number of shares covered by the option.
Options granted under the plan expire 10 years from the date of grant.
On December 6, 1989, 1,355,000 options were granted. At December 31,
1994 and 1993, 1,325,000 and 1,355,000 options were outstanding under
such plan. The fair market value of the shares and exercise price of
these options at the date of the grant was $5.75.
At December 31, 1994, there were 1,325,000 shares of common stock
reserved for exercise of stock options.
10. COMMITMENTS
a. The Trust's lease for office space terminates on April 30, 1995.
Annual rental payment, including electricity, was $194,666.
Additionally, the Trust has a second lease on a month to month basis.
Current monthly rental payments under such lease are $1,284.
In March 1995 the Trust entered into a lease for approximately 4,863
sq. ft. of office space at 747 3rd Ave. New York, New York. The term
of the lease commences on April 1, 1995, at an annual base rental of
$145,890. The lease will expire on April 30, 1996, unless extended by
the Trust for an additional one-year term.
b. The President and Chairman of the Trust have entered into long-term
employment agreements effective December 28, 1988. Each of the
employment agreements is for a term of 10 years, unless terminated
earlier by reason of death or disability of the officer or for cause
by the Trust. They are entitled to receive their base salary,
distribution incentive bonus and origination bonuses. Additionally, in
accordance with the terms of their respective agreements, the
occurrence of certain events, including the sale of substantially all
of the Trust's assets, a significant change in the Trust's ownership
or a change in the Trust's operations such that it is no longer
primarily in the business of mortgage lending will result in
additional compensation to be paid.
c. On April 4, 1989, the Board approved the establishment of a 401(k)
employee savings plan and a discretionary profit-sharing retirement
plan for employees meeting certain service requirements.
FS-18
<PAGE> 21
11. DIVIDENDS/DISTRIBUTIONS TO SHAREHOLDERS
Under the Internal Revenue Code, a REIT must meet certain qualifications,
including a requirement that it distribute annually to its shareholders at
least 95 percent of its taxable income. The Trust's policy is to
distribute to shareholders all taxable income. Dividend distributions for
the years ended December 31, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
DIVIDEND
RECORD DATE DISTRIBUTIONS PAYMENT DATE
<S> <C> <C>
April 28, 1994 .08 May 17, 1994
July 28, 1994 .08 August 17, 1994
October 27, 1994 .08 November 16, 1994
December 28, 1994 .08 January 27, 1995
April 27, 1993 .08 May 18, 1993
July 23, 1993 .08 August 13, 1993
October 26, 1993 .08 November 17, 1993
December 30, 1993 .08 January 27, 1994
</TABLE>
The difference, if any, between dividends declared and net income result
from timing differences related to the recognition of income and expenses
between financial reporting and income tax purposes.
12. DIVIDEND REINVESTMENT PLAN
The Trust has a dividend reinvestment plan that allows for participating
shareholders to have their dividend distributions automatically invested
in additional shares of beneficial interest in the Trust based on the
average price of the shares acquired for the distribution.
13. SHARE REPURCHASES
In April 1990, the Board of Trustees approved a $6,000,000 share
repurchase program for the purchase of the Trust's shares at prevailing
market prices. Pursuant to this program, during 1992, the Trust purchased
56,700 shares at prices ranging from $4.92 to $5.29 per share. The Trust
purchased 43,400 shares at prices ranging from $3.42 to $3.79 per share
during 1993. The Trust purchased 60,500 shares at prices ranging from
$3.79 to $4.04 during 1994.
14. FINANCIAL INSTRUMENTS
The market value of the Trust's mortgage loans and receivables relating
to such loans as of December 31, 1994 and 1993 is estimated to be
approximately $47,000,000 and $117,000,000, respectively. At December 31,
1994, the aggregate estimated fair market value of four of the Trust's
thirteen mortgage loans exceeded the aggregate carrying value of
$8,616,564 by $1,328,028. The remaining nine mortgage loans are stated at
their fair market value. At December 31, 1993, the aggregate estimated
fair market value of seven of the Trust's twenty-one mortgage loans
exceeded the aggregate carrying value of $36,216,564 by $16,967,886. The
remaining fourteen mortgage loans are stated at their fair market value.
The estimated market value has been determined by the Trust, using
available market information, methodologies deemed reasonable by the Trust
and the present value of estimated future cash flows using a discount rate
commensurate with the risks involved. Estimated market values represent
management's estimate as of the date of the valuation and are based on
facts and conditions existing on the date of the valuation and on a number
of assumptions concerning future circumstances, which assumptions may or
may not prove to be accurate. The Trust believes that the estimated market
value as stated is not necessarily indicative of the price the Trust could
realize if it were actively attempting to sell the mortgages in its
portfolio.
FS-19
<PAGE> 22
15. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
adoption of the statement is required for years beginning after December
15, 1992. The Trust is a public enterprise and is not subject to income
taxes, as discussed under Income Tax Status above (Note 1). In accordance
with SFAS 109, the net differences between the Trust's assets and
liabilities for tax purposes and financial reporting purposes are as
follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Net assets, financial statements $ 182,599,168 $ 176,312,600
Interest 5,100,000 6,000,000
Allowance for loan losses 6,700,000 24,100,000
Deferred interest (8,800,000) (8,700,000)
Amortization of organization expenses (3,200,000) (2,700,000)
Other 1,600,000 1,600,000
-------------- --------------
Net assets, tax reporting $ 183,999,168 $ 196,612,600
============== ==============
</TABLE>
During the third quarter of 1994, RPS may have inadvertently violated the
"75% Asset Test" contained in Internal Revenue Code Section 856 (c)(5)(A)
because the Company held more than 25% of the value of its gross assets in
overnight Treasury Bill repurchase transactions. In Revenue Ruling 77-59,
the IRS ruled that Treasury Bill repurchase transactions are neither
government securities nor cash items and therefore do not qualify for the
75% Asset Test. Management believes that the IRS position in Revenue
Ruling 77-59 is incorrect. Management further believes that even if the
IRS position in Revenue Ruling 77-59 were to be upheld, RPS' inadvertent
failure to satisfy the 75% Asset Test for one quarter was due to
reasonable cause and not to willfull neglect and, therefore, the
mitigation provisions of Internal Revenue Code Section 856 (g)(4) should
apply to permit RPS to continue to be taxed as a REIT. RPS has already
filed its 1994 tax return and has requested the IRS to enter into a
closing agreement to the effect that it may continue to be taxed as a
REIT, notwithstanding the holding in Revenue Ruling 77-59.
Should the IRS deny RPS' request for relief, the Company intends to seek a
judicial determination that it may continue to qualify as a REIT. If RPS
does not ultimately prevail in its position, it would be taxable as a
regular "C" corporation for 1994 but, because of the incurrence of a net
operating loss for such year, would have no federal income tax liability
for 1994. In addition, if deemed a regular "C" corporation, the Company
would have a deferred tax asset of approximately $1.2 million which would
be offset by a valuation allowance of approximately $1.2 million. However,
it is anticipated that RPS would have a state and local tax liability of
approximately $400,000 for 1994.
16. RAMCO TRANSACTION
On April 10, 1995, the Trust and Ramco-Gershenson, Inc. ("Ramco") and
its affiliates (the "Ramco Group") entered into an agreement relating to
the acquisition through an operating partnership (the "Operating
Partnership") controlled by the Trust of substantially all of the real
estate assets as well as the business operations of Ramco (the
"Transaction"). As part of the Transaction, the Trust will succeed to
the ownership of interests in 22 shopping center and retail properties
(the "Ramco Properties"), as well as 100% of the non-voting stock and 5%
of the voting stock of Ramco (representing in excess of 99% of the
economic interests of Ramco). The Trust will contribute transfer to the
Operating Partnership six retail properties (the "RPS Properties") and
$75,000,000 in cash (less expenses paid by the Trust in connection with
the Transaction). Following the closing of the Transaction, Ramco will
manage the Ramco Properties, the RPS Properties and properties of certain
third parties and other Ramco affiliates.
Upon consummation of the Transaction, the Trust will be the sole general
partner of and a limited partner in the Operating Partnership and
initially will hold approximately 74.1% of the interests therein. The
members of the Ramco Group will be limited partners in the Operating
Partnership and will initially hold, in the aggregate, approximately
25.9% of the interests therein. The exact number of units of limited
partnership ("OP Units") to be received by the Trust and members of the
Ramco Group will be determined based upon the relative agreed upon values
of the assets to be contributed by the parties. The Ramco Group can also
increase its interest in the Operating Partnership based on the future
performance of certain of the Ramco Properties; such performance
incentives could increase the Ramco Group's interest in the Operating
Partnership to approximately 32.1% in the aggregate. The Ramco Group's OP
Units will be exchangeable for shares of the Trust commencing one year
after consummation of the Transaction, subject to purchase of such OP
Units for cash by the Trust, at the Trust's option.
As part of the Transaction, it is anticipated that (i) the Trust's
state of organization will be changed from Massachusetts to Maryland and
the Trust will change its name to Ramco-Gershenson Properties Trust and
(ii) the Trust will implement a four-for-one reverse stock split.
Upon consummation of the Transaction, it is contemplated that four of
the nine current members of the Board of Trustees will resign and will be
replaced by four individuals designated by the Ramco Group, two of whom
will be independent of the Trust, Ramco and their respective affiliates.
In addition, the five current principal executive officers of Ramco will
become executive officers of the Trust and will be responsible for the
management of the Trust's real estate operation.
The agreement governing the share purchase rights described in Note 8,
was amended in connection with the Transaction described above, to
include Ramco and the members of the Ramco Group from the definitions of
"Acquiring Person" and "Beneficial Owner" under such agreement for
purposes of such Transaction.
In connection with the Transaction, and as a condition thereto, the
Trust will transfer its remaining mortgage loan portfolio, as well as
certain other assets, to a newly-formed Maryland real estate investment
trust, and thereafter will distribute the shares after taking into
account the reverse stock split referred to above, of the new REIT to the
Trust's shareholders.
FS-20
<PAGE> 23
17. SUBSEQUENT EVENTS
On March 1, 1995, the Trust received proceeds of $3,021,000 from the
prepayment of the Coral Way Shopping Center Mortgage loan. The proceeds
consisted of the repayment of the principal loan balance of $3,000,000 and
current interest of $21,000.
On February 14, 1995, the holder of the first mortgage loan secured by the
Madison Heights Shopping Center, whose loan was superior to the Trust's
wraparound mortgage loan with respect to such property, foreclosed upon
such property. The shopping center has been sold at auction and the
interest of the Trust has been thereby eliminated. The allowance for
possible loan losses includes an allowance of $1,875,900 which represents
the outstanding principal balance plus accrued interest that will be
written off upon foreclosure. No additional loss will be recognized at
the date of foreclosure.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1993 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,041,221 $4,292,708 $3,596,750 $4,755,592 $15,217,749 $ 7,535,090 $ 3,551,041 $10,385,115
---------- ---------- ---------- ---------- ----------- ----------- ----------- -----------
Net income(loss)(1) $2,298,555 $2,213,210 $1,943,874 $2,278,216 $12,695,481 $(9,811,447) $(1,296,034) $ 8,371,287
========== ========== ========== ========== =========== =========== =========== ===========
Per share:
Net income(loss) $ .08 $ .08 $ .07 $ .08 $ .44 $ (.35) $ (.04) $ .30
========== ========== ========== ========== =========== =========== =========== ===========
</TABLE>
Notes: (1) During the third quarter of 1993 and the fourth quarter of 1994, the
Trust recorded a provision for possible loan losses of $15,000,000
and $2,500,000, respectively.
FS-21
