<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 March 31, 1999: 7,217,993
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INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1999 (unaudited)
and December 31, 1998..................................... 3
Consolidated Statements of Income (unaudited) -- Three
Months Ended March 31, 1999 and 1998...................... 4
Consolidated Statement of Shareholders' Equity
(unaudited) -- Three Months Ended March 31, 1999.......... 5
Consolidated Statements of Cash Flows (unaudited) -- Three
Months Ended March 31, 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 6. Exhibits and Reports on Form 8-K............................ 17
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in real estate -- net (Note 2)................... $508,733 $509,844
Cash and cash equivalents................................... 3,569 4,550
Accounts receivable -- net.................................. 9,826 9,864
Equity investments in and advances to unconsolidated
entities.................................................. 5,750 5,896
Other assets -- net (Note 3)................................ 16,242 14,250
-------- --------
Total Assets........................................... $544,120 $544,404
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable (Note 4)........................ $331,487 $328,248
Distributions payable....................................... 5,112 5,244
Accounts payable and accrued expenses....................... 12,961 15,235
-------- --------
Total Liabilities...................................... 349,560 348,727
Minority Interest........................................... 48,482 48,535
Commitments and Contingencies (Note 6)...................... -- --
SHAREHOLDERS' EQUITY
Preferred Shares, par value $.01, 10,000 shares authorized;
1,400 Series A convertible shares issued and outstanding,
liquidation values 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............ (39,796) (38,732)
-------- --------
Total Shareholders' Equity............................. 146,078 147,142
-------- --------
Total Liabilities and Shareholders' Equity........ $544,120 $544,404
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31,
------------------
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
REVENUES
Minimum rents............................................. $15,114 $13,295
Percentage rents.......................................... 625 398
Recoveries from tenants................................... 5,808 4,643
Interest and other income................................. 226 108
------- -------
Total Revenues......................................... 21,773 18,444
------- -------
EXPENSES
Real estate taxes......................................... 1,978 1,747
Recoverable operating expenses............................ 3,890 2,966
Depreciation and amortization............................. 3,291 2,936
Other operating........................................... 446 236
General and administrative................................ 1,594 1,637
Interest expense.......................................... 6,511 6,049
------- -------
Total Expenses......................................... 17,710 15,571
------- -------
Operating income............................................ 4,063 2,873
Loss from unconsolidated entities........................... 68 79
------- -------
Income before minority interest............................. 3,995 2,794
Minority interest........................................... 1,186 791
------- -------
Net income.................................................. 2,809 2,003
Preferred dividends......................................... (840) (280)
------- -------
Net income available to common shareholders................. $ 1,969 $ 1,723
======= =======
Basic earnings per share.................................... $0.27 $0.24
======= =======
Diluted earnings per share.................................. $0.27 $0.24
======= =======
Weighted average shares outstanding:
Basic..................................................... 7,218 7,123
======= =======
Diluted................................................... 7,218 7,169
======= =======
</TABLE>
See notes to consolidated financial statements.
4
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON ADDITIONAL CUMULATIVE TOTAL
PREFERRED STOCK PAID-IN EARNINGS/ SHAREHOLDERS'
STOCK PAR VALUE CAPITAL DISTRIBUTION EQUITY
--------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999................. $33,829 $72 $151,973 $(38,732) $147,142
Cash distributions declared.............. (3,033) (3,033)
Preferred Shares dividends declared...... (840) (840)
Net income............................... 2,809 2,809
------- --- -------- -------- --------
BALANCE, MARCH 31, 1999.................. $33,829 $72 $151,973 $(39,796) $146,078
======= === ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
5
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RAMCO-GERSHENSON PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31
------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 2,809 $ 2,003
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization.......................... 3,291 2,936
Amortization of deferred financing costs............... 294 272
Loss from unconsolidated entities...................... 68 79
Minority interest...................................... 1,186 791
Changes in assets and liabilities that provided (used)
cash:
Accounts receivable.................................. 38 147
Other assets......................................... (2,511) (1,681)
Accounts payable and accrued expenses................ (2,274) (408)
------- -------
Cash Flows Provided By Operating Activities................. 2,901 4,139
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,918) (1,595)
Advances from unconsolidated entities..................... 78 89
------- -------
Cash Flows Used In Investing Activities..................... (1,840) (1,506)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to shareholders........................ (3,033) (3,271)
Cash distributions to operating partnership unit
holders................................................ (1,505) (1,079)
Cash dividends paid on Preferred Shares................... (706) --
Repayment of Credit Facility.............................. (2,000) (1,000)
Principal repayments on mortgages payable................. (725) (705)
Adjustment of net proceeds from Preferred Shares.......... -- (99)
Payment of deferred financing costs....................... (37) (48)
Borrowings on Credit Facility............................. 5,000 3,500
Borrowings on Construction Loan........................... 964 --
Net advances from related entities........................ -- 74
Refund of deferred financing costs........................ -- 250
------- -------
Cash Flows Used In Financing Activities..................... (2,042) (2,378)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents........ (981) 255
Cash and Cash Equivalents, Beginning of Period.............. 4,550 5,033
------- -------
Cash and Cash Equivalents, End of Period.................... $ 3,569 $ 5,288
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the period............... $ 5,886 $ 5,736
======= =======
</TABLE>
See notes to consolidated financial statements.
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RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The accompanying interim financial statements and
related notes of the Company are unaudited; however, they have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting, the instructions to Form 10-Q and the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared under
generally accepted accounting principles have been condensed or omitted pursuant
to such rules. The unaudited interim financial statements should be read in
conjunction with the audited financial statements and related notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
statements for the interim periods have been made. The results for interim
periods are not necessarily indicative of the results for a full year.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
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 recognizes 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 2000.
2. REAL ESTATE
Investment in real estate consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Land........................................................ $ 64,433 $ 64,433
Buildings and Improvements.................................. 467,187 464,216
Construction-in-progress.................................... 6,278 7,331
-------- --------
537,898 535,980
Less: accumulated depreciation.............................. (29,165) (26,136)
-------- --------
Investment in real estate -- net............................ $508,733 $509,844
======== ========
</TABLE>
3. OTHER ASSETS
Other assets are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Leasing costs and other..................................... $ 7,675 $ 6,893
Prepaid expenses and other.................................. 3,561 3,426
Deferred financing costs.................................... 3,097 3,059
Proposed development and acquisition costs.................. 5,505 3,911
------- -------
19,838 17,289
Less: accumulated amortization.............................. (3,596) (3,039)
------- -------
Other assets -- net......................................... $16,242 $14,250
======= =======
</TABLE>
7
<PAGE> 8
4. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Fixed rate mortgages with interest rates ranging from 6.83%
to 8.50%, due at various dates through 2008............... $171,646 $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
March 31, 1999 was 6.80% and at December 31, 1998 was
7.49%.................................................. 7,000 7,000
Construction loan financing, with an interest rate at LIBOR
plus 185 basis points due June 2002. The effective rate at
March 31, 1999, was 6.83% and at December 31, 1998 was
7.10%. Maximum borrowings of $14,000...................... 6,853 5,889
Unsecured term loan, due October 1, 2000. The effective rate
at March 31, 1999 was 8.75% 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 March 31,
1999 was 7.17%, and at December 31, 1998 was 7.35%........ 100,988 97,988
-------- --------
$331,487 $328,248
======== ========
</TABLE>
The mortgage notes and construction loan are secured by mortgages on
properties that have an approximate net book value of $306,055 as of March 31,
1999. The Credit Facility is secured by mortgages on various properties that
have an approximate net book value of $202,678 at March 31, 1999.
At March 31, 1999, outstanding letters of credit issued under the Credit
Facility, not reflected in the accompanying consolidated balance sheet, total
approximately $835.
The following table presents scheduled principal payments on mortgages and
notes payable as of March 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1999 (April 1 -- December 31)............................... $ 2,386
2000........................................................ 154,428
2001........................................................ 3,464
2002........................................................ 9,973
2003........................................................ 3,653
Thereafter.................................................. 157,583
--------
Total.................................................. $331,487
========
</TABLE>
5. LEASES
The Company is engaged in the operation of shopping center and retail
properties and leases space to tenants and certain anchors pursuant to lease
agreements. The lease agreements provide for initial terms ranging from 3 to 30
years and, in some cases, for annual rentals which are subject to upward
adjustment based on operating expense levels and sales volume.
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Approximate future minimum rentals under noncancelable operating leases in
effect at March 31, 1999, assuming no new or renegotiated leases nor option
extensions on lease agreements, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
<S> <C>
1999 (April 1 -- December 31)............................... $ 42,603
2000........................................................ 52,905
2001........................................................ 47,568
2002........................................................ 42,607
2003........................................................ 37,485
Thereafter.................................................. 257,890
--------
Total.................................................. $481,058
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Substantially all of the properties have been subjected to Phase I
environmental audits. Such audits have not revealed nor is management aware of
any environmental liability that management believes would have a material
adverse impact on the Company's financial position or results of operations.
Management is unaware of any instances in which it would incur significant
environmental costs if any or all properties were sold, disposed of or
abandoned.
During the third quarter of 1994, the Company held more than 25% of the
value of its gross assets in overnight Treasury Bill reverse repurchase
transactions which the United States Internal Revenue Service (the "IRS") may
view as non-qualifying assets for the purposes of satisfying an asset
qualification test applicable to REITs, based on a Revenue Ruling published in
1977 (the "Asset Issue"). The Company requested that the IRS enter into a
closing agreement which would state that the Asset Issue would not impact the
Company's status as a REIT. The IRS deferred any action relating to the Asset
Issue pending the further examination of the Company's 1991-1995 tax returns
(the "Tax Audit"). Based on developments in the law which occurred since 1977,
the Company's Tax Counsel, Battle Fowler LLP, rendered an opinion that the
Company's investment in Treasury Bill repurchase obligations would not adversely
affect its REIT status. However, such opinion is not binding upon the IRS.
In connection with the spin-off of Atlantic Realty Trust ("Atlantic"),
Atlantic assumed all liability arising out of the Tax Audit and the Asset Issue,
including liabilities for interest and penalties and attorney fees relating
thereto. In connection with the assumption of such potential liabilities,
Atlantic and the Company entered into a tax agreement which provides that the
Company (under the direction of its Continuing Trustees), and not Atlantic,
would control, conduct and effect the settlement of any tax claims against the
Company relating to the Tax Audit and the Asset Issue. Accordingly, Atlantic
will not have any control as to the timing of the resolution or disposition of
any such claims. The Company and Atlantic also received an opinion from Special
Tax Counsel, Wolf, Block, Schorr and Solis-Cohen LLP, that, to the extent there
is a deficiency in the Company's taxable income arising out of the IRS
examination and provided the Company timely makes a deficiency dividend (i.e.,
declares and pays a distribution which is permitted to relate back to the year
for which each deficiency was determined to satisfy the requirement that the
REIT distribute 95 percent of its taxable income), the classification of the
Company as a REIT for the taxable years under examination would not be affected.
Under the tax agreement referred to above, Atlantic agreed to reimburse the
Company for the amount of any deficiency dividend so made. If notwithstanding
the above-described opinions of legal counsel, the IRS successfully challenged
the status of the Company as a REIT, its status could be adversely affected. If
the Company lost its status as a REIT, the Company believes that it would be
able to re-elect REIT status for the taxable year beginning January 1, 1999.
The IRS agent conducting the examination has issued his examination report
with respect to the tax issues raised in the Tax Audit, including the Asset
Issue (collectively, the "Tax Issues"). The report sets forth a number of
positions which the examining agent has taken with respect to the Company's
taxes for the years that are subject to the Tax Audit, which the Company
believes are not consistent with applicable law and
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regulations of the IRS. Based upon the report, the Company could be liable for
up to $40.3 million in combined taxes, penalties and interest through May 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 $41.6
million as of May 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 Annual Report on Form 10-K for the
year ended December 31, 1998, the Company does not believe that the ultimate
resolution of the Tax Issues will have a material adverse effect on the
financial position, results of operations or cash flows of the Company. The
issuance of the revenue agent's report constitutes only the first step in the
IRS administrative process for determining whether there is any deficiency in
the Company's tax liability for the years at issue and any adverse determination
by the examining agent is subject to administrative appeal within the IRS and,
thereafter, to judicial review. As noted above, the agent's report sets forth a
number of positions, which the Company and its legal counsel believe are not
consistent with applicable law and regulations of the IRS. Accordingly, the
Company intends to file an administrative appeal challenging the findings
contained in the IRS agent's examination report.
During July 1997 Montgomery Ward ("Wards") a tenant at three of the
Company's properties, (Tel-Twelve Mall, Clinton Valley Mall and Shoppes of
Lakeland), filed for protection under Chapter 11 of the Bankruptcy Code. In
October 1997, Wards issued a list of anticipated store closings which included
the store at the Company's Clinton Valley Mall. This location consists of a
101,200 square foot department store and a 7,480 square foot TBA store (Tires,
Batteries and Automotive). The Company was notified in March 1998 that Wards
rejected the lease. On an annual basis, Wards paid approximately $1,000 in base
rent and operating and real estate tax expense reimbursements for the Clinton
Valley Mall. The Company leased 30,900 square feet of the former department
store and rental income commenced during the first quarter of 1999. The Company
is pursuing replacement tenants for the balance of the space.
On February 4, 1999, Crowley, Milner and Company, a tenant at the Company's
Tel-Twelve Mall, filed for protection under Chapter 11 of the Bankruptcy Code.
For 1998, Crowley's paid approximately $396 in base rent and operating and real
estate tax expense reimbursement.
On March 27, 1999, Service Merchandise Company, Inc. ("Service
Merchandise"), a tenant at three of the Company's properties (Shoppes of
Lakeland, West Oaks I and Roseville Plaza), filed for protection under Chapter
11 of the Bankruptcy Code. For 1998, Service Merchandise paid approximately
$1,188 in base rent and operating and real estate tax expense reimbursements.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, except per Share and per
Unit amounts)
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements of the Company, including the respective notes thereto
which are included in this Form 10-Q.
CAPITAL RESOURCES AND LIQUIDITY
The Company generated $2,901 in cash flows from operating activities for
the three months ended March 31, 1999 and used $1,840 to fund investing
activities, principally to improve its properties. During the three months ended
March 31, 1999, financing activities provided $3,000 from borrowings on the
Credit Facility, net of repayments of $2,000 and used $725 to pay mortgage
obligations and $5,244 for cash distributions to shareholders, holders of
operating partnership units and dividends paid to preferred shareholders.
The Company's mortgage and notes payable amounted to $331,487 at March 31,
1999, with a weighted average interest rate of 7.66%. The debt consists of nine
loans secured by various properties, plus one construction loan, one unsecured
term loan and the Credit Facility, as defined below. Eight of the mortgage
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<PAGE> 11
loans amounting to $171,646 have maturities ranging from 2000 to 2008, monthly
payments which include regularly scheduled amortization, and have fixed interest
rates ranging between 6.83% to 8.50%. One of the mortgage loans, evidenced by
tax free bonds, amounting to $7,000 secured by Oakbrook Square Shopping Center
is non-amortizing, matures in 2010, and carries a floating interest rate equal
to 75% of the new issue long term Capital A rated utility bonds, plus interest
to the lender sufficient to cause the lender's overall yield on its investment
in the bonds to be equal to 200 basis points over their applicable LIBOR rate
(6.80% at March 31, 1999).
The Company has a $14 million construction loan to finance the White Lake
MarketPlace shopping center development. The loan carries an interest rate of
185 basis points over LIBOR, an effective rate of 6.83% at March 31, 1999, and
matures June 2000. At the Company's option, the loan can then be converted to a
2-year term loan. Approximately $6.9 million has been borrowed at March 31,
1999.
The Company has an unsecured term loan amounting to $45,000, maturing
October 2000. This term loan bears interest between 250 and 275 basis points
over LIBOR, depending on certain debt ratios (8.75% at March 31, 1999).
The Company currently has a $110,000 Credit Facility, of which $100,988 was
outstanding as of March 31, 1999. This credit facility bears interest between
137.5 and 162.5 basis points over LIBOR depending on certain debt ratios
(effective interest rate of 7.17% at March 31, 1999) and matures October 2000.
The credit facility is secured by mortgages on various properties and contains
financial covenants relating to liabilities-to-asset ratio, minimum operating
coverage ratios and a minimum equity value. As of March 31, 1999, the Company
was in compliance with the covenant terms. At March 31, 1999, outstanding
letters of credit issued under the Credit Facility total $835.
The Company used proceeds from the borrowings under the Credit Facility and
the construction loan to finance the development of White Lake MarketPlace, and
to pay for other capital expenditures.
In 1998, the Company executed an interest rate swap agreement to limit the
Company's exposure to increases in interest rates on its floating rate debt. The
notional amount of the agreement was $75,000. Based on rates currently in effect
under the Company's Credit Facility, the agreement provides for a fixed rate of
7.425% through October 2000. The Company is exposed to credit loss in the event
of non-performance by the other parties to the interest rate swap agreement,
however; the Company does not anticipate non-performance by the counter parties.
After taking into account the impact of converting the variable rate debt
into fixed rate debt by use of the rate protection agreement, the Company's
variable rate debt accounted for $84,841 of outstanding debt with a weighted
average interest rate of 7.72%. Variable rate debt accounted for approximately
25.6% of the Company's total debt and 16.2% of its total capitalization. The
Company has an interest rate protection agreement in place relative to $75,000
of floating rate debt as discussed above.
Based on the debt and the market value of equity, the Company's debt to
total market capitalization (debt plus market value equity) ratio was 63.1% at
March 31, 1999.
The two properties in which Ramco-Gershenson Properties, L.P. (the
"Operating Partnership"), owns an interest and are accounted for on the equity
method of accounting are subject to non-recourse mortgage indebtedness. At March
31, 1999, the pro rata share of non-recourse mortgage debt on the unconsolidated
properties (accounted for on the equity method) was $6,175 with a weighted
average interest rate of 9.1%.
The Company's current capital structure includes property specific
mortgages, a construction loan, 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 March 31, 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
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<PAGE> 12
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 $162,091 at
March 31, 1999 (based on the closing price of $15.94 per share on March 31,
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.
During July 1997 Montgomery Wards, ("Wards"), a tenant at three of the
Company's properties, Tel-Twelve Mall, Clinton Valley Mall and Shoppes of
Lakeland, filed for protection under Chapter 11 of the Bankruptcy Code. The
Company was notified in March 1998 that Wards rejected the lease at the
Company's Clinton Valley Mall. This location consists of a 101,200 square foot
department store and a 7,480 square foot TBA store (Tires, Batteries and
Automotive). On an annual basis, Wards paid, in the aggregate, approximately
$1,000 in base rent and operating and real estate tax expense reimbursement for
the Clinton Valley Mall. The Company has leased 30,900 square feet of the former
department store and rental income commenced during the first quarter of 1999.
The Company is pursuing replacement tenants for the balance of the space.
On February 4, 1999, Crowley, Milner and Company, a tenant at the Company's
Tel-Twelve Mall, filed for protection under Chapter 11 of the Bankruptcy Code.
For 1998, Crowley's paid approximately $396 in base rent and operating and real
estate tax expense reimbursement.
On March 27, 1999, Service Merchandise Company, Inc. ("Service
Merchandise"), a tenant at three of the Company's properties (Shoppes of
Lakeland, West Oaks I and Roseville Plaza), filed for protection under Chapter
11 of the Bankruptcy Code. For 1998, Service Merchandise paid approximately
$1,188 in base rent and operating and real estate tax expense reimbursements.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH 31,
1998.
Total revenues for the three months ended March 31, 1999 increased $3,329,
or 18.1%, to $21,773 as compared to $18,444 for the three months ended March 31,
1998. Minimum rents increased 13.7%, or $1,819, to $15,114 for the three months
ended March 31, 1999 as compared to $13,295 for the same period in 1998. The
four properties acquired during 1998 contributed $1,217 to minimum rents.
Recoveries from tenants increased $1,165, or 25.1%, to $5,808 for the three
months ended March 31, 1999 as compared to $4,643 for the three months ended
March 31, 1998. The increase is attributable to higher occupancy rates for the
core portfolio (shopping center properties owned as of January 1, 1998); 94.3%
occupancy rate at March 31, 1999 compared to 93.0% at March 31, 1998. For the
three months ended March 31, 1999, the recovery ratio increased to 99.0% from
98.5% for the same period in 1998. As the Southeast Portfolio leases expire, new
lease agreements have been negotiated, allowing the Company to increase the
recovery ratios to levels similar to the Company's normal recovery ratio of
approximately 100%.
Percentage rents increased $227 in the first quarter of 1999 to $625, due
primarily to strong retail sales during 1998. Interest and other income
increased from $108 for the three months ended March 31, 1998 to $226 for the
three months ended March 31, 1999. The major components of this increase were
attributable to
12
<PAGE> 13
higher temporary tenant rentals and additional interest income for the quarter
ended March 31, 1999 compared to the quarter ended March 31, 1998.
Total expenses for the three months ended March 31, 1999 increased 13.7%,
or $2,139, to $17,710 as compared to $15,571 for the three months ended March
31, 1998. The increase was due to a $1,155 increase in total recoverable
expenses, including recoverable operating expenses and real estate taxes, a $355
increase in depreciation and amortization expense, a $210 increase in other
operating expenses, and a $462 increase in interest expense, offset by a $43
decrease in general and administrative expenses.
Total recoverable expenses, including recoverable operating expenses and
real estate taxes, increased by 24.5%, or $1,155, to $5,868 as compared to
$4,713 for the three months ended March 31, 1998. The increase in recoverable
expenses is primarily attributable to the four acquisitions made during 1998 and
the opening of an anchor store at White Lake MarketPlace development during the
first quarter of 1999.
Depreciation and amortization expense increased 12.1%, or $355, to $3,291
for the three months ended March 31, 1999 as compared to $2,936 for the three
months ended March 31, 1998. The increase is the result of acquisitions and
renovations made during 1998. Other operating expenses increased from $236 for
the three months ended March 31, 1998 to $446 for the three months ended March
31, 1999. The increase is primarily due to $201 of additional bad debt expense
included in other operating expenses for the three months ended March 31, 1999
when compared to the same quarter of 1998.
Interest expense increased $462, from $6,049 in the first quarter of 1998
to $6,511 in the first quarter of 1999, primarily reflecting the interest
expense on the mortgage loan assumed in connection with the acquisition of Aquia
Towne Center in September 1998 and increased borrowings on the Credit Facility
at March 31, 1999 when compared to the outstanding debt at March 31, 1998.
The minority interest of $1,186 for the three months ended March 31, 1999
represents a 29.0% share of income before minority interest of the operating
partnership compared to a 28.0% share of income before minority interest, or
$791 for the three months ended March 31, 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1999 1998
---- ----
<S> <C> <C>
Management fees............................................. $ 417 $ 328
Leasing and development fees................................ 110 65
Other revenues.............................................. 249 162
Leasing/Development cost reimbursements..................... 726 494
------ ------
Total revenues......................................... 1,502 1,049
------ ------
Employee expenses........................................... 1,553 1,355
Office and other expenses................................... 309 318
Depreciation and amortization............................... 53 62
------ ------
Total expenses......................................... 1,915 1,735
Operating partnership cost reimbursement expenses........... 413 686
------ ------
Operating partnership administrative expenses............... 791 653
------ ------
Shopping center level general and administrative expenses... 390 298
------ ------
Total general and administrative expenses.............. $1,594 $1,637
====== ======
</TABLE>
Total general and administrative expenses decreased $43 for the three
months ended March 31, 1999 when compared to the three months ended March 31,
1998. Total revenues increased $453 from $1,049 for the
13
<PAGE> 14
three months ended March 31, 1998 to $1,502 for the comparable period in 1999.
Employee expenses increased $198 during the first quarter of 1999 to $1,553 from
$1,355 in the first quarter of 1998, primarily due to additional management team
employees hired subsequent to March 31, 1998 to support the growth of the
Company and increases in overall salaries. Operating partnership administrative
expenses increased $138 during the first quarter of 1999 when compared to the
first quarter ended March 31, 1998. This increase is attributable to the Company
abandoning two proposed acquisitions during the first quarter of 1999, at costs
of $145.
FUNDS FROM OPERATIONS
Management generally considers funds from operations ("FFO") to be one
measure of financial performance of an equity REIT. It has been presented to
assist investors in analyzing the performance of the Company and to provide a
relevant basis for comparison to other REITs.
The Company has adopted the most recent National Association of Real Estate
Investment Trusts ("NAREIT") definition of FFO, which was effective on January
1, 1996. Under the NAREIT definition, FFO represents income (loss) before
minority interest (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures.
Therefore, FFO does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and should not be
considered an alternative to net income as an indication of the Company's
performance or to cash flows from operating activities as a measure of liquidity
or of the ability to pay distributions. Furthermore, while net income and cash
generated from operating, investing and financing activities determined in
accordance with generally accepted accounting principles consider capital
expenditures which have been and will be incurred in the future, the calculation
of FFO does not.
The following table illustrates the calculation of FFO for the three months
ended March 31, 1999, and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Net Income.................................................. $ 2,809 $ 2,003
Add: Depreciation and amortization........................ 3,298 2,943
Add: Minority interest in partnership..................... 1,186 791
------- -------
Funds from operations -- diluted............................ 7,293 5,737
Less: Preferred share dividends........................... (840) (280)
------- -------
Funds from operations -- basic.............................. $ 6,453 $ 5,457
======= =======
Weighted average equivalent shares outstanding (1)
Basic..................................................... 10,170 9,891
======= =======
Diluted................................................... 12,171 10,604
======= =======
Supplemental disclosure:
Straight-line rental income............................... $ 657 $ 421
======= =======
Amortization of management contracts and covenants not to
compete................................................ $ 124 $ 124
======= =======
</TABLE>
- -------------------------
(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.
14
<PAGE> 15
CAPITAL EXPENDITURES
During the three months ended March 31, 1999, the Company spent
approximately $723 on revenue generating capital expenditures including tenant
allowances, leasing commissions paid to third-party brokers, legal costs
relative to lease documents, and capitalized leasing and construction costs.
These types of costs generate a return through rents from tenants over the term
of their leases. Revenue enhancing capital expenditures, including expansions,
renovations or repositionings, were approximately $1,593. Revenue neutral
capital expenditures, such as roof and parking lot repairs which are anticipated
to be recovered from tenants, amounted to approximately $272.
YEAR 2000
The Company recognizes that Year 2000 issues may have an impact on its
business, operations and financial condition. The Company has completed an
assessment of its Year 2000 readiness with respect to all of its information
technology ("IT") systems and is currently addressing the reliability and
condition of its non-IT systems. These assessments will continue to be updated
as additional information becomes available and as new concerns are identified.
The Company's IT systems generally consist of file servers, operating
systems, application programs and workstations that utilize purchased and
customized software. The Company continues to evaluate the Year 2000 compliance
status of each vendor and tenant and believes that its existing systems or
planned upgrades during 1999 will be Year 2000 compliant. Implementation and
upgrades of non-Year 2000 compliant systems are not expected to result in
significant additional cost to the Company.
The Company's non-IT systems which may be subject to Year 2000 issues are
facility related and encompass areas such as HVAC systems, elevators, security,
lighting, telecommunications, electrical, plumbing, fire and sprinkler controls.
The Company is currently addressing the potential impact of Year 2000 issues in
these areas and has not identified any instances where Year 2000 issues will
require material costs to repair or replace any of these systems.
The significant risks to the Company, in the event that Year 2000 issues
are not identified and corrected, are that the Company could experience delays
or errors in processing financial and operational information. Non-IT system
problems could result in forced closure of certain facilities, which could limit
the efficient operation of the Company's properties.
Contingency plans will be developed if it appears the Company or its key
suppliers and tenants will not be Year 2000 compliant, and if such noncompliance
is expected to have a significant adverse effect on the Company's financial
position or results of operations.
INFLATION
Substantially all of the leases at the Company's properties provide for
tenants to pay their pro rata share of operating expenses, including common area
maintenance and real estate taxes, thereby reducing the Company's exposure to
increases in operating expenses resulting from inflation. Many of the tenants'
leases contain provisions designed to lessen the impact of inflation. Such
provisions include the ability to receive percentage rentals based on a tenant's
gross sales, which generally increase as prices rise, and or escalation clauses,
which generally increase rental rates during the terms of the leases. In
addition, many of the leases are for terms of less than ten years, which may
enable the Operating Partnership to replace existing leases with new leases at a
higher base and/or percentage rentals if rents of the existing leases are below
the then existing market rate.
15
<PAGE> 16
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.
16
<PAGE> 17
PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See Exhibit Index immediately preceding the exhibits.
(b) REPORTS ON FORM 8-K
Not applicable
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
RAMCO-GERSHENSON PROPERTIES TRUST
Date: May 7, 1999 By: /s/ DENNIS E. GERSHENSON
------------------------------------
Dennis E. Gershenson
President and Trustee
(Chief Executive Officer)
Date: May 7, 1999 By: /s/ RICHARD J. SMITH
----------------------------------------
Richard J. Smith
Chief Financial Officer
(Principal Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS STATEMENT OF INCOME STATEMENT OF SHAREHOLDERS
EQUITY, STATEMENT OF CASH FLOWS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<CIK> 0000842183
<NAME> RAMCO GERSHENSON
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,569
<SECURITIES> 0
<RECEIVABLES> 9,826
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,992
<PP&E> 537,898
<DEPRECIATION> 29,165
<TOTAL-ASSETS> 544,120
<CURRENT-LIABILITIES> 18,073
<BONDS> 331,487
0
0
<COMMON> 0
<OTHER-SE> 146,078
<TOTAL-LIABILITY-AND-EQUITY> 544,120
<SALES> 0
<TOTAL-REVENUES> 21,773
<CGS> 0
<TOTAL-COSTS> 5,868
<OTHER-EXPENSES> 5,331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,511
<INCOME-PRETAX> 4,063
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,809
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
