<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 1-12246
NATIONAL GOLF PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 95-4549193
(State of incorporation) (I.R.S.Employer
Identification No.)
1448 15th Street, #200, Santa Monica, CA 90404
(Address of principal executive offices) (Zip Code)
(310) 260-5500
(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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
10,652,375 shares of common stock, $.01 par value, as of July 25, 1996
Page 1 of 22
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets of National
Golf Properties, Inc. as of June 30, 1996 3
and December 31, 1995
Consolidated Statements of Operations of
National Golf Properties, Inc. for the
three months ended June 30, 1996 and 1995 4
Consolidated Statements of Operations of
National Golf Properties, Inc. for the six
months ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows of
National Golf Properties, Inc. for the six
months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Part II. Other Information 19
Exhibit Index 22
</TABLE>
2
<PAGE>
Part I. Financial Information
Item I. Financial Statements
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Property
Land $ 55,860 $ 51,909
Buildings 114,304 108,120
Ground improvements 181,936 168,872
Furniture, fixtures and equipment 27,288 26,646
Construction in progress 8,548 6,521
-------- --------
387,936 362,068
Less: accumulated depreciation (66,345) (58,787)
-------- --------
Net property 321,591 303,281
Cash and cash equivalents 6,430 7,089
Investments 159 809
Mortgage notes receivable 28,361 27,441
Due from affiliates 2,036 -
Other assets 12,375 9,347
-------- --------
Total assets $370,952 $347,967
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $170,099 $143,176
Accounts payable and other liabilities 3,529 2,077
Due to affiliates - 1,807
-------- --------
Total liabilities 173,628 147,060
-------- --------
Minority interest 21,262 23,000
-------- --------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized - none issued - -
Common stock, $.01 par value, 40,000,000
shares authorized, 10,652,375 and
10,621,975 shares issued and outstanding
at June 30, 1996 and December 31, 1995,
respectively 107 106
Additional paid in capital 180,126 181,730
Accumulated deficit (1,360) (1,360)
Unamortized restricted stock compensation (2,811) (2,569)
-------- --------
Total stockholders' equity 176,062 177,907
-------- --------
Total liabilities and $370,952 $347,967
stockholders' equity ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Revenues:
Rent from affiliates $13,531 $ 11,237
Rent 313 183
------- --------
Total revenues 13,844 11,420
------- --------
Expenses:
General and administrative 1,375 1,004
Depreciation and amortization 4,190 3,287
------- --------
Total expenses 5,565 4,291
------- --------
Operating income 8,279 7,129
Other income (expense):
Interest income from affiliates 931 752
Interest income 85 200
Other income 98 3
Interest expense (3,148) (1,854)
Loss on sale of property - (65)
------- --------
Income before provision for taxes
and minority interest 6,245 6,165
Provision for taxes (55) (72)
------- --------
Income before minority interest 6,190 6,093
Income applicable to minority interest (2,851) (2,795)
------- --------
Net income $ 3,339 $ 3,298
======= ========
Net income per common share $ 0.31 $ 0.31
======= ========
Weighted average number of common
shares outstanding 10,642 10,622
======= ========
Distribution declared per common
share outstanding (Note 8) $ 0.41 $0.39375
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the For the
six months six months
ended ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Revenues:
Rent from affiliates $26,432 $21,777
Rent 501 226
Gain on sale of property 25 1,936
------- -------
Total revenues 26,958 23,939
------- -------
Expenses:
General and administrative 2,614 2,060
Depreciation and amortization 8,298 6,437
------- -------
Total expenses 10,912 8,497
------- -------
Operating income 16,046 15,442
Other income (expense):
Interest income from affiliates 1,682 1,433
Interest income 175 482
Other income 105 103
Interest expense (6,073) (3,470)
------- -------
Income before provision for taxes
and minority interest 11,935 13,990
Provision for taxes (111) (139)
------- -------
Income before minority interest 11,824 13,851
Income applicable to minority interest (5,451) (6,388)
------- -------
Net income $ 6,373 $ 7,463
======= =======
Net income per common share $ 0.60 $ 0.70
======= =======
Weighted average number of common
shares outstanding 10,632 10,622
======= =======
Distribution declared per common
share outstanding (Note 8) $ 0.82 $0.7875
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,373 $ 7,463
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 8,298 6,437
Amortization of restricted stock 496 472
Minority interest in earnings 5,451 6,388
Gain on sale of property (25) (1,936)
Other adjustments 101 (101)
Changes in assets and liabilities:
Other assets (1,128) (155)
Accounts payable and other liabilities 98 (989)
Due from/to affiliates (835) (740)
------- ---------
Net cash provided by
operating activities 18,829 16,839
------- ---------
Cash flows from investing activities:
Purchase of held-to-maturity securities - (241,182)
Proceeds from held-to-maturity
securities - 207,691
Purchase of available-for-sale securities (4,875) (5,491)
Proceeds from sale of available-for-sale
securities 5,525 5,491
Purchase of property and related assets (30,950) (31,470)
Payments for covenants not to compete - (5)
------- ---------
Net cash used by
investing activities (30,300) (64,966)
------- ---------
Cash flows from financing activities:
Principal payments on notes payable (14,416) (14,032)
Proceeds from notes payable 41,250 76,500
Loan costs - (905)
Repurchase of OP units (116) -
Cash distributions (8,723) (8,365)
Limited partners' cash distributions (7,183) (6,838)
------- -------
Net cash provided by financing
activities 10,812 46,360
------- -------
Net decrease in cash (659) (1,767)
Cash and cash equivalents at beginning of
period 7,089 4,086
------- -------
Cash and cash equivalents at end of period $ 6,430 $ 2,319
======= -------
Supplemental cash flow information:
Interest paid $ 5,935 $ 3,279
Taxes paid 136 303
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
------------------------------------------
a) Organization
------------
National Golf Properties, Inc. (the "Company") owns substantially all
of the golf courses through its general partner interest in National
Golf Operating Partnership, L.P. (the "Operating Partnership"). The
Operating Partnership has an 89% general partner interest in Royal
Golf, L.P. II ("Royal Golf"). Unless the context otherwise requires,
all references to the Company's business and properties include the
business and properties of the Operating Partnership and Royal Golf.
The consolidated financial statements include the accounts of the
Company, the Operating Partnership and Royal Golf. All significant
intercompany transactions and balances have been eliminated.
The accompanying consolidated financial statements for the three and
six months ended June 30, 1996 and 1995 have been prepared in
accordance with generally accepted accounting principles ("GAAP") and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
These financial statements have not been audited by independent public
accountants, but include all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial condition, results
of operations and cash flows for such periods. However, these results
are not necessarily indicative of results for any other interim period
or for the full year. The accompanying consolidated balance sheet as
of December 31, 1995 has been derived from the audited financial
statements, but does not include all disclosures required by GAAP.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted pursuant to requirements of the
Securities and Exchange Commission. Management believes that the
disclosures included in the accompanying interim financial statements
and footnotes are adequate to make the information not misleading, but
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1995.
7
<PAGE>
(2) Property
--------
During the six months ended June 30, 1996, the Company purchased four golf
courses for an aggregate initial investment of approximately $25 million.
Each golf course was purchased from an unaffiliated third party. The
acquisition has been accounted for utilizing the purchase method of
accounting, and accordingly, the acquired asset is included in the
statement of operations from the date of acquisition. Initial investment
amount includes purchase price, closing costs and other direct costs
associated with the purchase. The aforementioned golf courses, except for
Paradise Hills, are leased to American Golf Corporation ("AGC") pursuant to
long-term triple net leases. Paradise Hills is leased to Golf Enterprises,
Inc. pursuant to a long-term triple net lease.
<TABLE>
<CAPTION>
Initial
Date Course Name Location Investment
---- ----------- -------- ----------
(In thousands)
<S> <C> <C> <C>
1/12/96 Golden Oaks Fleetwood,
Country Club Pennsylvania $ 5,665
4/9/96 Paradise Hills Albuquerque,
Golf Course New Mexico 5,530
4/30/96 Seven Springs Chesapeake,
Country Club Virginia 3,811
5/9/96 SeaCliff Country Huntington
Club Beach,
California 10,032
-------
Total Initial Investment $25,038
=======
</TABLE>
8
<PAGE>
(3) Investments
-----------
<TABLE>
<CAPTION>
June 30, 1996
--------------
Cost Market Maturity
---- ------ --------
(In thousands)
<S> <C> <C> <C>
Available-for-sale
securities:
Commercial Paper $159 $159 07/1996
</TABLE>
During the six months ended June 30, 1996, available-for-sale securities
were sold resulting in proceeds of approximately $5.5 million.
(4) Notes Payable
-------------
The Company has a $40 million credit facility, which terminates on
September 1, 1996, bearing interest at a floating rate, from a commercial
bank that may be used to finance working capital, acquisitions and capital
improvements. There were outstanding advances of $40 million under this
credit facility as of June 30, 1996, representing an increase of $28
million from December 31, 1995. In addition, during the quarter the
Company paid off mortgage indebtedness of $785,000.
(5) Lease Rental Agreements
-----------------------
The minimum rent for the first year for each golf course under the leases
is initially set at a fixed amount. Thereafter, with respect to the leases
for the initial portfolio of golf courses at the time of the completion of
the Company's initial public stock offering on August 18, 1993 (the
"Offering"), minimum rent will be increased each year by 4% or, if lower,
150% of the annual percentage increase in the Consumer Price Index ("CPI")
(the "Base Rent Escalation"). For these leases, percentage rent will be
paid to the Company each year in the amount, if any, by which the sum of
35% of course revenue in excess of a baseline amount plus 5% of other
revenue in excess of a baseline amount exceeds the cumulative Base Rent
Escalation since the commencement date of such leases. Generally, for the
leases entered into subsequent to the Offering, the rent is based upon the
greater of (a) the minimum base rent or (b) a specified percentage of
course revenue and other revenue. The minimum base rent under these leases
will be increased for specified years during the lease term based upon
increases in the CPI, provided that each such annual CPI increase shall not
exceed five percent. On an interim basis, percentage rent is recognized
taking into consideration the seasonality of the golf courses. Such
percentage rent income for the six months ended June 30, 1996 and 1995 was
approximately $2,620,000 and $1,855,000, respectively.
9
<PAGE>
(6) Pro Forma Financial Information
-------------------------------
The pro forma financial information set forth below is presented as if
the 1996 acquisitions (Note 2) had been consummated as of January 1,
1996 and 1995.
The pro forma financial information is not necessarily indicative of
what actual results of operations of the Company would have been
assuming the acquisitions had been consummated as of January 1, 1996
and 1995, nor does it purport to represent the results of operations
for future periods.
<TABLE>
<CAPTION>
For the six
months
(In thousands, except per share amounts) ended June 30,
--------------------------------------- --------------
1996 1995
---- ----
<S> <C> <C>
Total revenues $27,602 $25,177
Net income $ 6,454 $ 7,355
Net income per weighted
average common share $ 0.61 $ 0.69
</TABLE>
(7) Other Data
----------
AGC is the lessee of all but two of the golf course properties in the
Company's portfolio at June 30, 1996. AGC is a golf course management
company that operates a diverse portfolio of golf courses for a
variety of golf course owners including municipalities, counties and
others. AGC does not own any golf courses, but rather manages and
operates golf courses either as a lessee under leases, generally
triple net, or pursuant to management agreements with golf course
owners. AGC derives revenues from the operation of golf courses
principally through receipt of green fees, membership initiation fees,
membership dues, golf cart rentals, driving range charges and sales of
food, beverages and merchandise.
The following table sets forth certain condensed unaudited financial
information concerning AGC:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
In thousands
------------
<S> <C> <C>
Current assets $ 64,573 $ 47,384
Non-current assets 92,120 96,771
-------- --------
Total assets $156,693 $144,155
======== ========
Current liabilities $ 52,393 $ 36,478
Long-term liabilities 33,501 $ 42,394
Minority interest 559 681
Stockholders' equity 70,240 64,602
-------- --------
Total liabilities and
stockholders' equity $156,693 $144,155
======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
For the six months
ended June 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
Total revenues $205,777 $169,771
======== ========
Net income $ 11,626 $ 6,563
======== ========
</TABLE>
Total revenues from golf course operations and management agreements
for AGC increased by $36 million, or 21.2%, to $205.8 million for the
six months ended June 30, 1996 compared to $169.8 million for the six
months ended June 30, 1995. The increase in revenues was primarily
attributable to the addition of 14 new lease agreements.
Net income increased by $5 million, to $11.6 million for the six
months ended June 30, 1996 compared to $6.6 million for the
corresponding six months of 1995. The increase in net income was
primarily due to the seasonal nature of AGC's business in that the
weather during the six months ended June 30, 1996 was less severe than
the corresponding months in 1995.
(8) Subsequent Events
-----------------
On July 1, 1996, the Company exercised the options to acquire the
option golf courses. The aggregate purchase price for the option golf
courses was approximately $31.6 million. In addition, the purchase
price was payable in part with approximately $4.8 million in cash that
was paid to AGC as reimbursement for its cost of constructing a
clubhouse on one of the option golf courses and an additional nine
holes on another option golf course, as well as approximately 61,000
units of limited partnership interest in the Operating Partnership
(the "OP Units") that were issued to David G. Price and Richard C.
Price and the refinancing of approximately $25.2 million in assumed
debt. The Company leased the golf courses to AGC, pursuant to long-
term triple net leases.
The Operating Partnership placed $75 million of fixed rate,
uncollaterized notes due 2006 with a group of institutional investors.
The notes will be issued in two series. The first note series in the
amount of $40 million was issued with a fixed interest rate of 7.9%,
and the second note series in the amount of $35 million will be
issued, at the Company's option within eight months of the first note
series, with a fixed interest rate of 8%. The Operating Partnership
applied the net proceeds from the $40 million notes to repay bank debt
of $37.5 million and to help finance the acquisition of Sweetwater
Country Club.
Also, on July 1, 1996, the Company purchased Sweetwater Country Club
in Sugar Land, Texas for approximately $11.9 million. The Company
leased the golf course to Cobblestone Golf Group, Inc., pursuant to a
long-term triple net lease.
On July 10, 1996, the Company purchased Colonial Charters Golf Course
in Longs, South Carolina for approximately $4.8 million. The Company
11
<PAGE>
leased the golf course to The Links Group, Inc., pursuant to a long-
term triple net lease.
On July 17, 1996, the Board of Directors declared a distribution of
$.41 per share for the quarter ended June 30, 1996 to stockholders of
record on July 29, 1996, which distribution will be paid on August 15,
1996.
12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
- --------
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto. The discussion of the
results of operations compares the three months ended June 30, 1996 with the
three months ended June 30, 1995 and the six months ended June 30, 1996 with the
six months ended June 30, 1995.
Results of Operations
- ---------------------
Comparison of the three months ended June 30, 1996 to the three months ended
June 30, 1995
Net income increased by $41,000 to $3,339,000 for the three months ended June
30, 1996 compared to $3,298,000 for the three months ended June 30, 1995. The
net increase was primarily attributable to: (i) an increase in rent revenue of
approximately $2,424,000; (ii) an increase in general and administrative expense
of approximately $371,000; (iii) an increase in depreciation and amortization
expense of approximately $903,000; (iv) an increase in interest income from
affiliates of approximately $179,000; and (v) an increase in interest expense of
approximately $1,294,000.
The increase in rent revenue was primarily attributable to: (i) the acquisition
of ten golf course properties subsequent to June 30, 1995, which accounted for
approximately $2,040,000 of the increase; (ii) a full quarter of rent in 1996 on
one golf course property acquired in the second quarter of 1995, which accounted
for approximately $108,000 of the increase; (iii) the increase in percentage
rents under the leases with respect to the golf course properties owned at March
31, 1995, which accounted for approximately $77,000 of the increase; and (iv)
the increase in base rents under the leases with respect to the golf course
properties owned at March 31, 1995, which accounted for approximately
$199,000 of the increase.
The increase in depreciation and amortization expense was due to (i) the
acquisition of ten golf course properties subsequent to June 30, 1995 and (ii) a
full quarter of depreciation expense in 1996 on one golf course property
acquired in the second quarter of 1995.
The rent revenue from the second quarter acquisitions of three golf course
properties represented approximately $554,000 of the total rent revenue of
$13.8 million. The depreciation and amortization expense for these
acquisitions represented approximately $151,000 of the total depreciation and
amortization expense of $4.2 million.
The increase in general and administrative expense was primarily attributable
to: (i) additional costs associated with the 1995 year end financial reporting
requirements and (ii) a payment made to a former employee. The increase in
interest income from affiliates was due to additional interest earned based on
growth in revenues over a specified baseline amount from each option golf course
collateralizing the participating mortgage loans. The increase in interest
expense was primarily attributable to: (i) the $50 million fixed rate, unsecured
notes issued in June 1995 and (ii) the increase in outstanding advances under
the $40 million credit facility.
Comparison of the six months ended June 30, 1996 to the six months ended June
30, 1995
Net income decreased by $1,090,000 to $6,373,000 for the six months ended June
30, 1996 compared to $7,463,000 for the six months ended June 30, 1995. The net
decrease was primarily attributable to : (i) an increase in rent revenue of
approximately $4,930,000; (ii) a decrease
13
<PAGE>
in gain on sale of property of approximately $1,911,000; (iii) an increase in
general and administrative expense of approximately $554,000; (iv) an increase
in depreciation and amortization expense of approximately $1,861,000; (v) an
increase in interest expense of approximately $2,603,000; and (vi) a decrease in
income applicable to minority interest of approximately $937,000.
The increase in rent revenue was primarily attributable to: (i) the acquisition
of ten golf course properties subsequent to June 30, 1995, which accounted for
approximately $3,555,000 of the increase; (ii) a full six months of rent in
1996 on five golf course properties acquired in the first six months of 1995,
which accounted for approximately $801,000 of the increase; (iii) the increase
in percentage rents under the leases with respect to the golf course properties
owned at December 31, 1994, which accounted for approximately $339,000 of the
increase; and (iv) the increase in base rents under the leases with respect to
the golf course properties owned at December 31, 1994, which accounted for
approximately $235,000 of the increase.
For the six months ended June 30, 1995, the Company recognized a gain of
approximately $1.9 million on the sale of Hidden Hills Country Club. During the
six months ended June 30, 1996, the Company recognized a gain on the sale of
Wootton Bassett Golf Club of $25,000.
Wootton Bassett Golf Club was sold for approximately $2 million. The Company
provided seller financing in the form of a mortgage loan in the amount of
approximately $900,000 at an interest rate of 6% per annum.
The increase in general and administrative expense was primarily attributable
to: (i) additional costs associated with the 1995 year end financial reporting
requirements and (ii) a payment made to a former employee.
The increase in depreciation and amortization expense was due to: (i) the
acquisition of ten golf course properties subsequent to June 30, 1995 and (ii) a
full six months of depreciation expense in 1996 on five golf course properties
acquired in the first six months of 1995.
The rent revenue from the 1996 acquisitions of four golf course properties
represented approximately $814,000 of the total rent revenue of $26.9 million.
The depreciation and amortization expense for these acquisitions represented
approximately $270,000 of the total depreciation and amortization expense of
$8.3 million.
The increase in interest expense was primarily attributable to: (i) the $50
million fixed rate, unsecured notes issued in June 1995 and (ii) the increase in
outstanding advances under the $40 million credit facility.
The decrease in income applicable to minority interest was due to the limited
partners of the Operating Partnership being allocated in 1995 approximately
$900,000 of the $1.9 million gain on the sale of Hidden Hills Country Club.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1996, the Company had approximately $6.6 million in cash and
investments, participating mortgage loans of approximately $25.2 million,
mortgage loans of approximately $3.2 million, mortgage indebtedness of
approximately $25.4 million and unsecured indebtedness of approximately $144.7
million. The $170.1 million principal amount of mortgage and unsecured
indebtedness bears interest at a weighted average rate
14
<PAGE>
of 8.03%, is payable either quarterly or semi-annually and matures between 1996
and 2008. Of the $170.1 million of debt, $130.1 million is fixed rate debt.
In order to maintain its qualification as a real estate investment trust
("REIT") for federal income tax purposes, the Company is required to make
substantial distributions to its stockholders. The following factors, among
others, will affect funds from operations and will influence the decisions of
the Board of Directors regarding distributions: (i) increase in debt service
resulting from additional indebtedness; (ii) scheduled increases in base rent
under the leases with respect to the golf courses; and (iii) any payment to the
Company of percentage rent under the leases with respect to the golf courses.
Although the Company receives most of its rental payments on a monthly basis, it
has and intends to continue to pay distributions quarterly. Amounts accumulated
for distribution will be invested by the Company in short-term money market
instruments and marketable securities.
The Company anticipates that its cash from operations and its bank line of
credit, described below, will provide adequate liquidity to conduct its
operations, fund administrative and operating costs, interest payments, capital
improvements and acquisitions and allow distributions to the Company's
stockholders in accordance with the Code's requirements for qualification as a
REIT and to avoid any corporate level federal income or excise tax. Capital
improvements for which the Company is responsible would be limited to mandated
projects or projects intended to add value to the property. For golf courses
acquired subsequent to the Offering through July 25, 1996, the Company is
required under the leases to make various remaining capital improvements
totaling approximately $8.2 million, of which approximately $7.4 million
will be paid during the next two years. The Company believes these improvements
will add value to the golf courses and bring the quality of the golf courses up
to the Company's expected standards. Any subsequent capital improvements are the
responsibility of the lessees. Upon completion of the capital improvements, the
base rent payable under the leases with respect to these golf courses will be
adjusted to reflect, over the initial term of the leases (15 to 20 years), the
Company's investment in such improvements.
Future acquisitions will be made subject to the Company's investment objectives
and policies established to maximize both current income and long-term growth in
income. The Company's liquidity requirements with respect to future acquisitions
may be reduced to the extent the Company uses common stock or OP Units as
consideration for such purchases. The Operating Partnership placed $75 million
of fixed rate, uncollaterized notes due 2006 with a group of institutional
investors. The notes will be issued in two series. The first note series in the
amount of $40 million was issued with a fixed interest rate of 7.9%, and the
second note series in the amount of $35 million will be issued, at the Company's
option within eight months of the first note series, with a fixed interest rate
of 8%. The Operating Partnership applied the net proceeds from the $40 million
notes to repay bank debt of $37.5 million and to help finance the acquisition of
Sweetwater Country Club. The Company currently has a $40 million credit
facility, which terminates on September 1, 1996, bearing interest at a floating
rate, from a commercial bank that may be used to finance working capital,
acquisitions and capital improvements. There were outstanding advances of $12.3
million and $40 million under this credit facility, bearing interest at a
weighted average rate of 7.28% and 7.34%, as of July 25, 1996 and June 30, 1996,
respectively.
15
<PAGE>
On February 2, 1996, the Company executed a definitive agreement to purchase 20
golf courses from Golf Enterprises, Inc. ("GEI") for a purchase price of $58
million, payable at closing, at the Company's option, either $58 million in cash
or a combination of approximately $17.2 million in cash and approximately $40.8
million in Company common stock (based on an average trading price of such stock
prior to closing, subject to certain limitations). The Company will not be
required to issue more than 2,128,000 shares nor less than 1,418,666 shares in
the acquisition. The 20 golf courses will be leased to AGC. The terms are
substantially similar to the terms of the leases entered into with AGC
subsequent to the Offering. The Company will exercise its option to pay the
purchase price for the 20 golf courses in cash and stock, and does not expect
that payment of such purchase price will have an adverse impact on the Company's
ability to meet its liquidity requirements. At July 25, 1996, on a pro forma
basis after giving effect to such purchase, the Company would have had
approximately $10.5 million available under its existing credit facility.
For the period January 1, 1996 through July 25, 1996, the Company purchased 11
golf courses for an aggregate initial investment of approximately $73.3 million
(including the $31.6 million purchase of four golf courses upon which the
Company previously held participating mortgages), which investment was financed
by $21 million of cash from operations; $23.1 million of advances under the
Company's credit facility; $2.5 million of the $40 million first note series
issued in July 1996; approximately 61,000 OP Units; and the refinancing of
approximately $25.2 million in assumed debt. In addition, the Company has three
golf courses under purchase contracts for an aggregate initial investment of
approximately $14.5 million.
The limited partners of the Operating Partnership have the right, exercisable
once in any 12 month period, to sell up to one-third of their OP Units or
exchange up to the greater of 75,000 OP Units or one-third of their OP Units to
the Company. If the OP Units are sold for cash, the Company will have the option
to pay for such OP Units with available cash, borrowed funds or from the
proceeds of an offering of common stock. If the OP Units are exchanged for
shares of common stock, the Operating Partnership limited partner will receive
the number of shares of common stock having a market value at the time of
exercise equal to the fair market value of the OP Units being exchanged.
Other Data
- ----------
The Company believes that to facilitate a clear understanding of the historical
consolidated operating results, funds from operations should be examined in
conjunction with net income as presented in the Consolidated Financial
Statements. Funds from operations is considered by management as an appropriate
measure of the performance of an equity REIT because it is predicated on cash
flow analyses, which management believes is more reflective of the value of real
estate companies such as the Company rather than a measure predicated on
generally accepted accounting principles which gives effect to non-cash
expenditures such as depreciation. Funds from operations is generally defined as
net income (loss) plus certain non-cash items, primarily depreciation and
amortization. Funds from operations should not be considered as an alternative
to net income as an indication of the Company's performance or as an alternative
to cash flow as a measure of liquidity.
The National Association of Real Estate Investment Trusts, Inc. ("NAREIT")
adopted revisions to the definition of funds from operations. The Company has
also adopted the new definition of funds from operations. It intends to present
both the old and new definitions of funds from operations to help comparisons
with prior periods of the Company. The funds from operations presented may not
be comparable to funds from
16
<PAGE>
operations for other REITs. The following table summarizes the Company's funds
from operations, based on the old and new definitions, for the six months ended
June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Six months ended
June 30,
-------
(In thousands)
1996 1995
---- ----
<S> <C> <C>
Net income $ 6,373 $ 7,463
Minority interest 5,451 6,366
Depreciation and amortization 8,298 6,369
Amortization - restricted stock 496 472
Gain on sale of property (25) (1,936)
Write off of option payable - (100)
------- -------
Funds from operations - old definition 20,593 18,634
Amortization - restricted stock (496) (472)
Amortization - loan costs (60) (123)
Depreciation - corporate (24) (20)
------- -------
Funds from operations - new definition 20,013 18,019
Company's share of funds from operations 53.9% 53.88%
------- -------
Company's funds from operations - new
definition $10,787 $ 9,709
======= =======
</TABLE>
The primary difference between the old and new definitions of funds from
operations is the exclusion from funds from operations of amortization of assets
that are not uniquely significant to the real estate industry.
In order to maintain its qualification as a REIT for federal income purposes,
the Company is required to make distributions to its stockholders. The
Company's distributions to stockholders have been less than the total funds from
operations because the Company is obligated to make certain payments with
respect to principal debt and capital improvements. Management believes that to
continue the Company's growth, funds in excess of distributions, principal
reductions and capital improvement expenditures should be invested in assets
expected to generate returns on investment to the Company commensurate with the
Company's investment objectives and policies.
Inflation
- ---------
All the leases of the golf courses provide for base and participating rent
features. All of such leases are triple net leases requiring the lessees to pay
for all maintenance and repair, insurance, utilities and services, and, subject
to certain limited
17
<PAGE>
exceptions, all real estate taxes, thereby minimizing the Company's exposure to
increases in costs and operating expenses resulting from inflation.
Seasonality
- -----------
Although the results of operations of the Company have not been significantly
impacted by seasonality, the Company generally expects that its results of
operations may be adversely affected as a function of reduced payments of
percentage rent in the first and fourth quarters of each year due to adverse
weather conditions and the scheduled closure of golf courses located in harsh
winter climates.
18
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) 10.1 Form of Lease Agreement between the Company and AGC with respect to
the following golf courses: Southwyck, Dub's Dread, Kokopelli,
Summitpointe, Lake Wilderness, Links at Northfork, Hershey, Hershey
South, Canyon Oaks,Capitol City, Binks Forest, Port Royal, Shipyard,
Sugar Ridge, Wildhorse, Goshen Plantation, Hickory Heights, River's
Edge, Berry Creek, Creekside, Honey Bee, Wood Ranch, Monterey, Palm
Valley, Ruffled Feathers, Upland Hills, Oregon Golf, Golden Oaks,
Seven Springs, SeaCliff, Ancala, Arrowhead, Black Lake and Painted
Desert; and Form of Lease Agreement between the Company and
Cobblestone Golf Group, Inc. with respect to the Carmel Mountain golf
course and the Sweetwater golf course (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K dated
February 29, 1996)
11.1 Statement regarding computation of per share earnings
19
<PAGE>
(b) During the quarter no reports on Form 8-K were filed by the Company.
20
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Golf Properties, Inc.
Date: July 25, 1996 By: /s/ EDWARD R. SAUSE
--------------------------
Edward R. Sause
Executive Vice President
& Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<S> <C> <C>
10.1 Form of Lease Agreement between the Company
and AGC with respect to the following golf
courses: Southwyck, Dub's Dread, Kokopelli,
Summitpointe, Lake Wilderness, Links at
Northfork, Hershey, Hershey South, Canyon
Oaks,Capitol City, Binks Forest, Port Royal,
Shipyard, Sugar Ridge, Wildhorse, Goshen
Plantation, Hickory Heights, River's Edge,
Berry Creek, Creekside, Honey Bee, Wood Ranch,
Monterey, Palm Valley, Ruffled Feathers, Upland
Hills, Oregon Golf, Golden Oaks, Seven Springs,
SeaCliff, Ancala, Arrowhead, Black Lake and
Painted Desert; and Form of Lease Agreement
between the Company and Cobblestone Golf Group,
Inc. with respect to the Carmel Mountain golf
course and the Sweetwater golf course
(incorporated by reference to Exhibit 10.3 to
the Company's Annual Report on Form 10-K dated
February 29, 1996)
11.1 Statement regarding computation of per share
earnings
27 Financial Data Schedule
</TABLE>
22
<PAGE>
Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the For the For the For the
three months three months six months six months
ended ended ended ended
June 30,1996 June 30,1995 June 30,1996 June 30,1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary:
Net income...................................... $ 3,339 $ 3,298 $ 6,373 $ 7,463
=========== =========== =========== ===========
Weighted average number of shares outstanding... 10,642,042 10,621,975 10,632,008 10,621,975
Incremental shares resulting from stock options. 83,635 28,343 83,009 5,053
----------- ----------- ----------- -----------
Weighted average number of common stock and
common stock equivalents........................ 10,725,677 10,650,318 10,715,017 10,627,028
=========== =========== =========== ===========
Primary earnings per share*..................... $ 0.31 $ 0.31 $ 0.59 $ 0.70
=========== =========== =========== ===========
Fully Diluted:
Net income...................................... $ 3,339 $ 3,298 $ 6,373 $ 7,463
=========== =========== =========== ===========
Weighted average number of shares outstanding... 10,642,042 10,621,975 10,632,008 10,621,975
Incremental shares resulting from stock options. 83,635 28,343 83,009 17,506
----------- ----------- ----------- -----------
Weighted average number of common stock and
common stock equivalents........................ 10,725,677 10,650,318 10,715,017 10,639,481
=========== =========== =========== ===========
Fully diluted earnings per share* $ 0.31 $ 0.31 $ 0.59 $ 0.70
=========== =========== =========== ===========
</TABLE>
* Management believes the incremental shares have an insignificant impact on
primary and fully diluted earnings per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL
GOLF PROPERTIES, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,430
<SECURITIES> 159
<RECEIVABLES> 30,397
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,625
<PP&E> 387,936
<DEPRECIATION> 66,345
<TOTAL-ASSETS> 370,952
<CURRENT-LIABILITIES> 3,529
<BONDS> 170,099
0
0
<COMMON> 107
<OTHER-SE> 175,955
<TOTAL-LIABILITY-AND-EQUITY> 370,952
<SALES> 0
<TOTAL-REVENUES> 26,958
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,912
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,073
<INCOME-PRETAX> 11,935
<INCOME-TAX> 111
<INCOME-CONTINUING> 11,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,373
<EPS-PRIMARY> $0.60
<EPS-DILUTED> $0.59
</TABLE>
