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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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:
10,621,975 SHARES OF COMMON STOCK, $.01 PAR VALUE, AS OF APRIL 25, 1996
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PART I. FINANCIAL INFORMATION
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 March 31, 1996 with the
three months ended March 31, 1995.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1996 to the three months ended
March 31, 1995
Net income decreased by $1,132,000 to $3,034,000 for the three months ended
March 31, 1996 compared to $4,166,000 for the three months ended March 31,
1995. The net decrease was primarily attributable to: (i) an increase in rent
revenue of $2,506,000; (ii) a decrease in gain on sale of property of
$1,975,000; (iii) an increase in depreciation and amortization expense of
$958,000; (iv) an increase in interest expense of $1,309,000; and (v) a
decrease in income applicable to minority interest of $993,000.
The increase in rent revenue was primarily attributable to: (i) the
acquisition of eight golf course properties subsequent to March 31, 1995,
which accounted for approximately $1,750,000 of the increase; (ii) a full
quarter of rent in 1996 on four golf course properties acquired in the first
quarter of 1995, which accounted for approximately $409,000 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 $219,000 of the increase; and (iv) the increase in base rents,
per the leases, with respect to the golf course properties owned at December
31, 1994, which accounted for approximately $128,000 of the increase.
For the three months ended March 31, 1995, the Company recognized a gain of
approximately $2,000,000 for the sale of Hidden Hills Country Club. During the
three months ended March 31, 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 depreciation and amortization expense was due to the
acquisition of eight golf course properties subsequent to March 31, 1995.
The rent revenue from the acquisition of the Golden Oaks Country Club
represented approximately $122,000 of the total rent revenue of $13.1 million.
The depreciation and amortization expense for this acquisition represented
approximately $54,000 of the total depreciation and amortization expense of
$4.1 million.
The increase in interest expense was due to the $50 million fixed rate,
unsecured notes issued. These notes were not outstanding at March 31, 1995.
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 $2 million gain on the sale of Hidden Hills
Country Club.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had approximately $11.8 million in cash and
investments, participating mortgage loans of approximately $25.2 million,
mortgage loans of approximately $3.2 million, mortgage indebtedness of
approximately $26.5 million and unsecured indebtedness of approximately $126.4
million. The $152.9 million principal amount of mortgage and unsecured
indebtedness bears interest at a weighted average rate of 8.12%, is payable
either quarterly or semi-annually and matures between 1996 and 2008.
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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; (iii) any payment to the
Company of percentage rent under the leases with respect to the golf courses;
and (iv) interest payments under participating mortgage loans collateralized
by certain 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. On February 15, 1996, the Company paid distributions to
stockholders in the amount of $.41 per share for the quarter ended December
31, 1995. In addition, on April 9, 1996, the Board of Directors declared a
distribution of $.41 per share for the quarter ended March 31, 1996, to
stockholders of record on April 30, 1996, which distribution was paid on May
15, 1996.
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 April 24, 1996, the Company is
required under the Leases to make various remaining capital improvements
totaling approximately $7.8 million, of which approximately $7.4 million will
be paid during the next two years. With respect to one of the option golf
courses, if acquired, the Company will reimburse AGC approximately $3 million
for the construction of a clubhouse which was completed during 1995. 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 units of limited partnership interest in the Operating Partnership (the "OP
Units") as consideration for such purchases. The Company currently has a $40
million credit facility, which terminates on July 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 $14.3 million and $21.8 million under this credit facility,
bearing interest at a weighted average rate of 7.29% and 7.51%, as of April
24, 1996 and March 31, 1996, respectively.
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. Management currently expects to
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 April 24, 1996, and March 31, 1996, on a pro forma basis after giving
effect to such purchase, the Company would have had approximately $8.5 million
and $1 million, respectively, available under its existing credit facility.
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For the period January 1, 1996 through April 24, 1996, the Company purchased
two golf courses for an aggregate initial investment of approximately $11.2
million, which investment was financed by $8.2 million of cash from operations
and $3 million of advances under the Company's credit facility. In addition,
the Company has three golf courses under purchase contracts for an aggregate
initial investment of approximately $15.8 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 operations for other REITs. The
following table summarizes the Company's funds from operations, based on the
old and new definitions, for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
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1996 1995
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(IN THOUSANDS)
<S> <C> <C>
Net income.............................................. $ 3,034 $ 4,166
Minority interest....................................... 2,600 3,582
Depreciation and amortization........................... 4,108 3,150
Amortization--restricted stock.......................... 236 236
Gain on sale of property................................ (25) (2,000)
Write off of option payable............................. -- (101)
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Funds from operations--old definition................... 9,953 9,033
Amortization--restricted stock.......................... (236) (236)
Amortization--loan costs................................ (30) (35)
Depreciation--corporate................................. (12) (9)
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Funds from operations--new definition................... 9,675 8,753
Company's share of funds from operations................ 53.85% 53.69%
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Company's funds from operations--new definition......... $ 5,210 $ 4,699
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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.
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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 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Golf Properties, Inc.
Date: June 20, 1996
By: /s/ EDWARD R. SAUSE
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Edward R. Sause
Executive Vice President
& Chief Financial Officer
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