<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, 2000
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.)
2951 28th Street, Suite 3001, Santa Monica, CA 90405
(Address of principal executive offices) (Zip Code)
(310) 664-4100
(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:
13,484,245 shares of common stock, $.01 par value, as of August 8, 2000
Page 1 of 19
<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, 2000 and December 31, 1999 3
Consolidated Statements of Operations of National Golf
Properties, Inc. for the three months ended June 30,
2000 and 1999 4
Consolidated Statements of Operations of National Golf
Properties, Inc. for the six months ended June 30, 2000
and 1999 5
Consolidated Statements of Cash Flows of National Golf
Properties, Inc. for the six months ended June 30, 2000
and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 16
Part II. Other Information 17
Exhibit Index 19
</TABLE>
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Property
Land $ 91,059 $ 98,918
Buildings 240,756 255,833
Ground improvements 456,167 417,941
Furniture, fixtures and equipment 50,045 49,893
Leasehold rights 33,245 31,543
Construction in progress 23,302 23,942
--------- ---------
894,574 878,070
Less: accumulated depreciation (170,767) (152,974)
--------- ---------
Net property 723,807 725,096
Cash and cash equivalents 1,270 2,491
Investments 200 200
Mortgage notes receivable 21,463 27,855
Investment in joint venture 7,105 7,286
Due from affiliate 3,161 ---
Other assets, net 17,389 18,977
--------- ---------
Total assets $ 774,395 $ 781,905
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 455,107 $ 450,331
Accounts payable and other liabilities 14,434 9,632
Due to affiliate --- 6,370
--------- ---------
Total liabilities 469,541 466,333
--------- ---------
Minority interest 177,828 194,071
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
Authorized - none issued --- ---
Common stock, $.01 par value, 40,000,000 shares
authorized, 13,444,245 and 12,204,245 shares
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 134 122
Additional paid in capital 130,372 125,597
Unamortized restricted stock compensation (3,480) (4,218)
--------- ---------
Total stockholders' equity 127,026 121,501
--------- ---------
Total liabilities and stockholders' equity $ 774,395 $ 781,905
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Revenues:
Rent from affiliates $ 27,130 $ 25,464
Rent 303 294
Equity in income from joint venture 109 107
Gain on sale of properties (19) 359
----------- -----------
Total revenues 27,523 26,224
----------- -----------
Expenses:
General and administrative 1,363 1,247
Depreciation and amortization 9,773 9,545
----------- -----------
Total expenses 11,136 10,792
----------- -----------
Operating income 16,387 15,432
Other income (expense):
Interest income from affiliates 137 280
Interest income 122 220
Other income 43 239
Treasury lock settlement --- (2,016)
Interest expense (10,003) (9,629)
----------- -----------
Income before taxes and minority interest 6,686 4,526
Provision for taxes (9) (58)
----------- -----------
Income before minority interest 6,677 4,468
Income applicable to minority interest (4,059) (2,927)
----------- -----------
Net income $ 2,618 $ 1,541
=========== ===========
Basic earnings per share $ 0.20 $ 0.12
Weighted average number of shares 13,153 12,636
Diluted earnings per share $ 0.19 $ 0.12
Weighted average number of shares 13,454 12,696
Distribution declared per common share outstanding $ 0.45 $ 0.44
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
For the six For the six
months ended months ended
June 30, 2000 June 30, 1999
------------- -------------
Revenues:
Rent from affiliates $ 53,989 $ 45,135
Rent 606 1,130
Equity in income from joint venture 222 212
Gain on sale of property 688 359
------------ ------------
Total revenues 55,505 46,836
------------ ------------
Expenses:
General and administrative 3,028 2,626
Depreciation and amortization 20,412 16,895
------------ ------------
Total expenses 23,440 19,521
------------ ------------
Operating income 32,065 27,315
Other income (expense):
Interest income from affiliates 265 280
Interest income 515 763
Other income 46 251
Treasury lock settlement -- (2,016)
Interest expense (19,841) (15,321)
------------ ------------
Income before provision for taxes and
minority interest 13,050 11,272
Provision for taxes (18) (115)
------------ ------------
Income before minority interest 13,032 11,157
Income applicable to minority interest (8,222) (6,702)
------------ ------------
Net income $ 4,810 $ 4,455
============ ============
Basic earnings per share $ 0.38 $ 0.35
Weighted average number of shares 12,664 12,629
Diluted earnings per share $ 0.37 $ 0.35
Weighted average number of shares 12,942 12,691
Distribution declared per common share
outstanding $ 0.90 $ 0.88
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the six For the six
Months ended months ended
June 30, 2000 June 30, 1999
------------- -------------
Cash flows from operating activities:
Net income $ 4,810 $ 4,455
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,412 16,895
Amortization of loan costs 697 449
Amortization of restricted stock 738 778
Minority interest in earnings 8,222 6,702
Distributions from joint venture, net
of equity in income 181 150
Gain on sale of property (688) (359)
Straight-line rents (1,765) (1,130)
Other 236 2,345
Changes in assets and liabilities:
Other assets 2,596 (2,531)
Accounts payable and other
liabilities 3,764 4,582
Due from/to affiliate (1,315) (1,633)
------------ ------------
Net cash provided by
operating activities 37,888 30,703
------------ ------------
Cash flows from investing activities:
Purchase of available-for-sale securities -- (1,953)
Proceeds from sale of available-for-sale
securities -- 3,049
Treasury lock settlement -- (2,016)
Issuance of mortgage note receivable (404) (12,655)
Proceeds from mortgage notes receivable -- 9,649
Loan costs on mortgage note issued -- (63)
Purchase of property and related assets (22,658) (184,234)
Proceeds from sale of property and related
assets 3,026 2,834
------------ ------------
Net cash used by investing
activities (20,036) (185,389)
------------ ------------
Cash flows from financing activities:
Principal payments on notes payable (58,328) (127,099)
Proceeds from notes payable 63,000 307,350
Purchase of stock under repurchase plan (198) --
Loan costs (60) (4,500)
Proceeds from stock options exercised -- 444
Cash distributions (11,404) (11,112)
Limited partners' cash distributions (12,083) (10,812)
------------ ------------
Net cash provided (used) by
financing activities (19,073) 154,271
------------ ------------
Net decrease in cash (1,221) (415)
Cash and cash equivalents at beginning of
period 2,491 1,711
------------- -------------
Cash and cash equivalents at end of period $ 1,270 $ 1,296
============= =============
Supplemental cash flow information:
Interest paid $ 19,266 $ 13,594
Taxes paid 26 101
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
National Golf Properties, Inc. (the "Company") owns all of the golf courses
through its general partner interest in National Golf Operating
Partnership, L.P. (the "Operating Partnership"), pursuant to its 64.2%
ownership of the common units of partnership interest in the Operating
Partnership ("Common Units"). 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, 2000 and 1999 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 statement 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, 1999 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 GAAP have been omitted pursuant to
requirements of the Securities and Exchange Commission (the "SEC").
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, 1999.
The computation of basic earnings per share is computed by dividing net
income by the weighted average number of outstanding common shares during
the period. The computation of diluted earnings per share is based on the
weighted average number of outstanding common shares during the period and
the incremental shares, using the treasury stock method, from stock options
and unvested restricted stock. The incremental shares for the three months
ended June 30, 2000 and 1999 were 300,637 and 59,783, respectively. The
incremental shares for the six months ended June 30, 2000 and 1999 were
277,880 and 61,878, respectively.
(2) Property Acquisitions and Sales
-------------------------------
During the six months ended June 30, 2000, the Company purchased two golf
courses, described below, for an initial investment of approximately $11
7
<PAGE>
million. The acquisitions have been accounted for utilizing the purchase
method of accounting, and accordingly, the acquired assets are 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 are
leased to American Golf Corporation ("AGC"), a related party, pursuant to
long-term triple net leases.
<TABLE>
<CAPTION>
Acquisition Initial
Date Course Name Location Investment
----------- ----------- -------- ----------
(In thousands)
<S> <C> <C> <C>
2/24/00 Canoa Hills Golf Course Green Valley, $ 3,493
Arizona
3/7/00 Oyster Reef Golf Club Hilton Head Island, South 7,462
Carolina
--------
Total Initial Investment $ 10,955
========
</TABLE>
In February 2000, the Company sold Lake Houston Golf Club and Woodlake
Country Club for a total amount of approximately $3.2 million. The Company
recognized a gain of approximately $688,000.
(3) Cobblestone Acquisition
-----------------------
On March 31, 1999, the Company purchased fee interests in 15 golf courses,
long-term leasehold interests in two golf courses and leasehold rights in
three golf courses and made a participating mortgage loan collateralized by
an additional golf course (collectively, the "Acquired Cobblestone
Courses"). As part of the Acquired Cobblestone Courses the Company made a
participating mortgage loan of approximately $12.6 million, which is
collateralized by El Camino Country Club (the "El Camino Mortgage").
During the three months ended March 31, 2000, the Company finalized the
fair value allocation of purchase price among the Acquired Cobblestone
Courses. As a result, the El Camino Mortgage was reduced from
approximately $12.6 million to approximately $5.9 million. The difference
of $6.7 million was allocated among the Acquired Cobblestone Courses. In
addition, there were reclassifications among the components of property.
(4) Mortgage Notes Receivable
-------------------------
On March 13, 1995, the Company sold Hidden Hills Country Club in Stone
Mountain, Georgia for approximately $3.2 million. The Company provided
seller financing in the form of a mortgage loan in the amount of $2.2
million at an initial interest rate of 11% per annum and a maturity date of
March 2000 (the "Hidden Hills Mortgage"). In March 1998, the interest rate
was increased to 11.5% per annum, and in March 1999, the interest rate was
increased to 12% per annum.
On March 12, 2000, the Hidden Hills Mortgage matured but was not paid. The
borrower is in the process of refinancing the Hidden Hills Mortgage with a
third party lender. The Company extended the term of the Hidden Hills
8
<PAGE>
Mortgage to June 30, 2000 and, subject to certain payment provisions, to
September 30, 2000, to facilitate such refinancing. The interest rate
remains at 12% per annum.
The borrower is continuing the process of refinancing the Hidden Hills
mortgage, however, the borrower did not meet the payment provisions of the
extended note. The Company has declared the borrower in default and is
initiating foreclosure proceedings. At June 30, 2000 and December 31, 1999
the unpaid principal and interest balance was approximately $2.2 million
and $2.4 million, respectively. Accrued but unpaid interest at June 30,
2000 was approximately $267,000, which amount the Company has established
as a reserve.
(5) Stock Repurchase Plan
---------------------
In September 1999, the Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to $20 million of the
Company's common stock. At June 30, 2000 and December 31, 1999, the number
of shares purchased under this authorization was 454,800 and 444,800 for a
total cost of approximately $9.3 million and $9.1 million, respectively.
The shares repurchased are considered "authorized but unissued."
(6) Lease Rental Agreements
-----------------------
For the leases of the Acquired Cobblestone Courses, the base rent generates
an initial return on the Operating Partnership's investment of 8.75% and
will step-up on a sequential basis each year to 9.25%, 9.75%, 10.25%,
10.75%, 11.25%, and finally to 11.75% in 2005. GAAP requires, for leases
with fixed increases in rent, the total rent revenue over the lease period
be straight-lined. For the three months ended June 30, 2000 and 1999, the
straight-lining of rent resulted in additional rent revenue of
approximately $878,000 and $1,130,000, respectively. For the six months
ended June 30, 2000 and 1999, the straight-lining of rent resulted in
additional rent revenue of approximately $1,765,000 and $1,130,000,
respectively.
(7) Pro Forma Financial Information
-------------------------------
The pro forma financial information set forth below is presented as if the
2000 acquisitions (Note 2) had been consummated as of January 1, 1999.
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, 1999, nor does it
purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
For the six
(In thousands, except per share amounts) months ended June 30,
---------------------------------------- ---------------------
2000 1999
---- ----
<S> <C> <C>
Revenues from rental property $ 54,810 $ 46,876
Net income $ 4,780 $ 4,389
Basic earnings per share $ 0.38 $ 0.35
Diluted earnings per share $ 0.37 $ 0.35
</TABLE>
9
<PAGE>
The pro forma financial information includes the following adjustments:
(i) an increase in depreciation expense and (ii) an increase in interest
expense.
(8) Statement of Cash Flows - Supplemental Disclosures
--------------------------------------------------
On March 14, 2000, a limited partner exchanged all of its 1,250,000 Common
Units for 1,250,000 shares of common stock.
Non-cash transactions for the six months ended June 30, 2000 include
approximately $3,549,000 in capital improvements accrued but not paid.
Non-cash transactions for the six months ended June 30, 1999 include
approximately $5.6 million of assumed notes as partial consideration for
the Acquired Cobblestone Courses and approximately $2.1 million in capital
improvements accrued but not paid.
(9) Other Data
----------
AGC is the lessee of all but four of the golf courses in the Company's
portfolio at June 30, 2000. David G. Price, the Chairman of the Board of
Directors of the Company, owns approximately 2.6% of the Company's
outstanding common stock and approximately 16% of the Common Units of the
Operating Partnership and a controlling interest in AGC. 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. 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,
2000 1999
-------------- ---------------
(In thousands)
<S> <C> <C>
Current assets $ 110,106 $ 99,292
Non-current assets 180,114 179,566
--------- ---------
Total assets $ 290,220 $ 278,858
========= =========
Current liabilities $ 122,591 $ 102,701
Long-term liabilities 146,689 161,204
Minority interest 902 760
Shareholders' equity 20,038 14,193
--------- ---------
Total liabilities and shareholders' equity $ 290,220 $ 278,858
========= =========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
For the six months ended
June 30,
------------------------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Total revenues $ 362,848 $ 324,941
========= =========
Net income $ 5,994 $ 10,529
========= =========
</TABLE>
Total revenues from golf course operations and management agreements for
AGC increased by $37.9 million, or 11.7%, to $362.8 million for the six
months ended June 30, 2000 compared to $324.9 million for the six months
ended June 30, 1999. The increase in revenues was primarily attributable
to the addition of 18 leased courses.
Net income decreased by $4.5 million to $6 million for the six months ended
June 30, 2000 compared to $10.5 million for the corresponding six months of
1999. The decrease in net income was primarily due to lower operating
margins on a same course basis as a result of unfavorable weather
conditions in the southwest and eastern United States. In addition, while
the new leases described above contributed favorably to revenue, such
properties historically operate at lower margins in the first year of
operation.
(10) Subsequent Events
-----------------
On July 6, 2000, the Board of Directors declared a distribution of $0.45
per share for the quarter ended June 30, 2000 to stockholders of record on
July 31, 2000, which distribution will be paid on August 15, 2000.
On July 21, 2000, the company sold Westwinds Country Club and Hickory
Heights Golf Club for an aggregate sales price of approximately $8.1
million.
On August 8, 2000, the Company acquired the remaining 11% of Royal Golf
from a limited partner, for approximately $4.4 million of cash and assumed
liabilities. The Company previously owned 89% of Royal Golf.
11
<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 forward-looking
statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") relating to certain matters involve
risks and uncertainties, including anticipated financial performance, business
prospects, anticipated capital expenditures and other similar matters, which
reflect management's best judgement based on factors currently known. Actual
results and experience could differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements as a
result of a number of factors, including but not limited to those discussed in
MD&A.
The discussion of the results of operations compares the three months ended June
30, 2000 with the three months ended June 30, 1999.
Results of Operations
---------------------
Comparison of the three months ended June 30, 2000 to the three months ended
June 30, 1999
Net income increased by $1,077,000 to $2,618,000 for the three months ended June
30, 2000 compared to $1,541,000 for the three months ended June 30, 1999. The
increase was primarily attributable to: (i) an increase in rent revenue of
approximately $1,675,000; (ii) an increase in depreciation
and amortization expense of approximately $228,000; (iii) an increase in
interest expense of approximately $374,000; (iv) a decrease in treasury lock
settlement of approximately $2,016,000 which was offset by an increase in
minority interest of approximately $1,132,000; and (v) decreases in interest and
other income of approximately $437,000.
The increase in rent revenue was primarily attributable to: (i) the acquisition
of five golf course properties subsequent to June 30, 1999, which accounted for
approximately $722,000 of the increase; and (ii) the increase in base rents
under the leases with respect to the golf course properties owned at March 31,
1999, which accounted for approximately $953,000 of the increase.
The increase in depreciation and amortization expense was due to a decrease in
depreciation expense of approximately $372,000 and an increase in amortization
expense of approximately $600,000. The increase in amortization expense was
primarily due to the acquisition of two long-term leasehold interests and three
leasehold rights, which accounted for approximately $499,000 of the increase.
The decrease in depreciation expense was primarily due to: (i) reclassifications
among the components of property for the Acquired Cobblestone Courses, which
resulted in a decrease of approximately $610,000; and (ii) the acquisition of
five golf course properties subsequent to June 30, 1999, which resulted in an
increase of approximately $306,000; and (iii) the sale of five golf course
properties subsequent to March 31, 1999, which resulted in a decrease of
approximately $113,000.
The increase in interest expense was primarily due to the increase in
outstanding advances and LIBOR rate margin under the Company's credit facility.
On March 31, 1999, the Company's $100 million credit facility was terminated and
replaced with a $300 million credit facility. On July 30, 1999, the Company
amended its $300 million credit facility. The amended credit facility split the
$300 million
12
<PAGE>
revolving credit facility into (i) a $200 million revolver and (ii) a $100
million term note.
Comparison of the six months ended June 30, 2000 to the six months ended June
30, 1999
Net income increased by $355,000 to $4,810,000 for the six months ended June 30,
2000 compared to $4,455,000 for the six months ended June 30, 1999. The increase
was primarily attributable to: (i) an increase in rent revenue of approximately
$8,330,000; (ii) an increase in depreciation and amortization expense of
approximately $3,517,000; (iii) an increase in interest expense of approximately
$4,520,000; (iv) a decrease in treasury lock settlement of approximately
$2,016,000 which was offset by an increase in minority interest of approximately
$1,520,000.
The increase in rent revenue was primarily attributable to: (i) the acquisition
of five golf course properties, two long-term leasehold interests and three
leasehold rights acquired in the first six months of 1999, which accounted for
approximately $6,693,000 of the increase; and (iii) the increase in rents under
the leases with respect to the golf course properties owned at December 31,
1998, which accounted for approximately $393,000 of the increase.
The increase in depreciation and amortization expense was due to an increase in
depreciation expense of approximately $2,389,000 and an increase in amortization
expense of approximately $1,128,000. The increase in depreciation expense was
primarily due to (i) the acquisition of five golf course properties subsequent
to June 30, 1999, which accounted for approximately $511,000 of the increase;
and (ii) a full six months of depreciation expense on 19 golf course properties
acquired in the first six months of 1999, which accounted for approximately
$1,955,000 of the increase; and (iii) a decrease of approximately $121,000 due
to the sale of five golf course properties subsequent to December 31, 1999. The
increase in amortization expense was primarily due to the acquisition of two
long-term leasehold interests and three leasehold rights, which accounted for
approximately $1,159,000 of the increase.
The increase in interest expense was primarily due to the increase in
outstanding advances and LIBOR rate margin under the Company's credit facility.
On March 31, 1999, the Company's $100 million credit facility was terminated and
replaced with a $300 million credit facility. On July 30, 1999, the Company
amended its $300 million credit facility. The amended credit facility split the
$300 million revolving credit facility into (i) a $200 million revolver and (ii)
a $100 million term note.
Liquidity and Capital Resources
-------------------------------
At June 30, 2000, the Company had approximately $1.5 million in cash and
investments, mortgage notes receivable of approximately $21.5 million, mortgage
indebtedness of approximately $30.4 million and unsecured indebtedness of
approximately $424.7 million. The $455.1 million principal amount of mortgage
and unsecured indebtedness bears interest at a weighted average rate of 8.75%.
Of the $455.1 million of debt, $192.8 million is fixed-rate debt and is payable
either monthly, quarterly, semi-annually, or annually and matures between 2000
and 2008.
In order to maintain its qualification as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), the
Company is required to make substantial distributions to its stockholders. The
following
13
<PAGE>
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) increase in preferred distributions resulting from the
issuance of cumulative redeemable preferred units, representing a limited
partnership interest in the Operating Partnership. Although the Company receives
most of its rental payments on a monthly basis, it has and intends to continue
to pay distributions quarterly.
The Company anticipates that its cash from operations and its bank line of
credit 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 are limited to projects that the Company agreed to
fund at the time a property was acquired or projects subsequently identified by
the Company or its operators that enhance the revenue potential and long-term
value of a property. For golf courses acquired through August 8, 2000, the
Company is required under the leases to pay for various remaining capital
improvements totaling approximately $19.6 million, of which approximately $19.3
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 in order to enhance revenue
growth. Upon the Company's funding of the capital improvements, the base rent
payable under the leases with respect to these golf courses will be adjusted to
reflect, over the term of the leases, 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
Common Units as consideration for such purchases.
On March 31, 2000, the Independent Directors waived the requirement that AGC
post and maintain an irrevocable letter of credit in an amount equal to
approximately $13.6 million, representing six months of base rent under the
leases at the time of the initial public offering in 1993.
For the period January 1, 2000 through August 8, 2000, the Company purchased
interests in two golf courses for an aggregate initial investment of
approximately $11 million, which investments were financed by $1.6 million of
cash from operations, $4.7 million of advances under the Company's credit
facility, and $4.7 million of proceeds from sale of properties. In addition,
the Company has three golf courses under sale contracts totaling approximately
$11.1 million.
In September 1999, the Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to $20 million of the
Company's common stock. At August 8, 2000 and June 30, 2000, the number of
shares purchased under this authorization was 454,800 for a total cost of
approximately $9.3 million. The shares repurchased are considered "authorized
but unissued."
The limited partners of the Operating Partnership have the right, in each
twelve-month period ending on August 18, to sell up to one-third of their Common
Units or exchange up to the greater of 75,000 Common Units or one-third of their
Common
14
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Units to the Company. If the Common Units are sold for cash, the Company will
have the option to pay for such Common Units with available cash, borrowed funds
or from the proceeds of an offering of common stock. If the Common Units are
exchanged for shares of common stock, the limited partner will receive one share
of common stock for each Common Unit exchanged. In addition, a certain limited
partner was required within a specific period of time to exchange all its Common
Units into common stock. On March 14, 2000, such limited partner exchanged all
of its 1,250,000 Common Units for 1,250,000 shares of common stock.
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 GAAP
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 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 for the six months ended June 30, 2000 and 1999.
Six months ended
June 30,
--------
(In thousands)
2000 1999
---------- ----------
Net income $ 4,810 $ 4,455
Distributions - Preferred Units (4,628) (3,000)
Minority interest 8,222 6,702
Depreciation and amortization 20,592 17,075
Gain on sale of properties (688) (359)
Treasury lock -- 2,016
Straight-line rents (1,765) (1,130)
Deferred compensation plan adjustment 214 --
Excess land sales (18) (248)
Depreciation - corporate (34) (37)
---------- ----------
Funds from operations 26,705 25,474
Company's share of funds from operations 58.8% 55.8%
---------- ----------
Company's funds from operations $ 15,703 $ 14,214
========== ==========
In order to maintain its qualification as a REIT for federal income tax
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
15
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. The Company
has and will continue to manage interest rate risk by (1) maintaining a
conservative ratio of fixed-rate, long-term debt to total debt such that
variable-rate exposure is kept at an acceptable level, (2) using interest rate
fixing strategies where appropriate to fix rates on anticipated debt
transactions, and (3) taking advantage of favorable market conditions for long-
term debt and/or equity.
The following table sets forth the Company's long-term debt obligations,
principal cash flows by scheduled maturity, and weighted average interest rates
at June 30, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
For the Period Ending December 31,
----------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed-rate................. $5,344 $26,047 $ 7,172 $7,744 $ 47,968 $ 98,563 $192,838
Average interest rate 7.46% 7.09% 8.39% 8.39% 8.58% 8.24% 8.12%
Variable-rate.............. 84 1,172 159,182 1,195 96,309 4,327 262,269
Average interest rate 10.52% 9.77% 8.74% 9.80% 9.64% 10.52% 9.11%
------ ------- -------- ------ -------- -------- --------
Total debt................ $5,428 $27,219 $166,354 $8,939 $144,277 $102,890 $455,107
====== ======= ======== ====== ======== ======== ========
</TABLE>
In addition, the Company has assessed the market risk for its variable-rate debt
and believes that a 1% increase in interest rates would have an approximate $2.6
million increase in interest expense based on approximately $262.3 million
outstanding at June 30, 2000.
16
<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
The annual meeting of stockholders of the Company was held on June 13,
2000. The matter voted upon at the meeting was the election of two
directors to serve until the 2003 annual meeting of stockholders and
until their successors are elected and have qualified.
The results of the voting for election of Mr. Richard A. Archer and
Mr. David G. Price to the Board of Directors are as follows:
Authority
Director Shares Cast For Withheld
-------- --------------- --------
Mr. Richard A. Archer 11,219,457 269,898
Mr. David G. Price 11,220,242 269,106
In addition to the above directors, the following directors will
continue in office:
Term
Name Expires
---- -------
Mr. John C. Cushman, III 2002
Mr. Bruce Karatz 2001
Mr. Charles S. Paul 2002
Mr. Edward R. Sause 2002
Mr. James M. Stanich 2001
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) 27 Financial Data Schedule
(b) None
17
<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: August 14, 2000 By: /s/ Neil M. Miller
-----------------------
Neil M. Miller
Chief Financial Officer
18
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EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
--------- ----------- --------------
27 Financial Data Schedule
19
