<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to_________
Commission File No. 1-12412
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ARBOR PROPERTY TRUST
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(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
Delaware 23-2740383
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
Suite 800, One Tower Bridge, W. Conshohocken, PA 19428
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(Address of principal executive offices) (Zip code)
</TABLE>
(215) 941-2933
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(Registrant's telephone number, including area code)
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(Former name of registrant if changed since last report)
Indicate by checkmark 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 TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING
FIVE YEARS:
Indicate by checkmark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes _______ 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 last practicable date: 12,018,031 shares
as of November 14, 1994.
<PAGE>
ARBOR PROPERTY TRUST
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1994
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of September 30, 1994 and December 31, 1993........... 3
Condensed Consolidated Statements of Operations for the three and nine month periods ended
September 30, 1994 and September 30, 1993...................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1994
and September 30, 1993......................................................................... 6
Notes to Condensed Consolidated Financial Statements........................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 11
PART II -- OTHER INFORMATION
Items 1 through 6.......................................................................................... 14
SIGNATURES................................................................................................. 15
</TABLE>
1
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT COMMON SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
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(UNAUDITED)
ASSETS
<S> <C> <C>
Investment in property, at cost:
Land.............................................................................. $ 30,295 $ 27,865
Buildings and improvements........................................................ 138,103 124,287
Capitalized lease................................................................. 7,185 7,125
Personal property................................................................. 1,087 1,075
Construction in progress.......................................................... 574 239
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177,244 160,591
Less accumulated depreciation..................................................... 25,580 22,674
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151,664 137,917
Restricted cash..................................................................... -- 500
Cash and short-term investments..................................................... 1,307 885
Accounts receivable (net of allowance for doubtful accounts of $837 and $723)....... 7,409 7,510
Other assets, net................................................................... 6,119 7,074
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TOTAL ASSETS................................................................... $ 166,499 $ 153,886
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Collateralized floating rate notes (net of unamortized discounts of $92 and
$109).......................................................................... $ 117,908 $ 117,891
Distributions payable 3,303 2,826
Obligation under capitalized lease................................................ 6,990 6,971
Note payable to bank.............................................................. 3,500 1,800
Accounts payable and other liabilities............................................ 3,169 4,032
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134,870 133,520
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Shareholders' Equity:
Shares of beneficial interest, without par value:
Authorized: 5,000,000 preferred shares, 45,000,000 common shares, and
50,000,000 excess shares;
Issued and outstanding: 12,018,031 and 10,277,469 common shares................ 116,668 95,500
Distributions in excess of accumulated earnings................................... (85,039) (75,134)
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31,629 20,366
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................................ $ 166,499 $ 153,886
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</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1994 1993 1994 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues from rental operations................ $ 5,273 $ 5,010 $ 15,745 $ 15,022
Operating expenses, net of tenant
reimbursements (including fees to affiliate
of $100 and $192 for the three months and
$378 and $590 for the nine months ending
September 30, 1994 and 1993, respectively)... 458 389 1,523 1,134
Advisory and termination fees to former
advisor, discontinued March 30, 1994
(including $3,843 as a result of the
termination of the advisory agreement in
1994)........................................ -- 408 4,107 1,223
Provisions for doubtful accounts............... 227 66 300 171
Depreciation and amortization.................. 1,057 1,125 3,092 2,957
-------------- -------------- -------------- --------------
Income from rental operations.................. 3,531 3,022 6,723 9,537
Interest expense (includes amortization)....... 2,270 2,328 6,069 8,018
Other expenses, net of interest income......... 439 72 1,532 438
-------------- -------------- -------------- --------------
Income (loss) before gain on sale of real
estate and extraordinary loss................ 822 622 (878) 1,081
Gain on sale of real estate.................... -- -- 839 440
-------------- -------------- -------------- --------------
Income (loss) before extraordinary loss........ 822 622 (39) 1,521
Extraordinary loss from early retirement of
debt......................................... -- (6,373) -- (6,373)
-------------- -------------- -------------- --------------
Net income (loss).............................. $ 822 $ (5,751) $ (39) $ (4,852)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Income (loss) per weighted average share:
Income (loss) before gain on sale of real
estate and extraordinary loss............. $ .07 $ .06 $ (.07) $ .11
Gain on sale of real estate.................. -- -- .07 .04
Extraordinary loss........................... -- (.62) -- (.62)
-------------- -------------- -------------- --------------
Net income (loss)............................ $ .07 $ (.56) $ (--) $ (.47)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average number of shares
outstanding.................................. 11,990,044 10,277,469 11,559,144 10,277,469
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1994 1993
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................................ $ (39) $ (4,852)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on sale of real estate........................................................... (839) (440)
Depreciation and amortization......................................................... 3,092 3,244
Amortization of deferred financing costs.............................................. 902 --
Amortization of floating rate notes discount.......................................... 17 3
Amortization of zero coupon mortgage note discount.................................... -- 5,558
Termination of advisor agreement...................................................... 3,843 --
Extraordinary loss from early retirement of debt...................................... -- 6,373
Changes in assets and liabilities:
(Increase) decrease in accounts receivable and other assets........................ 577 (1,669)
Decrease in accounts payable and other liabilities................................. (844) (1,690)
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Net cash provided by operating activities.................................................. 6,709 6,527
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate, net................................................... 1,435 9,377
Additions to buildings and improvements and personal property............................ (646) (801)
Additions to property under contract..................................................... -- (5,703)
Construction expenditures................................................................ (335) (35)
Increase in restricted cash.............................................................. -- (500)
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Net cash provided by investing activities.................................................. 454 2,338
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid....................................................................... (9,389) (8,479)
Proceeds from issuance of shares......................................................... 948 --
Retirement of zero coupon mortgage notes................................................. -- (95,399)
Proceeds from issuance of collateralized floating rate notes............................. -- 117,882
Payment of deferred financing costs...................................................... -- (5,721)
Borrowing under bank line of credit...................................................... 1,700 (16,500)
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Net cash used in financing activities...................................................... (6,741) (8,217)
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Increase in cash and short-term investments................................................ 422 648
Cash and short-term investments, beginning of period....................................... 885 1,929
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CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD............................................. $ 1,307 $ 2,577
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Supplemental disclosure of cash flow information:
Interest paid............................................................................ $ 4,393 $ 1,340
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</TABLE>
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See Note 1 for disclosure of non-cash investing and financing activities
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
ARBOR PROPERTY TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. DESCRIPTION OF BUSINESS AND MERGER TRANSACTION
Arbor Property Trust (the 'Trust'), formed as EQK Green Acres Trust on
September 8, 1993 as a Delaware business trust, has an indefinite life and
intends to elect real estate investment trust ('REIT') status under the Internal
Revenue Code of 1986, as amended. On February 28, 1994, EQK Green Acres, L.P.
(the 'Partnership') merged (the 'Merger') with and into Green Acres Mall Corp.,
a wholly-owned subsidiary of the Trust (the 'Subsidiary'). Prior to February 28,
1994, the Trust did not have significant operations. On May 3, 1994, EQK Green
Acres Trust filed with the Securities Exchange Commission a Current Report on
Form 8-K to announce a name change to Arbor Property Trust. The change of name
is a result of the anticipated growth of the portfolio which will no longer be
limited to the Green Acres Mall. The Trust and the Partnership are
interchangeably referred to herein as the 'Company'.
The Partnership had been formed pursuant to an Agreement of Limited
Partnership dated as of June 30, 1986 (and amended and restated as of August 27,
1986) to acquire and operate Green Acres Mall (the 'Property' or the 'Mall'), a
regional shopping mall located in Nassau County, Long Island, New York. In 1991,
the Partnership completed the conversion of a leased industrial building,
located adjacent to the Property, into a convenience shopping center known as
the Plaza at Green Acres (the 'Plaza').
Pursuant to the Merger, Unitholders of the Partnership received 10,172,639
common shares of the Trust (the 'Common Shares') on account of their 98.98%
percentage interest in the Partnership; the General Partners of the Partnership
received 104,830 Common Shares on account of their 1.02% percentage interest in
the Partnership; and the Special General Partner of the Partnership received
1,316,251 Common Shares in satisfaction of its residual interest in the
Partnership. Pursuant to the termination of the Partnership's advisory agreement
(see Note 3), Equitable Realty Portfolio Management, Inc. (the 'Advisor')
received 308,933 Common Shares on March 30, 1994.
The issuance of 10,277,469 Common Shares to the Unitholders and the General
Partners on account of their respective percentage interests in the Partnership
represents a reorganization of entities under common control and, accordingly,
was accounted for in a manner similar to a pooling of interests. The financial
statements of the Partnership and the Trust have been combined at historical
cost retroactive to January 1, 1993. The issuance of these Common Shares has
been reflected as of this date at the amount of the Unitholders' and General
Partners' original contributions to the Partnership.
The issuance of Common Shares to the Special General Partner on account of
its residual interest in the Partnership and to the Advisor are reflected in the
Company's condensed consolidated financial statements as of June 30, 1994. The
issuance of Common Shares to the Special General Partner has increased the
Company's carrying value of land, and buildings and improvements by $3,024,000
and $13,347,000, respectively, representing the value of the Special General
Partner's residual interest in accordance with the allocation methodology
utilized by the Partnership in connection with the Merger. Annual depreciation
expense will increase by approximately $342,000 as a result of the increase in
the basis of the Mall. The issuance of Common Shares to the Advisor has been
reflected as a charge to earnings during the first quarter of 1994 in the amount
of $3,843,000.
NOTE 2. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the
5
<PAGE>
ARBOR PROPERTY TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
information presented not misleading. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
In the opinion of the Company all adjustments, which include only
normal recurring adjustments necessary to present fairly its consolidated
financial position as of September 30, 1994, its results of consolidated
operations for the three and nine month periods ended September 30, 1994
and 1993 and its consolidated cash flows for the nine months ended
September 30, 1994 and 1993, have been included in the accompanying
unaudited condensed consolidated financial statements.
Net income per share for the three months ended September 30, 1994 and 1993
have been computed on the basis of the 11,990,044 and 10,277,469 weighted
average shares outstanding during the respective periods. Net income per share
for the nine month period ended September 30, 1994 and 1993 has been computed
using 11,559,144 and 10,277,469 weighted average shares, respectively.
NOTE 3. ADVISORY AND MANAGEMENT AGREEMENTS
Prior to the termination of its advisory agreement as previously discussed,
Equitable Realty Portfolio Management, Inc., a wholly owned subsidiary of
Equitable Real Estate Investment Management, Inc. ('Equitable Real Estate'),
acted as 'Advisor' to the Company. For the three and nine month periods ended
September 30, 1993, the subordinated incentive advisory fee was $345,000 and
$1,035,000, respectively. Fees of $100,000 were paid to the Advisor in 1994.
Pursuant to the Merger discussed in Note 1, on March 30, 1994, upon the
expiration of a 30 day transition period, the agreement with the Advisor was
terminated.
The Company had entered into a property management agreement with Compass
Retail, Inc. ('Compass'), a subsidiary of Equitable Real Estate, effective
January 1, 1991. Pursuant to this agreement, property management fees were based
on 4% of net rental and service income collected from tenants. In connection
with the Merger, the agreement with Compass was amended and restated to
extend its termination date by two years to August 1, 1998, and to limit
Compass' scope of responsibilities primarily to accounting and financial
services currently provided in connection with the operations of the Property.
Compass' compensation was reduced on March 1, 1994 from 4% to 2% of net rental
and service income collected from tenants. For the nine months ended September
30, 1994 and 1993 management fees earned by Compass were $378,000 and $590,000,
respectively. The amount of such fees for the three months ended September 30,
1994 and 1993 were $100,000 and $192,000, respectively.
NOTE 4. DISTRIBUTIONS
On August 15, 1994, the Trust made a distribution of $.275 per Share (an
aggregate of $3,288,000) to its Shareholders. The Special General Partner and
the Advisor have agreed that all distributions received by them prior to May
1995 on account of the Common Shares issued in respect of the Special General
Partner's residual interest in the Partnership and the termination of the
agreement with the Advisor will be reinvested through a distribution
reinvestment plan in newly issued Common Shares. On August 15, 1994
distributions totalling $501,000 were reinvested and 57,217 shares were issued
under this plan. On May 16, 1994 distributions totalling $447,000 were
reinvested and 52,211 shares were issued. In addition, a distribution in the
amount of $.275 per share has been declared for payment on November 15, 1994, to
the shareholders of record on September 30, 1994.
6
<PAGE>
ARBOR PROPERTY TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5. DEBT REFINANCING
The Company's secured credit line matured on June 30, 1993. Pursuant to the
terms of the line of credit, the Company elected to convert the $16,500,000
balance outstanding at June 30, 1993 under the credit agreement to a term loan
payable in five quarterly installments commencing on October 1, 1993. The term
loan agreement was structured so as to permit the prepayment of the obligation
at any time without penalty.
On August 19, 1993, the Company, through a wholly-owned subsidiary, issued
collateralized floating rate notes ('floating rate notes') in the aggregate
principal amount of $118,000,000. The proceeds from the sale of the floating
rate notes were used, in part, to pay the approximately $95,399,000 purchase
price for the zero coupon first mortgage note and to repay the $16,500,000 term
loan note. The proceeds from the issuance of the floating rate notes were also
used to purchase an interest rate cap and to pay mortgage recording taxes and
other costs incurred in connection with this refinancing. The floating rate
notes were recorded net of a $118,000 discount. In connection with the early
extinguishment of the zero coupon first mortgage note, the Company recognized an
extraordinary charge to earnings of $6,373,000 in the third quarter of 1993.
The floating rate notes are due August 19, 1998 and are collateralized by a
first mortgage on substantially all of the real property comprising Green Acres
Mall and a first leasehold mortgage on the Plaza. The floating rate notes bear
interest at a rate equal to 78 basis points in excess of the three-month LIBOR,
which is payable on a quarterly basis from November 12, 1993. The interest rate
is subject to reset on such interest payment dates. The initial interest rate,
4.03%, was effective for the period August 19, 1993 to November 11, 1993. The
average rate for the nine months of 1994 was 4.99%. The average interest rate
for the three months ending September 30, 1994 was 5.63%. On August 12, 1994 the
interest rate on the floating rate notes was 5.66%. Effective November 12, 1994
the interest rate was reset to 6.59%. The interest rate cap provides that the
effective interest rate will not exceed 9% per annum. The mortgage and indenture
agreement relating to the floating rate notes limit additional indebtedness that
may be incurred by the owner of Green Acres Mall, namely, Green Acres Mall
Corp., a wholly owned subsidiary of the Company ('Subsidiary'). Those agreements
also contain certain other covenants which, among other matters, prioritize the
payment of debt service on the floating rate notes in relation to distributions
from the Subsidiary.
As part of its comprehensive debt restructuring, the Subsidiary also
obtained a $3,400,000 unsecured line of credit facility from a bank. The line of
credit bears interest at 1% above the bank's prime rate was originally scheduled
to mature in February 1995. The amount available under this line was increased
to $5,900,000 in August 1994 and the line's maturity was extended to April 1995.
As of September 30, 1994, the balance of this loan was $3,500,000. Amounts
outstanding under this loan as of April 1995 can be repaid in four quarterly
installments beginning July 1995.
NOTE 6. SALE OF PROPERTY
In April 1993, the Partnership completed the acquisition of an adjacent
industrial tract and entered into an agreement on this property with Home Depot
U.S.A., Inc. ('Home Depot'). Pursuant to the agreement, Home Depot paid
$9,500,000 to the Partnership, from which the Partnership recognized a gain of
$440,000. Approximately $4.9 million of the proceeds were used to complete the
acquisition of the adjacent property.
In January 1994, the Company completed the sale to Home Depot of an
approximately two acre parking lot and received the final installment of
$1,500,000 and recognized a gain on sale of real estate of $839,000. Home Depot
opened for business in May 1994.
7
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
MERGER TRANSACTION
On February 28, 1994, EQK Green Acres, L.P. merged with and into Green
Acres Mall Corp., a wholly-owned subsidiary of Arbor Property Trust. The Trust
and the Partnership are collectively referred to herein as the 'Company.' See
Note 1 to the condensed consolidated financial statements for a discussion of
the Company's common shares of beneficial interest without par value (the
'Common Shares') issued in connection with this merger (the 'Merger').
The issuance of 10,277,469 Common Shares to the Unitholders and the General
Partners on account of their respective percentage interests in the Partnership
represents a reorganization of entities under common control and, accordingly,
was accounted for in a manner similar to a pooling of interests. The financial
statements of the Partnership and the Trust have been combined at historical
cost retroactive to January 1, 1993. The issuance of these Common Shares has
been reflected as of this date at the amount of the Unitholders' and General
Partner's original contributions to the Partnership.
The issuance of Common Shares to the Special General Partner on account of
its residual interest in the Partnership and to Equitable Realty Portfolio
Management, Inc. (the 'Advisor') are reflected in the Company's condensed
consolidated financial statements as of March 31, 1994. The issuance of Common
Shares to the Special General Partner has increased the Company's carrying value
of land, and buildings and improvements by $3,024,000 and $13,347,000,
respectively, representing the value of the Special General Partner's residual
interest in accordance with the allocation methodology utilized by the
Partnership in connection with the Merger. Annual depreciation expense will
increase by approximately $342,000 as a result of the increase in the basis of
the Mall.
CASH FLOWS FROM OPERATING, INVESTING, AND FINANCING ACTIVITIES
Cash flows from operating activities for the nine months ended September
30, 1994 and 1993 were $6,709,000 and $6,527,000, respectively. This increase
can be attributed to the increase in accounts receivable in the first nine
months of 1993. These receivables were collected in the fourth quarter of 1993
and in 1994. This decrease was partially offset by the significant decrease in
accounts payable in 1993 as a result of the Company paying approximately
$1,300,000 to affiliates for deferred advisory and property management fees.
Cash flows from investing activities for the nine months ended September
30, 1994 were $454,000. Net proceeds of $1,435,000 were received from the
completion of the Home Depot transaction. These proceeds were partially used to
fund $981,000 in capital expenditures in 1994. During the nine months ended
September 1993, cash provided from investing activities was $2,338,000. This
activity is primarily due to the receipt of proceeds net of $9,337,000 from the
transfer of an adjacent tract ('Bulova Parcel') to Home Depot. A portion of
these proceeds ($5,703,000) was used to complete the purchase of the Bulova
Parcel. Capital expenditures of $836,000 were made in the nine months ended
September 30, 1993.
Cash flows used in financing activities for the nine months ended September
30, 1994 and 1993 were $6,741,000 and $8,217,000, respectively. Distributions
paid by the Company in 1994 increased $910,000 as a result of the Common Shares
that were issued in respect to the Special General Partner's residual interest
in the Partnership and the termination of the agreement with the Advisor ('The
Advisor Agreement'). The dividends on these shares were reinvested in the
Company through a distribution reinvestment plan in newly issued Common Shares.
Additionally, in August 1993 the Company had net proceeds from the issuance of a
collateralized floating rate note, these proceeds were
used to purchase the existing zero coupon first mortgage note and to repay
$16,500,000 in second mortgage financing. This decrease was partially offset by
an increase in borrowings of $1,700,000 from the existing credit line in 1994.
8
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the nine month period ended September 30, 1994, the Company reported a
net loss of $39,000 or less than one cent per weighted average share, compared
with a net loss of $4,852,000 or $.47 per share for the comparable period in
1993. For the three months ended September 30, 1994, net income was $822,000 or
$.07 per weighted average share, compared to a net loss of $5,751,000 or $.56
per share, for the second quarter in 1993.
The 1994 results were affected by termination of the advisor agreement in
the first quarter, resulting in a one time charge of $3,843,000. The 1993
results were impacted by the recognition of an extraordinary loss of $6,373,000
from the early retirement of the zero coupon first mortgage note in the third
quarter. The extraordinary loss was comprised principally of prepayment
penalties and the writeoff of deferred financing costs. The net income for the
periods ending September 30, 1994 and 1993 were supplemented by the gains
realized on the sale from the Home Depot parcel of $839,000 and $440,000,
respectively.
For the nine and three month periods ended September 30, 1994, revenues
from rental operations increased by $723,000 or 5% and $263,000 or 5% over the
comparable periods in 1993. This increase is a direct result of the
remerchandising program the Mall commenced in 1992. The significant amount of
lease rollovers in 1993 and 1994 enabled management to develop a remerchandising
plan aimed at achieving an improved tenant mix while increasing base rents.
Net operating expenses were $370,000 and $389,000 for the three month
periods ending September 30, 1994 and 1993, respectively. Net operating expenses
for the nine months ending September 30, 1994 and 1993 were $1,435,000 and
$1,134,000. This increase is primarily a result of structural nonreimbursable
repairs made to the Property as a result of the severe weather. These increases
were partially offset by the decrease in management fees, as discussed in Note 3
of the financial statements. Provisions for doubtful accounts increased $129,000
for the nine months ended September 30, 1994 as a result of the termination of
two tenants for non-payment.
Interest expense decreased in the third quarter of 1994 compared to the
comparable period in 1993 due to the issuance of the collateralized floating
rate notes which were used to repay the zero coupon note and return the term
loan in August 1993. The zero coupon note had an effective interest rate of
10.4% per annum, and the $16,500,000 term loan accrued interest for the three
and nine months ended September 30, 1993 at an average rate of 6.9%. In the
three months ended September 30, 1993 the Company experienced a charge to
earnings of $6,373,000 for the early retirement of this debt. These debt
instruments were replaced with floating rate notes that had an average
interest rate during the third quarter of 1994 of 5.63%. The average interest
rate for the nine months ended September 30, 1994 was 4.99%. The notes have a
floating interest rate equal to 78 basis points in excess of three month
LIBOR. The interest rate on this debt, which is subject to a quarterly reset, is
6.59% for the period commencing on November 12, 1994.
The Company made significant changes to its management structure in
connection with the Merger. While its affairs had previously been administered
by a third party pursuant to property management and advisory agreements,
commencing on March 1, 1994, the Company became primarily self-managed. The
property management contract with Compass was amended and restated to extend its
termination date by two years to August 31, 1998, and to limit Compass' scope of
responsibility primarily to accounting and financial services provided in
connection with the operation of the Property. Compass' compensation was reduced
on March 1, 1994 from 4% to 2% of net rental and service income collected from
tenants. The aggregate expenses during the third quarter of 1994 for
9
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
property management services and administrative services plus the Company's
general and administrative costs were $539,000 whereas comparable expenses in
the third quarter of 1993 were $672,000. This reduction is a direct result of
the Company's conversion to a primarily self-managed REIT. These expenses total
$2,174,000 and $2,251,000 for the nine months ended September 30, 1994 and 1993,
respectively. Management anticipates realizing additional savings during the
fourth quarter in relation to prior year expenditures.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current quarterly dividend rate of $.275 per Common Share
represents an annual dividend rate of $1.10 per Common Share. Because dividends
payable with respect to Common Shares issued in March 1994 to the Special
General Partner and the Advisor will be reinvested through a dividend
reinvestment plan in newly issued Common Shares, the issuance of such Shares
will not affect cash available for distribution to the remaining shareholders
until May 1995. Consequently, management anticipates that annual distributions
on account of 1994 operations will be $1.10 per Common Share.
The anticipated Funds from Operations in 1994 reflects increases in rental
revenues, payment of interest on a current basis and cost reductions resulting
from termination of the Advisory Agreement, net of costs associated with the
Company's planned acquisition program. The Company also received, during the
first quarter of 1994, $1,500,000 from the sale of two acres of property to Home
Depot, which supplements Funds from Operations. During the fourth quarter of
1994, the Company anticipates that capital expenditures will be funded from
borrowings under its now extended line of credit.
The Company has made progress with regard to acquiring additional real
estate investments located in various parts of the country. Agreements that may
be reached relating to these acquisitions will be subject to completion of due
diligence and obtaining requisite financing. The Company has been informed by
its investment banker that current conditions in the capital markets,
particularly relating to the sale of equity or hybrid equity securities, may
inhibit the Company's capability of effectively raising the needed funds.
For 1995, Funds from Operations, excluding interest and without considering
any contributions from potential property acquisitions, is budgeted to increase
7.75% or approximately $1,500,000. However, the recent sharp increase in the
3-month LIBOR rate has caused management to increase budgeted interest expense
by approximately $2,100,000. The contribution from the Company's acquisition
program is uncertain due to conditions in the REIT capital market. With all of
the Company's outstanding Common Shares becoming entitled to cash dividends in
May 1995, it is premature to project the dividend rate commencing at that time.
10
<PAGE>
ARBOR PROPERTY TRUST
PART II -- OTHER INFORMATION
<TABLE>
<S> <C>
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) Exhibits:
Exhibit 27 -- Included in EDGAR transmission only.
(b) Reports on Form 8-K:
None
</TABLE>
11
<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.
Date: November 11, 1994
ARBOR PROPERTY TRUST
By: __________________________________
Myles H. Tanenbaum
President
(Principal Executive and
Financial Officer)
By: __________________________________
Dennis J. Harkins
Treasurer and Controller
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,307
<SECURITIES> 0
<RECEIVABLES> 7,409
<ALLOWANCES> 837
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 166,499
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 12,018
0
0
<OTHER-SE> (85,039)
<TOTAL-LIABILITY-AND-EQUITY> 166,499
<SALES> 0
<TOTAL-REVENUES> 15,745
<CGS> 0
<TOTAL-COSTS> 9,022
<OTHER-EXPENSES> 1,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,069
<INCOME-PRETAX> (878)
<INCOME-TAX> 0
<INCOME-CONTINUING> (878)
<DISCONTINUED> 0
<EXTRAORDINARY> 839
<CHANGES> 0
<NET-INCOME> (39)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
