UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 1-12412
ARBOR PROPERTY TRUST
(Exact name of Registrant as specified in its Charter)
Delaware 23-2740383
- ---------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S.Employer Identification No.)
of incorporation or organization)
Suite 800, One Tower Bridge, W. Conshohocken, PA 19428
- ------------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (610) 941-2933
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest New York Stock Exchange
- ------------------------------------ -----------------------------------------
Title of Each Class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: None
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 _______
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Common Shares of Beneficial Interest held by
non-affiliates of the Registrant, based on the closing price of Common Shares of
Beneficial Interest on March 27, 1996 on the New York Stock Exchange of $7.00
per Share, is $85,180,837. As of March 27, 1996, 12,168,691 Common Shares of
Beneficial Interest were outstanding. Officers and Managing Trustees of Arbor
Property Trust, The Equitable Life Assurance Society of the United States and
its affiliated entities, and executive officers of Compass Retail, Inc. (and
certain of their family members) are treated as affiliates for purposes of this
computation, with no admission being made that such people or entities are
actually affiliates.
DOCUMENTS INCORPORATED BY REFERENCE.
None.
<PAGE>
Table of Contents
Part I Page
Item 1. Business 2
Item 2. Properties 5
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure 17
Part III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 30
<PAGE>
PART I
Item 1. BUSINESS.
General Development of Business
Arbor Property Trust (the "Trust" or the "Company"), a Delaware business
trust, was formed pursuant to a Certificate of Trust dated September 8, 1993.
The Trust has an indefinite life and has qualified for real estate investment
trust ("REIT") status under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"), with the filing of its Federal income tax return for
the year ended December 31, 1994. Under the Internal Revenue Code, a real estate
investment trust that meets applicable requirements is not subject to Federal
income tax on that portion of its taxable income that is distributed to its
shareholders. The principal executive offices of the Trust are located at Suite
800, One Tower Bridge, W. Conshohocken, Pennsylvania, 19428, and the telephone
number is (610) 941-2933.
On February 28, 1994, EQK Green Acres, L.P. (the "Partnership") merged with
and into Green Acres Mall Corp., a wholly-owned subsidiary of the Trust (the
"Merger"). Prior to February 28, 1994, the Trust did not have significant
operations. On May 3, 1994, the Trust changed its name from EQK Green Acres
Trust to Arbor Property Trust.
The Partnership was a Delaware limited partnership formed pursuant to a
certificate of limited partnership dated June 30, 1986. Equitable Realty
Portfolio Management, Inc. ("ERPM", successor in interest to EQK Partners),
which is wholly-owned by Equitable Real Estate Investment Management, Inc.
("Equitable Real Estate"), itself an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States ("Equitable"), acted as
the advisor (the "Advisor") to the Partnership.
The Partnership had been formed to acquire and operate Green Acres Mall
(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 Mall, into a convenience shopping
center known as the Plaza at Green Acres (the "Plaza"). The Mall and the Plaza
are referred to collectively as the "Property" and are described below and under
Item 2.
Pursuant to the Merger, Unitholders of the Partnership received 10,172,639
Common Shares of Beneficial Interest of the Trust (the "Common Shares") on
account of their 98.98% percentage interest in the Partnership; the general
partners of the Partnership (the "General Partners") received 104,830 Common
Shares on account of their 1.02% percentage interest in the Partnership; and the
special general partner of the Partnership (the "Special General Partner")
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, the Advisor received 308,933 Common Shares, net of reduction by
54,800 Common Shares in settlement of Equitable's obligations for partial
indemnity relating to the New York State Real Estate and Property Transfer and
Gains Tax
2
<PAGE>
on March 30, 1994.
The Company's agreement with its primary mortgage lender, representing debt
outstanding of $117,938,000 at December 31, 1995, limits additional indebtedness
that may be incurred by Green Acres Mall Corp., but not by the Trust. Such debt,
along with a line of credit facility, originated in connection with a
refinancing in August 1993 (see Items 7 and 8).
The Company does not intend to engage in any activities or invest in any
securities which would violate the income or asset holding requirements for a
REIT. The Company's investment objectives and policies may be changed from time
to time by the Board of Trustees without shareholder approval.
Narrative Description of Business
The Company, through its wholly-owned subsidiary, Green Acres Mall Corp.,
owns and operates the Mall, a 1.6 million square foot super-regional enclosed
shopping mall complex situated in southwestern Nassau County, Long Island, New
York. The Mall is anchored by four major department stores: Sears, Roebuck and
Co. ("Sears"), J.C. Penney Company, Inc., and Federated Department Stores, Inc.,
doing business as Stern's and Macy's. The complex also includes the Plaza, a
179,000 square foot convenience shopping center which is currently anchored by
Kmart and Waldbaums. Integral to the complex, but situated on property not owned
by the Company, are Home Depot and Caldor stores comprising approximately an
additional 240,000 square feet.
Location and Area Overview. The Property is located partly in the Village
of Valley Stream and partly in the Town of Hempstead in southwestern Nassau
County, Long Island, New York less than one mile east of the Nassau
County/Queens County (New York City) border. It is situated on the south side of
Sunrise Highway (N.Y. State Route 27), a major east/west highway that extends
the length of Long Island and provides access to communities in eastern
Brooklyn, southeastern Queens and Nassau County. Sunrise Highway connects with
Belt Parkway about one and one-half miles west of the Property. The Belt Parkway
is a major limited access east/west highway which runs directly past John F.
Kennedy International Airport, which is approximately four miles west of the
Property. Merrick Road, a four lane east/west artery provides access from the
east. The Southern State, Cross Island and Meadowbrook Parkways are major nearby
thoroughfares providing access to the Property from communities in Nassau and
Queens Counties.
The Property is also accessible by public transportation. The Rosedale and
Valley Stream stations of the Long Island Railroad provide commuter passenger
rail services to the area and are each located within approximately one-half
mile of the Property, in addition to local bus transportation.
An external research study commissioned by the Company in November 1991
estimated that the Property's trade area had a total population in 1990 of
approximately 1.3 million. Average household income of trade area residents in
1990 was $42,000, 15% above the average in the United States. The study
indicated that
3
<PAGE>
approximately 750,000 people live within five miles of the Property.
Tenants. At December 31, 1995, the Property had 191 mall and outparcel
building tenants (excluding anchor store tenants) occupying 893,000 square feet
of gross leasable area, representing an occupancy rate at that date of 91.7% of
the Property (excluding anchor stores). No tenant (excluding anchor store
tenants) occupies more than five percent of the gross leasable area of the
Property. Several tenants entered into Chapter 11 bankruptcy proceedings during
and subsequent to the year ended December 31, 1995. These tenants account for
less than 5% of the minimum base rental income of the Property. Management
believes the majority, if not all, of these tenants will re-affirm their leases
in the next several months.
Competition. Green Acres Mall is the dominant shopping destination in its
trade area by virtue of its excellent location, proximity to dense population
areas and targeted merchandising. The addition of the Plaza and the Home Depot
and Caldor stores have further strengthened the Mall's position. The primary
trade area is comprised principally of densely populated residential
neighborhoods and is easily accessed by local and arterial roads. The primary
trade area is a mature area, and is expected to experience low to moderate
growth in population and disposable income in the future. The closest regional
mall to Green Acres is Roosevelt Field which competes for the consumers to the
north and east of the Mall. Roosevelt Field recently completed an expansion
which added additional second level mall retail area and Bloomingdale's as a
replacement for Alexander's. Other Long Island centers include Queens Center,
Kings Plaza, Sunrise Mall and Broadway Center. Some additional competition is
also provided by freestanding retailers in the nearby area.
The following table provides selected information with respect to the
Property's primary existing competitors in its secondary trade area.
Approximate
Distance Approximate
from Property Number of
Shopping Center (Miles)(a) Mall Stores Anchor Stores
- --------------- ---------- ----------- -------------
Roosevelt Field 7.0 200 Macy's
Sterns
J.C. Penney
Bloomingdale's
Queens Center 9.4 72 Macy's
JC Penney
Kings Plaza 14.0 140 Macy's
JC Penney
- -------------------------
(a) Driving distance is greater.
4
<PAGE>
Adjacent to the Property on the north, but not owned by the Company, is a
free-standing building on land which formerly housed a multi-level Alexander's
department store and a parking structure. The Caldor Corporation ("Caldor")
acquired the leases to the structures. Caldor demolished the former Alexander's
building to enable it to construct a one-level Caldor store which opened in June
1994. Because of its one-level more modern structure, it has significantly
enhanced the visibility and appearance of the entrance to the Property. Adjacent
to the south side of the Property is a free-standing Home Depot store on land
which formerly housed an industrial building. Home Depot acquired its 9.2 acres
from the Company for $11 million and opened its store in May 1994. The Company,
in 1993, purchased 7.2 of the acres from the prior owner; inclusive of the two
additional acres which the Company owned from inception, the Company netted
$1.28 million profit on the transaction.
Three additional commercial areas that compete with the
Property are downtown Garden City, Long Island, a commercial area six and
one-half miles northeast of the Property, containing free-standing department
stores occupied by Saks Fifth Avenue, Lord & Taylor and Sears; "The Miracle
Mile," a commercial stretch of Northern Boulevard in Manhasset, Long Island, ten
miles north of the Property, containing a Bloomingdale's Home Furnishings store,
Macy's, Lord & Taylor and Bloomingdale's department stores; and, to a lesser
extent, the Borough of Manhattan with its numerous department stores and retail
shops.
The Property has a strong competitive position in its primary
and secondary trade areas, due to the Property's size, location and tenant mix,
and it should be able to maintain such position since there are not any logical
sites in the Property's primary trade area which would permit the development of
another competitive regional shopping mall in the foreseeable future. It is
anticipated that the Property will continue to experience growth in sales and
percentage rents although the population in its primary trade area is expected
to experience only low to moderate growth in the future.
Item 2. PROPERTIES
General. Green Acres Mall is a one-level and two-level T-shaped enclosed
regional shopping mall, which, together with 14 free-standing outparcel
buildings and a convenience center known as the Plaza at Green Acres, is located
on a site of approximately 100 acres (91 acres owned by the Company and the
balance held via a long term lease). Adjacent to the Mall parking area are
parcels owned by unaffiliated parties consisting of Home Depot (opened in May
1994) and Caldor stores which are not part of the Property and in which the
Company has not acquired any interest.
5
<PAGE>
The total building area of the Property is shown in the table below.
<TABLE>
<CAPTION>
% of
Number of Total Occupancy
Stores at Area Building at
12/31/95 (Sq. Ft.) Area 12/31/95
-------- --------- ---- --------
<S> <C> <C> <C> <C>
Gross leasable area:
Anchor stores (a)(b) 4 759,406 40.2% 100.0%
Mall stores 173 522,047 27.7% 91.1%
Convenience center 3 179,235 9.5% 100.0%
Outparcel stores(c) 15 192,126 10.2% 85.6%
-- -------- ----- ------
Total gross leasable area 195 1,652,814 87.6% 95.5%
=== =====
Common area 233,751 12.4%
-------- -----
Total building area 1,886,565 100.0%
========= =====
</TABLE>
- -------------------------
(a) The improvements constituting the Sears department and auto accessory
stores (aggregating 144,537 gross leasable square feet) are owned by Sears
pursuant to ground leases of the land underlying such improvements. The
Company has acquired fee title to such land, but will not acquire title to
such improvements until such ground leases have terminated. Gross leasable
area information contained herein includes the gross leasable area of such
improvements.
(b) Anchor tenant square footage includes approximately 54,237 square feet of
separately leased storage space.
(c) Includes stores leased to Kids 'R' Us, Nobody Beats the Wiz, Red Lobster
and Greenpoint Bank, among others. Does not include five outparcel
buildings which are owned by the respective tenants subject to ground
leases from the Company of the land underlying such stores.
The Company is a lessee under a long-term lease for a ten-acre site
adjacent to the Property on which there is situated a 179,000 square foot retail
facility. The lease provides for an initial term of 30 years expiring in 2020
with three six-year option terms for a total term of up to 48 years. This
building was converted in 1991 into the Plaza, a convenience shopping center
which initially contained a supermarket (Waldbaum, Inc., a division of The Great
Atlantic and Pacific Tea Company, Inc.), a home improvement center (Pergament
Home Improvement Center) and several small retail shops. The convenience center
began operations in September 1991. In January 1993, the Company terminated its
lease with Pergament and entered into a new lease agreement covering Pergament's
space and all but one of the Plaza's small store spaces with Kmart Corporation.
In April 1993, the Company completed the acquisition of an adjacent
industrial tract (the "Bulova Parcel") through a subsidiary partnership and
entered into a lease/purchase agreement for this real estate with Home Depot.
Pursuant to the lease/purchase agreement, Home Depot paid $9,500,000 to the
Company, a portion of
6
<PAGE>
which was used to complete the purchase of the Bulova Parcel. As a result of the
completion in 1993 of specified environmental work, the lease/purchase agreement
obligated Home Depot to take title to the Bulova Parcel. In connection with this
lease/purchase agreement, the Company recognized a gain on sale of real estate
of $440,000 during 1993.
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 an additional gain on the sale of $839,000. Home
Depot opened for business in May 1994.
Development History. The Property opened in 1958 as a single-level, open-
air mall. The Mall was enclosed and climate-controlled in 1970.
An extensive renovation, expansion and remerchandising program carried out
in 1982-1983 included the following: (I) the addition of the Sears store and
Auto Service Center, and a new two-level mall connecting the Sears store with
the existing one-level mall; (ii) construction of a new three-level parking
structure adjacent to the Sears store; and (iii) renovation of the existing
one-level mall area and the J.C. Penney store. The outparcel buildings were not
renovated in connection with this program.
A more recent renovation of the interior of the Mall was completed during
1991-1992. The program included new tile flooring throughout the common areas,
intensified lighting, new seating areas, and decorative columns and other
features in a new color scheme. The food court was also renovated.
Remerchandising Program. In anticipation of lease expirations scheduled to
occur in 1993-1995, the Company undertook a remerchandising campaign, the
primary goal of which was to alter the tenant mix to appeal to a broader
cross-section of the market while achieving increased revenues. The
remerchandising program involved negotiating with a group of prominent national
retailers that Management believes will further enhance the overall financial
stability of the Mall while maintaining the Mall's distinctive character
associated with successful local and regional tenants.
Over 50% of the Mall (excluding the four anchor department stores) is
leased to national retailers, including such major chains as The Limited (The
Limited, Express, Victoria's Secret, and Bath & Body Works), The Gap,
Footlocker, Mothercare, Edison Brothers (5-7-9, Coda, J. Riggins etc.), Melville
(Kay-Bee Toy & Hobby, Wilson's Suede and Leather), Waldenbooks and Radio Shack.
The Company has been able to accommodate the requests of the larger national
retailers, while at the same time meeting the space needs of smaller regional
and local tenants. Management believes the remerchandising program will address
consumers' needs for an updated, diversified retail mix, thus strengthening the
Mall's overall competitive position. The remerchandising program was completed
in 1995. The cost of tenant allowances required for the program was
approximately $3.0 million.
7
<PAGE>
Item 3. LEGAL PROCEEDINGS.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's Common Shares are traded on the New York Stock Exchange
(symbol ABR). The Company is listed in the stock tables as "Arbor Prop."
Although the Company does not know the exact number of beneficial holders of the
Company's Common Shares, it believes the number exceeds 5,900.
The Company's Common Shares began trading on the New York Stock Exchange on
March 1, 1994. The following table presents cash distributions and the high and
low prices of the Common Shares and the predecessor Partnership's Units in the
last two years based on The New York Stock Exchange daily composite
transactions.
<TABLE>
High Low Distributions(a)(b)
Year ended December 31, 1995:
<S> <C> <C> <C>
First Quarter $9.63 $7.63 $.1750
Second Quarter 8.63 7.13 .1750
Third Quarter 7.50 6.63 .1750
Fourth Quarter 7.00 5.88 .1750
-----
$.70
=====
Year ended December 31, 1994:
First Quarter $10.75 $9.00 $.2750
Second Quarter 8.88 7.50 .2750
Third Quarter 9.50 8.63 .2750
Fourth Quarter 9.88 7.25 .2750
-----
$1.10
=====
- ------------------------
(a) On February 8, 1996, a distribution of $.175 per Common Share was declared
with a record date of March 31, 1996 and a payment date of May 15, 1996.
(b) See Note 2 in the 1995 financial statements for the tax status of
distributions paid in 1995 and 1994
</TABLE>
8
<PAGE>
Item 6. SELECTED FINANCIAL DATA.
The February 28, 1994 merger of the Partnership with and into Green Acres
Mall Corp., a wholly-owned subsidiary of the Company, represented 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 Company and Partnership have been combined at historical cost retroactive to
the beginning of the earliest year presented.
<TABLE>
<CAPTION>
As of and for the years ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands, except per Common Share data)
Gross income from rental operations $22,186 $21,465 $20,370 $ 20,476 $ 17,415
Income (loss) before extraordinary
loss 2,921 334 1,150 (163) 2,511
Extraordinary loss from early retirement
of debt -- -- (6,373) -- --
Net income (loss) 2,921 334 (5,223) (163) 2,511
Total assets 162,592 165,324 153,886 157,781 152,479
Long-term obligations:
Collateralized floating rate notes, net
of unamortized discount 117,938 117,914 117,891 -- --
Zero coupon mortgage note, net of
unamortized discount -- -- -- 83,739 75,665
Obligation under capitalized lease 7,001 6,994 6,971 6,959 7,062
Per Common Share data: (a)
Net income (loss) $.24 $ .03 $ (.51) $ (.02) $ .24
Distributions .70 1.10 1.10 1.17 1.35
</TABLE>
- -------------------------
(a) Net income for 1995 and 1994 was computed at 12,142,454 and 11,681,960
weighted average shares outstanding. Net income (loss) for the years 1993,
1992 and 1991 have been computed using 10,277,469 Common Shares outstanding
during the periods.
9
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This discussion should be read in conjunction with the Consolidated
Financial Statements and accompanying Notes to Consolidated Financial
Statements.
FINANCIAL CONDITION
RECENT DEVELOPMENTS
On February 28, 1994, the Partnership merged with and into Green Acres Mall
Corp., a wholly-owned subsidiary of the Trust in order to pursue a strategy of
enlarging and diversifying its real estate portfolio. The Trust and the
Partnership are interchangeably referred to herein as the "Company." See Item 1
and Note 1 to the Consolidated Financial Statements for a discussion of the
Company's Common Shares issued in connection with this 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 the beginning of the earliest year presented. 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 ERPM, the Partnership's Advisor,
was reflected in the Company's consolidated financial statements as of February
28, 1994 and March 30, 1994, respectively. The issuance of Common Shares to the
Special General Partner 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 has increased by
approximately $342,000 as a result of the increased investment in the Mall. The
issuance of Common Shares to the Advisor was reflected as a charge to earnings
during the first quarter of 1994 in the amount of $3,843,000.
In connection with the Merger in 1993, the Company incurred nonrecurring
legal, accounting, and printing costs aggregating approximately $1,250,000.
After a year of frustrated efforts to acquire shopping malls meeting the
10
<PAGE>
Company's specifications due to the Company's higher cost of funds in relation
to its competition, the Board of Trustees, on February 14, 1995, retained
Goldman, Sachs & Co. in connection with a possible merger of the Company into
another REIT or a sale of the Company's real estate. As discussions with merger
prospects continued, Management became aware that New York's new governor had
pledged repeal of the New York State Gains Tax which, in its present state,
would burden the merger of the Company or sale of its real estate by
approximately $1.25 per share. While repeal is questionable in the near term,
there appeared to be a reasonable expectation that relief was a realistic
possibility during the next two to three years. Consequently, on May 2, 1995,
the Company announced that it postponed consideration of a merger or sale
pending resolution of the status of the Gains Tax.
The Company's quarterly dividend rate for 1994 was $.275 per Common Share,
representing an annual dividend rate of $1.10 per Common Share. On March 21,
1995, the Company announced a new quarterly dividend rate of $.175 per Common
Share, representing an annual dividend rate of $.70 per Common Share. The
reduction in the Company's dividend rate was primarily attributable to the
surprisingly sharp rise in interest on the Company's collateralized floating
rate notes (the "Floating Rate Notes"); between August 1993 and February 1995,
the interest rate rose 3.19 basis points, from an annual rate of 4.03% to an
annual rate of 7.22% at an interim date, with the actual annual maximum being
7.03% at the Company's reset date. In May 1995, the Company entered into an
interest rate swap agreement which fixed the annual rate at 6.87% for the period
August 12, 1995 through August 12, 1996.
11
<PAGE>
CASH FLOWS FROM OPERATING, INVESTING, AND FINANCING ACTIVITIES
Cash flows from operating activities for 1995 and 1994 were $7,229,000 and
$7,715,000, respectively. This decrease is primarily a result of a higher
interest expense of $2,182,000 in 1995 as compared to 1994 due to the increase
in interest rate on the Floating Rate Notes. Interest Expense was partially
offset by an increase in revenue from rental operations in 1995 as compared to
1994 of $721,000 as a result of the remerchandising program which the Mall
commenced in 1992, the purpose of which was to improve the tenant mix while
increasing base rent, and decreasing nonreimbursable repairs and maintenance,
and fees to affiliates.
Cash flows from operating activities for 1994 and 1993 were $7,715,000 and
$6,709,000, respectively. This increase is primarily attributable to the
remerchandising program which began in 1992 and was substantially completed in
1994. The significant amount of lease rollovers in 1993 and 1994, tapering in
1995, enabled management to develop a remerchandising plan aimed at achieving an
improved tenant mix while increasing base rents.
Cash flows from investing activities were $1,309,000 less in 1995 as
compared to 1994. In 1994 the Company received proceeds of $1,935,000 from the
sale of approximately two acres to Home Depot. In 1995, capital expenditures
decreased $626,000 as compared to 1994.
Cash flows from investing activities for 1994 were $446,000. Net proceeds
of $1,935,000 were received from the Home Depot transaction. In addition,
capital expenditures of $1,489,000 were incurred in 1994. In 1993, cash provided
from investing activities was $1,060,000. This was primarily due to receipt of
net proceeds of $9,377,000 from the sale of the Bulova Parcel to Home Depot,
less $5,703,000 of these proceeds used to purchase the Bulova Parcel and overall
capital expenditures of $2.1 million.
Cash flows used in financing activities were $6,366,000 and $8,734,000 for
1995 and 1994, respectively. Distributions paid by the Company in 1995 decreased
by $3,017,000 as a result of the reduction in the quarterly dividend rate to
$.175 per Common Share from $.275 per Common Share commencing with the May 15,
1995 distribution. The decrease in the dividend was partially offset by a
decrease in proceeds from dividend reinvestment of $740,000. For the period May
1994 through February 1995, the dividends on 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 (the "Advisory Agreement") were
required to be reinvested in the Company's newly issued Common Shares. After
February 1995, reinvestment was no longer required. Bank borrowing during 1995
increased $2,600,000, whereas the increase in borrowing in 1994 was $2,500,000.
12
<PAGE>
Cash flow used in financing activities was $8,734,000 and $8,753,000 in
1994 and 1993, respectively. Distributions paid by the Company in 1994 increased
$1,418,000 as a result of the Common Shares that were issued in respect of the
Special General Partner's residual interest in the Partnership and the
termination of the Advisory Agreement. The total amount of proceeds from all
dividend reinvestments was $1,489,000 in 1994. Additionally, in August 1993, the
Company received net proceeds from the issuance of the Floating Rate Notes,
which were used to purchase the existing zero coupon first mortgage note (the
"Zero Note") and to repay $16,500,000 in second mortgage financing. This
activity was partially offset by an increase in borrowings of $2,500,000 from
the existing credit line in 1994.
The Company believes that Funds from Operations represents an indicator of
its ability to make cash distributions. The Company defines "Funds from
Operations" as net income before depreciation, amortization and other deferred
expenses, gains or losses on sales of assets and significant non-recurring
charges. Non-recurring charges incurred in 1995 primarily consist of costs
associated with the Company's review of additional property acquisitions.
Management believes that Funds from Operations is the most significant factor
measuring real estate performance. Funds from Operations, however, does not
equate with net income or cash flows from operating activities as defined by
generally accepted accounting principles and is not necessarily indicative of
cash available to fund all cash flow needs. Furthermore, Funds from Operations
should not be considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows from operating activities as a
measure of liquidity.
The following table sets forth Funds from Operations and cash provided by
operating activities of the Company for the periods indicated:
Cash Provided
Funds From By Operating
Operations Activities
---------- ----------
Year ended December 31, 1993 10,828,000* 6,709,000
Year ended December 31, 1994 8,737,000 7,715,000
Year ended December 31, 1995 8,855,000 7,229,000
*Until August 1993, the Company had a so-called zero note on which interest
accrued on the Zero Note at the annual rate of 10.4%; since interest on that
debt ($5,558,000) was not currently payable out of operating funds, it was not
treated as a reduction in funds from operations during that year.
The decrease in funds from operation between 1995 and 1994 is attributable
to higher interest expense of $2,182,000, partially offset by an increase in
revenue from rental operations of $721,000 and a decrease in operating expenses
(nonreimbursable repairs and maintenance and associated fees to affiliates) of
$412,000.
13
<PAGE>
Because of the refinancing of the Zero Note in August 1993, the cash outlay
for interest in 1994 was significantly higher than 1993. To elaborate, interest
expense decreased from $9,834,000 in 1993 to $8,573,000 in 1994; but the 1993
expense included $6,149,000 of non-cash charges while the 1994 expense included
only $1,235,000 of non-cash charges. These decreases were accompanied by an
increase in rental revenue of $1,095,000.
DEBT REFINANCING
On August 19, 1993, the Company, through a wholly-owned subsidiary, issued
Floating Rate Notes in an aggregate principal amount of $118,000,000. The
Floating Rate Notes 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 early extinguishment of the Zero Note, as described above,
resulted in an extraordinary charge of $6,373,000. The remainder of the proceeds
from the Floating Rate Notes was used to purchase an interest rate cap and to
pay mortgage recording taxes and other costs incurred in connection with the
refinancing. The entire principal amount of the Floating Rate Notes is due on
their maturity date, August 19, 1998. The notes have a floating interest rate
equal to 78 basis points in excess of the three-month LIBOR. The annualized
interest rate on this debt, which is subject to quarterly reset, was 6.87% and
6.59% at December 31, 1995 and 1994, respectively.
Payments of interest expense will be funded from cash flows from operations
supplemented, if necessary, by borrowings under the revolving credit facility
described below. Amortization of the deferred financing costs, approximately
$1,200,000 per annum, results in an additional non-cash charge to interest
expense. Management anticipates that refinancing costs for the existing mortgage
will be significantly lower than in 1993. As a result of an interest rate cap
agreement also entered into on August 19, 1993, the effective interest rate of
the Floating Rate Notes will not exceed 9% per annum.
In May 1995, to eliminate the risk of increases in the LIBOR rate the
Company entered into a swap transaction with Goldman Sachs Capital Markets, L.P.
which fixed the interest rate on the Floating Rate Notes for the period of
August 12, 1995 through August 12, 1996 at 6.87%. The Company is exposed to
certain losses in the unlikely event of non-performance by the counter-parties
to the interest rate cap and the interest rate swap.
The mortgage and indenture relating to the Floating Rate Notes limit
additional indebtedness that may be incurred by Green Acres Mall Corp., but not
by the Trust. Those agreements also contain certain other covenants which, among
other matters, effectively subordinate distributions from Green Acres Mall Corp.
to the debt service requirements of the Floating Rate Notes.
On August 19, 1993, the Partnership also obtained an unsecured revolving
credit facility in the amount of $3,400,000 with interest at 1% over the
lender's prime rate. The amount available under this loan was increased to
$5,900,000 in August 1994 and to
14
<PAGE>
$6,900,000 in April 1995. The loan now has an optional LIBOR plus 250 basis
point rate option and a maturity of December 31, 1996. As of December 31, 1995,
the balance of this loan was $6,900,000.
The Company anticipates that it will refinance the Floating
Rate Notes on or before maturity in August 1998. Given the substantial equity
the Company has in the Property, Management anticipates that it will have
considerable flexibility in obtaining such refinancing. However, Management
considers it premature to identify any specific sources of such refinancing.
DIVIDENDS
The Company's quarterly dividend rate for 1994 was $.275 per Common Share,
representing an annual dividend rate of $1.10 per Common Share. On March 21,
1995, the Company announced a new quarterly dividend rate of $.175 per Common
Share, representing an annual dividend rate of $.70 per Common Share. The
reduction in the Company's dividend rate was primarily attributable to the
surprisingly sharp rise in interest on the Company's Floating Rate Notes;
between August 1993 and February 1995, the interest rate rose 3.19 basis points,
from an annual rate of 4.03% to an annual rate of 7.22% at an interim date, with
the actual annual maximum being 7.03% at the Company's reset date. In May 1995,
the Company entered into an interest rate swap agreement which fixed the annual
rate at 6.87% for the period August 12, 1995 through August 12, 1996.
RESULTS OF OPERATIONS
COMPARISON OF 1995, 1994 AND 1993
The Company made significant changes to its management structure in
connection with the Merger, effective March 1994. While its affairs had
previously been administered by third parties pursuant to property management
and advisory agreements, commencing on March 1, 1994, the Company became
primarily self-managed. The property management contract with Compass Retail
Inc. ("Compass"), which will terminate in August 1998, was amended to limit
Compass' responsibility to accounting and financial services provided in
connection with the operation of the Property and its compensation was reduced
from 4% to 2% of net rental and service income. Included in net operating
expenses are property management fees payable to Compass, of $389,000, $289,000
and $786,000 for 1995, 1994, and 1993, respectively (plus advisory fees of
$264,000 in 1994 and $1,625,000 in 1993). However, such reduction has been
offset, in part, by compensation and other expenses resulting from internal
management.
The Company reported net income of $2,921,000 ($.24 per weighted average
Common Share) and $334,000 ($.03 per weighted average Common Share) in 1995 and
1994, respectively, as compared with a net loss of $5,223,000 ($.51 per Common
Share) in 1993.
15
<PAGE>
The increase in the 1995 net income as compared to 1994 is primarily a
result of the one time charge of $3,843,000 incurred during 1994, resulting from
the termination of the Advisory Agreement. This charge was partially offset by a
gain on sale from the Home Depot transaction of $839,000 during 1994.
The 1993 results were impacted by the recognition of an extraordinary loss
of $6,373,000 ($.62 per Common Share) from the early retirement of the Zero
Note. The extraordinary loss was comprised principally of prepayment penalties
and the write-off of deferred financing costs. Earnings in 1993 also declined as
a result of the recognition of $1,250,000 of Merger costs. The earnings decline
in 1993 was partially offset by the $440,000 gain on sale of real estate from
the Bulova Parcel.
In 1995, revenues from rental operations were $721,000 or 3% higher than
1994. This increase is a result of the remerchandising program which management
started in 1992. The significant amount of lease rollovers in 1993 - 1994,
tapering in 1995, enabled management to develop a remerchandising plan aimed at
achieving an improved tenant mix while increasing base rents.
In 1994, revenues from rental operations increased 5%, or $1,095,000, from
1993. This increase is a direct result of the remerchandising program at the
Mall, commenced in 1992.
In January 1993, the Company replaced Pergament, one of the Plaza's anchor
tenants, and all but one of the Plaza's small store spaces, with a new Kmart
discount store. The Company incurred lease termination and replacement costs of
$600,000.
Net operating expenses decreased in 1995 to $1,496,000 from $1,908,000 in
1994 and $2,059,000 in 1993. These decreases in 1995 and 1994 are primarily
attributable to the decline in management fees, as discussed earlier. In
addition, in 1994 the Company made roof repairs, nonreimbursable by tenants,
brought on by severe weather conditions.
Operating expense increases generally do not have a significant effect upon
the Company's income from rental operations as substantially all operating
expenses are reimbursed by tenants in accordance with the terms of their leases.
The provision for doubtful accounts was $192,000 in 1995, $453,000 in 1994
and $424,000 in 1993. Due to the absence of significant credit losses and
certain recoveries of receivables previously written off, the Company
experienced an improvement in its provision for doubtful accounts.
Interest expense was $10,755,000, $8,573,000, and $9,834,000 for 1995,
1994, and 1993, respectively.
Distributions to security holders were $9,706,000 (an annual rate of $1.10
16
<PAGE>
per Common Share for the distributions paid in February 1995 and $.70 per Common
Share thereafter) in 1995, $12,723,000 ($1.10 per Common Share) in 1994 and
$11,305,000 ($1.10 per Common Share) in 1993. The dividends on the shares in the
dividend reinvestment plan were paid to the Company resulting in proceeds of
$740,000 in 1995 and $1,489,000 in 1994. The Company has paid out substantially
all of its net cash flow since inception.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's consolidated financial statements and supplementary data
listed in Item 14(a) appear immediately following the signature pages.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
17
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company is managed by members of a Board of Trustees (the "Managing
Trustees") initially comprised of the directors of the Partnership's former
managing general partner. The Managing Trustees are divided into three classes
as nearly equal in number as possible, with the term of office of one class
expiring in each year. After expiration of the initial terms as set forth in the
following table, Managing Trustees will serve for three-year terms. The Managing
Trustees are responsible for electing the Company's executive officers, who
serve at the discretion of the Board of Trustees. Myles H. Tanenbaum serves as
the Company's President and as a member of the Company's Board of Trustees. In
addition to Mr. Tanenbaum, the Company's executive officers include Kimli Cross
Smith, Executive Vice President-Leasing and Secretary; Richard P. Ferrell, Vice
President-Leasing and Management; and Dennis Harkins, Treasurer and Controller.
Brief summaries of Mr. Tanenbaum's and the other Managing Trustees' and
executive officers' business experience and certain other information are set
forth following the table.
<TABLE>
<CAPTION>
Year Term
Name Expires Position
---- ------- --------
<S> <C> <C>
Myles H. Tanenbaum (1) 1997 Managing Trustee and President (Chief
Executive and Principal Financial Officer)
Sylvan M. Cohen (1) (2) 1998 Managing Trustee
Alton G. Marshall (2) (3) 1996 Managing Trustee
George R. Peacock (1) (3) 1996 Managing Trustee
Phillip E. Stephens (1) (3) 1997 Managing Trustee
Kimli Cross Smith N/A Executive Vice President
- Leasing and Secretary
Richard P. Ferrell N/A Vice President -Leasing and Management
Dennis Harkins N/A Treasurer and Controller (Principal
Accounting Officer)
</TABLE>
(1) Member of the nominating committee.
18
<PAGE>
(2) Member of the audit committee.
(3) Member of the compensation committee.
Myles H. Tanenbaum, age 65, is a Managing Trustee and President of the
Company and Chairman of Arbor Enterprises, an investment and holding company. He
formerly served as a consultant to Equitable Real Estate, of which the former
Advisor to the Partnership is a wholly-owned subsidiary. Previously, he was the
President of EQK Partners (formerly the Partnership's advisor) from its
inception in September 1983 until October 1987 and was Chairman until December
1989. Prior to that time, from 1970 he served as Executive Vice President and
Chairman of the Executive Committee of Kravco, Inc. Mr. Tanenbaum was also
managing partner of the Partnership's former special general partner, a general
partnership which was the sole shareholder of the Partnership's former managing
general partner. Prior to joining Kravco, Inc. in 1970, Mr. Tanenbaum had been a
partner in the law firm of Wolf, Block, Schorr and Solis-Cohen, Philadelphia,
Pennsylvania. He is also a certified public accountant. Mr. Tanenbaum is
currently a director of Universal Health Realty Trust, a New York Stock Exchange
("NYSE")-listed real estate investment trust which owns hospitals, and of The
Pep Boys--Manny, Moe & Jack, Inc., an NYSE-listed company engaged in the retail
sale of automotive parts and accessories, and the provision of automotive
services.
Sylvan M. Cohen, age 81, is Chairman and Chief Executive Officer of
Pennsylvania Real Estate Investment Trust (PREIT), an American Stock
Exchange-listed real estate investment trust since its inception in 1960. Prior
to that he was President of PREIT since its inception. Mr. Cohen has been a
Trustee of PREIT since its inception. Mr. Cohen has been Of Counsel to the
Philadelphia law firm of Drinker, Biddle & Reath since October 1995, and for
more than five years prior thereto he was a partner in the Philadelphia law firm
of Cohen, Shapiro, Polisher, Shiekman and Cohen. Mr. Cohen is a former director
of Fidelity Bank, Philadelphia, Pennsylvania, and is a director of FPA
Corporation, an American Stock Exchange-listed real estate development company,
and a trustee of EQK Realty Investors I, an NYSE-listed real estate investment
trust. He formerly served as President of the National Association of Real
Estate Investment Trusts and the International Council of Shopping Centers.
Alton Marshall, age 74, is President of Alton G. Marshall Associates, Inc.,
a New York City real estate investment firm since 1971. He has been Senior
Fellow of the Nelson A. Rockefeller Institute of Government in Albany, New York
since January 1, 1991. He was Chairman of the Board and Chief Executive Officer
of Lincoln Savings Bank, FSB, from March 1984 through December 1990. From 1971
to 1981, he was President of Rockefeller Center, Inc., a real estate,
manufacturing and entertainment company. Mr. Marshall is currently a director of
The Hudson River Trust, and New York State Electric & Gas Corp., and a trustee
of EQK Realty Investors I. He is an independent partner of Alliance Capital and
Alliance Capital Retirement Fund.
George R. Peacock, age 72, retired in August 1988 after serving as
19
<PAGE>
Chairman and Chief Executive Officer of Equitable Real Estate, parent of the
Partnership's former Advisor which is a wholly-owned subsidiary of Equitable.
Mr. Peacock is a past member of Equitable's Investment Policy Committee. Prior
to his retirement he was also a Senior Vice President of parent Equitable for
approximately twelve years. Mr. Peacock is a former director of Equitable Real
Estate and remains a trustee of EQK Realty Investors I. He is sole owner,
President and Chief Executive Officer of Carluke, Inc.
Phillip E. Stephens, age 48, has been President of Compass Retail, the
Partnership's former property manager and a subsidiary of Equitable Real Estate,
since January 1992 and was Executive Vice President of the Compass Retail
division of Equitable Real Estate from January 1990 to December 1991. He has
also served as President of ERPM, the Partnership's former Advisor and a
wholly-owned subsidiary of Equitable Real Estate, since December 1989. From
October 1987 to December 1989, he was President of EQK Partners (formerly the
Partnership's advisor), the predecessor in interest to ERPM. From its inception
in September 1983 to October 1987, he was Senior Vice President of EQK Partners.
He is also President and a trustee of EQK Realty Investors I.
Kimli Cross Smith, age 33, has been Executive Vice President -- Leasing and
Secretary since March 1995; and previously she served as Senior Vice
President--Leasing and Secretary. Prior to that, Ms. Smith had been a leasing
representative for Compass, the Partnership's former property manager and a
subsidiary of Equitable Real Estate, since November 1990. From March 1988 until
she joined Compass, Ms. Smith was a leasing representative for Strouse,
Greenberg & Co., Inc., Philadelphia, Pennsylvania. In 1995, Ms. Smith was made
Executive Vice President of the Company.
Richard P. Ferrell, age 38, has been Vice President -- Management since
March 1994. Prior to that, from December 1992, Mr. Ferrell was Vice President of
the Partnership's former managing general partner and the Manager of Green Acres
Mall. From December 1991 to December 1992 Mr. Ferrell worked for the Rouse
Company as Vice President and General Manager of the Citadel, an enclosed mall
located in Colorado Springs, Colorado. Prior to that, from February 1989 to
December 1991, Mr. Ferrell was employed by the Rouse Company as Manager of
Retail Operations for the Cherry Hill Mall in Cherry Hill, New Jersey.
Dennis Harkins, age 33, has been the Controller of Green Acres Mall since
June 1993. Prior to that, from August 1990 Mr. Harkins was Controller for Hayim
and Co., Hempstead, New York, a company engaged in the importation and
distribution of rugs. Prior to that, from January 1990 Mr. Harkins was Assistant
Controller of the Yarmouth Group, New York, New York, a real estate investment
company. From June 1987 until January 1990, Mr. Harkins was an accounting
manager for Angeles Corp., Los Angeles, California, a real estate investment
company.
Pursuant to the Delaware Business Trust Act, the Company is required to
have as a trustee a person or entity that is a resident of or has its principal
place of
20
<PAGE>
business in the State of Delaware. The Delaware resident trustee is Wilmington
Trust Company (the "Resident Trustee"). The Declaration of Trust provides that
the management of the Company is vested exclusively in the Managing Trustees who
make up the Board of Trustees of the Company and that the Resident Trustee will
not participate in the management of the Company except as directed by the Board
of Trustees and consented to by the Resident Trustee. The principal offices of
the Resident Trustee are located at 1100 N. Market Street, Rodney Square North,
Wilmington, Delaware 19890-0001.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and trustees and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively, the "Reporting Persons")
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of these reports.
Based on the Company's review of the copies of these reports received by
it, and written representations received from Reporting Persons, the Company
believes that all filings required to be made by the Reporting Persons during
1995 were made on a timely basis, except that Myles H. Tanenbaum, a Managing
Trustee and President of the Company, filed one report (relating to
transactions involving issuances pursuant to the Company's Dividend Reinvestment
Plan during 1995 and a distribution of Common Shares to the former General
Partners of the Partnership) subsequent to the applicable due date.
Item 11. EXECUTIVE COMPENSATION.
Executive Compensation
The following table sets forth certain information concerning the
compensation paid by the Trust during the fiscal years ended December 31, 1995
and 1994 to the Trust's President and each of the Trusts' other most highly
compensated executive officers whose compensation exceeded $100,000 in 1995.
Until the conversion to a REIT on February 28, 1994, the Company was not
internally managed, and was not responsible for executive compensation.
21
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------- --------------------------------------
Restricted Securities All Other
Name and Principal Stock Underlying Compensation
Position Year Salary($)(1) Bonus($) Awards($) Options(2) ($) (3)
- -------------------------- ---- ------------ --------- -------------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Myles H. Tanenbaum 1995 175,000(1) -- -- -- --
President 1994 145,833 100,000 -- 750,000 --
Kimli Smith 1995 147,000(1) 15,000 -- -- 5,500
Executive Vice President 1994 85,871 32,500 15,000(4) 32,500 5,500
-Leasing
Richard Ferrell 1995 110,000(1) 7,500 -- -- 3,500
Vice President 1994 84,041 22,500 12,500(5) 25,000 3,500
- Management
Dennis Harkins 1995 97,500(1) 7,500 -- -- 3,500
Controller 1994 64,792 17,500 7,000(6) 17,500 3,500
</TABLE>
- ------------
(1) Salary information for 1994 includes only the period beginning on March 1,
1994 and ending on December 31, 1994. Prior to March 1, 1994, the Trust was
not internally managed.
(2) Represents stock options granted to such persons on January 25, 1994. No
stock options were granted by the Company during 1995 and none of the
Company's executive officers exercised any stock options previously granted
to them during 1995. All of the stock options granted to such officers
during 1994 have an exercised price of $10 per share and vest pro-rata over
a five year period commencing one year from the grant date. At December 31,
1995, none of such options were in the money.
(3) Represents annual premium payments on life insurance on the lives of Ms.
Smith, Mr. Ferrell and Mr. Harkins, for which they designate the
beneficiaries, which policies are designed to comply with Section 79 of the
Internal Revenue Code.
(4) Represents the dollar value of a grant of 1,500 shares at $10 per share as
of January 25, 1994, the grant date. The dollar value of such shares on
December 31, 1995 was $9,188, or $6.125 per share. All such shares are
entitled to the receipt of dividends. These shares vest in equal increments
over three years.
22
<PAGE>
(5) Represents the dollar value of a grant of 1,250 shares at $10 per share as
of January 25, 1994, the grant date. The dollar value of such shares on
December 31, 1995 was $7,656, or $6.125 per share. All such shares are
entitled to the receipt of dividends. These shares vest in equal increments
over three years.
(6) Represents the dollar value of a grant of 700 shares at $10 per share as of
January 25, 1994, the grant date. The dollar value of such shares on
December 31, 1995 was $4,288, or $6.125 per share. All such shares are
entitled to the receipt of dividends. These shares vest in equal increments
over three years.
Stock Options
At the Company's annual shareholder meeting in November 1994, the
shareholders approved an Incentive Share Plan ("The Plan"). An aggregate of
1,500,000 Common Shares may be awarded under the Plan. Persons eligible for
participation in the Plan include all non-employee Managing Trustees, officers
and other key executives of the Company (collectively "Eligible Participants").
There are currently 589,050 shares available to be awarded under the Plan. No
Eligible Participant may receive an award of more than 750,000 Options, stock
appreciation rights and restricted Shares in any one calendar year.
Compensation of Directors
Trustees who are not employees of the Trust are entitled to receive an
annual fee of $15,000, plus a fee of $1,000 for attendance at each of the
Trustee's meetings and $1,000 for attendance at Committee meetings. Other fees
are payable for special services performed for the Trust, but no such services
were provided in 1995. Mr. Tanenbaum is not paid any fees for attendance at
Trustee meetings or for any other special services performed for the Trust.
Employment Agreements
The Trust entered into an Employment Agreement with Mr. Stein, a former
employee of the Trust, dated January 10, 1994, for a term extending to June 30,
1996, which was terminated March 3, 1995, subject to the following: (i) Mr.
Stein received $15,000 per month through October 31, 1995; (ii) Mr. Stein's
restricted shares became fully vested; and (iii) Mr. Stein's stock options were
terminated.
Compensation Committee Interlocks and Insider Participation
The following Managing Trustees served on the Compensation Committee of the
Company:
Phillip E. Stephens, Chairman
23
<PAGE>
Alton G. Marshall
George R. Peacock
None of these committee members served as an officer or employee of the
Company during 1995 or any time prior thereto. However, Mr. Stephens is
President of Compass and President of ERPM, the Company's former Advisor. The
Trust paid Compass $375,000 and $329,000, in the years ended December 31, 1995
and 1994, respectively, and $264,000 to ERPM in 1994. (See Item 13)
Compensation Committee Report on Executive Compensation
The Trust commenced substantial operations as of February 28, 1994, the
date upon which the Company's operations converted from partnership form into a
real estate investment trust. As part of that conversion, the Trust became
largely self-managed. Prior to the conversion, the predecessor partnership was
managed by the Advisor and, accordingly, it did not bear the expense of
executive compensation directly. As part of the planning process in connection
with the conversion, the Company retained a compensation consulting firm to
render a report (the "Report") with respect to compensation to be paid to the
Company's President and other senior management personnel.
Based upon the Report and discussions with Mr. Tanenbaum, it was determined
that a compensation structure would be implemented for the President that would
consist of base compensation, a discretionary bonus and share options. It was
also determined that (i) the base compensation would be set at a level
substantially below the median compensation of chief executive officers of
comparable companies as identified in the Report; and (ii) the share option
grant would be made larger to reflect the lower level of cash compensation.
As a result of the foregoing, the base compensation for 1994 for the
President was set at an annual rate of $175,000 and Mr. Tanenbaum was granted
options to purchase 750,000 Common Shares at $10.00 per Common Share (the market
price at date of grant). Such options vest at the rate of 20% per year
commencing December 31, 1994 so long as Mr. Tanenbaum is employed by the Company
at the applicable year-end, subject to immediate vesting upon death, disability
or change in control. By structuring compensation in this manner, the
President's total compensation was made heavily dependent upon the performance
of the Common Shares in the market. The base compensation and option awards were
reflected in the Company's Consent Solicitation Statement/Prospectus dated
December 23, 1993 that was provided to Unitholders in the predecessor
partnership in connection with their decision on whether to approve the
conversion. Mr. Tanenbaum's $100,000 bonus for 1994 reflected a subjective and
non- quantitative evaluation of his performance as well as his relatively low
base compensation. During 1995, Mr. Tanenbaum's base salary remained at
$175,000. No bonus or stock options were granted to Mr. Tanenbaum during the
year.
24
<PAGE>
The compensation structure for the other members of senior management was
also based in large part upon the Report. During 1994, in addition to base
compensation, an annual discretionary bonus and share option grants, the other
members of senior management also received grants of restricted shares, which
vest annually over three years. The cash compensation and share option grants of
the senior management other than Mr. Tanenbaum were set at levels closer to
industry norms and, accordingly, a greater proportion of the other senior
management's compensation consisted of cash as compared to Mr. Tanenbaum's
compensation. During 1995, base compensation increased only modestly over 1994.
Such increases reflect subjective and non-quantitative evaluations of the
performance of such senior management. Cash bonuses during 1995 were
substantially lower than 1994 reflecting the Company's inability to complete any
real estate acquisition.
Compensation Committee:
Phillip E. Stephens, Chairman
Alton G. Marshall
George R. Peacock
Performance Graph
The graph below compares the cumulative total stockholder return on the
Company's Common Shares with the cumulative stockholder return of (i) the S&P
Smallcap 600 Index and (ii) the NAREIT Equity Index, assuming an investment of
$100 on March 1, 1994 in the Common Shares of the Company and an investment of
$100 on February 28, 1994 in the stocks comprising the S&P Smallcap 600 Index
and the NAREIT Equity Index (in each case assuming the reinvestment of all
dividends).
25
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
March 1, 1994 December 31, 1994 December 31, 1995
------------- ----------------- -----------------
<S> <C> <C> <C>
Arbor Property Trust $100 $89 $ 77
S&P Smallcap 600 Index $100 $93 $121
NAREIT Equity Index $100 $96 $111
</TABLE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table shows the beneficial holdings of Common Shares as of
March 1, 1996 of: (i) all persons known by the Company, based upon filings with
the Securities and Exchange Commission, to be beneficial owners of more than 5%
of its outstanding common shares; (ii) all Managing Trustees of the Company
individually; (iii) all Executive Officers of the Company individually; and (iv)
all Trustees and Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
Number of
Outstanding % of
Name Address Shares Shares
---- ------- ------ ------
<S> <C> <C> <C>
Equitable 787 7th Avenue
New York, NY 10019 1,467,698(1) 12.0%
Sylvan M. Cohen 1345 Chestnut Street 6,000(2) (3)
Philadelphia, PA 19107
Alton G. Marshall 136 E. 79th Street 5,000(2) (3)
New York, NY 10021
George R. Peacock Monarch Plaza 15,443(4) (3)
3414 Peachtree Road
Suite 416
Atlanta, GA 30326
Phillip E. Stephens 5775 Peachtree Dunwoody 104,688(1)(2) (3)
Suite 200D
Atlanta, GA 30342
26
<PAGE>
Myles H. Tanenbaum One Tower Bridge 1,367,644(1)(5) 11.2%
Suite 800
W. Conshohocken, PA 19428
Kimli Cross Smith One Tower Bridge 15,300(6)(7) (3)
Suite 800
W. Conshohocken, PA 19428
Richard P. Ferrell 2034 Green Acres Mall 11,250(6)(8) (3)
Valley Stream, NY 11581
Dennis J. Harkins 2034 Green Acres Mall 7,700(6)(9) (3)
Valley Stream, NY 11581
All Directors and
Executive Officers as a
Group (8 persons) 1,533,027 12.6%
</TABLE>
(1) Includes the estimated allocation of Common Shares issued to the former
General Partners of the Partnership, although a final allocation has not
yet been completed. Until the Common Shares are distributed, voting of the
shares will be controlled by Mr. Tanenbaum.
(2) Includes 5,000 Common Shares issuable upon the exercise of the vested
portion of the 7,500 options which were granted to each Managing Trustee on
January 25, 1994 and vest pro-rata over a three year period from the date
of grant.
(3) The number of Common Shares represents less than 1% of the outstanding
Common Shares.
(4) Includes 1,000 Common Shares owned by Mr. Peacock's wife, of which Mr.
Peacock disclaims beneficial ownership. Also includes 5,000 Common Shares
issuable upon the exercise of the vested portion of the 7,500 options which
were granted on January 25, 1994 and vest pro-rata over a three year period
from the date of grant.
(5) Includes 12,700 Common Shares owned by Mr. Tanenbaum's wife and 10,000
Common Shares owned by a trust of which he is a trustee. Excludes 125,445
Common Shares owned by Mr. Tanenbaum's adult children, of which Mr.
Tanenbaum disclaims beneficial ownership. Also includes 300,000 Common
Shares issuable upon the exercise of the vested portion of 750,000 options
which were granted to Mr. Tanenbaum and which vest pro-rata over a five
year period from the date of grant.
(6) Includes restricted Common Shares that will become unrestricted in equal
annual increments over three years commencing one year from the grant date,
or January
27
<PAGE>
25, 1995.
(7) Includes 13,000 Common Shares issuable upon the exercise of the vested
portion of the 32,500 options which were granted on January 25, 1994 and
vest pro-rata over a five year period from the date of grant.
(8) Includes 10,000 Common Shares issuable upon the exercise of the vested
portion of the 25,000 options which were granted on January 25, 1994 and
vest pro-rata over a five year period from the date of grant.
(9) Includes 7,000 Common Shares issuable upon the exercise of the vested
portion of the 17,500 options which were granted on January 25, 1994 and
vest pro-rata over a five year period from the date of grant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Property was acquired by a Partnership which was the Company's
predecessor, on August 27, 1986 at a purchase price of $135,859,782 from Green
Acres Associates, a general partnership among Equitable, Sunrise Associates and
the General Partners of the Partnership. Sunrise Associates, a limited
partnership, is an affiliate of the General Partners of the Partnership. The
Partnership's advisor was EQK Partners from inception until 1990.
On December 1, 1989, a wholly owned subsidiary of Equitable Real Estate
acquired the 50% interest in EQK Partners (former advisor to the Partnership)
owned by Kravco Partners, Ltd., bringing to 100% Equitable Real Estate's
ownership interest in EQK Partners. Mr. Tanenbaum and Mr. Stephens owned,
directly or indirectly, 25.2% and 14.4%, respectively, of Kravco Partners, Ltd.
Subsequently, ERPM, a wholly owned subsidiary of Equitable Real Estate, became
Advisor to the Partnership as the successor in interest to EQK Partners.
As advisor, ERPM received an advisory fee which was comprised of an annual
base fee of $250,000 and an annual subordinated incentive advisory fee of
$1,250,000 which increased in proportion to the amount by which aggregate
distributions of operating cash flow to Unitholders exceed a ten percent return
on the Unitholders' Adjusted Capital Contributions (as defined in the
Partnership Agreement). The advisory agreement terminated on March 30, 1994.
ERPM received an annual base advisory fee of $164,000 and $250,000 for the years
ended December 31, 1994 and 1993, respectively. ERPM also earned a subordinated
incentive advisory fee of $100,000 and $1,375,000, respectively, for the years
ended December 31, 1994 and 1993. In addition, ERPM earned fees of $40,000 in
1993 for tax reporting services. Compass received a fee of $40,000 for tax
reporting services in 1994 and $150,000 for services related to termination of a
Pergament lease with replacement by Kmart.
Upon sale of all or any portion of any real estate investment of the
28
<PAGE>
Partnership, the Advisor was entitled to receive a disposition fee equal to 2%
of the gross sale price (including outstanding indebtedness taken subject to or
assumed by the buyer and any purchase money indebtedness taken back by the
Partnership). The disposition fee was to be reduced by the amount of any
brokerage commissions and legal expenses incurred by the Partnership in
connection with such sales. Pursuant to this agreement with the Advisor, the
Company paid a $290,000 fee to the Advisor during 1993 relating to service
rendered in connection with the acquisition of the Bulova Parcel and its
ultimate transfer to Home Depot (see Items 1,7 and 8). Pursuant to the Merger
discussed in Item 4, the agreement with the Advisor was terminated as of March
30, 1994.
The Partnership had entered into a property management agreement with
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
discussed in Items 1 and 4, the agreement with Compass was amended to limit
Compass' scope of responsibilities primarily to accounting and financial
services in connection with the operations of the Property and its compensation
was reduced from 4% to 2% of net rental and service income. For the years ended
December 31, 1995, 1994 and 1993, fees earned by Compass were $389,000,
$289,000, and $786,000, respectively. That engagement will terminate August 31,
1998.
The Advisor and Compass deferred its fees as an accommodation to the
Company in connection with its refinancing efforts as described in Items 7 and
8. For the year ended December 31, 1993, the Partnership recorded interest
expense on deferred fees of $249,000, representing an interest rate of 7.31%
through April 1, 1993 and 8.5% thereafter applied to the cumulative unpaid fee
balance. Such fees and the interest thereon were paid in full in August 1993
from the proceeds of the refinancing (see Items 7 and 8). The Advisor received a
fee of $300,000 in 1993 for services in connection with the debt refinancing.
The Company's executive offices are located at One Tower Bridge, W.
Conshohocken, PA 19428. These offices, including furniture, telephones, and
certain office services and equipment, have been furnished pursuant to leases
with terms of between four and seven months at a monthly rate of $9,000 from a
partnership owned by Mr. Tanenbaum and his sons.
For a description of Common Shares issued to the Advisor pursuant to the
Merger in connection with the termination of the Advisory Agreement and of
Common Shares issued to the General Partners, see Items 1, 7 and 8.
29
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page Number
-----------
(a) The following documents are filed as part of this report:
<S> <C> <C>
1. Consolidated Financial Statements
Report of Independent Public Accountants 36
Consolidated Balance Sheets at December 31, 1995 and 1994 38
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 39
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1995, 1994 and 1993 40
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 41
Notes to consolidated financial statements, including
supplementary data 42
2. Financial Statement Schedules
Schedule II: Valuation & Qualifying Accounts 56
Schedule III: Real Estate and Accumulated
Depreciation 56
All other schedules are omitted as the required information is
inapplicable or the information is presented in the
consolidated financial statements, or the related notes
thereto.
3. Exhibits
(2) Form of Agreement and Plan of Merger by and among the
Partnership, the General Partners, the Company and
Green Acres Mall Corp.(7)
(3) (a) Amended and Restated Declaration of Trust
of the Company(8)
(b) Certificate of Trust of the Company(7)
(c) Form of By-laws of the Company(7)
(4) Specimen of Common Share Certificate(7)
(9) None
(10) (a) Agreement regarding post-closing obligations.(1)
(b) Modification and restatement of Lease between
Green Acres Associates and Gimbels Valley
Stream, Inc. dated August 6, 1986.(1)
(c) Rent credit agreement dated August 6, 1986
between Green Acres Associates and Federated
Department Stores, Inc.(1)
30
<PAGE>
(d) Agreement dated August 6, 1986 among Green
Acres Associates, Gimbels Valley Stream, Inc.
and Federated Department Stores, Inc.(1)
(e) Lease dated February 6, 1981 between the
Equitable Life Assurance Society of the United
States and Allied Stores of New York, Inc.(1)
(f) Lease dated December 15, 1954 by and between
Sterling Estates, Inc. and JC Penney Company,
as amended.(1)
(g) Lease dated February 22, 1989 by and between
Blumfold Corporation and the Partnership.(2)
(h) First Amendment to Advisory Agreement dated
as of December 15, 1989 between the
Partnership and EQK Partners.(3)
(i) Amendment to Lease between Blumfold Corporation
and the Partnership dated June 22, 1990.(4)
(j) Amendment to Lease between Blumfold Corporation
and the Partnership dated August 13, 1990.(4)
(k) Amendment to Amended and Restated Limited
Partnership Agreement of the Partnership dated
December 17, 1990.(4)
(l) Acquisition Agreement between Bulova Corporation
and the Partnership dated September 13, 1991.(5)
(m) Agreement of Lease between Home Depot, USA,
Inc. and the Partnership dated March 2, 1993.(6)
(n) Lease Agreement between Kmart Corporation and
the Partnership dated March 8, 1993.(6)
(o) Form of Advisory Services Termination Agreement
by and between the Company and Equitable Realty
Portfolio Management, Inc.(7)
(p) Form of Amended and Restated Property
Management Agreement by and between the
Company and Compass Retail, Inc.(7)
(q) Consolidated and Restated Mortgage, Security
Agreement, Assignment of Leases and Rents
and Future Filing, dated as of August 19,
1993, by and between the Partnership and EQK
Green Acres Funding Corp.(7)
(r) Note due August 19, 1998 in the principal amount
of $118,000 from the Partnership to EQK Green
Acres Funding Corp.(7)
(s) Form of Collateralized Floating Rate Note due
August 19, 1998 from EQK Green Acres Funding
Corp.(7)
(t) Interest Rate and Currency Exchange Agreement,
dated as of August 12, 1993, by and between AIG
31
<PAGE>
Financial Products Corp. and EQK Green Acres
Funding Corp., as agent for the Partnership.(7)
(u) Indenture, dated as of August 19, 1993, by and
between EQK Green Acres Funding Corp. and
Bankers Trust Company.(7)
(v) Agreement between the Partnership and PNC
Bank dated August 19, 1993.(7)
(w) Form of Agreement Relating to New York
State Real Property Transfer Gains Tax by and
among Equitable Life Assurance Society of the
United States, Equitable Realty Portfolio
Management, Inc., the Company and the other
signatories thereto.(7)
(x) Loan Extension Agreement between PNC Bank
and the Registrant dated March 30, 1993(6)
(y) EQK Green Acres Trust Incentive Share Plan.(8)
(z) Amended and restated loan agreement by and between
Green Acres Mall Corp. and PNC Bank, National
Association, dated as of August 8, 1994.(9)
(aa) Guaranty and Surety Agreement by and between the Trust
and PNC Bank, National Association, dated August 8,
1994.(9)
(ab) Confirmation of Swap Transaction by and between Arbor
Property Trust and Goldman Sachs Capital Markets, L.P.
dated as of May 23, 1995.(10)
(ac) Loan Modification Agreement by and between PNC Bank
and the Registrant dated December 26, 1995. (11)
(11) See the Consolidated Statement of Operations.
(12) Inapplicable.
(13) Inapplicable.
(16) None.
(18) None.
(21) Subsidiaries of the Registrant schedule(7)
(22) Inapplicable.
(23) (a) Consent of Arthur Andersen LLP
(b) Consent of Deloitte & Touche LLP
(24) None.
(27) Financial Data Schedule
(28) None.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1995.
(c) See paragraph (a) 3. above
(d) See paragraph (a) 2. above
- ---------------------------
(1) Incorporated herein by reference to exhibit filed with Registrant's
32
<PAGE>
Registration Statement on Form S-11, File No. 33-6992.
(2) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for the fiscal year ended December 31, 1988.
(3) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for the fiscal year ended December 31, 1989.
(4) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for the fiscal year ended December 31, 1990.
(5) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for the fiscal year ended December 31, 1991.
(6) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for the fiscal year ended December 31, 1992.
(7) Incorporated herein by reference to exhibit filed with Registrant's
Registration Statement on Form S-4, File No. 38-68664.
(8) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for the fiscal year ended December 31, 1993.
(9) Incorporated herein by reference to exhibit filed with Registrant's Form
10-Q for the quarter ended June 30, 1994.
(10) Incorporated herein by reference to exhibit filed with Registrant's Form
10-Q for the quarter ended June 30, 1995.
(11) Incorporated herein by reference to exhibit filed with Registrant's Form
10-K for the fiscal year ended December 31, 1995.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 28th day of
March, 1996.
Arbor Property Trust
By: /s/ Myles H. Tanenbaum
-------------------------------------
Myles H. Tanenbaum,
Managing Trustee and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 28, 1996 by the following persons on behalf of
the Registrant and in the capacities indicated.
Signatures Title
- ---------- -----
/s/ Myles H. Tanenbaum Managing Trustee and President
- ----------------------------- (Principal Executive
Myles H. Tanenbaum and Financial Officer)
/s/ Phillip E. Stephens Managing Trustee
- -----------------------------
Phillip E. Stephens
/s/ Sylvan M. Cohen Managing Trustee
- -----------------------------
Sylvan M. Cohen
/s/ Alton G. Marshall Managing Trustee
- -----------------------------
Alton G. Marshall
/s/ George R. Peacock Managing Trustee
- -----------------------------
George R. Peacock
/s/ Dennis Harkins Treasurer and Controller
- -----------------------------
Dennis Harkins
<PAGE>
Arbor Property Trust
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
Arbor Property Trust Page
Report of Independent Public Accountants...................................36
Consolidated Balance Sheets as of December 31, 1995 and 1994...............38
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994, and 1993....................................39
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1995, 1994, and 1993..............................40
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993....................................41
Notes to Consolidated Financial Statements.................................42
Consolidated Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts............................56
Schedule III - Real Estate and Accumulated Depreciation....................56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
Arbor Property Trust:
We have audited the accompanying consolidated balance sheets of Arbor Property
Trust and Subsidiary (a Delaware Business Trust) as of December 31, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years ended December 31, 1995 and 1994. These
consolidated financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Arbor
Property Trust and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The 1995 and 1994 schedules,
listed in the Index to the Financial Statements and Financial Statement
Schedules, are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not a part of the basic consolidated
financial statements. The 1995 and 1994 schedules have been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
March 15, 1996
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Trustees and Shareholders
Arbor Property Trust
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of Arbor Property Trust (the "Trust"), a
Delaware business trust for the year ended December 31, 1993. These
consolidated financial statements and the consolidated financial statement
schedules discussed below are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Trust for
the year ended December 31, 1993 in conformity with generally accepted
accounting principles.
Our audit also comprehended the consolidated financial statement schedules of
the Trust as of December 31, 1993 and for the year ended December 31, 1993.
In our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements, present
fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Atlanta, Georgia
March 10, 1994
<PAGE>
ARBOR PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in Green Acres Mall Corp., at cost:
Land $30,295 $30,295
Buildings and improvements 140,022 139,249
Capitalized lease 7,125 7,125
Personal property 1,175 1,075
Construction in progress --- 10
- --------------------------------------------------------------------------------
178,617 177,754
Less accumulated depreciation 30,890 26,621
- --------------------------------------------------------------------------------
147,727 151,133
Tenant security deposits & escrowed cash 625 817
Cash and short-term investments --- ---
Accounts receivable (net of allowances for
doubtful accounts of $129 and $898) 9,131 7,306
Other assets, net 5,109 6,068
- --------------------------------------------------------------------------------
TOTAL ASSETS $162,592 $165,324
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Collateralized floating rate notes (net of
unamortized discount of $62 and $86) $117,938 $117,914
Distributions payable 2,129 3,321
Obligation under capital lease 7,001 6,994
Note payable to bank 6,900 4,300
Accounts payable and other liabilities 4,207 3,584
Due to affiliates 37 20
- --------------------------------------------------------------------------------
138,212 136,133
- --------------------------------------------------------------------------------
Commitments and Contingencies:
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:
12,164,218 and 12,074,774 common shares 117,991 117,209
Distributions in excess of accumulated earnings (93,611) (88,018)
- --------------------------------------------------------------------------------
24,380 29,191
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $162,592 $165,324
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARBOR PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, expept shares and per share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Years Ended December 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from rental operations $ 22,186 $ 21,465 $ 20,370
Operating expenses, net of tenant reimbursements
(includes fees to affiliate of $389, $289 and $786) 1,496 1,908 2,059
Advisory and termination fees paid to former advisor,
discontinued March 30, 1994 (including $3,843 as a result
of the termination of the advisory agreement in 1994) -- 4,107 1,625
Provision for doubtful accounts 192 453 424
Depreciation and amortization 4,403 4,164 3,969
- ----------------------------------------------------------------------------------------------------------
Income from rental operations 16,095 10,833 12,293
Interest expense (includes interest expense to affiliate of
$249 in 1993 and amortization of refinancing costs) 10,755 8,573 9,834
Merger expenses -- -- 1,250
Unusual and nonrecurring expenses 262 -- --
Other expenses, net of interest income 2,157 2,765 499
- ----------------------------------------------------------------------------------------------------------
Income (loss) before gain on sale of real estate
and extraordinary loss 2,921 (505) 710
Gain on sale of real estate -- 839 440
- ----------------------------------------------------------------------------------------------------------
Income before extraordinary loss 2,921 334 1,150
Extraordinary loss from early retirement of debt -- -- (6,373)
- ----------------------------------------------------------------------------------------------------------
Net income (loss) $ 2,921 $ 334 ($ 5,223)
==========================================================================================================
Income (loss) per weighted average share:
Income (loss) before gain on sale of real estate
and extraordinary loss $ 0.24 ($ 0.04) $ 0.07
Gain on sale of real estate -- 0.07 0.04
- ----------------------------------------------------------------------------------------------------------
Income before extraordinary loss 0.24 0.03 0.11
Extraordinary loss from early retirement of debt -- -- (0.62)
- ----------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.24 $ 0.03 ($ 0.51)
==========================================================================================================
Weighted average number of shares outstanding 22,142,454 11,681,960 10,277,469
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARBOR PROPERTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Distributions in
Shares of Excess of
Beneficial Accumulated
Interest Earnings Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1993 $ 95,500 ($ 58,606) $36,894
Net loss for the year ended December 31, 1993 (5,223) (5,223)
Distributions ($1.10 per Common Share) (11,305) (11,305)
- --------------------------------------------------------------------------------------------
Balance, December 31, 1993 95,500 (75,134) 20,366
Net income for the year ended December 31, 1994 334 334
Distributions ($1.10 per Common Share) (13,218) (13,218)
Shares issued in conversion to REIT 16,371 16,371
Shares issued in termination of Advisory Agreement 3,843 3,843
Restricted Shares issued to executive officers 6 6
Shares issued upon dividend reinvestment 1,489 1,489
- --------------------------------------------------------------------------------------------
Balance, December 31, 1994 117,209 (88,018) $29,191
Net income for the year ended December 31, 1995 2,921 2,921
Distributions ($.70 per Common Share) (8,514) (8,514)
Restricted Shares issued to executive officers 42 42
Shares issued upon dividend reinvestment 740 740
- --------------------------------------------------------------------------------------------
Balance, December 31, 1995 $117,991 ($ 93,611) $24,380
============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ARBOR PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Years Ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $2,921 $334 ($5,223)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary loss from early
retirement of debt --- --- 6,373
Provision for doubtful accounts 192 453 424
Depreciation and amortization 4,403 4,164 3,969
Amortization of deferred financing costs 1,245 1,212 582
Amortization of zero coupon mortgage
note discount --- --- 5,558
Amortization of collateralized floating rate
note discount 24 23 9
Amortization of deferred compensation 42 --- ---
Termination of advisor agreement --- 3,843 ---
Gain on sale of real estate --- (839) (440)
Changes in assets and liabilities:
Increase in accrued rent receivable (923) (1,208) (869)
(Increase) decrease in accounts receivable,
tenant security deposits and escrowed
cash and other assets (1,322) 161 (1,574)
Increase (decrease) in accounts payable and
other liabilities and due to affiliates 647 (428) (2,100)
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,229 7,715 6,709
- --------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of real estate, net --- 1,435 9,377
Additions to buildings and improvements
and personal property (863) (1,489) (2,114)
Additions to property under contract --- --- (5,703)
Decrease (increase) in restricted cash --- 500 (500)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (863) 446 1,060
- --------------------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid (9,706) (12,723) (11,305)
Proceeds from dividend reinvestment 740 1,489 ---
Retirement of zero coupon mortgage note --- --- (95,399)
Proceeds from issuance of collateralized floating
rate notes --- --- 117,882
Payment of deferred financing costs --- --- (5,231)
Borrowings under (repayment of) bank
line of credit 2,600 2,500 (14,700)
- --------------------------------------------------------------------------------------------
Net cash used in financing activities (6,366) (8,734) (8,753)
- --------------------------------------------------------------------------------------------
Decrease in cash and short-term investments 0 (573) (984)
Cash and short-term investments,
beginning of year 0 573 1,557
- --------------------------------------------------------------------------------------------
Cash and short-term investments, end of year $0 $0 $573
============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
NOTE 1: Merger Transaction and Basis of Presentation
Arbor Property Trust (the "Trust"), formed on September 8, 1993 as a
Delaware business trust, has an indefinite life and has elected real estate
investment trust ("REIT") status under the Internal Revenue Code of 1986, as
amended, with the filing of its Federal income tax return for the year ended
December 31, 1994. On February 28, 1994, EQK Green Acres, L.P. (the
"Partnership") merged with and into Green Acres Mall Corp., a wholly-owned
subsidiary of the Trust. Prior to February 28, 1994, the Trust did not have
significant operations. The Trust and the Partnership are collectively referred
to herein as the "Company". The Company, through its wholly-owned subsidiary,
Green Acres Mall Corp., owns and operates the Mall, a 1.6 million square foot
super-regional enclosed shopping mall complex situated in southwestern Nassau
County, Long Island, New York.
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"). 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 Beneficial Interest 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 5), the Advisor received 308,933
Common Shares on March 30, 1994. In addition, pursuant to an agreement with the
Company, all distributions, prior to May 1995, with respect to the Common Shares
issued for the Special General Partner's residual interest in the Partnership
and the termination of the agreement with the Advisor were reinvested through a
dividend reinvestment plan in newly issued Common Shares. Distributions
aggregating $740,000 and $1,489,000 were reinvested under this plan in 1995 and
1994, respectively.
The issuance of 10,277,469 Common Shares to the Unitholders and the
General Partners on account of their respective interests in the Partnership
represented 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 Trust and the Partnership have been combined at historical
cost retroactive to January 1, 1992. The issuance of these Common Shares have
been reflected as of January 1, 1992 at an amount that equals the Unitholders'
and General Partners' original contribution to the
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Partnership.
The issuances of Common Shares to the Special General Partner and the
Advisor have been reflected in the Company's financial statements as of February
28, 1994 and March 30, 1994, respectively. The issuance of such Common Shares to
the Special General Partner has increased the Trust's carrying value of land and
buildings and improvements by $3,024,000 and $13,347,000, respectively,
representing the agreed-upon value of the Special General Partner's residual
interest in the Partnership in connection with the merger. Had this Common Share
issuance been recorded on January 1, 1992, depreciation expense would have
increased by approximately $342,000 in each of the three years ended December
31, 1994 ($.03 per Common Share outstanding). The issuance of Common Shares to
the Advisor was reflected as a charge to earnings during 1994 in the amount of
$3,843,000.
In connection with the merger, the Company recorded as expense in 1993
nonrecurring legal, accounting, and printing costs aggregating approximately
$1,250,000 ($.12 per Common Share).
NOTE 2: Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Arbor
Property Trust and its wholly-owned subsidiary Green Acres Mall Corp. All
significant intercompany transactions and balances have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes minimum rental income from leases with scheduled
rent increases on a straight-line basis over the lease term. Accrued rent
receivable, included in accounts receivable in the accompanying balance sheets,
represents the difference between the straight line rent and amounts currently
due. At December 31, 1995 and 1994 the accrued rent receivable was $4,184,000
and $3,261,000, respectively. Percentage rents and payments for taxes, insurance
and maintenance
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
by tenants are estimated and accrued.
Capitalization, Depreciation and Amortization
Depreciation of the Property is provided on a straight-line basis over
the estimated useful lives of the related assets, ranging generally from 10 to
40 years. The capitalized lease asset is amortized over its term. Deferred
financing costs, which are included in other assets in the accompanying balance
sheets, are amortized on a straight line basis over the term of the related
debt. At December 31, 1995 and 1994 deferred financing costs were $6,063,000 and
$5,988,000, net of accumulated amortization of $2,938,000 and $1,694,000,
respectively.
Deferred Leasing Costs
Costs incurred in connection with the execution of a new lease,
including leasing commissions, costs associated with the acquisition or buy out
of existing leases and legal fees, which are included in other assets in the
accompanying balance sheets, are deferred and amortized over the term of the new
lease. At December 31, 1995 and 1994 deferred leasing costs were $1,984,000 and
$1,964,000, net of accumulated amortization of $491,000 and $357,000,
respectively.
Income Taxes
Effective with the filing of the Federal income tax return for the year
ended December 31, 1994, the Company elected and qualifies as a real estate
investment trust under Sections 856-860 of the Internal Revenue Code and intends
to remain so qualified. Accordingly, no provision has been made for Federal
income taxes in the accompanying 1995 and 1994 financial statements.
The Company is subject to a Federal excise tax computed on a calendar
year. The excise tax equals 4% of the excess, if any, of 85% of the Company's
ordinary income plus 95% of the Company's capital gain net income for the
calendar year over cash distributions during the calendar year, as defined. No
provision for excise tax was made for fiscal years 1995 and 1994, as no tax was
due.
In 1993, no provision was made in the accompanying consolidated
financial statements for income tax liabilities since the Unitholders and
General Partners of the Partnership were required to include their respective
share of profits and losses in their individual tax returns.
<PAGE>
The tax status of distributions paid to beneficiaries was composed of
the following for the calendar years ended December 31, 1995 and 1994.
1995 1994
Ordinary Income $.24 $ --
Return of Capital .56 1.10
----- ------
$.80 $1.10
Consolidated Statements of Cash Flows
Cash equivalents include short-term investments with an original
maturity of three months or less.
Included in the consolidated statements of cash flows are cash payments
for interest of $9,598,000, $6,859,000 and $3,334,000 for the years ended
December 31, 1995, 1994, and 1993, respectively.
Other non-cash financing and investing activities are discussed in
Note 1.
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Disclosures
The carrying value of the Company's collateralized floating rate notes
approximates fair value since the interest rate on the notes is reset quarterly.
The interest rate cap agreement described in Note 4 entitles the Company to
receive from the counter party (a major insurance company) the amounts, if any,
by which the Company's interest payments on $118,000,000 of collateralized
floating rate notes exceed 9%. The purchase price paid for the interest rate cap
is included in other assets in the accompanying balance sheets and is amortized
to interest expense over the term of the agreement. At December 31, 1995, the
unamortized value of the cap was $539,000. The fair value of the cap at December
31, 1995 $53,000 was determined by reference to a quote obtained from the
counter-party.
In May 1995, the Company entered into a swap transaction which fixed
the interest rate on the Floating Rate Notes for the period of August 12, 1995
through August 12, 1996 at 6.87%. The fair value of the interest rate swap
agreement represents the estimated amount that the Trust would receive or (pay)
to terminate the swap, taking into account current interest rates and the
credit-worthiness of swap counter party. At December 31, 1995 the fair value of
the interest rate swap agreement was ($514,000).
The carrying value of the Company's other financial instruments (cash,
receivables and payables) approximate their market value because of the short
maturity of those instruments.
Impact of Financial Accounting Standards Not Yet Adopted
The Company has not yet adopted Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which is effective for fiscal years
beginning after December 15, 1995. This Statement requires that long-lived
assets to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. This Statement also requires that long-lived assets to be
disposed of be reported at the lower of carrying amount or fair value less costs
to sell. If the sum of the expected future cash flows from the use of the asset
and its eventual disposition (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Management has concluded the impact of adopting this Statement in fiscal year
1996 will not be material to the financial statements of the Company.
<PAGE>
Reclassifications
Certain reclassifications have been made to the prior years'
consolidated financial statements in order to conform their presentation to that
used in the current year.
NOTE 3: Leasing Arrangements
The Company as Lessor
The Company leases shopping center space to approximately 200 tenants,
generally under non-cancelable operating leases. The leases generally provide
for minimum rentals, plus percentage rentals based upon the retail stores' sales
volume.
Percentage rentals amounted to $2,041,000, $1,871,000 and $2,563,000
for the years ended December 31, 1995, 1994, and 1993, respectively. In
addition, the tenants pay certain utility charges to the Company and, in most
leases, reimburse their proportionate share of real estate taxes and common area
expenses.
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company leases space to national, regional, and local tenants.
Diversity in the tenant mix minimizes exposure to credit risk from geographic
concentration. However, regional and local tenants may represent a higher level
of credit risk. In certain instances, the Company obtains security deposits to
mitigate risk from less creditworthy tenants.
Future minimum rentals under existing leases at December 31, 1995 are
as follows:
Years ending
December 31, Amount
1996 ............................................... $ 17,427,000
1997 ............................................... 17,252,000
1998 ............................................... 16,823,000
1999 ............................................... 16,266,000
2000 ............................................... 15,039,000
Thereafter ......................................... 90,777,000
------------
$173,584,000
============
The Company as Lessee
In 1990, the Company entered into a 30-year lease, with three, six-year
renewal options, on the Plaza, an adjacent 9-acre site on which there is
situated an industrial building that has been renovated and converted into
retail shopping space. The Plaza opened for business in September 1991. In
addition to specified rents, the Plaza lease requires the Company to pay
property taxes, insurance, operating expenses and additional rentals based on a
percentage of revenues generated by the operations of the Plaza. No such
additional rentals were paid in 1995, 1994 or 1993. In accordance with generally
accepted accounting standards, the portion of the lease related to the building
is accounted for as a capital lease while the portion related to the land is
accounted for as an operating lease.
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a schedule of future minimum lease payments under the
lease as of December 31, 1995:
<TABLE>
<CAPTION>
Capital Operating
Lease Lease
Component Component
<S> <C> <C>
1996 ..................................................... $ 678,000 $ 762,000
1997 ..................................................... 702,000 788,000
1998 ..................................................... 707,000 793,000
1999 ..................................................... 707,000 793,000
2000 ..................................................... 707,000 793,000
Thereafter ...............................................$27,317,000 $30,683,000
----------- -----------
Minimum Lease Payments $30,818,000 $34,612,000
----------- -----------
Less Amount Representing Interest (23,817,000)
-----------
Present Value of Minimum Lease Payments $7,001,000
===========
</TABLE>
For the years ended December 31, 1995, 1994, and 1993, total rental
expense under the operating lease portion of this lease was $728,000, $731,000
and $734,000, respectively, all of which represented minimum lease payments.
As of December 31, 1995, the Company has signed sublease agreements
with certain tenants of the Plaza, which agreements generally provide for
rentals based on a percentage of tenant sales in addition to base rental.
Sublease income of $38,161,000 will be received over the remaining terms of the
respective leases. Such income is included in the future minimum rentals table
presented above. Sublease income totaled $2,398,000, $2,394,000 and $2,189,000
for the years ended December 31, 1995, 1994, and 1993, respectively.
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 1993, the Partnership terminated its lease with Pergament
Home Improvement Center ("Pergament"), one of the anchor tenants at the Plaza,
and entered into a new lease agreement covering Pergament's space and all but
one of the Plaza's small store spaces with Kmart Corporation. In connection with
the lease termination, the Company paid Pergament $450,000. This cost has been
deferred and is amortized over the term of the lease with the Kmart Corporation.
NOTE 4: Debt Financing
On August 19, 1993, the Company completed a comprehensive refinancing
by issuing 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 approximate $95,399,000
purchase price for the zero coupon first mortgage note previously outstanding
and retire a $16,500,000 term loan note at face value. The proceeds from the
issuance of the floating rate notes were also used to purchase an interest rate
cap for $1,023,000 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.
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 which commenced on 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. On November 13, 1993, the interest rate was reset to 4.28%.
On November 12, 1994, the interest rate was reset to 6.59%. The weighted average
interest rate for 1995 and 1994 was 6.89% and 5.29%, respectively. The interest
rate cap provides that the effective interest rate applicable to the
$118,000,000 face value of the notes will not exceed 9% per annum through their
maturity date. Should such debt's interest rate rise above 9%, the Company would
record amounts receivable from the counter-party as a reduction to interest
expense. In May 1995, the Company entered into a swap transaction with Goldman
Sachs Capital Markets, L.P. which fixed the interest rate on the floating rate
notes for the period of August 12, 1995 through August 12, 1996 at 6.87%. This
agreement fixed the rate for a period of one year and eliminated the risk of
increases in the LIBOR rate. The weighted average interest rate for 1995,
without the existence of the swap, would have been 6.77%. The Company is exposed
to certain losses in the event of non-performance by the counter-parties to the
interest rate cap and the interest rate swap.
The Company is exposed to certain losses in the unlikely
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
event of non-performance by the counter-parties to these agreements. The
mortgage and indenture agreement relating to the floating rate notes limit
additional indebtedness that may be incurred by the Green Acres Mall Corp. Those
agreements also contain certain other covenants which, among other matters,
effectively subordinate distributions from Green Acres Mall Corp. to debt
service requirements of the floating rate notes. Management believes it is in
compliance with all covenants under the indenture and line of credit agreements,
discussed below, at December 31, 1995.
As part of its comprehensive debt restructuring, the Company also
obtained a $3,400,000 unsecured line of credit facility from a bank in 1993. The
line of credit agreement bears interest at 1% above the bank's prime rate.
Effective August 8, 1994, this line of credit was increased to $5,900,000 and
its maturity extended to April, 1995. In April, 1995, this line of credit was
modified to allow the Company to elect an interest rate of prime plus 1% or
Euro-rate plus 2.5% and increase the amount available to $6,900,000 and extend
the maturity to December 31, 1995. In December, 1995 the maturity was extended
to December 31, 1996. The line of credit agreement also contains certain
covenants which, among other matters, limit the amount of the Company's annual
dividend to an amount that does not exceed operating cash flow (as defined), and
requires the Company to maintain a quarterly debt service coverage ratio (as
defined). At December 31, 1995 and 1994, the Company had borrowed $6,900,000 and
$4,300,000, respectively, under this credit facility. The floating rate notes'
mortgage agreement places certain limitations on Green Acres Mall Corp.'s
ability to borrow under the line of credit agreement. The weighted average
amounts outstanding under short term borrowings during 1995, 1994 and 1993 were
$5,213,000, $2,890,000 and $9,925,000, with corresponding interest rates of
9.9%, 8.2% and 7.4%. The maximum outstanding borrowings during 1995, 1994 and
1993 were $6,900,000, $5,150,000 and $16,500,000, respectively.
The Partnership had issued the previously outstanding zero coupon
mortgage note on August 27, 1986 in connection with its financing of the
acquisition of the Property. The zero coupon mortgage note, which was secured by
substantially all of the real property comprising Green Acres Mall, had an
effective annual interest rate of 10.4% compounded semi-annually.
The $16,500,000 term loan note retired on August 19, 1993 originated on
June 30, 1993 upon the conversion of a matured line of credit. This line of
credit, along with predecessor facilities, bore interest at rates ranging from
the bank's prime rate to such prime rate plus 1%. In connection with a renewal
and the conversion of the line of credit facility to a term loan in 1993, the
Company paid fees to the bank of approximately $125,000. Borrowings under these
facilities were collateralized by a second mortgage on substantially all of the
real property comprising Green Acres Mall and a first leasehold mortgage on the
Plaza.
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5: Transactions with Affiliates
Prior to the termination of its advisory agreement as discussed below,
Equitable Realty Portfolio Management, Inc., a wholly owned subsidiary of
Equitable Real Estate Investment Management, Inc. ("Equitable Real Estate"),
acted as "Advisor" to the Partnership. The Advisor made recommendations to the
Managing General Partner concerning investments, administration and day-to-day
operations. For performing these services, the Advisor received an annual base
advisory fee of $250,000 in 1993. In 1994, the Advisor earned a base advisory
fee of $164,000. The Advisor also received an annual subordinated incentive
advisory fee of $1,250,000 which increased in proportion to the amount by which
aggregate distributions of operating cash flow to Unitholders exceeded a 10%
return on the Unitholders' Adjusted Capital Contributions (as defined in the
Partnership Agreement). Payment of this fee was subordinated to a minimum annual
distribution equal to a 10% return to Unitholders. Portions of the fee not paid
in any year because of such subordination were to be deferred and paid from
future operating cash flow on a subordinated basis. For the year ended December
31, 1993, the subordinated incentive advisory fee was $1,375,000. In 1994, the
Advisor earned an incentive advisory fee of $100,000. In addition, the Advisor
earned a fee of $40,000 in 1993 related to certain tax reporting services
provided to the Company.
Upon sale of all or any portion of any real estate investment of the
Partnership, the Advisor was entitled to receive a disposition fee equal to 2%
of the gross sale price (including outstanding indebtedness taken subject to or
assumed by the buyer and any purchase money indebtedness taken back by the
Partnership). The disposition fee was to be reduced by the amount of any
brokerage commissions and legal expenses incurred by the Partnership in
connection with such sales. Pursuant to this agreement with the Advisor, the
Company paid a $290,000 fee to the Advisor during 1993 relating to service
rendered in connection with the acquisition and development of the Bulova Parcel
and its ultimate transfer to Home Depot (see Note 6). Such fees paid to the
Advisor reduced the amount of the gain recognized from this transaction.
Pursuant to an agreement with the Advisor to provide services in
connection with the refinancing of the Company's debt as described in Note 4,
the Advisor was paid a $300,000 fee in 1993.
The Partnership paid a fee of $150,000 in 1993 to the Advisor for
services in conjunction with the termination of the lease with Pergament and the
procurement of a new lease with Kmart Corporation (see Note 3).
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pursuant to the merger discussed in Note 1, upon the expiration of a 30
day transition period agreement commenced March 1, 1994, the agreement with the
Advisor was terminated.
The Partnership 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 discussed in Note 1, the agreement with Compass was
amended to limit Compass' scope of responsibilities primarily to accounting and
financial services in connection with the operations of the Property, and the
Plaza and its compensation was reduced from 4% to 2% of net rental and service
income as of March 1, 1994. For the years ended December 31, 1995, 1994 and
1993, management fees earned by Compass were $389,000, $289,000 and $786,000,
respectively. In addition, in 1994 Compass earned a fee of $40,000 for certain
tax reporting services provided to the Company. The agreement with Compass
terminates on August 31, 1998.
The Advisor and Compass deferred its fees as an accommodation to the
Partnership in connection with refinancing effort (see Note 4). For the year
ended December 31, 1993, the Company recorded interest expense on deferred fees
of $249,000, representing interest rates of 7.31% through April 1, 1993 and 8.5%
thereafter applied to the cumulative unpaid fee balances. No interest was
payable in 1994 as the fees were paid in 1994.
In 1995 and 1994, the Company incurred $156,000 and $144,000,
respectively, related to a lease for the executive offices, including furniture,
telephone services, and other office services and equipment, with a partnership
owned by the President of the Company and his sons. Under the terms of this
lease, the Company has ongoing lease commitments of approximately $9,000 monthly
through June 30, 1996.
NOTE 6: Development Activities
In April 1993, the Company completed the acquisition of an adjacent
industrial tract (the "Bulova Parcel") through a subsidiary partnership and
entered into a lease/purchase agreement for this real estate with Home Depot.
Pursuant to the lease/purchase agreement, Home Depot paid $9,500,000 to the
Company to complete the purchase of the Bulova Parcel. As a result of the
completion in 1993 of specified environmental work, the lease/purchase agreement
obligated Home Depot to take title to the Bulova Parcel. In connection with this
lease/purchase agreement, the Company recognized a gain on sale of real estate
of $440,000 during 1993. Subsequent to December 31, 1993, the Company's
restricted cash balance of $500,000 was released from escrow.
In January 1994, the Company completed the sale to Home Depot of an
approximate two acre parking lot tract adjacent to the Bulova Parcel. The
proceeds
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
from the sale were $1,500,000, resulting in a 1994 gain on sale of real estate
of approximately $839,000.
NOTE 7: Incentive Share Plan
On January 25, 1994, the Board of Trustees adopted an Incentive Share
Plan (the "Plan") which provides for the issuance of up to 1,500,000 Common
Shares to outside Trustees, officers and key executives of the Company through
options to purchase Common Shares, share appreciation rights, and restricted
share grants. Common Share options may be options that are intended to qualify
as incentive options under the Internal Revenue Code of 1986, as amended, or
options which are not intended to so qualify. The Plan was approved by the
shareholders at the annual meeting in November 1994. Options will be granted
with an exercise price that approximates the fair value of the Common Shares on
the grant date.
Concurrent with the adoption of this Plan, the Company granted options
to purchase 7,500 Common Shares to each of its four eligible Trustees and
options to purchase an aggregate of 875,000 (since reduced to 825,000) Common
Shares to certain officers. Certain officers also received in aggregate 5,950
restricted Common Shares. All such options have an exercise price of $10 per
Common Share and vest ratably commencing one year from the grant date in equal
annual increments over three and five years for the Trustee and officer options,
respectively. The restricted shares become unrestricted in equal annual
increments over three years commencing one year from the grant date. The market
value of the restricted shares awarded of $60,000 is being amortized to expense
over the three year vesting period and was $42,000 in 1995. No options were
exercised during 1995. At December 31, 1995, 589,050 Common Shares are available
to be awarded under the Plan.
NOTE 8: Commitments and Contingencies
Pursuant to the terms of the Plaza lease, the Company was required to
provide, or cause a third party lender to provide, mortgage financing of
$4,800,000 to the lessor.
In January, 1992, the Company arranged such financing from a third
party lender for a term of five years at an interest rate of 10.25%. The Company
has an option to extend the financing for an additional five years at a variable
rate of interest. This financing replaced an existing mortgage, and is secured
by the Plaza property, but is non-recourse to the lessor. The Company is
required to make all debt service payments on behalf of the lessor and receives
an offset to its minimum rent equal to 1% per month, 12% annually, of the total
financing provided to the lessor.
<PAGE>
Arbor Property Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9: Selected Quarterly Financial Data (Unaudited)
The following is a summary of selected quarterly financial data for the
years ended December 31, 1995 and 1994. Such data includes certain
reclassifications to accounts presented in quarterly reports on Form 10-Q in
order to conform their presentation to that used in the consolidated statements
of operations presented herein.
<TABLE>
<CAPTION>
(in thousands except per Common Share amounts)
Quarter Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1995
- ----
Revenues from rental operations $5,220 $5,727 $5,603 $5,636
Income from rental operations 3,772 4,166 4,026 4,131
Net income 303 938 742 938
Net income per Share $.03 $.08 $.06 $.07
Weighted average number of shares
outstanding 12,104,846 12,145,570 12,156,942 12,161,676
1994
- ----
Revenues from rental operations $5,228 $5,244 $5,273 $5,720
Income (loss) from rental operations (267) 3,459 3,531 4,110
Income (loss) before gains on sale of
real estate (2,626) 926 822 373
Gain on sale of real estate 839 -- -- --
Net income (loss) (1,787) 926 822 373
Income (loss) before gain on sale
of real estate per weighted average
Common Share $(.25) $ .08 $.07 $.03
Gain on sale of real estate .08 -- -- --
------ -------- ------- -------
Net income (loss) per
Share $(.17) $ .08 $.07 $.03
Weighted average number of shares
outstanding 10,738,640 11,931,988 11,990,044 12,046,403
</TABLE>
The decrease in revenues from rental operations in the fourth quarter
of 1995 in comparison to the fourth quarter of 1994 was primarily a result of a
reduction in the fourth quarter of the estimate of percentage rental income for
1995.
The decrease in net income in the fourth quarter of 1994 in comparison
to the second and third quarters of 1994 relates to accruals to management
bonuses and other expenses associated with winding down the Partnership.
As discussed in Note 1, the Company recorded a charge of $3,843,000 in
the first quarter of 1994 related to the termination of the advisory agreement.
<PAGE>
ARBOR PROPERTY TRUST
December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Schedule II - Valuation and Qualifying Accounts
- -----------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End of
Description of Period Expenses Accounts (1) Period
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
1995 $898 $192 -- $961 $128
1994 $723 $453 -- $278 $898
1993 $994 $424 -- $695 $723
(1) Write-offs of accounts receivable
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
- -----------------------------------------------------------------------------------------------------------------------------
Cost Capitalized Gross Amount
Subsequent to at which Carried Life on which
Initial Cost (3) Acquisition at Close of Period (5) (6) Depreciation in
-------------------- ------------- --------------------------
Latest
Bldg & Bldg. & Accum. Date of Date Income Stmt.
Con- is
Description Encumbrance Land Improve. Improvements Land Improve. Total Deprec. struction Acquired Computed
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Green Acres
Mall $117,938 (1) $27,865 $108,895 $ 17,196 $30,295 $139,438 $169,733 $29,010 1955(4) 86-08-27 40 yrs.
Plaza at
Green Acres 117,938 (2) -- 6,913 212 -- 7,125 7,125 998 1991 90-08-13 40-48 yrs.
7,001 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Totals $124,939 $ 27,865 $115,808 $ 17,408 $ 30,295 $146,563 $176,858 $30,008
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Encumbrance is a floating rate note constituing a first lien on the real estate.
(2) The Plaza at Green Acres is a leased asset. Encumbrances constitue a first leasehold mortgage collateralizing the floating
rate notes ($117,938) and the obligation under the capitalized lease ($7,001).
(3) Includes $10,175 representing the deemed value of units issued to affiliates of the former owners of Green Acres Mall and
the General Partnership interest ($2,075 in Land, $8,100 in Buildings and Improvements).
(4) Original construction was completed in 1955; mall was expanded/renovated in 1982-83 and renovated again in 1990-91.
(5) The aggregate tax basis of the Trust's property is $ 134,000,000 as of December 31, 1995.
(6) Includes $3,024,000 and $13,347,000 which are included in Land and Building & Improvements as a result of the conversion
(See Note 1 to the consolidated December 31, 1995 financial statements.)
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Gross Carrying Amount of Real Estate: Reconciliation of Accumulated Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1993 $ 157,615 Balance, January 1, 1993 $ 18,662
Improvements and Additions, 1993 $ 2,084 Depreciation expense 3,727
Write-off of fully depreciated assets (183) Write-off of fully depreciated assets (183)
--------- ---------
Balance, December 31, 1993 $ 159,516 Balance, December 31, 1993 $ 22,206
Improvements and Additions, 1994 1,489 Depreciation expense, 1994 3,886
Sale to Home Depot (594) Write-off of fully depreciated assets (103)
Additions relating to conversion to REIT 16,371 ---------
Write-off of fully depreciated assets (103) Balance, December 31, 1994 $ 25,989
--------- Depreciation expense, 1995 3,759
Balance, December 31, 1994 $ 176,679 Balance, December 31, 1995 29,748
Improvements and Additions, 1995 763 =========
---------
Balance, December 31, 1995 $ 177,442
=========
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.(c) Loan Mofification Agreement by and between PNC
Bank and the Registrant dated December 26, 1995.
23.(a) Consent of Arthur Andersen LLP
23.(b) Consent of Deloitte & Touche LLP
27 Financial Data Schedule
<PAGE>
FIRST MODIFICATION AGREEMENT
THIS AGREEMENT is entered into this _________ day of December, 1995 by
and between ARBOR PROPERTY TRUST ("Borrower"), a Delaware business trust with
offices at Suite 800, One Tower Bridge, West Conshohocken, Pennsylvania 19428,
and PNC BANK, NATIONAL ASSOCIATION ("Bank"), a national banking association,
with offices at Real Estate Finance Division, P.O. Box 7648, Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19101.
BACKGROUND
A. Pursuant to a Loan Agreement dated as of April 26, 1995, between Borrower
and Bank (the "Loan Agreement"), Bank had agreed, subject to certain terms and
conditions, to make available to Borrower a $3,900,000 unsecured revolving line
of credit. Capitalized terms used herein and not otherwise defined herein are
used as defined in the Loan Agreement.
B. The Loan is evidenced by Borrower's revolving credit note dated April 26,
1995, in the original principal amount of $3,900,000 (the "Note").
C. At Borrower's request Bank has agreed to increase the Revolving Credit
Commitment under the Loan Agreement to $6,900,000, to extend the Termination
Date to December 31, 1996 and to make certain other modifications to the Loan
Agreement, all subject to the terms and conditions hereinafter provided.
NOW, THEREFORE, for good and valuable consideration and intending to be
legally bound, Borrower and Bank hereby agree as follows:
1. Amendments to Loan Agreement. From and after the date hereof, the
Loan Agreement is hereby amended and modified as follows:
a. Section 1 of the Loan Agreement is hereby amended by deleting
the reference to "December 31, 1995" and substituting therefor "December 31,
1996", and by deleting the references to "$3,900,000" and substituting therefor
"$6,900,000."
b. Section 3 of the Loan Agreement and any references to it
elsewhere in the Loan Agreement are hereby deleted and of no further effect.
c. Exhibit B to the Loan Agreement, consisting of the form of
Revolving Credit Note, is hereby replaced by the form of Amended and Restated
Revolving Credit Note attached as Exhibit B hereto.
<PAGE>
2. Representations and Warranties. Borrower hereby represents and
warrants to Bank that:
(a) The representations and warranties contained in Section 8 of
the Loan Agreement are true and correct as of the date hereof and as if the same
related to the Loan Agreement and Note as amended hereby.
(b) No Event of Default and no event which, with the passage of
time or the giving of notice, or both, could become an Event of Default under
the Loan Agreement has occurred and is continuing on the date hereof.
(c) This Agreement and the Amended and Restated Revolving Credit
Note have been duly authorized by all requisite action on behalf of Borrower and
constitute the legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and general principles of equity.
(d) The execution, delivery and performance of this Agreement and
the Amended and Restated Revolving Credit Note will not violate any applicable
provision of law or judgment, order or regulation of any court or of any public
or governmental agency or authority nor conflict with or constitute a breach of
or a default under any instrument to which Borrower is a party or by which
Borrower or any of Borrower's properties is bound.
(e) No approval, consent or authorization of, or registration,
declaration or filing with, any governmental or public body or authority, or any
trustee or holder of any indebtedness, is required in connection with the valid
execution, delivery and performance by Borrower of this Agreement and the
Amended and Restated Revolving Credit Note, except such as have been obtained.
All of the above representations and warranties shall survive the
making of this Agreement and the issuance of the Amended and Restated Note.
3. Conditions Precedent. The effectiveness of this Agreement is
subject to the following conditions precedent:
a. Bank shall have received each of the following in form and
substance satisfactory to Bank and its counsel:
<PAGE>
(i) a duly executed Amended and Restated Revolving Credit
Note of Borrower in the form attached hereto as Exhibit B;
(ii) a certified copy of the Amended and Restated Declaration
of Trust and By-laws of Borrower as in effect on the date hereof or a
certification that there have been no changes to such certificate of
incorporation and bylaws since April 26, 1995;
(iii) a certified copy of resolutions duly adopted by the Board
of Trustees of Borrower authorizing the execution, delivery and performance of
this Agreement, the Amended and Restated Revolving Credit Note and the other
documents to be delivered pursuant hereto;
(iv) An opinion of counsel to Borrower and Guarantor
addressed to Bank in form and substance satisfactory to Bank;
(v) A Certificate from Borrower that the following documents,
copies of which have heretofore been delivered to Bank, have not been amended or
modified and remain in full force and effect and that Green Acres Mall Corp.
("Mall Corp.") has succeeded to the rights and obligations of EQK Green Acres
under such documents: (i) the Indenture between EQK Green Acres Funding Corp.
(the "Issuer"), as agent for EQK Green Acres, and Bankers Trust Company (the
"Trustee") pursuant to which the Issuer's Collateralized Floating Rate Note due
August 19, 1998 (the "Senior Note") in the original face amount of $118,000,000
were issued, (ii) the Consolidated and Restated Mortgage, Security Agreement,
Assignment of Leases and Rents and Fixture Filing made by EQK Green Acres to the
Issuer dated as of August 19, 1993 (the "Mortgage") covering the mall and
shopping center properties known as the Green Acres Mall and the Plaza at Green
Acres, Valley Stream, Nassau County, New York (the "Property"), and (iii) the
Mortgage Note (as defined in the Mortgage) dated August 19, 1993 issued by EQK
Green Acres to the Issuer in the principal amount of $118,000,000;
(vi) Evidence that no consent or approval from the holders of
the Senior Note or the Trustee or the Issuer is required in connection with the
incurring by Borrower of debt hereunder (assuming for purposes of such
calculation that the entire principal amount of the Note is outstanding) and
that the incurring of such debt by Borrower will not violate and is not
prohibited by the terms of the Mortgage; and
(vii) Such additional documents, certificates and information
as Bank may reasonably request.
<PAGE>
b. Bank's loans to Mall Corp. and all other amounts due to Bank
pursuant to an Amended and Restated Loan Agreement between Bank and Mall Corp.
dated as of August 8, 1994, as heretofore amended, shall have been repaid in
full and all obligations of Bank thereunder terminated.
c. No Event of Default shall have occurred and be continuing.
d. Borrower shall have paid to Bank an increase and extension fee
of $34,500.
e. Borrower shall have paid the reasonable fees and expenses of
Bank's counsel incurred in connection with the preparation, negotiation and
execution of this Agreement and any related documents.
4. Other Documents. All references to the Note and the Loan Agreement
in the Note or the Loan Agreement or any other documents delivered to Bank in
connection with any of the foregoing documents, as the case may be, shall be
deemed to refer to the Note and the Loan Agreement, as amended by this
Agreement.
5. No Waiver. This Agreement does not and shall not be deemed to
constitute a waiver by Bank of any default under the Loan Agreement or the Note,
or any event which with the passage of time or the giving of notice or both
would constitute a default under any such instrument, or constitute a waiver of
any of Bank's other rights or remedies.
6. Release. Recognizing and in consideration of Bank's agreement to
enter into this Agreement, Borrower hereby waives and releases Bank and its
officers, attorneys, agents, and employees from any liability, suit, damage,
claim, loss or expense of any kind or nature whatsoever and howsoever arising
that they ever had, could have had or now have against Bank or any of them
arising out of or relating to the Loans or Bank's acts or omissions with respect
thereto. As of the date hereof, Borrower further hereby indemnifies and holds
Bank and its officers, attorneys, agents and employees harmless from any loss,
damage, judgment, liability or expense (including reasonable counsel fees)
suffered by or rendered against Bank or any of them on account of any respective
breach or non-performance of Borrower under the terms of the Note, the Loan
Agreement or any other document delivered pursuant thereto.
7. Ratification. All of the terms, conditions, provisions and covenants
in the Loan Agreement, the Note and all other documents delivered to Bank in
connection with any of the foregoing documents and obligations secured thereby
shall remain unaltered and in full force and effect, except as modified by this
Agreement.
<PAGE>
8. Expenses. Borrower agrees to pay all of Bank's expenses incurred in
connection with the transactions contemplated by this Agreement, including,
without limitation, the reasonable fees and expenses of Bank's counsel.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
10. Successors and Assigns. Each and every one of the terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of Borrower and Bank and their respective successors and assigns.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which when
taken together shall constitute a single agreement.
12. Headings. The headings of any paragraph of this Agreement are for
convenience only and shall not be used to interpret any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BORROWER:
ARBOR PROPERTY TRUST
By:__________________________________________
Title:_______________________________________
BANK:
PNC BANK, NATIONAL ASSOCIATION
By:__________________________________________
Title:_______________________________________
<PAGE>
EXHIBIT B
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$6,900,000 Philadelphia, Pennsylvania
Originally Dated April 26, 1995
Amended and Restated on December , 1995
For value received and intending to be legally bound, ARBOR PROPERTY
TRUST ("Borrower") hereby promises to pay to the order of PNC BANK, NATIONAL
ASSOCIATION ("Bank") on December 31, 1996, (the "Termination Date") the
principal sum of Six Million Nine Hundred Thousand Dollars ($6,900,000), or the
aggregate unpaid principal amount of all Loans made by Bank to Borrower pursuant
to Section 1 of the Loan Agreement (as hereinafter defined) and shown on and
evidenced by the books and records of Bank (after accounting for all
disbursements hereunder and repayments hereon), whichever is less, and to pay
interest from the date hereof on the unpaid principal amount hereof at the rates
and at such times as are specified in the Loan Agreement. All payments of
principal and interest shall be made prior to 1:00 P.M., local time in lawful
money of the United States in immediately available funds at the office of Bank,
Broad and Chestnut Streets, Philadelphia, PA 19110.
This Note evidences indebtedness incurred under, and is entitled to the
benefits of that certain Loan Agreement dated as of April 26, 1995 between
Borrower and Bank, as the same has been and may hereafter be amended from time
to time (the "Loan Agreement"), which, among other things, contains provisions
for acceleration of the maturity hereof and for a higher rate of interest
hereunder upon the happening of an Event of Default. This Note evidences the
outstanding indebtedness under, and is issued in replacement of, that certain
note in the face amount of $3,900,000 dated April 26, 1995 from Borrower to Bank
(the "Prior Note") and is given in substitution for and not as payment of the
Prior Note and is in no way intended to constitute a novation of the Prior Note.
Capitalized terms not otherwise defined herein shall have the meaning given them
in the Loan Agreement.
ARBOR PROPERTY TRUST
By:_________________________________________
Title:______________________________________
<PAGE>
[Letterhead of Arthur Andersen LLP]
EXH. 23.A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arbor Property Trust:
As independent public accountants, we hereby consent to the incorporation of
our report dated March 15, 1996 included in this Form 10-K, into Arbor Property
Trust's previously filed Registration Statement on Form S-3 (File No. 33-53571).
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 15, 1996
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in the Registration
Statement No. 33-53571 on Form S-3 of Arbor Property Trust of our report dated
March 10, 1994 on the consolidated financial statements and schedules of Arbor
Property Trust and Subsidiary as of December 31, 1993 and for the year then
ended, which report appears in this Annual Report on Form 10-K for the year
ended December 31, 1995.
Deloitte & Touche LLP
Atlanta, Georgia
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 9,131
<ALLOWANCES> 129
<INVENTORY> 0
<CURRENT-ASSETS> 14,865
<PP&E> 178,617
<DEPRECIATION> 30,890
<TOTAL-ASSETS> 162,592
<CURRENT-LIABILITIES> 13,273
<BONDS> 124,838
0
0
<COMMON> 117,991
<OTHER-SE> (93,611)
<TOTAL-LIABILITY-AND-EQUITY> 162,592
<SALES> 0
<TOTAL-REVENUES> 22,186
<CGS> 0
<TOTAL-COSTS> 6,091
<OTHER-EXPENSES> 2,419
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,755
<INCOME-PRETAX> 2,921
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,921
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,921
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
