SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to_________
Commission File No. 1-12412
---------------------------
ARBOR PROPERTY TRUST
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(Exact name of Registrant as specified in its Charter)
Delaware 23-2740383
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 800, One Tower Bridge, W. Conshohocken, PA 19428
--------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(610) 941-2933
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(Registrant's telephone number, including area code)
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(Former name of registrant if changed since last report)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
------
APPLICABLE TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING
FIVE YEARS:
Indicate by checkmark whether the Registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes _______ No _______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: 12,275,365 shares as of November
10, 1996.
<PAGE>
ARBOR PROPERTY TRUST
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1996
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three and
nine month periods ended September 30, 1996 and September 30, 1995 4
Condensed Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 1996 and September 30, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
PART II - OTHER INFORMATION
Items 1 through 6. 11
SIGNATURES 12
EXHIBITS 13
2
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
Investment in property, at cost:
Land $ 30,295 $ 30,295
Buildings and improvements 140,078 140,022
Capitalized lease 7,125 7,125
Personal property 1,285 1,175
----- -----
178,783 178,617
Less accumulated depreciation 34,109 30,890
------ ------
144,674 147,727
Tenant security deposits 766 625
Cash and short-term investments -- --
Accounts receivable (net of allowance for doubtful
accounts of $200 and $129, respectively) 7,910 9,131
Other assets, net 4,527 5,109
----- -------
TOTAL ASSETS $157,877 $162,592
======== ========
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
<S> <C> <C>
Collateralized floating rate notes (net
of unamortized discounts of $44 and $62, respectively) $ 117,956 $117,938
Distributions payable 2,147 2,129
Obligation under capitalized lease 7,013 7,001
Note payable to bank 6,500 6,900
Accounts payable and other liabilities 4,073 4,244
--------- --------
137,689 138,212
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: 12,275,365 and 12,164,218
common shares, respectively 118,814 117,991
Distributions in excess of accumulated
earnings (98,626) (93,611)
-------- --------
20,188 24,380
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 157,877 $162,592
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from rental operations $5,270 $5,603 $15,402 $16,550
Operating expenses, net of tenant reimbursements
(including fees to affiliate of $90 and $106
for the three months, and $277 and $294 for the
nine months, ending September 30, 1996 and 1995,
respectively) 288 416 1,032 1,240
Provisions for doubtful accounts 88 59 265 69
Depreciation and amortization 1,077 1,102 3,304 3,278
---------- ---------- ---------- ----------
Income from rental operations 3,817 4,026 10,801 11,963
Interest expense (includes amortization) 2,648 2,741 8,034 8,063
Other expenses, net of interest income 460 543 1,377 1,918
---------- ---------- ---------- ----------
Net income $709 $742 $1,390 $1,982
========== ========== ========== ==========
Income per weighted average share:
Net income $.06 $.06 $.11 $.16
========== ========== ========== ==========
Weighted average number
of shares outstanding 12,176,460 12,156,942 12,170,520 12,135,977
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $1,390 $1,982
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 265 69
Depreciation and amortization 3,304 3,278
Amortization of deferred financing costs 902 932
Amortization of floating rate notes discount 18 18
Changes in assets and liabilities:
Increase in accrued rent receivable (301) (704)
Decrease in accounts receivable, other assets,
tenant security deposits and escrowed cash 1,474 31
(Decrease) Increase in accounts payable
and other liabilities (171) 644
---- ------
Net cash provided by operating activities 6,881 6,250
----- ------
Cash flows from investing activities:
Additions to buildings and improvements
and personal property (166) (690)
Construction expenditures -- (46)
----- ------
Net cash used in investing activities (166) (736)
----- ------
Cash flows from financing activities:
Distributions paid (6,388) (7,572)
Proceeds from dividend reinvestment 73 708
Borrowing (repayments) under bank line of credit, net (400) 1,350
------- -------
Net cash used in financing activities (6,715) (5,514)
------- -------
Decrease in cash and
short-term investments 0 0
Cash and short-term investments,
beginning of period 0 0
------- -------
Cash and short-term investments,
end of period 0 0
======= =======
Supplemental disclosure of cash flow information:
Interest paid $6,588 $6,465
======= =======
</TABLE>
- ---------------
See Note 5 for disclosure of non-cash investing
and financing activities
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
ARBOR PROPERTY TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND MERGER TRANSACTION
Arbor Property Trust (the "Trust"), formed 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 (the "Merger"). Prior to
February 28, 1994, the Trust did not have significant
operations. On April 17, 1996, the Trust formed APT, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Trust
("APTI"). In addition, on April 17, 1996, APTI and the Trust
formed Arbor Property, L.P. ("APLP"), a Delaware limited
partnership of which APTI is the general partner and the Trust
is the limited partner, and APTI and APLP in turn formed Green
Acres Mall L.L.C. ("GAMLLC"), a Delaware limited liability
company of which APTI and APLP are the only members. On April
30, 1996, the Trust caused the merger of Green Acres Mall Corp.
with and into GAMLLC, which was the surviving entity of such
merger. The Trust and the Partnership are interchangeably
referred to herein as the "Company".
The condensed consolidated financial statements have been
prepared by the Company, without audit, pursuant to the rules
and regulations of the United States Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate
to make the information presented not misleading. The condensed
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and related
notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
The condensed consolidated financial statements include the
accounts of the Trust and GAMLLC, which is indirectly wholly
owned by the Company, and all other subsidiary entities of the
Company. All significant intercompany transactions and balances
have been eliminated.
In the opinion of the Company all adjustments, which include
only normal recurring adjustments necessary to present fairly
its consolidated financial position as of September 30, 1996,
its results of condensed consolidated operations for the three
and nine month periods ended September 30, 1996 and 1995 and its
condensed consolidated cash flows for the nine month periods
ended September 30, 1996 and 1995, have been included in the
accompanying unaudited condensed consolidated financial
statements.
NOTE 2. ADVISORY AND MANAGEMENT AGREEMENTS
The Company had entered into a property management agreement
with Compass Retail, Inc. ("Compass"), a subsidiary of Equitable
Real Estate, effective January 1, 1991. Pursuant to this
agreement, property management fees were based on 4% of net
rental and service income collected from tenants. In connection
with the Merger discussed in Note 1, the agreement with Compass
was amended and restated to extend its termination date by two
years to August 31, 1998, and to limit Compass' scope of
responsibilities primarily to accounting and financial services
currently provided in connection with the operations of the
Property. Compass' compensation was reduced on March
6
<PAGE>
1, 1994 from 4% to 2% of net rental and service income collected
from tenants. For the nine month periods ended September 30,
1996 and 1995, management fees earned by Compass were $277,000
and $294,000, respectively. The amount of such fees for the
three month periods ended September 30, 1996 and 1995 were
$90,000 and $106,000, respectively.
NOTE 3. DISTRIBUTIONS
On August 15, 1996, the Trust made a distribution of $.175 per
Common Share (an aggregate of $2,130,000) to its Shareholders.
In addition, a distribution in the amount of $.175 per Common
Share was declared for payment on November 15, 1996 to
Shareholders of record on September 30, 1996, and subsequently a
distribution in the amount of $.175 per Common Share was
declared for payment on February 15, 1996 to Shareholders of
record on December 31, 1996.
NOTE 4. DEBT REFINANCING
The Company's $118 million face amount of floating rate notes
are due August 19, 1998, and are collateralized by a first
mortgage on substantially all of Green Acres Mall and by a first
leasehold mortgage on the Plaza. The floating rate notes bear
interest at a rate equal to 78 basis points in excess of
three-month LIBOR (London Interbank Offered Rate), payable on a
quarterly basis from November 12, 1993 to maturity. The interest
rate is subject to reset two days in advance of such interest
payment dates. In connection with the refinancing of the
mortgages in August 1993, the Company acquired an interest rate
cap whereby the counterparty agreed to be responsible for any
interest payable in excess of 9% per annum, thereby limiting the
Company's maximum effective annual rate to 9% per annum through
maturity. In May 1995, to further reduce the risk of rate
increases the Company entered into a swap transaction with
Goldman Sachs Capital Market, L.P. fixing the interest rate for
the period of August 12, 1995 through August 12, 1996 at 6.87%.
The Company would nevertheless be exposed to higher rates in the
unlikely event of non-performance by the counter-parties to the
interest rate cap and swap. The interest rates at September 30,
1996 and December 31, 1995 were 6.32% and 6.87% respectively.
The weighted average interest rates for the nine month periods
ended September 30, 1996 and 1995 were 6.77% and 6.86%,
respectively.
On August 19, 1993, the Company also obtained an unsecured
revolving credit facility in the amount of $3,400,000 with
interest of 1% over the lender's prime rate. The amount
available under this loan was increased to $5,900,000 in August
1994 and to $6,900,000 in April 1995. The loan has an optional
LIBOR plus 250 basis point rate option and a maturity of
December 31, 1996. On September 30, 1996 and December 31, 1995,
the interest rates for this facility were 8.00% and 8.375%,
respectively.
NOTE 5. SALE OF SHARES
On September 27, 1996, the Company sold 100,000 Common Shares at
$7.25 per Share to Ms. Kimli Cross Smith, the Company's
Executive Vice President and Chief Operating Officer, pursuant
to a resolution adopted by the Company's Board of Trustees on
July 18, 1996. The NYSE closing price for the Company's Shares
on both July 17 and 18, 1996 was $7.125 per share. In
consideration for the sale of the Shares to her, Ms. Smith
delivered her unconditional note in the amount of $725,000,
bearing interest at 8% per annum, payable quarterly, and secured
by a pledge of the Shares. The principal of the note is payable
on the earlier of April 1, 1999 or (a) on the date of the sale
or merger of the Company, (b) the termination of Ms. Smith's
employment with the Company or (c) the sale of any Shares, a
payment of $7.25 for each Share sold.
NOTE 6. RESTATEMENT OF JUNE 30, 1996 FINANCIAL STATEMENTS
In May 1996, management billed to tenants certain reimbursable
expenses for 1995 and 1994. Management has discovered that the
effects of these billings were not properly reflected in the
June 30, 1996 financial statements. The Company will amend its
filing for the period ended June 30, 1996 to reflect a $850,000
negative adjustment to net income for the quarter and six months
ended June 30, 1996, of which $480,000 relates to the years 1992
through 1995 and the balance ($370,000) relates to 1996.
7
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Recent Developments
Because the events noted below spanned the close of the second calendar quarter
and the start of the third quarter, it is appropriate to reiterate these events.
On June 14, 1996, the Company executed a letter of intent with DeBartolo Realty
Partnership, L.P. ("DRP") pursuant to which DRP (or an affiliate thereof) was to
acquire an interest in a partnership (the "Partnership") formed to indirectly
own the Company's sole real estate asset, the Green Acres Mall complex (the
"Mall") in Valley Stream, Long Island, New York. DRP was to contribute to the
Partnership cash in the amount of $10 million over an 18-month period. As a
result of DRP's $10 million investment, it would hold approximately a 10%
interest in the Partnership. The Company would be the managing general partner
of the Partnership and continue to manage the business affairs of the
Partnership subject to certain consent rights of DRP and DRP would assume
management, leasing and development responsibility for the Mall. The letter of
intent contemplated certain first offer and similar rights with respect to the
sale of the Mall or interests therein.
On July 18, 1996, the Company terminated negotiations with DRP regarding the
transaction contemplated by such letter of intent, because the repeal of the New
York State Realty Gains Tax a few days earlier had eliminated the basis of the
proposed transaction. The Board of Directors of the Company, however, authorized
management to continue to pursue means of enhancing the profitability of the
Company and to implement a merger or sale strategy as soon as the currently
unsettled retail environment in the United States became normalized.
Cash Flows from Operating, Investing, and Financing Activities
Cash flows from operating activities for the nine month periods ended September
30, 1996 and 1995 were $6,881,000 and $6,250,000, respectively. However, the
increase between the two nine month periods is primarily a result of reductions
in accounts receivable and accrued revenues (net of charge-offs), less cash
applied to reduction of accounts payable. On the operational side, the third
period comparison was also positively affected by the decrease in the amount of
rental income attributable to the recent accounting practice of averaging rents
under long term leases.
Cash flows from investing activities improved by $570,000 for the nine month
period ended September 30, 1996 compared to the same period in 1995 by reason of
decreased capital expenditures.
Cash flows used in financing activities were $6,715,000 and $5,514,000 for the
nine month periods ended September 30, 1996 and 1995, respectively.
Distributions paid by the Company in 1996 decreased by $1,184,000 as a result of
a $.10 reduction in the quarterly dividend rate to $.175 per Common Share
effective with the dividend paid May 15, 1995. For the period May 1994 through
February 1995, dividends on the Common Shares issued to compensate for
termination of the Advisory Agreement and the Special General Partner's residual
interest in the Company's predecessor were obligated to be reinvested in newly
issued Common Shares of the Company via the dividend reinvestment plan. After
February 1995, no shareholders were obligated to participate in the dividend
reinvestment program and that resulted in a decrease in proceeds from dividend
reinvestment of $635,000. During the first half of 1996 the Company repaid to
the bank a net of $400,000 under the line of credit facility in comparison to
the $1,350,000 increase in borrowing in the prior year.
8
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the Nine Month and Three Month Periods Ended September 30, 1996
and 1995
For the nine month period ended September 30, 1996, the Company reported net
income of $1,390,000 or $.11 per weighted average Common Share, compared with a
net income of $1,982,000 or $.16 per weighted average Common Share for the
comparable period in 1995. For the three months ended September 30, 1996, net
income was $709,000 or $.06 per weighted average Common Share, compared to net
income of $742,000 or $.06 per weighted average Common Share, for the third
quarter of 1995.
For the nine and three month periods ended September 30, 1996, revenues from
rental operations were $15,402,000, or 7%, and $5,270,000, or 6%, lower than the
comparable periods in 1995. These decreases are attributable to the reduction in
income resulting from the averaging of rents and, importantly, to changes in
accruals with regard to utility revenue. For the second quarter ended June 30,
1996 (included in the nine months), revenues from rental operations attributable
to utility revenue were retroactively adjusted downward by $850,000, of which
$480,000 related to years prior to 1996 and the balance related to 1996. (See
Note 6 to the accompanying Condensed Consolidated Financial Statements.)
Net operating expenses decreased $208,000 and $128,000 for the nine and three
month periods ended September 30, 1996, respectively, as compared to the same
periods in 1995. These decreases are a result of increases in tenant
reimbursements due to a more stabilized occupancy in 1996 as compared to 1995.
Commencing in late 1995 and into January 1996, the Company had extensive
negotiations with the labor union which represented the maintenance and security
staffs at the mall. In an effort to remain competitive with the surrounding
shopping centers on Long Island, the Company was negotiating for a lower labor
cost. The Company and the union were unable to come to an agreement. The Company
then contracted with outside agencies to perform these functions at a
substantial savings. Based upon the existing contract rates, the lower labor
costs are projected to save the tenants $1.02 per square foot in common area
maintenance on an annual basis.
Other expenses decreased $541,000 and $83,000 for the nine and three month
periods, respectively, compared with the prior year. For the most part, this
resulted from a decrease in headquarters staff during the first half of 1995.
Liquidity and Capital Resources
Management believes that Funds from Operations is the most significant
measurement of real estate performance and that it provides an important
indicator of the Company's ability to make cash distributions. The Company
defines "Funds from Operations" as net income before prior year adjustments,
extraordinary events, and depreciation and amortization (including amortization
of financing costs because the sale/merger plan will avoid a costly refinancing
rather than the more modest cost of a short-term bridge financing). Funds from
Operations, however, is not a substitute for net income or cash flows from
operating activities determined in accordance with generally accepted accounting
principles, and it is not necessarily indicative of cash available to fund all
cash needs.
The following table sets forth Funds from Operations and cash provided by
operating activities of the Company for the nine month periods indicated:
Cash Provided
Funds From By Operating
Operations Activities
---------- -------------
Period ended September 30, 1996 $6,074,000 $6,881,000
Period ended September 30, 1995 $6,070,000 $6,250,000
9
<PAGE>
The Company's cash position fluctuates considerably during the course of the
year, particularly as a consequence of the periodic expenditures for quarterly
real estate taxes, quarterly interest payments and quarterly dividend
distributions, all of which occur during the months of February, May, August and
November. To accommodate peak cash requirements, the Company has a $6,900,000
revolving credit facility which will have been fully borrowed by mid-November.
10
<PAGE>
ARBOR PROPERTY TRUST
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 19, 1996 ARBOR PROPERTY TRUST
By: --------------------------
Myles H. Tanenbaum
President
(Principal Executive and
Financial Officer)
By: --------------------------
Dennis J. Harkins
Treasurer and Controller
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 7,910
<ALLOWANCES> 200
<INVENTORY> 0
<CURRENT-ASSETS> 13,203
<PP&E> 178,783
<DEPRECIATION> 34,109
<TOTAL-ASSETS> 157,877
<CURRENT-LIABILITIES> 19,733
<BONDS> 117,956
118,814
0
<COMMON> 0
<OTHER-SE> (98,626)
<TOTAL-LIABILITY-AND-EQUITY> 157,877
<SALES> 0
<TOTAL-REVENUES> 15,402
<CGS> 0
<TOTAL-COSTS> 4,601
<OTHER-EXPENSES> 1,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,034
<INCOME-PRETAX> 1,390
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,390
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
