<PAGE>
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 June 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
(Exact name of Registrant as specified in its Charter)
Delaware 23-2740383
(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
(Registrant's telephone number, including area code)
(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:
<PAGE>
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: 12,168,691 shares as of August
12, 1996.
<PAGE>
<PAGE>
ARBOR PROPERTY TRUST
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1996
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three and
six month periods ended June 30, 1996 and June 30, 1995 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and June 30, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II - OTHER INFORMATION
Items 1 through 6. 11
SIGNATURES 12
2
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ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<PAGE>
<S> <C> <C>
ASSETS
Investment in property, at cost:
Land $ 30,295 $ 30,295
Buildings and improvements 140,162 140,022
Capitalized lease 7,125 7,125
Personal property 1,175 1,175
-------- --------
178,757 178,617
Less accumulated depreciation 33,021 30,890
-------- --------
145,736 147,727
Tenant security deposits 640 625
Cash and short-term investments - -
Accounts receivable (net of allowance for doubtful
accounts of $310 and $539, respectively) 8,545 9,131
Other assets, net 3,988 5,109
-------- --------
TOTAL ASSETS $158,909 $162,592
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Collateralized floating rate notes (net
of unamortized discounts of $50 and $62, respectively) $117,950 $117,938
Distributions payable 2,130 2,129
Obligation under capitalized lease 7,008 7,001
Note payable to bank 6,390 6,900
Accounts payable and other liabilities 3,760 4,244
-------- --------
137,238 138,212
-------- --------
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: 12,168,691 and 12,164,218
common shares, respectively 118,026 117,991
Distributions in excess of accumulated
earnings (96,355) (93,611)
-------- --------
21,671 24,380
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $158,909 $162,592
======== ========
</TABLE>
- ---------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
3
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ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from rental operations $5,591 $5,727 $10,982 $10,947
Operating expenses, net of tenant reimbursements (including fees to affiliate of
$100 and $95 for the three months, and $187 and $188 for the six months,
ending June 30, 1996 and 1995,
respectively) 498 466 744 824
Provisions for doubtful accounts 57 3 177 10
Depreciation and amortization 1,122 1,092 2,227 2,176
----- ----- ------ -------
Income from rental operations 3,914 4,166 7,834 7,937
Interest expense (includes amortization) 2,735 2,597 5,386 5,322
Other expenses, net of interest income 473 631 917 1,375
---- ----- ------ -----
Net income $706 $938 $1,531 $1,240
==== ==== ====== ======
Income per weighted average share:
Net income $.06 $.08 $.13 $.10
==== ==== ==== ====
Weighted average number
of shares outstanding 12,168,691 12,145,570 12,167,560 12,125,320
========== ========== ========== ==========
</TABLE>
- ---------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $1,531 $1,240
Adjustments to reconcile net income to net ------ ------
cash provided by operating activities:
Provision for doubtful accounts 177 10
Depreciation and amortization 2,227 2,176
Amortization of deferred financing costs 618 596
Amortization of floating rate notes discount 12 12
Changes in assets and liabilities:
Increase in accrued rent receivable (276) (483)
Decrease in accounts receivable, other assets
and tenant security deposits 1,072 267
Decrease in accounts payable
and other liabilities (484) (13)
------ ------
Net cash provided by operating activities 4,877 3,805
------ ------
Cash flows from investing activities:
Additions to buildings and improvements
and personal property, (140) (591)
Construction expenditures - (45)
------ ------
Net cash used in investing activities (140) (636)
------ ------
Cash flows from financing activities:
Distributions paid (4,258) (5,445)
Proceeds from dividend reinvestment 31 676
Borrowing (repayments) under bank line of credit,net (510) 1,600
------ ------
Net cash used in financing activities (4,737) (3,169)
------ ------
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
====== ======
<PAGE>
Supplemental disclosure of cash flow information:
Interest paid $4,388 $4,301
====== ======
</TABLE>
- ---------------
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 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 (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
<PAGE>
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 June 30, 1996, its results of
condensed consolidated operations for the three and six month periods
ended June 30, 1996 and 1995 and its condensed consolidated cash
flows for the three and six month periods ended June 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 February 28,
1994 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 1, 1994 from 4% to 2% of net rental and service
income collected from tenants. For the six months ended June 30, 1996
and 1995, management fees earned by Compass were $187,000 and
$188,000, respectively. The amount of such fees for the three months
ended June 30, 1996 and 1995 were $100,000 and $95,000, respectively.
6
<PAGE>
NOTE 3. DISTRIBUTIONS
On May 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 share has been declared for
payment on August 15, 1996 to the shareholders of record on June 30,
1996.
NOTE 4. DEBT FINANCING
The Company's 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. In connection with the refinancing of the Company's
outstanding debt obligations in August 1993, the Company acquired an
interest rate cap which provides that the effective interest rate
applicable to the $118,000,000 face value of the notes will not
<PAGE>
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, 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 floating rate notes bear interest at
a rate equal to 78 basis points in excess of the three-month LIBOR,
which is payable on a quarterly basis from November 12, 1993. The
interest rate is subject to reset on such interest payment dates. The
interest rates, with the effect of the interest rate swap, at June
30, 1996 and December 31, 1995 were 6.87% and 6.87%, respectively.
The weighted average interest rates for the six month periods ended
June 30, 1996 and 1995 were 6.87% and 6.87%, 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 June 30, 1996 and December
31, 1995, the interest rates for this facility were 7.96% and 8.375%,
respectively. For the six months ended June 30, 1996 and 1995 the
weighted average interest rates under this facility were 7.88% and
9.91%, respectively. Subsequent to June 30, 1996 the Company paid
down $985,000 under this facility.
7
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Recent Developments
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 was to 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
<PAGE>
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 recent repeal
of the New York State Realty Gains Tax had eliminated the basis of the proposed
transaction. At such time, the Board of Directors of the Company 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 six month periods ended June 30,
1996 and 1995 were $4,877,000 and $3,805,000, respectively. This increase is
primarily a result of: (a) a decrease in headquarter staff instituted in the
first half of 1995, (b) a decrease in accounts receivable and other assets which
was slightly offset by a decrease in accounts payable and other liabilities.
Investing activities consumed $496,000 less cash resources for the six month
period ended June 30, 1996 compared to the same period in 1995. This reduction
is a result of decreased capital expenditures (principally tenant improvement
allowances) in 1996 as compared to the same period in 1995.
Cash flows used in financing activities were $4,737,000 and $3,169,000 for
the six month periods ended June 30, 1996 and 1995, respectively. Distributions
paid by the Company in 1996 decreased by $1,187,000 as a result of the reduction
in the quarterly dividend rate to $.175 per Common Share, effective with the
dividend declared March 31, 1995, from $.275 per Common Share which was
partially offset by a decrease in proceeds from dividend reinvestment of
$645,000. For the period May 1994 through February 1995, the dividends from the
Common Shares which were issued in respect of the Special General Partner's
residual interest in the Company's predecessor partnership and the termination
of the Advisory Agreement were obligated to be reinvested in the Company through
a dividend reinvestment plan in newly issued Common Shares. After February 1995,
no shareholders were obligated to participate in the dividend reinvestment
program. During the first half of 1996 the Company repaid to the bank a net of
$510,000 under the line of credit facility in comparison to the $1,600,000
increase in borrowing for the same period in 1995.
8
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the Six Month and Three Month Periods Ended June 30, 1996 and 1995
For the six month period ended June 30, 1996, the Company reported net income of
<PAGE>
$1,531,000 or $.13 per weighted average Common Share, compared with a net income
of $1,240,000 or $.10 per weighted average Common Share for the comparable
period in 1995. For the three months ended June 30, 1996, net income was
$706,000 or $.06 per weighted average Common Share, compared to net income of
$938,000 or $.08 per weighted average Common Share for the second quarter in
1995.
For the six month period ended June 30, 1996, revenues from rental operations
were $35,000 higher than the comparable period in 1995. For the three month
period ended June 30, 1996, revenues from rental operations were $136,000 or 2%
lower than the same period in 1995. This decrease can be primarily attributed to
a reduction in the rental revenue resulting from the averaging of rents in 1996
as compared to 1995. This decrease is a result of vacancies created by tenant
bankruptcies. This decrease was slightly offset by an increase in base rents in
1996 as compared to the same period in 1995.
Net operating expenses decreased $80,000 and increased $32,000 for the six and
three month periods ended June 30, 1996, respectively, as compared to the same
period in 1995. The decrease for the six month period is a result of an increase
in non-reimbursable expenses offset by a slight increase in tenant
reimbursements as a result of the 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 $458,000 primarily resulting from a decrease in
headquarters staff in the first half of 1995.
Liquidity and Capital Resources
Management believes that Funds from Operations is the most significant factor
measuring real estate performance and that it represents an indicator of the
Company's ability to make cash distributions. The Company defines "Funds from
Operations" as net income before depreciation and the amortization of the excess
of financing costs incurred in 1993 over currently estimated refinancing costs.
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. For the six months
ended June 30, 1996 and 1995, the amortization of financing costs incurred in
1993 in excess of estimated refinancing costs ($250,000) amounted to $370,000.
9
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ARBOR PROPERTY TRUST
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth Funds from Operations and cash provided by
operating activities of the Company for the six month periods indicated:
Cash Provided
Funds From By Operating
Operations Activities
Period ended June 30, 1996 $ 4,128,000 $ 4,877,000
Period ended June 30, 1995 $ 3,786,000 $ 3,805,000
The Company's commitment to an annual dividend rate of $.70 per Common Share,
and the general concern that interest rates could continue to rise, led to the
Company fixing the interest rate on the floating rate notes at an all-in cost of
6.87% for a one year period ending August 12, 1996. With the stabilization of
the interest rate, as well as the anticipated improvement in the operating
performance resulting from the remerchandising program, the Company anticipates
funds from operations to support such dividend distributions.
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 such peak cash requirements, the Company has a
$6,900,000 revolving credit facility with $1,495,000 available to be borrowed as
of August 12, 1996.
10
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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.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) 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: August 14, 1996 ARBOR PROPERTY TRUST
By:_____________________________
Myles H. Tanenbaum
President
(Principal Executive and
Financial Officer)
By:_____________________________
Dennis J. Harkins
Treasurer and Controller
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 8,545
<ALLOWANCES> 310
<INVENTORY> 0
<CURRENT-ASSETS> 13,173
<PP&E> 178,757
<DEPRECIATION> 33,021
<TOTAL-ASSETS> 158,909
<CURRENT-LIABILITIES> 12,280
<BONDS> 118,026
0
0
<COMMON> 117,950
<OTHER-SE> (96,355)
<TOTAL-LIABILITY-AND-EQUITY> 158,909
<SALES> 0
<TOTAL-REVENUES> 10,982
<CGS> 0
<TOTAL-COSTS> 3,148
<OTHER-EXPENSES> 917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,386
<INCOME-PRETAX> 1,531
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,531
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
