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 March 31, 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)
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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: 12,168,691 shares as of May 10,
1996.
<PAGE>
ARBOR PROPERTY TRUST
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED March 31, 1996
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1996
and March 31, 1995. 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and March 31, 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
EXHIBITS 13
2
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Investment in property, at cost:
Land $ 30,295 $ 30,295
Buildings and improvements 140,041 140,022
Capitalized lease 7,125 7,125
Personal property 1,170 1,175
----------- ---------
178,631 178,617
Less accumulated depreciation 31,960 30,890
---------- --------
146,671 147,727
Tenant security deposits and escrow cash 684 625
Cash and short-term investments -- --
Accounts receivable (net of allowance for doubtful
accounts of $249 and $129, respectively) 9,340 9,131
Other assets, net 4,308 5,109
---------- ---------
TOTAL ASSETS $161,003 $162,592
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Collateralized floating rate notes (net
of unamortized discounts of $56 and $62, respectively) $117,944 $117,938
Distributions payable 2,129 2,129
Obligation under capitalized lease 7,005 7,001
Note payable to bank 6,350 6,900
Accounts payable and other liabilities 4,499 4,244
----------- -----------
137,927 138,212
---------- ---------
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 (94,950) (93,611)
---------- ----------
23,076 24,380
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $161,003 $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
March 31,
1996 1995
---- ----
<S> <C> <C>
Revenues from rental operations $5,391 $5,220
Operating expenses, net of tenant
reimbursements (including fees to affiliate of
$87 and $92 for the three months ending
March 31, 1996 and 1995, respectively) 246 357
Provision for doubtful accounts 120 7
Depreciation and amortization 1,105 1,084
------- -------
Income from rental operations 3,920 3,772
Interest expense (includes amortization) 2,651 2,725
Other expenses, net of interest income 444 744
-------- --------
Net income $825 $303
==== ====
Income per weighted average share:
Net income $.07 $.03
==== ====
Weighted average number
of shares outstanding 12,166,430 12,104,846
========== ==========
</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>
Three months ended
March 31,
1996 1995
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 825 $ 303
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 120 7
Depreciation and amortization 1,105 1,084
Amortization of deferred financing costs 304 304
Amortization of floating rate notes discount 6 6
Changes in assets and liabilities:
Increase in accrued rent receivable (116) (229)
Decrease in accounts receivable
and other assets 163 163
Increase in accounts payable
and other liabilities 255 (14)
------- -------
Net cash provided by operating activities 2,662 1,624
------- -------
Cash flows from investing activities:
Additions to buildings and improvements
and personal property (14) (391)
Construction expenditures -- (42)
------- -------
Net cash provided by (used in) investing activities (14) (433)
------- -------
Cash flows from financing activities:
Distributions paid (2,129) (3,321)
Proceeds from dividend reinvestment 31 530
Borrowings (repayments) under bank line of credit, net (550) 1,600
------- -------
Net cash used in financing activities (2,648) (1,191)
------- -------
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 $ 2,205 $ 2,092
======= =======
</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. 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 its wholly-owned subsidiary, Green
Acres Mall Corp. 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 March 31, 1996, its
results of condensed consolidated operations for the three month
periods ended March 31, 1996 and 1995 and its condensed
consolidated cash flows for the three month periods ended March
31, 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 1, 1994
from 4% to 2% of net rental and service income collected from
tenants. For the three month periods ended March 31, 1996 and
1995, management fees earned by Compass were $87,000 and
$92,000, respectively.
NOTE 3. DISTRIBUTIONS
On February 15, 1996, the Trust made a distribution of $.175 per
Common Share (an aggregate of $2,129,000) to its Shareholders.
In the first quarter, distributions totaling $31,000 were
reinvested pursuant to the Company's Dividend Reinvestment Plan
and 4,473 Common Shares were issued under this Plan. In
addition, a distribution in the amount of $.175 per Common Share
has been declared for payment on May 15, 1996 to the
shareholders of record on March 31, 1996.
6
<PAGE>
ARBOR PROPERTY TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. 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 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 rate at December 31, 1995 and December 31,
1994 were 6.87% and 6.59%, respectively. The weighted average
interest rate for the three month periods ended March 31, 1996
and 1995 was 6.86% and 6.82%, 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. At March 31, 1996 and December 31,1995, the
interest rates for this facility were 7.87% and 8.12%,
respectively. For the three months ended March 31, 1996 and 1995
the weighted average interest rates under this facility were
8.25% and 9.83% , respectively. Subsequent to March 31, 1996 the
Company paid down $2,050,000 under this facility.
7
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Cash Flows from Operating, Investing, and Financing Activities
Cash flows from operating activities for the three month periods ended March
31, 1996 and 1995 were $2,662,000 and $1,624,000, respectively. This increase
is primarily a result of: (a) a one time severance expense was accrued in the
first quarter of 1995, (b) an increase in revenue from rental operations of
$148,000 as a result of the remerchandising program which the Mall commenced in
1992, (c) a decrease in net operating expenses as a result of higher
reimbursements from tenants due to the higher occupancy and (d) an increase of
accounts payable and other liabilities.
Investing activities consumed $419,000 less cash resources for the three month
period ended March 31, 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 $2,648,000 and $1,191,000 for the
three month periods ended March 31, 1996 and 1995, respectively. Distributions
paid by the Company in 1996 decreased by $1,192,000 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
$499,000. 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 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.
Bank borrowing under the line of credit facility during the first quarter of
1996 decreased $550,000 , 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 Three Month Periods Ended March 30, 1996 and 1995
For the three month period ended March 31, 1996, the Company reported net income
of $825,000 or $.07 per weighted average Common Share, compared with a net
income of $303,000 or $.03 per weighted average Common Share for the comparable
period in 1995.
For the three month period ended March 31, 1996, revenues from rental operations
were $171,000, or 3%, higher than the comparable period in 1995. This increase
is a result of lease rollovers in 1995 which increased base rents in 1996.
Net operating expenses decreased $111,000 for the three month period ended March
31, 1996, as compared to the same period in 1995. This decrease can be
attributed to a reduction in non-reimbursable expenses and an increase in tenant
reimbursements as a result of the increase in occupancy. 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 $300,000 primarily as a result of severance expense
related to a reduction 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 first quarter
of 1996, the amortization of financing costs incurred in 1993 in excess of
estimated refinancing costs ($125,000), amounted to $185,000.
9
<PAGE>
ARBOR PROPERTY TRUST
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 three month periods indicated:
Cash Provided
Funds From By Operating
Operations Activities
---------- --------------
Period ended March 31, 1996 2,115,000 2,662,000
Period ended March 31, 1995 1,572,000 1,624,000
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, lead 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
more than adequate 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 $6.9
million revolving credit facility with $2,600,000 available to be borrowed as of
May 10, 1996.
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: May 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>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 9,340
<ALLOWANCES> 249
<INVENTORY> 0
<CURRENT-ASSETS> 4,992
<PP&E> 178,631
<DEPRECIATION> 31,960
<TOTAL-ASSETS> 161,003
<CURRENT-LIABILITIES> 19,983
<BONDS> 117,944
0
0
<COMMON> 118,026
<OTHER-SE> 94,950
<TOTAL-LIABILITY-AND-EQUITY> 161,003
<SALES> 5,391
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,471
<OTHER-EXPENSES> 444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,651
<INCOME-PRETAX> 825
<INCOME-TAX> 0
<INCOME-CONTINUING> 825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
