SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to_________
Commission File No. 1-12412
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ARBOR PROPERTY TRUST
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(Exact name of Registrant as specified in its Charter)
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
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(Address of principal executive offices) (Zip code)
(610) 941-9511
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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
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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: 12,297,705 shares as of November
12, 1997.
<PAGE>
ARBOR PROPERTY TRUST
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations for the three and
nine month periods ended September 30, 1997 and September 30, 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1997 and September 30, 1996 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. 12
SIGNATURES 13
EXHIBITS
2
<PAGE>
ARBOR PROPERTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
September 30, 1997 December 31, 1996
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in Green Acres Mall, at cost:
Land $ 30,295 $ 30,295
Buildings and improvements 140,468 140,448
Capitalized lease 7,125 7,125
Personal property 1,237 1,177
- ---------------------------------------------------------------------------------------------------------------
179,125 179,045
Less accumulated depreciation 38,302 35,159
- ---------------------------------------------------------------------------------------------------------------
140,823 143,886
Cash and cash equivalents 1,292
Tenant security deposits & escrowed cash 764 599
Accounts receivable (net of allowances for
doubtful accounts of $912 and $527 respectively) 6,026 8,970
Other assets (net of accumulated amortization of
$5,746 and $4,778 respectively) 2,544 3,902
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $151,449 $157,357
===============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Collateralized floating rate notes
(net of unamortized discount of $21 and $39 respectively) $117,979 $117,961
Distributions payable 2,152 2,149
Obligation under capital lease 7,014 7,017
Note payable to bank 6,900 5,950
Accounts payable and other liabilities 3,103 6,156
Due to affiliates 0 33
- ---------------------------------------------------------------------------------------------------------------
137,148 139,266
- ---------------------------------------------------------------------------------------------------------------
Commitments and Contingencies:
Shareholders' Equity:
Shares of beneficiai interest, without par value:
Authorized: 5,000,000 preferred shares,
45,000,000 common shares, and 50,000,000
excess shares; Issued and outstanding: 12,297,705
and 12,280,739 common shares respectively 118,244 118,121
Distributions in excess of accumulated earnings (103,943) (100,030)
- ---------------------------------------------------------------------------------------------------------------
14,301 18,091
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $151,449 $157,357
===============================================================================================================
</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 data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Three months ended September 30 Nine months ended September 30
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Revenues from rental operations $4,715 $4,892 $14,878 $14,880
Operating expense reimbursements 4,448 3,944 12,067 11,044
Other income, including interest income
of $14 and $1 for the three and $76
and $23 for the nine month periods
ended September 30, 1997 and 1996 459 469 1,505 1,097
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Total Revenues 9,622 9,305 28,450 27,021
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OPERATING EXPENSES:
Real Estate Taxes $2,308 $2,247 $ 6,801 $ 6,518
Utilities 546 532 1,282 1,227
Maintenance and operating expenses
(including fees to affiliates of $98
for the three month, and $285 for the
nine month periods ending
September 30, 1996) 1,563 1,544 4,179 4,883
Provision for doubtful accounts
(including provisions for accrued
straight-line rents of $111 and $271
for the three month and nine month
periods ending September 30, 1997) 948 88 1,267 265
Depreciation and amortization 1,080 1,077 3,226 3,304
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Total Operating Expenses 6,445 5,488 16,755 16,197
============================================================================================================
Income from rental operations 3,177 3,817 11,695 10,824
============================================================================================================
Interest expense
(includes amortization of
refinancing costs) 2,560 2,648 7,704 8,034
Other expenses 479 460 1,451 1,400
- ------------------------------------------------------------------------------------------------------------
Net income $ 138 $ 709 $ 2,540 $ 1,390
============================================================================================================
Net income per weighted average share: $0.01 $0.06 $0.21 $0.11
- ------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 12,295,227 12,176,460 12,289,644 12,170,520
============================================================================================================
</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
1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $2,540 $1,390
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 1,267 265
Depreciation and amortization 3,226 3,304
Amortization of deferred financing costs 884 902
Amortization of collateralized floating rate note discount 18 18
Changes in assets and liabilities:
Increase in accrued rent receivable (61) (301)
Decrease in accounts receivable, tenant
security deposits and escrowed cash and other assets 1,928 1,474
Decrease in accounts payable and
other liabilities and due to affiliates (3,053) (171)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,749 6,881
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to buildings and improvements
and personal property (80) (166)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (80) (166)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid (6,450) (6,388)
Proceeds from dividend reinvestment 123 73
Borrowings under bank line of credit 1,850 160
Repayment of bank line of credit (900) (560)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (5,377) (6,715)
- ----------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 1,292 0
Cash and cash equivalents, beginning of year 0 0
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $1,292 $ 0
================================================================================================================
Supplemental disclosure of cash flow information:
Interest Paid $6,678 $ 6,588
=========== ==========
</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 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 is 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 and Form 10-K/A for the year ended
December 31, 1996.
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, 1997, its condensed consolidated results
of operations for the three and nine month periods ended September 30, 1997 and
1996 and its condensed consolidated cash flows for the nine month periods ended
September 30, 1997 and 1996 have been included in the accompanying unaudited
condensed consolidated financial statements.
6
<PAGE>
Note 2: 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.
Compensation to Compass was reduced on March 1, 1994 from 4% to 2% of net rental
and service income collected from tenants. Effective December 31, 1996, the
agreement with Compass was terminated. For the nine month period ended September
30, 1996, management fees earned by Compass were $285,000. The amount of such
fees for the three months ended September 30, 1996 were $98,000.
Note 3: Distributions
On August 15, 1997, the Trust made a distribution of $.175 per Common
Share (an aggregate of $2,150,000) to its Shareholders. In the third quarter,
distributions totaling approximately $41,000 were reinvested pursuant to the
Company's Dividend Reinvestment Plan and 6,450 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 November 15, 1997 to shareholders of record on
September 30, 1997.
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. The
floating rate notes bear interest at a rate equal to 78 basis points in excess
of the 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 a counter party 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 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 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, 1997 and 1996 were 6.50% and 6.32%
respectively. The weighted average interest rate for the nine month periods
ended September 30, 1997 and 1996 was 6.44% and 6.77% respectively.
The mortgage and indenture agreement relating to the floating rate
notes limit additional indebtedness that may be incurred by GAMLLC. Those
agreements also contain certain other covenants which, among other matters,
effectively subordinate distributions from GAMLLC 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
September 30, 1997.
7
<PAGE>
On August 19, 1993, the Company 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 facility was increased to
$5,900,000 in August 1994, and to $6,900,000 in April 1995. The loan has an
optional LIBOR plus 2.5% option and a maturity date of August 18, 1998, subject
to the lender's right to call the loan on 60 days notice commencing December 18,
1997. An additional $600,000 of funding availability was provided for capital
expenditures. The facility 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).
Note 5: Impact of Pronouncements Not Yet Adopted by the Company
During the first quarter of 1997, the FASB issued Statement of
Financial Accounting Standard (SFAS) No. 128 "Earnings per Share." This Standard
establishes new accounting and disclosure for earnings per share (EPS). The
Standard will be effective for the year ending December 31, 1997 with earlier
application not permitted. The EPS as currently reported is the same as Basic
EPS required by the Standard. The Company's diluted EPS pursuant to the new
Standard is not expected to be materially different from Basic EPS.
Note 6: Merger Transaction with Vornado Realty Trust
On August 22, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Vornado Realty Trust ("Vornado") and Trees
Acquisition Subsidiary, Inc., a wholly-owned subsidiary of Vornado ("Merger
Sub"), pursuant to which the Company is to be merged with and into Merger Sub.
Pursuant to the Merger Agreement, holders of common shares of beneficial
interest of the Company are to receive for each common share either 0.243810
common shares of beneficial interest of Vornado (reflecting a recent share split
of Vornado's common shares) or, at their election, 0.153846 shares of Series A
Convertible Preferred Shares of Vornado. The merger, which is subject to the
approval of the holders of common shares of the Company, and certain other
conditions, is expected to be completed in December 1997, although there is no
assurance that the merger will be completed.
8
<PAGE>
ARBOR PROPERTY TRUST
MANAGEMENT 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 nine month periods ended
September 30, 1997 and 1996 were $6,749,000 and $6,881,000, respectively. Net
income increased $1,150,000, from $1,390,000 to $2,540,000. Cash flows provided
by operating activities were in-line with the prior period. The increased
operating cash flow as a result of the increase in net income in the nine months
ended September 30, 1997 was utilized to reduce the level of payables and other
liabilities during the period.
Investing Activities (i.e. capital expenditures) for the periods were
modest, $80,000 in 1997 compared to $166,000 for the comparable prior year
period.
Cash flows devoted to financing activities were $5,377,000 for the 1997
period and $6,715,000 for the 1996 period. Dividend distributions paid by the
Company increased by $62,000, as a result of increased outstanding shares due to
reinvested distributions by Shareholders ($123,000 this year versus $73,000 in
1996). During the first nine months of 1997, the Company increased its net
borrowings by $950,000, compared to a $400,000 net reduction of such borrowings
for the same period in 1996.
RESULTS OF OPERATIONS
Comparison of the Nine Month and Three Month periods ended September 30, 1997
and 1996
For the nine month period ended September 30, 1997, the Company
reported net income of $2,540,000 or $.21 per weighted average Common Share,
compared with a net income of $1,390,000 or $.11 per weighted average Common
Share for the comparable period in 1996. For the three month period ended
September 30, 1997, the Company reported net income of $138,000 or $.01 per
weighted average share, compared to net income of $709,000 or $.06 per weighted
average share, for the third quarter of 1996.
Income from rental operations for the three and nine month periods
ended September 30, 1997 were $3,177,000 and $11,695,000, a decrease of $640,000
for the three month period, notwithstanding an increase of $871,000 for the nine
month period.
9
<PAGE>
The $1,150,000 increase in net income for the nine month period ended
September 30, 1997 is the result of a $1,429,000 increase in revenues net of a
$558,000 increase in operating expenses and a $330,000 decrease in interest
expense during the period. The increase in revenues is primarily the result of a
$580,000 adjustment in 1996 to reduce utility reimbursement revenue and the
reduction of certain reserves established in prior years. The increase in
operating expenses resulted from a $1,000,000 increase in the provision for
doubtful accounts to account for certain tenant exposures and a $283,000
increase in real estate tax expense, net of a reduction in maintenance and
operating expenses primarily the result of a reduction in management fees to
affiliates due to the termination of the management agreement. Interest expense
decreased as a result of the decrease in the interest rate on the floating rate
notes during the period.
Net income for the three month period ended September 30, 1997
decreased by $571,000 from the prior period primarily as a result of $860,000
increase in the provision for doubtful accounts offset by an increase in revenue
of approximately $300,000. The increase in revenue resulted from increased
operating expense reimbursements net of a $177,000 decrease in rent revenue
which declined as a result of a change in estimate of percentage rent for 1997.
Funds from Operations
The National Association of Real Investment Trusts defines "Funds from
Operations" as net income before depreciation, amortization, gains or losses on
sales of assets and significant non-recurring charges, and that definition is
used by the Company. The Company considers Funds from Operations a supplemental
measure of operating performance and along with net cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. 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 operating
income as an indicator of the Company's operating performance or to cash flows
from operating activities as a measure of liquidity. Funds from Operations, as
presented herein, may not be comparable to similarly titled measures utilized by
other REITs.
The following table sets forth the Company's Funds from Operations and
net cash provided by operating activities, net cash used in investing activities
and net cash used in financing activities for the nine month periods indicated:
Nine Month period
ended September 30,
----------------------------------
1997 1996
----------- -----------
Net Income $ 2,540,000 $ 1,390,000
Depreciation and Amortization 3,226,000 3,304,000
----------- -----------
Funds from Operations $ 5,766,000 $ 4,694,000
=========== ===========
Net Cash Provided by Operating Activities $ 6,749,000 $ 6,881,000
=========== ===========
Net Cash Used in Investing Activities $ (80,000) $ (166,000)
=========== ===========
Net Cash Used in Financing Activities $(5,377,000) $(6,715,000)
=========== ===========
10
<PAGE>
Because the change in Funds from Operations is primarily attributable
to the change in Net Income, see the above discussion of the comparison of
Results of Operations for the nine month and three month periods ended September
30, 1997 and 1996 for the reasons for the change.
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
dividends, 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 is fully borrowed to meet peak needs.
11
<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:
A Report on Form 8-K dated August 22, 1997
was filed regarding the execution of the
Agreement and Plan of Merger among the
Company, Vornado Realty Trust ("Vornado")
and Trees Acquisition Subsidiary, Inc., a
wholly-owned subsidiary of Vornado
("Trees"), pursuant to which the Company
will merge with and into Trees upon the
receipt of shareholder approval and the
satisfaction of other conditions.
12
<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 21, 1997
ARBOR PROPERTY TRUST
By: /s/ Myles H. Tanenbaum
-------------------------------------------
Myles H. Tanenbaum
President and Treasurer
(Principal Executive and Financial Officer)
13
