SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission file number 001-12482
GLIMCHER REALTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 31-1390518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 SOUTH THIRD STREET 43215
COLUMBUS, OHIO (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (614) 621-9000
Indicate by check mark 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__
As of November 7, 2002, there were 34,302,327 Common Shares of Beneficial
Interest outstanding, par value $0.01 per share.
1 of 27 pages
GLIMCHER REALTY TRUST
FORM 10-Q
INDEX
-----
PART I: FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations for the three months ended September 30, 2002 and 2001 4
Consolidated Statements of Operations for the nine months ended September 30, 2002 and 2001 5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Controls and Procedures 23
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
CERTIFICATIONS 26
2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLIMCHER REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
ASSETS
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
Investment in real estate:
Land................................................................ $ 210,638 $ 216,795
Buildings, improvements and equipment............................... 1,636,607 1,591,624
Developments in progress............................................ 21,570 29,747
------------ -----------
1,868,815 1,838,166
Less accumulated depreciation....................................... 328,180 288,485
------------ -----------
Net property and equipment........................................ 1,540,635 1,549,681
Investment in unconsolidated real estate entities................... 20,661 48,001
------------ -----------
Net investment in real estate..................................... 1,561,296 1,597,682
------------ -----------
Cash and cash equivalents.............................................. 10,630 8,709
Cash in escrow......................................................... 20,969 58,528
Tenant accounts receivable, net........................................ 71,181 65,275
Deferred expenses, net................................................. 27,297 25,589
Prepaid and other assets............................................... 5,666 2,736
------------ -----------
$ 1,697,039 $ 1,758,519
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable................................................. $ 1,014,032 $ 1,083,741
Notes payable.......................................................... 135,200 163,000
Accounts payable and accrued expenses.................................. 68,661 67,329
Distributions payable.................................................. 20,946 18,970
------------ -----------
1,238,839 1,333,040
------------ -----------
Commitments and contingencies
Minority interest in operating partnership............................. 27,682 28,954
------------ -----------
Shareholders' equity:
Series B cumulative preferred shares of beneficial interest, $0.01
par value, 5,118,000 shares issued and outstanding................ 127,950 127,950
Common shares of beneficial interest, $0.01 par value, 34,297,331
and 30,093,231 shares issued and outstanding as of September 30,
2002 and December 31, 2001, respectively.......................... 343 301
Additional paid-in capital........................................... 507,798 441,696
Distributions in excess of accumulated earnings...................... (199,438) (166,956)
Accumulated other comprehensive loss................................. (6,135) (6,466)
------------ -----------
$ 1,697,039 $ 1,758,519
============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
3
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002 2001
---- ----
Revenues:
Minimum rents.......................................................... $ 43,321 $ 41,792
Percentage rents....................................................... 1,342 1,468
Tenant reimbursements.................................................. 21,098 19,178
Other.................................................................. 5,033 5,181
---------- ----------
Total revenues..................................................... 70,794 67,619
---------- ----------
Expenses:
Real estate taxes...................................................... 7,727 7,242
Property operating expenses............................................ 15,581 13,687
---------- ----------
23,308 20,929
Provision for doubtful accounts........................................ 1,056 981
Other operating expenses............................................... 1,634 2,280
Depreciation and amortization.......................................... 15,848 14,542
General and administrative............................................. 2,858 2,268
---------- ----------
Total expenses..................................................... 44,704 41,000
---------- ----------
Operating income................................................... 26,090 26,619
Loss on sales of properties................................................. 1,059
Interest income............................................................. 82 245
Interest expense............................................................ 20,764 21,698
Equity in income of unconsolidated entities................................. 855 954
Minority interest in operating partnership.................................. 431 404
---------- ----------
Income before discontinued operations and extraordinary item................ 5,832 4,657
Discontinued operations:
Gain on sales of properties............................................ 868
Income from operations................................................. 1,513 2,425
---------- ----------
Income before extraordinary item............................................ 8,213 7,082
Extraordinary item: Early extinguishment of debt............................ 554 284
---------- ----------
Net income......................................................... 7,659 6,798
Less: Preferred stock dividends........................................... 2,958 2,958
---------- ----------
Net income available to common shareholders........................ $ 4,701 $ 3,840
========== ==========
EPS before discontinued operations and extraordinary item (basic)........... $ 0.09 $ 0.06
Discontinued operations and extraordinary item.............................. $ 0.05 $ 0.06
EPS (basic)................................................................. $ 0.14 $ 0.13
EPS before discontinued operations and extraordinary item (diluted)......... $ 0.09 $ 0.06
Discontinued operations and extraordinary item.............................. $ 0.05 $ 0.06
EPS (diluted)............................................................... $ 0.14 $ 0.13
Cash distributions declared per common share of beneficial interest......... $ 0.4808 $ 0.4808
========== ==========
Net income.................................................................. $ 7,659 $ 6,798
Other comprehensive loss.................................................... (2,065) (3,996)
---------- ----------
Comprehensive income........................................................ $ 5,594 $ 2,802
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
4
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002 2001
---- ----
Revenues:
Minimum rents........................................................... $ 123,268 $ 120,237
Percentage rents........................................................ 3,887 3,846
Tenant reimbursements................................................... 58,702 54,098
Other................................................................... 15,349 15,164
---------- ----------
Total revenues..................................................... 201,206 193,345
---------- ----------
Expenses:
Real estate taxes....................................................... 21,852 19,816
Property operating expenses............................................. 42,625 38,583
---------- ----------
64,477 58,399
Provision for doubtful accounts......................................... 2,693 2,424
Other operating expenses................................................ 4,693 5,216
Write-off of development cost........................................... 3,208
Depreciation and amortization........................................... 43,765 39,835
General and administrative.............................................. 8,042 8,126
---------- ----------
Total expenses..................................................... 123,670 117,208
---------- ----------
Operating income................................................... 77,536 76,137
Gain on sales of properties................................................. 129
Interest income............................................................. 446 722
Interest expense............................................................ 64,692 61,792
Equity in income of unconsolidated entities................................. 2,095 1,431
Minority interest in operating partnership.................................. 1,307 3,362
---------- ----------
Income before discontinued operations, extraordinary item and cumulative
effect of accounting change............................................ 14,078 13,265
Discontinued operations:
Gain on sales of properties............................................ 3,304
Income from operations................................................. 6,325 7,663
---------- ----------
Income before extraordinary item and cumulative effect of accounting change. 23,707 20,928
Extraordinary item: Early extinguishment of debt............................ 1,419 578
---------- ----------
Income before cumulative effect of accounting change........................ 22,288 20,350
Cumulative effect of accounting change...................................... 116
---------- ----------
Net income......................................................... 22,288 20,234
Less: Preferred stock dividends........................................... 8,875 12,819
Add: Discount on redemption of preferred stock............................ 22,440
---------- ----------
Net income available to common shareholders........................ $ 13,413 $ 29,855
========== ==========
EPS before discontinued operations, extraordinary item and cumulative
effect of accounting change (basic).................................... $ 0.19 $ 0.88
Discontinued operations, extraordinary item and cumulative effect
of accounting change................................................... $ 0.24 $ 0.23
EPS (basic)................................................................. $ 0.42 $ 1.11
EPS before discontinued operations, extraordinary item and cumulative
effect of accounting change (diluted).................................. $ 0.19 $ 0.87
Discontinued operations, extraordinary item and cumulative effect of
accounting change...................................................... $ 0.23 $ 0.23
EPS (diluted)............................................................... $ 0.42 $ 1.10
Cash distributions declared per common share of beneficial interest......... $ 1.4424 $ 1.4424
========== ==========
Net income.................................................................. $ 22,288 $ 20,234
Other comprehensive income (loss)........................................... 331 (8,119)
---------- ----------
Comprehensive income........................................................ $ 22,619 $ 12,115
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
5
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)
2002 2001
---- ----
Cash flows from operating activities:
Net income............................................................. $ 22,288 $ 20,234
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts.................................... 2,712 2,612
Depreciation and amortization...................................... 45,967 43,102
Loan fee amortization.............................................. 4,219 4,330
Extraordinary loss on early extinguishment of debt................. 1,554 578
Cumulative effect of accounting change............................. 116
Equity in income of unconsolidated entities........................ (2,095) (1,431)
Gain on sales of properties........................................ (129)
Capitalized development costs charged to expense................... 519 4,195
Gain on sales of properties from discontinued operations........... (3,304)
Minority interest in operating partnership......................... 1,307 3,362
Net changes in operating assets and liabilities:
Tenant accounts receivable, net.................................... (1,627) (8,735)
Deferred expenses, prepaid and other assets........................ (2,735) (249)
Accounts payable and accrued expenses.............................. (14,063) 11,796
---------- ----------
Net cash provided by operating activities.............................. 54,742 79,781
---------- ----------
Cash flows from investing activities:
Acquisitions and additions to investment in real estate............ (39,325) (30,685)
Investment in unconsolidated entities, net......................... (3,173) (5,029)
Proceeds from sales of properties - operating..................... 29,202
Proceeds from sales of properties - discontinued operations....... 101,607
Withdrawals from (payments to) cash in escrow...................... 39,550 (2,951)
Additions to deferred expenses, prepaid and other assets........... (8,981) (10,210)
---------- ----------
Net cash provided by (used in) investing activities................ 89,678 (19,673)
---------- ----------
Cash flows from financing activities:
(Payments on) proceeds from revolving line of credit, net.............. (27,800) 800
Proceeds from issuance of mortgage and notes payable................... 204,794 177,611
Principal payments on mortgage and notes payable....................... (329,472) (202,547)
Proceeds from the issuance of common shares of beneficial interest,
net of underwriting and other offering costs of $184 and $273
for 2002 and 2001, respectively..................................... 58,269 83,709
Redemption of preferred shares......................................... (67,560)
Net proceeds from other issuance of shares............................. 9,060 2,550
Cash distributions..................................................... (57,350) (56,958)
---------- ----------
Net cash used in financing activities.................................. (142,499) (62,395)
---------- ----------
Net change in cash and cash equivalents..................................... 1,921 (2,287)
Cash and cash equivalents, at beginning of period........................... 8,709 5,414
---------- ----------
Cash and cash equivalents, at end of period................................. $ 10,630 $ 3,127
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
6
GLIMCHER REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Glimcher Realty Trust (the "Company" or "GRT"), Glimcher Properties Limited
Partnership (the "Operating Partnership") (91.7% and 90.4% owned by GRT at
September 30, 2002 and December 31, 2001, respectively), of which Glimcher
Properties Corporation, a Delaware corporation and a wholly owned subsidiary of
GRT, is sole general partner, three Delaware limited partnerships, (Grand
Central Limited Partnership, Glimcher University Mall Limited Partnership and
Montgomery Mall Associates Limited Partnership), 21 Delaware limited liability
companies (Glimcher Northtown Venture, LLC, Weberstown Mall, LLC, Glimcher Lloyd
Center, LLC, Johnson City Venture, LLC, Meadowview Square, LLC, Mount Vernon
Venture, LLC, JG Mezzanine, LLC, Jersey Gardens Center, LLC, Glimcher Westpark
Plaza, LLC, Morningside Plaza, LLC, New Boston Mall, LLC, Shady Springs Plaza,
LLC, Southside Mall, LLC, Glimcher Linden Corners, LLC, Glimcher Ashland
Venture, LLC, Glimcher River Valley Mall, LLC, Hocking Valley Mall, LLC,
Glimcher Supermall Venture, LLC, Dayton Mall Venture, LLC, Glimcher Columbia,
LLC, and Fairfield Village, LLC), one Colorado limited liability company (Olathe
Mall, LLC), and one Ohio limited partnership (Morgantown Mall Associates Limited
Partnership), all of which are owned directly or indirectly and controlled by
GRT. The Operating Partnership has investments in several joint ventures which
are accounted for under the equity method. Inter-entity balances and
transactions have been eliminated in consolidation. Glimcher Development
Corporation ("GDC") provides development, construction, leasing and legal
services to the Company, ventures in which the Company has an ownership interest
and to third parties.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The information furnished in the accompanying consolidated balance sheets,
statements of operations, and statements of cash flows reflect all adjustments
which are, in the opinion of management, recurring and necessary for a fair
statement of the aforementioned financial statements for the interim periods.
Operating results for the nine months ended September 30, 2002, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
The December 31, 2001 balance sheet data were derived from audited
financial statements but do not include all disclosures required by accounting
principles generally accepted in the United States. The consolidated financial
statements should be read in conjunction with the notes to the consolidated
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Form 10-K for the
year ended December 31, 2001.
Supplemental disclosure of non-cash financing and investing activities:
The Company accrued accounts payable of $3,654 and $3,600 for real estate
improvements as of September 30, 2002 and 2001, respectively. Also, during the
first nine months of 2002, the Company sold 17 community centers and three
single tenant assets; seven of the transactions included the buyer assuming
existing mortgage notes payable of $66,780.
New accounting pronouncements
In May 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145 , "Rescission of
FASB Statement, No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Connections ". SFAS No. 145 rescinds SFAS No. 4 and thus the exception
to applying Opinion 30 to all gains and losses related to extinguishments of
debt (other than extinguishments of debt to satisfy sinking-fund requirements).
As a result, gains and losses from extinguishments of debt should be classified
as extraordinary items only if they meet the criteria of Opinion 30. This
portion of SFAS No. 145 will be effective for fiscal years beginning after May
15, 2002. Any gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented that does not meet the criteria of
Opinion 30 will be reclassified. In June 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 eliminates
the definition and requirement for recognition of exit costs in Emerging Issues
Task Force Issue No. 94-3 where a liability for an exit cost was recognized at
the date of an entity's commitment to an exit plan. This statement is effective
for exit or disposal activities initiated after December 31, 2002. The Company
believes that the adoption of this statement will not have a significant impact
on its results of operations or financial position.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Reclassifications
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the 2002 presentation.
2. INVESTMENT IN UNCONSOLIDATED REAL ESTATE ENTITIES
Investment in unconsolidated real estate entities consists of a 50.00%
interest in Colonial Park Mall Limited Partnership, a 20.00% interest in San
Mall, LLC, a 50.00% interest in Polaris Center, LLC, a 20.00% interest in
Charlotte Eastland Mall, LLC, a 39.29% interest in Polaris Mall, LLC and a
50.00% interest in G & G Blaine, LLC.
The share of net income for the period January 1, 2001 through March 31,
2001, includes the Company's 30.00% interest in Elizabeth MetroMall, LLC and
Jersey Gardens Center, LLC. Effective April 6, 2001, the Company acquired an
additional 30.00% interest in each entity and subsequently, in May 2001 acquired
the remaining 40.00% interest in each entity. Additionally, the share of net
income for the period January 1, 2001 through July 31, 2002, includes the
Company's 50.00% interest in Dayton Mall Venture, LLC and 37.85% interest in
Glimcher Supermall Venture, LLC. Effective August 2002, the Company acquired the
remaining third party interests in each entity. As a result, the entities are
fully consolidated from April 2001 and August 2002, respectively.
GDC provides development, construction, leasing and legal services for a
fee, to joint ventures in which the Company has an ownership interest. GDC
recognized fee income of $1,190, and $3,246 for services provided to the joint
ventures for the nine months ended September 30, 2002 and 2001, respectively.
The summary financial information of the Company's unconsolidated real
estate entities and a summary of the Operating Partnership's investment in and
share of net income (loss) from such unconsolidated entities are presented
below:
BALANCE SHEETS SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
Assets:
Investment properties at cost, net............................. $ 325,958 $ 509,294
Other assets................................................... 29,981 60,293
------------- -----------
$ 355,939 $ 569,587
============= ===========
Liabilities and Members' Equity:...................................
Mortgage notes payable......................................... $ 277,624 $ 392,649
Accounts payable and accrued expenses.......................... 19,402 42,340
------------- -----------
297,026 434,989
Members' equity................................................ 58,913 134,598
------------- -----------
$ 355,939 $ 569,587
============= ===========
Operating Partnership's share of members' equity................... $ 19,259 $ 50,526
============= ===========
RECONCILIATION OF MEMBERS' EQUITY TO COMPANY INVESTMENT IN UNCONSOLIDATED REAL ESTATE ENTITIES:
Members' equity.................................................... $ 19,259 $ 50,526
Advances and additional costs...................................... 1,402 (2,525)
------------- -----------
Investment in unconsolidated real estate entities.................. $ 20,661 $ 48,001
============= ===========
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS FOR THE NINE MONTHS
-------------------- -------------------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- --------------------
2002 2001 2002 2001
---- ---- ---- ----
Total revenues........................................ $ 18,305 $ 18,769 $ 65,435 $ 66,706
Operating expenses.................................... 7,825 7,814 27,935 28,039
--------- ---------- ---------- --------
Net operating income.................................. 10,480 10,955 37,500 38,667
Depreciation and amortization......................... 3,183 3,410 13,265 13,064
Other income/expenses................................. 57 (37) 668 43
Interest expense, net................................. 5,098 5,466 18,294 20,054
--------- --------- ---------- --------
Net income ......................................... $ 2,142 $ 2,116 $ 5,273 $ 5,506
========= ========= ========== ========
Operating Partnership's share of net income (loss).... $ 866 $ 954 $ 2,106 $ 1,431
========= ========= ========== ========
Net income ......................................... $ 2,142 $ 2,116 $ 5,273 $ 5,506
Other comprehensive loss.............................. (2,732)
--------- --------- ---------- --------
Comprehensive income.................................. $ 2,142 $ 2,116 $ 5,273 $ 2,774
========= ========= ========== ========
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. MORTGAGE NOTES PAYABLE AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
CONSIST OF THE FOLLOWING:
CARRYING AMOUNT OF INTEREST PAYMENT PAYMENT AT MATURITY
DESCRIPTION MORTGAGE NOTES PAYABLE INTEREST RATE TERMS TERMS MATURITY DATE
------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
FIXED RATE
Glimcher Jersey Gardens, LLC $164,753 $ 5.44% (a)(b) $164,193 Jun. 9, 2004
Montgomery Mall Associates, L.P 45,676 46,102 6.79% 6.79% (a) (d) (d)
Weberstown Mall, LLC 19,892 20,044 7.43% 7.43% (a) 19,033 May 1, 2006
Morgantown Mall Associates, L.P 55,920 56,428 6.89% 6.89% (a) (e) (e)
Grand Central, L.P. 50,679 51,097 7.18% 7.18% (a) 46,065 Feb. 1, 2009
Glimcher Properties, L.P. 83,863 85,503 8.46% 8.46% (a) 63,346 Jul. 1, 2009
Dayton Mall Venture, LLC 58,976 8.27% (a) (f) (f)
University Mall L.P. 67,455 68,176 7.09% 7.09% (a) (g) (g)
Glimcher Supermall Venture, LLC 62,622 7.54% (a) (h) (h)
Other Fixed Rate Debt 96,187 92,448 (i) (i) (a) 81,294 (j)
Tax Exempt Bonds 19,000 19,000 6.00% 6.00% (c) 19,000 Nov. 1, 2028
---------- ----------
725,023 438,798
---------- ----------
VARIABLE RATE
Northtown Mall, LLC 40,000 40,000 5.32% 5.62% (k) (b) 40,000 Aug. 31, 2003
Glimcher Lloyd Venture, LLC 130,000 130,000 6.25% 6.25% (l) (b) 130,000 Nov. 10, 2003
Great Plains Metro Mall, LLC 42,000 42,000 5.38% 5.45% (m) (b) 42,000 Jul. 9, 2004
Glimcher River Valley Mall , LLC 38,000 38,000 5.00% 5.00% (n) (b) 38,000 Dec. 31, 2004
Other Variable Rate Debt 39,009 55,593 (o) 8.14% (o) (a)(b) 38,378 (p)
---------- ----------
289,009 305,593
---------- ----------
EXTINGUISHED DEBT 339,350 (q)
---------- ----------
TOTAL MORTGAGE NOTES PAYABLE $1,014,032 $1,083,741
========== ==========
(a) The loan requires monthly payments of principal and interest.
(b) The loan requires monthly payments of interest only.
(c) The loan requires semi-annual payments of interest.
(d) The loan matures in August 2028, with an optional prepayment date in 2005.
(e) The loan matures in September 2028, with an optional prepayment date in
2008.
(f) The loan matures in July 2027, with an optional prepayment date in 2012.
(g) The loan matures in January 2028, with an optional prepayment date in 2013.
(h) The loan matures in February 2028, with an optional prepayment date in
2015.
(i) Interest rates ranging from 6.78% to 8.37%.
(j) Final maturity dates ranging from February 2008 to February 2017.
(k) Interest rate of LIBOR (capped at 6.00% until maturity) plus 350 basis
points.
(l) Interest rate of LIBOR (ranging from 3.00% to 6.25%) plus 325 basis points.
(m) Interest rate of LIBOR (capped at 8.00%) plus 355 basis points.
(n) Interest rate equal to the greater of 5.00% or LIBOR plus 235 basis points.
(o) Interest rates ranging from LIBOR plus 195 - 600 basis points (3.77% -
7.82% at September 30, 2002).
(p) Final maturity dates ranging from January 2003 to August 2005.
(q) Interest rates ranging from LIBOR plus 250 basis points (4.78% at December
31, 2001) to 11.00%.
All mortgage notes payable are collateralized by certain properties owned
by the respective entities with a net book value of $1,342,036 and $1,304,037 at
September 30, 2002 and December 31, 2001, respectively. Certain of the loans
contain financial covenants regarding minimum net operating income and coverage
ratios. Additionally, certain of the loans have cross-default provisions and are
cross-collateralized as part of a group of properties. Under such cross-default
provisions, a default under any mortgage included in a cross-defaulted package
may constitute a default under all such mortgages and may lead to acceleration
of the indebtedness due on each property within the collateral package. In
general, the cross-defaulted properties are under common ownership.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. NOTES PAYABLE
Effective January 31, 2001, the Company, through the Operating Partnership,
amended its Credit Facility. The amended Credit Facility provides the Company
with the ability to borrow up to $170,000, extends the term through January 31,
2004 and is collateralized with first mortgage liens on three malls and one
community center with a net book value of $131,209 at September 30, 2002 and
$147,377 at December 31, 2001. The interest rate on the Credit Facility ranges
from LIBOR plus 1.60% to LIBOR plus 1.90%, depending on the Company's ratio of
debt to asset value; the Credit Facility currently bears interest at a rate
equal to LIBOR plus 1.90% per annum and the Company has an interest rate swap
agreement in place that fixes LIBOR at 5.39% per annum on $110,000 until January
31, 2004, (the effective interest rate after giving effect to the swap agreement
was 6.71% per annum and 6.23% per annum at September 30, 2002 and December 31,
2001, respectively). Payments due under the Credit Facility are guaranteed by
the Company.
The Credit Facility, as amended, contains customary covenants,
representations, warranties and events of default, including maintenance of a
specified minimum net worth requirement, loan to value ratios, project costs to
asset value ratios, total debt to asset value ratios and EBITDA to total debt
service, restrictions on the incurrence of additional indebtedness and approval
of anchor leases with respect to the Properties which secure the Credit
Facility. At September 30, 2002, the balance outstanding on the Credit Facility
was $135,200. In addition, $3,099 represents a holdback on the available balance
of the Credit Facility for collateral changes and letters of credit issued under
the Credit Facility. As of September 30, 2002, the unused balance of the Credit
Facility available to the Company was $31,701.
5. EARNINGS PER SHARE
The presentation of basic EPS and diluted EPS is summarized in the table(s)
below:
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2002 2001
----------------------------- -------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ -----
BASIC EPS
Income available to common shareholders....... $ 4,701 34,253 $ 0.14 $ 3,840 29,848 $0.13
EFFECT OF DILUTIVE SECURITIES
Operating Partnership units................... 431 3,090 404 3,226
Options....................................... 216 324
DILUTED EPS
-------- ------- ------- --------- ------ -----
Income available plus assumed conversions..... $ 5,132 37,559 $ 0.14 $ 4,244 33,398 $0.13
======== ======= ======= ========= ====== =====
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2002 2001
----------------------------- -------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ -----
BASIC EPS
Income available to common shareholders....... $ 13,413 31,712 $ 0.42 $ 29,855 26,800 $1.11
EFFECT OF DILUTIVE SECURITIES
Operating Partnership units................... 1,307 3,103 3,362 3,226 (0.01)
Options....................................... 300 183
DILUTED EPS
-------- ------- ------- --------- ------ -----
Income available plus assumed conversions..... $ 14,720 35,115 $ 0.42 $ 33,217 30,209 $1.10
======== ======= ======= ========= ====== =====
Options with exercise prices greater than the average share prices for the
periods presented were excluded from the respective computations of diluted EPS
because to do so would have been antidilutive.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The impact of discontinued operations, extraordinary item and cumulative
effect of accounting change, net of minority interest, on basic and diluted EPS
is summarized in the table below:
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2002 2001
----------------------------- -------------------------------
BASIC DILUTED BASIC DILUTED
----- ------- ----- -------
Discontinued operations......................... $ 0.06 $ 0.06 $ 0.07 $ 0.07
Extraordinary item ............................. $(0.01) $(0.01) $ (0.01) $ (0.01)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2002 2001
----------------------------- -------------------------------
BASIC DILUTED BASIC DILUTED
----- ------- ----- -------
Discontinued operations......................... $ 0.28 $ 0.27 $ 0.25 $ 0.25
Extraordinary item and cumulative effect of
accounting change............................. $ (0.04) $ (0.04) $ (0.02) $ (0.02)
6. SHAREHOLDERS' EQUITY
The Company's Declaration of Trust authorizes the Company to issue up to an
aggregate of 100,000,000 shares of beneficial interest, consisting of common
shares or one or more series of preferred shares of beneficial interest.
The following table summarizes the change in distributions in excess of
accumulated earnings:
Balance, January 1, 2002.................................. $ (166,956)
Distributions declared, $0.9616 per share............ (45,895)
Preferred stock dividends............................ (8,875)
Net income........................................... 22,288
-----------
Balance, September 30, 2002............................... $ (199,438)
===========
7. SEGMENT REPORTING
Selected information about reportable segments of the Company is summarized
in the table below:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
---------------------------------------------------
COMMUNITY
MALLS CENTERS CORPORATE TOTAL
---------------------------------------------------
Total revenues......................... $ 59,061 $ 11,584 $ 149 $ 70,794
Total operating expenses............... 36,963 4,679 3,062 44,704
----------- --------- -------- -----------
Operating income (loss)................ $ 22,098 $ 6,905 $ (2,913) $ 26,090
=========== ========= ========= ===========
Net property and equipment............. $ 1,235,962 $ 297,412 $ 7,261 $ 1,540,635
=========== ========= ========= ===========
Investment in unconsolidated entities.. $ 17,078 $ 3,583 $ $ 20,661
=========== ========= ========= ===========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------
COMMUNITY
MALLS CENTERS CORPORATE TOTAL
---------------------------------------------------
Total revenues......................... $ 53,569 $ 12,598 $ 1,452 $ 67,619
Total operating expenses............... 32,588 4,859 3,553 41,000
----------- --------- -------- -----------
Operating income (loss)................ $ 20,981 $ 7,739 $ (2,101) $ 26,619
=========== ========= ========= ===========
Net property and equipment............. $ 1,097,269 $ 457,176 $ 12,320 $ 1,566,765
=========== ========= ========= ===========
Investment in unconsolidated entities.. $ 46,326 $ 4,447 $ $ 50,773
=========== ========= ========= ===========
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
---------------------------------------------------
COMMUNITY
MALLS CENTERS CORPORATE TOTAL
---------------------------------------------------
Total revenues......................... $ 165,306 $ 35,063 $ 837 $ 201,206
Total operating expenses............... 99,834 15,039 8,797 123,670
----------- --------- -------- -----------
Operating income (loss)................ $ 65,472 $ 20,024 $ (7,960) $ 77,536
=========== ========= ========= ===========
Net property and equipment............. $ 1,235,962 $ 297,412 $ 7,261 $ 1,540,635
=========== ========= ========= ===========
Investment in unconsolidated entities.. $ 17,078 $ 3,583 $ $ 20,661
=========== ========= ========= ===========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------
COMMUNITY
MALLS CENTERS CORPORATE TOTAL
---------------------------------------------------
Total revenues......................... $ 150,520 $ 39,504 $ 3,221 $ 193,245
Total operating expenses............... 88,512 15,268 10,220 114,000
----------- --------- -------- -----------
Operating income (loss)................ $ 62,008 $ 24,236 $ (6,999) $ 79,245
=========== ========= ========= ===========
Net property and equipment............. $ 1,097,269 $ 457,176 $ 12,320 $ 1,566,765
=========== ========= ========= ===========
Investment in unconsolidated entities.. $ 46,326 $ 4,447 $ $ 50,773
=========== ========= ========= ===========
8. RELATED PARTY TRANSACTIONS
The Company paid The Glimcher Company ("TGC") and Corporate Flight, Inc.
("CFI"), which are both wholly owned by Herbert Glimcher, the Chairman of the
Company's Board of Trustees and the Company's Chief Executive Officer, $21 and
$361 for the nine months ended September 30, 2002 and $5 and $298 for the nine
months ended September 30, 2001, respectively, for the use in connection with
Company related matters, of a bus owned by TGC and an airplane owned by CFI. The
Company's joint ventures paid the same two companies $1 and $63, for the nine
months ended September 30, 2002 and $8 and $73 for the nine months ended
September 30, 2001, respectively. Additionally, the Company paid Triad CM
("Triad"), which is partially owned by Herbert Glimcher, $237 and $134 for the
nine months ended September 30, 2002 and 2001, respectively, in connection with
construction management and contractor services at GPLP's properties. Joint
ventures in which the Company holds an ownership interest paid Triad $330 and
$2,200 for the nine months ended September 30, 2002 and 2001, respectively, for
services provided to these joint ventures.
The Company has engaged Archer-Meek-Weiler Agency, Inc., ("AMW"), a company
of which Alan R. Weiler (a trustee of GRT) is president, as its agent for the
purpose of obtaining property, liability and employee practices liability
insurance coverage. In connection with securing such insurance coverage, AMW
received commissions from insurance carriers of $186 for the year ended December
31, 2001.
A brother of Herbert Glimcher owns a company that leases seven store
locations in the Company's properties. Minimum rents were $199 and $87 for the
nine months ended September 30, 2002 and 2001, respectively, and prepaid amounts
from these tenants were $36 and $8 at September 30, 2002 and 2001, respectively.
On March 31,1999 the Company acquired a 20.0% interest in San Mall LLC
("San Mall"), which owns Almeda Mall and Northwest Mall in Houston, Texas. The
Company accounts for its investment in San Mall under the equity method of
accounting (see Note 2). On February 22, 2001, Fifth Avenue, LLC ("Fifth
Avenue") acquired the 80.0% ownership interest previously held by an
unaffiliated third party. Fifth Avenue is wholly owned by the daughter of
Herbert Glimcher, the Chairman of the Company's Board of Trustees and the
Company's Chief Executive Officer, and the sister of Michael Glimcher, the
President of the Company. In connection with the acquisition, the Company and
Fifth Avenue entered into a Call Agreement that permits the Company to make an
offer to acquire the interest of the other member. The other member may accept
such offer or reject such offer and shall have the right to tender an offer to
the Company. The Company shall likewise have the right to accept or reject such
offer.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company provides management and leasing services to San Mall under an
operating agreement entered into in 1999. For the nine months ended September
30, 2002 and 2001, the Company recognized fee income of $202 and $127,
respectively, under such agreement. At September 30, 2002, San Mall had total
assets of approximately $46,073, total liabilities of $36,491 and combined
members' equity of $9,582. Total revenues and net income were $9,976 and $910,
respectively, for the nine months ended September 30, 2002 and $10,922 and
$2,333, respectively, for the nine months ended September 30, 2001.
On May 10, 2002, the Company sold Plaza Vista Mall, a 214,000 square foot
community center to a group of private investors which included David Glimcher
(a trustee of GRT). The sale price was $9,937, including cash of $2,237 and the
assumption of a $7,700 mortgage note payable. The Company recognized a gain of
$1,194 on the sale.
The Company previously acquired expansion land adjacent to The Mall at
Fairfield Commons for approximately $5,000, from a partnership in which Herbert
Glimcher and Michael Glimcher hold an equity interest. Approximately $4,924 is
included in accounts payable at both September 30, 2002 and 2001, related to
this transaction. Interest paid was $225 and $225 for the nine months ended
September 30, 2002 and 2001, respectively.
9. CONTINGENCIES
The Company has provided guarantees in connection with the outstanding debt
of Polaris Fashion Place in which the Company is an equity member. In connection
with the development of Polaris Fashion Place, the Operating Partnership
provided the lender with a completion guarantee and an unconditional guarantee
of payment of $60,000 (50.0% of the outstanding obligation on the indebtedness
on the property).
As of September 30, 2002, no reserves for losses have been provided in
connection with this guarantee, as the Company does not expect to incur any
liability.
10. DERIVATIVES AND HEDGING ACTIVITIES
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities"
and interpreted by Derivatives Implementation Group Issues. SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative
instruments. Specifically, SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the financial statements and to
measure those instruments at fair value.
The adoption of the new standard resulted in a cumulative effect transition
loss adjustment of $195 to other comprehensive income to recognize the fair
values of the interest rate swap agreements as of January 1, 2001. The Company
also recognized a cumulative effect transition loss adjustment of $116 in
earnings as of January 1, 2001, to recognize the fair values of the interest
rate caps. During the nine months ended September 30, 2002, the Company
recognized additional other comprehensive income of $331 to adjust the carrying
amount of the interest rate swaps and caps to their fair values at September 30,
2002, which includes $5,825 in reclassfications to earnings for interest rate
swap settlements during the period and $117 in minority interest participation.
The interest rate swap settlements were offset by a corresponding reduction in
interest expense related to the interest payments being hedged.
The following table summarizes the notional values and fair values of the
Company's derivative financial instruments as of September 30, 2002. The
notional values provide an indication of the extent of the Company's involvement
in these instruments at that time, but does not represent exposure to credit,
interest rate or market risks.
INTEREST
HEDGE TYPE NOTIONAL VALUE RATE MATURITY FAIR VALUE
---------- -------------- ---- -------- ----------
Swap - Cash Flow....................... $110,000 5.39% Jan. 31, 2004 $(5,643)
Swap - Cash Flow....................... $162,000 2.34% June 15, 2004 $(1,264)
Cap - Cash Flow........................ $165,000 7.00% June 15, 2004 $ 40
Sold Cap-Cash Flow..................... $162,000 7.00% June 15, 2004 $ (40)
Cap - Cash Flow........................ $ 45,000 8.00% July 15, 2003 -
Cap - Cash Flow........................ $ 40,000 6.00% Sept. 1, 2003 $ 1
Cap - Cash Flow........................ $130,000 6.25% Nov. 10, 2003 $ 4
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
On September 30, 2002, the derivative instruments were reported at their
aggregate fair value of ($6,902) in accounts payable and accrued expenses in the
accompanying balance sheet, with a corresponding adjustment to other
comprehensive income for the unrealized gains and losses (net of minority
interest participation). Over time, the unrealized gains and losses held in
accumulated other comprehensive income will be reclassified to earnings. This
reclassification will correlate with the recognition of the hedged interest
payments in earnings. There was no hedge ineffectiveness during the nine months
ended September 30, 2002.
To determine the fair values of derivative instruments, the Company uses a
variety of methods and assumptions that are based on market conditions and risks
existing at each balance sheet date. Standard market conventions and techniques
such as undiscounted cash flow analysis, replacement cost, and termination cost
are used to determine fair value.
11. DISCONTINUED OPERATIONS
On January 1, 2002, the Company adopted SFAS No. 144 , "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No.
121 and requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less costs to sell. SFAS No.
144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed by sale, but broadens the
definition of what constitutes a discontinued operation and how the results of a
discontinued operation are to be measured and presented. During the first nine
months of 2002, the Company sold 17 community centers and three single tenant
assets for $171,446 and recognized a net gain of $3,304, which, in accordance
with SFAS No. 144 is reported in discontinued operations. Total revenues for
these assets were $2,740 and $5,696 for the three months ended September 30,
2002 and 2001, respectively, and $13,054 and $17,330 for the nine months ended
September 30, 2002 and 2001, respectively. For segment reporting purposes,
revenues and expenses would have been reported as part of community centers.
Eleven of the community centers and two of the single tenant assets sold were
part of a contract for the sale of 22 assets entered into June 6, 2002, for a
purchase price of approximately $200,000. Gains on the 13 properties sold during
the third quarter 2002 are being deferred until the total transaction is
completed.
At September 30, 2002, Meadowview Square, a community center in Kent, OH
was held for sale. Net property and equipment and mortgage notes payable include
$8,378 and $7,453, respectively, related to this property.
12. ACQUISITIONS
In the third quarter of 2002, the Company acquired the remaining 50.0%
ownership interest in Dayton Mall Venture, LLC, for $17,250 in cash, assumption
of existing mortgage notes payable of $59,116 and assumption of net assets and
liabilities. Dayton Mall Venture, LLC, is the owner of Dayton Mall, a regional
mall in Dayton, OH. Also in the third quarter of 2002, the Company acquired the
remaining 62.16% ownership interest in Glimcher SuperMall Venture, LLC for
$15,000 in cash, $1,292 for settlement of a note receivable, assumption of the
existing mortgage note payable of $62,766 and assumption of net assets and
liabilities. Glimcher SuperMall Venture, LLC, is the owner of SuperMall of the
Great Northwest, a regional mall in Seattle, WA.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following should be read in conjunction with the unaudited consolidated
financial statements of Glimcher Realty Trust (the "Company" or "GRT") including
the respective notes thereto, all of which are included in this Form 10-Q.
This Form 10-Q, together with other statements and information publicly
disseminated by GRT, contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
based on assumptions and expectations which may not be realized and are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, may differ from the results discussed
in the forward-looking statements. Risks and other factors that might cause
differences, some of which could be material, include, but are not limited to:
the effect of economic and market conditions; tenant bankruptcies; failure to
consummate financing and joint venture arrangements, including the repayment of
debt; development risks, including lack of satisfactory equity and debt
financing, construction and lease-up delays and cost overruns; the level and
volatility of interest rates; the consummation of asset sales at acceptable
prices; the financial stability of tenants within the retail industry; the rate
of revenue increases versus expense increases; the failure of the closing of the
sale of certain properties to take place; the failure of the Company to use sale
proceeds to reduce debt as well as other risks listed from time to time in this
Form 10-Q and in GRT's other reports filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
REVENUES
Total revenues increased 4.7%, or $3.2 million, for the three months ended
September 30, 2002. Of the $3.2 million increase, $4.4 million was the result of
increased revenues at the malls, offset by $600,000 as a result of decreased
revenues at the community centers (including a $300,000 decrease from
dispositions) and $600,000 as a result of other revenue decreases. The three
months of 2002 include Dayton Mall and SuperMall of the Great Northwest (the
"Properties") as consolidated properties effective August 1, 2002, as a result
of the Company's acquisition of the third party interests.
Minimum rents
Minimum rents increased 3.7% or $1.5 million for the three months ended
September 30, 2002.
INCREASE (DECREASE) (DOLLARS IN MILLIONS)
--------------------------------------------------------------
COMMUNITY PERCENT
MALLS CENTERS TOTAL TOTAL
----- ------- ----- -----
Same center $(1.5) $(0.2) $(1.7) (4.2)%
Acquisitions 3.5 0.0 3.5 8.6
Dispositions 0.0 (0.3) (0.3) (0.7)
----- ----- ----- ----
$ 2.0 $(0.5) $ 1.5 3.7%
===== ===== ===== ===
The same center mall decline of $1.5 million reflects additional rents from
core properties of $300,000, offset by a decline in termination income of $1.4
million and a reduction of $637,000 as a result of anchor tenant bankruptcies.
The community centers same center change is primarily related to a $765,000
reduction as a result of anchor tenant bankruptcies offset by an increase in
termination income.
Tenant reimbursements
Tenant reimbursements reflect an increase of 10.0%, or $1.9 million for the
three months ended September 30, 2002.
INCREASE (DECREASE) (DOLLARS IN MILLIONS)
--------------------------------------------------------------
COMMUNITY PERCENT
MALLS CENTERS TOTAL TOTAL
----- ------- ----- -----
Same center $0.3 $ 0.0 $0.3 1.6%
Acquisitions 1.6 0.0 1.6 8.4
Dispositions 0.0 0.0 0.0 0.0
----- ----- ----- ----
$1.9 $ 0.0 $1.9 10.0%
===== ===== ===== ====
15
Other revenues
The $148,000 decrease in other revenues is primarily the result of a
decrease in fee income from development activities.
EXPENSES
Total expenses increased 9.0%, or $3.7 million, for the three months ended
September 30, 2002. Real estate taxes and property operating expenses increased
$2.4 million, depreciation and amortization increased $1.3 million, general and
administrative expenses increased $600,000 and other operating expenses
decreased $600,000.
Real estate taxes and property operating expenses
Real estate taxes and property operating expenses increased 11.4%, or $2.4
million, for the three months ended September 30, 2002.
INCREASE (DECREASE) (DOLLARS IN MILLIONS)
--------------------------------------------------------------
COMMUNITY PERCENT
MALLS CENTERS TOTAL TOTAL
----- ------- ----- -----
Same center $ 0.4 $ 0.2 $ 0.6 2.9%
Acquisitions/Developments 1.8 0.0 1.8 8.5
Dispositions 0.0 0.0 0.0 0.0
------ ------ ------ ----
$ 2.2 $ 0.2 $ 2.4 11.4%
====== ====== ====== ====
Other Operating Expenses
The $600,000 decrease in other operating expenses is primarily the result
of decreased development activity in 2002.
Depreciation and Amortization
The $1.3 million increase in depreciation and amortization consists
primarily of an increase of $1.1 million from mall acquisitions.
General and Administrative
General and administrative expense was $2.9 million and represented 4.0% of
total revenues for the three months ended September 30, 2002, compared to $2.3
million and 3.4% of total revenues for the corresponding period in 2001. The
third quarter of 2002 included $693,000 in severance charges related to the
reorganization of the development department. The third quarter of 2002 is
comparable to the first two quarters of 2002 and is representative of the
general and administrative costs related to our current staffing levels. The
Company also reduced corporate headcount by approximately 10.0% and did not
grant general salary increases for 2002.
INTEREST EXPENSE/CAPITALIZED INTEREST
Interest expense decreased 4.3%, or $934,000 for the three months ended
September 30, 2002. The summary below identifies the decrease by its various
components (dollars in thousands).
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------
2002 2001 INC. (DEC.)
---- ---- -----------
Average loan balance..................... 1,169,225 1,184,509 (15,284)
Average rate............................. 6.65% 7.27% (0.62)%
Total interest........................... 19,438 21,528 (2,090)
Amortization of loan fees................ 1,088 1,249 (161)
Capitalized interest & other (1)......... 238 (1,079) 1,317
------------ ---------- ---------
Interest expense......................... 20,764 21,698 (934)
============ ========== =========
(1) Other consists primarily of interest costs billed to joint venture entities
and administrative and servicing fees.
16
DISCONTINUED OPERATIONS
During the third quarter of 2002, the Company sold 12 community centers and
two single tenant assets for $124.3 million. Eleven of the community centers and
the two of the single tenant assets were part of a larger transaction and their
gain will be deferred until the transaction is complete. The remaining community
center was sold for $18.3 million with a net gain of $868,000. In accordance
with Statement of Financial Accounting Standards ("SFAS") No 144 "Accounting for
the Impairment or Disposal of Long Lived Assets" the sold properties are
reported as Discontinued Operations. Income from discontinued operations was
$1.5 million for the three months ended September 30, 2002, compared to $2.4
million for the same period in 2001. Also, at September 30, 2002, Meadowview
Square, a community center in Kent, OH was held for sale. Net property and
equipment and mortgage notes payable include $8.4 million and $7.5 million,
respectively, related to this property.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
REVENUES
Total revenues increased 4.1%, or $7.9 million, for the nine months ended
September 30, 2002. Of the $7.9 million increase, $12.2 million was the result
of increased revenues at the malls, offset by $3.4 million as a result of
decreased revenues at the community centers (including a $2.2 million decrease
from dispositions) and $900,000 as a result of other revenue decreases.
Acquisitions for the nine month period ended September 30, 2002, reflect the
inclusion in the consolidated financial statements of Elizabeth MetroMall, LLC
and Jersey Gardens Center, LLC, effective April 6, 2001, as a result of an
increase in the Company's ownership at that date and the inclusion of the
Properties effective August 1, 2002, as a result of the Company's acquisition of
the third party interests.
Minimum rents
Minimum rents increased 2.5% or $3.0 million, for the nine months ended
September 30, 2002.
INCREASE (DECREASE) (DOLLARS IN MILLIONS)
--------------------------------------------------------------
COMMUNITY PERCENT
MALLS CENTERS TOTAL TOTAL
----- ------- ----- -----
Same center.................. $ (2.9) $ (1.2) $ (4.1) (3.4)%
Acquisitions................. 9.2 0.0 9.2 7.7
Dispositions................. 0.0 (2.1) (2.1) (1.8)
------ ------ ------ -----
$ 6.3 $ (3.3) $ 3.0 2.5%
====== ====== ====== =====
The same center mall decline of $2.9 million reflects additional rents from
core operations of $800,000 offset by a decline in termination income of $2.2
million and a reduction of $1.6 million as a result of anchor tenant
bankruptcies. The community centers same center change is primarily related to a
$1.8 million reduction as a result of anchor tenant bankruptcies, offset by an
increase in termination income.
Tenant reimbursements
Tenant reimbursements reflect an increase of 8.5%, or $4.6 million, for the
nine months ended September 30, 2002.
INCREASE (DECREASE) (DOLLARS IN MILLIONS)
--------------------------------------------------------------
COMMUNITY PERCENT
MALLS CENTERS TOTAL TOTAL
----- ------- ----- -----
Same center.................. $ 0.0 $ (0.1) $ (0.1) (0.2)%
Acquisitions................. 4.8 0.0 4.8 8.9
Dispositions................. 0.0 (0.1) (0.1) (0.2)
------ ------ ------ -----
$ 4.8 $ (0.2) $ 4.6 8.5%
====== ====== ====== =====
Other revenues
The $185,000 increase in other revenues is primarily the result of a $1.4
million increase in other income due to the formation of Ohio Entertainment
Corporation ("OEC") effective June 1, 2001, a $400,000 gain on the disposition
of short-term investments relating to the defeasance of debt securities on
February 4, 2002 and $500,000 in other revenue increases, partially offset by a
$1.5 million decrease in fee income and a $600,000 decrease in proceeds from
sales of development land. OEC operates a theater at one mall and a skating rink
at another mall; the revenues and expenses of these operations are included in
other revenues and other operating expenses.
17
EXPENSES
Total expenses increased 5.5%, or $6.5 million, for the nine months ended
September 30, 2002, primarily as a result of the inclusion of nine months of
costs related to Jersey Gardens and two months of costs related to the
Properties. Real estate taxes and property operating expenses increased $6.1
million, depreciation and amortization increased $3.9 million, general and
administrative expenses decreased $80,000, the provision for doubtful accounts
and other operating expenses decreased $250,000 and the write-off of development
cost decreased $3.2 million.
Real estate taxes and property operating expenses
Real estate taxes and property operating expenses increased 10.4%, or $6.1
million for the nine months ended September 30, 2002.
INCREASE (DECREASE) (DOLLARS IN MILLIONS)
--------------------------------------------------------------
COMMUNITY PERCENT
MALLS CENTERS TOTAL TOTAL
----- ------- ----- -----
Same center.................. $ 0.2 $ 0.3 $ 0.5 0.8%
Acquisitions................. 5.9 0.0 5.9 10.1
Dispositions................. 0.0 (0.3) (0.3) (0.5)
------ ------ ----- ----
$ 6.1 $ 0.0 $ 6.1 10.4%
====== ====== ===== ====
Provision for Doubtful Accounts and Other Operating Expenses
The provision for doubtful accounts and other operating expenses was $7.4
million for the nine months ended September 30, 2002 compared to $7.6 million
for the corresponding period in 2001. The $200,000 decrease consists of a
decrease of $520,000 in other operating expenses primarily as a result of
decreased development activity in 2002 and is partially offset with a $270,000
increase in the provision for doubtful accounts as a result of mall acquisitions
and additional reserves established during the period.
Depreciation and Amortization
The $3.9 million increase in depreciation and amortization consists
primarily of a $3.5 million increase from mall acquisitions and a $400,000
increase in other corporate depreciation and amortization.
General and Administrative
General and administrative expense was $8.0 million and represented 4.0% of
total revenues for the nine months ended September 30, 2002, compared to $8.1
million and 4.2% of total revenues for the corresponding period in 2001. The
nine months ended September 30, 2002, included $693,000 in severance charges
related to the reorganization of the development department, while the nine
months of 2001 included certain one time bonus and relocation costs. The 2002
costs are representative of the general and administrative costs related to our
current staffing levels. The Company also reduced corporate headcount by
approximately 10.0% and did not grant general salary increases for 2002.
INTEREST EXPENSE/CAPITALIZED INTEREST
Interest expense increased 4.7%, or $2.9 million for the nine months ended
September 30, 2002. The summary below identifies the increase by its various
components (dollars in thousands).
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
2002 2001 INC. (DEC.)
----------- ----------- ----------
Average loan balance..................... $ 1,167,566 $ 1,129,401 $ 38,165
Average rate............................. 6.86% 7.39% (0.53)%
Total interest........................... $ 60,071 $ 62,597 $ (2,526)
Amortization of loan fees................ 4,150 4,311 (161)
Capitalized interest & other (1)......... 471 (5,116) 5,587
----------- ----------- ---------
Interest expense......................... $ 64,692 $ 61,792 $ 2,900
=========== =========== =========
(1) Other consists primarily of interest costs billed to joint venture entities
and administrative and servicing fees.
18
DISCONTINUED OPERATIONS
During the first nine months of 2002, the Company sold 17 community centers
and three single tenant assets for $171.5 million. Eleven of the community
centers and two of the single tenant assets were part of a larger transaction
and their gain will be deferred until the transaction is complete. The remaining
six community centers and one single tenant asset were sold for $66.5 million
with a net gain of $3.3 million. In accordance with SFAS No. 144, the sold
properties are reported as Discontinued Operations. Income from discontinued
operations was $6.3 million for the nine months ended September 30, 2002
compared to $7.7 million for the same period in 2001. Also, at September 30,
2002, Meadowview Square, a community center in Kent, OH was held for sale. Net
property and equipment and mortgage notes payable include $8.4 million and $7.5
million, respectively, related to this property.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short term (less than one year) liquidity requirements
include recurring operating costs, capital expenditures, debt service
requirements and preferred and common dividend requirements. The Company
anticipates that these needs will be met with cash flows provided by operations,
the refinancing of maturing debt and proceeds from the sale of assets.
Effective January 31, 2001, the Company, through the Operating Partnership,
amended its Credit Facility. The amended Credit Facility provides the Company
with the ability to borrow up to $170.0 million, extends the term through
January 31, 2004 and is collateralized with first mortgage liens on three malls
and one community center. The interest rate on the Credit Facility ranges from
LIBOR plus 1.60% to LIBOR plus 1.90%, depending on the Company's ratio of debt
to asset value. The Credit Facility currently bears interest at a rate equal to
LIBOR plus 1.90% per annum and the Company has an interest rate swap agreement
in place that fixes LIBOR at 5.39% per annum on $110.0 million until January 31,
2004, (the effective interest rate on total outstanding borrowings after giving
effect to the swap agreement, was 6.71% per annum at September 30, 2002).
Payments due under the Credit Facility are guaranteed by the Company. During the
first nine months of 2002, the weighted average interest rate was 6.30% per
annum. At September 30, 2002, the outstanding balance on the Credit Facility was
$135.2 million. Additionally, $3.1 million represents a holdback on the
available balance of the Credit Facility for collateral changes and letters of
credit issued under the Credit Facility.
In the first nine months of 2002, the Company repaid certain fixed and
floating rate debt totaling $279.7 million, and sold six properties in
transactions that included the buyers assuming permanent mortgage notes payable
of $59.1 million. The Company also executed new mortgage notes payable totaling
$193.6 million. The new mortgage notes payable consist of (i) a $4.5 million
loan collateralized by a first mortgage lien on Hocking Valley Mall, which
matures in February 2007 and bears interest at 6.78% per annum, (ii) a $7.6
million loan collateralized by a first mortgage lien on Southside Mall, which
matures in May 2004 and bears interest at LIBOR plus 1.95% per annum (3.77% at
September 30, 2002), (iii) an $8.0 million loan collateralized by first mortgage
liens on four community centers, which matures in August 2004 and bears interest
at LIBOR plus 1.95% per annum (3.77% at September 30, 2002), (iv) an $8.5
million loan collateralized by a first mortgage lien on East Pointe Plaza, which
matures in August 2005 and bears interest at LIBOR plus 2.50% per annum (4.38%
at September 30, 2002), (v) a $135.0 million loan secured by a leasehold
mortgage and security agreement on Jersey Gardens, which matures June 2004 and
bears interest at LIBOR (fixed at 2.34%) plus 1.97% per annum and (vi) a $30.0
million mezzanine loan on Jersey Gardens, secured by a pledge of assets and
guaranteed by the Company which matures June 2004 and bears interest at LIBOR
(fixed at 2.34%) plus 8.19% per annum. The effective interest rate for the
combined Jersey Gardens loans of $165.0 million is 5.44%. Including amortization
of other permanent mortgages of $6.3 million and a reduction in Credit Facility
borrowings of $27.8 million total debt was reduced by $97.5 million during the
nine months of 2002. The reduction includes a $40.0 million reduction from a
payoff of a REMIC tranche that had been previously defeased.
At September 30, 2002, the Company's Credit Facility was collateralized
with first mortgage liens on four properties having net book value of $131.2
million and its mortgage notes payable were collateralized with first mortgage
liens on properties having a net book value of $1,342.0 million. The Company
also owned 10 unencumbered properties having a net book value of $48.2 million
at that date. Certain of the loans are cross collateralized as part of a group
of properties under a single loan, certain of the properties have cross default
provisions and certain of the properties are subject to guarantees and financial
covenants. Under the cross default provisions, a default under a single mortgage
may constitute a default under all of the mortgages in the group and could lead
to acceleration of the indebtedness on all properties under such loan.
The Company is pursuing a strategy of selling single tenant and
non-strategic community center assets and focusing on the regional mall
portfolio. The timing and selling prices of future asset sales are dependent
upon the Company being able to consummate sales transactions under acceptable
terms and at satisfactory pricing. Net proceeds from asset sales are expected to
be applied to reduce debt and to fund additional investments in regional mall
properties.
19
During the first nine months of 2002, the Company sold 17 community centers
and three single tenant assets for $171.5 million. Eleven community centers and
two single tenant assets were part of a larger transaction and their gain will
be deferred until the transaction is complete. The remaining six community
centers and one single tenant asset were sold for $66.5 million with a net gain
of $3.3 million. In accordance with SFAS No. 144, the sold properties are
reported as Discontinued Operations. Net income for the first nine months of
2002 includes net gains on sales of properties of $0.09 per diluted share
compared with less than $0.01 per diluted share for 2001.
The Company's long term (greater than one year) liquidity requirements
include scheduled debt maturities, capital expenditures to maintain, renovate
and expand existing assets, property acquisitions and development projects.
Management anticipates that net cash provided by operating activities, the funds
available under its Credit Facility, its construction financing, long-term
mortgage debt, the venture structure for acquisitions and developments, issuance
of preferred and common shares of beneficial interest and proceeds from the sale
of assets will provide sufficient capital resources to carry out the Company's
business strategy relative to the repayment of long term debt and acquisitions,
renovations, expansions and developments.
At September 30, 2002, the Company's debt-to-total-market capitalization
has been reduced to 58.1%, compared to 64.5% at September 30, 2001 and 61.5% at
December 31, 2001. Based upon its current debt-to-market capitalization, the
Company expects to both pursue additional acquisitions and to apply a portion of
the asset sale proceeds to reduce the amount of outstanding borrowings in order
to maintain debt to market capitalization at less than 60.0%.
Net cash provided by operating activities for the nine months ended
September 30, 2002, was $54.7 million versus $79.8 million for the corresponding
period of 2001. Net income adjusted for non-cash items accounted for a $3.8
million decrease as the non-cash charge for capitalized development costs
charged to expense was reduced from $4.2 million in 2001 to $519,000 in 2002.
Changes in operating assets and liabilities accounted for a $21.2 million
decrease. The change in operating assets and liabilities reflects increased
deposits, lower accounts payable and a reduction in accrued real estates taxes
due to the timing of payments.
Net cash provided by investing activities for the nine months ended
September 30, 2002, was $89.7 million. It primarily reflects proceeds from the
sale of assets of $101.6 million and withdrawals from cash in escrow of $40.0
million. Additional investments in real estate assets of $39.3 million and
investments in unconsolidated entities of $3.2 million were the primary
investments. The withdrawal from cash in escrow includes $40.0 million related
to the payoff of a REMIC tranche on February 4, 2002 that had been previously
defeased.
Net cash used in financing activities for the nine months ended September
30, 2002, was $142.5 million. Cash was used to fund distributions of $57.4
million, make principal payments on mortgage and notes payable of $329.5 million
and payments to the Credit Facility of $27.8 million. Cash was provided by
issuance of new mortgage and notes payable of $204.8 million and net proceeds of
issuance of common shares of $67.3 million, including $58.3 million from the
Offering and $9.0 million related to the exercise of stock options.
EXPANSION, RENOVATION AND DEVELOPMENT ACTIVITY
The Company continues to be active in its expansion, renovation and
development activities. Its business strategy is to grow the Company's assets
and cash flow available, to among other things, provide for dividend
requirements.
EXPANSIONS AND RENOVATIONS
The Company maintains a strategy of selective expansions and renovations in
order to improve the operating performance and the competitive position of its
existing portfolio. The Company also engages in an active redevelopment program
with the objective of attracting innovative retailers which management believes
will enhance the operating performance of the properties.
20
Malls
Anchor vacancy in the regional mall portfolio has increased by 185,000
square feet during 2002 as a result of the rejection of Ames leases at New Towne
Mall and River Valley Mall, and the closing of an Old Navy store at Northwest
Mall.
Community Centers
Total Community Center vacant anchor space increased from 488,000 square
feet at December 31, 2001 to 1.2 million square feet at September 30, 2002.
During that time, the Company opened new anchors aggregating 61,000 square feet
in Vincennes, IN and Sunbury, PA. This was offset by additional vacancies of
463,000 square feet related to six leases rejected by Ames, 164,000 square feet
related to two leases rejected by Kmart and 154,000 square feet related to three
additional anchor vacancies in the third quarter of 2002. The Company executed
leases in the second quarter of 2002 for the vacant 92,000 square feet former
Ames location in Chillicothe and continues to work with various prospects to
lease the remaining vacant anchor space. The Company does not expect that the
re-tenanting of these spaces will provide significant additional revenues until
2003.
DEVELOPMENTS
One of the Company's objectives is to increase its portfolio by developing
new retail properties. Although the Company is actively reviewing and analyzing
the development potential of various future projects, it does not currently
expect to commence construction of any new developments in 2002. The Company's
management team has developed over 100 retail properties nationwide and has
significant experience in all phases of the development process, including site
selection, zoning, design, pre-development, leasing, construction financing and
construction management.
PORTFOLIO DATA
The table below reflects sales per square foot ("Sales PSF") for those
tenants reporting sales for the twelve month period ended September 30, 2002.
The percentage change is based on those tenants reporting sales for the twenty
four month period ended September 30, 2002.
MALLS COMMUNITY CENTERS
--------------------------- ---------------------------
PROPERTY TYPE SALES PSF % INC.(DEC.) SALES PSF % INC.(DEC.)
------------- --------- ------------ --------- ------------
Anchors............................ $164.75 (1.0)% $288.01 1.8%
Stores............................. $294.80 (1.0)% $222.93 7.8%
Total.............................. $233.15 (1.0)% $279.05 2.4%
Portfolio occupancy statistics by property type are summarized below:
OCCUPANCY (1) (2)
-------------------------------------------------------------
9/30/02 6/30/02 3/31/02 12/31/01 9/30/01
------- ------- ------- -------- --------
Mall Anchors........................ 94.5% 94.7% 94.7% 94.6% 95.1%
Mall Stores......................... 88.0% 86.8% 86.2% 85.6% 85.3%
Total Mall Portfolio................ 92.1% 91.8% 91.6% 91.3% 91.4%
Community Center Anchors............ 80.7% 87.4% 89.6% 94.1% 95.6%
Community Center Stores............. 83.0% 83.9% 83.9% 86.0% 86.4%
Single Tenant Retail Properties..... 100.0% 100.0% 100.0% 100.0% 100.0%
Total Community Center Portfolio.... 81.6% 87.0% 88.7% 92.4% 93.6%
1) Occupancy statistics included in the above table are based on the total
Company portfolio which includes properties owned by the Company and
properties held in joint ventures.
2) Occupied space is defined as any space where a tenant is occupying the
space or paying rent at the date indicated, excluding all tenants with
leases having an initial term of less than one year.
21
FUNDS FROM OPERATIONS
Management considers funds from operations ("FFO") to be a supplemental
measure of the Company's operating performance. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs. FFO should not be considered as an alternative to net income,
as the primary indicator of the Company's operating performance, or as an
alternative to cash flow as a measure of liquidity. The following table
illustrates the calculation of FFO for the three and nine months ended September
30, 2002 and 2001 (in thousands):
FOR THE THREE MONTHS FOR THE NINE MONTHS
---------------------- --------------------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net income available to common shareholders $4,701 $3,840 $13,413 $29,855
Add back (less):
Real estate depreciation and amortization 15,690 14,963 44,359 40,594
GRT share of joint VENTURES 1,703 1,407 5,932 7,050
Loss (gain) on sales of properties 1,059 (129)
Write-off of development cost 3,208
Discount on redemption of preferred stock (22,440)
Discontinued operations: Gain on sales of properties (868) (3,304)
Extraordinary item 554 284 1,554 578
Cumulative effect of accounting change 116
Minority interest in partnership 431 404 1,307 3,362
-------- -------- -------- --------
Funds from operations $ 22,211 $ 21,957 $ 63,261 $ 62,194
======== ======== ======== ========
Funds from operations $22,211 $21,957 $63,261 $62,194
Add back (less):
Capital expenditures (2,890) (1,574) (8,198) (7,137)
Straight-line of minimum rents (534) (586) (1,687) (1,672)
Straight-line of ground lease expense (8) 1 (27) 3
GRT share of joint venture capital expenditures and
straight-line of minimum rents (211) (471) (570) (1,327)
-------- -------- -------- --------
Adjusted funds from operations $ 18,568 $ 19,327 $ 52,779 $ 52,061
======== ======== ======== ========
FFO increased 1.2%, or $254,000 for the three months ended September 30,
2002. The third quarter of 2002 included the Properties as consolidated
properties effective August 1, 2002, while 2001 results reflect the Properties
as joint ventures. Revenues for the third quarter of 2002 increased $3.2
million. The consolidation of the Properties increased revenues by $5.5 million
and improved core property operations increased revenues by $2.7 million. These
increases were partially offset by a $3.4 million decrease from asset sales and
$1.4 million decrease from anchor tenant vacancies. At the beginning of the
third quarter of 2002, the Company completed a follow-on equity offering of
common shares and the net proceeds of approximately $58.3 million were used to
purchase the equity interests in the Properties and to reduce outstanding debt.
Operating income, excluding the impact of one time charges of $693,000 related
to the reorganization of the development department, increased $164,000.
FFO increased 1.7% or $1.1 million for the nine months ended September 30,
2002. The nine months of 2002 include Jersey Gardens as a consolidated property
for the full period while 2001 results reflect Jersey Gardens as a joint venture
in the first quarter and a consolidated property in the second quarter.
Additionally, the nine months of 2002 include the consolidation of the
Properties effective August 1, 2002, while 2001 results reflect the Properties
as joint ventures. During the second quarter of 2001, the Company completed a
follow-on equity offering of common shares a portion of the proceeds of which
were used to retire outstanding preferred shares. As a result, preferred share
dividends are $3.9 million lower in 2002 than 2001. Also, the Company completed
a follow-on equity offering of common shares at the beginning of the third
quarter of 2002 and used the proceeds to acquire the equity interests in the
Properties and to reduce outstanding debt. The impact of both transactions was
to increase net income available to common shareholders and total FFO, however,
the number of common shares outstanding also increased.
INFORMATION TECHNOLOGY
The Company has successfully completed the first phase of its ERP
Implementation. This phase focused on the Oracle e-Business Suite of financial
applications. The Company continues to work with Oracle Corporation to develop a
comprehensive web-based property management solution.
22
INFLATION
Inflation has remained relatively low during the past three years and has
had a minimal impact on the Company's properties. Many tenants' leases contain
provisions designed to lessen the impact of inflation. Such provisions include
clauses enabling the Company to receive percentage rentals based on tenants'
gross sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. In
addition, many of the leases are for terms of less than 10 years, which may
enable the Company to replace existing leases with new leases at higher base
and/or percentage rentals if rents in the existing leases are below the
then-existing market rate. Substantially all of the leases, other than those for
anchors, require the tenants to pay a proportionate share of common area
maintenance, real estate taxes and insurance, thereby reducing the Company's
exposure to increases in costs and operating expenses resulting from inflation.
Inflation may, however, have a negative impact on some of the Company's
other operating items. Interest expense and general and administrative expenses
may be adversely affected by inflation as these specified costs could increase
at a rate higher than rents. Also, for tenant leases with stated rent increases,
inflation may have a negative effect as the stated rent increases in these
leases could be lower than the increase in inflation at any given time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. The
Company uses interest rate protection agreements to manage interest rate risks
associated with long-term, floating rate debt. At September 30, 2002 and 2001
approximately 72.7% and 69.7%, respectively, of the Company's debt, after giving
effect to interest rate protection agreements, bore interest at fixed rates with
weighted-average maturity of 6.6 years and 5.8 years, respectively, and
weighted-average interest rates of approximately 7.16% and 7.88%, respectively.
The remainder of the Company's debt at September 30, 2002 and 2001, bears
interest at variable rates with weighted-average interest rates of approximately
5.60% and 6.50%, respectively.
At September 30, 2002 and 2001, the fair value of the Company's debt
(excluding it's Credit Facility) was $1,084.6 million and $1,073.7 million,
respectively, compared to its carrying amounts of $1,014.0 million and $1,044.1
million, respectively. The Company's combined future earnings, cash flows and
fair values relating to financial instruments are dependent upon prevalent
market rates of interest, primarily LIBOR. Based upon consolidated indebtedness
and interest rates at September 30, 2002 and 2001, a 100 basis points increase
in the market rates of interest would decrease future earnings and cash flows,
on a quarterly basis, by $0.5 million and $0.9 million, respectively, and
decrease the fair value of debt by approximately $33.6 million and $25.8
million, at the respective balance sheet dates. A 100 basis points decrease in
the market rates of interest would increase future earnings and cash flows, on a
quarterly basis, by $0.4 million and $0.9 million, respectively, and increase
the fair value of debt by approximately $36.2 million and $27.7 million, at the
respective balance sheet dates.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the principal executive
officers and principal financial officer of the Company carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on this evaluation, the principal
executive officers and principal financial officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in the Company's periodic reports
filed with the Securities and Exchange Commission.
In addition, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect those
internal controls subsequent to the date the Company's principal executive
officers and principal financial officer carried out their last evaluation.
23
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business operations of the
Company, to which the Company or any of its subsidiaries is a party or
to which any of their properties are the subject.
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
10.163 First Amendment to and Amendment and Restatement of Loan
Agreements and other Loan Documents amoung Glimcher Properties
Limited Partnership and New Boston Mall, LLC and Lehman Brothers
Bank, FSB of certain Loan Documents dated as of July 15, 2002.
10.164 Modification Agreement by Morningside Plaza, LLC and Lehman
Brothers Bank, FSB in the amount of two million six hundred
fifty thousand dollars ($2,650,000) dated as of July 15, 2002.
10.165 Guaranty of payment by Glimcher Properties Limited Partnership,
Glimcher Properties Corporation and Glimcher Development
Corporation in favor of Lehman Brothers Bank, FSB dated July 15,
2002.
10.166 Modification Agreement by Shady Springs Plaza, LLC and Lehman
Brothers Bank, FSB of certain Loan Documents in the amount of
two million nine hundred eighty five thousand dollars
($2,985,000) dated as of July 15, 2002.
99.1 Certification of the Company's CEO and CFO pursuant
to Section 906 of the Sarbanes Oxley Act of 2002.
(b) Reports on Form 8-K
During its fiscal quarter ended June 30, 2002, the Company filed the
following reports on Form 8-K:
1.1 Form 8-K dated and filed August 13, 2002, reporting under "Item
7. Financial Statements, Pro Forma Financial Statements and
Exhibits" and "Item 9. Regulation FD Disclosure" the
certification of the Company's Form 10-Q for the quarter ended
June 30, 2002, by the Company's CEO and CFO pursuant to Section
906 of the Sarbanes Oxley Act of 2002.
24
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.
GLIMCHER REALTY TRUST
November 12, 2002 /s/ Herbert Glimcher
--------------------- --------------------------------------------
Herbert Glimcher, Chairman of the Board &
Chief Executive Officer (Principal
Executive Officer)
November 12, 2002 /s/ Melinda A. Janik
--------------------- --------------------------------------------
Melinda A. Janik, Senior Vice President &
Chief Financial Officer
25
CERTIFICATIONS
I, Herbert Glimcher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Glimcher Realty
Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
1. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
2. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
1. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
2. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ Herbert Glimcher
-----------------------------------
Herbert Glimcher
Chairman of the Board and
Chief Executive Officer
26
I, Melinda A. Janik, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Glimcher Realty
Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
1. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
2. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
1. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
2. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ Melinda A. Janik
-----------------------------------
Melinda A. Janik
Senior Vice President and
Chief Financial Officer
27