SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13239
AEGIS REALTY, INC.
(Exact name of Registrant as specified in its charter)
Maryland 13-3916825
-------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
-------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
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 ___
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
------------ ------------
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
ASSETS
Real estate, net $174,772,156 $175,156,729
Investment in partnerships 5,702,834 5,746,841
Mortgage loan receivable 3,157,399 3,170,322
Loans receivable from affiliate 2,306,986 2,312,543
Cash and cash equivalents 3,545,064 1,474,473
Accounts receivable-tenants, net of allowance for
doubtful accounts of $438,000 and $383,000,
respectively 2,598,270 3,215,665
Deferred costs, net 5,675,339 5,679,884
Other assets 709,820 937,486
----------------------------
Total Assets $198,467,868 $197,693,943
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 66,389,955$ 64,972,605
Accounts payable and other liabilities 4,638,859 4,476,477
Distributions payable 2,116,061 2,115,590
--------------------------
Total Liabilities 73,144,875 71,564,672
------------ ------------
Minority interest of unitholders in the
Operating Partnership 6,869,841 6,941,884
--------------------------
Commitments and Contingencies
Shareholders' equity:
Common stock; $.01 par value;
50,000,000 shares authorized; 8,051,141
and 8,049,179 shares issued and outstanding
in 2001 and 2000, respectively 80,511 80,491
Additional paid in capital 125,359,033 125,339,053
Distributions in excess of net income (6,986,392) (6,232,157)
------------- -------------
Total Shareholders' Equity 118,453,152 119,187,387
----------- -----------
Total Liabilities and Shareholders' Equity $198,467,868 $197,693,943
=========== ===========
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
2001 2000
-------------------------
Revenues:
Rental income $ 4,996,183$ 5,187,635
Tenant reimbursements 1,251,550 1,150,940
Income from equity investments 96,349 101,592
Interest income 129,511 133,679
Other 42,398 185,913
-------------------------
Total revenues 6,515,991 6,759,759
----------------------
Expenses:
Repairs and maintenance 404,125 505,043
Operating 713,688 667,581
Real estate taxes 619,946 612,901
Interest 1,273,561 1,186,856
General and administrative 515,431 462,291
Depreciation and amortization 1,453,112 1,215,844
Other 246,345 296,194
------------------------
Total expenses 5,226,208 4,946,710
----------------------
Income before minority interest 1,289,783 1,813,049
Minority interest in income of
the Operating Partnership (111,744) (159,856)
------------ ------------
Net income $ 1,178,039$ 1,653,193
=========== ===========
Net income per share:
Basic $ .15 $ .21
=============== ===========
Diluted $ .15 $ .21
=============== ===========
Weighted average shares
outstanding:
Basic 8,050,487 8,048,032
=========== ===========
Diluted 8,050,487 8,048,032
=========== ===========
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
Additional Distributions
Common Stock Paid-in in Excess of
--------------------
Shares Amount Capital Net Income Total
------ ------ ------- ---------- -----
Balance at
January 1, 2001 8,049,179 $80,491 $125,339,053 $(6,232,157) $119,187,387
Net income 0 0 1,178,039 1,178,039
Issuance of shares of
common stock 1,962 20 19,980 0 20,000
Distributions 0 0 0 (1,932,274) (1,932,274)
--------------- ---------- ------------------ ---------- -------------
Balance at
March 31, 2001 8,051,141 $80,511 $125,359,033 $(6,986,392) $118,453,152
========= ====== =========== ========== ===========
See accompanying notes to consolidated financial statements
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2001 2000
--------- -----------
Cash flows from operating activities:
Net income $1,178,039 $1,653,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,393,303 1,230,053
Minority interest in income of
the Operating Partnership 111,744 159,856
Distributions from equity investments
in excess of income 33,474 19,978
Changes in operating assets and liabilities:
Accounts receivable-tenants 562,912 (95,254)
Allowance for doubtful accounts 54,483 39,814
Other assets (148,057) (222,264)
Due to Advisor and affiliates 420,723 128,219
Accounts payable and other liabilities 162,382 19,664
Leasing commissions and costs (58,872) (250,864)
----------- ----------
Total adjustments
Net cash provided by operating activities 3,710,131 2,682,395
--------- ---------
Cash flows from investing activities:
Improvements to real estate (889,033) (951,803)
Dispositions of real estate 99,741 0
Increase in deferred acquisition expenses (156,793) (23,920)
Increase in loans made to affiliate 0 (255,937)
Repayments of loans receivable from affiliate 5,557 4,793
Principal payments received on mortgage loans 9,365 8,565
-------------------------
Net cash used in investing activities (931,163) (1,218,302)
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable 1,500,000 1,000,000
Periodic repayments of notes payable (82,650) (251,914)
Distributions paid to shareholders (1,931,803) (1,931,246)
Increase in deferred loan costs (10,137) (20,885)
Distributions paid to minority interest (183,787) (144,878)
---------- -----------
Net cash used in financing activities (708,377) (1,348,923)
---------- ----------
Net increase in cash and cash equivalents 2,070,591 115,170
Cash and cash equivalents at the beginning of
the period 1,474,473 2,226,295
---------- ----------
Cash and cash equivalents at the end of the period $ 3,545,064 $ 2,341,465
========== ==========
Supplemental information:
Interest paid $ 1,009,565 $ 1,186,856
========== ==========
AEGIS REALTY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001
(Unaudited)
Note 1 - General
Aegis Realty, Inc. (the "Company") is a Maryland corporation that has qualified
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986 as amended (the "Code"). The Company was formed to acquire, own, operate
and renovate primarily supermarket-anchored neighborhood and community shopping
centers. As of March 31, 2001, the Company owned a portfolio of 28 retail
properties (the "Retail Properties") containing a total of approximately 3.0
million gross leaseable square feet, held partnership interests in two suburban
garden apartment properties (the "Multifamily Properties") and held one FHA
insured participating mortgage secured by a suburban garden apartment property
(the "FHA Mortgage").
The Company is governed by a board of directors comprised of two independent
directors and three directors who are affiliated with Related Capital Company
("Related"), a nationwide, fully integrated real estate services firm. The
Company has engaged Related Aegis LP (the "Advisor"), a Delaware limited
partnership and an affiliate of Related, to manage its day to day affairs.
The Company owns all of its assets directly or indirectly through Aegis Realty
Operating Partnership, LP, a Delaware limited partnership (the "Operating
Partnership" or "OP"), of which the Company is the sole general partner and
holder of 91.31% of the units of partnership interest (the "OP Units") at March
31, 2001. Also, at March 31, 2001, 5.54% of the OP Units are held by the sellers
of three of the Retail Properties and 3.15% by affiliates of Related.
The consolidated financial statements include the accounts of the Company and
its subsidiary partnerships. All intercompany accounts and transactions with the
subsidiary partnerships have been eliminated in consolidation. Unless otherwise
indicated, the "Company", as hereinafter used, refers to Aegis Realty, Inc. and
its consolidated subsidiary partnerships.
The accompanying financial statements have been prepared without audit. In the
opinion of management, the financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of March 31, 2001 and the results of
its operations and its cash flows for the three months ended March 31, 2001 and
2000. However, the operating results for the interim periods may not be
indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") have been condensed or
omitted. It is suggested that these financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2000.
The consolidated financial statements of the Company are prepared on the accrual
basis of accounting in conformity with GAAP, which requires the Advisor to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Because the Company has no items of other comprehensive income, the Company's
net income and comprehensive income are the same for all periods presented.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It was implemented for the Company beginning on January 1,
2001. Because the Company does not utilize derivatives, implementation of this
statement did not have a material effect on the Company's financial statements.
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 presentation.
On December 21, 2000, the Company entered into a definitive acquisition
agreement to acquire a portfolio of 19 shopping centers and several retail
development opportunities (the "Acquisition Transaction") from Dallas,
Texas-based P.O'B. Montgomery & Company (and its investment partners) ("POB").
Under the terms of the acquisition agreement, Aegis has agreed to pay POB a
total of $203.5 million, comprised of cash, Aegis common shares and assumption
of debt encumbering the acquired shopping centers. As a condition to the
Acquisition Transaction, Aegis would terminate its advisory agreement and
acquire the assets of the Company's property manager, terminate the property
management, and internalize those management functions. The Advisor will be
entitled to certain fees should the Acquisition Transaction be completed. Aegis
originally expected to close the acquisition transaction in late Spring 2001,
subject to stockholder approval. Certain stockholders have raised concerns about
the transaction. Aegis is currently considering those concerns and is engaged in
discussions with POB, which may or may not result in material changes to the
transaction as previously announced. The Acquisition Transaction is subject to
Aegis' stockholder approval and customary conditions.
Note 2 - Real Estate
The components of real estate are as follows:
March 31, December 31,
2001 2000
------------ ----------
Land $ 40,252,075 $ 40,267,037
Buildings and improvements 163,144,683 162,348,285
----------- -----------
203,396,758 202,615,322
Less: Accumulated depreciation (28,624,602) (27,458,593)
------------ ------------
$174,772,156 $175,156,729
============ ============
Amounts estimated to be recoverable from future operations and ultimate sales
are greater than the carrying value of each property owned at March 31, 2001.
However, the carrying value of certain properties may be in excess of their fair
value as of such date.
Note 3 - Deferred Costs
The components of deferred costs are as follows:
March 31, December 31,
2001 2000
---------- --------
Deferred loan costs $ 3,422,809 $ 3,437,672
Deferred leasing commissions and costs 2,726,088 2,667,216
Deferred acquisition expenses 1,544,381 1,387,588
---------- ----------
7,693,278 7,492,476
Less: Accumulated amortization (2,017,939) (1,812,592)
---------- ----------
$ 5,675,339 $ 5,679,884
=========== ===========
Included in deferred acquisition expenses at March 31, 2001, is approximately
$1,275,000, in expenses incurred to date by the Company in connection with the
proposed Acquisition Transaction.
NOTE 4 - Notes Payable
As of March 31, 2001 and December 31, 2000, the Company had notes payable with
outstanding balances totaling $66,389,955 and $64,972,605, respectively. Further
information regarding the notes is as follows:
Collateral/
Date of Monthly Carrying
Note/ Payment Outstanding Outstanding Value at
Maturity Interest of Principal Balance Balance March 31,
Noteholder Date Rate and Interest at 3/31/01 at 12/31/00 2001
---------- ---------- --------- ------------ ---------- ----------- -------------
(a) 12/30/97 (b) Interest $43,193,000 $41,693,000 (c) (h)
12/29/03 only
Heller 6/24/97 (d) 8.50% $19,992 2,516,866 2,523,267 Barclay Place/
Financial, Inc.
7/1/17 $3,966,411
Nomura 10/28/97 (e) 7.54% $33,130 3,772,573 3,800,498 Village At
Asset Capital 11/11/22 Waterford/
Corporation $6,207,508
Chase Bank 12/16/96 (f) 8.875% $51,717 6,275,248 6,290,934 Oxford Mall/
1/1/07 $8,720,500
Merrill Lynch 9/18/97 (g) 7.73% $79,509 10,632,268 10,664,906 Southgate/
Credit 10/1/07 --------- ---------- $15,666,279
Corporation
$66,389,955 $64,972,605
========== ==========
(a) The Credit Facility is shared among Fleet Bank (28.57%), KeyBank National
Association (28.57%), Citizens Bank of Rhode Island (28.57%) and Sovereign Bank
(14.29%).
(b) The interest rate under the Credit Facility can float 1/2% under Fleet
Bank's base rate or can be fixed in 30, 60, 90 and 180 day periods at various
spreads over the indicated Euro-contract, ranging from 1.75% to 2.125% depending
on the Company's ratio of total debt to total assets. The Company has currently
elected the 30 day rate which was 5.125% at March 31, 2001.
(c) Outstanding balance of a $80 million senior revolving credit facility
("Credit Facility").
(d) Note was assumed upon purchase of the property by the Company on March 31,
1998.
(e) Note was assumed upon purchase of the property by the Company on April 22,
1998.
(f) Note was assumed upon purchase of the property by the Company on November
24, 1998.
(g) Note was assumed upon purchase of the property by the Company on December 9,
1998.
(h) The Credit Facility was collateralized at March 31, 2001 by nineteen Retail
Properties, one investment in a partnership and one Mortgage Loan with carrying
values of $109,744,786, $5,040,221 and $3,157,399, respectively. In addition,
the obligation under the Credit Facility is guaranteed by the Company, Summit
Insured I, Summit Insured II (two of the Company's subsidiaries) and
TCR-Pinehurst Limited Partnership (one of the two partnerships in which the
Company has invested).
Note 5 - Common Stock
Each independent director is entitled to receive annual compensation for serving
as a director in the aggregate amount of $17,500 payable in cash (maximum of
$7,500 per year) and/or shares of Common Stock valued based on the fair market
value at the date of issuance. As of March 31, 2001 and December 31, 2000, 3,357
and 2,376 shares, respectively, having an aggregate value at the date of
issuance of $32,500 and $22,500, respectively, have been issued to each of the
Company's two independent directors as compensation for their services.
Note 6 - Related Party Transactions
Pursuant to the Advisory Agreement, the Advisor receives (i) acquisition fees
equal to 3.75% of the acquisition prices of properties acquired; (ii) mortgage
selection fees based on the principal amount of mortgage loans funded; (iii)
asset management fees equal to .375% of the total invested assets of the
Company; (iv) a liquidation fee based on the gross sales price of the assets
sold by the Company in connection with a liquidation of the Company's assets;
and (v) reimbursement of certain administrative costs incurred by the Advisor on
behalf of the Company.
The Company's Retail Properties are managed by RCC Property Advisors (the
"Property Manager"), an affiliate of the Advisor, for a fee equal to 4.5% of the
gross rental receipts from the Retail Properties, which is competitive with such
fees paid in the areas in which the properties are located. The Property Manager
also receives standard leasing commissions for space leased to new tenants and
for lease renewals and is reimbursed for certain expenses.
The costs incurred to related parties for the three months ended March 31, 2001
and 2000 were as follows:
Three Months Ended
March 31,
2001 2000
----------------------
Expense reimbursement $ 70,112 $ 69,895
Property management fees 317,845 281,557
Leasing commissions and costs 78,469 183,495
Asset management fee 193,087 193,780
------- -------
$659,513 $728,727
======== ========
Note 7 - Earnings Per Share
Basic and diluted net income per share in the amount of $.15 and $.21 for the
three months ended March 31, 2001 and 2000, respectively, equals net income for
the periods ($1,178,039 and $1,653,193, respectively), divided by the weighted
average number of shares outstanding for the periods (8,050,487 and 8,048,032,
respectively).
There is no difference between basic and diluted net income per share with
respect to the conversion of the minority interests' OP Units outstanding at
March 31, 2001 and 2000 into an additional 765,780 and 777,213 shares,
respectively, of Common Stock because the earnings of an OP Unit are equivalent
to the earnings of a share of Common Stock.
Note 8 - Commitments and Contingencies
The Company is subject to routine litigation and administrative proceedings
arising in the ordinary course of business. Management does not believe that
such matters will have a material adverse impact on the Company's financial
position, results of operations or cash flows.
On or about February 8, 2001, a complaint was filed in the New York Supreme
Court, County of New York, against the Advisor. Also individually named in the
suit were Messrs. Boesky, Hirmes, Ross, Brenner, Allen and Fisch, each of whom
is either a director of Aegis or the Advisor. Aegis was also named as a nominal
defendant. The action is entitled Paul v. The Related Companies L.P., et al.,
Index No. 01-600669, and is purportedly a class and derivative action. On or
about March 23, 2001, a second action, entitled Schnipper v. Aegis Realty, Inc.,
et al., Case No. 219736-V, was filed in the Circuit Court for Montgomery County,
Maryland against Aegis and each of Aegis' five directors (Messrs. Boesky,
Brenner, Hirmes, Allen and Fisch). Schnipper is purportedly brought as a class
action. On or about April 2, 2001, a third action, entitled Opportunity
Partners, L.P. v. Stuart J. Boesky, et al., Civ. No. 24-C-01-001579, was filed
in the Circuit Court for Baltimore County, Maryland against, among others,
Aegis, each of its five directors, and the Advisors. Opportunity Partners is
purportedly a class and derivative action. Each suit alleges that the defendants
breached their fiduciary duties to the Aegis stockholders by, among other
things, committing Aegis to pay unwarranted fees and other consideration to the
Advisor and the Property Manager. The actions seek money damages, injunctive and
declaratory relief and attorneys' fees. The transaction at issue in each suit,
however, was approved by Aegis' independent directors (Messrs. Allen and Fisch),
who first obtained legal advice and two fairness opinions from nationally
recognized investment banking firms before approving those transactions.
Additionally, the transaction at issue is subject to Aegis stockholder approval
and will be submitted for a vote of the Aegis stockholders after proxy materials
describing that transaction are disseminated to the Aegis stockholders. Aegis
intends to defend all three actions vigorously. On or about April 16, 2001, the
defendants filed motions to dismiss the complaint in Paul. The defendants' times
to answer in Schnipper and Opportunity Partners have not yet expired. With
respect to the allegations in the lawsuits, the defendants have advised that
they continue to believe that the transaction is fair and reasonable and in the
best interests of Aegis and its stockholders and will be submitted for approval
by a vote of the Aegis stockholders.
The Company believes that it has meritorious defenses to the claims brought in
the lawsuit described above, but is unable to predict the effect of the outcome
of this lawsuit on the Company's financial position, results of operations and
cash flows. In addition, the timing of the final resolution of this proceeding
is uncertain. No provision has been recorded on the financial statements of the
Company to reflect the above litigation.
Except for the lawsuit described above, the Company is subject to routine
litigation and administrative proceedings arising in the ordinary course of
business. Management does not believe that such matters will have a material
adverse impact on the Company's financial position, results of operations or
cash flows.
Note 9 - Subsequent Event
On April 23, 2001, the owner of Woodgate Manor sold the property to a third
party. The Company received proceeds of $3.5 million from the borrower. The
carrying value of the Company's mortgage and equity loans were $3.2 million at
the date of sale.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
-------------------------------
The Company has initiated a focused business/strategic plan designed to increase
funds from operations ("FFO") and to enhance the value of its stock over a long
term horizon. The plan concentrates principally on external growth and internal
growth.
The Company requires long-term financing in order to invest in and maintain its
portfolio of Retail Properties and other investments. To date, this long-term
liquidity has come from proceeds from the Credit Facility, notes payable assumed
upon the purchase of certain properties and the issuance of shares of the
Company's Common Stock or OP Units in exchange for real estate. Although the
Credit Facility may be increased, the Company's Charter dictates leverage of no
more than 50% of the Company's Total Market Value. On a short-term basis, the
Company requires funds to pay its operating expenses and those of the Retail
Properties, to make improvements to the Retail Properties, pay its debt service
and make distributions to its shareholders. The primary source of the Company's
short-term liquidity needs are the cash flow received from the Retail Properties
and interest income.
As a REIT, the Company is required to distribute at least 90% of its taxable
income to maintain REIT status. Funds generated from operations are expected to
be sufficient to allow the Company to meet this requirement.
The Advisor believes that the stability of the Company's operations and its
ability to maintain liquidity are enhanced by:
(i) Geographic diversity of its portfolio of real estate and its mortgage note.
(ii) 46% of total revenues for the three months ended March 31, 2001 were earned
from shopping center anchor tenants which are national and/or credit tenants.
(iii) No single asset accounts for more than 8% of total revenues for the three
months ended March 31, 2001.
(iv) Leases that provide for recovery of actual common area maintenance charges
and real estate taxes, thereby minimizing any effects from inflation.
(v) Leases that provide for increases in rents based on a percentage of tenants'
sales.
(vi) Maintaining and physically updating its portfolio of real estate such that
the properties remain competitive in their market areas in terms of occupancy
and rents.
During the three months ended March 31, 2001, cash and cash equivalents of the
Company and its consolidated subsidiaries increased approximately $2,071,000.
This increase was primarily due to cash provided by operating activities
($3,710,000) and net proceeds from notes payable ($1,417,000) which exceeded
improvements to real estate ($889,000), an increase in deferred acquisition
expenses ($157,000), distributions paid to shareholders ($1,932,000) and
distributions paid to minority interest ($184,000). Included in the adjustments
to reconcile the net income to cash provided by operating activities is
depreciation and amortization in the amount of $1,393,000.
The Company anticipates that cash generated from operations will provide for all
major repairs, replacements and tenant improvements on its real estate and will
provide sufficient liquidity to fund, in future years, the Company's operating
expenditures, debt service and distributions.
The Company has the following problem assets which may adversely affect future
operations and liquidity:
(i) Safeway, the anchor tenant of Cactus Village Shopping Center closed its
facility in December 1991 due to poor sales. The tenant continues to fully abide
by all significant aspects of its lease which will expire in September 2006. The
Company is actively pursuing potential replacement tenants and at the
appropriate time, hopes to be able to negotiate a termination agreement with
Safeway.
(ii) In July 1994, A&P closed its store in the Mountain Park Plaza Shopping
Center due to reduced sales and increased competition. The Company received
rental payments from the vacated tenant pursuant to the terms of the lease. In
December 2000, A&P bought out its lease for $300,000 and the Company entered
into a new lease with Publix, who is expected to take physical occupancy in the
third quarter of 2001.
(iii) Three of White Oaks Plaza's anchors have vacated their spaces. Two,
Wal-mart and Winn-Dixie, are still paying rent and are current in their rent
payments.
(iv) Office Max, one of the anchor tenants of Town West which was under
sublease, vacated its space in February 2000. The original lessee is still
obligated to pay rent on the space through January 2004. As of March 31, 2001,
the tenant had paid all base rent payments. Beginning April 2001, the original
lessee has ceased paying rent. As of May 9, 2001, the total unpaid rent was
$24,649.
(v) Food Lion, located in Barclay Place, closed its store in December 2000. It
is still obligated to pay rent through the expiration of their lease, and is
current with all rent payments.
In May 2001, a distribution of $1,932,274 ($.24 per share), which was declared
in March 2001, was paid to the stockholders from cash flow from operations for
the quarter ended March 31, 2001.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
Results of Operations
---------------------
Rental income decreased approximately $191,000 for the three months ended March
31, 2001 as compared to 2000 primarily due to the decrease of percentage rent
for White Oak Plaza, Pablo Plaza, Westbird and Oxford Mall and minimum
unrealized straight line rent of Highland Fair, Westbird and Pablo Plaza. This
was offset by the increase in concession free rent of Highland Fair, Westbird,
and Pablo Plaza and minimum rent of Pablo Plaza, Governors Square and Marion
City Square.
Tenant reimbursements increased approximately $101,000 for the three months
ended March 31, 2001 as compared to 2000 due to the increase of the
reimbursements of common charges of Pablo Plaza, Crossroads East, Mountain View
and Townwest and the reimbursements of real estate taxes of Pablo Plaza,
Southgate, Southaven and Westbird.
Other income decreased approximately $144,000 for the three months ended March
31, 2001 as compared to 2000 due to the one time lease settlements from Marion
City and White Oak Plaza in the first quarter of 2000.
Repairs and maintenance decreased approximately $101,000 for the three months
ended March 31, 2001 as compared to 2000 primarily due to an decrease in snow
removal at White Oak Plaza, Marion City Square, Marketplace and Kokomo Plaza and
roof repairs at Winery Square, Oxford Mall and Dunlap Village.
Operating expense increased approximately $46,000 for the three months ended
March 31, 2001 as compared to 2000 primarily due to the increase in the property
management fee expense of Emporia West, Mountain Park and Winery Square and the
legal expense of Pablo Plaza.
Interest expense increased approximately $87,000 for the three months ended
March 31, 2001 as compared to 2000 due to the increase in the outstanding
principal balance of the Credit Facility offset by the payoff of the New York
Life note payable.
General and administrative expense increased approximately $53,000 for the three
months ended March 31, 2001 as compared to 2000 due to the increase in public
relations, other state income taxes and other fees.
Depreciation and amortization increased approximately $237,000 for the three
months ended March 31, 2001 as compared to 2000 primarily due to the increase in
depreciation of Westbird, Governor's Square and Pablo Plaza and the increase in
amortization of the Credit Facility deferred financing fees.
Other expenses decreased approximately $50,000 for the three months ended March
31, 2001 as compared to 2000 primarily due to the decrease of abandoned projects
offset by an increase in insurance.
Funds from Operations and Funds Available for Distribution
----------------------------------------------------------
Funds from operations ("FFO"), represents net income (computed in accordance
with generally accepted accounting principles) ("GAAP"), excluding gains (or
losses) from debt restructuring or repayments and sales of property, plus
depreciation and amortization and including funds from operations for
unconsolidated joint ventures calculated on the same basis. Net income computed
in accordance with GAAP includes straight-lining of property rentals for rent
escalations in the amounts of $15,426 and $111,043 for the three months ended
March 31, 2001 and 2000, respectively. FFO is calculated in accordance with the
National Association of Real Estate Investment Trusts ("NAREIT") definition. FFO
does not represent cash generated from operating activities in accordance with
GAAP which is disclosed in the Consolidated Statements of Cash Flows included in
the financial statements, for the applicable periods and is not necessarily
indicative of cash available to fund cash needs. There are no material legal or
functional restrictions on the use of FFO. FFO should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or as an alternative to cash flows as a measure of liquidity. Management
considers FFO a supplemental measure of operating performance and along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs.
Funds available for distribution ("FAD") represents FFO plus recurring principal
receipts from mortgage loans less reserves for lease commissions, recurring
capital expenditures (excluding property acquisitions) and debt principal
amortization. FAD should not be considered an alternative to net income as a
measure of the Company's financial performance or to cash flow from operating
activities (computed in accordance with GAAP) as a measure of the Company's
liquidity, nor is it necessarily indicative of sufficient cash flow to fund all
of the Company's needs.
FFO, as calculated in accordance with the NAREIT definition, and FAD for the
three months ended March 31, 2001 and 2000 are summarized in the following
table:
Three Months Ended
March 31,
2001 2000
-----------------------
Net income $ 1,178,039 $1,653,193
Depreciation and amortization of
real property 1,283,279 1,122,171
Depreciation and amortization from equity investments 60,362 60,469
-----------------------
Funds From Operations ("FFO") 2,521,680 2,835,833
Amortization of deferred financing costs 183,924 107,882
Principal payments received on mortgage loans 9,365 8,565
Straight-lining of property rentals for rent escalations (15,426) (111,043)
Improvements to real estate (889,033) (951,803)
Principal repayments on notes payable (82,650) (132,668)
Leasing commissions (39,272) (222,364)
------------ ----------
Funds Available for Distribution
("FAD") $ 1,688,588 $ 1,534,402
=========== ===========
Distributions to shareholders $ 1,932,274 $1,931,803
=========== ===========
FFO payout ratio 76.6% 68.1%
=============== ==========
Cash flows from:
Operating activities $ 3,710,131$ 2,682,395
=========== ===========
Investing activities $ (931,163)$ (1,218,302)
============ ===========
Financing activities $ (708,377)$ (1,348,923)
============ ===========
Weighted average common shares outstanding 8,050,487 8,048,032
=========== ===========
Weighted average common shares and OP Units
outstanding 8,816,267 8,825,245
======================
Forward-Looking Statements
--------------------------
Certain statements made in this report may constitute "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
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.
Inflation
---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The debt financing used to raise capital for the acquisition of the Company's
investments expose the Company to fluctuations in market interest rates. Market
interest rates are highly sensitive to many factors, including governmental
policies, domestic and International political considerations and other factors
beyond the control of the Company.
Cash flows from the Company's investments do not fluctuate with changes in
market interest rates. In addition, as of March 31, 2001, approximately 35% of
the Company's total notes payable outstanding are fixed rate notes, and so the
payments on these instruments do not fluctuate with changes in market interest
rates. In contrast, payments required under the Credit Facility vary based on
market interest rates, primarily the 30 day Euro-contract rate. Thus, an
increase in market interest rates would result in increased payments under the
Credit Facility, without a corresponding increase in cash flows from the
Company's investments in the same amounts. For example, based on the $43,193,000
outstanding under the Credit Facility at March 31, 2001, the Company estimates
that an increase of 1% in the 30 day Euro-contract rate would decrease the
Company's annual net income by approximately $432,000; a 2% increase in the 30
day Euro-contract rate would decrease annual net income by approximately
$864,000. For the same reasons, a decrease in market interest rates would
generally benefit the Company, as a result of decreased payments under the
Credit Facility without corresponding decreases in cash flows from the Company's
investments. Various financial vehicles exist which would allow Company
management to mitigate the impact of interest rate fluctuations on the Company's
cash flows and earnings. Management may engage in such hedging strategies in the
future, depending on management's analysis of the interest rate environment and
the costs and risks of such strategies.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On or about February 8, 2001, a complaint was filed in the New York Supreme
Court, County of New York, against the Advisor. Also individually named in the
suit were Messrs. Boesky, Hirmes, Ross, Brenner, Allen and Fisch, each of whom
is either a director of Aegis or the Advisor. Aegis was also named as a nominal
defendant. The action is entitled Paul v. The Related Companies L.P., et al.,
Index No. 01-600669, and is purportedly a class and derivative action. On or
about March 23, 2001, a second action, entitled Schnipper v. Aegis Realty, Inc.,
et al., Case No. 219736-V, was filed in the Circuit Court for Montgomery County,
Maryland against Aegis and each of Aegis's five directors (Messrs. Boesky,
Brenner, Hirmes, Allen and Fisch). Schnipper is purportedly brought as a class
action. On or about April 2, 2001, a third action, entitled Opportunity
Partners, L.P. v. Stuart J. Boesky, et al., Civ. No. 24-C-01-001579, was filed
in the Circuit Court for Baltimore County, Maryland against, among others,
Aegis, each of its five directors, and the Advisors. Opportunity Partners is
purportedly a class and derivative action. Each suit alleges that the defendants
breached their fiduciary duties to the Aegis stockholders by, among other
things, committing Aegis to pay unwarranted fees and other consideration to the
Advisor and the Property Manager. The actions seek money damages, injunctive and
declaratory relief and attorneys' fees. The transaction at issue in each suit,
however, was approved by Aegis' independent directors (Messrs. Allen and Fisch),
who first obtained legal advice and two fairness opinions from nationally
recognized investment banking firms before approving those transactions.
Additionally, the transaction at issue is subject to Aegis stockholder approval
and will be submitted for a vote of the Aegis stockholders after proxy materials
describing that transaction are disseminated to the Aegis stockholders. Aegis
intends to defend all three actions vigorously. On or about April 16, 2001, the
defendants filed motions to dismiss the complaint in Paul. The defendants' times
to answer in Schnipper and Opportunity Partners have not yet expired. With
respect to the allegations in the lawsuits, the defendants have advised that
they continue to believe that the transaction is fair and reasonable and in the
best interests of Aegis and its stockholders and will be submitted for approval
by a vote of the Aegis stockholders.
The Company believes that it has meritorious defenses to the claims brought in
the lawsuit described above, but is unable to predict the effect of the outcome
of this lawsuit on the Company's financial position, results of operations and
cash flows. In addition, the timing of the final resolution of this proceeding
is uncertain. No provision has been recorded on the financial statements of the
Company to reflect the above litigation.
Except for the lawsuit described above, the Company is subject to routine
litigation and administrative proceedings arising in the ordinary course of
business. Management does not believe that such matters will have a material
adverse impact on the Company's financial position, results of operations or
cash flows.
Item 2. Changes in Securities and Use of Proceeds - 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: None
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during this quarter.
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.
AEGIS REALTY, INC.
(Registrant)
Date: May 12, 2001 By:
-----------------------------------
Stuart J. Boesky
Director, Chairman of the
Board, President and
Chief Executive Officer
Date: May 12, 2001 By:
-----------------------------------
Michael I. Wirth
Chief Financial Officer
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.
AEGIS REALTY, INC.
(Registrant)
Date: May 12, 2001 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Director, Chairman of the
Board, President and
Chief Executive Officer
Date: May 12, 2001 By: /s/ Michael I. Wirth
--------------------
Michael I. Wirth
Chief Financial Officer