ITEM 1. BUSINESS
(a) General Development of Business
GRT is a fully-integrated, self-administered and self-managed Maryland REIT which was formed on September 1, 1993 to continue the business of The Glimcher Company ("TGC"), and its affiliates, of owning, leasing, acquiring, developing and operating a portfolio of retail properties consisting of regional and super regional malls (including, most recently, value-oriented super-regional malls) (the "Mall Properties") and community shopping centers (including single tenant retail properties) (the "Community Centers"). The Mall Properties and Community Centers are each individually referred to herein as a "Property" and the Mall Properties and Community Centers in which GRT holds an ownership position are collectively referred to herein as the "Properties". On January 26, 1994, GRT consummated an initial public offering (the "IPO") of 15,825,000 of its common shares of beneficial interest (the "Shares"). On February 3, 1994, GRT sold an additional 2,373,750 Shares as a result of the underwriters exercising the over-allotment option granted to them in connection with the IPO . The net proceeds of the IPO were used by GRT primarily to acquire (at the time of the IPO) an 86.2% interest in Glimcher Properties Limited Partnership (the "Operating Partnership"), a Delaware limited partnership of which Glimcher Properties Corporation ("GPC"), a Delaware corporation and a wholly owned subsidiary of GRT, is sole general partner, and to repay mortgage indebtedness with respect to one of the Properties acquired in connection with the IPO ( the "IPO Properties). The Operating Partnership and/or its subsidiaries applied the portion of the net proceeds received by it from GRT towards (i) the acquisition of 46 Properties (the "Acquisition Properties"), (ii) the repayment of certain mortgage indebtedness and prepayment penalties on 29 Properties (the "Glimcher Properties") contributed to the Operating Partnership and its affiliates by entities affiliated with Herbert Glimcher and David J. Glimcher or the beneficial owners of such entities (collectively, the "Glimcher Entities"), (iii) the payment to persons unaffiliated with TGC of the purchase price for minority interests in certain of the Glimcher Properties, (iv) the payment of other costs and expenses associated with the IPO transactions, and (v) for working capital and other general business purposes. The net proceeds from the exercise of the over-allotment option were used entirely to reduce the then outstanding balance of GRT's credit facility.
On June 27, 1995 and October 6, 1997, GRT completed public offerings for an additional 3,500,000 and 1,750,000 Shares, respectively, (the "Additional Offerings"). The net proceeds from the Additional Offerings were used by GRT to acquire additional units of limited partnership in the Operating Partnership. The Operating Partnership then used the proceeds obtained in exchange for the GRT units to reduce variable rate indebtedness. On November 17, 1997, GRT completed a public offering of 4,800,000 shares of 9-1/4% Series B cumulative redeemable preferred shares of beneficial interest (the "Series B Preferred Shares"), par value $0.01 per share, with each share having a liquidation preference of $25.00. On November 25, 1997, GRT sold an additional 318,000 Series B Preferred Shares as a result of the underwriters exercising the over-allotment option granted to them. The net proceeds were used by GRT to (i) repay the balance of a $34.4 million bridge loan facility and (ii) to repay a portion of the outstanding borrowings on GRT's credit facility.
On November 27, 1996, the Company issued 34,000 shares of its 40,000 authorized Series A convertible preferred shares. The Series A Preferred Shares were offered and sold in a private placement to an affiliate of Nomura, for an aggregate cash consideration of $34.0 million and may be redeemed by the Company at any time, prior to conversion, at its option without any penalty or premiums. On November 7, 1997, the Series A preferred shares were exchanged for Series A-1 preferred shares (the "Series A-1 Preferred Shares") having substantially the same terms. Beginning in 2001, the Series A-1 Preferred Shares are convertible into the number of Shares obtained by dividing the liquidation preference by the conversion price per Share. The conversion price per share is the product of (i) the average market price per Share over the 30 trading days prior to the conversion, multiplied by (ii) the applicable conversion percentage which ranges between 70.0% and 90.0%.
On December 5, 1997, the Company issued 56,000 shares of its Series C convertible preferred shares (the "Series C Preferred Shares"). The Series C Preferred Shares were issued pursuant to a purchase agreement dated December 4, 1997, among the Company and an affiliate of Nomura, to obtain equity funding for the purchase by Elizabeth Metro Mall, LLC, of real estate on which to construct and develop a value-oriented super-regional mall in Elizabeth, New Jersey. It is contemplated that, subject to satisfactory completion of its due diligence and satisfaction of certain other conditions, a Nomura affiliate will purchase a series of the Company's preferred shares and that the proceeds of such sale will be used to redeem the Series C Preferred Shares.
The Series C Preferred Shares were offered and sold for an aggregate cash consideration of $56.0 million and may be redeemed by the Company at any time, prior to conversion, at its option without any penalty or premiums. Beginning in December 1998, the Series C Preferred Shares are convertible into the number of Shares obtained by dividing the liquidation preference by the conversion price per Share. The conversion price per Share is the product of (i) the average market price per Share over the 30 trading days prior to the conversion, multiplied by (ii) the applicable conversion percentage which ranges between 70.0% and 80.0%.
The sale of the Series A-1 and Series C Preferred Shares was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") by virtue of the fact that the Series A-1 and Series C Preferred Shares were sold to Nomura affiliates for their account for investment and not with a view towards the resale, transfer or distribution thereof, nor with any present intention of distributing the Series A-1 and Series C Preferred Shares, thus qualifying the sale as a transaction by an issuer not involving any public offering in accordance with Section 4(2) of the Securities Act. In addition the Nomura affiliates are "accredited investors" as defined in Rule 501 (a) under the Securities Act.
The Operating Partnership is a 99.0% limited partner of five Delaware limited partnerships, Glimcher Holdings Limited Partnership ("Holdings"), Glimcher Centers Limited Partnership ("Centers"), Grand Central Limited Partnership ("GCLP"), Glimcher York Associates Limited Partnership ("York") and Glimcher University Mall Limited Partnership ("University") and of one Ohio limited partnership, Morgantown Mall Associates Limited Partnership ("Morgantown"). The general partner in each entity is either (i) GPC, (ii) wholly-owned by GPC, or (iii) wholly-owned by GRT. The Operating Partnership is (i) an 81.8% member of a Colorado limited liability company, Olathe Mall LLC ("Olathe") which is a 55.0% member in Great Plains Metro Mall LLC, a Delaware limited liability company ("Great Plains"), (ii) a 32.3% member of a Delaware limited liability company, Johnson City Venture, LLC, whose managing member, Glimcher Johnson City, Inc., a Delaware corporation, is a 1.0% member (collectively "Johnson City"); (iii) a 39.0% member of a Delaware limited liability company, Dayton Mall Venture, LLC, whose managing member, Glimcher Dayton Mall, Inc., is a 1.0% member (collectively "Dayton"); (iv) a 39.5% limited partner of a Delaware limited partnership, Colonial Park Mall Limited Partnership, whose general partner, Glimcher Colonial Trust, a Delaware business trust, is a 0.5% member (collectively "Colonial"), with an option to acquire the remaining 11.0% interest in the entity which owns the Colonial Park Mall; (v) a 50.0% member of a Delaware limited liability company, Glimcher New Jersey Metro Mall, LLC ("NJM"), which is a 60.0% member in Elizabeth Metro Mall, LLC, a Delaware limited liability company; and (vi) a common shareholder of Glimcher Development Corporation ("GDC"), a Delaware corporation, with 95.0% economic interest and no voting interest. GDC was incorporated on October 16, 1996; the construction, development, leasing and legal departments of GRT were transferred to GDC on November 1, 1996, and provide their services for a fee paid by GRT to ventures in which GRT has an ownership interest, as well as to third parties. The operation of GDC allows the Company to earn non-qualified revenues without jeopardizing its REIT status. The Operating Partnership and entities directly or indirectly owned or controlled by GRT, on a consolidated basis, are hereinafter referred to as the "Company."
The Company does not engage or pay a REIT advisor. Management, leasing, accounting, design and construction supervision expertise is provided through its own personnel, through GDC, or, where appropriate, through outside professionals.
(b) Acquisitions, Expansions, Renovations and Developments During the 1997 Fiscal Year
ACQUISITIONS
The Company's objective is to acquire retail properties which appeal to a wide range of national and regional tenants. The Company focuses primarily on Properties which individually or in combination with other Properties owned by the Company, are capable of becoming a dominant retail property in their respective trade areas. Additionally, the Company seeks accretive acquisitions which can achieve increases in cash flow as a result of the Company's management and leasing expertise. Consistent with this strategy, during 1997 the Company acquired interests in joint ventures which purchased two Mall Properties totaling approximately 2.1 million square feet of gross leasable area ("GLA") (of which approximately 1.0 million square feet of GLA is owned by certain anchor store tenants) for a total purchase price of approximately $139.0 million and acquired one Mall Property totaling approximately 1.3 million square feet of GLA (of which approximately 652,000 square feet of GLA is owned by certain anchor tenants) for approximately $121.0 million. Additionally, effective October 1, 1997, GDC became the leasing agent for one Mall Property aggregating approximately 933,000 square feet of GLA and, effective November 1, 1997, the Company and GDC became the management and leasing agent, respectively, for two other Mall Properties aggregating approximately 1.6 million square feet of GLA.
The 1997 acquisitions of The Dayton Mall, Colonial Park Mall, and University Square are examples of management's implementation of the Company's acquisition strategy. The Dayton Mall, located in Dayton, Ohio, was acquired in a joint venture with Nomura on July 2, 1997 for a total purchase price of approximately $91.0 million. This Mall Property is a super-regional mall that contains approximately 1.3 million square feet of GLA. Tenants include four anchors (J.C. Penney, Lazarus, McAlpin's and Sears), 142 mall shops, an eight-screen theater and 14 food court units. The Company also developed and currently owns The Mall at Fairfield Commons, an approximately 1.0 million square foot super-regional mall located in the Dayton, Ohio metropolitan area which opened in 1993. With The Dayton Mall acquisition, the Company believes it has secured its position as the dominant retailer within the Dayton, Ohio market.
Colonial Park Mall, located in Harrisburg, Pennsylvania, was acquired in a joint venture with Nomura on October 1, 1997 for a total purchase price of approximately $48.0 million. This Mall Property is a regional mall that contains approximately 752,000 square feet of GLA. Tenants include three anchors (Boscov's, The Bon Ton and Sears), 89 mall shops and 11 kiosks. The acquisition of this asset added to the Company's portfolio a Mall Property that is well positioned in a strong market and provided additional tenant diversification.
University Square, located in Tampa, Florida, was acquired by the Company on December 18, 1997 for a total purchase price of approximately $121.0 million. This Mall Property is an expanded and re-developed super-regional mall that contains approximately 1.3 million square feet of GLA. Tenants include five anchors (Burdines, Dillard's, J.C. Penney, Montgomery Ward and Sears), 152 mall shops and a 16-screen theater.
EXPANSIONS AND RENOVATIONS
The Company maintains a strategy of selective expansion and renovation of its Properties in order to improve the operating performance and the competitive position of its existing Properties. 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. Certain examples of the Company's recent Property expansions and renovations are described below.
The expansion and renovation in 1996 of the Grand Central Mall in Parkersburg, West Virginia, focused on enhancing the entertainment component of the Mall Property, adding a food court and expanding the existing cinema into an approximately 37,000 square foot 12-screen complex. The Company plans to make certain additional revenue-enhancing expansions of this Mall Property, including an approximately 83,000 square foot Proffitt's which is expected to open in March 1998.
In 1997, the Company also expanded the Indian Mound Mall, located in Newark/Heath, Ohio by approximately 122,000 square feet of GLA, which increased its total GLA to approximately 543,000 square feet. The Company believes that this expansion enables this Mall Property to continue to dominate its market. The expansion is consistent with the Company's focus of combining strong anchor tenants with an expanded entertainment component to provide a compelling destination focus for shoppers. An approximately 93,000 square foot Sears store opened in September 1997, and the expansion of the current cinema from approximately 18,000 square feet to approximately 42,000 square feet, as well as the addition of approximately 5,000 square feet of mall shops was completed during the fourth quarter of 1997.
DEVELOPMENTS
One of the Company's objectives is to increase its portfolio by developing new retail properties in stable markets. 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, predevelopment leasing, construction financing and construction management.
The Company has begun developing value-oriented super-regional malls while continuing to acquire and develop traditional regional mall and community shopping center properties. These value-oriented, super-regional malls transcend the typical design and format of the value-oriented mall by combining the amenities and comforts of a contemporary regional mall with significant entertainment facilities and diversified tenants. The Company has recently strengthened its management team with the addition of senior executives with substantial experience in leasing and developing properties of this type. On August 14, 1997, the Company opened The Great Mall of the Great Plains, located in Olathe, Kansas, the first of its value-oriented and entertainment super-regional malls. The approximately 782,000 square foot initial phase of the mall features 10 anchors and 150 mall shops. The Great Mall of the Great Plains features a unique mix of tenants, including department stores, manufacturers' retail outlets, factory outlets, factory direct retailers and specialty stores. The entertainment area includes a 16-screen stadium seating cinema complex, a 12 restaurant food court and Jeepers!, a 30,000 square foot family entertainment anchor. A planned second phase of the project, not yet under construction, is expected to include theme restaurants and additional entertainment venues.
In December, the Company, through a joint venture, purchased the land for a value-oriented super-regional mall located in Elizabeth New Jersey (the "Jersey Gardens"). Also, the Company has an option to acquire the land for another value-oriented super-regional mall located in Carson, California, (the "LA Metro Mall") with the seller, who is also expected to participate in the joint venture which will develop and own such Mall Property.
The Company's recent development of Community Centers has been focused on developments in strategic locations in markets where the Company believes that the Properties either alone, or in combination with other Properties owned by the Company, are capable of becoming the market's dominant retail center. Georgesville Square is an approximately 232,000 square foot development located in a rapidly growing area in Columbus, Ohio that was developed at a cost of approximately $18.4 million. An anchor tenant, Lowe's, opened in October 1996, while Kroger and the specialty shops opened during the second quarter of 1997.
Meadowview Square is an approximately 151,000 square foot development located in the Kent/Ravenna, Ohio area that was developed at a cost of approximately $9.6 million. An anchor tenant, Wal-Mart, opened in January 1997, while the specialty shops opened during the second half of 1997.
(c) Narrative Description of Business
General The Company concentrates its business on various types of retail properties such as Mall Properties and Community Centers, which are generally strategically located in markets where management of the Company has extensive operating experience and knowledge of market conditions. At December 31, 1997, the Properties consisted of 13 Mall Properties containing an aggregate of 9.3 million square feet of GLA (3.4 million square feet of GLA is owned in joint ventures) and 104 Community Centers (including 17 single tenant retail properties) containing an aggregate of 13.6 million square feet of GLA. Additionally, effective October 1, 1997, the Company became the leasing agent for one Mall Property aggregating approximately 932,904 square feet of GLA and, effective November 1, 1997, became the management and leasing agent for two other Mall Properties aggregating approximately 1,573,741 square feet of GLA.
As of December 31, 1997, the occupancy rate for all of the Properties was 94.0% of which 90.0%, 6.0% and 4.0% was leased to national retailers, regional retailers and local retailers, respectively. The Company's focus is to maintain high occupancy rates for the Properties by capitalizing on management's long-standing relationships with national and regional tenants and its extensive experience in marketing to local retailers.
As of December 31, 1997, the Properties had average annualized minimum rents of $7.43 per square foot of GLA. Approximately 84.0%, 8.0% and 8.0% of the annualized minimum rents of the Properties as of December 31, 1997 was derived from national retail chains, regional retail chains and local retailers, respectively. Wal-Mart, Kmart, The Limited, Inc. and its consolidated entities and Lowe's represented approximately 8.3%, 6.5%, 3.8% and 3.6%, respectively, of the aggregate annualized minimum rents of the Properties as of December 31, 1997; no other tenant represented more than 3.0% of the aggregate annualized minimum rents of the Properties for such period.
Mall Properties The Mall Properties provide a broad range of shopping alternatives to serve the needs of customers in all market segments. Each of the Mall Properties is anchored by two to five department stores including Bon Ton, Boscov's, Dillard's, Elder-Beerman, J.C. Penney, Lazarus, Parisian, Proffitt's, and Sears. Mall stores, most of which are national retailers, include Footlocker, Hallmark, Lerner New York, Limited Express, Radio Shack, The Disney Store, The Gap, The Limited, Warner Brothers and Waldenbooks. To provide a complete shopping, dining and entertainment experience, the Mall Properties generally have at least one theme restaurant, a food court which offers a variety of fast food alternatives, multiple screen movie theaters and other entertainment activities. The largest of the Mall Properties has 1.3 million square feet of GLA and approximately 180 stores and the smallest has 225,000 square feet of GLA and has approximately 55 stores. The Mall Properties also have additional restaurants and retail businesses such as Chi-Chi's, Red Lobster and Toys "R" Us located along the perimeter of the parking areas.
As of December 31, 1997, the Mall Properties accounted for 40.7% of the total GLA, 53.8% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 93.3%.
Community Centers The Company's Community Centers are designed to attract local and regional area customers and are typically anchored by a combination of supermarkets, discount department stores or drug stores ("Community Anchors") which attract shoppers to each center's smaller shops. The tenants at the Company's Community Centers typically offer day-to-day necessities and value-oriented merchandise. Community Anchors include nationally recognized retailers such as J.C. Penney, Kmart, Lowe's, Target and Wal-Mart and supermarkets such as Big Bear, Kroger and Winn-Dixie. Many of the Community Centers have retail businesses including Toys "R" Us and OfficeMax or restaurants including Applebee's, Burger King, Lone Star, McDonald's, and Wendy's located along the perimeter of the parking areas.
As of December 31, 1997, the Community Centers accounted for 59.3% of the total GLA, 46.2% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 94.4%.
Growth Strategies and Operating Policies Management of the Company believes per share growth in funds from operations ("FFO") is the critical factor in enhancing shareholder value. The Company's primary business objective is to achieve growth in FFO by developing and acquiring retail properties and by improving the operating performance and value of its existing portfolio through selective expansion and renovation of its Properties and by maintaining high occupancies, increasing minimum rents per square foot of GLA and aggressively controlling costs.
Key elements of the Company's growth strategies and operating policies are to: (i) increase Property values by aggressively marketing available GLA and renewing existing leases; (ii) negotiate and sign leases which provide for regular or periodic fixed contractual increases to minimum rents; (iii) capitalize on management's long-standing relationships with national and regional retailers and extensive experience in marketing to local retailers, as well as exploit the leverage inherent in a larger portfolio of properties to lease available space; (iv) utilize its team management approach to increase productivity and efficiency; (v) hold Properties for long-term investment and emphasize regular maintenance, periodic renovation and capital improvements to preserve and maximize value; (vi) control operating costs by utilizing Company employees and/or GDC employees to do management, leasing, marketing, finance, accounting, construction supervision, legal and data processing activities; and (vii) renovate, reconfigure or expand Properties and utilize existing land available for expansion and development of outparcels to meet the needs of existing or new tenants. Additionally, the Company seeks to utilize its development capabilities to develop quality Properties at the lowest possible cost.
The Company intends to operate in a manner consistent with the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to REITs and related regulations with respect to the composition of the Company's portfolio and the derivation of income unless, because of circumstances or changes in the Code (or any related regulation), the trustees of the Company determine that it is no longer in the best interests of the Company to qualify as a REIT.
The Company's acquisition strategies are to selectively acquire strategically located Properties in regional markets where management generally has extensive operating experience and/or where it has been able to capitalize on its strong working relationships with national, regional and local retailers, to enhance such center's operating performance through a comprehensive program of leasing, merchandising, reconfiguration, proactive management, renovation and expansion.
The following factors, among others, are considered by the Company in making acquisitions: (i) the geographic area and type of property; (ii) the location, construction quality, condition and design of the property; (iii) the current FFO generated by the property and the ability to increase FFO through property repositioning and proactive management of the tenant base; (iv) the potential for capital appreciation; (v) the terms of tenant leases; (vi) the existing tenant mix at the property; (vii) the potential for economic growth and the tax and regulatory environment of the communities in which the properties are located; (viii) the occupancy and demand by tenants for properties of similar type in the vicinity; and (ix) the prospects for financing or refinancing of the property.
The Company owns its Properties for long-term investment. Therefore, its focus is to provide for regular maintenance for its Properties and conduct periodic renovations and refurbishments to preserve and increase Property values while also increasing the retail sales prospects of its tenants. The projects usually include renovating existing facades, installing uniform signage, updating interior decor, resurfacing parking lots and increasing parking lot lighting. To meet the needs of existing or new tenants and changing consumer demands, the Company also reconfigures and expands its properties, including utilizing land available for expansion and development of outparcels for the addition of new anchors. In addition, the Company works closely with its tenants to renovate their stores and enhance their merchandising capabilities.
Financing Strategies At December 31, 1997, the Company had a debt to total market capitalization ratio of 42.2%, based upon the closing price of the Shares on the New York Stock Exchange as of December 31, 1997. The Company expects that it may from time to time reevaluate its policy with respect to its ratio of total debt to total market capitalization in light of then current economic conditions, relative costs of debt and equity capital, market values of its Properties, acquisition, development and expansion opportunities and other factors, including meeting the taxable income distribution requirement for REITs under the Code if the Company has taxable income without receipt of cash sufficient to enable the Company to meet such distribution requirements.
On November 17, 1997, the Company completed a public offering of 5,118,000 Series B Preferred Shares (including 318,000 Series B Preferred Shares sold as a result of the underwriters exercising the over-allotment option granted to them). The net proceeds of approximately $123.1 million were contributed by the Company to the Operating Partnership and were used to: (i) repay the balance of a $34.4 million bridge loan facility and (ii) to repay a portion of the outstanding borrowings on the Operating Partnership's credit facility.
On October 6, 1997, the Company completed a second offering of 1,750,000 Shares and used the net proceeds of approximately $37.8 million to acquire additional units of limited partnership in the Operating Partnership. The Operating Partnership then used the proceeds obtained in exchange for the GRT units to repay a portion of the outstanding borrowings on its credit facility.
Corporate Headquarters The Company's headquarters are located at 20 South Third Street, Columbus, Ohio 43215, and its telephone number is (614) 621-9000. In addition, the Company maintains management offices at each of its Mall Properties.
Competition All of the Properties are located in areas which have shopping centers and other retail facilities. Generally, there are other retail properties within a five-mile radius of a Property. The amount of rentable retail space in the vicinity of the Company's Properties could have a material adverse effect on the amount of rent charged by the Company and on the Company's ability to rent vacant space and/or renew leases of such Properties. There are numerous commercial developers, real estate companies and major retailers that compete with the Company in seeking land for development, properties for acquisition and tenants for properties, some of which may have greater financial resources than the Company and more operating or development experience than that of the Company. There are numerous shopping facilities that compete with the Company's Properties in attracting retailers to lease space. In addition, retailers at the Properties may face increasing competition from outlet malls, discount shopping clubs, catalog companies, direct mail and telemarketing.
Employees At December 31, 1997, the Company, GDC and the ventures the Company has interests in, had an aggregate of 849 employees of which 565 were part-time.
Real Estate and Other Considerations As an owner and developer of real estate, the Company is subject to risks arising in connection with such activities and the underlying real estate, including unknown deficiencies of and inability to manage recently acquired Properties, poor economic conditions in those areas where Properties are located, joint venturer bankruptcies, unanticipated conflicts of interest between the Company and joint venturers, failure to obtain consents of joint venturers with respect to sale, refinancing and other activities, the joint venturers removing the Company as managing agent or managing member with respect to a Property, buy-sell arrangements with joint venturers exercised at inopportune times, defaults under or non-renewal of tenant leases, tenant bankruptcies, competition, liquidity of real estate, inability to rent unleased space, failure to generate sufficient income to meet operating expenses, including debt service, capital expenditures and tenant improvements, balloon payments on debt, environmental matters, financing availability, defaults under and failure to repay borrowings, fluctuations in interest rates, changes in real estate and zoning laws, cost overruns, delays, unavailability of satisfactory financing and other risks of development activities. The success of the Company also depends upon certain key personnel, its ability to maintain its qualification as a REIT, and trends in the national and local economy, including income tax laws, governmental regulations and legislation and population trends.
Tax Status The Company intends to continue to be taxed as a REIT under Sections 856 through 860 of the Code. As such, the Company generally will not be subject to Federal income tax to the extent it distributes at least 95.0% of its REIT taxable income to its shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to Federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Even as a qualified REIT, the Company is subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income.
ITEM 2.
ITEM 2. PROPERTIES
At December 31, 1997, the Company managed and leased a total of 120 operating properties, 113 of which were wholly-owned, four of which were partially owned in ventures and three of which were managed or leased under contractual arrangements (the "Operating Properties"). The Operating Properties are located in 24 states primarily throughout the East and the Midwest as follows: Ohio (27), Pennsylvania (12), Tennessee (10), West Virginia (7), Kentucky (8), South Carolina (8), New York (6), North Carolina (6), Indiana (5), Florida (3), Virginia (3), Illinois (2), Massachusetts (2), Missouri (2), Washington (2), Wisconsin (2), Alabama (1), Arizona (1), Colorado (1), Georgia (1) Kansas (1), Michigan (1), Nebraska (1), and Texas (1).
(a) Mall Properties
Sixteen of the Operating Properties are Mall Properties and range in size from 225,000 square feet of GLA to 1.3 million square feet of GLA. Five are located in Ohio and 11 are located in the states of Texas (2), West Virginia (2), Florida (1), Kansas (1), Kentucky (1), New York (1), Pennsylvania (1), Tennessee (1) and Washington (1). The location, general character and major tenant information are set forth below.
SUMMARY OF MALL PROPERTIES AT DECEMBER 31, 1997
(1) Includes outparcels. (2) Ground lease. (3) The Operating Partnership has investments in these Mall Properties ranging from 33.3% to 45.0%. The Company as the venture's managing general partner and GDC are responsible for management and leasing services, respectively, and receive fees for providing these services. (4) Lease expiration dates do not consider options to renew. (5) Tenant operates under Operating Agreement.
(b) Community Centers
One hundred four of the Operating Properties are Community Centers (including 17 single tenant retail properties) ranging in size from 13,000 to 490,400 square feet of GLA. They are located in 24 states primarily in the East and the Midwest as follows: Ohio (23), Pennsylvania (12), Indiana (7), Kentucky (7), South Carolina (7), Tennessee (7), North Carolina (6), West Virginia (6), New York (5), Florida (3), Virginia (3), Alabama (2), Illinois (2), Massachusetts (2), Missouri (2), Washington (2), Wisconsin (1), Arizona (1), Colorado (1), Georgia (1), Kansas (1), Michigan (1), Nebraska (1) and Texas (1). The location, general character and major tenant information are set forth below.
SUMMARY OF COMMUNITY CENTERS AT DECEMBER 31, 1997
(1) Wal-Mart vacated the store on September 30, 1995 but continues to pay rent through lease expiration 9/30/03. (2) Ground lease. (3) Lease expiration dates do not consider options to renew. (4) Tenant operates under Operating Agreement. (5) Kmart vacated the store upon expiration of their lease.
Eight of the Operating Properties are subject to long-term ground leases where a third party owns the underlying land and has leased the land to the Company. The expiration dates of the ground leases (assuming the exercise by the Company of all of its options to extend the terms of such leases) range from May 2038 to April 2082. The Company pays rent, ranging from $1,500 to $60,000 per annum, for the use of the land and generally is responsible for the costs and expenses associated with maintaining the building and improvements thereto. In addition, some of the ground leases provide for sharing of the percentage rents collected, if any. At the end of the lease term, unless extended, the land, together with all improvements thereon, will revert to the land owner without compensation to the lessee.
(d) Properties Subject to Indebtedness
To finance the acquisition and development of the Operating Properties, the Company has entered into mortgage loans and a credit facility which is described below.
The Nomura Loan ($181.0 million)
The Nomura loan is held by Nomura and is evidenced by four notes (collectively, the "Notes" and individually, a "Note"): (i) two notes, each in the principal amount of $40.0 million, one of which bears interest at the rate of 6.995% per annum and matures on February 1, 1999, and the other of which bears interest at the rate of 7.505% per annum and matures on February 1, 2003; (ii) a note in the principal amount of $76.0 million which bears interest at the rate of 7.625% per annum and matures on August 1, 2000; and (iii) a note in the principal amount of $25.0 million which bears interest at the rate of 6.935% per annum and matures on October 1, 2000. Each of the Notes provides for monthly payments of interest only with the principal amount due on maturity. The borrowers under the Nomura loan are Holdings, Centers and GCLP (collectively, the "Borrowers").
Each Note prohibits prepayment (other than upon casualty or condemnation), except that the Note executed by Holdings which matures on February 1, 1999 may be prepaid during the last six months of its term and the other three Notes may be prepaid during the last 12 months of their respective terms.
The Nomura loan is a non-recourse loan. Payment of principal and interest on the Nomura loan is secured by first mortgage liens on 56 properties, 26 of which are owned by Holdings, 29 of which are owned by Centers and one of which is owned by GCLP, (the "Nomura Properties"), and a pledge of the partnership interests in each of the Borrowers, which interests are held by an affiliate of GRT. These mortgages are cross-collateralized and cross-defaulted.
The Nomura loan contains customary representations, covenants and events of default. In addition, it requires that (i) the Borrowers comply with certain affirmative and negative covenants, including covenants restricting the incurrence of additional indebtedness on the Nomura Properties; (ii) each Borrower establish and maintain certain reserve funds; and (iii) the general partner of each Borrower have an independent director whose vote will be required for certain specified actions, including the making of any bankruptcy filing by the respective Borrower. Neither GRT nor the Operating Partnership is a party to, and neither has guaranteed any amount in respect of, the Nomura loan, other than certain limited indemnification obligations primarily relating to potential environmental liabilities and the pledge of partnership interests as described above.
The Nomura loan also provides that the Nomura Properties will be managed by the Company or a third party selected by the Company, provided that the Company, or any other party then managing such property, may be removed as manager of such properties if an event of default occurs under such loan or if the ratio of the sum of (i) the net operating income of the Nomura Properties during the preceding 12 calendar months and (ii) all interest earned during such period on U.S. government obligations delivered to Nomura as substituted collateral for the Nomura Properties released (as described in the paragraph above), decreases below an amount equal to 75.0% of the net operating income for the Nomura Properties determined as of September 30, 1993, (approximately $23.8 million) for three consecutive months.
The Morgantown Loan ($50.2 million)
The Morgantown loan is held by Connecticut General Life Insurance Company ("CIGNA") and bears interest at a rate equal to 7.500% per annum and is payable interest only until maturity on April 1, 1999. Repayment of the Morgantown loan is principally secured by first mortgage liens on Morgantown Mall and Morgantown Commons. On January 1, 1998, CIGNA sold the Morgantown Loan to The Lincoln National Life Insurance Company.
The CIGNA Loan ($50.0 million)
The CIGNA loan is secured by first mortgage liens on 10 properties, bears interest at a rate equal to 7.470% per annum and is payable, interest only, until maturity on October 26, 2002. These mortgages are cross-collateralized and cross-defaulted. On January 1, 1998, CIGNA sold this loan to The Lincoln National Life Insurance Company.
The Credit Facility ($190.0 million)
In May 1997, the Company amended its credit facility to (i) increase the amount the Company can borrow thereunder from $175.0 million to $190.0 million, (ii) extend the term of the credit facility from June 30, 1998, to July 31, 1998, which term may at the Company's option be extended to July 31, 1999, and (iii) reduce the variable tiered interest rate schedule. Borrowings under the credit facility currently bear interest at a rate equal to LIBOR plus 170 basis points per annum (7.4375% at December 31, 1997). In connection therewith, the Company granted first mortgage liens on 11 of the properties to secure borrowings under the credit facility, which previously were unsecured. Payments due under the credit facility are guaranteed by GRT and by GPC. As of December 31, 1997, the Company had outstanding borrowings of approximately $90.0 million under the Credit Facility.
The University Mall Loan ($71.4 million)
The University Mall Loan is held by Nomura and is secured by a first mortgage lien on University Mall. The loan consists of (i) a note in the principal amount of $64.9 million with interest at a rate of approximately 8.23% per annum and maturing in January 2028 and (ii) a buy up payment from Nomura of $6.5 million which reduces the effective interest rate to 7.09% per annum.
The Community Center Loans ($113.5 million)
The Community Center loans are secured by first mortgage liens on 15 properties, bear interest at rates ranging from 7.375% to 9.125% per annum, require payments of principal and interest and mature between June 1999 and April 2016.
The Construction Loans
Georgesville Square Loan
In September 1996, the Company entered into a construction loan to finance the development of Georgesville Square, a Community Center in Columbus, Ohio, pursuant to which the Company has a right to borrow $16.9 million. The construction loan is due October 1, 1999, is subject to two extensions of six months each, and is payable monthly, interest only, at LIBOR plus 200 basis points (7.6875% at December 31, 1997). As of December 31, 1997, the Company had borrowed $16.6 million under the construction loan.
Georgesville Cinema Loan
In December 1997, the Company entered into a construction loan to finance the development of a 63,000 square foot Regal Cinema at Georgesville Square, a Community Center in Columbus, Ohio pursuant to which the Company has the right to borrow $6.2 million. The construction loan is due October 1, 1999, is subject to two extensions of six months each, and is payable monthly, interest only at LIBOR plus 200 basis points (7.6875% at December 31, 1997). The Company had not borrowed under this construction loan as of December 31, 1997.
Meadowview Square Loan
In October 1996, the Company entered into a construction loan to finance the development of Meadowview Square, a Community Center in Kent, Ohio, pursuant to which the Company has a right to borrow $9.8 million. The construction loan is due November 1, 1999, is subject to two extensions of six months each, and is payable monthly, interest only, at LIBOR plus 200 basis points (7.6875% at December 31, 1997). As of December 31, 1997, the Company had borrowed $9.1 million under the construction loan.
Morgantown Commons Loan
In June 1995, the Company entered into a construction loan to finance the expansion of Morgantown Commons, a Community Shopping Center in Morgantown, West Virginia, pursuant to which the Company has a right to borrow $10.5 million. The construction loan is due June 1, 1998 and is payable monthly, interest only, at LIBOR plus 200 basis points (8.000% at December 31, 1997). As of December 31, 1997, the Company had borrowed $9.5 million under the construction loan.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against the Company or its Properties, other than routine litigation arising in the ordinary course of business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of fiscal year 1997.
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) Market Information
The Shares have been approved for listing and are currently traded on the New York Stock Exchange ("NYSE") under the symbol "GRT." On March 10, 1998, the last reported sales price of the Shares on the NYSE was $22.2500. The following table shows the high and low sales prices for the Shares on the NYSE for the 1997 and 1996 quarterly periods indicated as reported by the New York Stock Exchange Composite Tape and the cash distributions per Share paid by GRT with respect to each of such periods.
DISTRIBUTIONS QUARTER ENDED HIGH LOW PER SHARE ------------- ---- --- --------- March 31, 1996 $17.750 $15.250 $0.4808 June 30, 1996 17.500 16.250 0.4808 September 30, 1996 19.625 16.250 0.4808 December 31, 1996 22.000 19.000 0.4808 March 31, 1997 21.750 19.500 0.4808 June 30, 1997 21.250 17.875 0.4808 September 30, 1997 23.000 20.438 0.4808 December 31, 1997 23.063 20.875 0.4808
(b) Holders
The number of holders of record of the Shares was 950 as of March 10, 1998.
(c) Distributions
Future Share distributions paid by GRT will be at the discretion of the trustees of GRT and will depend upon the actual cash flow of GRT, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the trustees of GRT deem relevant.
GRT has implemented a Distribution Reinvestment and Share Purchase Plan under which its shareholders or Operating Partnership unit holders may elect to purchase additional shares and/or automatically reinvest their distributions in shares. In order to fulfill its obligations under the plan, GRT may purchase Shares in the open market or issue Shares that have been registered and authorized specifically for the plan. As of December 31, 1997, 250,000 shares were authorized of which 26,170 common shares have been issued.
(d) Recent Sales of Unregistered Securities
The information required herein, is set forth under the General Development of Business.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth Selected Financial Data for the Company and for the Company's predecessor, Glimcher Properties. This information should be read in conjunction with the financial statements of the Company and Management's Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K.
SELECTED FINANCIAL DATA
(1) Management considers funds from operations (FFO) to be a supplemental measure of the Company's operating performance. FFO, as modified in January 1996 by NAREIT is defined as net income (computed in accordance with Generally Accepted Accounting Principles ("GAAP")), less gains or losses from debt restructuring, plus real estate depreciation and amortization and plus minority interest in partnership. FFO does not represent cash generated from operating activities in accordance with GAAP 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. (2) Number of Operating Properties open at the end of the period including three properties at December 31, 1997, leased or managed by the Company, in which the Company did not hold an ownership interest. Occupancy of the Properties is defined as any space where a tenant is open and/or paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year. (3) 1997 includes 3.4 million square feet of GLA, and 1996 includes 549,000 square feet of GLA, owned by joint ventures in which the Operating Partnership has interests ranging from 33.3% to 45.0% . (4) 1997 includes 2.5 million square feet of GLA leased or managed by the Company in which the Company did not hold an ownership interest.
ITEM 7.
ITEM 7. 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-K.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Total revenues increased 19.1%, or $22.5 million, for the year ended December 31, 1997. Of the $22.5 million increase, $1.1 million was the result of increased revenues at the malls, $21.7 million was the result of increased revenues at the Community Centers, and $345,000 was related to non-property revenue decreases.
Minimum rents
Minimum rents increased 23.1%, or $20.2 million, for the year ended December 31, 1997.
Percentage rents
Percentage rents increased $600,000 for the year ended December 31, 1997. Of this increase, $160,000 was earned at the malls and $440,000 was earned at the community centers.
Tenant recoveries
Tenant recoveries reflect a net increase of 8.1% or $1.8 million for the year ended December 31, 1997 compared to the year ended December 31, 1996.
Other revenues
The $180,000 decrease in other revenues is primarily the result of increases in management fee revenues from unconsolidated joint ventures of $1.2 million and an increase of $410,000 in temporary tenant income at the malls, offset by a decrease of $2.0 million from the RPI Properties incentive management fee in 1996.
OPERATING EXPENSES
Total operating expenses increased 8.6%, or $2.3 million, for the year ended December 31, 1997. Recoverable expenses increased $2.2 million, the provision for credit losses increased $170,000 and other operating expenses decreased $80,000 primarily as a result of the acquisition and development activities described above.
Recoverable expenses
Recoverable operating expenses increased 9.4% or $2.2 million for the year ended December 31, 1997.
The decrease in the same center expenses at the malls reflects a $1.0 million decrease in real estate taxes and a $330,000 increase in other operating expenses. Same center community center expenses reflect an increase in real estate taxes of $30,000 and a decrease of $120,000 in other operating expenses. The increase in recoverable operating expenses from acquisitions and developments was primarily the result of the RPI Properties acquisition.
Provision for credit losses
The provision for credit losses was $2.2 million and represented 1.6% of total revenues for the year ended December 31, 1997, compared to 1.8% of total revenues for the year ended December 31, 1996.
Depreciation and amortization
The $5.5 million increase in depreciation and amortization consists of an increase of $3.9 million from acquisitions (principally the RPI Properties), $450,000 from the opening of two new community centers, an increase of $710,000 in the core portfolio properties and the balance from increased loan fee amortization on the Company's credit facility.
GENERAL AND ADMINISTRATIVE
In the second quarter of 1996, the Company began to increase its staff levels to support the RPI Properties acquisition and expand development and construction activities. In addition, the Company formed GDC on October 16, 1996, and transferred 51 employees in the construction, development, leasing and legal departments to GDC. The GDC staff provide services to the Company, to ventures in which the Company has an ownership interest and to third parties for a fee. GDC, an unconsolidated non-qualified REIT subsidiary, is subject to federal income taxes. The Company also receives management fees for the services provided by its operations staff to ventures.
INTEREST EXPENSE/CAPITALIZED INTEREST
Interest expense increased 43.9% or $12.8 million, for the year ended December 31, 1997. The summary below identifies the increase by its various components (dollars in thousands).
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Total revenues increased 12.9%, or $13.4 million, for the year ended December 31, 1996. Of the $13.4 million increase, $640,000 was the result of increased revenues at the Mall Properties, $10.5 million was the result of increased revenues at the Community Centers, and $2.3 million related to other revenue increases.
Minimum rents
Minimum rents increased 10.5%, or $8.3 million, for the year ended December 31, 1996.
Percentage rents
Percentage rents decreased $25,000 for the year ended December 31, 1996. Of the $2.9 million in percentage rents for 1996, $1.6 million was earned at the malls and $1.3 million was earned at the community centers.
Tenant recoveries
Tenant recoveries reflect a net increase of 14.7% or $2.9 million for the year ended December 31, 1996, compared to the year ended December 31, 1995.
Other revenues
The $2.2 million increase in other revenues was primarily the result of the $2.3 million incentive management fee relating to net operating cash flow the Company earned during the escrow period of its acquisition of the RPI Properties.
OPERATING EXPENSES
Total operating expenses increased 19.8%, or $4.5 million, for the year ended December 31, 1996. Recoverable expenses increased $3.6 million, the provision for credit losses increased $450,000 and other operating expenses increased $440,000, primarily as a result of the acquisition and development activities described above.
Recoverable expenses
Recoverable operating expenses increased 17.6% or $3.6 million, for the year ended December 31, 1996.
The increase in the same center expenses at the malls reflect a $1.1 million increase in real estate taxes, a $410,000 increase in other operating expenses, and a $110,000 increase in snow removal costs compared to the same period in the prior year. Same center community center expenses reflect a decrease in real estate taxes of $20,000 offset by increases of $380,000 in snow removal costs and $380,000 in other operating expenses. The increase in recoverable operating expenses from acquisitions and developments was primarily the result of the RPI Properties acquisition.
Provision for credit losses
The provision for credit losses was $2.1 million and represented 1.8% of total revenues for the year ended December 31, 1996, compared to 1.6% of total revenues for the year ended December 31, 1995.
Depreciation and amortization
The $1.9 million increase in depreciation and amortization was primarily the result of an increase of $1.0 million from acquisitions (principally the RPI Properties), $20,000 from the opening of one new community center and an increase of $700,000 in the core portfolio properties.
GENERAL AND ADMINISTRATIVE
In the second quarter of 1996, the Company began to increase its staff levels to support the RPI Properties acquisition and expand development and construction activities. In addition, the Company formed GDC on October 16, 1996, and transferred 51 employees in the construction, development, leasing and legal departments to GDC. The GDC staff provide services to the Company, to ventures in which the Company has an ownership interest and to third parties for a fee. GDC, an unconsolidated non-qualified REIT subsidiary, is subject to federal income taxes. GDC also receives management fees for the services provided by its operations staff to ventures.
INTEREST EXPENSE/CAPITALIZED INTEREST
Interest expense increased 11.8% or $3.1 million, for the year ended December 31, 1996. The summary below identifies the increase by its various components (dollars in thousands).
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company has several active development, renovation and expansion projects and will continue to be active in these areas. Future development projects being considered include those relating to the commitment between the Company and Nomura, pursuant to which Nomura has agreed, subject to satisfaction of certain conditions, to provide equity to the Company and permanent debt financing for certain of the Company's developments. Management anticipates that the funds available under its credit facility, the Company's plans to utilize construction financing, long-term mortgage debt and the venture structure to raise equity and financing for acquisitions and developments, and the issuance of preferred and common stock will provide sufficient capital resources to carry out the Company's business strategy relative to the acquisitions, renovations, expansions and developments discussed herein.
At December 31, 1997, the Company's debt to total market capitalization was 42.2% which is consistent with the current policy of the Company to maintain this ratio between 40.0% and 60.0%. On October 6, 1997, the Company completed an additional offering of 1,750,000 Shares. The net proceeds to the Company of approximately $37.8 million were used to reduce variable rate indebtedness.
On November 17, 1997, GRT completed a public offering of 4,800,000 shares of 9-1/4% Series B cumulative redeemable preferred shares of beneficial interest (the "Series B Preferred Shares"), par value $0.01 per share, with each share having a liquidation preference of $25.00. On November 25, 1997, GRT sold an additional 318,000 Series B Preferred Shares as a result of the underwriters exercising the over-allotment option granted to them. The net proceeds were contributed by the Company to the Operating Partnership and were used to: (i) repay the balance of a $34.4 million bridge loan facility and (ii) to repay a portion of the outstanding borrowings on the Operating Partnership's credit facility.
On December 5, 1997, the Company issued 56,000 shares of its Series C convertible preferred shares (the "Series C Preferred Shares"). The Series C Preferred Shares were issued pursuant to a purchase agreement dated December 4, 1997, among the Company and an affiliate of Nomura, to obtain equity funding for the purchase by Elizabeth Metro Mall, LLC, of real estate on which to construct and develop a value-oriented super-regional mall in Elizabeth, New Jersey. It is contemplated that, subject to satisfactory completion of its due diligence and satisfaction of certain other conditions, a Nomura affiliate will purchase a series of Nomura preferred shares and that the proceeds of such will be used to redeem the Series C Preferred Shares.
Net cash provided by operating activities for the year ended December 31, 1997, was $56.4 million versus $53.9 million for the corresponding period of 1996. Net income adjusted for non-cash items accounted for a $9.0 million increase, while changes in operating assets and liabilities accounted for a $6.5 million decrease.
Tenant accounts receivable, net, has increased $2.9 million since December 31, 1996. The primary reasons for the increase relate to year-end tenant recovery billings for the increased recoverable expenses associated with the Properties.
Net cash used in investing activities for the year ended December 31, 1997, was $244.8 million, and reflects additional direct investments in real estate assets and additional indirect investments in real estate through investments in unconsolidated entities.
Net cash provided by financing activities for the year ended December 31, 1997, was $186.9 million. Cash was provided by additional borrowings of $76.5 million and proceeds from common stock and preferred stock offerings aggregating approximately $217.5 million. Cash was used to fund distributions of $50.7 million, principal payments on mortgage and notes payable of $43.5 million and payments on the Company's credit facility of $13.0 million.
ACQUISITION, RENOVATION, EXPANSION AND DEVELOPMENT ACTIVITY
The Company continues to be very active in its renovation, expansion, development and acquisition activities. Its business strategy is to set in place activities that will allow the Company's assets and cash flow to grow.
Acquisitions
The Company continues to pursue strategic acquisitions which will complement and enhance its existing portfolio. On July 2, 1997, the Company, in a joint venture partnership with Nomura, completed the acquisition of The Dayton Mall in Dayton, Ohio, for a purchase price of $91.0 million. This Mall Property consists of approximately 1.3 million square feet of GLA including four anchors. On October 1, 1997, the Company, in a joint venture with Nomura, completed the acquisition of Colonial Park Mall in Harrisburg, Pennsylvania, for a purchase price of $48.0 million. Colonial Park Mall consists of approximately 752,000 square feet of GLA including three anchors. On December 18, 1997, the Company completed the acquisition of University Square in Tampa, Florida, for a purchase price of $121.0 million. University Square consists of approximately 1.3 million square feet of GLA including five anchors.
Renovations and Expansions
Grand Central Mall
The expansion and renovation of this Mall Property located in Parkersburg, West Virginia, continues and will increase its GLA to 882,000 square feet upon its completion. The addition of a food court and the expansion of the existing cinema to a 37,000 square-foot 12-screen cinema were completed and opened in 1996. Additional expansion of the Mall Property will include an 83,000 square-foot Proffitt's which is projected to open in March 1998. The estimated cost of the Proffitt's expansion is $5.4 million of which $4.8 million had been expended at December 31, 1997.
Indian Mound Mall
The expansion of this Mall Property located in Newark/Heath, Ohio, will add approximately 122,000 square feet and increase its GLA to 543,000 square feet. The expansion includes the addition of a 93,000 square foot Sears, which opened in late September 1997, expanding the current cinema from 18,000 square feet to 42,000 square feet and the addition of 5,000 square feet of small shops. The expansion was completed in the fourth quarter of 1997. The estimated cost of the expansion is $3.9 million of which $3.6 million had been expended at December 31, 1997.
Developments
Georgesville Square
This development is a Community Center containing 232,000 square feet of GLA located in Columbus, Ohio. The center is anchored by a 132,000 square-foot Lowe's and a 63,000 square-foot Kroger, with the balance of the GLA in small shops. Lowe's opened in October 1996, and Kroger and the small shops opened in the second quarter of 1997. The cost of the development was $18.4 million of which $16.6 million has been advanced from a construction loan as of December 31, 1997. The construction loan bears interest at LIBOR plus 200 basis points (7.6875% at December 31, 1997) and matures October 1, 1999, subject to two extensions of six months each. Additionally, the Company commenced the construction of a 70,000 square-foot 16-screen cinema on one of the center's outparcel lots which is scheduled to open in early 1998. The cinema has budgeted costs of $6.2 million with costs to date of $2.0 million. The Company has also expended an additional $2.5 million relating to land costs for future phases of this development.
Meadowview Square
This development is a Community Center containing 151,000 square feet of GLA located in Kent/Ravenna, Ohio. The center is anchored by a 126,000 square foot Wal-Mart with the balance of the space in small shops. Wal-Mart opened in January 1997 and the small shops opened in the second quarter of 1997. The cost of the development was $9.6 million of which $9.1 million had been advanced from a construction loan as of December 31, 1997. The construction loan bears interest at LIBOR plus 200 basis points (7.6875% at December 31, 1997) and matures October 1, 1999, subject to two extensions of six months each. The Company has also expended an additional $1.7 million relating to land costs for future phases of this development.
The Great Mall of the Great Plains
The Operating Partnership maintains a 45.0% interest in Great Plains which owns The Great Mall of the Great Plains, a single level, enclosed, value and entertainment-oriented mega mall totaling approximately 782,000 square feet of GLA located in Olathe, Kansas (Kansas City, Kansas metropolitan area) which opened on August 14, 1997. The cost of the project through December 31, 1997, was financed through member equity and a construction loan of $81.9 million of which $76.8 million was outstanding at December 31, 1997. This Mall Property consists of 10 anchors including a 16-screen cinema, approximately 150 small shop tenants and 20 food court and kiosk units.
Capital Invested in Real Estate
Investment in real estate has increased $142.3 million since December 31, 1996 (in thousands):
(1) Capital expenditures include tenant improvements and tenant allowances on second generation space of $3,547 and routine, recurring maintenance capital expenditures that cannot be passed through to the tenants of $3,311.
PORTFOLIO DATA
Tenants reporting sales data in the table below for the twelve month periods ended December 31, 1997 and 1996, represent 12.5 million square feet of GLA, or 80.6% of the 1997/1996 "same store" population.
Portfolio occupancy statistics by property type are summarized below:
The stabilized mall portfolio (excluding The Great Mall of the Great Plains which opened in August 1997), had a Mall store occupancy rate of 84.0% and 80.9% at December 31, 1997, and September 30, 1997, respectively.
(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 and/or paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year.
FUNDS FROM OPERATIONS
Management considers FFO to be a supplemental measure of the Company's operating performance. FFO does not represent cash generated from operating activities in accordance with GAAP 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 years ending December 31, 1997, 1996 and 1995 (in thousands):
FFO increased 8.8%, or $4.5 million for the year ended December 31, 1997. The increase was the result of improved property net operating income of $20.1 million and an increase in the FFO from unconsolidated entities of $2.6 million, partially offset by increased interest expense of $12.8 million, a decrease in gain on sale of outparcels of $1.4 million and an increase in preferred stock dividends of $4.4 million.
FFO increased 9.4%, or $4.4 million for the year ended December 31, 1996. The increase was the result of improved property net operating income of $9.0 million, including the incentive management fee of $2.3 million relating to net operating cash flow the Company earned during the escrow period of its acquisition of the RPI portfolio, and the gain on the sales of three outparcels of $1.5 million. This increase was partially offset by increased interest expense of $3.1 million and increased general and administrative expense of $3.0 million.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 is effective for financial statements for years beginning after December 15, 1997. SFAS No. 131 establishes standards for publicly-held business enterprises to report information about operating segments in annual financial statements and requires that these enterprises report selected information about operating segments in interim financial reports issued to shareholders. The Company plans to adopt SFAS No. 131 in 1998.
The Company is assessing the impact of the year 2000 issue as it relates to the Company's information systems and vendor supplied application software. Management does not currently anticipate any significant or material impact on the Company as a result of implications associated with that issue.
OTHER
The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season, when tenant occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve most of their temporary tenant rents during the holiday season. As a result of the above, earnings are generally highest in the fourth quarter of each year.
The retail industry has experienced some difficulty, which is reflected in sales trends and in the bankruptcies and continued restructuring of several prominent retail organizations. Continuation of these trends could impact future earnings performance.
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 of 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.
However, inflation may 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 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedule of Glimcher Realty Trust and the Report of Independent Accountants thereon are filed pursuant to this Item 8 and are included in this report in Item 14.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 15, 1998.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 15, 1998.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 15, 1998.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 15, 1998.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(3) Exhibits --------
(1) Incorporated by reference to GRT's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed with the Securities and Exchange Commission on March 21, 1995. (2) Incorporated by reference to GRT's Registration Statement No. 33-69740. (3) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on July 26, 1995. (4) Incorporated by reference to GRT's Form 8-K filed with the Securities and exchange Commission on December 13, 1995. (5) This exhibit is filed for EDGAR filing purposes only. (6) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on November 7, 1996. (7) Incorporated by reference to GRT's Annual Report Form 10-K for the fiscal year ended December 31, 1996, filed with the Securities and Exchange Commission on March 25, 1997. (8) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on February 5, 1997. (9) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission June 23, 1997. (10) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on November 4, 1997. (11) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on November 14, 1997. (12) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on December 31, 1997.
(b) Reports on Form 8-K During the fiscal year ended December 31, 1997, the Company filed the following Reports on Form 8-K. o Form 8-K dated February 5, 1997, filed February 5, 1997. o Form 8-K dated June 17, 1997, filed June 23, 1997. o Form 8-K dated November 4, 1997, filed November 4, 1997. o Form 8-K dated November 13, 1997, filed November 14, 1997. o Form 8-K dated December 31, 1997, filed December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ HERBERT GLIMCHER ------------------------------------------------------------ Herbert Glimcher Chairman of the Board, President and Chief Executive Officer March 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of Glimcher Realty Trust
We have audited the consolidated financial statements and financial statement schedule of Glimcher Realty Trust and subsidiaries as listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of Glimcher Realty Trust's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Glimcher Realty Trust and subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio February 20, 1998
GLIMCHER REALTY TRUST
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
ASSETS
The accompanying notes are an integral part of these consolidated financial statements.
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The accompanying notes are an integral part of these consolidated financial statements.
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The accompanying notes are an integral part of these consolidated financial statements.
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
GLIMCHER REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Glimcher Realty Trust (the "Company" or "GRT") is a fully-integrated, self-administered and self-managed Maryland real estate investment trust ("REIT"), which owns, leases, manages and develops a portfolio of retail properties (the "Properties") consisting of regional malls ("Mall Properties") and community shopping centers, (including single tenant retail properties) ("Community Centers"). At December 31, 1997, the Company, managed and leased a total of 120 operating properties, 113 of which were wholly owned, four of which were partially owned in ventures and three of which were managed or leased under contractual agreements, consisting of 16 Mall Properties and 104 Community Centers, and owned interests in and operated 113 Properties at December 31, 1996, consisting of nine Mall Properties and 104 Community Centers. Glimcher Properties Limited Partnership (the "Operating Partnership") also holds substantially all of the economic interest in Glimcher Development Corporation ("GDC"), a non-qualified REIT subsidiary which provides development, construction, leasing and legal services to the Company, ventures in which the Company has an ownership interest and to third parties.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of GRT, the Operating Partnership (90.1% owned by GRT at December 31, 1997 and 89.4% at December 31, 1996), five Delaware limited partnerships (Glimcher Holdings Limited Partnership, Glimcher Centers Limited Partnership, Grand Central Limited Partnership, Glimcher York Associates Limited Partnership, and Glimcher University Mall Limited Partnership) and one Ohio limited partnership (Morgantown Mall Associates Limited Partnership), all of which are owned directly or indirectly by GRT. The Operating Partnership has an investment in several joint ventures and one other corporation which are accounted for under the equity method. All significant inter-entity balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates are used to establish common area maintenance, real estate tax and insurance tenant accounts receivable, percentage rents and accounts receivable reserves. The Company bases its estimates on historical sales performance of tenants, changes in Property occupancy, mix of tenants and industry trends of tenant credit risk. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Real Estate
Real estate assets are stated at cost. Costs incurred for the acquisition, development, construction and improvement of properties are capitalized, including direct costs incurred by GRT for these activities. Interest and real estate taxes incurred during construction periods are capitalized and amortized on the same basis as the related assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Depreciation expense is computed using the straight-line method and estimated useful lives for building and improvements of 40 years and equipment and fixtures of five to 10 years. Expenditures for improvements and construction allowances paid to tenants are capitalized and amortized over the remaining life of the initial terms of each lease. Maintenance and repairs are charged to expense when incurred.
Management evaluates the recoverability of its investment in real estate assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of". This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that full asset recoverability is questionable. Management's assessment of recoverability of its real estate assets under this statement includes, but is not limited to, recent operating results, expected net operating cash flow and management's plans for future operations.
Cash and Cash Equivalents
For purposes of the statements of cash flows, all highly liquid investments purchased with original maturities of three months or less are considered to be cash equivalents. The carrying amounts approximate fair value.
Cash in Escrow
Cash in escrow consists primarily of cash held for real estate taxes, payments by tenants for early termination of their leases, and property maintenance and expansion or leasehold improvements as required by certain of the loan agreements.
Deferred Expenses
Deferred expenses consist principally of financing fees, leasing commissions paid to third parties and direct costs related to leasing activities. These costs are amortized on a straight-line basis over the terms of the respective agreements. Deferred expenses in the accompanying consolidated balance sheets are shown net of accumulated amortization of $12,187 and $9,232 as of December 31, 1997 and 1996, respectively.
Revenue Recognition
Minimum rents are recognized on an accrual basis over the terms of the related leases which approximates a straight-line basis. Percentage rents are recognized on an accrual basis. Recoveries from tenants for taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable costs are accrued.
An allowance for doubtful accounts has been provided against the portion of tenant accounts receivable which is estimated to be uncollectible. Tenant accounts receivable in the accompanying balance sheets are shown net of an allowance for doubtful accounts of $5,030, $4,463 and $2,229 as of December 31, 1997, 1996 and 1995, respectively.
Interest Costs
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Advertising Costs
The Company promotes its Properties on behalf of its tenants through various media. The majority of the advertising expenses incurred are recovered from the tenants through lease obligations. Net advertising expense was $269, $308 and $106 for the years ended December 31, 1997, 1996 and 1995, respectively.
Income Taxes
GRT files as a REIT under Sections 856-860 of the Internal Revenue Code (the "Code"). In order to qualify as a REIT, GRT is required to distribute at least 95.0% of its taxable income to shareholders and to meet certain asset and income tests as well as certain other requirements. GRT will generally not be liable for federal income taxes, provided it satisfies the necessary distribution requirements. Even as a qualified REIT, the Company is subject to certain state and local taxes on its income and property.
The Company has an equity investment in GDC, which is a non-qualified REIT subsidiary under Section 856 (I) of the Code. For federal income tax purposes, GDC is treated as a separate entity and taxed as a regular C-Corporation.
Supplemental Disclosure of Non-Cash Financing and Investing Activities
Accounts payable of $5,991, $5,617 and $2,152 were accrued for real estate improvements and other assets as of December 31, 1997, 1996 and 1995, respectively.
GRT, through the Operating Partnership, acquired one Mall Property during the year ended December 31, 1997. The purchase price included cash of $122,579 and the assumption of net liabilities of $606. GRT, through the Operating Partnership, acquired 23 Community Centers during the year ended December 31, 1996. The purchase price included cash of $88,482 and the assumption of net liabilities of $125,738.
Share distributions of $11,381, $10,524 and $10,521 and Operating Partnership distributions of $ 1,252, $1,252 and $1,252 had been declared but not paid as of December 31, 1997, 1996 and 1995, respectively. Series A-1 convertible preferred share distributions of $268 had been declared but not paid as of December 31, 1996. Series B cumulative redeemable preferred share distributions of $1,446 had been declared but not paid as of December 31, 1997.
Amounts paid for interest were $44,935, $30,295 and $25,457 in 1997, 1996 and 1995, respectively.
Amounts paid for state and local income taxes were $878, $572 and $810 in 1997, 1996 and 1995, respectively.
Reclassifications
Certain reclassifications of prior period amounts have been made in the financial statements to conform to the 1997 presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. MORTGAGE NOTES PAYABLE AS OF DECEMBER 31, 1997 AND 1996 CONSIST OF THE FOLLOWING:
(a) The loan requires monthly payments of interest only. (b) The loans require monthly payments of principal and interest. (c) Interest rates ranging from 7.6875% to 8.000% in 1997 (7.625% in 1996). (d) Interest rates ranging from 7.375% to 9.125%. (e) The loan was paid off November 17, 1997. (f) Final maturity dates ranging from June 1998 to November 1999. (g) The loan bore interest at LIBOR plus 175 basis points (7.375% at December 31, 1996). (h) Final maturity dates ranging from June 1999 to April 2016. (i) The loan has an effective interest rate of 7.090% and matures in January 2028, with an optional prepayment rate in January 2013.
All mortgage notes payable are collateralized by certain Properties owned by the respective partnerships. The loan agreement for Grand Central Limited Partnership, Glimcher Holdings Limited Partnership and Glimcher Centers Limited Partnership contains financial covenants regarding minimum net operating income and coverage ratios.
Principal maturities (excluding extension options) on mortgage notes payable during the five years subsequent to December 31, 1997, are as follows: 1998 - $11,917; 1999 - $152,613; 2000 - $141,515; 2001 - $24,483; 2002 - $56,576; thereafter - $114,168.
4. NOTES PAYABLE
In May 1997, the Company amended its revolving line of credit (the "Credit Facility") to (i) increase the amount the Company can borrow thereunder from $175,000 to $190,000, (ii) extend the term of the Credit Facility from June 30, 1998, to July 31, 1998, which term may at the Company's option be extended to July 31, 1999, (iii) reduce the variable tiered interest rate schedule, and (iv) grant first mortgage liens on 11 of the Properties to secure borrowings under the Credit Facility. Borrowings under the Credit Facility currently bear interest at a rate equal to LIBOR plus 170 basis points per annum (7.4375% at December 31, 1997). Payments due under the Credit Facility are guaranteed by GRT and by Glimcher Properties Corporation, a wholly owned subsidiary of the Company. During 1997 and 1996, the weighted average interest rate was 7.465% and 7.112%, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 December 31, 1997, the balance outstanding on the Credit Facility was $90,000. As of December 31, 1997, the unused balance of the Credit Facility available to the Company was $99,750.
5. SERIES A-1, B AND C PREFERRED SHARES
The Company's Declaration of Trust authorizes the Company to issue up to an aggregate 100,000,000 Shares of the Company, consisting of common shares or one or more series of preferred shares of beneficial interest.
On November 27, 1996, the Company sold 34,000 of its Series A convertible preferred shares. On November 7, 1997, the Series A preferred shares were exchanged for Series A-1 preferred shares (the "A-1 Preferred Shares") having substantially the same terms. Distributions on the A-1 Preferred Shares will be paid quarterly based upon 90 day LIBOR plus 285 basis points (8.631% at December 31, 1997 and 8.350% at December 31, 1996). The Company may redeem the A-1 Preferred Shares at any time, prior to conversion, at its option without any penalty or premiums. Beginning in 2001, the A-1 Preferred Shares are convertible into the number of Shares obtained by dividing the liquidation preference by the conversion price per Share. The conversion price per share is the product of (i) the average market price per Share over the 30 trading days prior to the conversion, multiplied by (ii) the applicable conversion percentage which ranges between 70.0% and 90.0%.
On November 17, 1997, the Company completed a $120,000 public offering of 4,800,000 shares of 9-1/4 % Series B cumulative redeemable preferred shares of beneficial interest (the "B Preferred Shares"). On November 25, 1997, the Company sold an additional 318,000 B Preferred Shares as a result of the underwriters exercising the over-allotment option granted to them. Aggregate net proceeds of the offering were $123,072. Distributions on the B Preferred Shares are payable quarterly in arrears. The Company generally may redeem the B Preferred Shares any time on or after November 15, 2002, at a redemption price of $25.00 per share, plus accrued and unpaid distributions. The redemption price (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other capital shares of the Company, which may include other series of preferred shares. The Company contributed the proceeds to the Operating Partnership in exchange for preferred units. The Operating Partnership pays a preferred distribution to the Company equal to the dividends paid on the B Preferred Shares.
On December 5, 1997, the Company sold 56,000 shares of its Series C convertible preferred shares (the "C Preferred Shares"). Distributions on the C Preferred Shares will be paid quarterly based upon 90 day LIBOR plus 285 basis points. The C Preferred Shares may be redeemed by the Company at any time, prior to conversion, at its option without any penalty or premiums. Beginning in December 1998, the C Preferred Shares are convertible into the number of Shares obtained by dividing the liquidation preference by the conversion price per Share. The conversion price per Share is the product of (i) the average market price per Share over the 30 trading days prior to the conversion, multiplied by (ii) the applicable conversion percentage which ranges between 70.0% and 80.0%.
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage interest rate risks. In 1995, the Company entered into a rate protection agreement for up to $175,000 of borrowings on its amended Credit Facility for a term of three years. Under the agreement the obligor agreed to reimburse the Company to the extent interest expense
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
increased as a result of an increase in LIBOR above 8.500% per annum, and the Company agreed to reimburse the obligor to the extent interest expense decreased as a result of a decrease in LIBOR below 4.500% per annum. The Company is exposed to credit loss in the event of non-performance by the obligor. However, the Company does not anticipate non-performance by the obligor.
7. RENTALS UNDER OPERATING LEASES
GRT receives rental income from the leasing of retail shopping center space under operating leases with expiration dates through the year 2025. The minimum future base rentals under non-cancelable operating leases as of December 31, 1997 are as follows:
1998....................................... $ 113,294 1999....................................... 107,223 2000....................................... 98,533 2001....................................... 91,493 2002....................................... 84,744 Thereafter................................. 507,739 ---------- $1,003,026 ==========
Minimum future base rentals do not include amounts which may be received from certain tenants based upon a percentage of their gross sales or as reimbursement of operating expenses. Minimum rents contain straight-line adjustments for rental revenue increases which aggregated $1,324, $1,747 and $1,686 for the years ended December 31, 1997, 1996 and 1995, respectively.
In 1997, no tenant collectively accounted for more than 10.0% of rental income. In 1996 and 1995, Kmart represented approximately 10.0% and 11.3% of rental income, respectively. The tenant base includes national, regional and local retailers, and consequently the credit risk is concentrated in the retail industry.
8. INVESTMENT IN UNCONSOLIDATED ENTITIES
Investments in unconsolidated entities consist of preferred stock and non-voting common stock of GDC, a 45.0% interest in Great Plains Metro Mall L.L.C., a 33.3% interest in Johnson City Venture L.L.C., a 40.0% interest in Dayton Mall L.L.C., a 40.0% interest in Colonial Park Mall Limited Partnership, and a 30.0% interest in Elizabeth Metro Mall, L.L.C.
The net income (loss) for each unconsolidated entity is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interest held by each member under the terms of these agreements.
The summary financial information of the Company's unconsolidated entities accounted for using the equity method, and a summary of the Operating Partnership's investment in and share of net income (loss) from such unconsolidated entities are presented below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. TRANSACTIONS WITH AFFILIATES
On October 16, 1996, the Company formed GDC, an unconsolidated non-qualified REIT subsidiary which is owned by the Operating Partnership, Herbert Glimcher, David J. Glimcher and Michael P. Glimcher. The Operating Partnership holds 95.0% of the ownership interest; the Glimchers hold 100.0% of the voting interest and 5.0% of the ownership interest. GDC provides services for a fee, to the Company, to ventures in which the Company has an ownership interest and to third parties. In 1997, GDC recognized fee income of $1,293 for services provided to these ventures.
In 1997, the Company reimbursed The Glimcher Company ("TGC") and Corporate Flight, Inc. ("CFI") $11 and $179, respectively, for the use, in connection with Company related matters, of a bus owned by TGC and an airplane owned by CFI; GDC reimbursed the same two companies $25 and $895, respectively. In 1996, the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Company purchased a parcel of land from TGC for $215 and reimbursed TGC and CFI $20 and $59, respectively In 1995, the Company purchased a parcel of land from TGC for $129 reimbursed TGC $143 for the use of an airplane and purchased four automobiles from TGC for use at its Mall Properties for $32.
In 1995, the Company executed a lease termination agreement with a tenant owned by Herbert Glimcher and David J. Glimcher. As part of the lease termination agreement, the Company received equipment in the amount of $250 in consideration for the remaining lease obligation of the tenant.
Effective January 1994, the Company engaged Archer-Meek-Weiler Agency, Inc. ("AMW"), an agency in which Alan R. Weiler (a Trustee of GRT) is president, to provide property and employee practices liability insurance services to the Company. Total commissions received by AMW during 1997, 1996 and 1995 were approximately $137, $128, and $170, respectively.
Certain of the properties also have tenants in which officers of GRT hold a financial interest. Annual base minimum rents and tenant accounts receivable from these tenants are as follows:
10. COMMITMENTS
The Operating Partnership leases office space under an operating lease that had an initial term of ten years commencing on March 21, 1994. Additionally, eight of GRT's properties are subject to long-term ground leases where a third party owns the underlying land and has leased the land to GRT. GRT pays rent, ranging from $2 to $60 per annum, for the use of the land and generally is responsible for the costs and expenses associated with maintaining the building and improvements thereto. Future minimum rental payments as of December 31, 1997 are as follows: OFFICE LEASE GROUND LEASES ------------ ------------- 1998................................. $ 697 $ 263 1999................................. 689 219 2000................................. 682 222 2001................................. 709 223 2002................................. 625 177 Thereafter........................... 715 7,556 ------ ------ $4,117 $8,660 ====== ======
Total rental expenses (including miscellaneous month-to-month lease rentals) for the years ended December 31, 1997, 1996 and 1995 were $612, $618, and $457, respectively. Ground lease expenses for the years ended December 31, 1997, 1996 and 1995 were $256, $336, and $223, respectively.
In connection with the development of The Great Mall of the Great Plains, the Operating Partnership provided the lender with a completion guarantee and an unconditional guarantee of payment of the greater of (i) 25.0% of the outstanding obligation on the indebtedness, or (ii) the indebtedness less capitalized net operating income calculated in accordance with the agreement.
In connection with a mortgage note payable for Johnson City Venture, L.L.C., the Operating Partnership provided an unconditional guarantee for the payment of the lesser of $6,200 or the outstanding balance of the loan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. SHARE OPTION PLANS
GRT has established the Employee Share Option Plan (the "Employee Plan") and the Trustee Share Option Plan (the "Trustee Plan") for the purpose of attracting and retaining the Company's trustees, executive and other employees. A maximum of 400,000 Shares have been reserved for issuance under the Employee Plan and a maximum of 700,000 Shares have been reserved for issuance under the Trustee Plan.
The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized related to options granted under the plans. Had compensation cost for the plans been determined based on the fair value at the grant dates for grants under these plans consistent with SFAS No. 123, the Company's net income available to common shareholders would have been decreased to the pro forma amounts indicated below:
The fair value of each option grant was estimated on the date of the grant using the Black-Scholes options pricing model with the following assumptions: average risk free interest rates ranging from 5.79% to 6.90%, expected average lives of five years, annual dividend rates of $1.9232 and volatility of 14.39%.
The options exercisable at December 31, 1997, 1996 and 1995 under the Trustee Plan were 144,800, 90,333, and 45,667, respectively. The options exercisable at December 31, 1997, 1996 and 1995 under the Employee Plan were 136,386, 76,333 and 49,333, respectively.
A summary of the status of the Company's two option plans at December 31, 1997, 1996 and 1995 and changes during the years ending on those dates is presented below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes information regarding the options outstanding at December 31, 1997 under the Company's two plans:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
All of the options granted in 1995 under the Trustee Plan were exercisable immediately. These options remain exercisable through the tenth anniversary of the grant. All of the options granted in 1995 under the Employee Plan will be exercisable at the rate of 33.3% per annum over a three-year period beginning with the first anniversary of the date of grant and will remain exercisable through the tenth anniversary of such date.
All but 20,000 Shares granted in 1996 under the Employee Plan will be exercisable at the rate of 33.3% per annum over a three-year period beginning with the first anniversary of the date of grant and will remain exercisable through the tenth anniversary of such date. Options for 20,000 Shares will be exercisable at the rate of 50.0% per annum over a two-year period beginning with the first anniversary of the date of grant and will remain exercisable through the tenth anniversary of such date. All but 4,000 Shares granted under the Trustee Plan in 1996 will be exercisable at the rate of 33.3% per annum over a three-year period beginning with the first anniversary of the date of grant and will remain exercisable through the tenth anniversary of such date. Options for 4,000 Shares were exercisable immediately, and will remain exercisable through the tenth anniversary of such date.
All of the options granted in 1997 under the Employee Plan will be exercisable at the rate of 33.3% per annum over a three year period beginning with the first anniversary of the date of grant and will remain exercisable through the tenth anniversary of such date. All but 6,000 options granted under the Trustee Plan in 1997 will be exercisable at the rate of 33.3% per annum over a three-year period beginning with the first anniversary of the date of grant and will remain exercisable through the tenth anniversary of such date. Options for 6,000 Shares were exercisable immediately, and will remain exercisable through the tenth anniversary of such date.
12. EMPLOYEE BENEFIT PLAN - 401(k) PLAN
In January 1996, the Company established a qualified retirement savings plan under IRC 401(k) for eligible employees which contains a cash or deferred arrangement which permits participants to defer up to a maximum of 15.0% of their compensation, subject to certain limitations. Participant's salary deferrals up to a maximum of 4.0% of qualified compensation will be matched at 50.0%. The Company matching will be in the form of GRT Shares. The Company contributed $109 and $89 to the plan in 1997 and 1996, respectively.
13. DISTRIBUTIONS
For the years ended December 31, 1997, 1996 and 1995, approximately 30.6%, 31.0%, and 38.0%, respectively, of the distributions received by common shareholders were considered to be a return of capital for tax purposes. Also, 0.68% of each quarterly distribution declared in 1996 was designated and considered to be long-term capital gain for tax purposes.
14. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS") and replaces the presentation of primary EPS with a presentation of basic EPS and diluted EPS, as summarized in the table below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Series A-1 and Series C Preferred Shares include certain conversion features that could potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because to do so would have been antidilutive (based on period end share prices) for the periods presented.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, cash in escrow, tenant accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturity of these financial instruments. The carrying value of the Credit Facility is also a reasonable estimate of its fair value because it bears variable rate interest at current market rates. Based on the discounted amount of future cash flows using rates currently available to GRT for similar liabilities (ranging from 6.82% to 8.88% per annum at December 31, 1997 and 7.10% to 8.00% per annum at December 31, 1996), the fair value of GRT's mortgage notes payable is estimated at $500,470 and $471,119 at December 31, 1997 and 1996, respectively. The fair value of the debt instruments identified with GRT considers in part the credit of GRT as an entity, and not just the individual entities and properties owned by GRT.
16. PROPERTY ACQUISITIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. INTERIM FINANCIAL INFORMATION (UNAUDITED)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GLIMCHER REALTY TRUST NOTES TO SCHEDULE III (dollars in thousands)
(a) Initial cost for constructed and acquired property is cost at end of first complete calendar year subsequent to opening or acquisition. For centers that opened during 1997 and have not yet completed their first calendar year subsequent to opening, the initial cost is cost incurred through December 31, 1997.
(b) The aggregate gross cost of land and buildings, improvements and equipment for federal income purposes is approximately $1,080,237.
(c) RECONCILIATION OF REAL ESTATE
(d) See description of debt in notes 3 and 4 of Notes to Consolidated Financial Statements.
(e) Depreciation is computed based upon the following estimated lives:
Buildings and improvements 40 years Equipment and fixtures 5-10 years
(f) Properties cross-collateralize the Credit Facility with a consortium of banks of up to $190,000.
(g) Properties cross-collateralize the following loans: Glimcher Holdings Limited Partnership Loan A......... $40,000 Glimcher Holdings Limited Partnership Loan B......... $40,000 Glimcher Centers Limited Partnership................. $76,000
(h) Properties cross-collateralize the following loan: Glimcher Properties Limited Partnership.............. $50,000
(i) Properties cross-collateralize the following loan: Morgantown Mall Associates Limited Partnership....... $50,200