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 contributed 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 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 Asset Capital Corporation ("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 November 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 begins at 90.0% and decreases annually 5.0%, 5.0% and 10.0% to 70.0%.
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 offered and sold in a private placement to an affiliate of Nomura 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. On June 4, 1998, the Series C Preferred Shares were exchanged for Series D preferred shares (the "Series D Preferred Shares") having substantially the same terms. Beginning in December 2002, the Series D 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 begins at 90.0% and decreases annually 5.0%, 5.0% and 10.0% to 70.0%.
The sale of the Series A-1 and Series D 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 D 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 D 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 six Delaware limited partnerships, Glimcher Holdings Limited Partnership ("Holdings"), Glimcher Centers Limited Partnership ("Centers"), Grand Central Limited Partnership ("GCLP"), Glimcher York Associates Limited Partnership ("York"), Glimcher University Mall Limited Partnership ("University"), Montgomery Mall Associates Limited Partnership ("Montgomery"), one Ohio limited partnership, Morgantown Mall Associates Limited Partnership ("Morgantown") and three Delaware limited liability companies, Glimcher Northtown Venture, LLC ("Northtown"), Weberstown Mall, LLC ("Weberstown") and Glimcher Lloyd Venture, LLC ("Lloyd"). 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; (vi) a 33.85% member of Glimcher SuperMall Venture LLC, ("SuperMall"), a Delaware limited liability company, whose managing member, Glimcher Auburn Inc., a Delaware corporation, is a 1.0% member, (vii) a 20.0% interest in San Mall, LLC, a Delaware limited liability company, which is a 99.5% member of San Mall Limited Partnership, a Delaware limited partnership, whose managing member, San Mall Corporation, a Delaware corporation, is a 0.5% member, (viii) a 50.0% interest in Polaris Center, LLC, a Delaware limited liability company, (ix) a 20.0% interest in Eastland Mall, LLC, a Delaware limited liability company, which is a 99.5% member of Eastland Mall Limited Partnership, a Delaware limited partnership, whose managing member, Eastland Retail Corporation, a Delaware Corporation, is a 0.5% member and (x) 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 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 1998 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 1998 the Company acquired interests in joint ventures which purchased four Mall Properties totaling approximately 3.5 million square feet of gross leasable area ("GLA") for a total purchase price of approximately $196.0 million and acquired four Mall Properties totaling approximately 3.9 million square feet of GLA in which it invested approximately $315.0 million.
On January 15, 1998, the Company, in a joint venture with Nomura completed a transaction for the recapitalization of the ownership of the SuperMall of the Great Northwest in Seattle, Washington, for $103.0 million. The SuperMall of the Great Northwest consists of approximately 933,000 square feet of GLA including nine anchors. The Company has a 34.85% ownership interest in this Property.
On March 31, 1998, the Company purchased an interest in a joint venture which owned Almeda Mall and Northwest Mall, both in Houston, Texas. The two Properties were previously purchased by Nomura for $39.0 million. Almeda Mall consists of approximately 792,000 square feet of GLA including five anchors and Northwest Mall consists of approximately 799,000 square feet of GLA including four anchors. The Company had managed these Properties since November 1, 1997. The Company has a 20.0% ownership interest in the entity that owns these Properties.
On June 1, 1998, the Company completed the acquisition of Northtown Mall in Blaine, Minnesota, for a purchase price of approximately $54.0 million. Northtown Mall consists of approximately 825,000 square feet of GLA and includes anchors Best Buy, HomePlace, Kohl's, Mervyn's California and Montgomery Ward.
On July 16, 1998, the Company completed the acquisition of Montgomery Mall in Montgomery, Alabama, for a purchase price of approximately $70.0 million. Montgomery Mall consists of approximately 728,000 square feet of GLA and includes anchors Dillard's, JCPenney and Parisian.
On August 1, 1998, the Company completed the acquisition of Weberstown Mall in Stockton, California, for a purchase price of approximately $23.0 million. Weberstown Mall has approximately 839,000 square feet of GLA and includes anchors Barnes & Noble, Dillard's, JCPenney and Sears.
On August 20, 1998, the Company, in a joint venture with Nomura completed the acquisition of Eastland Mall in Charlotte, North Carolina, for a purchase price of $54.0 million. The Company has a 20.0% ownership interest in the entity that owns this Property. Eastland Mall consists of approximately 1.1 million square feet of GLA and includes anchors Belk, Dillard's, Ice Chalet, JCPenney and Sears.
On September 15, 1998, the Company completed the acquisition of Lloyd Center in Portland, Oregon, for a purchase price of approximately $168.0 million. Lloyd Center consists of approximately 1.5 million square feet of GLA and includes anchors Ice Chalet, Lloyd Mall Cinemas, Marshalls, Meier & Frank, Nordstrom and Toys "R" Us.
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.
In 1996, the Company began expanding and renovating the Grand Central Mall in Parkersburg, West Virginia. The renovation 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 has made additional revenue enhancing expansions of this Mall Property, including an approximately 83,000 square-foot Proffitt's which opened in March 1998 and a County Market store, currently under construction. County Market will be relocating to the new 58,000 square-foot outparcel building in March 1999 and the Company expects to retenant the existing 38,500 square-foot building during 1999.
In 1997, the Company 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 has enabled 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. The existing Elder-Beerman store is being expanded by approximately 21,000 square feet of GLA and is set to open early in 1999. Upon completion of the Elder-Beerman store, the Property's GLA will increase to approximately 564,000 square feet.
In 1998, the Company expanded Georgesville Square, in Columbus, Ohio, by adding a 63,000 square-foot 16-screen cinema. Additionally, the Company expanded River Valley Mall, in Lancaster, Ohio, by adding a 23,500 square-foot OfficeMax on one of the Property's outparcels, which opened in August 1998. Finally, the Company announced an expansion at The Mall of Fairfield Commons, with the addition of an approximately 89,000 square-foot Regal Cinemas on one of the Property's outparcels, which is under construction and expected to open in the second quarter of 1999.
DEVELOPMENTS
One of the Company's objectives is to increase its portfolio by developing new retail properties. 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, in a joint venture in which the Company has a 30.0% ownership interest, is currently developing a 1.3 million square-foot value-oriented fashion and entertainment megamall, located in Elizabeth, New Jersey ("Jersey Gardens"). Construction of the Mall Property and related infrastructure is underway, and completion is projected for October of 1999.
In March 1998, the Company, in a joint venture in which it has a 50.0% ownership interest, commenced construction of an approximately 700,000 square-foot power Community Center in northern Columbus, Ohio ("Polaris Towne Center"). Upon completion, Polaris Towne Center will feature grocery and discount store anchors, restaurants, big box retailers and several specialty shops. Kroger opened in December 1998 with approximately 64,000 square feet of GLA. The remainder of the shops are set to open through the fall of 1999.
In March 1998, the Company announced plans for the development of an approximately 1.5 million square-foot new super-regional Mall Property in northern Columbus, Ohio ("Polaris Fashion Place"). Polaris Fashion Place is expected to be a bi-level mall featuring six anchor tenants, approximately 150 mall stores and 4 restaurants, which will be located across the street from Polaris Towne Center and is projected to open in 2001.
In October 1998, the Company announced plans for the development of a 1.0 million square-foot super-regional Mall Property in the Chicago suburb of Bolingbrook, Illinois. The Company has obtained an option to acquire a 203 acre parcel as the site of this project which could open in 2001.
The Company has a contingent contract to acquire the land for a value-oriented super-regional mall located in Carson, California.
(c) Narrative Description of Business
GENERAL The Company concentrates its business on two broad types of retail properties, Mall Properties and Community Centers. At December 31, 1998, the Properties consisted of 21 Mall Properties containing an aggregate of 16.9 million square feet of GLA (7.0 million square feet of GLA is owned in joint ventures) and 104 Community Centers (including 17 single tenant retail properties) containing an aggregate of 13.4 million square feet of GLA (64,000 square feet of GLA is owned in a joint venture).
As of December 31, 1998, the occupancy rate for all of the Properties was 93.8%, of which 89.3%, 4.5% and 6.2% 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, 1998, the Properties had average annualized minimum rents of $8.23 per square-foot of GLA. Approximately 83.3%, 5.8% and 10.9% of the annualized minimum rents of the Properties as of December 31, 1998, was derived from national retail chains, regional retail chains and local retailers, respectively. Wal-Mart, Kmart and The Limited, Inc. and its consolidated entities, represented approximately 6.0%, 4.7% and 4.6%, respectively, of the aggregate annualized minimum rents of the Properties as of December 31, 1998; 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, JCPenney, Kohl's, Lazarus, Nordstrom, Meier & Frank Co., 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 1.5 million square feet of GLA and approximately 250 stores and the smallest has 225,000 square feet of GLA and approximately 40 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, 1998, the Mall Properties accounted for 55.8% of the total GLA, 65.1% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 91.8%.
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 JCPenney, 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, 1998, the Community Centers accounted for 44.2% of the total GLA, 34.9% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 96.3%.
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, by improving the operating performance and value of its existing portfolio through selective expansion and renovation of its Properties and by maintaining high occupancy rates, 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 in order 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 perform 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 rates and demand by tenants for properties of similar type in the vicinity; and (ix) the prospects for financing or refinancing the property.
The Company acquires and develops its Properties as long-term investments. Therefore, its focus is to provide for regular maintenance of its Properties and to 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, 1998, the Company had a debt-to-total-market-capitalization ratio of 61.0%, based upon the closing price of the Shares on the New York Stock Exchange as of December 31, 1998. 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 in the event 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) 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 the Internet, outlet malls, discount shopping clubs, catalog companies, direct mail and telemarketing.
EMPLOYEES At December 31, 1998, the Company, GDC and the ventures in which the Company has an interest, had an aggregate of 541 employees, of which 154 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 with the underlying real estate, including unknown deficiencies of and the inability to manage recently acquired Properties, poor economic conditions in those areas where Properties are located, joint venture 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. 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, 1998, the Company managed and leased a total of 125 Properties, 116 of which were wholly-owned and nine of which were partially owned in ventures. The Properties are located in 27 states primarily throughout the East and the Midwest as follows: Ohio (29), Pennsylvania (13), Tennessee (10), Kentucky (8), West Virginia (8), North Carolina (7), New York (6), South Carolina (6), Indiana (5), Florida (4), Texas (3), Virginia (3), Washington (3), Alabama (2), Illinois (2), Kansas (2), Massachusetts (2), Missouri (2), Wisconsin (2), Arizona (1), California (1), Colorado (1), Georgia (1), Michigan (1), Minnesota (1), Nebraska (1), Oregon (1).
(a) Mall Properties
Twenty-one of the Properties are Mall Properties and range in size from 225,000 square feet of GLA to 1.5 million square feet of GLA. Five of the Mall Properties are located in Ohio and 16 are located throughout the country in the states of Texas (2), West Virginia (2), Alabama (1), California (1), Florida (1), Kansas (1), Kentucky (1), Minnesota (1), New York (1), North Carolina (1), Oregon (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, 1998 -----------------------------------------------
(1) Includes outparcels.
(2) This is a ground lease. The Company owns the land and not the building.
(3) Lease expiration dates do not consider options to renew.
(4) The Operating Partnership has investments in these Mall Properties ranging from 20.0% 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.
(5) The tenant owns the land and the building and operates under an operating agreement.
(b) Community Centers
One hundred four of the 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 (24), Pennsylvania (12), Tennessee (9), Kentucky (7), North Carolina (6), South Carolina (6), West Virginia (6), Indiana (5), New York (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). The location, general character and major tenant information are set forth below.
SUMMARY OF COMMUNITY CENTERS AT DECEMBER 31, 1998
(1) Includes outparcels
(2) This is a ground lease. The Company owns the land and not the building.
(3) The Company ground leases the land for this Community Center.
(4) Lease expiration dates do not consider options to renew.
(5) Bi-Lo vacated the store on October 31, 1998, but continues to pay rent through lease expiration 08/31/03.
(6) Wal-Mart vacated the store on September 30, 1995, but continues to pay rent through lease expiration 9/30/03.
(7) The Operating Partnership has an investment in this Community Center of 50.0%. 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.
Eight of the Community Centers 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 Properties, the Company has entered into mortgage loans and a credit facility which are described below.
THE NOMURA LOAN ($181.0 MILLION)
The Nomura loan was originated 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 that was scheduled to mature 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 $40.0 million Note executed by Holdings which was scheduled to mature 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 $40.0 million note was prepaid, in full, without penalty on January 28, 1999 in conjunction with the refinancing of Grand Central Mall. Upon payment of the $40.0 million note, Grand Central Mall was released from the loan collateral and GCLP was released as Borrower.
The Nomura loan is a non-recourse loan. Payment of principal and interest on the Nomura loan is secured by first mortgage liens on 55 Properties, 26 of which are owned by Holdings and 29 of which are owned by Centers (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 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 to $190.0 million, (ii) extend the term of the credit facility, to July 31, 1998, which term could be extended to July 31, 1999 (iii) reduce the interest rate schedule, and (iv) grant first mortgage liens on 11 Properties. On April 29, 1998, the Company extended the term of the credit facility to July 31, 1999. Borrowings under the credit facility currently bear interest at a rate equal to LIBOR plus 170 basis points per annum (6.8125% at December 31, 1998). Payments due under the credit facility are guaranteed by GRT and by GPC. As of December 31, 1998, the Company had outstanding borrowings of approximately $163.0 million under the credit facility.
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.
THE UNIVERSITY MALL LOAN ($71.4 MILLION)
The University Mall loan was originated 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 with a prepayment option in January 2013 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 ($101.9 MILLION)
The Community Center loans are secured by first mortgage liens on 15 Properties. The loans 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 BRIDGE LOANS ($89.0 MILLION)
The bridge loans are secured by first mortgage liens on 15 Properties and second mortgage liens on two Properties. The bridge loans bear interest at interest rates ranging from LIBOR plus 160 to 575 basis points per annum (7.147% to 11.375% at December 31, 1998), require payments of interest only and mature between February 1999 and July 1999. A $15.0 million bridge loan on Montgomery Mall was paid off at maturity on February 1, 1999 and a one-time principal payment of $1.0 million on Weberstown Mall was due and paid on January 13, 1999.
THE NORTHTOWN MALL LOAN ($40.0 MILLION)
The Northtown Mall loan was originated by Nomura and is secured by a first mortgage lien on Northtown Mall. The loan bears interest at a rate equal to LIBOR, which is fixed at 5.662% per annum during the loan term pursuant to an existing interest rate swap agreement, plus 125 basis points per annum (6.912% at December 31, 1998) and is payable interest only until maturity on August 30, 2001.
THE WEBERSTOWN MALL LOAN ($11.5 MILLION)
The Weberstown Mall loan is secured by a first mortgage lien on Weberstown Mall. The loan bears interest at a rate equal to 8.80% per annum and requires payments of principal and interest until maturity on November 15, 2016.
THE MONTGOMERY MALL LOAN ($47.6 MILLION)
The Montgomery Mall loan was originated by Lehman Brothers and is secured by a first mortgage lien on Montgomery Mall. The loan bears interest at a rate equal to 6.74% per annum and requires payments of principal and interest until maturity on August 1, 2028. The loan has a prepayment option in August 2005.
THE MORGANTOWN MALL LOAN ($58.2 MILLION)
The Morgantown Mall loan was originated by Nomura and is secured by first mortgage liens on Morgantown Mall and Morgantown Commons. The loan bears interest at a rate equal to 6.89% per annum and requires payments of principal and interest until maturity on September 11, 2028. The loan has a prepayment option in September 2008. Both Properties were previously encumbered under a $50.2 million loan which was prepaid without penalty on September 1, 1998.
THE LLOYD CENTER LOAN ($130.0 MILLION)
The Lloyd Center loan was originated by Goldman Sachs and is secured by a first mortgage lien on Lloyd Center. The loan bears interest at a rate equal to LIBOR plus 125 basis points per annum (6.790% at December 31, 1998) and is payable interest only until maturity on October 11, 2001.
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 (7.626% at December 31, 1998). As of December 31, 1998, the Company had borrowed $16.9 million under this 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 (7.626% at December 31, 1998). As of December 31, 1998, the Company had borrowed $5.6 million under this construction loan.
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 (7.626% at December 31, 1998). As of December 31, 1998, the Company had borrowed $9.5 million under this 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 1998.
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) Market Information
The Shares are currently listed and traded on the New York Stock Exchange ("NYSE") under the symbol "GRT." On March 10, 1999, the last reported sales price of the Shares on the NYSE was $15.000. The following table shows the high and low sales prices for the Shares on the NYSE for the 1998 and 1997 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.
(b) Holders
The number of holders of record of the Shares was 969 as of March 10, 1999.
(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, 1998, 250,000 Shares were authorized of which 45,713 Shares have been issued.
(d) Recent Sales of Unregistered Securities
The information required herein, is set forth under Item 1 (a), General Development of Business.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth Selected Financial Data for the Company. 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 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) 1998 includes 7.1 million square feet of GLA, 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 20.0% to 50.0%. (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 GRT including the respective notes thereto, all of which are included in this Form 10-K.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Total revenues increased 31.4%, or $44.0 million, for the year ended December 31, 1998. Of the $44.0 million increase, $41.1 million was the result of increased revenues at the Mall Properties, $2.1 million was the result of increased revenues at the Community Centers, $1.5 million was the result of decreased revenues from dispositions and $2.3 million was related to other revenue increases.
Minimum rents
Minimum rents increased 22.3%, or $24.0 million, for the year ended December 31, 1998.
Percentage rents
Percentage rents increased $1.5 million for the year ended December 31, 1998. Percentage rents at the Mall Properties increased $1.7 million while percentage rents at the Community Centers decreased $200,000.
Tenant recoveries
Tenant recoveries reflect a net increase of 56.8%, or $13.7 million, for the year ended December 31, 1998.
Other revenues
The $4.7 million increase in other revenues is primarily the result of increases in management fee revenues of $2.4 million, and an increase of $2.3 million in temporary tenant income at the Mall Properties.
OPERATING EXPENSES
Total operating expenses increased 51.7%, or $15.3 million, for the year ended December 31, 1998. Recoverable operating expenses increased $15.1 million, the provision for credit losses decreased $600,000 and other operating expenses increased $700,000.
Recoverable expenses
Recoverable expenses increased 57.4%, or $15.1 million for the year ended December 31, 1998.
Provision for credit losses
The provision for credit losses was approximately $1.7 million and represented 1.0% of tenant revenues for the year ended December 31, 1998, compared to 1.6% of tenant revenues for the year ended December 31, 1997.
Depreciation and amortization
The $8.0 million increase in depreciation and amortization consists primarily of an increase of $5.9 million from Mall Property acquisitions, an increase of $1.5 million in the core portfolio Properties and an $800,000 increase in corporate expense, offset with a decrease of $200,000 from dispositions.
GENERAL AND ADMINISTRATIVE
General and administrative expense was $10.0 million and represented 5.4% of total revenues for the year ended December 31, 1998, compared to $8.3 million and 5.9% of total revenues for the corresponding period in 1997. The increase in expense is primarily due to an increase in the number of corporate associates as a result of the Company's growth during 1998.
INTEREST EXPENSE/CAPITALIZED INTEREST
Interest expense increased 15.8%, or $6.7 million, for the year ended December 31, 1998. The summary below identifies the increase by its various components (dollars in thousands).
(1) Other consists primarily of interest costs billed to joint venture entities.
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 Mall Properties, $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 Mall Properties 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 Mall Properties, 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 $90,000 primarily as a result of the acquisition and development activities.
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 Mall Properties 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 tenant revenues for the year ended December 31, 1997, compared to 1.8% of tenant 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), an increase of $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 provides 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).
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company has several active development, renovation and expansion projects and will continue to secure other projects in these areas.
On April 29, 1998, the Company elected to extend the term of its credit facility to July 31, 1999. The Company is currently in discussions with its bank group and expects to execute an 18 month extension of its credit facility prior to July 31, 1999. In June 1998, the Company, in connection with the Northtown Mall acquisition, secured a $40.0 million mortgage note payable which matures on August 30, 2001 and bears interest at LIBOR plus 125 points. In August 1998, the Company entered into a SWAP agreement which fixed the LIBOR rate at 5.662% per annum and fixed the interest rate on this note at 6.912% per annum. In July 1998, the Company, in connection with the Montgomery Mall acquisition, secured a $47.6 million mortgage note payable which matures in August 2028 with a prepayment option in August 2005 and bears interest at 6.740% per annum. In August 1998, the Company, in connection with the Weberstown Mall acquisition, assumed an existing mortgage of $11.5 million which matures in November 2016 and bears interest at 8.800% per annum. Also in August 1998, the Company refinanced a maturing $50.2 million mortgage note payable on Morgantown Mall, with a new $58.2 million mortgage note payable which matures in September 2028 with a prepayment option in September 2008 and bears interest at 6.890% per annum. In September 1998, the Company, in connection with the Lloyd Center acquisition, secured a $130.0 million mortgage note payable which matures in October 2001 and bears interest at LIBOR plus 125 basis points. The Company entered into an interest rate protection agreement for this loan which capped LIBOR at 7.750% per annum. Additionally, the Company entered into three short term notes payable agreements of $39.0 million, of which $10.0 million has a maturity date of March 15, 1999, $15.0 million has a maturity date of February 1999 and $14.0 million has a maturity date of April 13, 1999. The $15.0 million note payable was paid-off at maturity.
Management anticipates that the funds available under its credit facility, its construction financing, long-term mortgage debt, venture structure for acquisitions and developments, the issuance of preferred and common stock and the proceeds from the sale of assets will provide sufficient capital resources to carry out the Company's business strategy relative to the renovations, expansions and developments discussed herein. Based upon its current debt-to-market capitalization, the Company does not expect to pursue significant additional acquisitions until such time as the Company has access to additional equity capital.
At December 31, 1998, the Company's debt-to-total-market capitalization was 61.0%, as a result of a lower equity price for the Company's Shares and an increase in outstanding debt. The Company's intent is to maintain this ratio between approximately 40.0% and 60.0% and the Company is working toward reducing this ratio below 60.0% in 1999.
Net cash provided by operating activities for the twelve months ended December 31, 1998, was $76.8 million versus $56.4 million for the corresponding period of 1997. Net income adjusted for non-cash items accounted for a $20.3 million increase, while changes in operating assets and liabilities accounted for a $75,000 increase.
Net cash used in investing activities for the twelve months ended December 31, 1998, was $409.0 million, and reflects additional direct investments in real estate assets, including the acquisition of Northtown Mall for approximately $54.0 million, Montgomery Mall for $70.0 million and Lloyd Center for $168.0 million and additional indirect investments in real estate through investments in unconsolidated entities of $75.6 million.
Net cash provided by financing activities for the twelve months ended December 31, 1998, was $333.7 million. Cash was provided by net additional borrowings under the credit facility of $73.0 million and issuance of mortgage and notes payable of $390.0 million. Cash was used to fund distributions of $67.3 million and principal payments on mortgage and notes payable of $62.4 million.
ACQUISITION, EXPANSION, RENOVATION AND DEVELOPMENT ACTIVITY
The Company continues to be active in its acquisition, expansion, renovation and development activities. Its business strategy is to grow the Company's assets and cash flow available to, among other things, provide for dividend requirements.
ACQUISITIONS
During 1998, the Company completed certain strategic acquisitions which will complement and enhance its existing portfolio. On January 15, 1998, the Company, in a joint venture with Nomura, completed a transaction for the recapitalization of the ownership of the SuperMall of the Great Northwest in Seattle, Washington, for $103.0 million. The SuperMall of the Great Northwest consists of approximately 933,000 square feet of GLA including nine anchors. The Company has a 34.85% ownership interest in this Property.
On March 31, 1998, the Company purchased an interest in a joint venture which owns Almeda Mall and Northwest Mall, both in Houston, Texas. The two Properties were previously purchased by Nomura on October 1, 1997 for $39.0 million. Almeda Mall consists of approximately 792,000 square feet of GLA including five anchors and Northwest Mall consists of approximately 799,000 square feet of GLA including four anchors. The Company had managed these Properties since November 1, 1997. The Company has a 20.0% ownership interest in the entity that owns these Properties.
On June 1, 1998, the Company completed the acquisition of Northtown Mall in Blaine, Minnesota, for a purchase price of approximately $54.0 million. Northtown Mall consists of approximately 825,000 square feet of GLA and includes as anchors Best Buy, HomePlace, Kohl's, Mervyn's California and Montgomery Ward.
On July 16, 1998, the Company completed the acquisition of Montgomery Mall in Montgomery, Alabama, for a purchase price of approximately $70.0 million. Montgomery Mall consists of approximately 728,000 square feet of GLA and includes as anchors Dillard's, Parisian and JCPenney.
On August 1, 1998, the Company completed the acquisition of Weberstown Mall in Stockton, California, for a purchase price of approximately $23.0 million. Weberstown Mall has approximately 839,000 square feet of GLA and includes as anchors Barnes & Noble, Dillard's, JCPenney and Sears.
On August 20, 1998, the Company, in a joint venture with Nomura completed the acquisition of Eastland Mall in Charlotte, North Carolina, for a purchase price of $54.0 million. The Company has a 20.0% ownership interest in the entity that owns this Property. Eastland Mall consists of approximately 1.1 million square feet of GLA and includes as anchors Belk, Dillard's, Ice Chalet, JCPenney and Sears.
On September 15, 1998, the Company completed the acquisition of Lloyd Center in Portland, Oregon, for a purchase price of approximately $168.0 million. Lloyd Center consists of approximately 1.5 million square feet of GLA and includes as anchors Ice Chalet, Lloyd Mall Cinemas, Marshalls, Meier & Frank, Nordstrom and Toys "R" Us.
EXPANSIONS AND RENOVATIONS
The Company maintains a strategy of selective expansions and renovations in order to improve the operating performance and the competitive position of its existing portfolio. The Company also engages in an active redevelopment program with the objective of attracting innovative retailers which management believes will enhance the operating performance of the Properties.
Grand Central Mall
The expansion and renovation of this Mall Property located in Parkersburg, West Virginia, continues and will increase its GLA to approximately 900,000 square feet upon completion. The initial phase, which was completed in 1996, added a food court as well as relocated and enlarged the cinema. An approximately 23,500 square-foot OfficeMax opened in January 1998 and a new 83,000 square-foot Proffitt's opened in March 1998.
County Market will be relocating to a new 58,000 square-foot outparcel building currently under construction in March 1999 and the Company expects to retenant the existing 38,500 square-foot building in 1999.
Georgesville Square
A new 63,000 square-foot 16-screen cinema opened in May 1998. The budgeted construction costs for the cinema totaled approximately $6.2 million, of which $5.6 million has been spent to date.
River Valley Mall
In March 1998, the Company announced plans for an expansion at this Mall Property with the addition of an approximately 23,500 square-foot OfficeMax on one of the Property's outparcels, which opened in August 1998.
Indian Mound Mall
The Company is in the process of expanding the existing Elder-Beerman store at this Mall Property by approximately 21,000 square feet of GLA. Upon completion in the first quarter of 1999, the mall's GLA will increase to approximately 564,000 square feet.
The Mall at Fairfield Commons
The Company is in the process of expanding this Mall Property with the addition of an 89,000 square-foot Regal Cinemas on one of the Property's outparcels, which is expected to open in the second quarter of 1999.
DEVELOPMENTS
Polaris Towne Center
In March 1998, the Company, in a joint venture in which it has a 50.0% ownership interest, commenced construction of an approximately 700,000 696,000 square-foot power Community Center in northern Columbus, Ohio. Upon completion, the Community Center will feature grocery and discount store anchors, restaurants, big box retailers and several specialty shops. The initial anchor, Kroger, opened in the fourth quarter of 1998 with the remainder of the space expected to open through the fall of 1999. The required equity for Polaris Towne Center was funded in the joint venture during 1998 and the joint venture has a construction loan facility in place that is sufficient to fund the balance of the estimated cost of the project.
Jersey Gardens
The Company, in a joint venture in which the Company has a 30.0% ownership interest, is currently developing a 1.3 million square-foot value-oriented fashion and entertainment megamall, ("Jersey Gardens"), located in Elizabeth, New Jersey. Construction of the Mall Property and related infrastructure is underway and completion is projected for fourth quarter of 1999. The required equity for Jersey Gardens and off-site improvements have been funded. The Company has also arranged a construction loan facility for the project and has met the pre-leasing requirements of the loan.
Polaris Fashion Place
In March 1998, the Company announced plans for the development of a new super-regional Mall Property of approximately 1.5 million square feet in northern Columbus, Ohio. Polaris Fashion Place is expected to be a bi-level mall featuring six anchor tenants, approximately 150 mall stores and four restaurants, which will be located across the street from Polaris Towne Center and is projected to open in 2001.
Carson
The Company has a contingent contract to acquire the land for a value-oriented super-regional Mall Property located in Carson, California.
Bolingbrook
In October 1998, the Company announced plans for the development of a 1.0 million square-foot super-regional Mall Property in the Chicago suburb of Bolingbrook, Illinois. The Company has obtained an option to acquire a 203-acre parcel as the site of this project, which could open in 2001.
Capital Invested in Real Estate
Investment in real estate has increased $337.2 million since December 31, 1997 (in thousands):
(1) Capital expenditures include tenant improvements and tenant allowances on second generation space of $5,501 and routine, recurring maintenance capital expenditures that cannot be passed through to the tenants of $2,286.
PORTFOLIO DATA
Tenants reporting sales data in the table below for the twelve month periods ended December 31, 1998 and 1997, represent 15.4 million square feet of GLA, or 84.9% of the 1998/1997 "same store" population.
Portfolio occupancy statistics by property type are summarized below:
(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, 1998, 1997 and 1996 (in thousands):
FFO increased 15.9%, or $8.9 million for the year ended December 31, 1998. The increase was the result of improved property net operating income of $28.7 million and an increase in the FFO from unconsolidated entities of $4.2 million, partially offset by increased interest expense of $6.7 million, and an increase in preferred stock dividends of $15.4 million.
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 and an increase in preferred stock dividends of $4.4 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 fiscal 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 has adopted SFAS No. 131 in its 1998 annual report on Form 10-K.
In July 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for financial statements for fiscal quarter of fiscal years beginning after June 15, 1999. The Company will be required to adopt SFAS No. 133 effective January 1, 2000. SFAS No. 133 standardizes the accounting for derivative instruments by requiring that all entities recognize them as assets and liabilities in the balance sheet and subsequently measure them at fair market value. It also prescribes specific accounting principles to be applied to hedging activities and hedging transactions which are significantly different from prior accounting principles. The Company has not yet determined the impact of SFAS No. 133.
The Company recognizes that Year 2000 issues may have an impact on its business, operations and financial condition. The Company has completed an assessment of its Year 2000 readiness with respect to all of its information technology ("IT") systems and the reliability and condition of its non-IT systems. The Company has obtained status updates regarding Year 2000 issues on these systems either via contacting the manufacturers and vendors, or by acquiring the necessary information from their websites.
The Company's IT systems generally consist of file servers, operating systems, application programs and workstations that utilize purchased systems. The Company has evaluated the Year 2000 compliance status of each vendor and believes that its existing systems and planned upgrades, to be completed by second quarter 1999, will be Year 2000 compliant. Implementation of planned upgrades will not result in significant additional cost to the Company. The Company does not have any mainframe/midrange computer codes to verify. The data generated using off-the-shelf packages is being analyzed and fixed to use the proper date format.
All of the Company's servers and workstations use Intel based processors and the Company has used third party applications to verify these systems. Planned upgrades and new purchases have eliminated several non-compliant systems. The Company plans to phase-out the remaining older computers during the second quarter 1999. The majority of the remaining issues will be resolved via a planned upgrade to Windows 2000 and MS Office 2000 later this year. The Company is currently negotiating with IT firms to verify its tests and validate its correction and testing methods.
The costs incurred by the Company at the present time have been internal costs only. The Company expects to spend no more than $30,000 for outside consultants to give additional assurance on its IT systems. The source of these funds will be from operations. The significant risks to the Company in the event that Year 2000 issues are not identified and corrected include the possibility that IT system problems could cause delays or errors in processing financial and operation information. The Year 2000 issue has not affected any of the Company's IT system decisions. At the present time the Company has planned upgrades in progress that will not be delayed or accelerated due to Year 2000 issues.
The Company's contingency plan recognizes that the biggest exposures are non-IT systems which may result in Year 2000 issues. These exposures are facility related and encompass areas such as HVAC systems, elevators, security, lighting, telecommunications, electrical, plumbing, fire and sprinkler controls, as well as our reliance on outside contractors for services such as security, janitorial and exterior maintenance. At the present time, the Company has not identified any instances where Year 2000 issues will require material costs to repair or replace any of these systems. If failure does incur in any of these provided services as a result of Year 2000 issues, the Company is prepared to correct the problem with manual labor, either hired or internally which could cause a short term limitation in the efficiency of the Company's Properties operations.
While the Company believes its planning efforts are adequate to address its Year 2000 concerns, there can be no guarantee that the systems of other companies on which the Company's systems and operations rely will be converted on a timely basis and will not have a material effect on the Company.
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.
Inflation may however, have a negative impact on some of the Company's other operating items. Interest expense and general and administrative expenses may be adversely affected by inflation as these specified costs could increase at a rate higher than rents. Also, for tenant leases with stated rent increases, inflation may have a negative effect as the stated rent increases in these leases could be lower than the increase in inflation at any given time.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table presents descriptions of the financial instruments and derivative instruments that are held by the Company at December 31, 1998, and which are sensitive to changes in interest rates. The Company enters into derivative financial instrument transactions in order to manage or reduce market risk. Under interest-rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating rate interest amounts calculated by reference to an agreed notional principal amount. The Company does not enter into derivative financial instrument transactions for speculative purposes.
For the liabilities, the table represents principal calendar year cash flows that exist by maturity date and the related average interest rate. For the interest rate derivatives, the table presents the notional amounts and expected interest rates that exist by contractual dates. The notional amount is used to calculate the contractual payments to be exchanged under the contract. The variable rates are estimated based upon the 30-day forward LIBOR rate which at December 31, 1998 was 5.113%.
In August 1998, the Company entered into a three-year interest-rate swap agreement which fixed LIBOR at 5.662% per annum on a notional amount of $40,000. In September 1998, the Company also entered into a three-year interest rate protection agreement on $130,000 of borrowings in which the obligor agreed to reimburse the Company as a result of an increase in LIBOR above 7.750% per annum. Both of these agreements have been reflected in the table below.
All amounts are reflected in thousands:
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
Information regarding Trustees and executive officers of the Company is 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 12, 1999.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation of the Company is 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 12, 1999.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and management of the Company is 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 12, 1999.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions of the Company is 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 12, 1999.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(3) EXHIBITS
3.1 Amended and Restated Declaration of Trust of Glimcher Realty Trust. (2)
3.2 Bylaws, as amended. (2)
3.3 Amendment to the Company's Amended and Restated Declaration of Trust. (1)
3.4 Limited Partnership Agreement of Glimcher Properties Limited Partnership. (13)
3.5 Amendment to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (13)
3.6 Amendment No.1 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (13)
3.7 Amendment No.2 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (13)
3.8 Amendment No.3 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (13)
3.9 Amendment No.4 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (13)
4.1 Specimen Certificate for Common Shares of Beneficial Interest. (2)
4.2 Specimen Certificate evidencing 34,000 Shares of Series A Convertible Preferred Shares. (8)
4.3 Specimen Certificate evidencing Series A-1 Convertible Preferred Shares. (11)
4.4 Specimen Certificate evidencing 9 1/4% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. (11)
4.5 Specimen Certificate evidencing Series C Convertible Preferred Shares. (13)
4.6 Specimen Certificate evidencing 56,000 Shares of Series D Convertible Preferred Shares of Beneficial interest. (14)
10.1 Loan Agreement between Glimcher Properties Limited Partnership, Glimcher Realty Trust, Glimcher Properties Corporation and The Huntington National Bank relating to the Credit Facility. (1)
10.2 First Amendment to Loan Agreement by and among The Huntington National Bank, Glimcher Realty Trust and Glimcher Properties Corporation relating to the Credit Facility. (1)
10.3 Second Amendment to Loan Agreement, First Note Extension Agreement and First Amendment to a Credit Line Deed of Trust by and among The Huntington National Bank, Glimcher Properties Limited Partnership, Glimcher Realty Trust and Glimcher Properties Corporation relating to the Credit Facility. (1)
10.4 Revolving Note issued by Glimcher Properties Limited Partnership in connection with the Credit Facility. (1)
10.5 Executed Form of Open-End Mortgage, Assignment of Rents and Security Agreement issued by Glimcher Properties Limited Partnership in connection with the Credit Facility. (1)
10.6 Promissory Note issued by Morgantown Mall Associates Limited Partnership in connection with the Morgantown Loan. (2)
10.7 Credit Line Deed of Trust and Security Agreement, issued by Morgantown Mall Associates Limited Partnership in connection with the Morgantown Loan. (2)
10.8 Amended and Restated Loan Agreement among Nomura Asset Capital Corporation, Glimcher Holdings Limited Partnership, Glimcher Centers Limited Partnership and Grand Central Limited Partnership relating to the Nomura Loan. (1)
10.9 Holdings A Note, Nonrecourse Mortgage Note executed by Glimcher Holdings Limited Partnership, Glimcher Centers Limited Partnership and Grand Central Limited Partnership relating to the Nomura Loan. (1)
10.10 Holdings B Note, Nonrecourse Mortgage Note executed by Glimcher Holdings Limited Partnership, Glimcher Centers Limited Partnership and Grand Central Limited Partnership relating to the Nomura Loan. (1)
10.11 Centers Note, Nonrecourse Mortgage Note executed by Glimcher Holdings Limited Partnership, Glimcher Centers Limited Partnership and Grand Central Limited Partnership relating to the Nomura Loan. (1)
10.12 Grand Central Note, Nonrecourse Mortgage Note executed by Glimcher Holdings Limited Partnership, Glimcher Centers Limited Partnership and Grand Central Limited Partnership relating to the Nomura Loan. (1)
10.13 ISDA Master Agreement between The Huntington National Bank and Glimcher Properties Limited Partnership. (1)
10.14 Agreement by and between Glimcher Properties Limited Partnership and Start Marketing, Inc. (1)
10.15 Continuing Guaranty issued by Glimcher Realty Trust guaranteeing payment of obligations of Glimcher Properties Limited Partnership in connection with the Credit Facility. (1)
10.16 Continuing Guaranty issued by Glimcher Properties Corporation guaranteeing payment of obligations of Glimcher Properties Limited Partnership in connection with the Credit Facility. (1)
10.17 Exemplar of Mortgage/Deed of Trust, Assignment of Leases, Security Agreement and Fixture Filing issued by Glimcher Holdings Limited Partnership in connection with the Nomura Loan. (1)
10.18 Exemplar of Mortgage/Deed of Trust, Assignment of Leases, Security Agreement and Fixture Filing and Modification of Mortgage/Deed of Trust issued by Glimcher Centers Limited Partnership in connection with the Nomura Loan. (1)
10.19 Deed of Trust, Assignment of Leases, Security Agreement and Fixture Filing and Modification of Deed of Trust issued by Grand Central Limited Partnership in connection with the Nomura Loan. (1)
10.20 Glimcher Realty Trust 1993 Employee Share Option Plan. (2)
10.21 Glimcher Realty Trust 1993 Trustee Share Option Plan. (2)
10.22 First Amended and Restated Loan Agreement dated as of June 30, 1995, between Glimcher Properties Limited Partnership, Glimcher Realty Trust, Glimcher Properties Corporation, The Huntington National Bank, Society National Bank and a Bank Group. (3)
10.23 Revolving Promissory Note dated June 30, 1995, in the amount of $87.5 million executed by Glimcher Properties Limited Partnership to The Huntington National Bank. (3)
10.24 Revolving Promissory Note dated June 30, 1995, in the amount of $87.5 million executed by Glimcher Properties Limited Partnership to Society National Bank. (3)
10.25 Guaranty dated June 30, 1995, issued by Glimcher Realty Trust in favor of The Huntington National Bank. (3)
10.26 Guaranty dated June 30, 1995, issued by Glimcher Properties Corporation in favor of The Huntington National Bank.(3)
10.27 Guaranty dated June 30, 1995, issued by Glimcher Realty Trust in favor of Society National Bank.(3)
10.28 Guaranty dated June 30, 1995, issued by Glimcher Properties Corporation in favor of Society National Bank. (3)
10.29 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of twenty seven million six hundred thousand dollars ($27,600,000). (4)
10.30 Exemplar Open-End Mortgage, Security Agreement and Fixture Filing issued by Glimcher Properties Limited Partnership in connection with the Connecticut General Life Insurance Company Loan. (4)
10.31 Exemplar Second Mortgage and Security Agreement dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in connection with the Connecticut General Life Insurance Company Loan. (4)
10.32 Exemplar Assignment of Rents and Leases dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in connection with the Connecticut General Life Insurance Company Loan. (4)
10.33 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of six million two hundred thousand dollars ($6,200,000). (4)
10.34 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of three million six hundred thousand dollars ($3,600,000). (4)
10.35 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of three million three hundred thousand dollars ($3,300,000). (4)
10.36 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of four million two hundred thousand dollars ($4,200,000). (4)
10.37 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of five million one hundred thousand dollars ($5,100,000). (4)
10.38 Completion Guaranty dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership and Glimcher Realty Trust in favor of Connecticut General Life Insurance Company. (4)
10.39 Purchase and Sale Agreement by and among the Company and Retail Property Investors, Inc., PaineWebber Retail Property Investments, Ltd., PaineWebber Retail Property Investments Joint Venture, PaineWebber College Plaza, LP., and PaineWebber Marion Towne, L.P., dated as of March 11, 1996, as amended. (6)
10.40 Securities Purchase Agreement among Partnership Acquisition Trust II, Glimcher Properties Limited Partnership and Glimcher Realty Trust, dated November 26, 1996. (7)
10.41 Articles Supplementary designating 40,000 Shares of Series A Convertible Preferred Shares Beneficial Interest. (8)
10.42 Second Amendment to First Amended and Restated Loan Agreement. (7)
10.43 Second Amended and Restated Loan Agreement dated as of May 15, 1997, between Glimcher Properties Limited Partnership, Glimcher Realty Trust, Glimcher Properties Corporation, The Huntington National Bank, ("Huntington"), KeyBank National Association ("KeyBank"), Fleet National Bank ("Fleet"), Star Bank, National Association ("Star"), PNC Bank, National Association ("PNC"), The Provident Bank ("Provident"), National City Bank of Columbus ("National City") and Bankers Trust Company ("Bankers Trust"). (9)
10.44 Form of Revolving Note for each of the eight (8) individual notes, dated May 15, 1997, and executed by Glimcher Properties Limited Partnership. (9)
a. Huntington in the amount of $32.5 million; b. KeyBank in the amount of $32.5 million; c. Fleet in the amount of $20 million; d. Star in the amount of $20 million; e. PNC in the amount of $25 million; f. Provident in the amount of $10 million; g. National City in the amount of $20 million; and h. Bankers Trust in the amount of $30 million.
10.45 Form of Guaranty for each of the eight (8) individual guarantees, dated May 15, 1997, and issued by Glimcher Realty Trust and Glimcher Properties Corporation (9)
a. Huntington to the extent of $32.5 million; b. KeyBank to the extent of $32.5 million; c. Fleet to the extent of $20 million; d. Star to the extent of $20 million; e. PNC to the extent of $25 million; f. Provident to the extent of $10 million; g. National City to the extent of $20 million; and h. Bankers Trust to the extent of $30 million.
10.46 Security Agreement - Interest Rate Protection Contract dated May 15, 1997, executed by Glimcher Properties Limited Partnership in favor of Huntington as Administrative Agent for the lenders. (9)
10.47 Executed Form of Open-End Mortgage, Assignment of Rents and Security Agreement for each of the three (3) individual mortgages, dated May 15, 1997, and issued by Glimcher Properties Limited Partnership in connection with the Credit Facility. (9)
10.48 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Herbert Glimcher. (13)
10.49 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and William G. Cornely. (13)
10.50 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and William R. Husted. (13)
10.51 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Michael P. Glimcher. (13)
10.52 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and George A. Schmidt. (13)
10.53 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Timothy C. Getz. (13)
10.54 Underwriting Agreement, dated as of September 30, 1997, among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Prudential Securities Incorporated. (10)
10.55 Amendment No. 1 dated as of November 6, 1997 to Securities Purchase Agreement among Partnership Acquisition Trust II, Glimcher Properties Limited Partnership and Glimcher Realty Trust, dated November 26, 1996. (11)
10.56 Articles Supplementary classifying 5,520,000 Shares of beneficial interest on Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. (13)
10.57 Articles Supplementary designating 40,000 Shares of Series A-1 Convertible Preferred Shares Beneficial Interest. (13)
10.58 Articles Supplementary designating 56,000 Shares of Series C Convertible Preferred Shares Beneficial Interest. (13)
10.59 Promissory Note dated as of December 17, 1997, issued by Glimcher University Mall Limited Partnership in the amount of sixty four million eight hundred ninety eight thousand five hundred forty six dollars ($64,898,546). (12)
10.60 Mortgage, assignment of rents, security agreement and fixture filing by Glimcher University Mall Limited Partnership to Nomura Asset Capital Corporation dated as of December 17, 1997. (12)
10.61 Glimcher Realty Trust 1997 Incentive Plan. (13)
10.62 Articles Supplementary designating 56,000 Shares of Series D Convertible Preferred Shares of Beneficial interest. (14)
10.63 Exhibit A to Glimcher Properties Limited Partnership Agreement, as amended, showing new OP Unit holders following the purchase of Polaris Center, LLC. (13)
10.64 Promissory Note dated as of June 1, 1998, issued by Glimcher Properties Limited Partnership in the amount of fifty million dollars ($50,000,000).
10.65 Mortgage, assignment of leases and rents and security agreement to Nomura Asset Capital Corporation dated as of June 1, 1998.
10.66 Promissory Note dated as of June 1, 1998, issued by Glimcher Northtown Venture, LLC in the amount of forty million dollars ($40,000,000).
10.67 Mortgage, assignment of leases and rents, security agreement and fixture financing statement by Glimcher Northtown Venture, LLC to Nomura Asset Capital Corporation dated as of June 1, 1998.
10.68 Promissory note dated as of July 15, 1998, issued by Montgomery Mall Associates Limited Partnership in the amount of forty seven million seven hundred fifty thousand dollars ($47,750,000).
10.69 Mortgage and security agreement by Montgomery Mall Associates Limited Partnership to Lehman Brothers Holdings, Inc. dated as of July 15, 1998.
10.70 Promissory note dated as of July 15, 1998, issued by Glimcher Properties Limited Partnership in the amount of fifteen million dollars ($15,000,000).
10.71 Mortgage loan assumption agreement by and among Weberstown Shopping Center, Center Properties, Weberstown Mall, LLC and Aid Association for Lutherans dated as of August 1, 1998.
10.72 Promissory Note dated as of September 1, 1998, issued by Morgantown Mall Associates Limited Partnership in the amount of fifty eight million three hundred fifty thousand dollars ($58,350,000).
10.73 Deed of trust, assignment of leases and rents and security agreement by Morgantown Mall Associates Limited Partnership to Michael B. Keller (Trustee) for the use and benefit of The Capital Company of America, LLC dated as of September 1, 1998.
10.74 Promissory Note dated as of September 15, 1998, issued by Glimcher Lloyd Venture, LLC in the amount of one hundred thirty million dollars ($130,000,000).
10.75 Mortgage loan cooperation agreement to Goldman Sachs Mortgage Company dated as of September 15, 1998.
10.76 Promissory Note dated as of September 15, 1998, issued by Glimcher Properties Limited Partnership in the amount of ten million dollars ($10,000,000).
10.77 Promissory Note dated as of October 13, 1998, issued by Glimcher Properties Limited Partnership in the amount of fourteen million dollars ($14,000,000).
10.78 Mortgage, assignment of rents and security agreement by Glimcher Development Corporation to The Huntington National Bank dated as of October 13, 1998.
10.79 Mortgage, assignment of rents and security agreement by Glimcher Properties Limited Partnership to The Huntington National Bank dated as of October 13, 1998.
10.80 Deed of Trust, assignment of rents and security agreement by Glimcher Properties Limited Partnership to The Huntington National Bank dated as of October 13, 1998.
10.81 Deed of Trust, assignment of rents and security agreement by Glimcher Properties Limited Partnership to The Huntington National Bank dated as of October 13, 1998.
10.82 Mortgage loan to Bankers Trust Company for Ohio property, dated as of October 30, 1998.
10.83 Mortgage loan to Bankers Trust Company for Kansas property, dated as of October 30, 1998.
10.84 Mortgage loan to Bankers Trust Company for New York property, dated as of October 30, 1998.
10.85 Promissory Note dated as of November 1, 1998, issued by Glimcher Properties Limited Partnership in the amount of nineteen million dollars ($19,000,000).
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
27 Financial Data Schedule. (5)
(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.
(13) Incorporated by reference to GRT's Annual Report Form 10-K for the fiscal year ended December 31, 1997, filed with the Securities and Exchange Commission on March 31, 1998.
(14) Incorporated by reference to GRT's Quarterly Report Form 10-Q for the period ended June 30, 1998, filed with the Securities and Exchange Commission on August 11, 1998.
(b) REPORTS ON FORM 8-K -------------------
During the fiscal year ended December 31, 1998, the Company filed the following Reports on Form 8-K.
- Form 8-K/A dated January 27, 1998, filed January 28, 1998. - Form 8-K dated June 19, 1998, filed June 19, 1998. - Form 8-K dated September 29, 1998, filed September 29, 1998. - Form 8-K/A dated October 1, 1998, filed October 1, 1998.
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 9, 1999
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
In our opinion, the consolidated financial statements listed in the index appearing under Item 14 (a) (1) present fairly, in all material respects, the financial position of Glimcher Realty Trust and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14 (a) (2) present fairly, in all material respects, the information set forth therein. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Columbus, Ohio February 15, 1999 except for the last paragraph of Note 5, for which the date is March 9, 1999
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, 1998, 1997, AND 1996 (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 "Property" or "Properties") consisting of regional malls ("Mall Properties") and community shopping centers (including single tenant retail properties) ("Community Centers"). At December 31, 1998, the Company, managed and leased a total of 125 Properties, 116 of which were wholly owned and nine of which were partially owned in ventures, consisting of 21 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 (88.9% owned by GRT at December 31, 1998 and 90.1% at December 31, 1997), six Delaware limited partnerships (Glimcher Holdings Limited Partnership, Glimcher Centers Limited Partnership, Grand Central Limited Partnership, Glimcher York Associates Limited Partnership, Glimcher University Mall Limited Partnership and Montgomery Mall Associates Limited Partnership), three Delaware limited liability companies, (Glimcher Northtown Venture, LLC, Weberstown Mall, LLC, and Glimcher Lloyd Venture, LLC) 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 including acquired assets, are stated at cost. Costs incurred for the 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 leasehold 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, insurance and Property reserves for 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 $11,927 and $12,187 as of December 31, 1998 and 1997, respectively.
Derivative Financial Instruments
Gains and losses related to interest rate swaps, caps, collars and floors are recognized as an adjustment to interest expense over the life of the agreement. Any premiums paid are recorded as assets and amortized over the life of the underlying derivative agreement.
Revenue Recognition
Minimum rents are recognized on an accrual basis over the terms of the related leases which approximate 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 $3,995, $5,030 and $4,463 as of December 31, 1998, 1997 and 1996, respectively.
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 $79, $269 and $308 for the years ended December 31, 1998, 1997 and 1996, 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 $3,390, $5,991 and $5,617 were accrued for real estate improvements and other assets as of December 31, 1998, 1997 and 1996, respectively.
GRT, through the Operating Partnership, acquired four Mall Properties during the year ended December 31, 1998. The purchase price included cash of $296,393 and the assumption of net liabilities of $27,539. 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 $11,400, $11,381 and $10,524 and Operating Partnership distributions of $1,429, $1,252 and $1,252 had been declared but not paid as of December 31, 1998, 1997 and 1996, respectively. Series A-1 convertible preferred share distributions of $883, $734 and $268 had been declared but not paid as of December 31, 1998, 1997 and 1996, respectively. Series D convertible preferred share distributions of $1,454 and $355 had been declared but not paid as of December 31, 1998 and 1997, respectively. Series B cumulative preferred share distributions of $2,959 and $357 had been declared but not paid as of December 31, 1998 and 1997, respectively.
Amounts paid for interest were $46,384, $44,935 and $30,295 in 1998, 1997 and 1996, respectively.
Amounts paid for state and local income taxes were $1,017, $878 and $572 in 1998, 1997 and 1996, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Reclassifications
Certain reclassifications of prior period amounts have been made in the financial statements to conform to the 1998 presentation.
3. MORTGAGE NOTES PAYABLE AS OF DECEMBER 31, 1998 AND 1997 CONSIST OF THE FOLLOWING:
(a) The loan requires monthly payments of interest only. (b) The loan requires monthly payments of principal and interest. (c) The loan matures in September 2028, with an optional prepayment date in 2008. (d) The loan matures in January 2028, with an optional prepayment date in 2013. (e) Interest rate of LIBOR (fixed at 5.662% until maturity) plus 125 basis points (6.912% at December 31, 1998). (f) The loan matures in August 2028, with an optional prepayment date in 2005. (g) Interest rate of LIBOR (capped at 7.750% until maturity) plus 125 basis points (6.790% at December 31, 1998). (h) Interest rates ranging from 7.375% to 9.125%. (i) Final maturity dates ranging from June 1999 to April 2016. (j) Interest rates of LIBOR plus 160-575 basis points (7.147% - 11.375% at December 31, 1998). (k) Final maturity dates ranging from February 1999 to July 1999. (l) Interest rates of 7.626% at December 31, 1998 and ranging from 7.688% to 8.000% in 1997. (m) Maturity dates ranging from October 1999 to November 1999 with one year extension options. (n) The loan requires semi-annual payments of interest.
All mortgage notes payable are collateralized by certain Properties owned by the respective partnerships. Certain of the loans contain 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, 1998, are as follows: 1999-$199,120; 2000-$133,045; 2001-$196,005; 2002-$58,216; 2003-$43,116; thereafter-$201,510.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 to $190,000, (ii) extend the term of the Credit Facility to July 31, 1998, which term could be extended to July 31, 1999, (iii) reduce the interest rate schedule, and (iv) grant first mortgage liens on 11 Properties. On April 29, 1998, the Company extended the term of the Credit Facility to July 31, 1999. Borrowings under the Credit Facility currently bear interest at a rate equal to LIBOR plus 170 basis points per annum (6.8125% at December 31, 1998 and 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 1998 and 1997, the weighted average interest rate was 7.241% and 7.465%, respectively.
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, 1998, the balance outstanding on the Credit Facility was $163,000. In addition, $1,725 represents a holdback on the available balance of the Credit Facility for letters of credit issued under the Credit Facility. As of December 31, 1998, the unused balance of the Credit Facility available to the Company was $25,275.
5. SERIES A-1, B, D AND E 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 are paid quarterly based upon 90-day LIBOR plus a spread based on leverage (10.163% at December 31, 1998 and 8.631% at December 31, 1997). 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 November 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 begins at 90.0% and decreases annually 5.0%, 5.0% and 10.0% to 70.0%.
On December 5, 1997, the Company sold 56,000 shares of its Series C convertible preferred shares. On June 4, 1998, the Series C convertible preferred shares were converted to Series D convertible preferred shares (the "D Preferred Shares") having substantially the same terms. Terms of the D Preferred Shares are substantially the same as the A-1 Preferred Shares except that the holder can redeem the shares beginning in December 2002.
On November 17, 1997, the Company completed a $120,000 public offering of 4,800,000 shares of 9 1/4% Series B cumulative 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 anytime on or after November 15, 2002, at a redemption price of $25.00 per share, plus accrued and unpaid distributions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 March 9, 1999, the Board of Trustees adopted a Preferred Share Purchase Plan (the"Plan") pursuant to which a distribution will be made of one preferred share purchase right (a "Right") for each outstanding common share. The distribution is payable on March 22, 1999 to the shareholders of record at the close of business on that date. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a Series E Junior Participating Preferred Share of the Company, par value $0.01 per share (the "Preferred Shares"), at a price of $55.00 per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to adjustment. The Rights will become exercisable in the event that any person or group acquires or announces its intention to acquire, beneficial ownership of 15.0% or more of the outstanding common shares of the Company (an "Acquiring Person"). Alternatively each Right holder, except the Acquiring Person, will have the right to receive upon exercise that number of common shares having a market value of two times the Purchase Price of the Right. At any time before any person or group becomes an Acquiring Person, the Board of Trustees may redeem the Rights at a price of $0.01 per Right at which time the right to exercise the Rights will terminate. At any time after a person or group becomes an Acquiring Person, the Board of Trustees may exchange the Rights at an exchange ratio of one common share or one Preferred Share per Right. The Plan expires on March 9, 2009.
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage interest rate risks associated with long-term, floating rate debt. In August 1998, the Company entered into a three-year interest rate swap agreement which fixed LIBOR at 5.662% per annum on a notional amount of $40,000. In September 1998, the Company also entered into a three-year interest rate protection agreement on $130,000 of borrowings in which the obligor agreed to reimburse the Company as a result of an increase in LIBOR above 7.750% per annum. The Company is exposed to credit loss in the event of non-performance by the obligors. However, the Company does not anticipate non-performance by the obligors.
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, 1998 are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 $2,115, $1,324 and $1,747 for the years ended December 31, 1998, 1997 and 1996, respectively.
In 1998 and 1997, no tenant collectively accounted for more than 10.0% of rental income. In 1996, Kmart represented approximately 10.0% of rental income. 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
Investment in unconsolidated entities consists of preferred stock and non-voting common stock of Glimcher Development Corporation, a 45.00% interest in Great Plains Metro Mall, LLC, a 33.33% interest in Johnson City Venture, LLC, a 40.00% interest in Dayton Mall Venture, LLC, a 40.00% interest in Colonial Park Mall Limited Partnership, a 30.00% interest in Elizabeth Metro Mall, LLC, a 34.85% interest in Glimcher SuperMall Venture, LLC, a 20.00% interest in San Mall, LLC, a 50.00% interest in Polaris Center, LLC and a 20.00% interest in Eastland Mall, LLC.
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:
BALANCE SHEETS
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 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 1998 and 1997, GDC recognized fee income of $8,893 and $1,293, respectively, for services provided to these ventures.
The Company reimbursed The Glimcher Company ("TGC") and Corporate Flight, Inc. ("CFI") $2 and $36 in 1998 and $11 and $179 in 1997, 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 $5 and $688 in 1998 and $25 and $895 in 1997, respectively. In 1996, the Company purchased a parcel of land from TGC for $215 and reimbursed TGC and CFI $20 and $59, respectively.
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 1998, 1997 and 1996 were approximately $179, $137 and $128, 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, 1998 are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total rental expenses (including miscellaneous month-to-month lease rentals) for the years ended December 31, 1998, 1997 and 1996 were $707, $612 and $618, respectively. Ground lease expenses for the years ended December 31, 1998, 1997 and 1996 were $258, $256 and $330, 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, LLC, the Operating Partnership provided an unconditional guarantee for the payment of the lesser of $6,200 or the outstanding balance of the loan.
In connection with the development of Polaris Towne Center, the Operating Partnership provided the lender with a completion guarantee and an unconditional guarantee of payment of 50.0% of the outstanding obligation on the indebtedness until the Property achieves a coverage ratio of 1.2 at which time the guarantee is reduced to 25.0%.
In connection with the development of Jersey Gardens, the Operating Partnership provided the senior lending group with a completion guarantee and payment of interest on the senior portion of the construction facility to a maximum of $25.0 million until the Property achieves a coverage ratio of 1.25.
11. SHARE OPTION PLANS
GRT has established the Employee Share Option Plan (the "Employee Plan"), the Trustee Share Option Plan (the "Trustee Plan") and the 1997 Incentive Plan (the "Incentive 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, a maximum of 700,000 shares have been reserved for issuance under the Trustee Plan and a maximum of 3,000,000 shares have been reserved for issuance under the Incentive 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:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 5.38% to 6.74%, expected average lives of five years, annual dividend rates of $1.9232 and volatility of 14.32%.
A summary of the status of the Company's three option plans at December 31, 1998, 1997 and 1996 and changes during the years ending on those dates is presented below. Options issued under the Incentive Plan are included under the Trustee Plan and Employee Plan.
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, 1998 under the Company's two plans:
All but 20,000 options 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 options 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.
All but 15,000 options granted under the Incentive Plan in 1998 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 15,000 shares were exercisable immediately, and will remain exercisable through the tenth anniversary of such date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 $127, $109 and $89 to the plan in 1998, 1997 and 1996, respectively.
13. DISTRIBUTIONS
For the years ended December 31, 1998, 1997 and 1996, approximately 54.8%, 30.6% and 31.0%, 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:
The Series A-1 and Series D 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 6.00% to 11.38% per annum at December 31, 1998 and 6.82% to 8.88% per annum at December 31, 1997), the fair value of GRT's mortgage notes payable is estimated at $833,487 and $500,470 at December 31, 1998 and 1997, 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.
The fair value of interest rate protection agreements are estimated based on quotes from the market makers of these instruments and represent the estimated amounts that GRT would expect to receive or pay to terminate such agreements. All derivatives have no carrying value. Because the Company hedges only with instruments that have high correlations with the underlying transaction, changes in derivatives fair value are expected to be offset by changes in pricing. At December 31, 1998, the total notional amounts hedged were $170,000 with fair values totaling ($572).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." 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, as summarized in the table below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
18. INTERIM FINANCIAL INFORMATION (UNAUDITED)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (dollars in thousands)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (dollars in thousands)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (dollars in thousands)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (dollars in thousands)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (dollars in thousands)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (dollars in thousands)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (dollars in thousands)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (dollars in thousands)
GLIMCHER REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION as of December 31, 1998 (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 1998 and have not yet completed their first calendar year subsequent to opening, the initial cost is cost incurred through December 31, 1998.
(b) The aggregate gross cost of land and buildings, improvements and equipment for federal income tax purposes is approximately $1,427,041.
(c) RECONCILIATION OF REAL ESTATE
RECONCILIATION OF ACCUMULATED DEPRECIATION