RPT-2015.6.30-10Q




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 
FORM 10-Q
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934
 
For the quarterly period ended June 30, 2015
 
Commission file number 1-10093
 
RAMCO-GERSHENSON PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
 
MARYLAND
 
13-6908486
(State of other jurisdiction of incorporation or organization)
 
(I.R.S Employer Identification Numbers)
 
 
 
31500 Northwestern Highway, Suite 300
Farmington Hills, Michigan
 
48334
(Address of principal executive offices)
 
(Zip Code)
 
 
248-350-9900
 
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports).  And (2) has been subject to such filing requirements for the past 90 days.
 
Yes   x                       No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes   x                       No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
(Do not check if a smaller
reporting company)
Smaller reporting company  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes   o                       No  x
 
Number of common shares of beneficial interest ($0.01 par value) of the registrant outstanding as of July 14, 2015: 79,162,358



 


INDEX
Page No.
 
 
 
 
 
Condensed Consolidated Balance Sheets – June 30, 2015 (unaudited) and December 31, 2014
 
 
 
 
 
 
Three and Six Months Ended June 30, 2015 and 2014 (unaudited)
 
 
 
 
Condensed Consolidated Statement of Shareholders’ Equity - Six Months Ended June 30, 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2015 and 2014 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Page 2 of 32



PART 1 – FINANCIAL INFORMATION
Item 1.  Unaudited Condensed Consolidated Financial Statements
RAMCO-GERSHENSON PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
 
 
 
 
 
June 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Income producing properties, at cost:
 
 
 
Land
$
346,925

 
$
341,388

Buildings and improvements
1,616,326

 
1,592,644

Less accumulated depreciation and amortization
(311,207
)
 
(287,177
)
Income producing properties, net
1,652,044

 
1,646,855

Construction in progress and land available for development or sale
56,710

 
74,655

Net real estate
1,708,754

 
1,721,510

Equity investments in unconsolidated joint ventures
22,373

 
28,733

Cash and cash equivalents
6,932

 
9,335

Restricted cash
9,386

 
8,163

Accounts receivable (net of allowance for doubtful accounts of $2,616 and $2,292 as of June 30, 2015 and December 31, 2014, respectively)
12,814

 
11,997

Acquired lease intangibles, net
69,464

 
77,045

Other assets, net
91,596

 
91,596

TOTAL ASSETS
$
1,921,319

 
$
1,948,379

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 

 
 

Notes payable
$
906,167

 
$
921,705

Capital lease obligation
1,148

 
1,828

Accounts payable and accrued expenses
38,135

 
44,232

Acquired lease intangibles, net
51,492

 
54,278

Other liabilities
9,902

 
10,106

Distributions payable
18,034

 
17,951

TOTAL LIABILITIES
1,024,878

 
1,050,100

 
 
 
 
Commitments and Contingencies


 


 
 
 
 
Ramco-Gershenson Properties Trust ("RPT") Shareholders' Equity:
 
 

Preferred shares, $0.01 par, 2,000 shares authorized: 7.25% Series D Cumulative Convertible Perpetual Preferred Shares, (stated at liquidation preference $50 per share), 1,849 and 2,000 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively
$
92,427

 
$
100,000

Common shares of beneficial interest, $0.01 par, 120,000 shares authorized, 79,149 and 77,573 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively
791

 
776

Additional paid-in capital
1,155,556

 
1,130,262

Accumulated distributions in excess of net income
(375,512
)
 
(356,715
)
Accumulated other comprehensive loss
(2,271
)
 
(1,966
)
TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO RPT
870,991

 
872,357

Noncontrolling interest
25,450

 
25,922

TOTAL SHAREHOLDERS' EQUITY
896,441

 
898,279

 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,921,319

 
$
1,948,379

 

The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3 of 32


RAMCO-GERSHENSON PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
REVENUE
 
 
 
 
 
 
 
Minimum rent
$
44,327

 
$
37,054

 
$
87,678

 
$
73,321

Percentage rent
18

 
5

 
371

 
153

Recovery income from tenants
13,962

 
11,857

 
28,284

 
24,104

Other property income
850

 
578

 
1,709

 
1,539

Management and other fee income
578

 
436

 
1,110

 
946

TOTAL REVENUE
59,735

 
49,930

 
119,152

 
100,063

 
 
 
 
 
 
 
 
EXPENSES
 

 
 

 
 
 
 
Real estate taxes
9,126

 
7,347

 
18,121

 
14,714

Recoverable operating expense
6,846

 
5,739

 
14,124

 
11,898

Other non-recoverable operating expense
994

 
835

 
1,707

 
1,684

Depreciation and amortization
21,120

 
23,658

 
41,483

 
41,399

Acquisition costs
265

 
451

 
307

 
533

General and administrative expense
5,474

 
5,168

 
10,348

 
10,700

Provision for impairment
—

 
—

 
2,521

 
—

TOTAL EXPENSES
43,825

 
43,198

 
88,611

 
80,928

 
 
 
 
 
 
 
 
OPERATING INCOME
15,910

 
6,732

 
30,541

 
19,135

 
 
 
 
 
 
 
 
OTHER INCOME AND EXPENSES
 

 
 

 
 
 
 
Other income (expense), net
27

 
(239
)
 
(191
)
 
(372
)
Gain on sale of real estate
273

 
2,672

 
3,469

 
2,672

Earnings (loss) from unconsolidated joint ventures
335

 
816

 
2,995

 
(791
)
Interest expense
(10,058
)
 
(7,632
)
 
(20,027
)
 
(15,231
)
Amortization of deferred financing fees
(330
)
 
(370
)
 
(664
)
 
(773
)
Deferred gain recognized on real estate
—

 
—

 
—

 
117

Gain (loss) on extinguishment of debt
1,387

 
(860
)
 
1,387

 
(860
)
INCOME BEFORE TAX
7,544

 
1,119

 
17,510

 
3,897

Income tax (provision) benefit
(255
)
 
1

 
(277
)
 
(16
)
NET INCOME
7,289

 
1,120

 
17,233

 
3,881

Net income attributable to noncontrolling partner interest
(199
)
 
(34
)
 
(476
)
 
(123
)
NET INCOME ATTRIBUTABLE TO RPT
7,090

 
1,086

 
16,757

 
3,758

Preferred share dividends
(1,675
)
 
(1,813
)
 
(3,487
)
 
(3,625
)
Preferred share conversion costs
(500
)
 
—

 
(500
)
 
—

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
$
4,915

 
$
(727
)
 
$
12,770

 
$
133

 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE
 

 
 

 
 
 
 
Basic
$
0.06

 
$
(0.01
)
 
$
0.16

 
$
—

Diluted
$
0.06

 
$
(0.01
)
 
$
0.16

 
$
—

 


 


 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 

 
 

 
 
 
 
Basic
79,124

 
68,853

 
78,528

 
67,966

Diluted
79,319


69,097


78,731


68,209

 
 

 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME
 

 
 

 
 
 
 
Net income
$
7,289

 
$
1,120

 
$
17,233

 
$
3,881

Other comprehensive gain (loss):
 

 
 

 
 
 
 
Gain (loss) on interest rate swaps
1,150

 
(1,377
)
 
(315
)
 
(2,076
)
Comprehensive income (loss)
8,439

 
(257
)
 
16,918

 
1,805

Comprehensive (income) loss attributable to noncontrolling interest
(31
)
 
44

 
10

 
67

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RPT
$
8,408

 
$
(213
)
 
$
16,928

 
$
1,872


The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4 of 32


RAMCO-GERSHENSON PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 2015
(In thousands)
(Unaudited)
 
 
 
 
 
 
 
Shareholders' Equity of Ramco-Gershenson Properties Trust
 
 
 
 
 
Preferred
Shares
 
Common
Shares
 
Additional
Paid-in Capital
 
Accumulated Distributions in Excess of Net Income
 
Accumulated Other Comprehensive Loss
 
Noncontrolling Interest
 
Total Shareholders’ Equity
Balance,
December 31, 2014
$
100,000

 
$
776

 
$
1,130,262

 
$
(356,715
)
 
$
(1,966
)
 
$
25,922

 
$
898,279

Issuance of common shares
—

 
9

 
17,116

 
—

 
—

 
—

 
17,125

Conversion and redemption of OP unit holders
—

 
—

 
—

 
—

 
—

 
(40
)
 
(40
)
Conversion of preferred shares
(7,573
)
 
5

 
7,568

 
(500
)
 
—

 
—

 
(500
)
Share-based compensation and other expense, net of shares withheld for employee taxes
—

 
1

 
610

 
—

 
—

 
—

 
611

Dividends declared to common shareholders
—

 
—

 
—

 
(31,409
)
 
—

 
—

 
(31,409
)
Dividends declared to preferred shareholders
—

 
—

 
—

 
(3,487
)
 
—

 
—

 
(3,487
)
Distributions declared to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(898
)
 
(898
)
Dividends declared to deferred shares
—

 
—

 
—

 
(158
)
 
—

 
—

 
(158
)
Other comprehensive income adjustment
—

 
—

 
—

 
—

 
(305
)
 
(10
)
 
(315
)
Net income
—

 
—

 
—

 
16,757

 
—

 
476

 
17,233

Balance,
June 30, 2015
$
92,427

 
$
791

 
$
1,155,556

 
$
(375,512
)
 
$
(2,271
)
 
$
25,450

 
$
896,441

 


The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5 of 32


RAMCO GERSHENSON PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Six Months Ended June 30,
 
2015
 
2014
OPERATING ACTIVITIES
 
 
 
Net income
$
17,233

 
$
3,881

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
41,483

 
41,399

Amortization of deferred financing fees
664

 
773

Income tax provision
277

 
16

(Earnings) loss from unconsolidated joint ventures
(2,995
)
 
791

Distributions received from operations of unconsolidated joint ventures
901

 
1,353

Provision for impairment
2,521

 
—

(Gain) loss on extinguishment of debt
(1,387
)
 
860

Deferred gain recognized on real estate
—

 
(117
)
Gain on sale of real estate
(3,469
)
 
(2,672
)
Amortization of premium on mortgages, net
(806
)
 
(347
)
Share-based compensation expense
1,082

 
1,060

Long-term incentive cash compensation expense
720

 
1,071

Changes in assets and liabilities:
 

 
 

Accounts receivable, net
(817
)
 
(1,068
)
Acquired lease intangibles and other assets, net
(352
)
 
674

Accounts payable, acquired lease intangibles and other liabilities
(10,872
)
 
526

Net cash provided by operating activities
44,183

 
48,200

 
 
 
 
INVESTING ACTIVITIES
 

 
 

Acquisition of real estate
$
(12,097
)
 
$
—

Development and capital improvements
(24,034
)
 
(34,776
)
Net proceeds from sales of real estate
16,106

 
9,883

Distributions from sale of joint venture property
8,173

 
—

Increase in restricted cash
(1,223
)
 
(11,461
)
Net cash used in investing activities
(13,075
)
 
(36,354
)
 
 
 
 
FINANCING ACTIVITIES
 

 
 

Proceeds on mortgages and notes payable
$
—

 
$
175,000

Repayment of mortgages and notes payable
(20,343
)
 
(151,672
)
Net (repayments) proceeds on revolving credit facility
7,000

 
(27,000
)
Payment of deferred financing costs
(204
)
 
(762
)
Proceeds from issuance of common stock
17,125

 
49,890

Repayment of capitalized lease obligation
(680
)
 
(176
)
Redemption or conversion of operating partnership units for cash
(40
)
 
—

Conversion of preferred shares
(500
)
 
—

Dividends paid to preferred shareholders
(3,625
)
 
(3,625
)
Dividends paid to common shareholders
(31,346
)
 
(25,367
)
Distributions paid to operating partnership unit holders
(898
)
 
(844
)
Net cash (used in) provided by financing activities
(33,511
)
 
15,444

 
 
 
 
Net change in cash and cash equivalents
(2,403
)
 
27,290

Cash and cash equivalents at beginning of period
9,335

 
5,795

Cash and cash equivalents at end of period
$
6,932

 
$
33,085

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 

 
 

Cash paid for interest (net of capitalized interest of $488 and $884 in 2015 and 2014, respectively)
$
21,185

 
$
16,284

Cash paid for federal income taxes
$
—

 
$
—


The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 6 of 32


RAMCO-GERSHENSON PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Organization and Basis of Presentations

Organization

Ramco-Gershenson Properties Trust, together with its subsidiaries (the “Company” or "RPT"), is a real estate investment trust (“REIT”) engaged in the business of owning, developing, redeveloping, acquiring, managing and leasing large multi-anchored shopping centers primarily in a dozen of the largest metropolitan markets in the United States.  As of June 30, 2015, our property portfolio consists of 66 wholly owned shopping centers and one office building comprising approximately 14.2 million square feet.  In addition, we are co-investor in and manager of two institutional joint ventures that own portfolios of shopping centers.  We own 20% of Ramco 450 Venture LLC, an entity that owns eight shopping centers comprising approximately 1.6 million square feet.  We own 30% of Ramco/Lion Venture L.P., an entity that owns two shopping centers comprising approximately 0.6 million square feet. We also have ownership interests in two joint ventures that each own a single shopping center.  In addition, we own interests in several land parcels that are available for development or sale. Most of our properties are anchored by supermarkets and/or national chain stores.  The Company’s credit risk, therefore, is concentrated in the retail industry.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and our majority owned subsidiary, the Operating Partnership, Ramco-Gershenson Properties, L.P. (97.3% and 97.2% owned by the Company at June 30, 2015 and December 31, 2014, respectively), and all wholly-owned subsidiaries, including entities in which we have a controlling financial interest.  We have elected to be a REIT for federal income tax purposes.  All intercompany balances and transactions have been eliminated in consolidation.  The information furnished is unaudited and reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.  These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014.

The preparation of our unaudited financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management of the Company 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 unaudited financial statements and the reported amounts of revenues and expenses during the reporting period.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and reported amounts that are not readily apparent from other sources.  Actual results could differ from those estimates.

Reclassifications

Certain reclassifications of prior period amounts have been made in the condensed consolidated financial statements and footnotes in order to conform to the current presentation.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") updated Accounting Standards Codification ("ASC") Topic 835 "Interest" with ASU No. 2015-03, "Interest - Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs". ASU 2015-03 modifies the treatment of debt issuance costs from a deferred charge to a deduction of the carrying value of the financial liability. ASU 2015-03 is effective for periods beginning after December 15, 2015, with early adoption permitted and retrospective application. Deferred financing costs, net of accumulated amortization were approximately $6.1 million and $6.6 million as of June 30, 2015 and December 31, 2014, respectively. ASU 2015-03 is not expected to have a material impact on the Company's consolidated financial statements.

In February 2015, FASB updated ASC Topic 810 "Consolidation" with ASU 2015-02, "Amendments to the Consolidation Analysis". ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are Variable Interest Entities ("VIEs") or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved in VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for annual reporting periods (including interim periods within those

Page 7 of 32




periods), beginning after December 15, 2015. Early adoption is permitted. We believe the adoption of this guidance will not have a material effect on our consolidated financial statements

In May 2014, FASB issued ASU 2014-09 "Revenue from Contract with Customers" as a new Topic, ASC Topic 606. The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and it will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new standard, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. This ASU is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017, pursuant to the one year deferral of the effective date by the FASB in July 2015, and shall be applied using either a full retrospective or modified retrospective approach. Early adoption is permitted beginning after December 15, 2016. We are currently evaluating the guidance and have not determined the impact this standard may have on the consolidated financial statements nor decided upon the method of adoption.

2.  Real Estate

Included in our net real estate assets are income producing shopping center properties and one office building that are recorded at cost less accumulated depreciation and amortization.

We review our investment in real estate, including any related intangible assets, for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the property may not be recoverable.  These changes in circumstances include, but are not limited to, changes in occupancy, rental rates, tenant sales, net operating income, geographic location, real estate values and expected holding period.

Land available for development or sale includes real estate projects where vertical construction has yet to commence, but which have been identified by us and are available for future development when market conditions dictate the demand for a new shopping center. The viability of all projects under construction or development, including those owned by unconsolidated joint ventures, is regularly evaluated under applicable accounting requirements, including requirements relating to abandonment of assets or changes in use.  Land available for development or sale was $39.4 million and $48.9 million at June 30, 2015 and December 31, 2014, respectively.

Construction in progress represents existing development, redevelopment and tenant build-out projects.  When projects are substantially complete and ready for their intended use, balances are transferred to land or building and improvements as appropriate.  Construction in progress was $17.3 million and $25.7 million at June 30, 2015 and December 31, 2014, respectively.

The decrease in construction in progress from December 31, 2014 to June 30, 2015 was due primarily to the substantial completion of two redevelopment projects, offset in part by ongoing development, redevelopment and expansion projects across the portfolio.

During the first quarter of 2015, we recorded an impairment provision of $2.5 million related to developable land that was subsequently sold in the second quarter of 2015. The adjustment was triggered by an unforeseen increase in development costs and changes in the associated sales price assumptions. Refer to Note 3 for additional information related to dispositions.


Page 8 of 32




3.  Property Acquisitions and Dispositions

Acquisitions

The following table provides a summary of our acquisition activity for the six months ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
Gross
Property Name
 
Location
 
GLA

 
Acreage

 
Date
Acquired
 
Purchase
Price

 
Assumed
Debt

 
 
 
 
(In thousands)

 
 
 
 
 
(In thousands)
Petco at West Oaks
 
Novi, MI
 
26

 
 
 
06/10/15
 
$
5,500

 
$
—

Jackson Crossing Shops
 
Jackson, MI
 
15

 
 
 
06/22/15
 
5,000

 
—

  Total consolidated income producing acquisitions
 
41

 
 
 
 
 
$
10,500

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Gaines Marketplace
 
Gaines Township, MI
 
N/A

 
1.9

 
02/12/15
 
1,000

 
—

Lakeland Park Center
 
Lakeland, FL
 
N/A

 
1.6

 
01/23/15
 
475

 
—

  Total consolidated land / outparcel acquisitions
 
 
 
4.1

 
 
 
$
1,475

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Acquisitions
 
 
 
41

 
4.1

 
 
 
$
11,975

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 

Dispositions

The following table provides a summary of our disposition activity for the six months ended June 30, 2015:

 
 
 
 
 
 
 
 
 
 
Gross
 
 
Property Name
 
Location
 
GLA
 
Acreage

 
Date
Sold
 
Sales
Price
 
Debt
Repaid
 
Gain (Loss)
on Sale
 
 
 
 
(In thousands)
 
 
 
 
 
(In thousands)
The Town Center at Aquia - Commercial / Residential Land
 
Stafford, VA
 
35

 
32.8

 
05/29/15
 
$
13,350

 
$
—

 
$
289

Taylors Square - Outparcel
 
Taylors, SC
 
N/A

 
0.6

 
04/22/15
 
250

 
—

 
(16
)
Target and Shell Oil Parcels
 
Gaines Township, MI
 
N/A

 
11.3

 
02/12/15
 
5,150

 
—

 
3,196

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Total consolidated land / outparcel dispositions
 
35

 
44.7

 
 
 
$
18,750

 
$
—

 
$
3,469

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pursuant to the criteria established under ASC 360, Property, Plant, and Equipment, we will classify properties as held for sale when executed purchase and sales agreement contingencies have been satisfied thereby signifying that the sale is legally binding and we are able to conclude that the sale of the property within one year is probable. The adoption of ASU 2014-08 eliminated classifying the results of operations of properties held for sale as Discontinued Operations in the Condensed Consolidated Statements of Operations. As of June 30, 2015 there were no properties or land classified as held for sale.


Page 9 of 32




4.  Equity Investments in Unconsolidated Joint Ventures

We have four joint venture agreements whereby we own between 7% and 30% of the equity in the joint venture. We and the joint venture partners have joint approval rights for major decisions, including those regarding property operations.  We cannot make significant decisions without our partner’s approval.  Accordingly, we account for our interest in the joint ventures using the equity method of accounting.

The combined condensed financial information for our unconsolidated joint ventures is summarized as follows:
Balance Sheets
 
June 30, 2015
 
December 31, 2014
 
 
(In thousands)
ASSETS
 
 
 
 
Income producing properties, net
 
$
374,267

 
$
394,740

Cash, accounts receivable and other assets
 
19,796

 
23,102

Total Assets
 
$
394,063

 
$
417,842

LIABILITIES AND OWNERS' EQUITY
 
 

 
 

Mortgage notes payable
 
$
169,673

 
$
170,194

Other liabilities
 
6,306

 
7,625

Owners' equity
 
218,084

 
240,023

Total Liabilities and Owners' Equity
 
$
394,063

 
$
417,842

 
 
 
 
 
RPT's equity investments in unconsolidated joint ventures
 
$
22,373

 
$
28,733

 
 
 
 
 

As of June 30, 2015, we had investments in the following unconsolidated joint ventures:
 
 
Ownership as of
 
Total Assets as of
 
Total Assets as of
 
 
June 30,
 
June 30,
 
December 31,
Unconsolidated Entities
 
2015
 
2015
 
2014
 
 
 
 
(In thousands)
Ramco 450 Venture LLC
 
20%
 
$
280,676

 
$
283,100

Ramco/Lion Venture LP
 
30%
 
69,078

 
89,091

Other Joint Ventures (1)
 
7%
 
44,309

 
45,651

 
 
 
 
$
394,063

 
$
417,842

 
 
 
 
 
 
 
(1) Includes two joint ventures in which we have a 7% ownership interest. Each joint venture owns one property.


Page 10 of 32




 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Statements of Operations
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
Total revenue
 
$
10,285

 
$
10,578

 
$
20,910

 
$
21,502

Total expenses (1)
 
7,367

 
7,035

 
14,663

 
24,961

Income (loss) before other income and expense
 
2,918

 
3,543

 
6,247

 
(3,459
)
Gain on sale of real estate (2)
 
—

 
740

 
7,463

 
740

Interest expense
 
(1,801
)
 
(1,816
)
 
(3,594
)
 
(3,691
)
(Loss) gain on extinguishment of debt
 
—

 
—

 
(148
)
 
529

Amortization of deferred financing fees
 
(74
)
 
(77
)
 
—

 
(152
)
Net income (loss)
 
$
1,043

 
$
2,390

 
$
9,968

 
$
(6,033
)
 
 
 
 
 
 
 
 
 
RPT's share of earnings (loss) from unconsolidated joint ventures
 
$
335

 
$
816

 
$
2,995

 
$
(791
)
 
 
 
 
 
 
 
 
 
(1) 
The higher expenses for the six months ended June 30, 2014 were due to the demolition of a portion of a center for redevelopment and the commensurate acceleration of depreciation in that period.
(2) 
See dispositions below for details of the transaction.

Acquisitions

There was no acquisition activity in the six months ended June 30, 2015 by any of our unconsolidated joint ventures.

Dispositions
 
During the six months ended June 30, 2015 we sold our 30% interest in the Village of Oriole Plaza, a 156,000 square foot shopping center located in Delray Beach, Florida, to our joint venture partner for $8.3 million resulting in a gain to the joint venture of $7.5 million.

Debt

Our unconsolidated joint ventures had the following debt outstanding at June 30, 2015:
 
Balance
Entity Name
Outstanding
 
(In thousands)
Ramco 450 Venture LLC  (1)
$
140,010

Ramco/Lion Venture LP (2)
29,706

 
169,716

Unamortized premium
(43
)
Total mortgage debt (3)
$
169,673

 
 

 
(1) 
Maturities range from October 2015 to September 2023 with interest rates ranging from 1.9% to 5.8%.
(2) 
Balance relates to Millennium Park’s mortgage loan which has a maturity date of October 2015 with a 5.0% interest rate.
(3) 
Debt is non-recourse to the ventures, subject to carve-outs customary to such types of mortgage financing.

Joint Venture Management and Other Fee Income

We are engaged by our joint ventures to provide asset management, property management, leasing and investing services for such venture’s respective properties.  We receive fees for our services, including a property management fee calculated as a percentage of gross revenues received, and recognize these fees as the services are rendered.  


Page 11 of 32




The following table provides information for our fees earned which are reported in our condensed consolidated statements of operations:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Management fees
$
383

 
$
367

 
$
782

 
$
766

Leasing fees
88

 
46

 
208

 
105

Construction fees
107

 
23

 
120

 
75

Total
$
578

 
$
436

 
$
1,110

 
$
946

 
 
 
 
 
 
 
 

5.  Debt

The following table summarizes our mortgages and notes payable and capital lease obligation as of June 30, 2015 and December 31, 2014:
Notes Payable
 
June 30,
2015
 
December 31,
2014
 
 
(In thousands)
Senior unsecured notes
 
$
310,000

 
$
310,000

Unsecured term loan facilities
 
210,000

 
210,000

Fixed rate mortgages
 
334,371

 
354,714

Unsecured revolving credit facility
 
17,000

 
10,000

Junior subordinated notes
 
28,125

 
28,125

 
 
899,496

 
912,839

Unamortized premium
 
6,671

 
8,866

 
 
$
906,167

 
$
921,705

 
 
 
 
 
Capital lease obligation
 
$
1,148

 
$
1,828

 
 
 
 
 
 
During the six months ended June 30, 2015 we repaid mortgages securing the following properties:
•
Treasure Coast Commons in the amount of $7.8 million with an interest rate of 5.5%; and
•
Vista Plaza in the amount of $10.3 million with an interest rate of 5.5%.

In conjunction with the mortgage repayments we recognized a gain on extinguishment of debt of approximately $1.4 million as a result of the write off of the associated debt premiums.

We have a mortgage in the amount of $13.7 million secured by the Aquia Town Center Office property with a maturity date of June 1, 2015. We are currently in negotiations with the lender to amend and extend the maturity date of the loan for a one year period.

Our $334.4 million of fixed rate mortgages have interest rates ranging from 5.0% to 7.4% and are due at various maturity dates from September 2015 through June 2026.  Included in fixed rate mortgages at June 30, 2015 and December 31, 2014 were unamortized premium balances related to the fair market value of debt of approximately $6.7 million and $8.9 million, respectively.  The fixed rate mortgages are secured by properties that have an approximate net book value of $337.5 million as of June 30, 2015.

We had net borrowings of $7.0 million under our revolving credit facility during the six months ended June 30, 2015 with a balance of $17.0 million as of June 30, 2015.  After adjusting for outstanding letters of credit issued under our revolving credit facility, not reflected in the accompanying condensed consolidated balance sheets, totaling $3.5 million we had $329.5 million of availability under our revolving credit facility. The interest rate as of June 30, 2015 was 1.5%

Our revolving credit facility, term loans and unsecured notes contain financial covenants relating to total leverage, fixed charge coverage ratio, unencumbered assets, tangible net worth and various other calculations.  As of June 30, 2015, we were in compliance with these covenants.

Page 12 of 32





The mortgage loans encumbering our properties, including properties held by our unconsolidated joint ventures, are generally nonrecourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender.  These exceptions vary from loan to loan but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly and certain environmental liabilities.  In addition, upon the occurrence of certain events, such as fraud or filing of a bankruptcy petition by the borrower, we or our joint ventures would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, including penalties and expenses.

We have entered into mortgage loans which are secured by multiple properties and contain cross-collateralization and cross-default provisions.  Cross-collateralization provisions allow a lender to foreclose on multiple properties in the event that we default under the loan.  Cross-default provisions allow a lender to foreclose on the related property in the event a default is declared under another loan.

The following table presents scheduled principal payments on mortgages and notes payable as of June 30, 2015:
Year Ending December 31,
 
(In thousands)
2015 (July 1 - December 31)
$
83,671

2016
23,265

2017
112,822

2018
101,879

2019
5,860

Thereafter
571,999

Subtotal debt
899,496

Unamortized premium
6,671

Total debt (including unamortized premium)
$
906,167

 
 

 
It is our intent to repay maturing mortgages using cash, borrowings under our unsecured line of credit, or other sources of financing.  

6.  Fair Value

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  Derivative instruments (interest rate swaps) are recorded at fair value on a recurring basis.  Additionally, we, from time to time, may be required to record other assets at fair value on a nonrecurring basis.  As a basis for considering market participant assumptions in fair value measurements, GAAP establishes three fair value levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  The assessed inputs used in determining any fair value measurement could result in incorrect valuations that could be material to our condensed consolidated financial statements.  These levels are:

Level 1
Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2
Valuation is based upon prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market.  These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the assets or liabilities.

The following is a description of valuation methodologies used for our assets and liabilities recorded at fair value.


Page 13 of 32




Derivative Assets and Liabilities

All of our derivative instruments are interest rate swaps for which quoted market prices are not readily available.  For those derivatives, we measure fair value on a recurring basis using valuation models that use primarily market observable inputs, such as yield curves.  We classify these instruments as Level 2.  Refer to Note 7 for additional information on our derivative financial instruments.

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014.
 
 
 
 
Total
 
 
 
 
 
 
 
 
Balance Sheet Location
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
2015
 
 
 
(In thousands)
Derivative assets - interest rate swaps
 
Other assets
 
$
302

 
$
—

 
$
302

 
$
—

Derivative liabilities - interest rate swaps
 
Other liabilities
 
$
(2,786
)
 
$
—

 
$
(2,786
)
 
$
—

2014
 
 
 
 
 
 
 
 
 
 
Derivative assets - interest rate swaps
 
Other assets
 
$
537

 
$
—

 
$
537

 
$
—

Derivative liabilities - interest rate swaps
 
Other liabilities
 
$
(2,705
)
 
$
—

 
$
(2,705
)
 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
The carrying values of cash and cash equivalents, restricted cash, receivables and accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short maturity of these financial instruments.

We estimated the fair value of our debt based on our incremental borrowing rates for similar types of borrowing arrangements with the same remaining maturity and on the discounted estimated future cash payments to be made for other debt.  The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assume the debt is outstanding through maturity and consider the debt’s collateral (if applicable).  Since such amounts are estimates that are based on limited available market information for similar transactions, there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument. 

Fixed rate debt (including variable rate debt swapped to fixed through derivatives) with carrying values of $854.4 million and $874.7 million as of June 30, 2015 and December 31, 2014, respectively, have fair values of approximately $872.0 million and $900.9 million, respectively.  Variable rate debt’s fair value is estimated to be the carrying values of $45.1 million and $38.1 million as of June 30, 2015 and December 31, 2014, respectively.

The following is a description of valuation methodologies used for our assets and liabilities recorded at fair value on a nonrecurring basis:

Net Real Estate

Our net investment in real estate, including any identifiable intangible assets, is subject to impairment testing on a nonrecurring basis.  To estimate fair value, we use discounted cash flow models that include assumptions of the discount rates that market participants would use in pricing the asset.  To the extent impairment has occurred, we charge to expense the excess of the carrying value of the property over its estimated fair value.  We classify impaired real estate assets as nonrecurring Level 3.

The table below presents the recorded amount of assets at the time they were marked to fair value during six months ended June 30, 2015 on a nonrecurring basis. We did not have any material liabilities that were required to be measured at fair value on a nonrecurring basis during the period.
Assets
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Impairment
 
(In thousands)
Land available for development or sale
7,501

 
—

 
—

 
7,501

 
(2,521
)
Total
$
7,501

 
$
—

 
$
—

 
$
7,501

 
$
(2,521
)
 
 
 
 
 
 
 
 
 
 


Page 14 of 32




Equity Investments in Unconsolidated Joint Ventures

Our equity investments in unconsolidated joint ventures are subject to impairment testing on a nonrecurring basis if there is an indication that a decrease in the value of our investment has occurred that is other-than-temporary.  To estimate the fair value of properties held by unconsolidated entities, we use cash flow models, discount rates, and capitalization rates based upon assumptions of the rates that market participants would use in pricing the assets.  To the extent other-than-temporary impairment has occurred, we charge to expense the excess of the carrying value of the equity investment over its estimated fair value.  We classify other-than-temporarily impaired equity investments in unconsolidated entities as nonrecurring Level 3.

7.  Derivative Financial Instruments

We utilize interest rate swap agreements for risk management purposes to reduce the impact of changes in interest rates on our variable rate debt.  On the date we enter into an interest rate swap, the derivative is designated as a hedge against the variability of cash flows that are to be paid in connection with a recognized liability.  Subsequent changes in the fair value of a derivative designated as a cash flow hedge that is determined to be highly effective are recorded in other comprehensive income (“OCI”) until earnings are affected by the variability of cash flows of the hedged transaction.  The differential between fixed and variable rates to be paid or received is accrued, as interest rates change, and recognized currently as interest expense in the condensed consolidated statements of operations.  We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis.  Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt do not perfectly match such as notional amounts, settlement dates, reset dates and calculation period.

At June 30, 2015, we had seven interest rate swap agreements with an aggregate notional amount of $210.0 million that were designated as cash flow hedges.  The agreements provided for swapping one-month LIBOR to fixed interest rates ranging from 1.2% to 2.2% on $210.0 million of unsecured term loans and have expirations ranging from April 2016 to May 2020.

The following table summarizes the notional values and fair values of our derivative financial instruments as of June 30, 2015:
 
 
Hedge
 
Notional
 
Fixed
 
Fair
 
Expiration
Underlying Debt
 
Type
 
Value
 
Rate
 
Value
 
Date
 
 
 
 
(In thousands)
 
 
 
(In thousands)
 
 
Derivative Assets
 
 
 
 
 
 
 
 
 
 
Unsecured term loan facility
 
Cash Flow
 
$
50,000

 
1.4600
%
 
$
302

 
05/2020
 
 
 
 
 
 
 
 
 
 
 
Derivative Liabilities
 
 
 
 
 
 
 
 
 
 
Unsecured term loan facility
 
Cash Flow
 
$
75,000

 
1.2175
%
 
$
(551
)
 
04/2016
Unsecured term loan facility
 
Cash Flow
 
30,000

 
2.0480
%
 
(867
)
 
10/2018
Unsecured term loan facility
 
Cash Flow
 
25,000

 
1.8500
%
 
(559
)
 
10/2018
Unsecured term loan facility
 
Cash Flow
 
5,000

 
1.8400
%
 
(111
)
 
10/2018
Unsecured term loan facility
 
Cash Flow
 
15,000

 
2.1500
%
 
(418
)
 
05/2020
Unsecured term loan facility
 
Cash Flow
 
10,000

 
2.1500
%
 
(280
)
 
05/2020
 
 
 
 
$
210,000

 
 

 
$
(2,786
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The effect of derivative financial instruments on our condensed consolidated statements of operations for the six months ended June 30, 2015 and 2014 is summarized as follows:
 
 
Amount of Gain (Loss)
Recognized in OCI on Derivative
(Effective Portion)
 
Location of
Loss
Reclassified from
Accumulated OCI
into Income
(Effective Portion)
 
Amount of Loss
Reclassified from
Accumulated OCI into
Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationship
 
Six Months Ended June 30,
 
 
Six Months Ended June 30,
 
2015
 
2014
 
 
2015
 
2014
 
 
(In thousands)
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts - assets
 
$
(564
)
 
$
(1,833
)
 
Interest Expense
 
$
329

 
$
582

Interest rate contracts - liabilities
 
(1,258
)
 
(1,771
)
 
Interest Expense
 
1,178

 
946

Total
 
$
(1,822
)
 
$
(3,604
)
 
Total
 
$
1,507

 
$
1,528

 
 
 
 
 
 
 
 
 
 
 
 

Page 15 of 32





8.   Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands, except per share data)
Net income
 
$
7,289

 
$
1,120

 
$
17,233

 
$
3,881

Net income attributable to noncontrolling interest
 
(199
)
 
(34
)
 
(476
)
 
(123
)
Allocation of income to restricted share awards
 
(60
)
 
(44
)
 
(120
)
 
(94
)
Income attributable to RPT
 
$
7,030

 
$
1,042

 
$
16,637

 
$
3,664

Preferred share dividends
 
(1,675
)
 
(1,813
)
 
(3,487
)
 
(3,625
)
Preferred share conversion costs
 
(500
)
 
—

 
(500
)
 
—

Net income (loss) available to common shareholders
 
$
4,855

 
$
(771
)
 
$
12,650

 
$
39

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding, Basic
 
79,124

 
68,853

 
78,528

 
67,966

Stock options and restricted stock awards using the treasury method
 
195

 
244

 
203

 
243

Dilutive effect of securities (1)
 
—

 
—

 
—

 
—

Weighted average shares outstanding, Diluted (1)
 
79,319

 
69,097

 
78,731

 
68,209


 
 

 
 

 
 
 
 
Income (loss) per common share, Basic
 
$
0.06

 
$
(0.01
)
 
$
0.16

 
$
—

Income (loss) per common share, Diluted
 
$
0.06

 
$
(0.01
)
 
$
0.16

 
$
—

 
 
 
 
 
 
 
 
 

 (1) The assumed conversion of preferred shares is anti-dilutive for all periods presented and accordingly, has been excluded from the weighted average common shares used to compute diluted EPS.


Page 16 of 32




9.  Share-based Compensation Plans

As of June 30, 2015, we have one share-based compensation plan in effect.  The 2012 Omnibus Long-Term Incentive Plan (“2012 LTIP”) under which our compensation committee may grant, subject to the Company’s performance conditions as specified by the compensation committee, restricted shares, restricted share units, options and other awards to trustees, officers and other key employees.  The 2012 LTIP allows us to issue up to 2,000,000 shares of our common stock, units or stock options, of which 1,592,476 remained available for issuance at June 30, 2015.

As of June 30, 2015, we had 343,553 unvested share awards granted under the 2012 LTIP and other plans which terminated when the 2012 LTIP became effective.  These awards have various expiration dates through May 2020.

During the six months ended June 30, 2015, we had the following activity:

•
granted 123,541 shares of service-based restricted stock that vest over five years. The service-based awards were valued based on our closing stock price as of the grant date and the expense is recognized on a graded vesting basis; and
•
granted performance-based cash units that are earned subject to a future performance measurement based on a three-year shareholder return peer comparison (“TSR Grants”).  If the performance criterion is met, the actual value of the units earned will be determined and 50% of the award will be paid in cash immediately while the balance will be paid in cash the following year.

Pursuant to ASC 718 – Stock Compensation, we determine the grant date fair value of TSR Grants, and any subsequent re-measurements, based upon a Monte Carlo simulation model.  We will recognize the compensation expense ratably over the requisite service period.  We are required to re-value the cash awards at the end of each quarter using the same methodology as was used at the initial grant date and adjust the compensation expense accordingly.  If at the end of the three-year measurement period the performance criteria are not met, compensation expense previously recognized would be reversed.  Compensation expense related to the cash awards was $0.7 million and $1.1 million for the six months ended June 30, 2015 and 2014, respectively.

We recognized share-based compensation expense of $1.1 million for each of the six months ended June 30, 2015 and June 30, 2014.

As of June 30, 2015, we had $6.4 million of total unrecognized compensation expense related to unvested restricted shares and performance based equity and cash awards.  This expense is expected to be recognized over a weighted-average period of 4.9 years.

10.  Taxes

Income Taxes

We conduct our operations with the intent of meeting the requirements applicable to a REIT under sections 856 through 860 of the Internal Revenue Code.  In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, excluding net capital gain, to our shareholders.  As long as we qualify as a REIT, we will generally not be liable for federal corporate income taxes.

Certain of our operations, including property management and asset management, as well as ownership of certain land, are conducted through our Taxable REIT Subsidiaries (“TRSs”) which allows us to provide certain services and conduct certain activities that are not generally considered as qualifying REIT activities.

Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws.  Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence, including expected taxable earnings and potential tax planning strategies.  Our temporary differences primarily relate to deferred compensation, depreciation, land basis differences, and net operating loss carry forwards.

As of June 30, 2015, we had a federal and state deferred tax asset of $11.1 million and a valuation allowance of $11.1 million.  Our deferred tax assets, such as net operating losses and land basis differences, are reduced by an offsetting valuation allowance where there is uncertainty regarding their realizability. We believe that it is more likely than not that the results of future operations will not generate sufficient taxable income to recognize the deferred tax assets.  These future operations are primarily dependent upon the profitability of our TRSs, including the timing and amounts of gains on land sales, and other factors affecting the results of operations of the TRSs.  

Page 17 of 32




If in the future we are able to conclude it is more likely than not that we will realize a future benefit from a deferred tax asset, we will reduce the related valuation allowance by the appropriate amount. The first time this occurs, it will result in a net deferred tax asset on our balance sheet and an income tax benefit of equal magnitude in our statement of operations in the period we make the determination.

We recorded income tax provisions of approximately $277,000 and $16,000 for the six months ended June 30, 2015 and 2014, respectively.

Sales Taxes

We collect various taxes from tenants and remit these amounts, on a net basis, to the applicable taxing authorities.

11.  Commitments and Contingencies

Construction Costs

In connection with the development and expansion of various shopping centers as of June 30, 2015, we had entered into agreements for construction costs of approximately $10.6 million.

Litigation

We are currently involved in certain litigation arising in the ordinary course of business; however, we do not believe that any of this litigation will have a material effect on our consolidated financial statements.

Leases   

Operating Leases

We lease office space for our corporate headquarters under an operating lease that expires in August 2019.

Capital Leases

We have a ground lease at Buttermilk Towne Center which we have recorded as a capital lease that expires in December 2032 . 

We recognized rent and interest expense related to the operating and capital leases of $0.3 million and $0.7 million for the the six months ended June 30, 2015 and 2014, respectively.

12.  Subsequent Events

We have evaluated subsequent events through the date that the condensed consolidated financial statements were issued.

In July we completed the acquisition of our partner's 80% interest in six shopping centers for approximately $152.9 million, including the assumption of $48.1 million in debt.

Unaudited Proforma Information

If the acquisition had occurred on January 1, 2014, our consolidated revenue and net income for the six months ended June 30, 2015 and 2014 is estimated to have been as follows:
 
 
June 30,
 
 
2015
 
2014
 
 
Consolidated revenue
 
$
127,880

 
$
108,700

Consolidated net income available to common shareholders
 
$
12,594

 
$
143




Page 18 of 32




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements, including the respective notes thereto, which are included in this Form 10-Q.

Forward-Looking Statements

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements represent our expectations, plans or beliefs concerning future events and may be identified by terminology such as “may,” “will,” “should,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” “predict” or similar terms.  Although the forward-looking statements made in this document are based on our good faith beliefs, reasonable assumptions and our best judgment based upon current information, certain factors could cause actual results to differ materially from those in the forward-looking statements, including: our success or failure in implementing our business strategy; economic conditions generally and in the commercial real estate and finance markets specifically; the cost and availability of capital, which depends in part on our asset quality and our relationships with lenders and other capital providers; our business prospects and outlook; changes in governmental regulations, tax rates and similar matters; our continuing to qualify as a REIT; and other factors discussed elsewhere in this document and our other filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2014.   Given these uncertainties, you should not place undue reliance on any forward-looking statements.  Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future.

Overview

We are a fully integrated, self-administered, publicly-traded equity REIT which owns, develops, redevelops, acquires, manages and leases large multi-anchored shopping centers primarily in a dozen of the largest metropolitan markets in the United States.  As of June 30, 2015, our property portfolio consists of 66 wholly owned shopping centers and one office building comprising approximately 14.2 million million square feet.  In addition, we are co-investor in and manager of two institutional joint ventures that own portfolios of shopping centers.  We own 20% of Ramco 450 Venture LLC, an entity that owns eight shopping centers comprising approximately 1.6 million square feet.  We own 30% of Ramco/Lion Venture L.P., an entity that owns two shopping centers comprising approximately 0.6 million square feet.  We also have ownership interests in two smaller joint ventures that each own a shopping center. In addition, we own interests in three parcels of land available for development and five parcels of land available for sale. Our core portfolio, which includes joint venture properties, was 95.3% leased at June 30, 2015.  Including properties in redevelopment or slated for redevelopment, our overall portfolio was 94.9% leased.

We accomplished the following activity during the six months ended June 30, 2015:

Operating Activity

For the combined portfolio, including wholly-owned and joint venture properties we reported the following leasing activity:
 
Leasing Transactions

Square Footage

 Base Rent/SF

Prior Rent/SF

Tenant Improvements/SF

Leasing Commissions/SF

Renewals
109

674,963

$
12.76

$
11.84

$
0.10

$
0.06

New Leases - Comparable
14

31,312

21.73

18.15

6.20

1.95

New Leases - Non-Comparable (1)
35

343,277

14.37

N/A

34.49

3.88

Total
158

1,049,552

$
13.56

N/A

$
11.53

$
1.37

 
 
 
 
 
 
 
(1) Non-comparable lease transactions include leases for space vacant for greater than 12 months, leases for space which has been combined from smaller spaces or demised from larger spaces, and leases structured differently from the prior lease. As a result, there is no prior rent per square foot to compare to the base rent per square foot of the new lease.

Investing Activity

At June 30, 2015, we have ten redevelopment, expansion or re-anchoring projects in process with an anticipated cost of $72.2 million, of which $53.0 million remains to be invested. Completion for these projects is anticipated over the next 12 - 18 months.


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Financing Activity

Equity

Through our controlled equity offering we issued 0.9 million common shares at an average share price of $19.28 and received approximately $17.2 million in net proceeds during the six months ended June 30, 2015.  As of June 30, 2015, there were 3.1 million shares remaining under this program.

In April 2015, we converted preferred shares with a liquidation preference of $7.6 million into 532,628 common shares pursuant to the terms of the convertible preferred shares prospectus supplement dated April 27, 2011 and incurred conversion costs of approximately $0.5 million.

Land Available for Development or Sale

At June 30, 2015, we had one project in pre-development and two projects where Phase I of the development was completed. The remaining future phases at those projects are in pre-development. We estimate that if we proceed with the development of the projects, up to approximately 600,000 square feet of GLA could be developed, excluding various outparcels of land. It is our policy to start vertical construction on new development projects only after the project has received entitlements, significant anchor commitments and construction financing, if appropriate.

Our development and construction activities are subject to risks such as our inability to obtain the necessary governmental approvals for a project, our determination that the expected return on a project is not sufficient to warrant continuation of the planned development, or our change in plan or scope for the development.  If any of these events occur, we may record an impairment provision.

Accounting Policies and Estimates

Our 2014 Annual Report on Form 10-K contains a description of our critical accounting policies, including initial adoption of accounting policies, revenue recognition and accounts receivable, real estate investment, off balance sheet arrangements, fair value measurements and deferred charges.  For the six months ended June 30, 2015, there were no material changes to these policies.

Comparison of three months ended June 30, 2015 to 2014

The following summarizes certain line items from our unaudited condensed consolidated statements of operations that we believe are important in understanding our operations and/or those items that have significantly changed in the three months ended June 30, 2015 as compared to the same period in 2014:
 
 
Three Months Ended June 30,
 
 
2015
 
2014
 
Dollar
Change

 
Percent
Change

 
 
(In thousands)
 
 
Total revenue
 
$
59,735

 
$
49,930

 
$
9,805

 
19.6
 %
Real estate taxes
 
9,126

 
7,347

 
1,779

 
24.2
 %
Operating expenses
 
7,840

 
6,574

 
1,266

 
19.3
 %
Depreciation and amortization
 
21,120

 
23,658

 
(2,538
)
 
(10.7
)%
General and administrative expense
 
5,474

 
5,168

 
306

 
5.9
 %
Gain on sale of real estate
 
273

 
2,672

 
(2,399
)
 
NM

Earnings from unconsolidated joint ventures
 
335

 
816

 
(481
)
 
(58.9
)%
Interest expense and amortization of deferred financing fees
 
10,388

 
8,002

 
2,386

 
29.8
 %
Gain (loss) on extinguishment of debt
 
1,387

 
(860
)
 
2,247

 
NM

Preferred share dividends and conversion costs
 
2,175

 
1,813

 
362

 
20.0
 %
 
 
 
 
 
 
 
 
 
NM - Not meaningful
 
 

 
 

 
 

 
 


Total revenue for the three months ended June 30, 2015, increased $9.8 million, or 19.6%, from 2014.  The increase is primarily due to acquisitions completed in late 2014 and the completion of Phase I of Lakeland Park Center.

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Real estate tax expense for the three months ended June 30, 2015 increased $1.8 million, or 24.2% and operating expense increased $1.3 million, or 19.3% from 2014, primarily due to our 2014 acquisitions.

Depreciation and amortization expense for the three months ended June 30, 2015 decreased $2.5 million, or 10.7%, from 2014.  The decrease was primarily related to a $4.2 million increase from our acquisitions completed in 2014, new development completion and other capital activities, offset by a decrease of $6.6 million related to sold properties and accelerated depreciation for demolitions of portions of centers undergoing redevelopment during 2014.

General and administrative expense for the three months ended June 30, 2015 increased $0.3 million or 5.9% from 2014.  The increase was primarily due to costs associated with executive search and staff training.

Gain on sale of real estate was $0.3 million for the three months ended June 30, 2015 and is primarily related to the sale of land at Aquia Town Center. In 2014 we recognized a gain of $2.7 million primarily related to the sale of the Naples Town Center.

Earnings from unconsolidated joint ventures for the three months ended June 30, 2015 decreased $0.5 million, or 58.9%. In 2014 we received proceeds related to the 2011 sale of a joint venture property.

Interest expense for the three months ended June 30, 2015 increased $2.4 million from 2014 primarily due to higher average loan balances.

In 2015 we recorded a $1.4 million gain on extinguishment of debt related to the write-off of debt premiums associated with two mortgages that were repaid compared to a loss on extinguishment of debt of $0.9 million in 2014 related to the write-off of deferred financing costs associated with the early payoff of unsecured term loan debt.

Preferred share dividends and conversion costs increased $0.4 million, or 20.0% from 2014 due to the cost of converting shares completed in April 2015 offset by lower dividends for the second quarter 2015 due to the lower number of outstanding preferred shares.

Comparison of six months ended June 30, 2015 to 2014

The following summarizes certain line items from our unaudited condensed consolidated statements of operations that we believe are important in understanding our operations and/or those items that have significantly changed in the six months ended June 30, 2015 as compared to the same period in 2014:

 
 
Six Months Ended June 30,
 
 
2015
 
2014
 
Dollar
Change

 
Percent
Change

 
 
(In thousands)
 
 
Total revenue
 
$
119,152

 
$
100,063

 
$
19,089

 
19.1
 %
Real estate taxes
 
18,121

 
14,714

 
3,407

 
23.2
 %
Operating expenses
 
15,831

 
13,582

 
2,249

 
16.6
 %
Depreciation and amortization
 
41,483

 
41,399

 
84

 
0.2
 %
General and administrative expense
 
10,348

 
10,700

 
(352
)
 
(3.3
)%
Provision for impairment
 
2,521

 
—

 
2,521

 
NM

Gain on sale of real estate
 
3,469

 
2,672

 
797

 
NM

Earnings (loss) from unconsolidated joint ventures
 
2,995

 
(791
)
 
3,786

 
478.6
 %
Interest expense and amortization of deferred financing fees
 
20,691

 
16,004

 
4,687

 
29.3
 %
Gain (loss) on extinguishment of debt
 
1,387

 
(860
)
 
2,247

 
NM

Preferred share dividends and conversion costs
 
3,987

 
3,625

 
362

 
10.0
 %
 
 
 
 
 
 
 
 
 
NM - Not meaningful
 
 
 
 
 
 
 
 

Total revenue for the six months ended June 30, 2015, increased $19.1 million, or 19.1%, from 2014.  The increase is primarily due to acquisitions completed in late 2014 and the completion of Phase I of Lakeland Park Center.

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Real estate tax expense for the six months ended June 30, 2015 increased $3.4 million, or 23.2% and operating expense increased $2.2 million, or 16.6% from 2014, primarily due to our 2014 acquisitions.

Depreciation and amortization expense for the six months ended June 30, 2015 increased $0.1 million, or 0.2%, from 2014.  The increase was primarily related to a $6.9 million increase from our acquisitions in 2014, new development completion and other capital activities offset by a decrease of $6.8 million related to sold properties and accelerated depreciation for demolitions of portions of centers undergoing redevelopment in 2014.

General and administrative expense for the six months ended June 30, 2015 decreased $0.4 million or 3.3% from 2014.  The decrease was primarily due to a decrease in costs associated with our long-term incentive plans which are based on our stock price performance relative to a group of our peers and a bonus accrual adjustment.

Impairment provisions of $2.5 million recorded in 2015 relate to adjustments to the sales price assumptions for certain undeveloped land parcels available for sale at a development property that were sold during the second quarter 2015.

Gain on sale of real estate was $3.5 million for the six months ended June 30, 2015 and is primarily related to the sale of land at Gaines Marketplace.

Earnings from unconsolidated joint ventures for the six months ended June 30, 2015 increased $3.8 million. In 2015 we recognized $2.2 million as our share of gain on sale of one property. In 2014 we recorded accelerated depreciation expense as a result of the demolition of a portion of centers for redevelopment and additional proceeds related to the 2011 sale of a joint venture property.

Interest expense for the six months ended June 30, 2015 increased $4.7 million from 2014 primarily due to higher average loan balances.

In 2015 we recorded a $1.4 million gain on extinguishment of debt related to the write-off of debt premiums associated with two mortgages that were repaid compared to a loss on extinguishment of debt of $0.9 million in 2014 related to the write-off of deferred financing costs associated with the early payoff of unsecured term loan debt.

Preferred share dividends and conversion costs increased $0.4 million, or 10.0% from 2014 due to the cost of converting shares completed in April 2015 offset by lower dividends for the second quarter 2015 due to the lower number of outstanding preferred shares.

Liquidity and Capital Resources

Through our controlled equity offering we issued 0.9 million common shares at an average share price of $19.28 and received approximately $17.2 million in net proceeds during the six months ended June 30, 2015.  As of June 30, 2015, there were approximately 3.1 million shares remaining under this program.

Our internally generated funds and distributions from operating centers and other investing activities, augmented by use of our existing lines of credit and equity sales through our controlled equity offering, provide resources to maintain our current operations and assets and pay dividends. Generally, our need to access the capital markets is limited to refinancing debt obligations at or near maturity and funding major capital investments and acquisitions. See “Planned Capital Spending” for more details.

At June 30, 2015, we had $6.9 million in cash and cash equivalents and $9.4 million in restricted cash. Restricted cash was comprised primarily of funds held in escrow to pay real estate taxes, insurance premiums, and certain capital expenditures.

Short-Term Liquidity Requirements

Our short-term liquidity needs are met primarily from rental income and recoveries and consist primarily of funds necessary to pay operating expenses associated with our operating properties, interest and scheduled principal payments on our debt, quarterly dividend payments (including distributions to Operating Partnership unit holders) and capital expenditures related to tenant improvements and redevelopment activities.  We believe that our retained cash flow from operations along with availability under our revolving credit facility is sufficient to meet these obligations.

Our next scheduled debt maturities are in the third quarter of 2015.  As opportunities arise and market conditions permit, we will continue to pursue the strategy of selling mature properties or non-core assets that no longer meet our investment criteria.  Our ability to obtain acceptable selling prices and satisfactory terms and financing will impact the timing of future sales.  We anticipate using net proceeds from the sale of properties to reduce outstanding debt and support current and future growth initiatives.

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Long-Term Liquidity Requirements

Our long-term liquidity needs consist primarily of funds necessary to pay indebtedness at maturity, potential acquisitions of properties, redevelopment of existing properties, the development of land and non-recurring capital expenditures.

As of June 30, 2015, $329.5 million was available to be borrowed under our unsecured revolving credit facility subject to continuing compliance with maintenance covenants that may affect availability.

For the six months ended June 30, 2015, our cash flows were as follows compared to the same period in 2014:
 
Six Months Ended June 30,
 
2015
 
2014
 
(In thousands)
Cash provided by operating activities
$
44,183

 
$
48,200