SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13239
AEGIS REALTY, INC.
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(Exact name of Registrant as specified in its Charter)
Maryland 13-3916825
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
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Common Stock, par value $.01 per share
Name of each exchange on which registered:
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American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of March 9, 2001 was
$79,983,582, based on a price of $10.50 per share, the closing sales price for
the Registrant's Common Stock on the American Stock Exchange on that date.
As of March 9, 2001, there were 8,051,141 outstanding shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Index to exhibits may be found on page 45
Page 1 of 53
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
PART I
Item 1. Business.
General
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Aegis Realty, Inc. ("Aegis" or the "Company") is a Maryland corporation that has
qualified as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986 as amended (the "Code"). The Company was formed to acquire,
renovate, own and operate primarily supermarket-anchored neighborhood shopping
centers. As of December 31, 2000, the Company owned a portfolio of 28 retail
properties (the "Retail Properties") containing a total of approximately 3.0
million gross leaseable square feet ("GLA"), held partnership interests in two
suburban garden apartment properties (the "Multifamily Properties") and held one
FHA insured participating mortgage secured by a suburban garden apartment
property (the "FHA Mortgage"). The locations of the assets in 14 states provide
the Company with a geographically diverse portfolio. Moreover, the Company has a
predictable and stable revenue stream that, for the year ended December 31,
2000, was derived approximately 47% from either base rent from anchor tenants or
from interest payments on the FHA Mortgage. No single asset accounted for 10% or
more of total gross revenues for any of the three years in the period ended
December 31, 2000.
The Retail Properties are well located neighborhood shopping centers anchored by
nationally recognized and/ or credit tenants such as Kroger, Publix, Safeway,
Food Lion, Bi-Lo, Hy-Vee, Walgreens and CVS Stores. The neighborhood centers are
typically open air centers ranging in size from 55,000 GLA to approximately
214,000 GLA, with an average of approximately 107,000 GLA. These centers are
usually leased to tenants that provide consumers with convenient access to every
day necessity items, such as food and pharmacy items; therefore, the Company
believes that the economic performance of these centers is less affected by
downturns than other retail property types. As of December 31, 2000, the Retail
Properties had an average physical occupancy of 92.0%. Through 2006 no more than
10.6% of leased GLA is subject to expiration in any one year. The Multifamily
Properties total 290 units and had an average physical occupancy of 94.2% as of
December 31, 2000. The FHA Mortgage has a principal balance of approximately
$3.2 million and carries an annual interest rate of 8.95%. The underlying
property had an average physical occupancy of 86.4% as of December 31, 2000.
On December 21, 2000, the Company entered into a definitive acquisition
agreement to acquire a portfolio of 19 shopping centers and several retail
development opportunities from Dallas, Texas-based P.O'B. Montgomery & Company
(and its investment partners) (see Pending Portfolio Acquisition Transaction,
below).
Organization
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The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of four publicly registered, non-listed limited
partnerships, Summit Insured Equity L.P. ("Insured I"), Summit Insured Equity
L.P. II ("Insured II"), Summit Preferred Equity L.P. and Eagle Insured, L.P.
(the "Partnerships", and each individually a "Partnership"). One of the general
partners of the Partnerships was an affiliate of Related Capital Company
("Related"), a nationwide, fully integrated real estate financial services firm.
Pursuant to the Consolidation, the Company issued shares of its common stock,
par value $.01 per share (the "Common Stock") to all partners in the
Partnerships in exchange for their interests in the Partnerships based upon each
partner's proportionate interest in the Common Stock issued to their Partnership
in the Consolidation. The Common Stock commenced trading on the American Stock
Exchange on October 10, 1997 under the symbol "AER".
The Company is governed by a board of directors comprised of two independent
directors and three directors who are affiliated with Related. The Company has
engaged Related Aegis LP (the "Advisor"), a Delaware limited partnership and an
affiliate of Related, to manage its day to day affairs. Through the Advisor,
Related offers the Company a core group of experienced staff and executive
management, who provide the Company with services on both a full and part-time
basis. These services include, among other things, acquisition, financial,
accounting, capital markets, asset monitoring, portfolio management, investor
relations and public relations services. The Company believes that it benefits
significantly from its relationship with Related, since Related provides the
Company with resources that are not generally available to small capitalized,
self-managed REITs.
In addition, RCC Property Advisors (the "Property Manager"), also an affiliate
of Related, has been retained by the Company to provide property management and
leasing services to the Retail Properties. The Property Manager is a full
service retail management company which has 25 employees, employed in the areas
of leasing, accounting, management and redevelopment. The Company represents
substantially all of the Property Manager's property management revenue and
therefore substantially all of its staff is engaged, on a full-time basis,
providing services to the Company.
The Company owns all of its assets directly or indirectly through Aegis Realty
Operating Partnership, LP, a Delaware limited partnership (the "Operating
Partnership" or "OP"), of which the Company is the sole general partner and
holder of 91.31% of the units of partnership interest (the "OP Units") at
December 31, 2000. Also, at December 31, 2000, 5.54% of the OP Units are held by
the sellers of three of the Retail Properties and 3.15% are held by affiliates
of Related.
Business Plan
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The Company has a focused business/strategic plan designed to increase funds
from operations ("FFO") and enhance the value of its stock.
The Company's external growth will be accomplished through continued
acquisitions of retail properties either directly or in joint venture on an
individual or bulk basis. The Company believes that there are significant
opportunities available to acquire undervalued, undermanaged and/or
underutilized neighborhood and community shopping centers. The Company believes
that by being a consolidator of shopping centers on a national basis, rather
than targeting a few markets or a region, it will be able to grow at a
meaningful rate, without the need for it to compromise asset quality or current
return. In addition, a national acquisition program allows the Company to
maintain geographic diversity, which the Company believes reduces the risk
otherwise associated with focusing on one region. The Company seeks to acquire
primarily, but not exclusively, supermarket-anchored shopping centers, which are
well located in primary and secondary markets. Acquisitions will be balanced
between stabilized centers that the Company believes are undervalued and centers
that may be enhanced through intensive management, leasing, redevelopment or
expansion efforts. In all such cases, the Company generally seeks to acquire
only those centers that are expected to immediately increase FFO. In addition,
the Company will consider strategic combinations in the form of portfolio
acquisitions, joint ventures or mergers in order to maximize shareholder value
(see "Pending Porfolio Acquisition Transaction" below). The Company's growth
will be financed through proceeds of an expandable $60 million senior revolving
credit facility shared among Fleet National Bank, KeyBank National Association,
Citizens Bank of Rhode Island and Sovereign Bank (the "Credit Facility"), the
issuance of shares of the Company's Common Stock or OP Units in exchange for
real estate, funds generated from operations in excess of dividend payments and
through placements of equity. Although the Credit Facility may be increased, the
Company's Charter dictates leverage of no more than 50% of the Company's Total
Market Value defined as the greater of (i) the sum of (a) the aggregate market
value of the Company's outstanding shares of Common Stock and (b) the total debt
of the Company or (ii) the aggregate value of the Company's assets as determined
by the Advisor based upon third-party or management appraisals and other
criteria as the Board of Directors shall determine in its sole discretion.
During the period October 1, 1997 through December 31, 2000, the Company
acquired 14 Retail Properties and two out-parcels of developable land contiguous
to two Retail Properties.
Internal growth will occur from the re-deployment of proceeds from the sale or
other disposition of non-core assets currently in the portfolio and through
intensive management, leasing and redevelopment services provided to the Company
by the Property Manager and the Advisor. The Company considers non-core assets
to be those assets the Company has enhanced and no longer offer above market
rates of return or those assets which due to location, configuration or tenant
profile no longer offer the Company the prospects of better than market rates of
growth. The Company regularly reviews its portfolio to identify non-core assets
and to determine whether the time is appropriate to sell or otherwise dispose of
such assets whose characteristics are no longer suited to the Company's overall
growth strategy or operating goals. During the period October 1, 1997 through
December 31, 2000, the Company disposed of three non-core assets and one iss
under contract for sale. As of December 31, 2000, the Company considers its
non-core assets to be the two investments in Limited Partnerships (see Item 2.
Properties) and the Woodgate Manor Loan Receivable.
Pending Portfolio Acquisition Transaction
-----------------------------------------
On December 21, 2000, the Company entered into a definitive acquisition
agreement to acquire a portfolio of 19 shopping centers and several retail
development opportunities (the "Acquisition Transaction") from Dallas,
Texas-based P.O'B. Montgomery & Company (and its investment partners) ("POB").
Under the terms of the acquisition agreement, Aegis has agreed to pay POB and
its investment partners total consideration of $203.5 million. The consideration
will be comprised of : (i) $3 million in cash, (ii) $58.4 million of OP Units
which are convertible on a one-for-one basis into Aegis common stock at a value
of $11 per share and cannot be transferred for one year, and (iii) assumption of
$142.1 million in non-recourse debt encumbering the acquired shopping centers.
The consideration and components of the consideration are subject to certain
adjustments provided for in the acquisition agreement.
As a condition to the Acquisition Transaction, Aegis will terminate its advisory
agreement and acquire the assets of the Property Manager (consisting primarily
of several desktop computers and software) and terminate the property management
agreement pursuant to the management internalization agreement which was entered
into simultaneously with the acquisition agreement (the "Management
Internalization"). Upon closing, certain officers of POB will assume full-time
executive positions with Aegis and the Board of Directors will be expanded from
five to seven members, four of whom will be independent directors. As a result,
Aegis will become self-managed and self-administered.
The Acquisition Transaction is subject to Aegis' stockholder approval and
customary conditions, and, if approved, both transactions are expected to close
in 2001. The acquisition agreement has been unanimously approved by the Board of
Directors of Aegis (including the independent directors) and the shareholders of
POB and the management internalization agreement has been unanimously approved
by the independent directors of Aegis on behalf of the full Board of Directors.
Although there are limitations on Aegis' ability to solicit competing
transactions, Aegis' Board of Directors retains the right to consider
alternative transactions in accordance with its duties under applicable law. An
alternative transaction may include, among others, any merger, consolidation,
share exchange or business combination. The exercise of such rights by Aegis'
Board of Directors could result in payment of a termination fee of $3 million to
POB.
The Advisor will be entitled to its standard acquisition fee of 3.75% of the
acquisition price of the properties acquired (equal to $7.5 million if all the
POB properties are acquired) in connection with the Acquisition Transaction. In
consideration of the Management Internalization, the Property Manager and
Advisor will be paid an aggregate amount of approximately $3.5 million subject
to adjustments pursuant to the management internalization agreement. The maximum
aggregate consideration payable to the Property Manager and the Advisor will be
$11 million of which up to $1 million may be paid in cash and the balance will
be paid in the form of (i) a distribution of Aegis' non-core, non-retail assets
based upon their book value subject to certain adjustments and (ii) Aegis stock
issued at a value of $11.
Retail Properties
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As of December 31, 2000, the Company owned 28 neighborhood shopping centers. See
"Item 2. Properties" for a description of each property.
None of the Company's investment properties accounted for 10% or more of the
Company's total gross revenues for any of the three years in the period ended
December 31, 2000.
During the years ended December 31, 2000, 1999 and 1998, the Kroger Company,
which is a tenant at six shopping centers, accounted for approximately 11%, 12%
and 17%, respectively, of the Company's total revenues.
Based on the carrying value at December 31, 2000, approximately 15% of the
Company's investment properties are located in Ohio, 12% are located in Florida,
10% are located in North Carolina and 10% are located in Virginia. No other
state comprises more than 10% of the total carrying value.
Investments in Partnerships
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As of December 31, 2000, the Company owned equity interests in two partnerships,
each of which owns a multi-family residential garden apartment property. See
"Item 2. Properties" for a description of each property.
Mortgage Loan Receivable
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As of December 31, 2000, the Company held a FHA mortgage and an equity loan
secured by Woodgate Manor, an apartment complex located in Gainesville, Florida.
The FHA mortgage, in the original amount of $3,110,300, has a stated interest
rate of 8.95% and matures January 1, 2024. The 8.95% interest rate includes a
0.07% servicing fee paid by the developer to Related Mortgage Corporation, an
affiliate of the Advisor. The base interest and principal are co-insured by the
FHA (80%) and an affiliate of the Advisor (20%).
The equity loan, in the original amount of $339,700, represented a non-interest
bearing advance made to the developer for such items as initial operating
deficit escrow requirements and HUD related contingencies such as working
capital escrow and cash requirements. Such amounts are due on demand upon six
months notice at any time after the tenth anniversary of the initial endorsement
of the loan by HUD.
The Company is entitled to call for prepayment of the entire outstanding
principal amount of both the mortgage loan and the equity loan. The Company, in
order to call for prepayment, would be required to terminate the mortgage
insurance contract with FHA and the other co-insurer. The Company's intention is
to exercise the call option only if it determines that the value of the
underlying development has increased sufficiently enough to assume the risk of
foreclosure should the mortgagor fail to make the accelerated payment. The
borrower may elect to prepay at any time without incurring prepayment penalties.
The owners of Woodgate Manor have advised the Company that they have entered
into an agreement dated December 12, 2000 to sell the property to an unrelated
third party. In connection with the sale, both the mortgage loan receivable and
the equity loan held by the Company would be repaid in full. The owner has
advised the Company that it expects that transaction to close during the first
half of 2001 although there can be no assurance of such a closing.
Insurance Policies
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Insured II, an indirectly wholly-owned subsidiary of the Company, is the record
owner of three of the Retail Properties. Insured II is the beneficiary of an
insurance policy (the "Policy") from Continental Casualty Company ("CNA") which,
in effect, insures that the cumulative amount of cash available for
distribution, from all sources, as determined in accordance with the Policies
and related agreement together with the appraised values of the Retail
Properties then owned by Insured II, will equal at least 100% of the aggregate
original capital contributions to Insured II allocated to investment in
properties ("Original Contributions") on the day on which the last such Retail
Property was acquired by Insured II (the "Final Acquisition Date"). The maximum
liability of CNA under the Policy will increase pursuant to a formula based upon
the length of time such Retail Properties are held by Insured II up to a maximum
of 125% of Original Contributions on the tenth anniversary of the Final
Acquisition Date (the "Guaranty Payment Date"). The Policy is intended to cover
various economic risks of the ownership of such Retail Properties, but do not
apply to certain losses, costs, penalties or expenses, including, among others,
those arising out of any physical loss, damage, loss of use or other physical
deterioration of such properties.
Payment of any amounts due under the Policy will be made to Insured II after the
Guaranty Payment Date and the Policy is not a guaranty that shareholders of the
Company will receive a return equal to 125% of the Original Contributions to
Insured II, as applicable, or any lesser amount insured under the Policy. The
Policy will expire in May 2001. Insured I had been the beneficiary of a similar
policy that expired in November 1999. No payments were received on the Insured I
policy and none are expected on the Insured II policy.
Competition
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The real estate business is highly competitive and substantially all of the
properties owned by the Company have active competition from similar properties
in their respective vicinities. See the table in "Item 2. Properties" for
additional competitive information. With respect to the Mortgage Loan, the
Company's business is affected by competition to the extent that the properties
from which it derives interest and principal payments may be subject to
competition from neighboring properties. In particular, additional interest
payments which are not insured are dependent upon the economic performance of
the properties and may be affected by competitive conditions. In addition,
various other entities have been or may, in the future, be formed by affiliates
of the Advisor to engage in businesses which may be competitive with the Company
or compete for the time and services of management of the Advisor.
Regulations
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A current or previous owner or operator of real property may be legally liable
for the costs of removal or remediation of hazardous or toxic substances on,
under or in such property. Such liability may exist whether or not the owner or
operator knew of, or was responsible for, such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances may adversely affect the
owner's ability to borrow funds using such real property as collateral. Certain
environmental laws impose liability for release of asbestos-containing materials
("ACMs") into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with ACMs. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be liable for removal or
remediation costs, as well as certain other potential costs which could relate
to such hazardous or toxic substances or ACMs (including governmental fines and
injuries to persons and property). To date, the Company has not incurred any
costs of removal or remediations of such hazardous or toxic substances. However,
the presence, with or without the Company's knowledge, of hazardous or toxic
substances at any property held or operated by the Company could have an adverse
effect on the Company's business, operating results and financial condition.
Phase I Environmental Site Assessments have been undertaken on all of the
Company's properties. In certain cases, additional Phase II site investigations
have also been undertaken where deemed appropriate. Based on these reports, no
on-site hazardous chemicals or petroleum products were detected or found to
exist in the soil or in the groundwater at those properties which would result
in action by state environmental agencies and which would require additional
investigation and/or remediation. In February 1998, a Phase II investigation of
the Mountain Park Plaza property determined that there were detectable levels of
certain hazardous materials above threshold levels which are ascertained by the
Georgia State Department of Natural Resources Environmental Protection Division
("GAEPD"). On May 28, 1999 management received notification form GAEPD that the
site was added to the GAEPD Hazardous Site Inventory ("HSI"). Management has
recently completed a re-sampling to determine if such levels continue to exist
in order to potentially qualify for a de-listing from the HSI. The re-sampling
indicated that no hazardous materials remain detectable above the threshold
levels which are ascertained by GAEPD to require remediation and, on May 5,
2000, the GAEPD removed the property from the HSI. Management has installed
wells on the site to monitor ongoing levels of hazardous materials in the ground
water pursuant to GAEPD policy.
Notes Payable
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For information regarding the Company's notes payable, see Note 7 of Notes to
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data".
Employees
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The Company does not directly employ anyone. All services are performed for the
Company by the Advisor and its affiliates. The Advisor receives compensation in
connection with such activities as set forth in Items 8, 11 and 13. In addition,
the Company reimburses the Advisor and certain of its affiliates for expenses
incurred in connection with the performance by their employees of services for
the Company in accordance with the Advisory Agreement between the Company, the
OP and the Advisor dated October 1, 1997.
The 28 Retail Properties owned by the Company are managed by the Property
Manager, an affiliate of the Advisor, for a fee equal to 4.5% of the gross
rental receipts from the Retail Properties, which is competitive with such fees
paid in the areas in which the properties are located. The Property Manager also
receives standard leasing commissions for space leased to new tenants and for
lease renewals and is reimbursed for certain expenses. Management fees earned by
the Property Manager for the years ended December 31, 2000, 1999 and 1998
totaled approximately $1,085,000, $1,037,000 and $735,000, respectively.
Item 2. Properties.
Retail Properties
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As of December 31, 2000, the Company owned 28 neighborhood shopping centers. The
following is a description of these shopping centers:
% Square Comparable
Feet Annualized Competition
Gross Leased at Base Rent at Main within a
Purchase Date Leasable December December Anchor three-mile
Name and Location Price Purchased Square Feet 31, 2000 31, 2000 Tenant radius
----------------- ----- --------- ----------- -------- -------- ------ ------
Cactus Village $ 6,330,000 7/25/87 72,598 98% $ 518,000 Safeway(a) 11 shopping
Glendale, AZ & Walgreens centers
Hickory Plaza 4,902,000 4/23/87 67,336 100 547,000 Kroger & 8 shopping
Nashville, TN CVS centers
Highland Fair 5,950,000 7/24/87 74,764 98 633,000 Safeway 7 shopping
Gresham, OR centers
Pablo Plaza 7,500,000 2/18/87 141,565 94 934,000 Publix(b) 11 shopping
Jacksonville, FL & Eckerds centers
Southhaven 5,666,000 2/28/87 83,750 83 465,000 Kroger 1 shopping
Southhaven, MS center
Town West 4,932,000 5/11/87 88,200 96 459,000 Kroger & 5 shopping
Indianapolis, IN Office Max (c) centers
Westbird 7,000,000 12/31/86 100,087 88 814,000 Publix & 7 shopping
Miami, FL Eckerds centers
Winery Square 12,801,700 12/22/87 121,950 93 1,107,000 Food 4 5 shopping
Fairfield, CA Less & centers
Walgreens
Mountain View Village 10,350,000 7/25/88 99,908 93 819,000 Kroger 4 shopping
Snellville, GA centers
Forest Park Square 8,950,000 5/19/89 92,824 100 868,000 Kroger 2 shopping
Cincinnati, OH centers
Kokomo Plaza 6,987,000 5/19/89 89,546 97 589,000 Kroger 6 shopping
Kokomo, IN centers
Rolling Hills Square 6,100,000(d) 08/18/88 101,864 96 761,000 Fry's 6 shopping
Tuscon, AZ Food & Drug centers
Mountain Park Plaza 6,650,000 12/14/89 77,686 87 273,000 A&P(e), 9 shopping
Atlanta, GA Future centers
Store &
Eckerds
Applewood Centre 7,700,000 11/08/90 101,130 97 733,000 Hy-Vee 5 shopping
Omaha, NE Food centers
Store
Birdneck Center 3,115,000 12/31/97 67,060 96 458,000 Eckerds & 8 shopping
Virginia Beach, VA Food Lion centers
The Market Place 5,400,000 12/31/97 125,095 95 644,000 Bi-Lo & 3 shopping
Newton, NC Big Lots cemters
Barclay Place 3,800,000 3/31/98 81,459 84 512,000 Food Lion(f) 13 shopping
Lakeland, FL centers
The Village At Waterford 6,250,000 4/22/98 79,162 98 692,000 Winn-Dixie 1 shopping
Midlothian, VA center
Governor's Square 8,200,000 5/28/98 183,339 85 991,000 Odd Lots 5 shopping
Montgomery, AL centers
Marion City Square 5,100,000 6/25/98 163,970 84 731,000 Roses, Bi-Lo 1 shopping
Marion, NC & CVS center
Dunlop Village 5,000,000 9/1/98 77,315 86 509,000 Food Lion 6 shopping
Colonial Heights, VA & CVS centers
Centre Stage 6,990,000 9/2/98 146,549 98 830,000 K-Mart & 2 shopping
Springfield, TN Food Lion centers
White Oaks Plaza 8,125,000 9/9/98 186,758 76 581,000 Winn-Dixie & 2 shopping
Spindale, NC Wal-Mart (g) centers
Cape Henry 3,900,000 9/29/98 55,075 100 530,000 Food Lion & 8 shopping
Virginia Beach, VA Rite-Aid centers
Emporia West 2,900,000 11/17/98 76,705 100 381,000 Dillon Food 6 shopping
Emporia, KS Store centers
Oxford Mall 8,650,000 11/24/98 166,880 78 1,075,000 Goody's, 2 shopping
Oxford, MS JC Penney, centers
Stage &
Wal-Mart(h)
Southgate 15,100,000 12/9/98 214,321 97 1,466,000 Big Bear 4 shopping
Heath, OH Stores(i), centers
Dunham's
Sporting,
Odd-Lots &
Rite-Aid
Crossroads East 4,800,000 12/9/98 71,925 86 482,000 (j) 3 shopping
Columbus, OH centers
(a) Tenant has vacated but continues to be liable for all amounts due under
its lease. The tenant is currently in arrears as it relates to a
contractual increase in minimum rent of $.10 per square foot per year
(approximately $4,200 per year). The aggregate arrears as of December 31,
2000 is $16,604. The arrears is due to different interpretations of the
lease which is expected to be resolved in 2001. With the exception of this
amount, lease payments are current as of December 31, 2000.
(b) Publix has vacated and has subleased the space to Office Depot. Publix
continues to be liable for all amounts due under its lease. Payments due
under sublease were current as of December 31, 2000.
(c) Tenant closed its store on February 28, 2000 but is still obligated to
pay rent under its lease. Lease payments are current to date.
(d) The purchase price does not include the acquisition, on September 8,
1999, of an out-parcel of developable land contiguous to the shopping
center for a purchase price of $325,000.
(e) The lease with A&P has been terminated as of September 30, 2000 and a
new lease has been executed with Publix, which is expected to open in late
2001. Annual base rent is $409,507. The anchor tenant space is vacant at
December 31, 2000. Annualized rent does not include the A&P or Publix base
rent amount.
(f) Tenant has vacated on November 4, 2000, but is still responsible for
rent through the termination of lease. Lease rents are current as of
December 31, 2000.
(g) Both Winn-Dixie and Wal-Mart have vacated but are responsible for rent
through the termination of the lease. Lease rents are current as of
December 31, 2000.
(h) The portion of the property occupied by Wal-Mart is not owned by the
Company.
(i) The tenant's parent corporation, Penn Traffic Co. filed for Chapter 11
bankruptcy on March 1, 1999. Lease payments are current as of December 31,
2000.
(j) The current configuration of the shopping center does not include an
anchor tenant.
For further information regarding the Company's Retail Properties, including
information regarding the mortgage indebtedness encumbering certain properties,
see "Item 8. Financial Statements and Supplementary Data" and "Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K - Financial
Statement Schedules - Schedule III".
Investments in Partnerships
---------------------------
As of December 31, 2000, the Company owned partnership interests in two
partnerships, each of which owns a multi-family residential garden apartment
property.
The Company owns a limited partnership interest in the TCR-Pinehurst Limited
Partnership ("Pinehurst"), which acquired and operates the Pinehurst apartment
complex in Kansas City, Missouri. Under the original terms of this investment,
the Company is entitled to a preferred equity return of 8.8% per annum on an
initial investment of $3,799,620, and 9.85% on a subsequent investment of
$1,949,805. These preferred equity returns are cumulative and non
interest-bearing. The cumulative, unrecorded and undistributed preferred equity
returns to the Company totaled $1,826,245 and $1,763,772 at December 31, 2000
and 1999, respectively. These preferred equity returns are payable from excess
cash flow from operations or proceeds from a sale or refinancing of Pinehurst's
rental property. The Pinehurst apartment complex contains 96 apartment units and
was approximately 97.9% occupied as of December 31, 2000. The Company's
percentage of ownership in Pinehurst is 98.99%.
On August 26, 1998, the Company invested $895,200 for a 40% interest as a
limited partner in FAI, Ltd. ("FAI"), the limited partnership which owns
Weatherly Walk Apartments (see Item 1. Business.-Mortgage Loans). This equity
interest earns an annual preferred return of 10.5% on $895,200, paid monthly,
plus 40% of excess cash flow and sale or refinancing proceeds. As of December
31, 2000, the Company had received all of the preferred returns due from FAI.
Weatherly Walk Apartments contains 194 apartment units and was approximately
91.7% occupied as of December 31, 2000.
Item 3. Legal Proceedings.
On or about February 8, 2001, a complaint was filed in the New York Supreme
Court, County of New York, against the Advisor. Also individually named in the
suit were Messrs. Boesky, Hirmes, Ross, Brenner, Allen and Fisch, each of whom
is either a director of Aegis or the Advisor. Aegis was also named as a nominal
defendant. The action is entitled Paul v. The Related Companies L.P., index No.
01-600669. The suit is a purported class and derivative action in connection
with the Acquisition Transaction and the Management Internalization described in
Note 1. The suit alleges that the defendants breached their fiduciary duty to
Aegis' stockholders by, among other things, committing Aegis to pay unwarranted
fees and other consideration to the Advisor and the Property Manager. The
lawsuit seeks preliminary and permanent injunctive relief against the
consummation of the Acquisition Transaction and the Management Internalization
in addition to unspecified damages, costs and attorney's fees.
Aegis has retained counsel with regard to the lawsuit and the defendants intend
to defend the action vigorously. With respect to the allegations in the lawsuit,
the defendants have advised that they continue to believe that the transactions
are fair and reasonable and in the best interests of Aegis and its stockholders
and will be submitted for approval by a vote of Aegis' stockholders.
The Company believes that it has meritorious defenses to the claims brought in
the lawsuit described above, but is unable to predict the effect of the outcome
of this lawsuit on the Company's financial position, results of operations and
cash flows. In addition, the timing of the final resolution of this proceeding
is uncertain. No provision has been recorded on the financial statements of the
Company to reflect the above litigation.
Except for the lawsuit described above, the Company is subject to routine
litigation and administrative proceedings arising in the ordinary course of
business. Management does not believe that such matters will have a material
adverse impact on the Company's financial position, results of operations or
cash flows.
Item 4. Submission of Matters to a Vote of Shareholders.
The pending portfolio acquisition is subject to approval by shareholders. See
Pending Portfolio Acquisition Transaction in "Item 1 - Business."
PART II
Item 5. Market for the Company's Common Stock and Related Shareholder Matters
As of March 9, 2001, there were 1,491 registered shareholders of record owning
8,051,141 shares of Common Stock. The Company's Common Stock has been listed on
the American Stock Exchange since October 10, 1997 under the symbol "AER". Prior
to October 10, 1997, there was no established public trading market for the
Company's Common Stock.
The high and low prices for each quarterly period of the last two years for
which the shares of Common Stock were traded were as follows:
2000 2000 1999 1999
Quarter Ended Low High Low High
------------- --- ---- --- ----
March 31 $ 8 3/8 $ 8 15/16 $ 9 5/16 $ 10 3/8
June 30 8 5/8 10 14/16 9 3/8 10 5/16
September 30 9 5/8 10 1/2 9 10 1/4
December 31 9 3/4 10 3/16 8 5/8 9 5/16
The last reported sale price of Common Stock on the American Stock Exchange on
March 9, 2001 was $10.50.
Incentive Stock Option Plan
---------------------------
The Company has adopted an incentive stock option plan (the "Incentive Stock
Option Plan"), the purpose of which is to (i) attract and retain qualified
persons as directors and officers and (ii) to incentivize and more closely align
the financial interests of the Advisor and its affiliates and their respective
employees and officers with the interests of the stockholders by providing the
Advisor and its affiliates with substantial financial interest in the Company's
success. The Compensation Committee administers the Incentive Stock Option Plan.
Pursuant to the Incentive Stock Option Plan, if the Company's distributions per
share of Common Stock in the immediately preceding calendar year exceed $0.9869
per share, the Compensation Committee has the authority to issue options to
purchase, in the aggregate, that number of shares of Common Stock which does not
exceed three percent of the shares outstanding as of December 31 of the
immediately preceding calendar year (or in the initial year, as of October 1,
1997). Any options not granted in a given year are carried over and become
available to be granted in subsequent years. The maximum number of shares that
can be issued over the life of the Incentive Stock Option Plan is 805,073.
All options granted will have an exercise price equal to or greater than the
fair market value of the shares of Common Stock on the date of the grant. The
maximum option term is ten years from the date of grant. All stock options
granted pursuant to the Incentive Stock Option Plan may vest immediately upon
issuance or may vest later, as determined by the Compensation Committee. The
Company's distributions per share of Common Stock for the years ended December
31, 2000 and 1999 did not exceed $.96 per share therefore no options were able
to be issued. In 1998, the Company distributed $1.035 per share of Common Stock
($0.96 from continuing operations and a $0.075 special capital gains
distribution), thus enabling the Compensation Committee, at their discretion, to
issue options. Three percent of the shares outstanding as of December 31, 1998
are equal to 241,346 shares.
On August 6, 1999, options to purchase 30,000 shares of Common Stock were
granted to an officer of the Company and certain employees of an affiliate of
the Advisor, who are not employees of the Company. The exercise price of these
options is $9.50 per share. The term of each option is ten years. The options
vest in equal installments on August 6, 2000, 2001 and 2002. Each of the
grantees has terminated employment and all the options were forfeited prior to
vesting. No options were issued during 2000. In connection with the Acquisition
Transaction, the remaining unissued and issuable options upon consummation of
the Acquisition Tranasaction at an exercise price of no less than $11.00 per
share.
Stock Repurchase Plan
---------------------
On October 9, 1998, the Board of Directors authorized the implementation of a
stock repurchase plan, enabling the Company to repurchase, from time to time, up
to 500,000 shares of its Common Stock. The repurchases will be made in the open
market and the timing will be dependent on the availability of shares and other
market conditions. As of both December 31, 2000 and 1999, the Company had
acquired 6,300 shares of its Common Stock for an aggregate purchase price of
$58,579 (including commissions and service charges). Repurchased shares are
accounted for as treasury stock.
Shareholder Rights Plan
-----------------------
On January 29, 1999, the Company adopted a shareholder rights plan (the
"Shareholder Rights Plan"), the purpose of which is to better protect
shareholders and assure that they receive the full value of their investment in
the event of any proposed takeover of the Company. The Company noted that the
adoption of the Shareholder Rights Plan was not in response to any specific
attempt to acquire control of the Company and that the Company had no knowledge
of any such interest on the part of any person or entity.
The Shareholder Rights Plan, which is similar to plans adopted by many other
U.S. companies, strengthens the ability of the Board of Directors to assure that
the Company's shareholders receive fair and equal treatment and protects the
interests of the Company's shareholders in the event of an unsolicited offer to
acquire control of the Company. Importantly, it is intended to encourage any
potential acquirer to negotiate the manner and terms of any proposed acquisition
with the Board of Directors.
Terms of the Shareholder Rights Plan provide for a distribution to common
shareholders of record at the close of business on February 16, 1999 of one
Right for each outstanding share of Common Stock of the Company. Subject to
limited exceptions, the Rights will be exercisable if a person or group acquires
15% or more of the Company's Common Stock or announces a tender offer for 15% or
more of the Common Stock. Depending on the circumstances, the effect of the
exercise of the Rights will be to permit each holder of a Right to either
purchase stock in the Company or stock of the buyer, at a substantial discount,
and, in so doing, materially dilute the level of ownership of the buyer in the
Company. The Company will be entitled to redeem the Rights at $.01 per Right at
any time before a person has acquired 15% or more of the outstanding Common
Stock. The Shareholder Rights Plan will expire on February 16, 2009.
Other
-----
Through calendar year 1999, each independent director was entitled to receive
annual compensation for serving as a director in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or shares of Common Stock
valued based on the fair market value at the date of issuance. Beginning in
calendar year 2000, the annual compensation for each independent director
increased from $15,000 to $17,500 and the maximum payable in cash increased from
$5,000 to $7,500. As of December 31, 2000 and 1999, 2,376 and 1,216 shares,
respectively, having an aggregate value of $22,500 and $12,500, respectively,
have been issued to each of the Company's two independent directors as
compensation for their services. An additional 981 shares with an aggregate
value of $10,000 were issued to each independent Director in January, 2001.
Distribution Information
------------------------
Distributions Per Share
-----------------------
Quarterly cash distributions per share for the years ended December 31, 2000 and
1999 were as follows:
Cash Distribution Total Amount
for Quarter Ended Date Paid Per Share Distributed
----------------- --------- --------- --------------
March 31, 2000 5/15/00 $ .240 $1,931,803
June 30, 2000 8/14/00 .240 1,931,803
September 30, 2000 11/14/00 .240 1,931,803
December 31, 2000 2/14/01 .240 1,931,803
------- ---------
Total for 2000 $ .960 $7,727,212
======= =========
Cash Distribution Total Amount
for Quarter Ended Date Paid Per Share Distributed
----------------- --------- --------- --------------
March 31, 1999 5/14/99 $ .240 $1,931,246
June 30, 1999 8/15/99 .240 1,931,246
September 30, 1999 11/14/99 .240 1,931,246
December 31, 1999 2/14/00 .240 1,931,247
------- ---------
Total for 1999 $ .960 $7,724,985
======= =========
There are no material legal restrictions upon the Company's present or future
ability to make distributions in accordance with the provisions of the Company's
Articles of Amendment and Restatement. Future distributions paid by the Company
will be at the discretion of the Directors and will depend on the actual cash
flow of the Company, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Directors deem relevant.
Recent Sales/Issuance of Unregistered Equity Securities
-------------------------------------------------------
(i) Securities Issued
The following table sets forth the date of issuance, title and amount of
unregistered securities issued by the Company's subsidiary, the Operating
Partnership:
Date of Sale/Issuance Title Number
--------------------- ----- ------
10/01/97 OP Units 46,836
06/02/98 OP Units 94,726
12/10/98 OP Units 376,063
05/28/99 OP Units 28,187
12/09/99 OP Units 231,401
04/18/00 OP Units (3,371)
06/19/00 OP Units (8,062)
--------
765,780
The acquisitions of Governor's Square, Southgate and Crossroad East, three
Retail Properties with purchase prices of $8,200,000, $15,100,000 and
$4,800,000, respectively, were partially financed through the issuance of
94,726, 208,914 and 167,149 OP Units (subject to adjustment) valued at
$1,231,438, $2,715,882 and $2,172,937. These 470,789 OP Units were convertible
to shares of Common Stock on a one-to-one basis, subject to adjustment, on the
one year anniversary of their respective closing dates. The OP Units were issued
at an agreed upon value of $13 per OP Unit. If as of the last trading day prior
to the first anniversary of the closing date (the "Post-Closing Adjustment
Date"), the "Average Price Per Share" (as defined below) was less than $13, the
Company was obligated to issue additional OP Units to the respective sellers in
the amount of the difference between (i) the quotient obtained by dividing the
OP Unit value at $13 per OP Unit by the Average Price Per Share as of the
Post-Closing Adjustment Date and (ii) the number of OP Units issued on the
closing date. The Average Price Per Share means, with respect to any given date,
the average final closing price per share of Common Stock during the twenty
trading day period ending on such date. An additional 28,187 OP Units were
issued to the seller of Governor's Square on the Post-Closing Adjustment Date
(May 28, 1999) based on an Average Price Per Share of $10.01875. An additional
92,439 and 73,957 OP Units were issued to the sellers of Southgate and
Crossroads East, respectively, on the Post-Closing Adjustment Date (December 9,
1999) based on an Average Price Per Share of $9.0125.
In addition, a note payable to the sellers of Southgate and the two notes
payable to the sellers of Crossroads East in the amounts of $200,000, $230,000
and $275,000, respectively, were partially repaid in the amounts of $135,400,
$213,708 and $236,646 through the issuance of 15,030, 23,716 and 26,259 OP Units
on December 9, 1999 based on an Average Price Per Share of $9.0125.
(ii) Underwriters and Other Purchasers
Underwriters were not retained in connection with the issuance of these
securities.
(iii) Consideration
See (i) above.
(iv) Exemption from Registration Claimed
The OP Units were issued to "accredited investors" in transactions which were
exempt from registration under Section 4 (2) of the Securities Act of 1933.
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the Company.
Additional financial information is set forth in the audited financial
statements and notes thereto contained in "Item 8. Financial Statements and
Supplementary Data".
Year ended December 31,
------------------------------------------------------------------------------------
OPERATIONS 2000 1999 1998 1997 (a) 1996 (a)
---------- ------------ ------------ ------------ ------------ ------------
Total revenues $ 26,167,270 $ 25,354,501 $ 19,504,803 $ 10,755,797 $ 9,224,030
Total expenses (20,147,117) (19,133,837) (13,544,516) (7,309,038) (6,797,394)
------------ ------------ ------------ ------------ ------------
Income before gain on sale of 6,020,153 6,220,664 5,960,287 3,446,759 2,426,636
investment
Gain on sale of real estate 108,332 0 0 0 0
Gain on sale of investment in
partnership (b) 0 0 0 779,893 0
------------ ------------ ------------ ------------ ------------
Income before minority interest 6,128,485 6,220,664 6,740,180 3,446,759 0
Minority interest in income of the
Operating Partnership (535,490) (397,583) (93,547) (8,263) 0
------------ ------------ ------------ ------------ ------------
Net income $ 5,592,995 $ 5,823,081 $ 6,646,633 $ 3,438,496 $ 2,426,636
============ ============ ============ ============ ============
Net income applicable to common $ 5,592,995 $ 5,823,081 $ 6,646,633 $ 1,420,370(d)
============ ============ ============ ============
shareholders
Net income per share (f) (c)
Basic $ .69 $ .72 $ .83 $ .18(d)
============ ============ ============ ============
Diluted $ .69 $ .72 $ .82 $ .18(d)
============ ============ ============ ============
Weighted average shares
outstanding: (c)
Basic 8,048,894 8,046,574 8,049,987 8,050,727(d)
============ ============ ============ ============
Diluted 8,048,952 8,046,574 8,075,390 8,050,727(d)
============ ============ ============ ============
December 31,
------------------------------------------------------------------------------------
FINANCIAL POSITION 2000 1999 1998 1997 (a) 1996 (a)
------------------ ------------ ------------ ------------ ------------ ------------
Total assets $197,693,943 $193,392,424 $195,389,970 $148,639,328 $ 75,842,337
============ ============ ============ ============ ============
Notes payable $ 64,972,605 $ 59,239,944 $ 58,864,099 $ 18,544,242 $ 5,565,841
============ ============ ============ ============ ============
Total liabilities $ 71,564,672 $ 64,830,450 $ 65,402,567 $ 22,866,886 $ 6,746,907
============ ============ ============ ============ ============
Minority interest $ 6,941,884 $ 7,260,370 $ 6,803,895 $ 727,431
============ ============ ============ ============
Total shareholders' $119,187,387 $121,301,604 $123,183,508 $125,045,011 $ 69,095,430
equity/partners' ============ ============ ============ ============ ============
capital
DISTRIBUTIONS
Total BUC$holder distributions N/A N/A N/A $ 2,700,004(e) $ 3,600,005
============ ============ ============ ============ ============
Total shareholder distributions 7,727,212 7,724,985 8,330,865 1,932,174(d)
============ ============ ============ ============
Distributions per share (c) .96 .96 1.04 .24(d)
============ ============ ============ ============
OTHER DATA
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2000 1999 1998
------------- --------------- -----------
Funds From Operations ("FFO") (g) $ 10,445,374 $ 10,646,024 $ 9,974,863
============== ============== ============
Funds Available for Distribution ("FAD") (g) $ 2,973,856 $ 8,254,454 $ 8,969,572
============== ============== ============
FFO payout ratio (h) 74.0% 72.6% 83.5%
============== ============== ============
Cash flows from:
Operating activities $ 11,189,802 $ 9,567,923 $ 9,584,324
============== ============== ============
Investing activities $ (8,090,815) $ (1,970,601) $(20,087,699)
============== ============== ============
Financing activities $ (3,850,809) $ (8,374,501) $ 6,778,799
============== ============== ============
(a) Information prior to October 1, 1997 (the date of the Consolidation) is only
with respect to Insured I. Information subsequent to September 30, 1997 is with
respect to the Company and its consolidated subsidiaries which include Insured I
and the other Partnerships pursuant to the Consolidation.
(b) The 1998 results of operations reflect a gain of $779,893 recognized upon
the sale of the Company's limited partnership interest in Dominion Totem Park
Limited Partnership.
(c) Net income and distribution per share information for periods before October
1, 1997 is not presented because it is not indicative of the Company's
continuing capital structure.
(d) Represents amount for the three months ended December 31, 1997.
(e) Represents amount for the nine months ended September 30, 1997.
(f) Net income per share equals net income divided by the weighted average
shares outstanding for the period.
(g) See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a definition and calculation of Funds From Operations
and Funds Available for Distribution.
(h) Represents total shareholder distributions divided by FFO.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
-------------------------------
The Company requires long-term financing in order to invest in and maintain its
portfolio of Retail Properties and other investments. To date, this long-term
liquidity has come from proceeds from the Credit Facility, notes payable assumed
upon the purchase of certain properties and the issuance of shares of the
Company's Common Stock or OP Units in exchange for real estate. Although the
Credit Facility may be increased, the Company's Charter dictates leverage of no
more than 50% of the Company's Total Market Value. On a short-term basis, the
Company requires funds to pay its operating expenses and those of the Retail
Properties, to make improvements to the Retail Properties, pay its debt service
and make distributions to its shareholders. The primary source of the Company's
short-term liquidity needs are the cash flow received from the Retail Properties
and interest income.
As a REIT, the Company is required to distribute at least 95% (90% commencing in
2001) of its taxable income to maintain REIT status. Funds generated from
operations are expected to be sufficient to allow the Company to meet this
requirement.
The Advisor believes that the stability of the Company's operations and its
ability to maintain liquidity are enhanced by:
(i) Geographic diversity of its portfolio of real estate.
(ii) 47% of total revenues for the year ended December 31, 2000 were earned from
shopping center anchor tenants which are national credit tenants and from
interest on an FHA Mortgage.
(iii) No single asset accounts for 10% or more of total revenues for the year
ended December 31, 2000.
(iv) Leases that provide for recovery of actual common area maintenance charges
and real estate taxes, thereby minimizing any effects from inflation.
(v) Leases that provide for increases in rents based on a percentage of tenants'
sales.
During the year ended December 31, 2000, cash and cash equivalents of the
Company and its consolidated subsidiaries decreased approximately $752,000. This
decrease was primarily due to improvements to real estate ($6,199,000),
acquisitions of real estate including acquisition expenses ($558,000),
distributions paid to shareholders ($7,727,000), an increase in deferred costs
($1,042,000), periodic principal payments on notes payable ($297,000) and
distributions paid to minority interest ($815,000) which exceeded net cash
provided by operating activities ($10,637,000), net proceeds from the sale of
real estate ($154,000) and net proceeds from notes payable ($6,030,000).
Included in the adjustments to reconcile the net income to cash provided by
operating activities is depreciation and amortization in the amount of
$5,244,000.
As part of the renewal of the lease for the anchor tenant at the Westbird
property, the Company made approximately $2,140,000 in tenant improvements
during 2000. The term of the new lease is 20 years with a minimum annual rent of
$246,000. The minimum annual rent under the old lease was $103,000. In addition,
Governors Square had over $1,250,000 in improvements and Rolling Hills had
$810,000. The total amount of all property's tenant improvements during 2000
totaled over $6,200,000 and were funded by cash from continuing operations and
borrowings on the Credit Facility.
The Company has the following problem assets which may adversely affect future
operations and liquidity:
(i) Safeway, the anchor tenant of Cactus Village Shopping Center closed its
facility in December 1991 due to poor sales. The tenant is currently in arrears
as it relates to a contractual increase in minimum rent of $.10 per square foot
per year (approximately $4,200 per year). The aggregate arrears as of December
31, 2000 is $16,604. The arrearage is due to different interpretations of the
lease which is expected to be resolved in 2001. With the exception of this
amount, the tenant continues to fully abide by all aspects of its lease which
will expire in September 2006. The Company is actively pursuing potential
replacement tenants and at the appropriate time, hopes to be able to negotiate a
termination agreement with the vacated tenant.
(ii) In July 1994, A&P closed its store in the Mountain Park Plaza Shopping
Center due to reduced sales and increased competition. The Company received
rental payments from the vacated tenant pursuant to the terms of the lease. In
December 2000, A&P bought out its lease for $300,000 and the Company entered
into a new lease with Publix. Publix will take physical occupancy in the third
quarter of 2001.
(iii) Three of White Oaks Plaza's anchors have vacated their spaces. Two,
Walmart and Winn Dixie, are still paying rent and are current in their rent
payments. The Company is in discussions regarding the sale of a portion of the
property.
(iv) Office Max, one of the anchor tenants of Town West which was under
sublease, vacated its space in February 2000 but the original lessee is still
obligated to pay rent. To date, the lessee is current with all rent payments.
(v) Food Lion, located in Barclay Place, closed their store in December 2000.
They are still obligated to pay rent through the expiration of its lease. To
date, Food Lion is current with all rent payments.
In February 2001, a distribution of $1,931,803 ($.24 per share), which was
declared in December 2000, was paid to the shareholders from cash flow from
operations for the quarter ended December 31, 2000.
The owners of Woodgate Manor have advised the Company that they have entered
into an agreement dated December 12, 2000 to sell the property to an
unaffiliated third party. In connection with the sale, both the mortgage loan
receivable and equity loan held by the Company will be repaid in full. The
Company anticipates receiving approximately $3.5 million as repayment for the
loans.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
Results of Operations
---------------------
Comparison of Years Ended December 31, 2000 and 1999
----------------------------------------------------
Net income for the year ended December 31, 2000 decreased by approximately
$230,000, or 4%, as compared to the year ended 1999. Revenues, for the period,
increased by approximately $813,000, or 3%, as compared to the same period for
1999, while expenses increased by approximately $1,013,000, or 5.3%. Minority
interest in income increased by approximately $138,000. During the year ended
December 31, 2000, the Company recognized a gain on sale of real estate of
approximately $108,000. There was no such transaction in 1999.
The increase in revenues for the year ended December 31, 2000 as compared to
1999 was primarily due to approximate increases in rental income of $276,000, an
increase in income from equity investments of $86,000, an increase in early
lease termination payments of $406,000 and an increase in interest income of
$79,000 partially offset by decreases in tenant reimbursements of $8,000 and in
other income of $27,000.
Approximately $378,000 of the total increase in rental income was due to the
minimum rent of Winery Square, Pablo Plaza, Rolling Hills and reimbursement
charges offset by the decrease in White Oak Plaza minimum rent and Oxford Mall,
Southgate, Emporia West and Crossroads retro property taxes. Included in early
lease termination payments is a $300,000 lease settlement paid by A&P as a fee
for terminating their lease at Mountain Park. The increase in income from equity
investments was primarily due to $23,000 increase in Pinehurst income and
$63,000 increase in Weatherly Walk income. The increase in interest income was
primarily due to the $74,000 increase in the Crossroads and Southgate OP Unit
Loan mortgage interest income.
The increase in expenses for the year ended December 31, 2000 as compared to
1999, was primarily due to increases of $187,000 in repairs and maintenance,
$58,000 in operating expenses, $461,000 in interest expense, $289,000 in
depreciation and $145,000 in other expenses, partially offset by a decrease in
real estate taxes of approximately $45,000 and $80,000 in general and
administrative expenses.
Repairs and maintenance increased $88,000 due to parking lot light repairs,
$70,000 in snow removal and $24,000 in grounds landscaping, offset by a decrease
in painting of approximately $29,000. The increase in operating expenses is due
to unamortized lease costs, property management fees, and water and sewer
expenses of approximately $130,000. These operating expenses were offset by a
decrease of $62,000 in legal expenses incurred in 1999 but not in 2000. The
decrease in real estate taxes was primarily due to $125,000 of Southgate and
Crossroads prior year adjustments offset by $80,000 increase of real estate
taxes. Interest expense increased $857,000 due to the increased use of the
Credit Facility and was offset by $288,000 decrease due to the repayment of the
New York Life note payable and $104,000 decrease in rate swap interest. Of the
increase in depreciation and amortization, approximately $224,000 was due to
increased depreciation of additional improvements of Governor's Square, Westbird
and several other properties and $151,000 was due to increased amortization of
the deferred costs associated with the Credit Facility. These increases were
partially offset by $200,000 due to the repayment of the New York Life note
payable. The increase in other expenses was due to $193,000 in a write off of
projects that were abandoned, offset by $61,000 decrease in bad debt expense.
A gain on sale of real estate of approximately $108,000 was recognized in the
year ended December 31, 2000. No such transaction occurred in 1999.
Minority interest in the income of the Operating Partnership increased
approximately $138,000 for the year ended December 31, 2000 as compared to 1999
primarily due to the increase in OP Units in connection with the post closing
price adjustment and settlement of the seller notes relating to the acquisition
of Southgate and Crossroads on December 9, 1999.
Comparison of Years Ended December 31, 1999 and 1998
----------------------------------------------------
Net income for the year ended December 31, 1999 decreased by approximately
$824,000, or 12.4%, as compared to the year ended 1998. Revenues, for the
period, increased by approximately $5,850,000, or 30%, as compared to the same
period for 1998, while expenses increased by approximately $5,589,000, or 41.3%.
Minority interest in income increased by approximately $304,000. During the year
ended December 31, 1998, the Company recognized a gain on sale of investment in
partnership of approximately $780,000. There was no such transaction in 1999.
The increase in revenues for the year ended December 31, 1999 as compared to
1998 was primarily due to increases in rental income of $6,277,000, an increase
in tenant reimbursements of $767,000, an increase in early lease termination
payments of $80,000, and an increase in other income of $24,000, partially
offset by decreases in income from equity investments of $133,000 and interest
income of $1,167,000.
Approximately $6,322,000 of the total increase in rental income was due to the
acquisition of 12 Retail Properties during 1998 (the "1998 Acquisition"). Of the
increase in tenant reimbursements, approximately $1,576,000 was due to the 1998
Acquisition, offset by a decrease of approximately $809,000 due to additional
billings and increases in estimates for recoverable amounts in 1998. The
decrease in income from equity investments was primarily due to the sale of the
Company's limited partnership interest in Dominion and a decrease in income from
Pinehurst. The decrease in interest income was primarily due to the repayment of
the Cross Creek and Weatherly Walk FHA Mortgage loans and the repayment of the
Cross Creek Loan in mid to late 1998.
The increase in expenses for the year ended December 31, 1999 as compared to
1998, was primarily due to approximate increases of $406,000 in repairs and
maintenance, $864,000 in operating expenses, $712,000 in real estate taxes,
$2,558,000 in interest expense, $178,000 in general and administrative expenses
and $1,049,000 in depreciation, partially offset by a decrease in other expenses
of approximately $178,000.
Repairs and maintenance increased approximately $656,000 due to the 1998
Acquisition, offset by a decrease in spending at non-1998 Acquisition properties
of approximately $250,000 due primarily to parking lot light repairs, roofing
repairs and painting expenses incurred in 1998 but not in 1999. The increases in
operating expenses and real estate taxes were due almost exclusively to the 1998
Acquisition. Interest expense increased primarily due to increased use of the
Credit Facility and the assumption of existing debt on four of the properties
included in the 1998 Acquisition. Of the increase in depreciation and
amortization, approximately $1,173,000 was due to the 1998 Acquisition and
$149,000 was due to increased amortization of the deferred costs associated with
the Credit Facility. These increases were partially offset by approximately
$404,000 relating to deferred insurance costs becoming fully amortized during
1999. the decrease in other expenses was primarily due to decreases in bad debt
expenses and losses on the repayment of the Cross Creek and Weatherly Walk loans
in 1998, partially offset by increases due to the 1998 Acquisition.
A gain on sale of investment in partnership in the amount of approximately
$780,000 was recorded for the year ended December 31, 1998 relating to the sale
of the Company's limited partnership interest in Dominion in the first quarter
of 1998.
Minority interest in the income of the Operating Partnership increased
approximately $304,000 for the year ended December 31, 1999 as compared to 1998
primarily due to the issuance of OP Units with respect to three of the 1998
Acquisitions.
Funds from Operations and Funds Available for Distribution
----------------------------------------------------------
Funds from operations ("FFO"), represents net income (computed in accordance
with generally accepted accounting principles) ("GAAP"), excluding gains (or
losses) from debt restructuring or repayments and sales of property, plus
depreciation and amortization and including funds from operations for
unconsolidated joint ventures calculated on the same basis. FFO is calculated in
accordance with the National Association of Real Estate Investment Trusts
("NAREIT") definition. FFO does not represent cash generated from operating
activities in accordance with GAAP and is not necessarily indicative of cash
available to fund cash needs which is disclosed in the Consolidated Statements
of Cash Flows included in the financial statements, for the applicable periods.
There are no material legal or functional restrictions on the use of FFO. FFO
should not be considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flows as a measure
of liquidity. Management considers FFO a supplemental measure of operating
performance and along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures, pay distributions to shareholders, and to fund other cash needs.
Funds available for distribution ("FAD") represents FFO plus recurring principal
receipts from mortgage loans less lease commissions, recurring capital
expenditures (excluding property acquisitions) and debt principal amortization.
Net income computed in accordance with GAAP includes straight-lining of property
rentals for rent escalations in the amounts of $241,592, $367,078 and $191,057
for the years ended December 31, 2000, 1999 and 1998, respectively. FAD should
not be considered an alternative to net income as a measure of the Company's
financial performance or to cash flow from operating activities (computed in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
necessarily indicative of sufficient cash flow to fund all of the Company's
needs.
FFO, as calculated in accordance with the NAREIT definition, and FAD for the
years ended December 31, 2000 and 1999 and the three months ended December 31,
1997 are summarized in the following table:
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2000 1999 1998
------------- --------------- -----------
Net income $ 5,592,995 $ 5,823,081 $ 6,646,633
Gain on sale of investment in partnership 0 0 (779,893)
Gain on sale of real estate (108,332) 0 0
Loss on repayment of mortgages and loans receivable 0 0 138,438
Depreciation and amortization of real property 4,718,128 4,377,099 3,143,873
Amortization of insurance contract 0 200,195 600,580
Depreciation and amortization from equity investments 242,583 245,649 225,232
------------ ------------ ------------
Funds From Operations ("FFO") 10,445,374 10,646,024 9,974,863
Amortization of deferred financing costs 525,513 377,665 222,538
Principal payments received on mortgage loans 35,439 32,416 105,124
Straight-lining of property rentals for rent escalations (241,592) (367,078) (191,057)
Improvements to real estate (6,198,584) (1,308,093) (695,177)
Principal repayments on notes payable (296,865) (538,401) (280,463)
Leasing commissions (1,295,429) (588,079) (166,256)
------------ ------------ ------------
Funds Available for Distribution ("FAD") $ 2,973,856 $ 8,254,454 $ 8,969,572
============ ============ ============
Distributions to shareholders $ 7,727,212 $ 7,724,985 $ 8,330,865
============ ============ ============
FFO payout ratio 74.0% 72.6% 83.5%
============ ============ ============
Funds From Operations ("FFO"): $ 10,445,374 $ 10,646,024 $ 9,974,863
Minority interest in income of the operating partnership: 535,490 397,583 93,547
------------ ------------ ------------
FFO available to common shares and OP Units $ 10,980,864 $ 11,043,607 $ 10,068,410
============ ============ ============
Cash flows from:
Operating activities $ 11,189,802 $ 9,567,923 $ 9,584,324
============ ============ ============
Investing activities $ (8,090,815) $ (1,970,601) $(20,087,699)
============ ============ ============
Financing activities $ (3,850,809) $ (8,374,501) $ 6,778,799
============ ============ ============
Weighted average common shares outstanding 8,048,952 8,046,574 8,049,987
============ ============ ============
Weighted average common shares and OP Units outstanding 8,819,484 8,594,904 8,173,478
============ ============ ============
Recently Issued Accounting Standards
------------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities,
and is effective for the Company beginning with the first quarter of 2001. The
Company has no derivative instruments at December 31, 2000, so implementation of
this standard will have no impact on the Company.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extiguisment of Liabilities" replaces SFAS No. 125, which had the same name. It
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of SFAS No. 125's provisions without reconsideration. The Company's
management does not believe that application of this statement, required in the
second quarter of 2001, will have a material impact on the Company's financial
statements.
Forward-Looking Statements
--------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements.
Inflation
---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The debt financing used to raise capital for the acquisition of the Company's
investments exposes the Company to fluctuations in market interest rates. Market
interest rates are highly sensitive to many factors, including governmental
policies, domestic and international political considerations and other factors
beyond the control of the Company.
Cash flows from the Company's investments do not fluctuate with changes in
market interest rates. In addition, as of December 31, 2000, approximately 36%
of the Company's total notes payable outstanding are either fixed rate or
non-interest bearing, and so the payments on these instruments do not fluctuate
with changes in market interest rates. In contrast, payments required under the
Credit Facility vary based on market interest rates, primarily the 30 day
Euro-contract rate. Thus, an increase in market interest rates would result in
increased payments under the Credit Facility, without a corresponding increase
in cash flows from the Company's investments in the same amounts. For example,
based on the $41,693,000 outstanding under the Credit Facility at December 31,
2000, the Company estimates that an increase of 1% in the 30 day Euro-contract
rate would decrease the Company's annual net income by approximately $417,000; a
2% increase in the 30 day Euro-contract rate would decrease annual net income by
approximately $834,000. For the same reasons, a decrease in market interest
rates would generally benefit the Company, as a result of decreased payments
under the Credit Facility without corresponding decreases in cash flows from the
Company's investments. Various financial vehicles exist which would allow
Company management to mitigate the impact of interest rate fluctuations on the
Company's cash flows and earnings. On December 1, 1998, the Company entered into
an interest rate swap agreement with a notional amount of $10,000,000 at a fixed
rate of 5.44%. This agreement expired on December 1, 2000. Management may engage
in additional hedging strategies in the future, depending on management's
analysis of the interest rate environment and the costs and risks of such
strategies.
Item 8. Financial Statements and Supplementary Data.
Page
---------------
(a) 1. Financial Statements
Independent Auditors' Report 20
Consolidated Balance Sheets
as of December 31, 2000 and
1999 21
Consolidated Statements of
Income for the years ended
December 31, 2000, 1999 and
1998 22
Consolidated Statements of
Changes in Shareholders'
Equity/Partners' Capital
(Deficit) for the years
ended December 31, 2000,
1999 and 1998 23
Consolidated Statements of
Cash Flows for the years
ended December 31, 2000,
1999 and 1998 24
Notes to Consolidated
Financial Statements 26
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors of
Aegis Realty, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Aegis Realty,
Inc. and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2000.
Our audits also included the financial statement schedules listed in Item
14(a)2. 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Aegis Realty, Inc. and subsidiaries
as of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
February 23, 2001
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
2000 1999
----------------------
ASSETS
Real estate, net $ 175,156,729 $ 172,784,964
Investment in partnerships 5,746,841 5,923,199
Mortgage loan receivable 3,170,322 3,220,191
Loans receivable from affiliates 2,312,543 2,077,886
Cash and cash equivalents 1,474,473 2,226,295
Accounts receivable-tenants, net of allowance for doubtful
accounts of $383,000 and $343,000, respectively 3,215,665 2,958,033
Deferred costs, net 5,679,884 2,800,537
Other assets 937,486 1,401,319
------------- -------------
Total Assets $ 197,693,943 $ 193,392,424
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 64,972,605 $ 59,239,944
Accounts payable and other liabilities 4,476,477 3,514,381
Distributions payable 2,115,590 2,076,125
------------- -------------
Total Liabilities 71,564,672 64,830,450
------------- -------------
Minority interest of unitholders in the Operating Partnership 6,941,884 7,260,370
------------- -------------
Commitments and Contingencies
Shareholders' equity:
Common stock; $.01 par value; 50,000,000 shares authorized;
8,055,479 issued and 8,049,179 outstanding and 8,053,159
issued and 8,046,859 outstanding in 2000 and 1999, respectively 80,554 80,531
Treasury stock; $.01 par value; 6,300 shares (63) (63)
Additional paid in capital 125,339,053 125,319,076
Distributions in excess of net income (6,232,157) (4,097,940)
------------- -------------
Total Shareholders' Equity 119,187,387 121,301,604
------------- -------------
Total Liabilities and Shareholders' Equity $ 197,693,943 $ 193,392,424
============= =============
See accompanying notes to consolidated financial statements.
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------------
2000 1999 1998
-------------------------------------------
Revenues:
Rental income $ 19,956,353 $ 19,680,116 $ 13,402,982
Tenant reimbursements 4,674,235 4,682,075 3,914,656
Early lease termination payments 500,162 93,846 13,464
Income from equity investments 376,903 291,082 423,624
Interest income 561,693 482,442 1,649,071
Other 97,924 124,940 101,006
------------ ------------ ------------
Total revenues 26,167,270 25,354,501 19,504,803
------------ ------------ ------------
Expenses:
Repairs and maintenance 2,097,007 1,910,194 1,503,746
Operating 2,708,158 2,650,579 1,786,619
Real estate taxes 2,391,257 2,436,047 1,724,424
Interest 4,950,058 4,489,556 1,931,874
General and administrative 1,917,587 1,998,052 1,819,556
Depreciation and amortization 5,186,493 4,897,811 3,849,190
Other 896,557 751,598 929,107
------------ ------------ ------------
Total expenses 20,147,117 19,133,837 13,544,516
------------ ------------ ------------
Income before gains on sale 6,020,153 6,220,664 5,960,287
Gain on sale of real estate 108,332 0 0
Gain on sale of investment in partnership 0 0 779,893
------------ ------------ ------------
Income before minority interest 6,128,485 6,220,664 6,740,180
Minority interest in income of the
Operating Partnership (535,490) (397,583) (93,547)
------------ ------------ ------------
Net income $ 5,592,995 $ 5,823,081 $ 6,646,633
============ ============ ============
Net income per share:
Basic $ .69 $ .72 $ .83
============ ============ ============
Diluted $ .69 $ .72 $ .82
============ ============ ============
Weighted average shares outstanding:
Basic 8,048,894 8,046,574 8,049,987
============ ============ ============
Diluted 8,048,952 8,046,574 8,075,390
============ ============ ============
See accompanying notes to consolidated financial statements.
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Treasury Stock Additional Distributions
------------------ ----------------- Paid-in in Excess of
Shares Amount Shares Amount Capital Net Income Total
------ ------ ------ ------ ------- ---------- ------------
Balance at January 1,1998 8,050,727 $ 80,507 0 $ 0 $ 125,476,308 $ (511,804) $ 125,045,011
Net income 0 0 0 0 0 6,646,633 6,646,633
Issuance of shares of common stock 432 4 0 0 4,996 0 5,000
Purchase of treasury shares 0 0 (6,300) (63) (58,516) 0 (58,579)
Consolidation costs 0 0 0 0 (123,692) 0 (123,692)
Distributions 0 0 0 0 0 (8,330,865) (8,330,865)
---------- -------- -------- ------- ------------- ------------- -------------
Balance at December 31, 1998 8,051,159 80,511 (6,300) (63) 125,299,096 (2,196,036) 123,183,508
Net income 0 0 0 0 0 5,823,081 5,823,081
Issuance of shares of common stock 2,000 20 0 0 19,980 0 20,000
Distributions 0 0 0 0 0 (7,724,985) (7,724,985)
---------- -------- -------- ------- ------------- ------------- -------------
Balance at December 31, 1999 8,053,159 80,531 (6,300) (63) 125,319,076 (4,097,940) 121,301,604
Net income 0 0 0 0 0 5,592,995 5,592,995
Issuance of shares of common stock 2,320 23 0 0 19,977 0 20,000
Distributions 0 0 0 0 0 (7,727,212) (7,727,212)
---------- -------- -------- ------- ------------- ------------- -------------
Balance at December 31, 2000 8,055,479 $ 80,554 (6,300) $ (63) $ 125,339,053 $ (6,232,157) $ 119,187,387
========== ======== ======== ======= ============= ============= =============
See accompanying notes to consolidated financial statements.
AEGIS REALTY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------------------------
2000 1999 1998
--------------------------------------------
Cash flows from operating activities:
Net income $ 5,592,995 $ 5,823,081 $ 6,646,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of real estate (108,332) 0 0
Gain on sale of investment in partnership 0 0 (779,893)
Loss on repayments of mortgage loans receivable 0 0 138,438
Depreciation and amortization 5,243,641 4,954,959 3,966,178
Minority interest in income of the Operating
Partnership 535,490 397,583 93,547
Distributions from equity investments
in excess of income 133,640 129,626 97,954
Leasing commissions and costs (1,395,929) (659,579) (166,256)
Changes in operating assets and liabilities:
Accounts receivable-tenants (297,359) (474,991) (1,353,348)
Allowance for doubtful accounts 39,727 (40,146) 79,978
Other assets 463,833 (165,577) (696,092)
Accounts payable and other liabilities 982,096 (397,033) 1,557,185
------------ ------------ ------------
Net cash provided by operating activities 11,189,802 9,567,923 9,584,324
------------ ------------ ------------
Cash flows from investing activities:
Net proceeds from sale of real estate 154,409 0 0
Proceeds from sale of investment in partnership 0 0 4,727,500
Improvements to real estate (6,198,584) (1,308,093) (695,177)
Acquisitions of real estate including
acquisition expenses (557,823) (653,015) (51,598,294)
Increase in deferred acquisition expenses (1,289,599) (45,038) (114,229)
Repayments of loans receivable from affiliates 21,280 3,129 3,060,000
Loans made to affiliate (255,937) 0 (2,081,015)
Principal payments received on mortgage loans 35,439 32,416 27,528,253
Closing costs relating to the repayment of
mortgage loan receivable 0 0 (19,537)
Investment in partnership 0 0 (895,200)
------------ ------------ ------------
Net cash used in investing activities (8,090,815) (1,970,601) (20,087,699)
------------ ------------ ------------
Cash flows from financing activities:
Repayments of notes payable (4,845,474) 0 (28,703,385)
Periodic principal payments on notes payable (296,865) (538,401) (202,078)
Proceeds from notes payable 10,875,000 1,500,000 44,568,000
Distributions paid to shareholders (7,726,655) (8,327,874) (7,728,904)
Increase in deferred loan costs (1,041,747) (553,324) (896,901)
Distributions paid to minority interest (815,068) (454,902) (74,942)
Purchase of treasury shares 0 0 (58,579)
Consolidation costs 0 0 (124,412)
------------ ------------ ------------
Net cash (used in) provided by
financing activities (3,850,809) (8,374,501) 6,778,799
------------ ------------ ------------
(continued)
Net decrease in cash and cash equivalents (751,822) (777,179) (3,724,576)
Cash and cash equivalents at the beginning of
the year 2,226,295 3,003,474 6,728,050
---------------- ------------ ------------
Cash and cash equivalents at the end of the year $ 1,474,473 $ 2,226,295 $ 3,003,474
================ ============ ============
Supplemental information:
Interest paid $ 4,950,059 $ 4,841,223 $ 1,626,784
================ ============ ============
Supplemental disclosure of noncash activities:
Notes payable assumed in acquisition of real
estate $ 0 $ $0 $ 23,952,320
================ ============ ============
Real estate acquired for units
in the Operating Partnership $ 0 $ 0 $ 6,120,257
================ ============ ============
Payable to directors liquidated
through the issuance of shares
of common stock $ 20,000 $ 20,000 $ 5,000
================ ============ ============
Reclassification of deferred acquisition expenses
to real estate upon purchase $ 0 $ 61,278 $ 47,459
================ ============ ============
Real estate acquired through issuance of
purchase money notes to sellers $ 0 $ 0 $ 705,000
================ ============ ============
Repayment of purchase money notes
to sellers through the issuance
of units in the Operating Partnership $ 0 $ 585,754 $ 0
================ ============ ============
See accompanying notes to consolidated finaicial statements.
AEGIS REALTY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General
Aegis Realty, Inc. ("Aegis" or the "Company") is a Maryland corporation that has
qualified as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986 as amended (the "Code"). The Company was formed to acquire, own,
operate and renovate primarily supermarket-anchored neighborhood and community
shopping centers. As of December 31, 2000, the Company owned a portfolio of 28
retail properties containing a total of approximately 3.0 million gross
leaseable square feet, held partnership interests in two suburban garden
apartment properties and held one FHA insured participating mortgage secured by
a suburban garden apartment property.
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of four publicly registered, non-listed limited
partnerships, Summit Insured Equity L.P. ("Insured I"), Summit Insured Equity
L.P. II ("Insured II"), Summit Preferred Equity L.P. and Eagle Insured, L.P.
(the "Partnerships", and each individually a "Partnership"). One of the general
partners of the Partnerships was an affiliate of Related Capital Company
("Related"), a nationwide, fully integrated real estate financial services firm.
Pursuant to the Consolidation, the Company issued shares of its common stock,
par value $.01 per share (the "Common Stock") to all partners in the
Partnerships in exchange for their interests in the Partnership based upon each
partner's proportionate interest in the Common Stock issued to their Partnership
in the Consolidation.
The Company is governed by a board of directors comprised of two independent
directors and three directors who are affiliated with Related. The Company has
engaged Related Aegis LP (the "Advisor"), a Delaware limited partnership and an
affiliate of Related, to manage its day to day affairs.
The Company owns all of its assets directly or indirectly through Aegis Realty
Operating Partnership, LP, a Delaware limited partnership (the "Operating
Partnership" or "OP"), of which the Company is the sole general partner and
holder of 91.31% of the units of partnership interest (the "OP Units") at
December 31, 2000. At December 31, 2000, 5.54% of the OP Units are held by the
sellers of three of the retail properties and 3.15% were held by affiliates of
Related.
On December 21, 2000, the Company entered into a definitive acquisition
agreement to acquire a portfolio of 19 shopping centers and several retail
development opportunities (the "Acquisition Transaction") from Dallas,
Texas-based P.O'B. Montgomery & Company (and its investment partners) ("POB").
Under the terms of the acquisition agreement, Aegis has agreed to pay POB and
its investment partners total consideration of $203.5 million. The consideration
will be comprised of : (i) $3 million in cash, (ii) $58.4 million of OP Units
which are convertible on a one-for-one basis into Aegis common stock at a value
of $11 per share and cannot be transferred for one year, and (iii) assumption of
$142.1 million in non-recourse debt encumbering the acquired shopping centers.
The consideration and components of the consideration are subject to certain
adjustments provided for in the acquisition agreement.
As a condition to the Acquisition Transaction, Aegis will terminate its advisory
agreement and acquire the assets of the Company's property manager (see Note 8)
(consisting primarily of several desktop computers and software) and terminate
the property management agreement pursuant to the management internalization
agreement which was entered into simultaneously with the acquisition agreement
(the "Management Internalization"). Upon closing, certain officers of POB will
assume full-time executive positions with Aegis and the Board of Directors will
be expanded from five to seven members, four of whom will be independent
directors. As a result, Aegis will become self-managed and self-administered.
The Acquisition Transaction is subject to Aegis' stockholder approval and
customary conditions, and, if approved, both transactions are expected to close
in 2001. The acquisition agreement has been unanimously approved by the Board of
Directors of Aegis (including the independent directors) and the shareholders of
POB and the management internalization agreement has been unanimously approved
by the independent directors of Aegis on behalf of the full Board of Directors.
Although there are limitations on Aegis' ability to solicit competing
transactions, Aegis' Board of Directors retains the right to consider
alternative transactions in accordance with its duties under applicable law. An
alternative transaction may include, among others, any merger, consolidation,
share exchange or business combination. The exercise of such rights by Aegis'
Board of Directors could result in payment of a termination fee of $3 million to
POB.
The Advisor will be entitled to its standard acquisition fee of 3.75% of the
acquisition price of the properties acquired (equal to $7.5 million if all the
POB properties are acquired) in connection with the Acquisition Transaction. In
consideration of the Management Internalization, the Property Manager and
Advisor will be paid an aggregate amount of approximately $3.5 million subject
to adjustments pursuant to the management internalization agreement. The maximum
aggregate consideration payable to the Property Manager and the Advisor will be
$11 million of which up to $1 million may be paid in cash and the balance will
be paid in the form of (i) a distribution of Aegis' non-core, non-retail assets
based upon their book value subject to certain adjustments and (ii) Aegis stock
issued at a value of $11.
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Accounting
The books and records of the Company are maintained on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). The preparation of financial statements in
conformity with GAAP requires the Advisor to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
b) Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary partnerships. All intercompany accounts and transactions have
been eliminated in consolidation.
c) Real Estate
The carrying amount of real estate includes the purchase price, acquisition
expenses, and other direct costs incurred in acquiring the properties. Buildings
are depreciated on a straight line basis over their estimated useful lives,
generally 40 years. Maintenance and repairs are charged to expense as incurred.
Renewals and betterments that significantly extend the useful life of a property
are capitalized and amortized over their estimated useful lives. Tenant
improvements are capitalized and amortized over the life of the lease.
d) Investment in Partnerships
The Company accounts for its investment as a limited partner in partnerships,
which own the multifamily properties, using the equity method of accounting
because it exercises significant influence over, but does not control, these
limited partnerships.
e) Impairment
The Company reviews each of its property investments, including those held by
the partnerships which own the multifamily properties, for possible impairment
at least annually, and more frequently if circumstances warrant. Impairment of
properties is determined to exist when estimated amounts recoverable through
future operations on an undiscounted basis are below the properties' carrying
value. If a property is determined to be impaired, it is written down to its
estimated fair value.
At least annually, and more frequently if circumstances warrant, the Company
evaluates the collectibility of both interest and principal of its mortgage loan
receivable to determine whether it is impaired. A loan is considered to be
impaired when, based on current information and events, it is probable the
Company will be unable to collect all amounts due according to the existing
contractual terms. When a loan is considered to be impaired, the amount of the
loss accrual is determined by discounting the expected future cash flows at the
loan's effective interest rate or, for practical purposes, from the estimated
fair value of the collateral.
The determination of impairment is based not only upon future cash flows, which
rely upon estimates and assumptions including expense growth, occupancy and
rental rates, but also upon market capitalization and discount rates as well as
other market indicators. Management believes that the estimates and assumptions
used are appropriate in evaluating the carrying amount of the Company's
properties and loan. However, changes in market conditions and circumstances may
occur in the near term which would cause these estimates and assumptions to
change, which, in turn, could cause the amounts ultimately realized upon the
sale or other disposition of the investments to differ materially from their
estimated fair value. Such changes may also require write-downs in future years.
No write-downs for impairment have been recorded during the three years ended
December 31, 2000.
f) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and money market funds.
g) Deferred Loan Costs
Costs incurred in connection with the Company's debt have been capitalized and
are being amortized over the life of the respective debt using the effective
yield method.
h) Deferred Leasing Commissions
Costs incurred in connection with the lease-up of vacant space and lease
renewals have been capitalized and are being amortized over the term of the
underlying leases.
Amortization related to the deferred costs described in (g) and (h) above is
included in depreciation and amortization expense.
i) Deferred Acquisition Expenses
Direct costs incurred in connection with the proposed purchase of retail
properties are deferred. Upon acquisition of a property, the associated costs
are capitalized as real estate. Direct costs incurred in connection with
properties which are not acquired, and all indirect acquisition costs, are
charged to operations.
j) Revenue Recognition
Rental income includes amounts received and accrued from operating leases. The
straight-line basis is used to recognize base rents under leases which provide
for varying rents over the lease terms. Rentals based on a percentage of tenant
sales over a specified threshold are accrued after the threshold is exceeded.
Payments received from tenants to induce the Company to release the tenant from
its lease obligation prior to expiration are recognized upon termination of the
lease. Amounts due from tenants as reimbursements of common area maintenance,
real estate taxes and insurance are accrued as the related expenses are
incurred. Interest income on the mortgage loan receivable is accrued as it is
earned.
k) Income Taxes
The Company has qualified as a REIT under the Code. A REIT is generally not
subject to federal income tax on that portion of its REIT taxable income
("Taxable Income") which is distributed to its shareholders provided that at
least 95% of Taxable Income is distributed and provided that such income meets
certain other conditions. Accordingly, no provision for federal income taxes is
required. The Company may be subject to state taxes in certain jurisdictions.
During 2000, the Company declared distributions of $.96 per share. For federal
income tax purposes, $.24 per share of ordinary income was carried over from
1999, $.79 and $.17 per share of ordinary income and return of capital,
respectively, was reported to shareholders for 2000 and $.24 per share of
ordinary income was carried over to 2001.
l) Comprehensive Income
Because the Company has no items of other comprehensive income, the Company's
net income and comprehensive income are the same for all periods presented.
m) Segment Information
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires enterprises to report certain financial and descriptive
information about their reportable operating segments, and certain
enterprise-wide disclosures regarding products and services, geographic areas
and major customers. The Company is an investor in real estate related assets
and operates in only one reportable segment. All of the Company's investments
are, or are secured by, real estate properties located in the United States;
accordingly, all of its revenues were derived from U.S. operations.
n) New Pronouncements
In December of 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". This bulletin summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company's management believes that the guidance expressed in the
bulletin does not affect the Company's current revenue recognition policies.
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. As amended
by SFAS No. 137 and 138, it is effective for the Company beginning with the
first quarter of 2001. The Company has no derivative instruments at December 31,
2000, so implementation of this standard will have no impact on the Company.
SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" replaces SFAS No. 125 which had the same name.
It revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but it
carries over most of SFAS No. 125's provisions without reconsideration. The
Company's management does not believe that application of this statement,
required in the second quarter of 2001, will have a material impact on the
Company's financial statements.
o) Reclassifications
Certain amounts in the 1999 and 1998 financial statements have been reclassified
to conform to the 2000 presentation.
NOTE 3 - Real Estate
The components of real estate are as follows:
December 31,
2000 1999
------------------------
Land $ 40,267,037 $ 39,798,459
Buildings and improvements 162,348,285 156,239,538
----------- -----------
202,615,322 196,037,997
Less: Accumulated depreciation (27,458,593) (23,253,033)
------------ ------------
$175,156,729 $172,784,964
=========== ===========
Amounts estimated to be recoverable from future operations and ultimate sales
are greater than the carrying value of each property owned at December 31, 2000
and 1999. However, the carrying value of certain properties may be in excess of
their fair values as of such dates.
On May 19, 2000, the Company acquired an out-parcel of developable land
contiguous to the Forest Park Square property for $500,000 plus acquisition
costs of approximately $32,360.
As part of the renewal of the lease for the anchor tenant at the Westbird
property, the Company made $1,000,000 in tenant improvements during August 2000.
The term of the new lease is 20 years with a minimum rental of $246,000. The
minimum annual rent under the old lease was $103,000.
The acquisitions of Governor's Square, Southgate and Crossroad East, three
properties with purchase prices of $8,200,000, $15,100,000 and $4,800,000,
respectively, were partially financed through the issuance of 94,726, 208,914
and 167,149 OP Units (subject to adjustment) valued at $1,231,438, $2,715,882
and $2,172,937. These OP Units were convertible to shares of Common Stock on a
one-to-one basis, subject to adjustment, beginning on the one year anniversary
of their respective closing dates. The OP Units were issued at an agreed upon
value of $13 per OP Unit. If, as of the last trading day prior to the first
anniversary of the closing date (the "Post-Closing Adjustment Date"), the
"Average Price Per Share" (as defined) was less than $13, the Company was
obligated to issue additional OP Units to the respective sellers in the amount
of the difference between (i) the quotient obtained by dividing the OP Unit
value at $13 per OP Unit by the Average Price Per Share as of the Post-Closing
Adjustment Date and (ii) the number of OP Units issued on the closing date. An
additional 28,187 OP Units were issued to the seller of Governor's Square on the
Post-Closing Adjustment Date (May 28, 1999) based on an Average Price Per Share
of $10.01875. An additional 92,439 and 73,957 OP Units were issued to the
sellers of Southgate and Crossroads East, respectively, on the Post-Closing
Adjustment Date (December 9, 1999) based on an Average Price Per Share of
$9.0125.
None of the Company's investment properties accounted for 10% or more of the
Company's total gross revenues for any of the three years in the period ended
December 31, 2000.
During the years ended December 31, 2000, 1999 and 1998, the Kroger Company,
which is a tenant at six shopping centers, accounted for approximately 11%, 12%
and 17%, respectively, of the Company's total revenues.
Based on the carrying value at December 31, 2000, approximately 15% of the
Company's investment properties are located in Ohio, 12% are located in Florida,
10% are located in North Carolina and 10% are located in Virginia. No other
states comprise more than 10% of the total carrying value.
Insured II, an indirectly wholly-owned subsidiary of the Company, is the record
owner of three of the retail properties. Insured II is the beneficiary of an
insurance policy (the "Policy") from Continental Casualty Company ("CNA") which,
in effect, insures that the cumulative amount of cash available for
distribution, from all sources, as determined in accordance with the Policy and
related agreement together with the appraised values of the Retail Properties
then owned by Insured II, will equal at least 100% of the aggregate original
capital contributions to Insured II allocated to investment in properties on the
day on which the last such Retail Property was acquired by Insured II. The
Policy will expire in May 2001. Insured I had been the beneficiary of a similar
policy that expired in November 1999. No payments were received on the Insured I
policy and none are expected on the Insured II policy.
NOTE 4 - Deferred Costs
The components of deferred costs are as follows:
December 31,
2000 1999
------------------------
Deferred loan costs $3,437,672 $2,395,925
Deferred leasing commissions and costs 2,667,216 1,426,098
Deferred acquisition expenses 1,387,588 97,989
--------- -----------
7,492,476 3,920,012
Less: Accumulated amortization (1,812,592) (1,119,475)
---------- ----------
$5,679,884 $2,800,537
========= =========
The increase in deferred acquisition expenses in 2000 is due to approximately
$1,119,000 in expenses incurred to date by the Company in connection with the
proposed Acquisition Transaction discussed in Note 1.
NOTE 5 - Investments in Partnerships
The Company owns a limited partnership interest in the TCR-Pinehurst Limited
Partnership ("Pinehurst"), which acquired and operates the Pinehurst apartment
complex in Kansas City, Missouri. Under the original terms of this investment,
the Company is entitled to a preferred equity return of 8.8% per annum on its
initial investment of $3,799,620, and 9.85% on a subsequent investment of
$1,949,805. These preferred equity returns are cumulative and non
interest-bearing. The cumulative, unrecorded and undistributed preferred equity
returns to the Company totaled $1,826,245 and $1,763,772 at December 31, 2000
and 1999, respectively. These preferred equity returns are payable from excess
cash flow from operations or proceeds from a sale or refinancing of Pinehurst's
rental property. The Company's percentage of ownership in Pinehurst is 98.99%.
On August 26, 1998, the Company invested $895,200 for a 40% interest as a
limited partner in FAI Ltd. ("FAI"), the limited partnership which owns the
Weatherly Walk Apartments located in Fayetteville, Georgia. This equity interest
earns an annual preferred return of 10.5% on $895,200, paid monthly, plus 40% of
excess cash flow and sale or refinancing proceeds. As of December 31, 2000, the
Company had received all of the preferred returns due from FAI.
The Company owned a limited partnership investment in the Dominion Totem Park
Limited Partnership ("Dominion"), which acquired and operated an apartment
complex in Kirkland, Washington. On March 20, 1998, the general partner of
Dominion purchased the Company's limited partnership interest. The purchase
price was determined by independent appraisals and resulted in a cash payment to
the Company of $4,727,500, which was $779,893 in excess of the carrying value of
this investment at the date of sale.
Amounts estimated to be recoverable from future operations and ultimate sales
are greater than the carrying value of the Company's investments in partnerships
at December 31, 2000.
NOTE 6 - Mortgage Loan Receivable
As of December 31, 2000 and 1999, the Company held a FHA mortgage and an equity
loan secured by Woodgate Manor, an apartment complex located in Gainesville,
Florida. The FHA mortgage, in the original amount of $3,110,300 has a stated
interest rate of 8.95% and matures January 1, 2024. The 8.95% interest rate
includes a 0.07% servicing fee paid by the developer to Related Mortgage
Corporation, an affiliate of the Advisor. The base interest and principal are
co-insured by the FHA (80%) and an affiliate of the Advisor (20%).
The equity loan, in the original amount of $339,700, represented a non-interest
bearing advance made to the developer for such items as initial operating
deficit escrow requirements and HUD related contingencies such as working
capital escrow and cash requirements. Such amounts are due on demand upon six
months notice at any time after the tenth anniversary of the initial endorsement
of the loan by HUD.
The Company is entitled to call for prepayment of the entire outstanding
principal amount of the mortgage loan and the equity loan. The Company, in order
to call for prepayment, would be required to terminate the mortgage insurance
contract with FHA and the other co-insurer. The Company's intention is to
exercise the call option only if it determines that the value of the underlying
development has increased sufficiently enough to assume the risk of foreclosure
should the mortgagor fail to make the accelerated payment. The borrower may
elect to prepay at any time without incurring prepayment penalties.
The general partner interest in the borrower is held by an affiliate of the
Advisor.
The owners of Woodgate Manor have advised the company they they have entered
into an agreement dated December 12, 2000 to sell the property to an unrelated
third party. In connection with the sale, both the mortgage loan receivable and
the equity loan held by the Company would be repaid in full. The transaction is
expected to close during the first half of 2001. The Company anticipates
receiving approximately $3.5 million in repayment of the loans.
NOTE 7 - Notes Payable
As of December 31, 2000 and 1999, the Company had notes payable as follows:
Collateral/
Date of Monthly Carrying
Note/ Payment Outstanding Outstanding Balloon Value at
Maturity Interest of Principal Balance Balance Payment/ December
Noteholder Date Rate and Interest at 12/31/00 at 12/31/99 Due Date 31, 2000
---------- ---------- --------- ------------ ----------- ----------- ------------ -----------
New York Life 7/11/95 9.25% $ 55,984 $ 0 $ 4,726,178 - N/A
Insurance 6/10/00
Company
(a) 12/29/97 (b) Interest 41,693,000(c) 30,818,00(c) - (h)
12/29/03 only
Heller 6/24/97(d) 8.50% $ 19,992 2,523,267 2,547,557 $ 2,307,314 Barclay Place/
Financial, Inc. 7/1/07 7/1/07 $ 3,994,587
Nomura 10/28/97(e) 7.54% $ 33,130 3,800,498 3,902,472 - Village At
Asset Capital 11/11/22 Waterford/
Corporation $ 6,243,705
Chase Bank 12/16/96(f) 8.875% $ 51,717 6,290,934 6,350,323 $ 5,808,553 Oxford Mall/
1/1/07 1/1/07 $ 8,772,302
Merrill Lynch 9/18/97 (g) 7.73% $ 79,509 10,664,906 10,776,168 $ 9,634,530 Southgate/
Credit 10/1/07 10/1/07 $15,282,639
Corporation
Sellers of 12/10/98 (i) $ 0 0 64,600 (i) - None
Southgate 12/10/99
Sellers of 12/10/98 (i) $ 0 0 16,292 (i) - None
Crossroads East 12/10/99
Sellers of 12/10/98 (i) $ 0 0 38,354(i) - None
Crossroads East 12/9/99 ----------- --------------
$64,972,605 $ 59,239,944
=========== ==============
(a) The Credit Facility is shared among Fleet Bank. (28.57%), KeyBank National
Association (28.57%), Citizens Bank of Rhode Island (28.57%) and Sovereign Bank
(14.29%).
(b) The interest rate under the Credit Facility can float 1/2% under Fleet
Bank's base rate or can be fixed in 30, 60, 90 and 180 day periods at 1.625%
over the indicated Euro-contract rate at the option of the Company. The Company
has currently elected the 30 day rate which was 6.625% at December 31, 2000.
(c) Outstanding balance of a $80 million senior revolving credit facility
("Credit Facility").
(d) Note was assumed upon purchase of the property by the Company on March 31,
1998.
(e) Note was assumed upon purchase of the property by the Company on April 22,
1998.
(f) Note was assumed upon purchase of the property by the Company on November
24, 1998.
(g) Note was assumed upon purchase of the property by the Company on December 9,
1998.
(h) The Credit Facility, which expires on December 29, 2003, was collateralized
at December 31, 2000 by nineteen retail properties, one investment in a
partnership and the mortgage loan with carrying values of $110,266,019,
$5,070,366 and $3,170,322, respectively. In addition, the obligation under the
Credit Facility is guaranteed by the Company, two of its subsidiaries and
TCR-Pinehurst Limited Partnership.
(i) The note payable to the sellers of Southgate and the two notes payable to
the sellers of Crossroads East in the amounts of $200,000, $230,000 and
$275,000, respectively, were non-interest bearing and partially repaid in the
amounts of $135,400, $213,708 and $236,646 through the issuance of 15,030,
23,716 and 26,259 OP Units on December 9, 1999 based on an Average Price Per
Share (see Note 3) of $9.0125. The balances due of $64,600, $16,292 and $38,354,
respectively, were repaid in cash on January 4, 2000.
On December 1, 1998, the Company entered into an interest rate swap agreement
with a notional amount of $10,000,000, intended to reduce the impact of changes
in interest rates on the Credit Facility. This agreement effectively changed the
Company's interest rate on $10,000,000 of the Credit Facility debt to a fixed
rate of 5.44% and matured on December 1, 2000. The Company accounted for the net
cash settlements under this swap agreement as adjustments to the interest
expense on the Credit Facility.
Annual principal payment requirements as of December 31, 2000 for each of the
next five fiscal years and thereafter are as follows:
Year Ending Amount
2001 $ 325,007
2002 349,726
2003 42,071,907*
2004 407,394
2005 444,489
Thereafter 21,374,082
----------
$64,972,605
===========
*Includes the maturity of the Credit Facility.
The Company has determined that the carrying value of the notes payable
approximates their fair value at December 31, 2000 and 1999, either because the
interest rate on such notes fluctuates according to a market index, or because
the fixed rate notes bear interest at rates comparable to market rates for
similar instruments.
NOTE 8 - Related Party Transactions
Pursuant to the Advisory Agreement, the Advisor receives (i) acquisition fees
equal to 3.75% of the acquisition prices of properties acquired; (ii) mortgage
selection fees based on the principal amount of mortgage loans funded; (iii)
asset management fees equal to .375% of the total invested assets of the
Company; (iv) a liquidation fee based on the gross sales price of the assets
sold by the Company in connection with a liquidation of the Company's assets;
and (v) reimbursement of certain administrative costs incurred by the Advisor on
behalf of the Company.
The original term of the Advisory Agreement will terminate on October 1, 2001.
Thereafter, the Advisory Agreement will be renewed annually by the Company and
the OP, subject to the majority approval of the Company's Board of Directors and
the OP. The Advisory Agreement cannot be terminated by the Company prior to
October 1, 2001, other than for gross negligence or willful misconduct of the
Advisor and by a majority vote of the Company's independent directors. The
Advisory Agreement may be terminated without cause by a majority vote of the
Company's independent directors following October 1, 2001 or by the Advisor at
any time.
The Company's Retail Properties are managed by RCC Property Advisors (the
"Property Manager"), an affiliate of the Advisor, for a fee equal to 4.5% of the
gross rental receipts from the retail properties. The Property Manager also
receives standard leasing commissions for space leased to new tenants and for
lease renewals and is reimbursed for certain expenses.
The costs incurred to related parties for the years ended December 31, 2000 and
1999 and 1998 were as follows:
2000 1999 1998
---------------------------------------------
Acquisition fees $ 19,699 $ 23,805 $2,707,157
Expense reimbursement 289,962 271,972 290,639
Property management fees 1,084,563 1,037,014 735,338
Leasing commissions and costs 1,126,850 471,888 178,509
Asset management fee 779,379 779,561 630,661
---------- ---------- ----------
$3,300,453 $2,584,240 $4,542,304
========= ========= =========
On December 9, 1998, in connection with the acquisition of Southgate and
Crossroads East, the Company made loans (the "OP Unit Loans") totaling
$2,081,015 to Standard Investment Company ("SIC"), a partner in the partnerships
which owned the two properties. The loans were originally secured by 163,517 OP
units issued to SIC in exchange for its partnership interests in the
partnerships which owned the properties and also by a guarantee from the
principals of SIC for 25% of the total loan amounts. On January 4, 2000, in
connection with the repayment of seller notes payable (see Note 7(i)), an
additional 101,518 OP units were issued, the OP Unit Loans were increased by
$255,937 and the interest rate was increased from 7.613% to 10.03%.
The OP Unit Loans mature on the earlier of December 9, 2015 or the sale date of
the underlying properties. Interest and principal are payable only to the extent
of distributions with respect to the OP Units. Such distributions will be
retained by the Company until all accrued interest and the outstanding balances
of the loans are repaid. As of December 31, 2000 and 1999, the balances of these
OP Unit Loans totaled $2,312,543 and $2,077,086, respectively, and are shown as
Loans Receivable from Affiliates on the consolidated balance sheets.
At December 31, 2000, the Company was due $47,521 from the Advisor and
affiliates; this amount is included in other assets. At December 31, 1999, the
Company owed $344,428 to the Advisor and affiliates; this amount is included in
accounts payable and other liabilities.
NOTE 9 - Earnings Per Share
Basic net income per share in the amount of $.69, $.72 and $.83 for the years
ended December 31, 2000, 1999 and 1998, respectively, equals net income for the
periods ($5,592,995, $5,823,081 and $6,646,633, respectively), divided by the
weighted average number of shares outstanding for the periods (8,048,894,
8,046,574 and 8,049,987, respectively).
Diluted net income per share in the amount of $.69, $.72 and $.82 for the years
ended December 31, 2000, 1999 and 1998, respectively, equals net income for the
periods, divided by the weighted average number of diluted shares outstanding
for the periods (8,048,952, 8,046,574 and 8,075,390, respectively). The weighted
average number of diluted shares outstanding for the year ended December 31,
1998 reflects the weighted average impact of an additional 148,984 OP Units
which would have to be issued to the sellers of three Retail Properties on the
Post-Closing Adjustment Date based on the closing price per share on December
31, 1998 (see Note 3). For purposes of this calculation, the additional OP Units
were assumed to be immediately converted to shares of Common Stock.
The stock options issued during 1999 (see Note 11) did not have a dilutive
effect under the treasury stock method, because the average market price of the
Company's Common Stock during the period from issuance to December 31, 1999 did
not exceed the $9.50 exercise price of the options. During the quarter and year
ended December 31, 2000, the Company's average market price for its common stock
exceeded the exercise price, so the options were dilutive.
There is no difference between basic and diluted net income per share with
respect to the conversion of the minority interests' OP Units outstanding at
December 31, 2000, 1999 and 1998 into an additional 765,780, 777,213 and 517,625
shares, respectively, of Common Stock because the earnings of an OP Unit are
equivalent to the earnings of a share of Common Stock.
NOTE 10 - Leases
Future minimum base rentals due from tenants under non-cancelable operating
leases as of December 31, 2000 are as follows:
Year Ending December 31 Amount
----------------------- ------
2001 $ 18,479,000
2002 16,846,000
2003 14,825,000
2004 12,591,000
2005 10,565,000
Thereafter 45,803,000
------------
Total $119,109,000
===========
Certain leases require the lessees to reimburse the Company for real estate
taxes, insurance costs and certain other reimbursable expenses.
All 28 retail properties have certain tenants with leases that require payment
of percentage rent. Percentage rent is an amount paid by the tenant which
represents a portion of its sales over a specified threshold amount as called
for in the lease. Percentage rent received during the years ended December 31,
2000, 1999 and 1998 was approximately $328,000, $183,000 and $132,000,
respectively.
NOTE 11 - Common Stock
The Company has adopted an incentive stock option plan (the "Incentive Stock
Option Plan"), the purpose of which is to (i) attract and retain qualified
persons as directors and officers and (ii) to incentivize and more closely align
the financial interests of the Advisor and its affiliates and their respective
employees and officers with the interests of the stockholders by providing the
Advisor and its affiliates with substantial financial interest in the Company's
success. The Compensation Committee of the Company's Board of Directors
administers the Incentive Stock Option Plan. Pursuant to the Incentive Stock
Option Plan, if the Company's distributions per share of Common Stock in the
immediately preceding calendar year exceed $0.9869 per share, the Compensation
Committee has the authority to issue options to purchase, in the aggregate, that
number of shares of Common Stock which does not exceed three percent of the
shares outstanding as of December 31 of the immediately preceding calendar year
(or in the initial year, as of October 1, 1997). Any options not granted in a
given year are carried over and become available to be granted in subsequent
years. The maximum number of shares that can be issued over the life of the
Incentive Stock Option Plan is 805,073.
All options granted will have an exercise price equal to or greater than the
fair market value of the shares of Common Stock on the date of the grant. The
maximum option term is ten years from the date of grant. All stock options
granted pursuant to the Incentive Stock Option Plan may vest immediately upon
issuance or may vest later, as determined by the Compensation Committee. The
Company's distributions per share of Common Stock for the years ended December
31, 1999 and 1997 did not exceed $.9869 per share. In 1998, the Company
distributed $1.035 per share of Common Stock ($0.96 from continuing operations
and a $0.075 special capital gains distribution), thus enabling the Compensation
Committee, at their discretion, to issue up to 241,522 options.
On August 6, 1999, options to purchase 30,000 shares of Common Stock were
granted to an officer of the Company and certain employees of an affiliate of
the Advisor, none of whom are employees of the Company. The exercise price of
these options is $9.50 per share. The term of each option is ten years. The
options vest in equal installments on August 6, 2000, 2001 and 2002. The Company
has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" for its stock options issued to non-employees. Accordingly,
compensation cost is accrued based on the estimated fair value of the options
issued, and amortized over the vesting period. Because vesting of the options is
contingent upon the recipient continuing to provide services to the Company
until the vesting date, the Company estimates the fair value of the non-employee
options at each period end up to the vesting date, and adjusts expensed amounts
accordingly. The compensation cost is amortized over the vesting period of the
options. Each of the grantees has terminated employment and all of the options
were forfeited prior to vesting. No options were issued during 2000. In
connection with the Acquisition Transaction, the Company has the right to issue
the remaining unissued and issuable options upon consummation of the Acquisition
Transaction at an exercise price of no less than $11.00 per share.
Through calendar year 1999, each independent director was entitled to receive
annual compensation for serving as a director in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or shares of Common Stock
valued based on the fair market value at the date of issuance. Beginning in
calendar year 2000, the annual compensation for each independent director was
increased from $15,000 to $17,500 and the maximum payable in cash was increased
from $5,000 to $7,500. As of December 31, 2000 and 1999, 2,376 and 1,216 shares,
respectively, having an aggregate value of $22,500 and $12,500, respectively,
have been issued to each of the Company's two independent directors as
compensation for their services. An additional 981 shares with an aggregate
value of $10,000 were issued to each independent Director in January, 2001.
On October 9, 1998, the Board of Directors authorized the implementation of a
stock repurchase plan, enabling the Company to repurchase, from time to time, up
to 500,000 shares of its Common Stock. The repurchases will be made in the open
market and the timing will be dependent on the availability of shares and other
market conditions. As of both December 31, 2000 and 1999, the Company had
acquired 6,300 shares of its Common Stock for an aggregate purchase price of
$58,579 (including commissions and service charges). Repurchased shares are
accounted for as treasury stock.
On January 29, 1999, the Company adopted a shareholder rights plan (the
"Shareholder Rights Plan"). Terms of the Shareholder Rights Plan provide for a
distribution to common shareholders of record at the close of business on
February 16, 1999 of one Right for each outstanding share of Common Stock of the
Company. Subject to limited exceptions, the Rights will be exercisable if a
person or group acquires 15% or more of the Company's Common Stock or announces
a tender offer for 15% or more of the Common Stock. Depending on the
circumstances, the effect of the exercise of the Rights will be to permit each
holder of a Right to either purchase stock in the Company or stock of the buyer,
at a substantial discount, and, in so doing, materially dilute the level of
ownership of the buyer in the Company. The Company will be entitled to redeem
the Rights at $.01 per Right at any time before a person has acquired 15% or
more of the outstanding Common Stock. The Shareholder Rights Plan will expire on
February 16, 2009.
NOTE 12 - Selected Quarterly Financial Data (unaudited)
2000 Quarter Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Revenues:
Rental income $ 5,187,635 $ 4,975,979 $ 4,883,709 $ 4,909,030
Tenant reimbursements 1,150,940 1,107,932 1,132,515 1,282,848
Income from equity investments 101,592 98,327 82,206 94,778
Interest income 133,679 151,311 139,391 137,312
Other 185,913 61,125 29,222 321,826
----------- ----------- ----------- -----------
Total revenues 6,759,759 6,394,674 6,267,043 6,745,794
----------- ----------- ----------- -----------
Expenses:
Repairs and maintenance 505,043 454,674 511,980 625,310
Operating 667,581 666,880 646,813 726,884
Real estate taxes 612,901 589,348 581,376 607,632
Interest 1,186,856 1,202,234 1,256,735 1,304,233
General and administrative 462,291 507,617 483,087 464,592
Depreciation and amortization 1,215,844 1,257,981 1,350,911 1,361,757
Other 296,194 199,848 231,520 168,995
----------- ----------- ----------- -----------
Total expenses 4,946,710 4,878,582 5,062,422 5,259,403
----------- ----------- ----------- -----------
Income before gain on sale of real
estate and minority interest 1,813,049 1,516,092 1,204,621 1,486,391
Gain on sale of real estate 0 0 108,332 0
----------- ----------- ----------- -----------
Income before minority interest 1,813,049 1,516,092 1,312,953 1,486,391
Minority interest in income of the
Operating Partnership (159,856) (132,462) (114,149) (129,023)
----------- ----------- ----------- -----------
Net income $ 1,653,193 $ 1,383,630 $ 1,198,804 $ 1,357,368
=========== =========== =========== ===========
Net income per share:
Basic $ .21 $ .17 $ .15 $ .17
=========== =========== =========== ===========
Diluted $ .21 $ .17 $ .15 $ .17
=========== =========== =========== ===========
2000 Quarter Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Revenues:
Rental income $ 5,018,188 $ 4,916,201 $ 4,998,061 $ 4,747,666
Tenant reimbursements 1,178,675 1,178,670 1,091,893 1,232,837
Income from equity investments 85,501 85,937 68,014 51,630
Interest income 115,177 124,878 126,412 115,975
Other 32,882 25,519 35,970 124,415
----------- ----------- ----------- -----------
Total revenues 6,430,423 6,331,205 6,320,350 6,272,523
----------- ----------- ----------- -----------
Expenses:
Repairs and maintenance 411,241 365,487 560,325 573,141
Operating 660,629 699,159 639,373 651,418
Real estate taxes 624,396 667,561 581,209 562,881
Interest 1,105,280 1,107,410 1,127,521 1,149,345
General and administrative 455,794 531,163 510,424 500,671
Depreciation and amortization 1,289,742 1,204,899 1,191,916 1,211,254
Other 369,319 198,187 160,981 23,111
----------- ----------- ----------- -----------
Total expenses 4,916,401 4,773,866 4,771,749 4,671,821
----------- ----------- ----------- -----------
Income before minority interest 1,514,022 1,557,339 1,548,601 1,600,702
Minority interest in income of the
Operating Partnership (91,522) (95,915) (98,454) (111,692)
----------- ----------- ----------- -----------
Net income $ 1,422,500 $ 1,461,424 $ 1,450,147 $ 1,489,010
=========== =========== =========== ===========
Net income per share:
Basic $ .18 $ .18 $ .18 $ .19
=========== =========== =========== ===========
Diluted $ .17 $ .18 $ .18 $ .19
=========== =========== =========== ===========
NOTE 13 - Commitments and Contingencies
The Company is subject to routine litigation and administrative proceedings
arising in the ordinary course of business. Management does not believe that
such matters will have a material adverse impact on the Company's financial
position, results of operations or cash flows.
A current or previous owner or operator of real property may be legally liable
for the costs of removal or remediation of hazardous or toxic substances on,
under or in such property. Such liability may exist whether or not the owner or
operator knew of, or was responsible for, such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances may adversely affect the
owner's ability to borrow funds using such real property as collateral. Certain
environmental laws impose liability for release of asbestos-containing materials
("ACMs") into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with ACMs. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be liable for removal or
remediation costs, as well as certain other potential costs which could relate
to such hazardous or toxic substances or ACMs (including governmental fines and
injuries to persons and property). To date, the Company has not incurred any
costs of removal or remediations of such hazardous or toxic substances. However,
the presence, with or without the Company's knowledge, of hazardous or toxic
substances at any property held or operated by the Company could have an adverse
effect on the Company's business, operating results and financial condition.
Phase I Environmental Site Assessments have been undertaken on all of the
Company's properties. In certain cases, additional Phase II site investigations
have also been undertaken where deemed appropriate. Based on these reports, no
on-site hazardous chemicals or petroleum products were detected or found to
exist in the soil or in the groundwater at those properties which would result
in action by state environmental agencies and which would require additional
investigation and/or remediation of the Mountain Park Plaza property. In
February 1998, a Phase II investigation determined that there were detectable
levels of certain hazardous materials above threshold levels which are
ascertained by the Georgia State Department of Natural Resources Environmental
Protection Division ("GAEPD"). On May 28, 1999 management received notification
form GAEPD that the site was added to the GAEPD Hazardous Site Inventory
("HSI"). Management has recently completed a re-sampling to determine if such
levels continue to exist in order to potentially qualify for a de-listing from
the HSI. The re-sampling indicated that no hazardous materials remain detectable
above the threshold levels which are ascertained by GAEPD to require remediation
and,, on May 5, 2000, the GAEPD removed the property from the HSI. Management
has installed wells on the site to monitor ongoing levels of hazardous materials
in the ground water pursuant to GAEPD policy.
NOTE 14 - Subsequent Events
On or about February 8, 2001, a complaint was filed in the New York Supreme
Court, County of New York, against the Advisor. Also individually named in the
suit were Messrs. Boesky, Hirmes, Ross, Brenner, Allen and Fisch, each of whom
is either a director of Aegis or the Advisor. Aegis was also named as a nominal
defendant. The action is entitled Paul v. The Related Companies, L.P., Index No.
01-600669. The suit is a purported class and derivative action in connection
with the Acquisition Transaction and the Management Internalization described in
Note 1. The suit alleges that the defendants breached their fiduciary duty to
Aegis' stockholders by, among other things, committing Aegis to pay unwarranted
fees and other consideration to the Advisor and the Property Manager. The
lawsuit seeks preliminary and permanent injunctive relief against the
consummation of the Acquisition Transaction and the Management Internalization
in addition to unspecified damages, costs and attorney's fees.
Aegis has retained counsel with regard to the lawsuit and the defendants intend
to defend the action vigorously. With respect to the allegations in the lawsuit,
the defendants have advised that they continue to believe that the transactions
are fair and reasonable and in the best interests of Aegis and its stockholders
and will be submitted for approval by a vote of Aegis' stockholders.
The Company believes that it has meritorious defenses to the claims brought in
the lawsuit described above, but is unable to predict the effect of the outcome
of this lawsuit on the Company's financial position, results of operations and
cash flows. In addition, the timing of the final resolution of this proceeding
is uncertain. No provision has been recorded on the financial statements of the
Company to reflect the above litigation.
In February 2001, an additional $1,500,000 was borrowed under the Credit
Facility.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
The Board of Directors directs the management of the business and affairs of
Aegis but retains the Advisor to manage Aegis' day-to-day affairs. The Board of
Directors delegates to the Advisor responsibilities with respect to, among other
things, overseeing the portfolio of Aegis' assets and the acquisition or
disposition of investments. During 2000, the Board of Directors held six
meetings, the audit committee held four meetings and the compensation committee
did not hold any meetings. The average attendance in the aggregate of the total
number of Board and committee meetings was 83%.
The Directors and Executive Officers of Aegis are as follows:
Year First Became
Name Age Offices Held Director/Officer Term Expires
------------------ ----- --------------------------------- ------------------ -------------
Stuart J. Boesky 44 Chairman, President and 1997 2003
Chief Executive Officer
Michael J. Brenner 55 Director 1999 2003
Alan P. Hirmes 46 Director, Senior Vice 1997 2002
President, and Assistant
Secretary
Peter T. Allen 55 Director 1997 2001
Arthur P. Fisch 59 Director 1997 2001
Bruce H. Brown 47 Senior Vice President 1997 --
Mark J. Schlacter 50 Senior Vice President 1997 --
Michael I. Wirth 42 Senior Vice President and 2000 --
Chief Financial Officer
Denise L. Kiley 41 Vice President 1997 --
Marc D. Schnitzer 40 Vice President 1997 --
Jeffrey S. Suchman 38 Vice President 1999 --
Gary Parkinson 51 Controller 2000 --
Teresa Wicelinski 34 Secretary 1998 --
STUART J. BOESKY is Chairman, President and Chief Executive Officer of Aegis and
is President, Director and Chief Executive Officer of the sole General Partner
of the Advisor. Mr. Boesky practiced real estate and tax law in New York City
with the law firm of Shipley & Rothstein from 1984 until February 1986 when he
joined Related Capital Company, the real estate finance affiliate of The Related
Companies, L.P. From 1983 to 1984, Mr. Boesky practiced law with the Boston law
firm of Kaye, Fialkow, Richmond & Rothstein (which subsequently merged with
Strook & Strook & Lavan) and from 1978 to 1980 was a consultant specializing in
real estate at the accounting firm of Laventhal & Horwath. Mr. Boesky is the
sole shareholder of one of the general partners of Related Capital Company. Mr.
Boesky graduated from Michigan State University with a Bachelor of Arts degree
and from Wayne State School of Law with a Juris Doctor degree. He then received
a Master of Laws degree in Taxation from Boston University School of Law. Mr.
Boesky also serves on the Board of Trustees of Charter Municipal Mortgage
Acceptance Company ("CharterMac") and of American Mortgage Acceptance Company
("AMAC"), which companies are also advised by affiliates of Related Capital
Company.
MICHAEL J. BRENNER is a Director of Aegis, and is the Executive Vice President
and Chief Financial Officer of The Related Companies, L.P. Prior to joining The
Related Companies, L.P. in 1996, Mr. Brenner was a partner with Coopers &
Lybrand, having served as Managing Partner of its Industry Programs and Client
Satisfaction initiatives from 1993-1996, Managing Partner of the Detroit group
of offices from 1986-1993 and Chairman of its National Real Estate Industry
Group from 1984-1986. Mr. Brenner graduated summa cum laude from the University
of Detroit with a Bachelors degree in Business Administration and from the
University of Michigan with a Masters of Business Administration, with
distinction. Mr. Brenner also serves on the Board of Trustees of CharterMac.
ALAN P. HIRMES is a Director, Senior Vice President and Assistant Secretary of
Aegis and is a Director and Senior Vice President of the sole General Partner of
the Advisor. Mr. Hirmes is a Senior Managing Director of Related Capital
Company, where he is responsible for overseeing the portfolio management,
finance and accounting departments, as well as the joint venture development
program. Mr. Hirmes is the sole shareholder of one of the general partners of
Related Capital Company. Mr. Hirmes has been a Certified Public Accountant in
New York since 1978. Prior to joining Related Capital Company in October 1983,
Mr. Hirmes was employed by Weiner & Co., certified public accountants. Mr.
Hirmes graduated from Hofstra University with a Bachelor of Arts degree. Mr.
Hirmes also serves on the Board of Trustees of CharterMac.
PETER T. ALLEN is President of Peter Allen & Associates, Inc., a real estate
development and management firm, in which capacity he has been responsible for
the leasing, refinancing and development of major commercial properties. Mr.
Allen has also been an adjunct professor of the Graduate School of Business at
the University of Michigan since 1981. Mr. Allen received a Bachelor of Arts
Degree in history/economics from DePauw University and a Masters degree in
Business Administration with Distinction from the University of Michigan. Mr.
Allen has been an independent director since 1997 and is a member of the Audit
and Compensation Committees. Mr. Allen also serves on the Board of Trustees of
CharterMac and AMAC.
ARTHUR P. FISCH is an attorney in private practice specializing in real property
and securities law since October 1987, with Arthur P. Fisch, P.C. and Fisch &
Kaufman. From 1975-1987, Mr. Fisch was employed by E.F. Hutton & Company,
serving as First Vice President in the Direct Investment Department from
1981-1987 and Associate General Counsel from 1975-1980 in the legal department.
As First Vice President, he was responsible for the syndication and acquisition
of residential real estate. Mr. Fisch received a B.B.A. from Bernard Baruch
College of the City University of New York and a Juris Doctor degree from New
York Law School. Mr. Fisch is admitted to practice law in New York and
Pennsylvania. Mr. Fisch has been an Independent Director since 1997 and is a
member of the Audit and Compensation Committees. Mr. Fisch also serves on the
Board of Trustees of CharterMac and AMAC.
BRUCE H. BROWN is a Senior Vice President of Aegis and is a Senior Vice
President of the sole General Partner of the Advisor. Mr. Brown is a Senior Vice
President of Related Capital Company and is Director of Related Capital
Company's Portfolio Management Group. He is responsible for overseeing the
administration of Related Capital Company's public registered debt and equity
affiliates encompassing the monitoring of the performance of each entity and
each investment. He is also responsible for Related Capital Company's loan
servicing activities with respect to the firm's $600 million portfolio of tax
exempt first mortgage bonds and FNMA/GNMA insured and co-insured loan portfolio.
Prior to joining Related Capital Company in 1987, Mr. Brown was a Real Estate
Lending Officer at the United States Trust Company of New York and previously
held management positions in the hotel and resort industry with Helmsley-Spear
and Westin Hotels. Mr. Brown graduated from Colgate University with a Bachelor
of Arts degree.
MARK J. SCHLACTER is a Senior Vice President of Aegis and is a Senior Vice
President of the sole General Partner of the Advisor. Mr. Schlacter is a Vice
President of taxable mortgage acquisitions of Related Capital Company, and has
been with Related Capital Company since June 1989. Prior to joining Related
Capital Company, Mr. Schlacter garnered 16 years of direct real estate
experience covering retail and residential construction, single and multifamily
mortgage origination and servicing, commercial mortgage origination and
servicing, property acquisition and financing and mortgage lending program
underwriting and development. He was a Vice President with Bankers Trust Company
from 1986 to June 1989, and held prior positions with Citibank, Anchor Savings
Bank and the Pyramid Companies covering the 1972-1986 period. Mr. Schlacter
holds a Bachelor of Arts degree in Political Science from Pennsylvania State
University.
MICHAEL I. WIRTH is the Chief Financial Officer and Senior Vice President of
Aegis and the Chief Financial Officer and a Senior Vice President of the General
Partner of the Advisor. Mr. Wirth is also a Senior Vice President of Related
Capital Company. Mr. Wirth joined Related Capital Company in August, 2000. Prior
to Related Capital Company, Mr. Wirth was a Vice President in the real estate
group at CGA Investment Management where he was responsible for the
underwriting, investment and management of all commercial real estate debt
investments made by the company. Prior to CGA, Mr. Wirth spent 4 years as a
Senior Manager at Deloitte & Touche in the realty consulting group and
technology solutions practice and 5 years as a Senior Manager and National
Director to the financial services industry at The Roulac Group of Deloitte &
Touche. Mr. Wirth received a Bachelors in Business Administration from Georgia
State University. He has been a Certified Public Accountant since 1986.
DENISE L. KILEY is a Senior Vice President of Aegis and is a Senior Vice
President of the sole General Partner of the Advisor. Ms. Kiley is also a
Managing Director of Related Capital Company, responsible for overseeing the
investment underwriting and approval of all real estate properties invested in
Related Capital Company sponsored corporate, public and private equity and debt
funds. Prior to joining Related Capital Company in 1990, Ms. Kiley had
experience acquiring, financing and managing the assets of multifamily
residential properties. From 1981 through 1985 she was an Auditor with a
national accounting firm. Ms. Kiley holds a Bachelor of Science degree in
Accounting from Boston College and is a Member of the Affordable Housing
Roundtable.
MARC D. SCHNITZER is a Senior Vice President of Aegis and is a Senior Vice
President of the sole General Partner of the Advisor. Mr. Schnitzer is a
Managing Director of Related Capital Company and Director of Related Capital
Company's Tax Credit Acquisitions Group. Mr. Schnitzer received a Master of
Business Administration degree from The Wharton School of The University of
Pennsylvania in December 1987, and joined Related Capital Company in January,
1988. From 1983 to 1986, Mr. Schnitzer was a Financial Analyst in the Fixed
Income Research Department of The First Boston Corporation in New York. Mr.
Schnitzer received a Bachelor of Science degree, summa cum laude, in Business
Administration from the School of Management at Boston University.
JEFFREY S. SUCHMAN is a Vice President of Aegis where he is responsible for the
financial evaluation and the initial due diligence of potential shopping center
acquisitions. Mr. Suchman has been a consultant to Related Capital Company since
February of 1998. Prior to consulting for Related Capital Company, Mr. Suchman
was the President of The Suchman Group from 1995-1998. From 1987-1995, Mr.
Suchman held positions with the Macklowe Organization as a Vice President and
Rockrose Development Corp., as an Assistant Vice President, participating in
acquisitions and asset management and from 1985-1987 was employed by
Helmsley-Spear, Inc., involved in commercial leasing and sales. Mr. Suchman
received a Bachelor of Arts degree in psychology from New York University and a
Master of Business Administration from Fordham University. Mr. Suchman is
currently a Member of the International Council of Shopping Centers.
GARY PARKINSON is the Controller of Aegis and is the Controller of the sole
General Partner of the Advisor. Mr. Parkinson has been a Certified Public
Accountant in New York since 1987. Prior to joining Related Capital Company in
September 2000, Mr. Parkinson was employed by American Real Estate Partners,
L.P. from July 1991 to September 2000, Integrated Resources, Inc. from August
1988 to July 1991 and Ernst and Young from September 1984 to August 1988. Mr.
Parkinson graduated from Northeastern University and The Johnson Graduate School
of Business at Cornell University.
TERESA WICELINSKI is the Secretary of Aegis and is the Secretary of the sole
General Partner of the Advisor. Ms. Wicelinski joined Related Capital Company in
June 1992, and prior to that date was employed by Friedman, Alprin & Green,
Certified Public Accountants. Ms. Wicelinski graduated from Pace University with
a Bachelor of Arts Degree in Accounting.
Committees of the Board of Directors
------------------------------------
The Board of Directors has standing Audit and Compensation Committees. The Audit
Committee's duties include the review and oversight of all transactions with
affiliates of Aegis, the periodic review of Aegis' financial statements and
meetings with Aegis' independent auditors. The Audit Committee is comprised of
Messrs. Allen and Fisch and held four meetings during Aegis' fiscal year ended
December 31, 2000.
The Compensation Committee's duties include the determination of compensation of
Aegis' executive officers and the administration of Aegis' Incentive Share
Option Plan. The Compensation Committee is comprised of Messrs. Allen and Fisch
and did not hold any meetings during Aegis' fiscal year ended December 31, 2000.
The Compensation Committee must have at least two members, each of which must be
Independent Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Aegis' officers and directors, and persons who own more than ten percent of a
registered class of Aegis' equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the
"Commission"). These persons are required by regulation of the Commission to
furnish Aegis with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, Aegis believes that during the fiscal year ended
December 31, 2000, Aegis' officers, directors and greater than ten percent
beneficial owners complied with all applicable Section 16(a) filing
requirements.
The Advisor
-----------
The Directors and Executive Officers of Related Aegis, Inc. ("Related Aegis"),
the sole General Partner of the Advisor, are set forth below. These Officers of
the General Partner of the Advisor may also provide services to Aegis on behalf
of the Advisor.
The Directors and Executive Officers of Related Aegis, Inc., the sole General
Partner of the Advisor, are as follows:
Year First Became
Name Age Offices Held Director/Officer
---------------- ------ ------------------------------------------------ ----------------
Stuart J. Boesky 44 President, Chief Operating Officer and Director 1997
Alan P. Hirmes 46 Senior Vice President and Director 1997
Stephen M. Ross 60 Director 1997
Bruce H. Brown 47 Senior Vice President 1997
Mark J. Schlacter 50 Senior Vice President 1997
Michael I. Wirth 42 Senior Vice President and Chief Financial Officer 2000
Denise L. Kiley 41 Senior Vice President 1997
Marc D. Schnitzer 40 Senior Vice President 1997
Gary Parkinson 51 Treasurer and Controller 2000
Teresa Wicelinski 35 Secretary 1997
For biographical information with respect to Messrs. Boesky, Hirmes, Brown,
Schlacter, Wirth, Schnitzer, and Parkinson and Mses. Kiley and Wicelinski see
"Directors and Executive Officers of Aegis."
STEPHEN M. ROSS is a Director of the Advisor. Mr. Ross is the founder, Chairman,
CEO and Managing General Partner of The Related Companies, L.P. He graduated
from the University of Michigan School of Business Administration with a
Bachelor of Science degree and from Wayne State University School of Law with a
Juris Doctor degree. Mr. Ross then received a Master of Laws degree in taxation
from New York University School of Law. He joined the accounting firm of Coopers
& Lybrand in Detroit as a tax specialist and later moved to New York, where he
worked for two large Wall Street investment banking firms in their real estate
and corporate finance departments. Mr. Ross formed the predecessor of The
Related Companies, L.P. in 1972 to develop, manage, finance and acquire real
estate.
Item 11. Executive Compensation.
Aegis has ten officers and five Directors (two of whom are Independent
Directors). Aegis does not pay or accrue any fees, salaries or other forms of
compensation to its Officers or Directors, other than Independent Directors and
options received under the Stock Option Plan. Independent Directors receive
compensation for serving as Directors at the rate of $17,500 per year payable
$7,500 in cash (or at such Director's option, shares of Common Stock) and shares
having an aggregate value of $10,000, based on the fair market value at the date
of issuance, in addition to an expense reimbursement for attending meetings of
the Board of Directors.
The Independent Directors also will receive compensation for serving on the
special committee of the Board of Directors in connection with evaluating the
Pending Portfolio Acquisition Transaction at the rate of $17,500, payable $7,500
in cash (or at such Director's option shares of common stock) and shares having
an aggregate value of $10,000 based upon the fair market value at the date of
issuance.
The Advisor, at its expense, provides all personnel necessary to conduct Aegis'
regular business. The Advisor receives various fees for advisory and other
services performed under the Advisory Agreement, as further described in Item
13. "Certain Relationships and Related Transactions". An affiliate of the
Advisor pays all salaries, bonuses and other compensation (other than options
received under the Stock Option Plan) to the officers of Aegis and the general
partner of the Advisor. Certain directors and officers of the sole general
partner of the Advisor and certain officers of Aegis receive compensation from
the Advisor and its affiliates for services performed for various affiliated
entities, which may include services performed for Aegis. Such compensation may
be based in part on the performance of Aegis; however, the Advisor believes that
any compensation attributable to services performed for Aegis is immaterial.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of February 28, 2001, one person was known by Aegis to be the beneficial
owner of more than five percent of the outstanding Shares of Common Stock.
Amount and Nature of Percentage of Common
Name and Address Beneficial Ownership Shares Outstanding
------------------ -------------------- ---------------------
Warren E. Buffett
1440 Kiewit Plaza
Omaha, NE 68131 569,900 Shares * 7.08%
* The ownership of shares of Common Stock reported herein is based upon the
Schedule 13-G/A filed with the Securities and Exchange Commission on February
14, 2001.
As of February 28, 2001, the directors of the sole general partner of the
Advisor own, in the aggregate, 100% of the voting stock of the sole general
partner of the Advisor.
As of February 28, 2001, directors and executive officers of Aegis and
directors and officers of the sole general partner of the Advisor own directly
or beneficially Shares of Common Stock as follows:
Amount and Nature of Percent of
Beneficial Owner (1) Beneficial Ownership Class (2)
--------------------------------------- --------------------- ----------
Directors, Nominees and Executive
Officers
Stephen M. Ross 149,768 (3, 4) 1.69%
Alan P. Hirmes 94,816 (4, 5) 1.07%
Stuart J. Boesky 154,426 (4, 6) 1.74%
Peter T. Allen 3,357 *
Arthur P. Fisch 3,357 *
Bruce H. Brown 400 *
All Officers and Directors of Aegis
and Related Aegis as a group (13
persons) 401,582 (4, 7) 4.55%
*Less than 1% of the common stock issued by Aegis.
(1) Address of beneficial owner is c/o Aegis Realty, Inc., 625 Madison
Avenue, New York, New York 10022.
(2) Percent of class assumes that (i) with respect to each individual
person, all units of limited partnership held by such person have been
converted to shares of common stock and (ii) with respect to all officers
and directors as a group that all such units of limited partnership held by
all such persons have been converted to shares of common stock.
(3) Includes 67,938 units of limited partnership interest in the Operating
Partnership, which are currently convertible to shares of common stock on a
one-to-one basis.
(4) Includes 2,271 units of limited partnership interest in the Operating
Partnership, which are currently convertible to shares of common stock on a
one-to-one basis, held by Related Capital Company, in which Messrs. Ross,
Boesky and Hirmes hold a majority of the direct and indirect equity
interest.
(5) Includes 65,412 units of limited partnership interest in the Operating
Partnership, which are currently convertible to shares of common stock on a
one-to-one basis.
(6) Includes 98,772 units of limited partnership interest in the Operating
Partnership, which are currently convertible to shares of common stock on a
one-to-one basis.
(7) Includes 234,393 units of limited partnership interest in the Operating
Partnership, which are currently convertible to shares of common stock on a
one-to-one basis.
Stock Option Plan
-----------------
Aegis has adopted an incentive stock option plan (the "Plan"), the purpose of
which is to (i) attract and retain qualified persons as directors and officers
and (ii) to incentivize and more closely align the financial interests of the
Advisor and its employees and officers with the interests of the stockholders by
providing the Advisor with substantial financial interest in Aegis' success. The
Compensation Committee, which consists of Messrs. Allen and Fisch, administers
the Plan. Pursuant to the Plan, if Aegis' distributions per Share of Common
Stock in the immediately preceding calendar year exceed $0.9869 per Share, the
Compensation Committee has the authority to issue options to purchase, in the
aggregate, that number of Shares of Common Stock which is equal to three percent
of the Shares outstanding as of December 31 of the immediately preceding
calendar year (or in the initial year, as of October 1, 1997), provided that the
Compensation Committee may only issue, in the aggregate, options to purchase a
maximum number of Shares of Common Stock over the life of the Incentive Stock
Option Plan equal to 809,754 Shares (10% of the Shares outstanding on October 1,
1997).
Subject to the limitations described in the preceding paragraph, if the
Compensation Committee does not grant the maximum number of options in any year,
then the excess of the number of authorized options over the number of options
granted in such year will be added to the number of authorized options in the
next succeeding year and will be available for grant by the Compensation
Committee in such succeeding year.
All options granted will have an exercise price equal to or greater than the
fair market value of the shares of common stock on the date of the grant. The
maximum option term is ten years from the date of grant. All stock options
granted pursuant to the Incentive Stock Option Plan may vest immediately upon
issuance or in accordance with the determination of the Compensation Committee.
No options were granted for the year ended December 31, 1997. In 1998, Aegis
distributed $1.035 per share of common stock ($0.96 from continuing operations
and a $0.075 special capital gains distribution), thus enabling the Compensation
Committee, at its discretion, to issue options for up to 241,522 Shares.
In 1999, Aegis granted a total of 30,000 options to employees of affiliates of
the Advisor. Each of the employees have terminated employment, two during 2000
and the third in 2001, before their options had vested and all of the options
were forfeited back to the Company. In 2000, Aegis did not issue any options.
Under the current terms of the Acquisition Agreement, Aegis is permitted to
issue the 234,522 options that are outstanding, but unissued.
Item 13. Certain Relationships and Related Transactions.
Subject to consummation of the Acquisition Transaction and the Management
Internalization described in Item 1, Aegis and the Operating Partnership entered
into an Advisory Agreement pursuant to which the Advisor is obligated to use its
best efforts to seek out and present to Aegis, whether through its own efforts
or those of third parties retained by it, suitable and a sufficient number of
investment opportunities which are consistent with the investment policies and
objectives of Aegis and consistent with such investment programs as the
Directors may adopt from time to time in conformity with Aegis' Articles of
Amendment and Restatement (the "Articles").
Although the Directors have continuing exclusive authority over the management
of Aegis, the conduct of its affairs and the management and disposition of
Aegis' assets, the Directors have initially delegated to the Advisor, subject to
the supervision and review of the Board of Directors and consistent with the
provisions of the Articles, the power and duty to: (i) manage the day-to-day
operations of Aegis; (ii) acquire, retain or sell Aegis' assets; (iii) seek out,
present and recommend investment opportunities consistent with Aegis' investment
policies and objectives, and negotiate on behalf of Aegis with respect to
potential investments or the disposition thereof; (iv) when appropriate, cause
an affiliate to serve as the mortgagee of record for mortgage investments of
Aegis and in that capacity hold escrows on behalf of mortgagors in connection
with the servicing of mortgages; (v) obtain for Aegis such services as may be
required in acquiring and disposing of investments, disbursing and collecting
the funds of Aegis, paying the debts and fulfilling the obligations of Aegis,
and handling, prosecuting and settling any claims of Aegis, including
foreclosing and otherwise enforcing mortgages and other liens securing
investments; (vi) obtain for Aegis such services as may be required for property
management, mortgage brokerage and servicing, and other activities relating to
the investment portfolio of Aegis; (vii) evaluate, structure and negotiate
prepayments or sales of Aegis' mortgage investments and mortgage securities;
(viii) monitor operations and expenses of Aegis; and (ix) from time to time, or
as requested by the Directors, make reports to Aegis as to its performance of
the foregoing services.
The original term of the Advisory Agreement will terminate on October 1, 2001,
the fourth anniversary of its effective date. Thereafter, the Advisory Agreement
may be renewed annually by Aegis, subject to an evaluation of the performance of
the Advisor by the Board of Directors. The Advisory Agreement may be terminated
(i) without Cause by the Advisor or (ii) for Cause by a majority of the
Independent Directors, each without penalty, and each upon 60 days' prior
written notice to the non-terminating party.
The Advisory Agreement cannot be terminated by Aegis prior to October 1, 2001,
other than for Cause. "Cause" is defined as gross negligence or willful
misconduct of the Advisor. Aegis cannot dissolve and liquidate prior to such
anniversary date except upon a recommendation of the Advisor and the vote of a
majority in interest ("Majority Vote") of the Stockholders. After October 1,
2001, the vote of the holders of 66-2/3% of Aegis' then outstanding Shares is
required to approve a dissolution and liquidation of Aegis that is not
recommended by the Advisor and the Majority Vote of Stockholders is required to
approve a liquidation of Aegis recommended by the Advisor. If for any reason,
whether prior to or after October 1, 2001, the Advisory Agreement is terminated
in accordance with its terms, Aegis may dissolve and liquidate upon the Majority
Vote of Stockholders.
Pursuant to the terms of the Advisory Agreement, the Advisor is entitled to
receive the fees and other compensation set forth below:
Fee/Compensation* Amount
----------------- ------
Acquisition Fee 3.75% of the acquisition
price of each property
acquired by Aegis, the
Operating Partnership and
their respective
subsidiaries.
Mortgage Selection Fee 3.0 % of the principal
amount of each mortgage
loan originated or
acquired by Aegis, the
Operating Partnership
and their respective
subsidiaries.
Mortgage Placement Fee 0.75% of the principal
amount of each mortgage
loan originated or
acquired by Aegis, the
Operating Partnership
and their respective
subsidiaries (payable by
the borrower, and not
Aegis).
Asset Management Fee/
Special Distribution
0.375% per annum of
total invested assets
of Aegis, the
Operating Partnership
and their respective
subsidiaries.
Operating Expense Reimbursement For direct expenses
incurred by the Advisor
in an amount not to
exceed $283,462 per
annum (subject to
increase based on
increases in Aegis', the
Operating Partnership's
and their respective
subsidiaries' assets and
to annual increases
based upon increases in
the Consumer Price
Index).
Incentive Share Options The Advisor may receive
options to acquire
additional Shares
pursuant to Aegis'
Incentive Share Option
Plan only if Aegis'
distributions in any
year exceed $0.9869 per
Share (i.e., the 1996
pro forma distributions
set forth Aegis'
Solicitation Statement
dated as of June 15,
1997), and the
Compensation Committee
of the Board of
Directors determines to
grant such options.
Liquidation Fee 1.50% of the gross sales
price of the assets sold
by the Aegis in
connection with a
liquidation of the
Aegis' assets supervised
by the Advisor.
The Advisor is also permitted to earn miscellaneous compensation which may
include, without limitation, construction fees, escrow interest, property
management fees, leasing commissions and insurance brokerage fees. The payment
of any such compensation is generally limited to the competitive rate for the
services being performed.
The Advisor may engage in other business activities related to real estate,
mortgage investments or other investments whether similar or dissimilar to those
made by Aegis, or act as manager to any other person or entity having investment
policies whether similar or dissimilar to those of Aegis. Before the Advisor,
the officers and directors of the Advisor and all persons controlled by the
Advisor and its officers and directors may take advantage of an opportunity for
their own account or present or recommend it to others, they are obligated to
present such investment opportunity to Aegis if (i) such opportunity is of a
character which could be taken by Aegis, (ii) such opportunity is compatible
with Aegis' investment objectives and policies and (iii) Aegis has the financial
resources to take advantage of such opportunity.
The Articles and the Advisory Agreement provide that Aegis will indemnify the
Advisor and its affiliates under certain circumstances.
The Advisor is entitled to subcontract its obligations under the Advisory
Agreement to an affiliate. In accordance with the foregoing, the Advisor has
assigned its rights and obligations to Related.
All of Aegis' twenty-eight properties are managed by RCC Property Advisors, Inc.
(the "Property Manager"), an affiliate of the Advisor. The Property Manager
receives standard leasing commissions for space leased to new tenants and lease
renewals.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Sequential
Page
-----------
(a) 1. Financial Statements
Independent Auditors' Report 22
Consolidated Balance Sheets as of December 31, 2000 and 1999 23
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998 24
Consolidated Statements of Changes in Shareholders'
Equity/Partners' Capital (Deficit) for the years ended
December 31, 2000, 1999 and 1998 25
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 26
Notes to Consolidated Financial Statements 28
(a) 2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
three years ended December 31, 2000 48
Schedule III - Real Estate and Accumulated Depreciation and
Notes to Schedule at December 31, 2000 49
Schedule IV - Mortgage Loans on Real Estate at December 31,
2000 51
All other schedules have been omitted because they are not required or
because the required information is contained in the financial
statements or notes hereto.
(a) 3. Exhibits
(3.1A) Articles of Incorporation dated as of August 13, 1996 (incorporated
by reference to the Company's Registration Statement on Form
10, File No. 001-13239)
(3.1B) Amended Articles of Incorporation dated as of September 26, 1996
(incorporated by reference to the Company's Registration Statement on
Form 10, File No. 001-13239)
(3.1C) Articles of Amendment and Restatement of Articles of Incorporation
dated as of October 1, 1997 (incorporated by reference to the Company's
Registration Statement on Form 10, File No. 001-13239)
(3.1D) Certificate of Correction dated as of October 22, 1997 (incorporated by
reference to the Company's Current Report on Form 8-K, filed with the
Commission on March 19, 1998)
(3.2) Bylaws (incorporated by reference to the Company's Current Report on
Form 8-K, filed with the Commission on March 19, 1998)
(4.1) Specimen Copy of Stock Certificate for shares of the Company's Common
Stock (incorporated by reference to the Company's Amendment No. 1 on
Form 10/A to the Company's Registration Statement on Form 10, File No.
001-13239)
(10A) Continental Casualty Company Insurance Policy issued to the Company
(incorporated by reference to Exhibit 10(C) to the Company's
Registration Statement on Form S-11, File No.
33-8755, as amended)
(10B) Indemnity Agreement among Continental Casualty Company, the Company and
the General Partners (incorporated by reference to Exhibit 10(D) to the
Company's Registration Statement on Form S-11, File No. 33-8755, as
amended)
(10C) Secured Promissory Note between Principal Mutual Life Insurance Company
and Insured II dated December 11, 1992 (incorporated by reference to
Exhibit 10F to Insured II's Annual Report on Form 10-K for the year
ended December 31, 1992)
(10D) Form of Purchase and Sale Agreement pertaining to Summit Preferred's
acquisition of Preferred Equity Investments (incorporated herein by
reference to exhibit 10C to Summit Preferred's S-11 Registration
Statement)
(10E) Form of Amended and Restated Agreement of Limited Partnership of
Operating Partnerships (incorporated herein by reference to Exhibit 10B
to Summit Preferred's S-11 Registration Statement)
(10F) Mortgage Note, dated June 10, 1988, with respect to Cross Creek
Apartments in Charlotte, North Carolina, in the principal amount of
$17,494,100 (incorporated by reference to Exhibit 10(b) in Eagle's
Current Report on Form 8-K dated June 15, 1988)
(10G) Equity Loan Note, dated June 10, 1988, with respect to Cross Creek
Apartments in Charlotte, North Carolina, in the principal amount of
$1,783,900 (incorporated by reference to Exhibit 10(c) in Eagle's
Current Report on Form 8-K dated June 15, 1988)
(10H) Subordinated Loan Note, dated June 10, 1988, with respect to Cross
Creek Apartments in Charlotte, North Carolina (incorporated by
reference to Exhibit 10(d) in Eagle's Current Report on Form 8-K dated
June 15, 1988)
(10I) Mortgage Note, dated August 18, 1988, with respect to Weatherly Walk
Apartments in Fayetteville, Georgia, in the principal amount of
$7,772,500 (incorporated by reference to Exhibit 10(e) in Eagle's
Current Report on Form 8-K dated August 19, 1988)
(10J) Equity Loan Note, dated August 18, 1988, with respect to Weatherly Walk
Apartments in Fayetteville, Georgia, in the principal amount of
$895,200 (incorporated by reference to Exhibit 10(f) in Eagle's Current
Report on Form 8-K dated August 19, 1988)
(10K) Subordinated Loan Note, dated August 18, 1988, with respect to
Weatherly Walk Apartments in Fayetteville, Georgia (incorporated by
reference to Exhibit 10(g) in Eagle's Current Report on Form 8-K dated
August 19, 1988)
(10L) Mortgage Note, dated December 12, 1988, with respect to Woodgate Manor
in Gainesville, Florida, in the principal amount of $3,110,300
(incorporated by reference to Exhibit 10(h) in Eagle's Current Report
on Form 8-K dated December 12, 1988)
(10M) Equity Loan Note, dated December 12, 1988, with respect to Woodgate
Manor in Gainesville, Florida, in the principal amount of $339,700
(incorporated by reference to Exhibit 10(i) in Eagle's Current Report
on Form 8-K dated December 12, 1988)
(10N) Subordinated Promissory Note, dated December 12, 1988, with respect to
Woodgate Manor in Gainesville, Florida (incorporated by reference to
Exhibit 10(j) in Eagle's Current Report on Form 8-K dated December 12,
1988)
(10O) Advisory Agreement dated as of October 1, 1997, between the Company,
Aegis Realty Operating Partnership, LP (the "OP") and Related Aegis LP
(the "Advisor") (incorporated by reference to the Company's Current
Report on Form 8-K, filed with the Commission on March 19, 1998)
(10P) Agreement and Plan of Consolidation dated as of October 1,
1997, by and among the Company, the OP, Aegis Realty Holding
Partnership, LP ("Aegis Holding"), AOP Merger Sub I, Inc.
("AOP Sub I"), AOP Merger Sub II, Inc. ("AOP Sub II"),
Summit Insured Equity L.P. ("Insured I"), Summit Insured
Equity II L.P. ("Insured II"), Summit Preferred Equity L.P.
("Summit Preferred"), Eagle Insured L.P. ("Eagle"), the
Advisor, Related Insured Equity Associates, Inc. ("Related
GP I"), RIDC II, L.P. ("Related GP II"), Related Equity
Funding, Inc. ("Related GP III"), Partnership Monitoring
Corporation ("PMC"), Related Federal Insured, L.P. ("Related
GP IV"), Related Insured BUC$ Associates, Inc., as assignor
limited partner of Insured I and Insured II ("Assignor LP
I/II"), Related BUC$ Associates, Inc. ("Assignor LP III")
and Related FI BUC$, Inc. ("Assignor LP IV") (incorporated
by reference to the Company's Current Report on Form 8-K,
filed with the Commission on March 19, 1998)
(10Q) Incentive Share Option Plan (incorporated by reference to the Company's
Current Report on Form 8-K, filed with the Commission on March 19,
1998)
(10R) Omnibus Assignment Agreement dated as of October 1, 1997, by and among
the Company, the OP, Aegis Holding, AOP Sub I, AOP Sub II, Insured I,
Insured II, Summit Preferred, Eagle, the Advisor, Related GP I, Related
GP II, Related GP III, PMC, Assignor LP I/II, Assignor LP III and
Assignor LP IV (incorporated by reference to the Company's Current
Report on Form 8-K, filed with the Commission on March 19, 1998)
(10S) Revolving Credit Agreement dated as of December 29, 1997 by and between
the OP, as borrower and BankBoston, N.A. for itself and as Agent
(incorporated by reference to the Company's Current Reports on Form
8-K, filed with the Commission on January 9, 1998)
(10T) Management Agreement between the Company, Insured I, Insured II, the OP
and the Property Manager dated October 1, 1997 (incorporated by
reference to Exhibit 10Z in the Company's Annual Report on Form 10-K
for the period ended December 31, 1997)
21 List of Subsidiaries (filed herewith) 52
(b) Reports on Form 8-K
Current report on Form 8-K relating to the resignation of J. Michael
Fried as Chairman of the Board of Directors and Chief Executive Officer
and Stuart J. Boesky as Chief Operating Officer and the unanimous
appointment of Stuart J. Boesky as Chairman of the Board of Directors
and Chief Executive Officer and Michael J. Brenner as a Director was
dated December 16, 1999 and was filed on January 5, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AEGIS REALTY, INC.
(Company)
Date: March 29, 2001 By: ______________________________
Stuart J. Boesky
Director, Chairman of the Board,
President and Chief Executive
Officer
Date: March 29, 2001 By: ______________________________
Michael I. Wirth
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Signature Title Date
------------------- ----------------------------------- -----------------
-------------------- Director, Chairman of the Board,
Stuart J. Boesky President and Chief Executive Officer March 29, 2001
-------------------
Michael J. Brenner Director March 29, 2001
-------------------
Alan P. Hirmes Director and Senior Vice President March 29, 2001
-------------------
Peter T. Allen Director March 29, 2001
-------------------
Arthur P. Fisch Director March 29, 2001
------------------- Senior Vice President and
Michael I. Wirth Chief Financial Officer March 29, 2001
-------------------
Gary J. Parkinson Treasurer and Controller March 29, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AEGIS REALTY, INC.
(Company)
Date: March 29, 2001 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Director, Chairman of the Board,
President and Chief Executive
Officer
Date: March 29, 2001 By: /s/ Michael I. Wirth
--------------------
Michael I. Wirth
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Signature Title Date
------------------- ----------------------------------- -----------------
/s/ Stuart J. Boesky Director, Chairman of the Board,
-------------------- President and Chief Executive Officer March 29, 2001
Stuart J. Boesky
/s/ Michael J. Brenner
----------------------
Michael J. Brenner Director March 29, 2001
/s/ Alan P. Hirmes
------------------
Alan P. Hirmes Director and Senior Vice President March 29, 2001
/s/Peter T. Allen
-----------------
Peter T. Allen Director March 29, 2001
/s/ Arthur P. Fisch
-------------------
Arthur P. Fisch Director March 29, 2001
/s/ Michael I. Wirth Senior Vice President and
-------------------- Chief Financial Officer March 29, 2001
Michael I. Wirth
/s/ Gary J. Parkinson
---------------------
Gary J. Parkinson Treasurer and Controller March 29, 2001
AEGIS REALTY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance
Year Ended Beginning During Deduction- at End of
December 31 Name of Period* Year* Write-offs* Period
----------- -------------- ---------- ----- ----------- --------
2000 Allowance for Doubtful Accounts $343,000 $360,000 $(320,000) $383,000
1999 Allowance for Doubtful Accounts $383,000 $384,000 $(424,000) $343,000
1998 Allowance for Doubtful Accounts $304,000 $428,000 $(349,000) $383,000
AEGIS REALTY, INC.
ITEM 14, SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
Cost Capitalized
Subsequent to
Initial Cost to Partnership(F) Acquisition Purchase Price Adjustments(E)
----------------------------- ------------ ----------------------------
Encum- Buildings and Buildings and
brances Land Improvements Improvements Land Improvements
---------- ------------ -------------- ------------- ------------- -----------
Shopping Centers:
Cactus Village $ 0 $ 2,093,532 $ 4,631,948 $ 33,517 $ (42,583) $ (67,253)
Glendale, AZ
Hickory Plaza (H) 1,288,328 3,931,633 18,291 (3,750) 69,166
Nashville, TN
Highland Fair 0 1,288,328 5,059,079 138,661 (67,968) 15,951
Gresham, OR
Pablo Plaza (H) 2,147,213 5,922,120 508,141 (7,866) 789,857
Jacksonville, FL
Southhaven (H) 1,288,328 4,793,938 31,050 0 (1,635)
Southhaven, MS
Town West (H) 1,932,491 3,303,752 20,814 0 18,094
Indianapolis, IN
Westbird (H) 1,566,070 5,475,510 660,577 2,474 2,296,027
Miami, FL
Winery Square (H) 4,320,555 8,916,731 157,429 (227,319) (421,703)
Fairfield, CA
Mountain View (H) 2,675,960 8,661,498 88,972 (143,357) (538,770)
Village
Shellville, GA
Forest Park Square 0 1,532,064 7,841,725 10,000 494,430 (81,321)
Cincinnati, OH
Kokomo Plaza (H) 695,912 6,643,748 31,557 (8,784) (5,496)
Kokomo, IN
Rolling Hills Square (H) 2,624,639 2,516,365 (7) 332,233 839,908
Tucson, AZ
Mountain Park Plaza 0 1,566,015 3,791,633 0 0 96,325
Atlanta, GA
Applewood Centre (H) 1,795,469 4,574,757 0 0 (4,279)
Omaha, NE
Birdneck Center (H) 469,227 2,837,048 0 0 63,313
Virginia Beach, VA
The Market Place (H) 810,910 4,875,966 0 0 240,801
Newton, NC
Barclay Place 2,523,267 573,079 3,452,804 28,402 0 201,081
Lakeland, FL
The Village At 3,800,498 940,193 5,629,239 0 0 62,260
Waterford
Midlothian, VA
Governor's Square (H) 1,220,408 7,297,832 14,401 0 1,293,999
Montgomery, AL
Marion City (H) 765,950 4,619,926 0 0 95,560
Square
Marion, NC
Dunlop Village (H) 751,518 4,505,067 0 0 36,711
Colonial Heights,
VA
Centre Stage (H) 1,052,698 6,305,930 0 0 336,999
Springfield, TN
White Oaks Plaza 0 1,237,309 7,445,072 0 0 0
Spindale, NC
Cape Henry (H) 587,486 3,548,028 0 0 47,549
Virginia Beach,
VA
Emporia West (H) 435,001 2,679,059 0 0 62,815
Emporia, KS
Oxford Mall 6,290,934 1,289,377 7,745,666 0 0 161,989
Oxford, MS
Southgate 10,664,906 2,269,668 13,391,965 0 0 327,236
Heath, OH
Crossroads East (H) 721,798 4,273,252 0 0 0
Columbus, OH
------------- ------------- ------------- ------------- ------------- -------------
$ 64,972,605 $ 39,939,526 $ 154,671,291 $ 1,741,805 $ 327,510 $ 5,935,184
============= ============= ============= ============= ============= =============
Gross Amount at which Depreciation
Carried At Close of Period (D) in Latest
-------------------------------------- Income
Buildings and Accumulated Year of Date Statement
Land Improvements Total Depreciation Construction Acquired is Computed
--------- ------------- -------- ------------- ------------ ----------- -----------
Shopping Centers:
Cactus Village $ 2,050,949 $ 4,598,212 $ 6,649,161 $ 1,573,715 1986 July 1987 40 years
Glendale, AZ
Hickory Plaza 1,284,578 4,019,090 5,303,668 1,362,558 1974 (A) Apr. 1987 40 years
Nashville, TN
Highland Fair 1,220,360 5,213,691 6,434,051 1,717,374 1986 July 1987 40 years
Gresham, OR
Pablo Plaza 2,139,347 7,220,118 9,359,465 2,132,725 1972 (B) Feb. 1987 40 years
Jacksonville, FL
Southhaven 1,288,328 4,823,353 6,111,681 1,639,810 1984 (C) Feb. 1987 40 years
Southhaven, MS
Town West 1,932,491 3,342,660 5,275,151 1,160,556 1985 May 1987 40 years
Indianapolis, IN
Westbird 1,568,544 8,432,114 10,000,658 2,129,054 1977 Dec. 1986 40 years
Miami, FL
Winery Square 4,093,236 8,652,457 12,745,693 2,875,148 1987 Dec. 1987 40 years
Fairfield, CA
Mountain View 2,532,603 8,211,700 10,744,303 2,482,739 1987 July 1988 40 years
Village
Shellville, GA
Forest Park Square 2,026,494 7,770,404 9,796,898 2,298,871 1988 May 1989 40 years
Cincinnati, OH
Kokomo Plaza 687,128 6,669,809 7,356,937 1,953,899 1988 May 1989 40 years
Kokomo, IN
Rolling Hills Square 2,956,872 3,356,266 6,313,138 365,886 1980 Oct. 1997 30.5 years
Tucson, AZ
Mountain Park Plaza 1,566,015 3,887,958 5,453,973 394,960 1988 Oct. 1997 31.2 years
Atlanta, GA
Applewood Centre 1,795,469 4,570,478 6,365,947 452,251 1989 Oct. 1997 33.1 years
Omaha, NE
Birdneck Center 469,227 2,900,361 3,369,588 269,603 1987 (G) Dec. 1997 40 years
Virginia Beach, VA
The Market Place 810,910 5,116,767 5,927,677 341,901 1989 Dec. 1997 40 years
Newton, NC
Barclay Place 573,079 3,682,287 4,255,366 260,779 1974 (J) Mar. 1998 40 years
Lakeland, FL
The Village At 940,193 5,691,499 6,631,692 387,987 1991 Apr. 1998 40 years
Waterford
Midlothian, VA
Governor's Square (H) 1,220,408 8,606,232 9,826,640 544,560 1960 (K) May 1998 40 years
Montgomery, AL
Marion City 765,950 4,715,486 5,481,436 301,041 1988 June 1998 40 years
Square
Marion, NC
Dunlop Village 751,518 4,541,778 5,293,296 268,060 1986 Sep. 1998 40 years
Colonial Heights,
VA
Centre Stage 1,052,698 6,642,929 7,695,627 397,701 1989 Sep. 1998 40 years
Springfield, TN
White Oaks Plaza 1,237,309 7,445,072 8,682,381 434,066 1988 Sep. 1998 40 years
Spindale, NC
Cape Henry 587,486 3,595,577 4,183,063 210,025 1986 Sep. 1998 40 years
Virginia Beach,
VA
Emporia West 435,001 2,741,874 3,176,875 149,888 1980 Nov. 1998 40 years
Emporia, KS
Oxford Mall 1,289,377 7,907,655 9,197,032 424,731 1982 Nov. 1998 40 years
Oxford, MS
Southgate 2,269,668 13,719,201 15,988,869 706,236 1962 (L) Dec. 1998 40 years
Heath, OH
Crossroads East 721,799 4,273,257 4,995,056 222,473 1984 (M) Dec. 1998 40 years
Columbus, OH
------------- ------------ ------------ -----------
$ 40,267,037 $162,348,285 $202,615,322 $27,458,593
============= ============ ============ ===========
(A) Renovated and expanded in 1985.
(B) Expanded and remodeled from 1983 through
1985.
(C) Expanded in 1986.
(D) Aggregate cost for federal income tax purposes is $182,330,530.
(E) Amounts received and accrued from sellers' rental guarantees from the
sellers of the properties purchased by the Company.
(F) Included in buildings and improvements are acquisition fees.
(G) Expanded in 1997.
(H) This shopping center is part of a pool of assets collateralizing the Credit
Facility which has an outstanding balance of $41,693,000 at December 31,
2000.
(J) Renovated and expanded in 1988.
(K) Developed and renovated in four phases from 1960 through 1990.
(L) Renovated in 1984 and from 1996 through 1997.
(M) Renovated from 1996 through 1997.
Reconciliation of Real Estate Owned:
2000 1999 1998
-------------- ---------- -------------
Balance at beginning of period: $196,037,997 $194,144,910 $111,042,804
Acquisitions 557,823 714,293 82,423,329
Dispositions (46,077) 0 0
Improvements 6,227,319 1,753,345 703,687
Write-off of improvements (161,740) (574,551) (24,910)
----------- ----------- -----------
Balance at close of period: $202,615,322 $196,037,997 $194,144,910
=========== =========== ===========
Reconciliation of Accumulated Depreciation:
2000 1999 1998
-------------- ------------- -------------
Balance at beginning of period: $23,253,033 $ 19,268,330 $ 16,404,617
Depreciation Expense 4,338,565 4,114,002 2,880,114
Write-off of accumulated
deprecitaion on improvements (133,005) (129,299) (16,401)
------------ ----------- ------------
Balance at close of period: $ 27,458,593 $ 23,253,033 $ 19,268,330
=========== =========== ===========
AEGIS REALTY, INC. AND SUBSIDIARIES
Schedule IV - Mortgage Loans on Real Estate
December 31, 2000
Original Carrying
Final Periodic Face Amount Amount
Interest Closing Maturity Payment Prior of Mortgage of Mortgage
Description (1) Rate (2) Date Date(3)(5) Terms (4) Liens Loan Loan (6)(7)(8)
--------------- -------- ---- ---------- --------- ----- ---- --------------
First Mortgage Loan:
Woodgate Manor(9) 8.95% 12/12/88 1/1/24 Monthly None $3,110,300 $3,170,322
(1) The property is a multifamily residential apartment complex.
(2) Includes a servicing fee of 0.07% paid by the mortgagor to Related Mortgage
Corporation (an affiliate of the Advisor).
(3) As of December 13, 1998, the Company may call for prepayment of the entire
outstanding principal amount at any time, subject to the loss of the
co-insurance feature.
(4) Monthly payments include principal and interest and are made at a level
amount over the life of the mortgage loan until maturity. See discussion
regarding additional interest in Item 1, "Business-Mortgage Loans."
(5) As of December 13, 1998, the Borrower may elect to prepay at any time
without incurring prepayment penalties.
(6) Carrying amount of mortgage loans:
2000 1999
--------- ----------
Beginning balance $3,220,191 $3,267,037
Amortization of purchase accounting premiums (14,430) (14,430)
Collections of principal (35,439) (32,416)
--------- ---------
Ending Balance $3,170,322 $3,220,191
========= =========
(7) The aggregate cost of the mortgage loan for Federal income tax purposes at
December 31, 2000 is $2,838,429. The difference in aggregate cost is due to the
purchase accounting premium recorded for financial statement purposes.
(8) The mortgage loan is current with respect to principal and interest.
(9) The general partnership interest of the mortgagor is held by an affiliate of
the Advisor.