Glimcher Realty Trust 10-K 2010
Documents found in this filing:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-12482
GLIMCHER REALTY TRUST
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code: (614) 621-9000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]>
Indicated by check mark if the Registrant is not required to file reports pursuant to Section 12 or Section 15(d) of the Securities Exchange Act of 1934. Yes [_] No [X]>
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] 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 [_].
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_] (Do not check if a smaller reporting company) Smaller reporting company [_]>
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]>
As of March 10, 2010, there were 68,911,070 Common Shares of Beneficial Interest outstanding, par value $0.01 per share.
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant’s Common Shares of Beneficial Interest as quoted on the New York Stock Exchange on June 30, 2009, was $104,718,771.
Documents Incorporated By Reference
Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K with respect to the Annual Meeting of Shareholders to be held on June 4, 2010 are incorporated by reference into Part III of this Report.
This Form 10-K, together with other statements and information publicly disseminated by Glimcher Realty Trust (“GRT,” the “Company” or the “Registrant”), contains certain 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 statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements. Risks and other factors that might cause differences, some of which could be material, include, but are not limited to: to changes in political, economic or market conditions generally and the real estate and capital markets specifically; impact of increased competition; availability of capital and financing; tenant or joint venture partner(s) bankruptcies; failure to increase mall store occupancy and same-mall operating income; rejection of leases by tenants in bankruptcy; financing and development risks; construction and lease-up delays; cost overruns; the level and volatility of interest rates; the rate of revenue increases as compared to expense increases; the financial stability of tenants within the retail industry; the failure of the Company to make additional investments in regional mall properties and to redevelop properties; failure to complete proposed or anticipated acquisitions; the failure to sell properties as anticipated and to obtain estimated sale prices; the failure to upgrade our tenant mix; restrictions in current financing arrangements; the Company’s failure to comply or remain in compliance with the covenants in its debt instruments, including, but not limited to, the covenants under its corporate credit facility; the failure to fully recover tenant obligations for common area maintenance (“CAM”); insurance, taxes and other property expenses; the impact of changes to tax legislation and, generally, our tax position; the failure of the Company to qualify as a real estate investment trust (“REIT”); the failure to refinance debt at favorable terms and conditions; an increase in impairment charges with respect to other properties as well as impairment charges with respect to properties for which there has been a prior impairment charge; loss of key personnel; material changes in the Company’s dividend rates on its securities or the ability to pay its dividend on its common shares or other securities; possible restrictions on our ability to operate or dispose of any partially-owned properties; failure to achieve earnings/funds from operations targets or estimates; conflicts of interest with existing joint venture partners; changes in generally accepted accounting principles or interpretations thereof; terrorist activities and international hostilities, which may adversely affect the general economy, domestic and global financial and capital markets, specific industries and us; the unfavorable resolution of legal proceedings; the impact of future acquisitions and divestitures; significant costs related to environmental issues, bankruptcies of lending institutions within the Company’s construction loans and corporate credit facility as well as other risks listed from time to time and in the Company’s other reports and statements filed with the Securities and Exchange Commission (“SEC”).
Item 1. Business
(a) General Development of Business
GRT, Glimcher Properties Limited Partnership (the “Operating Partnership,” “OP” or “GPLP”) and entities directly or indirectly owned or controlled by GRT, on a consolidated basis, are hereinafter referred to as the “Company,” “we,” “us,” or “our.”
GRT is a fully-integrated, self-administered and self-managed Maryland real estate investment trust (“REIT”) which was formed on September 1, 1993 to continue the business of The Glimcher Company (“TGC”) and its affiliates, of owning, leasing, acquiring, developing and operating a portfolio of retail properties consisting of regional and super regional malls, open air lifestyle centers, and community shopping centers. Enclosed regional and super regional malls and open air lifestyle centers in which we hold an ownership position (including joint venture interests) are referred to as “Malls” and community shopping centers in which we hold an ownership position (including joint venture interests) are referred to as “Community Centers.” The Malls and Community Centers may from time to time be individually referred to herein as a “Property” and collectively referred to herein as the “Properties.” On January 26, 1994, GRT consummated an initial public offering (the “IPO”) of 18,198,000 of its common shares of beneficial interest (the “Common Shares”) including 2,373,750 over allotment option shares. The net proceeds of the IPO were used by GRT primarily to acquire (at the time of the IPO) an 86.2% interest in the Operating Partnership, a Delaware limited partnership of which Glimcher Properties Corporation (“GPC”), a Delaware corporation and a wholly owned subsidiary of GRT, is sole general partner. At December 31, 2009, GRT held a 95.5% interest in the Operating Partnership.
The Company does not engage or pay a REIT advisor. Management, leasing, accounting, legal, design and construction supervision expertise is provided through its own personnel, or, where appropriate, through outside professionals.
(b) Narrative Description of Business
General: The Company is a recognized leader in the ownership, management, acquisition and development of malls, which includes enclosed regional malls and open-air lifestyle centers, as well as community centers. At December 31, 2009, the Properties consisted of 21 operating Malls (19 wholly-owned and 2 partially owned through a joint venture) containing an aggregate of 19.1 million square feet of gross leasable area (“GLA”) and 4 Community Centers (three wholly owned and one partially owned through a joint venture) containing an aggregate of 779,000 square feet of GLA. The Company’s development property in Scottsdale, Arizona is excluded from its operating statistics at December 31, 2009.
For purposes of computing occupancy statistics, anchors are defined as tenants whose space is equal to or greater than 20,000 square feet of GLA. This definition is consistent with the industry’s standard definition determined by the International Council of Shopping Centers (“ICSC”). All tenant spaces less than 20,000 square feet and all outparcels are considered to be non-anchor. The Company computes occupancy on an economic basis, which means only those spaces where the store is open and/or the tenant is paying rent are considered occupied, excluding all tenants with leases having an initial term of less than one year. The Company includes GLA in its occupancy statistics for certain anchors and outparcels that are owned by third parties. Mall anchors, which are owned by third parties and are open and/or are obligated to pay the Company charges, are considered occupied when reporting occupancy statistics. Community Center anchors owned by third parties are excluded from the Company’s GLA. These differences in treatment between Malls and Community Centers are consistent with industry practice. Outparcels at both Community Center and Mall Properties are included in GLA if the Company owns the land or building. The outparcels where a third party owns the land and buildings, but contributes nominal ancillary charges are excluded from GLA.
As of December 31, 2009, the occupancy rate for all of the Properties was 93.3% of GLA. The occupied GLA was leased at 82.6%, 10.3% and 7.1% to national, regional and local retailers, respectively. The Company’s focus is to maintain high occupancy rates for the Properties by capitalizing on management’s long-standing relationships with national and regional tenants and its extensive experience in marketing to local retailers.
As of December 31, 2009, the Properties had annualized minimum rents of $200.8 million. Approximately 77.9%, 8.3% and 13.8% of the annualized minimum rents of the Properties as of December 31, 2009 were derived from national, regional and local retailers, respectively. No single tenant represents more than 2.6% of the aggregate annualized minimum rents of the Properties as of December 31, 2009.
Malls: The Malls provide a broad range of shopping alternatives to serve the needs of customers in all market segments. Each Mall is anchored by multiple department stores such as Belk’s, The Bon-Ton, Boscov’s, Dillard’s, Elder-Beerman, Herberger’s, JCPenney, Kohl’s, Macy’s, Nordstrom, Saks, Sears, and Von Maur. Mall stores, most of which are national retailers, include Abercrombie & Fitch, American Eagle Outfitters, Banana Republic, Barnes & Noble, Bath & Body Works, Finish Line, Foot Locker, Forever 21, Gap, Hallmark, Kay Jewelers, The Limited, Express, New York & Company, Old Navy, Pacific Sunwear, Radio Shack, and Victoria’s Secret. To provide a complete shopping, dining and entertainment experience, the Malls generally have at least one restaurant, a food court which offers a variety of fast food alternatives, and, in certain Malls, multiple screen movie theaters, fitness centers and other entertainment activities. Our largest operating Mall has approximately 1.6 million square feet of GLA and approximately 182 stores, while our smallest has approximately 417,000 square feet of GLA and approximately 63 stores. The Malls also have additional restaurants and retail businesses, such as Benihana, P.F. Chang’s, Cheesecake Factory, The Palm, and Red Lobster, located along the perimeter of the parking areas.
As of December 31, 2009, the Malls accounted for 96.1% of the total GLA, 96.0% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 93.3%.
Community Centers: The Company’s Community Centers are designed to attract local and regional area customers and are typically anchored by a combination of discount department stores or supermarkets which attract shoppers to each center’s smaller shops. The tenants at the Company’s Community Centers typically offer day-to-day necessities and value-oriented merchandise. Community Center anchors include nationally recognized retailers such as Best Buy, Old Navy and Target, and supermarkets such as Kroger. Many of the Community Centers have retail businesses or restaurants located along the perimeter of the parking areas.
As of December 31, 2009, Community Centers accounted for 3.9% of the total GLA, 4.0% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 91.7%.
Growth Strategies and Operating Policies: Management of the Company believes per share growth in both net income and funds from operations (“FFO”) are important factors in enhancing shareholder value. The Company believes that the presentation of FFO provides useful information to investors and a relevant basis for comparison among REITs. Specifically, the Company believes that FFO is a supplemental measure of the Company’s operating performance as it is a recognized standard in the real estate industry, in particular, REITs. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders (computed in accordance with Generally Accepted Accounting Principles (“GAAP”)), excluding gains or losses from sales of depreciable property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. FFO does include impairment losses for properties held-for-use and held-for-sale. The Company’s FFO may not be directly comparable to similarly titled measures reported by other REITs. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. A reconciliation of FFO to net income available to common shareholders is provided in Item 7 of this Form 10-K.
GRT intends to operate in a manner consistent with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), applicable to REITs and related regulations with respect to the composition of the Company’s portfolio and the derivation of income unless, because of circumstances or changes in the Code (or any related regulation), the GRT Board of Trustees determines that it is no longer in the best interests of GRT to qualify as a REIT.
The Company’s growth strategy is to upgrade the quality of our portfolio of assets. We focus on selective acquisitions, redevelopment of our core Mall assets, the disposition of non-strategic assets, and ground-up development in markets with high growth potential. Our development and acquisition strategy is focused on dominant anchored retail properties within the top 100 metropolitan markets by population that have near-term upside potential or offer advantageous opportunities for the Company.
The Company acquires and develops its Properties as long-term investments. Therefore, its focus is to provide for regular maintenance of its Properties and to conduct periodic renovations and refurbishments to preserve and increase Property values while also increasing the retail sales prospects of its tenants. The projects usually include renovating existing facades, installing uniform signage, updating interior decor, replacement of roofs and skylights, resurfacing parking lots and increasing parking lot lighting. To meet the needs of existing or new tenants and changing consumer demands, the Company also reconfigures and expands its Properties, including utilizing land available for expansion and development of outparcels or the addition of new anchors. In addition, the Company works closely with its tenants to renovate their stores and enhance their merchandising capabilities.
Financing Strategies: At December 31, 2009, the Company had a total-debt-to-total-market-capitalization ratio of 79.6% based upon the closing price of the Common Shares on the New York Stock Exchange (“NYSE”). A sharp reduction in our Common Share price has resulted in a ratio above our targeted range of 50 - 60%. With the volatility in our Common Share price during 2009, similar to that of other REITs, we also look at other metrics to assess overall leverage levels. We expect to use the proceeds from our recent public offering of Common Shares which closed on September 22, 2009, along with future asset sales, to reduce our outstanding debt and, to the extent debt levels remain in an acceptable range, to fund expansion, renovation and redevelopment of existing Properties. The Company expects that it may, from time to time, re-evaluate its policy with respect to its ratio of total-debt-to-total-market capitalization in light of then current economic conditions; relative costs of debt and equity capital; market values of its Properties; acquisition, development and expansion opportunities; and other factors, including meeting the taxable income distribution requirement for REITs under the Code in the event the Company has taxable income without receipt of cash sufficient to enable the Company to meet such distribution requirements. The Company’s preference is to obtain fixed rate, long-term debt for its Properties. At December 31, 2009, 82.1% of total Company debt was fixed rate. Shorter term and variable rate debt typically is employed for Properties anticipated to be expanded or redeveloped.
Competition: All of the Properties are located in areas that have competing shopping centers and/or malls and other retail facilities. Generally, there are other retail properties within a five-mile radius of a Property. The amount of rentable retail space in the vicinity of the Company’s Properties could have a material adverse effect on the amount of rent charged by the Company and on the Company’s ability to rent vacant space and/or renew leases of such Properties. There are numerous commercial developers, real estate companies and major retailers that compete with the Company in seeking land for development, properties for acquisition and tenants for properties, some of which may have greater financial resources than the Company and more operating or development experience than that of the Company. There are numerous shopping facilities that compete with the Company’s Properties in attracting retailers to lease space. In addition, retailers at the Properties may face increasing competition from e-commerce, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks.
Employees: At December 31, 2009, the Company had an aggregate of 1,038 employees, of which 486 were part-time.
Seasonality: The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season.
Tax Status: GRT believes it has been organized and operated in a manner that qualifies for taxation as a REIT and intends to continue to be taxed as a REIT under Sections 856 through 860 of the Code. As such, GRT generally will not be subject to federal income tax to the extent it distributes at least 90.0% of its REIT ordinary taxable income to its shareholders. Additionally, the Company must satisfy certain requirements regarding its organization, ownership and certain other conditions, such as a requirement that its shares be transferable. Moreover, the Company must meet certain tests regarding its income and assets. At least 75.0% of the Company’s gross income must be derived from passive income closely connected with real estate activities. In addition, 95.0% of the Company’s gross income must be derived from these same sources, plus dividends, interest and certain capital gains. To meet the asset test, at the close of each quarter of the taxable year, at least 75.0% of the value of the total assets must be represented by real estate assets, cash and cash equivalent items (including receivables), and government securities. Additionally, to qualify as a REIT, there are several rules limiting the amount and type of securities that GRT can own, including the requirement that not more than 25.0% of the value of its total assets can be represented by securities. If GRT fails to meet the requirements to qualify for REIT status, the Company may cease to qualify as a REIT and may be subject to certain penalty taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. As a qualified REIT, the Company is subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income.
(c) Available Information
GRT files this Form 10-K and other periodic reports and statements electronically with the SEC. The SEC maintains an Internet site that contains reports, statements and proxy and information statements, and other information provided by issuers at http://www.sec.gov. GRT’s reports, including amendments, are also available free of charge on its website, www.glimcher.com, as soon as reasonably practicable after such reports are filed with the SEC.
Item 1A. Risk Factors
A number of factors affect our business and the results of our operations, many of which are beyond our control. The following is a description of the most significant factors that might cause the actual results of operations in future periods to differ materially from those currently expected or desired.
We are subject to risks inherent in owning real estate investments.
Real property investments are subject to varying degrees of risk. Our ability to make dividend distributions, as well as the amount or timing of any distribution, may be adversely affected by the economic climate, business conditions, and certain local conditions including:
· oversupply of space or reduced demand for rental space and newly developed properties;
· the attractiveness of our properties compared to other retail space;
· our ability to provide adequate maintenance to our properties; and
· fluctuations in real estate taxes, insurance, and other operating costs.
Applicable laws, including tax laws, interest rate levels and the availability of financing, may adversely affect our income and real estate values. In addition, real estate investments are relatively illiquid and, therefore, our ability to sell our properties quickly may be limited. We cannot be sure that we will be able to lease space as tenants move out or as to the rents we may be able to charge new tenants entering such space.
Some of our potential losses may not be covered by insurance.
We maintain broad property, business interruption, and third-party liability insurance on our consolidated real estate assets as well as those held in joint ventures in which we have an investment interest. Regardless of our insurance coverage, insured losses could cause a serious disruption to our business and reduce or delay our operations and receipt of revenue. In addition, certain catastrophic perils are subject to very large deductibles that may cause an adverse impact on our operating results. Lastly, some types of losses, including lease and other contractual claims, are not currently covered by our insurance policies. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital that we have invested in a property. If this happens, we may still remain obligated for any mortgage debt or other financial obligations related to the property or group of impacted properties.
Our insurance policies include coverage for acts of terrorism by foreign or domestic agents. The United States government provides reinsurance coverage to insurance companies following a declared terrorism event under the Terrorism Risk Insurance Program Reauthorization Act (the “Act”) which extended the effectiveness of the Terrorism Risk Insurance Extension Act of 2005. The Act is designed to reinsure the insurance industry from declared terrorism events that cause or create in excess of $100 million in damages or losses. The United States government could terminate its reinsurance of terrorism, thus increasing the risk of uninsured exposure to the Company for such acts.
We rely on major tenants.
At December 31, 2009, our four largest tenants were Gap, Inc., Limited Brands, Inc., AMC Theater, and Signet Jewelers, Ltd, representing 2.6%, 2.5%, 2.1% and 2.1% of our annualized minimum rents, respectively. No other tenant represented more than 2.0% of the aggregate annualized minimum rents of our properties as of such date. Our financial position and ability to make distributions may be adversely affected by the bankruptcy, insolvency or general downturn in the business of any such tenant as well as requests from such tenants for significant rent relief or other lease concessions, or if any such tenant does not renew a number of its leases as they expire.
Bankruptcy of our tenants or downturns in our tenants’ businesses may reduce our cash flow.
Since we derive almost all of our income from rental payments and other tenant charges, our cash available for distribution would be adversely affected if a significant number of our tenants were unable to meet their obligations to us, or if we were unable to lease vacant space in our properties on economically favorable terms. A tenant may seek the protection of the bankruptcy laws which could result in the termination of its lease causing a reduction in our cash available for distribution. Furthermore, certain of our tenants, including anchor tenants, hold the right under their lease(s) to terminate their lease(s) or reduce their rental rate if certain occupancy conditions are not met, if certain anchor tenants close, if certain sales levels or profit margins are not achieved, or if an exclusive use provision is violated, which all could be triggered in the event of one or more tenant bankruptcies. A significant increase in the number of tenant bankruptcies, particularly amongst anchor tenants, may make it more difficult for us to lease the remainder of the property or properties in which the bankrupt tenant operates and adversely impact our ability to successfully execute our re-leasing strategy.
Prolonged instability or volatility in the U.S. economy, on a regional or national level, may adversely impact consumer spending and therefore our operating results.
A sustained downturn in the U.S. economy, on a regional or national level, and reduced consumer spending could impact our tenants’ ability to meet their lease obligations due to poor operating results, lack of liquidity or other reasons and therefore decrease the revenue generated by our properties or the value of our properties. Our ability to lease space and negotiate and maintain favorable rents could also be negatively impacted by a prolonged recession in the U.S. economy. Moreover, the demand for leasing space in our existing shopping centers as well as our development properties could also significantly decline during a significant downturn in the U.S. economy which could result in a decline in our occupancy percentage and reduction in rental revenues.
We compete with many commercial developers, real estate companies and major retailers. Some of these entities develop or own malls, open-air lifestyle centers, value-oriented retail properties, and community shopping centers with whom we compete for tenants. We face competition for prime locations and for tenants. New regional malls, open-air lifestyle centers, or other retail shopping centers with more convenient locations or better rents may attract tenants or cause them to seek more favorable lease terms at or prior to renewal. Retailers at our properties may face increasing competition from other retailers, e-commerce, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks, all of which could affect their ability to pay rent or desire to occupy one or more of our properties.
The failure to fully recover cost reimbursements for CAM, taxes and insurance from tenants could adversely affect our operating results.
The computation of cost reimbursements from tenants for CAM, insurance and real estate taxes is complex and involves numerous judgments including interpretation of terms and other tenant lease provisions. Most tenants make monthly fixed payments of CAM, real estate taxes and other cost reimbursement items. After the end of the calendar year, we compute each tenant’s final cost reimbursements and issue a bill or credit for the full amount, after considering amounts paid by the tenants during the year. The billed amounts could be disputed by the tenant(s) or become the subject of a tenant audit. Final adjustments for the year ended December 31, 2009 have not yet been determined. At December 31, 2009, our recorded accounts receivables reflected $1.7 million of 2009 costs that we expect to recover from tenants during the first six months of 2010. There can be no assurance that we will collect all or substantially all of this amount.
The results of operations for our properties depend on the economic conditions of the regions of the United States in which they are located.
Our results of operations and distributions to you will generally be subject to economic conditions in the regions in which our properties are located. For the year ended December 31, 2009, approximately 34% of annualized minimum rents came from our properties located in Ohio.
We may be unable to successfully redevelop, develop or operate our properties.
As a result of economic and other conditions and required approvals from governmental entities, lenders, or our joint venture partners, development projects may not be pursued or may be completed later or with higher costs than anticipated. In the event of an unsuccessful development project, our loss could exceed our investment in the project. Development activities involve significant risks, including:
We could incur significant costs related to environmental issues.
Under some environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating these substances on or under the property. In connection with the ownership or operation of our properties, we could be liable for such costs, which could be substantial and even exceed the value of such property or the value of our aggregate assets. We could incur such costs or be liable for such costs during a period after we dispose of or transfer a property. The failure to remediate toxic substances may adversely affect our ability to sell or rent any of our properties or to borrow funds. In addition, environmental laws may require us to expend substantial sums in order to use our properties or operate our business.
We have established a contingency reserve for one environmental matter as noted in Note 15 of our consolidated financial statements.
Our assets may be subject to impairment charges that may materially affect our financial results.
We evaluate our real estate assets and other assets for impairment indicators whenever events or changes in circumstances indicate that recoverability of our investment in the asset is not reasonably assured. This evaluation is conducted periodically, but no less frequently than quarterly. Our determination of whether a particular held-for-use asset is impaired is based upon the undiscounted projected cash flows used for the impairment analysis and our determination of the asset’s estimated fair value, that in turn are based upon our plans for the respective asset and our views of market and economic conditions. With respect to assets held-for-sale, our determination of whether such an asset is impaired is based upon market and economic conditions. If we determine that a significant impairment has occurred, then we would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our results of operations and funds from operations in the accounting period in which the adjustment is made. Furthermore, changes in estimated future cash flows due to a change in our plans or views of market and economic conditions could result in the recognition of additional impairment losses for already impaired assets, which, under the applicable accounting guidance, could be substantial.
We may incur significant costs of complying with the Americans with Disabilities Act and similar laws.
We may be required to expend significant sums of money to comply with the Americans with Disabilities Act of 1990, as amended (“ADA”), and other federal and local laws in order for our properties to meet requirements related to access and use by disabled persons.
Our failure to qualify as a REIT would have serious adverse consequences.
GRT believes that it has qualified as a REIT under the Code since 1994, but cannot be sure that it will remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions, and the determination of various factual matters and circumstances not entirely within GRT’s control that may impact GRT’s ability to qualify as a REIT under the Code. In addition, GRT cannot be sure that new laws, regulations and judicial decisions will not significantly change the tax laws relating to REITs, or the federal income tax consequences of REIT qualification.
If GRT fails to qualify as a REIT, it would be subject to federal income tax (including any applicable alternative minimum tax) on taxable income at regular corporate income tax rates. Additionally, unless entitled to relief under certain statutory provisions, GRT would also be disqualified from electing to be treated as a REIT for the four taxable years following the year during which the qualification is lost, thereby reducing net earnings available for investment or distribution to you because of the additional tax liability imposed for the year or years involved. Lastly, GRT would no longer be required by the Code to make any dividend distributions as a condition to REIT qualification. To the extent that dividend distributions to you may have been made in anticipation of qualifying as a REIT, we might be required to borrow funds or to liquidate certain of our investments to pay the applicable tax.
Our ownership interests in certain partnerships and other ventures are subject to certain tax risks.
Some of our property interests and other investments are made or held through entities in which we have an interest (the “Subsidiary Partnerships”). The tax risks of this type of ownership include possible challenge by the Internal Revenue Service of allocations of income and expense items which could affect the computation of our taxable income, a challenge to the status of any such entities as partnerships (as opposed to associations taxable as corporations) for federal income tax purposes, and the possibility of action being taken by tax regulators or the entities themselves could adversely affect GRT’s qualification as a REIT, for example, by requiring the sale of a property. We believe that the entities in which we have an interest have been and will be treated for tax purposes as partnerships (and not treated as associations taxable as corporations). If our ownership interest in any entity taxable as a corporation exceeded 10% (in terms of vote or value) of such entity’s outstanding securities (unless such entity were a “taxable REIT subsidiary,” or a “qualified REIT subsidiary,” as those terms are defined in the Code) or the value of interest in any such entity exceeded 5% of the value of our assets, then GRT would cease to qualify as a REIT; distributions from any of these entities would be treated as dividends, to the extent of earnings and profits, and we would not be able to deduct our share of losses, if any, generated by such entity in computing our taxable income.
In order to qualify to be taxed as a REIT, we must make annual distributions to our shareholders of at least 90% of our taxable income (determined by excluding any net capital gain). The amount available for distribution will be affected by a number of factors, including the operation of our properties. We have sold a number of non-core assets and intend in the future to sell additional selected non-core assets. The loss of rental income associated with our properties sold will in turn affect net income and FFO. In order to maintain REIT status, we may be required to make distributions in excess of net income and FFO. In such a case, it may be necessary to arrange for short or long term borrowings, or to issue common or preferred stock or other securities, to raise funds, which may not be possible.
Debt financing could adversely affect our performance.
As of December 31, 2009, we had $1.6 billion of total indebtedness outstanding. As of December 31, 2009, we have borrowed $346.9 million from our $470.0 million unsecured credit facility. A number of our outstanding loans will require lump sum or “balloon” payments for the outstanding principal balance at maturity, and we may finance future investments that may be structured in the same manner. Our ability to repay indebtedness at maturity, or otherwise, may depend on our ability to either refinance such indebtedness or to sell certain properties. Additionally, our ability to repay any indebtedness secured by properties the maturity of which is accelerated upon any default may adversely affect our ability to obtain debt financing for such properties or to own such properties. If we are unable to repay any of our debt at or before maturity, then we may have to borrow from our credit facility, to the extent it has availability thereunder, to make such repayments. In addition, a lender could foreclose on one or more of our properties to collect its debt. This could cause us to lose part or all of our investment, which could reduce the value of the Common Shares or preferred shares and the distributions payable to you.
Volatility and instability in the credit markets could adversely affect our ability to fund our development projects and cause us to seek financing from alternative sources.
Global and domestic credit markets have recently experienced significant volatility and instability. Continued uncertainty in the credit markets may negatively impact our ability to access capital or to finance our future expansions of existing properties as well as future acquisitions, development activities, and redevelopment projects. A prolonged downturn in the credit markets may cause us to seek alternative sources of potentially less attractive financing from smaller lending institutions or non-traditional lending entities that may be subject to greater market risk and may require us to adjust our business plan(s) or financing funding objectives accordingly. Weakness in the credit markets may also negatively affect the credit ratings of our securities and promote a perceived decline in the value of our properties based on deteriorating general and retail economic conditions which could adversely affect the amount and type of financing available for our properties and operations as well as the terms of such financing.
Our access to funds under our credit facility is dependent on the ability of the bank participants to meet their funding commitments.
Banks that are a party to our credit facility may have incurred substantial losses or be in danger of incurring substantial losses as a result of previous loans to other borrowers, a decline in the value of certain securities they hold, or their other business dealings and investments. As a result, these banks may become capital constrained, more restrictive in their lending or funding standards, or become insolvent, in which case these banks might not be able to meet their funding commitments under our credit facility.
If one or more banks do not meet their funding commitments under our credit facility, then we may be unable to draw sufficient funds under our credit facility for capital to operate our business or other needs and will not be able to utilize the full capacity under the credit facility until replacement lenders are located or one or more of the remaining lenders under the credit facility agrees to fund any shortfall, both of which will be difficult to accomplish in this economic environment. Accordingly, for all practical purposes under such a scenario, the borrowing capacity under our credit facility may be reduced by the amount of unfunded bank commitments. Our inability to access funds under our credit facility for these reasons could result in our deferring development and redevelopment projects or other capital expenditures, not being able to satisfy debt maturities as they become due or satisfy loan requirements to reduce the amounts outstanding under certain loans, reducing or eliminating future cash dividend payments or other discretionary uses of cash, or modifying significant aspects of our business strategy.
Our credit facility is the most restrictive of our financing arrangements. Accordingly, at December 31, 2009, the aggregate amount that, based upon the restrictive covenants in the credit facility, may be borrowed through financing arrangements is $163.2 million. Additional amounts could be borrowed as long as we maintain a ratio of total-debt-to-total-asset value as defined in the credit agreement that complies with the restrictive covenants of the credit facility. We would also be required to maintain certain coverage covenants on a prospective basis which could impact our ability to borrow these additional amounts. Management believes we are in compliance with all covenants under our financing arrangements at December 31, 2009. Through the amendment of our credit facility in March 2010, our borrowing capacity has been reduced by $100 million.
Our ability to borrow and make distributions could be adversely affected by financial covenants.
Our mortgage indebtedness and credit facility impose certain financial and operating restrictions on our properties, on our secured subordinated financing, and additional financings on properties. These restrictions include restrictions on borrowings, prepayments and distributions. Additionally, our credit facility requires certain financial tests to be met, such as the total amount of recourse indebtedness to which we are permitted to take on and some of our mortgage indebtedness provides for prepayment penalties, each of which could restrict our financial flexibility. Our credit facility also has payment requirements to reduce the amount that may be outstanding at any one time which also could restrict our financial flexibility and liquidity. Moreover, our failure to satisfy certain financial covenants in our financing arrangements may result in a decrease in the market price of our common stock or preferred stock.
Recent disruptions in the financial markets could affect our financial condition and results of operations, our ability to obtain financing, or have other adverse effects on us or the market or trading price of our outstanding securities.
The U.S. and global equity and credit markets have recently experienced significant price volatility and liquidity disruptions which have caused the market prices of stocks to fluctuate substantially and the credit spreads on prospective debt financings to widen considerably. These circumstances have had a significantly negative impact on liquidity in the financial markets, making terms for certain financings less attractive or unavailable. Continued uncertainty in the equity and credit markets will negatively impact our ability to access additional financing at reasonable terms or at all. In the event of a debt financing, our cost of borrowing in the future will likely be significantly higher than historical levels. In the case of a common equity financing, the disruptions in the financial markets could continue to have a material adverse effect on the market value of our Common Shares, potentially requiring us to issue more shares than we would otherwise have issued with a higher market value for our Common Shares. These financial market circumstances will negatively affect our ability to make acquisitions, undertake new development projects and refinance our debt. These circumstances have also made it more difficult for us to sell properties and may adversely affect the price we receive for properties that we do sell, as prospective buyers are experiencing increased costs of financing and difficulties in obtaining financing. There is a risk that government responses to the disruptions in the financial markets will not restore consumer confidence, stabilize the markets or increase liquidity and the availability of equity or credit financing.
Current market conditions are also adversely affecting many of our tenants and their businesses, including their ability to pay rents when due. Tenants may also involuntarily terminate or stop paying on leases prior to the lease termination date due to bankruptcy. Tenants may decide not to renew leases and we may not be able to re-let the space the tenant vacates. The terms of renewals, including the cost of required improvements or concessions, may be less favorable than current lease terms. As a result, our cash flow could decrease and our ability to make distributions to our shareholders could be adversely affected.
The obligation to reduce the borrowing availability under our secured corporate credit facility may adversely impact our liquidity, the availability of funds to operate, ability to extend the maturity date of the facility, and refinance the facility at maturity with replacement financing.
Our secured corporate credit facility is scheduled to mature in December 2010 with two, one-year extension options available to December 2011 and December 2012, respectively, subject to our satisfaction of certain conditions, including, but not limited to the reduction of the borrowing availability under the facility. In connection with reducing the borrowing availability under the facility, we are required to fund repayments of a significant portion of our outstanding indebtedness under the facility at the time we exercise each extension option. The reduction of the borrowing availability under the corporate credit facility could adversely impact our ability to fund developments, acquisitions, joint venture initiatives, other debt financing, and our overall operations. In the event that we are unable to fund the payments or fail to satisfy other conditions required to extend the term of our credit facility or refinance the facility at maturity, we would need to repay the balance at maturity which would adversely affect our liquidity and cash reserves. Moreover, under such circumstances we may be unable to obtain replacement financing for our credit facility at the same amount, at favorable interest rates, or upon favorable financing terms. Additionally, our failure to secure replacement financing with a term in excess of one year may result in an adverse change in the credit ratings provided for certain of our securities. Lastly, our inability to find replacement financing for our credit facility also could adversely affect our ability to fund our operations and REIT distribution requirements.
Our variable rate debt obligations may impede our operating performance and put us at a competitive disadvantage, as well as adversely affect our ability to pay distributions to you.
Required repayments of debt and related interest can adversely affect our operating performance. As of December 31, 2009, approximately $281.6 million of our indebtedness bears interest at a variable rate. This includes $39.7 million of debt, for which a 100 basis point increase in LIBOR would have no impact on earnings due to the minimum interest rate provisions included in these loan agreements. Accordingly, an increase in interest rates on our existing indebtedness would increase interest expense, which could adversely affect our cash flow and ability to pay distributions as well as the amount of any distributions. For example, if market rates of interest on our variable rate debt outstanding as of December 31, 2009 increased by 100 basis points, the increase in interest expense on our existing variable rate debt would decrease future earnings and cash flows by approximately $2.4 million annually.
The Board of Trustees has unlimited authority to increase the amount of debt that we may incur.
The Board of Trustees (the “Board”) determines financing objectives and the amount of the indebtedness that we may incur and may make revisions to these objectives at any time without a vote of our shareholders. Although the Board has no present intention to change these objectives, revisions could result in a more highly leveraged company with an increased risk of default on indebtedness, an increase in debt service charges, and the addition of new financial covenants that restrict our business.
We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our Common Shares as to distributions and in liquidation, which could negatively affect the value of our Common Shares.
In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred shares, hybrid securities, or securities convertible into or exchangeable for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive distributions of our available assets before distributions to the holders of our Common Shares. Because our decision to incur debt and issue securities in future secondary offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future secondary offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.
There may be future dilution of our Common Shares and resales of our Common Shares in the public market following any secondary offering we do that may cause the market price for our Common Shares to decline.
Our Amended and Restated Declaration of Trust (the “Declaration of Trust”) authorizes the Board to, among other things, issue additional common or preferred shares or securities convertible or exchangeable into equity securities, without shareholder approval. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional common or preferred shares or convertible securities could be substantially dilutive to our common shareholders. Moreover, to the extent that we issue restricted share units, share appreciation rights, options, or warrants to purchase our Common Shares in the future and those share appreciation rights, options, or warrants are exercised or the restricted share units vest, our common shareholders may experience further dilution. Holders of our Common Shares have no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our common shareholders. Furthermore, the resale by shareholders of our Common Shares in the public market following any secondary offering could have the effect of depressing the market price for our Common Shares.
Our development at Scottsdale Quarter, a premium retail and office complex consisting of approximately 600,000 square feet of gross leasable area, in Scottsdale, Arizona, is our most significant real estate development project at December 31, 2009. We commenced development of the project through a joint venture and have financed construction through a $220 million construction loan for which we, through the Operating Partnership, provided a limited payment and performance guaranty ranging from 10-50% of the outstanding loan amount based upon the achievement of certain financial performance ratios under the construction loan. We and our joint venture partner have various obligations and commitments under the joint venture agreements with respect to completing construction of the development and operating the facility, all of which if not completed as contemplated could adversely impact our return on our investment, the operation of the development, and its profitability. In the event our joint venture partner is unable or unwilling to complete its portion of the development then we may need to forego the completion of that aspect of the development which may adversely impact our return on our investment, the operation of the development, and its profitability. Moreover, delays in completing the various phases of the development due to construction, financing, or development difficulties may adversely impact our ability to effectively lease the development because some tenants may have clauses in their leases which permit them to delay opening or payment of lease charges until certain portions of the development or certain other tenants are open and operating. Leasing delays can also adversely impact our return on our investment, the operation of the development, and its profitability. Lastly, the development is located in a growing part of the state of Arizona and subject to the economic trends of the area. If the impact of the national recession worsens the economic condition of the area, then the ability of retailers and other tenants to meet their lease obligations due to reduced consumer spending, poor operating results, diminished liquidity, unavailability of inventory financing, or other reasons could decrease the revenue generated by the development or its value which could increase the impairment risk with respect to the property and adversely impact our return on our investment in the development as well as its profitability.
The market value, or trading price, of our preferred and Common Shares could decrease based upon uncertainty in the marketplace and market perception.
The market price of our common and preferred shares may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations have adversely affected and may continue to adversely affect the market price of our common and preferred shares. Among the factors that could adversely affect the market price of our common and preferred shares are:
We may change the dividend policy for our Common Shares in the future.
A recent Internal Revenue Service, or IRS, revenue procedure allows us to satisfy our REIT distribution requirement with respect to a taxable year ending on or before December 31, 2011 by distributing up to 90% of our dividends in common shares in lieu of paying dividends entirely in cash. Although we reserve the right to utilize this procedure with respect to a taxable year ending on or before December 31, 2011, we have not done so and do not currently have any intention to do so with respect to any of our regular quarterly dividends. The issuance of common shares in lieu of paying dividends in cash could have a dilutive effect on our earnings per share and FFO per share and could result in the resale by shareholders of our Common Shares in the public market following such a distribution, which could have the effect of depressing the market price for our Common Shares.
In the event that we pay a portion of a dividend in common shares, taxable U.S. shareholders would be required to pay tax on the entire amount of the dividend, including the portion paid in common shares, in which case such shareholders might have to pay the tax using cash from other sources. If a U.S. shareholder sells the common shares it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common shares at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividend, including with respect to all or a portion of such dividend that is payable in common shares. In addition, if a significant number of our shareholders sell our common shares in order to pay taxes owed on dividends or for other purposes, such sales may put downward pressure on the market price of our common shares.
The decision to declare and pay dividends on our Common Shares in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of the Board and will depend on our earnings, funds from operations, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the distribution requirement necessary for us to both maintain our REIT qualification under the Code, and avoid (and/or minimize) the income and/or excise tax liability that we would otherwise incur under the rules applicable to REITs on our taxable income and gain in the event we do not distribute, state law and such other factors as the Board deems relevant. Under our existing credit facility, distributions on our Common Shares are limited to the greater of $0.40 per Common Share annually or the minimum amount required to maintain REIT status which could result in one or more adjustments in our dividend policy. Any change to our dividend policy for our Common Shares could have a material adverse effect on the market price of our Common Shares.
The terms of our current credit facility prevent us from distributing 100% of our REIT taxable income, which could cause us to be subject to corporate income tax on our undistributed income.
Under our current credit facility, distributions on our Common Shares are limited to the greater of $0.40 per Common Share annually or the minimum amount required to maintain REIT status. We are generally required to distribute an amount equal to 90% of our REIT taxable income to maintain REIT status, and may be restricted from distributing 100% of our REIT taxable income pursuant to the terms of our facility. To the extent that we distribute at least 90%, but less than 100%, of our REIT taxable income, we would be subject to tax on undistributed amounts at regular corporate rates.
If our common stock is delisted from the NYSE because it trades below $1.00 for an extended period of time or otherwise there could be a negative effect on our business that could significantly impact our financial condition, our operating results, and our ability to service our debt obligations.
Although the per share price of our common Stock has remained above $1.00, in the event the average per share closing price of our common stock is below $1.00 for 30 consecutive days, our common stock could be delisted from the NYSE. The threat of delisting our common stock could have adverse effects by, among other things:
Our ability to operate or dispose of any partially-owned properties that we may acquire may be restricted.
Our ownership of properties through partnership or joint venture investments may involve risks not otherwise present for wholly-owned properties. These risks include the possibility that our partners or co-venturers might become bankrupt, might have economic or other business interests or goals which are inconsistent with our business interests or goals and may be in a position to take action contrary to our instructions or make requests contrary to our policies or objectives, including our policy to maintain our qualification as a REIT. We may need the consent of our partners for major decisions affecting properties that are partially-owned. Joint venture agreements may also contain provisions that could cause us to sell all or a portion of our interest in, or buy all or a portion of our partners’ interests in, such entity or property. These provisions may be triggered at a time when it is not advantageous for us to either buy our partners’ interests or sell our interest. Additionally, if we serve as the managing member of a property-owning joint venture, we may have certain fiduciary responsibilities to the other participants in such entity. There is no limitation under our organizational documents as to the amount of funds that may be invested in partnerships or joint ventures; however, covenants of our unsecured credit facility limit the amount of capital that we may invest in joint ventures at any one time.
Our charter and bylaws and the laws of the state of our incorporation contain provisions that may delay, defer or prevent a change in control or other transactions that could provide shareholders with the opportunity to realize a premium over the then-prevailing market price for our Common Shares.
In order to maintain GRT’s qualification as a REIT for federal income tax purposes, not more than 50% in value of the outstanding common shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of the taxable year. Additionally, 100 or more persons must beneficially own the outstanding common shares during the last 335 days of a taxable year of 12 months or during a proportionate part of a shorter tax year.
To ensure that GRT will not fail to qualify as a REIT under this test, GRT’s organizational documents authorize the Board to take such action as may be required to preserve GRT’s qualification as a REIT and to limit any person, other than Herbert Glimcher, David Glimcher (only with respect to the limitation on the ownership of outstanding common shares) and any entities or persons approved by the Board, to direct or indirect ownership exceeding: (i) 8.0% of the lesser of the number or value of GRT’s outstanding shares of beneficial interest (including common and preferred shares), (ii) 9.9% of the lesser of the number or value of the total 8¾% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series F Preferred Shares”) outstanding, and (iii) 9.9% of the lesser of the number or value of the total 8⅛% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series G Preferred Shares”) outstanding. Herbert Glimcher and David Glimcher are limited to an aggregate of 25% direct or indirect ownership of common shares outstanding without approval of the Board. The Board has also granted an exemption to Cohen & Steers Capital Management, Inc., permitting them to own, directly or indirectly, of record or beneficially (i) up to 600,000 Series F Preferred Shares and (ii) up to 14.9% of the lesser of the number or value of the outstanding shares of any other class of the GRT’s equity securities. The Board has also granted an exemption to Neuberger Berman permitting them to own 608,800 Series G Preferred Shares. Despite these provisions, GRT cannot be sure that there will not be five or fewer individuals who will own more than 50% in value of its outstanding Common Shares, thereby causing GRT to fail to qualify as a REIT. The ownership limits may also discourage a change in control in GRT.
The members of the Board are currently divided into three equal classes whose terms expire in 2010, 2011 and 2012, respectively. Each year one class of trustees is elected by GRT’s shareholders to hold office for three years. The staggered terms for Board members may affect the ability of GRT shareholders to change control of GRT even if a change in control were in the interests of the shareholders.
GRT’s Declaration of Trust authorizes the Board to establish one or more series of preferred shares, in addition to those currently outstanding, and to determine the preferences, rights and other terms of any series. The Board could authorize GRT to issue other series of preferred shares that could deter or impede a merger, tender offer or other transaction that some, or a majority, of GRT shareholders might believe to be in their best interest or in which GRT shareholders might receive a premium for their shares over the prevailing market price of such shares.
The Declaration of Trust and our Amended and Restated Bylaws also contain other provisions that may delay or prevent a transaction or a change in control that might involve a premium price for the common shares or otherwise be in the best interests of GRT’s shareholders. As a Maryland REIT, GRT is subject to the provisions of the Maryland REIT law which imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions can occur, thus delaying or preventing offers to acquire GRT or increasing the difficulty of completing an acquisition of GRT, even if the acquisition is in the best interests of GRT’s shareholders.
Risks associated with information systems may interfere with our operations.
We are continuing to implement new information systems and problems with the design or implementation of these new systems could interfere with our operations.
Our operations could be affected if we lose any key management personnel.
Our executive officers have substantial experience in owning, operating, managing, acquiring and developing shopping centers. Success depends in large part upon the efforts of these executives, and we cannot guarantee that they will remain with us. The loss of key management personnel in leasing, finance, legal, construction, development, or operations could have a negative impact on our operations. In addition, except for isolated examples, there are generally no restrictions on the ability of these executives to compete with us after termination of their employment.
Inflation may influence our operations.
Inflation risks could impact our operations due to increases in construction costs as well as other costs pertinent to our business, including, but not limited to, the cost of insurance and utilities.
Item 1B. Unresolved Staff Comments
The Company has received no written comments regarding its periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of its 2009 fiscal year and that remain unresolved.
Item 2. Properties
The Company’s headquarters are located at 180 East Broad Street, Columbus, Ohio 43215, and its telephone number is (614) 621-9000. In addition, the Company maintains management offices at each of its Malls.
At December 31, 2009, the Company managed and leased a total of 25 Properties in which the Company held an ownership interest (22 wholly-owned and 3 partially owned through joint ventures). The Properties are located in 13 states as follows: Ohio (9), West Virginia (3), California (2), Florida (2), Arizona (1), Kentucky (1), Minnesota (1), New Jersey (1), Oklahoma (1), Oregon (1), Pennsylvania (1), Tennessee (1), and Washington (1).
Twenty-one of the Properties are Malls and range in size from approximately 417,000 square feet of GLA to approximately 1.6 million square feet of GLA. Seven of the Malls are located in Ohio and 14 are located throughout the country in the states of California (2), Florida (2), West Virginia (2), Kentucky (1), Minnesota (1), New Jersey (1), Oklahoma (1), Oregon (1), Pennsylvania (1), Tennessee (1), and Washington (1). The location, general character and major tenant information are set forth below.
(b) Community Centers
Four of the Properties are Community Centers ranging in size from approximately 18,000 to 443,000 square feet of GLA. They are located in 3 states as follows: Ohio (2), Arizona (1), and West Virginia (1). The location, general character and major tenant information are set forth below.
Summary of Community Centers at December 31, 2009
Our lease expirations, total number of tenants whose leases will expire (shown by No. of Leases), the total area in square feet covered by such leases, the annual base rental (“Base Rent”), and the percentage of gross annual rental represented by such leases (% of Total Base Rent) for the next ten years for our total portfolio of Properties (including wholly-owned as well as joint venture Properties) are disclosed in the chart below:
The average base rent per square foot for tenants at December 31, 2009 for the Company’s portfolio of Properties (including wholly-owned Properties as well as joint venture Properties) is $6.57 per square foot for anchor stores and $31.13 per square foot for non-anchor in-line stores. The average base rent per square foot for tenants at December 31, 2008 for the Company’s portfolio of Properties (including wholly-owned Properties as well as joint venture Properties) was $6.59 per square foot for anchor stores and $30.88 per square foot for non-anchor in-line stores.
(d) Significant Properties
Jersey Gardens Mall in Elizabeth, New Jersey and Polaris Fashion Place in Columbus, Ohio (“Polaris”) each have a net book value of more than 10% of the Company’s total assets. Jersey Gardens Mall also contributes in excess of 10% of the Company’s consolidated revenue.
(e) Properties Subject to Indebtedness
At December 31, 2009, 22 of the Properties, consisting of 19 Malls (17 wholly-owned and 2 partially owned through a joint venture), 2 Community Centers (one partially owned through a joint venture), and 1 property under development (partially owned through a joint venture), were encumbered by mortgages and 2 Malls and 2 Community Centers were unencumbered. One of the properties, Polaris, is encumbered by two separate first lien mortgages. A mortgage was placed on Polaris Lifestyle Center, which is the lifestyle component of Polaris, and a separate first lien mortgage exists for Polaris. The Total Joint Venture Properties below represents our proportionate ownership share of the encumbered property. Our unencumbered Properties and developments have a net book value of $92.2 million at December 31, 2009. To facilitate the funding of working capital requirements and to finance the acquisition and development of the Properties, the Company has entered into an unsecured revolving line of credit with several financial institutions.
The following table sets forth certain information regarding the mortgages which encumber various Properties. All of the mortgages are first mortgage liens on the Properties. The information for Joint Venture Properties is presented as the Company’s pro-rata share. The information is as of December 31, 2009 (dollars in thousands).
The Company is involved in lawsuits, claims and proceedings, which arise in the ordinary course of business. The Company is not presently involved in any material litigation. In accordance with Topic 450 – “Contingencies” in the ASC, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
(a) Market Information
The Common Shares are currently listed and traded on the NYSE under the symbol “GRT.” On March 10, 2010, the last reported sales price of the Common Shares on the NYSE was $4.61. The following table shows the high and low sales prices for the Common Shares on the NYSE for the 2009 and 2008 quarterly periods indicated as reported by the NYSE Composite Tape and the cash distributions per Common Share paid by GRT with respect to such period.
For 2009 and 2008, the Common Share dividend declared in December and paid in January will be reported in the 2010 and 2009 tax years, respectively.
The number of holders of record of the Common Shares was 801 as of March 10, 2010.
Future distributions paid by GRT on the Common Shares will be at the discretion of the GRT Board of Trustees and will depend upon the actual cash flow of GRT, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the GRT Board of Trustees deem relevant.
GRT has implemented a Distribution Reinvestment and Share Purchase Plan under which its shareholders or Operating Partnership unit holders may elect to purchase additional Common Shares at fair value and/or automatically reinvest their distributions in Common Shares at fair value. In order to fulfill its obligations under the plan, GRT may purchase Common Shares in the open market or issue Common Shares that have been registered and authorized specifically for the plan. As of December 31, 2009, 2,100,000 Common Shares were authorized, of which 378,824 Common Shares have been issued.
The following table sets forth Selected Financial Data for the Company. This information should be read in conjunction with the consolidated financial statements of the Company and Management’s Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K.
GRT is a self-administered and self-managed REIT which commenced business operations in January 1994 at the time of its initial public offering. The “Company,” “we,” “us” and “our” are references to GRT, Glimcher Properties Limited Partnership (“GPLP” or “Operating Partnership”), as well as entities in which the Company has an interest. We own, lease, manage and develop a portfolio of retail properties (“Properties”) consisting of enclosed regional, super regional malls, and open-air lifestyle centers (“Malls”) and community shopping centers (“Community Centers”). As of December 31, 2009, we owned interests in and managed 25 Properties located in 13 states, consisting of 21 Malls (two of which are partially owned through joint ventures) and four Community Centers (one of which is partially owned through a joint venture). The Properties contain an aggregate of approximately 19.9 million square feet of gross leasable area (“GLA”) of which approximately 93.3% was occupied at December 31, 2009.
Our primary business objective is to achieve growth in net income and Funds From Operations (“FFO”) by developing and acquiring retail properties, by improving the operating performance and value of our existing portfolio through selective expansion and renovation of our Properties, and by maintaining high occupancy rates, increasing minimum rents per square-foot of GLA, and aggressively controlling costs.
Key elements of our growth strategies and operating policies are to:
Our strategy is to be a leading REIT focusing on enclosed malls and other anchored retail properties located primarily in the top 100 metropolitan statistical areas by population. We expect to continue investing in select development opportunities and in strategic acquisitions of mall properties that provide growth potential while disposing of non-strategic assets. We expect to finance acquisition transactions with cash on hand, borrowings under our credit facilities, proceeds from strategic joint venture partners, asset dispositions, secured mortgage financings, the issuance of equity or debt securities, or a combination of one or more of the foregoing.
During the last four years, we have made substantial progress in our disposition of non-strategic assets. From the period beginning December 31, 2005 through December 31, 2009, we reduced the number of Properties held from 36 to 25. Our disposition program’s goal was to enhance the quality and growth profile of our portfolio of Properties. We commenced a program to sell non-strategic assets that lacked the quality characteristics we wanted for long-term investment and focused on re-investment into higher quality malls and improving our existing portfolio through redevelopment. In implementing the disposition program, we disposed of 8 Community Centers and 6 Malls during this period. We re-invested the proceeds from these asset dispositions in higher quality properties during the above referenced four year period. During that time, we acquired three Malls (two through a joint venture) that were new to our portfolio and developed one new Community Center through a joint venture. We are currently developing a open-air lifestyle center in Scottsdale, Arizona that will further enhance the quality of our portfolio of assets.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of the Board of Trustees and the Company’s independent registered public accounting firm. Actual results may differ from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that are reasonably likely to occur could materially impact the financial statements. Management believes the critical accounting policies discussed in this section reflect its more significant estimates and assumptions used in preparation of the consolidated financial statements.
The Company’s revenue recognition policy relating to minimum rents does not require the use of significant estimates. Minimum rents are recognized on an accrual basis over the term of the related leases on a straight-line basis. Percentage rents, tenant reimbursements, and components of other revenue associated with the margins related to outparcel sales include estimates.
Percentage rents, which are based on tenants’ sales as reported to the Company, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants’ leases. The percentage rents are recognized based upon the measurement dates specified in the leases which indicate when the percentage rent is due.
Estimates are used to record cost reimbursements from tenants for CAM, real estate tax, utilities and insurance. We recognize revenue based upon the amounts to be reimbursed from our tenants for these items in the same period these reimbursable expenses are incurred. Differences between estimated cost reimbursements and final amounts billed are recognized in the subsequent year. Leases are not uniform in dealing with such cost reimbursements and variations exist in computations between Properties and tenants. The Company analyzes the balance of its estimated accounts receivable for real estate taxes, CAM and insurance for each of its Properties by comparing actual reimbursements versus actual expenses. Adjustments are also made throughout the year to these receivables and the related cost reimbursement income based upon the Company’s best estimate of the final amounts to be billed and collected. Final billings to tenants for CAM, real estate tax, utilities and insurance in 2008 and 2007 which were billed in 2009 and 2008, respectively did not vary significantly as compared to the estimated receivable balances. If management’s estimate of the percent of recoverable expenses that can be billed to the tenants in 2009 differs from actual amounts billed by 1%, the amount of income recorded during 2009 would increase or decrease by approximately $1.0 million
The Company sells outparcels at its various Properties. The estimated cost used to calculate the margin from these sales involves a number of estimates. The estimates made are based either upon assigning a proportionate value based upon historical cost paid for the total parcel to the portion of the parcel that is sold, or by incorporating the relative sales value method. The proportionate share of actual cost is derived through consideration of numerous factors. These factors include items such as ease of access to the parcel, visibility from high traffic areas, acreage of the parcel as well as other factors that may differentiate the desirability of the particular section of the parcel that is sold.
Tenant Accounts Receivable and Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects the Company’s estimate of the amount of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods. The Company’s policy is to record a periodic provision for doubtful accounts based on total revenues. The Company also periodically reviews specific tenant balances and determines whether an additional allowance is necessary. In recording such a provision, the Company considers a tenant’s creditworthiness, ability to pay, probability of collections and consideration of the retail sector in which the tenant operates. The allowance for doubtful accounts is reviewed and adjusted periodically based upon the Company’s historical experience.
Investment in Real Estate
Carrying Value of Assets
The Company maintains a diverse portfolio of real estate assets. The portfolio holdings have increased as a result of both acquisitions and the development of Properties and have been reduced by selected sales of assets. The amounts to be capitalized as a result of acquisition and developments and the periods over which the assets are depreciated or amortized are determined based on the application of accounting standards that may require estimates as to fair value and the allocation of various costs to the individual assets. The Company allocates the cost of the acquisition based upon the estimated fair value of the net assets acquired. The Company also estimates the fair value of intangibles related to its acquisitions. The valuation of the fair value of the intangibles involves estimates related to market conditions, probability of lease renewals and the current market value of in-place leases. This market value is determined by considering factors such as the tenant’s industry, location within the Property and competition in the specific market in which the Property operates. Differences in the amount attributed to the fair value estimate for intangible assets can be significant based upon the assumptions made in calculating these estimates.
Management evaluates the recoverability of its investment in real estate assets as required by Topic 360 - “Property, Plant and Equipment” in the ASC. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the investment in the asset is not reasonably assured.
The Company evaluates the recoverability of its investments in real estate assets to be held and used each quarter and records an impairment charge when there is an indicator of impairment and the undiscounted projected cash flows from the use and eventual disposition of the property are less than the carrying amount for a particular property. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on the Company’s plans for the respective assets and the Company’s views of market and economic conditions. The Company evaluates each property that has material reductions in occupancy levels and/or net operating income (“NOI”) performance and conducts a detailed evaluation of the Properties. The evaluations consider matters such as current and historical rental rates, occupancies for the respective properties and comparable properties and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in the Company’s plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.
Investment in Real Estate – Held-for-Sale
The Company evaluates the held-for-sale classification of its real estate each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. Management evaluates the fair value less cost to sell each quarter and records impairment charges as required. An asset is generally classified as held-for-sale once management commits to a plan to sell its entire interest in a particular Property which results in no continuing involvement in the asset as well as initiates an active program to market the asset for sale. In instances where the Company may sell either a partial or entire interest in a Property and has commenced marketing of the Property, the Company evaluates the facts and circumstances of the potential sale to determine the appropriate classification for the reporting period. Based upon management’s evaluation, if it is expected that the sale will be for a partial interest, the asset is classified as held for investment. If during the marketing process it is determined the asset will be sold in its entirety, the period of that determination is the period the asset would be reclassified as held-for-sale. The results of operations of these real estate Properties that are classified as held-for-sale are reflected as discontinued operations in all periods reported.
On occasion, the Company will receive unsolicited offers from third parties to buy individual Properties. Under these circumstances, the Company will classify the particular Property as held-for-sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.
Sale of Real Estate Assets
The Company records sales of operating properties and outparcels using the full accrual method at closing when both of the following conditions are met: 1) the profit is determinable, meaning that, the collectability of the sales price is reasonably assured or the amount that will not be collectible can be estimated; and 2) the earnings process is virtually complete, meaning that, the seller is not obligated to perform significant activities after the sale to earn the profit. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods.
Accounting for Acquisitions
The fair value of the real estate acquired is allocated to acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting is applied to assets and liabilities related to real estate entities acquired based upon the percentage of interest acquired.
The fair value of the tangible assets of an acquired property (which includes land, building and tenant improvements) is determined by valuing the property as if it were vacant, based on management’s determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of an acquired property using methods to determine the replacement cost of the tangible assets.
In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the initial lease term.
The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The value assigned to this intangible asset is amortized over the remaining lease term plus an assumed renewal period that is reasonably assured.
The aggregate value of other acquired intangible assets include tenant relationships. Factors considered by management in assigning a value to these relationships include: assumptions of probability of lease renewals, investment in tenant improvements, leasing commissions and an approximate time lapse in rental income while a new tenant is located. The value assigned to this intangible asset is amortized over the average life of the relationship.
Depreciation and Amortization
Depreciation expense for real estate assets is computed using a straight-line method and estimated useful lives for buildings and improvements using a weighted average composite life of forty years and three to ten years for equipment and fixtures. Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the initial term of each lease. Cash allowances paid to tenants that are used for purposes other than improvements to the real estate are amortized as a reduction to minimum rents over the initial lease term. Maintenance and repairs are charged to expense as incurred. Cash allowances paid in return for operating covenants from retailers who own their real estate are capitalized as contract intangibles. These intangibles are amortized over the period the retailer is required to operate their store.
Investment in and Advances to Unconsolidated Real Estate Entities
The Company evaluates all joint venture arrangements for consolidation. The percentage interest in the joint venture, evaluation of control and whether a variable interest entity (“VIE”) exists are all considered in determining if the arrangement qualifies for consolidation.
The Company accounts for its investments in unconsolidated real estate entities using the equity method of accounting whereby the cost of an investment is adjusted for the Company’s share of equity in net income or loss beginning on the date of acquisition and reduced by distributions received. The income or loss of each joint venture investor is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences between the carrying amount of the Company’s investment in the respective joint venture and the Company’s share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets as applicable.
The Company treats distributions from joint ventures as operating activities if they meet all three of the following conditions: the amount represents the cash effect of transactions or events; the amounts result from a company’s normal operations; the amounts are derived from activities that enter into the determination of net income. The Company treats distributions from joint ventures as investing activities if they relate to the following activities: lending money and collecting on loans; acquiring and selling or disposing of available-for-sale or held-to-maturity securities (trading securities are classified based on the nature and purpose for which the securities were acquired); acquiring and selling or disposing of productive assets that are expected to generate revenue over a long period of time.
In the instance where the Company receives a distribution made from a joint venture that has the characteristics of both operating and investing activity, management identifies where the predominant source of cash was derived in order to determine its classification in the Statement of Cash Flows. When a distribution is made from operations, it is compared to the available retained earnings within the property. Cash distributed that does not exceed the retained earnings of the property, is classified in the Company’s Consolidated Statement of Cash Flows as cash received from operating activities. Cash distributed in excess of the retained earnings of the property is classified in the Company’s Consolidated Statement of Cash Flows as cash received from investing activity.
The Company periodically reviews its investment in unconsolidated real estate entities for other than temporary declines in market value. Any decline that is not considered temporary will result in the recording of an impairment charge to the investment. No impairment charges were recognized during the year ended December 31, 2009 relating to our investment in unconsolidated real estate entities.
The Company capitalizes initial direct costs of leases and amortizes these costs over the initial lease term. The costs are capitalized upon the execution of the lease and the amortization period begins the earlier of the store opening date or the date the tenant’s lease obligation begins.
Derivative Instruments and Hedging Activities
The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.
The Company accounts for derivative instruments and hedging activities by following Topic 815 - “Derivative and Hedging” in the ASC. The objective is to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under this guidance; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Also, derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting under the Topic 815 - “Derivatives and Hedging” in the ASC.
Funds From Operations
Our consolidated financial statements have been prepared in accordance with GAAP. We have indicated that FFO is a key measure of financial performance. FFO is an important and widely used financial measure of operating performance in our industry, which we believe provides important information to investors and a relevant basis for comparison among REITs.
We believe that FFO is an appropriate and valuable measure of our operating performance because real estate generally appreciates over time or maintains a residual value to a much greater extent than personal property and, accordingly, reductions for real estate depreciation and amortization charges are not meaningful in evaluating the operating results of the Properties.
FFO is defined by the National Association of Real Estate Investment Trusts, or “NAREIT,” as net income (or loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of depreciable assets, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. FFO does include impairment losses for properties held-for-sale and held-for-use. The Company’s FFO may not be directly comparable to similarly titled measures reported by other real estate investment trusts. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance or to cash flow from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.
The following table illustrates the calculation of FFO and the reconciliation of FFO to net (loss) income available to common shareholders for the years ended December 31, 2009, 2008 and 2007 (in thousands):
FFO – Comparison of Year Ended December 31, 2009 to December 31, 2008
FFO decreased by $13.5 million, or 16.3%, for the year ended December 31, 2009 compared to the year ended December 31, 2008. Contributing to the decrease was an $8.2 million reduction in minimum rents. A large majority of the decrease is attributed to tenant bankruptcies and vacating tenants seen throughout the portfolio due primarily to the difficult economic environment nationally and within the regions where the Company’s Properties are located. Also contributing to the minimum rent decrease was a $1.4 million reduction in lease termination income. We also incurred a $5.0 million charge to fully reserve against the note receivable we received as part of the consideration in connection with our $144.0 million sale of University Mall, located in Tampa, Florida, in July 2007. Lastly, we incurred a $3.4 million non-cash impairment loss attributed to the recorded carrying value of undeveloped land in Vero Beach, Florida.
Offsetting these decreases to FFO, we incurred $2.2 million less in interest expense. The majority of this decrease can be attributed to a significant reduction in our average borrowing rate. We also received $1.8 million more in interest income. This increase in interest income can be attributed to our preferred interest relating to our mixed use development, Scottsdale Quarter, located in Scottsdale, Arizona (“Scottsdale Quarter”).
FFO – Comparison of Year Ended December 31, 2008 to December 31, 2007
FFO increased by $27.7 million or 50.1% for the year ended December 31, 2008 compared to the same period ended December 31, 2007. Contributing to this increase was a $3.5 million improvement in Property net operating income from our Properties held in continuing operations. The main factor contributing to this increase was the additional operating income obtained following the acquisition of Merritt Square, a Mall located in Merritt Island, Florida (“Merritt”). Also during the year ended December 31, 2007, we recorded $30.4 million of non-cash impairment charges. There were no impairment charges for the same period in 2008. Lastly, we incurred $5.7 million less in interest expense which was primarily attributed to lower interest rates and higher capitalized interest.
Offsetting these increases to FFO, we received $7.6 million less in property net operating income from Properties that were sold during 2007 and 2008. Also, we received $1.5 million less in FFO from our unconsolidated real estate entities primarily attributed to a $1.0 million favorable variance when we recorded our tenant reconciliations in 2007 as well as an increased provision for doubtful accounts.
Results of Operations - Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Total revenues decreased 3.5%, or $11.3 million, for the year ended December 31, 2009 compared to the year ended December 31, 2008. Of this amount, minimum rents decreased $8.2 million, percentage rents decreased $426,000, tenant reimbursements increased $178,000, and other income decreased $2.9 million.
Minimum rents decreased 4.2%, or $8.2 million, for the year ended December 31, 2009 compared with minimum rents for the year ended December 31, 2008. Of this amount, $6.8 million is primarily attributed to rent relief granted to tenants throughout the year and lost rents due to an overall decrease in occupancy due to bankruptcies we experienced throughout our portfolio. These decreases are related to the difficult economic environment nationally and within the regions where the Company’s Properties are located. We also received $1.4 million less in income from lease terminations.
Tenant reimbursements increased $178,000, or 0.2%, for the year ended December 31, 2009 compared to the year ended December 31, 2008. The increase in revenue can be attributed to a change in the mix of recoverable operating expenses.
Other revenues decreased 10.2%, or $2.9 million, for the year ended December 31, 2009 compared to the year ended December 31, 2008. The components of other revenues are shown below (in thousands):
Licensing agreement income relates to our tenants with rental agreement terms of less than thirteen months. During the year ended December 31, 2009, we sold two outparcels. These outparcels sold for a total of $1.7 million. During 2008, we sold three outparcels for a total of $6.1 million. Management fee income decreased by $892,000 during the year ended December 31, 2009 compared to the year ended December 31, 2008. This income includes property management fees, development fees, and loan guarantee fees we earned relating to Scottsdale Quarter.
Total expenses decreased 0.2%, or $463,000, for the year ended December 31, 2009 compared to the year ended December 31, 2008. Property operating expenses decreased $1.4 million, real estate taxes increased $1.4 million, the provision for doubtful accounts decreased $69,000, other operating expenses decreased $3.8 million, depreciation and amortization decreased $734,000, general and administra