SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
Commission File Number 1-13239
AEGIS REALTY, INC.
------------------
(Exact name of Registrant as specified in its charter)
Maryland 13-3916825
-------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
-------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, $.01 par value, 8,054,631 shares outstanding at November 13,
2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
============ ============
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Real estate, net $ 173,909 $ 171,357
Investment in partnerships 5,280 5,475
Loans receivable from affiliate 2,271 2,289
Cash and cash equivalents 2,345 2,917
Accounts receivable-tenants, net of allowance for
doubtful accounts of $494,000 and $378,000,
respectively 2,956 3,005
Deferred costs, net 4,315 4,086
Other assets 1,589 909
--------- ---------
Total Assets $ 192,665 $ 190,038
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 68,384 $ 66,148
Accounts payable and other liabilities 5,257 3,768
Distributions payable 2,407 2,116
--------- ---------
Total Liabilities 76,048 72,032
--------- ---------
Minority interest of unitholders in the
Operating Partnership 6,146 6,235
--------- ---------
Commitments and Contingencies
Stockholders' equity:
Common stock; $.01 par value;
50,000,000 shares authorized; 8,054,631
and 8,052,847 shares issued and outstanding
in 2002 and 2001, respectively 80 80
Additional paid in capital 125,399 125,379
Distributions in excess of net income (15,008) (13,688)
--------- ---------
Total Stockholders' Equity 110,471 111,771
--------- ---------
Total Liabilities and Stockholders' Equity $ 192,665 $ 190,038
========= =========
See accompanying notes to consolidated financial statements
2
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands except per share amounts)
(Unaudited)
========================== ==========================
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2002 2001 2002 2001
-------------------------- --------------------------
Revenues:
Rental income $ 5,038 $ 4,963 $ 15,265 $ 14,950
Tenant reimbursements 1,392 1,143 4,170 3,566
Early lease termination -- -- 736 17
Income from equity investments 24 46 203 205
Interest income 65 101 192 691
Other 33 28 101 96
----------- ----------- ----------- -----------
Total revenues 6,552 6,281 20,667 19,525
----------- ----------- ----------- -----------
Expenses:
Repairs and maintenance 570 510 1,632 1,328
Operating 406 348 1,219 1,019
Real estate taxes 618 610 1,891 1,855
Interest 882 1,072 2,618 3,501
Management fees 610 581 1,865 1,801
General and administrative 195 191 614 632
Depreciation and amortization 1,659 1,512 4,769 4,482
Terminated transaction costs -- 464 -- 2,790
Other 432 201 1,154 698
----------- ----------- ----------- -----------
Total expenses 5,372 5,489 15,762 18,106
----------- ----------- ----------- -----------
Income before gain on sales 1,180 792 4,905 1,419
Gain on sales of real estate 327 -- 327 --
----------- ----------- ----------- -----------
Income before minority interest 1,507 792 5,232 1,419
Minority interest in income of
the Operating Partnership (134) (70) (463) (124)
----------- ----------- ----------- -----------
Net income $ 1,373 $ 722 $ 4,769 $ 1,295
=========== =========== =========== ===========
Net income per share:
Basic $ .17 $ .09 $ .59 $ .16
=========== =========== =========== ===========
Diluted $ .17 $ .09 $ .59 $ .16
=========== =========== =========== ===========
Weighted average shares
outstanding:
Basic 8,054,631 8,051,716 8,054,435 8,051,119
=========== =========== =========== ===========
Diluted 8,055,815 8,057,855 8,063,694 8,057,259
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
3
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(Dollars in thousands)
(Unaudited)
Common Stock Additional Distributions
----------------------- Paid-in in Excess of
Shares Amount Capital Net Income Total
--------- ---------- ---------- ------------- ----------
Balance at
January 1, 2002 8,052,847 $ 80 $ 125,379 $ (13,688) $ 111,771
Net income 4,769 4,769
Issuance of shares of
common stock 1,784 -- 20 20
Distributions (6,089) (6,089)
--------- ---------- ---------- ------------- ----------
Balance at
September 30, 2002 8,054,631 $ 80 $ 125,399 $ (15,008) $ 110,471
========= ========== ========== ============= ==========
See accompanying notes to consolidated financial statements
4
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
=======================
Nine Months Ended
September 30,
-----------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 4,769 $ 1,295
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of real estate (327) --
Depreciation and amortization 4,800 4,467
Minority interest in income of
the Operating Partnership 463 125
Distributions from equity investments
in excess of income 164 160
Terminated transaction costs -- 2,467
Changes in operating assets and liabilities:
Accounts receivable-tenants (65) 554
Allowance for doubtful accounts 116 49
Other assets (615) (464)
Due to Advisor and affiliates (46) 412
Accounts payable and other liabilities 1,488 403
Leasing commissions and costs (1,055) (626)
------- -------
Net cash provided by operating activities 9,692 8,842
------- -------
Cash flows from investing activities:
Improvements to real estate (5,936) (2,301)
Increase in deferred acquisition expenses (44) (1,079)
Repayments of loans receivable from affiliate 19 18
Principal payments received on mortgage loans -- 3,217
------- -------
Net cash used in investing activities (5,961) (145)
------- -------
Cash flows from financing activities:
Proceeds from notes payable 2,500 1,500
Periodic repayments of notes payable (264) (244)
Distributions paid to stockholders (5,799) (5,796)
Increase in deferred loan costs (189) (29)
Distributions paid to minority interest (551) (551)
------- -------
Net cash used in financing activities (4,303) (5,120)
------- -------
(continued)
5
AEGIS REALTY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
=======================
Nine Months Ended
September 30,
-----------------------
2002 2001
---------- ----------
Net increase/(decrease) in cash and cash equivalents (572) 3,577
Cash and cash equivalents at the beginning of
the period 2,917 1,474
------- -------
Cash and cash equivalents at the end of the period $ 2,345 $ 5,051
======= =======
Supplemental information:
Interest paid $ 2,624 $ 3,314
======= =======
See accompanying notes to consolidated financial statements
6
AEGIS REALTY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
Note 1 - General
Aegis Realty, Inc. ("Aegis" or the "Company") is a Maryland corporation that has
qualified as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986 as amended (the "Code"). The Company was formed to acquire, own,
operate and renovate primarily supermarket-anchored neighborhood and community
shopping centers. As of September 30, 2002, the Company owned a portfolio of 28
retail properties containing a total of approximately 3.0 million gross
leaseable square feet and held partnership interests in two suburban garden
apartment properties.
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of four publicly registered, non-listed limited
partnerships, Summit Insured Equity L.P. ("Insured I"), Summit Insured Equity
L.P. II ("Insured II"), Summit Preferred Equity L.P. and Eagle Insured, L.P.
(the "Partnerships", and each individually a "Partnership"). One of the general
partners of the Partnerships was an affiliate of Related Capital Company
("Related"), a nationwide, fully integrated real estate financial services firm.
Pursuant to the Consolidation, the Company issued shares of its common stock,
par value $.01 per share (the "Common Stock") to all partners in the
Partnerships in exchange for their interests in the Partnership based upon each
partner's proportionate interest in the Common Stock issued to their Partnership
in the Consolidation.
The Company is governed by a board of directors comprised of two independent
directors and three directors who are affiliated with Related. The Company has
engaged Related Aegis LP (the "Advisor"), a Delaware limited partnership and an
affiliate of Related, to manage its day to day affairs.
The Company owns all of its assets directly or indirectly through Aegis Realty
Operating Partnership, LP, a Delaware limited partnership (the "Operating
Partnership" or "OP"), of which the Company is the sole general partner and
holder of 91.31% of the units of partnership interest (the "OP Units") at
September 30, 2002. At September 30, 2002, 5.54% of the OP Units are held by the
sellers of three of the retail properties and 3.15% were held by affiliates of
Related.
During 2001, the Company announced it had terminated a planned acquisition of
the assets of P'OB Montgomery & Company ("POB").
In light of the decision to terminate the acquisition of POB, the Company, at
the direction of the Board of Trustees, retained Robertson Stephens, Inc. to
assist in developing an appropriate marketing strategy for the potential sale of
the Company or its assets. If acceptable values cannot be achieved, the Board of
Trustees will then pursue alternative strategies with the goal of maximizing
stockholder value. The Company has discontinued its pursuit of additional
investments and is focusing on the continuation of active management, leasing
and redevelopment of the property portfolio in order to maintain the value of
its portfolio upon a sale. During October 2001, the Company had retained
Robertson Stephens, Inc. as an investment advisor to pursue the potential sale
of the Company or its assets. Subsequently, following Fleet Boston Financial
Corporation's decision to wind down the investment banking operations of
Robertson Stephens, the team assigned to the Company was hired by, and will
continue their assignment with, RBC Capital Markets.
The consolidated financial statements include the accounts of the Company and
its subsidiary partnerships. All intercompany accounts and transactions with the
subsidiary partnerships have been eliminated in consolidation. Unless otherwise
indicated, the "Company", as hereinafter used, refers to Aegis Realty, Inc. and
its consolidated subsidiary partnerships.
7
AEGIS REALTY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
The consolidated financial statements of the Company have been prepared without
audit. In the opinion of management, the financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of September 30, 2002
and the results of its operations for the three and nine months ended September
30, 2002 and 2001 and cash flows for the nine months ended September 30, 2002
and year ended December 31, 2001. However, the operating results for the interim
periods may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") have been condensed or
omitted. It is suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's Form
10-K for the year ended December 31, 2001.
The consolidated financial statements of the Company are prepared on the accrual
basis of accounting in conformity with GAAP, which requires the Advisor to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates and assumptions.
The Company has no items of other comprehensive income; therefore, the Company's
net income and comprehensive income are the same for all periods presented.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations" (SFAS 141) and Statement No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142). These statements establish new standards
for accounting and reporting for business combinations and for goodwill and
intangible assets resulting from business combinations. SFAS 141 applies to all
business combinations initiated after June 30, 2001. The Company implemented
SFAS 142 on January 1, 2002. Implementation of these statements did not have a
material impact on the Company's consolidated financial statements.
In June of 2001, the FASB issued SFAS No, 143, "Accounting for Asset Retirement
Obligations" (effective January 1, 2003). SFAS No. 143 requires the recording of
the fair value of a liability for an asset retirement obligation in the period
in which it is incurred. Management does not anticipate that the implementation
of SFAS No. 143 will have a material impact on the Company's consolidated
financial statements.
In August of 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long Lived Assets". SFAS No. 144 supercedes existing accounting
literature dealing with impairment and disposal of long-lived assets, including
discontinued operations. It addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of, and
expands current reporting for discontinued operations to include disposals of a
"component" of an entity that has been disposed of or is classified as held for
sale. The Company implemented SFAS No. 144 on January 1, 2002. Implementation of
this statements did not have a material impact on the Company's consolidated
financial statements.
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
SFAS No. 145 among other things, rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and accordingly, the reporting of gains and
losses from the early extinguishments of debt as extraordinary items will only
be required if they meet the specific criteria for extraordinary items included
in Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations". The rescission of SFAS No. 4 is effective January 1, 2003.
Management does not anticipate that the implementation of this statement will
have a material impact on the Company's consolidated financial statements.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 replaces current
accounting literature and requires the recognition of costs associated with exit
8
AEGIS REALTY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is not effective until
January 1, 2003. Management does not anticipate that the implementation of this
statement will have a material effect on the Company's consolidated financial
statements.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Note 2 - Real Estate
The components of real estate are as follows:
(Dollars in thousands)
September 30, December 31,
2002 2001
------------- -------------
Land $ 41,928 $ 42,042
Buildings and improvements 167,317 161,166
--------- ---------
209,245 203,208
Less: Accumulated depreciation (35,336) (31,851)
--------- ---------
$ 173,909 $ 171,357
========= =========
Amounts estimated to be recoverable from future operations and ultimate sales
are greater than the carrying value of each property owned at September 30,
2002. However, the carrying value of certain properties may be in excess of
their fair value as of such date.
Effective July 3, 2002, the Company sold an out parcel which was part of the
Rolling Hills Shopping Center for $500,000. The out parcel had a carrying value
of approximately $151,000 and costs associated with the sale of approximately
$23,000 which resulted in a gain of approximately $326,000.
Note 3 - Deferred Costs
The components of deferred costs are as follows:
(Dollars in thousands)
September 30, December 31,
2002 2001
------------- -------------
Deferred loan costs $ 3,697 $ 3,508
Deferred leasing commissions and costs 4,263 3,331
------- -------
7,960 6,839
Less: Accumulated amortization (3,645) (2,753)
------- -------
$ 4,315 $ 4,086
======= =======
9
AEGIS REALTY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
NOTE 4 - Notes Payable
The following table provides information about the Company's notes payable at
September 30, 2002.
(Dollars in thousands)
Collateral/
Date of Monthly Carrying
Note/ Payment Outstanding Outstanding Balloon Value at
Maturity Interest of Principal Balance at Balance at Payment/ September 30,
Noteholder Date Rate and Interest September 30, 2002 December 31, 2001 Due Date 2002
---------- ------------ ---------- ------------ ------------------ ----------------- -------- ---------------
(a) 12/29/97 (b) Interest $ 45,693(c) $ 43,193(c) (d)
12/29/03 only
Heller 6/24/97 (e) 8.50% $ 20 2,475 2,497 $ 2,307 Barclay Place/
Financial, Inc. 7/1/07 7/1/07 $ 3,991
Nomura 10/28/97 (f) 7.54% $ 33 3,600 3,690 Village At
Asset Capital 11/11/22 Waterford/
Corporation $ 6,128
Chase Bank 12/16/96 (g) 8.875% $ 52 6,174 6,226 $ 5,809 Oxford Mall/
1/1/07 1/1/07 $ 8,409
Merrill Lynch 9/18/97 (h) 7.73% $ 80 10,442 10,542 $ 9,635 Southgate/
Credit 10/1/07 -------- -------- 10/1/07 $ 15,112
Corporation
$ 68,384 $ 66,148
======== ========
10
AEGIS REALTY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
(a) The Credit Facility is shared among Fleet Bank (28.57%), KeyBank National
Association (28.57%), Citizens Bank of Rhode Island (28.57%) and Sovereign Bank
(14.29%).
In connection with the Credit Facility, the Company must comply with various
financial covenants including maximum loan to value ratios, interest and fixed
charge coverage ratios, and net worth requirements. Since the second quarter of
2001, through the first quarter of 2002, the Company was in compliance with all
covenants pertaining to this Credit Facility except one. The Company was not in
compliance with a covenant requiring that aggregate distributions by the Company
during any consecutive four quarters not exceed ninety percent of the Company's
funds from operations ("FFO") for such periods. Unlike the covenant provisions
based on adjusted net income, under the covenant in question, the Company's FFO
is not adjusted for extraordinary or nonrecurring items. As a result, FFO was
significantly reduced by nonrecurring expenses related to the termination of the
POB transaction (Note 1). The Company received a permanent waiver of this
covenant from each of the syndicate banks of the Credit Facility for each of the
quarters' of non-compliance.
(b) The interest rate under the Credit Facility can float 1/2% under Fleet
Bank's base rate or can be fixed in 30, 60, 90 and 180 day periods at various
spreads over the indicated Euro-contract, ranging from 1.75% to 2.125% depending
on the Company's ratio of total debt to total assets. The Company has currently
elected the 30 day rate which was 1.82% at September 30, 2002.
(c) Outstanding balance of an $80 million senior revolving credit facility
("Credit Facility").
(d) The Credit Facility was collateralized at September 30, 2002 by nineteen
Retail Properties and one investment in a partnership with carrying values of
$109,724,335 and $4,691,250, respectively. In addition, the obligation under the
Credit Facility is guaranteed by the Company, Summit Insured I, Summit Insured
II (two of the Company's subsidiaries) and TCR-Pinehurst Limited Partnership
(one of the two partnerships in which the Company has invested).
(e) Note was assumed upon purchase by the Company on March 30, 1998 of the
property collateralizing the note.
(f) Note was assumed upon purchase by the Company on April 22, 1998 of the
property collateralizing the note.
(g) Note was assumed upon purchase by the Company on November 24, 1998 of the
property collateralizing the note.
(h) Note was assumed upon purchase by the Company on December 9, 1998 of the
property collateralizing the note .
Note 5 - Common Stock and Stock Options
Each independent director is entitled to receive annual compensation for serving
as a director in the aggregate amount of $17,500 payable in cash (maximum of
$7,500 per year) and/or shares of Common Stock valued based on the fair market
value at the date of issuance. As of September 30, 2002 and December 31, 2001,
10,204 and 8,420 shares, respectively, having an aggregate value at the date of
issuance of $105,000 and $85,000, respectively, have been issued to the
Company's two independent directors as compensation for their services.
On August 2, 2001, the Board of Directors, including the members of the
Compensation Committee, approved the grant of options to acquire 241,522 shares
of common stock to employees and affiliates of the advisor. For the nine months
ended September 30, 2002, the dilutive effect, calculated using the treasury
stock method, of the 241,522 stock options was 9,259 shares.
11
AEGIS REALTY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
Note 6 - Related Party Transactions
Pursuant to the Advisory Agreement, the Advisor receives (i) acquisition fees
equal to 3.75% of the acquisition price of properties acquired; (ii) mortgage
selection fees based on the principal amount of mortgage loans funded; (iii)
asset management fees equal to .375% of the total invested assets of the
Company; (iv) a 1.5% liquidation fee based on the gross sales price of the
assets sold by the Company in connection with a liquidation of the Company's
assets; and (v) reimbursement of certain administrative costs incurred by the
Advisor on behalf of the Company.
The Company's Retail Properties are managed by RCC Property Advisors (the
"Property Manager"), an affiliate of the Advisor, (i) for a fee equal to 4.5% of
the gross rental receipts from the Retail Properties, which is competitive with
such fees paid in the areas in which the properties are located; and (ii) in
connection with asset sales if the new owner terminates the property management
agreement, a fee equal to 1% of gross sales price. The Property Manager also
receives standard leasing commissions for space leased to new tenants and for
lease renewals and is reimbursed for certain expenses.
The costs incurred to related parties for the three and nine months ended
September 30, 2002 and 2001 were as follows:
(Dollars in thousands)
================== =================
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2002 2001 2002 2001
------------------ -----------------
Expense reimbursements $ 75 $ 73 $ 215 $ 215
Property management fees 284 268 909 865
Leasing commissions and costs 724 292 986 484
Asset management fees 193 194 573 578
------ ------ ------ ------
$1,276 $ 827 $2,683 $2,142
====== ====== ====== ======
Note 7 - Earnings Per Share
Basic and diluted net income per share in the amount of $.17 and $.09 and $.59
and $.16 for the three and nine months ended September 30, 2002 and 2001,
respectively, equals net income for the period of $1,373 and $722 and $4,769 and
$1,295, respectively, divided by the weighted average number of shares
outstanding for the periods (8,054,631 and 8,051,716 and 8,054,435 and 8,051,119
respectively for the basic earnings per share and 8,055,815 and 8,057,855, and
8,063,694 and 8,057,259 for the diluted earnings per share).
There is no difference between basic and diluted net income per share with
respect to the conversion of the minority interests' OP Units outstanding at
September 30, 2002 and 2001 into an additional 765,780 shares of Common Stock
because the earnings of an OP Unit are equivalent to the earnings of a share of
Common Stock.
Note 8 - Commitments and Contingencies
The Company is subject to routine litigation and administrative proceedings
arising in the ordinary course of business. Management does not believe that
such matters will have a material adverse impact on the Company's financial
position, results of operations or cash flows.
Note 9 - Subsequent Event
In November 2002, a distribution of $1,933,111 ($.24 per share), which was
declared in September 2002, was paid to the stockholders from cash flow from
operations for the quarter ended September 30, 2002.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
-------------------------------
The Company requires long-term liquidity in order to invest in and maintain its
portfolio of Retail Properties and other investments. To date, this long-term
liquidity has come from proceeds from the Credit Facility, notes payable assumed
upon the purchase of certain properties and the issuance of shares of the
Company's Common Stock or OP Units in exchange for real estate. Although the
Credit Facility may be increased, the Company's charter dictates leverage of no
more than 50% of the Company's total market value. On a short-term basis, the
Company requires funds to pay its operating expenses and those of the Retail
Properties, to make improvements to the Retail Properties, pay its debt service
and make distributions to its stockholders. The primary sources of the Company's
short-term liquidity needs are the cash flow received from the Retail
Properties.
In light of the decision to terminate the acquisition of POB, the Company, at
the direction of the Board of Trustees, retained Robertson Stephens, Inc. to
assist in developing an appropriate marketing strategy for the potential sale of
the Company or its assets. If acceptable values cannot be achieved, the Board of
Trustees will then pursue alternative strategies with the goal of maximizing
stockholder value. The Company has discontinued its pursuit of additional
investments and is focusing on the continuation of active management, leasing
and redevelopment of the property portfolio in order to maintain the value of
its portfolio upon a sale. During October 2001, the Company had retained
Robertson Stephens, Inc. as an investment advisor to pursue the potential sale
of the Company or its assets. Subsequently, following Fleet Boston Financial
Corporation's decision to wind down the investment banking operations of
Robertson Stephens, the team assigned to the Company was hired by, and will
continue their assignment with, RBC Capital Markets.
In order to maintain its REIT status, the Company is required to distribute at
least 90% of its taxable income. Funds generated from operations are expected to
be sufficient to allow the Company to meet this requirement.
The Advisor believes that the stability of the Company's operations and its
ability to maintain liquidity are enhanced by the following factors:
(i) Geographic diversity of its portfolio of real estate.
(ii) 46% of total revenues for the nine months ended September 30, 2002 were
earned from shopping center anchor tenants which are national and/or credit
tenants.
(iii) No single asset accounts for more than 8% of total revenues for the nine
months ended September 30, 2002.
(iv) Leases that provide for recovery of actual common area maintenance charges
and real estate taxes, thereby minimizing any effects from inflation.
(v) Leases that provide for increases in rents based on a percentage of tenants'
sales.
During the nine months ended September 30, 2002, cash and cash equivalents of
the Company and its consolidated subsidiaries decreased approximately $572,000.
This decrease was primarily due to improvements to real estate ($5,936,000),
distributions paid to stockholders ($5,799,000) and distributions paid to
minority interest ($551,000) offset by cash provided by operating activities,
$9,692,000 and net proceeds from notes payable, $2,500,000. Included in the
adjustments to reconcile the net income to cash provided by operating activities
is depreciation and amortization in the amount of $4,800,000.
The Company anticipates that cash generated from operations will provide for all
major repairs, replacements and tenant improvements on its real estate and will
provide sufficient liquidity to fund the Company's operating expenditures, debt
service and distributions.
The Company has the following problem assets which may adversely affect future
operations and liquidity:
13
(i) Safeway, the anchor tenant of Cactus Village Shopping Center closed its
facility in December 1991 due to poor sales. Other than a small arrearage for a
contractual increase in minimum rent, the tenant has abided by all aspects of
its lease, which was to expire in September 2006. After negotiations with the
Company, Safeway terminated its lease in June 2002 upon payment of $750,000 to
the Company.
(ii) In July 1994, A&P closed its store in the Mountain Park Plaza Shopping
Center due to reduced sales and increased competition. The Company received
rental payments from the vacated tenant pursuant to the terms of the lease. In
December 2000, A&P bought out its lease for $300,000 and the Company entered
into a new lease with Publix. The former A&P space has been demolished and the
reconstruction of Publix was completed in July 2002. The Company's cost to
reconstruct this space totaled approximately $4,147,000 (prior to tenant
reimbursement of approximately $662,000) of which approximately $1,300,000 was
paid in 2001. Publix opened its new store to the public on July 11, 2002.
(iii) White Oaks Plaza shopping center, located in Spindale, NC, was deemed to
be impaired in the 4th quarter of 2001. The Company's impairment determination
was due to three anchors vacating their spaces and increased competition in the
surrounding area. Two of these anchors, Walmart and Winn Dixie, are still paying
rent and are current in their rent payments. Using undiscounted cash flows
compared to the book value of approximately $6.2 million resulted in a deficit,
indicating impairment. The Company recognized a loss on impairment of $2.5
million during the fourth quarter of 2001, resulting from comparing discounted
cash flows (at a market discount rate for this type of property) to the book
value.
(iv) Office Max, one of the anchor tenants of Town West which was under
sublease, vacated its space in February 2000 but the original lessee is still
obligated to pay rent. The lessee stopped paying rent in April 2001 and has been
in default since that date. The Company has reserved 50% of the outstanding
balance of $150,783 at September 30, 2002 and has initiated legal proceedings.
The Company feels its case is strong and will recover the full amount owed.
(v) Food Lion, located in Barclay Place, closed its store in December 2000. It
is still obligated to pay rent through the expiration of its lease in December
2009. To date, Food Lion is current with all rent payments.
(vi) The Company was notified that K-Mart, which filed for bankruptcy, had
closed its store located in the Centre Stage Shopping Center in Springfield,
Tennessee and has rejected the lease as of June 29, 2002. The store has
approximately 86,479 square feet of gross leasable area and represented
approximately $397,000 in annualized base rent. K-Mart has paid rent through
June 30, 2002.
Effective July 3, 2002, the Company sold an out parcel which was part of the
Rolling Hills Shopping Center for $500,000. The out parcel had a carrying value
of approximately $151,000 and costs associated with the sale of approximately
$23,000 which resulted in a gain of approximately $326,000.
In connection with the Credit Facility (Note 4), the Company must comply with
various financial covenants including maximum loan to value ratios, interest and
fixed charge coverage ratios, and net worth requirements. Since the second
quarter of 2001, through the first quarter of 2002, the Company was in
compliance with all convenants pertaining to this Credit Facility except one.
The Company was not in compliance with a covenant requiring that aggregate
distributions by the Company during any consecutive four quarters not exceed
ninety percent of the Company's funds from operations ("FFO") for such period.
Unlike the covenant provisions based on adjusted net income, under the covenant
in question, the Company's FFO is not adjusted for extraordinary or nonrecurring
items. As a result, FFO was significantly reduced by nonrecurring expenses
related to the termination of the POB transaction (Note 1). The Company received
a permanent waiver of this covenant from each of the syndicate banks of the
Credit Facility for each of the quarters of non-compliance.
In November 2002, a distribution of $1,933,111 ($.24 per share), which was
declared in September 2002, was paid to the stockholders from cash flow from
operations for the quarter ended September 30, 2002.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
14
Results of Operations
---------------------
Rental income increased approximately $75,000 and $315,000 for the three and
nine months ended September 30, 2002 as compared to 2001 primarily due to the
increase of minimum rent at Rolling Hills, Mountain Park and Westbird.
Tenant reimbursements increased approximately $249,000 and $604,000 for the
three and nine months ended September 30, 2002 as compared to 2001 due to the
increase of the reimbursements of common charges at Westbird, Winery Square,
Crossroads and Townwest and the reimbursements of insurance for Pablo Plaza,
Birdneck, Winery Square and Cape Henry.
Early lease termination increased approximately $719,000 for the nine months
ended September 30, 2002 as compared to 2001 due to the $750,000 lease
settlement with Safeway at Cactus Village.
Interest income decreased approximately $36,000 and $499,000 for the three and
nine months ended September 30, 2002 as compared to 2001 primarily due to the
repayment of the Woodgate mortgage loan in April 2001.
Repairs and maintenance increased approximately $60,000 and $304,000 for the
three and nine months ended September 30, 2002 as compared to 2001 primarily due
to an increase in miscellaneous maintenance costs of Westbird and Birdneck,
painting costs at White Oak Plaza, Town West and Crossroads and landscaping
costs of Westbird and Winery Square.
Operating expenses increased approximately $58,000 and $200,000 for the three
and nine months ended September 30, 2002 as compared to 2001 primarily due to
the write-off of unamortized lease costs of Marketplace, Southgate and Governors
Square, legal expenses of Cactus Village and Applewood and security expenses of
Winery Square, Oxford and Birdneck.
Interest expense decreased approximately $190,000 and $883,000 for the three and
nine months ended September 30, 2002 as compared to 2001, primarily due to the
lower interest rate of the Credit Facility.
Funds from Operations and Funds Available for Distribution
----------------------------------------------------------
Funds from operations ("FFO"), represents income (or loss) before minority
interest (computed in accordance with accounting principles generally accepted
in the United States) ("GAAP"), excluding gains (or losses) from debt
restructuring or repayments and sales of property, plus depreciation and
amortization and including funds from operations for unconsolidated joint
ventures calculated on the same basis. Income computed in accordance with GAAP
includes straight-lining of property rentals for rent escalations in the amounts
of $17,364 and $23,788 and $107,595 and $34,867 for the three and nine months
ended September 30, 2002 and 2001, respectively. FFO is calculated in accordance
with the National Association of Real Estate Investment Trusts ("NAREIT")
definition. FFO does not represent cash generated from operating activities in
accordance with GAAP which is disclosed in the Consolidated Statements of Cash
Flows included in the financial statements for the applicable periods, and is
not necessarily indicative of cash available to fund cash needs. There are no
material legal or functional restrictions on the use of FFO. FFO should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers FFO a supplemental measure of operating
performance and along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs.
Funds available for distribution ("FAD") represents FFO plus recurring principal
receipts from mortgage loans less reserves for lease commissions, recurring
capital expenditures (excluding property acquisitions) and debt principal
amortization. FAD should not be considered an alternative to net income as a
measure of the Company's financial performance or to cash flow from operating
activities (computed in accordance with GAAP) as a measure of the Company's
liquidity, nor is it necessarily indicative of sufficient cash flow to fund all
of the Company's needs.
15
FFO, as calculated in accordance with the NAREIT definition, and FAD for the
three and nine months ended September 30, 2002 and 2001 are summarized in the
following table:
(Dollars in thousands)
=========================== ===========================
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2002 2001 2002 2001
--------------------------- ---------------------------
Income before minority interest $ 1,507 $ 792 $ 5,232 $ 1,420
Depreciation and amortization
of real property 1,446 1,332 4,158 3,954
Depreciation and amortization
from equity investments 61 61 182 182
----------- ----------- ----------- -----------
Funds From Operations ("FFO") 3,014 2,185 9,572 5,556
Amortization of deferred financing
costs 223 191 642 564
Principal payments received on
mortgage loans -- -- -- 3,217
Straight-lining of property rentals
for rent escalations (18) (24) (108) (35)
Improvements to real estate (639) (701) (5,936) (2,301)
Principal repayments on notes
payable (87) (80) (264) (243)
Leasing commissions and costs (803) (373) (1,055) (626)
----------- ----------- ----------- -----------
Funds Available for Distribution
("FAD") $ 1,690 $ 1,198 $ 2,851 $ 6,132
=========== =========== =========== ===========
Distributions to stockholders and
minority interest $ 2,175 $ 2,116 $ 6,640 $ 6,349
=========== =========== =========== ===========
FFO payout ratio 72.2% 96.9% 69.4% 114.3%
=========== =========== =========== ===========
Cash flows from:
Operating activities $ 1,268 $ 1,943 $ 9,692 $ 8,842
=========== =========== =========== ===========
Investing activities $ (677) $ (835) $ (5,961) $ (145)
=========== =========== =========== ===========
Financing activities $ (2,204) $ (2,222) $ (4,303) $ (5,120)
=========== =========== =========== ===========
Weighted average common shares
and OP Units outstanding
Basic 8,819,911 8,817,496 8,819,715 8,816,399
=========== =========== =========== ===========
Diluted 8,821,095 8,823,635 8,828,974 8,823,039
=========== =========== =========== ===========
Forward-Looking Statements
--------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.
16
Inflation
---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The debt financing used to raise capital for the acquisition of the Company's
investments exposes the Company to fluctuations in market interest rates. Market
interest rates are highly sensitive to many factors, including governmental
policies, domestic and international political considerations and other factors
beyond the control of the Company.
Cash flows from the Company's investments do not fluctuate with changes in
market interest rates. In addition, as of September 30, 2002, approximately 35%
of the Company's total notes payable outstanding are fixed rate notes, and so
the payments on these instruments do not fluctuate with changes in market
interest rates. In contrast, payments required under the Credit Facility vary
based on market interest rates, primarily the 30 day Euro-contract rate. Thus,
an increase in market interest rates would result in increased payments under
the Credit Facility, without a corresponding increase in cash flows from the
Company's investments in the same amounts. For example, based on the $45,693,000
outstanding under the Credit Facility at September 30, 2002, the Company
estimates that an increase of 1% in the 30 day Euro-contract rate would decrease
the Company's annual net income by approximately $457,000; a 2% increase in the
30 day Euro-contract rate would decrease annual net income by approximately
$914,000. For the same reasons, a decrease in market interest rates would
generally benefit the Company, as a result of decreased payments under the
Credit Facility without corresponding decreases in cash flows from the Company's
investments. Various financial vehicles exist which would allow Company
management to mitigate the impact of interest rate fluctuations on the Company's
cash flows and earnings. Management may engage in such hedging strategies in the
future, depending on management's analysis of the interest rate environment and
the costs and risks of such strategies.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as
such term is defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of a date within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to the Company
(including its consolidated subsidiaries) required to be included in
the Company's reports filed or submitted under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have
not been any significant changes in the Company's internal controls or
in other factors that could significantly affect such controls.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part 1. Financial Statements - Note 8 which is incorporated herein
by reference.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities and Use of Proceeds - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Chief Executive Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.3 Amendment to Management Agreement.
(b) Reports on Form 8-K:
Current report on form 8-K relating to the extension of the
Management Agreement between the Company, Insured I, Insured II,
the OP and the Property Manager, dated September 13, 2002 and
filed September 26, 2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AEGIS REALTY, INC.
(Registrant)
Date: November 12, 2002 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Director, Chairman of the
Board, President and
Chief Executive Officer
Date: November 12, 2002 By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein
Chief Financial Officer
CERTIFICATION
I, Stuart J. Boesky, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of Aegis Realty,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors or persons
performing the equivalent functions:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Stuart J. Boesky
----------------- --------------------
Stuart J. Boesky
Chief Executive Officer
November 14, 2002
CERTIFICATION
I, Stuart A. Rothstein, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of Aegis Realty,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors or persons
performing the equivalent functions:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Stuart A. Rothstein
----------------- -----------------------
Stuart A. Rothstein
Chief Financial Officer
November 14, 2002
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aegis Realty, Inc. (the "Company") on
Form 10-Q for the period ending September 30, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Stuart J. Boesky,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Chief Executive Officer
November 12, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Aegis Realty, Inc. (the "Company") on
Form 10-Q for the period ending September 30, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Stuart A.
Rothstein, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein
Chief Financial Officer
November 12, 2002
AMENDMENT OF MANAGEMENT AGREEMENT
This AMENDMENT OF MANAGEMENT AGREEMENT, dated as of October 1, 2001 (this
"Amendment") by and between AEGIS REALTY, INC., SUMMIT INSURED EQUITY L.P.,
SUMMIT INSURED EQUITY II L.P. and AEGIS REALTY OPERATING PARTNERSHIP, L.P. as
("OWNER") and RCC PROPERTY ADVISORS ("RCC"), a Florida General Partnership, by
its General Partner, APH Associates, Inc. Capitalized terms not otherwise
defined in this Amendment shall have the meanings ascribed to such terms in the
Management Agreement (defined below).
W I T N E S S E T H :
WHEREAS, OWNER and RCC entered into that certain Management Agreement,
dated October 1, 1997 (the "Management Agreement"), which Management Agreement
is automatically renewed unless terminated by either party; and
WHEREAS, OWNER has announced that it has retained an investment advisor to
assist OWNER in developing a marketing strategy to pursue a sale of the OWNER or
its assets (the "Liquidation Proposal"); and
WHEREAS, OWNER's advisor, Related Aegis, Inc., sought to retain a
third-party property manager to manage OWNER's portfolio following announcement
of the Liquidation Proposal and determined that such property managers were
unwilling to undertake such engagement without payment of (i) a termination fee
equal to from 1% to 3% and (ii) property management fees substantially in excess
of those currently charged by RCC; and
WHEREAS, OWNER desires to continue to retain RCC to provide property
management and leasing services with respect to the PROJECTS for consideration
which is not in excess of the market rates and terms for the areas in which the
PROJECTS are located; and
WHEREAS, RCC desires to perform property management services and OWNER and
RCC desire to amend the Management Agreement to reflect market rate compensation
in light of the Liquidation Proposal.
NOW, THEREFORE, the Management Agreement is hereby amended as follows:
1. Section 9.01 and Section 9.02 of the Management Agreement is amended by
replacing the existing Sections 9.01 and 9.02 with the following:
9.01 This Agreement shall commence on the 1st day of October 1997, and
shall continue in full force and effect for an INITIAL TERM of one (1)
year from such commencement date, and on and after October 1, 2001,
shall be automatically extended for successive terms of three (3)
years, unless either party elects not to extend the term by delivering
written notice to the other party at least ninety (90) days prior to
the expiration of the then existing term, or unless this Agreement is
otherwise terminated as hereinafter provided.
9.02 RCC may terminate this Agreement after not less than thirty (30)
days notice to OWNER.
2. New Section 9.07 is hereby added to the Management Agreement as follows:
9.07 Upon the transfer of title to the a PROJECT by OWNER to a person
or entity that is independent of OWNER, either party may terminate
this Agreement with respect to such PROJECT, provided, however, that
in the event OWNER terminates this Agreement, OWNER shall pay RCC a
fee equal to 1.00% of the gross sales price of the PROJECT(S) sold;
and provided further, that if OWNER executes a contract for sale or
option to sell a PROJECT, OWNER shall forthwith notify RCC in writing
that said contract has been executed and as to the approximate closing
date.
3. Except as otherwise modified by this Amendment, the Management Agreement
remains unchanged and is in all respects ratified and confirmed.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed as of the day and year first above written.
OWNER: AEGIS REALTY, INC.:
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
OWNER: SUMMIT INSURED EQUITY L.P.
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
OWNER: SUMMIT INSURED EQUITY II,L.P.
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
OWNER: AEGIS REALTY OPERATING
PARTNERSHIP, L.P.
By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
RCC PROPERTY ADVISORS, a Florida
Partnership
By: APH ASSOCIATES, INC., a
General Partner
By: /s/ Stuart A. Rothstein
-----------------------
Stuart A. Rothstein