<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2000 Commission File Number 1-14516
PRENTISS PROPERTIES TRUST
(Exact Name of Registrant as Specified in its Charter)
Maryland 75-2661588
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3890 West Northwest Highway, Suite 400, Dallas, Texas 75220
(Address of Registrant's Principal Executive Office)
(214) 654-0886
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
The number of Common Shares of Beneficial Interest, $0.01 par value,
outstanding as of August 10, 2000, was 36,358,902 and the number of outstanding
Participating Cumulative Redeemable Preferred Shares of Beneficial Interest,
Series A, was 3,773,585.
<PAGE>
PRENTISS PROPERIES TRUST
INDEX
-----
Part I: FINANCIAL INFORMATION Page Number
-----------
Item 1. Financial Statements
Consolidated Balance Sheets of Prentiss
Properties Trust atJune 30, 2000 (unaudited)
and December 31, 1999 4
Consolidated Statements of Income of Prentiss
Properties Trust for the three month periods
and the six month periods ended June 30, 2000
and 1999 (unaudited) 5
Consolidated Statements of Cash Flows of
Prentiss Properties Trust for the six month
periods ended June 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14-22
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 22-23
Part II: OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Default Upon Mortgages and Notes Payable 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24-26
SIGNATURE 27
2
<PAGE>
FORWARD-LOOKING STATEMENTS
This Form 10-Q and the documents incorporated by reference herein contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in
this Form 10-Q, words such as "anticipate," "believe," "estimate," "expect,"
"intend," "predict," "project," and similar expressions, as they relate to us or
our management, identify forward-looking statements. Such forward-looking
statements are based on the beliefs of our management as well as assumptions
made by and information currently available to us. These forward-looking
statements are subject to certain risks, uncertainties and assumptions,
including, but not limited to, risks, uncertainties and assumptions related to
the following:
<TABLE>
<CAPTION>
<S> <C>
. the geographic concentration of our properties; . conflicts of interest;
. our real estate acquisition, redevelopment, . change in our investment, financing and borrowing
development and construction activities; policies without shareholder approval;
. operating performance of our properties; . our dependence on key personnel;
. our incurrence of debt; . our third-party property management, leasing,
development and construction business and related
services; and
. limited ability of shareholders to effect a change . effect of shares available for future sale on price
of control; of common shares.
. our failure to qualify as a REIT;
</TABLE>
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, expected or projected. Such forward-looking statements
reflect our current views with respect to future events and are subject to these
and other risks, uncertainties and assumptions, relating to our operations,
results of operations, growth strategy and liquidity. All subsequent written and
oral forward-looking statements attributable to us or individuals acting on our
behalf are expressly qualified in their entirety by this paragraph. A detailed
discussion of risks is included, under the caption "Risk Factors," in the
Company's Form 10-K, filed on March 24, 2000.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
3
<PAGE>
PRENTISS PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Real estate:
Land........................................................... $ 296,317 $ 298,555
Buildings and improvements..................................... 1,490,913 1,481,831
Construction in progress....................................... 67,896 87,860
Land held for development...................................... 26,527 30,236
---------- ----------
1,881,653 1,898,482
Less: accumulated depreciation................................. (107,860) (91,461)
---------- ----------
Total real estate assets....................................... 1,773,793 1,807,021
Deferred charges and other assets, net.......................... 128,711 115,250
Receivables, net................................................ 31,720 28,277
Cash and cash equivalents....................................... 13,784 13,313
Escrowed cash................................................... 42,401 6,481
Other receivables (affiliates).................................. 3,617
Investments in joint ventures and unconsolidated subsidiaries.. 19,796 20,704
---------- ----------
Total assets................................................... $2,010,205 $1,994,663
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt on real estate............................................. $ 942,141 $ 896,810
Accounts payable and other liabilities.......................... 59,491 68,144
Other payables (affiliates)..................................... 1,787
Distributions payable........................................... 23,412 18,896
---------- ----------
Total liabilities............................................... 1,026,831 983,850
---------- ----------
Minority interest in operating partnership...................... 177,608 177,817
---------- ----------
Minority interest in real estate partnerships................... 1,430 1,503
---------- ----------
Commitments and contingencies
Preferred shares $.01 par value, 20,000,000 shares
authorized, 3,773,585 shares issued and outstanding
at June 30, 2000 and December 31, 1999......................... 100,000 100,000
Common shares $.01 par value, 100,000,000 shares
authorized, 40,425,014 and 40,078,643 (includes
4,098,136 and 2,591,900 in treasury) shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively................................................. 404 401
Additional paid-in capital...................................... 797,179 789,554
Unearned compensation........................................... (3,900)
Retained earnings............................................... 3,135 5,329
Common shares in treasury, at cost, 4,098,136 and 2,591,900
shares at June 30, 2000 and December 31, 1999, respectively.... (92,482) (63,791)
---------- ----------
Total shareholders' equity..................................... 804,336 831,493
---------- ----------
Total liabilities and shareholders' equity..................... $2,010,205 $1,994,663
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
PRENTISS PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income........................................ $84,222 $73,100 $164,665 $144,060
Management and other fees, net....................... 1,062 793 1,732 1,195
------- ------- -------- --------
Total revenues...................................... 85,284 73,893 166,397 145,255
------- ------- -------- --------
Expenses:
Property operating and maintenance.................. 19,855 16,738 37,701 32,819
Real estate taxes................................... 9,639 8,831 19,572 17,417
General and administrative and personnel costs, net. 2,836 2,339 5,126 4,410
Interest expense.................................... 17,441 14,595 34,467 28,088
Amortization of deferred financing costs............ 361 270 689 519
Depreciation and amortization....................... 15,435 13,340 30,269 25,484
------- ------- -------- --------
Total expenses...................................... 65,567 56,113 127,824 108,737
------- ------- -------- --------
Equity in income of joint ventures and unconsolidated
subsidiaries.......................................... 855 1,102 1,804 2,244
------- ------- -------- --------
Income before gain on sales and minority interests..... 20,572 18,882 40,377 38,762
Gain on sales.......................................... 1,199 193 2,246 289
Minority interests..................................... (3,936) (2,674) (7,841) (5,395)
------- ------- -------- --------
Net income............................................. $17,835 $16,401 $ 34,782 $ 33,656
Preferred dividends.................................... (1,830) (1,660) (3,491) (3,170)
------- ------- -------- --------
Net income applicable to common shareholders........... $16,005 $14,741 $ 31,291 $ 30,486
======= ======= ======== ========
Net income per common share - basic.................... $0.44 $0.39 $0.87 $0.80
======= ======= ======== ========
Weighted average number of common shares outstanding -
basic................................................. 36,165 37,889 36,116 37,994
======= ======= ======== ========
Net income per common share - diluted.................. $0.44 $0.39 $0.86 $0.80
======= ======= ======== ========
Weighted average number of common shares and
common share equivalents outstanding - diluted....... 36,433 38,019 36,269 38,070
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
PRENTISS PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
-------------------- ---------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income..................................................... $ 34,782 $ 33,656
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interests......................................... 7,841 5,395
Gain on sales.............................................. (2,246) (289)
Provision for doubtful accounts............................ 1,026 382
Depreciation and amortization.............................. 30,269 25,484
Amortization of deferred financing costs................... 689 519
Equity in income of joint ventures & unconsolidated
subsidiaries............................................ (1,804) (2,244)
Non-cash compensation...................................... 430 50
Changes in assets and liabilities:
Deferred charges and other assets.......................... (6,035) 141
Receivables................................................ (4,876) (3,570)
Escrowed cash.............................................. (35,920) (991)
Other payables/receivables (affiliates).................... 5,404 (1,970)
Accounts payable and other liabilities..................... (6,822) (12,590)
-------- ---------
Net cash provided by operating activities...................... 22,738 43,973
-------- ---------
Cash Flows from Investing Activities:
Purchase and development of real estate........................ (70,556) (40,610)
Investment in real estate...................................... (19,908) (22,254)
Investment in joint ventures................................... (12) (9,757)
Proceeds from sale of real estate.............................. 86,719 11,095
Distributions received from joint ventures and unconsolidated
subsidiaries............................................... 2,135 2,596
-------- ---------
Net cash used in investing activities.......................... (1,622) (58,930)
-------- ---------
Cash Flows from Financing Activities:
Net proceeds from sale of common shares........................ 3,187 1,217
Purchase of treasury shares.................................... (28,691) (26,257)
Distributions paid to limited partners......................... (1,483) (1,383)
Distributions paid to common shareholders...................... (32,364) (30,716)
Distributions paid to preferred shareholders................... (3,321) (3,019)
Distributions paid to preferred unitholders.................... (3,152) (1,971)
Distributions paid for minority interest in consolidated
subsidiaries............................................... (152)
Proceeds from debt on real estate.............................. 105,317 333,826
Repayments of debt on real estate.............................. (59,986) (250,513)
-------- ---------
Net cash (used in)/provided by financing activities............ (20,645) 21,184
-------- ---------
Net change in cash and cash equivalents...................... 471 6,227
Cash and cash equivalents, beginning of period............... 13,313 5,523
-------- ---------
Cash and cash equivalents, end of period....................... $ 13,784 $ 11,750
======== =========
Supplemental Cash Flow Information:
Cash paid for interest......................................... $ 33,817 $ 29,854
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. The Organization
Prentiss Properties Trust is a Maryland Real Estate Investment Trust
("REIT") that acquires, owns, manages, leases, develops and builds office and
industrial properties throughout the United States. The Company is self-
administered in that it provides its own administrative services, such as
accounting, tax and legal, internally through its own employees. The Company is
self-managed in that it internally provides all the management and maintenance
services that its properties require through its own employees such as property
managers, leasing professionals and engineers. The Company operates principally
through Prentiss Properties Acquisition Partners, L.P. and its subsidiaries (the
"Operating Partnership") and Prentiss Properties Limited, Inc. (the "Manager")
(collectively referred to herein as the "Company"). As of June 30, 2000, the
Company owned interests in a diversified portfolio of 186 primarily suburban
Class A office and suburban industrial properties containing approximately 19.1
million net rentable square feet. The properties consist of 133 office buildings
(the "Office Properties") containing approximately 15.1 million net rentable
square feet and 53 industrial buildings (the "Industrial Properties" and
together with the Office Properties, the "Properties") containing approximately
4.0 million net rentable square feet. The Properties include 6 Properties
containing 734,000 square feet that are in various stages of development or have
been recently developed by the Company and are in various stages of lease-up
(the "Development Properties"). The Development Properties, upon completion,
will include 734,000 square feet of office space. As of June 30, 2000, the
Office Properties and Industrial Properties, exclusive of the Development
Properties, were approximately 96% leased to approximately 1,200 tenants and
approximately 93% leased to approximately 100 tenants, respectively. In addition
to managing the Properties that the Company owns or has ownership interests in,
the Company manages approximately 24.7 million net rentable square feet in
office, industrial and other properties that are owned by third parties.
The Merger
On June 27, 2000, the Company, the Operating Partnership, Mack-Cali Realty
Corporation, a Maryland corporation ("Mack-Cali"), and Mack-Cali Realty, L.P.,
entered into an agreement and plan of merger (the "Merger Agreement"). The
Merger Agreement provides for a merger of the Company with and into Mack-Cali
(the "Merger"), with Mack-Cali being the surviving corporation and, immediately
prior to the merger, a merger of the Operating Partnership with and into Mack-
Cali Realty, L.P. (or a limited liability company or a limited partnership owned
entirely directly or indirectly by Mack-Cali Realty, L.P.) (the "Partnership
Merger" and together with the Merger, the "Mergers").
Under the terms of the Merger Agreement, the Company's common shares will
be exchanged at a fixed ratio of 0.956 of a share of Mack-Cali's common stock
for each of the Company's common shares. The exchange ratio is not subject to
change based on changes in the market prices of either the Company's common
shares or Mack-Cali's common stock and there is no "collar" for the exchange
ratio.
Real Estate Transactions
During the three months ended June 30, 2000, the Company: (i) sold seven
of its Dallas industrial properties for approximately $16.1 million; (ii) sold
the 1247 Ward Avenue development project, located in suburban Philadelphia, for
approximately $4.0 million; (iii) sold a 9 acre tract of land located in the San
Francisco Bay Area for approximately $8.1 million; (iv) sold all six of the San
Francisco Bay Area industrial buildings for approximately $28.6 million; and (v)
transitioned one Property, totaling 101,000 square feet, from development into
operations and as a result moved the real estate from construction in progress
to the respective land and buildings and improvements line items on the
consolidated balance sheet. The San Francisco Bay Area industrial buildings
were sold on June 30, 2000 for approximately $28.6 million. Due to the timing
of the transaction, such proceeds were held by the escrow agent on the Company's
behalf at June 30, 2000. Thus, these proceeds are included in the escrowed cash
line item on the Company's consolidated balance sheet as of June 30, 2000.
7
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
2. Basis of Presentation
The accompanying financial statements are unaudited; however, the financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles ("GAAP") for interim financial information and
the rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the disclosures required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring matters) necessary for a fair
presentation of the financial statements for these interim periods have been
included. The results for the three and six month periods ended June 30, 2000,
are not necessarily indicative of the results to be obtained for the full fiscal
year. These financial statements should be read in conjunction with the audited
financial statements and notes thereto of the Company, included in its annual
report on Form 10-K for the fiscal year ended December 31, 1999.
3. Debt on Real Estate
At June 30, 2000, the Company had debt on real estate of $942.1 million,
excluding the Company's proportionate share of debt on its 50% and 20% equity
investments in the joint ventures owning the Broadmoor Austin Properties (as
defined herein) and the Burnett Plaza Property, respectively. See note (5) -
Investment in Joint Ventures and Unconsolidated Subsidiaries for further
information on the Company's equity investments.
The Company's debt transactions for the three months ended June 30, 2000
are summarized in the table below:
(in thousands)
Debt on real estate at March 31, 2000............................ $954,052
Activity for the three months ending June 30, 2000:
Property mortgage loans completed............................... 27,000
Net payments under the line of credit........................... (58,000)
Construction loan draws......................................... 20,206
Net payments on mortgage loans.................................. (1,117)
--------
Debt on real estate at June 30, 2000............................. $942,141
========
On April 13, 2000, the Company closed a $23.3 million, three-year
construction loan with Comerica Bank. The loan has an interest rate of LIBOR
plus 175 basis points and is collateralized by the Barton Skyway II Development
Property in Austin, Texas.
On May 12, 2000 the Company closed a $27.0 million, 12-year non-recourse
mortgage loan with PPM Finance. The loan has an interest rate of 8.05% and is
collateralized by the Bannockburn Centre Office Property in the Chicago area.
On May 23, 2000, the Company closed a three-year renewal of its $300
million unsecured line of credit (the "Line of Credit"). The structure of the
new facility is substantially the same as the existing facility, including an
initial interest rate of LIBOR plus 137.5 basis points. The interest rate on
the facility will fluctuate based on the Company's overall leverage with a range
between LIBOR plus 125 basis points and LIBOR plus 175 basis points.
8
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The Company's debt balance at June 30, 2000, excluding its share of
unconsolidated joint ventures debt, was $942.1 million. Of this amount, $601.8
million is fixed rate, non-recourse, long-term mortgages. The remaining $340.3
million is floating rate debt, of which $50.0 million is hedged until June 2003
and $110.0 million is hedged until September 2004. Future scheduled principal
repayments of debt on real estate are as follows:
(in thousands)
2000............................................... $ 6,584
2001............................................... 20,052
2002............................................... 106,504
2003............................................... 214,842
2004............................................... 111,321
Thereafter......................................... 482,838
--------
$942,141
========
4. Distribution
On June 14, 2000, the Company declared a cash distribution for the second
quarter of 2000 in the amount of $0.485 per share, payable on July 14, 2000 to
common shareholders of record on June 30, 2000. Additionally, it was determined
that a distribution of $0.485 per unit would be made to the partners of the
Operating Partnership, and the holders of the Company's Series A Convertible
Preferred Shares (the "Series A Convertible Preferred Shares"). The
distributions, which represented an increase from $0.44 for the first quarter
2000 to $0.485 for the second quarter 2000, were paid on July 14, 2000, totaling
approximately $20.3 million. In addition, a quarterly distribution totaling $3.2
million in the aggregate was declared on June 14, 2000, for the holders of the
Series B Perpetual Preferred Units (the "Series B Perpetual Preferred Units")
and the Series C Perpetual Preferred Units (the "Series C Perpetual Preferred
Units"). The quarterly distribution, which equates to an annualized 8.3% of the
face amount of the Series B Perpetual Preferred Units and an annualized 9.45% of
the face amount of the Series C Perpetual Preferred Units, was paid on July 3,
2000.
5. Investment in Joint Ventures and Unconsolidated Subsidiaries
Included in Investments in Joint Ventures and Unconsolidated Subsidiaries
are the Company's 50% interest in the joint venture owning the Broadmoor Austin
Properties, the Company's 60% interest in the joint ventures owning the Oaklands
21/27 Development Properties, the Company's 20% interest in the joint venture
owning the Burnett Plaza Property, the Company's 95% interest in the Manager and
the Company's recently acquired interest in PPS Partners LLC. The following
information summarizes the financial position at June 30, 2000 and December 31,
1999 and the results of operations for the three and six months ended June 30,
2000 and 1999 of the unconsolidated joint ventures and subsidiaries of the
Company which are accounted for using the equity method of accounting during the
periods presented.
<TABLE>
<CAPTION>
Company's
Summary of Financial Total Assets Total Debt Total Equity Investment
Position: ------------------ ------------------ -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31,
2000 1999 2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- -------- ------- --------
Broadmoor Austin
Properties(1) $119,355 $121,813 $154,000 $154,000 $(35,309) $(34,544) $ 5,129 $ 5,638
Oaklands 21/27 (2) 6,159 4,597 3,587 1,943 2,065 2,057 1,238 1,216
Burnett Plaza Property 93,183 94,066 47,000 47,000 43,954 44,327 8,825 8,899
Manager 8,249 15,827 4,192 4,190 3,951 3,951
PPS Partners LLC(3) 190 154 115
-------- -------- -------- -------- -------- -------- ------- -------
$227,136 $236,303 $204,587 $202,943 $ 15,056 $ 16,030 $19,258 $19,704
======== ======== ======== ======== ======== ======== ======= =======
</TABLE>
9
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
Company's
Summary of Operations: Total Revenue Net Income Share of Net Income
--------------- ------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
Broadmoor Austin Properties $ 4,950 $ 4,948 $ 972 $ 973 $ 486 $ 487
Oaklands 21/27 (2) 139 1 1
Burnett Plaza Property (4) 4,239 3,295 821 275 164 55
Manager 4,586 5,577 65 560 65 560
PPS Partners LLC(3) 286 186 139
------- ------- ------ ------ ------ ------
$14,200 $13,820 $2,045 $1,808 $ 855 $1,102
======= ======= ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
Company's
Summary of Operations: Total Revenue Net Income Share of Net Income
--------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
Broadmoor Austin Properties $ 9,898 $ 9,895 $1,938 $1,975 $ 969 $ 988
Oaklands 21/27 (2) 196 20 12
Burnett Plaza Property (4) 8,310 3,295 1,404 275 281 55
Manager 9,952 10,441 403 1,201 403 1,201
PPS Partners LLC(3) 286 _____ 186 _____ 139 _____
------- ------ ------
$28,642 $23,631 $3,951 $3,451 $1,804 $2,244
======= ======= ====== ====== ====== ======
</TABLE>
(1) The difference between the carrying value of the Company's interest in the
Broadmoor Austin Properties and the book value of the underlying equity is
being amortized over 40 years.
(2) Oaklands 21/27 consist of two Development Properties in the suburban
Philadelphia area.
(3) PPS Partners LLC is a joint venture, entered into by the Operating
Partnership and a third-party property owner. The third-party property
owner will from time to time, at its sole discretion, contribute property
management contracts to PPS Partners LLC. The Operating Partnership through
a submanagement contract manages the properties and participates in the net
income of the venture.
(4) The Company's 20% interest in the Burnett Plaza Property was acquired in
March, 1999.
In addition to the above, in November 1999, the Company invested $1.0
million in Urban Media Communications Corporation which provides broadband
internet access to tenants of commercial office buildings. During the first
quarter of 2000, the Company's investment was reduced to $537,500, as a result
of the sale of a portion of the Company's investment in Urban Media
Communication Corporation to certain key employees of the Company. The sale,
which is subject to certain restrictions, is part of the Company's long-term
incentive plan to retain such employees. The Company's net investment in Urban
Media Communications Corporation is accounted for using the cost method of
accounting.
6. Capital Shares
During the three months ended June 30, 2000, the Company issued 100,000
restricted shares of the Company's common stock to various key employees as part
of the Company's long-term incentive plan to retain such employees. The
restricted shares vest over three years. An amount equal to the market price on
the date of grant is included as unearned compensation in the shareholder's
equity section of the Company's consolidated balance sheet. The unearned
compensation is amortized quarterly as compensation expense over the three-year
vesting period of the restricted share grants.
10
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
7. Supplemental Disclosure of Non-Cash Activities
During the three months ended June 30, 2000, the Company declared cash
distributions totaling $20.3 million payable to holders of common shares,
Operating Partnership units and Series A Convertible Preferred Shares. The
distributions were paid July 14, 2000. In addition, a distribution totaling $3.2
million in the aggregate was declared on June 14, 2000, payable to holders of
the Company's Series B Perpetual Preferred Units and Series C Perpetual
Preferred Units. The distribution was paid on July 3, 2000.
During the six months ended June 30, 2000, the Company sold a portion of
its investment in Urban Media Communications Corporation to certain key
employees of the Company as part of the Company's long-term incentive plan to
retain such employees. In return for the investment in Urban Media
Communications Corporation, the Company received, from each employee
participating in the plan, an individual note receivable. The individual note
receivables from the employees total $462,500 in the aggregate.
Pursuant to the Company's long-term incentive plan, during the six months
ended June 30, 2000, the Company issued 191,500 restricted shares of the
Company's stock to various key employees of the Company. An amount equal to the
market price of the shares on the respective date of grant, totaling $4.3
million in the aggregate, was recorded as unearned compensation in the
shareholders' equity section of the Company's consolidated balance sheet. The
unearned compensation is amortized quarterly as compensation expense over the
three-year vesting period.
In relation to the property transactions, including asset acquisition and
disposition activity, during the six months ended June 30, 2000, the Company
removed from real estate and deferred charges $4.0 million and $630,000 of fully
depreciated assets, respectively, as well as receivables of $869,000,
liabilities of $1.8 million and prepaid assets of $126,000. The Company removed
an additional $3.3 million of deferred charges related to fully depreciated
leasing costs.
8. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, the FASB
issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS No. 137"). SFAS No. 133 was originally
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
SFAS No. 137 deferred the effective date of SFAS No. 133 to all fiscal quarters
of all fiscal years beginning after June 15, 2000. The impact of SFAS No. 133
will be dependent upon the extent of derivative instruments held by the Company
and the market for such instruments as of January 1, 2001 and each measurement
date thereafter.
9. Segment Information
The Company's primary business is the ownership and operation of office and
industrial Properties throughout the United States. The Company has determined
that its reportable segments are those that are based on the Company's method of
internal reporting, which disaggregates its business by geographic region.
Effective January 1, 2000, the Company changed its method of internal reporting
to consolidate the results of operations and assets for the Southeast region
into the Company's Mid-Atlantic region. For comparative purposes, the results of
operations for the three and six month periods ended June 30, 1999 and assets as
of June 30, 1999 for the Southeast region have been combined into the Company's
Mid-Atlantic region. The Company's reportable segments are the Company's five
regions which include (1) Mid-Atlantic; (2) Midwest; (3) Northeast; (4)
Southwest; and (5) West.
11
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The tables below present information about net income/(loss) and segment
assets used by the chief operating decision maker of the Company as of and for
the three and six month periods ended June 30, 2000 and 1999.
For the Three Months Ended June 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Corporate
Mid- Total Not Allocable Consolidated
Atlantic Midwest Northeast Southwest West Segments to Segments Total
-------- ------- --------- --------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 20,023 $ 20,962 $ 7,510 $ 19,895 $ 16,654 $ 85,044 $ 240 $ 85,284
======== ======== ======== ======== ======== ========== ======== ==========
Net income/(loss) $ 9,914 $ 10,176 $ 4,183 $ 9,348 $ 8,933 $ 42,554 $(24,719) $ 17,835
======== ======== ======== ======== ======== ========== ======== ==========
Assets $448,803 $409,873 $214,602 $463,150 $434,582 $1,971,010 $ 39,195 $2,010,205
======== ======== ======== ======== ======== ========== ======== ==========
For the Three Months Ended June 30, 1999
(in thousands)
Corporate
Mid- Total Not Allocable Consolidated
Atlantic Midwest Northeast Southwest West Segments to Segments Total
-------- ------- --------- --------- -------- ---------- ------------- --------------
Revenues $ 18,234 $ 14,217 $ 6,738 $ 17,861 $ 16,961 $ 74,011 $ (118) $ 73,893
======== ======== ======== ======== ======== ========== ======== ==========
Net $ 9,190 $ 7,360 $ 3,496 $ 7,157 $ 9,338 $ 36,541 $(20,140) $ 16,401
income/(loss) ======== ======== ======== ======== ======== ========== ======== ==========
Assets $445,543 $357,614 $204,774 $438,105 $435,903 $1,881,939 $ 33,237 $1,915,176
======== ======== ======== ======== ======== ========== ======== ==========
For the Six Months Ended June 30, 2000
(in thousands)
Corporate
Mid- Total Not Allocable Consolidated
Atlantic Midwest Northeast Southwest West Segments to Segments Total
-------- ------- --------- --------- -------- ---------- ------------- --------------
Revenues $ 39,007 $ 40,251 $ 14,615 $ 39,376 $ 32,684 $ 165,933 $ 464 $ 166,397
======== ======== ======== ======== ======== ========== ======== ==========
Net $ 18,866 $ 21,048 $ 7,525 $ 16,928 $ 17,024 $ 81,391 $(46,609) $ 34,782
income/(loss) ======== ======== ======== ======== ======== ========== ======== ==========
For the Six Months Ended June 30, 1999
(in thousands)
Corporate
Mid- Total Not Allocable Consolidated
Atlantic Midwest Northeast Southwest West Segments to Segments Total
-------- ------- --------- --------- ------- ---------- ------------- --------------
Revenues $35,452 $28,383 $13,108 $34,379 $33,896 $145,218 $ 37 $145,255
======= ======= ======= ======= ======= ======== ======== ========
Net income/(loss) $17,549 $14,066 $ 7,030 $14,457 $17,877 $ 70,979 $(37,323) $ 33,656
======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
12
<PAGE>
PRENTISS PROPERTIES TRUST
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
10. Earnings per Share
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 requires a dual presentation of basic and diluted Earnings per
Share on the face of the income statements. Additionally, SFAS No. 128 requires
a reconciliation of the numerator and denominator used in computing basic and
diluted Earnings per Share .
<TABLE>
<CAPTION>
Reconciliation of Earnings per Share Numerator Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-------------- -------------- -------------- --------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net income........................................... $17,835 $16,401 $34,782 $33,656
Preferred dividends.................................. (1,830) (1,660) (3,491) (3,170)
------- ------- ------- -------
Net income available to common shareholders.......... $16,005 $14,741 $31,291 $30,486
======= ======= ======= =======
Reconciliation of Earnings per Share Denominator
Weighted average common shares outstanding........... 36,165 37,889 36,116 37,994
======= ======= ======= =======
Basic Earnings per Share............................. $ 0.44 $ 0.39 $ 0.87 $ 0.80
======= ======= ======= =======
Dilutive Effect of Common Share Equivalents
Dilutive options..................................... 268 130 153 76
Dilutive preferred shares(1).........................
Weighted average common shares outstanding........... 36,165 37,889 36,116 37,994
------- ------- ------- -------
Weighted average common shares and common share
Equivalents....................................... 36,433 38,019 36,269 38,070
======= ======= ======= =======
Diluted Earnings per Share........................... $ 0.44 $ 0.39 $ 0.86 $ 0.80
======= ======= ======= =======
</TABLE>
(1) Preferred shares for the three and six month periods ended June 30, 2000
and 1999 are excluded from the calculation of Dilutive Earnings per Share
as such shares are anti-dilutive for the respective periods.
11. Subsequent Events
On July 14, 2000, the Company disposed of its remaining Dallas Industrial
Property resulting in gross proceeds of approximately $3.6 million. The
Property totals 121,000 square feet and is located in the Dallas/Fort Worth
area.
On July 21, 2000, the Company disposed of three Office Properties resulting
in gross proceeds of approximately $8.5 million. The three Office Properties
total 189,000 square feet and are located in the Houston area.
On July 31, 2000, the Company closed a 10-year, $49.5 million mortgage
loan. The loan bears interest at 7.95% and is collateralized by the Company's
Ordway Property located in the San Francisco Bay Area.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Prentiss Properties Trust is a Maryland Real Estate Investment Trust (the
"REIT") that acquires, owns, manages, leases, develops and builds office and
industrial properties throughout the United States. The REIT operates
principally through Prentiss Properties Acquisition Partners, L.P. and its
subsidiaries (the "Operating Partnership") and Prentiss Properties Limited, Inc.
(the "Manager" and together with the REIT and the Operating Partnership, the
"Company"). The Company is self-administered in that it provides its own
administrative services, such as accounting, tax and legal, internally through
its own employees. The Company is self-managed in that it internally provides
all the management and maintenance services that its properties require through
its own employees such as property managers, leasing professionals and
engineers.
At December 31, 1999, the Company owned 199 properties consisting of 133
office and 66 industrial properties containing in the aggregate 19.8 million net
rentable square feet. During the six months ended June 30, 2000, the Company:
(i) took ownership of and concurrently sold an office building totaling 225,000
square feet in the Chicago area, (ii) sold 13 industrial properties totaling
approximately 925,000 square feet, (iii) sold a 27,000 square foot development
project, (iv) sold 10.7 acres of land in the West region, (v) transitioned four
properties, totaling approximately 450,000 square feet, from development into
operations; and (vi) began development of a 173,000 square foot office project
in the Austin area. Inclusive of the Company's development projects, at June
30, 2000, the Company owned 186 properties (the "Properties") totaling
approximately 19.1 million net rentable square feet.
Results of Operations
Effective January 1, 2000, the Company changed its method of internal
reporting to consolidate the results of operations for the Southeast region into
the Company's Mid-Atlantic region. For comparative purposes, the results of
operations for the three and six month periods ended June 30, 1999 for the
Southeast region have been combined into the Company's Mid-Atlantic region.
The results of operations for the three month periods ended June 30, 2000
and 1999 include the respective operations of the Company.
General. When comparing the results of operations for the three months
ended June 30, 2000 to the three months ended June 30, 1999, the following
should be considered:
. 157 Properties that consolidated into the Company's results of
operations were owned and fully operational at April 1, 1999 and
remained in the Company's portfolio at June 30, 2000;
. 8 Properties, including the Broadmoor Austin Properties and the
Burnett Plaza Property, are accounted for using the equity method
of accounting;
. 5 Properties were acquired subsequent to April 1, 1999 and remained
in the Company's portfolio at June 30, 2000;
. 59 Properties were sold subsequent to April 1, 1999;
. 10 Properties that were developed by the Company became operational
subsequent to April 1, 1999 and remained in the portfolio at June
30, 2000; and
. 6 Properties were in various stages of development or in various
stages of lease-up at June 30, 2000.
Rental Revenue. Rental revenues increased by $11.1 million, or 15.2%, to
$84.2 million from $73.1 million primarily as a result of Properties acquired or
development Properties becoming operational subsequent to April 1, 1999, offset
by properties that were sold subsequent to April 1, 1999. Rental income for the
157 Properties that were owned and fully operational at April 1, 1999 and
remained in the Company's portfolio at June 30, 2000, increased by $2.3 million,
or 3.6%, from $64.5 million for the three months ended June 30, 1999 to $66.8
million for the three months ended June 30, 2000. The increase for such 157
Properties was attributable to the Company's five regions as follows:
14
<PAGE>
. 31 Properties in the Mid-Atlantic Region increased $415,000, or
2.7%;
. 18 Properties in the Midwest Region increased $1.3 million, or
11.0%;
. 27 Properties in the Northeast Region increased $85,000, or 1.3%;
. 23 Properties in the Southwest Region decreased $267,000, or 1.6%;
and
. 58 Properties in the West Region increased $792,000, or 5.4%.
Property Operating and Maintenance. Property operating and maintenance
increased by $3.1 million, or 18.6%, to $19.8 million from $16.7 million
primarily as a result of Properties acquired or development Properties becoming
operational subsequent to April 1, 1999 offset by properties that were sold
subsequent to April 1, 1999. Property operating and maintenance for the 157
Properties that were owned and fully operational at April 1, 1999 and remained
in the Company's portfolio at June 30, 2000, increased by $442,000, or 2.6%,
from $17.0 million for the three months ended June 30, 1999 to $17.4 million for
the three months ended June 30, 2000. The increase for such 157 Properties was
attributable to the Company's five regions as follows:
. 31 Properties in the Mid-Atlantic Region decreased $66,000, or 1.6%;
. 18 Properties in the Midwest Region increased $85,000, or 3.1%;
. 27 Properties in the Northeast Region increased $114,000, or 7.4%;
. 23 Properties in the Southwest Region decreased $111,000, or 2.3%;
and
. 58 Properties in the West Region increased $420,000, or 11.8%.
Real Estate Taxes. Real estate taxes increased by $808,000, or 9.1%, to
$9.6 million from $8.8 million primarily as a result of Properties acquired or
development Properties becoming operational subsequent to April 1, 1999, offset
by properties that were sold subsequent to April 1, 1999. Real estate taxes for
the 157 Properties that were owned and fully operational at April 1, 1999, and
remained in the Company's portfolio at June 30, 2000, decreased by $563,000, or
7.0%, from $8.0 million for the three months ended June 30, 1999, to $7.4
million for the three months ended June 30, 2000. The decrease for such 157
Properties was attributable to the Company's five regions as follows:
. 31 Properties in the Mid-Atlantic Region increased $46,000, or 4.1%;
. 18 Properties in the Midwest Region decreased $68,000, or 2.9%;
. 27 Properties in the Northeast Region decreased $21,000, or 4.3%;
. 23 Properties in the Southwest Region decreased $507,000, or 18.4%;
and
. 58 Properties in the West Region decreased $13,000, or 1.1%.
General and Administrative and Personnel Costs, Net. General and
administrative and personnel costs increased by $497,000, or 21.2%, to $2.8
million from $2.3 million primarily due to transaction costs written off as a
result of the impending merger with Mack-Cali Realty Corporation, amortization
of stock grants issued in May 2000 and slight comparative increases in travel
costs.
Interest Expense. Interest expense increased by $2.8 million, or 19.5%, to
$17.4 million from $14.6 million primarily as a result of the increase of the
debt on real estate from $871.8 million at April 1, 1999 to $942.1 million at
June 30, 2000. The increase in debt on real estate resulted primarily from
borrowings incurred for the repurchase of common shares and the Company's
development and acquisition activity during the period, offset by net proceeds
received from the issuance of 2,000,000, $25 par value, Series C Perpetual
Preferred Units (the "Series C Perpetual Preferred Units") and asset
dispositions during the period.
Depreciation and Amortization. Depreciation and amortization increased by
$2.1 million, or 15.7%, to $15.4 million from $13.3 million primarily as a
result of Properties acquired or development Properties becoming operational
subsequent to April 1, 1999, offset by properties that were sold subsequent to
April 1, 1999. Depreciation and amortization for the 157 Properties that were
owned and fully operational at April 1, 1999 and remained in the Company's
portfolio at June 30, 2000, increased by $821,000, or 7.3%, from $11.2 million
for the three months ended June 30, 1999, to $12.1 million for the three months
ended June 30, 2000. The increase for such 157 Properties was attributable to
the Company's five regions as follows:
. 31 Properties in the Mid-Atlantic Region increased $186,000, or
6.8%;
. 18 Properties in the Midwest Region increased $123,000, or 6.9%;
15
<PAGE>
. 27 Properties in the Northeast Region increased $140,000, or 12.7%;
. 23 Properties in the Southwest Region increased $133,000, or 4.2%;
and
. 58 Properties in the West Region increased $239,000, or 9.7%.
Equity in Income of Joint Ventures and Unconsolidated Subsidiaries.
Equity in income of joint ventures and unconsolidated subsidiaries decreased
from $1.1 million for the three months ended June 30, 1999 to $855,000 for the
three months ended June 30, 2000. The net decrease was primarily attributable to
a decrease of $495,000 in the Company's proportionate share of net income from
the Manager, offset by increases of $109,000 attributable to the Company's share
of the net income from the Burnett Plaza Property and $139,000 from the
Company's share of the net income from the PPS Partners LLC joint venture.
Gain on Sales. Gain on sales increased by $1.0 million, to $1.2 million,
from $193,000. During the three months ended June 30, 1999, the Company sold two
office properties totaling 228,000 square feet. During the three months ended
June 30, 2000, the Company sold 13 industrial properties and one development
project comprising, in the aggregate, 952,000 square feet. It is the Company's
strategy to obtain the maximum value from each of its Properties, which is
occasionally achieved through the sale of properties.
Minority Interests. Minority interests increased by $1.3 million, or
47.2%, from $2.7 million for the three months ended June 30, 1999, to $3.9
million for the three months ended June 30, 2000. The increase was primarily due
to the income allocation from the issuance of the Series C Perpetual Preferred
Units in September 1999.
The results of operations for the six month periods ended June 30, 2000
and 1999 include the respective operations of the Company.
General. When comparing the results of operations for the six months ended
June 30, 2000 to the six months ended June 30, 1999, the following should be
considered:
. 155 Properties that consolidated into the Company's results of
operations were owned and fully operational at January 1, 1999
and remained in the Company's portfolio at June 30, 2000;
. 8 Properties, including the Broadmoor Austin Properties and the
Burnett Plaza Property, are accounted for using the equity method
of accounting;
. 6 Properties, including Burnett Plaza, were acquired subsequent to
January 1, 1999 and remained in the Company's portfolio at June
30, 2000;
. 59 properties were sold subsequent to January 1, 1999;
. 12 Properties that were developed by the Company became operational
subsequent to January 1, 1999 and remained in the portfolio at
June 30, 2000; and
. 6 Properties were in various stages of development or in various
stages of lease-up at June 30, 2000.
Rental Revenue. Rental revenues increased by $20.6 million, or 14.3%, to
$164.7 million from $144.1 million primarily as a result of Properties acquired
or development Properties becoming operational subsequent to January 1, 1999,
offset by properties that were sold subsequent to January 1, 1999. Rental income
for the 155 Properties that were owned and fully operational at January 1, 1999
and remained in the Company's portfolio at June 30, 2000, increased by $4.5
million, or 3.5%, from $127.0 million for the six months ended June 30, 1999 to
$131.5 million for the six months ended June 30, 2000. The increase for such 155
Properties was attributable to the Company's five regions as follows:
. 31 Properties in the Mid-Atlantic Region increased $949,000, or
3.1%;
. 18 Properties in the Midwest Region increased $1.3 million, or 5.6%;
. 27 Properties in the Northeast Region increased $77,000, or less
than 1%;
. 23 Properties in the Southwest Region increased $786,000, or 2.4%;
and
. 56 Properties in the West Region increased $1.4 million, or 4.9%.
Property Operating and Maintenance. Property operating and maintenance
increased by $4.9 million, or 14.9%, to $37.7 million from $32.8 million
primarily as a result of Properties acquired or development Properties becoming
operational subsequent to January 1,
16
<PAGE>
1999, offset by properties that were sold subsequent to January 1, 1999.
Property operating and maintenance for the 155 Properties that were owned and
fully operational at January 1, 1999 and remained in the Company's portfolio at
June 30, 2000, increased by $1.5 million or 4.4%, from $33.2 million for the six
months ended June 30, 1999 to $34.6 million for the six months ended June 30,
2000. The increase for such 155 Properties was attributable to the Company's
five regions as follows:
. 31 Properties in the Mid-Atlantic Region increased $108,000, or
1.3%;
. 18 Properties in the Midwest Region increased $296,000, or 5.4%;
. 27 Properties in the Northeast Region increased $280,000, or 9.9%;
. 23 Properties in the Southwest Region decreased $13,000, or less
than 1%; and
. 56 Properties in the West Region increased $783,000, or 11.6%.
Real Estate Taxes. Real estate taxes increased by $2.2 million, or 12.4%,
to $19.6 million from $17.4 million primarily as a result of Properties acquired
or development Properties becoming operational subsequent to January 1, 1999,
offset by properties that were sold subsequent to January 1, 1999. Real estate
taxes for the 155 Properties that were owned and fully operational at January 1,
1999, and remained in the Company's portfolio at June 30, 2000, decreased by
$647,000, or 4.1%, from $15.8 million for the six months ended June 30, 1999, to
$15.2 million for the six months ended June 30, 2000. The decrease for such 155
Properties was attributable to the Company's five regions as follows:
. 31 Properties in the Mid-Atlantic Region increased $80,000, or 3.4%;
. 18 Properties in the Midwest Region decreased $219,000, or 4.6%;
. 27 Properties in the Northeast Region increased $10,000, or 1.0%;
. 23 Properties in the Southwest Region decreased $519,000, or 9.5%;
and
. 56 Properties in the West Region increased $1,000, or less than 1%.
General and Administrative and Personnel Costs, Net. General and
administrative and personnel costs increased by $716,000, or 16.2%, from $4.4
million to $5.1 million. The increase is primarily due to transaction costs
written off as a result of the impending merger with Mack-Cali Realty
Corporation, amortization of stock grants issued during the six months ended
June 30, 2000, and other general year-to-year increases in salaries.
Interest Expense. Interest expense increased by $6.4 million, or 22.7%, to
$34.5 million from $28.1 million primarily as a result of the increase of the
debt on real estate from $800.3 million at January 1, 1999 to $942.1 million at
June 30, 2000. The increase in debt on real estate resulted primarily from
borrowings incurred for the repurchase of common shares and the Company's
development and acquisition activity during the period, offset by net proceeds
received from the issuance of the Series C Perpetual Preferred Units and asset
dispositions during the period.
Depreciation and Amortization. Depreciation and amortization increased by
$4.8 million, or 18.8%, to $30.3 million from $25.5 million primarily as a
result of Properties acquired or development Properties becoming operational
subsequent to January 1, 1999, offset by properties that were sold subsequent to
January 1, 1999. Depreciation and amortization for the 155 Properties that were
owned and fully operational at January 1, 1999 and remained in the Company's
portfolio at June 30, 2000, increased by $1.9 million, or 9.2%, from $21.2
million for the six months ended June 30, 1999 to $23.1 million for the six
months ended June 30, 2000. The increase for such 155 Properties was
attributable to the Company's five regions as follows:
. 31 Properties in the Mid-Atlantic Region increased $424,000, or
7.8%;
. 18 Properties in the Midwest Region increased $112,000, or 3.2%;
. 27 Properties in the Northeast Region increased $243,000, or 11.0%;
. 23 Properties in the Southwest Region increased $714,000, or 12.4%;
and
. 56 Properties in the West Region increased $452,000, or 10.6%.
Equity in Income of Joint Ventures and Unconsolidated Subsidiaries.
Equity in income of joint ventures and unconsolidated subsidiaries decreased
from $2.2 million for the six months ended June 30, 1999 to $1.8 million for the
six months ended June 30, 2000. The net decrease was primarily attributable to a
decrease of $798,000 in the Company's proportionate share of net income from the
Manager, offset by increases of $226,000 in the Company's
17
<PAGE>
proportionate share of income from the Burnett Plaza Property, which was
acquired on March 25, 1999, and $139,000 in the Company's proportionate share of
the income from the PPS Partners LLC joint venture.
Gain on Sales. Gain on sales increased by $2.0 million, to $2.2 million,
from $289,000. During the six months ended June 30, 1999, the Company sold a
12.6 acre parcel of land in the Chicago, Illinois area and two industrial
properties, containing 228,000 square feet in the Los Angeles, California area.
During the six months ended June 30, 2000, the Company sold 13 industrial
properties and one development project comprising, in the aggregate, 952,000
square feet. It is the Company's strategy to obtain the maximum value from each
of its Properties, which is occasionally achieved through the sale of
properties.
Minority Interests. Minority interests increased by $2.4 million, or 45.3%,
from $5.4 million for the six months ended June 30, 1999, to $7.8 million for
the six months ended June 30, 2000. The increase was primarily attributable to
the income allocation from the issuance of the Series C Perpetual Preferred
Units in September 1999.
Liquidity and Capital Resources
Cash and cash equivalents were $13.8 million and $11.8 million at June 30,
2000 and June 30, 1999, respectively. The increase in cash and cash equivalents
is primarily a result of cash flows provided by operating activities exceeding
those used in investing and financing activities. Net cash provided by operating
activities was $22.7 million for the six months ended June 30, 2000 compared to
$44.0 million for the six months ended June 30, 1999.
Net cash used in investing activities decreased from $58.9 million for the
six months ended June 30, 1999 to $1.6 million for the six months ended June 30,
2000. This decrease is due primarily to an increase in asset sales during the
six months ended June 30, 2000 from the six months ended June 30, 1999, offset
slightly by an increase in the development and investment in real estate during
2000.
Net cash used in financing activities totaled $20.6 million for the six
months ended June 30, 2000, a decrease from $21.2 million of net cash provided
by financing activities for the six months ended June 30, 1999. This decrease is
primarily attributable to net proceeds from borrowings for the six months ended
June 30, 1999 exceeding the net proceeds raised from such sources in 2000.
As of June 30, 2000, the Company had outstanding total indebtedness,
including its pro rata share of joint venture debt and construction loans of
approximately $1.0 billion, or approximately 47.25% of total market
capitalization based on a common share price of $24.02 per common share. The
Company's policy is to limit combined indebtedness plus its pro rata share of
joint venture debt and construction loans so that at the time such debt is
incurred, it does not exceed 50% of the Company's total market capitalization.
As of June 30, 2000, the Company had the approximate capacity to borrow up to an
additional $119.9 million under the debt limitation. The amount of indebtedness
that the Company may incur, and the policies with respect thereto, are not
limited by the Company's declaration of trust and bylaws, and are solely within
the discretion of the Company's board of trustees.
18
<PAGE>
The following table sets forth the Company's debt as of June 30, 2000:
<TABLE>
<CAPTION>
Current Interest
Description Balance Amortization Rate Maturity
----------- ------------ ---- --------
(in thousands)
<S> <C> <C> <C> <C>
Executive Center Del Mar $ 13,267 None LIBOR+1.35% December 19, 2001(11)
Burnett Plaza (1) 9,400 None 7.50% February 1, 2002
Bank Term Facility 100,000 None LIBOR+1.375% October 13, 2002
Del Mar Gateway 12,369 None LIBOR+1.75% March 21, 2003
Barton Skyway II 10,909 None LIBOR+1.75% April 12, 2003
Line of Credit 126,000 None LIBOR+1.375% May 2, 2003
Bachman West 2,952 25 yr. 8.63% December 1, 2003
Northeast Portfolio Loan (2) 59,614 25 yr. 6.80% December 10, 2003
One Westchase Center 24,722 25 yr. 7.84% February 1, 2004
Crescent Centre 12,000 None 7.95% March 1, 2004
Bank Term Loan (3) 72,500 None(7) LIBOR+1.625% September 30, 2004
Walnut Glen Tower 34,942 30 yr. 6.92% April 1, 2005
Highland Court 4,889 25 yr. 7.27% April 1, 2006
Oaklands Corporate Center (4) 1,305 20 yr. 8.65% August 1, 2006
Westheimer Central Plaza 5,916 25 yr. 8.38% August 1, 2006
Creamery Way (4) 3,665 20 yr. 8.30% September 19, 2006
PPREFI Portfolio Loan (5) 180,100 None 7.58% February 26, 2007
Oaklands Corporate Center (4) 6,252 25 yr. 8.55% July 1, 2007
Oaklands Corporate Center (4) 2,636 25 yr. 8.40% November 1, 2007
Corporetum Office Campus 25,676 30 yr. 7.02% February 1, 2009
Natomas Corporate Center 37,527 30 yr. 7.02% February 1, 2009
7101 Wisconsin Avenue 21,255 30 yr. 7.25% April 1, 2009
2500 Cumberland Parkway 14,500 None (8) 7.46% July 15, 2009
World Savings Center 29,376 30 yr. 7.91% November 1, 2010
Park West C2 35,121 30 yr. 6.63% November 10, 2010
One O'Hare Centre 41,608 30 yr. 6.80% January 10, 2011
3130 Fairview Park Drive 23,240 30 yr. 7.00% April 1, 2011
Broadmoor Austin (6) 77,000 None (9) 7.04% April 10, 2011
Bannockburn Centre 27,000 30 yr.(10) 8.05% June 1, 2012
Southpoint (III) (4) 7,511 20 yr. 7.75% April 14, 2014
Other Corporate Debt 5,289 None 7.40% Various
-----
Total $1,028,541
=========
</TABLE>
(1) The Company, through the Operating Partnership, owns a 20% non-controlling
partnership interest in the entity that owns the Burnett Plaza Property,
which interest is accounted for using the equity method of accounting. The
amount shown reflects the Company's proportionate share of the mortgage
indebtedness collateralized by the Property.
(2) The Northeast Portfolio Loan is collateralized by the following 11
Properties: Valleybrooke (five Properties), Lake Center (two Properties),
certain of the Southpoint Properties (two Properties), and certain of the
Woodland Falls Properties (two Properties).
(3) The Bank Term Loan is collateralized by the following four Properties:
Willow Oaks I & II (two Properties), 8521 Leesburg Pike and Croton Road
Corporate Center.
(4) The mortgage loan is collateralized by certain of the Properties in the
respective office Property grouping.
(5) The PPREFI Portfolio Loan is collateralized by the following 36 Properties:
certain of the Los Angeles Industrial Properties (18 Properties), certain
of the Chicago Industrial Properties (four Properties), the Cottonwood
Office Center Properties (three Properties), Park West E1 and E2 (two
Properties), One Northwestern Plaza, 3141 Fairview Park Drive, 2455
Horsepen Road, O'Hare Plaza II, 1717 Deerfield Road, 2411 Dulles Corner
Road, 4401 Fair Lakes Court, the WestPoint Office Building and the
PacifiCare Building.
(6) The Company, through the Operating Partnership, owns a 50% non-controlling
partnership interest in the entity that owns the Broadmoor Austin
Properties, which interest is accounted for using the equity method of
accounting. The amount shown reflects the Company's proportionate share of
the mortgage indebtedness collateralized by the Properties.
(7) The loan, which was entered into in October 1999, has no principal
amortization during the first 24 months of the loan term. Principal and
interest are payable for the remaining loan term based on a 25-year
amortization.
19
<PAGE>
(8) The loan, which was entered into in May 1999, has no principal amortization
during the first 58 months of the loan term. Principal and interest are
payable for the remaining loan term based on a 30-year amortization.
(9) The loan, which was entered into in March 1998, has no principal
amortization during the first 36 months of the loan term. Principal and
interest are payable for the remaining loan term based on a 16.25- year
amortization.
(10) In accordance with the underlying loan terms, principal amortization began
on July 1, 2000 based on a 30-year amortization.
(11) December 19, 2001 represents a maturity date based on the Company's
anticipated execution of its option to extend the term of the loan one year
beyond the original maturity date of December 19, 2000.
In September 1997, the Company entered into a seven-year interest rate swap
locking in cost of funds of 6.25% (before the spread over LIBOR) on $110
million. In June, 1999, the Company entered into a four-year interest rate swap
locking in cost of funds of 6.16% (before the spread over LIBOR) on $50 million
(collectively, the "Interest Rate Swaps"). The Interest Rate Swaps consist of
the four separate agreements intended to manage the relative mix of the
Company's debt between fixed and variable rate instruments. The Interest Rate
Swaps modify a portion of the interest characteristics of the Company's variable
rate debt, effectively converting in the aggregate, $160.0 million of variable
rate debt to fixed rate debt. The fixed rates to be paid, the effective fixed
rate and the variable rate to be received by the Company, are summarized in the
following table:
<TABLE>
<CAPTION>
Swap Rate Received
Swap Rate Paid Effective Fixed (Variable) at
Notional Amount (fixed) Rate June 30, 2000 Swap Maturity
--------------- ------- ---- ------------- -------------
<S> <C> <C> <C> <C>
$20 million 6.155% 7.780% 6.642% June 2, 2003
$30 million 6.155% 7.780% 6.642% June 2, 2003
$50 million 6.253% 7.628% 6.642% September 30, 2004
$60 million 6.248% 7.623% 6.642% September 30, 2004
</TABLE>
The differences to be paid or received by the Company under the terms of
the Interest Rate Swaps are accrued as interest rates change and recognized as
an adjustment to interest expense by the Company pursuant to the terms of the
agreements and will have a corresponding effect on its future cash flows.
Agreements such as these contain a credit risk that the counterparties may be
unable to meet the terms of the agreement. The Company minimizes that risk by
evaluating the creditworthiness of its counterparties, which is limited to major
banks and financial institutions, and does not anticipate non-performance by the
counterparties.
The Company has considered its short-term liquidity needs and the adequacy
of adjusted estimated cash flows and other expected liquidity sources to meet
these needs. The Company believes that its principal short-term liquidity needs
are to fund normal recurring expenses, debt service requirements and the minimum
distribution required to maintain the Company's REIT qualification under the
Internal Revenue Code. The Company anticipates that these needs will be fully
funded from the Company's cash flows provided by operating activities and, when
necessary, to fund shortfalls resulting from the timing of collections of
accounts receivable in the ordinary course of business, from the line of credit,
and the leasing, development and construction business and from the Manager.
The Manager's sole sources of income are fees generated by its office and
industrial real estate management, leasing, development, and other fee
businesses.
The Company expects to meet its long-term liquidity requirements for the
funding of activities such as development, property acquisitions, scheduled debt
maturities, major renovations, expansions and other non-recurring capital
improvements through long-term secured and unsecured indebtedness and through
the issuance of additional debt and equity securities. The Company also intends
to use proceeds from the line of credit to fund property acquisitions,
development, redevelopment, expansions and capital improvements on an interim
basis.
The Company expects to make distributions to its shareholders primarily
based on its distributions from the Operating Partnership. The Operating
Partnership's income will be derived primarily from lease revenues from the
Properties and, to a limited extent, from fees generated by its office and
industrial real estate management service business.
The Company has in place a $300 million unsecured line of credit with a
group of 12 banks (the "Line of Credit"). During the three months ended June
30, 2000, the Company closed a three-year renewal of its Line of Credit. The
structure of the new facility is substantially the same as the existing
facility, including an initial interest rate of LIBOR plus 137.5 basis points.
The Line of Credit is unsecured and matures on May 2, 2003. Additionally, the
Company is required to pay an average daily unused commitment fee of 25 basis
points per annum if the daily unused portion of the Line of Credit is greater
than $200 million. The fee is reduced to 20 basis points per annum if the daily
20
<PAGE>
unused portion of the Line of Credit is less than or equal to $100 million. The
Company made net payments on the Line of Credit during the three months ended
June 30, 2000 of $58.0 million and had an outstanding balance of $126.0 million
at June 30, 2000, resulting in an available balance of $174.0 million.
The Company's Properties require periodic investments of capital for
tenant-related capital expenditures and for general capital improvements. For
the three months ended June 30, 2000, the Company's recurring non-incremental
revenue-generating capital expenditures totaled $7.9 million. The Company's
recurring non-incremental revenue-generating capital expenditures were
attributable to the Company's regions as follows: (1) Mid-Atlantic-$1.7 million;
(2) Midwest-$1.3 million; (3) Northeast-$1.5 million; (4) Southwest-$1.3
million; and (5) West-2.1 million.
Funds from Operations
"Funds from Operations" as defined by the National Association of Real
Estate Investment Trusts ("NAREIT"), means net income, computed in accordance
with generally accepted accounting principles ("GAAP") excluding extraordinary
items (as defined by GAAP) and gains (or losses) from sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that Funds from
Operations is helpful to investors as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing 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. The Company's Funds from Operations is not comparable to
Funds from Operations reported by other REITs that do not define that term using
the current NAREIT definition. The Company believes that in order to facilitate
a clear understanding of its operating results, Funds from Operations should be
examined in conjunction with net income as presented in the Consolidated
Financial Statements of the Company. Funds from Operations does not represent
cash generated from operating activities in accordance with GAAP and should not
be considered as an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity or ability to make
distributions.
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30,1999 June 30,2000 June 30,1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Funds from operations
Net income........................................ $ 17,835 $ 16,401 $ 34,782 $ 33,656
Add:
Real estate depreciation and amortization...... 15,417 13,325 30,232 25,460
Real estate depreciation and amortization of
unconsolidated joint ventures............... 694 633 1,370 1,165
Minority interests (1)......................... 3,897 2,635 7,762 5,322
Less:
Gain on sales of Property...................... (1,199) (193) (2,246) (289)
Dividend on perpetual preferred units.......... (3,153) (1,971) (6,305) (3,943)
------------- ------------ ------------ ------------
Funds from Operations............................. $ 33,491 $ 30,830 $ 65,595 $ 61,371
============= ============ ============ ============
</TABLE>
(1) Represents the minority interests applicable to the common and preferred
unit holders of the Operating Partnership.
Funds from Operations increased by $2.7 million and $4.2 million for the
three and six months ended June 30, 2000 from the three and six months ended
June 30, 1999, respectively, as a result of the factors discussed in the
analysis of operating results.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133").
21
<PAGE>
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS
No. 137"). SFAS No. 133 was originally effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. SFAS No. 137 deferred the effective
date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after
June 15, 2000. The impact of SFAS No. 133 will be dependent upon the extent of
derivative instruments held by the Company and the market for such instruments
as of January 1, 2001 and each measurement date thereafter.
Potential Changes in Law Regarding Ownership of Subsidiaries
At any time, future legislation or administrative or judicial decisions or
actions could affect our tax treatment or qualification as a REIT. The REIT
Modernization Act ("RMA"), signed into law in late 1999 and effective for 2001
and later years, contains several provisions affecting REITs. Currently, a REIT
may not hold more than 10% of the voting stock of another company. Under RMA,
this limitation is expanded to include 10% of the value of another company's
securities, with these exceptions: (1) a subsidiary's stock held by the REIT on
July 12, 1999; (2) straight debt; and (3) the stock of a taxable REIT subsidiary
(as defined below). Thus, the Manager's stock should be grandfathered under the
RMA.
RMA allows a REIT subsidiary to perform services for REIT tenants without
disqualifying the rents received (as under current law). These subsidiaries,
called taxable REIT subsidiaries ("TRS"), will be subject to taxation and will
be limited in the amount of debt and rental and other payments between the REIT
and the TRS. Existing subsidiaries, such as the Manager, will be grandfathered
in a one-time tax-free conversion as a TRS. They will not be subject to these
limitations, unless they engage in a new line of business or increase assets.
If either of these events occurs, new restrictions on debt and rental payments
will apply to these entities as well. It is anticipated that any new lines of
business will be conducted in a new TRS, therefore not negatively impacting the
Manager.
Under the new law, the fair market value of all TRS securities cannot
exceed 20% of the REIT's fair market value. At this time, the Company does not
believe its investments in all future TRS will exceed 20% of the value of the
Company. The RMA returns the REIT distribution requirement to 90% from 95%,
putting REITs back in line with mutual fund distribution requirements. It is
unclear at this time what impact this change will have on future dividends made
by the Company.
Inflation
Most of the leases on the Properties require tenants to pay increases in
operating expenses, including common area charges and real estate taxes, thereby
reducing the impact on the Company of the adverse effects of inflation. Leases
also vary in term from one month to 18 years, further reducing the impact on the
Company of the adverse effects of inflation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's primary market risk exposure is to changes in interest rates
as a result of its Line of Credit and long-term debt. At June 30, 2000, the
Company had outstanding total indebtedness, including its pro rata share of
joint venture debt and construction loans, of approximately $1.0 billion, or
approximately 47.25% of total market capitalization. The Company's interest
rate risk objective is to limit the impact of interest rate fluctuations on
earnings and cash flows and to lower its overall borrowing costs. To achieve
this objective, the Company manages its exposure to fluctuations in market
interest rates for its borrowings through the use of fixed rate debt instruments
to the extent that reasonably favorable rates are obtainable with such
arrangements and may enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks to mitigate its interest rate risk
on a related financial instrument or to effectively lock the interest rate on a
portion of its variable debt. The Company does not enter into derivative or
interest rate transactions for speculative purposes. Approximately 67% of the
Company's outstanding debt was subject to fixed rates with a weighted average
interest rate of 7.32% at June 30, 2000. An additional $160.0 million, or 15.6%,
of the Company's outstanding debt at June 30, 2000, was effectively locked at
22
<PAGE>
an interest rate (before the spread over LIBOR) of 6.22% through its Interest
Rate Swap agreements. The Company regularly reviews interest rate exposure on
its outstanding borrowings in an effort to minimize the risk of interest rate
fluctuations.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates, including Interest
Rate Swaps and debt obligations. For debt obligations outstanding at June 30,
2000, the table presents principal cash flows and related weighted average
interest rates by expected maturity dates including the Company's pro rata share
of joint venture debt totaling $86.4 million. For Interest Rate Swaps, the
table presents notional amounts and weighted average interest rates by expected
contractual maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. Weighted average
variable rates are based on implied forward rates in the yield curve as of June
30, 2000. The fair value of the Company's fixed rate debt indicates the
estimated principal amount of debt having similar debt service requirements,
which could have been borrowed by the Company at June 30, 2000. The rate
assumed in the fair value calculation of fixed rate debt is equal to 8.00%,
which consist of the 7-year treasury of 6.25% at June 20, 2000 plus 175 basis
points. The fair value of the Company's variable to fixed Interest Rate Swaps
indicates the estimated amount that would have been received by the Company had
they been sold at June 30, 2000.
<TABLE>
<CAPTION>
Expected Maturity Date
(in thousands)
---------------------------------------------------------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
------ ------- -------- -------- -------- ---------- -------- --------
Liabilities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt:
Fixed Rate $2,551 $ 7,425 $ 18,255 $ 68,081 $ 43,306 $ 548,589 $688,207 $664,879
Average Interest Rate 7.32% 7.32% 7.32% 7.32% 7.33% 7.29%
Variable Rate 4,033 14,590 100,524 149,848 71,339 340,334 340,334
Average Interest Rate 8.17% 8.16% 8.16% 8.25% 8.38%
Interest Rate Derivatives
Interest Rate Swaps:
Variable to Fixed $ 50,000 $110,000 $ 4,026
Avg. Pay Rate 6.22% 6.22% 6.22% 6.23% 6.25%
Avg. Receive Rate 6.64% 6.64% 6.64% 6.64% 6.64%
</TABLE>
The table incorporates only those exposures that exist as of June 30, 2000
and does not consider exposures or positions which could arise after that date.
In addition, because firm commitments are not represented in the table above,
the information presented therein has limited predictive value. As a result,
the Company's ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during future periods,
prevailing interest rates, and the Company's hedging strategies at that time.
There is inherent rollover risk for borrowings as they mature and are renewed at
current market rates. The extent of this risk is not quantifiable or
predictable because of the variability of future interest rates and the
Company's financing requirements.
23
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Mortgages and Notes Payable
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On May 11, 2000, the Company held its Annual Meeting of shareholders.
At the meeting, two Class I trustees, Thomas F. August and Lawrence A.
Wilson, were elected to serve as trustees until the 2003 Annual Meeting of the
shareholders, and until the respective successor of each is duly elected and
qualified. Dr. Leonard M. Riggs, Jr., Ronald G. Steinhart, Thomas J. Hynes,
Jr., Barry J.C. Parker, and Michael V. Prentiss, the remaining trustees, have
terms that continue after the Annual Meeting and did not, therefore, stand for
election at the 2000 Annual Meeting of shareholders.
The votes cast for the trustees were:
Thomas F. August
Votes for: 26,293,136
Votes withheld: 5,484,425
Lawrence A. Wilson
Votes for: 31,360,464
Votes withheld: 417,097
In addition, the shareholders approved an amendment to the Company's
Trustees' Share Incentive Plan to increase (i) the annual fee of the Company's
independent trustees to $25,000 per year payable in quarterly grants of the
Company's common shares and (ii) the number of options to purchase common shares
granted annually to the independent trustees to 7,500 with 28,626,018 shares
voting in favor, 2,689,552 shares voting against and 461,991 shares abstaining.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 -- Agreement and Plan of Merger as of June 27, 2000, by and
among Prentiss Properties Trust, Prentiss Properties
Acquisition Partners, L.P., Mack-Cali Realty Corporation and
Mack-Cali Realty, L.P. (filed as an exhibit to the Company's
Form 8-K dated June 27, 2000, filed on July 14, 2000).
24
<PAGE>
3.1 -- Form of Amended and Restated Declaration of Trust of the
Registrant (filed as Exhibit 3.1 to the Company's
Registration Statement on Amendment No. 1 of Form S-11, File
No. 333-09863, and incorporated by reference herein).
3.2 -- Bylaws of the Registrant (filed as Exhibit 3.2 to the
Company's Registration Statement on Amendment No. 1 of Form
S-11, File No. 333-09863, and incorporated by reference
herein).
3.3 -- Articles Supplementary, dated December 18, 1997,
Classifying and Designating a Series of Preferred Shares of
Beneficial Interest as Series A Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest and
Fixing Distribution and Other Preferences and Rights of Such
Shares (filed as Exhibit 3.1 to the Company's Current Report
on Form 8-K, filed January 15, 1998, File No. 001-14516).
3.4 -- Articles Supplementary, dated February 17, 1998,
Classifying and Designating a Series of Preferred Shares of
Beneficial Interest as Junior Participating Cumulative
Convertible Redeemable Preferred Shares of Beneficial
Interest, Series B, and Fixing Distribution and Other
Preferences and Rights of Such Shares (filed as an Exhibit
to the Company's Registration Statement on Form 8-A filed on
February 17, 1998, File No. 000-23813).
3.5 -- Articles Supplementary, dated June 25, 1998, Classifying
and Designating a Series of Preferred Shares of Beneficial
Interest as Series B Cumulative Redeemable Perpetual
Preferred Shares of Beneficial Interest and Fixing
Distribution and Other Preferences and Rights of Such Shares
(filed as an exhibit to the Company's form 10-Q filed on
August 12, 1998, File No. 001-14516)
3.6 -- Articles Supplementary, dated September 17, 1999,
Classifying and Designating a Series of Preferred Shares of
Beneficial Interest as Series C Cumulative Redeemable
Perpetual Preferred Shares of Beneficial Interest and Fixing
Distribution and Other Preferences and Rights of Such Shares
(filed as Exhibit 3.6 to the Company's Report on Form 10-Q,
filed November 11, 1999, File No. 001-14516).
4.1 -- Form of Common Share Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Amendment No. 1 of
Form S-11, File No. 333-09863, and incorporated by reference
herein).
4.2 -- Rights Agreement, dated February 6, 1998, between the
Company and First Chicago Trust Company of New York, as
Rights Agent (filed as an Exhibit 4.1 to the Company's
Registration Statement on Form 8-A filed on February 17,
1998, File No.000-23813).
4.3 -- Form of Rights Certificate (included as Exhibit A to the
Rights agreement (Exhibit 4.2)).
4.4 -- Form of Series A Preferred Share Certificate (filed as
Exhibit 4.2 to the Company's Registration Statement on Form
S-3, filed on October 16, 1998, File No. 333-65793).
4.5 -- Amendment No. 1 to the Rights Agreement, dated as of June
27, 2000, by and between Prentiss Properties Trust and First
Chicago Trust Company, a Division of Equiserve (filed as an
exhibit to the Company's Form 8-K dated June 27, 2000, filed
on July 14, 2000) .
10.1 -- Voting Agreement, dated as of June 27, 2000, by and
between William L. Mack, Mitchell E. Hersh, Earle Mack,
Fredrick Mack, David Mack and Prentiss Properties Trust
(filed as an exhibit to the Company's Form 8-K dated June
27, 2000, filed on July 14, 2000).
10.2 -- Voting Agreement, dated as of June 27, 2000, by and
between Thomas F. August, Richard J Bartel, as trustee of
TFA Grantor Retained Annuity Trust and as trustee of MJA
Grantor Retained Annuity Trust and Mack Cali Realty
Corporation (filed as an exhibit to the Company's Form 8-K
dated June 27, 2000, filed on July 14, 2000).
25
<PAGE>
10.3 -- Voting Agreement, dated as of June 27, 2000, by and
between Michael V. Prentiss, Santo Bisignano Jr., as trustee
of PEP Grantor Retained Annuity Trust, as trustee of MBP
Grantor Retained Annuity Trust and as trustee of KAP Grantor
Retained Annuity Trust and Mack-Cali Realty Corporation
(filed as an exhibit to the Company's Form 8-K dated June
27, 2000, filed on July 14, 2000).
10.4 -- Employment Agreement, dated as of June 27, 2000, by and
between Michael V. Prentiss and Mack-Cali Realty Corporation
(filed as an exhibit to the Company's Form 8-K dated June
27, 2000, filed on July 14, 2000.
10.5 -- Stock Purchase Agreement, dated as of June 27, 2000, by
and between Mitchell E. Hersh and Ampulla, LLC (filed as an
exhibit to the Company's Form 8-K/A dated June 27, 2000,
filed on July 17, 2000).
27.1* -- Financial Data Schedule.
99.1 -- Press Release, dated June 28, 2000 (Incorporated by
--- reference to exhibit 99.1 of the Company's Current Report on
Form 8-K, dated June 27, 2000) (filed as an exhibit to the
Company's Form 8-K dated June 27, 2000, filed on July 3,
2000).
* Filed herewith.
(b) Reports on Form 8-K
On July 3, 2000, the Company filed with the SEC a Current Report on Form 8-
K, dated June 27, 2000. The Current Report on Form 8-K relates to the Company's
announcement of a definitive Agreement and Plan of Merger (the "Merger") between
the Company and Mack-Cali Realty Corporation. The Merger is scheduled to close
in the fourth quarter of 2000.
On July 14, 2000, the Company filed with the SEC a Current Report on Form
8-K, dated June 27, 2000. The Current Report on Form 8-K relates to the Merger
Agreement (the "Merger Agreement") between the Company and Mack-Cali Realty
Corporation. The Merger Agreement includes the terms and conditions of the
Merger, which is scheduled to close in the fourth quarter of 2000.
On July 17, 2000, the Company filed with the SEC Amendment No. 1 which
amends the Current Report on Form 8-K filed with the SEC on July 14, 2000. The
Current Report on Form 8-K relates to the Merger Agreement between the Company
and Mack-Cali Realty Corporation.
26
<PAGE>
SIGNATURE
---------
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.
PRENTISS PROPERTIES TRUST
Date: August 10, 2000 By: /s/ Thomas P. Simon
-----------------------------
Thomas P. Simon
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer
and Duly Authorized Officer of
the Company)
27
