<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 9, 1998
---------------
PAN PACIFIC RETAIL PROPERTIES, INC.
-----------------------------------
(Exact Name of Registrant as Specified in its Charter)
Maryland 001-13243 33-0752457
- ------------------------------- ----------- -------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification No.)
1631-B South Melrose Drive
Vista, California 92083
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (760) 727-1002
--------------
N.A.
-------------------------------------------------------------
(Former name or former address, if changed since last report)
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<PAGE> 2
Item 7. Financial Statements and Exhibits.
(a) Financial Statements Under Rule 3-14 of Regulation S-X.
The Mercury Portfolio
Independent Auditors' Report
Combined Statement of Revenue and Certain Expenses for
the year ended December 31, 1997
Notes to Combined Statement of Revenue and Certain
Expenses
Combined Statement of Estimated Taxable Operating Results
of The Mercury Portfolio and Estimated Cash To Be
Made Available By Operations of The Mercury Portfolio
(unaudited)
Manteca Marketplace
Independent Auditors' Report
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997
Notes to Statement of Revenue and Certain Expenses
Statement of Estimated Taxable Operating Results of
Manteca Marketplace and Estimated Cash To Be Made
Available By Operations of Manteca Marketplace
(unaudited)
(b) Pro Forma Condensed Consolidated Financial Statements.
Pro Forma Condensed Consolidated Balance Sheet (unaudited)
Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 1998
(unaudited)
Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1997 (unaudited)
Notes to the Pro Forma Condensed Consolidated Financial
Statements
Combining Schedules of Revenue and Certain Expenses of the
Acquisition Properties and Notes Receivable as
follows:
1) Combining Schedule of Revenue and Certain
Expenses of the 1998 Acquisition Properties for
the Nine Months Ended September 30, 1998
(unaudited)
2) Combining Schedule of Revenue and Certain
Expenses of the 1998 Acquisition Properties for
the Year Ended December 31, 1997 (unaudited)
3) Combining Schedule of Revenue and Certain
Expenses of the 1997 Acquisition Properties and
Notes Receivable for the Year Ended December 31,
1997 (unaudited)
(c) Exhibits.
The Exhibits to this report are listed on the Exhibit
Index set forth elsewhere herein.
1
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pan Pacific Retail Properties, Inc.:
We have audited the accompanying combined statement of revenue and certain
expenses of The Mercury Portfolio for the year ended December 31, 1997. This
combined statement is the responsibility of management. Our responsibility is to
express an opinion on this combined statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the combined statement. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying combined statement of revenue and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission, as described in Note 1 to the combined statement of
revenue and certain expenses. It is not intended to be a complete presentation
of The Mercury Portfolio's combined revenue and expenses.
In our opinion, the combined statement referred to above presents fairly, in all
material respects, the combined revenue and certain expenses, as described in
Note 1, of The Mercury Portfolio for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
October 2, 1998, except for the first paragraph
of Note 6, as to which the date is October 9, 1998,
the second paragraph of Note 6, as to which
the date is November 5, 1998, and the third
paragraph of Note 6, as to which the date
is November 9, 1998
2
<PAGE> 4
THE MERCURY PORTFOLIO
Combined Statement of Revenue and Certain Expenses
For the year ended December 31,1997
<TABLE>
<S> <C>
Revenue:
Rent (notes 3 and 4) $6,500,923
Recoveries from tenants 1,414,552
Other 8,953
----------
7,924,428
----------
Certain expenses:
Interest (note 4) 1,560,874
Repairs and maintenance 719,810
Property taxes 642,799
Utilities 178,575
Management fees - related party 144,132
Insurance 125,705
Other 91,976
----------
3,463,871
----------
Revenue in excess of certain expenses $4,460,557
==========
</TABLE>
See accompanying notes to combined statement of revenue and certain expenses.
3
<PAGE> 5
THE MERCURY PORTFOLIO
Notes to Combined Statement of Revenue and Certain Expenses
For the year ended December 31, 1997
(1) BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain expenses
relates to the operations of The Mercury Portfolio (the "Properties"),
consisting of the following:
<TABLE>
<CAPTION>
PROPERTY LOCATION
------------------------------------------------ --------------------
<S> <C>
Oregon City Shopping Center ("Oregon City") Oregon City, Oregon
Southgate Shopping Center ("Southgate") Milwaukee, Oregon
Sandy Marketplace ("Sandy") Sandy, Oregon
Oregon Trail Center ("Oregon Trail") Gresham, Oregon
Sunset Mall ("Sunset") Portland, Oregon
Hermiston Plaza ("Hermiston") Hermiston, Oregon
Hood River Center Hood River, Oregon
</TABLE>
Oregon City, Southgate, and Sandy are owned by Smudik Development, LLC
("Smudik"). Sunset is owned by MIKZ Development, LLC ("MIKZ"). Pan
Pacific Retail Properties, Inc. (the "Company") or an affiliate acquired
Smudik, MIKZ, and the remaining properties listed above (Note 6) and
assumed the mortgage notes payable related to Smudik and MIKZ (Note 4).
The accompanying combined statement of revenue and certain expenses has
been prepared for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission and accordingly, is not
representative of the actual results of operations of the Properties for
the year ended December 31, 1997 due to the exclusion of the following
expenses, which may not be comparable to the proposed future operations
of the Properties:
- Depreciation and amortization
- Interest on mortgages which were not assumed by the Company
- Federal and state income taxes
- Other costs not directly related to the proposed future
operations of the Properties
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the term
of the individual leases.
4 (Continued)
<PAGE> 6
THE MERCURY PORTFOLIO
Notes to Combined Statement of Revenue and Certain Expenses
For the year ended December 31, 1997
(b) USE OF ESTIMATES
Management has made a number of estimates and assumptions relating
to the reporting and disclosure of revenue and certain expenses
during the reporting period to prepare the combined statement of
revenue and certain expenses in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(3) RENT REVENUE
Retail space is leased to tenants under various operating leases with
terms ranging from month-to-month to 20 years. The leases generally
provide for minimum rent and reimbursement of real estate taxes, common
area maintenance and certain other operating expenses. Certain leases
also contain provisions for percentage rent. Percentage rent earned for
the year ended December 31, 1997 was $163,095.
Future minimum rentals to be received under noncancelable operating
leases in effect at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998 $ 6,008,086
1999 5,340,112
2000 4,238,671
2001 3,278,776
2002 2,612,905
Thereafter 11,209,392
-------------
$ 32,687,942
=============
</TABLE>
(4) MORTGAGE NOTES PAYABLE
(a) SMUDIK DEVELOPMENT, LLC
A loan in the amount of $17,500,000 , secured by a first trust
deed and an assignment of rents on the properties owned by Smudik
(Oregon City, Sandy, and Southgate), was executed by Smudik on
January 28, 1997. An affiliate of the Company assumed the loan as
part of its acquisition of Smudik (Note 6). The loan bears
interest at an annual rate of 8.73% (the "Base Rate"), with
principal and interest payments of $143,637 due monthly through
January 31, 2007. The loan may be prepaid in full without penalty
during the six-month period ending January 31, 2007. The
outstanding principal balance at January 31, 2007 is expected to
be approximately $14,727,000. Effective February 1, 2007 and
through the loan's maturity on February 1, 2022, the loan bears
interest at an annual rate equal to 2.0% in excess of the greater
of (1) the Base Rate or (2) the interest rate on a ten-year U.S.
Treasury obligation as of February 1, 2007. The monthly principal
and interest payments are to be adjusted based on a 25-year
amortization period using the then outstanding principal balance
and the new interest rate. The principal balance of the loan at
December 31, 1997 was $17,330,803.
5 (Continued)
<PAGE> 7
THE MERCURY PORTFOLIO
Notes to Combined Statement of Revenue and Certain Expenses
For the year ended December 31, 1997
(b) MIKZ DEVELOPMENT, LLC
A loan in the amount of $7,650,000, secured by a first trust deed
and an assignment of rents on the property owned by MIKZ (Sunset),
was executed by MIKZ on September 30, 1997. An affiliate of the
Company assumed the loan as part of its acquisition of MIKZ (Note
6). The loan bears interest at an annual rate of 7.65%, with
principal and interest payments of $54,278 due monthly through
October 1, 2012, at which time the outstanding principal balance
and any accrued interest thereon is due. The principal balance of
the loan at December 31, 1997 was $7,633,367.
Based on the dates of these financings, the accompanying financial
statement includes interest expense for approximately eleven months on
the Smudik loan and three months on the MIKZ loan. Therefore such
interest expense is not comparable to amounts that will be incurred for a
full year of operations.
(5) LEASE COMMITMENT
Certain real property of Hermiston is subject to a noncancelable
operating lease, which commenced on January 1, 1977 and terminates on
December 31, 2016. This lease provides for monthly minimum rent and is
subject to increase annually based on the change in the consumer price
index. In conjunction with the acquisition of Hermiston, the Company
assumed the operating lease.
At December 31, 1997, aggregate minimum rental commitments are as
follows:
<TABLE>
<S> <C>
1998 $ 33,600
1999 33,684
2000 33,684
2001 33,684
2002 33,684
Thereafter 505,260
---------
$ 673,596
=========
</TABLE>
(6) SUBSEQUENT EVENTS
On October 9, 1998, the Company and an affiliate purchased Oregon Trail,
Hermiston and Hood River Center for $26,769,356 in cash which included
net prepayment fees of $1,021,532 incurred on the mortgage notes paid off
in connection with the purchase.
On November 5, 1998, the Company through an affiliate, Pan Pacific
(Portland), LLC ("PPP"), acquired Sunset by acquiring MIKZ, the entity
which owns Sunset. MIKZ was acquired pursuant to a contribution
agreement, dated September 23, 1998, and related amendments. The purchase
price, net of associated debt of $7,575,538, was $4,441,667. PPP paid
cash of $242,668 and issued 198,597 PPP units in exchange for all of the
outstanding units of MIKZ.
6 (Continued)
<PAGE> 8
THE MERCURY PORTFOLIO
Notes to Combined Statement of Revenue and Certain Expenses
For the year ended December 31, 1997
On November 9, 1998, the Company through its affiliates, PPP and Pan
Pacific (Clackamas) Inc. ("Clackamas") acquired three shopping centers
(Oregon City, Southgate and Sandy) by acquiring Smudik, the entity which
owns the shopping centers. Smudik was acquired pursuant to a contribution
agreement, dated September 23, 1998, and related amendments. The purchase
price, net of associated debt of $17,166,393, was $13,970,284. PPP paid
cash of $261,348 and issued 634,019 PPP units in exchange for 99% of the
outstanding units of Smudik and the remaining 1% interest in Smudik was
acquired by Clackamas for cash.
7
<PAGE> 9
THE MERCURY PORTFOLIO
Combined Statement of Estimated Taxable Operating Results of The Mercury
Portfolio and Estimated Cash to be made available by Operations of The Mercury
Portfolio.
For the Year Ended December 31, 1997
(unaudited)
Revenue:
Rent $6,500,923
Recoveries from tenants 1,414,552
Other 8,953
----------
7,924,428
----------
Expenses:
Depreciation 1,311,000
Property operating 1,024,090
Property taxes 642,799
Interest 2,071,779
Property management fees 144,132
Other 91,976
----------
5,285,776
----------
Estimated taxable operating income 2,638,652
Add back depreciation 1,311,000
----------
Estimated cash to be made available by operations $3,949,652
==========
This combined statement of estimated taxable operating results and estimated
cash to be made available by operations is an estimate of operating results of
The Mercury Portfolio for a period of twelve months based on information
provided by management and does not purport to reflect actual results for any
period. The Company does not expect to pay federal income tax because of its
election to be taxed as a REIT.
8
<PAGE> 10
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pan Pacific Retail Properties, Inc.:
We have audited the accompanying statement of revenue and certain expenses of
Manteca Marketplace for the year ended December 31, 1997. This statement is the
responsibility of management. Our responsibility is to express an opinion on
this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statement. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission as described in Note 1 to the statement of revenue and
certain expenses. It is not intended to be a complete presentation of Manteca
Marketplace's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all material
respects, the revenue and certain expenses, as described in Note 1, of Manteca
Marketplace for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
September 15, 1998
9
<PAGE> 11
MANTECA MARKETPLACE
Statement of Revenue and Certain Expenses
For the year ended December 31, 1997
<TABLE>
<S> <C>
Revenue:
Rent (notes 3 and 4) $ 979,186
Recoveries from tenants 150,563
Other 2,730
----------
1,132,479
----------
Certain expenses:
Repairs and maintenance 176,992
Property taxes 69,936
Utilities 53,634
Management fees 50,400
Insurance - related party 16,392
Other 24,447
----------
391,801
----------
Revenue in excess of certain expenses $ 740,678
==========
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
10
<PAGE> 12
MANTECA MARKETPLACE
Notes to Statement of Revenue and Certain Expenses
For the year ended December 31, 1997
(1) BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of Manteca Marketplace (the "Property"), a community shopping
center located in Manteca, California. The Property was purchased by Pan
Pacific Retail Properties, Inc. (the "Company") for $15,616,631 in cash
on March 19,1998.
The accompanying statement of revenue and certain expenses has been
prepared for the purpose of complying with the rules and regulations of
the Securities and Exchange Commission and, accordingly, is not
representative of the actual results of operations of Manteca Marketplace
for the year ended December 31, 1997 due to the exclusion of the
following expenses, which may not be comparable to the proposed future
operations of the Property:
- Depreciation and amortization
- Federal and state income taxes
- Other costs not directly related to the proposed future
operations of the Property
In addition, the purchase of the Property by the Company is estimated to
increase future property tax expense by approximately $87,000 annually.
The Company anticipates that the majority of the increase in property tax
expense will be recovered from tenants of the Property.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the term
of the individual leases.
(b) USE OF ESTIMATES
Management has made a number of estimates and assumptions relating
to the reporting and disclosure of revenue and certain expenses
during the reporting period to prepare the statement of revenue
and certain expenses in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(3) RENT REVENUE
Retail space is leased to tenants under various operating leases with
terms ranging from three to 25 years. The leases generally provide for
minimum rent and reimbursement of real estate taxes, common area
maintenance and certain other operating expenses. Certain leases also
contain provisions for percentage rent. No percentage rent was earned for
the year ended December 31, 1997.
11 (Continued)
<PAGE> 13
MANTECA MARKETPLACE
Notes to Statement of Revenue and Certain Expenses
For the year ended December 31, 1997
Future minimum rentals to be received under noncancelable operating
leases in effect at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
------------------------------------- ----------------
<S> <C>
1998 $ 1,410,926
1999 1,414,428
2000 1,345,049
2001 1,252,849
2002 1,180,351
Thereafter 15,252,260
---------------
$ 21,855,863
===============
</TABLE>
(4) CONCENTRATION OF CREDIT RISK
At December 31, 1997, two tenants individually accounted for more than
10% of total revenue. Rent revenue earned and recoveries from these
tenants for the year ended December 31, 1997 were as follows:
<TABLE>
<S> <C>
Save Mart of Modesto $ 288,680
Stadium 10 Cinemas $ 157,429
</TABLE>
12
<PAGE> 14
MANTECA MARKETPLACE
Statement of Estimated Taxable Operating Results of Manteca Marketplace and
Estimated Cash to be made available by Operations of Manteca Marketplace.
For the Year Ended December 31, 1997
(unaudited)
Revenue:
Rent, net of straight-line rent $ 880,391
Recoveries from tenants 150,563
Other 2,730
----------
1,033,684
----------
Expenses:
Depreciation 292,800
Property operating 247,018
Property taxes 69,936
Property management fees 50,400
Other 24,447
----------
684,601
----------
Estimated taxable operating income 349,083
Add back depreciation 292,800
----------
Estimated cash to be made available by operations $ 641,883
==========
This statement of estimated taxable operating results and estimated cash to be
made available by operations is an estimate of operating results of Manteca
Marketplace for a period of twelve months based on information provided by
management and does not purport to reflect actual results for any period. This
statement includes an adjustment to rent revenue of $98,795 to reverse the
effects of straight-line rent that was recognized for financial reporting
purposes. The Company does not expect to pay federal income tax because of its
election to be taxed as a REIT.
13
<PAGE> 15
PAN PACIFIC RETAIL PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet
as of September 30, 1998 is presented as if the acquisition of The Mercury
Portfolio had occurred on September 30, 1998. The following unaudited pro forma
condensed consolidated statements of operations for the nine months ended
September 30, 1998 and the year ended December 31, 1997 are presented as if: (i)
the consummation of the initial public offering of common stock in August 1997
(the "IPO"), the related formation transactions in connection with the IPO and
the related repayment of notes payable; (ii) the acquisitions of Chico
Crossroads, Monterey Plaza, Fairmont Shopping Center, Lakewood Shopping Center,
Green Valley Town & Country , Rainbow Promenade, The PNW Portfolio, Palmdale
Shopping Center, Tustin Heights Shopping Center and Brookvale Shopping Center
(collectively the "1997 Acquisitions") and certain secured notes receivable;
(iii) the acquisitions of Bear Creek Plaza, San Dimas Marketplace, The Oregon
Portfolio, Manteca Marketplace, Creekside Center, Panther Lake Shopping Center,
Westwood Village Shopping Center, Fashion Faire Shopping Center, Pacific Commons
Shopping Center and The Mercury Portfolio (collectively the "1998 Acquisitions")
and (iv) the secondary offering completed on May 18, 1998, the exercise of Pan
Pacific Development (U.S.), Inc.'s participation rights and related repayment of
a portion of the unsecured credit facility all had occurred on January 1, 1997.
The pro forma condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements of Pan Pacific Retail
Properties, Inc., including the notes thereto, that were filed with and as part
of Pan Pacific Retail Properties, Inc's annual report on Form 10-K for the year
ended December 31, 1997 filed on March 30, 1998, quarterly report on Form 10-Q
for the period ended March 31, 1998 filed on May 15, 1998, quarterly report on
Form 10-Q for the period ended June 30, 1998 filed on August 13, 1998, and
quarterly report on Form 10-Q for the period ended September 30, 1998 filed on
November 13, 1998. The pro forma condensed consolidated financial statements do
not purport to represent Pan Pacific Retail Properties, Inc's financial position
as of September 30, 1998 or the results of operations for the nine months ended
September 30, 1998 or for the year ended December 31, 1997 that would actually
have occurred had the Company completed the transactions described above nor do
they purport to represent the results of operations as of any future date or for
any future period.
14
<PAGE> 16
PAN PACIFIC RETAIL PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pan Pacific Pan Pacific
Retail Acquisition of Retail
Properties, Inc. The Mercury Properties, Inc.
Historical Portfolio (A) Proforma
---------------- -------------- ----------------
<S> <C> <C> <C>
ASSETS
Operating properties, at cost, net $578,609 $70,945 $649,554
Investments in unconsolidated partnerships 9,912 -- 9,912
Cash, cash equivalents and restricted cash 1,261 (791) 470
Accounts and accrued rent receivable 11,917 -- 11,917
Notes receivable 2,063 -- 2,063
Deferred lease commissions 2,724 -- 2,724
Prepaid expenses and other assets 5,260 -- 5,260
-------- ------- --------
$611,746 $70,154 $681,900
======== ======= ========
LIABILITIES AND OWNERS' EQUITY
Notes payable $110,810 $24,742 $135,552
Line of credit payable 100,001 27,823 127,824
Accounts payable, accrued expenses and
other liabilities 16,264 -- 16,264
-------- ------- --------
Total liabilities 227,075 52,565 279,640
Minority interest 1,253 17,589 18,842
Shareholders' equity
Common stock par value $.01 per share,
100,000,000 authorized shares 21,162,012
shares issued and outstanding at
September 30, 1998 212 -- 212
Paid-in-capital in excess of par value 481,182 -- 481,182
Accumulated deficit (97,976) -- (97,976)
-------- ------- --------
Total shareholders' equity 383,418 -- 383,418
-------- ------- --------
$611,746 $70,154 $681,900
======== ======= ========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
15
<PAGE> 17
PAN PACIFIC RETAIL PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998
ACQUISITION
PROPERTIES
AND OTHER
COMPANY PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
REVENUE:
Rental $44,966 $7,231 (K) $ 52,197
Percentage rent 340 131 (K) 471
Recoveries from tenants 9,733 1,592 (K) 11,325
Income from unconsolidated
partnerships 531 -- 531
Other 1,360 16 (K) 1,376
------- ------ -----------
56,930 8,970 65,900
------- ------ -----------
EXPENSES
Property operating 6,862 1,211 (K) 8,073
Property taxes 4,038 765 (K) 4,803
Property management fees -- 212 (K) --
(212)(M)
Depreciation and amortization 10,454 1,479 (L) 11,933
Interest 13,310 1,704 (K) 14,384
(630)(E)
General and administrative 3,001 -- 3,001
Other expenses 305 103 (K) 408
------- ------ -----------
37,970 4,632 42,602
------- ------ -----------
INCOME BEFORE MINORITY
INTEREST 18,960 4,338 23,298
Minority interest (37) (949)(K) (986)
------- ------ -----------
NET INCOME BEFORE
EXTRAORDINARY ITEM $18,923 $3,389 $ 22,312
======= ====== ===========
Pro forma basic weighted average
common shares outstanding 21,162,012
===========
Pro forma diluted weighted average
common shares outstanding 21,217,186
===========
Pro forma basic earnings per share $ 1.05
===========
Pro forma diluted earnings per share $ 1.05
===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
16
<PAGE> 18
PAN PACIFIC RETAIL PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
1997 1998
ACQUISITION ACQUISITION
PROPERTIES PROPERTIES
AND OTHER AND OTHER
COMPANY PRO FORMA PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
REVENUE:
Rental $36,839 $10,512 (B) $17,681 (K) $ 65,032
Percentage rent 278 127 (B) 222 (K) 627
Recoveries from tenants 8,042 2,145 (B) 3,717 (K) 13,904
Income from unconsolidated
partnerships 409 297 (E) -- 706
Other 884 108 (B) 49 (K) 1,041
------- ------- ------- -----------
46,452 13,189 21,669 81,310
------- ------- ------- -----------
EXPENSES
Property operating 6,016 1,400 (B) 2,825 (K) 10,241
Property taxes 3,187 1,126 (B) 1,866 (K) 6,179
Property management fees 126 497 (B) 610 (K) 126
(497)(D) (610)(M)
Depreciation and amortization 8,928 2,200 (C) 3,661 (L) 14,789
Interest 14,057 2,506 (B) 1,888 (K) 17,784
(1,271)(E)
604 (F)
General and administrative 3,923 558 (G) -- 4,000
(481)(H)
Other expenses 687 155 (B) 266 (K) 579
(529)(I)
------- ------- ------- -----------
36,924 6,268 10,506 53,698
------- ------- ------- -----------
INCOME BEFORE INCOME TAX
EXPENSE AND MINORITY
INTEREST 9,528 6,921 11,163 27,612
Income tax expense (19) 19 (J) -- --
Minority interest (153) (96)(E) (1,222)(K) (1,471)
------- ------- ------- -----------
NET INCOME BEFORE
EXTRAORDINARY ITEM $ 9,356 $ 6,844 $ 9,941 $ 26,141
======= ======= ======= ===========
Pro forma basic weighted average
common shares outstanding 21,162,012
===========
Pro forma diluted weighted average
common shares outstanding 21,220,111
===========
Pro forma basic earnings per share $ 1.24
===========
Pro forma diluted earnings per share $ 1.23
===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
17
<PAGE> 19
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(A) Acquisition of The Mercury Portfolio (acquired from unrelated third parties,
recorded at cost):
Operating properties (including land
costs of $17,736) $ 70,945
Cash and cash equivalents (791)
Notes payable assumed 24,742
Increase in line of credit payable 27,823
Contributed equity 17,589
2. ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The pro forma adjustments to the Pro Forma Condensed Consolidated Statement
of Operations for the nine months ended September 30, 1998 and for the year
ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
(B) Acquisition of Chico Crossroads, Monterey Plaza,
Fairmont Shopping Center, Lakewood Shopping Center,
Green Valley Town & Country, the secured notes
receivable, Rainbow Promenade, The PNW Portfolio,
Palmdale Shopping Center, Tustin Heights Shopping
Center and Brookvale Shopping Center (refer to
Combining Schedules for detailed information by
property)
Rental revenue -- $ 10,512
Percentage rent -- 127
Recoveries from tenants -- 2,145
Other revenue -- 108
Property operating expenses -- 1,400
Property taxes -- 1,126
Property management fees -- 497
Interest -- 2,506
Other expenses -- 155
(C) Increase in depreciation expense on buildings for the
1997 Acquisitions as follows:
Chico Crossroads -- $ 71
Monterey Plaza -- 141
Fairmont Shopping Center -- 69
Lakewood Shopping Center -- 86
Green Valley Town & Country -- 189
Rainbow Promenade -- 374
The PNW Portfolio -- 671
Palmdale Shopping Center -- 86
Tustin Heights Shopping Center -- 276
Brookvale Shopping Center -- 237
---------
-- $ 2,200
=========
(D) Elimination of property management fees paid to third
parties related to the 1997 Acquisitions -- $ (497)
</TABLE>
18
<PAGE> 20
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
(E) Net decrease in interest expense resulting from the
repayment of notes payable with the proceeds from the
IPO and the repayment of borrowings under the
Unsecured Credit Facility with proceeds from the
Secondary Offering as follows:
Income from unconsolidated partnerships -- $ 297
Interest $ (630) $ (1,271)
Minority interest -- $ (96)
(F) Increase in interest expense for the effect of the
amortization of Unsecured Credit Facility fees $ -- $ 604
(G) Increase in general and administrative expenses for
the incremental costs of operating as a public REIT -- $ 558
(H) Decrease in general and administrative expenses for
management fees charged by Revenue Properties -- $ (481)
(I) Decrease in other expenses for loan guarantee fees
charged by Revenue Properties -- $ (529)
(J) Elimination of income tax expense as the Company
expects to be taxed as a REIT -- $ 19
(K) Acquisition of Bear Creek Plaza, San Dimas
Marketplace, The Oregon Portfolio, Manteca
Marketplace, Creekside Center, Panther Lake Shopping
Center, Westwood Village Shopping Center, Fashion
Faire Shopping Center, Pacific Commons Shopping
Center and The Mercury Portfolio (refer to the
Combining Schedules for detailed information by
property)
Rental revenue $ 7,231 $ 17,681
Percentage rent 131 222
Recoveries from tenants 1,592 3,717
Other revenue 16 49
Property operating expenses 1,211 2,825
Property taxes 765 1,866
Property management fees 212 610
Interest 1,704 1,888
Other expenses 103 266
Minority interest (949) (1,222)
(L) Increase in depreciation expense on buildings for the
1998 Acquisitions as follows:
Bear Creek Plaza $ 13 $ 246
San Dimas Marketplace 25 427
The Oregon Portfolio 86 569
Manteca Marketplace 62 293
Creekside Center 33 113
Panther Lake Shopping Center 42 146
Westwood Village Shopping Center 32 85
Fashion Faire Shopping Center 87 215
Pacific Commons Shopping Center 118 256
The Mercury Portfolio 981 1,311
-------- ---------
$ 1,479 $ 3,661
======== =========
(M) Elimination of property management fees paid to third
parties related to the 1998 Acquisitions $ (212) $ (610)
</TABLE>
19
<PAGE> 21
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 on December 14, 1998.
PAN PACIFIC RETAIL PROPERTIES, INC.
By: /s/ Stuart A. Tanz
--------------------------------
Stuart A. Tanz
President and Chief Executive
Officer
By: /s/ David L. Adlard
--------------------------------
David L. Adlard
Executive Vice President and
Chief Financial Officer
By: /s/ Laurie A. Sneve
--------------------------------
Laurie A. Sneve, CPA
Vice President and Controller
20
<PAGE> 22
PAN PACIFIC RETAIL PROPERTIES, INC.
COMBINING SCHEDULE OF REVENUE AND CERTAIN EXPENSES OF THE
1998 ACQUISITION PROPERTIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998(1)
(UNAUDITED)
<TABLE>
<CAPTION>
BEAR CREEK SAN DIMAS THE OREGON MANTECA CREEKSIDE PANTHER LAKE
PLAZA MARKETPLACE PORTFOLIO MARKETPLACE CENTER SHOPPING CENTER
---------- ----------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rent.................. $81,022 $469,107 $61,382 $206,568 $183,180 $211,279
Percentage rent....... 0 0 609 0 0 0
Recoveries from
tenants............. 9,682 95,302 13,500 31,763 53,279 54,547
Other................. 0 2,855 134 576 110 1,177
------- -------- ------- -------- -------- --------
90,704 567,264 75,625 238,907 236,569 267,003
------- -------- ------- -------- -------- --------
Expenses:
Property operating.... 3,601 70,612 5,098 52,111 99,906 29,624
Property taxes........ 6,935 49,201 7,613 14,754 23,752 32,479
Management fees....... 2,281 21,703 1,568 10,632 11,535 7,986
Interest.............. 0 0 0 0 0 0
Other................. 1,237 9,957 807 5,157 3,076 3,620
-------- -------- -------- -------- -------- --------
14,054 151,473 15,086 82,654 138,269 73,709
-------- -------- -------- -------- -------- --------
Revenue in excess of
certain expenses...... $ 76,650 $415,791 $ 60,539 $156,253 $ 98,300 $193,294
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
WESTWOOD VILLAGE FASHION FAIRE PACIFIC COMMONS THE MERCURY
SHOPPING CENTER SHOPPING CENTER SHOPPING CENTER PORTFOLIO TOTAL
---------------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Rent.................. $233,844 $423,021 $608,667 $4,753,371 $7,231,441
Percentage rent....... 0 0 7,904 122,321 130,834
Recoveries from
tenants............. 46,942 97,033 128,936 1,060,914 1,591,898
Other................. 303 2,484 1,778 6,715 16,132
-------- -------- -------- ---------- ----------
281,089 522,538 747,285 5,943,321 8,970,305
-------- -------- -------- ---------- ----------
Expenses:
Property operating.... 33,214 86,322 62,517 768,068 1,211,073
Property taxes........ 26,630 37,422 84,333 482,099 765,218
Management fees....... 14,054 20,904 12,978 108,099 211,740
Interest.............. 124,617 0 -- 1,579,463 1,704,080
Other................. 7,717 1,024 1,081 68,982 102,658
-------- -------- -------- ---------- ----------
206,232 145,672 160,909 3,006,711 3,994,769
-------- -------- -------- ---------- ----------
Revenue in excess of
certain expenses...... $ 74,857 $376,866 $586,376 $2,936,610 $4,975,536
======== ======== ======== ========== ==========
</TABLE>
- --------------
(1) Amounts shown reflect operating results for the period during 1998 that the
assets were not owned by the Company.
21
<PAGE> 23
PAN PACIFIC RETAIL PROPERTIES, INC.
COMBINING SCHEDULE OF REVENUE AND CERTAIN EXPENSES OF THE
1998 ACQUISITION PROPERTIES
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
BEAR CREEK SAN DIMAS THE OREGON MANTECA CREEKSIDE PANTHER LAKE
PLAZA MARKETPLACE PORTFOLIO MARKETPLACE CENTER SHOPPING CENTER
---------- ----------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rent.................. $1,179,184 $1,408,238 $3,438,981 $ 979,186 $630,763 $734,445
Percentage rent....... 11,692 -- 30,589 -- -- --
Recoveries from
tenants............. 259,347 168,280 710,016 150,563 183,460 189,615
Other................. 2,570 -- 19,381 2,730 380 4,092
---------- ---------- ---------- ---------- -------- --------
1,452,793 1,576,518 4,198,967 1,132,479 814,603 928,152
---------- ---------- ---------- ---------- -------- --------
Expenses:
Property operating.... 97,938 62,592 511,527 247,018 344,015 102,980
Property taxes........ 146,246 120,541 347,347 69,936 81,788 112,902
Management fees....... 30,122 39,643 162,182 50,400 39,720 27,761
Interest.............. -- -- -- -- -- --
Other................. 15,508 21,500 64,020 24,447 10,591 12,584
---------- ---------- ---------- ---------- -------- --------
289,814 244,276 1,085,076 391,801 476,114 256,227
---------- ---------- ---------- ---------- -------- --------
Revenue in excess of
certain expenses...... $1,162,979 $1,332,242 $3,113,891 $ 740,678 $338,489 $671,925
========== ========== ========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
WESTWOOD VILLAGE FASHION FAIRE PACIFIC COMMONS THE MERCURY
SHOPPING CENTER SHOPPING CENTER SHOPPING CENTER PORTFOLIO TOTAL
---------------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Rent.................. $614,052 $1,043,262 $1,314,576 $6,337,828 $17,680,515
Percentage rent....... 0 0 17,071 163,095 222,447
Recoveries from
tenants............. 123,264 239,305 278,471 1,414,552 3,716,873
Other................. 796 6,126 3,839 8,953 48,867
-------- ---------- ---------- ---------- -----------
738,112 1,288,693 1,613,957 7,924,428 21,668,702
-------- ---------- ---------- ---------- -----------
Expenses:
Property operating.... 87,216 212,888 135,021 1,024,090 2,825,285
Property taxes........ 69,928 92,290 182,139 642,799 1,865,916
Management fees....... 36,904 51,554 28,030 144,132 610,448
Interest.............. 327,231 -- -- 1,560,874 1,888,105
Other................. 20,264 2,525 2,334 91,976 265,749
-------- ---------- ---------- ---------- -----------
541,543 359,257 347,524 3,463,871 7,455,503
-------- ---------- ---------- ---------- -----------
Revenue in excess of
certain expenses...... $196,569 $ 929,436 $1,266,433 $4,460,557 $14,213,199
======== ========== ========== ========== ===========
</TABLE>
22
<PAGE> 24
PAN PACIFIC RETAIL PROPERTIES, INC.
COMBINING SCHEDULE OF REVENUE AND CERTAIN EXPENSES OF THE
1997 ACQUISITION PROPERTIES AND NOTES RECEIVABLE
FOR THE YEAR ENDED DECEMBER 31, 1997(1)
(UNAUDITED)
<TABLE>
<CAPTION>
CHICO MONTERREY FAIRMONT GREEN VALLEY LAKEWOOD NOTES
CROSSROADS PLAZA SHOPPING CENTER TOWN & COUNTRY SHOPPING CENTER RECEIVABLE
---------- --------- --------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenue:
Rent........................ $349,208 $746,219 $404,174 $1,016,555 $404,375 $ --
Percentage rent............. -- -- -- -- -- --
Recoveries from tenants..... 25,458 121,354 82,779 106,530 80,302 --
Other....................... -- -- 1,986 82 1,213 45,178
-------- -------- -------- ---------- -------- -------
374,666 867,573 488,939 1,123,167 485,890 45,178
-------- -------- -------- ---------- -------- -------
Certain Expenses:
Property operating.......... 23,634 82,744 42,323 122,793 80,585 --
Property taxes.............. 46,964 110,578 29,366 56,654 44,435 --
Management fees............. 6,500 29,047 16,643 44,924 19,850 --
Interest.................... -- 565,001 -- 684,407 -- --
Other....................... 2,934 -- 1,312 4,960 5,958 --
-------- -------- -------- ---------- -------- -------
80,032 787,370 89,644 913,738 150,828 --
-------- -------- -------- ---------- -------- -------
Revenue in excess of certain
expenses.................... $294,634 $ 80,203 $399,295 $ 209,429 $335,062 $45,178
======== ======== ======== ========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
TUSTIN BROOKVALE
RAINBOW THE PNW PALMDALE HEIGHTS SHOPPING
PROMENADE PORTFOLIO SHOPPING CENTER SHOPPING CENTER CENTER TOTAL
---------- ---------- --------------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rent........................ $1,450,319 $3,568,281 $427,660 $1,228,648 $ 916,856 $10,512,295
Percentage rent............. -- 20,348 -- -- 106,415 126,763
Recoveries from tenants..... 230,031 847,958 160,100 170,322 320,372 2,145,206
Other....................... 3,992 1,368 2,789 8,584 43,061 108,253
---------- ---------- -------- ---------- ---------- -----------
1,684,342 4,437,955 590,549 1,407,554 1,386,704 12,892,517
---------- ---------- -------- ---------- ---------- -----------
Certain Expenses:
Property operating.......... 126,684 475,486 106,819 153,840 185,590 1,400,498
Property taxes.............. 169,637 371,546 20,727 112,056 163,970 1,125,933
Management fees............. 34,527 168,892 13,867 90,497 72,463 497,210
Interest.................... -- 1,256,882 -- -- -- 2,506,290
Other....................... 14,313 18,137 58,196 38,168 11,413 155,391
---------- ---------- -------- ---------- ---------- -----------
345,161 2,290,943 199,609 394,561 433,436 5,685,322
---------- ---------- -------- ---------- ---------- -----------
Revenue in excess of certain
expenses.................... $1,339,181 $2,147,012 $390,940 $1,012,993 $ 953,268 $ 7,207,195
========== ========== ======== ========== ========== ===========
</TABLE>
- ---------------
(1) Amounts shown reflect operating results for the period during 1997 that the
assets were not owned by the Company.
23
<PAGE> 25
PAN PACIFIC RETAIL PROPERTIES, INC.
EXHIBIT INDEX
Number and Description of Exhibit
- ---------------------------------
23.1 Independent Auditors' Consent
99.1 Amended and Restated Limited Liability Company Agreement of Pan Pacific
(Portland), LLC dated October 9, 1998 (previously filed as exhibit 99.1
to the Registrant's Form 8-K filed on October 23, 1998 and incorporated
herein by this reference).
99.2 Purchase and Sale and Ground Lease Assignment and Assumption Agreement
and Escrow Instructions dated September 24, 1998 (previously filed as
exhibit 99.2 to the Registrant's Form 8-K filed on October 23, 1998 and
incorporated herein by this reference).
99.3 First Amendment To Purchase and Sale and Ground Lease Assignment and
Assumption Agreement and Escrow Instructions dated October 2, 1998
(previously filed as exhibit 99.3 to the Registrant's Form 8-K filed on
October 23, 1998 and incorporated herein by this reference).
99.4 Purchase and Sale Agreement and Escrow Instructions dated October 7,
1998 (previously filed as exhibit 99.4 to the Registrant's Form 8-K
filed on October 23, 1998 and incorporated herein by this reference).
99.5 Contribution Agreement dated September 23, 1998 with First Amendment to
Contribution Agreement dated October 30, 1998 and Second Amendment to
Contribution Agreement dated November 4, 1998 (previously filed as
exhibit 99.2 to the Registrant's Form 8-K filed on November 12, 1998 and
incorporated herein by this reference).
99.6 Contribution Agreement dated September 23, 1998, with First Amendment to
Contribution Agreement dated October 30, 1998 and an Amendment to the
Contribution Agreement dated November 9, 1998 (previously filed as
exhibit 99.3 to the Registrant's Form 8-K filed on November 12, 1998 and
incorporated herein by this reference).
24
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pan Pacific Retail Properties, Inc.:
We consent to the incorporation by reference in the registration statements on
Form S-3 (Nos. 333-63319 and 333-63743) and Form S-8 (No. 333-61169) of Pan
Pacific Retail Properties, Inc. (the "Company") of:
- - our report dated September 15, 1998, with respect to the statement of
revenue and certain expenses of Manteca Marketplace ("Manteca") for the
year ended December 31, 1997, and
- - our report dated October 2, 1998, except for the first paragraph of Note 6,
as to which the date is October 9, 1998, the second paragraph of Note 6, as
to which the date is November 5, 1998, and the third paragraph of Note 6,
as to which the date is November 9,1998, with respect to the combined
statement of revenue and certain expenses of The Mercury Portfolio
("Mercury") for the year ended December 31, 1997,
which reports appear in the Form 8-K/A of the Company, dated October 9, 1998
(date of earliest events reported October 9, 1998 and November 5, 1998). Such
reports contain a paragraph that states that Manteca's statement of revenue and
certain expenses and Mercury's combined statement of revenue and certain
expenses were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission as described in Note 1. It
is not intended to be a complete presentation of Manteca's or Mercury's revenue
and expenses.
San Diego, California
December 18, 1998
